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Nocil Ltd
Earnings Call Analysis
Summary
Q2-2024
NOCIL's Q2 FY24 faced challenges, including geopolitical tensions, recessionary trends, and Chinese dumping. Sales volumes were hit, leading to 11.5% revenue degrowth to INR 351 crores versus the prior quarter. Domestic volumes stayed flat, while exports decreased due to global recessionary trends and China's aggressive pricing. Despite robust domestic tire growth, export woes continue. Operating EBITDA for H1 FY24 was at INR 101 crores, a decline from INR 165 crores the previous year, with an EBITDA margin decrease to 13%. Pre-tax profits dropped from INR 138 crores to INR 84 crores in H1 FY24. Some recovery is seen in international markets like Southeast Asia and sustainability efforts are recognized with multiple awards.
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Ladies and gentlemen, good day, and welcome to the NOCIL Limited Q2 FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call.
These statements are not the guarantees of future performance and involve risk and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. V. S. Anand, Managing Director of NOCIL Limited. Thank you, and over to you, sir.
Thank you. Good afternoon and a very warm welcome to everyone present on the call. Along with me, I have Mr. P. Srinivasan, our Chief Financial Officer; and SGA, our Investor Relations advisers. Hope you all have received our investor presentation by now. For those who have not, you can view them on the stock exchanges and the company website.
Let me begin by providing an overview of the company's overall performance during quarter 2 financial year '24. In Q2 financial year '24, the various external challenges of geopolitical tension, recessionary trends and aggressive dumping from China has impacted sales volumes and realization.
For the quarter, we witnessed the revenue de-growth of 11.5% to INR 351 crores compared to the sequential quarter. On a sequential basis, we had a marginal degrowth in volumes on a quarter-on-quarter basis. Similar to large parts of the chemical industry, due to the lack of domestic demand in China and the lukewarm demand in their predominant export market, there has been a significant influx of heavily discounted imports from China, even in Rubber Chemicals, which has put pressure on product realization.
As we strive to increase volumes on the 1 hand, it is important that we also preserve value in the process. Consequently, we witnessed an impact on our volumes. The volumes in the domestic market remained flattish, as we continue to build on our business with our domestic tire customers and penetrate the non-tire sector. The company experienced a decline in export volumes, which can be attributed largely to the global recessionary trends, coupled with aggressive pricing from China.
Now quickly on the industry scenario. The domestic tire industry remains robust, with the Indian automotive industry continuing the growth trend with stable demand from OEMs. While the passenger vehicle sector has reported positive growth for the period April to September year-to-date versus the corresponding period in the previous year, the commercial vehicles have reported flattish sales for corresponding period, due to a subdued monsoon, higher interest rates and new emission norms. But with increased infrastructure development, we expect the commercial vehicles to also gain traction.
The Indian tire industry has ambitious plans to increase their top line by 2.2x in the next 10 years, and we are well positioned to partner with them in their growth story.
Coming to international markets. The latex industry is still dealing with market challenges. The rubber gloves industry in Malaysia, for example, is operating at about 50% of their peak levels in the year 2020 compared to the year 2021 to mid-2022, a combination of lower demand and stiff competition from Chinese rubber glove manufacturers.
On the tire industry front, the lower demand in Europe and the U.S. has also impacted tire exports from Asian manufacturers, including Indian players. While on the 1 hand, the higher interest regime, geopolitical tensions and the recession overhang continue to hamper demand in the international markets. We continue to work with our strategic global tire players to gain approvals and are positive about increasing our global presence in the medium to long term.
On the very important topic of sustainability, I would like to share that we have completed the submission of data for the Carbon Disclosure Project or CDP for the year '22, '23. We have also committed to SBT or science-based targets and as part of the global reporting initiative of GRI. We will shortly be publishing our sustainability report.
You may already be aware that we have been awarded the silver award for EcoVadis sustainability rankings. While I just shared about our work on the sustainability front, we are proud to announce that NOCIL yesterday bagged 6 awards with second sustainability conclave. The awards were given for the best sustainability report 2023, best sustainable initiatives to improve BHS environment, health and safety, best sustainable initiative to improve energy efficiency, reduction of poverty, promotion of education for economically backward sections and supporting the rural health care. This is a proud moment for us, and I would like to congratulate the team on this achievement.
That is it from my side for now. I will hand over to Mr. Srinivasan to give you an update on the financial performance.
Thank you, Mr. Anand, and good afternoon to everyone. So now let me take you through the consolidated financial highlights. On the sales volume numbers, volumes for Q2 FY '24 is INR 127, taking a base of Q1 FY '20 as INR 100. On the revenue front, the net revenue from operations for Q2 FY '24 stood at INR 351 crores from INR 397 crores in Q1 FY '24, a degrowth of 11.5%. Out of which the volume degrowth is about 4% and the balance selling price degrew by 7.5%.
Net revenue from operations for H1 FY '24 stood at INR 748 crores from INR 898 crores in H1 FY '23. On the operating EBITDA parameters -- for operating EBITDA parameters for Q2 FY '24 stood at INR 45 crores as against INR 56 crores in Q1 FY '24. EBITDA margin for Q2 FY '24 stood at 13% as compared to 14% in Q1 FY '24. Operating EBITDA for H1 FY '24 stood at INR 101 crores as against INR 165 crores in H1 FY '23.
Now coming to the profit before tax, PBT parameters. PBT for Q2 FY '24 stood at INR 37 crores as compared to INR 47 crores in Q1 FY '24, sequential degrowth of INR 10 crores. PBT for H1 FY '24 stood at INR 84 crores as compared to INR 138 crores for H1 FY '23.
On the profit after tax parameters, profit after tax for Q2 FY '24 stood at INR 27 crores as compared to INR 34 crores in Q1 FY '24. Profit after tax for H1 FY '24 stood at INR 61 crores as compared to INR 102 crores in H1 FY '23.
With this, we would like to open the floor for questions and answers.
[Operator Instructions] The first question is from the line of Nirav Jimudia from Anvil Research.
Sir, I have 2 questions. So One is, sir, when we look at the commentary of the largest Chinese rubber chemical player in their latest quarterly results, they were mentioning 2, 3 important facts that the markets such as Indonesia, Vietnam, Thailand have started showing the improved demand. So the demand has picked up there. .
Even if we see the July, August tire output data. So that is up close to 15% on a Y-o-Y basis. And the September month also shows the increase in their ASPs, like average selling price of close to 23% with the commensurate increase in the handling prices, which was close to 19%.
So just wanted to understand your thought process of our volume growth because in the past, we have been seeing that -- we have received the approvals and the Chinese have been very aggressive in terms of selling into the markets, which had a slowdown in order to maintain their market share. So when can we see the volume growth coming to us because first half had virtually no volume growth or the volume degrowth. So when can we see volume growth coming to us based on the approvals which we have received from the customers?
Yes. Thank you, Nirav. So I think first, when you look at -- when you spoke about these Southeast Asian markets, yes, very much. I think there also, we have been gaining volumes in those markets based on the approvals that we were also talking about. And as we -- and I think we mentioned this also in the last call, and we continue to monitor that. In terms of the -- our export share, and I think we spoke about how there is a split between the latex and the non-latex part of the business. And why the latex part has come down due to the latex demand overall going down. We see that the non-latex part that comprises largely of the tire sector and the tire companies has been going up. So that's kind of compensated for that part that's been going down.
So these are all ticking in from the gradual approvals that we are receiving. Now when you look at year-to-date and as you said, the volumes have not grown. This is also on the back of pretty much a very strong quarter. That was the first quarter of the financial year of last year we're talking about. And we see a catch-up that's kind of also happening in the last few months. So I think yes, that's how we see it. I'm talking about the prices, yes, there was a correction during the quarter. There were prices finally moving up in some of the other raw materials temporarily. And I think that also we saw some price adjustments on that front, as we went ahead, yes.
Because, sir, if we compare ours with them, so let's say, H1 of China Sunsine and H1 of this calendar year '23, I think they have shown some 10% volume growth. Even last year, their base was also very high. So on that 90,000 tonnes of volume, their volume was close to 1 lakh tonnes. So they have shown 10% growth.
So I just wanted to understand, like even H2 would see those transition in terms of the approvals coming from the customers, and we will see the volume growth only coming to us in next financial year or that could be a slightly earlier process?
So I'll just take that last part and then I'll come back again -- I think Srini will also talk a bit about the numbers. Yes, we do see things trickling in even in this financial year itself.
Nirav, just to add a bit, when you compare the China Sunsine performance vis-à-vis H1 FY -- H1 CY '23 vis-à-vis H2 CY '22...
I'm comparing H1 to H1. So H1 CY '22 and H1 CY '23, if I'm not wrong, their volumes have grown by 10%.
Okay. So basically, when we were looking at the China Sunsine performance on an overall basis, what we found is -- okay? They have grown by 10% is what you are saying. We are probably degrown by 5%. Yes, that's because of the base effect, which we had, as Mr. Anand has explained to you. But on a performance per KG or on a performance per EBITDA basis, et cetera, we believe we are under slightly ahead better than them. That's what our analysis display there.
And also Nirav, my hunch is that they had a pretty low first half, especially with COVID and the lockdown. So there is a base effect. These are some reasons that we also ascribe to the return on the volume.
In fact, just to add a bit, their EBITDA performance dropped by percentage and our performance was -- did not witness a similar drop, including -- though they included export subsidy was one of their key income contributors to profitability. Despite that, our overall profit drop vis-a-vis China Sunsine is marginally lower than their drop.
Got it, sir. And sir, just a small clarification on 1 of the presentation slides, where we have shown that our volume on an annualized basis for FY '24 is showing an index of 128. So last year, we were at 126. So this is the guidance we are providing or this is just a number which we have annualized based on the H1 performance?
This is based on annualized performance till September.
Okay. So this is not a guidance which we are providing?
Guidance is something which we will address a little later.
Okay. Correct. And sir, 1 last question from my side is, let's say, in this quarter and the last quarter, if you can share the export percentage in terms of the quantities, and this all -- because in one of the slides, you have mentioned that the fall in the volumes is because of the fall in the export volumes.
So this fall in volumes is because of the latex part of the market, and we have continued to grow on the latex part. And a slight addition in terms of our volumes from the latex market. So let's say, we were doing 100 at the peak, where we are currently in terms of the latex market as per the Q2 run rate?
Okay. Just to give you a very broad direction, we were normally in latex market, we were 30% in the overall export market -- latex market, that has trickled down to about 12% or thereabout, whereas the non-latex which was earlier 70 is probably is about 85, 88 or something like that today.
So that's a good thing, which we are trying to build up. In fact, when we -- this is basically comparing with the COVID times where the peak latex demand was there. So we are comparing with that performance. So that was in, say, '21 -- 2021 thereabout.
Around that time, we should compare. I think we are down by almost 60%. But what is happening is that we have improved that much volume loss in the non-latex market and which is more sustainable is what [ we think ].
Absolutely. And sir, just a last clarification on that export percentage in terms of the quantities for Q2 as well as H1 if you can provide out of the total volumes.
I think it will be more or less in the range of 30%, 35%.
Okay. For Q2 as well as for H1?
Yes, more or less in that range only.
The next question is from the line of Aditya Khetan from SMIFS Institutional Equities.
Sir, my first question is, we have witnessed an increase in import volumes from China and other countries, so to the tune of 20% indeed. So this has also impacted our spreads and our overall number.
So do you see this can continue in the second half also, we can see more imports because we are still to ramp up the 20,000 tonnes antioxidants plant and spread number might continue to remain depressed for second half?
Sorry, sorry, we were able to just about understand what you were trying to say initially, but the latter half is not audible. Could you just again -- can you just check your line and repeat yourself, please?
Yes. Sir, my question was that, sir, we had witnessed increase in imports from China, so by around 20% to 25% indeed for this fiscal. So because of this, our spread numbers have also -- have taken a hit. So do we expect a similar trend in second half or because of increase in export volumes that spreads could improve from here on? Or what would be the trend like?
So maybe for the full year trend, would be difficult to comment, but at least clearly, what we have seen is that there has been some kind of corrections in the last few weeks to a month or so where the original drop in prices, there has been some correction on the positive side. So I hope that, that will be maintained or not taken down any further.
Okay. And sir our competitor also, so they had -- so recently only, they have expanded the capacity. And in 1 of their presentations, they had mentioned they are still operating at low utilization yield. So we can see further increase in imports trend in FY '24 and continuing in FY '25 also?
So our understanding also of that drop in prices that we saw was also due to a buildup of inventory and also certain inventory reaching shelf life point. So I think -- so there was also a need to push that into the market.
That inventory having gone out and they're operating at more demand linked basis. We see that while imports can still go up, but I don't see that kind of price corrections to potentially happen at this point in time.
Okay. And sir...
Sorry to interrupt you, Aditya. Aditya, by chance, are you speaking from a speaker phone because you sounds very muffled.
Hello? is it audible now?
Yes. Management, can you hear him better now?
Maybe that sounded better.
Okay. Go ahead. Sorry to interrupt.
Sir, my second question was on to the tire demand in Europe. You had mentioned in your opening remarks that the tire demand in Europe continues to remain weak. So sir, in our total export volumes, how much share is to the European companies? And sir, is there any new capacities coming up in Europe or in China going ahead?
So for -- I assume the question is for -- whether tire production is coming up. So if you look at our exports about roughly -- about close to 20%, 25% would be in Europe, about 50% in Asia and the balance in the other parts. In terms of new capacities, they're not really hearing of significant expansions in these markets really.
Okay. Sir, the China Sunsine, which was planning to add a 30,000-tonne capacity by December end. So largely, that would not come into the market and that would be used for internal accruals. So that would like maintain the demand supply balance going ahead. Is that the understanding correct?
So this is -- Okay. So was your question on capacity is pertaining to Rubber Chemicals or was the tire industry because I thought you spoke about tire?
Sir for the tire industry. They are adding a 30,000-tonne capacity, so that could come by December end. So they are using it for their -- to capital consumption. So is this understanding correct? So that would not change materially the demand supply balance?
Gentleman, which product you're talking about, is it [ insulate ] sulfur?
Antioxidants, sir. They are adding into antioxidants.
Okay, okay. That is there. Okay, but we have not seen the -- we have to wait for the outcome when they start the commercial production, then we'll take a call. I think they have in a product called TDQ. They are already there. So we are not sure which is other antioxidants they are planning to come.
The next question is from the line of Nitesh Dhoot from Dolat Capital.
So my question is first on where are we in terms of finalizing our CapEx plans on adjacencies, if you could give some color there.
Yes. So CapEx plans on adjacencies -- we continue to look for opportunities on adjacencies, as if we are taking a structured approach to the whole thing. Nothing at this point that we have to say that we are close to something as yet. So I think as and when we get there, we will be able to share something on that front, Nitesh.
Sure, sir. And you had mentioned last time that you started sampling products for approvals from the additional sites of customers and the approval cycle being around on 3 to 6 months there. So where are we on the product approvals?
So some of them, we have already even started supplying during the course of this year. And some are coming in, they will start in the next quarter or the next few quarters. So that is something that is ongoing yes.
And just 1 last thing. What was the capacity utilization for Q2?
About 65%.
The next question is from the line of Radha from B&K Securities.
Sir, my first question is that on a Y-o-Y basis, our volumes have grown by 8%. So wanted to know the growth in domestic as well as exports, like have both markets on an overall basis grown or because you said on the exports market, the non-latex part has grown. So how is the breakup in domestic as well as exports?
Ma'am, I think there is a correction here. We have not grown on a y-o basis that much. On a Y-o-Y basis, maybe marginal degrowth is there.
Sir, Y-o-Y basis, the overall volume growth has grown by 8.4%.
Yes. This data you have [indiscernible] from the investor slide?
Yes, ma'am, if you see the investor Slide #3, in Q1 FY '23 was 151, 117, 268 is first half. And this year, it is 260. So 8 points we have down. So that's why there's something -- that's the reason we are trying to understand your clarification.
Sir, I'm saying 2Q FY '23 versus 2Q FY '24 so 117 versus 127.
So quarter -- second quarter, basically? Okay.
Yes, sir. Second quarter only.
Second quarter, we have grown significantly because the low base has been corrected now because the addition of additional volumes coming -- traction coming in from non-latex products.
So you mentioned you have grown the exports market in the second quarter on a Y-o-Y basis. And what about the domestic?
Domestic, we have not degrown. We have a very small -- very small growth.
Sir, could you mention how much growth in domestic versus exports?
I think exports as -- the base was much lower. So export has increased significantly because of the additional business coming from the non-latex products, as we are trying to consolidate our presence in the international market. Domestic is more of small products here and there, some marketing growth.
Sir, how much?
It's in single digital only ma'am.
Export growth in single digits?
No, I think we are talking about -- domestic growth is single digit. Export is very significant.
Okay, sir. Sir, secondly, on 1 hand, if you see the current scenario, rubber accelerated prices are rising specifically in the last month. And then demand trends remain strong in India and also auto volumes are growing internally.
On the other hand, Sunsine has expanded capacity and also we could see higher dumping when there new capacities come into production. So considering all these factors, on a sequential basis, how do you see the volume and the pricing trends going forward?
So I think while there is like -- we mentioned, the domestic demand continues to be robust. We still are positive along with the exports that we can still look ahead for some positive volume growth in the year. As far as domestic market also is concerned, I think we are competitive enough, and we do -- we are able to compete and keep our space amidst the imports that come from China to a large extent. So I think along with these capacities, we will still be in a position to compete there.
Sir, on the export front, you mentioned the non-latex part has grown. So are we seeing China +1 playing out? And have you added any new customers or new locations specifically on the exports front in the first half?
Yes. I think this is also pertaining to some of the earlier questions and the discussions we had and that is precisely the thing that I mentioned also in my initial speech about working with strategic global key accounts. And this also is linked to the China +1 where we see some good traction. So that's where we described how the non-latex part of the business is also shaping up well.
Sir, have you added any new customers in first half?
Yes. So while -- most of the international customers are already our customers. I think it's about getting newer products in, at the same time, getting newer manufacturing sites and that's what will happen.
And on the -- you have added a product in FY '20, the [ PBBS ] product, which was an import substitute. So wanted to understand what kind of utilization in that product as of now? And when -- by when can we expect full utilization for this product?
So we are kind of -- there's been a slow pickup of that import substitution. And we do not -- as I also mentioned in the last quarter, they're not very significant.
We are going within the same overall range...
Okay. And sir, in the current quarter in Q2...
Overall capacity utilization range.
And sir, in the current quarter, in 3Q, are you seeing higher pricing pressure in either domestic or export market to continue?
So while for the immediate quarter, like I mentioned, there have been some price corrections. But I would expect that with lower demand in China, we would still see -- we could expect pricing pressure to continue.
So the volumes that you have held back because of the falling prices. So that is also expected to continue for FY '24?
So as we look ahead, at least, I think it's difficult to comment really on a long-term basis, but at least in the short term, that is we have been looking at, at least, for the next quarter and a couple of quarters. We see that volumes should trend slightly on the positive side.
The next question is from the line of Harshil Parikh from [ Acuitys ] Capital.
Sir, my question is that you have mentioned in the presentation that we are holding back volumes with lower prices, right? So first thing I wanted to understand, is it for the exports market or is it for the domestic market also?
And the second part is that -- is it not dangerous for us to give up volumes in such a situation since the customers may get used to more -- used to alternatives, making it more difficult for us to bounce back?
Not really. So I think if you look at it, we have not stepped out of businesses or anything of that sort. It's just kind of a quarterly position that you take in terms of what volumes you want to take. For vis-a-vis, whether you will actually create value or do not, it's a call that you take on a customer-to-customer basis. So it's not specific only to export, but it's a combination of both, yes.
Okay. No, sir, so I just wanted to understand, since you have already mentioned that this is sticky business and long-term contracts, right? So if our competitors enter the customer's wallet share, would it not make slightly difficult for us to bounce back to get back those volumes.
Yes. So -- see, as I've also said, it's very marginal, yes. And these pluses or minus tend to happen from 1 quarter to the other.
Okay, sir. Understood, understood. And sir, my second question is that earlier also, we have mentioned several times that supply chain diversification is a key tailwind for us. And given our moderate starting position, especially in the global markets like U.S. and all, so my question is why are we getting impacted with the demand slowdown in the industry.
So I would have understood it if we had a very high market share, like 40%, 50%. But since our starting positions in global markets are very low, then why is the demand slowdown impacting us so drastically?
Yes. So the demand slowdown is also with existing customers, right? So I think while we gain approvals and we enter into customers, even existing customers who take their requirement goes down. So then there seems to be a marginal impact that that shows up there. While the gain happen, sometimes they take much more longer to add into the volumes.
Understood, sir. Understood. But sir, since we are at a very small starting positions, we would also be getting more traction from the newer customers, right, which should be ideally offset by a slowdown in the existing customers. So is that not happening?
We are seeing that happening to a certain extent already, and I think it should gain more traction as we go along.
Okay, sir. Understood. Understood. And sir, 1 last question. If you see the gross margins in this quarter has declined primarily because the output prices are falling higher than the input prices. So is there any specific in that why are these pricing going down? Apart from the dumping from China, is there any other specific reason for that?
So when you look at it, there was -- apart from the price revision that happened, there were also some raw material price corrections that led to this. Both of -- it is a combination of both. So...
Just to summarize it very differently. I think the sales drop was a combination of volume drop as well as the price corrections, which was -- which has been communicated. Even in raw material also, we've got some raw material price corrections downward. I think the only thing is the correction of the price was much higher than the raw material corrections. So that had an effect -- and that had an effect on the overall gross margin as compared to sequential quarter.
Yes. So sir, just wanted to understand that the correction in the final output prices were higher. So is there any specific reason other than the pricing impact by China? Is there any other reason for that?
So again, it's a question of -- when you see the correction, again, it's a demand supply and sometimes you also have a lag effect of raw materials, right? So you tend to get in the lower-priced raw material at a later stage. There's also a combination of a lag effect.
Understood, sir. And sir, the import volumes, if you see for the domestic market, they have grown, whereas our volumes have not grown. So are we leaving some kind of market share? Because as you mentioned, we are also holding back some volumes. So is it resulting in our losing slight market share?
Not really, not really. I would say it's kind of more or less stable from our evaluation.
And sir, you mentioned in Q4 that the volumes are expected to pick up from current levels. However, if you look at the first quarter of FY '24 as well as the second quarter, they're still below the Q4 levels. So are there any, again, specific reasons like the market is so much volatile that we earlier had some orders in Q4, which got revised going into Q1 and Q2? Is it something like that?
So you're talking about Q4 of last year versus Q1 and Q2 of this year, right?
Yes, sir. We mentioned the Q4 levels -- the volumes improved from the Q4 levels -- Q4 of FY '23.
Yes.
But in Q1 and Q2, they're still below the Q4 levels.
Yes. So from an index, we are slightly lower, yes. Like we mentioned, we have -- as we said, while the pressure on realization were there, we also decided to play it on the volumes front, yes.
Okay. Okay, sir. Understood. Understood.
[Operator Instructions] The next question is from the line of Jayesh Parikh from JMP Capital.
Sir, my question is on China +1 strategy. Now as you know, the China is controlling almost 80% rubber chemical market currently. Currently, China's internal consumption has also gone down. Since last almost 3 to 4 quarters, their consumption is going down. Simultaneously, globally, everybody is working under the pressure of margin. So my -- I feel that everybody -- why everybody will follow China +1 strategy then their own margins are under pressure. So everybody would like -- everybody would like to buy from a country where prices are better.
So do you really think that China +1 strategy will work at least for the next 2 to 3 years unless and until there is a change in Chinese economy itself or change in the global economy itself in terms of all parameters. I personally feel that China +1 -- see chemical industry is [ inching up ] China +1 strategy since last 3 years. But in reality, you are the better person to answer whether it is really working.
Yes. Thank you, Jayesh, for the question. I think if you were to respond to this question, I think, and when you look at the global market, you can't brush it with just 1 brush and you can't say this is the approach across the world. Again, when you look at customers, you can't use the same brush. So I think there are customers, who take this seriously, many of them, and there are ones who do not take it seriously, like you said, when you're up against the wall then you do what is to be done at that point in time.
But there are -- I must say there are many customers who are looking at this whole performance very strategically. And they don't see that this short-term impact on pricing, they see the value of more long-term partnerships, supply reliability, more of geopolitical tensions that may arise.
So I see that we can't -- your -- answer to your question is it's a mix of both. And it's for us to work with those customers where we see that the China +1 will really gain traction. And that's what we are doing.
The next question is from the line of Abhijeet from Sharekhan.
Yes, sir, I have 1 question. Basically, we expected new capacity which we focus to have a higher global market share, but on the last couple of quarters, you have given the environmental thing. I would like to understand that what is our strategy to gain the market share further? Overall -- if not for FY '24, what is the overall long-term volume growth guidance? So except for '21 and '23, again, the volume growth challenges are coming to us. So I want to understand on this front and then when will we see the optimum utilization on the expanded capacity?
Abhijeet, your audio was not clear to us, but let me attempt and I think you need to come back if I'm not able to answer your question. But I think -- so while we have said, we still see that we will have positive traction on volumes coming up, if you look at the last financial year that should -- we are a positive traction there.
But coming back to your question on when will we hit full utilization, that is a bit earlier, we were able to give a certain guidance based on a certain stability that we saw. But given today's uncertain environment, it would be very difficult to put a finger and say this is where we will hit it. And I think that's something we will -- as we get more clarity, we will be able to share an update with you on that front.
So will we see any kind of volume growth in FY '25, if not in '24.
Sorry, can you just -- we couldn't hear you clearly again, yes.
Yes. Can you hear me now?
Abhijeet, sorry to interrupt you, but could you speak from headset because your voice is not clear.
Yes. Can you hear me now?
Yes, much better.
Yes. So my question is that not from the perspective FY '24, but like what kind of volume growth we can see maybe '25, '26. I understand that is a difficult question to answer given the current scenario. But given our interaction with the customers, like is there any sort of visibility that gives us confidence in terms of long-term volume growth?
Absolutely, Abhijeet. I think while -- we will continue to face short-term challenges with different global situation that we have, definitely in the medium to long term. '25, '26 with the engagements we are having with customers, they are quite positive. The volumes will grow. We are well positioned for that. At the same time, we have long-term ambitions to grow our market share globally. So we are quite positive about the volume growth. .
Okay. And 1 more question, if I may ask. The pricing has been quite volatile. We have seen in the quarterly results also that impacted our margins as well. So once the China dumping thing is over, like do we see -- like can we reach 40% plus or more than 45% kind of EBITDA level again going forward? .
40% EBITDA?
INR 40 per kg, INR 40, INR 45 per kg kind of EBITDA on per unit basis?
I don't know, how you -- gentleman how you derive at INR 45 a kg, we are not able to understand that. What we can say is that by and large, if you see the last 3 years' performance -- our last 4 years performance, when you look at an overall basis, I think we are more or less in the same range. We are not materially deferred. In fact, what we can say '21, '22 was a little better year. '22, '23 was marginally down, marginally down.
'23, '24, we still maintain that we are in the correction mode. So the real benefit will come in. And I think what you -- what Mr. Anand was trying to guide is that there will be quarterly aberrations, but given the objective what we have and the visibility and interactions we have with customers, long-term stability is definitely assured for this business. Therefore, the results automatically will come.
So if I rephrase my question here, once the China dumping issue is over, what kind of sustainable margins we can make?
Sorry, have we given the guidance on the market?
We have not given a guidance. We never give a guidance on margins...
No, no. I'm not asking about the guidance perspective, but my -- I just want to understand because there is a lot of qualitative prices that would have not been there once it ends, maybe 1 year down the line. I just want to have a perspective on margin trajectory? It is fine if you don't give a specific number also.
We will address it separately. We can come to the question to -- and then we'll refer in due course of time.
The next question is from the line of Praveen Kumar from Equitas Capital Advisors.
I had 1 question. So I was trying to put together various things, which you have said over the last few calls, including today's. One is that you are seeing supply chain tailwinds in terms of supply chain diversification. Secondly, you are 1 of the largest non-Chinese producers. So you should be 1 of the first port of call for many of these global tire manufacturers, who are looking to diversify, right?
Thirdly, you have also mentioned in today's call that a lot of the global measures are already your customers. And in fact, what you're trying to do is sell them more of your existing products? So putting all these together, 1 would expect that the time line for conversion of orders for new products to an existing customer, right? Because if they are already your customers, they might have already done due diligence on several of your other products. And what would be required is incremental diligence on your new products, right?
So putting all this together, 1 would have expected greater traction coming through into your export volumes and into your overall volumes as well. So just wanted to understand how do we reconcile this to- with the performance that you've seen till date?
Yes. Thanks, Praveen. So again, the answer is a combination and let me try and explain this. So what happens here is typically, as you start -- even though if you're an existing customer, for every product, it is the same process of approval because you are approving a product from a particular site. If you go to another site of theirs, again, the approval process goes on. Maybe it could be slightly curtailed here and there a bit.
But the process is more or less very similar for every site when you start with a small lab sample, then you start with the trial a lot. All of this needs to be run in production, tested, approved and then you keep going up in the scale as you go along. So that takes a bit of time.
On the other hand, while as you rightly said, we should have seen a lot of traction and things should start coming in, but also the overall demand per se has come down. And as they start shifting some shares to us, their overall demand comes down. So they do it at a gradual pace, but it takes a little while longer. So I think it's a combination of both that you don't see the sudden traction that's able to come in.
Understood. So should we -- I mean, putting what you are saying -- reading through what you're saying, should we expect that there should be a greater kind of a snowball effect somewhere down the line in terms of your export volumes when your traction finally starts paying off? I mean, is that what 1 should expect? .
Yes. That's normally the expectation, but I would keep my fingers crossed and hope that happens here.
Okay. I mean is that -- I mean is your -- what you're saying is driven by -- I mean, because again, we had done a channel 6 for the last several years, and 1 keeps hearing that NOCIL is one of the more quality and reliable suppliers, right? So I'm just trying to understand what is behind your apprehension in being more positive about this.
So I'm very positive and I think -- like I mentioned, I think it's just that the external environment and the uncertainty that I'm kind of, let's say, positive with some caution. Yes.
The next question is from the line of Nilesh Ghuge from HDFC Securities.
Yes. Can you hear me?
Yes, Nilesh, please go ahead.
Yes. Sir, just 2 data points. What was your specialty volumes contribution in Q2 to the total volume of the company for this quarter? And secondly, the -- how much -- what was the percentage exports to the total revenue in Q2?
Yes. I think it is much lower. We expect in the previous quarter, the latex business has shown a download slope. So therefore, the specialty percentage has dropped down. So it's below 15.
Okay. And sir, exports -- how much was the exports to the total revenue in Q2?
I think we -- I said just some time back, it is between -- somewhere between 30% to 35%. .
The next question is from the line of Sailesh Raja from B&K Securities.
Sir in U.S., dumping is getting -- antidumping is getting over next year. So if they don't extend it, how it will impact our volumes to U.S.?
Which entities?
Tire industry, right?
You're referring to the tire industry?
No, sir, rubber chemical.
There is no antidumping...
There is no antidumping for rubber chemical.
In 2017, they have put antidumping duty on rubber chemical.
Are you talking about the U.S., sorry?
U.S., U.S. Yes.
Sorry, sorry. We misunderstood it as India. So that duty continues. So I -- we expect that with the current situation, it should get extended because I think it's got bipartisan support in the U.S.
The second thing is as far as the -- from a revenue perspective for NOCIL, I would say it is not making a difference because today, we are not charging any duty on the latex price to the U.S. customers because there is other source also besides China, India and EU also is supplying. So U.S. selling at without duty exports. So pricing advantage is not there as far as we are concerned, maybe some volume correction, if not all in the worst case that might happen.
Sir currently, we are doing closer to 1,500 tonnes per annum. So what is our target we have for the next 2 years?
Sorry. Which volume are you talking about?
In U.S., currently, we are selling closer to 1,500 tonnes.
1,500 tonnes per annum you are saying?
Yes, per annum to U.S.
We have not declared any specific numbers with each of the...
So actually -- yes. So 2, 3 years back, we were doing around 500 tonnes and that gradually increased it 1,500 tonnes. So in last 2, 3 con calls, we have mentioned that. Is there any target we have for the next 2 years, particularly in the U.S. market?
So we have given an index guidance for how the numbers...
We have said from 100 to 300. We have given an index.
So we expect that -- so we're still working with customers, and we expect that to continue to grow Sailesh.
So the Americas today constitute 25% of exports today.
Okay. Okay. Sir, we are betting more on adding new customers there or addition of locations from the existing customers? .
Yes. So existing customers additional locations is largely what is going to happen, that means when you talk about global customers.
Yes. Okay, sir. Sir, my next question on the conversion cost side, particularly in the power and utilities. So is there further scope to cut down the cost?
In absolute numbers, there is some reduction seen in the utility costs for the half year. So one of the reasons for the reduction in other expenditure is, you can see the SEBI results. It is because of the reduction power in the utility costs, largely because of the efforts taken by the operating team -- operations team to improve the cost control measures and ensure that those are sustainable in nature. So they have done a lot of work and that benefits seen in the results.
The next question is from the line of Nirav Jimudia from Anvil Research.
Sir, in terms of the utility costs, which you mentioned, I think in the annual report, we have mentioned that we have entered into an agreement with Cleanmax for securing the hybrid power. So -- and along with it, we have even installed a 66 KVA power station line. So last year, our power cost was close to INR 178 crores.
So -- with all these benefits in place and sourcing of an hybrid power, how much savings could -- can we assume provided the current level of coal cost is there. So what sort of savings we can assume on an annual basis when the benefit of this hybrid power along with the installation of a KVA line fructify fully?
So Nirav, just to address a bit, I think when you're looking at INR 178 crores for power and fuel cost, which includes the coal, power and the fuel oil, et cetera, FY '23 that's what you might have referred to the annual report. When your -- the run rate as it stands today, we are probably -- the way things are moving around, we are probably in the region of something like 15% savings.
And the entire benefit of the initiatives which we have taken has fructified or still the benefits would continue in the second half also?
So there is -- there are -- we continue to -- apart from Cleanmax and also other initiatives pertaining to solar on-site that we do, we're also looking at core generation that will come next year. So those are additional things that will come in, Nirav.
Got it. Sir, one of the thing which we also mentioned...
Sorry to interrupt you, Nirav, could you speak a little louder? You sound very faint.
Yes. Now it's okay?
Yes, it's better now. Go ahead, sorry.
One of the statements also in the annual report mentioned that we have succeeded a process engineering in terms of planned modifications to manufacture DCBS in the MOR plant. So if you can just throw some light on this? Because earlier, if I recall, we used to produce this product and we have stopped. So again, I think if we have made the modifications in terms of producing this product again. If you can just share the opportunity, size or the market size of this product into India or in the export market, that would be very helpful.
Yes. So this is always part of working with our domestic tire customers to look at opportunities to indigenize. And this is something that we also mentioned in the earlier call that we are looking at wherever possible to indigenize. And this is 1 example of that indigenization. But the volumes are not very big. It's also part of the package that we sell to our tire customers. So it goes along with that. I don't see very significant volumes coming also, Nirav.
It's more of a part of a sulfonamide product group.
Got it. And sir, just a last clarification in terms of the capacity utilization, which you mentioned, 65%. So this is considering the debottleneck of 5% to 10%, which we already completed and considering 65% on the increased capacity or you are taking the utilization pre-debottlenecking?
This is pre. Yes.
Some portion has been included. Some portion is yet to be included.
Okay. Sir, just a last thing in terms of the export market. So you mentioned that our latex volumes have fallen, but the non-latex volumes have grown. This is predominantly the tire customers where we have penetrated in the export market. So if you can just share, which of the geographies have seen this increase in the volumes from the non-latex side?
I think, Nirav, the address is very different. I think earlier, we were referring to Asian market exports was 70% and 30% other nations -- non-Asia was 30%. The Asia has become 50% so therefore the other remaining 20 is going to the western world, EU and Americas. So that addresses the whole question there.
The next question is from the line of Aditya Khetan from SMIFS Institutional Equities.
Thank you for the follow-up. Sir, my first question was on to the aniline price correction. So on a quarter-on-quarter basis, aniline prices have dipped by around 12% to 15%. So have we taken any inventory loss in this quarter? .
Sorry, which quarter are you referring to? Which quarter-to-quarter?
Sir, quarter-on-quarter basis, quarter-on-quarter basis, this quarter as compared to last quarter.
Okay. As far as the raw material cost is concerned, we have taken a price benefit. Raw material cost per kg has come down this quarter as compared to the previous quarter. So that benefit is already in build in this results.
Okay. So we had not taken any inventory loss, means -- you mean to say that?
No, not much.
On to the volume side, sir, I believe, sir, you're not sharing any sort of guidance, but if you can like -- so give us an idea so whether the volume can be in line with the tire industry growth or higher than that? Or it can be like in the low single-digit or high double-digit range or any sort of a trend that you can give so that would be helpful for us to forecast.
So if you look at it again -- I would put it as domestic and international. So when you look at the domestic market, we already have a reasonably high market share. So the growth will always come from plus or minus -- more on the plus side of a few hundred basis points compared to the growth of the industry because we have a sizable market share already. Whereas the growth in the international markets, where we have a much lesser presence, would significantly be higher. That's how we see it.
Okay. And sir, on to the debottlenecking, sir, which we have completed. So is it possible to share the capital expenditure business for that?
Not material to be shared with.
It's within the CapEx budget so...
It's not significant in absolute terms.
Aditya, are you done with your question?
Yes. I'm done.
Due to time constraints, we will take that as the last question. I would now like to hand the conference over to Mr. V.S. Anand for closing comments. Please go ahead.
Yes. Thank you. Thank you very much. I'd like to take the opportunity to thank everyone for joining the call. I hope we've been able to address all your queries. For any information -- further information, kindly get in touch with me or our strategic growth advisers and investor relations advisers. We wish you all a happy Diwali and a happy New Year. Thank you once again, and take care.
Thank you. On behalf of NOCIL Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.