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

Ladies and gentlemen, good day, and welcome to IOL Chemicals and Pharmaceuticals Limited Q2 and H1 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.

Thank you, Saisha. Good afternoon, everyone, and welcome to IOL Chemicals and Pharmaceuticals Limited Q2 and H1 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, Adviser, to provide insights on the company's operational and financial performance. 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 very much, Prachi for introduction. Good afternoon, everyone, and welcome to the Q2 and H1 FY '26 Earnings Call of IOL Chemicals and Pharmaceuticals Limited. Thank you very much for joining us today and for your continued trust and support. We truly appreciate your time and your interest in the company. I hope you would have had a chance to go through our financial results and investor presentation, which are available on the stock exchanges and our website. This quarter underscores IOL's resilient execution and strategic progress amid a challenging operating environment marked by cost pressure and supply chain disruption. While the broader industry has faced margin volatility and uneven demand recovery, IOL has demonstrated consistent performance across both segments, driven by a diversified portfolio and expanding traction in non-Ibuprofen APIs. Our Pharmaceutical segment continues to gain traction led by good demand for our non-Ibuprofen APIs. Our fully automated paracetamol facility is ramping up well with the stable export volumes and increasing traction across regulated markets. As pricing trends improve, this capacity is expected to contribute meaningfully to margin expansion. In the Chemicals segment, we are seeing steady volume recovery even as pricing remains subdued. Our focus remains on process discipline, cost optimization and maintaining a balanced product mix across end-use sectors. As we progress, we remain committed to building a robust diversified portfolio supported by R&D, innovation and accelerated regulatory filings across Europe and other regulated markets. With this, I now invite CFO, Mr. Pardeep Kumar Khanna, to share differential highlights for this quarter and H1.

Thank you, Abhay. Good afternoon, everyone. Quarter 2 of financial year '26 has been another solid quarter for IOL with consistent financial performance across key metrics. In quarter 2, the revenue from operations stood at INR 567.5 crores, reflecting a 7.9% year-on-year growth driven by volume recovery and a stable product mix. EBITDA increased 33.3% to INR 64 crores with margins expanding by 212 basis points to 11.1%, supported by improved operating leverage and cost efficiency. Profit after tax came in at INR 30 crores, up by 56.7% year-on-year basis with PAT margin improving to 5.2% from 3.6%. On sequential basis, there is a slight dip in profitability during the quarter, which is a temporary impact of elevated fuel costs following the Punjab floods, and we expect this effect to normalize in the coming quarters. Post-tax cash profit grew 31.1% year-on-year basis to INR 51.5 crores, highlighting our focus on free cash flow generation and operational deceleration. We continue to deploy strategic CapEx toward automation, infrastructure upgrades and scale up of our differentiated API pipeline. Our balance sheet remains strong with minimum leverage and healthy liquidity, giving us the flexibility to pursue growth initiatives without compromising financial stability. With that, we now welcome any questions you may have.

[Operator Instructions] Our first question is from the line of [ Riya Jain ] from SGA Finance.

So I had a few questions. The first one was, I just wanted to understand how the revenue mix among non-Ibuprofen APIs shape up in, say, H1 FY '26?

The revenue from the Ibuprofen is 62% and the -- from chemical, 41%. And other API within pharma is 38%.

Got it, sir. And which molecules are currently the top contributors within this basket?

It is Ibuprofen.

Got it. And how do you expect this composition to evolve over the next few years?

We expect in the coming years. We expect in pharma, we are supposing to reach 50% Ibuprofen and 50% other pharma products.

Got it. Got it. And also, how do you see the trajectory of EBITDA and PAT margins evolving over, say, the next 2, 3 quarters, especially considering price pressures in chemicals and ramp-up costs in pharmaceuticals?

So basically, the -- as we discussed in the last quarter as well, our volume growth is being witnessed quarter-on-quarter basis. And this volume growth is mainly coming from the non-Ibuprofen portfolios because the pricing pressure has been there for last 3, 4 quarters. So we cannot very much comment on how these pricing trends is going in the future. But we are optimistic that we will be continuing increasing our volume growth and also maintaining the growth level where we are. So having said all these things, we expect to achieve EBITDA level of something around 13% to 14%, which we discussed in the last quarter as well. So we are keeping that expectations alive for the next or the remaining H1 -- H2, sorry.

Got it, sir. Got it, sir. And one last question. With the recent EDQM certificate of Suitability for Pantoprazole Sodium Process-III, how do you plan to capitalize on this approval?

So there is basically a small change in the process, which we have incorporated. That is why we have gone for the amendment in our CEP certificate. And definitely, we have the customers where we have already started the approval process and the plant has the capability to supply the material with the -- this amended process also. But in addition to this, what Rana G has said, this Pentoprazole CEP, we are already having the CEP. This is another process with which we got it. This is amendment to the existing process.

Got it. Got it. And are there specific geographies, volume targets or commercial strategies in place to scale this molecule in CEP compliant markets?

Definitely, Europe will be the target market, and we have the customers there. We have already sent the samples, our approval processes going on.

The next question is from the line of Dhiraj Shah from RJ Investments.

So I have a couple of questions. Firstly, can you walk us through the key drivers behind the 33% of EBITDA growth and the PAT growth this quarter? And specifically, how much of this improvement was volume-led versus margin led? And what role do you think that cost optimization of product mix play in this? So could you throw some light on that?

The growth in the profitability from the year-on-year quarter, it is not a single call, but it is a combination of various reasons, both in increase in the quantity also and stable prices also plus product mix and shifting us some of regulated customers from domestic market to regulated customers also. And as we already discussed in the earlier call, our main focus is now to shift from domestic to regulated market with price realization and stable demand is -- remain consistent. So we are continuously focusing on shifting from domestic to regulated so that our EBITDA margin, profitability and other revenue should remain in the growth [ mode ].

Also capacity utilization of other APIs also increased in this quarter.

Understood, sir. Understood. And on a different note, you have mentioned the sequential decline in profitability due to related fuel costs following the Punjab flood. So could you quantify the impact on the margins and clarify whether this is expected to normalize in third quarter or maybe persist for H2 as well?

Actually, power and fuel cost during the quarter has been increased. It is increased by impact of heavy rains and floods and amount is -- affected is INR 7 crores to INR 8 crores during the quarter. Actually, basic raw material, rice of -- from which we have generated power and steam, it was not usable fully due to increased moisture, due to heavy rains and we use other costlier materials and also got power from electricity board. So it will -- it has impacted our power and fuel cost by INR 7 crores to INR 8 crores during the quarter. So in the current quarter, we hope it will decrease and come to the -- near to normal.

The next question is from the line of [ Abu Rafiq ], an individual investor.

So my question is, given that paracetamol has seen a relatively weak demand over the past few quarters, what is the current outlook for paracetamol? And how do you see the coming calendar year in terms of demand and growth?

As regard to -- as you've rightly said that the demand of paracetamol is not increasing but as for IOL is concerned, our demand is increasing to some extent as our real our capacity of paracetamol was 3,600 metric ton. But in March '25, we've started -- enhanced capacity of 11,800 and we've already reached around 55% to 60% capacity utilization for -- you can say in the first 6 months, we have already crossed last year capacity. We, as an IOL hope that our product is getting good traction in the market. And although the prices are not up to that mark, but demand is there for IOL products.

Okay. So my next question is for acetic anhydride and ethyl acetate, the prices have been trending lower from past few quarters. Are we seeing any signs of recovery in pricing? And do we expect to see growth in our volumes in coming months?

So volumes, our ethyl acetate is already running at around 100% or near 100% capacity utilization, so is with the acetic anhydride. So -- and the acetic anhydride is also being captively used around 60%. So with the growing production of this [indiscernible] paracetamol, the captive use of acetic anhydride will also grow internally. So there will be remaining a lesser amount for the merchant sale for this product. For the ethyl acetate and these -- I think the prices we consider, there remaining half of the prices will remain more or less same.

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

Sir, a few questions from my end. So we've seen improvement in our EBIT margins for the Chemicals segment. I heard your commentary regarding cost efficiencies, which has improved it. But can you put a little bit more color on what has driven this improvement in margin?

Actually, regarding EBITDA margin, we expect and declared the target in the previous con calls about 13% to 14% but we are not able to achieve the target in the quarter due to unexpected rise in fuel costs, due to heavy rains and floods. But if we compare half year '26 with the half year '25, it was an increase from 10.2% to 11.8%. So we hope we will do better in the coming quarters and EBITDA margin will improve by better efficiencies and good marketing.

Okay. Sir, sorry to interrupt, but I actually wanted to understand regarding the Chemicals EBIT margin. So we've seen improvement in that on a year-on-year basis. So what has driven this improvement in Chemicals EBIT margin?

It may be like our buying negotiation and may be better or we have some inventory accumulation with the lower prices earlier with us. So in addition to efficiency, there may be some inventory gain also.

Okay. Okay. Okay. And this inventory at lower cost, so has the overall prices, I mean, input prices reduced or this is a kind of one-off quarter where in -- we've seen this improvement in the Chemical EBIT margin?

The -- we are continuously negotiating or [indiscernible] seeing any opportunity for best prices. Our other negotiation are going with -- directly with the manufacturer in China. So we hope it will be better opportunity to us and remain positive for the IOL.

Okay. Okay. And also on an overall basis, we've seen that our volumes have picked up in this quarter, and that has driven the growth for I think, Chemicals, the growth is flattish because the pricing was under pressure, but the volumes were able to offset that decline. And for the pharma piece, I think the non-Ibuprofen portfolio drove that growth. So which our products drove this volume growth? Was it only paracetamol because of the new capacity, which drove this volume growth? Or were there any other products also which contributed to it?

So Maulik G, rightly you said, the paracetamol is the one product. And apart from the paracetamol, Clopidogrel is also the good products of our portfolio into the non-API. That also did well for this quarter, coupled with the Pantaprazole and few other non-API products. So put together, all these bring the growth within the non-Ibuprofen portfolio.

Okay. And sir, can you just tell us on the pricing about how the prices are for paracetamol and ibu as of now?

Same as these were the last quarter, so more or less same. However, a little bit dip in the paracetamol prices, but more or less same.

Okay. Okay, sir. And just one clarification. I kind of wasn't able to hear it earlier. You had mentioned some 62% versus 38% ratio. I think that was a revenue split between ibu and non-ibu?

No, no, no. Actually, 62% is our ratio of Ibuprofen within pharma. And total pharma ratio is 59% and Chemical is 41%. 59% and 41%.

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

So my first question is, I wanted to understand in this quarter, what percentage of our margins got impacted due to higher cost of fuel? I wanted to understand if that hadn't happened this -- would we have done better margins than what we did in quarter 1?

Actually, due to power and fuel cost, the margin is effected by around 1%.

Okay. And we can see normalcy coming in this quarter?

[indiscernible]

Sorry. I couldn't get it, sir. Sorry.

No, it was amounting 1%, amounting to around INR 7 crores to INR 8 crores.

Okay. INR 7 crores to INR 8 crores. Got it. Got it. So can you expect normalcy kicking in, in quarter 3 and quarter 4 in terms of that?

So we hope in this current quarter, we will achieve to -- power costs near to normal, and it will be reduced by INR 5 crores to INR 6 crores.

Okay. Got it. Sir, my second question is, what was the utilization of our new paracetamol facility in quarter 2? And how do we see this number by end of this year?

For this quarter, we reached to 55% capacity utilization for the paracetamol from the new plant, which was -- start to commence in March this year. And by the end of this year means by the March end, we think, we are expected to reach about 65% capacity utilization.

The next question is from the line of Jainam Ghelani from Svan Investments.

So what is our CapEx guidance for FY '26 and FY '27? And where do we wish to expand?

The CapEx plan for the current year is INR 150 crores to INR 200 crores. And we are doing CapEx from INR 150 crores to INR 200 crores approximately every year, and it includes growth CapEx infra, land, new software, automation. And for the next year, also we plan INR 150 crores to INR 200 crores. So current year, we have already used INR 60 crores approximately in the first half year. And for the other next half year, it will be near about to INR 100 crores.

Sir, how much out of this INR 150 crores to INR 200 crores is maintenance CapEx and what is the growth CapEx?