Categories Analysis, Industrials, Research Summary

A quick glance at the performance of Pondy Oxides in Q2FY23

Stock Data

IndustryFerro & Silica Manganese

Price Performance

Last 5 days-13.29%
Last 12 months+56.96%

Management Commentary:

“India continues to remain a focal point which is substantiated by maintainable growth rate, GDP and other micro and macro-economic factors. I would like to reiterate that our focus going forward will be portfolio diversification and expanding lead recycling and manufacturing footprint. I am happy to share with you that the announcement made in our previous earnings call will see the light of the day and we will be the first company in the manufacturing space to start with green lead technology which not only positions us as market leaders in lead recycling and manufacturing, but also gives us the platform to walk the talk with respect to best Environmental Practices, Sustainability, and Corporate Governance.”

-Ashish Bansal, Managing Director

Insights about the Q2FY23:

Due to factors with respect to volatility, market demand, and price fluctuations Pondy Oxides and Chemicals – India’s leading non ferrous recycling company reported a rational drop in its revenue on yearly basis. Further in future, the topline is likely to be affected by the slowdown in infrastructure, automotive and various other sectors in tandem with the global economic cues.

Hence, to tackle the uncertain outlook among various global industrial factors, the company has decided to pursue a diversification strategy, targeting other nonferrous metals and recycling materials. The management suggests that these portfolio diversification steps will be reflected in the coming quarters. As per the management, the focus will be on rubber, glass, paper and oil materials while the company has already taken steps to set up a research & development arm in Lithium Ion. With the payback period to be estimated around 18-24 months for the majority of the segments, there seems to be a steady working capital cycle.

The global refined lead consumption has seen a dramatic increase and the segment is expected to grow at a substantial pace which would further result in the improved topline of the company. Also one can easily witness the growing use of electronic gadgets and electronic vehicles in the market which would further require the need to recycle its components. With very few players in the space, POCL could barge in to fill the space and gain a significant market share. 

Thus, management remains optimistic on the future of the company as they believe that the firm is well-equipped to tackle market volatility and garner steady results. The management projects an 18%-20% growth in volumes with the trend in profitability to remain positive and consistent with FY23.  Also, as per the management, all non ferrous metals expansion are projected to provide 8%-10% returns, while other segments such Plastics and Lithium Ion are expected to provide at least 15% returns in the future. 

Investment Thesis:

Despite a lot of global cues like economic slowdown, POCL was able to manage its bottomline: The company delivered a sustainable operating margin result despite the market nuances. In terms of revenue there is marginal increase over 3% in first half of FY 2022-23 versus first half of FY 2021-22, in spite of reduction in average LME by 7% during the said period. In terms of operating margin and EBITDA the company was able to relatively maintain the same level of previous year. With respect to the quarterly results, there has been a rational drop in the revenue in this quarter vs Q1 FY 2023 and Q2 FY 2022.

Competitive edge: POCL has direct empanelment with the OEMs across the globe which gives it a competitive edge in securing long term contracts with a certain degree of fixed volumes.

Volume growth to boost Topline: The company has increased the smelting capacity in their plants and further has the finished goods capacity for the manufacture of Lead metal and alloys for 1,32,000 MT per annum. With respect to volume growth, the Company has witnessed 20% growth in smelting operations in the first half of FY 2022-23 compared to the same period in previous year.

Significant debt reduction: makes it virtually a debt debt free company: POCL has achieved a ROCE of 34% in 1 st half of FY 2022-23, and it is strongly in line with our expectations for the entire FY. It has also reduced the debt by around Rs. 72 crores in 1 st Half of the FY 2023. This has happened because of our focus on reducing our working capital cycle.

Project pipeline: Aluminum division is expected to go live by end of November, 2022 and it will

shape up in the upcoming quarters as part of our phased strategy. Full-fledged production of plastics and green lead is expected to commence from the beginning of Q4FY23.

Diversified Supply Base: The company has a diversified consumer base globally, the raw material procurement is largely inclined towards imports. On account of that, the firm has taken steps to increase the domestic supply base. The diversified consumer and supply base along with a diversified product portfolio works positively to reduce the risk associated with the business.

Company Description:

Incorporated in the year 1995 and headquartered in Chennai, Pondy Oxides and Chemicals is India’s leading non-ferrous recycling company and the largest secondary lead metal manufacturing company in India. The company recycles lead, copper, zinc and plastic in various forms.

The firm has established, POCL Future Tech Private Limited as a subsidiary business, and it will engage in business in areas such as plastics, where it will use its own and other industrial plastics, e-waste, lithium ion recycling, rubber, oil, glass, paper, and other value-added products.

Charts and Graphs:

The revenue of the company has seen a drastic increase with the increased demand of Lead & other metal alloys. The lead metal’s increased demand comes mainly from the Automotive Industry. Along with that, lead as a base metal is used in various industries. So, essentially a boom in development will be largely reflected in the prices of lead. The company monitors its hedging strategies to protect itself from the volatile nature of the commodity market. 

There has been a rise in the cost of smelting and refining along with the rise in freight charges and fuel prices. This rise in various factors of production has impacted the profitability of the firm. 

Interestingly, the public holds a larger chunk of the shares with DIIs increasing their stake over the quarters. Astoningishly, super investor Dolly Khanna holds 3.37% stake in the company.

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