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

Ladies and gentlemen, good day, and welcome to the Pondy Oxides & Chemicals Limited Q1 FY '27 Earnings Conference Call hosted by Go India Advisors. [Operator Instructions] Please note that this call is being recorded. I now hand the conference over to Ms. Sana Kapoor from Go India Advisors. Thank you, and over to you, ma'am.

Good afternoon, everyone, and welcome to Pondy Oxides and Chemicals Limited's earnings call to discuss Q1 FY '27 financial performance. Today, we are joined by Mr. Ashish Bansal, Chairman and Managing Director; Mr. K. Kumaravel, Director, Finance and Company Secretary; Mr. R.S. Vaidhyanathan, Executive Director; Mr. Vijay Balakrishnan, Chief Financial Officer; and Mr. Prateek 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 Q1 FY '27 Earnings Call. I hope you've had the opportunity to go through our financial disclosures available on the exchanges. I'll walk you through the key strategic updates, operational progress and financial performance followed by a Q&A session. We have started FY '27 on a strong footing with Q1 FY '27 revenue, EBITDA and PAT growing at 56%, 30% and 32% year-on-year, respectively. I'm pleased to share that our copper vertical continued its strong momentum in Q1 FY '27, achieving the highest ever quarterly production and sales with both volumes increasing by more than 3x on a year-on-year basis. These results reflect the strength of our integrated business model, our focus on value-added products and our commitment to delivering sustainable and profitable growth. Before turning to the financial performance, I would like to highlight the key strategic initiatives that have supported our strong start to the year and are strengthening the foundation of POCL's long-term growth and value creation. Our copper expansion project continues to make encouraging progress. We are establishing a 36,000 metric ton per annum copper cathode facility at our Thervoy kandigai in Tamil Nadu with a total investment of approximately INR 200 crores, fully funded through our internal accruals. We have already incurred around INR 25 crores towards the project and execution remains on schedule with major equipment orders finalized and key construction activities underway. The first phase of 18,000 metric tons per annum is on track for commissioning by December 2026, with trial runs expected in Q4 FY '27, while Phase 2 is targeted for commissioning by Q3 FY '28. This project marks a key milestone in strengthening our nonferrous portfolio and expanding our value-added copper vertical. The facility will leverage integrated pyro refining and electrorefining technologies to produce LME grade copper cathodes, further enhancing our vertical integration capabilities. Upon commissioning, the project is expected to improve our product mix, enhance margins and drive profitability through value-added copper products. It will also create operational synergies, support import substitution, increase the use of recycled copper and further reinforce our commitment to sustainability and long-term value creation. The incremental 6,000 metric tons per annum copper recycling capacity commissioned in Q4 FY '26 has ramped up well and is expected to achieve capacity utilization of approximately 75% through FY 2027. These investments will strengthen our copper vertical, enhance value addition and support our long-term growth strategy. CRISIL has upgraded POL's outlook to A positive from A stable while reaffirming its credit rating, recognizing its strong balance sheet and sustained financial performance. Building on these strategic developments and operational and financial performance in Q1 FY 2027 reflected the resilience of our business and disciplined execution across the organization. While lead production and sales volumes moderated during the quarter, it was a conscious strategic decision to prioritize value-added products amid supply chain disruption and production constraints that enabled us to achieve our highest ever lead EBITDA per tonne of INR 21,595. Copper production and sales volumes increased by more than 3x year-on-year in Q1 FY '27, supported by the ongoing ramp-up of the additional capacity. The segment delivered strong profitability with copper EBITDA per tonne rising 66% year-on-year to INR 48,488. Copper is expected to contribute approximately 45% of our overall revenue in FY '27 as capacity ramp-up progresses. Coming to financial performance for Q1 FY '27. Revenue growth remained robust during Q1 FY '27 with revenue increasing to INR 931 crores, registering 56% year-on-year growth. The overall sales mix between domestic and export markets stood at 55% and 45%, respectively. And between the lead and copper verticals, the export mix stood at 55% and 25%, respectively. Within the lead vertical, value-added products accounted for 85% of the segment revenue reinforcing our strategic focus on increasing the share of higher-margin products. EBITDA and PAT increased by 30% and 32% on a year-on-year basis to INR 56 crores and INR 36 crores, respectively. In Q1 FY '27, EBITDA and PAT margins remained strong at 6% and 3.9% in Q1 FY '27. On a consolidated basis, the same momentum continued with revenue, EBITDA and PAT increasing by 55%, 33% and 43% year-on-year, respectively, driven by higher volumes, improved product mix and enhanced operational efficiencies. As we move forward, we remain confident in our long-term growth journey. Our target 2030 road map is focused on delivering over 15% volume growth, 20% plus CAGR in revenue and profitability, EBITDA margins above 8%, ROCE exceeding 20% and deriving over 60% of our revenue from value-added products. The ramp-up of expanded lead capacities, ongoing copper capacity additions, increasing contribution from value-added products, forward integration initiatives and our continued focus on operational excellence and sustainability position us well to deliver profitable growth, enhance shareholder returns and create long-term value for all our stakeholders. Thank you for your continued trust and support. I would now like to open the floor for questions. Over to you.

[Operator Instructions] The first question is from the line of Dheeraj Ram from 360 One Capital.

Sir, you've guided in last quarter for around 1.25 lakh tonnes to 1.3 lakh tonnes of lead volume sales for FY '27. So based on current quarter's run rate, do you expect another maybe 1, 1.1 lakh tonnes of sales for next 3 quarters? Or do we see any revision of this?

Dheeraj, this is -- as you're aware, the whole supply chain issues were getting -- I mean, through the quarter, they were a little constrained, and that is the main reason. And we hope to achieve and catch up to the volumes, but we'll have to see how the whole supply chain pans out over the next 1 or 2 months. And we are confident at least we will be able to close up to the numbers that we had committed over the last quarter.

Okay. And since you're importing majority of copper scrap, but copper has seen very good growth, while there is only problem in lead industry. Could you explain briefly on why is this only being facing in lead recycling while not in copper?

I mean it is more of the regional placement. So of course, we are also importing copper, but the copper material coming across from a few other locations as well and copper has just started. So when you look at the volume growth, you look at multifold growth, wherein lead already being at very high volumes, you see that differential not showing as much. So it is more of a locational advantage a little bit and a little bit to do with the supply chain from the kind of countries that the copper scrap was imported from.

Okay. Got it. And do you see any these difficulties or challenges being relaxed as of now? Or do we -- do we see this increasing going forward?

As of now, it is status quo. And I'm not too sure, but I don't think it looks like it should increase more. But as of now, it'd be a little early to comment on the same.

Okay. And last question, sir. What is our capacity utilization for our new 72,000 tonne TKD plant of lead? And what is the one for 6,000 tonnes of new copper plant that you commenced last quarter?

On the new capacity because here, we mainly do more of our pure lead products. So the capacity utilization is below 50%. And as you're aware, we had concentrated more this quarter having lower volumes to keep up the margins more on the value-added part. So almost 85% of our production has been from the value-added production. Hence, the new facility, the capacity utilization has been a little low versus the other unit has been a little higher. In terms of copper, almost 75% of the capacity is being utilized on the additional capacity added.

So just a follow-up, this 75% that you're seeing is on the new capacity that commenced in copper?

Yes, including the old and the new 75% overall has been.

[Operator Instructions] The next question is from the line of Sagar Shah from Spark Capital.

Sir, my first question was just a follow-up on the previous participants on the lead utilization. I understand that the lead utilization is low because of the difficulty in getting the scrap as well as in sales actually. But I wanted to understand, is there a softness in the demand as well because we are not exposed to Middle East. We are more exporting to the European countries. So is there a demand slowdown as well as in the Western part as well as what we have seen in the Middle Eastern region?

So basically, first of all, our exports are not to the European countries. They are predominantly more to Southeast Asia and the likes. And in terms of what you call demand softening, there's no demand softening, but there has been only supply chain delays because of which the whole issues have been -- volumes have been lower and all of those.

Okay. So, when do you see the demand on track, at least in H2? Or will this softness in demand continue in FY '27.

Like I said, there is no softness in demand. There is a gap in supply because of delay in shipments and the supply chain disruptions. But overall, the demand is intact.

Okay. Okay. Fine, sir. My second question was related to our cost pressures, sir. The other expenses were up 16% Y-o-Y and 44% sequentially. So is this only because of this increase in the freight forwarding costs and the increase in the logistics cost? Or is there something else also in this one?

Logistics is a very -- I mean, there's a small part of increase, which is a part of it, definitely, yes, but that does not contribute to the major part. The major part is contributed by the fuel prices and a couple of additives prices that have shot up in the last 3 months.

The next question is from the line of Naman Parmar.

So firstly, I wanted to understand that the current quarter, you have attained the highest ever realization and EBITDA per tonne on the lead side. So what you will be guiding for the lead EBITDA per tonne and the realization going forward it's a onetime only...

See, this quarter, this is Vijay. So this time, our value-added mix was about 85 percentage. So as we said in the past, whenever we do more of value-added, the EBITDA range will be around INR 19,000 to INR 21,000. So since predominant portion of this lead volume comprises of value-added, we achieved this volume. But moving forward, when the volumes increase, we'll be able to retain the sustained EBITDA level of about INR 18,000 to INR 20,000 per metric ton. That is a sustainable level of EBITDA that will be maintained.

What that INR 170 to 180 will be sustaining EBITDA...

That is the number what we have said INR 18,000 to INR 20,000 per metric ton EBITDA levels. That is a sustainable level, which we can attain moving forward.

Okay. Got it. Secondly, on the copper side plant, how is the CapEx going on? And what would be the outlook like it will be starting your 18,000 tonne metric ton, it was expected to start in the September, right? So how is the CapEx going on, on that side?

So correct me if I'm wrong, your question is what is the CapEx that's already been done on the copper part? And if -- as you are thinking it's September month, will it start in September? Is my question right, my understanding?

Yes, yes. Yes, yes.

So currently, all the machine orders are in place and they're almost ready for inspection. We have spent approximately INR 25 crores out of this thing and the further part of spending will happen in this quarter. Our commitment on starting the trial production was December 2026 and not September 2026. September 2026, the machine installations will start around September end and will take about October, November for the machine installations and the trial production to happen in December and which is on track.

Okay. Got it. And lastly, if you can give the -- what volume you are expecting on the both the lead side and the aluminium and the copper for the '27 and '28?

We'll revert with those volume guidance shortly in the future, yes.

[Operator Instructions] The next question is from the line of Kush from Geojit CMS.

Just wanted to understand how much of the sourcing is coming from the Middle Eastern trade routes because it is not just you, it is the whole industry that has highlighted to the supply chain issues. So that would be helpful.

So our Middle Eastern procurement is well below 5%. But the issue more than the Middle Eastern procurement is the supply chain in terms of the shipping route that is through the Hermos and all of those, which are getting delayed. So that is the main issue and because of which the whole day is happening.

Sure. And if these delays persist because of the excise reasons, how do we trying to mitigate it?

We are looking at alternative sourcing as we have, and we have already started working on it from our Southeast Asian and other South American and other region suppliers. And we are trying to push for more supplies from these regions.

Okay. But then that would be at the similar pricing that you are buying right now or it could be at the higher end?

Technically, it should be at a similar pricing, but it all depends again on the inward freight costs and all of those. So we'll have to see as the material starts being offered.

Got it. Got it, sir. And in terms of the plastics and aluminium division, where are we in terms of what is the ramp-up, et cetera, over there?

So Plastic division for this quarter, it has turned profitable. We have achieved about INR 15 lakhs in terms of profit -- net profit. So we did about 800 tonnes approximately, and we are preparing for doing value additions in the quarters to come. With respect to aluminium, we are doing a small quantum, about 200 metric tons. That is what is the production right now in terms of both these verticals.

Got it, sir. And one last question. For the full year, what should be the expected value addition value-added mix for lead? Because this quarter, it was extremely high at 85%. I'm sure as things improve, it would come down. So what would be the sustainable mix of value-added for lead?

Yes. Annually, we are looking at around 65% to 70% on the value-added mix. Last year was at about 63%. And this year, we are expecting and targeting around 65% to 70%.

Sure. And in Q1 FY '26, how much it would be?

85%...

Last year, you're talking about.

Last year was about 55% approximately.

[Operator Instructions] The next question is from the line of Pavan Kumar from Global Concident Research.

Most of the questions have already been answered. So one last question is on the CapEx side. The guidance that you have alluded towards INR 175 crores for the financial year '27, which we have already disclosed in the investor presentation. So out of this INR 175 crores, can you please break down that how much is the growth CapEx and the maintenance CapEx out of this?

The current INR 25 crores is for the fresh CapEx that has already been spent. Out of approximately that INR 175 crores, the maintenance CapEx will be in the range of INR 20 crores, INR 25 crores and balance INR 140 crores to INR 150 crores would be for the copper plant...

The next question is from the line of Aditya from R. Sir?

Just wanted to understand on copper, like as we are ramping up our copper capacities, from sourcing point of view, I mean, how should we think about copper scrap security? I mean, we are seeing that global supply is tightening, especially on the copper side as well and more and more countries are looking to keep more of scrap within their boundaries. So are we seeing any kind of sourcing problems, especially on the copper side going forward? And what is our take on that?

So currently, most of our copper sourcing is on imports and a little more -- with a little more diversified different countries than where we are doing our predominantly. But we are also looking at copper from domestic sourcing, which would contribute about 25% to 30% going forward. And a lot of which we have also started looking at it currently. I mean it has to be -- I mean, the sourcing model for scrap going forward will have to be extremely dynamic in terms of being able to quickly switch over to domestic and versus imports. So it has to be a dynamic function of the whole process. And as it goes -- as we go forward, we'll have to keep making it stronger.

Got it, sir. Very helpful. Just on the lead side, we understand that it was -- it's not a demand issue right now, but majorly a sourcing issue like we are facing supply chain issues because of this Middle East crisis. But if this crisis persists, say, for the next 1, 2 or 3 months, how are we planning to, I mean, source our scrap on the lead part because, again, our lead imports are quite high.

See, it is -- when we say sourcing, it is more of the shipping delays and all of it, which is happening. And already, we have started looking into other regions like the Southeast Asian region and a little more on the domestic part of it. And going forward, I mean, those -- the specific shipping routes will have to be avoided. So because of it, there could be -- the sailing time would be a little longer and maybe a little impact on the pricing in terms of raw material overall. But I mean, it has -- it will find its balance in the due course. I mean it's not going to be perennial.

Got it, sir. Just one small follow-up on that. I mean, does that lead...

Whenever there's a war, post war, the scrap generation is also at multifold due to all the calamities that's happened during the war.

Just a follow-up -- a quick follow-up on that. I mean, with Raj being elongated, does that stretch our working capital also? I mean, do we see that kind of working capital being stretched at least for next 1 or 2 quarters?

No. Our working capital is not stretched if you look at our current numbers. Our payment cycle is when the material arrives closer to the port, that's about a week before the arrival of the material. So that still stays in place. So that does not really has not impacted our working capital.

The next question is from the line of Jigar Jani from Nuvama.

Congratulations on great numbers in a tough environment. My first question is on the copper EBITDA per tonne. If I recall rightly, I think last quarter, you had guided for INR 35,000 to INR 40,000 on a normalized basis before the value addition kicks in. This quarter, again, we have surpassed last quarter's EBITDA per tonne in copper. So what kind of guidance would you like to provide before value addition for the copper EBITDA per tonne for the full year?

Thank you. You're exactly right. We had guided at 35,000 to 40,000. But with our increased capacity right now from -- with the addition of 6,000, we are able to get a little more efficiencies back into our operations and translate that into -- I mean, into the sales pricing. And also because of good amount of volumes, we are able to compress a little bit on our -- the working capital cycle in terms of overall cost on that basis was -- we were able to bring down by a couple of basis points. And in addition to that, currently, in this quarter, we also had a little run-up due to the demand situation in terms of availability. So we are able to get a little more premium on the selling side. on copper. But nevertheless, looking at going forward margins on this, I mean, we should be able to do in excess of 40,000, which mainly is driven through the efficiencies that we have gotten through our increased capacities and some machine additions and all of those. So we can safely guide above 40,000 would be for the part which was earlier, 35,000 to 40,000.

Right. And sir, on volumes also, I think we had guided 12,000 tonnes for copper. Again, first quarter, we have done about 4,000. We are already at 75% utilization. So can we expect some more ramp-up in this? Or should we expect that 4,000, 4,500 should be the run rate till the new capacity kicks in?

Yes. So we will have our new capacity kicking in the last quarter. So definitely, in the last quarter, we will have the capacity benefit of the new capacity coming in as well. Till then, we will be pushing hard on the existing capacities, whatever we have and see what maximum we can do.

Understood, sir. And sir, lastly, just a question on copper. So right now, when we say copper cathodes, right now, till what stage do we do the scrap processing? Do we just do the ingots -- or do we do the anodes also as of now? Just wanted to understand.

Anode is a part of the new project that's coming up. So from the scrap processing to anode, anode to cathode will be a part of the new process that comes. Currently, we are doing the basic preprocessing in terms of shedding chopping, sorting and a small amount of melting as well into some remelted kind of ingot or pet, but majority is pre-built condition, pre-built.

So when we target Q3 FY '27, 18,000 tonnes, that will be till cathode and not till anode. Is the understanding correct?

The installed capacity, what we are establishing for 18,000 tonnes will be till the end product cathode.

Understood. And sir, lastly, any plans that you have formalized on forward integration from copper cathode into busbars wire rods or any value-added products that you are looking at as of now?

We are on the way of finalizing, but right now, we don't have a confirmed product, which we will be announcing. So closer to -- as we get to our final production stages on the cathode, we will come out and announce our further plans of forward integration.

Sure. And lastly, any update on lithium-ion or we are still at pilot stages there?

Mr. Vijay will speak a little more on the lithium-ion.

Yes. We are still -- since the industry is still evolving, we are still contemplating and working with some strategic technical partners predominantly in India, only the LFP chemistry is available and wherein the recovery extraction is about 1.5% to 2% and rest the iron -- I mean phosphate is not of much demand and much value. So we are just monitoring the entire -- the feedstock arrival and the other challenges like the evolving technology and other stuff. So once we kind of convince ourselves in terms of what to and how to go about it, and we will surely let all of you know about India.

The next question is from the line of Saransh Gupta from Swan Investments.