Apcotex Industries Limited (523694) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '21 Earnings Conference Call of Apcotex Industries Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal, CEO of Valorem Advisors.

Thank you. Good evening, everyone, and a warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations for 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 second quarter of financial year 2021. Before we begin, 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 with us in today's earnings 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 earnings conference call for H1 Q2 FY '21 under review. Along with me in today's earnings call, I have our Managing Director, Mr. Abhiraj Choksey. I hope you had an opportunity to look at the company's performance for Q2 FY '21 as well as the earnings presentation which has been circulated and uploaded on the website as well as on the website of the stock exchanges. First of all, we are happy to report that all business operations were back to normal in this quarter, which were affected due to COVID-19 and subsequent lockdown. To brief you on the financial performance for the second quarter of the financial year ended '21, the total revenue stood at INR 129 crores with EBITDA of INR 18.5 crores for the quarter. The EBITDA margin stood at 14.31% with a growth of 883 basis points. The net profit stood at INR 11.6 crores, PAT margin stood at 8.97%, which is a growth of 607 basis points. For the half year ended FY '21, the total revenue stood at around INR 1,891 crores with operating EBITDA of INR 14.2 crores for the quarter. The EBITDA margin stood at 7.51%, which is a degrowth of 168 basis points. The net profit stood at INR 5 crores and profit margin stood at INR 2.64 crores, which is a degrowth of 290 basis points. This is, of course, only due to the business being significantly impacted due to COVID-19 lockdown during Q1. In this quarter, the Apcotex has achieved the highest ever quarterly sales volume in domestic as well as export side. We have managed cash flow very well during this pandemic and lockdown situation without significantly increasing the -- any problem -- increasing the working capital limit. The company has made investment to make the assets more flexible to make multiple products, which help to ramp up the production of XNBR Latex for gloves manufacturing, where the demand is very strong. We also contemplate -- completed all the projects in Phase 1 with a total CapEx of INR 100 crores from FY '18 to FY '20. The benefit of cost reduction and enhanced capacity have also now started accruing. To update you on the future CapEx plan, we are going to spend approximately INR 130 crores to INR 140 crores, starting from October 1, 2020, till December 31, 2021, which will be used for XNBR Latex for hand gloves in Valia and other debottlenecking and improvement on the efficiency and EHS products across the -- both the plants. With this, I'd like to open the call for question and answers. Thank you.

[Operator Instructions] The first question is from the line of Karan Bhatelia from AMSEC. Please go ahead.

Congratulations for a good set of numbers. Sir, any update on the antidumping duties on the NBR portfolio that we have been talking since quite some time now, so what is the progress, sir?

Karan, thanks. Thank you for joining. Thanks for your time. The progress is that we filed for -- we filed 2 petitions. One was a sunset review petition against Korea, which was initiated in January of 2020. And subsequently, in Q1, we also -- or before that we filed a petition against 4 other countries, and that petition was also initiated in Q1 of this financial year, I think, in around April sometime. And so, I think, look, this takes some time. So hopefully in the next few months we should hear back. The process is ongoing.

Okay. Okay. And sir, in the presentation, we have mentioned that all the user industries have shown good growth. So which are the predominant ones who've shown they've an expected growth, which user industry have seen this?

Frankly, compared to Q1, we are -- all the industries that at least we are catering to have shown a pretty strong rebound. Of course, within that, there are some industries that have done better and some not so well. Like, for example, construction has not still rebounded as well as we would have liked. Similarly, paper and paperboard, there are sections of the industry which we are catering to essential products, they have done well. The section -- some companies that are catering to nonessential products, that are still to rebound as much as last year. Other than that, all other industries are doing reasonably well, in -- at least in the last 2 to 3 months, yes.

Correct, correct, correct. And sir, if you can break down the volume growth and realization growth, that would be helpful?

Sure. So I also should mention that one of the other reasons for growth is this XNB Latex. We were able to -- when the lockdown did happen, our initial thinking was that we would have a limited -- a limited quantity of XNB Latex from our current reactors or current plant setup that we have. But since the demand was very strong for XNB Latex, since it's a medical gloves, we decided to make our reactors and we invested in fact in the last few months, invested some money to make some of our reactors in both locations flexible to make XNB Latex, and we've been able to do that. So that's also helped the growth. Overall, I would say volume growth for Q2 has been 18% over Q2 of last year, approximately 18%. In value terms, it's much less because of raw material prices, of course, being subdued in the last quarter compared to Q2 of last year.

Right. And sir, last question if I may chip in, so the margin expansion could be because of some change in product mix or savings with respect to the recent captive power plant that we've installed. So any comments on that?

Look, I think, it's a combination of reasons. The margin expansion has been one. Yes, certainly, some of the investments that we've made have certainly started accruing some of the savings, and we expect more going forward. Raw material prices have been quite subdued, which is, of course, heads up as well, and -- while they have been increasing, though. So there's been some good buying of raw materials that happened. There is also some amount of what we think could be pent-up demand in the market. Q1, a lot of things were -- lot of industries were shut, lot of demand -- shops were shut as well. So a lot of demand for products was down. So a combination plus the new products that we have launched. The combination of 3, 4 factors have really played in our favor and therefore the margin expansion.

So are we like back to those 50%-50% kind of revenue mix for latex and XNBR? Or still we are kind of 60%-40% or a 70%-30%?

No, we are about -- frankly, not calculated exactly, but currently, we remain at about 50%-50%.

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

Congratulations for a good set of numbers. So as you mentioned that there has been a volume growth of 18%, but still value growth is not there. But what we are seeing right now for last 1 or 2 months is that RM prices are moving up. So can we assume that in the next quarter, there would be some benefit of price realization as well? And maybe there would be some volume growth or -- from your new XNBR part as well?

Yes. Certainly, look, the volume growth we expect to at least carry on into Q3. Difficult to say beyond that because there's so much uncertainty still in the world and India. But overall, I would say, yes, we expect the volume growth to continue. What was your second question -- rather, your first question?

Sir, on the realization part, I mean, prices are -- as you mentioned that value growth was not there in this quarter as such. But since we -- prices are moving up for RM, so can we assume in next quarter there would be some better realization as well?

Yes. I think that's probably true. The -- since raw material prices have gone up, that will probably happen, yes. That realization will go up, yes.

Okay. And sir, on this CapEx part, I just wanted to know, I mean, how much it would be attributed to the latex or glove segment? And what capacity of glove would be there? And we had overall this INR 100-plus crores CapEx what we had envisaged for next year. How much of that would be attributed to?

So we are planning about INR 100 crores CapEx for this new project for XNBR latex for gloves. We expect about INR 300 crores to INR 325 crores of revenue from that project to start with. And of course, we are also making provision. In this INR 100 crores, we are making provisions for future growth. So the future CapEx will -- for future growth when we want to go above 40,000 tonnes or so, will be, of course, much lower. So investment per tonne would be much lower in the future. Yes, that should answer your question, I think.

Okay. And what about the capacity what we are building in?

I said about 40,000 tonnes.

[Operator Instructions] The next question is from the line of Amit Mehta from Sunidhi Securities.

Yes. On antidumping duty -- hello?

Yes, go ahead.

You said that the petition has been filed and also the things had been initiated in the Q1, and it will take a few more months to process on it. So in past, whether on NBR there was antidumping duty in the past? If yes, then what percentage? My second question is, what is the international price? And what is the -- how the domestic price and international price are varying? So how the company will be benefited if the antidumping duty is imposed?

Look, it's difficult to say exactly the percentage because so far -- so to answer your question -- first question is, yes, there is an antidumping duty only on the country of Korea. The antidumping duty is quite small compared to the average price, which we see of NBR in the market and it varies. It's gone to as low as $1,000 and as high as $2,000, $2,400 in the last 2 years. On average, I would say -- so it's a fixed amount. It's not a percentage amount that duty. But I would say on an average, it accounts to only about 2%, 3%, about 3% which is quite miniscule, hardly impacts us. And we are quite -- and frankly, we've been quite competitive till 2018-'19. But for some reason, the dumping again started in '19-'20 and therefore, if you see our results in Q2 and Q3 last year, especially were muted because of the dumping that started from Korea and then -- of course from Korea and then followed by other countries as well. And that's what our petition was for. That -- look, we feel confident about competing. It's not that our cost structure, we're not inefficient. But if this does happen and bigger competitors take advantage of India, then we must at least bring it to the notice of the authorities within -- in the Indian government, and which is what we have done. And so we want a level playing field and -- for them to be fair. And hopefully -- we think we have an excellent case and hopefully it should go through. We've filed 2 cases. One is the extension and enhancement of the duty from Korea, which already exists today...

Okay. What is the current duty, $1,000?

No, no, no. Current, -- no, no, it's much less. It's like under $100. So it's very small. And for the other countries, there is no duty. So that's what we want to...

Okay. So currently, in the absence of antidumping duty, what is the landed cost of NBR and what is the Indian selling price? What is the difference?

Look, all these are -- it's contextual, every month it changes. These are available in the market. So I'm sure you can find this out in the market anytime.

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

Congratulations on the strong numbers. My first question was on the CapEx number, which you mentioned in your presentation. I seem to recall from a few quarters back that we were talking about a INR 250 crores number for this expansion. So is it that we have further broken this into phases and maybe following phase beyond next year, we can look at incremental capacity given that you had mentioned that you made provision for incremental capacity? Or have we downsized the level of capacity that we were initially looking at?

Farokh, thanks for the question. So yes, just to clarify, there were 2 projects we were looking at. One is XNB Latex for gloves, which at that point, we thought would be about INR 60 crores, INR 70 crores, and we would do about 30,000 tonnes, but we've increased that to about INR 100 crores, and we had to do -- get about 40,000 tonnes, with a provision to expand further, almost double it if we want at a sort of marginal further cost. The other projects were about INR 150 crores to INR 180 crores for expansion of NBR, the solid NBR, which is still on the card, which -- but we were just talking about the next 15 months. We will probably look into -- look at that once we have some clarity on this antidumping duty as well. But that will be about INR 150 crores to INR 180 crores addition. The remaining, what Anand mentioned in his opening remarks about INR 130 crores is also other projects. We also have maintenance CapEx of INR 10 crores, INR 15 crores every year. So that is included in that, plus there are few other projects that we're looking at improvement projects of another INR 10 crores, INR 15 crores. So that's why the total of INR 130 crores in the next 15 months. I hope that clarifies your question. Hello?

Mr. Farokh Pandole, your line is unmuted. Please go ahead, sir.

Hello? Can you hear me?

Yes, we can hear you now, sir.

Okay. Yes. That's pretty clear. I just -- the second -- related to the first question is, if broadly you could -- from the experience of the last couple of years where the macro has really been very difficult and we have had a few projects which we've been looking at, including the CPP, which is now -- has been commissioned and is operational. What sort of learnings of project execution do you take away from the last couple of years as you embark on the next 15 months and beyond? So that was sort of related to the first question. And the second question is just on the margins, which obviously were very strong this quarter. How much of these margins do you believe are sustainable? Or is this a new level of margins going forward that we are talking about on a sustainable basis?

Look, there have been many learnings from previous 3-year projects that we have implemented. And a few of them are sort of not for the public domain. But needless to say that we've learned a lot. One of the things that we have learned to do is internally as well on project management, making sure things are done on time. The second thing is, of course, there are -- and that still remains a challenge today, especially in COVID times is certain environmental consent that we need from the government considering these are chemical plants and handling hazardous raw material. That is something that is taking time, and that's one big uncertainty that we see. Other than that, going forward, I feel pretty confident that from now on, barring any issues related to COVID or government approval, which I'm pretty confident of implementing the projects on time. As far as margin expansion, look, as I mentioned earlier, we feel confident that margins will be better now than they were overall for the company. NBR was still a challenge, I would say, in Q2 as well, given the dumping. But the steps we have taken has certainly helped. There is a certain amount of pent-up demand as well as lower raw material prices, which may have helped in Q2 and it's difficult to say how long that will last. But at least in the foreseeable future in Q3, we see it continuing. Q4, I'm not sure. As I said, there's a lot of uncertainty in the world right now. So difficult to predict what will happen in the next 3 to 6 months.

The next question is from the line of Nikhil Chowdhary from Kriis Portfolio.

Sir, first of all, I wanted to thank the management for being as transparent as possible in all the con calls and educating us in respect of the business. Sir, I just wanted to understand the competitive intensity of the products that you're operating. Like I understand we are fairly big player, like there's some 25% to 27% market share in the NBR portfolio that we operate in, and balance of the demand is met through imports. So just wanted to understand the number of players that we are competing in the domestic market pricing power, like I certainly understand we are able to pass the raw material prices with a lag, but just in terms of how big are we and what is our aspirations going forward? That's it from my side.

So look, we are in different -- you only touched upon NBR, but as a company, NBR is only 30%, 35% of our overall sales currently, solid NBR. So overall, I would say, the competitive intensity depends on different products. I think we have 4 or 5 different categories of products. One is styrene butadiene and styrene acrylic latex for which there is a whole different set of competition. We have competition in India as well as few imports. For the -- and for XNB Latex, which is a new product we have launched and are doing reasonably well right now. Again, there, we are the only manufacturer of that particular latex in India. And globally, there is only a handful of manufacturers, maybe 6 or 7 manufacturers of this particular product. Mostly all of them are in Asia. As far as the solid rubber is concerned, NBR and associated products that we have with NBR like polyblends and powder and such, where, again, we are the only manufacturer in India, but there is -- competition intensity, there is high because there's a lot of imports and it's much easier to transport solid NBRs than it is for liquids. Liquids like latex, which is generally about 50% water. And the other rubber we have is our high styrene rubber, which is about 10% to 15% -- 12% to 15% of our sales. But again, the competition intensity in India is low, but there are a few manufacturers globally.

Okay. Great. Great. And sir, last thing, like how -- in terms of the long-term contracts that we engage in with our customers, how sticky are the customers? Like, is the price only the criteria that they would want to switch to the other competitor? Or is it something that -- unique that we bring to the table that they stay with us for a fairly long period of time?

Look, we like to -- we do think -- I would say, we do think that, of course, especially in the latex products, it's much less commoditized. There are specialized -- specialty products, which are quite sticky with the customers. As far as the rubber products are concerned, they are commoditized to some extent. But we do have certain attributes in our products where we do give advantages to our customers, but it's only beyond a point, right? So like what has been happening in the last year about dumping, if there is significant dumping where material is coming in, 15%, 20%, 30%, I don't know, cheaper than what it should be, then, of course, customers are going to be attracted towards those prices and manage their processes even without the best product. So it's not only price, of course, but price is also one of the important factors for at least the products like solid NBR.

The next question is from the line of Saurabh Shroff from QRC Investment Advisors LLP.

Abhiraj, congratulations. One question on CapEx. So we had mentioned last time that we were looking to add about 20% capacity to latex by the end of this financial year. Is that on track? And sort of how is that project progressing? I'm sorry if you answered this, but I got into the call a bit late.

No, I'm not quite clear what you're referring to. So one was debottlenecking of our current plant, NBR plant, which we wanted to take from about current -- which was 15,000, 16,000 tonnes to about 21,000, 22,000 tonnes. So that's been completed. And that...

Sure, this was the Valia one?

Yes, Valia. This is what you're referring to?

No. I thought that -- was it that last quarter or one before that, I can't recall? We had said that we want to take the 55,000 tonne latex capacity up by about 20%, so that it will be...

So you're right, that will be -- sorry, go ahead. 55,000 tonne latex capacity, what were you saying?

Yes, I thought that we were going to debottleneck that as well as we were adding some capacity there, too?

Yes. So that plan is still ongoing. I would say that right now because we are at little under 100% capacity utilization, we are debottlenecking that. We have also been able to manufacture XNB Latex for gloves there from one of the reactors. As I mentioned, we retrofit that reactor. So we've gone slow on that project, but it's part of the INR 130 crores that I mentioned. It is part of the debottlenecking and eventually, I think by end of next financial year, we will probably be at 70,000 tonnes or so for latex capacity in Taloja.

Understood. Okay. So 55 will go to 70 in another 18 months?

Yes. That's our endeavor. But as I said, we -- it will depend on how quickly the product moves off, so we'll keep a watch on what's happening in the economy. And that's a process, which is not really time -- it's the reactor we already have enough capacity. It's the debottlenecking if it's still required around it, which is not more than 5, 6 months. So we are doing that in phases as well.

Understood. And second question on margin, and I know you get these questions every quarter from a lot of people, but I guess I'm just trying to get a better handle on how things should move from here. So bear with me. So obviously, there's been a big margin jump this quarter. Some of it has been the debottlenecking benefit and I guess the power plant coming on stream finally. Could you maybe help us understand if there has been any change in terms of the sales mix or product mix that has helped and how sustainable is it? Because we've sort of seen this 13%, 14% margins, I think, back in 2016. And then it's been a bit up and down. And then now finally, we are back up to this base. So just want to -- I'm not looking for a specific answer, but if I could just get some sort of a range that is the new range, let's say, 11% to 15% or 9% to 12%, whatever may be the case, and however, you can help us understand this better, please.

Yes. So certainly, it's a little too early to say given what happened with COVID on what's sustainable and what is not. What we do expect is we expect the second half of the year to certainly be better than the first half as well as better than last year. That's something that's a clear expectation because of the present certain projects that we have already taken up, CPP being one of them. The product mix of adding XNB Latex has also helped certainly. Of course, even now, it's only about 10% of our sales. But of course, that has helped because the margins there are fairly strong. We also think the other big factor is the dumping of NBR that we witnessed in the recent past, and that's one uncertainty that's still there. But overall, I would say things will, in our mind, should definitely be better than last year and the first 6 months. Whether 14% to 15%, I know you all -- some of you have tried to pin me on those numbers, it's really frankly hard for me to also exactly pinpoint that number. But just an endeavor is to be at 15% to have sustainable good growth. So I'm hoping we will try and achieve that in the next few months, next few quarters.

Okay. So -- and I guess then this sustainable number that you are talking about, I guess that has to -- I guess that will be X of the commodity volatility. So it is sort of based on factors that are in our control, whether it's the CPP or the product mix, et cetera?

Yes. I think so -- look, that's a big factor as well. As I mentioned in previous con calls, one is percentage margins, the other is also absolute margin. Now when oil is at 40 versus oil is at 100, our absolute margins may be even higher at 100 compared to today, but our percentage margins may fall and that does happen when we're dealing with a commodity like oil, which is highly volatile. So therefore, it's hard to...

I appreciate that. So Abhiraj, actually what -- that was going to be my next question. What may help and I don't know about the competition per se, but if there was a way for you to maybe share some either utilization or volume data with us? And maybe we have a better handle on sort of turnover per kg margin? And then this percentage margin question kind of gets thrown out because it's actually not relevant, like you said, because it's entirely based on where crude and its derivatives are. If it is something that you could disclose, maybe not as individual segment, as a broad level if there is something that you think is feasible. I think that will go a long way to help us understand where margins are.

It's always a dichotomy and we've debated this internally is that we want to be as transparent as we can be with our analysts and investors. At the same time, we also have to protect our own interests vis-à-vis competitors. So unfortunately, we've at least so far decided not to give out any of those numbers for those reasons.

The next question is from the line of Ankit Kanodia from Smart Sync Services.

Congratulation on good set of numbers. Taking the point further from our last discussion on the last con call, are we still seeing on a EBITDA per tonne basis, we are doing better than last year or on comparable basis somewhere around the same place?

Both EBITDA per tonne and both the EBITDA percentage both of course is better in this last quarter than it was last quarter of last -- I mean the quarter of the previous year -- corresponding quarter in the previous year, if that's your question.

Okay. And we've seen that the inventories have reduced significantly in H1 compared to what it was in Q4 FY '20. So how do we see the inventory, just direction wise in terms of cost of inventory and how it will pan out in H2?

There are 2 reasons why the inventory. One is if you recall in March end is when we were hit with the lockdown. So all the production that was supposed to be dispatched between March 20th and 31st was totally held up. All our plants shut down from the 24th and so did a lot of our customers. In fact, went slow in buying from March 15 itself as we started getting feelers from the government that something like that could happen. That was the reason for high inventory. And as a company, we always try and operate on low -- as low inventory as possible unless it's for strategic reasons that we've seen it's a good time to buy extra and keep on the raw material side or the finished goods side, if you want to keep. But March 31 was an aberration, I would say, because of the lockdown timing.

Okay. So as in -- for H2, we would say we are much better placed compared to what we were in case of Q4?

Absolutely. Absolutely.

And we have had enough discussion on the India thing. The another risk which we can discuss about is on the raw material front. How do we try to combat the dependency issue on the raw materials? Because most of our raw materials we are dependent upon imports. So do we have any long-term plans for that or what is our view on that?

We have -- yes, 2 of our raw materials, we are completely dependent on imports because there are no Indian manufacturers. However, we find the risk to be quite low, in the sense that there are enough suppliers for those raw materials. And we have developed a strategy when we are supplying from multiple sources, we also have multiple port locations that we are drawing these materials from. So in case of a situation in Maharashtra, we can always get it from Gujarat and vice versa. So having 2 plants has also helped us in some of diversifying our risk as far as raw material procurement or imports is concerned.

In terms of geography, we are importing these material from? How much dependent or diversified we are in that sense?

Everywhere. Yes, not dependent on any 1 country, nothing like that.

Okay. Okay. So no concentration in any 1 particular geography, right?

No.

One last point is, if I can just squeeze in. So this is the fourth con call I'm requesting about the ApcoBuild details, and I'll keep asking until and unless I get that.

Yes. You mentioned last time about them and we said that we would include in the next annual report, which we could not do or we did not do last time around due to some miscommunication, but we'll definitely do it in the next annual report. Any specific question?

Specific question is just, I mean, do we still see it as a very small number to our revenue? Or we see something improving in the current year?

Yes. Okay, fine. About our revenue, we will continue to grow the business. Of course, it's going through a tough time currently because of the overall construction industry in the last 6 months has been more affected than most others. But having said that, we grew -- at least up to '19, '20, we grew quite well for 3 years prior to that. Actually, as I said, we don't give out exact numbers. And the profitability has also grown considerably well. And I -- we expect at least this year is going to be challenging. But from 2021 onwards -- sorry, '21, '22 onwards, the focus still remains. It's synergistic to our current business. We are focusing on some of the products that we manufacture, and then we're also outsourcing some products to complete the market of products, and we've built the ApcoBuild brand. It's still a very small percentage of the company revenue, but we will continue to do it and give more details in the annual report.

The next question is from the line of Nikhil from Perpetual Wealth Management.

Abhiraj, congratulations on the good set of numbers. I just wanted to get your sense on this question that Reliance Industries and ISRPL producing NBR. And at least RIL is completely backward integrated for monomers. So why haven't anyone in India ventured in the manufacturing of NBR? And does it make sense from an ROCE point of view to backward integrate for monomers?

Well, first of all, they are backward integrated for one of the monomers. The other monomer, styrene, we're still importing, number one. Number two, NBR is a specialty rubber compared to SBR, which is more of a commoditized rubber where the bar sizes required are much larger. You'd have to ask them why they're not going to the NBR business, one, obviously, it's a little too small for them and the market is also very small. The entire Indian market may not be interesting for companies of their size.

Okay. And I had a similar question. I just wanted your sense on this. And can you maybe give a sense on this as part of your operating expenses, how much percentage of it is fixed? I'm just trying to understand how can operating leverage help us to improve the profitability?

Look, again, these are numbers we don't give out, and it -- pricing varies quite a lot year-on-year. Just to give you an example, between '18-'19 and '19-'20, we had actually almost similar volume or little higher volumes in '19-'20, if I'm not mistaken. And yet, our total revenue was down by about 20%, or 18%, mainly because raw material prices were muted on the back of oil in '19-'20. And so as a percentage fixed overheads, you would see much higher in '19-'20 than in '18-'19. I hope I'm not going too fast on this. So it's a difficult one to give out and this is again a number that we don't typically talk about, and may not be relevant, frankly. The absolute number is relevant, not the percentage for that reason.

Can I just squeeze in 1 more question on NBR that your plans for expansion on NBR maybe on hold currently. But if you divide the market in maybe auto and non-auto part. What's your sense on which market do you see growing faster because I'm sure that it should be non-auto, but I'm still just asking.

Difficult to say, frankly. Yes, let me put it this way. I think non-auto is most predictable because the industrial, agricultural is predictable. Auto in the last 2 years has been -- 2, 3 years has been quite unpredictable. There has been quarters where it's been really better than expected because in quarters where it's been unexpectedly low growth or degrowth as we've seen in the past as well.

So I think that maybe your capacity utilization currently maybe around -- you may be running at full capacity currently in NBR. I know you don't give our capacity utilization in numbers, but still any sense on that?

Yes. I mean look, over the years, over the last 4 years, 4.5 years since we took over, we have focused a lot on our quality of the product. We have removed -- actually reduced the number of grades since we took over. We are focused on customer approval. We've got a lot more approvals this year than we had last year. An improvement in quality has certainly helped in improving capacity utilization. And obviously, in Q2, we're satisfied with the volumes because we are going to protect our market share. We're not satisfied with the margin due to the dumping that was continuing or has continued.

I hope you get the antidumping duty in your favor. Any progress on any new grade? I'm sure there are premium grades in NBR while you're working on that. I know you won't give that out, but any broad idea on the R&D side of the business?

Absolutely. We are working on new grades all the time, new grades for our company at first, not new grades to the world. But new grades will help us increase our market share; grades we didn't have before, customers that were not approved before. So we continue to do that. Having said that, within NBR, we're not doing something significantly different in terms of [indiscernible] that we could add to our portfolios, but this has required a lot of investment, that it will be a really different -- almost like different grade of NBR. Similar to like what we are doing for latex, right? Like we already had SB latex and Acrylic latex. Then, we went to do XNB latex, which is latex still, it's still sold in liquid form, but it's a completely different chemistry and completely different set of equipments and processes that are required to manufacture it. And so right now our focus for the next quarter is going to be XNB latex, which is where we see the opportunity and where we think our capital and management bandwidth should focus on.

That should commence in FY '22? I'm just asking that.

Yes, by the end of FY '22, correct.

The next question is from the line of Suvarna Joshi from Axis Securities.

Sir, I hope your team and you are safe during these COVID times. Most of my questions are answered. But I have one question -- rather 2 questions. You mentioned in your opening comments that both the domestic and export markets have done well for us. And sir, one, is how much is the export contribution in this particular quarter or maybe in H1? That is one. Second, in terms of exports, now since we are seeing rising COVID cases again in the European region, do we see any threat of a business slowdown coming in from there? If so, have we started getting any kind of intimation from our customers or anything of that sort, if you can just help us understand it will be really helpful?

Sure. So exports is about 16%, 17% for the first half of the year, and I think similar for Q2 as well. Q1, Q2 overall about 16%, 17%. As far as the export market is concerned, absolutely we're concerned. But again, surprisingly, all our customers are still, even as of today, quite optimistic about the next few months. Maybe fortunately, the -- some of the exports that we'll cater to, one is of course gloves and because of COVID that demand is likely to be strong for quite a few quarters more. The other is for example, carpet. We still find in carpet demand to be quite strong. Maybe as I was talking with some friends of mine that anything that is used in home is actually demand is going up because people are spending more time at home. So it's simply counterintuitive, but it depends on the product. So we are quite optimistic at least for Q3. And as I mentioned earlier to one of the other people who asked the same question, you're right there is uncertainty and we want -- we don't know because lockdown in France was announced today right here. We just heard. So we don't know what kind of impact government intervention will have on overall the economies and therefore business demand. It is something that we are keeping a watch for. But surprisingly, as of now, it's quite optimistic.

The next question is from the line of [ Anand Jain, ] an individual investor.

First question which I have is on the XNB latex expansion that we are doing. From what I've heard is that there's a significant demand of XNB latex as is quite evident from the result as well. But do you think the demand could be short lived because the demand is driven by very large tenders coming out of USA and that could be like short-term thing. So that is the first question that I have. The second question is, maybe if you could answer this because second one is related to NBR actually.

So I -- look, we've been talking to our customers who are obviously much more in touch with the market. And what they tell us is, really if COVID is under control for the next -- in the next 1 or 2 quarters, the demand for gloves will not sort of subside immediately because a lot of -- 2 reasons, one is in medical, in hospital facilities and other medical care, people are changing their gloves more often and the PPEs more often than they used to earlier. Number two, people at home now, consumers, like you and I, who perhaps were not using gloves at all, are using it more when they go out, and that's likely to continue for a while because while COVID can be brought under control, it's not going to disappear even in the next 2 quarters; it's not going to go to 0. So at least for the next few quarters, this has been -- this growth will continue. The second big issue is that there are 2 ways to make medical gloves. One is through natural latex and the other is through Nitrile Latex. Unfortunately, Nitrile Latex production is cut. They are through rubber trees and rubber trees can't be grown overnight. It takes 7 years before you can grow a rubber tree and then utilize it for deriving the latex. So that supply is not going to come immediately. And so the rest of the supply has to come from Nitrile Latex. And so companies like ours and some of a few others are working hard and enhancing capacity quickly to cater for this growth, which we think is going to last for a few quarters. And even pre COVID, growth for this...

A few quarters is understood, sir, but maybe beyond that because you know that we had...

I was just about to finish that. Even pre COVID, the assessment of the growth of this industry was 12% to 15% for the next 10 years, which I think is very, very healthy growth. Because people are moving from natural latex to Nitrile Latex glove. Even COVID -- after COVID, a lot of governments including the Indian government and the US FDA has preferred Nitrile gloves for medical personnel over natural latex gloves. One, because they have less protein allergy and they are more chemical resistant.

Okay. That makes sense. The second question that I have is that in NBR, there's already a certain amount of antidumping duty from Korea. And it is an extremely competitive commoditized product. My question to you is that generally, what you want to do in these kind of commoditized product is not to expand capacities unless you have an operating leverage coming out of it, which makes you competitive, but to go either downstream or upstream. Downstream because you want to specialize, upstream because you want to integrate with the raw material. Have you thought of these ideas instead of NBR capacity expansion?

Look, we -- there will certainly be benefits of -- in terms of operational efficiencies as the volumes grow and as we double our capacity for the NBR plant -- plants are. Number two, yes, we're already in a downstream product for the nitrile polyblend which is one step below. And we are always on the lookout for other opportunities as they make sense to the company in terms of strategic sense. There are some opportunities, but they were too small so we let it go for our management bandwidth and where we want to spend our time and CapEx. Upstream is difficult for us because most of the people that go upstream are integrated into petrochemical complex. So since we are not a petrochemical complex, we don't have one that's difficult for us to do. But we're very close...

Acrylonitrile is integrated into petchem complex?

Yes. That's correct. All our raw materials, styrene, butadiene, acrylonitrile, they're all integrated into petchem complex. But -- sorry, just to finish sorted, we strongly believe that the level playing field, we are no inferior even at our current capacity levels than anyone else, NBR. We just find that we need a the level playing field to be able to invest back and go and make sure that we are not dependent on imports. As a country, 75% of imports -- of NBR is still imported on average, let's say 75% to 80%. And that's something that we feel we should be able to do as a country, whether it's us or somebody else, we shall be self sufficient. And that's our endeavor. We want to be self-sufficient.

The next question is from the line of [ PJ Shah, ] an Individual Investor.

Margin increase 14-plus, volume increase 18-plus. But -- and majority of my questions have been answered. But one question in my mind is couple of months back in some last con call, we have said that paper industries, some client has been defaulted, and therefore our margin and the volume has been affected. So has that been corrected now?

No, I don't think there was a default, but yes, there was a concern with one of -- 1 or 2 of our customers, and we will reduce our dependence on them and we did reduce the volume we supply to them. But we still continue to do business with the credit terms that we control. And that has, of course, affected our overall volume with that customer and that's fine. And I think things are okay now, normalized.

Okay. The expansion in the gloves, we are making additional. So how long you look for the gloves capacity in next couple of years?

Sorry, didn't understand the question. Can you repeat the question?

See, we are expanding again INR 130 crores in different capacities, and one of our new product is gloves.

Yes, with Nitrile Latex for gloves, not gloves.

Yes, Nitrile Latex in gloves. So we are looking long-term demand for that product?

Yes, I mentioned that there is good demand, especially now post COVID times, it's the medical glove and mostly export driven.

The next question is from the line of Nikhil Chowdhary from Kriis Portfolio.

Sir, what do we exactly want from the government to be competitive apart from the ADD because -- since we can't rely on ADD forever to be competitive. So just wanted to understand, do we lack scale doing it faster environment clearances, easier land acquisition norms. If you could throw some light on that, that would be more helpful.

Look, the latter is, of course, required for ease of doing business not only for us but for any industry or any business that starts in India or wants to expand in India, which is probably the acquisition of land as well as environmental clearances, that's certainly something that the government can improve on as we did. And I think the government has done a reasonably good job in improving the ease of business over the last few years, but of course they can do better. As far as this specific issue is concerned, let me put it this way. Look, in '17-'18 and '18-'19, we did well. We had no case for antidumping duty, frankly. So if dumping does start and that can start for anything, anyway, anytime, we have no choice but to go to the government from time to time. And we, fortunately, as a company, we are liquid enough. We have a strong balance sheet that we can withstand a couple of years of this kind of dumping. But certainly, we need help from the government. If the government wants to encourage industries in India, they have to help us from time to time. This can happen again. Let's say, today even if we are bigger than our competitors abroad and we are given -- have more economies of scales. So for whatever reason if a competitor abroad decides to dump into India just because it's a strategic market and they want to gain market share, then that's where the government has to help. It has to support the industries to ensure there's employment in India. We're not saying ban imports. We are not saying don't do imports. I think imports are healthy. I think competition is healthy, but that's the keyword, healthy competition and fair competition is what is required. And from time to time, industry and government has to work together to ensure that India's long-term needs are protected.

Understood. And sir, in response to the earlier participant, you were saying like our market is smaller hence the -- like Reliance or something like won't be interested. Just wanted to understand if you could quantify the market size for the products that you cater to like. Just trying to assess the longevity of the growth.

I don't have the exact numbers right now, but again, It's difficult to say. I think latex is more than 100,000 tonnes. High styrene rubber and -- is probably about -- high styrene rubber and nitrile rubber is probably about 55,000 tonnes. In tonnage, I can give you broadly these are the numbers that I can think off the top of my head, at least last year, last year's numbers. Of course, this year because of COVID, the numbers are not at all predictable.

The next question is from the line of Anubhav Sahu from MC Research.

Sir, I had one specific question. Wanted to understand how big is the medical or health care end market for us now? Like how much tonnes we will make from this end market? And if medical gloves the only application which we cater to in this end market or we have more to it?

How large, so of course, it's a very big market. From our research, it's in upwards of 1 point -- how much was it?

A few couple of billion dollars, I think. Of course, we are looking only to add what currently 40,000 tonnes capacity and which will hardly be a few percent, it maybe in the single digit, 3%, 4% of the world market. It is anyway growing at -- pre-COVID was growing at 10% to 15%, as I mentioned. So post COVID, we expect the growth to be much more at least for a year or 2. And -- but as I said, we have made this decision way before COVID hit us. So it's nothing new. We -- it was an attractive market according to us, industry, and requirement for this particular product, even pre-COVID. So we are excited about this new launch. This is the only application. Of course, there are different types of gloves. There's medical gloves, industrial gloves, supportive gloves, but the large market is for industrial gloves. Large consumption of this product -- sorry, it's for medical gloves. And there are some specialty products there. We are also going -- we've already developed and we are selling in the market also, but it is mainly for gloves.

Okay. Great, sir. And sir, as we speak, I mean as per Q2 numbers or say just for instance, is the nitrile gloves now a tangible pie of our sales now? And can you just specify how much is that?

Sorry, can you explain again the question?

In terms of percentage to sales, how much nitrile gloves would be contributing? I mean, is it nitrile...

Nitrile Latex?

Nitrile Latex, right.

So right now, it's a small percentage of our sales, frankly. It's just in single digits. As I said our intention for the next year was only to sort of supply us very small quantities, something we have. But just to get approvals and keep going, but given what happened in the last 6 months, the demand for all other products certainly in Q1 and part of Q2 was very muted. We did make our research flexible to make more Nitrile Latex, [indiscernible] best ways to make it, but we are getting great quantity and it's quality is good, but not in terms of operational efficiency. So we'll continue to do that. For the next 1 year, it will remain as small percentage of our sales. After that, as I said, it will become like INR 300 crores in revenue as per current price through our sale. So it would be good about -- more than 50% of our sales will come by '22-'23.

And as we speak, sir, I mean, is there -- for the domestic demand, if everything -- as for Nitrile the final product is concerned, is it -- is everything imported into India? Or do we have domestic manufacturer also wherein we are now catering to? Originally, the idea was to export, but do -- is there any domestic manufacturer of the medical glove, this latex medical glove for?

No, latex we're the only manufacturer. We supply to the glove industry -- glove manufacturers. There are a few in India. But in terms of scale, they're much smaller than the ones in Malaysia, Thailand and Sri Lanka and so on.

As there are no further questions, I now hand the conference over to the management for closing comments.

Thank you very much for your time. We've had a challenging year like no other. And -- but we feel quite optimistic and confident we are coming out of it. And if everything goes okay, we expect a pretty strong end to the second half of the year. And with your support, we look forward to working hard and making sure that we deliver the value to our customers and shareholders and all our partners. Thank you very much for your time.

Thank you. On behalf of Apcotex Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.