Kiri Industries Limited (532967) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 and FY '24 Earnings Conference Call of Kiri Industries Limited. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you ma'am.

Good morning, everyone, and a warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent the Investor Relations of Kiri Industries Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings conference call for the fourth quarter and financial year ending 2024. Before we begin, I would like to mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by, and information currently available to the management. Audiences are cautioned not to place undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. I would like to now introduce you to the management participating with us in today's conference call. We have with us Mr. Manish Kiri, Chairman and Managing Director; Mr. Jayesh Hirani, Senior Manager, Accounts and Finance; and Mr. Suresh Gondalia, Company Secretary. I would now request Mr. Manish Kiri to give his opening remarks. Thank you, and over to you, sir.

Good morning, everybody, and welcome to the earnings conference call for the fourth quarter and financial year 2024. Let me first brief you on the financial performance of the fourth quarter and financial year 2024, followed by the operational highlights. On a stand-alone basis, in the fourth quarter of financial year 2024, the revenue from the operations grew by 27% on a year-on-year basis to INR 200 crores, the EBITDA loss reduced by 29% year-on-year to INR 11 crores and EBITDA loss reduced by 50% on quarter-on-quarter basis. The net loss for the quarter was INR 29 crores. This loss also include the legal costs incurred during the quarter. For the financial, we are ending 2024, stand-alone revenue from the operations were INR 633 crores, which grew by approximately 5% on a year-on-year basis. And the EBITDA loss was INR 63 crores against EBITDA loss of INR 109 crores in the last financial year. Net loss was reported at INR 94 crores versus a net loss of INR 134 crores in the previous financial year. On a consolidated basis, the revenue from operations for the first -- for the fourth quarter stood at INR 269 crores, which grew by about 21%, year-on-year basis with an EBITDA profit of around INR 5 crores as compared to the EBITDA loss of INR 5 crores in the corresponding quarter of the financial year. And EBITDA loss was INR 11 crores on quarter 3, 2024. Net loss for the quarter before share of profit of associates was about INR 16 crore against INR 29 crore in FY -- quarter 3 FY 2024. The revenue and EBITDA of long-term Kiri for quarter 4, 2024, for 40% stake of Kiri, included in these financials amounted to INR 88 crores and INR 18 crores, respectively, which were INR 64 crores and INR 11 crores for quarter 4 2023. During quarter 4 2024, company was able to restrict EBITDA deficit as compared to previous 3 quarters, mainly on account of better mature margins in commodities market. Hopefully, the material margins continue to strengthen in coming quarters and demand in international market picks up and also manufacturers are able to sell their products at better prices, enabling manufacturers to earn profits. For the financial year ending 2024. On a consolidated basis, the revenue from operations was INR 949 crores. The EBITDA loss was INR 12 crores against EBITDA loss of INR 39 crores in the last financial year. Net loss was INR 88 crores versus net loss of INR 105 crore in the last financial year. In consolidated statement, the share of profit of associates include INR 221 crore of share of profit of DyStar, which does not have any impact on the valuation of the stake of Kiri in DyStar. With regards to the DyStar sales, Kiri has recently received a significant judgment on May 20, 2024, from Singapore International Commercial Court regarding legal proceedings related to the enforcement of a buyout order issued earlier by SICC. According to the order, Kiri is entitled to receive $603.8 million as a priority from the en bloc sale of entire shareholding of DyStar, the remaining balance from the proceeds of sale of DyStar will go to Senda. Moreover, the court has ruled that en block sale of DyStar will proceed without any reserve price. And the long stock date is set for December 31, 2025. This judgment makes a significant milestone for Kiri to secure $603.8 million after a long journey of litigation against its en block its joint venture partner, signaling that the end of the tunnel is finally in sight. With that, I would now like to open the floor for any questions. Thank you.

[Operator Instructions] The first question is from the line of Amit Mehendale from RoboCapital.

Manishbhai, first of all, congrats on getting a positive verdict. It's been a long battle and great to see a home time line now. So from now to next to 18 -- yes. So from now for the next 18 months, how do we see the process playing out? And do we expect money in the bank by December next year, December '25?

I think, yes, we can expect before that actually because the way the sell process is planned by the receiver, which is Deloitte. They have already started working on preparing the information memorandum and required material due diligences, mandatory diligences, so all that process has been going on since their appointment since February 2024. Now we are expecting somewhere around July-August, the bidding and the auction should start, and as per the time line thereafter, the indication is that the sell process should get concluded by around June 2025, but to have 6 months of cushion to have an extra buffer period, I think what SICC decided to have based on the recommendation from the receiver December 2025. But as a management, we are expecting the sell process to get concluded well before that. And the money should be coming to an account before that, yes.

Yes. And what will be the capital gains or PAT impact on that?

Based on the advice we have, as we would not be taking into account the indexing. We'll be paying 10% capital gain tax.

Okay. Great. And finally, how do we plan to deploy the funds -- sorry.

Yes. So I think that, that is still under the process reviewed by the Kiri's Board. But as I earlier broadly mentioned, there would be new exciting projects, which you will see in the sectors other than dyes and intermediates, which we are still contemplating. We will also see some benefits to the shareholders, and you will also see that we might reserve some funds for the future investment. So it would be a mix of the use, which would be prudent for the stakeholders, actually.

Okay. Sir, any broad idea on what -- link sir in percentage terms, what can be returned to shareholders? And what can be invested and what can be kept for future reserve? Any broad like -- will it be 1/3 each or?

No, I think majority of the funds would be used because Kiri could not grow for more than 10 years due to this litigation. And if you look at our growth was almost [indiscernible], so you can say that Kiri could not have ability to grow because of the litigation and the shareholder's dispute. So majority of the funds would be used for the future growth. And for the projects and also a number of initiatives, which the management has been taking, so majority of the funds would be utilized for the future, for the growth and for taking Kiri to the new levels. So we will be working on that.

And any indicative internal IRRs that hurdle IRR that may use for CapEx?

We have minimum IRR that we are looking at is 25% for the new project for CapEx, but our target is to have more than 30% IRR on any new projects.

The next question is from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, when I look at our promoter shareholding, it has decreased from 38% to 26% right now over the past 2, 3 years. And sir, you are telling that like we are on the road -- so the court has made judgment in our favor, so why is that then because investor confidence declined due to the recent of -- or action. So if you got anything to understand that?

Well, I have already indicated in earlier conference calls, and I would repeat that here also that promoters are highly inclined to increase the stake. And it all depends on the arrangement that the promoters are able to do to increase the stake. The intention is very positive, and we have been working on for quite a long for more than a year. And hopefully, we should be able to do it in the near future and address your question that the promoter shareholding are highly, highly keenly interested to increase now.

Okay. Sir, and my next question would be, sir, what will be our outlook for FY '25 in terms of top line and bottom line for a stand-alone business, as well as our subsidiary business, or some [indiscernible] models on that?

Sure. If you -- our interim budget for 2024, '25 because you look at the business as India operations on more of a consolidated basis because if you -- if you look at the sale of intermediates from Kiri to Lonsen Kiri, and then finished products go from Lonsen Kiri throughout, a lot of finished products go from Kiri dyes units to out. So when you put the dyes business together and also intermediate business together, the sensible analysis can be derived from the consolidated number of India operations, not DyStar. Not accounting for DyStar, but consider the additional profit that we make on selling the dyes. So if you look at the consolidated number on -- for this year, we could generate around 3% positive EBITDA. And we expect that we would cross at least INR 1,200 crores in 2024, '22 (sic) [ '25 ]. And we would try to have consolidated EBITDA of not 3%, at least between 5% to 10%. And looking at the improvements in the industry, looking at the revisal on the demand, hopefully, we should be able to make this target.

Okay. Sir that's imperative. Sir, when I -- so we have some -- sir, do you have some projects in [indiscernible]...

I request you to come back for a follow-up question.

Sure.

Yes. The next question is from the line of Bhavesh Chauhan from Aditya Birla Group.

Sir, I want to understand just going forward, will we incur any litigation expenses that now case is over?

Yes. I think we will continue to incur the litigation expenses till the funds come to our account. And what has been happening now is we have been actively engaged through our lawyers with the receiver. So receiver is trying to sell the company. And wherever the involvement of shareholders, Kiri, Senda, DyStar as a company, we need to be continuously involved in helping them in the process. And the entire process is conducted through the Kiri's counsel. Similarly, every party's counsel has been represented with counsel of the receivables. So for example, receiver's counsel is a one partner, and there is continuous communication, which has been with own partners. Now -- and also court has been asking submissions wherever necessary to decide on certain matters, while the sell process is continuing. So the engagement of counsel is continuing. The legal cost is incurring. We would not have probably the hearings, so per se, but some legal costs would continue to incur. It would be lesser than the earlier months, but it would continue to incur some legal cost til the money comes to our account.

Okay. That's encouraging. And sir, with regards to the sale, why has this is [indiscernible] a particular deadline of 2025 because I mean, it should be like the process should be started and should be completed as soon as possible. Will we able to do constraint process?

No. There is no constraint actually. We -- the possible -- the sell process has already started from February 2024, which has been 3, 4 months already now in the process. And what receiver has rightly indicated, is that the DyStar is a complex company, and there are multiple jurisdictions involved. And sell process will take somewhere from 9 months to 1-year and 4 months, right? And there are certain transactions, certain sales, which the receiver has a history of conducting as Deloitte also within this time frame. So indicative time frame to sell the company is ranging from 9 months from the appointment of the receiver to 1-year and 4 months. 6 months more has been considered as the contingency as a buffer time, let us say, if the sell process spill over on some regulatory approvals required by the buyer. So 6 months has been kept with a sense that if something gets delayed, there is a cushion before we got exercise, if you read the judgment something called a nuclear option, okay? And that nuclear option can be exercised by the court post long stop date. So the reason it is called long stop date of December 2025 is after that, when DyStar to be sold in the pieces, to be liquidated instead of selling the whole company as a growing concern and Kiri's dues needs to be paid. So there is a definitive timeline before which the company is to be sold and Kiri is to be paid. Post that, the company is to be liquidated if required MTDs to be paid. So that is why this long stop date with 6 months cushion has been decided by the court. But actual sell process, we expect should get realized before that, much before that.

[Operator Instructions] The next question is from the line of Burramsetty Suresh from Burram Financials.

How are you, sir?

Good, Suresh Ji. How are you?

Sir, actually, congratulations sir on fixed the amount of together Kiri, Dystar amount. But sir you have increased the stake in Kiri before -- after receive the amount and before you started the accumulate the stake -- increased the stake in Kiri sir?

The promoters have been in the process of arranging securing funds and also utilizing their assets to support fund. So as soon as that process is completed, promoters, as I mentioned, are very, very keen to increase the stake as early as possible.

After making the money and...

And it is not related to any events or anything like that. It all depends on how we are able to gather funds and utilize for increase.

Sir 100%. Actually, sir, you already -- some amount is received from market capitalization is Kiri around INR 2,000 crores, but you have received INR 5,000 crores amount at least. Generally, if you are not interested to any mutual funds or any other buyers not interested, have you contact any funds, and what is the reason, sir?

I think there are a lot of inquiries or meetings take place with various funds, and we continue to address them. I will not be able to give the reason why market is doing something different than what you have your views. But I can say that the litigation has been going on for almost 10 years. And funds have been dealing to receive by the company for many years. And court process as we all have seen, have a lot of uncertainties sometimes. So I think keeping that in view, the market participants might be waiting. Again, this is my assumption to get the funds as to realize and to see that whether the money comes to Kiri's account or not. So that could be one of the reasons if I can think the way the questions that you are asking. So that could be the way that wait till what comes, and then they may take the decision. But from our side, we continuously engage ourselves with the prospective investors, and we continue the process to address them, answer them and update them [indiscernible] on the company. So we are doing that job from our side on a regular basis.

At this time, can you confirm the final amount and take time also decided to in the fourth quarter December 25. But already have stake from foreigners around 40-plus percent, but that foreigners are not interested to increase the stake and stake are not interested to increase this?

I cannot speak on their behalf. It is their decision, its investor decision is the person like you who invest in the company, their decision. What they do, why they do, what make they do, it's up to them. Only thing we can do is we can produce the facts; we can showcase what we are doing and we present ourselves and it's up to the market them to decide. We have limited visibility on the investor side.

Actually, from a [indiscernible] is a long back in sense, but investors are also waiting for some 10 years. You can already subsidiary is -- proposal with hydrogen subsidiaries. You can receive the amount, you can plan with green hydrogen projects and Kiri development is going on and green hydrogen product is taken sir, is that logical?

There are several options. There are several exciting projects. And each project is better than others, not into dyes and intermediate industries that we have been working on. And we would try to embark on the projects that can earn more than 25% to 30% even IRR for the shareholders of the company. And we will strive to invest into those projects, greenfield projects, the projects which relates to the growth of India. The project that those relates to the replacement of imports in India on Atmanirbar policies. So we would align ourselves with the growth of the country in all these exciting sectors once the funds are available. So -- but we are working on it, preparing our groundwork, preparing our homework and at an appropriate time, we will announce 3 projects we are entering to. The near we come to the visibility of the funds, the better we would have the position to update you on these projects. But yes, there are very good projects that the company is working on right now.

And [indiscernible] can play into the welfare [indiscernible] doing a good one.

I request you to come back for a follow-up question. The next question is from the line of Abhishek Naik from Hexagon Asset.

Congratulations on the verdict. My first question is a bookkeeping question -- my first question is a bookkeeping question, sir. If you could share the cash balance at DyStar, do you have that number available?

As on year-end, which was the March -- the December end for DyStar financial year, it was around $508 million. And by end of March, I don't have a balance sheet item, but looking at the profitability and the cash generation, I would say the cash in the company will be at least $550 million, maybe more than that.

Okay. Okay. And my second question is with regard to appeal process. I fully believe that Senda would like to appeal this and try to go for a reserve price or approve RETA sharing of personnel proceeds. So when are we likely to start that process? And what would be the expected time line according to you?

The final appeal is 30 days from the date of the order. So from 20th of May, it would be around 20th of June that the appeals needs to be filed. So 30 days' time is what is a statutory time to file an appeal. And it will take at least another 9 months' time. So let's say, by March 2025 we should have -- based on our prior experience, it takes around 7 months to a year time. If I take average of 9 months, then you are looking at March 2025 where the appeal should be completed. But the sell process is not going to stop. There is no stay on discontinuing sell process, awaiting the outcome of the appeal. So that is not the case. So it is not going to offset their time lines in the sell process that has been decided by the court.

Understood. Understood. And also do you also plan to appeal for the...

I request you to come back for a follow-up question.

It's just a follow-up question. It's interest appeal question?

Yes, I will -- we have a legal advice to strongly file an appeal for the interest part, which we haven't got -- gotten. So interest part is an important part, and we have a very strong reasoning. Our belief is strong. So we will file appeal for the interest.

The next question is from the line of Kevin from Capral Capital.

Sir, I just wanted to understand how much valuation do you assess for the DyStar since -- if you see in 2024 since last 10 years, the sales has not increased, the profitability is almost the same. So we can talk about cycles, right. But how much valuation do you assess that DyStar will get a minimum of that valuation? And my second question was, are you seeing potential buyers right now? So are you seen an inquiries for the purchase of the DyStar stake in the en bloc sale? so yes, these are my 2 questions.

Yes. So to answer your first question, if you look at the cash free, debt-free basis and if you look at the consistency of EBITDA of DyStar based on the past established performance is around $150 million, right? So depending on how the buyers recognizes, the valuation may vary from 7x EBITDA, 6x EBITDA to even 8x, 10x EBITDA, right? So it would be in that range considering the base main EBITDA of 150, that is what I would look at it, correct. Now depending on the kinds of buyers who jump in, it would change in that range. But it doesn't matter for Kiri. For Kiri, whether the DyStar is sold at a higher price or a lower price, Kiri is going to get what is the crystallized amount given by the court. Of course, the objective is to sell at a higher price. And the receivable attempt would also be to sell at a maximum possible price. And that would be the range, which I mentioned to you. Answer to your second question, based on my information, there are multiple buyers looking at DyStar and interested in DyStar. Some are strategic buyers. And there are many funds also, one of the -- some of the large funds, what I've learned are also looking at the buying DyStar. So there are -- there is enough interest in the market. And there are many prospective buyers at the moment who are interested to be for the company.

Yes. Okay. Sir, just one last question, if I could possible...

I request you to come back for follow-up. The next question is from the line of Ashit Kothari Individual Investor.

Congratulations. Sir, my question is, while this is getting delayed, our activities in domestic is practically very, very standstill kind of thing. And currently, what you say is 27% increase. So out of that, how much of it is trading and how much is manufacturing? And what is our current utilization, capacity utilization in manufacturing?

Sure. See, the trading part is very small. So almost all of the sales has been manufacturing sales. And capacity utilization still remain on the lower side. I give you the exact number. The capacity utilization on intermediate side is 36%, dyes side is less than 20% because we have large capacities and basic chemicals is about 60%. And overall, average, if we look at all facilities together, out of [ 68,725 ] tonnes, we have produced 34,388 tonnes, so which is about 50% of the production capacity.

Sir, have you given a thought as to if we are not getting the amount, what we are expected to, then we take control of Lonsen Kiri?

Well, I think Lonsen Kiri is separate. Today also, Lonsen Kiri managed and operated by Kiri as per the shareholders' agreement as a management control. It is still with Kiri. But both the entities are separate legal entities. So the litigation at DyStar and the court orders at DyStar, exit of Kiri from DyStar is nothing to do with Lonsen Kiri at all, that's even though both the shareholders are same, it's a separate legal entity. And if there is any separation takes place at Lonsen Kiri, it could be a bilateral negotiation between both the shareholders at an appropriate time. So both are actually disconnected. It's not related to each other.

I understand, sir, but it's -- all the legal stuff takes away so much of energy of the management. I mean, say ...

Yes. Yes.

We just talked about it, you all are experienced it.

Yes.

So if Lonsen Kiri would have been hedged into your -- as part of your overall dealing in case, then again, another chapter doesn't get opened up?

I fully agree with you. And with that in mind, we've had several times proposed to our partner to have an amicable settlement with Lonsen Kiri, and also express Kiri's interest being a local partner to acquire them at a fair value, but somehow the -- there is no step forward from their side. So we hope that sense prevail after so many years of litigation, and we hope that the partner post DyStar try to work out and we can believe and we don't have to go through a legal route for this operation I hope so. Again, you're looking at the kind of a difficult nature of the Chinese partner, I don't have much hope. But let's see how things unfold going forward.

The next question is from the line of Manoj Bhura from Adinath Financial Service Private Limited.

I have 2, 3 questions. First question is regarding Lonsen Kiri. Lonsen Kiri is probably a huge process. This profitability is very good, almost 30%, it is earnings operating profit. And around 15% is net profit. And is it in the same line of business as Kiri or different?