Pondy Oxides and Chemicals Ltd Q2 FY24 Earnings Conference Call Insights

Key highlights from Pondy Oxides and Chemicals Ltd (POCL) Q2 FY24 Earnings Concall

• Financial Performance
  • Reported total revenue of INR392 crores for Q2 FY24, a 22% increase from INR321 crores last quarter.
  • Revenue from operations increased 31% compared to Q2 FY23.
  • In 1H24, POCL reported sales of INR714 crores, up 7.4% vs. 1H23.
  • EBITDA for lead vertical was 5.8% in H1 FY24, similar to 5.7% in H1 FY23.
  • EBITDA decreased from INR38 crores in H1 FY23 to INR32 crores in H1 FY24, due to lower realization in the aluminum division and increased expenses.
  • Current ratio stable at 1.56 and debt-to-equity ratio was 0.71, within industry standards.
  • Return on capital employed was 24% in 1H FY24.
• Sales Mix and Exports
  • Domestic and export sales split was 45% and 55% respectively.
  • Exports comprised over half of total sales.
  • Consciously increased domestic share in recent quarter.
  • Expect higher exports in H2 versus H1 as demand available
• Aluminum Division
  • Undergoing OEM empanelment and customer base expansion.
  • A growth area but still stabilizing operations.
  • Aluminum prices not directly linked to LME, posing challenges.
  • Exploring cross-hedging models to stabilize aluminum margins.
• Production Challenges
  • Faced smelting capacity issues in Q1 due to a rotary breakdown, resulting in lower margins.
  • Resumed full smelting operations in Q2 and is working to optimize material mix and invest in energy efficiency to reduce costs.
• Margin Outlook
  • Lead margins are expected to remain stable in H2.
  • In H2, other verticals may face uncertainty which will improve as volumes increase.
• Battery Waste Management Rules Impact
  • Will increase usage of recycled materials by OEMs, benefitting organized recyclers like POCL.
  • Proposed EPR credits for R3 recyclers to also benefit the industry.
• Recycling Verticals
  • Currently holds around 10% market share in India’s lead recycling industry.
  • Will not enter ferrous recycling like iron and steel.
  • Seeking scalable businesses with decent volumes.
  • Require domestic waste generation and import potential.
  • Avoid highly fragmented markets.
  • Synergies with existing operations also considered.
• Plastics Division Progress
  • Increased lead capacities generating more internal plastic waste.
  • In talks for contract tolling with OEMs.
  • Creating specific plastic grades for certain OEMs.
  • Expects division to stabilize in 1-2 quarters.
• New Businesses’ Profitability
  • Plastics and aluminum expected to be more profitable than lead business.
  • OEM empanelment ongoing, utilizing 25-30% of capacity currently.
  • See margins and growth stabilizing from Q1 FY2024-25.
  • Aluminum facing demand challenges presently.
• EPR Credit Mechanism
  • EPR credits will be generated based on scrap received from OEMs.
  • Finished goods provided back to OEMs will determine credits.
  • In early stages, but expect progress in Q1 FY25.
  • Will drive OEMs to use mandated recycled material percentages.
  • Big benefit for organized recyclers like Pondy Oxides.
• Finance Costs Outlook
  • Interest costs expected to remain at similar levels in Q2.
  • Rates not expected to decline significantly in near future.
  • Profits earned in Q1 helped substitute some borrowing.
• Capacity Utilization
  • Currently operating at 70-75% of capacity.
  • Not due to yield loss at higher utilization rates.
  • Looking to double lead capacity in next 2 years.
  • Focusing on value-added products, not maximizing volumes.
• Capex Plans
  • Spent about INR100 crores in last 2 years on new verticals and infrastructure.
  • Planning about INR100 crores in next 1-1.5 years to double lead capacity.
  • Investing in more modern, automated, and efficient equipment.
• Harsha Exito Update
  • Expanding into new verticals at Harsha Exito site.
  • Also expanding current lead production capacity.
  • Ongoing development work for these expansions.
• Target Lead Production Capacity
  • Aiming for 200,000 metric tonnes per annum in 2 years.
  • Harsha Exito to contribute 70,000-100,000 tonnes of this.
• Revenue and Margin Growth Plans
  • Targeting INR1,800-2,000 crores in FY2025.
  • Expects over INR2,700 crores in FY2026.
  • Capacity expansions to drive strong top line growth.
  • Focusing on higher value-added product share.
  • Margin growth dependent on value-add share achieved.