DCW Ltd (DCW) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day, and welcome to DCW Limited Q2 and H1 FY '27 earnings conference call hosted by Valorem Advisors. 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, Purvangi.
Purvangi Jain (Valorem Advisors): Thank you. Good afternoon, everyone. My name is Purvangi Jain from Valorem Advisors. We represent the Investor Relations for DCW Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the second quarter and the first half of the financial year 2027. Before we begin, let me mention a quick cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risk and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decision. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now, let me introduce you to the management participating with us in today's earnings call and hand it over to them for their opening remarks. We have with us Mr. Saatvik Jain, President; Mr. Sudarshan Ganapathy, Chief Executive Officer; and Mr. Pradipto Mukherjee, Chief Financial Officer. Without any further delay, I request Mr. Saatvik Jain to start with his opening remarks. Thank you, and over to you, sir.
Saatvik Jain (DCW Ltd): Thanks, Purvangi. Good afternoon, everyone, and thank you for joining us today for DCW's quarter two and first half FY '27 earnings call. By now, we are all familiar with the challenges arising from the ongoing situation in West Asia. What has made the first half particularly difficult for the chemical industry is not just the sharp movement in crude oil and energy prices, but the speed at which these changes have flowed through feedstock costs, freight rates, and supply chains. At the same time, global demand remains uneven, while competitive Chinese exports continue to put pressure on pricing. Higher costs, therefore, have not always translated into higher realizations, creating a challenging margin environment across the industry. Yet, India's long-term demand opportunity remains compelling. We continue to benefit from investment in housing, infrastructure, water management, and manufacturing. These are structural demand drivers for many of our products, and they reinforce our confidence in the markets that we serve. Turning to our performance, Q2 reflected some of these contrasting trends. Our basic chemicals profitability improved sequentially, primarily primarily driven by a recovery in PVC. As I indicated on our last call, we believe that the exceptional pressures in Q1 were largely event-driven. During Q2, higher landed costs of imported PVC, partly reflecting increased ocean freight, supported domestic realizations. This helped the VCM-PVC spread begin to normalize and was the principal driver of the improvement in our basic chemicals profitability. Specialty chemicals, on the other hand, experienced some near-term margin pressures. In CPVC, the PVC input costs rose faster than the selling prices could adjust, particularly on sales contracted at earlier prices. This temporarily compressed the spread. We expect the pricing mismatch to correct progressively as the lag works through the system. In our pigments business, higher ocean freight to North America impacted export economics during the quarter. Together, these factors weighed on our sequential profitability. Importantly, we do not see them as a change in the underlying opportunity. Demand for CPVC continues to be supported by plumbing and infrastructure applications, while pigments are well positioned across paints, coatings, construction, and concrete applications. Let me now turn to our other segments.
Saatvik Jain (DCW Ltd): Our balance sheet continues to strengthen. Net debt to EBITDA is now just 0.12 times, and finance costs have declined by around 8% sequentially. We expect the full year finance costs to be approximately 10% lower than last year. This gives us room to invest for growth without compromising our leverage or returns. As I mentioned last quarter, FY '27 is a turning point for us from strengthening our foundation of the business to investing in its next phase of growth. Our growth ambition is not simply to add capacity. It is to build a larger, more differentiated specialty chemicals portfolio, expand our value-added product offerings and structurally improve competitiveness and returns on capital. We have now initiated work on the INR250 crore investment program announced last quarter, covering the expansion of our iron oxide pigments business and optimization of our captive power infrastructure. Both projects are at an early stage with the previously communicated timelines remaining intact. We have also taken an important capital allocation decision. Following SEBI's reintroduction of open market buybacks through the stock exchanges, our Board yesterday approved a buyback of up to INR40 crore. Subject to execution, this could reduce our equity base by slightly shy of 3%. We see this as a measured opportunity to enhance value for continuing shareholders at current market valuations, while expressing confidence in the company's long-term prospects. Importantly, this does not come at the expense of our announced growth investments or balance sheet discipline. We believe that returning capital selectively and investing for growth can and should go hand-in-hand. This quarter, we also unveiled a refreshed identity for our 80-plus-year-old company. This is not about changing who we are. It is about reflecting where we intend to go. Our mission is to harness the power of chemistry to create products that shape the world, and vision to be a global leader in chemicals powered by innovation and sustainability. Our values, innovation, agility, trust, and sustainability will guide that journey. Looking ahead, external volatility remains a reality, but based on current visibility, we expect the second half of FY '27 to be significantly stronger than the first. Our focus is firmly on execution, improving margins, maximizing existing assets, progressing our investments, and increasing the contribution from value-added products. We are building DCW not merely for a better cycle, but for a substantially larger and stronger future. With that, I'll hand it over to Pradipto to take you through our financial performance. Thank you.
Pradipto Mukherjee (DCW Ltd): [applause] Thank you, Saatvik, and good afternoon, everyone. Let me take you through the financial performance for the second quarter and the first half of FY '27. Revenue from operations for the quarter stood at INR663 crores, representing a robust growth of 23% Y-o-Y. This performance was propelled by strong traction across both business segments with specialty chemicals expanding by 32% on a Y-o-Y basis and basic chemicals growing by 20%. Specialty chemical top line growth was primarily driven by CPVC volumes following our capacity expansion, while basic chemicals benefited from increased sales volumes of caustic soda, synthetic rutile, and combined with improved net realization in PVC. On sequential basis, the revenue from operations rebounded strongly, rising 22% quarter-on-quarter, comprising a 4% sequential uptick in specialty chemicals and a 31% expansion in basic chemicals. The sequential momentum in basic chemicals was backed by volumes and realization gains across caustic soda, synthetic rutile and PVC, which comfortably absorbed the impact of lower soda ash volumes resulting from temporary plant disruption.
Pradipto Mukherjee (DCW Ltd): in local floods. Meanwhile, specialty chemicals recorded sequential volume gains across both SIOP and CPVC, partially offset by steep market price erosions in CPVC. Turning to profitability, EBITDA including other income for the quarter stood at ₹55 crore, a 32% sequentially, sequential growth reflecting an EBITDA margin of 8.2%. Quarter-on-quarter recovery was anchored by a strong turn around in basic chemicals where the EBITDA swung back into the positive territory at ₹20 crore, recovering from an EBITDA loss of ₹14 crore in the first quarter of this year, as the VCM price spreads normalized and synthetic rutile volumes recovered from the previous inventory liquidation. On a YoY basis, the EBITDA including other income from the quarter contracted by 13%, dragged down by 33% reduction in specialty chemicals EBITDA, even as basic chemicals surged by 43% behind volume and price gains across all products outside soda ash. Specialty chemicals profitability during the quarter faced pressure from sharp contraction of PVC-CPVC spread and elevated ocean freight impacting exports to North America. For the first half of the financial year FY '27, revenue from operations clocked at ₹1,205 crore reflecting 19% YoY growth driven by 35% expansion in specialty chemicals and 13% growth in basic chemicals. EBITDA including other income for the period stood at ₹96 crore, a contraction by 20%. It is noteworthy to mention that our company was faced with series of non-recurring and abnormal events. One being the West Asia crisis in Q1 part, partly affecting production of PVC and severely impacting the VCM-PVC spread. Flood for our Dhrangadhra facility at Gujarat in Q2, affecting plant stoppage and soda ash production sales. Volatile price movement of PVC, including removal of import duties on petrochemical products for a certain period, resulting in abnormal contraction of VCM-PVC spread in Q1 followed by the second order effect in PVC-CPVC spread in Q2. Abnormal increase in freights in quarter two, impacting profitability on export sales to North America. Finance cost for the company in Q2 stood at ₹13.6 crore, a reduction by 8% on QoQ basis and 12.5% on YoY basis. The H1 finance cost stood at ₹28.4 crore, demonstrating a reduction of 7.2% on YoY basis. The company expects to conclude this fiscal year with a 9% to 10% reduction in interest cost. On the balance sheet front, it is important to state the following: Cash and cash equivalent including investments in FD and mutual funds totaled to ₹297 crore as at 30th September, 2026. The company's gross leverage stood at ₹323 crore resulting in net debt of ₹26 crore. The debt on trailing 12-month EBITDA at gross level stood at 1.5x and at net level, stood merely at 0.12x. Debt-EBITDA ratio was comfortable at 0.29x. Current ratio as on September end is maintained at a healthy level of 1.17x. The company's asset turnover on H1 FY '29, '27 annualized performance, stood at 1.83x versus 1.62x in FY '26. Looking forward, we remain focused on strengthening earnings quality, driving cost discipline, maximizing utilization across our newly expanded capacity, as we advance our capital deployment roadmap. And with this, we now open the floor for any question and answers. Thank you.
Moderator: Thank you, sir. Ladies and gentlemen, we will now begin with the question-and-answer session. Anyone who wishes to ask a question, may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Our first question comes from the line of Abhinav Mandowara with Equitas Investments. Please go ahead.
Abhinav Mandowara (Equitas Investments): Hi.
Abhinav Mandowara (Equitas Investments): Just wanted to understand directionally how it has been now and if you could quantify the number PVC-VCM spread in Q2 versus as on today where we stand in October end.
Sudarshan Ganapathy (DCW Ltd): See, the PVC-VCM spread in Q2 was not totally normal, it has started normalizing. So, I can say that it was on a ballpark north of $100. And as we talk now, the spread has somewhat further improved to close to $120. Still, it is not at $130, $135, but we expect the coming months to be there.
Abhinav Mandowara (Equitas Investments): How are we how are we seeing imports coming in for PVC, which I think was the problem last quarter? And how is the contract, is it short-term contract like CPVC, or is it spot?
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