PCBL : Transcript of Q1 FY 2024 Earnings Conference Call

"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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