Heranba Industries Limited — Q3 FY25 earnings call

Call held 27 Feb 2025

Management summary

Heranba Industries reported a 7.5% YoY revenue growth to ₹1,075 crores and a 25.7% YoY PAT growth to ₹44 crores for 9M FY25. However, EBITDA margins were suppressed at 11% due to lower realizations and fixed costs from new, underutilized capacities. The company anticipates a strong recovery and growth in FY25-26, driven by new facilities commencing production and a bottoming out of pricing pressures in both domestic and export markets.

Highlights

  • Revenue from operations for 9M FY25 grew to ₹1,075 crores, up from ₹1,000 crores in 9M FY24, representing a 7.5% YoY increase.

  • Profit after tax for 9M FY25 increased to ₹44 crores, compared to ₹35 crores in 9M FY24, marking a 25.7% YoY growth.

  • Management expects a significant revenue growth of 35-40% and an EBITDA margin of 12-14% for FY25-26.

  • New facilities at Sarigam (Phase 2) and Saykha are on track to begin commercial production by the end of Q4 FY25, contributing to future growth.

  • Prices in both domestic and export markets have started to bottom out, with Q4 FY25 showing signs of revival and price improvements.

Concerns

  • EBITDA margins were suppressed at 11% for 9M FY25 due to lower realization and increased expenditures.

  • Q3 FY25 saw a significant margin drop, with gross margins down 200-300 basis points, primarily due to lower realization of technical products.

  • Fixed expenditures of approximately ₹15-20 crores from newly commenced, underutilized plant capacity in Q3 impacted profitability.

  • Challenging global macros, slowdown in demand, and higher inventory levels in the export technical business led to lower demand and price dips in Q3.

Key financials

  1. Revenue from Operations ₹1,075 Cr +7.5%YoY
  2. EBITDA ₹117 Cr
  3. EBITDA Margin 11%
  4. Profit After Tax ₹44 Cr +25.7%YoY
  5. Volume Growth 3.5%

What they filed

Q1 FY27: revenue down 25.5%, net profit down 57.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue458 338 395 490 606 +32%307 −9%353 −11%365 −25%
EBITDA46 -10 -2 20 45 −3%15 +256%-6 −258%18 −11%
Net profit34 -9 -5 22 32 −6%9 +202%-12 −137%9 −57%
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 ₹50 Cr
    • Deployment over last 2 years ₹425 Cr
    • Further deployment for ongoing projects ₹75 Cr
    • Sarigam Phase 2 facility commercial production
    • Saykha facility commercial production
    See for the last 2 years we have deployed approximately Rs. 425 crores. May be another 75, 50 to 100 crores may be deployed further to separate the things in two sides. Both the sides it is half way now. One side will be Sarigam side. Out of the two blocks one is just started, the other block will be completed in this present quarter. That is Sarigam. Saykha is a new site, Greenfield. There the plant will be commenced. The production will be commenced in this quarter.
  • Debt Gross ₹300 Cr
    Total borrowing is around 300 Cr.

Guidance & targets

Revenue

  • Revenue Growth Revenue · FY25-26 · High confidence 35% to 40%
    In the coming year, we anticipated that the growth will be around 35% to 40% in the 25-26 and EBITDA margin will be in the range of around 12% to 14%.

    — Rajkumar Bafna

  • Total Turnover Revenue · FY25-26 · High confidence ₹1,850 to ₹1,950 crores
    No, addition of that, addition will be around 600 crores as you rightly said. The total turnover will be around 1850 to 1950 crores in the range.

    — Rajkumar Bafna

  • H2 FY25 Revenue/Bottomline vs H1 FY25 Revenue · H2 FY25 · Medium confidence equal to H1 +/- 5-10%
    Yes, it should be in that range only. Even after this quarter We yet feel that first half would be equal to second half Plus minus 5%-10%

    — Rajkumar Bafna

  • Total Revenue Revenue · FY25 · High confidence ₹1,400 crores
    Okay, and for the whole year FY25, are we still on the track to reach the Rs. 1,400 crore revenue? We are expecting to.

    — Raunak R Shetty

Profitability

  • EBITDA Margin Profitability · FY25-26 · High confidence 12% to 14%
    In the coming year, we anticipated that the growth will be around 35% to 40% in the 25-26 and EBITDA margin will be in the range of around 12% to 14%.

    — Rajkumar Bafna

  • Net Profit Margin Profitability · FY26 · High confidence 5% to 6%
    Net profit margin, should be around 5% to 6% in the next year considering an EBITDA of 12% to 14%.

    — Raunak R Shetty

  • EBITDA Margin Profitability · FY25 · High confidence 10% to 12%
    This year we are guided around 10% to 12%.

    — Rajkumar Bafna

What to watch in Q4 FY25

Commercial production and ramp-up of Sarigam Phase 2 and Saykha facilities

Next quarter (Q4 FY25 results / Q1 FY26 commentary)
Current Expected to commence by March end (Q4 FY25)
Target Successful commercial operations and initial ramp-up without significant slowdowns

Why it matters

Successful commissioning and ramp-up are crucial for achieving FY26 revenue growth targets and realizing returns on recent CAPEX investments.

Phase 2 we expect to start by the end of Q4 FY25.

Risks & concerns

  • Challenging global macros and demand slowdown

    high

    The export technical business witnessed lower demand due to challenging market conditions and higher inventory, impacting revenues.

    Management acknowledged

  • Pricing pressure and lower realization

    high

    Lower realization of products, particularly in the export market, and competition from Indian and Chinese players led to a dip in prices and suppressed gross margins.

    Management acknowledged

  • Fixed expenditures from underutilized new plant capacity

    medium

    New plant capacity commenced in October but was not properly utilized, leading to fixed expenditures of ₹15-20 crores impacting Q3 profitability.

    Management acknowledged

  • Time-consuming new product registrations for export growth

    medium

    Expanding in markets like the US requires new product registrations, which take a longer time, potentially delaying growth from new facilities in these markets.

    Management acknowledged

Q&A highlights

6 direct
Pricing pressure and market bottoming out Direct
Yes, Q4, we have already started seeing good demand coming in and because of demand we are also seeing price improvements in the product. No, in domestic as well as export.

Management confirmed that pricing pressure, particularly in export markets, was significant in Q3 but is now showing signs of bottoming out with price improvements in Q4 across both domestic and export segments.

Asked by Manish Jain

Explanation for Q3 margin drop Direct
There are two, three reasons behind that. One is the reason is our gross margins has come down to around 2-3 basis also, so 200-300 basis points due to lower realization of some of our technical products also. Second one reason is our new plant capacity is commencing in October which is not proper utilization because it was a very new commencement of production. So there are fixed expenditures for this quarter in the profit and loss account.

Management provided a clear explanation for the Q3 margin compression, attributing it to lower realizations and fixed costs from underutilized new capacity, quantifying the impact at ₹15-20 crores.

Asked by Vipul Shah

Industry overcapacity due to aggressive CAPEX Direct
All these CAPEX started two years back by most of the companies and one has to complete the project which is half way, now no new CAPEX will be coming up, that's what we feel. So it will be the existing capacity, whatever it has come, it will be absorbed because new CAPEX, new venture won't be started by anybody that is what we feel.

Management offered a perspective on the industry's CAPEX cycle, suggesting that current projects are nearing completion and new CAPEX is unlikely, which should help absorb existing capacity and stabilize the market.

Asked by Manish Jain

Plans for Daikaffil unit Direct
Sir, Daikaffil was a sick unit. Of course, we started our production in the last quarter. Last quarter our topline revenue was 3.5 crores with some contract manufacturing of our existing products. And we also started our earlier products there in a small way, but we will ramp up in the coming months. So also we are planning for a R&D setup, as we mentioned earlier, for our internal group companies as well as for outside companies.

Management detailed the initial operational status and future plans for the Daikaffil unit, including ramping up production and establishing an R&D setup, indicating its potential contribution to future revenue and product development.

Asked by Vipul Shah

US and China business scenario Direct
Even today China consists of around 10% of our total business and the US is slowly growing. We're one of the late entrants into US market and it takes a longer time to get a registration. But we've applied few registrations. In fact, we've got a registration also in the last quarter which will help us in the next year.

Management provided an overview of their presence and strategy in the US and China markets, highlighting the long lead times for registrations in the US but expressing optimism for scaling business there next year with new registrations.

Asked by Harshal

Ramp-up of new facilities (Sarigam Phase II & Saykha) Direct
Yes. But because the phase-l is just commenced, there will be some issues in the facility that we'll have to take into consideration. If everything goes well, we'll be able to immediately ramp it up. But if there are issues from that particular site, we'll see some slowdown for the initial one or two quarters and then we'll see a better turnover from that particular new site.

Management clarified the expected timeline for new facility commencement (March end) and acknowledged potential initial ramp-up challenges, providing a realistic outlook on their contribution to revenue in the coming quarters.

Asked by Maitri Shah

2 min read 5 chapters

Detailed narrative

Q3 & 9M FY25 Performance Overview

Heranba Industries reported a 9M FY25 revenue from operations of ₹1,075 crores, marking a 7.5% increase from ₹1,000 crores in 9M FY24. Profit After Tax (PAT) for the nine-month period grew by 25.7% YoY to ₹44 crores, up from ₹35 crores in the previous year. However, EBITDA margins for 9M FY25 were suppressed at 11%, primarily due to lower product realization and increased operating expenditures.

Pricing Environment and Export Market Challenges

The company faced significant pricing pressure, particularly in the export technical business during Q3 FY25, leading to a 200-300 basis points drop in gross margins. This was attributed to challenging global macros, a slowdown in demand, and high inventory levels. Competition from both Indian and Chinese players contributed to the price dip. Management, however, noted a slight revival in prices and demand in Q4 FY25 across both domestic and export markets, with expectations for better realization in Q1 FY26.

CAPEX and Capacity Expansion

Heranba has deployed approximately ₹425 crores in CAPEX over the last two years, with an additional ₹50-100 crores expected to be deployed. The Sarigam Phase 2 facility and the new Greenfield Saykha facility are both anticipated to commence commercial production by the end of Q4 FY25 (March end). These new capacities are crucial for the company's projected 35-40% revenue growth in FY25-26 and a total turnover of ₹1,850-1,950 crores.

Margin Compression and Cost Headwinds

The 9M FY25 EBITDA margin was 11%, impacted by lower realizations and increased expenditures. Specifically, Q3 FY25 saw a margin hit due to fixed costs of approximately ₹15-20 crores associated with new plant capacity that commenced in October but was not yet fully utilized. Management expects FY25 EBITDA margins to be in the range of 10-12%, with an improvement of 200-300 basis points in the next year, targeting 12-14% for FY25-26.

New Business Initiatives and Market Outlook

The Daikaffil unit, acquired as a sick unit, started production in Q3 FY25, contributing ₹3.5 crores from contract manufacturing. The company plans to ramp up its own product manufacturing and establish an R&D setup at Daikaffil. In the US market, Heranba is a late entrant, with registrations taking time, but expects new registrations in the coming year to scale business. China currently accounts for about 10% of the total business.

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