IOL Chemicals and Pharmaceuticals Limited — Q3 FY25 earnings call

Call held 14 Feb 2025

Management summary

IOL Chemicals reported a flat Q3 FY25 with total income at ₹527 crores, a slight decrease YoY but stable QoQ. Net profit saw a QoQ improvement to ₹21 crores, and EBITDA margin also improved QoQ to 9.7%. The company declared an interim dividend of ₹4 per share and announced a stock split. However, pricing pressure, stagnant demand, and logistic challenges continue to impact revenue and margin growth, with API prices remaining subdued. The company anticipates some recovery in demand and prices from Q2 FY26 onwards.

Highlights

  • Net Profit for Q3 FY25 increased to ₹21 crores from ₹19 crores in Q2 FY25, a 10.5% QoQ growth.

  • EBITDA margin improved QoQ to 9.7% in Q3 FY25 from 9% in Q2 FY25.

  • The company declared a 40% interim dividend, equivalent to ₹4 per share.

  • A stock split from ₹10 to ₹2 face value was approved, aimed at improving liquidity.

  • Chemical sector volume saw a substantial increase of over 15% QoQ, contributing to margin stability.

Concerns

  • Total standalone income for Q3 FY25 was ₹527 crores, a slight decrease from ₹529 crores in Q3 FY24.

  • EBITDA margin declined YoY to 9.7% in Q3 FY25 from 10% in Q3 FY24.

  • API prices remained subdued amid stagnant demand, with Ibuprofen prices softening to around $9.

  • Pricing pressure and stagnant demand continue to impact overall margin and revenue growth.

  • USFDA inspection for non-Ibu products is pending since the 2019 re-audit, hindering sales growth in regulated markets.

Key financials

  1. Total Standalone Income ₹527 Cr -0.38%YoY
  2. EBITDA ₹51 Cr -3.8%YoY
  3. EBITDA Margin 9.7%
  4. Net Profit ₹21 Cr -8.7%YoY
  5. CAPEX ₹54 Cr -32.5%YoY

What they filed

Q1 FY27: revenue up 37.0%, net profit up 88.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue526 523 528 552 568 +8%580 +11%619 +17%756 +37%
EBITDA42 47 63 62 57 +36%57 +21%93 +48%104 +68%
Net profit19 21 32 34 30 +58%21 +0%53 +66%64 +88%
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

  • Pharmaceutical Segment
    8.7% EBIT Margin
  • Specialty Chemical Segment
    2.1% EBIT Margin
  • Chemical Sector
    15% Volume Growth

Capital allocation

high confidence
  • Capex ₹54 Cr
    • Revamping of cogeneration plant, environmental equipment, ETP
    The CAPEX for the quarter is Rs. 54 cr., whereas it was Rs. 80 cr. for the corresponding Quarter of FY24 and Rs. 83 cr. in the previous quarter ended September 24. I will now give a brief overview of standalone financial highlights for the recently concluded quarter and nine months ended 31st December 24. We have just capitalized fixed asset last year. Like we have started acetic anhydride and other products during the part of last financial year. So in this whole year, we have made some CAPEX like revamping of our cogeneration plant, environmental equipment, ETP. So that's accumulated to the increase in the depreciation.
  • Dividend ₹4/share (interim)
    The board has declared 40% interim dividend, that is Rs. 4 per share of face value of Rs. 10 each for the Financial Year 2024-25 and fixed the record date of 18th February 25, for ascertaining the entitlement and the same will be paid within this month.

Guidance & targets

Profitability

  • EBITDA Margin Profitability · future · Medium confidence 13-15%
    The margin which company is expecting on the EBITDA level, it will be company as a whole maybe around 13% to 15%.

    — Rakesh Mahajan

Capacity

  • Ibuprofen Capacity Utilization Capacity · next two to three quarters · High confidence 90%
    We are hoping for that to increase to around 90% in the next two to three quarters.

    — Rakesh Mahajan

  • New Facility Ramp-up Capacity · 18 to 24 months · High confidence ramp out the facility
    So we applied for the environmental approvals and there are not many other approvals that are required. So we are taking that up on priority and we hope in 18 to 24 months we will be able to ramp out the facility in that new land.

    — Abhay Raj Singh

Revenue

  • Topline Growth Revenue · future · Medium confidence 10-12%
    So, the topline guidance, we are estimating to grow around 10% to 12% considering the current scenario.

    — Abhay Raj Singh

Market Share

  • Export Share Market Share · future · Medium confidence 40-45%
    I mentioned in the last earnings call also, we are targeting 40% - 45% export share for company as a whole.

    — Rakesh Mahajan

Market Conditions

  • Recovery in demand and prices Market Conditions · Q1 of next year · Low confidence some recovery
    The fourth quarter doesn't seem to be any different. However, we expect some recovery in demand, and prices are set to ease from Q1 of next year as trade situation stabilizes.

    — Abhay Raj Singh

  • Chemical and API performance Market Conditions · from Q2 onwards, next year · Low confidence performing well
    So at present, considering the current scenario, we are hopeful that from Q2 onwards, the chemical starts performing well as well as the API.

    — Abhay Raj Singh

What to watch in Q4 FY25

EBITDA Margin Improvement

Q2 FY26 onwards
Current 9.7% (Q3 FY25)
Target Towards 13-15%

Why it matters

Tracking progress towards management's long-term profitability target, crucial for overall financial health.

The margin which company is expecting on the EBITDA level, it will be company as a whole maybe around 13% to 15%. So at present, considering the current scenario, we are hopeful that from Q2 onwards, the chemical starts performing well as well as the API.

Risks & concerns

  • API Pricing Pressure and Stagnant Demand

    high

    Subdued API prices and stagnant demand continue to impact margin and revenue growth, with Ibuprofen prices recently softening.

    Management acknowledged

  • Consumption Slowdown

    medium

    Impacting growth, corporate earnings, and economic growth, despite government tax relief efforts.

    Management acknowledged

  • Trade War and Tariff Reciprocation

    medium

    Doesn't augur well for Indian economy and pharma/chemical sectors; potential US tariffs could dampen manufacturing growth.

    Management acknowledged

  • Delayed USFDA Inspection for Non-Ibu Products

    medium

    No communication on the timing of the USFDA inspection, which is mandatory for ANDA approvals and crucial for boosting sales in regulated markets.

    Management acknowledged

  • Logistic Challenges

    low

    Rising freight costs are limiting the company's ability to reduce costs.

    Management acknowledged

Q&A highlights

6 direct
Ibuprofen Demand and API Pricing Trends Direct
In Ibuprofen, the margins are stable, as we think they are already bottomed out from last three quarters. And however, in the last few days, the prices of ibuprofen again softened and now the average of ibuprofen prices have remained around $9. I think, already bottomed out. There should not be any further reduction in prices.

Clarifies the current state of Ibuprofen pricing and management's view on API price stability after recent softening.

Asked by Udit Gupta

Onboarding New US Clients Partial
As of now, we are exploring new customers in the US market. But the process of getting the customers taking 2-3 quarters. So as of now, there is no major development or, immediate development for supplying the material to the US market. But the demand in Latin America and Europe is constant.

Indicates progress in US market entry is slow, with no immediate revenue contribution expected, but highlights demand from other regions.

Asked by Udit Gupta

Ibuprofen Capacity Utilization and Targets Direct
Capacity utilization around 75% for ibuprofen. We are hoping for that to increase to around 90% in the next two to three quarters.

Provides current utilization levels and a specific short-term target for a key product.

Asked by Udit Gupta

Long-term EBITDA Margin Expectations Direct
Earlier, I discussed that the prices of API was bottomed out due to destocking and stagnant demand. However, the earlier levels which were around three years back were in exceptional period. So we don't expect that much of high level of a return in API segment in upcoming 2-3 quarters. But we are constantly taking various steps or measures to increase the margin level with the best of our efforts and market explorations. The margin which company is expecting on the EBITDA level, it will be company as a whole maybe around 13% to 15%.

Management clarifies that historical high margins were exceptional and sets a more realistic long-term EBITDA margin target of 13-15%.

Asked by Sanjay

New Land Acquisition and Facility Plans Direct
So Sanjayji, that land has been acquired for setting up the new facility over there and the business model will remain same that we will be having some chemicals as well as some API plants in that particular land. So the products are in the process of the finalization. So at this moment, we are not able to tell you the specific product line we are going to manufacture. So we applied for the environmental approvals and there are not many other approvals that are required. So we are taking that up on priority and we hope in 18 to 24 months we will be able to ramp out the facility in that new land.

Details the strategic use of the newly acquired land for future expansion into chemicals and APIs, with a clear timeline for operationalization.

Asked by Sanjay

USFDA Inspection Status and Impact Partial
No, we were having first in 2015, and then the re-audit was done in 2019 and the audit since then it is pending and we were expecting to happen it for last one year, but we are not getting any information or communication from the USFDA. Though 2-3 molecules has also been filed, the ANDA has been filed for 2-3 molecules for the company and we are expecting that during the evaluations of this ANDA process, the US will come and visit us, because technically this time it is mandatory for the US to visit IOL facility before approving any ANDA. We are absolutely not in a position to communicate the timing about the USFDA. For non-Ibu segment, that may be right. But we are having the CEP for the non-Ibu segment. Obviously, you are right that the USFDA approval for the non-Ibu products will definitely give us a boost to increase our sale in the existing regulated market where we are selling, but that is beyond our control.

Highlights the uncertainty around USFDA inspection timing, which is critical for expanding non-Ibu product sales in the US market, despite ANDA filings.

Asked by Shaikh Mohammed Ayyaz

Rationale for Stock Split Direct
So basically, there was a continuous demand from the various stakeholders requesting for the stock split and when we initiated, this price, the market overall was on the higher side and since then the market has gone down. So I think this is a temporary phase because of the market situation and the sentiments in the equity market is not stabilizing. It's going towards South. So we are hopeful whenever the sentiment gets stabilized and our number will also, because you can watch that we are sailing through with this challenging period. The company's performance is again and again representing resilience. So that is reflecting in the performance and will also reflect in the performance in the quarters to come. So we are very hopeful and the rest is that this will give liquidity comfort to the retail investors also.

Explains the stock split as a response to shareholder demand and a move to improve liquidity, despite current market conditions.

Asked by Shaikh Mohammed Ayyaz

Chemical Sector Margin Improvement Drivers Direct
In chemical sector, there is direct relation with raw material prices and finished good prices. So from an operational efficiency, capacity utilization and increase in the store market volume, we are able to maintain some improvement in the chemical sector. Because earlier around 5-6 quarters, there was a lot of volatility in the raw material prices and the finished good prices. But since last 2-3 quarters, the prices have almost remained stable. And we have a explored some new markets also and around last year we have got a REACH Certification by which our export in ethyl acetate in Europe has improved to some extent and we are continuing to be diversifying and expanding our export market in chemical also and all these efforts resulted in some realization of the margin in chemical sector.

Provides a detailed breakdown of factors contributing to margin improvement in the chemical segment, including stable prices, efficiency, and export market expansion.

Asked by Videesha Shah

2 min read 7 chapters

Detailed narrative

Q3 FY25 Financial Performance Overview

IOL Chemicals reported a total standalone income of ₹527 crores for Q3 FY25, a marginal decrease from ₹529 crores in Q3 FY24 and ₹532 crores in Q2 FY25. Net profit for the quarter improved QoQ to ₹21 crores from ₹19 crores, though it was lower than ₹23 crores in the prior year's corresponding quarter. EBITDA margin for Q3 FY25 stood at 9.7%, showing a QoQ improvement from 9% but a YoY decline from 10%.

Segmental Performance and Margin Dynamics

The pharmaceutical segment achieved an EBIT margin of 8.7% in Q3 FY25, while the Specialty Chemical segment recorded an EBIT margin of 2.1%. Management highlighted a significant volume increase of over 15% QoQ in the chemical sector. This, coupled with stable raw material and finished goods prices, enhanced operational efficiencies, and new market explorations, contributed to some margin improvement in the chemical segment.

API Market Conditions and Pricing Pressure

The API market continues to face challenges with subdued prices and stagnant demand. Ibuprofen prices, a key product for IOL Chemicals, recently softened to approximately $9. The company acknowledged that persistent pricing pressure and stagnant demand are impacting overall margin and revenue growth. Despite implementing cost-corrective measures and achieving volume growth, logistic challenges due to rising freight costs limited further cost reductions.

Strategic Initiatives and Future Outlook

IOL Chemicals is actively pursuing new client acquisitions in the US market, a process expected to take 2-3 quarters. The company aims to increase Ibuprofen capacity utilization to 90% within the next 2-3 quarters. Management anticipates a recovery in demand and prices from Q2 FY26 onwards, projecting a 10-12% topline growth and a 13-15% EBITDA margin for the company as a whole in the medium to long term.

Capital Expenditure and Expansion Plans

Capital expenditure for Q3 FY25 was ₹54 crores, primarily allocated to revamping the cogeneration plant, environmental equipment, and ETP. The company has acquired new land on the Chandigarh-Bhatinda Highway for a new facility, which will produce both chemicals and APIs. Product finalization is underway, and the facility is expected to ramp up operations within 18-24 months, subject to environmental approvals.

Shareholder Returns and Corporate Actions

The board declared a 40% interim dividend of ₹4 per share for the financial year 2024-25, with the record date set for February 18, 2025. Additionally, a stock split was approved, changing the face value of equity shares from ₹10 to ₹2, with a record date of March 11, 2025. This action was taken in response to continuous shareholder demand and to enhance liquidity.

Regulatory Environment and Export Focus

The company is awaiting a USFDA inspection for its non-Ibu products, which is crucial for boosting sales in regulated markets, though the timing remains uncertain despite ANDA filings. IOL Chemicals is strategically focusing on expanding its export footprint, particularly in Europe, and has seen improved ethyl acetate exports following REACH certification, targeting an overall export share of 40-45% for the company.

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