Midwest Q1 FY27 earnings call

Midwest Limited commenced FY27 with robust financial performance, reporting a 35% year-on-year revenue growth, 25% EBITDA growth, and 27% PAT growth. This strong performance was primarily driven by the granite segment, which saw over 30% growth. The company successfully posted these numbers despite facing significant volatility and higher prices for diesel, a major cost factor, compared to the previous year.

The quartz business generated approximately INR 5 crores in revenue during Q1 FY27, selling around 5,000 tons at an average realization of INR 10,000 per ton. Management expects to achieve a run rate of 10,000 tons per month by the end of Q2 FY27, increasing to 10,000-12,000 tons in Q3 FY27, and exceeding 15,000 tons by Q4 FY27. Break-even for the quartz segment is anticipated in Q3 FY27, with full-fledged profitability expected next year. Phase 2 of the quartz plant is currently under construction and is targeted for commissioning within the next 10 to 12 months, with a revised FY27 production volume target of 120,000 tons, down from an earlier 150,000 tons.

Midwest Limited signed a crucial MoU with PERMINAS, Indonesia's state-owned company, to explore, mine, and value-add critical minerals, focusing on rare earths. This partnership provides access to heavy rare earths (dysprosium and terbium) which are strategically important and offer higher margin profiles compared to light rare earths. The MoU is expected to be converted into a JV agreement this quarter or next, with Midwest Limited contributing capital alongside PERMINAS. The JV will initially focus on mine-to-oxide operations, with a second JV for oxide-to-magnet involving Midwest Energy planned later.

A significant milestone was achieved for the Sri Lanka project with the finalization and ratification of the policy, which had caused a six-month delay. The company has received necessary communication from the government to confirm data points regarding production, investment, and timelines. This is the final step before receiving the eventual license, which is expected this quarter. Ground-breaking for the project is planned for October, with plant build-out and operations commencing 12 to 15 months thereafter, contributing revenue by FY29.

To counter the impact of volatile diesel prices, which increased from INR 85 to INR 125-130 per litre, Midwest Limited has been proactive in electrifying its fleet and integrating solar power. This strategy has reduced the company's operational costs' dependence on diesel fluctuations, helping to maintain margins. Management indicated that this electrification drive will continue to further reduce the diesel impact, ensuring granite margins are less affected by external price movements.

For FY27, Midwest Limited estimates total revenue of approximately INR 840 crores, with INR 720 crores from granite and INR 100-120 crores from quartz. The EBITDA margin is projected to be upward of 26-27%. Looking ahead to FY28, total revenue is expected to be close to INR 950 crores, with quartz revenue (Phase 1 and part of Phase 2) contributing INR 200+ crores. Granite revenue growth is conservatively estimated at 10-12%, and the blended EBITDA margin is projected to improve to around 29-30% due to the higher contribution from quartz.

Progress on the Kerala JV has stalled this quarter. This is primarily attributed to a change in government and the non-appointment of a new Managing Director for KMML, leading to bureaucratic and internal deployment issues. While the current administration is perceived as pro-development, management cannot provide a firm timeline but hopes to see activity resume from next quarter onwards once a new team is in place.