Categories Concall Highlights, Earnings, Industrials

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.

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