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

Can you repeat the question, please?

On the Sri Lanka project, is there any need -- do we need to make any provisions for whatever debt or -- is there any provisions required for the Sri Lanka project?

Right now, we do not anything that vitality of making the provision. And in every quarter, we take our exposure. And as you wrote have not been working product of the job is much [indiscernible]. And only our retention money is like with the bankers, we worry about.

So there is no details about their mission [indiscernible] project?

No, right now, there is no need to make a provision.

The next question is from the line of Ruchita [indiscernible] from Wealth Management.

So my question was on the chemical front. So at the current capacity that you have, what is the revenue potential in it? So first, I would like to know about that if you could.

At current capacity levels, given that we are continuously upgrading our product mix towards more value addition and also that we are in a continuous process of modular expansion of capacities and our specific product plans, we can expect that from the current levels, we would be able to deliver almost 50% kind of agreement based on current capacities. This is for the Chemicals segment of the pool.

Okay, sure. And on the consumer business, wanted to know that the production of these purifiers, are you outsourcing it? Or are you making it in-house?

The purifiers, we have a vendor who provides this on an exclusive basis and based on the inputs that we in this is for the smaller equipment, the larger equipments are all in-house..

Okay, sir. And how is the distribution one?

The distribution, we have multiple challenge that we use for it, which includes that of sales channel. We also go through distributors and also platform, retail channels.

Okay. Okay. And sir, this 50% growth that you said in the chemical side of [indiscernible]. That is sufficient for the kind of growth that you're expecting in this greenfield capacity comes ?

Yes, roughly around 50% is what I indicated to you based on the current capacities. But we are also, as I mentioned, continuously in the mode of upgrading our facilities. We are required to fine-tune our product mix towards more value addition. We were certainly hoping that the clearance for our expansion -- region expansion project would have come in earlier, but as of now, it seems that at least for the next year, we should be reasonably okay in terms of our good funds.

[Operator Instructions] We'll take the next question from the line of Saket Kapoor from Kapoor & Company.

A couple of questions, sir. Firstly, on the bid pipeline. You did mention about a INR 8,000 crores is a bid pipeline. So if you could give us some color on the factors issue. One percentage should be a opportunity on a bid pipeline of INR 8000 crores.

As we've been saying, maintaining past few specials, if you can typical success rate on this pipeline is around 20%.

Okay. And what should be the time line, sir, in this [indiscernible]. This is on a rolling basis, I think?

This is on a rolling basis. The smaller projects in the pipeline, they tend to close much faster. They could be between 3 to 6 months. the larger projects would typically take between 6 to 18 months.

Sir, just on the ballpark numbers, on a very conservative basis, what kind of other book buildup we can expect on a quarterly run rate. So just to take into account the optimist scenario in the bid pipeline. On a conservative basis, what should be the pillars we can work our numbers will be in order intake, confirm order intake?

So on an overall basis, we can make assumptions based on our current offer bank, and further to that, there are a few opportunities which would come within the quarter and close within it also. So we'll not say we'll get affected in the quarterly disclosures of a bank. Our [indiscernible] uptick in terms of the order conversions that we have been taking in the current year, as you would probably have noticed the current year order intake would place us in a position to declare a quarter full year, one of the highest order intakes, which we have had, if we exclude the extraordinary [indiscernible]. So if one takes that out of the equation, then probably this year would end up being one of the best in terms of order intake. And I would expect this trend towards improving order books to continue into the next year and thereafter. And should give a run rate based on the past, would probably not be the best way to look at it. Further to that, sometimes a large order conversion happens in one big lump. INR 700 crore, INR 800 crore orders as we just declared. That would create a big team in a particular quarter. And good growth really follow the average run rate that we've been speaking about. So we can work on for -- maybe for us at least a multiyear to the extent on the Engineering segment. It is not a one-off, 1 or 2 years business that we are currently looking into. We can very well look into the visibility even going ahead, depending upon current business scenario.

Absolutely, absolutely. The current order book itself is looking at we should be expecting this to get indicated over a period of 2 to 3 years. And as we keep converting the opportunity pipeline, my guess would be we should be looking at certain improvements in the order book as we go forward. We are getting good response both from the domestic market as well as from the international markets. So if you factor both of these in, this is not short on [indiscernible]. It is certainly something which in the global market opportunities offered to us over at least 5- to 7-year period. I don't see that the opportunities are going to dampen.

And traditionally, we have always observed that H2 and especially in quarter 4, the agitation cycle, there is a good ramp-up. and also, I think in the first quarter, if I'm not wrong, you articulated to the fact that we are building up the scenes in order to improve the pace of execution. So going by the last year's numbers, last year's percentage of revenue book, there is a very likelihood that we can look forward even a stronger execution cycle for the coming fourth quarter also, as has been the case iconically, we can take a receivable expectations there.

The second, the fourth quarter, we'll see much higher levels of execution than you've seen until now.

We take the next question from the line of Sunil Kothari from Unique BMS.

My hearty congratulations for such a good number and consolidation, we have started in subsidiaries. Sir, my question is on -- I understand you won't be able to disclose or maybe annualize fully opportunity of these UP Jal Nigam and [indiscernible] water opportunity. What I understand is how -- this is the first time IOCL started with this size Of project, this type of [indiscernible] so many technical involved water-related cleaning projects India across as many refineries, all the power plants also use so much water. So if you can just try to analyze may not be in a revenue or other possibilities, but the size of [indiscernible], number of clients, a number of power plants. Those will be also, I think, supposed to be converted in slowly government is the only agency which can trigger this activity. Otherwise, private sector will not follow this. So what though process will be really as [indiscernible].

Thank you for the question, Sunil. Yes, we are in the POCs. I see [indiscernible] large organization talking about one around the refinery here. They are in the process of looking at any available opportunity where they can go bigger. And we expect others apart from IOCL also to removing expenditures on environment technologies at a faster pace. They certainly have been POCs as a whole, driven by these environment policies have been one of the more collective entities on this front. But having said that, it is not that the private sector is really lagging. A lot of the large entities when we look across India have been taking very progressive steps to ensure that their respective entities comply with the highest level or higher standards in terms of environmental compliances and way beyond that. We are certainly standing at a threshold where the country as a whole, we will witness significant strides towards a much greener and much more responsible industrial attitude towards the environment. And I am hopeful that this -- IOCL is just building to substantially improve flow from similar organizations in the future. [Technical Difficulty]

Sir, I just wanted to check on how well prepared are we in terms of cement power, engineering capabilities, are we doing enough to -- because the opportunity seems to be very large. So what preparation are we doing? If you can say whatever possible?

Just to continue to invest in people, in systems and other resources to ensure that we are geared up to take on the coming opportunities. This is a continuous process to -- there is a degree of flexibility, which one can have in executing these projects. So it's not like you have to have all the people in your organizations in advance where we get an opportunity to expand the workforce all contract specifications. But as far as the infrastructure goes, we have been working on it to dish out much larger scale of operations than we're currently doing. I can confidently say that with the capability that we have added over the last couple of years, we are geared to take a much higher level of indications than what we are currently doing. And we are in a continuous process of opening [indiscernible] further.

The next question is from the line of Tushar Raghatate from Kamayakya Wealth Management.

Congratulations for your good set of numbers. Sir, my question is on the Engineering division. Now we are getting a larger ticket size contract. So I just want to understand the guidance which you gave for the current year, will that be maintained to the range of 20% to 30% going forward looking at the current scenario of the order book which you are seeing?

Just for the year as a whole, we are maintaining the guidance of a 30% growth in the top line.

So my question is for the next financial year. Considering the bid pipeline, are you -- are we confident enough to maintain that group end?

For the next financial year, I'm not giving out the guidance as yet, but directionally, I can say that the order book that we have used to be educated over a period of 2 to 3 years, and that itself would indicate the next couple of years has to be quite strong. We will be adding more orders to this. And I am quite hopeful that the next couple of years also will be quite good.

Fair enough, sir. And my second question is on the execution of UP project. Sir, in the percentage terms, price execution seems to be very less. So is it fair to assume that the heightened expectation -- the execution will be in the H2 of the contract. Any big contracts you take 1 year to 2 to 3 years? Is it fair to assume that the larger execution will happen in the H2 of that respective contract?

Yes, the execution tends to the invoicing for the contract tends to be a little bit set towards the late part because in the initial weeks or months, there's a lot of pre-engineering designing and mobilization and those kind of things, which happen ultimately, the invoicing would happen when things start moving on the ground. So that is a little bit of a time. There is a bulge which would come somewhere in the middle and thereafter as the contract moves towards closure, the investing is going become lesser -- so instead of saying that it is real ended, I would rather say it is a little bit more towards the symptom of the contract.

The next question is from the line of Mahesh Agrawal, an Individual Investor.

First thing, I just wanted to understand was around the Portugal subsidy. Is that a European company that we have acquired? Or is it something we are setting up ourselves and then kind of what is the scope of the business we are looking at that? Is that for an EPC kind of business or something in the chemical space?

The [indiscernible] subsidiary that we have reported is a subsidiary, which we have set up, and that subsidiary will be looking at all businesses. Currently, the major focus would be towards the chemical segment. Having said that, we are looking at -- we are actively looking at acquisitions in the European and in other markets, including India, and they are at relatively advanced stages of discussions on some these. So once both happen, we will add overall [indiscernible] to these respective markets.

Got it. So these would be manufacturing opportunity that we would be setting up or acquiring. So like actual manufacturing on the ground in Europe?

This would aid our manufacturing abilities in the continued also once you reach that stage of maturity.

Understood. Got it. And then the next 1 was, again, on the wastewater industrial treatment side. You already spoke a bit about the opportunity and kind of the change you're seeing in the mindset from companies to adopt these practices. Just wanted to double-click a bit more on that. Has there been a drastic shift in the government laws and enforcement from the environmental ministry to actually start enforcing this? So that was one to understand, is there actually a drastic change in the laws, which will kind of push it or is this being driven by promoters becoming more ESG-friendly themselves and sort of the PSU in case of like IOCL setting the benchmark there for private sector to follow?

It's a mix of everything. There is certainly much more awareness today amongst the industry capital about what they should be doing for the environment. A lot of it is being driven through the commentary by the [indiscernible]. Bodies and associations as also on the international front being driven by the leaders announcements through reserves like the [indiscernible] corporate that we are talking about. So that certainly is a lot to push initiatives on this front. As far as the government regulations or the key steps which the authorities have been trying to ease both these regulations. The regulations have been quite tight from quite some time as we increase the certainty of implementing new regulations, our infrastructure to monitor and control the various parameters associated with these implementations. That ability has gone up. As we go further the in terms of government would help certainly that the overall ability of the administration to measure, monitor and control. The implementation would keep going up. And the incentive for the industries to not comply will keep going down because more and more of the investors and the consumers are also asking for environment-friendly products and processes. So it's a whole which is impacting it, not just 1 or 2 of these things.

The next question is from the line of Agam Shah, an individual investor. We move on to the next question from the line of Akshat Mehta from Sameeksha Capital.

So I just want to understand one thing that in terms of -- so you have all these large credits that are coming in. But can you share some details on what would be average of it for smaller projects on a quarter or on yearly basis alone, what kind of [indiscernible] that would be.

For the small projects on a yearly basis we would you be able to give a broad kind of a number. So on a yearly basis, I think we're looking at somewhere around an engineering revenue of roughly INR 400 crore to INR 500 crores. And these contracts tend to -- some of these contracts tend to be as short as about a month or 2 months. And on the higher side, these contracts could be around 6 to 12 months. So we do move at a fast pace and not necessarily [indiscernible] in our quarterly disclosures. I [indiscernible] correct the number of [indiscernible].

[indiscernible] coming and on from the 1 month or 2 months for the smaller jobs and from small to medium, it is at the most 6 months time.

Okay. And I just want to understand, in the chemical segment side, your margin improved a lot in FY '21 from around 15% to 20%, 24%. So what was the key driver of that sharp improvement in margin in FY '21?

Going back to '21 is a long stretch as you would have noticed. In spite of a couple of bad days in between, the recovery of the margins back to the levels of distributors has been quite good. and liabilities that we will be able to sustain these numbers going forward. But I'll give a broad response to the kind of improvement that we have seen probably around 15%, 16% levels to 20%-plus level. One of the things which has contributed is, of course, that we have improved operational efficiency and operational throughput. The second has been the improvement on the product mix that we will be having certainly with productive improvements on controlling other costs on the [indiscernible] fronts and including our efficiency in fees in [indiscernible] plants. So a lot of factors are going in to make sure that the profits are a higher gig. And certainly, stable input prices have helped to maintain these margins without linkages happening because of supply chain issues.

The next question is from the line of Janish Shah, an individual Investor. [Technical Difficulty]

Yes. I have a couple of questions, especially one on the international opportunity that you spoke about. We have seen last number of large-sized projects, which we have won largely from the domestic market. I remember you always alluded that there are opportunities, which we are pursuing in the international market. If you can you just update what kind of situation out there, given that the world is -- the economies are going through an uncertain periods and how are replacing. And second question is, as you just mentioned that you are looking at acquisition opportunities. Could we just get some sense about which are the areas, which you are trying to plug and what kind of a budget, which we have assigned for that acquisitions or for the acquisition processes?

The international market opportunities are very less to report an update but less we have been pursuing some large opportunities, and these are in the infrastructure segment of various countries. The target is being in East, Southeast Asia and as well as Africa. The current economic scenario and the scenario which has remained for the last couple of years has not been the most productive as far as these opportunities grow. But as we have been maintaining in the past, there is slow progress on almost all of these but it's very uncertain to really make a market to when exactly the same culminate into an order we remain hopeful not [indiscernible]. We prefer not to going to period or a forecast for the next few quarters. Once it happens, certainly, we will come out in weeks. As far as our acquisition...

Sorry, just to add up to this, does big pipelines generally do contain this kind of opportunity? Or is it without that?

No, the bid pipelines do not give these opportunities.

Sorry. Go ahead, sir.

You have put a question on acquisitions. We are not looking at very large acquisitions. -- we have small acquisitions sub 10 million small acquisitions. So that's why I'm saying small acquisitions, the target being better reach into various notes that we are looking at having some technology-related improvements also in creating manufacturing marketing base in the geographies between acquisitions.

The next question is from the line of [indiscernible] Swami from IR Investments.

[Foreign Language] Congratulations for the excellent set of numbers. My question is that India is becoming a semiconductor hub. So any improved visibility are you finding from the semiconductor sector because water, purified water is one of the components there. So if you kindly elaborate on it.

I'm looking at various opportunities in voting from the semiconductor and related industries in India. We are actively working on it and expect that the industry will give us good numbers in the coming quarters.

And if I may ask, currently, do we supply to any semiconductor industry? Anything executed there?

Yes, [indiscernible].

Ladies and gentlemen, due to time constraint, we will take that as a last question. I now hand the conference over to Mr. [indiscernible] from [indiscernible] closing comments. Thank you, and over to you, sir.

Good evening. Thank you all for participating in this earnings call. I hope we are being able to answer your questions and if you have further questions and wanted to know more about the company, please reach out to our Investor Relations. Thank you.

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