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

Ladies and gentlemen, good afternoon, and welcome to the Pondy Oxides & Chemicals Limited Q3 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Sana Kapoor from Go India Advisors. Thank you, and over to you, Ms. Sana.

Thank you, Swapnali. Good afternoon, everyone, and welcome to Pondy Oxides and Chemicals Limited earnings call to discuss Q3 and 9-month FY '26 financial performance. Today, we are joined by Mr. Ashish Bansal, Managing Director; Mr. K. Kumaravel, Director, Finance and Company Secretary; Mr. R. S. Vaidhyanathan, Executive Director; Mr. Vijay Balakrishnan, Chief Financial Officer; and Mr. Pratik Gupta, Associate Vice President, Operations. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risks that the company faces. May I now request Mr. Ashish Bansal to take us through the company's business outlook and financial highlights, subsequent to which we will open the floor for Q&A. Thank you, and over to you, sir.

Thank you, Sana. Good afternoon, everyone, and thank you for joining us for POCL's Q3 and nine-month FY '26 Earnings Call. I hope you've had the opportunity to go through our financial disclosures available on the exchanges. I will walk you through the key strategic updates, operational progress and financial performance, followed by a Q&A session. I'm delighted to report that POCL has delivered its strongest ever quarterly and 9-month performance, driven by disciplined execution and operational efficiency. On a 9-month basis, revenue, EBITDA and PAT increased by 33%, 96% and 114% year-on-year, respectively, supported by substantial growth in both production and sales volumes across our lead and copper business. I would want to mention that the India-EU Trade Deal serves as a structural catalyst for POCL, enhancing our global price competitiveness, securing long-term demand visibility and solidifying our status as an organized compliant leader capable of meeting Europe's rigorous sustainability standards. On the domestic front, the regulatory environment continues to be supportive for organized recyclers with stronger enforcement of BWMR and EPR frameworks, enhancing accountability and producers recyclers and collection agencies. This has led to more efficient collection mechanisms, reduced leakages to the unorganized sector and improved traceability across the value chain. These measures have materially strengthened domestic scrap availability, enabling higher local sourcing. Before delving into the numbers, I'd like to begin with key strategic developments that are shaping up our growth journey. Our capacity expansion update. We are making steady progress on our capacity expansion road map. The second phase of lead expansion project, adding 36,000 metric tons per annum was commissioned and became operational in December 2025. As a result, the total lead capacity has increased from 132,000 metric tons per annum in FY '25 to 24,000 metric tons per annum, representing an increase of over 50%. The lead capacities are expected to ramp up to 70% in the coming quarters. Our copper recycling capacity is set to double from 6,000 metric tons per annum to 12,000 metric tons per annum by the end of Jan 2026. During 9 months FY '26, POCL invested around INR 25 crores in capital expenditure and expects to deploy additional INR 35 crores in the last quarter of FY '26. POCL's Board has approved the amalgamation of its wholly owned subsidiary, POCL Future Tech into the parent company, subject to regulatory approvals. The merger strengthens vertical integration in plastic recycling, improves cost efficiency and cash flow management and creates long-term value for POCL without any equity dilution or cash outflow. We have shifted POCL Future Tech from the lease premises to the Thervoy Kandigai facility during the quarter. The facility is now operational and production has commenced in the facility. Coming to our operational performance. The procurement mix for 9-month period comprised approximately 70%, 59% and 100% imports for lead, plastics and copper. There is a significant increase in sales of copper by 15x on a 9-month basis to INR 296 crores. The production of lead has increased by 23% year-on-year to 83,746 metric tons on a 9-month basis and 57% year-on-year and 26% quarter-on-quarter to 33,271 metric tons on a quarterly basis. EBITDA per tonne of lead increased significantly by 46% year-on-year to INR 18,086 per tonne on a 9-month basis by 39% year-on-year to INR 17,427 per tonne on a quarterly basis. Moving to financial performance. I would like to reiterate that POCL has continued to deliver consistent performance, resulting in its highest ever quarterly and 9-month revenue EBITDA and PAT. On a quarterly basis, revenue increased to INR 776 crores, up 22% quarter-on-quarter and 55% year-on-year on a 9-month basis. Revenue stood at INR 2,007 crores, reflecting a growth of 33%. This growth was driven by improved capacity utilization and higher sales volumes across both lead and copper segments. Export contributed 67% of total revenue, reflecting POCL's growing global presence and customer confidence. On a 9-month basis, value-added products accounted for 65% of lead segment revenue, supporting the company's long-term target of achieving over 60% contribution from value-added products. EBITDA increased by 122% year-on-year to INR 59 crores on a quarterly basis and by 96% year-on-year to INR 157 crores on a 9-month basis. EBITDA margins remained strong at over 7% plus compared to over 5% in 9 months FY '25. PAT more than doubled on both quarterly and 9-month basis. On a quarterly basis, PAT increased by 148% year-on-year to INR 38 crores, while on a 9-month basis, PAT rose by 114% to INR 101 crores on 9-month FY '26 PAT margins improved by 5%, up from over 3% in 9-month FY 2025. On a consolidated basis, POCL reported strong performance with revenue EBITDA and PAT growing by 32%, 94%, 128% year-on-year, respectively, on a 9-month basis. On a quarterly basis, these metrics increased by 53%, 119% and 167% year-on-year, respectively. In conclusion, POCL remains aligned with its target 2030 vision supported by a clear road map focused on value creation and sustainable growth. The company continues to scale its lead and copper capacities while expanding into adjacent non-ferrous segments with an objective of delivering 20% plus volume growth and 20% plus CAGR in revenue and profitability. Growth will be supported by margin improvement with a focus on maintaining EBITDA margins above 8% and ROCE above 20%. Alongside scale and strategy emphasis, operational efficiency through innovation and modernization with a target of over 60% revenue contribution from value-added products and 20% plus reduction in energy consumption, backed by a net cash balance sheet, disciplined execution, a supportive regulatory environment, extensive land bank, experienced leadership and stakeholder support. POCL is well-positioned for long-term sustainable growth. That concludes my update. I'd now like to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Dheeraj Ram from B&K Securities.

Congratulations for a great set of numbers. First question is based on -- since you're ramping up your capacities in copper, which have a little lesser EBITDA margin compared to lead for '27 and '28. So how do you see the EBITDA margin guidance that you have given of 8% on a consolidated basis?

Dheeraj, thank you for your question. We have always guided our margins to be in the range of 7% to 8% EBITDA, and these will continue as copper increases, we are increasing the copper capacity as well, which is currently at a lower EBITDA range, but we'll also be adding on products on copper, as explained in our earlier calls, which will also have a higher margin. So the blended margins will remain in the range of 7% to 8%.

Sir, what could be the range of copper EBITDA per ton, including once your 6,000 tonnes is expected to commence?

I will not be able to give you specifics on those numbers right now, but we'll keep you updated as we announce the products.

Got it, sir. Last question is, what is the volume sales of copper during Q3?

Dheeraj, the volume sales for copper is about 1,235 metric tons for this quarter.

Okay. And do we think that this EBITDA per tonne going to continue for copper that we have clocked in 3Q? Or will it improve?

Right now, for the recycling, it is in the range of INR 35,000...

Yes, I'll put it this way, Dheeraj. The copper, as you are noticing, the whole copper market is going through extremely volatile phase. And when any metal, which almost close to 40%, 45% just shoots up in a vertical manner, overall industry, it takes a little bit of time and momentum for it to absorb these kind of price increases and which have to flow down eventually to the end consumers. So, there is always a slight margin shrink. And once these things start realigning and people start accepting these higher elevated prices, the margins start falling back into the regular ranges. So that is the whole transitional period, which again should be sustainable.

We have the next question from the line of Sagar Shah from Spark Capital.

First of all, congratulations, sir, for excellent set of numbers. Now my first question was related to our utilization actually. Can you tell me what is the utilization of the 32,000 tonnes per annum that you commissioned in Q1 and the 132,000, which was the old capacity. So, what is the capacity utilization of 168,000 tonnes right now as of this 9 months FY '26?

Sagar, this is Vijay. See, overall, if you see the lead capacity utilization for this 9 months ended is about 70%. And for this quarter alone, it is about 79.2%. For copper for 9 months about 74% and for this quarter, it's about 86.2% on an overall basis for this quarter.

Okay. So basically, we are at the peak of the capacity as regards to 32,000 tonnes per annum, which is recently commissioned, right?

36,000, but you were able to get those capacities only in the last month of previous quarter. So that's when it was commissioned.

Okay. So now the growth will be largely led by the new capacity, the 36,000 tonnes, which was just recently commissioned?

More or less, yes.

Now coming on to this plastics one. The plastics one, actually, I see our capacity utilization coming down to almost 31% and I understand that you are shifting your capacity to the new premises. But as far as the demand is concerned, I wanted to understand that what exactly are we seeing there? How is the demand shaping up from which industries? And how are you placed up as FY '27, FY '28 is concerned? And you're not -- I think so that is the reason you are not placing capacity also in that particular segment.

Sagar, regarding -- if you see in the past also, our quarterly capacities or the sales in terms of copper is about approximately 850 to 900 metric tons per quarter. But right now, we see the demand very soft. But going forward, the 800 metric tons probably will increase to 1,000 in the coming quarters. So that is what our plan is.

We'll be slowly looking at trying to build those volumes. But currently, what we saw in the last quarter, the whole market demand was pretty much on the softer side, along with softer prices and offtakes as well.

Okay. So this market was largely led by automotive or non-automotive, sir?

It is a mix of both automotive and non-automotive. Yes, and also largely a little bit led by the primary material price also coming down quite a bit in the domestic market.

Okay. Now my last question, sir, was related to Mundra, most importantly, which we are actually waiting for. And I saw your utilization proceeds also, you hardly have -- are left with around INR 13 crores of money left from your QIP proceeds as well and also from your prep allotment because largely you have spent on your -- the new capacity. So I wanted an update at when exactly are you planning the expansion in Mundra because it's been almost 2 years since you have purchased that land, 123 acres. So how -- what's the progress in that land? What are you eyeing? What kind of plans are we getting there? Have you built the entire ecosystem? It's near to the port also. So what is the actual thought process behind that expansion? Because that will be the major growth driver for POCL, if I'm not wrong, in the years to come.

So Sagar, currently, as indicated earlier as well, we will be looking into Mundra only in 2027. That is now once our copper expansions are completed by this last quarter of 2026 and 2027, and post that, the Mundra land capacity will be seen. Definitely, we'll be looking at the existing businesses that we have and also some fresh business. But currently, our thought process is to have a few -- a little more capacity of our existing lead and copper business in Mundra. And like you said, that having an advantage and also having better reachability and freight towards the European and Middle Eastern markets, that will also serve as a driver for us to enter those markets.

So basically, are you referring to FY '27 or calendar year '27, sir?

I'm referring to second half of calendar year 2027.

Calendar year or financial year FY '27?

[indiscernible] when we start.

Because the thing is in the free cash flow you're going to generate over INR 100 crores of free cash flow this year and also correspondingly next year. So I think you have a lot of cash left also.

Yes. I mean even though we are using -- we have used quite a bit of our QIP funds, all of those. But every year, we are generating cash surplus as well. So these are going back into investments for our expansions and all of those.

Okay. So first of all -- so right now, after this, your major focus will be towards the forward integration of the copper segment, the products that you are eyeing actually, which will be margin accretive, if I'm not wrong, right?

That's true. That's right.

[Operator Instructions] We have the next question from the line of Vikash Singh from ICICI Securities.

Congratulations on a very good set of numbers. Sir, my first question pertains to the sourcing. Given the commodity prices are kind of pretty volatile and actually moving in upward direction, are we experiencing any problem with the sourcing because...

Commodity prices moving up vertically. In fact, sourcing tends to become a little better because everybody wants to get rid of the scrap that's available to them and they get a higher price. So that is actually technically a better scenario to source more scrap.

So as of now, no such problem we have faced in terms of sourcing because sometimes the holdings kicks in, people think that they would get a better pricing if they sell at a later stage. So nothing that sort of is happening, right?

Let me see, what happens is every time now what will happen drastically price drops, people like I explained to Dheeraj in the initial part of the call also, when there's a sudden rise or a sudden drop, market pauses a bit to re-understand and realign and then it gets back into the whole cycle. How long can anybody hold a material? I mean, pockets are not continuously deep enough to keep holding material or keep waiting for the high or low side of it. And this is a trade. So trade cycle has to resume. So definitely, sometimes there is a pause in between and then the whole cycle starts resuming back again.

Noted, sir. Sir, my second question pertains to our lead EBITDA per kg. If you could share that? And also, given that the prices are moving in copper as well as other segment, shall we assume that since this scrap is as a certain percentage basis, our EBITDA per kg in all these 3 segments is going to go up in the subsequent quarters?

Irrespective of the price movements, our EBITDA per tonnes will be -- in lead will be in the range of -- as we rightly in the past, we said that INR 15,000 to INR 17,500 is something what we have -- it's a sustainable EBITDA per tonne irrespective of the price movement. Even for copper as well for last quarter, the per kg increase is about INR 100 per kg. That is why you can see a slight drop in your EBITDA percentage. But in terms of per tonne basis, the amount remains at INR 35,000 plus, which we have already informed.

Noted. So we are not baking in any improvement in overall per kg basis, right?

The more the value addition in terms of -- as Mr. Ashish said, in terms of copper, the EBITDA per metric tons will increase once the forward integration happens, which is -- which we will do in the next financial year.

Coming financial year.

We have the next question from the line of Samay Shah from Nuvama Wealth.

Congratulations on a good set of numbers. My question was regarding copper capacity. You said for this quarter, we've done 1,235 metric tons for copper. So how much would be for 9 months, sir?

9 months overall volume is about 3,308 metric tons, out of which 6,000 is the overall capacity. So if you take on an average basis, then it is -- the utilization is about 74% pro rata basis.

Okay. And how much production can we expect for the coming year, FY '27?

FY '27, we are targeting a minimum of 12,000 metric tons, but would be definitely higher than that.

Sir, you will be doubling your capacity to 12,000 tonnes for FY '27, if I'm not mistaken. And then the capacity utilization you're saying would be 100% for FY '27 12,000 metric tons?

Through the year, also, there are other capacities that are getting added. So that will be a continual process. As of now, in this last quarter, the capacity that we are adding is linking to 12,000 will increase from [indiscernible]

Okay. Would you be able to shed some light on how much capacity would be added in FY '27 for copper?

We'll be updating those in the future announcements that we have.

We have the next question from the line of Nihar Mehta from Bay Capital.

Congratulations on good set of numbers. I just had a couple of questions. Your balance sheet size has significantly increased if I compare as on December end. So what has led to the expansion of balance sheet size?

There is an increase in the current assets. Typically, inventory has increased by about INR 75 crores. And in terms of -- there are some refunds that are expected from the government authorities, which is in the tune of about INR 75 crores to INR 80 crores. So this has led to increase in our balance sheet numbers.

What is the refund nature of refunds from government?

This is regarding export with payment of duty, wherein we procure domestically, the IGT part of it, we claim as a refund from the government after paying the duty.

Understood. Also, Vijay, sir, what's the cash on the books as on December end?

It's about INR 35 crores.

Understood. And my second question is related to the employee cost. Now if I see the size of the business has significantly increased, but Q-on-Q, our employee cost is on a downward trajectory. So what exactly is the reason for this downward trajectory?

It is not downward this thing. Actually, in the second quarter, we paid increment for the employees with arrears, along with the incentives also we paid for the last year performance, which is accounted on paid basis. So because of that second quarter employee cost is comparatively higher than the third quarter employee cost.

We have the next question from the line of Khush Gosrani from Geojit PMS.

Congratulations on the good set of numbers. Just wanted to understand your view on the aluminum side of the business. What are the numbers that we have done over 9 months? And how should we look at going forward?

Aluminum is not a segment that we are technically concentrating on specifically. So there are not much of numbers that we are technically doing on aluminum side. It is a very small number, which is about INR 7 crores to INR 10 crores, but that typically is not by doing the aluminum business, but ancillary when you do a lot of scrap, you do generate some few other metals. So that gets just added on. But typically, there's no concentration as of now on aluminum at all.

Got it, sir. And how should we look at lead because capacity expansions have been announced by 2, 3 players now. So is the demand still there? How should we look at the segment for next 2, 3 years?

I will not say the demand is explosive, but demand is consistent. For India, we are looking at anywhere between 5%, 6% of incremental demand and also the demand that comes from your regular replacement demand of existing batteries and vehicles. And internationally, about 2% to 3% is the growth.

Got it. And by FY '28, what should be our net capacity with all the expansions that you have announced till now?

As of now, our capacity is 24,000 tonnes. Once we are doing any further expansion, we'll keep -- we'll make an announcement and keep you updated.

Got it, sir. And in Q4, you could see some margin pressure with the copper plant also coming up now or it would be in Q1, the ramp-up cost coming up?

No, the margins are pretty similar. I mean there was no margin pressure. It was more or less in similar lines of guidance of 7% to 8%, and we have achieved that.

We have the next question from the line of Naman Parmar from Niveshaay Investments.

So firstly, I just wanted to understand what was the reason for a decrease in the gross margin in the current quarter compared to the previous quarter?

See, I will tell this is two-pronged. One is that if you see our procurement mix, last quarter is about 85% imports and 15% domestic. And this quarter, it has significantly increased to imports is about 70% and domestic is about 30%. So there is a shift in the procurement mix. Apart from that, the value-added component, which was typically 70% this quarter, it has reduced to 55%. That is also one of the major reasons why your margins have dropped. But despite these 2 factors, the EBITDA margin is still at 7%, we delivered the EBITDA margin 7% to 7.5%. So that is what we have already on a sustainable basis, we'll be able to do it.

You expect that the 13%, 14% that you used to do in the previous, you will be able to catch up that particular margin in the coming quarters or years?

We have not done 13%, 14%.

He's talking about material margin.

Material margin last quarter was, of course, 14.6%, but that also depends upon your product mix, your procurement mix. This is a commercial decision, sir. So it will depend but overall, if you see due to volumes, you are able to get the advantage of our fixed cost. So that is why we are able -- and apart from that, you have operational efficiencies. Our new plant is in line. We have Phase 1 and Phase 2 is also live. So all put together, we are confident that we'll be able to deliver EBITDA margins in the range of 7% to 7.5% in lead.

And the absolute value of the profitability has increased considerably over the period.

Okay. Understood. Secondly, on the press release that you have mentioned about the provision of the mark-to-market of INR 7.28 crores. I think it's related to any derivative contract that you have been hedging for. So just wanted to understand on the hedging part of your copper basically. So how is the whole contract you used to fully hedge your copper prices? Or what is your strategy on that side?

Yes. We used to hedge our copper. And since already 100% of our copper volumes are hedged. And if you see from the last quarter to this quarter, there's consistently incremental volume. So that mark-to-market difference of the incremental volume is what is reflected back, which is currently a moving position. As the sales happen, those profitability keep coming in and the next position keep coming in. So when there's an increase in volume, that much difference and the market has gone further above that. So there is a mark-to-market difference.

It is a point of time figure as on 31st December 2025.

Yes. So in previous year quarter, there was any such provision as of now or it was the first time that you have been making the provision for the mark-to-market?

No. Every quarter, some provision we are making, but this time the amount varied. This time it is a larger thing since the copper movement has been pretty vertical. And also a little bit mark-to-market on the rupee side as well.

Okay. Understood. And lastly, I just wanted to understand on the EBITDA per tonne for the lead specifically. If we compare with the other players, they are doing very wonderfully high about INR 20,000 per tonne they are able to. So any thesis that we can also achieve on that side given that we have a very good capability and value-added products kicks in significantly?

We will not be able to comment on other peers, sir. So see, our thing is whatever we have said the range will be in the range -- the EBITDA per tonne will be in the range of INR 15,000 to INR 17,500. And in fact, the value addition component increases, probably it will increase by INR 1,000, INR 1,500 extra. So it all depends, once again I'm reiterating, it depends upon your product mix, procurement, everything determines the number.

So overall, like we promised 7% to 8%, which will definitely be maintained.

[Operator Instructions] We have the next question from the line of Mitul Patel from 360 One AMC.

So just on the lead EBITDA per tonne for this quarter, I understand that the new capacity had a lower share of value-add products. But are we going to sort of -- is that the only reason why the EBITDA per tonne this quarter was lower? And do we expect this value-add share to go back to Q2 levels and we should be around INR 19,000 per tonne mark for Q4?

See, there are 2 reasons, definitely, yes, because the value-added product mix was slightly lower, that definitely did bring down a little bit of the margins. Apart from that, we had increased a little bit of our domestic procurement on raw material as we want to slowly start sustaining our domestic procurement footprint where the current domestic prices were a little bit on the sharper side. And that also led to a little reduction in the EBITDA per tonne. Going forward, we are looking at this should be stabilized and should be in better numbers and should be able to achieve the higher side again.

Okay. And just on the fact that this mark-to-market INR 7.28 crores, I think the gentleman earlier asked this question. So if our sales in -- for example, if the sales in Q4 are up substantially for copper as well on a volume basis and the prices stay around similar levels or higher, then this reversal will not happen in Q4. It will take some time.

It's not that specific manner the way you're looking at it every time there will be a volume increase. It is a point in time when you hedge a particular quantum of metal and then from there where the market moves. And when the sales happen, that gets reversed. So, it is a point in time moving figure. It's not necessarily that every time the volume increases, there will be a huge negative mark-to-market.

Got it. Okay. And then let's say, this reverses, then this will show up in what line item will they show up in?

Again, same, mark-to-market only.

Okay. Okay. But this is currently bringing down the profitability, right? So, it will be sort of getting added up.

Yes. So, the profitability will get added up.

Yes. This is accounting standard requirement that is not in our hand. That is to be accounted like that only.

But the moment it is converted, it's not only -- I mean, either it's a part of the sale or it's a part of your costing.

Yes, costing or MTM. That's all.

And lastly, I think in your initial remarks, you mentioned that the EU FDA agreement is positive for you. I understand there is a lot of sourcing and selling that goes from Europe and into Europe. So, considering what are the sort of duties that we are paying currently and what could be the benefit in terms of both procurement and selling for our business?

See, what happens is the whole ecosystem starts opening up. Right now, when EU imported from India, there were a lot of -- there are customs duties and other -- I mean, other import duties that they have. Going forward on metal specifically, they have indicated they will make it 0. So that opens up as a very good and competitive market for Indian material to start flowing into EU. And we definitely already have approvals with quite a few of the customers, but it was only opportunistic business when we are able to sell to them. But once these agreements and FTAs are in place, this should turn back into a sustainable long-term business. Apart from this, this also gives us one more good reason to look into the Mundra side of it because operations from there towards the European side and the Middle Eastern side become much more feasible.

And on the procurement side, when you import scrap batteries, is that something that is sort of...