20MICRONS - 20 Microns Limited Share Price

Management's outlook for the second half of FY26 is optimistic, anticipating improved market conditions, particularly due to the festive and wedding season. They expect to see a recovery in demand, especially in the paint segment, which contributes approximately 48% to their revenue. Major forward-looking points include:

1. Revenue from operations in Q2 was Rs.2307.8 million, a decrease of 3.9% year-on-year and 6.6% sequentially. This decline is attributed to macroeconomic factors affecting the paint industry, such as extended monsoons and pricing pressures.

2. Despite revenue challenges, EBITDA margins expanded to 13.8%, reflecting a 100 basis point improvement year-on-year, driven by cost-saving initiatives and operational discipline.

3. Profit After Tax (PAT) for the quarter grew to Rs.173.5 million, up 5.5% year-on-year, while Earnings Per Share (EPS) increased from Rs.4.65 to Rs.4.92.

4. Looking forward, management has set a revenue growth target of 13% for the full year, despite the current demand softness. They are hopeful that upcoming consumption cycles will help in achieving this growth.

5. Improvements in operational efficiencies and stabilizing raw material prices are expected to sustain EBITDA margins in the range of 13% to 14% by year-end.

6. The company is also focusing on expanding its product portfolio, particularly in specialty chemicals and value-added segments to enhance margins and reduce cyclicality.

7. The recent operationalization of their Malaysian mines is expected to contribute positively to cost structure and margins, although full benefits will be assessed in the upcoming financial year.

8. Management remains committed to ESG practices and sustainability initiatives, which are regarded as integral to long-term value creation.

In summary, while the company acknowledges the challenges ahead, it remains focused on strategic growth through innovation and market presence expansion, with an optimistic outlook for the demand recovery in the latter half of the fiscal year.

Earnings Transcript Q&A Section Summary

Question 1: Do we expect a difference in second-half revenues this year? Answer: Typically, the second quarter peaks, but due to lower demand this time, we anticipate that Q3 and Q4 should show improvement compared to the second half of last year.

Question 2: Are we on track to achieve the 13% revenue growth for the full year given the dip in Q2 sales? Answer: Yes, we aim to maintain our original target of 13% growth. Although quarterly performance may shift based on demand, we are optimistic about upcoming improvements in customer demand.

Question 3: What is the outlook for EBITDA margin sustainability? Answer: We achieved EBITDA margins in the 13-15% range, and we expect this to sustain through the second half, potentially achieving around 13 to 14% by year-end.

Question 4: How much margin improvement is expected from Malaysian mines? Answer: The Malaysian mines are now operational, but we need a few more months to optimize them and accurately forecast cost savings and margin improvements.

Question 5: What new product introductions do we have planned for the second half? Answer: We've introduced several products, including organic thickeners and flame retardants, which are gaining market acceptance. Additional products will be launched at upcoming exhibitions.

Question 6: Are we exploring rare earth minerals? Answer: We are exploring opportunities in rare earth minerals, but clarity on availability and processing is still needed, making it too early for definitive actions.

Question 7: How did the Nano business perform, and are we on track to scale it to a 250-300 crore business? Answer: Nano business revenue has remained flat year-on-year, but we've seen improved PAT margins due to lower raw material costs. We expect demand to improve, particularly in exports.

Question 8: What's the status of the CapEx plan and sustainability initiatives? Answer: The CapEx plan has been slightly deferred due to market conditions, but we're still on track with our Malaysian expansion. We take sustainability seriously, having achieved EcoVadis Gold certification.

Question 9: How do US tariffs impact our operations? Answer: There's minimal direct impact from US tariffs due to our limited exposure to that market. However, global supply chain disruptions from such changes can affect us indirectly.

Question 10: What steady-state EBITDA margins do we expect in the future? Answer: We anticipate steady-state EBITDA margins to remain in the 13-15% range, influenced by product mix and demand fluctuations.

Question 11: What factors have driven the reduction in material and other expenses? Answer: Cost-effective sourcing and stable freight costs have enabled us to maintain lower operational costs despite challenges in the market.

Question 12: With increasing competition in the paint industry, what's the margin outlook? Answer: While competition pressures margins, we are taking a selective approach in product offerings. If the competitive landscape stabilizes, this could allow margins to improve as we grow our market share.