Fairchem Organics Limited (FAIRCHEMOR) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q4 FY '26 Conference Call of Fairchem Organics Limited. [Operator Instructions] I now hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, ma'am.

Thank you. Good afternoon, everyone, and a warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent the Investor Relations of Fairchem Organics Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the fourth quarter and financial year ended 2026. Before we begin, a quick cautionary statement. Some of the statements made in today's con 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 quarter under review. I would now like to introduce you to the management team joining us on today's call. We have with us Mr. Nahoosh Jariwala, Managing Director and Chairman; and Mr. Bhavesh Shah, Chief Financial Officer. Without any delay, I would like to hand over the call to Mr. Bhavesh Shah to begin with the financial highlights.

Thank you, and over to you, sir. Thank you. Thanks, and good afternoon, everyone. Welcome to the earnings call for Q4 and 12 months ended FY '26. For the quarter under review, the revenue from the operation stood at INR 117 crores, reflecting a 3.2% year-on-year decline from the corresponding quarter. EBITDA for the quarter was INR 8 crores with EBITDA margin of 6.9%. The adjusted net profit after tax for the quarter stood at INR 3.7 crores. For the year ended FY '26, the revenue from operations stood at INR 460 crores, a decline of 14.5% against the previous year. The EBITDA was INR 22 crores with an EBITDA margin of INR 4.7 crores. The net profit after tax stood at INR 6.2 crores. The domestic sales contributed 91% of the total revenue. The total volumes sold was 44,000 tonnes against 54,000 tonnes in the previous year. During Q4, we have successfully completed the buyback of 4.25 lakh shares, which has increased the promoter holding from 6.2% to 63.2%. With this, I'll hand over the call to our CMD, Mr. Nahoosh Jariwala.

Thank you, Bhavesh. As we close the FY '26, I want to take a moment to share our operational perspective on the quarter and more importantly, the road ahead. The Q4 FY '26 continued to present a mixed environment. Our revenue from operations saw a decline of 3% on a year-to-year basis, driven largely by softer offtake from the paint industry, which, as you are aware, has been navigating its own structural adjustments over past several quarters. That said, I'm pleased to note that our EBITDA margins improved to 6.8% during the quarter. This improvement was primarily supported by better price realization in the domestic market as the pressure from lower-priced imports moderated to quite an extent. On the external environment, while we remain watchful of evolving macroeconomic situation, including the uncertainty arising from the ongoing Middle East crisis and its potential impact on global supply chains and commodity prices. We are, at the same time, consciously optimistic about trajectory ahead. The continued progress on the lower tariff framework with U.S., the prospect of free trade agreement with U.K. and EU and the recent depreciation of rupee together has created a meaningful tailwind for our export competitiveness. Despite the near-term uncertainty, we remain quite confident and committed to navigate this environment with discipline and resilience. We are confident that steps we are taking today will position us well for the future. With that, I open the floor for question-answer session.

[Operator Instructions] First question is from the line of Rakesh Jain, an individual investor.

So the paint segment has been the primary demand. . .

I'm sorry, Mr. Jain, can you please repeat your question? We are unable to hear you.

The paint segment faced some headwinds over the past few quarters. So do we see any recovery?

Yes, we have started -- seeing recovery during the month of March. And even during this quarter, we see a robust recovery happening.

My second question is regarding the company revenue. So we were targeting nearly INR 20,000 million. Any guidance regarding that?

That's a very, very long-term future. I mean that is something which is a vision, which we are working on. So it's after 5 years.

[Operator Instructions] We take our next question from the line of [ Danish Da ] from an individual investor.

So my first question is on the FDA with the EU and U.K., what specific product stands to benefit the most, for example, like the Isostearic Acid or Dimer acid or others? And what is the current duty differentials that makes this market attractive once the FDA is in place?

Both Isostearic Acid and Dimer will -- the duty, 10% duty will help both Isostearic and dimer. That is more important. And as regards the duty differential between other countries and India, we are on par with all the countries. So I mean, it's a healthy competition for us when we are quoting our price to U.S. buyers.

Okay, sir. Also, I have seen one more observation, like power and fuel cost has declined significantly in Q4 FY '26 to INR 60 million from INR 80 million in savings in FY '25. Is this a result of the energy audit initiative.

Yes, we did for one year. I mean, during the preceding year, we did the energy audit of the plant. And based on that, we -- looking at the payback, we invested in electrical equipment, pumps, motors. We reduced our -- we invested in heat exchangers, et cetera. And based on that, this achievement has been there. And we are -- it's still ongoing. We expect further reduction in the energy cost.

Next question is from the line of [ Dharmit ] from Sarla Family Office.

My first question is with regards to margin. Going forward, are we expected to go back to what was our FY '25 margin of around 8% if the situation normalizes? Or are we going to see a further margin expansion also considering the initiatives we have taken in the last year to improve the cost structure? And secondly, on the long-term revenue growth, we are saying that we are going to achieve 20,000 by FY '30. So can you tell us that where actually this expansion in revenue, which we are planning to see is coming from.

Margins are going to be better this year. I mean, obviously, we are targeting to breach 8% margins. We -- and we are fairly confident we'll be able to breach that. That is one thing. And as regards the revenue thing, currently, we are -- our plant is of 80,000 tonnes, and we are working at around 65%, 66% capacity utilization. We are confident in next 2 years, our plant would start working at more than 95% capacity utilization. And second thing is we'll be adding one new raw material, which is based on a new novel process, which we have been seeing. And so yes, based on that, this is the vision which we feel we might be able to reach.

At 95%, also the EBIT margin will remain around 8% or are we going to -- can it reach even further up considering that. . .

It can creep up.

Yes, operating leverage will pick up.

Okay. And this additional product, is this also in the paint industry or is more of a cosmetic product?

It's basically from the oleochemical basket only.

Next question is from the line of Chirag Vakharia from Budhrani Finance Limited.

Sir, wanted to get a sense of for financial year '236, in terms of turnover, sir, how much contribution is from Dimer acid, Linoleic acid and Isostearic acid, if you can throw some light?

Dimer acid has contributed -- just a minute. has contributed close to around INR 140 crores and Isostearic acid has contributed INR 26 crores.

Then 30% around 5% to 6%.

I did not hear it, sir. Dimer acid is. . .

Around 25%, 30% and 5%.

And Linoleic acid?

Linoleic acid is also around 30%.

Okay. In terms of volume, sir, I did not get. You are saying for FY '26, you did a volume of how much [4,000]. . .

Q4, we did 10,500 tonnes -- and for the whole year, we have done 44,000.

And this for FY '27, how do you see, sir, this panning out?

We expect to reach around 80% capacity utilization.

180,000 tonnes of the 80,000?

Of 80,000.

I am sorry, [ Keshav] , we are not able to hear you...

I hope my voice is audible.

Yes, please proceed.

Yes. Sir, so I wanted to ask you that our -- what used to be Adani Wilmar, sir, now they are forward integrating into oleo resins. So I understand since they are already into edible oil refinery. So whatever raw material we are probably buying from them. So for them, it is a forward integration. So sir, what kind of impact can it have on our business and our margins?

Adani Wilmar is already in oleochemicals since year 2010. They are already -- basically, they are on utilizing the palm-based products in their oleo. The products what we are using are all soft oil-based products and which are produced in a very small quantity to the tune of 1% of the crude oil. So it's -- I mean, the equipment and market and process, everything is different for both the products.

Understood, sir. And sir, also now recently, we are hearing a lot about Chinese anti-involution and that they are basically -- at least they are talking about stopping the aggressive dumping. So are we seeing any kind of relief on that count?

Yes, we have seen. We have already seen that since February end.

Okay. Sir, so then how much further improvement can we expect for FY '27? If you could give us some broad outline what kind of top line?

It's not possible for me to really -- see what we are saying is we will be -- we are targeting to work at 75%, 80% capacity utilization and our margins obviously will improve because there is no major dumping happening from Chinese.

And sir, now, sir, what kind of improvement in realization have we seen in recent times?

Fairly good.

Yes, because Chinese dumping is not happening. So our realization, we are able to sell at good rates.

So at least in percentage terms, if you could shed some light or like per kg, how much have our major products increased?

No, it won't be possible for me to share that.

Even percentage-wise, like 10%, 5%, something like broad directional this thing.

Yes, around 8% to 10% improvement has happened.

And sir, also rupee has fallen quite significantly.

Yes, that is also. . .

That has increased the import cost. If our export will improve, that will add to our bottom line.

It is helping us in our exports

Next question is from the line of Maitri Shah from Sapphire Capital.

A few questions on the exports. So you mentioned a lot of tailwinds that are happening on the export side. So any color on how the growth is going to be like so what is our current contribution from the export and how we're going to scale that up going forward?

Just a second. So our exports is close to around 9% -- I mean last year, it was around 8% to 9%. We expect this to go from 8% to 9% to around 20%.

There will be a major growth coming in on the export. How do you see the margins?

Yes, they will be similar to what margins we are making in domestic market.

So the margins are similar. The realizations are betrer. . .

Yes, yes.

And also the long-term target of INR 2,000 crores that you have, any new verticals we are entering in or are we expanding the. . .

I mean we'll be adding 40,000 tonnes to our 80,000 tonnes capacity of new product.

It's going to take long. It's basically 5 years.

Yes. But that kind of requires a 40%, 45% growth run rate. Are we like confident of doing that linearly over the next 4, 5 years?

Yes, we feel that. I mean we feel that we'll be able to.

Yes. The efforts were on since last 2, 3 years. In fact, last 2 years have been [indiscernible]. So you have to see it from the context of -- so these activities are all started from FY '23 onwards. Unfortunately, because of macro environment, we underperformed in the last 2 years. But yes, the efforts were going on since FY '22 levels.

So you have to think in the context of. . .

And the new -- you said the raw material that you're going to add with 40,000 metric tons. So that kind of raw material has a higher -- better margin, a better realization. What sort of products are we looking at?

No, it's a very -- it's a newer raw material. Obviously, part of oleochemical stream. We'll be following a novel process, and we'll be doing it for the first time in India.

Okay. And similar kind of customers are we targeting for that? So we will target the existing customers for the growth on that.

Yes, yes.

Next question is from the line of Chirag Vakharia from Budhrani Finance Limited.

Few update. What is the custom duty right now, sir? Is it the same as 16.5%?

Yes, it is 16.5% right now.

Okay. And sir, last time you highlighted that vegetable oil prices were up. So how are they behaving now as they go up.

No, no, they have remained stable. They have remained stable, what they were. So they have remained stable.

And sir, on the import duty on the Dimer acid, has that changed? Or is it same?

No, 7.5%.

Okay. And sir, the new product that we are suggesting should come in FY '27 or FY '28?

It should be around '27, '28, somewhere at that time. And then slowly, it will pick up.

Do you think the worst quarter for us is over now and we should bottom out now.

Yes, yes. For sure.

Next question is from the line of Sanjay Shah, an individual investor.

So my first question was about your margins. So for Q4 FY '26, the revenue declined 3.2% Y-o-Y, but EBITDA improved sharply to 6.84% from 3.64% in Q4 FY '25. So I wanted to ask, was this margin recovery driven more by lower raw material costs, reduced China import pressure or better product mix? And also, how sustainable is this improvement heading into the next quarter?

It is based on better price realization because of less dumping happening from China. That is one thing. And secondly, we -- I mean, we see the same thing continuing even during this year.

Okay. My second question was that the bypass fat product from PFAD and the new raw material for specialty chemicals, as both mentioned are your new product initiatives. So what is the current stage for these? Are they in lab trials or commercial, when should. . .

Bypass fat, we'll be putting in that plant in operation next month. And as regards the new product, by end of Q2, we should start the plant.

So sir, by when should investors expect revenue contribution from Q2 only?

No, it will take -- I mean, for bypass fat, it can start from Q3 onwards slowly. But for the new product, it will take minimum 2, 2.5 years because of validation and everything, which is a long process.

Okay, sir. Got it. And my last question was regarding your dividend. So for this year, you have recommended a dividend of INR 1 per share, which is down sharply from INR 7.5 per share last year. So is this reduction primarily a function of the temporary earnings drop or more of a conservative long-term dividend policy, especially in the context. . .

No, it's basically because of temporary earnings loss.

Next question is from the line of Keval Shah from Jeetay Investments.

Sir, my first question was regarding -- you mentioned that FY '26 capacity was around -- like the production was around 45,000 tonnes. And next year, we expect to do 75% to 80% utilization on a total capacity of 80,000 tonnes. Is that understanding right?

Yes.

Okay. So the top line basically now should go back to where we were in 2000 -- FY '24, FY '25 kind of a thing where. . .

Yes.

And sir, is this majorly because of Linoleic demand -- Linoleic acid demand coming back in the paint industry? Is it predominantly because of that?

No, no, no, it's basically less dumping happening from China. So we'll be able to sell more of material at a profitable price. That's the only thing.

Okay. So we were restraining from selling and utilizing our capacity because of extremely adverse pricing and now we are able to do that.

Yes, exactly, exactly.

Okay. Understood. And also on the top of this, you said that paint sector has also kind of recovered a bit. So that is the second. . .

Yes. Some now, I mean, we have a feeling that since last 2 months, paint sector has started looking up.

Okay. And while it's doing a bit better, do we also see also realizations are getting better and margins are -- don't seem. . .

Yes, a little bit better, a little bit better. So overall, we feel confident that we'll be able to breach 8% margin.

But sir, with more Chinese -- lesser Chinese dumping and better capacity utilization, shouldn't the margins actually go back to what we used to do like 12% to 15% range?

That is our dream. So obviously, we'll work hard to achieve that. I mean we -- unturn to reach those levels. We try our best.

Okay. Okay. And sir, how is our progress on Isostearic Acid? I know like it's. . .

Fairly good, fairly good. But what happened was because of the 50% duty thing, our U.S. marketing was on hold, which has now started again. And as this is going in cosmetics, the time line is very long. I mean, because they need to study lots of things. So approvals take -- once the sample goes and approval takes minimum 6, 8 months, a year and then the first commercial shipment happens. That also after first shipment, another 6, 8 months is taken. So it's a long role dream. It's -- I mean, that's absolutely fine with us because, I mean, it creates entry barriers for others in future. So I mean that's absolutely fine. As our product -- in product quality, we are comfortable. Maybe if not today, tomorrow, it will pick up.

Okay. So any early sign that we see because of tariffs coming off and the FDA. . .

Obviously, people have started asking for samples. Now they are. . .

So FY '27, '28 could be years where we could see meaningful ramp-up for Isostearic as well?

Yes, yes.

And that would be -- that is very high-margin product, as you had mentioned. So that remains the same. So that would be an additional lever for our margin improvement.

Yes, yes.

Next question is from the line of Sanjana Kamath, an individual investor.

I had a few questions. So the U.S. level playing field tariffs, which are cited as a positive for the exports. So have you already commenced or have you started receiving inquiries for restarting the U.S. exports, specifically on the Dimer acid side?

We have started exports, in fact, commercial exports has started since 2 months, though, on a small scale but we have started.

Okay. So what would be the realistic time line for, let's say, meaningful export volumes to resume back?

Around 6 months max.

Okay. And also, you had set a target for exports to reach almost 50% of the sales eventually. So currently, the exports, they still appear to be very small part of the revenue. Can you share. . .

When we said 50%, it was based on the current -- I mean, products getting exported from current 80,000 tonnes capacity and 40,000 of new upcoming capacity. So based on that, we had recommended. So major is going to come from the new 40,000 tonnes capacity.

Okay. Got that. So what would be like the current export percentage? And what would they look like in like, let's say, 12 to 14 months, what would the export road map look like?

Currently, it's around 8% to 10%. We expect to reach anything above 20%.

Okay. And if possible, could you share like you mentioned that the rupee depreciation as a tailwind for our export competitiveness, right? So like how much does 1% move in your rupee impact your export realization? Do we have any data on it? Could you share?

No, no, no. Because, I mean, it's not only one way because if the rupee depreciates, our raw material also go up a little bit. Our energy cost also would -- in form of coal also would go up a little bit. But the export realization is much higher than these 2 things. So we feel it's -- I mean, devaluation helps us. No, we don't have exactly any figures.

Next question is from the line of Chetan R. Chheda, an individual investor.

Sir, can you tell us in FY '26, what was the concentration in terms of the industry where we supplied our products like paints being the highest and what are the next highest industry and so on, at least top 2, 3?