Punjab Chemicals and Crop Protection Limited (506618) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Punjab Chemicals and Crop Protection Limited Q1 FY '26 Post Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Riju. Thank you, and over to you, sir.

Thank you. On behalf of Antique Stock Broking, I would like to welcome all the participants on the call of Punjab Chemicals and Crop Protection. From the management side, we have Mr. Shalil Shroff, Managing Director; Mr. Vinod Gupta, CEO; and Mr. Vikash Khanna, CFO, on the call. Without further ado, I would like to hand over the call to Mr. Gupta for his opening remarks, post which we will open the floor for the Q&A. Thank you, and over to you, sir.

Thanks. So good afternoon, everybody, and thank you for joining the -- joining on the call today. It is my pleasure to extend a warm welcome to all the participants in this season's conference call. We genuinely value your time and appreciate your ongoing interest in our company's performance. I trust you have reviewed the financial results and investor presentation that is now loaded on, available on the stock exchange. In the call today with me, we have Mr. Shalil Shroff, Managing Director; and the CFO, Mr. Vikash Khanna. As most of you must have noticed by now that agrochemical industry has experienced early signs of recovery after a challenging period over the last few quarters and inventory levels have normalized and the price decline has now halted. Favorable monsoon, higher reservoir levels have also resulted in positive sentiments in the market. However, excess capacity continues to be a challenge. I'm pleased to share that Punjab Chemicals delivered a strong performance this quarter. Revenue stood at INR 319.5 crores, making a 31.9% year-on-year growth, driven by robust momentum in both domestic and export markets. Gross margin stood at 33.1% and EBITDA at INR 34.4 crores, reflecting a 24.5% year-on-year growth, supported by volume growth and a mix of product portfolio. EBITDA margins for the quarter stood at 10.8%. With recovery in the industry cycle, demand for most of our flagship products have revived to normal levels. Our relentless focus on quality and cost is helping us to maintain market share in an excess capacity scenario. New products introduced over the last 2 years are received very well in the market and value addition of these products is likely to increase in near term. We continue to strengthen our customer reach, focus on research and development and add to our technical capabilities to win new businesses. We win new businesses, add new products and build new partnerships. Our chemistry portfolio is gradually expanding and is catering to large segment in Specialty Chemicals division. We also continue to pursue a forward-looking strategy centered on infrastructure enhancement, talent addition and integration of various advanced chemical technologies. In line with this, we are pleased to announce a strategic investment of approximately INR 60 crores to expand and cater to business growth for global market. This capital expenditure will involve construction of new manufacturing blocks and also debottlenecking of certain capacities at our existing facility. The new products cater mainly to exports market with a focus on Japanese and European markets. We have already -- we already have environmental approval in place for this expansion, and we believe this initiative will significantly strengthen our presence in these high-value markets. The expansion planned over the next 2 years is expected to contribute anywhere close to INR 100 crores to INR 150 crores in sales over the next 2 to 3 years. These promising collaborations underscore our growing credibility in high-value chemical market and marks a significant milestone in our growth journey. On domestic front, we have successfully commercialized 1 Herbicide in quarter 1, further enriching our product portfolio. Additionally, we are actively evaluating a new site to support our long-term growth. In the interim, we are also exploring third-party manufacturing for noncritical processes to cater to peak demand which comes on a seasonal basis. Our strategic focus remains on identifying new products, exploring novel chemistries and expanding our customer base. I'm pleased to share that we have a robust pipeline with several products on track for commercialization over the next 2 to 3 quarters. We remain closely engaged with our customers to ensure consistent growth and respond to market needs. Our commitment to delivering a value to stakeholders is unwavering. We continue to prioritize innovation, quality, sustainability and customer centricity as a cornerstone of our growth journey. So thanks once again for your time and continued support. With this, I hand over the call to our CFO, Mr. Vikash Khanna, for giving more details on the quarterly performance. Over to you, Vikash.

Thank you, Vinod ji, and a warm welcome to all shareholders and investors present today. Good afternoon, everyone, and thank you for joining us on our Q1 FY '26 earnings call. I'm pleased to provide a comprehensive summary of our financial performance for the quarter. For the quarter, our revenue from operations reached INR 319 crores with a year-on-year increase of 31.9%. Analyzing the geographical contribution, the domestic market accounted for INR 196 crores, while the international market contributed to INR 123 crores to our total revenue. The gross margins for the quarter stood at 33.1%. EBITDA for the quarter reached INR 34.4 crores, a strong growth of 24.5% year-on-year. EBITDA margin for the quarter stood at 10.8% compared to 11.4% in the same period last year. PAT for the quarter stood at INR 20.63 crores, up by 52.8%, a robust growth year-on-year. PAT margins stood at 6.5%, an uptick of 90 basis points year-on-year. Capacity utilization across all 3 sites demonstrated a positive trend this quarter. Specifically, the Agrochemical division in Derabassi achieved a utilization rate of 79%. The Performance Chemicals division in Lalru recorded 70% for the quarter, while the Industrial Chemical division in Pune operated at full capacity utilization. With this, I now open the forum for question-and-answer session. Thank you all once again for your time.

[Operator Instructions] The first question is from the line of [ Jatin Damania ] from Svan Investments.

Congratulations on the strong sets of revenue. Just wanted to understand that now we are already operating at 75%, 80% of our capacity utilization and our revenue growth was almost 30% and 50% year-on-year and sequentially. However, the commensurate growth in the EBITDA was restricted largely due to increase in the overall inventory. So can you help us understand what was the key reason for the inventory piled up during the quarter?

Okay. So Jatin, thank you for this question. Now one of the reasons for this margin was that we had a higher closing stock in the previous quarter. We anticipated that there was a good market in the coming quarter. So as a result, we created an inventory. We built up an inventory. Now as you know that the inventory is normally valued at cost in the books, whereas when you actually realize those inventory, they are at the selling price. So obviously, there was a higher cost factor, which was involved in the closing stock. It finally got diluted in form of sales in the coming quarter. So that was the reason why the percentage is a little lower. It gets ironed out in subsequent quarters.

So the entire INR 39 crores of the inventory got liquidated in the month of July, right? Fair to assume that?

Yes. I mean it would be in this quarter.

I think if you see from quarter-to-quarter, our inventory levels have gone down from previous quarter to this quarter, and that inventory level will continue to go down as we regularly do our business.

But if you look on the receivables levels also, which had increased in the last financial year from 77 days to 125 days. So what is the situation in the -- at the end of 1Q? Where do we stand in the receivables and the entire working capital cycle?

So see, the net working capital cycle, which we had in FY '25 was 111 days, which has come down to about 107 days, which means that the company has higher amount of capital tied in the business operation. The capital is being utilized for running the business efficiently.

Right. Okay, sir. And sir, one on the 4 products that we launched last year, out of which one was a Specialty Chemicals, which were largely targeted to the Europe business. So can you help us in understand how big that Specialty Chemical product will be for us over the next 2 to 3 years? And are we manufacturing this for one particular customer as a CDMO or it's a generic product?

No. I think this product is, first of all, for a very special application under an exclusive arrangement for one particular customer. And we expect this product to give us a top line of about INR 30 crores to INR 40 crores over the next 2 to 3 years every year. So this year, again, our volumes are going to be double of what we have done last year. And gradually, as the customer also takes approval for their various applications, this will continue to grow.

And sir, one more question on your investments, definitely, the current existing land bank where we don't have an excess land bank, but we are doing a INR 60 crores of CapEx for setting up one more new manufacturing block and debottlenecking, which will help us increasing our capacity. But when do we see probably a greenfield announcement because we are talking this since last 6 to 9 months. And even in AGM, we indicated near about another 12 to 18 months for the fresh investments. So can you throw some idea in terms of our greenfield projects, what size it will be, when one can see some announcement on that front?

See, I think we are continuously looking for a good option. And we want to look for a greenfield project, which can actually take care of our business needs for next 4 to 5 years. I think as announced in earlier con calls, we have shortlisted a few locations. There are some -- we are at an advanced stage of discussions. But at the same time, because we have some space available in existing sites, we are looking to acquire at the right time so that we put capital and don't block it for a longer period. So yes, I think we are actually scouting for the right opportunity. And that's why I think you will probably have seen some delay, but I think we are working hard on it.

The next question is from the line of Rahul Jain from Credence Wealth.

Sir, first question is on the CapEx. So we are doing a INR 60 crores CapEx. I understand this is a brownfield CapEx. And in the previous call, you had also mentioned about a total CapEx of roughly INR 250 crores over a period of next 3, 4 years. So if you could understand the exact kind of the amount and the time lines involved in both the brownfield and the greenfield CapEx? I mean what phases do we start commercializing this?

So I think currently, the new manufacturing block that we are talking about and some debottlenecking of capacities will be commercialized in the next 12 to 18 months. And that's an immediate future that we can clearly see because based on our product pipeline and the demand that we are seeing. The balance investment that we had projected was to start with a greenfield project, where obviously land acquisition costs will be a significant cost, followed by the -- all the approvals and then investment in the new facility that we are planning to -- planning in an integrated facility. So that plan for investing about INR 250 crores over the next 3 years remains intact. Once we sort of -- as I answered in an earlier question, once we finalize the greenfield location, I think that detailed planning will be shared with all of you.

And this brownfield CapEx involves increasing capacity on the phosphoric side also?

I think at the moment, we are not looking at expanding capacity in the brownfield project. Brownfield project is mainly on Specialty Chemicals, Intermediates and Agrochemicals. So it's a combination of all the 3 products. For Phosphorus Chemical, I think we will basically -- we are planning to build a complex in the new integrated greenfield project that we are planning to announce.

Sure. Sir, with regards to the financials on revenue and margin. So yes, we have done exceptionally well on the revenue side, both domestic and export sales have grown and overall top line has grown. But sir, our gross margins at 33% are the lowest in last almost 15, 16 quarters. So generally, we were in the range of around 37%, 38% to 40%, and this has substantially come down to now 33%. You have mentioned in your PPT, it is regarding the product mix. But with the new product contribution increasing and backward integration benefits coming in, cost optimization benefits coming in, and on the basis of previous call also, we were somewhere hoping that the margins will be stable or probably improve gradually from there. So if I can understand why this sharp fall in the gross margin, sir?

So I think as Vikash mentioned, responded to earlier queries, and we also mentioned in our last con call, see, in Agrochemicals, what happens is there is a demand in a particular season. And generally, capacities are not able to cope up with the demand for that season. So we took a strategic call to keep -- produce some quantities in the previous quarter. And then we basically sold it in this quarter. Now as per the accounting practice, what happens that the product gets built on the full cost in our inventory. So when you sell in the next quarter, your margins are low. So that has had a significant impact. I can -- only thing I can assure is that our gross margin levels are protected and intact based on the running business that we are doing.

And even as we see for the Q2, Q3, we'll be back at the margins, which we are between 37% to 39%. And moving forward, as we do where we plan, which we have done an announcement for certain MOUs, which we have signed, so those products will also give better contribution, which we'll see coming in Q3 and the next financial year.

And is there some product mix change because you mentioned that in your presentation, the gross margin fall?

So when I say product mix -- no, I think when we are saying product mix, what we meant was a strategic decision taken to utilize the capacity in Q4 when the demand is low and carry forward that inventory in this quarter. I think that's what we meant by product mix. Otherwise, our product mix is healthy. New products are giving higher margin than the existing ones. That is a clear sign we are seeing. Only thing is the proportion of the new product is gradually increasing, and you will see our gross margin improving over a period of time.

I have a couple of more questions. I will come back in the queue.

[Operator Instructions] The next question is from the line of Rudraksh Raheja from ithought Financial Consulting.

Yes. Congratulations on a good set of results. My question is regarding our peak revenues that we can do at this existing capacity.

I think, I mean, obviously, peak revenue is dependent on the product mix, market demand, product pricing because there are so many variables. But at current -- assume that the price levels are what they are currently, from our existing assets, we can do every quarter with an optimum capacity utilization roughly about INR 300 crores to INR 350 crores per quarter. And so I think that will be the rough number.

And as we have said that within the existing site, we'll be making these -- the new block. So that -- because in Agro and Specialty Chemicals, it takes time for registration and all, which is in place. And that's where I mentioned that hopefully, once we have the block ready, that revenue will also be added to the quarterly numbers.

Sure. And sir, when do we anticipate this block kicking in?

Block should kick in from Q3 of the next financial year. That's the target we have kept in mind. And I think till that time our product registrations and approvals will be ready because we are already giving some commercial lots from our existing multipurpose plants and pilot plants so that we are taking care of approval part in advance.

Understood. Sir, can you share more details on the upcoming launches in the coming quarters? You have hinted something like that in your opening commentary.

I think, I mean, we had indicated in the last quarter presentation that this year, we'll be commercializing at least 5 products. So we are on track to commercialize minimum 5 products. Maybe it will -- the number will be 4. And so the things are on track as per the whatever we have projected. And also the products that we have introduced over the last 2 years are showing good signs of growth. This year, demand is healthy.

The next question is from the line of Naman Bhansali from Nine Rivers Capital.

First question is on the proportion of new business or new product sales, which was, I think, 12% for the last financial year. Can you share the number for Q1 and our expectations for FY '26?

I think because I'll say that the share is growing. But I think we'll probably prefer to share this growth over a longer period of time rather than quarter-to-quarter. Only thing I can say that, yes, the growth on these products is minimum 10% year-on-year. And also some of these products are seasonal products also. So some demand will come in Q1, some demand will come in Q2. So that's why it's not the right metrics to look at on quarter-to-quarter basis. I think we'll indicate on a year-to-year basis.

Got it. And secondly, on the MOUs that you have written in the press release, you've given a number of INR 120 crores to INR 150 crores scale up over the next 2, 3 years. Is it specific to those 3 MOUs or it is overall about the new products which you talk about?

So basically, these are the 3 products which we have signed with these customers. So it's pertaining to that. And as Vinod did mention that already there are 5, so another 2 products are already ready. But please understand that in certain parts, registration takes place -- takes time. And also, as Vinod said, that for commercial quantities for -- do some formulation trials, et cetera, we have done it from our existing site.

The next question is from the line of Viraj Mahadevia from MoneyGrow.

Congratulations on the improvement in results. We've seen a marginal uptick in -- a meaningful uptick in revenue in first quarter from Q1 last year and from Q4 '25. Is this driven by largely improvement in pricing, new product introductions or is it seasonal?

I think this is mainly driven by 2, 3 things. One is, obviously, the new product introduction. And second is our -- if you look at our capacity utilization, that has gone up. The demand is healthy. And also some strategic call we had taken last quarter to basically optimally utilize capacity. So we -- we actually could forecast certain demand that will come in Q1, Q2, and we utilize our capacities in Q4. That actually resulted in giving us some extra sales in this quarter. So I think it's a combination of factors. Unfortunately, though, we would like to see a price improvement, but that is not the case here.

Understood. So -- sorry, go ahead.

So even -- yes, even -- just to add to that, our R&D is working very strong, and we are ensuring that we do a lot of improvement in terms of our processes to ensure that we have better margins and to retain the growth.

Understood, sir. Would you say INR 300 crores to INR 350 crores would now be the new normal revenue on a quarterly basis going forward?

That's right.

Okay. And in terms of the initiatives taken for future growth that you highlight in your presentation, the MOU for the export products, the domestic market expansion and the product pipeline commercializing, what could be the incremental revenue delta that you could generate over a 2-year period over FY '25?

If you see our press release, we have already mentioned that would bring in a revenue of close to INR 120 crores to INR 150 crores on a year basis.

[Operator Instructions] The next question is from the line of [ Vignesh Iyer from Sequent Investments ].

Congratulations, sir, on a great set of numbers. Sir, 2 questions from my side. First question…

Can you talk a little louder, sir?

Can you be a little louder, please?

Am I audible now?

You have to come closer to the mic or remove your headphone. We can't hear you clearly.

Is this better now?