Himadri Speciality Chemical Limited — Q1 FY18 earnings call

Call held 4 Aug 2017

Management summary

Himadri Speciality Chemical delivered a record-breaking first quarter for FY18, characterized by significant margin expansion and volume growth. The company is successfully transitioning toward high-value specialty chemicals, particularly in the carbon black and lithium-ion battery materials segments. Management remains bullish on sustaining this performance, supported by a deleveraged balance sheet and strategic capacity expansions in core and sunrise sectors.

Highlights

  • Reported best-ever quarterly performance with Net Income from operations at ₹452 Crores, up 77% YoY.

  • EBITDA grew 96% YoY to ₹100 Crores, driven by better product mix and operational efficiencies.

  • Net Profit (PAT) surged 330% YoY to ₹50 Crores compared to ₹12 Crores in Q1 FY17.

  • Sales volume increased by 25% to 94,769 metric tonnes, with average realization up 42% to ₹47,729 per MT.

  • Long-term debt reduced by ₹104 Crores during the quarter, standing at ₹310 Crores as of June 2017.

  • Announced capacity expansion in Coal Tar Pitch (CTP) from 400,000 to 500,000 MTPA via debottlenecking.

  • Advanced Carbon Material (Li-ion anode) capacity scaling from 5 MT to 50 MT per month by September 2017.

Key financials

  1. Net Income from Operations ₹452 Cr +77%YoY
  2. EBITDA ₹100 Cr +96%YoY
  3. PAT ₹50 Cr +330%YoY
  4. Sales Volume 94,769 MT +25%YoY
  5. Average Realization ₹47,729 +42%YoY
  6. Composite EBITDA per MT ₹10,592 +56%YoY

What they filed

Q1 FY27: revenue up 15.8%, net profit up 21.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,135 1,132 1,129 1,100 1,070 −6%1,133 +0%1,101 −2%1,274 +16%
EBITDA206 218 234 244 238 +16%239 +10%214 −9%276 +13%
Net profit134 142 158 183 187 +40%195 +37%186 +18%223 +22%
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.

Segment breakdown

  • Coal Tar Division
    73% Volume Mix70% Market Share (India)
  • Carbon Black Division
    27% Volume Mix84% Capacity Utilization

Guidance & targets

Capex

  • Debottlenecking Capex Capex · FY2018 · High confidence ₹20 Crores
    The capex this year we envisage is around Rs.20 Crores that is for debottlenecking the capacity from 400,000 to 500,000, tonne.

    — Anurag Choudhary, CEO

Capacity

  • Advanced Carbon Material Capacity Capacity · September 2017 · High confidence 50 MT per month

    Previously 5 MT per month → 50 MT per month

    We are in the process of setting up 50 metric tonne per month continuous process reactor, which will be operational by September 2017.

    — Anurag Choudhary, CEO

Volume

  • CTP Volume Growth Volume · Q3 FY2018 · Medium confidence 10%
    from Q3 onward there will be 10% growth in the volumes and the balance growth we think will come in FY2019.

    — Anurag Choudhary, CEO

Revenue

  • Minimum Quarterly Gross Sales Revenue · FY2018 · Medium confidence ₹500 Crores
    this quarter we had gross sales of around Rs.500 Crores... this is the minimum topline you can expect for every quarter with improvements.

    — Anurag Choudhary, CEO

Risks & concerns

  • Working Capital Loan Increase

    medium

    Working capital loans increased by ₹155 Crores to ₹495 Crores during the quarter.

    Management acknowledged

  • Li-ion Battery Market Readiness in India

    medium

    Currently no Li-ion battery producers in India; 100% of anode material production is targeted for exports.

    Analyst acknowledged

  • Raw Material Price Volatility

    low

    Management uses a 'fixed delta' pricing model, passing through raw material cost changes to customers on a monthly basis.

    Analyst downplayed

Areas of evasion (1)

  • Product-by-product revenue mix (cited policy of only giving division-level volume split).

Q&A highlights

3 direct
Drivers of EBITDA Improvement Direct
30% will be productivity led and 70% will be margin led.

Clarifies that the majority of the ₹3,000/tonne EBITDA improvement is due to high-margin product mix rather than just volume or cost efficiencies.

Asked by Baidik Sarkar, Unifi Capital

Advanced Carbon Material Realizations Direct
The final product will be Rs. 600,000 to Rs.700,000 [per metric tonne].

Reveals the massive realization gap between core products (~₹48k/MT) and the new Li-ion anode material, highlighting the potential for future margin expansion.

Asked by Siddharth Bhattacharya, Suyash Advisors

Sustainability of Margins Direct
The profitability we have been able to improve is not speculative. We have added higher value-added products with customer centric approach... they are clearly sustainable on a long-term basis.

Management confirms that margin expansion is structural, driven by product mix (Specialty Carbon, Refined Naphthalene) rather than one-off gains.

Asked by Raj Gandhi, Sundaram Mutual Fund

2 min read 5 chapters

Detailed narrative

Record Financial Performance and Deleveraging

Himadri reported a 77% YoY increase in Net Income to ₹452 Crores and a 330% surge in PAT to ₹50 Crores. This was supported by a 25% volume growth and a 42% increase in average realization to ₹47,729 per MT. Crucially, the company reduced long-term debt by ₹104 Crores to ₹310 Crores, though working capital loans rose by ₹155 Crores to support higher volumes and realizations.

Strategic Shift to Specialty Carbon

The company is aggressively moving into Specialty Carbon Black, which serves niche non-tyre segments like plastics, inks, and coatings. Management noted that the margin difference between normal and specialty grades starts at 250-300% and can exceed 2000%. This shift is a primary driver of the ₹3,000 per tonne absolute improvement in EBITDA seen this quarter.

Advanced Carbon Material: The Next Growth Engine

Himadri is the only Indian producer of advanced carbon material for Li-ion batteries. They are scaling capacity from 5 MT to 50 MT per month by September 2017. With realizations for the final product ranging between ₹6-7 Lakhs per MT, management expects this segment to become a 'big game changer' and a core business pillar as global demand for electric vehicles and energy storage scales.

Coal Tar Pitch Capacity Expansion

As the largest producer in India with a 70% market share, Himadri is debottlenecking its CTP capacity from 400,000 to 500,000 MTPA. This ₹20 Crore investment is timed to meet the expected rise in domestic aluminum capacity from 2.75 million to 4 million MTPA by FY19. CTP constitutes roughly 10% of aluminum production volume, ensuring a steady demand outlook.

Operational Efficiency and GST Impact

EBITDA margins were bolstered by a 30% contribution from productivity improvements and operational efficiencies. The transition to GST resulted in a reversal of ₹18.27 Crores in excise duty provisions, which had a neutral effect on profitability as it was offset by higher reported costs of materials consumed, ensuring a clean comparison of underlying performance.

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