Kriti Industries (India) Limited — Q3 FY25 earnings call

Call held 13 Feb 2025

Management summary

Kriti Industries faced a challenging Q3 FY25, reporting a 14% YoY revenue decline to INR210 crores, an EBITDA loss of INR1.4 crores, and a net loss of INR11 crores. This was primarily due to raw material price volatility and the disparity between fixed annual contract prices and lower open market rates. While Agri and Building Products segments showed volume growth, the Industrial segment saw a significant decline due to a cautious approach to government-linked EPC contracts. The company plans to revise its procurement strategy post-March 2025 and anticipates improved margins and faster growth in Building Products.

Highlights

  • Agri segment volumes grew marginally by 2% year-on-year to 16,511 metric tons in Q3 FY25.

  • Building Products segment volumes grew by 30% year-on-year to 2,262 metric tons in Q3 FY25.

  • INR20 crores capex has already been paid out for expansion plans, with further plans underway for higher-margin products.

  • Promoters converted INR17 crores worth of warrants into equity, demonstrating commitment.

Concerns

  • Revenue for Q3 FY25 declined by 14% year-on-year to INR210 crores.

  • The company reported an EBITDA loss of INR1.4 crores and a net loss of INR11 crores for Q3 FY25.

  • Industrial segment volumes declined significantly by 73% year-on-year from 3,496 metric tons in Q3 FY24 to 931 metric tons in Q3 FY25.

  • Total sales volume decreased by 8.26% from 21,479 metric tons in Q3 FY24 to 19,704 metric tons in Q3 FY25.

  • Raw material price volatility, with open market prices substantially lower than contracted prices, led to inventory losses and significant margin pressure.

Key financials

2 periods

Q3 FY25

  • Revenue
    ₹210 Cr
    YoY -14%
  • EBITDA
    ₹-1.4 Cr
  • Net Loss
    ₹-11 Cr

9M FY25

  • Revenue
    ₹584 Cr
    YoY -13%
  • EBITDA
    ₹28 Cr
    YoY -38%
  • EBITDA Margin
    4.8%
  • Net Loss
    ₹-0.6 Cr

What they filed

Q1 FY27: revenue down 22.7%, net profit down 130.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue117 210 138 224 86 −27%136 −35%142 +3%173 −23%
EBITDA5 -1 0 15 -4 −179%6 +505%18 +7870%5 −65%
Net profit-4 -11 -4 7 -10 −172%-0 +96%4 +210%-2 −130%
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

Share of Volume (Q3 FY25)
39,408 metric tons Total
  • Total Sales Volume 19,704 metric tons 50.0%
  • Agri segment 16,511 metric tons 41.9%
  • Building Products segment 2,262 metric tons 5.7%
  • Industrial segment 931 metric tons 2.4%

Order book

medium confidence
The company has been very restrained in taking institutional business linked to EPC contracts due to concerns about timely payments and cash flow cycles, resulting in no further orders in backlog for this segment.

Source: Q&A

Capital allocation

high confidence
  • Capex Capex disclosed
    • Expansion plans for medium to long-term growth, focusing on higher-margin products. ₹20 Cr
    We are going ahead with our expansion plans. Already during this current year, INR20 crores capex has been -- payout has been already made, and we are further going ahead with our plans. Our plans are almost towards conclusion before end of this financial year before we make annual operating plan for the coming year. And as you must be aware that we had raised warrants and that's where we would be working towards medium to long-term growth plans, which will be finalized by the Board and then it will be available.
  • Debt Net ₹112 Cr
    Sir, I could see the net debt increased from INR105 crores in FY '24 to INR112 crores by half yearly FY '25. So there is a signal in leverage -- rise in the leverage. How does the company plan to reduce the short-term debt? Are there any refinancing options to lower the interest rate because I think that is also impacting the EBITDA margin? No. I mean as far as company's financial placement is concerned, we are comfortably placed. We don't have much debt on book. And we are working on a business plan where we will be conservative towards additional debt.

Guidance & targets

Profitability

  • EBITDA Margins Profitability · From coming year (FY26) · Medium confidence Improvement, aiming for industry levels (16-20%) over time
    See, the EBITDA margins should certainly improve going forward from coming year because our procurement contracts are for on an annual basis, which will expire by 31st of March this year. So obviously, thereafter, we should be able to demonstrate better performance. ... And you will see generally industry is showing between 16% to 20% EBITDA margins. So we will try to catch up with the industry in EBITDA, but it takes it doesn't happen in steps. It will be a gradual journey towards that.

    — Shiv Singh Mehta

Revenue

  • Overall Top Line Growth Revenue · Ongoing · Medium confidence Faster than current, 8-10% for the industry as a whole
    Top line growth, we are certainly looking, as I was telling earlier to replying to a question that we expect made me to grow much faster than what we have shown so far. We have also said that agriculture business is definitely growing in India at a reasonable rate and we would be seeing a growth overall at 8% to 10% for the industry as a whole.

    — Shiv Singh Mehta

  • CPVC Revenue Revenue · Ongoing · High confidence INR170 crores
    So any number, sir, you can put, sir, for -- because, sir, for CPVC, you mentioned in the first quarter call that you are targeting INR170 crores of revenue? Yes, we are definitely working towards that number.

    — Shiv Singh Mehta

Volume

  • Agri Segment Volume Growth Volume · Ongoing · High confidence 8-10% annual growth rate
    Agriculture will continue to grow as per the regular 8% to 10% annual growth rate.

    — Shiv Singh Mehta

  • Building Products Segment Volume Growth Volume · Next year (FY26) · Medium confidence Faster than current, potentially double the rate
    Building Products segment will grow faster than what we have grown so far. Thinking that the growth rates will be faster than what we have today. ... See, next year, I think I would be very happy if we can double the rate of growth than what we have so far.

    — Shiv Singh Mehta

Strategy

  • Industrial Segment Exposure Strategy · Ongoing · High confidence Limited exposure, not aggressive
    We will be always having limited exposure. We'll not go very aggressive on industrial segment.

    — Shiv Singh Mehta

Procurement

  • Raw Material Procurement Strategy Procurement · Post-March 2025 · High confidence Revisit and realign based on market realities
    See, the contracts are annual. So they get over by March 2025. Thereafter, company will have to revisit the -- I mean, procurement based on current given market realities and situation. We are already working out on that once the contract period is over.

    — Shiv Singh Mehta

What to watch in Q4 FY25

Raw Material Procurement Strategy Revision

Q1 FY26 (post-March 2025)
Current Annual contracts ending March 2025, open market prices lower than contract prices.
Target New procurement strategy aligned with current market realities.

Why it matters

Directly impacts raw material costs and, consequently, gross and EBITDA margins.

See, the contracts are annual. So they get over by March 2025. Thereafter, company will have to revisit the -- I mean, procurement based on current given market realities and situation.

Risks & concerns

  • Raw Material Price Volatility & Contractual Disparity

    high

    Open market PVC prices were substantially lower than prices in annual contracts, leading to inventory losses and significant margin compression. Contracts expire March 2025.

    Both acknowledged

  • Delay in Anti-Dumping Duty (ADD) Implementation

    medium

    Government processes for ADD on PVC resins are complete, but the final announcement is pending, which could help rectify market imbalances.

    Both acknowledged

  • Degrowth in Institutional/Industrial Business

    medium

    Company is conservative in taking government-linked EPC contracts due to concerns about timely payments and cash flow cycles, leading to significant volume decline in the industrial segment.

    Management acknowledged

  • Global Market Turmoil

    medium

    International polymer prices continue to decline due to global market conditions, particularly in Europe, US, and China, affecting overall business and operating margins.

    Management acknowledged

Q&A highlights

8 direct
Raw Material Procurement Strategy & Market Prices Direct
See, the contracts are annual. So they get over by March 2025. Thereafter, company will have to revisit the -- I mean, procurement based on current given market realities and situation. We are already working out on that once the contract period is over.

Explains the current margin pressure due to fixed annual contracts for raw materials while open market prices declined significantly, and outlines the plan to address this post-March 2025.

Asked by Shiv Ramakrishnan Kodali

Solution for Raw Material Price Discrepancy (Anti-Dumping Duty) Direct
Government has been talking about putting ADD. For last four months, we have been all waiting - all processes have been completed by government. Already notification details have been also circulated. But the final - I mean, announcement is just not happened, and everyone is waiting for that.

Highlights a potential regulatory intervention (Anti-Dumping Duty) that could alleviate raw material price pressure, but its implementation is delayed.

Asked by Shiv Ramakrishnan Kodali

Revenue Growth and Segment Performance Direct
Degrowth is only on account of institution. Both major businesses of ours that is agriculture and building material are growing. But yes, we have been very cautious about institutional business, and that is where there is a degrowth.

Clarifies that overall degrowth is driven by a cautious approach to institutional business (EPC contracts), while core Agri and Building Products segments are growing.

Asked by Shiv Ramakrishnan Kodali

Inventory Losses and Margin Normalization Direct
You see there are definitely inventory losses. But more significant was the margins because the local prices of raw material are much lower than at which rate at which we are getting from our suppliers.

Confirms inventory losses and significant margin pressure due to the disparity between contracted raw material prices and lower open market prices.

Asked by Tanish Jhaveri

Building Products Segment Growth Outlook Direct
Building Products segment will grow faster than what we have grown so far. Thinking that the growth rates will be faster than what we have today.

Provides positive outlook for the Building Products segment, indicating it will be a key growth driver.

Asked by Tanish Jhaveri

Net Debt and Debt Reduction Strategy Direct
No. I mean as far as company's financial placement is concerned, we are comfortably placed. We don't have much debt on book. And we are working on a business plan where we will be conservative towards additional debt.

Addresses concerns about rising net debt, with management asserting comfort with current debt levels and a conservative approach to future borrowing.

Asked by Tanya

Rationale for Annual Raw Material Contracts Direct
You see PVC, India produces only 40% of domestic demand and 60% is imported. So one has to have a security on the supply line. So all the -- I mean, larger manufacturers and processors have an agreement generally with certain component of material which is assured supply line.

Explains the strategic necessity of annual raw material contracts to ensure supply security, especially for PVC where India is import-dependent.

Asked by Aasim

Historical Precedent for Current Market Conditions Direct
I had experienced similar situation in 2008 at the time of world crisis financial crisis. ... At that time also, the prices dropped like nine pin almost. And this is, again, we are experiencing this year in the international market.

Provides historical context for the current challenging market conditions, indicating that such severe price drops have occurred before during global financial crises.

Asked by Sivaramakrishna Kodali

2 min read 6 chapters

Detailed narrative

Q3 FY25 Performance Overview

Kriti Industries reported a challenging Q3 FY25, with revenue declining by 14% year-on-year to INR210 crores. The company incurred an EBITDA loss of INR1.4 crores and a net loss of INR11 crores for the quarter. For the nine months ended FY25, revenues were INR584 crores (down 13% YoY), EBITDA was INR28 crores (down 38% YoY) with a margin of 4.83%, and net loss was INR60 lakhs.

Raw Material Challenges and Margin Pressure

The company faced significant challenges due to raw material price volatility. While Kriti Industries procures raw materials under annual contracts, open market prices for PVC were substantially lower during the quarter. This disparity, coupled with declining international polymer prices and high imports leading to suppressed local market prices, resulted in inventory losses and severe pressure on operating margins. Management indicated that the current annual contracts expire by March 2025, after which the procurement strategy will be revisited.

Segmental Performance and Strategic Focus

The Agri segment showed marginal volume growth of 2% year-on-year, reaching 16,511 metric tons in Q3 FY25. The Building Products segment demonstrated strong performance, with volumes growing by 30% year-on-year to 2,262 metric tons. However, the Industrial segment experienced a significant decline of 73% in volumes, falling to 931 metric tons. This degrowth in the Industrial segment was intentional, as the company adopted a cautious approach to government-linked EPC contracts due to concerns about timely payments and cash flow cycles.

Capital Allocation and Debt Position

The company has already spent INR20 crores on capex during the current financial year, with plans to finalize medium to long-term growth strategies focused on higher-margin products by the end of FY25. Net debt increased from INR105 crores in FY24 to INR112 crores by H1 FY25. Management expressed comfort with the current debt levels and stated a commitment to being conservative regarding additional debt, aiming to avoid taking on money upfront for capex until needed.

Outlook and Future Strategy

Kriti Industries anticipates an improvement in EBITDA margins from the coming financial year (FY26) as new procurement contracts will be aligned with current market realities. The company expects the Building Products segment to grow faster, potentially doubling its growth rate, and the Agri segment to maintain an 8-10% annual growth rate. The company is also awaiting a final government announcement on Anti-Dumping Duty (ADD) for PVC resins, which could help stabilize market prices and improve industry conditions.

Regulatory Support for Industry

The management highlighted that the government is aware of the challenges faced by the local industry due to imports and declining international prices. Processes for implementing Anti-Dumping Duty (ADD) on PVC resins are complete, and notification details have been circulated. The final announcement of ADD is awaited, which is expected to protect local manufacturers and help rectify the market situation.

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