PCBL Chemical Limited ($PCBL)

Good day, and welcome to PCBL Chemical Limited Q4 FY '26 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjesh Jain. Thank you, and over to you, Mr. Jain.

Thanks, Ranju. Good afternoon, everyone. Thank you for joining on the PCBL Chemical Limited Q4 FY '26 Results Conference Call. We have PCBL Chemical management on the call represented by Mr. Nilesh Koul, Managing Director; Mr. Raj Gupta, Chief Financial Officer; Mr. Pankaj Kedia, ED, Investor Relations. I would like to invite Mr. Nilesh to initiate the call with his opening remarks, post which we will have a Q&A session. Over to you, sir.

Good afternoon, everyone, and a warm welcome to you on the PCBL's Q4 and Full Year '26 Earnings Conference Call. When we last connected at the Q3 earnings call, we had outlined the headwinds shaping our business, softer global benchmark spreads, surplus domestic capacity, geopolitical uncertainty and a sharp inventory adjustment by international customers. Most of these pressures persisted through the fourth quarter and FY '26 whole has truly tested our resilience and our business amid a challenging macroeconomic and industry environment. That said, while we faced significant headwinds last year, the broad industry dynamics have now started to show clear signs of recovery. Freights appear to have found a floor. Exit quarter momentum has turned positive. The recent rationalization of U.S. tariffs has restored a meaningful cost advantage for Indian exports. Customer pipelines in our specialty business are firming up and the ratification of the India-EU FTA opens up a duty-free access to 1.8 million tonnes of carbon black market. We expect this recovery to consolidate progressively over the next 2 or 3 quarters. Today, I'll walk you through headwinds we navigated, the challenges that have emerged from the West Asia situation, the recovery signals we are seeing, the steps we are taking to strengthen our position and the outlook for the year ahead. I will initiate by briefly talking you through the key financials and operational highlights of the quarter and full year. The most defining feature of the quarter was the escalation of the West Asia conflict, which began in February and created significant disruptions across our value chain and substantial increases in cost. With approximately 75% of our raw materials sourced from the U.S. Gulf Coast and around 40% of our business driven by exports across geographies, we have significant dependence on global supply chain. And this quarter, we felt the impact on multiple fronts. The West Asia situation has created new challenges in terms of massive increases in logistics costs, cost of feedstock and the availability of ships and access to markets. While availability of CBFS itself has remained uninterrupted, as we continue to source from the U.S. Gulf Coast, raw material prices have risen. Packing material costs have moved up materially and freight costs have escalated sharply, exerting significant pressure on our margins during the period. Our key export routes to Europe and U.S. passed through the conflict zone, causing disruption to the normal trade routes. Vessels are being rerouted via the Cape of Good Hope, adding at least 14 days to transit time and increasing logistics costs significantly. This rerouting has tightened container availability globally, as vessels are caught in longer loops and the effect is visible in ocean freight rates, which remains significantly elevated compared to pre-conflict levels. Through all of this, our priority has remained unchanged. The company is fully focused on ensuring timely supply to customers with no disruptions. I would also like to particularly acknowledge that most of our customers have been very considerate in sharing the increased cost with us, and I sincerely thank them for their partnership during this period. Our raw material is directly linked to crude price. And this quarter, crude rose sharply and witnessed high volatility. Brent started at around $60 per barrel and ended March at around $100 per tonne (sic) [ barrel ]. As we speak, it's hovering close to $120 per barrel. A significant portion of our volumes flows through formula-based contracts with tire majors. Given that price contracts carry an inherent quarterly lag effect, the full impact of cost pass-through will reflect in our numbers by Q2 FY '27, at which point our margin profile should normalize. In the spot market, cost pass-through has been initiated and will help offset the rise in input costs. We will continue to manage this actively as the situation evolves. Our second important development is a clear shift in how customers are approaching their inventory. We are seeing a trend of stocking up at the customer level, which appears to be driven by uncertainty regarding the availability of materials going forward. Global tire majors are increasingly building strategic inventory buffers, transitioning from just-in-time to a more resilient just-in-case approach in order to mitigate supply chain disruptions. We expect this transition to translate into an incremental demand environment, driven by restocking of carbon black across the region. Over the past few months, we have added 90,000 tonnes of carbon black capacity, enabling us to effectively cater to this increased demand. With the global carbon black market continuing to grow over the long term, we believe we are well placed to benefit from this structural shift. Domestic and export. In the domestic, sales have remained stable, supported by steady demand across key segments. Given our limited exposure to conflict-affected regions, except maybe a little bit for the specialty volumes, exports have remained resilient despite the uncertainty arising from West Asia situation. Around 40% of our total sales volume are exported with South Asia being the primary markets and remaining unaffected by the ongoing conflict. To navigate the disruptions in West Asia trade routes, we have proactively rerouted shipments to alternate geographies, ensuring continuity and minimizing any impact on international sales. With supply chain stabilizing, we expect both domestic and export growth to continue in the coming quarters. We are deepening our presence through a service-led model in Europe and Japan, aiming to drive volume and market share growth through customized solutions with key players in these markets. Beyond the near-term disruption, the underlying fundamentals of our industry remain intact and several structural tailwinds are turning in our favor. The India-EU FTA has been ratified, bringing duty-free access to an important market within sight. The recent U.S. tariff reduction and duty refund benefits will also work in our favor. We are already in active conversations with customers in these markets and see good headroom for growth. Despite cost headwinds, the tire industry is navigating globally. Tire demand in the U.S. and replacement segment has remained resilient. The Indian tire sector in FY '27 is poised for robust high single-digit growth. High vehicle usage and aging commercial vehicle fleet support steady tire replacement demand in India. The industry is also benefiting from capacity expansion, premiumization and electric vehicle EV adoption. On the Special Black outlook -- in the Special Black segment, we took some price hike to meet the rising cost during the quarter. The near-term environment has been influenced by slower infrastructure activity. However, our products are gaining acceptance in applications such as industrial coating, supported by their performance characteristics. That said, we are seeing encouraging traction in segments like EV, semiconductor, data center and AI-led investment. Overall, we remain constructive on the outlook and continue to selectively increase our focus on resource reallocation in this segment. Just a word on Nanovace, which is our platform for battery [Technical Difficulty] in the coming weeks. On the R&D front, the team has been significantly strengthened with enhanced lab capabilities. Business development has also been expanded across key markets, including Europe and South Korea. Engagement with large battery manufacturers is already underway to validate product properties. Post-commissioning, a validation period of a few months is anticipated before capacity ramp-up begins. This represents a significant opportunity for PCBL to diversify into battery material industry, a high-growth, high-margin segment with strong long-term potential. A word on the initiative -- cost reduction initiative I had talked about in the last quarter. This initiative has made significant progress in unlocking efficiencies across manufacturing and procurement. I'm pleased to share that the program is progressing well. Cost initiatives across yield improvement, throughput enhancement and feedstock diversification are on track to unlock over INR 200 crores to INR 250 crores of savings over the next 4 to 6 quarters. We have also begun introducing agentic AI solutions on the shop floor. Early signs are very, very encouraging. Faster decision-making is already visible, and we expect this to translate into improved uptime, better quality and more consistent operations. This shift also calls for new ways of working and focused upskilling, which remains a priority for us. And added a benefit is faster speed to market from lab to actual commercialization and the ability to introduce new solutions that support a more sustainable value chain. As part of our long-term cost resilience strategy, we are also actively pursuing feedstock diversification through backward integration into coal tar distillation. Increasing the share of coal tar-based feedstock for select applications is a key lever. Technical feasibility studies are currently underway, and we'll share more details in the next quarter. Now for the outlook. At PCBL, we are no strangers to adversity. And PCBL has navigated these challenging cycles in the past, be it raw material volatility, demand disruption or global macroeconomic headwinds. And each time we have emerged stronger and more resilient. Through all of this, our priority remains unchanged: ensure our customers face no disruption in supplies. We are doing everything necessary to meet their requirements without compromise. We have already taken steps to address the current environment by tightening procurement, accelerating cost optimization and improving supply chain efficiency. As the environment normalizes and volumes recover, we are confident of delivering double-digit EBITDA growth fueled by volume momentum, leaner cost structure and better pricing realization. We are maintaining capital discipline with investment priorities towards specialty carbon black, battery chemicals and other value-added segments where margins are higher and growth is much faster. Importantly, we have used this period to strengthen the balance sheet. Net borrowings reduced by INR 454 crores to INR 4,536 crores during FY '26, even while we funded INR 750 crores of CapEx. Our working capital cycle has tightened further. The platform we are entering FY '27 with is materially stronger than we were 12 months ago. Just a quick update on the projects. With the 90,000 tonnes brownfield expansion of rubber carbon black at our Tamil Nadu [Technical Difficulty] during this quarter, our total installed capacity is now 880,000 tonnes per annum. The superconductive specialty black line of 1 KT at Palej is mechanically ready for commissioning. However, commissioning has been delayed due to gas shortage. The specialty black line of 20,000 tonnes in Mundra is now ready as well, and we'll be commissioning it in the next few weeks. Coming to the quarterly performance. During the quarter, our consolidated sales volume in Carbon Black business increased by 8% year-on-year to 161,865 metric tonnes. Consolidated revenue from operations during the quarter was INR 2,066 crores and consolidated EBITDA was INR 248 crores. Of the total carbon black sales volume, domestic sales volume grew by 21% year-on-year to 105,055 tonnes, while international sales volume decreased by 10% to 56,800 tonnes in Q4 FY '26. Moving on to our segment performance. Tires accounted for 88,591 tonnes, performance chemicals 53,888 tonnes, while Specialty sales volumes was up by 26% year-on-year to 19,386 tonnes. Power generation increased by 12% year-on-year from 175 million units to 196 million units with external sales volume of 116 million units as against 100 million units in Q4 '25. Coming to the full year performance during FY '26, consolidated revenues from operations stood at INR 8,189 crores as against INR 8,404 crores in FY '25. Sales volume for carbon black decreased (sic) [ increased ] 4% year-on-year to 618,956 metric tonnes in FY '26 as against 596,262 metric tonnes in FY '25. The consolidated EBITDA for FY '26 stood at INR 1,081 crores as against INR 1,384 crores in FY '25. Power generation was up around 14% and power sales volume by 17% during this financial year. Turning to our Specialty and Solutions business at Aquapharm. It continues to face challenging external environments. There are different dynamics shaping performance across our key markets. I'll take it one by one. Aquapharm reported sales volumes of 21,998 metric tonnes, revenue of INR 339 crores and an EBITDA of INR 29 crores in Q4 FY '26. For the full year, revenue was INR 1,443 crores and EBITDA INR 162 crores. Amidst the geopolitical conflict around the year, total sales volume in FY '26 was resilient at 94,445 metric tonnes. During the year, Home Care sales volumes increased by 11% on a year-to-year basis. Our Water Solutions business also faced headwinds, resulting in a 12% year-on-year decline. Application-specific solutions increased by 18%, while the Oil and Gas segment declined by 19% year-on-year, impacted by low oil rig counts and frac spreads in the U.S. Lower oil prices pre-war led to more cautious customer behavior and an indirect impact on realizations. In Q4 FY '26, we faced multiple challenges during the West Asia conflict. Lead time and freight rates increased significantly alongside a 25% to 30% raise in raw material prices. Yellow phosphorus, acrylic acid, maleic acid and other raw materials, packed materials cost also went up materially up to 1.5x. Disruption in LPG supply and increase in price during the war impacted production, as LPG is used in a few of our processes. However, to [ ensure ] wallet share loss, we reduced deliveries in consultation with customers. And once again, I would like to thank our customers for their continued support and consideration during this period. In Home Care, we are locking in orders for FY '26 with our key customers and new products are also under approval. Similarly, for water solutions and green chelates, several products at the approval stage, and we expect these to materialize in the next few months. During the year, we have successfully expanded our capacity from 130,000 tonnes to 167,000 tonnes, enabling us to serve higher volumes going forward. We are expanding our Oil and Gas business by increasing wallet share and strengthening new customer engagement. We now have presence in Midland, and North Dakota and have also received product approvals from new customers in LatAm. Overall, we remain positive on the strong growth opportunities in oil and gas. And based on historical trends, drilling activity should rise by around 30% at current crude levels. Overall, utilization levels should also increase with faster commercialization of new products and diversification of our product portfolio. With China implementing supply side reforms, including VAT rebate cuts, provincial value-added mandates and stricter capital capacity guidelines, we expect structural price improvement across various chemicals, and we expect to benefit from the same in the near future. To summarize, financial year '26 was a year that tested us. But it's also a year in which we deleveraged, advanced our growth pipeline and built a sharper operating [Technical Difficulty]. The fundamentals of our industry remain strong. The early signs of recovery are clear, and we are entering financial year '27 with great confidence and purpose. With this, I'll conclude my remarks. Thank you for your attention, and I welcome your questions now.

[Operator Instructions] The first question comes from the line of Sanjesh Jain with ICICI Securities Limited.

I got a few across the businesses. First, on the Carbon Black, what is benefiting us because the profitability in the segment has gone up, is purely because U.S. tariff has changed where we were struggling or there is a lower import coming in from Russia, thanks to the Middle East crisis. I can also sense some inventory gain during the quarter, considering that there was a sharp increase in prices across commodity, which should have benefited. In this backdrop, how do you see FY '27 panning out both from a volume perspective and the profitability perspective in the Carbon Black business.

I think first, there were some -- U.S. tariff reduction has definitely improved prospects, which also means that more players are exporting material outside of India. And therefore, there's a little bit of reduced pressure on the pricing in India, while the tire business is based on pass-through. In the non-tire business in India, we have been successful in increasing prices over the last few months. Of course, after the West Asia crisis, this is -- we were forced to increase even more pricing. But structurally, we have been able to improve some pricing in that area. That's one. Going forward, I think we are optimistic on both fronts in terms of volume improvement, both domestic as well as export because the headroom for us to grow in export markets is significant. And we are implementing some supply chain initiatives, which will unlock some markets, which we could not access given the transit time, et cetera. On the pricing front also, while the industry continues to be overcapacity, we believe that structurally, we will be able to take some price increases with value-added products coming into play as well as introducing new services for the customers, which unlock more value for the entire value chain and therefore, sharing that with the customers.

Got it. Got it. But what is the reason for jump in profitability this quarter? If you can break that up, that will be really helpful.

Raj, you want to get into details. But essentially, it's contribution increase. And yes, there is a lag in inventory valuation as well.

Sanjesh, last quarter -- if you're comparing with, last quarter was not a usual quarter, right? And our profitability dipped significantly. So while quarter-on-quarter, when you're looking, it is appearing as a significant jump. But this is not where we should be with the kind of volumes that we have done. And of course, this quarter, the volumes have gone up by 1,000 tonnes. So volumes have contributed. EBITDA margins remain same. There's -- I mean, not much improvement at EBITDA per tonne level...

Per kg.

So the real impact of all the initiatives, which Nilesh just spoke about is yet to come. It is still not reflecting in the performance.

That's clear. Second, Nilesh, on the entire shift towards coal tar distillation, we have been positioned ourselves as a crude-based feedstock producer. And coal tar, which -- any which way is finding more buyer, thanks to the multiple applications there. Now what is driving us to reconsider a business proposition to shift towards coal tar distillation? That's number one. And number two, there's already established player, who are procuring the coal tar. Now, how do we ensure that we get the feedstock?

I'll get into more details on this in the next call because the project feasibility is being finalized right now, but at the core of it is that we need to diversify our feedstock base. Second, it's not that we will use coal tar for all applications. This will be specific application based. So there are applications where coal tar-based feedstock is slightly better. We have also upgraded our facilities to be able to use a combination of feedstocks. So that will help. And as I said, I'll get more details for you in the next call where we would have already signed off the CapEx investment.

Got it. One last question on Carbon Black and then probably one question on Aquapharm. With the existing West Asia crisis, do you think we are in a better position from a carbon black manufacturing perspective and tapping the U.S. market? Or do you think Russia now has a chance of selling their product in Europe or that's not happening.

We are seeing good traction from U.S. customers, given that the tariff has gone down now. Of course, people are waiting for final stability in that structure. The logistics cost is a little bit challenging, but I think we are more competitive now than we were pre-war. So we are -- we stay optimistic for both EU as well as the U.S. markets.

But how do you read the jump in the logistic cost because we are a bulky material, right?

Yes. Even with that, we are competitive in the U.S. market. As the U.S. customers are also -- it's an underserved market and the U.S. customers are also trying to diversify away because competition is China, Russia as you said. They want to diversify to other Indian players. Therefore, we believe we are still competitive in multiple applications.

Last one from my side on the Aquapharm side. Phosphoric acid prices have gone up very sharply. That should itself has driven a lot faster growth in my view. Number two, crude prices very beneficiary for us in our U.S. business. A combination of this, does it improve the outlook for Aquapharm in FY '27? Now for last 2 quarters, we have been doing EBIT losses there?

So Sanjesh, yes, the phosphoric prices have gone up. We have also taken immediate price hikes from March onwards. So it will have some cushioning effect going forward. But as far as the oil and gas business is concerned, with this jump in the oil prices, which we are seeing, we see substantial restocking impact coming in the first 2 quarters itself of FY '27. So most probably, you will see a decent growth on the oil and gas business in Aquapharm in FY '27.

And how should we see a path to the profitability?

So as you see -- from a profitability perspective, what has happened is a significantly lower capacity utilization in the last couple of quarters. That has led to some kind of a negative operating leverage playing to our numbers. As we see Q1 and Q2 onwards, Oil and Gas business moving up sharply, the same thing will turn into positive to our advantage. So you will see profitability moving up as our overall capacity utilization moves up from Q1 FY '27 onwards.

That's very clear. Just one balance sheet question. Sorry, I'm holding on more. Considering there is a sharp increase in the feedstock prices, that will put significant pressure on working capital and hence, on the net debt position, which already appears to be stretched in current profitability situation. How do we want to manage this entire leverage situation and still continue to grow?

Our overall borrowings have come down by about roughly INR 450-odd crores this year, as you must have seen from the balance sheet. You must have also noticed that our investment in working capital has also gone down significantly. So we are managing our receivables and inventory very tightly. And we feel that there is further scope for us to improve there. So we are instituting better controls. We believe that even despite crude being here -- and we don't believe that crude is going to be here for the full year. We believe that, I mean, maybe in a quarter's time, we'll see crude should soften back to that $80, $90 level, whatever. Even if crude remains at $90 level, I think considering the volume growth, the revenue growth, we would require another INR 100 crores worth of incremental working capital. That's how we are estimating it as of now. And the cash generation with higher volumes and better margins will be far more than what we require to invest in our growth, pay out to shareholders and invest in working capital for this incremental requirement.

Next question comes from the line of Rohit Sinha with Sunidhi Securities.

So already some of my questions are answered. Just a few from my side. One is, as sir, in opening remarks indicated about this price increase pass on would be majorly reflecting from Q2 onwards, I guess. So just wanted to understand how this pricing pass-on would be, I mean, playing out in the different segments for us for Carbon Black as well as for the Aquapharm also. And I think from March onwards, we have some higher prices, which came down in mid-April. But again -- since crude has again started moving up and probably there would be some adjustment in the contracts also. So how the contracts are shaped and how we should look at basically going forward, our Q1 performance also?

So as you said, different segments in our market have different pricing linkages. So in case of tires, for example, there is a structure where pricing can be linked to -- and we have different types of contracts with tire consumers. Some are Q minus 1, some are M minus 1. So there are different pass-through mechanisms. So those will come into effect as and when the contract terms move along with it. There is also a significant piece of volume, which is based on spot pricing. There, we have anticipated and taken the prices up early. As I said, in March itself, we had started taking prices up and price increases have gone through because obviously, the entire industry is facing the same challenge. So we expect prices to be strong in Q1. And depending on how the crude situation moves, this will sustain. Some part of it, we will lose later on, as the crude prices hopefully come down, but we expect profitability improvement, given the costing of our raw material available with us for Q1. Aquapharm is going to be a similar story for some segments where we have pass-through and prices are linked to Q1 -- Q minus 1 or M minus 1 in some cases.

Got it. And sir, from our new Battery business, how the things are progressing there? When we should be seeing some material numbers in that segment?

I think the plant -- the pilot plant is ready. This, of course, is a very high-value business with high margins, but it also requires qualification. So the pilot plant is designed to start getting qualifications done within this year. Then we will move on to putting up a commercial plant with additional capacities. I would expect that FY '28 is when we will start seeing commercial volumes going up. We will share more details as we progress in getting more qualification with our customers.

Got it. And one last question maybe for the guidance point of view and how we should be looking at the volume growth in the carbon black side for next year? And for the Power business also, I think -- I mean, some outlook wanted to know as the demands are quite strong there, but pricing has not been to that extent. So are we seeing any material price increase also going forward in the power side or it will remain more or less in the similar range?

I think on the Carbon Black business, now with our additional capacity coming in, we expect to see a high single-digit volume growth. We should see a much stronger more than double-digit growth in EBITDA as well for the next year. As Raj was saying, Q4 results are not what we aspire to be. So you should see significant improvement in that going from Q1 onwards. On power side, the pricing, there is 2 components of it. One is the bilateral agreements that we have. Now there, the pricing is moving well. And I would also expect that because of the fuel crisis in West Asia, we should start seeing some better pricing realization Q1 onwards as well. So we should see structurally better pricing in Power business as well.

Next question comes from the line of Aditya Khetan with SMIFS Institutional Equities.

Just a couple of questions. Sir, you mentioned in your opening remarks on the carbon black spreads bottoming out. Sir, what are the indicators like if you can highlight and what is giving you that confidence that this has bottomed out? And what are the triggers wherein it can improve apart from what we say that tire demand will grow? Any structural change in the business, we can see, okay, now this has bottomed out. And sir, comparing with last quarter, actually, spreads look much lower, adjusting for the inventory gains. So what has changed? And what is giving you that confidence that it has bottomed out?

I think for the Indian players, some of the positive things that we are seeing is because the U.S. tariff issue is, to some extent, sorted out. So the additional volume coming into the Indian market is now moving towards U.S. as well. So you should see some improvement on volumes being exported out of India, which therefore reduces the pressure on pricing in India. That's number one. I think we are also going -- continuing to see some inventory buildup by our customers as well, which is a little bit of an additional demand coming through and again, should allow us to start charging a little bit more premium. Third, of course, is -- the value-added component of our business is going up, and we expect to see that also helping us improve our spreads.

Got it. Sir, onto the customer side, like you mentioned, so customers are keeping some inventory, which earlier they were taking just in time. So can you highlight like what are the inventory levels today with the tire players of Carbon Black and Specialty and Aquapharm across businesses?

It varies by customer to customer. So depending on the market that you're talking about, for example, our domestic customers usually keep -- were keeping about 3 to 7 days, depending on the location of their plants, et cetera, which they are dialing up a little bit given the uncertainty. In export markets, again, it varies across the value chain. What we are looking at doing is actually providing some more additional inventory stock points for just-in-time delivery as well for the longer term. This is not going to come in effect right now. It will take a little bit of time to do that. But customers are increasing their cover for beyond increasing that by at least 3 to 4 days minimum, as we see as of now. And this is true for specialty as well as for tire customers.

Got it, sir. Sir, on to the Aquapharm, like you mentioned, so with the rise in crude prices, definitely coming quarters should look good. But, sir, you also mentioned on to the restocking pickup. So suppose, sir, if tomorrow, all these things stabilizes, the West Asia prices, we are -- everyone is anticipating crude price to fall down. So still this thesis will remain intact that demand will pick up and restocking thing also will continue or we could be back to that original levels like we were saying earlier.

So this is -- we are not banking only on the inventory increase. We are also making efforts to grow share of wallet in terms of providing value-added services and solutions for customers. As I mentioned, there is a lot of new product approvals that we have got. So we are seeing positive traction beyond the immediate impact of inventory increase. So structurally, we believe there is enough growth in the key segments, Oil and Gas, in Water Treatment and the Home Care segments, especially as we have got now greener products coming into the mix, and we should see increased volumes. So no, structurally, we are making efforts to ensure that profitability goes up.

Sir, current quarter, when we look, so we are sitting at around INR 29 crores sort of an EBITDA, which you have mentioned in the presentation. So sir, next year, considering if things normalizes and you mentioned that premium mix will go up, can we again go back to that levels of INR 50 crores, INR 55 crores EBITDA per quarter in Aquapharm?

Yes, Aditya, we believe we should be able to do that.

Got it. And sir, on the volume side, any number for FY '27, '28? Like earlier, we had said for '26, so double-digit volume growth, but I think we are at flat. For FY '27, '28, any number guidance?

Specifically for Aquapharm?

Yes, yes, Aquapharm.

Aquapharm should see a very strong growth in top line in FY '27. I think in the region of 20%, 25% is something which we believe should be able to achieve.

Got it. Sir, just one last question on to the debt part. You had mentioned that we have also reduced some of the debt. Along with that, we are also into capital expenditure mode. So this will continue in FY '27 also, both paying off debt and simultaneously doing CapEx, '27, '28. How are you seeing -- how you see like things shaping up on this front?

Yes, we feel that we can generate more cash from operations than what we require to invest in growth. And therefore, there should be net-net reduction in overall leverage.

Sir, one last question that we had mentioned in our Investor Day earlier, some INR 40 billion guidance of EBITDA by 2030. So does that hold? Or is there any change on to that?

See, the long-term fundamentals of the industry remain intact. These are short term, some headwinds that we are facing currently. So from 2030 perspective, we are very confident. We remain on track. And with all the initiatives that we are taking, we believe that we should be able to deliver those numbers.

[Operator Instructions] Next question comes from the line of Prit Nagersheth with Wealth Finvisor.

My question is back to the EBITDA per tonne for FY '27. So if I understand, you said you are expecting a double-digit growth on the EBITDA. So should I assume that the INR 14,900-odd per tonne, we should see at least about a 14%, 15% increase on this number? Is that what this leads to?

We should easily see that, yes.

Right. And...

It's a mix of -- just to clarify, it's a mix of both. We expect pricing to move up, and we also are taking significant initiatives on cost. So a combination of that should definitely deliver that.

And here, you are coming to this number based on 2 factors, one being the volume growth of high single digits, so 7%, 8%, 10%, 9% and the value growth of the remainder to get to this number. Is that -- is again my understanding correct?

So let me recap. So there's 3 elements. One is, of course, the volume growth. Second is a product mix change. We are getting higher value-added products coming through. The third one is general price increase -- I'm sorry, there's a fourth one, which is the cost initiatives, which we are also taking.

Understood. So basically, effectively, the EBITDA tonne moves up by a strong double-digit number. And we should also see maybe revenue increase, volume increase alongside all of these things?

Yes.

Next question comes from the line of Sailesh Raja with B&K Securities.

Yes. Sir, in the last call, we had mentioned that Aquapharm received incremental allocation from customers like P&G, Henkel. So could you quantify the potential volume growth expected from these 2 allocations over the next 1, 2 years? Also regarding the recent -- the removal of 13% VAT with export rebate, which we were talking that benefit in China. So specific to PBTC product, so within the Aquapharm, the overall volume mix, what proportion of volume is currently derived from PBTC product? And what about the operating profit growth that we are expecting in Aquapharm?

So Sailesh, specifically, if you talk about the green chelates portfolio, where we last quarter also mentioned that we have started receiving trial orders and supplies have started to both P&G and Henkel. There, I think from Q2 and Q3 onwards, we see a significant increase in the expected sales revenue, as we get product approvals and supply moving up. So from a potential perspective, potential is large. We ourselves have limited capacity. Our overall green chelates capacity is 4,000 tonnes. And we have been looking at expanding that capacity, but we have been waiting for product approvals to come in so that we don't set up capacities too early. Now as we see increasing sales in the green chelates portfolio, both FY '27 and '28, you should see significant increase in the revenue side, and we will be adding more capacities on the green portfolio for Aquapharm. Your second question was...

No sir, please continue.

So once we get these product approvals from P&G and Henkel, we are also working with more customers to get product approvals from the non-detergent side of the business, too. So this should help us to have a larger revenue increase from this green chelates portfolio.

Sir, can you please quantify, sir? We are expecting around 20,000 tonnes incremental number?

Sailesh, your voice is not audible.

Yes, yes. Sir, we are expecting 20,000 tonnes incremental number. Can you please quantify, sir, the volume that you are expecting from these 2 customers and also that EBITDA growth that you are expecting from Aquapharm?

See, a couple of things. The requirement of these customers is pretty large. I mean, we'll not be able to supply that requirement with what capacities we have. So if you -- if I tell you about the opportunity size, it is pretty big. Once we have received the trial orders in the last quarter and the supplies have started now, we have to build up that portfolio gradually. So if you recall a couple of years back also, we had mentioned that we have a very large ambition on the green chelates portfolio. We have some capacity. We are now getting trial orders and more orders are expected to come in a couple of quarters. So by the end of this year, we should have a much larger, say, when we talk about the green chelates portfolio. Challenge is not the target market or the size of the market. And from an EBITDA perspective, I think, while last quarter has been a challenging quarter in Aquapharm, and we faced multiple challenges, which Nilesh also mentioned during his opening comments, we believe that our goal remains to reach that INR 75 crores per quarter EBITDA run rate, which we have been trying to achieve in the last few quarters. And if the market would have been in a normalized scenario, we would -- probably would have achieved it by now. But over the next 2 or 3 quarters, we believe that, that goal remains intact for us to reach INR 75 crores run rate on a quarterly basis.

Okay. Great, sir. Sir, the Europe market, if you see the carbon black, the size is around 1.5 million tonnes. Just to understand better to see this potential benefit from EU FTA, but could you please help us with the current supply mix? How much of demand is met through domestic production versus imports? And within imports, what is the share from China, India? Is there still some Russia supplies coming to Europe market? Could you please talk about that?

Sailesh, Europe, on an average, imports about 500,000 tonnes of carbon black every year. And earlier, almost 80% of it used to come from Russia. Now of course, it is spread across a number of countries. India currently is doing about close to 100,000 tonnes to our understanding. And China share is -- would be a little more compared to us. Rest is coming from multiple geographies. Now in terms of how this EU FTA is going to benefit us, there is no import duty on carbon black in Europe. So there is no direct benefit. But when you look at indirect benefit, currently, tire imports in EU from India that attracts 4.5% duty. So once this FTA is signed, then that duty is likely to get to 0%. And Europe is 1/3 of -- I mean, Europe accounts for 1/3 of India's tire exports. So -- I mean that should boost our domestic production in India. And from that perspective, it is going to be positive.

And how much is domestic carbon black import, sir?

In Europe?

No, India sir. India import.

In India, it's not significant.

From where?

From China and Russia into India.

China and Russia is not much. China has about -- roughly about 1,000, 1,500 tonnes a month and Russia would be around similar, 1,500, 2,000 tonnes a month. India in totality imports about 8,000 to 10,000 tonnes a month.

Next question comes from the line of Shashank Kanodia with ICICI Securities.

Sir, given the current crude prices, what kind of blended carbon price realization should we look for Q1 FY '27, given that you clocked closer to INR 105 per kg in Q4?

Sorry, I couldn't get the question. If you can say that again, please?

Yes. So what kind of blended carbon price realization should we expect in Q1 FY '27, given the crude prices that they are currently holding at?

Around $1,400 to $1,500.

Okay. Okay. And that is true for Indian markets as well, right, sir?

Yes. I'm talking about average, blended, both domestic and international.

Right. And sir, at the current level of crude prices, how is the CBO versus CBFS profitability? So do we see more of Chinese supply getting into the market at the current crude prices, which is coal tar based or CBFS as a route is still an advantage position?

The coal tar prices have also moved up. So it is even keel as of now. So pre-war and versus now, it's about the same levels of difference. So when it is imported coal tar into India, it's still a little bit more expensive on a TCO basis because there is a difference in yield, which we get between CBFS and coal tar. So competitive, but CBFS is better for us right now.

Okay. And sir, for the quarterly breakup of volumes that you have shown in the presentation, your tire space volumes have declined from 90,000-odd tonnes in Q4 to 88,000, 88,500 tonnes -- KT for this quarter, whereas the domestic tire space have grown healthy double digit. So is it just really out of profitability angle, as we have supplied less for the industry? Or is there some -- market share loss some angle to it?

[indiscernible]

Yes. Quarterly sales volume for tires performance, specialty that we have showcased in your presentation.

Performance, specialty one second, which one...

Yes, I'm talking about tires in particular getting -- witnessing decline in sales volume from 90,000 KT (sic) [ tonnes ] last quarter and in Q4 to 88,600 this quarter?

This is just a customer mix that we had. And it's just a timing effect in terms of when the material got supplied. So overall, we are going to see growth in tire business as well.

Right. And lastly, sir, do you...

Q1, you should see higher volume from us on tires.

Okay, sir. Sir, given that there is state elections in the home state, is there any recurring onetime expense charged to our P&L for this quarter? Or do we expect something in Q1?

Sorry, again...

Shashank, you have to repeat it.

So I'm saying that, sir, given that there are state elections in your home state, do we see any onetime recurring charge, which is nonrecurring in nature, either in Q4 or in Q1? So we had a history of some donations in the past. So do we see that as an element for Q4 or next quarter, Q1?

Nothing significant, Shashank.

Okay. And sir, given that you're expecting good amount of profitability increase for base Carbon Black and Aquapharm, in FY '27, do we surpass the FY '25 base case profitability in terms of EBITDA and PAT?

Yes.

Ladies and gentlemen, we have reached the end of question-and-answer session. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.