Financial Performance Highlights

Q2 FY27 Performance:

  • Delivered approximately 15% volume growth supported by improved realizations
  • EBITDA margins recovered meaningfully from 14.4% in Q1 to 23% in Q2
  • Gross margins improved to approximately 63%
  • Price increases implemented in Q1 in response to raw material cost pressure yielded positive results

H1 FY27 Performance:

  • Invested 7% of revenue in marketing and brand communication (compared to 3.5% last year)
  • Conducted nearly five times the number of carpenter meets compared to corresponding period last year
  • Extensive dealer engagement initiatives implemented

Operational and Strategic Updates

Geographical Expansion:

  • Expanded geographical presence to 16 states with entry into Odisha
  • Dealer network increased to 14,000 from 10,000 last year

Capacity Expansion:

  • Completed brownfield expansion, increasing manufacturing capacity from 2,000 to 3,500 tons per month (42,000 tons annually)
  • Current capacity utilization at approximately 70-75%
  • Planning greenfield facility in Gujarat with initial capacity of 1,500 tons per month
  • Estimated investment of ₹45-50 crore for Gujarat facility

Brand Building:

  • Continued brand visibility initiatives including association with Mr. Pankaj Tripathi
  • Significant digital presence with over 2 lakh Facebook followers and 65,000 Instagram followers
  • Conducted 3,500 carpenter meets in H1 FY27

Management Guidance and Outlook

Financial Targets:

  • Expect EBITDA margins to improve towards 24-25% in H2 FY27 (subject to no sharp increase in raw material prices)
  • Targeting 20% volume growth annually
  • Aiming to close FY27 around ₹375-400 crore revenue
  • Long-term ambition to build ₹500 crore business and progressively move towards ₹1,000 crore
  • Targeting 65% gross margin

Growth Strategy:

  • Focus on deeper penetration in existing markets
  • Expansion into newer states
  • Growth in active carpenter base
  • Improved premium product mix
  • Targeting 20% market share in each state
  • Currently generating 85% revenue from five mature states, 15% from newer markets
  • OEM segment currently at 6% of revenue, targeting 10-15% in longer term

Raw Material and Cost Management

VAM Price Volatility:

  • VAM (key raw material) price currently around $1,000
  • Recently increased from $100 to $115 (15% increase) but company had procured contracts at $100
  • Maintain 60-90 days inventory through contracts with importers and direct imports
  • Historical VAM price was ₹75-80 per kg before recent volatility

Procurement Strategy:

  • Maintain lower days inventory but secured through contracts
  • Procured materials to mitigate recent price increases

Working Capital and Financial Management

Debtor Days:

  • Current debtor cycle around 160 days
  • Aiming to maintain 120 days cycle (as in FY23-FY24)
  • Mature markets: 75-100 days
  • Newer markets: 120-150 days
  • Bad debt historically below 0.5%

Channel Financing:

  • Meeting with channel financing partners
  • Planning to start channel financing in smaller markets within 1-2 quarters

Cash Flow:

  • Strong cash flow from operations maintained through internal accruals
  • Current investments increased from ₹3.6 crore in March to ₹65 crore
  • Company remains debt-free

Capital Allocation

Investment Priorities:

  • Focus on geographical expansion and market penetration
  • Marketing and distribution investments
  • Maintaining financial discipline and strong cash flows
  • No immediate plans for buyback or dividend - focus on growth investments

Balance Sheet Strength:

  • Maintaining liquidity for working capital needs in newer markets
  • Fund deployment aligned with expansion readiness and team capability

Market and Competitive Landscape

Industry Context:

  • Total adhesives market estimated at ₹7,500-8,000 crore annually
  • Company currently at approximately ₹400 crore revenue
  • Market leader implemented 6-7% price increase in May

Product Strategy:

  • Operating 60-70 SKUs with 10 products
  • Focus on quality consistency without compromising standards
  • Maintaining premium product mix

Management Commentary

Mr. Utkarsh Patel, Managing Director, emphasized the company's focus on building a sustainable wood adhesives business in India through:

  • Strong brand recognition
  • Developed carpenter-base distribution ecosystem
  • Strengthened manufacturing capabilities
  • Financial discipline and superior returns on capital

The company believes it is at an important stage in its growth journey and remains committed to building Euro Adhesives into one of India's leading wood adhesives brands.