Ladies and gentlemen, good morning, and welcome to the Q3 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 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, Mr. Sonpal.
Thank you, Michelle. Good morning, everybody, 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 would like to thank you all for participating in the company's earnings call for the Q3 and nine months ended 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. Audience is 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. Let me now introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We have with us Mr. Abhiraj Choksey, Managing Director, and Mr. Sachin Karwa, Chief Financial Officer. Without much delay, I request Mr. Sachin Karwa to start with his opening remarks. Thank you, and over to you, sir.
Thank you, Anuj. Good morning, welcome everybody to today's earnings conference call for the Q3 and nine-month ended of financial year 2023. I hope you had an opportunity to review the financial statement and earnings presentations which have been circulated and uploaded on the website and the stock exchanges. Briefly on the financial performance for the Q3 of financial year 2023, the revenue from operations were reported at INR 234 crores, which declined by about 7% on a year-on-year basis. The operating EBITDA stood at INR 13.6 crores, with EBITDA margins reported at 13.07%. The net profit stood at INR 20.4 crores, and PAT margin stood at 8.71%.
For nine months of FY23, the revenue from operations stood at around INR 827 crores, which grew by roughly 21% year-on-year basis. Operating EBITDA stood at INR 124 crores, a growth of around 22% year-on-year, with EBITDA margin standing at 15.1%. The net profit was around INR 85 crores, a growth of approximately 25% year-on-year basis. PAT margin stood at 10.8%. During the quarter, volume was flat with 1% growth year-on-year basis as we were running at full capacity utilization. EBITDA margins were lower due to inventory losses increasing with respect to raw material and finished goods, which was impacted primarily by supply chain constraints and price decrease in raw materials.
Lower margins were also seen in some product categories, partly due to fall in ocean freight benefiting imported contribution and fall in exemption margins due to market conditions. On the CapEx front, both the projects in Taloja and Valia are expected to be completed in Q4 of the financial year. The delay in projects is due to supply of key equipment. I am pleased to announce that we have declared an interim dividend of INR 2 per equity share, and February 7, 2023 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, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may please press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Ladies and gentlemen, in order to ensure that the management will be able to answer questions from all the participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. Thank you. We have the first question from the line of Dhiral from PhillipCapital. Please go ahead. Mr. Dhiral, I have unmuted your line. Kindly proceed with your question. Mr. Dhiral?
As the current participant is not answering, we move on to the next participant. The question is from the line of Ankit Kanodia from Smart Sync Services. Please go ahead.
Thank you for taking my question. My first question is related to the slide number 6 on your presentation, where you mentioned that EBITDA decline has been primarily due to raw material and finished goods inventory losses. Just wanted to have more color on this in terms of, say, 6 months down the line or 1 year, slightly longer term. How do you look at the raw material prices moving forward? How will that impact our performance, and how we are geared up for that?
Right. Good morning, Ankit. You know, as in most of the quarterly conference calls, I've been saying that our nature of our business is that there are times when we benefit from prices going up. Frankly, the last four or five quarters, previous four or five quarters, that has been the case. We definitely have benefited. You know, things have turned since petrochemical prices started, sort of falling steeply.
That will obviously impacted our margin, partly impacted the margin. That's not the only reason, but that's one of the main reasons why that has impacted our margins for this quarter, and likely to continue into Q4, mainly because, you know, we are dependent on a lot of imported raw materials. Given the uncertainties in supply chain over the last two years, and I think to some extent the uncertainties continue in China and in Europe, you know, we had increased our inventory days, and we continue to do so. While we benefited when things were, you know, rising, obviously this was expected, but we have no choice. You know, it's part of sort of this business.
In the long term, to answer your question, it's hard to say, but obviously we feel the prices have now almost bottomed out. Things should start rising from, you know, maybe the next quarter or end of this quarter onwards as well.
Thank you. That really helped. My second point was related to, again, the same slide where you mentioned about all in ocean freight cost benefiting imported competition. In our last call, you mentioned that we get the benefit in terms of exports in Middle East and Southeast Asia, where freight cost is not a very large percentage of total cost of the product. How do we see that as a percentage of our total exports or total sales? Assuming that the price of, or the ocean freight remaining at this stage, for some time, how are we positioned?
Yeah. Obviously, and I think it's a two-part question. For imports, because for about 40% to 45% of our products, we are the only manufacturer in India. For the Indian domestic market, you know, obviously the other... Our only competition is imports. What happened over the last two years, I would say pre-September, October, is that ocean freights have been obviously very high, as we all know, and that has benefited us for the Indian market. That's of course, that one-time benefit that we had for a few quarters is now almost, you know, we are back to pre-pandemic kind of ocean freight levels in most cases. That is, that one-time benefit is sort of, gone now.
As far as exports is concerned, of course those, you know, because most of our exports are in countries close by, it was never a big impact. Obviously those rates have also come down substantially, and that's benefiting us of course for exports.
Okay. My last question would be.
I'm sorry to interrupt, sir.
Sure, sure.
I would like to request you.
It's fine. Let him finish. It's his last question, so let him-
Okay, sir. No problem. Proceed please.
Sure. Thank you. Thank you so much for allowing me. My last question is related, in the last call we mentioned about, excess capacity being there, throughout the world in terms of the glove manufacturing. Any update on that? Do we see any changes or it remains to be like that?
It's quite, I mean, the downturn of the glove industry still continues. It started sometime last year in 2022, That continues. That's been one of the reasons of our lower margins also. You know, while it's a small percentage of our total sales, XNB Latex for gloves, around maybe less than 10% so far, we enjoyed extremely high margins in 2020, 2021, and early parts of 2022. Obviously those have kept coming down, and they are really, you know, compared to the pre-pandemic average, much, much lower. That is expected to continue for the next couple of quarters, one or two quarters at least. From all industry reports, we're in touch with customers and, you know, they feel that once the old inventory is used up, you know, that will certainly help.
Some of the excess capacity that's been recently created, you know, those companies are obviously not doing well with high investments, so maybe there will be some consolidation. We think it'll be the second half of this calendar year when things should change.
Thank you so much. I'll come back in the queue for any other question. Thank you so much.
Thank you.
All the best.
Thank you.
Thank you. We have the next question from the line of Aditya Khetan from SMIFS Limited. Please go ahead.
Sir, thank you for the opportunity. Sir, my first question is on the Nitrile Latex side. Sir, onto the channel inventory now what we are witnessing, that is at the minimum level into Nitrile Latex. How you see the demand right now? We know that the Nitrile Latex prices also, so they are at the lowest levels.
Yeah.
What should be the trigger for prices and demand going ahead?
Yeah. Look, for us, you know, we are currently selling only 10% of our sales is Nitrile Latex or less than 10% also. Obviously, we are coming up with a 50,000 ton plant for Nitrile Latex in Valia, which is still a small percentage of the global market. Selling 50,000 tons is not so much of a challenge. The issue will be, of course, given that the current, you know, there's not much pull from the market, it's a lot of relationship building and pushing that we are doing. It may take a little longer to get to full capacity for 50,000 tons, maybe a year or so. We were only expecting 6 months, but now we think it may be a year or so.
As far as margins are concerned, look, that's anybody's guess. We think, as I said, I mentioned to the previous caller that we think in six months the market should turn. It's certainly going through a deeper downturn, the glove market and therefore the raw materials that are being supplied to the glove market, you know, going through a deeper downturn than it ever has. In the long term, we are quite bullish that, you know, with the growth in healthcare requirements across the globe, we believe it's a high growth market for Nitrile Latex, as well as shift from natural latex gloves to Nitrile Latex gloves.
We are well-positioned in terms of geography, raw material pricing, everything and, you know, new plant at a reasonable CapEx compared to most of our competitors. All those things, you know, in the long run, we are quite bullish. Of course, we are entering the market at a time when there is a downturn. That's the reality.
Okay. Sir, you said, so for to take the market to U-turn, it will take six months. From May or June, we can expect pickup in demand.
Yeah. Well, yeah. From all industry, you know, discussions we have had, they've been saying second half of the year, yes.
Okay. Sir, my second question, on to the benefit of the realizations which we have got in the last three quarters, wherein we had made around INR 45 crore of EBITDA. Now, we are down to around INR 30 crore of EBITDA in this quarter. How you see these things to improve or maintain at this levels, at least for the next two quarters?
Sir, I mean, look, this quarter, again, the same challenges will remain. Q4, I'm talking about Q4. As the new capacities kick in, you know, we expect EBITDA to improve if there is no other major, you know, issue or change. Raw material prices will also bottom out, I think, in this quarter. At least this quarter, you know, we don't expect a major improvement, but hopefully from Q1 of the next financial year, there should be some improvements.
Okay. Sir, just one last question. Sir, you have mentioned, so year-over-year volume growth of 1%, so similar on quarter-on-quarter basis, how much was the decline in volume?
There was no decline.
Okay. 17% decline in revenue, that was primarily led by realization.
That's right.
Okay. Thank you, sir.
Yeah, just, yeah, it's a good point. I'll just clarify because I'm sure. We've been running at full capacity, and we continue to run at full capacity in Q3. We focused on total volume, holding market share. Yes, to some extent, the margins have come down in some of our product categories, but, you know, we've had to deal with that.
Sir, just one last question from my side. Sir, one more question. Sir, are we witnessing any increase in imports since you have also mentioned that the freight rates have gone down? Imports might have increased, so competitive intensity will have also increased. Is this also one of the reason, so which is leading to decline in realization?
Yes. Yes, absolutely. That's one of the reasons. We have. As I said, we will hold on to our volumes and market share, and we have had to correct our prices in some of the products where we face intense import competition. I think one of the other reasons has also been, you know, overall slowdown in China over the last few months. A lot of imports have been directed towards India because we are one of the few, India is one of the few shining spots in the world today where demand overall has not been affected. If you see our India demand, it's the demand has not been affected. It's a question of raw material pricing, little bit higher, intensity in competition in some product categories.
That is what has caused, sort of this re-reduction in EBITDA quarter-on-quarter.
Okay. Sir, this expansion which we were planning, which was supposed to start in Q3 only, sir, any reason why this has been shifted to Q4?
Okay, I'll take that question, and we'll move on to the next caller, if you don't mind, Akanshya.
Yes. Yes, sir.
Okay. Yeah, I mean, look, the main reason has been that, you know, a lot of delay in equipments where we were buying that used semiconductors, were, I mean, incredible delays and that's been I guess, the main reason. Now everything is in place. We have got everything. We are in the mechanical completion stage. In fact, the plant is ready. Both plants are ready. We are already doing water trials, and we will be by the end of, we expect by the end of next month, so about in a month from today, to start the product trials as well.
Thank you. We have the next question from the line of Aditya from Securities Investment Management Company. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Just wanted to get a better understanding of the synthetic and latex business, excluding the Nitrile Latex or gloves. Now, what are the market dynamics over there? Do we face competition mainly from domestic players or are there imports as well? I believe since you are market leaders in most of these products, are we facing margin pressure over here or are we able to pass on the price increase, decrease over here?
Here I would say, we have mostly domestic competition. There is some import competition. The margins have been fairly good, I would say, for synthetic latex outside of Nitrile Latex. We mainly have domestic competition, one major domestic competitor for this. They've been by and large okay, but obviously the higher cost raw materials that we have had to import, I'm sure they have as well. The market, you know, corrected quickly in terms of finished goods pricing. To some extent there has been some reduction, but not major reduction in margins in those products.
Right. Just a follow-up. What is the pricing policy for the company, for the synthetic latex business? What is the frequency of the price pools that we have with the customers? Do we book raw materials on a back-to-back basis to protect us from, you know, inventory losses?
There are 2 pricing models we have. One is we have formula pricing for some large customers who are willing to commit volumes. And the rest of them are on spot basis. I would say wherever we were on formula basis, you know, we obviously lose out when we were buying. A formula is based on some published raw material rates, and our actual rates of buying are obviously different. When prices are going up, we benefit. When prices are coming down, you know, it's a disadvantage to us. With spot, of course, we are quicker at sort of passing along the price increases or decreases.
Sometimes when you are stuck with a lot of high-cost inventory, you know, maybe there is some pressure in the short term to reduce prices when prices are coming down. They do get prices of what the imported prices are, you know. Even though imports may only be 15%, 20% of the total market, it still impacts the entire market in terms of pricing.
Right. What will be the proportion of the formula-based pricing and the spot pricing?
I don't. I mean, totally as a company, I think it's about. Can I come back to you on that? Obvious- it's still a smaller percentage. I think maybe about 25% or so would be formula pricing, and the rest would be spot. As a company on the whole, I'm saying.
Okay. Okay. If I look at the, you know, margin profile of the company, three to around 16, 17, we used to make around 8%-10%, but now we are guiding for around 13%-16%. Just wanted to know what has changed for the company in these years, you know, which has led to the increase in margins. Is it just, you know, a scale, or are there any other factors which have helped us achieve such margins? You know, because when I look at the product profile of the company, we have added Nitrile Latex, but it is currently constituting, you know, in single-digit revenue. We have added NBR, which also makes comparable at level margins only. Margin accretion wouldn't have come from, you know, change in product mix.
What has led to the increase in our base level and profitability?
I mean, couple of reasons. One is, of course, as you said, economies of scale kick in, you know, as we kept growing. The second is our customer profile, our product profile. We have moved into some specialty grades also, which are much higher margin, obviously lower volume. All, you know, combination of reasons have helped overall margin. Of course, you know, as you grow, the ability to buy at a lower rate, better procurement buy-ins, all, I mean, multiple reasons. I would say four or five different reasons.
Okay. Sir, would the change in product mix would have led to increase in margins? The products have remained more or less the same, right?
But within the product, as I said, there's customer mix as well. Earlier, for example, we had, I mean, if I were to give a specific example, in the paper industry, there was a large focus on or large percentage of our sales were towards the large customers. As we have grown and as the industry has grown, now there are a bunch of middle and smaller level customers, their margins are better. We have not grown. Our volume has been capped, we have purposely sort of focused on customers which are higher margin. Similarly on exports as well. You know, initially, while we were getting in the approval phase, we had to give pricing at a much lower level to break in.
Now that we have broken in and proven to be a consistent and good quality supplier to some of our export customers, we've been able to increase margins over time. These are just couple of examples I'm giving you.
Okay. What is the CapEx guidance for next year? What kind of maintenance CapEx is required in our business?
As of now, after this CapEx is done, which is around INR 200 crore this year, we have not taken a call on further major CapEx, and we expect a maintenance CapEx of about, you know, somewhere between INR 15-18 crore per year.
Okay. Okay.
That also includes improvement. Some of those projects are not necessarily maintenance. Some may be de-bottlenecking, some may be cost reduction. Some of them will benefit, and some are pure maintenance, which is, you know, just replacement of materials. We have some small projects which also help in, you know, overall margin improvement, either it's because of revenue increase or cost decrease.
Right.
I'm talking about in general that we see over the last 3 years, 3, 4 years.
Okay.
We expect that to continue in the next year.
Right. What % of our power requirements, you know, are met through captive sources since power cost is a big cost for us?
Yeah. In our Valia plant, I think entire power comes from captive power plant. We have a cogen power plant which manufactures steam as well as power for us. In Taloja, we are dependent on MIDC. We do have some small percentage of wind and solar power, but it's a very small percentage of our Taloja requirement.
Right.
Can we give an opportunity to the next caller, some other callers as well?
Thank you.
Thank you.
We have the next question from the line of Nagesh Jain from NB Investments. Please go ahead.
Hello.
Yeah, go ahead. We can hear you. Good morning.
Very good morning. First of all, regarding the inventory loss that you have mentioned, is it possible to quantify how much was it in the last quarter?
Yeah, you know, we don't. It's possible, we are not revealing those kinds of numbers. I would say at least, I mean, it would have made an impact of, you know, at least a couple , 1% or 2% in EBITDA.
was it there in Q2 as well?
Sorry?
Was it there in Q2 of this current year?
Q2 was a benefit, right? As I mentioned to the previous callers, that the previous three, four quarters, we had a benefit of inventory gains rather than inventory losses.
Okay. Okay. You are saying that this loss may be there even in the current year, current quarter, Q4?
Yes. Yes.
Okay. My second question is regarding the NBR project. I know to the previous caller, you said that there is no significant CapEx for the next year. Does it indirectly mention that you're still not taken any decision on expanding the CapEx of NBR latex?
Yes, that's correct. We've not taken any decision. We are completing our, we are in the middle of completing our, sort of detailed engineering for that project. The final call will take, you know, because we want to ensure that our balance sheet numbers are also healthy and we are not taking too much of a risk on that. We've not taken a call on that yet. Yes.
This latest gloves part, you said that, you know, it'll take more than 6 months to ramp up to the full capacity. At the same time, the margin expectation also will be low from that product?
Yes, exactly. Exactly. It will take longer than 6 months. We think maybe up to a year now, it would take to ramp up to full capacity.
Thank you. We have the next question from the line of Farokh Pandole from Avestha Fund Management LLP. Please go ahead.
Yeah. Hi, Abhiraj. just wanted to check... Hello?
Yeah, go ahead. Hi, Farooq.
Just wanted to check, have we started manufacturing from Valia? If so, what is our utilization at this stage? Is any of this capacity, given the issues that you highlighted, is any of it sort of swing, wherein you can maybe divert some of it to other segments?
Yeah. No, we've not started manufacturing. As we mentioned in the opening remarks as well as to previous callers, there's been a further delay. I know earlier it was supposed to be September, October and December, but because of some delays in semiconductors, a lot of our automation equipment was delayed by a huge, sort of, I mean, it was in order to monitor time. Now the everything has come. Of course, we've received everything, and we have installed everything. We are in the middle of final testing and final approval. The CTO, as they call it, you know, consent to operate for both our plants in Taloja and Valia.
To answer your, both will start up by the end of February, early March, with trial runs and then of course ramp up over the next six months to one year. Earlier, the plan was to make Nitrile Latex in both plants. You know, 50,000 tons we had in Valia and 10,000 tons in Taloja. Last time I mentioned that the Taloja plant was a swing plant, we have made some additional investments to make it a swing plant because we believe that, you know, on our current set of products in SB Latex, there has been a lot of pull and demand and, therefore, what we have done is converted that plant to be able to manufacture any product. That's a full swing plant and ready to go from next month.
The good thing though is that we have now, while we have 50,000 tons of Nitrile Latex, we can make up to 35,000 tons of SB Latex in Taloja. Totally, in terms of revenue, it would amount to about, the current price is about INR 600 crore-INR 700 crore. Earlier I had mentioned INR 450 crore-INR 500 crore, I believe was the thing. With the current INR 200 crore investment, we should get about INR 600 crore-INR 700 crore. This is how we're looking at the next couple of years that we would have, Nitrile Latex coming from Valia and other latexes from Taloja, where obviously the margin profiles in the current context are better and tomorrow, you know, a year later, if the margins in Nitrile get become better, we can always switch.
That's the kind of provision we've left for Taloja. In Valia, we're unfortunately unable to do that, and so it'll be a Nitrile Latex plant only for now. In the long run, if we want to make some additional investments and we want to, we have some options, we have to have additional investments made to do that. We still believe in the, you know, the Nitrile Latex will be a good market in the long run. Obviously, in the current context, last 6 months and the coming 6 months, the margin profile is quite poor. Glove industry is not doing so well. In the long run, I think it should. We strongly believe that things will turn, especially since it's a 10%-15% growth market. I think that'll turn.
Overall, the way we are looking at our projects is that this investment of about INR 200 crores will give us a revenue of about INR 600 crores-INR 700 crores in addition to the INR 1,000 odd crores that we already have. Plus we have left, you know, provision for additional investments at a very low cost. I mean, I want to say maybe around additional INR 30 crores-INR 35 crores will give us another revenue or an additional revenue of INR 300 crores. We have built the company or built these projects to ensure that we can get to INR 2,000 crores without any significant investment. I know it was a long answer, but I hope it answers all your questions.
Yes, it does. Also, can we get some idea of, you know, the level of profitability in Nitrile Latex today, versus maybe six or 12 months ago? As in, what has been the dilution in profit because of inventory issues and the other things that you mentioned?
SB Latex is not because of inventory issues. That's been mainly because of, overall, you know, markets being, sort of very weak. Yeah, the inventory of gloves. Yes, you're right. Because of high inventory of gloves. I mean, margins have pretty much crashed from, you know, they were. Let me put it this way. If there were 100 pre-COVID, or pre-pandemic, they went to almost, 300, and now they're down to less than 50. It's half of what they were pre-pandemic, less than half of what they were pre-pandemic.
Thank you. We have the next question from the line of Dhiral from PhillipCapital.
Yeah, good morning, sir. Thanks for the opportunity. Sir, I missed that part, as you said that from the incremental CapEx of INR 200 crore, now you are looking at the revenue of INR 600 crore-INR 700 crore. Just wanted to recheck. What kind of change in the product mix are we looking at? Sorry, I missed that part, sir.
No. Yeah, what I mentioned is that as far as the Taloja plant is concerned, it'll be, we will be focusing on our existing latex products, Styrene Butadiene Latex, Styrene Acrylic Latex, VP Latex and so on, from that swing capacity. Because we, you know, the cycle times for those products are lower than Nitrile Latex, we are able to make about 35,000 tons against 10,000 tons. In Valia, it will be 50,000 tons of Nitrile Latex, totally 85,000 tons of latex, which amounts to about INR 600 crore to INR 700 crore at current prices.
Okay. Got your point, sir. Sir, what kind of, you know, utilization we expect from the Nitrile Latex, in FY 2024 as you are, you know, expecting, you know, some, you know, change in the situation from the H2 FY 2024?
Look, it'll be. Obviously, in the first few months it'll be very low and then ramp up slowly. We hope that by the end of the year we will be at, you know, in the last couple of months of the year, of the financial year, we would be at full capacity. For the year, we may be less than, you know, 30%, 40%, maybe 40% because obviously the first few months will be at very low capacity utilization because we will still be going through the reapproval stage because it's a new plant, so customers require, you know, us to send some small amounts of material and then ramp up slowly. Maybe 40% for the year.
Sir, lastly, because of the fall in the realization and the margin, at what utilization will break even?
You mean break even? Operating costs, there are. I mean, what do you mean by break even overall? There's hardly any increase in fixed costs. We would be breaking even at a very low operating, very low capacity utilization.
Okay. got your point, sir. Thank you.
The additional cost is mainly just manpower, additional manpower needed to run the plant.
Sure, sir. Thank you so much.
We have the next question from the line of Romil Jain from Electrum PMS. Please go ahead.
Hello, sir. Thanks for the opportunity. Sir, I just want to understand the Taloja plant that you mentioned, the ongoing CapEx which will, you know, I think, start next month. 35,000 additional nitrile will be manufactured. Apart from that also we can manufacture other products which can give similar revenue. Just clarification on that front?
I did not understand the question.
No, sir. I think as you mentioned, 35,000 tons of additional Nitrile Latex can be manufactured at Taloja. XNB Latex at Taloja. Styrene Butadiene Latex, Styrene Acrylic, other products.
Okay, other products. We can also manufacture the Nitrile Latex, sir, is what the communication was. We could also do that, yes.
Okay. Okay. And still make similar revenue?
No, the revenue would earlier...
Earlier, the plan was to make only Nitrile Latex because the margins were very strong. Okay. The earlier the revenue was lower. As I said earlier, the plan was totally 50 and 10,000 tons, totally 60,000 tons. 50,000 at Vadodara and 10,000 tons in Taloja for XNB Latex. Okay. With a revenue of about INR 450 crores-INR 500 crores. Okay. That has changed because we are able to make much more other kinds of latex through the same plant. The revised revenue that we will generate from these plants will be INR 600 crores-INR 700 crores, with an option of, with sort of marginal investment to get another INR 300 crores from there.
Okay. Okay. Got it. Got it.
Sir, second question is, the current margins that we have, that we have reported, I think on the EBITDA side about 13 odd %. This is with the pressure on the Nitrile Latex part of it, which is less than 10% revenue. I'm assuming that the other part of the business, right, that is broadly still stable and still sustainable in terms of margins.
Yes. We have, as I said, broadly, yes. In the short term, because of some high cost raw materials, we've had an issue. Also in some pockets, some product categories where we get a lot of import competition, for example, some of our synthetic rubbers, we have seen margins also drop due to market conditions. I believe. Okay.
those are sort of temporary phenomena and, you know, part of the business cycle. It happens for two quarters and goes back up, so. By and large, yes, the other part of the business is
okay.
Okay. That means, as you mentioned, that maybe in the next 6 months to 9 months, I think as things stabilize on the Nitrile Latex front also and utilization increases, these margins may be broadly bottom margins and there may be a swinging towards better margins afterwards, is what I'm trying to understand.
We hope so. Yes, we think so. Look, overall, there are two, three things that I'm quite, we are quite bullish on.
One is that, look, the company is now well-positioned with very minimal investment to get to INR 2,000 crores over the next maybe 4 to 5 years. There's no additional major investment required. Number two, our return on capital, even at these margins, return on capital, return on net worth is quite healthy. Number three, yes, you know, we feel that we are a quite well-diversified company. We've created. One of the things that COVID has taught us to is to be more flexible, and now our plants are much more flexible. In case there is a downturn in one industry, we can always make it up with, you know, some other products. To some extent, we are able to do that, not 100%.
As I mentioned to the previous caller, for a new Nitrile Latex plant, as of today, the 50,000 tons is only built for Nitrile Latex, and the whole plant is built for Nitrile Latex.
Okay. Got it, sir. Thank you a lot, sir. I'll come back in the queue. Thank you.
Thank you. We have the next question from the line of Nikhil from Simple. Please go ahead.
Yeah. Hi. good morning. Can you hear me?
Yes. Can. Good morning.
Just three questions. One is, sir, you mentioned in 40%-45% of our business, which is, where the dynamics are driven by imports. Even after the price drop, would you say our volume shares in the industry are sustained? We are maintaining our market share even though imports have increased. Would that be a right assumption?
Absolutely. 100% right assumption. As I mentioned again earlier, that we are running at 100% capacity utilization, and even we continue to do so this quarter as well in Q3. Prices fell overall, and Obviously, we had to correct our prices, but we held on to the volumes and the market share.
Okay. Now, second on the glove latex. I understand and, so two questions. One is, in the previous calls you had mentioned that even though the industry dynamics have gone bad, we would still be able to maintain our ROC on the CapEx at 20% plus. The conditions which you mentioned that pre-COVID, if we were at 100, today we are at 50.
Yeah.
Would you say if this sustains for some time that 18%, 20% ROC is still sustainable for our new CapEx, or would it be dilutive to some extent?
I mean, of course, when I was talking about 20-25% ROC, we were looking at the next five years, and obviously the expectation was that margins would improve, that they would not remain at these levels and they would at least improve to pre-pandemic levels.
Mm-hmm.
As I said, if even at pre-pandemic levels, you know, ROC would be even better. Even if we have to sustain one year of low margins, for example, and then, you know, margins improve after a time, after one year, we would still. That's what when I meant that over a five-year period, we're still quite confident that at least a 20%-25% ROC on this new project would also be possible.
Okay. Just last question. On the glove latex, we understand that there is a lot of capacity which came from the glove manufacturers. How is the capacity addition which has happened at the latex side? Has the latex side capacity addition been in line with the glove manufacturer capacity addition, or it's?
I don't think it has been as much as. You know, the glove capacity is easy to add quickly. As far as glove latex for glove is concerned, we, the current players, largely the current players are the ones that have increased capacity. Some capacities were already in the works. Like ours, for example, we had already started investing, and some were announced. The, I believe the ones that were announced and, you know, no money was put in, have all been put on hold. Our view is that the latex capacity has not obviously gone up as much as the overall glove capacity in both China and Southeast Asia. It's more the glove capacity that is an issue.
The glove manufacturing that happened over the last couple of years, which caused a lot of excess inventory. Once those things correct, I think over time, in a market which is growing at 10% to 12% minimum, if not 15%, things should correct itself in a couple of years.
Okay. Just one last question, if you permit. If you look at most of the suppliers in this industry, the latex manufacturers are backward integrated with a petrochemical channel, petrochemical backward integration all based out of Malaysia. While we have to import a lot of RM or, we don't have such a strong backward integration advantage. If we have to understand our advantage in market share gains, is it more on incremental market share gains, or is it more on we are replacing someone else with our new capacities in the latex, glove latex side? How are we gaining market share there, and what is the advantage we enjoy?
Please understand that it's not necessarily true that they're all backward integrated. There are a couple of competitors that are not completely backward integrated, and even a few of them that are, they have many other products. The two main raw materials for this latex is butadiene and acrylonitrile. Butadiene, we have sources that are very close to our plant, and that is true of some of our competitors as well. In fact, some competitors in Korea are importing butadiene into... We are not importing, we are hardly importing any butadiene. That is an advantage to us. Acrylonitrile, I don't think anybody is backward integrated. They're all buying from the market. In some cases, acrylonitrile is available in the same country, so to that extent, freight, you know, raw material price, volatility, all that is avoided.
We believe that we are not at a major disadvantage because large quantities of acrylonitrile are also imported into India at pretty competitive prices. We are able to get those. We feel in terms of raw material pricing, we're not in any way at a disadvantage to any of our competitors.
Okay, fine. I'll come back in the queue. I have a few questions.
Thanks.
Thank you. We have the next question from the line of Saurabh Shroff from QRC Investment. Please go ahead.
Yes, hi, good morning, thanks for the opportunity. Abhiraj, just first question on the balance sheet. As of September, we were at about INR 145 odd crores of debt. Should this peak out at about INR 200 crores by the end of March once the plant gets commissioned?
yes. Sachin, can you answer that question? Are you there?
Yes. Yes, it will be.
Yeah, and from what I understand currently, because prices are coming down, even working capital requirements have come down. To some extent that helps us. I think, when you count, counting debt, I think you're looking at overall long-term debt as well as working capital, right?
Yes, correct.
Yeah.
Which is actually going to be
I don't think it'll even get to INR 200 crores, Sachin? What do you think? Maybe INR 160-170? A large chunk was already done, right?
Yes. right now, I think we have almost drawn down due to light, yeah, we should be in that range.
Yeah. Around INR 180-200 crores.
This should include the additional working capital debt also that you will need once the plant...
Yeah, I think so.
Yeah. Okay, got it. Abhiraj, I think you had mentioned, maybe it was a few quarters ago, is there any sort of work by any of the majors that acrylonitrile could start becoming available locally? I'm guessing it's a couple of years away, but is there-
There has been some talk, but I don't think there's anything that's hit the ground as far as I know.
Okay. No, no progress has been made on that front.
As far as I know, in the last three, four months, I don't think there has, yeah.
Fine. Okay. Finally, on the last question, these new, the new CapEx at sort of Vadodara and Taloja, the new plants that we say, are they any more or less sort of labor intensive, i.e., more automated? Hence the confidence that with a very little fixed cost base you are, sort of gonna break even? Is that the understanding?
Exactly. It's literally. I mean, I was personally surprised with the level of automation that we've been able to pull through. Just to give you an example, in our Taloja plant, you know, 35,000 tons, which will give us at least INR 250 crores of revenue. We need an additional maybe six, eight people per shift, you know. Just that's it. It's highly automated. Everything is run from automated DCS systems. Of course, some amount you do require physical manpower for, you know, packing and such, but a lot of it is automated. Much more than our current plant, yes.
Thank you. We have the next question from the line of Vishwa Shah from Samohara Investments. Please go ahead.
Oh, yeah. Hi, good morning, sir.
Yeah, good morning, Vishwa.
sir, I just wanted to get an understanding on the raw material pricing that you said affected us because of petrochemicals, prices have gone down. What I wanted to understand is, because we've stocked up on inventory during lockdown, at a very high price, is why we are being affected by the steep crash in the raw material right now. That's question one. Secondly, I wanted to know about what happened with the anti-dumping duty case that we had filed with CESTAT. Yeah, if you could throw light on both of them.
The first one, yes, I mean, I repeat, just repeating what I've mentioned before. Yes. Over the last two years, we have continuously had to have higher amounts of raw material inventory, just because of the uncertainty around importers. I also want to mention even domestic raw material inventory, we also increased some of our inventory days because some of our domestic suppliers were also dependent on imported raw materials, you know. We wanted to ensure that, you know, we didn't want to have this false sense of comfort that because we are buying from a domestic source, everything will be okay. As a result of this, overall inventory days have gone up, and we continue to maintain those.
Maybe in the next three months we may reevaluate, three to six months, as of now, we continue to maintain those. While we had that benefit, while prices were going up for three or four quarters, four or five quarters, I would say, obviously from this Q3 onwards, that has reversed. That has been part of the reason why our margins have been lower. Not the full reason, but part of the reason. Your second question on anti-dumping duty, absolutely. We've appealed for anti-dumping. We've got some favorable sort of judgments in our favor as well, but nothing has come out of it as of yet. I think it's still in the courts. Basically, the appeals and all are going on. We're, you know...
I mean, it's going on on the side, but it's something that doesn't affect our day-to-day business right now.
Okay. Thank you so much. Sir, just last question. The borrowing side has increased from March 2022 to up till now. That was mainly for the two CapEx that we ventured in the two plants, right?
That's the only reason. Yes, absolutely.
The last call you mentioned that it is 50, like 50% internal, external and 50% debt. That is the case or it's something?
Approximately, yeah. Approximately. Yeah, you're right.
Okay.
I mean, maybe 55%. I don't have to work out the exact numbers finally, but maybe. Sachin, what do you think? 55%, 60% debt or 50?
Yeah, 60% approximately would be term loan and balance will be internal approval.
Okay. Got it. Thank you.
Thanks so much. All the best for the further quarters.
Thank you. We have the next question from the line of Amal Maurya from Alfa Tech Advisors. Please go ahead.
Am I audible? Hello?
Yeah, yeah. Good morning, Abhiraj. Thanks a lot for the opportunity. Wanted to understand, like, you know, as you indicated that, this quarter EBITDA, I mean, EBITDA per kg or realization were down because of the inventory loss. Is it like, let's say by two quarters we will come to our historical average EBITDA kind of level? W hat was the freight cost like? You know, what was the higher fee freight cost, which were penciling into the realization, if you can indicate that.
Difficult to exactly say how much freight cost. Look, I look at it from a long-term point of view. Today, we are about an INR 1,000, INR 1,100 crore company this year with an average EBITDA of about 15%, I think.
Correct. Correct.
I mean, we feel fairly confident that in the long term to maintain these kinds of EBITDA levels and maybe even improve them as economies of scale kick in, as NBR margins return to normal pre-pandemic levels, et cetera. The way we are looking at it is that the CapEx that we have made today will take us from 1,000 crores to 2,000 crores.
Correct.
With some additional marginal CapEx over the next three years.
Okay.
We want to maintain those EBITDA margins, you know. Now, there could be some quarters where EBITDA margins are a little lower, like this quarter we've had. Maybe even it may go down further in some quarters. You know, I have no idea. Maybe there'll be 11% one day. I'm not sure. We have also, maybe we'll do 17%, 18% in some quarters, you know. That's the nature of this business, that we have to live with these fluctuating EBITDA margins due to the raw material volatility and sometimes market dynamics in some of our product categories. The good thing is we've created a well-diversified business. We're not only focused on one or two industries, so if those industries go down suddenly our margins will go to 5%.
You know, those kinds of things are, which used to happen in the earlier days, I don't think will happen going forward, and I think economies of scale will help as well.
Correct.
That's the way we're looking at the business. Quarter-on-quarter, very difficult to predict.
Yeah. Got that. Got it. Secondly, the capitalization will happen in Q4, right? For both the set, the INR 200 crore CapEx.
Yeah. That's right. That's right.
For INR 200 crore CapEx, you indicated we took some, 50% debt, correct?
Yes. Approximately, I think 60% debt.
Okay.
Yeah, totally. I mean, INR 200 crore CapEx was for these two projects, plus we had other maintenance and other projects going on. For the year, I wouldn't want to say for the year, but for FY 2023 as well as part of FY 2022, total INR 220-230 crores was our total CapEx, about INR 125 crore will come through long-term debt.
Okay. Perfect. Thanks a lot, sir. Thanks a lot.
Thank you. We have the next question from the line of Rohit Balakrishnan from iThought PMS. Please go ahead.
Yeah. Hello.
Yeah. Go ahead, Rohit. Go. Good morning.
Yeah, good morning, sir. Thank you. A lot of the questions were answered already. Thank you for giving very detailed answers. Just couple of questions, one was, You've talked about being very diversified in terms of your end industry mix. Can you broadly give the share of like your top five industries in terms of your revenue mix? I couldn't find it in the... I mean, you've mentioned the industry, but if you could just give a broad sense. If you could also give, like, what it was, let's say five years back from now.
Sure.
Very broad numbers. Yeah, don't need exact numbers. Yeah.
That's a good point, sir. I'll mention about six-seven years ago before we made the acquisition of OMNOVA Solutions India. Before that, you know, I would say maybe 30%-40% of our sale was to the footwear industry, 25%-30% was to paper and the rest, you know, 10%-15% to paper, tire, 10%-15% to construction and so on. In the current context, I'm talking about FY23, I would say about 15%-20% would be paper and paperboard. Construction would be another close to 15%. Carpet would be 10%. Carpet textile put together would be 10%-12%. Tires would be another 10%. Nitrile and latex is another less than 10%, 7%-8%.
The rest is all, rubber products, which includes footwear, automotive, hoses, you know, ride sole, all different kinds of applications from agriculture to auto to, you know, all different kinds of industrial hoses. Many different applications. The final industry consumers are very, very varied now, and no one industry is more than 20%. Once glove market also starts kicking in, obviously glove will become a larger chunk, maybe 20% of our overall sales, but the others will grow as well.
Right. Right. Very helpful, sir. Just, in terms of, you mentioned, the next, I mean, this CapEx would help you to reach to about INR 2,000 crore with some more smaller investments. I mean, this is like over the next four, five years or earlier than that? How do you, how do you see that?
Yeah. I mean, I endeavor in the next four years that would be three-four years that we should be able to get to INR 2,000 crores with this CapEx. Of course, any additional CapEx project that we may take, for example, as I've been telling NBR, additional NBR capacity is something that's in the works that we are looking at, plus some new projects, potential, you know, inorganic growth opportunities as well. That's all additional to this. I'm just talking about the investments already made.
Right. Right. The peak debt you're saying is about INR 200 crores or INR 170 crores, right? Including working capital, everything.
Working capital requirement and when prices go up, because we've tried it when suddenly prices shoot up, obviously a working capital requirement goes up, and when they come down, it comes down again. Yeah, I mean, I don't think it will cross INR 200 crores, maybe INR 180 crores or so.
Right. Last question, sir. I mean, you talked about this diversification of product and industry. Just from a, like, a slightly different question but in the same light is that, typically when the prices fluctuate, let's say if they go down versus, you also mentioned in the earlier call that like for example, import prices now become competitive. How frequently do your customers switch from, let's say, you versus somebody else, and how tangible is that? If you can just give some example. I'm sorry if you've already answered in some of your previous phone calls, but.
Actually, you know, it's not. As long as we're by and large price competitive, customers do not switch. Obviously, for example, market falls by 20% and we don't decrease the price at all, customers will be unhappy and then are looking for alternate options. Generally, they have two options. Given that we are. One of the things Apcotex has done over the last 10 years is become a source, a strategic source of supply for most of our customers in most of our industries. We have major tire cord manufacturers, all the major paper and paper board manufacturers, all the major construction chemical companies. They not, I mean, I don't think any of them have had even one month where they've not bought anything from us.
As long as we're price competitive, you know, it's just, and we assure them that we would be, we have high amount of stickiness with our customers.
Thank you. We have the next question from the line of Karan Batalia from Asian Markets Securities. Please go ahead.
Hi, sir. Thank you for the opportunity. Am I audible?
Yes.
Sir, on the exports, what was the contribution and the growth we've seen?
For which period? I have those numbers somewhere. Overall, you know, we've been at about 20% of our total sale is exports. In terms of growth, I mean, I have numbers for the YTD. First nine months, we've seen about 11% growth in exports this year compared to last year.
Right. I didn't. That was helpful. Sir, you mentioned that, you know, nothing probably could change materially in terms of realizations and in terms of margin for the fourth quarter. So we'll be running at peak in volumes for the fourth quarter as well?
Yes. That we continue to do so. Yeah, we're running at full capacity even now.
The CapEx outflow for FY 2023 could be?
Around INR 200 crores.
Thank you. That is the margin.
Thank you.
Thank you. We have the next question from the line of Anubhav Thukral from ICICI Securities. Please go ahead.
Thanks a lot for the opportunity. Most of my questions have been answered. Just one on the peak revenue guidance. Now, given that the, you know, the market conditions have changed and now that both the plants would essentially be targeting different set of products. Would it be possible for you to give a break up between two plants in terms of investment and expected revenue? I mean, basically break up of INR 200 CR investment and INR 600-700 CR expected peak revenue.
Yeah. Out of the total CapEx of about INR 200 odd crore, INR 200 crore, I would say 70% is in Valia and 30% is in Taloja. Or between 70% and 75% in Valia and 30% in Taloja. In terms of revenue, maybe that will be a higher percentage for Taloja. Maybe 40% Taloja and 60% Valia. 35%-40% and 60%. Yeah.
Okay.
Going forward, yeah. From the new plant.
Okay. The big change in strategy, I mean, I understand that the plant was already supposed to be swing one. The change in strategy is decided by both the reasons, right? The change in dynamics for the latex gloves as well as the strengthening in demand for the other latex products, right?
Yes, that's correct.
Okay. Okay. Okay. Sir, in that context, could you also talk a little bit about the demand outlook for, you know, the non-auto, some end markets like construction paper and carpet?
Fantastic. Overall, you know, I think overall demand in India has been fantastic for these products. There's all our customers in India as well as abroad, both. I would say abroad meaning Middle East, Southeast Asia, wherever, you know, we're doing exports. I mean, the demand has been phenomenal. In fact, we have not been able to cater to the demand because of our limited capacity. Our team is quite confident that, you know, the next two years, two to three years, we will be able to utilize even the Taloja plant 35,000 tons extra that we have, that we have now invested in. Yeah.
Okay. Okay. Okay, that's great. Thanks a lot for this. Yeah.
Thank you.
Thank you. We have the next question from the line of Sandeep from Anand Rathi. Please go ahead. This is Sandeep. I have one minute. Mr. Nikhil, I'm sorry. Mr. Nikhil, I've unmuted your line. Kindly proceed.
Hello.
Yeah. Proceed.
Yeah. Can you hear me?
Yes. Yeah. Good.
Thanks for the repeat. Just one question on the glove latex industry. As we mentioned that the capacities have not come up to the extent the way glove manufacturing capacity has come up. What we understand is that gloves, it's a very fragmented industry where there are many glove manufacturers. On the latex side, how is the industry structure? Is it pretty consolidated? Where I'm coming from is that if the industry is consolidated and there are multiple glove manufacturers which are finding pressure on inventory and on demand. Is the pricing also being impacted on the latex side, or is it more of the utilizations have dropped significantly, which is cause of concern for the industry?
I think, to answer your question first, obviously the latex industry is much more consolidated than the glove industry. In the glove industry, you know, guys from small $2 million-$3 million revenue to, you know, billions of dollars of revenue as well, large manufacturers in Malaysia, Thailand, China and so on. It's fairly consolidated. Obviously, as the demand has gone down, utilization has come down because also all these current latex manufacturers also added capacity over the last couple of years. Therefore, when utilization is down, there is automatically demand on, or pressure on, margins, and that's what's happening on both the gloves and the latex.
Okay. In a way, if you look at the price fall, if it would it more commensurate with the RM fall but not a, is, like a steep fall other than what the RM fall has happened. It's not like, some people are trying to get to market share at whatever price and the industry dynamic, impacting the industry dynamics.
No, no, that is also changed, right? Because even though there are no new players, the existing players plus us, like we are a relatively new player, we have come into the market. That way there are 1 or 2 others that also that are coming into the market or I don't think they have come in yet, but will come in this year. As a result of which the current Nitrile Latex manufacturers, they are trying to hold on to market share and it has become much more competitive. It's not just raw material.
Okay. Okay. Just one last question. If you have any idea, of what would be the utilization at which the industry would be working, the latex industry would be working currently versus what it was pre-COVID? Any rough estimate, or just to get a sense?
I don't have that with me ready right now.
Fine. Sure. Thanks. Thanks a lot.
Yeah. I'm not sure. Because it's changing every month-on-month, you know, things are improving now slowly, but difficult to give an exact number.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.
I'd like to thank all of you for joining this Q3 con call. Just to summarize that, you know, while we are in a challenging phase, and given the overall current macroeconomic environment, plus some specific local industry issues like the glove industry, et cetera, we are quite bullish and confident of where the company's positioned currently. We're quite comfortable at much lower CapEx than, you know, most people could do in the world. We will be able to generate a revenue of INR 600 crores-INR 700 crores, which can go up to INR 1,000 crores with a minimum, further minimal investment, which we will come back to you of course in a year or two as and when we are ready to do that.
While margins quarter-on-quarter can vary in this kind of business, we are hopeful that, you know, we'll stay in the mid-teens and, yeah, continue to grow the business in a healthy manner, keeping in mind diverse product range, diverse customer range, diverse geographical reach, and of course, a healthy balance sheet. Look forward to seeing you all in the next quarter. Thank you very much.
Thank you. On behalf of Apcotex Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.