Privi Speciality Chemicals Limited (530117) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Privi Speciality Chemicals Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. From the management, we have with us Mr. Mahesh Babani, Chairman and Managing Director of the company; Mr. R. S. Rajan, President of the company; Mr. Narayan S. Iyer, Chief Financial Officer of the company; Mr. Sanjeev Patil, Executive Vice President, Strategy and Biotechnology; Ms. Ashwini Shah, Company Secretary and Compliance Officer. And before we begin the conference call, I would like to mention that some of the statements made during the course of today's conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and may involve risks and uncertainties that are difficult to predict. I would now like to hand the conference over to Mr. Mahesh Babani, Chairman and Managing Director of Privi Speciality Chemicals. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining Privi Speciality Chemicals FY '27 Earnings Conference Call. FY '27 marks another important year in Privi's growth journey and our focus remains on executing the expansion [indiscernible] currently underway sending our speciality product portfolio and further building on the long-standing relationship with customers across the globe. The first quarter reflects a very positive start of the year. Our business continues to benefit from the confidence that global customers place in Privi manufacturing capabilities and ability to consistently deliver high-quality products. These enduring customer relationships remains one of our key strengths and continue to support our growth across existing products and new business opportunity. With that, I will now request Sanjeev to take you through the operational highlights of the quarter.

Thank you, sir. Good afternoon, everyone. Q1 of FY '27 has been an encouraging start for the year. During the quarter, company reported revenue of INR 666 crores, which is reflecting growth of 19.22% year-on-year, supported by healthy demand across both domestic and international markets. Despite adverse global headwinds, demand across the fragrance and flavor value chain remained healthy during the quarter. Global customers continue to focus on supply chain diversification and dependable sourcing, while premiumization and innovation across end-to-end use category continue to support demand for speciality aroma ingredients. These structural trends continue to create opportunities for companies with differentiated manufacturing capabilities, diversified sourcing and strong execution capabilities like our company. Operationally, we continue to execute our expansion road map during the quarter. The manufacturing base together with our sourcing flexibility across both processes remains an important competitive advantage, enabling us to optimize raw material procurement while ensuring reliable supplies to our global customer base. Our product development pipeline also continues to progress well. We are advancing several high-value specialty molecules like maltol, ethyl maltol [indiscernible] mostly as we call it, cyclobetetone. Further, our long-term road map envisages introduction of 10 advanced specialty products as part of our Phase II and Phase III expansion program. The joint venture Privi also continued to make steady progress during the quarter. Following the achievement of profitability in Q4 FY '26, we remain focused on scaling the business further, supported by planned capacity additions with infusion of additional equity, as you all know, and development of high-value specialty molecules further. Operationally, our supply chain remains stable despite the evolving global political -- geopolitical environment. Our diversified sourcing strategy, particularly our backward integration into pine chemistry and global raw material procurement network continues to provide resilience and flexibility in managing input availability and customer deliveries. This has enabled us to consistently meet customer requirements across key markets. Looking ahead, our focus remains on disciplined execution of ongoing expansion program, progressing the specialty product pipeline and further enhancing our position as a preferred global partner in aroma and speciality chemicals. With that, I now hand over to Mr. Narayan Iyer, our CFO, to take you further into the financial details.

Good evening to all. Thank you, Sanjeev, and thank you, Mahesh Bhai, and a very, very warm welcome to all of you. We are pleased to report and start the financial year '26, '27 with strong financial performance delivered in a dynamic and evolving macro environment. Our performance reflects strong execution, disciplined cost management and continued strength of our diversified product portfolio. Our performance for the quarter highlights our ability to protect profitability across cycles and reinforces our confidence in the structural strength of our operations and the organization. Key highlights for the quarter which has gone by. We reported strong growth despite subdued market, a 19.22% revenue growth was reported during this quarter on a year-on-year basis comparison. We delivered around 25% margins consistently now across the last 9 quarters. The EBITDA margins are expected to sustain at a 20% plus driven by the operational efficiencies and improved product mix and increased capacities going to come forward in the near future and in the coming years. Our JV with [indiscernible] is progressing as per expectations, and we expect meaningful contributions to keep coming ahead. On the CapEx update, as Sanjeev mentioned, our Phase 1 of production capacity expansion is progressing as planned and is expected to be commercialized shortly. This shall increase our production capacity from 48,000 to 54,000 metric tons of all our existing products. Phase 2 of the 3 of the multi-specialty Aroma Chemicals project is also progressing as planned. Additionally, during the year and more so during the quarter, we continue to make progress on the proposed merger of Privi Speciality Chemicals Limited, Privi Fine Sciences Private Limited and Privi Biotechnologies Private Limited. This consolidation is aimed at simplifying the group structure, enhancing operational synergies, improving scalability and creating a more integrated platform for future growth. Members may note that we are pleased to share that the company has filed the scheme with the NCLT post receipt of observation letters from both the stock exchanges with a no objection. This marking an important milestone in the merger process. We expect the merger to be completed in this financial year. Now coming to key financial highlights for the quarter, '26-'27 quarter 1. The total income that was achieved on a consolidated basis for the quarter was around INR 681.42 crores, which indicates a growth of 20.01% on a year-on-year basis. EBITDA achieved during the same period was INR 167.47 crores, registering a growth of 18.73% on a year-on-year basis. EBITDA margins were at around 24.58% for the quarter, and we expect, as mentioned, EBITDA margins to be almost similar in the near future. Profit after tax for the quarter was around INR 83.2 crores as against INR 61.46 crores achieved in Q1 of '25-'26. The overall growth continues to be driven by volume, price increase and improved product mix. This growth was supported by sustained demand across key end user industries and increasing traction in our specialty and value-added product segments. While input costs remained volatile during the quarter, we continued to focus on operational efficiencies, cost optimization initiatives and improved capacity utilization, which supported margin resilience. We have been able to bring down the manufacturing and other administrative expenses, which has enabled to improve the margins. Giving a key highlight on balance sheet, we continue to maintain a very prudent capital structure. I'm very happy to inform that due to the excellent management and constant monitoring and focus, we have been able to bring down our overall working capital cycle in this quarter to 108 days during the period as against 141 in the previous year. Our net debt as on June 26 was INR 865 crores. This is net of cash and surplus money deployed in mutual funds with a net debt-to-EBITDA ratio of 1.29, reflecting our focus on maintaining financial flexibility while supporting growth investments. Our net debt-to-equity ratio was a very sound healthy 0.57, reflecting good generation of profits. Our ROE and ROCE achieved during the quarter was 21.7% and 22.72%, respectively. Looking ahead, we remain confident in our ability to deliver sustainable growth. Our strong balance sheet, robust cash flows and disciplined capital allocation strategy position us well to capitalize on emerging opportunities while navigating external uncertainties. With the planned capacity expansion of existing products and the introduction of new specialty products, we have established a clear road map and are on track to achieve the vision envisaged by our [indiscernible] and honorable Chairman and Managing Director, Mr. Mahesh Babani, a vision of INR 5,000 crores in revenue and INR 1,000 crores plus of EBITDA over the next 3 to 4 years, representing a growth of about 2x. With this, I would like to conclude now and ask the moderator to open the floor for question and answers.

[Operator Instructions] We have our first question from the line of Vivek Rakholiya from Ficom Family Office.

So gross margin came in at 44.2% in Q1 FY '27 versus almost 51% in last year Q1 FY '26, which is a decline of about 650 basis points, even as the revenue grew by 20%. What drove the compression? And how much of it do you expect to recover over the balance of FY '27? And also in Phase 1 CapEx completion in mid-August 2026 and commissioning thereafter, should we read that FY '27 growth will more likely be back-ended towards H2 of this year?

Thank you. This is Narayan here referring to it. Yes, your observation with regard to the RMC percentage consumption being about 4% is true. I would like to take you back to last year where we had stated that we had the advantage of low-cost raw material and the high cost of selling prices, which we were able to get during the calendar year 2025. But on an average, we had also mentioned that the RMC percentage on the sales will be between the range of 52%, 53% to 55%. See, you also have to understand that we import CST and GTO from across the globe and across various periods and various cycles. And so there could always be the usage of the mix that they come about by which there could be about a few percentage here and there on the raw material pricing.

So Vivek, look. Sanjeev here. We make over 75 products and which are based on almost 60 different raw materials. So sometimes the raw material cost could be substantially skewed. But overall, as Narayan mentioned, that between 52% to 53% is what we are looking at. What you should also see is how much we have saved on other expenses. So as the volumes grow and as the value grow, economies of scale do kick in. And we -- overall, we are able to not only maintain EBITDA margin, but even subsequent EBITDA through PAT, we are able to maintain that as well because the impact of depreciation as well as interest also has come down. So we see that EBITDA of around 24%. What we achieved is about 24 some percentage points 0.6 or somethings, but 24% and more nearly 25% is definitely on the cards going forward. Does that answer your question? Vivek.

Yes, sir, it does. My second question was in FY '26 annual report and the Chairman's statement on Page #17, it indicates that the capacity rising from 48,000 tonnes to 66,000 tonnes by June of 2027, which is divided into Phase 1 increasing to 54,000 tonnes and Phase 2 increasing to 66,000 tonnes by September of '27. Which Phase 2 date is correct? Is it June of '27 or September of 2027? And also are we on track for Phase 2 CapEx or should we expect some delay just like Phase 1? And in light of the above questions, would you like to revise your overall guidance for FY '27?

First, let me answer your last question. No change in guidance. Guidance do remain what we have said. We will achieve [indiscernible] in the promised time. That's first and foremost. Secondly, in terms of implementing our projects, we are on time and the things are going on. It could happen for a week or two, you may not have any activity if it rains too much. But on the overall, the projects are being planned and being executed right now to deliver the growth that we have promised to all of you. That's the first thing. And about the capacity expansion, the current flagship product expansion will happen in the course of next 15 days or so. So from 48 -- as said in his opening remarks, from 48 will go to 54.

So one last line I would like to make as Chairman. We are confident of achieving 20% -- maintaining 20% CAGR with similar EBITDA margins. So you can understand what I'm trying to say. I don't have numbers, last year's number multiply 20%, 20%, that will be the minimum achieving that target.

Thank you sir for the confidence, but just again, a small clarification in terms of when would the 66,000 capacity be coming live in June of '27 or in September of '27, just a small...

So let me clarify this. First and foremost, the 6,000 metric tons of capacity was to come by June '26 will now come by September '26 is what we are saying. And from 54,000 to 66,000 metric tons, the balance 12,000 metric tons with regard to the Phase 2 CapEx. That's what we are trying to say that by September '27, the Phase 2 will be completed. I hope I'm clear now.

Yes, sir. And the next question was on the bio-based pilot plant. What specific operating metrics like conversion yield or product purity, cost per kg, et cetera, will decide whether or not the company will move from a pilot plant to a commercial scale? And what is the minimum ROC that is being kept in mind and targeted for these projects?

Okay. So we have been progressing very well in terms of conversion of biomass into several value-added products. A lot of patents are being filed now. And what we are doing is we are putting up a demonstration plant as we had covered in the last conference call, we are putting up a demonstration plant in Navi Mumbai, which would handle about 2 tonnes of biomass per day, which is sizable quantity, which will then help us in terms of subsequent scale up. Right now, we process about a few hundred kilograms every fortnight or so. So we will be putting up 2 tonnes per day pilot plant, which will produce all the molecules that we are looking at. And that would kind of, as it says demonstration and a fool of the concept would be given. So that's what we are looking at. And investment in this is subsequent to the 501K. So this is something that will happen probably after we put up the plant, which will take about 12 months to 15 months. And once it is commissioned, we'll probably run it for a year to study all the nuances of manufacturing. And then we go for the large-scale plant. We are, at the moment, very confident about the entire commercial profitability of this venture.

One closing remark I would like to give, Sanjeev, about this particular case that in the INR 5,000 crore road map, this is no where part of the story, part of the story will come future on after this 5,000 stores, the biomass project will come in, kick in. So this will be first 2, 3 years will be more learning, scale up, doing homework for the future beyond 5G. I hope you understood.

Understood. Understood. And the last question, if you could throw some light in terms of how do we benchmark against the peers in terms of process efficiency. That will be very helpful.

So that's an ongoing process, and we continue to work that. There is not a single day when it is not reviewed at the highest level. So we continue to strive because we always have believed and have proven that money lies within. So therefore, we continue to work every single day on improving the processes, reducing the steam cost and doing all of that. So we continue to focus on that.

[Operator Instructions] Next question is from the line of Nirav Gandhi from Sunidhi Securities.

My first question is regarding the revenue contribution from the JV. How much was it during Q1? And what was the EBITDA generated from the JV?

You want to understand about revenue generated was about INR 18 crores and EBITDA generated was about 14%, 13%.

Yes. And my second question was regarding our understanding that alpha pine prices have risen by 70%, 80% in the last 5 months. So how much of that we have benefited from the price increase? And how do we see the prices of [indiscernible] going ahead?

If I would have known that, I would have been myself, but no one can actually predict alpha prices. But the good news is, and as we always keep saying that when we do CST procurement, we do the back-to-back contract with our customers, and that is what helps us. So to that extent, we are covered in terms of CST and back-to-back with our customers also. As far as the balance alphaionine that is made from GTO, the prices are right now at a high level. are both views, some view say that the prices may still go further, but they are at historic high [indiscernible]. And we are able to pass on those costs to our customers.

Right, sir. And sir, if you can share the breakup of revenue in terms of volume growth and realizations, that would be helpful.

We will not be giving volume growth on quarter-on-quarter basis. So we will give you at the end of the year. But it's a good mix of all the pricing.

Growth. So let's not get into net, but it's an all-round growth overall. As I mentioned in the opening remarks, it's a mix of product, increase in prices as well as increase in the volume.

And sir, what is the status of the merger of Privi Fine Sciences with Privi Speciality.

It will happen by this year-end. The good news that has happened in this quarter is that we have been able to file the application with NCLT. So we have progressed in this quarter very well.

[Operator Instructions] The next question is from the line of Anisha [indiscernible] from Universal Capital.

I have 2 questions. One is the cost of raw material inventory has increased as compared to the previous quarter. Can you give some highlight on that? And the second is the industry, especially in [indiscernible] market facing the demand supply mismatch with significant new [indiscernible] manufacturing capacities that have come up in India. So I'd also like to comment on that.

So Manisha, I think the first question I just answered with regard to cost of RM. It's actually a mix of various things. But last quarter for the same period, we had some advantage of low-cost raw material and increase in selling prices for the contracts for the calendar year '25. A good product mix was also there. So you need to look that in Q2, Q3, Q4, the RM percentage vis-a-vis the same was higher than what it is currently. And so we are in line with that between 52% to 54% that we always talk about what could be the as a percentage on sales. So lastly, I've always been telling that do not look at Privi on a quarter-on-quarter basis. We need to look at [indiscernible] yearly basis because the contracts that we enter is on an annual basis, that is a back-to-back contract that we have. [indiscernible] you will find us to be a -- [indiscernible] and with regard to [indiscernible] sales and Camphor.

I was saying there was some mismatch in the manufacturing capacities that have come up to India for the Camphor manufacturing, which has increased the prices of Camphor. I wanted to know the highlights from this.

Okay. So Camphor, there were always always a number of players who make Camphor, but their source of making camper is based out of [indiscernible] oil, which is very volatile in terms of pricing, whereas we make it more from CSC route, and it's a very small percentage of our overall revenue. So it's not an important product. We sell on our terms. We do not really sell...

Manisha, the most important thing is that for us, Camphor is 1 out of 75. For many others, it could be the product. So that's why we do not give so much of importance to Camphor per se in our overall portfolio.

It's about 5% to 6% of the total revenue. So we don't [indiscernible] but we don't.

Previous participant got disconnect. We have our next question from the line of Sahil Goyal from [indiscernible] Capital Ventures.

I have a question regarding your revenue mix which molecules contribute a major portion of our revenue.

Fine continues to be the main contributor [indiscernible].

Can you specify the name.

As you are aware, we have stopped giving this mix of product -- mix and product segments and all. So this is as per the Board directive. So the important thing is that it's a complete product mix that we are selling and all our products and our capacities are close to 90% of the installed capacities that we have. So you should understand that.

And sir, what are utilization right now?

Around 90%.

[Operator Instructions] The next question is from the line of Rajesh Mishra from Liberty Trading.

Congratulations on great set of results. Sir, I have 2 questions. First is due to the Iran war in light of raw material prices effect on profitability and how you manage [indiscernible]. Second is what is percentage of Camphor segment in your total business and it has increased month to month [indiscernible] still same.

Yes. With regard with to the Iran war, there has not been too much of an impact on our RM percentage consumption in fact. So because crude as a segment and the product that we do is very, very limited in. So predominantly, it is non-crude items that we manufacture. So really, we've not been impacted because of the war that has been going around. And your second question with regard to Camphor forming a part of our overall portfolio, as Sanjiv rightly currently mentioned, it is within the range of 4% to 5% broadly on the total turnover that we do. And last, you asked for the capacities that we are operating around, it is around 90% or so. I hope I've been able to answer you, Mr. Rajesh.

[Operator Instructions] The next question is from the line of Krish [indiscernible],

Congratulations on good set of numbers. I just wanted some clarity on the capacity. So our expansion plans are up to 70,000 metric tons. But post merger what would be capacity to combine [indiscernible] combining Fine Science what kind of capacity we can see and further we are not currently looking for [indiscernible] integretions, but we sometimes have certain capabilities of backward integration. So how are we looking to backward integrate [indiscernible] going forward? So if you can share some light on that.