Q2FY25:
• While there has been a slight reduction in EBITDA margin, this is attributable to external factors, specifically the rising costs associated with freight and transportation.
• Management anticipates strong revenue growth in FY25, projecting a 15-18% increase compared to FY24. This positive outlook is driven by strategic shifts in the company’s product mix, indicating a proactive approach to meeting evolving market demands and capitalising on emerging opportunities.
• The company projects a stable EBITDA margin for FY25, in line with current performance. This demonstrates a consistent operational efficiency. Furthermore, the second half of FY25 holds the potential for a margin expansion should demand patterns remain steady. This suggests a promising outlook contingent on sustained market interest.
• Manufacturing capacity of more than 4,50,000 metric tons per annum.
CONCALL NOTES:
• Our dedicated R&D team of 45 to 50 professionals focuses on developing a broad range of products at our in-house facility in Vadodara.
• EBITDA MARGIN PRESSURE: This is attributable to external factors specifically the rising costs associated with our raw materials, freight and transportation. The raw material cost has increased which is a major factor which has increased by more than 1.5 % YoY so that is the major contributing factor to the overall expense compared to any of the other expenses that we have in place.
20 Microns imports a quite a lot of raw materials from overseas and due to the higher freight costs for the incoming raw material at certain times from certain territories that we import from and building up on certain inventories for the raw materials is where the cost pressures build up which do not get translated in terms of the price increase that we received from our customers at times for certain product ranges that we carry. This is one of the factors along with certain transportation costs which have also increased due to the increase in the sales that we have seen in the past half a year.
So this cost pressure definitely would continue to build up because we do see a demand which is going to be present there but the uncertainties definitely will continue so there is no surety as to how the demand will peak and not peak in the coming quarters but we are ready to with the inventory that we are carrying for the raw materials to build upon the product range to service our customers for the demand that might be created in the coming quarters.
(Logistics costs have come down significantly over the last 1-2 months according to other companies concalls. So that help ease margin pressures going forward for 20 microns. If they persist, then it maybe company specific and related to earnings power reduction/inability to pass on the costs to customers. So, this becomes an important Monitorable to track)
• Generally, Q3 is quite sluggish due to the festive holidays which are there so due to that we will we have put up a 15 to 18 % growth rate which we will hopefully achieve looking at the current scenario.
Currently in Q3 the demand if you look at the H1 comparison then the Q3 demand is currently quite sluggish if you look at the FMCG markets they’re all not up to the mark that they were in terms of the market scenario so but we are quite hopeful that post Diwali now the pickup will happen and we would be on the same path that we are at the H1 level.
• EV product development: Regarding new developments related to EVs and batteries and semiconductors, it’s still ongoing and it will still take some more time for us to develop those kinds of products because they are very niche products and they need specific types of raw materials which go into developing these kind of products - we are working with international labs to create the right products for the Indian markets and the global markets - Will take a couple of more quarters before we have something ready in the lab to announce it
EV is a very new concept and there are no direct products which go into the EV market for 20 microns. So we have to supply to the allied industries which supply to the EV industries so it could be the battery industries or the semiconductor industries which supply to the EV industries so there are no direct products which go into the EV so we are working on developing products which go into the semiconductor industry or the battery industry but there are certain specialized products and raw materials which are required for this kind of product development so we are working with international laboratories and international different consultants who are guiding us in terms of the product development so it will take some more time.
There is no specific time limit in this particular reason because anyways the demand is still not there in the Indian market for these kinds of products so we are trying to look at international products and try to develop these kinds of products within India.
• Reducing dependency on Paint industry: Our focus is more now towards the plastics and rubber industries and we are developing more and more new products for these industries. So eventually in the coming years you will see that the growth in the plastics and rubber segment will increase and will lead to an overall shift in the overall mix.
Any target that we are catering to in terms of increasing the revenue based on the other segment and reducing the dependency impact? That will all depend on the approval processes that take place in these industries because these are all niche products and the approval times and the trial phases are quite long compared to the regular products that we are supplying.
• 20 Microns Nano Minerals Limited: Revenues for H1: 54crs. Margins will continue to remain in nano in the same range of 12 to 13 % 30% growth YOY. Growth expected to remain the same for H2.
There is a lot of time which gets taken for the trial for nano related products because of the extensive testing that has to be done for these products and depending upon the industries that are consuming these kinds of products so a lot of products that we had launched in 2022 and 2023 have finally got the approvals in 2024.
And that has been showing the results in terms of the increase in the volume and in terms of the value of these products over a period of time and we’ll continue to increase because there are many other pending trials which are being conducted by our customers the long term ones and these will continue to get converted in the following year as well as in the next year and we are also building upon capacities in nano also for the products which are kind of the key ones where we’re expecting better demand coming in which because nano is basically products are import substitute products and because of the import sustainability which is not so good right now due to the freight factors and the demand and the supply which is there currently in the global scenario we would have some advantage on that in the coming quarters and in the future years as well.
Demand is much more than what we are currently selling and so that will continue to grow as the products get approved.
All our product ranges that we offer in 20 Microns nano minerals limited many of them are partial replacement products for the expensive thickeners or expensive matching agents or expensive pacifiers that we have been using traditionally in the market and we need to provide them solutions to partially replace them with our products so it’s a very natural way of replacement but it’s up to the customer as to how confident they are in terms of using these products and saving on cost in terms of their formulation so that’s how it goes here.
• CAPEX: Planned capex for the next 18 months – It is in the range of INR 70 to 80 crores
- 25 crores towards the recent acquisition that we have done in Malaysia for acquisition of mines.
- There is another capex which will be ongoing capex for 20 Microns in terms of the addition of capacities for our current product ranges.
- Some capex will be going towards the capacity enhancements for the nano product range.
- Some capex which will be going towards our new joint venture which has been formed for the construction chemicals with Sievert’s Germany.
- There’s some capex which will be going towards R&D upgradations of the current machinery
- Some capex going towards buildings and renovations and stuff
No kaolin capex as of now - only a minor kaolin expansion capex which has been planned but not in a big way
• Inventory Buildup: we have kept material looking to future demand
• In terms of volume and in terms of the value both are at a 10 % growth equally
• Quartz JV: JV is functional but it’s not yet entered into the production phase. We are still in the marketing phase for that operation and so the products are currently being imported from our principal in Germany and 20 microns nano is selling their product range to the JV company and we are selling it to various flooring industries various quartz sink manufacturers in India and we are expecting that it will continue to grow depending upon the number of manufacturer that would increase in the coming years in India for manufacturing of quartz sinks.
Sales in H1: INR 3 crores
• Construction chemicals JV: Currently it’s under the formation the company is under formation with the ROC so hopefully in the next few weeks the company would get formed and we would start getting the installations and everything happening in the next few months so yes it is on track and in FY26 we will start the first phase of production and FY27 we will start the second phase of production.
• MALAYSIA MINES: Mines in Malaysia will start production in H2FY26.
So the margins is not going to be an important factor in this one it is going to continue to remain the same but the thing is that we will have a more structured way of procuring the material since it is our own mine so we have a certain way of doing mining and getting the right kind of material and having less dependency on external mine owners where we had no control over the quality of the raw material which was coming in to place so we will be benefiting out of the quality of raw material basically and that would eventually help us in terms of better utilization of the material helping us in terms of better product quality and less of wastage generated for that particular product range.
We are undergoing still the final structure of acquisition so it should eventually finish by the end of this calendar year and then we will start working on the operations of the mine and everything so yes mostly by Q2 of next financial year is when we will start the mining process and simultaneously, we will also be investing in upgrading the machinery and making it more usable for producing the right kind of products for the market.
• EXPORT SALES: It all depends on the external factors basically we have no control over them so we have lost many export volumes because of the higher freight because of the supply chain issues which were there since the red sea crisis and because of that we have to forego many customers in the American markets and the South American markets but it all depends on how the external scenario shapes up. Our focus currently has shifted to Asia more because we are seeing a lot of demand coming in from the middle eastern and the south Asian markets predominantly so that’s where our main focus is currently in line there
(Lowering of freight costs might lead to bounce back of overseas sales. Another thing to track)
THINGS TO TRACK
• Ebitda margin pressures: How does Ebitda margin shape up in next few quarters given that freight costs have down? They’ve stocked up on inventory. Is this high-cost inventory which will suppress margins for next couple quarters? Does sustained weakness in margins show pricing pressures on the company?
• 20 Microns Nano growth: Does 25-30% growth continue?
• Export sales: Will they bounce back as freight costs have reduced?
• Demand pickup: Will demand pickup after Diwali?
