Oriental Carbon & Chemicals Ltd
NSE:OCCL
Oriental Carbon & Chemicals Ltd
NSE:OCCL
Price:
233
INR
0.87%
Market Closed
Market Cap:
₹1.4B
Add Note
Add Target
Capture your thoughts and set a target
Decide at what price you'd be comfortable buying and we'll help you stay ready.
Based on
Margin of Safety
0%
10%
20%
30%
40%
50%
Your Price Target
Linked to
current price
· In Buy Zone
Loading
Note attached
Choose the stock you wish to monitor with a price target
Popular Picks
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
Bank of America Corp
NYSE:BAC
|
US |
|
Mastercard Inc
NYSE:MA
|
US |
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
Pfizer Inc
NYSE:PFE
|
US |
|
Nike Inc
NYSE:NKE
|
US |
|
Visa Inc
NYSE:V
|
US |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
Coca-Cola Co
NYSE:KO
|
US |
|
Verizon Communications Inc
NYSE:VZ
|
US |
|
Chevron Corp
NYSE:CVX
|
US |
|
Walt Disney Co
NYSE:DIS
|
US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
Ladies and gentlemen, good day, and welcome to Oriental Carbon & Chemicals Limited Q1 FY '24 Earnings Conference Call.
This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions]. Please note that this conference is being recorded.
I now hand the conference over to Mr. Akshat Goenka, Promoter and Joint Managing Director of OCCL Limited. Thank you, and over to you, sir.
Good afternoon, and a very warm welcome to everyone. Along with me, I have Mr. Anurag Jain, CFO; and SGA, our IR advisers. We have uploaded our results and investor presentation for the quarter ended 30th June 2023 on the stock exchange and on the company website. Hope each one of you have had a chance to go through the same.
OCCL has started the year with revenues of INR 110.4 crores in Q1, a degrowth of 20% year-on-year due to less sales of insoluble sulfur and correction in sales price of both sulfur and asset consequent to reduction in sulfur cost. We had seen a pent-up demand during the same period last year, things were coming back to normalcy post COVID. Currently, we are seeing lower demand in Europe due to the prevailing economic conditions over there. However, EBITDA impact stood at INR 32.6 crores, a growth of 15% year-on-year and INR 15.3 crores, a growth of 9% year-on-year, respectively.
The CV industry is expected to grow mid- to high single digit during FY '24. The positive impact of a promising monsoon and the government's ongoing efforts to boost infrastructure are favorable for the commercial vehicle industry, despite challenges posed by high interest rates, steel prices and inflation. Overall sales momentum is expected to remain healthy, driven by improving fleet operators' profitability and gradual freight hikes and rising fleet utilization.
In FY '23, '24, Indian tire manufacturers anticipate making an investment of INR 5,000 crores, driven by the growing demand from both the replacement and OE markets. The domestic market shows strong demand for radial tires serving passenger and commercial vehicles owing to several factors.
Our company is a research-oriented enterprise dedicated to producing top-quality products that result in superior offerings for our customers. Our ongoing investments in sustainability, efficiency improvement and product quality exemplify our commitment to progress and environment. We have ambitious plans to expand in geographies like North America, aiming to increase our market share. Concurrently, we are striving to increase our share in the Indian market. The demerger that was proposed and approved by all shareholders is now awaiting approval from the NCLT. The next hearing date is scheduled for 11th October 2023.
Now I would like to hand over the line to Mr. Anurag Jain to update you on the financial performance of the company.
Thank you, Akshat. Now I will take you all through the stand-alone financials of the company. Total income for Q1 FY '24 stood at INR 110.4 crores as compared to INR 137.9 crores in Q1 FY '23, a reduction of 20% due to less sale of insoluble sulfur and decrease in prices of acid consequent to reduction in sulfur cost. EBITDA for Q1 FY '24 stood at INR 32.6 crores as compared to INR 28.4 crores in Q1 FY '23, a growth of 15%. The EBITDA margins have improved to 29.5% for Q1 FY '24.
Profit after tax for Q1 FY '24 stood at INR 15.3 crores as compared to INR 14 crores in Q1 FY '23, a growth of 9% year on year. PAT margins have improved to 13.8% in Q1 FY '24.
With this, I would like to open the floor for questions and answers.
[Operator Instructions]. The first question is from the line of Aditya Khetan from SMIFS Institutional.
Sir, my first question was on the recently -- so we had expanded the capacity of 5,500 metric tons of insoluble sulfur. So what is your utilization level that is operating currently? And secondly, what are the plans for the next phase or second phase? Are we planning to go ahead with that, like expansion or not?
So the expanded -- so our current capacity utilization is below the optimum level. So expanded capacity is not getting used as of now. We are hoping that we will get additional orders in the -- next beginning of the next quarter -- next year. And once we see those orders coming in, then accordingly, we will plan for the Phase 2 expansion.
Sir, this order, you have said will come by next year FY '25?
Normally, internationally, there is an annual cycle of new plant allocation or orders. So these plants fructify by the end of the year, and then we will know by December what is the fresh orders we import.
So currently, sir, we would not be operating that capacity or like what would happen for full fiscal FY '24?
So currently, we do operate that plant. But overall, the capacity utilization is not enough to have all the lines operational at the same time.
Okay. And sir, so this is largely because of the demand impact in US and Europe, is that one of the big reasons? Or you expect like this...
That is a very significant reason, that there has been a degrowth in demand in Europe and elsewhere also, that's one of the significant reasons apart from the fact that we are looking to get into additional markets.
Okay. And sir, since we would not be planning to ramp up the volume, so that our fixed cost would go up on a quarter-on-quarter basis, so you expect this 28% to 29% margins, which we have reported in this quarter, so how much like downside we can expect from this level?
That is very difficult to comment on because these margins are dependent on many factors. There are material costs, exchange costs. As far as our fixed costs are concerned, obviously, as we had indicated earlier in our con calls, they are not expected to go up in any significant manner once we -- for our next phase also. But the margins are dependent on so many things. It's very difficult to predict what we are going to be for the year, but we expect them to be better than last year.
Okay, sir. Sir, just 1 last question. Sir, what is the current supply position globally and which are the companies globally, which are looking to expand? And what would be the capacity or the supply figure in the next 2 years? If you can quantify in terms of data, sir.
So as far as installed capacity is concerned, it is in excess of demand as of now. And as far as current expansions are current, the one that we know of is Shikoku in Japan, which is expanding by 10,000 metric ton per annum. We have announced the plan to expand the 10,000 metric ton per annum.
And China Sunsine, they are also expanding?
I think they are replacing rather than expanding. So once they expand, they are going to shut down their older, less efficient capacity ones.
Okay. So the net-net capacity addition wouldn't be that much, right, if you're talking only 10,000 is added by Shikoku.
That is what we expect.
[Operator Instructions] Next question is from the line of [ Akshata Deo ] from EVO Commercial.
I just wanted to understand how we would be looking forward in terms of growth guidance other than the insolubles sulfur capacity for rest of the year?
Growth guidance for capacity?
Growth guidance for the company, top line revenue.
Actually, currently, we do not give anticipated annual numbers because of competitive reasons. But I have said earlier, we do expect additional orders to come in by the end of the year, which should augur well for Q4. In that manner, we should expect the growth in quantities over last year.
This question is from the line of Dhruv Muchhal from HDFC Mutual Fund.
Sir, one question is just if you can throw some light on the demand situation right now. And is the weakness in demand also to do with the inventory issue that we are seeing in some of the other sectors? Or it's probably the underlying demand is a bit weak? And also, I was just trying to understand, I believe last few years was a bit difficult for us because of the higher sulfur and the fleet cost and exports to Europe probably were impacted.
Sorry, I missed your next question after weakness in demand, I couldn't hear that clearly.
Yes, the weakness in demand. So if you can probably speak something about that, what's causing this? Is it because of the inventory issue in the system like we see in some of the other chemical sectors? Or what's causing this? Is the underlying demand actually also weak that way?
So weakness in demand, obviously, is a mixture of a few things. we did see that -- we did see a correction in inventories in Europe, for example, where there was a certain reduction in -- so certain reduction in consumption of tires because of slowdown. In domestic as well, there was some impact on account of inventory correction, though in domestic, it could be a little more temporary. So -- because once the inventory is corrected, then it should pick up. But in Europe, it will be difficult to say that.
Got it. And last few years, there was some impact on us because of the higher sulfur prices or probably globally that was. And also because of the freight rates increase, our exports to Europe had got a bit impacted because of the higher freight rates. Now a lot of this thing has normalized to a large extent, I believe, more than normalized, I think now. So how is our competitiveness to Europe now, assuming the demand recovers back, I mean, are we back to the earlier stage that we were in, in terms of our competitiveness to Europe? Or still there is some issues still pending in terms of resolution?
So you will notice that in spite of a reduction in top line, we have registered an increase in EBITDA. And one of the major reasons for that is the correction of international freight, which does make us more competitive as far as the international market is concerned, whether it be Europe or other countries. So that has been one major upside where we were losing on margins in the international market.
As far as sulfur is concerned, there too, we are seeing a correction in prices. They have come down now to the normal levels. And that has also benefited us by restoring some of the margins, which had come to very precariously low levels in the same quarter last year.
Got it. Okay. So what we're trying to say is that the EBITDA improvement is despite the lower volumes. So which in a way reflects that product. So can you give any sense on how lower the volumes will be on a Y-o-Y basis, some ball benchmark?
Normally, we do not share volumetric figures because of competitive reasons.
But it will be what, more than 5% to 10% decline or in that range?
No, we are not expecting a decline in a year-on-year situation because we are very much in the running to get a bunch of new businesses. And if we manage to secure those orders, then that would probably even an increase from last year.
On a full year basis?
Yes, yes, yes. And if the orders don't come and we don't want to look at that kind of situation, then it's very difficult to predict where it will land up because it all then depart -- depends on the demand situation.
And you mentioned about additional order flows. So this -- the additional order flows will help you in terms of increasingly expanded capacity. This is not for the next stage of expansion, right?
Well, in a way it's both because it will help in the first stage of orders that will come, will help in utilizing the existing capacity. And at the same time, it will be a trigger point for completing the expansion.
Just to summarize, I mean, this demand weakness that you're seeing is -- in your view is not because of some significant increase in competitive intensity by somebody else or it's broadly just normal market conditions, how the underlying demand is moving, right?
The significant increase in competitive intensity has already happened over the last 2, 3 years. And that is, I think, now been baked into the system. So there is no fresh new competitive intensity that is coming up.
[Operator Instructions] Next question is from the line of Keshav Garg from Counter Cyclical PMS.
Sir, I'm trying to understand what is the net debt of the company as on today?
So net debt of the company as on 30th -- so as on 30th June, we are net debt free. We don't have debt as on 30th June.
Sir, and net cash?
That, we'll have to calculate. But -- you have something...
On 30th June, our long-term debt was INR 89 crores.
Sir, and versus this how much cash you had in mutual funds, et cetera?
Like you're talking about cash and net debt, then we are positive. The net debt positive. We don't have any debt.
I would like to also clarify that our short-term and long-term debt combined is less than the surplus cash and investments that are there in the company.
And sir, what percentage of our -- roughly of our insoluble sulfur sales are to non-tire sectors?
It is very insignificant, mainly it is tire company -- more than 90% is tires.
So is there no other application of insoluble sulfur or any intermediate product that we are manufacturing or any possibility of some kind of a forward integration?
So insoluble sulfur is majorly used in tire-related industries only. Though it is used in other applications as well, but the conversion there is very less. So it's not significant enough to talk about.
Sir, now that the freight cost has come down, so how is our cost of production, how does it compare with our competitors in, let's say, Japan or China and other geographies?
So freight cost is basically what makes us competitive while we export. As far as the cost of production is concerned, that's nothing to do with freight cost per se. However, while we talk about competitiveness vis-a-vis China and Japan, though we do not have any idea of their production cost because this is all very confidentially kept by them, but we do feel that we are competitive as far as costs are concerned. We are competitive enough to compete with them.
Sir, and how is the demand looking broadly in terms of the -- already second quarter is going by as we speak? So are you seeing any improvement in demand vis-a-vis the first quarter? Or is it the same? Or actually, the things have gone down?
In export, we are yet to see any improvement in demand per se, as far as the total market is concerned. And in domestic also, we do not see any significant upside as of now.
Sir, so basically, things remain as they are or has they further gone down as compared to Q1?
No, I cannot say that they are further going down, but we do not see any -- very encouraging signs of improvement, either as far as demand is concerned.
Sir, if you look at the -- at least the domestic tire industry, if you look at the first quarter results, so they have given all-time high numbers, both for the top line as well as for EBITDA. So sir why is it not percolating down to our company?
No. See, our -- when we look at our company, we are looking at a mixture of exports as well as domestic market. And though we have not lost much quantity vis-a-vis last year in domestic market, but there has been an impact in the exports. So that is what has affected our top line.
That's all from my side. And sir, just one request, since the company is net debt free, sir, kindly consider a share buyback because maybe this is the best opportunity to acquire and extinguish our outstanding share so that the earnings per share can increase permanently going forward. So thank you very much.
[Operator Instructions] Next question is from the line of [ Samad Shah ] from Alpha Wealth Advisors.
Yes. So basically, sir, my first question would be that we are previously planned to increase our penetration in the North America market. So currently, what our penetration would be? And what are our plans for the next year? What kind of penetration should we see? And lastly, have we added any new customers on the North America front?
So in terms of approvals, our penetration is very good. As I said last year also, we've got good approvals, and we have only added to those approvals in the past year, and that is a very important step in getting the allocations. Now the time is coming up in the next few months for those approvals to be converted into actual allocations. And we will be certainly putting our best foot forward.
Any customers you can comment on that if you...
No, I can't comment on specific customers.
Okay. And one last question would be, sir, on the realization expectation, directionally, can you tell you for the next few years, what will be it like?
Look, all I can say is that until the global demand supply situation does not improve further with underlying demand going up, the situation is not going to be so easy. And things will be there under pressure.
Next question is from the line of Samarth Singh from TPF Capital Group.
I missed the first part of your opening commentary, but I think it was -- you mentioned something about demand weakness from Europe.
Sorry, can you repeat, Samarth? I didn't get you.
Yes. I think the first part of your commentary, you mentioned that we are still seeing demand weakness in Europe.
That's correct.
I want a clarification on that because as per the EU new car registration data, registrations for the first half of calendar year up by 18%, so I would have told that we would at least, if not positive commentary, we'll at least start seeing some sort of stable commentary coming out of our exports to Europe.
Yes. But actually, it's not happening. And if you delve deeper into the news, you will see that a lot of the European tire companies are actually facing various kinds of strike. I don't want to take specific names of our customers and their results and the various issues at their factories, but you will see that, that is happening. I don't know what the exact reason is that maybe the replacement demand is what drives their sales more than the OEM. Maybe things will improve. There is also a little bit of destocking going on from an inventory point of view. So no, it's difficult to say.
Okay. Got you. That's helpful. And just a last question. Plan for cash flow for this year, is just continued debt free now?
That's correct, that's correct. Our cash flow plans remain as we've announced. Debt pay off expansion, CapEx and dividend. There is no other plan. The decision on whether we are starting our expansion or not will be taken by the end of this year. And in this first few months of this financial year, we have continued to prepay debt, which is coming due over the next 12-odd months. And yes, that's what we'll keep on doing.
Next question is from the line of Aditya Khetan from SMIFS.
Sir, regarding to your opening remarks on to the new orders which we are not getting for the new expanded capacity. So is there any new geography which we are targeting or any new customer, which we might have been added, so there is likely chance of getting orders on that particular geography or particular customer. Is something on the cards or we would see the utilization ramp-up to take around 2 to 3 years from today?
We are in advanced stages with pretty much all customers across all regions. So if you ask me about the pipeline, it's strong. But from pipeline, it has to be converted also, and that is the stage we are at, with a number of customers and a number of geographies.
Okay. And sir, this expansion, so before like expanding the capacity. So generally, a company follows an approach. So to say the order book is pre-hand only whenever the capacity to commercialize. But here, sir, it seems like sir, we had expanded the capacity, but we are not having orders in hand. So how is the approach like which we keep generally while doing business.
We must remember that between the decision to expand capacity and today that 2 to 3 years of COVID happened, global auto slowdown also happened in 2019. So the external environment changed a lot. Now I don't think it would have been prudent to suddenly stop expansion midway.
But sir, we had a year of 2021, '22 also. So that 2 years also, sir, we were not able to fill this capacity of 5,500 tonnes. So that's what I wanted to understand.
No, we will not. That's it. I can't shed any more light on it. We will not. It's a fact.
Okay. And sir, on to the cost side, so when we look in FY '23, so more or less, so the power and fuel cost, the freight cost, each and every cost has been rationalized, and they are operating at the normalized levels. So now with the crude prices again going up and things have started to pick up on the inflation front, is there any chance that our costs can again go up, so freight cost and all these things?
So as far as the future is concerned, it's very difficult to say because most of the inputs are dynamic and are not very, very much long term for customers. For example, sulfur, it has corrected, but in the current month, it has gone up again, though not significantly. same for oil and freights. But what we can say is that they have rationalized and we hope that they stay there or they move with inflation, that is our hope.
Any guidance on to the margins if you would like to share for full fiscal FY '24 and FY '23?
It will be very difficult to say because the margins would depend on 2, 3 factors. First of all, how the raw material and the exchange behaves and on the quantity of the material that we get for new orders. So that will determine the margin for FY '23, '24.
[Operator Instructions] Next question is from the line of Manisha, an individual investor.
Sir, what is the global size of the insoluble sulfur and the domestic size? And what it is growing at a CAGR for the -- what it could be growing at CAGR for the next at least 3, 4 years, approximately, if you can answer?
Domestic size should be around 27,000 tonnes to 28,000 tonnes per annum. So that should be the ballpark figure in domestic demand. The global demand is very difficult to ascertain because the numbers are not published anywhere. And even different tire companies have different consumption ratios, but it should be between 275,000 tonnes and 300,000 tonnes I think, around 275,000 tonnes.
275,000. You told India at 27,000 tonnes. That means, India is 10% of the global market.
Yes. The global -- Indian market, our estimate is very, very -- is very accurate as far as Indian market is concerned, as far global market is concerned, it's an estimate that we have.
The estimate says that you said that 275,000 tonnes, right?
It could be between -- yeah, it could be between 260,000 tonnes or 300,000 tonnes, put the average at around 275,000.
At what pace is it growing approximately both the markets?
So historically, what the analysts say is that the market should be growing between 3% to 4%. But current situation is not the same because of slowdown in Europe and other factors. But if you look at it on a long-term basis, this is what the analysis that insoluble sulfur consumption should grow between 3% to 4%.
And sir, what should be the excess capacity in the market right now approximately?
So that number will be difficult to say again because we don't have the exact capacities of many people. But there is quite a gap, that much we know.
It should be more than 10%?
Yes. More than 15%.
More than 15%, okay, sir.
Next question is from the line of Dhruv Muchhal from HDFC Mutual Fund.
Can you probably give what was the share of exports this quarter and the same number last year quarter the decision -- in revenue, probably in value terms or volume terms, whatever is comfortable.
Just a moment. I will get back to you with that number.
Sure. Okay. And sir, the decline in other expenses, although it was broadly similar Q-o-Q, but the decline Y-o-Y is primarily driven by what?
Decline in Y-o-Y is primarily driven by decline in freight costs. That is the biggest number there. And then decline in power and fuel costs.
Okay. And sir, freight cost, what we are seeing in 1Q is almost a normalized number now? Or there's still some scope left?
They are coming to more or less pre-COVID level, so more or less there.
And it's reflected in 1Q numbers? The lower cost is reflected in 1Q numbers. Yes, sir, that's broadly if you can share the export numbers -- export share. That was the only thing, sir, if you can probably share the export sales share of...
I'll just give you the number. So it was around 50% last year, and it's around 50% this year, so around 50%.
5-0, 50% both are equal.
For current year, our sales turnover versus -- sorry, our exports turnover upon total turnover is 52%, last year was 50%.
Last year was 50%, 5-0, and this time is 52%.
Yes, last quarter that is.
Yes, Y-o-Y 1Q '23 and 1Q '24. Gto it.
Next question is from the line of Keshav Garg from Counter Cyclical Investments.
Sir, I'm understand what is the import duty on insoluble sulfur imports in India? And are we making any representation to the government to impose any kind of antidumping duty on the same?
So import duty is [Technical Difficulty].
The next question is from the line of [ Rajvi Shah ] from Moneywise Financial Service.
My first question is, do we see our market share increasing going ahead? And what are your plans to increase the market share in domestic markets?
Well, when we say that from next year, we are looking at additional quantities, definitely our market share will increase. So yes, we do see our market share increasing.
And my next question is, what is the outlook on the tire industry. And with respect to the evolving trends on EV realization, can you share your views on the growth part of it.
Well, as far as EV is concerned, we believe that the tires should evolve further for use with EV. And that's good news for us because that means that insoluble sulfur utilization should go up on a -- as a percentage of the weight of tire.
Ladies and gentlemen, we'll leave that as the last question. I now hand the conference over to the management for closing comments.
I take this opportunity to thank everyone for joining on the call. I hope you have been able to address all your queries. For any further information, kindly reach out to us or SGA, our Investor Relation adviser. Thank you once again.
Thank you.
Thank you very much. On behalf of Oriental Capital & Chemicals Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.