Ladies and gentlemen, welcome to the SRF Limited Q3 FY 2024 earnings call, hosted by Emkay Global Financial Services. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions at the end of today's presentation. Should you need assistance during the conference call, signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Meet Vora from Emkay Global Financial Services. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone. Thank you for joining us on SRF Limited Q3 and nine months FY 2024 results conference call. We have with us today Mr. Rahul Jain, President and CFO of SRF Limited. While we will hear, Rahul's thoughts on the results as well as outlook shortly, but before that, let me invite Ms. Nitika Dhawan, Head of Corporate Communications at SRF, to initiate proceedings for the results call. Over to you, Nitika.
Hi, and thank you for joining us on SRF Limited Quarter 3 and nine months FY 2024 results conference call. We will begin this call with brief opening remarks from our President and CFO, Mr. Rahul Jain, following which we will open the forum for an interactive question and answer session. Before we begin this call, I would like to point out that some statements made in this call may be forward-looking, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Mr. Jain to make his opening remarks. Thank you.
Thank you, Nitika, and good afternoon, everyone, and thank you for joining us today on SRF's Q3 and nine-month FY 2024 earnings conference call. I trust all of you have had the opportunity to go through the results presentation shared with you earlier. I will initiate the call by briefly taking you through the key highlights for the period under review, following which we will open the forum for a Q&A session. We have reported lower revenues and profitability during the quarter, with both our chemicals and packaging film segments continuing to witness a tough environment. During the quarter, gross operating revenues declined by 12% YOY to INR 3,033 crore. EBIT was lower by 37% YOY to INR 457 crore. Profit after tax came in at INR 253 crore in Q3 FY 2024, down by about 50% YOY.
Coming to our segmental performance, in Q3 FY 2024, our chemicals business reported lower revenues of INR 1,394 crore, down 31%. Within the chemical segment, our specialty chemicals business faced challenges attributed to ongoing inventory rationalization by certain key customers. On a positive note, we witnessed some improvement in the later part of the quarter and expect this momentum to continue in the coming months. While the external environment was difficult, we believe that fundamentally, the specialty chemicals business is in good shape, both in terms of products, new products, and capabilities. We are consistently expanding our new product portfolio, and our pipeline for complex downstream products and active intermediates remain on track. During the quarter, we introduced 3 new products in the agro vertical and successfully commissioned 2 large dedicated agro facilities.
This not only demonstrates our commitment to growth but is also a reflection of our customers' confidence in SRF's ability to consistently deliver highly complex products even amidst short-term market fluctuations. Furthermore, in our continued efforts to enhance the supply chain resilience in the current environment, the company has further diversified its raw material supplier base. Over the first nine months of FY 2024, the company has capitalized around INR 1,100 crore in CapEx in the segment and is scheduled to capitalize an additional INR 700 crore in CapEx in Q4. Such large CapEx values are a testament of our confidence in business. When these projects come on stream, our immediate focus is on scaling up these new facilities in the subsequent quarters. We remain confident of a significant recovery in Q4 in our specialty chemical business.
In the fluorochemical business, we navigated through a seasonally weak quarter for refrigerants, marked by lower volumes and realizations, particularly in key global markets, which exerted pressure on margins. Despite the current impact on refrigerant gases, the underlying potential for global and domestic HFC remains strong and with significant traction from India, the Middle East, and Southeast Asia, which should play out in the ensuing quarters. Additionally, we believe that pricing will be more rational, and we should be able to accrue benefits of that in our refrigerant gas business. In the industrial chemical segment, we witnessed slowdown in the agrochemicals and pharmaceutical industries, which adversely impacted the demand. Amidst these challenges, we successfully commissioned the PTFE and the R-32 plant in Q3. Accordingly, our immediate focus will be on ramping up sales to optimize returns and efficiency in these newly commissioned facilities.
In our packaging films business, SRF reported a decrease of 9% to INR 1,091 crore during the quarter. This downturn was largely due to the oversupply in both coated and BOPP film segments, which put considerable pressure on profitability. Despite these market challenges, we performed relatively better when compared with the broader sectors. Moving forward, our focus remains on enhancing operational efficiencies, optimizing costs, and strengthening our contractual fees to navigate through these tough conditions. We are pleased to highlight that we have commenced and successfully capitalized phase one of our aluminium foil facility on January 1, 2024. This phase represents an investment of around INR 536 crore. This cutting-edge facility has a high precision rolling mill, enabling us to produce premium products in thinner gauges and wider widths.
With this project, we will be amongst very few players globally who offer a wide portfolio of packaging substrates, coated BOPP and aluminium foil under one roof. Moving to our technical textiles business, we reported a healthy performance during the period under review, driven by an uptick in domestic demand for NTCF, despite our Manali operations being impacted due to the Michaung cyclone in December 2023. I will say that we have adequate insurance cover in place on a reinstatement value basis against such occurrences. I am glad to share that all our employees are safe, and our team was able to largely restore and restart the machinery in record time. In the belting fabrics and polyester industrial yarn segments, we witnessed a healthy performance during the quarter and expect the demand to grow in near future due to an increased focus on infrastructure spending.
Lastly, the other segment of our coated. In the other segment, our coated fabric division reported all-time high domestic sales and profitability. This was primarily being driven by strong demand for our products, including value-added products such as blackout fabrics, high GSM fabrics, and storage liners. In laminated fabrics, SRF continues to perform well, operating the plant at full capacity. Additionally, the board of directors has approved a second interim dividend at a rate of 36%, equivalent to INR 3.60 per share, based on the paid-up equity share capital of the company. This dividend follows the earlier approval on July 24, 2023, for the first interim dividend at the same rate of INR 3.60 per share. Moving on to the broader corporate achievements, SRF has garnered several prestigious accolades and acknowledgments for its various achievements.
The company has been honored as Dun & Bradstreet's India's Top Value Creator 2023 in the chemicals category. Furthermore, SRF's annual report for 2022-23 has won the Gold Award and secured a position in the top 100 communications material worldwide at the League of American Communications Professionals, LACP's Global Communication Competition, the 2023 Spotlight Awards. On the ESG side, received the Gold Medal in the 2023 EcoVadis Sustainability Rating, reflecting our commitment to environmental stewardship. The company's commitment to social responsibility has also been recognized, with SRF being adjudged as the first runner-up in the education and skill training category at the CSR Journal Excellence Awards 2023. These accolades underscore the company's dedication to excellence and sustainability across various domains. 2024 marks SRF's 50th anniversary.
Thanks to all our stakeholders, we have been doing business as a company for half a century since our first facility in Manali commenced product operations and manufacturing tire cord fabric in 1974. Our 50-year history is a series of transformation. As we look to the future, our position remains strong and promising for delivering sustained performance, particularly as the end market begins to rebound. Therefore, despite the recent challenges, our outlook for future remains positive. This optimism is based on our proven track record in developing high-quality, complex products, all of which are supported by world-class infrastructure, skilled professionals, and exceptional R&D capabilities in driving sustainable growth of our business for people and the society at large. On that note, I conclude my remarks on a positive note and am confident of a significantly improved performance in Q4 FY 2024.
I would be glad to discuss any questions, comments or suggestions that you may have, and would now like to ask the moderator to open the line for the Q&A session. Thank you very much.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Rohit Nagaraj from Centrum Broking. Please go ahead.
Yeah, thanks for the opportunity, and good afternoon, Rahul sir. So first question is on the agrochemical project. So we have, you just alluded that almost INR 1,800 crore of CapEx will be done during this year. My sense is that predominantly on the agrochemical projects. So what is the visibility that we have for the next financial year, in terms of, firm commitments, from our clients? Thank you.
So, you're right, Rohit, that we have done about INR 1,100 crores of capitalization during the year. Not the entire amount may have been incurred during the year, because that's a cash versus capitalization issue. But yes, the roughly about INR 1,100 crores will already be capitalized, and about INR 700 crores to be capitalized during Q4 is the current target that we have. I believe that when we look at it, there will be a positive in terms of the overall positions that have been created. Some of the plants that were capitalized during the period have also resulted in significant revenues this quarter as well, and hopefully that momentum can sustain going forward.
You know, in order to be able to give you a more, a better view of FY 25, I think we will have to kind of wait a bit in order to be able to understand this better. Generally speaking, what we've done also in the past, Rohit, is to be able to give you a position once our budgeting exercise and various other things that we do on an annual basis is completed. And let's say, during the May call, we should be able to give you a better color on this. But like I said during the initial comments also, is the fact that we believe that there is good traction that we are seeing in Q4. In fact, some of the positives started to begin end of November, early December, and we believe that will continue going forward.
I hope that answers it, Rohit.
Sure, sure. That's helpful, sir. The second question is, in terms of how the ramp up for PTFE and aluminum foil projects is expected, based on, you know, starting from, say, FY 25, and when are they likely to reach maybe optimal utilization based on your internal assessment? Thank you.
I think both are different, so let me tackle them differently. PTFE was capitalized somewhere in October 2023. We believe that it's a product that will require approvals. We are already getting into the bulk grade. The bulk grade is seemingly selling well. But the fact is that the overall operating leverage will play out in PTFE over the next 6-12 months, maybe slightly more than that. As we get into fine cut, as we get into, let's say, free flow and modified at a later stage, we believe profitability should be better.
However, if you look at only Q3, I don't think it is relevant because the size and scale of the project is so large that it will take time to ramp up. Our rough sense is basic products ramp up in 6 months, more of the value-added products in 12-18 months. That's how PTFE should turn out. Aluminum foil, we are looking at getting accelerated approvals from both local and global customers. That's also a journey that is in place. Hopefully, some positives we should see in end of Q4, but largely I think, maybe about 6 months for some of the global approvals to come through, 6-12 months for the global approvals to come through, is what we would look at aluminum foil for.
Sure. Thanks for answering all the questions, and best of luck, sir.
Thank you.
Thank you. The next question is from the line of Vivek Rajamani from Morgan Stanley. Please go ahead, sir.
Hi, sir. Thank you so much for the presentation. Two questions from my side. Firstly, on specialty chemicals, in terms of the significant improvement that you're expecting in the fourth quarter, is this a function of your new capacity ramp up, or customers making up for the orders that they had rescheduled earlier this year? Or is it a function of just an improvement in the underlying demand from where we are? That's the first question.
Can I ask, answer the first one then before you ask the second one?
Sure, sir.
So you're right, Rohit. Like I said, during the initial call also, the fact is that we've seen some significant positive of the new plant that were capitalized during the nine months coming through. Some of the projects have started to do really well, we are seeing significant traction in some of those, molecules that have been launched, and they are, they are really adding to revenue. With respect to... And, and the second piece that you asked in terms of where the significant improvement that we are talking about comes through, is the fact that we have always said that we have not seen any major order cancellations happen. What we have seen is delay, and what we have seen also is customers wanting the product again. We are seeing traction around that.
So I think it's a combination of both that is turning out, rather than one singular factor there. Vivek?
Sure, sir, that's really helpful. The second question was on packaging. I understand it's a very tough environment. You've, you've been highlighting that for a while. We did see two quarters of sequential improvement in the first two quarters of this year. Just wanted to understand what really changed this quarter, in terms of, you know, the, the decline. Was there a reduction in the utilization rates of volumes or any color around that would be very helpful?
So again, very difficult to be able to answer what changed during this quarter. To be very frank about it, what we are, what we are seeing is that the pricing has been lower. The overall positions that have been created in the business, from an overall environment and the overall industry perspective, seem to be continuously going on the lower side. Margins are continuously under pressure. So, that is what essentially what we are seeing. Now, to be able to say why there was a sequential decline quarter-over-quarter, I don't think we should look at it from that perspective.
I mean, from an annual perspective, when we look at, we will find significant, let's say, if not a significant positive, but at least some lower negatives in that sense, when you look at it from an annualized perspective. Europe is kind of closed in Q3. Even South Africa, for that matter, also goes through a long holiday period. BOPET also is going through a tough environment. So I think those were the kind of factors that played out in Q3. Hopefully some of that will be better in Q4, given the fact that we've also started to see energy prices in Europe come down.
What has also started to happen, from a Q4 perspective, Vivek, is that, you know, the supply chain challenges that are existing in the Red Sea today. And therefore, some of the local European customers are kind of gravitating towards local suppliers. So to that extent, it should also be a slight positive for us, albeit in the short term, is what we see here. Vivek?
Sure, sir. That's very helpful. Thank you so much, and all the very best.
Thank you. The next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead, sir.
Yeah, good afternoon, and thank you so much for taking my question. Rahul, on the specialty chemicals business, you know, last quarter we had kind of indicated that we still expected at least a single-digit revenue growth for FY 2024. So just sort of wanted to get your perspective on whether that target is still achievable, and how much roughly the growth might have been YTD in the first three quarters of the year?
So, again, frankly, Abhijit, you are right that we have said that we are very hopeful of a growth position that is getting created. Again, to be very frank about it, I'm still not giving up hope, right? So, the way things are looking, it could be a very close call in terms of the overall operations and the overall revenues that play out in terms of what we have guided on here. However, I think, to be very frank, a close call to be able to get there. We will have to find alternatives. We will have to find our positions on some of the chemicals. Again, I'll just say this, we are still very hopeful that we should be able to get there.
Yeah. But the YTD numbers, sir, is it possible to share something about how much it's been?
Let's say the overall sales is kind of negative by about 10-11% when we compare nine months to nine months.
Understood. That's helpful. Thank you. Just the last thing from my side was regarding the capacity utilization, actually. Both in refrigerants and in packaging films, if you could just give us a flavor for how utilization, you know, is trending right now across the business.
You're talking about the packaging films business? Abhijit, you're talking about the packaging films business or some other business? Hello? Hello. Am I connected, operator?
Hello. Yes, yes, you are audible.
I am audible, so it may be Abhijit who have got disconnected.
Okay.
So, just to answer Abhijit's question, and what I understood from the question was the overall utilization in the packaging films business. When we look at the overall capacity availability during Q3, roughly around 90%-91% was our capacity utilization.
Hello, Arjun, sir. Arjun, sir, can you hear me?
Yes.
Yes. Are you satisfied, are you satisfied with the answer?
Actually, I haven't asked the question yet.
Okay. Okay. Sorry.
Then Abhijit, Kotak, I think you dropped off. Maybe you can go to the next person wanting to ask a question, please.
Sir, I think he's unmuted me. I'm Arjun from Kotak Mutual Funds.
Hi, Arjun.
Hello, sir. So actually, first, just carrying forward from the earlier question. In terms of the spec chem, from what you've indicated, essentially in the fourth quarter, if you're saying a close call, essentially we are, in a sense, guiding towards maybe a growth from the previous year. And the previous year, fourth quarter was exceptionally strong. Is that the right understanding of your comment, sir?
Okay. Again, Arjun, to be very frank about it, we do not have a color on this. Because when we look at numbers for on a quarter-on-quarter basis, what we see is numbers on CD as a whole. Now, when I look at CD as a whole, Q4 number last year, it would also have some performance of the fluorochemical business, which was a positive at that point in time. What I'm only trying to say is that the significant positive that we are talking about or the significant recovery that we are talking about is largely the spec chem business. And again, given where this environment is today, Arjun, we still feel very positive for Q4 for the specialty chemical business.
I don't want to get into looking at it on a Q4 versus Q4, and what's the growth number, and what's the position on that side. I hope that answers it.
Fair enough. Fair enough. Sir, when we look at spec chem nine months, we do get some flavor on the export numbers. And the fact that you have mentioned maybe a lower double-digit decline in spec chem, essentially means we are selling a lot of product on the domestic side. Would that be the correct way of understanding this?
Yeah. But, but, Arjun, when we talk about selling domestically also, I think it is also to a very large extent at the behest of our global customer base.
Right, because new formulation facilities are being set up in India.
Right. So to that extent, while there may be a... If you look at it from a pure mix perspective, let's say three years ago or two years ago, when it was 90-95% of exports, we are probably at about 75% of exports today, if you look at it from that perspective. But when you look at it from a domestic perspective also, that's also at the behest of the global customer base. So we don't really want to differentiate in that sense.... We still believe our global customer share in our business is still about 90-95%.
No, fair. I'm just saying in terms of tracking only export numbers, that doesn't probably give the full picture.
I mean, you, you guys track export a lot more closely than I do. So when you look at January numbers coming in and when you look at February numbers coming in, you will probably get a better sense than what I will.
Fair enough. Sir, the second question is just if you look at CapEx FY 2023, we did roughly INR 2,850 crore, and we mentioned we are capitalizing roughly INR 1,800 crore in FY 2024. So essentially, the remaining part of the CapEx, what are the major projects which will probably come in FY 2025?
So again, Arjun, as of now, the projects that have been sanctioned, which are multi-year projects, are roughly about INR 1,000-1,100 crores. That are that will get incurred in FY 2025 and 2026, so two years. Now, given the fact that this year the overall CapEx number has been slightly lower, what we do see is the fact that next year, the next year, what we will end up seeing is probably in the range of about INR 2,000-2,200 crores as the overall CapEx. Again, the mix remains in the, in what we've talked, 80% in the chemicals business and the balance in others.
Now, the way things will work out is, that, that, that's a, that's a traction that will continue to go on, at least for the, for the near term and the near future as well. When we also look at, let's say, an, an overall guidance of INR 15,000 crore that we had talked about at some point in time, maybe a year, year and a half ago-
Right.
I think to a certain extent, we've achieved that for FY 2023 and FY 2024. But when we look at it from an overall 5-year, 6-year perspective, if not 5 years, this will probably get done in 6 years. So that's the only change. Again, our balance sheet remains strong. Our commitment to CapEx remains very strong. So that, that is something that, that we believe will continue. I hope that answers your question.
Perfect. Thank you so much. I'm wishing you all the best.
Thank you.
Thank you. The next question is from the line of Krishan Parwani from JM Financial. Please go ahead, sir.
Yes, hi, Rahul. Just one question from my side. I think, you mentioned that, almost, INR 18 billion worth of projects have been commissioned. So just wanted to understand-
I said 1,100 in the Spec Chem space, and I was only talking Spec Chem. 1,100 done and 700 to be done in Q4, is what I said, Krishan, so just correcting you on that. There is a PTFE that has also been capitalized, there's a 32 that has also been capitalized, and various other smaller projects also. So when I referred to INR 1,100 crore, that was only for the Spec Chem business.
Yes, yes. I was... Actually, I should have clarified, yeah. I was referring to more of Spec Chem. So let's say 1,100 that you have capitalized and 700 you are going to capitalize in Q4 so total about INR 1,800 crore. So just wanted to understand, will we achieve, let's say, better, I mean, you know, let's say 60%-70% plant utilization of these CapExes, could there be, let's say, the near-term margin pressure?
Could that create margin pressure? I didn't get the question.
So negative profits, I mean, you know, till you actually achieve, you know, optimum utilization or, let's say 75% or 80% utilization, your costs could be higher and the revenue could be lower. So could there be, let's say, you know, a case, where your initial margins could be under pressure, till you achieve that?
Not really, Arjun, because, sorry, Krishan, not really. I would tend to believe that that's a journey that continues. There will be new CapExes that will get capitalized, which will take time to ramp up. Those that were capitalized last year are ramping up today, while the industry still is a kind of a negative. While what you are saying from mathematically is right, that it will always have a small negative on the operating leverage. Like, for example, when the PTFE gets capitalized, it will take time to ramp up. So to that extent, there will be a negative operating leverage, but I don't think it should be very significant in my sense.
Understood. Just on that, so do you have, like, any guidance for margin range, let's say, for 25? I know you don't-
We do. Sorry, Krishan, we don't do that. I would tend to believe that again, from an overall perspective, the margin for Q4 should be better than what we have achieved in Q3. That's the only thing that I can believe. I can't go into a range of the margin also.
No problem, no problem. This is helpful. Thank you and wish you all the best.
Thank you. The next question is from the line of Surya Patra from Philip Capital. Please go ahead.
Yeah. Thank you for this opportunity, sir. My first question is on the fluoro specialty. Do you find any challenge to the in the... Or what were the kind of underperformance in the fluoro specialty currently that we have witnessed? It is obviously because of the demand weak demand situation that has been prevailing globally and largely in the agri. But it is even pricing also is a kind of a concern, sir?
Surya, I think, what our judgment typically gets clouded with is what was the price last year and what is the price this year?
Uh, agreed.
If you look at FY23, the pricing was through the roof for certain products, and that is what people were talking about, why is the pricing so high? We have said that this is a temporary phenomenon, the pricing will get normalized. I think what has also happened today is that the pricing has come down also very significantly for some of the key refrigerant gases. Now, while there is some demand issue that is there, I don't think overall, when we look at it from a worldwide perspective, HFC demand is going anywhere because if, let's say, the U.S. is degrowing and Europe is degrowing, some of the things in India, particularly Southeast Asia, all of those geographies will continue to grow. So to that extent, I don't see too much of a demand challenge in that sense.
The other piece that I want to talk about is when you say the pricing challenge. Yes, today there is a pricing challenge. The pricing of certain products has come down, but at the end of the day, when we look at it, the ROC is for even this business remain very, very comfortable and very strong. So that's how we would look at it and continue to manage it from that perspective. It is a bit of a weak environment today, but like I said, we are very confident that this environment also changes a bit.
Okay, sir, my just, one more extended clarification, sir. I was believing that the, fluoro specialties, since it is contractual supply and, customized supply for innovators, so there should not be kind of, any major price fluctuation for the product, irrespective of the market condition. So whether that segment also would, would have seen some kind of price erosion, sir?
Again, to be very frank about it, these are discussions that will always happen with the customer. While there may be some contracted positions you have, you fill up those contracted positions, the new contract will always have to see what are the raw material cost positions that have got to create it. So I would not say that there are no discussions on that that happen. There will always be discussions. Customers will always want a lower price. There is some Chinese competition that we are also starting, we've also seen in the business. There is some dumping happening on certain products, so all of that is playing out.
But even then, what we are saying essentially is that we are getting into more complex products, we are getting into more advanced intermediates, we are getting into more active intermediates, and therefore, our margin profiling should remain typically better. So that's how we would look at it.
Yeah. Okay. And with regards to our 32 plant, now, after commissioning, do you have any ready contract with customers for supplying?
There are no... For, for refrigerant gases, there are no contracted positions that are created. It's largely based on demand and supply.
Okay. And just last one clarification from my side, sir. See, in fact, the CapEx momentum is continuing the way that we have been guiding. And although we have seen some marginal kind of slippage in terms of timelines, but let's say next year, while the visibility is coming up positively for demand for execution of the projects and implementation of the projects and all that, do you think that the kind of execution or the ramp up of the assets would be in line with what you have been initially thinking about it?
Yeah, well, you're right that there have been some delays, various geopolitical issues, various supply chain issues, various other things that have, that have created that kind of a situation. But when you compare our, let's say, CapEx positioning versus some of our, peers, I think we've still done a fairly good job in terms of getting it there. Right. So, ramp up of the CapEx, obviously, a slower process, but, we are fairly confident that some of the CapExes that we have done, some of them in the specialty chemical space, have already started to provide some positive, and that should be a trend that, that can continue.
Sure, sir. Yeah. Thank you, sir. Wish you all the best.
Thank you.
Thank you. The next question is from the line of Jason from IDBI Capital. Please go ahead, sir.
Sir, thank you for taking my question. So, sir, just wanted to understand, of course, you have a healthy CapEx momentum and a multitude of projects going upstream. Just wanted to know, I mean, of course, with the whole environment, you know, the prices for intermediates being driven down, I'm sure the IRRs for these projects must have been affected. But so just wanted to know in that perspective, how are you managing to, you know, safeguard these IRRs? So one is, would be, you know, your 85% of your products on agrochemicals are patented, so you'll have a certain price protection. As you mentioned, client negotiations are there, or will you probably revise downwards the CapEx? Just wanted to know, what are the tools you have to safeguard these IRRs on multitude of projects which you are executing.
So, again, Jason, when we, when we look at it from an IRR perspective, let's say when you conceptualize a project and then when you execute it, IRRs come through over the next five to 10 years in that sense. Right, when we are looking at the project, we are also looking at various other multipurpose plans, what we can do in those projects. What are the more value-added products that we can continue to produce? What are the more complex products that we can continue to do? And therefore, sorry, ensure that the IRRs kind of remain in good shape. Now, when you start a project versus when you have gone through a 10-year phase of the project, only then will you come to know of the exact IRRs that are stand out.
To be very frank about it, what we've seen over a period of time is that we've typically achieved the IRRs that we've started with or, in fact, bettered them over a period of time. I think that as a trend can continue.
Okay. Sure, sir. Sure. And so just wanted to understand, I mean, last call, you did allude to a lot of significant competition in terms of refrigerant gases, particularly from the Chinese players. Just wanted to know in that perspective only, which subsets of our chemical, we have a wide range, you know, AIs are there, you have fluorochemicals, refrigerants. Which subset are you seeing the maximum Chinese competition? And also-... Hello. Maximum is HFC. And sir, if you could just speak about, you know, you just, of course, you know, it's very tough to match the Chinese on cost competitiveness. So of course, you will have to move higher up the value chain.
I don't agree with that, Jason. I think cost competitiveness is fairly in good shape with us as well. We are not worried on the cost competitiveness side. But what the Chinese end up doing in some situations is to be able to push the price down even below variable cost, which is the problematic thing that happens. So it's a situation that Chinese create sometimes in the market, given the fact that they have large capacities and large inventories that have been built up, and they just want to liquidate the inventory. So that's how it ends up happening. Sir, you were saying something. I have kind of interjected.
Yeah. Yeah, sir. Thanks, thanks for that, bit as well. I mean, so, just wanted to understand, you've spoken about, of course, you know, basically venturing higher up the complexity value chain, customized products for customers, which is an effective moat, which will form an effective moat for your business. I just wanted to, know from you, what... If you could throw some more color on this, like how exactly are you doing it? I understand it's not very easy to encapsulate it, but just wanted to, you know, know from you, want some more color on this, that how you're doing it.
Yeah, well, I think at the end of the day, our R&D, our CTG group, in terms of what is the kind of products that we are looking at, what's the complexity, what's the position that we are creating, I think at the end of the day, it starts and kind of ends also with our CTG group, to be able to do some work in terms of either the product, either or, or complexity of the product, environment load of the product, manufacturing the product in a more efficient manner. I think those are the key elements that pan out. Again, like you said, it is very difficult to be able to give you a single pinpoint or a single, let's say, position on this one. It's a combination of various factors, Jason.
Sure, sure. Thanks. Thanks for that, those answers. Thank you.
Thank you.
Thank you. And the next question is from the line of Rohan Gupta from Nuvama. Please go ahead, sir.
Yeah, hi, sir, good afternoon. Sir, couple of questions from my side. So first is on our three new products which we have launched in agrochemicals-
I'm very not audible. Can you just pick up the speaker and pick up the handset and talk, please?
Oh, just a second. Sir, am I audible now?
Much better. Thank you.
Okay. Sir, I was saying that in agrochemicals, we have launched three new products, and I think two more you are saying to be launched in the current quarter. Just wanted to understand that these are the products where we are still seeing some Chinese competition or low demand or inventory destocking taking place in those products as well, and the pickup will be slower than what anticipated, or they are the new molecules and we see no such pressure?
Well, typically, I would say that these are the new ones, and therefore, as of now, not a significant position from the Chinese on those ones.
Okay. So, sir, is it, I mean, is it so that the revenue pickup in Q4, where we, you seem to be very confident about growth in second, will be mainly driven by these new launches?
No, I think I answered that question in the beginning also, Rohan. Somebody had asked. I think it is a combination of various factors. We have, we have said in the past as well that, what we've seen is deferment of orders. Some of those deferred orders are starting to play out, so that's the way we are looking at it. Some of the flagship products also we are seeing some traction coming back on them. There are certain geopolitical situations that have got created, largely in the Red Sea, where customers are now starting to ensure that the deliveries are faster and more quantity is being ordered. So all of those factors playing out, plus obviously, the newer products that have got capitalized are also starting to show up in the revenues. It's a combination.
Sir, if I see your business in a specialty chemical in line with the industry, probably that many of the industry players have seen a significant drop in revenues in nine months. However, though, for you also it has been weak, but probably much better than the industry. Is it because mainly the products which we have is, are the specialty or with the innovators in nature, and that's what has protected us in terms of the revenue growth or this decline in revenues?
So I didn't catch the last part. You are saying that we are better than the industry, but what's the question here?
Yeah. So I'm saying that it is... We have done better than the industry. It is mainly, it is mainly driven by the product basket, because you also said in one of the comment—you also said in one of the comment that you are also witnessing competition from China, and customers also sometimes move to Chinese suppliers. So, so what has helped us in terms of doing better than the industry in the current, in the current scenario?
It's a large product portfolio, Rohan. We are today almost at 35-40 products that we supply. Our total dedicated plants today are probably in the range of about 17-18. Right. So to that extent, I think it's a wide product basket that we have. Compare it to 2016-17, right, the number of products is much larger. So while some of the products do get affected, I think there is a good hedge that has got created over a period of time.
Sir, you have mentioned in your presentation that you see the demand outlook is getting better, and inventory rationalization, though it's still going on, is improving. So, sir, in last 3-4 months, the scenario which was significantly impacted from China, and I think that most of the Indian players could not anticipate that, the problem coming in months of April, May, and the inventory destocking suddenly took place in June, July, August, September. So do we see that there can be further possibility of that scenario getting repeated because the Chinese suppliers are still remaining aggressive, the capacities are still remaining there? So how confident we are that the situation have improved and we may not witness what we have seen in the current year?
Oh, no, I can only talk about SRF rather than talk about other competitive positions that are being created. We are also looking at the fact that in the Specialty Chemicals space, the order book is seemingly very strong. So, I can only tell you that much. From a fluorochemical perspective, and gases, prices seem to have started to edge up. And that's what it is, Rohan. Why were we doing better than our competition? I think it could be a product profiling portfolio issue, it could be a product basket issue, it could be a complexity issue and various other. So very difficult to pinpoint it from a peers perspective.
Sir, thank you so much, sir. Thank you. Yes, sir, thank you so much.
Thank you. The next question is from the line of Nitesh Dhoot from Dolat Capital. Please go ahead.
Yeah, hi. Hi, sir, thank you. Thank you for this opportunity. So my first question is on the domestic fluorochemicals business. So just wanted to check if there has been a growth there year-over-year, and you know, what kind of volume growth would you have seen there? And your outlook, you know, on the domestic fluorochemicals, the refrigerants business, if you could just give some comment.
You're talking about the fluorochemicals, the ref gas business?
Yes. Yes.
So, again, we will have to look at it from two or three perspectives. Typically, when we see this, Q1 for each financial year from a domestic perspective is the strongest quarter. Again, given the, let's say, the positions are from a heat perspective in the local Indian market. So that's what we typically end up seeing. But from a medium-term perspective, what we believe is that the Indian market is still a growing market. We will see more traction from domestic producers, be it RAC, be it mobile air conditioning. So that should pan out. And overall, I think as the shift happens in terms of the requirement of refrigeration in India, I think the market is set to grow only. So that's the medium-term outlook from a ref gas market perspective.
Also, when you look at it, there are no major players in the HFC space from our perspective when you compare the industry players around it. I think we've built a significant moat in the business. We've built a significant share in the market. We will continue to expand into more, let's say, in the domestic market. The export market also, both from a Middle East, Southeast Asia, to a certain extent, U.S., will continue to grow for us going forward as well. It may be a situation where some of the gases may be degrowing, there could be other gases that could end up growing. So that's how we would look at it from a medium-term perspective, Nitesh.
Sure. Thank you. Yeah, so my next question is on the effective tax rate. If you see nine-month ETR was around 27%. So what is it going to be for the full year and for FY 2025? If you could just give some indication.
Nitesh, the best is when you look at it to look at standalone, right? When you look at standalone, we are now in the new tax regime. We will probably be at in the range of 45.5%-45.8% as an overall ETR from a standalone perspective. Each of the other entities have a different position. Ireland has certain incentives, Hungary has certain other kinds of incentives. There are certain positions in South Africa. So instead of looking at it on a consolidated basis, the best is to look at it on a standalone basis, where India will be at roughly in that 45.5%-45.8% range of the ETR.
Right, sir. So just one last thing, if I may squeeze in. So on the contribution of pharma in the current Spec Chem revenues, and where do you see this moving in the next couple of years?
So, as of now, it's low, to be very frank about it, right? There is a focus around it. We believe in Q4 also there will be some positive around it. But in the medium term, we should get to significant numbers on pharma. Again, agro has been a very significant positive for us, and I think that's an area we are continuing to expand. The numbers don't look very encouraging as of now, given on a Q on Q basis. But overall, I think there is positive traction on the pharma side as well, and that should play out in the medium term, Nitesh.
Right. So that's helpful, sir. Thank you so much.
Thank you. The next question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead, sir.
Thank you. Good afternoon. I have two questions. One on specialty in refrigerant.
Sorry, Sanjay, you very muddled voice. Can you be a bit closer or, or something else? I don't know.
Can you hear me now?
No, very badly.
Hello?
Yeah, go on, Sanjay. If you speak only then we'll be able to hear.
Okay. Okay, sorry. So I got two questions. One on the specialty in refrigerant gas.
...On the specialty, this INR 1,800 of CapEx, across of-
Can you connect? We are unable to hear you.
Okay. Hello? You can hear me now?
Very, very feebly, Sanjesh. Is it only me or the operator, is-
Hello?
Is everyone not able to hear Sanjesh?
Hello, Sanjesh, sir, can you reconnect again in the queue? Okay, sir. So the next question is from the line of Rohit Sinha from Sunidhi Securities. Please go ahead, sir.
Yeah, thank you for taking my question, sir. Good to hear positive output for your specialty chemical. Just one question on the packaging side. First of all, on this aluminum foil business, initially, I mean, the CapEx size was somewhere INR 450 crore, which end up around INR 536 crore. So, initially the asset turn was 1.7-2 times what we have indicated. Currently also we are maintaining that asset turn, or is there will be some changes?
Let me first give you the reason for the increase in the CapEx cost. Now, during that period of implementation, you know that the commodity prices have gone through the roof. One of the reasons for the CapEx cost being higher was the higher commodity price position that was playing out, Rohit. Second, I think one of the... And the more important thing is that what we have done in terms of when we were doing the project is getting better specs on the aluminum foil. How much of a thinner gauge aluminum foil can we produce will give you a better value add. So we kind of reconfigured our thought process from the initial one to be able to produce maximum thinner gauge aluminum foil.
Those are the two key reasons for the CapEx being higher. In terms of the multiplier, I think it still remains there or thereabouts, but, again, as aluminum foil ramps up, it will probably take 6-12 months. Hopefully, as we also continue to move into thinner gauges, the value that we will create here will be much better. That's how we would look at it, Rohit.
Okay. Okay, sir. And lastly, on just on BOPET and BOPP side, just to hear what kind of situation we are seeing and how this margin is going to be shaped up going forward, as we are now below 5% EBIT margin. So still, I know still oversupply situation is there, but how we are seeing this from your side?
On BOPET, again, I think it's a story which will probably take another 12 months, maybe slightly more than that, to kind of normalize. We are still seeing growth in demand from a domestic market perspective, but the oversupply situation kind of continues. Again, you know that this is also a business that has been the most impacted and the most cyclical business in that sense. So, BOPET will continue probably like that for the period that I talked about. BOPP should be doing better. There are no new supplies that we hear around it, but the Chinese will always keep putting up new lines. There will be some pressure on that as well.
But again, Rohit, I think the bigger point here is that when you compare this to, let's say, some of our peers, I think our value-added product profile, our customer traction, our relationships, have actually helped us even still with the kind of environment that we are in, so we continue to do well. We are going into, let's say, more value-added products. You heard the announcement on the capacitor grade film that came in. So, I think we are in fairly good shape on that one as well. It is the market cycle that is playing out today, and we are still doing pretty much all right. So that's how we would look at it, Rohit.
Okay, sir. And what kind of utilization level we are operating at in this?
Roughly speaking, around 90%. 90, 91% overall.
Okay. Okay, that is from my side, sir. Thank you. That's all.
Thank you. The next question is from the line of Tarang from Old Bridge Asset Management. Please go ahead.
Hi, good evening, sir. Just a simple question. Typically, for your Spec Chem business specifically, how does the working capital, I mean, what are your working capital days, between debtors and finished goods stock?
Oh, so give me just a minute. I don't have that number readily available. But generally speaking, Tarangji, what we look at is that typically we want to manage our working capital in a good shape. Roughly speaking, net working capital days will be at about 20-25%.
Okay. Has this... I mean, have you seen an expansion here versus, say, two years back?
I said no. I think we've actually been able to manage it lower.
So it's come off, is it?
We've been able to manage it lower, is what I said.
Okay. That's helpful. Thank you, sir. So no changes in terms of your working capital, right? It remains at 20%-25%.
So give me one second, I'll give you the, a good read on it. I may have not, I just may have spoken off my head. Just give me one second. So the NWC to net sales as of now are roughly in the range of about 30%. But we typically try and manage it at specialty business only.... and the, the, let's say, last year we were somewhere in the range of about 20%-25%. So that's how it is. But again, it's, it's a business that is a batch-based business. So to that extent, I, I do believe we will come back, come back to the normalized levels by the end of Q4.
All the expansion that you are seeing from, say, 25%-30%, because of it being a batch-based business, it's all the raw material or WIP led?
Largely inventory, raw material, and FG led.
Okay. Okay. Thank you, sir.
Thank you. The next question is from the line of Dhruv Muchhal from HDFC AMC. Please go ahead, sir.
Yes. Thank you so much. Sir, the question was on the US ref gas market for us. I think the-
Sorry, sorry. Please repeat, I'm unable to hear you.
Yes, sir. The U.S. ref gas market for us, the cuts I think have come in, so probably a bit early, but how do you see-
Sorry?
For us, the U.S. ref gas market, the cuts, 2024 cuts are coming, I think. So how do you see the market for us, positive, negative in terms of volumes and probably pricing? And also related to this was the, I think there was some capacity which had come up in the Middle East, capacity, but was probably not playing as per the rules. So any development in terms of, you know, events there, if you can share?
So, from a U.S. market perspective, it is not cuts that are coming. For us, it is the overall production that has to get cut from a U.S. market perspective. Again, because production will get cut, we believe, there may be some negative around it in terms of the overall, let's say, sales that we can make around in the U.S. market. But again, I think it's a mix that will pan out. Because of the fact that the cuts are not based on a gas-by-gas basis, they are largely based on a GWP rebalance basis. What we will end up seeing on, on that side also is that some of the gases in the U.S. might expand, while some may kind of fizzle out. So that's, that's how the medium term will play out, Dhruv, on, on, on that side.
What was your second question? I kind of missed it.
The capacity in Middle East probably not playing as per the rules, and there could be some implications on that capacity, some... Any development which is what you know?
There is a lot of chat about that Middle East capacity of about 30,000-40,000 tons, that is coming through. But, what we are kind of unable to... We are also kind of figuring it out as of now, is, what's the basis of where, where they are getting the fluorspar from. If they are getting an HFO , where are they getting that HF from? It's a bit of a quandary as of now. Nobody really knows, about that capacity or whether it is producing. And there, you also may be aware that there are certain, circumvention, let's say, positions that the U.S. market is also talking about for, some of the imports that are happening from, the jurisdiction that you are talking about in the U.S.
Okay. Sure, sir. Thank you. Thank you so much and all. Thank you.
Thank you, Dhruv.
Thank you. The next question is from the line of Dhavan Shah from AlfAccurate Advisors. Please go ahead.
Yeah. Sir, my question is on the spec side. So you mentioned that for the first nine months, there is a decline of roughly 10%-11% in terms of the revenue, and you are hopeful that this fiscal will end up with maybe stable or largely lower negative side of the growth. And there is some deferment of the revenues also. So what is the quantum of the deferment of the revenue and what is the key reason for that? That is my first question.
It is impossible to be able to give you the details in that granularity. That's the base trend that we are talking about. We will continue with the trend only, rather than giving you numbers around what's the deferment, what's the position that is playing out. Impossible to do that.
Okay. And how is the overall demand, do you see, you know, in terms of spec cap, is it bottom of the... How is the overall scene in terms of the demand environment? Can you share some thoughts on that?
Well, I think it was well answered during the call. We are very positive in terms of what the, what we are seeing for Q4. When you look at it from an overall FY 25 perspective, I think we will probably be able to provide some guidance around it, probably, in May or, or when we do our May call. So that's how it is, Dhavan.
Okay. Thank you.
Thank you. I now hand the conference over to management team for closing comments.
Thank you, everyone. I hope we've been able to answer some of your questions. I hope that each one of you continues to remain safe and healthy. If you have any further questions, we will be happy to be of assistance. We hope to have your valuable support on a continued basis as we move ahead. On behalf of the management, I once again thank you for taking the time to join us on the call. Thank you. Bye-bye.
On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.