Century Enka Limited (CENTENKA) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Century NCAL Limited Q2 and H1 FY27 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need any assistance during this conference call, please signal for an operator by pressing star, followed by zero on your touch-tone telephone. I now hand the conference over to Ms. Purwangi Jain from Valoram Advisors. Thank you, and over to you, ma'am.

Thank you. Good evening, everyone, and a very warm welcome to you all. My name is Pravangi Jain from Valoram Advisors. We represent the investor relations of Century Income 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 belief 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 decisions. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial performance Now, let me introduce you to the management participating with us in today's earnings call. We have with us Mr. Suresh Sudhani, Managing Director and CEO, and Mr. Yogesh Shah, Chief Financial Officer. Without any delay, I request Mr. Sudhani to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Purwangi. Good evening, everyone, and welcome to our earnings conference call for the second quarter And first half of financial year 2027. I would like to thank our host, Valorum Advisors, for hosting this call. Now let me brief you on the operational highlights for the period under review. The automotive sector witnessed healthy momentum during the second quarter, with passenger and commercial vehicles emerging as key growth drivers, supported by festive demand. This provides a constructive demand environment for the tire industry, although the outlook for the coming quarters will depend on deficit monsoon impact, inflation, and interest rate movements. Within our tire cord fabric segment, underlying demand for NTCF remained healthy, reflecting encouraging demand fundamental. The increase in imports impacted sales volume during the second quarter. We continue to focus on strengthening our market position while navigating competitive pricing pressures and volatility in raw materials and fuel costs. While geopolitical developments, the ongoing war, and fluctuations in crude oil prices remain key near-term uncertainties, we believe the improving automotive demand environment provides a supportive backdrop for the industry. On the PTCF front, the approval process is progressing in the desired direction, and we expect to commence commercial sales in Q4 FY27. This represents an important milestone in our product diversification journey, and is expected to broaden our presence in the tire reinforcement segment. The nylon filament yarn business recorded an improvement in sales volume during the quarter, driven by stronger demand during the festive season. However, margins remain constrained by continued influx of competitively priced imports from China, particularly in base and low-grade yarns, alongside significant fluctuation in raw material costs. To strengthen margin realization, we continue to prioritize value-added products and enhance our product mix. During the quarter, we further expanded capacity in this segment to support the growing focus on higher margin offerings. Turning to raw materials and power and fuel costs, the quarter saw a challenging cost environment with significant volatility in raw material prices continuing to weigh on operating margins. Additionally, the benefit of lower-cost opening inventory, which had supported margins in quarter one, moderated during the quarter, resulting in a normalization of profitability. Further, the energy cost emerged as another area of pressure with higher grid power tariff at Baruch and elevated LNG prices, increasing the overall cost of operations. To address this, we are strengthening our hybrid power capacity, which is expected to start delivering cost benefits from Q4 FY27. Our focus remains on mitigating external cost pressure through to greater energy efficiency and operational optimization while working towards a more sustainable cost structure over the coming quarters. I now request our CFO Mr. Yogesh Shah to brief you on financial performance.

Thank you, Suresh, and good evening, everyone. Let me now brief you on the financial performance for the period under review. For the second Second quarter of financial year 2027, revenue from operations grew 37% year-on-year, ₹558 crores, EBITDA stood at ₹33 crores, registering a year-on-year growth of 4%, with EBITDA margin at 5.88%. Profit after tax stood at ₹19 crores, declining 17% year-on-year, while pet margins came in at 3.31%. Moving to our performance for the first half of financial year 2027, revenue from operations grew 37% year-on-year, Rs. 1113 crores. EBITDA increased significantly by 130% year-on-year, Rs. 119 crores, with EBITDA margin at 10.66%. Profit after tax stood at Rs. 80 crores. This is seeing an exceptional year-on-year growth of Rs. 113%, while fast margin came in at 7.21%. Now turning to the segmental performance, total volume of the quarter grew by 13% year-on-year to 20,162 metric tons. Within this, tire-court fabric sales increased by 37% to Rs. 251 crore, While, Plum & Yarn sales reported a growth of 39% to Rs. 293 crores. Total volume for the first half grew by 13% year-on-year to 39,361 metric tons. Within these, tire-court fabric sales increased significantly by 53% to Rs. 557 crores, while, Plum & Yarn sales reported a growth of 30% to Rs. 523 crores. With this, we open the floor for questions and answers.

Good afternoon, sir. I have two questions. First of all, the revenue grew by 37% year-on-year in Q2FI 27. So, could you elaborate on the key growth drivers, particularly the contributions from higher realizations, pricing, as well as the product mix, and how sustainable are the current realization levels?

You have two questions. Are you asking the second one as well? Yeah, sure.

So, the capital work in progress increased from about 13 crores in FI 26 to about 38 crores in H1 FI 27. So, could you also please provide an update on the ongoing CapEx projects, any planned investments, and any additional capacity expected from these initiatives? Okay.

Thanks for your questions. First of all, I will address on the revenue side. Revenue growth is driven by both the volume growth as well as the realization growth which is primarily driven by the higher raw material prices. You know our model is basically the main raw material cost comes from the crude based caprolectum or polymerized chips and those prices have increased significantly quarter on quarter and also in relation to Q1. So these, plus the volume growth that we had on a combined basis for all the products that we sell, these two contributed for the revenue growth. Revenue growth in future will depend on what is the prices of our underlying raw material, while volume will depend on how the market conditions remain. As we mentioned in our opening statements, there are too many There are many outside factors, non-controlable factors like geopolitical situations, crude oil prices, inflation, and as well as the impact of rupee. So all this will have an impact on the demand, and the demand will drive the volumes. As far as the pricing is concerned, that would primarily be dependent on what is the raw metal prices. So very difficult to project whether this would remain at these levels or not, because the volatility both in quarter one as well as in quarter two is significantly high. In fact, much higher in quarter two because of the developments in the Iran war. Coming to the CDO Capital Work in Progress, the projects which are ongoing are mainly our Madariyan expansion at Pune, our increase in WAPS capacity at Bharuch, various energy-saving capexes at both locations, as well as improvements in safety and some old assets.

Thank you. Participants with questions, may please enter star, followed by one. The next question is from the line of Dhru Shah. Please go ahead.

Yes, hi, sir. Good evening, sir. I have two questions, sir. First is, with the benefits of increased hybrid power capacity expected from Q4 FY27, what level of power cost saving is anticipated, and what could be basically the impact on the margins in FY28? Okay. And second question is about the capacity utilization level against the installed capacity of approximately 92,000 metric tons in Q2 F527 and how much headroom we can anticipate going forward?

So, the hybrid at Badooch, we already have one hybrid project which is already giving benefits at Badooch in the power rates, and the second, the additional hybrid would start most likely in quarter four and start delivering benefits. The benefits are actually a difference between the grid rates and the rates at which we have signed the agreement for the hybrid power. So since the grid rates vary, there could be most likely a better than because the grid rates have been increasing in last few quarters. We expect, I mean, on a very rough calculation basis, annualized benefit of about 10 crores per annum on the additional hybrid power that would come to the company. And this is just a differential between the grid power rates and the power rates that are coming from the hybrid capacity. As far as the capacity utilization, it varies between 80 to 90 percent. We had about 85 percent capacity utilization in Q2. And as mentioned in the earlier question, the capacity utilization is a direct function of the demand. And if the demand remains good, we should be closer to 90 percent. If demand is slightly weaker, we may, I mean, either be around this number or maybe slightly lower. So the capacity utilization normally is in that range, and we have sufficient headroom. This capacity is obviously based on a normative denier mix, and the denier mix particularly on the filament yarn side could also have an impact on the capacity. So, all in all, in case of a short-term surge in demand, we have sufficient headroom to meet those demands.

Thank you so much.

Thank you. The next question is from the line of Sanjay Patel. Please go ahead.

Hope my voice is audible. Yes, sir. Thank you for giving the opportunity. So, my question is, despite healthy demand from the automotive sector, your NTCF sales were impacted by increased imports, and how do you view the demand outlook for the tire cord fabric in the second half of the FN27, and what measures have been taken to address the import-led competition?

So the imports actually happened in a very uncertain scenario, which were booked in quarter one when there was uncertainty on availability of raw materials, availability of LNG, availability and so the entire companies more as a risk mitigation exercise booked a larger quantity because there were month on month, week on week uncertainty on what will pan out. Whether we'll get sufficient gas from Middle East or other sources, so that the gas volumes are available for continuing our operation. So that was one. Second was the price itself was fluctuating, and these volumes are actually more than the normal imports that happen. So we do expect that this should normalize in the coming quarters, not necessarily that In the current quarter, but because normally the imports are more towards export of tires because they are brought under advanced license, and we are in touch with all customers, and we expect that these should normalize in coming quarters, but since the volatility continues because of uncertainty in the geopolitical situations, we could have a quarter where the I just

wanted to know the demand outlook overall for the tire cord fabric in the second half, and also I wanted to know on the same note, like what is the current capacity utilization across key manufacturing facilities, like is the existing capacity sufficient to support the anticipated demand growth, or will additional investments be required on that point?

Yeah, so, I mean, we can't, we don't give any forward-looking statement, but as mentioned in our opening statement, there are some, I mean, monitorables like what is the impact of the deficit monsoon, inflation, the interest rates, because demand for our fabric comes from two sides. One is the OEM demand and second is the secondary or the after-sales demand. After sales demand, I mean, these factors could have a more impact on that. We will also see how does the vehicle sales happen, automobile sales happen in this festive season because this is up to Diwali is the major buying period for which some volumes are already in the pipeline. So, it is, I mean, it's a bit volatile because of too many external factors impacting the demand, but the positive part which continued post-reduction in GST still remains. So, that provided a great fillip to demand since September last year and which continued We hope that that would continue to balance some of the negative factors which come from the other external factors. And we are geared up to, I mean, capacities are available in the short term or near term, we don't need any capacity expansion on the nylon side. Polyester, as we have already mentioned, is under the pool process and we have capacity Once we start getting approval from customers, from Q4 onwards, and from the next FI28, we hope to utilize that capacity as well.

Okay, sir. Thank you, sir.

Thank you. Ladies and gentlemen, if you have any questions at this time, you may please enter star followed by one on your handset. The next question is from the line of Roshni Shukla. Please go ahead.

Hi, sir. I just have two questions. First is I want to understand how is the demand evolving across tire OEMs and the replacement market, particularly in the two-wheeler, bias tire, and the off-the-road segment, and what are the key demands drivers expected in H2F5-20 cycles?

The OEM demand, I think, as per public data available, has been pretty good because until September, across all categories, the sales have been very good. Except some dip in the tractor sales, which also is on a very high growth in the previous year. So on a normalized basis, even that sales have been quite good. So the OEM sales have remained quite robust up to September. The secondary market has not been as robust as and this is based on data which is available from Atma and other. We don't have a tracker So, based on the external data gain, I mean external sources, secondary sales have been slightly not as robust as the OEM sales for two reasons. One is the monsoon, normally the pickup happens either the tire replacements happen either in quarter one or they start more in quarter Q3 and Q4. So, we will know whether the secondary or the after sales market actually picks up at the projected levels or what the trial companies are expecting in the coming quarters.

Okay, okay. And the second question is that with the PTCF commercial, sales expected to commence in 2, 4, F, 5, 27, right? And so, what are the initial volume and revenue expectations and how quickly is the segment expected to ramp up following the commercialization?

Since we report on a single segment, I will, for competitive reasons, I cannot give the breakups of how much will come, but we expect the product approval goes through a multi-stage approval, especially for the new products, and since it is this PTCF goes in passenger The car tires, there is a very high level of technical clearances that is required at multiple levels. So, the ramp-up would be gradual, but the second half of FY28, we expect a very high or almost a good capacity utilization for the capacities that we have established.

Okay, okay, sir. Thank you so much. Thank you. The next question is from the line of Sakshi. Please go ahead.

Oh, yeah. Hi, sir. So, first thing that I wanted to ask is, so your EBITDA margin declined by 186 basis points on YOY basis to 5.88% in Q2 F527, from 7.73% in Q2 F526, and fell by 958 basis points Q1 F527, from 15.46 in Q1 F527. So, what would be a sustainable normalized EBITDA margin level over the coming quarters?

We normally maintain that our EBITDA should fluctuate between or should remain depending on multiple factors between 7 to 10 percent on a normalized basis and since the quarter one was a very significantly high margin and quarter two was lower. And one of the underlying factors which impacts the margin is the raw material cost because that increases the base. Margins in this industry do not change as a percentage of raw material because raw material costs are more of a pass-through and the margins are a different way of calculation. So when the underlying raw materials are high, the margins would normally tend to be lower. Quarter one was exceptional because we benefited from the low-cost inventory, and post-war there was a significant price increase in crude and all the crude derivative raw materials. So that would also be an abnormal, but even Q2 is not our normal range of operating margins. So as mentioned, normally our target would be between 7 to 10 percent.

Okay, and how do you plan to scale the Ancalon and Neonile brands, particularly in premium and recycled yarn categories? I mean, like, what opportunities exist to expand the sustainable yarn portfolio?

So, basically, Neonile is for the recycled yarns. Ancalon is based on virgin New Nile was basically launched for export markets, and again, due to geopolitical situations, markets are in kind of a flux where the buyers are not sure whether this is the right time to book orders, because wars get settled and the prices come down, the price of all products come down. So, New Nile is a promising opportunity that we are looking at, especially in the export market, because most of the brands have a target on what percentage of recycled products they are using in their finished products. And that gives us an opportunity to place this product in the premium segments and particularly with the leading brands. And our aim is to

Thank you, sir.

Thank you. Participants with questions may please enter star and one. The next question is from the line of Gaurav Shah. Please go ahead.

Hello, sir. So, my question is, yarn revenue increased from 211 crores in Q2 FY26 to 293 crores in Q2 FY27. Could you elaborate on key drivers of this growth and the respective contributions from volume growth, pricing, and product mix?

This week, we are giving our, just a breakup as an additional information. So, for competitive reasons, we cannot give the breakup of what is driving that. But, as you can see, the volume has grown over corresponding quarter significantly. So, that has been definitely a major driver. And second is, obviously, since the raw material prices, again, compared to corresponding quarter was significantly higher. So, that has also contributed to, for both the products.

And another one question is, what is the current contribution of value-added products to total yarn revenue and what is the target for increasing their share? How could a higher VAT mix support the margin improvement over the medium term can you just say?

The products are basically out of the yarn portfolio, the nylon filament yarn portfolio. Our WAPs actually are increasing quarter on quarter, also year on year. And we expect it to touch maybe about 50% in the near term. And so that would definitely contribute to our margin improvement. And that is the purpose that we are adding more capex into the value added products so that we can make products which are directed towards specific customers as well as niche segments. And this is already contributing to our margin improvement in the yarn segments.

Okay, sir. Got it. Thank you.

Thank you. Participants with questions, please enter star and one. Our next question is from the line of Rahul Jain. Please go ahead.

Yeah, hi. Thank you for the opportunity. So, hi, sir. Just wanted to know that what is the current contribution of exports to the total revenue? And also wanted to know what are the key opportunities and challenges for export growth, let's say, over the medium Sports are, I mean, not large.

It's about ranging between 4 to 5 percent of the turnover. But the opportunities, particularly with FTAs, with EU and UK, could open up new opportunities, because these are segments where India could enjoy a differential duty compared to China or South ASEAN countries. So, we do expect that once it is operationalized and we can build the right channels to market our product and get the right partners to work with us, that could provide a good opportunity for our products to be marketed there. And that is where our product Newnile also comes into, I mean, the recycled yarn portfolio could support us. We are also trying to understand the demands requirement, I mean, particularly on the yarn side, what are the specific demands that could emerge from these markets, because these have not been our regular markets, and in the next year, maybe financial or the next calendar year, once EU FTA is operationalized, we would make very specific efforts to understand, And to target certain customers, certain segments in these two markets. Other markets could also provide an opportunity, but with the current flux of geopolitical issues, there are actually a lot of uncertainties on buying side. And once these things settle, we expect that that could also become a driver for our export sales.

Got it, sir. So, my next question would be on the key raw material prices. So, basically, how did the key raw material prices, particularly, you know, capital actin and other nylon and polyester inputs move during the quarter? And also wanted to know to what extent were these increase in input costs, you know, passed on to the customers?

Actually, I mean, it's an increase from between the quarter from June to mid of July or, I mean, early August. Actually, there was a fall when the first MOE was signed between U.S. and Iran, and then it again increased, and the current prices are in the range of 2,000 to 2,100 U.S. dollars for capital lectum. For the nylon chips, again, ranging from between 2100 to 2200. So, the volatility increased significantly, the prices increased significantly, and the underlying reasons are clear. Crude, benzene, everything went up significantly. And going forward, I mean, very difficult to predict what kind of rates will remain. But we have been very transparent with our customers, And I think the margins show that the profit number, even on a normalized last year corresponding quarter was a normal quarter with no work situations, we have been able to on an absolute value be able to better than last year in terms of absolute profit, which is a reflection that we could pass through the price increases. But yes, there could be some timing related gaps. But we are very transparent with our customers and they also understand the criticality and the challenges that their suppliers face. And they have been very accommodative and understanding on these issues.

Thank you.

Our next question is from the line of Aman Jain. Please go ahead. Yes, sir. Please proceed.

Thank you so much for the opportunity. Sir, I just wanted to understand that with inventory increasing to approximately 313 crores at the end of H1, what are the key factors behind this increase, and how do you expect working capital requirements to evolve over the second half of the year?

So, inventory increase is one of the reason is the increase in the raw metal prices. So, that is the basic reason of increase in our inventory value. And if we see the inventory levels in quantity terms, then it remains almost same or be able to reduce to some extent. In the future, we are expecting that when the raw metal prices will change, this inventory will level again, will go to the normal, and we will be able to manage our working capital in a better way.

Just one last question. So, with a strong net cash position and limited borrowings, how are the capital allocation priorities being balanced between capacity expansion, technology upgrades, renewable and renewable energy investments?

Basically, I mean, since we are not challenged by availability of cash and balance sheet, the priority is more on what is needed for the immediate and near term. So all technological improvements, energy saving initiatives, which cross a minimum threshold are all being implemented. We are getting into more products on the value added products and the Madaryar expansion is happening which will get actually capitalized in the next financial year. And we keep evaluating alternatives where a larger deployment can happen. So there is no, I mean, it has to go through a process where it makes merit sense to add those capex because ultimately it should And that is the basic criteria. If that meets it, we are well within to, and through an approval of board, we take it forward.

All the best for the future. Thank you.

Thank you. Ladies and gentlemen, if you have any questions at this time, please enter star and one. As there are no further questions from participants, I hand the conference over to the management Thank you all for joining us, and you may now disconnect your lines. Thank you.