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

Ladies and gentlemen, good day, and welcome to 3Q and FY'26 post results conference call of Punjab Chemicals and Crop Protection Limited. [Operator instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar. Thank you, and over to you, sir.

Yes. Thank you, Vimar. Warm welcome to all the participants on the call of Punjab Chemical and Crop Protection. From the management, we have Mr. Shalil Shroff, Managing Director; Mr. Vinod Gupta, CEO; Mr. Devender Gupta, CFO; Mr. Bishan Singh, Head Finance, on the call. Without further ado, I would like to hand over the call to Mr. Vinod Gupta for opening remarks, post which we will open the floor to Q&A. Thank you, and over to you, Vinod-ji.

Thank you, Manish, and good afternoon, everyone, and thank you for joining us today for this investor call for the third quarter and 9 months ended on 31st December. I'm joined on the call currently by our CFO, Mr. Devender Gupta; and our Finance Head, Mr. Bishan Singh. Mr. Shroff may join in some time as he is traveling right now. We sincerely appreciate your time and continued interest in our company. I trust you have had an opportunity to review our financial results and investor presentation, which are available on the stock exchange and on our website. Let me begin with the overall market scenario and challenges. As most of you are aware, as you are tracking the industry, that global agrochemical industry continues to face persistent headwinds marked by supply-demand imbalances, channel inventory correction, pricing pressure from Chinese capacity, and volatile raw material costs. While export demand has improved significantly with the normalization of global inventories, realizations remain capped. Margins across the industry are expected to remain stable to slightly soft with market favoring low-cost producers with export breadth that is registration and the product basket and also with strong working capital discipline. Domestic demand is heavily dependent -- was dependent on the monsoon and the late floods this year impacted the season adversely. Demand has remained weak due to weather-related disruptions and, obviously, there is a lower crop and horticulture prices, which is also seeing demand pressures. As such, our presence in agrochemical and local market is limited. And for the product, what we make for local market, demand has been stable. We at Punjab Chemicals are adapting to market situation with focus on new product addition, efficiencies, and cost, and we have demonstrated remarkable resilience. Our performance in first 3 quarters of the current year is a testament to our diversified business model across Agrochemicals, Performance Chemicals, and Industrial Chemicals. As all of you would have seen our numbers, revenue from operations for the quarter stood at INR 246.6 crores, reflecting a growth of 15.3% year-on-year. Our gross margin for the quarter stood at 41.9%, whereas EBITDA was 29.6%, which is 12% EBITDA margin. Prices have remained soft, but our volumes and capacity utilization across various division has remained healthy. Our strategy to build sustainable growth is yielding results, which is built on 3 pillars. First one is product innovation and diversification. We continue to invest heavily in R&D to introduce new products, mainly focusing on products which are on reasonable volume, reasonable size, but which are not sort of commodity, where we believe that value addition will be higher and we can meet the global regulatory standard. New products launched in recent years are contributing significantly, and these are growing at the rate of 15% to 20% in coming years. In order to cope up with the demand for the products, we are investing to debottleneck our capacity and also new production blocks. This expansion also aligned, as all of us are aware, government is giving a push for Make in India with a lot of policy changes. So we believe that our expansion is timely to capture these opportunities. And also third pillar for our strategy is operational excellence. We continue to focus on operational excellence, continue to focus on efficiency so that we remain competitive and maintain market share for our existing products. At the same time, we continue to focus on our expanding -- expanding our customer base, chemistry capability, strengthening our customer relationship, which is helping us to expand our product portfolio. The progress on the MOUs, we have signed 3 MOUs last quarter. Product progress is satisfactory, and we are confident that the commercialization for these products will happen in FY '27. Our in-house R&D work and some pilot trials is focused on products which are going off patent both in agrochemical and specialty chemical space. On the manufacturing front, our previously announced CapEx plan for this is progressing on schedule. The new manufacturing block is under development to support the growing demand. Also alongside expansion, we continue to focus on asset renewal programs. Last quarter, we took revamp of 2 production blocks to improve safety, efficiency, and reliability. We continue to evaluate new manufacturing location to support our medium- to long-term growth strategy and enhance our supply chain resilience. So I will conclude my comment by saying that we remain confident in our strategy and our ability to deliver long-term value to our shareholders. Our robust Q3 performance, coupled with strategic capacity expansion, product innovation positions us for a strong recovery as the industry condition normalizes. With this, I will hand over the call to our CFO, Mr. Devender Gupta, to give financial highlights for the quarter and the year so far.

Thank you, Vinod-ji. Good evening, everyone. Thanks for joining us for our Q3 and 9-month FY '26 earnings call. I'll now provide a summary of the financial performance for the quarter and 9 months period ended December 31, 2025. On the quarterly side, our revenues from operations stood at INR 246.6 crores, with a growth of around 15.3% on a year-on-year basis. The domestic market contributed around INR 138.2 crores while the international market contributed INR 108.4 crores to the total revenues. Gross margin for the quarter under review stood at 41.9%, an incremental of 1.9% on a year-on-year basis. EBITDA for the quarter was INR 29.6 crores with a strong growth of 53.5% on Y-o-Y basis. The EBITDA margin also stood at 12.4%. Profit after tax for the quarter stood at INR 13.8 crores, growing by 127.7% on a year-on-year basis and PAT margins stood at 5.6%. For the 9 months period, the performance is as follows: Revenue from operations stood at INR 121.2 crores, growing by 17.6% on Y-o-Y basis. The domestic market contributed INR 450.6 crores, while the remaining INR 370.6 crores was contributed by international markets. Gross margins for the 9-month period stood at 37.7%. EBITDA for the 9-month period was INR 90.6 crores, growing by 23% with margin of 11.0%. PAT for 9 months period stood at INR 53 crores with a growth of 66.2% and PAT margin of 6.5%. Our capacity utilization across all manufacturing sites remained healthy during this period. The Agrochemical division operated at around 78% capacity utilization, the Performance Chemical division at 60%, and the Industrial Chemical division continued to operate at the near optimal level of around 85%. With this, I now end my financial highlights portion and open the forum for Q&A. Thanks to all.

[Operator Instructions] The first question is from the line of Rahul Jain from Credence Wealth Management.

First question is on the CapEx side. So current year till now, what CapEx we have done in 9 months and what sort of CapEx is expected to get completed in March '26? And what is the CapEx for March '27? And if you could segregate that between the growth CapEx and the maintenance CapEx.

So for this year so far, our CapEx is roughly about INR 30 crores. And we will be investing another INR 10 crores in the year. So total will be around INR 40 crores. Out of this, roughly about INR 22 crores is for asset renewal and compliance and other aspects. And about INR 18 crores is for creating either a flexibility in production blocks or capacity expansion for the new product that we have added in last 2, 3 years. So that's for this year. I hope that answers your question.

And FY '27?

FY '27, because our major capital expenditure for the new block will start coming in from March onwards. So we expect the new block to take about INR 70 crores. And next year also, we have not done the budgeting exercise, but the CapEx for asset renewal as well as for capacity expansion or for capability enhancement will be the similar ranges this year.

Okay. So with the year-end, so the -- at peak utilization, what kind of sales could be possible given the current prices, post the completion of CapEx?

Given the current price levels, post the completion of CapEx, suppose if you are talking about FY '27, we should be able to easily do roughly about INR 1,400 crores to INR 1,500 crores based on the capacity that we are creating. And the product that we are planning to add are also slightly higher price. I'll not say very high price, but they are in the range of $17 to $20 kind of a price.

And sir, the new products contribution, you had mentioned in the previous call, we have reached around 16% of the revenue. And in terms of the new products commercialization further in the current year, you had mentioned that in FY '26, you will finally commercialize total 5 products out of which 2 have been already done till quarter 2. So currently, at what stage we are in terms of commercialization of the balance 3 products for the current year? And typically, what kind of contribution these 5 products can -- incremental contribution from these 5 products can be in the next FY '27 or FY '28.

So I think as you know, the new product addition, generally, the volume increase is a slow process because, first, we have to give some commercial lots, which are typically small quantities of 5 tonnes to 10 tonnes. Then gradually, the volume ramps up and the full potential is realized only in 2 to 3 years' time. As far as the commercialization of these products is concerned, in fact, we are already at the stage of commercializing more products than what we had initially projected. So last quarter, we commercialized one more product. For that samples have already reached the customer. And based on whatever we have done, next year we are expecting handsome volumes. And 3 to 4 more products we are planning to do commercial trials in Q4. So broadly, this year, our new product addition will be in the range of 5 to 7 numbers. That's what we are projecting. Overall, if, I mean, it's -- I will not be able to say product-wise because some products are very small in volume, but high value. Some products are over a period of time can become high volume, but the value will be reasonable. Overall, all these 5, 6 products put together, we can expect a contribution in 2 to 3 years of about INR 150 crores coming from these new products that we have tried in this year.

Sir, when you speak about MOU, you had spoken that MOU, 3 MOUs, each of the MOU can be around INR 50 crores, INR 60 crores. So the total incremental MOUs can contribute about INR 150 crores, roughly that sales. So within these MOUs, are we talking about these new products also a part of the MOUs or these are 2 separate things?

These are 2 separate things. MOU, as I mentioned, commercialization, we are expecting in FY '27, not this year. So far the progress has been that we have actually -- initial part of the technical due diligence is completed. Our product samples have been approved by the customer. And now we are in the process of final agreement signing where we are now thrashing out final details of the overall arrangement, which is sort of a long-term form agreement with all the 3 parties. But this will happen in FY '27. So these are 2 separate things.

The benefit of MOUs will start occurring from second half of FY '27?

I think yes. I mean, let's take it to full year because all the 3 probably will be happening at different stages depending because of the complexity. I mean, say, for example, when we have to do a final agreement with a Japanese customer, sometimes it may take up to 6 to 9 months just to get the agreement done. But broadly, the timeline is FY '27 in phased manner for all the 3 products under MOU.

And just one last question, sir. Your initial commentary, you spoke about prices being stable, but no increase further and demand continues to be good. So with this latest announcement regards by China in terms of cancelling the export tax rebates for certain pesticides from 1st April. So how do you view that this exercise, do you see the sentiment could be better, say, from April onwards in terms of the agrochemical pricing?

Yes, I think this withdrawal of export benefit is on a very selective basis. It is not across the board. It has been product-specific or some particular chapter numbers, which does not cover any of our products at the moment. But our belief is that this is beginning of withdrawal of export and tax benefit by China. Over a period of time, they will probably move to more and more products, and they will withdraw this export benefit. So at the moment, I mean, if you ask me from 1st April onwards, there will not be -- our products may not be impacted. But we have to keep a watch because how does China exports get impacted because of this duty withdrawal on limited product. If it is a severe impact of export from China, probably they'll come back in this area because I think their economy is being driven mainly by exports. So that's the way we see it. But in long run, we definitely foresee that the export benefit withdrawal will be a process with Chinese Government will follow.

So do you expect overall agrochemical pricing improvement in, say, next 1 or 2 quarters or it will take some more time?

I think there may be some uptick because we have seen improvement in some products. But this improvement is 3% to 4%, not significant. So it will be product specific rather than a general industry phenomenon.

[Operator Instructions] The next question is from the line of [ Jatin from Swan Investments ].

So a couple of things I just wanted to clarify. You indicated that the 3 MOUs that we signed for the export-oriented products, one which is from Japan and other 2 will be from other regions. So all 3 together will be accounted for INR 150 crores to INR 180 crores of the incremental revenue over the next 2 years?

Next 2 to 3 years because I think first year will be this commercial quantities, first trial lots. Once the product acceptance is there, gradually, the volumes will go up. So let's say 3 years actually.

So 3 years on the cumulative, so all 3 together will be INR 180 crores on a cumulative basis, right, all 3 products, 3 MOUs?

Yes, yes, right.

And on the overall thing because, I guess, these MOUs, which we are signing, it's more of a CDMO. So definitely, we will have a better profitability as compared to our existing product. Is it fair to understand that?

I think that's a fair assumption that these MOUs will be at a higher profitability than the current product basket. And that -- and these are also sort of exclusive arrangements that we are getting into.

But sir, any rough guidance can you give? Suppose if you are a 12% margin, these MOUs could be 100 or 200 bps higher or probably more than that in terms of the profitability?

Vinod, let me take that. Jatin, hello, this is Shalil here. Please understand that during these calls, sometimes we have to be very diplomatic in giving numbers. But as Vinod definitely said that these are niche products, and this will have a better incremental than what Punjab has been performing over the years.

Okay, sir. Sir, on this commercial production, which is under trial 4 products, which is going to commission in Q4. So what will be total market size of these 4 new products, which will go under trial production in Q4? And when could start the commercial…

So basically, Jatin, see, please understand that these are under secrecy agreements, but these markets will grow as we get registration. But as narrated by Vinod that we expect in the next 2 to 3 years to get a revenue of around INR 180 crores. And on the upper side, it could be double of the same.

So sir, I'm not talking about the 3 MOUs that you have signed, but I'm talking about the production trial that you will be taking up 4 new products in Q4. Is that a part of strategic partnership or that are the 4 different products?

No, these are 4 different products that we are commercializing.

I'm sorry, I joined late, so maybe Vinod will…

Shalil-ji joined late. I mean, so these 4 products we are commercializing this year. And over a period of time, even these will add about INR 150 crores kind of revenue in the next 2 to 3 years. Now Mr. Jatin, your question is, obviously, these will be at a higher margin. As Shalil said, it is difficult for us to announce. But overall market is much bigger than what we are targeting. So we are taking a conservative number there.

So that means the 4 new products and 3 MOUs can probably give us an incremental revenue of INR 300 crores at the existing capacity of Lalru and Derabassi, right?

With the new capacity addition that we are doing. That's why we are getting the new capacity addition.

Okay. So the new block that we are probably doing, it require another INR 300 crores.

Yes.

So the indication that you gave to the earlier participants that existing capacity can give about INR 1,400 crores to INR 1,500 crores of revenue in FY '27. So is it safe to assume that this INR 300 crores will be over and above that or it's that…

No, no, I think, Mr. Jatin, my response was that including the new blocks that we are creating, overall revenue that can be generated about INR 400 crores to INR 500, which includes INR 300 crores roughly from these new products and then growth in existing products, whatever we are doing, all put together.

And now once we look at your export trend, definitely, sir, it's picking up. But when you compare with your FY '23 numbers, which was much on the higher side, where we probably did an export of near about INR 530 crores. And in FY '25, it was somewhere around INR 350 crores. So the decline in the overall export is largely attributed to a volume or it was more on the pricing?

So I think what is happening is as the market situation is very dynamic, so even the supply chain shifts are happening. So some of the export product that we were earlier exporting to, say, Europe or Japan, they were getting formulated in those countries. Now some customers have started basically some formulation in India and exporting. So overall, our product -- export of our products remains the same or it is growing at 5% to 7% year-on-year. But because now we are selling some of that volume in local market because of this shift in supply chain, you will -- you are seeing that shift. So I'll summarize that our export market share for our all 3 products remains healthy, steady, and it is growing year-on-year. But this shift is mainly on account of supply chain changes that are taking place in view of the global dynamics.

So given this trend of the export, I mean, if you can help us understand how was the month of January for us?

I think, Jatin, you're going a little bit too much in detail. But as Vinod said, that we definitely -- the business trend is healthy, and we expect that the year-end also should be very good.

Okay. And once we probably reach around INR 1,400 crores, INR 15 crores of revenue in next 2 to 3 years, is it safe to assume that we'll go back to 15-odd percent EBITDA margin?

Yes. As we have already narrated to you that the newer products is getting better margins. So definitely, the trend of Punjab in terms of gross margin and at the bottom level will definitely improve.

One last question from my side. Sir, I mean, from last 2 to 3 quarters, I mean, more than that, we are probably looking at the setting up of a new facility. And I mean, have we finalized because we are looking somewhere in Maharashtra or Gujarat, is something on card or probably as of now our focus will be more on expanding our new block in Derabassi and Lalru and probably after that, we may look at the new site? How shall one look at it for the future growth drivers?

So Jatin, we have already commentated in a couple of our calls, between 1 and 2 con calls that we have looked at certain sites. Unfortunately, because of due diligence, it did not fall in place. But at the moment, also we are looking very seriously at 3 sites, which is happening. And as and when it comes in, presumably, I believe that we need a site which is absolutely on our radar. And as and when it happens, we'll definitely inform all of you and including the stock exchange.