Ion Exchange (India) Ltd Q1 FY25 Earnings Conference Call Insights

Key highlights from Ion Exchange (India) Ltd (IONEXCHANG) Q1 FY25 Earnings Concall

• Financial Overview
  • Reported operating income of INR5,676 million, an increase of 18% year-on-years.
  • EBITDA was INR641 million, representing an increase of 31% year-on-year.
  • EBITDA margin stood at 11.29%.
  • Net profit was INR448 million, an increase of 35% year-on-year.
  • PAT margin was around 7.89%
• Engineering Division
  • Revenue for the 1Q25 was INR3,235 million, an increase of 13% year-on-year.
  • EBIT was INR180 million, representing an increase of 26% year-on-year.
  • Steady order inflows of capital of medium-sized jobs during the quarter.
  • Domestic inquiry bank remains robust.
  • Improved turnover due to the execution of international contracts.
  • Total order book for the engineering division stood at INR3,394 crores at Q125 end.
• Technical Segment
  • Revenue for 1Q was INR1,994 million, an increase of 36% year-on-year.
  • EBIT was INR498 million, an increase of 36% year-on-year.
  • Segment recorded improved revenue year-on-year while maintaining steady margin.
• Consumer Division
  • Revenue was INR660 million, an increase of 9% year-on-year.
  • Loss for the quarter was INR34 million vs. INR15 million in 1Q24.
  • Segment has shown revenue growth on a year-on-year basis.
• Engineering Order Book
  • Order book position remains good with expectations of good order flows in the ensuing months and quarters.
  • Execution of UPE contract expected to improve in subsequent quarters due to removal of election-related cash flow impacts.
  • Second half of the year expected to be significantly better than the first half.
  • Substantial completion of UPE contract by the end of the year, dependent on funds release and government approvals.
  • Margin of 9.6% reported with cost overrun from legacy project impacting the next quarter.
  • Overall engineering margin maintained at a decent level despite adverse impacts from specific contracts.
• Chemical Segment Performance and Outlook
  • Chemical business continues to perform well with 15% revenue growth and robust profitability.
  • Growth momentum expected to continue for the full year barring significant changes in input prices, foreign exchange, or supply dynamics.
  • Positive movement on large deals expected to convert into announcements in the coming quarters.
• Chemical Segment Growth and Strategy
  • Positive outlook on the chemical segment with capacity expansion moves targeting international markets.
  • Improvements in European and North American markets driving increased exports of chemicals.
  • Substantial investment in innovation and R&D to move towards more valued products and maintain a competitive edge.
  • Strategy to create customer confidence and trust in North America and Europe, leveraging partnerships and relationships.
  • Guidance for 15% revenue growth in the chemical segment for FY25.
  • CAPEX at Roha expected to start commercial operations in the next financial year, reaching optimum capacity utilization in 3-4 years.
  • Saudi Arabia market showing good improvements with order inflows expected to contribute substantially in a couple of years.
  • Engineering opportunities in Saudi Arabia not restricted to specific technologies, targeting a broad range of medium to large-sized projects
• UP Project Execution
  • Residual value of UP project is around INR817 crores.
  • Significant part planned for execution by end of current financial year.
  • Execution slowed to INR26 crores in current quarter, down from 78 crores in March.
  • Slowdown attributed to election season uncertainties.
  • Execution expected to improve from second half of year.
• Consumer Segment Growth
  • Focus on achieving larger scale of operations rather than immediate EBITDA positivity.
  • Reinvesting surpluses into growth, team expansion, and infrastructure.
  • Product margins comparable to other segments.
  • Investments in overheads and capabilities impact current EBITDA profitability.
  • Aim to reach scale where EBITDA positivity happens naturally.
• Water Treatment Market
  • Positive outlook due to government policies and investments.
  • Increasing focus on technology interventions beyond infrastructure.
  • Initiatives for improving water quality, tackling contaminants, and reaching rural areas.
  • Emphasis on river cleaning and groundwater quality augmentation.
  • Expectation of larger role for technology companies in future projects.
• Roha Plant Investment
  • Total investment of around INR400 crores.
  • INR125 crores targeted for specific technology interventions with additional benefits.
  • Remaining INR275 crores expected to achieve 2-3x revenue multiple.
  • Aiming for optimum capacity in 3-4 years.
  • Margin levels expected to stay in current ballpark, barring exceptional circumstances.
• Engineering Segment Outlook
  • Projected growth of 15-20% for engineering segment.
  • Aim to reach margin levels achieved in financial year ‘22-‘23.
  • Current chemical plant capacity utilization at 65-70%.
  • Roha and other capacity utilizations to aid faster growth in coming years.
• International Contracts
  • Company is close to finalizing a couple of large international orders.
  • Target markets for large engineering orders are Middle East, Africa, and Southeast Asia.
  • Steady stream of inquiries and orders coming from these regions.
  • Increasing pace of capitalizing on opportunities in these markets.
  • Initiatives being taken to improve overall order flow across all segments in these regions.
• Sri Lankan Order
  • Execution pace remains extremely different due to fund release issues.
  • Sri Lankan government has released significant sums in recent months.
  • Company has been able to invoice small portions as a result.
  • Remaining un-executed portion is around 10-12% of the contract.
  • Closure of balance could happen within current financial year, pending clarity on fund arrangements.
• Odisha Expansion
  • No detailed information currently available for public sharing.
  • Intention is to expand capacity for other chemicals.
  • Plans include backward integration aligned with domestic and international market aspirations.
  • Company to make an announcement once there are further developments to share.
• Demineralization Segment
  • Demineralization is a subset of the company’s technology portfolio, not the primary focus.
  • Company operates in various other technology areas, including membranes and pre-treatment processes.
  • Service and spares revenue accounts for approximately 20% of engineering segment revenue.