Supreme Petrochem Limited (500405) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 and FY '27 Conference Call of Supreme Petrochem Limited. [Operator Instructions] I now hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, ma'am.

Thank you. Good evening, everyone, and a very warm welcome to all of you. My name is Purvangi Jain from Valorem Advisors. We represent the Investor Relations of Supreme Petrochem Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the first quarter of the financial year 2027. Before we begin, let me mention a quick 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 belief as well as assumptions made by and information currently available to the 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 performance for the quarter under review. Now let me introduce you to the management participating with us in today's earnings call. We have with us Mr. Rakesh Nayyar, Executive Director and CFO; Mr. Dilip Deole, EVP of Finance and Accounts; and 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, Purvangi. Good afternoon, everyone. It's a pleasure to welcome you to the earnings conference call for the first quarter of the FY 2027. On a stand-alone basis, the revenue from the operations for the first quarter stood at INR 1,693 crores, reflecting a growth of 22% year-on-year basis. The revenue growth despite lower volume sales is mainly on account of significant increase in the raw material prices due to conflict in West Asia. The operating EBITDA stood at INR 331 crores, reflecting a strong growth of 188% year-on-year, with operating EBITDA margins improving to 19.53%. The total EBITDA, including other income, stood at INR 348 crores with margins of 20.3%. The net profit after tax was at INR 236 crores with a PAT margin of 13.96% for the quarter. A wider delta in the international markets between styrene monomer and downstream products helped the company get these results. On the operational front, the sales volume of manufactured products stood at 70,842 metric tonnes during the first quarter as compared to 93,853 metric tonnes in the corresponding quarter of the previous year. Thus, there was a decline of 24.5% in this quarter in the sales volumes of the company. The decline in volumes was primarily on account of negligible exports due to West Asia crisis and subdued demand from the non-OEM segment in this quarter. During the quarter, geopolitical tensions in West Asia and the disruptions of cargo movement through the Strait of Hormuz led to significant interruption in liquid and container shipments from the Gulf region. In addition, all 3 styrene plants in the region, which are amongst the company's traditional suppliers, suspended their operations due to safety reasons, creating significant supply chain challenges. Company established alternate supply arrangements and was able to meet the entire requirement of its domestic customers without any interruption. However, exports were minimal due to reduced availability of styrene monomer and significant increase in freight rates, reduced shipping availability and longer voyage time. On the raw material front, styrene monomer prices in the international markets remained elevated during most of the quarter and softened briefly towards the end of June. However, the renewed escalation of hostilities in West Asia has once again resulted in an increase in styrene monomer prices. Further, the temporary suspension of import duties on commodity polymers introduced to offset the impact of high import costs led to unnecessarily increased imports, resulting in erosion of market share for domestic producers. With regard to our expansion projects, we have successfully completed the Phase 2 expansion of our EPS capacity. We have also initiated projects for a new line of lightweight XPS board with a capacity of 150,000 cubic meters, along with the expansion of our compounding capacity from 50,000 tonnes per annum to 80,000 tonnes per annum. These will be commissioned by June 2027. In addition, the Board has approved installation of a new 80,000 tonnes per annum polystyrene production line at our Amdoshi Complex in Maharashtra. The project is expected to be completed by December 2028 and will increase the company's total installed polystyrene capacity from 30,000 tonnes per annum to 380,000 tonnes per annum. Total invested -- estimated investment on above projects is INR 450 crores, which will be funded entirely through internal accruals. With this, I conclude my opening remarks. We now open the floor for question-and-answer session. Thank you.

[Operator Instructions] The first question is from Nirav Jimudia from Anvil Wealth.

I have a few questions to ask. Sir, first is on the opening remarks where you mentioned that there were some of the styrene plants, big styrene plants suspended their operations due to safety reasons. So just wanted to understand from you like on the demand side, how is the situation like? Were the customers willing to take the material at the higher prices too? And because, let's say, there was a disruption in terms of availability of raw material, how were the import situation in the recent months in the domestic market?

As I said in my opening remarks that the demand from the non-OEM segment was very subdued. Almost 50% demand from the non-OEM segment had evaporated in this quarter, and that could partly be because of the high prices. And also the reason that the downstream processors, they had issues with the gas supply availability. So that could also be one of the reasons. So the price resistance from the non-OEM segment was certainly there. As far as the OEM segment is concerned, the demand was good. Demand was stable. So there, we did not have this issue. The prices were high because the styrene availability, like any other building block was stopped from the Middle East, which is one of the major suppliers and prices had gone up, which resulted in the increased prices. Now as far as imports are concerned, the import data is not -- authentic import data is not available after the government issued a notification in March, making the publication of import data a crime. But the -- unofficially from the market sources, what we get to know is that around 20,000 tonnes of polystyrene was imported in this quarter.

Okay. Okay. So like whatever has been the volume fall, which we have seen this quarter is predominantly or entirely the effect of the non-OE polystyrene volumes and the OE polystyrene volumes were possibly at the similar levels or would have seen some growth, correct?

Marginally, they were better in the sense. But then it's the non-OE sector as well as the exports, because the exports were absolutely down. We exported barely around 10%, 12% of what we normally export in a quarter.

Got it. So sir, like based on your experience of various disruptions and cycles in the past, how has been the situation different this time? Because, let's say, in the earlier cycles also, with this sort of disruptions which is currently ongoing, what's your experience in terms of the recovery part in the situation where the disruptions are sorted out. So if you can share your thoughts there, that would be very helpful.

It's actually something not like what has happened in the past. It is entirely a different situation because in the past, some plants may shut down because of some force majeure conditions, breakdown, other things. There could be very small constraints of certain supply chain. But there, it is prolonged and from full region. It is not one plant, one source, but it is a full region from where the material is not coming in. And even during COVID times, this situation was not there. This is entirely a different scenario, not comparable to the past events at all.

Got it. Got it. So just to take the things forward from here. So let's say, in terms of our strategy, what could be our strategy to improve our volumes in quarters to come, A; and B, let's say, apart from this abnormal situation, which is currently there, for the newly expanded capacity also where we have announced an 80,000 tonnes of expansion, what could be the demand drivers going forward? So let's say, are there newer applications which are coming up? Or you believe that the growth will predominantly come from more volumes from the existing applications only?

See, predominantly, the country is moving towards the exports. All appliance manufacturers are setting up big capacities for exports also and under PLI scheme as well. And we -- already during the peak months, we find that we are using our capacity to the fullest extent. And if you have to grow in the export markets also, we need additional capacity, particularly during the 3 to 6 months period, the high demand period. So, the demand growth is what is leading us to build additional capacity now.

Perfect. Perfect. Sir, second question is on the compounding side, like we have announced an expansion there also. So how are we seeing those compounding volumes in FY '27, if you can give some sort of flavor here? And...

Right now, considering what has happened in the last quarter, it's very -- that is not the...

Benchmark?

Right, for the remaining part of the year. But then what we have seen in the past is, our experience in the previous year that our compounds are doing well in the market. And now we are moving also towards the ABS compound. Our ABS compounds even in the quarter gone by, has done very well. And we see a lot of growth coming in there. So we are setting up lines mainly for the now ABS compounds.

Got it. But do we feel that the expanded capacity can be exhausted over a period of next 2 to 3 years is the right assumption to work with?

Certainly, yes, that is the aim we have. And with that view only this capacity is being put up, that this will come up by June 2027. And in the next 2 years or so thereafter, we should be able to use this capacity.

Perfect. And on the ABS side...

You have to let others also ask some questions.

Yes. Fine, sir. Just a bookkeeping question, last one. What could be the trading sales in first quarter?

Trading sales in the first quarter is not as high as the earlier days, but then it's closer to -- I don't have the number here, but I think around some 17%, 18% of our top line.

The next question is from Aditya Khetan from SMIFS Institutional Equities.

Just a couple of questions. Sir, first on to the non-OEM demand when we say that demand was down by some 40%, 50%. And also, sir, you mentioned like there were higher imports coming into the country. So sir, just wanted to give you one scenario. If there are higher imports coming into the country, was the demand also from the non-OEM side was there, but higher imports came in, that took our market share. This could be the first scenario? Or you see like the demand was not there only. Because of higher prices, demand went down. Out of these 2, which can be correct?

I did not say that the higher imports were coming. I said the imports were coming because there was a duty exemption and the imports number was around -- our market estimates are they could be close to 20,000. But that is the number, which is a very regular number. Last year, imports were also closer to 87,000 tonnes or so annual imports. So if I go by that, it is in line with that kind of thing. But the -- our impression is that because this 20,000 number would have been much lower had the duty waiver not been granted by the government. Since the government gave the duty exemption for those 3.5 months, so -- there was a tendency to import some material more than the need was. But as far as the non-OEMs are concerned, their demand was generally down and their demand as far as our sales are concerned to non-OEM, they were down almost close to 50%.

Got it, sir. And sir...

It's not that it happened only in this quarter. These kind of imports have always been seen in the past.

Got it, sir. And sir -- so going ahead, sir, how do you see these things to stabilize? So how are you witnessing -- so from the current demand -- so the demand apart from the non-OEM side coming down? And secondly, sir, any sort of volume guidance if you can provide? I know you have not mentioned any yet, but any sort of a ballpark number if you can? And how much contribution would be from the [ EPS ] side in FY '27?

Giving any guidance at this stage when situation is very fluid, it's very difficult to say. The OEMs, non-OEMs are coming back. Their demand is stabilizing also now. But then the way the uncertainty is there in the West Asian region today. So there are concerns, one regard to the exports, one regard -- secondly, with regard to the availability of styrene, the volumes of styrene coming in. And the other concerns are that even if there is availability, then with regard to the shipping space available, voyage time, freight rates, all those concerns are there at the moment. So I would not like to hazard any guess with regard to the volumes until otherwise situation becomes very normal there. We will take it as the quarters go by.

And sir, how you see like -- so this quarter number, so what is the sustainability of this margin 19%? Suppose if the non-OEM demand comes back and [indiscernible] also comes back to normal, how you see the sustainable figures moving going back [indiscernible]. Just a ballpark number or a direction also can help in that.

The base price of polystyrene and other polymers is all decided and keeping in view the global trends. If global deltas are strong, so the -- we also will have better margins. If global deltas are weak or they are back to the normal, so it will be the normal margins for us. So this margin which has come in, this is like an aberration because of the global deltas are very, very strong from $200 for GP, the global deltas have gone up to plus $300 plus; for HIPS, which used to be around $275, $300 went up plus $400. So those aberrations were there. They will get normalized over a period of time.

Sir, one last bookkeeping question. What would be the volumes of ABS in this quarter?

We don't give any volume separately. This is all Styrenics business. So they all come under the Styrenics data only. I'm sorry, I won't be able to share that number with you.

The next question is from Disha Chamriya from Trinetra Asset Managers.

Sir, my first question was, what drove the sharp profit improvement in quarter 1 FY '27? Like how much of it is sustainable? How much is from the volume growth versus the price growth, sir?

I've already said that we did not have any volume growth. Rather, there was a negative volumes. We had 25% reduction in volumes as compared to the corresponding quarter of the last year. And these margins have come in because the global deltas between the building block and the end product, they had widened, and that helped us also.

Okay. So a follow-up question on that, sir. So what is your outlook on this product realization and spread for the rest of FY '27? Now for the short term, how do you look at the spread?

It's very difficult to say because the whole -- the situation is fluid. We have to go to different markets to source raw material, the global deltas, supply chain issues are there. So I wouldn't hazard any guess right now in terms of this number. Know that we can [ run ] the business well as far as this business is concerned [Technical Difficulty].

Hello?

There is some disturbance coming in from your line, please.

[Operator Instructions] The next question is from Sailesh Raja from 360 ONE Capital Market.

Sir, last year, we have reported 1 lakh tonnes of EPS volume and you mentioned that we operated at 88% utilization level. So now we have expanded the capacity to 143,000. So till date, we have not focused on EPS exports. We focus only on the polystyrene exports. So what are the efforts that we are making to do more exports of EPS and how fast we can fill this capacity?

Sailesh, we have made efforts. We are -- particularly to export to Europe, our grades have also been approved in Europe. But off-late because of all these disturbances and the shipping freights having jumped sharply, voyage time has increased and there are issues with the Red Sea. So the exports have taken a back seat, particularly also in view of the limited availability of styrene monomer. We are more focusing on meeting all the demand from the domestic customers at the time being for the last 4 months, that is our state. But once the situation normalizes and the shipping opens up, we would certainly be exporting EPS. We know that there is a scope to do that. And we did small quantities of exports of EPS last year, and we would continue doing and increasing that exports of EPS, particularly to the European markets.

Okay. Okay. Okay, sir. Sir, what is the industry overall demand for ABS-based components? So how much could we be able to capture it in next 2, 3 years, sir? I believe ABS compounds will give better margin and ROCE for us compared to direct external sales of ABS. So I just want to know what is...

But then, I am sorry, I don't have any ready numbers of the market for ABS compounds. I don't have. But then I know that the -- whatever capacity we are setting up, we are seeing that there is enough demand for us to sell in the market, the capacity we are building at the moment. In the next 3 to 4 years, we should be able to fully sell out our capacity.

Okay. Okay. Sir, in the compounds market, it's fully fragmented and many competitors reportedly offer the 40, 50 days of credit to the customers, whereas we have traditionally maintained a very disciplined working capital approach. So going forward, will our strategy continue to focus on high value-added application and customer segment that require lower credit rather than cashing volumes? Which user industries and product categories that will be our focus? And what is the addressable opportunity within those segments?

See, our focus will be, as the first one, to focus on the value-added customers and to focus where the credit discipline is there. We do not supply our material where there is no credit supply. So our focus is going to be that. I know -- we are aware of that the -- in this business, longer credits are given. It's stable-enable story also with some of the suppliers. But then our principle is not that. Even in our subsidiary company, we -- in the last 1 year, we have been working on changing that mindset also. And in that process, the growth comes at times at a slow rate, but then finally, that's the objective that we will be doing value-added grades with a credit discipline only.

Okay. So market is big enough, sir, that there is no credit given to the customer?

So, [Technical Difficulty] all our compounding business, we have been successful doing the way we -- the limited credit what we gave, we have been able to sell our material, and we hope to follow the same principle.

Okay. Sir, one last question. Sir, could you please elaborate your CapEx road map for the next 3, 4 years? Specifically, how will investment be allocated between the existing PS, EPS business and the newer growth area, XPS, ABS and compounds? So how do you see product mix going up, sir?