PCBL Chemical Limited (PCBL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the PCBL Limited conference call. Present on the call would be Dr. Sanjiv Goenka, Chairman; Mr. Kaushik Roy, Managing Director; Mr. Raj Gupta, CFO; Mr. Saket Sah, Head, Investor Relations; Mr. Pankaj Kedia, Vice President, Investor Relations. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Dr. Sanjiv Goenka, Chairman, PCBL Limited. Thank you, and over to you, sir.

Thank you, and good afternoon, and welcome, and thank you so much for joining us at short notice. It's always a pleasure to meet all of you. And many of you have been very strong supporters of the group and of late, the PCBL. And I thought it's only fair that I share with you some important developments at PCBL. The last time I had interacted with you all, I had shared with you the very strong growth track that we have for PCBL and the Carbon Black business, the addition of Specialty Chemicals and Specialty Blacks. So that was a shift from Commodity Blacks to Specialty Blacks. Growth in volume -- and the target remains over the next few years to get to 1 million tons. The growth in volumes, growth in -- I mean, change in product mix to shift to Specialty Carbon Blacks and value-added products for specialty use with higher margins and to shift platforms, and this is something that I've been talking about for the last several months, we have to shift platforms from Carbon Black. And it is with that in mind that I thought I must share with you a very exciting development today. We signed a share purchase agreement with a company called Aquapharm, which is based out of Pune, which is largely involved in chemicals, in phosphonates, in oil and gas chemicals, in polymers; and gives us access to a different platform, where we can shift from the carbon molecule to phosphorous molecule to the amino acid molecules. So this is a very significant step in our company's journey towards getting away from pure commodity carbon black to specialty chemicals. Aquapharm is a company which has revenues of INR 2,045 crores and this year, will have an EBITDA of -- projected EBITDA of INR 370 crores, slightly lower than last year's EBITDA. The gross margins are at about 31%. The net -- I mean, the EBITDA margins are 20%. The plants -- the principal plant is in America, with 2 other plants in Saudi Arabia and India. Phosphonates are used in soaps, detergents, water treatment, desalination. And the main customer base for Aquapharm is Procter & Gamble, Unilever, Henkel, Reckitt. It is a world leader. It's #2 in the world and is in the area of specialty chemicals. Phosphonates is 53% of the portfolio; oil and gas chemicals is 25%; and polymers, rest. We are paying or we have agreed to pay a sum of INR 3,800 crores, which is -- which amounts to 9.1x current EBITDA levels and 8.5x '25 EBITDA levels. Between PCBL and Aquapharm, over the next 30 months, the cash flows would be adequate to take care of this entire acquisition cost. Let me also remind you that PCBL sits on a certain amount of INR 450 crores of liquid cash at this point in time. And neither Aquapharm -- Aquapharm has no borrowings whatsoever, it's debt free; and PCBL has only working capital borrowings. The exciting thing about this is that it accelerates our growth. It helps in future-proofing our portfolio within products which are sustainable, so, a, sustainability; and b, decarbonization. Green chelates is something that's very, very exciting, extremely exciting. It's biodegradable, it's sustainable, it's green. So green chelates are biodegradable chelating agents, which improve detergency. The global market for this product is 130,000 tons as it stands. Aquapharm today is at 3,300 tons. The growth rates are interesting. The headroom for growth is enormous. And the plan is to increase it to 20x over the next 5 years, 20x of the current production of 3,300 tons. Water-soluble polymers is something that also offers a very exciting opportunity, 35% contributions. The global market is 4 lakh tons. Aquapharm's capacity is currently 4,000 tons. So again, significant headroom for growth. Global leaders who are customers; plants, which are diversified with global supply chain; and in chemicals, which are high in value, high in contribution, high on growth rates. So you have Commodity Blacks, which are stable; then you have Specialty Blacks, which are very high in terms of contribution and high in terms of growth; and you have expansion there. And now you have another platform, which is the phosphorous molecule and the amino acid molecule platform. And this [ accords ] for even stronger growth. So it's a huge opportunity. It's both margins accretive and earnings accretive. So I think overall, this is a unique opportunity for us. We decided to sign the share purchase agreement, and I thought I must take you into confidence. So immediately after the Board met and approved the transaction, I'm having this call with you. These are the broad outlines of the transaction, which, as I said, to my mind, is extremely bullish for the company, puts us in a different area, but with synergies, synergies on the supply chain, synergies on manufacturing processes, operational synergies. And we do believe we can add value to Aquapharm from where it is. And so combined, to repeat, it will be both margins and earnings accretive. So that, in a nutshell, is what I wanted to share with you. I'm now opening to answering questions that you might have. I'm there, the PCBL team is there, my Investor Relations team is there, and we will all together try and answer as many questions as you might have. So over to you.

[Operator Instructions] Our first question is from the line of Rohan Gupta from Nuvama.

Congratulations on such a big move in the company. Sir, many questions, but I will restrict myself to 2 to 3. Sir, first is that we are in a Specialty Black business while we have been continuously focusing more towards Specialty Chemicals, but this move that it's a completely unrelated chemical chemistry and product basket also catering to different set of industries. So what value addition PCBL can bring in here? Also, in terms of the end-user industries and the business profile, the company is quite -- the product category is also quite different, catering to detergents and other industrial cleaning materials. So how do we see that the synergy will be achieved from our current business? And how do you see that the focus of the group is going to change over a period of next 2 to 3 years? That is one.

Yes. Okay. Thank you, Rohan. Very simple. First, this product is -- this company is #2 in the world in the areas in which it operates. So it's a global leader. It has critical mass. It is supplying to P&G, Unilever, Henkel, Reckitt, so all global leaders in their own right. So it has a very good management, has a very good team, which is functional, successful, operational. Where we can bring immediate contribution is in the manufacturing process, which is very robust, but we do believe we can improve it. We do believe we can help in the procurement and the supply chain, where we do believe there is some potential. But overall, it is our first step into getting into Specialty Chemicals and, as I said, future-proofing the portfolio of PCBL. So it should be Commodity Blacks, we got into Specialty Blacks and now from getting out of -- I mean, remaining in blacks, growing there, but getting into chemicals.

Sir, secondly, you mentioned that the payment terms would be over the next 20 months of the entire sum of the money. If you can just shed more light on that, that how much you have plans to fund it through debt? And what is the payment terms? How it will be paid over a period of time?

Well, initially, we will take debt. But let me just say that combined, on a conservative basis over the next 30 months, we expect the 2 companies to have EBITDAs of INR 4,000 crores plus. The acquisition cost is INR 3,800 crores. Both the companies are debt-free. So over the next 30 months, we anyway expect the debt to be completely paid. But I do believe that we would actually be repaying before that. I am personally very debt averse. I have said that time and time again. I'm uncomfortable when we have debt. I, frankly, don't get sleep if we have debt. So most of our companies, you will see, are long-term debt-free. And that is the way PCBL has been, that is the way it will be. So there is a short-term debt that we will have. But hopefully, well before 30 months, we should be debt-free. And we have INR 450 crores liquid cash lying with us at this point in time.

Sir, this INR 3,800 crores, you said that will be paid over a period of 20 months? What will be the payment terms?

No, no, no. INR 3,800 crores -- see, so we've signed the share purchase agreement. Now over the next 3 months, we expect the transaction to get closed when we pay the INR 3,800 crores, which will be funded by a borrowing at this point in time and the cash that we have as it stands in PCBL. And over the next 30 months, we will repay the entire borrowing. And maybe, we will repay it even before.

Sir, with such a strong margin and, as you mentioned, that they're #2 position in a global business, the reason for sale of this business would have been?

Well, what we were told is that the current promoters, it was a joint venture between 2 families. The family had many branches. And as it sometimes happens in families, they become large, they want to cash out. So I can tell you that there were 3 people bidding, and we did not overbid. Our bid was the same as our bid -- as our next competitor's bid. But the Aquapharm ownership preferred to deal with us because they were more sure of our credibility and our reputation than our nearest competitor.

Sir, just last bit, then I'll come back in the queue...

Both the bids were exactly the same amount.

Okay. Sir, just last bit, and I'll come back in queue. You mentioned a statement, which I couldn't get that, the current capacity is roughly 3,300 tons and you have plans to increase it by 20x over the next 5 years? I couldn't get that.

That is in green chelates, so not phosphonates. That is in green chelates. The green chelates is a future product, which is biodegradable. It's a biodegradable chelating agent which improves detergency. The global market for that, as it stands, is 1,30,000 tons. Aquapharm's capacity is 3,300 tons. We do believe that we have this -- I'm saying we, but it's not we like we, but say, Aquapharm has the ability to expand this to 65,000 to 70,000 tons. The market would then grow much more. And with that growth and Aquapharm's credibility with the customers, we should be able to get that market share. So that provides a huge growth. But when I'm talking of the cash flows for the next 30 months, that growth is not factored in. So we have been conservative in our forecast at this point in time. We are not factoring in growth from additional capacity expansion. We are factoring in contributions from things as they stand.

Okay. Sir, just one small clarification on financial front. You mentioned that INR 370 crores is EBITDA on a INR 2,045 crore revenue. If you can just sort of give us what is the PBT and PAT number? And what is the cash profit from this Aquapharm right now?

So last year -- I mean, March '23, the PAT was INR 280 crores. And this year, it's still underway.

And sir, out of INR 280 crores, what would have been the, sir, cash profit? I mean what is the tax part paid? The reason I'm trying to understand that the INR 3,800 crores debt at the average debt cost of at least 9.5% to 10%, whether this will be EPS accretive for our numbers or not?

Yes, it would be. I mean those workings, we will share with you very, very clearly. And we will send that data across to you, that it will be. And this is a bad year for the industry. Next year should be a better year. So hopefully, cash flow should actually be higher than INR 370. In fact, the forecast is for higher, and '26 is even higher.

Our next question is from the line of Krishan Parwani from JM Financial.

Firstly, congratulations on the acquisition. Just one question from my side. Since I think you mentioned that the promoters want to cash out. So just wanted to understand who would be running the show once we complete this acquisition in the next 2, 3 months. Would the current promoters render any know-hows for some time? Or would we be running the show from day 1?

Well, the current promoters would be involved for a couple of years, at least the operating promoters. But it's not just one individual who runs the company, it's a whole team. So the whole team exists. And that team will be there, and the connections will be there. And so I'm not at all concerned about the change in ownership. I do believe that the change in ownership can actually help in terms of some value addition in terms of manufacturing process, some value addition in terms of supply chain. And hopefully, RPSG might bring some other practices, which might improve. So I think as a group, the one thing we've done very well is we've managed acquisitions very well. So I think this is something that is our core competence. It's something that we've done well over a generation, frankly. And certainly, we've done well with our last few acquisitions, not least [ Firstsource ]. So we're looking forward to it. And we do believe this provides an area of huge opportunity for PCBL and its entire family of stakeholders and shareholders.

[Operator Instructions] Our next question is from the line of Aditya Khetan from SMIFS Institutional.

Sir, as you mentioned to an earlier participant that the reason for selling is that because the families are becoming much larger. Sir, but I believe this Aquapharm was looking to sell the stake since April 2023. Sir, is there any other specific reason why this Mangwani family, which is the promoter of Aquapharm, want to like divest at a time when the global -- when the Indian chemical sector is diversifying in terms of like value chains and growth opportunities? Any other reason which you can like highlight apart from these families and all...

They've been looking at selling. Of course, any transaction takes time, and they ran a process. So you're right about your time on April, and it's taken 7, 8 months to come to a conclusion. And we had 3 competitors, and they've had a very strong process. And the reason ascribed to us was that they really want to cash out, and it's quite normal. I think it's actually, of course, a huge opportunity because the Indian chemical sector is poised for very big growth as indeed the global chemical sector. And you will have consolidation. We are seeing this across industry, across portfolios. And I think we are fortunate that we have bagged this one. We do believe it's a phenomenal company and has huge growth potential. So without a -- we do believe they've done a good job. It's not that they've not done a good job, but we do believe we can do better with this.

Okay. Sir, somewhere what I've read in that this company is having a cumulative capacity of 70,000 tons. And sir, you're mentioning some 3,300 tons. So this is tons per month or...

No, there are different products. So phosphonates is where they have 70,000 tons. Green chelate is something which they've just started. It's very new -- it's a very new product in the whole world. So this is very green. And as I said, we are -- and I've said this earlier, from commodity blacks to specialty blacks, from specialty blacks to chemicals, and the next phase is going to be chemicals, which go into electric vehicles. We are close to it, hopefully soon. So it's a portfolio shift for PCBL. And you will see the profile of the company changing to value-added products more and more and getting away from commodities, getting more into green, sustainable, biodegradable kind of products. And this is what you will see more as PCBL progresses.

Got it. Sir, just one more question. Sir, like this Aquapharm is totally an unrelated acquisition. So the current Board, you said that at least for the initial year, so the current Board will run the company. So like, sir, how competitive would it be for the management? And how we can like handle all the challenges related to this? Because since this is a newer business and we might not have that handle like -- so handling like the water treatment and all these phosphonates, so is this a good decision by the management? Like so for running initial years or like we should be like looking out for an expert from outside who can run this company?

So firstly, there's a very strong management. So it's not only the promoters, but it's also team underneath the promoters who run the company, right? It's not one individual, but it's several people who run the company. So the promoters cash out, the management team, the operating team remains, one. Two, there is enough talent available in the market who are specialists in this. So you need technologists who are specialists, which we have. Management skills are the same, whether you apply to product A or product B, the general management skills are the same. It doesn't take that long to learn and acquire knowledge about customers, global supply chains, manufacturing processes. Principally, they remain the same, and there is talent available. Yes, we have identified some talent. And no, we are not concerned about the management at all, where we are actually very excited. And we do believe that we will add value, and the company will grow more than it has grown in the past.

Got it. Sir, in FY '23, we have seen a dip in EBITDA of Aquapharm. Like from around INR 420 crores, the EBITDA has dipped to around INR 380 crores, as you had mentioned in your earlier remarks. Sir, this dip is largely because of like because this company is into exports market into Europe and like Saudi. So wherein the markets are weak, that is one reason which could be attributed for this decline?

I think -- I mean, since I was not specifically -- or RPSG was not specifically running the company, so we cannot precisely tell you why the dip has happened, but yes, the dip happened. But we do believe the dip or that aberration pertains to 2 quarters only. And from quarter 4 of this year, which is January-March quarter, the performance will get back to where it was and more. So that is our belief and expectation. And I think I'm told that we are already seeing the October month being better, and November-December should be even better.

Got it, sir. Sir, just one last question. Sir, if you can highlight more on to the like -- on to the CapEx side, what Aquapharm would be doing? How much is the revenue potential on top of like INR 2,200 crore? And what sort of numbers are like growth or something, sir, which you can like highlight to us for the next 2, 3 years, as we are having no idea on how much CapEx, how much numbers would the company can do over the next 2 to 3 years?

Well, very simply put, chemicals don't invest high CapEx, okay, that's very, very clear. There are production facilities or manufacturing facilities which can be scaled up. But the big expansions will come in green chelates, which is a very high-contribution item. Again, biodegradable, sustainable and water-soluble polymers, which has 35% contribution. Now we are like a few minutes into the company. So we'll need a little bit of time to specifically go through the plans. We have seen the plans that exist as is, but we do believe there might be some changes, and we may be more aggressive with the growth plans. So give us a few weeks, let us conclude the transaction, and we will come back to you with very specific plans. I mean we have some thoughts that we would -- on growth, which are, as I said, aggressive. And -- but just give us a few weeks. I mean it's literally been like less than an hour since we signed the share purchase agreement, and we haven't taken control of the company yet. So it's a little early, but yes, it's exciting growth, it's strong growth. And it's -- these products are not high on CapEx at all.

Got it, sir. No worries. Sir, just one last question, sir, if you can highlight the H1 revenue EBITDA impact, half yearly, sir, H1?

Raj, you're on the call. Would you like to share this number? Hello? Raj, go ahead.

Sir, there was some voice disturbance, so...

So Raj, what the question was, what was Aquapharm's half 1 financial numbers? Would you just like to share that with all the people on this call, please?

Yes, the first half was around INR 1,000-odd crores revenue number.

And bottom line?

Bottom line would be roughly around INR 160 crores, INR 170 crores.

EBITDA, sir?

EBITDA would be roughly around -- so this INR160 crores I'm talking about is PBT number. And EBITDA would be around INR 190-odd crores, roughly.

Our next question is from the line of Sanjeev Mohta from B&K.

Congratulations on the acquisition.

Thank you.

Yes. So just a couple of things. One, who are you competing with in this acquisition, whether the large players or...

One was very large. I don't know we're at liberty to talk about who were the other competitors.

Sure. Yes, that's fine. I'm just trying to understand the type of players. Yes.

One was very large. And one was a company which has done a couple of chemical acquisitions. They've got a strong chemical portfolio. I don't know whether they'll be a target to take over at some stage.

Right. And like what was the reason we won the deal?

I think at one stage, it looked that we were out of the transaction, and then it came back on the table. We were very clear that we are not going above this value, and we had strong conditions and conditions precedent to closure. And the price was -- I'm told exactly the same. There is no difference in the price. But I think maybe there were doubts on the other parties' ability to conclude. I don't know, not for me to comment. But when the deal came back on the table, we're working on the transaction because we are convinced about the prospects of this company. And as we are about something else that we are pursuing in the electrical vehicle space, hopefully soon, hopefully soon.

Right. So yes, that was actually -- you led to my next question, which was you're talking -- you are alluding to another potential acquisition. So if I look at the capital structure of the company, of course, this is a debt-free company. So that helps in terms of debt taking capacity. So like how are you looking at it post, let's say, what you would want PCBL to be, let's say, once all the acquisitions are done?

I don't know about all, but I can tell you about the immediate thing. As I said, PCBL's Commodity Blacks is one part. Specialty Blacks is the second part. Where we're going to grow between these 2 is about 1 million tons, which is the current portfolio and which is very strong, very strong in growth, very strong on margins now with specialty. The second is Specialty Chemicals, and the third is chemicals which go into electrical vehicles. So those will be the 3 pillars for the moment. All 3 which are very high on growth, high on margins. And 2.5 out of them are certainly very compliant or very futuristic in terms of being green, being sustainable, being leading towards decarbonization and biodegradable.

Right. But in terms of capital structure, would you want -- would you then have to raise some equity, you think? Or from a capitalization, how are we placed, do you think?

Sanjeev, those are calls which we haven't yet taken, and we will refer to advisers very soon. But for the moment, we will take a debt, and we will see. Equity is always an option that's available. And it is something that we could well do, but those are calls we haven't taken finally yet. All I'm saying is if there is equity, of course, the debt becomes that much less, et cetera, et cetera. There is no equity over the next 30 months. The combined entity's cash flows can take care of the entire debt. That's the limited point I was trying to make.

No, so I understand from this acquisition. But if you're talking about one more, I'm just trying to understand, how are you looking at that?

Well, that's something which we will acquire. I can't say very much at this stage, but hopefully very soon, hopefully very, very soon, we should be back to you with something that's extremely, extremely exciting. And that is in the electric vehicle space, that I can tell you. And as we speak, our team is negotiating the final terms of the agreement. So the principles, I think, are broadly agreed. But specific clauses, the lawyers are discussing at this point in time. I don't know how long that will take, but it shouldn't be too long.

Sure, Sanjiv. All the best for that acquisition as well. And I think you have [ purchased ] a very, very exciting company, I guess.

Thank you, Sanjeev. Yes, somebody told me it's going to become the flagship of the group, and I said I hope I have more than one flagships, so-called flagships. PCBL is certainly going to be one of the strongest growth entities for the group. I mean all companies in the group are growing and growing very fast. But PCBL is certainly growing faster, and it's quite exciting.

Our next question is from the line of Nitin Agarwal from DAM Capital.

Congratulations on the transaction. Two, three housekeeping questions. One is, does the transaction amount, I mean, what extent of working capital is included in the transaction cost?

So the current working capital is included.

Can you give us a rough sense of how much will that be on a net working capital base?

I mean it's an ongoing company, so we're acquiring an ongoing company. So the working capital is totally there. I mean your debtors, your creditors, everything is already there. So you acquire as is, where is, and you pay this money to the promoters, existing promoters.

I get that. If you can give a sense of the quantum of the working capital in the business right now?

It's about INR 450 crores, right, Raj?

Yes, sir. It is INR 450 crores.

Yes, it's INR 450 crores.

Okay. Secondly, in terms of when you think about the IRR on the transaction or -- I mean, how are you looking at the payback? How many years do you think you can recover the cost of the transaction?

So there are different ways of doing it. One is from current levels. The other is how you improve profits, how you improve capacity, how you improve capacity utilization, how you add on capacities and how does the market view it. So chemical companies, once listed, I would believe that the multiples should be much higher than 9. And that in itself is -- there is headroom there. But profitability-wise, I do see strong growth. But as I said earlier that we've literally been less than an hour into the acquisition, and so payback should be soon, but there are specifics. When we formally take over the company, I would be in a position to share much more detail with you because it would have given us a couple of months of insight into the company. So far, all our insights are based on the diligence that we've done. But then one would see it as with the perspective of an insider, and one could be in a much better position to talk about growth at far more confidence. So what we are sharing with you is what the existing plans were. But we do believe, from the outside, out in, that it can be much more aggressive. And chemical CapExes are not high. So it's something that we would be much more specific -- I'm sorry, I'm not in a position to give you more details at this stage. All I can say is it appears that we can grow faster than the previous management forecasted, but we would need a couple of months before we can specifically tell you precise numbers, which products, how much will phosphonates grow by, how much will green chelates grow by, how much will water-soluble polymers grow by. I mean we are telling you what we have been told and what the management believes. But we have had McKinsey to validate these numbers for us, but we would need to get in ourselves and validate that.

That's absolutely fine, sir. Secondly, since you mentioned the green chelates a few times, what proportion of our current business is green chelates business?

Green chelates is small at this point in time. So let me just take you through the portfolio mix. Phosphonates is 53%; the chemicals, which go into the oil and gas industry, is 25%; and the polymers constitute the rest. So amongst the polymers is green chelates and the water-soluble polymers. So you're looking at the whole thing of the amino acid chemistry and that whole polymer platform, which is very small for the company at this point in time because they're very new products, right? And this whole -- these products become more and more and more relevant when the world becomes -- is moving towards a greener future. And therefore, the prospects for these products are much more exciting today than they were 2 years ago.

Right, right. And the last one, while you've given the 3-year financials, if you just probably can go back a little bit more and just give us maybe the 5-year CAGR, revenue growth and EBITDA growth for this business, historical growth?

That, I'm going to ask the CFO of PCBL, Raj Gupta, to share with you. Raj?

It has grown by about 15%, 16% CAGR. And that's what the trajectory for the future also is for the next 4, 5 years.

And profit of what...

Let me just come in. No, no, no, 15%, 16% is what the existing management forecasted. That is not the trajectory I'm forecasting.

Yes. Right, right.

Right. Okay. Perfect. And while I'm sure there's been a -- obviously, as you rightly said, it's only been an hour since you acquired the business. But apart from the interventions that you can undertake to accelerate the growth of the business, are there any prima-facie synergies between what PCBL does right now and in this business or they're absolutely complementary businesses?

Well, they are complementary, largely, but there are synergies in, as I said, the global supply chain procurement. In manufacturing processes, we do chemical process manufacturing very well. And we have to now get into the plants. So yes, we've had teams out in America and Saudi Arabia. And we do believe our teams have come back to say that we do believe certain value addition can be made. But now we have to get into that much more. And in a few weeks, we should be in much better position to share those details with you.

Our next question is from the line of Abhijeet Bora from Sharekhan.

Congratulations for the acquisition. And my question is that are we going to keep this company separate and list later on, like what have you merged with the existing business? What are our plans? Because you said that it is at around 8x, 9x EBITDA valuation. So there can be a value-unlocking opportunity going forward?

Clearly, there is a value-unlocking opportunity. And as I said early on in the conversation, we are speaking to specialists who are examining the exact structure, but it will be part of PCBL. Whether it's a 100% subsidiary, which will go public or it is a division, I think -- and PCBL goes to the equity markets, those are calls that yet have to be taken. But it will be part of the PCBL team. It will be in a manner that whichever way, it gets consolidated into the balance sheet and the earnings, too, as well.

Okay. And secondly, when you say that it will be earnings accretive, you mean to say it will be earnings accretive from the first year of acquisition or like post the -- when the debt is being repaid? Because what my understanding is that INR 380 crore of EBITDA and it's being entirely funded through debt, 9% to 10% of the interest rate would mean that EBITDA will be taken -- the interest will -- EBITDA will be absorbed by the interest itself.

So that is for this year. That is for this year. But look at next year, the forecasts are much higher; and the year after, they are even higher. So for the first full year that we have Aquapharm, we do believe that we will be bottom line and margin accretive. But again, more details when we take over the company. And we're talking with -- sorry to keep repeating it, but the excitement and confidence is huge. And I'm not one who makes commitments that I can't honor. I have -- my policy has always been to under-commit and over-deliver. So I don't want to say anything more at this stage because our knowledge about the company is very limited. It's limited to the diligence we've done. It's limited to the exercise that McKinsey did for us and some of the consultants we used did for us. So we've got top-level advice, very, very strong advice from the chemical space. And off the record, I can also tell you that a part of the family, not direct family, but a part of the family is very strongly involved with the chemical business. And we've been consulting with them also. So yes, I mean, I can't say more, I'm sure you understand what I'm referring to. They've been very successful in what they've done, and they understand the chemical space extremely well. And they've also been extremely excited about this opportunity.

Okay. Just to like clarify it, have I understood correctly that we expect through the very first year of the acquisition to be...

First full year of acquisition to be -- yes, first full year of acquisition, yes, that is a commitment. Absolutely.

Our next question is from the line of Dhruv Bhatia from Bank of India Investment Managers.

Congratulations for the acquisition. Sir, my first question is...

Sorry to interrupt, sir. May we request you to use your handset, sir? Your audio is not clear, sir.

Yes. Sir, my first question is you mentioned in your opening remarks that on a combined entity in 30 months, you were expecting an EBITDA of INR 4,000 crores, right? And when I look at your base PCBL business and the capacity expansion that's going on and with the EBITDA you mentioned of Aquapharm, it seems like there is either a way underutilized capacities in Aquapharm or probably you need to do incremental CapEx to achieve this INR 4,000 crores number. So could you please clarify this?

No, no, no, there's -- what I've told you is based on where we are, okay? And earlier, not in today's call, but earlier, I've talked about the whole PCBL plan of unlocking capacities. And as of now, the PCBL cash flows don't take into account the Tamil Nadu contribution. So far, it's been 6 months since the plant has started. And last month, we got to about 50% capacity utilization, which gets us to breakeven. Now let's just look at the whole arithmetic very simplistically. 150,000 tons, INR 20,000 per ton, INR 300 crores contribution, simple. Then I had talked about oxidized carbon black, which will give us an additional contribution of INR 62 crores per annum. Then our new specialty plant at Mundra will get commissioned in March. It's virtually done with the finishing stages of that plant or within March, let me put exactly. That again should give us significant additional contribution. And I'm not talking about anything else that we do. So this year, our EBITDA in PCBL should be, as it stands, INR 980 crores. Just add these numbers to that, okay? That takes you to whatever it does. And I'm not talking of any further expansion. If that happens, which is going to happen, then it's more. Aquapharm capacities, as they exist, the forecasts are 380, 430, 525. Whatever expansions happen will be over and above these. Whatever value additions happen will be over and above these. So when I'm talking of INR 4,000 crores EBITDA for '24, '25, '26 combined, it is on what we have. Whatever additional happens will be over and above, and that will happen.

Okay. So I mean, just again, just a clarification here with what you just mentioned with the numbers of Aquapharm maybe 2 years down and of PCBL, that comes up to roughly about INR 1,800 crores, INR 2,000 crores. And over and above that, is that implying that this includes some acquisitions in that INR 4,000 crores of EBITDA? Or does it include...

No, no, no, this is as is.

As is.

As I said, the chemicals for the electrical vehicles, which we are very hopeful of concluding, that will add to it, okay? We can just do marginal CapEx with Tamil Nadu and increase the capacity by 90,000 tons, that will add to it. Any expansions at Aquapharm will add to it. Sorry?

There still seems to be a very big gap between the INR 2,000 crores EBITDA and the INR 4,000 crores. So I'm just trying to add, I mean, even if you add...

No, no, no. Where is the gap?

Sir, you mentioned INR 1,200 crores to INR 1,300 crores PCBL and whatever over and above, you can...

Per year, per year, per year. Simple. I'm giving you a number specific. INR1,360 crores for '24 combined, as is; INR1,530 crores, '25; INR1,750 crores, '26.

Okay. Okay. So combined of 3 years will be INR 4,000 crores of EBITDA. Okay.

That's exactly what I'm saying. As is, as is. And the actual will be much higher than that. So I'm giving you -- assuming there is no equity raising over the next 12 months and assuming that there's debt, the cash flows of the combined entity is still enough to pay the entire debt within 30 months. That may not be the scenario, the scenario might be a mix of equity and cash.

Sure. Sir, the second question is because this acquisition value is about INR 3,800 crores, my assumption would be that there would be a fairly decent amount of goodwill accretion. So could you quantify what type of goodwill accretion -- because I can see that in FY '21, the dated number where the net worth was just about INR 1,000 crores. So what type of goodwill accretion will you see?

No, no, the net worth is about INR 1,000 crores. That is a fact. But chemical companies are today being traded at multiples which are -- the industry average is well above 20. So I mean you talk of goodwill, you talk of however, but it's a question of opportunity and the opportunity for growth and whether this multiple of 9x or 8.5x '25 earnings can actually take you -- can get over a period of time a multiple of 15, 16, 18, 20. Now that is a critical question.

Understood. So is there any number you can quantify of the goodwill that will get accreted?

I mean we paid INR 3,800 crores. The current net worth is INR 1,000 crores.

Okay. Fair enough. Sir, last question was on -- could you quantify the top 5, top 10 customer concentration? Because you mentioned the big...

So those are the ones, Procter & Gamble, Unilever, Henkel, Reckitt. And bulk of the suppliers -- sorry?

The revenue contribution to -- of these customers to your overall top line?

Well, these are the bulk customers, but I don't have this number specifically yet. But very soon, we'll be in a position to share these numbers with you.

Our next question is from the line of Riya from Aequitas Investment.

Sir, my first question is, you said that the player is world #2. So is this in all the 3 segments which you broadly classified or is it just in phosphonates?

No, it is in phosphonates.

It's in phosphonates. And do we have any such company which is a peer competition to it?

Yes, there is one company called Italmatch.

Sorry, could you spell it?

I'm not sure of the spelling, but I'll presume it's I-T-A-L-M-A-X (sic) [ I-T-A-L-M-A-T-C-H ].

Okay. And my second question is in terms of the geographical contribution since you said that the majority part is in U.S. So I would assume that more than 50% is U.S. contribution and rest would be India and Saudi?

I don't have the geographical contribution with me. But Kaushik, would you have that now? I think that revenue-wise, 65% is U.S., 18% Europe and 9% India.

Sir, nothing from Saudi as of now?

[ Saudi ] is in the 7%, and it is basically a place for production, it's a hub for production.

Okay. Got it. And in terms of phosphonates, what will be the capacity and what will be the market size?

Kaushik, would you like to elaborate on this?

Yes. Market size of phosphonates globally is 250 Kt, and the capacity of Aquapharm is the total is about 130 Kt. And out of that, 80% is phosphonate at this point of time.

Okay. So around 100 Kt would be our capacity out of the 250 Kt?

Yes. We are one of the top 2 players. As Chairman just mentioned, the other one is Italmatch from Italy, and the spelling is I-T-A-L-M-A-T-C-H, Italmatch.

Sorry, could you -- you're not audible.

It's Italmatch, I-T-A-L-M-A-T-C-H.

Okay. Got it. And my next question is in regarding -- since in the management commentary, it was said that the chemical business for this year was a little depressed. So in terms of realizations of the chemical per se like phosphonates, how much drop on a Y-o-Y basis have we seen in the realization of this chemical?

Ma'am, this is something that, as I said, we are less than an hour or just maybe an hour into the transaction. Give us a little time, and we will be able to share much more detail.

Sure. And on future acquisitions, which you said in regards to the EV, would it be of the similar magnitude of the current acquisition?

We can't say at this stage. Please, we will share with you details. But all I can say is the prospects are very, very exciting.

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

Congratulations. Sir, I wanted to understand from the 3 business verticals that you mentioned, what are the current utilizations of 3 business verticals? And at current capacities, what would be our maximum revenue potential?

Those are, again, details, which give us a few weeks. Though we have some numbers which are done by McKinsey, we would really like to go through it ourselves and validate them and come back to you. And we've given you the broad EBITDA numbers based on the existing management's forecast, but we will now have to go in, and we will have to evaluate and come back to you with what we believe we can do to the business.

All right, sir. Sir, secondly, I believe the return ratios from this business would be north of 20%, the return ratios. So given that we are in a down cycle, as you mentioned, in the chemicals business, what could that number look like in an up-cycle scenario?

Again, those are details which are detailed operational issues, and we are not yet involved with the operation. So we are not in a position to give you an intelligent response to this. But hopefully, a few weeks from now, we should be in a position to tell you this.

Okay, sir. And sir, just one last question. You mentioned the margin profile -- EBITDA margin profile is 20% for us. Any comparison have you made with respect to the competitors, what kind of margins they are making?

So this is a global leader, and the difference in the market share is marginal actually. Italmatch is slightly higher, I think 1% or 2% higher than us. So it's very, very marginal. And I think they're both very comparable companies. But we will have very detailed reports out to help you with analysis very soon. But an hour into the transaction, there is only so much that we can say. I mean -- and that's -- there is only so much that -- I mean, we know what we know, but we will have to get into much more detail to give you very, very specific data.

All right. Sir, since you mentioned about the market share, just wanted to ask, do you have any numbers handy in terms of market share?

I mean I hope our market share will increase.

Our next question is from the line of Shiv Chanani from Baroda BNP Paribas Mutual Fund.

A couple of questions. One, could you give us some more detail on the payment schedule, please? I'm just trying to understand -- I think if I heard you correctly, you said that the overall payments will be made over next 18 to 20 months. So I'm just trying to understand how the cash flows will pan out...

No, no, no. I think I knew you got me wrong, maybe. What I said is that within the next 3 months, we hope to close the transaction, which is when we will make the payment. And over the next 30 months, the cash flows from the 2 combined businesses would be more than enough to pay this entire money.

Fair enough. So there are no milestone payments based on certain numbers being achieved?

No.

Okay. Okay, understood. And secondly, on the competition side, are there any Indian companies as well competing?

No, no, no. Again, specialty chemicals are specialty chemicals. There are very few companies which operate in this space, globally. And that is the advantage of having specialty chemicals and having companies like this. That's why you can get 31% margin. That's why in water-soluble polymers, you get 35% margin.

Right. Right, understood. Yes. And lastly, when I look at the Italmatch presentation for the 9 months, if I understand correctly, the PPA segment is the one which probably competes with your segment. And there, I can see almost a 25% decline in volumes and a 28% decline in revenues for the 9 months. So how should we read into this?

But that is why the Aquapharm performance for the last 6 months has been low, which is the industry trend. But as I said, it's seems it is reversing. And -- but again, we are not yet as knowledgeable on the industry as some of the research analysts would be. Give us some time, and we can come back to you with far more reliable forecast. I mean these forecasts are reliable. And as I said, they've been validated by McKinsey and other consultants. But for us to get into this kind of detail 1 hour 15 minutes into the transaction, just request for a little more time, please.

Fair enough. I mean, can you just share that the first half, has the decline been similar, 20%, 25% compared to Italmatch? Or has it been different for...

Well, I don't think it's -- there has been a decline, and we shared the absolute numbers with you, and the decline has been in the range of about 20%, 25%, yes.

Thank you. Ladies and gentlemen, that was the last question of our question-and-answer session. On behalf of PCBL Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.