Privi Speciality Chemicals Limited (PRIVISCL.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Privi Specialties Chemicals Limited Q1 FY '26 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this call is being recorded. Today, from the management side, we have with us Mr. Mahesh Babani, Chairman and Managing Director; Mr. R. S. Rajan, President; Mr. Narayan S. Iyer, Chief Financial Officer; Mr. Sanjeev Patil, Senior Vice President, Strategy; Ms. Ashwini S. Shah, Company Secretary and SGA, Investor Relations Adviser. With this, I now hand the conference over to Mr. Mahesh Babani, Chairman and Managing Director of Privi Specialty Chemicals. Thank you, and over to you, sir.

Thank you. Good evening, everyone. We began the year with healthy growth, reaffirming our belief. What a mind perceives a man can achieve. The mindset drives our innovation, resilience and future readiness. This quarter, we are proud to share that CVI has earned a platinum rating for EcoVadis, placing us in the top 1% globally for ESG performance. This is indeed a very big thing in this world. I think this was our dream we committed last year. This reflects our deep commitment to sustainability and ethical business practices, thanks to our team's efforts across sourcing, manufacturing and energy management. We've also proposed a scheme of amalgamation involving Privi Fine Science and Privi Biotechnology and Privi Specialty Chemicals with your company. This strategic move will simplify our structure and enhance efficiency and unlock new growth opportunity. This will enable us to achieve our INR 5,000 - INR 1000 vision, that is INR 5,000 crores and INR 1,000 crores EBITDA in the next 3 to 5 years. Further efforts of last 10 years in Privi Biotechnologies has significantly intellectual property, which will also convert into a number of patents in the next couple of months. We hope that this will create a lot of intangible wealth for the company and also pave a way for many more products in the years to come or we could even franchise these technologies worldwide. Our products continue to perform well with strong demand across domestic and global markets, reinforcing our position as a trusted partner to leading fragrance houses and FMCG brands. Looking ahead, our strategy remains clear to continue building a world-class aroma chemical company on #1 position that grows sustainability and delivers value through innovation and precision. Thank you -- thanks to our employees, customers, bankers, shareholders and stakeholders for your continued trust. With that, I now invite Mr. Narayan to present the financial highlights of the quarter. Thank you. Narayan, please.

Thank you, sir. That was a great beginning to this quarter, and good evening to all my fellow stakeholders of the company. It's been a great quarter for us going and rolling over on a great '25 year where we had an AGM just a couple of days ago and reinforcing our position on a sustained growth journey that we have started, and we expect to continue this journey going forward. The quarter gone by has really reinforced our confidence in entire Privi with a steady and sustained growth. With continued operational execution and a favorable product mix, we are confident that Privi is well positioned to sustain healthy growth and deliver robust profit margins going forward in the years to come. A few recent developments that have happened in the last quarter, which we have been sharing with all of you. Our products and demand for the same have been good, and all our products are working at an optimal capacity. Our plan to expand our production capabilities, which was informed, are on track, and we expect this expansion to complete by March 2026. Several super specialty aroma chemicals have been developed at the lab and pilot levels successfully and which will propel future growth for the company post the current capacity expansion of the existing products. Let me give you a few financial highlights. The investor presentation has already been uploaded on the website and available with the stock exchanges. So a synopsis of the performance for the quarter 1 of the financial year '25-'26 is as follows: -- the overall income on a consolidated basis was around INR 568 crores, which is a growth of about 22% on a year-on-year basis comparing to the Q1 of financial year '24-'25. The EBITDA numbers have been a very healthy INR 141 crores, which indicates a 45% growth over the previous year same quarter. EBITDA margins have been an impressive 24.8% for this quarter, and we expect to maintain EBITDA margins at these levels going forward in the near future. This EBITDA margin has also grown substantially as compared to the Q1 of the previous year. Profit after tax on a consolidated basis is about INR 61 crores as against INR 32 crores, which was delivered and performed in the Q1 of the previous year. Overall, our revenue mix continues to be almost on similar lines with exports contributing close to about 70% in this quarter also. So those were a few highlights on the financial limit. So with this, I would like to ask the moderator and open the floor for any questions and answers. Over to you, ma'am.

[Operator Instructions] The first question comes from the line of Gavit Goyal from Evest Analytics Advisory LLP.

Congrats for a decent set of numbers. My question is on the demand outlook itself. Like we are catering to the global demand and looking at the kind of tariff situations we are having. Can you put some color on that? Like how do you see the outlook in the terms of customer delays or anything like that happening in the near to medium term? Do you anticipate anything like that?

So as we have said on many occasions, about 70% of our business is contracted. So in terms of looking at this financial year, we already have 70% and more of business contracted. And the other thing that we always say is that the products that we make are essentially in minus to FMCG products. So to that extent, whatever happens in the overall economy doesn't really significantly impact our product demand because every day, you will at least take a shower, you will wash your clothes, plush your teeth, so all of that. And therefore, therefore, we continue to assume that the growth prospects for our products are stable. On top of that, the region in which we are operating and the nearby countries also, they are going through a whole transformation in terms of consumer demand and demand for FMCG products. So that also we see as a significant factor, which will result in sustained growth for your company. So that's where we see. So we believe that going forward, we have a sustained demand. And the other aspect is that whatever products we make are consumed by the F&F industry. And within F&F industry, we cater to all the customers who are from #1 to #15. And when we make a new product, it has to go to one of these customers only. So to that extent, our job is easier, and that's how we continue to grow. And beyond our existing products beyond the products which are going to come into play, we see that we are going to have demand coming in for a long time to come.

And sir... A followup on...

Positive.

Understood. And sir, just follow-up on your reply. You mentioned about some regions are going through some transformation in the terms of the consumer demand is what you are witnessing. So can you put some more color on it, like what is driving that? What kind of transformation it is? And how -- what kind of quantum effect do we see because of this kind of transformation? So that would really help, sir, if you put some color on that, sir.

Sure. So as we have said in many of our presentations in person, a long time back, maybe 25, 30, 35 years back, a family would probably have one soap. I don't think there's any concept of deodorant then -- and now today, we have probably a soap for every person, probably a few soaps for every individual in the family. We have deodorants there. We are just in the process of building quarters for our staff members. These are, I would say, officer-level staff members. I'm just giving you an example as to how life is changing. So one of the requirement that has come about is that every person will have a washing machine. I go back 20 years back and having a washing machine was only a disguised rugged. So that is what is changing. And that's happening in the fastest-growing economy in the world, which is India. And similar things are happening in countries around us and also in China. So this is where we see a significant advantage because we have local presence and the local manufacturing facilities. So -- that's how we see a significant growth here. We believe that the demand for our products globally grow by about GDP plus maybe 1% or 2%. But within India, they would -- it would grow by between 8% to 10% and somewhere there. That's what we believe. That's the potential of our products. And as I said, when we introduce new products, the other important thing that you must understand is when we introduce new product, they -- we have to only get the share of wallet of the same customer. So let's say, we introduced Galax Musk about 3 years back. We were the last one to enter this chemistry. But because of our sustainability practices, because of our being very competitive and being very state-of-the-art plant, we are very, very competitive. And that's how we are now able to get -- put our plant to almost 85% to 90% usage. So that's the way Privi operates.

Understood, sir. And one more thing I want to understand. Like you mentioned because of the necessity, our product demand will always be there irrespective of the tariff situation. But do you see any likely impact on margins because of this?

Yes. So one thing is that U.S. -- our export to U.S. is only about 7% of our overall revenue. So to that extent, let us say, in case of a tariff situation also, we do not really foresee a significant impact on our margins because it's only 7% of our overall revenue. And obviously, some of the increase would be borne by the customers there. I mean all the economists in the world are talking about that there will be inflation in the U.S. Some would be borne by our F&F partners and some would be borne by us. So our impact will be fairly limited.

Got it. And the guidance for this year is intact, right, 20%...

Yes, that 20% growth has been our past, and that is how our future will also look for sure.

The next question comes from the line of Vivek Gautam from GS Investments.

Yes. Sir, congratulations on a good set of numbers. So are we feeling some -- facing some sort of capacity constraint so that the numbers which we got in the last quarter may not be sustainable in the coming quarters and same would be the case of peak margin sort of also which we are facing?

Narayan here. No, not at all. It is not that there is any constraint on the production capacities. Historically, the first quarter for our company always remains the lowest. And as you go from second quarter, third quarter, you will see that the revenue and the quantum also going up. Don't ask me why, but it has been historically that it is intact. And we expect that with all the expansion and the augmentation and that we have taken place, the debottlenecking that we have done, the capacities will keep increasing. As you are aware, we have highlighted that there is an increase in the capacity. So that is also being taken care of, and you will see both volume as well as the revenue going up. Mahesh bhai wants to add something.

In short, we've converted our plants into continuous plants, and we see capacity augmentation because of that effect. And in fact, our -- if you see our margins improvement is also because of that, the one continues -- the same plant continues with little -- you get a lot of augmentation by changing the plant continues. And you also get automation, so you use less team, less labor and more production. That's what we've done in the last few months or maybe 9 months, and that is seeing the color from last quarter and this quarter will be -- I think it will be quite better than the coming -- the past ones. In the coming quarters...

And sir, can you just highlight the company's USPs and the differentiating factors versus the competition and which you have evolved and because you have got a very good client list and what has helped you come to that level? And how is the potential over there also for further penetration there and the new clients as well, sir?

So it would be a long answer because it is actually efforts of Mr. Babani for the last 2 decades. But to give you a point-wise answer in a few snippets. The first and foremost is that we are a sustainable company. So whenever a chemical company, which is zero liquid discharge, we are a large chemical company, and we are zero liquid discharge. So in terms of ESG goals, as they say, we are right there at the top. We have platinum rating in terms of EcoVadis. Having said these 2 things, the other thing is that we are in for about 2/3 of our products, almost 70% of our products, we are fully backward integrated, which make us extremely competitive in terms of cost factor. And we never had any quality failures in the last 2 decades, in fact, from the start of the company that all the products that we make, they are also approved by all active sensors -- and we have a team which works on that. So we never had any quality failure. So why wouldn't the customer prefer to buy from us? When they are required -- looking to buy significant quantities of products that we make, they always want to have a supplier whom they can depend on and who is competitive, doesn't have to be L1, but he can be L2 or L3, not the lowest one, but one who is very, very dependable. So that's what we stand. We have honored all our contracts in thick and thin. So that's what has given a huge amount of edge to Privi.

I'm basically new to your company, sir. We seem to invested, so don't mind the question. So I was just thinking of touching about Mr. Babani, -- he's coming from a real estate background and not an engineering background, come background. Still he has been able to build up this company at such a level. How come and what helped him? And how -- if you can highlight the investment journey on his and also about the second generation or the next generation who is there to there because that is also very important for all the investors, sir.

So we have a team of great professionals who are committed to us. In fact, I would say I would have the best team in the industry or in this chemical trade, and we have undoubtedly faith in them. And that's how we could do it in a running plant expansion, but they know every nook and corner, what safety is because converting a company into continuous production is probably the toughest goal. One can plan a new one very easily, but convert the present one into continuous is probably the biggest challenge. Secondly, you said about the succession plan. We have groomed at least 15 new professionals, not 15 existing professionals below the age of 40 right now. In the next couple of years, they'll be groomed. They have been sent to the best business schools like International School of Hyderabad, IIM Ahmedabad and several others. Two of my colleagues are also going to hard for training. So we are grooming a team, which will convert this into a totally professionally managed organization in the next 3 to 5 years max. Until then, I'm also not going to get old. I'm getting younger. But I'm by energy, I don't know how God gives energy when you plan right. So we are not so worried. We have a great set of people managing the business.

And what attracted you such a niche sector, sir, coming from basically commerce background, how come you landed?

You see the risk factor in the initial first 10 years. I felt always challenged or for the next 5 years also it was challenge. In the last 5 to 7 years, I feel there's no better business than specialty chemicals. There's no risk factor. We are a company now with all risk set aside. Maybe risk to -- risk is part of every life, but I'm saying we are on an excellent journey. That's all I can say in few word.

The next question comes from the line of Rohit Sinha from Sunidhi Securities.

Congratulations for good set of numbers. So sir, first question is if you can give just brief breakup on value and volume growth, which we have get in this quarter. As I think from last few quarters, we have been getting a benefit of price increase which we have taken during contract revisions. So one is on that? And any specific product which has contributed to higher margin in this quarter or it's just I mean, raw material benefit gains?

Well, as indicated in our previous couple of quarters, we have stopped giving the quantitative information, and we continue to do so in order to keep the -- some of these in-house secrets within the company. Second, there has been a growth, definitely a growth in terms of the revenue we have indicated. And we continue to grow broadly what we have indicated at the beginning of the year is about a 20% growth, which is consisting of both volume as well as value. And this quarter also, it is a culmination of both volume as well as value as compared to the previous year same quarter. First quarter for our company always remains the lowest of all the 4 quarters. Having said that, this quarter, the -- there is no such individual product which has contributed more or less. It is a culmination of all the factors together because at the end of the day, on a very lighter note, if I just talk about, any blend that a perfumer has to make -- he can't isolate one particular product to the other. He will require a basket of all the products. So only if all the basket of products sell, finally, the Aroma chemicals can be sold around and which you and I consume. So that continues to remain so, sir.

Lastly, I would also say that the efficiency improvement has been of great use while converting our plants to continues, which is giving the profitability and not the price increase. Price increase, rather, I would say we are lower on price compared to last year, but yet better profitability, to be honest.

Okay. Okay, sir. Got it. Got it. Secondly, on the camper side, we were also working on pharma grade camper products, if I am not wrong. So where we have progressed in that? And what's the outlook there?

Camp, we are doing extremely well. And when there is so much of demand locally, we have no place for any other camper to be sold. So our focus -- but as you know, it takes some time when we have to enter into pharma grade. So very shortly, things progresses, various studies are going around. And I believe that should also click around in. But our capacities are doing very well with regard to the entire camper plant.

Okay. Okay. Great. And lastly, sir, if you can just highlight the contribution from the JV side in this quarter and probably the guidance for this year, if at all possible?

On the joint venture, it's like this that -- we are working with the largest FIF company globally and understand that these are extremely specialized proprietary molecules. So the quality standards are extremely high. Also in terms of logistics, it takes some time between to do a batch and then getting some approvals. So it is taking a bit -- some amount of time, but it is on course in terms of number of products. And in the coming time, we will see -- there's some quack when the product gets approved. So it takes some amount of time for products to really move through, but we are -- the traction is very good. And we will see this year, this quarter actually, since it's in a very nascent stage, it is yet to breakeven. But in the year to come, it will do more than that. And there will be growth also. we are also contemplating a bigger growth going forward in the same joint venture.

So I'll tell you the protocols are very severe to supply to the fine products that we are making because they go to several going to flavor and several going to very high-value perfume. So the protocols are very severe. So we hope that this will -- we are not hope. We are sure it will become better, but it's a slow process as a company has got this -- there are some systems where we are have to qualify internally also, though it may be a joint venture, they treat it as a separate entity. So we have to live with those systems. And we are confident in coming years, this will be a great success. In fact, to be honest, we are talking about expansion. Today, we have done only. They are talking about 1.1, 1.5 and 2. They have already planned 3 more expansions where they are wanting to pump in as a debt. We've requested them for a lower price debt and rework the debt. So we are in constant talks with them. Long-term prospects are par excellence. At the moment, we do face challenges because of -- it's a huge project and the sales are -- the turnover ratio is pretty low compared to the size of the investment.

But it's a great learning process for all our technical team because these are really complex molecules.

Okay. So I guess for the year also, it would be less than INR 100 crores kind of contribution or less than INR 50 crores.

Yes, yes.

The next question comes from the line of Shreya from Oakland Capital Management LLP.

[Technical difficulty] So my question is in line with our long-term vision that when you have said that no single product could contribute 10% of our overall EBITDA by FY '29. So could you elaborate on the progress in the current quarter specifically, how has the contribution from the higher-margin products like Galaxmus and other recently commercialized molecules?

Okay. So we have a favorite phrase in PV. It's called a teamwork makes a DreamWorks. So it is not that one product contributes everything. It is all the products together is what the story is. And please do not request us to give any further details than these because these are proprietary information. So all the products together do contribute for the growth. And don't get ding by one particular quarter. Our dream is and our plans are already in place. I would invite you to come to Mahad. The projects are taking shape. And the traction for 5K-1K story, as our Chairman just said in the beginning, between the next 3 to 4 years is in place and the products are identified. The technologies are in place. We are at the -- in many products, we are at the lab to pilot scale, and that's how we see the growth happening for sure. And I think almost all the products, we already are in constant touch with our customers, which is what will lead to commercialization of these products very quickly as what happened in Galaxmus and other products also as soon as we get those into production. That's what it stands.

So just a sense on directionally on it will be a right assumption? [Technical Difficulty]

We are on track. You can assume that we are on track.

The next question comes from the line of Manan Madlani from Kamaya Wealth Management.

So my first question is, over the years, our gross margins were in the range of earlier 40% to 45%. Now we are shifting towards 48%, 49%, 50%. So is it safe to assume that we will be in the range of at least 45% to 50% in terms of gross margin for the next 2 years?

Manan, what you're talking about is the raw material front, and it is not the gross margin level. So let me correct you here. I understand that certain investors look at R&C and say that is the gross margin. So to answer your question, the R&C front will remain at these levels, what you are seeing, even going forward in the few couple of years as we can see and foresee ourselves. And we expect to grow on some of the costs on account of debottlenecking and augmentation and continuous process and some of the savings on the utility cost, whether it is the solar, better efficiencies and all. And that's how the EBITDA margins will continue to improve.

See, our business is based on north of 20% EBITDA margins. I'm not saying that even if RMC may go on -- go up for some products that we introduce. But north of 20 EBITDA will always be our guidelines.