Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY 2023 earnings conference call of SRF Limited, hosted by ICICI Securities. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjesh Jain from ICICI Securities. Thank you, and over to you, sir.
Hey, thanks, Shivan. Good afternoon, everyone. Thank you for joining us on SRF Limited Q2 and H1 FY 2023 results conference call. We have with us today Mr. Rahul Jain, President and CFO at SRF Limited. I would now like to invite Ms. Nitika Dhawan, Head of Corporate Communications at SRF, to initiate the call proceedings for the results conference call. Thank you. Over to you, Nitika . Thank you.
Good afternoon, everyone, and thank you for joining us on SRF Limited quarter two and H1 FY 2023 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.
Good afternoon, everyone, and thank you for joining us today on SRF's Q2 and H1 FY 2023 earnings conference call. I trust all of you had the opportunity to go through our results and the 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 to have a Q&A session. SRF Limited has delivered a good performance during the period under review. The results are primarily driven by our Chemicals business. The technical textiles business and the packaging films business witnessed a challenging operating environment. During the quarter, on a consolidated basis, revenues grew by 31% YoY to INR 3,728 crore.
EBIT grew 21% YoY to INR 689 crore, and profit after tax came in at INR 481 crore in Q2 FY 2023, higher by 26% YoY. Coming to our segmental performance. In Q2 FY 2023, our Chemicals business performed exceedingly well, with revenues increasing by 62% YoY to INR 1,830 crore. Within the Chemical segment, our specialty Chemicals business continued to register strong performance on account of the healthy demand for new and our flagship products. We also witnessed traction from global innovators who engage with our R&D team on more complex and downstream products. This bodes well for the long-term prospects of the business and it has, as it has always been an endeavor to keep enhancing the level of complexity in our product portfolio.
Today we believe SRF Limited has developed robust R&D capabilities to work on some of the most complex chemistries in the world. Furthermore, our raw material prices are expected to trend downwards, and we are continuously working on de-risking our supply chain from any shocks or geopolitical situations. In this regard, as communicated earlier, the recently commissioned state-of-the-art multipurpose plant facility, MPP4, at Dahej is starting to ramp up. Further, the board has approved a CapEx of INR 604 crores for four new agrochemical plants and capacity expansion for an existing plant in Dahej. These initiatives, which are component of our broader specialty Chemicals business expansion strategy, are expected to come on stream within the next 10-12 months.
Additionally, the board has approved a project to develop a kilo lab at Bhiwadi to meet the needs of the pharma market at an anticipated cost of around INR 9.8 crore. Year to date, we have already announced CapEx of more than INR 1,000 crore and are well on track to fulfill the stated objectives that we have spoken about earlier. Despite the subdued global macroeconomic outlook, we remain bullish on the outlook of the specialty Chemicals business. The order book of the business remains strong, and we are optimistic that we will achieve growth in the business more than what we had projected during the beginning of the year. In our fluorochemicals business, we delivered a steady performance on the back of higher realizations and stable volumes, despite the impact of a seasonally soft quarter.
Our Dymel HFA-134a/P pharma grade gas continued to expand its presence in several countries and recorded good growth. With solid demand outlook in important markets like India, U.S., and the Middle East, we will continue to focus on operating facilities as efficiently as possible to maintain the business's dominant market position. As stated earlier, R-125 catalyst replacement has been completed successfully in this quarter. We expect to accrue benefits in H2 FY 2023 from the catalyst change and availability of R-125. We have seen structural demand trends emerging in the refrigerant segment and expect to deliver a much stronger performance in the second half. Q3 would remain focused on order booking for some of the likely demands of the U.S. market in Q4 for our refrigerant gas segment.
During the quarter, our team successfully commissioned a captive power plant at Dahej to meet the growing needs of the business and the site. Furthermore, our second CMS plant in Dahej is currently in final stages of commissioning, and we hope to ramp up the capacities from this plant in the very near future. Additionally, the key focus of the team is to get the product approvals for the PTFE plant, which is also likely to start commercial production very soon. In our packaging films business, SRF Limited reported an increase of 24% to INR 1,331 crore during the quarter. As we have discussed in the past, several new BOPET lines have come on stream, both locally and globally, leading to sharp contraction in industry margins. Our profitability was also impacted owing to rising power costs in Hungary and meltdown in the commodity prices.
However, this trend was partially offset with the sustained demand of BOPP films. I am pleased to share that we successfully commissioned a new BOPP film line in Indore during the quarter. This line will further boost company's position in the BOPP market in India and enhance volume growth from Q3 onwards. While there is strain on margins, we believe that the demand is trending towards global suppliers with multi-locational facilities. In this regard, SRF Limited's packaging film business is well-positioned. We will also continue to focus on our operational efficiencies to ensure we remain one of the lowest cost producers in the world while maintaining adequate utilization levels. The continuously expanding value-added product portfolio of the packaging films business also bodes well for the future of the business. Moving on to our technical textiles business, performance was impacted owing to subdued demand for nylon tire cord fabric.
However, Belting Fabrics and Polyester Industrial Yarn segments witnessed healthy growth during the quarter. Lastly, in the other businesses, SRF Limited maintained its domestic market leadership in the Coated Fabrics on the back of steady demand. In the Laminated Fabrics segment, SRF Limited retained its pricing and volume leadership, with the plant operating at full capacity and recording its highest ever sales in Q2 FY 2023. Q2 FY 2023 also witnessed the impact of volatility in exchange rates, where rupee depreciated against the U.S. dollar by as much as 3%. U.S. dollar also appreciated against major currencies, and the effects of the same is a part of the Forex loss of around INR 36 crore that we incurred during the quarter. SRF Limited's overall position is of being a net exporter, and therefore, a weak rupee does aid long-term margins and remains a positive while impacting our Q-on-Q profitability.
Additionally, we are also witnessing some impact of the hardening interest rate curves, both on the rupee and the dollar, which are leading to slightly higher interest costs being charged off to our P&L. Coming to our balance sheet, our net debt marginally increased by INR 300 crore to INR 3,100 crore as of thirtieth September. This is despite our incurring of CapEx of around INR 1,250 crore in H1. In conclusion, I would like to state that despite geopolitical and operating environment challenges, SRF Limited has delivered a resilient performance with growth in our Chemical business being a strong positive. Over the years, we have established a world-class infrastructure, developed superior R&D capabilities, and had adequate resources to invest in upcoming opportunities across various chemistries in both agro and pharma verticals.
We believe large opportunities exist in the Chemical business, and we can sustain our growth going forward. CapEx plans remains robust, and our current announcements are a testimonial to the same. With some of the current headwinds being faced by our packaging films business and the technical textiles business waning in the medium term, we expect recovery in these segments as well. On that note, I conclude my remarks and would be glad to discuss any questions, comments, or suggestions that you may have. I 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 touch-tone 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, we will wait for a moment while the question queue assembles. The first question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead.
Yeah, thanks for the opportunity, and good afternoon to all, sir. First question is on the technical textile business. Last year during Q1, you had given a perspective that the pricing as well as margins have improved structurally because some capacity closures in China. However, in Q2, the margins have corrected. There is only an aberration due to the demand side issues in NTCF, or we expect that margins probably will moderate from those levels which we have witnessed in the last previous four quarters? Thank you.
Rohit, thank you for your question. To be very frank, I don't think there is any structural change that has come through in Q2. What is seemingly happening is that there is a lot of talk about recession, there is a lot of talk about what is happening in the markets. What we have seen as of now is a change in terms of the buying patterns of the customers are. Now, what has also happened is over a period of time, there is the commodity price change or the commodity price reduction that has started to happen, which typically also leads to lower pipeline and lower inventory. Inventory cleanups also happening is something that we've seen in the past happen.
Now, that's why we have also said that while there has been a slightly lower positioning in terms of the margin profile for the technical textiles business when you compare it with Q1 last year, where demand offtake was significant. Some of that has percolated down where, let's say our overall capacity utilization has come down. We do believe that some of these demand trends that have kind of shifted in Q2 will probably start to show a positive trend going forward. Wherein some of the, let's say, operating leverage playing out, maybe there is a position of better margin going forward.
Right. Got it, sir.
Rohit?
Yeah, yeah. Got it. Thanks for that. Second question is on the Chemicals business. In the first half, you mentioned, we have grown by almost, 63%. Normally second half is stronger, plus we have the additional HFC capacities, and your commentary also suggested that we will be growing, better than in first half. Do you want to change the guidance that we had given or, you know, we had kept at, 20%+, Chemicals business growth for FY 2023, for the entire year?
Okay, Rohit, let me first distinguish this. What we had given as a guidance was growth in the order of 20%+ in the specialty chemicals unit, which effectively you will come to know when we talk about the year-end numbers only. That's one difference in terms of what you are saying and what I am saying. I had always said that the fluorochemicals business will probably see growth based on volumes and price realizations. That's something that is seemingly playing out now as well. From a specialty Chemicals business, we believe where our order book is, where our positioning is, the 20% growth is pretty much eminently achievable and there is a possibility of us bettering that growth going forward as well. That's how we are looking at it.
Hopefully, there will be a positive play in terms of growth. Let's wait for another quarter before I can give you an even better color on the growth numbers from a specialty Chemicals business perspective. I hope that works with you, Rohit.
Yeah, absolutely fine, sir. Thanks for the answer and best of luck, sir.
Thank you.
Thank you. Next question is from the line of Ankur Periwal from Axis Capital. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. First question on your commentary on the fluorochemical side, on the refrigerant gas wherein you are saying that, you know, the outlook is pretty strong, given the global dynamics. So just your thoughts, you know, in terms of pricing trend. We had seen a lot of pricing benefits earlier led by, you know, antidumping duty in U.S. So what are your thoughts, let's say, two, three years hence, on the demand outlook overall?
Again, there are two things that you are asking here, Ankur. One, what is the pricing trend that is going forward, and what is the demand outlook? Right?
Correct.
My mind again.
Go ahead, yeah.
Is that what you're asking, Ankur?
Yeah, yeah. I was checking both on the demand outlook, not only in terms of volume metric, but you know, the pricing also, you believe there could be further uptick there.
Again, I think prices where they are today, we think prices can remain stable of all of the HFCs. There may be some volatility in some of the HFCs, but I think from an overall large ticket perspective in the near to medium term, prices remain pretty stable, r ight? We've seen some of the Chinese prices come down, to be very frank about it, but there are various other elements to it why some of those productions are happening in China, r ight? I don't know whether you know, but the U.S. ITC has also reconfirmed the duty on R-134a ex-China exports into the U.S., which was under sunset review until April 2022. That's been reconfirmed.
Again, given that as a situation, given trade barriers both in India and in the U.S., which are large markets here, I think demand outlook as well as price stability is something that can continue in the HFC space going forward.
Sure, sir. That's helpful. A second question on both packaging as well as, you know, the TTP segment. Any inventory losses which you would like to quantify for this quarter? What could be the steady-state margin, you know, one can assume here?
Okay. Ankur, very difficult question to answer, but let me try and tell you some background and some details around it. When I look at it from an overall perspective, the H1, what we probably saw as an overall negative was roughly about from a packaging films perspective, was about Q2 was about INR 13 crore-INR 14 crore. Right? Again, there has been volatility in prices. When I look at it from a first half perspective, the amount was roughly about INR 7 crore, right? That's the position on the volatility side for the packaging film business.
Technical textiles business, I don't think there was a very large position in terms of, let's say the inventory numbers. But the overall number is probably in the range of about INR 2 crore from a technical textile business perspective. When I also look at the one-timers in this, I don't think there are too many other than the ones that I just talked about. That's how the business is. In terms of what margins can be, again, I still believe that there will be some positives in the packaging film business that come through in Q4. Again, we are all hoping that some of the challenges that are there in Eastern Europe, specifically in Hungary for us, will get sorted out with respect to the cost of energy there, right?
If those do happen, I think we will have a positive that can flow through. Again, these are all geopolitical in nature. There are various things that will pan out. How does the accord go through? There are various discussions that are happening today. All of those are fluid in nature. Very difficult to comment. What I can only tell you, Ankur, is that as you will start to see more results of some of our peers in the industry also coming through, this is a pressure that is being faced in the packaging film business, the packaging film industry, specifically on the BOPET side by everyone. Given our customer relationships, given our value-added product profile, we are probably in slightly better shape.
As things start to improve, there will be some positives that will come through. I hope that answers it, Ankur.
Sure, sir. Just one clarification. INR 300 crore, almost INR 300 crore EBIT came to INR 100 crore. The number that you mentioned was around INR 130 crores-INR 140 crores for the loss?
No, which loss are you talking about?
The inventory loss or the mark to market there.
I said about INR 13 crore-INR 14 crore.
INR 13 crore
For the quarter.
INR 13 crore-INR 14 crore for the quarter, okay.
Yeah.
Okay. Fair enough. I'll get back to you. Thank you for this. Thanks.
Thank you.
Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
Congratulations for the great set of numbers, sir, despite challenges. My first question is on a clarification, sir. In fact, you mentioned about the supply chain de-risking for Chemical business.
Yeah, Surya, can you pick up the handset and talk? Your voice is muffled.
Okay. Sir, on the de-risking of supply chain for your Chemical business, what you mentioned, can you?
Specialty chemicals specifically.
Yeah. Yes. What input material that you're talking about de-risking the supply chain, sir?
Oh, no specific materials, but there are various things that we procure. Because, again, you have to understand, Surya, that there are a very large set of products that we do, which involve multiple reactions. Now, there could be one product that is missing, right, which creates a problem for the entire product. It is not that I'm talking about a single raw material or a single issue that we are facing. It is just saying that we are now developing more sources of key raw materials so that our production doesn't suffer. In case there is a need to take a call in terms of inventorizing certain key raw materials, certain materials which we have for our production planning purposes, we are taking those calls. That was the idea that I wanted to talk about.
Okay. Second question is on the packaging films, sir. Basically, two small points in that. One is that have you seen any meaningful impact of Hungary operation in this quarter because of whatever situation that has been going on there? Secondly, while we have witnessed BOPET challenges in the demand side for BOPET as well as price impact and all that, what is driving the demand for BOPP?
Again, you're absolutely right. We have seen the challenges in the cost in Hungary, and therefore, production capability in Hungary has come down very, very significantly. It is actually only producing to the extent we can get appropriate orders at an appropriate price. Wherever we can lock the cost of energy is where we try to do the best in terms of the available spot prices that we have. Yes, there is a negative in terms of the Hungary that is, let's say, reflected in the numbers that you are seeing on the sheet. No doubt on the fact that, last year, for example, Hungary made a bit of roughly about EUR 8 million- EUR 9 million, right? This year, this is probably flat to negative.
That's where it is. Therefore, from a comparative basis, there is a negative of Hungary.
Quarterly numbers, sir? EUR 8 million-EUR 9 million.
I'm sorry, Surya?
This is EUR 8 million-EUR 9 million what you mentioned. It is a quarterly number, sir, last year?
No, this was the annual for FY 2022.
Okay. Sure.
Okay? Again, think about it. That plant was ramping up at that point in time. There were various new things that we would have done.
Yeah.
Given this hit that has come in, right, it has had its impact. The second question that you're talking about is what is sustaining BOPP demand. BOPP, in fact, is a product that is a very large, let's say 3x the size of BOPET. Therefore, it, let's say the cycles that BOPP witnesses are slightly lower than what BOPET witnesses. That's one. Second, BOPP also has a very large, let's say, value-added product portfolio when you compare it to, let's say, the BOPET. That's the second piece.
The third and another key and most important piece is the fact that BOPP is now becoming more sustainable because the discussions that are happening in terms of the mono-material structures is coming through in BOPP. People are kind of looking at more BOPP opportunities on that side because of the recyclability and the ESG positions that everyone is starting to take. Those are the positives from a BOPP perspective, and that's how it works.
Okay. Just last question, sir, on your permission. See, on the Chemical business, here is again two angles to it. Recently, BASF has mentioned about permanently cutting down manufacturing activities in Europe. We have in the recent meetings indicated about our talks with the European chemical as well as agrochemical players for potential supplies. Any development on that side that you have seen, sir?
Yeah. I think it is more generic in nature. There are discussions that are going on. There will be developments, there will be new products that will come through. I think what we are seeing here, Surya, is the amount of CapExes that we are announcing, is the amount of positions that we are taking on CapExes, newer products coming in, some of the, let's say, backward integrations happening, some we are starting to make some precursors as well. I think that is the overall story that is playing out. It cannot be termed to a single quarter in terms of one single product. It's a generic story. It's a more, let's say, robust trend that we are starting to see on that side, and that's how it's playing out.
Sure, sir. Okay. Yeah. Thank you, sir. Thanks a lot.
Thank you. Before we take the next question, a reminder to the participants, please limit your questions to two per participant. For any follow-up, may we request you to rejoin the queue. The next question is from the line of Vivek Rajamani from Morgan Stanley. Please go ahead.
Hi, sir. Thank you for the opportunity. So just two clarifications over here, one related to the previous question. You obviously gave some numbers on the challenges that you're seeing in Hungary. Would it be possible to quantify the impact of the energy cost that's driving this pain there, or it's function of both energy costs as well as the lower production that you highlighted? That was the first clarification. Secondly, if you just touch upon what's the utilization rates that you've seen across your segments in this quarter, and any commentary on how you see that trending in the next two quarters, that'll be really helpful. Thank you.
Let me first answer your Hungary question. The cost of power and the spot power and whatever you have contracted has gone up so much that the price that you can deliver the product to the customer has gone through the roof, right? Again, when you look at some of the commoditized numbers, the customer has choice to buy from somewhere else as well. Therefore, your ability to supply without a contract to the customer, because your costs have gone up significantly and largely on account of power, is where you are unable to operate the plant at the peak level. You are kind of operating it at 25%-30% level based on the contracts that you can get and secure the cost of power, and therefore, it's kind of becoming more spot in nature.
That's how Hungary is operating. The second question, do you have a follow-up on that one, Vivek, or should I go on to the second one?
That was really clear. If you just go on the other utilization rates that you've seen across the other segments.
To that extent, let me just take you through the utilization rate from the technical textiles front. On the MTFS side, I would say roughly about 70%, 72% is our capacity utilization on a quarter-on-quarter basis. This quarter, that was what it was. Ref gases, other than for R-125, where the catalyst change was happening, almost, pretty much whatever available was being produced. Slightly lower than that because obviously Q2 is probably a seasonally adjusted quarter. To that extent, slightly lower than that. Chloromethanes, packaging again, full production. Packaging films probably in the range of about 80%-85%, 90% overall from an Indian perspective, Thailand and South Africa. South Africa, in fact, is producing as much as it can.
It's completely full. On the specialty chemicals, again, we don't talk about capacity because it's something that to that extent is batch processed also. That's the rundown on the utilization rates.
Thank you, sir. Very helpful. I'll rejoin the queue for follow-up questions. Thank you.
Thank you. The next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead.
Good afternoon, Rahul. Thanks a lot for taking my questions. One on the chemical segment CapEx plan that you've announced in the past. Just,
The past or this quarter?
No, actually, you know, the meeting in September, et cetera, or just prior to that. You know, the INR 12,000 crore-INR 13,000 crore CapEx plan that you've announced for the next five years for the chemical sector.
You're talking the longer-term CapEx?
Yes. Yes.
Please, Abhijit, go on.
Yeah. I was just hoping to understand, you know, whether all of it is revenue generating in nature or whether there are some other, you know, EHS and other, you know, supporting activities included within that. What kind of rough asset turns could we work with on that, actual utilization?
Abhijit, I think we spoke about this, but let me try and clarify again. See, please distinguish between a vision statement and an operating statement, right? When I tell you what is my CapEx plan for FY 2023, FY 2024, I would be in a position to give you a rundown in terms of what are the CapExes that I'm doing. But when I'm making a statement that this is the intent, I want to do INR 3,500 crores of CapEx annually, I can't give you asset turns on it. I can't tell you which are the projects that I am doing. What I can tell you is this is the mission statement, this is the vision statement that I have. We will look to get to projects, we will look to enhance our capacities, our capabilities.
We will do whatever is needed to ensure that that growth engine keeps running. I can't give you a rundown of what projects we'll be doing in the fifth year. FY 2024 to FY 2028, that's pretty much impossible to do today. That you will have to distinguish between what is a vision statement and what is an operative statement.
Okay. Now I understand. That's very clear. Yeah, that's fine, sir. The other question I just had was clarification with regard to packaging films. You know, adjusted for the inventory impact this quarter of about INR 13 crore odd. You know, the Hungary situation that's underway, which is probably about EUR 2 million a quarter kind of impact on a you know quarterly basis. Other than that, I mean, the rest of the segment performance is attributable basically to you know the supply demand scenario in the industry. Is that how we should interpret it? Then we should expect some improvement heading into Q4 as hopefully Hungary you know improves on the energy front and yeah the inventory losses fade away.
Is that how we should think about it?
Are you asking a question or giving an answer?
Just, you know, seeking your perspective.
You're absolutely right, Abhijit. See, again, you answered it, in fact. You are absolutely right. We think that some of these situations that are created out of the geopolitics are probably going to run down over a period of time. Therefore, the energy costs, after the winter, let's say go away, will be probably better off in Western Europe and Eastern Europe as well. Therefore, some of that plant will start to recommence. Obviously, there is the new BOPP line that we've just commissioned, and therefore, to that extent, we will see a volume benefit also coming in. BOPP, like I also said, is being relatively less impacted by the capacities that have come in. Therefore, we should see a positive trend going into Q4.
I'm sorry. Exiting probably Q4. For the short term, BOPET, we will still continue to see some pain.
Got it. That's very helpful, Rahul. Just one last thing, if I may. The unallocable income within, you know, the segment reporting is a little bit low this quarter. If it's possible to share what the reason for that might be. Thank you so much.
Abhijit, I've not looked at it. When you are comparing Q2, Q1, I think it is higher, the unallocable expenses net of income. Is that what you're talking about?
Yeah, exactly. It's INR 26 crore compared to INR 64 crore.
You'll have to again, I don't look at it on Q-on-Q. You do. When I look at it will probably be looked at from a Q-on-Q corresponding period last year perspective, and I see that to be higher. My sense is that there were certain one-time items, but I can come back to you on that.
Sure. Thank you so much, and all the best, sir.
Thank you.
Thank you. The next question is from the line of Arjun Khanna from Kotak Mahindra Asset Management. Please go ahead.
Thank you, sir, for taking my question. My first question is just on the CapEx for FY 2023.
Arjun, be a bit louder, please.
Yeah. It's just about the CapEx for FY 2023. We had talked about doing roughly INR 3,000+ crores of CapEx for this fiscal year. We have done roughly just INR 1,200-odd crores in the first half. Just wanted to know, are we looking at shifting our guidance, or you are pretty much confident of doing that INR 3,000+ crores in this fiscal?
Roughly about INR 3,000 crore was our guidance. I think we will be able to achieve it. For the first half, we've already done INR 1,250 crore, INR 1,260 crore. To that extent, the CapEx plans remain robust, and we will be able to achieve the guidance.
Just the context is that the previous year, the entire year, we did INR 1,800 crore, and now we are turning INR 1,800 crore in the second half.
Well, we have done INR 1,200 crore in the first half also. Double it also, so you'll get to INR 2,500 crore, and there are new plans that we've announced.
Sure. Fair. The second question is, you've mentioned in terms of product approvals for the upcoming PTFE plant. Would we be commercializing it in this quarter itself?
Arjun, the plan is to first get the right product in. My sense is that it'll come in Q4 only. As soon as we can get our product approvals in place, we'll start, let's say, getting the initial batches coming through, going through the product approval process, all of that will happen. My sense is it will probably be Q4 only, not Q3.
We would see revenues coming from Q4 or from first quarter of FY 2024?
Revenues probably in Q4.
Okay. Sure. Just the last question I had was on the packaging side. The new BOPP line, in terms of utilization, obviously it came during this quarter.
Arjun Khanna.
Hello?
Sir, sorry to interrupt. Your audio is sounding a bit muffled. If you can just change the mode of your handset.
Sure. Hello?
Yeah. Please go ahead, Arjun.
Yeah. Just in terms of the new BOPP line which came during the quarter, are we expected to see high utilizations in the third quarter itself, or we are yet in the ramping up phase and probably from the fourth quarter we could see revenues from the same?
The BOPP capitalization has happened already. We are already seeing good capacity utilization on that side also. Obviously, the first prize there is to be able to get to a number which is better than what from a value-added product perspective. Therefore, as much as you can start doing more value-added products, you will start to do better. My sense is it's already a vertical ramp-up that we've seen. But as time goes by, you will also get product approvals for more value-added products, which will add to the margin play that we have.
Sure. On a run rate basis, you'll probably be where we expect to be for FY 2024 from the first quarter.
For BOPP?
For the new BOPP line in terms of the ramp-up.
Some of it is already there in Q3. You will see some more revenue in Q4, Q2 and Q3 and Q4 as well. It's already started, Arjun.
Right. I know we did it during the second quarter, so I was just wondering in terms of ramp-up for margins.
That's what I said, yeah. You will increase the speed over a period of time. Your products will become better. You will do more value-added products. That is what it will happen. Not in Q1 FY 2024. It's already started.
Okay, sure. Perfect. Thank you.
Thank you. The next question is from the line of Nitesh Dhoot from Prabhudas Lilladher. Please go ahead.
Sir, thank you for the opportunity. My question also pertains to CapEx. Basically, you mentioned INR 12 crore-INR 15 crore of cash outflow on CapEx, if I got it correctly.
I'm unable to hear you. Your voice is completely muffled.
Hello? Sir, is it any better now? Hello?
Not much.
Mr. Dhoot, if you can change the mode of your handset, please.
Yes, sure. Let me do that. Hello?
Yes, please.
Sir, is it any better?
Yes, much better. Thank you.
Sir, my question was on CapEx. You mentioned INR 1,250 crore of cash outflow on CapEx in H1. My question is on the commissioning project. If my understanding is correct, it's around INR 1,000 crore of commissioning CapEx and something around INR 1,100 crore-INR 1,200 crore of CapEx, which is yet to commission in FY 2023. Would that be a correct understanding or, I mean, you know, how much would the CapEx-
Certainly, numbers from the C-word number. That's absolutely right.
Sure. That takes it up to around INR 2,100 crores-INR 2,200 crores, you know, for gross block increase in FY 2023. Would that be right?
From a capitalization or a commercialization perspective?
Capitalization perspective, yes. Capitalization perspective.
Is that this year, our total capitalization in India would be about INR 2,200 crore-INR 2,300 crore or slightly higher than that. Because there are projects from the previous year that have also capitalized this year, right? That's the capitalization number.
Right. Right.
Because again, you'll have to see. Those that we have incurred in the last year, as well as as we are proposing, that probably will get capitalized this year itself. My number is probably about INR 3,000 crore. Cash spent in some of those projects would have been done over the past two years as well.
That's correct. You know, no, actually, what I was trying to figure out is, you know, only on the CapEx, you know, only on the commissioned CapEx for this year. You know, if my understanding is correct, I mean, we have-
Yes, commissioned.
We have BOPP line at Indore, and there's a multipurpose MPP4 that is commissioned, and there's another agrochemical facility of around 58-
There are a host and a long list of projects. Come back to us, and we will give you a good sense of it. Because I can't talk about each of the projects. There is a long list.
Okay. Okay, no worries. Thank you so much, sir. Thank you so much.
Thank you. The next question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.
On Sanjesh.
Yeah, good afternoon, sir. Thank you very much.
Yes, Sanjesh.
First on this agrochemical four plants which we have announced in this results, can you give a sense how much of it is AI, and out of the INR 600 crore, what is the asset turn that we are targeting? That's one-
Okay. Out of the INR 600 crore, there are two products that we are doing which are effectively a precursor to our existing product. They are margin expansion projects that we would see to come through. The two of these products, we are also believing that can go into another API, which probably is still somewhere in the future. That's how it will work, Sanjesh. The projects that we have announced are more agrochemicals and non-API, but they are also precursors to some API, which effectively all of the API, all of those precursors we are manufacturing.
Out of four, two is.
The other projects are new products that we have supplied from our multipurpose and are now going dedicated.
Okay. MPP4, how many products are we projecting? Just one related question now that we have announced.
Are you talking about MPP4 or some other MPP?
No, no, MPP4, because that's the one new we have started. How many new products have we planned there in MPP4? One related question to the previous question, sorry. We have announced INR 10,000 crore of CapEx in specialty chemical in 12 months, right? What is the potential revenue it can add, say, in next 12-14 months?
The fact is that from an MPP4 that we have capitalized recently, we are almost doing two to three products on a continuous basis. What happens also in MPPs is that you manufacture it on a batch and then do the supplies over a period of time. It is expanding. The ability of this MPP is probably to do almost seven to eight products, but those are batch products also. That's the MPP story, Sanjesh. The other piece in terms of overall revenue potential, I think, again, we don't look at it from that perspective because the fact is that some of these are precursors feed into the existing one and therefore add to the margins of the business as such.
Again, I think it can remain in similar nature or similar trend that we have seen in the past. Between 0.9 to 1.25 is a fair and decent assumption.
Got it, sir. Thank you. Thank you. Just one last question from my side.
You are asking the third one, and you are the host of the call.
No, I will come back on the queue.
Thank you.
Thank you, sir. Thank you very much.
Thank you. The next question is from the line of Vishnu Kumar from Spark Capital. Please go ahead.
Thanks for the time, sir. Just a follow-up on the previous person's question on the Agro-
Vishnu, you're not audible. Please be a bit louder.
Yeah, I hope this is better, sir. This is a follow-up on the previous question of the agrochemical CapEx that we are doing. You mentioned it is mostly pre-AIs. I mean, are you generally getting more inquiries from the West that, okay, let's do one more step, because of all the energy cost that is happening on the West. Are we going closer to one more step? Do you see that possibly playing out in the next couple of years in conversations with customers?
Certainly, Vishnu. The amount of work that is going on that we are doing with respect to existing projects and existing products, as well as converting some of those inquiries into AIs is very, very large. I'm hoping in the next few quarters, you will also hear some of the announcements on AIs as well.
At present, INR 600 crore, as you said, part of it is margin enhancement and part of it goes into fresh new products.
That's correct.
Got it, sir. Sir, if you could just give a list of the projects that are going to get commissioned, I mean, large projects over the next 18 months, across all the segments that'll be slightly useful. I know you mentioned a few, but-
Again, can't do it on the call, Vishnu, but certainly happy to give you a good sense of it separately.
Okay. Got it. Sure. Thanks. We'll touch base again.
Thank you. The next question is from the line of Naushad Chaudhary from Aditya Birla Sun Life AMC. Please go ahead.
Hi. Thanks. Few clarifications. Firstly, on the, can you share the status of our thermal plant CapEx? Once it's fully operational, what kind of benefits we should expect from this CapEx?
What? Thermal plant CapEx. What is thermal plant?
I think two years back, we had announced around INR 200 odd crore of investment in thermal power plant and in last-
Thermal power plant.
Yeah.
I think it's already been commissioned.
What-
It is operating fully as of now.
This quarter, numbers would have reflect the benefit of this plant? If the-
In fact, capitalized this quarter itself. The overall benefit probably will come through in H2 and going forward on a continuous basis.
Would you be able to quantify the expected benefit from the plant?
Reduction in the cost of steam, power, and therefore very difficult to quantify. Let's say from a unit-by-unit perspective, it is of almost 40%-50% cheaper than grid power.
Wow.
even more for that matter.
Okay.
Naushad, you have to understand, we have a large requirement of steam, and therefore it also feeds into the requirements of the future and the needs of the site for the future as well.
Secondly, just the clarification again on the textile and packaging films margin, was it impacted purely because of inventory spread and operating deleverage, or was there something else, any one-off cost which may not be there in the next quarter? Or has it become a new normal now, demand and utilization has to go up to get back to the previous margin?
Yes. I have said in the previous one. I'll just give you a quick rundown. There are no very large one-timers, so that if you expect that them to go up going forward, I don't think that is happening in this one. My overall sense is that for the technical textiles business, there is a positive on demand that we see coming through probably more towards the end of Q4, mid of Q4. Packaging, BOPET will continue to be a bit of a negative, but hopefully some of the new SRF Limited capacity that we have put in the value-added product profile will do slightly better going forward. BOPET certainly, at least in Q3, looks like a lot of difficult times going forward.
Okay. Can you share your full year basis, expected, debt cost on a full year basis?
My sense is that from a debt perspective, our overall costs have gone up between 2%-2.5%, which is effectively what we've seen from the Fed as well as the Reserve Bank of India. Now, if these rates keep changing, if the Fed does another 50 basis points increase or RBI again in the next meeting does a 75 basis points or a large increase, there will be an impact on the floating rate positions that we have. As of now, the cost has gone up by about 2% from where we were. Hopefully this may not be a long, let's say, pause.
Given the growth concerns the world is facing, some of the key central banks will have to start reducing interest rates, may not be in six months, but at least in 12 months going forward. It'll probably be more shorter term in nature. Yeah, that's how it will work out.
Sure. Thanks. I'll come back and queue.
Okay.
Thank you. The next question is from the line of Archit Joshi from B&K Securities. Please go ahead.
Thank you for the opportunity, sir. Just one question on technical textiles. We have seen a healthy margin for about seven to eight quarters ranging 20%. As I hear you, the capacity utilization this quarter was in the range of 70-odd%. The margins that have dropped, is it essentially because of negative operating leverage? As you know, capacity utilization ramps up going ahead, we can see a similar level of margin in the interim. That's just one clarification I want. Thank you.
It may not go back to that number, but yes, it will play out better because at the end of the day, Archit, what you also need to do is, in fact, if you want to supply at a differential, you will have to ensure that your plant keeps running. To that extent, if you are even lowering your margin to a certain extent, you are good to go because the operating leverage plays out, but it may not go back to the 19%-20% number.
Got it, sir. Thank you. Thanks a lot. That's it from my side.
Thank you. The next question is from the line of Rohit Sinha from Sunidhi Securities. Please go ahead.
Yeah. Hi. Thank you for taking my question, sir. Hope I'm audible. So, first question is, if you can just give an update on the Aluminium Foil business. Secondly, on the packaging film side, I just wanted to know the overall market perspective as people are talking about the sustainable products, and thankfully, we are not into the single-use plastic side. What is the acceptance market is having towards the value-added products and how we are looking this, I mean, overall, going forward, how the value-added product mix would be shaping in terms of domestic as well as the export market.
Very long question, Rohit. Let me try and address some of it. Aluminium Foil project is on track. Again, September of 2024 is when we expect it to get commissioned. Hopefully, some of the equipment is already coming onstream. They are looking to install it. So that's what's happening on the Aluminium Foil side. With respect to sustainability angle that you've talked about, I think some of the chat around sustainability has also kind of died down a bit given where the geopolitical situations are. Again, we are very cognizant of the sustainability initiatives that we are taking. BOPP today is being considered as a better product from a sustainability perspective.
Hopefully, over a period of time as new products develop on the BOPET side also, they will also become mono-material structures because it's kind of adding a property into the film, which can be used for various purposes going forward. That's how it will work out. I did not catch your full question, so maybe we can take it offline, Rohit.
Okay, sir. Okay. That is from my side. Thank you.
Thank you. The next question is from the line of Bobby Jayaraman from Falcon. Please go ahead.
Yeah. Hello. For the BOPET, do you make the resins, the PET resin?
No. Bobby, could you pick up the phone and talk? I'm unable to hear you.
Yeah. For the BOPET, do you make the PET resins?
Yes. For the BOPET films, we use PTA and MEG to make the resin as well. We have one facility in our SEZ in India. We also have one in Thailand.
Okay. What has led to the low margins? Is it because the PTA prices have come down? What's the driver for the low price?
The margin is effectively when we talk about the conversion margin. The price of the final product, on the film side has come down significantly given where capacities are, and therefore people are willing to supply at lower price, which therefore means that the conversion margin. Let's say and the conversion margin is the price of the net price of the product minus the base raw material. In our case, PTA and MEG, in some cases, PET resin. That's the conversion margin. Effectively what has happened is that because people are willing to drop prices on a continuous basis, the prices come down, and therefore the overall margins come down.
This is a complete commodity in that sense. There is no special BOPET you're making. You make the thin BOPETs, right?
Again, this is what I've talked about in generic nature for the film, which is commodity in nature. There will always be specialty films, some of which we do, which is the value-added product piece, which will always have a delta over the base film. Therefore, when you look at our numbers, they include those positives as well.
How long do you think this, you know, the overcapacity will last?
See, there is a large amount of capacity, four or five lines that have been added in India. Some large lines have been added in China as well. I'm not really in a position to be able to give you a sense by when this will completely be taken up by the increase in demand. Yeah, I do believe the next two quarters are a bit tight.
Okay. All right. Thank you very much.
Thank you. The next question is from the line of Ishmohit Arora from Arora Family Office. Please go ahead.
Hi, sir. Congratulations for a hearty set of numbers. My question was linked to the fluoropolymers value chain. Do we plan to go into PVDF, FPM, and the other types of fluoropolymers that exist?
Unfortunately, Ishmohit, I am unable to comment on it as of now because there are thought processes around it. We are talking about it. No specific projects on the ground as of now. You will come to know in due course.
Right, sir. Thank you so much for the answer. Sir, second question is, looking at the Chinese refrigerant and gases players, because we have seen the anti-dumping already coming up, are we seeing them shifting their capacities, are some of the Chinese players also setting up capacities in UAE to basically, so basically bypass the anti-dumping duties in U.S.?
Could you repeat your question? I am a bit confused.
Basically, are we seeing any Chinese players setting up capacity, capacities or refrigerant gases in UAE to basically bypass the antidumping duty imposed on them? Okay. Okay. Thank you so much, sir, and all the best.
Thank you. Ladies and gentlemen, due to time constraint, we take that as the last question. On behalf of ICICI Securities Limited, that concludes today's conference. We thank you all for joining us, and you may now disconnect your lines.
Thank you, guys. Bye-bye.