J.G. Chemicals Limited (JGCHEM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the J.G. Chemicals Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Navin Agarwal, Head, Institutional Equities at SKP Securities Limited. Thank you, and over to you.

Good morning, ladies and gentlemen. My apologies for the delayed start, it was on technical grounds. It's my pleasure to welcome you on behalf of J.G. Chemicals and SKP Securities to this financial results conference call. We have with us Mr. Anirudh Jhunjhunwala, MD and CEO; Mr. Anuj Jhunjhunwala, Whole-Time Director and CFO; Mr. Amit Agarwal, General Manager, Accounts and Finance. We'll have the opening remarks by Mr. Anirudh Jhunjhunwala, followed by a Q&A session. Thank you, and over to you, Mr. Jhunjhunwala.

Thank you so much. A very good morning to everyone, and a warm welcome to J.G. Chemicals earnings call for the first quarter of the financial year 2027. We sincerely appreciate the time all of you have set aside to join us today. However, before I begin, I would like to take a moment to express our deepest condolences on the sad and very untimely demise of Shri Ashok Bhandariji, Independent Director of our company, who passed away on 3rd August 2026. Mr. Bhandari was an integral part of the company's leadership and made valuable contribution through his wisdom, experience and guidance. His passing is an irreparable loss to the company. On behalf of the Board and the management, I extend our heartfelt condolences and deepest sympathies to the bereaved family. As we begin the new financial year, I am pleased to share that the company has started on a very strong note. JGC delivered its best ever quarterly performance in Q1 FY '27, continuing the strong momentum established in FY '26. We witnessed strong demand across our end-user application with revenue, EBITDA and PAT each reaching all-time new highs quarterly. This performance reflects disciplined execution and favorable demand conditions, and we are also seeing this momentum continue into the current quarter as we sail through that. Let me take you through the key operational and strategic developments. By way of a brief introduction of our company, J.G. Chemicals Limited is the largest zinc oxide manufacturer in India and also the country's largest zinc recycler. Globally, we count ourselves amongst the top 5 zinc oxide producers. Our product today finds application across a wide spectrum of industries, including rubber, tire, ceramics, paints, coatings, pharmaceuticals, cosmetics, agriculture, electronics, EVs and also a wide range of specialty chemical applications. Today, our customer franchise extends to more than 200 domestic customers and over 50 international customers. And we are proud today to supply to every Indian major tire manufacturer and also to 9 out of the top world's 10 global tire companies. Our manufacturing is anchored at our facilities in West Bengal and Andhra Pradesh, which together today command an installed capacity of close to 70,000 metric tonnes per annum. With the addition of Gujarat project targeted for commissioning in Q3 FY '27 and once both phases of the Dahej plant are on stream, our combined zinc chemical capacity will exceed 115,000 metric tonnes per annum, a scale that would position us amongst the top 3 zinc chemical producers globally. Let me now take you through some other strategic developments of the quarter. As far as product development and R&D is concerned, tailor-made product development remains a cornerstone of our business, with over 90 specialized grades of zinc oxide developed to meet diverse customer requirements. During this quarter, we introduced a new grade, which is called the LabPure zinc oxide, a high-purity grade for analytical reagent application. We also introduced JG-ZRA, a zinc oxide rubber activator designed for specific non-tire customer requirements with strong demand and export potential. We are also at an advanced stage of acquiring a patent for another chemical jointly developed with the premier research institute in India, offering improved processability, superior cure characteristics and also easy handling. Further strengthening our innovation capabilities, recently, the R&D center at our Naidupeta plant was inaugurated, supporting new product development, polymer testing and enhanced product quality across the rubber, cosmetic, agriculture and other end-user industries. Coming to sustainability, our Naidupeta facility continues to be a structural differentiator being the only IATF-certified zinc oxide facility and also holding WHO GMP accreditation along with several Pharmacopoeia certifications. Sustainability and circularity remain deeply embedded in our operations with our recycled zinc-led model well positioned as the tire industry sharpens its focus on green chemicals. Phase 1 of our Naidupeta solar power project is operational with further ESG initiatives under evaluation. The brownfield expansion at our Naidupeta facility is also progressing well in parallel, and we expect to commission that also in the Q3 of the current financial year. Coming to recycled rubber project. The recycled rubber project has now been branded as JG TUR, which means tire upscaled rubber. The pilot trials have received a very good response from our key customers, and we are working with them to further enhance product development and optimization. In parallel, the company is also working on a detailed commercial plan for the project with CapEx, capacity, time lines, and revenue potential, which shall be shared at an appropriate time. Coming to the Dahej greenfield capacity expansion in Gujarat, the company is progressing well with its 40,000-plus MTA (sic) [ MTPA ] zinc greenfield chemical facility in Dahej. The civil work is in advanced stages and equipment installation is already underway. With an investment of about INR 100 crores, the estimated revenue potential will be INR 900 crores. Phase 1 of the zinc oxide production is targeted for commissioning, as I mentioned, in Q3 FY '27. Once operational and stabilized, the facility will strengthen JGC's presence in Western India, enable deeper penetration into high-growth non-rubber segments such as ceramic, specialty chemicals, pharmaceuticals and agriculture. This will support further margin expansion through higher value-added products and improved product mix. Recently, the company has also proposed to incorporate BDJ Materials and Metal Trading FZCO in Dubai, UAE, which upon incorporation, will become a wholly owned subsidiary of BDJ Oxides Private Limited, a material subsidiary of J.G. Chemicals and consequently, a step-down wholly owned subsidiary of J.G. Chemicals Limited. The entity will focus on sourcing raw materials for the principal and also help in sale and distribution of finished goods in the global market, further strengthening the company's global reach and distribution capabilities for both selling and sourcing. Let me now share our perspectives on the industry that we operate in. As far as demand is concerned, our customers, the tire and the rubber remain the largest pillar of our business and demand momentum across the tire industry remained robust through the previous quarter and Q4 ending FY '26, and this has continued into the current quarter also. As per ATMA, the Q1 FY '27 saw volume growth across major vehicle categories: passenger vehicles growing up to 26.6%; 2-wheelers, 16.5%; commercial vehicles, 16.48%; and 3-wheelers more than 11% year-on-year. Strong demand from OEMs, coupled with healthy replacement demand, is expected to support future growth. We are also seeing a trend of several large OEMs expanding their production capacity in India to serve both the domestic and the export market. As far as the tire industry CapEx is concerned, Indian tire majors are expanding their capacities to cater to this demand with approximately INR 25,000 crores of CapEx already announced by leading tire manufacturers. And to this, roughly today, 25% of the tires produced in India are being exported. When the tire industry invests, J.G. Chemicals is a direct beneficiary and our customers today continue to operate at high capacity utilization, which is very encouraging. As far as raw material security is concerned, despite the ongoing global supply chain disruption, which has been quite severe over the last quarter because of the war, et cetera. However, JGC's scale, financial strength and the long-standing supplier relationships have ensured that your company has had uninterrupted supply of raw material, enabling us to maintain a continuous supply to our extremely wide customer base. As far as the non-rubber applications are concerned, outside the rubber and tire, we continue to see encouraging traction in the non-rubber segment such as pharmaceuticals, ceramics, specialty chemicals and agri. Our focus on product customization and customer-specific solution continues to strengthen these partnerships. However, a more meaningful step-up of our non-rubber share will come once Dahej facility is commissioned, given that a significant portion of non-rubber consumption is concentrated in the Western India, particularly the Gujarat belt. Taken as a whole, we remain extremely confident about the long-term prospects of the zinc chemicals business, supported by our deep customer relationships, continuous product innovation and sustainability-led approach. Going forward, our focus will remain on expanding our product portfolio, deepening our presence in domestic and global markets, diversifying customer application across end-user industries and also ramping up our zinc sulfate business and expanding into new geographies. Together with our capacity expansion road map, these initiatives position JG strongly to drive sustainable growth, enhance value creation and capture a significant share of the opportunity that lies ahead. With these opening remarks, I would now request our CFO, Mr. Anuj Jhunjhunwala, to take you through the financial highlights of the quarter. Over to you, Anuj.

Thank you. Good morning once again, everyone. And I will now walk you through our financial performance for the first quarter of the current financial year. I'm pleased to share that in this current quarter, your company witnessed its highest ever quarterly sales, EBITDA and PAT. For Q1 FY '27, our consolidated revenue from operations stood at INR 315.7 crores, registering a year-on-year growth of 44.8% and increasing 10.3% sequentially over Q4 FY '26. This strong performance during the quarter was driven by favorable demand conditions across our end-user application and supported by disciplined execution. We are continuing to witness strong demand in the current quarter as well and expect higher sales in the current quarter. These factors collectively enhanced operated leverage and supported the movement in EBITDA margins as well. The EBITDA for the current quarter was INR 36.3 crores with a margin of 11.5% as compared to 10.64% in the corresponding quarter last year. The PAT for the quarter was INR 26.1 crores with a PAT margin of 8.27% as compared to 7.52% in Q1 FY '26. As we had mentioned earlier, the ongoing geopolitical conflict had impacted global supply chains for zinc dross, which is our primary raw material, but the company's strong supply chain relationships has ensured continuous supply of its key raw material and fulfilling all its customer requirements. We remain optimistic that the demand momentum will sustain throughout the year. And with the new greenfield Gujarat plant and the Naidupeta brownfield capacities getting commissioned in Q3, JGC remains well entrenched to cater to the increased demand going forward. Thank you, ladies and gentlemen, and we would like to now open the floor for the Q&A session.

[Operator Instructions] We take the first question from the line of Harsh Motika from SKP Securities Limited.

Congratulations on a record quarter. Sir, while we do see that the revenue has grown by 44-odd percent Y-o-Y, can you please point out how the utilization stood during the quarter? And what sort of volume growth did we witness across our product categories?

So the utilization levels are in early 80s right now as we speak, and the volume growth was in double digits for the current quarter.

Sir, when you say double digits, is it across categories? Or is it largely for zinc oxide?

Across categories. When we say this, it's generally across categories.

Okay. And sir, as far as EBITDA is concerned, we've again had a record EBITDA this quarter and a great margin at 10.6%. But how much of this can be attributed to the inventory gains that the management had been pointing out for the past quarters? And how much of this is reversible?

So you see, we have always maintained that in our industry, the EBITDA margins would be in the range of 10% to 12%. And going forward, we will have higher margins because of higher value-added products. And even in the current quarter, as we speak, the share of specialized applications and higher-priced customer orders has increased. So it is a function of operating leverage. It is a function of higher priced and higher-margin orders and plus a small amount of inventory gains, which accrued during the current quarter. I would say, structurally, our EBITDA should be in this range going forward. And as we've just highlighted a short while back, with the launch of newer products and more customized applications, the margins should inch up going forward.

Okay. And sir, on the CapEx side, so the Dahej plant is supposed to come up in Q3 of this year, as per the presentation. So sir, should we expect this to come up early in Q3? Or will it be more towards the end of the calendar year?

I would say it will be sometime in November would be a good estimate.

We take the next question from the line of Vinit Thakur from Plus91 Asset Management.

Congratulations for getting good sets of numbers. I have few set of questions. How has JGC started seeding the ceramic market ahead of Dahej commission?

Yes. So as we mentioned earlier also, the company has been seeding the ceramic market for the last year or so or maybe slightly more. And we are well -- we've already established good customer relationships. Now it is only dependent on the facility there. Once the facility starts, we expect that the ramp-up of production to the ceramic business should go up quite quickly. So we've already started to seed the market, and we are seeing encouraging results because customers there are also looking for us to set up a facility there and service them more closely.

Okay. And how long does customer approvals typically take in ceramic industries? And how is the ceramic approval process compared to the tire industry?

So as we mentioned earlier also, we've already started to seed the market. So customers are aware of us. Relationships have already been established. And as far as your specific question, which relates to the difference in the approval process between, say, a tire and a ceramic. So a ceramic approval process is fairly quicker. It should be roughly in the range of 1 to 3 months. It should be possible, more so because we've already established customer contact from before.

Okay. And approval process comes to tire industry?

Tire industry remains to approximately 5 years. Approval process is in the tire industry.

We take the next question from the line of [ Disha ] from Sapphire Capital.

Am I audible, sir?

Yes, please.

So sir, you mentioned the volume growth this quarter has been double digits. So sir, we've seen a fair increase in our realizations. So do we expect these realizations to sustain? And when do we expect this normalization to begin?

I think this is the new normal in terms of realizations because the prices of all commodities have increased. Zinc has also gone up in Q1. And I don't see any reason why commodity prices would go down in the near future. I would say this would be the new normal going ahead.

And sir, what was in the -- will it be possible for you to quantify the inventory gain that we had this quarter?

No, it's difficult for us to quantify this number, but I would say it's not been that significant. I mean the margin improvement is a function of a lot of other factors, which I outlined earlier.

Because of the higher price orders and the increase in the specialized applications, I think these were the reasons.

And the current quarter is also seeing the same traction.

Okay. Okay. That is very good to hear, sir. So also, the Dahej plant, which you're expecting to come up in November, just wanted to understand a bit more on the ramp-up. What sort of utilization are we targeting for this year and for the next year?

This year, if you assume about 3, 4 months of utilization, obviously, the utilization numbers would not be very high vis-a-vis the capacity. But I would say when we talk about next financial year, which is the first full year of operation, we should be looking at minimum 50% to 60%.

And the next -- and FY '29, we'll expect to reach the peak?

I mean, ideally, yes. And then we would start the Phase 2 expansion.

Okay. Okay. So any sort of color if you can provide us, to how much capacity you'll be adding? Or is it too early to comment on that end?

No, we've already indicated that the total capacity that is being added is about 40,000 tonnes. And in the first phase, it would be in the range of 15,000 to 17,000 tonnes.

Okay. Okay. And sir, with this -- the margin expansion that you said because of the higher value-added products, we expect the margins to go up to 13% to 14%. Can we expect to reach this mark by FY '29?

Yes, I think so.

We take the next question from the line of [ Bimal Panchal ] from [ Bimal Panchal & Associates ].

Congratulations for the good set of numbers. One of the prominent shareholder is Massachusetts Institute of Technology. Can you tell us how they have acquired shares of our company?

Could you repeat your question again?

One of the prominent shareholders in FII category is Massachusetts Institute of Technology. So can you just tell us how they have acquired? What is the story behind how they acquired?

They were one of the anchor investors in the IPO. So they have been invested in the company since day 1.

They are anchor investors. Okay. Okay, now what will be the payback period for the Dahej project and what is the expected ROI?

Usually, in our company, we always look at a payback period of 3 to 4 years. And I think in the past, we have always been able to achieve that. So going forward, our target for the Dahej plant as well as other CapEx plans that are currently being contemplated is in the range of 3 to 4 years mostly.

And what is the expected ROCEs from that?

So ROCE would -- the ROCEs would be in the mid-20s. So basically, if you want a payback in 4 years, [Foreign Language] you'll get the payback.

Okay. And what is the company's volume growth outlook for the current year?

As we've indicated, the volume growth has been in mid-teens for the current quarter.

We take the next question from the line of Deepesh J. Sancheti from Maanya Finance.

Am I audible?

Yes, please.

Yes. Okay, how much additional capacity will be unlocked through the Naidupeta debottlenecking? And what is the CapEx being done for the same? And how much is left to be done?

So the total capacity being added is about 5,000 tonnes. On the exact CapEx figure, I need to check because a lot of utilities, et cetera, have been already been created beforehand. And over the last few years, we've been building certain capabilities every year. So exactly the number, I'll need to check and come back to you.

Okay. And what is the utilization which is expected at Dahej in FY '28? And how quickly can Dahej ramp up to its fully achievable capacity?

So I just mentioned in the previous question that in FY '28, we expect a utilization of 50% to 60% minimum. And the following year, we expect to be in the 70s range. And by then, we would start the expansion of Phase 2. So every year, we'll keep on adding capacity depending on market situation.

Right. And with these higher prices of zinc specifically, how does it affect our EBITDA margin? Or what is the effect of this volatility?

So we are neutral to zinc prices, if you ask me, honestly. So whether zinc is at $3,000 or $3,500 or $3,600, it really doesn't matter to us.

Right. And how do you plan to leverage the certificates to expand into pharma and specialty chemicals?

So our plants over the years, we've acquired these certificates. And once our foray happens into Gujarat and with the Dahej facility also, we would have these certifications. So basically, these certifications create a differentiation factor. So when the customer in India, he does not have option to deal with zinc oxide producers with these certifications. So obviously, the level of confidence increases. More so these certifications also come in use for global exports because those companies are surely looking at these, and these are the minimum benchmarks they create to approve a supplier.

Right. And what is the percentage of exports of your total sales?

Today, it would be between 10% and 15%.

And going ahead, maybe FY '28, '29, once the capacities actually come in?

We look at similar, about 15% and try to inch up.

We take the next question from the line of Jayam Birawat from YES Securities.

A couple of questions from my end. Firstly, how much capacity is expected to come in the Phase 1 of the Dahej project? And what will be its contribution to the margins once it's operational?

Phase 1, as I just mentioned in the previous question, would be in the range of 15,000 to 17,000 tonnes per annum. And the revenue potential would be in the range of INR 300 crores to INR 400 crores and the EBITDA margins that we expect to generate from that project would be in the 11% to 12% range.

Okay. Okay. And can you please help me with the CapEx number for the Q1 and how much CapEx will be done in the remaining 9 months of FY '27?

I'll come back to you offline on the number. I don't have the number readily available with me on the exact CapEx, which has been done in this current quarter.

Okay. Okay. And for the 9 months of '27? Remaining 9 months?

I'll come back to you offline on both these numbers.

Okay. Okay. Okay, no worries. Secondly, I wanted to understand like what EBITDA margins can the company achieve as the share of value-added products increases going forward?

So going forward, our target would be to get to an EBITDA margin level of about 14% to 15% with the higher share of value-added products that we are foraying into now.