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

Ladies and gentlemen, good day, and welcome to Privi Specialty Chemicals Limited Q2 and H1 FY '26 Earnings Conference Call. This 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 involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. Today from the management side, we have with us Mr. R.S. Rajan, President; Mr. Narayan S. Iyer, Chief Financial Officer; Mr. Sanjeev Patil, Executive VP, Strategy and Biotechnology; Ms. Ashwini S. Shah, Company Secretary and SGA Investor Relations Adviser. I now hand the conference over to Mr. R.S. Rajan, President of Privi Specialty Chemicals Limited. Thank you, and over to you, sir.

Thank you. Good evening, ladies and gentlemen, and welcome to Privi's Quarter 2 and H1 Financial Year '26 Earnings Call. The results of this quarter and indeed the upwardly accelerating journey so far, is the manifestation of the vision of our Chairman, Managing Director, Mr. Mahesh Babani and his guidance with relentless passion, well supported by the team Privi. This quarter marks the movement of immense pride for all of us as we have surpassed all previous financial and operating parameters. The growth in revenues and higher profits have been driven by volume growth in our flagship products and the contribution from newly introduced products. We continue our pursuit for process intensification and new capacity creation. We continue to remain as a trusted partner to leading fragrance and FMCG companies worldwide. It gives me immense pleasure to inform that Privi was awarded the first prize in the large company category at the IFEAT 2025 conference held in Gothenburg, Sweden for advanced bio-based aroma ingredient solutions under the sustainability awards. This achievement comes in addition to our Platinum rating from EcoVadis, the highest global recognition for ESG excellence, placing us amongst the top 1% of companies worldwide. These awards stand as a testament to our strong belief on sustainability and responsible business practices. As we look ahead, our strategic priorities remain steadfast to build a world-class aroma chemicals company that leads with purpose, executes with precision and grows responsibly. I'm joined today by our CFO, Mr. Narayan Iyer and Executive Vice President, Mr. Sanjeev Patil, and they will explain the progress made during the quarter and the way forward in detail. With this, I would now like to hand over to Mr. Sanjeev Patil to share operational details for the quarter.

Thank you, Mr. Rajan. Good evening, ladies and gentlemen. The growth in consolidated total income of 20% between quarter 2 and quarter 1 is driven by growth in our flagship products and additional contribution from newly introduced products. We were in a position to complete part of our Phase 1 expansion ahead of schedule, which partially helped us in generating the growth and will also provide the impetus for growth going forward. Despite the unfavorable global headwinds caused by the tariff-related uncertainties, we continue to maintain and increase our market share in key products. Over the years, we have always looked inward to improve our profitability. Our efforts in driving operational excellence by improvement in process yield, lower operating costs, optimum manpower utilization and the ongoing advantage of backward integration have paved the way for sustained improvement in EBITDA margin upward of 20% of revenue for the past 10 quarters. We will continue our efforts in maintaining and improving these ratios. As we have worked on process intensification, extracting additional production with debottlenecking involving minimum CapEx, our return on capital has steadily improved. We continue to work on the expansion projects to achieve our goals of 5k:1k over the next three to four years. With this, I now hand over to our CFO, Mr. Narayan S. Iyer, to share financial highlights for the quarter. Thank you.

Thank you, Sanjeev, and a warm welcome to all of you out there. It's a great privilege to address all of you on a very, very strong performance that the company has been able to outperform all its previous numbers. The first half of the financial year, '25, '26 has been a period of all time high-performance, and we remain confident that Privi is well positioned to sustain its growth momentum in the coming periods. Let me give you a glimpse on the key highlights for the third quarter and the first half. Our performance was driven by increasing demand across the product portfolio and a favorable product mix. Our JV with PRIGIV is also ramping up well, and we expect meaningful contributions to come from this joint venture in a few years from now. As informed earlier, this JV is of utmost strategic importance to the company. EBITDA margin improvement was led by continuous innovation, value addition through byproducts, higher volumes. In fact, it's the record volumes in this particular quarter that Privi has been able to achieve, controlling expenses across all parameters as Sanjeev informed and debottlenecking of critical processes, which led to improved EBITDA margins. During the third quarter, we have also received from the Gujarat government under the state incentive, an amount of INR 5.59 crores. Ladies and gentlemen, for the first six months, in totality, we have received about INR 9 crores from the Maharashtra government and Gujarat government, respectively. Please note our company is poised to get state incentives for the CapEx investment that the company has made from Maharashtra government for 15 years and from Gujarat government for 7 years against sales made within the state. So this is going to be on a continuous basis going forward also. Let me come to the CapEx update. As you all are aware, Privi is embarked upon a CapEx plan, which is split under 3 phases. So part one of the Phase I was completed before schedule, and the balance portion is progressing as planned and is expected to be completed by end of financial year '25, '26. This shall increase our production capacity from 40,000 metric tonnes to 54,000 metric tonnes for all of our existing products. There have been a calibrated effort to improve the overall working capital cycle, and we are pleased to say that the sales has started reflecting in overall cycles and better return ratios. In fact, we -- in our earlier calls, has stated that our endeavor and zeal will be to get a working capital cycle around the 120, 125 days. Let me state that we're already at 124 as a number. And I think we should be in a position to maintain and sustain this. Talking about the numbers and the financial highlights. Let me start with the quarter 2 for the financial year '25, '26. The total income for the quarter July to September stood at INR 678.82 crores, with a growth of 26% on a year-on-year basis. EBITDA achieved during this period was an all-time record high of INR 182.14 crores, which is a 59% growth on a year-on-year basis. EBITDA margins achieved for the quarter was 26.83%. Profit after tax for the quarter achieved was INR 90.21 crores as against INR 44.84 crores achieved in the Q2 of financial year '25. All the above numbers are on a consolidated basis. Now coming for the first half of '25, '26, the corresponding numbers are the overall income that the company was able to achieve was -- is around INR 1,246.08 crores, which is a growth of 24% on a year-on-year basis. EBITDA for the period achieved is INR 323.19 crores with a growth of 53% on a year-on-year basis. EBITDA margins for the first half of '25, '26 is 25.94%, Profit after tax for the first half of '25, '26 is INR 147.76 crores, which shows a growth of 94% over the previous year. Our net working capital, as indicated, has improved from 136 days that we have achieved in March '25. And as on September, it was 124 days to keep all the investors also happy, we have reduced our overall debt by INR 44 crores, and the net debt standing as on September '25 is INR 1,020 crores. With the planned capacity expansion of existing products and introduction of new specialty products going forward, our company has established a clear road map, and we are on track to achieve our visionary Chairman's vision of INR 5,000 crores of revenue and INR 1,000 crores of EBITDA over the next 3 to 4 years, representing a growth of more than 2x. This is a great achievement and a vision that all of us in Privi-ites believe and trust on our CMD, Mr. Mahesh Babani's vision. With this, I would like to conclude and open the floor for questions and answers. Thank you.

[Operator Instructions] The first question is from the line of [ Rohan Mehta from FIMCO (sic) [FICOM] ] Family Office.

So firstly, I wanted to understand how has the revenue run rate be within the month of October and, obviously, November? Has it remained broadly in line with the trend you have seen so far this year? Or are you noticing any uptick or any softness in key product categories?

Well, the answer is that we have not seen any downfall in the revenue in the month of October. November, also, we feel our contracts are in place, and we should be in a position to maintain our run rate of sales that we are poised to achieve.

Okay. And with the transition to continuous manufacturing and also the fact that you have improved your value added product mix, is there any new range of sustainable EBITDA margins or gross margins that you'd like to share?

Yes. So we -- as you see the trend, we have improved our margins steadily inevitably for the last 10 quarters. And we will endeavor to work in maintaining the EBITDA margin between 24% to 26%. So that's what we are working on, and that's what we can tell you.

Okay. And lastly, on the state incentives, I just wanted a clarification. So the amount you had mentioned from Gujarat government was about INR 5.59 crores. And what was it from Maharashtra government?

Maharashtra was INR 3.41 crores.

Okay. And I wanted to know how is this being accounted for in the P&L? Is it making our margins look inflated? I'm just trying to understand the accounting behind this.

Okay. So to answer this, we are recognizing this as our operating income in our financials. So in the first quarter, we happened to receive from Maharashtra government and in the second quarter, we have received this from the Gujarat government in fact. So whatever we get, this gets added to the revenue, and this is a direct margin for us because these are against the past expenses that we had incurred when we had set up the CapExes impacted.

The next question is from the line of Archit Joshi from Nuvama.

Congrats on a stellar quarter. The first question on understanding a bit more on our product portfolio. So we happen to have 2 very strong pillars in our portfolio, which is dihydro and Amber Fleur and any particular products or maybe a range of products that you might want to call out, which could become as sizable as these products to drive quarter growth that we are anticipating to reach the visionary target that we have set up for the company.

Yes. So we are working -- these 2 products, as you rightly identified, are the 2 pillars of this company, okay? And going forward, we are adding many more products. Our idea is that over a period of next few years, we want to reduce the contribution from a particular product to around 10% max, so that our dependency on a particular product comes down and that's what we are working on. So we are not just working on 2 wheels or 2 engines [indiscernible], we are trying to add many more engines so that the growth perpetuates.

Got it, sir. While we appreciate that given the size of this industry, I just wanted to kind of understand if there are any products which can become as sizable as these or would it be like a long tail of products, which can individually contribute to smaller amounts, let's say, in the range of 5%, 7% of the top line. So is it the tail that we are focusing on? Or is it that there are products which can scale up in the upcoming portfolio or maybe the existing one. So that's what I was trying to get to.

Sure. So we are focusing on not on tail but on the entire body, okay? So there are multiple products we are working on. But as you will understand that we do not want to spit out our strategies right here. So we are working on all those strategies and not only tail, but we are working on the entire body so that there would be at least about 10-odd products, which would contribute very well to the overall product mix.

Got it, sir. I appreciate that. Sir, secondly, if we could speak off a little more nuances with regards to the industry that we are catering to, I believe the fragrance industry will be, again, divided into multiple parts, let's say, perfumes or maybe something going in cosmetics as a fragrance or talcum powder or soaps or shampoos. Within that, where is it that you are seeing the maximum growth coming again, especially second quarter being such a strong one. Is there a change in trend that you have absorbed or any particular industry that is giving us the tailwind that you are witnessing right now? Any color on that?

So that -- we cannot give you any color on that because those are things which our customers would answer, okay? What you can see within India is like, for example, you are seeing that overall demand for fragrance in terms of deodorant, shampoo, soap, detergents, everything is going up. Even in detergents, also, we are seeing that -- you see a lot of ads wherein they are talking about the aroma of or the olfactive senses of the detergent and it retains the good smell. So -- but we cannot throw any color on that because we supply to our customers. What we can tell you is that we are seeing robust growth in the products that we are making, and that's the whole thing. And the other thing is that the demography of India is such that there is an upward surge for -- and there's a change in lifestyle wherein the demand for fragrances and other products is increasing substantially. There -- that is where we see the growth. But our growth is routed through our customers, the F&F players, and that's where it is.

Got it, sir. And anything on the export side of the business? I believe we do business with almost all the top 4, 5 MNC formulators, the likes of [indiscernible]. How is the offtake on that account? And any inroads that we have made in new products or portfolios with them on the export side?

Well, it is not 5, Archit, Narayan here to answer you. We are supplying to all the top 15 blenders of the world. And we also supply to 5 major FMCG companies like P&G, Henkel, Reckitt. We have seen an improved and increased demand from across all of these companies that we talk about. Not just these companies, but even the smaller fragrance houses and the Indian customers also, we have seen an increase in the offtake, which all substantiates, I believe that definitely, people are moving more and more to fragrance-oriented or smell-oriented products, and that's why the demand is increasing steadily in fact here.

And last one from me. Sorry to extend this conversation. But I just wanted to understand, structurally speaking, are we witnessing any visible shifts in supply chain even in this industry, wherein Indian vendors are preferred more over somebody else? Is that also a trend that one should fund contemplate on?

Archit, to some extent, taking the queue from our earlier quarter investor call, definitely, there is a China Plus One shift, which is happening where most of our customers being Europeans and the developed nations are looking at a sustainable player. And Privi definitely has an advantage with backward integration in place, and we are in a position to offer them prices for a longer period of time with a back-to-back offering that we have. And secondly, with -- as Mr. Rajan pointed out and has informed all of us, with regard to the sustainability trust that Privi gives upon, and we've been conferred several awards. We do feel and find that most of the large players would definitely like to buy from players like us and that's a shift that we have seen in the last couple of years, in fact.

The next question is from the line of [Veer Vadera from Niveshaay].

So my first question was on the core CapEx that the PPT mentioned that the capacity upgrade is ahead of schedule. Could you please elaborate on where you stand today? like when will the additional 6,000 metric tonne per annum be fully available? And how should we think about the ramp-up and its impact on growth and margin? Also an update on the Ratnagiri plant, what is the current status? And when do you expect it to be live and contributing hopefully?

Yes. As informed, the additional capacity of 6,000 should be up and running by end of December. So you can expect the growth to start coming from January onwards. That's been our endeavor and zeal so that we go for our contracts for the next year, we are in a position to offer the additional volumes that we have poised to set up. Second, to answer about the Ratnagiri plant. As you are aware, we are in -- already filed our applications for the scheme of merger and amalgamation. And post the NCLT order coming around only, we will be in a position to consolidate on the parent company. As of now, it's an associate company and doing its own business.

Okay. And on Privi Biotech since the CapEx has also earned out stable, when do you envisage the commercial operations, starting and at what initial utilization level? Additionally, can you share anything on the next phase of new product CapEx plan in the Privi Biotech?

Mr. Vadera, Privi Biotechnology is a wholly owned subsidiary of the parent company, which is purely doing research and development work. This is a company not meant to do any revenue, it is only meant to do research activities using the biotechnology route for the parent company. So whatever inputs we get from this company, that will get implemented in the parent company, which is what we are going -- I'm going to set up over the next 3 to 4 years, to take our company to the 5k:1k vision.

The next question is from the line of Rohit Nagraj from [indiscernible] Capital.

Congratulations on a very robust set of numbers and consistency thereof. Sir, first question, in terms of incremental product pipeline, so we are expanding the capacity. But in terms of new product launches, how are we placed for the next 2, 3 years? And these products or will they be catering to the existing kind of customers or we are looking at some diversification. If you could throw some light, that will give us more visibility in terms of the sustainability of the performance.

Sure. So we are -- we have a very robust pipeline of products, which will be operational over the next 15 months or so, which is a mix of products, which are typical of Privi product range, which is reasonably large volume and gross margins, which are in the range of 30% and more. And then there are about 10-odd specialty molecules that we are working on, which obviously are high value and high-margin products. So it is a proper mix of these 2, and we will see contribution from these products coming up over the next 12 to 15 months. Those projects will be completed in that period of time. And from there, you will get these contributions. Answering your question about where these products will be sold. So majority of the products are for the same F&F industry, with the same customers who would be procuring these products. Only a few of the products, they have applications within the F&F industry, but they also have applications beyond F&F industries. So those would be sold to, for example, pharma industry or to electronic chip manufacturing. So those are the areas in which we'll be selling those products.

Sir, second question in terms of the Privi biotech. So are there any products which are commercialized from here? And if yes, which all are they? And in terms of pipeline, how are we looking at those products which are currently in R&D to get commercialized over the next maybe 3 to 5 years, some growth there.

So Privi, some of the products which -- the technological platform that Privi Biotechnology has given. Based on that, we have commercialized some products now, which some of them have started production in the last month or so. And going forward is now we have moved from gram level to kilogram level to tens of kilogram level because I understand that these are very special technologies, we are -- we would be among the top -- I mean first few companies globally to have these products coming from Biowaste, so those efforts are on. And as we see it, over the next 15 months' time, we will be able to put a small demonstration plan, which will be in terms of a few tons of material. And that's what will finally peel away for subsequent growth. But we are on a very positive track.

Sure. Just lastly, one clarification and one suggestion. Sir clarification, when we said that our EBITDA margin target is 24% to 26%. Does it also include the part of incentive. And a suggestion as a good corporate governance practice if we could incorporate the amount of incentives that we get on a quarterly basis in a note to accounts or probably in the presentation, it would be really good for the analysts to get a broader perspective on how the margins are moving.