Ion Exchange (India) Ltd
NSE:IONEXCHANG
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Earnings Call Analysis
Q2-2024 Analysis
Ion Exchange (India) Ltd
Ion Exchange (India) Limited has reported a robust performance in Q2 FY '24, exhibiting an operating income surge of 19% year-on-year (YoY) to INR 5,330 million. EBITDA grew by 13% YoY, reaching INR 604 million, and profit after tax (PAT) increased by 10% YoY, resulting in a PAT margin of 7.95%. The first half of FY '24 echoed this positive trajectory with a 22% increase in operating income (INR 10,122 million) and a notable 27% rise in EBITDA (INR 1,092 million). Despite a substantial year-on-year growth of 14.5% in net profit (INR 757 million), the PAT margin saw a minor contraction to 7.48%.
The Engineering division has been a cornerstone for growth, witnessing a 22% increase in revenue (INR 3,139 million) and a 7% rise in EBIT. Orders continue to stream in, with medium-sized jobs contributing to the healthy order flow and several high-value opportunities in the bidding pipeline. However, execution delays impact the UP Jal Nigam order and ISA contract. Procedural delays and on-site issues have hindered progress, leading to lower-than-expected execution rates. Management remains optimistic about an acceleration in the latter half of the year, expecting to resolve these issues and significantly ramp up execution pace.
Internationally, the focus has been on the Sri Lanka order, which progresses, albeit slowly, with a target for completion by the end of FY '24. The Chemicals segment has demonstrated a 10% growth in revenue to INR 1,762 million and a 12% increase in EBIT, underpinned by sustained margins and cautious monitoring of input costs, which are susceptible to global geopolitical tensions.
The Consumer division has built on its prior performance, registering a noteworthy 27% YoY increase in revenue to INR 576 million. This growth underscores continuing momentum across quarters, demonstrating the division's resilience and consumer demand strength.
In terms of financial health, Ion Exchange is proactively building up inventories in anticipation of higher execution in the upcoming quarters. As a result, there has been a marginal increase in the overall working capital levels, which is expected to normalize to the previous year's metrics as progresses are made. The payoff of payables, particularly pertaining to the Sri Lanka contract, has contributed to a reduction in payable days, diverging from previous trends of extended creditor periods.
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Ladies and gentlemen, good day, and welcome to Ion Exchange (India) Limited's Q2 FY '24 Earnings Conference Call.
[Operator Instructions]
Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, Mr. Sonpal.
Thank you. Good afternoon, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Ion Exchange (India) Limited. On behalf of the company, I'd like to thank you all for participating in the company's earnings call for the second quarter and first half of financial year 2024.
Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions.
The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Let me now introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We have with us Mr. Aankur Patni, Executive Director; Mr. N. M. Ranadive, Group Head of Financial Planning and Risk Management; Mr. Vasant Naik, Group Chief Financial Officer; and Mr. Milind Puranik, Company Secretary.
Without any further delay, I request Mr. Vasant Naik to start with his opening remarks. Thank you, and over to you, sir.
Thank you, Anuj. Good afternoon, everybody. It is a pleasure to welcome you to the earnings conference call for the second quarter and first half of the financial year 2024.
For Q2 financial year '24 on a consolidated basis, the company reported an operating income of INR 5,330 million, an increase of around 19% year-on-year. EBITDA was reported at INR 604 million, an increase of around 13% year-on-year. And the EBITDA margin stood at 11.33% with a net profit of INR 424 million, an increase of around 10% year-on-year. The PAT margin stood at around 7.95%.
For the first half of financial year 2024, on a consolidated basis, the company reported an operating income of INR 10,122 million, an increase of around 22% year-on-year. The EBITDA was reported at INR 1,092 million, an increase of around 27% year-on-year. The EBITDA margin stood at 10.79% and net profit was at INR 757 million, an increase of 14.5% year-on-year with a PAT margin standing at 7.48%.
In the Engineering division, the revenue for the quarter was INR 3,139 million, an increase of around 22% year-on-year. The EBIT for this segment was INR 194 million, a growth of 7% year-on-year. The segment continues to witness a healthy order flow of medium-sized jobs. The inquiry bank remains robust with some large volume value opportunities in the advanced stages of bidding. The Engineering segment recorded improved volumes in the second quarter on back of a healthy order backlog. The execution of the large EPC job, including the UP Jal Nigam order, is expected to further pick up pace in the second half of the year.
Regarding the Sri Lanka order, the work continues, albeit at a very -- at a limited pace, and we are targeting closure by financial year '24 end. As regards to the Chemicals segment, the revenue for the quarter stood at INR 1,762 million, an increase of 10% year-on-year, and EBIT stood at INR 423 million, representing a growth of 12% year-on-year.
The margins remained healthy and were maintained at previous quarter level. We continue to monitor the impact of input price increases due to uncertainties in the global geopolitical situation. In the Consumer division segment, the revenue for the quarter was INR 576 million, an increase of 27% year-on-year. The segment has sustained the growth witnessed in the past few quarters. The company's merger application in respect of its Indian subsidiary companies with the parent holding company has been filed with the competent authority and the same are under process.
With this, I conclude the opening remarks and we can now open the floor to the question-and-answer session.
[Operator Instructions] We take the first question from the line of Akshat Mehta from Sameeksha Capital.
My first question, what are the reasons for the slower execution of Engineering segment in the first half of the year.
Sorry to interrupt, sir. It will be great if you will use your handset because headphones, we are not able to hear.
Yes, my question was that if you can just help us understand the reasons for slower execution in the first half of the year in the Engineering segment, and why the margin also compared to a year-on-year basis for quarter 2 has also been lower.
Yes, Akshat. I got your question. You were talking about a small pace of execution in the engineering segment vis-a-vis the order book, [contracts] etc. So while we are continuing to work towards speedy execution of the larger contract in our order book. So the pace of execution in a couple of them has been slower than what we had expected. There are some continuing procedural delays as far as the UP contract is concerned.
However, as Vasant mentioned in his opening remarks, we do expect that the pace will pick up substantially in the second half of the year. With regard to the large [ISA] contract, there have been some delays on the engineering front because of the site related issues. And we hope that we have that behind us now and [certainly] in those contracts also, we will see increased pace of execution in the second half.
My second question is, sir, if you look at your working capital, in your payables, there has been a continuous decline over the last 4, 5 quarters in terms of the number of days that have been there. So what can be the reason for the same?
Working capital decrease you are talking about?
Payables. Especially payables, there has been a decrease in the payable days over the last 4, 5 quarters. So just wanted to understand why that is happening.
Vasant, can you comment on this?
Actually, the -- we have been building up the inventories for taking care of the higher execution, which we are planning in the second half of the year and the payables have been paid as per the due date. That's why there is a slight increase in the overall working capital level compared to the earlier quarters. But we feel that as we go ahead in the second half of the year, our working capital should normalize to what was there in the financial year '23 levels on a full year basis.
Okay. But earlier, you were taking some more credit period from your creditors for paying and now you're paying on time? Is that what is happening.
There has not been any material change in the overall credit period as far as the payables are concerned.
But if I just look at it, [indiscernible] has gone down from 120 days around that number to around 90 days. There has been a 30-day decline in the payables. I don't know. I'm talking about last 4, 5 quarters, not quarter-on-quarter of year-on-year. It has been a continuing trend over 1.5 year or so.
Actually, some of the -- like, for example, the Sri Lanka contract where now the execution is in the final stages. The back-to-back arrangements, which were there, that is no more available. So those payables which are there, that is getting paid off now during the year. So maybe that is one of the reasons why the payable days have come down compared to the earlier quarter.
But you still expect that it will be at FY '23 levels going forward, correct?
Yes. As we move ahead with the execution of the larger EPC projects, where the back-to-back terms with the civil contractors will come in place, the payables should get normalized largely at the FY '23 levels.
My next question to, sir, is if you could share the numbers for Mapril during the quarter that we can kind of see what has been the core chemical performance as well. I think it has been included for 2 months during the quarter.
We don't share company-specific information on the con call, but what -- we can only say that if you see the consolidated numbers for the Chemicals segment, the increase in the Chemicals segment is also due to the inclusion of the Mapril company numbers in the Chemicals.
But overall, any sense on how Chemicals segment has performed during quarter and going forward, what do you expect from the segment?
Overall, Akshat, we are expecting -- we are still expecting we will manage a growth of around 5% to 10% for the segment on a full year basis.
We will take the next question from the line of Pratik Kothari from Unique Portfolio Managers.
Sir, taking 2 comments from your presentation. And if you can just throw through some more color. One on Engineering, we have highlighted that we have won few or quite a few actually medium-sized jobs. If you can throw some more color, what kind of projects are this for industry? And also on the Chemicals, we have -- I mean you're talking about some threat in terms of input prices and also on the demand side, some more color qualitatively would be helpful.
What has been highlighted is there have been quite a few contracts won, which are medium-sized contracts on the engineering. These are all from the industrial sector as far as the concern on input prices is concerned, there is just a cautionary statement. There certainly is pressure on input prices for the Chemicals segment, and we are monitoring it continuously, whereas we will take whatever steps are required to mitigate any possible impact which may occur in the future. As of now, because of the relative stability that we have seen in our input basket, we have been able to deliver good margin numbers.
And sir, one, on margins in Engineering. I mean you mentioned that maybe after Q2 or something will make a comment. Can we go back to the FY '21, '22 numbers, 11% EBIT margin that you used to do on an annual basis?
Our expectation is that we would be able to better the numbers which we declared for the last year as a whole. And it should be a slight improvement over that. Whether or not, we will reach the '21, '22 numbers. I think you will still hold back that comment, hopefully, by end of the third quarter, and depending upon how the prices have moved and what is the composition of margins that we get from the various subsegments, we will be able to comment further.
So sir, is it a function of the kind of projects that we are executing? Or is it something else. I mean, on the margin.
It comes as a mix of a number of things, Pratik, because we have mentioned earlier that this is a function of the scale at which the engineering segment is operating that has a significant impact. It is also because of the input prices that we managed to get during the period of the execution. And third, it certainly has an impact on those kind of projects that we are executing during that period. So all of these have a part to play.
Lastly, sir, if you can just update on the Maharashtra Roha and Odisha plant, how are we progressing on that?
The Roha plant is under construction as we had declared previously, we expect that it will become operational in '24, '25 and we will announce further developments on that during the course of the next 2 quarters.
[Operator Instructions] The next question is from the line of [Satadru Chakraborty] from [Chakraborty Family Office].
My question is really around the Mapril acquisition. So I know that we have now consolidated 2 months' worth of results in the consol piece. I was just curious in your long-term planning and projections, what kind of EBITDA margins on a consolidated basis would you be comfortable with this? So is this a margin dilutive acquisition? Is this really customers that we are going after? Is it the market? So any color and any insight that you have on the acquisition will be very helpful.
We have consolidated about the quarter's operations from the Mapril acquisition. And we are seeing that it is progressing well. We will get more benefits out of these operations in the coming quarters. The acquisition was mainly to access the market -- the European market and the trends till now indicate that we would be doing reasonably well on that front. We will declare additional information in the coming quarters. As of now, the broad color that I can give to you is at a PBT level, we are positive there and things are picking up.
Maybe one additional follow-up. Now that we have, let's say, a substantial presence in Europe with this acquisition. I was very curious from a financial planning perspective, are you planning to have some sort of hedging mechanism in place so that whenever you are selling services or selling products to the subsidiary, you are sort of not getting the negative effects of Euro appreciation or depreciation. So any outside strategy because I know there is some sort of hedging in place, but I just was curious to understand what is the overall company strategy regarding ForEx practices in general?
We do take constant stock of our exposures on the ForEx market and go by advice of an external consultant who would guide us on what's the right kind of strategy to pick. But very broadly, we do not like to keep open positions at all and we will try and cover as much as possible, unless we have a natural hedge against open exposures.
We'll take the next question from the line of Muthukumar from Fidelity Ventures.
In the investor presentation, you have mentioned that in the Engineering project, consists of INR 2,186 crores order book and outstanding Sri Lanka order book of INR 240 crores and outstanding UP and Delhi Jal Nigam project of INR 925 crores totally. I just want to know what is the time line taken to accomplish this order -- all these orders. I just want to know approximate time stint taken to accomplish these orders.
The UP order, we expect to complete in the next financial year, that order book will get exhausted. As far as Sri Lanka is concerned, we have been going slow on that order for quite some time now because of the unfortunate economic problems, which were being faced by the country and we come to a resolution due to those cash flow issues, we will accelerate our invoicing of that contract. Therefore, on a very optimistic basis, it can get hopefully invoiced during the current year.
And also in the big pipeline, you mentioned INR 8,597 crores. What is the capture ratio or strike ratio you are expecting?
Typically, we expect around a 15% to 20% strike rate.
Okay, sir, and also, if you can give me a glimpse of EBITDA for next 2 to 3 years?
That's something which we would be more clear on as we proceed into the next year. But on a very approximate and a broad level, we should be able to maintain the levels of EBITDA, which we have today, but then more color or accuracy can only come as we proceed into next year.
We'll take the next question from the line of Noel Vaz from Union Asset Management.
Yes. Just wanted to clarify on your outlook for FY '24 for the Chemicals and Engineering segment. What kind of growth.
You are not very audible, I can barely hear you.
Yes. What is the growth outlook for the Chemicals and Engineering segments for FY '24?
For the Engineering segment, we are expecting between 30% to 35% growth. Chemicals segment, we are still hoping we would be able to deliver between 5% to 10% growth.
Okay. Just wanted to just clarify on the chemicals. Initially, I think, in the previous quarter, we had guided for somewhere around 10% to 15%, and now we've reduced our outlook to 5% to 10%. Is there any particular reason for it or it's...
We were hoping for some kind of a resolution of the pace of demand in the international market that has not yet come through. And that's why I am cautiously reducing that guidance. We have been hoping now for the past few quarters that the situation on the geopolitical front becomes better and the economies, European as well as the North American economy would start to fire better.
Since that has not yet happened, we are looking at a slightly lower growth forecast. Middle East also is under a little bit of a threat as you would know, because of the current geopolitical scenario there. So it's -- as a cautious measure, we feel that the growth forecast for the current year needs to be moderated.
Just lastly, regarding consumer products, what we initially guided for is -- I mean it's a fairly strong growth that's been delivered in 2Q. And also you've guided, I think, in the previous call that you had mentioned that you are trying to aim for a breakeven by the end of this financial year and you see very strong growth. So I just wanted to get an idea about what kind of growth trajectory we can expect for this outlook and possibly margin outlook also, if possible.
We are seeing continued growth momentum as far as Consumer segment is concerned. Even in the current quarter, the growth momentum has been good. This should continue over the next few quarters. As far as the margin is concerned, we were looking for a great season by the end of the year. We still remain hopeful that, that will be achieved. We'll be very close to that.
We'll take the next question from the line of [Jana Doshi from Quiz Portfolio].
So recently, we have altered our object clause of [MOA] mentioning our intention to carry out business in the areas of FRP sheets, piping, industrial and municipal solid waste management. So just wanted to have a color on what is our outlook and strategy pertaining to the same.
So that's consequent to the impending merger, which we have with companies, but Milind, can you throw a little bit more light on that.
Basically -- yes, we have few mergers of subsidiary companies in the offing. So to facilitate the objects of the transferer company into our object, we have amended the object beforehand. So that at the latter level, at the NCLT level, we don't have any problem.
The next question is from the line of [Harsh Sarswat from Eligen Family Office].
I wanted to ask on the margin profile in the Engineering business. It has dropped year-on-year. So any guidance on that?
Our Engineering segment as a whole compared to the last financial year corresponding period. I think there has been an improvement to the overall margin level. Vasant, you can add more color on that, please.
Yes, the Engineering margins in the first half are at 6.7% as against 5.2%, which was there in the corresponding period of last year.
Okay. Got it. My second question is on the thing that in next 2, 3 quarters, the whole country would be going on for a lot of elections. Does that affect our bid pipelines also in the states where elections are happening and all. If you could throw some light how it has been in the past?
Since our bid pipeline has relatively limited exposure to direct government or municipal contracts. Therefore, the impact would not be significant from that perspective. As far as the industry or the PSU related inquiries or [projects] are concerned.
Typically, one would expect a slight slowdown once the moral code of conduct comes into being. Industry, in general, tends to become a little cautious. But as it stands today, the overall outlook being presented by various segments of the industry are not being dictated by the impending elections as such. I guess because of the geopolitical situation and the overall global scenario, which we are seeing as well as some of the price movements on the input side, there some industries may prefer to defer their [bidding], but besides that, we are not really seeing any other indications.
Got it. My last question is on the Chemicals business. How are you seeing the domestic business of this. Is there growth in the domestic business or not?
Domestic business has done reasonably well over the last few quarters. It's the international business where, as I mentioned -- responded to an earlier question, that's an area where it has performed much lesser than what one would have wanted it to. On the domestic front, again, for the future, we do expect the situation would improve over the coming 2 quarters because that's the typical trend that we have been seeing over the last few years?
The next question is from the line of [Ayush Agarwal], an individual investor.
Sir, my first question is regarding your Engineering and Chemicals business. Are you seeing any opportunities arising from emerging industries like, for example, in India and even worldwide, there's a push for electric vehicle manufacturing and the Indian government is pushing for semiconductor manufacturing domestically. Do you see any opportunities arising because of that?
Yes, Ayush, there are quite a few of these new sunrise industries, which are proposing to have significant capital expenditures in the country and each such capital expenditure would have a consequent opportunity for both the water treatment and the wastewater treatment side of the business.
My second question is regarding your consumer segment. Sir, I understand that the segment is not profitable just yet, and I'm sure it will become profitable in the coming quarters going forward. So I wanted to know how much you are spending on advertising as a percentage of your revenue?
As such, we've not been giving out specific numbers on that [front], but I can tell you that it's not a very significant number. It was certainly not be in double digits, but we don't give out very specific numbers on that.
So it's safe to say it's in the single digits, just to broadly speak about it.
Yes. it would be low. It would not be very high.
We'll take the next question from the line of Akshat Mehta from Sameeksha Capital.
Sir, my question was if you share the number for customer advances for the quarter? And it would -- you could also share the unearned revenue as well as a whole, advances plus the unearned revenue.
The customer advance was around INR 215 crores as of September end and the unearned revenue was around INR 208 crores.
So around INR 420-odd crores total.
I guess.
Okay. So this is for the first half, right? This is not just for quarter 2.
This has the position as of September end, the closing month.
Okay. Another question which I had was that the guidance that you've given on the capital segment for 5% to 10%, does that include the Mapril acquisition as well within the guidance or that is separate from this.
That goes with the current trends of the consolidated number. And as I had mentioned to an earlier question, the incremental benefits from this acquisition, we will hope to see in the coming 2 quarters. And I'm not trying to be -- trying to jump the gun as far as those projections are concerned.
The next question is from the line of Pratik Kothari from Unique Portfolio Managers.
One question on membrane. We had started a new facility, I think, in I think 2, 3 quarters back. So 1 update on that. And also we're planning to add another phase to that membrane capacity. So an update on that, please.
We have commenced production on the expanded capacity very recently. And as we had mentioned in an earlier call, we expect that we would be able to substantially consume that capacity over the next 2 years. There is a further capacity expansion planned, and that's a very, very [indiscernible] phase.
Okay. Sure. And sir, sorry, but coming back to Chemicals again. I think we have substantially changed our guidance from, say, last quarter. So how bad has the situation. What -- I understand it we don't break down numbers further, but if you could talk about exports, how bad has it gotten?
Exports, there has been a slight drop. It's not a very significant drop, but there is a slight drop in exports.
Sir, the reason I asked this because last quarter, we had said 10%, 15% growth excluding Mapril and now I think you mentioned that 5%, 10% includes Mapril too.
As I said, it is a consolidated number, local, the incremental benefits from it, which will happen as a consequence of our entering that business that I am not projecting too far forward. We will be able to give you more accurate guidance on that during the next quarter. But in terms of how we are expecting the international business to behave, we have not got improvements which we were hoping for from the international market. And as I just mentioned, there has been a slight de-growth on that front. Therefore, it's only prudent that we reduce our guidance a little bit.
Sir, last on UP, if you can share how much did we build it this quarter? Has the scope of work changed because the pending order book seems to have increased quarter-on-quarter.
The scope of work has not changed. There is an incremental increase in the number of villages that have been now approved by the government and that has led to an increase in the overall size of the order. That's the reason why there is an increase.
Correct, and how much did we bill it this quarter?
Vasant, did we give out that break up?
Specific data, we don't give for this.
But for the last -- we have been doing it -- last quarter, we did INR 40 crores, the quarter before that we did INR 70 crores. We have been mentioning that.
We did around INR 42 crores for this quarter.
The next question is from the line of Saket Kapoor from Kapoor Company.
I just missed your point about you saying about lowering of guidance and what type of interest rate if you could just repeat.
Mr. Kapoor, I am sorry to interrupt, your voice was not clear, sir. May we request that you repeat.
Sorry. For the sake of repetition, you mentioned about lowering of some guidance part. I missed that statement. Can you repeat the same.
It is for the Chemicals segment, where we have said that we are still hoping to deliver a growth of around 5% to 10% for the year as a whole.
Okay. We are lowering it to 5% now?
In the earlier quarter, we had mentioned 10% to 15%. And now what we are taking is 5% to 10%.
For the pace of the UP Jal Nigam project, if you could quantify, the pace has remained the same over the last 2 preceding quarters, quarter 1 and quarter 2. I think the revenue numbers have remained the same. So what is color on the same, sir. How is that going to gain attraction going ahead? I think the size is including both UP and Delhi INR 960 crores. By what time are we going to execute the project for the UP Jal Nigam?
UP Jal Nigam contract will get executed by the next year fully. In the current year, we will see increased invoicing in the second half. We are seeing more movement on the ground and therefore, the projection for an improvement in the second half.
Because when we look at your engineering segment, although you have guided that there will be pick up, quarter 2 have also remained muted to a greater extent. And in order to meet our revenue growth guidance for Engineering segment, H2 will look significantly heavier as has been historic. So there is no reason to believe that it will not happen this time. H2 will be significantly heavier in terms of the execution phase for it, H2. And for the month of October, I think the -- you must have seen strong ground.
H2 will be heavier and that is traditionally the case for a long number of years now. If we compare the revenues for the Engineering segment during the first half as compared to the last year's first half, we should have seen a significant improvement. I believe that growth would be somewhere in the region of 30-odd percent. Vasant, if you can share the exact numbers.
Aankur, you want me to share what was done in the second half of last year.
No. first half of the current year as compared to the first half of the previous financial year for Engineering.
Yes, we have grown by 33%.
That should be the case for H2 also compared to last H2.
Sorry, I couldn't hear you.
If you go for competitive number for previous year second half with current year second half, what should be the growth number we should be considering?
As I mentioned earlier, we are hoping to deliver around 30% to 35% growth for the engineering segment as a whole for the full year.
Okay. And the last point was you mentioned about there was some addition in villages in the UP Jal Nigam project, if you could dwell more on the same. So the size of the contract goes up.
Your voice is breaking. We are not able to hear you.
I'll come at another line. I will disconnect and join.
[Operator Instructions] We'll take the next question from the line of [Manish] from [Equity At Work].
Sir, you guided for -- what is your revenue guidance for FY '24? Full year revenue guidance?
See, we have given you segmental breakup. As far as the guidance is concerned on Engineering segment, we have said 30% to 35% growth, for Chemicals segment between 5% to 10% growth. And for Consumer segment, we are stating that it will continue its growth momentum as we have been seeing in the first half. So that's the overall guidance.
You guided for 30% to 35% Engineering businesses growth, engineering -- for Engineering business, right? So Engineering, we have done [research], we have done about INR 600 crores. And you have guided for 35% growth, which actually should extrapolate to somewhere in the vicinity of up INR 1,700 crores. So you are essentially trying to suggest that you are going to do a revenue of at least INR 1,000 crores, north of INR 1,000 crores over the next 2 quarters put together. Is my understanding correct?
I think that's how the numbers will add up. That's how the number would add up as you just did the math.
I'm sorry, sir. I couldn't follow. Come again.
I'm saying that's how the numbers would add up. You just did the math.
Okay, your voice is not clear.
I said that's how the numbers would add up. You've got the math correct.
And sir, what would that [percolate] down to in terms of absolute EBIT for FY '24 for the Engineering segment?
We should have an improvement over the last full year's [EBIT] in terms of percentage.
Margins would increase from here, right?
Yes.
Any specific guidance or margins that you have for FY '24, in particular for the Engineering business?
As I just mentioned, we will see an improvement over the last full year's number. Last full year number was around 8.9% or 9%. So we should see an improvement over that.
The next question is from the line of Akshat Mehta from Sameeksha Capital.
One last question I had is that we've seen an increase in the debt position, if you look at new quarter 2 numbers versus end of FY '23. So why has that increased?
Sorry, what has increased?
The debt position. Borrowings have increased, sir.
Vasant, can you please comment on that.
Yes. On a stand-alone basis, the debt numbers are at the same level as previous year. But when you see the consolidated numbers, that is because of the acquisition of Mapril, the debt which was standing in Mapril book, that has come into the numbers for...
Because as far as I understood, you're also going to take some debt for Roha capacity expansion as well.
Yes. As we move forward with the CapEx, we will be taking the debt [indiscernible].
We'll take the next question from the line of Richa Chowdhary from Electrum PMS.
I just had one question on the Roha expansion plan. When are we expecting the plant to be operational. That would be the first question. And we had some guidance given before probably a year back on the backward integration project. So what exactly was that? And how are we going ahead with that?
So the Roha plant, we are expecting that by the end of the next financial year, we would be able to substantially complete the construction process. And as far as the coming operation is concerned, we expect that to be in FY '25, '26.
Sir, what asset turns are we expecting on this INR 400 crores project?
We are expecting somewhere around 1.5 to 2, if you consider for total CapEx of roughly [INR 375 crores].
The next question is from the line of Saket Kapoor from Kapoor Company.
You were mentioning about addition of more villages in that UP Jal Nigam project. By what percentage does it improve the size of the contract and also the scope of work. So if you could dwell more on the same?
The nature of the project remains the same, it is just that when you add more villages, the overall size of the contract goes up slightly. Vasant, if you can mention the numbers.
It is around INR 60 crores roughly, which has been added during the quarter.
And it also has an O&M component, sir, a total project? Operation and maintenance part?
But this value does not include the O&M part. It is only the EPC part.
What is the size of the O&M part, sir? And when will it kick in -- post expiry of what term.
It is a 10-year O&M, which will kick in after -- once the individual projects are handed over to the respective department.
Size, sir, what is the size of -- value of the O&M part.
It really cannot be because as was mentioned earlier, this contract is a conglomeration of all individual contracts. So at this stage, it's not possible to give a definitive number, what will be the O&M. It will vary.
As you were mentioning about the scope of work and also increasing, is it -- are there many players who are involved in this project. And so the scope of work was improved for everybody? Or is it a particular packet of work that we have got because of which -- because of the reasons whatsoever that we have been added -- more villages being added to us, what led to it? And are there many parties -- many EPC players involved in this entire project?
Yes, the UP government or the UP part of the Nal Se Jal scheme has many EPC contractors, we are one of them. The increase in the number of villages is consequent upon the detailed project reports getting approved by the department. And that's something which happens progressively as there are a few more which are under evaluation.
We'll move on to the next question, which is from the line of [Ayush Agarwal], an individual investor.
So I want to follow up on one of my previous questions regarding opportunities on sunrise industries. Looking at your current bid pipeline of INR 8,745 crores. How much of that would be coming from the Sunrise industries?
Very difficult to give you an exact number because how we look at sunrise industries and which one would they qualify within that bracket. So that means a very broad brush, which I can try to give you is it would not be, obviously, a majority of the number, it would definitely be below 25%. But I would not be able to give you a further breakup on it.
And my second question is regarding the debt that you have taken for the greenfield expansion. In the last quarter earnings call, you had mentioned that you are taking around INR 300 crores to INR 320 crores of debt for this project. So I wanted to know what is the repayment period for this? And is the earnings from this project expected to be able to repay that debt on its own? Or will other income streams be contributing towards that?
We have not yet picked the debt on our book. I will share when we pick it up as the instruction of the project progresses further. We would be able to service the debt to our internal generations. Vasant, you can shed more light on the terms -- the period of debt.
It is 5 years post plant commercial production.
We take the next question from the line of Romil Jain from Electrum PMS.
The first question is on the consumer business. So I just want to understand when do we kind of breakeven the EBITDA level and subsequently at the PAT level, maybe next year or FY '26? Any sense on that? And what are the kind of touch points that in terms of distribution matters we are at in this business?
We are certainly hoping that we would be able to still meet the target of breaking even or being very close to that by the end of the current year. And as far as the distribution network is concerned, it's All India network, and it's an ever expanding one. We are reaching out to Tier 2 and in some cases Tier 3 cities also. So it's an extensive All India Network.
Okay. And on Chemicals side, I just want to understand, I think, firstly, you're doubling the capacity and then it will triple, right? So overall, that is the plan to triple the capacity.
Year. So over a period of time.
So the INR 400 crores CapEx, which is there is for doubling the CapEx -- is for doubling the capacity as well as the backward integration, correct?
That's right. So part of this CapEx would also help in the further expansion at a later date. So the later expansion would not need to incur some of the...
Lot of CapEx, yes. Okay. And the -- so just can you give a little bit of more understanding on the backward integration. So how much of that would be backward integration in terms of the overall CapEx? And whether that would structurally improve margins of the Chemicals segment going ahead?
Roughly around INR 125 crores, what has been allocated to that project. And yes, we are expecting an improvement in the margin profile because of that.
Okay. And lastly, on this CapEx of INR 400 crores. You mentioned 1.5 to 2x asset turn. So by when do we expect to reach the optimal utilization or whatever maximum we can do before the next line kicks in. So does the next line kick in immediately after we commission this CapEx by FY '25 end or what are the time lines on the third phase, the next phase?
We expect roughly around 3- to 4-year period for the capacity to get utilized fully. And we will take a decision on initiating the next phase of expansion somewhere down the line. It will not happen immediately because we will need to see the pickup of capacity utilization for current expansion.
Okay. And sir, can I just ask the last question, if that is okay. Sir, on this, the engineering side of the business. I just want to understand a little bit more macro. How are we looking at the entire industry panning out, how does the industrial book look like for us? Where do we see the drivers? Because I think earlier we met you and you said we've just scratched the surface in terms of the entire water treatment and effluent treatment in India. So there's a long way to go. So if you can just help us understand in terms of a little bit on driver side of that?
I will be very brief with that answer. We have come to the end of the session per se and that answer as a whole would require a long-winded answer. So just to touch on the main points, the overall demand scenario projected over the medium term is very good. There's a huge gap between what we aspire to have as a country, as a part of the industrial infrastructure that we have, given our commitments to environment, ESG, et cetera. And this scenario also [posed too] for the global community because there is a lot of gap in infrastructure in several parts of the globe, specifically Africa, the Middle East and the Southeast. So that forecast for medium to long term is pretty good for the industry, and we should see a continuous improvement in the kind of inquiry and order book as well as the way the technology is shaping up, there should be scope for brownfield improvements also not just the greenfield only.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. N. M. Ranadive from Ion Exchange (India) Limited for closing comments. Over to you, sir.
Good afternoon. Thank you all for participating in this earnings con call. I hope we have been able to answer your questions satisfactorily. If you have any further questions or would like to know more about the company, we would be happy to be of assistance. We are very thankful to all our investors who stood by us and also had confidence in the company's growth plan and focus. And with this, I wish everyone a great evening. Thank you.
Thank you very much, sir. Thank you, members of the management. Ladies and gentlemen, on behalf of Ion Exchange (India) Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.