Pondy Oxides And Chemicals Limited (532626) Earnings Call Transcript & Summary

For this financial year.

No, sir, next year, next year, I'm talking about next year.

For next year, we are targeting at 80%.

80%. Okay. And my second question would be around the margins again. Like, okay, you said that we can sustain 8% EBITDA margins. But I wanted to ask if we can actually increase it to around 9% to 10%?

We will try our best to push it to that numbers. We are working on a couple of things, but 8%, we can assure you will be maintained. Anything higher, we all will be happy together.

Also, if I can squeeze in one more. Do you plan on any further CapEx on the copper segment apart from that, that has already been done?

The second half of this year, about INR 35 crores CapEx will be made for copper further.

Okay. And after that?

After that, in the next financial year, we will further be investing close to about in the range of INR 55 crores to INR 60 crores.

In the copper segment only?

In the copper segment alone, yes.

Okay. And what sort of turnover do we expect?

So the combined target till the next financial year end is somewhere approximately close to INR 100 crores, INR 110 crores for the copper segment, including this year and next year.

And what sort of turnover do we expect from this INR 100 crore CapEx?

From this INR 100 crore CapEx, give me a moment, please. We expect close to about INR 900 crores to INR 950 crores -- in the range of INR 900 crores to INR 1,000 crores top line.

And the margins would be same as they are this year, right?

The copper segment margins will increase with this expansion. So these will be value-added products. So the individual segment-wise profitability on copper will increase.

If you can give a number for that, it would be great.

In the due course, once the products are up in the market, we will give you those numbers guidance.

The next question is from the line of Deekshant Boolchandani from DB Wealth.

Congratulations on the good numbers. First question is last year, our strongest quarter was the Q2 quarter. So you have explained that there were some export orders and that might affect the seasonality. And now that we are in a...

I'll just correct you there. It is not the export orders. What happens is sometimes the shipping schedule moves a little bit. Hence, the BL for the first quarter and shipments were issued in the first week of second quarter. And that's when those invoicings move into the second quarter, that's why you see a volume heavy in second quarter.

Got it. Sir this year, what do you expect that seasonality-wise, which is going to be a good quarter for us just from a volume basis. We don't control the commodity price. But from a volume perspective, which quarter should now be a seasonally stronger quarter for us?

So the way we have contracted our contracts is on an incremental basis as our capacities are kicking in. So we have already contracted on an incremental basis quarter-on-quarter for the [ net ] volumes, keeping in mind our Phase 2 coming in and all those capacities and volumes coming in and ramp up happening.

So you think that...

So each quarter-on-quarter, there will be a growth in volume. Yes. So the next 2 quarters will be higher than the first 2 quarters.

Of course. Got it, sir. Sir, secondly is what is our hedging policy? What -- how are we making sure that we are taking care of our downside risk?

Both in terms of our raw material is hedged with the broker, we have account with a direct London Metal Exchange broker. So the commodity risk is hedged through LME. The ForEx risk is hedged through the banks. And wherever we have imports and exports, there is a natural hedge and the natural hedge is maintained as a hedge book. So all these -- there are multiple tools that are used to hedge wherein we don't even keep our ForEx or our commodity risk open. Both sides are completely hedged.

Got it sir. Sir, philosophically...

[indiscernible] the rupee has also been extremely volatile, and we have been able to hedge and maintain our margins very consistently.

Got it, sir. Sir, philosophically, our business has been very strong in terms of making sure that we have -- we create new basis of EBITDA margins for us. And you have always guided conservatively and always delivered, which as shareholders, we appreciate a lot. Going forward with what you're thinking for lithium and the clear market opportunity, what kind of growth do you see in the next -- let's not think of just FY '27 because your ambitions are higher, sir. What are you thinking forward, FY '28, '29, [Foreign Language], what do you think that we can be?

Yes. As a basic internal target that we have is a minimum of 20% is what we want to grow year-on-year going forward. And that is on a minimum level what we drive. And definitely with various verticals and opportunities coming in. And specifically, if you look at the recycled space, recycling space itself, anything and everything that we use today is going to come back tomorrow for recycling and it's not very lead or metals, everything -- the market is hugely opening up for multiple vectors on recycling. And in terms of our growth ambition, we look at a minimum of 20% growth year-on-year. So we should definitely be able to have that target achieved.

Sir, last question from my side. Now that we are thinking of going in copper more aggressively, what about creating our own LME brand so that we are registered with LME, so that our margins will be better, warranting will be easy. You have done that in the past and you are good at it. So what are your thoughts here?

Yes. I mean, once you get into the product and then one by one -- it's a little slow process, but definitely slowly but surely, we will do that.

The next question is from the line of Kashyap Desai from Richbond Capital.

Ashish, excellent set of numbers once again. I just wanted to check what is the status on the Phase 2 expansion that is supposed to come online right now? And basis that, how confident are you of achieving this 70,000 ton incremental lead volume in second half?

Phase 2 is underway, and it is -- I mean, the refining and [indiscernible] part of Phase 2 is almost completed. Maybe just post this week or something, the trial runs will start on that. And in terms of volumes, like I said, see, basically, we have equated our volume versus our sales numbers in terms of top line. And we've had the opportunity to pick out certain higher value-added products where we have higher realizations. So even though we are targeting 70,000 tons this thing in terms of volume, which is very much achievable. Also on the sideline, we are also looking at taking only products where the margins are a little bit on the higher side than the regular, the non-value-added products. So at the end of the day, our target on our top line will be definitely met and our volumes also will be incremental quarter-on-quarter.

Perfect. And once the Phase 2 of this new capacity is stabilized and you've seen the relatively better margins versus your older capacities. Is there any game plan for the older capacities to be modernized in F '27, '28?

That's already happening primarily as we speak.

The next question is from the line of [ Jigar Jani ] from Nuvama PCG Research.

Congratulations on a great set of numbers once again. Just 2 clarifications on the copper facility. So this CapEx will be INR 35 crores. I think in the PPT, it mentioned INR 35 crores H2, out of which INR 20 crores, I believe, is for the TKD plant. So in addition to this INR 35 crores, you would be spending another INR 35 crores for the copper facility and another INR 55 crores to INR 60 crores in FY '27. Is that understanding correct?

Jigar, this is Vijay. See, overall, for this year, we have guided about INR 50 crores, out of which already INR 50 crores we have spent. Just typically one part of the INR 15 crores is for Phase 2. So balance for Phase 2, it's minimal, which we have to spend. The balance INR 35 crores, what we are planning to spend on copper for this year. And next year, as Mr. Ashish said, it is about INR 50 crores to INR 65 crores additional investment will be done in the copper in the next year.

Right. And sir, this facility will come phase-wise, like 6,000 and 6,000 in parts. So can we expect some production in FY '27 or most of the production from this copper facility at TKD will flow into FY '28?

So this will come product-wise, not phase-wise. Every -- it will come product-wise. So the first product rollout, you will see definitely in the first half of FY '27.

Okay. Understood. And this is 12,000 tons total [ INR 100 crores, INR 110 crores ]?

So we are targeting 12,000 plus 12,000. So by end of FY '27, we should be having a capacity of 24,000 tons of this, which will reflect back in FY '28.

Okay. And the total CapEx will be INR 100 crores to INR 110 crores?

Yes, that's right. Correct.

And Sir, any update on Mundra, what we are planning? Any plans for that? You will update on that at the end of this fiscal year?

Yes. By next quarter, we should be able to give you some updates on the Mundra this thing, because right now, we are completely concentrated on our copper project and the projects that we have taken up in the South. And we are seeing a very good opportunity being consolidated here. So we have not yet 100% firmed up, but we do have plans to set up a facility in Mundra as well.

Right. And sir, last question from my side is on the cash flow. We have seen some very heavy cash flow this first half, mainly because inventory has improved a lot from what I'm comparing on the balance sheet. So these inventory levels are sustainable or we will see a slight increase in inventories going ahead into the second half.

See, last year, if you see 31st March, our inventory levels were higher. As we said in the previous calls, it is -- typically, we have accumulated inventory for our new plant. Now that the volumes are increasing and we are bringing up production, we feel this level of inventory will be sustainable going forward. INR 170 crores to INR 200 crores of inventory is something which we can have as a benchmark going forward. And in the next year, when the copper happens, then according to the working capital cycle, the inventory levels will be increased. And we'll be able to maintain these cash flow from operating activities, these numbers.

[Operator Instructions] The next question is from the line of Abhijit Mitra from Aionios Alpha Investment Management.

So a couple of questions here. If we just compare your Y-o-Y EBITDA increase in lead from, say, around INR 12,000 to INR 20,000, INR 8,000, that's almost a 350 bps kind of an expansion in margins. How much of this you feel is on account of your higher value addition? And how much of this is on account of operational improvements coming in, including volumes from your new plant?

Abhijit, this Vijay here. See I will put this increase in 3 bifurcations. The first thing is that last quarter as well as this quarter, our operational efficiencies have increased by 1.5% of the overall margin increase, 1.5% has come from operational increase. And the value addition still remains at 70% plus levels. There also, we have got this 1.5%, which is typically about -- in INR terms, it is INR 6 per kg. So from INR 12 to INR 20, we have increased. So balance, the INR 1 is all about the fixed cost being absorbed being for higher volume. So that has overall contributed to the EBITDA per ton increase.

Understood. Understood. Very clear. And in second half, when you're talking about 70,000 tons of volume, your value addition would be what percentage? Can it be at 70% still or it would sort of come down because volumes are definitely higher. So how do you look at it?

So that's exactly what I was explaining earlier to Mr. Kashyap Desai, saying that definitely, we can look at those volumes, but we will be specifically picking up products which have higher margin levels, which are value-added products. So we are focused to keeping our value-added products mix at about 70%. So we will be rewarded.

Understood. That's very clear. That's very clear. So volume is not the -- I mean, it's not the priority here. But in terms of maximizing volume versus value, how should an external participant look at? Because I understand that the range is very high, right? So because 25,000 you have done in this quarter. And then if you completely sacrifice value addition, you can go up to 35,000. But if I have to sort of try to understand between a value versus volume mix as an external observant, how do I think about where you maximize it?

So basically, if we push 100% towards the volume, it definitely hits out on the value-added product because when you push on volume, you start moving more commoditized. So I will say, to give you a similar weightage at 70% and 30% to take, I'll say, the incremental tonnage of 10,000. So I will say as an optimum mix, it could be, I would say, maybe a 5,000 increase, so which could be something like we are not looking at 70 maybe a 60, but definitely not too lower volume. A marginal plus or minus, yes.

[Operator Instructions] The next question is from the line of [indiscernible] from Anvil Shares.

Congratulations on a great set of numbers. Sir, I just wanted to understand a macro view, say, if I take a 5- to 7-year perspective, our lead revenue is approximately INR 2,000 crores, if I consider for the full year. Is it possible that, say, copper, plastic, aluminum and lithium, they all could individually generate the same amount of revenue as lead, say, not in the over, say, 7 or 8 years view?

In over 7 to 8 years view, I would rather put it that copper could generate even more revenues than lead and other verticals could be equivalent to lead. And also lead being there and on an incremental basis being higher than where it is currently.

Yes. And sir, my second question was I just wanted to understand that our 36,000 tons, it went live in Q1. So our capacity was 168,000 tons. So I just wanted to understand that Q2 should have been better, if I'm not wrong, if I compare Y-o-Y. Is my understanding correct?

Like I explained earlier, the Y-o-Y number on Q2 last year, which I explained again was due to the movement of shipment, which was shipped in the last week of the first quarter and had to be accounted in the second week. Otherwise, the Q2 volumes on this year and last year, this year's volume are still higher than previous year.

Again, added to Mr. Ashish, here, again, volume alone is not a criteria. We want to maintain the profitable venture of value-added products. Achieving volume -- achieving top line alone is not a main criterion. Parallelly, we want to increase the profit margin. That's why even though there is increase of 36,000 metric tons, we are not able to increase in the absolute numbers.

[Operator Instructions] The next question is from Prem Luniya from Astute Investment Management.

Congratulations on the results. Sir, I just wanted you to focus on the copper section. I'm fairly new to the company. So I wanted to understand, right now, we are at 6,000 tons. Can you just draw me a pipeline of how this capacity will be added until the next year end next year, 24,000 tons.

Sorry, I lost you in between. Can you just repeat it again, sorry?

I wanted to understand how this capacity addition is going to happen in copper from 6,000 to 24,000, like the breakup, when it will come live? And also, I wanted to know what were the volumes for copper in the first half and Q2.

So basically, currently, we are at about approximately 6,000. And on the recycling front, which we are increasing to 12,000 on the recycling front, the volume in terms of numbers for the Q1 and Q2 put together were approximately a little bit higher than 2,000 metric tons, about 2,200, 2,500 metric tons. And we are targeting to be doing somewhere around 3,500 to 4,000 tons in the next 2 quarters on copper. And going forward, 12,000 tons of value-added product in terms of products will be added in this year, which will be seen in the H1 of FY '27.

Sure. And also, sir, I wanted to understand like what I understand, copper is comparatively -- in percentage terms, the EBITDA is lower. So do you believe that this 8% plus EBITDA once the copper revenues jump in on a consolidated level, we will be able to maintain this 8% plus EBITDA margins?

See, segment-wise, like whatever copper is right now, as we keep adding products over a period of time, those margins immediately for the product as in copper will be improving. It will be on incremental improvement.

Sure. With the value-added products, EBITDA margins will keep improving is what you're saying.

Yes.

The next question is from the line of Tanmay Jhaveri from Finterest Capital.

Sir, my question was in the last con call, we mentioned that we'll also focus on the aluminum segment. So just wanted to know on that part.

Yes. So the aluminum part, the trials are underway and the -- some small volume sales has happened. We have not reported that as a separate segment since the business volume is still small.

And just so that macro view for this like aluminum recycling?

Sorry?

Macro view on the aluminum recycling part. Like what kind of revenues can we expect going forward?

We are not -- our focus is not too much on aluminum. But as another product vertical, it will keep growing and it could have small numbers in revenue, could be somewhere maybe about INR 80 crores to INR 100 crores and not too much currently. We are not forecasting too much on the aluminum side.

Any specific reason for that, sorry, but...

Because currently, in the domestic market or in the next market, the aluminum alloys and stuff are not directly hedged. And here, we find a risk in terms of margin profile to maintain a steady constant margin profile. So we are not very focused on keeping that as a product where we have to run the risk on margins.

[Operator Instructions] The next question is from the line of [ Sanket ] Gupta, an individual investor.

I have 2 questions. One regarding what is going on in the EPR implementation because there is delayed in rPET EPR norms and what is going on in this industry? And the second question is regarding the GST. What is GST in our industry? And is that reduced -- in last con call, I think you mentioned about informal to formal [indiscernible] GST has reduced.

So the EPR implementation has been done. And right now, I mean, even though the trades are happening, they are still not happening at a mature price level and the whole system is still evolving. So I see probably it should take up another couple of months, but maybe this financial year or so where the whole evolution will happen. And recently also, we had some discussion with the stakeholders who promised that their websites and their platforms will be more functional and better guidance on pricing and all of that will be done. So we'll have to wait and watch on the EPR front, how that takes up and pans out. But we are -- as of now, we have not sold any EPR credits and we are holding our EPR credits in our books. So once we have a decent sustainable, I mean, good price numbers, then we will sell our EPR credits.

And on GST side?

GST, the RCM was notified, but for a small amount, the reduction in GST numbers was not done for [ lead ] scrap and [indiscernible] scrap. So it still remains at the full 18%.

Okay. Okay. And actually, the EPR is actually inevitable, but I think it will take time to evolve maybe.

It's on the evolution phase. So we have to see how quickly it evolves and how quickly it stabilizes. It depends a lot on -- because there's a lot of opposition, of course, from the primary manufacturers who have to maintain the EPR levels and all of those. But the government is pretty keen that they need to have that in order.

[Operator Instructions] The next question is from the line of [ Harinder Singh ] an individual investor.

First of all, congratulations, sir, on great results. Sir, my question on the other expenses, sir. Sir, as I can see, sir, there is a significant growth in other expenses. In last quarter, there is a INR 20 crores. And on a yearly basis, that's -- INR 20 crores and last quarter, INR 21 crores, sir. And sir, this quarter, it is at INR 29 crores, sir. So there is approx of 40% or 50% growth -- sorry, increase in other expenses. Sir, would you put some color on this? What is the reason? Is this due to the capacity expansion or any other specific reason?

See, for H1 versus H2, I'll just touch upon these H1 and H2 numbers when it comes to -- so there has been a significant increase. See, we have to see that last year, if you see, there is not much of copper expansion. This year only, we have expanded our copper. And last year, TKD was not there. So all the general admin and other -- all expenses, logistics, there is an increase in volume also. When you see in contract wages, you have logistics, you have repairs and maintenance, you have all the general admin, staff, so everything has increased. So that is one of the main reasons for H1. The same thing for Q1 and Q2 that you are asking, right, there is an increase of about approximately INR 10 crores. That is because TKD plant last quarter we ran 50% to 55% utilization, wherein the regular costs like all the cost that has kicked in. Apart from that, there is a volume increase, which has also been factored in. So that is the main reason for increase in other expenses.

And also, as we go ahead with our capacity expansion, all of that, some more preparatory works and other expenses happen to get all in line in action to get the whole volumes up. So this is all a combined effect.

And if you -- adding one more point to Mr. Ashish, if you see as a percentage of sales or per kg basis, it will not be -- much difference will not be there. So that's what I wanted to quote here.

The next question is from the line of [ Aadesh ] from Spark Capital.

Congratulations to the entire team for such a great set of numbers. So I had a couple of questions. First one was regarding the lead as the volume part you have already explained, but I wanted to know, is there any new products on the value-added side in lead? Or is there any change that we have seen which has led to such good numbers? And even on the copper side, when you were discussing [ VAP ], I think we have already mentioned about it. But you said that the VAP, copper facility will be coming up in a phased manner as per the product. So these products that we are developing in copper, are they like in regards to any particular OEM or they will be general products for the entire market? So these are the first 2 questions.

See, when it comes to alloys, we already stated in the previous quarter that we had new alloys, which are typically requirement of a certain new customers. So that is continuing. So that is one of the main reasons why our margins have increased, and we have seen a good traction in terms of those products. Now coming to copper, right now, we are into plain recycling. As we already stated, we wanted to get into specific products, flat and extruded products where we wanted to go first, then we wanted to slowly move on to next Phase 2, Phase 2 where there are high margins like foils and coils. So that is where we are focusing. Right now, we wanted to get into how our product portfolio will get built.

Yes. But these new copper products, like they will be common generic like for the entire market, right? They will not be for any specific OEM or as such?

Definitely, OEM will be a part of the profile because those are [ concession ] orders. And apart from there, also aftermarket sales will definitely be there, including exports to various countries.

Okay. Okay. Great. And just one data keeping part that I wanted to know. Previously to one of the participants, you mentioned that about the Phase 1 absolute capacity utilization, if you can mention that number again, the lead capacity that we -- the volumes that we did from Phase 1.

Approximately 55% to 60% in the Phase 1.

That is the utilization. You also mentioned this -- the absolute tonnage in the production that we did.

Yes, in the last quarter, the capacity of 9,000 tons around which we have done approximately 5,000 tons from this new plant.

As there are no further questions, I would now like to hand the conference over to management for closing comments.

Thank you, everyone, for participating in this call, and we trust we have addressed all your queries during this session. However, if there are any remaining questions, please feel free to reach out to our Investor Relations team at Go India Advisors. And once again, we extend our gratitude to all our participants for joining us today and wishing all our investors a very happy Diwali and a prosperous New Year. Thank you, and have a great day.

On behalf of Go India Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.