Earnings Call Transcript - XNSE:ACI 2026-11-03

Operator

Ladies and gentlemen, good day and welcome to Arcane Chemical Industries Ltd. Q2 and H1FY27 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 touch-tone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ram Praveen Swaminathan, Managing Director. Thank you, and over to you, sir.

Ram Praveen Swaminathan, Other

Good afternoon, everyone, and welcome to our Q2 and H1 FY27 Learning School. Thank you all for taking the time to join us today. On the call, as always, I'm joined by several members of our management team, including Sir Anatharajan, our CFO, Sir Rajiv Kumar, Sir Rishabh, and other members of our financing, and members of HGI Investor Relations Advisors. I hope you all have had a chance to look through the results and the investor presentation, both of which are available on the website. And on our website and the Stock Exchange website as well. In my opening comments today, I'll briefly provide a brief update on the overall marketing external environment, following an opening commentary on each purpose. Our Q2 and H1, FY26-27 financials, and a quick overview of where we are in terms of execution of our strategy. Starting with the external environment, and I'll just begin more on the demand side, the global chloralky industry continues to see some strong long-term fundamentals. However, this quarter, this past quarter, like the rest of the year, has been marked with uncertainty and volatility. The price volatility has continued for caustic soda and chlorine with fluctuation. In regional demand supply balance, there's a sharp increase in ethylene prices and overcapacity in some regions. Ethylene prices, CFR prices in China have grown up. Demands I love for us. I wish I had to come to the call, especially. I did line prices, which also have been impacted by their eyes. In the near term, this will continue. the opportunities in front of us. I'll begin first with industrial salt. Industrial salt revenue for Q2FY27 was Rs.166. We have continued to focus on expanding our customer base in other regions. This initiative we started a couple of quarters ago, and during this quarter, we did see some success with some new orders from these markets, especially from Vietnam and Wuhan. Thank you. In this environment, we continue to focus on ensuring our market share in all the regions we operate and remain robust. The environment will stabilize in H2.

Operator

Who wishes to ask a question may press star and 1 on the touch-down telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use answers while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sanjuris Jain from ICICI Securities Limited. Please go ahead.

Sanjuris Jain, Analyst — ICICI Securities

Good afternoon. Thanks for taking my question. And to start with Happy Diwali to the entire team. First question on the volume front for the Brooming, we were anticipating 18,000 to 20,000 metric tons for F527. In the first half, we have done close to 8,200 metric tons. That means in the next two quarters, we are looking at, even to touch the lower end of the guidance, we are looking at upwards of 5,000 metric tons per quarter. So, given our run rate, how should we see the volume for this FY27? Do we see we will fall short of the guidance this year?

Ram Praveen Swaminathan, Other

No, as of now, we are expected to be at the guidance, Sanjesh. I'll be to the lower end of the guidance.

Sanjuris Jain, Analyst — ICICI Securities

Got it. Got it. That means we should ideally expect a sharper... And this second also.

Ram Praveen Swaminathan, Other

I think production and status, as I mentioned, we lost around 7%, 6%, 7% in this quarter because of the power shutdowns and the power cuts. We should see that getting restored. At least we have worked out kind of a new model and got some better clarity from the government on how they will do the shutdowns. So we should start getting that upside from that alone, which is other 6%, 7%, and then other things will flow through. Got it.

Sanjuris Jain, Analyst — ICICI Securities

Similarly, we were looking at 4.5 million metric tons in salt. I know salt has been more challenging in the first half. I appreciate that. But do you see any probability of wheat touching 4.5 million metric tons for this year, or it looks a little stretch for at least this year, given the first half has been very challenging?

Ram Praveen Swaminathan, Other

Yeah, so the first half was close to 1.8, 1.9 million. And I think the order board is there, Sanjeev. I mean, we have the order board, clearly, and we have the ability to ship as well. I think some of the initiatives we've taken to ensure the supply chain is more robust is in place. I think a little bit of what's difficult to predict right now. And some of the impact we're seeing on operating rates and referrals from customers, that's a hard one for us to perfectly predict. We're still pretty much working on that number.

Sanjuris Jain, Analyst — ICICI Securities

Given what we have done in the last four, five quarters, anything which has changed, is that we are focusing pricing over volume, or it's just purely a mathematical number?

Ram Praveen Swaminathan, Other

No, I think it's just a bit of a mixed number as well. As I mentioned earlier, Sanjeev, I think there's a range of mix between grades and also geographies, and more different than some of the lower-priced geographies. I think I probably just made the mix a bit more.

Sanjuris Jain, Analyst — ICICI Securities

On the cost side, we said that the Hajipeed Road is now fully operational. Now, what should it provide us in terms of delta for the EBITDA and the salt, now that we will be running one volume, obviously, because that will ease some of the logistical bottleneck, but more from the cost perspective, how much benefit should it add in Q3?

Ram Praveen Swaminathan, Other

Yeah, that's kind of a, yeah, so I think there's a cost structure, there are two elements to it. One is the cost per kilometer of fuel, which has gone up substantially. The other one is the impact of the distance itself. So, yeah, I think, I mean, we expect probably our transportation costs have gone up. Transportation costs alone, which have probably gone up around 15% or 30% in the range based on which route, port, etc. That should more or less get mitigated this quarter. Right? Because of the route change. So this is not 15% revenue or 15% of the transportation cost itself. Just want to kind of point it out because I'm sure you guys will do some math on it. But the transportation cost number, which 15, I've gone up by around 15 to 30% in that range because the route changes, that should get mitigated almost. Got it.

Sanjuris Jain, Analyst — ICICI Securities

Ram, if I just reconcile what we have discussed, we are looking at bromine volume acceleration, we are looking at salt volume acceleration in the second half, and hopefully derivative performs well, and there's a cost reduction. Are we looking at a significant jump in the EBITDA in the second half versus the first half? Structurally, what is the risk you see for this assumption? Are pricing stable, or do you see pricing can be a spoilsport in the second half, or do you have enough visibility for the pricing?

Ram Praveen Swaminathan, Other

No, I think there are obviously risks which are there. I think, first of all, I mean, as we get, you know, This is operationalist, probably the biggest one is just we get into winter and we do see some impact at times because of that on recovery across our entire system. You know, I think we... We have to predict it right now, both WTI and Brent.

Sanjuris Jain, Analyst — ICICI Securities

Now that we have started the construction at the Odisha site, what is the timeline we are looking in terms of key milestone for the plan to commission from now to FY29?

Ram Praveen Swaminathan, Other

I think we just start construction now. I think overall at the headline level is probably 24 months end-to-end. I think probably we'll work. We'll see how we can give it a better... Thank you. kind of visibility in terms of what milestones to expect. We're just kind of getting into some of that work. So at some stage, we'll come back and probably do a little bit more. I'm going to try and share with you some interim milestones as well. Right now, we have shared interim milestones in the earlier phase in terms of... Getting the construction started. Reconstruction, we've given some internet milestones.

Sanjuris Jain, Analyst — ICICI Securities

That will be helpful. Thanks, Ram, for answering all those questions, and this is for the coming Thank you.

Operator

The next question is from the line of Aditya Thetan from Smith, Institutional Equities Limited. Please go ahead.

Aditya Thetan, Analyst — Smith's Institutional Equities

Thank you, Sal, for the opportunity and wishing you a very happy Diwali. So just a couple of questions. Sir, when I look in this quarter, the COGS again looks on the higher side because as we mentioned earlier also over the last two quarters, we were having high cost inventory of salt. Now with the road infrastructure work being completed, you see these additional salt volumes like which are stuck will now be shipped to the export market and that could lower your COGS and add some numbers to the EBITDA in the coming quarter?

Ram Praveen Swaminathan, Other

Sir, why don't you share the other questions so I can answer both of them together so this is more efficient. Do you have any other questions?

Aditya Thetan, Analyst — Smith's Institutional Equities

Yes, sir. Second was on to the other expense side. As you mentioned, because there was some loss of volumes in bromine because we didn't have the power, so this lower other expense likely because of the lower power cost only. Now, with the road infrastructure work also being completed, we are anticipating that the number to come down in Q3 also and Q4. And how does the incremental number to edit that we see, like from this COGS coming down and with these other expenses also come down with the road infrastructure work getting completed?

Ram Praveen Swaminathan, Other

Yes, I think as I mentioned earlier, I think the question I answered earlier pretty much holds to your questions as well. I think our logistics cost increased substantially, obviously, because of two reasons, root changes and the diesel cost increase. The diesel cost increase in the larger part, the root increases was obviously a smaller part, but very significant. That was around 15 to 30 percent of our cost of logistics had gone up. Because of the route change alone, that should largely get mitigated in the coming two quarters, right, assuming that they don't make any further changes, which you don't expect to happen. So with that, we should see that mitigation. Thank you, everybody.

Aditya Thetan, Analyst — Smith's Institutional Equities

On to the oil and hydrocarbon side. Sir, where are we standing in terms of customer approvals? And any sort of top line numbers like we are building in for 27 and how much we could make for 28 and 29? And about the product also, like how well the product is being accepted by the market? Is it a good product and the product market fit already established or it is still in progress?

Ram Praveen Swaminathan, Other

It's a very wide question, but let me try and narrow it down a little bit. I think there are a bunch of products that you make there, and some of the plants, actually, a couple of plants are really going through releases from government in terms of licenses and clearances and so on. The two plants are operating. Those plants, I think, as I mentioned earlier, we have, you know, for several years, those plants have not been operational, so we have, the markets have changed, so we've been working on the new products. Products have actually had some fairly good feedback in terms of the customers we have given it to. It's just that given the state of the oil and gas market, and a lot of those products go into oil and gas, it's just been difficult to get order traction in a consistent way. We are largely getting a few campaign kind of orders which are coming in, but no. It has been difficult to kind of work through, given the uncertainty on the oil and gas side. Obviously, the primary oil and gas market for us remains the Middle East because these are volumetric products. in the middle stages, but that uncertainty has been a problem for us. So, but trials have been going reasonably well, and I think we are up, for the rest of this year, we are not giving in volume guidance for the business.

Aditya Thetan, Analyst — Smith's Institutional Equities

Sir, just one more bookkeeping question. I wanted the volume and the revenue numbers for SOP and also the captive consumption of bromine like they are using for bromine derivatives. Because I believe that the manufactured volume looks on the higher side, but the actual saleable volume looks lower because we are also using captive. If you could also provide the manufactured volumes also of bromine for the last two quarters.

Ram Praveen Swaminathan, Other

So, captive, out of the volumes, you should disclose on 30% of that goes to captive, and 25 to 30% goes to captive, the remaining goes to market.

Aditya Thetan, Analyst — Smith's Institutional Equities

Okay, so, 4,000 tons effectively, or 30% means around 5,200, you are stating that number.

Ram Praveen Swaminathan, Other

No, no, no, 4,100 tons is total bromine, including the captive. So, market would be around 3,000 and captive would be around 1,000.

Aditya Thetan, Analyst — Smith's Institutional Equities

Okay, okay. So, this 4, okay, this 4100 also includes the captive. And, sir, on to the SOP volumes and...

Anatharajan, CFO

Yeah, SOP F527Q2, we have done 444 metric tons, and the total value was 2.18 crore.

Operator

Thank you. Anyone who wishes to ask a question may press start and one on the touchtone telephone. The next question is from the line of Rasha from RBS, the Investment Manager, LLP. Please go ahead.

Rasha, Analyst — RBS Investment Manager LLP

First question was, given the high cost of diesel prices and uncertainty around it, and wherever possible in operations, does adopting electric traps make sense for us, given we have fixed load operations?

Ram Praveen Swaminathan, Other

Yes, we've been working on pilots on doing that. I think to be fair, the challenge is for us to get, these are generally 55 CVW trailers, and for us to get vehicles which can operate with charging, right, for that distance has been a challenge. We end up having a fair amount of downtime because we're charging time, and that actually ends up creating a very zero increases. The turnaround time quite substantially and kind of mitigates any cost-benefit we'll get substantially. We are working on it more from a sustainability perspective, and we have multiple pilots going on, both inside the plant and in terms of outbound movement. But to your direct question, saying that are we going to get a huge amount of cost-benefit by going electric, it'll be hard to see that right now. Of course, it'll happen over time as the vehicles get... Better the power density and we actually can run them for probably 300, 400 kilometers without a recharge. But right now, we are trying to recharge twice on a trip, on a two-way trip today. The kind of the vehicles are available and that makes the downtime just way too high.

Rasha, Analyst — RBS Investment Manager LLP

I can think on this J&B Tartan project, is the industry conducive for us, or are we going ahead with the project, or is it on hold currently?

Ram Praveen Swaminathan, Other

No, it's still, I think you said that's a priority for next year. I think what we have laid out before is that there's a first phase of bromine expansion, which remains focused on current derivatives and market and other customers, our in-house captive demand for derivatives and other merchant volume. And then we will line up the flavor retardant and the next. And that's very much still on the plan. What should we have to? One timestamp is specifically, but somewhere between, I'd say, 27, 28, and 28, 29.

Rasha, Analyst — RBS Investment Manager LLP

Okay, okay. And the last thing on the off-grid side, given, assuming the pallet trials go as expected, when do you expect to commercialize the gigafactory that way when it's hatched?

Ram Praveen Swaminathan, Other

So, I mean, there's a fair amount of work to be done between just the pilot trial and that, so I think I don't have a really clear answer on that right now, but we'll try and get you an answer on that. If you didn't drop us a note, there's a very specific interest that we'll provide to share a little bit more of an update on it. At this stage, I think it's still very early to get to put specific plans around that. Okay. Okay.

Kapoor, Analyst

Thank you.

Operator

Thank you. The next question is from the line of Rishabh Jain from Bajaj Finance. Please go ahead.

Rishabh Jain, Analyst — Bajaj Finance

Yeah, good afternoon, sir. Sir, this question is a little broader in terms of your larger KPIs that you're looking at at Bhuvaneshwar. Can you just help us understand in terms of, say, for the next two years, how you're looking at the overall KPIs, the quantum, and what's the kind of debt that you're looking at on that KPIs, sir?

Ram Praveen Swaminathan, Other

Yes, semiconductor project. Let me try and make it as simple as possible, just as a bit concise, because we spent a lot of time on it. But I think broadly, we think that the semiconductor project will be around $240 million in terms of overall capital. And obviously, a little bit of less than half of that will come from the ISM, I mean, the FSA from the ISM, the rest of it. They're sitting in the box. We're probably investing another 1,000 to 1,100 crores over a period of time, not just to start, not only to build the project, but also to set up operations as the project starts ramping up volume and so on, which will create its own pressure in terms of working capital and everything else. So somewhere 1,000 to 1,100 crore range is what we probably do. That is largely going to be funded through debt. The thousand crores are plus. In the near term. What do I think?

Rishabh Jain, Analyst — Bajaj Finance

It will be spread over the next two years' time, right?

Ram Praveen Swaminathan, Other

As in all of these projects, Rishabh, it would be fair to assume that it's fairly front-loaded, right, because that's the nature of the business. It's high-cost capital items, and it's very front-ended in terms of the cash flow curve. And this will be all IRR debt, or you're looking at foreign companies? We haven't finalized a specific instrument. When we do that, I'm sure we're going to probably report it out or share it with you at some stage. At this stage, our team is still working on securing those things.

Rishabh Jain, Analyst — Bajaj Finance

And in terms of a core business, sir, what's the kind of KPIs, capacities, ramp-up that you're looking at and kind of data you're looking at?

Ram Praveen Swaminathan, Other

No, I think... With the exception of the flame retardant project, I think the rest of it, our capital spend would be remained within our depreciation curve, and we'll probably be at 0.6 to 0.7 depth. There's a bit of a fun time to spend right now, this year, because we are doing a lot of de-bottlinging. We're on a three-year window, it's probably going to be at 0.7 depth, and that's something which we'll fund internally, the operational curve. Okay.

Rishabh Jain, Analyst — Bajaj Finance

All right, sir.

Ram Praveen Swaminathan, Other

Thank you, sir.

Operator

Thank you. The next question is from the line of Darshita Shah from DSP Asset Managers Limited. Please go ahead.

Darshita Shah, Analyst — DSP Asset Managers

Yeah.

Operator

Hi. Good afternoon.

Darshita Shah, Analyst — DSP Asset Managers

So, I just wanted to check on the booming competition that you mentioned about in the domestic market. Are these newer facilities that have come up or was it always there?

Ram Praveen Swaminathan, Other

No, I don't think it's a solution. I won't say not because of industry capacity being increased. I think largely because of dynamics within the existing industry structure. Obviously, the requirements and the export requires us to have adequate transportation and logistics capacity, and based on how people's position are, they have different levels. Different players are differentially positioned there, and given bromine is not a shelf-like product, right? There is always pressure to evacuate volume as you manufacture it. We've been in a good position, and we continue to invest that in terms of our fleet sizes. I think I'll remain talking to the... I definitely don't... I think that... Contracts that we have in place so far for the export market, and then also taking into consideration the lower domestic market prices, 310, 320 seems plausible for the – so first half, we are already almost there from Romine Realization perspective. 310, 320 seems plausible for the rest of the year as well. The next time will be boringly repetitive, but I think last quarter, as I said, last quarter and the quarter before that, we kind of said that we expect the year to be at a 300 rupee average year. And at a minimum, only three quarters, and we would be still. We'll leave the bill holder.

Operator

Thank you. The next question is from the line of Vinay Nankarni from Hathaway Investments Private Limited. Please go ahead.

Vinay Nankarni, Analyst — Headway Investments Private Limited

Yeah, thanks for the opportunity. Just wanted some clarity on your SOP numbers. For H1, how much have we...

Ram Praveen Swaminathan, Other

This is a good question, and I think SOP, we are cutting down, we are not going to be able to hold that earlier guidance. We are right now probably expecting to be at around $3,500. But this, in fact, is it? As I said earlier, last quarter, We've also had lower KTMS production, right, in the year, in the first half of the year. We are trying to ramp that up in the second half. I think my opening comments also, I said that after the trials are over, we have some work to do. We'll probably end up at around 3,500 to 4,000 tons for the year in terms of H1. And how much have we done now in H1? H1 is around 2,000 tons. 3,400 totally. We should be at a 4,500 level for the full year as we stand now. So that has been downgraded at numbers.

Vinay Nankarni, Analyst — Headway Investments Private Limited

Do you see any uptick in the realizations going forward on SOP, and how much would you expect in F20?

Ram Praveen Swaminathan, Other

It's kind of an aberration for us, but I think... Thank you. Thank you. We have in the past struggled. So, it's been difficult for us, again, to become more consistent.

Kapoor, Analyst

It's called as an option and as a category.

Ram Praveen Swaminathan, Other

So, the multiple questions, but just to make it simple, I will try and repeat them, right? So, I don't miss anything. The first one, I think, was our CWIP level and how you think the... Good morning, everyone. I'm sorry, I can do the first one after that. I think most of our soil business is long-term contracts. These are contracts which are essentially set up on any... 20%. About 10 to 20%. Higher than the 10% because of the lease schedules are happening. This is a 10%. which you did have as operating rates in We're going to further grow the business in the second half of the year. So obviously that is going to mean that our operating rates in terms of volume and operating leverage are going to improve. I think the challenge for us is the mix because of...

Anatharajan, CFO

See if it's concerned, you know, mainly two things. One is brain fillet. It's all nearly 65.

Kapoor, Analyst

Thank you. Thank you.

Anatharajan, CFO

One is SOP, another one is brinefield expansion. Okay, and when are they going to get commercialized? And what would be the volume addition? Yeah, brinefield is expected in the next couple of months. Okay, SOP, current financial year it will be. And the type of volume, anything.

Ram Praveen Swaminathan, Other

Let me take that. I think so just, let me, before I'll answer the question, I think, so obviously, the bank field expansion is something which feeds all parts of our products. So we are adding around... The work has already been completed. That will go into production in the next couple of months because we are starting to operating that. And they will then basically add, that will provide volume of additional salt and additional bromine. I'll feed. The second part of this, the questions are the SOP trials. Those are important. I think we have given guidance on 9,000, 10,000 tons this year. We are expecting next year to make higher than that guidance. So this year we have to cut it down. Capitalized by the end of this year as well. Now, to just give you context, I think we have referred our total CWIP is 120 crores, in which around, for the last part, in the chemicals business, and 40 crores is really in the, in six, seven. It takes a longer time to get capitalized, but that's a bunch of other things. Most of that is basically the brine field expansion.

Kapoor, Analyst

You know, we can move forward for...

Ram Praveen Swaminathan, Other

There are multiple options, which obviously exist. Soil is a fairly recently large market, but I think without laboring a larger conversation, which is difficult to do on a call like this, but we really are pretty much focused on the industrial soil segments, which we are serving right now. We think that action. So, we are not looking at any immediate segments which are dramatically different. We're not looking at... This is probably one of the best forum.

Operator

Sorry to interrupt, Mr. Kapoor. Sorry to interrupt. Please join back the queue for more follow-up questions. Next question is from the line of Rohit Nagraj from 361 Capital, Private Limited. Please go ahead.

Rohit Nagraj, Analyst — 361 Capital Markets Private Limited

Good afternoon, and thanks for the opportunity. Just one question. In terms of our Semicon project, how are we placed from the availability of profit?

Ram Praveen Swaminathan, Other

That's just a good question. I think what we are trying to do, Rohit, is use the time we have. We have a couple of years. We're actually hiring people, right, in waves of talent, right, over the next 24 months. So this site now, we're obviously putting a lot of our... We are also in the process of hiring talent for the construction work at the site and the project management team. So those are getting staffed, and that will be followed by investing in our GTM teams. It's a challenge in terms of. We have a fairly robust plan. We will do that. We are cognizant that it's not an oversupplied market in terms of talent.

Rohit Nagraj, Analyst — 361 Capital Markets Private Limited

That's helpful. Thanks a lot, and Diwali wishes to the entire team.

Operator

Thank you. Due to time constraints, we take that as the last question from the participants. I now hand the conference over to the management for closing comments.

Ram Praveen Swaminathan, Other

Yeah, I think before I just close, I just want to make one comment. I think the question, Mr Kapoor asked earlier, on the brine field expansion, I think we had mentioned, or in the last one, our total brine field size is 24,000. So I'm going to reset the numbers, so there's no conclusion. Our total brine field, when it's fully expanded, will be 24,000 hectares. We had 16,000 developed, and the expansion is about developing another 8,000 in two phases. So the first 4,000 has more or less been completed, and that is the work which is in CWAP. And that will get into operation by the end of this quarter. I'm going to restate those numbers because I might have jumbled them up a little bit. I'll wrap this up. First of all, thank you all for joining us here today and your continuing interest in Arkeel. I think as we enter the second half, we believe that we have good momentum. The bromine business, we're a good solid base. The bromine business has gained some momentum. As all of you have probably picked up, the road corridors are a little bit opened up, so they should favor us both in terms of logistics and costs. And I think our newer businesses have started to accelerate. It's about where we are. Thank you for the business and for those who have them, please. Lastly, wishing you all and your families a bit safe and happy, Niwali. Thank you all, and stay safe.

Operator

Thank you. On behalf of Arkin Chemical Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.