Good morning, ladies and gentlemen. Welcome to the Q2 FY23 earnings conference call of Apcotex Industries Limited. 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 then 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, Mr. Sonpal.
Thank you. Good morning, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the investor relations of Apcotex Industries Limited. On behalf of the company, I'd like to thank you all for participating in the company's earnings call for the second quarter and first half of financial year 2023. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings 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 call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now let me introduce you to the management participating in the earnings call today. We have with us Mr. Abhiraj Choksey, Managing Director, Mr. Sachin Karwa, Chief Financial Officer, and Mr. Anand Kumashi, Company Secretary. Without any further delay, I request Mr. Sachin Karwa to start with his opening remarks. Thank you, and over to you, sir.
Thank you, Anuj. Good morning and welcome everyone to this earnings conference call for the second quarter and half year ended of financial year 2023. Along with me in today's earnings call, I have our Managing Director, Abhiraj Choksey, and Mr. Anand Kumashi, the Company Secretary. I hope you had an opportunity to review the financial statements and earnings presentations which have been circulated and uploaded on the website under topic pages. To brief you on the financial performance of the second quarter of the financial year 2023, we had a strong growth on year-over-year basis. In Q2 FY23, the revenue from operations grew by 16% on year-over-year basis to INR 280 crores. The EBITDA grew by 44% on year-over-year basis at around INR 45 crores, with EBITDA margin improving at 16.96%.
The net profit grew by 39% on year-over-year basis to INR 37 crore, and PAT margins were 10.88%. For the H1 FY23, the revenue from operation grew by 38% on year-over-year basis to around INR 590 crore, while EBITDA grew by more than 64% to around INR 94 crore, with EBITDA margins of 15.89%. The net profit also grew by 46% to around INR 64 crore, with PAT margins of 10.90%. We witnessed balanced growth in first half across all the industries and product groups. We continue to run at nearly 100% capacity utilization. On the projects front, both projects in Valia and Taloja are expected to be completed in Q3 of financial year 2022-23.
Also happy to inform you that the company received the prestigious Forbes Asia recognition of Best Under a Billion company for 2022-2023. We are one of 200 companies from all over Asia. With this, I would like to open the call for question and answer session.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the questions assemble. The first question is from the line of Amar Maurya from AlfAccurate Advisors. Please go ahead.
Yeah. Thanks a lot for the opportunity and congratulations for a very good set of numbers. Couple of questions from my side. Number one is, if you can highlight what would be the kind of volume growth you would have seen in this particular quarter. And secondly, in terms of the latex capacity which is coming in Valia, that is for gloves. I mean, how, when it is likely to come? Is it likely to come at the end of the quarter? And what kind of ramp up you are seeing, you know, because this is the product which is largely going to be used into gloves. So do we got the approval or, you know, how much time it will take once the facility comes? If you can throw some light on that.
What is the overall world capacity and, you know, what is the world dynamics pre-COVID, post-COVID? Any demand letdown, something like that?
Hello?
Hello. Yeah. Can you hear me?
Yes, sir. You may please proceed.
Okay. Amar, thank you for your question, questions. One is on the volume growth. We've seen, as we have been mentioning for the last many quarters, that we've been running at almost full capacity utilization
Compared to the same period quarter last year, it's been about a 5%-6% volume growth. In terms of value, of course, it's a 16% value or revenue growth for the quarter.
Okay.
As far as the ramp-up is concerned, as you know, I'll take your third question first about the glove facility, glove market. Overall, the gloves market, as you can imagine, that after the sort of extremely high of 2020 and 2021 for this industry, for the gloves industry, where there was a lot of demand and a lot of production.
Sure.
In the last few months, we have the glove industry is going through a deep downturn. If you read anywhere about the glove industry and some of the top glove manufacturers, they're all going through a difficult period right now.
Sure.
There's no question about that. Mainly because a lot of inventory was created in 2020 and 2021. A lot of capacities were quickly added, you know, starting from FY or calendar year 2020 and then getting into 2021. I think there was a lot of excess production all the way through to 2022, you know, middle of 2022. Because Omicron variant was still fairly widespread in the early part of the year. What we've seen in the last few months is that the glove industry is going through the deepest downturn that they've seen in many, many years. It is definitely a challenging time for the industry and therefore a challenging time for the raw material players also like us who are coming into the market.
Well, we have been in the market for the last 2-3 years, and we're coming with extra capacity. Of course, from what we heard, all the additional capacity that was planned has all been kept on hold, both on the latex side as well as on the glove side. Of course, companies like us that were already in advanced stages of sort of putting up the project, we will be going ahead and completing our project, but a lot of our competitors have put their expansion plans on hold. That's a little bit about the glove market.
Sure.
To answer your second question, you know, obviously the ramp-up that we expected even 3-6 months ago was, you know, that we would be able to easily ramp up within 6 months to a year, which is the indication that I gave. We are still aiming to do that within the first year that, you know, we would be able to ramp it up. Given the current scenario where demand is extremely muted, obviously the pull from the market is much weaker than it was a few months ago. That it may take us a little longer. More importantly, the margins that we expected in the first year are also going looks like they would be much lower than what we had anticipated. It's in fact lower than pre-COVID margins as well.
However, I must add that, look, in the long run, we still believe that this is a great business to be in. It's growing at double digits worldwide across the world. While there has been a dip, obviously in the last few months because of over manufacturing or a lot of production that happened, we feel in the long run, of course, it's still a good business and we'll be one of so few Nitrile Latex manufacturers. The glove industry is also not easy to crack. You know, you need a lot of economies of scale, which some of our customers have. Yeah, I mean, it's definitely a challenging time to come into the market. There's no question about it. I mean, that's just the glove industry.
In general, the macroeconomic environment in the world is going to be challenging as well from the looks of it in the next six months. That's fine. That as far as the glove industry is concerned and our project in Valia. As you know, the project in Taloja, which is a more swing capacity, there, you know, now we are going to focus on manufacturing some of our earlier products, Styrene Butadiene Latex, because we believe in the next one year the glove industry is going to go through a tough time. The silver lining is, of course, the Styrene Butadiene Latex market has been extremely strong, whether it's in construction, carpets, paper, and again, there we feel that, you know, we will have some extra volume.
Earlier, I had mentioned that totally 60,000 tons between both these projects.
Mm-hmm.
We are still working through the details. Because Styrene Butadiene Latex, the cycle times are lower, we'll be able to manufacture more products from our Taloja plant, which we had earlier envisioned for 10,000 tons of Nitrile Latex. Instead, we would be able to do much more of Styrene Butadiene Latex. The exact numbers I will come back to you in a few, maybe in a few months. We're working through that. Fortunately, that plant is completely flexible to make any kind of latex.
Okay.
I hope that answers your question.
Okay. Sir, like, you know, just to harp little bit more on this, the gloves part of the business, which, you know, is going through some, you know, problem or issues at this point of time. Given that our facility, what we are putting in, do we see that even to sell that kind of capacity will also be a challenge or?
No, we don't expect it to be a challenge because it's 60,000 tons is a very small capacity compared. I mean, pre-COVID levels, you know, entire Nitrile Latex production or consumption in the world was around 2 million tons.
Oh.
You know, it's a very small capacity compared to the entire glove or entire world production.
Okay.
Of course, most of the world production is around Southeast Asia and East Asia, I would say 90%, 95% of it. We as a South Asian player, we do have enough opportunities in the South Asian region and Southeast Asian region. As I said, the volume is not so much of a challenge. It may take us a few more months to ramp up because the pull in the market is a little less. You know, who knows, the market may turn in about 6 months as well, 3-6 months. We're not sure. The volume is not an issue. Currently, the margins are definitely affected because of the pull in the market and overall downturn.
Let's say margin would have been impacted likely, you know, earlier margin versus what the prevailing margin would be something around 200-300 basis points impact?
You know, when we look at margins, it's contribution margins, and I think the contribution margins, I mean, the impact will be much more. In terms of EBITDA margins, yes, also more. You know we are still looking. Our main purpose is, I mean, obviously the main figure that we look at is return on capital. While earlier we were, as I mentioned earlier, that we always look at a minimum of 20%-25% return on capital. We still feel, and we have done the reworking of all our numbers, that we feel that even given the downturn that we see right now, we think 20%-25% is doable over the next sort of if you look at an ROCE of five years in.
Okay. Got that. Fine, sir, I'll come back in queue.
Thank you. Thank you, Amar Maurya. Bye.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all participants in this conference, we request you to limit your questions to two per participant only. The next question is from the line of Aditya Khetan from SMIFS Limited. Please go ahead.
Yeah, thank you, sir, for the opportunity. My first
Mr. Khetan, your audio is breaking up.
Ma'am, is this okay now?
Yes, sir. Please go ahead.
Yes. My first question was that, in H1 we had made around 16% EBITDA margin. Any sense in the second half considering the rising raw material prices? Any sense on the margin front so we would make around 16%-17% or it will be more like?
You know, Aditya, I'm sorry if I, your voice is not very clear, but if I heard you right, I think you're asking about EBITDA margins over the next second half of the year. Yes, first half of the year, EBITDA margins have been around 16%. As I've mentioned before that, look, quarter on quarter in our kind of business, it's very hard to sort of predict EBITDA margins. Certainly the next few months seem to be more difficult for various reasons. I'll list out 3 or 4 reasons because I'm sure a lot of the other callers also have similar questions on sort of how we're looking at the market going forward. One is some of the tailwinds that we had.
You know, for example, one of the tailwinds that we had is at the higher cost of freight for import competition. As you know, about 40-45% of our product range, we don't have any manufacturer in India that we compete with, so a lot of the competition is import. Now, over the last two years, year and a half or so, we had been protected. I would not say protected is the wrong one, but we had an advantage where freight, shipping freight rates had gone up. Obviously, those are correcting. They're still not down to pre-COVID levels, but they're down, you know, by down by 50-60% from their highs at least. So those are slowly returning to normalcy. So that sort of benefit that we had for a few quarters may not be there going forward.
In addition to that, you know, inventory, the raw material prices ever since the first wave of COVID have, you know, obviously kept going up, once oil hit rock bottom and then kept going up. Now we're seeing that turning in the last, I would say, month or two, where some of our key raw materials, the prices are coming off, and in recent weeks it's quite a steep crash. Even though oil has not generally dropped, but because of the overall macroeconomic environment and the demand situation worldwide, some of these commodities, petrochemicals that we buy, they've crashed quite quickly.
Obviously there is gonna be a short-term, you know, pain as well for us because of some of the supply chain issues we had stocked up on inventory and on raw material inventory, and we had increased our inventory there. Obviously now we're obviously stuck with some higher cost inventory, and that's gonna play out in the next few quarters. I would say, look, we will still endeavor to maximize margins, but there can be some quarters where margins are lower. Very hard to predict given where we are today at the beginning of the third quarter. Yeah, that's what I would say. Overall, of course, as you know, there's a macroeconomic, you know, global recession or, you know, in Europe and probably in America, high interest rates, the war, China slowing down.
All these have obviously depressed market sentiments. People are waiting and watching. People, I mean customers are waiting and watching. They don't want to produce more than they need to, therefore they're not buying as much that they, you know, that they normally would have. There is obviously challenges in pockets of our business, and so it's very hard to predict what will happen in the next six months.
Okay. Sir, quarter-over-quarter.
Sorry to interrupt, Mr. Khetan. Sir, we are not able to hear you clearly.
Hello? Now is it audible now?
Go ahead.
Yes. Please proceed.
Second question on quarter-on-quarter, sir, we are witnessing a dip of almost 8% in revenue. This is largely because of the realization front only, we can assume because there is a slowdown, as you mentioned, in inventory builds also.
Yeah.
So quarter on quarter it is-
That's right. Mostly on the realization fronts. Volume has been largely lower, I mean, it's a little bit lower, but that is more. As I said, we are, even in Q2 we were almost at 100% capacity utilization. There were some Q2 in general, you know, for us, because of the monsoon season, couple of our industries like, carpet in manufacturing in India or the footwear, that is a little slower. I would say the volume has been a marginal dip, but largely because of realizations coming off. Yes.
Okay, okay.
I think we can expect that further in Q3, the realization coming off.
Got it. Sir, capacity now
I think, Mr. Khetan, maybe request that you return to the question.
Just one last question, please.
Sure, go ahead.
Sir, on to the capacity for the gloves side. Just wanted to know, is this capacity flexible and can be used for other set of latex also or is it only used for gloves only?
The ones that we have, as I mentioned again, we have done two projects in the last year we've invested in, both coming on stream very soon. The sort of commissioning of both these projects will start in the next month to a month and a half. The project in our Gujarat facility is only for gloves, and the project in our Taloja manufacturing unit is a swing we could make many other latexes.
As of now, given the current situation in the gloves market, the current thinking is that we would first utilize our Valia capacity for the glove industry and for the Taloja new plant, we would focus on our other products that we already have for styrene butadiene, styrene acrylic latexes for paper, carpet and such.
This capacity of 65,000 metric tons, how much would be gloves and how much would be the SBR latex into this?
Earlier, it was 60,000 tons is what we were looking at. Obviously now, as I mentioned to the earlier caller, what the 50,000 tons is in Valia, which will be only for gloves, and the 10,000 tons in Taloja will be converted to Styrene Butadiene Latex, which will definitely be more than gloves. Exact number, I'll come back to you in a few months. That we would be focusing on Styrene Butadiene Latex for the next few quarters anyway. Because we are running at full capacity and there seems to be, you know, higher demand for those products currently.
Sure, sir. Thank you, sir.
Thank you. The next question is from the line of Karan Patelia from Asian Markets Securities. Please go ahead.
Hi, good morning, team. Thank you for the opportunity. Sir, while you did mention that volumes were kind of flat QOQ, plus raw materials prices started to correct. How were you able to manage the EBITDA margins? You know, 16% is quite a, you know, impressive numbers. How did we, you know, arrive at such better margins?
Look, no, I mean, we held on to our EBITDA margin numbers. As I said, if you see our overall profit before tax or overall EBITDA is a little lower than Q1, because of this correction. Overall, yes, we were able to sort of manage our cost and manage, you know, Q2 numbers at about 16% EBITDA margin, which is the same as Q1. That has been our endeavor, you know, around this, you know, mid-teens number.
Right. I also wanted to understand, you know, given the global challenges, you know, any strategic changes in the raw material sourcing because still, you know, bulk of our, you know, raw material is imported. Any changes, you know, as of now more focused on India sourcing or something of that sort?
Yeah, absolutely. Look, Unfortunately, as far as some of our major raw materials go, I'll give you an example of styrene is one major raw material that we consume. Unfortunately, there's no Indian manufacturer until the petrochemical complex comes up with that product. I believe there has been one announced recently which will come on stream in a couple of years. Those kinds of products we can't do anything about unless those petrochemicals are available in India, so we have to rely on imports. As far as other, you know, smaller raw materials, what we call B and C class raw materials, there's been a huge push from us for the last couple of years, in fact, you know, to de-risk from imports. Earlier, you know, the de-risking was from China. Everyone was saying China plus one.
What people don't realize is even Europe has a lot of specialty chemical manufacturing only available in Europe, and they may be small quantities for us, but high risk for us in case. Currently in the current context, Europe has also become high risk, given the war situation. Yes, we have a huge push, and we have been successful in quite a few raw materials of developing and working with suppliers to develop indigenous sourcing.
Right. As of now, bulk of it comes from Japan, Taiwan, or just can you like throw some light on-
No, I mean, look, I mean, as I said, we have many different raw materials from some of our A class raw materials. Like, I just give you an example of styrene that largely comes from Middle East and Southeast Asia. Another raw material comes from, you know, Europe, East Asia, acrylonitrile, all over the place. Yeah, I mean, we don't have a specific sort of geography. We import from everywhere, you know.
Great. I have two more questions. I'll follow up in the Q. Thank you so much for the answer.
Thank you.
Thank you. The next question is from the line of Farooque Pandolage from Avista Fund Management LLP. Please go ahead.
Hi, Abhiraj. Congratulations on the good results. My first question was on the expansion in Valia. You know, where exactly are we at this point? You mentioned that there would be some decommissioning in a month or a month and a half. With respect to revenue, say, in quarter four, you know, at what level will we be at, and you know, what will be the level of ramp-up given the fact that obviously the gloves market is in a bit of turmoil at this point? Also, you mentioned some numbers in response to an earlier question about capacity.
Now am I right in saying that we also have the ability to expand 50% of this capacity further at a very negligible cost?
Yes. Thanks. Thanks for the question. You mean the glove capacity in Valia?
Yes.
Nitrile Latex. Yes, that's correct. It's so I'll answer your second question first, the easier one. Yes, absolutely. We can expand by 60% at an investment of, I would say, you know, about 15% of what we've invested. I mean, these are broad numbers, yeah, 15%-20%. Further expansion is what we have, yes, left some room for. We've done it at both plants by the way. In Taloja, our focus is going to be now styrene butadiene because there was such a large push, large market.
Sorry to interrupt, sir. Your audio is breaking up.
My audio? Sorry. Apologize. Can you hear me now?
Much better, sir. Please proceed.
Okay. I was just saying as far as Taloja is concerned, you know, we're gonna focus on Styrene Butadiene Latex and where we see demand is quite strong. As far as ramp-up is concerned, Farooq, you know, we earlier, you know, as I'd mentioned in my earlier calls, I think it was 6 months to 1 year ramp-up. I think we're still kinda targeting that because as I mentioned earlier, in terms of volume, that's not a major issue, because we are a small percentage of the overall glove Nitrile Latex production in the world. I think we could do that. The issue is with margins. Of course, the pull from the market is definitely less than earlier where customers were bending over backwards to get our product approved. You know, we.
There's a little bit more of a push right now because there's no urgency on the customer side. You know, our team is still working with that one-year target. We'll see how it goes. Quarter-over-quarter, very hard to predict, you know, what would happen. As I said, one of the other uncertainties, even though we're commissioning final approvals from the State Pollution Control Boards to finally start bulk production. We expect that to come through as well in the month of December, early January, once initial trials have started. Very hard to predict quarter-over-quarter, Farooq.
Got it.
I also just wanna mention one or two more things that while obviously the macroeconomic environment remains challenging. I mean, the bigger picture is, look, we believe that the products that we have developed and we are working with our are harder. It's quite hard for people to get into. Barriers to entry are high. You know, approvals take a long time. You know, some of the stuff we have talked about. Our focus over the next year or two, or next year I would say, while we expect a more challenging environment, we are gonna focus on our market share. We are going to focus on quality and improving quality consistency, introducing some new products. Focus on all the approvals, customer approvals, and most importantly, focus on a healthy balance sheet.
Let's not forget that even after this project is done, we will still be almost net debt free. You know, besides some working capital use, you know, we have cash in the books and whatever debt we have raised is a little or more than the cash we have. We are almost net debt free. Focus on a healthy balance sheet, focus on market share, and focus on quality. I think that's the mantra that we're looking at.
Got it. That's great. Just my second question is on how much of, if required, and let's assume if the gloves market is going to be under pressure for longer than we think it is, how much of this styrene latex can we sort of do a sort of swing production at Valia as well? On the NBR side, is there any further thinking from the previous quarter?
No. The first answer is no, we will not be able to make Styrene Butadiene Latex in Valia. As I said, the swing capacity was made in Taloja with a higher investment. What we can do, the latex manufacturing is like, let's say, much worse than we think. We can use it towards NBR manufacturing, which again, NBR for the last many 2, 3 years, we have been running at full capacity. There is a little bit of a. I mean, not little bit. Obviously, that's something that we are looking at anyway. We can use part of the latex manufacturing capacity towards our captive NBR production. Of course, for that, there is reasonable sizable investments required. We're working through the different options right now and seeing in the worst-case scenario.
Frankly, you know, we have worked out a pretty worst-case scenario, and even with that scenario, we're looking at 20%-25% ROC on Nitrile Latex. Our focus will be to try and ramp up Nitrile Latex production, get to full capacity as soon as possible. Margins, yes, will be affected for the first few months. It looks like, given the current state. Hopefully things will normalize, right? They have to because this doesn't last forever. Any cycling doesn't last forever. Every industry goes through a cycle and so we feel.
Given a lot of experts we have talked to, they think by you know within some time in 2023, the glove market will also turn. If it goes back to normal, then you know we can see reasonably good ROCs and focus on this business itself without looking at contingency plans. As far as NBR is concerned, we have sort of started the process of detailed engineering of the plant. We will be taking a call you know once the detailed engineering is completed in the next few months. I think it'll take 3-4 months, and we'll take a call maybe by January or March on when to start. But we're also waiting to just see how you know the macroeconomic sort of environment pans out in the next few months.
as I was mentioning earlier in my earlier call, we are also seeing. Hello, Farooq Pandolage?
Yes. Yes.
Yeah. Okay. We are also seeing some of the commodity prices are coming up. The CapEx costs should come down the longer we wait a little bit. We're trying to optimize for time and cost.
Great. That's very encouraging to hear. Thanks a lot, and wish you all the best on that.
Thank you, sir.
Thank you. The next part of the line of Ankit Kanodia from Smart Sync Services. Please go ahead.
Thank you for taking my question, and appreciate your detailed views on the industry, specifically gloves. My two questions. First question would be, is on our relationship with Asian Paints. Why I'm asking this is that in the last two presentations, for the first time we have seen Asian Paints as customer. If you go back to our history and see, we started up as a unit of Asian Paints, and then we all know what happened. I want to know, having them as just a customer or are we also going to get the leverage of the kind of distribution they have. Because our product, ApcoBuild, can be leveraged really well if we can.
If you can share some thoughts on that would be great.
Asian Paints is completely at arm's length dealing. There is a history to Asian Paints, but the ownership is completely different between Apcotex and Asian Paints, as you know. Recently, we are not really with Asian Paints; we make some specialty products.
Okay. Sorry.
I'm really sorry to interrupt. Mr. Choksey, your audio is breaking up.
Oh, I'm very sorry. I'm not sure.
Okay. Is it better now?
Slightly better now.
Hello? I have full signal on my mobile. Hello?
Okay, sir. Please proceed.
Yeah, I'll try. What I was saying, they launched their SmartCare brand of products and we are supplying to the construction chemical portfolio.
Okay. No arrangement of getting any part of the distribution benefits from them. Correct? Correct. That is completely different, right?
Yes.
Okay.
This is just a buyer-seller relationship. Yeah.
Sure, sir. Thanks. Second question was related to, so as you mentioned in the answer to one of the participants that, due to the inflation, inflationary pressure coming down, you see raw material prices coming down and also the freight cost coming down. Right now inflationary position is something which is very dicey. There are divided views. You have spoken about one view wherein if the inflation comes down due to recession and interest rate hikes and all. What if? Is it fair to assume that if the raw material prices or if there is an inflation going ahead, then, you will be benefiting out of it? Because as we saw during the 2020 to 2021 period, when the prices rose, you continued to do well.
Is it fair to assume or do you have anything else to comment on this?
No, look, there are two types of inflation, and I'm not sure if you're confusing the two. One is on the raw material prices front going up, right?
Okay.
That obviously benefits us in the short term. Anytime raw material prices go up because we are importing a lot, because we have some inventories of raw materials and finished goods, that helps us. On the vice versa, when prices come down as well, that is not great for us in the short term. The other issue which is inflation worldwide, when you're talking about macro, like inflation that you're reading about in the papers.
Okay.
Obviously that's not good for anyone, I think, right? Because consumers consume less. They don't consume normally that they would. Some non-essential products immediately get hit, some essential products get hit. There is a demand issue in some areas. Now fortunately in India, I think so far we've been fairly insulated and local demand remains okay. If you think about it from a B2B company like Apcotex's point of view, there are some customers that we have in the B2B space which are highly catering to the Indian customers. There are some customers that we have that are catering to exports. Indirectly, you know, it is exports.
Some exports, as you know, in Europe, in America, in China, they have been fairly badly affected from what I understand from some of our customers. That's. I don't think it's good for anyone, you know, extended high inflation around the world.
Right. Sir, my point was basically related to freight costs. How the freight costs over the world, if it will rise, how it will impact our earnings. That was the main point I wanted to say.
I mentioned that in one of the earlier calls, you know, for 40%-45% of our business we don't have a competitor that manufactures in India, so that's largely for import. When that happens, that was a benefit that we had. We continue to have even now compared to pre-COVID levels. That's slowly normalizing, and I mean, we expect in the next few months it will normalize. Yes, from that point of view. As far as our exports are concerned, fortunately, you know, our sweet spot for export is Middle East and Southeast Asia, where the freight cost is not a very large percentage of the total cost of the product, so it's really not impacted us much at all.
Thank you, sir. I will come back in the future, any more questions for you. Thank you.
Thank you. The next question is from the line of Manav Vijay from Deep Financial Consultants Pvt. Ltd. Please go ahead.
Yes, thank you very much for the opportunity, Abhiraj. Abhiraj, actually, I just have one question that I wanna ask you. We saw in last quarter when basically the Top Glove, they have released their results, and we saw that for the first time in their, I would say in the history of their listing, they reported losses. Now, you alluded to many, I would say to multiple reasons that the inventory buildup in the channel was very, very high. A lot of production facilities came in a very short period of time. Now, when the largest player in the industry starts to make losses, do you believe that the way capacities came up, they will also go away in the same fashion at the same speed?
Look, very hard to predict, but obviously any industry where, I mean, there, as you rightly said, not only Top Glove but the entire industry is going through the deepest downturn that they've ever seen.
Yeah.
In any industry, obviously this is not sustainable, you know, long period of losses. Yes, they had made some abnormal profits as well for a little while during the peak COVID period. Maybe the staying power is longer with most glove manufacturers, but at some point, yeah, you know, there is probably going to be consolidation or rationalization of production and so on that's gonna happen.
Okay.
I mean, I'm not an expert in the glove industry. I know a lot about it because we've been doing business with them. In any industry when this happens, you know, and this is not the first industry that this happens where there's overcapacity suddenly, and then it takes a little bit of time for things to sort of even out.
Yes, I agree because I see some of the global reports suggest that, let's say, whatever excess capacity that has been created, it will take roughly seven or eight years for that capacity to get fully utilized and everything. Generally things don't happen in a linear fashion. Maybe the way capacities came up in one and a half years, in the same fashion you will see a lot of capacities maybe going out in a very short period of time.
Yeah, look, I was in Malaysia just last month and, I mean, there are different views to it, and it's hard to see how it will play out. Obviously, there are some players that have cash in the books. There are some new players, entrants that came in and they don't have cash in the books, and, you know, whether they can sustain long periods of this. I mean, I'm not so sure. Very hard to predict, Manav. If you have a specific question, I'm happy to answer it, but it's hard to sort of.
Okay. One, maybe one last point or so.
Yeah.
Top Glove, after I would say running up, let's say throughout their listing history, so they always used to run on cost-plus basis in terms of the pricing. In last 1.5-2 years because of the abnormal demand, they changed all that. Now, in last quarter they again went back to the original thought process of cost-plus. Now, obviously they will have some issues in terms of whatever inventory that they have. Now when the industry leader makes such a call, you believe that even the other players in the industry will be forced to go back to cost-plus model and in turn the pricing discipline will be faster, which in turn will help players like you who are order suppliers.
Again, as I said, I understand where you're coming from. I'm not the expert to ask about the glove industry pricing. I just want to mention that one thing is that, one is as far as glove pricing is concerned, the other is as far as Nitrile Latex pricing is concerned, right? Obviously because of the huge pressure on the glove side, those you know, the Nitrile Latex margins have also come off. Obviously Nitrile Latex there have been a few players, but it has mainly been most of the capacity addition that has been announced, and again, I'm saying announced because some of it has already been sort of shared was mostly from current players.
Unlike the glove industry which had a lot of new players coming in as well, most of the capacity addition on latex has been from current players, people who have been in the latex industry.
Sure.
The point I'm trying to drive is that it's probably easier technology to get into the glove industry than it is to the latex industry. I'm not sure my point is that the latex industry is not necessarily linked completely, you know, directly proportional to the glove industry, is what I'm trying to say.
Sure. Last thing would be on your NBR rubber.
Sorry to interrupt, Mr. Vijay.
Let Manav finish his last question since he mentioned it and then we can move on.
Sure.
Okay. Thank you. Last question maybe on the NBR rubber margins. Now, you mentioned about the freight cost benefit that you had, let's say compared to the imports. Since that cost is coming down, but still, do you feel or I would say, the margins in NBR rubber are those margins now, I would say, equivalent to the margins that you have at the company level or margins, I'm talking about the operating margins or they are lower still?
Look, again, we don't talk about product to product margins. As you know, there is a sort of legal case going on. I don't want to mention too much about NBR rubber and specifically talk about that in this forum. All I wanna say is, look, it's not the freight component was an additional benefit not only for NBR but other products as well, where we were facing competition from imports, especially imports coming in from Europe and East Asia, Far East Asia. Obviously that has come off. The rest of it, you know, is depending on demand supply around the world.
I would say the next two months, depending on the macroeconomic situation in general, it seems like margins are going to be under pressure for a lot of the products. For some of our products.
Okay. Thank you, and all the best.
Thank you, Manav Vijay.
Thank you. The next question is from the line of Saurabh Shah from Q-Invest dvisors. Please go ahead.
Yes. Hi, Abhiraj. Firstly on Valia, you mentioned that you still think that we can do a 20%-25% ROCE on this project, which is obviously very heartening to hear. My question is that, at what utilization do you think this breaks even? Like, if the ramp-up was to take longer, just want to get a sense for how much pain could there be?
When you say break even, what do you mean break even? How do you calculate it?
At an EBITDA level.
It will mostly depend on margins and where margins are at that particular time. Right now, we are assuming that for the next six months, margins are gonna be quite depressed given the glove industry. We think at an EBITDA level, you know, the fixed costs in this business are very low because traditionally it's a brownfield project. It's a highly automated plant, so it's not like we've hired, you know, hundreds of people to run it. Break even is very low. I mean, we expect to literally break even in the first few months.
Okay.
Of course.
So-
At an EBITDA level, yeah. Payback will be longer depending on margins and volume ramp up of course.
Sure. That's understood, of course.
Yeah.
I think the ROC, I mean, ROC covers that, right? IRR.
Yes.
Yeah.
Yes. Absolutely.
I guess on the base business, you did allude to some of the, I guess, the raw material prices crashing and hence that pressure. Again, that is something that is cyclical, which we've now over the, I guess, the last decade seen more than a few times. Is there any-
I've mentioned it in every quarterly con call that, look, we have been at an advantage for the last eight quarters in a row when prices have been going up. There will come a quarter or two where, you know, obviously prices will come down. Sometimes the prices come up gently, which is okay, and then, you know, you may not see it in the quarterly results. If prices correct sharply, then sometimes you are left with high cost, you know, very high cost inventory for two, three months and, you know, you can have that issue. Yes, that's the case.
That is exactly my question. If this is just par for the course or is there something more exceptional than what you would have, let's say, bargained for or anticipated, given the nature of this business, I mean that we've obviously seen these shocks more than a few times over the last 5-7 years.
Yeah. No. The raw material fall or the drop is, as you put it, par for the course. It happens once in a while, every few, you know, quarters. We're okay with that. We explained to you guys that this is the nature of our business and I think a lot of our investors and analysts understand that. In the current scenario, of course, the flip side is that the macroeconomic situation looks really dire. I don't know how long that'll last, but again, once the prices come down, then, you know, we can look at sort of building it up again. Yes.
Okay.
No, go ahead.
Yes. Sure. Just finally, we had seen a bit of a ramp-up in exports over the last few quarters. You know, obviously a little bit of that diversification into that. Is that still going well, or do you think that because we've been running at 100%, we haven't had too much to do on sort of market development, et cetera?
Yeah, you're right. You know, in some cases we've had opportunities, but we've not been able to exploit them because, you know, we go to a customer saying, "Give us approval." They give us lab approval, and they say, "Okay, send us bulk quantity." We don't have bulk quantity this time. So yeah, there has been a delay, but I think, in the next two quarters, you know, but we have established those relationships, that's the good thing. Yeah, so we expect the ramp-up to continue. The other thing that I did not mention to the earlier callers, but it's worth mentioning is, you know, there is a silver lining here as well for us. While the whole macroeconomic situation looks dire, some of our competitors in Europe are facing a really tough time competing with us.
Raw material prices in Europe for them are significantly higher than Asia. Conversion or power and gas prices are currently, I believe, significantly higher. We are seeing a lot of interest from not only European final customers, but also customers that they were exporting to, you know, in Asia. There are some specialty products. We have seen an opportunity to work with certain customers to develop certain specialty products that we did not have in our range within the same styrene butadiene, styrene acrylic, you know, butadiene, VP Latex, similar range. We're seeing a lot of interest, and that's why, you know, we also decided that our current thinking is to focus our Taloja facility only on our current products and focus on Nitrile Latex from Valia.
Okay, got it. Thank you very much. That's clear, and all the best for the next few quarters.
Sure.
Thank you very much.
Sure.
Thank you. The next question is from the line of Dhiraj from PhillipCapital. Please go ahead.
Yeah, good morning, sir. Thanks for the opportunity. What will be the growth driver for H2 FY23 and for the full year FY24 if let's say this Nitrile Latex industry, you know, issue persists little longer than what we expect since we are running at full capacity even now?
Look, as far as growth driver, again, I'm mentioning two things. One is Nitrile Latex will continue to be a growth driver. The issue is margin, not so much volume. Maybe the ramp up will take a little growth driver. The second is, in our Taloja facility we have extra, we could make more Styrene Butadiene Latex and Styrene Acrylic Latex and so on. That's gonna be another growth driver. Those are the two growth drivers. You know, we're quite confident of the growth. It's just that with the whole macroeconomic environment, what the glove industry is going through, we're not sure, completely sure of how the margins will play out. I think it's a cycle. Look, as I said, in a, in a.
If you're looking at a very long term, which is what generally as management of the company that I look at, of course we're looking at short-term numbers, but the long term is more important for me. You know, we use this adversity. If it is an adversity, who knows, things may turn as well very quickly. But if it is an adversity, you know, use it as an opportunity. We focus on market share, we focus on new customer approvals, and we focus on managing a healthy balance sheet. The rest, I think, takes care of itself and, you know, you go through business cycles and it'll play itself out. Not too worried about that.
Sir, any reason why we are taking a longer time to finalize the NBR CapEx?
Yeah, I mean, as it was mentioned before, it's not about finalizing. One of the things we felt in the last couple of years is commodity prices have run up so much that the project cost was going completely out of whack. I think that's correcting now. Given that we want very comfortable that now that it's correcting, as I said, we have already started the process of, you know, designing the details of the plant. That should be completed in the next few months, and we will take a final call depending on overall. As I mentioned to one of the previous callers, it's about optimizing of CapEx costs as well as timing, you know, in terms of we don't want to enter a market where it's depressed, the time is depressed.
I mean, that's not the ideal scenario. Both those we'll take a call on and decide in the next few months. That's the only reason. We still believe it's a good opportunity, not only in India. Globally, we are only less than 1/3 of the Indian market today. Everything else is being imported, so there is a good case for it. We just want to see how some of the things pan out.
Okay. Got your point, sir. Thank you so much, sir.
Thank you. The next question is from the line of Abhishek Sharda from KMV Securities. Please go ahead.
Hello.
Yeah, go ahead, Abhishek.
Yeah. Thank you for the opportunity, sir. Sir, can you share sales mix for the quarter between Nitrile Rubber and Nitrile Latex?
I don't think it's changed much. It's the same. I mean, overall, we have about 45% is our total solid rubber business, which includes nitrile rubber, nitrile powder, nitrile PVC blends, high styrene rubber, and 55% is the latex. Largely, I mean, given ±1 or 2% remain the same. Sachin, Suraj, if you're on the call, is that approximately right? Any significant change?
Yes. Absolutely. Right.
Okay.
45 is to 35, right, sir?
45 is latex. 55 is solid rubber.
Is rubber.
is latex.
Fifty-five.
I mean, these are broad indications. Yeah, it may be.
Right. Right, sir.
-43, 57. I'm not sure exactly. Yeah.
Okay. Sir, broadly, I mean, approximately how much revenues we are getting from the auto industry? If you can share a broad number.
Well, look, first of all, we supply VP latex to the tire industry. Now, do you count that as auto? I'm not sure. That is maybe 8-10% of our business. The rest is NBR and NBR PVC blends and all, and I would say totally tires would be 8%-10%. Auto maybe about 8%-10% is my rough estimate.
It's roughly around 18%-20%, right, sir?
Yeah, but I mean, I think auto is very different from tires, right? They're two different industries. I mean, the auto industry could be in a bad slump, but the tire industry could still be doing well.
Right. Right.
Because the replacement market is a huge, you know, market.
Got your point.
I'm not sure.
8%-10% is tire and around 8%-10% is auto.
Yeah. That's right.
Sir, one thing I want to understand, like, maybe I have missed in the previous commentary. Right now you have, sir, capacities in the Taloja facility, 65,000 metric ton per annum synthetic latex, 7,000 high styrene rubber, right?
Yeah.
After ramp up, what would the capacities be after the ramp up?
Yeah. As I mentioned. Good question. Earlier we were thinking we'd make 10,000 tons of Nitrile Latex. Given the current scenario on the glove industry, we are going to utilize that capacity at least in the short to medium term for our current other products. I think depending on which products we decide to manufacture and all, it will be a little different, but it will be much more than 10,000 tons because the cycle times are much lower. I'll have to come back to you. That's a whole thing that we will do once the plant starts up and I'll come back to you maybe next quarter or in six months with those numbers for you.
Okay, sir. In the Valia capacity right now it is, in your latest investor presentation, it is showing 21,000 metric tons Nitrile Rubber and the allied products. After ramp up, what would be the final capacities?
It would be around 21,000 for NBR and 50,000 tons for Nitrile Latex.
50,000 for Nitrile Latex.
Yeah. Again, I'm just mentioning that.
Yes, these are the broad numbers. Basically 50,000. Yeah.
We have an ability to go up to 80,000 tons.
Okay.
At a minimal investment.
Okay.
Similarly in Taloja as well, we have left some place for additional capacity with very minimal investment.
Basically, sir, after the ramp up of this 50,000, you can get around 60% more at minimum investment that you mentioned. That is, would be around 15%-20% of investment. Right?
That's correct.
Okay. That's very helpful, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Anirudh Shetty from Solidarity. Please go ahead.
Hi. Thank you for taking my question. My first question was, I just want to understand our right to win in the Nitrile Latex business, given you mentioned that it's a 2 million ton market and presume there would be players larger than us. You know, what is our differentiation to the customer, you know, which will allow us to kind of gain market share here?
Yeah, absolutely. You know, look, there are two, three differentiations. One is there are product differentiations, but they're technical, and I don't want to get into that with this forum. I think it may not be useful. There are certain product differentiations that we are certainly bringing in. More importantly, as you know, everyone is looking to de-risk from China. So far all the Nitrile Latex has been either largely made in two countries. We bring in an option and that's a strategic advantage that we have coming from India, especially customers in Sri Lanka, India, Bangladesh. You know, we provide that as well as customers in Indonesia, Thailand that don't have a large capacity or they don't have much Nitrile Latex in-house production.
I think there's a strategic geographic advantage as well as some technical advantages. In addition to that, I would say we have no disadvantage on the raw material pricing front. Let me put it that way. If anything, we have a small advantage but no disadvantage. From a cost, quality and geographic standpoint, you know, we have certain advantages that we bring and certain competitive advantages and strengths that we bring to the table.
Got it. This one is raw material cost front. You know, what would the key raw materials be for Nitrile Latex? I believe we import it, but would our players or competitors be manufacturing it in-house or also they're reliant on, you know, imports for this?
The key raw materials are acrylonitrile and butadiene. Butadiene is manufactured in India and it's very close to our plant. We have a good advantage there. Acrylonitrile is all imported into India. I think most of these guys are importing a large quantity of acrylonitrile from other countries anyway, some of our competitors.
Okay.
There have been some announcements of acrylonitrile production in India. Hopefully that will come on stream in the next couple of years. That will certainly help.
Got it. Our peers also don't make it in-house. They're also kind of.
They don't make it in-house, but they may have some capacities available closer by that the advantage is there on. Not the entire capacity that they require is what my understanding is.
Got it. You know, you in the past calls I think you mentioned that the
Sorry to interrupt, Mr. Shetty.
Okay. Sure, sure.
Sir, may we request that you return to the question, please?
Sure, sure.
Thank you. The next question is from the line of Alisha Mahawla from Envision Capital. Please go ahead.
Alisha, good afternoon. Thank you for taking my question. Quickly I want to understand one of the new capacity-
Sorry. Alisha, your audio is not clear. Can you use a handset mode while speaking and not the speaker phone?
Sure, sure.
Thank you.
Is it more audible now?
Yeah, go ahead, Alisha.
Yeah, please go ahead.
Hi. Great. Thank you for the opportunity. Just wanted to understand that with the new capacity coming on stream for the next quarter, there is going to be some amount of lead time for client approval, product approval or rather batch approval, et cetera. Also, I believe earlier in the call you mentioned that there's an approval from the Pollution Control Board which is still pending.
Yeah.
Can we expect the new facilities to start contributing at least from Q4 or is it largely going to be from FY 24?
No, it will start contributing from Q4. As I said, the ramp up takes time. Generally, you know, after the plant is ready, you still need to go back and there is something called the CPO, consent to operate, that you need from the Pollution Control Board. Sometimes it's generally quick, but sometimes it takes longer. Notwithstanding that, you know, obviously you're right. The approvals, while we already have approvals in place, anytime a new plant comes up, customers do want to take it a little slowly. They may take, you know, a smaller quantity for the first month, then they ask for a little larger quantity. The ramp-up, as I mentioned, takes six months to a year.
As far as gloves is concerned, given that the demand pool isn't there in the market, it may take us a little bit longer, but we're still pushing for six months to a year. From an overall numbers standpoint, obviously this will not have a big impact. The new project will not have a very large impact. It's only towards the back end of the year. In FY 2024 it will have a larger impact, of course.
Sure. Earlier we were expecting the new capacity both combined to contribute somewhere around INR 500 crores of incremental revenue.
Yeah.
With the SBR being, you know, the capacity going to be used for the Styrene Butadiene Latex like you were explaining.
Yeah.
Are we expecting the revenue contribution now to change significantly?
Yeah, it should go up.
It should go up?
Yeah, that's right. Because we can actually manufacture, as I said, we can manufacture much more styrene butadiene.
Okay. Sure.
As I said, we're not clear on this right now, so I will come back to you at the right time with the right numbers. It will definitely be, in terms of volume and value, higher. In terms of contribution, you know, we were earlier thinking because Nitrile Latex contribution were very high for two years, we were thinking we'll focus on that, but now that's not the case. Therefore, when I say contribution, I mean gross margins were higher. Now, you know, the current thinking is to focus on Styrene Butadiene Latex. Frankly, two years ago if you had asked us that would there be this kind of pull for Styrene Butadiene Latex, we hadn't thought it would be this great. As I said, there are some silver linings.
Some of our competitors in Europe are finding it hard to compete given their raw material costs. We're going to adapt to the current business environment. While the gloves industry is not doing so well, we see some of our current products industry is doing much better than expected and so therefore we'll focus on that.
Perfect.
For now.
Just one last clarification. In latex, what is the 55% of revenue that you spoke of?
Yeah.
How much of that would be Nitrile Latex?
Currently, no, because we are only doing some quantity, so I wanna say less than maybe about 7-8% of that or 10% of that. Sorry, 10% of 55, so totally about 5-6, 6-8%.
Okay.
I don't have the exact numbers on me, but that's the broad guess, yeah.
Okay. It should be 10 or thereabout.
Yeah.
Okay, sure. Great. Got it. Thank you so much, and best of luck.
Thank you. The next question is from the line of Amar Maurya from AlfAccurate Advisors. Please go ahead. Sorry, it's a little crappy. Amar, we are not able to hear you. Amar Maurya, we're not able to hear you. As there's no response from the current participant, we'll move on to the next. That is from Tanush Mehta from JM Financial. Please go ahead.
Yeah. Hi. Hello, Sudha.
Go ahead, Sudha.
Sorry if I would ask a question. I joined the call a bit late. Firstly, sir, I wanted to know that, how is the industry scenario different vis-à-vis when we compare to, you know, 2018, 2019 times where the industry in which we belong to had, you know, a slowdown or maybe, price correction or whatever we may term out to be. My second question would be that, Europe is a major market for us as well. On the same lines, it's actually a competitor. I mean, a few competitors are present there as well. Is Europe failing as in or maybe Europe slowdown is an opportunity for us or a threat, if you can just explain.
First of all, Europe is not a major market for us at all. It's a very small market for us, in fact, as far as our current sales into Europe are concerned. Overall, obviously European manufacturing competitiveness has been badly hit over the last few months, as well as the risk has gone up given the war. As I said, it's actually perhaps a silver lining advantage for us because some of the places that they were exporting to or some of the customers they were exporting to are now looking for other options in Asia, and we are well positioned and suited, given the work that we have done over the last two years developing products and ensuring high quality consistency. Yeah, that's an opportunity. Your first question on 18, 19.
I know, I think the company much better positioned than we are today than we were in 2018, 2019. We have a diverse set of products. Our volumes have grown significantly. Our competitive strengths have grown. Number of customers we've added has grown. From all perspectives, you know, I think it's a more diverse and stronger company than it was two years ago.
Basically, you know, when we talk about the company as a whole, you know, a few products are there in which we are having our own key strength and maybe, a few products which are having demand as of now and we are there into the market. If I was to divide the entire market into two parts, one is basically specific products which we have developed or maybe, we are the first to our clients, and the other set of products which are actually market driven, where the market have its own, you know, growth. If you could throw some light on both of them.
Sorry, I've not understood the question. What specifically, what are you looking for?
I wanted to understand that, you know, the growth drivers would be, I mean, whatever exporting products we have, and we would be manufacturing them and selling it to a client.
Yeah.
If I were to divide the growth into two parts, one is, you know, the products in which the industry is growing itself, and the other product in which we are creating our own market.
Yeah.
If you could throw light on both of them?
I don't know what lights you want me to throw, but let me. Okay, I'll try and answer your question. In most of the products that we are in India, we have high market share, and therefore, going forward, we will probably grow in those products at sort of whatever the market grows at, right? I mean, GDP plus, whatever rate that some of our customers grow at. In addition to that, yes, we are adding new customers, mostly, and there are a few customers in India that also come, obviously new customers, but also in, mostly abroad, for export. Then our two other growth drivers are nitrile latex for gloves. In the future, it would be NBR because we have full capacity, and we only have less than 1/3 market share in India.
That's another opportunity for growth.
Okay, sir. Thank you, and wish you all the luck for the coming quarters as well as for the full year.
Okay, thank you.
Thank you. The next question is from the line of Karan Pateli a from Asian Markets Securities. Please go ahead.
Hi, sir. Thank you for the follow-up. Sir, while you did mention that, there is no demand pool, you know, as of now for the latex gloves. Have you seen some correction in the prices as well?
Yes. Yes. There has been a correction in pricing. The whole industry is going through a downturn, so therefore, the pricing margins, everything is getting corrected. Not only for us, all gloves, any supplier to the glove industry, you know, we've had to support the industry. You know, most of them are not doing so well, the glove manufacturers in the last quarter or two. We've had to sort of adapt and support that.
Right. Okay to assume the export contribution of upward of 18%-19% for this quarter as well? Are we here to see the-
It's about 21%-22%.
Okay. Okay.
Mm-hmm.
No, the real benefit to us, you know, with respect to the European energy crisis, you know, are we done with 22% or can, you know, still be at a slightly better number, you know, upwards of 25% in the medium term?
Sir, can you repeat? I didn't hear you, actually.
I'm saying, 21% is the best that we can do, or we can see some more benefits of the European energy crisis?
No, I mean, look, it will depend. You know, so far the business has been different. In the last two years we had limited capacity and therefore we were doing business based on, you know, obviously some strategic customers that we have in India, also maximizing margins wherever we could. But obviously thinking long term and ensuring we have a diverse customer base and adding customers as well. Going forward, of course, exports will grow significantly higher. In fact, our prediction is because of Nitrile Latex for gloves, which is largely for export, the export should be much higher. You know, 35%-40% of our total turnover could be export.
That's right. Thanks. That's right. No, if you just keep aside the gloves business-
Yeah.
the existing 20-21% business.
That should grow as well. Yeah, that's correct.
Okay. Thank you. Thank you for the detailed answer. That's it from my end.
Thank you.
Thank you. The next question is from the line of Anirudh Shetty from Solidarity. Please go ahead.
Yeah. Hi. Thanks for the follow-up. I actually had a question around just the nature of the business, you know. You know, when I compare your gross profit margins and your asset turns with other chemical companies, I see that the GP margins over long periods of time is, you know, it's lower, but the asset turns at, you know, about 2.5, 3 is actually higher. Just wanted to understand what is the nuance of this business that, you know, explains this.
Sometimes I feel like you guys understand this better than we do. You know, the chemical industry is put into one as one industry, but I firmly believe that, look, within chemicals there are so many sub-industries and, you know, one cannot compare one to the other. On one end, there is complete commoditized chemicals, you know, which have perhaps low margins, high CapEx, but still deliver the return on capital that's required because they're steady businesses. You know, on the other end is extremely specialty chemicals, maybe very high margins, but limited volumes and limited business opportunities. It's very hard to say. In our business, exactly what you said.
Look, I don't think our business is the kind where, you know, at least as of now, that you can look at. You see companies like ours globally as well, and we haven't seen any companies with 30-35% EBITDA margins, right? Which you could see in some specialty chemical businesses. Those businesses maybe require 30-35% EBITDA margins because of their CapEx requirements. Because our asset turn is low, we can live with lower margins. Bottom line is, look, everyone wants to see the return on their capital and that drives all their numbers, right? And also the profitability numbers. So that's what I would say. I mean, I would encourage you to go deeper.
If you're studying the chemical industry, try and understand the nuances of different types of chemical businesses and see what fits where. You can't compare one to the other, like comparing apples to oranges.
Got it. When you mentioned 20%-25% ROCE, this is the pre-tax number or is it post-tax? We look at Sachin, post-tax, right?
Post-tax.
Yeah. Got it. Just one final question. You know, I think you had mentioned that the latex business tends to be higher margin than rubber. You made this point today that you all can actually use the facility of nitrile latex to make rubber. I'm presuming rubber is a forward integration. I just... What is it about it that latex, besides being more upstream on the value chain and actually more high value add, is it that the
No, no. I don't know. I may be mistaken. I've never mentioned that latex is a higher margin product than rubber. I said latex is a more even margin product than rubber. The rubber business is more volatile. We see very high highs followed by lows. One of the reasons for that is storage of latex is very difficult because it's 50% or more water, 50%-60% water. To transport and store that is very difficult. Customers also don't want to move very quickly. Whereas with nitrile rubber or any kind of rubber, I would say, you know, nitrile rubber, styrene butadiene rubber, which we don't manufacture, polybutadiene rubber, which we don't manufacture, the margins are a lot more volatile and choppy. I've never said that they're lower.
Got it.
In the long run, they're similar. Yeah.
Just the transportation that is more difficult in latex, which means that difficult and more expensive. Maybe the competition would be limited by geography in that sense, unlike rubber wares.
Yeah. Geography is one, and also some applications of latex are so critical. Just to give you an example, we supply latex to the tire industry, right? They would not, even if there is a new vendor that comes in, and it's such a small portion of the whole cost of the tire that it's not something that they would change very quickly. Because even if somebody comes and says, "Okay, I'm giving you 50% lower priced product," you know, they would not be interested because it doesn't really impact the total cost of the tire. The criticality of this product is extremely important because it plays a vital role in the adhesion, internal adhesion characteristics of the tire.
Got it.
Those are some of the nuances. Similarly, on paperboard, you know, some of this paper packaging is used in food products, you know, extremely sensitive. Once they have sort of set the plant with two or three vendors maximum, you know, they won't change it for a fourth vendor very easily. As long as we are reasonably competitive. Yeah.
Got it. Thanks for answering the questions.
Okay. Thank you very much.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the manager for closing comments.
First of all, I'd like to take this opportunity to wish everyone a happy Diwali and Eid Mubarak. All the best wishes for the new year. We, as usual, you know, the Apcotex team appreciates the support and your interest in the company, and we look forward to seeing you in Q3 again. Thank you very much.
Thank you. Ladies and gentlemen, on behalf of Apcotex Industries Limited, that concludes this conference call. We thank you for joining us. You may now disconnect your line.