Pondy Oxides and Chemicals Ltd Q1 FY24 Earnings Conference Call Insights

Key highlights from Pondy Oxides and Chemicals Ltd (532626) Q1 FY24 Earnings Concall

Management Update:

• [00:02:22] The company expects the momentum in sales to continue in the near future backed by customer’s orders.

• [00:04:12] The management has taken a decision to its non-ferrous metal operation in the Harsha Exito unit and is planning to have a fully automated unit.

Q&A Highlights:

• [00:06:30] An analyst enquired about the progress of the viable business opportunities for Harsha Exito in the short and medium term. K. Kumaravel Director of Finance replied that the management has decided to extend the non-ferrous metal operation in Harsha Exito unit and is procuring machinery to increase lead metal capacities. Revenue contribution will commence from ’24-’25.

• [00:07:52] An analyst asked about the outlook on the global market conditions and how will it affect POCL’s production costs. Vijay Balakrishnan CFO said the global market for lead is expected to grow significantly in the coming years due to increasing demand for lead acid batteries. POCL factor this estimated increase into its production costs and pass on any escalations to customers during contract renewals.

• [00:09:15] An analyst queried for an update on POCL’s R&D progress on the feasibility of recycling e-waste, lithium-ion, rubber, paper, and glass, and if it have other clients aside from the battery segment for plastic recycling. Piyush Dhawan President answered that POCL is currently focused on R&D for lead, aluminum, copper, and plastics, with a focus on value-added products. The company sees synergy between recycled plastics and industrial applications.

• [00:12:36] An analyst asked for a roadmap on how the company intends to grow in the foreseeable future. K. Kumaravel Director of Finance said POCL will continue to focus on lead and other non-ferrous metals, but will also explore other verticals for value-added products.

• [00:14:40] Bhavesh Chauhan from IDBI Capital asked if the company can recover its historical margin levels in Sept. 2023 quarter, given the margin decline from 5.3% to 3.8% in 1Q24. Vijay Balakrishnan CFO replied that the drop in margin is due to lower production volumes caused by breakdown maintenance. The company expects to recover margins in the next couple of quarters.

• [00:17:24] Bhavesh Chauhan at IDBI Capital also asked what sales contribution can be expect from the aluminum and plastic verticals in FY24. Piyush Dhawan President answered that the aluminum and plastics verticals are still in its early stages, but sales have started and margin realizations are expected in the next couple of quarters.

• [00:18:32] Deepa Agrawal enquired about the reasons for lower EBITDA margins and what is the outlook for margins going forward? K. Kumaravel Director of Finance said that the EBITDA margin decreased from 5.2% to 4.5% due to a 8% to 10% reduction in volume. If the volume had been maintained or increased, the margin would have been higher. This is a one-time event and the margin is expected to return to normal in the next few quarters.

• [00:19:15] Chirag Fialoke asked about the lead volume numbers for 1Q24, 1Q23, and 4Q23, and the current lead capacity? Vijay Balakrishnan CFO answered that the lead sales volume in 1Q FY ’23-’24 was 14,880 metric ton, a 8% decrease from Q4 FY ’23. The overall lead capacity utilization is 60%.

• [00:24:16] Rohit Ohri of Progressive Share Brokers asked about the percentage of revenue from value-added products. Vijay Balakrishnan CFO said the company’s portfolio consists of 50-55% pure lead and 45-50% lead alloys, with plans to scale the latter to 70-75%. POCL also produce aluminum die-cast alloy 12 and LM series alloys, and are involved in both recycling and compounding of plastics. All of POCL’s plastics portfolio is value-added.

• [00:25:23] Rohit Ohri of Progressive Share Brokers queried if the expansion of LAB businesses and green lithium-ion battery capacities by battery giants like Amara Raja will pose a threat to POCL. K. Kumaravel Director of Finance answered that POCL is not worried about Amara Raja’s expansion into recycling, as it has a strong export market and order book.

• [00:26:50] Rohit Ohri of Progressive Share Brokers asked if POCL’s topline growth will be in the range of 12-15% over the next 3-4 years, or if it will be higher. Piyush Dhawan President said POCL’s topline growth will be driven by new verticals like aluminum and plastics, as well as value-added products in lead, aluminum, and plastics.

• [00:32:31]  Mustafa Haveliwala with S&P Global asked about achieving $1 billion in topline by the end of this decade and how confident is POCL in achieving this target and its strategy. Piyush Dhawan President  stated that POCL has set a long-term mission of achieving $1 billion in topline by the end of this decade. The company is confident in achieving this target by expanding into new markets, developing value-added products, and investing in R&D.

• [00:36:33] Aniket Shah enquired if the company is looking at inorganic growth for any of the segments. Piyush Dhawan President said that POCL is pursuing both organic and inorganic growth strategies to expand its portfolio.

• [00:37:48] Rajesh Mangal asked about order book in hand in various segments. Piyush Dhawan President answered that POCL has a strong order book for lead and aluminum, and is working to convert spot contracts to fixed contracts in aluminum. POCL is also working to increase production capacity in plastics to achieve economies of scale and improve margins.

• [00:41:20] Chirag Fialoke asked about POCL’s outlook for the lead market in the next 2-5 years, given that the end consumption of lead is not growing significantly. Piyush Dhawan President said POCL is focusing on recycling lead to achieve double-digit growth in the lead segment. The company is also bullish on the lead market globally and domestically.