Global Surfaces Limited (GSLSU) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Global Surface Limited Q2 and H1 FY2027 Earnings Conference Call hosted by Valram 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 and zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Purwangi Jain from Valorium Advisors. Thank you, and over to you, Ms. Jain.

Thank you. Good evening, everyone, and a very warm welcome to you all. My name is Purwangi Jain from Valorium Advisors. We represent the Investor Relations of Global Services 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 first half-year ending of the financial year, 2027. Before we begin, 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 conference call is purely to educate and bring awareness about the company's fundamental business and financial performance for the period under review. Now, I would like to 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. Mayank Shah, Chairman and Managing Director, Mr. Ashish Agarwal, Chief Financial Officer, and Mr. Dharam Singh Rathol, Company Secretary and Compliance Officer. Without any delay, I request Mr. Manusha to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Burangi, and good afternoon to you all. We welcome you to the earnings call of Global Surfaces for the second quarter and half year ended 30th September. For those joining us for the first time, Global Surfaces was established in 1991 and is headquartered in Jaipur, India. We are engaged in manufacturing and export of engineered surface of premium residential, commercial, and architectural applications. Our product portfolio comprises of six engineered quad series, which are Aurora, Kalmasa, Prismatic, Stratum, Quartzite, and Markwars, with applications across countertop, flooring, wall cladding, vanity, reception desk, and other interior surfaces. We operate two state-of-the-art engineered stone manufacturing facilities, one in Mahindra, World City, SCZ in Jaipur, and the other wholly-owned subsidiary Global Surfaces FZD at Jaipur Ali Free Zone in Dubai. Together, these facilities have an annual production of approximately 1.14 million square meters. Our international distribution presence is supported by Global Surfaces INC and Superior Surfaces INC in the United States. At present, our strategic focus on improving operating efficiencies and profitability, we discontinued at our natural stone unit in Bagroo with effect from 31st March 2026 following the board decision. Since then, only limited activities have been undertaken to complete the existing orders and facilitate orderly closure. This transition is reflected in our H1 revenue mix, with engineered stone contributing approximately 98% of the revenue. Going forward, our focus remains on engineered quads business, where we see opportunities to strengthen product diversification and improve utilization and build our more sustainable operating profile. Let me now turn to external environment. The key development for the engineered quads industry during the quarter has been implementation of the U.S. Safeguard Section 201 measure on quad surface products. Effective 15 August 26, the measure will remain in place for four years through tariff quota. In the first year, the import of approximately 13 million square meters will attract an additional duty of 25 percent, while the volumes above the quota will attract a tariff of 50 percent. The quota is scheduled to increase over the period with applicable rates differing to 19 to 47% respectively by the fourth year. These duties are over and above normal duties and applicable anti-dumping countervailing duties. The measure provides for a single global quota rather than country-specific allocation, meaning suppliers compete for the same permitted quota. While certain developing countries have been excluded, India has not received any exemption, and neither has UAE received any exemption. The significance of Indian exporters is considerable. Industry estimates indicate that quartz surface products to U.S. were approximately 223 million in 2016 and represented around 72% of India's total quartz exports. The government of India has requested consultations with the World Trade Organization, while Indian representatives and discussions with the U.S. continue. The broader U.S. tariff environment has also evolved. The earlier 50% tariff imposed in 2025 is no longer imposed. The following, the Supreme Court February 2026 ruling, the temporary 10% global tariff expired in July and 10% Section 301 tariff is applied on Indian goods in July 24. The interim India-US trade agreement framework announced in February remains unsigned. Therefore, while the general tariff backdrop has eased from last year, the Quad's specific safeguard has emerged as more immediate concern for the industry. In this environment, we focus on reduced concentration risk through a broader geographic and product mix. We continue to serve customers across North America, Middle East, Europe, and other export markets while building our domestic presence in India under the global surface brand. Our revenue mix remains export-oriented, while export contributing to approximately 96% and domestic market around 4%. Alongside market diversification, we are placing great emphasis on customized and high-value engineered surface products, while design, quality, technology, and service are important differentiators. Our manufacturing footprint in India and UAE together with our U.S. distribution entities provides flexibility as we respond to changing trade conditions and customer requirements. Turning to the operational and strategic development during this period, we continue to focus on our engineered quartz product portfolio and on value-added offerings. Mark quartz developing using licensed technology enable us to manufacture premium engineered quartz surfaces that replicate the natural veining and appearance of marble and granite while retaining the practical benefits of engineered stone. The technology incorporates a propriety-wain patenting process and supports the development of differentiated products of higher-value applications. We also make progress on proposed conversion of a further portion of the unsecured loan extended to global services equity into equity. The board on the recommendation of the audit committee approved the conversion of, on 10th August 26, a 3 million, 83 million, and 10.86 USD, aggregating to approximately 110.44 pros. As on the reference date, 30th June, the conversion is based on value determined by the independent valuer. Pending completion of all the necessary ODI filing under the FEMA and regulatory formalities with Jebreli Free Zone Authority, Dubai 111 crores has been reclassified as advance towards equity share subscription under the non-current financial assets. The transaction does not involve any cash outflow and represents a reclassification of existing financial exposure into equity investment. The operational environment during the quarter was also impacted by geopolitical development and higher input cost and logistic cost. Prices of certain raw materials increased by 25-50%, translating into estimated average impact of around 10% on selling prices. In addition, the freight cost on imported raw materials increased nearly five-fold. These external industry-wide pressures as we continue to focus on cost discipline, operational efficiencies, and other mitigation measures to manage the impact. We have also strengthened domestic market presence in India through an expanded marketing team and commencement of domestic dispatches from November 2026, supporting customer diversification and reducing dependence on export market. I will now take you through the financial performance. In Q2-27, revenue from operations stood at 60 crores, registering a year and year growth of 10.7%, although it was lower than 8.7% subsequently. Subsequently, EBITDA stood at 1.3 crores compared with an EBITDA loss of 3.6 crores in the corresponding quarter-year. The EBITDA margin was 2.17 compared with a negative margin of 6.65 in Q2-26 and 12.69 in Q1-27. The subsequent modernization reflects the operating and cost pressure during the quarter. The profit after tax stood at a loss of 5.4 crores compared with a loss of 4.6 crores in Q2 and a near breakthrough performance in the previous quarter. For the first half of 2017, revenue from operations stood at 125 crores, marginally lowered by 2.6% on year-on-year basis. EBITDA, however, more than doubled to 9.6 crores from 4.4 crores in H1 and EBITDA margin improving by 424 basis points to 7.66% from 3.42%. This reflects an improvement in the underlining operational performance. At the same time, the other income The income declined to 1.4 crores from 9.4 crores, while finance costs were lower at 7.1 crores compared to 7.3 crores. Consequently, the loss before tax stood at 4.9 crores against 2.6 crores in the corresponding half, and the loss after tax was 5.3 crores compared with 5.1 crores in H-126. The reduction in other income was largely attributable to lower unrealized foreign exchange income. Accordingly, the movement reported profitability should be viewed alongside the improvement in EBITDA and significant reduction in other income during the period. Looking ahead, the near-term operating environment is expected to remain challenging, particularly given the uncertainty around the U.S. trade measures and regional geopolitical situations related to inflated input and trade costs. Our priorities remain focused on strengthening our engineered quartz business, expanding our presence across geographies, building the domestic market, increasing the share of differentiated and value-added products, and maintaining disciplined cost management. We will continue to evaluate the operational and financial implications of evolving trade conditions and take appropriate steps to protect customer relations and long-term competitiveness of the business. We remain committed to improving operational performance, strengthening the business fundamentals, and creating sustainable value for our stakeholders. With that, I would like to open the floor for questions and answers.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question, may press star and 1 on your touchstone 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 will wait for a moment while the question queue assembles. The first question comes from the line of Shyam Naik, an individual investor. Please go ahead.

I hope I am audible. Yes. All right. So, my first question was, your Q2 EBITDA margin was 2.2% against 12.7% in the previous quarter. So, my question was, what really caused the sharp drop, and is it likely to happen again in the third quarter?

So, there was a lot of spillover of inventories which was there in the Q1, which was prior to the pre-bought situation, and this was one of the reasons that the EBITDA margin was higher in the Q1, and the decrease in the EBITDA margin was principally because of the increased cost, which I have explained over my speech as well. And if we are able to improve the efficiencies and manage the cost, it will get back to normal. But if the situation remains to the present standard, it is difficult to say that whether it will get back to 12% or not.

Thank you so much for that. Also, another question that I had was, so your raw material and safe costs have risen sharply this quarter. So how much have you passed down to the customers

As I mentioned, there was a Section 201 tariff which was imposed on 15th of August. And this is another reason why we have not been able to pass on any additional cost to the customers as of now. The market is still adjusting to the new price parameters. And I hope once this adjustment is done, at that point of time, if there is still an increase on the raw metal side and these global uncertainties continue, at that point of time, we should be able to work on the increased cost for the customers.

Thank you so much for that. I am done with my questions.

Thank you. Next question comes from the line of Jay Dariwal, an individual investor. Please go ahead.

Good evening. My question is, how much is the price hike versus the product mix and currency? And can you raise the price again?

On the speech which I mentioned, we mentioned that on the selling price, there is a cost increase of nearly 10%, which we have highlighted in the speech. So, I mean, it is very difficult to give you an exact answer when this price hike can happen. It all depends on the geopolitical situation and the market acceptability. Based on that, you should be able to enhance pricing. But if the geopolitical thing stabilizes, then I believe the cost should go back to the regular levels in the span of one or two months.

So, my next question is, H1 volume is only about one-third of annual capacity. What utilization do you need to reach the breakeven point? Can you please explain?

Sir, we are already at cash break-even. We are not making any cash losses in H1. And so, if you are seeing the utilization level is already highlighted in the speech. So, you know, once the geopolitical situation stabilizes and we are able to utilize our capacities in a better manner, we see the profitability increasing dramatically from here.

The line of Kavya Mistry and Individual Mistry. Please go ahead.

Yeah, so I have a question. So basically, the UAE loss rose to about 57 million INR from 31 million INR in quarter one, even with flat revenue. So what are the factors behind this and when can we expect the UAE business to achieve break-even?

So, the UAE business is not making any cash losses. It is still, in spite of all the regional challenges which we have and the low utilization, we are making a cash profit in the UAE business.

All right. Does this answer your question? Yeah, that will do. So, also I have one more question. So, if we leave out the other income, the loss before our tax narrowed compared to the last year. So, what drove this exactly, and till when will this last?

So, if we compare the other income, there was a dramatic decrease in the other income from last year, and there was a marginal increase in the losses. So, overall, we have really worked on operational efficiencies. We have tried to, you know, curtail a lot of internal cost, improve production efficiencies, remove all the additional cost which was there in the system, and try to improve the margins.

All right. Got it. Thank you.

Also, we have changed a little bit of the product mix, which has helped us improve the better sale realization.

Oh, all right. That's great. That's great.

It comes from the line of May 3 with Sapphire Capital. Please go ahead.

Yeah, hello, Maadavan.

Yes, please.

Yeah, so you did mention that we're facing a lot of issues due to cost increase and also the freight cost going up 5x. How is the situation right now in 3Qs of November and October being? Is the crisis still going up? So are we able to have conversations with our clients on price rise coming in, in pre-Q as well? Just some clarity on how are we going to sort of plan out this issue that we are facing on the raw material side?

On the raw material side, basically, strategically, we started trying to source a lot of material domestically to keep the costs, I mean, at least keeping the freight costs curtailed. And this was the strategy which we have been using specifically for the UAE facility. But overall, because of the petroleum being a very important product and a major component of cost for us, because a major contribution of the cost is coming from the region. And there is a, I mean, as everybody is aware, the region pricing is over $110. So this has led to severe, you know. Today, we have not been able to pass on any major increase to geography, which is India. We are planning to launch our brand through the dealer network, we believe, with utilizations, geographies.

Features are top-line or revenue run rate of like 70-80 crores constantly, which will then help us kind of cost optimization.

What is the revenue figure you mentioned a quarter?

70 to 80 crores per quarter. If we sort of hit that run rate, that can help us with kind of operating leverage and then that's going to do to our repertoire.

Yeah, at this point of time, in the last, in H1, in the last six months, we've had multiple disruptions of raw materials, which has led to, you know, breakdowns in production. So, we hope that, you know, if the geopolitical situation stabilizes and there is a little bit more certainties looking ahead, we think it is possible to achieve this this quarter as well. But it all depends on the geopolitical situation, which is completely unpredictable at this point of time. But, I mean, if we talk about more realistic terms, then let's put it as Q4.

Thank you so much. Thank you.

Next question comes from the line of Rahil Abiliwala, an individual. Mr. Please, please. Hello. Am I audible?

Yes, please. Yeah. So, I have two questions. How important is Marquardt's in your volumes today, and how much better are its prices and margin than your regular products?

The average selling price of Marquardt's is, from a regular product category, the selling price is up by about 20-30%, so overall, as a product mix. And, I mean, the capacity utilization on that product line is also similar to the overall capacity utilization. And, of course, it is a very important product for our product line because it is a patented product. It is not available with everybody. So, the competition levels on that particular product segment is not the same as some of the other product lines. We do expect the volumes to grow up further. At this point of time, because of the geopolitical issues, we are not able to enhance the volumes because of shortages of raw materials and other things. Understood.

Second question is on the profit. So, India profit before a tax that has been sharply from Q1 on a lower revenue. I just wanted to understand why did this happen and And what will domestic sales add in H2?

So the domestic product mix which we are launching in India, say about 70% of the products are being produced from the India factory. And there is a 30-35% product mix which is coming from UAE. So basically, once the domestic starts, it will improve the overall capacity utilization in India, which will reduce the overhead cost. And it will increase the overall revenues. So, definitely, it will improve the financial results for India.

That's it from my side. Thank you.

Thank you. Next question comes from the line of Roshni Mehta, an individual investor of Discover.

Hello. So, my fourth question is, technically, US revenue was flat, and the segment reached break even. So, are tariffs on Chinese cards turning into real orders for us?

What is your question? I didn't get, it's not very audible.

Hello, am I audible?

Yeah, yeah, please.

Yeah. So, like, either US revenue was flat and segment reached break even. So, are tariffs on Chinese quads turning real orders for us?

Chinese quads' tariffs have been implemented like, you know, it's almost like five to six years. So, there is no impact from Chinese quads to our revenue. And whatever tariffs have been imposed on the Section 201 is all being paid by the customers. We are not paying any part of the tariffs from Section 201 or 301 rather.

Okay, okay, okay. Okay, so another question is that after converting 110 crore of loans into FZE equity, so when will the approvals come through and is there any loans still left to convert?

Majority of the loan is already converted to equity and the process time for conversion of the loan will be approximately 2 to 3 months. But it is already, since the approval is already done, it is already, I mean, it's with immediate effect. The financial effect will be immediate.

Okay, okay, that's it from my place. Thank you.

Thank you. Next question comes from the line of Aarab Jain with an individual investor. Please go ahead.

Hello, I'm Audible. Yes, please. Thank you so much for the opportunity. I just had a few questions. So, our receivables rose about 17 crores since March. So, I just wanted to know what was the reason behind this, and when can we expect collections to get back to normal?

So, the reason why the receivables rose by 17 crores is because of the geopolitical situation, we had a destruction in the month of March and May. So, literally in March and May, Second

question is, how much of the H1 operating cash flow came from higher payables? And what is the debt reduction plan for H2?

You're asking how much of the... Can you repeat your question, please? Sorry.

I just wanted to know how much of the H1 operating cash flow came from higher payables, and what will be your debt reduction plan for H2?

I believe about 70-75%, you know, H1 revenue came from higher payables. I mean, this is an approximate number. I don't have the exact number with me, but it's an approximate number based on assumption.

Okay, okay. Got it, got it. Thank you so much. This is from my side. Thank you, and all the best for the future.

Thank you, sir. Thank you. A reminder to all the participants that you have a star and one to ask a question. The next question comes from the line of Rahul Sinkhania, an individual investor. Please go.

Yes, thanks for your opportunity. My first question is regarding the forex gain. So, the forex gains have fallen quickly in the last year. So, could there be a future reversal and like how much are you protecting yourself against the currency moves?

Which happened during the last year was because of the sudden increase of, you know, sudden depreciation of the Indian rupee from 90 level to 96 level. So, I mean, at this point of time, it looks that the dollar versus INR is, you know, playing somewhere around that same region, same value. And regarding whatever, you know, packing credits that the company takes, we take it in foreign exchange. So, we hedge the future orders against the value.

Good enough. You have paid a tax in H1 despite a loss. Think about the tax line. Are there any recovering excesses or something like that in the balance sheet or is there anything regarding the same?

No, the taxes which we paid on the H1 is because of the over-income. It was, I mean, it is basically the other income accumulation. So, overall, on the standalone basis, there was a profit. So, based on that, we had to pay the tax.

Thank you so much, sir. That is what I said, and all the best for your future plans and endeavours.

A reminder to all the participants, that is my best star and want to ask a question. Next question comes from the line of Tanya Kalpinsha with an individual master. Please go ahead.

Hello.

Yes, please.

How much is the sustainable revenue growth and lifetime margin comfortable for the year 27?

We are already at a cash-break-even point. So, once there is a dramatic increase in the revenue and overall the utilization levels improve, once there is a stability with the geopolitical situation, the EBITDA margin will improve dramatically from here.

Okay. Thank you. I have no more questions.

Ladies and gentlemen, as there are no further questions, we have reached the end of question and answer session. I now hand the conference over to the management for closing comment.

Thank you all for participating in the earnings call. I hope we were able to answer your questions satisfactorily and at the same time offer insights into our business. If you have any further questions, we would like you to know more about the company. Please reach out to our Investor Relations Manager at Valoram Advisors. Thanking you.

Thank you. On behalf of Global Surface Ltd., that concludes this conference. Thank you for joining us. You may now discuss your lines.

Thank you.