DCW Limited (DCW) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '26 Earnings Conference Call of DCW Limited, hosted by Valorem Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, ma'am.

Good evening, everyone, and a warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent the Investor Relations of DCW Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the second quarter and first half of the financial year 2026. Before we begin, let me mention a quick cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's belief as well as assumptions made by and information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial performance for the quarter under review. Now let me introduce you to the management participating with us in today's earnings call. We have with us Mr. Saatvik Jain, President; Mr. Pradipto Mukherjee, Chief Financial Officer; and Mr. Sudarshan Ganapathy, Chief Operating Officer. Without any delay, I request Mr. Saatvik Jain to start with his opening remarks.

Thank you, Purvangi. Good afternoon, everyone, and thank you for joining our earnings call for Q2 of FY '26. As always, it's a pleasure to speak with all of you and share an update on the quarter gone by, the progress that we continue to make and the direction in which we are taking DCW. Let me begin with a brief view of the broader industry environment. The first half of this financial year continued to be challenging for the global chemical sector. Pricing across most commodity value chains remained weak, demand recovery was uneven and excess capacities, especially in China, kept margins under pressure worldwide. Chinese chemical output grew at a high single digit rate in this period, while Indian chemical production remained largely flat. This imbalance has directly affected regional pricing and trade flows. Domestically, the Indian chemical industry continues to face aggressive dumping, particularly in PVC and soda ash and several other chlorine-based intermediates. A sharp drop in freight rates has further enabled Chinese exporters to ship excess volumes into India at highly competitive landed prices. The absence of timely trade protective measures has meant that domestic producers have had to navigate a difficult realization environment even in products which have a steady demand. That said, the long-term structural drivers for India remain fully intact. Consumption growth, import substitution, export-led opportunities continue to position India as one of the most attractive chemical manufacturing destinations for the next decade. However, in the near term, the industry's ability to sustain earnings will be determined by cost efficiency, portfolio resilience and capital discipline. Against this backdrop, I am pleased to share that DCW has once again delivered a resilient performance in quarter 2, driven by a combination of strategic investments, product mix optimization and operational cost gains. Starting with our Specialty Chemicals segment, which continues to be the core driver of our margin stability and growth. The expansion of our C-PVC capacity from 20,000 tonnes to 40,000 tonnes was completed ahead of schedule and we were able to ramp up to full utilization within the quarter. This is an important milestone in our journey to scale high-margin specialty chemistries. As a result, quarter 2 marked our highest ever CPV sales volumes, reflecting both capacity expansion and strong customer acceptance. However, the quarter also saw significant price erosion of over 15% over the last quarter in C-PVC, driven by higher import competition and market-led pricing corrections. Importantly, our synthetic iron oxide pigment business remained insulated from the price volatility seen across the industry with both volumes and realizations holding steady across geographies. Despite the sharp correction in C-PVC prices, the Specialty segment delivered EBITDA growth over the last quarter, demonstrating the strength of our multiproduct portfolio and the benefits of scale. On the Basic Chemicals side, the operating environment remained weak, particularly for caustic soda, soda ash and PVC, where Chinese imports continued to depress realizations. Even so, the segment recorded a 20% improvement in EBITDA over the last quarter, led by higher captive usage of renewable power from our recent investments. Our Synthetic Rutile business also saw a pickup in volumes during the quarter as the export pipeline strengthened, contributing meaningfully to revenues compared to quarter 1. For the company as a whole, our EBITDA grew 8.5% over the last quarter and 51% year-on-year, while our profit after tax improved 21% sequentially and turned strongly positive versus a red number in the same quarter last year. This performance in the face of a sluggish industry cycle validates our strategy of realigning the portfolio towards specialty products and driving structural cost efficiencies. Looking ahead, we expect the second half of the year to be stronger, supported by full contribution of our C-PVC's expanded capacity, continued export momentum in our pigments and Synthetic Rutile businesses, sustained savings from our renewable power integration and seasonal demand uptick in quarter 4. The next leg of our C-PVC expansion, taking our overall capacity up to 50,000 tonnes is progressing well and is on track for commissioning by the end of this fiscal. Apart from our product portfolio, our balance sheet has also continued to strengthen. Around INR 70 crores of long-term debt was repaid in the first half of the year and we remain confident of ending this fiscal with a net debt-to-EBITDA of below 0.5x. By the close of this year, all our ongoing projects will be completed and we will be entering FY '27 with both a lean balance sheet and a fully sweated asset base. As I shared last quarter, we are not just building for the cycle ahead. We are building the foundation for the decade ahead. In that context, I'm happy to note that our transition to SAP's S/4HANA has been successfully completed. This is more than just a simple technology upgrade. It reflects our commitment to institutional strengthening, governance discipline and long-term stability and scalability. Finally, and most importantly, with the current phase of CapEx nearing completion, DCW is now preparing to enter its next leg of growth. Multiple specialty chemical opportunities are already progressing through feasibility and Board-level review. Over the next few quarters, we expect to convert these into committed investments aligned with our strategy of growing EBITDA through higher-margin downstream and value-added chemistries. The environment may remain unpredictable in the short term, but DCW is entering this phase with clarity of strategy, capacity to invest and benefit from a stronger balance sheet. With that, I will hand it over to Pradipto, our CFO, to take you through our financial performance. Thank you.

Thank you, Saatvik, and welcome, everyone, to the quarter 2 FY '25-'26 earnings call for DCW. Revenue for the quarter stood at INR 539 crores as against INR 489 crores in quarter 2 of last fiscal. This is an increase of 10.2% in the company's top line despite the net realization across all product segments, excluding caustic, witnessed price corrections majorly in C-PVC and PVC. Additionally, the captive consumption of our own -- additional captive consumption of our own PVC for supporting the raw material requirements of the additional C-PVC production. The volume across all the product segments were higher on a Y-o-Y basis, resulting in the revenue growth for the company. It is important to mention that sale of Synthetic Rutile has also picked up in the current quarter, along with a better order visibility. Revenue for Basic Chemicals grew by 15% to clock at INR 395 crores, predominantly backed by increase in sales volume of Synthetic Rutile. Revenue from Specialty segment remained flat with negative bias at INR 140 crores. The company has achieved highest ever sales of C-PVC for the current quarter, backed by commissioning of additional 20 kt capacity on 22nd of July 2025, with immediate ramping up of commercial production followed by quick turnaround time of product placement to its customers. Synthetic iron oxide pigment sales also remained firm across both our primary markets, that is U.S. and India. However, the revenue remains -- still remained flat, predominantly due to steep price correction in C-PVC as mentioned earlier. On sequential basis, the quarterly revenue grew by 13% from INR 475 crores, both in Basic Chemicals, it grew by 15% and Specialty Chemicals by 9%. As mentioned, Specialty Chemicals growth therein was also challenged due to C-PVC price erosion of 15% on a sequential basis. At H1 level, the revenue clocked at INR 1,015 crores, that's a 2.7% increase on Y-o-Y basis. EBITDA, including other income for the quarter stood at INR 62.6 crores, which was 51% higher than quarter 2 of last fiscal. While the Specialty Chemicals EBITDA remained flat with negative bias at around INR 45 crores, the EBITDA on Basic Chemicals turned positive to INR 14 crores from a loss of INR 9 crores. The EBITDA margin expanded and clocked at 10.78% for the quarter versus 7.2% in quarter 2 of FY '25. Despite Specialty Chemicals volume increasing significantly, primarily backed by expansion of C-PVC, the entire benefits in the top line as well as EBITDA was offset by steel price correction. On Basic Chemical side, the effect of power substitution through alternate energy sources and Synthetic Rutile sales volume increase had a positive impact on the segment performance. Soda ash performance, however, were a bit affected due to seasonal factors as well as certain plant stoppages. On a sequential basis, quarterly EBITDA, including other income, grew 8.5%, up from INR 57.8 crores. At H1 level, the EBITDA including other income clocked at INR 120 crores, which is up by 29.5% over H1 of the last fiscal, which was INR 93 crores. EBITDA margin at H1 level stood at 11%, well above 8.2% in H1 of last year. Now coming to profit after tax. The company has reported a quarterly profit after tax at INR 13.8 crores as against a loss of INR 1.2 crores in the same quarter last fiscal. On a sequential basis, the PAT was also up by 21%. At H1 level, the company had reported PAT of INR 25 crores as against INR 5.5 crores in H1 of last fiscal, which is increase by 4.5x. During the first half of the year, the increased EBITDA, slight increase in depreciation and gradually reducing interest costs amplified the PAT growth. Now to touch upon the borrowings, the H1 gross debt stood at INR 365 crores versus INR 425 crores in March '25, a half yearly reduction of gross debt by INR 61 crores on account of scheduled term loan repayment to the tune of INR 70 crores. The company continues to maintain healthy cash and cash equivalents balance above INR 200 crores, thereby having a net debt of only INR 155 crores. Company continues its path of deleveraging its balance sheet with current gross debt EBITDA clocking at point -- debt equity clocking at 0.34x. Considering normal operations in H2 and company's -- the company expects the exit of -- with the exit of this financial year, the net debt to EBITDA to go to as low as 0.4x. With this, I thank everyone and would request the floor to be opened up for questions by the participants. Thank you.

[Operator Instructions] Our first question comes from the line of Darshil Pandya from Finterest Capital.

Sir, my question is about the C-PVC capacity that we have added in July. Have we seen any revenue from this in this fiscal -- in this quarter specifically?

Yes, we have. I mean, if your question is sale of our produce, we had commissioned the plant somewhere on 22nd of July. Production has been immediately ramped up. And we have from the new capacity also sold in to the market.

Okay. So precisely for this -- for the rest half, we will be seeing full numbers as mentioned? Or how do you see the numbers?

I think I'll ask Mr. Ganapathy to answer on this. But given the demand situation now, we feel that we will produce and sell the entire produce.

Yes, yes, I don't think we will have a challenge in selling the product because the product has been well accepted by all our anchor customers and we don't foresee any big challenge. Though the prices likely to remain somewhat muted because of, I would say, cheap imports coming from outside the country.

No problem. Sir, understood just that now since we are not putting up C-PVC and SIOP differently. So in Specialty Chemicals [indiscernible]...

No, if you have heard Mr. Pradipto and Saatvik, we said that we had the highest ever sales in this quarter of C-PVC. So that will not happen without the new capacity also getting sold.

Our next question comes from the line of [ Praneet ] who is an investor.

So I was wondering how does the company see the new capacities that are coming up in the country by the large players? I understand the price has already been unstable and it has been getting depressed with the imports. How do you think the new capacity addition to the market is going to impact DCW?

Are you talking about C-PVC?

No, talking about PVC.

PVC. PVC, you see even today, as we talk, the domestic capacity is adding only to sub 40% of the total demand. And even as we talk now, the demand continues to grow at 8% CRG. So the new capacities coming will only add to that demand growth and India will continue to be a net PVC importer even in the coming years. Though the import volume may drop, India will continue to import PVC.

But specifically, the pricing because our pricing is seeing a huge hit, we are not able to perform net EBITDA.

No, you see -- I think -- see, we have -- we are talking about many products. So let us go product by product. In PVC, what we mentioned is that we are seeing significant dumping from China because there is a delay in the implementation of ADD by the government of India. So China is selling the product at lower prices, which is forcing all other players to also reduce the prices. This will likely to improve once the ADD gets implemented, which we hope should happen somewhere this month.

At what margin do you think we'll be able to operate once the ADD has been implemented in terms of the PVC segment results?

I can't comment on that now. It's all futuristic because it will be better than what we are now.

But now we are at breakeven, right? At INR 400 crores, we are running at breakeven practically. So I was curious on how are we planning with the capacity -- yes.

For DCW, PVC basically is a VCM import and PVC sell into the country, right? So historically, what we have seen, if there is seamlessness in pricing for VCM and PVC, what we call as PCM, PVC spread, that being static, roughly, we earn 5% to 7% historically on -- as a margin from the product. So we hope that if the imbalance in terms of ADD coming in gets wiped off, we will get back to the margin of 5% to 7% in PVC.

5% to 7% EBITDA, right?

Yes.

Understood. And in terms of C-PVC, we have noticed that the piping players also entering the market. I understand that the opportunity is huge. But has that impacted any of the, let's say, pricing in the 15% you mentioned the imports also? So in terms of domestic also, has it affected any way or no?

We're still importing PVC even if there is a duopoly now up to a couple of -- up to a year back, we were in a monopolistic situation. We are in a duopoly situation. But the prices of C-PVC has to shadow -- both PVC and C-PVC has to shadow the import prices for whatever is the player in the country. So the import prices have come down. And hence, we have to match that price. And it's basically organic.

Understood. So what kind of spread do you think we'll be able to make from, let's say, from [indiscernible]?

The spread basically of C-PVC has not gone down. As earlier mentioned, we do it at a 30% spread roughly. That does not change much. But what happens basically is that the prices of PVC going down, C-PVC going down, absolute profits come down.

The spread is not changing, but the thing is as the price changes because it's a percentage, it's likely to come down?

Yes. Yes.

Our next question comes from the line of Pujan Shah from Molecule Ventures.

Very good set of numbers. Sir, my first question pertains to in terms of PVC. So in terms of [indiscernible] right now [indiscernible]...

Mr. Pujan Shah, I'm sorry to interrupt. Your voice is breaking. Could you please move to an area of better connectivity?

Sir, first question would be on the PVC side. So just wanted to understand, right now the industry is struggling in terms of -- and making losses also the manufacturers of PVC. So what are we expecting in terms of government intervention? Do we expect ADD to come soon in within a month or so? Because it has been delayed for, I think, from last 3, 4 months. So what are we expecting from the government side?

We expect that this month, we expect the duty to be notified because beyond this point, industry will find it difficult to sustain.

Right, right, sir. And sir, I just wanted to understand the C-PVC side. So we have seen a sluggish demand this quarter due to extended monsoon. So do we see any green shoots building up right now for Q3, Q4? I'm talking more on the H2 part. So do we feel that inventory restocking has been happening in the C-PVC side?

I tend to agree with you because the prices have hit bottom. So definitely, I expect the prices to be a very competitive price for -- even for the processors to visit the markets which have not been catered by them. So it's a good situation to be in and we expect demand to gradually improve. But price improvement may take some time. It will come with a lag, but I think demand will definitely improve.

Okay. Got it. But the demand benefit won't be benefited because we are already running at 100% capacity utilization. So the only -- on the absolute side, the benefit would only be available if there is increase in the prices, right?

Yes, that is company-specific, but as an industry specific, it's a good, I would say, a good situation to be in.

Okay. Got it. Got it, sir. And sir, just wanted to understand the power benefit. So we have installed our renewable power cost and we are saving around 25% of the total energy what we consume. So just wanted to understand what is the power saving cost we have been benefited this quarter and expecting for H2?

So I think our annual estimate was around INR 25 crores to INR 30 crores of savings at full scale. The drawdown this time has been around 80% and our savings for the quarter should be somewhere around INR 2.75 crores to INR 3 crores. Maybe this will go up to INR 5 crores, INR 5.5 crores. This is given that we are aware of the prices at which we will get the solar, but we are not aware of what the coal prices would be. Given the current prices, we should be having the annual savings of around INR 25 crores to INR 30 crores. And since this time, the uptake was a bit lower, so the benefits would have come around INR 2.75 crores to INR 3 crores, which will inch up.

Okay. So basically, we can expect a INR 15 crores of -- INR 15 crores of power saving benefit in H2, right?

Yes, INR 15 crores is on the higher side, but you can consider that given that this is -- this is the prices of coal. See, what happens is in south, monsoons are now, so the drawdown of the alternate power will go down. So maybe the benefit would not be there as much.

Okay, sir. And last question would be on the guidance side. So just wanted to understand briefly that we have been aspiring to touch INR 400 crores of EBITDA mark in FY '27. Now considering the current realizations of C-PVC, do you still feel that we can able to touch that mark of INR 400 crores? Or it would be difficult to right now guesstimate on this part?

I think we're still holding that number internally. I think the prices, while some of the factors like C-PVC prices has eroded beyond our expectation maybe, there are certain other cost-saving initiatives in the company go on working. So we're still hopeful that we will hit that number even at the current prices.

Okay, sir. And last on the commodity side in the soda ash, so what we have been hearing of in the China space is that they have been planning for additional 5 million to 6 million tonnes of capacity. Is that a correct reading? And if that is the thing, do you feel that the capacities will able to impact on our realizations going forward?

See, China adding capacity is predominantly for catering to their EV and solar, this EV cells. I don't think that capacity is created for exporting to other countries. I don't think that will have any impact on the overall demand supply balance as far as India is concerned.

But sir, there is more on the likely side that the natural and the synthetic. So is there any possibility that China is shutting down the synthetic production of soda ash and gradually wants to shift to the natural? If that's the case, then...

That's the case then complete it, no?

Yes, yes. So if that is the case, then how much time it will take to build up the new capacity versus the demolishing or shutting down the old capacity? So what could be the time frame?

It's difficult to really put a time line. But I think any of such a large-scale shift will definitely take, I would say, more than couple of years. I think it is too premature for us to come to any conclusion what is going to be the impact of this capacity shift or capacity buildup that China is doing. I don't think soda ash capacity is being built by China for catering to other countries. China has other products which they can compete. I don't think soda ash will be one of the priority products for exports.

Okay, sir. Got it. Got it. And lastly, do we see the caustic soda prices remain firm, right? So ultimately, that would be around INR 35, INR 36 realization or it would be lower than that?

It will be a tad lower than that. Caustic soda prices are predominantly most of the caustic players also have a significant export volume, which they are catering to. We expect the prices to remain in the current levels of around $375 plus/minus. So if you put a number, it will be around INR 33 plus/minus.

[Operator Instructions] Our next question comes from the line of [ Saurabh ] from [ Sb Ventures ].

Congratulations for good set of numbers. Sir, I just wanted to ask only one question. Sir, what kind of a margin you will maintain in FY '25 and '26? Can you throw the colors on this?

So it's difficult to give a margin number. I think we have clocked around 11% margin at a company level. And given such a scenario and we don't think that the prices to go down, we will maintain -- see, the margins go up only by 2 ways, change of product mix, which we have already done, it's gradually playing out, and the other piece is the prices going up. So margin -- the product mix is almost done because we are at least in this quarter done 40 kt run rate of C-PVC. Maybe we have the last leg as Saatvik would have told of 10 kt to be additionally done. That's basically the mix change in the margin. Price change is anybody's guess today. So it's very difficult to put a margin number.

Okay. Understood, sir. And what kind of a demand you are seeing in the synthetic chemical and Specialty Chemicals?

See, the demand is improving is what we can say is that in our Synthetic Rutile, like what we said is that there has been a steady increase in our overall exports and all our traditional customers have started buying from us again. So that business is likely to be steady and grow. And all other products, we have shown a increase in our overall revenue and we expect this trend to continue.

Our next question comes from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, what led to the Synthetic Rutile sales improving? And sir, what was the volume and realization during Q2 versus Q1 of this year? And what are the spreads currently for Synthetic Rutile versus aluminite?

I think these are very specific questions related and these are -- we could only tell that the volumes have gone up because of our orders from our regular geography, which is Japan. And the volumes will stay elevated basis the orders in hand. The prices globally, which is offered is best offered by Japan. And obviously, we expect that whatever we are doing in this quarter could continue. And I think that's what we can say. And anyway, it's a subset of our segment and we do not calculate product level profitability. It was -- I mean, it would be difficult to give a margin number for that.