Ladies and gentlemen, good day, and welcome to PCBL Limited Q1 FY25 conference call, hosted by ICICI Securities. 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 touchtone phone. 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.
Thanks, Aditya. Good afternoon, everyone. Thank you for joining on the PCBL Limited Q1 FY25 results conference call. We have PCBL management, represented by Mr. Kaushik Roy, Managing Director. Mr. Raj Gupta, CFO. Mr. Satish Shah, 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.
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 first, on the Q1 performance. So I'm happy to inform you that PCBL reported its best ever operational and financial performance during Q1 FY 2025. During this quarter, our consolidated sales volume from Carbon Black segment was highest ever at 1.54 lakh ton, which is up by about 25% on 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 volume, and consolidation of Aquapharm business. 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 ton in Carbon Black segment stood at INR 20,861, as against an average of INR 20,018 per metric ton during FY 2024. During this quarter, PCBL Tamil Nadu achieved a sales volume of 28,228 tons. The state-of-the-art plant in Chennai has received approvals from all major tire manufacturers in India and clocked a capacity utilization of 85%+ during the quarter. Of the total Carbon Black sales volume, domestic sales volume stood at 90,438 metric tons, while international sales volume stood at 63,480 tons. Export sales volume registered a strong growth on year-on-year basis of 56% in Q1 FY 2025.
Now moving on to the segmental performance. Tire accounted for 87,945 tons. Performance Chemical reported sales volume of 50,302 tons, and we also achieved specialty sales volume of 15,671 tons, 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 2024 to 194 million units during the quarter, with external sales volume of 116 million units, as against 98 million units in Q1 FY 2024. PCBL's average realization stood at INR 4.16 per kWh, INR 4.16 per kWh. 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 process. Various efficiency improvement and cost optimization measures have been undertaken, and we expect this to yield positive results going forward. We are adding capacities 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 capacities 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, presence in multiple new geographies, increasing capacity and supply chain capabilities. Green Chelate, which is another exciting segment, where we see rapid growth opportunity.
With the push forward, more sustainable and green chelate, there is growing trend for substitution of older chelating agents like HEDP in USA and Europe, China and India as well. We are therefore working on expanding the portfolio in green chelate. We are already making MGDA and GLDA liquid, and are now working on MGDA granules. A number of new products are under development stage, and few are going through the approval process with large global MNC clients. In Q1 FY2025, revenue of Aquapharm stood at INR 359 crore and operational EBITDA at INR 55 crore. The quarterly sales volume was 24,402 tons. The capacity utilization witnessed a steep improvement and stood at around 75% during Q1 FY2025.
Your company is amid an aggressive capacity expansion program across different segments, and is working on strengthening supply chain, product mix, and customer reach. The long-term prospects 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 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 streamlined processes. These investments have significantly bolstered PCBL's capabilities in new product development, customization, application, and process efficiency.
Recently, we received a patent for hybrid carbon black grade comprising graphene to improve performance of rubber compounds. This would lead to improvement of fuel efficiency, tire durability, and load-bearing capacity. Our current carbon black capacity stands at 770,000 tons annually. Currently, a specialty line of 20,000 tons and 90,000 tons of rubber black line is under implementation, and very soon we will start working on larger capacities. We are expediting pace of work on project sites to fast-track commissioning. Post-commissioning of the above lines, above capacities, our CB capacity would reach 880,000 tons. This will include specialty capacity of 112,000 tons, while the power capacity would be 134 MW. This would help us to increase our global market share.
The Aquapharm capacity stood at 130,000 tons, and we have embarked on the capacity expansion program of 38,000 tons in next 6-8 months. The company is in multi-year growth momentum. The current annual revenue run rate has already crossed $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, please. Thank you so much, ladies and gentlemen.
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. Our first question is from the line of Aman Soni from Invest Analyst Advisor LLP. Please go ahead.
Hello, am I audible?
Yes, you are.
Congrats for good numbers. Could you please provide the revenue growth guidance for FY 2025? 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?
Aman, I would give you a little long-term growth guidance. We are confident that the business, the carbon black business can deliver a roughly 9.5%-10% CAGR growth. I'm talking in terms of volumes, over the next 4-5 years. And in terms of whether we are able to maintain our margin, there are a lot of initiatives that we have taken on yield improvement side, on product mix, you know, side, and also with additional capacity coming up, the operating leverage will also play favorably for the company.
It means that our operating margins or our EBITDA per ton would keep on increasing between now and going forward. The next five years, I think we have a strong possibility of, you know, EBITDA going up by INR 4,500- INR 5,000 per ton. That's how we see [audio distortion]
Okay. Please outline the company's capital expenditure plans for the medium term?
The long-term capital expenditure, we need to add about roughly 400,000 tons of carbon black capacity, and, we will also be kind of doubling Aquapharm capacity across geographies. So we have two facilities, two primary facilities, India. India, we have multiple facilities, but India are considering as one geography, and then U.S. Currently, we have about 130,000 tons. Next 6 months-8 months time, 38,000 tons capacity is going to come up, and, during next, you know, four, four and a half years, we are going to add another 100,000 tons of capacity. So Aquapharm capacity is also going to get double in next 5 years' time.
Additionally, we also created a joint venture company in collaboration with an 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 line, and we expect the first full-fledged line to be ready up and running in next 1.5 years-2 years' time. And that is further going to add to the top line and bottom line at the consolidated level.
My last question is, please detail the strategies the company is implementing to achieve the ambitious goal of increasing the business by 5x?
Aman , I did not get your question correct. What exactly is the question?
Please detail the strategies the company is implementing to achieve the ambitious goal of increasing the business by 5x?
Yeah. So if, Aman, you work out on this number, just 11%-12% volume growth in carbon black segment, that is doubling of capacity in Aquapharm business, and then additionally, this petrochemical company coming into picture. We will be—I mean, there is a very high, you know, possibility of our getting a fivefold, you know, bottom line in the next five years.
Mm. Okay, sir. Thank you.
Thanks, Aman.
Thank you. Our next question is from the line of Aditya Khetan from SMIFS Institutional Equities. Please go ahead.
Yeah, thank you, sir, for the opportunity. Sir, just a couple of questions. Sir, first question is on to the carbon black. Sir, I think the last two quarters we have stated that, since this sort of spreads in carbon black, around INR 20-INR 20.5 per kilo, is some sort at the 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 onto the Aquapharm, this quarter we had reported around 22,000 tons as the EBITDA spread for, for Aquapharm. So, sir, this is, you can say it is in a mid-cycle or at the top end of the, into the cycle part?
Aditya, to answer your first question, the change in our margins or the improvement in our margins on account of lot of efficiency measures that we took in last, you know, 7 years-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 lot of grades that we launched even in the tire portfolio, which have, which carry very high margin, almost comparable with the specialty portfolio. But we still keep them as part of our tire portfolio.
So like last 2, 3 grades, if you track all the filings that we have done in recent past, those are all 9 composites or different grades, which are not offset grades, which provide superior quality to tires, and therefore they carry very high margins as compared to the basic grades of, you know, which gets into tire. 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 these margins. So the same kind of movement which has happened in our margins in last 5 years, we are confident that we can deliver further improvement to the same extent in next 5 years. Coming to Aquapharm.
Aquapharm business currently going through a tough cycle. There is pressure on margins. Also, there is some competition, right? And earlier we were only working in some geographies 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 profiles.
Got it. So, so coming on to the Aquapharm, so what sort of volumes we can expect for FY 2025, and what growth percent can we build in for the next two years in FY20 26 and FY2027?
Currently, our engine will be somewhere around 100,000 tons, maybe 100, 000 tons, and 110,000 tons. The total capacity remains 132,000 tons as of now, I mean, with current product mix. So maybe we will be somewhere around 100, 000 tons, 110,000 tons, but capacity utilization will gradually increase towards, you know, third and fourth quarter. So we expect better volumes towards third and fourth quarter. Also, some of these lines that we are adding now in the new product segment, those will be operational towards third and fourth quarter, so that will give us some more volume.
So, onto the volume growth, can we expect so 15%-20% in FY 2026 and FY 2027?
Yes. Our target is a little more ambitious. I think we can grow between 20%-25% volume growth going forward, I mean, from FY 2026.
Got it. Sir, also the CapEx part you had mentioned, but I missed that point. So if you can highlight the CapEx we are doing for the next two years, and if you can break it up into the carbon black and into the Aquapharm.
I'm telling you, I'm giving you a next five years requirement. This 10% growth, for which we have very high visibility, would require roughly 400,000 tons of capacity addition in our conventional segment, which is carbon black, including specialty. And Aquapharm, we would be adding 38,000 in the current year and additional about 100,000 tons more in next 4 years-5 years.
Sir, what would be the CapEx number?
Roughly, you can consider 60,000-65,000 INR/ton for carbon black. So roughly INR 2,500 crore of CapEx in carbon black segment. And for this additional 100,000, the 38,000 tons that we are adding now, we have already spent about INR 165 crore, which is appearing in our CWIP as on June 30th. So the balance expenditure on this 38,000 tons will be just roughly about INR 50 crore, which will come up in the current year itself. And for the additional 100,000 tons, we will be spending roughly about INR 400-500 crore.
Okay. Sir,
Additionally, just I would like to add, additionally for this, battery chemical capacity, which we are adding, that will involve two phase expansion. So in the first phase, we are putting up 2,000 tons of capacity, which will involve roughly about 28 million tons. So roughly about INR 250 crores. And in three years' time, we expect the capacity to be fully utilized, so we will be doing another similar size plan. So on battery chemical side, we will be doing about INR 450-500 crores worth of CapEx. So between all three, if you add up, then we will be doing roughly about INR 3,300 crore type of CapEx in next five years time.
Got it. Sir, since, like, our company would continue to remain in CapEx, and annual would be somewhere around INR 800-INR 900 crores, if I just divide by your number. So, sir, just want to know, onto 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, and annual interest cost of INR 420 crores would remain, or you expect some decline there also? Because we are in CapEx mode, and we would be using all the money cash flow to fund that CapEx. Any thought on, onto the debt part, how that will shape it?
Okay. I think that actually I'll give you some numbers, Aditya. Yes, we have CapEx, and we have borrowings in our books, roughly INR 4,400 crores of gross borrowings—net borrowing, sorry. INR 4,300 crores net borrowing as of now. But if you just add up next five years cash flow, I mean, I'm starting from 2025. If we are going to do a cash flow, it will generate around 1,000 crores roughly. And if we add up five years, that will add up to about roughly INR 10,000 crores.
Sorry to interrupt, sir. So your voice has been muffled, sir, while speaking. Sir, I request you to come closer to the speaker and speak.
Yeah, sure.
Your voice has been cut off.
Is it better now?
Yes, sir.
Okay. Yeah. So Aditya, I was mentioning that, while we have borrowings in our books, roughly INR 4,300 crore, and, we also have CapEx of another INR 3,000-INR 3,400 crore lined up for next five years. If you, calculate the cash flow that we are going to generate in next five years, that is going to add up to almost INR 10,000 crore, 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 year.
Okay . Sir, you mentioned that INR 9,800 crore cash flow for the next five years?
Roughly INR 10,000 crore, yeah.
Okay. Sir, I think, sir, it would be around INR 1,000 crore annually, right? So we are expecting incremental INR 1, 000 crore cash flow from 2026.
It will not be linear. Every passing year, because of volume growth and margin expansion, our cash generation would keep increasing. So our current year will be roughly around INR 1,000 crore, and then of course, it will keep increasing.
Okay . Got it. Sir, just one last question, if I may. Sir, on the EU ban on Russia, sir, are we getting any incremental inquiry from the EU players and this volume growth in exports market, which we have 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?
Yes, Aditya. Most of our overseas sales are now strategic to our strategic customer base. So we do sell something in stock market, but our endeavor is always to get into long-term arrangements with the customers who we consider strategic for the group. Now, this Russian, the, the sanction on Russian carbon black industry, officially it has kicked off from first of July, but the real benefit we will start getting from maybe next, you know, after next two, three quarters. Because there is some stocking up which happened in Europe. But even despite that, our volumes in Europe has been going up steadily. Last year, we did about 14% of our international volume, and I'm talking about 2023. We did about 14% of our volume from Europe.
This quarter, we have already reached about 21%, you know, coming, I mean, of international volume coming from European markets, so it is steadily growing. We have made significant investments in our supply chain bandwidth. It is not only in Europe, but across geographies, 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.
Sir, the incremental contracts which we are doing in Europe, that is at a higher EBITDA per ton or at the same level which we have done in this quarter?
I would not say higher EBITDA per ton. The idea is to increase the strategic customer base, and eventually profitability will flow.
Okay, got it. Thank you, sir. Thank you.
Thank you, Aditya.
Thank you. Our next question is from the line of Sanjesh Jain. Please go ahead, sir.
Yeah, good afternoon, sir. Thanks for taking my question. First, on the Aquapharm part of the business, when we did the acquisition, they were doing about INR 380, 370 crore of EBITDA. Right now we are at INR 55 crore of EBITDA. I know industry is going through a tough situation, but 55 crore looks way too small, and how do we plan to improve it?
Well, Sanjesh, when we acquired this company, we did not acquire it based on its current performance, but the potential that the business holds. Now, it is going through a tough cycle currently, and lot of 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, Sanjesh, is that by fourth quarter of this year, we should be doing somewhere around INR 80 crore-INR 90 crore, kind of a run rate, possibly INR 100 million, if things go as planned. So it's just a very period during which...
And then the initiative that we are, we have taken, we are taking, we've also engaged McKinsey here to help us identify areas where we can focus more and improve efficiency. Those things are underway currently, and we are very confident that those initiatives will start yielding returns soon.
Yeah, fair enough. Raj, you said that you are looking to increase the market share. We are already at 24%. The industry probably is growing at 4%-5%. We are telling, if we are doubling, say, in the capacity in next 4 years-5 years, we probably end up having a market share of, what? 40%-45%. Is that what we are aiming?
No, the market is also increasing by about 5 odd percent.
Correct .
So, therefore, if we incremental demand, we should cover the market. Additionally, global growth rate has also tapered down in last few years. So the current demand scenario in the industry is not reflecting what of its real 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 one-third of the market share, global market share.
Who will be gaining? Because if I look at China today, anything which is based out of phosphorus, where China has a raw material advantage, they are only growing more aggressive. I can state with pure 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 beat Chinese and get this market share up from 24 to 33? So one of the reason why market today is slump is also because of aggressive Chinese.
There are few things that we are considering. One, of course, I mean, there is a natural advantage over China when we sell in Western markets. There is anti-dumping duty on Chinese products. So I mean, we face benefits, so we get some advantage there. But I will say that we are... Couple of things that we are doing is, we are looking at some kind of backward integration, right, on the, on the yellow phosphorus side. So yellow phosphorus is a mineral, right? It is mined. 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, you know, phosphorus processing facility in Middle East, which will save us some cost. Additionally, our procurement team is also looking at different geographies for sourcing.
Currently, most of it is coming from Kazakhstan, which is logistically not very efficient. But, we are also exploring possibilities of sourcing it from other geographies. And thirdly, we are also looking at replacing part of the raw material chemicals that we are currently using with some other chemicals, which are not as difficult to procure in India. So those are, of course, a little bit long-term kind of initiatives, but those are the things which we plan to repair going forward.
Got it. This also-
The natural advantage, which you mentioned, that China has, it's a similar kind of advantage in one point in time China also had in carbon black industry. But gradually we improved our efficiency, our manufacturing efficiency, operational efficiency, and today, we are far better placed than, you know, where we were maybe six, seven years back.
And now that once we have, you know, crossed that path, for us to implement a similar kind of initiative model in Aquapharm, it's not going to take as much time.
Got it. But the, the phosphorus in India has been struggling for a while, even in the fertilizer sector.[audio distortion]
Hello, sir. Your voice is not audible, sir. I request you to speak or use your handset while speaking.
Yeah . I was telling Raj that phosphorus has really 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 I think. And also, you know what, Sanjay, while we talk so much about the phosphorus, all that we do is just about 10,000-12,000 tons in the process.
Hello. Sorry to interrupt, sir. From the management line, your voice has been cutting off, sir.
Okay. Raj, we are not able to hear you. It is, it is cutting. Yeah, it is. Did it get along?
No, sir.
No, no. I think there is some issue with the connection then.
Now it's been muffled very... Beyond the audible level, Raj. I have a ... [audio distortion] No, sir. No, sir. No, no, we cannot. Well, we are giving a new number. I just told you. So we, they will have to redial. They're on the way. Hello?
Aditya, can you connect to the alternate number, please?
Yes, sir. You can speak now, sir.
Hello?
Yes.
Hello?
Yes, sir.
Raj, can you hear us?
Yeah, I can hear you, and I guess I am also audible?
Yes, you are clear now.
Yes, sir. Yes.
Okay. So Sanjay, I was mentioning that while we talk a lot about availability or non-availability of, you know, phosphorus in India and therefore the cost and time. But, you know, phosphorus, all that, that we buy, you know, annually, is just about 10,000-12,000 tons. So it is just one of the many chemicals on raw material side that we purchase. It is not the sole raw material. It just accounts for maybe 7%-8% of our total raw material that we consume. Oh, only 7%-8% of the raw materials?
Yeah . 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- t he expectation was high, but it hasn't completely flown through in terms of the benefits.
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 they give guidance, they give guidance based on all these countries' local demand, supply condition also. Like Cabot and Orion, they have facilities in China. Chinese carbon black industry is not doing well, and they have to reflect on their blended margin. So that may not be reflective of the industry margin, profitability or margin profile. The way we look at it, Sanjay, a large level of consolidation has already happened in China. Additionally, their cost structure has changed.
You know, it has gone up significantly, both on raw material side and also on operating cost side. The labor cost has gone up, their environment management cost has gone up, right? And raw material cost, of course, 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, you know, kept on increasing. It has not gone down. So that, that's one reflection of our ability to compete with all the global peers in global market. Second, on top of this now with China and Russian 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, I mean, China, you know, having pressure on the cost side and Russia going out of business, at least in the European market or the Western market, somewhere it is going to create a larger possibility for rest of the, you know, manufacturers and rest of the world. And, global industry was never, you know, in so much surplus supply. Even before China consolidation, there were regional imbalances. Some countries had more, some countries had less capacity, but industry was never in so much surplus capacity, which can absorb this consolidation in China and Russia. We believe that the industry is going to remain in short supply for at least the next five to seven years' time.
You know, 3 years back also when we were asked this question, that so much capacity is coming in India, how we, you know, plan to utilize our capacity that we are adding this year? See, it is not even 1 year, and we are already at full capacity utilization. We strongly believe that this condition is going to continue for next 5 years-7 years' time, and therefore the confidence that we can grow at, you know, 12% volume growth, 12% also we are saying that addition of capacity will take time, and possibly even if there is opportunity, we can't grow beyond that.
Fair enough. Fair enough. That's, that's quite elaborate and clear, Raj. Just one question, this, this expenditure of CapEx, which we have done in the, Chennai facility, of 90,000 metric tons, when are we expecting that to come online?
It will come in two phases. 30,000 tons we expect in third quarter itself. Balance 60,000 tons, where we 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.
So till then, we will be constrained by the capacity, right? We have hit full utilization in Chennai and all the other facility in which we are running at an optimal utilization
Until this new capacity come, we will be, we will be short of supply to the growth, right?
Not really. See, the way the capacities are stacked up, already we can go up to roughly around 625,000 tons-630,000 tons of production based on our existing capacity. Then we are adding 110,000 tons capacity in next roughly 12 months' time, including the 20,000 tons specialty capacity.
Now, this 110,000 ton capacity is roughly going to give us about 85,000-90,000 ton capacity. So it takes us to roughly about, you know, 705,000 tons-710,000 tons kind of capacity. And it is not that we are going to sit idle between now and next one year. We are going to do more downstream. Tamil Nadu still gives us some scope. We acquired a small, small piece of land there. Additionally, we are also looking at acquiring more land. There is one large piece of land available, but it is not exactly in SIPCOT area. We are just trying to, you know, see whether we can negotiate with SIPCOT and bring it under the industrial area so that we get all the facilities of SIPCOT.
If that happens, then the larger facility that we are planning, you know, to build up next, we don't need to do with greenfield. And that will save time also. So, and when we are talking about 12% volume growth, last year we did 530,000 tons. You apply another 12,000 tons to that, we will be doing about 600,000-odd tons this year. N ext year we will be doing about 670,000-680,000. This 12% I'm talking about, if I keep on adding. So for, if for 2025, 2026, we have adequate capacity, and by 2027 we will have more capacity coming up, which will take care of the, you know, the growth.
So, and when I'm saying we will maybe constrained by capacity, we are saying that while we can add 12%, you know, 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, bigger capacity addition in shorter period will may be difficult.
Got it. Got it. That's, that's pretty much clear, Raj. Thanks for answering all my questions, and best of luck for the coming quarters.
Thank you, Sanjesh.
Thank you, sir.
Thank you. Our next question is on the line of Radha from BNK Securities. Please go ahead.
Hi, sir. Thank you for the opportunity, and, and congratulations on good results. Sir, my question was that our target is to reach INR 2,500 crore PAT in the next 5 years. So if we take carbon black 12% volume target and EBITDA per ton of 22- per kg, INR 22,000 per ton. So I think we can get INR 1,100 crore PAT.
Ma'am, please be a little loud. Your voice is not audible.
Okay . So to reach the target of INR 2,500 crore PAT, if you do a quick back calculation, then carbon black, as per your guidance of 12% volume target for the next five years, and EBITDA of INR 22 per kg, we can do around INR 1,000 crore-1,100 crore PAT... and in Aquapharm, if we double the capacities and run at full utilization in the next five years, we could, we could do another INR 500 crore. So can you, sir, please explain me where the gap of INR 900 crore is coming from?
So, Radha, first of all, we strongly believe that we can increase our margins beyond that. So I was also talking about it while back, that there's a possibility of improvement in our EBITDA to the tune of 4,500 INR-5,000 INR per ton. Which takes us to roughly about, you know, 25,000-26,000. Even if you consider 25,000 INR per ton on a 10% APR volume growth, which kind of takes us to roughly 940,000 tons in FY 2029. If you apply it on that, we do an EBITDA of roughly INR 2,300 crore. Aquapharm already we believe that this year, with the current capacity, and this is not fully utilized, we are going to do roughly about INR 300 crore.
The current capacity can give us EBITDA up to roughly about 450 crore-500 crore. Because in FY 2023, they did, I mean, the company did INR 400 crore as EBITDA, right? With lower capacity. And we can go up to INR 500 crore from the current capacity itself, and then we are doubling capacity. Actually, it takes us to close to INR 1,000 crore, but even if we consider 70% capacity utilization of Aquapharm by 2029 on the extended capacity, we still do about INR 700 crore of EBITDA. And then the battery chemical, which is a very high margin business, we believe that it can show around INR 1,000-1,200 crore kind of EBITDA numbers by 2029.
Now, if you add the three up, you will—it will take you to roughly around INR 4,000-INR 4,300 crore of EBITDA. Our debt will almost be paid off, you know, with the kind of cash which we are generating, and we will just have depreciation of about INR 500 crore. So even if you consider the interest of INR 200 crore, right? Then also, I mean, between depreciation and interest, it will be just roughly about INR 700 crore. You deduct it from EBITDA of INR 4,300 crore, you are still at INR 3,600 crore. You apply whatever tax rate, you are still beyond INR 2,500 crore. That's how we calculate it.
Okay, sir. And this CapEx of INR 3,300 crore you mentioned, so that CapEx is INR 3,300 crore is what we would require to achieve INR 2,500 crore or-
Yes.
-anything higher?
No, yes. This, this is adequate for us to achieve those targeted numbers by 2029.
And so the INR 1,200 crore EBITDA for the JV, that is for our share of JV or, or the whole?
No, this is whole. This is whole.
Okay. And so in Aquapharm, you said that in 2023, they did higher profitability. But I believe that there was some supply chain disruption, so that's why the profitability was higher, and now it is more kind of normalizing. So it-
Now, Radha, now is also not a normal scenario. 2022 may have been the exception, but 2023 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.
Okay, so 20 20-
And like I said, two things: One, the capacity utilization is still very low. We are currently at about 75% capacity utilization. Second, all the efficiency measures 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 almost give us a run rate of about INR 360 crore-INR 380 crore odd, annualized basis, EBITDA basis.
Okay, sir. And second question was on the performance chemical side. Two years back, this used to be 20% of our carbon black volume. Now we are at all-time high levels, 33% of carbon black volume. What is leading to this high growth in this segment, and do you expect the momentum to sustain?
No, the way we look at it, though performance segment carries a little higher margin, but the offtake is not uniform across quarters and across years. So we, you know, keep open eye. We keep on looking at, you know, how the markets are behaving. This segment, the demand and pricing and margins are attractive, and we then keep changing our allocation. So this will fluctuate between 25%-35%, depending on industry dynamics. But our focus is more on to, you know, increase capacity, increase our market presence, and improve our margins through our own efficiency.
What is leading to this volatility in performance chemicals business? And also, the second-
I mean, the end user industries are different, Radha. So sometime when those end user industries perform well, the offtake is better in that case.
That would be construction and infrastructure.
Construction, infrastructure, automotive industry, all three.... and also sales. I mean, it's a wide universe, very wide universe.
So here, majority of the sales are on spot basis, so-
No, no, no. It is not majority on spot basis. While some of the sales is of course spot basis, but the customers are mostly our regular customers. The sales is in form of, mostly repetitive nature.
-so regular customers means either tire customers or,
No, no, no, not tire. I'm talking about the performance segment customers. So the customers' universe is more... Of course, we are adding more customers every passing year, but then customers are repetitive customers. Only thing is that when their demand, you know, goes up, then we tend to supply more. The uptake in this segment is more.
How is the domestic export mix in Performance Chemical?
It is more in international markets. So we are doing roughly about 35% domestically and 65% in international.
Okay. Currently, which regions you are seeing increased demand?
Radha, you'll have to ask the question again. Your voice is little faint.
So, in export market, which regions you are seeing the increased demand?
See, I mean, we were always very strong in Asia Pacific. The last few years we have been trying to build roads in Western Europe, North America. I mean, while the markets are growing across, I mean, the customers are growing across markets, but we are also putting a little more focus on Western Europe now.
Okay, sir. Thanks, and all the best.
Thank you, Radha.
Thank you. Ladies and gentlemen, please limit your question to one per participant. Should have a follow-up question, we request you to rejoin the queue. Our next question is from the line of, from Kuber Investments. Please go ahead.
Thank you. Am I audible?
Yes, sir.
Yes, sir. It's okay. Thank you. Thank you for the opportunity. Raj, you mentioned that there is a capacity expansion for Aquapharm that is underway. But in the last call, you mentioned that there's 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.?
Yes, the 38,000 is entirely India. US, we will have to add capacity because we are already operating at almost full capacity. But the line specification or the product specification is still being worked upon. So maybe we will, you know, start sharing further details about those in a quarter time.
Got it. So this 38,000 is something that you're mentioning is going to come up in the next 6-8 months?
Yes. By February or March latest, we should have all this entire 38,000 tons per year.
Sure. Also you spoke about the pressure on the Aquapharm margins at this point of time. Is this something that we had estimated during due diligence, or is this has come as a surprise to us?
No, this has not come as a surprise, sir, because the acquisition got completed in January 31. And we already had, you know, 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 little softer. So we had those numbers coming in, and we also had the commentary from, the industry peers. So we knew that it is going to go through a soft patch, but then, I mean, considering the, the product portfolio, the customers to which they are catering, I mean, Aquapharm is catering to, and the market where they are present, we thought to go ahead with, this transaction.
Fair enough. My final question is regarding green chelates. We've heard a lot of bullish commentary from the management regarding green chelates, right? 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 we're going to ride this trend?
I am handing it over to our MD, Mr. Roy. He'll answer your question better.
Sure. Thank you. Thank you, Raj.
Okay, sir.
Okay, I mean, you know, there are four major segments. One is phosphonate, where we are 24%, and then we have got three, three major segments, where we are around 1%-2%. Green chelate is one of them. One is green chelate, one is polymer, and one is chemical for oil and gas. And on all three of them, in profitability-wise, all three of them are pretty healthy. Additionally, for green chelate, it is a biodegradable product and therefore a sustainable product, which is the need of power for, for, for the globe in a way, you can say. So all these three areas, we feel since we are just about 1%-2% of the global share, we have a lot of headroom to grow. We have a lot of headroom to grow.
In addition to phosphonate, where we are a strong player, we'll keep on maintaining good strength there, but additionally, we'll grow a lot in these three areas particularly. And you are absolutely right, we need to do a lot of marketing activities, lot of market development activities, lot of customer development activities, product development activities also, and geographical expansion in terms of having right kind of logistics support everywhere. And so all these will act as building blocks. It is somewhat like, you know, PCBL, as you know, earlier, it was primarily India-focused organization, and today almost 35%, 45%, 35%-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 initiative will also be taken for Aquapharm.
Got it. Thank you. Thank you for that, elaborate answer. The final question is that-
Sir, several participants are waiting for their turn.
No problem. No problem. Thank you.
We can take it offline, okay?
Sure. Thank you.
Sure.
Thank you. Our next question is from the line of Venkatesh, from Logic Consultancy Private Limited. Please go ahead, sir.
Hi, sir. Good afternoon. I just have one question, which is more of an optionality. So when I was reading about the literature and on your own commentary about Aquapharm and everything else, apart from what you have highlighted in terms of volume growth, is there some sort of an optionality that we are probably not—although you have been very optimistic on the future growth prospects. And you could talk about the Australian JV or the potential of Aquapharm into water treatment, nano, nanotubes that you talked about. Is there something where that can come as a very pleasant surprise, which can probably outdo your optimism? Because these are all sectors which can have huge growth when you get it on the cycle right. So can you expound a little bit on that?
Yeah, Mr. Venkatesh. So if you notice that the numbers that we are sharing, even for, I mean, especially for Aquapharm and, and this battery venture, which is nano-based, we have considered the same margin multiplied by the increased volume. But historically, their 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 through cycles, we all know, and in two, three years time, 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 a conservative estimate of the, you know, selling price, and of course, the EBITDA is a percentage of the realization. So those are all the, you know, positive upside which may be there, but we are currently taking a conservative estimate of what the margin profile would be.
Okay. And with going on Aquapharm, considering that they are in U.S. and Europe, and that's not a market that we have never been, would there be cross-selling opportunities, one? And considering that the CapEx in Europe and U.S. from the majors out there is quite limited, would there be chances for more export opportunities of pouring into the U.S. market? Related question, Aquapharm is into water treatment. That's a big area, big size opportunity. Do you have some sort of an opportunity size that you can talk about for the Aquapharm's water treatment chemicals?
I'll answer the first two questions, and then hand over to Mr. Roy to talk about the opportunity or 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 their volumes come from North America and Western Europe, and we hardly had any presence in this market. We are trying to build inroads, but that is a slow process. But now that we are, I mean, through this acquisition, we have got access to this supply chain network, this is going to speed up things for us. And these are the markets which are not very price sensitive, so the margin profile also, once we build inroads, then the margin profile also improves 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. We didn't know, and, and therefore, also there was some kind of skepticism about our building up some capacity outside. Now, we get this company which already has a manufacturing facility in U.S., and the people are in our, you know, team is managing it, running it for many years. So that's a, you know, new capacity which is being talked to or something. So tomorrow, if you want to build up some manufacturing facility in other parts of world, then that capacity will be useful. Now, regarding the possibility in water treatment segment, will you repeat the question one second? I'll hand it over to Mr. Roy to answer. Would you like me to repeat the question?
Can I have your question on water treatment, please? What exactly was the question?
My question is, I think it's such a large area, and it's very important, water as a theme. I'm trying to look at what is the size of the opportunity that you are looking at, and where will be the applications be? For example, if Saudi Arabia is going to get into in a big boom on CapEx on water treatment or whether it is in India, have you evaluated geographies and where this can be used in terms of the overall size of the opportunity size for the water treatment chemicals?
You are absolutely right. Water treatment, whole area is actually huge, and I think, you know, it is hardly explored yet. It is very limited so far, but, as we go along, it will be more and more, there'll be a lot of focus more and more 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 product point of view.
So we are looking at that as well. We're looking at that as well. We are yet to quantify that. Give us some more time. Possibly, we'll come back with a, 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.
Okay, sir. That's good. Thank you very much, and I wish you the best.
And just generally for all of you, you know, we are only discussing few things here, like carbon black and battery and Aquapharm. But the organization actually is looking at 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 that, you know, can it go beyond this? I'm keeping my fingers crossed, but if it goes, it will go multifold. It will go really multifold. Those initiatives are very, very big. Very, very big. But little too early, so therefore, I'm not sharing any more detail, but three, four more areas we are working on. Hopefully, we'll be successful, and we'll come back to you very soon. Thank you.
Very good. Wish you the best. More power to you.
Thanks.
Thank you. 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. Thank you.