Ladies and gentlemen, good day, welcome to the Apcotex Industries Limited Q4 FY 2023 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you. Over to you, sir.
Thank you. Good afternoon, 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 fourth quarter and financial year ended 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 only 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, 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 any delay, any further delay, I request Mr. Karwa to start with his opening remarks. Thank you, and over to you, sir.
Thank you, Anuj. Good afternoon and welcome everyone to today's earnings conference call for the fourth quarter and financial year ended 2023. I hope you had an opportunity to review the financial statements and earnings presentations which have been circulated and uploaded on the website and the public domain. Let me first brief you on the financial performance for the fourth quarter of financial year 2023. The revenue from operations were reported at INR 256 crores, which declined by about 8% on year-on-year basis and increased by about 9% on quarter-on-quarter basis. Operating EBITA stood at INR 34 crore, which declined by about 25% on year-on-year basis and increased by about 11% on quarter-on-quarter basis. The EBITA margin reported at 13.22%.
The net profit stood at INR 22 crore, which declined by about 25% on year-on-year basis and increased by about 14% on quarter-on-quarter basis, and tax margin stood at 9.06%. For the financial year, we reported highest annual revenue at around INR 1,080 crore, which grew by around 13% year-on-year. Operating EBITA stood at INR 159 crore, growing by around 13% year-on-year, with EBITA margin standing at 14.66%. The net profit was around INR 108 crore, which crossed 100 crore mark for the first time with a growth of approximately 9% on year-on-year basis. Tax margin stood at 10%. Q4 FY23 margins were impacted due to overall pressure on demand in nitrile latex, while NBR margins returned to normalcy with the fall in import freight.
On the CapEx front, both the projects in Taloja and Valia were commissioned during the quarter with capacity of 35,000 metric tons per annum for multipurpose latex plant at Taloja and 50,000 metric tons per annum for nitrile latex plant at Valia. Additionally, I am pleased to announce that we have declared a final dividend of INR 3.50 crore per equity share. With this, I would like to open the call for question and answer session.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Ankit Kanodia from Smart Sync Services. Please go ahead.
Thank you for taking my question. Congratulations on good set of numbers. Sir, my first question is in terms of the revenue,
Slightly the audio is muffled from your line. Please use the handset mode.
Is it better now?
Yes, sir. Go ahead.
Hello. Okay, great. I just wanted to understand in terms of revenue, how much of this number is volume led and how much of it is value led, if you can give some color?
Yeah, sure. For the quarter, I think the volumes are flat. Most of it is due to, sort of net realization going up or product mix changes. For the year, I think, we are up... Sachin, do you have the exact number for volume increase for the year? I think it's about three-
Yes, 8%.
8%. Yeah.
Great. In the last quarter, we mentioned that basically the EBITA decline was due to raw material and chemical inventory, which were being carried on the books. Are those the same reason this quarter as well?
Yeah, I mean, look, for Q3, definitely that was a big impact. In Q4, there was a slight impact on that. In fact, for one or two raw materials, we still carry some of the high cost raw materials maybe that will be exhausted by April. I mean, largely that's been exhausted. I think as Sachin mentioned in his opening remarks, we have had two reasons. One is the NBR margins. You know, compared to Q3 and Q4 in, of last year and Q1 of this financial year were fairly strong because of shipping rates being very high. We obviously, being the only manufacturer in India for NBR, that was an advantage to us. That has normalized sort of in Q3 and Q4. The second is that nitrile latex margins continue to be extremely weak.
Mainly the glove market, you know, there were a lot of extra gloves produced, even during COVID times and then post-COVID over the last year. You know, glove demand has been extremely muted, down by 20%-30% compared to the previous two to three years. Margins for nitrile latex for gloves are even lower than pre-COVID levels. That's been a challenge, you know, for us currently. We have, of course, we're making small quantities so far, or we were making, and now with the new plant coming up, the volumes will go up. Our cost structures over the next three to four months should also go down. That should help the margins. That is a challenge this year.
Yeah. You don't see the demand picking up anytime soon? Or do you see any significant recovery there in the glove demand?
Yeah, I mean, look, demand should pick up because it should go back to pre-COVID levels. Just that there's a lot of inventory in the pipeline for gloves, which is causing pressure for the raw materials as well. You know, additional capacity has also been created over the last couple of years. I think in terms of volumes, it's not an issue. We still think we will achieve our targets in terms of volumes for the year. It's just that margins are obviously lower. Being a new entrant, you know, it's difficult to get any premium margins at this stage. Over time you will see how it goes. I think in the long term we're still bullish about the business. You know, we're one of a handful of manufacturers that can manufacture this product.
We've been manufacturing quantities over the last three, four years, and now with the 50,000 ton latex plant, obviously our volumes are gonna go up.
Sure. One last question before I give it back to the queue. How has been the performance of ApcoBuild for this quarter, and how do you see that in FY 2024?
Yeah, excellent. We've had some fantastic growth because we've entered new markets in the year. I mean, I don't specifically wanna talk about the quarter, for the year it's been great. It's obviously a much smaller part, as I keep saying, of our total business. We're growing it slowly but surely. We've entered new markets, new states and yeah, I think we're quite happy with the growth. I think it should be around 25% or 25%-30% this year. Last year.
25%-30%?
Growth.
What is this number? Growth.
Growth, yeah.
Okay. In terms of the total contribution to sales, would be.
No, it's much smaller. It's not much. We are not revealing those numbers yet, but it's not much.
Okay. Okay. Thank you so much. I'll give back the line here. Yeah.
Thank you. The next question is from the line of Aditya from Securities Investment Management. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, we have commissioned two plants in this quarter, but there hasn't been much increase in our OpEx costs. Will we see an increase in our OpEx costs from next quarter onwards?
Yeah. I mean, there will be a slight increase, but the way the plant has been designed is it's not a significant OpEx cost increase. The only OpEx that will go up is, in terms of fixed costs that will go up is, you know, some manpower in both the plants and I don't think it's gonna be significant at all.
Okay. Okay.
When you say OpEx, what exactly do you mean? Obviously raw material, power and utilities and all will go up of course, as the volumes build. Both the plants were commissioned in March, so obviously a large chunk of the growth will come in this year, you know, going forward.
No, my question was related to the fixed cost because.
Yeah. It's not much of a fixed cost increase in either case. It's just manpower.
Okay.
Maybe some maintenance and all, but you don't expect much in the first couple of years, you know.
Okay. If you could throw some light on, you know, on the competitive intensity we are seeing in the synthetic latex segment. With reducing freight costs and, you know, slowdown in global economy, are we seeing global players exporting more products in India? Because I think similar situation like this has happened in the past before when there is a slowdown in global demand, competitors try to dump their products in India. Are we seeing this kind of situation happening over here?
Not in latex at all, because latex is more of a regional business. On the contrary, in fact, you know, I think we're doing better at exporting in the latex market. In NBR for sure, that has been the case with freight rates, shipping freight rates being, you know, quite low now. We are seeing a higher competitive intensity for NBR.
Okay. No, not much competitive intensity for synthetic latex.
I mean, look, there are local players in India, which is mostly us and one more company hold about 80% of the market share. Most of, most the companies have recently increased capacity. I think, you know, in the short term there is a little bit of excess capacity, I would say for the next year or two. I mean, margins have been affected a little bit in, for example, styrene butadiene latex. The main place where margins have been affected is nitrile latex for gloves, where there is no other manufacturer in India and we are exporting. I think there globally there is a glut of gloves and therefore latex as well. That's caused the real slowdown in margins or the decrease in margins rather.
Sure. You know, in the synthetic latex segment, do some industries, you know, like adhesives or paints have higher margins compared to a paper or carpet?
Yes and no. I mean, in some cases we do see, yes, that within, for example, we are in construction, carpet, paper, textiles, and I would say, and then there are some specialty as well. The specialty applications within each of these industries that we are supplying to, there we would see higher margins. I would say overall, you know, margins are fairly similar. Paper is sometimes low. It's generally lower than the rest, but not by much. You know, by and large, they're very similar to see an average of, let's say four, five years.
The reason why I was asking this question is because, you know, Synthomer has been moving out from the paper carpet industry because it is seeing that as a commoditized industry and it is focusing more on the adhesives and coatings industry. You know, is this is a similar situation you are seeing in India as well?
Not really. No, not really. I think we come from a smaller base. You know, in Europe it's a little different. What's happened for example, I'll give you paper. You know, first one in Europe, mills are shutting down as the demand for paper has gone down due to digital, you know, overall, you know, the digital industry has taken over. In India, we came from a very low base, and paper includes packaging as well. As our population is growing and as our GDP per capita is growing, which is at a very low level right now, you know, $2,500 or even less than that. Therefore, you know, we are not seeing that in India at all.
Okay. There is scope for, you know, these industries to grow, that paper and carpet industry to grow in India.
Yeah, absolutely. We're not seeing it in India. I mean, obviously we export as well to the Middle East, Southeast Asia, and we're not seeing it there either. I agree. I mean, the company you mentioned is largely in Europe for those paper carpet, and Europe is going through a tough time even in terms of energy costs and other issues, you know.
All right. Just a related question. The increase in exports which we are seeing, one of the reasons is because the players over there are shutting down are not catering to these kind of industries. Would that be one of the reasons which is why we are seeing an increase in our exports?
No, I don't think they're not catering. I think they may be de-focusing. That may be, I mean, at least some information that you have. Of course, they're still in the market as far as we know, and we do compete with them in some of the export markets.
Okay. I'll come back on this one.
Okay. Thank you.
Thank you. The next question is from the line of Karan Bhatelia from Asian Markets Securities. Please go ahead.
Yes, I'm audible?
Yes, Karan, go ahead.
Yes. Congratulations for the INR 1,000 crore top line and the INR 100 crore bottom line.
Thank you.
Sir, how has exports done for fourth quarter and for the year FY 2023, and how do you see that at least for the next one year to see so?
Sachin, do you have the numbers in terms of volume growth for exports?
Yeah, for the quarter, we have an export growth of in volume terms is 28%. For the year, we have grown 16% in volume.
Fifteen?
16%.
Okay. Okay. Okay. Any further clarity on the NBR project, doubling of capacity out there? Anything concrete out there?
We're going through the detail engineering, which should be done in the coming quarter. Once we have the final costing and we also want to just see how the market is in the next few months, and then we'll take a final call, yeah. No, not yet.
Okay. Okay. Apart from the seven user industries that we cater to in latex, which among the two, three might be, you know, really doing well and which may be blotted? Any, any qualitative commentary out there?
I mean, what I already mentioned. Look, I think as far as paper, carpet, construction, textiles, tires, all those are doing really, I mean, frankly well, you know. As I said, for our markets, which is mostly India, Southeast Asia, South Asia, and the Middle East, North Africa, I think nothing to complain at all. The only latex where nitrile latex for gloves, which is a new product where we've invested 50,000 tons. As a result of that we have obviously pivoted and converted our Taloja plant into a multipurpose latex plant, which includes styrene-butadiene latex and Styrene Acrylics and so on. We did that. And that should be a lever, you know, it could take maybe a couple of years for us to fill that capacity of 30,000-35,000 tons.
That is in addition to our current 65,000 ton, which is almost, you know, more than a 60% capacity increase.
Right.
The other is in Valia, which is a 50,000 ton nitrile latex plant. That is definitely a challenging market, and in the current context. In the long term, we're quite bullish on it and I think, we think that the margins will turn at some point. Volume we are again confident of doing. We have a set of customers that we have developed over the last three, four years, and that will continue to sort of, you know, grow in terms of volumes and value. There the concern is margins. On the synthetic rubber front, as I mentioned, by and large, status quo, you know, steady. Of course, there is some volatility in margins from every now and then.
I mean, if you see a course of a year or two, we've had similar margins for the last two, three years, I would say since 2020 after the first COVID phase, July 2020. Almost three years. There have been quarters up and down. There we are the only manufacturer in India, so.
Right. Right. Still we don't hear anything on the dumping duties or any prediction.
No. Well, I mean, you can follow us. It's public now. We have filed appeals. We've had some very good results in sort of our appeals with the High Court and the Supreme Court. We hope to hear some good news soon. I'm not sure how things will play out, I mean, it's out in the public domain. You can search for it.
Right.
Know what's going on with those. It's not only us, by the way, that is in the boat. There are many different industries and many different companies, you know, that have filed appeals and, they're in different stages of the appellate process. A lot of it is public and looking positive for everyone who filed the appeals of why anti-dumping was not levied, even though the DGTR, the Ministry of Commerce had recommended it. We'll see what happens. I think we should know more in the coming few months of the quarter.
Sure, sure. Safe to assume INR 150 crore-INR 200 crore of top line for the new project? Like I'm talking only about the XNBR gloves.
Sorry, what is the question again?
Is safe to assume INR 150 crores-INR 200 crores in the first year of operation, from the latex gloves part of the business?
Yeah. Look, we, you know, totally we can with the capacities that we have added, we can add up to INR 600 crores-INR 700 crores in top line with these capacities.
Mm-hmm.
We hope to, you know, get to full capacity within. When I say full capacity, I mean on a monthly basis. Within two years, and nitrile latex may be little bit faster because, you know, we are new in the market and we are able to get good volumes already in the first month of operation, although we are going through some trials because it's a new process. We are quite bullish on that. We think Sachin, I don't know if you have the numbers, but I would say, I mean, I don't have the numbers off the top of my head, but I would say about, yeah, INR 200 crore-INR 250 crore top line from both these plants, additional top line in the coming year should be possible.
Yes.
Thank you. Mr. Bhatia,
Yeah.
we request that you return to the queue.
I'm just verifying the same. Thank you. Thank you. I'll return back to the queue.
Thank you.
Thank you.
Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The next question is from the line of Nikhil from SIMPL. Please go ahead.
Yeah. Hi, thanks for the opportunity. One thing, two questions. One was on the margin side. Now if we not specifically on the quarter, but if you look at last year's whole year margin, the first half was very good and second half we had these inventory issues and everything. On a blended basis, we still did around 13%, 14% when there were push and pulls in the industry. If we have to adjust the one-off costs, would you say that this 14%-15% is kind of a base margin at which the business will operate over a longer term because of the probably the diversification of the industries and everything?
First of all, for the year, and Sachin, correct me if I'm wrong, but our EBITDA margins are above 15%, right? For FY 2022 as well as FY 2023.
Yeah. We are at operating margins. Operating EBITDA is at around 14.68% and 14.6 something%.
Operating. Okay.
Operating.
I was just looking at total margins, which include other income, I guess. Yeah, around 15%. Look, yeah, I mean, obviously we did have in both the years, 2022 and 2023, FY 2022 and FY 2023, there were some tailwinds that have helped us, obviously, like very high margin for nitrile latex because of COVID, you know, at that time when the demand for gloves was high. That has actually gone the other way around, where margins are maybe less than half of pre-COVID levels. I think that will go back to pre-COVID levels and therefore, I think in the short term, because of the nitrile latex margins, there might be a margin hit for a few quarters.
Other than that, I think, you know, we are looking at this 14%-15% as sort of the base. Of course, as we grow in our kind of business, you know, as one of the previous callers asked, the operating expenses are not very high, you know, in terms of increase. Increase in operating expenses are in fact very low. As we grow and achieve economies of scale, in fact, we are aiming at a, you know, higher EBITDA margin of 17%-18% in the long run, when things normalize for nitrile latex. Just to give you an idea, nitrile latex margins are today much lower than what they were pre-COVID, and they're much lower than all our other products, which...
Typically, historically pre-COVID, they were higher than other products, you know, other latex products. We believe it will go back to pre-COVID levels at some point. When that happens is anybody's guess. You know, it could be six months, nine months, I'm not sure. In the long term it's a, it's a good business to be in. It's a, it's a technology that's not easy to master. We've done a good job in terms of being the only manufacturer from India and obviously getting approvals and a lot of customers in Southeast Asia, South Asia as well. We're quite happy with where we were.
Obviously the circumstances of entering the market with a new plant with you know, large capacity is obviously not ideal, but that's something you can't predict in time, you know, in business sometimes.
Sure. I understand that the industry cycle just didn't support us at this point in time.
At this stage, yeah.
It should improve. One question. Now, in our previous question, you mentioned that, among the industries, the specialty would have a higher margin while... There is no one rule for all the industries that some industries are low margin, some industries are high margin.
Because even within the industries there are specialty products and sort of what, you know, somebody else termed it as commodity products. What we call, you know, large volume, fast moving products would be at a lower margin. Obviously larger, big customers, would be able to negotiate a better price sometimes, you know. I think, I don't think it's industry-wise in our kind of business, it's more so it's application-wise. Within paper you could have some applications that are, you know, for sort of commoditized paper and less margins, there would be less, where quality requirements are not as stringent. There are some applications that are obviously at a much higher margin, you know. Because they're specialty applications which are made by one or two people in the world.
We are one of them for few applications. Similarly in carpets, construction, textiles, there are, you know... It's, it's very similar. Yeah.
Just my question was that because, what we choose to do the business will define the ROCE and our CapEx investments for future.
Mm-hmm.
As and because it's two diverse industries and within industries there is further vertical diversification. As an investor, how should we understand in terms of what's your How do you choose upon what we will produce, what we will not produce? Because, if we go by history, our margins are not what we are doing today, even in a distressed environment. What are the choices in terms of is it like we've exited some of the businesses among industries which were not profitable or ROCE accretive? Even in future when we think of CapEx, as an investor, how should we understand our investments?
Yeah. For example I'll give you, it's a good example. About 10, 15 year, 10, 20 years ago we had embarked on making emulsions for the paint industry and we felt that was highly commoditized. Margins were much lower and we completely exited that business. I would say not completely, we're still making some specialty emulsions for the paint industry. But largely exited the business I would say. Whereas in the other industries that what I just mentioned, paper, carpet, construction, tires, you know, we believe it's the competitive intensity is not as high. The barriers to entry are quite high.
When as a business, we look at barriers to entry, we look at competitive intensity, we look at obviously the industry that we are supplying to, what is their future growth prospects. You know, we have a checklist of things before deciding what to invest in. That's on a higher level. As far as, you know, day-to-day operations, obviously, look, depending on customer and industry from time to time, like I just mentioned in the glove industry, they go through their business cycles. You know, unless it's a very long term, we believe that in the long term things will change, we would not exit that industry or that customer. We have done business with customers who at low margins we went well for a few months.
You know, we made a commitment, prices have gone up. Sometimes we, you know, in the past we've done quarterly pricing. Even today for a few customers we may do quarterly pricing. You, you lose out on margins if suddenly raw material prices go up. We don't. You know, we have our strategic customer and strategic markets and we stick with them, you know. We're a long-term credible supplier. I hope that answers your question. I'm not sure if that's what you are asking, but I hope that answers your question.
Sure. I'll come back to the queue.
Thanks.
Thank you. The next question is from the line of Raj from Archive Partners. Please go ahead.
Yeah, go ahead, Raj. Hello? Can you hear me?
Raj, your line is in talk mode. Please go ahead with your question.
Can you hear me now? Hello?
Yes. Yes, we can.
Yeah. Looking at the, all the expansions and everything which you have done, so, can you give an outlook on FY 2024?
I mean, look, we don't really give guidances on outlook. As I said.
Yeah.
You, you know, we... The, the long-
Qualitative outlook I'm asking for.
Yeah. The qualitative, as I said. No, I can give some quantitative numbers also. This money that we have invested or these funds that we have invested is expected to give us an additional revenue of INR 6,700 crores at today's prices. I would say today's prices are. Yeah. Today's prices, let's say in the last few months. That could even go up if prices go up. Unlikely to go much lower, so this will be conservative. We obviously hope to get full capacity or get to full capacity within two years for both our plants. Yeah, I mean, that's the outlook.
Okay. By looking at this, by FY 2026 and FY 2027, you will be doing an incremental sales of approx around INR 1,000 crores or so. Am I right?
How did you get INR 1,000 crores?
I just did a rough estimates and everything.
Six hundred, seven hundred crores.
I mean, our current plants will give us another INR 600 crores-INR 700 crores. We are at about INR 1,100 crores today. We should get to about INR 1,700 crores-INR 1,800 crores.
Mm-hmm.
maybe in FY 2026, I would say. Obviously we have other plans to grow as well and invest.
Uh-huh.
When that happens, that may happen as well over the next year or two.
All right. Understood. Understood. How about EBITDA and everything? In FY 2024, can we expect a similar EBITDA range?
Yeah, look, in the last couple of quarters, we've had our EBITDA has been lower than the first couple of quarters.
Mm-hmm.
On average, as Sachin mentioned, we are at about 14.5%. It's very hard to predict exactly. Had the nitrile latex market, for example, been absolutely normal, we would have been very confident in giving that guidance and look, this is an EBITDA margin that going forward we should be able to do. Obviously you've seen in Q3 and Q4, for a couple of reasons, the EBITDA margins have been lower. One reason was that we got stuck with very high cost raw materials for some of our products. The second reason was nitrile latex margins kept falling, you know, all through 2022 and into early 2023.
Obviously that's on an average when if you are going to have 60,000 tons of nitrile latex coming up at a lower margin, that's going to pull the EBITDA down. We believe it's a short-term issue. We're still gonna push through, you know, and get our sales numbers. In the short term, you could see EBITDA being lower. In the long term, as I said, look, you know, we think the way we are building this business and the way we have developed it, and with economies of scale as we grow, it should be at 14%-15% and even higher.
All right. Understood. Okay, sir. Thanks. Bye. Have a good one.
Thank you. Thank you very much.
Thank you. The next question is from the line of Alisha Mahawla from Envision Capital. Please go ahead.
Hi, sir. Good afternoon. Thank you for taking my question. I just wanted to understand that, for our outlook for 2024, we're not looking at numbers, but just directionally. On NBR side, with fall in freight shipping costs, we're seeing more competitive intensity from imports. On the latex side, again, because of higher inventory, we are seeing some amount of slowdown. In light of both these two things.
No, no. We're not seeing any slowdown. Sorry, we're not seeing any slowdown. That's not true. The second part is not true. Sorry, go ahead.
That is not...
Please go on.
Okay.
Yeah.
Okay. My understanding was that you're still witnessing some amount of pressure in demand on the latex side, and you're saying that's not true anymore?
No, no, not overall latex. I said only nitrile latex margins.
nitrile latex.
Only nitrile latex margins. Demand is very strong for everything. I mean, we are doing our volumes. We've been running at 100% capacity utilization for the last more than two years. Even in the last quarter, we didn't have. Even though we had these two new plants come up, the reason why we didn't see any volume increase was because we had shutdowns. You know, we had in fact, to hook up the new plants, we had 10 days shutdown in one of our plants and a shorter shutdown in another plant. We lost a little bit of production, which we were able to make up in the month of March from the new plant. Overall the volumes were flat. Yeah, we are not seeing any slowdown in terms of demand.
In fact, we are seeing growth in terms of demand. Our only concern for FY 2024 is margins, and that also main reason is nitrile latex segment.
Is it possible for you to share some light on or color on how much lower is it versus pre-COVID levels or versus our average company level portfolio?
Say that again. Sorry. Can you... I didn't hear you well.
One, I wanted to understand the margins in nitrile latex. You said that it is lower even compared to pre-COVID levels and the overall company level margins also. Just wanted some color on how much lower is it at this point in time.
At this point it's much, much lower than average company level. For example, if you were to remove for the last six months, if you were to remove the nitrile latex sales that we did, which is only about, that's about 10% of our overall sales, we would, you know, EBITDA margins would have been higher by about 100 basis, 100 or 200 basis points, you know. 100-150 basis points. Obviously it's very low EBITDA margins right now for our overall contribution margins for nitrile latex. As we are going forward, obviously that's going to also have large, you know, larger chunk of the volume. Next year, our total scale of nitrile latex may be 15%-20% of our overall sales.
Sachin, do you have that number as per our projections? What should be the, in terms of revenue?
You're right.
Uh.
It will be to that extent.
It'll be about 20%? 15%-20%? Yeah.
Yes.
So-
Yeah, the reason for the low margins is because there is an oversupply.
Yeah, oversupply of gloves, I guess. Not oversupply. Yeah, oversupply as well, as well as a reduction in demand because there was so much oversupply during COVID that a lot of extra gloves were ordered. you know, a few new plants have come up. I think the supply demand situation in the glove industry has changed dramatically. If you can actually some of it is public information. You can check the top four or five glove manufacturers in the world, and you see their, and most of them are public, publicly listed in other countries, and you can see their, you know, results are not very good.
Any sense on, you know, do we see this normalizing say in the next one or two quarters? Or is FY 2024 also going to be difficult for this product and probably some amount of balance from the demand supply side can be expected only in FY 2025 now?
You know, it's hard to say when exactly. Obviously, it's very hard for anyone to predict. Well, some people say that, look, you know, the gloves, expiry dates are within two years, you know, typically. Even if gloves are made in end of 2021 or early 2022, they would sort of expire end of 2022, early 2024. You know, it's hard to say when exactly. Of course, it's very hard to predict, frankly. There are different industry views on this. Most of them are saying six to 12 months, you know.
Okay. Just one last question. Last time you were mentioning that the 50,000 tons is coming online, but it's only for gloves. The 10,000 in Taloja was more like a swing capacity, and we were evaluating some newer products. Have we identified new products? Have we started? Is it expected any color on that?
No. What we did with the 10,000 tons, because while we were building the plant in the last 6-8 months when we realized that this is what's happening in the nitrile market, we made minor additional investments, and we have converted our 10,000-ton nitrile latex capacity in Taloja to a 35,000-ton multipurpose latex plant, which is able to make nitrile latex and also able to make other current products, which is styrene butadiene, Styrene Acrylics. That demand is very, very good, very strong. In the first two months itself, we are utilizing 20-25% of that capacity. That's expected to keep going up over the next one to two years.
We expect to get to 100% capacity utilization at some point in the following financial year for that plant. That's what we have done. That's what I think Sachin mentioned in the opening remarks as well. I hope that's clear.
Sure. This will be relatively better margins?
Yes.
Okay. Sure. Just for clarification, this Taloja plant, I think will reach full utilization in 2025.
Sometime in 2025, yes. Which does not mean that we will sell 35,000 tons in the whole year. I mean, you have to break it up monthly. For example, if it's 2,000 tons a month, at some point in 2025, we will reach 2,000 tons a month, yeah, for the new plant.
Thank you. This line may be requested that you return to the question queue for follow-up questions. We'll take the next question from the line of Savi Jain from 2 Point 2 Capital Advisors. Please go ahead.
Hello.
Yeah, go ahead, Mr. Jain.
Yeah. I just had the question on your treasury operation. I see there's a lot of active equity investing in other stocks. I just wanted to understand what is the rationale for that.
Actually, it's not active. Frankly, we have outsourced it to, you know, experts who actually manage treasury and wealth. We don't manage it in-house. Those, you know, there we have invested about 70% is in equity or little less than that, sort of like INR 87 crore or INR 90 crore NAV. Let's say INR 90 crore NAV, about 70%, right, Sachin, is in equity. That's also broken up into equity mutual funds and then some PMSes also have been invested in. That's why it feels like there is a churn, but there is really not.
Well, no, I can understand the, you know, the funds and the mutual funds, et cetera. I see a lot of stocks also being bought and sold. Like, there's a lot of exits and new entries between two financial year. That is something. It's extremely highly diversified. There are like hundreds and hundreds of stock. It seems a little bit, you know, non-core to what your business is. It does not even look like long-term investing. Some of these stocks have been completely sold in a year, and new stocks have been bought in a year. I mean
I don't think we are holding that. That may be true, and we'll look into it. Sachin.
FY 2022 annual report, 120 direct stocks you own.
Yeah. No, it could be because there are... I'm sure FY 2023 will be lower because we exited one of our wealth managers completely in FY 2023. I think we're reducing that. FY 2023 annual report you'll see that's a lower number.
Mm-hmm.
Our long-term view is, look, we have this treasury that we have kept for either potential non-organic, you know, acquisition growth or partnerships that we may get into, or sometimes we also, you know, quick expansion decision we wanna take, we should have some liquidity. In terms of it's not a very large amount in our view. It's about INR 90 crore, which is, you know, less than 1/10 of our total revenue. It's from a market cap point of view also, it's a small percentage of our market cap. Then we wanna It's for the long term, so we wanna maximize it, and we believe equity generally, you know, over the long term give you better returns than, you know, debt mutual funds or just, you know
Yeah. For example, for illustration-
Your point is well taken. Your point is taken, and we'll try and see if we can reduce that. The idea was not to trade in stock. That's not the idea at all. It may be because we have given it to two different managers in FY 2022 and FY part of FY 2023, and then they in turn have given it to a couple of other PMS managers, so therefore it looks like a lot of stocks. If you see the percentage that are in stocks is, I don't have the exact number, it would not be a lot. Most of it is in equity mutual funds.
Mm-hmm. Mm-hmm.
Yeah, 10% to 15%. Yeah, that's it. Rest all in mutual funds and index funds.
Yes. Okay, got it. Now in terms of, just, you know, the CA also we mentioned about the two new plants, but is there anything else that is in the pipeline in terms of new products or new categories that you're getting into?
One is for our NBR, it's all new, but for our NBR, we are the only manufacturer in India and we've been running at full capacity. Some capacity will be freed up when we move our. Right now we're making nitrile, or not right now, sorry. Till March, we were making nitrile latex in our NBR reactors, which will move out and give us some additional capacity there, maybe about 15-20% additional capacity. We want to try and see if we want to double that capacity because the market is there. We've done a good job. We are just waiting for a couple of things to see the CapEx costs, the current CapEx costs, and whether the returns will make sense.
Of course, there are new products that we are looking at as well. No decision has been taken. When the time is right, we will announce that decision. Yeah. As far as investment is concerned.
Thank you. We'll take the next question from the line of Aditya Khetan from AK Capital. Please go ahead.
Yeah, thank you for the opportunity. Yeah, it was not AK Capital, it is SMIFS who's introducing, so there might be some conflict of interest. Sir, onto the demand side, as you had mentioned earlier, the demand has been started to witness an uptick into the glove side. I believe so the last quarter when we discussed on this, so you had mentioned that so there is some pain of six to nine months. Again, sir, this quarter we are guiding that so there could be some pain for again six to nine months into the glove segment. When we see this pain to end into the nitrile latex segment and what is our target utilization for FY 2024, when the capacity will start?
Good question. I'll two things. One is that demand is not a big issue. We have 50,000 tons in the nitrile latex market is very small. It's not even, you know, a couple of % of the total market, even at these little bit lower levels. Demand is not an issue. The issue is margins. Margins are very low, unfortunately, as we entered the market. What was your second question?
Sir, what would be the utilization levels?
Yeah.
-new nitrile latex?
We expect utilization levels to be somewhere between 40% and 50% for the year.
For the complete 85,000 tons or only for the nitrile 60,000 tons?
No, nitrile latex 50,000 tons. For the complete... Yeah, that also for the remaining 35,000 tons, you know, there also we would have been at 60%, honestly, but we have to wait for some, you know, we have got permission to only manufacture a certain amount, because earlier, as you recall, the Taloja plant was a 10,000 ton latex plant. We had applied for environmental permission for only that amount. Because SB Latex or our other latexes, we are able to make 35,000 tons. We have applied for additional permission to make more products on the same plant. That also requires some environmental permission. I think when that comes through, especially in the next 6 months, we should be able to increase that as well.
That we are a little bit dependent on those environmental permissions, but we are hopeful they'll come through in the next six months because it's not very complicated. We're not gonna have to put up a new plant or anything of that sort. Hopefully in the next six months that should come through. I would say, you know, if you look at the entire 85,000 tons, I would say maybe about 35%. Thirty-five to... Yeah, 35% of the total.
Okay. Onto our quarter-on-quarter, when I was looking at the raw material prices and some of the finished product prices, there is a clear contraction in terms of spread which is seen quarter-on-quarter. Still the numbers have been good. Like, quarter-on-quarter basis, margins have been flat. Is there some, have you stocked up inventory at lower prices and that benefit we have got in this quarter, that is why the numbers are so which are reflecting onto the spot prices? That is what reflects into the results.
I am not sure if I've understood the question clearly.
Sir, I'm asking that so the spreads of the styrene butadiene and acrylonitrile and your some of the finished products like NBR, synthetic latex.
Yeah.
That spread going quarter-on-quarter onto spot it seems so there is a decline. Our margins have been constant. I was just wondering, so have you stocked inventory at lower prices? Because the raw material prices, so they have started to go up. The finished product prices, they were going down. The spread got contracted. I was wondering whether we had kept some inventory at lower prices.
Sorry, I'm a little confused, but what are you looking at it? How are you following styrene butadiene acrylonitrile prices?
The styrene prices, so we are tracking some of the Chinese prices and Southeast Asia prices.
Okay. From the published rates.
And some of-
Okay.
Yes.
I would say that in the... That's not always, so you, what happens in reality is not what is published, right? For example, as I mentioned in the last quarter that we had some high cost raw material inventory that we were stuck with in the previous quarter. That now in Q4 is somewhat normalized. Therefore, you can't really compare that just because those are published rates is not what Apcotex's rates are. Sometimes published rates could be maybe lower than Apcotex's rate, sometimes it could be little higher also. I would not look at the published rate as... I mean, it's a benchmark, but it's not really accurate, you know. Yes, to answer your question, Q3 in fact it's the other way around. Q4 is by and large okay.
Q3 we were stuck with higher costs raw materials. Even though published rates may have gone down, our rates were not down in Q3.
Thank you.
Thank you.
The next question is from the line of Ishmohit Arora from SOIC Ventures LLP. Please go ahead.
Hi, thank you for taking my question. Sir, first question is in FY 2024, in spite of the slight increase in OpEx, do we still see absolute growth in EBIT?
Yeah, of course. Yeah. I mean, that's. We do expect an increase in EBITDA. In fact, what you would see happening in FY 2024 is the profit before tax will go down because we have a large CapEx which we've never done before, and all the CapEx has come on stream in the last quarter. You know, upwards of INR 20 crores-INR 30 crores. That depreciation is gonna start hitting in Q1. The interest which was so far being capitalized because we had taken a loan, term loan for to partly fund the CapEx, that will start hitting the P& L as well.
From an EBIT EBITDA point of view, you would, you know, we would obviously on an absolute basis, we would see some growth, or we would hope to see some growth. On a PBT level, because of depreciation and interest, gonna be much higher in FY 2024 going forward or from Q1 of FY 2024 than it was in the past. I hope that's clear.
Right. Right.
Yeah.
Sir, my second question is, in terms of like what is the overall vision of the company over next three to five years? Are we looking to launch any new products or are we just Like, just a broad vision of our next three to five years.
Yeah, look, I think we have a lot of opportunity in the, in the emulsion polymer space that we are in. Even if you see the last five to six years, we have done four things. One is grown the current business in India. Second thing is we've grown the current product range outside of India. Third thing we have done is acquired a company in a adjacent for NBR and allied products. As a result of that acquisition, we were able to put up a nitrile latex plant in that facility in Gujarat. These are the four things that we have done. Going forward, we want to, as I said, one thing is obviously grow in the emulsion polymer space. We're looking at other spaces as well, but no, obviously, I think that's premature to talk about.
We will continue to grow our exports, we will continue to grow nitrile latex, NBR. Those four and our current product range where there's a lot of opportunity that we do see. There are some specialty products within these emulsion polymers that we're looking to add. For example, textile, which is a very small part of our business, five years ago, is now becoming a larger part of our business and another strong leg, another industry that's become quite strong for us. Yeah, various things. Obviously we're looking to grow both from a, in organic opportunities, obviously we are evaluating all the time and, looking to grow through a new product pipeline if possible.
Thank you.
If it makes sense. Thanks. It's too premature to talk about this.
Thank you. We'll take the next question from the line of Ankit Kanodia from Smart Sync Services. Please go ahead.
Thank you for taking my follow-up. I just had one question related to the exports. Can you give some geographical breakup as to which part of the con-- you have mentioned that we cater to 7 continents, but if you can just quantify that for me.
I don't think we are supplying to Antarctica, but yeah, the rest, yeah. Sachin, you have the numbers for that? I mean, broad figure of... As I told you, Ankit, we are mostly in Southeast Asia, Middle East. Middle East, North Africa. When I say Southeast Asia, I'm covering, you know, South Asia like Sri Lanka, Bangladesh and Nepal and those countries as well. If I were to venture a guess, I would say, Sachin, 80%-85% of our sale is in this region.
Yes. In these two we're talking about Southeast Asia and-
Southeast Asia and Middle East, right? Which include Sri Lanka. Yeah. The rest is Europe, China, even America, some of it South America. I mean, there's some specialty products we export everywhere, but a large chunk is in this, in this region.
Any color of difference, in terms of demand between the Southeast Asia and Europe? Do you want to comment on that?
What do you mean? Sorry, what's the question again?
The question is, any color on what is the situation or what is the difference in situation between Europe and Southeast Asia? Are they the same?
As I said, Europe is not a very big market for us. Mostly it's Southeast Asia and Middle East, and we're finding, you know, we're growing quite well in these two markets. Europe, North America, Japan, you know, we supply some specialty products to, and they're fairly steady. Yeah, we have had no major issue, I would not say they're a strategic market just because of the distance it takes, you know, and the time that it takes. On the latex side, you know, to ship that much water across continents, it's not necessarily feasible unless it's a specialty product.
Thank you. We'll take the next question from the line of Bhavya Sonawala from Samaasa Capital. Please go ahead.
Hi, sir. Thank you for the opportunity. I just have two questions. The first question is, just wanted to know that, glove manufacturing CapEx and the latex CapEx, have they grown in line in the past two years, if that's possible to answer?
Sorry, again, what's the question? Again.
Basically wanted to understand that the glove manufacturing and latex manufacturing, the CapEx for both, have they grown in line?
I mean, look, I think glove manufacturing, because of COVID, I think a lot of people entered the glove manufacturing business because it's more of a low-tech business in that sense and, you know, low CapEx as well, lower CapEx as well. We've seen a lot of companies in America, China, Southeast Asia enter the market, and as a result, there's lots of gloves. In nitrile and latex, we also have seen extra capacity come on scene, but it's been from existing players, you know. For example, like us, we have been a existing latex player and we have entered, we've started manufacturing nitrile and latex a couple of years ago and then obviously invest in the plant.
Similarly, some of our competitors in the industry have added some capacity in their existing plants, and some were announced, but I believe they've all been put on hold given the current market value.
Okay. Okay, got it. In the last question, you had mentioned about the high value raw material inventory that we were holding. Just try to assume that probably this will be the last quarter we have the high, high value raw materials or-
Yeah, yeah, I, absolutely. I mean, Q3 was a big hit, I would say.
Okay.
Q4 was slightly less. Q5, we're largely done with it, barring a few specialty raw materials that we keep six months inventory and, you know. For example, we had ordered in September, October it from, you know. It came in November, December, and then now, you know, we'll probably be done with it in this quarter. Yeah, I mean, it's slowly coming down, and I would say largely almost done now.
Okay. Thank you so much, sir, and all the best.
Yeah.
Thank you.
Thank you. Thank you.
The next question is from the line of Aditya Khetan from SMIFS. Please go ahead.
Yeah, thank you, sir, for the follow-up. Sir, to one of the participant you had stated that the capacity expansion would give a revenue of INR 200 crore. I believe that we had given a guidance of INR 550 crore-INR 600 crore. Just wanted to verify with you.
No, the capacity expansion is INR 600 crore-INR 700 crore. For this year, for FY 2024, it's INR 200 crore-INR 250 crore is our best estimate.
Okay, the total would be somewhere around INR 600-700. That's what you are saying?
Exactly. At full utilization. Correct.
Got it. Got it. Thank you, sir. Thank you.
Thank you, Aditya. Thank you.
Thank you. The next question is from the line of Om Prakash. Please, an individual investor, please go ahead.
Hello.
Yes. Thank you. Thank you. Thank you. Yes. Om Prakash ji, first of all, we appreciate it. Thank you very much.
Thank you.
35,000 ton latex current products, customers approval growth of course, export market approval constant or distribution network. As far as 50,000 ton nitrile latex, certainly, customers 8 months approval process time. We are confident export distribution network export sales. They're working hard at increasing sales, so we're quite confident. Thank you.
Thank you very much, sir.
Thank you, Om Prakash ji.
Thank you. The next question is from the line of Chandra Pal Singh, an individual investor. Please go ahead.
Hello. Hello.
Yes. Yeah, go ahead. Go ahead, Mr. Singh.
Mr. Singh, please use the handset mode, sir. The audio is not clear.
Thank you.
NBR or not till now?
I already answered here first. Previously answered. NBR detailed engineering, so that project will be over. Now, depending on the final CapEx amount, board and senior management team will take final decision over the next few months on when, if or when we want to, not if, I think, when we want to go ahead with it. We are not yet decided.
Thank you. Thank you. Thanks a lot.
Thank you. The next question is from the line of Raj from Merger Partners. Please go ahead.
Yes, go ahead, Raj. margin. Hello? Am I audible? To answer the question, it's a margin issue. Our plant is a small plant, we are confident of doing 50,000 tons of latex. is not a problem.
Mm-hmm.
Because overall market is quite weak. We are taking, you know, very low prices to be able to sell. Generally, the market margins have reduced considerably compared to, of course, COVID levels, but also during pre-COVID levels. That's the reality. We're confident of doing 50,000 tons because millions of tons are being sold in the market. 50,000 is not a very big amount, you know.
It is a supply issue, no? We can assume it.
Yeah. Now the industry is not doing well, so there's a lot of pressure on the raw materials of gloves also, you know.
Mm-hmm.
Now industry is not making money. They want to ensure that, you know, raw material suppliers. I mean, they can't afford beyond a point, you know, because glove prices have really fallen.
All right. Understood.
We have to support them for some time till things normalize.
Okay. Thanks.
Thank you.
Thank you. Ladies and gentlemen, we'll take the last question from the line of Nikhil from SiMPL. Please go ahead.
Yeah. Hi. Good afternoon. Thanks for the repeat. One question, Abhiraj Choksey. Because in the call you mentioned that the demand is pretty strong and we had the ability to switch the CapEx from NBR, nitrile latex to NBR.
No, no. nitrile latex to other latex.
Yeah, other latex products.
Mm-hmm.
What I wanted to understand is that when we put the capacity, is it like how good sense of a demand do we have in terms of the market? Where I'm not specifically talking on the gloves part of it, but overall, as a general rule, is it like we have a commitment from the customer that 40%, 50% of the demand, we believe that the capacity can be filled by existing customer orders? Or is it an assessment of the market based on which the CapEx plans are organized? I'm not specifically talking on glove. I understand it was a one-off scenario. As a general rule, how do you plan it out?
Absolutely. Look, it's obviously talking to customers. We do not have contracts signed in advance before the plant comes. You know, if you see the industries that the latex products that we are supplying to, and it is, as I said, you know, 75%+ in India, 25% exports. We believe that all the industries, paper, carpet, construction, textiles, tires, all in India is a growth industry. We have talked to all our customers. We have got their three-year projections or five-year projections. We want to try and invest in projects where we at least see 25%-20% ROCE to when we start the project, you know, when we plan the project, return on capital.
We see that we can utilize that capacity within a period of two to three years.
Okay. Okay.
So that's-
The reason for asking the question is that because, like, during the call, you mentioned that you are even whatever is happening on gloves, you are still confident that the capacities will be optimally utilized in a period of two to three years. Just wanted to understand that when we plan for the capacities even in other products, like, is it your assessment or is it like, customers are also like giving us data good enough design that when we put the capacity at least 40%, 50% utilization, we will be able to reach easily. Is it like that kind of an assessment do we have?
As I mentioned, I'm not sure if I thought I answered your question. That, yes, we talk to customers, but we don't take any, you know, written commitment from customers. Yes, customers do tell us, "Look, we are putting up additional capacity." For example, let's say in the paper industry, right? We are, we are close to many, most of our customers, and they will tell us, "Look, in the next three years, we are putting up this capacity, so we will need this much more, binder or latex, you know, over the next three years." We try and time it with that. Then of course, part of it is an assessment as well of, for example, construction. You know, the construction and waterproofing market has been growing really well in India at double-digit growth.
The last five, six years, it's been growing at double digits. In the next five, 10 years also, that's the assessment.
Sure.
Yeah, I mean, it's a combination of assessments, seeing where new capacities are coming up and overall seeing the growth in Asia. You know, we being predominantly an Asian company and catering manufacturing in India and catering to India and Asia.
Sure. Sure. Thanks a lot.
We are quite bullish about it.
Sure. Thanks a lot.
Yeah. Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Sachin Karwa, do you want to do the closing comments?
Fine, Abhiraj. Sure.
Thank you everyone for joining for our Q4 conference call. We finished the year at a strong, with a good strong set of numbers. We're quite satisfied and happy. Of course, our projects were delayed by a few months. We're also happy to share that the projects are both on stream and going reasonably well, and we hope to, you know, now utilize this capacity over the next few quarters. We will also come back to you with future growth plans at the right time. Just one thing to keep in mind is that depreciation and interest will be going up over the next two quarters because of the large CapEx that we've done in the last quarter.
PBT numbers will be affected going forward, but EBITDA numbers is what we are going to focus on. Thank you very much. Look forward to seeing you all next quarter.
Thank you.
Thank you. Ladies and gentlemen, on behalf of Apcotex Industries Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.