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.