Indorama Ventures PCL (FRA:I93A) Q2 2024 Earnings Call Highlights: Strategic Optimizations and ...

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Wed, Oct 9, 2024, 4:08 PM 4 min read

Adjusted EBITDA: $370 million in Q2 2024, a 1% increase quarter-on-quarter and an 11% decrease year-on-year.
Sales Volume: 3.64 million tonnes, a 1% increase quarter-on-quarter and a 3% increase year-on-year.
Operating Cash Flow: $494 million in Q2 2024, with a cash conversion of 134%.
Net Debt: Decreased by $32 million in Q2 2024.
Impairment and Expense Provision: $666 million post-tax in Q2 2024 due to asset optimization.
Fixed Cost Savings: Expected to reach nearly $170 million per annum by 2025.
Indovinya Adjusted EBITDA: $98 million in Q2 2024, a 40% increase quarter-on-quarter and an 85% increase year-on-year.
CPET Adjusted EBITDA: $234 million in Q2 2024, a 6% decline quarter-on-quarter and a 25% decline year-on-year.
Fibers Segment Adjusted EBITDA: Stable quarter-on-quarter with year-on-year growth.
Liquidity: $2.4 billion in cash and unutilized committed credit lines as of Q2 2024.
Debt to Equity Ratio: 1.54 at the end of Q2 2024.
Working Capital Days: Reduced by 4 days in Q2 2024, resulting in a $266 million inflow.
CapEx for 2024: $540 million, with $220 million allocated for growth initiatives.

Warning! GuruFocus has detected 9 Warning Signs with FRA:I93A.

Release Date: August 09, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Indorama Ventures PCL (FRA:I93A) achieved an adjusted EBITDA of $370 million in Q2 2024, with a 1% increase in volume quarter-on-quarter.
The company reported strong operating cash flow of $494 million in Q2 2024, with a cash conversion of 134%.
Indovinya's performance improved significantly, with a 40% quarter-on-quarter and 85% year-on-year increase in adjusted EBITDA.
The company is making significant progress in asset optimization, expected to result in $170 million per annum in fixed cost savings by 2025.
Indorama Ventures PCL is strategically positioned to benefit from high freight rates, which are expected to positively impact pricing and contract negotiations.

Negative Points

The economic environment in China remains challenging, impacting the company's operations and market conditions.
Supply chain disruptions have intensified, leading to increased logistics costs and extended delivery times.
The company experienced a 50-day unplanned outage at the IVOL gas cracker, resulting in an EBITDA loss of approximately $17 million to $18 million in Q2 2024.
Despite strong operating cash flow, net debt only decreased by $32 million due to deferred payments and dividend payouts.
The Integrated PET segment faced depressed benchmark spreads, impacting profitability and resulting in a 6% quarter-on-quarter decline in adjusted EBITDA.

Q & A Highlights

Q: Can you quantify the freight tailwind's impact on CPET segment pricing and volume growth in North America? A: D.K. Agarwal, Deputy Group CEO and CFO, explained that the freight tailwind is expected to benefit Europe, Brazil, the United States, and Mexico. The impact will be seen in contract negotiations and volume growth. Muthukumar Paramasivam, President of CPET Segment, added that the freight rates are expected to remain elevated, impacting contract renewals positively. Indorama holds a 30% market share in North America, including both virgin and recycled PET.

Q: How long can Chinese players operating at a loss continue before closures occur? A: Muthukumar Paramasivam noted that while not all Chinese players may close, the effective capacity addition in China is peaking in 2024, with a decline expected in 2025-2026. This, along with reduced refinery spreads, should help the situation. Indorama is not relying solely on spread increases for business recovery but is focusing on cost and working capital reduction initiatives.

Q: Are there any peers taking similar capacity rationalization steps as Indorama? A: D.K. Agarwal mentioned that Indorama has been proactive in rationalizing supply, with competitors like BP also shutting down smaller lines. The industry utilization rate is improving, which is beneficial overall.

Q: What is the sustainability outlook for Indovinya's performance, given its recent strong EBITDA? A: Alastair Mark Port, Executive President of Indovinya, stated that the strong performance is not a one-off. Demand recovery in home and personal care, construction, and crop solutions sectors is expected to sustain. The segment is poised for continued growth with strategic initiatives and operational improvements.

Q: What are the expected savings and EBITDA impact from asset optimization in the second half of the year? A: D.K. Agarwal explained that the Rotterdam shutdown will result in residual costs in Q3, with expected savings of $15 million to $20 million in Q3 and $30 million in Q4. The full savings of $170 million in fixed costs will be realized in 2025, translating to an EBITDA improvement of $150 million to $160 million annually.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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