Panama Petrochem Ltd. (PANAMAPET) Q4 FY23 Earnings Concall Transcript

Panama Petrochem Ltd. (NSE:PANAMAPET) Q4 FY23 Earnings Concall dated May. 31, 2023

Corporate Participants:

Mahesh Narvekar — Vice President, Corporate Relations

Hussein Rayani — Joint Managing Director

Analysts:

Sujit Chaudhary — Individual Investor — Analyst

Akash Gupta — Individual Investor — Analyst

Naresh N. — Individual Investor — Analyst

Sudhir Bheda — Right Time Consultancy — Analyst

Manpreet Singh — Individual Investor — Analyst

Rohan Mehta — Individual Investor — Analyst

Nilesh Chawla — Shaw and Chawla LLP — Analyst

Utsav Anand — Individual Investor — Analyst

Javed Hassan — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the March 2023 Q4 Earnings Conference Call of Panama Petrochem Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Mahesh Narvekar, Vice President, Corporate Relations. Thank you and over to you sir.

Mahesh Narvekar — Vice President, Corporate Relations

Thank you, Aman. Good morning, everyone, welcome to Panama Petrochem Limited Earnings Conference Call for Q4 year ended March 2023. I would like to begin by expressing my gratitude to all of you by taking your time to join us on this call. This conference call may contain some forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not guarantee of future performance and involve risk and uncertainties that are difficult to predict. I would like to introduce Mr. Hussein Rayani, Joint Managing Director of Panama Petrochem Limited, and I request Mr. Hussein Rayani to share the Q4 performance overview of our company. Over to you, sir.

Hussein Rayani — Joint Managing Director

Thank you, Mahesh. A very good morning, everybody. It is my pleasure to welcome you all to the quarter-ending March 2023 Earnings Conference Call of Panama Petrochem Limited. Results for March quarter has been more or less on expected lines. On revenue front, there was a good demand in domestic market with healthy realizations. In spite of the prevailing geopolitical challenges, logistical issues and the crude price uncertainty, the Company reported stable earnings for the quarter ended 31st March 2023. There has been good offtake of value-added products like textile oils, white oils and other industrial needs, which enabled us to maintain EBITDA margin around 14%.

The forex market has been very volatile during the entire year, due to which there has been significant increase in the cost of finance due to the dramatic increase in the rate of interest on global front. And even though with notional loss on the exchange fluctuations, we were to maintain the margin at around 14%.

Further, the company has repaid all the short-term debt and has become a debt-free company in true sense. The company has announced a final dividend of INR5 in addition to the interim dividend of INR3 per share, totalling to INR8 per share, equal to 400%, that’s a bearing to the dividend payout policy of the company. The ongoing capacity expansion is in due course, and we will see additional capacity of 30,000 tons going on stream in batches in this year.

Now I request Mr. Mahesh Narvekar to give the financial highlights. Over to you, Mahesh.

Mahesh Narvekar — Vice President, Corporate Relations

Thank you, Hussein sir. On a consolidated basis in Q4 FY ’23, the operating income for the quarter was INR513.24 crores and operating EBITDA was INR69 crores. Operating EBITDA margin stood at 13.4%. Net profit after tax reported was INR50.81 crores for quarter ended 31st March 2023.

PAT margins reported was at 9.9%. For the annual consolidated basis, the operating income was INR2,255.3 crores, which was an increase of approximately 6% on year-on-year basis. Operating EBITDA reported was INR315.6 crores which saw an increase of approximately 6% on a year-on-year basis.

Operating EBITDA reported was INR315.6 crores which saw an increase of around 4.3% on year-over-year basis. Operating EBITDA margin stood at 13.99%, that is almost 14%, and net profit after tax reported was INR232.97 crores.

Let me thank you. With this, we can now open the floor for question-and-answer session.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Sujit Chaudhary as an Individual Investor. Please go ahead.

Sujit Chaudhary — Individual Investor — Analyst

Hello. Good morning, sir. I am Sujit Chaudhary. Sir, one question is, are there any challenges in raw-material oil procurement.

Hussein Rayani — Joint Managing Director

Thank you for your question. There has been supply-chain concerns in the markets. Our refinery suppliers have been on maintenance turnaround in the last few months. However, the company has firm long-term contracts, supply contracts, which ensures smooth procurement. Also these firm contracts enabled the company to maintain optimum inventory levels, which helps to mitigate and absorb any fluctuations in the oil prices.

Sujit Chaudhary — Individual Investor — Analyst

Thank you, sir.

Operator

Thank you. The next question is from the line of Akash Gupta as an Individual investor. Please go ahead.

Akash Gupta — Individual Investor — Analyst

Yeah, hello, very good morning. Yeah, sir, I would like to know the contribution of value-added products in this quarter? Then, has the margin in this segment impacted?

Hussein Rayani — Joint Managing Director

Thank you, Akash, for your questions. The company intentionally added value added products over conventional products in the product mix. The product mix has improved in favor of value-add products to the tune of 68%, thereby enabling the company to report healthy EBITDA margins of 13.4% in this quarter vis-a-vis 12.04% in the preceding quarter. So, we have been successfully implementing our strategy to improve the product mix in favor of value adds. Thank you.

Operator

Thank you. The next question is from the line of Naresh N. as an Individual Investor. Please go ahead.

Naresh N. — Individual Investor — Analyst

Good morning, sir.

Hussein Rayani — Joint Managing Director

Good morning.

Naresh N. — Individual Investor — Analyst

Could you please guide us on revenues and operating margins in coming quarters, and how you see years forward from here. And we will be able to sustain the margins going forward?

Hussein Rayani — Joint Managing Director

Thank you, Naresh, for your question. We anticipate more stability and normalcy in the years coming ahead in the business environment, thereby giving more visibility on the business front. We expect the Indian markets to outperform in comparison to the global markets, and we expect robust demand for our products. We anticipate a good demand in our product, especially for our textile oils, white oils and other industrial lubricants. Due to these favorable factors, we expect to sustain the margins, and we are hopeful for a 15% growth in the revenues and sustainable margins. Thank you.

Naresh N. — Individual Investor — Analyst

Thank you very much.

Operator

The next question is from the line of Sudhir Bheda from Right Time Consultancy. Please go ahead.

Sudhir Bheda — Right Time Consultancy — Analyst

Yes, good morning, sir. See, the result is very disappointed from the shareholder point-of-view, as we believe that whatever reasons you mentioned, geopolitical reason, well, in the December quarter [Technical Issues], but in the March quarter, there was quite a stability in the investment. So, even we are not able to hold on to the per kg or per tonne margins, and we are even de-growing — de-grew our revenue from INR572 crores in December to INR510 crores. If course, the oil prices have come down, but then we are not able to maintain the per ton margin in the March quarter compared to the December quarter, and to year-over-year, the performance is even worse, as PBT has declined from INR68 crores to INR62 crores. So how do we see the year forward? Are we now getting into the revenue growth in the coming year and able to hold on to our margin of say 14%. So how is the scenario looks like in year ahead. Thank you very much.

Hussein Rayani — Joint Managing Director

Yes, thank you for your question, Mr. Sudhir. First of all, I would like to inform you that the company — the focus of the company is more on the value-added products. As I also mentioned in one of the previous answers that I just gave, that we have intentionally conceding our exposure to the conventional grades and using it with more value-added products, which can get healthy realizations and better margins. If you could see in the quarter four March ’23, the EBITDA margins have increased to 13.4% compared to 12.04% in the preceding quarter. The volumes in this quarter were maintained. The revenues were down as you rightly said, the oil prices has been downwards, thereby, there has been decrease in the price, but the margins are sustained in this quarter. If you see on a whole yearly basis for the year ended March ’22, ’23, the company has done total on a consol basis a total of PAT of INR233 crores, which is higher than the last year, and the total revenues of the company for the year stood at INR2,255 crores compared to INR2138 crores in the preceding year. So overall, as I said, the management is more focused on the margins to be sustained, and that can be achieved with the introduction of more product mix in favor of the value-add products.

Sudhir Bheda — Right Time Consultancy — Analyst

How do you see, because now oil prices are more or less stable between $70 and $80, and now, as you say, there is no volume growth compared to the December quarter. So how do you see the volume growing in the current fiscal FY ’24. And whether — I’m talking about the per tonne margin, whether we are able to hold on to per tonne margin.

Hussein Rayani — Joint Managing Director

We have been given a guidance on the EBITDA margin, and we are sustaining those EBITDA margins. We are hopeful that in the coming year, we will be able to increase our revenues by 15% further, and all our expansion plans are as per the plan, I mean, going ahead as per the plan.

Operator

Thank you. Mr. Bheda, request you to join the queue for any follow up. Thank you. The next question is from the line of Manpreet Singh as an Individual Investor. Please go ahead.

Manpreet Singh — Individual Investor — Analyst

Thank you. Good morning, Mr. Rayani. Mr. Rayani, my question is that in the previous question, you were just asked that how the quarter-on-quarter revenue de-grew, and you mentioned that because the focus was more on specialty products, so okay. Now, on an overall basis, if you look at financial year, definitely you were able to grow your consolidated revenues by let’s say 5% and capture earning per share stable, but what I’m seeing is that this actually happened in the first half. So, your first half of FY ’23 was much better than your second half of FY ’23, whereas in first half FY ’23, I feel the global economic scenario was more difficult because the war had just started, the commodity prices were shooting all over the place, the supply-chain concern, there were some problems in Egypt also, and then Suez Canal that ship had got stuck. So, I think second-half actually things got smoothened out and got better, but still your revenues were lower in your second-half versus first half. So, what are your thoughts around it? And second part of the question is that, is it because it’s coming from particular sector that you serve. Because I do understand your revenue mix, you’ve got pharma, you are serving around 20%, 25%, then you’ve got other sectors. So has it been that any particular sector has been weak in the second-half, which resulted in all this?

Hussein Rayani — Joint Managing Director

Yeah, thank you for your question, Mandeep. There has been a volatile situation throughout the years we had experienced. As you see, the oil prices have been quite volatile all through the year. Also, there were harsh increases in the global interest rates which resulted in high cost of finance. Just to give you a comparison, this year we had finance cost of about INR10 crores compared to INR4 crores in the last year. So there has been a lot of volatile conditions. The currency was fluctuating. This year we had, for this year ’22, ’23, we had a notional exchange loss of around INR12 crores. Despite these conditions, we have maintained EBITDA margins for the whole year about 14% compared to the last year on similar levels. So, as I said, the focus — we have seen the volatility still persist throughout the year, but as I had mentioned earlier, the focus of the management is to focus on more value-added products which are bearing better margins. So that would be the way forward going ahead.

Manpreet Singh — Individual Investor — Analyst

I understand, and I hope that you are able to come out of this, so really wish you the best of luck for it.

Hussein Rayani — Joint Managing Director

Thank you so much, Mandeep, for your wishes.

Operator

Thank you. The next question is from the line of Rohan Mehta as an Individual Investor. Please go ahead.

Rohan Mehta — Individual Investor — Analyst

Okay, good morning, sir. First of all, congratulations for good set of numbers. Sir, a small clarification is required on the finance cost, when it is compared with the same quarter last year, it has increased by around INR1 crore. So, are we having any expansion plans or why it has increased basically?

Hussein Rayani — Joint Managing Director

The finance cost increases due to the increase in the interest rates on the global front.

Rohan Mehta — Individual Investor — Analyst

Okay, sir. These are the floating loans basically.

Hussein Rayani — Joint Managing Director

Yes.

Rohan Mehta — Individual Investor — Analyst

Thank you, sir. Thank you very much.

Operator

Thank you. [Operator Instructions] The next question is from Nilesh Chawla from Shaw and Chawla LLP. Please go ahead.

Nilesh Chawla — Shaw and Chawla LLP — Analyst

Hi, good morning, and thanks for taking my question. Mr. Hussein, can you please share volume data for Q3 and Q4.

Hussein Rayani — Joint Managing Director

Yeah, so on the consol basis, the Q3 volume was about 59,000 tons. And in the Q4, it was about 57,000 tons.

Nilesh Chawla — Shaw and Chawla LLP — Analyst

In fact, we were thinking of increasing volume by about 15%, rather than we have de-grown our volume.

Hussein Rayani — Joint Managing Director

Yeah, as I said, we are intentionally concising our exposure on the conventional grade of oils. And of course, it is being replaced by more value-added products. The volume is not vis-a-vis the same, but overall, it has a good impact on the EBITDA margins, which is shown in this quarter.

Nilesh Chawla — Shaw and Chawla LLP — Analyst

So, per tonne margin, can you please share with us. What is our per tonne margin for both these quarters.

Hussein Rayani — Joint Managing Director

On EBITDA percentage, it’s about 13.44% in this quarter compared to 12% in the last one.

Nilesh Chawla — Shaw and Chawla LLP — Analyst

Generally, I think we have always talked about margin on tonne basis, rather than EBITDA because you say the volume, I mean the rate may — the oil price may come down or go up, but generally you work on the basis of margin per tonne, and your EBITDA margin varies depending upon the oil price going up and going down. So I think, real judgment can be arrived from knowing the per tonne margin.

Hussein Rayani — Joint Managing Director

Normally, we have about 80 various grades of products. We generalize it as on the specialty grades and the conventional grade. Normally we work on the EBITDA percentage, normally grade has about 8% to 10% of EBITDA margins, and 14% to 16% on the specialty. So, we have given the guidance on the EBITDA margins between 12% to 14%, and for the quarter, we had about 13.44% as EBITDA margin.

Nilesh Chawla — Shaw and Chawla LLP — Analyst

Okay, and in fact, in the current quarter, there has been exchange gain rather than loss. So, looking at that gain also, our results seems, I mean, disappointed. We are frankly disappointed with the current quarter’s performance. Maybe on annualized basis, as another participant rightly said that H1 was better, in spite of so many headwinds, and in fact, we were expecting that the current quarter, you could have done a little better in the volume also, as you guided in the last con-call that there is good demand and selling high-value product is not a problem, especially in the domestic market. You did sounded some concern in the export market, but you say that local market is doing well and we should be able to grow by 50% volume. So, [Technical Issues] thought on that and how do you see Q1 and Q2 of the current financial year.

Hussein Rayani — Joint Managing Director

We have actually seen the volatility been there throughout the whole of the year. And if you see on the yearly basis, there was an exchange loss of about INR12 crores for the year. However, as I’ve said, that we are mitigating most of these risks by adjusting our inventory. On the export front, of course there are concerns and more challenges because a lot of the countries are experiencing tremendous shortage of currencies. There are inflationary and recessionary concerns and challenges. We are mitigating this risk by increasing our presence in more global markets. The exports have, in fact, in this quarter increased to 44%. Overall, we see that it was a very volatile year in terms of the currency, in terms of the crude oil price going forward. We are hopeful that they will be more stability and normalcy and more visibility on the business, and we are hoping for the best.

Operator

Thank you. The next question is from the line of Utsav Anand as an Individual Investor. Please go ahead.

Utsav Anand — Individual Investor — Analyst

Hi sir, good morning, congratulations on the good set of numbers. I just want to ask regarding the expansion that we’re doing. Has that been done?

Hussein Rayani — Joint Managing Director

Can you repeat your question?

Utsav Anand — Individual Investor — Analyst

[Technical Issues] doing for increasing the capacity, that was supposed to be done by Q4 of the last quarter. Has that been completed sir?

Hussein Rayani — Joint Managing Director

So, I still didn’t get your question actually. Can you please repeat that?

Utsav Anand — Individual Investor — Analyst

I was asking regarding the capacity enhancing that you were doing in terms of capacity expansion.

Hussein Rayani — Joint Managing Director

Yes, so, we have added 30,000 tons in this year, and as per the plan, more than 60% of that capacity expansion has been commercialized in the Q4 of this quarter-ending March ’23. Next year we have another expansion plans of 30,000 tonnes, which is also on the of course, and it is as per the plan.

Utsav Anand — Individual Investor — Analyst

So, 30,000 tonnes have been added to the production line, right? So, we are trying to get that.

Hussein Rayani — Joint Managing Director

Yes. 30,000 will be added. Now more than 50% has been commercialized, and the rest will be commercialized in the coming months.

Utsav Anand — Individual Investor — Analyst

By when it will be commercialized? By which? quarter one?

Hussein Rayani — Joint Managing Director

No, Quarter four of this year.

Utsav Anand — Individual Investor — Analyst

[Technical Issues]

Operator

Utsav, can you use the handset, you are not very clear.

Utsav Anand — Individual Investor — Analyst

The entire 30,000 tonnes has been commercialized right? [Indecipherable] was last year.

Hussein Rayani — Joint Managing Director

Yeah, about 50% has been commercialized in this quarter and the balance will be in the Q1 of this year.

Operator

Thank you. Mr. Anand, I request you to join the queue for any follow-ups. The next question is from the line of Javed Hassan, an Individual Investor.

Javed Hassan — Individual Investor — Analyst

Good morning, sir. Sir, my question is how are the export markets range and what is your assessment going forward.

Hussein Rayani — Joint Managing Director

Yeah, as I already answered the previous question, we have seen some challenges on the export markets due to the geopolitical issues. And a few of the countries where we are supplying our products are facing tremendous currency shortages. Further, the recessionary and inflationary concerns are imposing greater challenges, however, the company is able to mitigate these concerns by expanding its reach to newer markets. For this quarter, the exports have increased to 44% of the total revenue.

Javed Hassan — Individual Investor — Analyst

Okay, Thank you, sir.

Operator

Thank you. The next question is from the line of Manpreet Singh as an Individual Investor. Please go ahead. Manpreet, your line is unmuted. Please forward with your question.

Manpreet Singh — Individual Investor — Analyst

Okay, I’m sorry, I’m sorry. I muted myself. So, Mr. Rayani, I wanted a clarification on two fronts — one is regarding this FY — regarding this expansion of 30,000 which happened in Q4 of FY ’23, and as you mentioned that 50% has already been commercialized and remaining 50% is left. So just wanted to understand, I think in one of the earlier calls you had mentioned that some testing had to be done before commercialization happen. So, what is the reason this remaining 50% hasn’t been commercialized yet, is there some testing going on or what is it?

Hussein Rayani — Joint Managing Director

No, this is actually, we normally commercialize in batches, so about 50%, the testing was all done and already we have started commercialization of this new capacity. And in the batch wise, for Q4, we commercialized about 50% of this new capacity and another 50% will be in this quarter. It’s a batch wise process.

Manpreet Singh — Individual Investor — Analyst

Okay and I think that by end of this financial year FY ’24, you have another, let’s say 30,000 tonnes coming up online. Correct?

Hussein Rayani — Joint Managing Director

That’s right, that’s right.

Manpreet Singh — Individual Investor — Analyst

Okay, okay, now my second part of the question is around the industries that you serve. Are you — so pharma was particularly weak for different chemical companies that were serving pharma sector, so last couple of quarters were weak for them. So are you seeing that thing improving for yourself or pharma sectors and even the other sectors you serve. Are you seeing weaknesses or strengthening in those other sectors as well apart from pharma?

Hussein Rayani — Joint Managing Director

I think the major segments where we saw good growth was in the textile segment for us, textile oils we manufacture antistatic coning oil and [Indecipherable] oils which goes in the texturizing units. So we saw good demand in that segment. Further, we had — we saw some good demand in the white oils, which goes in most of the cosmetics industry and also in the industrial lubricants. So these segments, we saw some better performance and growth.

Operator

Thank you. Ladies and gentlemen, due to time constraints, that would be our last question for today. I would now like to hand the conference back to Mr. Hussein Rayani for closing comments. Thank you and over to you, sir.

Hussein Rayani — Joint Managing Director

Thank you. I would like to thank everyone who has participated in this call. For any further queries or information, please get in touch with our Investor Relations team, and we will be very happy to answer them. Thank you very much once again.

Operator

[Operator Closing Remarks]