Supreme Petrochem Limited (500405) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Supreme Petrochem Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Supreme Petrochem Limited. On behalf of the company, I'd like to thank you all for participating in the company's earnings call for the first quarter of financial year 2025. Before we begin, I'd like to mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs, assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now let me introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We firstly have with us Mr. Rakesh Nayyar, Executive Director and Chief Financial Officer; Mr. Dilip Deole, Chief Executive of Finance and Accounts; Mr. D.N. Mishra, Company Secretary. Without any further delay, I request Mr. Rakesh Nayyar to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Anuj. Good afternoon, everybody. It is a pleasure to welcome you to the earnings conference call for the first quarter of the financial year 2025. Let me give you some small brief on the financial performance of the quarter. The operating income for the first quarter was approximately INR 1,574 crores, which has grown by around 28% on a year-on-year basis. The operating EBITDA was reported at INR 161 crores, representing an increase of around 78% year-on-year. Total EBITDA for the quarter is INR 184 crores for the first quarter. The net profit after tax is around INR 122 crores, which increased by 76% year-on-year. The company's sales volumes of manufactured products in the first quarter of financial year '25 increased by 21% on a year-on-year basis to 93,323 metric tonnes. Domestic volumes showed a robust growth rising by 30% on a year-on-year basis. Export volumes decreased due to substantial increase in the container freight rates caused by West Asia crisis, leading to a shortage of shipping space. Exports during the quarter -- first quarter of '25 were at 7,990 metric tonnes compared to 11,370 metric tonnes during the quarter 1 of financial year '24. The price of styrene monomer during the quarter ended June 2024 was stable. Company remains debt-free with an investable surplus of INR 1,040 crores at the end of the June 2024. With this, now I open the floor for the question-and-answer session. Thank you.

[Operator Instructions] Our first question is from the line of Aditya Khetan from SMIFS.

Sir, my first question is on to the volume side. Sir, last quarter, you mentioned that for full fiscal, we are expecting around 8% to 9% volume growth. And sir, in Q1, we had made around 93,000 tonnes. So sir, like if we annualize this number also, considering a bit upward number in Q4 because of the stocking which happened, so we can clock at least around 14%, 15% volume growth with the current run rate. So are we -- so we can maintain these volumes or we'll see some dip in second and third quarter?

Yes, Aditya, the -- as I've been saying in the past also, the second quarter when the monsoons are there is generally a weaker quarter in terms of the volumes because the lifting by the OEMs are slow. Even in the non-OEM segment, the demand falls a bit. Third quarter due to the festival season for that short period picks up. And post the festival season, again, there is a lull. And only towards the end of the third quarter, the last month of the third quarter or rather the last fortnight of the third quarter onwards, the market picks up again. So from mid-December till June or June end, early July, the season is generally good. And then because of the monsoons, there is a lull or there is a slightly weakness in the market in terms of demand is concerned. So we still maintain that the -- we could be doing better. But then on a conservative basis, I would maintain that we would be having a volume growth of around 8% to 10% only.

Okay. Okay. Sir, on to the spread side of polystyrene and your styrene monomer, sir, last -- for the last -- so 2 to 3 months, we had witnessed on spot basis, the spreads have gone up to almost $300 to around $350 per tonne versus the normalized average of around $150 to $200 per tonne. So sir, the spreads, can it maintain for a very long period of time? And what is the reason for such higher spreads?

The normal is also not $150. You're talking about GPPS or HIPS?

sir, GPPS.

GPS spreads are between $150 to $200. But because of the high freight rates of the imported cargo, the -- or the -- because of the shipping freight rates going up globally, some delta has gone up, but not really to this extent what you are saying. The deltas have not increased to $300 or $350 for GPPS.

Okay. So sir, this delta for HIPS, has it gone up?

Both GP and HI, both have marginally gone up, but not to the extent you are saying. We haven't seen that.

Okay. Okay. Got it. Sir, on to the expansion side, apart from ABS, which we are planning to start by Q4, the EPS expansion and the XPS expansion, so this expansion when we are planning to commission?

EPS expansion also will be through by the end of this current calendar or the first quarter of -- sorry, the last quarter of this financial year. And XPS will happen sometimes early next financial year.

And sir, the special compounds business?

That keeps on going on as and when the demand is there and we find some new avenues are coming up. So as and when the required the lines are added there. Because they are kind of a very modular thing that the -- you have to just come bring in and install the machines. It's not something like PS or ABS or EPS.

Got it. Sir, just one last question, sir, on to the Haryana plant expansion, wherein we are looking to invest around INR 800 crores. Apart from the existing announced expansion of 3D panels, any other new projects has been lined up?

No, we have said 3D panels, sheeting and also XPS there. That is -- now we are seeking all the statutory approvals in terms of environment clearances and other things. That will take some time. And we are always look out for new avenues. If we find some other interesting project, we will implement there.

But sir, the revenue potential could be around INR 2,500 crores from that Haryana business?

Based on the current capacities announced by us, which is there, the revenue potential would be around INR 2,000 crores.

Our next question is from the line of Sailesh Raja from B&K Securities.

Congrats for the good performance in 1Q, sir. 3 years back when PS demand was weak, we used one of the lines for producing SMMA product. And last 2 years, we used the same line for producing only PS because of good demand. Now with capacity available, is there any plans to reenter in SMMA product to fill the available PS capacity, sir?

We had -- you see we had altered -- rather not altered that I would say we had added some small equipment to our existing polystyrene line for manufacture of small quantities of SMMA because we had surplus capacity of PS then. And now the PS market is growing, has already grown and is still growing. So we have not looked at SMMA at the moment, and we continue to focus on PS because SMMA market as such was very small. And so we are only considering doing maybe some SMMA compounds, but not actually going big way into SMMA.

Who is supplying, sir, currently? And what is the market size?

The market size in India is very small, very, very tiny because right now, we have -- whatever we had developed and since we stopped supplying SMMA, so people have again gone back to PC and others. And currently, in India, nobody manufactures.

Okay. Sir, my second question, given that our current power cost is approximately INR 2 per kg for the existing product lines, with the Mass ABS technology we are implementing, so what is our projected power cost per kg for the ABS line, sir, for the 1.4 lakh tonnes capacity?

Sailesh, I can't give you that number offhand because we are not still on production and the numbers what we have are all given to us by our technology suppliers. So really, it will be not right for me to comment on that.

Okay. Sir, we have entered a JV for the generation of 12.5 megawatt of solar power and also we have installed 1 megawatt of rooftop solar power. The annual report mentioned that we can meet 50 percentage of our power requirement from renewables. So does it include the power requirement for the ABS line?

No, that is for the current power requirement. When the ABS comes in, then we will go in for additional solar power capacity maybe with -- in the current JV itself or maybe with some other JV then. But currently, this will meet only our existing power requirement to the extent of 50%.

Okay. Sir, one last question. Sir, for the 2 phases of ABS, 1.4 lakh metric tonnes, it requires roughly around 7,000 tonnes of Masterbatch. So that is sourced entirely from our SPC division?

Sorry, what did you say?

No. The total ABS capacity is around 1.4 lakh tonnes.

Yes.

So that requests roughly around 7,000 tonnes of Masterbatch. So this is sourced entirely from our SPC division or how it is?

No. Whatever Masterbatch, if it requires because our natural color of our ABS -- of the Mass ABS, it's a continuous process, is very consistent coloring there. And the Masterbatch requirement of 7,000 tonnes, which you have calculated as and when required will be always supplied by us only. It will be sourced from our own SPC division.

Okay. So the SPC effective capacity is 75,000 that we are targeting capacity. in that 60...

No. Our proposed expanded capacity over a period of time, what we have said is we continue where we are. And now as and when the demand is going up, we keep on adding the lines for that. So our estimate is to reach 75,000, that is the provision we are doing. And the -- it's not like a continuous process project. Here, we have to just keep on adding lines and that we keep on adding lines as and when the demand is there and the market needs are there.

[Operator Instructions] Our next question is from the line of Dhruv from HDFC AMC.

Sir, is it possible to say how much -- in a 20-feet container, how much of PS can get imported? I mean, in terms of quantity, how much can get imported? And what would be the freight rate currently? And how has it increased over the last, say, 3, 5 months from, say, Southeast Asia? I believe that's the largest part destination for exports to India. So how the rates change? I'm just trying to understand how meaningful the benefit can be for us?

The freight rates in the last couple of months have gone up by almost $150 a tonne. But then the demand -- the capacity being available in the country now, the imports are reducing a lot. With the increased freights also, people have stopped importing in a way. Currently -- earlier, the imports used to be around 6,500, 7,000 tonnes a month. That has already come down to 3,500 tonnes in the last 1 or 2 months, what we have seen, 3,500 to 4,000 tonnes. And going forward, it may further go down. And as far as the stuffing in a container is concerned, it can vary the way the packing is done, and it could be 17 tonnes and it can be 19 tonnes also. It depends upon the cruise cargo, depends upon the palletized cargo, depends upon the kind of bags used, whether it is a 25 kg bag or it is a jumbo bag.

Got it. So 17 to 19 kg -- 19 tonnes in a 20 feet kind of container?

How the packing will be, the stuffing is done there, but then it can be as low as 16 tonnes also. The standard is 16 to 19 tonnes, anything can be done depending upon the various combinations.

Got it. And this $150 per tonne is what you mentioned is the freight rate is your estimation of the freight rate from, say, Southeast Asia?

Freight rates is our estimation. But now I understand that this is getting rationalized and the market expectations are that the freight rates will start going down. That's the information what we are getting today.

Got it. But sir, so even if the imports reduce, so even if there are some small quantities of import, shouldn't on an import parity basis, you still tend to capture some reasonable part of the gain of the freight rate or it will not work that way?

Not really because then if you do that, then the -- you have long-standing customers there. You can't take undue advantage of your customers, that is one. And two, by doing that, you are kind of killing the demand in the market also. So it has to be a balanced approach always.

Got it. And sir, for your raw materials, it does not change materially because they are imported in, I believe, in tanks, right?

Bulk rates have also gone up. The raw material price, the freight rates have also gone up, but not to the extent of the solid cargo. The liquid cargo bulk rates have gone up, but not very high -- substantially as in the case of the solid cargo.

Our next question is from the line of S. Ramesh from Nirmal Bang Equities.

Sir, if you were to look at the growth outlook for polystyrene and ABS, can you give us what is the expected CAGR and demand for polystyrene and acrylonitrile butadiene styrene? And what is your current market share in polystyrene? And what is the kind of market share you are expecting in ABS?

The expected market growth will be in line with the GDP growth and on an overall national basis, that's our expectation. And as far as our market share of the polystyrene market is concerned, we are close to around 55% or so currently or 60% maybe. And ABS going forward, when we reach there, we will decide once both the lines are operative and depending upon the market size then and imports also. But then we will always try to be there -- have a substantial share in the market, but then I can't really comment on what it will be at this stage.

So what is the current consumption of acrylonitrile butadiene styrene in India now?

Current is around 280,000 to 300,000 tonnes.

Okay. So in terms of the economics of the new project, for the ROCE, what are you really counting on in terms of your differentiating factors? Is it a more competitive technology? Is your capital cost lower? So how do you expect to compete? Because it's a very mature product possibly been a bit late in entering the ABS value chain. So how do you see your project delivering shareholder value, say, over the next 5, 10 years?

Our technology is good. It's one of the best technology in the world from Versalis. So we see that our product quality would be best. The Mass ABS is order free. When you do it in use in the interiors of the automobiles also, then it is order free. It has low carbon footprint. There is zero water consumption during production. So it is not only environment-friendly, but it is a very efficient technology. So we think we'll -- our product finally, once it gets established in the market, we will have an edge over the conventional ABS.

So if you look at the outlook for the current financial year and the next financial year, whatever you are expecting in terms of revenue should primarily come from polystyrene, right? And when do you expect the acrylonitrile butadiene side revenues should start being booked in the P&L?

So the next financial year, we will be in the market, but then that will be the first year when the product would be supplied to the market. And by the time the market gets used to it and the -- it starts accepting the material, it takes some time. But starting '26, '27 financial year, yes, it will be fully accounted as well as it will add to the top line and the bottom line both.

So do you see any competition in terms of additional capacity in polystyrene and ABS from other players?

ABS, of course, the others -- I believe that some other -- the current players of ABS have also announced increase in the capacities. And right now, almost 50% of the ABS consumption is getting imported into the country. So they will have enough -- everyone will have enough market to supply to.

Our next question is from the line of Aditya Khetan, SMIFS.

Ports of raw material, you mentioned that is generally lower as compared to the solid cargo.

Your voice cracked. What did you say?

Sir, my question was on to the imports of raw material. So they are generally packed in liquid cargoes in tanker. So the freight cost is generally lower. And it is -- and for solid cargoes like what we export polystyrene that is in solid form. So the freight cost is higher over there.

Yes, that's right. The bulk cargo liquid, they have their own freight rate economics and solid cargo has their own freight rate economics there. So the freight rates for the liquid cargoes have also gone up, but the freight rates for solid cargoes have seen an increased -- the higher increase in that.

Okay. Sir, when we export, sir, polystyrene, so generally, like contract is on FOB basis or in CIF basis?

It depends upon buyer to buyer. If they want to nominate their own ships, then it is on FOB basis. If they want us to quote on a C&F basis, we quote on C&F basis.

Okay. Sir, on to the ABS part. So sir, like when we compare ABS, like the Mass ABS [Technical Difficulty] so like any differentiation, sir, in terms of product quality or cost competitiveness you can highlight for ABS as compared to [Technical Difficulty]?

I would only say, as I said just now to the previous gentlemen, that the -- as far as the Mass ABS is concerned, there is a lot-to-lot consistency in that. And because it's a continuous process, unlike the conventional emulsion process, which is a batch process, so as the -- and the -- there is a natural base color in the -- superior natural base color for the Mass ABS. Conventional emulsion grades have generally a yellow in tone, and you need high doses of pigments for that, which becomes expensive. And it is order-free, particularly for the automobile interior application, this is a better material. As far as the paint capabilities are concerned, like for 2-wheeler bodies, you have to do the painting of the body and that the ABS is used there. And Mass ABS has got a better finish for the painted material there. So these are the -- and secondly, in the process, while manufacture of Mass ABS, there is no process water is used or the variety of chemicals which are used for the emulsion is all that is reduced here substantially.

Okay. Sir, just one follow-up on [Technical Difficulty] sir, we have witnessed because of the rise in ocean freight cost [Technical Difficulty] spreads are at a 2-year high today. So sir, [Technical Difficulty] even in polystyrene spreads also like they are also at the [Technical Difficulty] this spreads will sustain at this level or with the consecutive fall in freight cost [Technical Difficulty]

Aditya, your voice is cracking. It's not clear.

Aditya, I request you to use handset while asking your question.

Sir, on to the ABS spreads, sir, I was asking on to the spread cost. So currently, the spreads are at a higher level so -- in ABS and in polystyrene both, so with the decline in freight cost and all, you still expect like the spreads will remain or it can revert to normalized levels?

Whereas polystyrene, as I told you earlier, for polystyrene, the spreads have not really increased substantially. Because in ABS, the imports are very high, almost 50% of the local demand is imported into the country. So there, the increased freights have made a lot of difference in terms of the domestic pricing. So the -- going forward, when the freight rates go down, all this will also go down.

Our next question is from the line of Jatin Sangwan from Burman Capital.

Sir, if I look at the demand of the polystyrene, the demand would be around 3 lakh tonnes. And if I look at our capacity, our capacity itself is 3 lakh tonnes, and we have a competitor that is increasing its capacity by 150%. And then there is another competitor whose plant had a gas leak and they have shifted their plant to other locations. So how do you think with the coming of the capacities of both these players will affect the realization and the margins in polystyrene?

Firstly, the competitor you said that who had some gas leak, they have shifted their plant to other location is not right because no shifting of plant has been done. They have set up only a compounding facility in another location. So it is not for polystyrene. Now as far as the demand in the country is concerned, currently demand is closer to 385,000 tonnes in the country. And we -- as I said earlier, that the demand will grow in line with the GDP growth. And we have a capacity of 3 lakh tonnes, but then part of that is also exported by us. So the -- our new plant coming up at -- in the north of another 100,000 tonnes or even the expansion by the other players in the industry would finally get consumed in the country only over a period of time, the next 2 or 3 years, the demand will grow up also. So there is always a surplus capacity. Otherwise, when the demand goes up, immediately, the plants cannot be set up. So there is always cushion in the capacity and the demand. And so this all will take care. And going forward, all capacities will get exhausted.

Got it. And sir, just a follow-up on polystyrene. How much of our sales comes through direct sales to customers and how much of it is through distributors?

I would say around 50-50.

Okay. And my last question is around ABS. Since you mentioned that we'll be doing Mass ABS and it will be a continuous process. So will there be any customization that we can do for the customers as our 2 competitors does? Is it possible in continuous process versus, let's say, batch process?

Not done during the -- we have defined grades then. They are all defined grades like you have in polystyrene or other polymers, then that is the objective of the continuous process that for the specific applications there, the recipes are made and then those continuous grades are produced. And if somebody wants any specific customizations for small quantities, that can be done in our compounding lines and our SPC project.

The next question is from the line of Anirudha Jain from HU Consultancy.

Sir, just wanted to understand what is the normalized revenue potential after this ABS plant and the Haryana expansion takes place?

Both the lines of -- once both the lines of ABS are on stream and our EPS and our Haryana projects are on stream, these new projects would have the potential to add close to almost INR 3,500 crores to INR 4,000 crores of revenue.

Okay. Okay. So both ABS and Haryana facility combined?

Yes, combined.

Okay. Okay. And when can we expect this normalized capacity utilization for -- I mean, both ABS and Haryana facility?

The Haryana facility would be likely to start from the financial year -- in phases from financial year '28. So I suggest that I think '28, '29 would be the financial year when both the capacities, both the projects would be ready and fully operational.

Okay. And what is our current capacity utilization?

Current capacity utilization for this quarter was over 83%.

83%?

Yes.

Our next question is from the line of Dhara from Valuequest.

So my first question was on...

Hello? Can't hear.

Line from Dhara has been disconnected. Our next question is from the line of Parth from Vallum Capital.

Sir, if you could help me what would be our revenues from trading for the quarter?

Sorry, what did you say?

What would be our revenue contribution from trading for this quarter?

Around 20%.

Okay. And sir, the capacity utilization that you mentioned, 83%, that would be for PS or is that on a blended basis?

This is on a blended basis.

Okay. Okay. But more or less all our segments would be on a similar utilization levels? Or is there a difference?

Almost yes.

Ladies and gentlemen, that was the last question for the day. I now hand the conference over to management for the closing comments.

Thank you, gentlemen, for joining us for this quarterly earnings con call. Thank you.

Thank you. On behalf of Supreme Petrochem Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.