DDev Plastiks Industries - A Smallcap Gem

[Debojit_Kangsa_Banik]

Great set of result.
Company did their first concall, got to understand lot on their future plan.

Short brief:

• our industry is more of passing on the raw material cost. That is why if you see the turnover has come down with the reduction in raw material prices. It is straight passed on
• HFFR will be additional product contributor, which will be contributing 10%-15% of revenue over a period of time.
• the profitability improvement in last 2 years has come mainly from the product range improvement or product portfolio improvement because we have moved more towards medium voltage and high voltage insulation compounds + increased share of export
• HFFR, this year we have been able to utilize around 30% of our capacity, which we hope that next year in Financial Year ‘25, we should be able to achieve capacity utilization of almost 60% to 70%
• we are expecting to grow at 12% to 15% CAGR with the EBITDA margin of roughly 10% to 12%
• hffr The other player is Shakun Polymers
• And cable approval is a long-term process. They will make the cable. They will test in their own laboratory, first at compound test, then at cable test, electrical test, and field test. So, all these tests take time. Any approval with any customer generally takes 6 months to 1 year’s time.
• hffr 5000 tons full utilization, we expect a turnover of roughly Rs. 80 to Rs. 85 odd crores in the overall product basket.
• 300 cr capex is for land and building and electrical installation kind of infra which we are creating is going to handle 15,000 tons of HFFR capacity additionally and another 45,000 to 55,000 tons of other products. So, in totality, anything between 60,000 to 70,000 tons of fresh product.
• targeting a 12% to 15% CAGR and a conservative site for next 5 years, turnover will be roughly Rs. 5,000

[Vivek_6954]

PPT MAY 24 DDEV PLASTIKS.pdf (3.9 MB)
CONCALL TRANSCRIPT DDEV MAY 24.pdf (791.6 KB)

STORY SEEMS INTACT FOR DDEV PLASTIKS

[Mohit_baid]

[ankur_1]

Hi, I’m new here and still learning. I want to share few observations and questions. Please correct me if i made some error in observation and have misunderstanding about the business

• Business is highly commoditized as it depends on Crude price volatility and the management said they are able to pass on the price volatility which can reduce their turnover. What steps are being taken by the management to maintain the sustainable growth? Are they waiting for the demand for the economy of scale to play out?

• Since their focus is to shift from low margin to high margin product (XLPE compound) but it’s yet to be seen how this play out because from what I understand this industry is intensely competetive with local players (Shakun polymers etc) and global players and company has to keep it’s price competitive and restraining margin growth(yes, they sure can do capex in increasing utilisation ultimately improving realization but currently company isn’t doing that) so what business advantage they have apart from logistics wise which makes them winner in this industry segment?

Disc - Tracking and Learning

[Srikanth84]

Can someone help when the cable industry is growing at 15-20 percent why their revenue is flat to negative. I understand from the concall that their realisations has been low. But why is the case?

[Ashar_Mann]

From what i understand from preliminary reads is thatthey moved to VAP,
The realisation is low but EBITDA/Ton is high.
Hence you get absolute cashflow increment but dip in Realisation and hence dip in revenues.

[Raj7800]

Some KTAs from mgmt meeting

Reason for demerger of Ddev plastiks from Kkalpana Industries was to focus on compounds business considering industry tailwinds, earlier due to company structure company had lost a major contract from mitsui who wanted to setup a JV with Ddev for manufacturing compounds

cable and wires companies have been now increasingly cautious about their supply chain post covid and are shifting from imports to domestic procurement

Company does not cater to house wires and telecom wires due to unfavourable operating economics ( Current capacity is 30000 tons as compared to market demand of 8L tonnes)

Current TAM is 14-16% in value terms of the total cables and wires industry sales value

Domestic and export mix to remain the same as both markets are growing at the same pace

Shakun polymers is only in the business of semiconductor and HFFR cables and does not have the complete product portfolio such as insulations

HFFR cables currently the capacity 20000 tons in the industry as compared to total pvc market of 8-9 lakh tons, company expects the segment to grow to 150000 tons and company is targeting a 50% market share

HFFR cable acceptance is mainly led by government regulation as despite better quality, the cost of HFFR wires is 10-12% higher. Company expects over the next few years solar cables,

Capex - Initial capex is to set up a green field capacity at both the east and west coast, with around 170 crs of investment, further investment of 130 crs for HFFR and XPLE capacity , current capex per ton - Rs 30000 (i.e 30 cr per 10000 ton), 120000 is the total peak capacity at these facilities.

Decrease in trade payables is mainly due to domestic PVC sourcing which has lower trade payable days.

Engineered plastics is a difficult business to crack because generally the consumer durables companies have there own approved set of vendors or mainly import

Kkalpana and Ddev synergy - Mixed PVC compounds using the recycling ability of Kkalpana is something which the company is thinking, as in packaging there is a provision for use of mixed compounds, company is working with Prysmian for developing a mixed compound using virgin PVC compound

[Gautam_Chopra]

Ddev

[deepuji2008]

Ddev Plastiks Industries Limited (DPIL) - Q1 FY25 Earnings Call Key Takeaways

Financial Performance (Q1 FY25)

• Revenue: INR 625 crore, a 6% YoY increase.
• EBITDA: INR 65 crore (including other income), 10% margin.
• PAT: INR 42 crore, 11% YoY growth.

Operational Performance

• Volume Growth: Achieved 46,585 MT in sales volume, 18.5% YoY growth.
• Capacity Utilization: Currently at 80%, with an installed capacity of 233,400 MTPA as of June 2024. Targeting 95% utilization by FY26.
• Product Mix Shift: Shifting capacity from lower-margin products to higher-margin offerings.
• Exports: Accounted for 24% of Q1 FY25 revenue.
• Key Clients: Apar, Havells, KEC, KEI, Paramount, and Polycab contribute to ~22% of total revenue.

Future Outlook

• Revenue Target: INR 5,000 crore by FY2030.
• Growth Drivers: Strong demand in wire and cable industry, transition to HFFR cables, and US market expansion.
• Capex Plans: INR 300 crore investment over next three years.
• Volume Growth Guidance: Expects 180,000 to 185,000 MT in volume for FY25.
• EBITDA Margin Guidance: Expects 15-15.5% EBITDA margin for FY25.

Concerns

• Pressure on Margins: Increased shipping costs and decline in raw material prices.
• Competition: Faces competition from international players.
• Backward Integration: Key customers backward integrating by manufacturing their own plastic compounds.

Other Points

• DPIL became net debt-free in Q4 FY24.
• Actively engaging with potential investors but no concrete developments regarding a stake sale disclosed.

• Machine generated highlights, exercise diligence.

[Mayank_Bajpai]

What’s happening in Ddev? Maybe it is due to a single-digit margin?

[HarshalL]

I also visited the blog for the same reason, and it looks like pressure on margins is definitely a factor. Another possible reason could be the backward integration by key customers. I’ll need to go through the transcript. Their revenue concentration for the top 5 customers is 22%, so if one of these top 5 customers is engaging in backward integration, the thesis may not play out well.

[HarshalL]

Hi,

how did you generate the highlights. Transcript is not yet out.

[Mayank_Bajpai]

Ddev Plastiks Industries Ltd Q1 FY2024-25 Earnings Conference Call

[Mayank_Bajpai]

Backward integration is a very small risk, from the con-call I can understand that Red Sea issue is also having the impact and this will continue for this quarter.

[HarshalL]

Thank you Mayank.

Below is the detailed summary of the Q1 FY25 earnings call for DDEV Plastiks Industries:

Key Financial Highlights:

• Revenue from operations: ₹625.41 crores (6% YoY growth)
• EBITDA: ₹62 crores (11% YoY growth), EBITDA margin of 10%
• PAT: ₹42 crores (7% margin)
• Capacity utilization: ~80% of 233,400 metric tons per annum installed capacity
• Volume growth: 18.5% YoY to 46,000 tons

Business Updates:

1. Wire and Cable Segment (79% of revenues):

   • Indian wire and cable sector projected to grow at 11% CAGR from ₹80,000 crores in FY24 to ₹1,20,000 crores by FY27
   • Transmission lines expected to expand from 15,000 km to 41,000 km by FY30 (16% CAGR)
   • Shift towards halogen-free flame retardant (HFFR) cables from PVC cables due to safety concerns

2. New Product Development:

   • Currently producing compounds for up to 72 kV cables
   • Working on compounds for 132 kV cables, with plans to move to 220 kV in the future
   • HFFR capacity of 5,000 tons operational, achieved volume of 618 tons in Q1

3. Capex Plans:

   • ₹300 crores planned over next 3 years (₹125 crores for FY25)
   • New greenfield sites in east and west India
   • Debottlenecking efforts ongoing

4. Export Market:

   • Exports constitute 24% of total sales
   • Pursuing UL (Underwriters Laboratories) approval for direct exports to the US market
   • Two product approvals in process, expected by end of calendar year

5. Other Updates:

   • Launched revamped website on August 1, 2024
   • Became net debt-free in Q4 FY24
   • Reduced finance costs by 38% YoY to ₹4.49 crores in Q1 FY25

Forward-Looking Statements:

1. Revenue growth projection of 12-15% CAGR over next 5 years
2. Volume growth target of 18-20% for FY25 (180,000-185,000 tons)
3. EBITDA margin expected to stabilize around 11-12%
4. HFFR capacity to be ramped up to 20,000 tons by FY26 end
5. Plans to enter 132 kV and 220 kV cable compound markets
6. Expecting to improve market share in 72 kV cable compounds
7. Aiming for higher-margin product mix to improve overall profitability

Business Concerns:

1. Margin pressure due to increased shipping costs (impact of ~0.5% on EBITDA margin)
2. Geopolitical tensions affecting exports to Middle East and transit times
3. Intense competition from international players like Dow Chemicals, LG, Hanwha, and Borealis
4. Raw material price volatility impacting realizations
5. Potential backward integration by some customers (e.g., Polycab)
6. Limited ability to pass on increased costs in Middle East and Latin American markets
7. Time-consuming approval process for new high-voltage cable compounds
8. Lower margins in certain product segments (e.g., anti-fibrillation compounds)

The management remains optimistic about long-term growth prospects driven by infrastructure development, renewable energy push, and shift towards safer cable compounds. They are focusing on moving up the value chain, expanding HFFR capacity, and entering new markets like the US to improve overall margins and competitiveness.

[whoisgaurav]

Promoter has purchased. SH now stands at 74.99%.

[Nilesh27]

My two cents on consumer electrical industry as ddev in proxy player in this sector

India is the third largest producer and the second largest consumer of electricity in the world. contributing approximately 8% to the country’s manufacturing production, approximately 1.5% to India’s GDP and approximately 1.5% to India’s exports.
consumer electrical industry entails heavy electrical products such as W&C (A wire is a single conductor, whereas a cable is a group of conductors) and light electrical products such as FMEG.
The W&C and FMEGs were estimated at approximately 1.80 lakh crores in 2023 and it are expected to grow at a CAGR of approximately 10% till 2027 (Market value: 2,66,500)
In 2023, the total domestic market for W&C industry was estimated at approximately 75 thousand crores (41% of consumer electrical industry), It has grown at a CAGR of approximately 11% from 33,500 crore in 2015 to 75 thousand crore in FY2023 and is further expected to grow at a CAGR of approximately 13% till 2027 to reach a market value of 1,20,000 crore.
W&C market can be divided into 5 key sub-categories, namely housing wires, power cables, control and instrumentation cables, communication cables and flexible and specialty cables. Housing wires constitute approximately 32.8% (24,535 crore) of the wires and cables market in India.

There are six key factors supported by a positive macro environment that are expected to provide growth in the W&C and FMEG industry between 2022 and 2032:

1. Public and private investment outlay in infrastructure
2. Continued growth of residential real estate sector
3. Resilient commercial real estate sector
4. Transition of automobiles and transport towards electric vehicles (“EVs”)
5. Rural electrification 6. Push towards renewable energy

The domestic W&C and FMEG industry is pivoting towards branded play. The share of branded play in domestic W&C and FMEG industry has grown from 60% in Fiscal 2015 to approximately 76% in Fiscal 2023 and is projected to reach approximately 82% by Fiscal 2027
Nearly 72% of the wires and cables market in India is controlled by branded play. Within this 72%, five leading players namely Polycab, KEI, Havells, RR Kabel and Finolex, garner approximately 60%–62% market share and the balance, 38%–40%, is controlled by challenger brands like Syska and V-Guard. Polycab is the market leader, having approximately 16% market share by value, followed by KEI (approximately 8% market share), Havells (approximately 8% market share), Finolex (approximately 6% market share) and RR Kabel (approximately 5% market share). RR Kabel is the fifth largest player in wires and cables market in India.

[Nilesh27]

From Q1 Concall.

On 100% capacity utilization

On Customers growing and we are declining.

On customers doing backword integration

Guidance for increasing capacity from 5k tons to 20k tons once approvals are in place.

Moving up in value chain (from commodity to niche segment)

On Replacing imports

On Focusing on the other business segment:
The major portion is wire and cable and that is the segment which is growing. And the rest of the segments, be it PVC or anti-fibrillation, are low margin segments. So, we are not focusing much on those areas because we do not see any possibility of margin improvement and also means the volume improvement

On US market

On Europe Market:

[GauravT]

What is the reason for consistently high receivables? This cant be good right?

Disc: interested and tracking

[Aloysius_De_Sa]

We should be concerned on YoY change. Its steady with slight increase but so has revenues grown. I wouldnt give it much thought.