Apcotex Industries Limited (523694) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '20 Earnings Conference Call of Apcotex Industries Limited. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to hand the conference over to Mr. Anuj Sonpal, CEO of Valorem Advisor. Thank you. And over to you, Mr. Sonpal.

Thank you, Karuna. Good afternoon, everyone. A warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We manage 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 conference call for the fourth quarter of financial year 2020 and the financial year ended 2020. Before we begin, as always, I would like to mention a short cautionary statement. Some of the statements made in today's earnings conference call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. I would now like to introduce you to the management of Apcotex Industries Limited participating in today's call. We have with us Mr. Abhiraj Choksey, Managing Director; and Mr. Anand Kumashi, Company Secretary. Without much delay, I request Mr. Anand Kumashi to give his opening remarks. Thank you. And over to you, sir.

Thank you, Anuj. Good evening, and welcome, everyone, to this earning conference call for the fourth quarter of FY '20 under review. Along with me in today's earning call, I have our Managing Director, Mr. Abhiraj Choksey. I hope you had an opportunity to look at the company's financial statement and the earning presentation, which has been circulated and uploaded on the website and website of the stock exchanges. Moving on to the financial performance for the fourth quarter, the net revenue was around INR 116 crores; the operating EBITDA around INR 8 crores for the quarter; and the EBITDA margins were 6.83%; the PAT reported around INR 3 crores with a PAT margin of 2.68%. For the financial year ended FY '20, the net revenues stood at INR 496 crores and operating EBITDA was around INR 33 crores. The EBITDA margins were 6.73%. The PAT was around INR 17 crores, with a PAT margin of 3.35%. From the numbers, you can clearly make that this quarter and the whole financial year was definitely a challenging quarter as well as a financial year. And due to COVID-19, the salaries were further aggravated. To give an update on the operations, our Taloja plant -- at our Taloja plant, we would have had a best quarter ever in terms of volume, but due to lockdown, we couldn't complete the pending orders. The margins were still under pressure, but gradually improving. On the other hand, at our Valia plant, during FY -- Q4 of FY '20, the NBR market as well as allied products started picking up and margins were slowly coming back to the normal level. And in the export business, we would have had the best quarter in terms of volume too, but due to lockdown, we could not complete the pending orders. With regard to our ongoing projects out of CapEx of first phase of INR 100 crores, INR 90 crore -- INR 95 crores has been invested till March 31, 2020. Cogen plant was commissioned just before COVID-19 shutdown, but had to stop temporarily due to the lockdown. The debottlenecking project will be completed shortly as well we will increase the production capacity in Valia plant to about 20,000 metric tonnes per annum and -- which will also help us in reducing the operating costs per metric tonne. We're coming with the 2 major projects for designing and consent application for XNBR Latex of worth INR 60 crores, and Polymerization Line 2 which is worth about INR 180 crores. Additionally, we're looking to add latex capacity in Taloja plant to the extent of additionally 20% in FY '21 at a cost of about INR 12 crores to INR 15 crores. Post shutdown on account of COVID-19, both the plants have restarted operation with effect from April 20, 2020. For the safety and health of all the employees, we have introduced a new protocol for sanitization and distancing, which are being followed very strictly. We're modifying a few reactors at both the plants for manufacturing the XNBR Latex for hand gloves, where the demand is extremely strong. The modified reactors will be ready in a few weeks for the production. The company has a healthy liquidity position currently and maintained the same liquidity and cash flow position is regularly reviewed by the top leadership. With this, I would like to open the call for question and answers. Thank you.

[Operator Instructions] The first question is from the line of [ Rohit Prakash ] from [ Marshmallow Capital ].

My first question is on the NBR side. Last quarter, you had mentioned that it was affected quite a bit due to lower raw material prices and dumping from Korea and Europe because of difference with Asia monomer price differences. And you expected the issue to continue some more. Pursuant to the whole issue, you had applied for antidumping, which you mentioned it got approved as well. You also mentioned that you were not -- I mean you're planning to revisit the CapEx plan in NBR because of this whole issue. So if you could give us an update there, that would be helpful.

Sure. Can you hear me, [ Rohit ]?

Yes, I can.

Okay. So NBR, as I mentioned last time, in Q3, was extremely challenging. Q4 was certainly much, much better. Although it was not up to normal levels, the dumping was still ongoing, but it was definitely better than Q3. And you can see that in the results as well, if you see, we had a negative quarter in Q3. But Q4, we have turned it around, it was positive despite losing the last about 15 days of sales. In fact, overall, as a company, we would -- we've lost about INR 17 crores of sales and INR 4 crores in the bottom line just because of the last 2 weeks because Feb and March were extremely strong for us. So of course, the NBR business remains a challenge. As I mentioned last time, the antidumping duty against Korea was filed. And I would -- what -- the investigation was initiated. So -- and since then, we've also filed antidumping against a few other countries. So that remains to be seen. Of course, that's a more medium term thing, it will take another 2 quarters before we know the results of that antidumping investigation. But, however, having said that, at least before COVID hit us, we were quite upbeat about the business overall. And NBR while challenging, but certainly better than Q3. I hope that answers your question.

So you do intend to go ahead with the plan, which you had mentioned that you were revisiting last quarter the CapEx plan?

Yes, yes. Right. Well, I didn't -- maybe I misspoke, but it was not that we were revisiting the plan, but obviously, given the situation and the margin, we wanted to focus more on the projects that had immediate, like NBR Latex for gloves is one of them, and now we are also expanding -- or we're thinking or exploring expanding our capacity in Taloja because what we saw in January and February was extremely strong demand, and we were at almost 100% capacity utilization in Taloja. So on the latex side is where we wanted to focus. Of course, we are still continuing to finish or start the -- we have already started the process for obtaining the consent, and we will start the process of design as well. But before we actually hit the ground, we will take another 1, 2 quarters to decide that, given the current situation. Now of course, COVID is also another angle that is coming. But certainly, we will -- it's not that we have shed the project.

Understood. And this mention of 20% increase in capacity in Taloja latex with INR 12 crore to INR 15 crore, is it -- I mean is it specific to the medical gloves latex industry alone? Or is it that the 20% CapEx that you're calculating is on the 55,000 tonne capacity you have in Taloja for latex?

Yes. The second part, which is on to -- on the 55,000 tonne capacity for our existing industries that we cater to. The gloves is a completely separate project that we're going to set up in Valia.

Okay, okay. So this -- so again, my confusion here is because -- I mean 20% capacity increase, that is around 11,000 tonne capacity increase for INR 12 crore to INR 15 crore -- I mean to a layman like me, it sounds like an extremely cost-effective way to increase capacity. So how come we did not prioritize this to our larger products because this seems to be a low cost way of increasing capacity by a substantial amount?

Well, because at that point, there wasn't a need. We were -- well, we always had it in mind. It is not that we didn't have it in mind. It's quite a simple project to do, but we needed some consent. So we've applied -- we will be shortly applying for all the consent. We started the application process because we have to build a new building, but that was always on the cards. But since we had enough capacity, we were at 75%, 80% capacity utilization, but now we've -- even for this year, we should be okay. But I think that by the end of the year, we think we will hit capacity at Taloja as well. So it's a short, sort of 6 to 8 months' project.

Sure. Got it. So in the past when -- during previous conference calls, you had mentioned that because we remain quite cash rich given the prudent way in which we manage our balance sheet, we would be looking for acquisitions at times of stress because we have the firepower to do it. So my question is more on capital allocation in the sense at current prices, do you think it makes sense to do a buyback or to do an acquisition to improve capacity or capability, like you did 2, 3 years back with the Valia plant that you did? So any -- what are your thoughts there? Are you focused entirely on organic [Technical Difficulty] right now?

Look, an acquisition is something that -- there are many things that have to fall in place. So we are always looking out for strategic acquisition at the right value. Having said that, even currently, as you rightly said, we are on the lookout for it, if opportunity does come about. But what we can control is organic growth and greenfield or brownfield projects. That's completely in our control. So that's certainly -- and if you see the opportunity in brownfield projects, then obviously, we are not going to let go off that, and we'll continue with our plan. And hopefully, obviously, during the last 5, 6 months, the company has gone through a challenging period. So the amount of cash generation through our operations has also been lower than what we had expected. But both options, I would say, both options are on the cards. And the third is buyback as well. We have discussed it. If it does make sense, we'll do a buyback. The problem is, there are some sort of technical problems in buyback, in the sense it's not a very liquid stock, so we'll have to see whether it makes sense.

Okay, I understand. That makes sense. It is just that it's a little funny to us because, I mean, it clearly does not reflect the true value of your business. And I was just curious, if you had any ideas there fair enough. And last question before I go back -- get back into the queue for further follow-up. So one thing, which I really enjoyed or liked about Apcotex a lot was that there was no dependency per se, in the sense, many other chemical businesses, they tend to -- historically have tended to depend on some sort of protection from the government for generating high returns on capital employed over an extended period of time. So with this -- I mean do you see this current thing, which -- current issue which NBR is going through, do you see it as a purely temporary issue because of some dislocation, which will not persist for a long time? Or do you think the business profile has changed more permanently with you requiring a duty or some sort of protection from the government for generating reasonable returns on equity or capital over a long term.

Look, we -- when we acquired the business, it was in February 2016. And after we turned it around, we had a pretty good run for about 3 years. Genuinely, I believe that structurally this is a sound and strong business. There's only a handful of manufacturers of NBR in the world. There are multiple reasons why this is -- what has happened in the last 6 months, one of them being the China has imposed an anti -- the major reason is that end of 2018 china imposed antidumping duty on Korea and Japan. And that has resulted in Korea -- the Koreans and Japanese looking for other markets. Now that was obviously unexpected. That was because of China doing something. I still believe, structurally, this is a good business to be in. I believe that we have low market share in India. We had only about 20, 20 -- between 20% to 25% market share in India, the rest of all is imported. So there's a good import substitution story as well because we're the only manufacturers in India. There is an opportunity to export. The unfortunate part in the last 6 to 8 months has been that because of this antidumping that China has imposed on a couple of countries, it's kind of thrown the market a little bit. And that's got exacerbated because of the auto industry also not doing extremely well in the last 6 to 8 months in China and India. But I think that has turned once -- obviously, now COVID is another angle to it. But I think that will turn and people -- I think the business has to be -- any business has to be structurally strong itself and not dependent on any government rollouts. So while we have -- we will take or we will try and do whatever we can to protect ourselves in the short term, we never go -- we are not -- the intention is not to be any business -- in any business where we are dependent on any government rules or support.

The next question is from the line of Rohit Sinha from Emkay

Just wanted one clarification on this market share in India. You just mentioned about 20%, 25%, so that is in the NBR side, right?

Yes.

Yes. Okay. So my question is, firstly, on the latex side, does it -- I mean when we are saying that we are looking to increase the capacity by 20%, so which basically the industries there where we are seeing a bigger opportunity, which is actually pushing for this capacity expansion or it's the existing mix, which is growing?

It's the existing mix. But of course, the 4 or 5 major industries that we cater to from Taloja is paper, paperboard, construction, carpet, tires and textiles and a few other specialty applications. And what we have seen is, against pre-COVID, we had seen very strong growth in construction, in paper and paperboard, and carpet, all -- actually all 3, 4. So our intention was to see if we can expand in Taloja at least up to the -- very quickly for these -- and of course, we're doing it for the next 2, 3 years, not immediately. And pre-COVID, we were quite bullish, and we saw that in January and February. We had a difficult 3, 4 months between September and December. But we are quite bullish about it now. Hope that answered your question.

Yes. Okay. Okay. So in latex, right now, we are operating close to around 75%, 80%?

Yes, pre-COVID, as I said, in this Q4, we would have been at close to 100%, 90%, 95%. And for the month of February and March and the orders we had in March, but of course, things have changed in the last 2 months.

Right. Right. Okay. And in the footwear segment, our HSR segment, so there, how is the outlook for the footwear industry? And what other industry we are looking -- I mean we are serving in HSR, and where is the outlook there -- what is the outlook there?

So look, HSR has been sort of flat to a little bit degrowing every year market. We -- before COVID, the outlook was that it was not a strategic focus for the company. Whatever business we have, we are continuing to serve and -- but post-COVID, I think, actually, some of our customers are more bullish because we cater to the cheap footwear market. And basically, at least in the short-term for the next year or 2, that's a market which will actually grow faster than the more premium segment. So it remains to be seen what happens, frankly. But it's a low ticket item. However, we are still not strategically focusing on it. Anyway, even as of today, we have more capacity than what we are producing. So we are not going to invest anything further on HSR.

Right. So on utilization level, how much utilization level we're operating in the HSR?

You know, I -- obviously, it's not -- it's quite low. It's around 60%, 70%, I think, approximately.

Okay. Okay. And sir, overall, I mean, when we are saying that automotive is also close to 20%, 25% of our overall revenue, then, I mean, with this COVID thing, pre-COVID, also, we were facing problem with the slowdown in the auto side. And with this COVID thing, I think demand is fairly squeezed. So just wanted to know how would be the overall run rate for us in terms of revenue and the margin level, which we would be looking at for at least FY '21?

So look, first of all, auto, as of -- auto is not 20%, 25% of our entire business. The NBR is about 25%, 30% of our entire business, about 30%, I would say, and auto is about maybe half of that. The rest is, I would have maybe said, auto and tires. We also supply a product called VP latex for the tire industry, which is about 10% of our entire business. So I think if you split up auto into auto and tires, tires, for sure, the demand will slowly come back, and we're already seeing traction in May, because that's largely a replacement market; whereas auto, we expect the next few quarters to be challenging. So one of the things that we're doing is utilizing that capacity to making nitrile latex for gloves because the same reactors that we are using to make the latex and then converting it to rubber, we are actually planning to convert a couple of the reactors to make nitrile latex for gloves assuming that the demand this year will be very muted for auto. Having said that, as I mentioned, as far as volume is concerned, it's not a problem at all for us. We can reduce the price and get as much volume as we want in India because we only have 20%, 25% market share, but we don't want to grow like that. We don't want to grow at -- by killing the price of the product. And therefore, this -- currently, the demand for medical gloves is extremely high, and we are seeing a lot of inquiries and strong demand from existing customers. Unfortunately, we didn't have enough capacity, but what we're doing is trying to sort of modify the existing reactors that we do have. It's not the most ideal way to make nitrile latex for gloves, it's a little technical. But we are modifying it; in the next few weeks, that should be ready. So some of that demand, which will be lower in India, we will use latex to substitute that, if required.

The next question is from the line of Karan Bhatelia from AMSEC.

Sir, I had a couple of questions. First, how has been the price delta between the Asian [indiscernible] prices and the European prices because in the last couple of quarters we've seen that grow from $100 difference to $300 per tonne difference?

Yes, that's certainly come down. Yes, Q3, that was a big challenge. But in Q4, the difference was much less. And of course, currently, I think everyone knows what's happening with oil in the world. And accordingly, all petrochemical prices are, by and large, at the same level across the world, whether the U.S., Europe or Asia, including some of our raw material prices. So right now, that's not an issue. And even in March, that was not an issue. In fact, March was going to be one of our strongest months. So as of today, it's not an issue. And we expected that because it does happen from time to time. We see this every -- once every 3, 4 years, for about 3, 4 months where the European prices are much lower than Asian prices or vice versa as well. But it's not sustainable because material starts flowing because that arbitrage cannot remain forever. So in 3, 4 months, material starts flowing and then the arbitrage opportunity comes down. That was one of the challenges we had in Q3, it's no longer an issue as of today.

Correct, correct. And sir, is it right to assume that in Q4, we might have a flattish kind of volume growth and whatever the sales dip is purely because of the realization?

That is absolutely right. In fact, we had a flattish volume between Q4 of this year and last year. In fact -- and compared to Q3, we were much better in terms of volume. And had we actually finished the quarter and the orders we had on hand, we would have had a reasonably good growth as well compared to Q4 of last year. So yes, the net realizable value of products has gone down because, in Q4, also, as you know, raw material prices were falling. So as a result of which our finished goods or our net realizable value per kg was also falling.

Correct. And how are the prices shaping up in April and May?

In fact just to come -- even just to -- sorry, just to complete, even for reserve, our volumes are actually intact. Even though our top line has fallen by more than INR 100 crores, our volumes are actually intact. The only difference has been that: one is, obviously, prices have fallen compared to '18/'19; and the second issue is in product mix. We have sold more latex than rubber. And latex prices are generally 60% or 50% to 55% of the rubber prices. So as a result of which, the top line is also sort of falling.

Correct. Because we've seen that in 3Q and 2Q as well where the product mix was impacting our margins as well.

Yes, that's Correct.

So in Q4, are we like back to normal, 50%-50% for latex and rubber?

Actually, you know, we would be more latex, less rubber in Q4.

So is it right to assume 60%-40% or 55%-45%?

I don't have the exact number with me right now. But I think 60%-40% is probably the right assumption, but I'll have to go back and check the exact numbers I have.

Correct. And sir, how is the pricing trajectory of key raw materials, like styrene, butadiene, acrylonitrile, for April and May? As in we are 22 days to May now, so how has those prices reacted?

This is published data. So between March and May, everything -- there are probably -- I mean I would not say lifetime lows, but at least decade lows prices for styrene, butadiene and all -- most petrochemicals.

Right, right, right. And also sir, if I can chip in one more -- 1 or 2 questions. So any CapEx number? For '21, we are doing that INR 12 crore to INR 15 crores for Taloja, and INR 5 crores, that is the remaining of the Phase 1 CapEx. So like INR 17 crores to INR 20 crores is assumed?

Yes. I mean look, there are some uncertainties even now. But having said that, our intention is to actually do the INR 60 crore NBR latex for gloves project in Valia. We'll complete the remaining, which is INR 5 crores to INR 10 crores CapEx that is pending, and about INR 12 crores to INR 15 crores from Taloja. So I would say, over the next 12 to 15 months, we are -- I would not say this financial year, but 12 to 15 months, we are looking at another about INR 90 crores or so.

9-0, okay, INR 90 crores.

9-0, INR 90 crores to INR 100 crores, it depends. I mean we are still working on the details of some projects, but INR 90 crores to INR 100 crores would be the next 15 months, let's say, from now.

15 months, correct. And sir, is it fair to assume that, first, we'll complete off the INR 60 crore CapEx for latex, and then we will look at the NBR project? Or it can go on a simultaneous basis?

We'll also have to wait and watch what happens with COVID. I think that uncertainty is very much there in our lives now. We will definitely go ahead with the latex -- NBR Latex project first. And once we start that, we will then take a view on what -- how things are because the plan was to use a combination of debt and internal accrual. Now internal accruals for the last 6 months have definitely not gone as per plan. We are hoping that at least from Q2 onwards, we can get back on target of our internal accruals. So we'll also have to see what we are able to accrue to afford those projects. And then, of course, debt also in this time, we'll also have to relook and retalk -- have conversations with our bankers. But we are quite sort of positive that we will -- as far as being able to raise this INR 200 crores, INR 300 crores -- INR 200 crores or so even going forward will not be that much of a challenge, if we're going to invest it over the next couple of years. But the only reason why I mentioned about the NBR Line 2, the second line being delayed is because earlier I have given a date of, I think, end of FY '22, that in the current context will definitely be delayed. That was my point. But we still intend to go ahead with it. Funding is one issue, but the major issue will be just to see how the NBR market and margins are playing out over the next 3 to 6 months.

Correct, correct, correct. And tax rate going ahead will be like standard 25%, or we have some more benefits from the Omnova acquisition?

Yes. We do have some more benefits for this 1 more year for FY 2021. So I think our rate will effectively be less than 25%, I think 22% or so for 2021, yes.

The next question is from the line of Udit Gajiwala from SMC Global.

Sir, would it be possible to give the domestic and export mix for the quarter and full year?

I think we are at about -- in terms of value, we are at about 12%, 13% is exports, if I'm not mistaken, for the full year. Quarter numbers, I don't have with me, but I think quarter-wise -- for the quarter, it will be higher.

Okay, sir. And sir, like we have -- okay, sir. And like we have been mentioning about some orders that could have been completed, but due to COVID, it has been impacted, so by when do we assess to finish the same?

Most of these orders have already been now from -- by -- I mean most of those orders have now been dispatched by now.

Okay. So sir, it will be reflecting in this quarter?

Yes, of course. Yes.

The next question is from the line of Dhavan Shah from ICICI Securities.

So I have a question on the CapEx side. So you mentioned around 20-odd-percent incremental capacity for the Taloja plant. So by when can we expect this to be commercialized? And how are we going to fund this CapEx? Because I think the operational performance are also subdued and the working capital situation has also been tightened up. So is it going to be funded entirely through debt? And if I do the reverse calculation, the brownfield CapEx per tonne comes around INR 12,000-something. So what kind of asset turn are you expecting from this latex capacity?

Sorry, you're talking about what I just mentioned about for -- the 20% additional in Taloja, is it?

Correct, yes, yes.

So that's going to cost us about INR 12 crores is what I have -- the initial estimate is. As I said, this was in -- still in the early stages. This is the first time we are announcing it. But I -- asset turn wise, yes, I mean if 20% gives us about 11,000 tonnes, so it's like about 5 times, 5x, is the asset turn that we see.

And when can we expect it -- expect to be commercialized? I mean...

Yes. So INR 10 crores, INR 12 crores is not a big amount, so that will be through internal accruals, for sure, that's not an issue. When we -- well, first, we need to -- the whole problem is the uncertainty right now because we require some consents from the pollution control board, the state pollution control board, as well as 1 or 2 other agencies. In the current COVID scenario, a lot of these guys, they are working, but going extremely slow with applications, et cetera. So we are a little dependent on them. There is not much design or anything required. So that should be ready. We're just hoping that we can finish all the design and permission by the end of the monsoon so we can start the work immediately after the monsoon. And we expect the plant to be ready within 6 to 9 months -- or the expansion, it's not a plant, it's just a expansion area to be ready within 6 to 9 months.

Right. Right. And this additional 4,000 tonne or 5,000 tonne NBR capacity expansion, that's what we are doing, so is that going to come maybe in the second half of this fiscal? And also, given that the auto demand itself is subdued right now and you are changing the reactors to make the latex from the NBR rubber, so would it be possible to convert this additional 4,000 tonne capacity into the gloves, the latex gloves?

Yes. So that's -- sorry, finish. Sorry.

And what kind of realization is there of latex versus the NBR right now?

So that project that I mentioned, moving from 16,000 tonnes to 20,000 tonnes, 21,000 tonnes has already been in the work for a long time. In fact, we have finished most of it. It was just the last bit that was pending that we were supposed to commission by March 31 technically; 99% of the work is already complete. So that is already -- the money has already been spent. It is part of the INR 100 crore project that we had done. So that will be completed in the next few weeks. The only reason why we've not been able to complete it is because we are -- we needed some vendors from out of state, and they are not able to come into Gujarat, and we've not been able to complete it because we want to commission those projects in front of the vendors because for various technical reasons. So that's number one. Just to mention that, that's already completed as far as the project investment is concerned. The commissioning should be happening in a week or 2. And you are right, that is going to help us to -- some of that capacity -- or at least the reactor capacity. NBR is 2 phases: one is you make the latex in reactor; and then you dry the latex to make NBR. And so the reactors, we will certainly be able to use 2 or 3 or whatever we decide for gloves. The realization of gloves versus NBR is a good question. Look, it's -- obviously, gloves right now is in high demand. So the realization of gloves is quite good, I would say. But we have seen in '18/'19, '17/'18, the realization of NBR has also been very, very good. So if you ask me currently, the glove realization would perhaps be a little better. But NBR is a commodity, which moves up and down quickly also in terms of margin. So we know what regular margins are for NBR. So if the NBR comes back, then it will become a good problem for us, but we'll have to choose between gloves and NBR, between latex for gloves and rubber for NBR.

Yes. But NBR realization is somewhat around INR 100 per kg right now? Or is that higher than that?

It is around that much currently. So okay, when we've had said realize -- sorry, I meant margins. In terms of margins -- obviously, realization for latex will be much lower because it's 50% water. So when you ask -- when I say realization, I meant margins, I'm sorry, I should have clarified that, the margins realized. But yes, latex is about 60%, 65% of NBR right now.

Okay, okay. So that is for latex gloves, right? Latex gloves, so it is...

Yes, latex for gloves.

Okay. And the last one is on the working capital side. So we have seen somewhat around 15%, 20% increase in the working capital situation for FY '20. And given that the demand itself is subdued on the ground, so how do we see the working capital scenario for the entire FY '21? I think the cash conversion cycle for FY '20 was around 75, 76-odd days against around 62 days last year. So what kind of cash conversion do we see, this...?

Yes. But that's not true actually because -- I'm sure you're looking at the data from the balance sheet and that's as on March 31st. Please understand that from -- we were stuck with a lot of inventory that typically would not have been, both raw material and finished goods because of the shutdown, because of the lockdown. And secondly, customers, there was issues with collection. So our debtors also just in those 2 weeks, the last 2 weeks went up quite dramatically because most customers stopped paying us. So this was one of the reasons why your calculation of 72, 75 days has come. Typically, it would still be in the range of '18/'19, 2, 3 days here and there. So that's a temporary phenomenon. And as soon as -- I think they started normalizing already as our customers have started picking up. They've got -- I've been pleasantly surprised with our collections, and the debtors are coming down as we speak.

Okay. Okay. And this INR 90-odd crores that you mentioned, INR 90 crores to INR 100 crore CapEx over the period of 12, 15 months, so do you foresee -- I mean our balance sheet price would allow such kind of huge CapEx in the next 12 to 15 months?

Yes. I think so, I think so. Even as on March 31st, we were net debt free. In fact, we have surplus funds. And so we -- and of course, one assumption in that is that things from the second quarter onwards would start looking much better for us. So we would start accruing some cash as well from Q2 onwards, which would allow us to fund this additional CapEx partly through our internal accruals starting from, let's say, July onwards and partly through debt. So it's not a large amount for our balance sheet, for sure.

The next question is from the line of Nav Bhardwaj from Anand Rathi.

Most of my questions have been answered. A typical one I would want to ask is, currently, we had said that in our opening remarks that we had a very strong order flow -- rather lifetime highs in our last quarter, but we could not fulfill them. Are we facing any problems in the sense of cancellations or renegotiation in prices, given the drop in price of raw materials right now?

The short answer is, it's complicated. But yes, in some cases, we ask because some customers have been very good about it and they are -- whatever orders they had placed at that time, they are picking up the material at those same old prices, whereas, of course, some customers are trying to take advantage of the current situation and prices. As we know, oil and petrochemicals are crashed, so they want the current spot price. I think it's a sort of yes and no is the answer to that; some customers, we've been able to give at lower price; some, we've had to renegotiate.

So something like 80-20 will be a good way to work with?

I don't -- I frankly don't have a number. I don't have that number. But -- I don't have a number on that. But yes, we are -- I think what you're getting at is we will have some stock losses from March because we were stuck with some high cost inventory.

All right. All right. Fair enough. I won't push you on that. The other part being that I want to know, sir, how much -- some clarity if you can give on our pricing formula, and how do we go about it? Is there a formula based, is it ROCE based, or is it a cost-plus model or is it simply spot?

It's a combination of formula and spot. So some customers who prefer to buy some quantities from us, they have a range of quantities that they commit, and then it works on a formula base and some customers on spot. So I would say it's probably more around 50%-50% or maybe 40% on formula, 60% on spot. The NBR market largely works on spot. There's a lot of other products that largely work on -- a lot of latex products, not all, but a lot of latex products that work on formula. I hope that answers your question.

And is it fair to assume that the gloves market will be more of an MRP kind of a product and margins over there will consistently be higher irrespective of raw material price movement?

No, because the MRP is for the gloves, right? We don't sell -- we don't manufacture gloves. We are making the latex and then supplying to the gloves manufacturers. Therefore, the latex also -- as of now because we are selling very small quantities, we have been selling on spot. And frankly, in the current market scenario, it does make sense to sell on spot because the spot prices are higher than actually some of the contract prices that some suppliers of latex have signed with the customer. And so since our quantities are very small right now, we are continuing to sell on spot for the nitrile latex for gloves. And that will follow the similar -- it's not an MRP-based product.

The next question is from the line of Farokh Pandole from Avestha.

Good job with the fourth quarter results, especially against the backdrop of the third quarter and all of the sort of volatility that we had at the -- during March. I just, related to that, had a question. Firstly, if you could give us some color on how the current quarter has been, even qualitatively, in terms of demand, in terms of raw materials, in terms of the actual logistics of doing business, et cetera, that would be useful. And also, I wanted to know what was the status of the power plant and the current cash on our books, net cash on our books.

Okay. As we -- I think last time we met in February perhaps after our last board meeting on this con call, and we were quite positive back then as -- or end of January, I can't recall exactly, but we were quite positive for Q4. And as I said, besides the NBR margins, everything else was really back on track, and we were excited, and things were going really well, and we were expecting Q4 for Taloja and exports would have been our highest, and we had the orders on hand for the last 2 weeks. So Q4 was really good and we were expecting a great Q1 as well of this year. Unfortunately, this COVID struck, and obviously, the rest everyone knows. As far as qualitatively, yes, I can give you a little bit of a flavor of what's going on with us. So we had to shut down, like everyone else, on March 23. We restarted both our plants between April 20 and -- one plant on April 20 and the second plant on April 23, I believe. As far as Taloja plant has been concerned, we've been running sort of continuously since then, of course, at a lower capacity utilization just from -- because of several constraints, people and raw materials, et cetera, took a little bit of time logistics to set right. Frankly, things are going reasonably well and much better in May than we expected, whereat, in May, we expect to close overall at about 60% of our regular sales that we had in January and February. So we were -- we thought it was better than what we expected and certainly better than a few other companies. Look, there's a lot of uncertainty right now. There's uncertainty on labor. We do have some -- there is a stigma attached with coming to work, so we're trying to work through that. We are -- we have uncertainty on government, can do any time, anything can happen, it can be a second lockdown in the month, so that's another concern. The third concern is, of course, there is a little bit of concern on logistics, although logistics in the sense raw materials supplies because in some cases we are dependent on 2 suppliers or -- on 2 or 3 suppliers all over the world, and we don't know what's going to happen in their countries also. But in the current context, at least for the next month or 2, we are well covered for all our raw materials. So it is -- in the short term, that's not an issue. We are quite upbeat because what we have done is we've adapted quite quickly. And we've realized that, look, some areas of our business will not do so well, areas in the sense some of the industries we cater to may not do so well in the next few quarters. And as a result of which -- we know one industry that will do well, which is the gloves industry. So we have moved very quickly, and we started this work on April -- in the first week of April itself where we started modifying our reactors, as soon as we could get some people in and started modifying our reactors to cater to the gloves industry, which, as you know, we were going to set up 3 reactors for it by next year. But given what's happened, it's not the most ideal way of making it. It's not -- the cycle times are long, but given that it's better to make this than keep the capacity idle. So that's a little bit about what we have done. Your other question was on the cash position. I think cash wise, we have around -- we have -- I have my finance team on, but correct me if I'm wrong, Suraj and Anand, but it's about INR 35 crore, INR 40 crore of cash on the books. Net cash after all, is my calculation correct?

Yes, yes. Around that only, yes.

Yes. So that -- I hope that answers your question. And then the last question, on the power plant, look, we commissioned it. We commissioned it in March, but we had to immediately shut it down as we were going through that process. And the part of process of commissioning is that we needed about 4 or 5 different vendors, the vendors from the turbine and the panel and the boiler to be on site for the first 2, 3 weeks. And just before the lockdown was announced, unfortunately, they had to leave for their homes. And so now we're bringing a lot of them back, and we are starting that process as we speak. And so -- and anyway, the plant has been largely shut. We started the Valia plant, but we again shut it down for lack of demand. And so there was no tearing hurry in the last couple of months to start it. And now, of course, we hope to restart it as soon as we start production again, which is next week. I hope I answered all your questions.

Yes. That's great. I just had 1 last question. You mentioned that there was a INR 60 crore or INR 80 crore allocation, which you were going to be making towards the gloves project. And you also mentioned that the work on the Taloja expansion would start post monsoons. So would it be -- is it fair to assume that the work on the gloves project will also start post monsoon?

Yes, that's the plan.

Okay, great, great. And I just also wanted to say that one of the earlier participants had mentioned about examining the possibility of a buyback. And I think in the sort of current situation, I certainly think that's an option which is well worth exploring and looking into. Just a suggestion.

Yes. Thank you. Thanks very much, sir. We'll consider it.

The next question is from the line of Harsh Bhatia from Emkay Global.

I joined the call a bit late. So if you could provide color on realization numbers per kilo for NBR, latex and HSR separately?

Look, we typically don't. First of all, these move quite drastically, especially in times like this; number two, we don't give out this kind of information. However, if you go to the market and ask for NBR price, from somebody you'll get it, I am sure. Similarly on the latex front. But I can give you a broad -- typically, the rubber is, as you know, 100% solid product. Latex can vary anywhere between 40% to 52%. So latex prices are typically around -- are about half, I would say, compared to rubber prices. This obviously varies depending on what's going on in each market, but that's how it typically works. Now obviously, it's different when oil is at $20 versus when oil is at $100. Obviously, these petrochemicals also follow a similar cycle, so do our finished products there. So that's the answer I can give you right now.

Yes. Makes sense. So last quarter, we had said that we were seeing price differential up to almost 25% to 30% with European and Asian markets. So we were expecting that to come around back to 5% to 8% across the board. So right now, how do we see those price differentials? And how do we expect that to flow into our exports? How will that benefit?

Yes. So that -- already, that happened in Q3. In Q4, we already saw that differential come down quite substantially, especially in the -- sorry, in Q4. We saw that come down quite substantially. And therefore, our February and March, the second half of Q4, exports are very strong. In fact, for the quarter, had COVID not happened, we would have had our strongest exports quarter in the history, I think, of the company in terms of volume. We would have had a very strong quarter for Taloja, also Q4. And I think in the current scenario, of course, look, COVID brought about a lot of uncertainty for our customers, for us. And so obviously, raw materials is no longer an issue. I think the differential between Asia and Europe is not there anymore or very minor. So that's not an issue. More of the issue is from demand right now.

The next question is from the line of [ Rohit Prakash ] from [ Marshmallow Capital ].

My first question is -- I mean I understand the expansion of gloves bit because we clearly see a demand there. But could you repeat again on the latex capacity addition in Taloja, what industry will that be catering to?

It's the same industry that we cater to now: paper, paperboard, carpet, construction, textiles, bunch of specialty products.

Okay. So given you mentioned how uncertain the current environment is. And hence should you see the demand growth over the next year for this industry -- for these industries at this juncture? Or you just want to be ready because you would have already hit 100% in January, February in this segment?

Yes. As I said, look, we -- anytime you think about capacity, you don't think of 1 year, you don't think about absolutely the current situation. And obviously, the current situation is extremely challenging. But in general, we have -- entrepreneurs and businessmen are optimistic generally by nature. So I am quite optimistic that, look, at some point or the other in the next year or 2, this COVID thing will be behind us. There will be vaccine, medication, something will come. See, we will learn to live with it, and we will -- hopefully, the human race will find some solution for it. So once that does happen, I expect '21, '22 to be quite strong for us. So we should be prepared for the next year, and that's why we're looking ahead 1 year, 1.5 years later. And therefore we think it's a -- and especially with the cost for us and the asset turn, it's kind of a no-brainer to go ahead and do it and prepare for the following year.

Understood. Understood. That was helpful. And the second question I have is for the XNBR Latex project for gloves, how many -- I mean do you have any competition in India for this product? Or how many -- or if not -- if there are none, then how competitive is this space in Asia?

Look, in India, there is no manufacturers of XNBR Latex. There are actually very few manufacturers of gloves as well. The large -- when we thought about doing this project, this was largely for the export market. The largest exporter of gloves in the world is in Malaysia, the largest exporters. So there are about 8 or 10 large companies manufacturing gloves. And they are catered -- the latex comes from a handful of companies in Asia, from Korea, Taiwan and Malaysia mostly. And so we thought there was a really good opportunity not only to export to Malaysia, but for the Indian industry as well, as well as Sri Lanka, Thailand, Indonesia, there's a lot of gloves manufacturers everywhere. Thailand is the -- sorry, Malaysia, I think, caters to about 70% of the global glove demand in the world. So this project is largely for exports to Southeast Asia.

And XNBR latex, the product in particular, there are not many suppliers of this product across Asia, is it?

A handful.

Okay. So it's a compound or a chemical -- it's related to...

It's a liquid.

And it's a regional product because it's a liquid product, is it?

Yes. You're right.

Okay. Fair enough. Understood. And the last question I have is on broadly the pricing. So when you do -- so obviously, as you said, the finished goods prices depend on the raw material prices, which in turn depends on crude oil broadly, and they fluctuate all over the place. So when you price, do you look at target EBITDA per tonne, or do you look to price it in a way -- I mean because if the realization of EBITDA per tonne comes down a lot, it might -- I mean if the realization per tonne comes down a lot, it won't be able to cover the fixed price if the EBITDA per tonne is not good enough, right? So how do you balance that? Because a lot of the costs like your employee, et cetera, would be fixed, right?

Yes. So typically, we don't look at percentages. Or I would not say we don't look at it, but I would say the most important thing is exactly what we said is EBITDA per tonne, in dollars per tonne or rupees per tonne or whatever. It has to be an absolute amount because the prices vary too much. So we do look at that number in an absolute form.

So when the prices go down, the EBITDA per tonne sort of goes down, but that will be sort of adjusted with the increased -- reduced working capital investment? So is that -- am I understanding that...

No. EBITDA per tonne does not go down. When prices go down, we try and hold the EBITDA per tonne. So percentage will go up and vice versa, yes.

Okay. So when prices go down, the EBITDA per tonne, if you maintain normally, then that would mean your working capital will also...

Percentage will be....

Sorry?

Sorry, then -- sorry, sorry. I didn't let you finish the question, I'm sorry. Go ahead.

No, no. So I'm just curious. So you sort of prefer a lower price environment in that case because the EBITDA per tonne, if you are maintaining at lower prices, your working capital investments would be -- would go lower, right, because lower inventory, and there will be lower inventory cost at same volume. So does that mean that lower prices will do much better than higher prices?

Of course, we do prefer lower prices because percentage EBITDA is higher, although EBITDA per tonne is -- ideally, should be fixed. And yes, and working capital requirement is lowered, customers, you know, also prefer lower prices, the negotiation is easier wherever there is spot negotiation. So from all angles, we obviously prefer lower prices. However, by and large, we try and stay -- we try and talk about this EBITDA per tonne and look at that number and make sure that's consistent. And as prices go up, we try and increase that EBITDA per tonne to cover that working -- extra working capital.

Okay. Sure. Understood. So then how come with the lower prices, the EBITDA margin has been much lower than in the past?

Yes. Because as I said, this is the ideal scenario. What does end up happening is there are times when -- what happened in Q3 was that 2, 3 things happened at the same time; one is NBR market, we were hit by dumping from -- for NBR. So the margins of NBR were -- in fact, the EBITDA was very, very low, EBITDA per tonne. And so that was one aspect of it; second aspect was that European raw material prices were much lower than Asian raw material prices, as a result of which our exports were affected, both in terms of volumes as well as our margins, both. And we also saw some -- even in India, some of the industries we cater to like construction and all went through a lean period for about 3, 4 months. And so when that does happen, then competition sometimes heats up. And EBITDA per tonne, which is generally at, let's say, one -- we know the general EBITDA per tonne that what it should be for different products drops when there is a little bit fight for volumes, which started turning in Q4.

Okay. So you see that stabilizing hopefully over the next year or so and then you'll get back to a normal sort of better margins than pre-COVID hopefully because of the power plant coming in and the debottlenecking also being complete hopefully.

Yes, exactly. Well, right now, our main concern is getting back to our volumes, that would be our first concern. And then, of course, I think given the current raw material environment, I think we're quite optimistic on EBITDA margins per tonne being quite healthy, that's not an issue.

The next question is from the line of [ Nikhil Porwal ], an individual investor.

Abhiraj, can you tell me if -- I wanted to ask about the XNBR gloves project that you're working on. So as you mentioned, the world's biggest glove manufacturers are in Malaysia. So do you have any commitment from any of the largest manufacturers for setting up this capacity on a constant basis because all of these manufacturers have a very big CapEx plan for the next 2, 3 years.

So what's your question? Sorry. Do we have any...

So I mean do you have any commitment from any of the biggest manufacturers for continuous uptake of these raw materials?

Well, frankly, we have got a lot of approvals from some of these big manufacturers. The problem is they said you at least start putting up the capacity and don't worry about the volumes. This is -- and what capacity we intend to put up initially is not even a couple of percent of the total gloves latex market what they can consume. So we don't expect that to be an issue at all. If we can make the right quality of product at the right price, and we think we can do that, we have already got all -- quite a few approvals. There are issues, of course, like in some customers where they wanted to maintain color or something, a little bit here and there. But as I -- we've already been selling -- I think this year itself sold a few 1,000 -- maybe 1,000 tonnes or even a little bit more, I don't remember the exact number. So we are quite optimistic about that. That's not an issue.

Okay. And I don't know if you'll be comfortable sharing the name of the customer, but can you give me a hint whether it's amongst 1 of the top 5 glove manufacturers?

Yes, not only one customer. We have, in fact, been engaged with all of them. All -- I mean out of the top 5, we're engaged with all 5.

So that includes Hartalega and Top Glove in that.

I mean I guess that's public knowledge. You can just look it up for who the top customers are in Malaysia and the world.

Yes. And another question I had is, the NBR capacity, as you mentioned, is around 30% to 40% of the revenue, and half of that is consumed by the automobile sector. Now I'm talking about a long shot wherein after a couple of years when the shift to EV starts, where will this capacity be used? I mean I'm sure that there's some avenue where this can be used.

Okay. Let's take a step back. So one is the total market in India for NBR totally is around 50,000 tonnes. Our entire capacity, even after this small debottlenecking expansion we have done, is 20,000 tonnes. So if you assume 50,000 tonnes, and half of it going to auto, approximately half, that is also a little bit higher than -- higher estimate, but approximately half, the remaining market will be there for non-auto, which is growing at 4%, 5% pre-COVID at least. So it was growing at minimum 5%, 6%, I would say, in India. So we think that auto is not going to become 0 overnight, right? It will take 10, 15 years, for it to become 0, if that is already -- so we think as long as there is export market, there are no other NBR manufacturers in our part of the world. When I say our part of the world, I mean Middle East, South Asia and Southeast Asia. That market itself is another 35 -- at least 40,000 tonnes. So I don't think we're very worried about that, frankly, in terms of volume. What we're worried about, currently, with our experience in the last 5, 6 months is the margin.

Yes. I kind of got that in the Q3 numbers.

Yes. Yes. So volume -- and doing business and volumes and EV and all -- while it's an issue in the long run, we are not setting up large capacities. So it's not -- the people that should be worried are the people that have very large capacity, 100,000 tonnes, 120,000 tonnes. Those are the guys that should be worried because -- and in India, also, luckily, we have other markets. In China and in other -- in Europe, auto is a much higher percentage for NBR, it's, say, maybe 70%, so...

Yes. And I don't know if you've mentioned about this, I joined the call later. I saw your company has applied for sunset review for NBR. So is there any progress on that?

Yes. As I mentioned, we've applied for against Korea. There was a small antidumping, so we have applied. It's a -- therefore, it's called a sunset review, and we've also applied against to -- again, this is public information, so I can mention it again, for other 2, 3 countries for a fresh petition antidumping. I cannot comment on -- the investigation is ongoing, that's all I can say.

Okay, okay. And 1 last question. So like it's been happening in the entire chemical sector, wherein there's a lot of shift that's happening from Europe to India or maybe somewhere in Asia. So is there scope for something such in the synthetic emulsion polymer industry?

Yes, to some extent. Yes, absolutely, there is.

Is there a further value chain in this, like some high-performance products or something like that?

Look, we have a longer-term plan for few other products. But as I said, it's just too early to say, and we would not want to reveal all that right now.

Yes, yes. Not a problem. Okay. One last question, sorry. Can you give your sense on the reviews that you received for ApcoBuild from the Indian market?

Yes. I mean it's growing well. We -- as I always mentioned, it's a much smaller percentage of our business. We are growing it slowly and surely. We started off in the Mumbai market. And we are now in the Western region in a few states, and little bit in the South as well. So it's actually very quite well received. We are focusing on products where we are backward integrated. We're focusing on products that are not me-too products. So therefore, the growth will always be a little slower. We're focusing on products where we have a distinct technology advantage, and it's going quite well. And I would say, in terms of -- it's a very small value in terms of overall as a percentage of -- to what overall Apcotex is, but reasonably profitable, yes. We're happy with the progress.

I hope it increases as a percentage of revenue because I see that the ROCEs are significantly higher in that business for you.

Yes, yes. We have to -- there's a lot of other challenges as well, distribution network, branding. It's a completely different type of business. So we're slowly growing it, yes, absolutely.

Thank you. Ladies and gentlemen, this was the last question for today. I now hand the conference over to Mr. Sonpal for his closing comments. Over to you, sir. Mr. Anuj Sonpal, over to you.

I think maybe Anuj dropped off, I'm not sure, maybe he got cut off. But I'd just like to thank everyone.

Sure, sir. Go ahead, please.

Yes. So I'd just like to thank everyone for joining the call again. I hope everyone has stayed safe and stayed healthy in these difficult times. While there is a lot of uncertainty in the next few months and quarters, from the company, I can tell you, we're quite upbeat and excited over the next few quarters, a lot of opportunities as well. We are excited that we have a good diverse range of industries that we cater to. And over the next few years, we also will expand on the diversity in terms of geography. We have products that you know either a handful of companies in the world make or only 1 or 2 companies in India. So we're quite optimistic, and I hope things go well for the country, for the world. And we'll see you again next quarter on this con call. Thank you very much.

Thank you very much, sir. Ladies and gentlemen, this does conclude today's conference call. Thank you for joining us, and you may now disconnect your lines.