Camlin Fine Sciences Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Turnaround quarter, impairments behind: Revenue rose 6.9% QoQ to INR422 crores, operational EBITDA crossed double digits at 10.2%, and the two large loss-making assets in Europe and China have been fully impaired, removing a persistent drag.
• Aroma is the swing factor: Aroma products jumped from INR13 crores to INR45 crores QoQ as Chinese competitors face antidumping actions in the US and Europe, though no long-term contracts have been signed while duty levels remain uncertain.
• Vanillin ramp is the margin story: Vanillin capacity utilization sits at ~40% and pricing has improved by about \$1 per kilo; management targets 55% run-rate by FY25-end and 75% in FY26, with 15-20% EBITDA margin at full scale.
• Europe bleed nearly eliminated: The diphenol plant shutdown will reduce quarterly losses from INR15-16 crores to INR1 crore within two quarters via retrenchment, with savings materializing next financial year.
• What to watch next quarter: Whether the US interim antidumping order (due end November/early December) triggers long-term Aroma contracts, the pace of vanillin volume ramp, and progress on the rights issue to ease the liquidity squeeze.

Aroma: The Antidumping Catalyst

• Revenue surge: Aroma products delivered INR45 crores in Q2 vs INR13 crores in Q1, driven by Chinese competitors being pushed out of the US and European markets following antidumping actions.
• No long-term contracts yet: Both Camlin and its buyers are waiting for duty levels to crystallize before committing; only quarterly or half-yearly supply agreements are in place today.
• Capacity utilization target: Management aims to take Aroma to 75-80% of capacity within the next two years, up from current levels.
• Pricing upside contingent on duty levels: If the US imposes a 50% duty, pricing will differ from a 100% duty scenario, so the final order expected May/June next year is the real unlock.

Momaya: "I think both sides, whether it's us or the buyers, are waiting for the antidumping duty to get crystallized, right? So if it is at 50%, pricing will be different. If it's at 100%, the pricing will be different. So no, I don't think either party wants to take a stand today until that is played out."

Vanillin: The Margin Engine Ramping

• Current utilization and pricing: Vanillin capacity is at ~40%, with pricing having improved by approximately \$1 per kilo as Chinese dumping recedes.
• Ramp timeline: Management expects to hit 55% run-rate by end of FY25, at least 75% in FY26, and 100% in the following years; no plans to expand beyond the current 6,000-tonne capacity.
• Unit economics at scale: At 35-40% utilization, vanillin covers the INR100/kg incremental cost incurred on catechol when value-adding; at full capacity, management projects 15-20% EBITDA on sale price.
• Pricing recovery expected but unquantified: With Chinese producers out of the market, prices should recover above current levels, though management will not predict by how much. [12-13]

Parab: "Chinese are the guys who had reduced this price. They're out of the market. The prices should come back. One cannot say how much. It will be certainly higher than what they are at this stage." [12-13]

Impairments: Cleaning the Slate

• Europe diphenol facility fully impaired: The entire cash-generating unit has been written off, with a net impact of INR116 crores on consolidated results this quarter; no CGU assets remain on the books for this facility.
• China intercompany outstandings impaired: Along with other exceptional items, total exceptional impact was approximately INR151 crores in the quarter.
• No further write-offs expected: Management stated the two large non-earning assets are "done and dusted," with no further impairments foreseen in the near future.
• China manufacturing exit: The heliotropin project originally planned for China has been scrapped due to antidumping actions by the US and Europe; capacity will instead be set up in India at an appropriate, unspecified time.

Parab: "Whatever is latency in the businesses, 2 big businesses, we have taken care of that, almost done and dusted with the impairment of 2 large assets, which are not earning any income."

Europe: Shutting the Bleed

• Quarterly loss reduction: The diphenol plant shutdown, in place since August 2023, was bleeding INR15-16 crores per quarter; management plans to reduce this to INR1 crore per quarter within two quarters by retrenching personnel.
• Savings timeline: The cost reduction will begin to reflect in the next financial year, not immediately.
• Loan restructuring ahead: Camlin will approach its European bank to restructure approximately INR80 crores in loans, with confidence that Blends revenues from the region can service the outstanding.
• Blends growth in Europe: European blends revenue is expected to grow at a faster rate than current levels, supporting the loan servicing case.

Blends & Performance Chemicals: Steady, Not Spectacular

• Blends growth trajectory: The business is on track to grow ~20% this year over last year, with North America leading on the back of Animal Nutrition including pet food, which has grown from INR16 crores two years ago to approximately INR80 crores.
• Volume vs value: Raw material prices have declined, so Blends pricing has corrected; volume growth has been materially stronger than the reported value growth.
• Performance Chemicals muted: Revenue remains subdued due to pricing headwinds and will stay muted in the near term, though value-added products on hydroquinone and catechol in the pipeline should deliver 15-20% growth next financial year.
• Vitafor integration: The acquisition brings a different product portfolio focused on farm products vs Camlin's feed focus, opening the farm market with Vitafor's proprietary technologies; registrations are underway across multiple countries. [11-12]

Liquidity & Balance Sheet

• Liquidity remains tight: Working capital management is a very high priority, and the situation is described as a challenge.
• Rights issue imminent: Management is working on launching a rights issue in the very near future to recoup losses and support working capital.
• Debt strategy: No immediate plans to reduce debt levels; the priority is stabilizing the business and ensuring no further debt is added.
• Profit before exceptional items: Turned positive at INR8.73 crores vs a loss of INR23.48 crores last quarter, described as a "remarkable improvement."

Guidance & Commitments

Key Metrics