DMCC SPECIALITY CHEMICALS LIMITED (DMCC) Q4 2026 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Q4 and FI26 earning conference call of DNCC, Speciality Chemicals Limited, hosted by TIL Advisors, TIL Advisors. As a reminder, all participant line 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 and zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Mehra from TIL Advisors. Thank you, and over to you soon.

Thank you, Danish. Good afternoon, and welcome, everyone. Thanks for joining this Q4 and FY26 earnings conference call of DMCC Specialty Chemicals Limited. The investor updates have already been uploaded on the stock exchange and on the company website. In case you do not have a copy of the same, please feel free to reach out to us. To take us through the discussion, we have with us from the management team, Mr. Bimal Gokuldas, Managing Director and CEO, Mr. Sunil Goyal, Chief Financial Officer, and Mrs. Pallavi Padneka, Company Secretary and Compliance Officer. We'll be starting the call with a brief overview of the business performance, which will then be followed by the Q&A session. I would like to remind you all that everything said in this call reflecting any outlook for the future, which can be construed as a forward-looking statement, must be viewed in conjunction with the risk and uncertainty that the company faces. The risks and uncertainties have been mentioned in our annual report. With that said, I will now hand over the call to Mr. Bimal Gokuldas for opening comments. Over to you, sir.

Thank you. Thank you, Abhishek, for the introduction. And good morning to all our investors and shareholders who are listening in on this call. Thank you for joining us. I'm Bimal Gokuldas, MD and CEO of DMCC. And I'd like to give you a little introduction about the last quarter as well as the last financial year. After that, I'm open to questions along with my team here. So, the biggest, you know, event happening, of course, is the Middle East crisis, and a lot of changes have happened in the last quarter, which have affected overall performance of the industry in general, and also lives of people around the world as well. And I think I'll take a minute to give a little background to... What are the issues affecting us, particularly as a company? Most of the sulfur traded flows through the Gulf of Hormuz. In fact, about 50% of global sulfur trade is through Hormuz. So that has affected availability and therefore the price of the product, not only in India, but also in other parts of the world, including China. Prior to that, also, the availability of sulphur was short compared to the demand. So if you look at the last couple of years, the sulphur price has just been rising dramatically. Nothing to do with the war by itself initially, but more because demand particularly from a new nickel smelter in Indonesia. Which requires sulfuric acid and therefore sulfur, which pulled away something like 3 million tons of sulfur, disturbing the market even before the war started. After the war started, of course, the availability itself became an issue, not just the price. So as probably most of you have read our presentation, The price increase has been dramatic. In fact, we have two manufacturing locations, one at Dahej in Gujarat and one at Roha in Maharashtra, and at one of the locations, we did have to slow down the plant in order to ensure that we don't run out of sulfur. All right, that's a puric acid operation. It's expensive to shut down and restart, and therefore, we try to avoid that if at all possible, which also means that downstream products can get affected. We're happy to say that, you know, that situation doesn't exist now. We are, although price of sulfur has gone up, for the moment, the availability is ensured. Not only for the sulphur business, but also for the boron chemicals business. I'll also give you a little background about boron chemicals, because last year, in the financial year 25-26, the first half of the year, we lost a lot of production because of disruption in supply of the boron ore from our main supplier in Turkey. And this affected supply to India in general, and for a few months, we couldn't operate our plants. In the second half of the year, we started the plants at full capacity, and now we have adequate stock to run that as well. Some of you may have noticed, you know, in the results that there was a large increase in the top line. So we went from 150 crores in the previous quarter to 177 crores in the last quarter, which is a sizable increase. But again, most of this is connected to the price increase of the raw materials, which we were able to pass on to the customer. The overall year, we ended at 582 crores, which is one of the highest top lines in the company, and again, some contribution of that was because of higher pricing of raw materials and therefore also of finished product. So while we didn't expand our margins, we did... We managed to pass on all the price increase to our customers. Mathematically, it looks in percentage terms as if the margin has come down. But in absolute terms, even in a quite turbulent and difficult supply chain situation, we were able to maintain the absolute margin. Finance wise, we also needed to expand our working capital requirements substantially. First of all, for the boron business, which went from a situation of where we were getting credit and picking up material from stocks in India to a position where we I had to pay advance and got material 90 days to 120 days after paying the advance. So again, that blocks more money. And on top of that, the sulfur price increase results in a higher debtor requirement, higher stock value requirement, and therefore overall working capital has gone up, which is why you will see The short-term borrowings being, you know, expanding substantially. Overall, we are still at a very healthy percentage of working capital to sales. I think less than two months overall, which is well within the industry norms. Thank you. Other parts of the business, you know, Europe continues to struggle, so our specialty chemical business has reduced in Europe, but it is improving in other parts of the world. We are selling some product into China, a little bit in Japan, and also developing new markets in Latin America. So, overall, that's the picture at the moment, and I'm happy to take any questions that you may have. Thank you.

Thank you, Somosu. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. 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 Arham Gandhi from Molecule Venture. Please go ahead.

Good morning, everyone. Am I audible?

Just speak a little louder, please.

Sir, you have mentioned in the press release that Daech continued to operate normally through the quarter while Roa faced raw material availability challenges. Could you give us some color on the extent of this disruption at Roa? Are we talking about a few days of lost production or something more prolonged? Any quantification, even directional on the volume or revenue foregone at Roa would be helpful.

Do you have any other questions, or should I answer that?

Yeah, I have other questions, but one by one.

Okay, so the Roha plant essentially was affected in the month of March only. Okay, so it is, we didn't shut down the plant as such, but we slowed down the plant to about 60% capacity. And just to ensure that we didn't need to shut down, it took us a while to organize sufficient raw material. The reason for this is that in Dahej, we are able to source enough sulfur domestically. In Roja, the plant is typically far away from the refineries. And therefore, We need to have imports on a normal basis. Of course, currently imports are not available, so we had to, it took us a while to organize the supply chain. And now it's again back to normal, as I mentioned. But for maybe 15 days, we ran at perhaps 60% capacity.

Okay, I've got it. Then on the boron business, you called out that while the boric acid is silent normally, the non-boric acid portion saw some softness due to disruption in in-use application industry. Could you help us size its impact and what was the approximate revenue or volume hit to the non-boric acid business in Q4? And is this something you see persisting into Q1 FY27 or is it normalizing?

So, you know... In terms of the non-boric products, which are things like ceramics, glass, all that, they depend a lot on energy in the form of gas. So CNG or natural gas is the main source of fuel, the most economical source of fuel. Which, you know, became a bit of a crisis and continues to be a bit of a crisis in all the consuming centers, you know, like Morbi and other places where they're making the frits. So what happened is that they stopped consuming whatever raw materials they had, they were selling into the market. And this resulted again in... So, while I can't exactly quantify the amount, it did lead to a bearish sentiment in that market because of a glut. Until the gas situation becomes normal, the demand will not come back. However, the glut will not continue because it was a one-time thing of when the consumers of, say, the borax pentahydrate, borax decahydrate, they liquidated their stocks. Then they don't create a stock again. So, you know, the distressed sales does not continue, but the demand overall is less. Hope that is clear.

Okay, sir. Okay, sir. Got it. And the working capital requirements have stretched meaningfully this quarter, and the interest cost has moved up quite sharply. Could you tell us at what rate the incremental working capital lines have been drawn, and what's your expectation on when this working capital intensity starts to ease?

So, it's about 9%, 8.75 to 9% in that range is a percentage of interest. It's not a question of borrowing at a high rate. It's a question of that the absolute amount has gone up, and that's sort of in line with our top line number one, and also in line with the increase in the stock value. Now in the, you know, boron business, as I mentioned, we have adequate stocks. We are well protected for any supply chain disruptions over there. And sulfur also now we are in a much better position. But the absolute value of the stocks, debtors, everything has gone up, which is why we needed the extra working capital.

Sir, in the Q2 call, you had spoken about encouraging early traction in the Latin American markets as part of your effort to replace the lost European business. Could you give us an update on where that stands and have any of those conversations moved to firm orders or commercial supply more broadly in the current environment of elevated commodity prices? Have you been able to pass on the raw material cost inflation to your specialty chemical customers as well? Or is the pricing dynamic and speciality different from what you are seeing in the commodity business?

So, that's a good question. You have two parts to it. One is whether we have been successful in, you know, developing the markets. And the answer to that is yes. We have been able to replace most of the European business with business in Latin America. And we are also looking at, you know, as I mentioned, Japan, Korea, and China. So... What happens in the specialty chemical business is there's always, I mean, you are able to pass it on, but there's always some kind of a lag, because these are not spot prices, they're not spot contracts. So you would give a contract on a quarterly basis. So what I'm supplying in, say, April, May, June is a price I would have negotiated in January. And if there's a sharp increase, temporarily, I will see a lower realization. But all these are long-term customers, and in the next quarter, I'll recover what was there. So overall, as the price averages out, you average out the margins as well. It's a much more stable business. There could be a lag in passing it on. That you understood, right?

Yeah, exactly. And then one last question that we have been wanting to ask for a while. The company has a land parcel at Ambarnath. Is there any active plan to monetize this asset? Have you been able to get a formal evaluation done on the parcel? And are there any steps that have been initiated in terms of finding a buyer? Any update here would be appreciated.

So, that is not at Ambarnaath, it is near Ambarnaath, a place called Nalimbi. It was, you know, it was land which was declared as forest land, and then recently there was a Supreme Court verdict in our favor, not only in our favor, but several other litigants. The Maharashtra government has still not transferred... The land back to our name in spite of the court order. So we are not able to monetize it as yet. We are looking at options for that though.

Okay, sir, that was by myself. Thank you.

Thank you. Thank you. Ladies and gentlemen, anyone who wishes to ask a question may press star and 1. Next question comes from the line of Sejal Kapoor with anti-fragile thinking. Please go ahead. Sejal, you may please proceed ahead with the question.

Hi, Bimal. I think it's fair to say that, Dean, am I not audible? Hello? No, now you are audible.

Yeah.

Hello, am I not audible? I can hear you. Sejal, we can hear you. Please proceed. Okay, yeah, yeah. Hi, Bimal. I think, yeah, thanks. I think it's fair to say that DMCC changed its name before it changed its economic identity. What was the economic justification for renaming the company to include quote-unquote speciality chemicals when... Bulk chemicals still contribute the majority of revenues, and sulfuric acid economics continue to dominate margins, continue to dominate working capital, and profitability, of course. That's my first question. Thank you.

Right. So, if you recall, when we did the name change, We were about 30% in terms of commodities and about 60% to 70% in terms of the bulk chemicals. What has happened since then is we made the investment in Dahej to expand our footprint and our manufacturing capability. The price of the raw materials has gone up substantially, and the price of the... Sulfuric acid has therefore also gone up. Our volumes have also expanded in sulfuric acid because of the investment at Daesh. This has sort of correlated with a drop in the European market which was entirely specialty chemicals. So that's the reason you're not yet seeing the numbers which we would like to have. Going back to say 30-40% of bulk and about 60% of specialties. And we do have the capacity and as we have newer markets, we will see the change going there.

Yeah, I was also coming from a point taken, I was coming from the gross margin perspective. So, I mean, even back then, when we changed the name, our gross margins were hovering near 40%. And I'm sure you would agree a true speciality chemical should have a gross margin of 50% and above. At what point should investors objectively consider DMCC a true speciality chemicals company rather than a sulfur chemistry company with a small developing speciality segment?

So the correct time for that would be as we, of course, increase our specialty chemical portfolio to at least 50%. I would say that is a fair number.

Today in the business, I mean, would it be possible either in annual report or otherwise to demonstrate hard evidence that the speciality segment is structurally improving the quality of the business, specifically through higher gross margins, lower working capital intensity, and... Greater earnings stability, I don't know if would it be possible to split the margins and show the difference because there are certain companies in India who... Separately show ibuprofen and the non-ibuprofen business to just highlight the difference in the margin profile rather than simply adding more downstream products on top of a fundamentally commodity sulfur chain. Just a thought process. I mean, because we need to showcase the evidence that, yes, we are heading in the right direction. We are increasing specialty year over year. It may not reflect quarter over quarter.

Yeah, we have taken the view and we continue to take the view that we are in a single segment, which is chemicals. And so we do not wish to report individual segments in that sense. It's all interlinked for us because it's not that they are independent businesses. The sulfur chemicals feeds into the specialty chemicals. We get a lot of the utilities from the sulfur business into the specialty chemical business. So, one without the other is difficult to visualize. And any distinction that we might make can be quite subjective, not objective. So, we'll continue to report a single segment. And, you know, you may think that we are getting margins from the sulfur chemicals business, the bulk business, but in fact, that's not the case. And as the price of sulfur keeps going up, the pressures on sulfuric acid also keep increasing. And last year, we had multiple issues. I don't know if you read the previous, you know, conferencing, but even the Boron business was affected dramatically in the early part of the year. So we are seeing a lot of, you know, a lot of, I mean, it's a different problem all the time. It's been a very volatile year, continues to be very volatile year. Even this year. And, you know, Europe exiting the market and Chinese taking over the European production and all also has affected us and will affect a lot of other companies as well. So that's something we need to be mindful of.

No, absolutely. Well, I take that point. And these are external factors that are beyond our control. But what is internal and within our control is the R&D intensity. So would you be able to share some data points around R&D intensity, how much R&D we were doing three, four years back? Off the top of my head, I think we have been no more than two crores annual R&D spend. And I'm sure you would agree that a speciality chemicals company cannot be created by doing such a low-intensity R&D. So have we stepped up our R&D efforts? Are there any plans to increase the R&D intensity? Because without R&D, there is no way a company can become truly a speciality player.

And most of our R&D is focused on process development and process improvements. And the cost you are seeing is essentially like a people cost. But we do have some plans for increasing this, and you will see that in coming quarters.

Thank you. That's all from my side. Thank you. Thank you.

Thank you. Reminder to all the participants, if you wish to ask a question, you may press star and one. Next question comes from the line of Tanmay from 361 Capital, please.

Oh, hi, hi. Am I audible? I wanted to ask my first question on the sulfur inventory. Could you tell us out of the 92 crores of inventory we have, what proportion of it is sulfur, and at what price did we buy it, and the current market price?

Sulfur inventory is normally not more than 15-20 days at each location. So it's about say 1500 tons at each location. I couldn't tell you exactly what is the price we bought it and what is the price now. I think that's not relevant to this kind of discussion. But just to say that about 15 days is the maximum inventory we would keep.

And can you comment on the capacity utilization that we would see in FY27 for the specialty chemical part of the business?

So this year, again, it's too volatile to give a projection, but all I can say is that we expect it to be better than it was in FY26.

Okay, got it. Okay, yeah, that's all for now. I'll get back in line.

Thank you. Our next question comes from the line of Hanil Bagadia from Equicorp. Please go ahead.

For the opportunity, sir. So starting with some of the macros, sir, have you seen any sealing of contracts? Because I think some of the Chinese suppliers have also declared force majeure due to the government regulations there to stop sulfuric acid directly and also some of the downstream chemicals of sulfuric acid and also they've got some shortage out there. So any color there if you can provide?

So, you know, sulfur continues to be in short supply, and which has resulted in ever-increasing prices to all-time high levels. So, the Chinese are facing it as much as we are facing it. And while they have decided not to export sulfuric acid, that's more a decision to protect their home industry, particularly the fertilizer segment. And in India, also, the imports through hormones have virtually stopped. And unless it restarts, the crisis will continue. So it's more a question of availability. Of course, because of low availability, commodity, whoever has got the material is able to push up the price. But there will be a point at which... You know, some consumers may not be able to pass on the price to their consumers. So that, I don't know when that point is, because I don't know all the business of all my customers or all other customers of Sulphur products. But that will be the point when consumption may drop and therefore result in again a more balancing of the pricing and supply situation. Also, we expect, you know, if the straits open up, even then, there's been so much damage and destruction that the supply chain will take a few months to come back to normal. So, we don't think it will, you know, bounce back to old levels, even if the fighting were to totally stop right now.

We actually see the COVID situation where I think the oil shipments had also stopped for a certain time and the prices had shot up significantly. This situation is much different, but if we see the situation versus this situation, how much time or, I mean, what kind of efforts were taken to normalize the supply chain back to the normalized levels, if you've got any understanding of this. And also, have you got any one-time contracts because of any force majeure from similar products that have been supplied to the Chinese or the Koreans? Any one-time contracts or any medium-term orders that you're seeing there in any of the late-time or the Japanese markets out there?

So, you know, just coming back to your first question, this is not comparable to COVID at all. Here, there is a genuine crunch. In supply, because, you know, there's a lot of sulphur which, even if it was not made in the Middle East, was coming through Middle East and through Hormats. For example, sulphur from Kazakhstan. You know, a large exporter of sulphur, but using Iranian port. Now you can't get that. You can't get Omani sulphur. You can't get any of the ad-noc material. So, The situation is very different. You know, India does not have as much sulfur as it could because also of the type of crude being processed. And if you are processing Russian crude, that is generally lower in sulfur. If you're processing other types of crude, it's higher in sulphur, so you get more output. It's dependent on a very complex scenario and very difficult to predict, but there's no comparison to the COVID time. The second part of your question, there is always a move to try to, by all customers, to try to diversify their supply source, and even more so now. So, I don't think we got any significant single order because of this, but I'm sure people will be looking around and will be more open to alternates to Chinese material now and in the near future.

Okay, sir. And lastly, if I could just touch one more time upon the sulphur part, sir. Sometime back, when Kajpapar was actually coming up, people were scared because, I mean, the amount of sulphuric acid that was going to come from the smelter, and as the Adanis were going to raise it to about more than a million in some years as per the 2020-30 ambition, that was actually going to crash the prices. So, any understanding there that the supplies from there are coming and, I mean, the dahej can be run at a high utilization to comp off With Ruha's lower utilization.

So, again, two different questions. I'm not privy to the actual operations of Kutch Copper, but it appears that they are not operating at capacity. And I think that copper smelter and, you know, the copper ore business has its own dynamics. So that you'll have to ask somebody there for it. But in terms of... The quantities which they could potentially sell, we are seeing a lower volume at this time. I don't know how long that will continue. And for us, you know, most of the, Dahej is running at, you know, 95% capacity and Roha is running lower capacity, you can't compensate that much delta, number one. Number two, you can't transport these products. At least the sulfur-based bulk chemicals very far. So it's not that you can make in Bahaj and ship to customers near Roha.

So it's difficult to compensate that.

So, thanks a lot for the answers, and wish you best of luck. Thank you.

Thank you. Ladies and gentlemen, anyone who wishes to ask a question may press star and 1. Our next question comes from the line of Anubal Sahur from MacPro Research. Please go ahead.

Yeah, thanks for the opportunity. So my first question on sourcing of sulfur. So I want you to understand in current situation, how much of the sulfur we are getting from domestic sources and what other options we are exploring internationally?

Today, most of the sulphur we are getting is domestic. And we are continuously exploring whatever origin material we can get. And some, you know, if some comes through, imports are coming at a trickle right now. But, you know, if they do come in, the Roha site would be more suited for the imports. In Gujarat, we have enough sources from domestic, even in normal times.

Okay, okay. And sir, if this situation continues, and as you also indicated in your opening remarks, that even if, you know, the situation in state of harm was resolved, it would still take time to normalize. So, given that fact, what kind of utilization level do you foresee for our plants, both at Baheja and Roha?

So, as I mentioned, at the moment, now we are able to run at capacity, and there is no restriction right now. But, you know, it's a very dynamic situation, and, you know, prices continue to rise. First, we have the supply restrictions. There could come a time when there are market restrictions. Because customers may not be able to absorb the price and pass it on for their products. So, too dynamic to give a futuristic prediction, I can tell you that currently we are operating the plants at capacity.

Sir, could you also, I mean, I understand the Roja plant has installed capacity of something 350 tons per day. If you just talk about sulfuric acid, what acid do we have at Dahej, or in total, if you could put in the numbers? Yeah, both plants are very similar. Okay, on the 350 tons per day, around that for Dahej as well. Okay. And also, sir, if you have the trends available for you for the sulfuric acid imports into India, the last two months since the crisis came in in Middle East, how is the picture there? I mean, do Korea or Japan continue to be dominant suppliers? Is there an import deficit? On that front, which probably would be an opportunity for us, anything on that, and any front which you can highlight.

No, we've never imported sulfuric acid ourselves, and we don't intend to. There is...

I mean, sorry, at the industry level, I mean...

So, most of the import of sulfuric acid was on the East Coast. Very little on the west coast of India. And I'm not familiar with what the end users there are doing. It's mostly the large fertilizer companies. So recently whether they've been able to get or not, I don't know.

Okay, okay. And the final question, I think you tried to address this thing, but I'm still trying to gain more accuracy business thought process behind it, because sequentially we have seen bulk chemicals share has actually eased up. So, are we kind of prioritizing sulfuric acid sales compared to captive consumption for speciality? Is that the case, given the higher spot prices?

No, not at all, because, you know, sulfuric acid by itself is a low margin. Although the price goes up doesn't mean we make a higher margin. But we have a limitation on the market side. For the specialties. So, it's not a production limitation, it's a market limitation.

Okay. Got it, sir. Many thanks for this.

Thank you. Ladies and gentlemen, anyone who wishes to ask a question may press star and 1. Our next question comes from the line of Tanmay from 361 Capital. Please go ahead.

Hi. I just wanted to ask if any of the specialty chemicals that are under research the past few years or now are going to reach a commercial stage in FI 27 or 28. Can you comment a bit on that?

Yes, we do expect that. But, you know, difficult to, if you ask me how much are you going to sell, what is going to be the margin, difficult for me to say that right now. So, we are working on a couple of specialties in the boron business, and we are working on one particular product which is used in making a polymer, which goes into enhanced oil recovery, and some other applications like that. So, currently we've started some commercial projects. Okay, got it.

And on the land that we have received, I know you said that the registry of the land is not in DMCC's name yet, and it's still in the hands of the government. Is there any timeline that you can provide and the proceeds of that land, once monetized, would be used for...

Well, we could use it for capex or debt reduction.

Okay, and on the timeline?

Very much out of my control.

Okay, thank you.

Thank you. Ladies and gentlemen, that was the last question for today. As there are no further questions from the participant, I know on the conference, I'll go to Mr. Bimal Gokuldas for closing comments. Thank you. And over to you, sir.

Thank you. So thank you all for the patient listening. It's really my... My style not to give futuristic projections, I'll continue that way. I know it may not satisfy all of you, but that's the way we've taken the company over the past few years. And happy to discuss past performance, past quarters, past year. And look forward to interacting with you all again. Thank you for the quality of questions. It's also a learning for us to see what angle you are looking at, and we look forward to further interactions.

Thank you. So, thank you so much. Ladies and gentlemen, thank you so much for joining today's conference call. On behalf of DMCC Specialty Chemicals Limited, that concludes this conference. Thank you for joining, and you may now listen to your lines.