LXCHEMNSEQ4 FY23May 18, 2023

Laxmi Organic Industries Limited

8,598words
140turns
11analyst exchanges
5executives
Management on call
Ravi Goenka
CHAIRMAN – LAXMI ORGANIC INDUSTRIES LIMITED
Rajan Venkatesh
MANAGING DIRECTOR AND
Harshvardhan Goenka
EXECUTIVE
Tanushree Bagrodia
CHIEF FINANCIAL
Priya Sen
GO INDIA ADVISORS
Key numbers — 40 extracted
1 billion
working across functions from research to sales, to marketing, to finally leading more than a USD1 billion business. His global experience across Europe, Asia including India, is very relevant to Laxmi, a
rs,
my mind is who am I accountable to? And my accountability lies to 5 stakeholders. One, the investors, both the retail and the financial institutes; second, the Board of Directors and the Chairman that
40%
industry presence from essentials to lifestyle to industrials enabled the same. Exports at about 40% of the sales were driven by a strong on-ground presence in Europe, and the strong supply chain we
10%
pany has made significant investments in R&D, which in the last financial year stood at more than 10% of PAT. This has enabled Laxmi to bring immense value to our customers. The company
50%
mers. The company retains its market-leading position with a share of approximately 50% in diketene derivatives market in India and is regarded as a strong and reliable partner of quali
30%
diketene derivatives and improved contribution margin significantly. Our exports in FY '23 grew 30%, with no single product contributing more than 10% to the top line. The trajectory of this growth
INR737 crore
nce, the last quarter of FY '23 was sequentially better for Laxmi Organic. Consolidated income at INR737 crores was 12% higher versus the immediately preceding quarter. In the same period, the EBITDA at INR64
12%
ter of FY '23 was sequentially better for Laxmi Organic. Consolidated income at INR737 crores was 12% higher versus the immediately preceding quarter. In the same period, the EBITDA at INR64.5 cror
INR64.5 crore
crores was 12% higher versus the immediately preceding quarter. In the same period, the EBITDA at INR64.5 crores at a consolidated level was 11% higher. Improvement in the profits came largely from the changed
11%
y preceding quarter. In the same period, the EBITDA at INR64.5 crores at a consolidated level was 11% higher. Improvement in the profits came largely from the changed product mix. Ocean freight lev
INR42.7 crore
rsus Q3 FY '23, albeit much higher than the prices of FY '22. Profit before tax for the period at INR42.7 crores was 27% higher than the immediately preceding quarter, driven by the improved top line and produ
27%
eit much higher than the prices of FY '22. Profit before tax for the period at INR42.7 crores was 27% higher than the immediately preceding quarter, driven by the improved top line and product mix. D
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Guidance — 20 items
Ravi Goenka
opening
“The trajectory of this growth and diversification is what we intend to maintain.”
Ravi Goenka
opening
“The site will be commissioned in a phased manner over the course of this year, and we have successfully started Phase 1.”
Harshvardhan Goenka
qa
“While the first year will be primarily spent in establishing the operations, sampling out with all of the customers, revenues will start hitting and ramping up in the years to come.”
Harshvardhan Goenka
qa
“If I mention all of those granular details, it will be a little problem sometimes for us.”
Rajan Venkatesh
qa
“And as Harsh said, we don't have a specific target.”
CA Garvit Goyal
qa
“So how do you see margins shaping up from here going forward in next few quarters?”
CA Garvit Goyal
qa
“And how do you see, what will be the sustainable margins for us in the longer term?”
Harshvardhan Goenka
qa
“So, we are not giving guidance, but I hope this is able to help you arrive at a number.”
CA Garvit Goyal
qa
“And is there any guidance for top line for FY '24?”
Harshvardhan Goenka
qa
“Sorry, we're not giving guidance to our financials right now.”
Risks & concerns — 8 flagged
Is it largely a discretionary, non-discretionary sort of thing because of the macro slowdown?
— Ankur Periwal
And so from an old product, if I could broadly classify it as old and new, old product, there is some slowdown, but there is still a scope of growth or those products are optimized as per new?
— Ankur Periwal
I just wanted to check with you, particularly on the AI side, it appears this was a weak quarter from a profitability point of view.
— Chetan Thacker
I think generally, Chetan, the entire year was weak for AI.
— Harshvardhan Goenka
That would be a fair assessment that Q1, Q2 still look a tad bit difficult?
— Chetan Thacker
So, we are also being very cautious and conscious on our actions there.
— Rajan Venkatesh
Difficult to comment specifically on that because it's -- as you can tell, the chemical industry is very diversified.
— Harshvardhan Goenka
But I guess you're coming from the -- I'm reading the question as a -- because it's fluorine and some new chemistry, is there a challenge?
— Harshvardhan Goenka
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Q&A — 11 exchanges
Q
Yes. Firstly, sir, our fluorine assets have been operationalized this quarter. If you could share some thoughts, what was the revenue of fluorine in this quarter and how do you see it over next 2-year period?
Harshvardhan Goenka
Dhaval, good talking to you again. Harsh here. So, Dhaval, as mentioned earlier as well, fluorine is going to be a platform play. And like we have done in SI, the first year is spent a lot in establishing the base and the foundation strongly and we've reiterated that earlier. So, we are very bullish about the potential of this platform and how it can change the orbit for Laxmi. While the first year will be primarily spent in establishing the operations, sampling out with all of the customers, revenues will start hitting and ramping up in the years to come. A lot of the new product investment h
Q
So, my question is particularly on the demand environment that's currently going on in the end industries, like we see last couple of quarters, our top line is recovering, right? So can you spend some few minutes on the demand side basically in the end industries that we are targeting from our product portfolio?
Rajan Venkatesh
Yes. Okay. So, Rajan here, Garvit. And I'll give a stab at it. But I hope you'll give me some discount since this is day 40 for me with Laxmi. So let me start with broadly the industries that we are serving as Laxmi. Let me start with the agro part. And you certainly see it in the results of our customers. We do see certain slight weakness in the agro space from the exports and also the domestic side. While the previous year, if you recollect, was very strong, yes. So that's the agro part. I would say on the pharma space with, obviously, all the COVID things coming to an end, it has got dual e
Q
So just 2 broad questions. One is on diketene, where we said we have a 50% market share. And if I'm looking at the numbers, we are -- the diketene accounts for almost 70% of our segmental revenue. But if I'm looking in terms of margin, the segment is not in the double-digit margin. So as an analyst of an industry, how shall one look at this particular segment going ahead in terms of the performance?
Tanushree Bagrodia
Jatin, Tanushree here. Jatin, I'm not sure how you are calculating the margins to reach the conclusion. Very happy to speak to you offline separately and then answer this question so that you can get a better understanding of the numbers that we are presenting. Sure. We can do that. Okay. And secondly, on the fluoro situation, I mean, definitely, we have completed -- we will be completing the -- capitalizing the 3 Phases. So once all the phases are completed, what will be the revenue contribution of the fluoro into the overall revenue mix probably in next 2 years to 3 years? Yes. So, we've als
Q
Yes. Dr. Rajan, great to have you on board at Laxmi Organics. My first question is on the capex side. So have you finalized our plans on the next round of capex for the Dahej land that we acquired some time back? So if you can give color on the products and the chemistry that we would be looking at on that side? Or will it be the existing products itself?
Rajan Venkatesh
So, Nitesh, as I've just come on board, the team has certainly -- the investment in Dahej certainly has been done with a plan in mind and the team has really worked out a business plan. But I would like to also understand a certain level of granularity of that business plan, and that's why that's work in progress. We are happy to share with you a little more details once time progresses and once we have clarity. But I would say it would be certain of the portfolios would be building off the successes that we have and then certainly, we will be also augmenting others. That's what I would like t
Q
And welcome Mr. Rajan. Good to hear from you. So starting with the Specialty Intermediates segment. Correct me if I'm wrong, the export, while they have shown a pretty strong growth, which, to my mind, will be partially driven by the new product launches as well. Domestic has seen some slowdown. Is it largely a discretionary, non-discretionary sort of thing because of the macro slowdown? Or how should one look at it? Harshvardhan Goenka : Ankur, I would look at it being choice driven. We are choosing to supply certain markets over others. And therefore, that choice remains with Laxmi.
Ankur Periwal
Sure. And the capacity remains fungible here in terms of which product you want to sort of produce here depending upon the domestic or the export outlook? Harshvardhan Goenka : Yes. Exactly. As always mentioned, we are looking at product portfolio optimization constantly. Sure. Sure. Okay. So second question. And referring to your Slide number 14, which is largely talking about Specialty Intermediates. There has been an optimization in the product mix. On a scale of 100 from 88, we have gone to 108. But if I look at slightly longer term or even from a contribution margin perspective, the growt
Q
I just wanted to check with you, particularly on the AI side, it appears this was a weak quarter from a profitability point of view. Is that assessment correct that there was near negligible contribution on profits from AI for this quarter?
Harshvardhan Goenka
I think generally, Chetan, the entire year was weak for AI. As you had the raw material prices slipping throughout the year all the way until March, you've seen that in the Acetyl Intermediates segment, which was broadly expected. And the subdued environment still continues in Q1 as well. That would be a fair assessment that Q1, Q2 still look a tad bit difficult? So as Rajan mentioned, Chetan, we are seeing headwinds in agro and pharma, where these segments are still -- agro globally and pharma, specifically in India. But the CASE segment; coatings, adhesives, sealants, elastomers are where we
Q
Sir, the question was related to the SI business. In general, we are seeing that the RM prices for many of the products are declining. I'm not sure for your specific product. But as probably you pass that on to your customers, do you think there will be an implication on revenue growth for the SI business next year? And also, can it -- given the RM is declining, can it also hit to the margins? Or do you think the market conditions are not very favorable to that?
Harshvardhan Goenka
Okay. Dhruv -- so I heard 2 questions. RM prices, are they declining? I think it's a mixed bag in SI, where finally, the large raw material called acetic acid has stabilized over the last 2 months. But the specialties are -- you have some higher and some lower. The way we run the business of SI is more on margin and we're able to pass that on with some amount of lag. Even our long- term contracts, we try to build that flexibility here. So maybe building on that, I think one -- what I have been able to glean out the way we operate in Laxmi are really coming from the customers' perspective. So,
Q
Yes. So, I have few questions. So first one is out of our overall revenue, in terms of user industry, agro will be what percentage in terms of our overall user industry across all the segments? Do you have idea?
Tanushree Bagrodia
We've given that data on Slide 10 of our presentation, where we've said 29% of our total company revenue comes from agro. Okay. Perfect. Sorry to -- I didn't saw that. Okay. So the second question is related to agro, whereby, we are hearing across all the agro generic companies, where, as you mentioned, China is giving a very tough competition, lot of products they are selling below cost as well. So based on your past experience, are there any takeaways here in terms of how long this typically remains because we are hearing lot of Indian companies have -- in some of the products they have shut
Q
Yes. Sir, just one question on the roadmap, which we had given primarily from the guidance perspective. Like we had, I think, in FY '25, we are targeting 50% AI and 50% SI versus earlier guidance of 55% and 45%. And despite that, our margin guidance still remains 15%. So what we understand here is that SI is a largely a high-margin business. So if your revenue shift is happening, I believe the margin should also increase, right?
Tanushree Bagrodia
Amar, Tanushree here. For FY '25, the estimate is a 50-50 split between AI and the specialty type businesses. It's a typo. It should not be SI. It should be SP. And there, we are taking a 15% margin. We are going to FY '27, where we say AI will be 45% and SI will be 55%, and the EBITDA margin will be at 16.5%. When we do these projections, we are fairly conservative on the AI side. And of course, that's why the entire margin expansion that is coming is coming from the specialty type businesses. Okay. Okay. So meaning like what I understand, ma'am, like if I see the presentation of first half F
Q
Yes. Sir, my question is on the fluorination business. So since we have started -- and congratulations on starting of the plant. Are we facing any initial teething issues and quality issues in terms of products?
Harshvardhan Goenka
So Rohit, this is -- it's a chemical plant. There will constantly be hiccups in a start-up, which is expected and natural. But that's what we are here for. That's what we are -- we are used to doing. But I guess you're coming from the -- I'm reading the question as a -- because it's fluorine and some new chemistry, is there a challenge? I think we are fairly well equipped with that. There are no large un surprises because of the technology that we have imported. Right. Got it. Sir, allied question to that. So, you mentioned that probably the opportunity size is about $25 million. And given tha
Q
Thank you very much. And it's a pleasure to be on the call with all our well-wishers and investors. With the inflation showing a neutral to a southward trend, a normal monsoon prediction and the higher GST receipts, we do look forward to a higher traction in our businesses as well. Until our next call in end of July, beginning August, happy sunshine. Good luck.
Management
Speaking time
Tanushree Bagrodia
28
Harshvardhan Goenka
28
Moderator
13
Ankur Periwal
9
Amar
9
Rajan Venkatesh
8
Jatin Damania
7
Nitesh Dhoot
7
Ravi Goenka
5
CA Garvit Goyal
5
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Opening remarks
Priya Sen
Thank you, Ryan. Good afternoon, everyone, and welcome to the Q4 and FY '23 Earnings Call of Laxmi Organic Industries Limited. We have on the call, Mr. Ravi Goenka, Chairman; Dr. Rajan Venkatesh, MD and CEO; Mr. Harshvardhan Goenka, Executive Director of Business Development and Strategy; and Ms. Tanushree Bagrodia, Chief Financial Officer. We must remind you that the discussion on today's call may include certain forward-looking statements and must be, therefore, viewed in conjunction with the risks that the company faces. May I now request Mr. Ravi Goenka to take us through the financials and the business outlook, subsequent to which we will open the floor for Q&A. Thank you. And over to you, sir.
Ravi Goenka
Thank you, Priya, and a very good afternoon, ladies and gentlemen. Thank you for joining us today for our earnings call for the last quarter and for the full year of 2023. At Laxmi, we have always promoted excellence and innovation to provide local and global customers with consistent quality and reliable delivery. FY '23 has been a journey in that direction. We augmented our Acetyls and Specialties product portfolios and enhanced exports. The diverse industry and customer base enabled effective countering of headwinds, especially the demand drop in Europe in quarter 2 of last fiscal. Our investments in health, safety, sustainability have continued through the year, reiterating that this aspect of our business will always get unflinching support. As we continue to build on our operations, we also continue to invest in our people and strengthening the company leadership. It gives me great pleasure to formally introduce to you our new Managing Director and CEO, Dr. Rajan Venkatesh. Dr. R
Rajan Venkatesh
Thank you, Ravi. A very good afternoon, good morning, good evening, depending on the time zone that you're dialing in from. Thrilled to be part of the Laxmi team and also to be engaging with you. As I now embark on this journey, I think what is very clear in my mind is who am I accountable to? And my accountability lies to 5 stakeholders. One, the investors, both the retail and the financial institutes; second, the Board of Directors and the Chairman that I report into; third, the Laxmi team; four, our customers; and fifth and last, but not the least, the societies that we operate in. In the last, almost 45 days, I have been engaging very intensely with the Laxmi team. I've had a chance to visit our sites. I have met a few customers and I'm looking forward to meet many of the other customers. I'm really impressed by what I see on the ground. I have visited our Mahad site. I have visited our upcoming Lote site. And this gives me a great deal of confidence for the vision that Laxmi has c
Ravi Goenka
Thank you very much, Rajan. And it's a pleasure to have you lead our company and take it to its potential in the next few years. I would now like to address the business performance for the last financial year. Our acetyls business portfolio saw strong volume resilience despite the demand volatility. Diversified industry presence from essentials to lifestyle to industrials enabled the same. Exports at about 40% of the sales were driven by a strong on-ground presence in Europe, and the strong supply chain we have developed and showed efficiencies across the board. The company continues to be a market leader in India and a Tier-1 supplier in Europe, with customers continuing to rely on the product quality and timely delivery. Focusing on diversification and customer needs, we augmented the product portfolio in this segment with smart capex, and the same has already contributed to our sales in quarter 4. Today, the acetyls product portfolio comprises of more than a dozen products and we r
Tanushree Bagrodia
Thank you, sir. Talking about our quarter 4 FY '23 financial performance, the last quarter of FY '23 was sequentially better for Laxmi Organic. Consolidated income at INR737 crores was 12% higher versus the immediately preceding quarter. In the same period, the EBITDA at INR64.5 crores at a consolidated level was 11% higher. Improvement in the profits came largely from the changed product mix. Ocean freight levels have normalized, with container availability also having significantly improved. Coal prices remained flat in Q4 FY '23 versus Q3 FY '23, albeit much higher than the prices of FY '22. Profit before tax for the period at INR42.7 crores was 27% higher than the immediately preceding quarter, driven by the improved top line and product mix. Depreciation in the quarter increased in line with expectations. On the annual level, FY '23 consolidated income of INR2,809 crores was 9% lower than the previous year, driven by lower realization. Year-on-year volumes remained strong. The con
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