PCBL Ltd

NSE:PCBL

Earnings Call Analysis

Record operational and financial performance with robust growth across segments

PCBL Limited reported its best-ever performance in Q1 FY '25, with consolidated sales volumes rising 25% year-over-year to 1.54 lakh tonnes and consolidated revenues jumping 59% to INR 2,144 crores. EBITDA grew 72% to INR 369 crores, with a PAT increase of 8% to INR 118 crores. The Tamil Nadu plant achieved an 85%+ CapEx utilization, and export sales surged by 56%. The company is expanding capacity across segments to sustain growth, while expecting significant growth in international sales due to Europe's increased sourcing from India【4:0†source】.

PCBL's Strong Q1 Performance

PCBL Limited achieved remarkable financial milestones in Q1 FY '25, reporting consolidated revenue from operations of INR 2,144 crores, which is a staggering 59% increase year-over-year (YoY). This surge is attributed to significant sales volume growth in their Carbon Black segment, where consolidated sales volume reached its highest level at 1.54 lakh tonnes, a 25% increase YoY. This strong performance has translated into consolidated EBITDA growth of 72% YoY, amounting to INR 369 crores.

Segment Insights and Future Growth

The company's Carbon Black segment saw a notable increase in revenue per metric tonne, with consolidated EBITDA per metric tonne climbing from an average of INR 20,018 during FY '24 to INR 20,861 in Q1 FY '25. Domestic sales significantly comprised 90,438 metric tonnes, while international sales reached 63,480 metric tonnes, marking an impressive 56% growth in exports. Their performance chemicals segment also boasted strong volumes, further diversifying the company's revenue streams.

Aquapharm Integration and Future Potential

Following the acquisition of Aquapharm, the company reported Q1 FY '25 revenue of INR 359 crores and operational EBITDA of INR 55 crores. Aquapharm has a significant market share of around 24% in performance chemicals (excluding China) and is expected to double its capacity in the next five years. The integration is focused on operational efficiency and expanding their product mix, particularly in high-margin products. This allows for the enhancement of the company’s overall margin profile.

CapEx Plans and Debt Management

PCBL is poised for aggressive capital expenditures totaling INR 3,300 crores over the next five years, with plans for substantial capacity additions across its segments. The company aims to add about 400,000 tonnes of Carbon Black and double the capacity of Aquapharm. To support these investments, they project a strong cash flow of approximately INR 10,000 crores, which will be sufficient for both CapEx and debt repayment. This positions the company favorably with declining interest costs anticipated in the coming years.

Market Opportunities and Long-Term Guidance

With the recent shift in the global market due to the ban on Russian Carbon Black imports in Europe, PCBL is preparing for an increase in international sales. The management expects to capture a larger share of the European market and has established strategic long-term contracts with customers, growing from 14% to 21% of their international sales in that region. The company’s management maintains a robust long-term growth outlook, advising 9.5% to 10% CAGR growth in Carbon Black volumes over the next four to five years and anticipates substantial EBITDA margin improvements reaching up to INR 25,000 to INR 26,000 per metric tonne by FY '29.

Conclusion: A Promising Investment

Overall, PCBL is on a strong growth trajectory, enhanced by solid financial results in Q1, strategic expansion plans across its core segments, and a favorable market environment that includes increased demand from European manufacturers. Their focus on cost management, capacity expansion, and entry into higher-margin products positions them as a compelling investment opportunity for both short-term and long-term investors.

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to PCBL Limited Q1 FY '25 Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sanjesh Jain from ICICI Securities. Please go ahead, sir.

[Sanjesh Jain, analyst]

Thanks, Aditya. Good afternoon, everyone. Thank you for joining on the PCBL Limited Q1 FY '25 results conference call. We have PCBL management represented by Mr. Kaushik Roy, Managing Director; Mr. Raj Gupta, CFO, Mr. Saket Sah, Group Head, Investor Relations and ESG; Mr. Pankaj Kedia, Vice President, Investor Relations.

I would like to invite Mr. Kaushik Roy to initiate the call with his opening remarks. Post which, we will have a Q&A session. Over to you, sir.

[Kaushik Roy, executive]

Thank you so much. A very good afternoon to each one of you, and a very warm welcome as well. I will first quickly take you through the company update, and then open it for question and answer. I'll give you some details on Q1 cost on the Q1 performance. So I'm happy to inform you that PCBL reported its best-ever operational and financial performance during Q1 FY '25.

During this quarter, our consolidated sales volume from Carbon Black segment was highest ever at 1.54 lakh tonnes, which is up by about 25% on a year-on-year basis. While consolidated revenue from operations increased by 59% to INR 2,144 crores. And this is due to better realization, sales volumes and consolidation of Aquapharm. Consolidated EBITDA grew by around 72% year-on-year to INR 369 crores. PBT stood at INR 164 crores while PAT increased by 8% year-on-year to INR 118 crores.

Consolidated EBITDA per metric tonne in Carbon Black segment stood at INR 20,861 as against an average of INR 20,018 per metric tonne during FY '24. During this quarter, PCBL Tamil Nadu achieved a sales volume of 28,228 tonnes. The state-of-the-art plant in Chennai has received approvals from all major tire manufacturers in India and locked the CapEx utilization of 85% plus during the quarter.

Of the total Carbon Black sales volume, domestic sales volume stood at 90,438 metric tonne, while international sales volume stood at 63,480 tonnes. Export sales volume registered a strong growth on year-on-year basis of 56% in Q1 FY '25.

Now moving on to the segmental performance. Tire accounted for 87,945 tonnes. Performance chemicals reported sales volume of 50,302 tonnes. And we also achieved specialty sales volume of 15,671 tonnes, which is again the highest ever in our history. And we continue to expand our product portfolio and customer base.

We also achieved highest ever power generation and sales volume during the quarter. Power generation increased by 24% from 156 million units in Q1 FY '24. To 194 million units during the quarter with external sales volume of 116 million units as against 98 million units in Q1 FY '24. PCBL average realization stood at INR 4.16 per kilowatt hour.

Now coming to Aquapharm Chemicals. Aquapharm business is witnessing a steady improvement in performance. Post the completion of acquisition, we have been working on an integration profit. Various efficiency improvement and cost optimization measures have been undertaken, and we expect this to yield positive results going forward. We are adding capacity for various high-margin products and this will help us to improve the margin profile further.

Currently, Aquapharm has approximately 24% of global market share, excluding China, in performance, we plan to further increase our share with additional capacity and value-added products in the segment. In oil and gas chemicals, Aquapharm has less than 1% of global share, and we are working on a strategy to increase our customer base, resulting multiple new geographies, increasing capacity and supply chain capabilities.

Green chelates, which is another exciting segment, where we see rapid growth opportunity. With the push forward more sustainable and great chelates, there is growing chain for substitution of older chelating agent like HEDP in U.S.A. and Europe, China and India as well. We are, therefore, working on expanding the portfolio in green chelates. We are already making MGDA and GLDA liquid and are now working on MGDA values.

The number of new products are under development stage and few are going through the approval process with large global [indiscernible] clients. In Q1 FY '25, revenue of Aquapharm stood at INR 359 crores and operational EBITDA at INR 55 crores. The quarterly sales volume was 24,402 tonnes. The capacity utilization witnessed a cheap improvement and stood at around 75% during Q1 FY '25. The company is a mid an aggressive capacity expansion program across different segments. And is working on strengthening supply chain, product mix and customer reach. The long-term profits of all business segments look very positive, and we believe there would be adequate business potential to sustain the growth momentum.

With the ban on import of Carbon Black from Russia into Europe, the European tire manufacturers are expected to increase sourcing from India going forward. PCBL is expecting significant growth in international sales volume in the next few years.

At PCBL research and innovation are important drivers of both technical advancement and business expansion. In recent years, the company has intensified its commitment to research by making substantial investments in infrastructure, human capital and streamline processes. These investments have significantly bolstered PCBL's capabilities in new product development, customization, application and process action.

Recently, we received a patent for Hybrid Carbon Black grade comprising draping to improve performance of other compounds. This would lead to improvement of oil efficiency, tire durability and load bearing capacity. Our current Carbon Black capacity stands at 7,70,000 tonnes annually. Currently, a specialty line of 20,000 tonnes and 90,000 tonnes of Carbon Black line is under implementation. And very soon, we will start working on larger capacities.

We are expediting pace of work of project size to subtract commissioning. Post commissioning of the above line, above capacity, our CD capacity would reach 8,80,000 tonnes. This will include specialty capacity of 1,12,000 tonnes. And the power capacity would be 134 megawatt. This would help us to increase our global market share. The Aquapharm capital stood at all at 1,30,000 tonnes, and we have embarked on the capacity expansion program of 38,000 tonnes in next 6 to 8 months. The company is in multiyear growth momentum. The current annual revenue run rate has already crossed USD 1 billion mark and is expected to accelerate further in the ensuing quarters with the capacity ramp-up across different business segments.

And with this, I conclude and open the floor for your questions. Thank you so much, ladies and gentlemen.

[Operator]

[Operator Instructions] Our first question is from the line of Aman Soni from Nvest Analyst Advisor, LLP.

[Aman Soni, analyst]

Am I audible?

[Raj Gupta, executive]

Yes, you are.

[Aman Soni, analyst]

Congrats on good set of numbers. Could you please provide the revenue growth guidance for FY '25? Additionally can you elaborate on whether the company expects to sustain its EBITDA margin or if there are anticipated changes that could impact margin levels moving forward?

[Raj Gupta, executive]

Aman, I would give you a little long-term growth guidance. We are confident that the business, the Carbon Black business can deliver roughly 9.5%, 10% CAGR growth I'm talking in terms of volume over the next 4 to 5 years.

And in terms of whether we are able to maintain our margins, there are a lot of initiatives that we have taken on yield improvement side, on product mix side. And also with additional capacity coming on the operating lever, it will also play favorably for the company. To do that, our operating margins or our EBITDA per tonne would keep on increasing between now and going forward. The next 5 years, I think we have a strong possibility of EBITDA going up by INR 4,500, INR 5,000 per tonne. That's how we see.

[Aman Soni, analyst]

Please outline the company's capital expenditure plans for the medium term.

[Raj Gupta, executive]

Long-term capital expenditure, we need to add about roughly 400,000 tonnes of Carbon Black capacity. And we will also be kind of doubling Aquapharm capacity across geographies. So we have 2 facilities, 2 primary facilities, India. India, we have multiple facility, but India considering as one geography and then U.S. Currently, they have about 130,000 tonnes. Next 6 to 8 months' time, 48,000 tonnes capacity is going to come up. And during the next 4, 4.5 years, we are going to add another 100,000 tonnes of capacity.

The Aquapharm capacity is also going to get double in the next 5 years' time. Additionally, we are -- we also created a joint venture company in collaboration with the Australian technology company. And we are already in final stage of closing the agreement. And then we will immediately proceed with implementation of a pilot plant. And we expect the first inflated plan to be ready, up and running in the next 1.5 to 2 years' time. And that is further going to add to the top line and bottom line at the consolidated level.

[Aman Soni, analyst]

And the last question is, please detail the strategies the company is implementing to achieve the ambitious goal of increasing the business by 5x.

[Raj Gupta, executive]

Aman, I didn't get your question correct? What exactly is your question?

[Aman Soni, analyst]

Please detail the strategies the company is implementing to achieve the ambitious goal of increasing the business by 5x.

[Raj Gupta, executive]

Yes. So Aman, you work out on this number, this 11% to 12% volume growth in Carbon Black segment, that's been doubling our capacity in Aquapharm business. And then additionally, there is battery chemical company coming into picture. We won't be -- I mean, there is a very high growth possibility of our getting a fivefold bottom line in the sizes.

[Operator]

Our next question is from the line of Aditya Khetan from SMIFS Institutional Equities.

[Aditya Khetan, analyst]

Just a couple of questions. Sir, first question is on to the Carbon Black, sir. I think the last 2 quarters, we have stated that since this sort of spreads in Carbon Black around INR 20, INR 20.5 per kilo in some sort that would be higher end only. So sir, like are we continue building in such higher spreads or we see in the near term that this could also come under pressure? And continuing on this part on to the Aquapharm, this quarter, we had reported around 22,000 tonnes at the EBITDA spread for Aquapharm. So sir, this is -- you can say it is a mid-cycle or at the top end of the -- into the cycle part?

[Raj Gupta, executive]

I think to answer your first question, the change in our margin or the improvement in our margins on account of a lot of efficiency measures that we took in last 7 to 10 years. And while still if you go by segment, the specialty volume might just look about 10% of the total volume, but there are a lot of grades that we launched even in the entire portfolio, which have very, very high margin, almost comparable with the specialty portfolio. But we take them as part of our entire portfolio. So in last 2,3 grades, if you track all the filings that we have done in recent past those are all in composites or different grades, those are not offline from grades, which provide superior quality to time. And therefore, they carry very high margin as compared to [indiscernible] grades of not with [indiscernible].

So therefore, even the margins in the tire portfolio that has improved, and that is further improving because the product mix itself is changing within tire also. Not only we believe that these margins are sustainable, we are confident that we can further increase this margin. So the same kind of movement which has happened in our margin in last 5 years, we are confident that we can deliver further improvement to the sales expand in the next 5 years.

Coming to Aquapharm. Aquapharm business currently is going through a soft cycle, there is pressure on margins. Also, there is some competition, right? And [indiscernible] people are only working in some geography with some clients. Now we are expanding our customer reach and market scope. The whole idea is to ensure higher capacity utilization and also because we are ambitiously working on capacity expansion. So we are also investing in our supply chain capability in this business. So going forward, even in Aquapharm, we are very confident of increasing volumes as well as the margin profile.

[Aditya Khetan, analyst]

Got it. Sir, sir, coming on to the Aquapharm, what sort of volumes we can expect for FY '25? And what growth percent can we be building for the next 2 years in FY '26 and '27?

[Raj Gupta, executive]

Current year, I think we will be somewhere around 100,000 tonnes, maybe at 1,10,000 tonnes. The total capacity remains 1,32,000 tonnes as of now. This is current product mix. So maybe we will be somewhere around 1,00,000, 1,10,000 tonnes. But capacity utilization will gradually increase towards third and fourth quarter. So we expect better volumes towards third and fourth quarters. Also some of these lines that we are adding now in the new product segment, so it will be operational towards third and fourth quarters. So that will give us some more volume.

[Aditya Khetan, analyst]

So on to the volume growth, can we expect, sir, 15% to 20% in FY '26 and '27?

[Raj Gupta, executive]

Yes. Our target is a little more ambitious. I think we can grow between 20% to 25% volume growth going forward, I mean from '25, '26.

[Aditya Khetan, analyst]

Got it. Sir, although the CapEx part, you had mentioned, but I missed that point. So if you can highlight the CapEx we are doing for the next 2 years and if we can break it up into the Carbon Black and into the Aquapharm?

[Raj Gupta, executive]

I am telling you -- I was giving you next 5 years requirement, this 12% growth for which we are very high with [indiscernible] would require roughly 400,000 tonnes of capacity addition named our condenser segment, which is Carbon Black including the specialty. And Aquapharm, we would be adding 38,000 in the current year. An additional about 100,000 tonnes more in the next 4 to 5 years.

[Aditya Khetan, analyst]

So sir, what would be the CapEx number?

[Raj Gupta, executive]

Roughly, you can consider INR 60,000 to INR 65,000 a tonne for Carbon Black. So roughly INR 2,500 crores of CapEx in Carbon Black segment. And for this additional 100 -- the 38,000 tonnes that we are adding now, we have already spent about INR 165 crores, which is appearing in our CWIP as on 30 June. So the balance expenditure on the 38,000 tonnes will be roughly about INR 50-odd crores, which will come up in the current year itself. And for the additional 100,000 tonnes, we will be spending roughly about INR 400 crores to INR 500-odd crores.

Just I'd like to add, additionally, for this battery chemical capacity, which we are adding, that will involve 2-phase expansion. So in the first phase, we are putting up 2,000 tonnes of capacity, which will involve roughly about 28 million tonnes to roughly about INR 250-odd crores. And in the 3 years' time, we expect the capacity to be fully utilized [indiscernible] plan. So on battery chemical side we will be doing about INR 450 crores to INR 500 crores worth of CapEx. So this is all 3, if you add up, then we will be doing roughly about INR 3,300 crores kind of CapEx in next 5 years' time.

[Aditya Khetan, analyst]

Got it. Sir, since like our company would continue to remain in CapEx and annual would be somewhere around INR 800 crores, INR 900 crores if I just divide by your number. So sir, I just want to know on to the acquisition of Aquapharm, we had taken INR 3,800 crores as debt. So how you see that consolidated debt position will remain at this level an annual interest cost of INR 420 crores will delaying or you expect some decline there also, because we are in CapEx mode and we would be using all the money, cash flow to sum that CapEx ? Any thoughts on to the debt part, how that will shape it?

[Raj Gupta, executive]

Okay. I think, I'll just give you some numbers, Aditya. Yes, we have CapEx, and we have borrowings in our [indiscernible] roughly INR 4,400 crores of gross borrowing -- net borrowings, sorry, INR 4,300 crores net borrowings. But if you just add up next 5 years cash flow, I mean, starting from 2025, this will [indiscernible] I will have to provide roughly INR 10,000 crores.

[Operator]

Sorry to interrupt. Sir, voice has been muffled while speaking. I request you to come closer to the speaker and speak. Between your voice has been cut off?

[Raj Gupta, executive]

Is it better now?

[Operator]

Yes, sir.

[Raj Gupta, executive]

Yes. So Aditya, I was mentioning that while we have borrowings in our book, roughly INR 4,300 crores. And we also have CapEx of another INR 3,300 crores, INR 3,400 crores lined up for 5 years. If you calculate the cash flow that we are going to generate in the next 5 years, that is going to add up to almost INR 10,000 crores, INR 9,800 something, right? So that is not only sufficient to take care of our CapEx, but to also repay the entire debt. And yes, our interest cost is going to go down every passing [indiscernible].

[Aditya Khetan, analyst]

Okay. Okay. Sir, you mentioned that INR 9,800 crores cash flow for the next 5 years?

[Raj Gupta, executive]

Roughly INR 10,000 crores, yes.

[Aditya Khetan, analyst]

Okay. And sir, our -- I think, sir, it would be around INR 1,000 crores annually, right? So we are expecting incremental INR 1,000 crores cash flow from '26.

[Raj Gupta, executive]

It will not be linear every passing year because of volume growth and margin expansion, our cash generation would keep increasing. Current year will be roughly around INR 1,000 crores. And then, of course, it will keep increasing.

[Aditya Khetan, analyst]

Okay. Okay. Got it. Sir, one last question, if I may. Sir, on to the ban of EU into Russia, sir, are we getting any incremental inquiries from -- so from the EU players and this volume growth in exports market, which we had clocked in this quarter, how much proportion would be towards the European market and any further sort of inquiries or are we getting it? And are we looking for a long-term tie-up from that market?

[Raj Gupta, executive]

Yes, Aditya. Most of our overseas sales are now strategic to our strategic customer base. So we do spend something in spot market, but our endeavor is always to get into long-term arrangement with the customers to be considered strategic for business. Now this Russian -- the sanction on Russian Carbon Black industry officially kicked off from 1st of July, but the real benefit we will start getting from maybe next 2, 3 quarters, because there is some stocking which happened in Europe. But even this [indiscernible] our volumes in Europe has been going up steadily.

Last year, we did about 14% of our international volume in, I'm talking about 2023, we did about 14% of our volumes from 0. And this quarter, we have already released about 21%, below -- I mean of international volumes coming from the European markets, so it is steadily growing. And we have made significant investments in our supply chain benefit. It is not only in Europe, but across [indiscernible], which we consider important from growth perspective. We are into aggressive capacity expansion phase, and therefore, we need to constantly keep on adding customers and geographies. So that remains an area of focus for us.

[Aditya Khetan, analyst]

And sir, the incremental contracts, which we are doing in Europe, that is at a higher EBITDA per tonne or at the same level which we have done in this quarter?

[Raj Gupta, executive]

I would not say a higher EBITDA per tonne. The idea is to increase the strategic customer base and eventually profitability will flow.

[Operator]

Our next question is from the line of Sanjesh Jain.

[Sanjesh Jain, analyst]

First, on the Aquapharm part of the business. When we did the acquisition, they were doing about INR 380 crores, INR 370 crores of EBITDA. Right now, we are at INR 55 crores of EBITDA. I know industry is going through a tough situation, but INR 55 crores looks way too small? And how do we plan to improve it?

[Raj Gupta, executive]

Well, Sanjesh, when we acquired this company, we did not acquire it on basis of current performance, but the potential that the business holds. Now it is going through a soft cycle currently and other chemical companies are also facing the same challenge. But we believe that it has bottomed out. And already, there is a reflection in margin, it is improving.

My own sense [indiscernible] that by fourth quarter of this year we should be doing somewhere around INR 80 crores to INR 90 crores kind of a run rate, possibly INR 100 crores maybe if it will go as planned. So it's just a soft period during -- and then the initiatives that we have taken, we are taking, we've also engaged the [indiscernible] here to help us identify areas where we can focus more on improved efficiency. So those things are underway currently. And we are really confident that to initiate, it will start in the near term soon.

[Sanjesh Jain, analyst]

Fair enough. Raj, you said that you are looking to increase the market share. We are already at 24%. The industry probably is growing that 4%, 5%. We are telling if we are doubling, say, in the capacity in the next 4, 5 years, we probably end up having a market share of about 40%, 45%. Is that what we are aiming?

[Raj Gupta, executive]

No. The market is also increasing by roughly about 5% or 7%.

[Sanjesh Jain, analyst]

Correct.

[Raj Gupta, executive]

So therefore, if the incremental demand basically [indiscernible] in the market. Additionally, global growth rate also tapered down in last 2 years. So the current demand scenario in the industry is not reflective of accrual potential. So yes, of course, we intend to increase our market share, but it will not be 47%, 48%. Possibly, we will be somewhere around maybe 1/3 of the market share, we will be looking at the market share.

[Sanjesh Jain, analyst]

And whom will be gaining? Because if I look at the China today, anything which is based out of phosphorus rate, China has a raw material advantage. They are only growing more aggressive. I can state with a few more chemistry on the phosphorus side, where they have been growing very aggressively. And India doesn't have a phosphorus advantage. Now how do we plan to be Chinese and get this market share up from 24% to 33%. So one of the reasons why market today is slum is also because of aggressive Chinese?

[Raj Gupta, executive]

There are 2 things that we are considering, one of course, I mean to the natural advantage over China will retail in Western markets, it is antidumping duty on Chinese products. So I mean, we will face benefit -- we get some advantage there. But I wouldn't say that we are -- a couple of things that we are doing this, we are looking at some kind of backward integration, right, on the yellow phosphorus side. The yellow phosphorus is a mineral, right? It is mine. But then for it to be used in our processes, it needs to be converted into something else and which is very energy intensive. So we are planning to set up some yellow phosphorus processing facility in Middle East, which will save us some costs.

Additionally, our procurement team is also looking at different geographies for sourcing. Currently, most of this is coming from Kazakhstan, which is logistically not very efficient. But we are also exploring possibilities of sourcing it from other geographies. And third is, we are also looking at replacing part of the raw material chemicals that we are currently using from other chemicals, which are not as difficult to procure in India. So those are, of course, a little mix long-term kind of initiatives that those are the things which we plan to repair going forward.

[Sanjesh Jain, analyst]

Got it. Sir, just...

[Raj Gupta, executive]

For natural advantage, which you mentioned that China has, the similar kind of advantage in one point in time, China also had in Carbon Black industry. But gradually, we improved our efficiencies, our manufacturing efficiency, operational efficiency. And today, we have a far better place than where we were maybe 6, 7 years back. And now that once we have crossed that path for us to implement a similar kind of initiative modeling Aquapharm, which is not going to take as much time.

[Sanjesh Jain, analyst]

Got it. Got it, but phosphorus, India has been struggling for a while, even in the fertilizers...

[Operator]

Sir, your voice is not audible, sir. I request you to use your handset while speaking.

[Sanjesh Jain, analyst]

Yes, Yes. I was telling Raj that phosphorus as India has been struggling for a while now. The fertilizer, which is a large consumption in terms of the volume, they also had their own fair share. But I got your point that we are looking at backward integration and to derisk this. That's a welcome point.

[Raj Gupta, executive]

Also you know what Sanjesh, while you talk so much about phosphorus. All that we give you [indiscernible] in terms of [indiscernible].

[Operator]

Sorry to interrupt you from the management line, your voice has been cutting off, sir?

[Sanjesh Jain, analyst]

Raj, we are not able to hear you, it is [indiscernible].

[Raj Gupta, executive]

[indiscernible].

[Operator]

No, sir. No, no.

[Raj Gupta, executive]

[indiscernible].

[Operator]

Now it's been muffled very...

[Sanjesh Jain, analyst]

Beyond the auditable level, Raj.

[Raj Gupta, executive]

[indiscernible]

[Sanjesh Jain, analyst]

No. No, we cannot.

[Operator]

Yes, sir. You can speak now, sir?

[Sanjesh Jain, analyst]

Raj can you hear us?

[Raj Gupta, executive]

Yes. I can hear you. I guess now am I audible?

[Operator]

Yes.

[Raj Gupta, executive]

Yes. So Sanjesh, I was mentioning that while we talk a lot about availability or nonavailability of yellow phosphorus in India and therefore the cost impact. But yellow phosphorus for all that you buy annually is just about 10,000, 12,000 tonnes. So it is just one of the many chemicals on raw material side that we purchased it is not the sole raw material, which just accounts for maybe 7%, 8% of our total raw material that we consume.

[Sanjesh Jain, analyst]

Only 7%, 8% of the raw materials?

[Raj Gupta, executive]

Yes. Yes.

[Sanjesh Jain, analyst]

Clear. Now shifting back to the Carbon Black, Raj. If I look at the global commentary from your peers, they have downgraded the EBITDA expectation for this year. Just wanted to understand how is this Russia ban thing working? Because globally, clearly, it looks like the expectation was high, but it hasn't completely flown through in terms of the benefits.

[Raj Gupta, executive]

Okay. So the global peers, when you look at their commentary, because they have operations in multi-country, I mean they have manufacturing facilities in multiple geographies. So therefore, when we give guidance, we give guidance based on all these countries local demand-supply condition also. Like Capital Orion their facilities in China. Chinese Carbon Black investment is not doing well. And therefore, it will reflect on their blended margin. So that will not be reflective of the industry margin possibility or margin profile.

The way we look at it, Sanjesh, a large level of consolidation has already happened in China. At this level, their cost structure has changed, it has gone up significantly, both on raw material side and also on operating cost side, the labor cost has gone upward, environment management cost has gone up, right? And the raw material cost has gone up significantly for them. So today, we are very competitive in global markets. And therefore, while we have continued to increase our volumes in international markets, our margin profile has also kept on increasing. It has not gone down. So that [ blend is mixture ] of our ability to compete with all the global peers in global market.

Second, on top of this now with China and Russia in Carbon Black, it is going to create further deficit of material in the market. Between Russia and China, they used to control 80% of global trade. Now the one, I mean, China growth having pressure on the cost side and Russia going out of business, at least in the European market or Western market, some where it is going to create a larger possibility for of manufacturers to U.S [indiscernible]. And Global industry was never in so much surplus supply. Even before China consolidation, there were reasonable imbalance, some countries had more, some countries had less capacity, but industry was never in so much surplus capacity, which can absorb different foundation in China and Russia.

We believe that industry is going to remain in short supply for at least next 5 to 7 years time. And 3 years back also when we were asked this question that so much capacities coming in India, how we plan to utilize our capacity that we are adding [indiscernible]. And see, it is noted in 1 year, and we are already at full capacity utilization. And we probably believe that condition is going to continue for next 5 to 7 years time. And therefore, we're confident that we can grow at 12% volume. 12%, also, we are saying that additional capacity will take time and possibly even if there is opportunity, we can grow beyond that.

[Sanjesh Jain, analyst]

Fair enough. That's quite elongate and clear, Raj. Just one question, this expedition of CapEx, which we have done in the Chennai facility of 90,000 metric tonne. When are we expecting that to come online?

[Raj Gupta, executive]

This will come in 2 phases, 30,000 tonnes we expect in third quarter itself. And balance 60,000 tonnes, we will also have to do downstream, that is going to take some time, maybe about 12 months' time, 12 months from now. So by third quarter of next year, second quarter or third quarter of next year, next financial year, it should be up and running.

[Sanjesh Jain, analyst]

So till then, we will be constrained by the capacity, right? We have a full utilization in Chennai and all the other facilities in which we were running at an optimal utilization business, until [indiscernible] come we will be short of supply to the growth, right?

[Raj Gupta, executive]

Not really. See, the way the capacities have started up already, we can go up to roughly around 6,25,000, 6,30,000 tonnes of production based on our existing capacity. Then we are adding 1,10,000 tonne capacity in the next roughly 12 months' time, including the 20,000 tonnes specialty capacity. Now this 110,000 tonnes capacity is actually going to give us about 85,000 to 90,000 tonnes capacity.

So it takes us to roughly about 7,05,000, 7,10,000 tonnes kind of capacity. And it is not that we are going to say guidance between now and next year. We are going to do more downstream. Tamil Nadu still gives us some scope, a quite small piece of client there. Additionally, we are also looking at acquiring more land. There is one large piece of land available, but it is not exactly in [indiscernible] area. We're just trying to see whether we can negotiate with [indiscernible] and bring it under the industrial area so that we get all the facilities of [indiscernible], if that happens than the larger facility that we are planning to build up next, we don't need to do with great fees. So -- and that will save time also.

So -- and when you're talking about 12% volume growth, last year, we did 5,30,000 tonnes. You apply another 12,000 tonnes to that, we will be doing about 6,00,000-odd tonnes this year. And next year, we will be doing about 6,70,000, 6,80,000. Just 12% I'm talking about [indiscernible]. So for FY '25, '26, we have adequate capacity and by '27, they will have more capacity coming up, which will take care of the growth. So we -- I'm [indiscernible] we would be very constrained by capacity. We are saying that while we can add 12% on a year-on-year basis. But growing beyond that possibly will become a little challenge, because, I mean, addition of capacity in such short period, even capacity addition in shorter period may be difficult.

[Sanjesh Jain, analyst]

Got it. Got it. That's pretty much clear. And best of luck for the coming quarters.

[Raj Gupta, executive]

Thank you, Sanjesh.

[Operator]

Our next question is from the line of Radha from B&K Securities.

[Radha Agarwalla, analyst]

Congratulations on good result. Sir, my question was that our target is to reach INR 2,500 crores in the next 5 years. So if we take Carbon Black 12% volume CAGR and EBITDA per tonne of INR 22,000 per tonne. So I think you can get INR 1,100 crores PAT...

[Operator]

Ma'am please be loud, a little loud? Your voice is not audible.

[Radha Agarwalla, analyst]

To reach the target of INR 2,500 crores PAT if you do a quick back calculation then in Carbon Black, as per your guidance of 12% volume CAGR for the next 5 years and EBITDA of 22 per kg (sic) [ INR 22,000 per tonne ] we can do around INR 1,000 crores to INR 1,100 crores per. And in Aquapharm, if you double the capacity and then ex utilization in the next 5 years, we could do another INR 500 crores. So can you just please explain me where the gap of INR 500 crores is coming from?

[Raj Gupta, executive]

Radha, first of all, we always believe that we can increase our margin beyond that. So I was also talking about a while back that there's a possibility of improvement in our EBITDA to the tune of INR 4,500, INR 5,000 per tonne, which takes us to roughly about INR 25,000, INR 26,000, even if you consider INR 25,000 per tonne on a 12% CAGR volume growth, which kind of takes us roughly 9,40,000 tonnes in FY '29. If you apply it on that we do EBITDA of roughly INR 2,200 crores.

Aquapharm already, we believe that this year with the current capacity and which is not fully utilized, we are going to be roughly about INR 300 crores, and the current capacity can give us EBITDA up to roughly about INR 450 crores to INR 500 crores because in FY '23 they did, I mean, the company did INR 400 crores of EBITDA, with lower capacity. If we can go up to INR 500 crores from the current capacity and there will be a doubling capacity, actually, it takes us to close to INR 1,000 crores. But even if you consider 70% capacity utilization of Aquapharm by 2029 on the extended capacity, we still do about INR 700 crores of EBITDA.

And then the battery chemical, which is a very high-margin business, we believe that it can go around INR 1,000 crores to INR 1,200 crores kind of EBITDA by 2029. Now if you add the [indiscernible], it will take you to roughly around INR 43 -- INR 4,200 crores, INR 4,300 crore of EBITDA. Our debt will almost be paid off with the kind of PAT that we are generating. And we will just have depreciation of about INR 500 crores. So even if you consider the interest of INR 200 crores, right? And also, I mean, different depreciation and [indiscernible] roughly about INR 700 crores. We deducted from EBITDA of INR 4,300 crores, we are still at INR 3,800 crores. You apply whatever tax rate you are selling beyond INR 2,500 crores. That's how we calculate it.

[Radha Agarwalla, analyst]

Okay, sir. And this CapEx of INR 3,300 crores you mentioned. So that CapEx is INR 3,300 crores is what we would require to achieve INR 2,500 crores or anything higher?

[Raj Gupta, executive]

No. Yes, this is adequate for us to achieve those targeted numbers by '29.

[Radha Agarwalla, analyst]

And sir, the INR 1,200 crore EBITDA for the JV, that is for our share of JV or [indiscernible]?

[Raj Gupta, executive]

No, this is whole. This is whole.

[Radha Agarwalla, analyst]

Okay. And sir, Aquapharm said that in 2023, they did a higher profitability. But I believe that there was some supply chain disruptions. So that's why the profitability was higher and now it is more kind of normalizing. So...

[Raj Gupta, executive]

Radha, now it is also not a normal scenario, '22 may have been the reception, but '23 margins are already moderated. And now what we are seeing is industry at its bottom, like most of the chemicals. So this is also not normal. And like I said, 2 things, one, the capacity utilization has been very low. We are currently at about 75% capacity utilization. Second, all the efficiency majors that we are taking on the cost side and operational efficiency improvement side. Those are going to take our bottom line higher. So by fourth quarter of this year, our performance would increase, which will only give us a run rate of about INR 360 crores to INR 380-odd crores annualized [indiscernible].

[Radha Agarwalla, analyst]

Okay, sir. And second question was on the performance chemicals side. So 2 years back this used seems to be 20% of our Carbon Black volume. Now we are at all-time high levels, 33% of Carbon Black volume. So what is leading to this high growth in this segment? And do you expect the momentum to sustain?

[Raj Gupta, executive]

No. The way we look at it, though performance segment carries a little higher margin, but the offtake is not uniform across partners and across U.S. So we keep open eye, we keep on looking at how the markets are behaving this segment, the demand and pricing and margins are attractive, and we can keep changing our allocation. So this will fluctuate the 25% to 35% depending on industry dynamics. But our focus is more on to increase capacity, increase our market presence and improve our margins to our own efficiency.

[Radha Agarwalla, analyst]

Sir, what is leading to this volatility in performance chemical business? And also ...

[Raj Gupta, executive]

I mean -- the end user industries are different, Radha. Sometimes when those end user industries perform well, the offtake is better in that case.

[Radha Agarwalla, analyst]

That would be construction and infrastructure?

[Raj Gupta, executive]

Construction, infrastructure, automotive industry all 3, and also [indiscernible] its a wide universe, really wide universe.

[Radha Agarwalla, analyst]

So there are majority of the same channel spot basis?

[Raj Gupta, executive]

No, no, no. It is not majority on spot basis. While some of the place is of course spot basis, but the customers are mostly our regular customers, because they [indiscernible] form of mostly repetitive nature.

[Radha Agarwalla, analyst]

Regular customers means your tire customers or...

[Raj Gupta, executive]

No, no, no, not tire. I'm talking about performance segment customers. So the customer universe is more like, we are adding more customers every passing year, but then customers are repetitive customers. Only thing is that when their demand goes up, then we tend to supply to offtake in this segment as well.

[Radha Agarwalla, analyst]

Sir how is the domestic export mix in performance chemicals?

[Raj Gupta, executive]

It is more in the international markets. So we are doing roughly about 35% domestically and 65% international.

[Radha Agarwalla, analyst]

Okay. And this -- currently which region can see increased demand?

[Raj Gupta, executive]

Radha, you will have to ask the question again as your voice is not [indiscernible].

[Radha Agarwalla, analyst]

Sir in export market, which regions you're seeing the increased demand?

[Raj Gupta, executive]

And these are always very strong in Asia Pacific. The last few years, we have been trying to build roads in Western Europe, North America. And I mean while the market past growing across -- I mean the customers are growing across markets. But we are also putting a little more focus on Western Europe now.

[Operator]

[Operator Instructions] Our next question is from the line of from [indiscernible] from Kuber Investments.

[Unknown Analyst]

Am I audible?

[Operator]

Yes, sir.

[Unknown Analyst]

Raj, you mentioned that there is a capacity expansion for Aquapharm that is underway. But in the last call, you mentioned that there is some capacity that is going to come up in the U.S. So this 38,000 that you mentioned, is it the one that is going to come in the U.S.

[Raj Gupta, executive]

No, this 38,000 is entirely India. U.S., we will have to add capacity because we are already operating at almost full capacities, but the line specification or the product specification is still in [indiscernible] form. So maybe we will start sharing further details about those in a quarter time.

[Unknown Analyst]

Got it. So this 38,000 is something that you're mentioning is going to come up in the next 6 to 8 months.

[Raj Gupta, executive]

Yes, by February or March latest, we should have all this entire 38,000 [indiscernible].

[Unknown Analyst]

Sure. And also, we spoke about the pressure on the Aquapharm margins at this point of time. Is this something that we've estimated during due diligence? Or is this has come as a surprise to us?

[Raj Gupta, executive]

No, this has not come as a surprise to us, because the acquisition got completed in January, 31st January. And we already had last 5 months, I mean first half was already a little subdued. I mean I'm talking about the period between April and September, and then October to January was even a little softer. So we had those numbers coming in, and we also had the commentary from the industry peers. So we knew that it was going to go through a soft patch, but then considering the product portfolio, the customer most to which they are catering, I mean, Aquapharm is catering to and the markets where they are placing, we thought to go ahead with some action.

[Unknown Analyst]

Fair enough. And my final question is regarding green chelates, we heard a lot of bullish commentary from the management regarding green chelates, but it's currently only 1% of the total sales. Do we need to do some market development activities to grow this segment? Or is there a shift that is already underway and you will ride this trend?

[Raj Gupta, executive]

I am handing it over to our MD, Mr. Kaushik Roy, he will answer question.

[Kaushik Roy, executive]

Okay. I mean there are 4 major segments. One is phosphonate [indiscernible] 24%. And then we have got 3 major segments where we are around 1% to 2%. Green chelates is one of them. One is green chelate, one is polymer and one is chemical for oil and gas. And all 3 of them are -- profitability wise all 3 of them was pretty healthy. Additionally, for green chelate, it is the biodegradable product and therefore, a sustainable product, which is the need of power for the globe, you can say. So all these 3 areas, we feel since we are just about 1% or 2% of the global share, there has a lot of headroom to grow. You have a lot of headroom to grow.

In addition to phosphonate, where we are a strong player, we'll keep on maintaining the strength there, but additionally, will grow a lot in these 3 areas, particularly. And you're absolutely right. We need to do a lot of marketing activities, a lot of market development activities, a lot of customer development activities, product development activities also and geographical expansion in terms of having the right kind of logistics support everywhere.

So all these will act as building block. It is somewhat like -- as you know, PCBL, earlier it was primarily in the India focused organization. And today, almost 35% to 40% goes out of India. And we build all these supply chain blocks over a period of time across the globe for PCBL, including our R&D center, including supply chain, warehouses, logistics partner tying up, having our own offices in different countries. Similar initiatives will also be taken for Aquapharm.

[Unknown Analyst]

Got it. And final question is...

[Operator]

Several participants are waiting for that.

[Kaushik Roy, executive]

We can take it offline, okay.

[Operator]

Our next question is from the line of [ Venkatesh ] from [ Logistic Consultancy Private Limited ].

[Unknown Analyst]

I just have one question on -- which is more of an optionality. So when I'm reading about the literature and your own commentary about Aquapharm and everything else. Apart from what you've highlighted in terms of volume growth, is there some sort of an optionality that we are probably not still -- although we have been very optimistic on the future growth prospects. And you could talk about the Australian JV or the potential of our perform into water treatment nano-rate tubes that you talked about. Is there something there that can come as a very pleasant surprise, which can probably outdo your optimism because these are sectors which can have huge growth when you get it on the cycle, right? So can you expand a little bit on that?

[Raj Gupta, executive]

Yes, sir. So if you noted is that the numbers we are sharing, especially for Aquapharm and this battery venture that is finance [indiscernible]. Do you have configured the scale margin multiplied by the increased volume. But historically, the margins have been far better. We are not considering those margins because then that will be a little optimistic. But I mean, chemical industry goes to [indiscernible] or low and including your file if the cycle improves, then we can even enjoy better margins than what currently we are factoring in, in our calculation.

On the battery chemical side, currently, the material which we are planning to produce that gets sold at about $300 a kg. For our calculation, we are considering $100 a kg. Now that's the conservative estimate of the selling price and of course the EBITDA as a percentage of sale realization. So those are all the positive upside, which may be there that we are currently taking a conservative estimate of what the margin to file would be.

[Unknown Analyst]

Okay. And going on Aquapharm that they are in U.S. and that's not a market that we have never been, would there be cross-selling opportunities, one, and concern that the CapEx in Europe and U.S. from the major world there is quite limited, would there be chances for more export opportunities of poring into the U.S. market? The question is Aquapharm is [indiscernible] water treatment. That's a big area, big size opportunity. You have some sort of an opportunity price that you can talk about for Aquapharm water treatment chemicals.

[Raj Gupta, executive]

I'll answer the first 2 questions and then hand over to Mr. Roy to talk about the opportunity, the possibility in water treatment segment. In terms of synergy, based on their supply chain network, yes, I mean, they are present in markets where we historically had low presence. So almost 75%, 80% of your volumes come from North America and Western Europe. And we hardly had any presence in this market. We are trying to building roads, but that is a flow process. But now that we are in this acquisition, we have got access to the supply chain network, which is going to speed up things for us. And these are the markets which are not very price sensitive, so the margin profile also [indiscernible] enrolled in the margin profile also improve in these markets. So we are going to get advantage of this.

Additionally, if you look at PCBL, all of our manufacturing facilities are in India. We never had any overseas manufacturing experience within now. And therefore, also, there was some kind of criticism about our building up some capacity outside. Now we get this company which already had a manufacturing facility in the U.S. And the people are in -- our team is managing it, running it in so many years. So that's a new capability which is up to us on place wonder if you want to build up some manufacturing facility in other parts of world in that capacity [indiscernible]. Now regarding the possibility in water treatment segment, will you repeat the question? [indiscernible]

[Kaushik Roy, executive]

And I have a question on water treatment please?

What exactly was the question?

[Unknown Analyst]

My question was, I think it's such a large area, and it's very important water as a team. So I'm trying to look at what is the size of the opportunity that you're looking at and what will be the application? For example, if Saudi Arabia is going to get into [indiscernible] on CapEx from water treatment or whether it is in India, have you evaluated geographies and that this can be used in terms of the overall size of the opportunity size for the water treatment chemical?

[Kaushik Roy, executive]

You're absolutely right. Water treatment, whole area is actually huge. And I think it is hardly explored it. It is very limited so far. But as we go along, it will be more and more -- there will be a lot of focus more on in this area. In fact, in our R&D, we are taking a few more initiatives also in terms of possibility of new products in this area. So it is not just about different countries and different locations and applications from water treatment point of view, but also from a product point of view. So we're looking at that as well. We're looking at that as well. We are at to quantify that. Give us some more time or till come back with a better understanding in terms of numbers, what is the size of the opportunity, but you are right, we feel there's a huge amount of opportunity.

Just generally, for all of you, we are only discussing a few things here like Carbon Black and battery and Aquapharm. But always we're actually looking at a few other things, which we are not sharing at this point of time because it's maybe a little too early. Very exciting initiatives from other areas and maybe even breakthrough areas, breakthrough opportunities. And I was hearing the question a little while back, can it go beyond this. I'm keeping my fingers crossed, but if it goes, it will go multifold. It will go really multifold. So those initiatives are a very, very big venue. But related to R&D for that I'm not sharing any more detail, but 3, 4 more areas we are working on. Hopefully, we'll be successful, and we'll come back to you very soon.

[Operator]

Ladies and gentlemen, that was the last question for the day. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.