Tarsons Products Limited (TARSONS.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Tarsons Products Limited Q1 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 date of this call. The statements are not the guarantee of future performance and involves risks and uncertainties that are difficult to predict. [Operator Instructions]. Please note that this conference is being recorded. I now hand over the conference to Mr. Aryan Sehgal, Promoter and Whole-Time Director. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and a very warm welcome to the Q1 FY '26 Earnings Conference Call of Tarsons Products Limited. I'm joined by Mr. Santosh, our CFO; and SGA, our Investor Relations partner. Our results and earnings presentation have been uploaded on the stock exchange and the company's website, and I hope everybody had the opportunity to go through the same. Let me begin with the current industry scenario, followed by our strategies and performance in Q1 FY '26, post which we will open the floor for questions-and-answers. Over the past 18 to 24 months, the plastic labware industry has experienced a moderation in growth momentum, resulting in a period of relative stagnation across the sector. While the overseas market was relatively soft for this quarter, but the order book in the export market is relatively robust. The overseas business can see some lag in revenues on account of dispatches and delivery schedules. We have also seen RFQs in the recent months. Parallelly, we have seen green shoots of recovery in the domestic market begin to emerge in the previous quarter. On the domestic front, we have delivered a growth in Q1 FY '26. These are positive indicators that reinforce our optimism for a broader industry resurgence as we progress further in FY '26. Throughout the phase of external challenges, Tarsons has continued to demonstrate resilience, and we have maintained the leadership position in the domestic market as well as a reliable plastic labware supplier to the life science industry. Despite a period of subdued demand, we have remained focused on investing to expand our capacities and capabilities with our 2 new facilities. With demand trends beginning to turn a corner and offering signs of picking up, we are strategically well-positioned to capitalize on these opportunities and drive growth both in revenue and profitability. While we continue to navigate near-term headwinds, our confidence in the long-term growth potential of the plastic labware industry remains firmly intact. Our capital expenditure program is nearing completion and will significantly enhance our production capabilities. This expansion also lays the foundation for the rollout of new product lines like cell culture and bioprocess, which will nearly double our addressable market by opening access to segments comparable in size to our current portfolio. Speaking of our ongoing CapEx, Phase 1 of commercial production at our new facility has already started and with Phase 2 on schedule to commence operations in the second half of this year. We anticipate initial revenue contribution from our cell culture to begin in Q4 of this year with full-scale ramp-up expected in the next 2 financial years. This expansion enhances our ability to meet growing industry demand while improving cost efficiencies. We remain committed to advancing automation and optimizing our processes to scale production efficiently, all while upholding the exceptional quality standards that define our brand. Turning to our financial performance. Reflecting the improvement in the demand environment, our stand-alone revenue has grown by 10% over the last year. Consolidated revenue in Q1 FY '26 grew by 8% year-on-year. Amidst, the relatively subdued demand environment still persisting in the overseas market, our stand-alone export revenue grew by 5% year-on-year in Q1 FY '26. We continue to double down on the two-pronged strategy of expanding both the Tarsons branded product as well as the ODM partnerships. We have been consistently showcasing our wide product portfolio and reinforcing our commitment to consistent quality and reliable supply chain on various domestic as well as overseas platforms. The response of the customers have been encouraging, and we remain optimistic about translating the increasing number of inquiries. Revenue in the domestic business has grown by 12% in Q1 FY '26. With improving industry demand and the introduction of new categories, leading to an expansion of our total addressable market, we are optimistic of getting back and maintaining a higher sustainable growth in the domestic business in the coming years. Nerbe, our Germany-based Europe-focused entity acquired in FY '24, reported a flat revenue growth for the period. This was primarily due to budget constraints in the region as well as several European countries, including Germany, experiencing delays in spending amidst government elections, which in turn impacted performance. Leveraging Nerbe’s established distribution network and strong market presence, we will be introducing Tarsons manufactured products through its channels. unlocking cross-selling opportunities and optimizing capacity utilization. While the transition from third-party to in-house products will take time, we are progressing steadily, laying a strong foundation for long-term value creation in the overseas market. As the product range expands and operations at Nerbe scale up gradually, we are confident of delivering steady growth and profitability there. Looking ahead, we remain firmly committed to our strategic priorities. One of them would be strengthening our presence in the domestic market through expanding our product portfolio and increasing the wallet share among our existing customer base. Number two would be to expand our overseas footprint by accelerating growth in overseas markets through both branded and ODM channels. Number three would be leveraging Nerbe’s distribution strength to not only deepen our reach in the EU markets, but also using it as cross-selling opportunity to sell existing Tarsons manufactured products in the European markets. Maintaining consistent profitability through increased automation and continuous focus on operational efficiency. Over the years, Tarsons has effectively competed against global multinational corporations, establishing and maintaining a leadership position within our core product segment in India. As we expand into new product categories, we are confident in our ability to replicate this success. Backed by Tarsons strong brand equity, diverse product portfolio, robust distribution network and unwavering focus on quality, we are well positioned to deliver steady growth in the years to come. With this, I request Santosh for his comments on the financial highlights.

Good evening, everyone, and a very warm welcome to our Q1 FY '26 earnings conference call. Let me take you through the financial performance for the quarter. Stand-alone revenue from operations for Q1 FY '26 stood at INR 71 crores, reflecting a year-on-year growth of 10%. Consolidated revenue from operations for the quarter was INR 91 crores, making a growth of around 8% compared to Q1 FY '25. Revenue contribution from Nerbe during the quarter was INR 20 crores. On a consolidated basis, export revenue stood at INR 43 crores, while domestic revenue was INR 48 crores. The domestic business has grown by 12% Y-o-Y, while the export business has grown by 3% Y-o-Y. Stand-alone EBIT for Q1 FY ’26 came in at INR [42] crores compared to INR 17 crores in Q1 FY '25, reflecting a growth of around 31% Y-o-Y. There was a one-time expenses relating to provision for damage to the machinery during transit, during Q1 FY '25. Adjusted for that, EBITDA growth would be around 11% Y-o-Y. Standalone EBITDA margin for Q1 FY '26 stood at 31.2% versus 26.3% in Q1 FY '25 reflecting an improve of 490 basis points. After adjusting for the one-time expenses, margin in Q1 FY ’25 was 30.9%. Accordingly, the improvement in margin from Q1 FY '25 to Q1 FY '26 would come to around 30 basis point. Consolidated EBITDA for Q1 FY ’26 was around INR 25 crores with EBITDA margin at 27%. Adjusted for one-time expenses last year, consolidated EBITDA has grown by 13.5% Y-o-Y with margin expansion of 140 basis points. Standalone PAT for Q1 FY '26 stood at INR 3.6 crores compared to INR 6.5 crores in Q1 FY '25. The decline in PAT is driven by higher depreciation expenses of INR 17.8 crores compared to INR 9 crores in Q1 FY '25 due to the capital of Panchla facility. Once the facility will be fully commissioned and revenue contribution commences, PAT margin is expected to return to normalized levels. We expect the capacity utilization ramp-up at the upcoming facility to happen over FY '27 and FY ’28. Cash PAT for stand-alone entity for Q1 FY ’26 stood at around INR 21 crores compared to around INR 15 crores in Q1 FY ’25, adjusting a year-on-year growth of 38%. On consolidate level, PAT stood at INR 1.8 crores compared to INR 4 crores in Q1 FY ’25. PAT margin stood at 2%. Cash PAT on consolidated level stood at INR 21.7 crores as compared to INR 15 crores in Q1 FY ’25, adjusting a growth of 44% on a Y-o-Y basis. With a that I’ll glad to open the floor for Q&A.

[Operator Instructions] The first question is from the line of Raman KV from Sequent Investments.

I just want to understand that the depreciation has doubled on Y-o-Y basis. How much depreciation are we expecting going forward once the Phase 2 plant also commences?

We are expecting a depreciation of at around INR 80 crores to INR 85 crores in FY '26.

Sir, with respect to the first phase, you said the first phase has already started operationalize, started operating. I just want to understand in the Q1, how much revenue came from the new Panchla facility?

Very limited revenues from the Q1 because we started commercial operations just recently. There was a lot of trials which went on and a lot of customers sampling domestically as well as in overseas markets. The revenue contribution is very, very negligible at this point of time. We would start seeing more revenue in Q2 and a lot of revenue in Q3 and Q4.

Sir, in the first phase, how much revenue are we expecting?

In the first year?

Yes, like this year. What will be the incremental revenue?

At this point of time, we'll not be able to give an exact number for the Panchla incremental revenue. It depends a lot on how the products pick up, a lot of factors globally on overseas markets as well as the cell culture coming in the trial production starting at the end of Q3.

Sir, my one last question is with respect to the in the opening comment, there was a comment made by the management that there was a lag effect with respect to the international market. Can we see any spillover revenue from the international customers in Q2?

No, absolutely. By lag effect, what we mean is sometimes for the first quarter, we cannot register revenues beyond the 21st or the 20th or the 21st of the last month. If it's April, May, June, we can only register revenues up to 20, June or 21, June, which is international revenues because it can only be recognized as a revenue according to the auditors if the bill of lading is generated. If we cannot generate the bill of lading, it leads to be considered as not a revenue. That will always be spilled over to July revenue, right?

How much revenue spillover are we expecting?

I do not have back of my head, but there were lots of orders which are ready and did not be accounted for in June, which should be accounted for in July.

Any percentage figures?

No, I don't have the data right now at this point.

[Operator Instructions] The next question is from the line of Jasdeep from Clockvine Capital.

Sir, my question is -- first question is, first of all, have you started exporting your products to Nerbe?

Yes.

Does 1Q revenues reflect exports from Nerbe? Or it still -- it will get reflected from second quarter onwards?

There are negligible revenues at this point of time. We are building certain strategies on how we are introducing our products. Nerbe is more of a strategic acquisition where we are trying to build a very concise strategy on how we can grow very robustly into the European market more so today with the global conditions. We would not look so much into just the transfer revenue between Tarsons and Nerbe on a quarter-to-quarter basis, but look at more as to how we can build a very, very sustainable European sales channel network through Nerbe for Tarsons.

Sir, what's the outlook for Nerbe for this year? Nerbe's revenues have remained flattish ever since you have acquired the company. Will the company start growing this year?

We expect and hope that there will be a certain amount of growth coming in this year. Having said that, the economic conditions in Europe and the global uncertainty all over the world is not improving and helping things for Nerbe. The more we inject new products and the more we solidify our strategies with Nerbe to be able to grow beyond what they currently are will lead to larger growth levels for Nerbe. Otherwise, being present in the European economy, we cannot expect Nerbe on a stand-alone basis without injecting new products, without injecting new geographies to grow at mid-double-digit levels, because the German economy does not have that kind of growth for a company to be able to do that.

When do you start injecting new products into Nerbe?

As we stabilize our capacities and new products, so at this point of time, we would first want to ensure that all the new products what we are building are well tried, well tested in the domestic market and capacities are utilized -- initial capacities are utilized for external customers. Once we have the capacity reliability, the product quality reliability, we would move ahead with the Nerbe integration, but having said that, the strategies are very fluid because -- at this point of time, we do not know how we would have to approach the international market or the overseas market over the next 3 to 4 months.

Sir, what is U.S. as a percentage of your overall exports? Given that U.S. has now impose 50% duty on India, do you think that exports to U.S. will be viable going forward?

See, at this point of time, we are not -- we cannot comment on this because the matter is still not complete. I think 25% is what is effective as of now. 25% is what comes into effect in a few days or maybe 10 to 15 days. The U.S. is a very important market for Tarsons. It's not a large portion of revenue, but it's a very important portion of revenue at about 10% to 12% of our consolidated revenues. We would need to find the best strategy moving forward, considering once everything is finalized based on the international agreements between India and U.S.

[Operator Instructions] The next question is from the line of Aditya from Securities Investment Management.

My question was on tariffs. Now, if the tariffs remain at current levels, would it be viable for our customers to continue taking products from us?

We sell a wide range of products. The advantage of Tarsons is that we have a wide product portfolio, and we are not a very focused company in the life science sector making only one category of products. Our entire business model over the years has been built on the Indian customer, and then we have taken those products to the overseas markets because of our reliable and consistent quality. I think we make various products which are supplied primarily in U.S. countries by U.S. manufacturers where the price gap is very large. We supply certain products which we compete with the Chinese where neck-to-neck pricing. At this point of time, it's very difficult for me to give you an exact answer. I think we'll have to see where we are relative to other economies when the dust finally settles on what the final tariff is going to be for India, for other countries and so on. At this point of time, at 50%, it's not the best trading environment, but we will see how things move on over the next 2 to 3 months. Before trade deals are signed or things are finalized, it will be very difficult for us to know what our impact would be as a company.

But sir, in terms of new orders finalization, are we seeing a delay from a customer end?

Absolutely. I think what momentum we were seeing over the last 6 to 8 months, that momentum is not the same over the last 2 weeks or maybe probably over the last 10 days since these tariff news have come in because everybody likes to take a cautious step and nobody wants to have a knee-jerk reaction and see what actually comes out of this at the end of it before they take further steps ahead. At 50% tariffs, we cannot expect new inquiries coming our way and growth coming from the American markets for sure. I mean for the incremental growth.

But sir, are there any other geographies where we can start supplying products, which could sustain our exports?

No, I think America and India, both are very large markets for Tarsons. I think we've made a strategic acquisition in Germany, and we are very prevalent and growing our strength in Asia. We will try and use these markets to further fuel our growth. We are very positive and confident of being able to find a solution for the trade to the United States as well because that continues to be a growing and important market for Tarsons.

Sir, this new CapEx, which we have commissioned now in Panchla, I believe these are for existing products. How do you see the ramp-up happening for this year? If you can just talk a little bit about how many RFQs we have won?

Sure. We don't generally discuss on our internal business what RFQs we've participated in what we won because generally, these are not -- these are OEM businesses and confidential in nature because we make for other brands in the international market, but the Pachala facility is actually 25% to 30% of capacity expansion and 70-odd percent of new product introduction, products we've not made before.

Yes, but the Phase 1, which we have commissioned now, that is for the existing products, right?

That is for existing products for certain liquid handling products and certain new products as well, which is related to suspension bottles for use for cell culture as well as media bottles. It's a mix where there is very few new products, but mainly capacity expansion of older products.

My question was with the existing orders in hand and we have been supplying some samples as well. Should one expect the ramp-up of this Phase 1 to be pretty fast where in the year 1 only we can have a capacity utilization of around 50%, 60%? Or you see the utilization to be gradual and back ended?

See, if you see the entire story of Tarsons moving forward with it's -- the domestic business is where Tarsons is one of the market leaders, and we will continue to maintain our leadership position while trying to grow our market share. The real big growth of Tarsons will come from the overseas market, which is not only the U.S. market, but every market outside India. We see a lot of uncertainty all over the world. It's just not related to the U.S. tariffs. The global markets at this point are so fluid that situation is not the most ideal. While we are ready with our product line and while we are ready with our parameters, product quality, everything in place, having the trust of large global companies, we would have to see how the volumes will start moving over this year and the coming years.

Just last one question from my end. You said that the transition for Nerbe from third-party products to Tarsons products would take time. Just wanted to understand why would that be so?

There might be an audio loss from the participant line. [Operator Instructions]. The next question is from the line of Chirag Maroo from KEYNOTE Capital.

I'm fairly new to this company. My questions can be kind of basic. First of all, sir, I would like to understand that we have a target set of INR 800 crores by FY '28, which means we would require at least 20% CAGR top line growth. Just wanted to understand the ramp-up of the new facility, which we have recently built up and gradually increase the capacity utilization. With current capacity of 80% to 90% utilization, could you just give us some signs or initial thought process how we are expected to have such kind of top line growth?

I'm not sure what the target. This is not a target which the company has set or publicly definitely said. We have our internal targets as a company, but we don't give any kind of guidance to the public markets and what our target is for FY '27, '28 or any other financial year. But yes, coming to your other part of the question what you had asked us, we run about -- I won't have an exact number at my back of my head between 110 and 120 machines, and we have more than 4,000 molds. We don't exactly know what our capacity utilization is because different molds with different machines can yield different outputs for us, but we believe in the region of 75%, 80%. We have capacities of 15% to 20%, which our revenues can grow by 15% to 20% with our existing capacity. We do have the installed capacity in our new facilities, which can help us generate additional revenues of about INR 350 crores to INR 400 crores. Probably, the installed capacity base with our new facilities and our old facilities put together would be close to INR 800 crores, but that by no means is our target for FY ’28.

[Operator Instructions]. The next question is from the line of Jasdeep from Clockvine Capital.

Sir, in the last quarter, you had mentioned that you might do some special CapEx if you get some order from overseas client. Any such order materialized so far?

As I said, we don't really offer in-depth details because these are OEM customers. We have a few projects which we have done, but that's -- which we are executing right now, but that's the most I can tell you. I cannot tell you the region, what kind of projects, what kind of customers because we sign confidentiality contracts because most of our contract customer projects are OEM. They're not Tarsons branded.