Kiri Industries

Kiri Industries reported a robust Q3 FY25 with standalone revenue reaching Rs. 156 crores, marking an 11% year-on-year and 8% quarter-on-quarter growth. Standalone net profit for the quarter stood at Rs. 25 crores, significantly boosted by dividend income from Lonsen-Kiri Chemical Industries Limited. For the nine months of FY25, standalone revenue was Rs. 469 crores (up 8% YoY) with a net profit of Rs. 3 crores. On a consolidated basis, Q3 FY25 revenue was Rs. 179 crores (up 12% YoY and 3% QoQ), leading to a consolidated net profit of Rs. 153 crores after accounting for other comprehensive income and share of profits from associates and joint ventures.

The company achieved a 'monumental legal victory' in the decade-long DyStar case. On January 31, 2025, the Singapore Supreme Court ruled in Kiri's favor, awarding a discretionary enhancement of 5.33% interest per annum on the US$603.8 million buyout amount, effective from September 3, 2023. This interest component is expected to add approximately $70 million, bringing the total expected proceeds from the DyStar sale to $685-$700 million. The sale process is in its final phase, with legally binding offers due by March 7, 2025, and proceeds anticipated between April and June 2025.

Kiri Industries is aggressively pursuing its new Copper project, with Phase 1 CAPEX estimated at Rs. 8000 crores, split into two parts of Rs. 2500 crores and Rs. 5500 crores. The company is currently investing approximately Rs. 1100 crores, with site development and initial construction already underway. Commercial operations for Phase 1 are targeted for 2028, with the entire 5 lakh ton capacity expected to be operational by 2028-2030. Management projects this project to generate around Rs. 45,000 crores in revenue and Rs. 4,000-5,000 crores in EBITDA annually post-commercialization, aiming for 80% capacity utilization in the first year.

The existing Dyes and Intermediates business is planned to continue operating in 'auto mode' without new CAPEX, leveraging existing capacities. Management aims to grow standalone revenue to at least Rs. 1500 crores per year and Lonsen-Kiri revenue to Rs. 1000 crores, totaling Rs. 2500-3000 crores. The objective is to achieve 80-90% capacity utilization and an EBITDA margin in the range of 7-10% (higher single-digit). The company expects profitability to improve significantly in FY26 as legal costs, which were Rs. 45 crores this financial year and Rs. 30 crores last year, are anticipated to drastically reduce post-DyStar sale.

While Lonsen-Kiri is expected to contribute around Rs. 1000 crores in revenue, the company faces challenges with its Chinese joint venture partner regarding dividend distribution. Despite Lonsen-Kiri holding substantial cash (over Rs. 200 crores as of March 2024), the majority Chinese shareholder's approval is required for dividend payouts. Kiri Industries aims to receive Rs. 30-50 crores in dividends annually from Lonsen-Kiri over the next 2-3 years, acknowledging ongoing efforts to convince the partner for higher distributions.

Management clarified the tax implications of the DyStar sale. The capital gain on the US$603.4 million sale value will be taxed at 12.5%. The interest component, estimated at $70 million, will be treated as regular income and taxed at the corporate tax rate (approximately 33-35%). The company expects to fully utilize its past losses, but will still incur a 'huge tax' liability on the proceeds, indicating a significant net inflow after tax.