Himadri Speciality Chemical Limited — Q4 FY18 earnings call

Call held 1 Jun 2018

Management summary

Himadri Speciality Chemical delivered a breakout performance in FY18, characterized by a 199% surge in PAT and significant deleveraging. Management is pivoting the company from commodity coal tar products toward high-margin specialty segments, specifically Advanced Carbon Materials for lithium-ion batteries and Speciality Carbon Black. With a ₹600 crore self-funded expansion plan, the company aims to become a top 5 global player in speciality carbon black within five years.

Highlights

  • Revenue grew 49% YoY to ₹1,971 crores, driven by volume growth and better realizations.

  • EBITDA increased 82% YoY to ₹450 crores; PAT tripled to ₹243 crores (up 199%).

  • Net Debt reduced to ₹629 crores from ₹717 crores; Net Debt-to-EBITDA improved to 1.4x.

  • Coal Tar Distillation capacity to expand from 400,000 MT to 500,000 MT by Q3 FY19.

  • Announced ₹600 crore Capex for Advanced Carbon Material (20,000 MT) and Speciality Carbon Black (60,000 MT).

  • Advanced Carbon Material (ACM) facility currently operating at 100% capacity (50 MT/month).

  • Net Working Capital improved significantly to 31% of sales from 36% in FY17.

  • Board recommended a dividend of 10% (Re. 0.10 per equity share).

Key financials

  1. Revenue ₹1,971 Cr +49%YoY
  2. EBITDA ₹450 Cr +82%YoY
  3. PAT ₹243 Cr +199%YoY
  4. Net Debt ₹629 Cr -12%YoY
  5. Blended Realization ₹51,900
  6. Net Working Capital 31%

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

SegmentVolume MixCapacity Utilization
Coal Tar Pitch (CTP)72%100%
Carbon Black28%86%

Guidance & targets

Capacity

  • Advanced Carbon Material Capacity Capacity · Q4 FY19 · High confidence 5,000 MT
    we expect to have 5,000 metric tonnes capacity of material by Q4 FY 2019.

    — Anurag Choudhary, CEO

  • Advanced Carbon Material Capacity Capacity · exit FY20 · High confidence 20,000 MT
    By exit FY 2020, we expect 20,000 metric tonnes capacity to be operational.

    — Anurag Choudhary, CEO

  • Speciality Carbon Black Capacity Capacity · March 2019 · High confidence 60,000 MT
    We expect the capacity of 60,000 metric tonnes to be ready by March 2019.

    — Anurag Choudhary, CEO

  • Coal Tar Distillation Capacity Capacity · Q3 FY19 · High confidence 500,000 MT

    Previously 400,000 MT → 500,000 MT

    Our coal tar distillation capacity is set to increase from the present level of 400,000 metric tonnes per annum to 500,000 metric tonnes per annum from the beginning of Q3 FY 2019.

    — Anurag Choudhary, CEO

Capex

  • Total Capital Expenditure Capex · next 2 years · High confidence ₹600 crores
    we expect a capital expenditure to the tune of Rs. 600 crores in next 2 years.

    — Anurag Choudhary, CEO

Margin

  • Speciality Carbon Black EBITDA per tonne Margin · FY20 · Medium confidence ₹30,000 - ₹200,000
    So in speciality, EBITDA per tonne ranges from Rs. 30,000 to Rs. 200,000 per metric tonne, depending on which grade you are manufacturing.

    — Anurag Choudhary, CEO

Volume

  • Overall Volume Growth Volume · FY19 · Medium confidence 6-7%
    So on an overall average basis; we can see 6% to 7% capacity, overall volume growth for the year.

    — Anurag Choudhary, CEO

Risks & concerns

  • Cyclicality of Commodity Carbon Black

    medium

    Management explicitly stated they will not expand in commodity black due to its cyclical nature and lower profitability.

    Management acknowledged

  • Raw Material Price Volatility

    low

    Management stated they use a transfer pricing/formula-based mechanism with customers, passing through raw material price changes monthly.

    Analyst downplayed

  • Capex Funding and Equity Dilution

    low

    Management committed to funding the ₹600 crore capex entirely through internal accruals with no equity dilution.

    Management acknowledged

Areas of evasion (2)

  • Specific pricing for Advanced Carbon Materials
  • Product-wise realization for naphthalene and coal tar pitch

Q&A highlights

2 direct, 1 evasive
Sustainability of EBITDA per tonne Direct
One thing we can clearly say the run rate what we have achieved in Q4, is clearly sustainable. And the intention of the company is to build upon that in the future.

Investors were concerned if the sharp margin expansion in Q4 (₹12,900/tonne) was a peak or a new baseline.

Asked by Baidik Sarkar

Advanced Carbon Material (ACM) Pricing Evasive
No, this is highly confidential. We absolutely cannot share ACM pricing because today... ACM is a reality now. And the product has been very well accepted.

Management's refusal to share pricing data on their most promising growth engine makes it difficult for analysts to model future profitability accurately.

Asked by Suhani Doshi

Oversupply risk in Speciality Carbon Black Direct
We are looking out on the Indian market to the tune of only 10% to 12% of our volumes. Balance, everything will be exported to the global market.

Management clarified that their massive capacity expansion is targeted at global exports, mitigating risks of domestic oversupply or competition.

Asked by Aakash Manghani

2 min read 5 chapters

Detailed narrative

Strategic Pivot to Specialty Chemicals

Himadri is undergoing a fundamental transformation from a coal tar distiller to a specialty chemical powerhouse. The company is focusing on two high-margin pillars: Advanced Carbon Materials (ACM) for lithium-ion batteries and Speciality Carbon Black. ACM is currently operating at a full capacity of 50 MT per month, with plans to scale to 20,000 MT by FY20. Management expects these segments to place Himadri in a 'different league' globally, catering to sunrise industries like electric vehicles.

Robust Financial Performance and Deleveraging

FY18 saw a massive 199% growth in PAT to ₹243 crores and an 82% increase in EBITDA to ₹450 crores. This was driven by higher capacity utilization (100%+ in coal tar distillation) and an improved product mix. Simultaneously, the company strengthened its balance sheet, reducing net debt by ₹88 crores to ₹629 crores. The net debt-to-EBITDA ratio now stands at a healthy 1.4x, down from significantly higher levels in previous years.

Aggressive Capacity Expansion Roadmap

The company announced a ₹600 crore capex plan over the next two years. Key projects include increasing coal tar distillation capacity to 500,000 MTPA by Q3 FY19 and setting up 60,000 MTPA of speciality carbon black by March 2019. For ACM, the company targets 5,000 MTPA by Q4 FY19 and 20,000 MTPA by FY20. Management emphasized that these projects will be funded via internal accruals (₹316 crores generated in FY18) without equity dilution.

Operational Efficiency and Working Capital Management

Management has successfully optimized the cash conversion cycle, bringing net working capital down to 31% of sales in FY18 from 36% in FY17 and 55% in FY14. This improvement is attributed to better supply chain management and operational excellence. The company's credit rating was also upgraded from CARE A to CARE A+, reflecting the strengthened financial profile.

Market Dynamics and Competitive Moat

Himadri benefits from a unique integrated business model where a single raw material (coal tar) is used to create multiple value-added products. The imposition of anti-dumping duties on SNF imports from China is expected to boost domestic volumes and pricing. In the speciality carbon black segment, management aims to be among the top 5 global producers within five years, leveraging 7-8 years of R&D to produce high-entry-barrier grades that command EBITDA of up to ₹200,000 per tonne.

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