PCBL Chemical Limited (PCBL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to PCBL Limited Q4 FY '23 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjesh Jain from ICICI Securities. Thank you, and over to you, sir.

Thanks, Lizan. Good afternoon, everyone. Thank you for joining on for the PCBL Limited Q4 and FY '23 Results Conference Call. We have PCBL management on the call today represented by Mr. Kaushik Roy, Managing Director; Mr. Raj Gupta, Chief Financial Officer; Mr. Saket Shah, Head, Investor Relations; and Mr. Pankaj Kedia, Vice President, Investor Relations. I would like to invite Mr. Kaushik Roy to initiate the call with his opening remarks, post which we will have a Q&A session. Over to you, sir.

Thank you so much. Good afternoon, everyone. Thank you for taking time out to join us today for this call. Our results are announced today, and I will quickly take you through the update and then open it up for questions. We will start with the highlights of our performance of fourth quarter. PCBL reported a good operating and financial performance during the quarter. We reported a sales volume of 119,238 metric tons during the quarter. This was backed by domestic sales volume of 80,045 metric tons and international sales volume of 39,493 metric tons. If you look segment wise, the entire accounted for 79,617 metric tons. Performance Chemicals reported sales volume of 28,126 metric tons and Specialty Chemicals sales stood at 11,495 metric tons. Our revenue increased year-on-year from INR 1,219 crores to INR 1,374 crores in Q4 FY '23. EBITDA increased to INR 200 crores year-on-year from INR 148 crores. EBITDA per metric tons stood at 15,767. PAT stood at INR 102 crores during the quarter. Power generation increased from 149 million units in Q4 FY '22 to 153 million units during the quarter with external sales volume of 90 million units as against 91 million units in Q4 FY '22. With rising demand for power in the country and consequent increase in power tariff, PCBL's average realization against power sales saw a sharp jump up to 3.93 per kilowatt hour year-on-year from 3.30 per kilowatt hour in Q4 FY '22. Now let me talk about FY '23 full year performance. Our revenue increased year-on-year from INR 4,446 crores to INR 5,874 crores in FY '23. EBITDA increased to INR 775 crores, year-on-year from INR 682 crores. EBITDA per metric tons stood at 17,405, PAT stood at INR 444 crores during the year. PCBL reported sales volume of 445,184 metric tons during the year. This was backed by domestic sales volume of 308,717 metric tons and international sales volume of 136,467 metric tons. If you look at segment wise sales, tire accounted for 312,209 metric tons. Performance Chemicals reported sales volume of 92,600 metric ton and Specialty chemical sales of 40,375 metric tons. Power generation increased from 544 million units in FY '22 to 597 million units during the year with external sales volume of 356 million units as against 321 million units in FY '22. With rising demand for power in the country and consequent increase in power tariffs, PCBL's average realization against power sales saw a sharp jump up to 3.81 per kilowatt year-on-year from 2.99 per kilowatt in FY '22. Despite steep increase in crude price, EBITDA per metric ton has improved on the back of improvements in operating efficiencies, product mix changes and strong performance from Power segment. Current market scenario and outlook. In the domestic market, demand is growing with continued strong momentum in OEM and segment and improvement in replacement market as well. We expect tire demand to remain healthy going forward. In FY '22 and FY '23, Indian tire industry volume grew at 10% plus per year. Going forward over the next couple of years, we expect tire industry growth to settle in high single-digit volume growth. This would help the carbon black industry to increase capacity utilization. International market is witnessing visible signs of pickup in demand, and we expect demand outlook to sustain over medium term. We expect further recovery in international markets. This is geared for the next leg of growth with sufficient capacity to cater to demand from India and global market. The company has taken several initiatives to expand its overseas market presence and expect consistent improvement in international sales volume. Status update on expansion class. First phase of Greenfield project in Chennai, in Tamil Nadu, being implemented by [indiscernible] Tamil Nadu has been commissioned. Rest of the capacity is going to be commissioned over the next [indiscernible]. First phase of downturn expansion of specialty lines as Mumbra is almost ready as and is under commissioning. So that is the summation I have on the business outlook. At this point, I'm more than happy to open it up to the floor for questions, please. Thank you.

[Operator Instructions] The first question is from the line of Madhav from Fidelity.

I wanted to ask -- I mean I was just reading a couple of scenario. And I think there were some slow around the Europe or U.S. looking to ban import of carbon black from Russia, I think some time this year or next year. And also, I think U.S. looking to impose some import duties as well on import of any Russian carbon black. So I just wanted to get your thoughts, like is that something which has happened already or something which is under discussion?

Well, there has been the stock going on for some time. Europe talked about banning import of carbon black from Russia from June 2024. U.S. has talked about it, but they have not defined any time line as of today. So in the current scenario, Russia is still supplying to Europe as well as U.S.A. But I guess the customers from Europe and U.S.A., they are possibly looking at other options as well, which is good for an organization like PCBL. So while generally, there is a bit of a challenge on the economic side in Europe, but because of the business that they are -- alternative against a share. So it will be an advantageous position for us.

Have you seen any increased inquiries from customers in Europe and U.S. trying to diversify our base commission?

Yes. We have seen some increase in inquiries from both U.S.A. and Europe. U.S.A., as such structurally is also not really in favor of not importing because the supply-demand gap is increasing. There is no new capacity which has come up in U.S.A. in recent times, whereas the demand has gone up over a period of time. So U.S.A. anyway, structurally they need to import from outside. And this Russian thing is kind of added problem for them. And Europe, as I already said, they are looking at other options. So therefore, this is where we stand. And to my mind, it is a sweet spot for us.

Understood. Got it. Because what we understand is at least reading some of the global commentary on tires or carbon black or auto industry, like it seems like carbon black is in some sort of a shortage or might be in a short -- entering into a shortage scenario in Europe and U.S. like going ahead because of what's happening, especially in Russia. Is that like a fair understanding to have?

Yes, I think demand is likely to remain strong. And if Russia is not able to supply, Russia is a fairly big ball. And then obviously, it will be kind of -- I'll not say there is shortage seriously, but I think the demand will be strong, which is good for everyone in the carbon black industry.

We'll move on to the next question. That is from the line of Vishal Prasad from VB Capital.

The battery chemicals that we are working on, is there any update there?

On the battery?

Battery chemicals...

It is part of our specialty chemicals portfolio. And in that portfolio, you have -- we have plastic, ink, paint, coating and also battery chemicals, carbonate material actually. And the research team is still working on. They have made top progress already. But the final products has still not come out. We have looked at some products which are closer in terms of specification and characteristics, but some fine-tuning is still going on. So I guess we'll be there very soon. But a lot of progress was made in this area.

Sir, I understand you asked -- that if you could talk about the opportunities that we see in battery chemicals so that I understand the opportunity size, the kind of customers we are looking at, the continents we are looking at, that will be helpful.

Well -- as I already said, it is part of the specialty chemical portfolio. And in terms of opportunity, as more and more EV vehicles come on the road, this will be a kind of requirement for automobile manufacturers and actually for the battery manufacturer. But at this moment, the percentage of vehicles with EV is still compared to the IT and industry vehicles, it is much lesser. So not absolute term, it is a huge market, but it is likely to be a pulse-growing market as more and more fossil fuel driven vehicles will be replaced with electric driven vehicles, which is battery driven vehicle in this case. So we are also keeping pace with that. We are also keeping pace with that. And I think as soon as possible, we'll come up with this final product, which then can bring value back to the organization in a big way.

And sir, usually, once we have the product, what's the approval time, does it takes years or it's 3 months?

Sorry, come again?

So once we have the product, so usually, what's the approval time from our clients in battery chemicals, it is months or it may take years?

No, it may not take years, but it can take anywhere between 6 months to 1 year or maybe a little more than 1 year. But not like 3, 4 years or something. No, not really. I think we can manage it in a year's time.

Okay. And sir, last question, sir. What are the hybrid fillers, you have mentioned it in the deck. So if you could help me understand.

Hybrid filler?

Yes, under Specialty Chemicals.

Have you read something somewhere, you were referring to that? Or...

No, your deck, just beside nanotubes, you mentioned hybrid filler.

That is in the space of material signs. Our R&D team is also working on some areas, which is relating to that, this is relating to advanced material time. And nanotube is one of them, nano materials are one of them, which have got different applications. Not only tire, but much beyond tire also. But it is a completely newer kind of product and it is based on fundamental research. So this is the hybrid material that we have talked about in the deck.

Okay. I was not talking about carbon nanotube, sir. I'm just focused on futuristic technology, you mentioned hybrid fillers.

Hybrid fillers, he is talking about the components of polymers...

See, I will tell you for different applications in rubber particularly, we are also looking at a possibility of mixing different polymers with carbon black and come out with certain properties. It can be for rubber, it also can be used for things like plastic, so both kind of applications we are looking at. But it has not yet taken a final shape because we are trying out with a few different polymers. And we have to come out with the final one, which is putting the requirement of tire, particularly from the angle of the oil grid, noise reduction or reduction of volume to bring down the fuel consumption. So these are some of the opportunities we are exploring at this point of time. But it is at the stage of exploration at this moving. And nanotube what I just now mentioned, that is also one of them kind of.

The next question is from the line of Aditya Khetan from SMIFS Institutional.

Sir, first question is also the carbon black prices. So carbon black prices have been correcting and the trend is largely on to the declining side only. So this is -- led by declining raw material prices or you're expecting some short-term demand impact into the exports or into the domestic market for this quarter only?

Raw material price increase we are kind of immune to cost increase or decrease because in most cases, we have a formal understanding with our customers. So whether it increases or it decreases, it is normally a pass-through for us. So we focus more on the market demand side of it. That is from the market side. Clearly, we look at the demand. And from our side, what we look at offering higher value products to our customers to get market share from maybe other competitors and better services. That is from our side purely and demand is driven by the market, of course.

Okay. And sir, how are you seeing the demand in Southeast Asia? Because that is a larger pie -- market and considering the inflation biting the consumer budget, do you see any real-time pain in demand in the exports market?

So I think demand, to my mind, globally will be strong, especially a share will be very strong from demand partners. I think we are also well geared off because the Chennai plant, as I mentioned a while back, it has been in the commissioning stage, first phase has already been commissioned. So we are in a spot where we can capture this growth, which is likely to happen in the South Asian market, particularly. And also beyond that in U.S. economy, right? Europe is a little bit of a challenge. But overall basis, I think it is looking pretty positive at the moment.

Okay. Sir, volumes in this quarter have gone up quite significantly. So this is largely led by the first phase expansion -- so what would be the utilization of the current plant which we have started in this quarter, if you can share the numbers on it.

You are talking about Chennai?

Yes, yes.

Okay. Chennai in this financial year, we are likely to utilize roughly about 40,000 to 50,000 of the capacity. It honestly depends on the approval process of different customers and the time required for that. If it is approved faster, we might be able to utilize it more. But if it is up toward, takes more time than it might take also little more time where we might not be able to utilize capital. But based on our...

Sir, 40% utilization on to the 62,000 tonnes usually in there, right?

40% is roughly about 60,000, you are right, 40,000 -- 40% is roughly about 60,000-odd. So we do expect that we will be able to utilize to that extent.

Sir, one last question, sir, on to the price part. We have seen that on quarter-on-quarter basis that has corrected, so are we into a scenario where in the price like would continue to decline and come to a normalized level, which we have seen over the last 4, 5 years, or the upcoming specialty black capacity expansion that can offset the decline into the normal rate carbon black. So how do you see this trend to move from here on?

See, I'll tell you the carbon black that we use in tire, it has got certain properties and certain application in tire. And that will continue. There is no question of, it is not being used. It's a major raw material for tire industry. And the utilization of carbon black will continue. So that one still continues and definitely will grow along with that business growth. And specialty is kind of independent. It has got multiple application. It goes into [ cost-related ] application. It goes into paint, it goes into ink, holding batteries many other applications it goes in. It is like part of our daily life. So what will grow to my mind...

So do we see that transact such -- for the current quarter rates are sustainable or there could be further business?

Current quarter of quarter sustainable, Speciality.

Sir, the rate of current quarter, what we have reported..

Rate of second quarter. I think it is -- yes, I think in near term, I think we'll be able to maintain that. We should be able to do maintain that. We are quite positive about it. We're quite positive about it. Yes. I mean, a little bit benefit we got in recent times because of some corrections here and there, which cannot be. But overall, it will be recent one.

The next question is from the line of Chintan Chheda from Quest Investment Advisors Private Limited.

Sir, my first question is on specialty carbon black. So this quarter, we have reported a record high volumes in the specialty business. So how do you see this trajectory going forward for FY '24?

We should be looking at further growth from here on. Keeping in mind, particularly the Mundra line is going to come into operations. So we do expect a decent growth. I mean other than this numbers wat we have already achieved in Q4 will definitely maintain and possibly improve from there on. Yes. So easily say, this rate will be maintained and additionally, maybe we'll look for another 10,000 tonnes, 10,000 to 12,000 overall, we'll be looking at for sure.

So another 10,000 to 12,000 on this FY '23 numbers, full year numbers?

That's right on the FY '23 number, which means I'm talking about 25,000 growth kind of thing.

Yes. Got it. Great. And secondly, sir, just one question on the asset part. With respect to the currently this, coal tar prices have corrected a lot in China.

Sorry to interrupt you, we are not able to hear you.

Is this better now?

Much better, thank you.

So sir, recently, we have seen that the coal tar prices in China have corrected quite a bit. So because of that, are we seeing any pressure on the spreads for our company in the export market?

Not really because coal tar is not a direct raw material for carbon black. The direct raw material is actually CBO. So CBO prices have not come down that much. It has come down marginally, but still, there is quite a bit of gap between petro-based products and CBO. So, so far, we have not seen any major issue or anything really. And I don't think that's the cause of concern as well. My colleague also wants to add something, Raj?

And I mean, at the current level of coal tar, the drop in crude prices is still about $70, $80 per tonne. So -- and I think difference will be significantly higher with [indiscernible].

Okay. So earlier, we were seeing in the earlier quarters that the difference between CBSH and CBO had gone somewhere about $300. So how much would be that difference as of date?

That difference, actually going back to almost $500 still a couple of months back. That difference is again back to the $200 to $300.

Okay. So in that case, our, say, blended gross margins per tonne will they be around this, say, 30, 31 levels for FY '24 per KGM, I'm talking about?

Yes. Like our MD just mentioned that we are hopeful of maintaining capital prices.

That can always happen, but by and large, we still will be on the strong in that sense.

The next question is from the line of Varshit Shah from Envision Capital.

You mentioned earlier that the 10% volume was per tire industry in this fiscal. Then why have our volumes declined for the entire year? Did we face any strategic constraints like probably work operating at max utilization?

Yes, yes, yes, I think there's some problem with the line, now it is clear. We talked about growth of tire industry, of course. But last year was a little unusual. I just want to mention that there was huge up and down side, which consequently impacted all the crude-based raw material to tire industry. And that led to major inventory management, inventory adjustment at tire industry side. And what happened in particularly 2 quarters, in quarter 1 and quarter 3, there were inventory correction on account of tire industries, on side of tire industry, which negatively impacted us. So there's no direct correlation last year because of unusual volatility in crude, that is what happened last year. But now crude has no less come to a level, and it is likely to remain within the range. And if it is ranged down, then this kind of inventory correction probably doesn't happen. So going forward, this financial status is much better.

And sir, did I hear you correctly that, 40% capacity utilization for the new Tamil Nadu plant, so the overall capacity of 147,000 tonnes, so an additional 50,000, 60,000 tonnes from that new plant?

Yes. That's right, that is what. Roughly about 40%. Yes, I'll tell you, roughly, roughly about -- against this INR 147,000 crores we'll be roughly getting based on the actual products around like INR 120,000 to INR 125,000 maximum of carbon black, right? And 40%, 50% of that, we are hopeful to utilize this year itself, subject to certain approvals from different tire companies, which we are hopeful about -- and which we have kind of considered in our planning this year. And additionally, the Mundra specialty line will give some volume to us. And at the same time, what I just mentioned that Q3 and Q1 were not good last year because of inventory correction. Hopefully, this year, it will not happen. That will also depend on volume. So overall, from this [indiscernible] what you have seen this year, we are -- we feel we should be crossing 500,000 tonnes comfortably in the coming financial year, which is FY '24.

The next question is from the line of Radha from B&K Securities.

So just wanted to understand on the specialty carbon black side. So given that the global demand is about 1 million tonnes. And if we assume India to be at 70 kilotonnes and we are making 40 kilotonnes. But largely out of 40 kilotonnes 70% we are exporting. So I wanted to understand in the domestic industry out of the total sales of specialty carbon in the domestic industry. Who are the top players? And if you could -- I mean if you could understand some kind of market share based on the sales of specialty carbon in India.

Okay. I'm requesting Mr. Raj to respond to this question of yours.

Radha, we are growing very rapidly and aggressively in the specialty space. And therefore, we did not want to depend completely on Indian market demand. And therefore, the focus was to spread out and add more customers everywhere across the globe. So this was a strategic decision taken by the company. And therefore, currently, almost 2/3 of our volumes we are selling in specialty market. The market size is very large and that will take care of our next 5 to 6 years of expansion without even having to lead into other market per share, because the market itself is growing at [ 70% ].

I understood, sir. But based on the 30% sales volume in India that we are doing, is it safe to assume that we are the largest player in specialty carbon black as well in India?

In terms of manufacturing, yes. But in terms of market share, no, because a lot of specialty materials which comes in India, those rates, we don't have in our portfolio yet. And a good part of Indian requirements is currently being imported. But as we keep on adding the grades to our portfolio, then of course, I mean that's an opportunity for us.

So are you talking about conductive and superconducting grade?

So even in the...

Sir, a year back, we had 45 grades in specialty carbons -- and we were planning to add 9 to 10 grades every year. So is it at 55 as of now?

Yes. So I mean, if you look at our growth in specialty, it is not only volumes, which is increasing every passing year, but the portfolio is also expanding. We already have got close to between 45 to 50, and if you go through our annual report, you will see a fair coverage on that. If you look at all the grades that we have launched in last year. So current year also when we published our annual report you will get an inside into all the dates that we have launched for commercialized during the year. So the portfolio is expanding even horizontally.

Understood, sir. And so this feedstock prices between India and China. So previously, it was $300 difference. And now you mentioned $215. So what could be the reason because we were largely expecting it to increase. And even if this is a short-term phenomenon, so what could be the reason for this reduction in the difference between India and China in stock prices?

See again, the feedstocks are derivative totally different thing. Our feedstock with the derivative of crude and price of it depends on the moment in crude prices. And Chinese feedstock is largely carbon black oil, which is a derivative of coal. So the price of that material will largely depend on the coal prices and also the demand of coal tar and CBO in their economy. So these are 2 different materials and therefore, the price are always different environment. And depending on the demand and supply of each of these materials between the 2 material keeps changing over periods. Having said that, given the current price difference is significant. I mean, in this business, especially on the tire trade, the average gross margin that we make is about $400 per tonne of finished goods. So with that $300, that kind of a price difference at raw material level, you can't compete, right? So despite all the drop in coal tar prices, [ fuel is still expenses ].

Understood. So we were expecting some peer companies to commission their plants plans in this year in FY '24. For example, Continental, and some capacities in [indiscernible] and Exelon. So do you expect this carbon black prices to reduce in this year because of this excess supply to continue to reduce?

See, the overall opportunity for growth is very large for Indian carbon black manufacturer. And that is the reason why even the non-carbon black are entering this space, right? And so far as we are concerned, we don't depend solely on Indian market. We have a reasonably good presence across different geographies. And in the last 6, 7 years, we have also invested heavily in our supply chain capabilities across markets, wherever we see potential. So we are very optimistic about utilizing our capacity, the whole capacity that we have added now maybe in the next 2, 2.5 years.

The next question is from the line of Madhav from Fidelity.

Just as one follow-up. I think in April, we had incorporated a new subsidiary for Specialty Chemicals in Europe. Just wanted to understand what is that about? Like are we looking at the new initiatives there?

Madhav, this we did not incorporate because of specialty chemical. So in Europe, actually, or rather in Belgium, we already had our R&D center. Now there are a few projects where the Belgian government is contributing to the whole R&D program. So there is a kind of sponsorship from the government. But that comes with a condition that only local entities can participate in those projects. Now our plant was like a wing of typical India. So it was not considered as a local entity. And therefore, in order to increase our R&D bandwidth and participate in those programs, we decided to convert that plant into a local entity. So that is the rationale behind. So it will continue to carry out on the R&D activities finally and maybe some present marketing, because now that we have a subsidiary we can also cater to the local customers to local invoicing amounts. But primarily, it is for R&D activity. This was already there.

The next question is from the line of Sanjesh Jain from ICICI Securities.

I've got two questions. First on the Chennai facility, there's incremental capacity consumption, what we're talking about 50,000 to 60,000 metric ton in FY '24. Do you expect that mix to be more tilted towards export and less domestic? How should we see and what is the implication of this on the overall branded spread? That's my first question.

Yes. So I think we'll have -- we'll be supplying from Chennai to both international customers as well as domestic. Now it will kind of also depend on how fast we get approval from different customers. Our primary objective initially will be to utilize the full capacity as quickly as possible. So that is the primary objective. So it also depends on approval status from different customers. So we will keep a little bit flexible on this. But as an organization, international market is important for us. It's a big market, and we need to grow in that market quickly and rapidly. So we are open for both. In terms of the margin, I think now it is both international and domestic margin is equally healthy and strong. So we are not too worried about margins, whether it is India supply or international supply, both are fine with us. So in a blended matter, it is quite okay. There's no issue.

Second, now we are talking of faster ramp-up in the capacity, and we are also seeing an opportunity there. Are we also thinking to add the remaining 50,000 metric ton in Chennai, which we intend to?

Yes. I think we need to explore that. We are already having some discussions, and we are starting the market because as we mentioned, beyond India, there are opportunities outside in India also. And being a large player in this field, there's no reason why you should not grab that; so possibly, we'll hear some announcements from us on this very soon. But before that we want to see how much this capacity is getting utilized or some indication we get. And once we have that clarity, then possibly we'll go ahead. But that might not take a longer time because initially, when you put our new plant, we take typically 2 years kind of thing. But ground field doesn't take that much of time. It is normally faster. So that is an advantage of ground field. And definitely, we can go ahead with that suggestion as we feel it is always important.

But will that end all the land available for us, or post that also, we have scope to expand the capacity in the Chennai or we will consume the entire land with that expansion?

We'll have options. So one is Chennai, if we get some adjustment land, we may go for further expansion there. Even existing one also, we can go for. But we'll keep to have a green spacious plan. So therefore, we've not put too much of pressure there. Other options we have, we have a lot of space available in Mundra plant. Mundra is another option where a lot of land is available. So we can look at Mundra also, but we will call the bridge as and when it comes.

Got it. Got it. Second, next on the market situation. So I was looking at the PR presentation, they are clearly showing that U.S. is having the demand supply gap in favor of demand. And we have Europe market, which is now becoming favorable with the probable regulatory tails on the Russia side of it. Do you think export market become too lucrative for us? And do you think it is sustainable over a longer period of time?

I think the international market will definitely be lucrative, no doubt about it. And I think it's a mindset of being a global player, we should not bifurcate too much between India and outside India. In India, we are a leading player. Of course, we'll maintain that specific position. But at the same time, we want to grow in different parts of the globe, especially U.S. And I think the JV is set for that. And this is a changeable situation. Like in U.S.A., this demand supply gap will only increase over a period of time. So it will be a kind of positive and questionable over a period of time. Europe, I'm not sure whether they will go back to Russia after some time. But even in Europe, there is no -- coming up. But the demand is growing. So the Europe structural is m [indiscernible]. There will be a bit of a challenge. But I think we will equally face that kind of challenge. The net debt [indiscernible] industry market is attractive for us going forward. And at the same time, we'll definitely maintain leadership position in India. That's our thought focus.

Just one last question from my side on the silica part of it, now the Tata Chemical is also expanding the capacity. Do you think that silica can become a bit of a challenge for us going forward as more and more percentage in the tire is replaced by carbon to silica?

No, not really. Silica cannot be utilized beyond 30 percentage. Because properties of carbon black and silicons are quite different. The properties which are offered by carbon black, silica cannot offer. And same wise silica offers percentage which carbon black cannot offer. So to my mind, both will have its own pace. Silica will grow in its own space. And we will be growing in our own space, carbon black. So it is not that we'll be eating each of the shares. That will not happen later.

What is the share of carbon black and silica in a tire at an optimal level, do you think?

Well, carbon black in terms of volume, it is about close to 24%. Silica, if I remember exactly, I think it is somewhere around 2%, 3%, 4% price, 2%, I think, it is 2%.

The next question is from the line of Dhiral from PhillipCapital, PCG.

So my question is, again, pertaining to the spread. You mentioned that the current spread will remain same for next few quarters. But for the full year '24, you still reiterate to improve by INR 1,000 per tonne or maybe INR 1 per kg as you guided earlier?

Yes. I'll just give it to Raj to respond to this question. Just hold on.

So our guidance a year back was that as of our production mix changes, operating leverage and also improving manufacturing efficiency. It is likely that our margins would expand by about INR 1,000 a year. But last year, if you look at, for example, spread it was about close to INR 2,700. Now a good part of that was because of higher power realization and high [indiscernible] power, segment profitability. And also about INR 600, INR 700 out of the total margin was on account of opportunity, got created because of disruption in the market, this was between the rupee and the share. Now those are market opportunities, and those are not structural changes in our efficiency. So therefore, this year, I think based on our further improvements and our efficiencies, we should be able to maintain what we could adhere in last 2 years. So it is not going to increase by INR 1,000 over last year's number.

So is it safe to understand sir, at least for FY '23 average which was there in -- on the gross margin per kg side, which is around INR 32, that we'll try to maintain or maybe on the EBITDA part, which is around INR 16, 0.44 paisa that we try to maintain for FY '24?

Yes. Yes, that's what we are hopeful on.

Okay. And sir, on the power side, what is our guidance for FY '24? And what kind of average power rate we can assume? So for FY '23, it was like 3.81 paisa? So what will be for FY '24, sir?

I would not comment on power because that's a function of, again, power market demand and supply, right? But as of now, it looks like the overall energy demand is in favor of power tariffs. Power tariffs, in number of states the tariffs have gone up. So it is unlikely that power tariffs are going to come down sharply from the current level. In terms of volume, higher volumes are reflective of our next year's performance -- or sales performance.

Okay. Okay. And sir, what is the outlook on the net part, sir? And what could be the debt by March '24 as we are still expanding on the specialty part?

Most of capital expenditure has already been incurred, a good part of that. So a very small portion is left out now. And if crude remains at current level, we don't see any increase in the gross there.

Okay. So it will be same as FY '23?

Yes.

The next question is from the line of Jigar Shah from Maybank.

Congratulations for good performance for FY '23. My question is regarding your specialty strategy. So specialty, you -- as per your guidance or your answer to one of the questions, should grow at about 25% this year. So it should touch about 50,000 tonnes. Say, over the next few years, when it goes to 80,000 or 100,000 tonnes on an annual basis, where would it put us on a global map? Like we are 6 or 7 largest globally in the carbon black business, where would the 80,000 or 100,000 tonnes of sales volume put us in terms of the specialty players? And what all else you are looking to do to get through that position?

Well, the current gap between the top 3 players and us is significantly large. They are all about 100,000 tonnes already, all 3 of them. And with our volume of last year, we are already at fourth position.

Sorry, you are already at?

We are already at fourth position in the specialty. Now even that 100,000 tonnes in the next 4, 5 years, is not going to change our rank. But certainly it is going to close the gap between us and the third player, third largest specialty player, right? Now what we are doing is essentially there are 3 things, one, of course, we are launching more grades every year so we are expanding our portfolio. Also, always newer grade, which we are launching, can't we produce from equipment that we have. So there is again a lot of bandwidth increase in the area of purpose and equipment technology. So there is a team which is working on creating equipment, which can give out the desired property in the newer grade. And third, of course, I mean, it's a marketing-related strategy. So we are reaching out to more customers across those and expanding the customer base. So that when we increase the volumes of the existing grade as well as when we launch newer grades, when we have ready access to all the customers with the strategy for specialty based on the 3 cost units. So do you want to add something to it?

Just one thing I want to add here while we are looking at specialty growth. But at the same time,we are keeping an eye on the value-added specialty growth. It is like a pyramid. The top one being conducted battery process. And then when it comes down to the lower capability, pre-plastic applications. So our focus is more on the value-added product. So the objective is growth, but profitable growth. That is the objective.

The next question is from the line of Anupam Agarwal from Lucky Investment Managers.

Congratulations on good numbers. Just a clarification on the second page of your Chennai plant commissioning, if you can give this time line, please?

Come again, sorry? I missed the first part. Come again, please.

The time line for commissioning the second phase of Chennai plant.

Okay. I think one part, I mean, almost 50% of the plant has already been commissioned, we have announced. And the rest also is, right now, the trials are going on. And within the next 3 months or around that, we will be formally commissioning it.

All right. And Mundra, the 20,000 plus 20,000 or incrementally 40-something together or that's also in phases?

In the first phase out of that is almost in final stage. Within the next month or 2, we'll be announcing commissioning of that also. The first phase out of this is 40. And the second phase, we might take some more time. Second phase, we might take some more time.

But will that commission like end of the 2024 or that will happen up at '25?

That will possibly go into the end of this financial year, maybe or early next financial year.

Okay. just a second clarification on the debt repayment schedule. I have understood the earlier participant's question that there won't be an increase in debt. Any repayment schedule you can help us with?

Yes. I'm requesting Raj to respond to this, just a second, he will respond to your question.

Most of our -- so first of all, our long-term loan book is very small. It's just about INR 170-odd crores. And second, most of these loans are for a period between 5 to 7 years. So it is well spread over next 4, 5 years, around INR 50 crore, INR 60 crore kind of a repayment revenue.

50 crores to 60 crores repayment every year?

Yes.

All right. Do we have INR 1,100 crores CWIP? I understand that's part of the Chennai and Mundra plant. So what will be the CapEx like in FY '24?

So like I said that we are almost through with our CapEx program. This year, there will be incremental about INR 100 crores, INR 150-odd crores investment on brownfield expansion and maybe about INR 100-odd crores in Chennai. Roughly about INR 250-odd crores will be the CapEx for the current year.

Got it. Got it. Lastly, just a qualitative guidance if you can give us. Over the last 2, 3 years, we've been talking of yield improvement. How far are we in meeting our targets? What is happening on the ground with respect to like just some color will be helpful?

I missed your question...

It is not clear. Can you repeat, please?

Yes. What I'm saying is last 2, 3 years, we've been talking of yield improvements. So what exactly is happening on ground with respect to our targets? Are we -- what percentage are we there? How far are we in touching our target? And if you can give some color there, please?

Anupam, we have been talking about an improvement in last 2, 3 years or 4, 5 years, and there has been consistent improvement. In fact, increase in margin performance that we are seeing now in last few years is also partly on account of yield improvement. In some of the grades, we have already set the industry benchmark. So we are leader there. I mean we have -- we are the best performers in some of the grades. In some of the grades, we are closing on in the -- with the gap with the best manufacturers of those grades. And of course, I mean, there is further scope for improvement. So it's also -- I mean, largely, the gap is -- wherever the gap is that is largely identified, but in some cases, that would require replacement of equipment. And I mean, based on the trade-off, which change the residual life of the equipment and the benefit that we'll get out of the improvement doesn't work out currently. So it makes sense for us to allow the equipments to be depreciated completely. And then when we take the new equipment, this efficiency will come. But most of efficency will be visible in the new plant in Tamil Nadu from first year itself.

And the benefit of that yield improvement will also flow in from the first year itself?

Yes, largely, it should be there. But great stabilization take time. The first year may not be indicative of the full efficiency. I guess second year would be a better indicator of the plant efficiency.

The next question is from the line of [indiscernible] Galani from Swan Investments.

So sir, what would be our CapEx plan for FY '25?

See '25, like MD just mentioned that we are still taking out our growth path, and it will also depend on capacity utilization in the next few quarters, so having said that market conditions remain volatile. But on long perspective, we are very optimistic. And we believe that in the next 5, 6 years, we should continue to grow at [indiscernible]. And that would require constant capacity addition every passing year. So it is a little early for us to give you some indication about the CapEx for '25. But maybe in the next 2 quarters or so, we would have done our work and would be able to give you more clarity. Mundra and Chennai, of course, come up either by end of this year or early next year. But that's a small CapEx actually. That's not much. So like I said that 2024, we are going to incur about INR 250-odd crores. 2025, if we decide to our capacity on brownfield can be a small expenditure, but if you decide to go a little large then again, between 2025 and '26, I think we'll be incurring about close to [ INR 800 to INR 900 crores ].

Okay. What is your target ROCE for the next 2 years?

The last 5 years, if we look at our average ROCE, we have been around 18%, 19%. Now I mean, this capacity addition, I mean, when the income CapEx, typical, I think there's no return on that CapEx during the period, the implementation period. But once the CapEx is completed then ROCE increases. So I think we should see -- I mean, over our mid- to long-term, I think we should remain around 20%. I mean, that's all the good because we'll be in a constant CapEx between now and 2030, that's how we'll see it. So with that, ROCE should be around 30%.

And sir, one of the earlier participants had asked a question about gross margin. So I just wanted to confirm whether -- what we are saying that we can reach 29% to 30% gross margins in FY '24? Or I got it wrong?

It's still not yet appropriate to look at our margins when percentage is done, because that will vary depending on the crude level. So in absolute terms, whatever we have achieved in the current year, we are hopeful that we should be able to maintain that and build upon that, going forward, because of change in economics and manufacturing efficiency format.

Ladies and gentlemen, we'll be taking the last question. That is from the line of Aditya Khetan from SMIFS Institutional.

Sir, during this quarter, into the Specialty Black business, we had witnessed almost 30% jump in volumes on quarter-on-quarter basis. But despite this, our gross trade has contracted by 7%. Sir, just want to know if the specialty volumes are going up, they are commanding around 2 to 2.5x margins than the normal spread. So our spreads should ideally have been remained constant or might have gone up. So to some extent, but we are reflecting this in spread, so that indicates that the normal grade business and the performance of chemical business. So they are struggling quite hard. So is there any sense that you can give us -- how is the business shaping on to that front? Because the numbers are not matching...

No. So I would share, see, what happened in last quarter, well, there was a significant developed inventory reduction at our customers end, both for specialty as well as for higher customers. Now therefore, we were caught up with a little higher inventory in the last quarter, which was based on high raw material prices. So that volume when we sold in this quarter, our margins were not at the same level, right? So we made a significantly lower margin in that one. And therefore, the blended margin for the year and for the quarter, fourth quarter looks a little lower compared to the previous quarter. That is the reason.

Okay. And sir, so our guidance also, we have reduced by INR 1 per kilo for the next 2 years. I suppose we are expanding by the similar fashion in terms of specialty like we are -- we would be adding 10,000 tonnes volume per annum. So what is the reason like you're downgrading your guidance of INR 1 per kilo, so we will be maintaining that. Are you witnessing that paying into the Performance Chemicals business from the Latex side, that will continue for the next year? Or from the tire segment your business demand constraints because the guidance and the numbers are not that -- we are not getting that correctly?

I don't think, Aditya, we have changed our guidance, there is no change in our guidance. Where did you get that number?

So sir, we are maintaining our EBITDA per kilos, like for the current quarter. Earlier you had stated, so we will be improving by INR 1 per kilo per annum. So what is your reason for that despite increase in Speciality...

So, Aditya, when we were saying INR 1 per kg or per year, we were mentioning that on an average, in next 5 years' time, our average EBITDA performance is going to increase by INR 1 per kg per unit. But within last year and this year, compare our EBITDA, it has gone up by INR 2.7. Now in a particular area, if there is a significant -- it has no full amount, doesn't come from [indiscernible], part of that is also because of the opportunities in the market. So therefore, we are saying that in the current year, we'll sign and ensure that we remain at the last year's numbers. Even that number will be a little higher than what was indicated a year back. So based on our 1 year backed guidance, our 2024 EBITDA per tonne should have been somewhere around 16,400. We are still talking about INR 16,000 [indiscernible], right? INR 16,700 or INR 17,000. So that's still a little higher than the guidance given. We have to see it in that perspective.

Thank you. Ladies and gentlemen, that was the last question. On behalf of ICICI Securities, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.

Thank you.