Acutaas Chemicals Limited (ACUTAAS) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Acutaas Chemicals Limited Q1 FY '27 Earnings Conference Call hosted by Nuvama Institutional Equities. [Operator Instructions] I hand the conference over to Mr. Archit Joshi from Nuvama Institutional Equities. Thank you, and over to you, sir.

Good evening, everyone, and thank you for joining us on Acutaas Chemicals' Q1 FY '27 Earnings Conference Call. Today, we have with us Acutaas Chemicals management represented by Mr. Naresh Patel, Chairman and Managing Director; Mr. Abhishek Patel, President, Strategy; and Mr. Bhavin Shah, Financial Officer. I would now like to invite Mr. Bhavin Shah to initiate proceedings. Over to you, sir, and thank you.

Thank you, Archit. Good evening, everyone. We are pleased to welcome you all to our earnings conference call to discuss Q1 FY '27 financials, please note that a copy of our disclosure is available on the Investors section of our website as well as on the stock exchanges. Please do note that anything said on this call which reflects our outlook towards the future or which could be construed as forward-looking statement must be reviewed in conjunction with the risk that the company faces. The conference call is being recorded and the transcript along with the audio of the same will be made available on the website of the company and exchanges. Please also note that the audio of the conference call is the copyright material of Acutaas Chemicals and cannot be copied, rebroadcasted or attributed in press or media without specific and written consent of the company. Now I would like to hand over the floor to our CMD, Mr. Naresh Patel for his opening statement. Over to you, sir.

Thank you, Bhavin. Good evening, everyone. I hope you are all doing well. We began the financial year on a turbulent note driven by geopolitical tensions in the Gulf. While these things persist, our team has done a commandable work in securing raw material liability and ensuring supply continuity. The demand environment for our products remains strong as reflected in the quarter's results. We continue to see healthy RFP activity across our CDMO and NPE products. And our R&D team is working around the clock to service this pipeline on time. Within specialty chemicals, demand for battery chemicals remain exceptionally strong. I'm pleased to say that we have successfully completed the trial run of our battery chemicals plant and started commercial supply. Demand here is unprecedented, driven by tight global supply and we, therefore, expect a rapid ramp up over the coming quarters. Let me now turn to semiconductor chemicals. What we are seeing is that AI is starting to post CPU demand higher and that's pulling memory demand up right along with it. At a time when supply is already tied to our this is on the passing phase. It is a structural phase. As more of the world adopts AI over the coming years, the appetite for CPUs and memories will only keep growing. Our ongoing engagement with customers reinforces our conviction that memory chip demand will remain strong. We in turn will drive demand for the materials we manufacture -- a plant to manufacture at Indichem. Turning to our performance for the quarter. We delivered strong revenue of INR 329.7 crores,. which is growth of 59.1% Y-o-Y. This strong performance regulates the agility of our business model, our ability to adapt quickly to changing environment and keep delivering the products to our customers on time and without compromise. I would also like to complement our team for mitigating the logistical challenges through the quarter. On a different note, I'm delighted to say that we have been certified as a Great Place to Work. This recognition means a great deal to us because it reflects the culture our people have built together. One of cross collaboration and genuine pride in what we do. Our team is the engine behind everything we achieve. And this certification is proud valuation for of their efforts. I'm equally pleased to report that we have received the responsible care certification from the Indian Chemical Council. Disposable Care is the chemical industry commitment to the highest standard of safety, health and environment performance. And -- reaffirms our results -- resolve to operate responsibly and sustainably Q1 as we grow. To conclude, we have started the new financial year on a strong note and I remain confident of delivering 25% revenue growth for the full year with stable margins. With that, I would now like to hand over to our Vice President of Strategy Abhishek Patel. We will walk you through the detail -- who will walk you through the detailed business update. Over to you, Abhishek.

Thank you, Naresh bhai. Good evening, everyone. Let me share some additional insight into our business performance for the quarter. Starting with Advanced Pharmaceutical Intermediates segment, this segment delivered robust performance with revenue of to INR 292.7 crores in Q1 FY '27, reflecting a strong year-on-year growth of 76.5%. While CDMO grew strongly year-on-year as we expected, the core pharmaceutical intermediate business also delivered a robust growth. This was driven by our top products as well as by a couple of new products that are gaining volume traction. Moving on to the Specialty Chemicals segment. As communicated on our previous earnings call, we are gradually phasing out commodity chemicals from this financial year, replacing them with newer higher-margin products. Revenue stood at INR 37 crore for this quarter in this segment, a decline of 10.6% Y-on-Y. Therefore, even though the BFC business recovered strongly, this was offset by decline in commodity chemical business, which is in line with our expectations. It is worth noting that while overall capacity remains largely unchanged, some minor CapEx is required to align the plant for the new products. As a result, there may be a transition gap between phasing out of the old product and then revenue for new ones. Having said that, we don't expect the overall Specialty Chemical business to decline this full financial year while commodity chemical revenue will keep declining over the coming quarters, we expect that to be more than offset by growth in BFC and new revenue from battery chemical as well as the new specialty chemical products having better margin. Overall, we are projecting good growth in the newest specialty chemical business. Now turning to the capital expenditures. CapEx for Q1 FY '27 stood at INR 56 crores, out of which INR 15 crore were at the Indichem site, remaining INR 41 crores in ACL site, which is primarily diverted towards the battery chemical project at the Jhagadia site. And then pilot plant at our Sachin site and maintenance CapEx. As mentioned on our previous earnings call, we will incur additional CapEx for a new R&D center and for the acquisition of land for further capacity expansion, we will update the market once these projects are finalized. With that, I will now hand over our floor to our Chief Financial Officer, Bhavin Shah, who will walk you through the detailed financial update. Over to you, Bhavin bhai.

Thank you, Abhishek bhai. I would like to briefly highlight the key performance metrics for the quarter before we open the floor for questions. Let me start with quarterly performance. Revenue from operations for the quarter reached INR 329.7 crores, representing 59.1% growth Y-o-Y. Gross profit for the quarter was INR 190.9 9crores, reflecting a 73% increase compared to the same period last year. The gross margin expanded by 466 basis points Y-o-Y to 57.9%. Gross margin was driven by higher contribution for -- from Pharma Intermediate business compared to same period last year. EBITDA for the quarter was INR 113.1 crores, which represents more than twofold increase compared to the EBITDA of the same period last year. EBITDA margin were at 34.3%, up 973 basis points Y-o-Y. EBITDA margin was driven by expansion in gross margin as well as operational efficiencies. PAT for the quarter was INR 74.9 crores, up 70.4% Y-o-Y. Pat margins for the quarter were at 22.7%, which show an expansion of 151 basis points Y-o-Y. Moving on to the balance sheet item. Net cash and cash equivalents were around INR 314 crores as on 30th June 2026. Our working capital for the quarter stands at 99 days versus 91 days in Q4 FY '26. This was driven by improvement in debtors and creditors, which was offset by higher inventory days. With it, I request the moderator to open the floor for questions. Thank you.

[Operator Instructions] The first question is from Abhijit Akella from KIE.

Congratulations on a good quarter. First one, just on the battery chemicals business. Are there any revenues that we have recognized this quarter? If so, could please quantify those? And for the balance of this year now, what sort of revenue number can we work with for that side of the business?

So as mentioned during commentary by our CMD Naresh Patel, the validation of those new plant has already been successfully completed. And that's -- that means that we have started the supply from that plant. Now going forward, quarter in, quarter from second, third, fourth quarter onwards, it will keep on ramping up the production. I'm afraid I will not be able to share the a particular number to it, but we are very confident that we will grow very fast in those 2 business because, as you know, we have already supply contract in place from our customer, and it will ramp up very fast going forward.

Okay. Got it. And on the semiconductor side, the Indichem plant construction, if you could please just help us with a status update on that plant in Korea. How -- what's the time line over there?

So this plan, we are happy to share that this is getting constructed even before the schedules and expected to get so CapEx is expected to get completed by end of this quarter. And maybe by -- from next financial year onwards, we will have the revenue coming up from that plant.

Okay. Got it. And just the last 1 from my side. On the pharma intermediates piece, -- is it possible to just split out the growth rates between CDMO and the Advanced Intermediates business? And also possible to just split the margin between pharma intermediates and Specialty Chemicals.

So again, as we mentioned earlier, that we are not giving any split between the CDMO and non-CDMO in Pharma Intermediate space, we have already guided about the growth in the Pharma Intermediate side. So I'm afraid I will not be able to share those numbers on that side. But just on the margin side for those 2 segments, and by we'll update on this.

So with regard to margin, our spec chem business is having around 24% margin and Pharma business is having around 36% margin.

Next question is from Rikin Shah from Boring Asset Management.

Just adding on to the question for Indichem. So once the plant commissions what would be your typical time line in terms of trials, vendor cycle approval and ramp up? Basically, are we expecting any sort of delay or time to be dedicated for this?

So as you know, this is a newly constructed plant. The R&D facility has already commissioned there, and we have started product development from the R&D side. So I think this will reduce our time lines to commercialize the product. But obviously, because it's a new product, we are not committing any time line as of now. But what -- as I said, we are expecting this to get into a good commercial business from next financial year onwards.

Okay. Got it. And in terms of the type of products that we manufacture in Indichem, what is something that we are going to be doing here apart from photoresist chemicals that we do for BFC -- or are we going to be targeting a similar line of products here?

So there are -- of course, there are photoresist chemicals, what we would be doing, but there are multiple projects we are working on Indichem R&D as of now, but I'm afraid I will not be able to share details about those things as of now.

Sure. In our electrolyte subsidiary, we have sort of had a dilution and given 10% stake to ARV. Can you explain the sort of rationale here? And what are we thinking the order come for this?

So this is basically a awarding our business partner, their equity share, which was decided earlier only. This is the 1 -- the partner is 1 who actually has been there with us since the starting of this business when we started with the product development and then the marketing of all those -- so he is the 1 who will be -- who has been responsible for the whole business development as well as the future business development and the sales for all our electrolyte additive products and against which we have given them the equity share in that business.

[Operator Instructions] The next question is from Nilesh Ghuge from HDFC Securities.

Congratulation on a good set of numbers. First question to Bhavin. Bhavin, if you look at the cost, it is continuously going up. So what number we should for our, let's say, within FY '28 as far as the employee cost is concerned.

Employee cost, if you see typically, so this quarter, we have rolled out our annual increments and there is -- there are performance bonus we also given. So there are onetime performance bonus for the current year is also there in this year. We should typically look at around INR 150 crores of employee cost for the current year.

Okay. Okay. And second question to Abhishek. Abhishek last quarter -- that the Stage 2 will be commissioned in FY '27 -- Q1 FY '27 in the electrolyte business. So what is the current status of that?

So for the Phase 2 of this Phase 2, which is for the third product of our electrolyte additives segment, which is going on schedule. And as we mentioned earlier also by end of Q2 FY '27, we would be completing our CapEx. So that looks very well on schedule, and we are expecting the trial runs to commission very soon.

And just for a brief product fee you're talking about. For that also, there has been already a tie-up with the customer, similar to for our [indiscernible]

Contract in place.

Okay. So ramp-up will be very fast. I mean in FY '28, we will see ramp-up from not only from 2 products, but the third 1 also? Is my understanding correct?

Yes.

Next question is from [ Akshay ] from AK Investment.

First of all congratulations on a great set of numbers. Sir, how do we look at the EBITDA margin for the current financial year?

For current financial year, for the full year, as we guided during the commentary also, we are expecting a similar kind of margin as we had for full year FY '26.

Okay. My questions have been answered.

[Operator Instructions] Next question is from [ Vikas Angude ] from Paras Asset Management. Please go ahead. We seem to have lost the line for Vikas. We'll take the next question. The next question is from Jason Soans from IDBI Capital.

Sir, first question, just I just wanted to know, I mean, we have had a good process growth trajectory up until Q4, even Q1 has been good. But you did allude to some caution regarding to the Middle East crisis and in terms of raw material supply and stuff like that. So just wanted to know how our profit growth trajectory, 25% revenue growth. Do you see any moderation going ahead with our CDMO in other growth areas? Or are they still on track to post good growth? Or do you see some moderation or some optimism tempered going ahead into '27 for the whole year Yes.

We are still very much confident to deliver 25% growth rate for the revenue as confirmed by the CMD also. And for the margin side also, again, I want to reaffirm that we are confident to achieve similar margins compared to last financial year.

Sure, sir. And sir, for this year what is the CapEx estimated for '27 and '28, if you could give me and the breakup also, if possible for '27 and '28, what kind of CapEx are we looking at?

For FY '27, CapEx is largely the spillover CapEx of electrolyte additives as well as the pilot plant CapEx, which is around INR 50 crores and around INR 40 crore - INR 45 crore of maintenance CapEx. That is what the already planned CapEx for this year. Over and above, as I mentioned during my commentary that we are going to have R&D CapEx also and the land acquisition for our future expansion for our pharma business or any other business. But for those 2 projects, we are yet to announce that CapEx. We will announce it at a relevant time when the full CapEx plan is in place.

Okay. Okay. Sure, sir. Sir, this land acquisition still would be for what exactly -- I mean, I know you're still firming up the plans, but what exactly would the purpose of this land acquisition be?

So for our pharma intermediate business, Sachin plant is already hitting the capacity utilization roof. And the Ankleshwar plant is expected to get filled up in 3 years' time, maybe by FY '28. So we should be ready with some land parcel, which -- where we can have a new plant for our future capacity need as well as the newer project for our chemical business. That's the reason we don't have any much larger piece of land. That's why we are seeking some additional land parcel.

Okay. Okay. Sure. Sure. And just, sir, also when you mentioned that you are phasing out the commodity chemicals and basically replacing with high-margin chemicals, that is basically only for the spec chem business or I believe even the pharma intermediates piece, in the other piece, the core product side also, you're doing the same strategy. Could you just give some color on that?

If you go through our commentary last year, we have already done with the similar excise for our Pharma intermediate business last financial year FY '26. And now for this year, FY '27, we are doing some of the restructuring in our old commodity chemical portfolio. So that pharma intermediate is already done in last financial year.

Okay. So Pharma Intermediates, that rationalization is over. Now it moves to the spec chem side of the business. So that will also basically drive margins ahead -- improve margins going ahead.

The next question is from Abhigyan Srivastav from Marcellus Investment Managers.

Congratulations on the great set of results. Sir, there's a dip in other income this quarter from around INR 11 crores in the previous quarter to around INR 1.8 crores in this quarter. Is there a particular reason for that?

So Abhigyan, in the previous quarter, it was largely driven by positive exchange fluctuation rate available with regard to euro. So in the current quarter, we have only positive fluctuation of INR 10 lakhs as compared to INR 10 crores in the previous quarter.

The next question is from [ Juhi Kumari ] from Nano India Financial Services.

Congratulations on good set of numbers. I had -- my first question is other expenses like for this quarter has been in line with the previous quarters or has been moderated. So what would you give as a guidance for the rest of the FY '27 other expenses line?

So with regard to other expense, it is in line with the previous quarters. We have seen some savings due to our solar project. We have also seen operational efficiencies -- so whatever the expense for the quarter, we are looking at the similar kind of expense for the rest of the year.

Okay. And next question from my side would be regarding the EBITDA margin, which has expanded sharply to 34.3% in this quarter. So you have given guidance for 25% margins for FY '27. So do we expect to exceed this margin with this kind of run rate in the first quarter?

25% figure is coming from our guidance related to revenue growth. And for the margin, we have guided that it will be in a similar line, which was for full year FY '26. So that will be reflected maybe around a similar line in FY '27 as well.

The next question is from Archit Joshi from Nuvama Institutional Equities.

Sir, I have 2 questions, slightly more strategic. Firstly, we've seen quite a few plants of the electrolyte salts, electrolytes, cathodes coming in recently. And given that we have made some inroads starting with the additives, have you given it a thought that there are export opportunities available that we should maybe go a bit more into the value chain to start off with salts, electrolytes. What are your thoughts on that, if you can help us with that?

No, no, we do not have any plan for those business related to either electrolyte solution or the LIPL. We are sticking to the electrolyte additive segment only. And that is our cost and we want to stick to our strength only. We don't just want to get into other people's shoes.

Understood. Understood. Sir, secondly, you've known the developments and solid growth that we are doing in CDMO. Sir, if you can explain what are the things that we are doing to get some of these larger available APIs from a business development perspective or development of chemistries -- and if there is anything in the pipeline or anything that we are exploring to sustain the growth momentum, even though we have right now for the forthcoming quarters and maybe a few more years. But how would that CDMO journey be if I have to make a, let's say, 5- to 7-year assessment of how our growth trajectory will be?

So we will not be able to share any particular details about any particular projects or a CDMO business. But what we can assure is we are doing a lot of work related to newer projects. There is a healthy pipeline of products for R&D, and there are various stage of R&D as well as the validation and some of the projects already we have mentioned that a few projects are already validated and there are many more to come. So there's the kind of normal day in, day out job for both our business development as well as the R&D team. And what I can assure you is that we have a very good healthy pipeline for the product in the CDMO space. But due to confidentiality nature of those businesses with the customer, we -- under those agreements, we will not be able to share that particular detail about that business.

No, no. Of course, sir, I was not meaning to go into the confidentiality sort of things, not the exact details, but just to get a sense of maybe, let's say, what kind of therapeutic areas we are looking at or any particular or a few chemistries that we target where we have some leverage -- or rather how are we getting the inquiries from the customers? A qualitative aspect of that will also be very helpful to understand. That would be my last question.

Let me give you -- let me address your question other way around. Let's say, we have already guided the market that we would be hitting INR 1,000 crore revenue from our CDMO business. That is based on our confidence and looking at our upcoming product pipeline for our CDMO business. And we are very much confident to not only achieve this target. And in fact, we are confident to beat this target. So that is what I can at least give you assurance on this business side.

Sure, sir. I was actually, while we know that given that the molecule itself is a very high growth engine, I was slightly speaking something beyond that, the other pipeline, if you could qualitatively help us on those accounts, not the one that we already know of which you have very well guided in the past?

So that when we see the CDMO business, it's not only that particular product. It's a mix of product along with -- obviously, that product is an anchor product, but there are other CDMO products based on which we are consolidated revenue for CDMO that is what we are guiding.