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

Ladies and gentlemen, good day, and welcome to the I G Petrochemicals Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. Please note, 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 date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Pramod Bhandari, CFO from I G Petrochemicals Limited. Thank you, and over to you, sir.

Hi, good afternoon, everyone. Thank you for joining us today. On the behalf of I G Petrochemicals, we extend a warm welcome. We are also joined by SGA, our Investor Relations Advisor. I trust that you all had an opportunity to review our financial results and the investor presentation, which is available on the stock exchange as well as the company's website. We will begin with a brief overview of recent industry development, IGPL progress in relation to our new projects and followed by operational, financial highlights. Over the last few quarters, the global chemical industry has navigated a difficult environment with the challenges such as the volatile crude price, rising trade cost, subdued demand from western market for key chemicals. Many leading Indian chemical manufacturers especially those with the high export dependence and commodity product portfolio or reliance on the raw material from Western side, Europe, China, has significantly impacted. The uncertainty around the U.S. tariff has also been added to the pressure on this sector. At IGPL, we are extreme -- while these external headwinds didn't directly affect our core operation, given the majority of our product, we are selling in domestic market or within the radius of 200 to 300 and few portions, 10%, 15% we are selling in the export market. However, certain downstream industries we cater to did have experience of some slowdown. Additionally, our performance this quarter was impacted by rupee depreciation and compressed margin. That said IGPL stands on a strong foundation, renowned for our operational efficiency, we are one of the lowest cost producer and largest producer of phthalic in India, second largest producer in the world. Over the years, we have built a reputation of excellence in producing high-quality phthalic anhydride and a versatile product used across multiple end users like paints, plasticizer pigments, polymers, coatings. The domestic demand for the phthalic anhydride is expected to be around 5 lakh to 5.5 lakh tonnes, and which is currently growing at between 5% to 6% per annum. With commissioning of PFI plant, the total capacity of IGPL today for phthalic stands at 2.75 lakh tonnes. As a part of diversification, as discussed earlier, we have committed INR 165 crores to set up a greenfield plasticizer project with a capacity of around 75,000 tonnes, which can be extended to 1 lakh tonne. This facility will produce a range of plasticizer, including DOP, DINP, DBP, DIBP and will internally consume -- which resulted into internal consumption of 30,000 to 35,000 tonne of phthalic. We expect that plant to commission by December 2025. We are also taking a meaningful step towards a sustainable energy economy and setting up the compressed biogas and the pyrolysis plant in Raichur, Karnataka. The CBG plant is currently under implementation while pyrolysis is just in the process to getting the construction started. The CapEx of the pyrolysis plant is around INR 16 crores, which will convert most type of plastics available in the market into the fuel oil through the chemical recycling. In parallel, we are improving our operating efficiency and reducing our carbon footprint by integrating the solar power and other renewable energy solutions in our existing facility. We have also initiated phased replacement of conventional fuel through LS -- which is the LSFO and diesel with the natural gas at our existing plant. Looking ahead with these strategic initiatives, our expansion into plasticizer foray into the green chemistry and sustainable driven investments will open up new growth revenue, build new capacity and deepen our customer relationships. Combined with our proven operational excellence, they will put IGPL in a scalable long-term growth trajectory. Now coming to our financial performance, the total leverage stood at INR 481 crores compared to INR 594 crores, mainly due to the lower production and the sales. Revenue contribution for the non-phthalic business stand at in the current quarter Q1 FY '26 at INR 35 crores. Gross profit was at INR 102 crores, EBITDA was INR 13 crores. On profitability, our quarter 1 was largely impacted because of the INR 18 crore provision of MTM on our euro loan, which was INR 15.3 crores included in the other expenses and INR 2.68 crores was a part of financial charges. And then there was some overall compression in the margin that has affected the overall financial performance. With this, I will conclude my presentation and open the floor for the question and answers. Thank you.

[Operator Instructions] The first question is from the line of Aditya Khetan from SMIFS Institutional Equities.

Yes, sir. Just a couple of questions. Sir, during the quarter, I believe the volumes are lower. Any particular reason, sir? Like I believe last quarter also, there was a shutdown. And this quarter also, the volumes optically look lower. Any reason, sir?

So there was some planned and some unplanned shutdown in our existing plant facility. That has resulted into the overall lower production which was, I think, around 45 -- or less than 45,000 tonnes. And similarly, the sales was also in similar quantity. So typically, we are expecting between more than -- slightly more than 50,000 tonnes on per quarter basis. But this time, it was 10% lower.

Got it. So this compression in gross margins is a function of lower volumes coupled with lower spreads?

So two things, yes. First, the volume was typically has to be around 50,000, which was 10% lower. And second, there was a compression in margin. And third, which is the EBITDA, mainly impacted because of INR 18 crores or INR 18.5 crore of provision of MTM. As you know that more of our debt, which is EUR 22.5 million is in euro, and euro has moved from EUR 92 to EUR 98. So this has resulted that we need to provide the MTM provision in our financial statement for the quarter ended June '26.

Got it. Sir, this MTM, which we are talking, I believe you had mentioned that it is a euro loan. And sir, like every now couple of quarters like this number of MTM is coming. So do you attribute this as a one-off or it would be a recurring number, which would come every now and then as per the current...

I think we, as a management, have decided to dilute probably 50%, 60% or 70% of our debt from euro to the rupee currency because now the rate in rupee is also reasonable. And with global uncertainty, you never know what type of movement between dollars, euro and rupee will happen. So we will be subsidized in probably next month, more than 60% of our loan from euro to Indian rupee. We will not be going forward -- going forward, you will not see that much, right.

Got it. Okay. Okay. Sir, into the annual report when we checked, so the euro loan figure was somewhere around INR 230 crores, the total loan, out of which sir, so INR 50 crores was the payable. So the actual which is coming it is on this complete amount, this INR 230 crores?

So let me complete. The total debt amount is around INR 227 crores. Out of that, the net in the balance sheet because we have prepaid certain debt of one of the lenders, INR 35 crores to net. If you ask me the total debt in the balance sheet on the June was INR 197 crores, which includes, I think, except one loan, most of that was in euro. And I think out of EUR 22 million, we will be -- EUR 10 million to EUR 15 million, we will be able to convert in next 1 month.

Okay, okay. Got it. Okay. Sir, on to the operational part. As I believe -- so plastics as a plant is now delayed by 3 months from the earlier plan. Any sir, clue onto the numbers, how we are looking at revenue EBITDA and bottom line for '26?

Again, the thought processes will be starting the trial run in August and September. But because of some delay in the approval, the approval from the statutory authority, it will be starting now -- it will be having a commissioning the operation by December. It is 2 to 3 months, but in a big project like that, 2 to 3 months is normal. It's subject to the various approvals which you need to get. We plan that I think it will be ramped up in April -- Jan, Feb, March. You will be able to see a good amount of utilization beginning from April '26 onwards. The overall revenue at the peak capacity will be around INR 1,000 crores based on today's price of the various plasticizer which we are planning to produce. And that level margin is expected between the -- I am talking about the gross margin between 10% to 12%. When I'm saying margin 10% to 12%, it imply and indicate that we will be transferring the phthalic anhydride at the marketplace.

Got it. Got it. Just one last question. So compared to Q1, like current spreads, are they better like compared to the historical average or are they in similar lines? And sir, what number are we looking for FY '26 EBITDA?

So I will not like to comment on EBITDA specifically. It is whatever is the market margin, we will be having $100 to $120 or above. I believe from next quarter onwards, we will see 50,000 tonnes plus volume every quarter. And I think because of the compression in the overall production for the last one quarter, which is the Q1, our target for the year will be between 2.05 lakh to 2.10 lakh. When I'm saying 210,000, 5,000 to 6,000 will be internal consumption and around 2 lakh to 2.05 lakh tonnes will be the annual sales volume for the phthalic.

And sir, on to the spread part commentary, current spreads, how are they like?

Spread right now has improved. It was around $100 to $110 on the last quarter. It has improved between $120 to $150. But spreads are moving between $100 and $150 for quite some time, and there is a movement of $20, $30 every quarter. So it's very difficult to pinpoint, but these are the bottom out. It can't go below $100. If it goes, it has to come back because then for most of the plants, it will be unviable to produce.

The next question is from the line of Riya Mehta from Aequitas.

So the first question is in regards to the spreads. So I think last quarter, we said that it was around 150 to 200. So what I am guessing is now from 150 to 200, we are something around 100 to 150?

So typically, it's a function of the overall demand supply scenario in the international market. While the domestic demand continues to remain same, which is robust, and we are selling most of our products, 90% in domestic market, 10% is generally exported. But for I G specifically, first, the margin was between $110 to $120. The second, the volume was low. And third, because of the MTM provision we have taken, that has resulted into the compression in the margin. Otherwise, it's a function of demand supply in the international market. When I'm saying 100 to 120, it is the margin in international market, not for the I G.

So my question was more in terms of a sequential basis, it has fallen from around the ballpark 170 to 125?

Yes.

Got it. My second question is in terms of that if we are guiding for 2.05 to 2.10, then on a quarterly basis, we will be doing more than 55,000?

So when I'm guiding for 2.05 to 2.10, that means we will be having a 2.10 lakh tonne production, 5,000 to 6,000 tonnes will go for internal consumption and around 50,000 plus for the next 3 quarters, every month, every quarter.

Also, we have taken a shutdown in Q4 only. So what happened because I think in Q4, we are pretty confident that there will be no shutdown this year. So what happened in Q1?

Q1, there was some unplanned shutdown and the planned shutdown, which we have taken because we are integrating our existing natural gas because we are planning to replace the fuel, LSFO and diesel with the natural gas. So there was some integration of that pipeline happened in one of the plants, then we need to take some certain shutdown. We are planning to use to replace the existing fossil fuel, 80% of existing fossil fuel with the natural gas, which will save INR 5 crores to INR 6 crores on an annualized basis. So that was the reason. There are a lot of technical things, but main reason was the integration of the pipeline.

Would you say INR 5 crores to INR 6 crores in other expense this year annually for us?

No, not for this year. It gradually go up in this year, but '26, '27, we will see the saving of INR 5 crores to INR 6 crores because the LSFO and the diesel will be replaced at all the points with natural gas.

Right. And what number of days was the plant shut?

Plant was shut around 20 to 22 days.

20 to 22 days. And in terms of demand, how is our situation panning out? Because of what I -- globally also, we are looking at a little -- the kind of growth has been a little subdued.

So if you ask me as such, in domestic market, I have not seen any impact. We are able to sell the similar type of product which we were selling historically into the domestic market. When I'm saying domestic market, it includes the domestic players, the SEZ player and the EOU player. However, there are some light concerns or you can say the demand, which I have seen because of the U.S. uncertainty in the duties. As such, I G doesn't have any direct impact because we don't sell to Europe and U.S. market. We sell to Indian market and generally Middle East and Turkey -- Middle East, UAE and Turkey market. But some of the downstream players who are selling outside India, say, in Europe, China, they are rightly right now in an uncertain phase because there is no clarity in terms of what duty. And even today, when the Trump has announced the duty, the product-wise duty has not been announced. So it will be a product -- in chemical also, there are 300 products, certain -- like in pharma, out of 300, 280 was exempted because they believe that as the assets they need. So similarly, in chemical also, they need to come back with the list, what are the products are exempted, what are the products they need to have a duty. So that uncertainty actually may impact some downstream because I think some of the UPR and pigments are going to Europe and U.S., particularly. Otherwise, in terms of Indian demand, I don't see any problem for the pthalic per se and other areas like paints, plasticizers, CPC, they all are growing very well.

Okay. So paint and plasticizers which form almost around 40% to 50% of our revenue and we don't see any much impact there, right?

Not exactly. I will tell you the percentage-wise, the paint is around 15 -- 20% to 25% and then plasticizer and UPR and especially chemical around 20% to 25% and balance is the CPC segment, which is also 20% to 25%. All 3 segments comprises around 70% to 75%. Balance are all other segments. So as such, in some season, some of the players, say, plasticizer in the rainy season, demand will be low -- sorry, paint will be low, plasticizer will be high. In another season, the paint -- there is equilibrium because every seasonal, some demand is going up, sometimes is subdued. So accordingly, overall, I don't see any overall impact in the domestic market. In fact, if you ask me, July, August, September is very good in terms of demand. Indian is intact. Global market, we need to see how it pan out in the next 1 or 2 months.

Right, right. As our peers have also reported losses. So I suppose this was on account of reduction in crude prices. And do we see the spreads increasing from around 100, 120 to, say, 150?

I think spread is already coming up. Next quarter, I expect it has to be between 120 to 150. I think I'm not worried about that much about the spread because overall, it has to come above 150 because generally for most of the players, below 150, it will not make commercial sense to produce. I G because of operational efficiency, byproduct are able to do that. But in general, it has to be above 150 and between -- average has to be around 200.

Are you seeing any cutdown of production capacity by your peers because of loss-making at these spread levels?

So production capacity, I mean I don't think because India has a demand of 5 lakh tonnes, 5 lakh to 5.50 lakh. I G produce right now around 2 lakh tonnes and other players also provide around 150 to 180 and then one player is also producing around 70, 80, which goes more from the consumption. Even at that, India is importing. If you look at the overall import in India, it is 16,400 tonnes last quarter. That means still India is importing 50,000 to 60,000 tonnes every year. So demand in India is not impacted. However, if we are not able to produce at optimal capacity, import will happen in India.

Exactly. So my point, what is the current spread level when the domestic players, apart from I G, who has an operational efficiency are not able to -- are making losses. Do we see them taking similar production cut or maintenance shutdown earlier to reduce the volume?

So let me correct. I G is not making losses because of operations. It is because of MTM -- it is because of INR 18 crore MTM, that also we are correcting in next probably 1 month. Next 1 month, you will see -- you will not find after that, there is any MTM charges. Because of global uncertainty -- I don't want to comment on the players. I'm talking about I G. Of course, the margins are compressed. But even at that margin, we can make good money. If we have a good volume, if our 5 plants are operating, which we expect from September, October, it will be, 5 plants are operating at similar margin, we will make around annualized INR 100 crore plus tax, current margin, which is the lowest point. We expect margins to improve, then our profitability will also improve accordingly.

Of course, of course. I was talking in terms of if we are seeing a consolidation in the industry with the supply going down...

I think already, there are 3 players only. There is no other player. So I think industry is already consolidated in that sense.

The next question is from the line of Rohit Sinha from Sunidhi Securities.

One is on the other expenses, as you mentioned that there is MTM adjustment. Apart from that, I think power cost is also in other expenses. How much was the power cost last quarter and in this quarter, if you can mention, sir?

I will give you energy cost. I don't have a separate breakup of the power cost. Energy costs for the last quarter was INR 16 crores. This quarter, it was INR 17 crores.

So this increase, as you have mentioned that plant was shut down and...

That is not having direct impact because it's linked with the LSFO and this. And the shutdown has no direct impact on the energy cost because it remains in the range of INR 60 crores to INR 61 crores annualized basis for last so many quarters. And it had an impact on repair and maintenance last quarter, when it was INR 12 crores. Now today, the current quarter, it was INR 6 crores to INR 7 crores, which is in line.

Okay. Got it. And on the power side, only your energy cost only, any plan to reduce this in terms of adding renewable source or something to cut down the power source because...

So there are 2 points. First, whatever is the power consumption, I think 75% to 80% is the in-house waste energy, which is used. 10% to 20% power is the external, which is the government power, use of LSFO and the diesel which we are using, and that is the costing which you are seeing it. Now from that also, we have started the solar power long back 2 years back, we started the solar power plant, of course, for a small quantity. Now we are increasing that capacity. Second, we are inducting the natural gas in our -- all the plants, which has started for the last quarter and probably in next 1 year, you will see the ramp-up. So the cost of energy, which is coming today around INR 60 crores, you will see a saving of around 10% or slightly higher than that because the replacement of natural gas with the LSFO.

Okay. Okay. Got it. And secondly, on the overall profitability side, I mean I was just looking at the quarterly trend, what we are making around -- I mean if we make 50,000 plus kind of volume and with a decent spread, we end up somewhere around INR 40 crores, INR 45 crores kind of EBITDA. This quarter, if we add back that INR 18 crore adjustment, we would be in that similar range. But going forward, I mean in case the -- I mean, we are not able to achieve this INR 40 crore kind of a run rate in the EBITDA front, are we in a position to look for the CapEx plan, which we have planned for all these plasticizer or compressed gas thing? Would there be any increase in the debt side further in case? I was just looking at the capital requirements, maybe if we are not achieving to that kind of profitability angle.

I think I'm not worried about that because profitability, if you remove the MTM charges for the time being, overall company is making a cash flow for the last -- let me give you an example of last year. Last year, the PAT was INR 112 crores and depreciation was INR 65 crores. So we have made around cash flow of INR 170 crores to INR 180 crores last year. We expect this year, it has to be better, but it all depends upon how we ramp up the capacity of plasticizer and how we are operating our plants. Plants are world-class. Demand is there in the market for 70%, 80% of our product, 20% is the export or eventually in October, if you go to plasticizer. If we operate at a full capacity, I'm talking about all 5 plants, including plasticizers, we will be having a revenue between INR 3,200 crores to INR 3,300 crores. At that level, even if say conservatively, our EBITDA moved between 12% to 18% or 20%. Even at 12%, it will have a INR 400 crores of EBITDA. Even if you take 10%, it has INR 320 crores EBITDA. So the challenge is happening is 3 front. When you are saying and looking at this particular quarter, first, the margin was compressed. The second point was the maleic prices has also continued to remain low, INR 830 to INR 840, which is supposed to be INR 1,000 plus. Third point, the volume was lower. And fourth, which is the most important point is all the expenditures, all the expenditure of 5 plants, like depreciation, INR 16 crores is for the 5 plants. It is there. All expenditures like employee expenditure, the repair and maintenance expenditure, all expenditures are put for 5 plants, where we are operating less than 4. So that has also impacted the profitability. If volume improves and margins slightly improve, everything will be fine in terms of profitability.

Got it. Okay. And just INR 3,200 plus top line which you are talking about, so this is when we are operating full for our 5 plants and plasticizer, which I think would be in '28 because plasticizer would also be...

It will be '26, '27, not '28. '26, '27.

Okay. Okay. So FY '27, still we are holding on to that INR 3,000 plus top line?

Yes, yes. It will be INR 3,000 plus. Otherwise, plasticizer will not be operating. You need to operate these plants consistently to feed to 70% of additional requirement of plasticizer.

The next question is from the line of Renuka from First Water Capital.

So just on the other expense side, again, if I see on a year-on-year basis, it has increased by about INR 20 crores. So like Q1 FY '25 it was INR 47 crores, which has gone to INR 68 crores this quarter. So INR 15 crores is attributable to the mark-to-market loss, what is the balance? And given the fact that this cost will not be there going forward, plus we have power cost savings, so will this run rate go back to the INR 45 crores quarterly?

So typically, it is INR 45 crores only. Even for this quarter, particularly, the repair and maintenance, I will give you the breakup. Employee cost last quarter was INR 26 crores. This quarter, it was INR 24 crores. Energy cost last quarter was INR 16 crores. This quarter was INR 17 crores Repair and maintenance cost last quarter was INR 12 crores, this quarter, INR 7 crores. Sales cost is INR 11 crores, INR 10 crores. The only changes happen in the foreign exchange because foreign exchange in the last quarter, INR 6.65 crores. This quarter, it's INR 15.31 crores as an MTM we have provided in the other expenditure and the INR 2.65 crores is on the interest expenses. So the expenses of other expenses which you are looking at, which include the MTM, that's why it looks slightly out of way. Otherwise, generally, all expenditures are similar. There is no change, except the last quarter when the repair and maintenance was higher because typically, INR 7 crores to INR 8 crores was a quarterly run rate last quarter was INR 12 crores, so everything is in line. I think MTM, which we are targeting to sort out in next 1 quarter, probably next quarter onwards, you will not see the wide changes because of this MTM charges.

Okay. And just on the CBG plant and other expansions, if you can just give some detail as to how much CapEx and revenue we are projecting once they commission?

So CBG, we are spending around INR 30 crores to INR 32 crores, net of GST around INR 29 crores. CBG, the construction has already started. It is expected to complete by April 2026. It is expected to generate around 1:1 revenue like INR 30 crores to INR 33 crores will be the revenue, INR 30 crores to INR 32 crores. And in all the projects which we are undertaking, our criteria is IRR has to be more than 15%. In this case also, it has to be more than that. In CBG, I think we have already signed up with the supplier of the raw material to produce and give us the supply. And in terms of the final product, it is a buyback arrangement by the government company, HP, BP, IOC and GAIL, this type of companies. So that will add typically in terms of revenue around INR 30 crores. In pyrolysis project, we have completed the basic and detailed engineering, which is undergoing for last 2 months. Probably in next month, September onwards, we will start the construction. It is also expected to complete in a similar line with the April 2026. So April '26, say, June, which is the ramping up. From July onwards, you can see an addition of revenue of between INR 40 crores to INR 45 crores on account of the CBG and pyrolysis. In the pyrolysis project, various types of plasticizers are converted into the methane gases and they are converted into fuel oil, which will be sold into the industry. It is basically the green venture to enter into the green side. We see a lot of opportunity and growth going forward in the CBG projects. This is the first trial project which we are setting up. Once this is set up, we are having a plan to set up another 4 to 5.

Got it. So just to sum up from CBG and pyrolysis, top line you're expecting INR 40 crores to INR 45 crores?

Correct. On full year annualized basis.

Right. And how much will that add in the bottom line?

Bottom line, it will be adding between 8% to 10%. So right now, we will not commit, but you can assume between INR 5 crores to INR 6 crores.

[Operator Instructions] The next question is from the line of [ Yash Naik ] from Kamayakya Wealth Management Private Limited.

So what is the current level of PAN input? And have recent capacity addition by the competitor resulting in the oversupply situation in the market.