Ion Exchange (India) Limited (500214) Earnings Call Transcript & Summary

In resins?

The resin as well as in the Chemical division also. Both.

Okay, sir. And sir, my third question is regarding membranes, we are booking the revenues of membranes in Chemical division or Engineering division, sir?

[indiscernible].

Okay. And sir, my last question is regarding solid waste management. Yesterday finance minister has announced that they are opening a variable gas funding projects in this base water treatment and solid waste. So can you light -- throw some light on this, how it is going to benefit our company, share just yesterday announced it.

We are evaluating the announcements made, and I'm sure this would have repercussions for us and the entire industry. It's an important clarification or a clarificatory announcement, in a way. The government has been working on this area through various industries and various initiatives. I'm sure that the industry will see much better times going forward on this account.

The next question is from the line of Ajay Sharma, an individual investor.

I just had a few short questions. The first 1 was would you provide some insight as to where the incremental revenues for Q2 have come from? Which segments of the economy?

So it's come from across various industry sectors. The ones which have done relatively well are the chemical industry, the pharma industry and some of the medium segment industries, which have outperformed the industries like in the, let's say, the hospitality segment, which has been suffering at the textile industry, which has been really suffering. So we could in beverage and the sugar industry is the related distilleries, they have been doing reasonably okay. So we work across all of these industrial segments. And we have been seeing good improvements on the Chemicals segment and the Services segment, specifically The big investments from the core sector industries were being slow for some time. I am pretty expectant now with the reason of somewhat the economy coming back to normalcy. We will see much improved order fuels from almost all segments of the economy in the coming 2 quarters.

Okay. Okay. That was very helpful. And what about the revenues from the public sectors? What percent of your overall revenues will be from the public sector?

Members of the management?

Yes, we are not able to hear the question. Can you please repeated?

I was just asking, roughly, what proportion of the revenues would be from the public sector? And what's some of the private sectors?

Percentage on the revenue from the category of public and private. But what we can say is that we have a fair share of the revenue from the public sector because we -- from the PSUs, especially because we do supply the material or we do the operation and maintenance across the vast clientele, both in the public and private sector. So our presence is there in both the segments.

Okay. But -- okay, okay. That's fine. And my final question is, if I heard you correct, you said that your bid pipeline was in excess of INR 4,000 crores, right?

Yes.

And in some previous con calls, the management has guided that the company accepts about 20% or a target a 20% acceptance rate for its bid, right?

Yes.

The guidance [indiscernible].

Yes. Approximately 20% is true. That's correct.

So would I be right in saying that the company is looking to expand this order book by INR 600 crores, INR 700 crores?

Yes, the inquiry balance would mature over varying periods of time. And the typical order inflow that we see in a quarter on a regular basis, retail order inflow that we see on a revenue basis is about INR 100 crores to INR 120 crores thereabouts. And the larger order inflows, which would happen in more staggered manner would be once in a while, and that's a little bit more unpredictable. So this -- when we talk about the period ending order book position, that would not almost -- that could not always show the movement of the short cycle orders, which come and go during the quarter.

The next question is from the line of Laxmi Narayan from ICICI Asset Management.

A couple of things. First, I just want to understand, do you have any customer concentration on the chemical business? And about the -- and also on the increasing business? When I say concentration, I just want to understand the top 5 clients, how much they would contribute of revenues in chemicals and also in the large engineering business?

No, no significant concentration of revenues to a single customer. It's -- the customer base is actually widespread. We are looking at -- we're working with some of the very large majors globally who are -- who would probably look at buying pretty large quantities from us. As of date, there is no significant single customer that would be looking at say something like 15% or so of revenue. So there is none like that.

All right. And any sector concentration you have in engineering business or in terms of the Chemical business?

Again, in the entire Chemical segment is pretty widespread in terms of the number of industries which it handles. However, the core sector industries tend to be the larger consumers of these chemicals. So when I say core sector, I'm talking about power, steel or fertilizer or the oil and gas part of the industry. They typically, tend to give larger-sized orders. And hence, if you see at the overall volumes, the relatively larger concentration would be there. But then again, the overall basket is pretty widespread. And I would not say that any one of these sectors would be hogging the order book of the industry.

Question. First is, in your chemical business, what is the peak of domestic and exports? And also in the chemical business, what is the kind of repeat client order you get, whether it is over 90% or if it is a OpEx-related thing, it will be even more? I just want to understand that a bit on exports and your repeat client in repeat revenues from your existing clients and chemical business.

Let me address the second part first. The repeat business is pretty strong. It would be more than 85% or so wherein the customers would be renewing their contracts with us or they would be buying from us consistently. The export revenue as a part of the overall business of the Chemicals segment percent, can you share that?

It was around between 30% to 40%.

Sorry?

It is in the region of 30% to 40%. That is the normal range of the export share in the total Chemical business.

The next question is from the line of Abhisar Jain from Monarch AIF.

Congratulations for a good performance in Q2 and actual. Sir, just wanted to understand on the Consumer Products segment about your plans going ahead because that segment has continued to remain under water. And we have negative INR 7 crore EBIT last year. Though we are better off in first half, but also maybe because of lower revenues. So if you can just throw some light on what are the plans ahead for this division because it could make a good difference to our overall profitability.

Right. I think we are quite expectant that this segment would do well in the coming times. We are excited about some of the new products that we are targeting in this segment and also looking at significant growth coming out of the rural market, which we are addressing. We expect that shortly, I cannot commit the year-end turnaround on EBITDA front. But we are working towards meeting the entire segment turn EBITDA positive very shortly. And hopefully, we will cross the INR 150 crores mark on this segment also in the coming quarters.

Okay. Sir, that's quite encouraging. So would it be fair to assume that because of the response that you're getting into the efforts that you've made in the new products, the next fiscal year at that kind of run rate of revenue that you mentioned would be EBITDA and on to EBITDA positive in this division?

That's right. I would expect that the retail be EBITDA positive.

Right. So -- and sir, just a follow-up on that, that -- so this division, as such with that turnaround possibility would continue to remain a core business division for us, right? Or would we then look at what kind of ROE ROCs are possible and then maybe a possible divestiture for this?

It's an important segment for us and the various subsegments, which are showing very good potential in the coming times. We remain committed to the signal and expect it to contribute significantly in coming times.

The next question is from the line of Chirag Patel, an individual investor.

Hello. I have a few questions. Going forward, how you look at export business, are we emphasizing more effort towards export business or more focus towards Indian domestic business?

Our endeavor is to expand our international market presence, both geographically and in terms of our overall revenues from this zone. As we have mentioned earlier, we have significant presence in Southeast Asia, the Middle East, Sri Lanka, Africa And also our presence has been quite good in the North America and Europe. We continue to get good revenues from this as an overall percentage of the market size, the international market, obviously, is much more significant than India. We continues to grow in India, continue to expand our product profile and also increase our margin profile in the Indian market. But as a percentage, I would expect the international business to grow even more.

Okay. And from a compliance point of view in getting business, is it easy to receive business comparatively in the foreign market in comparison to the Indian market, your parts on same?

Sorry, it was not very clear about what you wanted to know. Can you come again?

Hello? Like is it easy to receive business in overseas market compared to India, from your experience?

So is it easy to receive business? That's what you asked?

And what difficulties and more efforts you put where you deal with Indian clients, which not require essentially in foreign or overseas market?

So each market has its own individual requirements, and it's not necessarily bad or better, you just have to deal with whatever that market requires you to be, comply with the formalities as would be. One would tend to become more concerned about the overall margin profile and the possibility of delinquencies. That's where -- and given the other attendant risk of the geography. That's what 1 needs to be more careful about. Indian markets obviously have their own idiosyncrasies, if you call it that way. And we -- I think we, over the years, have learned to adapt to the various legacies that we work with.

The next question is from the line of Laxmi [indiscernible] from ICICI Asset Management.

Sorry, I was on mute. So I just want to understand this cash flow part. The cash flows have been -- operating cash flows have been very strong versus the CapEx of around INR 7 crores or so. I just want to understand whether this kind of cash flow generation can continue? And that whether the capacity expansion in [indiscernible] and the other place has -- we will continue to take up in the next 2, 3 years? The second question is that if I look at the Sri Lanka order, which is quite a large one. Just want to understand what is the attribution to profit if you look at the next 3 years, cumulatively, in a range of what would be dependent on the Sri Lanka project? And the third is that when I look at your balance sheet, there are a lot of associated companies there your interest like economics, for example, Your interest is less than 50% or so. So I just wanted to understand who are the other investors in these firms? Or is it the same some other group company is the same list of things. So these are 3 questions from my side. One is on cash flow, second on dependence of Sri Lanka. And the third is the associated companies.

On the cash flow front, I think we should be in a position to continue relatively good performance in the coming period also. We remain committed to investing capacity expansions and are going to do bottlenecking exercises. This happens on the chemical plant vision as well as the industrial chemical side as well as the -- are expecting investments in our engineering facilities in Hosu and Goa. So we -- barring the interruptions caused by the current pandemic, the investments would continue into the future. The other question that you asked was...

Approximately, what CapEx you do on a -- if you look at the next -- the block of next 3 years, [indiscernible] 5 years, what kind of CapEx you would envisage every year?

I think this year, we are looking at somewhere between INR 20 crores and INR 25 crores and thereabouts. But in the coming years, we are quite hopeful that we would be able to take in the greenfield expansion of our resin facility, which would be a slightly bigger ticket investment it should be numbers, which is upwards of INR 100 crores. And besides that, there would be other expenditures, which should happen in the facility and that partner and the other engineering facilities. So the next year number should be in the vicinity of roughly around INR 130 crores to INR 150 crores. That's worth -- and you had the other question which you had put was to do with consideration, the revenues from Sri Lanka purpose.

Yes. In Sri Lanka, broadly, how much of your profits, your EBIT contribution you would expect from Sri Lanka as an organization, as a range would be helpful.

We do not share that number on the call, unfortunately, we are not giving contract, divisions of profitability.

Okay. Okay. Okay. And this Sri Lankan project, how long it would take in the next 3 years or 2 years, it should be -- because you said the run rate is around INR 100 crores. So is it safe to assume that by mid of next year, the project would be over?

Yes, I expect the project to be over by the first quarter of the next year.

Got it. And yes, the last question, in terms of your associate companies. I just want to understand when your ownership is x percent. Who own the rest?

So this is an associate company as described. And the other partners, there is a management ownership in that company. And there's no external shareholder per se.

Okay. The existing management of Ion Exchange would actually be warning that in that capacity?

Yes. So various managers, including the operating managers, the -- of that company and the various functions of all the associate companies, they would have investments, too.

The next question is a follow-up from the line of Madhu Suthan Reddy, an individual investor.

My question is regarding NAC listing that is 1%. When are you expecting any listing of our shapes on costing? And question #2, The Chemical division margins this quarter, are you confident of maintaining the margins in the future? Another question, third one is regarding our legal issues, which we are facing in our Iron Excchange Solutions company. I mean, where exactly are we are Or when we can find a solution to that? I just want your thoughts on these 3 things.

Can we take it 1 by one. Enviro, the legal status, we will just read it out.

In Vodafone, we have already appealed in Supreme Court, and is pending in the Supreme Court. We appeal again the [indiscernible].

Okay. So when -- I mean when are you expecting to find the solutions to this one?

[indiscernible] instead we are trying our best to get the listed at the earliest.

Okay. Okay, sir. And then regarding NSE listing and then the Chemical division margins?

NSE listing, we would be considering, and we would advise the investor community shortly on the developments as and when the Board takes it up and decides to go ahead with it.

Chemical division margin, are you confident of maintaining these margins going into this [indiscernible]?

I think in the margin profile of the chemical division has been improving, and we hope that we would be able to sustain these levels of margins in the medium term, at least.

Okay. And then the admirable quality, which you have been referring all through this con call is your consciousness of the maintaining the margins and not going after the other so that is going to air quality in our company, which I'm proud of this thing. Please keep it up.

The next question is from the line of Dian Cha from One Financial.

Pardon me if this is a repetitive question because I joined pretty late. Two or 3 things between all these segments, subsegments, so between projects, products and the chemicals. Is there a way we would be kind of reflowing some of the cash flows that we have reasonably strong cash flows. So how would you intend to kind of replow and regrow each of the aspects of the business? That's question #1. Question #2, if we see competitions of Viola and the likes of Wabag Viola and all of these major international guys. As far as the requirements go in India, do you think we lack on any front in terms of technical capabilities? And if so, what can be the measures to reduce that so that our addressable market kind of growth? And lastly, I think so. If you can just help clarify, I mean, previously, it was just us, but sorry, my line was not clear because I just joined in. The Sri Lanka order, you said will be lasting for how long?

Right. I think that -- let me take the last question first [indiscernible] The Sri Lanka order, we expect to be concluded by the first quarter of the next financial year. Other question which you put was with regard to competitive capabilities. In the range of technical abilities and solutions that we offer is probably one of the widest in the industry. And also, on those fronts, we do not have shortcoming per se. While on a very broad level, we can say that our focus has been a little bit less towards the municipal market and a little bit more towards the industrial market. And that's a very conscious decision that we have taken over the last few years. We do look at the infrastructure in the municipal business, but we tend to be very choosy and very selective in which ones we will pursue at what terms. That, I think, is going to continue as a broad strategy. But as I have been saying over the past few calls, we do hope that we will be able to announce some significant breakthrough on those trends also.

And the first question on the allocation of the capital between all these subsegments.

The Engineering segment demands a lot of working capital to continue to process larger and larger sized business opportunities, whereas the chemical segment looks at more of the CapEx investments. And we consciously try to focus on keeping our capacities, the best of the market opportunities that we have a visibility for. And therefore, the priority is given to improving the capacity of the chemical divisions as in with that becomes requirement. Whereas the consumer segment what we have tried to do is to protect the money what the segment makes towards that segment and we have not really gone after a very high-voltage advertisement expenditures in the past, which -- this thought strategy is likely to continue at least in the short term.

Okay. And if you allow me, 1 more, is there something already on the annual, which can possibly replace, if not one, replace 2 orders that can replace once you have kind of consummated the Sri Lankan order?

The short answer to that is, yes, something is on [indiscernible] We will make appropriate announcements when things become firm.

Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. N. M. Ranadive from Ion Exchange India Limited for closing comments.

Thank you all for participating in this earnings call -- earnings con call. I hope we have been able to answer your questions satisfactorily. If you have any further questions or would like to know more about the company, please reach out to Investor Relations managers at Valorem Advisors. Wish you all a great evening, and Happy Diwali in advance. Thank you.

Thank you. Ladies and gentlemen, on behalf of Ion Exchange (India) Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.