Ladies and gentlemen, good day, and welcome to the Q4 FY24 Earnings Conference Call of Oriental Carbon and Chemicals Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company around the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on a touchscreen phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Akshat Goenka, Promoter and Joint Managing Director of Oriental Carbon and Chemicals Limited. Thank you, and over to you, sir.
Good afternoon and a very warm welcome to everyone. Along with me, I have Mr. Anurag Jain, CFO, and SGAIR Advisors. We have uploaded our results and investor presentation for the quarter and full year ended 31st March 2024 on the stock exchanges and company website. Hope each one of you had a chance to go through the same. During the quarter gone by, the company has witnessed revenue growth of four percent and PAT growth of 15% despite several factors such as the global chemical inventory restocking leading to depressed realizations and a slowdown in the global chemical space. Revenue for FY 2024 was lower due to a reduction in sales price on account of a reduction in input and freight costs for insoluble sulfur and acid, respectively. However, the company was able to maintain its margin.
The company is witnessing a challenging global environment characterized by elevated inflation, lower demand, and realizations of chemicals globally. The demand in Europe, which is the second-largest market for our company, has been sluggish due to the macroeconomic and geopolitical environment, including the various conflicts. Excessive production capacities over demand are resulting in pressure on prices and margins globally. This is expected to continue until the balance is reached between capacity and demand. Due to imports in India being made at very low prices, the company has applied to the DGTR for the recommendation of anti-dumping duty on the import of insoluble sulfur from China and Japan. We are making the company stronger by prudent capital allocation as well as early repayments of debt. Last year, debt was reduced, and in April, further debt was paid back.
As of date, our non-current long-term debt is INR 33 crores, and the current short-term borrowings, including current maturities, are INR 52 crores. Our liquid cash and investments are INR 63 crores. The position of the balance sheet is healthy. In the near future, CapEx will be restricted to maintenance and payback ones. I'm also happy to share that we've received approval from the Honorable NCLT for the demerger scheme. The order has been appealed in NCLAT on the limited point of appointed date. The case has been admitted, and we expect it to conclude soon. This milestone unlocks significant value within both the demerged and resulting companies, aligning with the unique risk-return profiles and cash flows. It enhances our flexibility in accessing capital and attracting partners and investors tailored to each business segment.
Additionally, this move enables a sharper focus on individual growth strategies and expansion opportunities, ensuring optimized performance and value creation for our stakeholders. To conclude, I would like to say that we have experienced comparable industry downturns on multiple occasions, and our company is well-positioned to handle this brief phase because of its balance sheet hygiene, strengthened comparative structure, ESG commitments, and customer approvals. The company will be among the fastest to improve capacity utilization and capital efficiency as soon as the demand recovery results and orders come in, therefore boosting value for its stakeholders. With this, I would like to hand over the line to Mr. Anurag Jain to update you on the financial performance of the company.
Thank you, Akshat. I will now take you all through the standalone financials of the company. As far as Q4 FY2024 is concerned, total income is INR 108 crores and grew by four percent year-on-year. EBITDA stood at INR 27 crores, a growth of seven percent year-on-year. EBITDA margin stood at 24.8% compared to 24.1% same time last year. Profit after tax stood at INR 13 crores, with a growth of 15% year-on-year. PAT margin stood at 12.3% versus 11.1% during Q4 FY2023. Now, to give you a highlight on the year-ending FY2024, total income stood at INR 401 crores, a growth of 14% year-on-year. EBITDA stood at INR 97 crores, at the same level as previous year. EBITDA margins were 24.2% against 21% last year. Profit after tax stood at INR 43 crores, down two percent over last year. With this, I would like to open the floor for questions and answers.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchscreen telephone. If you wish to remove yourself from question queue, you may press star and two. Participants, I request that you use handsets while asking the question. Ladies and gentlemen, we will wait for the moment while the question queue assembles. The first question is from the line of Aditya Khetan from Smith's Institutional Equities. Please go ahead.
Yes, thank you, sir, for the opportunity. Sir, when we look at your performances in this quarter as compared to last quarter, your top line, EBITDA, PAT, everything has improved. Sir, what has changed on a sequential basis? Whether it is volumes which have gone up or realizations, or what has actually changed on quarter-on-quarter basis?
As far as this quarter is concerned, the major change has come in volumes with respect to previous year. The volume that we moved this quarter was more, and that is reflected in our performance.
Okay. Sir, onto the volume side, that Phase I capacity of 5,500 tons, at what utilization level is that operating? Just a ballpark figure, if you can help us understand.
We do not look at capacity utilization on a line-wise basis. It is the total capacity utilization that we look at. Currently, the capacity utilization would be around 70%.
70%. Okay. Okay. Sir, for the month of January, February, March, we are witnessing that the export prices of Insoluble Sulfur have taken a dip. Sir, will this be reflected in the coming quarters, or have we taken that into our this quarter number?
In this quarter, obviously, in some says, the dip is not there because it's related to other contract, in some says, the dip is there. In the coming quarter, the whole impact will be there.
Okay. Okay. Sir, onto the anti-dumping duty, sir, any update? You had applied for ADD on China and Japan. Earlier, sir, we knew that the import was primarily happening from Flexsys only. So, China and Japan have now started to dump excess capacity in India?
That is right. They have excess capacity which they are dumping in India, and therefore, there is an impact on pricing, and that is what has forced us to move for anti-dumping duty against them. In fact, even Flexsys have started dumping recently, and once it shows up in the data and gets proven, we will move against Flexsys also.
Okay. Sir, by which quarter are we expecting this to normalize? So, demand-supply globally and all these things, by which quarter or year can we say things will normalize?
Currently, the gap in demand and supply globally is quite significant, and the growth in demand is still projected to be in the range of three to four percent. The normalization is not going to happen in the next at least two years.
Okay. Sir, any update onto the sulfur prices, sulfur and coating oil prices? Where are they moving right now?
They are more or less stable right now. As far as sulfur is concerned, it is stable with a negative outlook. As far as oil is concerned, that is also stable. Currently, both are in the stable range.
Sir, just one last question. Sir, that phase two capacity expansion, any plans on that? We will be looking to restart that?
That will depend on the capacity utilization. Once it crosses the threshold of, say, 85% or 90%, then we will start the process of looking for expansion Phase II.
Okay. Okay. Thank you, sir. Thank you.
Thank you. The next question is from the line of Dhruv Mukesh Bajaj from Smart Sail Investment Advisors. Please go ahead.
Sir, firstly, congratulations on a decent set of numbers. I wanted to understand more about the anti-dumping duty because in recent times, finance ministry actually blocking approvals of anti-dumping duty despite the other ministry giving approvals. A, how big has been the impact of these imports on our realizations in domestic market? B, is that existing capacity sufficient enough to meet the domestic demands given there are no major players in the domestic industry to cater to the demand? Imports are a natural outcome, right? Or am I missing something?
Our capacity is far more than the total domestic demand.
Okay.
Okay. So, let me give you a ballpark figure. The total domestic demand will be between 22,000 tons per annum. Our capacity is 39,000 tons per annum.
Okay.
Secondly, when we talk about anti-dumping duty, it is not about blocking imports. It is about blocking dumping of material by exporters. It is not about blocking imports altogether.
Got it, sir. Sir, since our investment company will now house Duncan Engineering, can you please provide us updates regarding the operations? As based on my reading, we have been successful in turning around the operation in the last few years by selling non-profitable businesses among others. However, the scale of operations has remained stagnant at INR 60 crores-INR 70 crores in the past decade. How do we plan on scaling this up? Some information about the new developments or any tailwinds surrounding the business would be really helpful.
Sir, there is work happening on various things and new product development, and the prospects are bright for Duncan Engineering.
Okay, sir. Sir, post-demerger, how are you planning to deal with our cash flow generation? As I am worrying, currently, stand at only INR 50 crores versus an annual cash flow generation of around INR 100 crores. Given the life of investment, of course, it is in the core business in the near term since we are operating at around 70% utilization. Can you please guide us regarding your strategy going forward if possible?
We will do whatever is in the best interest of the shareholders.
Okay, sir. That's it from my side. Thank you.
Thank you. A reminder to all participants, give me a press star and one to ask question. The next question is from the line of Ayush Agarwal from MAPL Value Investing Fund. Please go ahead.
Good afternoon, sir. Thank you for the opportunity. Sir, first question is on GTO prices. They have moved up from $1.6- $2.5 because of the issue in Brazil. Looking on that, how will that impact us?
Sorry, can you please repeat your question?
Sir, growth percentile oil prices have moved up from $1.6- $2.5 because of the issue in Brazil. Any comment on that, and how will that impact us?
Which oil prices have moved up?
GTO prices. Growth percentile oil, GTO prices?
No, these are not affecting the oil that we are buying.
Sorry?
This has no impact on the oil that we are buying.
Oh, this has no impact. Okay. All right. That's it from my side. Thank you.
Thank you. The next question is from the line of Karan Mehra from Meta Investments. Please go ahead.
Yeah. Thank you for the opportunity, sir. Sir, a couple of questions from my end. If you can throw some light, when can we expect the demand supply scenario in Europe to normalize? If you can throw some light here.
It's very difficult to say how Europe will evolve from where it is because there have been reductions in production there based on the economic slowdown, based on the new economic reality, as well as the geopolitical situation. How much of it comes back and when? It's very difficult to hazard that guess. What we can see from the current market demand is that whatever they are buying has more or less stabilized. It's not going down further. That much we can see.
Okay. We have seen good improvement in our margins, so congratulations on that trend. If you can help us understand what has been the major reason for this margin improvement and what would be the sustainable margins going ahead?
If you look at it from a quarter basis, there has not been a significant increase in margin. There was a slight increase in margin because of the raw material costs. Going forward, because of the reason of capacities and dumping, we do see margins to be in a little bit of pressure, as we have indicated earlier also. In the current year, the margin per ton of product we are expecting to be lower than it was in 2023, 2024.
Understood. Sure. That answers my question. Thank you, and all the very best.
Thank you. The next question is from the line of Rohit from SK Securities. Please go ahead.
Hello. Thank you for the opportunity. Am I audible?
Yes.
Yeah. So, my first question is, our peer, China, from China's insoluble sulfur manufacturing capacity during FY 2022 and has announced plans for further capital expenditures. How much of deep in realizations can we expect as a result?
How much?
Deep in realization, can we expect as a result due to this expansion or their capacity expansion?
As far as China is concerned, our belief is that the current price that they are selling at is already at a level which is very low. Until something happens to the raw material, the lowest price that they are selling at today, they do not have much more leverage to reduce it further.
Okay. So, you are saying that there will not be a margin impact on this?
Yeah, because there are different levels of pricing, but the lowest price that we see them selling at globally is so low that we do not see much leverage of further reduction in that.
Okay. Got it. My second question is, how do you see the demand-supply dynamics for insoluble sulfur in the next two, three years?
The gap between capacities, if you take the whole of China in the capacity and the demand, is significant, and I do not see that being bridged in the next three years if we were to go by the generally believed figure of growth in demand of three to four percent.
Okay. So.
In short, the next two, three years in terms of pricing are going to be tough.
Got it, sir. Got it. Okay. That's it from my side. Thank you, and all the best.
Thank you. The next question is from the line of Sarvannan, an individual investor. Please go ahead.
Hey, Anurag, and hey, Akshat. Hope you're doing well. My first question, hello? Can you hear me?
No, no. Please go ahead.
Yeah. The first question is on the North American market expansion, right? Three, four quarters back, we had a roadmap on the inland market expansion on adding few OEMs. Just want to get an update on that. Also, since the demand is sort of, again, muted, right, due to the oversupply in the market, in a typical case, how does the evolution happen in terms of the addressable market that's available today, keeping the Europe and North American market? That's question one. Question two is primarily on the buyback front. Earlier, I think the participant asked a question about INR 100 crores operating cash flows that are available, right? Now with the dividend and the free cash flows with limited investment opportunities, is there a possibility to reduce the share capital by three percent? Maybe I think we'd love to get your thoughts on that.
Sir, to answer your first question, yes, our plans of America are in place. Unfortunately, last year, we could not get the market in America that we wanted because of various reasons. Of course, one being that the producer in America is in a dominant position there, and therefore, we could not get the market that we wanted. Our result is fine. As far as growth is concerned, obviously, we intend to take the normal growth of two to four percent globally. Our growth should be more than that because we are sitting in India where the growth is expected to be anywhere between 8%-10% for insoluble sulfur. That way, our growth is going to be more. Yes, we have opportunities also in untapped geographies of manufacturers, which we intend to tap.
In short, our growth should be more than the growth of the market globally.
Got it.
As far as your second question/suggestion is concerned, as Mr. Akshat Goenka has already pointed out, at the appropriate time, we will take the decision that is best for the investors and stakeholders.
Got it. Got it. The last question is mainly on the addressable market, right, which I think you partly answered. Today, our domestic market share is close to 60%, and the remaining is sort of taken by other unorganized players, right? From a global market share standpoint, again, we are at 10% today. Now, with oversupply hanging in the ecosystem, how much low-hanging fruits can be captured? Are there any other markets outside? Obviously, U.S. is one major market, but are there any other markets that are, again, poaching grounds that we are exploring today?
As I said, markets can be divided into broad segments. One are geographical, and one is the big-tier customers, right? They have different plants in different locations. When we talk about or when we look for expanding our footprint, it is a mixture of both. We look at it from a geographical point of view as well as from the point of view of the global manufacturers where the addressable market can be increased by us. It is going to be a mixture of these two things, which we feel will help us fulfill our growth targets.
Got it. Got it. And the last question is primarily on the venture investment field, Anurag. Now, today, globally, the private equity and venture capital flow is sort of muted, right? Now, keeping the downturn in the private equity space, would this be a good time to explore some good assets when the private assets are sort of not having hyperactivity?
I didn't get your question. Sorry.
The private equity and venture investing, it's sort of muted today, right? Now, are you seeing good opportunities to deploy more capital on the private markets standpoint?
Yeah. We keep doing that. We keep deploying capital year on year and finding opportunities, and we'll continue to do that.
Okay. All right. Yeah. Thank you so much. That's it from my end.
Thank you. The next question is from the line of Madhur Rathi from Counter Cyclical Investments. Please go ahead.
Hi. Thank you for the opportunity, sir. Sir, when we say that the next two, three years are going to be under pressure in terms of pricing, as well as there is an overcapacity, sir, to what level can we see our margins going down or the margin pressure on our books from a two to three-year perspective?
See, currently, we are discussing about four to five percent reduction in margins from last year. That is our anticipation in terms of per ton basis, not on per ton basis, not on additive hours. I mean, we feel that this is something which could be sustainable. I mean, we do not feel that we might have to go lower than that. One of the reasons, of course, is that we have applied for anti-dumping . If that materializes, I think we will be able to sustain on that basis. We should.
What is the current per ton margin that we yield?
That is not something that I'm able to share.
Okay. That's fine, sir. Sir, and on the general engineering side, sir, so in the demerged entity, do we have some kind of vision for this aspect of our company or from the next going forward, what is the outlook for this segment?
Sorry, can you repeat the question?
Sure. The general engineering, our engineering segment of our books, sir, so what is the outlook for the same for the next two to three years when they get de-merged into a different entity?
I already mentioned earlier that we have a positive outlook on the investment, and we expect it to grow.
Sure. If you could give us a little bit breathe because what kind of products are we entering into, new kind of process equipment or something? Because it will be better to get an understanding from your side.
I suggest that you join the HEM that will be there for Duncan Engineering and read the annual report, and all your questions regarding Duncan will be answered in the HEM.
Sure, sir. That will be. Thank you, and all the best.
Thank you. The next question is from the line of Saurabh Mittal, an individual investor. Please go ahead.
Thank you for the opportunity, sir. My first question is regarding the product. How is the product supplied to one customer different from the product supplied to the other? Also, in the past annual reports, I have read that around 22% of the company's total sales is contributed from the value-added product. So, what is the difference between this value-added product and the other part of the sales?
Sorry, I didn't get your question.
Sir, my question is regarding the product. How is the product supplied to one customer different from the product supplied to the other customers?
No, that's not true. We supply similar products to all customers.
Okay. What is the value addition in that product? In the past annual reports, I have read around 22% of the company's sales come from value-added product.
Yes. Now, all products are same. That is, in the past when there were different products. But now, value-added products have become the standard.
Okay. In the last con call, you said that the tire company can give you the business within six months if they want you, and if they do not want you, they will not give you the business even for five years.
Correct.
What are the characteristics that the tire companies are looking for in their suppliers?
Quality, cost, reliability.
Okay. My next question is, sir, why there are only three or four players in the insoluble sulfur which are globally recognized?
You should ask that to the tire companies.
Okay. Yeah. That was it from my side. Thank you very much, sir.
Thank you very much.
Thank you. The next question is from the line of Aditya Khetan from Smith's Institutional Equities, please go ahead.
Yeah. Thank you, sir, for the follow-up. Sir, is it possible to share the Sulfuric Acid revenues for this quarter and for full year? What is the utilization level currently we are operating at?
To answer your last question first, we are currently operating at full capacity utilization. As far as revenues are concerned, the realization for Sulfuric Acid has come down by 50%. That is because the price of raw material, average price of raw material, which is sulfur, has come down by 50% from last year. That is why the price has come down for Sulfuric Acid as well. Contribution has also come down.
Okay. Okay. Sir, onto the European market, as you mentioned, there are still some ongoing pressures, which is leading to subdued volume growth. Sir, any idea onto the total market size in Europe and what is our market penetration over there?
You're talking about Europe?
Yes, sir, Europe.
I will have to come back on the total market size. I do not have the figure available readily with me.
Okay. Okay. Sir, you had mentioned that because, sir, you're mentioning that you're witnessing some margin pressure of around four to five percent reduction in per ton basis. Sir, you also mentioned that, sir, that the China prices have already bottomed out. They are near to bottom levels, and there is no further scope wherein they can cut the prices. If that is not factored in in your current numbers, we are anticipating that will come in this fiscal?
Yes. Because some of the factors come in the last quarter, and all impacting are anticipating. As Akshat has pointed out, the question was about China. Now, Japan has also reduced prices. That is the issue.
Okay. Sir, any new capacities which are coming up? Sir, we believe that Shikoku Chemicals capacities were set to come by this calendar year. Any updates, sir, onto the capacity addition side globally?
We don't have any other information of capacity addition other than the one that you just mentioned.
Okay. Okay. Thank you, sir.
Thank you. The next question is from the line of Dhruv Mukesh Bajaj from Smart Sail Investment Advisors. Please go ahead.
Sir, just one question. Being on my understanding, the majority of our revenues in insoluble sulfur space come from sales to tire companies. However, I was trying to see the application in other areas. So, I could see this product is also used in buyers as well as footwear. So, are we exploring options to increasing sales in other applications, or what's the plan?
The consumption of insoluble sulfur in this application is very, very less. There are people who use our product in this application as well, but they are mostly buying from our distributors and not directly from us because the quantity is very less.
Got it, sir. Sir, will this appeal regarding change in appointed date with NCLT regarding the demerger process have any bearing on the demerger process, or do we expect that to complete in a timely manner only? By when can we expect the completion?
The only bearing it will have since the scheme has already been approved, the only bearing it will have will be on the appointed date. That's all.
Right.
We have asked them to keep the appointed date as per the scheme. That is, the appointed date should be the effective date.
Okay.
The bearing will only be to the extent of the appointed date.
Okay. And then, pardon my ignorance, but what effect will it have by changing the appointed date? I was unable to understand the reason behind it.
The reason is the date, sir. That is an internal matter. We would not like to get into it. No, understanding what I'm going to do.
Okay, sir. No issues. Thank you.
Thank you. The next question is from the line of Akshat Shah from Meta Investments. Please go ahead.
Sure. Thank you for the opportunity. I have two major questions regarding the North American market. One is, can you share a few challenges that you are facing in getting customer approvals from North America? This one. The second is, when can you expect to overcome these challenges and penetrate the North American market?
The challenges are not on the customer approval side because we have been approved by most of the players that we have targeted there. The challenge is more commercial. As I pointed out in reply to an earlier question, the dominant supplier has a production base in the U.S., and therefore, we are in a position to position the product in such a manner that it becomes difficult for some companies to get an external supplier in. These are the challenges that we are facing. Otherwise, as far as approval is concerned, our product is approved in most of the targeted tire companies.
Okay. Sure. I understand. Thank you. Also, by when can you expect to penetrate the North American market? If you have any timelines in mind.
Yes. As I said, we have entered the North American market, and we are supplying to many customers there. The quantities are not to the level that we would have desired them to be. The penetration is there.
Got it. Got it. Thank you. That's it from my end. Thank you.
Thank you. That was the last question for the day. I now hand the conference over to the management for closing comments. Over to you, sir.
I'd like to thank everyone for being part of this call. We hope we've answered your questions. If you need more information, please feel free to contact us or SGAIR Advisors. Thank you.
Thank you. On behalf of Oriental Carbon and Chemicals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.