Kiri Industries Limited (532967) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Kiri Industries Limited Q1 FY 2027 Earnings Conference Call 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.

Thank you. Good morning, everyone, and a very warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent the Investor Relations of Kiri Industries Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings conference call for the first quarter of the financial year 2027. Before we begin, I would like to mention a short 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 quarter under review. I would now like to introduce you to the management participating with us in the conference call. We have with us Mr. Manish Kiri, Chairman and Managing Director; Mr. Jayesh Hirani, Vice President, Accounts and Finance; Mr. Suresh Gondalia, Company Secretary; and Mr. Ranjit Singh Chugh, CEO, Indo Asia Copper Limited. I would now request Mr. Manish Kiri to give his opening remarks. Thank you, and over to you, sir.

Good morning, everyone, and welcome to the earnings conference call for the first quarter of financial year 2027. I hope you are all keeping safe and well. Let me begin with an update on our integrated copper and fertilizer project first, which continues to remain at the core of our long-term growth strategy. In the quarter, the project progressed from the design stage into a structured construction phase, supported by [ time ] deployment of capital from the group's strengthened financial position. Orders have been placed for several long lead mechanical, electrical and utility packages for the project with finalization of remaining major packages [ at ] advanced stage. In parallel, key enabling infrastructure continue to advance in captive desalination facility, dedicated raw material conveying system and projects long-term power infrastructure. The downstream of copper facilities are planned to be commissioned in phases with the copper tube targeted by quarter 1 FY '28, followed by a copper rod plant FY '28 and copper refinery in quarter 3 FY '29. We are also progressing on our engagement with the international mining companies and global trading houses to establish long-term sourcing arrangements for the copper concentrate and rock phosphate, the key raw materials for the project, while continuing to evaluate opportunities across our downstream value-added product portfolio. Overall, the integrated complex remains aligned with our long-term strategic road map and our focus remains on disciplined execution and timely achievement of the next project milestones. With that update on our new platform, let me now turn to the performance of our existing dyes, dyes intermediates and basic chemicals business. [indiscernible] requirement for dyes intermediate industry during the first quarter FY '27. [indiscernible] and certain basic chemicals strengthened during the quarter, supported by tighter global supply, higher [indiscernible] and continuing impact of environmental compliance measures on manufacturing activities in China. Demand trends, however, remained mixed across product categories, while input cost pressures persisted. Our major raw material oil [indiscernible] prices, which increased during the quarter, resulting in higher input and operating costs. However, improved average selling realization across portfolio [ gathered ] effect of higher [indiscernible] and helps sustain profitability. We continue to see improving business [ dyes intermediate ] chemicals division. The improvement is realization [indiscernible] driver of revenue quarter [indiscernible] customer base continued to support business. During this quarter, [indiscernible] margin 31.9% compared to 23.5% in FY 2026. [Technical Difficulty] During the quarter, our sales margin improved [Technical Difficulty] FY 2026. The improvement was primarily driven by favorable pricing with average selling prices rising faster than average raw material prices. We remain focused on maintaining pricing [Technical Difficulty] wherever opportunities exist [Technical Difficulty] sustaining [Technical Difficulty].

Sorry to interrupt sir, we are unable to hear you.

Not able to hear? Is it better now?

Disturbance.

I think there is a disturbance on the line.

Disturbance on line, yes.

There's continuous disturbance on the line. Is it better now? Are you able to hear me?

Sir, can you come closer to the mic?

Now?

No, sir. Let me just reconnect you.

I think you have to reconnect. There is some problem in the line. Even I hear lot of noise.

Ladies and gentlemen, the line for the management has been reconnected.

Sorry for the disturbance. Now coming to the financial performance for the quarter. On a stand-alone basis, revenue from operations for the quarter 1 FY '27 stood at INR 295 crores, registering a growth of 63% year-on-year. The growth was primarily realization led, supported by improved average selling realizations across dyes, dyes intermediates and basic chemicals. Stand-alone EBITDA stood at INR 17 crores with an EBITDA margin of 5.86%. Further, other income earned during the quarter amounted to INR 284 crores, which mainly included earnings from the treasury management, hence, the profit after tax stood at INR 270 crores. On a consolidated basis, revenue from operations from quarter 1 FY 2027 stood at INR 312 crores, registering a growth of 55% year-on-year. The growth was led principally by improved price realizations across the product portfolio rather than by volume. Consolidated EBITDA, including share of profit of associates and joint venture, stood at INR 37 crores with an EBITDA margin of 7.84%, with profit after tax stood at INR 270 crores. The significant increase in profit after tax during the quarter was primarily driven by strong contribution from other income. Other income stood at INR 286 crores, primarily comprising interest income on intercorporate loans and realized and unrealized gains on treasury transactions undertaken by the company. This was further supported by improvement in the underlying operating performance, driven by better realizations and better margins. Finance costs reduced sharply following the repayment of borrowings at Claronex Holding Private Limited, leaving the group substantially free of external debt. The share of profit from associates for quarter 1 FY 2027 stood at INR 21 crores, representing a 30% increase over the preceding quarter. The contribution was primarily from Lonsen Kiri in which the company holds 40% equity interest and management control. Looking ahead, the medium- to long-term outlook for our dyes, dyes intermediates and basic chemicals business remains positive, supported by steady textile demand, tighter global availability and sourcing trends for favoring non-China supplies. As one of the largest global producers of H-acid, we believe our existing capacity provides headroom to participate in rising demand without significant additional CapEx expenditure. Sustaining margins, however, will remain dependent on our ability to pass through input cost movements. The fertilizer opportunity is also supported by India's continued dependence on imports, particularly in DAP and key intermediates such as phosphoric acid and ammonia. Against this backdrop, the phased commissioning of our integrated complex is aligned with the widening supply gap of both refined copper and phosphatic fertilizers. Our focus remains on sustaining the improvement in our existing chemical business, maintaining a prudent capital structure and executing the copper and fertilizer projects in a disciplined and timely manner as we build the next phase of growth for Kiri Industries Limited. With that, we can now begin the question-and-answer session. Thank you.

[Operator Instructions] Our first question comes from the line of [ Suresh ] with [ Baransh Financial ].

Sir, imagine if you are also a partner of shareholders in a firm and you did not receive any capital return or dividend return even after 10 years investment, as a fellow partner, as a shareholder, please think about this scenario and make a decision. Please don't take this wrong. Ultimately, what a shareholder truly wants and deserves is a return on investment. You try to give me dividend, take my suggestion and request. Don't think wrong. Please try to understand.

Yes. See, a few points to address your question and very well put forward. Number one, we -- as you have seen, we have reported the -- one of the strongest quarter in the history of the company in terms of performance. So, the performance is what the company is saying and we promised to you. And the performance has, I think, matched or met with the expectations in terms of our growing requirements of capital. Now number two, with that, as you have already seen that the company has embarked on executing one of the largest greenfield project in the history of the company. And looking at requirements of the capital going forward, looking at the new growth trajectory which we have already highlighted earlier and executing right now, the Board of the company and we all decided to keep the capital to fuel this growth. So whatever company has been waiting on achieving certain performance due to the legal and litigation problem that we faced for a period of 11 years, now having that behind us, the growth path has started and first quarter has shown that growth, and we will continue to improve the performance of the company. So, my humble request to you is to look at how the performance is changing, how we are building new businesses. and how the capital is prudently deployed in the growth of the company. So that's what we would like to focus on.

Sir, actually, I am asking…

So, just to answer, the dividend is not being declared and there is no decision of the Board to declare any dividend yet. If that changes in the coming quarters, we'll be very pleased to inform the shareholders and to you.

Actually, okay, sir, I would say you invest in growth side in new projects. But in long battle wait for investors also in the case. You are winning the case, at least you invest a major amount in expansion, but a little bit amount you will give the dividend, the shareholders also happy, investors and the stock price will not give the dividend. So many investors in Moneycontrol rumors, some -- you don't think otherwise. Some rumors is management is not conservative. That [indiscernible]-- but he will give a little bit dividend, almost investors also happy. That you think you have the…

Yes, yes. And we have taken your point, your individual point positively. We -- company is not making its decision based on the rumors or cannot make it [indiscernible] rumors. There are equal number of shareholders who have also contacted the company and informed company that they are aligned with the company's decision to grow the capital, to grow the return and to grow the equity return for the shareholders in coming years, utilizing the funds prudently and properly, correct? So, there are equal number of shareholders who are deferring the views presented by your individual view, but we take your inputs positively, and we see how we are able to decide in the best interest of the company and its shareholders and the larger pool of shareholders.

You have made good decision, sir. You take feedback and you submit your Board of Directors meeting [indiscernible].

[Operator Instructions] The next question comes from the line of [ Mihir Jain ] with [ Mahavir Fabric Family Office ].

Just like to know if there is any update regarding the financial closure? And secondly, I also want to know the exact scope of Tata Consulting Engineers in the project because when I was surfing their website, I couldn't find our project listed in their list of projects. So, like I want to know what they are exactly doing as the project managers in our project?

So your second question first, TCE has been deployed as an owner engineers of the company since the end of last year. And they are involved in project management and control. They are overseeing all the technology transfer in terms of the checking and approving the drawings, the designs, and they are involved deeply in the detailed engineering as well. So there is a larger scope of TCE and TCE has been on board since -- from November 2000 -- from 2025, right? So that's number one. Number two, financial closure, a complete financial closure has not been achieved. We are there on the debt raising. More than 50% commitments have been received. Rest is in process. And we hope that in the next few months, we should be able to reach the complete financial provision.

The next question comes from the line of [ Ashit Kothari ], an Individual Investor.

I would just wish you a happy Independence Day in advance. And I would want to understand how our copper project is progressing? And what is going to be our capital requirement? And by what time we will be cash surplus from the projects?

Well, happy Independence Day to you as well. And the capital is continuously being deployed in the project. And the total capital requirement as per the current estimate would be around close to INR 12,000 crores on the project itself and additional requirements would be related to the infrastructure, the supporting infrastructure that we have been building. So that is the outflow in Phase 1. This outflow is continue to happen over a period of next 2 years, not immediate. So monthly on quarterly basis, as we have disclosed, the CapEx has been increasing and the funds are being deployed in CapEx. So that's one area. 2027, part of the facilities will be operational mainly related to the downstream products of copper, consumer products of copper. And then 2028, beginning of 2029, the full facilities would become operational [indiscernible]…

[indiscernible] for Indo Asia copper and fertilizer together.

The present, we are focusing on the downstream product so that the capital which has been employed from our own [indiscernible] starts giving some returns. So, in that regard, a [ 35 kt ]plant of tube plant will be operational in June '27. And in August, September '27, 2.25 lakh tonnes of [ C container plant ] of [ 8mm ] will be operational. These will be operated from imported cathodes primarily coming from Japan because the cathode which come from Japan do not come on premium. They are pure LME grade cathodes, caustic mines. Then -- and if you look into any such kind of plant start-up, it does take some time to stabilize. So, by January '28, the whole complete -- these 2 plants will be stable, fully operational, stable and running in a nice thing. So, by that time, we'll make our part refinery operational, which is anodes to cathode, LME grade cathode, which is part -- when we say part refinery means it will be 1.75 lakh tonnes. To complement that, we'll be utilizing scrap from various sources, whether [indiscernible] et cetera, use our melting scrap melting furnace, which also will be commissioned by December, January '26, '27, '28. So by '28 January, we'll have scrap plant started for operation and which will produce anodes and that anode will get converted to LME grade [indiscernible] . So this first portion of the downstream will be fully operational. Whatever will be the shortfall of cathode requirement, that we'll anyway procure from the market. At the same time, we envisage to start another value value-added product in the same period, exactly same period are, let's say, [indiscernible] in small quantity, but they'll add value to -- our value addition will be there, plus [indiscernible] copper ball. So these 2 will be operational at the same time. Then the next phase of journey will start. In between, we will be in a position to start copper foil business of minimum [ 5,000 k ] as first round of trial product, which is highly value-added product, meaning that today, if you look in India, the copper oil is imported with the LME grade copper plus USD 5,000 additional premium. Of course, there will be, I mean, OpEx to it. But irrespective of that OpEx, this is a very valuable product. We will be starting that trial orders -- I mean, trial production of 5,000 Kt, whereas the complete system will be built for 10 kt, which we call Phase 1. Our aim is to be Phase 1, 2 and 3 to make it 40 kt for which we have already gone to Central Government to be part of PCMS scheme. So, this also will be operational in -- I mean, I'm looking at 18 to 20 months from now. So, if you look at 20 months, March '28. These are value-added products. Balance of this plant, which is primarily the smelter [indiscernible], the sulfuric acid plant and fertilizers will be operational in first quarter of '29. So these are the typical timelines as of now, we have put ourselves into, have set the targets based upon this, which in any such [indiscernible] is, I think, 6 months faster. People take a minimum 36 to 40 months. If we -- whichever way we count will be around 6 months -- 5 to 6 months earlier [indiscernible].

Sir, have we tied up with raw material requirement for the next couple of years? Is it a long-term [indiscernible] fixed price?

Normally, what happens in copper concentrate business, the -- what we call as long-term contracts are typically done for 2 to 3 years on an average. Last year, for copper, there are 2 big conferences happen across the world. One is London LME, which happens typically in October and another is [ SCO ] in Chile. So, we have participated in both of them, and we have been discussing and doing a lot of rounds with the miners and the trader stakeholders. So today, as we speak, we have got a firm window of approximately 1 million tonne of copper concentrate. I mean it's only window we get. We get what we call MOUs basically. And the MOUs get firm 3 to 4 months prior to our requirement. In our case, we firm up in terms of costing, contract costing bonded contracts in October '28. That is the time in that LME year, these contracts are actually converted into, let's say, contract. MOUs are turned to contract. So, as we speak today, we are having MOUs of 1 million tonnes of copper concentrate. And if we go for our 100% production, we'll be requiring around 1.5 million or [Foreign Language]. So yes, this is a journey of only 1 year last year. This year, again, when we go to October, I think the visibility will go up from -- from today, 1 million to 1.2 million to 1.4 million. So, we are pretty confident because last year we did not have much to showcase. This year, I think so at site, like now today, 1,000 people are working, civil and mechanical and things have come over ground for tube and rod plant. So obviously, the things -- as things have changed physically at site, so will be the thought process of the people to supply the copper concentrate or raw material to us. So, this is what is the [indiscernible].

The next question comes from the line of [ Mehul Panjwani ] with [ Forticents ].

Sir, when will we record the first revenue from the copper business in which quarter of FY '27?

I think Chugh [Foreign Language] just mentioned it would be somewhere around first quarter, end of first quarter, May, June 2027. So that would be '27, '28 financial year first quarter.

So Q2 [indiscernible].

So, Q2 you will get commercial. Yes. So, quarter 1, quarter 2, you are looking for next financial year.

Okay. And sir, when will the complete overall total top line which we are expecting from the copper, when will that be targeted and by what time line we are expecting to achieve it?

Financial year 2029-'30.

'29 -'30. That is Q4.

Yes, that financial year is the one which will capture majority of the operational revenues.

Right. And sir, how are we placed to service the debt which we have taken for this project?

So just addressed by Chugh [Foreign Language], 2027-'28 is a financial year where the cash flow will start coming and building. So, from 2027-'28, '28-'29 and '29-'30, all 3 years, company will start moderately ramping up the cash flow from the step-wise operations that will start. So, there will be parallel cash flow coming as well.

Right. And sir, where is the site for the copper? Are we having multiple locations or it's one site?

One location, near Pipavav port [indiscernible].

The next question comes from the line of [ Manoj Kumar ] with [ Adinath Financial Services ].

My question was regarding our current business of dyes and chemicals. We have got almost 13, 14 major products in our product line and with huge capacities. And most of the capacity is remaining unutilized, I think. Around 40% we are using, 60% is still unutilized.

So, the last quarter, we utilized average capacity about 60%.

60%.

Yes, we still have 40% unutilized in various plants combined together.

What can be our ideal situation -- with 100% capacity utilization, how much can be the turnover and how much can be the profit we can generate because around 31% margin, the margin is there in -- material margin is there.

Right, right. So now the market has improved. We have seen the prices have also increased. And we started slowly ramping up the capacities provided demand support that, correct? And we do not want to compromise the margins on account of just building volume. So, it's a cautious approach where we are ramping up, but ramping up profitability if you -- profitably. If you look at the consolidated EBITDA of the quarter, probably with now legal costs behind as well as the improvements in the industry situation, we got INR 37 crores of including the JV's operations. So that's a good number, if you ask me, and that is where -- that's where we would continue to build upon that. So if the market supports, then from 60% to 70%, 75%, at least we want to achieve during this year as an average capacity utilization, Manoj Ji.

And these 2 products which you were referring to, H-acid and vinyl sulfone, we have got good capacity around 7,200 metric ton for H-acid and around 12,000, 13,000, 15,000 I think…

Yes, yes.

And at prevailing prices, I was just calculating, the annual turnover from these 2 products only will be around INR 800 crores to INR 1,000 crores.

Yes, yes. True, true. So, if we…

And what about other products? Can we achieve a turnover of around INR 2,000 crores from our dyes business?

If we are able to achieve close to 75% to 80% capacity utilization, and if we are able to sustain the prices which are there currently because today, adjusted prices is in the range of INR 800 to INR 900, which used to be INR 400, INR 350 earlier, correct? So you are looking at the double the pricing than the average pricing earlier. Similar situation with vinyl sulfone also. The prices are almost 70%, 80% high. No doubt the raw materials have also increased substantially. But if these prices continue for the next 1 year, then yes, we can have much higher revenue and the numbers could be even double than the average. That means if you are looking at INR 1,000 crores, INR 1,200 crores of revenue, it will -- just on the price increase and the capacity utilization improvement, it could touch close to INR 2,000 crores, yes.

But why our profitability is so low? Because our own subsidiary, Lonsen Kiri is having a fantastic results, fantastic EBITDA margin and fantastic PAT margin also. On a turnover around INR 368 crores, they have earned around INR 71 crores EBITDA and INR 55 crores PAT. What prevents us from repeating those figures in Kiri?

So there are different products in JV and different products in Kiri, right? Kiri is selling raw materials to JV and JV captures the finished products margin. So, when you look at and compare the supplies of raw materials from Kiri to JV, the markup and the value-added profits and the margins are captured at the JV level of the finished products. So, when you look at the totality of the picture, then you capture the entire value chain margin. So to see the entire value chain margin, you have to look at combined operations of Kiri and JV. That's one. Number two, there are certain chemistries, certain product ranges, which are equivalent in -- and which are set up in JV are not in Kiri. So there are -- even though dyes are produced at both the ends, the products are different as well. More than 50% of the products are different. For example, JV produces indigo, while Kiri doesn't do it, right? Similarly, JV has certain advanced chemistry, which stand-alone Kiri doesn't do it, right? So there are different products and value-added on the finished products. These are the 2 differentiating factors. So when you look at the total picture, that gives you the correct picture.

We are having 40% stake in Lonsen Kiri, whereas in Kiri, we have all the money with us. Can't you replicate those things in Kiri? Those products in Kiri. Is there exclusivity some clause or is there?