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GFL Ltd
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Ladies and gentlemen, good day, and welcome to the Gujarat Fluorochemicals Q3 FY '20 Earnings Conference Call, hosted by IDFC Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Miloni Bagadia from IDFC Securities. Thank you, and over to you.
Thank you, Stanford. On behalf of IDFC Securities, I welcome all participants to the conference call. Today, we have with us Mr. Vivek Jain, Managing Director, Gujarat Fluorochemicals; Mr. Deepak Asher, Director and Group Head of Corporate Finance, INOX Group; and Mr. V. K. Soni, Head of Projects and New Initiatives, Gujarat Fluorochemicals. Now I hand over the call to Mr. Deepak Asher to give a brief overview of the performance, and then we can have a Q&A session. Thank you, and over to you, sir.
Thank you, Miloni. On behalf of the Board of GFCL, Gujarat Fluorochemicals Limited, I'd like to extend a very warm welcome to all investors, analysts and other participants on this call. As Miloni suggested, what I'll do is take you through the financial results of the company, and then we can follow thereafter with a Q&A session. In presenting the financial results, what we have done in the presentation is done a Y-on-Y comparison, which is we've compared Q3 FY '20 with Q3 FY '19. And then the 9-month comparison also is Y-on-Y. So first of all, to take you through the key headline numbers, our revenues fell by about 14% from INR 665 crores to about INR 571 crores for the quarter. EBITDA fell from INR 215 crores to INR 129 crores, as a result of which, the EBITDA margin from 32% came down to 23% and PAT fell by 66% from INR 114 crores to INR 39 crores. PAT margin, therefore, shrank from 17% to 7%. These are the key numbers for the quarter. For the 9-month ended December, revenue fell by about 2% from INR 2,019 crores to INR 1,974 crores. EBITDA fell by about 27% from INR 611 crores to INR 443 crores. EBITDA margin, therefore, shrank from 30% to 22.5%, and PAT fell from INR 313 crores to INR 157 crores, which is a drop of 50%. PAT margin fell from 15.5% to 8%. To give you a breakup of the revenue drivers, as you know, there are several product lines and the breakup of each of these would be: caustic soda for the 3 months ended December fell by 37% from INR 121 crores to INR 77 crores. Chloromethanes fell from INR 106 crores to INR 75 crores, that's a drop of 29%. Refrigerants went up from INR 74 crores to INR 84 crores, that's an increase of 14%. PTFE fell from INR 275 crores to INR 192 crores, that's a drop of 30%. And value-added products increased by 16% from INR 67 crores to INR 78 crores. And others went up by 19% from INR 30 crores to INR 36 crores, as a result of which, overall revenues for the quarter fell by 14% from INR 665 crores to INR 571 crores. Corresponding figures for the 9 months are: caustic soda down by 19% from INR 350 crores to INR 282 crores; chloromethanes down by 9% from INR 267 crores to INR 242 crores; refrigerants up by 12% from INR 263 crores to INR 295 crores; PTFE down by 16% from INR 848 crores to INR 713 crores; value-added products up by 29% from INR 237 crores to INR 306 crores; and others up by 17% from INR 83 crores to INR 97 crores. To give you a breakup of the composition of the VAP and the others, there are essentially 3 segments in VAP: new refrigerants, new fluoropolymers and specialty fluorointermediates. The new refrigerants fell from INR 23 crores to INR 14 crores, that's a drop of 36%. New fluoropolymers increased by 30% from INR 34 crores to INR 44 crores. And the speciality chemicals or the specialty fluorointermediates increased by 82% from INR 10 crores to INR 19 crores, as a result of which, overall VAP increased from INR 67 crores to INR 78 crores, that's an increase of 16%. For the 9-month period, VAP went up, as I mentioned, from INR 237 crores to INR 306 crores, that is by 29%. The breakup is new refrigerants fell from INR 116 crores to INR 73 crores, that's a drop of 37%. New fluoropolymers increased by 34%, that's INR 101 crores going up to INR 135 crores. And the specialty fluorointermediates went up by 375% from INR 21 crores to INR 97 crores. So that's the breakup of the key VAPs. As far as the shareholding structure is concerned, our market cap based on the price of 31st January was about INR 6,700 crores. The 52-week high-low was INR 405 to INR 900. Key institutional investors remain roughly the same. Promoter holding remains at 68.37%. DIIs owned 5.64%, FIIs owned 4.54% and the public and others is 21.45%. So that in short is a brief snapshot of the performance for the quarter and the 9-month ending December '19. I would now like to open it for any questions that you might have.
[Operator Instructions] The first question is from the line of Hansal Thacker from Lalkar Securities.
Sahib, what is the volume, price and capacity utilization of PTFE? I was wondering if you can give me any insight into the volume, price and capacity utilization for the PTFE.
Yes, just a second. I can pull it out. So there is, in terms of sales, about 3,000 tonnes of PTFE sales in the quarter, and the weighted average price was about INR 6.6 lakh per tonne.
Okay. And sir, your view on PTFE prices going forward? Any idea on that?
Yes, I'll request Mr. Vijay...
Yes, that's right. As far as prices are concerned, we do not expect any significant change going forward at least for the next 2 to 3 quarters. We would expect volumes to go up, and we have seen that happening in this quarter. And I think in the next 3 to 4 quarters, the volumes will be substantially -- will improve, keep on improving quarter-to-quarter and will be substantially higher than what they were during the last calendar year.
Okay. Great. That's good to know. And sir, my second question was in reference to the demerger announced in GFL. So is my understanding correct that, post the entire demerger exercise, we will eventually be left with 2 holding companies, one for the renewable energy business and one for the exhibition business from GFL?
Yes, that is correct. Though, that question doesn't relate to this company, GFCL. But since you've raised it, yes, let me just clarify. What we are planning to do is a mirror-image company of GFL, called, for the sake of brevity, newco. GFL will continue to own INOX Leisure, and newco will own the wind business.
Okay, okay. And just a follow-up question to that, sir. Any idea on the restructuring going forward as in eventually, at some point, will be fed -- merged into the operating business, sir?
That will be the intent long term. But as of now, this game envisages just splitting of these 2 business into 2 separate mirror-image holding companies. And once that is accomplished, we'll talk about the next steps.
[Operator Instructions] The next question is from the line of Ketan Gandhi from Gandhi Securities.
Yes, sir, due to this coronavirus outbreak, any disruption happening in China and -- so that we can have a larger volume of the PTFE and value-added products?
Yes, we are seeing some impact. Though, of course, what kind of -- whether this impact will be sustained will depend upon how long it takes the Chinese to control its outbreak. So we are seeing some increased demand for some of our speciality chemical products, which were hitherto being -- were being imported from China. And so yes, we see some improvement there. As far as the PTFE is concerned, we are still not seeing any significant impact in terms of pricing. But again, there are concerns, which are being expressed by our customers in Europe who feel that if their supplies from China get disrupted, they may have to turn to us for larger volumes. But we are still -- it's still too early to conclude that this will definitely lead to a much-increased demand for PTFE.
And sir, can you throw some light on how can we fast turn to the historical level of EBITDA, say, around INR 175 crore to INR 200 crore range in next 1 or 2 quarters or it might take...
Yes, I think in 2 quarters. By April, May, June quarter, we should be able to reach that.
[Operator Instructions] The next question is from the line of Rahul from Systematix. As there's no response, we take the next question from the line of Ankit Gor from Systematix.
Sir, my question with regards to fluorointermediates, if you can give us some outlook on fluorointermediates space and what sort of benefits and what sort of CapEx we are doing there.
See, as we have stated earlier, we have already done a certain amount of CapEx in Fluorospeciality. And we have also mentioned that, by the end of March, we will have about 4, 5 new molecules which will get commercialized. And thereafter, during the course of 2021, we'll have another 3, 4 -- 4, 5 molecules which will come out. So we are pretty much on track, and we should see revenues from Fluorospeciality going up even in this quarter. And I think in the ensuing quarters, as the capacity utilization of investments, which we have already made, increases, both revenues as well as profitability will improve.
Right. Because in 9 months, we have seen substantial jump there. Do we -- what sort of guidance -- can you give some guidance in terms of FY '21, what could be the number in terms of revenues, intermediates and...
2021?
Yes.
You just have to give me some time, we'll just try and figure that out. But I think there will be a significant improvement in 2021 because many of our products will be run at -- running at full volume, plus also the fact that some of the new molecules, which are going to be introduced, will also start ramping up. So we see a significant momentum and bump up in both revenues and profitability from Fluorospeciality.
And these molecules are more towards agrochemicals, if I'm understanding is...
Pharma also. There's several in pharma, some for agro, a mix.
[Operator Instructions] The next question is from the line of Ketan Gandhi from Gandhi Securities.
Sir, last quarter, we have made investments of around, say, INR 550 crore, I think, 60, 65 megawatt of wind and around INR 200 crore advance for some expansion plan. So how we can see the fruits of that investment?
So I think this is what is going to be -- we had just mentioned that 2 things are going to happen. One is that most of our investment in fluoropolymer -- the new fluoropolymers are now over. What we are now going to see with this in the next 4 to 6 quarters, ramping up of those capacities and where we think there is a substantial improvement both in terms of revenue as well as profitability will arise because these are fairly high-margin fluoropolymers.And the only issue is that it takes time, as we have been mentioning even earlier, for the initial validation and, thereafter, the ramp-up to happen. But the products have been developed, initial validation is over in 7 cases. And I think we'll now see a ramp-up in the next 4, 5 quarters. So we think that the capacity -- to come to a full capacity utilization of these new fluoropolymers, it will probably be during the calendar year '21 that we will be able to get to full capacity utilization there. So that's one. Second is that we made it clear, we've been making -- we are making more investments in fluorospeciality chemicals. And as I just mentioned that we will see improvements taking place from the -- from this quarter onwards, which is January, February, March. And we'll keep on continuously seeing a ramp-up of revenue as well as profitability for the new products which we are increasing. Much of the CapEx is over, but there are a few more molecules, which we have been able to successfully develop in R&D and which appear to be very promising. So in the calendar year 2021, we expect to make some more investment in fluorospeciality products.But it'll just be restricted to that because we don't need to make any more investment in fluoropolymers. We are now working in the market to ramp up our capacity utilization there. And in the fluorospeciality space, of course, we will see a ramp-up of products which have already been invested in, plus some new molecule which we are going to invest in during the course of next year, which we find quite promising. We were not envisaging further investments in 2021 in view of the investments which were already currently in progress, but there are some exciting opportunities we are looking at, which may -- which would require some additional investments.
And sir, what about windmill, when it is going to erect? When we'll see the reduction in the energy cost because of the captive consumption?
Probably the third quarter of this year.
Sorry, sir?
The third quarter of this year.
First quarter of this year?
Third quarter of the calendar year.
Okay. And sir, what about the Dahej II?
Well, Dahej II, we have already started investing some of the new fluoropolymers. We have already -- we are in the midst of -- but that plant is going to be commissioned by March, which is going to add to our capacity of new fluoropolymers. In addition, while we have set up the infrastructure, we have the new fluorospeciality chemical -- additional fluorospeciality chemicals, which I'm talking about, will be coming up in Dahej B.
You said March 2020, right?
March 2020, new fluoropolymer and additional capacity in some new products -- in the new -- in the fluoropolymer field, which we have commissioned by March 2020. And in -- and beyond that, just mentioned that we will have a couple of molecules in the fluorospeciality space, which we are finding quite exciting. And we will start to commence some CapExs from April onwards.
That will be in the Dahej II?
Dahej II, all of that will be in Dahej II. Because Dahej -- the existing Dahej site, we cannot put up anything more because that is completely utilized.
So we have received the environment clearance and all that for that?
Yes. That is already in place. We had already applied for it much longer. We did. Am I right? Vijay Soni will just address that.
Yes. Yes. The environmental clearance is already in hand.
The next question is from the line of Rahul from Systematix.
Deepak, this is Rahul from Systematix. My question is related to GFL. GFL, I just wanted to understand, do we have an investor call for GFL as well?
No, we were not planning that because, frankly, there are no operations in GFL. There is just a consolidation of its 2 investments in leisure and wind. And since both those companies are separately listed, organizing their separate investor calls, we didn't plan one for GFL this time.
Okay. So regarding demerger, do you plan to demerge INOX Leisure as well?
We don't need to plan demerger. We don't need to demerge INOX Leisure, it will remain under GFL, and the wind business will go in the newco, as I just mentioned. I mean, the objective was to separate those 2, so whether you separate by removing A from the holding company or B from the holding company, the same objective is attained.
[Operator Instructions] The next question is from the line of [ Kunal Shah ] from Enam Investments.
My question is regarding our fluorspar sourcing. Do we import any fluorspar from China?
No, we don't import anything from China.
Okay. Great. So there will be no impact of the coronavirus issue on fluorspar supply?
Yes, we don't foresee any impact.
Okay. And if I see your results, quarter-on-quarter, there is a sharp decline in the specialty fluorointermediates revenue. So any specific reason for the same?
Compared to last quarter?
Quarter-on-quarter basis, I'm talking about.
Yes. We'll just get that number to you and then respond. Maybe we can skip to the next one, and I'll come back for this.
Yes. Next question is the interest cost...
There are some products which are cyclical in nature. So the volumes in the last quarter would have been higher, and that is the reason why there could be a dip in revenues during this quarter.
Okay, okay. And also, our interest cost has gone up, if you adjust for even the ForEx gain to a INR 9 crore increase on a Q-o-Q basis, so what will be the corresponding debt increase?
Okay. The debt has not increased during the quarter. The debt level at the beginning of the quarter and the end of the quarter was virtually the same. But you might not have seen the full impact of the interest cost in the last quarter because the debt was taken during the quarter, whereas in this quarter, you'll see the full impact in the quarter. So the debt level is roughly about INR 1,350 crores, if I remember, around -- in that order of magnitude at the beginning as well as the end of the quarter.
This is the gross debt level?
That's the gross debt level.
And net would be?
Yes. So as of December end, the gross debt is INR 1,370 crores. The cash and treasury is about INR 406 crores. And thereabout INR 687 crores of income tax credits, which is MAT credit and refunds due. And therefore, the net of both the cash and the MAT and the refund is about INR 277 crores as of 31st December.
[Operator Instructions] The next question is from the line of Jayesh Gandhi from Birla Sun Life Mutual Fund.
Gentlemen, just wanted some clarification on the margins, how do we see the margins for this quarter and then going forward? Last -- in the last quarter call, you'd explained to us that -- how the spreads had come down because you had raw material inventory at high levels. Since you don't expect PTFE and other chemical prices to rise, how do we see the margins going forward?
This is something which we've discussed in last quarter. And I had mentioned that we are expecting significant reductions arising both because of raw material prices, negotiating lower raw material prices as well as cost-optimizing exercise, which we have initiated across all our units. And I'm happy to tell you that we will see a significant improvement in the margin during this quarter, January, February, March, because most of the reduction in raw material prices and savings will start kicking in during this quarter.
Yes. So do we see ourselves going back to the 30%-plus EBITDA margin range? Or still some time away?
I would see so. I mean if I were to hazard a guess, maybe 2 quarters.
Fair enough. That is April, May, June quarter is what you're saying?
Yes.
Wonderful. And what time frame for getting this IT credit back? I thought we were expecting something this year as well.
So there are 2 parts to that IT credit: one is the MAT credit and the other is cash refund. The cash refund we expect to get by 31st March, but I mean, the income tax department also has its targets of tax collection to be achieved. So that's a bit of a challenge, but we are pushing to try and get it by 31st March. So that's about INR 280 crores of cash refund, and about INR 408 crores is MAT credit, which will actually be utilized over the next maybe 3 to 4 years.
Sure. Understand that. Fair enough. And in terms of broad guidance -- not guidance, but broad understanding about the demand, while the auto and auto-related industry is still relatively weak worldwide and, of course, because of China, issues could get impacted. So what visibility do we have for PTFE, the volumes for the next 12, 18 months in the sense -- or at least the next 2 quarters? Do you see a big ramp-up? Or our utilization will remain more or less at the current levels?
So Jayeshji, we think that there would be a quarter-to-quarter improvement in our PTFE volumes. We are already seeing that in January, February, March quarter as compared to the October, November, December quarter. And we expect that margin improvement -- there will be improvements quarter-to-quarter, more because of the fact that while, yes, there is some shrinkage in the demand because of the general recession and the automobile sector slowdown in Europe and other places.As we had mentioned that we had already introduced some new grades into the market and those grades introduction has been successful, and we will see ramp-up of volumes of those grades. So despite the slowdown in demand from Europe, we would still -- net-net, we will see an improvement in our PTFE volumes in the next few quarters. We expect that by the first quarter '21/'22, we will be running our PTFE facility at full capacity.
First quarter '21/'22, that is next year?
Yes.
Next fiscal?
To run at full capacity. But there will be -- we expect that the volumes will keep on improving quarter-by-quarter as we move into the -- as we move on during the year.
Fair enough. And just remind us, what would be the current utilization?
See our capacity would be at about 1,550 tonnes in a month. We are currently now at about 1,300 tonnes, 1,250 tonnes in this quarter. I mean previous quarter, of course, it was about 1,100 tonnes. We are already at about 1,250 to 1,300 tonnes during this quarter.
1,250 plus.
1,250 plus.
[Operator Instructions] The next question is from the line of Viral Shah from Enam Holdings.
Sir, firstly, my question was on the commodity chemical side. We've seen a fairly sharp drop in revenues there because prices have eroded in caustic and chloromethanes. Could you kind of just give some guidance on that side, what are the prices and what is the outlook like?
See, coming to caustic soda, I'm of the view that nothing significant is going to change in the next 12 months because there is overcapacity, and there is a sluggishness in demand. So -- and that is where we are -- most of our contribution went down during the course of last 2 quarters, so we are not really depending upon improvement in caustic soda for the next 4 quarters.
Okay. And even chloromethane?
Chloromethane, there is -- there was a further dip during the last quarter, but we are seeing improvement taking place now during this quarter.
Okay, okay, okay. My second question was around the PTFE side, would it be possible to share the mix between regular grade and value-added grade and how the prices on each of these have moved?
See, so what has happened in the commodity grades, the prices have gone down because of the automobile slowdown plus because of what -- because that also created surplus capacity in China. So in the commodity PTFE area, yes, we have seen a decline in prices. But our speciality grades, the prices are virtually more or less the same. I think there's a dip of about 3%, 4%.
And commodity prices would have declined by how much? Just...
About 20-odd percent.
Okay, okay. And is it safe to assume that the commodity grades would be going more in auto, whereas the speciality will be for the rest of...
No, not so. What happens in -- a lot of the speciality grades also go in auto, but because there is a lack of supply, there's just 1 or 2 competitors there. So we have not seen much decline in demand there or on the pricing. But yes, the commodity side, yes, there has been a decline because prices from China have gone down. And to some extent, we have decided deliberately to leave some market share so as to -- so as not to really struggle at very, very low price level.
Sure, sure. And mix for us would be roughly 50-50 commodity and speciality or...
Last quarter, it was 47-53.
47-53, okay. So 53% for the regular grade?
Yes. That's because the commodity fell sharper than speciality.
The next question is from the line of Farzan Madon from Birla Mutual Fund.
Sir, I wanted to know what is the debt level going to be when we exit the year.
So as I mentioned, my net debt as of end December is about INR 277 crores. We expect that to maybe go down by about INR 100 crores to INR 150 crores because of cash equivalents for the next quarter.
Okay. And the interest rate that we would be paying on this would be around?
Well, my ForEx borrowings are at about 2.5%. My Indian borrowings are at about 8% to 8.5%. So it's roughly about a blend of the 2, 50-50 mix.
Right, right. So basically, if I hear right, our interest costs will reduce significantly in '21?
We would expect that. Though, of course, from an Ind AS perspective, you would book the entire interest cost at rupee terms and book the ForEx gains separately.
Okay. Just one more question. Is -- are we seeing any increase in prices of fluorspar? Though I know we have.
So, no, we are not seeing any increase in the price of fluorspar. We -- on the other hand, we have negotiated the lower price.
So this is despite China having 50%, 60% of global capacity in fluorspar?
Yes. Yes, that's right.
[Operator Instructions] As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.
So once again, I'd like to thank all participants on this call for your interest, and we'll look forward to your continued support. It's been a bit of a difficult quarter, but we believe the worst will be behind us. And going forward, I think the performance should only improve on the back of the new products that we are introducing as well as the stabilization of the volumes and the prices in the PTFE segment. Thanks very much. Bye-bye.
Thank you very much, sir. Ladies and gentlemen, on behalf of IDFC Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.