IOL Chemicals and Pharmaceuticals Limited (524164) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to IOL Chemicals and Pharmaceuticals Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Prachi Ambre from MUFG Investor Relations team. Thank you, and over to you, ma'am.

Good afternoon, everyone, and welcome to IOL Chemicals and Pharmaceuticals Limited Q1 FY '26 Earnings Conference Call. Today on the call, we have Mr. Pardeep Kumar Khanna, Chief Financial Officer; Mr. Abhay Raj Singh, Senior Vice President and Company Secretary; Mr. Kushal Kumar Rana, Director Works; and Mr. Rakesh Mahajan, Advisor. Before we begin the call, I would like to give a short disclaimer. This call may contain some of the forward-looking statements, which are completely based upon our beliefs and expectations as of today. The statements are not a guarantee of our future performance and involve unforeseen risks and uncertainties. With this, I would like to hand over the call to Abhay sir, for his opening remarks. Over to you, sir. Thank you.

Thank you, Prachi-ji. Good afternoon, everyone. Welcome to the Q1 FY '26 Earnings Call of IOL Chemicals and Pharmaceuticals Limited. Thank you for joining us today and for your continued trust and engagement. I hope you have had a chance to review our financial results and investors presentation available on the stock exchange and our website. We are pleased to report an encouraging start to the financial year Q1 FY '26 has been a quarter of efficient execution marked by revenue growth, margin expansion, and resilient cash flow. This performance reflects the strength of our integrated business model and the strategic clarity with which we are navigating both opportunities and challenges. Let me begin by briefly setting the broader industry context for the Pharmaceutical segment, which continue to be the cornerstone of our business. The API market entered FY '26 with steady demand across most therapeutic categories with certain products continue to face pricing pressure and some product prices have bottomed out. The overall demand environment remains stable. We are also witnessing good demand traction in non-ibuprofen APIs like metformin, paracetamol, clopidogrel, pantoprazole, fenofibrate and others. Most of these APIs are operating at optimum utilization level, indicating robust demand and efficient capacity use. In regulated market, the emphasis on quality, compliance, and supply reliability continue to support opportunities for well-integrated manufacturers like IOL. Our newly commissioned 10,800 MTPA fully backward integrated automated paracetamol plant has also commenced export to European and other regulated markets, positioning us strongly in this evolving landscape. We have also initiated setting up Unit 9B by carving out part of existing Unit 9 for manufacturing Minoxidil and its intermediates, which is expected to be completed by the third quarter of this financial year. Turning to the Chemicals segment. Q1 FY '26 was marked by a steady demand but subdued pricing across key products. Market sentiment remained soft due to cautious downstream procurement. Against this backdrop, our successful reach registration under EU regulations for acetic anhydride marks a significant milestone, enabling us to expand our footprint across European markets and reinforcing our position in specialty chemicals. Looking ahead, our strategic priorities remain clear and consistent. We aim to diversify our API portfolio, targeting a 50-50 split between ibuprofen and non-ibuprofen. We are scaling up exports with growing traction in regulated markets across the LatAm, Europe, China, and others. Operational excellence remains a core focus supported by backward integration, process innovation and cost leadership. On the sustainability front, we are proud to have earned the EcoVadis Silver Medal, placing IOL among the top 15% of companies globally for environmental, social and ethical performance. With a strong balance sheet, resilient operations and a clear road map, we are well-positioned to deliver sustainable growth and long-term value for all stakeholders. With this, I now invite our CFO, Mr. Pardeep Khanna, to share the financial highlights for Q1 FY '26.

Thank you, Abhay. Good afternoon, everyone. I am pleased to report that quarter 1 of financial year '26 has been a strong start to the year with robust financial performance across all key metrics. Revenue from operations stood at INR 552 crores, reflecting a healthy 9.8% year-on-year growth compared to INR 502 crores in quarter 1 of financial year '25. EBITDA for the quarter rose by 19.5% year-on-year to INR 69.5 crores, up from INR 58.2 crores in the same quarter last year. This translates to an EBITDA margin of 12.4%, an improvement of 102 basis points year-on-year basis, driven by better product mix cost optimizations and improved capacity utilization. Profit after tax came in at INR 34 crores, marking a 14.4% increase over INR 29.7 crores in quarter 1 of financial year '25. PAT margin also improved, reflecting our disciplined financial management and operational resilience. On a cash adjusted basis, our performance was even stronger. Cash PAT for quarter 1 of financial year '26 stood at INR 55 crores compared to INR 47 crores in the same quarter of the last year, registering a growth of over 16%. This underscores our strong cash generation capability and the underlying health of our core operations. Our balance sheet remains solid. with no leverage, thereby providing us with ample headroom to fund future growth, invest in innovation and pursue long-term strategic initiatives while maintaining financial stability. With that, I conclude my remarks and now welcome any questions you may have. Thank you.

[Operator Instructions] First question is from the line of [ A.B. Rafe ] from Wealth Catalyst.

Sir, I have a couple of questions. So my first question is, given that paracetamol has seen relatively weak demand over the past few quarters, which in turn has led to subdued demand for acetic anhydride as well. So what is the current outlook for both the segments? Are there signs of recovery? And can we expect a strong rebound in demand for both paracetamol and acetic anhydride?

Regarding paracetamol, the prices are no doubt at very low level, but the demand is there, not at that level, which were during that COVID period. But it is already above the pre-COVID arena area. The demand level is more than pre-COVID area, maybe some growth rate of 3%, 4% in paracetamol. So no doubt the prices of acetic anhydride are also down presently. But the cost of production for IOLCP may be to some extent, better than other peers for acetic anhydride and for paracetamol also. Further, our new plant of 10,800 tons, it is totally automized and with backward integration of paraminophenyl and acetic anhydride, we think that we may cover up a certain capacity utilization in FY '26, maybe around 55% to 60% this year and at an optimum level in next financial year.

Okay. All right. Sir, my second question is with the major ethyl acetate plant in the Middle East that has got recently shut down, are we seeing any noticeable increase in our volumes and prices due to this development, sir?

I think we have not shut down any ethyl acetate plant.

Middle East, they are asking. Middle East, there is a plant shut. I think we have not seen any encouraging change in -- with respect to the pricing because pricing is totally bottomed out for ethyl acetate. But yes, we have exports for ethyl acetate, but they are in line with our previous trends only.

Okay, sir. Sir, my last question is, how has been the demand in Europe for both our pharmaceuticals and chemicals portfolio?

They are good, sir, because like as we talk about our API products, API, we have the CEP for most of our products and demand is slowly and gradually increasing as the approval process is going on from our customer side also.

[Operator Instructions] The next question is from the line of Priti Agarwal from SK Associates.

My first question is that how is the demand environment evolving for ibuprofen and paracetamol, particularly in the context of post-COVID normalization and recent recovery trends?

I think demand is -- I think there is no any hefty increase in the demand. But yes, slowly, the demand is going up and -- which you can see from our performance also, we are increasing our capacity of -- efficiency of our paracetamol plant slowly and gradually increasing the capacity. Ibuprofen, yes, some but it is same as compared to our previous quarters only.

Okay. And what are the current price realizations for ibuprofen, paracetamol, and metformin in key markets? And how are these pricing trends shaping up?

The price of ibuprofen in the market is $9 to $10, and in case of metformin, it is around $2.5 to $3. And in case of paracetamol, it is USD 3 to USD 3.5.

As there is no response from the current participant, we would move to the next question. The next question is from the line of Surbhi from NV Alpha.

So my first question is how much of our ibuprofen is in regulated market versus the non-regulated market? And secondly, the new APIs that you have announced for the likes of Minoxidil and all, what is the peak revenue that we can do from the newer API?

Regarding the export of ibuprofen in regulated market, in the -- out of total export of ibuprofen around 70% in our regulated market, primarily Europe and Latin American and balance 25% to 30% in non-regulatory market. And as regard to your second question in Minoxidil, we are setting up a capacity of around 120 tons of Minoxidil. And at the peak level, we are expecting a revenue of INR 50 crores to INR 60 crores from Minoxidil in addition to the intermediate sale.

Got it. Just a follow-up. So ibuprofen, we don't do any North America, correct? It is Europe and LatAm?

Yes, primarily, these are the two markets.

And what is the peak revenue that we can do from other APIs from the new block that we have put.

You're talking other API molecules or...

Other than...

Other API. You can call it as ibuprofen and non-ibuprofen.

Non-ibuprofen, what is the peak revenue that we can do?

Around INR 900 crores to INR 1,000 crores in 3 years.

Approximately at INR 500 crores 3 years. In 2 to 3 years, we will achieve INR 800 crores to INR 900 crores. We are targeting 50-50. 50 ibu and 50 non-ibu.

The next question is from the line of Devanshi Shah from [ SDA Finance ].

So my first question was how much of your chemical production is currently consumed internally for backward integration, especially for ibuprofen and other APIs versus sold externally through merchant sales?

It depends on the product to product. Like isobutyl benzene IV, we consume around 75% to 80% in-house for captive consumption and balance...

Balance for merchant sales. And then about ethyl acetate, that is 100% approximately for the merchant sales only. And if you talk about acetic anhydride, acetic anhydride, we are using almost 40% in-house because it is used in MCA and acetyl plant as well as for our paracetamol plant. And the rest, it is for the merchant sales only.

When the paracetamol capacity will increase...

The captive consumption will increase.

Got it, sir. And my second question was, how are you transitioning from a domestic unregulated player to a global supplier and regulated market? What is the current domestic versus export revenue split? And how do you expect this to evolve over the next 2, 3 years?

Actually, current situation of export and domestic is 75% approximately and 25% export. And we are targeting to increase the export to 40% of total revenue in the coming 2 years.

Got it. And how are you transitioning from a domestic unregulated player to a global supplier in regulated markets?

Actually, our new products, which are set up in the last 2, 3 years like clopidogrel, pantoprazole, and fenofibrate, we are converting it to regulatory market. The consumers and the customers are coming for audit. And we hope we will do our best and participate in regulator market in the coming 2 years, and we will achieve our total target of 40% of our export in the coming 2 years.

The next question is from the line of Maulik Vaya from B&K Securities.

Just 2 clarifications. So the 40% exports guidance which we said is for chemical plus pharma or only pharma API?

Total for chemical and pharma, company as a whole.

Okay. And also just one more clarification. Our non-ibu share for 1Q would be 34%, right?

Yes.

The next question is from the line of Vignesh Iyer from Sequent Investments.

Two questions from my side, sir. Firstly, I wanted to understand the paracetamol prices that you said around $3 to $3.5 that is the domestic price, right? What would the export realization look like?

This is an average realization to the company as an IOL. It may be a mix of domestic prices and export prices.

Generally, export prices are higher than 10% to 20% from the domestic price.

Okay. Okay. Fair enough. And I wanted to understand, sir, are we maintaining our guidance of 15% margins, including other income for the entire year?

Yes.

Okay, sir. Okay. Just one more clarification I wanted to understand on metformin side, what would be our current utilization of the total capacity? If I'm not wrong, it is around 7,600 MTPA. So any plans to expand that capacity?

Yes, it's more than 90% as of now.

Yes.

Okay. And any expansion?

Expansion, see, we already explained this in earlier conferences also by virtue of just setting up the new paracetamol plant. Earlier plant where we were making the paracetamol, that was previously being used for the metformin. Once we shift all the production to the new plant of paracetamol, that plant will be used for the metformin again. So that is having the -- that will be having the capacity of 4,000 MTPA.

4,000 MTPA. Right.

Will be an additional from now.

Okay. Yes. 4,000 addition to what we have now. Right. So for this, the DCDA that is required, would we still be continuing to import from China? Or how should we see that part?

No, it will be continue to be imported from China. Domestically, it is not available actually.

The next question is from the line of Raj Patel from IK Securities.

Am I audible?

Yes, you're.

A few quick questions from my side. So I just want to know that can you provide a few more details regarding the minoxidil expansion project? And what will be the strategic role that the Unit 9B is going to play within your non- ibuprofen portfolio? And apart from that, how do you look its contribution to the growth following its commission, which we expect in December 2025?

Yes. So basically, as you know, we have an earlier plant, which was used for manufacturing of gabapentin. So it was having two parts. So out of that, one part is converted into dedicated facility of minoxidil. And why this minoxidil is selected? The reason is minoxidil was a product which is having good demand from some of our customers, number one. And number two, the product was already there on shelf all the validation, all stabilities, all shelf life was assigned to that product. So within no time and addition to the API sales, there are some intermediates of this product, which are also going into the market. So we are selling intermediates of this product into the market as well. So initially, once we are not in a position to fully utilize the 100 capacity into API, but yes, intermediates would be there into the market.

Okay. And my other question was that what can we expect could be a broader strategy for strengthening your non- ibuprofen API portfolio, particularly the one which are in high-demand therapeutic category? And can you also provide us more insights or details regarding your product pipeline, be ibuprofen?

Sir, other products, if you see, like we have clopidogrel, we have pantoprazole sodium. So all non-ibu products, we are converting the markets into the regulated market. We have the presence in Indian market. But yes, we are planning to shift to the quality customers or you can say, into the regulated markets where the realization would be better for the product. That is why we are thinking to increase the overall percentage of non-ibuprofen products.