Ladies and gentlemen, good day and welcome to the Q2 and H1 FY 2027 earnings conference call of Laxmi Organic Industries Limited. Before we begin, I would like to point out that this conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as of the date of this call. These statements are not the guarantees of future performance of the company and may involve risks and uncertainties that are difficult to predict. As a reminder, all participants' line 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 this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded.
I now hand the conference over to Dr. Rajan Venkatesh, MD and CEO of Laxmi Organic Industries. Thank you, and over to you, sir.
Thank you very much, Iqra. Namaskaram from my side. Very good morning, good evening, good afternoon, depending on where you're dialing in from. With me, I have the pleasure of two other colleagues. One is Amit Jain, who is our CFO, and the second colleague is Harsh Goenka, who is the CEO and MD designate, who would succeed me as of November 14th. The way we would like to play it out today is, I would just like to take a quick snapshot on our Geared to Win strategy, what was the key levers that we had focused upon when I had almost started my journey with Laxmi, where are we, and between Amit and Harsh, they will navigate us through our very strong performance that we have continued to deliver into quarter two, and also into the best first half for Laxmi.
Then we will open it up for question and answer. About three years ago, we sort of really started off our Geared to Win; Geared for Growth strategy. There was five specific focus areas. One was safety in operations with a clear motto, "Every moment, a safe moment at Laxmi." This has really delivered very, very positive momentum and results and will continue to be a key focus. Having now Rajesh Naik, as you would have seen, joining the Board as an Executive Director of Operations, this only underscores Laxmi's commitment and importance to this topic. The second focus was strengthening our base technologies with the recent setup of our world-scale Ethyl Acetate facility at Lote and our doubling of the Diketene facility at our Dahej setup, also being world-scale in the Diketene derivatives. Laxmi lands up being globally top three, and this is very, very important.
So that is an important strengthening we have done. At the same time, we have stabilized our new technology platforms on Fluorination, and this has already started delivering us positive momentum, and we believe this will be an important growth engine moving ahead. The third aspect is always the customer, as we always say, customer first. Deepening existing customer relationship and ensuring new partnerships have been an important theme for us. The new partnership theme is something like Hitachi that we have achieved for the new existing deepening relationship will be the growth engine for our Diketene derivatives and Essentials basket.
The fourth element has been streamlining systems and processes, and just as one very tangible example, the end-to-end digitization of our supply chains operations, which we called out in the last financial year, has taken exceedingly good shape, and that will continue to be a focus area for Laxmi as we move forward. Last but not the least, diversity in workforce. Over the last three years, the percentage of women participating in Laxmi workforce stands at 10%. We were at 4% three years ago, and this actually brings us to be best in class in the Indian ecosystem when you compare us with either Indian peers or global MNCs operating in the Indian space. So I believe this sets the right baseline as Harsh now comes into the new role and succeeds me, and this will then form also the right platform for the organization to move forward.
With that, I hand over to Harsh to sort of get his reflections in for quarter two and moving ahead.
Thank you. Thank you, Rajan. Good afternoon, everyone. Wishing everyone a happy Dhanteras today. Good afternoon to some old friends and old acquaintances I see on the call, and I will be happy to take you all through the highlights of quarter two that we have just gone about. I will start off talking a little bit about market. I think customers have had It has been a mixed bag in quarter two. Given the volatilities, the peaks and troughs that we have seen, customers have moved back to buying on a just-for-now strategy, where we are just about surviving for today and not really taking long-term bets. This was at the backdrop of Diwali, where we still saw some growth coming in from the industrial segment, while the pharma and agro segment remained fairly a mixed bag.
Coming closer to raw materials, raw materials started off in Q2 falling down, and with the Middle East tensions rising, we saw that rebound and cross the previous highs from Q1. This was led again by supply chain disruptions, primarily in shipping, where we saw typhoons in the Southeast Asia also impacted that tremendously. We also had a force majeure going on in Europe. All of this led to a fairly disruptive environment as far as raw materials were concerned, caused by volatility. Performance of the company, despite that backdrop, very happy to say that the company has performed well. In this time, we could record our highest revenue volume and EBITDA for H1 as a company, and that shows the resilience, the scale, and the cost position that Laxmi enjoys in the markets that it plays in.
Another positive, we have managed to commission the Dahej that has happened in this quarter, and the assets at Lote of ethyl acetate have also been commissioned. The Specialties, while we had double-digit absolute revenue and EBITDA growth, we faced a higher fixed cost caused by the startup of the Dahej assets, and some of the longer-term contracts that we had in place could not take on the higher prices of raw materials and shipping, which will be corrected in due course of time. Looking ahead towards the next quarter and next half of the year, we see a few things cut out for ourselves. The first is stabilization of the Dahej. While the Dahej has started stabilizing and getting customers qualified remains a key and top priority, we have our next plant at Project Vaayu being commissioned. With our partnership with Hitachi, we look forward to that.
We are confident of getting the Specialty business back towards the mid-teens in this period of time as well. Lastly, I would like to put a word out for Rajan. A big thank you to Rajan for the time that he spent at Laxmi, establishing a strong foundation, doubling down on our asset bases, our technologies, and really putting a strategy where we played to our strengths. So, Rajan, thank you. You have left a permanent image with us on the culture of the company, and we shall proudly take that ahead. I would also like to take the opportunity to thank the Board for giving me the responsibility to lead the company ahead. I look at Laxmi as having a large runway ahead of itself.
We have strong asset bases in India with great technology platform and leading market positions, which sets us up for a lot of potential, and I look forward to working with our customers and colleagues to delivering that. Thank you. I will hand over to Amit to take you through the detailed financials.
Thanks, Harsh. Wishing everybody a very happy Diwali and the New Year. As Harsh mentioned, against the backdrop of continued volatility arising from the geopolitical situation, we delivered a strong broad-based performance in Q2 FY 2027. Revenue for the quarter stood at INR 10,827 million, growing 55% year-on-year, driven by strong double-digit volume growth, higher price realization resulting from the timely pass-through of increased raw material, energy, and freight costs. In addition to better pricing, our supply chain agility and procurement efficiencies contributed significantly to the growth in operating profitability during the quarter, despite challenges arising from raw material shortages, vessel availability issues, shipping delays, and increased freight and energy costs. The EBITDA for the quarter stood at INR 1,080 million, representing 191% year-on-year growth.
As communicated during the last quarter, to secure procurement efficiencies and ensure the timely availability of the key raw materials, our net working capital continues to remain at an elevated level. However, we expect this to normalize over time. In the current volatile operating environment, our priority remains ensuring uninterrupted supply and business continuity. At the beginning of this quarter, the Dahej Project Phase II was partially commissioned, and the remaining facilities are expected to commission in the coming quarter. Our focus over the next few quarters will be to stabilize this new facility and obtain customer qualification and ramp up volumes. Further, I am pleased to inform you that Project Vaayu, the investment we are undertaking as a part of our partnership with Hitachi, remains on track for commissioning in Q3, with volume ramp up expected over the following quarters.
With our CapEx cycle nearing completion, our term debt as of September 30 stands at approximately INR 610 crore. We continue to maintain a healthy net debt-to-equity ratio of 0.28x. Our ROCE improved from 4.9% last year to 10.3% in September 2026 on a trailing 12-month basis. If we drill down to the business unit performances, the Specialties business revenue stood at INR 2,486 million, growing 36% year-on-year. The business delivered a strong double-digit revenue and EBITDA growth. In Specialties, our focus remains on driving demand and increasing utilization of our new capacities, entering new products, applications, and industries, and developing long-term partnerships with the customers. In Essentials business, revenue stood at INR 8,341 million, growing 61% year-on-year, driven by double-digit volume growth and agile pricing actions to pass on cost inflation to the customers.
In Essentials, our focus remains on maximizing volumes and operating our assets at a scale, driving operational excellence and cost competitiveness, and maintaining our leadership position in India while actively pursuing the export opportunities. With this, we will now open the floor for questions and answers. Thanks.
Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone 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 Rahul Singh from RR Securities. Please go ahead.
Sir, congratulations on good numbers. I have basically two questions. The first one is, once again, Essentials business has seen healthy EBITDA margin in quarter two. However, the sense is that the gross margin or the spreads during the quarter were not as high as the first quarter. Firstly, I wanted to get a color on how spreads moved during the quarter and whether it is trending now. Also, I wanted to understand how Laxmi has been able to maintain the EBITDA despite gross margin falling from the peak of quarter one.
Sure, sure. Sachin, thanks for that. Sachin, as you can
Rahul.
Sorry, Rahul. Rahul, thanks for that. I think the business of Essentials remains volatile, and our ambition as a company has always been that you operate in a way that you have scale and leading cost position. That enables us to make money across the cycle. Whether raw materials and prices are moving up or down, you have to make money at both ends of the curve, and you measure your profitability over that. We have seen this over the last 30 years being in this business, that the business will remain with its ups and downs, and you could experience that as quarters, maybe even many ups and downs within quarter. But resilient performance across cycles is what we strive to achieve, and that is what you are seeing actually come through. I hope that could answer both questions to some degree.
Double-digit volume growth on year-on-year basis in the essential business. However, are we seeing any impact from the disruption to the transit routes or availability of material, et cetera? How should one see volume growth for this year and then going forward? We have put up considerable capacity at Lote. How do you see that ramping up over the coming years, and by when should one expect to reach peak revenue potential?
Sure. I will address it in three parts. The first is shipping and disruptions. Yes, that remains completely on top. We have to operate in a very agile manner in this environment, and that's just the new game we have to play. The world is like that, and we don't see any change, but we have to be on top of that. Yes, there are disruptions even now towards raw materials. The predictability that used to be there is very, very different in our environment today. Similarly, on the outbound side, when we move west of India, we do see disruptions, ships not berthing or going full, and it's an environment which you live in. We have performed well in this environment, as you've seen in Q2, and our endeavor and our focus will remain to put our heads down and deliver similarly when times are volatile.
Coming to the second on volume, this quarter itself, on a year-on-year basis, we have delivered almost 18%-20% volume growth. As our assets come on stream, you will see that play out. As far as specifically the Dahej is concerned, we are on track where the plant has been commissioned. We are stabilizing within Q3, and the ramp-up will start in Q4 after all the customer qualifications are complete.
Thank you, sir. That's it from my side.
Thank you. The next question is from the line of Manoj Mehta from Mehta Investment. Please go ahead.
Thank you, sir. My question is, in the Specialties segment, we had one product going offline. Just wanted to confirm whether that product was there in Q2 last year, and is the base comparable for this quarter? You have mentioned in the presentation that raw material price increase would not be passed on to contracted customers. Is that transitionary or the contracts don't allow for price escalation at all?
I heard two questions, Manoj. I'll respond to both. The first is, the quarters are comparable. It was not there last year, it's not there now as well. That product has gone off. The second question with regards to your contracts, yes, the contracts would reset in due course. Our contracts tend to be all the way up to a year. As those contracts come up for renewal, those effects will come in and will be seen in the P&L.
Okay, sir. And how much of the Specialties business is contracted? Are you looking to go for more of non-contract kind of model going forward to insulate from raw material price volatility?
The Specialty business, Manoj, is a wide basket. Contracts in that business, it is not a CDMO business where you have got contracts for a very long duration of time, and it is a very different business model. The specialty business over here allows us to have contracts as short as six months up to a year. These keep on kicking in, and they will pass on with lag, especially when you have got shipping which has come in and bit the margin of that. Is it possible to pass through? Yes. Just as they come up for renewal, the customers are already aware of the situation that we face today.
Okay. On the Specialties side only, the EBITDA margin has come down to around 12% for H1, and margins have come down drastically last few quarters. Can you give some color on how the business is shaping up? Should we expect to get back to a 20s% kind of margin range, or are we structurally down to these low teens sort of margin bracket now?
No, Manoj, I think the ambition is to move the business back to mid to high teens. That is where we will land up playing. The Dahej fixed cost is what is dragging also a part of the business down today. As those volumes start kicking in, that should also help push the EBITDA.
Okay. Lastly, employee cost has gone up considerably from Q1 to Q2 . What has driven this increase? Has the expenses related to Dahej facility now reflected in the P&L, or will we see expense going up further?
Yeah, so there are two impacts, Manoj. Basically, one is the Dahej cost is now coming in that. Second is, in Q1, there are certain reversals on the ESOPs, so that number looks lower in Q1, and that's how it is showing high.
Okay. That's it, sir. Thank you.
Thank you.
Thank you. A reminder to all the participants, if you wish to ask a question, you may press star and one now. The next question is from the line of Chetan Doshi from Tulsi Capital. Please go ahead.
Yeah. Good afternoon, and congratulations on good set of numbers. My first question is regarding Dahej facility. What is the current status of customer qualifications and trial runs for Phase 2? What percentage of peak utilization do you expect to achieve by end of FY 2028? My second question is regarding that agrochemical intermediates which we phased out. Has the drag from the legacy agrochemical intermediate phase-out completely bottomed out, or still some activity is going on in that?
Sure, Chetan. Let me just take it. I heard you want commentary on Dahej ramp-up and Ag. Dahej, I think, is quite simple. The plant is commissioned. The core blocks, all of them have started. You are now in the stabilization phase of this quarter, where our ambition is to stabilize the plant. That's a technical word where we will achieve what we believe are capacities, et cetera, from this asset. Parallelly, customer qualifications would happen. Most of these products are existing products that we have already made, so the customers are very well known to us. Since it's a new plant, we still require customer qualification to happen, which will take its time. FY 2028 is really the first year where you will see a full set of revenue coming out of this asset. That's the period in which you'll start seeing the scale-up.
In our business plan, we always assume a three-year to full scale. Ambition is always to do that faster, but that's the baseline in which we operate. Regarding Ag, Ag today, as I mentioned in my opening comments, it's a mixed bag. You do see some amount of green shoots coming about where capacities and manufacturing is back. That's reflected in some Ag company results. That will be visible as well. Yet, you also have, on the same side, excessive capacity that remains a concern in China. Intermediate players are always faced with a conundrum whether to source the end active or produce the intermediates in their respective geographies, not just India. That's a general challenge around the world, which we don't see changing dramatically in the short term.
Okay. If you allow me, can I ask one question?
Sure, Chetan.
This is regarding ECF, that is ramp up. How is the customer traction progressing for new fluorochemical specialty products, and what is the current capacity utilization for fluorination setup compared to your target?
Sure. I'll try and answer that to the best we can. To give you comfort, customer qualifications have gone on very well. We are qualified in multiple countries across multiple customers in a new set of applications where Laxmi did not play earlier. That has given us a big boost of confidence to look at this business and grow this business, which was the original ambition which we've had. Capacity utilizations remain at a fairly high level across the board.
Congratulations, and wish you all the best. Happy Diwali to the entire team. Thank you.
Thank you. Thank you, Chetan.
Thank you. The next question is from the line of Jigar Shah from Elevate Research. Please go ahead.
Yeah, thank you for the opportunity. My first question is, by when will the entire Dahej facility for Diketene be commissioned for commercial supplies, and how should one look at the ramp-up over the next two to three years?
Okay. You can repeat my line, Jigar. Thanks. As I mentioned earlier, Dahej is commissioned, in my opening comments as well, towards the end of Q2. The company's focus remains to stabilize the plant. Customer qualifications would happen in parallel within Q3, and ramp-up really starts at Q4 . FY 2028 remains the first year of full operations, where you will see the revenues largely kick in.
Got it, sir. I think I missed your opening remarks. My second question is that we have seen a couple of people from the leadership team leaving in the last few months, which has coincided with Mr. Rajan also moving out now. Just wanted to get your thoughts on the entire human capital that has been built over the last couple of years. How do you see that now, and how differently or similarly should one expect to see Mr. Harsh running the show now? Should we expect any change in the broader plan or roadmap?
Let me answer the last question first, and then I'll hand over to Rajan on the team. See, just to be clear, Jigar, I've been part of the company, a part of the strategy, a part of this for a very long time. The assets, the customers, the colleagues are very close to me. A strategic shift, our focus remains today, we've established and doubled our asset base. Fulfilling that asset base is our immediate term priority. We have several adjacencies which we will play to our strengths, and that remains the strategy that we have today. On the people topic, I'll pass it on to Rajan.
Jigar, I think the most important element is to acknowledge the backdrop where we are operating, and chemicals continues to be subdued and volatile, as I'm sure you're also hearing it from other peers. For us, as a very responsible management and company, we need to actually maximize the impact from all the roles that is going on. While now if you see Harsh's leadership team, that has a great blend of very experienced colleagues who have been with Laxmi for more than seven to eight years, and you have colleagues who have been with us for the one to two-year time horizon, I feel it leaves us as a great blend, and as a platform to move forward.
Got it, sir. Got it. Thank you very much. Happy Diwali.
Thank you. Before we take the next question, a reminder to all the participants, if you wish to ask a question, you may press star and one now. The next question is from the line of Rajik Shah from Ascent Capital. Please go ahead.
Yeah, a couple of questions, sir. Sir, how is the fluorination business shaping up, and are we on track for around INR 200 crore of peak revenue from the business for FY 2027? Am I right?
Sure. Rajik, you want to complete the other questions? Then I will answer all together.
Yeah, yeah. Also, sir, about the Hitachi, when the Hitachi will be over and above that, right? And when will the commercial supplies to Hitachi begin? Can you throw some light on the margin profile of the fluorination business also? Yeah.
Rajik, I will try and answer both. The fluorination business, as mentioned, we have had several customer qualifications in new industries and in various countries and various sites. That allows us to operate the plant at a good utilization level, which is therefore reflective in the business ambition that we had set about, and the revenues that you mentioned are in line with what the company will achieve in FY 2027. As far as Hitachi is concerned, what I would like to clarify is Hitachi is one of the customers for this product. This product has a long runway ahead and several customers across the world. We are anchoring with Hitachi and are targeting to commission the plant within quarter three.
Again, I had mentioned that earlier as once that is commissioned, you will have your time that the plant will take to sample it out and qualify with customers, which is a longer process. Revenues will really kick in largely in FY 2028. Okay. I think Rajik got dropped, but thank you, Rajik, if you are still listening.
Thank you. Before we take up the next question, a reminder to all the participants, if you wish to ask a question, you may press star and one now. Next, we have a follow-up question from the line of Chetan Doshi from Tulsi Capital. Please go ahead.
Yeah, thank you for taking a question. As I heard that given the past pressures and geopolitical disruptions regarding high shipping and logistics surcharges, how are the current freight charges trending, and what portion of export contracts allow us to pass the cost?
Chetan, great. I think that's something we grapple with every day. The Essentials business tends to be a little bit more short-term in nature, where you are able to pass on freight quickly. The Specialties business is a little bit more long-term, so that becomes till the next contract renewal comes up. That's where you really have to take on that hit. As far as the shipping market is concerned, we still see large volatility. The recent changes in the U.S. have not yet materialized to action on shipping, while stock market has a far faster impact. We will just wait and see in the next second half of this month as to where that lands. But our endeavor will remain to be agile and capitalize on all opportunities that come, irrespective of how freight moves.
Thank you.
Thank you, Chetan.
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Dr. Rajan Venkatesh for closing comments. Over to you, sir.
Thank you very much. Let me again first start by thanking the entire Laxmi team. What you see here is a complete team effort, which has manifested in our performance. Harsh nicely called it out, in down cycles or up cycles, it is the team that makes a difference. So big thank you from my side and the entire Laxmi management side to the whole Laxmi team. Second point, wishing Harsh, who already understands this business very well, with 15 years of legacy already inbuilt in here, very, very forward success. He is bestowed with a very strong team, and I know he himself is very excited to move the needle in the positive direction. Also to all stakeholders, a big thank you and a gratitude from myself. It has been a pleasure to engage with all of you guys.
Again, wishing you all a very happy Dhanteras and an upcoming Diwali and festive season. Thank you all.
Thank you. On behalf of Laxmi Organic Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.