DCM Shriram Ltd (DCMSHRIRAM) Q2FY27 Concall Transcript - Sep-2026 Qtr
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Moderator: Ladies and gentlemen, good day and welcome to DCM Shriram Limited Q2 FY27 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you, and over to you, sir.
Siddharth Rangnekar (CDR India): Thank you, Steve. Good evening and welcome to DCM Shriram Limited's Quarter 2 and H1 FY27 Earnings Conference Call. Today, we have with us Mr. Ajay Shriram, Chairman and Senior Managing Director, Mr. Ajit Shriram, Joint Managing Director, Mr. Aditya Shriram, Deputy Managing Director and Mr. Amit Agarwal, Group CFO of the company. We shall commence with remarks from Mr. Ajay Shriram and Mr. Ajit Shriram. Members of the audience will get an opportunity to ask their queries to the management following these comments during the interactive question and answer session. Before we begin, please note that some of the statements made on today's call could be forward-looking in nature and a note to that effect has been included in the conference call invitation that has been circulated earlier and is available on the Stock Exchange websites. I would now like to invite Mr. Ajay Shriram to give us a brief overview. Over to you, sir.
Ajay Shriram (DCM Shriram Ltd): Thank you, Siddharth. Good afternoon, ladies and gentlemen, and a very warm welcome to all of you. Thank you for joining us today to discuss the company's performance and around Q2 and H1 financial year '27 results. I will commence with perspectives on the business environment and the strategic updates, post which Vikram will share views on the financial performance. Globally, the second quarter of financial year '27 operated against the backdrop of sustained structural friction. We continue to navigate an environment characterized by volatile energy prices, shifting tariff pressures and tighter global liquidity driven by higher interest rates by major central banks, including the Reserve Bank of India. The geopolitical landscape remains highly complex, demanding active revaluation of supply chains and trade exposures. At the same time, digital technologies and artificial intelligence are becoming increasingly important drivers of productivity, innovation and competitiveness. For industrial companies, the opportunity lies in applying these technologies to improve operating reliability, resource efficiency, decision making and customer responsiveness. Amidst the global calibrations, India's position as a reliable high-growth economic anchor has only strengthened. Q1 financial year '27 real GDP grew at 7.8% and RBI subsequently projected financial year '27 real GDP growth at 7.1% driven by services, private consumption, manufacturing and infrastructure-led investments. Simultaneously, we face immediate physical challenges on the ground, particularly with the agric- within the agricultural and rural sectors driven by El Nino. Reservoir storage also remained below the previous year and the long-term average across the country. This will influence agri inputs and rural consumption and rabi cropping conditions over the coming quarters. For us at DCM Shriram, this environment reinforces the value of staying close to what we can control: integrated operations, cost discipline, working capital management, digital execution and calibrated capital allocation. We are We are translating this strategy into action through several key project announcements. First, optimizing cost management and carbon intensity. We are establishing a 40 megawatt peak solar energy plant at Kota for Rs. 145 crores and installing filter presses in our cement plant at Kota for Rs. 60 crores. Second, driving operational reliability. We are debottlenecking operations at Bharuch and Kota to improve energy efficiencies of our current operations and increase caustic capacity at Bharuch.
Ajay Shriram (DCM Shriram Ltd): at a project cost of rupees 120 crores. Third, advancing forward integration, we are setting up new lines for manufacture of speciality compounds of PVC, speciality medical grades and diversification into the manufacture of halogen-free flame retardant grades of polymer compounds in our JV, Shriram Teknologix Limited, at a total cost of rupees 133 crores. Our investment will be up to rupees 50 crores as equity into the JV. A conservative approach to our finances remains central of how we run the company. As interest rates remain elevated, our healthy balance sheet, comfortable leverage, and adequate liquidity positions us well to manage volatility. Crucially, our growth strategy is intrinsically linked to our sustainability commitments. We are advancing our ESG road map across resource efficiency, energy transition, and meaningful community engagement. By embedding these principles within our operational DNA, we are ensuring our business remains agile, responsible, and future-ready. This balanced approach keeps us well-placed to pursue organic and inorganic growth opportunities and deliver long-term value for our stakeholders. I shall now invite your attention to industry dynamics across our businesses. First is Chemicals. Globally, the chemicals industry environment remains volatile during the second quarter of financial year 2027. Unpredictable energy and input costs along with uneven demand across major manufacturing regions weighed on industry economics. In India, underlying demand remained supported by domestic consumption across textiles, alumina, and infrastructure. Capacity additions over the last few years have been well-absorbed by the markets. However, future capacity additions may create near-term supply demand imbalances and put pressure on prices and margins. Given the headwinds, our Chlor-Alkali operations delivered a reasonable performance. Capacity utilization during the quarter stood at 89%. Our flexi capacity provided valuable market flexibility, enabling us to export our caustic production despite disruptions in global supply chains. While caustic prices corrected in line with global markets, improved chlorine realizations partly offset the impact. In hydrogen peroxide, higher natural gas prices raised production costs across the industry, which in turn supported firmer product prices. In Advanced Materials, operating rates were higher across product categories as we continued to deepen our market presence. The segment witnessed sharp swings in both product and raw material prices, with the steep increase in Q1 followed by an equally sharp correction. This led to liquidation of high-cost inventory and temporary deferment of customer demand. These pressures have now largely stabilized, providing a more balanced operating environment going forward. During the quarter, we commissioned the 100 tonnes per day Aluminium Chloride plant at Bharuch, taking the total capacity to 250 tonnes per day, along with partial commissioning of the Calcium Chloride plant taking us to 50% of plant capacity, that is 133 tonnes per day out of 266 tonnes per day. We also commissioned the 68 MW hybrid renewable power project at Kota, further strengthening our structural cost competitiveness. The 58 MW hybrid renewable power project under group captive SPV at Bharuch is progressing as per schedule. Vinyls: the Middle East conflict kept raw material costs and, subsequently, PVC prices high. Weak demand, weak construction demand owing to monsoon, and cautious trader bookings owing to higher prices dampened overall demand. The policy support towards introduction of the minimum import price of US dollar 766 per metric tonne helped domestic realizations and a weaker rupee
Ajay Shriram (DCM Shriram Ltd): Carbide also performed well with raw carbide production reaching the highest ever level and sales and realization up year-on-year. Near-term PVC prices are likely to remain influenced by energy costs, currency movements, global supply conditions, and domestic trade policy measures. Domestic demand should improve after the monsoon, however, global demand may get impacted by housing demand. Sugar and Ethanol: The global sugar market is expected to move into a deficit of around 2.6 million metric tons in the year '26-'27 season compared to a surplus of about 2.1 million metric tons last year. Uncertainty of crops in India and Europe and higher diversion of cane to ethanol in Brazil could widen this deficit further. For sugar season '25-'26, India is expected to close with a stock of around 3.65 million metric tons on production of 27.6 million metric tons, after diversion of around 3.1 million metric tons of ethanol, domestic consumption of 28.4 million metric tons and net exports of 0.65 million metric tons. For the coming season, market estimates point to gross production of around 27 million metric tons with some downside risk. Domestic sugar price is currently around ₹4,800 per quintal and is expected to be range-bound. On the ethanol front, the tender for the '26-'27 ethanol supply year includes ethanol made only from C-heavy molasses and shifts supply towards grain-based feedstocks. Ethanol procurement price of maize-based ethanol has been reduced while that of C-heavy-based ethanol has not been revised despite the increase in sugarcane price. With installed capacity of about 2,000 crore liters, already well ahead of demand, these developments significantly affect the sugar industry's investments in ethanol. The sugar, the the policy support with respect to fair share of allocations for sugar-based feedstocks and ethanol prices aligned with sugarcane costs are now critical to support the long-term viability of the sector. Fenesta Building Systems: Fenesta Building Systems sustained its growth momentum driven by healthy volumes across both retail and project segments, despite a volatile real estate market. Margins continue to reflect the changing product mix, upfront investments in scaling our new business platforms, and higher input costs. During the quarter, phase one of aluminum extrusion plant at Kota was commissioned while the second phase is in the process of installation and commissioning. Work on the wooden doors facility is moving as as per schedule. Moving on, the agri-input business portfolio comprises of Shriram Farm Solutions, fertilizer, and bio-seed businesses. First, Shriram Farm Solutions: The quarter was shaped by one of the weakest monsoons in over a decade driven by El Niño conditions. Although late-season rains helped sowing catch up in the near-normal levels, a shortened application window, moisture stress on crop, and tighter farmer liquidity kept demand for agricultural inputs selective. The SFS SFS business witnessed a decline in top-line in Q2 financial year '27 compared to Q2 financial year '26, largely on account of difference in timing of sales of research wheat seed. The portion of the timing-related impact may reverse in Q3, subject to crop conditions and channel demand. Notwithstanding these conditions, the crop protection vertical registered healthy growth backed by a differentiated product portfolio and ability to tap weather-driven demand. The business introduced four new products, including a promising wheat variety from our in-house R&D while our digital campaigns reached over 1.5 crore farmers. Fertilizers: Natural gas prices for the urea business rose further during the quarter as the West Asia conflict continued to disrupt LNG supplies.
Ajay Shriram (DCM Shriram Ltd): production and keeping tight control over fixed costs. The increase in gas prices has raised the working capital requirement associated with subsidy receivables. Given the high gas prices, the indigenous urea fertilizer subsidy requirement for the year could be higher at ₹1.2 lakh crores versus Union budget of ₹85,000 crores. Bioseed, the Kharif season remained very challenging for the Bioseed business due to a broader climatic pressure, especially in South and Central India. Despite the late recovery in rainfall, acreage under key crops such as corn, cotton and paddy stayed below last year's level. This weighed on corn and paddy volumes, while higher input production and logistic costs added to margin pressure. Our cotton volumes are better than last year. The margins were also impacted by provision for doubtful debts in India and seed discard in Philippines. We remain focused on portfolio quality, inventory discipline, collections and strengthening our market position ahead of the next planting season. I will now request Vikram to provide the financial perspectives. Vikram, over to you.
Vikram (DCM Shriram Ltd): Thank you. Good evening everyone. I will now take you through the financial highlights of Q2 and H1 FY '27. Net revenues net of excise duty for Q2 FY '27 were at ₹3,977 crores versus ₹3,272 crores in Q2 FY '26, an increase of 22% year-on-year driven by Chemicals, Vinyl, Fertilizer and Fenesta businesses. PBDIT for Q2 FY '27 was at ₹319 crores versus ₹408 crores in Q2 FY '26, mainly due to higher input costs in Chemicals and lower earnings in the agri-input businesses. The previous year's quarter also included a one-time positive impact of ₹76 crores towards incentives received from the Government of Gujarat in the Chemicals business and ₹15.5 crores in Sugar business on account of upward revision of power rates in the last year. Chemicals: The business reported an increase in revenue of 47% year-on-year. Caustic soda volumes were up 2%, while ECU prices were higher by 6%. New products including Hydrogen Peroxide, Aluminum Chloride and Glycerin to ECH to epoxy advanced materials value chain, contributed positively towards the topline. The PBDIT for this quarter stood at ₹158 crores against ₹254 crores last year, as higher input costs more than offset the benefit of better realization and volume. Further, last year there was one-time positive impact of ₹76 crores towards incentives from the Government of Gujarat. Vinyl: Revenues increased by 20% year-on-year driven by higher volumes and realizations in both PVC and carbide. PVC volumes rose 29% and prices 25%, while carbide volumes and prices were up 15% and 16% respectively. PBDIT was higher at ₹51 crores as compared to ₹12 crores last year, led by better volumes and realizations, partially offset by higher input costs. Sugar and Ethanol: Sugar and Ethanol business revenue net of excise duty was higher by 10% year-on-year. Domestic sugar prices were up 14%, while volumes were lower by 6%. Ethanol volumes were up by 24% of timing difference. PBDIT for the segment came in at ₹62 crores as against ₹33 crores last year. In Q2 FY '26, there was a significant positive impact of ₹15.5 crores on account of upward revision of power tariffs by UPPCL as mentioned earlier.
Vikram (DCM Shriram Ltd): Fenesta Building Systems: Revenues increased by 22% year-on-year, with the project vertical leading the growth. PBDIT for the quarter was up 15% at Rs. 49 crores, although margins were slightly lower. This was due to the change in product mix, elevated input costs, and higher fixed expenses for setting up new revenue platforms for the future. Shriram Farm Solutions: Revenues declined by 10% year-on-year, due to lower volumes across the seed and specialty nutrition verticals. PBDIT for the quarter was lower at Rs. 78 crores, as against Rs. 106 crores last year. Fertilizer: Revenues were up by 40% year-on-year, led by realizations which were higher by 46%, reflecting higher gas prices. PBDIT increased by 25% to Rs. 25 crores, driven by better margins on account of higher gas rates and improved efficiencies. Outstanding fertilizer subsidy was Rs. 446 crores on 30th September, as against Rs. 187 crores last year. Bioseed: The Bioseed revenue was lower for the quarter and the half year, as severe El Niño conditions weakened demand across the industry. PBDIT for the quarter stood at -Rs. 41 crores against -Rs. 7 crores last year. The decline reflects lower volumes, which increased the burden of fixed expenses, along with higher provisions for doubtful debts in India and seed discards in Philippines. At an overall level, the company's net debt is at Rs. 917 crores as on September 30th, 2023, as against 773 crores as on September 30th, 2022. Return on capital employed for September 2023 came in at 12% compared with 15% last year. The board announced an interim dividend of 200%, amounting to Rs. 62.38 crores. With several of our key projects, including aluminum chloride, calcium chloride, aluminum extrusion facility in Fenesta at Kota, renewable power project, now fully or partially commissioned, our priority is to ramp them up efficiently and capture the full benefits of integration across our various value chains. Sustainability remains central to this journey. Our growing renewable energy capacity is strengthening our energy security, advancing our decarbonization goals, and improving long-term cost competitiveness. That concludes my opening remarks, and I request the moderator to please open the forum for questions and answers. Thank you very much.
Moderator: Thank you, sir. We will now begin with a question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Ladies and gentlemen, if you wish to ask a question, you may press star and one. Our first question comes from the line of Riya Mehta with Equitas Investments. Please go ahead.
Riya Mehta (Equitas Investments): Thank you so much for giving me the opportunity. And congrats on good set of numbers for Fenesta. Just wanted to understand on the chemical division, this is caustic and other non-caustic chemicals, we are seeing a margin pressure and you mentioned the other import pressure. So, could you explain the breakup of this negative margin, on a YoY basis, a decline, even adjusted for exceptional items, there is a decline. Just wanted to understand what constitutes.
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