Q1 24/25

Aug 14, 2024

Summary

Q1 FY25 revenue and profit declined amid agrochem order deferrals, while pharma and polymer expanded the revenue mix. Management expects deferred demand and contract ramp-ups to support H2 recovery and anticipates increasing contributions from fluorinated products.

Ladies and gentlemen, good day and welcome to the Q1 FY 2025 earnings conference call of Anupam Rasayan India Limited. 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 your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Krishna Patel from Ernst & Young. Thank you, and over to you, ma'am. Thank you, Ritaja, and good evening, everyone. Welcome to Anupam Rasayan India Limited's Q1 FY 2025 earnings call. Please note that a copy of the disclosure is available on the investor section of the website as well as on the stock exchange. Anything said on this call which reflects the outlook towards the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risk that the company faces. Please note that the audio of the earnings call is a copyright material of Anupam Rasayan and cannot be copied or rebroadcasted, attributed in press or media without specific and written consent of the company. Today from the management side, we have with us Mr. Anand Desai, Managing Director, Mr. Gopal Agarwal, Chief Executive Officer, Mr. Amit Khurana, the Chief Financial Officer, and Mr. Vishal Thakkar, our Deputy Chief Financial Officer. With this, I would like to hand over the call to Mr. Anand Desai for his opening comments. Thank you, and over to you, sir. Thank you, Krishna. Good evening, everyone, and a warm welcome to the Q1 FY 2025 earnings call of Anupam Rasayan. I hope you all are doing well. Let me share a sectoral view followed by the updates for the quarter under review. Agricultural industry is facing a significant headwind since last one year, largely due to the unwinding of the China inventories. We anticipate this trend to persist until the end of FY 2025, after which we expect the demand to strengthen. Our consistent efforts to expand our pharma and polymer portfolio are beginning to pay off. As indicated in the previous earning call, in Q1 FY 2025, our pharma and polymer segments have contributed to our revenue in double digit at 15% and 10% respectively. We expect this trend to continue through FY 2025. This is a shift towards a more balanced portfolio. With higher contributions from the pharma and polymer businesses, it bodes well for sustainable growth going forward. Now let me highlight our financial performance for the quarter under review. Our consolidated operating revenue for the quarter stood at ₹254 crore with a YOY degrowth of 34%. This degrowth on account of lower volume offtake in agricultural segment. The EBITDA margin was at 23% in Q1 FY 2025, lowered by over 5 percentage points on account of lower sales. With higher contribution from polymer and pharma business this year, coupled with ramp up of the LOIs and contracts, we expect our revenue growth to come back from H2 FY 2025. Also, we expect all our plants to be commercialized this year. At Anupam Rasayan, sustainability is one of the key pillars of our business. Over the years, we have invested in multiple initiatives to reduce our environmental footprint, including our recent decision to invest ₹59 crore in a hybrid power plant that combines solar and green energy generation with a combined capacity of 9.6 megawatts. This project is expected to save approximately ₹15 crore annually in energy cost. This investment, along with our previous investments in renewable energy projects, will ensure that 65% of the company's electricity consumption comes from green energy sources and will take us closer to our goal of being energy net zero by 2027. Coming back to the future perspective of company, I would like to highlight that multiple drivers, including ramp up of revenue from LOIs and contracts, pharma, polymer and fluorinated molecules will drive the growth for Anupam. This growth will be further supported by a revival of the agrochem segment from later half of the year. I would also like to mention that completion of the CapEx plants which we had undertaken, along with our existing capacity, will be sufficient for our growth in the midterm. With this, I would like to hand over the call to Mr. Gopal Agarwal, Chief Executive Officer of our company to discuss the business updates. Over to you, Gopal bhai. Thank you, Anand bhai. Hello, and good afternoon, everyone. Welcome to our Q1 FY 2025 earning call. I will begin by briefly discussing business highlights first, and then I'll hand it over to Amit bhai to cover the financial highlights with you. As mentioned by Anand bhai, we are experiencing some headwinds in agrochem segment. However, pharma and polymer segments have been seeing a strong growth, supported by our recently launched 15 plus new molecules. We expect higher contribution from these segments as these molecules will start ramping up, and 5 plus new molecule that are planned to be launched this year. Our investment in Tanfac, which provides us with the supply security for fluorinating agent, which are starting raw materials for our fluorination chemistry, have also started yielding results. We have been able to commercialize 12 plus molecules in last one year alone, and we will also enter into multiple LOI securing long-term contracts, thereby ensuring enough and more demand for us. This has also supported our growth in pharma and polymer segment. Further, on the business development side, I would like to inform you that our efforts in Japan and U.S.A. are yielding results. More particularly in Japan, we are experiencing strong traction, particularly for our fluoropolymers, with significant support from our local business development team in the region. We anticipate that within next two to three years, approximately one-third of Anupam sales will originate from Japan, with all business being secured through long-term contracts. Additionally, we have several new polymer products currently in our R&D that are targeted for supplying in U.S. market as well. With this, to take you through the financial highlights, I would like to hand over the call to our CFO. Over to you, Amit bhai. Thank you, Gopal. Good evening, everyone. Let me take you through the financial highlights for the quarter, after which I will let Vishal bhai to describe the same further. Starting with the CapEx front, as of June 30, 2024, we have already utilized ₹530 crore out of the total planned CapEx of ₹670 crore. The balance CapEx would be incurred during the coming quarters. Our working capital remains stable in absolute terms, and we expect it to stabilize further by the end of this fiscal, with improvements anticipated in FY 2026. We are also focused on cost optimization and operational efficiency, which would not only have financial and commercial advantage, but also will help in achieving our ESG goals. Our strategic focus, coupled with our expansion plan, position us well for long-term growth. With this, I hand over the floor to our Deputy CFO, Vishal bhai, who will take you through the financials in detail. Thank you, Amit bhai. Hello, and good evening, everyone. Thank you for joining us here today. I would like to share some key performance highlights for the quarter ended June 30, 2024, and then we will open the floor for question and answer session. Before I proceed, I hope you all have had a chance to go through the detailed presentation and the results submitted to the exchanges and uploaded on our website. Kindly note, our numbers for the quarter are on consolidated basis, and they include Tanfac numbers as well. Let me first discuss on the consolidated highlights for the quarter ended June 30, 2024. Operating revenues for Q1 FY 2025 was at ₹254 crore as compared to ₹386 crore in Q1 FY 2024, a decline of 34% YOY. EBITDA was at ₹59 crore in Q1 FY 2025 as compared to ₹114 crore in Q1 FY 2024. This would translate to an EBITDA margin of 23% for the quarter. Profit after tax was at ₹12 crore in Q1 FY 2025 as compared to ₹52 crore in Q1 FY 2024. Moving on to the standalone financials for the quarter that ended June 30, 2024. Operating revenue for Q1 FY 2025 was at ₹164 crore compared to ₹289 crore in Q1 FY 2024, down 43% YOY. EBITDA including other incomes was at ₹43 crore in Q1 FY 2025 as compared to ₹88 crore in Q1 FY 2024. This would translate to an EBITDA margin of 23% in this quarter. Oh, sorry, the EBITDA will be at 25% for this quarter. Profit after tax at ₹1.4 crore in Q1 FY 2025 as compared to ₹35 crore in Q1 FY 2024. Our top 10 customers contributed about 77% of our total revenue. Now, I will open the floor for any Q&A that you would like. 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 touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of S Ramesh from Nirmal Bang Securities. Please go ahead. Hello. Can you hear me? Yes, we can. Yes, we hear you. Thank you very much for the call. If you look at your current business mix and the expectation of, A, the reversal of the deferral of orders, how much do you think would the reversal of the deferral of the order which had hit the first quarter will add to the second half numbers? Then on that, what is the additional revenue we can expect from the commercial operation of the new capacity and the booking of new orders? So there are three parts. One is how much is the incremental addition to the revenue second half, which you lost in the first quarter. Secondly, what is the kind of additional revenue you can get capacity? And third, what will be additional revenue from the new LOI to contract? Sir, your voice is not very clear. Can you please repeat the question? Yes, hold on. Let me use handset. Hello, can you hear me now? Better. Please. Yeah. I have three parts to my question. One is, in terms of the potential for addition to the second half revenue, how much would that addition be in INR crores based on whatever revenue you lost in the first quarter because of order deferral? Second is, what is the addition you can expect from the commissioning of the new capacity? And third is, how much is the additional revenue you expect to book from the new LOIs and contracts, which you will start delivering in the second half? Okay. Let me answer this in a broad manner. If you look at it today, around Anupam should have been clocking the growth of INR 80 crore-INR 100 crore more than what we have reported today on a standalone basis. That is primarily on account of the deferral of the demand, so that is the number that you can expect in the second half of the year, which will be spread over two quarters. One. Two, if you look at from a capacity, it's going to come at various stages. I don't want to talk about too much in terms of their number, that how much would that add. It could be marginal for the year, but largely it will be for the next year that we will see a large part of the revenue accruing from the new capacity as well. And third, on the LOIs and contracts, today, we estimate that around 20%-25% of our this year's revenue should be from the LOIs and contracts which are commercialized over last 1-2 years time period. That's what we are trying to suggest. So if you're looking at a ballpark INR 1,000 crore-INR 1,100 crore revenue for the year, you are saying that you will get about INR 250 crore from the new LOIs and contracts in the second half. Is my understanding correct? LOIs and contracts, I've talked about the whole year. Yes, largely it is back ended. But yes, it is the whole year that I'm talking about. You're right. Okay. So over FY 2026 and 2027, again, on this base revenue, you have two parts. One is the existing LOI contracts and existing business, and then you have the new LOIs and contracts. So what will be the addition to the FY 2026, 2027 revenue from the new contracts, and what will be the growth from the existing business? Okay. If I understand, what you are asking is that from the total LOIs and contracts, what is the kind of number that we can expect over the next 2 years. Yeah. Is that the question that you are suggesting? Yeah, exactly. Okay. Let's talk about that. We are talking about around 250 odd crores here, and then in the next two roundabout another- Sorry to interrupt you. Please. Mr. Thakkar, your voice is breaking, sir, in between. Can you please check? Okay. Am I more clear here now? Yeah, now you are clear. Yeah. Okay. What I was saying was that my number for this year we are looking at around about 250 odd crores, and we should be adding roughly around about ₹200 crores each, at least, for the next 2 years, is what our estimation would be. Okay. This is something which you are confident about, even with the kind of headwinds we are facing in agrochem. This is something which you can do, right? You are sure of that. Yes. Because I will tell you 2 things. One is agrochem is also there, but also please appreciate that a lot of my new contracts are of non-agro business as well, though it will come in the latter half of the next year. It will be coming in. You are right. We are feeling confident and comfortable with these numbers, especially with the kind of indication and the conversation that we've had with our customers. Okay. If I just squeeze in one more thought on the balance sheet and your working capital. Incrementally, when you ramp up your production, are you going to maintain your debt at current levels, assuming that the working capital will go up for the additional revenue? Secondly, when do you see the reduction in the working capital in terms of number of days over the next two years? Okay. I think it's a two-year horizon is the right number to see, because that way I will have a better visibility to talk about, a better view to talk about. One, if you really look at it, if you look at today, are sitting with a higher working capital. To that extent, we believe that that working capital will be released over next two years time frame. We don't expect any significant requirement of the external debt to finance this growth in terms of working capital, because the additional working capital that will be required for additional sales would be more supported by the release of the working capital that is there today. That is where I would say, over next two to three years time period, as we have been guiding in the past also, we would be targeting the working capital cycle to come back to the more numbers that we have been in the past, around 2021 time frame. Those will be the number of days, and that is what our view is for now. Thank you, Vishal. Bye. I'll join the queue. Thank you. Thank you, Ramesh. Thank you. Participants who wish to ask a question may press star and one. The next question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead. Yeah. Thanks for the opportunity. So first question is, by FY 2027, again, slightly on a longer horizon, what could be the mix between agro and non-agro? Again, in terms of non-agro, what will be the mix between, say, pharma, polymers, or any other new age segment? Thank you. So Rohit, I am also a bit of crystallizing as you are, so we take it with that much of a thing. But if you really ask me, crystallizing is not the right word I would say. But please understand, this is two years out, so directionally, I am giving you these numbers rather than taking it very specific to the numbers. Okay? I hope that is fair. Right. Absolutely, sir. Okay. I would expect that pharma should be around 20% to 25% of my revenue. 10% to 15%, more towards 15% than 10%, but yes, that should be there. And personal care should be in the range of 10% to 12%. If you look at it, and the balance should be the agrochem, is the number I would go with. Fair enough. That gives a broader sense. I hope, Rohit, after two years, please don't hold me with these numbers and say you had entirely said this. No, broader sense we will do that. That's fair enough. Directly I'm saying that the polymer and pharma will contribute more, and the personal care will remain around 10%-12%. That we assume. Right. Got it. Sir, second question. Given that we are ending with the INR 670 crore of CapEx this year, are we recalibrating our next year's CapEx given the kind of environment we are currently in? Every single company is talking about there is the new capacity additions happening in China, which is putting pressure in terms of incremental growth or volumes. Just your thoughts on the same. Is there any competition coming, particularly in some of our molecules or some of our user segments, and that can also lead to maybe the CapEx being recalibrated? Thank you. Rohit, so if you remember when we had already taken a INR 670 crore of CapEx, now we are at the far end of it. We are confident that we will be completing this CapEx. We don't see any reason for us to not complete this CapEx. So that's one part of it. Anyways, for the next year, we had not planned any new CapEx because we have actually had enough CapEx for our near to medium-term growth. So anyways, new CapEx was not planned and is not planned for the next year, any significant one. There may be some investments in the wind and solar that we have talked about, and also maybe a bit of repurposing of the plants. Other than that, there is no significant capacity addition that was planned, and hence, we don't need to recalibrate because there was a timing in the first place. I hope that helps. Yes. Anything on the China competition front? I think for us, there is not much of it. To my end customer, there may be some bit in few products. There may be some in specific from my products to my customers, we don't see too much of that happening yet. Right. One just last clarification. Again, I'm not going to hold you for the exact numbers. But on the broader margins front incrementally, do we still hold to the range of maybe 25%-27%, 28% EBITDA margins for the next leg of products? Yeah, you can take that. That's a fair assumption. I will go with that. Sure. That's all from my side. Thank you, and all the best. Thank you, Rohit. Thank you. Participants, to ask a question, you may press star and one. The next question is a follow-up question from S Ramesh from Nirmal Bang Equities. Please go ahead. Yeah, thank you for the follow-up. If you look at your fluorination chemistry, I know it overlaps one or two segments. Within the segment share you have discussed between agro and non-agro, where would the fluorination share of your overall revenue stand, and how does it move in the next two years? Broadly, I think it is possibly split between the life sciences and non-life science in the order book. Incrementally, if you are looking at your margin guidance, your margin guidance, does it capture the share of fluorine chemistry and the different segments you have there like pharma and polymers? With the understanding that there could be plus or minus 100, 200 basis point difference in the margin. If you can just put this in perspective, it will be useful. Okay. First let me talk about this year. Fluorination is looking around 15% to start with right now, but that would increase and end up around 20%-25% of my revenue. We believe that it should end up around 30%-35% in the next couple of years. That is when the new LOI contracts also start coming in, new products commercialized also start ramping up fully. That is the kind of number we are looking at. Hello, I am not able to hear you. Okay, I will repeat myself. This quarter, fluorination was around about 15 odd percent of my revenue. This year, we are looking at around about 20% to 25% of my revenue coming from fluorination chemistry. The traction that we have seen, by 2027, we should be looking at around about 30% to 35% of our revenue coming from fluorinated products across various applications. Understood. So now in terms of the supply chain with Tanfac, there are again two parts to this. One is, how much of have you formed up with Tanfac in terms of their CapEx plan to double their capacity? Does that give you enough visibility on the requirement for ramping up your business on the new orders over the next five years? Or will Tanfac have to invest further in terms of additional capacity? What is that? For Tanfac itself, what does it mean? Because we don't have much visibility on Tanfac. Let me answer the first thing. Yeah. Today with the CapEx that we have planned out for Tanfac, the capacity is sufficient and enough for any requirement that we will have over not near term, but even a little longer term view also if we take, it would be sufficient for us and enough and more to be made available for the customers that they have been supplying to today as well. I don't see that I am sorry to interrupt you, Mr. Thakkar. Your voice is breaking. Do you want me to reconnect you, sir? No. Is it better now? Yes. Yeah, but I'm sorry, it keeps breaking. What I'm saying here is that, first, the Tanfac expansion will ensure that we have enough and more available for Anupam to consume as much as it needs for its own growth needs, first. Second, I believe that with the expanded capacity, Tanfac would be able to service their current customers as well as our growth need is what I am saying. Okay. In terms of your fluorine-based products based on this HF, overall, how does it change your margin and ROCE profile? Because if you're saying that the margins are going to be in this range or some products are actually going to be lower margin. In terms of ROCE, how do we read that? In terms of the asset turn, like if you take the ₹670 crore CapEx, what is the asset turn you can expect on these new CapExes commissioned? Is that going to be the key driver for driving your ROCE improvement? How do you see that? Okay. So first, I think on a blended basis, again, as I had suggested to Rohit also, that it will be in the range that we have talked about because there will be a blend here. There will be some products which will have very high margins, but also there will be some products where there will be average margins. On a more blended basis, we believe that the number that we are guiding should be achievable, number one. Right? Especially polymer would have a higher margin. Hello, we have lost you. Mr. Thakkar, we are unable to hear you, sir. Ladies and gentlemen, please stay connected while we check the connection for Mr. Thakkar. Ladies and gentlemen, thank you for patiently holding. The line for Mr. Thakkar is reconnected. Over to you, sir. Yeah. As I was saying, that the margins will be on a blended basis, fairly the similar range that we have talked about because on polymers, on few segments, there will be a little higher margins, especially with the fluorinated products, polymer products. For the pharma, they may be tad lower, but on a blended basis, this is the number that we can give you. Now, if you come to the ROCE and asset utilization, if you look at the new CapEx that we are doing, that should give us a revenue of over around INR 1,100-INR 1,200 crore. Hence, if you see the total capital asset that we have created, we should be having a blended asset turn of over 1.5 times. And with the kind of margins and the top line that we are talking about, we should be having a very healthy ROCE that we can expect here. Yeah, understood. Just as one last clarification. This 1,100-1,200 crore, and this 1.5 at asset turn, by when would you be able to achieve this? S Ramesh, the point is, that is the number where we will hit around about 2,500-3,000 crore of total revenue, right? Because current asset also has current asset block also has capacity to grow. I would not want to bank the number exactly on the target. I am just saying that this is how I would say, but it will be in the region for now. Mr. Thakkar, sir, but your voice is breaking a lot. We are unable to hear anything from your side. It is fine. This is Gopal here. I can take some of the questions, or maybe repeat from there from Shailesh. Sure. Yeah, Gopal, he was saying that he cannot put a timeline, but broadly this is the guidance you are giving in terms of incremental revenue from the new CapEx and the asset turn. Just to get in terms of whether it will be possible by 2027 or 2028. Because if you look at the run rate of ₹200 crore-₹250 crore every year, it looks like it will take 3-4 years. Would it be realistic to expect this additional revenue from the new LOIs and the new CapEx by 2027 or would it be more like 2028? That will give us a sense in terms of by when you can achieve that blended asset turn and improvement in ROCE. That is the basic spirit behind my question. No, understand that. I think with the exception of the current year, I think as you have seen, as you know, we have been clocking the growth of 35%-30%. With that in mind, I guess we should be able to kind of reach that number in the period you are mentioning, in somewhere around there. That is helpful. Thanks a lot and we show all the best. Thank you. Participants who wish to ask a question may press star and one. The next question is from the line of Ayush Chaturvedi from Axis Capital. Please go ahead. Ayush Chaturvedi, please go ahead with the question. Your line is unmuted. Am I audible? Yes, you are. Please go ahead. Yeah. Thanks for the opportunity. Firstly, if you could provide a break-up of exports and domestic business in this quarter, that would be very helpful and also I would like to understand, other than the deferment in the agri business that we have had, what is the impact or any sort of sense we can get from how much of deferment can we expect in the rest of the year on other businesses? Okay. I would not want to See, I can give you the numbers in the Q1 in terms of split of domestic to export, but you would also understand that these are not the representative one, especially with the deferment of the volume that we have talked about, one. Okay. If you look at the deferment as we had mentioned earlier, that volume would be around ₹80 crore-₹100 crore of deferment, which we expect to come by the year-end. So in this year, we would be able to recoup that demand that we have not had in the first quarter and first half. Right. Yeah, go ahead, please. Yeah. Again, like I said, I would like to understand how much of this deferment is coming from the agrochem portfolio and- Largely it is agrochem. Very limited, because that's where my large part of my contracted demand comes from. If you look at personal care has fairly done stable. Polymer and other products have also been stable. So large part of it is agrochem. The other thing. All right. Could we expect a very strong resurgence in the agrochem in the later half of the year like you've been mentioning? So you would have some sense of how much of it would start coming back? My revenue that I am expecting for the year will be equal or higher than we have delivered in the last year. We believe there will be a growth in this area is what we are expecting. It will be marginal, but it will grow. That's what the feedback that we have got from the customers and their plans. All right. Okay. That's very helpful. Thanks. Yeah. Thank you. Ladies and gentlemen, to ask a question, you may press star and 1. Participants who wishes to ask a question may press star and 1. As there are no further questions, I would now like to hand the conference back to the management for closing comments. Thank you everyone for your participation and your queries. We hope we have been able to answer most of your queries. In case we missed out addressing any of your queries, kindly reach out to our IR partner, Shailesh, and we will be happy to connect offline to answer those questions. Thank you. Thank you. On behalf of Anupam Rasayan India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.