PCBL : Transcript of Q3 FY 2023 Earnings Conference Call

"PCBL Limited

Q3 FY2023 Earnings Conference Call"

February 02, 2023

ANALYST: MR. SANJESH JAIN - ICICI SECURITIES

MANAGEMENT: MR. RAJ GUPTA - CFO - PCBL LIMITED

MR. SAKET SAH - HEAD - INVESTOR RELATIONS - PCBL

LIMITED

MR. PANKAJ KEDIA - VP - INVESTOR RELATIONS -

PCBL LIMITED

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PCBL Limited

February 02, 2023

Moderator:Ladies and gentlemen, good day and welcome to PCBL Limited Q3 FY2023 Earnings Conference Call, hosted by ICICI Securities Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing "*" then "0" on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjesh Jain from ICICI Securities. Thank you, and over to you, Mr. Jain.

Sanjesh Jain:Thanks, Nirav. Good morning, everyone. Thank you for joining on for PCBL Limited Q3 FY2023 Results Conference Call. We have PCBL management on the call represented by Mr. Raj Gupta, Chief Financial Officer; Mr. Saket Sah, Head, Investor Relations; and Mr. Pankaj Kedia, Vice President, Investor Relations. I would like to invite Mr. Raj Gupta to initiate the call with his opening remarks, post which we will have an opportunity for a Q&A session. Over to you, Raj. Thank you.

Raj Gupta:Thank you, Sanjesh, thank you, Nirav, and a very good morning to everyone. On behalf of PCBL I extend a very warm welcome to all of you on our earnings call.

I would first like to take a moment to introduce Mr. Saket Sah who has just joined the group as Head, Investor Relation. Saket is an Alumnus of Welingkar Institute of Management in Mumbai and brings to us over 20 years of the rich strategic experience across various industries and functions. Prior to PCBL he was heading the investor relations and ESG reporting for Grasim Industries. He also had a stint with Citi Group. At the group level, Saket will also be spearheading ESG and sustainability initiative.

Coming to quarter three performance. We reported Rs.1463 Crores in the operating revenue during the quarter. EBITDA for the quarter was Rs.176 Crores. PBT and PAT stood at Rs.128 Crores and 100 Crores, respectively. On YTD basis, our revenue from operations was Rs.4500 Crores while EBITDA stood at Rs.575 Crores as against Rs.3228 Crores of revenue and Rs.534 Crores of EBITDA during the same period last year.

On quarter-on-quarter basis realization per ton was almost flat due to steep correction in crude prices. The formula pricing would correct by over $200 per ton in quarter four over quarter three. As a result, there was a significant level of inventory liquidation at customers end, resulting in lower off take during quarter three. Volumes during the quarter were around 101000 ton, down about 10% from the previous quarter,. We believe part of this volume, we will be able to make up in quarter four.

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PCBL Limited

February 02, 2023

Also despite the drop in volume, with our well-spread customer and product portfolio, we could still maintain the overall profit margins. EBITDA per ton during the quarter was Rs.17357 as against Rs.16863 during quarter two. Commissioning of new Co- generation power plant during the year has resulted in significant debottlenecking of our power capacity and now we are able to generate and sell more units of power per ton of carbon black production. On a YTD basis, we have generated on an average about 1338 units of power per ton of carbon black and this number in the same period last year was 1148 units, which is almost 190 units of increased generation per ton of carbon black production.

Quarter three power generation was even higher at 1361 units per ton of carbon black. Average realization during quarter three from power sales was Rs.3.73. We are seeing an uptick in power tariff in the current quarter with average exchange price of around Rs.6.4 per unit in January as against an average of Rs.4.55 during quarter two.

Specialty volume during the quarter was around 9000 tons, which is roughly 10% lower than previous quarter, again primarily on account of inventory liquidation at customers end. We are getting very strong demand commentary from auto and tyre industry and which is also reflecting in off take in the current quarter in our industry. So we expect volume wise better quarter in quarter four.

On the project side first line of Tamil Nadu is ready, which is roughly 40% of total Tamil Nadu capacity. We are awaiting some approvals from electrical Authority for start up power. We expect maybe about two, three days' time before which we can start the trial run. Second line will come up with a gap of about 15 days or , so ideally by end of this month that line should also be ready and we will commission the third line maybe soon after that, but more or less the project is ready and anyone of you if you happen to be in Chennai we will be happy to host you there so you can have your own assessment of the project. On expansion of specialty line, out of the proposed two lines first line is in advanced stage of construction and we expect the line to be ready by March 2023, it will be around 20000 tons line. Commissioning of second line to take another year, so maybe by March 2024 we will have that line also ready. With this, friends I open the floor for your questions.

Moderator:Thank you very much. We will now begin the question-and-answer session. The first question is from the line of Aditya Khetan from SMIFS Institution. Please go ahead.

Aditya Khetan: Thank you for the opportunity, sir. My first question is on the domestic market volume. We are witnessing in this quarter that the domestic volumes have declined by 7% on quarter-on-

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PCBL Limited

February 02, 2023

quarter basis. So are we witnessing domestic demand also have started to falter or has become weak and how is the current trend for the month of January.

Raj Gupta:Like I said our volume during the quarter are around 10% lower compared to the previous quarter and I said that there would be steep price correction between last quarter and this quarter. So there would be a temptation at customers end to reduce the inventory level.

Aditya Khetan: So what you are expecting that the export demand was somewhat weak, but now we have started to witness a decline in the domestic volumes also so just wanted to get an idea how is the domestic market like going right now.

Raj Gupta:Domestic demand scenario looks pretty encouraging, I mean, not only tyre and auto companies are manufacturing more,they are also exporting more. So both domestic demand as well as overall manufacturing level in India that has gone up and that is more structural. So we do not see any challenge on the demand side, but if there is the 16%, 17% price drop and we operate in a formula pricing industry, our customers know that by shifting part of their offtake to subsequent quarter they will be able to procure it more economically. So therefore, both domestic market and international market there was a volume drop. Now international market; yes in Europe there is recession likely and therefore there are issues, but we have our own strategy. It is a pretty big market and what we are doing globally currently, is very small. In international market the volume that we do is just about a percentage of the total global demand. All we have to do is to knock on more customers doors and we have already invested heavily in our supply chain network so we are well connected with customers, have very strong presence locally in so many countries. so we do not see this scenario as something which is concerning.

Aditya Khetan: Sir for the Q3 FY2023 whatever stating the government data so when we get the imports of carbon black so there it was showcasing that import in India has started to increase on quarter-on-quarter basis they have gone up by roughly 7%, 8% so just wanted to know so this is particularly from which countries if you can highlight from China, Russia, South Korea, wherein we have started to witness increase in imports in India.

Raj Gupta:Well, first of all China is not as prominent both in terms of volume as well as in terms of their product costing. So the import from China in India is far less. I mean last month it was about 500 tons. You are right that the level of import in the interim had gone up. see the marketin last one, one and a half years has been extremely volatile in terms of Interest rates, commodity prices, oil prices, war in in Eastern Europe etc. Russia was not being able to utilize their capacity as before the war, they were selling primarily in Western Europe and then eventually Indian importers realizing that if they procure from Russia then they can

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PCBL Limited

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procure it at a discount.Also, Incidentally in quarter two and even in quarter three the realization, carbon black pricing was very high. We were selling at almost Rs.140000 per ton and therefore there was an opportunity for them. So these things will continue to happen. some quarters you will see import going down significantly some other quarters it will move up, but for us what is important is to hold on to our own strategy, ensure that we have a balance between our margins and capacity utilization and that is exactly what we did in quarter 3.

Aditya Khetan: Sir now we are witnessing that the carbon black prices are started to decline so in declining carbon black prices scenario how does our spread grew like just an idea if you say we can maintain if there is a decline into the spreads.

Raj Gupta:Any change in crude prices should not impact our margins. Margin impact may come from different reasons. If we are talking about gross margins, then it can happen maybe if there is some kind of inventory buildup in the system. Similarly EBITDA level margin can change maybe because of change in some expense structure, your fixed cost is moving up or going down and there are other costs also, but otherwise, generally speaking, change in crude prices should not impact margins, as long as we are not building on massive inventory.

Aditya Khetan: And similar difference that are now expressing into the CBFS prices also so just wanted to know so this price decline in carbon like so this is majorly because of demand softening or this is a raw material pass on kind of a thing what is happening.

Raj Gupta:It is a raw material cost pass on. See previous quarter, quarter three when we are selling, our raw material was linked with crude at $100 and in quarter 4, our raw material will be linked with $85 crude. So it is just a reflection of change in crude.

Aditya Khetan: For the current quarter also so you are expecting that the crude price will remain in this range only $80 to $85 so that could be the range.

Raj Gupta:Last three, four months, crude prices have remained range bound between around $80, $85 so we are not seeing any significant price change in next quarter as of now, unless crude changes in February and March significantly.

Aditya Khetan: Just one last question from my side. Sir, on to the specialty business, the global growth what I was seeing, so that is expected to be around only 3% to 4% till around 2027, but we are confident that the specialty business will grow faster than the normal rate. So how should we look this in context with PCBL.

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