Ladies and gentlemen, good day and Welcome to the NOCIL Limited Q1 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 risks 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 then zero on a touch-tone telephone. 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 at the call. Just before I get into the call, yesterday Mr. Zubair Dave, our Managing Director, retired. I would like to take this opportunity to place on record our appreciation for his efforts and contributions to the Arvind Mafatlal Group, for the last 45 years. Along with me, I have Mr. P. Srinivasan, our Chief Financial Officer, and SGA, our investor relations advisors. 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 one FY 2024.
In quarter one FY 2024, the company achieved stable sequential results in terms of both volumes and realization parameters, generating a total revenue of INR 397 crores. The volumes in the domestic market marginally improved. The company experienced decline in export volumes, which can be attributed largely to the global recessionary trends, coupled with a bit of inventory unwinding. We are closely monitoring the global economic conditions and continue to take appropriate actions to navigate through the challenges. As stated in our earlier call, we continue to engage with our key domestic and international tire customers to strategize our steps and consolidate our business. In this connection, we have started providing samples of our products so that we can get approvals at the additional sites. We are confident that business opportunities arising out of these discussions have started fructifying and will continue to fructify in the upcoming quarters.
Over the last few quarters, while we see the contribution of latex volumes in exports, overall export volumes thus have reduced. This has been adequately compensated by increase in volumes with tire customers. Quickly on the industry scenario. While the domestic market continues to be quite robust, in the international markets, the Asian and American markets have been holding up. The European tire manufacturers are facing challenges with continued degrowth due to weak demand, creating a difficult market environment. Due to the muted demand in the domestic Chinese market, the Chinese manufacturers are resorting to aggressive pricing in the international markets. As mentioned in our earlier call, our endeavor has always been, under these given circumstances, to continue to increase our volumes and grow our market share. Despite these short-term challenges, we are positive about the medium to long-term perspective for both the domestic and international markets.
As per the recent research reports, the Indian tire industry is expected to increase from $9 billion - $22 billion over the next 9-10 years. The primary reason for the growth in the Indian tire industry has been increasing demand for new vehicles and continued government investment in infrastructure. Our domestic and international market approaches will lay a path to achieve our long-term vision of doubling our market share. That is it from my side for now. I will hand over to Mr. P. 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. If you see the investor presentation which is uploaded on the website, sales volume for Q1 FY 2024 on index basis is 133, taking a base of Q1 FY 2020 as 100. On the revenue front, net revenue from operations for Q1 FY 2024 stood at INR 397 crores as against INR 393 crores in Q4 FY23, a flattish growth of 1%.
On the selling price front, marginally improved 2% on QoQ basis. Volumes for Q1 FY 2024 have shown a marginal degrowth of 2% on QoQ basis, largely due to export volumes. Operating EBITDA for Q1 FY 2024 stood at INR 55 crores as against INR 50 crores for Q4 FY 2023, a QoQ growth of 10%. EBITDA margin for Q1 FY 2024 stood at 14% as compared to 12.7% in Q4 FY 2023. Coming to the profit parameters. Profit before tax for Q1 FY 2024 stood at INR 46 crores as compared to INR 39 crores in Q4 FY 2023, a QoQ growth of 22%. Profit after tax for Q1 FY 2024 stood at INR 34 crores as compared to INR 28 crores for Q4 FY 2023, a QoQ growth of 21%. With this, we would like to open the floor for question 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 the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use answers while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Nirav Jimudia from Anvil Research. Please go ahead with your question.
Yeah. Good afternoon, sir. I have two questions to ask. The first is on our annual report. In one of the pages of the annual report, we have written that company promotes the sale of high quality and high-value specialty products in the export market, which contributes significantly to our sales and margins. Just wanted to understand the thought process a bit more on this, that when we say specialty, how we define the specialty. Let's say on parameters of margins where such specialty products give us some 15%-20% higher per kg margins. Or let's say the competition is very difficult to get into these products, and we can see the prolonged level of dominance of NOCIL into those products. If you can share that, what percentage of this high quality and high-value specialty products forms overall part of our volumes? This is question number one.
Yeah. Thank you, Nirav. Both the points that you made are correct. When you actually say, what is a specialty and how we define a specialty, one is that it has an incremental margin compared to a non-specialty product. At the same time, it also commands value with the customer. That means it is not price elastic versus volume elastic. That means it does not move with price and volume. From that point of view, it is a specialty, not only from the margin point of view, but also from the value added to the customer. Yeah.
Okay.
To follow up on that, roughly about close to 20%-25% of our business is considered as specialty.
Got it. But sir-
Nirav, we would like to just clarify, this is basically some of these products for specialized applications, which essentially means that it is not a regular product in the regular representative category or tire industry. Therefore, there could be some specialized application which may be consumed by tire industry as well as non-tire industry, but not all customers are consuming this product. That is why it is called as specialized applications.
Got it. Just suffice to assume that, this 20%-25% of the product, what you mentioned is the volume part you are telling and not the value. Let us say out of our total volume, 20%-25% is the specialized volumes. Is it correct to assume?
Yeah, 20%-25% is specialized application volumes.
Correct. Sir, just to extend a bit more on this. Out of this, let's say 20%-25% of the volumes, whatever de-growth we are currently seeing, probably some portion of, I think, latex would be also forming the part of this 20%-25% of volume. Has this volumes over last two, three years have grown for us, like latex? If you can highlight some bit of understanding there.
If I split into two parts, if you look at latex and non-latex. On the non-latex space, we have grown. On the latex space, because of the market condition, there is a challenge. We are de-growing.
Correct. Sir, second question is on the opening remarks of Mr. V.S. Anand, where we have been adducing the fact that we aspire to double our world market share. I think one of the key variable, what he mentioned is that we have already signed the samples. The samples are already approved, and more approvals are also coming from the customers. One is definitely the approval part, which play a very critical role in growing our volumes. But let's say from now to reaching full utilization, whenever we will achieve those higher volumes, what more needs to be done internally by the management to achieve this growth target? Because something has to be built up even internally also, so that we keep on adding those incremental volumes to our PP. If you can share your views, sir.
At this point, I think from an internal manufacturing perspective, we are fully geared to meet the volumes required to achieve our full capacities and meet the requirements of our customers. I think it is only a matter of time that it takes. I think every customer has their own time period, depending on the urgency and how they see it. So it takes varying amounts of time, as we said, from few months, could take slightly longer. We are at different stages. All the efforts are in place, and also from an organizational point of view, we are pretty much equipped to be able to handle these requirements.
But sir, just to add, do we need to open up more distribution networks in the export markets, which would help us to penetrate more deeper into those markets? Or any sort of qualitative aspects which you can throw light upon?
A lot of the growth, while it will come from our tire customers who we handle directly, and we already have established relationships and established supply chains for quite some years now. That is already an added advantage. On the other hand, we also have established indirect channels in the different parts of the world. Mainly all the key markets, we have our own indirect channels, which have also been supplying products for some years, and they are still very active in those markets.
Got it, sir. Yeah. Thank you so much, sir, for answering the questions in detail, and I will join back in the queue. All the best.
Thank you.
Thank you. Our next question is from the line of Dhaval Shah from Girik Capital. Please go ahead, sir.
Yeah. Hi. Am I audible? Hello?
Yes, please go ahead.
Okay. Thank you. My first question is, if you can share what has been the capacity utilization for the quarter and exports and domestic revenue mix.
Capacity utilization for the quarter is about 63%-65%. As far as the domestic export parameters, I think it could be in the region of 20%, 21% for exports and 69% domestic.
Okay. Sir, the other question is on the employee cost. If I look at over a two-year period from a INR 20 crore quarterly run rate, we are at INR 25 crore now for the current quarter. Over this period, is there any large spend towards hiring more senior level employee or more R&D people? Because the employee cost growth is higher than the revenue growth.
Dhaval, I think we would like to clarify here. If you see the quarter ended June also, the employee cost was in the region of INR 23.2 crore, and this quarter is INR 23.6 crore. Typically, in the month of the quarter ended June, being the first quarter where the increments are restores, and there are some retirement provisions associated with that. So that gets loaded in the first quarter as per the actual valuation report in terms of the applicable Indian Accounting Standards. Subsequently, the subsequent quarters are more on the lower end. So it flattens out over a period of time. There are some new recruits, which is not so critical, but some new recruits have to take it. That's an ongoing process. There will be some retirement, there will be some separation, and there will be some fresh recruitment.
Nothing major has been substantially added to the team.
Okay. Sir, those are my two questions. Thank you.
Thank you. Our next question is from the line of Aditya Khetan from SMIFS Institutional. Please go ahead.
Sir, thank you for the opportunity. Sir, my first question is that Mr. V.S. Anand sir had alluded in his opening remarks that since the Chinese demand is weak, they are resorting to international markets. That is putting pressure on margins and spreads. But sir, our quarter number doesn't reflect the same. On quarter-on-quarter basis, our growth and EBITDA spreads have also improved, and realizations also haven't dipped so significantly. Are you not facing that competition from Chinese imports yet or we would see in the subsequent quarters this impact?
While this phenomenon of the Chinese aggressive pricing has been underway over the last couple of months, we start to see it even more actively in the recent weeks and a month or so. I think that is something that we see because I think everyone expected also that the Chinese economy will pick up and there will be demand, but that has not happened the way it is expected. We see that these volumes are largely coming to international markets and more specifically also to India.
Okay. Sir, there would be downside risks to the numbers also from this quarter in the coming quarters then?
Volumes are expected to be around very similar levels.
Okay.
The pricing, we are kind of also looking at how it develops over the next couple of months. Yeah.
Okay. This Chinese imports, what we understand, 55% imports is from China only, and they have also expanded their capacity. China Sunsine has also recently expanded. The imports quantum, which was like for the last five, six years, which they are importing now, that quantum also would increase of imports. Is there any chance of losing market share by NOCIL going ahead?
That has not happened currently. We see that they seem to be around that similar ranges of imports. There could be maybe a short period, a bit of fluctuation here and there, but on an average, there is not a significant increase.
Okay. Sir, any timeline to when we can reach the peak utilization?
We had indicated a time frame in the past, and I think given the uncertain external environment, it will be very difficult to put a finger on a precise timeline.
The line for the current participant has dropped. May we move to the next question? Our next question is from the line of Deepan Sankara Narayanan from TrustLine PMS. Please go ahead.
Yeah. Good evening, everyone, and thanks a lot for the opportunity. Continuing with the past participant question, are we seeing dumping or are we foresee dumping by Chinese players in domestic market as well?
Yeah. Like I mentioned, we are seeing aggressive pricing. Whether it is really dumping or not, would I call it that we will have to see over the next few weeks. But there is aggressive pricing that we see.
Okay. This pricing levels to the previous lows, will it go to that extent or we do not foresee the pricing to touch that kind of lows in recent term?
Which period are you referring to, please?
Over, I think past few years, maybe you touched a very low pricing.
Yeah. No, not to those levels.
Okay. Even in case if this dumping increases, is there higher chances that we will again reach to government to implement our anti-dumping duty on Chinese player?
Generally, we would examine the case over a defined period. There is a statutory period of six months, one year, et cetera, and there are certain guidelines and parameters on the injury as well as dumping parameters. In case we meet those conditions or if we are able to satisfy those conditions over a sustained period of time, then only the action of filing, et cetera, will come in. It is very premature to talk about initiating a dumping resolution today. It is more of a market development which has happened in last couple of months or this one is more aggressive. Today it is a little premature to talk about it.
Finally from my side, this export mix has been on the lower side. Are we expecting over next few quarters this export mix from here on it will start improving from this?
Yes, we do expect that.
Okay, sir. Thanks a lot and have a good day.
Thank you.
Thank you. Our next question is from the line of Mr. Damodaran from Acuitas Capital. Please go ahead.
Thank you for the opportunity. I hope I am audible.
Yes, you are. Please go ahead.
Yeah. Just one question from my side. Just wanted to understand this drop in exports better. Is it that our share of latex in overall exports is significantly higher than the industry's share of latex and that is what has impacted us? Given that this trend of destocking has been happening over the past year. Essentially, just wanted to understand on exports a bit better. Thanks.
We did have a higher market share in the latex market, especially in Southeast Asia, and it also peaked during the COVID, so all of us know the usage of surgical gloves at that time. Post that it has significantly dropped. At the same time, there is also Chinese competition in the market. These are some of the reasons that both the volume drop as well as strong competition in the market.
Could you quantify in terms of what is the overall exports share of latex and how does that impact the industry?
The overall volume is breaking, but I shall hazard a guess of what you asked. The overall share is currently about 10%-15%.
10%- 15% of export volumes?
Of the export volumes, that is right.
I think that is interesting.
Sorry, Mr. Damodaran, your voice is breaking.
Your line is not clear, sir. May we request you to use the handset, please?
Yeah, actually, I am. Is this better? Hello?
No, sir, we are unable to hear you, sir. Sir, your connection is not clear, sir. May we request you to rejoin the queue for your follow-up questions, please?
Sure.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. Our next question is from the line of Mr. Ankit from JHP Securities. Please go ahead.
Hello, am I audible? Hello?
Yes, sir. Please go ahead.
Yeah. Thanks for giving me the opportunity. I have two questions. How the China Plus One is panning out?
Yeah, I would say it's positively panning out at this point in time. We have just, I think one of the earlier questions responded that we continue to gain approvals and it's in the positive direction.
If you can quantify something.
I think when you look at also in slide number 29 of our investor presentation, we have also indicated how that's also been panning out in terms of volumes and how that's developed from 2020 in the last four years. 100 on an index basis going up to 126. Maybe you can describe that. Yeah.
Yeah. Hello?
Yes. Are you-
Yeah. Any margin outlook for the next two or three years?
Margin outlook for the next two or three years?
Can we see a margin improvement going forward toward peak level of around 20%-25%?
What we can say from here, where we are operating today, I think the volume improvement is definitely on the cards, and you will see volume growth. Margin is something which we would not like to speculate today, because it depends on the market situation, and we don't wish to give specific number guidance on margins.
Okay. Thank you so much.
Thank you. Our next question is from the line of Mr. Bhargav Buddhadev from Kotak Mutual Fund. Please go ahead, sir.
Yeah. Good afternoon, and thank you for the opportunity. Sir, in your opening remarks, you mentioned doubling of market share globally. Just wanted to check that, is our existing portfolio catering to that requirement, or do we need to add more products, especially on the specialty side, to achieve that goal of doubling market share?
Our existing portfolio itself, we are specifically referring to that, and is sufficient to be able to achieve those growth and market share. We have not factored in any new specific products at this point.
Which geography would contribute to NOCIL looking at incrementally gaining market share?
It is across. I would put it, we see opportunity in Asia, we have got it in Europe, and also to a certain extent in the U.S. also.
This large part will come mainly from Southeast Asia and Europe and not U.S.
U.S. also because there still we have a much lower presence, and we have an opportunity to grow that here.
Okay, understood. Secondly, sir, if I look at other suppliers to tire companies like bead wire suppliers as well, they are also seeing a significant expansion in their capacity. In your opening remarks also, you alluded to tire industry growing in India. Is it mainly to cater to domestic demand, or do you think they are also setting up capacities for exports?
It is largely to cater to domestic demand, is my assumption. But they also have export plans. We have seen the Indian tire industry exports go up in the last 12- 18 months, kind of moderated in the last few months due to the global situation. But I think there will be growth on both fronts, but largely in the domestic is my assumption.
But fair to say that share of exports could sort of double from here on for tire companies in India? I mean, when you talk to your customers, right now share is close to about 12%, 15%.
It would be difficult to comment on that part, Bhargav.
Okay. And lastly, sir, is it possible to quantify what is the export growth for non-latex and what is the decline in latex? That would be my final question.
Export, if you were to put an index for the latex, we could say if you take the period of January 2022 on a June 2022 on an index of 100, probably June 2023, we are at about 44. For the non-latex part of the business, if the same was considered June, was about 100, then we are about 115- 120.
Latex is down almost 56% YoY, is what you are saying.
Correct. That is right.
Non-latex, it is up almost 15%. This is volumes, right? Volume, right?
Volume.
Okay.
That's right, volume.
Great. Thank you. All the best as your new role, sir.
Thank you, Bhargav.
Thank you. Before we take the next question, a reminder to all participants, you may press star and one to ask a question. Our next question is from the line of Aditya Khetan from SMIFS Institutional. Please go ahead.
Sir, thank you for the follow-up. Sir, onto the product approval side, if you can, sir, quantify some timeline as to how much products we are getting approved and what would be the timeline exactly that the customer is approving the same so we can garner additional volumes. Particularly from which quarter or particularly from which month are we getting that approval?
These are multiple customers, Aditya. You actually look at some of them have already approved new sites in the last four, five months to six months. Some are in the process. Some samples were read, some commercial lots have gone. They are all at different stages. But typically, on an average, it can take, if you are already supplying to the other sites, then it can take anywhere between three, six, seven, eight months. That is typically the time frame.
Six to eight months. Okay. And sir, onto the imports part, since you have stated that we are witnessing a competition from imports, is there any chance NOCIL will represent to the government on anti-dumping duty case, to levy the anti-dumping duty or any such thing is on the cards?
Aditya, I think we just answered this question a few minutes back. Basically, what we are trying to say is this is the recent development the market is showing, the aggressive price pressures, et cetera. At this stage, it is too short a period for the anti-dumping authorities to evaluate. It needs to be seen over a sustained period of, say, 6 months to 1 year, and thereafter, there are certain injury parameters, dumping parameters as further stipulated now for the government. Only if we pass it, we can file a petition. So you need to suffer an injury for a sustained period of 6- 12 months.
Okay, sir. Okay.
Thank you. Our next question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead.
Yeah. Thanks for the opportunity and congrats for the new role, sir. My first question is on the non-tire or non-auto applications. So we have been working on R&D to work on specialty chemicals with the application for non-auto segment. Any progress on that front and any timelines that we will have commercial products coming from that particular projects or those products? Thank you.
Yeah. Rohit, I am not so sure. I think the products that we are working on or even indigenizing that we mentioned in the last maybe couple of calls, were largely focused on the tire import substitutions, developing them locally and substituting imports. We are getting some initial approval. The volumes are not very big. It is kind of complementary to our portfolio and supports our domestic customers towards more localization. Other innovation and development that we are working on is still ongoing. It will still take some time.
Sure. The second question is that, we understand that there have been some new tire capacities coming up in Thailand. Any opportunity for us to tap that particular market, given that Thailand is nearer to the raw material or rubber source?
Yeah. We already supply quite sizable quantities to the Thailand market, and we continue. Many of our global tire customers have their plants and they are also expanding in Thailand, so we see that as also an opportunity for us to grow.
Sure. Thank you so much, and best of luck, sir.
Thank you, Rohit. Thanks.
Thank you. Our next question is from the line of Nirav Jimudia from Anvil Research. Please go ahead, sir.
Yeah, thanks for the opportunity again, sir. I have one question and two follow-ups. So you mentioning my earlier question that we have received approval, we have been trying to grow our volumes. But let's say, assuming that the world market doesn't grow for next one year and remains flat, based on the challenges what we are seeing globally, can we still grow our volumes based on the initiatives which we have taken over past few months, years, in terms of product approvals, building up the capability to sell those volumes? If you can share your views.
Yes, Nirav, you're right about the challenging environment. But we are optimistic and positive that while the overall volumes may not grow, we are looking to substitute existing shares with customers, so we can still gain some foothold and grow even in a challenging environment.
That's very heartening to hear, sir, because in a situation where China has become so much aggressive and considering the fact that if one market remains flat and still we are able to grow those volumes, that's really appreciated. Sir, second follow-up is, you mentioned that capacity utilization is 60%- 65%. Does it also consider the debottlenecking which we have undertook in FY 2023 and some which is currently ongoing also? Do those utilization is based on those increased capacities?
Partially. Some of it is commissioned, some of it is yet to be commissioned. I think that will be happening during this year. Something is commissioned, something is yet to be commissioned.
Got it. But then it considers those extra volumes adding to our capacity.
Expanded little bit capacity, whatever it is, a small number.
Got it. And sir, last bit of follow-up is you mentioned that latex forms close to 10%-15% of our export volumes or our total volumes?
Export volumes.
Okay. So it is just 10%-15% of our total exports, what we do in India?
Yeah.
Which has degrown by 56%, safely I think.
Sorry, I just want to clarify that. It was higher. It's degrown to 10%-15%.
Got it. So this 56% degrown volumes are 10%-15% of our overall export volumes?
Yeah. Currently, post de-growth. Yeah.
Got it. Thank you so much, and all the best.
Thank you.
Thank you. Our next question is from the line of Ankit from JHP Securities. Before you go ahead, may we request all participants a reminder, you may press star and one to ask a question. Mr. Ankit, you can go ahead.
Yeah. Thank you again. Can you give me the guidance in terms of revenue for this financial year? Hello. Hello, are you there?
Yeah.
Hello?
If we go as per the trend today, we will be repeating this year's performance, the FY 2023, based on the current trends. Let's see how the situation emerges as we go along. Our endeavor is to grow further, but let's see how the situation unfolds as we go along.
Any CapEx plan?
There are some small CapEx plans which is already there as part of the debottlenecking and other plans, maintenance, et cetera. But CapEx plans, none as of today. We are under evaluation mode. As and when we come to a situation, we will communicate.
Okay. Thank you so much.
Thank you. Our next question is from the line of Hiten Boricha from Sequent Investments. Please go ahead with your question.
Yeah. Thank you for the opportunity, sir. My first question is on the pricing front. As you mentioned, China is aggressively dumping the prices in the global market, and we can see that in our realization also, because our realization is declining from last three, four quarters. But interestingly, when I see your EBITDA margin, it has been increasing from last three quarters. Just want to understand this INR 40, INR 42 kind of EBITDA margin will continue in next couple of quarters, assuming, as you mentioned, the pricing are coming down because of the Chinese thing?
Are you comparing from Q1 FY 2023 or Q2 FY 2023?
Sir, I am comparing on QoQ like last two, three quarters. In Q4, our EBITDA per kg was around INR 37, right?
Okay, that's your derivation. Okay, fair enough.
There is a marginal improvement in EBITDA margins for this quarter. I think we have absolutely increased by about INR 5 crore, if I am not mistaken. That is for this quarter on a similar volume trend.
Mm-hmm. Right.
What we are more interested is how much of these price corrections happens and how much can be compensated through raw material price corrections also, if a proportionate or more or something, is what we are endeavoring for. In case we are able to strike the volume gain the way we are aspiring for, we can hope to maintain the EBITDA margins, but it all depends on how the market unfolds, because today is in a complete recession scenario. At this moment, it is quite challenging, at least in near term. As we move to the subsequent quarter, we will probably get a much more clearer picture.
Okay. If you can give some pricing actions of what was, as the pricing has been correcting after the as date of Q1, or is it stable? Just want to understand that.
There has been some corrections in some products, depending on how the pricing correction has been. That is that situation.
Okay. Can you quantify that, sir?
At this point, it would be too difficult, Hiten, to quantify.
Okay, no worries. I will get back into queue, sir. Thank you.
Thank you. Ladies and gentlemen, you may press star and 1 to ask a question. Our next question is from the line of Chandra Gupta from Ozone Investor. Please go ahead.
Yeah, thank you for this opportunity and congrats on taking over. My question is slightly different, more strategic or long-term in nature. Can you please articulate what is your vision for NOCIL now that you have taken over, and you have been here for more than a year now, I guess. I mean, we have spoken about doubling the market share and all, but if you were to make a fresh start, what would you aspire for at NOCIL? More specifically, what are the things you would like to change and what are the things that you would not want to change? Something that you can share qualitatively. I am not asking for any numbers.
Yeah. Chandra Gupta, thank you for that question. Yeah, you rightly already touched upon the point that as a business, we would like to increase our market share. That is a more business-oriented objective. On the other hand, I think something that I see as a vision is for us to not only be a large domestic player, but be a global rubber chemical player to reckon with.
That is the vision. That means for that, it is not only about volumes, but about the ability to innovate, to be able to deliver products across the world. So there are a lot of other capabilities that we already have, and I look forward to building on those strengths that we already have. I think what we would like to continue, I would definitely say, is the passion and dedication of the team. I think that is something that we would like to continue.
I think what can we do better, if you would like to say, what would I like to change? I would say less. I think, yeah, we can be bold and brave in the international markets. I think that is something we have the strength and capability to do it, yeah.
Bold and brave. I really like that statement. Sir, see, I do not have any further question, but I will just leave you with one thought. The way I see it, because I have been a long-term shareholder of the company. We have done extremely well in our chosen field, rubber chemicals. There is no doubt about it. But I see two issues with us presently. One, we are hostage to what China does. Second, we are too exposed to the automobile sector, which is highly cyclical in nature. There is little that we can do about both these things. Even if you double or not, actually, I do not think this will change. I think we need to take some actions that would mitigate the impact of these two things and that is where the real value creation in those things will happen. That is what I personally feel.
Maybe some blue sky thinking, some totally out-of-the-box thinking is what we need to do, and that is what we would expect from you, sir. That is all.
Thank you. Thank you for your feedback, and thank you for your valuable input, sir. Much appreciated.
Thank you. Our next question is from the line of Abhijit Bora from Sharekhan by BNP Paribas. Please go ahead. Mr. Abhijit, your line has been unmuted. You can go ahead with your question, sir.
Hello? Sir, can you hear me now?
Yes, Abhijit, please go ahead.
Sir, just wanted to ask on FY 2024 volume growth, as you mentioned that you will be striving to grow your volumes while maintaining the margins if the pricing environment remains at current level. So any guidance on the volume growth for FY 2024 and the utilization?
Abhijit, that's a bit of a challenging one to have, given the uncertain environment we have. I think difficult to put a finger in terms of it would be too forward-looking for me to say, "I know exactly this is the volume we will reach," but the plans are there to definitely grow the volumes.
Okay. Secondly, this Chinese aggression, how long we expect this to continue given the trend, it can be a longer-term thing?
So it's anybody's guess, but I think at least what experts feel are that second half of the year, there should be some kind of life into the Chinese economy. So there should be more. A bit of consumption in the domestic market should go up, so of China. So that's an expectation, Abhijit.
Okay. Lastly, sir, in our both employee cost and other expenses, what percentage will be a variable cost? Any idea you can throw on that?
Employee cost is the. Yeah, this will be fixed. Which one are you asking to inform?
This is largely fixed, nothing variable in that, right?
This one can be variable.
Other expenses?
About 50%.
50% of the other expenses are variable, right?
Yeah. The other expense. Yeah.
Okay. Thank you, sir. Thanks a lot for quickly answering my questions.
Thank you. Our next question is from the line of Riddhesh Gandhi from Discovery Capital. Please go ahead.
Hi, sir. Just wanted to understand in an environment where there obviously appears to be some amount of overcapacity in China, and that they are being aggressive in terms of pricing. I understand that the need for some of your customers to potentially diversify away from China, et cetera. But isn't that going to still lead them to have a higher negotiating power and kind of constrain our prices which we can charge, even though we can maybe gain some amount of share?
Yeah. Riddhesh, I think, yeah. The approach is more to build strategic relationships with our customers, and that means they also strategically want to align us as a supply source. I think that's more sustainable in the long term. There will be those transactional ones which we see which run the risk with pricing with the Chinese and their overcapacities. But we are quite positive there is enough opportunity to build strategic relationships there.
Got it. Understood. And maybe just to understand, how should we get a grip about, is this overcapacity ultimately going to get absorbed, or how should we be thinking about it? As in, globally, if we look at it, how much is the capacity utilization? Is it a demand-side issue? Is it a supply-side issue? It's obviously going to be actually specific to products, but if you could maybe outline it for actually even a couple of our larger products, that would be helpful.
Yeah. Again, these capacities from a product to product, again, when you put all the numbers together, it kind of simplifies it. But it again depends on a product-to-product level, the volumes and the supply and the demand, as well as the competitiveness of each player. While we know that the Chinese demand is still about only 35%-40% of the global demand, while 75%-80% of capacity sit in China, I would expect at least some of the products with lower margins would slowly capacities in higher cost producing countries go down further. These are possible scenarios that I foresee.
On the other hand, anyway, the overall tire production continues to grow globally and especially in Asia. The rubber applications also continue to grow, so there should be an opportunity for the players there. That is a good question because it is a kind of a scenario-building type of question that you asked.
Yeah, I know. It did, but the question was in terms of how should we be thinking about how much over capacity is there right now, and given the growth in Asia on tires, how long would it take for this capacity to get actually absorbed, in your view?
Just to address it differently.
Yeah.
Basically, Srinivasan here. Actually, if you see from, say, 2020 post-COVID, maybe second half of 2020, maybe October, November. What we have been seeing is a high input cost regime, and correspondingly, the finished goods prices are getting corrected in line proportionate to the input cost increases or movement in input costs. This was happening from, I would say October, November till 2023, May or something. So almost two and a half years or two years something. Which essentially indicates that although there are rated capacities on play, but the achievable capacities or usable capacities are much lower than the ratable capacities. That is the reason why we could see the price corrections happening at regular intervals or price movement in relation to the tandem with the RM input cost movement.
Yeah.
What we are probably seeing now is a Chinese slowdown, which has accelerated the aggressive pricing, more particularly as a certain manufacturer went to destock or whatever you may call it, their internal things. To which I think Anand just addressed it, that it may, or from whatever we understand, it is more of a temporary nature. Maybe till September, maybe till October, maybe we are seeing in the second half some corrections getting done. In our view, there could be some excess capacities, but not such a major thing. In any such restructuring exercises or anything consolidation phase, what happens is the small players get out. They are finding it difficult to operate. Moreover, the environment issues now being highlighted at a very high level in the global scale, we see all the small players getting out or getting phased out.
Good. If you were to look at it, how much of the capacity, and I know it's hard to give an exact number, would be actually the smaller players?
At one point of time, China had 15%, but now it's much lower.
Good. Already we are seeing somewhat a slowdown. In the event that some of the smaller players go off, we'd expect there to be some manner of a balance between demand and supply in the next, say, 12 to 18 months or so. We think it would happen, or it would be slightly longer before they give up the balance. Because obviously the demand is also growing, right? As I'm assuming you're aware.
Yeah, the demand has a little bit of slowdown in this quarter 4. Actually, if you see January-March 2023, you could see from October-December, the rubber consumption has come down by -3% or thereabout. So that also has an impact on the demand. We have to see what is the April-June rubber consumption, then we can take a call, we can probably guess. But we believe this is short-term in nature. These are challenges, and once the domestic economy of China starts improving, these rectifications will happen or corrections will happen.
Got it. Understood. Thank you. Appreciate it.
Thank you. Our next question is from the line of Ravi Mehta from Deep Financial. Please go ahead.
Yeah, hi. Thanks for the opportunity. Firstly, just wanted to check that the sampling exercise that you are undertaking, is it done and most of the approvals have come, or it is still going on across certain products, certain clients? Any color?
Yeah. Ravi, we have been done with quite a few. Again, when you talk about one customer in multiple countries. Even if I it's done with one customer because we continue to get qualified with different sites and different locations, and that's the case for multiple customers. It's an ongoing process, and we keep looking to expand our approvals with most of the sites of our customers wherever they're located. That's the whole idea.
They are present with most of the major tire manufacturers in the world. Where would you be in this journey? Like a five on 10, seven on 10? Just a color on that.
I would say this, we are there with all the tire customers with either one product or the other. I think it's a question of expanding the basket with some of them. I think maybe 4 to 5 of them somewhere there. Now that you really put my head on the block.
Yeah, sure. One more question was, when I look at your annual report, as to the details shared, the exports had de-grown, but the volume de-growth was faster. Which means there was some realization benefit in the export market, and this is little contrary to the latex volume that we were seeing a de-growth. Ideally, even the realization should have fallen more. There's some dichotomy, if you can explain on that.
Ravi, P. Srinivasan here. Last year we had a de-growth of 21% in export. That means domestic market, we had a growth of something like 7%, thereabout. On the whole, we had de-growth by 4%. What was important is that during the first two quarters, that is June 2022 and September 2022, we had price corrections, which started from January 2022 onwards. The high price regime helped us to have an overall price increase of 7% for the year. That helped us to negate all those things.
Okay. Price correction are more towards the end. Okay.
Two quarters had a high price regime. If you see the performance of January to March 2022 and April to June 2022, we had a super high price regime where your profit numbers also were very high.
Okay. But the de-growth in latex part of the business would be faster, right, in the second half?
It was there, I think it started from quarter two onwards last year. Quarter one was okay. Quarter two onwards, the de-growth started happening. That was the thing.
Okay. Maybe I can take it offline, yeah. Thanks.
Yeah. Thank you.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, that was the last question of our question and answer session. I would now like to hand the conference over to Mr. V.S. Anand for closing comments.
Thank you. I 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 Strategic Growth Advisors, our investor relation advisors. Thank you once again, and have a nice day. Thank you.
Thank you. On behalf of NOCIL Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.