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Apcotex Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '25 Earnings Conference Call of Apcotex Industries Limited. [Operator Instructions]. Please note that this conference call is being recorded.
I would now like to hand the conference over to Ms. Purvangi Jain, Valorem Advisors. Thank you, and over to you, ma'am.
Good evening, everyone, and a warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent the 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 and first half of the financial year 2025.
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'd like to introduce you to the management participating with us in today's earnings call and hand it over to them for their opening remarks. We have with us Mr. Abhiraj Choksey, Vice Chairman and Managing Director; and Mr. Sachin Karwa, Chief Financial Officer.
Without any delay, I request Mr. Karwa to start with his opening remarks. Thank you, and over to you, sir.
Thank you, Purvangi. Good evening, everyone. It is a pleasure to welcome you all to the earnings conference call for the second quarter and first half of the financial year 2025. I hope you had an opportunity to review the financial statements and earnings presentation, which have been circulated and uploaded on the website and the stock exchange.
Let me provide you with a brief overview of financial performance for the second quarter and first half of the financial year ended 2025. The operating revenue for the quarter under the review was INR 351 crores, which has grown by approximately 26% on a year-on-year basis. EBITDA for the quarter was INR 28 crores, which declined by approximately 13% on a year-on-year basis. The EBITDA margin stood at 7.83%. The net profit was INR 11 crores, which declined by 28% on a year-on-year basis, with PAT margins reported at 3.13%.
In Q2 FY '25 we witnessed highest ever quarterly volume and export volumes, which grew by 12% and 31% year-on-year basis, respectively. Subsequently, we also achieved the highest quarterly revenue, driven by increased volume and product mix, with export revenues [ surging ] by 48% on year-on-year. EBITDA declined due to margin pressures in Nitrile Latex and paper range of products due to market dynamics and also higher ocean freight rate. For the first half of our financial year 2025, the operating revenue increased by 23.5% on year-on-year to INR 688 crores.
EBITDA for the period was INR 59 crores, which increased by 12% on year-on-year. EBITDA margin stood at 8.62%. Net profit for the first half was around INR 26 crores, which declined by 6% on year-on-year. For this period, we achieved the highest half yearly volume and export volumes, which grew by 13% and 22% year-on-year, respectively.
With this, I now open the floor for question-and-answer session. Thank you.
[Operator Instructions]. The first question is from the line of Aditya Khetan from SMIFS.
Sir, my first question is on to the NBR. We all know that, that recently government -- so you all have represented to the government on to the antidumping duty case. So when are we expecting the outcome of this?
Thanks for the question. So the case has just been initiated. Of course, we've been working at it for the last few months, providing all the data. So the initiation is also an important part of the step, which means it's -- prima facie, they feel that we do have some sort of case, and therefore they've accepted and decided to go ahead with the investigation. From what I'm told, the investigation takes about 9 months or so, give or take 1 or 2 months. So I would say anywhere between 8 and 12 months for the final findings.
Okay. Okay. And sir, currently, NBR imports are high into India, which is why the margins are lower. So just want to know our contribution on EBITDA from the NBR segment? Are we able to achieve a positive EBITDA from this segment as of now?
For sure. I think all across the border, we have no segment except the nitrile latex or gloves where margins are fairly -- EBITDA margins are reasonably positive. So there's no question about that. And in fact, NBR compared to Q1 and even last year, the margins have already been sort of lower and depressed.
But our contention is that the margins are not healthy enough to sustainably grow this business. And so what we have applied to the DGTR saying is that, look, we are okay competing, but if we are expecting Indian manufacturers to compete effectively then we need effective price, pricing mechanisms as well to have fair pricing in India. Right now, due to a couple of reasons -- one is the China slowdown -- a lot of NDR from East Asia, especially Korea, is being dumped into India, and also, because of the sanctions to Russia, now we're finding Russian NBR being dumped into India.
So India has become an easy dumping ground where it's a large enough market and no local producer except for us. And therefore, our contention is that we want fair pricing in India as well, and therefore we feel that we have a strong case. We'll see how the next 9 to 12 months go. It was -- just to remind everyone, it was -- we had -- earlier in 2020, DGTR recommended a duty, but the finance ministry has not approved it or not notified it. So we had gone into the courts along with many other -- were in the same boat -- and -- but now I think the strategy has changed and the entire industry has decided to reapply and now there is a good understanding with the Finance Ministry as well.
So the idea is to now stop legal proceedings and restart the antidumping again. And on merit, I'm sure DGTR and the Finance Ministry will look at our case on merit and all other cases on merit. So -- but it will take about 9 months from the time it initiated, which was last month.
Got it. So sir, any change of plan? Like so earlier we were looking to expand the NBR segment. So any plans now? So we would be going ahead with the expansion, which we had kept on hold?
No. As of now, the margins are still fairly suppressed. So we would want to see the outcome of the DGTR case or the antidumping case and the findings and the quantum of antidumping, and then take a final call on how to -- what to do with the NBR. We're also waiting to see what happens with the market currently with the geopolitical situation with China and Russia, as I mentioned, that's an additional challenge that we've had. So we also want to see how that plays out. So yes, it is on hold right now.
Got it. Okay. Sir, on to the nitrile latex, sir, is it possible to quantify the volumes or the utilization level during the quarter? And what is the outlook we are posting? Are we witnessing a surge in transit as compared to last quarter? Because there could have been some inventory rationalization also. So all these factors are playing out, or you're still witnessing that nitrile latex is still struggling with that lower margin [indiscernible]?
Yes, I think, look, nitrile latex is still struggling with lower margins. But the reason was not -- for the last 1.5 years to 2, it has been higher inventory caused -- higher gloves inventory caused by -- during COVID and a lot of production happened on that. That is definitely sort of cleaned out. But the issue was higher capacities that have been created. In China, Malaysia, we, for example, have also entered in the last 1.5 years. So a lot of capacity of latex and gloves have been created. So that's being rationalized a little bit.
The other small silver lining, and we have to see how it plays out, is the U.S. has recently imposed a 50% antidumping duty on gloves from China. So pre-COVID China was hardly 5%, 7% market share. Now they are up to 25% market share for gloves. And so they have created gloves and latex capacity to that extent very quickly. Now with this antidumping duty from the U.S., which is the largest market, maybe 50% of the gloves consumed are in the U.S., medical gloves consumed. So we'll have to see how that plays out, and that duty comes into effect from January '25 and that's going to be increased to 100% from January '26.
So the next 12 months should be interesting to see what happens. And for us, maybe that's -- maybe -- I'm not sure how it will play out, as I said, but -- our customers are all in South Asia and Southeast Asia. So obviously, they will be benefited, we feel, by this antidumping duty. So overall, I think the supply/demand without China may be better for the industry in Southeast Asia and therefore for us. But we'll have to see how it plays out over the next few months, as I said.
Of course, [ NBR ] margins remain low, capacity utilization currently is about 60-odd percent, approx 60 plus/minus percent. And we are telling you that we are only doing business where we are getting reasonable margins, at least somewhat positive. And so that continues, and now the issue is excess capacity.
Okay. But sir, onto this antidumping duty which you mentioned. So you don't foresee this as a risk? So China can dump their additional supplies into the ex of the South Asian countries, wherein we are already like supplying to all the major players. So can this impact us in some of the exports market, except for the U.S.? Definitely, so U.S., I'm not sure how much exposure we are having in terms of [ gloves ]?
Nitrile latex, NBR because NBR is antidumping, nitrile latex, there's no antidumping duty. Two different products. [indiscernible] rubber and nitrile, which goes for several rubber in the rubber applications, and nitrile latex is only for glove applications.
Sir, this 50% antidumping duty U.S. has imposed, that is on gloves, right?
On the vinyl gloves, yes.
Okay. So that's what, sir, I was mentioning. So suppose we are exporting to other countries. So when China exports to other countries, like since U.S. has put an anti-dumping duty, so wouldn't our export competitiveness will go down into the glove segment?
Why would you say that? Why?
Because, sir -- so China will dump their excess supply into the other countries ex of U.S. wherein we are supplying?
Exactly, that's why I said we have to see how that plays out the latex from China. But coming out, latex exports from China will be harder because one, their plants are a little bit inland, so they have to take it to the port, then the shipping freight rates from China to some of these countries like Southeast Asia. And I'm talking about latex exports, not glove exports. You're right, gloves exports to other countries will increase and that may be an issue. But for us, we are more interested in what happens with the latex.
So latex is harder to export, especially from China, also in Southeast Asia and South Asia. So our freight rates are much lower than that. So therefore I don't know how latex competitiveness will be affected. But we don't know. We'll have to see how it plays out.
Okay. And sir, just one last question. On to the nitrile latex, have we -- has this contributed to positive EBITDA in this quarter since we had gone to 60% utilization level?
It's a little bit negative EBITDA, but positive on the overall gross contribution.
[Operator Instructions] Next question is from the line of Jatin Chawla, RTL Investments.
My first question is on -- in your presentation, you mentioned the pricing pressure on the carpet and paper range of products. So I just wanted to get some more understanding on that. Is this linked to -- earlier, our competitor had -- in India had increased capacity, and there was some margin pressure, but it seems this quarter that margin pressure has increased further. Just a comment on that.
Yes. So for paper, that's true. That's exactly the reason. And also the paper industry in the last 3, 4 months is really not, from what I -- what we hear from our customers, has not been doing so well as well, in terms of overall revenue and volumes. They are facing some dumping from China and all that.
So there is pressure in the paper industry and the entire paper supply chain, including us. So we are vying for market share. And I mean, I would say that's the primary reason is including market -- increasing capacity by us and competitor. For carpet is a different reason. Carpet, the large chunk was coming from exports, and that's really due to this Middle East war that's going on and a lot of ships that were plying through the Red Sea have to now go around the Cape of Good Hope. Basically shipping rates compared to exactly 12 -- I would say, 12 months ago, 12 or 14 months ago, have increased multifold, and Q2 was really the highest that we have ever seen in some of these routes, like from India to Turkey, India to Egypt, even India to UAE, even though that you don't have to pass the Red Sea for UAE. But overall, ships going through the UAE have reduced because they're all going around now.
So supplies dried up in terms of ships going through that area. So all the freight rates were at an all-time high. Only in the month of October, now we've seen seen it correcting, but it is still much higher than what it was about a year, 1.5 years ago, like at least 6x or 7x higher even now, and it went up to like 10x higher this last quarter. So that's the reason for carpet, and a lot of our contracts are CIF contracts. So we have to honor them. While the pricing on raw materials we can pass through, the pricing on freight is something that takes some time to renegotiate and pass through.
As I said before, when prices are going up, whether it's raw materials or freight, we are generally able to pass it through with a time lag. So in the last quarter, we have seen a double whammy of ocean freight rates across the board as well as raw material prices climbing as well. Both these are the reasons why carpet has been affected.
Third reason is also one of our important monomers, butadiene, for the last few months compared to Europe has been much higher in Asia. So that's benefited our European competitors. This was exactly the other way around about 2 years ago, but now it's reversed that trend. So that's also helped them, the European competitors a little bit. But the rest of our cost structure is -- so both from a freight and mono point of view. I'd say the carpet margins are down. But our strategy has been very clear that we're going to push through with volumes as far as possible, even at lower margins, and as and when overall the external scenarios change, we'll benefit from that.
We did, during the COVID years, post-COVID years, '21, '22, benefited from a lot of the tailwinds. Now we are facing a lot of the headwinds that are together not helped by the geopolitical tensions and situations, of course, now.
Got it. Just a quick follow-up on this. You said the freight costs have to be borne as long -- I'm assuming that is as long as the previous contracts are in place. So what is the length of the contract that you do? And how much time does it take to kind of negotiate these?
I mean, as I said, we have monthly pricing. In that sense, we don't have contracts like long-term committed contracts. But we do have a certain understanding. And it's also a case of competitiveness. So for example, for -- just to give you for Turkey and Egypt, if the customers are importing from Europe, the freight is much lower now than from India. So we will ask -- we are even now asking for higher rates, but we have to be competitive against European competitors. So I think it's likely to continue even into Q3.
Got it. So you expect this margin pressure to continue on the carpet side also in 3Q as well?
I think -- so I think, as I said, the freight rates have come down by about 20%, I would say, in the last month. That will help certainly, but it's still much, much higher, as I said, 6, 7x higher compared to a year ago.
Wow, 6, 7 times?
Yes, in these routes. I mean, the routes that used to be $500 now in Q2 were at like $3,500, $4,000 per container. Just to give you an example. Now they have come down to $2,000, $2,500. so.
So as a percentage of sales, in terms of percentage margin impact, what does that broadly come to?
I think overall, we have almost a 1% impact on -- because of ocean freight this quarter for us. Right, Sachin, that's what we analyzed?
Yes.
0.75% to 1%?
Yes.
Understood.
The next question is from the line of Rohit from iThought PMS.
So just wanted to understand, sir, I mean from a top line point of view, with the expanded capacity, what is the total peak revenue possibility that you have now? I mean, I understand the prices are a bit low, but whatever they are at this point of time, can you share what is the peak utilization in terms of revenue that you can be done?
Currently, we are at a run rate, as you can see from our financials, we finished H1 at almost at almost INR 700 crores. So with a run rate of about INR 1,400 crores, right?
Right.
And we think this -- I mean, at the current prices and so on, we could -- Sachin, we could add another INR 300 crore, INR 400 crores? INR 1700 crores, INR 1800 crores.
Yes. So total, we should be around INR 1,800 crores to INR 1,900 [indiscernible].
Depending on the price range INR 1700 crores or INR 1800 crores, I would say, maybe INR 1900 crores. Yes.
And this is at these levels,right? I mean it's not factoring any improvement in the [ valuation ] that may happen at some point?
At the current pricing level, the average pricing level for the first half.
Also, I mean, this also does not include what you -- you were also thinking of doing another debottlenecking of NBR in Taloja, if I'm not wrong. This also does not...
Say that again? Your voice is not very clear.
No, I'm saying this was also -- I mean, this also does not include another CapEx that you would...
No, this is just all the CapEx that has been already done. Some minor things may be required, some debottlenecking, a [ time share of ] there, but nothing major.
Right, right, right. And sir, are you quantifying the loss that you are seeing in nitrile latex at this point of time?
We're not seeing a loss as such. It's not a loss. But yes, I mean, yes, I guess, EBITDA margins are 0 to a little bit negative, I guess, right now currently, between 0% to 1% negative.
Okay. Okay. So you're broadly breaking even at about 60% utilization there?
Yes.
And sir, historically, I mean, I think you were articulating this 2 quarters back, that I mean typically, in the last 7, 8 years, or probably even before that, actually, you've taken the business from below like high single-digit margins to close to 14%, 15% margin, obviously right now, we're going through a bad cycle. But anything that has changed in the last 2, 3 years in terms of maybe last 12, 15 months in terms of competition or in terms of new supply, et cetera, where do you think that what you have talked 14%, 15% margin is what you think the business can do? Has that changed? Or you still hold on to those numbers?
So look, I don't think -- and I've always said this before as well, like what in our business quarter-on-quarter it's very hard to predict very consistent margins. This is the nature of our business. Having said that, obviously, these kinds of margins of 8%, 9% or anything in the single digit is something that we would not have -- we would never hope for or we wouldn't think would happen. But unfortunately, because of 3 or 4 headwinds coming together, 3 or 4 issues rather, and all put together, deal with multiple headwinds, like as I mentioned, ocean freight, nitrile latex gloves, that business continues to be difficult, extra capacity in the Indian market for SB latex. These are 3 main reasons, I would say why margins are a little depressed.
But I think in the long run we are quite -- the competitive intensity of the industry has not significantly changed as far as -- except for nitrile latex. Nitrile latex will come too. But the rest of it is the same, right? NBR, we are the only manufacturer here in India. We are facing dumping for the last 1.5 years, mainly due to geopolitical reasons from China and Russia.
And the other 2, 3 things I don't want to repeat again. So I think once those things done and the external environment is more in our favor, then things could look better. But in the short term, it's certainly -- I mean, the most challenging environment that we have faced now in 4 years. The last time was COVID, right, which is a little bit difficult when COVID initially hit in the Q4 of '19, '20.
[Operator Instructions] The next question is from the line of Jasdeep Walia from Clockvine Capital.
Sir, how has the exports done in the first half if we exclude nitrile latex, so primarily in the SB latex, how are the exports -- how have exports progressed in first half?
Look, overall, they continue to grow. Obviously, nitrile latex has been one of the reasons, the drivers for growth. But I would say in terms of percentage -- when you say how have exports progressed, I think, as I said, margins have been affected, but volumes will continue to push through. So I don't have the exact data in terms of without nitrile latex, what it would have been. But I'm assuming that it's -- Sachin, do you have that data, maybe? What is our percentage of sales of H1? 32% or 34%? 32% right? Sachin, are you on?
32%.
32%. Okay. And how much would it have been without nitrile? Is that the question, Jasdeep?
Sir, my question is how have SB latex exports grown in the first half of this year?
We have that data separately.
I just pulled it off. So it's grown by almost 16% to 17%.
This is by volumes?
By value.
By value, okay. And what would be approximate volume growth?
I think maybe half that, because I think volume growth and value goes up to 7%, 8%, probably.
I'm just guessing, but we'll come back to you, Jasdeep.
Got it. Got it. And sir, how are SB latex margins right now, let's say, versus the normalized margin which you used to see pre-COVID?
So for textile, specialty and construction, I think they're similar compared to last year -- oh, 3 quarters you're asking?
Yes.
An has the number pre-COVID, but I can talk about the last year compared to this year. I know for fact that construction specialty textile, those are still good because the more -- for different reasons, but paper certainly has been more challenging this quarter especially.
I'm asking on the overall portfolio level, not separately by segment, just on the overall portfolio level, how are SB latex margins this year versus last year?
Lower, lower by about -- on average because of carpet and paper that's probably about 15%, 20% contribution margin.
Okay. So they're lower by how much this year?
Do you have that number, Sachin? I am just venturing a guess 15%, 20% lower than last year. H1 of this year compared to H1 of last year for SB latex margins. We'll come back to you, but my guess is about 15%, 20% lower.
Got it. And sir, have you decided about CapEx that you're going to put in, let's say, next year or in the second half of this year?
Yes. There's no CapEx, no major growth CapEx plans for this year. There is going to be capital expenditure, but we are focusing more on the future. So we are building a new R&D building, for example. [indiscernible], it won't be that much. But obviously that's one CapEx that we are looking forward to.
And then it's going to be more maintenance CapEx and debottlenecking CapEx, some small projects here and there. As far as major CapEx, right now we have enough SB latex capacity for 1.5 years. So we are looking at different options of building SB latex capacity either in Taloja or in Valia or in a third location. So all those 3 are open, we will take a call in the next 3 to 4 months, by the end of this year, regarding that. We have to start that project by early next year. So SB latex is one part that we're definitely looking to expand. As far as nitrile latex or gloves is concerned, we're not going to expand currently given the current market scenario, and NBR also is on hold. So we are looking at other inorganic options as well and looking at newer new product lines that we could [ pass ] add value.
Got it, sir.
The next question is from the line of Manav Vijay MB Investments.
Sir, first question is regarding the quarter-on-quarter. So our sales has grown by approximately 5%. If you can just help us understand that some of your customers in the Southeast Asia, for them, the pricing on the [ metal ] gloves side, it has become at least constant, prices are no longer falling. So how is that translating to you in terms of your latex prices? Have they moved up on quarter-on-quarter? Or are they still constant?
Well, they've moved up because raw material prices slightly moved up, but by and large, margins have not improved. So more than the pricing, margins is an issue and the reason why margin has not improved, as I mentioned earlier, just there is a lot of overcapacity. Some new capacity has come this year into Malaysia. Like us, people have started building as they are finishing their plants. So that's come up now between last year and this year.
There's one plant in Malaysia that's recently come up. So as a result of it, there is pressure on the latex margins, but the glove industry is definitely doing much better than they were last year in South Asia. I mean, they were making losses last year, let me put it that way. They were making losses till last year, at least they are now in the green, so. If you read some of the big glove companies who are -- if you read some of their financial results, they're quite upbeat and positive now.
Yes. Except, I would say, 1 player, almost everybody has turned into black now.
Yes, exactly, exactly. And especially with this recent announcement of U.S. antidumping duty against China, I think that will play out over the next few months -- from the glove industry at least, yes, I don't know about the latex industry.
Okay. Okay. Sir, my second question is regarding -- so in your PPT, you talked about 3 pain points, nitrile latex, paper and carpet. Nitrile latex and carpet you've talked about -- you have explained well. Sir, regarding the paper industry, so some of the paper companies who have declared the results so far, numbers are not good. So actually, so there is pressure both on the raw material, the demand as well as the pricing of the finished product.
Now, so do you believe that this pressure can continue even in H2, which in turn will continue to put pressure even on our finished product prices?
Yes, I think there is pressure on the entire supply chain in the paper industry currently. When the market is bullish and there is good growth, then the supply chain benefits as well. Currently, we are way down, as you rightly have said, a lot of the paper companies have not done too well in the last quarter or so. And that's put pressure on us. Yes. I mean that looks like it's at least -- I can't speak for H2, but at least in the next -- in Q3, that we expect that challenge to continue. Nothing is going to happen overnight.
They are also, in some cases, facing dumping issues, and I'm sure the industry as a whole is working towards correcting that.
Okay. Sir, my last question is regarding -- so on a Y-o-Y basis, our sales has moved up around 25%, 26%, whereas our other expenses are down by approximately 5%. Now within our other expenses, the 50% are basically variable costs, your power and your freight. These 2 are the major line items.
And you have also mentioned that majority of the Y-o-Y growth is actually volume growth. So why this could not -- so if you can help me understand that if majority of the Y-o-Y growth is actually volume-led growth, then how your other expenses can come down by 5%.
First of all, it's not entire majority volume-led growth. I would say it's partly volume-led growth, probably 50% or 60% is volume-led. The rest is due to pricing. I mean product mix plus the cost of materials, that has gone up, which we have been passed along to as much as we could -- obviously, we have not passed it along enough now. When you say other expenses, I don't have an answer. Sachin, would you know this question to this answer?
So if you remember, Abhiraj, we have also done - you have done cost saving expenses. Basically what we have done is we have also seen the power mix. So the power mix costs have come down in our case.
Right.
Okay. So that is helping us to also reduce the cost. Major of the cost is the power and fuel has come down compared to what it was in the last H1. So thathassupported us.
Okay. And Abhiraj, if I'm...
To your question, I think the issue, the main issue, if I've understood what you're asking, is that while our revenue has gone up, our raw material costs have gone up by higher than our revenue, right? And we have not been able to pass along the entire cost increase, and therefore margins are down, main issue is raw material costing versus pricing.
Okay. So exactly my question was very simple, that actually on a Y-o-Y basis, your sales have moved up around 26% and majority of that is led by the volumes.
Not majority, 50%.
50%. Whereas actually our other expenses, they have actually come down by 5%, where I would say 50% to 60% of the total cost comes from only 2 line items, which is power and freight and these 2 line items are completely variable. So if your volumes moves up, these costs, true costs also moves up.
Abhiraj, can I take this question?
Yes, please, please.
Manav, we understand that what you are trying to make a point to. But however, the major thing is when we change the power mix, we used to go generate the power in the plant earlier, which we have now only -- which we only use for boiler purposes, okay? We have moved off the grid because the power cost is much more lower than generating the power. So that has supported us in reducing the power cost.
And I think I'm talking about earlier Gujarat plant. So at least in Gujarat, that has been the case of reducing power cost, yes. That's one factor. But sorry, just one thing is -- I mean, I don't agree with the analysis, Manav, because other expenses besides power and freight, there are other expenses as well, right, that -- and we are sort of controlled those, and given the difficulty margins, just to give you an example, there could be repairs and maintenance, painting and some of those kind of costs, which we have definitely held back on given the more challenging environment. So there are other ways to reduce costs as well.
Sounds good. My last question, sir, I think last...
I'm sorry, Mr. Vijay, but could you return to the question queue?
[indiscernible] last question.
Okay. So sir, I think last quarter, or maybe last, I think you talked about putting up a solar capacity. Is there any, let's say, further steps that we have taken in that regard?
Yes, I'm glad you asked. So yes, we will be -- we just -- we had a board meeting yesterday, and we have got approval in principle from the Board to go ahead and explore, and we have sort of narrowed down. I think in the next 3 to 6 months, we will be investing in -- I don't know, I would not say the next 3 years, I would say next 1 to 2 years. Eventually, the investment would happen over the next 1 to 2 years, we will start the project in the like 3 to 6 months.
Over the next 1 to 2 years to invest in solar and wind with the objective, obviously, one is savings, but the other is also -- we expect that our power consumption would be anywhere between 60% to 70% renewable, and our target is that within the next 2 to 3 years around 60% power consumption to be through renewable sources, which today stands at in single digits, maybe 5%, 6% total.
The next question is from the line of Shivani More from Axis Securities.
[Technical Difficulty]
Sir, do we see any improvement in EBITDA margin from here? And what effort or measures have been taken by us to improve it?
I'm sorry, I'm sorry. I did -- a lot of breaks. I can't hear the question. I mean, I can hear her, but not clearly. Shivani, I can't hear you very well.
Yes, Shivani, are you using your handset?
Am I audible?
Yes, you are audible. Could you please speak up?
Sir, do we see an improvement in EBITDA margin from here onwards? And what efforts or measures has been taken care by us to improve it? And my second question is, we invested around INR 150 crores, INR 160 crores in Valia plant for glove project. So how it is progressing? And what is your capacity utilization for this year?
Yes. Shivani, I answered some of the questions earlier. So the nitrile latex in terms of volume and revenue, it's progressing reasonably well. We're at about 60% capacity utilization. But in terms of
-- in terms of margin, it's still been very challenging, a challenging environment.
As far as EBITDA margin is concerned, as Sachin just mentioned, we have implemented some projects only in the last 2, 3 months to try and improve some cost-saving projects to improve EBITDA margins. The other thing is external factors like ocean freight and all, so are coming down right now, so that will help. And the third is, of course, focused more on specialty products and really pushing those sales. And the fourth is antidumping duty on NBR. So on several fronts, whether it's cost savings or antidumping duties, focusing more on specialty products to improve overall product and margin profile -- customers with better margins.
So all that is, of course, part of it as well. But as of now, the external environment is such that overall capacity utilization for SBR and XNB, as an industry, there is enough capacity. So capacity utilizations are a little lower than what we'd expect, but with growth that changes. So every industry in every business goes through a cycle, and we feel like this is a difficult -- more difficult cycle for our industry and our business specifically. And I think it will turn at some point. We are quite hopeful that in the next couple of quarters things should turn.
And sir, one last question. What is the percentage to total sales contributed by nitrile latex?
It's less than 15% currently.
The next question is from the line of Aditya Khetan from SMIFS.
Sir, on to the raw material prices, you had mentioned that butadiene prices were a bit higher in Asia market as compared to the European players. So has that correction been happened right now? First point.
And second, sir, I believe, so butadiene is only around 15% to 20% of the total RM cost, whereas your 80% comes from the acrylonitrile and [ serum ] styrene. So how was the price trend, sir, during the quarter? And we know that because of the crude prices having a good volatility today, so how well are we managing the prices? And what is your outlook on the per tonne margins? Can we maintain at this level, or we see some improvement in second half from here on?
So first of all, to answer your question, butadiene is actually a much higher percentage than the 15%, 20% that you mentioned. For us as a company, I don't have the exact number. I don't know, Sachin, if you can have it ready, but my guess would be that out of the total raw material cost, butadiene be our #1 spend at about maybe 30% to 40% of our total costs, 40% even.
As far as Europe and Asia is concerned, it continues to be -- Asia prices continue to be maybe 25% higher, 25%, 30% higher than Europe. Things are expected to turn, but the last 6 months we have seen this is the situation. But from all analysts' reports -- and obviously we're not butadiene manufacturers, so -- but we keep a track of what's going on, and it's -- typically, these kind of arbitrage things correct over a period of a few months. So I think it should correct in the second half.
And sir, what is the outlook on acrylonitrile and styrene. How was the prices during the quarter versus last quarter?
I think they've all gone up a little bit compared to Q1. And certainly this first half has been a lot higher than the first half of last year. So quarter-on-quarter also, there's been a slight increase.
Okay.
On average. I don't know each raw material specifically, but I think there's been a slight increase over there.
Okay. And sir, we have -- and we have not passed on all the cost to the end user industry considering the weakness in demand from paper and carpet, which we can subsequently pass on second half?
We have not been able to.
[Operator Instructions] The next question is from the line of Aditya from Securities Investment Management.
Sir, in the presentation, you have mentioned that revenue growth was partly because of volumes and partly because of product mix. Sir, if you just elaborate what kind of products are higher realization for us which has contributed to higher revenue?
This is partly due to overall pricing going up also.
Okay.
Yes. When cost goes up, then price also goes up, right, Q2 against Q2 of last year. Sorry, sir, what's your question?
Yes, sir, my question was you mentioned that product mix has also improved -- has also helped us improve our revenue. So what kind of products have higher realization, which has helped us to post a higher revenue growth?
So NBR, for example, NBR, we have grown reasonably well in this quarter compared to Q2 of last year or first half compared to last year. So NBR being a solid rubber product, the pricing is higher. I'm just talking about revenue, not margins. Then tire cords, for example, is -- latex for tire cords, we make a latex called vinylpyridine latex for the tire cord industry. There, the pricing compared to SBA latex is typically 30% to 40% higher. There, we've seen very good growth.
And we have also invested in a new reactor for that product. So that's another example. And in the construction industry, we have some specialty products for the oil application and some other applications where we have seen good growth, where again, the pricing is at least 15%, 20% higher compared to paper and carpet and nitrile latex and so on. So the growth in those industries has helped to some extent in improving the revenue as well. So I hope that answers your question.
Understood, sir. Sir, now if I look at your exports, so majorly we are catering to the carpet industry. So could the exports -- do our exports majorly cater to distributors or we are giving it to carpet manufacturers?
So just to correct you, carpet is not -- I mean, obviously carpet is an important export product, but nitrile latex, carpet and construction and tire cords, all 4. We have significant exports in all 4. So 32% of our sales overall as a company is exports. So it's not just one segment that does it. And to answer your question, it's a combination of the two, direct as well as with the distributor.
See today we don't have any salespeople outside for carpet, so we do work through distributors, and we work on 2 levels. One, they will act like our sales agents, where we just pay them a commission and they take care of the sales relationship. Of course, our guys from India also, our sales and marketing team, we have a strong sales and marketing team based out of India, and they go visit once every few months.
There is a relationship manager in charge of each customer. But day to day, like if you are in Egypt or Turkey, some of our distributors are local operators. So that really helps with day-to-day relationships and day-to-day logistics that they help us with, and we give them a commission for that.
In some cases, where we don't want to take any payment risks and smaller customers, then we supply to the distributor and where the distributor stocks it and then sell it in turn. So I hope that answers your question. It's partly both. But in carpet, larger majority would be direct and giving commission to the distributor.
Understood. So my question was majorly related to to synthetic latex exports. And now for this segment, synthetic latex exports, now who would be the major players we will be competing against? So are these majorly European-based players or these are Chinese or Southeast Asian based players?
Mostly European.
Okay. So because the export growth which we witnessing in the...
Latex for the carpet industry is European. Nitrile latex for -- it's different for each. So for carpet and construction, it's all European competitors. For nitrile latex it's Southeast Asia and East Asian competitors.
Understood. Understood, sir. And sir, just last one question. Now this -- you mentioned that higher freight costs have impacted our margins, was part of the reason that has impacted margins. But when I look at your other expenses, those have come down on a year-to-year basis. So how have the higher freight...?
The freight has definitely call up. The other expenses, as Sachin mentioned to one of the previous callers, is on account of other fixed costs that we have held back or reduced. And a lot the power cost in Ballia, that has really helped us as well. But we can, next time, we'll be more prepared in terms of line item by line item we will tell you exactly how much -- percentage reduction in power, percentage increase in freight and so on, especially since those 2 are the highest.
The next question is from the line of Himesh Shah, who's an individual investor.
We are facing 3 or 4 headwinds that we faced in Q2. Do you really think that in the last -- like over the last decade or so, this is one of the worst phases, if not worst phases, I mean one of the most challenging situations for times that you are facing for the company?
Yes. I mean, look, I think COVID, nothing was more challenging in those 4, 5 months of the first few months of the COVID period. But even pre-COVID, pre-'19 -- in FY '19/'20 was a challenging time. There, the major issue was NBR, antidumping NBR dumping, and we had filed antidumping which didn't work out. And then of course, 2 years, we had 2 reasonably good years in the middle, 2 to 3 good years. But I would say, yes, this is definitely one challenging time. Look, every period is different and the reasons are different.
This time, I think it's partly geopolitical, partly with post-COVID nitrile latex, which is a business we invested in and that is -- pre-COVID during COVID, they were always very healthy margins. We still believe in the long run it's a good business to be in, because it's growing at 10%, 12% a year, 10% to 15% a year. It's just that a lot of overcapacity has been created thanks to COVID. It would not have happened had it not been for COVID. People got very excited because of COVID. Last year, it was a natural progression. We were anyway going to invest. We had invested in this project, started investing in 2018, '19, developing this product, and so it's a different set of challenges this time, but sure, it is one of the challenging periods.
Having said that, I've been with the company for almost 20 years now. We've gone through several challenging periods, some caused by external circumstances, some caused by internal circumstances. In this case, it's certainly mostly external circumstances that are causing this. Having said that, even with this, our company is very well positioned. We feel very happy with where we are because we feel the competitive intensity of this industry is -- it's still not changed significantly, except in nitrile latex recently. But -- and we still feel, in the long run, it's a good business to be in. We don't need margins of 20%, 30% EBITDA margins to to have good ROC and even 13% to 15% ROCs. And that's our main goal, right, to have margin of 13% to 15%. So ROCs around 25%.
And if we can do that, I think we're in good shape, and we continue to grow and we can have sustainable growth at those ROCs and EBITDA margins.
So definitely the current scenario in the industry, this is -- for all the entire industry, is unsustainable, right? Because if all players in the industry are not making good margins, then I mean, this has to change, right? Because then there's not going to be any CapEx, right, demand and supply will balance out at some point of time, correct?
Yes, exactly. The question is when.
Got it. Got it.
So the next question is when -- it's tough to say. So as I said, we have also created a business which is quite well diversified now. If you see from a geography standpoint, India is certainly one of our strategic markets and it will continue to be. And that's where our real strength is. But we have still diversified 30% to 35% of our sales into other markets. From an industry standpoint compared to 10 years ago, we are in 8 different industries. We were only in 3 or 4. So we have really grown in geography, in diversity. At the same time, we've kept the balance sheet clean. Today, we have I think as on 30th September, we have probably around INR 210 crores or so. Sachin, correct me if I'm wrong, about INR 200 crores to INR 220 crores of debt only, including long term, short-term debt. Against that, we have about INR 120 crores of liquid investments.
So we are a conservative company. We've grown with our internal accruals, with a little bit of debt, and knowing fully well that this business goes through cycles like these. They go through cycles of low EBITDA margins, there can be some quarters that are very low, some quarters that are very high. And so we have to ensure that in quarters or periods like this, our financial ability to withstand this is there, [indiscernible] but also invest, and we'll be putting money in solar, we'll be putting money in R&D, we'll be putting money in have some growth projects as well over the next 6 to 12 months.
And we feel pretty confident given our current [indiscernible], with our serviceability ratios. And so we feel pretty good overall.
And how much would the volume growth be, the [indiscernible]?
Compared to last year? H1 to H1, Sachin, would have been what, about 100%? Nitrile latex growth?
Yes, no, I'm saying excluding nitrile latex [indiscernible]. Have they grown in volume in Q2?
Oh, excluding nitrile latex. Yes, sure, sure. There is growth in nitrile latex excluding. Yes, of course, because nitrile latex is a small base, right? So overall, we have grown at about 12%, 13% volume as a company for H1.
So I don't have the exact number, but I'm going to say about 8%, 7% or 8% is from other products. Sachin, do you have that?
So we're protecting our margins. We are protecting our market share, right? [indiscernible] and we have not given any [indiscernible].
Exactly right. We will protect it and grow it in some cases. Sachin, anything to add?
No, you are right. Perfect.
I would now like to hand the conference over to the management for closing comments.
Thank you, investors, for joining our earnings call. We wish you and your family a happy and a safe Diwali. Thank you so much.
Thank you. Happy Diwali to everyone.
Thank you. On behalf of Apcotex Industries Limited, that concludes this conference call. Thank you all for joining us, and you may now disconnect your lines. Thank you.