Pondy Oxides and Chemicals Ltd Q3 FY23 Earnings Conference Call Insights

Key highlights from Pondy Oxides and Chemicals Ltd (532626) Q3 FY23 Earnings Concall

Management Update:

• [00:07:52]POCL said that during 3Q23, aluminum production was commenced, as well as trial production in plastics.

• [00:09:42] The company said it was also awarded the order to take over Harsha Exito Engineering Pvt. Ltd., which includes a 25-acre land with a ready shed space.

Q&A Highlights:

• [00:13:45] An analyst asked about the ratio of RM sourcing international vs. domestic. Piyush Dhawan President Commercial answered that the ratio of total procurement of scrap in all forms is around 75% imports and 25% domestic.

• [00:14:17] An analyst also queried if POCL has any plans to reduce dependence on international imports. Ashish Bansal MD answered that POCL is strategically procuring RM from various regions, taking advantage of scrap vehicles more than 15 years old and looking for a stable supply chain from both domestic and international markets that ensures profitability.

• [00:15:40] An analyst enquired about POCL’s copper expansion plans. Ashish Bansal MD said that in the next FY, POCL plans to expand its production to include copper and other copper-based value-added products. Additionally, POCL is also looking into ESG targets and goals such as sourcing power for the green lead through solar panels.

• [00:16:45] An analyst asked about company’s plans to sustain future growth momentum. K. Kumaravel Director Finance replied that it will be through product diversification and it will achieve consolidated revenues and profit growth by pushing both organic and inorganic growth strategies, both domestically and internationally.

• [00:18:36] Another analyst queried about 4Q23 outlook. Vijay Balakrishnan CFO answered that the last quarter of the financial year will be marginally on the positive side for both top and bottom line, similar to the results from the previous financial year. POCL added that Jan. 2023 sales and production have been stable and growing.

• [00:21:55] An analyst asked if POCL has any plans to expand in the lithium-ion battery recycling space. Ashish Bansal MD replied that lithium-ion battery recycling is currently in the R&D stage. As the market size of lithium-ion batteries increases, POCL will focus on circular economy and ESG policies to ensure that these batteries can be recycled in a safe and efficient way.

• [00:24:03] Vaibhav Badjatya of HNI Investment enquired about the glass business update. Ashish Bansal MD said it’s not a glass manufacturing unit, but rather a Chopped Strand Mat manufacturing unit used for fiberglass manufacturing. POCL is currently looking into the feasibility of backward integrating this process through recycling and getting various forms of fibers from the plastics division.

• [00:25:45] Vaibhav Badjatya of HNI Investment also asked about the 25 acre land usage. Ashish Bansal MD answered that currently the plan is to only using part of the land for its process, but POCL said it will look into ways to expand its existing product portfolio and use the land bank.

• [00:27:35] Gokul Maheshwari from Awriga enquired if POCL still holds the revenue target of INR200 crore for next 2 years in plastics business. Piyush Dhawan President Commercial said the plan is to do it in phases. POCL is in the trial production phase to produce 12,000 MT per annum with an EBITDA margin of 10-12%. The company has the advantage of a land bank to scale production capacity.

• [00:31:06] Gokul Maheshwari with Awriga also asked about the volume growth outlook in the lead recycling business for next 2 years. Piyush Dhawan President Commercial answered that POCL expects a 15-20% growth in lead over the next two years.

• [00:32:21] Gokul Maheshwari with Awriga queried about the investment outlook in the aluminum and Harsha Exito. Piyush Dhawan President Commercial said it spent around INR4.5-5 crores on a pilot aluminum plant with a production capacity of 12,000 MT per annum. And in Harsha Exito about INR32.5 crores.

• [00:38:29] Astha Sundarka from Niveshaay enquired if there is any yield difference between importing scrap vs. domestic sourcing. Ashish Bansal MD replied that scrap purchasing prices are determined by the metal content or other recyclable materials in the scrap. The price will be higher if recovery rate is higher, irrespective of scrap being domestic or imported.

• [00:39:35] Astha Sundarka from Niveshaay also asked if POCL plans to diversify its presence to other states. Ashish Bansal MD said POCL prefers to be close to port cities as it makes export and import easier. POCL may expand to other regions in the future, provided the markets are lucrative in terms of RM and finished products.

• [00:47:57] Rohit Ohri at Progressive queried that due to China opening if POCL’s ASPs will be impacted. Ashish Bansal MD clarified that China does not export any lead and is an internal consumer of lead and zinc as they have export duty on exporting out lead or zinc. It’s won’t really impact on margins.

• [00:49:34] Rohit Ohri at Progressive asked that in terms of POCL Future Tech and ACE tech, if it will be up and running in 4Q23. Ashish Bansal MD answered that trial production of Future Tech is over and 2^nd phase of machines are installed. By Feb. end, all machinery installation should be complete and commercial production should start in 2H of March. Production might begin in April. ACE commercial product should roll out by 1H March.

• [00:51:39] Rohit Ohri at Progressive asked about any outlook for next 2 quarters on LME prices. Ashish Bansal MD replied that FY23 will be more successful than the last, as it will have similar top line and bottom line performance with additional projects and costs being absorbed.

• [00:54:14] Aditya Sen of RoboCapital.in enquired if a high-teens revenue number is expected on the growth of POCL going forward. Ashish Bansal MD said POCL is planning to achieve 15-20% growth next year and expects to even exceed that.

• [00:57:02] Praharsh Rai asked about the kind of growth and margin POCL is expecting in FY24-25, keeping FY23 as the base. Piyush Dhawan President Commercial said it expect to see two-digit EBITDA numbers and 20% top line growth CAGR over the next 3-4 years.

• [00:59:49] Deepak Poddar of Sapphire asked if POCL is still targeting 150 bp EBITDA margin improvement YoY and if so, what are expected EBITDA margins in FY24. Ashish Bansal MD said POCL is targeting 6.5-7% EBITDA margins. But the volatility in fuel prices, freight costs, and other factors have made it more difficult. POCL believes once these costs become more stable, with new contracts in place, it will be able to achieve its goals.