Transpek Industry Limited (506687) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Transpek Industry Limited Business Update Call. [Operator Instructions] Please note, this call is being recorded. Please note, this conference call 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 are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Bimal Mehta, Managing Director, Transpek Industry Limited. Thank you, and over to you, sir.

Thank you. Good evening, everyone. On behalf of Transpek Industry Limited, we extend a warm welcome to all participants joining our business call today. On this call, I am joined by our Chief Financial Officer, Mr. Pratik Shah, our Company Secretary, Mr. Alak Vyas; and SGA, our Investment Relations advisers. First, we'll start with industry overview and followed by the financial highlights, and then we will open the floor for question-and-answer session. To participants who are new to the company, please note that given the nature of our business, performance of the company must be assessed on an annual basis rather than quarterly basis. As you are aware, the Indian and global chemical industry has faced multiple challenges over past few years. Demand in consumption in major global markets, particularly China and Europe, have continued to struggle, impacting the performance of many companies. Additionally, the volatility in chemical prices have added to the challenges. Despite this, your company has reported a sustained performance for the 9 months of financial year 2025. Over the last 60 years, we have achieved expertise in manufacturing and handling chlorine and sulfur-based chemicals and have developed chemicals like Thionyl Chloride various acid chlorides and Alkyl Chlorides indigenously. We take great pride in the fact that all our products are manufactured in-house using technology developed by our dedicated R&D team. Our strength lies in handling these chemicals, which require significant expertise at site due to their hazardous nature. We are also very sustainability-focused organization and well received by our customers and certification bodies for our practices. Over the years, we have also developed a very strong relationship with clients and suppliers and build a solid reputation for quality output adhering to all global protocols practices and standards. In terms of infrastructure spend, we have multipurpose manufacturing facility at village -- Ekalbara village, Vadodara with a production capacity of 66,000 metric tonnes per annum, of which about 34,000 metric tonnes per annum is for products to be sold and rest is used for captive purposes. This year, we have written-off about INR 6.9 crores for discarding of obsolete equipment from our oldest acid chloride plant on site, as this items were no longer usable. However, there is no reduction in capacity because our replacement plant has already been commissioned. Coming to end user industries, our products find application in various industries like plasticizer, polymers, pharmaceuticals, agrochemicals, dyes and pigments. Polymer continues to be the highest contributor with more than 58% for the 9 months of financial year '25. As a part of our diversification strategy, we have identified few new products, which can find its applications in polymers as well as other markets. We typically start with pilot scale to understand the product and scalability. This effort allows us to optimize production processes, evaluate market demand and ensure seamless integration into our existing operations before scaling up to full commercial production. We have often been asked about our cautious approach to capital expenditures, either in terms of greenfield or brownfield. As we have stated in the past, we deploy funds only when there is clear demand visibility to ensure effective deployment. As part of our growth strategy, we have actively explored multiple inorganic opportunities in different chemistry value chains. In the past 2, 3 years, we have actively evaluated a few opportunities that align with our SOs and offer meaningful value addition to our customers. However, we have not yet found the right one. So we have not decided on any of the inorganic potential opportunities. Coming to financial performance. As stated earlier, the overall growth in the chemical industry has remained soft and Transpek, of course, cannot be an exception. However, at the same time, your company has reported a meaningful revenue growth despite facing challenges like aggressive pricing, steep competition and slow demand in the export market for certain products. Total revenue for 9 months, the financial year '25 stood at INR 505.6 crores, about 12% growth on a year-on-year basis. Revenue contribution from polymer stood at 58%, followed by pharma with 10% and specialty with 19%. Revenue contribution from international business stood at 86%, where rest 14% business comes from domestic market. North America continues to dominate the region-wise pie with more than 62% contribution. EBITDA for the 9 months financial year '25 stood at INR 90.3 crores or 7.6% growth on year-on basis, excluding exceptional item of INR 6.9 crores on loss of discarding of items of property, plant and equipment to open whole plant. This being one-time charge. EBITDA margins for 9 months financial year '25 stood at 17.9%, which is about 70 basis points lower than 9 months financial year '24. Profit after tax for 9 months financial '25 stood at INR 29.5 crores, a 10.4% lower on a year-on-year basis. We remain a very low debt company with a strong balance sheet. There has been a request for NSE listing. We have already initiated the process, almost -- most of the work has already been done. NSE has asked for some additional documents, which we are in the process of preparing and submitting. Once completed, we believe that we should be getting NSE registration very soon. With this, I conclude the speech and now we open the floor for questions and answers.

[Operator Instructions] We'll take our first question from the line of Nirav Jimudia from Anvil Wealth.

I have few questions to ask. So first one is on our specialty chemicals. So when we see our segmental breakup and when we compare FY '24 with this 9 months, I think our run rate has improved quite a bit in terms of the quarterly sales. So I think in FY '24, it was INR 82 crores, and now we are already at a run rate of INR 30 crores, INR 35 crores. So is it because of the fact that the demand for these products have gone up, whereby we were putting the efforts from last so many years, and this has now started yielding the fruits? Or is it because of the fact that some of the newer products have been introduced in this segment and because of which we are seeing the growth?

No. Actually, new products have not yet been introduced. There is some -- still some work is going on. But it is largely due to a little better demand that we are seeing on -- in specific couple of products. And basically, the end-user application of the customer is seeing also higher demand. And therefore, you are seeing these better numbers. And we expect that this will continue for some time because customer has already indicated reasonable visibility in terms of what they are looking at.

Got it. So the visibility is up next year also? Or for some...

Overall -- I mean, not going into specific products. But overall, our structure, the demand structure is expected to remain very similar. We are not -- at least we may not see any phenomenal growth, but we will not also -- we are not also expecting any major dip or reduction or anything like that.

Correct. And sir, when we see our other products like polymer and the pharma and compare with specialty, is it safe to assume that the specialty business has a higher margin because one of the statements in your presentation also mentioned that polymer or the acid chloride business is facing some challenges in terms of the competitive environment. So is it safe to assume that this business gives us a better margins than the polymer and the pharma side?

Not really. I mean, in polymer also, there are reasonably good margin products, and there are also normal margin products. So it's a kind of mix and match. For example, in case of polymers, as you are already aware, there are certain products where we have a formula-driven pricing. So margin remains constant, and it's a reasonably good margin that is there. And on the other hand, in a couple of other products, we could -- I mean, I'm not talking about polymers, but something else where we could play between lower material costs and better market price, so.

So just to reconfirm, the specialty chemicals business doesn't work on a cost-plus basis and it is entirely on the market dynamics in terms of the pricing.

Yes, yes, yes.

Sir, second question is on the diversification part which you have mentioned in your presentation from acid chloride. So I think we are not present in the alkyl chloride segment where the other players are there. So if it is like that way, if you can share your views in terms of the addressable market here for alkyl chlorides or what sort of CapEx would be required if we want to go into that segment?

No, no. I think let me just clarify. When you look at acid chlorides and alkyl chlorides, they are largely similar products, similar category products. Only difference is that in case of acid chloride we use acid as the base and we do the chlorination with thionyl chloride. And in case of alkyl chloride, we use alcohol and we do the chlorination with thionyl chloride. So alkyl chloride are part of our product profile. Currently, of course, there are not many products which we can call pure alkyl chlorides in that sense. When we say diversification, we are talking about products which are either acid or alkyl chloride plus. So you take acid or alkyl chloride and you make some other products out of that by some value addition or totally -- entirely a different product where chlorination doesn't feature. So for example, there is one product which requires nitrogen chemistry, okay? So that's -- when we say diversification, we are largely talking about nonacid, non-alkyl chloride.

Okay. Okay. And sir, when we interacted last time during conference call, you mentioned that, our target is to get 30%, 35% of our business from the higher-margin products, where the margin typically are between 22% to 23% as compared to the 16%, 20% band here. So if you can share your thoughts here, where are we currently or in terms of some sort of revenue what we are currently getting from these products? And over the next 1 or 2 years, how do you see this business taking forward?

So right now, we are working on 3 products of that category. Of course, there are more products. When I say working on 3 products, these products are like we are already at a stage where customers are evaluating the samples that we have given. And with one customer, we believe because their end user or end customer is expected to approve their product end of March. And so we believe that, that product will start to gradually go on stream for us around April or May. And it will be a very small quantity to start with. But eventually, it will see a significant revenue coming from that one particular product. And it will be -- of course, it will be a little higher value adding also in terms of margins and in terms of overall price. Another product that is being evaluated by another customer. That, I think, is going to take some more time, which I would say probably around August or September, we should get clear idea, because the validation in that particular product case takes much longer time because it has to be done on field. So they use our product, then they will make something else, that something else will be put into something, and that will be used for field test. So it is not expected to be clear whether our product is finally approved or not by September. In case of third product at lab level, our product has been approved. Customer has indicated that they would probably start buying small quantities from June onwards. So we believe that next year is going to be kind of a starting point for these 2, 3 products, it may not give any significant revenue within next 8, 10 months. But it will be beginning of something which is -- which can eventually lead to a good volume and good margin.

Last clarification -- yes, yes, it's just a continuation of my existing question only. So -- just a last clarification that when you mentioned that it is a substantial product in terms of the number, first products you mentioned about. So substantial, meaning can it reach a revenue of INR 80 crores to INR 100 crores whenever it is ramped up?

Yes.

We'll take our next question from the line of Ishan Thakkar from Fort Capital.

Sir, I have a couple of questions. So one is on the non-acid chloride space. So we have already started supplying non-acid chloride products to our end user customer, right?

No, no, no. No non-acid chloride products right now are being supplied in commercial scale. Whatever we are giving is more like testing the samples and either sample maybe of small quantity or sample maybe of a product and lot, maybe 1, 2 tonnes or something like that, but commercial supplies are yet to start.

So that is for the which end user industry?

In respond to the previous question. Next year, we will see some of these products getting into commercial products and on a gradual basis.

And which end user industry that product?

2, 3. I mean one is, of course, polymer, another one is battery chemicals, other 2 battery chemicals.

And that is for the domestic or export also?

One is for export. One is for domestic manufacturer who is then ultimately going to export its final product. We will supply to a local manufacturer and then they will use it to make something else and then they will export outside.

We'll take our next question from the line of Pratik Kothari from Unique PMS.

Yes. Sir, one on acid chloride, I mean you did touch upon the non-acid chloride and the potential there. But I believe last year, we had launched a few new acid chloride products. So if you can highlight the ramp-up which has happened there and the demand of the acceptance?

So 2 acid chlorides have coming to manufacturing. And one is right now gradually ramping up, that's going to U.S., one customer to U.S. And I think they have taken 2 lots. And almost the evaluation -- I mean, when I say evaluation, commercial level evaluation is almost over. So we believe that it is going to now ramp up. Another acid chloride, which is going to one of the South American country. And that helped us -- I mean, that is helping us into 2 ways, one is of course, adding one product, as well as adding one country and basically diversifying or rather reducing concentration on U.S.-only significant concentration on U.S. So that, I think, should probably around next year, should see, I think that product, we should see a good reasonable volumes. Right now, just to give you an add-on to this information, most of the customers are very cautious in building up inventories. So even though they may have indicated that, okay, this is going to be the order sequence or order pipeline, the quantity remains same, but the timing kind of increases because sometimes they don't want to build inventory or if their product and schedule gets changed -- in earlier times, when there was not so much uncertainty, most of the customers were very happy to build inventories. So we have to also align with them in terms of our overall supplies. But we -- as I said, I feel that -- or I believe that it is going to be next year when we will see some pickup in this couple of acid chlorides.

Right. So fair to assume that, I mean, these 4, 5 new products, 2 in acid, 3 in non-acid, I mean you would be starting with one customer, but then we can kind of map out to either other geography or other customers?

So right now, see, what we are doing is that we added couple of customers in Eurasia. 2 customers in South America. Of course, some of them are existing products. And we are working with almost 4 or 5 customers in Japan. Talking to 1 more customer again in one of the South American countries. And at the same time, working with a couple of domestic customers for some more products. So overall, about 6, 7 new customers in different geographies, even more than that, almost 8, 9 more customers. And couple of new -- 2, 3 new geographies we are looking at.

And at today's price and the capacity which we have, I mean, just to reconfirm, about INR 900 crores is what we can do on the installed base currently?

Yes, yes, yes.

And sir, last, on the long-term DuPont order, I mean how long was that -- because it's been I think 6, 7 years since you have signed. So is that up for renewal, or is still...

No, no. It's a 10-year contract. So whatever needs to be done is yet not ready. I mean it's not ripe enough for discussion on extension or anything, probably about 1 -- maybe 1 and 1.5 years' time, the discussion will start on the renewal. Currently, their demand is steady, nothing significant in terms of drop or increase. As you may have seen, DuPont's results were pretty good. So they are doing reasonably well in their own businesses. And overall, we are very clear that we -- at least we should be able to sustain what right now they are buying.

And sir, currently, we are at about...

I request you to join back the queue as we have other participants waiting for their turn. We'll take the next question from the line of Richa from Equitymaster.

Thank you for the opportunity.

Sorry, your voice is not clear. You're sounding muffled.

Is it better now?

No, we still can't hear you.

Okay. Let me know if I'm sounding...

Now, it is a little better, yes.

Sir my question is, could you help us with the utilization levels at present? Volume and utilization level?

Sorry, you are talking about current utilization levels, right?

Yes, yes. Capacity utilization, yes.

About 65%.

And sir, if I understood it right, with this [indiscernible] arrangement that you have, you're confident of maintaining at least the same quantum of supplies. I mean the entire talk about renewal is not that it will go away, right? It's at least the current quantum will sustain. When it is due for renewal, I think.

What I just mentioned is that for the remaining period that is out of this agreement, which is whatever is remaining period, we do not see any major change in terms of demand or supply unless, of course, the real for -- the real estimate can only be been done for 1 year in 2 days' time, 1 year is also a pretty long time looking to the volatility and uncertainties. But we believe that in, largely we will maintain what we are supplying until the contract -- this current contract ends. Naturally, there will be discussion on renewal of contract, how the renewal will happen, what will happen that right now, we do not have any understanding or any information.

And sir, [Technical Difficulty]

I'm sorry, we can't hear you again.