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Apcotex Industries Ltd
Earnings Call Analysis
Q3-2024 Analysis
Apcotex Industries Ltd
Apcotex Industries Limited faced a challenging market landscape in the third quarter of the financial year 2024 but displayed resilience by achieving an operating income of INR 257 crores, marking a 10% growth year-on-year, largely attributable to a substantial increase in export volumes. Notably, the export volume surged by a remarkable 98% compared to the previous year, led by nitrile latex, carpet, and construction sectors.
Despite the revenue uptick, EBITDA fell by 17% year-on-year to approximately INR 25 crores, with margins standing at 9.88%. This was due to reduced margins in NBR, XNB, and paper products. Subsequently, the net profit after tax significantly contracted by 46% year-on-year to INR 11 crores. This reduction was further compounded by increased depreciation and interest costs from new expansion projects, leading to PAT margins of 4.32%.
Looking at the nine-month performance, Apcotex Industries displayed a volume growth of 26% year-on-year, while export volume increased by 107%. However, the revenue was nearly flat, marking a marginal 1% decline. Operating EBITDA for the 9-month period dropped approximately 34% year-on-year to INR 83 crores, with margins at 10.16%, and PAT reduced by 54% to INR 39 crores with a margin of 4.74%. The stagnation in revenue growth over the nine months is attributed to a shift in product mix and a decline in raw material prices, which led to lower realizations from finished goods.
Nitrile latex capacity utilization slightly improved from 25% in the first half of the year to 30% in Q3, with expectations to reach 35-40% in Q4. Despite a price decline from October and flat margins, a recent turn in the glove industry—in part due to some capacity shutdowns—suggests a potentially better future supply-demand balance. After a period of 1.5 years, both prices and margins are showing early signs of an uptick, signaling that the market may be starting to recover.
The volume decline in products like NBR is tied to a global and domestic supply-demand mismatch, exacerbated by significant imports, particularly in the Indian market. The challenge was compounded by global expansions in glove and latex capacities, notably from China during the COVID years. However, from January onwards, the company is witnessing an uptick, which may signify improvement in the upcoming quarter.
There is a disparity between Apcotex's experiences and those of its peers in the paper sector; despite industry players not indicating weakness, Apcotex has identified the paper segment as a laggard contributing to EBITDA decline, specifically from a margin perspective.
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Ladies and gentlemen, good day, and welcome to Apcotex Industries Limited December 2023 Results Discussion Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Purvangi Jain from Valorem. Thank you, and over to you, ma'am.
Good afternoon, everyone, and a warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent 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 of the financial year 2024.
Before we begin, a quick cautionary statement. Some of the statements made in today's con call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions.
The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. I would 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, Managing Director; and Mr. Sachin Karwa, Chief Financial Officer. Without any further delay, I request Mr. Sachin Karwa to start with his opening remarks. Thank you, and over to you, sir.
Thank you, Purvangi. Good afternoon, everybody. It is a pleasure to welcome you all to the earnings conference call for the third quarter and 9 months of financial year 2024. 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.
Let me provide you with a brief overview of the financial performance for the third quarter ended 31st December 2023. The operating income for the third quarter was INR 257 crores, which grew by around 10% year-on-year due to increased volume year-on-year. This was in spite of challenging market conditions. This quarter, we had highest quarterly export volume growth of 98% year-on-year, led by nitrile latex, carpet and construction.
The EBITDA was reported at around INR 25 crores, which declined by 17% year-on-year, driven by lower margins in NBR, XNB and paper. The EBITDA margins for the quarter stood at 9.88%. The net profit after tax was INR 11 crores, which decreased by 46% year-on-year due to increased depreciation and interest costs from new expansion projects, and PAT margins were reported at 4.32%.
Now coming to the financial performance for the 9 months ended for the financial year 2024. Revenue stood at INR 814 crores, representing a marginal 1% decline on year-on-year. The operating EBITDA was INR 83 crores, which declined around 34% year-on-year, while margins stood at 10.16%. The PAT was reported at INR 39 crores, which declined by 54% on year-on-year, representing PAT margin of 4.74%. For 9 months, volume growth was 26% year-on-year, export volume grew by 107% year-on-year. The revenue growth was flat year-on-year due to change in product mix, decline in raw material prices, leading to lower realizations of finished goods.
With this, I open the floor for question-and-answer session. Thank you.
[Operator Instructions] The first question is from the line of Mr. Aditya Khetan from SMIFS Institutional Equities.
Sir, my first question was on to the nitrile latex side. Sir, what was the utilization for this business in H1 as compared to this quarter, Q3? And secondly, sir, I was also looking at the prices of nitrile latex. They have again started to decline from October. So what is the current status? And how is the demand outlook globally?
Thank you, Aditya, for the question. So look, I think nitrile latex has been challenging, there's no question about it. Our first half, we were at about 25% capacity utilization. In Q3, it has gone up slightly to about 30%. It's definitely under what we would have liked. Q4, we expect it to be about maybe 35% to 40%, I'm not sure exactly, but January looks good. Yes, I mean, prices have declined, but so has raw material cost.
Overall, there's not been much improvement in margin given the current situation in the glove industry. But very recently, we are seeing a turn in the glove industry, I would say, in the last 1, 1.5 months, where finally some of the old -- sort of some capacities have been shut down. So there's a better supply-demand balance in the glove industry. That is still to translate in the latex industry, where there is still a supply-demand mismatch. China has sort of gone ahead and expanded during the COVID years for both gloves and latex capacity. But I think we are seeing -- after a long time, maybe after 1.5 years, we are seeing a little bit of an uptick in prices as well as margins, as well as a little bit of pull from customers. So I would say that's where we are today.
Okay. Sir, any specific reason why the prices have started declining from October, and now you're witnessing that is going up because of how better demand/supply is?
Two reasons. The prices started declining because the raw material costs were also declining. So we had to, I think, globally, all suppliers had to pass along that cost decrease. Now it's increasing, I would say, in the last maybe 5, 6 weeks, because of, again, raw material prices strengthening, and I think supply/demand at least. It's too early to say, but at least in the last month, it seems a little bit more balanced. So both reasons why prices are going up now.
Okay. Okay. Any specific reason for...
We have to wait. I mean, there's not enough time, at least 3 to 6 months, we have to see what happens.
Okay. Got it. Sir, also on to the NBR side, any specific reason there was a volume decline in NBR and HSR in this quarter?
HSR is anyway very small part of our business. So I mean, while there was a volume decline slightly, I think for the whole year, sometimes that does happen. So HSR, I'm not worried at all. NBR, yes, there were, I mean, significant imports that came in. And so there was, again, the same supply-demand issue. So there was a supply-demand mismatch in India, especially, but even in China and globally, as a result of which volume for us came down in the last quarter. Again, we are seeing a pretty smart uptick starting from January.
So that quarter-on-quarter does happen. In fact, compared to Q2, the reason why our Q3 EBITDA is down is mainly because of NBR, NBR volumes and margins. So that quarter-on-quarter sometimes does happen. And I think, hopefully, this quarter should be a little better for NBR.
Okay. And sir, these imports you mentioned of NBR. So particularly from which geography we are witnessing huge imports in India?
Look, the regular ones. I would say most of the imports come from Korea. So that continues. Again, the data is available For everyone. So I'm sure you can look it up.
Got it. Sir, for the last 2 to 3 quarters, we are mentioning in our investor presentation that paper sector is weak. But sir, when we look at the paper sector companies' commentary, they are not indicating that weakness, but you are mentioning that the paper segment is a laggard. And this quarter also, you had mentioned that reason as one of the EBITDA decline.
From a margin perspective, not from a volume perspective. So overall, as Sachin mentioned, for the first 9 months, we have seen 26% growth in volume. So as a company, our strategy has been to push volumes across all segments, including paper. So from a volume perspective, there is no problem. But again, because we have expanded capacity, our competitor has expanded capacity all in the last 1 year or 9, 10 months, this has resulted in some kind of excess supply. As a result of it, margins are under pressure in the paper industry, not so much the volumes. So overall, as you said, paper industry is doing very well because raw material suppliers like us are being squeezed on margins. But in terms of volumes and their results, I think they're doing well.
Okay. Sir, just one last question. Sir, earlier we used to share some guidance on to the top line and EBITDA. So what is our projection like for the next 2 years in terms of the revenue growth, EBITDA growth? And what could be the sustainable EBITDA per kilo for the next 2 years?
Actually, Aditya, we never give specific guidance for quarterly or yearly, or on EBITDA either. We broadly talk about where we see the company going. And there are certain things that have gone really well for the company since our expansion. For example, our expansion in Taloja has gone exceedingly well. And for the new plant there, we are at 40% capacity utilization within the first 9 months, which was better than what we expected, frankly. And over the next 1 year, we hope to be closer to 70%, 80% capacity utilization. Nitrile latex, honestly, capacity utilization is not that big a challenge. We can increase it overnight, but the margins are so low, it's really -- we don't want to sell at negative contribution levels.
So our strategy has been, let's increase sales and breadth of customers wherever we are getting at least positive contribution, but EBITDA, and at least EBITDA breakeven, we don't want to go negative EBITDA as far as possible. So that's pulling it down. So overall, the growth strategy continues. The nitrile latex has been a little bit of a downer, I guess, for us. But the rest of the business is on track. And NBR margins go up and down as we have mentioned many times in previous con calls. So that continues to happen.
Just a follow-up on this. Sir, what is the breakeven prices of nitrile latex or the utilization wherein we should start to see a positive contribution margin from this business?
I'm sorry, I didn't understand the question. Are you asking me when?
Sir, what would be the price range or, you can say, a price figure for nitrile latex, or a utilization figure from which exceeding that, so we should start to see a positive contribution margin?
I would say, look, it's very hard. It's not about a price, it's also linked to raw materials, right? So it's about contribution margins. So we do need a certain contribution margin and a certain volume of capacity utilization. These are numbers we don't share outside. They are specific numbers that we would like to keep to ourself for now.
So 40% today, so we are making money on that business or not?
Nitrile latex is at 30%, and we are not making money.
[Operator Instructions] The next question is from the line of Tej Kumar Pandya from [ BNES ].
First thing, I would like to give you an idea that profit margin reduced from 5.4% in September '23 quarter to 4.3% in December '23 quarter. Second point, considering 9 months of 2022 and 9 months of 2023, the finance cost increased from INR 1,403 lakhs to INR 4,807 lakhs, increase of 242%. Depreciation and amortization cost increased from INR 113 lakhs to INR 1,175 lakhs, an increase of 939%. Other expenses increased from INR 374 lakhs to INR 2,341 lakhs, an increase of 525%. Sir, during this 9 months of '22 versus 9 months of '23, there has been a slight decline of turnover. If the costs increase in this way without increasing in turnover, company may have difficult financial problems. So how do you plan to maintain your profit margins?
Yes. As I was mentioning to the previous caller, certainly, profit margins have been lower this year. EBITDA margins, let's talk about EBITDA first. EBITDA margins have been lower this year in the first 9 months compared to the last 9 months. And the reasons I have just given, one is nitrile latex, the margins that we expected are definitely not there. NBR margins have declined compared to the first 9 months of last year. And we've also had a considerable amount of stock loss this year compared to last year for the first 9 months.
I would say that itself would make a difference of -- maybe 1.5% to 2% is only because of the stock loss this year compared to stock gain of last year. So there are various reasons. However, the silver lining is, look, our growth has been fantastic in terms of volumes. We've grown at 26% for the first 9 months in terms of volumes. Yes, the revenue has not grown flat. That's because of raw material prices. And our focus this year has been to grow volumes and will continue to be for the next couple of quarters. And then hopefully, the margins will also correct itself and come back for most of them, and we can go back to about 14%, 15%, 16% margins that have been our targets.
That is very good, sir. But this 14% to 16% profit margin, when do you expect it? Is it in near future or it will take time?
Difficult to predict, sir. Difficult to predict timing.
I hope you will all make efforts, so that profit margins are not lower, because as a shareholder, that is very important for us, profit margins. Your turnover [Audio Gap] so that our dividend and all that is not decreased. Your dividend has decreased this time also. Earlier, you gave an interim dividend INR 3 per share. Now this time it is INR 2 per share.
No, I think interim dividend was INR 2 a share. We have kept it at INR 2, so that is not decreased.
But the profits are decreased. Okay, so if you don't want to give any timeline, but I hope you are working in that way that the profit margins are maintained at between 10% to 14%, 15% .
Certainly, and we have sort of taken up a lot of cost-cutting measures also and investing some funds to reduce costs further. So hopefully, some of those investments will start accruing again next year -- in the next financial year is what we hope.
So could you throw some light why depreciation in 9 months of '22 was INR 113 lakhs and increased to INR 1,175 lakhs? Have you discarded most of your machineries? Or why has this depreciation gone so high? Reason of some of this...
It has gone high because we have -- if you were following the last few con calls, and you've been following the company, we had investments of over INR 200 crores that were capitalized in March, April of this year, earlier, March, April '23, so because of the capitalization, the depreciation for those projects has now hit the P&L in the year '23-'24.
So -- but suppose you have taken such high depreciation for your capital expenditure. Next year, will it be expected to remain this high or it will be reduced?
The way depreciation works is that once new projects are capitalized, obviously, there's a onetime huge increase in depreciation. And then over time, it keeps reducing.
So that means profit margins may likely to go up?
Slowly, yes. Same with interest.
The next question is from the line of Ankit Kanodia from Smart Sync Services.
Sir, in your presentation, we have mentioned that highest quarterly export growth is led by nitrile latex, carpet, and construction. Is it possible to give any ballpark numbers as to percentage wise how much is due to nitrile latex and how much due to carpet and construction?
I don't have the numbers in front of me percentage-wise, but I would say nitrile and carpet have both grown by 100% is what I recall. Sachin, would you have these numbers handy. Maybe we can give percentage numbers for this export. But it's been quite -- it's pretty much proportional, right, from what I recall. But Sachin, do you have these numbers segment-wise, export?
Segment-wise, we have grown in carpet more than 100%...
Industry-wise, sorry, not segment-wise, industry-wise.
Yes, industry-wise. So carpets, we have grown more than 100%, and nitrile gloves also we have grown by almost 40%. Then in case of [indiscernible], we have grown by almost 100% plus, and construction.
Okay. Yes. So if I got it correctly, nitrile has the least growth among the 3, right?
No, I think for 9 months -- Sachin, I think there is some mistake, it's 100%. We are looking at almost 100% growth for nitrile compared to last year first 9 months.
I'm giving quarterly growth right now, not for 9 months. In 9 months, we have grown more than 100%.
Yes, that's correct.
Okay. Got it. So as we mentioned in our earlier -- I mean, to the answer to some of our earlier participants where we said that we are not making any money on nitrile latex at the moment. And if we continue to grow the volume in such a scenario and we continue like this, so how confident you are that the demand-supply mix will get sorted in the coming quarters and we'll be back to profitability there?
The nitrile market, of course, a lot of capacity has been created through COVID, obviously, excess capacity, which is causing both gloves and nitrile latex margins to be quite suppressed. We believe that it's a growth industry. The industry is still growing at double digits. And some of these capacities are being rationalized. Some of these capacities are now no longer viable, so they've shut down. Some of the old players have shut down some of the old capacities.
Some new players that came in have not been able to be financially viable. So they have shut down or postponing their projects or volumes. So I think in the long run, we still believe it's a great business. There are a few companies in the world that manufacture nitrile latex. These same companies have expanded over the last couple of years, including us. So it will correct itself very -- it's been hard to predict when it will happen. We are seeing early signs now finally, after 1.5 years, as I mentioned to the previous caller, of some uptick in margins and pull from the market, which was not there for the last 1.5 years. So we'll have to wait and watch whether it's just a short-term phenomenon, but hopefully, we'll know in the next 3 to 6 months.
Sure. That was very helpful. So if I get it correctly, is it fair to assume that we are not going to see the kind of margins in nitrile latex, which we saw just after COVID in the year 2021 and '22?
So those were certainly unusually high margins. That's not going to come back, and the project was never -- all our projections were based on pre-COVID margin levels. The problem is even compared to pre-COVID margin levels, we are much, much lower. So we are hoping to go back to pre-COVID margin levels, in which case our returns and IRR will be pretty good.
Right. So currently, the margins which we have right now, it is only because of NBR, right? Because nitrile latex, you are saying that you are not making any margins -- you're not making any profit as of now?
So what's your question?
Whatever profit which we are getting right now, is it majorly contributed by NBR?
No, no. As you know, we have 7 or 8 different ranges of products. One is nitrile latex; the other is NBR; the third is styrene butadiene latex for paper, carpet, construction; styrene acrylic for paper, carpet, construction, and textiles; vinyl pyridine latex for the tire industry; high styrene rubber for the footwear industry. So that way, we're well diversified. So obviously, the profits are coming from the other segments. In fact, NBR has also been challenging this year -- this quarter in terms of margins and volumes.
[Operator Instructions] The next question is from the line of Jatin Chawla from RTL Investments.
So my first question is that on nitrile latex, China, it seems, was a smaller part of the industry or global industry capacity and demand before COVID, and post COVID, China share has gone up significantly because of the large capacity expansions that happened during the COVID phase. So the kind of change, the longer-term dynamics for the industry in your view?
I think so. I think China is here to stay. In the past, Malaysia, Thailand had the majority of the share. They still do. But China has certainly taken over a large chunk of the share, but I think -- I mean, Malaysia still remains the #1 glove producer. And from our point of view, Apcotex is looking at a very small volume compared to the entire global volume of nitrile latex consumption. So it does impact and we have also taken this as an opportunity, and we have actually made our first supply to China in the month of December. So we are looking at China as a market as well, because they are a net importer of nitrile latex as of now. So we can look at opportunities in pockets in China as well, which we frankly had not done earlier.
Got it. Got it. That's useful. The second question is on NBR. Now imports have continued to be challenged on and off in this segment. And as the world kind of moves towards EVs, it seems globally this extra capacity challenge will be there. How do we propose to offset this?
It's a little early to say. In fact, we have seen a very good growth in NBR for the India market overall, I would say. This year, when we look at the total market, it has actually grown within India. And for India, EV is or auto anyway is a smaller component; 25% to 30% of the total NBR consumption in India is auto. There are many other segments. China, of course, the large consumption is for auto, from what I understand. So it's a little early to say, I would say, but yes, that is definitely certainly a threat. And I think before it affects us, it will affect some of the larger players in Europe and East Asia, because we have a smaller capacity in any case. So as a result of which, we are quite confident of hitting our volume sales, especially since India is a strategic market for NBR.
In terms of margins, yes, in the long run, there can be some issues depending on how quickly electrification happens. But I think it will automatically mean some supply adjustment automatically will happen at some point, if that happens, if there's a decline. But as I said, in India, we're seeing a growth.
Yes, even my question was on global, right? Because if globally there is idle capacity, that will result in higher imports in India, people will -- they will want to push it.
That could happen, yes. And that's the reason why we have not yet -- although we have the entire project plan and detailed engineering ready for the expansion of NBR plant, and it's not really a massive expansion, honestly, it's expanding by another 70%, 80%, we are just doing debottlenecking and carrying on for now. And we're able to still do that to some extent even in this year. So we have not taken the decision on NBR for that exact reason.
Understood. Understood. My last question is on exports. We are seeing very solid traction on that front. Are we benefiting at all from the fact that some of the European players are struggling? And once they kind of come back, some of these export volumes might feel come under pressure?
Sorry to interrupt, sir. May we request that you return to the question queue.
I'll answer the question, though, and then we can move on to the next caller. So I would say, yes, I mean, look, European suppliers, I think the entire cost structure has changed in Europe. I don't think it is just the war, although people have been blaming the war for a while now, it's been 2 years. And in Europe, manufacturing from every angle, whether it's CapEx, raw material costs, energy costs, labor costs has significantly changed. So unless there is something that a European manufacturer brings to the table, which is highly premium over others, in our industry at least, I feel going forward, we'd see more and more European manufacturers in chemicals becoming unviable. That's my view. I don't think it has anything to do temporarily with the war or anything of that sort.
But certainly, that we have benefited for 2 reasons. One is external environment. Certainly, the energy prices have been higher because of the war. But even if that corrects, I think we have taken strides in terms of our products, in terms of the specific product that we have developed for the carpet industry. For example, nitrile latex doesn't change in that Southeast Asia, where we're not competing against European suppliers. Even carpet, we are somewhat competing with the European supplies, but there is 1 other Asian supplier that we have competed with effectively as well.
And in construction, we have very specific niche products that we have developed for the export industry or for the export market. So I think there's some things we have done internally, which is very sticky. And certainly, we have taken advantage of the external situation over the last couple of years.
[Operator Instructions] Our next question is from the line of Romil Jain from Electrum PMS.
Perhaps we can come back. Move on to the next caller.
The next question is from the line of Mr. Aditya Khetan from SMIFS Institutional Equities.
Thank you for the follow-up. Sir, on to the export side. So since the start of the nitrile latex business, we have started to see that our exports have gone up. Any rough figure, sir -- is it possible to share a ballpark figure of exports and domestic volumes?
We talked -- yes, I mean, I'll give you the percentages. We are at about, Sachin, for the -- I mean, Sachin, you can correct me, but for the quarter, about 33% of our sales are from exports, right? And for the first 9 months, about 30%?
Yes, 30%.
Yes. And volumes would be similar, I think, right, Sachin?
Yes. So these numbers that we gave, these are the volume numbers.
Oh, these are volume, okay? And value? Similar, right, no? And around 30%, 33% is broadly the export figure.
Got it. Got it. Sir, on to the raw material side, so when we were looking at the price trend, so butadiene prices on quarter-on-quarter basis have seen a jump, whereas the styrene prices have declined. Is there any specific reason why these 2 [Audio Gap] are behaving like this, butadiene is going up and styrene is going down?
First of all, I don't think butadiene has gone up between sort of September and December. I think it's gone down a little, if I'm not mistaken. But I mean, the bigger picture is, yes, I mean, no one knows, right? Suddenly, we are expecting it to go down, and it did go down for a while, and suddenly now in January, we are seeing a huge uptick in butadiene prices. Look, every petrochemical, every monomer has its own supply-demand dynamics, and it's very hard to predict. Like currently, we're seeing styrene is also going up substantially because of a couple of reasons, maybe one large supplier is down or not supplying as much as they should, and suddenly, there's a shortage in the market for a few weeks, so it suddenly goes up.
So it's very, very hard to predict. So we have chosen not to look at long-term predictions for these monomers. We look at short term and we try and manage our short-term inventories and short-term requirements, and accordingly manage our buying.
The next question is from the line of Jagdeep (sic) [ Jasdeep ] Walia from Clockvine.
Sir, some of my queries have been answered. So my first question is that what percentage of consumption in China in nitrile latex happened through imports?
I don't have the exact data, honestly. But I do know that a large percentage of manufacturing that happens in Japan and Korea is largely exported into Malaysia, and now, I believe, into China, but I do not have the exact data.
Got it, sir. Got it. And sir, are the realizations for nitrile latex in China lower than elsewhere, let's say, in Malaysia?
I think the freight component is higher. The pricing is about the same. If we look at the FOB pricing. But we have to provide them with sort of CIF pricing. So yes, we have to adjust the FOB pricing for the higher freight component, but it's not significantly higher. So I would say it's maybe marginally lower as of now. And as I said, this is the first time we've done business in China in the month of December.
We'll have to see how it plays out over the next few months and really also gain experience of doing business in China, because that's something that we never envisaged that we would do, and we didn't make efforts over the last couple of years since we've been building the business, because we thought there's enough. And there is. We frankly think there is enough volume between India, Sri Lanka, Southeast Asia. But we still do want to keep that option open and diversify ourselves with China as possible. I think, over time, we'll see similar margins between China and Southeast Asia, maybe marginally lower. But as I said, a little early to tell, and we still have to learn.
Sir, last question from my side, sir. Sir, as you mentioned in the call earlier that you have seen better-than-expected utilization in your new capacity at Taloja for SB latex related products, I guess? So now it seems like you'll soon reach optimum capacity utilization maybe in the next 1 year or so. So any thoughts on expanding capacity in that segment?
Yes. Yes, absolutely. We've already started thinking about it. We actually initially thought we'd be okay for 3 years, but the way it's going, maybe by the end of financial year '25, we will hit max capacity there. So maybe a year before we thought we would. Of course, we still have to see how it plays out, but that's our current initial estimate. So we'll see how it plays out. But yes, one option is, look, if the nitrile latex business doesn't improve and we want to kind of convert some of that capacity by investing some more money in Valia, we have the EC in place and we have all the permissions in place. All we need to do is invest a little bit and convert some of our capacity there into SB latex.
A little early to say. We do not want to do that because we're committed to the nitrile latex business and perhaps growing it as well. So we don't want to knee-jerk reaction. But yes, I mean, that's certainly an option to do more capacities in Valia. We also have the option of debottlenecking a little bit and trying to increase capacity to some extent in Taloja, which we are working on as well. And I think over the next 6 to 9 months, we'll have some clarity on those projects.
The next question is from the line of Farokh Pandole from Avestha Fund Management LLP.
I just firstly wanted to ask if you could tell us a little bit about ApcoBuild and how that's doing and are the growth rates sustaining? I would think in this environment with real estate sort of picking up over the last 12, 18 months, definitely, that should be a sort of good growth area for you.
Yes, absolutely. And as I said, it's a much smaller -- as we've always talked about it, it's a much smaller part of our business in terms of revenue. But we have seen double-digit growth for the last 3, 4, 5 years now. And even for the first 9 months of this year, overall, I think growth has been about 18% to 20%, if I'm not mistaken. So yes, we continue to expand geographies and increase product range as well. We've also expanded the team, adding a few more people. So that is growing as per plan, yes.
Excellent. Just a couple of clarifications. I wanted to ask about whether the antidumping duty is something that we are still pursuing? And also, secondly, unrelated to that, in the statement of results, Item #6, what exactly is the item that will not be reclassified to profit and loss? If you could just explain what that line is?
Sorry, can you -- so I didn't understand your last question, but I'll just answer your first question on antidumping. So there are 2 things happening with antidumping. One is, us and a lot of other companies who are in the same boat have filed appeals of course, or filed cases and it's going to the high court system right now, Delhi High Court. Nonetheless, we have also been advised to file new antidumping petitions. We haven't taken a decision on whether to do it just yet given what happened last time.
We're not clear on -- the Finance Ministry had rejected it last time. We don't know if they'll reject it again. So right now, there are some rumors that the Finance Ministry is accepting majority of the cases. Suddenly there's been a rethinking. If that does happen, then we have to restart the process and redo it again all the way from scratch, but then it will take another 6 to 9 months. So that's where we're on antidumping. We're not relying on it, but it's something that we're watching and keeping a watch on it. And sorry, what is Item #6 again?
So in the profit and loss, there's an item that will not be reclassified to the statement of profit and loss. For this particular quarter, it was INR 7.5 crores. So I just wanted to know what that pertains to?
So I'll answer to it, Abhiraj, this one.
Yes, go ahead, Sachin.
So this is nothing but an end-to-end profit that we make on investments that we have in the books. So basically, these are long-term investments and they don't get classified as profits basically through the P&L account. That's number one. And the second is also, basically, these are gradually for long-term liabilities that have got a period exposure to it. They get reclassified below OCI. So they don't get classified in the P&L.
Sure. Also, what is our net debt at this point?
Farokh sir, I'm sorry to interrupt. May we request that you return to the question queue.
That's your last question? Let's answer it. Sorry, what's your question, Farokh?
What is our current net debt?
Net debt, you mean long term minus cash?
You want to know minus investment?
Yes.
So that would be INR 70 crores.
INR 70 crores, but this includes working capital lines as well, right?
Working capital and term loan, yes, both.
So just to reclarify, Farokh, we have about INR 125 crores of long-term debt, which we have taken for the projects. Against that, I think we have currently sort of investments in the books for about INR 110 crores. And then the rest of it, maybe about, Sachin, what, about INR 40 crores, INR 50 crores is working capital line, right?
Yes. Around INR 50 crores.
Next question is from the line of Naysar Parikh from Native Capital.
The first 1 was, could you help with the mix of revenue between NBR, nitrile latex, HSR, et cetera?
Great question here. I'm glad you asked because that's 1 thing that significantly changed compared to last year. Earlier, our rubber business or solid polymer business was about 45%, and latex or liquid polymer was 55%. That's significantly changed this year, because all the growth has happened on the liquid side, on the latex side. So now we're at about 65%, 35% so 65% latex, 35% rubber overall in terms of percentage sales.
In terms of breakup segment-wise, I would say, and Sachin, these are broad numbers, so don't hopefully speak to it, but I think 25% is NBR and allied products, 10% is HSR. The remaining 65%, I would say, is fairly evenly split between all the other industries. So paper would be the largest -- actually, it's not, now paper and carpet are both quite -- paper and construction are both equally large, about 15% to 20%; carpet and textile put together is another 15% to 20%, and nitrile latex would be another 15% or so. Maybe some specialties 5%. So I hope that answers your question broadly. But I mean, very well diversified and split now, I would say. No one industry or area is more than 25%.
Got it. Is it possible to put this in the presentation every time? It just helps to track.
Sure. That's a good idea. Sachin, can we do this? Value-wise would be better, or volume. We'll decide that. I think that...
Yes, we'll see that.
And the second question was on nitrile latex, right? You did give some color. But just from a supply-demand perspective, what do you think is the proportion of oversupply today? And how much do you think is the time it will take to actually get there? And is our cost of production very different from some of the larger players who are going to supply and who are dominating the market?
I don't have the exact numbers with me right now in terms of supply/demand sort of capacity utilization. Typically, we see that once any industry is at -- and at least in B2B chemicals I can speak for, goes to about 80% to 85% capacity utilization, anyway, beyond 75% to 80% also, sort of margins become fair and viable. Clearly, we are not at that with nitrile latex. It's probably under 70%, but certainly better than where we were 6 months ago. So I would say we're getting there, but we're not at 75%, 80%. So best guess would be under 70%, somewhere between 65%, 70%.
But I don't have the exact numbers, because it's also dynamic, right? A lot of things change literally on a monthly basis. Like we just heard just a few weeks ago, one of the other suppliers of nitrile latex has shut down one line. I don't know when that's going to come about or when it happened or whether it will happen in a month or 2. So there are all kinds of announcements made every month in such a dynamic market right now. So difficult to predict, or difficult to know the exact data, but this is my best guess. What was your second question, again?
On our unit cost of production.
Yes, look, our unit cost of production at this stage is obviously higher because we had very low capacity utilization. But as we go higher into capacity utilization, 50,000 to 80,000 tonnes, obviously, we've done a cost curve working against our competitors. Some of our competitors are significantly larger and will continue to be significantly larger and have certain benefits that economies of scale do bring. But at the same time, in this kind of business, there is not a major advantage to economies of scale. We have also done a few things differently because in terms of our cost of CapEx certainly per tonne would be the lowest compared to our competitors.
But in terms of raw materials, we're quite competitive, I would say. So I don't think that has a major impact. Mostly, I would say, yes, to some extent, some economies of scale on energy costs and all, they may be better off. We are fairly competitive is what I would say.
Got it. And just last on NBR, what percentage goes to auto for us?
Say, I think in the market, 25% to 30%, auto 25% probably.
The next question is from the line of Khush Nahar from Electrum PMC.
So what I wanted was just the utilization level and the volume growth separately for the latex division and the rubber division?
Utilization. So first of all, we don't give volume. Volume growth, if you're asking for, most of the growth this year has come from our latex business, which is carpet, VP latex, nitrile, and construction, which is what Sachin mentioned earlier as well. So the volume growth this year, first 9 months, or even for the quarter has all -- whatever growth we've had is on the latex side.
And capacity utilization, as I mentioned, since we have different plants, hard to say. For NBR, we are at 90% capacity utilization, for example, and for the other 2, we are obviously at lower capacity utilization, which I mentioned earlier.
On the margin side, the challenge that we are having right now in terms of realization, this is more prevalent on the NBR side, right, if I'm not wrong?
NBR and nitrile latex.
Yes, yes, and nitrile latex. But how is brand progressing? I mean, do we see any incremental things there? Or it is similar to the quarter?
Yes. As I said, we're seeing a better pull from the market, but it's a little bit recent. So we'll have to see. So Jan is better than what we expected. Let me put it that way.
So on the NBR side, are we pricing -- I mean, can we say that this is the worst that we are seeing in the last few years? Or how do you see that?
So, I mean, we certainly have had bad quarters in NBR. Calendar year or FY '20-'21, '21-'22 were very good for NBR, even going into '22-'23 to some extent. But we have certainly had 4 quarters for NBR mostly around margins. We have kept our volumes growing, but mostly around margins, we've had poorer quarters in these as well in the past.
The next question is from the line of Nikhil from SIMPL.
Abhiraj, on the 3 capacities, you mentioned, NBR is at 90%. And on nitrile and latex the utilizations are lower. One thing I wanted to understand, if we look at the capacity level, are those capacities breaking even or some of these capacities are not breaking even? So would volume utilization, if the pricing does not improve, be a major play for us for our margins to improve from what we are reporting as of now?
I'm not sure if I understood your question.
So what I'm trying to say is that is the fixed cost for running these plants completely like covered at the current utilization levels? Or is it like the pricing has to improve for that cost to be covered?
For nitrile latex, yes, pricing needs to be improved for the cost to be covered. For the other 2, of course, we are doing much better than breakeven at an EBITDA level or even at a profitability level.
Okay. Secondly, you mentioned that there are some green shoots you are looking at in Jan. Is it more on volume? Because see, in the chemical industry and for us also across all, you mentioned that the thing which we are seeing of falling prices and lower volume offtake from the end customers. Now when you are saying there is improvement, is it more on the volume offtake from customers? Or is it also followed up with pricing?
So look, I mean, again, every company in the chemical industry can't be painted with the same brush, so to speak. We feel, for Apcotex, for the first 9 months, we've had volume growth of 26%, as we've mentioned already. January specifically, the offtake I was talking about was for nitrile latex and NBR. The rest of the business, which is styrene butadiene latex, styrene acrylic latex, VP latex, and HSR is quite steady.
There have been some -- the only issue in that has been the margins in the paper industry, which is about 15% to 20% of our sales, overall sales, and margins have certainly been suppressed. But where really -- why the company's EBITDA margins have fallen to 10% is mainly because of NBR margins being low, volumes are fine, and nitrile latex both volumes and margins being lower than what we expected. So nitrile latex is really what is pulling us down. And for sure, there we need pricing to improve.
And last question. See, we've done very well on the export side, and the volume recovery has been very strong in a market where things are not playing out. So is it like our focus was to cover the cost of operations and gain more and more volume shares in the market? So if we had to intuitively think, would our volume shares at the industry level increase significantly versus other players?
Yes. So you think about it 2 ways. One is as far as domestic industry is concerned, we have grown with the industry. We already had high market share in most of the products that we are -- in all the product ranges that we are in. So on the domestic side, we did not push too much in terms of market share. Where we have gained market share is all within the export industry -- export market in different industries, whether it's in the glove industry or carpet or construction. That's where we have gone and been aggressive.
Our strategy this year has been to push volumes, gain market share, increase the breadth of geographies and customers. And at some point, nitrile latex will turn. If it doesn't turn, we're making a plan B as we speak. NBR we know quarter-on-quarter goes through ups and downs. That's just the nature of the business and the commodity. And styrene butadiene latex has been largely stable -- styrene butadiene latex and VP latex and the other businesses have been largely stable. So that's where we are at in terms of strategy and execution.
The next question is from the line of Shubham Upadhyay from The Microcap Minute.
I'm Shubham Upadhyay from The Microcap Minute. So most of my questions have been answered. So one of my quick question is that the export volume for the first 9 months in FY '24 has shown 107% growth year-on-year. So can you throw some light on the geographies from which the maximum growth has come for the company? And whether these growth numbers are sustainable in the next 9 months of the calendar year?
Yes. Thank you. Well, always hard to sustain something like 100% growth for the next 9 months. I think because the new capacities came on stream in April, we will still see that growth for Q4. Whether Q1 will continue to have 100% growth after we've already grown in Q1 of this year, I'm not sure in terms of percentage. We'll continue to grow, of course, but I doubt with 100%. In terms of geographies, again, well-diversified between Southeast Asia, as I said, even with some business in China for nitrile latex. So a large chunk of the nitrile latex has been going to Sri Lanka, Malaysia, Thailand, Indonesia, China, and a lot of our carpets have been going into Saudi, Egypt, UAE. Construction is sort of all over these countries, and some even -- Turkey is another one that we've developed.
Of course, as I said, every industry is dynamic. Now we are finding -- we did a fantastic job in developing Turkey customers, but now because of the Red Sea issue, freight is turning out to be a little bit of a downer there. So we hope we can be competitive there given the current freight through the Red Sea and the availability of freight, honestly, availability of shipping liners. So all these -- it's pretty well diversified. Sachin, correct me if I'm wrong, in terms of numbers.
No, no, no. Absolutely right.
Any other geography I missed?
No, I don't think so we missed anything. We have grown in major of these.
The next question is from the line of Ankit Kanodia from Smart Sync Services.
Just a follow-up question on one of the previous questions which you answered. So as we mentioned that most of our capacity, we have already put it up and no major CapEx coming up in the coming quarters. Is it fair to assume that asset turn, which is slightly down compared to our long-term averages, should go up from here. So about 3x last year and maybe about 3x only we'll close this year as well. Is it fair to assume you'll reach somewhere between 4x and 5x next year?
Yes. I mean, look, I don't know how you're calculating asset turn, but I assume it's on revenue. Our overall raw material prices have come down compared to last year. So if you would say that -- I mean, if you're comparing the base year as '22-'23, and if you compare -- the same raw material prices you would have seen -- if the prices had been the same, and finished goods prices would have been the same, the asset turn would have been higher. Of course, asset turn should go up, right, as we continue to grow our revenues and volumes.
Ladies and gentlemen, that was the last question of the day. I now hand the conference over to Mr. Sachin Karwa for closing comments.
Thank you. Thank you, everyone, for joining the earnings call for Apcotex Industries. We look forward to have a better quarter, and we will keep on doing good. Until then, take care and bye.
On behalf of Apcotex Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.