Asahi Songwon Colors Limited
9,784words
83turns
10analyst exchanges
4executives
Management on call
Gokul Jaykrishna
JOINT MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER, ASAHI SONGWON COLORS LIMITED
Arjun Jaykrishna
EXECUTIVE DIRECTOR, ASAHI SONGWON COLORS LIMITED
Pratik Shah
CHIEF FINANCIAL OFFICER, ASAHI SONGWON COLORS LIMITED
Saji Varghese Joseph
COMPANY SECRETARY AND COMPLIANCE OFFICER, ASAHI SONGWON COLORS LIMITED
Key numbers — 40 extracted
78%
and one another good news that I want to share on the call now today is that when we did acquire 78% stake in Atlas for a consideration of Rs. 48 crores at that time in the announcement we had annou
Rs. 48 crore
share on the call now today is that when we did acquire 78% stake in Atlas for a consideration of Rs. 48 crores at that time in the announcement we had announced that we would probably be breaking ground on a
43%
y likely come out of it. So, with the Blue business, standalone business we ended the year with a 43% increase in top line as compared to last year from 282 crores we are at 406 crores now. We achiev
282 crore
andalone business we ended the year with a 43% increase in top line as compared to last year from 282 crores we are at 406 crores now. We achieve this on the back of about a 15% growth in sales volume and
406 crore
ended the year with a 43% increase in top line as compared to last year from 282 crores we are at 406 crores now. We achieve this on the back of about a 15% growth in sales volume and production and the re
15%
red to last year from 282 crores we are at 406 crores now. We achieve this on the back of about a 15% growth in sales volume and production and the remaining has come from increase in prices that our
18%
ase in top line, but bottom line is down by about 15%. Margins which were very healthy at about 18% have dropped to about 11 and I would say this historically low margins for our company, and I do
10 crore
the first full financial year that we have completed the turnover is nothing to write home about 10 crores. So, the consolidated turnover stands at 415 crores for Asahi and we of course are bleeding righ
415 crore
ed the turnover is nothing to write home about 10 crores. So, the consolidated turnover stands at 415 crores for Asahi and we of course are bleeding right now over there which is well aware to everyone. We
119 crore
API business located with its manufacturing facility in Odhav. The turnover this year ended is 119 crores and EBITDA of about 9 odd crores and we are at capacity of the Odhav plant along with this acqui
13%
ng some green shoots that give you comfort every margins will revert back to historical level job 13% or 14%? Gokul Jaykrishna: You are right this is visible low margins in terms of EBITDA margins
14%
green shoots that give you comfort every margins will revert back to historical level job 13% or 14%? Gokul Jaykrishna: You are right this is visible low margins in terms of EBITDA margins for the
Guidance — 20 items
“We will be starting the call with a brief overview of the financial performance which it will be followed by the Q&A session.”
“However, I am pleased to inform you that we had gone very fast with that progress and we have already broken ground in the Chhatral API new project for Atlas on 6th of this month.”
“We hope to commission this plant in October of next calendar year so October 2023 and this will be manufacturing not only the 6 APIs that we currently manufacture at Odhav, but also the downward the two of the raw materials the main raw materials for the main product Pregabalin and then we would also be introducing other products to the basket over there because we have approval for EC environment approval clearance for 42 products.”
“So, this is the general map with that for next calendar year Asahi will from one product one location Company will be a multi-product four location Company and then so now let me just quickly run through the financials of all the three business units the Blue, AZO the new pharmaceutical Company so this pharmaceutical Company numbers are irrelevant for this financial year performance.”
“Margins which were very healthy at about 18% have dropped to about 11 and I would say this historically low margins for our company, and I do foresee that this should be bottoming out of the margin cycle and we should see a stability in margins going forward.”
“We expect to EBITDA breakeven with the AZO ~ Asah1Songwon ~ Asahi Songwon Colors Limited May 23,2022 business in this calendar year this is what we had also estimated previously.”
“So, we should see green shoots, we should see either stability or even improvement in margins going forward.”
“I will take the second part that you had asked me and I will leave Arjun to give you the answer for how we project to double it.”
“So, to answer your question first now the plant is pretty efficiently run currently so we do not see inefficiencies in the plant which will enable us to project doubling of EBITDA margin.”
“So, I would not forecast more than the turnover that we got last year from the current plant which is 119.”
Risks & concerns — 13 flagged
These uncertainties and risk are included, but not limited to what we have mentioned in the annual reports which you will find on our website.
— Abhishek Mehra
We are 3 months behind what we would have liked honestly, the challenges they have been getting consistent product quality after having achieved product quality to get consistence throughout the challenge particularly in the yellow I can confidently say now that we have achieved very consistent product so we have started to role good production and sales and in April and May we are doing about 50 tons each in each month.
— Gokul Jaykrishna
You are right this is visible low margins in terms of EBITDA margins for the quarter I will just throw a little light on what was the reason behind it despite increase in 15% increase in volumes and 45% increase in top line why the margins are under pressure.
— Gokul Jaykrishna
So, due to this generally the margins are under pressure which is we have contracts with three-month customer orders lined up and prices of these material going up on a monthly basis put lot of pressure on our margins on an absolutely month- to-month basis.
— Gokul Jaykrishna
So, to answer your question we will continue to pass on the price increases as and when they have been happening what will happen in the next couple of quarters difficult to say, but historically from the background and the knowledge that I have the pigment industry I can comfortably say that there is enough visibility to see that the margins are at the bottom and will bottom out now.
— Gokul Jaykrishna
It is difficult to quantify how it is matching, but it is basically a long effort we worked very hard behind this and lot and lot of meeting behind the scenes and that is how we have come to these terms and these valuation for the Company and for all the shareholders involved.
— Arjun Jaykrishna
I have three questions first is on this as per the agreement on this TTC for our ATC plant they were supposed to do a buyback of 20% which is around 480, 500 metric ton and as I understand despite being their own technology they are not being very aggressive enough to take that this thing and get the sample approved, so what was the challenge actually there in that front why did not they take at least their part being a joint venture partner last one full year of commercial operations?
— Pravin Sharma
It is more a challenge that we found that after the product was established in the quality set we found a little challenge in getting the consistent quality batch to batch.
— Gokul Jaykrishna
So, soon enough we will be getting TTC to live by the agreement and they are definitely keen so it is not from their end it is more from our end from my end because of the little lack of consistency in products after having established the quality that we got a little stuck and in the yellow this challenge has been already overcome in red is under process and we are confident of it being overcome soon.
— Gokul Jaykrishna
So, how quickly this will happen is difficult to answer candidly I think China is not going to go away anywhere in the AZO business however even a 10% shift to India would double India’s business and a 20% shift would be brilliant for India’s AZO business because there is not many AZO players in India.
— Gokul Jaykrishna
So, we would want to with the new plants concentrate on Pregabalin because we see a very clear niche in Pregabalin where we could dominate like in the Blue business it can go up and down, but it has become our strength and it is very difficult for competitors to come and compete against us in the Blue.
— Gokul Jaykrishna
Similarly, we want to create something like that in the pharma business with Pregabalin that is why the idea of going backward integrated even with the Blue if you see the strategy has played out that we are backward integrated and it is very difficult for competitors to actually compete hand-on-hand with us even the big boys.
— Gokul Jaykrishna
So, it would be difficult to ascertain as easily as we can in the Blue.
— Arjun Jaykrishna
Q&A — 10 exchanges
Q
My first question is on the margins front I think this quarter we have seen almost visible is low margin for our Blue margin so if you could give the kind of inflationary environment we have as of now if you could give some perspective whether margins are here to stay for some time at these levels or are you witnessing some green shoots that give you comfort every margins will revert back to historical level job 13% or 14%?
Gokul Jaykrishna
You are right this is visible low margins in terms of EBITDA margins for the quarter I will just throw a little light on what was the reason behind it despite increase in 15% increase in volumes and 45% increase in top line why the margins are under pressure. So, the input cost prices and I am namely all the input cost particularly the three raw materials were critical in this particular quarter, but for the full year if we were to look at it urea prices have increased by 46% compared to previous year, copper prices have increased by 47% and Phthalic Anhydride prices have increased by 36% and
Q
So, firstly wanted to understand from the strategic side so we were already in the process of ramping up AZO and now we have also taken up the API project on our plate so want to understand have we increased our management bandwidth to rightly serve both these projects properly? ~ Asah1Songwon ~ Asahi Songwon Colors Limited May 23,2022
Gokul Jaykrishna
We would not have taken both these projects simultaneously have they not increase management bandwidth. So, of course management bandwidth is increasing now that Arjun is full time working with Asahi that adds a lot of young enthusiasm to our team. Our new Vice President, Nitesh Patel, has been elevated and he is now running lot of the strategic decisions as Vice President now so that adds management bandwidth and with our new CFO as well. So, in that sense we have added management bandwidth in the marketing side we have also added serious management bandwidth in the marketing side where we ha
Q
My only doubt was that knowing the fact that older management at Atlas has been the business since last two decades then why are they not able to backward integrate the products and what different are we bringing on the table that we are deciding to backward integrate the same? ~ Asah1Songwon ~ Asahi Songwon Colors Limited May 23,2022
Gokul Jaykrishna
We have been there in this business for a long period of time particularly with this Pregabalin some of the APIs that they are making however it should be very clearly understand that they got into manufacturing only in 2019. So, they are just a two-year-old plant in that sense. So, earlier they started with trading and then once they got strength the management started to toll manufacture the products at different facilities and only when Pregabalin went off-patent this is Pfizer product and in 2018 it is known that it is going to go off-patent. So, they took advantage of their market reach i
Q
I have three questions first is on this as per the agreement on this TTC for our ATC plant they were supposed to do a buyback of 20% which is around 480, 500 metric ton and as I understand despite being their own technology they are not being very aggressive enough to take that this thing and get the sample approved, so what was the challenge actually there in that front why did not they take at least their part being a joint venture partner last one full year of commercial operations?
Gokul Jaykrishna
So, it is very important question because we have agreement with them. So, I will just clarify this that from the TTC point of view or living by the agreement they are doing fine. They are already starting to take material. It is more a challenge that we found that after the product was established in the quality set we found a little challenge in getting the consistent quality batch to batch. This is the absolute honest truth and that is why while they kept taking material it was an as fast as we could have ramped up. So, I would not blame TTC for not living up to their end of the bargain of
Q
My first question has to do with buyback itself considering that we have a significant CAPEX coming up in this current year and as we backward integrate just to try and understand why continue with doing buyback and secondly I see that the promoters are participating in the buyback if you could just comment on the same?
Gokul Jaykrishna
See the buyback has been well thought out I mean if you look at the overall cash position and the history of the Company we are very conservatively managed. Now we are entering growth phase so that is one thing I mean the total outgo of the buyback is in the area of 10 crores or something like that so it is not a massive dent. If you look at overall the past history of our dividend record we have been giving a payout of about 5 crores, 6 crores dividend anyways. So, what we are doing now is this year we have already declared the dividend and the buyback so everybody is aware that we have decla
Q
So, I just failed to understand the synergy between our life science business and our this Blue business so what is the synergy can you explain?
Gokul Jaykrishna
So, the first one is very easy I will tell you do not fail to understand it you understand it well there is no synergies. So, we have gone ahead with this acquisition when it is relatively unrelated business? It is not relatively it is completely unrelated to the business. The only related thing is that it is generally you could say that we are in the business of chemistry and API is also chemistry so that is the only relation otherwise you are absolutely right. It is not even remotely related or there is no synergy. So, we have not gone into this acquisition with that in mind. So, your questi
Q
Just a couple of questions one is on your AZO and Phthalo pigment side in terms of your percentage what are your main raw materials that you use let us say by value?
Gokul Jaykrishna
Sorry say that again please you want the AZO or the Phthalo which one you want? For both? ~ Asah1Songwon ~ Asahi Songwon Colors Limited May 23,2022 So, I will answer for the Phthalo that is more relevant right now because all the revenues are mostly from there so I will answer that in detail and give you a little brief of the name to an AZO because the AZO ones is the list of raw materials is very long and probably not worth going into this call, but the Phthalo I will take you through in detail. Three main raw materials phthalic anhydride number one, urea number two and Cuprous Chloride you c
Q
Most of my questions have been answered I just wanted to understand what will our peak debt be in our books and in our API subsidiary book?
Pratik Shah
Can you just repeat the question? What will our peak debt be in our books? By which period of time, you mean? No at the peak at highest level? I think Pratik he is referring to the highest peak debt that we will probably go into you mean this year or your question is going to be over the next five years? Over the CAPEX spending maybe like couple of years also would be a good enough guidance this year or the next year. I think you can take it a four-year peak debt thing given the 50-50 crores of API CAPEX in Chhatral and the 35 crores, 40 crores of CAPEX for the AZO in Dahej. So, you see with a
Q
So, my question was only on the AZO side of the business so in the opening remarks you said that we would be doing 150 to 200 tons per quarter this year, so basically what could be the revenue for this financial year and would we breaking even?
Gokul Jaykrishna
Sorry I probably was not clear enough I was thinking we would do in April, May, June about 150 tons of volume April, May, June. So, the full year volume would be at least four times so higher than that 150 so we would look at least 600 tons, but ideally we would probably look at substantially more than 600 tons for the full year. As far as breaking even, EBITDA breakeven we are hoping to achieve this calendar year we have not changed that because we are still hoping ~ Asah1Songwon ~ Asahi Songwon Colors Limited May 23,2022 that once something clicks it could be three months here or there as lo
Q
Thank you friends. It was a very good interactive session I actually enjoyed it the questions were very constructive and productive. We always feel that there is a lot to learn from interacting with investors and we should continue this dialogue on a continual basis. So, that is the commitment I stand by. I will just have a very quick easy closing because I have already talked about quite a few things in the introduction remarks. So, I would leave you with a basic CAPEX plan that the Company has so over the next two years or say one year we would have a CAPEX of about 50 to 55 crores at Atlas
Opening remarks
Abhishek Mehra
Good afternoon and welcome everyone and thank you for joining this Q4 FY22 Earnings Conference Call of Asahi Songwon Colors Limited. The Results and Investor Updates have been emailed to you and are also available on the stock exchanges. In case anyone does not have a copy of the same please do write to us and we will be happy to send it over to you. To take us through the results of this quarter and answer your questions we have today with us Mr. Gokul Jaykrishna – Joint Managing Director and Chief Executive Officer, Mr. Arjun Jaykrishna – Executive Director, Mr. Pratik Shah – Chief Financial Officer and Mr. Saji Varghese Joseph – Company Secretary and Compliance Officer. We will be starting the call with a brief overview of the financial performance which it will be followed by the Q&A session. I want to remind you all that everything said in this call reflecting any outlook for the future which can be construed as a forward-looking statement must be viewed in conjunction with the un
Gokul Jaykrishna
Good Afternoon friends and welcome to our Conference Call. On behalf of Asahi, it is my pleasure to be talking to you this afternoon. You guys already have Investor Presentation which Abhishek has already forward it to you so you would have a good idea of what the numbers are looking like for the full year also since the numbers have been now publicly announced you would have accessed to our Result. So, I will not spend too much of your valuable time doing that so that we get more time for interactive question and answer. So, I will spend probably more time after giving a brief update on the financials about where we stand today as a Company and probably where we look to go as a Company over the next four years. So, first of all this is a very eventful financial year for the Company. If you look back say a year or two years back Asahi was a single product, single location Company, single product being Blue, of course we are market leaders globally and one of the Blue companies in the w