IONEXCHANG - Ion Exchange (India) Ltd Share Price

In the Q1 FY 2025-26 earnings conference call, Ion Exchange (India) Limited management provided a cautiously optimistic outlook. The company reported a consolidated operating income of INR 5,832 million, a 3% increase year-on-year, while net profit grew by 8% to INR 484 million, resulting in a PAT margin of approximately 8.3%. Nonetheless, EBITDA fell by 2% to INR 627 million, with a margin of 10.75%.

The engineering division saw revenues of INR 3,180 million, a 2% decline year-on-year, while EBIT for this segment surged by 48% to INR 278 million. The company noted a steady inquiry pipeline, with a total order book of INR 26,640 million and a bid pipeline exceeding INR 92,000 million. However, delays in project finalization did impact order inflow.

The chemical division's revenue decreased by almost 5% to INR 1,889 million, reflecting the challenges posed by SAP system transitions, particularly affecting April sales. The management confirmed plans to commission a greenfield manufacturing plant at Roha in Q2 FY 2025-26, aimed at boosting production capacity and catering to export markets.

In the consumer products segment, revenue rose by 36% to INR 902 million, with losses reducing to INR 9 million. Management expects sustained growth in this segment through expanded market penetration and product portfolio acceptance.

Looking ahead, the management refrained from offering a definitive full-year guidance. They plan to provide an updated outlook in Q2, as they navigate through the transition period and the ongoing tariffication challenges in international markets, particularly the U.S. Management emphasized the resilience of their provisioning policy, ensuring adequate coverage for any potential credit losses, particularly with respect to the UP project where cash flows remain slow.

1. Question: We had taken about 2 crore provision of doubtful debts in FY'24; we got payments from Sri Lankan projects, that is good news for us. We wanted to understand what's our policy to recognize any loss or any account receivable issue that we may face on the UP project or on the onerous project which we are executing. Basically, want to understand what's a policy to recognize loss or impairment for the projects we face issues in?
Answer: Our provisioning policy is based on a party-to-party level assessment, taking into account project status and payment trends. We have specific provisions for each contract and recognize credit loss based on an expected credit loss policy matrix, which considers the aging of outstanding receivables.

2. Question: This was largely to cater to export markets. Can you please call out which geographies are we targeting and will we face any tariff impact?
Answer: We operate across various regions globally, including the Americas, Europe, Asia-Pacific, and the Middle East. Our commitment extends to strengthening our presence in these markets, particularly in the US, despite the recent tariff changes, which we are carefully assessing.

3. Question: We had some impact because of the transition to the new SAP platform. The biggest impact was in April; can you quantify this impact?
Answer: While I can't provide specific numbers, I can say the impact on revenue was contained to a single-digit percentage during the transition, primarily affecting our chemicals business due to its consumable nature.

4. Question: How do we see the full year for the engineering division in terms of growth?
Answer: We plan to provide a full outlook for the year after Q2. Currently, there are no major deviations from our previous outlook given during last quarter's call.

5. Question: Can you clarify the reduction in revenue from the chemical segment? Was it primarily due to SAP implementation?
Answer: Yes, the slowdown in our chemical segment can be attributed to the SAP transition, notably losing significant revenue in April, which we aim to recover in the coming months.

6. Question: What about the commissioning status of the Roha plant? Answer: The Roha plant is currently being commissioned and we expect to have some production ready by the end of this quarter as we stabilize the output and ensure quality.

7. Question: In light of higher tariffs affecting competitors in Europe, do you foresee a downturn in sales in the US market?
Answer: While we're studying the tariff impacts closely, previous tariffs had no effect on our product line, and we expect to maintain our customer base without significant disruptions.

8. Question: What is our strategy regarding the engineering business in international markets?
Answer: We will continue to be selective, pursuing strategic projects that align with our business goals. Our efforts include actively seeking opportunities in markets like the Middle East, where we see potential for growth.

9. Question: What can you tell us about the capacity utilization of the new Roha plant in FY'26?
Answer: We aim to incrementally reach full capacity over the next three to four years, and our current installations will support this gradual ramp-up effectively.

10. Question: What triggered the EBIT margin improvement in the engineering segment this quarter?
Answer: The margin improvement was due to a one-time cost rebate from an ongoing EPC contract, but excluding this, the underlying margin would be lower than the previous year due to increased infrastructure costs related to current operations.

11. Question: Can we expect the consumer product division's growth rate to sustain, or was it driven by order deferrals?
Answer: The growth stems from broad coverage and customer engagement improvements across various segments, particularly in consumer products. We believe there's substantial room for further growth heading forward.

12. Question: Regarding the UP Jal Nigam project, what is the status of receivables?
Answer: There have been significant delays in fund inflow from the UP government impacting project execution, leading to elevated receivables that we are actively working to manage and reduce.

13. Question: Looking at the shareholding pattern, can you elaborate on the employee trust holding 16%?
Answer: These shares are held by an employee trust aimed at benefitting employees, existing since the 1980s. There are currently no plans to dilute this holding, and benefits are distributed in terms of dividends to employees.