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20 Microns Ltd
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Ladies and gentlemen, good day, and welcome to the 20 Microns Limited Q4 and FY '24 Earnings Conference Call hosted by Ventura Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Tushar from Ventura Securities Limited. Thank you, and over to you, Tushar.
Thank you. Good day, ladies and gentlemen. On behalf of Ventura Securities Limited, I welcome you all to 20 Microns Limited Q4 and FY '24 Earnings Conference Call. The company is today represented by Mr. Atil Parikh, Chief Executive Officer and Managing Director. I would now like to hand over the call to Mr. Parikh for his opening remarks, post which we can start question-and-answer session. Thank you, and over to you, sir.
Atil sir is disconnected?
No, sir, he is there in the call, sir. I'll disconnect him and connect him back. Ladies and gentlemen, you're requested to stay on line while the management team is connected back to the call -- ladies and gentlemen, you are requested to stay on line while the management team is connected back to the call.
Is he back on call? Is Atil Ji back on call?
Ladies and gentlemen, we welcome the management team back to the call.
Yes, hello, everyone, sorry for the disconnection and the inconvenience caused.
Good afternoon, ladies and gentlemen. A very warm welcome to the FY '24 Earnings Conference Call of 20 Microns Limited. 20 Microns Limited is a pioneering and a leading industrial mineral company with a rich experience spanning across 3 decades. We are the frontrunner in revolutionizing the micronization of various industrial minerals with a systematic approach in India. Our product range includes an array of non-mechanic industrial minerals, such as calcium carbonate, talc, kaolin, mica, quartz, dolomite, natural redoxide and many specialty chemicals and functional additives like mineral-based fertilizers, construction chemicals and many more. With 9 state-of-the-art manufacturing facilities and warehouses across India, including Gujarat, Rajasthan, Tamil Nadu and Andhra Pradesh, we have a collective manufacturing capacity of more than 450,000 metric tons per annum. Additionally, we also operate 5 captive mines in India collectively, holding a total mining reserve of approximately 170 lakh million tons. Our products are used as building blocks in various industries like paint, plastics, rubber, paper, ceramics, tires and many more. Currently, we serve a wide-ranging customer base across the world, including 65-plus international countries. We proudly cater to more than 200-plus clients representing a wide area of industries, which include well established companies like Berger Paints, Asian Paints, Kansai Nerolac, Kajaria, Pidilite, L&T, Finolex, ONGC, JK Tyres, AkzoNobel and many more. One of the key drivers of our future success is our unwavering commitment to research and development. We invest heavily in fostering the culture of innovation, constantly pushing the boundaries of what is possible. Our dedicated team of 45, 30 people continue to be focusing on innovation by developing a wide range of products in our in-house R&D team in Vadodara. 20 Microns remain unwavering in its commitment to delivering high-quality products and innovative solutions. Through ongoing research and development initiatives and close collaboration with both our international and domestic customers, we continue to enhance our product portfolio, catering to diverse markets. As one of India's leading producers of our refined industrial minerals and specialty chemicals, we are expanding our global footprint and diversifying our product mix. We added 10 plus products in our offerings during the financial year FY '24. We are delighted to announce that we have begun supplying our products to many customers in Eastern Europe, Russia and Italy. Moreover, we have expanded into newer territories to include many Middle Eastern locations, comprising of Jordan, Egypt, Saudi Arabia, Iraq and beyond and within Southeast Asia encompassing Thailand, Indonesia, Japan, Philippines and the surrounding regions through our distributor partnerships. On the JV front, we have recently joined him with Sievert, which is a German-based company with expertise in construction chemicals and building related material. Sievert's expertise in construction chemicals perfectly complements to 20 Microns' core competencies, creating a formidable partnership [indiscernible] to capitalize on emerging opportunities in the global market. By combining Sievert's technological prowess and extensive market reach with our manufacturing excellence and customer-centric approach, we aim to deliver unparalleled solutions to our customers while enhancing shareholder value. In summary, 20 Microns' future looks very bright as we focus on innovation and strategic alliances. We are well prepared to capitalize on the new growth prospects that await us and are confident in our ability to expand our operations while providing value to our shareholders. We would like to thank our Board, the management, our employees, partners and our shareholders for their unwavering trust. Together, we plan to deliver a solid performance and reliable growth for 20 Microns. Thank you for your time, and I'm happy to answer any questions you may have.
[Operator Instructions] Our first question comes from the line of Siddhant Singh from Green Portfolio.
Sir, in the previous con call, you mentioned about EV product development, like some EV product is under development. So can you provide a more specific timeline for potential commercialization for the product or time frame also?
Yes. So we are still -- those products are still under development. We are still working with international companies to engage with them in terms of certain technical collaborations for developing certain specific products for the EV battery and the semiconductor industry. So it is still under process, and we're not very sure with the timeline for it, but we're expecting it to happen sometime towards the end of this financial year.
Okay. Sir. And as you mentioned in your investor presentation that JSW and Grasim has been client of ours. So did we get any contracts from them? Or what is the -- what is the position of the partnership with them, like...
So in terms of both these customers, JSW has been our customer for quite a long time now since they've entered into the paints business, and we are supplying quite a few products to them on a regular basis. In terms of Grasim, who has recently entered into paints business. We have already started supplying to them, but since we don't work on contracts with big customers, we work on certain schedules, offtakes that they commit to us in terms of the product engagement that we have with our customers. So we have already started supplying to them. And sooner when they grow in terms of the capacities and they build upon their -- the other plants, which will start operations in the coming months and years, we will continue to supply them. But most of our grades have been approved in this particular customer.
Our next question comes from the line of [ Rajesh ], is an individual investor.
Yes. A couple of questions I have. My first question is that I think when you look at the revenues on the bottom line over the past 4 or 5 years, I see that there has been a steady growth in terms of, I think, 10% CAGR of the top line. And while it is good that -- but is -- while it is good that the bottom line has not been comprised. But I think a couple of -- a few -- 1, 2 years back, you were talking about opportunities in terms of import substitution and export opportunities. So is there some way that the growth we can see an increased rate of revenue growth because you're starting off a small base in any case. The revenue growth as of now is just a little bit just above inflation level. So would there be some opportunities where you can see a little more stronger growth in -- growth of revenue?
Yes. So answering your question, 20 Microns always looks at significant growth opportunities in various different segments it has to offer. But considering the market conditions and considering not compromising on the bottom line or something, which is a key factor, which plays an important role in decision-making -- of not compromising on those aspects, while looking at the revenue growth. But in the future, we definitely see a good opportunity coming up in various different sectors that we cater in, for example, the paint industry, the plastic industry, the rubber industry, the export markets and various specialty products, which have seen a good amount of traction, but it does take its own time in terms of the conversion. So we will hopefully see that in the coming financial year, where we would hopefully see a better revenue growth compare to the previous years.
Okay. And one other question I had was, I think there is retail segment where we have the construction chemicals and mineral fertilizers. So just could you throw some light on that as to how that is growing? And what is the given for the -- because it -- I mean, do you envisage that a few years down the line, those -- some of these construction chemicals could become popular and could become like household names? Is that the kind of vision you're envisaging? Then -- so then you would require a different kind of marketing, branding, focus with the distribution network and sales network. So is that -- is it that kind of products and branding that you're looking on in the retail segment?
So 20 Microns' focus right now is on product development. So we are at that stage where in both the min fert business and the construction chemicals business of 20 Microns, we have tried to create a range to offer to our distribution network where they have expanded products available to cater to the market. So for us first focus was to develop those kind of products for the market. Since we're already now almost there with that product range available with us where we still have a few more products we will be adding in this financial year and probably next financial. We will be -- our focus will be to expand the distribution network pan-India. We are right now focused on certain smaller states only right now. But as and when the capital gets generated and we will be able to spend our money in terms of the branding when the right time arises, we will want to become a household name in the future, but not immediately, we don't want to just jump out because it's a huge market. It's a pool of different players out there in that market. So we are trying to find our niche in that particular market, and we are trying to establish ourselves slowly and steadily to reach and become a household [ in the industry ].
Yes. Just a very quick extension on the same info. So how many years do you think now this construction chemicals could be a significant portion of your business, say, at least 10% of the revenue, 10%, 20%?
I'm sorry, I missed your question. Can you repeat it?
No, my question was in how many years do you think it would take for this construction chemicals to form, say, at least about 20% of overall revenue...
Well, it's still niche and that is the reason that we have partnered with a multinational company that I already mentioned in my opening remarks, Sievert, where we are forming a joint venture where it will be more of bringing the German-made construction chemical products here into India. And we will be -- together, we will be branding that and catering to the Indian markets here. So we -- As I mentioned to you, 20% is quite a big chunk of the overall revenue to get into this particular segment. And so it will definitely take a few more years for us to get there. I can't give you an accurate number, but definitely, we are looking at a few more years. But our main focus again remains in terms of getting into better product development for these segments.
Our next question comes from the line of [Janish Shah ], an individual investor.
Congratulations for the good set of numbers. Few things taking away from the last con call, the last, in fact, when you had -- and I think thereafter the press release it was, which were mentioning a slowdown in revenue growth of the business environment [indiscernible]. Could you give me some understanding as to how the business -- you're saying this FY '25, you have guided for 10%, 15% -- but on a trajectory-wise, how do you see the business shaping up over the next year or 2 in terms of the domestic market as well as on the international market? That is my first question. Second, on the margin side, you already indicated there will be some improvement in the margin possibly in FY '25. On a steady-state basis, where do you see the margins in this business stabilizing going ahead in the next 2 years? And the third one from my side is on the category side, I mean you are reduce -- your net debt is on a continuous reduction. Now it's at a point at which you are generating a free cash flow. Could you give some understanding as to how you want to -- mean, how do you plan to serve the equity by way of dividend or [indiscernible] or what kind of plans you have for your free cash flows?
Yes. thank you, for your questions. The first question addressing the market conditions that you have mentioned domestically and internationally. The markets still are quite uncertain. I think we are currently in the election phase and with the new government being shaping up their visions in the coming months, I think we would see a good economic climate, which is expected from the trade and from the different market segments that we are operating in. So I think there's a fair amount of growth that we are expecting from the market segments that we are currently catering and with the discussions that we are having with our current customer base in the domestic markets. So we definitely see a good share of growth happening in these sectors. Definitely, we will be catering to that growth with the products that we already have and with the products we are planning to develop in the coming months, and which we have already developed in the last financial year, and which will be commercializing in the coming financial year. So definitely, we see a good growth opportunity out there with new players coming in different segments that we are operating in, be it paints, be it paper, be it plastic, be it rubber or ceramics, all these segments, but we are quite cautious as well to see how this growth is going to be continues, or is it going to be like fluctual is something that we will need to monitor on a regular basis. Looking at the international markets, our focus has shifted from the U.S., the North American markets and from the Western European markets, more towards the Middle Eastern markets, towards the South Asian markets and the Far East markets, and the Latin American market. So these are the areas where we are going to be focusing more on because these are the growth opportunity countries which we are seeing quite some traction in and there the product acceptance and somewhat the freights are also kind of helping us out in terms of getting some market developments and market shares out there. So these are the areas we will be focusing on in the coming months. Second question, you said about the margins. Now when we look at the margins, we definitely have seen margin growth compared to the last financial year, in this financial year. But when you look range that we have to offer in terms of the product portfolio that we are in and in terms of one of the product groups dominating the other product groups, the entire range from 13% to 15% is the standard industry range where we continue to be a part of, and this will continue to be the same within this particular span of EBITDA margins that we are discussing because the product weightage or the product group would continue to remain the same and the volume buildup, which will happen will also continue to remain the same in terms of the product group breakup that I've been talking about. So overall, if you look at it, it will continue to remain in this particular margin space. The third question that you asked about what we plan to do with the free cash flow that we have? Definitely, we have already announced a dividend of 25% this -- in the last Board meeting last week for the shareholders. So that is one aspect that we have considered to reward our shareholders. In the second aspect, we plan to do a certain amount of CapEx also for the subsequent financial year, that is the next financial year, where we will start building up on certain capacities for certain products within this financial year so that we can get benefits out of it in the next financial year. And that is where we will be utilizing some of the cash flows also. So yes, that's it. Thank you.
Yes. Just a little follow-up. How much was the exports revenue in...
[Operator Instructions] Our next question comes from the line of [ Pritesh Chheda ] from Lucky Investment Managers.
Sir, from your presentation, Slide 12. So in your total revenue, how much Industrial Minerals and how much is Functional Additives? My guess is Functional Additives is a more value add that you do on your micronized mineral portfolio?
That's right. So about 20% comes from our value-added products and about 80% comes from our Industrial Minerals.
Okay. And when you say micronized, I'm assuming, basically, it means the micron -- the thickness, the finer, that's how we refer to micronized, right?
Yes. So we have a range of micronized minerals, and then we have a range of sub-micronized minerals and then just nano-sized minerals as well. So it's different product groups that we operate in.
And the INR 770 crores revenue which you reported this year, how much does it translate into volume?
In terms of quantity?
Yes.
That's about 450,000 metric tons.
And how much volume growth actually you ended up doing in '24?
So we had about 14% volume growth.
Okay. Okay. And sir, my last question is, at 450,000 tons, what will be the market share that you'll have?
So the market share is a quite tricky question to -- I would say answer upon because the market that we operate in, we only consider ourselves in the products that we are and the segments that we operate out of. Now when you -- the segments that we don't operate out -- very, very commoditized segments, which we are not a part of, we don't consider them into the market size. So it's quite a broad area to kind of refer to. So, to be very honest, we don't have a specific answer to that particular question.
Okay. Let's say, from a Pareto principle perspective, in the industrial minerals, which would be your core mineral?
Core mineral, about 50% of -- yes, 50% of our revenue comes from calcium carbonate.
And in that, what will be your market share?
Again, that's a very broad thing. Again, we have a lot of imported people. We have a lot of domestic players. We have a lot of segments we don't cover in calcium carbonate because they're very, very commoditized. So again, it's kind of very difficult to say in that sense...
And lastly, the 3 mines that you have. How much does it supply to your requirements of the raw material?
Yes. So right now, we are operating the kaolin mines and the remaining of all the mines, we are not -- it's not fully operational right now. So we are currently using about 50% of our mining material in-house and 50% we are procuring from outside.
For kaolin only?
Yes, yes.
And kaolin will be one portion of your revenue, just like a calcium carbonate...
Yes, about 20% -- 20% of overall revenue.
Our next question comes from the line of Sanjeev Damani from SKD Consulting.
Congratulations, sir, you have put an excellent results. And we really appreciate from bottom of our heart your efforts to this company to newer heights. Am I audible?
Yes, sir.
Sir, did we notice any impact on our cost because of some Red Sea issues, as to freight and container rent, et cetera, for our imports?
Yes. To be very honest, we have been facing a lot many issues since December, not only pertaining to the Red Sea, the Red Sea is just one of the factors which had kind of led the hike in the freights for our exports markets for -- especially the European markets, Middle Eastern markets that we were catering to. But the main impact we have been seeing is quite recent where there's a shortage of containers and there's a shortage of vessels and there's been a rerouting of vessels which are being doing -- which are happening. So there's quite, again, the COVID-type scenario, which was there in the shipping and the supply chain industry right now. And because of that, we are seeing some impact happening. So yes, it's definitely a part of the overall cost structure that we operate in.
So could we pass out all these cost factors to our customers? Or are we suffering financially? Or some reflection of it will come in this year? Or how should we see it?
So again, it's a case-to-case basis. So when it comes to the exports, definitely, we see a good support from our customers where they know that certain key areas are being impacted and they support us with the kind of pricing that we require for those particular orders for a temporary phase if these situations arise. But when it comes to imports, yes, it kind of is something that is an ongoing basis. And it's difficult to make a call as to how it's going to be happen in the coming months. So it's difficult to judge at this point of time. So what happens is that we try to move away from the container business and we try to do bulk shipments where we have good freights in hands, and we have opportunities where we can save on the freight cost. So we work on those modules at that point of time, like we did in COVID times also. So right now, we are working on those scenarios as well.
Sir, 1 request, if we can in presentation mention the tonnages that we imported during the year, and dispatches that we made in terms of tonnages and the closing balance of our inventory in tonnages, may not be item-wise, but maybe a gross tonnage because a lot of secrecy matters may be there. But that would give us an idea to assess how our volumes are going up and back better.
We have a follow-up question from [ Janish Shah ], an individual investor.
On the export front, sir, how for the revenue we had in FY '24 and was there a growth that we reported on a year in that business?
So if you look at the overall exports, about 15% gets contributed from the export markets, from our overall revenue. Now when you look at year-on-year, the value would seem quite less. It's about a 5% to 7% growth that you'll see on the overall value because some of the freights and some of the sectors which we were catering to, they have kind of changed. And because of that, our overall CIF value that we work on, that has kind of gone down. And because of that, but if you look at the FOB value, the ex-works value, there, we have seen a significant growth of about 18% to 20%.
Okay. So how do you like -- given the efforts and the new customer addition that you have -- what kind of a sustained growth rate do you expect in exports in the next couple of years? Can you just give some [indiscernible]?
So exports will continue to grow at the rate it's growing right now. So again, it's very dependent upon the world economies. So we have been doing business with certain economies, which have now closed down due to certain issues which are happening in the world. So it's difficult to make a judgment based on that, how it's going to go the way forward. But yes, if you look at the Asian markets that we are predominantly heavily depending on, we see quite a decent amount of growth happening there in the range, which we are already doing right now. So that is where our concentration basically is. And in some parts of Europe, where we are having partners and stable distributors for a very, very long time, and they have been cooperative enough to hold hands with us for quite a while now despite lot of irregularities and uncertainties in the markets there. So I think, yes, we will continue to see quite a decent growth there.
Okay. And maybe just to delve a little bit more on the guidance you have given about 10%, 15% growth. I mean, paints industry, which is a dominant sale in our user base or the client base -- there we have seen volume growth being tapering down a bit, although the new competition is still coming in. How do we build up to that 10% to 15% growth for '25. If you can just give your understanding with your -- with the markets that are going to evolved in the next year, hypothetically...
The paints industry is just 1 segment that we are focused on and it is a wide range of products that we offer to this particular industry. So definitely, if we are seeing kind of -- I wouldn't say a degrowth, but a slower growth in the paints industry right now. It's a temporary phase because the paints industry typically works on a per capita growth that they see in terms of the volume building in the nation. So I think there is a lot of room for growth. It's just a temporary phase where they are kind of in a bit of struggle phase because of a lot of competition coming into their area. But this is -- this financial year will be the year to see how everyone kind of gets placed within this entire new set of players coming in and how they're getting positioned is going to be something to be looking forward to. And then we will have more clarity on how this industry is kind of going to move forward in the coming years ahead. I think this financial year, we don't see much of an issue in this particular segment.
[Operator Instructions]
Our next question comes from the line of [ Kevin Shah ] from Seven Islands PMS.
Just 1 small question from my side, that whether we are planning to commence any more mining operations in India looking at the favorable mining conditions in the country currently?
Yes. So 20 Microns constantly evaluate a lot of mining options here in India, depending upon the policy of the material, which is available in various pockets of the country and for the certain products that operates in -- so it's an ongoing process, which is happening. And if something capable comes up in a certain decent valuation, then definitely, 20 Microns will look at those options in India and internationally as well. Will we keep an eye on both areas.
Our next question comes from [ Rushal Chopra ] from RV Investments.
Congratulations very much for the good sets of numbers and a consistent performance. Sir, my question is that you've mentioned in your PPT that we are being greatly benefiting from the China Plus One strategy that is being adopted by the world throughout the globe. So what would be the possible effects of this strategy that we are looking and banking upon in the future? So can you explain me some aspects of this, please?
So right now, majority of the minerals that we are currently producing here in India, China also has similar kind of minerals available with them. Now when we look at the Indian market and the export market, many of our customers who are dependent upon the imports of Chinese goods, they have moved to Indian products or they have moved to some other products because of certain reduced dependency upon the Chinese products, be it -- the trust factor or be it the logistic issues or the pricing related issues. So that has kind of had another advantage that we have started to -- I won't say it has been completely out there. But we have starting to see that change from our Indian customers and from some of our Latin American customers and some of our Middle Eastern customers. So that thing we have already started to see in the last few months, and we hope that we can continue to try to transform our products in such a way that we have kind of developing edge over certain Chinese products that are out there in the market, and we are kind of competing with because with now America and Europe creating an antidumping charge on certain Chinese products, there is a possibility that Chinese products might get dumped into other Asian markets. And so we have to get ready for that in the coming future. So -- and we -- that is the reason that we are gearing up to have better products than the Chinese products in most of the customers that we cater to.
So sir, if possible, can you give us a clarification on what is the supply proportion of the Chinese suppliers for our buyers -- the participation of Chinese...
It depends -- it depends from product to product. So for example, in kaolin, there is certain -- there are certain customers which use products from Chinese manufacturers in terms of precipitated barium sulphate. There are certain -- there's a wide variety of traders and customers who use their products. Then there is a certain specialty products, which we manufacture where there is a predominance of Chinese products coming into India. So right now, there's a huge amount of titanium dioxide, which is coming in from China for all these years, that's where we pitch in some of our replacement products into the pipeline and try to get some market share for those kind of products. So it's a wide range of different products we are talking about here. It's not related to only 1 or 2 products from the product range. And if you need more information, we can have a one-on-one call, and I can assure you more about this, yes.
Just 1 more question to follow up on this, sir. Are we having -- are we envisaging any incentives from the government of India for import substitutions from China and -- which would be promoting Atmanirbhar Bharat or maybe some serious new schemes like that?
No, no. No, there is nothing being worked upon right now with these kind of schemes from the government. But in case, in the near future, if there's any kind of an antidumping duty being levied upon for certain kind of products, which we don't know if the government is going to get into. But if that happens, then definitely it could maybe benefit 20 Microns to some extent.
[Operator Instructions] Our next question comes from the line of [ Darshan Chandra ], an individual investor.
Sir, in the last con call, you said regarding the debt is going to reduce by INR 20-odd crores. But in the balance sheet, it's increased by INR 20 crores. So there may be some effect on the interest costs also getting higher in this financial year. Can you throw some light on this?
Sir, if you look net debts -- sir, if you look about net debt and if you consider [indiscernible], net debt is reduced by around INR 20 crores ,sir. [indiscernible] INR 115 crores versus INR 109 crores, and [indiscernible] balance, it is INR 60 crores. So it cash on [indiscernible], net debt comes to INR 55 crores. And in FY '23, it's only [ INR 1 crore ]. So there is a significant -- around 23% is reduction in net debt position.
We have a follow-up question from Sanjeev Damani from SKD Consulting.
Sir, can I know the absolute export figure for the last financial year, how much money -- I mean, how much is the turnover in export?
We are at INR 95 crores.
INR 95 crores. And sir, most of the products that we export, are they indigenously procured and made or we have to import certain things, process and then export it?
No, no, no. For all the export materials, they are all based upon Indian raw materials.
Okay. And sir, I mean, some significant acquisition of mines if you have in mind right now, or in coming days? I mean, can you just give us a direction that which kind of mines we are looking to acquire?
It's too early for me to tell that, but we have identified a few potential sources in India and internationally. And so since a lot of groundwork is being done to evaluate the quality of the mines and the quality of the material which originates there. So these are related to calcium carbonate. These are related to clays. These are related to our talcs. So many, many different minerals, we are trying to identify new potential sources. So when the right time comes, we will definitely announce for these kind of clarifications.
A lot of new corporates are entering paints industry, and we are a very dependable supplier to many of them and are likely to be for all newcomers. So will it require us to raise funds for working capital needs or inventory needs in...
Are we already for -- even for the future, I think, behave already at a comfortable level in terms of the working capital that we are at. So we will not be needing more additional funds to manage the working capital cycle. But yes, to increase our capacities, we will need to -- we will not need to borrow, but through our internal accruals only, we will be doing the CapEx in the next couple of years.
So something of right or et cetera, can come private placement or some right can be on time?
We are not part of it as of now, but maybe in the future, it might be a scenario. We're not sure.
That was the last question. Now I hand over the call to the management for closing comments.
We thank all the participants for attending this session. We believe that we have satisfactory run you through our company and financials and address every arising questions there on put up on the floor by the participants. We continue to see growth in our broad product portfolio and witnessed a strong momentum across our business, supported by R&D and other strategic initiatives. We remain focused on bringing new products, exploring new markets and creating value for all our stakeholders. Please follow up with Investor Relations team, Krunal Shah, Naman Maheshwari at Captive IR, if you have any further questions which were not covered in this session and hope you have a great day ahead. Thank you once again.
Thank you, members of the management. Ladies and gentlemen, on behalf of Ventura Securities, that concludes this conference. Thank you for joining us, and you may disconnect your lines now.