Vishnu Chemicals Limited (516072) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Vishnu Chemicals Earnings 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, sir.

Thank you. Good afternoon, everyone. Welcome to the earnings conference call of Vishnu Chemicals Limited for Q1 FY '26. I would like to welcome the management and thank them for giving us this opportunity to host them. We have with us today Mr. Siddartha Cherukuri, Joint Managing Director; and Mr. Hanumant Bhansali, Vice President, Finance. Before we begin this call, I would like to point out that the discussion during this call may contain forward-looking statements, reflecting the company's current view of future events and their potential effect on Vishnu Chemicals' operating and financial performance. These statements involve uncertainties and risks, which could cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. I shall now hand over the call to the management for their opening remarks. Thank you, and over to you, Siddarth.

Thank you, Meet. Good morning, everyone, and thank you for joining us today. Let me start today by providing a brief overview of the quarter gone by and how we navigated the external challenges during this period. Quarter 1, while our year-on-year performance remained resilient, we witnessed a moderation in sequential performance, largely due to demand deferment arising from ongoing tariff uncertainties. The impact was more visible in export markets where customers took a cautious approach, particularly in terms of inventory stocking for their key raw materials. This caution, coupled with subdued global manufacturing activity, we would say temporarily affected our order book and order flow. Despite these headwinds, we continue to focus on margins and customer-first approach. Consolidated domestic export sales mix stood at 55:45 during the quarter. Our balanced presence across domestic and export markets gives us the flexibility that is valued in times like this. Ocean freight rates also surged between May and early June, driven by tariff-related developments and peak -- especially the peak season surcharge has been applied. While freight costs have begun to ease since mid-June, we did experience an increase of 88 basis points in our shipping and forwarding costs sequentially. We are pleased to report our consolidated gross margin improved by 81 basis points year-on-year basis to close to 46% and consolidated EBITDA margin remained stable at 16.1%. This is a direct result of operating discipline and flexibility we built into our business model over the years. Manufacturing remains our core focus, and we are continuously working to strengthen it moving forward to maintain our cost competitive position. In the quarter gone by, our consolidated manufacturing expense as a percentage of revenue declined by 100 basis points year-on-year to 6.2% in quarter 1, driven by ongoing process improvement. We remain encouraged by the business development opportunities. We are generating and expect to continue to capitalize on our pipeline to drive sustainable above-market growth. Though it's hard to predict, we are hopeful that pent-up demand will flow through the rest of the year as our portfolio of chemicals cannot be substituted. We believe that once there is a clarity on the tariff front, market stability is likely to return. To throw some light on the CapEx front, we are going to focus on completing the existing projects, including the foray into Strontium Chemistry and strategize our future investment in Chromium and Barium vertical once the clarity emerges post tariff stabilization. Thank you. Now I hand it over to Mr. Hanumant to walk you through the financial highlights. Over to you, Hanumant.

Thank you, Mr. Siddarth, and good morning, everyone. Let me now share the financial highlights of the quarter Q1 FY '26. On a consolidated basis, the company delivered operating revenues of INR 346.9 crores in Q1 FY '26 compared to INR 338.9 crores in Q1 FY '25, an increase of 2.4% on a year-on-year basis. The gross margins were resilient at 45.6% in Q1 FY '26 compared to 44.8% in Q1 FY '25. The absolute EBITDA in Q1 FY '26 was INR 55.7 crores, an increase of 0.2% on a year-on-year basis. Q1 FY '26 EBITDA margin was 16.1% compared to 16.4% in Q1 FY '25. The company achieved a PAT of INR 32.2 crores in Q1 FY '26 compared to INR 30.5 crores in Q1 FY '25, an increase of 5.8% on a Y-on-Y basis. The PAT margin stood at 9.3% in Q1 FY '26 compared to 9% in Q1 FY '25. Some of the key highlights on the stand-alone front, the company witnessed improvement in gross margins and EBITDA margins during the quarter. As stated earlier, the focus on margins and customer-first approach helped the company achieve desired improvement of 470 basis points in gross margin in stand-alone business and 185 basis points improvement in EBITDA margins on a sequential basis. The company has a continuous track record of paying dividends. The Board of Vishnu has recommended a dividend of 15% on the face value of INR 2 per share, which is subject to shareholder approval at the upcoming AGM. Even when the macroeconomic conditions remain challenged, the team is executing well, highlighted by the positive inflection in our year-on-year metrics. We will continue to improve our competitiveness and efficiently deploy capital in value-accretive ROCE projects. On the South Africa acquisition, the statutory approvals and clearances are still in progress, and we will update you once we have clarity on the same. With this, I conclude my remarks. We can now commence the Q&A session.

[Operator Instructions] We have first question from the line of Rohit Sinha from Sunidhi Securities.

So first of all, on the stand-alone side, just wanted to know what's the update on the pricing side from the Chromium business? And obviously, I think everyone would be looking at the angle at how much we are exposed to the U.S. side. So how much revenue we are getting from the stand-alone business as well as on the subsidiary Barium side also, if you can highlight? And the current scenario where the Chromium products pricing are shaped up in context of the chrome ore prices?

I'll start off with your first question is how is the pricing environment? Pricing environment still remains quite resilient. We are not seeing the pressure on the pricing across Barium and Chromium value chain. Whereas you're talking about what is our exposure to U.S. market. On a consolidated basis, our exposure is close to 12%. In that 7% to 8% is about chrome and about 3%, 4% is Barium. So just to give you an update for our Barium chemicals, there are no tariffs. It's totally exempted based on Annexure 2, so which is a very positive. So we continue to grow our volumes in this particular value chain, which is Barium chemicals. Chrome, we are -- there is a tariff applied. Right now, it's close to 25%, plus 3.5%, 28%. We are in constant touch with customers. So right now, things are still quite fluid at the moment, so I won't be able to comment. But we see the customers are still keen to look at our products and continue to import, but it's still unclear at the moment.

Okay. Okay. And good to know that, I mean, Barium is not there on the tariff side. And although we have only 3%, 4% as of now, so in order to, you can say, capitalize on this opportunity, how would be our approach and how big this could be going forward? As I think we already have decent demand for Barium in the other markets, and we are doing good there. So our capacities, how our capacities are shaped up and how is the utilization there? And how -- if at all we are looking to expand our presence in the U.S. on the Barium side, would that be with the current capacity itself?

Just to correct a small thing over here. Vishnu Chemicals on a consolidated basis from U.S.A. is about 7%, 5% of Chromium sales comes from U.S.A. And on the Barium side, we have 12% contribution coming from U.S.A. Over to Mr. Siddarth to answer the remaining part of the question.

So for the Barium, I think we are in constant touch with the customers. I think we are trying to add more accounts as we move forward for both Barium carbonate and Barium sulfate. We definitely are going to see a good volume and value growth on that front. Again, in terms of our operating levels, we are currently operating at close to 80%, both the products, and we target to get to the 90% in this particular quarter as well.

Okay. Okay. And just one thing on the balance sheet side. I mean, how much would be the CapEx and debt number for us would be there in FY '26 and '27?

On an immediate basis, the company is working to complete its CapEx in Vishnu Strontium Private Limited. Of this, INR 46 crores have been spent till 30th June 2025. And on the debt side, the company's net debt is about INR 250 crores as of 30th June 2025, which is close to about 0.25x net debt to equity.

And this would be more or less in a similar range for next year also?

For the next year, it would be subject to the CapEx plan that the company would take for which there would be more clarity and more details available once the tariff issue subsides and there is more stability in the market.

We have our next question from the line of [ Ashish Khurana from ANK Capital ].

Sir, so on this Barium side, basis what you confirmed. So there is no U.S. tariff impact. But if sequentially, I see both revenue and the gross margin, so there is a, I would say, a reasonable drop there. So if you could elaborate if it is because of Barium carbonate or the sulfate product or domestic market, export market? Because before you commented on it, I thought it was primarily because of our U.S. supplies to Barium. But if that is not the case, so what is causing this impact?

Thank you for your question. So on the Barium side, first of all, let me highlight on the pricing front. The realization of nearly all the products in Barium chemicals remained the same on a sequential basis, as we did not choose to -- we did not increase any prices during the quarter because there are already a lot of uncertainties around the macro factors. On the volume front, there was a decline of nearly about 10% in the production of PBS compared to previous quarter due to improvements and maintenance works carried out by the company. However, Barium carbonates sales are on the rise, and we saw an increase of nearly 2% increase on [Technical Difficulty].

So the opportunity that opened up for us probably because I think some Georgia-based producer shut down. So that still continues and we have those relationships and business with our U.S. clients on Barium carbonate, right?

That's right. That's right.

And on PBS, so what kind of market share have we reached domestically? I think we were targeting around 70%, 80% market share. So where are we now on that?

We are pretty close to that. We are pretty close to that. Generally speaking, since the focus is on paint industry, normally in the monsoons, it's relatively slow on that front, but it's not impacting our exports. We are trying to balance. Now generally, in the monsoons, the demand for either it could be a powder coating or a solvent [ paint ] is relatively low. So there is some slowdown in the market on the paint side. However, this is kind of balanced by increasing our exports to the international market, the PBS at the moment.

Got it. Just a couple of more questions. So on Barium gross margins, all the benefit that could have come from our Ramadas Minerals acquisition. So is that showing already? Or there are like a few basis points still to go in that?

You see the EBITDA margins still remain robust. I mean we are looking at close to 30% even last quarter it was 29.1% and that's going to continue to remain. There has been a volume impact because of maintenance, because of monsoon -- slowdown in the paint industry on account of monsoons, but we still remain quite positive overall. It could be domestic market or also exports as we continue.

Sir, I was asking about the backward integration benefit in gross margin. We acquired Ramadas Minerals. So that is now already...

That is already factored in. That is what I'm saying. It's already factored in and our EBITDA margins are still at a level of close to 30% now, on a consolidated basis when we combine Ramadas and Barium subsidiary.

Okay. And lastly, sir, on Chromium, especially global demand. So our Turkish company, peer company in their commentary highlighted a significant drop in volumes and also said that since the leather production is down, so there is a lot of Chromium-based supply -- Chromium derivative supply in the market. But I think we probably are not that deep into leather and we have like a diversified end use case. So how would the global demand for us -- for our Chromium derivatives pan out in the near future?

That's a very good observation. I think this is something we have kind of forecasted a few years ago that this is the direction we want to take moving forward is to focus more on value-added products other than leather, which is chrome sulfate. And we are moving in that direction. It could be focusing on metal plating, wood preservative and pigments and dyes as well as Chromium metal. So that is what we are going to focus on. It doesn't mean that we are going to do away with the leather business because that's something we have those long-term relationships. I think it's a moment that this industry is going through a lower business cycle. So -- and it will definitely come back. But given the flexible product mix, I think we are -- I think our exposure to that industry right now in terms of sodium dichromate volumes to this derivative is only 15% to 20% at the moment.

So for us the global demands...

Our volumes in chrome in the first quarter, in fact, even on a -- and I cannot talk on a sequential basis, but on a year-on-year basis, there has been a volume growth as well as the value growth, if you can see. And if you look at a sequential basis, it remains subdued in terms of volumes for chrome.

And on a sequential basis, there was a 500 bps GM improvement, gross margin improvement. So that probably was because from the data I have, there was some softening in chrome prices. Is that correct?

To some extent, to some extent and also some better operating levels of the plant has given a better economies of scale. Our volumes have increased.

We have our next question from the line of [ Apaar Bansal from Planify] Capital.

So I have a question regarding the growth top line that in the earlier call, you have guided for like 15% to 20%. So in the related uncertainties with the tariff, so when we can expect this growth in the year? And also my second question is regarding the Strontium quantum carbonate CapEx. So please can you guide on this?

It's -- so we are also looking at the market right now and our current performance is a true reflection of where we could extend our capabilities to give a better performance on a year-on-year metrics. Talking about the guidance on the 10% to 15% level, we had given a guidance on increase of volumes. But looking at the market uncertainty, it is very academic right now to talk about increase in top line at this juncture. Like everyone, even we are studying the market and talking to our export customers who are more cautious and resorting to tighter inventory cycles. But the good part is that this cannot remain like this forever because the chemicals in which we operate are hard to substitute. So there is an expectation. I would not say we are completely relying on it, but there's an expectation that there will be a pent-up demand coming in, in the rest of the year, which is going to more or less cover up for whatever sequential decline we have seen in the first quarter. On the Barium side, we don't see any challenges as such, both on the pricing front as well as the volume front, we are seeing very good momentum, and that is likely to continue. On the Strontium front, the CapEx is underway. And -- on the Strontium front, the CapEx is underway, and we expect the production to start sometime in the second quarter or early third quarter. It's a very exciting product. It's a new product, and we are going to be the only manufacturers of that in India. On the Strontium side, I would just like to add that it is very, very cost-effective alternative to rare earths. Strontium carbonate provides very strong magnetic properties in comparison to other materials which are used to manufacture flexible and permanent magnets, which are in great demand right now. The prices of that have also increased substantially over the last 1 year due to the shortage of supply in the global markets. So introduction of that product will also potentially add to our top line in the remaining part of the year.

Okay. Got it, sir. Sir, just to add on this, please confirm that as per the expectations like for the next 2 years, the key growth drivers would be this Strontium carbonate project? Or if not, then what could be the -- like given the market uncertainty right now, what could be the key growth drivers?

We are working on other interesting backward integration project. I mean, right now, I mean, we were not able to share that information since it's an R&D phase, but that definitely will be another growth lever for Vishnu Chemicals. And also Strontium carbonate, we are seeing a good demand, especially coming out of Asia and being the only producer. And in Mexico, one of the facilities which was manufacturing Strontium carbonate had a fire accident. So close to 24,000 tonnes of product is out of the market. So there's definitely a gap which we can fill. So the launch is going to happen at the right time.

We have our next question from the line of [ Jay Bharat Trivedi ] from InCred AMC.

Sir, my first question is, could you quantify what is the capacity utilization for Q1? Or alternatively, you can also say what was the revenue loss due to deferment in chrome ore and 10% is what you have said for PBS due to maintenance? So yes, can you say something on that?

On the capacity side, I'd like to highlight, as mentioned previously in the call, our capacity utilization is still very good, both on the Chromium side as well as the medium side. Last year, our capacity utilization in Chromium chemicals was in excess of 80%, and we continue to surpass this target this year itself. Even despite the tariff uncertainty, we are very confident of increasing or delivering a 10% growth in volumes due to substantial improvements that we have done in our plants, which is yielding very good yields at lower consumption of raw material. And on the Barium front, I would like to add that compared to mid-60s capacity utilization that we achieved in FY '24, our current utilization gives us the momentum to achieve at least 80% to 80%, 82% by the end of this year. So we are going to see an increase in volume growth as well as value growth in the Barium vertical through the year.

Okay. Sure, sir. And my second question is on the R&D front. I know you explained, but the new products that you are working on or all the engineering processes that we are trying to optimize, how do we account for them? Are they expensed off? Or are they capitalized?

They are fully expensed. They are fully expensed. All our R&D expenditure is expensed on a monthly basis in our P&L account, and there's no capitalization of the same.

Sir, so when I read your annual report categorically, there is no mention of any R&D expense. So what will be the expense as a percentage of sales, if you could tell me?

Categorically, there is no line item on R&D expenditure because it is outsourced to an external entity. It is outsourced to a third party. That is why it's not an in-house R&D facility. And that's the reason why it is expensed in the current heads of the P&L. And it is close to about 0.5% of our total sales, consolidated sales of the company.

We have our next question from the line of [ Dhruv Shah from Ambika ] Fincap.

I have 2 questions. One is on your Strontium chemicals commissioning. It has been pushed by almost now 2 quarters, right, because it was supposed to start in start of Q1. Now you guys are saying that it will start in Q3. Why is that the delay of almost 2 quarters there?

Yes. Dhruv, this is Siddarth with you. So the trial runs are going on at the moment as we speak. We are getting close to actually start our commercial sales probably towards end of this quarter itself. So we are in August. So I mean, we -- the trial runs are going on as we speak. So September is when we would actually -- the commercial sale will happen, and we'll see some consistent volume from October. That's the reason we are saying it's going to be quarter 3.

Siddarth, we are putting up -- how big is the plant?

I think we've already conveyed before, close to 12,000 tonnes of Strontium carbonate per annum.

Right, right. And Siddarth, next question is on your mine. Is there any update which you can share with us? Because we are already in August. I guess you had given a guidance of by September, you should see some light out there. So can you just give us some color on the mine acquisition?

On the mine side, the update remains same as last quarter. There is no new development on that front. We're still awaiting the statutory approvals, which will give us -- which will lead to the handover of the mine and closure of the acquisition. So this is the only update that we have right now on the mine front. As per our assessment, we had anticipated 1 year at the time of signing of the agreements last year in November 2024. So we are expecting the approvals to come on or before November 2025. That is 12 months from the date of signing the definitive agreements.

We have our next question from the line of Bharat Shah from ASK Investment Managers.

Tough times, but I couldn't properly get the details about how much is the U.S. exposure? So on Barium side, what I understood was there is no duty and it is fully exempted. On chrome side, there is a 25 plus 3, 28% duty applied. So how much of total turnover has been to America on Barium and on chromes?

On a consolidate...

I'd like to answer the first part of your question. So I'd like to answer the first part of your question. 5% of our sales in Chromium chemicals comes from U.S.A. and 12% of our Barium chemical sales comes from U.S.A. That totals to about 7% on the consolidated basis, sales comes from U.S.A. I'd now request Mr. Siddarth to answer the second part of the question.

Just one second. You're saying 12% of total Barium sales out of U.S. and 5% of chrome out of U.S. And that 2 together is 10% of total turnover last year?

That's right, 10% to 12%.

So last year we did about INR 1,450 crores. So roughly INR 150-odd crores has been exports to U.S.

Last year, we did INR 1,446 crores, of which nearly INR 60 crores turnover came from U.S.A., which was 3.5% of stand-alone sales. And on the Barium front, nearly INR 44 crores came from U.S.A., which is about 12% of our Barium sales.

Sorry, Hanumant, I'm still confused. Last year, our consolidated turnover was INR 1,450 crores, right?

INR 1,446 crores.

Yes, sure. INR 1,446 crores. So exactly how much has been Barium exports to America out of that? And how much is exactly chrome exports to America?

Last year, INR 60 crores were chrome exports to America and INR 44 crores were Barium exports to America.

INR 44 crores and INR 60 crores, so INR 104 crores. So of the turnover -- consolidated turnover, that is more like 7%, 7.5%, not 10%.

No, it is not 10%. It is 7%.

But I thought I heard you saying 10% of consolidated turnover came from America.