The Sukhjit Starch & Chemicals Limited (SUKHJITS.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to The Sukhjit Starch & Chemicals Limited Q2 and H1 FY '26 earnings conference call hosted by MUFG Intime. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aman Setia. Thank you, and over to you, sir.

Thank you, ma'am. Good evening, ladies and gentlemen. I, Aman Setia, Senior VP, Finance and Company Secretary of the The Sukhjit Starch & Chemicals Limited, extend a warm welcome to all of you joining us today to discuss our Q2 and H1 FY '26 results. We appreciate your continued confidence in the company. Our results have been uploaded on the stock exchanges as well as our website for your kind reference. Joining us today from the management team are Mr. Dhiraj Sardana, Senior VP and CEO; Mr. Bhavdeep Sardana, Senior VP and CEO; and Mr. Rakesh Chawla, Senior VP and CFO. To begin, I shall invite Mr. Rakesh Chawla, to present the financial highlights for the quarter and half year ended September 2025. Thank you.

Good evening, everyone, and thank you, Mr. Setia. During Q2 financial year '26, Sukhjit recorded revenue from operations of INR 312.68 crores against INR 367.20 crores in the previous quarter. EBITDA for the quarter stood at INR 20.05 crores against INR 19.89 crores in the previous quarter. Net profit at INR 4.07 crores against INR 4.75 crores in the previous quarter. Revenue from operations during H1 stood at INR 679.88 crores against INR 753.7 crores in the previous quarter. EBITDA for the half year stood at INR 39.94 crores against -- sorry, EBITDA for the half year stood at INR 39.9 crores and net profit at INR 8.82 crores. We have maintained healthy capacity utilization across all our plants, supported by better maize procurement, inventory and working capital levels were managed prudently for a tighter supply chain coordination and efficient plant planning. I will now hand over to Mr. Dhiraj Sardana for an update on the business environment and operational development. Thank you.

Thank you, Mr. Chawla. Good evening, everyone. The second quarter witnessed steady improvement in demand from key sectors, including food processing, paper and textiles, while the pharmaceutical and packaging segments continued to show resilience. The starch industry in India has remained stable overall. Maize prices have started softening gradually through September end due to better arrivals from the kharif crop and supportive government policies, encouraging higher maize cultivation. This has helped in moderating our input costs. On the production side, our units operated efficiently, supported by steady raw material supply and energy cost rationalization measures. With the raw material environment stabilizing and demand remaining firm, we are sensing signs of sequential improvement in operating performance. This sets the constructive tone for the second half of FY '26. I'll now request Mr. Bhavdeep Sardana to share some more insights into strategic initiatives and business outlook. Thank you.

Thank you. Welcome to our call. As mentioned, we had stable operations supported by good raw material availability and visibility going forward. We can see green shoots in the economy from -- and from the key end-user segment. 22nd September marked a date of GST rationalization and gave us an impetus in looking at -- as we go into the next quarter, we hope that we catch the consumer demand. On the efficiency front, we planned various multiple cost optimization measures, improving yield and energy efficiency. We have recast our product portfolio to service the demand in this, what has been a challenging quarter and going forward to optimize profitability. And we hope that the results will follow. Without taking more time here, I open the floor to questions.

[Operator Instructions] The first question comes from the line of Saurabh from Banyan Capital.

Just one question in terms of from an industry perspective, any change since the last quarter because exports we are not competitive, given the raw material and given the excess supply. And obviously, that reflects on the margins also. So any change? And secondly, how you're thinking about that from an overall business standpoint?

So thank you. I think you -- I remember our conversation in the last call. It's -- the industry is at a pivot point. And I think the competitiveness of Indian starch manufacturers exporting, I think it's restarted again. Maize cost in India is what -- is at a level which is equal to or equivalent to what our competitors in other countries would be getting at. So I think that's a very good sign. And I think for the short term, we will start seeing export activity and it will build up in the medium term. So I think 1 quarter -- this quarter onwards, I think export should start to pick up as and when the export customers get into their ordering cycle.

Okay. And also, how do you think about -- see the big delta here is in terms of the maize pricing, right? So again, just wanted to get your thoughts? So today, the price [indiscernible] but what do you think would be sustainable, let's say, over the next few quarters, obviously, there are multiple moving parts. So I just wanted to get your sense on how you're thinking about it because that's a critical aspect from a business point of view for you.

As a company, we -- from what we've seen amongst the moving parts, which you mentioned, there's the government sourcing policy for ethanol. There is a glut in the ethanol market. From 1,600 crore liters offered, the government only took 1,000 crore liters, 50% of what the government bought is from maize, saying that government has -- wants to offer -- empty the old paddy stock, the rice stock which they carry to make way for new crops, so that has a play. And with the recent spikes in maize prices, which we've seen, there is a considerable area under acreage increase in certain areas. So we are seeing a crop, which is now touching 40 million tonnes. And with these policies in play for that -- at least for the next couple of quarters, I'm hopeful that the current trend of -- in India price of maize will be in line with the global pricing.

[Operator Instructions] The next question comes from the line of Malini Gupta from Lat Capital.

I have one question. Despite the lower raw material cost, the margins remain subdued. So if you can give us some brief on that? What are the factors that offset the benefit of the softer maize prices?

See, maize prices have started softening now in the last month. So for September, there was not that much of a big dip. However, as a company, we try to protect our profitability. So you can see that they were defensive sales, our sales numbers are down, but we wanted to remain profitable. We did not get into a price war, et cetera, et cetera. But we also had -- as soon as the government announced GST rationalization and it came up with an indicative list of which products will come, so there was a pause in demand from the trade for a period. And by the time, after the 22nd of September when business restarted in a way, the demand has been good.

Sir, one more question I had. What is your margin outlook for H2? And when do you expect a normalization towards the historical levels?

See, I'm expecting improvement from here on. How much improvement, I will not hazard a guess. But I can safely say that things are improving. And if the government policies continue the way they are and if India's exports, which we are hoping our industry exports start, the capacity utilization across the industry will increase and it will further add to margin improvement for the entire industry, not only Sukhjit.

Okay. And sir, are there any operational cost control initiatives which you're going to implement in the near future?

Pardon. Operational cost?

Yes. Any initiative to control the cost in...

That is an ongoing process. It is an ongoing process, and we are always looking at where we can save and add to our margins. So that's an ongoing process.

[Operator Instructions] The next question comes from the line of Varun Mishra from SK Investments.

I had a couple of questions from my end, sir. Like what is the current maize procurement price? And how has been the trend since Q1, if you could help with that?

So Q1 price at the farm yard was around -- between INR 22 and INR 23. Today, it is between INR 19 and INR 20.

And a follow-up on that question, sir, like what's the current inventory coverage in terms of like in months? And do we see any risk from the ethanol-based maize divergence?

So I think I've answered that before, and it's been answered many times. As a policy, we try to have a coverage between 40 to 60 days depending upon the opportunity we see at each unit.

Sorry, I might have joined a bit late in this call. And sir, are you seeing any like regional supply constraints or any transport cost pressures like which is impacting our procurement efficiency?

No, not at all. I think it's improving. The freight costs are also getting reduced and will get further reduced with the government initiatives. There's no constraint whatsoever. In terms of maize availability, maize is grown in areas in -- which are in proximity to our plants. And the seasonality in the maize arrivals has a big effect. So right now, Central India is going through a maize arrival season and rather it's just starting. It's been about 20, 20 days, and it should carry on to the next 40, 45 days. And we should see a good healthy maize crop.

And so like for the maize sourcing, like do we have a fixed price, could you give a split for that? How much comes in the fixed price and how much is like under forward contracts?

So there is no fixed price. It's a dynamic price. We see the trends. We offer to our aggregators. We tell them this is what we want to buy. And it's like on how any contract is, so we do it that way.

[Operator Instructions] The next question comes from the line of Anika Deshmukh from VSK Advisors.

So I have a couple of questions. First being like the consolidated revenue declined sequentially and year-on-year. So could you help me break down that how much of this decline was due to lower volumes versus pricing pressure?

I won't give you the exact mix, but it's a mixture of both. So maize prices -- maize starch prices have also [indiscernible] and our plant utilization, we willfully chose to scale down rather than produce. And in the advent of a weak market scenario, especially during the September period when there was a certain uncertainty or there was a hesitancy in the trade due to GST rationalization happening.

All right. Another question being that are there any specific end-user sectors like FMGC, textile, or paper where demand softness was more pronounced?

Yes. I mean you -- I'm sure if you heard all the CEOs of the FMCG companies, their various segments got impacted. Naturally, that impacted all other ingredient suppliers as well. However, certain sectors continued to do very well. Paper and packaging, pharmaceuticals have shown resilience in demand and I think with the GST rationalization, even FMCG has come back into a fairly bullish cycle than before.

[Operator Instructions] The next question comes from the line of Deepak Shah from Investing Alpha.

I would like to know like what is the current revenue mix between native stock derivatives and byproducts?

We don't share that. That's confidential.

Okay. Okay. No problem. I can understand. And another question would be any progress in product approval with FMCG or pharma clients for higher-margin derivatives?

Yes. So we are on it. We've had some onboarding. So it's a regular process. It's business as usual for us. We are looking -- we are always looking to add new customers, new clients across our units. And so we keep adding and it's a cycle which we go through regularly.

Okay. And so what will be the typical approval cycle and potential revenue and timeline?

It depends on customer to customer and say somebody who is small with a single unit or a small requirement, it could be as fast as 2 months. If it's somebody more complicated, and they want to integrate you in a global supply chain, then it could take up to a year.

[Operator Instructions]

I think we can start with the concluding remarks.

Okay, sir. Just a moment. As there are no further questions from the line of participants, I now hand the conference over to the management for closing comments.

Thank you, ma'am. I, on behalf of Sukhjit, would like to express my gratitude to all of you for joining us today, sparing your precious time for us. We hope to see you back in our next con call. If you still have any queries and questions, you may write to our Investor Relations agency, MUFG Intime India Private Limited. Thank you, ladies and gentlemen. Thank you so much.

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