Meghmani Organics Limited (MOL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q4 FY '24 Earnings Conference Call of Meghmani Organics Limited, hosted by Arihant Capital Market. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Jain from Arihant Capital Markets. Thank you, and over to you.

Good morning, everyone. This is Abhishek Jain from Arihant Capital. I would like to thank the management of Meghmani Organic Limited; Mr. Ankit Patel, Chairman and MD; Gurjant Singh Chahal, CFO; and Mr. Nishant Vyas, Investor Relations. Without taking much more time, I'm now handing over to the management. Please take it over.

Thank you, Abhishek Ji. Good morning, everyone, and thank you for joining us on our fourth quarter earnings call. I believe you have got a chance to go through the financial results and the investor presentation uploaded on the stock exchanges and the website. Before deep diving into the financial performance of the company in Q4 and financial year ended 31st March 2024, I would like to share operational highlights for FY '24. In our Crop Nutrition segment, which is Meghmani Crop Nutrition Limited, we have commissioned our nano urea plant in the month of March. As a part of our steel marketing, we were able to tap 65,000 farmers in Gujarat, Rajasthan, Maharashtra, Madhya Pradesh and have successfully conducted more than 3,500 demonstration to showcase the efficacy of Meghmani nano urea in different crops like wheat, corn, onion, tomato, chilly and other crops. Additionally, we have also started interacting with export market customers in regions like Latin America, Africa, Asia, highlighting the benefits of Meghmani Nano Urea. Further, we also plan to introduce about 4 to 5 new products in the segments of fertilizers, biofertilizers and biostimulant category to add more products in our market, providing a comprehensive one-stop solution for our farmers. Moving to titanium dioxide, we have commissioned the Co-gen Power Plant, which will help us to reduce the energy cost, which is a major cost component in titanium dioxide manufacturing process. I would also like to add that both these products contribute to the Government's Make in India and Atmanirbhar Bharat vision. Moving to our financial performance in Q4 FY '24, the company reported revenue of INR 400 crores and EBITDA of about INR 10 crores as compared to revenue of INR 345 crores and EBITDA of negative INR 0.4 crores in Q3 FY '24, registering a gradual improvement on quarter-on-quarter basis. In FY '24, the company reported revenue of INR 1,540 crores and EBITDA of INR 9.5 crores, impacted by sluggish global demand and lower product price realization across the markets. Profitability was also impacted up to INR 70 crores due to the inventory destocking. If I talk about the revenue mix, crop protection contributes about 70% of total revenue and the balance 30% comes from the pigment segment. Now let us look at our segment-wide performance in FY '24. In the crop protection segment, production stood at about 36,780 metric tons with a capacity utilization of about 67% and revenue stood at about INR 1,079 crores with an EBITDA of INR 44 crores and which was impacted by sluggish global demand. We are optimistic that once the situation starts stabilizing, we are well positioned to leverage our state-of-the-art infrastructure along with the backward integration. For pigment segment, production stood at 13,721 metric tons with a capacity utilization of about 41%. The segment reported revenue and EBITDA of INR 461 crores and negative EBITDA of INR 6.6 crores, respectively. Impacted by the prevailing price erosion in the pigment industry due to demand contraction globally and volatility in crude oil price impacted raw material prices. We anticipate that the overall scenario will start normalizing from second half of FY '25 and we have all the enablers to regain our normal double-digit growth trajectory which we had demonstrated throughout all these years, nano urea and titanium dioxide would also start contributing meaningful from FY '25 which would help us make further inroads into the domestic market, increasing its contribution to our total revenue base, thus enabling us to strike balance between both the markets. To conclude, once again I would like to reiterate that our long-term growth prospect remains intact given our state-of-the-art infrastructure, plant capability, wider product range and geographical reach which will help Meghmani Organics to command sustainable long-term position. With this, I hand over the call to the moderator to open the floor for the question and answers. Thank you.

[Operator Instructions] We'll take the first question from the line of Jainam Ghelani from Svan Investments.

So sir, recently, one of the global players in the pigment space has filed for bankruptcy. So, how do we see that affecting us and what benefits could we get from this?

Yes, Jainam ji, recently you rightly mentioned some of the multinational companies based out in Europe facing problems. And I would say it is a good thing because the high-cost companies which are present in developed markets like U.S. and Europe, they will shut down their manufacturing base in those countries and the market will move to India as well as China. Now, in the pigment segment and where we are, which is a copper phthalocyanine-based pigment, India has got upper edge over China. So definitely the advantage will come to India and with our strong manufacturing base and major presence globally, we will have a good scope for the growth in this segment.

So sir, can we expect that the prices have bottomed out in the pigment space? Or is it expected to remain at these levels?

Yes, definitely we can say that not only in the pigment segment but even in the agro segment. Prices have bottomed out completely and with the improvement in demand, we see the prices will also go up and there will be increase in volume as well as value.

So sir, is there any approximate values that you can quantify for the volume growth and value growth that we see for FY '25?

Jainam ji, it would be difficult to explain at this juncture about the growth in volume and value. As I mentioned, we see the improvement start taking place from the second quarter onwards and we will see better numbers in the second half of the financial year. So, overall, as a year, we see the good demand is going to be there. But from what will be the growth in terms of volume and value, it is a little difficult to mention at this juncture. But as and when, after the first quarter, once we will have more clarity, we will be able to share those details.

[Operator Instructions] We have a question from the line of Dhwanil Desai from Turtle Capital. Since there is no response, we'll move on to our next question from the line of Darshika Khemka from Av Fincorp.

So my question was basically regarding the Crop Nutrition segment. What kind of revenues -- are we expecting these sort of revenues to come in from FY '25 onwards? And what kind of asset terms can you look at peak capacity? And when do we expect that to come?

So Darshika Ji, in the Crop Nutrition segment, nano urea is relatively new product. And we are there to create a pull factor right now, and we are doing a lot of demonstration with the farmer. So over a period of next 2 to 3 years, we see significant growth happening in this segment. But in the first year, it is going to be a little difficult to mention about kind of the revenue generation in this segment, but we see good revenue happening in the first year itself. Regarding capacity utilization, our capacity is about INR 5 crore bottles a year, which is a very high capacity. So it would be very difficult to achieve significant capacity level in the first year. But from second and third year onwards, there will be reasonably capacity utilization.

We'll take our next question from the line of Rohit Sinha from Sunidhi Securities.

Actually, I joined a bit late. So if you have already indicated about this, please pardon me. Especially on the debt side, as there is a significant debt, we have this quarter, we see a sharp reduction in the interest cost. So, on that, how we see going forward our debt side to be, especially new projects coming up and when we'll be seeing basically what kind of improvement in the pigment side, especially as we have been in discuss with some of the dealers as they are indicating for a price improvement in the pigment side. But I wanted to hear your thoughts on your side.

So, Rohit bhai, first of all, regarding the capex and the debt point of view, we already -- before the downturn started taking place, we already completed all our major capex. So I would say in next one or two years, there is not going to be major capex. So we are already there ready with the infrastructure in both the segments. So, once market improves, we will be there to take the advantage of the situation. And regarding the debt position, yes, there is some little high debt as of now. And this financial year, we'll be repaying about INR 140 crores repayment is going to be there. Again, subsequently in the next financial year, there will be further debt reduction. So, in next two years, we are not going to do any significant capex. And there will be debt reduction taking place in this year as well as next year. So, in next one- or two-years' time, we'll be at a reasonable position from the debt point of view. And regarding the pigment price realization point of view, yes, it has already bottomed out completely and the raw material prices have also come down. So, the raw material to sales ratio has also become normal now. And we see now as the demand picks up, the prices will also start going up. So, there is going to be positive impact in this financial year from the pigment segment point of view.

Okay, okay. Secondly, on the titanium dioxide plant, how that is operating at what level? And how is the overall market outlook from your end?

Rohit Bhai, titanium dioxie, the first, as I mentioned in my initial speech, the core cost for this segment is the utility cost, power and steam and which we were in the process of putting our own captive power plant, which we commissioned in the last quarter. So, it is going to help us reduce our overall manufacturing cost. And that will help us significantly. From the demand point of view, currently the titanium dioxide market in India is about 400,000 tons. And out of 400,000 tons, almost 260,000 tons worth of titanium dioxide is only coming from China, apart from other markets. So China is a major factor which is impacting a lot. So as a local industry, there has been initiation on anti-dumping duty on titanium dioxide in India. So, we see some preliminary anti-dumping duty coming on titanium dioxide on Chinese goods somewhere in next four to six months' time. So that will help local industry significantly, as well as Meghmani Organics Limited. And from demand perspective, there is no issue. And we are now stabilizing our plant with the captive power plant. So we are going to take the advantage of the market condition once the anti-dumping duty comes in picture.

Okay. Okay. Sir, any number you can mention on the utilizing level?

So as of now the utilization level is low. But we see from the first quarter, in this quarter onwards only, the utilization level will reach to 60% plus.

We'll take a next question from the line of Dhwanil Desai from Turtle Capital.

So my first question is, agrochem segment as a whole, the industry has been facing challenges for the last 1.5 and 2 years. And, you know, every quarter, even the global agrochem companies, they keep on extending the timeline in terms of recovery. So now you're saying that FY '25 second half, we may see some recovery. So is it based on some indication that you have got from your customer or it is more of your general understanding of the industry? If you can elaborate on that, what gives you that confidence?

So Dhwanil ji, as an agrochemical segment point of view, we are exporting to more than 70 countries. So we have got pretty strong presence, and we are in touch with all of our customers globally. So we keep on getting information about the global market conditions and everything. Now, after COVID, because of the supply chain disruption, lot of companies started making huge inventory. In '21, '22, and which we saw the negative impact in the year of '23. So now those inventory have started going down significantly. In fact, it has gone to almost normal level now. And in the agrochemical segment, because it is directly linked to the agriculture, now every country in the world is talking about the food security. And as the population is increasing, arable land is decreasing, we need to have more yield agriculture crop, we need more. And because of that, there is going to be good demand from the crop protection chemicals point of view. So there is not going to be, this is not related to other industry, but directly related to agriculture. And now, as I mentioned, the inventory level has gone down in different, different markets. And as a result of it, we see demand improvement taking place from the second quarter onwards.

Customers are already given your indications are placing orders, which gives you that confidence. Is that right?

That's correct. So customers have also started showing positivity and regarding placing the order. The only thing is people have got, you know, burned their fingers significantly because of high inventory. So people are going cautious rather than putting big orders. They are putting small, small orders in more number of orders they are putting with the small, small quantities. But yes, that will lead to good demand.

Okay. Got it. Very useful. Second question, slightly broader, but on nano urea. Nano urea is a segment, you know, there are many fertilizer companies, very large in nature, present in this market and we are relatively new in this segment. So given that, you know, what is the level of confidence and what are the things that we are seeing on ground or your thought through, which gives you confidence that nano urea is something which we will be able to scale up profitably in the next two, three years?

So definitely, we are not a fertilizer company. So compared to fertilizer companies, we are relatively new in the nutrition segment. But again, as I mentioned, we are already in crop protection since more than 30 years. So that has -- in the same segment, in agriculture segment, apart from crop protection, this is a crop nutrition. So we are just adding some new products which are going to help the farmer. So the channel remains the same. Some of the channel partners are relatively new. S, it's going to be not that difficult for us because we are already knowing the facts in the agriculture segment. So it's not going to be that much difficult for Meghmani. Regarding the utilization and the revenue mix, we see this product will improve. We are doing a lot of demonstration as of now in different, different markets to make farmer understand, realize that how the product works. And here, the application is very important. So unless and until you give them the demonstration, they will not understand. Initially, when the fertilizer urea came to the market in 70s and 80s, even during those period, farmer were not used to utilize -- use the urea in a big way. So during those days also, a lot of companies -- fertilizer companies, they were doing a lot of field activity, demonstration to the farmer. When the product is new, you need to make them understand very well. So those kinds of steps we are taking, and we are very confident that over a period of next 2-3 years, it is going to be a significant product. Even Government of India, our Prime Minister himself is promoting Nano Fertilizer in a big way. You might have seen across the election -- political rallies also in the, this was one of the agenda. And government wants to reduce significant load of subsidy on fertilizer. So that is going to also help nano urea consumption point of view.

And you see a similar kind of margins and ROCE that we as a company make in a normalized environment in nano urea or is there any difference in that?

I'm sorry, can you repeat your question?

On the nano urea as a segment, you see similar kind of margins and ROCE, which the other company level used to make in a normal environment. Currently, we are going to adopt that.

Yes. So the market level would be in the range of about 15% to 17%.

[Operator Instructions] The next question is from the line of Rajan Mehta from AMS Investments.

Sir, I have a few questions regarding the two segments that we have titanium dioxide and nano urea. Starting with the titanium dioxide part, current capacity is 16,500 tons. To understand over here, what is the market size, and our current utilization is under 50%. When do we expect to reach it to utilization and what would be the peak utilization? That is my first question.

Okay. So Rajan bhai, as far as the titanium dioxide market is concerned, Indian market size is close to 400,000 tons and the major application of titanium dioxide is in the paint segment. More than 70% of the titanium dioxide is being consumed in the paint segment. And as you know, the paint segment in India is growing significantly and a lot of big companies are entering into the paint business. So you can see, as the paint segment is growing, titanium dioxide is also going to be parallelly growing in this market. Regarding the capacity utilization, we are very confident that 16,500 tons is a very small capacity as far as the Indian market size is concerned. So it's not going to be that big impact on the market. But as a Meghmani, once I think in this financial year, we should be able to utilize the plant at about 60% capacity.

Understood. Right. So when you say 400,000 tons, how much of this would be imports and how much would be from domestic players. And who would be the largest domestic player since we only have 16,500 tons?

So I would say more than 70% is being imported in India. And again, out of more than 70%, a significant portion comes from China. In India, there are about three or four players like Kerala Minerals, Tuticorin Minerals, V.V. Mineral. We are also there. So again, all these plants put together capacity is about 80,000 tons, not more than that. So you can understand the -- there is a significant import is coming in place and that is why -- and China is dumping the material. And because of that, only the anti-dumping initiation has started place on titanium dioxide.

How much will be the dumping duty, sir?

So it's up to the government. The government is analyzing the numbers. So every company has submitted the numbers, and they are also going to evaluate the import data. And based on there is a lot of evaluation is taking place. And based on that only, the import duty percentage is decided. So it is a little early to mention about the percentage of anti-dumping duty.

Okay. So is it already levied or is it still in consideration?

So the application was made in the month of February. Normally, it takes 1 year, 1 full year. But provisional anti-dumping duty comes in 6 to 8 months' time.

Understood. Okay. Sir, my second part is towards the raw material procurement for titanium dioxide. Do we source it locally or do we make it in-house? I'm a bit unclear about this part.

So the main raw material for titanium dioxide is the ilmenite, which is a naturally occurring ore. So, Indian Rare Earths normally provides. So we buy from the Indian Rare Earths organization. Import is also possible. So we can buy either imported as well as we can buy it domestically. So, there are both the options available.

Understood. Perfect. Sir, moving on to the nano urea part. I was trying to understand the difference between nano urea and urea. From what I was able to understand the nano urea is slightly smaller in size. What other differentiation or benefit can be assessed in nano urea that is not there in urea? Is it in usage? Is it in functionality? If you can just explain this?

Sure. So normally urea is in the granule form, about 5 mm granule, 3 to 5 mm granule. So it is much bigger in particle size. So as you mentioned, nano means, yes, the particles are much smaller. It is in the range of about 20 to 50 nanometre range. So which is much smaller compared to urea. So because of the better particle, the absorption in the plant, it is much better. So that is one thing. So because of better absorption, you don't need to spray a lot of urea. So when we, normally about 45 kg of bag is used per acre. And out of 45 kg of urea, more than 70% of urea either goes into the air by vaporization or goes into the soil or water, which is not being absorbed by the plant efficiently. Now, this nano urea is a foliar application. It is a spray, which goes directly on the leaves and from leaves, it is directly absorbed because of the small particle size. So the dosage goes down and it is very well efficiently absorbed by the plant. And because of that, there is a significant reduction of soil pollution, air pollution and water pollution. Soil becomes soft and the plant's capability to absorb the other nutrition becomes much better. So right now in India, almost 35 million tons of urea is being consumed. Out of 35 million tons, almost 9 million tons of urea is being imported. And the government on all the fertilizer pays more than INR 2 lakh crores worth of subsidy. So there is a significant load on government to pay the subsidy as well as there is a lot of foreign exchanges going out of the country because of the import. So here government has introduced, IFFCO has introduced this new technology, patented technology product, which there is no subsidy on this product and so government is not going to lose anything from the subsidy payment point of view as well as there is not going to be any import. So there is going to be benefit from two points of view, foreign exchange as well as subsidy payment out point of view. And from the farmer point of view, because it is significantly low in volume and the price is also better than the urea price and the results are also better compared to the urea, so farmer is also going to be benefited, government is also going to be benefited. So it is going to be the win-win situation. And government has already declared that 9 million tons of urea which is being imported right now, by '25, '26 government is going to completely restrict these 9 million tons first. So you can understand that much amount of urea will be converted into nano urea.

Okay. So 9 million tons is something additional industry opportunity that we are seeing right now. I understand that. Sir, in the capacity in the presentation, we mentioned that 5 crore bottles in tonnage side, can you explain what would be the tonnage of 5 crores bottles?

So 1 bottle is equivalent to about 500 ml. So you can say about 25,000 tons is the volume of nano urea. So -- but it is very efficient. So if you compare with the urea, it is going to substitute a huge amount of urea.

Right. So -- but in nano urea market, how much did you say it was? Because urea, you mentioned 35 million tons.