Pondy Oxides and Chemicals Ltd Q4 FY23 Earnings Conference Call Insights

Key highlights from Pondy Oxides and Chemicals Ltd (532626) Q4 FY23 Earnings Concall

Management Update:

• [00:02:36] POCL said the company recommended a final dividend of 50% and crossed a turnover of INR100 million in exports.

Q&A Highlights:

• [00:05:58] An analyst asked how will the global recession, including Germany’s recent recession, affect the company’s performance. K. Kumaravel Director of Finance said Asian economies, particularly India, are projected to outperform Europe and the US. The company’s business affiliation with Europe and diversified customer concentration across the globe mitigates risk and protects performance from major impacts.

• [00:08:04] An analyst enquired about POCL’s initiatives to get better rates on purchase of RM. Vijay Balakrishnan CFO answered that POCL has a multi-sourcing strategy with 270+ overseas suppliers and procurement from 90+ countries. Domestic sourcing has improved to 25% and is expected to grow further, reducing logistics and shipping costs.

• [00:09:43] An analyst asked about the volume growth expected in the core business of lead recycling over the next few years. Vijay Balakrishnan CFO said POCL has a capacity of 1,32,000 metric tonnes per annum with 60-65% utilization. Volume improvement is expected in FY24, in line with global CAGR of 6-7%.

• [00:11:08] An analyst enquired if there are any other vertical where POCL is trying to expand in. K. Kumaravel Director of Finance said its focus for FY24 is on four verticals: lead; aluminum, live in 4Q; copper, scaling up with value-added products; and plastics, potential in recycled and compounding segments. Feasibility analysis is being done on e-waste, lithium-ion, rubber, paper, and glass.

• [00:12:08] Darshil Jhaveri asked about the expected revenue growth and operating margin going forward and the sustainable revenue number. K. Kumaravel Director of Finance replied that an additional 10% revenue growth is expected in the current financial year despite metal price volatility. 6% EBITDA will be maintained in the lead segment with varying EBITDA percentage in aluminum and copper contributing to overall EBITDA margin growth.

• [00:15:11] Aman Vishwakarma enquired about the revenue, EBITDA and capex guidance for FY24. K. Vijay Balakrishnan CFO answered that it projects approx.. a 10% increase in revenue for FY24 and a slight increase of 2% in operating margins for the aluminum and plastic division. POCL is projecting a capex of about INR10-15 crores for POCL this year.

• [00:16:18] Aman Vishwakarma asked about the optimal capacity utilization and the timeline to reach it. K. Kumaravel Director of Finance said that the capacity utilization in the Tamil Nadu unit is almost 100%, while in Andhra Pradesh it has increased from 44% to 84% due to the merger of Meloy Metals with POCL. The overall capacity utilization is around 65% and the goal is to increase it to 70-75%, subject to availability of raw materials and metal scrap.

• [00:18:08] Devesh Shrimali asked about the FY24 growth and margin guidance for lead and non-lead segments. K. Kumaravel Director of Finance replied that 90% of the total turnover is from the lead segment and 10% is from aluminum, copper, and plastics. The 90% of turnover will give an EBITDA margin of 6% while the 10% contribution will give a slightly higher EBITDA margin of 8%.

• [00:21:20] Rohit Ohri at Progressive Share Brokers asked about any developments in Harsha Exito. K. Kumaravel Director of Finance replied that legal compliance for the NCLT acquisition was completed one month ago and detailed discussions are ongoing in the Board and committee about the products to be dealt with. A concrete plan for Harsha Exito will be released in 2Q24.

• [00:26:11] Rohit Ohri at Progressive Share Brokers enquired about any developments in terms of green lead. Piyush Dhawan President said that green lead has gone live and is currently in the trial stage to ensure that commercial production is concrete and futuristic. Once commercial production is achieved with the technology being completely okay, additional premiums can be realized due to the green technology involved and its ability to save greenhouse gases.

• [00:29:11] Gokul Maheshwari at Awriga Capital asks about the synergies that can be gained from sourcing and the customer side as the product portfolio expands to include lead, aluminum, copper, and plastics. Piyush Dhawan President said that POCL’s product portfolio encompasses non-ferrous metals, lead, copper, aluminum and plastics. The company possesses a competitive edge in sourcing lead scrap and has a natural advantage in sourcing aluminum and copper. The combination of copper scrap with layers of lead and aluminum creates synergies in the production line.

• [00:32:50] Gokul Maheshwari at Awriga Capital asked when the plastics business in the division will go online and when the expected scale-up will happen in that business. Piyush Dhawan President replied that the plastic production has started and will be scaled up to 600-700 tonnes per month from June-July. Production will reach an optimum level of 700-800 tonnes per month from July onwards.

• [00:34:02] Aman Vishwakarma at RoboCapital.in enquired how can POCL grow revenue in the battery sourcing business when unorganized players are eating up its revenue. K. Kumaravel Director of Finance said the unorganized sector is restricted from importing battery scrap from foreign countries due to the requirement of MOEF approval. This provides some protection to organized players in the battery scrap market.

• [00:37:41] Aman Vishwakarma at RoboCapital.in enquired if there will be any major changes in govt. regulations and the separation of unorganized players in the next 2-3 years. Piyush Dhawan President said the govt. of India is moving towards being more organized with regards to GST issues and licenses. Positive changes are happening which will help the organized sector in procurement.

• [00:38:47] Gokul Maheshwari at Awriga Capital asks about the situation in India regarding the sale of recycled products at a premium to new products and if this is expected to happen in the foreseeable future. K. Kumaravel Director of Finance said the Government of India implemented regulations in September 2022 mandating battery manufacturers to participate in battery buyback programs and requiring recyclers to report to the Pollution Control Board and CPCB quarterly. These regulations aim to enhance control and management of the battery recycling process.

• [00:43:53] Rohit Ohri at Progressive Share asked about any plans for of expansion in copper or value-added products in copper segment. Piyush Dhawan President replied that the company has concentrated on copper by doing CLOVE, COBRA, and the BERRY segment but will transition to alloying in the lead segment in FY24. This will involve making billets or regular ingots. The focus is on stabilizing and penetrating the market further for aluminum and plastics while seeing improvement in copper outputs and margins.

• [00:46:14] Rohit Ohri at Progressive Share asked about any plans of increasing the promoter holding from 48.88% to 51%. K. Kumaravel Director of Finance said there is no immediate plan to take it further, but it’s a long-term plan.