Jyoti Resins and Adhesives Limited (514448) Earnings Call Transcript & Summary

Ladies and gentlemen, on behalf of Kaptify Consulting Investor Relations team, I welcome you all to the Q1 FY '27 Post Earnings Conference Call of Jyoti Resins and Adhesives Limited. Today on the call from the management, we have with us Mr. Utkarsh Patel, Managing Director; and Mr. Samit Shah, Chief Operating Officer. As a disclaimer, I would like to inform all of you that this call may contain forward-looking statements, which may involve risks and uncertainties. Also, a reminder that this call is being recorded. I would now request the management to give us their opening remarks, briefing us about the business and performance highlights for the period ended June 2026, their growth plan and vision for the coming year, post which we will open the floor for Q&A. Over to the management team.

Ladies and gentlemen, I welcome you all to this con call for quarter 1 FY '27. At the outset, quarter 1 started out on a very tough note in terms of global uncertainties and unrest in West Asia, which led to the sharp spikes in crude prices and freight rates, subsequently impacting our key raw material price, which also appreciated sharply. Since we are light on inventory of raw materials as well as finished goods, we had to take the impact of the sharp rise in the raw materials price. The price increases happened gradually in May and June, and this will help normalize margins at 23% to 25% levels in quarter 2. Revenue growth stood at 17%, of which nearly 10% was contributed by volumes, while the balance was led by price increases. Despite a dynamic operating environment and volatility in key raw material prices, the company has continued to demonstrate resilience, disciplined execution and a clear growth orientation. Our performance in the quarter reflects the strength of our Euro brand, our deep distribution reach and the trust we enjoy among carpenters and channel partners across India. During the quarter, we continued to strengthen our market position in the wood adhesives segment. Our business model remains anchored on 3 core pillars: brand lead demand creation; strong carpenter engagement; efficient manufacturing and distribution execution. One of the most important developments for our future growth is the ongoing capacity expansion program. We are progressing towards increasing our manufacturing capacity from 2,000 tonnes per month to 3,500 tonnes per month, which we believe will support the next phase of volume growth and market share expansion. This expansion is being undertaken with a long-term perspective and is aligned with our broader aspiration of building a significantly larger adhesives franchise over the coming years. This is also in line with our foray into UP and now entry into Jharkhand markets. We are also opening one more state in quarter 2, details of which we will share you the next quarter. We are also encouraged by the continued expansion of our carpenter network and our increasing penetration in both existing and new markets. The response to the Euro brand remains encouraging, and we believe that sustained investment in brand building, distribution and customer relationships will continue to strengthen our competitive position. Our registered carpenter base has increased to 2,10,000 carpenters. Importantly, we continue to maintain a strong balance sheet with 0 debt, healthy cash generation and robust return ratios. This financial strength provides us the flexibility to invest in growth while maintaining prudent capital allocation and shareholder focus. As we look ahead, our priorities remain unchanged: drive volume growth, expand market reach, improve operating efficiencies, maintain healthy margins, create long-term value for all stakeholders. We remain confident about the structural growth opportunity in the Indian wood adhesives market, supported by housing demand, furniture manufacturing, interior renovations and increasing formalization of the industry. With that, I would now be open to take questions and answers.

[Operator Instructions] We'll take the first question from [ Ritika Sheth ].

Congratulations for a decent set of top line, but there have been consistent concerns regarding the progress of our planned vision. So considering your investor presentation, Slide #15, which states the capacity expansion tonnes per month, by FY '29, we plan to execute the capacity expansion from 2,000 tonnes in totality to 3,500 tonnes, right, overall? So in that, the capacity utilization we anticipate is 60% to 70% considering. So what is the total revenue figure you have planned before we go ahead with the greenfield expansion? That is first question. And what are the margins which you anticipate by FY '29. So the reason why I'm very skeptical in asking you this question is because we had to plan the raw material and input cost inventory planning much beforehand, which we failed to do so for the quarter. So how do we plan to forecast to do that in the next 18 months considering the worst-case scenario that the geopolitical crisis continues and stability does not arise? So kindly please share some -- and throw some light on the same?

That's a very good question. So answer to your first question is you are very right that about 10% almost growth we have taken from quarter 1 Y-o-Y. So now about the -- concern about the growth plan expansion. So as you know that about almost 60% now we are utilizing our capacity. So that was the vision we have created. That's why we are now moving to the 3,500 tonnes per month capacity, and it was mentioned into quarter 2 FY '27. So almost 80% work has done. And within 1 or 2 months, we will be ready with this capacity. So that can generate almost INR 600 crores to INR 650 crores of revenue from here. And for the next phase, what greenfield facility we are going to do. So that was for the longer term plan that for, enable for the INR 1,000 crores of revenue vision. So that will be done by the partly and it will be possible with the internal accruals. So INR 45 crores to INR 50 crores initial CapEx and mainly that 20% -- 50% will be the land part and 50% will be the construction and remaining part, machineries and everything. So we'll -- initially, we'll build the additional 1,500 tonnes per month capacity into that greenfield. And phase-wise, we'll add as per the requirement. So yes, we'll be ready for that. And regarding raw material procurement, yes, you are right that we are at 30 days of inventory right now as per our revenue generation. But now we have also improved into that part. And for the quarter 2, we have done the contract for the 90 days with our raw material suppliers, importers. But because of that, situation was very critical at that time, and we tried our best to make the contract for the 90 days. But as you know that the situation was very unstable into the March and April, so that was the sudden rise and the geopolitical issues and war issues, we were not able to get the deal from the suppliers and that affect our EBITDA for the quarter 1. But now we are very much confident about that, for the 22% to 25% EBITDA margin we have guided, we'll be able to maintain that. So this is how our plan is.

Just one question here that -- so the revenue which you guided, INR 600 crores to INR 650 crores, that will be for FY '27 balance, meaning Q2, Q3, Q4, right?

No. We have guided that CapEx what we have done, 3,500 tonnes per month. So that can generate INR 600 crores of revenue for the existing plant. [Technical Difficulty] Brownfield...

Okay. From next financial year onwards or from when? Because that capacity will be on from next month, right?

Next month, right. So that can generate the INR 600 crores to INR 650 crores of revenue from existing plant. So our CapEx is done for the INR 650 crores.

Okay. And did we actually take stringent supplier contracts for raw material costs immediately? Or -- I mean, so how do you foresee the FY '27 EBITDA margin should -- I mean will we end on a 23% to 25% EBITDA margin level? Or because of this one quarter being dampened, the overall EBITDA margins for FY '27 will be dented? That is the question.

I think it will be affect -- Obviously, quarter 1 EBITDA is now 16% around. So it will affect all over 4 quarters. But we'll try our best that how can we maintain above our 22% to 25% EBITDA guidance for the longer term. See, this is very exceptional situations and it was beyond the control because if you see the effect of this 10% EBITDA is because of the -- mainly 6% to 7% because of the raw material prices. So our gross block is affected because of these situations. Otherwise, remaining 3% to 4% we have invested. As an example, we have do sales promotion into quarter 1 for the [indiscernible] -- for the dealer segment. So we have done almost 54 dealer meets, 54 territories we covered into the quarter 1 and that almost INR 2.5 crores invested into that. So that is -- INR 4.5 crores invested into that. So that is the effect for that also.

Okay. Perfect. And what are the EBITDA margins for the emerging states versus the core six states which we are already penetrated more than 30%? What are the margins fluctuated because we would be giving incentives -- more incentives to the carpenters in the growing states, right? So what will be the difference in margins?

Yes, that is very to vary. It is very micro what you are asking for the data because now we are into the almost 100 cities and almost 65 territories we are operating. So it is micro to micro. But yes, of course, in the newer states, we have the attractive margins for the carpenters and for the dealers also to penetrate more and to make the network. So initially, 2, 3 years is always the situation that we need to set our product and create the more pool about that. But all our guidance is we are very confident about the 22%, 25% of EBITDA, what we have also earlier mentioned -- already maintained last 4, 5 years.

Sir, we'll take the next question from Smith Gala.

So my first question will be, while I understand the raw material prices were elevated and which took a major impact on our gross margins, I have noticed the sequential increase in the employee expenses as well from INR 9 crores to INR 11 crores or 25%-odd increase. So what were the reasons? And will these expenses remain elevated in the coming period? Secondly, we have taken price increase from around mid-May onwards. And the crude prices since then have cooled off a bit. Yes, still higher than the normalized levels, but the price increases have been also taken. So can we see one quarter of above normal margins of 23% to 25%, like 28%, 29% margins for 1 quarter, quarter 2? That is my first question.

Yes. Yes, you are very right. Employee cost has increased because we have hired new talents also. And now we have increased our sales force from 520 to 562 people. So for the newer territories also, for the existing territory also. So we are driving our growth very aggressively, and we are covering both part sales and marketing and promotions and everything. As I mentioned that 54 dealer meets actually, it was in quarter 1, but actually, it was in only 45 days. So that was done between the 16th April to 30th May. So that was done by our entire team and the aggressive efforts going on. So we want to cover and going more deeper to cover all the markets. So we are hiring new talents. We are hiring for the business administrations, business operations side also. So these all efforts are going on. And that is the reason that -- plus also the appraisals part also coming in with April. So that's why this employee cost is increased. But we are very much confident that we'll be in control of around 11% to 13% of around what are the mainly industry standard for the employee cost. So that is also a good part that we are in control regarding that. And yes, because of the raw material crisis, EBITDA is impacted. And for -- now it is a little bit cooling period for the raw material, but not at that original level that arrived yet. So it is too early to say that we can maintain the 28%, 29% EBITDA in quarter 2 or not. But our effort is mainly for the growth path. And the main thing is -- important is though we have increased or taken the price rise into the April and May month, so that is also a good part that though we have increased the price, we able to maintain that 10% of volume growth. It means that our brand is acceptable, our relationship, our distribution network, whatever, it is working in a good direction. So that can -- I assure that we are always thinking about the customer first. So it is too early to say that we can rather maintain the 28% EBITDA into quarter 2. But as I said that about the longer term, we are confident about the 22% to 25% EBITDA margin.

Okay. So next question, while I understand the employee expenses are a steady-state run rate, there are no chances of this being cooling down a bit from here, is what I understand. Next, there was -- you covered that INR 4.5 crores were invested into dealer meets in the quarter 1. So I understand we do -- generally do dealer meets, but they were elevated in Q -- quarter 1. So what are the generalized expenses in the dealer meets we carry on in quarter -- on -- in a normal quarter?

See, last year, actually, we have done almost 30 dealer meets and the expense was almost -- investment was almost INR 2 crores around. And this time, it is additionally INR 2.5 crores we had. So this is how we do, but it depends upon -- vary to vary upon the market situations and everything. But as we are now focusing on more with our channel partners for the dealers, for the carpenters. So all efforts are going together.

Okay. And final question from my side. We are -- We were targeting around 20% of the revenue growth out of -- can you split between how -- what quantum of that will come from volume and what will come from price? Because this guidance was after Q4, considering the geopolitical -- because -- not considering the price hike, so can we expect a better revenue growth considering the price hike now?

Yes. See, we always believe for the volume growth, we need to more focus on the volume growth only. And it is too early to say because as the situation was very unstable, and that's why this price rise has taken for the market leaders also and for us also. But maybe the situation come back to normal after quarter 2, we don't know exactly right now the situation about that. And it depend upon the market situation, maybe we need to take a call to reduce the realization value also. But it is too early to say that. But right now, if you can see that 70% of growth is from the revenue. So 10% is from the volume. So 7% is from the price rise. So maybe it can continue for the quarter 2 also. After that, it depends upon the market situations. But yes, we can say that we aim for always more than 15%, 20% of volume growth. And I hope that quarter 1 because of -- due to these situations also, we were able to do this growth. So it's a very positive sign for the coming quarters.

We'll take the next question from Pawan Kumar.

Sir, can you just put out the Carpenter points number? And also for the year, what are our advertising expenses and sales and commission expenses expected to be separately?

So that is already mentioned separately. So sales promotion expense is already mentioned separately. And...

So for the year, I said FY '27, what do we expect?

What the sales promotion expense you are saying that?

Yes, yes.

It is almost -- last year, it was around INR 45 crores to INR 50 crores around. So maybe it can be -- depends upon the what volume we can create and that can be considered as a 10% plus for this year.

So you are saying INR 45 crores to INR 50 crores means 10% additional on that, correct?

Yes. That is sales promotion expenses, it covers the loyalty program, the redemptions, the carpenters, that is covering to that program. And for advertising and branding, we have targeted for the 6% to 7% of the revenue that covers trade marketing, the carpenter meets, dealer meets, the branding, the mass communication, that is covering to that.

So that is 6% to 7% of the revenue, correct?

Right. We aim for that. So right now, currently, we reached to the 4% around. And after this quarter 2 -- see, quarter 3 and quarter 4 is the month where the market is very much open to maintain these activities regarding carpenters and dealers and everything. So that is always the month that we can put more efforts into this brand communications and trade marketing also. But all over if we consider for the yearly wise, then yes, we are targeting to do 6% to 7% for the -- from the revenue.

Okay. And what about the carpenter points sir, for this particular quarter?

See, I always mentioned that it is upon -- depends upon the market to market because in newer territory, we are passing almost 12% to 13% to the carpenter points. And for the older and mature market, we are passing almost 7% to 8%. So it is between the -- to 7% to 13%. So average, it is maintained 11%, 12% around. And for the dealer, it is also same kind of [indiscernible].

Okay. And what about like the carpenter sales that you add in the revenues, like what percentage would be that be for this quarter?

Carpenter?

The -- Like you had some amount of sales in the top line, right? For the carpenter...

Okay. You are asking about the difference between the redemptions and the ratio. So it is around INR 4 crores.

Sir, we'll take the next question from Saket Saraogi.

Sir, like what was the prices of the key raw material in March and what is it now after -- like till when -- till what point it had gone and till -- and now what is the price?

So see, for this white glue adhesives, the key raw material is VAM, Vinyl Acetate Monomer. So it is averagely INR 75 to INR 78 around per kg. And that in March, last 10 days, it went up to the INR 170, INR 180, and it was also remaining to April month also. So after that, that set back to INR 150, INR 130. So it is very volatile every week, every 2, 3 days, that was a commodity product. But right now, it is set to almost INR 100 per kg.

So from March till now, the price hike we have taken, so what percentage would be of price hike we have taken?

So it was half price almost we have taken because it was taken into the mid of May month. So almost 4% was taken into the April and 11% was taken into the May, but we can consider that was taken from the mid of the quarter. So almost I think 7% of price rise we have taken right now.

Like from March till now...

For the quarter 1 I'm saying.

Okay. So for quarter 2, we haven't taken any increases or...

No, Quarter 2 we have not taken any increase. It was remained same as we have increased into the mid-May month. So right now, it is continuous.

So sir, have we seen any adverse impact because of this price increase in the sales after May?

Actually, it was impacted on that particular days where the situation was not normal. And yes, of course, customers were waiting for the price decrease also, they have put some projects on to the hold. And I think, I believe that was the scenario all over across the India regarding the building construction. But after June month, we got the traction and July, we are seeing that it's a good month versus demand-wise and maybe the project was very much on to the hold within this 1 month. So that was -- the demand was created again. And right now, I think situation is normal. So people have accepted that. So that is a good part what I'm trying to explain that when your brand is acceptable, when your -- all your operations are acceptable, then that is the only situation where a customer accept the new price or the incredible price hikes. So that was expected, and we got that 10% volume growth. So that was a very good sign for us.

Sir, the volume growth we have got in this quarter, was it like that people -- everybody knows the crude prices were -- have shot up. So maybe the price of the product will increase in future. So people have bought in advance before the price, like the price hike we took. So was it that the growth was front-ended and like later part the growth was lower?

No, it was -- you are very right, but it was into the March month actually because when -- I think 15th March, the situation was unstable and the price almost goes up. So yes, of course, last 15 days, March month, people has bought that inventory and procured their margins. But in April and May, I'm talking about the -- after 15th of May, the price has already increased. So after that, it is not the situation where they can take this call. It is already increased. But though what I explained at July month was that where the -- all the sites are going very well and the demands are coming back to the routing. So this is, I think, the situation happens to the -- each -- all companies right now.

So you told in the current quarter, we have taken 54 dealer meets, right? And last year, it was 30. So for this year, taking -- almost doubling this dealer meets, what has driven us to do like this because we haven't added many major new states. We are already in the current states where we are. So why doubling this dealer meets? What it will help us in?

Yes. So it was the network and it was the drive we have taken and what network or what investment we have done into the team, the channel partners. So this time, we decided that we'll go aggressively. And as I mentioned that we have made the budget for the 6% to 7%. So we decided to go aggressively and to connect the more retailers, to make the strong relationship with them, to make the visibility of the brand. So all the territories, even smaller territories we cover. So the last year in April, May month, we have not that much of team or well-established experienced people and what investment we have done into the training and inductions and everything. So it's all put together, we can say it's a drive we have decided and that we were able to cover that in a very short period.

Okay. Sir, last question, like the 2,000 tonne capacity we have, what the capacity rates were on the presentation. So what will be the utilization as of -- like last quarter?

This quarter 1, you are saying right?

Yes, sir.

Yes. So this quarter 1 is almost 70% -- 65% to 70% of total.

Okay. So the next capacity which we are putting up will come live in this quarter. So our capacity will become 3,500?

Yes.

So by when we expect to utilize capacity, 3500?

See, as I mentioned that capacity CapEx what we have done into the brownfield, so that gives us 3500 tonnes. So it can generate the INR 650 crores of revenue with the existing plant. So we want to be very well prepared because as this is an asset-light model and we have not invested much. But see, in this B2B, B2C model, this 4, 5 months are the months where the sales goes very much up. As an example, in March month, we have done 2,400 tonnes per month. So we need to be very well prepared about the -- average we are doing 1,300 tonnes per month. But still we need to prepare about that. So that's why we have advanced build our capacity to maintain this 4, 5 months sales so we cannot lose the sales into that particular months. So yes, we can aim for 3 years growth plan is INR 500 crores top line we want to achieve. So we are aiming that at least within 3 to 4 years, we can able to generate this revenue and we can fulfill our 100% capacity for the existing plant.

Sir, I'm confused. You told that 3, 4 years revenue target is INR 500 crores?

Yes, right.

A total -- sir, as of now we are INR 360 crores from current quarter run rate?

INR 314 crores. Okay. Current quarter you are saying. Okay.

It was almost INR 90 crores. So like that -- at that rate, we do INR 360 crores, if that is taken as base. So in 3, 4 years, you're targeting INR 500 crores, the growth is hardly sir, 5%, 7%, 8%, 9% [indiscernible] sir?

Right. So right now, see, I'm assuming our -- because this quarter is -- because of the revenue price has also increased also, the realization value also. So I'm considering that maybe the realization value come back to the normal and so about the volume growth in fact you see that, then we can count for the 3 years of INR 500 crores. So in earlier conversations also, in earlier call, we have guided for the next 3 years, INR 500 crores. So if you consider about, then it is 15% to 20% of volume growth rate. So now this is the additional benefit if the realization will be the same or -- we don't know the exact situation what will happen, right.

I'll just add into what MD sir is saying. So we are getting future-ready basically. And hence, this investment, brownfield expansion and all. So that's what we've been doing. We are in the transformation phase. And you might have seen since quarter 4, like we have been growing our volumes all across. We are coming with the new territories, onboarding new talents all across. So there's a huge amount of development and groundwork is going on as we speak, right? And hence, despite all odds or despite adverse conditions also, we have been able to garner a decent amount of volume growth backed by price growth also. And overall, that's why our revenue growth is in the line of 18% quarter-on-quarter, I mean, over the last, I mean, Q1 last year versus this year. So this complete transformation journey is going on. And to be future-ready, this investment has gone in all across, and it is going to give huge benefits in the coming few quarters, is what I can add in what MD sir has already said.

We'll take the next question from Vidish [indiscernible].

Sir, congratulations on a good set of numbers. Sir, I would like to -- sir, congratulations on having good volume growth. However, we are still -- we had aimed for about 15%, 20% of volume growth. So sir I would like to understand, first of all, where does the volume growth come from, from our mature strong states or from the newer states? And if you could give the mix? And sir, what -- how much are we expected to benefit from the price increase in the current quarter?