Vishnu Chemicals Limited — Q1 FY25 earnings call

Call held 16 Aug 2024

Management summary

Vishnu Chemicals reported a robust Q1 FY25 with double-digit consolidated revenue and profit growth YoY, driven by strong Barium business performance and increased production volumes. Despite a sequential dip in consolidated EBITDA margins attributed to inventory normalization, the company outlined clear strategies for margin expansion, capacity enhancement, and global market share gains, particularly in Chromium and Barium chemicals. Management also highlighted progress in debt reduction and operational efficiencies.

Highlights

  • Consolidated Operating Revenues increased by 12.7% YoY and 13% QoQ to INR 338.8 crores in Q1 FY25.

  • Consolidated EBITDA grew by 8.8% YoY to INR 55.6 crores in Q1 FY25.

  • Consolidated PAT rose by 6.6% YoY to INR 30.5 crores in Q1 FY25.

  • Standalone Operating Revenues increased by 3.3% YoY to INR 258.2 crores, with PAT up 3.1% YoY to INR 26.3 crores.

  • Consolidated EBITDA margin stood at 16.4% in Q1 FY25, a sequential decrease from 21.2% in Q4 FY24.

  • Barium business revenue exceeded INR 80 crores in Q1 FY25, up from approximately INR 60 crores in Q4 FY24, driven by export market penetration.

  • Achieved an all-time high production volume and maintained a balanced 50-50 domestic-export sales mix.

  • CO2 plant utilization reached close to 80%, generating monthly savings of INR 4-4.5 crores.

Key financials

  1. Consolidated Operating Revenues ₹338.8 Cr +12.7%YoY
  2. Consolidated EBITDA ₹55.6 Cr +8.8%YoY
  3. Consolidated PAT ₹30.5 Cr +6.6%YoY
  4. Consolidated EBITDA Margin 16.4% -22.6%QoQ
  5. Standalone Operating Revenues ₹258.2 Cr +3.3%YoY
  6. Standalone EBITDA ₹43.8 Cr +2.8%YoY
  7. Standalone PAT ₹26.3 Cr +3.1%YoY
  8. Standalone EBITDA Margin 17%

What they filed

Q1 FY27: revenue up 24.8%, net profit up 25.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue344 371 393 347 401 +17%411 +11%450 +15%433 +25%
EBITDA45 64 64 56 58 +29%62 −3%77 +20%65 +16%
Net profit23 34 39 32 33 +43%34 +0%43 +10%40 +25%
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

  • Barium Business
    ₹80 Cr Revenue33.3% QoQ Revenue Growth₹34 Cr Domestic Turnover₹48 Cr Export Turnover

Guidance & targets

Margin

  • Consolidated EBITDA Margin Margin · by year-end FY25 · High confidence 17.5-18%
    We'd like to consolidate this and improve it further by the end of the year to reach to about 17.5%, 18%.

    — Hanumant Bhansali, Vice President - Finance & Strategy

  • Consolidated EBITDA Margin Margin · next 2-3 years · High confidence 20%
    But our target in the next 2 to 3 years is to achieve our EBITDA margin consistently at 20%.

    — Hanumant Bhansali, Vice President - Finance & Strategy

Debt

  • Term Loans from Banks Debt · by end of FY25 · High confidence INR 42 crores

    From INR 84 crores today

    And if the same run rate goes, we will be close to at INR 42 crores by the end of the year from the term loans position.

    — Hanumant Bhansali, Vice President - Finance & Strategy

Capacity Utilization

  • Precipitated Barium Sulphate Utilization Capacity Utilization · by end of FY25 · High confidence 70-75%

    From 40% today

    And as we go through the quarters, we expect to end the year at close to about 70-75% of utilization in Precipitated Barium Sulphate, which will overall bring the utilization levels to about 70%.

    — Hanumant Bhansali, Vice President - Finance & Strategy

  • Overall Barium Utilization Capacity Utilization · by end of FY25 · High confidence 70%

    From 50-60% today

    — Hanumant Bhansali, Vice President - Finance & Strategy

Capacity

  • Chromium Capacity Capacity · next 2 years · High confidence 1 lakh tons

    From 80,000 tons today

    Over a period of next 2 years, we have a plan to increase our capacities from 80,000 tons on annual basis to close to about 1 lakh tons. So that comes to about an increase of 25%.

    — Hanumant Bhansali, Vice President - Finance & Strategy

Revenue

  • US Turnover Contribution Revenue · 2-3 years · Medium confidence upwards of 5%

    From 4-4.5% today

    We expect it to be upwards of 5%, but still, it's something that we have to work on as a company once we complete looking at the numbers from different territories across the world.

    — Hanumant Bhansali, Vice President - Finance & Strategy

Capex

  • CapEx Plan Announcement Capex · Q2 FY25 · High confidence after Q2 results
    we will come back with a detailed CapEx plan after our Q2 results are announced.

    — Hanumant Bhansali, Vice President - Finance & Strategy

Market context

  • Global Chromium Market Share Market Share · next 3-4 years · High confidence 12-13%

    From 8% today

    In the next 3 to 4 years, our target is to become a global market share leader with around 12-13%.

    — Hanumant Bhansali, Vice President - Finance & Strategy

Risks & concerns

  • Logistics Delays (Red Sea Crisis)

    medium

    Increased transit times by 2-3 weeks, leading to higher raw material and finished goods inventories and impacting inventory days.

    Management acknowledged

  • Raw Material and Freight Cost Volatility

    medium

    Rising costs necessitated increasing realizations of finished goods, indicating ongoing pressure.

    Management acknowledged

  • Sequential Margin Compression

    medium

    Consolidated EBITDA margin dropped from 21.2% in Q4 FY24 to 16.4% in Q1 FY25, explained by inventory normalization.

    Analyst acknowledged

Areas of evasion (1)

  • Specific CapEx guidance numbers for FY25-26

Q&A highlights

3 direct
Sequential EBITDA Margin Decline Direct
Sequentially, the EBITDA margins were about 16.4% on a consolidated level compared to 21.2% in Q4 FY24. Q4 FY24, we had more inventory of finished goods that was sold during this quarter and thereby there is a reduction of change in inventory, leading to a more normalized EBITDA margin for us during this quarter.

Addressed the significant QoQ margin compression, attributing it to inventory accounting rather than operational deterioration, which is crucial for investor confidence.

Asked by Rohan Patel

Inventory Days Increase Direct
there were issues related to logistics that were not just faced by us as a company but also by the entire industry. And what it led to is that Red Sea crisis had increased the overall transit time by not just days but between 2 to 3 weeks for us to ship our products to any other target end customer country. As a result, we as a company decided that we will be maintaining higher inventories of raw materials to ensure continuous supply of our feedstock as well as higher inventories of finished goods to enable quick dispatches.

Explained the substantial increase in inventory days, linking it to external geopolitical events (Red Sea crisis) and strategic inventory buildup, providing context for working capital management.

Asked by Pradeep Rawat

Chromium Capacity vs Global Market Share Growth Direct
That implies to 50-60% growth from a global market share point of view. But here, we are looking at that number of 12 odd percent growth from a volume point of view. Now let's say Sisecam, which is one of the largest companies in Chromium chemicals, which is based in Turkey, they have close to about 105,000 tonnes of sodium bichromate as a capacity, right. And they have a market share of close to about 14-14.5% at a global scale and a volume market share. With Vishnu being at about 80,000 tons growing to about 1 lakh tons, it would automatically catapult our entire market share to about 12 odd percent.

Clarified the distinction between absolute volume growth and relative market share growth, explaining how a 25% capacity increase could lead to a significant jump in global market share.

Asked by Sri Hari

3 min read 7 chapters

Detailed narrative

Q1 FY25 Consolidated and Standalone Performance

Vishnu Chemicals reported a strong Q1 FY25, with consolidated operating revenues increasing by 12.7% YoY and 13% QoQ to INR 338.8 crores. Consolidated EBITDA grew by 8.8% YoY to INR 55.6 crores, and PAT increased by 6.6% YoY to INR 30.5 crores. Standalone results also showed growth, with revenues at INR 258.2 crores (up 3.3% YoY) and PAT at INR 26.3 crores (up 3.1% YoY). The company achieved an all-time high production volume during the quarter.

EBITDA Margin Dynamics and Future Targets

The consolidated EBITDA margin for Q1 FY25 was 16.4%, a sequential decrease from 21.2% in Q4 FY24. Management attributed this to the monetization of higher finished goods inventory in Q4 FY24, leading to a more normalized margin in Q1 FY25. The company aims to improve its EBITDA margin to 17.5-18% by the end of FY25 and achieve a consistent 20% EBITDA margin over the next 2-3 years through process improvements, backward integration, and portfolio expansion.

Barium Business: Export-Led Growth and Utilization

The Barium business demonstrated significant growth, with revenues exceeding INR 80 crores in Q1 FY25, compared to approximately INR 60 crores in Q4 FY24. This growth was primarily driven by export markets, with export turnover reaching INR 48 crores in Q1 FY25 from INR 32 crores in Q4 FY24. The new product, Precipitated Barium Sulphate, currently operates at about 40% utilization, with a target to reach 70-75% utilization by the end of FY25, bringing overall Barium utilization to around 70%.

Chromium Business: Capacity Expansion and Global Market Share Ambitions

In Chromium chemicals, the company is operating at upwards of 80% capacity utilization, an improvement from 60-65% till FY22. Vishnu Chemicals plans to increase its Chromium capacity from 80,000 tonnes to approximately 1 lakh tonnes (a 25% increase) over the next 2 years. This expansion, coupled with a broader product portfolio, is expected to catapult its global market share from the current 8% to 12-13% in the next 3-4 years, aiming to become a global market share leader.

Debt Management and CapEx Funding

The company's gross debt remained stable QoQ, and finance costs were consistent at INR 9.12 crores in Q1 FY25. Vishnu Chemicals has made significant progress in reducing term loans from banks, from INR 140 crores as of March 31, 2023, to INR 84 crores as of March 31, 2024. The target is to further reduce term loans to INR 42 crores by the end of FY25. All future CapEx plans, including potential expansions in chrome metal derivatives, will be funded through internal accruals, with no plans to raise equity.

Operational Efficiencies and Backward Integration

Vishnu Chemicals has implemented process and product level improvements, reducing feedstock consumption by 7-10% in its Chromium chemical vertical. The backward integration project in Vishakhapatnam, converting CO2 into soda ash, is now operating at close to 80% utilization, generating monthly savings of INR 4-4.5 crores. This in-house sourcing contributes close to 40% of soda ash requirements, enhancing security and profitability.

Inventory Management Amidst Logistics Challenges

The company experienced a significant increase in inventory days in FY24 (262 days vs 142 days in FY23) due to logistics disruptions caused by the Red Sea crisis, which extended transit times by 2-3 weeks. To ensure continuous supply and quick dispatches, Vishnu Chemicals strategically maintained higher inventories of raw materials and finished goods. Management expects inventory days to normalize to FY23 levels as global logistics issues subside.

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