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Apcotex Industries Ltd
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Ladies and gentlemen, good morning, and welcome to the Q3 FY '23 Earnings Conference Call of Apcotex Industries Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, Mr. Sonpal.
Thank you, Michelle. Good morning, everybody, and a very warm welcome to you all. My name is Anuj Sonpal 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 third quarter and 9 months ended of financial year 2023.
Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions.
The purpose of today's earnings call is clearly to educate and bring awareness about the company's fundamental business and financial quarter under review. Let me now 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 much delay, I request Mr. Sachin Karwa to start with his opening remarks. Thank you, and over to you, sir.
Thank you, Anuj. Good morning, and welcome, everybody, to today's earnings conference call for the third quarter and 9 months ended of financial year 2023. 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 exchanges.
So briefly on the financial performance for the third quarter of financial year 2023. The revenue from operations were reported at INR 234 crores, which declined by about 7% on a year-on-year basis. The operating EBITDA stood at INR 30.6 crores with EBITDA margin reported at 13.07%.
The net profit stood at INR 20.4 crores, and PAT margins stood at 8.71%. For 9 months of FY '23, the revenue from operations stood at around INR 824 crores, which grew by roughly 21% year-on-year basis. Operating EBITDA stood at INR 124 crores, a growth of around 22% on year-on-year with EBITDA margin standing at 15.1%. The net profit was around INR 85 crores, a growth of approximately 25% on year-on-year basis. PAT margin stood at 10.28%.
During the quarter, volume was flat with 1% growth on year-on-year basis as we were running at full capacity utilization. EBITDA margins were lower due to inventory losses in Q3 with respect to raw material and finished goods, which was impacted primarily by supply chain constraints and price increase in raw materials.
Lower margins were also pleasing some product categories partly due to fall in ocean freight benefiting imported competition and falling [indiscernible] market conditions. On the CapEx front, both the projects in Taloja and Valia are expected to be completed in Q4 of the financial year. The delay in project is due to supply of key equipment. Additionally, I am pleased to announce that we have declared an interim dividend of INR 2 per equity share and February 7, 2023 has been fixed as a record date by the Board.
With this, I would like to open the call for question-and-answer session. Thank you.
We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Dhiral from PhillipCapital. Mr. Dhiral, I have unmuted your line kindly proceed with your questions. Mr. Dhiral? As the current participant is not answering, we move on to the next participant. The question is from the line of Ankit Kanodia from Smart Sync Services.
My first question is related to the, I think, Slide #6 on your presentation, where you mentioned that EBITDA decline has been primarily due to raw material and finished goods inventory losses. So just wanted to have more color on this in terms of, say, 6 months down the line or 1 year. Slightly longer term, how do you look at the raw material prices moving forward and how will that impact our performance? And how we are geared up for that?
Right. So in most of the quarterly con-calls, I've been saying that nature of our business is that there are times when we benefit from prices going up. And frankly, the last 4, 5 quarters, previous 4, 5 quarters, that has been the case.
We definitely have benefited. Now things have turned since petrochemical prices started sort of falling steeply. And that will -- and that has obviously impacted our margins, partly impacted the margin. That's not the only reason, but that's one of the main reasons why that has impacted our margins for [Technical Difficulty] this quarter and likely to continue into Q4, mainly because we are dependent on a lot of imported raw materials.
And given the uncertainties in supply chain over the last 2 years and I think to some extent, uncertainties continue in China and in Europe, we had increased our inventory days, and we continue to do so.
So while we benefited when things were rising, obviously, this was expected, but we have no choice. It's part of sort of this business. And in the long term, to answer your question, it's hard to say. But obviously, we feel the prices have now almost bottomed out. So things should start rising from maybe the next quarter or end of this quarter onwards as well.
That really helps. And my second point was related to again the same slide where you mentioned about fall in ocean freight cost benefiting imported competition. In our last call, you mentioned that we get the benefit in terms of exports in Middle East and Southeast Asia, where freight cost is not a very large percentage of total cost of the product. So how do we see that as a percentage of our total exports or total sales? So assuming that the price of the ocean freight remaining at this stage for some time. How are we positioned?
Yes. So obviously, I think it's a 2-part question. So for imports, because for about 40% -- 40%, 45% of our products, we are the only manufacturer in India. So for the Indian domestic market, obviously, the other are only competition in imports.
Now what happened over the last 2 years, I would say pre September, October, is that ocean freights have been obviously very high, as we all know, and that has benefited us for the Indian market.
And that, of course, that onetime benefit that we had for a few quarters is now almost we are back to pre-pandemic kind of ocean freight level in most cases. So that onetime benefit is sort of gone now. And as far as exports is concerned, of course, those -- because most of our exports are in countries close by, it was never a big impact. Obviously, those rates have also come down substantially, and that's benefiting us, of course, for exports.
Okay. And my last question would be in relation to...
Sorry to interrupt, sir. I would request you to join queue.
Let him finish, it is his last question.
Okay, sir. No problem. Proceed please.
My last question is related on the last call, we mentioned about excess capacity being there throughout the world in terms of the glove manufacturing. Any update on that? Do we see any changes or it remains to be like that?
Yes, it's quite -- I mean, the downturn of the glove industry still continues. It started some time last year in '22. And that continues, and that's been 1 of the reasons of our lower margins also, while it's a small percentage of our total sales, XNB, latex for gloves, around maybe less than 10% so far.
We enjoyed extremely high margins in 2021 and early parts of '22. And obviously, those have kept coming down. And they are really -- compared to the pre-pandemic average, much, much lower. That is expected to continue for the next couple of quarters, 1 or 2 quarters at least.
From all industry reports, being in touch with customers. And they feel that once the old inventory is used up, that will certainly help. Some of the excess capacity that's been recently created, those companies are obviously not doing well with high investments. So maybe there will be some consolidation. So we think it will be the second half of this calendar year when things should change.
We have the next question from the line of Aditya Khetan from SMIFS institution. .
Sir, my first question is on the Nitrile Latex side. Sir, on to the channel inventory, now what we are witnessing so that is at the minimum level into Nitrile Latex. So how you see the demand right now? And we know that the Nitrile Latex prices also, so they are at the lowest levels. So what should be the triggers for prices and demand going ahead?
Yes. Look, for us, we are currently selling -- only 10% of our sales is Nitrile Latex, or less than 10% also. Obviously, we're coming up with a 50,000 tonne plant for Nitrile Latex in Valia, which is still a small percentage of the global market. So selling 50,000 tonnes is not so much of a challenge.
The issue will be, of course, given that the current -- there's not much pull from the market, it's a lot of relationship building and pushing that we're doing. So it may take a little longer to get to full capacity for 50,000 tonnes, maybe 1 year or so.
We were really expecting 6 months, but now we think it may be 1 year or so. And as far as margins are concerned, look, that's anybody's guess. But we think, as I said, I mentioned to the previous caller that we think in 6 months, market should turn. But it's certainly going through the deepest downturn, the glove market. And therefore, the raw materials that are being supplied to the glove market going through the deepest downturn that it ever has, so.
But in the long term, we are quite bullish that with the growth in healthcare requirements across the globe, we believe it's a high-growth market for Nitrile Latex as well as shifts from natural Latex glove to Nitrile Latex glove. And we are well positioned in terms of geography, raw material pricing, everything, and a new plant at a reasonable CapEx compared to most of our competitors. So all those things in the long run, we are quite bullish. Of course, we are entering the market at a time when there is a downturn. So that's the reality.
Sir, you said, to take the market to a u-turn it will take 6 months. So from May or June, we can expect pickup in demand?
Yes. From all industries, the discussions we have had, they've been saying second half of the year, yes.
Okay. Sir, my second question is on to the benefit of the realizations, which we have got in the last 3 quarters. So wherein they made around INR 45 crores of EBITDA. Now we are down to around INR 30 crores of EBITDA in this quarter. So how do you see these things to improve or maintain at these levels, at least for the next 2 quarters?
I mean, look, this quarter, again, the same challenges will remain Q4. I'm talking about Q4. And then as the new capacities kick in, we expect EBITDA to improve if there is no other major issuer change because raw material prices will also bottom out, I think, in this quarter. So at least this quarter, we don't expect a major improvement. But hopefully, from Q1 of the next financial year, there should be some improvements, yes.
Okay. Sir, just 1 last question, sir. You have mentioned so Y-o-Y volume growth of 1%. So similar on quarter-on-quarter basis, how much was the decline in volume?
There was no decline.
Okay. So 17% decline in revenue, that was primarily led the realization?
That's right. Yes, just it's a good point. I'll just clarify because I'm sure we've been running at full capacity, and we continue to run at full capacity in Q3. We focused on total volume, holding market share. And yes, to some extent, the margins have come down in some of our product categories, but we've had to deal with that.
One last question from my side. Sir, 1 more question. Sir, are we witnessing any increase in imports since you have also mentioned that the freight rates have gone down. So imports might have increased. So competitive intensity will have also increased. Is this also one of the reasons? So this is leading to a decline in realization?
Yes, yes. That's 1 of the reasons. And we have -- but as I said, we will hold on to our volumes and market share, and we have to correct our prices in some of the products where we face intense import competition.
I think 1 of the other reasons has also been overall slowdown in China over the last few months, and a lot of imports have been directed towards India because we are 1 of the few -- India is 1 of the few shining spots in the world today where demand overall has not been affected. So if you see our India demand, it's -- the demand has not been affected. It's a question of raw material pricing, a little bit higher intensity and competition in some product categories. That is what has caused sort of the reduction in EBITDA quarter-on-quarter.
Okay. And sir, this expansion, which you were planning this was supposed to start in Q3 only? Sir, any reason why this has been shifted to do, sir.
Okay. I'll take that question and then we'll move on to the next caller, if you don't mind, Aditya.
Yes. Yes.
Yes, I mean, look, the main reason has been that a lot of delay in semiconductor, wherever we were using semi -- equipments where we were buying the new semiconductors, were, I mean, incredible delays. And that will, I guess, the main reason. But now everything is in place. We have got everything. We are in the mechanical completion stage.
In fact, the plant is ready, both plants are ready. And we will be -- we're already doing water trials. And we will be, by the end of -- we expect by the end of next month, so about in a month from today, to start the product trials as well.
We have the next question from the line of Aditya from Securities Investment Management Company.
Sir, I just wanted to get a better understanding of a synthetic latex business, excluding the Nitrile Latex for glove. Sir, now what are the market dynamics over there? So do we face competition mainly from domestic players? Or are there imports as well? And ideally since you're a market leader in most of these products. So do we -- are we facing margin pressure over year? Or are we able to pass on the price increase/decrease?
So sure, I would say we have mostly domestic competition. There is some import competition. And -- but the margins have been fairly good, I would say, for synthetic latex outside of Nitrile Latex. And we mainly have domestic competition, 1 major domestic competitor for this. And they've been by and large okay, but obviously, these higher cost raw materials that we have had to import, I'm sure they have as well. But the market corrected quickly in terms of finished goods pricing. So to some extent, there has been some reduction, but not major reduction in margins in those products.
Right. So just a follow-up. So what is the pricing policy for the company for the synthetic latex business? So what is the frequency of the price to that we have with the customers? And do we look raw materials on a back-to-back basis to protect against inventory losses?
Yes. So there are a couple of pricing models we have. One is we have formula pricing for some large customers who are willing to commit volumes. And the rest of them are on spot basis. So I would say wherever we were on a formula basis, we obviously lose out when we were buying. Formula is based on some published raw material rates, and our actual rates of buying are obviously different.
And when prices are going up, we benefit. When prices are coming down, it's a disadvantage to us. With spot, of course, we are quicker at sort of passing along the price increases or decreases. But sometimes when you're stuck with a lot of high-cost inventory, maybe there is some pressure in the short term to reduce prices and prices are coming down because they do get prices of what the imported prices are. So even though imports may only be 15%, 20% of the total market, it still impacts the entire market in terms of pricing.
Right. And what will be the proportion of the formula based pricing and spot pricing?
I don't -- I mean totally as a company, I think it's about -- can I come back to you on that. But obviously, it's still a smaller percentage. I think maybe about 25% or so would be formula pricing and the rest would be spot as a company on a whole, I'm saying.
Okay. And if I look at the margin profile of the company, pre 2016, '17, we used to make around 8% to 10%. But now we are guiding for around 13% to 16%. So just wanted to know what has changed for the company in this year, which has led to the increase in margins? Is it just a scale or are there any other factors which have helped us achieve such margins because when I look at the product profile of the company, we have added Nitrile Latex, but it is currently constituted in single-digit revenue. And we have added NBR, which also makes company level margins only. So margin accretion wouldn't have come from a change in product mix. So what has led to the increase in our base level and profitability?
I mean a couple of reasons. One is, of course, we said economies of scale kick in as we get growing.
The second is our customer profile, our product profile. We have moved into some specialty grades also, which are much higher margin, obviously, lower volume. So all -- a combination of reasons have helped overall margin. And of course, as you grow the ability to buy at a lower rate, better procurement buying. So all -- I mean, multiple reasons. I would say 4 or 5 different reasons.
But sir, would the change in product mix would have led to increase in margins because the products have remained more or less the same right?
No. But within the product, as I said, this customer mix as well. So earlier, for example, we had -- I mean, if I were to give a specific example in the paper industry, there was a large focus on or a large percentage of our sales were 2 or 3 large customers.
Now as we have grown and as the industry has grown now, there are a bunch of middle and smaller level customers, the margins are better. So we have not grown because of volume has been kept. We have purposely sort of focused on customers, which are higher margins. Similarly on exports as well.
Initially, while we were getting in the approval phase, we had to give pricing at a much lower level to break in. And now that we have broken in and proven to be a consistent and good quality supplier to some of our export customers, we have been able to increase margins over time. So these are just a couple of examples I'm giving you.
Okay. And what is the CapEx guidance for next year? And what kind of maintenance CapEx is implied in our business?
So as of now, after this CapEx is done, which is around INR 200 crores this year, we have not taken a call on further major CapEx and we expect the maintenance CapEx of about somewhere between INR 15 crores to INR 18 crores per year.
And that also includes improvement. Some of those projects are not necessarily maintenance, some maybe debottlenecking, some maybe cost reduction. So some of them will benefit and some are pure maintenance, which is just replacement of materials. So we have some small projects, which also help in overall margin improvement, either because of revenue increase or cost decrease. I'm talking about in general that we see over the last 3 years, 3, 4 years. And we expect that to continue in the next year.
And percentage for the power requirements, material, captive sources since power cost is a big cost for us?
Yes. So in our Valia plant, I think entire power comes from captive power plant. We have a co-gen power plant, which manufactures steam as well as power for us. And in Taloja, we are dependent on MSEB. We do have some small percentage of wind and solar power, but it's a very small percentage that Taloja require.
So, shall we give an opportunity to the next caller, some other callers as well.
We have the next question from the line of [Nagesh Jain] from NB Investments.
First of all, regarding the inventory loss that you mentioned. Is it possible to quantify how much was it in the last quarter?
Yes. We don't know -- it's possible, but we are not revealing those kinds of numbers. But I would say at least -- I mean it would have made an impact of at least a couple of 1 or 2 EBITDA -- 1 or 2 percentage in EBITDA.
So was it there in Q2 as well?
Sorry?
Was it there in Q2 of this current year?
Q2 was a benefit, right? As I mentioned to the previous caller that the previous 3, 4 quarters, we had a benefit of inventory gains rather than inventory losses.
Okay. Okay. And you are saying that this loss will be there even in the current year -- current quarter, Q4?
Yes.
Okay. My second question is regarding the NBR project. I know to the previous caller, you said that there is no significant CapEx for the next year. So does it indirectly mentioned that you have still not taken any decision on expanding the CapEx of NBR related?
Yes, that's correct. We've not taken any decision. We are completing our -- we're in the middle of completing our sort of detailed engineering for that project. But the final call will take because we want to ensure that our balance sheet numbers are also healthy. and we are not taking too much of a risk on that. So we will -- we've not taken a call on that yet, yes.
Okay. So this latex gloves part, you said that it will take more than 6 months to ramp up to the full capacity. But at the same time, the margin expectation also will be low from that product?
Yes, exactly. Exactly. And it will take longer than 6 months. We think maybe up to 1 year now, it should -- it would take to ramp up to full capacity.
We have the next question from the line of Farokh Pandole from Avestha Fund Management LLP.
Just wanted to check, have we started manufacturing from Valia. And if so, what is our utilization at this stage? And is any of this capacity, given the issues that you've highlighted, is any of it sort of swing wherein you can maybe divert some of it to other segments?
Yes. So no, we've not started manufacturing. As we mentioned in the opening remarks as well as to previous callers, there was -- there's been a further delay. I know earlier, it was supposed to be September, October and December. But because of some delays in semiconductor, a lot of automation equipment was delayed by a huge sort of -- I mean it was in order in a month of time. So now everything has come. Of course, we've received everything and we have installed everything. We're in the middle of final testing and final approval. The CPO, as we call it, consent to operate for both our plants in Taloja and Valia.
To answer, so both will start up by the end of February, early March, with trial runs and then of course, ramp up over the next 6 months to 1 year.
Earlier, the plan was to make Nitrile Latex in both plants, 50,000 tonnes we had in Valia and 10,000 tonnes in Taloja. Last time, I mentioned that the Taloja plant was a swing plant. And so we have made some additional investments to make it a swing plant because we believe that on our current set of products in SB latex, there has been a lot of pull and demand. And therefore, what we have done is converted that plant to be able to manufacture any product. So that's a full swing plant, and ready to go from next month.
The good thing, though, is that we have now, while we have 50,000, tonnes of Nitrile Latex, we can make up to 35,000 tonnes of SB latex in Taloja. So totally in terms of revenue, it would amount to about, current price is about INR 600 crores to INR 700 crores. And so earlier, I mentioned INR 450 crores to INR 500 crores, I believe, were the things.
So with the current INR 200 crore investment, we should get about INR 600 crores to INR 700 crores. So this is how we are looking at the next couple of years that we would have Nitrile Latex coming from Valia and other latexes from Taloja, where obviously the margin profile in the current context are better. And tomorrow, 1 year later, the margins in nitrile get become better, we can always switch.
So that's the kind of provision we have left for Taloja. In Valia, unfortunately, unable to do that, and so it will be a Nitrile Latex plant only for now. In the long run, if you want to make some additional investments and we want to -- we have some options we have to have additional investments made to do that. We still believe that the Nitrile Latex will be a good market in the long run.
Obviously, in the current context, last 6 months and the coming 6 months, the margin profile is quite poor. Glove industry is not doing so well. But in the long run, I think it should -- we strongly believe that things will turn, especially it's a 10% to 15% growth market. So I think that will turn -- so overall, the way we are looking at our projects is that this investment of about INR 200 crores will give us a revenue of about INR 600 crores to INR 700 crores in addition to the INR 1,000-odd crores that we already have.
Plus, we have left provision for additional investments at a very low cost. So I mean, I want to say maybe around additional INR 30 crores, INR 35 crores will give us additional revenue of INR 300 crores. So we have built the company or built these projects to ensure that we can get to INR 2,000 crores without any significant investments. So I know it was a long answer, but I hope it answered all your questions.
Yes, it does. Also, can we get some idea of the level of profitability in Nitrile Latex today versus maybe 6 or 12 months ago, what has been the dilution in profit because of inventory issues and the other things that you mentioned?
Inventory latex is not because of inventory issue. That's been mainly because of overall market being sort of very weak because yes, the inventory of gloves. Yes, you're right, because of high inventory of gloves.
I mean, margins are pretty much crashed from -- let me put it this way, if there was 100 pre-COVID or pre-pandemic, they went to almost 300. And now they're down to less than 50. So it's even -- it's half of what they were pre-pandemic, less than half of what they were pre-pandemic.
We have the next question from the line of Dhiral from PhillipCapital.
I missed that part. As you said that from the incremental CapEx of INR 200 crores, now you are looking at the revenue of INR 600 crores to INR 700 crores. So I just wanted to recheck, what kind of change in the product mix that we are looking at? Sorry, I missed that part, sir.
No. So yes, what I mentioned is that as far as the Taloja plant is concerned, it will be -- we will be focusing on our existing latex products, Styrene-Butadiene, Latex Styrene, Acrylics Latex, VP Latex and so on from that swing capacity.
And because we -- the cycle times for those products are lower than Nitrile Latex, we were able to make about 35,000 tonnes against 10,000 tonnes. And in Valia, it will be 50,000 tonnes of Nitrile Latex. So totally, 85,000 tonnes of latex, which amounts to about INR 600 crores to INR 700 crores at current prices.
Okay. Got your point, sir. And sir, what kind of utilization we expect from the Nitrile Latex in FY '24 as you are expecting some change in the situation from the H2 FY '24?
Yes. Look, it will be -- obviously, in the first few months, it will be very low and then ramp up slowly. We hope that by the end of the year, we will be at in the last couple of months of the year -- of the financial year, we would be at full capacity.
And for the year, we may be let's say at 30%, nearly 40% because obviously, the first few months will be a very low capacity utilization because we will still be going through the reapproval stage because it's a new plant, so customers require to send some small amounts of material and then ramp up slowly. So maybe 40% for the year.
And sir, lastly, because of the fall in the realization and the margin, what utilization has been break even?
You mean breakeven -- see operating costs, there -- I mean, volumes are breakeven. Overall, there is hardly any increase in fixed costs. So we would be breaking even at a very low operating -- at a very low capacity utilization.
Brownfield project. So the additional cost is mainly just manpower -- additional manpower needed to run the plant.
We have the next question from the line of Romil Jain from Electrum PMS. .
Sir, I just want to understand the Taloja plant that you mentioned the ongoing CapEx, which will, I think, start next month. So 35,000 additional capacity manufactured. But apart from that also, we can manufacture other products, which can give similar revenue? Just clarification on that front.
I did not understand the question.
No. So I think as you mentioned, 35,000 tonnes of additional Nitrile Latex can be manufactured at Taloja.
SB Latex at Taloja. Styrene-Butadiene, latex Styrene, Acrylics, other products.
Okay, other products. But we can also manufacture the Nitrile Latex is what with the new CapEx?
We will also do that, yes.
Okay. Okay. And still make similar revenue?
No, the revenue earlier -- earlier the plan was to make only Nitrile Latex because the margins are very strong. So the earlier, the revenue was lower. So as I said, earlier the plan was totally 50,000 and 10,000 tonnes, so totally 60,000 tonnes. 50,000 tonnes in Valia and 10,000 tonnes in Taloja for XNB Latex with a revenue of about INR 450 crores to INR 500 crores.
Now that has changed because we are able to make much more other kinds of latex through the same plant. So now the revised revenue that we will generate from these plants would be INR 600 crores to INR 700 crores with an option of sort of marginal investment to get another INR 300 crores from there.
Okay. Okay. Got it. Got it. And sir, second question is the current margins that we have reported, I think on the EBITDA side about 13-odd percent. So this is with the pressure on the Nitrile Latex part of it, which is less than 10%. So I'm assuming that the other part of the business, right, that is broadly still stable and still sustainable in terms of margins.
Yes. We have, as I said, broadly yes. But in the short term because of some high-cost raw materials, we've had an issue. And also in some pockets, some product categories where we get a lot of import competition. For example, some of our synthetic rubbers, we have seen margins also drop due to market conditions.
But I did see those are sort of temporary phenomenon and a part of the business cycle. It happens for a couple of quarters and goes back up. So -- but by and large yes, the other part of the business is okay.
Okay. So that means, as you mentioned, that maybe in the next 6 months to whatever, 6 months to 9 months, I think as things stabilize on the Nitrile Latex front also, utilization increases, these margins may be broadly quarter margins and there maybe a swing towards better margin strategy is what I'm trying to understand.
We hope so, yes. We think so. Look, overall, I'm -- there are 2, 3 things that I'm quite -- we are quite bullish on. One is that, look, the company is now well positioned with very minimal investment to get to INR 2,000 crores over the next maybe 4 to 5 years. So there's no additional major investments required. Number two, our return on capital, even as these margins, return on capital return on net worth is quite healthy
And number three, yes, we feel that we are quite well diversified company. So -- and we created -- 1 of the things that COVID has taught us is to be more flexible. And now our plants are much more flexible, so in case, there is a downturn in 1 industry, we can always make it up with some other products.
So to some extent, we are able to do that. Not 100%, as I mentioned to the previous caller, for a new Nitrile Latex plant. As of today, the 50,000 tonnes is only built for Nitrile Latex and the whole plant is built for Nitrile Latex.
We have the next question from the line of Nikhil from Simple.
Can you hear me?
Yes.
Just 3 questions. One is, sir, you mentioned in 40%, 45% of our business, which is where the dynamics are driven by imports. Even after the price drop, would you say our volume share in the industry are sustained. So we are maintaining our market share even though imports have increased. Would that be a right assumption?
Absolutely, 100% right assumption as I mentioned again earlier, that we are running at 100% capacity utilization. And even we continue to do so this quarter as well in Q3. Prices fell overall, and we had -- obviously, we have to correct our prices, but we held on to the volumes and the market share.
Okay. Now second, on the glove latex. I understand. And sir, 2 questions. One is, in the previous calls, you had mentioned that even though the industry dynamics have gone back, we would still be able to maintain a ROCE on the CapEx at 20% plus. Sir, conditions which you mentioned that pre-COVID if we were at 100 today, we are at 50. Would you say if this sustains for some time that 18%, 20% ROCE is still sustainable for our new CapEx? Or would it be dilutive to some extent?
So I think over -- I mean, of course, when I was talking about 20%, 25% ROCE, we were looking at the next 5 years. And obviously, the expectation was that margins would improve, that they would not remain at these levels and they would at least improve to pre-pandemic levels.
But as I said, so even at pre-pandemic level, ROCE would be even better. But even if you have to sustain 1 year of low margin, for example, and then margin improve after 1 year, we would still -- that's what I mean, I meant that over a 5-year period, we are still quite confident that at least a 20%, 25% ROCE on this new project would also be possible.
Okay. And just last question. On the glove latex, we understand that there is a lot of capacity, which came from the glove manufacturers. But how is the capacity addition which has happened at the latex side? So as the latex side capacity addition being in line with the glove manufacturer capacity addition? Or is...
No, I don't think it has been as much as. Because the gloves capacity is easy to add quickly. And as far as glove latex for glove is concerned, the current players, largely the current players are the ones that have increased capacity. So some capacities were already in the works.
And like all, for example, we have already started investing. And some were announced. So I believe the ones that are announced and no money was put in, they have all been put on hold. So our view is that the latex capacity has not obviously gone up as much as the overall glove capacity in both China and Southeast Asia, and it's more the glove capacity that is an issue.
And the glove manufacturing that happened over the last couple of years which caused a lot of excess inventory. So once those things correct, I think over time in a market which is growing at 10% to 12% minimum, if not 15%, things should correct itself in a couple of years.
Okay. And just 1 last question, if you permit. If you look at most of the suppliers in this industry, the latex manufacturers are backward integrated with a petrochemical channel or petrochemical backward integration are based out of Malaysia. When -- while we have to import a lot of RM or we don't have such a strong backward integration advantage. So if you have to understand our advantage in market share gains, is it more on incremental market share gains? Or is it more on we are replacing someone else with our new capacities in the latex, glove latex side. So how are we gaining market share there? And what is the advantage we enjoy?
Please understand that it's not necessarily true that they're all backward integrated. There are a couple of competitors that are not completely backward integrated, and even a few of them that are -- there are many other products.
So the 2 main raw materials for this latex is butadiene and acrylonitrile. Now butadiene, we have sources that are very close to our plant, and that is true of some of our competitors as well.
In fact, some competitors in Korea are importing butadiene into. We are not importing. We're hardly importing any butadiene. So that is an advantage to us. And acrylonitrile, I don't think anybody is backward integrated. They're all buying from the market. Yes, in some cases, acrylonitrile is available in the same country. So to that extent, freight, raw material price volatility, all that is avoided. But we believe that we are not at a major disadvantage because large quantities of acrylonitrile also imported into India at pretty competitive prices. and we are able to get those. So we field in terms of raw material pricing, anyway, we're not in anyway get disadvantage to any of our competitors.
We have the next question from the line of Saurabh Shroff from QRC Investment.
First question on the balance sheet. So as of September, we were at about INR 145-odd crores of debt. Should this counted at about INR 200 crores by the end of March once the plant gets commissioned?
Yes. Sachin, can you answer that question? Are you there?
Yes. Yes, it will be.
Yes. And so what I understand currently, because prices are coming down, even working capital requirements have come down. So to some extent, that helps us. And I think when you are counting that, I think you're looking at overall long-term debt as well as working capital, right?
Yes, correct. That is actually going to see my....
Everything, it will even get to INR 200 crores, Sachin, what do you think maybe INR 160 crores, INR 170 crores. Because a large chunk was already done, right?
So right now, I think you have almost [indiscernible] utilized [indiscernible], should be in that range.
Yes, around INR 180 crores, INR 200 crores, yes.
And this should include the additional working capital debt also that you will need once up for launch?
Yes, I think so.
Okay. Got it. And Abhiraj, I think you had mentioned maybe it was a few quarters ago, is there any sort of work by any of these majors that acrylonitrile could start becoming available locally? I'm guessing it's a couple of years away. But is that...
There has been some talk, but I don't think there's anything that hit the ground as far as I know.
Okay. So no, no progress has been made on that front.
As far as I know in the last 3, 4 months, I don't think there has, yes.
Okay. And finally, on the last question, these new -- the new CapEx at sort of Valia or Taloja, the new plants have -- are there any more or less sort of labor intensive, i.e., more automated. And hence, the confidence that with a very little fixed cost base, you are sort of going to breakeven. Is that the understanding?
Exactly. It's literally -- I mean, in -- I was firstly surprised with the level of automation that they have been able to pull through. And so just to give you an example, in our Taloja plant, 35,000 tonnes, which will give us at least INR 200 crores, INR 250 crores of revenue, INR 250 crores we need an additional maybe 6, 8 people per shift, just that's it.
So it's highly, highly automated. Everything is run from automated DCS systems. And of course, some amount you do require physical manpower for packing and such, but a lot of it is automated, much more than our current plant, yes.
We have the next question from the line of Vishwa Shah from Tamohara Investments.
Sir, I just wanted to get an understanding on the raw material pricing that you had affected us because of petrochemicals prices have gone down. So what I wanted to understand is because we've stocked up on inventory during locked down at a very high price is why we are being affected by the steep crash in the raw material right now?
That's question one. And secondly, I wanted to know about what happened with the antidumping duty case that we had filed with CESTAT? So yes, to throw light on both of them.
So the first one, I mean, just repeating what I mentioned before, yes. Over the last 2 years, we have continuously had to have higher amounts of raw material inventory just because of the uncertainty around imports.
And I also want to mention even domestic raw material inventory, we also increased some of our inventory days because some of our domestic suppliers are also dependent on imported raw materials. So we wanted to ensure that we didn't want to have a small sense of comfort that because we are buying from a domestic source, everything will be okay.
So as a result of its overall inventory days have gone up, and we continue to maintain those. Maybe in the next 3 months, we may reevaluate 3 to 6 months. But as of now, we continue to maintain those. So while we have that benefit, while prices are going up for 3 or 4 quarters -- 4, 5 quarters, I would say.
Obviously, from this Q3 onwards, that has reversed. So that has been part of the reason why our margins have been lower. Not the full reason, but part of the reason.
And your second question, antidumping duty. Absolutely, we've appealed for antidumping. We've got some favorable sort of judgment in our favor as well, but nothing has come out of it as of yet. I think it's still in the courts, basically, the appeals and all are going on. So we are -- I mean, that's going on the side, but it's something that doesn't affect our day-to-day business right now.
Okay. And sir, just last question. The borrowing side has increased from March '22 to up till now. That was mainly for the 2 CapEx that we've incurred in the 2 plants, right?
That's the only reason, yes, absolutely.
Okay. And so in the last call, you mentioned that it is 50-50, like 50% internal accrual and 50% debt. So that is the case or is it something?
Approximately, yes. You're right. I mean maybe 55%, I have to work out the exact numbers finally. But maybe Sachin, what do you think 55%, 60% then, 50%.
Yes, 50% approximately would be debt and balance will be internal accrual.
We have the next question from the line of Amar Maurya from AlfAccurate Advisors. .
Am I audible? .
Yes.
So I wanted to understand, like as you indicated that this quarter, EBITDA, I mean, EBITDA per kg or realization were down because of the inventory loss. So is it like, let's say, by 2 quarters, we will come to our historical average EBITDA kind of level. And will this -- and what was the freight cost? Like what was the higher freight costs which were [indiscernible] into the realization, if you can indicate that?
Difficult to exactly say how much freight cost. Look, I look at it from a long-term point of view. Today, we are about INR 1,000, crores, INR 1,100 crore company this year with an average EBITDA of about 15%, I think.
I mean, we feel fairly confident that in the long term, to maintain these kinds of EBITDA levels and maybe even improve them as economies of scale kick in, as XNB margins return to normal pre-pandemic levels, et cetera. So if you -- the way we are looking at it is that the CapEx that we make today will take up from INR 1,000 crores to INR 2,000 crores with some additional marginal CapEx over the next 3 years.
And we want to maintain those EBITDA margins. Now there could be some quarters where EBITDA margins are a little lower. Like this quarter, we've had maybe even -- it may go down further in some quarters. I have no idea, maybe there'll be 11% 1 day. I'm not sure. But we have also -- maybe we will do 17%, 18% in some quarters. So that's the nature of this business that we have to live with the fluctuating EBITDA margins due to the raw material volatility and sometimes market dynamics in some of our product categories.
The good thing is we've created a well-diversified business, we're not only focused on 1 or 2 industries or those industries go down suddenly, our margins will go to 5%. Those kinds of things are -- which used to happen in the earlier days, I don't think will happen going forward. And I think economies of scale will help as well.
So that's why, we're looking at the business. But quarter-on-quarter, very difficult to predict.
Got that -- and secondly, the [catheterization] will happen in Q4, right, for both the asset, the INR 200 crore CapEx?
Yes, that's right. That's right. .
And for INR 200 crores CapEx, you indicated we took some 50% debt, correct?
Yes. Approximately, I think 60% debt. But totally, I mean, INR 200 crore CapEx was for these 2 projects, plus we had other maintenance and other projects going on. So for the year, we need to -- I wouldn't want to say for the year, but for FY '23 as well as part of FY '22, total INR 220 crores, INR 230 crores was our total CapEx and about INR 125 crores, will come through long-term debt.
We have the next question from the line of Rohit Balakrishnan from ithoughtpms.
A lot of the questions were answered already. So just a couple of questions. So one was, could you -- you talked about being very diversified in terms of your industry mix. So can you broadly give the share of like your top 5 industries in terms of your revenue mix? I couldn't find it in the -- I mean, you mentioned the industry. But if you could just give a broad sense. And if you could also give like what it was, let's say, 5 years back from now.
Sure.
Very broad numbers. Yes, I don't need the exact number.
So that's a good point. I mentioned about 6, 7 years, 7 years ago, before we made the acquisition of Omnova Solutions India. Before that, I would say maybe 30% to 40% of our sale was to the footwear industry, 25%, 30% was to paper, and 10%, 15% to tyre; 10%, 15% to construction and so on.
In the current context, and I'm talking about FY '23, I would say about 15% to 20% would be paper and paperboard. Construction would be another close to 15%. Carpet would be 10%. Carpet textiles put together would be 10%, 12%. Tyres will be another 10%. And Nitrile Latex is another less than 10%, 7%, 8%. And the rest is all rubber products, which include footwear, automotive, hoses, right sole. All different kinds of applications from agriculture to auto to all different kinds of industrial hoses, pretty different applications.
So the final industry consumers are very, very varied now. And no one industry is more than 20%. And once gloves market also starts kicking in, obviously, glove will become a larger chunk, maybe 20% of our overall sales, but the others will grow as well.
Right. Very helpful, sir. And just in terms of -- you mentioned the next, I mean, this CapEx would help you to reach to about INR 2,000 crores with some more smaller investments. So I mean this is like over the next 4, 5 years or earlier than that, how do you see that?
Yes. I mean our endeavor is next 4 years, that would be 3 to 4 years that we should be able to get to INR 2,000 crores with this CapEx. And of course, any additional CapEx projects that we may take, for example, as I have been telling additional NBR capacity is something that's in the works that we are looking at. Plus some new projects, potential inorganic growth opportunities as well. So that's all addition to this. I'm just talking about the investments already made.
Right. And the peak debt you're saying is about INR 200 crores -- INR 170 crores, right? including some working capital as you see.
Depends on the working capital requirements and when prices go up. Because we find it when suddenly prices shoot up, obviously, our working capital requirement goes up. And when they come down, it comes down again.
But yes, I mean, I don't think it will cross INR 200 crores, maybe INR 180 crores or so.
Right. And last question, sir. I mean you talked about this diversification of product and industry. So just from a, like a slightly different question, but in the same light is that so typically, when the prices fluctuate, let's say, if they go down versus you also mentioned in the earlier call that like, for example, import prices now become competitive. So how frequently do the -- do your customers switch from, let's say, you versus somebody else? And how fungible is that? If you can give some example, I'm sorry if you've already answered in some of your previous con call. But...
It's actually not. As long as the by and large price competitive, customers do not switch. So obviously, for example, market falls by 20%, and we don't decrease the price at all, customers would be unhappy and they are looking for alternate options.
And generally, they have 2 options.
But given that we are -- 1 of the things that Apcotex has done over the last 10 years it's become a source -- a strategic source of supply for most of our customers in most of our industries. We have major tyre cord manufacturers, major -- all the major paper and paperboard manufacturers, all the major construction chemical companies, they not -- I mean I don't think any of them have had even 1 month where they've not bought anything from us. So as long as where price competitive, and we are sure that we would be -- we have a high amount of stickiness with our customers.
We have the next question from the line of Karan Bhatelia from Asian Market Securities.
Am I audible?
Yes.
Sir, on the exports, what was the contribution and the growth we've seen?
For which period, but I have those numbers somewhere. So overall, we've been at about 20% of our total sale is exports. And in terms of growth, I mean I have numbers for the -- first 9 months, you have seen about a 11% growth in exports this year compared to last year.
Right. I think that was helpful. And sir, you mentioned that nothing probably could change materially in terms of realizations and in terms of margin for the fourth quarter. So will we be running at peak in volumes for the fourth quarter as well .
Yes, that we continue to do so. We're running at full capacity even now.
And the CapEx outflow for FY '23 could be?
Around INR 200 crores.
We have the next question from the line of [Anubhav Dahun] from NC Research.
So most of my questions have been answered. Just 1 on the peak revenue guidance. Now given that the market conditions have changed and now that both the plants would essentially be targeting different set of products, so would it be possible for you to give a breakup between 2 plants in terms of the investment and expected revenue? I mean this free breakup of INR 200 crores investment and INR 600 crores to INR 700 crores expected peak revenue?
Yes. So out of the total CapEx of about INR 200-odd crores -- INR 200 crores, I would say 70% is in Valia and 30% is in Taloja. Between 70% and 75% in Valia and 30% in Taloja. And in terms of revenue, maybe that will be a higher percentage for Taloja. So maybe 40% Taloja and 60% Valia. 35%, 40%. Taloja 60%. Yes. Going forward, yes, from the new plants.
Okay. So the change in strategy, I mean, I understand that the plant was already supposed to be swing on. But the changed strategy is decided by both the regions, like the changing dynamics for the latex glove as well as the strengthening in demand from the other latex products, right?
Yes, that's correct.
Okay. And sir, in that context, could you also talk a little bit about the demand outlook for the non-auto end markets like construction paper and carpet?
That's the overall. I think overall demand in India has been fantastic for these products. There's all our customers in India as well as abroad, both. I would say abroad meaning Middle East, Southeast Asia, wherever we're doing exports.
I mean, the demand has been phenomenal. In fact, we have not been able to cater to the demand because of our limited capacity. And our team is quite confident that in the next 2 years, 2 to 3 years, we will be able to utilize even the Taloja plant 35,000 tonnes extra that we have now invested in.
We have the next question from the line of Sandeep from Anand Rathi. Mr. Nikhil, I am sorry, Mr. Nikhil, I have unmuted your line.
Yes. Can you hear me? .
Yes.
Just 1 question on the gloves latex industry. Now as we mentioned that the capacities have not come up to the extent the way we glove manufacturing capacities have come up. But what we understand is that gloves there are a lot of -- it's a very fragmented industry where there are many glove manufacturers. But on the latex side, how is the industry structure? Is it pretty consolidated? And where I'm coming from is that if the industry is concentrated and there are multiple glove manufacturers, which are finding pressure on inventory and on demand. So is the pricing also being impacted on the latex side? Or is it more of the utilization have dropped significantly, which is cause of concern for the industry?
Yes. I think -- yes. So to answer your question first, obviously, the latex industry is much more consolidated than the glove industry. And the glove industry guys from small $2 million, $3 million revenue to billions of dollars of revenue as well, large manufacturers in Malaysia, Thailand, China and so on.
So it's fairly consolidated. Obviously, as the demand has gone down, utilization has come down because also these -- all these current latex manufacturers also added capacity over the last couple of years. And therefore, when utilization is down, there is automatically demand on or pressure on margins, and that's what's happening on both the gloves and the latex.
Okay. So in a way, if we look at the price fall, if you comment -- would be more commensurate with the RM fall, but not like a steep fall other than what the RM fall has happened. So it's not like some people are trying to get to market share at whatever price and the industry dynamic -- imputing the industry dynamics.
No, no, that has also changed, right? Because even though there are no new players, the existing players, plus us, like we are a relatively new player, we have come into the market that way, there are 1 or 2 others also that are coming into the market or that only they're coming in, but will come in this year. So as a result of which the current Nitrile Latex manufacturers, they are trying to hold on to market share and it has become much more competitive. It's not just raw material.
Okay. And just 1 last question. If you have any idea of what would be the utilization at which the industry would be working? The latex industry would be working currently versus what it was pre-COVID? Any rough estimate just to get a sense.
I don't have that with me ready right now. I'm not sure. But it's changing every month-on-month. Things are improving now slowly. But difficult to give an exact number.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.
I'd like to thank all of you for joining this Q3 con call. Just to summarize that while we are in a challenging phase and given the overall current macroeconomic environment, plus some specific local industry issues like the glove industry, et cetera, we are quite bullish and confident of where the company is positioned currently. We're quite comfortable at much lower CapEx than most people could do in the world. We've been able to generate this addition or we will be able to generate a revenue of INR 600 crores to INR 700 crores, which can go up to INR 1,000 crores with the minimum for the minimal investment, which we will come back to you, of course, in a year or 2 as and when we are ready to do that.
And while margins quarter-on-quarter can vary in this kind of business. We are hopeful that we'll stay in the mid-teens. And yes, continue to grow the business in a healthy manner, keeping in mind diverse product range, diverse customer range, diverse geographical reach and, of course, a healthy balance sheet. So I look forward to seeing you all in the next quarter. Thank you very much.
On behalf of Apcotex Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you. .