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

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '26 Earnings Call of Tarsons Products Limited. [Operator Instructions] Please note, this conference is being recorded. Before we begin, I would like to point out that this conference may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Sanjive Sehgal, Promoter and Chairman and Managing Director of Tarsons Products Limited. Thank you, and over to you, sir.

Good afternoon, everyone, and a very warm welcome to the Q2 for the year '26 Earnings Conference Call of Tarsons Products Limited. I'm joined by our CFO, Mr. Santosh Agarwal; and SGA, our Investor Relations partners. Tarsons is one of the leading plastic manufacturing companies in India and continues to strengthen its global presence with steady progress and growing traction in export market. We are pleased to report revenue and EBITDA growth for first half year of '26, reflecting the resilience of our core operations, while profit after tax has been temporarily impacted by accelerated depreciation and higher borrowing costs associated with our ongoing capacity expansion projects coming on stream. Cash PAT has shown healthy upward trend, underscoring the inherent strength and sustainability of our business model. We believe that the plastic labware industry, both in India and globally offers significant long-term growth opportunities driven by increasing adoption of high-quality labware consumables and driving investment in life science and research. With our expanded product portfolio, enhanced manufacturing capacity and the enduring trust built around the Tarsons brand over decades, we are well positioned to capture this growth. And we move forward, we remain confident of delivering stronger revenue performance and improved profitability, leveraging our scale, operational efficiencies and deep industry expertise. I would now like to hand over to Mr. Santosh Agarwal, CFO for Tarsons, for his opening remarks.

Good afternoon, everyone, and thank you for joining our Q2 H1 FY '26 earnings conference call. Our results and earnings presentation have been uploaded on the stock exchange and the company website, and I hope everyone had the opportunity to go through the same. Over the past several quarters, Tarsons has delivered consistent performance despite a challenging industry environment marked by significant headwinds. The steady growth in revenue and profitability during this period reflects our expanding market share and our ability to outperform overall industry growth. Our sustained performance in the face of sectoral challenges showcases the resilience of our business model, the superior quality of our products and the enduring trust that the Tarsons as a brand enjoys within the life science industry. We have been steadily expanding our market share in the domestic market, deepening our customer relationships and increasing our wallet share across customers and industries. While the export business continued to face challenges due to global uncertainties and trade tensions, we remain focused on strengthening our international presence through consistent marketing and distribution efforts. Our participation in global fairs and exhibitions, coupled with strong value proposition of our diverse product portfolio, cost-efficient manufacturing base and upcoming capacity addition positions us well to capture emerging opportunity in the global market. The ongoing inquiries and the customer engagement from international market has been encouraging, and we are optimistic about meaningful order conversion as our expanded product portfolio is fully operational. In parallel, the integration of Nerbe acquisition and the strategic substitution of overlapping products with our own manufactured offering are expected to contribute positively to both revenue and margins in the coming periods. Our planned CapEx at the Panchla and Amta facility is nearing completion and is expected to become fully operational by Q4 FY '26. The expansion will significantly enhance our addressable market, enabling deeper penetration within our existing customer base through increased wallet share while also helping us acquire new customers across diverse industries. As utilization levels ramp up through FY '27 and '28, we anticipate a strong turnaround in both revenue and profitability. Higher revenue supported by favorable product mix and improved operating leverage are expected to drive margin expansion. In parallel, we remain focused on enhancing operational efficiency and automation across our manufacturing process, while -- which will further strengthen profitability and sustain long-term growth. Let me now take you through the financial performance for quarter and H1. On a stand-alone basis, revenue for Q2 FY '26 stood at around INR 81 crores and revenue for H1 FY '23 stood at INR 152 crores. EBITDA for Q2 FY '26 came in at INR 26 crores compared to INR 23.5 crores in Q2 FY '25. Reflecting a growth of around 11% Y-o-Y. But H1 EBITDA stood at INR 48.4 crores registering a growth of 19% Y-o-Y. EBITDA margin for Q2 FY '26 stood at 32.5% versus 29.3% in Q2 FY '25 reflecting an improvement of 320 basis points. Our actual FY '26 EBITDA margin stood at 31.9% an increase of 390 basis points Y-o-Y. Profit after tax for Q2 FY '26 stood at INR 6.5 crores compared INR 6.5 crores compared with INR 12.9 crores in Q2 FY '25. Our actual FY '26 PAT stood at INR 10.1 crores compared to INR 19.4 crores in H1 FY '25. The decline in profitability is primarily attributable to higher depreciation expenses of INR 20 crores arising from the partial capitalization of Panchla facility. Once the facility will be fully commissioned and revenue contribution commences, PAT margin is expected to return to normalized level. Speaking of our consolidated performance, consolidated revenue for the quarter was INR 102 crores, marking a growth of 3% compared to Q2 FY '25. Revenue contribution from during this quarter was around INR 22 crores but H1 revenue stood at INR 193.7 crores. EBITDA for Q2 FY '26 was around INR 27 crores with EBITDA margin at 26.8% and for H1 EBITDA stood at INR 52.1 crores, a growth of 18.4% Y-o-Y. EBITDA margin for H1 FY '26 stood at 26.9%, an increase of 300 basis points Y-o-Y. PAT stood at INR 3.3 crores compared to INR 10.3 crores in Q2 FY '25. While there has been a decline in PAT, we have continued to record healthy growth in the EBITDA. At the same time, we have maintained a strong focus on cash flow management resulting in a significant improvement over the previous year. Our operating cash flow more than doubled from approximately INR 22 crores in H1 FY '25 to about INR 44 crores in H1 FY '26. Furthermore, the EBITDA to operating cash flow conversion improved substantially from around 50% in H1 FY '25 to 85% in H1 FY '26, reflecting enhanced operational efficiency and disciplined working capital management. With this, I would like to open the floor for Q&A.

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

Sir, first question is on exports. So we have seen a drop in exports in Q2. Last quarter, our commentary was that some of our exports deliveries have been shifted from Q1 to Q2. Even after that, there has been a drop in exports. So if you could just explain that? And secondly, how are the U.S. tariffs impacting us? If you could elaborate on that as well?

Regarding the export, the same thing also happened in Q2 also, although we have some small brought forward from Q1. But in that Q2, there are large shipment which got withheld because of nonissuance of BL at the end of the quarter. So that's why you can see the drop in export. But we -- as a company, we see a healthy growth in the order book of export, and we are quite optimistic about the export growth for Tarsons. That's number one. And second point is regarding U.S. tariff. Of course, 50% tariff is a kind of no trade zone for everyone. But as we have a strong relationship with our U.S. customers is more than a decade. So all the -- we have not lost any customers, we have not lost any orders. The things are going in a normal way. And both Tarsons and U.S. customers both are optimistic about reduction in U.S. tariff.

But if I look at the last 3 quarters, consistently, your export growth has been flattish or they have been degrowing. So is it purely because of the freight issues? Or is there something -- have we lost any customer or the U.S. customers are not placing orders with us? And secondly, now this 50% tariff, so are the U.S. customers not placing orders with us and who's bearing the impact of these higher tariffs?

See, the point is that in export, the order book is increasing. The only thing is that in some cases, we are not able to deliver because of our capacity constraint and the machine commissioning issue. So we are hopeful that by the end of this year, we are able to show growth in export. That's number one. And second part is regarding loss of customers in U.S., we have not lost any customers. In fact, customers are quite supportive to us. And we -- customers and Tarsons both are optimistic about some reduction in tariffs. If required, we will see it and we will discuss what are the tariff issues. But so far, there is no impact.

We have been able to pass on the increased tariffs to our customers. Would that be a fair assessment?

We have not discussed until that level. Currently, we are waiting for the U.S. tariff trade deal. Once that deal will come, then we will discuss.

Understood. And sir, in terms of newer geographies, if you could just help us understand about that. So if the tariffs continue to remain, is there a potential for Tarsons to increase our exports in other geographies like Europe or Asia? And how quickly can we do that?

See, there is a huge potential. Worldwide market is quite huge, right? And we have not penetrated European market and other part of the world, right? So the opportunities are huge, and we keep on getting the large inquiries also. So we are also bullish on the U.S. also. We don't think that we need to -- we need some kind of sluggish approach from U.S. market. We don't foresee that. We believe that in this situation also, the U.S. market and other part of the world also.

But sir, can this process, is it a long drawn process where you have to take approvals from your customers and it would take around 6 to 9 months to start supplying or you could immediately start doing it?

Not really. It's just we need to send the samples to them, and they need to -- they need to check that, and it will take max to max 1 month to 2-month time line. But the only thing is that to get the comfort from the customers will take some time.

Understood. So how should we look at your export growth this year? So last year, we did around INR 100 crores of exports from a stand-alone business. So do you expect to grow from that level? Or you think that there might be some kind of a degrowth considering the tariff situation?

Global situation, tariff situation is beyond our control, right? What we can do that the discussions with our customers are going very healthy, and we are very much optimistic about that. And we all work for the growth of the company and for the -- both for domestic and export market. So we are quite optimistic about the export growth. As a company, we don't give any kind of sales guidance or earning guidance.

Understood, sir. And sir, coming to the domestic market, if you could just help us understand how the outlook for the domestic market. So we are seeing some drop in growth this quarter. So is it just a blip or something else is happening in the market? Because if you see other domestic players, they had higher contribution from exports. And since exports have taken a hit for many of them, are we seeing increasing price competition in the domestic markets?

Competition is always there. Competition is keep on increasing, new players keep on coming. So as a Tarsons brand, we keep on -- that's the reason why we keep on launching the new products to gain the wallet share. The challenge is always there. The competition is always there. But as a brand, as a Tarsons brand, we have a very good brand recall in India. So we believe in Tarsons brand. And we think that from going forward with the new product introduction capacity expansion, we will be able to increase our wallet share in domestic market as well.

Understood. But sir, is there a higher competition you are witnessing currently higher than usual or it's status quo?

Absolutely. High competition is there because it's in some part of the area, customer treat this product as a commodity. But in other part of the area, it's more like a bioprocess and high-tech product. So Tarsons is in the middle of both the payment.

Understood, sir. And sir, now if I look at your other expenses, so last quarter, there was a write-off of INR 6 crores. So if I adjust for that, there has been a sharp increase in other expenses on a year-on-year basis. So if you could explain why is that?

Other expenses, other expenses includes many components. And we can separately discuss those expenses, what are your queries are there. But in the published market, we don't give the bifurcation of other expenses.

Understood, sir. And sir, this Panchla capacity, what I understand was, first phase was related to the existing products. So has that part of the capacity been commissioned?

Panchla, some part of the capacity has been installed and commissioned. In some areas, we started doing production also. In some cases, the commissioning is in process, and that will complete by January of. That's why we have -- stated in our presentation that by Q4 FY '26, our Panchla facility will be fully ramped up in terms of production.

Understood, sir. Sir, my question is to Sanjive, sir. Sir, if you could just talk about our acquisition at Nerbe. It's been almost 2 years now since we have acquired that entity, but our revenues and profits have really gone anyway. So if you could just help us understand what issues we are facing over there? And what is the outlook for that business in the coming 3, 4 years?

So I will give the answer on behalf of Sanjive sir on that because I'm taking care of the acquisition part also. So Nerbe acquisition was not a financial acquisition. It was a strategic acquisition, number one. Number two is that at the time when we have acquired this company, we wanted -- we have seen that there is a product overlap and there is a good brand recall for Nerbe brand in Germany. So we wanted to leverage other products which we are not selling. That was the whole idea. Now what is happening in last 2 years, German economies are not doing well. The other larger companies are also not showing any kind of growth. On the contrary, they are showing degrowth. In this situation, Nerbe is doing a good job by showing a flat kind of growth, right? Currently, as a company, we have not started supplying to them. The reason is that currently, we are focusing on completing our organic CapEx, and we are focusing on external customers with whom we have a large commitment and we wanted to supply their order first. Once this organic CapEx will be fully ramped up and we are able to satisfy our external customer demand, then we will focus on supply to the Nerbe brand. And second part is that we are launching a new product, which we are also pushing to Nerbe brand so that the sales will increase in Nerbe also.

Understood, sir. And sir, lastly, the share price has corrected a lot and most of our CapEx is now on the verge of completion. So is there any plan for the promoter to increase their stake in the company?

Currently, there is no plan to increase the stake in the company. Currently, we are fully focused to how to increase the business products.

The next question is from the line of Jasdeep Walia from Clockvine Capital.

Am I audible? Sir, your sales in the domestic market also have been subdued. So can you comment on where -- in which product segments have you seen weakness and reasons behind the same?

See Jasdeep, domestic market on a quarterly basis, we should not see the results for domestic market on a quarterly basis. We should see the results on a basis of 6 months, 9 months or 1-year timeline. In domestic market, currently, competition is there. Competition is there and new players are also coming. And we are also not able to give what price some customers are asking. So always these kind of situations are there in the market. Only good part is that we are launching the new products, and we are getting good response for that. So going forward, we can see incremental revenue from the new products as well.

Got it, sir. So for the full year, do you expect the domestic market to grow at its usual rate of growth of, let's say, 10%, 12% or even that will be difficult?

Jasdeep we don't -- as I already said, as a company, we always want the growth for the company. We have an internal target. But in the earnings calls to the market, we don't give any kind of guidance.

Got it, sir. Sir, also, you started commissioning -- you commissioned Phase 1 of Panchla facility in first quarter. So have you seen significant scale up in sales in that Phase 1 facility in 2Q? And how do you see trends in third quarter and fourth quarter for Phase 1?

Not significant. In Panchla, basically, we launched the bioprocess products like PET, PETG bottles and roller bottles. Now we started getting good response from the customers approval, we are getting -- started getting approval. So we have not got significant sales, but some sales started flowing for PET, PETG bottles kind of products. And part of the capacity expansion related products also commissioned and the sales is also coming from that, but not significant. So the products which we are -- where we are doing the capacity expansion, we foresee a good amount of sales going forward from FY '27 and good start for new products in FY '27 as well.

Got it, sir. And sir, what will be the peak depreciation once all your CapEx is complete?

FY '26, my peak depreciation should be in the range of INR 85 crores to INR 90 crores, as I already said. In FY '27, my peak depreciation will be in the range of INR 100 crores to INR 105 crores.

INR 100 crores to INR 105 crores. Got it. And FY '26, it will be INR 85 crores to INR 90 crores.

Absolutely. It can be the situation that if we are not able to capitalize some machines and molds in this year, that depreciation will go to FY '27. But more or less, the numbers should be in the same range.

Got it. And sir, have you taken some price reductions? And hence, can we assume that volume growth in the business has been higher than the value growth that we see in reported numbers?

Neither we reduced the prices nor we increased the prices. And whatever numbers you are seeing, that came purely from the volume.

Got it, sir. And sir, in the Nerbe, in rupee terms, we see some growth in Nerbe as well. That is only account of rupee depreciation or there has been some growth in constant currency as well on Y-o-Y basis, right?

You are right, that is on account of rupee depreciation.

Got it, sir. And sir, what's your estimate of peak debt...

Yes, sorry.

Sir, what's your estimate of peak debt in the business once all the CapEx is complete?

See in India, on a stand-alone basis, my total debt in the balance sheet is about to be INR 285 crores. We don't think that the debt go beyond INR 350 crores because some LC has been issued, which can get converted into debt going forward. But at the same time, we are also repaying the loans on a disciplined basis. So we don't see that my total debt on a stand-alone basis can go beyond INR 350 crores.

Okay. And what about consol? We need to add INR 100 crores on INR 350 crores. INR 450 crores will be peak consol?

Yes, INR 100 crores is there, and the repayment is also happening for that. So including put together, my debt should not go beyond, I don't think INR 425 crores to INR 450 crores.

The next question is from the line of Ritesh from Girik Capital.

Sir, just wanted to know on the CapEx of this INR 251 crores of capital work in progress, when this would get commercialized?

See, this INR 251 crores of CapEx work in progress, it includes some parts of Panchla facility and major parts of Amta facility. So both of them will get commissioned within March, within fourth quarter. So you will start seeing some depreciation, some capitalization in Q3 and the remaining capitalization by Q4 FY '26.

Okay. So by '26 March, your net block will be somewhere INR 760 crores. Or is there more CapEx to be done on this? H1, I think you have spent about INR 70 crores what is to be spent now?

See, if you see my balance sheet, my capital advances is about to be INR 64 crores and my CWIP will be INR 51 crores. So this too will be -- will go to main segment of CapEx or fixed assets by Q3 and Q4.

Okay. So in cash flow statement for H2, there won't be meaningful CapEx to complete this one.

So if you see my CapEx -- if you see my cash flow statement, you will find that my total CapEx outflow is about to be INR 71 crores. Yes, I'm talking about H1.

So in H2, it won't be such kind of numbers. Is it -- is my assumption right?

It depends. Ritesh, It is -- it will be too early to comment on that because we need to check what kind of payment is due for different machine suppliers and what kind of CapEx due dates are there. So currently, I cannot comment on that, but we can separately discuss on that.

Okay. Given that after commercializing, these are the 2 really big facilities, is there any plan to shut down the old facility or everything would run together?

Everything will run together because all the facilities are all revenue-generating facility and Panchla and Amta are the additional capacity which we build. So there is no question of closing down any entity.

Okay. So far, you have been in the Labware segment, is there any plans to go to the other pharma segments like injectables and anything?

No. We will focus only in the plastic labware only.

The next question is from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, I'm trying to understand our domestic revenue is flat at INR 200 crore levels for the past 4 years. In the same time, our net block has increased from INR 153 crores to INR 730 crores. So where is this -- sorry, the gross block has increased from INR 160 crores to INR 730 crores. So what is the issue that we can't -- there is no growth in the domestic business nor -- excluding Norway, there might be some growth in our export business. So where is the business lacking between the capacity creation and the revenue flowing to our numbers?

See, whatever CapEx we have done, that CapEx has been done for generating the revenue for next 4 to 5 years, right? That's number one. Number second is that regarding domestic revenue, domestic revenue is not stagnant. If you see our 4 to 5-year financial, domestic revenue has shown good amount of growth even in the last year also, our revenue has increased to INR 215 crores. We are -- as we already said, market is tough. We are facing competition. That's why we are launching the new product. But we find that Tarson has a good brand record overall in the industry, not only in India, but also we find we are in the emerging market also. So we are quite bullish that with this kind of CapEx, with this kind of new product, the revenue will increase, but revenue will not increase in 1 year, 2 years, and we will not -- we are not able to utilize the full capacity in 1 or 2 years, we are able to utilize the full capacity in next 3 to 5 years.

Right. Sir, regarding that, that we will utilize our capacity. But sir, gross block has increased if I look at FY '21, okay, sir. Sir, we have invested closer to INR 150 crores in the Amta facility. So what kind of charges were paid for the radiation and the sterilization charges that we expect cost savings from with this in-house product. In-house -- is the process moving in-house?

Sir, we have not built the radiation facility to save any kind of cost. The objective of doing the investment in radiation facility is to reduce the dependency on the existing sole vendor in [indiscernible] if we don't build this facility, then we will face problem in the future. That was the objective in our mind. That's why we build this radiation facility. Of course, Panchla and Amta put together in the production area will have large percentage of sterile goods, which will help us to get the operating leverage going forward. Of course, we will save money also, but not immediately. So the objective was not to save money, objective was to reduce the dependency because if that outsourced factory will shut down their shop, then we have to do all sterilization from north or west part of India. So that will be quite expensive for us. So we are quite optimistic about the saving also going forward, but not in the short term.

So sir, what was the charges that we incurred for these radiation or sterilization during FY '24 and FY '25?

Basically, my radiation percentage charges is about to be 1.5% something on my top line.

Got it. Sir, my next question was, sir, we've created so much capacity, and we expect that it will help us grow over the next 3, 4, 5 years. So how has been the new customer addition either in the ODM segment? Or yes, if you could just help us understand new customer addition in the domestic market either and the ODM segment?

We are getting a good number of new inquiries in the ODM segment. We keep on getting good inquiries. In the domestic market, I think we touch most of the customers, right? Sometimes it can be the case that they don't take the good from us or they take from others or sometimes they take from us, not from them, right? So in domestic market, if you ask any customer, they know Tarsons. But in case of export market, we are an emerging company, and we keep on getting the large OEM inquiries as well as the branded goods inquiry as well.

Sir, have we been able to get into any new customers? So have we been able to get into new customers? Or have we seen an agreement or contractual, whatever it might be with our current existing customers that they will scale up their business as and when our capacity is available?

See, we are launching the new products, right? So we are not -- we were not able to supply these products in the past, right? So we are going to supply the new products to the same set of customers, right? So we are increasing the wallet share of the existing customers in most of the cases.

The next question is from the line of Shamit Ashar from AMBIT Private Limited. [Operator Instructions]

I wanted to know that you mentioned that you are getting orders from the U.S. customers, but you are not able to deliver the products because of capacity constraints. So what are your current capacity utilization? And how are you seeing those expand in the future with Amta and Panchla coming in? And which all products have you launched during this quarter? And what's your product pipeline for the year?

We have not said about only U.S. customers. We are getting good number of orders across the world. And in some of the products, the orders are spending because of our capacity constraint or some kind of machines are under commissioning. That's number one. Number two is what are the products we have launched -- we have launched many new products in last -- I will not comment on quarter-on-quarter basis. In last -- I will say, in the last 1 year, we have launched many products like we launched all the bioprocess-related products like PET, PETG bottles, roller bottles, et cetera, right? So things are quite promising for us going forward, and we are working on that.

Okay. And on the capacity utilization levels, what are those percentages?

We cannot give the capacity utilization data. The reason is that currently, we have more than 600 modes and more than 60 machines, right? And the modes of fungible, right? So it is very tough to give any kind of capacity utilization kind of situation. But on the existing plant, we can say overall, they are 80% utilized.