Ladies and gentlemen, good day, and welcome to the Apcotex Industries Limited September 2023 results discussion conference call. 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 call, please signal an operator by pressing star then zero on your touchtone telephone. Please note that this conference is being recorded. I would now like to hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, ma'am.
Good afternoon, everyone, and a warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent 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 second quarter of the financial year 2024. Before we begin, a quick cautionary statement. Some of the statements made in today's conf 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 the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions.
The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now, I would like to 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 any further delay, I request Mr. Sachin Karwa to start with his opening remarks on the financial highlights. Thank you.
Thank you, Purvangi. Good afternoon, everyone, and welcome to our earnings call for the second quarter and first half of financial year 2024. 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 stock exchanges. First, let me brief you on the financial performance for the second quarter of financial year 2024. For Q2 FY 2024, the revenue from operations stood at INR 79 crore, which witnessed a slight decline of around 1.4% on year-on-year basis and increased marginally by 0.5% on quarter-on-quarter basis.
EBITDA for the quarter was INR 32 crore, which declined by about 30% on year-on-year basis and increased by about 24% on quarter-on-quarter basis, with EBITDA margin stood at around 11.3%, and net profit margin stood at INR 16 crore, which declined by about 50% on year-on-year basis and increased by about 26% on quarter-on-quarter basis, with PAT margin stood at 5.48%. In Q2 FY 2024, we witnessed highest ever quarterly volume and export volume growth of 35% and 114% year-on-year basis, respectively. Revenue growth was flat, even though volume increased due to sharp fall in the raw material prices and thus lower realization of finished goods. EBITDA margins were affected due to lower margins in NBR, XNB, and Paper due to pressure on demand.
There is no significant inventory loss or gain in this quarter. Furthermore, PAT margin declined due to increase in depreciation and interest costs due to new expansion projects. If you take the first half of financial year 2024, the revenue from operation decreased by 5.5% year-on-year to INR 557 crore. EBITDA was INR 67.1 crore, which decreased by 39% as compared to INR 93.7 crore during the first half of last year. EBITDA margin stood at 10.25%, while PAT margin is INR 27.4 crore. In H1 FY 2024, we witnessed volume and export volume growth of 28% and 120% year-on-year basis, respectively. Revenue decreased by 5.5% compared to volume increase of 35%.
This was due to sharp fall in raw material prices and thus lower realization of finished goods. Capacity utilization from new projects stood at 25%-30% approximately. With that, I would like to open the call for question- and- answer session.
Thank you so much, sir. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Mr. Aditya from Securities Investment Management Co. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. So, sir, in the last quarter con call, you had mentioned that you were expecting some inventory losses in the current quarter as well, but in our presentation, we have mentioned that there were no inventory losses. So if you could just explain what happened. Did the prices spike up in this quarter leading to some inventory gains?
Yeah, exactly. I think when we met in July, you know, prices were still going down. So I think if you're looking at month-on-month, July, we had sort of some inventory losses, but then August and September, sort of things corrected. So whatever losses were there were pretty much made up. So therefore-
... You know, as mentioned by Sachin in the opening remarks, there was no significant gains or losses this quarter.
Oh, got it, sir. So then now, if I have to understand our raw material prices, so are the prices now at pre-COVID levels, or are they still below average levels? And, how do you see them going forward?
You know, very hard to predict. As far as, material prices, yeah, I mean, they are probably, around pre-COVID levels. I, I have not checked exactly, recently, and as I said, we have four or five key raw materials, so I'll have to check for each of them. Going forward, hard to say, frankly, you know, I mean, there's just so much uncertainty. So we don't really... I'm not in the business of predicting what happens. We, we try and estimate, you know, short-term, what's gonna happen in the next month or two, and, and accordingly build some inventory strategy. But as, as you know, we have to have certain inventories. A lot of them are imported, so you have to have a couple of months, one or two months of inventories, you know, to cater to our customers.
It's very difficult to predict, is the short answer, I guess.
Got it, sir. Got it. No, so what I was trying to understand was, if we have to look at our raw material basket, so are they still at, you know, below pre-COVID levels, where there is lesser chances of reducing further, or they are back to average levels?
Sachin, do you have the data pre-COVID, or maybe, can we dig it up quickly to answer the question, maybe at the end of the call, if you don't have it? And if you can't do it quickly, then can I request Aditya to send a quick email to us, and we will reply to you?
Sure, sure, sir. Sure, sir.
Sorry, I don't have the data from pre-COVID levels for raw materials.
Got it. My next question was regarding our end product prices. Are we reducing our prices to sell our products due to insufficient, you know, demand in the markets? The reason I'm asking this question is because Top Glove's in a presentation, they expect the latex prices to drop further due to lower demand. Are we seeing a similar situation for our other products as well?
No, not for other products. And even nitrile latex products, you know, I don't know if the prices will drop any further. It's all related to raw materials, right? Beyond a point, us or other manufacturers of nitrile latex for gloves, it's as it is, at a level where we are, you know, pretty much as low as we can get, because we are, you know, kind of EBITDA breakeven on that product so far. I don't think we can afford to reduce it any further, and I don't think anybody else can either. So I don't think the prices will reduce, but certainly it's the, it's the most challenging market in terms of margins, right now. For other products, you know, as I said, we are by and large passing along our, increases or decreases to our customers.
Obviously, there has been a little bit of challenge, not so much on demand so far, but more on supply, because we have added capacity for example, our other latex, the multipurpose latex plant that we have set up. So we have added capacity. Our competitor has added capacity in the last year. So obviously there is a little bit of, you know, market share, and everyone wants to maintain or grow their market share. So the supply issue, not so much the demand so far.
Got it, sir. What will be the current domestic and export mix for first half?
Sachin, what is it? It's about 70/30, right? 70 domestic, 30-
Yes.
30, 30% export.
This is in volume terms, right?
In volume terms, yeah. Yes. And value, volume and value, I think, right, Sachin?
Yes.
Yeah.
Volume and value.
Okay. Okay, and sir, what would be the end user industry mix for the first half, just a rough range?
Sachin, do we have this data?
Sorry, just repeat the question.
End-user industry mix.
End- user industry mix. So basically, the exports have gone to more, to the carpet, extending.
Yeah, [Sachin.]
That's the
I'm just trying to find first half data. We'll have to come back to you on this, but by and large, you know, latex is probably around 55% now, 55%+ overall revenue, and rubber would be 45%, meaning high styrene rubber, nitrile rubber, nitrile polyblend. Within that 55%, I do not have the percentages, but again, paper, paperboard would be the largest, construction would be second, followed by carpet, and then nitrile latex , and then tire cord, and so on. So I'll get, we'll get back to you on the percentages as well.
Sure, sure.
But if I were to venture, I guess it will be about, you know, 15%-20% paperboard, about 15% construction, 10% carpet, 10% XNB latex and a few others.
Sure, sir. So thank you for answering the question, sir. I'll join back in the queue.
Thanks.
Thank you so much. The next question is from the line of Aditya Khetan from SMIFS Institutional. Please go ahead.
Sure. Thank you, sir, for the opportunity. Sir, if you can highlight what is the sequential volume growth for our company in this quarter?
Sachin, can you answer this, please?
Yes. So volume growth for Q- compared to Q1, we are at around 5%.
... Thank you.
Sir, this would be largely from the nitrile latex business only?
No, I think it's across the board, I think 5%.
Yeah.
Yeah, overall.
It's overall.
It's not that nitrile latex has grown, grown too disproportionately, yeah.
Okay. But sir, what I believe, so other businesses, whether it is NBR or HSR, they are merely operating at peak level or peak utilization level. So the only room where we have added the capacity, so there only like there was some room for volume improvement.
No, we did grow in NBR as well. We had. I mean, automatically some capacity of NBR was freed up because we were making nitrile latex in the NBR product line. You're right, HSR has not grown, but that's a small... That's only about 10%-15% of our business. The rest of it is all grown. NBR has also grown. Our volumes for SB latex and styrene acrylics have grown, and nitrile latex has grown Q- on- Q as well.
Okay. And sir, if it is possible, so for full year FY 2024 and 2025 and 2026, what would be our full year volume guidance growth for the next three years?
As per policy, we don't give volume guidance.
Okay. Sir, if you-
Our intention would be to utilize our plant capacities within the three years, so you can calculate that yourself. The plant capacities and so on are public information.
Okay. Sir, globally, into the nitrile latex front, how is the export demand right now shaping up? We believe, so we were stating earlier, six months back, that demand would start to pick up from second half, so we are nearly standing at that level. So how you see that, we can see a jump into demand and consequently ramp up in utilization, or still there is time of around three to six months, considering demand is not picking up globally?
Frankly, for us, you know, for this 50,000-ton plant, demand is not so much of an issue, it's margins that is the issue. As I mentioned earlier, EBITDA margins are not great at all. In fact, close to breakeven. And so therefore, you know, we don't... For us, doing the volume is not the issue, it's the margin that's the issue. And yes, as of now, the margins have not improved either because of the supply/demand mismatch. There's excess supply and less demand. So that's the issue.
Okay. So sir, this could be resolved by the second half, and we can, like, operate at much higher levels, so we can actually breakeven and also make some profits also from this business?
I mean, we hope so, right? At some point, that will turn. We don't know when that is. We, I mean, there are lots of reports available from for large companies online and, you know, lots of predictions from six months, two years, you know, we've heard several numbers. Difficult to predict, frankly.
Got it. Sir, is there any-
As of today, we're not seeing any significant improvement.
Okay. Sir, is there any new product which we are planning to develop, like this product of nitrile latex we have developed in-house. So is there any other plan of new products which are being so developing right now and which could like come out in the market in the next one year, and that would like give a very good boost to our turnover? Is there anything, something going into the R&D part which can justify into sales?
Yeah, absolutely. Look, within the SBR latex product range, we are developing new products for new applications so that we can utilize, I mean, that would help with quicker utilization of our capacity in Taloja. There are other products that are in the works, but that would require investment. As of now, given the current balance sheet, we have not taken any decision of investing any larger amounts for, you know, new plants as of right now.
What would be the CapEx plan for the next two to three years?
Sorry?
Sir, what would be the CapEx figure for the next three years then?
As of now, it's only maintenance CapEx that we're looking at. So, we have not made any decision on future major CapEx plans. One thing that is on the cards is, of course, the NBR second line, which we plan to add about 15,000 tons capacity. Everything is ready on paper, including the designing of the plant and so on, but we are holding off on that investment as of now, given the overall uncertainty in the world and we also want to manage our balance sheet. So as of now, no decision is taken for future major CapEx.
But sir, that NBR, I believe, so 30% output goes to automotive and also like to some of the construction segments. So globally, the demand is not that bad into these segments. So what is still like holding up on taking the call on NBR?
I think it's the margins, which have been going up and down, and also the auto. Yeah, we are waiting and watching to see what happens a little bit in the auto segment with EVs coming in. So that is the one uncertainty, because NBR goes into, you know, traditional ICE cars. So, so that would be one issue, but more-- and it's not a major issue, I would say. We're still quite bullish on the Indian market, which is 30% in auto. Remaining is, of course, in various other applications like rice roll applications, rotaries and so on, industrial, application, which we expect to grow in the long term.
The question is obviously our internal balance sheet also, that we want to ensure that we are comfortable with taking that kind of investment of about INR 200 crore, which is what our team has worked out now.
So sir, this NBR doesn't goes into EV?
... much less quantity.
Okay. So, sir, so considering over the next four to five years, so the world is transitioning towards EV only. So you think that NBR output also can decline drastically the demands in India?
Look, I don't think it's going to be overnight because, of course, EVs are coming, but, I mean, hybrid cars require NBR also. So it just depends how fast. But I think the next 10 years, we, at least in India, which is our primary market for NBR, we see, overall it should increase. But we are, as I said, waiting and watching for a couple of months more, before taking any final call.
Got it. Sir, there's one last question. Sir, we had made an investment of INR 200 crore into the nitrile latex . So we are holding onto our guidance of INR 600 crore top line?
Say again, please?
sir, the INR 200 crore capital expenditure,
Yeah.
So INR 600 crore top line. We are holding on to our, our guidance, or we are like-
Absolutely. Yeah, yeah, that's true. We, we made a INR 200-odd crore investment in two plants, both put together nitrile latex as well as the multipurpose latex plant in Taloja.
Mm-hmm.
Put together is a little over INR 200 crore, and that we expect to add about INR 700 crore to our top line. As the capacity, capacities are fully utilized. So that can, yes.
Sir, what would be the EBITDA margins onto this INR 600 crore-INR 700 crore?
It's, you know, I mean, under normal circumstances, we had predicted the EBITDA margins would be similar to what we had earlier, a little bit better. Our overall company EBITDA margins would even go up a little bit. But, given what's happening with the nitrile latex market as of today, you know, it's pulling down our overall EBITDA.
Oh, got it, sir.
Yeah.
Thank you, sir. Got it.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address the questions for all participants in this conference call, please limit your questions to one or two per participant. Should you have a follow-up question, please rejoin the queue. Our next question is from the line of Bhavya Sonawala from Samaasa Capital. Please go ahead.
Yeah. Hi, thank you for the opportunity, sir. Am I audible?
Yeah, go ahead, Bhavya.
Yeah, yeah. So just a couple of questions. The first question was with respect to the export market, where we have seen great volume growth. Just wanted to understand, is it the volume growth, has it come, coming across the board or any particular region that we're seeing some good growth coming and that can continue?
Yeah, I mean, look, one is, of course, with nitrile latex coming in, it's largely exports to Southeast Asia, so obviously that has helped with export volume. But other than that, carpet and construction emulsions have also been very strong for us in the last six months. Overall, we have seen more than 100% growth across overall in exports. I don't have the breakup of exact increase over each section, but these are the three largely that are leading the exports.
Yes. Yes, these are the three large product segments.
Okay, but going forward, any particular region that you think you're excited about, where you can see some considerable growth coming up?
Look, we continue to focus on our regions, of Southeast Asia, Middle East. We've seen good traction in Africa. We have, also seen good traction in Russia, and the Middle, Middle East region, Egypt, or Middle East, North Africa, Egypt and, Turkey as well. So these are some of the other markets and customers that we have developed over the last six months.
Okay. Understood. Understood. Just, one more question, I think very similar to the previous participant in terms of new products. I'm just trying to understand in terms of the whole industry, worldwide, have you seen any newer innovations coming up that you think that makes sense for us to venture into? You spoke about something that might require some investment, but I'm just trying to understand the industry. Has there been some, new product that is exciting that you think we can be a part of, going forward?
Yeah. For example, there are a few that we are in the middle of developing. We don't exactly know how much it'll pan out and what it is, but we are definitely developing a few products on the NBR side. Because, you know, these are water-based emulsions, so there are lots more environmentally friendly than solvent-based emulsions. So, for example, one of the products is for, you know, EV batteries that we are developing. We don't know how much volume eventually will turn out, so we're working with some battery companies that are putting up capacity here and in India and jointly developing some products. So yeah, for sure, there are examples like that. One example that we've been successful in, again, converting solvent-based products emulsion is geotextiles.
I think I mentioned that in my, one of my previous, one of our previous con calls. And so that's something we're looking at growing because our products provide extra reinforcement for geotextiles that is used in infrastructure. So again, these are new applications. Obviously, the recipes and some of the things change, but the basic chemistry remains the same. So that's what we're looking at, yeah, a few other products-
Uh.
Along those lines. These will, these will not require significant investment, so that's one part of the products that R&D is working on. And then R&D team is also working on additional high value add, more value-added products is what we are looking at, where there is fewer competition around the globe, no one manufacturing in India. And it's something that, you know, is an adjacency to us, like similar to nitrile latex , that we felt was a good adjacency for our business. So similar to that, we are looking at a few other products, but that will require investment. And no decision has been taken at the right time, and that does happen, we will of course inform you.
Understood. Understood. That was helpful. Just one last question from my side is-
Sorry to interrupt you, Mr. Sonawala. If you do have further questions, I would request you to please-
Okay, I suggest Mr. Sonawala, since this is the last question, let him finish, and then we'll move on.
Yeah, sure, Sonawala.
Thank you so much. So just basically just on ApcoBuild, I understand that, you know, we have just started out with our new capacities and a lot of investment has gone in, and the situation is also not favorable. But, do you think that you'll be doing more in terms of ApcoBuild, ApcoBuild going forward? Would we be more aggressive in terms of trying to build a dealer network or improving our reach, making this a larger portion?
I don't know why you think we... We frankly have not invested a lot of money in ApcoBuild.
Correct.
We have been growing it over the last few years. Slowly, it's a small part of our business, but it's been growing at somewhere between, you know, 18%-30%, so, you know, year-over-year, depending on the year. So, we are actively growing it in terms of distribution network, number of people on the ground, team is becoming larger, we are hiring more people, we are hiring, we're spending more on branding. So that is definitely happening. Absolutely.
Okay.
That doesn't require any capital investment because we are, you know, using our current plants to do the same and for some products, to finish the product range, we are outsourcing some as well, for some products.
Okay. Thank you so much. That was really helpful. Just a suggestion, if you can just put ApcoBuild something, some details of this in presentation, so-
Sure.
You know, it just makes it easy for us. Yeah. Thank you so much, sir. Thank you.
Sure, thanks.
Thank you. The next question is from the line of Saurabh Shroff from QRC Investment Advisors LLP. Please go ahead.
Yes. Hi, am I audible?
Yeah, go ahead, Saurabh.
Hi. Abhiraj, a couple of questions. One is, given that we have this new project, I mean, this is a question and a suggestion, if you could. The NBR and the multipurpose latex. If you could maybe just qualitatively help us understand how the margins stack up, let's say, for our legacy old business versus the new one. You did mention that this, the NBR is barely breaking even, but I guess something in terms of the volume or capital utilization levels, just so that we get a sense for what the underlying business is doing, right? Because what is happening to the glove market is outside of your control. But at least from our end, how the business is shaping up, I think that would help, if there is something that you could share with us.
Look, I mean, I'm not sure if I've understood the question correctly, but I'll try and answer and see if that answers your question. So obviously, the nitrile latex , we've been in this business for the last two years. We've been using our current plant capacity that now we have obviously given back to NBR and our traditional SB latex and other styrene acrylic, and you know, those products. So obviously, it's a new plant, it's a new technology, it's a new way of manufacturing, so the approval process is going on. Obviously, given the current market, the approval process is taking a longer time than we anticipated, because there's really no pull from the market because of the excess supply. However, due to our relationships, you know, we are pushing that along.
Overall, I would say we're at about 25%-30% capacity utilization in the first six months. Unfortunately, the EBITDA margins are what they are. That's the problem. Other than that, you know, we just have to, I mean, we will continue to push to get to a 100% capacity utilization level as soon as possible. It's gonna take a few more quarters. We were hoping by the end of the year, but I'm not sure whether that would happen. And as far as the other, you know, multipurpose latex plant, that's also at, I think, almost 1/3 capacity utilization. So, you know, we're quite happy with the progress there.
We had a lot of demand from export customers as well as some of our domestic customers that we hadn't been able to cater to in the last two years because of our capacity. So there, I think there is no major issue. Look, cycles will continue. You know, there will be a few quarters where demand may be a little lax. Nowadays, for example, I'll tell you one big problem is in countries like Egypt and the rest of Africa, there is demand, but they don't have the dollars to pay us. So you know, we are wary of that. You know, we don't allow sort of credit to, you know, that way we are conservative, so we do give credit on LC terms only, not open credit for those reasons.
So, you know, sometimes they even want to pay us in advance, but they don't have enough dollars. So those kinds of issues will continue going forward, and we'll have cycles. We were quite happy with the progress on the Taloja expansion and the way we have been able to grow business there.
Okay.
The other, other part we are really happy about is also NBR. While there was a little dip in margins in between for a couple of months, you know, we, we, as I mentioned before, that we are only about 30% of the India market share, and so with some capacity being freed up for NBR, we've been able to also run our plant at almost full 100% capacity with the additional about 15%, 20% that is freed up, because of the XNB plant. So yeah, I mean, overall, qualitatively, SB latex and NBR are doing very well, as per expectation. XNB, it's a margin issue, it's a pull-demand issue, you're right, pull from the market issue, so approvals are a little slower than we expected. So,
To answer your question. Just one follow-up on that, actually. You've obviously been telling us now for a while that percentage margins swing also because of the raw material and end product pricing moving up and down. But on an EBITDA per ton basis, are you sort of happy with where the rest of the business is, and is it where you would think of a steady state basis, or is there room for either improvement or you are seeing some budding signs?
... So I think, look, NBR, I'll speak about the NBR business first. We did have a little bit of benefit for about two years when shipping rates were high, given that our imports of NBR were more expensive because of the higher shipping rates.
Sure.
So that's gone, and now it's normalized. And now the margins of NBR are as normal as they can get right now. Of course, we are, as you know, there's an anti-dumping case that's going on in the court. Not sure how it will pan out. So that's one thing that we definitely are looking for some help from the government. But nonetheless, we are competing and, you know, we're okay with the margins that are currently there in the NBR, and we're competing. The second is on SB latex front. Yes, currently, the margins are a little lower than, you know, what we have seen in the last couple of years, partly because of the supply that's coming from us as well as our competitor, main competitor in this business.
You know, I think over time, that will improve as capacity utilizations go up again for us and our competitor with market growth.
Okay, got it. That's, that's helpful, and wish you all the best. Thank you.
Thank you so much. The next question is from the line of Ankit Kanodia from Smart Sync Services. Please go ahead.
Hello.
Yeah, go ahead, Ankit.
Yeah. Thank you. So, my first question related to the divergence of volume growth and margin suppression. So, do we have any history in the past where we have seen something like this? Or how do we look the based on the current scenario in terms of all-time high growth in volumes and all-time, probably all-time low or near time, near-term lows in terms of margins?
Yeah, look, I think one big reason is the nitrile latex for gloves. Obviously, that's something new for the company. So yes, we have not seen this before. We came up with a new plant. We are pushing to sell more material, but we are selling it at, you know, very low margins, close to zero, as I said. So obviously, that's pulling the average down. The rest of it, and I've mentioned this before, if you remove the nitrile latex chunk, you'll see, you know, some ups and downs in cycles, there'll be a couple of lower quarters, couple of higher quarters. On average, we are confident of doing at 14%-15%. In fact, even nitrile latex pre-COVID, you know, the little that we had started selling was at margins that were better than 14%-15%.
They were closer to 20%. So you know, we were quite excited about this business. Unfortunately, the market has turned at the time when we entered the business with larger capacities. And obviously, in the last couple of years, when demand for gloves was very high, margins were as high as 35%-40% as well. Of course, our volumes were much lower at that point. And the rest of the business is kind of cyclical. We're okay with it. No major change.
Got it. My next question is related to the CapEx and debt. So, last quarter also, we mentioned that, we are done with CapEx, and right now we are stabilizing, and same is the commentary in this quarter as well. But I see debt rising every quarter. So Q1 also, the debt rose, sharply and so is the Q2 debt numbers. So what is our view on the CapEx going forward and the debt levels from here?
Sorry, what do you mean Q1 debt rose sharply versus Q2? Where did you see those numbers? Sorry.
I mean, Q1-
Yeah.
Sorry, not Q1. Yeah, March, compared to March. That is what I mean.
Yeah. Okay. Yeah, yeah, compared to March, for sure, because you know, out of the CapEx that we had done, you know, obviously, a large chunk of the payments that were required, and therefore we had raised debt, a term loan of about INR 125 crore. So a large chunk was taken in the last quarter of last year, and therefore, or the last half of last year, I would say. And so therefore, the debt has gone up. But we're quite comfortable with it. You know, we have a INR 125 crore long-term debt. Obviously, with the volume growth, some amount of working capital has also gone up.
Well, but we also have about INR 100 crore of cash on the books, investment that we have kept for potential opportunities, you know, whether acquisition or even investment in the future. So we do like keeping a little bit of cash. So we think INR 100 crore is about one month revenue.
Okay.
Yeah.
My last question is related to ApcoBuild. Any new geographies we have entered, recently, or it's the same four old geographies we are in?
No, we have. We are in a couple of new geographies within the same state. We are going further south as well a little bit in Karnataka, Goa, Maharashtra, Gujarat, MP. These are the four or five states that we're focusing on, but we are doing some business in other states as well. But so far investing more in tier two cities of these states.
What has been the volume in the performance for this quarter in ApcoBuild?
You know, we don't give specific numbers, but we are-
No, I'm not talking about numbers. In general, the growth rates of ApcoBuild compared to last year and last quarter, if you can.
No, we're very happy. We're at double-digit growth in ApcoBuild for the first half.
Okay. Yeah, okay. Thank you so much. That was from my end.
Thank you.
Thank you. The next participant is from the line of Piyush Agrawal from SOIC LLP. Please go ahead.
... Thank you for taking the question, sir. So one question was, can you again please give us the numbers, see what were the margins in nitrile latex pre-COVID?
Sorry, say that again. Margins in nitrile latex ?
Pre, pre-COVID. Pre-COVID.
Yeah. Pre-COVID also, they were at about 20% EBITDA margins.
20%. Sir, what is our current capacity utilization in nitrile latex ?
It's around between 25%-30%.
25%-30%. And sir, last question. On this, like, any, because latex chemistry is like a large chemistry, and it's like a multi-billion-dollar market, are we planning to enter any other, like, products? And also, who will be our peers in the domestic landscape, like, in, not in India, but in the other types of latex products that we are selling right now?
Look, I don't want to take names of other competitors. I think it is easily available. You can search it on Google. So I'll leave it at that. What was your first question? Sorry.
Like, so do we plan to enter any new products in the latex industry?
I, I think I answered that question. There are a couple of applications that we're working on. One is geotextiles, where we've already made some headway. There is batteries, you know, EV batteries that perhaps need some amount of, the kind of products that we make. Of course, some changes have to be required, so we're developing those kinds of products. So different applications, you know, new applications for our products. As I mentioned, there are a lot of, applications that are moving to water-based technology, so that's been, you know, one, one advantage for us. And so we're trying to see if we can take advantage of that situation as well. So we'll be opening up markets that were not traditionally there for us. So that kind of R&D work is going on.
And then, of course, new products that will require a reasonable amount of investment, that's being worked on as well, and at the right time, when we're ready, we'll, we'll announce it.
Okay. Thank you so much. Thank you so much.
Thank you so much.
Thank you.
The next question is from the line of Karan Sharma from Kredent. Please go ahead.
Hello. Yeah, good afternoon. I have two questions for you. The first one is that, incrementally over the next five years-
Sorry, I can't hear, I can't hear you, Karan. Your voice is very faint.
Yeah. Am I audible now?
Go on. Let's try again. Yeah.
Yeah. So first question is that incrementally over the next five years, the multi-part growth is going to come from this nitrile latex , which will be for gloves, and primarily this is for the export industry. Now, right now, you are 70/30 in terms of domestic revenue and exports, and I think this will shift materially to at least 50% or more around exports. And, I just wanted to know that currently-
Probably not 50%, because the rest of the market will grow as well. But yeah, I mean, somewhere between 40%-45% is what we reckon at full capacity of everything, you know?
Yeah. So in the domestic market, you are either number one or number two for most of the products, but in this product you would have a very low market share in the global industry. So I wanted to know that would our working capital change materially, like Margie, you had already mentioned these were 20% pre-COVID, but in terms of working capital, would it be better than what we have currently, or is it worse since it's an export product?
No, it's... So of course, during COVID was much better because, you know, payments were pretty much advanced. But obviously now we have to give credit to our customers. The nature of the industry has changed, and so it would be in line with the rest of our industry, with the rest of the sort of-
Correct. Yeah, and the second question is, if it's possible for you to answer, how much was the exact CapEx only for the Valia capacity, which was added 60,000 tons out of these INR 200 crore?
I think it was about INR 150 crore-INR 160 crore for Valia and another INR 50 crore or so, a little less than INR 50 crore for Taloja.
Great. Okay. Thank you.
Thank you so much. The next question is from Tej Kumar Pandya from Ganesh Stockinvest. Please go ahead.
Yeah, sir. "... outstanding from March 2023 to September 2023, which has, outstanding has increased from INR 137 crores - INR 174 crores. So yeah, sir, what is this due to?
Well, look, I think one, one reason, as I just mentioned to the previous caller, jo hamare nitrile latex ke jo pehle advance mein payment milte the last year tak, woh abhi hamein credit, credit dena pad raha hai, toh woh, woh ek increase hai. Aur doosre jo, jo volume growth hua hai, because of that, thoda bohot, zyada dena pad raha hai in the last, ek mahine, I mean, ek, ek quarter mein. But, aisa koi bada issue nahi hai.
No, sir, aisa issue, hume toh lagta hai ki aapka jo strong term, net profit margin jo NPM hai, 2023 mein, it was around 10%. Aur ab dekha jaye toh dono quarter mein, June quarter mein aur September quarter mein, that NPM has come down by 50%, 5% ho gaya hai.
Hmm. But the main reason for that, ji, is ye toh chhota reason hai, jo debtors. Main reason toh wesa hai ki kyonki humne ye INR 200 crore ka jo investment kiya, tab capitalize March mein hua tha, toh depreciation ka bada hit hota hai. Isliye net profit margin usme se shayad 2% toh usme, 2-3% toh depreciation ka hoga. Aur doosra hai jo term loan humne liya hai INR 125 crore ka, uska interest is hitting the PNL. So those two are the main issues.
...Good, so we may expect that, that 2023, 2024, maybe 2024, 2025, yeah, the, your expenditure will come out and your, your profit margin would be 10%+, as I read correctly?
I hope so. I hope so. That's the endeavor. That is what we are trying.
That's good. Okay, sir, all the best. Thank you so much.
Thank you, sir.
Thank you so much. The next question is from the line of Jatin Chawla from RTL Investments. Please go ahead.
Yeah. Hi, thanks, Aviral. Thanks for the opportunity. Two, three questions from my side. First one is, on the NBR side, you talked about this, EV transition. Now, while I understand that in India, the transition will happen gradually, but, globally also, if the transition happens, and since this is a product which unlike some of your other products, kind of travels easily, will that not impact overall, demand supply dynamics for this product?
Yes, of course, that is a concern, and therefore, that's one of the concerns that we're waiting and watching. Of course, all the predictions are that it, it's not gonna happen overnight. It'll happen over 10, 15 years, and especially if they're hybrid cars, and then they don't affect NBR demand, for example. But wherever we are completely EV, then that does impact. I think, look, it will impact our competitors first because they have much larger plants with NBR and mostly catering to, you know, China is a large market. So there would be a correction in supply as well if that happens.
In fact, two years ago, one of our competitors did announce that they are. One of the suppliers of NBR did announce they are coming out of the NBR market, but then they chose to stay in it for whatever reason. I'm not sure why. So they retracted on it. So, certainly, I think supplies will correct as well, because for them, if China is a large market, then, you know, in EV, cars, auto, is much larger percentage in China of the NBR consumption. It is gonna affect that, those markets first. And even though it travels, there is a cost to the travel anyway. There's also duties, you know, all that. That's an extra cost, at least for competing in India.
Got it. Got it. I think in the last call, you had also spoken about the fact that this multipurpose plant at Taloja, you had environmental clearance for 10,000, and that is why the capacity, you know, production was kind of limited to that number.
Yeah.
Do you have all the clearances now to go to the enhanced capacity of 30,000?
Yes, we do. Good, I'm glad. I'm sorry, I think we should have mentioned that in our opening statement. Thank you for reminding us. But yes, we have received the full consent to operate, to go to the full capacity.
Okay. So, and this came towards the end of the quarter, or was that capacity available in the quarter as well?
No, very recently, unfortunately.
Okay, okay. So we should, hopefully, in the next couple, two, three quarters, see that kind of ramping up.
Yeah, I mean, that's the hope. But look, unlike nitrile latex , where we were new to the market, in that one, you know, we... I would say in the first six months, getting to about one-third capacity utilization itself has been a great achievement. We didn't expect that. We were expecting, you know, slowly ramping up over two to three years, and one-third is what we were expecting at the end of one year. So yeah, I mean, that's gonna ramp up slowly because there, you know, we are quite cognizant of the fact that we don't want to flood the market just because we have the capacity. That will, of course, eventually affect margin. So, you know, we have to play that sort of tightrope of increasing volumes without affecting margins too much.
Got it. Got it. You spoke about the fact that on the nitrile latex side, you are expecting a slightly slower ramp-up and, you know, the 90% utilization that you had earlier thinking of by the end of the financial year now seems difficult. So what sort of ramp-up should we now expect by the end of this financial year?
Oh, look, we're still in... When I said 90%, I meant like, you know, monthly, for example, by the end of March, we, we were hoping to do, you know, at least 90%, if not 100%.
Yeah.
Current context, also our endeavor is that, because, you know, this is like a jump, right? You get one or two large customers to approve your product and when the pricing is right, then you could complete it within one or two months, not at the end of six months. So it just depends on how fast a few customers approve our product, frankly. But at this, you know, at these margin levels, some large customers are asking for prices that are below EBITDA, and that's definitely not something we wanna do, or below even sort of gross contribution.
Mm.
That's the major issue more than anything else. It will just depend on how, you know... We would rather not sell than sell at a loss, right?
Absolutely.
Bottom line. So we are focusing on smaller markets, newer markets. We've shifted on our strategy, instead of focusing only on Malaysia and Thailand, we're looking at, you know, Vietnam, Turkey, India. A few plants have opened up in India in the last year. Sri Lanka, smaller companies in Thailand and Vietnam and Malaysia that, and Indonesia, that we had not earlier looked at. So we're trying to do business where we're at least EBITDA breakeven.
Got it. Got it. Oh, okay. This is great. Thanks. Thanks a lot for answering that.
Commercial and, it's a combination of commercial and, you know, approval issues, I think.
Okay. Okay. Thank you. Thanks.
Thank you.
Thank you so much. The next question is from the line of Nikhil from SIMPL. Please go ahead.
Hi, good afternoon. A m I audible .
... Yeah, go ahead.
Yeah, just two questions. One is, I think, congrats for a very strong ramp-up in the export volumes. But just to understand the context, see, when we talk to other chemical companies across the board, they all complain about a significant inventory destocking and volumes not growing and volumes going down significantly. What is helping us to get the volume growth of almost like 100% in export markets? And a connected question is, if we go through our presentation, we've said 120% volume growth in exports, and the overall volume growth is 28%. And if last year the mix was of domestic and export was something like 80/20 or 75/25, it seems domestic volume growth is only single digit or probably flattish.
Is it a right interpretation?
No. So last year it was eighty-- around 80/20 was the growth. I am just trying to see whether I have the breakup of domestic versus export. Sachin, do you have the domestic growth versus export growth? So I'll answer your first part of the question: The export volume compared to other companies, look, every company has a different context. In our context, there are two things. One is the nitrile latex . Obviously, the new plant that is coming, that has helped to the volume growth, and that is largely exports. That's number one. And the second is, look, I think the war in the Ukraine and Russia to some extent has, to a large extent has increased energy prices in Europe.
So what we're finding is some of our European competitors, their costs have gone up significantly, and so we've seen a benefit of that. We've also seen in some markets the benefit of the China Plus One strategy. So it's a combination of two or three things why our exports have gone up. I hope that answers your first question.
Okay.
Yeah.
Okay.
As I said, every market is different, every company is different. I think, you know, the market looks at chemical companies in one broad stroke. I think that's a pretty simplistic way of looking at it. I think there are many sub-industries within the chemical company, and I think as analysts and investors, and I always encourage my investor friends to try and understand more about the chemical industry and see, you know, there's so many different pockets to it, and they may work very differently. There are some chemical companies that are doing fantastically well and some that are, you know, making losses. So I don't think it's fair to talk about it as one industry.
As far as export and domestic volume growth is concerned, obviously, the volume growth in exports has been, has been much better. However, than the, than the domestic, but the domestic has grown as well, there's no question about it. But you're right, it may be in sort of single digits or, you know... Do we have that information, Sachin?
Yeah. Approximately around 78% we have grown domestically in volume.
Compared to Q2 last year in domestic?
Yes, yes. So half year,
Oh, so half year. Okay.
Okay. Just two more questions. One is, if you look at the employee cost, there is a jump from that INR 14 crore run rate to almost INR 17.5 crore, INR 17 crore. Is it because of these two capacities coming up? And is this a run rate which will sustain on the employee cost, or is there any one-off there?
Yeah, you're right. There has been a bunch of hiring that we have done for the new plants, so obviously that's one. I don't know where you are comparing. I think if you're comparing to last quarter-
Quarter-on-quarter.
Oh, quarter-over-quarter,
So, Q1, we were at INR 114 crore kind of a run rate, which is now INR 17.5 crore kind of a run rate. So that is where I'm.
Okay. It could be, one is our increment cycle, you know, starts after, I mean, sort of gets completed by June. So therefore, part of it could be the increment, and then part of it is also more people that we've hired in the last six months for the new plant. I think going forward, this is gonna be the steady state, and I don't think we are planning to hire too many more people anymore.
Okay. Last question. This is more structural, on the margin profile currently we see. If we like, it... Since we've been following you for last three, four quarters, and, you've been continuously mentioning that the glove capacity or the glove business is largely, breaking even or probably making a single digit margin. Would it be right that the rest of the businesses are operating in that 13%-15% kind of a margin? And for the company to move to that 15%, the glove business has to move to, say, a double-digit margin, or do you think without that also we can, achieve that 15% margin profile?
Well, if you want to grow in the glove business and if we are endeavoring to grow, obviously more and more revenue comes from the glove business, then, you know, we do need it. If you make glove business zero today, then tomorrow itself our margins will go up. Right? Obviously, that's logical. However, we are strategically quite in the long term still bullish on this business. We are one of few companies in the world that make this product. Unfortunately, the industry itself is going through a structural change. We have to wait till, you know, things kind of settle down. So to answer the question, yeah, we would need the glove industry to recover and glove business to go to double-digit market margins to go back to, you know, 15% level.
Without that, it will be difficult.
Fine. Thanks a lot.
Thank you.
Thank you so much. The next question is from the line of Puneet Patni from CED PMS. Please go ahead.
My first question is, can you tell me the impact of ethanol blended fuel on the NBR business?
No, there is no impact on ethanol blended business, because even with ethanol blending, you still need NBR, so there is no impact with that.
Because I was reading few studies, that mentioned that NBR isn't compatible with, high amount of ethanol blended fuels. Is it true, or?
As far as I know, as of today, and I'll, I'll look into it, but ethanol blending is up to 20% max, so I don't think at least up to that level, it, it's a problem, and I, I've not heard this frankly.
Okay. My next question is regarding the HMD latex business. So, how do you compete with your larger peers in this segment? What is your the USP of your product?
Yeah, look, we do have certain USPs in our product. We don't really-- I mean, that's the technical sort of, what would you say? Technical, things that we have in our product that we have sold to our customers, but at the same time, that's not so much to not giving us premium pricing in the current context. We're also manufacturing it in a different way than our competitors, so we have certain cost advantages when we get to full capacity levels. Obviously, at these capacity levels, it, they are not kicked in yet. So both in terms of process and product, so in terms of cost and some product parameters, there are some advantages that, we are giving customers, which is why we've decided to enter the business not completely just because on a, you know, me-too basis.
Given the current industry structure, you know, it is a little difficult to get the pull from customers, right? In the current context.
Okay. That's it from my side.
Okay, thank you very much.
Thank you so much. Ladies and gentlemen, as that was the last question for today, I would now hand the conference over to the management for the closing comments. Over to you.
Thank you everyone, once again, for joining the Q2 conference call of Apcotex Industries Limited. We look forward to seeing you in Q3 again, and in the meanwhile, if there is any major announcement, we would be doing so through the, through the right channels, through the stock exchanges. Thank you very much.
Thank you very much, sir. On behalf of Apcotex Industries Limited, this concludes this conference. Thank you for joining us, and you may now disconnect your lines.