"PCBL Limited
Q1 FY'24 Earnings Conference Call"
July 12, 2023
MANAGEMENT: MR. RAJ GUPTA - CHIEF FINANCIAL OFFICER -
PCBL LIMITED
MR. SAKET SAH - HEAD, INVESTOR RELATIONS
MR. PANKAJ KEDIA - VICE PRESIDENT, INVESTOR
RELATIONS
MODERATOR: MR. SANJESH JAIN - ICICI SECURITIES LIMITED
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PCBL Limited | |
July 12, 2023 | |
Moderator: | Ladies and gentlemen, good day and welcome to PCBL Limited Q1 FY24 Earnings Conference |
Call hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only | |
mode and there will be an opportunity for you to ask questions after the presentation concludes. | |
Should you need assistance during this conference call, please signal an operator by pressing | |
star, then zero, on your touchtone phone. Please note that this conference is being recorded. I | |
now hand the conference over to Mr. Sanjesh Jain from ICICI Securities. Thank you, and over | |
to you, Mr. Jain. | |
Sanjesh Jain: | Thanks, Neerav. Good afternoon, everyone. Thank you for joining for PCBL Limited Q1 FY24 |
Results Conference Call. We have PCBL management on the call, represented by Mr. Raj Gupta, | |
CFO, Mr. Saket Sah, Head Investor Relations, and Mr. Pankaj Kedia, Vice President, Investor | |
Relations. I would like to invite Mr. Raj Gupta to initiate the call with his opening remarks, post | |
which we will have a Q&A session. Over to you, sir. | |
Raj Gupta: | Thank you, Sanjesh. Thank you, Neerav. Good afternoon to all of you who are on the call and |
thank you for taking your time to join the call. I would like to point that there would be some | |
statements during the call which may be forward looking and an appropriate disclaimer to this | |
effect has been included in the investor update which we have shared earlier. Let me start with | |
the highlights of our performance in the first quarter. While during the quarter a part of PCBL | |
Tamil Nadu facility was commissioned, but for the sake of easy understanding and comparison, | |
we will discuss the subsidiary performance separately. | |
The year has started on a good note despite the ongoing geopolitical and economic challenges. | |
During the quarter, our standalone revenue from operations was INR1,297 crores. The drop in | |
revenue is on account of drop in crude prices from an average of USD 97 to USD 82 year-on- | |
year. Standalone sales volumes were ` 118,000 tons up around 8% year on year. EBITDA grew | |
by around 4% year on year to INR 214 crores. And EBITDA margins translated into roughly | |
16.5%. This is highest ever EBITDA and PBT in our history. | |
As you are aware the first phase of greenfield facility in Tamil Nadu was commissioned around | |
middle of April. During the quarter we achieved a production volume of roughly 6,300 tons from | |
this facility and a sales volume of around 5,000 tons. It is roughly 45% capacity utilization | |
against the first line. We expect to ramp up production from this line further during this quarter | |
with some approvals that are expected from tyre customers during the quarter. We expect TN | |
facility to achieve break-even at around 45% capacity utilization once all the other remaining | |
lines and cogeneration power plants are commissioned. | |
We expect to commission the balance capacity during the quarter. Consolidated sales volume | |
during the quarter was `123,000 tons. This was backed by domestic sales volume of 82,000 tons | |
and international sales volume of 41,000 tons. Moving on to the segmental performance, tyre | |
accounted for roughly 83,000 tons. Performance chemicals sales volumes were ` 28,500 tons | |
and specialty black volumes were ` 11,800 tons. We continue to expand our product portfolio | |
and customer base. |
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PCBL Limited | |
July 12, 2023 | |
Consolidated revenue from operation during the quarter was INR1,348 crores, consolidated | |
EBITDA per MT stood at ` 17,550 while consolidated PBT stood at INR156 crores. Power | |
generation also increased during the quarter from 144 million units in same quarter last year to | |
156 million units this quarter. And corresponding sales volume was 98 million units as against | |
86 million units in the same quarter last year. PCBL's average realization from power sales stood | |
at INR3.79 per kilowatt hour. | |
We are pleased to announce commissioning of 20,000 tons per annum of brown field expansion | |
of specialty line at Mundra. Company's total specialty black capacity now stands at 92,000 tons. | |
The newly commissioned state-of-the-art capacity would lead to further premiumization of | |
product portfolio and cater to demand of our Indian and overseas customers. Initiatives are being | |
undertaken to progressively ramp up production from this facility. Long-term prospects of | |
specialty black segment look very positive and we believe there would be adequate business | |
potential to sustain the growth momentum. | |
Considering the changes in global supply chain and consumption pattern, demand and margins | |
in this segment should continue to remain very strong. Structurally, we are increasing resource | |
allocation to this segment. With regard to market scenario and outlook, domestic market demand | |
is growing with continued strong momentum in OEM segment and replacement market is also | |
doing fairly well. We expect tyre demand to remain healthy going forward. In FY22 and 23, | |
Indian tyre industry volumes grew by around 10%. | |
Going forward over the next couple of years we expect tyre industry growth to settle in high | |
single digit volume growth. Most of the research agencies also indicate around 9% to 10% kind | |
of growth for this segment. This would help carbon black industry to increase capacity | |
utilization. In terms of near-term outlook, we are a little cautious about the global demand | |
momentum. Continuing high inflation in developed economies might weigh on consumption. | |
We are continuing to work on strengthening our supply chain, improvement in our product mix, | |
and also cost optimization initiatives within the company. | |
Moderation in oil price is helping our customers to increase margins in their business and is also | |
helping us release a part of our working capital requirements. In terms of mid to long term | |
prospects, the changing cost structure in China and sanctions on Russia has opened a big door | |
of opportunity for Indian manufacturers across industries. Our industry would also benefit from | |
this structural change and we therefore, will have to keep adding capacity over the next few | |
years. | |
We continue to work on fundamental building blocks of our business to achieve our long-term | |
growth and profitability targets. But at the same time, we also remain conscious of volatility of | |
global business environment and would remain judicious about our capex and ROCE. So | |
gentlemen and ladies, with this I conclude my opening remarks and I would be happy to take | |
your questions now. | |
Moderator: | Thank you very much. We will now begin the question & answer session. The first question is |
from the line of Aditya Khetan from SMIFS Institutional. Please go ahead. | |
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PCBL Limited | |
July 12, 2023 | |
Aditya Khetan: | Thank you, sir, for the opportunity. Sir, my first question was on to the gross spreads. Sir, when |
we look at the carbon price for the quarter has declined, similarly carbon black feedstock prices | |
have also declined. So generally, sir, in declining price scenario, businesses face inventory loss. | |
But despite this, your spread have came at an all-time high. So what is the reason? And | |
considering the demand also, like into the exports market was not that good. So what is the | |
reason for this good number of spend? | |
Raj Gupta: | Okay, so I think there are two questions, Aditya, which you have asked. One, declining crude |
prices have not resulted into any inventory loss. And second is how we are able to increase our | |
volumes despite market conditions, right? Now, answer to your first question is, time and again, | |
we have said that we don't speculate on crude prices or inventory levels. So we only maintain | |
the inventory level for which there is a pass-through in our pricing arrangement with customers. | |
And therefore, in changing crude scenario, whether it goes up or down, inventory-related impact | |
on our business is as such not there. Unless there is a very steep movement in crude price over | |
a very small period. So like tomorrow suddenly from the current say USD 78-USD 80 level if it | |
drops to USD 40, would there be an impact on our business, yes. But if it drops from USD 80 to | |
say USD 70, would it also create an impact on business? No. Right? So we do a dynamic | |
calculation of our sales forecast in the preceding next three months and accordingly we build up | |
our inventory. | |
With respect to the overall demand scenario in the market and our volume performance, see, | |
while overall global demand scenario, I would not say it is most conducive period from that | |
perspective. But supply chain relations are changing globally. And Europe is now opening its | |
door for Indian manufacturers. And historically, Europe was a very small market for India. Now, | |
gradually that share is increasing. And it's a big potential, it's a large market, the whole of | |
Western Europe. | |
And we have in last 6-7 years, invested a lot of money on building up and improving our supply | |
chain in this market. And even now it is just the beginning. I mean, the real improvement in | |
business in Europe has started happening in just last two years. I think gradually it will unfold | |
more and more in next few years. So we are seeing Western Europe as a large opportunity for | |
Indian exports from our industry. | |
Aditya Khetan: | Okay. And then also the spreads part, and the broad spread, like we have reported the highest |
ever spread. So considering even if the specialty volumes, they come up in the coming quarters, | |
but considering weakening of demand, export related uncertainty. So can we say that, so this is | |
the peak numbers which we have done in this quarter and we could be sliding down from here | |
on? | |
Raj Gupta: | I would not say it will go down or move up. See structurally, I mean, there are a lot of areas |
upon which we have been working since last few years and gradually that is helping us improve | |
blended margins from the business. So that is the structural change that we are trying to bring to | |
business. Now of course in market there would be pockets of opportunity and then when we see | |
these opportunities or the pockets or windows of opportunity, we try to utilize them. So in some | |
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PCBL Limited | |
July 12, 2023 | |
quarters you might see some jump in the margin over the previous quarter. In other quarters you | |
might see some softening. But structurally if youlook at year on year performance, I think there | |
is still a significant scope for us to go up. | |
Aditya Khetan: | Okay. Sir, on to the specialty volume size, for the last 4-5 quarters the numbers have been almost |
constant at around 11,000 to 12,000 tons. And we are not been able to ramp it up, plus we are | |
adding another 40,000 tons capacity. So what is going wrong here? Like is there a demand issue | |
or the weaker exports market is not helping you to ramp up the volumes for the last 4-5 quarters? | |
Raj Gupta: | No, I would say 4-5 quarters numbers have gone up. You may not have noticed, but till last year, |
I mean except for the last quarter, our numbers were in 4 digits. So we were doing about 9,000 | |
tons, 8,000 tons, those were the numbers. And last two quarters we have been doing around | |
11,000 tons. So volumes are on an increase. In fact, between the same quarter last year and this | |
year, the volumes have gone up by 16%, 17%. Now, why we are adding capacity? Our existing | |
capacity can only support production up to maybe 47,000- 48,000 tons annually. | |
And we see specialty segment as a large opportunity. Our aspiration is to take our annual | |
volumes to six digits over a period of time, next few years. And that would require us to keep | |
on adding capacity. So as per our existing plan, every year we'll have to keep at least, adding | |
one line, one new line in this space. And it is not only capacity addition, but there is also a very | |
strong R&D team. Currently we have more than 50 persons working in that. We are launching | |
new grades every year. Similarly, marketing team is working hard to create larger market of our | |
specialty customers across geographies. So there's a lot of effort, a lot of work which is going | |
on in this area. | |
Aditya Khetan: | Got it. Sir, from the newly expanded line of Chennai, that line was started in April. So |
considering a two to three months full period for the quarter, the volume number still looks to | |
be very low of around 6,900 tons. | |
Raj Gupta: | Aditya, that line, if we were to utilize that line for the full quarter, it would give us roughly |
around 13,000 tons quarterly. I am talking about the quarterly volume. And because it was | |
commissioned during middle of April, so proportionate volume we could have got at 100% | |
utilization level, it would have been around 11,000 tons. That was the total utilization if we were | |
to do. Now, against that 11,000 tons, we have produced more than 6,000 tons already in that | |
quarter, which is more than 50% of production. | |
Now, initially when we produce on a new line, it takes a little time to stabilize the qualities in | |
the grade. And therefore, the approval from major customers takes time to come. So in the first | |
quarter, even that 5,000 tons of sales volume and 6,000 tons of production itself is a big feat to | |
achieve. But we are confident that as we step into the current quarter and going forward, the | |
capacity utilization would only increase. | |
Aditya Khetan: | Got it sir. Sir, just one last question from my side. Sir, we are witnessing increase of imports |
from China and so sir, into the carbon black space also, for the last two months we have | |
witnessed increase in imports? | |
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PCBL Ltd. published this content on 19 July 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 July 2023 07:44:02 UTC.