Fairchem Organics Limited

Financial Performance Highlights

Q2 FY27 Results:

  • Revenue from operations: ₹167 crores (49.7% year-on-year increase)
  • EBITDA margin: 10.5%
  • Net profit: ₹10.2 crores
  • Raw material processed: 12,200 tons
  • Products sold: 12,300 tons
  • Realization: ₹135 per kg (compared to ₹130 per kg in Q1 FY27 and ₹106 per kg in Q2 FY26)

H1 FY27 Results:

  • Revenue from operations: ₹343 crores (41.4% year-on-year increase)
  • EBITDA: ₹35.4 crores
  • EBITDA margin: 10.3%
  • Net profit: ₹21.2 crores
  • Raw material processed: 24,600 tons
  • Products sold: 25,800 tons

Operational and Business Updates

Capacity Utilization:

  • Current capacity utilization: 60-65%
  • Expected improvement with better raw material availability
  • Target: 5% capacity improvement every quarter

Market Conditions:

  • Domestic market environment remained supportive
  • Reduced imports/dumping of dimer acid from China (attributed to reduction in Chinese export incentives)
  • Rupee depreciation helped export competitiveness
  • Reduced US tariffs and potential benefits from free trade agreements with UK, Europe could improve export environment

Raw Material Developments:

  • Recent reduction in import duty on Crude Soybean Oil from 16.5% to 11%
  • Expected to improve raw material availability and potentially reduce prices
  • Company carries some inventory of raw material
  • Market prices have started softening

New Product Development:

  • Novel technology product expected to launch in Q3 FY27 (after Diwali)
  • Import substitution product with export potential
  • Derivative of Fatty Acids/Dimer Acid
  • Described as "very, very huge market" if successful
  • Plant modifications and R&D ongoing, may face initial hiccups due to novel technology

Existing Products:

  • PFAD bypass from palm oil has been commercialized
  • Isostearic Acid facing headwinds in European cosmetic market due to market slowdown and regional strife
  • Approval cycle for cosmetic applications typically takes 2-2.5 years
  • Value-added products (Linoleic acid for oil field drilling, distilled dimer) offer 5-10% premium realization

Export Markets:

  • US exports delayed due to high freight costs from India
  • Waiting for freight rate stabilization to commence US exports
  • European market facing challenges for cosmetic applications

Capital Expenditure and Expansion

  • No immediate expansion plans for next 1-2 years
  • Focusing on new product development first
  • Will require capex if new product succeeds
  • Land purchase of ₹12 crores was for existing operations and workers' colony (already in use)

Financial Management

  • Working capital cycle: 90-100 days for domestic sales, higher for export sales
  • No immediate plans to reduce debt
  • Operating cash flow utilization to be decided once business stabilizes at higher levels
  • Cost optimization efforts showing results with stable fuel and manufacturing costs despite inflation

Management Outlook

  • Cautiously optimistic about outlook for remaining part of the year
  • Expect to maintain and improve capacity utilization with better raw material availability
  • Target EBITDA margin improvement to 15-18% (from current 10.5%)
  • Monitoring developments in global trade, raw material markets, and import competition
  • Believe Chinese dumping unlikely to restart
  • Government not expected to increase import duties in near future due to inflation concerns

Conference Call Participants

Management Team: Nahoosh Jariwala (Managing Director and Chairman), Bhavesh Shah (Chief Financial Officer)

Analysts/Investors: Representatives from Discovery Capital, Counter Cyclical Investments, Girik Capital, ValueWise Wealth Management, and individual investors