PCBL Ltd

NSE:PCBL

Ladies and gentlemen, good day, and welcome to the PCBL Chemical Limited Q4 FY '25 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjesh Jain. Thank you, and over to you, sir.

Thanks, Avira. Good afternoon, everyone. Thank you for joining on for PCBL Chemical Limited Q4 FY '25 Results Conference Call. We have PCBL management on the call represented by Mr. Kaushik Roy, Managing Director; Mr. Raj Gupta, Chief Financial Officer; Mr. Anand Kumar, Group Head, Investor Relations; Mr. Pankaj Kedia, Vice President, Investor Relations. I will request Kaushik, sir, to open the call with his initial remarks, post which we will have a Q&A session. Over to you, sir.

Thank you so much. A very good evening to all of you. I would like to extend a very warm welcome to each one of you for joining this call today to discuss Q4 and FY '25 of PCBL Chemical Limited. I hope you have already gone through the investor presentation and the financial results, which we have already uploaded on the stock exchange. And I'm honestly thankful to all of you for taking out time to join us today in this call. Now coming to this year and this quarter -- last quarter, I'm happy to inform that as a whole -- in the whole year, PCBL Chemical has reported its best ever operational performance and highest ever EBITDA. Highest ever carbon black sales as well as specialty black sales. And in addition to that, power sales volume was also the highest in the history of PCBL. And the other milestone which we have achieved is we have achieved in FY '25, a revenue of $1 billion plus.



As you all know, over the last few years, we have diversified beyond carbon chemistry into new fields within the chemical sector and this growth, both organic and through strategic acquisition and partnership, has brought us a pivotal moment. We have broadened our capabilities to pioneer advanced solutions for our customers globally. Our quest to diversify from a pure-play carbon black producer led to acquisition of Aquapharm, which you are fully aware of in early 2024. As you know, Aquapharm is a leading specialty chemicals player, focusing on water treatment, detergent, and oil and gas chemicals. This particular acquisition provided us access to an export-oriented specialty chemical platform.



And FY'25 was the first full year of operation for Aquapharm post integration. FY'25 was a bit challenging year for Aquapharm. The business environment was not really so strong. They were also sharp -- can you hear me? Am I audible?

Yes, sir, you're audible.

Okay. As I said that -- as I was saying, FY '25 was a bit challenging year for Aquapharm. The business scenario, the business environment was weak. There were some corrections in the yellow phosphorus prices resulted in a soft performance. Phosphonates is a huge opportunity given Aquapharm's global leadership position. Raw material prices for phosphonates have now stabilized, which would be beneficial for us going forward. We have strengthened management capabilities. There were some gaps in that area, and created a revamped organizational structure in Aquapharm now. We expect a very strong improvement in both operational and financial performance in Aquapharm in this financial year, which is FY'26.



The steps taken to improve cost and operational efficiency measures, value-added product launches and strengthening of sales from sales teams in U.S.A. and Europe have set a strong foundation for the next leg of growth in Aquapharm in the coming years. In oil and gas chemicals, Aquapharm has less than 1% of global share, and we are working on strategies to increase our customer base, presence in multiple geographies, increasing capacity and supply chain capabilities. In the United States, oil and gas chemical opportunity is large, considering Mr. Trump's new policies focusing more on increased oil production.



Keeping all these things in mind, we have also gone ahead with expansion projects, which are on track and nearing commissioning. This would help us to accelerate the sales volume growth in coming years. We are also evaluating brownfield CapEx across all manufacturing locations in India as well as in U.S.A. Within Aquapharm, green chelate is another segment where we see a strong growth opportunity with push towards biodegradable killing agents in U.S.A. and Europe, as well as in China and India. We are, therefore, working on expanding the portfolio of green chelates by using our R&D capability. We have already developed MGDA and GLDA liquid, and now working on MGDA granules.



Now coming to PCBL on the carbon black side, we are in the process to acquire 116 acres of land in Naidupeta, Andhra Pradesh for our sixth manufacturing unit. This new facility will primarily focus on rubber black as well as performance and specialty chemicals. This land can eventually accommodate 450,000 metric ton per annum of additional capacity. CapEx at this site is expected to commence in a year's time and construction to take 18 months thereafter. The proposed greenfield plant under PCBL Tamil Nadu has significant tax advantage as earnings would be subject to a lower tax rate of 17.2%. We are also participating in a fast-growing battery chemicals market through nano-based technologies. We intend to manufacture nano silicon, which is to be used in anodes of lithium-ion batteries. It brings significant benefits like extended battery range, lower battery life. It's a longer battery life, faster charging, and reduction in CO2 emission, at the same time, it is cost-effective. The pilot plant currently is under construction in our Palej plant and should be ready in next few months' time.



PCBL has also signed technology transfer agreement with the Chinese company for acetylene black capacity, which finds application in high-voltage cables, batteries, semiconductor, packaging, conductive plastics, paints and coatings. Global demand for this product, acetylene black is approximately 70,000 tonnes or 70 Kt with 90% of supplies coming from China. We plan to set up an initial capacity of 5,000 metric tons per annum by FY '27 and at Mundra. We are witnessing strong interest from across value chain partners for this.



FY '25 was the first full year operation for our new greenfield PCBL facility of 147,000 metric ton per annum in Tamil Nadu. We have already announced brownfield expansion of 90,000 metric tons in 2 phases in Chennai, Tamil Nadu. First phase, 30,000 metric tons will be commissioned in next few weeks' time and the second phase of 60,000 metric ton along with 12-megawatt green power by FY '26 end. We aim to cross 1 million tonnes capacity in carbon black by FY '28. PCBL anticipates continuous growth in international market over the next few years, driven by expansion into new geographies, strategic investments in supply chain capabilities, moving up the value chain and the launch of new specialty grades. The capacity growth in EU and U.S. has been stagnant, and Russian CB is banned by the European Union. In the process, PCBL is gaining market share in both EU and U.S.



Tyre industry growth outlook, both in India as well as at global industry level continues to remain positive. With EV penetration rising across 2-wheelers and passenger vehicles, we expect replacement demand to remain steady and positive. The demand for specialty grade carbon black continues to be resilient. Since FY '17, '18, PCBL has increased its focus on developing grades, which can be used in these products, leading to a corresponding increase in margins. Significant increase in share of specialty black volume from 1% in FY '15 to 11% in FY '25. PCBL added 20,000 metric ton per annum specialty black capacity in Mundra in FY '25, taking the total specialty black capacity to 112,000 metric ton per annum. We also plan to set up 1,000 metric ton per annum specialty black capacity dedicated for superconductive grades, where margins are obviously extremely high and is expected to be completed by end of FY '26.



Over the last few years, the company deepened its research commitment, comprising forward-looking investment in infrastructure, people and process, resulting in empowerment of the company with proven capabilities in product application, process efficiency and product customization.



Now I'll come to quarterly performance of PCBL Chemical Limited. But before that, just to give you a flavor of how we are looking at the business and what is the philosophy of the company. Broadly, if you look at PCBL has got 3 major baskets or verticals of business. One is relating to rubber black. The second one is relating to specialty black, specialty chemical, along with new initiatives. And the third one is Aquapharm, which is beyond carbon chemistry.



When you talk about the rubber black, which is our foundation today, we started with rubber black in a big way, and we are a leader in India and we will continue to grow globally. The growth journey continues. And therefore, as you know that we have already added fifth plant in Chennai, and we are working on the sixth plant in Andhra Pradesh. The focus will remain there. We'll keep growing in that area, both in India as well as globally.



Let me come to the second bucket where we are talking about specialty black where the journey started in 2015 or 2014. And today, we have reached the position of fourth largest player globally. Along with specialty, we have also started focusing on things like Nanovace, which you are aware of, nano-silicon technology, acetyl black just now I talked about. We are looking at superconductive, which will be commissioned very soon. So, this is another bucket. This is another big bucket for us.



The third one is about Aquapharm. Yes, it was the first year of operation last financial year. And we moved from a promoter-driven organization to a professionally managed organization. So, it was important to create right kind of foundation. And we have taken all those actions to ensure the organ structure is in place, proper structure is in place. And it will eventually reflect in the performance. We are very confident that in this financial year, we'll be seeing substantial improvement in Aquapharm performance also. So, the focus remains on all the 3 verticals, rubber black related, specialty plus new initiatives driven by R&D and innovation. And third one is about Aquapharm, which is phosphorus-based chemistry, moving away from carbon chemistry.



Let me now talk about the quarterly performance. During the quarter, our consolidated sales volume in carbon black business increased by over 5.3% year-on-year to 150,152 tonnes. This translates into a capacity utilization of over 95% during the quarter. Consolidated revenue from operations increased by 8.2% to INR 2,087 crores on the back of higher sales volume and revenue from Aquapharm Chemicals. Consolidated EBITDA reduced by around 4.5% year-on-year to INR 317 crores. PBT stood at INR 126 crores, while PAT stood at INR 100 crores. EBITDA per metric ton in carbon black business stood at INR 17,655. Of the total carbon black sales volume, domestic sales volume stood at 86,737 tonnes, while international sales volume stood at 63,415 tonnes. Export sales volume registered a strong year-on-year growth of 16.8% in Q4 FY '25.



Moving on to our segmental performance. Tyre accounted for 90,080 tonnes. Performance chemicals reported sales volume of 44,700 tonnes, while specialty sales volume was 15,372 tonnes. We continue to expand our product portfolio and customer base across all segments. Aquapharm Chemicals reported a steady performance during the quarter. Q4 FY '25 revenue stood at INR 372 crores with an EBITDA of INR 51 crores. The quarterly sales volume stood at 24,098 metric ton.



Coming to the yearly performance, consolidated revenue from operations increased by over 30.9% year-on-year to INR 8,404 crores from INR 6,420 crores in FY '24. Sales volume increased by around 12.1% year-on-year to 596,262 metric tons in FY '25. The consolidated EBITDA for FY '25 was up by 28.8% year-on-year to INR 1,384 crores from INR 1,074 crore in the previous year. During this time, we also achieved the highest ever power generation and sales volume during the year. Power generation increased by 10% from 671 million unit in FY '24 to 738 million unit during the year, with an external sales volume growing by about 7% to 436 million unit as against 408 million units in FY '24. Aquapharm reported revenue of INR 1,420 crores and EBITDA of INR 193 crores in FY '25.



Now turning to the macro environment. We are assessing the current development in U.S. As such, the economies are not really doing too great. As all of you know, U.S. is not showing great sign of improvement in economy. Europe is going almost flat. China is also a little bit down. India is the brightest spot at this point of time. So that's a good news for all of us. But at the same time, certain amount of uncertainties have got generated recently because of the tariff issue, which got created recently. We are watching out for the situation. We have a belief that possibly once the dust settles down a bit, things are sorted out, India might be having an advantage over others. And hopefully, that will reflect on our company as well.



India specialty chemical manufacturers may gain some share in U.S.A. because of this tariff issue. We are not sure about the basic carbon black, the rubber black, whether that opportunity is there or not, but specialty for sure, there's an opportunity. We might also see some benefit coming to Aquapharm soy as we go along. Currently, the carbon black exposure to U.S. market is about 5% for PCBL. CB exports to U.S.A. would be exempted from tariff for the portion of raw material, which is procured from U.S., which is approximately 75%.



At PCBL Chemical, we continue to work on portfolio expansion and capacity additions across all business verticals and increasing allocation of resources towards strengthening our supply chain, improving the product mix and optimization of costs. The long-term prospects of all the business segments remain positive, and we are on track to achieve our mid- and long-term growth targets. All this achievement underscores our strong position within the industry and highlights the progress we have made in global specialty chemical space. PCBL has successfully set a strong foundation for its growth journey upwards.



And with this, I would like to conclude, and the floor is open for your questions, please. Thank you so much.

[Operator Instructions] The first question is from the line of Aditya Khetan from SMIFS Institution Equities.

Thank you, sir for the opportunity and for the detailed understanding on the business. Sir, my first question is on to the outlook for the carbon black. I believe, sir, in domestic market in FY '26, like most of the auto OEMs have guided for a muted set of a growth. Even in the tire segment also, the growth would be largely in the lower-single digit. So, demand seems to be muted for carbon black in domestic. In times of this muted demand, are we able to compensate the loss in volumes in domestic in the export market? And how the trend in spreads generally takes up like when the demand is muted? Any thoughts on this?

Yes. I mean, you are right. In a way, Indian demand at this point of time for auto and tyre is naturally not very strong, as you rightly said. And therefore, the account demand in India will not be very strong, though there is a decent amount of demand will be there. And what is our plan that while maintaining the leadership position in India, we'll be focusing more on the international market. And our presence, as you will see going forward, will grow further. Just to give an example, about 10 years back, our international sale was around 80,000 tonnes in a year. And already last year, we have crossed 240,000 tonnes. Last year, we have already crossed. So, we'll keep focusing on international market and keep growing further in international market. You are absolutely right, while India might be a little soft at this point of time, but we'll be growing more in the international market.

Sir, on to the international markets, it is rightly understandable that EU and U.S., these are the 2 markets where we would be witnessing volume growth. Sir, in terms of number, if you can put, although we know that the ban by Europe on Russia has led to a supply glut of almost around 6 lakh to 7 lakh tonnes of carbon black volume. How much of that is compensated by China and India? And what is the wallet share, like if you can highlight by Indian players like especially for PCBL, how much we have reached the penetration? And how much more room is there, sir?

Yes, you are right. In Asia, naturally, our wallet share is quite high. But when you look at Europe and U.S.A., our wallet share is in single digit. And therefore, the headroom is quite large for us. And we see that as an opportunity to grow both in EU and U.S.A. And to be honest, we are putting up capacity, that is the primary reason. 90,000 tonnes we are adding in this year in Tamil Nadu. And again, in parallel almost, we are initiating the project activities of Andhra plant. So, keeping that in mind, we are going ahead.

Sir, on to the Aquapharm, this quarter, definitely, there was a good upturn in terms of volumes and per kilo realization. Any sort of change like which has happened compared to last quarter, and we could see this trend to be materially on the higher side? Any sort of a demand uptick in international markets for phosphonates? Anything has changed, if you can highlight that?

Yes, sure. I think I mentioned that there's a lot of opportunity for Aquapharm to grow in the field of oil and gas chemical industry, which is a very large one and our share is just about a couple of percentage. So, there is a huge amount of growth opportunity there, huge amount of headroom is there. It is a question of penetrating the market, penetrating the customer and expanding the geography, and making right set of products, which is technically rich. And precisely, that is what we are doing. We had issues in terms of lack of skill, lack of leadership, which now we have corrected. And therefore, we have already started seeing in last quarter, there is improvement. And going forward, we'll be seeing further improvement in case of Aquapharm operationally.



There is also a lot of focus on cost management. Better cost management, more efficiency in procurement and all other functions as well. On one side, we are focusing on sales, closely working with customers, expanding geographies, expanding product portfolio. On the other side, we are focusing on operation to improve on cost. So, the combination of these 2 have reflected already in last quarter. Going forward, it will be even more prominent.

And sir, the guidance of 15% to 20% volume growth in Aquapharm, that will be maintained? And sir, secondly, on -- in FY '25, the EBITDA was INR 194 crores for Aquapharm. This includes the other income also?

Yes, it does.

So sir, how much would be that in INR 194 crores EBITDA?

Other income was INR 11 crores.

Sir, for full fiscal FY '25?

Yes.

Just one outlook on the debt side. Sir, this quarter, we had witnessed some decline in the finance cost. I believe, sir, like we were also doing a CapEx of around INR 5,000 crores to INR 6,000 crores. And the cash flow which we would be generating largely would be used for that expansion going ahead. Alongside, sir, are we also focusing on reducing the debt? If yes, sir, what is the guidance for debt in FY '26 and '27?

Absolute debt level may not go down significantly from the current level unless crude goes down from here. We would be generating good cash flow, but we also have CapEx pipeline, not INR 5,000 crores, INR 6,000 crores, but next 5 years, we will be spending around INR 3,500 crores. So, on an average, about INR 700 crores every year will be the CapEx run rate. And consequently, absolute debt may not go down significantly from the current level. Interest rates have started cooling off and a small reflection of which is there in our quarter 4 finance costs. We believe that next year, with more interest rate cuts expected, our interest cost should go down.



_

Sir, just one last question on to the carbon black side --

Sir, sorry to interrupt. Mr. Aditya, we may request that you return to the question queue for follow-up questions as there are several participants waiting for the turn. The next question is from the line of Angad Saluja from UBS Securities India.

The first one on realizations for the carbon black business for the quarter. I think we've seen a decline now for 2 consecutive quarters in realizations. And obviously, now with crude also being slightly volatile in the last one-odd month, how do you see the realization shaping up for the next quarter and the year ahead? Like what's your outlook on realization specifically?

So this quarter, realization should be mostly flat, a small uptick, small improvement because there is a quarter lag between the movement in crude prices and change in our realization. So, first quarter, we would see very marginal improvement in realization. But then realization should not be seen as a reflection of change in margins. It is more reflective of the movement in raw material prices, which is linked to crude. But margin would depend on product portfolio and also demand-supply situation, broader demand-supply situation in the industry.

And so just going back to that, you said product mix will drive more margins. I think in the quarter, we've seen that despite specialty black sort of doing better, I think almost 9% Y-o-Y growth overall in the full year as well, our margins for Q4 have sort of dipped Q-o-Q as well as Y-o-Y. So, any specific reason, any one-offs or anything that we should know about?

Specialty still is about 10% of our total volume, right? So, while year-on-year specialty volumes are going up in terms of percentage, its weight on the overall sales volume is still very insignificant or small -- not insignificant, but small. Coming to the reason behind drop in prices, Russia, which earlier used to sell in Europe mostly now because of ban is pushing more material in Asia and India, and they are selling at unrealistically low prices. And consequently, with our focus on capacity utilization, we also have to play a bit on pricing, which is also reflecting on the drop in margins in the current quarter. But with all the work that we are doing on portfolio building, on efficiency improvement and also with higher volumes, operating leverage would be favorable for us. We believe that from a 4- to 5-year perspective, we would be largely on track with our guidance of the INR 25,000 EBITDA per tonne.

The next question is from the line of Sanjesh Jain from ICICI Securities Limited.

First, touching upon the Aquapharm. This quarter EBITDA, because if I take INR 194 crores for the full year, it appears that we have done only INR 38 crores for this quarter, while the year run rate was INR 50 crores. On a much higher volume, much higher revenue, anything which is one-off or anything which has happened in the EBITDA margin for this quarter?

Sanjesh, the EBITDA for the quarter is INR 51 crores. I don't know where you're getting INR 38 crores.

Because you have disclosed INR 194 crores for the full year.

Yes, INR 194 crores is for the full year.

So in the first 9 months, what we have disclosed is INR 156 crores. So, INR 194 crores minus INR 156 crores is INR 38 crores.

EBITDA INR 194 crores that we are talking is the reported EBITDA. And in the first 3 quarters, we are mostly talking about the operational EBITDA. This year, also, there are some expenses which are being incurred on consulting side like BCG Mackenzie, right? And when we report numbers, those expenses also become part of our operating expenses. And consequently, our reported EBITDA comes down. So, like-to-like basis, fourth quarter is better than the first 3 quarters. And fourth quarter is still only a small reflection of the improvement, which is now happening in the business. A good reflection of it will be from the current year, first quarter itself of the current year.

So that's on it. But how do we see this INR 194 crores going because the consulting fee and all will be done in FY '25. So, from a reported basis, where should we see EBITDA for FY '26?

The business with its capacity has potential -- it did perform INR 400 crores plus EBITDA 2 years back. And we strongly believe that now with more capacity additions and more product launches and better portfolio, we can further improve from there. It will take a couple of years' time to maybe cross that INR 400 crores. But this year itself, we believe that we can do 40%, 50% better performance.

Fair enough. Now coming back to the carbon black, again, there is a drop in EBITDA sequentially. Any particular reason you are seeing pressure on the premiums which we were earning or the product mix because the specialty mix has remained fairly stable. So, what is driving this drop in the EBITDA per kg in the carbon black business?

Fourth quarter was kind of an uncertain quarter from global economic point of view. Post this presidency election in U.S., there was an indication that there would be some tariffs which will be levied on all trade partners of U.S. And consequently, a lot of our customers, they wanted to reduce inventory, not knowing as to how it is going to impact them. And therefore, I mean, market -- the demand was sluggish generally. Also, Russia last 2 quarters has started dumping in India and in some of the Asian countries, and they are selling it at almost $200 lower prices. Now we want to keep our capacity utilization high, and therefore, we still booked some volumes, which were not at our usual margins.

And that Russia dumping continues because I don't see why it will not because they need to somehow place their around 0.7 million of capacity somewhere in the market and the market opens up with India and China, which are larger market, which can absorb this. This situation is unlikely to change, right?

Yes. I mean, possibly, they will continue with this. We'll have to find new markets and customers, which is precisely what we are focusing on.

So, when we say INR 25 EBITDA per kg in next 3, 4 years in such a scenario, can you help us understand the bridge how we really want to transform this from the INR 17, INR 18 a kg EBITDA to INR 25 a kg EBITDA?

Sanjesh, the operating leverage itself is going to play a big role. For every 10,000 tonnes incremental sales volume at current gross margin that we make, it will be adding about INR 400 per tonne to the whole portfolio at EBITDA level.

We are 95% utilization, right? How are we going to add that volume?

Yes. But we are adding capacity. 90,000 tonnes capacity is going to come in, in a year's time, 30,000 right? And then in a year's time, we will have more brownfield and then eventually a greenfield in Andhra Pradesh.

And greenfield is not going to add that much.

No, no, no. Greenfield will also add because the head office expenses are not duplicated, right? So, they remain more or less stable, right? Maybe the operating leverage will be a little less there, but we will still have operating leverage. And this INR 400 per tonne is at 10,000 tonne additional volume. We still have cushion even with the brownfield expansion, which is in pipeline to add just INR 4,000 from operating leverage. But I'm not saying that our operating cost structure would remain the same. So maybe half of that about INR 2,000, INR 25,000 is going to come against this 90,000-tonne capacity itself. And then product portfolio is also changing. For every incremental 1,000 tonnes of specialty sales, our blended EBITDA improves by about INR 60, INR 70. And every year, we can add between 7,000 to 10,000 tonnes additional specialty volume.



Also in specialty, we are moving up the value chain. Our MD, Mr. Roy just mentioned about 1,000 tonne superconductive capacity. Now here, the margin profile is likely to be in tens of thousands of dollars as against our current $400 average gross margin. So, the margin profile in the new product launches will be very different from the conventional products that we have in the portfolio. And add to that, the work that we have been doing on the yield side, with still a sufficient cushion. We are not the best manufacturer even now. So, when we are talking about INR 25,000, we are not saying that, at that level, we'll get saturated. That's just our next 5 years target. Maybe we'll do better.

But any example, is any operator in the carbon black doing INR 25 EBITDA per kg?

See INR 25 EBITDA will be difficult because different countries have different cost structure. But at gross margin level, there are certainly companies which have at least INR 7,000, INR 8,000 better margins than us.

Fair enough. Just last question from my side. This acetylene-based what we are trying to do, the specialty, the raw material will come from China and the capacity which we are putting, the technology is also coming from China. Is that a fair understanding? And how much more profitable is this product from the EBITDA per case perspective?

Your understanding is correct with respect to the technology and the raw material. And what we are seeing in India, India currently imports about 2,000 tonnes of acetylene black. And it is sold at around $800 to $1,200 a tonne currently -- sorry, sorry, $4,000 to $5,000 a tonne and with $800 to $1,200 kind of margin per tonne.

Which is almost 3x what we do.

Yes.

The next question is from the line of Krishan Parwani from JM Financial.

Three from my side. First, on the carbon black side, what is the volume growth headroom in FY '26, considering the time taken to bring the new capacities on stream?

We should be doing about 650,000 to 660,000 tonnes, which is about 9% to 10% increase over our FY '25 volumes.

So you do have growth headroom from that 90,000 expansion that you are doing at Tamil Nadu. So, from there, you are expecting an incremental probably 50,000, 60,000 tonnes. Is that correct?

We have about 35,000 tonnes of capacity cushion already. And then one 30,000 tonne line is ready for commissioning in Tamil Nadu, which is part of 90,000 tonnes. So that itself would give us this additional 50,000, 60,000 tonnes. And then once the larger line of 60,000 tonnes is commissioned, which will be towards maybe third or fourth quarter of this year, then we will have more capacity available, but we are not counting that in our current numbers, this 50,000, 60,000 tonnes volume.

And you are fairly confident with the domestic demand, not very strong, I think, Kaushik's earlier commentary. So, with the export volumes -- with the strong export volumes, we are confident of achieving 650 to 660, correct?

Yes, we are.

Secondly, I don't know, I mean, if you mentioned it earlier, the reason for decline in carbon black spreads this quarter and then probably what's your aspiration, let's say, for the next year and a year after that?

See, the market remains extremely volatile, and therefore, it may not be very linear kind of improvement in our margins. So, like in past, you have seen that in some years, our margin jumped by INR 2,000 to INR 2,500 also. And similarly, in some years, it tend to remain flat. So, while on a long-term basis, maybe 3 to 4 years basis, we are fairly confident that with our initiatives with change in portfolio, right, and with operating leverage playing its role, we will be moving towards the targeted number. But immediately in one year, 2 years, there are a lot of things which are changing very rapidly, like the tariff thing itself, this year's tariff thing, how it is going to impact the entire ecosystem of auto industry across globe. That is yet to be assessed. So, I would say that this is a little early for us to comment on how margins are going to be this year. But we believe that we should be able to maintain our margins.

Maintain at probably INR 18, INR 20. Is that correct?

Our current year's average EBITDA margin is around INR 20,000 per tonne.

Yes, INR 18, INR 20, that's a range. So, and lastly, on Aquapharm, just one or two clarifications. So, our 4Q FY '25 EBITDA is INR 51 crores, while our EBIT is INR 19 crores. So, I think depreciation is closer to INR 32 crores. So just wanted to understand why is the depreciation so high for largely depreciated assets that you have acquired?

We acquired this company at around INR 4,000 crores. And as per accounting regulations in India, the difference between the physical value of physical assets and the acquisition value that becomes intangible assets, which are available for amortization and which also carries tax benefit. So, a good portion of this depreciation and amortization is on account of amortization of intangible assets. The quarterly run rate is INR 23 crores.

So, INR 23 crores and then what explains the difference between the INR 32 crores. Is the other income, INR 9 crores? What is it?

The balance is the physical asset depreciation.

Fair enough. You're saying that the physical asset depreciation is INR 9 crores quarterly and then the intangible is okay, fair enough.

Also, intangible amortization is also entitling us for a tax shield. It is going to be used almost around INR 500 crores and which kind of makes profit of India business exempt from tax for next 7 to 8 years, that's the kind of shit that we are going to get out of it.

So got it. And I think just one last bit. On the Aquapharm EBITDA side, I think you were -- till about last guiding that by the end of FY '25, exit run rate of should be -- EBITDA should be about INR 70 crores, INR 80 crores. So how far are we from that exit run rate of INR 70 crores, INR 80 crores quarterly in Aquapharm?

INR 70 crores, INR 80 crore guidance was for FY '26 fourth quarter is what we said we will be reaching. And we are fairly confident that we would reach or will cross that number.



Krishan, if I can add on the Aquapharm side, see the green shoots are visible from last quarter onwards. both on our top 2 categories of business, which is the oil and gas chemicals and the detergent side. On both these businesses, we see a very good growth opportunity this year. And the fact that we have a local manufacturing facility in U.S. in Texas, I mean, with this whole trade thing, tariff thing happening today, there are a lot of uncertainties, but we see a very clear advantageous situation emerging in the next few weeks and months. Hopefully, when we come back to you by the end of the second quarter of this year, we should be able to come and tell you about the significant growth prospects on the Aquapharm side. So overall, we are still talking about almost a 50% kind of EBITDA growth coming in Aquapharm this financial year. So that kind of a number visibility, we think we should be able to deliver.

That's great, sir. Sir, I think if I may -- I missed one question, if I may squeeze in here. In terms of the capacity expansion in Aquapharm, that 38,000, I think it was supposed to come on stream in March '25. So, is there a delay of 1 or 2 months? Or when will that come on stream?

Some capacities have been commissioned before March and the rest is in process of getting commissioned.

So, it is already kind of ready at this point of time. And it is just commissioned 2, 3 days back. So, it has already happened. There's a slight delay, not exactly delay from the point of view of completing the activity. It took some time to get clearance from local government, what you call is consent to operate. That took a little longer than expected. And that is why this delay, but it has already happened now.

The next question is from the line of Sailesh Raja from B&K Securities.

Sir, we are planning to set up the Nanovace facility in Palej and also with 10,000 tonnes capacity for acetylene black in Mundra. So why are we not considering for these 2 projects? Are these 2 products not eligible for 17% concessional tax rate in Nanovace?

No, Sailesh, actually, our R&D team operates out of Palej plant. And these products, I mean, these lines would require a lot of technical support and R&D support. And therefore, we are planning to set it also. Andhra will take time. Andhra even getting the MOEF approval, et cetera, will take at least a year's time. We can't afford to delay our projects, right? So, do you want to add something?

Sir, my second question on the input-output ratio trend. This has been the key driver behind the improvement in our spreads over the last 5 years. Currently, our approximate input-output ratio stands at 1.8 to 1 standard and performance than that. So, based on my estimate, that's a 10-bps improvement in ratio translates into saving of INR 150 crores. Is my understanding is right? And what is our target input ratio over the next 2, 3 years?

So, you may not be able to calculate it based on the raw material consumed and the overall production level because the portfolio itself is changing and not all grades have the same input/output ratio, right? But internally, we have the benchmarks for each of the grade that we produce. And for 1% improvement in yield, it's almost like INR 100-odd crores INR 100 crores, INR 150-odd. I mean, it will also have a relevance to crude prices. At current crude prices, about 1% yield improvement is about roughly INR 1,300, INR 1,400 EBITDA per tonne for us.

The next question is from the line of Siddhant from Tusk.

Sir, I just wanted a little clarity on the Nanovace technology. So, what is the progress so far? And what's the update? Are we looking to commercialize the plant in FY '27?

So, Nanovace, currently, we are working on the pilot plant. All orders have been placed. And on the ground, activity will start very soon once the supply starts, and we are expecting by end of this calendar year, which is October to December, during that quarter, we should be able to commission that plant. And in parallel, we have already started discussions with prospective customers, both in battery side as well as anode side. And in addition to that, also with some of the leading automobile manufacturers. So, both activities are going on in parallel. And once we get approval from them based on the pilot plant samples, we'll immediately start the commercial plant thereafter.

But in terms of technology, we have already established like credibility, right?

Yes, absolutely. Absolutely. Absolutely.

And so, regarding FY '27, we are looking to commercialize the plant, right?

No, we are looking at FY '28 meat to commercialize the plant. The pilot plant will be ready by end of this calendar year. After that, we need to give some time for approvals and to put up the new capacity, the commercial capacity, which will take roughly about a little more than a year.

And just to understand the technology. So basically, you are replacing the graphite part in the anode with silica, right?

No, not really. We are mixing nano-silicon with graphite at certain percentage.

Both are combined together to increase the life cycle.

It is a hybrid thing. It will increase the life cycle of the battery, the charging between 2 charging point, charging interval, it will be much higher. Life of battery will be much longer. And at the same time, the emission level will come down substantially. So, a combination of all 3. And additionally, cost overall will go up over a period of time. Running the cost will go up.

And in terms of this technology, is there any competitor who is also looking to explore this? Or are we the only ones having this technology right now?

You can say in a way that nano-silicon, the kind of technology we are exploring, we are one of its kind in this area. There are other players, but it is so far not commercially viable or cost-effective.

So, the first mover advantage will remain with us?

Absolutely. Absolutely. That's what the expectation is.

And for like the cost, the revenue price will be $100, we are still sticking to that number?

That was an assumption that we took. It is a very conservative assumption. Obviously, if it is selling at a higher price in market, there would be some discount to it that we'll offer, but it may be higher than $100 also for all we know. It's a little early for that. That was for our internal conservative calculation of profitability.

The next question is from the line of Prolin Nandu from Edelweiss Public Alternatives.

I just want to understand our philosophy on this CapEx, right? See, given that in domestic market, we don't know by when this Russia dumping will end. Now, on the export market also, there is uncertainty on tariff side. But at the same time, you mentioned that you can't wait for approval to come in Tamil Nadu, where we have probably a favorable tax regime there, right, in some sense. And hence, we are expanding our facility. So, just wanted to understand that given that the demand outlook is not very encouraging, at least for the near-term, why is there an urgency to put CapEx?

Well, we are already operating at about 90% capacity. That's #1. #2, the lines that Sailesh was talking about were more on the specialty grades of carbon black side, for which we would require to provide a lot of technical and R&D support, which currently is not available in our Tamil Nadu plant. And consequently, we'll have to keep these capacities station near to the R&D center, which is Palej and Mundra. So that's the reason. And third, the demand outlook, even when say, the demand outlook in India is not good, right, globally, still demand will grow by a certain percentage. Last 10 years, CAGR has been around 3.5% industry growth rate, which adds about 500,000 tonnes of incremental demand every year. And that's on the regular carbon black side, not specialty. Specialty is a different market dynamics altogether. So, there is sufficient cushion in market. And all said and done, we are just about 4% of the overall market size currently. Who stops us from taking this 4% to maybe 8% or 12% going forward over a period of time.

Understood. I mean, this Andhra CapEx that you have announced, right, is this going to be only for specialty or it's going to be the mix, right? Because you mentioned that the talent is available nearby for the specialty lines. So, what could be the probable breakup that we are looking at between carbon black and specialty here?

I guess you misunderstood. I said our R&D and technical team are in Gujarat, not in Andhra. But having said that, in Andhra, in the first phase, we will be putting up regular black lines. And then maybe based on requirement, availability of feedstock, and maybe availability of talent, we might also decide to add specialty capacity there. But as of now, we are planning to put up 150,000 tonnes of carbon black capacity, which will be rubber grade capacity mostly in the first phase of capacity in Andhra.

And just to double-click last question from my side, to double-click on this capacity utilization, right, at 9% that you mentioned. Could you help us understand what is the capacity utilization for specialty carbon black?

Specialty, we are almost at 100%. Last year, which is FY '25, we added a 20,000 tonne line. And where we have about 7,000, 8,000 tonnes of capacity available, which we hope to utilize this year. So immediately, we'll have to add one more line of specialty.

And when will that come, the new line or specialty?

Next 12 to 15 months' time.

So until that time, we are that constrained on the specialty mix, right? Is that understanding correct?

Not constrained because this year, we already have capacity cushion. So, the capacity which came up in FY '25 is largely available for this year's growth. And by the end of this year, we will have that line almost ready, the new line.

The next question is from the line of Romil Jain from Electrum PMS. As there is no response from the line of the current participant, our next question is from the line of Sarah from UVR Fund Advisory.

Sir, my questions are related to Aquapharm. In Aquapharm, what is the current logistics costs? And what are the plans to optimize these costs?

In terms of percentage?

No, sir, absolutely. Per tonne basis, sir.

It could be very different. So Aquapharm has manufacturing facilities in 3 geographies: U.S., India, and Saudi Arabia. And from there, it caters to different markets. So, there will not be any uniform logistics cost. Typically, I mean, if you were to look at the containerized freight rates, like from India to Middle East or Southeast Asia, it will be about $20, $25 a tonne. For Western Europe, it would be about close to $100 a tonne. And from India to U.S., it will be around $150 a tonne. These are the rates.

In Aquapharm, 85% of sales come from U.S. and Europe. What is the outlook on demand and pricing in these key regions? And what is the target addressable market in U.S. and Europe? And how much of the current market is catered by China?

Well, the U.S. market is the strongest for Aquapharm from the point of view of demand as well as from the point of view of margin. So that is the best possible market what we have. Europe is decent market, but obviously not as good as U.S.A. So therefore, as an organization, our trust and focus right now is to increase our sales in U.S.A. as much as we can. So that is going forward, will be our strategy as we go along, while maintaining the presence in Europe because there are players like, for example, PNG. We are the largest supplier to PNG and mostly it is supplied in Europe. So, it remains, but at the same time, a lot of focus will be there in U.S. market. This I'm talking about products which are sent or manufactured in India, echo from India.

Do we have a demand size in numbers for the same for U.S. and Europe?

In U.S., the demand is strong because oil production is going at full swing in U.S.A. and with Mr. Trump coming in possibly the demand will increase further. So, U.S. side is pretty strong. Europe is a little soft or I'd say it is a bit muted. And as I said, therefore, more focus is there for U.S.A. right now for us.

I understood, sir. I wanted some numbers, like if you could give on demand.

On demand side, U.S.A., economy-wise it is growing roughly about 1.7% this particular financial year, that is the projected growth around 1.7% to 2%. Whereas for Europe, it is almost flat. It is just about 0.5% to 0.6%. So that is what the growth looks like in Europe and U.S. But of course, U.S. is the largest economy. So, on that, almost 2% growth is not that bad, but it has definitely come down from the earlier numbers.

Sir, at what prices are China dumping and how competitive is Aquapharm pricing as compared to the prices that China is dumping?

So right now, China is not able to dump in U.S. because of the current tariff, which is 145%. They're not in a position to dump. But yes, earlier, China used to dump a lot of material. And because of that, at places we used to kind of compete with China, and therefore, it used to be a problem for us. But right now, a bit of an advantage for us, I will say, particularly from U.S. perspective with 145% duty.

One last question. In the total debt that we have, how much is Indian debt and how much exposure do we have for foreign debt?

It is entirely rupee-denominated debt.

Thank you. Ladies and gentlemen, this was the last question for the day. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.