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Apcotex Industries Ltd
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Good morning, ladies and gentlemen. Welcome to the Q2 FY '23 earnings conference call of Apcotex Industries Limited. [Operator Instructions] Please note that this conference is being recorded.
At this time, I would like to hand the conference over to Mr. Anuj Sonpal, CEO of Valorem Advisors. Thank you, and over to you, Mr. Sonpal.
Thank you. Good morning, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors representing the Investor Relations of Apcotex Industries Limited. On behalf of the company, I'd like to thank you all for participating in the company's earnings call for the second quarter and first half of financial year 2023.
Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to create any undue reliance on these forward-looking statements in making any investment decisions.
The purpose of today's earnings call is clearly to educate and bring awareness about the company's fundamental business and financial quarter under review.
Now let me introduce you to the management participating in the earnings call today. We have with us Mr. Abhiraj Choksey, Managing Director; Mr. Sachin Karwa, Chief Financial Officer; and Mr. Anand Kumashi, Company Secretary.
Without any further delay, I request Mr. Sachin Karwa to start with his opening remarks. Thank you, and over to you, sir.
Thank you, Anuj. Good morning, and welcome, everyone, to this earnings conference call for the second quarter and half year end date of financial year 2023. Along with me in today's earnings call, I have our Managing Director Abhiraj Choksey and Mr. Anand Kumashi, the company's Secretary. I hope you had an opportunity to review the financial statements and earnings presentations, which have been encapsulated and uploaded on the website under stocking series.
And briefly on the financial performance of the second quarter on the financial year 2020, we had a strong growth on year-on-year -- in Q2 FY '22, the revenue from operations grew by 16% on a year-on-year basis was INR 286 crores. The EBITDA grew by 44% on a year-on-year basis at around INR 45 crores. So EBITDA margin imported at 15.96%. The net profit grew by 39% from year-on-year basis to INR 31 crores, and PAT margins were 10.88%.
For the H1 FY '23, the revenue for our operations grew by 38% on year-on-year basis to around INR 590 crores. EBITDA grew by more than 60% to around INR 94 crores with EBITDA margins of 15.89%. And the net profit also grew by 46% to around INR 64 crores with PAT margin of 10.90%.
We witnessed balanced growth in first half across all the industries and product groups. We continue to run at nearly 100% capacity utilization. On the [ collective ] front, both projects in Valia and Taloja expected to be completed in Q3 of financial year '22, '23. Also happy to inform that the company received the succeeded recognition of Best Under a Billion Company for '22, '23. We are one of 200 companies from all over Asia.
With this, I would like to open the call for question-and-answer session.
[Operator Instructions] The first question is from the line of Amar Maurya from AlfAccurate.
Congratulations for a very good set of numbers. A couple of questions from my side. Sir, number one is if you can highlight what would be the kind of volume growth you would have seen in this particular quarter. And secondly, in terms of the latex capacity, which is coming in Valia that is for gloves, I mean, when it is likely to come? Is it likely to come at the end of the quarter? And what kind of ramp-up you're seeing? Because this is the product, which is largely going to be used into gloves. So do we got the approval or how much time it will take once the facility comes? If you can throw some light on that? And what is the overall world capacity? And what is the world dynamics pre-COVID, post-COVID? Any demand led down, something like that?
So Amar, thank you for your question. One is on the volume growth. So we've seen, as we have been mentioning for the last many quarters that we've been running at almost full capacity utilization. So compared to the same period quarter last year, it's been about a 5% -- 5% to 6% volume growth. In terms of value, approximately 16% volume -- value of revenue growth for the quarter. As far as the ramp-up is concerned, as you know, we're coming up after -- I just want to take your third question first about the glove market.
Overall, the glove market, as you can imagine that after the sort of extremely high of '20 and '21 for this industry for the gloves industry where there was a lot of demand and a lot of production. In the last few months, we have -- the gloves industry is going through a deep downturn. And if you read anywhere about the glove industry and some of the top glove manufacturers, they're all going through a difficult period right now. No question about that, mainly because a lot of inventory was created in '20 and '21. A lot of capacities were quickly added starting from FY -- or calendar year '20 and then getting into '21. So I think there was a lot of excess production all the way through '22 -- middle of '22 and because Omicron was still sort of -- Omicron variant was still fairly widespread in the early part of the year.
What we've seen see in the last few months is that the glove industry is going through the deepest downturn that they have seen in many, many years. So it is definitely a challenging time for the industry and therefore challenging time for the raw material players also like us who are coming into the market. Although we have been in the market for the last 2, 3 years, but we're coming with extra capacity.
Of course, from what we heard, all the additional capacity that was planned has all been kept on hold both on the latex side as well as on the glove side. Of course, companies like us that were already in advanced stages of sort of putting up the project, we will be going ahead and completing our projects. But a lot of our competitors have put their expansion plans on hold. So that's a little bit about the glove market.
And to answer your second question, obviously, the ramp-up that we expected even 3 to 6 months ago was that we would be able to easily ramp up within 6 months to a year, which is an indication that I give. We will still -- we are still aiming to do that within the first year. We would be able to ramp it up. But given the current scenario where demand is extremely muted, obviously, the pull from the market is much weaker than it was a few months ago. So that -- it may take us a little longer.
More importantly, the margin that we expected in the first year are also going -- looks like they would be much lower than what we had anticipated, it seems like lower than pre-COVID margins as well. However, I must add that, look, in the long run, we still believe that this is a great business to be in. It's growing at double digits worldwide across the world. While there have been a dip, obviously, in the last few months because of over manufacturing or a lot of production we're having, we feel in the long run, of course, it's still a good business and will be one of a few Nitrile Latex manufacturers.
The glove industry is also not hard -- it's not easy to track. You need a lot of economies of scale that some of our customers have. So yes, I mean it's definitely a challenging time to come into the market, and no question about it. And I mean that's just the glove industry. But in general, the macroeconomic environment in the world is going to be challenging as well from the look of it in the next 6 months. So that's fine.
So that's as far as the glove industry is concerned and our project in Valia, as you know, the project in Taloja, which we -- which is a more swing capacity, there, now we are going to focus on manufacturing some of our earlier product styrene butadiene latex because we believe in the next 1 year, the glove industry is going to go through a tough time.
The silver lining is, of course, the styrene butadiene latex market has been extremely strong, whether it's in construction, carpet, paper. And again, there we feel that we will have some extra volumes. Earlier, I had mentioned that totally 60,000 tonnes between both these projects. But we are still working through the details. But because styrene butadiene latex, the cycle times are lower. We'll be able to manufacture more products from our Taloja plant, which we had earlier envisioned for 10,000 tonnes of Nitrile Latex. Instead, we would be able to do much more of styrene butadiene latex. The exact numbers, I will come back maybe in a few months. But we're working through that. And fortunately, that plant is completely flexible to make any kind of this. I hope that answers your question.
Okay. And sir, just to ask a little bit more on this, the gloves part of the business, which is going through some problem or issues at this point of time. But given that our facility, what we are putting, I mean, do we see that even to sell that kind of capacity will also be a challenge or...
No, we don't expect it to be a challenge because it's the 3,000 tonnes is a very small capacity compared -- I mean pre-COVID level, entire Nitrile Latex production or consumption in the world was around 2 million tonnes. So it's a very small capacity compared to the entire glove or entire world production. Most of the world production is around Southeast Asia and East Asia, I would say 90%, 95% of it. So we -- at the South Asian, there we do have enough opportunities in the South Asian region and the Southeast Asian region.
As I said, the volume is not so much of a challenge. It may take us a few more months to ramp up because pulling the market is a little less. Who knows the market may turn in about 6 months as well -- 3 to 6 months. We're not sure. But the volume is not an issue. Currently, the margins are definitely affected because of the pull in the market, an overall downturn.
So let's say margin would have been impacted like earlier margin versus what the prevailing margin would be something around 200 to 300 basis point impact?
When we look at margins, it's contribution margins, and I think the contribution margin -- I mean the impact will be much more. In terms of EBITDA margin, yes, also more, but we are still looking -- our main purpose is -- I mean, obviously, the main figure that we look at is return on capital. And while earlier we were -- as I mentioned earlier that we always look at a minimum of 20% to 25% return on capital. We still feel and we have done the reworking of all our numbers, and we feel that given the downturn that we see right now, we think 20% to 25% is doable over the next sort of -- if you look at [ ROCE ] 5 years ago.
[Operator Instructions] The next question is from the line of Aditya Khetan from SMIFS.
[indiscernible]
Mr. Khetan, your audio is breaking up.
Ma'am, is it okay now?
Yes, sir. Please go ahead.
Yes. Sir, my first question was that in H1, you had made around 15% EBITDA margin. Could any [indiscernible] in the second half will continue to rise [indiscernible]? Any sense on the margins, sir, so we would make around 15% to 17% or [indiscernible]?
Aditya, I'm sorry if I -- your voice is not very clear. But if I heard you right, I think you're asking about EBITDA margin over the next second half of the year. Yes, first half of the year, EBITDA margins have been around 16%. And as I mentioned before that, look, quarter-on-quarter in our kind of business is very hard to sort of predict EBITDA margin. And certainly, the next few months to be more difficult for various reasons. And I'll list out 3 or 4 reasons because I'm sure a lot of the other callers also have similar questions on sort of how we are looking at the market going forward.
So one is some of the tailwinds that we had. For example, one of the tailwinds that we had is at the higher cost of freight for import competition. As you know, about 40%, 45% of our product range, we don't have any manufacturer in India that we compete with. So a lot of the competition is import.
Now over the last 1.5 years or so, we had been protected -- I would not say protected, the wrong one, but we had an advantage where freight -- shipping freight rates have gone up. Obviously, those are corrected. They're still not down to pre-COVID levels, but they're down by 50%, 60% from their highs at least. So those are slowly returning to normalcy. So those -- that sort of benefit that we had for a few quarters may not be there going forward.
In addition to that, inventory -- the raw material prices ever since the first wave of COVID have obviously kept going up once oil hit rock-bottom and then kept going up. Now we're seeing that turning in the last, I would say, month or 2 where some of our raw materials, the prices are coming off. And in recent weeks, it's quite a steep crash. Even though oil has not generally dropped. But because of the overall macroeconomic environment and the demand situation worldwide, some of these commodities that we -- petrochemicals that we buy, they're crashed quite quickly.
So obviously, there is going to be a short-term pain as well for us because of some of the supply chain issues, we had stocked up on inventory and on raw material inventory. We had increased our inventory days. And obviously, now we're obviously stuck with some higher cost inventory, and that's going to play out in the next few quarters.
So I would say, look, we will still endeavor to maximize margin, but there can be some quarters where margins are lower. Very hard to predict given where we are today at the beginning of the third quarter. And yes, that's what I would say.
And overall, of course, as you know, there's a macroeconomic global recession in Europe and probably in America, high interest rates, the war, China slowing down. So all these are obviously have depressed market sentiment. People are waiting and watching. People -- I mean customers are waiting and watching. They don't want to produce more than they need to. Therefore, they're not buying as much that they normally would have. So there are obviously challenges in pockets of our business. And so it's very hard to predict what will happen in the next 6 months.
Sir, second, sir, quarter-on-quarter...
Mr. Khetan, sir, we are not able to hear you clearly.
Now is it audible?
Go ahead. Go ahead.
Yes. Sir, second question, quarter-on-quarter, sir, also, we are witnessing a dip of almost 8% in revenue. So this is largely because of the realization front only, you can assume because there is a slowdown and as we mentioned also. Sir, quarter-on-quarter...
Yes. That's right. Mostly on the realization front, volume has been largely -- I mean it's a little bit lower, but that is more -- as I said, we are -- even in Q2, we were almost at 100% capacity utilization. There was some -- Q2 in general for us -- because of the monsoon season, a couple of our industries like carpet manufacturing in India or footwear, that is a little slower. So I would say that volume has been a marginal dip but largely because of realizations coming off, yes. And I think we can expect that further in Q3, the realization is coming off.
Got it. Got it. And sir, so capacity...
Sorry to interrupt, Mr. Khetan, may we request that you return to the question queue?
Ma'am, just one last question, please.
Sure. Go ahead. Go ahead.
Sir, on to the capacity for the [indiscernible] sir, just wanted to know is this capacity tangible and can be used for other set of latex also? Or is it only used for glove only?
So the ones that we are -- as I mentioned again, we have done 2 projects in the last year. We've invested in both coming on stream very soon. The sort of the commissioning of both these projects will start in the next, I would say, month -- to 1 month, 1.5 months. And the project in our Gujarat facility is only for gloves, and the project in our Taloja manufacturing unit is only -- is swing we could make most -- many other latexes.
So as of now, given the current situation in the glove market, the current thinking is that we would first utilize our Valia capacity for the glove industry. And for the Taloja plant, we will focus on our other products that we already have for styrene butadiene, styrene acrylic latex for paper, copper and stuff.
So this capacity of 65,000 metric tonnes, sir, how much would be glove and how much would be the India latex, sir, into this?
So earlier, our -- it was 60,000 tonnes is what we were looking at. So obviously, now, as I mentioned to the earlier caller, what the 50,000 tonnes is in Valia, which will be owned for gloves, and the 10,000 tonnes in Taloja will be converted to styrene butadiene latex, which will definitely be more than gloves. Exact number, I'll come back to you in a few months, but that we will be focusing on styrene butadiene latex for the next few quarters anyway because we are running at full capacity, and this seems to be higher demand for those products currently.
The next question is from the line of Karan Bhatelia from Asian Market Securities.
Sir, while you did mention that volumes were kind of flat Q-o-Q, plus the raw material prices started to correct. So how would you be able to manage the EBITDA margins? I know 16% is quite impressive numbers. So how did we arrive to such a better margins?
Look, no, I mean we held on to our EBITDA margin numbers. As I said, when the -- but if you see our overall profit before tax, our overall EBITDA is a little lower than Q1 because of this correction. But overall, yes, we were able to sort of manage our costs and manage Q2 numbers at about 16% EBITDA margin. It's the same as Q1. And that has been our endeavor around this mid-teens number.
And I also wanted to understand, given the global challenges, any strategic changes in the raw material sourcing because still in a bulk of a raw material is imported? So anything -- so any changes as of now with more focused on India sourcing or something of that sort?
Absolutely. Look, we have -- unfortunately, as far as some of our major raw materials go, I give you an example of styrene is one major raw material that we consume. Unfortunately, there is no India manufacturer. And petrochemical complex comes up with that product. And I believe there has been one announced recently, which will come on stream in a couple of years. But those kinds of products, we can't do anything about unless those petrochemicals are available in India. So we have to rely on imports.
As far as other smaller raw materials, what we call B and C class raw materials, there has been a huge push from us for the last couple of years, in fact, to de-risk from imports. And earlier, the de-risking was from China, in China plus 1, but what people don't realize is even Europe has a lot of specialty chemical manufacturing only available in Europe. And there may be small quantities for us, it's a high risk for us. And so currently, in the current context, Europe has also become high risk given the war situation.
So yes, we have a huge push, and we have been successful in quite a few raw materials we're developing and working with suppliers to develop in the unit sourcing.
Right, right. Sir, as of now, bulk of it comes from Japan, Taiwan or just any, like, throw some light on...
So no. I mean, look -- I mean I just said we have many different raw materials from some of our A class raw materials like -- I'll just give you an example of styrene. That largely comes from Middle East and Southeast Asia. Another raw material comes from Europe, East Asia, [indiscernible] Nitrile, all over the place. And yes, I mean we don't have a specific sort of geography of imports from everywhere.
Great. I have 2 more questions. I'll follow up in the queue.
The next question is from the line of Farokh Pandole from Avestha Management LLP.
Congratulations on the good results. My first question was on the expansion in Valia. Where exactly we are at -- are we at, at this point? And you mentioned that there would be some decommissioning in a 1 month or 1.5 months. So with respect to revenue, say, in quarter 4, at what level we'll be at and what will be the level of ramp-up given the fact that, obviously, the gloves market is in a bit of turmoil at this point?
Also, you mentioned some numbers in response to an earlier question about capacity. Now am I right in saying that we also have the ability to expand 50% of this capacity further at a very negligible cost?
Yes. Thanks. Thanks for the question. So you mean the last capacity in Valia?
Yes.
That's correct. So I'll answer your second question first. It's the easier one. Yes. Absolutely. So we can expand by 60% at an investment of, I would say, about 15% of what we've invested. So I mean they're broad numbers [indiscernible]. Further expansion is what we have, yes, let's have room for. And in terms of both plants by -- and in Taloja, the focus is going to now start a little earlier because there was such a large [indiscernible].
Sorry to interrupt, sir. Your audio is breaking up.
My audio? Sorry. Can you hear me now?
Much better, sir. Please proceed.
Okay. So I was just saying as far as Taloja is concerned, they're going to focus on styrene butadiene latex and where we feel demand is quite strong. As far as ramp-up is concerned, Farokh, we -- earlier, as I've mentioned in my earlier calls, I think we were 6 months to 1-year ramp-up. I think we're still setting a target for that because, as I mentioned earlier, in terms of volumes, that's not a major issue because we are a small percentage of the overall log nitrile latex production in the world. I think we could do that, the issues with margins. And of course, the pull from the market is definitely less earlier where customers were bending over backwards nitrile product approved. We -- there's a little bit of more of a push right now because there's no urgency on the customer side.
So our team is still working with that 1-year target. We'll see how it goes quarter-on-quarter. Very hard to predict what would happen. As I said, one of the other uncertainties, even though we're commissioning and -- is final approvals from the state solution control Boards to finally start bulk production. So we expect that to come through as well in the month of December or early Jan once initial trials have started. So very hard to predict quarter-on-quarter, Farokh.
And also, I just want to mention one more -- 1 or 2 more things that while, obviously, the macroeconomic environment remains changing, I mean, the bigger picture is, look, we believe that the product that we have developed, and we are working with our -- a harder -- it's quite hard for people to get into barriers to [ enter a high ] -- approvals take a long time. Some of the stuff we have talked about.
So our focus over the next year or 2 or next year, I would say, while we expect a more challenging environment, we are going to focus on our market share. We are going to focus on quality and improving quality, consistency, introducing some new products, focus on all the approvals, customer approvals and, most importantly, focus on a healthy balance sheet. Let's not forget that even after this project is done, we will still be almost net debt-free. Besides some working capital use, we have cash on the books. And whatever debt we have raised is a little more than the cash we have, so we are almost net debt-free. So focus on a healthy balance sheet, focus on market share and focus on quality. I think that's the mantra that we are looking at.
Got it. That's great. Just my second question is on how much of, if required, and let's assume if the gloves market is going to be under pressure for longer than we think it is, how much of this styrene latex can be sort of -- can we do a sort of swing production at -- to some extent, at least at Valia as well? And on the NBR side, is there any further thinking from the previous quarter?
So the first answer is no, we will not be able to meet styrene butadiene latex in Valia. As I said, the swing capacity was made in Taloja with a higher investment. But what we can do, there's the latex manufacturing is like, let's say, much worse than we think. We can use it towards NBR manufacturing, which, again, NBR, for the last many 2, 3 years, we have been running at full capacity. So there is a little bit of a -- I mean -- there is obviously, that's something that we are looking at anyway.
So we can use part of the latex manufacturing capacity towards our captive NBR production, of course. But for that, there is reasonable and sizable investments required. So we're working through the different options right now and seeing in the worst-case scenario. But frankly, we have worked out a pretty bad case scenario. And even with those bad scenario, we're looking at 20% to 25% ROCE on Nitrile Latex. So our focus will be to try and ramp up Nitrile Latex production, get to full capacity as soon as possible.
Margin, yes, will be affected for the first few months, it looks like, and given the current state. And hopefully, things will normalize, right? They have to because this doesn't last forever. Any cycle doesn't last forever. So every industry goes through a cycle. And so we feel -- and given a lot of experts we have talked to, they think that within some time in '23, the glove market will also turn.
So if it goes back to normal, then we can see reasonably good ROCEs and focus on this business itself without looking at contingency plans.
As far as NBR is concerned, we are -- we have sort of started the process of detailed engineering of the plant. We will be taking a call once a detail engineering is completed in the next few months. I think it will take 3 to 4 months. And we'll take a call maybe by January or March on when to start that. And we're also waiting to just see how the macroeconomic sort of environment pans out in the next few months.
And as I was mentioning earlier in my earlier call, we are also -- can you hear me?
Yes, yes.
Yes. Okay. I was -- we are also seeing some of the commodity prices are coming off. So our CapEx costs should come down, the longer we wait a little bit. So we're trying to optimize the time and cost.
The next question is from the line Ankit Kanodia from Smart Sync Services.
Appreciate your retail views on the industry, specifically gloves. So my 2 questions. The first question would be, one, is our relationship with Asian Paints. And why I'm asking this is that in the last 2 presentations, for the first time, we have seen Asian Paints has customer. And if you go back to our history and see, we started up as a unit of Asian Paints. And then we all know what happened and -- so I want to know having them as just a customer or are we also going to get the leverage of the kind of distribution they have? Because our product, ApcoBuild, can we leverage really well if we can -- so if you can share some thoughts on that, that would be great.
So Asian Paints completed arm's length [ inning ]. There is a history to Asian Paints where the ownership is completely different between Aquadex and Asian Paints, as you know. So yes, recently, we are not really in [Technical Difficulty] specialty products. [Technical Difficulty].
Please. Sorry to interrupt. Mr. Choksey, your audience is breaking up.
I'm very sorry. I'm not sure -- okay. Is it better now?
Sir, it's better now.
I have full signal on my mobile. Hello?
Okay. Please proceed.
Yes. Sorry. So what I was saying they launched the SmartCare brand of products, and we are supplying to the construction chemical portfolio.
Okay. So no arrangement of getting any part of the distribution benefits from them?
Correct.
Maybe completely different, right?
Yes. This is a buyer-seller relationship, yes.
Second question was related to -- so as you mentioned and the answer to one of the participants that due to the inflation increasing pressure coming down, you see raw material prices coming down and also the freight was coming down. So right now, inflationary position is something, which is very dicey. There are divided views. So you have spoken about one view wherein if the inflation comes down due to recession and interest rate heights, what if -- is it fair to assume that if the raw material prices or is there an inflation going ahead, then you will be benefiting out of it? Because as we saw during the 2020 to 2021 period, and the prices continue to do well. Is it fair to assume or do you have anything else to it?
No. Look, there are 2 types of inflation, and I'm not sure if you're confusing the 2. One is on the raw material purchase front going up, right? And if that -- and then obviously benefits us in the short term. Anytime raw material prices go up because we're importing a lot, because we have some inventories of raw materials and selling goods that helps us.
And on the vice versa when prices come down as well that is not great for us in the short term. The other issue which is inflation worldwide, when you're talking about macro like inflation that you're reading off in the paper, obviously, that's not good for, I think, for anyone, right? Because there is consumers consumed less. They don't consume normally that they would. Some nonessential products immediately get hit, some essential products get hit. There is a demand issue in some areas.
So now fortunately, India, I think so far, we've been fairly insulated, and local demand remains okay. But if you think about it from a B2B company like Apcotex' point of view, there are some -- some customers that we have in the B2B space, which are finally catering to the Indian customer, but there are some customers that we have that are catering to exports. So indirectly, it is exports. And some exports, as you know, in Europe, in America, in China, they have been fairly badly affected from what I understand from some of our customers. So that's -- I don't think it's good for anyone, extended high inflation around the world.
Right. Sir, my point was basically related to freight costs, how the freight cost over the world, if it will rise, how it will impact our dynamics, that was the main point I wanted to ask.
As I mentioned -- yes. So I mentioned that in one of the earlier callers for 40% to 45% -- 40% to 45% of our business, we don't have a competition that manufactures in India. So that's largely for imports. And when that happens, that is -- that was a benefit that we had and we continue to have even now compared to pre-COVID level, but that's only normalizing. And I mean we expect in the next few months, it will normalize. So yes, from that point of view.
As far as our exports are concerned, fortunately, our sweet spot for exports in Middle East and Southeast Asia had a freight cost is not a very large percentage of the total cost of the product. So it's really not impacted us much at all.
The next question is from the line of Manav Vijay from Deep Financial Consultants Private Limited.
Actually, I just have one question I want to ask you. So we saw in last quarter when basically your Top Gloves, they have released their results. And we saw that for the first time in their -- I would say in the history of their listing, the reported losses. Now you alluded to -- I would say, to multiple reasons that the inventory buildup in the channel was very, very high. A lot of production facilities came in a very short period of time. Now when the largest player in the industry starts to make losses, do you believe that the way capacities came up, they will also go away in the same fashion at the same speed?
Look, very hard to predict. But obviously, in any industry where -- I mean, as you rightly said, not only Top Gloves but the entire industry is going through the weakest downturn that they've never seen. And any industry -- obviously, this is not sustainable, long period of losses. Yes, they had made some of abnormal profits as well for the little while during the peak COVID period. So maybe the same power is longer with most glove manufacturers. But at some point, yes, there is probably going to be consolidation or rationalization of production and so on that's going to happen.
And one -- I mean I'm not an expert in the glove industry. I know a lot about it because we have been doing business with them. But in any industry, when this happen, and this is not the first industry that this happens where overcapacity coming in. And then it takes a little bit of time for things to sort of even out.
Yes, I agree because I see some of the global reports suggest that, let's say, whatever excess capacity that has been created, it will take roughly 7 or 8 years for the capacity to get fully utilized in everything. But generally, things don't happen in a leaner fashion. So maybe the way capacities came up in 1.5 years, in the same fashion, you will see a lot of capacities maybe going out in a very short period of time.
Look, I wasn't -- I mean I was in Malaysia this last month. And I mean there are different views to it, and it's hard to see how it will play out. Obviously, there are some players that have cash in the books. There are some new players, entering that came in, and they don't have cash in the books and whether they can sustain long [ disturbances ] of this in -- I mean I'm not so sure. So very hard to predict, Manav. So if you have a specific question, I'm happy to answer it, but it's hard to sort of...
Okay. One -- maybe one last point also. So [Foreign Language] Top gloves, after I was running off, let's say, throughout the listing history, so they always used to run on cost plus basis in terms of the pricing. And last 1.5 or 2 years because of the abnormal demand did change all that. Now in last quarter, we again went back to the original thought process of cost plus. Now obviously, they will have some issues in terms of whatever inventory that they have. Now -- so now when the industry did take such a call? You believe that the -- even the other players in the industry will be forced to go back to cost plus model and, in turn, the pricing discipline will be faster, which, in turn, will help players like you who are [indiscernible] suppliers?
Manav, again, I understand where you're coming from. I'm not the expert to ask about the glove industry pricing. I just want to mention that one thing is that one is as far as glove pricing is concerned, the other is as far as nitrile and latex pricing expense, right?
So obviously, because of the huge pressure on the glove side, those -- the Nitrile Latex margin has also come off. Obviously, Nitrile Latex, there have been a few players, but it has mainly been -- most of the capacity addition has been announced. And again, I'm saying announced because some of it has already been sort of shared what was mostly from current players. So unlike the glove industry, which had a lot of new players coming in as well, most of the capacity addition on latex has been from current players. It has been in the latex industry.
So the point I'm trying to drive is that it's probably easier technology to get into the glove industry than it is to the latex industry. And so I'm not sure -- it's not necessary. So my point is that the latex industry is not necessarily linked completely -- directly proportional to the glove industry is what I'm trying to say.
Sure. And last one would be on your NBR. .
Sorry to interrupt Mr. Vijay...
Let Manav finish his last question.Till [indiscernible]
Okay. So last one, maybe on the NBR over margins. Now -- so now you mentioned about the freight cost benefit that you had, let's say, compared to the imports. Now since that cost is coming down, but still, do you feel -- I would say the margins in NBR rubber, are those margins now, I would say, equivalent to the margins that you have at the company level or margins -- I'm talking about the operating margins -- or they are lower still?
Look, we -- again, we don't talk about product-to-product margins. And as you know, there is a sort of a legal case going on. So I don't want to mention too much about NBR rubber and specifically talk about that in this model. So all I want to say is, look, there is -- it's not -- the freight component was an additional benefit, not only for NBR, but other products as well where we were facing competition from imports, especially imports coming in from Europe and East -- Far East Asia. And obviously, that has come off.
The rest of it is depending on the demand/supply around the world. So I would say in the next 2 months, depending on the macroeconomic situation in general, it seems like margins are going to be under pressure for a lot of the product or for some of our products.
The next question is from the line of Saurabh Shroff from QRC Investment Advisors.
Firstly, on Valia, so you mentioned that you still think that we can do a 20%, 25% ROCE on this project, which is obviously very heartening to hear. My question is that what utilization do you think this breaks even? Like if the ramp-up was to take longer, just want to get a sense for how much pain could that be.
When you say breakeven in volume in breakeven, how do you translate...
At an EBITDA level.
Well, it will mostly depend on margins and where margins are at that particular time. Right now, we are assuming that for the next 6 months, margins are going to be quite depressed given the glove industry. But we think [indiscernible] the costs in this business are very low because additional it's a brownfield project. So -- and it's at a highly automated plant. So it's not like we have hired hundreds of people to run it. So breakeven is very low.
I mean we expect to actually breakeven [indiscernible] in the first 2 months -- from the first 2 months. So at an EBITDA level, yes. But payback, payback will be longer depending on margins and volume ramp up of course
Sure. That's understood, of course. And...
I mean the ROCE -- I mean ROCE covers that, right? IRR
And I guess on the base business, you did allude to some of, I guess, the raw material prices crashing and hence that pressure. But again, that is something that is cyclical, which we've now over digest the last decade being more than a few times. So is there...
I've mentioned in every quarterly con call that, look, we have been at an advantage for the last 8 quarters in a row when prices have been going up. There will come a quarter or 2 where, obviously, prices will come down. Sometimes the prices come up gently, which is okay, and then -- and you may not see it in the quarterly results. But if prices correct sharply, then sometimes you are left with high cost -- very high cost inventory for 2, 3 months, and you can have that issue. Yes, that's [indiscernible]
So that is exactly my question, but this is just par for core. Sir is there something more exceptional than what you would have, let's say, bargained for or anticipated? Given the nature of this business, I've seen that we've obviously seen these shocks more than a few times over the last 5 , 7 years
Yes. No. So the raw materials on the drop is, as you put it, far for course. It happens once in a while, every few quarters, and we're okay with that. And we explained to you guys that this is the nature of our business. And I think a lot of our investors and analysts understand that.
In this -- in the current scenario, of course, the flip side is that the macroeconomic situation looks really dire. So -- and I don't know how long that will last. But again, once the prices come down, then we can look at sort of building it up again. So yes.
Yes. Sure. And just finally, we had seen a bit of a ramp-up in exports over the last few quarters. And obviously a little bit of that diversification [indiscernible]. Is that still going well? Or do you think that because we've been running at 100%, we haven't had too much to do on sort of market development, et cetera?
Yes, you're right. In some cases, we have had opportunities where we have not been able to exploit them because we go to a customer saying, give us approval, they give us lab approval, and they say, okay, send us bulk quantity. We don't have bulk quantity this time. So yes, there is an delay but I think in the next 2 quarters, what we have established a relationship, that's a good thing. And yes -- so we expect the ramp-up to continue.
The other thing that I did not mention to the earlier caller but worth mentioning is there is a silver lining here as well for us. While the whole macroeconomic situation looks dire, some of our competitors in Europe are facing a really tough time competing with us. Raw material prices in Europe for them are significantly higher than Asia. Conversion or power and gas prices are currently, I believe, significantly higher. So we are seeing a lot of interest from not only European [indiscernible] customers, but also customers that they were exporting to in Asia, some specialty products. So we have seen an opportunity to work with certain customers, to develop certain specialty products that we did not have in our range within the same, styrene butadiene, styrene acrylic [indiscernible] similar range. So we are seeing a lot of interest, and that's why we also decided that our current thinking is to focus our Taloja facility only on our current products and focus on Nitrile Latex from Valia.
The next question is from the line of from Dhiral Shah from PhillipCapital.
Sir, what would be the growth driver for H2 FY '23 and for the full year FY '24? Let's say this Nitrile Latex industry issue passage a little longer than what we expect since we are running at full capacity even now?
As far as growth drivers, again, I'm mentioning 2 things. One is Nitrile Latex will continue to be a growth driver. The issue is margin, not so much volume. We will -- [indiscernible] ramp-up will take little bit longer [indiscernible] the growth driver.
And the second [indiscernible] in our Taloja facility, we have -- we could make more styrene butadiene latex and styrene-acrylonitrile latex and so on. So that's going to be another growth driver. Those are the 2 growth drivers.
And so we are quite confident of the growth. It's just that with the whole macroeconomic environment what the glove industry is going through, we're not sure -- completely sure of how the margins will play out. And I think it's a cycle. Look, as I said in -- if you're looking at a very long term, which is what generally as management of the company that I look at, of course, we're looking at short-term numbers, but the long term is more important for me. We use this adversity [indiscernible] adversity. Who knows things may turn as well very quickly. But if it is an adversity, use it as an opportunity. We focus on market share. We focus on new customer approvals. And we focus on managing our healthy balance sheet. The rest, I think, takes care of itself. And you go through business cycles, and it will it play itself out. Not too worried about that.
And sir, any reason why we are taking a longer time to finalize the NBR CapEx?
Yes. I mean as I was mentioned before, it's not about finalizing one of the things we felt in the last couple of years. If commodity prices have run up so much, then the project cost was going completely out of that. I think that's correcting now. And given that we weren't very comfortable, that now that it's correcting, as I said, we are -- we have already started the process of designing the details of the plant. That should be completed in the next few months, and we will take a final call depending on overall -- as I mentioned to one of the previous callers about optimizing our CapEx costs as well as signing in terms of we don't want to enter a market where it's depressed at the time it's depressed. I mean that's not the ideal scenario. So most of those will take a call on and decide in the next few months. That's the only reason. But we still believe it's a good opportunity not only in India. Globally, we are only one -- less than 1/3 of the Indian market today. Everything else is being imported. So there is a good case for it, but we just want to see how some of the things pan out.
The next question is from the line of [ Abhishek Sharda ] from [indiscernible]
Sir, can you share sales mix for the quarter between nitrile rubber and nitrile latex?
I don't think it's changed much. It's the same. I mean, overall, we have about 45% with our total solid rubber business, which includes nitrile rubber, nitrile powder, nitrile PVC blends, high-styrene rubbers, and 55% is the latex. Largely, I mean, given plus or minus 1% or 2% remains the same.
Sachin, if you're on the call, is that approximately right? Any significant changes?
Yes. No, no. Absolutely right.
45% TO 35% right, sir?
45% is the latex -- is solid rubber, 55% is latex. I mean these are broad indication. Yes, it may not possible . I'm not sure exactly, yes.
Okay. And sir, broadly, I mean, approximately, how much revenues we are getting from the auto industry? If you can share a broad number.
Well, look, we indirectly, directly, first of all, we supply [indiscernible] latex to the tyre industry not do you counter is also, I'm not sure. That is maybe 8%, 10% of our business. And the rest is NBR and PVC blends and all. And I would say totally tires will be 8% to 10%. Auto maybe about 8% to 10% is my rough estimate.
Sir, roughly around 18% to 20%, right, sir?
Yes. But I mean I think also it's very different from tires, right? That's 2 different industries. I mean the auto industry could [indiscernible] number. The tire industry could still be doing well [indiscernible] market is a huge market.
[indiscernible] Is tyre and around 8% to 10%.
Yes. That's right.
And sir, one thing I want to understand, like maybe I have mentioned in the previous commentary. Right now, you also have capacities in the Taloja facility, 65,000 metric tonnes for the non-synthetic latex; 7,000 high styrene [indiscernible], right? So after ramp-up, what would the capacities of this after the ramp-up?
Yes. So as I mentioned, good question. Earlier, we were thinking we make 10,000 tonnes of nitrile latex. But given the current scenario on the glove industry, we are going to utilize that capacity at least in the short to medium term for our current other products. And I think depending on which products we decide to manufacture and all, it will be a little different, but it will be much more than 10,000 tonnes because the cycle times are much lower. So I'll have to come back to you. That's the working that we will do once the plant starts up, and I'll come back to you maybe next quarter or in 6 months [indiscernible] those numbers.
Okay, sir. And in the Valia capacity right now, it is in your latest investor presentation, it is showing 21,000 metric tonne nitrile rubber in the allied products. So after ramp-up, what would be the final capacity?
So it would be around 21,000 for NBR and 50,000 tonnes for Nitrile Latex.
For -- 50,000 for Nitrile Latex.
Yes. And again, I'm just mentioning that...
Yes, these are the broad numbers. So basically, these are...
We have an ability to go up to 80,000 tonnes. It's a minimal investment. And similarly, in Taloja as well, we have left some place for additional capacity with very, very limited investment.
Okay. So basically, sir, after the ramp-up of the 50,000, you can get around 60% more at minimum investment that you mentioned, that is -- would be around 15% to 20% of investment, right?
That's correct.
The next question is from the line of Anirudh Shetty from Solidarity.
Sir, my first question was -- I just want to understand our right to win in the Nitrile Latex business given you had mentioned that there are 2 million tonne market, and I presume there would be players larger than us. So what is our differentiation to the customer, which allows us to -- which will allow us to kind of gain market share here?
Yes. Absolutely. No, look, there are 2, 3 differentiations. One is there are product differentiation, but they're technical, and I don't want to get into that with this forum. I think it may not be useful. So there are certain product differentiations that we are certainly bringing in. More importantly, as you know, everyone is looking forward to de-risk from countries. So, so far, all the Nitrile Latex has been either largely made in 2 countries. And we bring in an option, and that's a strategic advantage that we have coming from India, especially customers in Sri Lanka, India, Bangladesh, we provide that as well as customers in Indonesia, Thailand that don't have their large capacity or they don't have much Nitrile Latex in-house production.
So I think there is a strategic geographic advantage as well as some technical advantages. In addition to that, we have -- we believe we have no -- I would say we have no disadvantage in the raw material pricing front. Let me put it that way. If anything, we have a small advantage, but no disadvantage. So from a cost, quality and geographic standpoint, we have certain advantages that we bring in -- certain competitive advantages and strengths that we bring to table.
Got it. Just one in raw material cost front. We -- what was the key raw material been for Nitrile Latex? And I believe we import it. But do the players competitors to manufacture it in-house or also they're reliant on imports for this?
So the key raw material acrylonitrile and butadiene. Butadiene is manufactured in India, and it's very close to our plant. So we have a good advantage there. And acrylonitrile is all imported into India. And I think most of these guys are importing a large quantity of acrylonitrile from other countries and some of our competitors. There have been some announcements of the acrylonitrile production in India. Hopefully, that will come on stream in the next couple of years. So that will certainly help.
Got it. So peers also don't make it in-house they are of so kind of...
No, they don't make it out, but they may have some capacities available closer by that [indiscernible] the advantage is there on -- but not the entire capacity that they require is what my understanding.
Got it. And in the past call that you mentioned...
Sorry to interrupt, Mr. Shetty. Sir, may we request that you return to the question queue? The next question is from the line of Alisha Mahawla from Envision Capital.
Just very quickly [indiscernible] capacity [indiscernible].
Alisha, your audio is not clear. Can you use a handset mode while speaking and not the speaker phone?
Sure. Is it more audible now? Yes,
Go ahead, Alisha.
Just wanted to understand with the new capacity coming on stream early next quarter, there is going to be some amount of lead time for client approval, product approval or batch approval, et cetera. Also, I believe earlier in the call, you mentioned that there's approval from the solution control board, which is still pending. So can we expect the new facilities to start contributing at least from Q4? Or is it largely going to be from FY '24?
I mean, look, it will start contributing from Q4. But as I said, the ramp-up takes time, whether or not -- I mean you need a -- after the plant is ready, you still need to go back, and there is something called the TPO consent to operate that you need from the solution control board. Now we don't -- sometimes it can be quick, but sometimes it takes longer. But notwithstanding that, obviously, you're right. The approval -- while we already have approvals in place. and any time a new plant comes up, customers do want to take it a little slowly. They may take smaller quantities in the first month, then they ask for a little larger quantity. So the ramp-up, as I mentioned, takes 6 months to a year.
As far as gloves is concerned, given that the demand pull is in there in the market, it may take us a little bit longer, but we're still pushing for 6 months to a year. And so yes, from an overall number standpoint, obviously, FY '23 will -- this will not have a big impact. The new project will not have a very large impact. It's only towards the [indiscernible] end of the year. But in FY '24, it will have a larger impact, of course.
Sure. And earlier, we were expecting the new capacity, both combined to contribute somewhere around INR 500 crores of incremental revenue. And now with Taloja being -- the capacity is going to be used for this styrene butadiene latex . That you were explaining explaining, are we expecting the revenue contitution [indiscernible] significantly?
Yes, it should go up. .
It should go up.
Yes, that's right, because we can actually manufacture some -- as I said, we can manufacture much more styrene butadiene. So as I said, we're not clear on this right now. So we will -- I will come back to you at the right time with the right numbers, but it will definitely be in terms of volume, and value will be higher.
In terms of contribution, we were earlier thinking -- because Nitrile Latex contribution were very high for 2 years, we were thinking we'll focus on that. But now that's not the case. So therefore, I mean, [indiscernible] contribution, I mean, gross margins were higher.
So now the current thinking is to focus on styrene butadiene latex. And frankly 2 years ago, you had asked us that would there be this kind of pool for styrene butadiene that we hadn't thought it would be this great. And as I said, there's some silver lining. Some of our competitors in Europe are finding it hard to compete given their raw material costs. And so yes -- so we are going to adapt to the current business environment. And while the gloves industry is not doing so well, we see some of our current products that is still doing much better than expected. And so therefore, we focus on that.
Just one last clarification. In latex, what is the 55% of revenue that you spoke of? How much of that would be Nitrile Latex?
Currently, no, we are only doing some quantity. So I want to say less than maybe about 7%, 8% of that or 10% of that. Sorry, 10% of 55. So totally about 5 -- 6% to 8%. I don't have the exact numbers on me, but that's the broad guess yes
Okay. It should be 10 or thereabouts.
Yes.
The next question is from the line of Amar Mourya from AlfAccurate. We'll move on to the next Nakshita Mehta from JM Financial .
So sir, sorry, if I would ask a question. I joined the call a bit late. So firstly, sir, I wanted to know that how is the industry scenario different vis-a-vis when we compare to 2018, '19 times where the industry in which we belong to had a slowdown or maybe price correction or whatever we may turn out to be.
And my second question would be that -- Europe is a major market for us as well. On the same lines, it's actually a competitor -- I mean a few competitors are present there as well. So is your feeling is in -- or maybe your slowdown is an opportunity for us or a threat? If you can just explain.
First of all, Europe is not a major market for us at all. It's a very small market for us. In fact, as far as our current sales into Europe [indiscernible]. Overall, obviously, Europe manufacturing competitiveness has been badly hit over the last couple of -- last few months as well as the risk has gone up given the war. As I said, it's actually perhaps a silver lining advantage for us because some of the places that they were exporting to or some of the customers were exporting to are now looking for other options in Asia. And we are well positioned and suited given the work that we have done over the last few years, developing products and ensuring high-quality consistency.
So yes, that's an opportunity. And your first question on '18/'19, I think the company is much better positioned than we are today, than we were '18, '19. We have a diverse set of products. Our volumes have grown significantly. Our competitive strengths have grown. Number of customers we've added has grown. So from all perspectives, I think it's a more diverse and stronger company than it was few years ago.
Okay. So basically, when we talk about the company as a whole, a few products are there in which we are having our own key strength and maybe a few products, which are having demand as of now, and we are there into the market. So if I was to divide the entire market into 2 parts. One is the basically specific products, which we have developed or maybe we are the first to our clients and the other set of products, which are actually market-driven market at its own growth. So if you could throw some light on both of them.
Sorry, I didn't understood the question. What specifically -- what are you looking for?
So I wanted to understand that the growth drivers would be mean whatever XYZ products we have, and we would be manufacturing and then selling it to a client. So if I would provide the growth into 2 parts, one is the products in which the industry is [indiscernible] itself, and the other product in which we are creating, our own market. So if you could throw light on both of them.
I don't know what last. [indiscernible] let me -- I'll try and answer your question. So in most of the products that we are in, in India, we have high market share. And therefore, going forward, we will probably grow in those products at sort of whatever the market grows at, right? I mean GDP plus whatever data that some of our customers grow.
In addition to that, yes, we are adding new customers mostly. And the -- there are a few customers in India that also come on with customers, but also in mostly abroad for exports. And then our 2 other growth drivers are Nitrile Latex for [indiscernible]. And in the future, it would be NBR because we have full capacity, and we only have less than 1/3 market share in India. So that's another opportunity for growth.
The next question is from the line of Karan Bhatelia from Asian Markets Securities.
Follow-up. You did mention that there is no demand pull as of now for the latex gloves. So have you seen some correction in the prices as well?
Yes, yes. there has been a correction in pricing. The whole industry is going through a downturn. So therefore, the pricing margins, everything is corrected. And not only for us or hand gloves, any supplier to the glove industry, we'll have to support the industry. They're not -- some of them have been -- most of them are not doing so well, the glove manufacturers in the last quarter or 2. So we had to sort of adapt and support that.
Right, right. And okay to assume the export contribution offer of 18%, 19% for this quarter as well? And are we [indiscernible]
It's about 21%, 22%.
Okay, okay. No. And the real benefit to us with respect to the Europe energy crisis, have we done with 20%, 22% or can this still be at a slightly better number upwards of 25% in the medium term?
Sorry, can you repeat? I didn't hear you.
Yes. I'm saying 21% is the best that we can do? Or we can see some more benefits of the Europe energy crisis?
So I mean, look, it will depend. So far, the business has been different in the last 2 years and limited capacity. And therefore, we were doing business based on, obviously, some strategic customers that we have in India also maximizing margins wherever we could, but obviously thinking long term and ensuring we have a diverse customer base and adding customers as well. Going forward, of course, exports will go significantly higher. In fact, our prediction is because of Nitrile Latex [indiscernible], which is largely for export, exports will be much higher, 35%, 40% of our total turnover could be export.
That's right. That's right. No. If you just keep aside the gloves business [indiscernible] 20%, 21% with this...
That should grow as well, yes. That's correct.
The next question is from the line of Anirudh Shetty from Solidarity.
I actually had a question around just the nature of the business. When I compared your gross profit margins and your asset turns with other chemical companies, I see that the GP margins over long periods of time, it's lower. But the asset turns at about 2.5 speed is actually higher. So just wanted to understand what is the nuance of this business that explains this.
Sometimes I feel like you guys understand is better than you did. But at the chemical industry, the chemical industry is put into one as one industry, but I firmly believe that, look, within chemicals, there are so many, some industries and one cannot come one to the other. On one end, there is complete commoditized chemicals, which has perhaps low margins, high CapEx, but still deliver the return on capital that's required because of the steady businesses.
The other is, on the other hand, is extremely specialty chemicals, maybe very high margin, but limited volumes and limited business opportunity. So it's very hard to say in our business exactly what you said. Look, I don't think our business is a kind where atleast as of now that you can look at existing companies like us globally as well. And we haven't seen any companies with 30%, 35% EBITDA margin, right, which you could see in some specialty chemical businesses. And those businesses may be require 30%, 35% EBITDA margin because of the CapEx requirement. So because our asset turn is low, we can live with lower margins.
Market environments [indiscernible] see the return on the capital. And that drives all the numbers, right? So -- and also the profitability numbers. So that's what I would say. And I mean I would encourage you to go deeper. If you're studying the chemical industry, try and understand the nuances of distinct types of chemical businesses and see what fits where. But you can't compare one to the other like comparing apples to oranges.
Got it. And when you mentioned 20% to 25% ROCE, is this the pretax number? Or is it gross tax?
We look at, Sachin, post tax, right?
Post tax, yes.
Got it. And just one final question. I think you had mentioned that the latex business tends to be higher margin than rubber, but you made this point today that we can actually use the facility of Nitrile Latex to make rubber. So I'm presuming rubbers of forward integration. So I guess what is it about it that latex, besides being more upstream on the value chain and upstream more value-add, is it that the...
No, I don't know. Maybe I'm mistaken. I never mentioned that latex is a higher-margin product than rubber. I said latex is a more [indiscernible] margin product than rubber. The rubber business is more volatile. So we see very high highs followed by lows And one of the reasons for that is storage of latex is very difficult because it's 50% or more water, 60% water. And so to transport and store that is very difficult. And so customers also don't want to move very quickly. Whether is it nitrile rubber or any kind of rubber, I would say, nitrile rubber, styrene butadiene rubber, which we don't manufacture, polybutadiene rubber, which we don't manufacture. The margins are a lot more volatile and choppy, but I've never said that is lower. Basically in the long run, they are similar.
Yes. Okay. So just the transportation that is more difficult in latex, which means that -- difficult and more expenses. So maybe the competition would be limited by geography in that sense and unlike...
Geography is one, and also some applications on latex are so critical. Just to give you an example, we supply latex to the tire industry, right? So they would not -- even if there is a new vendor that comes in, and it's such a small portion of the whole cost of the tire, that it's not something that they will change very quickly because even if somebody comes and say, okay, I'm giving you a 50% lower product -- price product, they would not be [indiscernible]. It doesn't really impact the total cost of the tire. And the criticality of this product is extremely important because it has a vital role in the region -- in terms of region characteristics of the tire.
Got it. Got it.
So those are some of the nuances. Similarly, on paper board, some of this type of packaging is used in food products, extremely sensitive. So once they have sort of sets the plant with 2 or 3 vendors maximum, they won't change it for a fourth vendor very easily as long as you're reasonably competitive. Yes.
Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to the management for closing comments.
First of all, I'd like to take this opportunity to wish everyone a Happy Diwali and Saal Mubarak. All the best wishes for the new year. As usual, the Apcotex team appreciates the support and your interest in the company, and we look forward to seeing you in Q3 again. Thank you very much.
Thank you. Ladies and gentlemen, on behalf of Apcotex Industries Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines.