Ladies and gentlemen, good day, and welcome to the Q3 FY 2022 earnings conference call of Apcotex Industries Ltd. As a reminder, all participant lines will be in the 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 and zero on your touchtone phone. Please note that this conference is being recorded. At this time, I would like to hand the conference over to Mr. Anuj Sonpal, CEO of Valorem Advisors. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and a warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the investor relations for Apcotex Industries Ltd. On behalf of the company, I would like to thank you all for participating in the company's earnings conference call for the third quarter of financial year 2022. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings conference call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions.
The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Let me now introduce you to the management participating with us in today's earnings call. We have firstly Mr. Abhiraj Choksey, Managing Director, Mr. Sachin Karwa, Chief Financial Officer, and Mr. Anand Kumashi, our Company Secretary. Without any further delay, I request Mr. Sachin Karwa to give his opening remarks. Thank you, and over to you, sir.
Thank you, Anuj. Good afternoon, and welcome to today's earnings conference call for the third quarter and nine months of financial year 2022. Firstly, let me take this opportunity to wish you all a happy new year, and I hope you all are keeping safe and well. Along with me in today's earnings call, I have our Managing Director, Abhiraj Choksey, and Mr. Anand Kumashi, our Company Secretary. I hope you had an opportunity to review the financial statement and earnings presentation which have been circulated and uploaded on the company website and stock exchanges. To brief you on the financial performance for the third quarter of financial year 2022, the revenue from operations grew by about 52% on year-on-year basis to INR 251 crores.
The operating EBITDA grew by about 40% on a year-on-year basis to INR 34 crore, with EBITDA margin reported at 13.5%. EBITDA percent compared to Q3 of FY 2021 is lower, but that is on account of higher prices compared to last year. EBITDA margin per metric ton is an important metric we monitor, and that is better than last year. The net profit grew by about 43% year-on-year to INR 24 crore and PAT margin stood at 9.5%. For nine months of FY 2022, the revenue from operations grew by 92% year-on-year around INR 679 crore, while operating EBITDA grew by more than 100% to around INR 95 crore, with EBITDA margin being reported at 13.9%.
Net profit grew by more than 100% to around INR 68 crores, while PAT margin stood at 9.99%. From the numbers, you can make out that we have reached historical high in Q3 FY 2022 across all financial parameters. Quarterly volumes grew YoY for both Q3 and nine months FY 2022 due to the full benefit of all debottlenecking projects, all of which were completed between Q2 and Q3. In addition, we witnessed a healthy broad-based volume growth across most industries, customers, and geographies. We have registered the highest quarterly export sales of INR 53 crores, contributing to 21% of overall revenues. On the project front, work on new expansion projects is on schedule and expected to be completed around Q2, Q3 of FY 2023.
Finally, I am pleased to announce that we have declared an increased dividend of INR 2 for each equity share, and 11th February 2022 has been fixed as a record date by the board. With this, I would like to open the call for question and answer session. Thank you.
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 the touchtone telephone. If you wish to withdraw 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 Ankit Kanodia from Smart Sync Services. Please go ahead.
Thank you.
Go ahead, Ankit.
My first question is related to margins. What is the reason for the margins to still be relatively stable? Can you speak a little on that?
Yeah. Hi. Hi, Ankit. How are you?
I'm good.
I'm not sure if I understood. Thank you. Thanks for your question. I'm not sure if I've understood your question. You're talking about EBITDA margins being-
Yeah.
stable, and what is the reason they have not dropped? Or what is the question?
Yeah. Not dropped. Because, across the board, we are seeing commodity price increase and
Mm-hmm.
We actually managed to continue to hold on to our margins. What has led to that? That is what I'm interested in.
A couple of things. Obviously, the commodity prices have gone up, even for us, raw materials have gone up, but we've largely been able to pass it through. As I've mentioned before, in our kind of business, you know, for example, I'll tell you about this quarter, the revenue is up by 52% compared to Q3 of last year, and our volumes are up by about 20%. The volume growth has been 20% compared to Q3 of last year, and the rest of it is margin growth. Obviously the volume growth has helped. By and large, as far as in rupee terms, we've been able to pass through all the cost increases. In fact, our EBITDA per ton, if you look at rupees per ton, has actually gone up.
EBITDA percentage may be stable or even a little lower than last year, but had there been no inflation, then our EBITDA percentage would have been much higher than, you know, in percentage terms been higher than Q3 of last year. Yeah, I mean, we've been fortunate and we've been able to pass it along. Obviously, a lot of things done internally at our end as well. The product and customer mix. We are running at almost 100% capacity utilization, so that has helped, you know, overall. There doesn't seem to be any excess capacity right now. Very strong demand. All those things have really helped, and we feel confident about these margins overall.
I mean, just a slightly longer term view on the same thing. I mean, if I just follow up on that, wherein since we are entering the general belief is that we are entering into an inflationary phase right now, and it may carry on for say about two years, three years or maybe four years. We don't know yet. If you look at in the past if you can share with your own experience in the past when the crude was. Crude is right now approaching $90, or it's already $90, I guess. So what how does it affect us and how easy or difficult it is for us to keep maintain that margin in that kind of an environment?
Because in the last three, four years the crude was pretty benign. Now in the last one year and the projection over the in the future also looks like it may shoot up. How do we see ourselves in that kind of a scenario?
Look, first of all, the company compared to the past and now the company is also different. Our different strategies that we have executed over the last two, three years, after the acquisition, along with a lot of debottlenecking projects, product mix, customer mix and so on, new products that we've introduced. We feel a lot more comfortable. We are also at a much higher capacity utilization. The industry overall seems to be at a higher capacity utilization. It does seem that these margins and this is more sustainable than before. However, you know, look, the macro environment and how inflation overall affects demand and such, you know, it's hard to predict really.
All I can say is that we feel pretty confident that we will remain range bound in these kinds of percentage margins, you know, anywhere between, I don't know, 12%, 13% to 17%, 18%, I would say, you know, depending on where crude is. If crude goes to $150, just for example, you know, our margins may even fall further in terms of percentage. But in terms of actual rupees per ton margin, we'll, you know, we will ensure it's protected. We'll try and ensure that's protected at least by the different things that we've already done and we'll continue to do. As you know, this year we are also looking at substantial capacity improvements. That should also overall help in improving EBITDA margins.
Of course, most of that will come in into the second half of the year, not in the first half of the year, but next financial year. Overall we feel pretty confident about it.
Yeah. That really helped. Speaking about capacity, in the last call you mentioned about INR 220 crore-INR 230 crore of CapEx over the next 12-15 months.
Yes.
In terms of timeline, we are on course for that.
Absolutely on course, yeah. As of today, all the projects, both the projects on both the sites are on course.
Yeah. Then last question on ApcoBuild. Last call you mentioned about we entering Madhya Pradesh. Any other new states we have entered or we are still concentrated on-
Gujarat, Madhya Pradesh, within Maharashtra also increased our footprint, and Goa. We are in four states. We are also doing small business in the south a little bit, but I would say, largely these three states. Maharashtra expanding our footprint and entered Gujarat and Madhya Pradesh over the last year or so, actually.
Is it possible for you to just share on QonQ basis what are the growth rates in ApcoBuild numbers in Q1, Q2 and Q3? Just percentages.
I don't have specifically Q1, Q2, Q3, but I have the YTD numbers. I would say for this financial year as well, the growth will be almost 150%-200% for ApcoBuild this year. 150% at least.
Broadly, sequentially you have grown in the last three quarters also.
Yeah.
Quarter-over-quarter.
Of course, Q2 is always in this business, always a little lax, but even then we have grown Q2 compared to Q1. Q2 because of the monsoon season, you know? That's always in construction, a little lax.
Okay. Thank you so much. I will come back in Q5 and continue the discussion. Thank you.
Thank you. The next question is from the line of Keval Ashar from DSP Mutual Fund. Please go ahead.
Hello. Am I audible?
Yes.
Yes.
Go ahead, Keval.
Yeah. First of all, congratulations Abhiraj sir and your team for a good set of numbers and also the way you've planned out your company over the last many years. Sir, I have a few questions. First is, you are into emerging polymer chemistry, and if we see your global competitors like Synthomer and Trinseo the way they've scaled up, I believe that we have a huge size of opportunity lying ahead of us. First of all, I wanted to understand from you that once our current CapEx commences and we start generating cash flows, what are the new products that you plan to scale up and what is the size of opportunity that you see for Apcotex?
No, absolutely. Look, obviously, Synthomer, Trinseo, and some of the other global companies, they operate in multiple countries and multiple continents, therefore they're larger.
We also see a lot of opportunity and good growth, and we've seen that this year itself, you know, where for the nine-month period, our volume is up 40%. Of course, revenue is up about 92% on account of inflation. Of course, last year, April, May of 2021 was obviously, you know, because the lockdown and the plants were shut and so on, obviously it was challenging. On the basis of that, yeah, absolutely, the opportunities are there. From the latex side, of course, you know, I think it's more of a regional play. That means, you know, we'd focus on Southeast Asia, Middle East, and India, because of, you know, in latex it's about 60% water, so to transport it over very long distances may not make sense.
I would say yes, absolutely, the opportunities are there and we continue. That's what we have actually also exploited. You know, our export was close to zero 10 years ago. Now it's at 21% of the total revenue. This year we expect almost, you know, INR 150 crore-INR 200 crore, maybe almost INR 200 crore of top line to come from exports. We have exploited that. We have taken advantage of that. You know, by proving again and again, it takes time in this kind of industry to prove to the customers that you're a consistent supplier, you know, consistent high quality supplier, and we've done that now.
One of the growth engines I told you has been nitrile latex for gloves, and that's what we are focusing the next 12 to 18 months on. In addition to that, we have, as I mentioned before, even in our current industries, paper, carpet, construction, the demand has been very strong, I would say in the last nine to 12 months. We continue to grow with that as well. In fact, if you see Q3, we are at almost 100% capacity utilization. In fact, we've had to let go of orders for the first time, and unfortunately not be able to take all the orders that we would have liked to take, especially both domestic and exports, in fact. Overall, we feel quite confident.
Okay, sir. Got it. If you can throw some light on new products that you'd launch post the current CapEx, if you are working on a few products.
We are working on a few products. As I mentioned last time, as of now, our focus and what we have announced is the current CapEx for latex products, which is nitrile latex in Valia and a multipurpose latex plant in Taloja, which will include all our current products as well. In addition to that, after that, we also, you know, we only have about 30% or less market share in the NBR business in India, and we are hardly exporting.
We believe that in the long run, even though it's, you know, not a very high growth industry compared to, let's say, nitrile latex or some of the latex products, we believe there is a good opportunity for import substitution, further import substitution in India as well as export into Southeast Asia, Middle East, and Asia. We may double our capacity. At least we have everything ready on paper, and we may do that in 2023, 2024, depending on, you know, the macro environment as well as depending on how the company is doing. That would be our next phase of growth. As far as new products are concerned, yes, we are
I mean, new, completely new ideas that are not in the current sphere, there are a few things we are working on, but as I said, as I mentioned in the last call as well, it would be a little premature for me to talk about it. We're also looking at inorganic growth opportunities, and again, very premature to talk about it till something happens. But obviously all those opportunities are few opportunities and few things in the works that, you know, we will of course mention to the investor and analyst community when we are ready.
Understood, sir. My second question is on ApcoBuild. We understand that you've assigned a separate team for ApcoBuild, and you are cautiously expanding the product. Can you throw some light on how do we stand out in this construction chemical market compared to our peers?
Sure.
What is our market size? Sure.
You know, we don't really worry about market size, market share, and so on as far as that is concerned. You know, we are basically backward integrated, and a lot of our products are being used in the construction chemical space. We have a natural, obviously, cost advantage because we're backward integrated. In addition, we have of course added a few other products to complete a minimum range. We are not necessarily competing with, you know, the large players in the construction chemical industry.
We are trying to capture our downstream margins, which we've done, focus on a few other specialty products that we are outsourcing, that we believe we can add value and which we understand, again, in the polymer and waterproofing space, and repair space that we understand. We're not everything to everyone kind of construction chemical company.
Okay, got it. Sir, given the lower base of revenues currently, what do you think can be our top line next three to five years in ApcoBuild?
You know, we don't give separate numbers for ApcoBuild. It is a small part of our company so far. We believe in the next three to five years, it will become a larger chunk. As and when we feel, you know, it has some critical mass which is worth reporting as a separate segment, we will do that.
Okay, understood. Sir, just one last small suggestion, so that if you can give product-wise volumes and product-wise revenues in quarterly presentation, then that will be great for us also.
You know, as I said before, we would love to be as transparent as possible, but I hope you would appreciate that there are certain things that are competitive, you know, advantages to us and certain proprietary information that we don't want getting out in the market. While obviously it's not the investor community, but a lot of other people also follow our investor conference calls and our data, which we would like to avoid giving this kind of.
No, that's understanding. Yeah.
Thank you very much.
Okay. Thank you so much, sir, and all the best for the coming year.
Thank you.
Thank you. The next question is from the line of Nakshita Mehta from Credent Asset Management. Please go ahead.
Hi, sir. Thank you for the opportunity and congratulations on a good set of numbers.
Thank you.
Yeah. My question is, one, in the expansion project that you're doing, you're doing it, I understand, for nitrile latex, right? How much revenue are you expecting out of it, incremental revenue? And how much incremental EBITDA margin are we targeting?
Look, we are doing two projects. One is mostly nitrile latex in our Gujarat facility, and in Taloja is a multipurpose latex plant. In the beginning for, you know, initially we are looking at a total of additional 60,000 tons, which would give us about INR 500 crore of revenue. As I've mentioned before that, you know, the additional CapEx that will be required for an additional revenue that will come, another INR 300 crore-INR 400 crore will be at a marginal cost.
Okay.
It'll be for about INR 500 crores of revenue once both the plants are fully utilized.
Okay.
As far as EBITDA margin is concerned, obviously, look, EBITDA margins should only improve because the fixed costs, our fixed costs will not increase by that much. We are hoping as we grow the capacity utilization, as we increase the capacity utilization of the new plants, EBITDA margins should only go up.
Okay. Is there any particular number we are targeting for EBITDA margin?
No, as I told you earlier, that in percentage margin varies quite dramatically in our kind of business.
Okay.
We would be satisfied with anywhere between, you know, 12%-18% even is fine, depending on where, you know, oil prices are.
Right.
The most important metric for us is return on capital. As long as we're delivering, you know, a healthy return on capital, you know, EBITDA margins, we're happy to let it vary.
Correct. Okay. All this nitrile latex you are mainly using for gloves, is it?
No, no, nitrile latex is not at all ApcoBuild. That is for the glove industry, medical glove industry.
Okay, gloves. All right. Also my another question is, what would be our EBITDA per ton revenue as a specific number right now presently?
No, I'm sorry, we don't reveal those numbers. Again, as I mentioned, I mean, you would love to be as transparent as possible, but I'll say the same thing I said to the previous caller, that it's, you know, for proprietary reasons, there are certain numbers about volumes, EBITDA per ton.
Okay.
You know, those kinds of things, we've taken a conscious call, and we've done it consistently for years, by the way.
Okay.
Numbers out.
All right. Okay. My next question is on your revenue stream. Which sector would you think, you know? Can you just give us a breakup from where is your major revenue generally say right come from ?
What do you mean by stream, if you can elaborate on that?
No, our sector. Basically the sector. Sir, it goes into paints, also construction chemicals and the synthetic rubber, you know, the paper companies, carpet, gloves, construction, automobiles, et cetera. Where can you just give us a rough breakup as to where is your maximum revenue?
You know, we are actually quite well diversified, I would say. You know, we have a few industries that we are catering to. You know, obviously, like one of the large industries will be paper and paper board, but even that would not be more than 20% of our overall sales. Maybe less than 20%, in fact, now in the current context, 17%, 18%, followed by construction.
Okay.
Which includes construction chemicals and paints. Then followed by, you know, tire industry, carpet.
Right.
Sorry, there's also NBR which goes into several industries, right, which is a lot of rubber industries. That would be another 25% of our sales so.
Correct. Correct.
Yeah. Very well diversified.
Okay. Okay.
We're not dependent on any one major industry. Nothing is more than 20% of our overall sales.
Okay. It's basically well diversified. You know, there's no concentration
No concentration.
Okay. Perfect. Great. Thank you so much. That was it from my side.
Thank you.
Good luck to y'all.
Thank you very much.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, please limit your questions to two per participant. If you have a follow-up question, you may rejoin the queue. The next question is from the line of Farokh Pandole from Avestha Fund Management. Please go ahead.
Yeah, hi. Congratulations on the solid numbers. I just had a couple of questions on the CapEx and I think firstly... Hello?
Yeah, go ahead. Hi, Farokh.
Yeah, hi. Firstly, on the NBR, you know, as you rightly said in response to an earlier question, that both from a macro and a business standpoint, I think things are going pretty positively for the company at this point in time. Why would we not, our balance sheet is very strong, you know, obviously cash flows, et cetera, are favorable. Why would we not accelerate that process in tandem with the existing plan that we have for this year rather than waiting for 2023, 2024, and thereafter the gestation period of putting up the facility, et cetera? Why would we not work on that in tandem and be a little bit more aggressive over here? That was the first part.
The second is if you could just mention the CapEx again, you know, what you had said, the CapEx which has already been announced for this year. I think you mentioned INR 500 crore incremental revenue from that CapEx, and then you also mentioned the further INR 300 crore-INR 400 crore. Is that on a second leg of minimal investment that we could get that incremental? Did I understand that correct?
Yes, that's correct. I'll answer your second question first. Yes, that's correct. Just to clarify that these two projects that we are doing is about INR 180 crore-INR 190 crore of CapEx. Both the projects are on schedule and likely to be, you know, at least for the trials to start sometime towards the end of Q2 and early Q3. For the INR 180 crore of CapEx, we are looking at about INR 500 crore of revenue. In addition, after that, you know, there'll be perhaps an incremental CapEx of. It would be under INR 100 crore. It'll be in two digits. Somewhere within two digits. We haven't worked out the exact number, but intuitively we know it'll be quite good.
We expect another INR 300 crore-INR 400 crore from that incremental. Because, you know, a lot of the civil, the buildings and so on, they already have been created in this first phase.
Right.
Afterwards we just need to add the equipments as and when required. That incremental CapEx could even happen, you know, one by one. It may not even happen at a time. That's something we look at depending on the demand and how things are going.
Obviously time won't be a factor for that as well. As you say, you can do it one by one.
Not as much.
Yeah. Okay.
Not as much. There won't be any. You know, sometimes some of these things have a lead time. Some of the equipment has a lead time of six to eight months, but rest assured about it. I think, you know, like civil, there's no civil jobs and stuff required then. To answer your first question, we are absolutely right, and we've debated it over, you know, whether to be aggressive, we are or not. Frankly, we went through a period of about a year and a half when NBR margins were very low. As you know, we filed for antidumping as well, which
Yeah.
Which the DGTR, in fact, sided with us. Unfortunately, the finance ministry did not. The Ministry of Finance did not notify for various reasons. That's in appeal. We have gone in appeal, and that's in the courts now. We don't know how that will pan out. I would say the last one year has obviously been better. We're also waiting to see, you know, there are obviously overall on the macro side of NBR globally, one of the biggest consumers of NBR globally is the automotive industry, and it's the traditional automotive industry. If there was a huge change towards electric vehicles then there could be an impact of, you know, slow demand while the rest of the, you know, market where NBR is supplied is growing quite well.
If automotive were to come out, come down, there could be a glut of NBR in the market which could result in depressed global margins, you know. Therefore, we were waiting to see also from a just a management bandwidth point of view, which of course is something we could do. And also we need certain environmental permissions which we have already applied for, which should come through this year. Even if we wanted to, we could not start that plant till we receive those environmental permissions which are expected in this year, in 2022. For both two or three reasons, we have just decided to, you know, go a little bit slow on that and just wait and watch to see what happens this year.
Right. Right. You mentioned that you were operating at full capacity.
Yeah.
That you were taking some orders, both export and domestic, in this quarter. Now, for the fourth quarter and for the first quarter of the next fiscal, until such time as the sort of next leg of capacity comes on stream, which I'm presuming will be the second quarter of the next fiscal year. That's the September quarter.
In fact by the time the volumes hit, it will be the third quarter. Yes.
Okay.
Because we like to start commissioning and trials, this will be by the end of Q2 and early Q3. Our Valia plant should be ready first by the end of Q2, and Taloja, the expansion plant will only be early Q3. Obviously by the time the volume, then, you know, obviously with being a new plant, that also takes some time. Even existing customers will want to take a full trial from a new facility before, you know, scaling up. I just wanted to correct that. It's in fact the next three quarters that we have to go to 100% capacity utilization.
Sorry to interrupt. May I request Mr. Farokh to please rejoin the queue? We have participants waiting for their turn.
Oh, it's just the last question.
Let him just finish this question. Yeah. Yeah. Go ahead.
For the next quarters, do we have anything to mitigate this issue of capacity coming up against capacity? Are there any things that we're working on for the next quarters?
Unfortunately, yes, we are. The short answer is yes, we are working on certain things, but also we don't expect any major uptick. We in fact created almost 15% extra capacity over the last couple of quarters and at least over the last couple of months even that has been completely used up very quickly. The demand has been extremely strong. We do expect that in Q2 some of our segments, some of the industries like construction and paper even to some extent because of the monsoons, so demand does come up.
In that case, you know, we will take more export orders. You're right, in terms of financials, of course, in terms of volumes, I would say there isn't much room for significant growth over the next three quarters.
Got it. Thanks. Thank you very much.
Of course, compared to Q1 of last year and compared to Q2, we would grow because of, you know.
Yes.
We didn't have those capacities then.
That's right.
Compared to, I would say, Q4 would be somewhere at the max levels if Q4 goes well.
Sure.
Q1 and Q2 would be, I would say, similar to Q4, maybe a little bit. We're trying to do small things and tweaks to, you know, get as much out of the plant as possible.
Understood. Great. Thanks a lot, and all the best.
Thank you very much, sir.
Thank you. The next question is from the line of Nikhil from Perpetual Investment Advisors. Please go ahead.
Hi, Abhiraj and team. Congrats on a great quarter again.
Thank you.
My first question is about this quarter. Q1, Q2, while the sales is more or less the same, our gross profit has gone from almost INR 70 crore to INR 88 crore. At least as per my estimate, the EBITDA should have been higher. What caused this significant growth in other expenses? Could you help us understand that?
Yeah. You know, look, there are a few things that have come about. One is, and I'll have to go and look at the numbers, but obviously, you know, because of COVID last year, there were no increments. Obviously, the employee costs have gone up because we had to give reasonable increments this year. If you look at quarter three of this year against quarter three of last year, so obviously the overall employee costs have added to the team size. The team size has gone up, so overall employee cost has gone up. In addition to that, because there's been a few good quarters, we've also taken up. Frankly, last year, you know, because of COVID, for two reasons.
One is because of COVID, you know, we couldn't get a lot of contractors into our plant, so we didn't want to go get a lot of contractors. I'm talking about 2021. A lot of repair jobs, you know, and maintenance jobs were held up, which we have really taken up in Q3, Q2, Q3, and going forward also for the next one or two quarters before the monsoons. Those are the only two reasons that I can think of. Other than that, you know, as I said, we look at EBITDA per ton versus EBITDA margin, and we're quite happy. EBITDA per ton has actually gone up for us. I know we don't give those numbers out, but EBITDA per ton is about 15%, 20%, so we're quite happy with that.
No, because, there's no one-time expense in these other expenses in this quarter, is what I actually meant to ask you. Apart from, I think you have higher-
These are regular expenses. These are not one time, but these are regular expenses. As I said, sometimes I was just giving you an example of certain repair works, painting works, you know, that are significant, but we couldn't do in the previous year, which we have taken up after the monsoons of this year. That may have been to some extent, but.
Okay. Because then, in that case, see, broadly, I think that NBR is probably doing pretty much well for you now. Since your spending was down almost 50% in last quarter, so there should have been a margin expansion which has already happened. Why when?
No, our raw material goes down does not automatically mean margin expansion happens because we are also forced to pass along the costs.
You must have taken a price decline in your end product also.
In fact, Q3 compared to Q2, our value growth has only been 3%, but our volume growth has been, you know, more than double that. We've actually had to, you know, give some decline to our customers as well. Some of it was on formula pricing. We do some of it on annual contracts on formula pricing.
If you continue Q4 at the same rate, would other expenses be the same in Q4 and Q1, and so on?
I think so. Yeah, one more thing I must mention. Sorry, there's one more reason for other expenses. I'm glad you mentioned, you brought it up. You know, for one of our plants we run on thermal power plants. You know, and also the boilers, backup boilers run on gas. Both gas and coal costs have gone up significantly. That also plays a part in other expenses.
Okay. Are they normalizing now or no? That's why they are like.
I would say they have reduced in the last month or two, but not what they were, about a year ago, for sure. That's something we've had to absorb.
Got it. Would that be double of what you usually do?
Specifically, the coal costs were more than double of, let's say, a year ago.
Okay. After debottlenecking, can you tell us what is the capacity for Apcotex now? I think it was 65,000 tons before debottlenecking, and can we assume it to be 63,000?
Yeah, it's about 60, 62. We're on the run rate of about 60+. Yeah.
Okay. You already mentioned about the stock, so nothing on that.
60+. I just want to mention when we mention capacity, obviously, look, we have many products, and depending on the cycle times, if you were to only manufacture products with lower cycle time, you could even go up to 70, you know, 70. Sometimes we take a conscious thought. We want to be, you know, across the board in several segments and several industries and several customers. Currently at 60, 62.
Understood. One last question is what was the split between rubber and latex in the last quarter?
I don't have the exact. Sachin, I'll just request one of my colleagues to answer that. Sachin, Suraj, do you have that number? It's in one of the Excel sheets if you can look it up. I think it's about 55%, 56% latex and 45% rubber. It's been about the same for the last few quarters.
Okay. No problem. All the best going forward.
Thank you. Thank you very much.
Thank you. The next question is from the line of Rohit Sinha from Sunidhi Securities. Please go ahead.
Yeah. Thank you for taking my question. Congratulations for good set of numbers. Most of my questions are already asked. Just a few things. I mean, when we are talking that volume growth has been close to around 20%, this quarter, where we have seen maximum traction or it is across the segment. Secondly, I mean, if we say 20% volume growth was there, and obviously we are almost full of capacity. Next quarter since prices have been, what I feel is that, the price increase which has happened in the commodity prices and the price realization what we have been taking, maybe still something is pending, which could reflect maybe in Q4 or Q1.
I'm just assuming that maybe volume growth would not be that significant, from the Q3 levels. Still there is a room for, realization improvement. These two questions are from my side.
Yeah. Look, the volume growth, as I mentioned, that most of the bottlenecking projects were completed in Q2 and Q3. So Q4, of course, we would have a little bit more headroom for volume growth, not significantly more, but a little bit more. As I mentioned to one of the previous callers that Q4 onwards, maybe for another two quarters, you know, we may not have headroom for volume growth. Exactly what you said is right, that we obviously, you know, depending on customer mix, product mix, some amount of headroom for margin growth as well, because we are running at 100% capacity utilization because the demand cycle is quite strong. Obviously, we will try and do that.
In terms of profitability and bottom line, we hope to improve on Q3 numbers going forward.
Okay. About that growth, this volume growth, where we have seen maximum traction or, is it?
You know, frankly, across the board. We are seeing domestic, international, whether it's paper, paperboard, construction, textiles, carpet, it's really, you know, almost across the board. Of course, medical gloves, right now obviously the demand is high and whatever we can manufacture from our current plants, we're supplying. The one place where we don't see great amount of volume growth is the automotive industry, where we are supplying NBR to. But the rest of our industries where we are supplying NBR to in our industrial components, hoses, all kinds of other agriculture products, there we are seeing good growth except automotive, which obviously, you know, for our mainly because of the chip shortage, I would say most automotive companies have not been able to.
That's been the only one point where there has not been much growth. Again, there we are running at 100% capacity utilization. If there was growth, we're not able to give any more NBR.
Okay. Fair enough. Just one last question on the balance sheet side. I mean, looking at the CapEx which we are looking at, I mean, how are the balance sheet be looking like? The cash positioning and the debt position will be?
Yeah. Look, as on March 31st of last year, we hardly had any loans. I don't think maybe a little bit working capital loan and one small term loan was there. Obviously, we will be taking or we have already taken some debt for CapEx. The entire CapEx will be funded from these two years cash flow, which is FY 2022 and FY 2023, along with you know some more debt that would be needed for the CapEx, which we hope to repay it back shortly thereafter.
I mean, overall, what sort of debt number would be there for FY 2023, maybe?
Maybe close to around INR 100 crores debt.
Okay. I mean, not more than INR 150 crore, I mean INR 100 crore-INR 150 crore.
Yeah. INR 100 crore term loan is what we expect to utilize.
Okay. That's it from my side. Thank you.
Thank you. Thank you very much.
Thank you. The next question is from the line of Manav Vijay from Deep Financial. Please go ahead.
Yes. Thank you for the opportunity, Abhiraj . First of all, my first question is actually a slightly broad question. We have been hearing that some of the logistics issues. First of all, since you import and export a lot, if you can help us to explain as to as far the logistics costs are concerned, the container availability, the debottlenecks that were there with, I would say, with China. All those issues are still persisting or there is some respite on those issues? Because many companies have been mentioning that it is not the demand which is fueling the inflation. It is these debottlenecks with the supply side due to which inflation is higher than normal.
Yeah, you know, that could be the case in terms of inflation. I don't know. There are multiple reasons for inflation. That's not the only reason. I would not say that's the only reason. As far as the company is concerned, you know, I think I would say the issue of supply chain was at its peak in Q2 in terms of, you know, a lot of problems that we had to get raw materials. We were fortunate that we didn't have any major issues. We did have some delays, we did have some shortages, but we were able to overcome them. One of the things we have done is, of course, increased inventories. Obviously not the most financially prudent thing to do, increasing inventories.
In the current context of where the world is with so many uncertainties, you know, with a lot of dependence from China, direct or indirect. Even if you're not directly importing from China, certain critical raw materials, you know, our vendors' raw materials can come from China. Because of that, we have taken a strategic call to increase all our inventories of some critical imported raw materials especially. We have seen in general, while there have been delays, obviously shipping rates have gone up substantially, it's not led to major issues in terms of our supply chain and our production.
Okay. Okay, this is useful. My second question is, as far as nitrile latex is concerned, so apart from Top Glove, have you signed up with other manufacturers as well?
Yes, of course. We have many customers. There was just one or two that we had mentioned in our presentation because they're well-known customers. The other problem that we have is a lot of other customers are telling us that, "Look, you don't have the capacity now. Why would we go through the whole process? And, you know, you won't be able to give us anything for another nine months. So why don't you come to us closer to the date, and then we will go through the process." But a lot of them we have done lab trials and whatever we could, but unfortunately, we're not able to give bulk quantities because we just don't have the capacity today.
Okay, sir.
At the expense of our current customers, which also we don't want to do. It's not a good idea.
Correct. Agree. In that case, Abhiraj, since we will have the capacity available, let's say by quarter three, and we will be done with all the trials as well. Would it be a safe assumption to believe that in FY 2024, you can run the plant at full capacity and you can generate INR 500 crore of top line from that, from both the plants put together?
You know, I've mentioned in one of the previous calls that, you know, the safe assumption would be at least six months to scale up. I would say it's not INR 500 crore. We should be able to do at least, you know, 70%, 75%, 80% of that in FY 2024, assuming that we take, you know, six months from November to scale up. It may take April, May to scale up. It could be even a little bit longer than that.
Okay.
You know, the quality issue, it's not only about the quality and the volume, but it's also about supply chain and getting that right. We would have never done these kinds of volumes and supply chain. While we are working through it and preparing for it, you know, when it actually comes to executing it, we know through experience that there are issues. You know, there can be unforeseen issues that do come up. I would say 16, 12 months is what I'd mentioned in one of our previous calls. We will hope six months. It could be as high as 12 months to completely scale up.
Sure.
I don't think the entire INR 500 crores in FY 2024, but we do hope a large majority of that would happen in FY 2024.
Sure. Okay. Now, Abhiraj, since Top Glove is actually listed and they also declare results every quarterly. They have detailed out even their expansion plan in terms of doubling the capacity from almost 100 billion pieces to 200 billion pieces over the next four years. Whatever will be their requirement, let's assume for a second that Top Glove will be your own wholesale buyer. At, let's say, 200 billion pieces, how much percentage of their raw material you would be supplying at your max capacity?
Look, you know, I would say I don't have the exact calculation with me, and I don't wanna talk about one specific customer, et cetera. One thing I can say for sure that even today, even with our total capacity that is coming up, it will not be enough for two or three of the largest glove manufacturers. Their consumption is already more than what we can supply for each of them, one of them.
Okay. Let me ask you slightly differently. You will have a 40,000 ton capacity and if you decide to-
No. Both put together, 60,000 tons.
Okay, 60,000. 60,000 including the second order of expansion as well, am I right?
No, this is in our first phase between Valia and Taloja. We'll have about 50,000 in Valia and 10,000 in Taloja.
Okay.
Whether or not we use the Taloja capacity to supply to the glove industry or our current, some other product, that is a decision we will take later on. At least as of now, 50,000 has been earmarked for the glove industry.
Fair enough. On 50,000 tons you will add around 50% as well. At around 75 or even at 85,000 tons, how much of the total industry capacity you will have? 5%, 7%, 10%?
No, not even 5%.
Not even 5%.
Yeah, not even 5%. I'm talking about global-
Correct.
Global capacities. Some of the large players in this industry are much larger than us, and they are also adding capacity. As you know, the glove industry is growing, nitrile latex industry is growing, so I mean, I don't even think 5%.
Sure. Okay. Now, Abhiraj, in last almost I would say 18 months, your Top Glove which used to do around 15%, 16%, 17% of margins went up to 63%. It has again come down. Now, because of this wild movement of margins, the pricing that you get from them or I would say even from other players, is that pricing is also under pressure or no?
Look, when we initially made a decision to get into the nitrile latex market, there was no COVID. This was since back in 2016, 2017 when we started developing it. Obviously during 2020 and the first half of 2021, you know, glove availability and glove demand and therefore glove prices, whether it's natural gloves or nitrile gloves, were at historic highs. Therefore obviously the players that were in the nitrile latex market also got good margins. Now, the margins I would say have normalized. They are not under pressure, but they have normalized than what they were earlier.
Correct.
Than what they were for the year and a half.
Yeah.
All our projections have been based on normal margins.
Okay.
Our returns have been made for normal margins. They are obviously not as great as they were six months or a year ago because, you know, demand has come off now for gloves in general. There's also a lot of inventory and so on, so. But that's fine. That, you know, every industry, whether it's carpet, tires, paper, they all go through their ups and downs in demand cycle.
Correct. Abhiraj, in this XNB latex, what kind of working capital requirement will be there? Because in your existing business you have around. You're generally between 30 to 45 days kind of a number. This would be the similar number even for the expansion or it'll be slightly higher?
There was a little breaking in between. I'm not sure if I caught. Yeah.
I'm saying in terms of working capital for this project. As of now, the working capital that you have ranges between 30 to 45 days. Even for this expansion you will have that kind of working capital cycle or it will be slightly different?
No, it'll be similar. It will be quite similar.
Okay. Last question from me. On your investment portfolio, have you booked any profits or not?
Yes. From time to time we do book profits. As I mentioned before that all this is managed by outside financial wealth advisors and they do book profits from time to time as and when they feel it's right. Of course they keep us. We have a, you know, almost a monthly call with them and we take calls. Yes.
Sure. Okay. Thank you and all the best.
Thank you very much.
Thank you. Participants are requested to please submit their questions to the participants. If you have a follow-up question, you may rejoin the queue. The next question is from the line of Alisha Mahawla from Envision Capital. Please go ahead.
Hi, sir. Good afternoon, and thank you for taking my question. My first question is it possible for you to call out what has been the volume growth QonQ?
It's been about 20%.
It has been 20%?
Yes. Volume growth quarter in Q3 of this year compared to Q3 of last year.
No.
Is that what you meant?
No. Q2 versus Q3.
Okay. It's about 6%.
6%.
Yeah.
Okay. Can you also mention what will be the peak revenue with once the additional capacity comes on stream, excluding all the pricing, the high realization which we are, you know, currently witnessing, like you mentioned, nine months or almost 30%-40%. If we exclude all that with the capacity and new capacity that comes in in H1 of 2023, what will be the peak revenue?
You know, frankly I've never.
Is that-
I don't know what is high and low. We've had higher back in 2011. I mean, if somebody could argue 2021 was the lowest, then it's never going to come back again because of COVID. I would say there is no high or low. It's what it is. We've been wrong before on what's high and low. But assuming at these levels, you know, which is let's say we are already at a run rate of INR 250 crores from our current facilities or current plants, which means we are already at a run rate of about INR 1,000 crores, which will add another INR 500 crores at the minimum.
As I mentioned that we will have, you know, created enough capacity to go up by another INR 300 crores, INR 400 crores. For which there will be additional investments. We think at the peak we can do INR 1,500 crores, INR 1,600 crores, as much as INR 2,000 crores, you know, once we do the second phase of expansion.
Okay, sure. Just one last question. In India, what is the split between auto and non-auto?
Typically, India auto is about 25%, 25%-30%. Maybe 25%, not 30%. 25%-27% of the total NBR consumption in India is auto. Globally, I think that's higher. The number is higher. Globally the number may be about 40%, maybe more.
Okay. Thank you.
We are largely in the India market, so far.
Okay.
For India.
It's up 30% of the NBR revenue.
Yeah.
Okay. Thank you.
Thank you. The next question is from the line of Keval Ashar from DSP Mutual Fund. Please go ahead.
Thank you for taking a follow-up question of mine. Sir, since we are expanding into export markets, wanted to know where there is presence of much larger players, what is the edge that we have over them?
You know, there are multiple things. There are two, three things. One of the things is obviously with the technology with which we are manufacturing is a bit different from what they're doing. We believe there are certain inherent advantages that we do have. Second is, you know, as I mentioned that export markets, yeah, I mean, if you go to export to, let's say, America or South America, North America, South America, I would say we're at a disadvantage because of the freight costs and so on.
At least Southeast Asia and Middle East, we feel that we are fairly competitive with the raw material costs. Some of our raw materials are available very close to our plants. The others are imported, but again, available close at very reasonable rates from the Middle East, Saudi, Kuwait, et cetera. The technical service, the customization that we provide versus some of the large players in the past has really been our competitive strength and advantage and helped us gain market share. We think we'll continue that path. Having said that, not to say that we can do away with our competition. They also have certain advantages. They have scale.
They have the depth that, you know, we have to build over time. But certainly we feel confident that we can at least compete with them in the market, both from a cost perspective, quality perspective, and service perspective.
Okay. Got it. One more question is on the raw material side. We import majority of our raw materials. Do you see any Indian companies in coming times doing CapEx in styrene and butadiene? If you have any insight on that.
You know, as far as butadiene is concerned, there is already an excess of butadiene in the country. There have been a few projects announced, but I don't know how far they are in terms of execution. Styrene also there have been a couple of projects announced, but I'm not quite sure on the execution.
However, as far as styrene is concerned, it's easily available from various sources in East Asia as well as the Middle East. We feel quite comfortable being in Mumbai, which is close, or Gujarat, both with the butadiene, both in Maharashtra and Gujarat, sometimes, you know, the freight costs are cheaper coming in from Saudi or Kuwait or U.A.E. compared to bringing it from Delhi or the east, or from the north or the east or down there, you know. We are okay with it.
Okay. Got it. Thanks, sir.
Thanks.
Thank you. The next question is from the line of Karan Bhatelia from Asian Markets Securities. Please go ahead.
Thank you for the opportunity. Sir, two questions from my end. One with respect to CapEx spends for the current year and for next two years. When you mentioned with respect to the asset turns on the ex-NBR business, you know, can you guide us with respect to the asset turn on the NBR business and the non-NBR business?
Sorry, just let me repeat the question. Your first question is on CapEx or-
CapEx.
What was the first question again?
CapEx for the current year and for next two years.
Current year, I mean, I would say between FY 2022 and FY 2023, we are looking at about INR 225 crore. The large chunk of it would be these two expansion projects. We are also implementing a zero liquid discharge facility in our Valia factory, which you know, for several reasons, one is obviously environmentally. Main reason being the environmental reason. Talking about between INR 200 crore and INR 250 crore over the next, this financial year and next financial year. Beyond that is something we are not sure of yet. We will make that decision over there.
Right. We are in-
Your second question was?
Factoring in.
Sorry. Hello.
Yeah. We aren't still factoring in, you know, NBR CapEx at least by next year?
NBR CapEx, we are not factoring in this INR 200 crore, INR 225 crore, as I said. In the following year, 2023, 2024, we'll probably look at NBR CapEx. We will see, depending on how this year goes. As far as asset turn is concerned, as I mentioned, you know, we're looking at INR 180 crore right now for these two projects, which will give us a turnover of INR 500 crore. That works out to be an asset turn of, I don't know, less than three, I guess. As I said, we are or about three, I think it will be.
Right. Right.
Over time, the future CapEx after that will be at an asset turn of maybe 8, 7, 8, you know, I'm not sure. Average maybe 4 or 5.
My question was, while you shared the NBR asset turn, can we expect the NBR business to be of a, you know, superior asset turn to this or maybe at a lower asset turn to this?
Lower. NBR business will be at a lower asset turn.
Right, right.
The investment will be as much and the value of the revenue will be lower. Therefore, I mean, we'll see. Therefore, you know, the hesitancy on whether to do this project, whether to utilize the funds for doing something else, it's not as compelling a case so far, but we may still go ahead and do it because it may be a good opportunity in any way. We'll see how the next following year goes and then take a call.
It all depends on the antidumping duties or, you know, something else. It depends.
No, not at all. No, you cannot put up a project based on, you know, government interventions. No, not at all. We would take a long-term call based on what we feel is going on with the market growth, how EVs are factored in, how the auto industry worldwide is affecting the NBR business worldwide. We've had one competitor already announce that they are going to leave this business. If that happens, that may, you know, significantly improve competitiveness in the market for the players who are already there. They've announced it, but they have not yet executed.
Executed.
They have announced their intention.
Right.
Exit the business.
Right.
We'll see.
Right. All right. On the NBR business, you know, are we back to the historic, you know, realization and historic market or we are far from there?
You know, I don't wanna comment specifically because this matter subject is. It's in the courts, you know.
Okay.
I'd rather not just discuss NBR.
Okay.
Specifically margins and so on.
Okay. Thank you. Thank you for the detailed answer. That's it from my end.
Thank you.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.
Thank you all for joining us on this Q3 conference call with Apcotex Industries Ltd. We appreciate your time, and we hope that you stay safe in these difficult times, and you and your families, you know, are safe. We look forward to seeing you in the Q4 conference call in next quarter. Thank you very much.
Thank you. On behalf of Apcotex Industries Ltd, that concludes this conference. Thank you for joining us. You may now disconnect your lines.
Okay. Thank you.