PCBL Limited

I would not say it will go down or move up. There are structural changes we have been working on that are helping us improve blended margins. While there may be fluctuations in margins from quarter to quarter, year-on-year performance shows significant scope for improvement.

Volumes have actually increased over the last few quarters, from around 9,000 tons to 11,000 tons. We are adding capacity because the existing capacity can only support production up to 47,000-48,000 tons annually. We see the specialty segment as a large opportunity and aim to increase our annual volumes significantly over the next few years.

The new line could potentially produce around 13,000 tons quarterly, but since it was commissioned in mid-April, we achieved over 6,000 tons, which is more than 50% of the expected production. Initial production on a new line takes time to stabilize, and customer approvals also take time. We expect capacity utilization to increase in the coming quarters.

China's exports to India have significantly decreased from 7,000-8,000 tons to around 500 tons in the last few months. Overall imports in India have dropped from about 200,000 tons to less than 100,000 tons, and India has become a net exporter. The landed price of imports is still higher than our selling price in India.

Last quarter's average difference was around USD 251, and for June, it was USD 269, with CBO being on the higher side.

With the new Mundra line, we can reach a total capacity of around 63,000 to 64,000 tons. We also have plans for further expansion with another line expected to be operational by mid-2024.

Russia is already producing and exporting carbon black, but they are not adding capacity due to the current market conditions. The real advantage for us is that they will not be investing in further capacity, which is a structural change that benefits our business.

Freight rates have returned to pre-COVID levels, and the impact of high freight rates on our margins has diminished over the last two to three quarters.

Currently, there are no plans for a specialty chemical facility in the Tamil Nadu plant, but there is space for potential brownfield expansion in the future.

The Palej plant does not have space for expansion, but the Mundra plant still has some space available for a potential third specialty line.

We shifted to conducting grades about three to four years back. A team of R&D professionals has been working on conductive grades, and we have launched some grades in this segment. However, the pure superconductive grades for high-end EV batteries are still in the lab. We have had initial success but need to improve purity levels. The current grades are used in conventional batteries and internal coatings for better conductivity. The superconductive market is expanding rapidly, with electric vehicle sales in India increasing from around 1,000 units per month two years ago to about 8,000 units now. The market is expected to continue expanding significantly over the next five to ten years. The product we are working on will be of very high superconductive quality, while the Energia portfolio currently consists of mostly semi-conductive grades of carbon black. The average realization for some premium grades in the market is around USD 20,000 per ton, indicating that margins will be significantly higher.

The cost structure in China has changed significantly, making it less commercially viable for manufacturers to produce or add capacity. Over the next few years, we expect further consolidation in the market. With sanctions on Russia, they may sell to China, leading to a global undersupply that should support prices and margins for tyre grade carbon black.

Working capital has already decreased, with borrowings down by about INR 50 crores in the last quarters. Lower crude prices will further reduce working capital requirements.

We have not faced issues selling in export markets, but high inflation and rising interest rates in those countries could impact local demand. Currently, our volumes in these markets are increasing, but we remain cautious about market volatility.

Until we receive approval from domestic tyre companies, we will sell more in the international market. However, most of the Chennai facility's output will cater to domestic demand. Southeast Asian countries will remain significant markets for us, while Europe is becoming increasingly important, potentially reaching 25%-30% of our overseas volume in the long term.

We are cautious about committing the Chennai facility to European customers due to the interdependence between the tyre and carbon black industries. We are adding customers in the tyre space with whom we already have relationships in other geographies. The sanctions on Russia are likely to create significant demand in Europe, and we are already seeing customers looking to tie up with manufacturers in advance.

We do not want to change our long-term guidance on gross profit. While there may be opportunities in some quarters, we aim to maintain our guidance and continue working on efficiencies and product portfolio improvements to support margin enhancement.

Our power business enjoyed tax immunity for 15 years, which has now lapsed, putting us in a 25% tax bracket. The previous quarters reflected uncertainty about the expiration of this exemption. We estimate the tax rate to be around 25%-26% for this year, with a potential decrease to 22%-23% once the Chennai facility is fully operational.

We are seeing improvements in yields, but it is still early, and we expect to see more significant impacts in two to three quarters as we increase capacity utilization from the current 45%.

For the first year, we expect around 40% to 45% capacity utilization level.

There are structural changes in our efficiency and product portfolio that will support margins going forward, along with changing market conditions. We are agile enough to capitalize on opportunities.

We will need to add between 80,000 tons to 100,000 tons every year to support our growth.

Typically, for brownfield expansion, we incur about INR 50,000 to INR 60,000 per ton, depending on metal prices.

In the Middle East, Borouge is a big customer. In Europe, we have Borealis, Sabic, and MDI as significant customers. Europe is a large market, but we are also focusing on North America and China.

Yes, we are moving to the new tax rate from FY24.

At 45% utilization, the facility will just about break even. The weighted average tax rate will only come down once we start generating profit from Tamil Nadu.

Currently, about 30% of our volume comes from the international market. We aim for a balance between domestic and international volumes over the next 5 to 6 years.

Logistics costs from Russia to India are high, and Russian material has not come in at significantly lower prices. Therefore, we do not foresee any issues in India.

Brownfield takes about a year once the project starts, while greenfield takes around one and a half years, assuming all clearances and land are available.

The supply gap has occurred primarily due to China and Russia. China's raw material costs have risen, leading to consolidation. It will take about six to seven years to bridge this gap.

We export about 30% of our volume in international markets.

South East Asia, including Vietnam, Indonesia, Sri Lanka, and Bangladesh, are our big markets. Some countries in Europe are gradually becoming larger as well.

We have good visibility for our performance over the next 3 to 4 quarters unless something significant happens in the market.

Yes, we are hopeful of achieving that, supported by Mundra's new line.

In a couple of quarters, we will reach full utilization from that line.

Yes, we expect to achieve full utilization towards the last quarter of this year, with about 4,000 tons a quarter from the line. It will take some time to stabilize the quality in the grade.

Currently, the difference is around 2x. Specialty contribution has not gone down; even base volumes are yielding better margins.

There is no specific one-off event this quarter. Last year was impacted by Russia disruption, but this quarter's pricing and margins are based on market dynamics. We refrain from commenting on future pricing as we focus on our internal operations.

The lines have been operational for more than a year, and the 0.5 million tons came in the last seven to eight quarters. They are being utilized, but we do not have a clear picture of their ramp-up.

We don't report net debt figures, but it has gone down by roughly INR 50 crores.

We will have to announce it sooner because waiting for capacity to be exhausted would compromise growth. We have space in Tamil Nadu and Mundra.

Yes, you are right. This shift leads to more stability in pricing and margins. The margins in the new arrangements with tyre customers in new geographies are relatively better.

The industry is consolidated, with only a few large players in most countries. However, there are many small unorganized facilities competing in the specialty blacks market.

The pricing difference is about 5% to 6%, but we make about 20% to 25% more margin in this segment.

Currently, the mix is around 33%. We expect it to remain around 35% to 36% in the next two to three years.

We expect about 10% to 12% volume growth this year over last year.