Epigral Limited (EPIGRAL) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Epigral Limited's Conference Call hosted by Emkay Global Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Meet Vora from Emkay Global Financial Services Limited. Thank you, and over to you.

Thank you. Good evening, everyone. Thank you for joining us on Epigral Limited's Q2 and H1 FY '26 Results Conference Call. We would like to thank the management for giving us this opportunity to host them. On this call, we are joined with Epigral's management represented by Mr. Maulik Patel, Chairman and Managing Director; Mr. Kaushal Soparkar, Executive Director; Mr. Rakesh Agrawal, Chief Financial Officer; and Mr. Milind Kotecha, Investor Relations. I would like to invite Mr. Maulik Patel to initiate the proceedings with his opening remarks, post which we will have an interactive Q&A session. Thank you, and over to you, sir.

Management, I think your line is on mute. Could you unmute please?

Yes, sorry. Thank you, Meet. Good evening, everyone, and welcome to the call to discuss Epigral's quarter 2 FY '26 performance. I believe you would have an opportunity to view the earnings presentation that was released earlier today. The chemical market is currently exhibiting divergent trends. While some segments are recording robust growth, others continue to face challenges, while a slower recovery attributed to factors such as early and prolonged monsoon season as well as persistent geopolitical uncertainty. Despite this headwind, market outlook suggests that the chemical industry is poised to deliver better performance in the second half of the year compared to the first half, supported by improving demand fundamentals and the gradual recovery across key sectors. In quarter 2 FY '26, our sales volume saw marginal growth of 2%, while revenue declined by 4% due to the reduced realizations in certain product categories. Volume performance was impacted by an extended monsoon, subdued demand, and ongoing maintenance work at the plant. As a result, both value and volume declined in H1 FY '26. With the conclusion of the monsoon and the completion of the plant maintenance activities, there are early signs of demand recovery, and we anticipate volume growth in H2 FY '26, positioning the second half for the stronger performance compared to H1. Despite subdued demand and lower capacity utilization in H1 EBITDA margin was maintained at a healthy 25%. As plant utilization improves in H2, further overall improvement is expected. Our CapEx projects of doubling capacity of CPVC and epichlorohydrin and 19.8 megawatt of wind-solar hybrid power plant are moving as per schedule and are expected to be commissioned within the time line and the budget announced. We expect this to strengthen our diversification and reach to 70% revenue contribution from Derivatives and Specialty business. This expansion, along with chlorotoluene and value chain, which got commissioned in March 2025, are expected to drive the growth in FY '27 onwards. On the future CapEx side, we have moved a step closer to the new project at the current complex. Hence we would be freezing it soon. Once approved by Board, we will announce the details. This project will strengthen our integrated complex and add to the value chain. Second project is at the new land at the evaluation level at various stages, and we are working on it and should be able to freeze it soon. This new project will be sizable to drive the growth beyond FY 2028. This new project will be in line with the company's strategy, which is import substitution products where demand is expected to grow to the double-digit percentage for a longer period and where we can generate good ROCE. We are pleased to announce that the Board of the Directors has appointed Mr. Rakesh Agrawal as the Chief Financial Officer of the company. Mr. Rakesh Agrawal brings over 29 years of extensive experience in finance and accounts having previously led the finance and accounts department in his former organization. With his rich expertise and leadership, we look forward to his valuable contributions as we continue on our growth journey at Epigral. In line with this plan, the team remains focused on scalable, profitable growth and strengthening our integration and driving value for all stakeholders. We are advancing with clarity on milestones, capital efficiency, and disciplined execution to deliver sustainable growth as we expand capacity and capabilities. I now hand over the call to Mr. Milind Kotecha who will take us through the financials.

Thank you, sir. Let me take you through the Q2 numbers. Overall, plant utilization stood at 78% versus 73% in previous quarter and 83% in quarter 2 FY '25. Q-on-Q, we witnessed a volume growth of 2%, but as realizations for a few products dropped, resulting to the revenue drop of 4% to INR 589 crores. EBITDA dropped by 19% to INR 132 crores as realizations for a few products dropped, whereas raw material remained the same and also plant utilization was at lower level. Profit after tax stood at INR 51 crores. For first half of FY '26, plant utilization stood at 75% versus 83% in first half of FY '25, resulting in drop of revenue of around 6% to INR 1,204 crores. EBITDA margin stood at 25% versus 28% in first half of FY '25. This drop was majorly on account of drop in realization of a few of the products and lower utilization levels. We commissioned the chlorotoluene and value chain plant in March 2025, and it is expected to contribute sizable way to the P&L from FY 2027 onwards. In first half of FY '26, the P&L reflects basic expenses, depreciation, and interest cost, without contribution to the top line and bottom line. Once the plant starts generating sizable revenue, overall profitability should improve. ROCE stood at 21% as on 30 September versus 23% on 30 September 2024. 21% ROCE includes capital work in progress. If we exclude capital work in progress, then our ROCE stands around 24% as on 30th September 2025. Net debt to EBITDA stood at 0.8x as on 30th September versus 1.4x as on 30th September 2024. Hence, we are in a very comfortable position in terms of our debt. Our net debt has remained flat almost at INR 496 crores versus INR 489 crores as on 31st March. And during the year, we spent CapEx of around INR 236 crores. So our strong cash flow from operations are good enough for the CapEx that we had to spend. We expect our utilization levels would be better in second half of FY '26 compared to first half of FY '26. And hence, we expect overall performance to improve from here on. With this, we can now open the floor for questions.

[Operator Instructions] Our first question is from the line of Nipun Sharma from VLS Finance.

Am I audible?

Yes. You are audible.

Okay. So basically, you have been increasing your capacity for the CPVC. But I got to know that CPVC compounds are more utilized for the applications, whether it be for pipe industries or whether it be for fire sprinklers. So as you know that CPVC compounds are [ the form ] directly used by pipe manufacturers and only few companies like Astral Pipes appear to have the in-house capacity to convert resins into compounds. So I really want to know what is Epigral's strategy behind expanding CPVC resin capacity to 1.50 lakh and not CPVC compound?

No. CPVC compound, we already installed a large capacity from the beginning. The CapEx requirement for the CPVC compound is very negligible. It's not compared to the CapEx required compared to the CPVC resin plant. So we already have a capacity even if it's required to expand the CPVC compound capacity going forward, it will not take more than 3 months. So the resin plant, which is a backbone of the CPVC business, that is taking too much time to install as a CapEx and installed capacity. And that is the major key drivers. And that's why we are announcing only the resin plant we are expanding. If required in the future, compound plant, we will do it. But as of now, we believe that the majority of the people in India is converting more and more to the resin rather than in the compound. So they prefer to buy resin rather than a compound buying from the market. So going forward, if we require to expand, we can expand in very short span and very less amount of CapEx.

Yes, understood. But who are the target customers for your CPVC resins? Because I read somewhere that most probably -- most likely, CPVC compounds are used in the applications. So who are you targeting?

You are absolutely right. The people who are buying resin from us, they themselves are making compound and converting to the pipe. So majority Indian customers, they prefer to buy resins rather than buying compound from the -- so in the third countries or the Western countries, people are buying compound from the market and prefer to do only application and making pipe and fitting. But in a country like India, it started with compound, but gradually, most of the people are converting to the resin buying and they do the self-conversion into the compound and making pipe and fitting by themselves. So Indian phenomena is different compared to the global. And majority of the companies in India also started buying resin only. And they are expanding their own compound because that is not a major CapEx and the technology.

So what you're saying is that you are selling resins to your target customers. They're expanding into the facility where they will be converting the resins into compounds.

Yes. So majority -- some of the big companies are there, but it is exceptional. But most of the smaller companies, normally, they are not doing fitting compound or they don't want to make a fitting compound by themselves. So normally, fitting application, compound application, fitting compound, we are expanding, and we have done the fitting compound and who can cater to the smaller companies who are buying compound from the market. Because for the smaller volume, compound is only 20% volume -- fitting compound is only 20% volume compared to the overall business, 80% is the pipe. So pipe, they are doing self-compounding and some majority of the smaller companies, they are buying fitting compound from the market. So that's why our facility is to cater the 20%, which is a compound market. Very, very -- only 2 or 3 companies in India, which is buying also pipe compounds also from the market. So that capacity we already installed. So if required, we can install very easily. As I said, it is not a big deal. We can do it in 3 months' time. We can install a machine and we can -- additional capacity, we can do it in a faster way with a limited CapEx only. But market is moving towards the resin and self-compounding and converting to the pipe and fittings.

Understood. My one last question is, before exiting the queue and join later, that for your CVC chain, that is Chlorotoluene and value chain, you plan to sell around 10 to 15 products after the capacity reaches the optimal capacity utilization by the end of financial year '26. So I just wanted you to comment upon the competitive landscape on this because I got to know that Aarti Industries is also getting into CVC. And I think they are going into 35 to 40 products. So how do you plan to tackle this competition?

Yes. So currently, we have identified -- so you can make 15 products in the same plant, which we have already set up per CapEx. Out of that, we have targeted the 8 to 9 products in the first phase. We will target these products based on the current customer base and the current market scenario. And that's why we have identified only 8 to 9 products in the first phase. Probably in the second phase, we might expand the further portfolio or we might add some value addition further downstream of what we are doing 8 to 9 products. But right now, we are restricted ourselves to 8 to 9 products only, and -- which is a major volume out of entire chlorotoluene and value chain . That is our first -- in first phase, we are targeting only those volume only. But in the later on stage or the second phase, we might expand to additional product or the value addition of the existing product, what we are doing it.

Sir, the last question is, can you please provide the revenue contribution from CVC chain as well as from ECH and CPVC resins?

So as we have disclosed in the presentation, 50% revenue is from the Chlor-Alkali and 50% from the Derivatives and the Specialty business. So we are not giving product-wise revenue.

[Operator Instructions] Our next question comes from the line of Sanket Baheti from GC Holdings.

Hello. Am I audible?

Yes, Sanket.

Sir, I just wanted to understand what is the current situation on the CPVC market? What has been the price trend in the current quarter and the last quarter as the price moving? And another thing is on the antidumping duty on PVC, whenever it comes in, what will be the impact and whether we will be able to pass on the same? And what is the expected time line for the PVC also?

So Sanket, the current PVC market is on the bottom. So as the price -- the pressure is also on the price of CPVC also. So CPVC price has also gone down based on the PVC prices has gone down in last 1 year. But at the same time, as you said, if antidumping duty will come, the PVC price may increase, and it can increase the CPVC price also along with it.

And what is the current price realization in quarter 2 versus quarter 1?

So quarter 1, quarter 2 -- so quarter 2, the price dropped in the range of around 10%.

And, sir, in absolute amount, what is the current price of CPVC?

It is around INR 100 to INR 105 per kg.

INR 100 to INR 105 per kg. Okay. So it was around INR 115, now it's around INR 105 kind of number.

Yes.

Okay. And, sir, whether we'll be able to pass on the entire antidumping duty, whatever the impact comes, sir?

See, generally, the price of -- as Maulik sir earlier said, PVC price increases, that impacts the CPVC price, and CPVC prices -- I mean, the PVC price goes down, it also impacts the CPVC price. So whatever pricing hike will come in the PVC, we should be able to pass on in the CPVC prices. That happens with a lag of a quarter. So that 3 to 4 months of lag will be there.

3 to 4 months of lag. Okay. And, sir, also, are we 100% utilizing our capacity?

So currently, our capacity utilization is around 50%.

In CPVC?

Sorry?

In CPVC it is 50%.

Yes, that's in the last quarter.

Okay. And in the quarter 1 also, it was 50%?

It was around that range.

Our next question comes from the line of [ Bobby Jay from Pranj Investments ].

I missed the earlier part of the call. For what products did you see a price drop?

Sorry? I didn't get you.

For what products did you see a weakness in prices compared to last year?

So compared to last year, the drop in the prices were in CPVC.

So it's only CPVC that has contributed to your lower revenue?

No, I mean in terms of the price drop, there was a price drop in the hydrogen peroxide and also into the CPVC.

And this was not predictable. This just suddenly happened.

Yes. I mean, see, the PVC prices have dropped, if you see, from last November onwards, which has ultimately, with a lag of a quarter of 4 to 5 months, had impact on the CPVC prices as well. So as the PVC prices will move up, that will again be impacted on the CPVC prices.

But then your margins shouldn't have changed, right, if PVC prices also dropped?

But that's what it again happens with a lag of a quarter. So that's where if you see our Q1 margins, we had been around 27%. And the prices have been corrected, but we had some sort of inventory, because of which we landed around 23% this quarter. And again, it's a mix of many products. But eventually, all put together, we should be landing somewhere in the range of 24% to 25% kind of a margin.

My bigger question is that given the volatility in the prices, which are not under your control, how are you able to invest such huge amounts of capital when you don't know at what price you're going to sell the products?

Sorry, I didn't get again.

You're investing a lot of money into capital expenditure, correct? But you don't have any control over the prices. So how are you able to do that? What is your internal calculation?

See, considering the way India demand is growing, we see there is a potential for all the products that we are expanding into. For example, in epichlorohydrin, we see there is a good demand for the epoxy, which ultimately goes into the construction, windmill, automotive industry, where the demand is growing. And again, in CPVC, that goes into the plumbing application where we see a good demand in the construction. See, 1 or 2 quarters or maybe 1 particular year, there can be a market which is stagnant or not growing. But whenever we put any CapEx, our horizon is of 5 to 10 years. And that is where 1 year can be there where you will see a marginal or a stagnant growth. But then eventually, the demand that is supposed to come will absorb the supply that is coming. So that's where we are looking for and putting up the capacities.

No, I understand the demand part in terms of volumes. That is clear because India's GDP is growing, so demand will grow. My question is more around the prices, which are not under your control. So, for example, chlorotoluene, even Aarti Industries is putting up capacity. If there's overcapacity, you could have good volumes, but low prices causing low return on capital. Do you foresee such a situation?

See, prices what we have witnessed is, again, it moves in line with the raw material prices with a lag of a quarter. But what you said is true, price is not totally in our control. But considering the demand, we see the price should remain stagnant or it might improve because what we have witnessed in Q2 is kind of a bottom situation. At least in terms of the volume, the volume should improve, and price will -- with a lag, once the PVC pricing improve, that will further improve in the Q3 or Q4 onwards.

Understand. But I do remember you saying in one of the earlier calls, maybe last year or somewhere that CPVC prices are not directly dependent on PVC because the supply-demand for CPVC is different in India, meaning there's more demand than supply. Is that not true anymore?