Q1FY24:
• Human Nutrition great comeback. Speciality chemicals profit margins improved qoq (12% in q4fy23 to 16%) despite lower sales and agrochem headwinds indicating pricing power and CDMO benefit.
• During the quarter ended 30 June 2023, the Holding Company has commissioned new ‘Acetic Anhydride’ plant at Bharuch, Gujarat.
• Change in CEO & Managing director: Superannuation (Retirement with pension benefits) of Mr. Rajesh Kumar Srivastava, CEO and Managing Director.
Appointment of Mr. Deepak Jain as CEO & Managing Director of the Company. Deepak has more than 18 years of rich & diverse global experience with Bain & Company where he has been working as Senior Partner responsible for APAC Advanced Manufacturing & Services practice covering Automotive, Chemical and Cement industries. Deepak is an accomplished leader who has been recipient of multiple accolades like “ET 40 under Forty” and Fortune India’s “40 Under 40”. Deepak is a Chemical Engineer from IIT Delhi where he earned the Silver Medallist award, and an MBA from IIM, Ahmedabad where he was an Industry Scholar.
• Specialty Chemicals Business: Demand from Agrochemical customers globally continue to face headwinds due to exceptionally higher pipeline inventories. However, demand from our Pharmaceutical and other customers has improved leading to improved price realization and margins from these products including CDMO.
Registered growth in volumes of Specialty products towards non-agrochemical end-use including CDMO, resulting into normalization and sequential margins improvement of overall segments.
Our GMP and non-GMP plants for CDMO products, commissioned in the last quarter are ramping up as per plan and are helping to meet increased demand from our CDMO customers.
• Nutrition & Health Solution Business: Niacinamide sales volumes improved significantly, resulting into revenue growth. We continue to witness improved price realisation due to higher demand in the segment. Business continue to maintain global leadership position in Niacinamide and focus on Niche segments like Food & Cosmetics.
Sales increased 35% yoy. Ebitda margins improved to 8% from 3% in q4fy23. Still down from 13% in q1fy23 indicating more recovery is left for the division. (Improving realizations should drive margin recovery)
In NHI business developmental work for Food grade Vitamin B4 is almost over and business is at advance stage of finalising capex for GMP compliant facility of Vitamin B4,approval shall take place in the ensuing quarter.
• Chemical Intermediates Business: We continue to improve our market share of key product Acetic Anhydride, despite the challenges of lower demand from Agrochemical end-use segment. We also witnessed lower price realisation in the segment due to pricing pressure from Agro end-use of Acetic Anhydride and lower realisation of Ethyl Acetate in Exports market.
Newly commissioned Acetic Anhydride plant at Bharuch is ramping up as expected.
Acetic Anhydride: Globally No. 2 in Merchant Mkt No.1 in India Estimated to be Global leader by FY’24
CONCALL:
• Gross Margins of 48% are very much sustainable
• On Agrochem slowdown: There are two reasons for this situation of agrochemical. One is the weather conditions in Brazil, U.S. and Europe in last 6 to 8 months have been very, very difficult, and that has actually reduced the demand. And the second is that the customers have piled up the inventory in anticipation of higher demand. So some of the customers have inventory up to even 10 months. You can imagine that this kind of inventory liquidation will take time. Though we estimate that this situation,as per customers, should be normalized sometime November, December. What we expect is that the last quarter of our financial year should be the normal quarter. That is what we can estimate based on what our customers are intimating to us.
• Nutrition segment to continue improving: Nutrition business, normally we take the orders for a quarter. So if the prices start improving, we don’t see the impact immediately. It takes about a quarter or 4 months to seek to reach to the actual normalized situation. So last quarter, the improvement started mid of the quarter, if you remember, and we could not enjoy the full quarter benefit. So now more or less, we are not still on the same level of last year, but we are now reaching to closer to the normal situation. I can definitely say that even the ongoing quarter as well as the future quarters should be definitely better.
• Capex: What is the number that we should work with for FY ’24 and FY ’25 in terms of the cash outflow? FY ’24 should be between INR600 crores to INR700 crores. FY ’25 will be close to INR500 crores, so far. If we find something interesting, it might go up a little bit more.
• Speciality chemicals margins: I have been always talking on our Specialty Chemical, product mix basis, our margin to be close to 16% to 18%. I’ve been saying that. So I think what you are saying 20% to 22% is still not there because we have to utilize our GMP facility completely, all the new products, which we have launched in CDMO have to come on commercial scale. So it will take a little time to reach to that 20% level, which is what I had said earlier also.
• Cost of production vs China: Also in terms of our cost of production, just a sense on Pyridine, what would be the differential between us and China? We would be evenly matched with China? – Cost of production, we always claim that we are best in the world. Otherwise, if China does not dump the material, we also get an opportunity to sell in China. It is only when China decides to sell. If you remember, about 1.5 years before, there was a situation when China was being very, very modest in their pricing. They did not do the dumping about 1.5 years before, and that is the time we took some market from China. So unless they decide to sell lower than the cost, we are definitely best cost situation in terms of Pyridine and Pyridine derivative.
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