Ladies and gentlemen, good day and welcome to the NOCIL Limited Q2 FY 2024 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risk and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. V.S. Anand, Managing Director of NOCIL Limited. Thank you, and over to you, sir.
Thank you. Good afternoon and a very warm welcome to everyone present on the call. Along with me, I have Mr. P. Srinivasan, our Chief Financial Officer, and SGA, our Investor Relations Advisor. Hope you all have received our investor presentation by now. For those who have not, you can view them on the stock exchanges and the company website. Let me begin by providing an overview of the company's overall performance during quarter two financial year 2024. In Q2 financial year 2024, the various external challenges of geopolitical tension, recessionary trend, and aggressive dumping from China have impacted sales volumes and realization. For the quarter, we witnessed a revenue degrowth of 11.5% to INR 351 crore compared to the sequential quarter. On a sequential basis, we had a marginal degrowth in volumes on a quarter-on-quarter basis.
Similar to large parts of the chemical industry, due to the lack of domestic demand in China and the lukewarm demand in their predominant export markets, there has been a significant influx of heavily discounted imports from China, even in rubber chemicals, which has put pressure on product realization. As we try to increase volumes on one hand, it is important that we also preserve value in the process. Consequently, we witnessed an impact on our volumes. The volumes in the domestic market remain flattish as we continue to build on our business with our domestic tire customers and penetrate the non-tire sector. The company experienced a decline in export volumes, which can be attributed largely to the global recessionary trends, coupled with aggressive pricing from China. Now switching on the industry scenario.
The domestic tire industry remains robust, with the Indian automotive industry continuing the growth trend with stable demand from OEMs. While the passenger vehicle sector has reported positive growth for the period April to September year to date versus the corresponding period the previous year, the commercial vehicles have reported flattish sales for corresponding periods due to a subdued monsoon, higher interest rates, and new emission norm. But with increased infrastructure development, we expect the commercial vehicles to also gain traction. The Indian tire industry has ambitious plans to increase their top line by 2.2x in the next 10 years, and we are well positioned to partner with them in their growth story. Coming to international markets, the latex industry is still dealing with market challenges.
The rubber glove industry in Malaysia, for example, is operating at about 50% of their peak levels compared to the year 2021 to mid-2022, a combination of lower demand and stiff competition from Chinese rubber glove manufacturers. On the tire industry front, the lower demand in Europe and the U.S. has also impacted our exports from Asian manufacturers, including Indian players. While on the one hand, the high interest regime, geopolitical tensions, and the recession overhang continue to hamper demand in international markets, we continue to work with our strategic global tire players to gain approvals and are positive about increasing our global presence in the medium to long term. On the very important topic of sustainability, I would like to share that we have completed the submission of data for the Carbon Disclosure Project or CDP for the year 2022-2023.
We have also committed to SBT or Science Based Targets, and as part of the Global Reporting Initiative or GRI, we will shortly be publishing our sustainability report. You may already be aware that we have been accorded the Silver Award for the EcoVadis sustainability ranking. While I have just shared about our work on the sustainability front, we are proud to announce that NOCIL yesterday bagged six awards at the second Sustainability Conclave.
The awards were given for the Best Sustainability Report 2023, Best Sustainable Initiatives to Improve EHS, Environment, Health, and Safety, Best Sustainable Initiatives to Improve Energy Efficiency, Reduction of Poverty, Promotion of Education for Economically Backward Sections, and Support in Rural Healthcare. This is a proud moment for us, and I would like to congratulate the teams on this achievement. That is it from my side for now. I will hand over to Mr. Srinivasan to give you an update on the financial performance.
Thank you, Mr. Anand, and good afternoon to everyone. Now let me take you through the consolidated financial highlights. On the sales volume numbers, volumes for Q2 FY 2024 is 127, taking a base of Q1 FY 2020 as 100. On the revenue front, the net revenue from operations for Q2 FY 2024 stood at INR 351 crore from INR 397 in Q1 FY 2024, a degrowth of 11.5%, out of which the volume degrowth is about 4% and the balance selling price degrew by 7.5%. Net revenue from operations for H1 FY 2024 stood at INR 748 crore from INR 898 crore in H1 FY 2023. On the operating EBITDA parameters. Operating EBITDA parameters for Q2 FY 2024 stood at INR 45 crore as against INR 56 crore in Q1 FY 2024. EBITDA margin for Q2 FY 2024 stood at 13% as compared to 14% in Q1 FY 2024.
Operating EBITDA for H1 FY 2024 stood at INR 101 crore as against INR 165 crore in H1 FY 2023. Now, coming to the profit before tax, PBT parameters. PBT for Q2 FY 2024 stood at INR 37 crore as compared to INR 47 crore in Q1 FY 2024, sequential de-growth of INR 10 crore. PBT for H1 FY 2024 stood at INR 84 crore as compared to INR 138 crore for H1 FY 2023. On the profit after tax parameters, profit after tax for Q2 FY 2024 stood at INR 27 crore as compared to INR 34 crore in Q1 FY 2024. Profit after tax for H1 FY 2024 stood at INR 61 crore as compared to INR 102 crore in H1 FY 2023. With this, we would like to open the floor for question and answers.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Nir Jimudia from Anvil Research. Please go ahead.
Yeah. Good afternoon, sir. I have two questions. One is, when we look at the commentary of the largest Chinese rubber chemical player in their latest quarterly results, they were mentioning two, three important facts that the markets such as Indonesia, Vietnam, Thailand have started showing the improved demand. The demand have picked up there. Even if we see their July, August tire output data, that is up close to 15% on a YoY basis. And September month also shows the increase in their ASPs, like average selling price of close to 23% with the commensurate increase in the engine prices, which was close to 19%.
Just wanted to understand your thought process of our volume growth, because in the past we have been seeing that, we have received approvals and the Chinese have been very aggressive in terms of selling into the markets which had a slowdown in order to maintain their market share. When can we see the volume growth coming to us? Because first half had virtually no volume growth or volume de-growth. When can we see volume growth coming to us based on the approvals which we have received from the customers?
Yeah, thanks. Thank you, Nir. I think first, when you look at, when you spoke about these Southeast Asian markets, yes, very much, I think there also we have been gaining volumes in those markets based on the approvals that we were also talking about. I think we mentioned this also in the last call, and we continue to monitor that, in terms of our export share. I think we spoke about how there is a split between the latex and the non-latex part of the business and how, while the latex part has come down due to the latex demand overall going down, we see that the non-latex part that also comprises largely of the tire sectors and the tire companies has been going up. So that is kind of compensated for that part that is been going down.
These are all trickling in from the gradual approvals that we are receiving. When you look at year- to- date, and as you said, the volumes are not grown, which is also on the back of pretty much a very strong quarter. That is the first quarter of the financial year of last year, we are talking about. We see a catch up that is kind of also happening in the last few months. I think, yeah, that is how we see it. Talking about the prices, yes, there was a correction during the quarter. There were prices finally moving up in some of the other raw materials temporarily. I think there also we saw some price adjustments on that front as we went ahead. Yeah.
Because sir, if we compare ours with them, so let us say H1 of China Sunsine and H1 of this calendar year 2023, I think they have shown some 10% volume growth. Even last year their base was also very high. So on that 90,000 tons of volume, their volume was close to 100,000 tons. So they have shown 10% growth. Just wanted to understand, like even H2 see those transitions in terms of the approvals coming from the customers and we will see the volume growth only coming to us in next financial year or that could be a slightly earlier process.
I will just take that last part and then I will come back again. I think Srini will also talk a bit about the numbers. Yes, we do see things trickling in even in this financial year itself.
Nir, just to add a bit. When you compare the China Sunsine performance, because it is H1 FY 2023 versus H2 CY 2022, the sequential—
No, I am comparing H1 to H1. So H1 CY 2022 and H1 CY 2023, if I am not wrong, their volumes have grown by 10%.
Okay. So basically, when we were looking at the China Sunsine performance on an overall basis, what we found is— okay, they have grown by 10%, is what you are saying. We have probably de-grown by 5%.
Yeah.
Yeah. That is because of the base effect, which we had, and as Mr. Anand has explained to you. But on a performance per kg or on a performance for EBITDA basis, etc., we believe we are slightly ahead, better than them. That is what our analysis displays there.
Nirav, my answer is that they had a pretty low start, especially with COVID and the lockdown. So there is a base effect there. These are some reasons that we also ascribe to the return in the volume.
In fact, just to add a bit, their EBITDA performance dropped by a percentage and our performance did not become a similar drop, including though they included export subsidy was one of their key income contributors in profitability. Despite that, our overall profit drop because of China Sunsine is marginally lower than their drops.
Got it, sir. Sir, just a small clarification on one of the presentation slide, where we have shown that our volume on an annualized basis for FY 2024 is showing an index of 128. Last year we were at 126. So this is the guidance we are providing or this is just a number which we have annualized based on the H1 performance?
This is based on annualized performance till September.
Okay. This is not a guidance which we are providing.
Guidance is something which we will address a little later.
Okay. Got it. One last question from my side is, let's say in this quarter and the last quarter, if you can share the export percentage in terms of the quantities and this fall, because in one of the slides you have mentioned that the fall in the volumes is because of the fall in the export volumes. This fall in volumes is because of the latex part of the market, and we have continued to grow on the non-latex part and a slight addition in terms of our volumes from the latex market. Let's say we were doing 100 at the peak, where we are currently in terms of the latex market as per the Q200?
Okay. Just to give you a very broad direction, we were normally in latex market, we were 30% in the overall export latex market. That has trickled down to 12% or thereabout. Whereas the non-latex, which was earlier 70%, is probably is about 85%, 88% or something like that today. That's a good thing which we are trying to build up. In fact, this is basically comparing with the COVID times where the peak latex demand was there. So we are comparing with that performance. That was in, say, 2020, 2021 thereabout. Around that time, if you compare, I think we are down by almost 60%. But what is happening is that we have improved that much volume was in the non-latex market, and which is more sustainable is what we believe.
Absolutely. And sir, just a last clarification on that export percentage in terms of the quantities for Q2 as well as H1, if you can provide. As well as total volumes.
I think it will be more or less in the range of 30%, 35%.
Okay. For Q2 as well as for H1?
Yeah. More or less in that range only.
Got it, sir. Thank you so much for answering the questions, sir. I join back in the queue.
Sure thing.
Thank you. The next question is from the line of Aditya Khetan from SMIFS Institutional Equities. Please go ahead, sir.
Yeah, sir. Thank you for the opportunity. Sir, my first question is, we have witnessed increase in import volumes from China and other countries to the tune of 20% in date. So this has also impacted our spreads and our overall numbers. Do you feel this can continue in second half also, we can see more imports because we are still to ramp up the 20,000 ton antioxidant plant?
Yeah.
And spread number might continue to remain depressed for second half.
Sorry. We were able to just about understand what you were trying to say initially, but the latter half is not audible. Could you just again, can you take your line and repeat yourself, please, sir?
Yes, sir. Sir, my question was that, sir, we have witnessed increase in imports from China, by around 20%-25% in date for this fiscal. So because of this, our spreads numbers have also taken a hit. Do we expect a similar trend in second half or because of increase in export volumes that spreads could improve from here on? Or what could be the trend like?
So maybe for the whole year trend would be difficult to comment, but at least clearly what we have seen is that there has been some kind of corrections in the last few weeks to a month or so, where the original drop in prices, there has been some correction on the positive side. I hope that will be maintained or not taken down any further.
Okay. And sir, our competitor also, recently only they have expanded the capacity and in one of their presentations, they had mentioned they are still operating at low utilization level. We can see further increase in imports trend in FY 2024 and continuing in FY 2025 also?
Our understanding also of that drop in prices that we saw was also due to a buildup of inventory and a lso certain inventory reaching shelf life points. I think there was also a need to push that into the markets. That inventory having got out and they are operating at more demand-linked basis. We see that while imports can still go up, but I don't see that kind of price corrections to potentially happen at this point in time.
Okay. Sir, you had also mentioned-
Sorry to interrupt you, Aditya. Aditya, by chance, are you speaking from a speakerphone? Because your sound sounds very muffled.
Hello? Is it audible now?
Yeah. Management, can you hear him better now?
Now the second dial. Now maybe that sound is better.
Okay, go ahead. Sorry to interrupt.
Sir, my second question was on to the tire demand in Europe. You had mentioned in your opening remarks that the tire demand in Europe continues to remain weak. Sir, in our total export volumes, how much share is to the European companies? Sir, is there any new capacities coming up in Europe or in China going ahead?
I assume the question is for whether tire production is coming up. If you look at our exports, about close to 20%-25% would be in Europe. About 50% in Asia, and the balance in the other parts. In terms of new capacities, we are not really hearing a significant expansion in these markets.
Okay. Sir, China Sunsine, which was planning to add a 30,000 ton capacity by December end, largely that would not come into the market and that could be used for internal accruals. That would like maintain the demand-supply balance going ahead. Is that the understanding correct?
Okay, was your question on capacities pertaining to rubber chemicals or the tire industry? Because I thought you-
For the tire industry. They are adding a 30,000 ton capacity, that would come by December end. They are using it for their capital consumption. Is this understanding correct, so that would not change materially the demand-supply balance?
Gentleman, which product you are talking about? Is it insoluble sulphur?
Antioxidants, sir. They are adding into antioxidants.
Okay. That is there. Okay, but we have not seen the We have to wait for the outcome when they start the commercial production, then we will take a call. I think they have in a product called TDQ, they are already there. So we are not sure which is the other additives they are planning to come.
Thank you, sir.
Thank you. The next question is from the line of Nitesh Dhoot from Dolat Capital. Please go ahead.
Yeah. Hi, team. Good afternoon. Thank you for this opportunity. My question is, first on where are we in terms of finalizing our CapEx plans on adjacencies? If you could give some color there.
Yeah. CapEx plans on adjacencies, we continue to look for opportunities on adjacencies. We are taking a structured approach to the whole thing. Nothing at this point that we have to say that we are close to something as yet. I think as and when we get there, we will be able to share something on that front, Nitesh.
Sure, sir. You had mentioned last time that you started sampling products for approvals from the additional sites of customers, and the approval cycle being around three to six months there. Where are we on the product approvals?
Some of them we have already even started supplying during the course of this year, and some are coming in. They would start in the next quarter or next few quarters. That is something that is ongoing.
And just one last thing, what was the capacity utilization for Q2?
About 65%.
All right. Thank you so much, and all the best.
Thank you.
Thank you. The next question is from the line of Radha from B&K Securities. Please go ahead.
Hi, sir. Thank you for the opportunity. Sir, my first question is that on a YoY basis, our volumes have grown by 8%. So wanted to know the growth in domestic as well as exports, like have both markets on an overall basis grown? Because you said on the export market, the non-latex part has grown, so how is the breakup in domestic versus export?
Ma'am, I think there's a correction here. We have not grown on a YoY basis that much. On a YoY basis, maybe marginal de-growth is there.
Sir, YoY basis, your overall volume growth has grown by 8.4%.
This data you have deduced from the investor slide.
If you see the investor slide number three, in Q1 FY 2023 was 151, 117. 268 is first half, and this year it is 260. So eight points we have gone down. So that's why there's something we are trying to understand your clarification.
Sir, I'm saying 2 Q FY 2023 versus 2 Q FY 2024. So 117 versus 127.
Quarter, second quarter basically. Okay.
Yes, sir. Second quarter.
Okay. Although we are growing significantly because the low base has been corrected now because of the addition of additional volumes, traction coming in from non-latex products.
You mentioned you have grown in the exports market in the second quarter on a YoY basis. What about the domestic?
Domestic, we have not grown. We have a very small growth.
Sir, could you mention how much growth in domestic versus exports?
I think exports, the base was much lower. So exports has increased significantly because of the additional business coming from the non-latex products as we are trying to consolidate our presence in the international market. Domestic is more of a small product here and there, some marginal growth.
Sir, how much?
It's in single digits only, ma'am.
Exports growth in single digits?
No, I think we are talking about domestic growth in single digits. Exports is very significant.
Okay, sir. Secondly, on one hand, if we see the current scenario, rubber accelerator prices are rising, specifically in the last month, and demand trends remain strong in India and also auto volumes are growing in general. On the other hand, China Sunsine has expanded capacities and also we could see higher dumping when their new capacities come into production. Considering all these factors, on a sequential basis, how do you see the volume and the pricing trends going forward?
I think while there is, like we mentioned, the domestic demand continues to be robust. We still are positive, along with the exports, that we can still look ahead for some positive volume growth in the year. As far as domestic market also is concerned, I think we are competitive enough, and we are able to compete and keep our pace amidst the imports that come from China to a large extent. I think along with these capacities, we will still be in a position to compete here.
Sir, on the exports front, you mentioned the non-latex part has grown. Are we seeing China Plus One playing out, and have you added any new customers or new locations specifically on the export front in the first half?
Yeah, I think this is also pertaining to some of the earlier questions and the discussions we had, and that is precisely the thing that I mentioned also in my initial speech about working with strategic global key accounts. This also is linked to the China Plus One, where we see some good traction. That is where we described how the non-latex part of the business is also shaping up well.
Sir, have you added any new customers in first half?
Yes. While most of the international customers are already our customers, I think it is about getting newer products in, at the same time, getting newer manufacturing sites and that is all.
And sir, you have added a product in FY 2020, the PPBS product, which was an import substitute. So wanted to understand what kind of utilizations in that product as of now and by when can we expect full utilizations for this product?
So there has been a slow pickup of that import substitution. We do not, as I also mentioned in the last quarter, they are not very significant. We are going within the same overall range.
Okay. And sir, in the current quarter in 3Q,
The same overall capacity utilization range.
Okay. And sir, in the current quarter, in 3Q, are you seeing a higher pricing pressure in either domestic or exports market to continue?
While for the immediate quarter, like I mentioned, there have been some price correction. But I would expect that with lower demand in China, we could expect pricing pressure to continue.
The volumes that you have held back because of the friendly falling prices, that is also expected to continue for FY 2024?
As we look ahead, at least I think it is difficult to comment really on a long-term basis. But at least in the short term, that is, we are looking at at least for the next quarter and a couple of quarters, we see that volume should trend slightly on the positive side.
Okay, sir. Thanks for all the best.
Thank you. The next question is from the line of Harshil Parekh from Acuitas Capital. Please go ahead.
Thanks for the opportunity, sir. Sir, my question is that we have mentioned in the presentation that we are holding back volumes due to lower prices, right? So first thing I wanted to understand, is it for the exports market or is it for the domestic market also? The second point is that, is it not dangerous for us to give up volumes in such a situation since the customers may get used to alternatives, making it more difficult for us to bounce back?
Not really. I think if you look at it, we have not stepped out of businesses or anything of that sort. It's just kind of a quarterly position that you take in terms of what volumes you want to take. But these are whether you actually create value or do not. So it's a call that you take on a customer-to-customer basis. So it's not specific only to export, but it's a combination of both. Yeah.
Okay. No, sir. I just wanted to understand, since you've already mentioned that this is sticky business and long-term contracts. If our competitors enter the customer's volume share, would this not make it slightly difficult for us to bounce back, to get back those volumes?
Yeah. So as I have also said, it is very marginal. These pluses or minus tend to happen from one quarter to the other.
Okay, sir. Understood. My second question is that earlier also you have mentioned several times that supply chain diversification is a key tailwind for us, and given our moderate starting positions, especially in the global markets like U.S. and all. My question is, why are we getting impacted with the demand slowdown in the industry? I would have understood it if we had a very high market share, like 40%-50%. But since our starting positions in global markets are very low, then why is the demand slowdown impacting us so drastically?
Yeah. The demand slowdown is also with existing customers. I think while we gain approvals and we enter into customers, even existing customers who take their requirement goes down. There seems to be a marginal impact that shows up there. While the gains happen, sometimes they take much more longer to add into the volumes.
Understood, sir. But sir, since we are at a very small starting position, we would also be getting more traction from the newer customers, right? Which should ideally be offset by a slowdown in the existing customers. Is that not happening?
We are seeing that happening to a certain extent already, and I think it should gain more traction as we go along.
Okay, sir. Understood. Sir, one last question. If you see the gross margins in this quarter has declined, primarily because the output prices are falling higher than the input prices. Is there any specific in that, why are these prices going down? Apart from the dumping from China, is there any other specific reason for that?
When you look at it, apart from the price erosion that happened, there were also some raw material price corrections that led to this. Both of them. It is a combination of both.
Just to summarize it very differently, I think the sales drop was a combination of volume drop as well as the price corrections, which I have communicated. Even in raw material also, we got some raw material price corrections downward. I think the only thing is the corrections of the price were much higher than the raw material corrections. So that had an effect on the overall gross margin as compared to sequential quarter.
Yeah. So sir, just wanted to understand that the correction in the final output prices were higher. Is there any specific reason other than the pricing impact by China? Is there any other reason for that?
So again, it's a question of when you see the correction, again, it's a demand supply and sometimes you also have a lag effect of raw materials. So you tend to get in a lower price raw material at a later stage. So there's also a combination of a lag effect.
Understood, sir. And sir, the import volumes, if you see for the domestic market, they have grown, whereas our volumes have not grown. Are we losing some kind of market share? Because as you mentioned, we are also holding back some volumes. Is it resulting in our losing slight market share?
Not really. I would say it's kind of more or less stable from our evaluations.
Great, sir. Sir, you mentioned in Q4 that the volumes are expected to pick up from current levels. However, if you look at the first quarter of FY 2024 as well as the second quarter, they are still below the Q4 levels. Are there any, again, specific reasons, like the market is so much volatile that we have had some orders in Q4 which got revised going into Q1 and Q2? Is it something like that?
No, sir. You are talking about Q4 of last year versus Q1 and Q2 of this year.
Yes. Because you mentioned the Q4 levels, the volumes will improve from the Q4 levels, Q4 of FY 2023.
Yeah.
But in Q1 and Q2, they are still below the Q4 levels.
Yeah. From an index, we are slightly lower. Like we mentioned, as we said, while the pressure on realization were there, we also decided to play it on the volume front.
Okay, sir. Understood. Thank you, sir.
Thank you. Before we take the next question, a reminder to all the participants that you may press star and one to ask a question. The next question is from the line of Jayesh Parekh from JMP Capital. Please go ahead.
Good morning, everyone. Sir, my question is on China Plus One strategy. As you know, China is controlling almost 80% rubber chemical market currently. China's internal consumption has also gone down since last almost three to four quarters, their consumption is going down. Simultaneously, globally, everybody is working under the pressure of margin. So I feel that why everybody will follow China Plus One strategy when their own margins are under pressure. So everybody would like to buy from a country where prices are better. So do you really think that China Plus One strategy will work at least for next two to three years unless and until there is a change in Chinese economy itself, or change in the global economy itself in terms of all parameters?
I personally feel that China Plus One. See, chemical industry has been thinking about China Plus One strategy since last three years. But in reality, you are the better person to answer whether it is really working.
Yeah. Sir, thank you. Thank you, Jayesh, for the question. I think if you were to respond to this question, I think when you look at the global market, you can't brush it with just one brush and you can't say this is the approach across the world. Again, when you look at customers, you can't use the same brush. I think there are customers who take this seriously, many of them. And there are ones who do not take it seriously, like you said, when you're up against the wall, then you do what is to be done at that point in time. But I must say, there are many customers who are looking at this whole component very strategically, and they don't see that this short-term impact on pricing. They see the value of more long-term partnerships, supplier reliability, more of geopolitical tensions that may arise.
I see that your answer to your question is it's a mix of both. And it's for us to work with those customers where we feel that the China Plus One will really be in traction, and that's what we're doing.
Thank you, sir. Thank you.
Thank you. The next question is from the line of Abhijeet from Sharekhan. Please go ahead.
Yes, sir, I have one question. Basically, we expanded the capacity with the focus to have a high global market share. But last couple of quarters, you have given the environment. I would like to understand what is our strategy to gain the market share further overall, if not for FY 2024, what is the overall long-term volume growth guidance? Except for 2021 and 2023, again, the volume growth challenges are coming to us. I want to understand on this front when we will see the optimum utilization of the expanded capacity.
Okay. Abhijeet, your audio was not clear to us, but let me attempt, and I think you will need to come back if I am not able to answer your question. While we have said we still see that we will have positive traction of volume coming up, if you look at the last financial year, we have seen some positive traction there. But coming back to your question on when will we execute full utilization, that is, a bit earlier we were able to give a certain guidance based on a certain stability that we saw. But given today's uncertain environment, it will be very difficult to put a finger and say this is where we will hit it. I think that is something as we get more clarity, we will be able to share an update with you on that.
Okay. Will we see any kind of volume growth in FY 2025, if not in FY 2024?
Sorry. We could hear you clearly again. Yeah.
Yeah. Can you hear me now?
Abhijeet, sorry to interrupt you, but could you speak from a headset because-
Sure.
...it's not very clear. Sure. Go ahead and continue.
Yeah. Can you hear me now?
Yeah, much better now. Much better. Thank you.
Yeah. My question is that, not from the perspective of FY 2024, but what kind of volume growth we can see maybe 2025, 2026? I understand that is a difficult question to answer given the current scenario, but given our interactions with the customers, is there any sort of visibility that gives us confidence on terms of long-term volume growth?
Absolutely, Abhijeet. I think while we will continue to face short-term challenges with different global situations that we have, definitely in the medium to long term, 2025, 2026, with the engagements we are having with customers, we are quite positive the volumes will grow. We are well positioned for that. At the same time, we have long-term ambition to grow our market share globally. We are quite positive about the volume growth.
Okay. One more question, if I may ask. The pricing has been quite volatile. We have seen in the quarterly results also that impacted our margins as well. So, once this China dumping thing is over, can we reach 40%+ or more than 45% kind of EBITDA level again, going forward?
Sorry, 40% EBITDA?
INR 40/ kg. INR 40/kg, INR 45/ kg kind of EBITDA on per unit basis.
I don't know how you, gentlemen, how you arrived at INR 44/ kg. We are not able to understand that. What we can say is that by and large, if you see the last three years' performance, the last four years' performance, when you look at overall basis, I think we are more or less in the same range. We are not materially differed. In fact, what we can say 2021, 2022 was a little better year. 2020- 2023 was marginally down. 2023, 2024, we still maintain that we are in the correction mode, so the real benefit will come in.
And I think what Mr. Anand was trying to guide is that there will be quarterly aberrations, but given the objective, what we have and the visibility and the interactions we have with customers, long-term stability is definitely assured for this business, therefore, the results automatically will even.
So if I rephrase my question here, once this China anti-dumping issue is over, what kind of sustainable margins you can make?
Sir, have we given a guidance on the margin?
We have not given a guidance. We never give a guidance on margins.
No, I am not asking from the guidance perspective, but I just want to understand because there is a lot of volatility prices that would have not been there. Once it ends, it is maybe one year down the line. I just want to have a perspective on margins. It is fine if you do not give a specific number also.
We will address it separately.
Okay. Thank you.
You can direct the question to SGA, and then we will refer in due course of time.
Sure. Thank you, sir. And wishes for the upcoming Diwali season.
Yeah. Thank you.
Thank you.
Thanks.
Thank you. The next question is from the line of Praveen Kumar from Equitas Capital Advisors. Please go ahead.
Yeah. Hi. Thanks for the opportunity. I had one question. I was trying to put together various things which you have said over the last few calls, including today's. One is that you are seeing supply chain tailwinds, in terms of supply chain diversification. Secondly, you are one of the largest non-Chinese producers, so you should be one of the first port of call for many of these global tire manufacturers who are looking to diversify, right? Thirdly, you have also mentioned in today's call that a lot of the global majors are already your customers, and in fact, what you are trying to do is sell them more of your existing products. So putting all these together, one would expect that the timeline for conversion of orders for new products to an existing customer, right?
Because if they are already your customers, they might have already done due diligence on several of your other products. What would be required is incremental diligence on your new products, right? So putting all this together, one would have expected greater traction coming through into your export volumes and into your overall volumes as well. Just wanted to understand how do we reconcile this and with the performance that you have seen till date. Thank you.
Yeah. Thanks, Praveen. So again, the answer is a combination, and let me try and explain this. What happens here is typically, as you start, even though we have an existing customer, for every product, it is the same process of approval because you are approving a product from a particular site. If you go to another site of theirs, again, the approval process goes on. Maybe it could be slightly curtailed here and there a bit, but the process is more or less very similar for every site where you start with a small lab sample, then you start with a trial set, a lot. All of this needs to be run in production, tested, approved, and then you keep going up in the scale as you go along. So that takes a bit of time.
On the other hand, while as you rightly said, we should have seen a lot of traction and things should start coming in, but also the overall demand per se has come down. As they start shifting some shares to us, their overall demand comes down. So they do it at a gradual pace, but it takes a little while longer. So I think it's a combination of both that you do not see the sudden traction that's able to come in.
Understood. Should we, I mean, putting what you are saying and reading through what you are saying, should we expect that there should be a greater kind of a snowball effect somewhere down the line in terms of the export volumes when your traction finally starts paying off? I mean, is that what one should expect?
Yeah, that is normally the expectation, but I would keep my fingers crossed and hope that happens, yeah.
Okay. I mean, what you are saying is driven by, I mean, because again, we had done our Channel Check for the last several years, and one keeps hearing that NOCIL is one of the more quality and reliable suppliers, right? I am just trying to understand what is behind your apprehension in being more positive about this.
No, I am very positive, and I think like I had mentioned, I think it is just that the external environment and the uncertainty that I am kind of, let us say, positive with some caution, yeah.
Okay. Understood. Thanks for the answers.
Thank you. The next question is from the line of Nilesh Ghuge from HDFC Securities. Please go ahead.
Yeah. Can you hear me?
Yes, Nilesh. Please go ahead.
Yeah. Just two data points. What was your specialty volumes contribution in Q2 to the total volume of the company for this quarter? Secondly, what was the percentage exports to the total revenue in Q2?
Yes. I think it is much lower. We explained in the previous quarter that latex business has shown a downward slope, therefore, the specialty percentage has dropped down. So it is below 15% now.
Okay. And sir, exports, how much was the exports to the total revenue in Q2?
I think we answered this sometime back. It is somewhere between 30%-35%.
Okay. Thanks, sir.
Thank you. The next question is from the line of Sailesh Raja from B&K Securities. Please go ahead, sir.
Thanks for the opportunity, sir. Sir, in U.S., anti-dumping is getting over next year. So if they don't extend it, how it will impact our volumes to U.S.?
Which anti-dumping?
The tire industry. Are you referring to the tire industry?
No, sir. Rubber chemical.
Rubber, there is no-
There is no anti-dumping for rubber chemicals. 2017 it was there, they had put anti-dumping duty on rubber chemicals.
Talking about the U.S., sorry?
U.S., yes.
Sorry. We misunderstood it as India. That duty continues. We expect that with the current situation, it should get extended because I think it has got bipartisan support in the U.S.
The second thing is as far as from a revenue perspective for NOCIL, I would say it is not making a difference because today we are not charging any duty on the antidegradants to the U.S. customers because there is other source also. Besides China, India and EU also is supplying. EU is selling at a lower duty in exports. Pricing advantage is not there as far as we are concerned. Maybe some volume correction, if at all in the worst case scenario.
Currently we are doing closer to 1,500 tons per annum. What is our target we have for next two years?
Sorry, sir. Which volumes are you talking about?
In U.S. Currently we are selling closer to 1,500 tons.
1,500 tons per annum U.S.
Yes, per annum to U.S.
We have not declared any specific numbers to each of the calendar year.
Yes. Two, three years back we were doing around 500 tons and that gradually increased it to 1,500 tons. In last two, three con calls we have mentioned that. Is there any target we have for next two years, particularly in the U.S. market?
We have given an index guidance-
Yes.
...for how the numbers are.
We have said from 100- 300.
Yes. We have given an index. We are still working with customers, and we expect that to continue to grow our sales.
The Americas today constitute 25% of exports today.
Okay. We are betting more on adding new customers there or addition of locations from the existing customers?
Yes, existing customers, addition of locations is largely what is going to happen. I think when we talk about global customers.
Yes. Okay. My next question on the conversion cost side, particularly in the power and utilities. Is there further scope to cut down the cost?
In absolute numbers, there is some reduction seen in the utility cost for the half year. One of the reasons for the reduction in other expenditure, if you see the steady results, it is because of the reduction in power and utility costs. Largely because of the efforts taken by the operations team to improve the cost control measures and ensure that those are sustainable in nature. They have done a lot of work and that benefits we have seen in the results.
Yes. Okay, thanks.
Thank you. The next question is from the line of Nirav Jimudia from Anvil Research. Please go ahead.
Yes, thanks for the opportunity again, sir. Sir, in terms of the utility cost which you mentioned, I think in the annual report we have mentioned that we have entered into an agreement with CleanMax for securing the hybrid power. Along with it, we have even installed a 66 kV power station line. Last year our power cost was close to INR 178 crore. With all these benefits in place and sourcing of an hybrid power, how much savings can we assume provided at the current level of coal cost is there? What sort of savings we can assume on an annual basis and the benefit of this hybrid power along with the installation of a kV line fructifies fully?
Nirav, just to address a bit, I think when we are looking at INR 178 crore power and fuel cost, which includes the coal power and the fuel oil, etc .
Yes.
If I can see that is what I think you might have referred from the annual report.
Yes.
When your run rate as it stands today, the way things are moving around, we are probably in the range of something like 15% savings there.
Okay. And the entire benefit of the initiative which we have taken has fructified or still the benefits would continue in second half also?
We continue to apart from CleanMax, there are also other initiatives pertaining to solar on-site that we do. We are also looking at co-generation that will come next year. Those are additional things that will come in the new year.
Got it. Sir, one of the thing which we have also mentioned-
Sorry to interrupt you, Nirav, but could you speak a little louder? Your sound is very faint.
Now it's okay?
Yes, it's better now. Go ahead, sorry.
Sir, one of the statements also in the annual report mentions that we have succeeded a process engineering in terms of plant modifications to manufacture DCBS in the MOR plant. If you can just throw some light on this because earlier if I recall, we used to produce this product and we have stopped. Again, I think if we have made the modifications in terms of producing this product again, if you can just share the opportunity size or the market size of this product into India or in the export market, that would be very helpful.
Yes. This is always part of working with our domestic tire customers to look at opportunities to indigenize. This is something that we also mentioned in the earlier calls, that we are looking at wherever possible to indigenize, and this is one example of that indigenization. But the volumes were not very big. It is also part of the package that we sell to our tire customers, so it goes along with that. I do not see very significant volumes coming out of it.
It is more of a part of a synthesized product.
Okay. Got it. Sir, just a last clarification in terms of the capacity utilization, which you mentioned, 65%. This is considering the debottleneck of 5%-10%, which we have already completed, and considering 65% on the increased capacity, or you are taking the utilization pre-debottlenecking?
This is pre.
This is pre, yeah.
Some portion has been included, some portion is yet to be included.
Okay. Sir, just a last thing in terms of the export market. You mentioned that our latex volumes have fallen, but the non-latex volumes have grown. This is predominantly the tire customers where we have penetrated in the export market. If you can just share which of the geographies have seen this increase in the volumes from the non-latex side.
I think, Vinay, the address is very different. I think earlier we were referring to Asian market exports were 70% and 30% other than Asia. Non-Asia was 30%. Today, Asia has become 50%. Therefore, the other remaining 40% is going to the Western world, EU, and Americas. So that addresses the whole question there.
Okay. Got it, sir. Thank you so much, sir, and festival wishes to the entire team of NOCIL.
Thank you. Thank you very much.
Thank you. The next question is from the line of Aditya Khetan from SMIFS Institutional Equities. Please go ahead.
Thank you for the follow-up. Sir, my first question was on to the aniline price correction. Sir, on quarter-on-quarter basis, aniline prices have dipped by around 12%-15%. Have we taken any inventory loss in this quarter?
No, sorry. Which quarter are you referring to? Which quarter-on-quarter?
Quarter-on-quarter basis. This quarter as compared to last quarter.
Okay. As far as the raw material cost is concerned, we have taken a price benefit. Raw material cost per kg has come down this quarter as compared to the previous quarter, so that benefit is already inbuilt in this results.
Okay. We have not taken any inventory loss, you mean to say that.
No, not much.
On to the volume side, sir, I believe, sir, you are not sharing any sort of a guidance. But if you can give us an idea as to whether the volume can be in line with the tire industry growth or higher than that, or it can be like in the low single digit or high double-digit range. Or any sort of a trend that you can give, that would be helpful for us to forecast.
If you look at it again, I would put it as domestic and international. When you look at the domestic market, we already have a relatively high market share. The growth will always come from plus or minus, but more on the plus side of a few hundred basis points compared to the growth of the industry, because we have a sizable market share already. Whereas the growth in the international markets, where we have a much lesser presence, would significantly be higher than this year.
Okay. And sir, on to the debottlenecking, sir, which we have completed, sir, is it possible to share the capital expenditure figures for that?
Not material to be shared.
It is within the CapEx budget.
It is not significant in absolute terms.
Okay.
Aditya, are you done with your question?
Yes, I am done.
Sure. Thank you. Due to time constraints, we will take that as the last question. I would now like to hand the conference over to Mr. V.S. Anand for the closing comments. Please go ahead.
Yeah, thank you. Thank you very much. I would like to take this opportunity to thank everyone for joining the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with me or our Strategic Growth Advisors and investor relations advisors. We wish you all a happy Diwali and a Happy New Year. Thank you once again, and take care.
Thank you. On behalf of NOCIL Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.