Asahi Songwon Colors Limited — Q2 FY26 earnings call

Call held 13 Nov 2025

Management summary

Asahi Songwon reported a challenging Q2 and H1 FY26 with revenue and profit declines, primarily due to global business environment, US tariffs impacting the blue business, and low utilization at the new Chhatral API plant. Despite this, the ATC Dahej plant turned cash positive, and operating cash flows remained strong. The company is focused on improving utilization at Chhatral, expanding exports, and leveraging new product launches and regulatory approvals to drive future growth and profitability.

Highlights

  • Consolidated revenues for H1 FY26 stood at ₹271 crores, a year-on-year decrease of only 2%, indicating maintenance of revenues despite challenging conditions.

  • The ATC Dahej plant has turned cash contributive and positive, after being a drain for three years, with a goal to become PAT neutral to positive in the next two quarters.

  • Operating cash flows remained exceptionally strong, more than doubling from ₹15 crores to ₹36 crores in September 2025, with ₹19 crores coming from API and AZO segments.

  • The company has successfully filed the European CEP for Pregabalin, with approval anticipated within 7-8 months, opening doors to regulated markets.

  • Consolidation is happening in the chemical industry, with weaker players exiting, which is seen as positive for the long-term health of the business.

Concerns

  • Q2 FY26 revenues decreased by 19% QoQ and 15% YoY to ₹121 crores.

  • Q2 FY26 EBITDA decreased by 7% QoQ and 23% YoY to ₹11 crores, with Net Profit down 19% QoQ and 35% YoY to ₹2 crores.

  • EBITDA margin for H1 FY26 stood at 8.5%, down from 10.5% in H1 FY25.

  • The Atlas new plant in Chhatral faces utilization challenges, currently at about 15% for API, and is a 'big challenge' for the company.

  • US tariffs have significantly impacted the blue business, leading to customer nervousness and destocking, and a decline in utilization from 95% to 70%.

Key financials

2 periods

Q2 FY26

  • Revenue
    ₹121 Cr
    YoY -15% QoQ -19%
  • EBITDA
    ₹11 Cr
    YoY -23% QoQ -7%
  • EBITDA Margin
    9%
  • Net Profit
    ₹2 Cr
    YoY -35% QoQ -19%

H1 FY26

  • Revenue
    ₹271 Cr
    YoY -2%
  • EBITDA
    ₹23 Cr
    YoY -20%
  • EBITDA Margin
    8.5%
  • Net Profit
    ₹5 Cr
    YoY -35%

What they filed

Q1 FY27: revenue up 28.3%, net profit up 183.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue99 94 107 106 73 −26%74 −21%91 −15%136 +28%
EBITDA11 9 14 9 6 −45%7 −22%13 −7%24 +167%
Net profit6 5 9 6 4 −33%4 −20%10 +11%17 +183%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Capex Capex disclosed internal accruals
    • ATC Dahej plant (AZO) initial investment ₹85 Cr
    • Atlas (Chhatral API) new facility investment ₹70 Cr
    • Atlas (Odhav) acquisition cost ₹56 Cr
    So, the CAPEX cycle for the entire group is now pretty much over. So, barring small CAPEXs here and there, of course, there would be maintenance CAPEXs that could happen which are very minimal and very easily financed out of internal accruals. Apart from that, we may have some CAPEX coming up over the next 12 months in ATC because I think we should be hitting 85% utilization within the next few quarters. As soon as we do that, two things will happen. One, it will turn PAT positive. We have to see how much PAT positive it is depending on the market, but we should be comfortably PAT positive. Once we get to 85% and PAT positive, we would probably need to expand a bit because we will eventually run out of capacity. So, our capacity is 2,400 tons per annum between the yellow and the red combined for the plant. And we need to, over the next 12 months, come address it at some point. We would hope to do it by internal accruals more or less.
  • Debt Debt disclosed
    Second question first, we continue to deleverage. As I said, the cash flows, despite the business being poor, I mean, weak, not poor, but it is not that bad. But despite business being weaker than the previous year, this year, our cash flows continue to be equally strong and we continue to deleverage. So, we are on target for our guidance to deleverage towards March 26, as we had earlier guided, no change in that guidance.
  • Liquidity Liquidity disclosed Operating cash flows more than doubled in September 2025, rising from ₹15 crores to ₹36 crores, with ₹19 crores from API and AZO segments.
    During September 25, our operating cash flows more than doubled or even tripled compared to the same period previous year, rising from Rs. 15 crores to Rs. 36 crores. Importantly, while Rs. 14 crores of the cash flow of the Rs. 36 crores came from the blue business, Rs. 19 crores of cash flow came from API and AZO segment. So, this was heartening to see.

Guidance & targets

Capacity Utilization

  • Blue Business Utilization Capacity Utilization · Jan-Mar quarter (Q4 FY26) · High confidence 85-90%
    So, basically, we are looking at about 70% utilization in this quarter as compared to 95% earlier. And we are hoping that by January, February, and March quarter, we should be back at our normal 85% to 90% utilizations in the blue business.

    — Gokul Jaykrishna

  • AZO Business Utilization Capacity Utilization · Eventually, improving 5-10% every quarter · Medium confidence 85%
    And our target would be going closer to about 85% utilization levels. So, I would assume that the utilization levels should continue to improve by 5% to 10% every quarter.

    — Gokul Jaykrishna

  • API Business (Chhatral) Utilization Capacity Utilization · Within next few quarters · High confidence 85%
    I think we should be hitting 85% utilization within the next few quarters. As soon as we do that, two things will happen. One, it will turn PAT positive.

    — Gokul Jaykrishna

Profitability

  • AZO Business PAT Profitability · Around 60% utilization · High confidence PAT breaking up (positive)
    And we hope that by around 60% utilization, we should be PAT breaking up. So, we are nearing that.

    — Gokul Jaykrishna

  • API Business (Chhatral) PAT Profitability · Within next few quarters · High confidence PAT positive
    I think we should be hitting 85% utilization within the next few quarters. As soon as we do that, two things will happen. One, it will turn PAT positive.

    — Gokul Jaykrishna

  • Full Year FY26 EBITDA Profitability · FY26 · Medium confidence Around ₹48 crores

    Previously ₹60 crores (FY25) → Around ₹48 crores

    EBITDA would probably come down by about 20%. We had a Rs. 60 crore consolidated EBITDA earlier.

    — Gokul Jaykrishna

  • Full Year FY26 EBITDA Margin Profitability · FY26 · Medium confidence 9%

    Previously 11% (FY25) → 9%

    EBITDA margins, which were at about 11% would probably end up at full year at 9%.

    — Gokul Jaykrishna

  • AZO Business EBITDA Margin Profitability · At 85% utilization · High confidence 13-15%
    Our stated target has always been, about, the good industry standard of 13 to 15, depending on market conditions.

    — Gokul Jaykrishna

Export Mix

  • Export to Local Sales Ratio Export Mix · Next two years · High confidence 50:50
    And we hope to over the next two years, take it to 50:50 export and local.

    — Gokul Jaykrishna

Revenue

  • Full Year FY26 Revenue Revenue · FY26 · Medium confidence Around ₹550-570 crores
    So, I think we should end the year at about 550 to 570.

    — Gokul Jaykrishna

  • Long-term Revenue Target Revenue · In three years · Medium confidence ₹1000 crores
    So, it should take probably three years to get to a Rs. 1000 crore.

    — Gokul Jaykrishna

  • AZO Business Revenue Potential Revenue · At 85% utilization · High confidence ₹100-120 crores
    So, with 85% kind of capacity utilization, we can be around Rs. 100 crore or Rs. 110 crore kind of revenue. ... Rs. 110 crore, Rs. 120 crores also is possible, yes.

    — Gokul Jaykrishna

Return on Capital

  • AZO Business ROCE Return on Capital · At 85% utilization · High confidence 11-12%
    So, ROCE we are expecting would be, should be about 11%, 12%.

    — Gokul Jaykrishna

  • API Business (Chhatral) ROCE/ROE Return on Capital · At ₹250-300 crores revenue · Medium confidence 15-17%
    It would be probably 15% or 17% at Rs. 250 crores revenue.

    — Gokul Jaykrishna

  • Overall ROCE Return on Capital · Internal target · High confidence Upwards of 15%
    Yes, so upwards of 15%. Upwards of 15% ROCE. Definite internal target.

    — Gokul Jaykrishna

  • Overall ROCE Improvement Return on Capital · Two years · Medium confidence Good ROCE numbers
    Yes, from the ROCE point of view, it is true. I mean, it will take two years to get to good ROCE numbers.

    — Gokul Jaykrishna

Hiring

  • P&L Impact of new hires Hiring · About a year's time · Medium confidence Impact on P&L
    So, we have already started the process and it will probably take three to six months to run through the process and then to get somebody then to have impact. So, I would say P&L impact in about a year's time.

    — Gokul Jaykrishna

What to watch in Q3 FY26

Blue Business Utilization

Q4 FY26 (Jan-Mar quarter)
Current 70%
Target 85-90%

Why it matters

Recovery in blue business utilization is crucial for overall revenue and profitability, especially given the impact of US tariffs.

And we are hoping that by January, February, and March quarter, we should be back at our normal 85% to 90% utilizations in the blue business.

Risks & concerns

  • US Tariffs and Customer Nervousness

    high

    US tariffs significantly impacted the blue business, leading to customer destocking and nervousness, causing a drop in utilization from 95% to 70%.

    Management acknowledged

  • Low Utilization at Atlas (Chhatral) API Plant

    high

    The new Chhatral API plant is operating at only 15% utilization, which is a significant challenge for the company.

    Management acknowledged

  • Subdued Global Business Environment

    medium

    General business conditions remain very challenging globally, with slow demand and volume decrease across the chemical industry.

    Management acknowledged

  • API Price Erosion

    medium

    Prices for the main API molecule have come off by 35% over the last two years, leading to significant erosion of realizations.

    Management acknowledged

  • Timing of CAPEX and Market Conditions

    low

    The timing of commissioning new plants coincided with poor market conditions, making it difficult to ramp up operations effectively.

    Management acknowledged

Q&A highlights

7 direct
Peak revenue potential and capacity utilization Direct
The peak revenue potential would depend a bit on the pricing, but I would say in the band of about Rs. 400 crores to Rs. 450 crores would be the peak revenue potential of Asahi Songwon, the blue business.

Provides insight into the maximum revenue achievable from the existing blue business assets and current utilization levels (70% for blue, 57% for AZO, 15% for API).

Asked by Bhavik Narang

CAPEX plans and funding Direct
So, the CAPEX cycle for the entire group is now pretty much over. So, barring small CAPEXs here and there, of course, there would be maintenance CAPEXs that could happen which are very minimal and very easily financed out of internal accruals.

Clarifies that major capex is largely complete, with future expansions (like ATC) expected to be funded by internal accruals, indicating financial prudence and deleveraging focus.

Asked by Bhavik Narang

API business challenges and bottoming out of cycle Direct
Yes, I think the business cycle in the API and the chemical sectors, and generally the chemical sector across India seems to be bottoming out. Now, the question remains how long we stay at the bottom is another matter because demand does not seem to be popping up.

Management confirms the industry cycle is bottoming out, but cautions that demand recovery is not yet visible, providing a realistic outlook on the API segment.

Asked by Bhavik Narang

Capital allocation for AZO and API businesses Direct
The timing of starting the plants was bad, but then that is how business is. I mean, it is a long-term game. We are in it for the long term and we are able to see that consolidation gives us opportunities. So, we have to just wait it out, be patient, and we have the financial muscle to be able to be patient and wait it out.

Addresses concerns about past capital allocation timing, emphasizing a long-term view and the company's financial strength to navigate current challenges and benefit from industry consolidation.

Asked by Bhavik Narang

API product pipeline and regulatory filings Direct
I can mention Etoriocoxib is the name of the API. So, we have launched that, and we will now look to start sales for that within the next quarter. ... we have successfully filed the European filing, the CEP filing to the EDQM.

Provides concrete updates on new product launches (Etoriocoxib) and critical regulatory progress (CEP filing for Pregabalin), which are key to future API business growth and market access.

Asked by Arham Gandhi

Impact of US tariffs on blue business Direct
So, the blue business has not been spared. I mean, the blue business has been significantly impacted, as I said in the opening remarks and later on as well. And the reason is, earlier we would think, see, our two paths to the blue business, the pigment and the crude. The crude is not subject to tariffs. Pigment is. So, pigment is directly impacted.

Clarifies that the blue business, both pigment and crude, has been significantly impacted by US tariffs and customer nervousness, leading to destocking and uncertainty.

Asked by Vishal Sethia

API sales ramp-up despite backward integration Partial
So, Dhwanil, basically, sales is actually not doing too badly. If you look at our pregabalin sales, that sales has done better than we used to do before. The problem is we have put up a new capacity in Chhatral and that capacity is not utilized.

Highlights the paradox of decent sales for existing API products but underutilization of new capacity, indicating a need for new customer acquisition and product diversification.

Asked by Dhwanil Desai

Rationale for not adding capacity in blue segment Direct
Because we would not want to deteriorate the quality of the business that we have. It is, see, there is already overcapacity in the industry. And that is why a lot of the small companies are going out of business. In that kind of environment, if you add capacity, it would be detrimental to my existing business, and would create unhealthy competition.

Explains management's strategic decision to avoid adding capacity in the blue pigment segment despite high utilization, prioritizing margin quality and avoiding exacerbating industry overcapacity.

Asked by Prashant Kumar Uttamlal

2 min read 6 chapters

Detailed narrative

Q2 & H1 FY26 Financial Performance Overview

Asahi Songwon reported consolidated revenues of ₹121 crores for Q2 FY26, marking a 19% QoQ and 15% YoY decrease. EBITDA for the quarter stood at ₹11 crores, down 7% QoQ and 23% YoY, with an EBITDA margin of 9%. For the first half of FY26, consolidated revenues were ₹271 crores, a 2% YoY decrease, and EBITDA was ₹23 crores, down 20% YoY, resulting in an 8.5% EBITDA margin. Net profit for Q2 and H1 FY26 was ₹2 crores and ₹5 crores respectively, both showing a 35% YoY decline.

Blue Business Challenges and Outlook

The blue business experienced a significant impact from US tariffs and customer nervousness, leading to destocking and a drop in utilization from 95% to 70%. Management expects utilization to recover to 85-90% by the Jan-Mar quarter of FY26. Despite the current challenges, the company believes the industry cycle is bottoming out, and they are working to mitigate margin challenges through de-bottlenecking and cost-saving measures.

AZO Business Performance and Growth Strategy

The AZO pigment business, housed in the ATC Dahej plant, has turned cash contributive and positive after three years. Utilization for AZO improved to 57% in H1 FY26 from 45% in H1 FY25, with a target to reach 85% utilization, which is expected to make the plant PAT positive. The company aims for 13-15% EBITDA margins and ₹100-120 crores revenue at 85% utilization, with ROCE of 11-12%. Future capacity expansion for AZO will be incremental and funded by internal accruals.

API Business Development and Regulatory Progress

The API business, particularly at the new Chhatral plant, faces significant utilization challenges, currently at about 15%. Management acknowledges this as a key area for improvement, focusing on beefing up the team, expanding into new geographies, and launching new products. One new API, Etoriocoxib, has been launched, with sales expected to start next quarter. Crucially, the European CEP filing for Pregabalin has been successfully submitted to EDQM, with approval anticipated in 7-8 months, which will open doors to regulated markets and improve realizations.

Capital Allocation and Deleveraging

The company's major CAPEX cycle is largely complete, with past investments in ATC Dahej (₹85 crores) and Atlas (₹70-75 crores for Chhatral, ₹56 crores for Odhav acquisition) totaling approximately ₹121 crores for API. Future CAPEX will be minimal, primarily for maintenance and incremental capacity additions, funded through internal accruals. The company remains committed to deleveraging and is on target to meet its March 2026 guidance, supported by strong operating cash flows.

Long-term Vision and Industry Consolidation

Asahi Songwon aims to reach ₹1000 crores in revenue within three years, driven predominantly by growth in ATC and Atlas. Management views the current challenging business environment as an opportunity for consolidation, with weaker players exiting the market, which is seen as beneficial for the long-term health of the industry. The company maintains an internal target of achieving upwards of 15% ROCE, expecting significant improvement within two years as utilization and profitability improve across segments.

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