Yasho Industries Limited (541167) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Yasho Industries Limited Q1 and FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Sejal from MUFG. Thank you, and over to you, Sejal.

Thank you, Danish. Welcome to Yasho Industries Q1 FY '27 Earnings Conference Call. From the management today, we have Mr. Parag Jhaveri, Managing Director and CEO; and Mr. Chirag Shah, CFO. Before we proceed with the call, I would like to give a small disclaimer that this call may contain certain forward-looking statements, which are based on business operations and expectations of the company as of today. These statements are not guarantees of future performance and involves risks and uncertainties, which are difficult to predict. A detailed disclaimer has been given in the company's investor presentation, which is uploaded on the stock exchange. Thank you. Now I would like to hand over the call to Parag sir. Over to you, sir.

Good evening, everyone, and thank you for joining us today. On behalf of Yasho Industries Limited, I warmly welcome all of you to our earnings call for the first quarter of FY '27. The last quarter has been a good start to the financial year for the organization. The company achieved its highest quarterly revenue of INR 308 crores, driven by a 42% increase in volume on a year-on-year basis. During the quarter, the company received several approvals from key global customers in our Industrial Chemicals segment. This helped the company increase volume offtake and enhance capacity utilization of our facilities. This increased utilization of our facilities as well as improved product mix helped increase our EBITDA margin from 17% to 24%. The management is confident to sustain the EBITDA margin of its current quarter going forward on account of improved product mix and better capacity utilization, which is backed by commitment from key customers. Looking at the market conditions going forward, approval from key customers, long-term supply contracts and commitment from marquee customers that the company has already placed -- has in place, our company has revised our FY '28 revenue target to more than INR 1,600 crores. The investment we have made in manufacturing capacity, product development and customer relationships are helping our organization to scale and pursue larger growth opportunities. The company continued to invest in R&D, which today has more than 50 scientists. Our R&D pipeline is aligned with our customers' needs, and we have projects ongoing that will help the organization continue to grow for the coming years to come. We continue to prioritize products that can achieve meaningful scale and contribute significantly to long-term revenue growth. Accordingly, we have decided to enhance our planned capital expenditure for FY '27 from INR 125 crores to INR 250 crores. The supporting infrastructure for this CapEx is already in place. The investment will primarily be directed towards constructing 2 new production buildings at our Pakhajan facility, which will be dedicated to manufacturing several high-potential products already developed through our R&D efforts. Export continue to remain a key pillar of our business, contributing approximately 69% of total revenue. We further strengthened our presence across the international market, particularly in Asia and Africa, while continuing to deepen relationship with customers in our existing geographies. Industrial Chemicals remain our primary growth segment, contributing nearly 89% of total revenue during the quarter. Capacity utilization at our facilities improved to 65%, supported by the successful ramp-up of capacities commissioned at our Pakhajan plant. We also continue to make a good progress on our long-term agreement, and the project remains on track with commercialization expected in Q1 FY '28, in line with the planned execution schedule. We remain committed to delivering sustainable value creation for our investors. Based on current market conditions, customer inquiries and commitments, we are targeting 30% to 40% annual revenue growth over the next few years. I would like to sincerely thank our customers, shareholders, employees, business partners, lender and the Board of Directors for their continued trust and support. With that, I now hand over the call to our Chief Financial Officer, who will take you through the financial performance for the quarter in greater details. Thank you.

Thank you, and good evening, everyone. The company maintained its strong growth momentum in Q1 FY '27, reporting consolidated revenue of INR 308 crores. For the quarter, EBITDA stood at INR 74.42 crores, translating into an EBITDA margin of 24.2%. The strong profitability was driven by higher volumes, a favorable product mix, improved operating leverage and disciplined cost management across operations. Based on the current outlook, company will endeavor to maintain current margins going forward. Profit after tax for the quarter stood at INR 36 crores, resulting in a PAT margin of 11.7%. An important validation of our progress came during the quarter through the upgrades received from both CRISIL and ICRA, which upgraded our bank loan ratings from BBB plus to A minus. Our net debt-to-EBITDA ratio improved to 1.86x as of June 30, 2026, compared with 3.75x at the end of Q4 FY '26. This reflects the combined impact of higher operating earnings, improved profitability and disciplined financial management. We also achieved meaningful progress in working capital management. Our working capital cycle improved from 190 days to 143 days, supported by better inventory planning, improved receivables management and tighter control over cash deployment. During the quarter, we incurred capital expenditures of INR 18.73 crores, primarily towards ongoing expansion of our Pakhajan facility. As highlighted earlier, we have increased our FY '27 capital expenditure plan to INR 250 crores in order to support additional manufacturing capacities for upcoming product commercializations. To fund this expansion, the company expects to raise approximately INR 100 crores through borrowings during FY '27. Overall, the quarter demonstrates strong profitability, improved leverage metrics, better working capital efficiency and a significantly stronger financial position. These improvements provide a solid foundation to support our next phase of growth while maintaining a balanced and disciplined approach to capital allocation. With that, I conclude my remarks. We will now be happy to take your questions.

[Operator Instructions] The first question comes from the line of [indiscernible] with [indiscernible].

Congratulations on a good set of numbers. Sir, my question is firstly on this quarter, we can see the benefit of price revision we did in April and also some JD operating leverage, right? So is it possible for us to maintain the similar set of margin going forward? And let's say, here then why are we so much confident on sustaining the margins? Because, let's say, even if we see normalization in the supply chain and the pricing, then also we were able to maintain the margins?

First and foremost, the company achieved a better performance for the selling higher quantity rather than the better realization of the old stock. So let me clarify that, that the company has achieved this with the right product mix, capacity utilization, which has helped us to leverage all the facility, and not with the stock, what you are concerned. So that gives the confidence. Number 2, we do have some commitment from our marquee customers, which is helping us the confidence to give the guidance that we will be able to maintain in the coming quarters also the similar EBITDA margins.

Got it. Wonderful, sir. There were additional offtake by customer this quarter, right? So you mentioned in the presentation. So was any part of this offtake was preemptive buying by customers ahead of any anticipated tariff to the inventory that they were getting last year or this amount of volumes can be sustained from customer, yes?

I have very well said that we have a customer commitment, and we are expecting the similar growth in coming quarters.

Got it. So should I assume that volumes will even grow sequentially quarter-on-quarter?

It should grow.

Okay. Got it. Got it. And sir, one last question, if I can ask.

Yes, go ahead.

Sir, you have also mentioned that we have foray into Asian and African geographies, right? And this is something new for us. So what are the developments there? How are we expecting ramp from this geography? And if you can explain the margins compared to U.S. and Europe in these geographies?

Well, this is still we are developing the market. We just made some inroads in this market, and we see a good results and customer acceptance to us. So that is a good sign. And the margins are at par, I can say that, or maybe slightly lower, but nothing to be an alarming low side.

Export, let's say, 69% of the revenue -- sorry, 69%, 70% of the revenue in Q1, which is unusual. Usually, the export is towards higher than Q4, and Q1 is a little bit deeper for us. So should we assume that export mix will change in FY '27 and FY '28 towards suppose 75%, 80%? Or how are you seeing the export mix for the business?

I think we -- in past also, I said that we are expecting export to go to 70%, 75% range, not 88%, by 90%. I don't know how you get that number, but let's -- we don't make assumption. We want to be on a grounded, and we don't expect anything to grow beyond 70%, 75% exports.

Can we allow somebody else to come in line?

Yes, yes, sure.

Our next question comes from the line of [ Nishita Shanklesha ] with Sapphire Capital.

I just wanted a better understanding on the CapEx that we are doing. So you mentioned that the total CapEx amount is going to be for INR 250 crores for the 2 buildings that we are going to build at the Pakhajan facility. So just wanted to understand what are the products that we're going to manufacture there? And like what is the opportunity size for those products? Also, what will be the total capacity for this additional CapEx? And what will be the revenue potential at peak utilization of this facility?

Well, currently, we already mentioned about INR 800 crores peak utilization as of the 31st March capacity. Going forward, we already given guidance for FY '28 also that we are expecting to grow more than INR 1,600 crores. So peak will be very high, but we need -- we will take a time to ramp up the facility too. And the product what we are going to produce is all Industrial Chemicals that we intend to do here. A couple of existing products where the capacity will be increased and some new product has been introduced. So that will be produced. And as far as the capacity is concerned, I'm not sure what capacity that we stopped disclosing the actual capacity of the plants.

Right. And we expect this facility to be operational by Q1 FY '28?

A part will be FY '28 and part will be somewhere by end of the last quarter of FY '28. So it will take a time because construction building and then the machinery erection and the stabilization will take at least from 15 months, minimum 15 months.

Right. So like we are doing this in 2 phases. So the first phase will be operational by Q1 FY '28 and the second phase is operational by Q4 FY '28? Is that understanding correct?

Yes, that's true.

Right. Like so if you can distribute the CapEx also, like in the first phase, how much CapEx are we going to incur?

In the first phase about INR 100 crores, and second phase will be INR 150 crores.

[Operator Instructions] The next question comes from the line of Parth Agarwal from Bastion Research

Congratulations on the good set of numbers. I just have 2 questions. So one is obviously you said on the margin that is sustainable level. But Parag, we have been asking this question for a long time. And you have always said it's between 17%, 18% to 20%. But this quarter, it's at around 20% to 24% and you are saying that's sustainable. So I just want to understand what has really changed because historically, we have always been said that this is the kind of range we were operating at.

The first and foremost thing is changed as a leverage. The capacity utilization, which was at 50% at the company level, it has gone to 65% with an increased capacity. Last year also, we did some CapEx. So that has helped us. Number 2, the customer offtake has happened. And number 3, the number of -- the product mix has changed at some level. So these 3 factors has helped us. And the underlying factor is our strong R&D support to bring this product online and also to optimizing the processes. So that is multiple factors are helping us to improve the margin. And we feel that now we should be able to maintain this margin going forward.

Got it. And also the new capacity that you are putting in, I remember that you've done some R&D some time back and you said that the new molecule was under development and you will make an announcement around that soon. So is this new capacity that we are doing for that new molecule that has finally come into the commercial stage?

Yes, few are the new molecules and few for existing products.

Got it. And is it on the lube side and it's more on rubber chemicals or --

It will be on the Industrial Chemical side. Sorry to say that.

Our next question comes from the line of Pujan Shah with Molecule Ventures.

My first question pertains to the previous participant. So just to understand as we have been developing the new molecules, so we always aspire molecule size of around INR 50 crores to INR 100 crores. So are the new molecules has been in the range of -- or it has been more than that?

Initially, it will be in that range only. Let's start pushing in the market. We'll see how the response and then we will think further to increase the capacity or not. But to begin this year, that's the revenue what we are expecting from this new molecule.

Okay. Got it, sir. And sir, we always -- due to our brownfield CapEx spree, we are stating our asset turn would be around 2.5 to 3x as we commissioned the new plant in the same facility, Pakhajan. So should we consider in the same range of commissioning of INR 250 crores of CapEx?

I think, yes, that we will add to 2.5x of the CapEx, we should get the revenue. So yes, that's a fair assumption.

And capacity utilization for the new CapEx will be around 65%, 70% in FY '29?

FY '27, we are expecting to ramp up to 75% utilization.

No, no, I'm talking about the new facility, which will come.

New facility, yes. But see, end of the day, it will become as a combined capacity. We will not have a new old capacity. Everything becomes one capacity. So we want to maintain a healthy run rate of 70%, 75%, then that gives us a boost to make a further investment unless until there's no point making investment. So we start looking at a new investment once we cross 60%, 65% looking at -- and then before we go to the roof, we want to have additional capacity available already for us. So that was our reason to start construction of the 2 buildings simultaneously. We know that the first building is -- third building going to fill completely. And fourth building, we have a number of products, which is in pipeline somewhere at the 12 level or some other level. So we don't have to wait another 15 months for the capacity to come up.

Got it. And sir, in the new agreement, what we have been entered in FY '28, are we seeing any green shoots from other OMCs players also to get a contractual agreement for a long term, or we are getting any inquiries for which we can have a stable revenue run rate like what we have in the OMC agreement?

I have already stated in my statement in my earlier opening remarks that company has a commitment from many more marquee customers on a long-term supply arrangement. So the one which we disclosed were the finance involvement there. In the subsequent agreement, there is no finance involvement. So we don't have a practice to disclose that. And also, we have a kind of NDA, so we can't name the customer.

Got it. And my last question would be, have you seen any incremental capacity being added by any Chinese player which can impact our realization going forward? Do you see any dumping kind of a situation altogether? Or we are very sure about our realization will be stable from here on?

Well, again, again, I don't know I'm repeating again this answer, that of a $12 billion to $15 billion addressable market, you have to aspire to become $200 million, $300 million. I don't see that as a challenge. And always the customers are looking for an alternate supply chain. So that's not a challenge. We are not aiming immediately to $0.5 billion, $1 billion revenue. We are just talking about $200 million, $300 million revenue.

Got it. And sir, last time we have talked about a price hike of 10% to 15%, which we are going to pass through. So have we passed through that price hike because we have said that volume growth was 42%, while our revenue has achieved 60% Y-o-Y. So have we passed on the price hike, or we are still retaining to keep our customers engaged?

No. Generally, we don't do that. We are very firm on our quarterly pricing with customers wherever we have quarterly pricing. So that has helped us. And the March prices has helped us negotiation for the Q1 negotiation or wherever we have a 6-month negotiation. So we had a lot of hint that the raw material prices are going, and we could negotiate better with our customer.

Got it. And similar price has been there, right, in April to June as well?

If you don't mind, can you come in the queue?

Sure.

Our next question comes from the line of [ Amar Moria ] with Lucky Investment.

Sir, what would be our revenue contribution from Pakhajan plant in this particular quarter?

Good question. Honestly, I need to check that. But it's growing quarter-on-quarter revenue contribution is coming going from the Pakhajan plant. Since I have only the company-wise number, I don't have a unit-wise number.

Okay. Okay. But then when you say that this year as a whole, we are going to have a 75% kind of utilization number, that you are talking about the Pakhajan plant, right?

No, I'm talking about the Yasho. I'm talking about Yasho Industries' capacity utilization. I'm not talking about the single unit capacity utilization.

Single unit. Got it. But then any idea, sir, how the Pakhajan plant utilization would be in this quarter -- in this year as a whole?

Well, Pakhajan is ramping up quite well, very well, and that is supporting the overall growth of the company's utilization.

Okay. Okay. But then at the end of this year, we'll be at 70% kind of utilization for Pakhajan?

Again, I will say about Yasho, at company level utilization. I will not...

Because of Vapi is more or less 95%, 98% utilized...

You can make assumption. You can make assumption. I will not make statement.

Okay. Okay. And is it like this quarter, we have seen a 42% kind of a volume growth, correct?

Yes.

Okay. Okay. So there is a 17%, 18% of price increase. So this price increase is likely to sustain?

As I said earlier, we pass through price every quarter-on-quarter. So the -- see, generally, our prices are based on raw material cost with our long-term suppliers or the marquee customers. It's not a market-driven price, but it's a formula-driven price. So price goes up, we get a better price. Goes down, we have to reduce the price. It's as simple as that, very simple theory here. .

Okay. So in this case, what happens? Your EBITDA per kg remains constant or the EBITDA percentage remain constant?

EBITDA percentage remain constant, not per kg, but the percentage.

[Operator Instructions] Our next question comes from the line of [ Disha Chamarya ] with [ Trinity Asset Managers ].

My line was disconnect, so maybe the question might have been answered. But can you tell me what's the exact utilization level across the key manufacturing facilities during Q1?

You are not clear or you have a lot of background noise. Can you just repeat your questions, please?

Yes. My question is what was the utilization level across the key manufacturing facilities during Q1?

It's about 65% -- 60% to 65%.

Got it. And one more question about the specialty product portfolio that we have. What is the revenue contribution from the product commercialized in the last 18 to 24 months? And what is the contribution that you think will be from these products in the next 2 to 3 years?

Well, I think we have gained over the last 2 years, almost about 30% revenue contribution come from a new product line. So we have grown from INR 600 crores to today INR 850 crores in last year. All addition came from the new chemistry. And then we are expecting to ramp up further. So we see whatever the growth will come will only come from the new product chemistry. It will come from there. No doubt, we launch this sometime product from a different plant and then we scale it up depending on the market response, so it's difficult to say how quickly, how soon. But whatever new realization will come, it will definitely come from the new chemistry only.

Got it. And last question is, from the medium-term growth perspective, beyond this FY '27, which business verticals, like antioxidants, lubricant, aroma chemicals, specialty intermediaries, which one of these do you see as the largest contributor in the incremental revenue and profitability?

I think all our industrial chemical range will deliver the incremental growth. And we do expect to grow more than 90% in coming quarters.

Got it, sir. Just one last question. Should we have top 5 or 10 contributors of our revenue number?

Have a product-wise?

No, sir. Revenue-wise.

I don't have customers, sorry.