I G Petrochemicals Limited (500199) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to I G Petrochemicals Limited Q4 and FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on of this date. These statements are not a guarantee of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pramod Bhandari, CFO of I G Petrochemicals Limited. Thank you, and over to you, Sir.

Thank you very much, and good afternoon, everybody. On the behalf of I G Petrochemicals Limited, we welcome everyone on this call. On this call, we have SGA, our Investor Relations Adviser also. Unfortunately, Nikunj Dhanuka, our MD could not participate today's earning call due to some unforeseeable event. He ask me to pass the regards to the stakeholders on the call. On the business performance, I hope everybody had an opportunity to go through our financial results and investor presentation, which has been uploaded on the stock exchange as well as the company's website. We'll give you a quick overview of the recent development in the industry and how IGPL is moving forward. Post that we like to have a one-to-one questions in terms of the -- through operational and financial highlights. In the financial year 2024, the time is of the [indiscernible] and petrochemicals has been in the [indiscernible] every year by the ongoing geopolitical crisis. Slowly recovering the major economy and [indiscernible] expanded to overall trade costs. Additional inventory stockpile at further [indiscernible] and key to destock. As a result, the growth momentum of the numerous chemical companies have been impacted throughout the year. Demand from the end user market has been mixed. The demand for the plasticizers and polymer plant remain subdued . While the UPR and [indiscernible] segment has become [ bulk ] in the later part of FY '24. Despite multiple headwinds, we are elated to say that we have closed the financial year with a revenue of around INR 2,130 crores. Due to the price and the spread volatility or profitability was impacted for full financial year. [indiscernible] there is [ value ] product, we are not only [ pioneered ] it in India, but also included our leadership position in [indiscernible] foundation. We produce Phthalic Anhydride, Maleic Anhydride and Benzoic Acid as well as the advance platicizer of DEP [indiscernible] at Taloja plant in Mumbai, near to Maharashtra. We are delighted to say that our PFI [ tender ] has successfully completed in last quarter. Post expansion capacity of PAN [indiscernible] has been expanded respectively. Based on the current price, we are expected to have an incremental revenue of INR 500 crores from PFI for next financial year. There are very few manufacturers globally that supply high-quality phthalic, IGPL is the largest [indiscernible] in India and second largest in the world. It is important to note that Phthalic Anhydride is key raw material. It can be utilized by [indiscernible] on the industry. We foresee the demand of this product to grow at a new rate of [indiscernible] between 5% to 7%. We have sufficient capability to serve and cater the market, gain by vertical application as well as raw material intermediary for many downstream chemical users. As highlighted earlier, we are actively pursuing to add new downstream products with wide range of [indiscernible] product portfolio. We plan to invest approximately INR 165 crores, excluding the GST. And expect this project to complete in the next around 18 months post [indiscernible] approvals. Both the [indiscernible] up, this project will consume around 30,000 to 35,000 tonnes of Phthalic Anhydride, in essence, more than 50% or 60% of Phthalic Anhydride [indiscernible], which we recently started will be used on [indiscernible]. The [ capital ] consumption is expected to deal in FY '26 and '27. On the operational highlights for the quarter. For the quarter ended, the total revenue, including the other income stood at INR 563 crores as against INR 611 crores. The sales from non-Phthalic business stood at INR 36 crores. Export contributed around 13% of [indiscernible] Phthalic business. EBITDA stood at INR 36 crores with a margin of around 6.3%. Profit after tax at INR 9 crores for the quarter. For the full financial year total revenue stood at INR 2,130 crores with a decline of 10%. The revenue from non-Phthalic business has contributed around INR 159 crores (sic) [ INR 156 crores ], and export contribute roughly 10% of total Phthalic Anhydride business. EBITDA stood at INR 136 crores with a margin of 6.4%. EBITDA impacted due to the lower export between OX and PAN, which continue to remain between 100 t0 150 and we see decline in the prices, some decline in the prices of many competitors. The net profit stood for FY '24 at INR 40 crores. Coming to the company's most a robust balance sheet and maintaining a working capital [indiscernible] between 20 to 40 days, which is one of the best in the industry. We anticipate this expense and we will generate healthy cash flow and further strengthen the company's position. As a part of derisking and diversification, we aim to expand our downstream derivative product to increase the [indiscernible] in the Indian domestic market, the expansion is expected to improve our operating leverage and boost our profitability and potentially increase the revenue for Non-Phthalic business. Over the past 2 to 3 years, we have made some [indiscernible] decisions to meet the rising demand of our product. These decisions are part of our holistic approach and [indiscernible] providing better value proposition to our business partners and to become a well diversified chemical company. With this, I would like to conclude the presentation and open for question answers.

[Operator Instructions] The first question is from the line of Rahul Jain from Credence Wealth.

Pramodji with regards to the pricing scenario of both our product Phthalic Anhydride and OX and the spreads between 2, how has it been in the quarter gone by? And given the current situation environment, how do you perceive it to be in the next 2, 3, 4 quarters?

So for the quarter gone by, Jan and Feb was the new quarter because it's continued from November, December, Jan, Feb and we have seen the recovery in the start of March, which -- and will further improve in April onwards. So we -- earlier the margin has gone below $100 around $60 to $70. Now it has come back again to between $150 to $160, $170. So I think we have already made the bottom. Now we are on a recovery path, and we see gradually there is an improvement in the margin.

So are you saying the spread is currently around $150, because the previous quarter con call that it was around $100 to $120. That $100 to $120 has moved now to $150?

Net for not for the quarter, but it has moved gradually from March onwards.

Okay. And sir, with regards to our PFI, how is the capacity ramp-up happening? We started this plant somewhere in February. So the utilization [indiscernible] the stability have [indiscernible].

I think utilization and everything is fine. I think we will be able to achieve in current quarter the utilization of that plant and utilization will not be challenged. However, there are something in terms of the change in the [indiscernible] and the government requirements, you need to take them down on 1 or 2 units in the next 1 or 2 quarters. But for PFI, we will be able to reach a 90% to 91%, which is the optimum capacity.

So this year, for this 53,000 tonnes plant for FY '25, can we expect a utilization of around 85% to 90%.

Between 70% to 85%.

Sorry?

Between 70% to 85%.

Between 70% to 85%. And sir, with regards to starting this plant, the overall cost of operation both the fixed and the variable. The operating cost of Phthalic Anhydride. How has it moved from before starting of this plant and after starting up this plant?

Conversion cost, which was on $100, was reduced by around $10 to $15 per tonnes. I'm talking about the conversion cost, because the fixed cost has to be divided between all the 5 plants compare to the 4 plant. However, in terms of the depreciation and in terms of the finance cost because the debt which we have raised for this purpose will be reflected in the balance sheet as we started reflecting in balance sheet and from [indiscernible] onward. So typically, we see the full reflection of that, the depreciation, which was INR 42 crores to INR 43 crores. Now full year depreciation is around INR 60 crores. Typically, the finance cost was INR 67 crores, now it will be between 9 crores to INR 10 crores quarterly and annualized INR 35 crores to INR 40 crores.

So when we say conversion costs, it will be between the spread and before the EBITDA. Is that -- sorry, before the depreciation and finance cost? Is that correct?

No. Fixed costs, when I'm saying conversion cost [indiscernible] required to convert the material remittent from final product. It doesn't include the fixed cost like rental, administration costs and all that, conversion cost bulk all the catalyst or energy cost, repair maintenance, which is incurred actually at factory level.

And sir. So along with the fixed cost, we'll have another $40, $50 per ton of fixed cost to be added to the conversion of $90, $95.

100%.

Okay, okay.

I think in next quarter results, we will be able to see full reflection. Because the last quarter, the PFI capitalization had started from 12th or 13th Feb onwards.

And sir, with regards to the scenario, how do you compare this cost versus our competitors, both domestic and globally?

I think for IGPL, we are one of the lowest cost producer, not only because of the conversion costs, but also for the other like finance costs for routine [indiscernible] company of INR 2,500 crores revenue. Finance cost is also, if you benchmark it is 50% of that. And the total fixed cost, which all the plants are at single locations to entire fixed cost is [indiscernible] among the 5 plants. And then for more or less excess 5 to 10 [indiscernible]. So in terms of the overall costing, we are one of the lowest cost producer and our repair and maintenance cost is also one of the best in the industry. Because we have come all the new clients based on the [indiscernible] technology and [indiscernible] .

Okay, sure. Sir, last one question on the global scenario on Phthalic side. We have been reading reports on 2 fronts. One is the naphthalene-based production since naphthalene prices have been going up. So typically, some of the plants more so in Taiwan have been facing issues in terms of their cost of production. That is on the naphthalene side. And on the other side, we are also hearing about closure of plants. So one of them being [ Aekyung Petrochemical ] that was supposed to close down in April and also Mitsubishi Gas also has plans to shut down the Phthalic. So can you give some more details about the kind of capacity getting closed?

So basically, when the Phthalic price goes or margin goes below $100, we see a lot of drive in the international market, your conversion cost is around $150, they are not able to sustain. However some guys who are operating in naphthalene, because the gap between naphthalene and [ benzoic ] was wide spread between $250 to $300. So a lot of guys who has a Phthalic plant based on naphthaline, who are the marginal player, whenever there is a gap increase, they cut in the production now because of the change in the naphthalene prices and increase in that, but margin or the production will reduce. Number second, generally, the players are into the China side. Chinese government because of the pollution and all that is happy, very sharply on these guys because they create a lot of pollutions. But it is not a technology efficient way of production of Phthalic Anhydride. In fact, Indian government is also looking at setting a best standard to not to allow naphthalene-based Phthalic to enter into India. And the overall scenario looking promising because now the demand is also going up in the domestic market with all the sectors, which we are catering from the last quarter compared to last quarter, all the segment paid bank, [ CPCs ] every sector has shown [indiscernible] a good growth in this current quarter -- last quarter ended FY '24.

The next question is from the line of [indiscernible] from RoboCapital.

So first question is and what year can we expect to reach the INR 3,000 crores mark of revenue? And again, and when can we expect to reach 15% of margin? That's my first question.

So revenue, I can tell you, but margin, which all depends on the market. The revenue, I think we will be expected to complete the plasticizers project between September to December 2025, next year. So from 15 to 18 months from now, which -- for plasticizer still normal basis, we'll add INR 900 crore revenue, but you need to reduce the Phthalic, because Phthalic is what is internally consumed from existing plants to the plasticizers plant, so net revenue will increase by INR 500 crores. So today, we have a roughly INR 2,100 to INR 2,200, INR 450 crores, INR 500 crores is added because of PFI. And another INR 500 will take around INR 3,000 crores to INR 3,200 crores. So for FY '26, '27. Full financial year, we see the revenue crossing INR 3,000 crores. For margin, I think it's a matter of the demand/supply, international market, you can't control the margin sitting in India. Because India is less than 5% of overall market. However, whatever is the international market margin, i.e., because of the operating efficiency, because of byproduct like benzoic acid and now [indiscernible] is making around $100 over international market margin. So guidance is always relative rather than the fixed, because it's a link with the international market wise.

Sure. But any guidance on maybe then just FY '25? Or what are the margins looking like?

So I'd not like to give any guidance right now, because we have just seen the recovery in the March month, which is still now into the up trail in May. So let's look -- I think it will really wrong to give the projections for 10 months, maybe after 1 or 2 quarters, we will have more clarity going forward.

Okay. Sure, sure. And the next question is regarding our debt guidance for next 2 to 3 years, what are we looking to repay and then overall, basically, guidance on better?

So, right now, we are landed 0 and because the cost of funding has gone up slightly in some INR 1 loan case to intend to repay around INR 50 crores in next 1 or 2 months. So balance debt average cost is around 5.5% to 6%. And we continue to maintain debt as the mix of debt and liquidity, because if you are making 7.5%, 7% to 7.5% to 8%, in [indiscernible] we are close to 5.5%, it makes sense. Whenever the cost of debt cross 7.5% to 8%, we feel that it's the right time to [indiscernible].

Okay. Okay. And one last question. So what are the PAN spreads looking in FY '25 and '26, what are your thoughts on that?

You're talking about not '24, '25, you're talking about '25, '26?

Overall FY '25 -- '24, '25 and '25 - '26 as well.

So I think I won't give you any guidance for the margin. But in general, if you look at the market for the last 10 years, margin moved between $100 to $400. So it is advisable not to look at the quarterly margin. Look at the average of 5 years, which generally coming around $150 to $200. Last 10-year average, we could take it is between $150 to $200.

Right. And we are looking to maintain that as well, right, for next 1 to 2 years?

Compared to the market. If market is $100, we will have between $200 to $220. If market is $200, we will be having between $300 to $320, gross margin, I'm talking about.

Okay. Got it.

$100 over and above the market.

The next question is from the line of [ Aditya Khandelwal ] from Securities Investment Management Company.

Sir, if I've to understand the total world capacity of Phthalic Anhydride, how much will be from naphthaline, how much would be from orthoxylene?

So typically, 75% to 80% capacity is based on the orthoxylene and around 10% to 15% majorly in China is based on naphthalene. Naphthalene is not naphtha, which generally people correlate it. Naphthalene is the byproduct of [ steel pipes ]. It is not naphtha. It is naphthalene which is a byproduct of steel. And this naphthalene used to produce and there is a wide gap between OX and naphthalene. This is not the efficient technology plus it is more polluted and the conversion cost is much higher than the OX converstion to chemicals.

Sir, you mentioned [indiscernible] shutdown capacity, which are manufacturing from naphtha base, but have you seen shutdown in capacities which are based on orthoxylene?

There are some, because it needs to be looked at not an individual plant, but overall capacity as a part of global strategy, its global players look at they are refined, become petrochemical and they even decide whether they need to run it across some of the players taking the temporary set down, some of the players decided to permanently set till is an improvement in the market. It all depends -- but naphthalene, we have seen that now one of plants are planning to close. One because of pollution and second, the prices of the naphthalene have gone up.

Okay. And sir, in terms of [indiscernible] domestic scenarios, what would be our capacity currently after this expansion for Phthalic Anhydride?

We have the capacity -- we already have a capacity like 75,000 tonnes of Phthalic. Around 8,000 to 8,500 tonnes of Maleic Anhydride and 1,000 to 12,00 tonnes of Benzoic Acid and 8,400 tonnes of DEP .

And what would be the capacity of a competitor? And another customer, which are backwind integrated into manufacturing targets, so in total...?

New customer enter into the market. I understand the capacity around [ 90,000 tonnes ] and what I think they have between [ 100 to 150 ]. They have not [indiscernible] any of the capacity, but I understand. 120 to 130 is there capacity right now.

Okay. So the domestic capacity will be around 6 lakh tons for India, right?

Not exactly. 330 and 375, around roughly 550 to 600.

And what should be the total domestic consumption currently in India Phthalic?

It's between 500 to 550.

And what is the percentage of imports generally happens because we saw a dip in imports bearing...

Typically import are around 10,000 to 12,000 per month. But one year downstream has done the backward integration. So we saw that import. Now the import is around 3,000 to 4,000 tonnes per month, which is half from earlier import, because once you started all facilities you don't need to import it.

Sir, generally the import spread with the import that we have made and what we make, is there a big difference?

No, -- there is no difference. Generally the smaller players or the medium players can't import, because the logistic cost typically is very high. So when we are importing, we need to import in a big quantity, so generally, imports are not done by any of the small player or medium player. Big players used to do, right now also, it is coming from China, Taiwan, Korea, but very small quantity, now 3,000 to 4,000 tonnes. But we also export around [ 10% ] to 15% of our product. So it creates equillibrium in the market.

Okay. And sir, just one question. So with so much capacity coming in on Phthalic in domestic markets, do you foresee a situation that the spreads would remain lower than usually, because of so much capacity coming in and the demand not meeting the supply? So [indiscernible].

I understand. First, I understand that. First [indiscernible] that the margin is not linked with the Indian demand supply and capacity, right, diesel as well as gasoline. The margin is $20 or $30. That is the line produce higher, lower in any difference to the international market margin, no, because in [indiscernible] it is less than 3% of total capacity, similarly also the margin is determined by the international market side. You may have competition. You can always say that the over the international market margin, if there is a competition, you make $80 or $100, $120 or more the market.

Understood, sir, understood. And sir, what was the capacity prediction for us this year? Are we reoperating at 100% utilization?

We are operating roughly 85% to 90% of our mix -- but some of the units will need to take every year the sentence for changing the catalyst or with general repairing maintenance. And sometimes, you need to [indiscernible] on the model inspection, because there is a valuation where you need to have an inspection every 3 years from the [indiscernible], so may it not that every year, 1 or 2 quarters we [indiscernible] cutdown for [indiscernible] for inspection normal between retain and maintenance as well as we look at it.

The next question is from the line of Nirav Jimudia from Anvil Research.

I have 2 questions. Sir, first on the plasticizers side, like we have been putting up the capacity of DOP, DINP. We already have DEP. So if you can just help us the application-wise where these products would be going? Who are the competitors or the other producers of the same product in India as well as whether the margins should be better than our existing DEP? So some [indiscernible] on that could be very helpfil.

So basically the plasticizers is less capital intensive project, where you spend INR 150 crores to INR 170 crores, while your revenue will be INR 900 crores. So when you look at the overall margin on the revenue, it is 5% to 7%. But when we look at INR 900 crores, 5% to 7% of sales it is less than 3 years. The capital turnover ratio in the plasticizer is very high. By spending INR 170 crores, we are getting INR 900 crores revenue, which is more than 5.5x and that is one. As far as from the IGPL, which is setting up plasticizer projects, you will start with plasticizer. There are other players, bigger players in the market like [indiscernible] and IGPL is the third largest player after setting up the capacity. We are planning to set some general plasticizer like DEP and then some specialized [indiscernible]. So overall, when you look at margin, it ranges between 5% to 10%. But we look at from the product period point of view, or a point of view, which is very lucrative because revenue multiple compared to the CapEx is 5x plus. And in terms of demand, I think India is self-sufficient. The demand is growing between 7% to 8% for the plasticizer and indirectly leading the Indian economic growth. India continue to grow at 7% to 8%. It has been one of the correlation. So it continues to grow, and it has multiple uses in the application. Everywhere you can see the plastics, rubber [indiscernible] the road infrastructure, construction, pipeline, rubber everywhere this is the plasticizers have been used.

The next question is from the line of Aditya Khetan from SMIFS Institutional Equities.

Sir, first question, as we all -- as it was rightly mentioned that there are some capacities globally, which are getting shut down in March and April, which has led to like a spread improvement. So the spread improvement is based on this -- so this phenomena or the demand itself in the system has gone up?

It's a north way once the margin goes down some of the capacities which are margin and it has a converting cost higher than the margin, then they tilt to sit down. Number second when they come down, then it creates [indiscernible] the market. And when the demand come up, then we see that there is not much supply available, then automatically [indiscernible] see the improvements. This is a typical cycle for all type of commodities as well as chemicals. If the margins are too low, sometimes it will come down. Then demand will go up over a period of time, and we see the gradual improvement in the margin.

But sir, what is this capacity? So the -- so now the global spreads have moved up. So what is this capacities now restart? So can we assume that a spread could remain constant or there is a risk, again, it can go down?

I think the overall demand has impacted because of the geopolitical issue, because of the Russia Ukraine war and other geopolitical issues. And deficiency of the gas in the German market because a lot of customers to whom we are selling our product, they sell to Europe. Now we have seen like in [indiscernible] to sell 40%, 50% production and obviously dumping the demand for second quarter. Now we have seen they have again come back to 80% to 85% of capacity. And we expect demand to continue to remain robust from European market and [ international ] markets.

Got it. Sir, on to the capacity expansion, so net revenue addition, you mentioned that is around INR 1,000 crores. Sir, if you can recalibrate how this INR 1,000 crore figure will be added to the top line?

So it will be around INR 450 crores of Phthalic, around INR 50 crores of Maleic Benzoic Acid and INR 900 crores will be the various type of Plasticizer. But you need to reduce INR 400 crores of Phthalic which will be used, so net Plasticizer will be INR 500 crores, INR 450 crores will be Phthalic and INR 50 crores Benzoic Acid and Maleic Anhydride.

So for Maleic Anhydride, you said it would be INR 100 crores to INR 150 crores.

It is INR 50 crores, not INR 100 crores. I'm talking about incremental. Right now, the capacity is around 8,000. Today, the Maleic Anhydride prices are again 20% lower than Phthalic. So overall realization is lower. Typically historically it is 20% higher than Phthalic. Only there is improvement in the Maleic prices based on the external benchmark. Our EBITDA will go up by INR 25 crores to INR 30 crores.

Got it. And sir, this 30 to 35, so this figure of 35,000 tonnes PAN consumption, how much is the ratio like at peak utilization, we are expecting -- so 35,000 tonnes of PAN will be consumed.

If we are operating at full capacity of 75,000 tonnes, so it's typically 32 to 33 is the conventional Phthalic, but it depends upon what combination we are using. DEP has a different ratio. DINP has a different ratio. I'm telling the weighted average, 30% to 35%.

The next question is from the line of [ Mohsin Shah ] from Antique Stock Broking.

I have a couple of questions. One is also sourcing of your raw material over the [ Xylem ]. So at full capacity from where are you sourcing this raw material?

Typically we source around 15,000 to 16,000 tonnes from [ Reliance ] and around 5,000 to 6,000 tonnes we are importing from the international markets.

And what is the scenario, sir, for this Orthoxylene since there will be further capacity coming up in India. So do we have enough supply of Orthoxylene or the dependence on import will increase?

I think right now, the capacity which we are operating, it will be sufficient for the existing players, but if you are adding a new plant, you need to import because the new capacity has been added. Although some spare capacity they have, but it depends upon when they will start. So in the time they start, it is their call, ultimately, beyond that in general answer, we are importing typically 3,000 to 5,000 tonnes a month. So now we need to look at that if there is a further requirement, we need to import it, and it is easily available in the international market.

And any of the Orthoxylene capacities are coming up globally, sir?

In global market, there is no separate Orthoxylene capacity or [indiscernible] player who has a refinery from petrochemical. They are producing Orthoxylene. So Orthoxylene will not expand their own capacity. It's part of refinery from petrochemical complex.

Sure. I understand. But is the -- within that petrochemical cycle, would Orthoxylene also be produced more? I just wanted to understand that.

I mean right now sufficient quantity of Orthoxylene is available. There is a way through which we can increase the ratio of Orthoxylene because the Mixed-Xylene converted from the NAFTA go into para-xylene and Orthoxylene. If there is demand enhancement, somebody will put the refineries we don't have right now the PX and OX. They can set up the unit as a part of the petrochemical complex help produce OX and PX. OX is around 15% to 20% and PX is around 70% to 75% when we set up newer plant as a part of the [indiscernible] conversion into PX and OX.

And secondly, sir, I wanted some update on the user industry. So currently, what is paint and nonpaint for Phthalic?

Paint is roughly 10% to 15% or sometimes 20%. CPC is around 15% to 20%. So paint, CPC and Plasticizer [indiscernible] 50% to 60%. Balance comes into the DEP, specialty UPR, which [ comprises ] 20% to 25%.

So paint is only 10%, 15% right now.

15%. It's moved between 15% to 20%, depending upon the season. In [indiscernible] season when there is [indiscernible] season, like April, May, June, paint has a good demand because they're in the process of production of paint, which is easier to [indiscernible]. CPC and the plasticizer have demand throughout the year, especially they also have a demand in the second half of the year.

And 2 more questions, sir. One is with regards to suppose if we have surplus capacity in the domestic market maybe 1, 2 years down the line, what is the export market that you're looking at like [indiscernible] and the margins?

We typically export around historically 20%, but right now, 10% to 15% we export depend upon assuming the target area for that is Middle East, sometimes to Africa [indiscernible], generally 80% is Middle East and balance 20% is other areas.

Okay. And the margins in exports case?