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Apcotex Industries Ltd
Earnings Call Analysis
Summary
Q2-2024
The company has reported a modest 5% quarter-on-quarter volume growth, seen across the board, with a prudent approach to capital expenditure, focusing solely on maintenance and deferring major new projects amid global uncertainties. A noteworthy investment of around INR 200 crores is expected to potentially augment the top-line by INR 700 crores, while targeting EBITDA margins similar or slightly better than historical averages. The Nitrile Latex sector anticipates moderate capacity utilization of 25-30% in the first six months, with a slow approval process in a saturated market. Conversely, the multipurpose latex plant is operating at about one-third capacity utilization with positive progress.
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Ladies and gentlemen, good day, and welcome to the Apcotex Industries Limited September 2023 Results Discussion Conference Call. [Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes.[Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, ma'am.
 Good afternoon, everyone, and a warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent Investor Relations of Apcotex Industries Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the second quarter of the financial year 2024.Before we begin, a quick cautionary statement. Some of the statements made in today's con call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review.Now I would like to introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We have with us, Mr. Abhiraj Choksey, Managing Director; and Mr. Sachin Karwa, Chief Financial Officer.Without any further delay, I request Mr. Sachin Karwa to start with his opening remarks on the financial highlights. Thank you.
Thank you,Ă‚Â Purvangi.Ă‚Â Good afternoon, everyone, and welcome to our earnings call for the second quarter and first half of financial year 2024. I hope you had an opportunity to review the financial statements and earning presentation, which has been circulated and uploaded on the website and the stock exchanges. First, let me brief you on the financial performance for the second quarter of financial year 2024. For Q2 FY '24, the revenue from operation stood at INR 279 crore, which witnessed a slight decline of around 1.4% on year-on-year basis and increased marginally by 0.5% on quarter-on-quarter basis. EBITDA for the quarter was INR 32 crore, which declined by about 30% on year-on-year basis and increased by about 24% on quarter-on-quarter basis with EBITDA margin stood at around 11.3% and net profit margin stood at INR 15 crores, which declined by about 50% on a year-on-year basis, and increased by about 26% on a quarter-on-quarter basis, with PAT margin stood at 5.48%.In Q2 FY '24, we witnessed highest-ever quarterly volume and export volume growth of 35% and 114% year-on-year basis respectively. Revenue growth was flat even though volume increased due to sharp fall in the raw material prices and thus lower realization of finished goods. EBITDA margins were affected due to lower margins in NBR, XNB and Paper due to pressure on demand. There is no significant inventory loss or gain in this quarter. Furthermore, PAT margin declined due to increase in depreciation and interest costs due to new expansion projects. If you take the first half of financial year 2024, the revenue from operation decreased by 5.5% year-on-year to INR 567 crores. EBITDA was INR 57.1 crore, which decreased by 39% as compared to INR 93.7 crore during the first half of last year. EBITDA margin stood at 10.25%, while PAT margin were INR 27.4 crore. In H1 FY '24, we witnessed volume and export volume growth of 28% and 120% growth year-on-year basis respectively.Revenue decreased by 5.5% compared to volume increase of 35%. This was due to sharp fall in raw material prices and thus lower realization of finished goods. Capacity utilization from new projects stood at 25% to 30% approximately.With that, I would like to open the call for question-and-answer session.
We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Mr. Aditya from Securities Investment Management Co.
So sir, in the last quarter con call, you had mentioned that you were expecting some inventory losses in the current quarter as well. But in our presentation, we have mentioned that there were no inventory losses. So if you could just explain what happened? Did the prices spike up in this quarter, leading to some inventory gains?
Yes, exactly. I think when we met in July, the prices were still going down. So I think if you're looking at month-on-month, in July, we had sort of some inventory losses, but then August and September sort of things corrected. So whatever losses were there were pretty much made up. So therefore, as mentioned by Sachin in the opening remarks, there were no significant gains or losses this quarter.
Sir, if then now if I have to understand our raw material prices, so are the prices now at pre-COVID levels or are they still below average levels? And how do you see them going forward?
Very hard to predict. As far as material prices, yes, I mean, they are probably around pre-COVID levels. I have not checked exactly recently. And as I said, we have 4 or 5 key raw materials. So I'll have to check for each of them. Going forward, hard to say, frankly. I mean, there's just so much uncertainty. So we don't really -- are not in the business of predicting what happens. We try and estimate in short-term, what's going to happen in the next month or 2 and accordingly build some inventory strategy. But as we have to have certain inventories, a lot of them are imported. So you have to have a couple of months, 1 or 2 months of inventories to cater to our customers. So it's very difficult to predict is a short answer, I guess.
So what I was trying to understand was, if we have to look at our raw material basket, so are they still at below pre-COVID levels where there is lesser chances of reducing further or they are back to average levels?
Sachin, do you have this data, pre-COVID or maybe can we dig it up quickly to answer the question maybe at the end of the call if you don't have it? And if you can't do it quickly, then can I request Aditya to send a quick e-mail to us and we will reply to you?
Sure, sir.
Sorry, I don't have the data from pre-COVID levels for raw materials.
Sir, my next question was regarding our end product prices. So are we having to -- are we reducing the prices to sell our products due to insufficient demand in the markets? So the reason I'm asking this question is because Top Gloves in their presentation, they expect the latex prices to drop further to lower demand. So are we seeing a similar situation for our other products as well?
No, not for other products. And even the Nitrile Latex products, I don't know if the prices will drop any further. It's all related to raw materials, right, beyond a point of all other manufacturers of Nitrile Latex for Gloves, as it is at a level where we are pretty much as low as we can get because we are kind of EBITDA breakeven on that product so far. I don't think we can afford to reduce it any further. And I don't think anybody else can either. So I don't think the prices will reduce, but certainly, it's the most challenging market in terms of margins right now. For other products, as I said, we are, by and large, passing along our increases or decreases to our customers. Obviously, there has been a little bit of a challenge, not so much on demand so far, but more on supply because we have added capacity for example, our other latex, the multipurpose latex plant that we have set up. So we have added capacity. Our competitor has added capacity in the last year. So obviously, there is a little bit of market share. Everyone wants to maintain or grow their market share. So the supply is an issue, not so much the demand so far.
And sir, what would be the current domestic export mix for first half?
Sachin, what is it? It's about 70%-30%, right? 70%, domestic, 30% --
Yes.
30%, export.
This is in volume terms, right?
In volume terms, yes, of course. And value. Volume and value, I think, right, Sachin?
Yes.
Yes.
Volume and value.
And sir, what would be the end user's industry mix for the first half, just a rough range?
Sachin, do we have this data?
Sorry, I just missed the question.
End-user industry mix.
End-user industry mix. So basically, exports have gone to more to the carpet, XNB. That's the end-user --
And I'm just trying to find first half data. We'll have to come back to you on this. But by and large, latex is probably around 55% now, 55-plus percent overall revenue, and rubber would be 45%, meaning high styrene rubber, nitrile rubber, nitrile polyblend. Within that 55%, I do not have the percentages. But again, paper, paper board would be the largest, construction would be second followed by carpet and then Nitrile Latex and then Tyre Cord, and so on. So we'll get back to you on the percentages as well.
Sure.
But if I were to mention, I guess, it will be about 15% to 20% paper board, about 15% to 10%, construction, 10% carpet, 10% XSB Latex and few others.
The next question is from the line of Aditya Khetan from SMIFS Institutional.
Sir, if you can highlight what is the sequential volume growth for our company in this quarter?
Sachin, can you answer this, please?
Yes. So volume growth for -- compared to Q1, we are at around 5%.
And sir, this would be largely from the Nitrile Latex business only?
No, I think it's across the board, 5%. Yes, overall. It's overall. It's not that Nitrile Latex has grown too disproportionately.
But sir, what I believe so other businesses, whether it is NBR or HSR, they are merely operating at peak levels or peak utilization level. So the new room where we have added the capacity, so there will be like there was some room for volume improvement.
No, we did grow in NBR as well. We had -- I mean, automatically, some capacity of NBR was freed up because we were making Nitrile Latex in the NBR product line. You're right. HSR has not grown, but that's a small -- that's only about 10% to 15% of our business. The rest of it has all grown. NBR has also grown. Our volumes for SB latex and styrene acrylics have grown and Nitrile Latex has grown Q-on-Q as well.
And sir, if it is possible, so for full-year FY '24 and '25 and '26, what would be our full-year volume guidance growth for the next 3 years?
As per policy, we don't give volume guidance.
Okay. Sir, if it is --
Our intention would be to utilize our plant capacities within the 3 years. So you can calculate that yourself. The plant capacity, and so on are public information.
Sir, globally into the Nitrile Latex front, have we -- how is the export demand right now shaping up? We believe, sir, we were stating earlier 6 months back that demand would start to pick up from second half. So we are nearly standing at that level. So how do you see that? We can see a jump into demand and consequently ramp up in utilization or still there is time of around 3 months to 6 months considering demand is not picking up globally?
Frankly, for us, for this 50,000-tonne plant, demand is not so much of an issue. It's margins that is the issue. As I mentioned earlier, EBITDA margins are not great at all. In fact, close to breakeven. And so therefore, we don't -- for us, doing the volume is not the issue, it's the margin that's the issue. And yes, as of now, the margins have not improved either because of the supply/demand mismatch. Excess supply and less demand. So that's the issue.
So sir, this could be resolved by -- so by the second half and we can like operate at a much higher level. So we can actually -- reach breakeven and also make some profits also from this business.
I mean we hope so, right? At some point, that will turn. We don't know when that is. We -- I mean, there are lots of reports available from -- for large companies online and lots of predictions from 6 months, 2 years, we've heard several numbers. It's difficult to predict, frankly.
Sir, is there any --
So we're not seeing -- as of today, we're not seeing any significant improvement.
Sir, is there any new product of which we are planning to develop like this product of Nitrile Latex, we have developed in-house. So is there any other plan of new products which are being also developing right now and which could like come out in the market in the next 1 year, and that would like give a very good boost to our turnover. Is there anything something going into the R&D part, which can fructify into sales?
Yes, absolutely. Look, within the SBR latex product range, we are developing new products for new applications so that we can utilize -- I mean that would help with quicker utilization of our capacity in Taloja. There are other products that are in the works, but that would require investment. As of now, given the current balance sheet, we have not taken any decision of investing any larger amounts for new plants as of right now.
So would be the CapEx plan for the next 2 years to 3 years?
Sorry?
Sir, what would be the CapEx figure for the next 3 years then?
As of now, it's only maintenance CapEx that we're looking at. So we have not made any decision on future major CapEx plans. One thing that is on the cards is, of course, the NBR. That's in line, which we plan to add about 15,000 tonnes capacity. Everything is ready on paper, including the designing of the plant and so on, but we are holding up on that investment as of now given the overall uncertainty in the world and we also we want to manage our balance sheet. So as of now, no decision is taken for future major CapEx.
But sir, the NBR, I believe, almost -- so 30% output goes to automotive and also like to some of the construction segment. So globally, the demand is not that bad into these segments. So what is still like holding up on taking the call on NBR?
I think it's the margins which have been going up and down and also the -- yes, we are waiting and watching to see what happens a little bit in auto segment with EVs coming in. So that is the one uncertainty because NBR goes into traditional ICE cars. So that would be one issue. But more -- and it's not a major issue, I would say. We're still quite bullish on the NBR market, which is 30% in auto. Remaining is, of course, in various other applications like rice rolls applications, groceries, and so on, industrial application, which we expect to grow in the long term. The question is obviously our internal balance sheet also that we want to ensure that we are comfortable with taking that kind of investment of about INR 200 crores, which is what our team has worked out now.
So sir, but NBR doesn't goes into EV?
Much less quantity.
So sir, so considering over the next 4, 5 years, so the world is transitioning towards EV only. So you think that NBR output also can decline drastically the demand in India?
I don't -- look, I don't think it's going to be overnight because, of course, EVs are coming, but I mean, hybrid cars require NBR also. So it just depends how fast, so I think in the next 10 years, we -- at least in India, which is our primary market for NBR, we see overall, it should increase, but we are, as I said, waiting and watching for a couple of months more before taking any final call.
Sir, just one last question. Sir, we had made an investment of INR 200 crores into the Nitrile Latex. So we are holding on to our guidance of INR 600 crores top-line?
Say again.
Sir, the INR 200 crores capital expenditure, so INR 600 crores top-line, so we are holding on to our guidance or we are like --
Absolutely. Yes, yes, that's true. We made a INR 200-odd crore investment in 2 plants, both put together, Nitrile Latex as well as the multipurpose latex plant in Taloja. If we put together, it's a little over INR 200 crores, and that we expect to add about INR 700 crores to our top-line. And as the capacities are fully utilized. So that can handle it.
And sir, what would be the EBITDA margin on to this INR 600 crores, INR 700 crores?
I mean under normal circumstances, we had predicted the EBITDA margins would be similar to what we had earlier, or a little better. Our overall company EBITDA margin will even go up a little bit. But given what's happening with the Nitrile Latex market as of today, it's pulling down our overall EBITDA.
[Operator Instructions] Our next question is from the line of Bhavya Sonawala from Samaasa Capital.
Sir, just a couple of questions. The first question was with respect to the export market, where we have seen great volume growth. Just wanted to understand, is it -- the volume growth, has it coming across the board or is there any particular region that we are seeing some good growth coming and that can continue?
Yes. I mean one is, of course, with Nitrile Latex coming in, it's largely exports to Southeast Asia. So obviously, that has helped with export volumes. But other than that, carpet and construction emulsions have also been very strong for us in the last 6 months. Overall, we have seen more than 100% growth across -- overall in export. I don't have the break-up of exact increase over each section, but these are the 3 largely that are leading the exports.
Yes, these are the 3 larger product segments.
But going forward, any particular region that you think you are excited about where you can see some considerable growth coming up?
So we continue to focus on our regions, Southeast Asia, Middle East, we've seen good traction in Africa. We have also seen good traction in Russia and the Middle East region, Egypt or Middle East, North Africa, Egypt, and Turkey as well. So these are some of the other markets and customers that we have developed over the last 6 months.
Just one more question I think very similar to the previous participant in terms of new products. Just trying to understand in terms of the whole industry worldwide, have we seen any newer innovations coming up that you think that makes sense for us to venture into? You spoke about something that might require some investment, but I'm just trying to understand the industry. Has there been some new products that is exciting that you think we can be a part of going forward?
Yes. For example, there are a few that we are in the middle of developing. We don't exactly know how much it will pan out and what it is, but we are definitely developing a few products on the SB side because these are water-based emulsions. So there are a lot more environmentally friendly than solvent-based emulsions. So for example, one of the products is for EV batteries that we are developing. We don't know how much volume eventually we'll turn out, so we're working with some battery companies that are putting up capacity here in India and jointly developing some products. So yes, for sure, there are examples like that.One example that we've been successful in, again, converting solvent-based products emulsions is geotextiles. I think I mentioned that in my -- one of my previous -- one of our previous con calls. And so that's something we're looking at growing because our product provides extra reinforcement for geotextiles that is used in infrastructure. So again, these are new applications. Obviously, the recipes and some of the things change, but the basic chemistry remains the same. So that's what we're looking at, yes, and a few other products along those lines. And these will not require a significant investment. So that's one part of the product that R&D is working on.And the R&D team is also working on additional high-value add -- more value-added products is what we're looking at, where there is still a competition around the globe, no one is manufacturing in India. And it's something that is an adjacency to our specs. Similar to Nitrile Latex that we felt was a good adjacency for our business. So similar to that, we are looking at a few other products, but that will require investments. And no decision has been taken. At the right time, when that does happen, we'll, of course, inform you.
Just one last question from my side is --
Sorry to interrupt you, Mr. Sonawala. If you do have further questions, I would request you to please --
I just heard Mr.Ă‚Â Sonawala,Ă‚Â since it was his last question, let him finish, and then we'll move on.
So basically, just on ApcoBuild, I understand that we have just started out with our new capacities and a lot of investment has gone in and the situation is also not favorable. But basically, do you think that you will be doing more in terms of ApcoBuild going forward? Would we be more aggressive in terms of trying to build a dealer network or improving our reach, making this a larger portion --
I don't know why you think -- we frankly have not invested a lot of money in ApcoBuild. We have been growing it over the last few years slowly. It's a small part of our business, but it's been growing at somewhere between 18% to 30% year-on-year depending on the year. So we are actively growing it in terms of distribution network, number of people on the ground, team is becoming larger. We are hiring more people. We're hiring -- we're spending more on branding. So that is definitely happening Absolutely. And that doesn't require any capital investments because we are using our current plans to do the same and for some products to finish the product range, we are outsourcing some as well for some products.
Just a suggestion, if you can just put ApcoBuild, something -- some details of this in the presentation. So it just makes it for us there.
The next question is from the line of Saurabh Shroff from QRC Investment Advisors LLP.
I've got a couple of questions. One is, given that we have this new project, I mean, this is a question and suggestion, if you could. The NBR and the multipurpose latex, if you could maybe just qualitatively help us understand how the margins stack up, let's say, for our legacy old business versus the new one. You did mention that the NBR is barely breaking even. But I guess, something in terms of the volume or capital utilization levels, just so that we get a sense for what the underlying business is doing, right? Because what is happening to the glove market is outside of your control. But at least from our end, how the business is shaping up? I think that would help if there is something that you could share with us.
Look, I mean, I'm not sure if I've understood the question correctly, but I'll try and answer and see if that answers your question. So obviously, the Nitrile Latex, we've been in this business for the last 2 years. We have been using our current plant capacity that now we have obviously given back to NBR and our traditional SB latex and other styrene acrylics and those products. So obviously, it's a new plant. It's a new technology. It's a new way of manufacturing. So the approval process is going on. Obviously, given the current market, the approval process is taking a longer time because -- than we anticipated because there's really no pull from the market because of the excess supply. However, due to our relationship, we are pushing that along.Overall, I would say we're at about 25%, 30% capacity utilization in the first 6 months. Unfortunately, the EBITDA margins are what they are. That's the problem. Other than that, we just have to -- I mean, we will continue to push to get to 100% capacity utilization level as soon as possible. It's going to take a few more quarters. We were hoping by the end of the year, but I'm not sure what would -- whether that would happen. And as far as the other multipurpose latex plant, that's also at, I think, almost 1/3 capacity utilization. And so we're quite happy with the progress there. We had a lot of demand from export customers as well as some of our domestic customers that we hadn't been able to cater to in the last 2 years because of our capacity. So there, I think there is no major issue.Look, cycles will continue. There will be a few quarters where demand may be a little lax. Nowadays, for example, I'll tell you one big problem is in countries like Egypt and the rest of Africa, there is demand, but they don't have the dollars to pay us. So we are wary of that. We are -- we don't allow sort of credit to -- that way, we are conservative. So we do give credit on LC terms only, not open credit for those regions. So sometimes, they even want to pay us in advance, but they don't have enough dollars. So those kinds of issues will continue going forward, and in that cycle, we were quite happy with the progress on the Taloja expansion and the way we have been able to grow business there.And the other part we are really happy about is also NBR. While there was a little dip in margins in between for a couple of months, we as I mentioned before, that we are only about 30% of the NBR market share. And so with some capacity being freed up for NBR, we have been able to also run our plant at almost full 100% capacity, which is a additional about 15%, 20% that is freed up because of the XNB plant. So yes, I mean, overall, qualitatively, SB latex and NBR are doing very well as per expectations. XNB, it's a margin issue. It's a full demand issue, you're right, a pull from the market issue. So approvals are a little slower than we expected. I hope that answers your question.
So just one follow-up on that, actually. So you've obviously been telling us now for a while that percentage margins swing also because of the raw material and end product pricing moving up and down. But on your EBITDA per tonne basis, are you sort of happy with where the rest of the business is? And is it where you would think on a steady-state basis or is there room for either improvement or you are seeing some barring signs there?
So I think to NBR, I'll speak about the NBR business first. We did have a little bit of benefit for about 2 years when shipping rates were high, given that our imports of NBR was more expensive because of the higher shipping rates. So that's gone, and now it's normalized. And now the margins of NBR are as normal as they can get right now. Of course, we are, as you know, there's an anti-dumping case that's going on in the court. I'm not sure how it will pan out. So that's one thing that we definitely are looking for some help from the government. But nonetheless, we are competing, and we're okay with the margins that are currently there in the NBR and we're competing.The second is on SB latex front. Yes, currently, the margins are a little lower than what we have seen in the last couple of years, partly because of the supply that's coming from us as well as our competitor, main competitor in this business. So I think over time, that will improve as capacity utilizations go up again for us and our competitor with market growth.
And wish you all the best.
Thank you.
The next question is from the line of Ankit Kanodia from Smart Sync Services.
So my first question is related to the divergence of volume growth and margin suppression. So do we have any history in the past where we have seen something like this or how do we look based on the current scenario in terms of all-time high growth in volumes and all-time -- probably all-time low or near-term lows in terms of margins?
Yes. Look, I think one big reason is the Nitrile Latex for gloves. Obviously, that's something new for the company. So yes, we have not seen this before. We came up with a new plant. We are pushing to sell more material, but we are selling it at very low margin, close to 0, as I said. So obviously, that's pulling the average down. The rest of it, and I mentioned it before, if you remove the Nitrile Latex chunk, you'll see some ups and downs in cycles, maybe a couple of lower quarters, a couple of higher quarters. On average, we are confident of doing at 14%, 15%. In fact, even Nitrile Latex pre-COVID, the little that we have started selling was at margins that were better than 14%, 15%. They were closer to 20%. So we were quite excited about this business. Unfortunately, the market has turned at the time when we entered the business with larger capacity. And obviously, in the last couple of years when demand for gloves was very high, margins were as high as 35%, 40% as well. Of course, our volumes were much lower at that point. And the rest of the business is kind of cyclical. We're okay with it. No major change.
My next question is related to the CapEx and debt. So last quarter also, we mentioned that we are done with CapEx and right now we are stabilizing and same is the commentary in this quarter as well. But I see debt rising every quarter. So in Q1 also, the debt was sharply and so is the Q2 debt numbers. So what is our view on the CapEx going forward and the debt levels from here?
Wait. What do you mean in Q1, debt rose sharply versus Q2? I mean where did you see those numbers? Sorry?
Yes. Sorry. Not Q1. Yes, March. Compared to March. That is what I mean.
Yes, okay. Yes, compared to March, for sure, because out of the CapEx that we had done, obviously, a large chunk of the payments that were required, and therefore, we had raised debt, a term loan of about INR 125 crores. So a large chunk was taken in the last quarter of last year and therefore, -- or the last half of last year, I would say. And so therefore, the debt has gone up. But we're quite comfortable with it. We have a INR 125 crore long-term debt. Obviously, with the volume growth, some amount of working capital has also gone up. But we also have about INR 100 crores of cash on the book, investment that we have kept for potential opportunities, either acquisition or even investment in the future. So we do like keeping a little bit of cash. So we think INR 100 crores is about 1 month revenue.
And my last question is related to ApcoBuild. Any new geographies we have entered recently or it's the same 4 old geographies we are in?
No, we have. We are in a couple of new geographies within the same state. And we are going further south as well a little bit in Karnataka, Goa, Maharashtra, Gujarat, MP. These are the 4 or 5 states that we're focusing on, but we are doing some business in other states as well. But so far, investing more in Tier 2 cities of these states.
And what has been the volume, I mean the performance for this quarter in ApcoBuild?
We don't give specific numbers, but we --
No. I'm not talking about numbers. In general, the growth rates of ApcoBuild compared to last year and last quarter, if you can.
No, we are very happy. We are at double-digit growth in ApcoBuild for the first half.
The next participant is from the line of Piyush Agrawal from SOIC LLP.
Sir, one question was can you again please give us the numbers? What was the margins in Nitrile Latex pre-COVID?
Sorry, say that again? Margins in Nitrile Latex?
Pre-COVID.
Yes.Ă‚Â Pre-COVID, also they were at about 20% EBITDA margin.
20%. And sir, what is the current capacity utilization in Nitrile Latex?
It's around between 25% to 30%.
25% to 30%. And sir, last question. Unless -- is there any -- because Nitrile Latex's chemistry is like a vast chemistry and it's like a multibillion market, are we planning to enter any other products and also, who will be our peers in the domestic landscape? Not in NBR, but in the other types of latex products that we are selling right now.
Look, I don't want to take names of other competitors. I think this is easily available, you can search it on Google. So I'll leave it at that. And what was your first question, sorry?
So do we plan to enter any new products in the Nitrile Latex chemistry --
I think I answered that question. There are a couple of applications that we're working on. One is geotextiles where we've already made some headway. There is batteries, EV batteries that perhaps need some amount of the kind of products that we make, of course, some changes have to be required. So we're developing those kinds of products. So different applications, new applications for our products. As I mentioned, there are a lot of applications that are moving to water-based technology. So that's been one advantage for us. And so we're trying to see if we can take advantage of that situation as well. So really opening up markets that were not traditionally there for us. So that kind of R&D work is going on. And then, of course, new products that will require a reasonable amount of investment, that's been worked on as well, and at the right time, when we're ready, we'll announce it.
The next question is from the line of Karan Sharma from Kredent.
Abhiraj,Ă‚Â I have 2 questions for you. The first one is that incrementally, over the next 5 years --
Sorry. I can't hear you, Karan. Your voice is very faint.
Yes. Am I audible now?
Yes. Let's start again. Yes.
So the first question is that incrementally over the next 5 years, most of our growth is going to come from this Nitrile Latex, which will be for gloves. And primarily, this is for the export industry. Now right now, you are 70%-30% in terms of domestic revenue and exports. And I think this will shift materially to at least 50% or more around exports. And I just wanted to know that currently --
Probably not 50% because the rest of the market will grow as well. But yes, I mean, somewhere between 40% to 45% is what we reckon at full capacity of everything.
Yes. So in the domestic market, you are either #1 or #2 for most of the products. But in this product, you do have a very low market share in the global industry. So I wanted to know that would our working capital change materially, like margins, you had already mentioned. These were 20% pre-COVID. But in terms of working capital, would it be better than what we have currently or is it worse since it's an export product?
No, it's -- so of course, during COVID, it was much better because payments were pretty much advanced. But obviously, now we have to give credit to our customers, the nature of the industry has changed. And so it will be in line with the rest of our industry -- with the rest of the sort of market of [indiscernible].
And the second question is, if it's possible for you to answer, how much was the exact CapEx only for the Valia capacity, which was added 50,000 tonnes out of this INR 200 crores?
It was about INR 150 crores to INR 160 crores for Valia and another INR 50 crores or so, a little less than INR 50 crores for Taloja.
The next question is from Tej Kumar Pandya from Ganesh Stocks.
[Foreign Language]Ă‚Â from March 2023 to September 20 --, it had outstanding and increased from INR 137 crores to INR 174 crores. What is this due to?Ă‚Â [Foreign Language]
Well, look, I think one reason, as I just mentioned to the previous caller,Ă‚Â [Foreign Language]
[Foreign Language] 2023, it was around 10%. That NPM has come down by 50%.Ă‚Â [Foreign Language]
But the main reason for that is [Foreign Language] Those 2 are the main issues.
[Foreign Language] Your profit margin will be 10% plus.Ă‚Â [Foreign Language]
I hope so, that's the endeavor. That is what we are trying.Ă‚Â [Foreign Language]
[Foreign Language] All the best.
The next question is from the line of Jatin Chawla from RTL Investments.
Two, three questions from my side. First one is on the NBR side, you talked about this EV transition. Now whilst I understand that in India, the transition will happen gradually. But globally, also if the transition happens and since this is a product which, unlike some of your other products kind of travels easily, will that not impact overall demand-supply dynamics for this product?
Yes, of course, that is a concern. And therefore, that's one of the concerns that we're waiting and watching. Of course, all the predictions are that it's not going to happen overnight. It will happen over 10, 15 years and especially with the hybrid cars and they don't affect NBR demand, for example. But wherever we are completely EV, then that does impact. I think, look, it will impact our competitors first because they are much larger plants of NBR and mostly catering to, China as a large market. So there would be a correction in supply as well if that happens. In fact, 2 years ago, one of our competitors did announce that they are -- one of the suppliers of NBR did announce they are coming out of the NBR market, but then they chose to stay in it, for whatever reason, I'm not sure why. So they're retracted on it. So certainly, I think supplies will correct as well because for them, if China is a large market, then in these EVs -- sorry, cars are also a much larger percentage in China of the NBR consumption. It is going to affect that -- those markets first.And even though it travels -- where there is a cost to the travel anyway, there's also duties, there is all that, that's an extra cost at least for competing in India.
I think in the last call, you had also spoken about the fact that this multipurpose plant at Taloja, you had environmental clearance for 10,000 and that is why the capacity production was kind of limited to that number. Do you have all the clearances now to go to the enhanced capacity of 30,000?
Yes, we do.Ă‚Â I'm glad and I'm sorry. I think we should have mentioned that in our opening statements. Thank you for reminding us. But yes, we have received the full consent to operate to go to the full capacity.
So -- and this came towards the end of the quarter or was that capacity available in the quarter as well?
No, very recently, unfortunately.
So we should, hopefully, in the next 2, 3 quarters, see that kind of ramping up?
I mean that's the hope but look, unlike Nitrile Latex, when we were new to the market in that one, I would say, in the first 6 months, getting to about 1/3 capacity utilization itself has been a great achievement. We didn't expect that. We were expecting slowly ramping up over 2 to 3 years. And 1/3 is what we are expecting at the end of 1 year. So yes, I mean, that's going to ramp up slowly because there, we are quite cognizant of the fact that we don't want to flood the market just because we have the capacity. That will, of course, eventually affect margins. So we have to -- we want to play that that sort of increasing volumes without affecting margins too much.
You spoke about the fact that on the Nitrile Latex side, you are expecting a slightly slower ramp-up and the 90% utilization that you were earlier thinking of by the end of the financial year now seems difficult. So what sort of ramp-up should we now expect by the end of this financial year?
When I said 90%, I meant like monthly. For example, by the end of March, we were hoping to do at least 90%, if not 100%. In the current context also, our endeavor is that because this is like a jump, right? You get 1 or 2 large customers to approve your product and then the pricing is right, then you could complete it within 1 or 2 months, not at the end of 6 months. So it just depends on how fast new customers approve our product, frankly, but is at these margin levels, some large customers are asking for prices that are below EBITDA, and that's definitely not something we want to do or below even sort of gross contribution. So that's the major issue more than anything else. So it will just depend on how -- we would rather not sell than sell it in loss, right?
Absolutely.
That's the bottom line. So we are focusing on smaller markets, newer markets, and there's a shift in our strategy. And so we're focusing only on Malaysia and Thailand, we're looking at Vietnam, Turkey, India, a few plants have opened up in India in the last year, Sri Lanka, smaller companies in Thailand and Vietnam, and Malaysia and Indonesia that we had not earlier looked at. So we're trying to do business where we're at least EBITDA breakeven.Ă‚Â It's a combination of commercial and approval issues.
The next question is from the line of Nikhil from SiMPL.
Just two questions. One is, I think congrats for a very strong ramp-up in the export volumes. But just to understand the context, when we talk to other chemical companies across the board, they all complain about a significant inventory destocking and volumes not growing and volumes going down significantly. What is helping us to get the volume growth of almost like 100% in export markets? And a connected question is if we go through our presentation, we said 120% volume growth in export, and the overall volume growth is 28%. And if last year, the mix was of domestic and export was something like 80-20 or 75-25, it seems domestic volume growth is only single digit or probably flattish. Is it a right interpretation?
No.Ă‚Â So last year, it was -- around 80-20 was the growth. I am just trying to see the break-up of domestic versus export. Sachin, do you have the domestic growth versus export? I'll answer your first part of the question. The export volumes compared to other companies, look, every company has a different context. In our context, there are 2 things. One is the Nitrile Latex. Obviously, the new plant that is coming, that has helped with the volume growth, and that is largely exports. That's #1. And the second is, look, I think the war in the Ukraine and Russia to some extent has, to a large extent, increased energy prices in Europe. And so what we are finding is some of our European competitors, their costs have gone up significantly. And so we've seen a benefit of that. We've also seen in some markets the benefit of the China Plus One Strategy.So it's a combination of 2 or 3 things why our exports have gone up. I hope that answers your first question.
Okay.
Yes. And as I said, every market is different, every company is different, every -- I think the market looks at chemical companies in one broad stroke. I think that's a pretty simplistic way of looking at it. I think there are many -- some industries within the chemical company. And I think as analysts and investors, and I always encourage my investor friends to try and understand more about the chemical industry and see there's so many different pockets to it, and they may work very differently. There are some chemical companies that are doing fantastically well and some that are making losses. So I don't think it's fair to talk about it as one industry.As far as export and domestic volume growth is concerned, obviously, the volume growth in exports has been much better. However, the domestic, but the domestic has grown as well. There's no question about it. But you're right. Maybe in sort of single digits. Do we have that information, Sachin?
Yes. So approximately around 78% have grown domestically in volume.
Compared to Q2 last year in domestic.
Yes.Ă‚Â For half year.
For half year, okay.
Okay. Just 2 more questions. One is if you look at the employee cost, there is a jump from that INR 14 crore run rate to almost INR 17.5 crore, INR 17 crore. Is it because of these 2 capacities coming up? And is this a run rate which will sustain on the employee cost or is there any one-off there?
Yes, you're right. There has been a bunch of hiring that we have done for the new plants. So obviously, that's one. And I don't know where you are comparing. I think if you're comparing the last quarter --
Quarter-on-quarter.
Quarter-on-quarter.
In Q1, we were at INR 14 crore kind of a run rate which is now INR 17.5 crore kind of a run rate. So that is where I'm.
Okay. It could be one, is our increment cycle starts after -- I mean, sort of gets completed by June. So therefore, part of it could be the increment, and then part of it is also more people that we have hired in the last 6 months for the new plant. I think going forward, this is going to be the steady state and I don't think we're planning to hire too many more people anymore.
And last question. This is more structural on the margin profile currently if we see. If we like -- since we've been following you for last 3, 4 quarters, and you've been continuously mentioning that the glove capacity or the glove business is largely breaking even or probably making a single-digit margin. Ex of that, would it be right that the total -- ex of that, the rest of the businesses are operating in that 13% to 15% kind of a margin? And for the company to move to that 15%, the glove business has to move to, say, a double-digit margin or do you think without that also, we can achieve that 15% margin profile?
Well, if you want to grow in the glove business and we need to grow, obviously, more and more revenue comes from the glove business, then we do need it. If you make glove business 0 today, then tomorrow itself our margins will go up, right? Obviously, that's logical. However, we are strategically quite in the long term still bullish on this business. We had one of 2 companies in the world that make this product. Unfortunately, the industry itself is going through a structural change. We have to wait till things kind of settle down. So to answer the question, yes, we would need the glove industry to recover and our glove business to go to double-digit margins to go back to 15% level. Without that, it will be difficult.
The next question is from the line of Punit Patni from CED PMS.
My first question is, can you tell me the impact of ethanol-blended fuel on the NBR business?
No. There is no impact on ethanol-blended business because even with ethanol blended, you still need NBR, so there is no impact with that.
Because I was reading a few studies that mentioned that NBR isn't compatible with high amount of ethanol blended fuels. Is it true or --
As far as I know, as of today, and I'll look into it, but ethanol blending is up to 20% max. So I don't think that it is up to that level, it's a problem. And I've not heard this, frankly.
My next question is regarding the XSB Latex business. So how do you compete with your larger peers in this segment? What is the USP of your product?
Yes. Look, we do have certain USPs in our products. We don't -- we -- I mean that's the technical sort of, what would you say, technical things that we have in our products that we have sold to our customers. But at the same time, that's not so much to not giving us premium pricing in the current context. We're also manufacturing it in a different way than our competitors. So we have certain cost advantages when we get to full capacity levels. Obviously, at these capacity levels, they are not kicked in yet. So both in terms of process and product, so in terms of cost and some product parameters, there are some advantages that we are giving customers, which is why we've decided to enter the business not completely just because on a [indiscernible] basis. But given the current industry structure, it is a little difficult to get the pull from customers in the current context.
Ladies and gentlemen, as that was the last question for today, I would now hand the conference over to the management for the closing comments. Over to you.
Thank you, everyone, once again for joining the Q2 conference call of Apcotex Industries Limited. We look forward to seeing you in Q3 again. And in the meanwhile, if there is any major announcement, we would be doing so through the right channel, through the stock exchanges. Thank you very much.
Thank you very much, sir. On behalf of Apcotex Industries Limited, this concludes this conference. Thank you for joining us, and you may now disconnect your lines.