PCBL Chemical Limited analyst Q&A

Thank you. We will now begin the question-and-answer session. The first question comes from the line of Sanjesh Jain with ICICI Securities Limited. Please go ahead.

Yes, thank you. Thanks for taking my questions and for this opportunity. I got a few across the businesses. First on the carbon black, what is benefiting us because the profitability in the segment has gone up? It's purely because U.S. tariff has changed ways. We were struggling or there is a lower import coming from Russia, thanks to the Middle East crisis? I can also sense inventory gain s during the quarter, considering that there was a sharp increase in prices across commodities, which should have benefited. In this backdrop, how do you see FY27 panning out, both from a volume perspective and the profitability perspective in the carbon black business? Thank you.

I think, first U.S. tariff reduction has definitely improved prospects, which also means that more players are exporting material outside of India. And therefore, there's a little bit of reduced pressure on the prices in India. While the tyre business is based on pass-through, in the non-tyre business in India, we have been successful in increasing prices over the last few months. Of course, after the West Asia crisis, we were forced to increase even more prices, but structurally we have been able to improve some pricing in that area. That's one. Going forward, I think we are optimistic on both fronts in terms of volume improvement, both domestic as well as export, because the headroom for us to grow in export markets is significant. And we are implementing some supply chain initiatives, which will unlock some markets which we could not access, given the transit time, etcetera. On the pricing front also, while the industry continues to be in overcapacity, we believe that structurally, we will be able to take some price increases with value -added products coming into play as well as introducing new services for the customers, which unlock more value for the entire value chain and therefore shar ing that with the customers.

Got it. But what is the reason for a jump in profitability this quarter? If you can break that up, that will be really helpful?

Sanjesh, if you're comparing it with last quarter, it was not a usual quarter. And our profitability dipped significantly. So, while quarter-on-quarters, when you're looking, it is a ppearing as a significant jump, but this is not where we should be with the kind of volumes that we have done. And, of course, this quarter the vol umes have gone up by 20,000 tons and the volumes have contributed. EBITDA margins remain the same. There's not much improvement at EBITDA per ton level. So, the real impact of all the initiatives which Nilesh just spoke about is yet to come. It is still not reflected in the performance.

That's clear. Second, Nilesh, on the entire shift towa rds coal tar distillation, we have been positioned ourselves as a crude-based feedstock producer. And coal tar, which in which way is finding more buyers, thanks to the multiple applications there. Now, what is driving us to reconsider a business proposition to shift towards coal -tar distillation? That's number one. And number two, there's already established where we're procuring the coal tar. Now, how do we ensure that we get the feedstocks?

I'll get into more detail on this in the next call, because the project feasibility is being finalized right now. But at the core of it is that we need to diversify our feedstock base. Second, it's not that we will use coal-tar for all applications. This will be specific application based. So, there are applications where coal tar-based feedstock is slightly better. We have also upgraded our facilities, to be able to use combination of feedstocks. So that will help. And as I said, I'll get more details for you in the next call, where we would have already signed off the capex investment.

Got it. One last question on carbon black and then probably one question on Aquapharm. With the existing West Asia crisis, do you think we a re in a better position from a c arbon black manufacturing perspective and tapping the US market or do you think Russia now has a chance of selling their product in Europe or that's not happening?

We are seeing good traction from US customers, given that the tariff has gone down now. Of course, people are waiting for final stability in that structure. The logistics cost is a little bit challenging, but I think we are more compet itive now than we were in pre-war. So, we stay optimistic for both EU as well as the US markets.

But how do you read the jump in the logistic cost because we are a bulky material, right?

Yes. But even with that we are competitive in the US market. It's an underserved market. And the US customers are also trying to diversify away, because the competition is China, Russia as you said, they want to diversify to other Indian players. Therefore, we believe we are still competitive in multiple applications.

Okay. Last one from my side on the Aquapharm side. Phosphoric acid prices have gone up very sharply. That should itself has given a lot faster growth in my view. Number two, crude prices very beneficiary for us in our US business. A combination of this, does it improve th e outlook for Aquapharm in FY27? Now, for last two quarters, we have been doing EBIT losses there?

So Sanjesh, yes, the phosphoric acid prices have gone up. We have also taken immediate price hikes from March onwards. So, it will have some cushioning effect going forward. But as far as the oil and gas business is concerned, with this jump in oil prices, we see substantial restocking impact coming in the first two quarters of FY27. So most probably you will see a decent growth in the oil and gas business in Aquapharm in FY27.

And how should we see part to profitability?

From a profitability perspective what has happened is significantly lower capacity utilization in the last couple of quarters. That has led to some kind of a negative operating leverage playing to our numbers. As we see Q1 and Q2 onwards, oil and gas business moving up sharply, the same thing will turn into positive to our advantage. So, you will see profitability moving up as our overall capacity utilization moves up from Q1 FY27 onwards.

That's very clear. Just one balance sheet question. Considering there is a sharp increase in the feedstock prices, that will put significant pressure on working capital and hence on the net debt position, which already appears to be stretched in correct profitability situation. How do we want to manage this entire leverage situation and still continue to grow?

Our overall borrowings have come down by roughly INR450 odd crores this year, as you must have seen from the balance sheet. You must have also noticed that our investment in working capital has also gone down significantly. So, we are managing our receivables and inventory very tightly. And we feel that there is further scope for us to improve there. So, we are instituting better controls. We believe that despite the increase in crude prices we don't expect crude is going to be here for the full year. We believe that maybe in a quarter's time, we'll see crude soften back to that 80-90 level. Even if crude remains at $90 level, I think considering the volume growth, the revenue growth, we will require another INR100 crores worth of incremental working capital. That's how we are estimating it as of now. And the cash generation with higher volumes and better margins will be far more than what we require to invest in our growth, pay out to shareholders and invest in working capital for this incremental requirement.

Got it, Thanks, Nilesh, thanks, Raj for all those questions. And best of luck for the coming quarters.

Thank you.

Thank you.

Yes. Thank you for taking my question, sir. So already som e of my questions have been answered. Just a few from my side. One is, as sir, in the opening remark indicated about this price increase pass-on would be majorly reflecting from Q2 onwards, I guess. So just wanted to understand how this pricing pass -on would be, I mean, being out in the different segments for us for carbon black as well as for the Aquapharm also. And I think from March onwards, we have some higher prices which came down in mid -April. But again, again it started moving up a nd probably there would be some adjustment in the contracts also. So how the contracts have shaped and how we should look at basically going forward our Q1 performance also?

So, as you said, different segments in our market have different pricing linkages. So, in case of tyres, for example, there is a structure where pricing can be linked to and we have different types of contracts with tyre consumers. Some are Q minus 1, some are M minus 1. So, there are different pass-through mechanisms. So those will come into effect as and when the contract terms move along with it. There is also a significant piece of volume which is based on spot pricing. There we have anticipated and taken price increase early. As I said in March itself, we had started taking prices up a nd price increases have gone through because obviously, the entire industry is facing the same challenge. So, we expect prices to be strong in Q1. And depending on how the crude situation moves, this will sustain. Some part of it we will lose later on as the crude prices hopefully come down. But we expect profitability improvement given the cost of our raw materials available with us for Q1. Aquapharm is going to be a similar story for some segments where we have pass -through and prices are linked to Q minus 1 or M minus 1 in some cases.

Got it. And sir, from our new battery business, how things are progressing there? When we should be seeing the material numbers in that segment?

I think the pilot plant is ready. This, of course, is a very high-value business with high margins. But it also req uires qualification. So, the pilot plant is designed to start getting qualifications done within this year. Then we will move on to putting up a commercial plant with additional capacities. I would expect that FY28 is when we will start seeing commercial volumes going up. We will share more details as we progress in getting more qualifications with our customers.

Got it. And one last question for maybe for the guidance point of view and how we should be looking at the volume growth in the carbon black side for next year. And for the power business also, I think I mean some outlook wanted to know as the demands are quite st rong there, but pricing has not been to that extent. So, are we seeing any material price increase also going forward in the power side or it will remain more or less in this similar range?

I think in the carbon black business now with our additional capacity coming in, we expect to see a high single-digit volume growth. We should see more than double-digit growth in EBITDA as well for next year. As Raj was saying, Q4 results are not what we aspire to be. So, you should see significant improvement in that going from Q1 onwards. On power side, the pricing, there are two components of it. One is the bilateral agreements that we have. Now there the price is moving well. And I would also expect that because of the fuel crisis in West Asia, we should start seeing some better pricing realization Q1 onwards as well. So, we should see structurally better pricing in power business as well.

Okay. That's it from my side, sir. Thank you. Thank you very much.

Thank you. Next question comes from the line of Aditya Khetan with S MIFS Institutional Equities. Please go ahead.

Thank you, sir, for the opportunity. Just a couple of questions. Sir, you mentioned in your opening remarks on the carb on black spreads bottoming out. So, what are the indicators like if you can highlight and what is giving you that confidence that this has bottomed out? And what are the triggers wherein it can improve apart from what we say that tyre demand will grow? Any structural change in the business we can see o kay now this has bottomed out and sir compared with last quarter actually s preads look much lower here, adjusting for the inventory gains. So, what has changed and what is giving you that confidence that it has bottomed out?

For the Indian players, some of the positive things that we are seeing is because the US tariff issue is to some extent sorted out. So, the additional volume coming into the Indian market is now moving towards US as well. So, you see some improvement in volumes being exported out of India, which therefore reduces the pressure on pricing in India. That's number one. I think we are also continuing to see some inventory built up by our customers as well, which is a little bit of an additional demand coming through and again should allow us to start charging a little bit more premium. Third, of course, the value-added component of our business is going up and we expect to see that also helping us improve our spreads.

Got it. Sir, on to the customer side, like you mentioned, so customers are keeping some inventory, which earlier they were taking just in time. So, can you highlight like what are the inventory levels today with the tyre players of carbon black and specialty and Aquapharm across businesses?

It varies by customer to customer. So, depending on the market that you're talking about, for example, our domestic customers usually keep, were keeping about 3-7 days depending on the location of their plants, et cetera, which they are dialing up a little bit given the uncertainty in export markets. Again, it varies across the value chain. What we are looking at doing is actually providing some more additional inventory stock points for just-in-time delivery as well for the longer term. This is not going to come in effect right now. It will take a little bit of time to do that, but our custo mers are increasing their cover for beyond increasing that by at least 3-4 days minimum as we see as of now. And this is true for specialty as well as for tyre customers.

Got it, sir. Sir, on to the Aquapharm like you mentioned, so with the rise in crude prices, definitely coming quarters should look good. But you also mentioned that restocking is picking up. So, suppose that if tomorrow all these things stabilizes, the West Asia crisis, everyone is anticipating crude price to fall down. So still this thesis will remain intact that demand will pick up and restocking thing also will continue or we could be back to that original level like we were saying earlier?

So, we are not banking only on the inventory increase. We are also making efforts to increase share of wallet in terms of providing value -added services and solutions for customers. As I mentioned, there is a lot of new prod uct approvals that we have got. So, we are seeing positive traction beyond the immediate impact of inventory increase. So structurally, we believe there is enough growth in the key segments, oil and gas in water treatment and the home care segments, especially as we have got now greener products coming into the mix. And we should see increased volume. So no, structurally, we are making efforts to ensure that profitability goes up.

Sir, current quarter when we look, so we are sitting at around INR29 crores sort of an EBITDA, which you have mentioned in the presentation. So, sir, next year, considering if things normalize and you are mentioning that premium mix will go up, can we ag ain go back to the levels of INR50-55 crores EBITDA per quarter in Aquapharm?

Yes, we believe we should be able to do that.

Got it. And sir, on to the volume side, any numbers for FY27-28 like earlier, we had said for 26, so double-digit volume, but I think we are at flat. For FY27-28, any number guidance?

Aquapharm should see a very strong growth in top line in FY27. I think in the region of 20-25% is something which we believe should be able to achieve.

Got it. Sir, just one last question, on to the debt part you had mentioned that we have also reduced some of the debt. Along with that, we are also into capital expenditure mode. So, this will continue in FY27 also, both paying off debt and simultaneously doing capex FY27-28. How you see things shaping up on this front?

Yes, we feel that we can generate more cash from operations and what we require to invest in growth. And therefore, there should be net-net reduction in overall leverage.

One last question that we had mentioned in our investor day earlier, lumpsum 40 billion guidance of EBITDA by 2030. So, does that hold or is there any change on to that?

See the long-term fundamentals of the industry remain intact. These are short -termheadwinds that we are facing currently. So, from 2030 perspective, we are very confident ,we remain on track and with all the initiatives that we are taking, we believe that we should be able to deliver those numbers.

Got it, sir. Thank you. That's it from my side.

Thank you. Next question comes from the line of Prit Nagersheth, Wealth Finvisor. Please go ahead.

Yes, thank you. My question is back to the EBITDA per ton for FY27. So, if I understand, you said you are expecting double-digit growth on EBITDA. So, should I assume that the 14,900 odd per ton, we should see at least about a 14 -15% increase on this number? Is that what this leads to?

We should easily see that, yes. Just to clarify it's a mix of both. We expect pricing to move up and we also are taking s ignificant initiatives on cost. So, combination of that should definitely deliver that.

And here you are coming to this number based on two factors, one being the volume growth of high single digits of 7-10% and the value growth of the remainder to get to this number. Is again my understanding, correct?

So let me recapture. So, there's three elements. One is, of course, the volume growth. Second is a product mix change. We are getting higher value -added products coming through. The third one is the general price increase. And sorry, there's a fourth one, which is the cost initiatives, which we are also taking.

Understood. So basical ly, effectively, the EBITDA ton moves up by a strong double -digit number and we should also see maybe revenue increase, volume increase alongside all of these things?

Yes.

Okay, great. Thank you. The other questions have been answered.

Thank you. Next question comes from the line of Sailesh Raja with B&K Securities. Please go ahead.

Yes. Sir, in the last call, we had mentioned that Aquapharm received incremental allocation from customers like P&G, Henkel. So, could you quantify the potential volume growth expected from these two allocations over the next 1 -2 years? Also, regarding the recent, the removal of 13% VAT, the export debate which you were talking with b enefit in China. So specific to PBTC product, so within the Aqua pharm the overall volume mix, what proportion of volum e is currently derived from PBTC product and what about the operating profit growth that we are expecting in Aquapharm?

So, Sailesh, specifically, if you talk about the green chelates portfolio, where we last quarter also mentioned that we have started receiving trial orders and supplies have started to both P&G and Henkel. There, I think, from Q2 and Q3 onwards, we see significant increase in the expected sales revenue as we get product approvals. So, from a potential perspective, potential is large. We ourselves have limited capacity, our overall green chelates capacity is 4 ,000 tons. And we have been look ing at expanding that capacity, but we have been waiting for product approvals to come in so that we don't set up capacity too early. Now, as we see increasing sales in the green chelates portfolio, both FY27 & 28, you should see significant increase in the revenue side. And we will be adding more capacities to the green portfolio for Aquapharm, once we get these product approvals from P&G and Henkel . We are also working with more customers to get product approval from the non -detergent side of the business too. So, this should help us to have a larger revenue growth from this green chelates portfolio.

Hello. Yes. Sir, we are expecting 20,000 tons incremental number. Can you please quantify the volume that you are expecting from these two customers and also the growth that you are expecting from Aquapharm?

A couple of things. The requirement of these customers is pretty large. I mean, we will not be able to supply that requiremen t with what capacities we have. So, if I tell you about the opportunity size, it is pretty big. We have received the trial orders in the last quarter and the supplies have started now, we have to build up that portfolio gradually. So, if you recall, a couple of years back also we mentioned that we have a very large ambition for the green chelates portfolio. We have some capacity. We are now getting trial orders and more orders are expected to come in a couple of quarters. So, by the end of this year, we should have a much larger say when we talk about the green chelates portfolio. The challenge is not the target market or the size of the market. And from an EBITDA perspective, I think while last quarter has been a challenging quarter in Aquapharm and we faced multiple challenges, which Nilesh also mentioned during his opening comment, we believe that our goal remains to reach that INR75 crores per quarter EBITDA run rate, which we have been trying to achieve in the last few quarters. And if the market had been in a normalized scenario, we probably would have achieved it by now. But over the next 2-3 quarters, we believe that that goal remains intact for us to reach 75 crores run rate on a quarterly basis.

Okay, sir. Great, sir. The Europe market, the carbon black, size is around 1.5 million tons. Just to understand better to see just potential benefits from EU FTA, could you please help us with the current supply mi x, how much of demand is met through domestic production versus imports? Within imports, what is the share from China, India? Is there still some Russia supply is coming to Europe market, can you please talk about that.

Western Europe on average imports about 500,000 tons of carbon black every year. And earlier, almost 80% of it used to come from Russia. Now, of course, it is spr ead across number of countries. India currently is doing about close to 100,000 tons to our understanding. And China share would be a little more compared to us. Rest comes from multiple geographies. Now, in terms of how this EU FTA is going to benefit us, there is no import duty on carbon black in Europe. So, there is no direct benefit. But when you look at indirect benefit, currently, tyre imports in EU from India attracts 4.5% duty. So once this FTA is signed, then the duty is likely to get to 0%. And Europe accounts for one third of India's t yre exports. So, I mean, that should boost up domestic production in India and from that perspective, it is going to be positive.

How much is domestic carbon black imports here?

In Europe?

India imports.

In India, it is not significant.

China and Russia are not much. China does about roughly about 1,500 tons a month. And Russia would be around similar 1,500 tons, 2,000 tons a month. India in totality imports about 8,000- 10,000 tons a month.

Okay. Thank you. Thanks.

Thank you. Next question comes f rom the line of Shashank Kanodia with ICICI Securities. Please go ahead.

Yes, good afternoon. Thank you for the opportunity. So given the current crude prices, what kind of blended carbon by regulations should we look for Q1, F27, given that you clock closer to INR105 to a kg in Q4?

Sorry, I couldn't get the question. If you can say that again, please.

Yes. So, what kind of blended carbon black realisation should we expect in Q1, F27, given the crude prices that they are currently hovering at?

Around $1,400-1,500.

Okay. And that is true for Indian markets as well, right?

Yes, I'm talking about average blended, both domestic and international.

Right. And sir at the current level of crude price s, how is the CBO versus CBFS profitability ? So, do we see more of Chinese supply getting into the market at the current crude prices, which is coal-type based or CBFS as a root is still at an advantage position?

The coal-type prices have also moved up. So, it is even keel as of now. So pre-war versus now, it's about the same levels of difference. So, when it is imported coal tar into India, it's still a little bit more expensive on a TCO basis, because there is a difference in yield which we get between CBFS and coal tar. So competitive, but CBFS is better for us right now.

And sir f or a quarterly breakup of volume that you have shown in the presentation, your t yre space volume has declined from 90,000 odd tons in Q4 to 88,500 tons for this quarter, whereas the domestic tyre space has grown healthy double digit. So, is it just purely out of profitability angle that we have supplied less to the industry or is there some market share loss, some angle to it?

Yes, quarterly sales volume for t yres performance specialty that you have showcased in your presentation?

Performance specialty, one second.

I'm talking about tyre in particular getting potentially declining in sales volume from 90,000 MT last quarter, as in Q4 to 88,600 MT this quarter?

This is just a customer mix that we had and it's just a timing effect in terms of when the material got supplied. So overall, we are going to see growth in tyre business as well.

Right. And lastly, sir, do you see.

Q1, you should see higher volume from us on tyres.

Okay, sir. So, given that there are state elections in the home state, is there any recurring one - time expense charged to a P&L for this quarter or do we expect something in Q1?

Shashank, you have to repeat.

So, I'm saying that sir, given that there are state elections in your home state, do we see any one- time recurring charge, which is non -recurring in nature, either in Q4 or in Q1? So, we had a history of some donations in the past. So, do we see that as an element for Q4 or next quarter Q1?

Nothing significant, Shashank.

Okay. And, sir, given that you're expecting a good amount of profitably increase for base carbon black as Aquapharm, do we surpass the FY25 base case profita bility in terms of EBITDA and PAT

Yes.

Sure, sir. Thank you so much and wish you all the best. Thank you, sir.

Thank you.

Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.