Apcotex Industries Limited (523694) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 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, and over to you, sir.

Thank you, Lizan. Good afternoon, everyone, and warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Apcotex Industries Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings conference call for the third quarter and 9 months ended of financial year 2021. Before we begin, I would like to mention a short cautionary statement as always. 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 focus of today's earnings conference call is clearly 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 participating with us in today's earnings con call. We have with us Mr. Abhiraj Choksey, Managing Director; 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 the third quarter and 9 months ended for the financial year 2021 under review. Along with me in today's earnings call, I have our Managing Director, Mr. Abhiraj Choksey. I hope that you had an opportunity to review the financial statement, the earning presentation, which have been circulated and uploaded on the website and the stock exchanges. To brief you on the financial performance for the third quarter of the financial year ended 2021, we had a strong growth on all financial parameters, both on a year-on-year basis as well as on quarter-on-quarter basis. The revenue from the operation grew by about 50% on a year-over-year basis to around INR 164.6 crores. So operating EBITDA stood at INR 24.3 crores, with EBITDA margin reported at 14.76%. The net profit stood at INR 16.6 crores, and PAT margin stood at 10.09%. For 9 months for the financial year ended '21, the revenue from the operations stood at around INR 353.7 crores, with operating EBITDA of INR 38.6 crores and EBITDA margin of 10.91%. Net profit stood at INR 21.6 crores, and PAT margins stood at 6.11%. We're happy to inform you that the company has declared an interim dividend at the rate of INR 1.50 per equity share of INR 2 each for the financial year 2021. On the numbers, you can refer that, during the quarter, we had -- we were able to achieve the highest-ever quarterly numbers across all the financial parameters. In terms of the volumes too, we have achieved the highest-ever quarterly sales volume, including the exports. On CapEx of INR 130 crores to INR 140 crores, which started from October 1, 2020, would be completed by 31st December 2021. The XNBR project for manufacturing of the latex hand gloves is about INR 100 crores -- INR 100 crores project. The detailed design has been completed and currently, we are working on the implementation of the plant, which is subject to permission and necessary approvals. We expect the plant to commission by Q3 of '20 -- FY '22. The debottlenecking project at Taloja, which is approximately INR 15 crores, project will help to increase the latex manufacturing facility by about 15% to 20%. On the antidumping side, speaking about the Korea sunset review, the Director General of Trade Remedies, that is DGTR, recommended the extended duty for another 5 years on 24th November 2020. We are awaiting for the final notification from the Department of Revenue, Ministry of Finance, but previous antidumping duty from Korea material has lapsed on from December 2020. On the other hand, Apcotex has filed a fresh petition against other countries like Russia, China, Japan and European Union. The public hearing has been completed, and we are awaiting the final findings from DGTR. 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 [ Kranthi Patel ] from [ Investment Advisors ].

Sir, I just wanted to know what is the return on capital employed will be as on 31st March '21 and 31st March '22? And what will be the return on equity on both these dates? And second question is where we stand in the market share of our products?

Okay. Thank you, [ Mr. Patel ]. Just to mention that we generally have, as a policy, don't give any forward-looking statements. So we do not predict or give guidance for numbers like these, even whether it's sales or return on capital or any of those numbers moving forward. In general, I can say the company has always aimed for at least 20% to 25% ROCE, and there is a constant endeavor even going forward. As far as market share is concerned, as you know, I assume you've been on previous calls, we have different industries that we cater to. But generally, we have a fairly high market share across all of them. We are either a strong #2 or a #1 across all the industries in India. For Indian market share, it's about 80% to 85% of our sale is within India. About -- currently about 15% to 20% -- about 16% is exports. So I'm talking about the Indian market share, we are anywhere from 40% to 70%, 75% in some industries.

We are weighting first 3 numbers in respect of all the items in India.

Yes, we're the first 2, I would say, across. First or second.

Yes. 1 or 2.

The next question is from the line of [ Harshal Zaveri ], an individual investor.

Congratulations on the commended growth. I just wanted to ask what is the outlook for FY 2022? Whether these growth numbers are sustainable? Or what are the margins and revenue expected?

Okay. So as I mentioned, we don't specifically give any forward-looking guidance as a policy. However, look, last year has been absolutely unprecedented. And we assume that the next year, of course, assuming that nothing like COVID or the second wave or nothing like that happens, we obviously had an excellent quarter. In fact, I think we had a 50% plus growth in this quarter compared to Q3 of last year. That is unlikely to be there for the whole year. There were multiple reasons for that. One of them is that Q3 of FY '20 was a very challenging quarter for us. In fact, one of our most challenging quarters. And Q3 of FY '21 has been our best quarter ever. So obviously, there's a [indiscernible]. But, obviously, this kind of growth rate will not continue into FY '22. However, we do expect a healthy growth rate into FY '22, especially given that FY '21 on the whole year, the first 4, 5 months were extremely challenging. So FY '22 should be certainly much, much better than FY '21. We'll have to wait and see what the exact growth rate will come. There are a lot of uncertainties still. But as a company, we are confident and we're ready to face the next challenge.

The next question is from the line of Karan Bhatelia from Asian Market Securities.

Sir, how much could be the volume and realization growth in this quarter?

Yes. Operator, I think we've lost the line of Mr. Abhiraj Choksey. Can you reconnect him?

Yes, sir. I'm connecting him.

Hello?

Yes. We have the line for Mr. Choksey reconnected.

Sorry. You got cut off.

Mr. Bhatelia, may you repeat your question?

Sure. So sir, how much could be the volume and realization growth in this quarter?

Again, as I said, we do not give forward-looking statements.

No, no. I'm talking about the current quarter.

Yes, Q4 is also -- in the current quarter, we...

Q3, Q3.

Q3. The -- let me put it this way, the overall growth was about 50% in terms of revenues. And most of it has come from volume growth. I would say about a large chunk of it has come from the volume growth and part of it through net realization and product mix.

Okay. So are we like back to those 50-50 revenue mix from latex and from synthetic rubber?

Approximately. Actually, latex is a little bit more now because we've introduced a new latex product last year, and we have been able to increase the sales that we were not expecting to do because -- immediately, but because of COVID, we made our assets a little bit more flexible. So we're making more latex currently, about 65% is latex and 45% is synthetic rubber.

Got it. And sir, can you throw some light on our NBR performance? And how has been the imports from Korea? Are we like back to the historic margins over there? So can throw something light there?

Look, I think as we mentioned in the opening statement, the dumping was there for a long time, and it continues to be there. The fortunate part has been in this quarter at least that we have been able to -- my raw material is at a much lower price. We had that advantage at the beginning of the quarter. There was some good buying and our margins were good. However, the concern for dumping is still there, absolutely.

So still, we are not back to the historic margins as far as the NBR portfolio is concerned?

As I said, it's definitely a better quarter, but we are still concerned, and we are waiting for the Ministry of Finance to notify. Hopefully, they will soon. But as of now, there is no antidumping duty on NBR.

Correct. Correct. And last question, if I -- if you allow me to. So what is the current quantum of antidumping duty from Korea? And at what levels are we be comfortable at? Because I believe there was like 3% to 5% realization was the antidumping duty. We were trying for a higher percentage of that.

So what happened was that the antidumping duty -- there are 2 producers in Korea. For one of them, it remains by and large the same. In fact, reduced just a little bit, but by and large, around 3%. And for the other producer, it was substantially increased to -- closer to 25%, 30%. But as I said, as of today, there is no antidumping duty because the Ministry of Finance has not yet notified it. And we don't know when...

And what percentage are we looking at to compete with them?

No. In the long run, we think we'll be able to compete in any case. We just wanted some time from the government because we want to double our capacity. We want -- taking off from the AatmaNirbhar scheme that the Prime Minister has set out, we just wanted time to ensure that NBR is also completely indigenously made, and Apcotex, we wanted to be the #1 supplier for NBR in the country. And therefore, we wanted some time. But we'll be able to compete in any case. There is no problem in the long run. We'll be able to compete. We'll find ways to compete. But yes, around 10% to 15% would have been like -- would have been good to have that kind of protection for the next 5 years. And we think it will edges out because they don't want us to grow. They have seen our market share grow over the last 5 years. We have grown our market share and our volumes by -- to almost twice. And therefore, the importers are a little worried that they're losing the Indian market. And therefore, the dumping that started in 2019.

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

Congratulations on a good set of numbers. Sir, just one question. Like any indicative time line when can we expect any response from the DGTR?

So, like, DGTR is already -- so the process of antidumping is that the DGTR goes through the process of talking to the importers, talking to the indigenous manufacturers. And after studying on the data, they have given the recommendation. Now the Finance Ministry has officially notified. Unfortunately, for whatever reason, the Finance Ministry is out of town for the last month or so because of the budget, which is on Monday. So we are hoping that after Monday or after next week, we'll get some more information. But yes, we don't have a clear indication.

Got it. Got it, sir. And sir, could you just share a sense on like how the user industries are performing? We are seeing pretty resilient numbers from some of the industries that we cater to, added update from your side would be useful.

Absolutely. I think, look, across the board, I would say, all our industries that we have supplied to are doing much, much better and have bounced back much quicker than I think what most people anticipated. Auto as well, which was a question mark, has bounced back quite well. But within auto also, there is commercial 2-wheelers, 3-wheelers, 4-wheelers and so on. There are some segments of the auto industry that are still a little -- not a bounce back even from 2 years' numbers. But I think passenger cars and 2-wheelers are doing reasonably well from what I understand.

Got it, sir. And sir, construction, like anything...

Yes, very well. In fact, the construction is back. And I think there's a lot of pent-up demand as well that's been there because people couldn't do anything before the last monsoon. So I think construction is doing extremely well.

We'll move on to the next question that is from the line of Saurabh Shroff from QRC Investment Advisors.

Congratulations on a great set of numbers. My first question is on margins. If you could maybe help us understand, so these are obviously one of the best margins that you have printed in a long time, how much of this is because of the power plant coming on board? And are there maybe cost initiatives that we may or may not have taken? And how much of it is just to do with the fact that we've got some of these sort of aberrations that we had last year and have now normalized?

Look, I think there's a couple of things. There is certainly a couple of things in this quarter that are unique. One is the pent-up demand post-COVID. As I just mentioned, for example, the construction industry, a lot of people couldn't construct -- couldn't do their waterproofing before the monsoon last year. But there is that factor that has certainly helped the demand. And the other has been low raw material costs. At the beginning of the quarter, we -- raw material costs were at fairly low levels. I wouldn't say all-time low, but at fairly low levels across most of our petrochemicals that we buy. And through the quarter, they have gone up, and we have taken advantage of this increase in prices by good raw material buying. These 2 factors are not going to remain, but there's a lot of work that we have done as well, like better product mix, a lot of cost-cutting measures. Of course, implementation and commissioning of the power plant in Valia, higher volumes, a lot of new customers were added in the last quarter. We introduced a new product for gloves, and we made our assets more flexible. And so all these will also help in the long run. So this is what I would say. Certainly, that is part of the margin that could be linked to lower raw materials cost, but it's very hard to pinpoint exactly how much. But I wouldn't say everything. Obviously, this is just 1 or 2 percentage points maybe at the most.

Sure. And at what sort of capacity utilization are we running at across products? I'm just trying to get a sense for how much is that operating leverage benefit that has flown through in these numbers. Because last 2 quarters -- I mean, September quarter also, obviously, a very good margin, but again, similar. Finally, the raw material normalizing. And we've actually seen a further improvement in margins, even though that's now basis points, but it's still improvement, nonetheless. So I'm just trying to sort of get a sense for how much of this has come from better utilization. So any color on that will be helpful.

Yes. Absolutely. Compared to Q2, Q3 utilization was much better. At Q3, we are almost at, I mean, 90%, 95% capacity utilization across the board. We're pretty close.

Okay. So, Abhiraj, is it safe to say that barring any sort of raw material spikes or rather very quick movement in raw materials, which is difficult to manage, can anyone now safely say that we can do these at least low-teen kind of margin sustainably? Because I think that was the talk maybe 18 months or 24 months ago when we set out to do this power plant that you should get to -- get away from this 9% and 10% margin to at least low double digits consistently? Is that...

I honestly think -- I honestly, yes -- the short answer is yes. Long answer is that, look, there are few uncertainties. As you said, raw materials is one of them. And we have seen in the past that there's -- there could be a crash of raw materials. When that does happen in our kind of business, we are sometimes left with higher cost raw materials for 1 or 2 months. So there could be some quarters where the margins could be lower. So on a quarter-on-quarter basis, there could be variation. But on a year-to-year basis, I think that evens out. So if you look at annual basis, I certainly feel that, that is definitely sustainable going forward, low teens, for sure. And in fact, our target is 15%, 14% to 15% is our target to get to consistently. And the other is, of course, dumping matter, which wasn't there 18 months ago or -- yes, 18 to 20 months ago, and that started. As I said, that is something that's a little bit up in the air. But that only for 13% of our product, right? So that's not a large chunk of our overall company performance.

Understood. Sir, and this debottlenecking at Taloja vendors that become available for production and...

By May. By May or so. May/June.

Okay. So the reason why I ask this is, we are already at 95%, we will get that in middle of the year, and then by December, hopefully bigger NBR?

Exactly.

And anything on the sort of even at the planning stage as a further phase of CapEx or this is it? Or how long before you think of the next project?

We are already -- the next project lined up. The next project lined up was to double NBR capacity. And we were ready to go ahead and do that. But unfortunately, this whole dumping started, so we just decided to take a little bit of a pause on it and field it. We're still waiting for final permission for -- to start our XNB project. So all these -- these are lined up. But so far, we have just announced the next sort of 12 months CapEx plan, which is INR 130 crores to INR 140 crores starting from October 1 to December 31. Obviously, there was no CapEx possible in the first half of the year because of COVID. And even after that, we have one, by the time of contractors, we could get -- even for the safety of our plant people, we didn't want to start construction or any kind of activity from outside for some time. So there was a little bit of a CapEx lull for a few months. And from what we announced in the last quarter was between October 1, 2020, and December 31, '21, we're looking at about INR 130 crores to INR 140 crores, which includes debottlenecking projects, the new expansion project plus a few cost-cutting and other miscellaneous project.

Yes. And finally, is there any segment of the end user markets that you think you are not catering to the type of products because we've not had the capacity which we could start catering to? Like, a case in point being this thing that we started 12 months ago or better than that. And certainly, that's become like a big opportunity. So I'm just trying to think, are there any use cases that we are exploring?

So -- for the products and the grades that we have already developed, we are catering to all the customers in the industries in India. Of course, exports is the big market, so we are constantly getting lower newer and newer approval. As far as this XNB Latex for gloves is concerned, it wasn't just the capacity. It was also a product development issue, right? it's a completely new product. It's an adjacency. And it took us 2 years to develop the product, took us another year to get approval -- more than a year to get approval. And in the last 1 year because -- in way COVID has been a blessing in disguise because we were able to -- while the other segments like construction and plastic were not doing well at all in the first 6 months of the year, we were able to convert some of our current reactors and use them long time to actually be able to make XNB Latex. And now we are currently -- about 8% to 10% of our revenue is coming from XNB Latex for glove. So that we will continue to do. We have other products lined up that we want to develop and from which we will have to invest some more money. They're all adjacent products. But that will take some time, and we are -- we haven't announced those yet. Maybe as we progress with other projects, then we'll look into it.

Sorry, and my final question is INR 100 crore XNB project, what kind of sales can we expect from that? And margins on that, my guess would be -- should be better than general company level margins. Is that a fair statement to make or not really?

Yes. In the current context, yes, for sure. Because, obviously, we expect -- and for most -- most projections show that the glove industry is going to do extremely well in the next 3 to 4 years because even if COVID is -- the vaccination comes, COVID is not going anywhere for a while. The protocols that have been put into place in -- forget medical institutions, but even airports and train, stations and everywhere, the awareness of wearing gloves in countries like India and China have gone up a lot more. So we expect the next 5 years to be quite strong for the glove market. And therefore, the margins are also expected to be good because there is a shortage of Nitrile Latex. And certainly better than the current company margins, we expect the turnover of -- to start with maybe INR 300 crores to INR 350 crores.

At full utilization?

Sorry?

At full utilization?

At full utilization for Phase I, yes. For this INR 100 crores. Yes.

[Operator Instructions] The next question is from the line of Rohit Sinha from Emkay Global.

Congratulations on a good set of number. So sir, just wanted to know with this angle that how we are thinking about the expansion of NBR capacity going forward?

Look, as I said, this COVID is all still here. It's not gone anywhere. So we are focusing on one expansion at a time. We don't want to -- it's a brownfield project in a running plant. So we don't want too many contracts or too many people on site doing multiple things at the same time. Plus, we need further environmental clearances for the NBR projects. It's definitely on the cards, the mode had approved it. But right now, we put it on hold because of this ADV issue and now, of course, because of the COVID issue. So we'll focus on the latex project first and then we will look at the rubber project. We'll also see how the next 2, 3 months plan out because the anti-dumping duty for Korea, one, but the fresh petition is also under investigation. And so that should be clear in the next 2, 3 months. So once we have clarity on that, hopefully, by Q4 or Q1 of next year, we will take a final call.

Okay. And sir, in last quarter also, there has been some pent-up demand kind of situation. In this quarter also, there is something. So going forward, I mean, what kind of normalization level on the quarterly basis, we should be seeing? And obviously, margin would be something different to talk about. But, what kind of revenue side you would be targeting? And what the Latex business revenue would be overall contributing going forward in the next maybe 1 or 2 years?

So look, right now, it's about, as I said, 8% to 10% is coming from gloves. We are running at almost 95% -- 90% to 95% capacity utilization. I think we expect that to continue now. We said we made our assets more flexible. So earlier, the problem was that if one of the industry suddenly went through a lull or wasn't doing well or the competition pressure was there, we were not able to do for that. The assets were not flexible to make multiple products. I'm not saying today, it's 100% flexible, but we have done a lot of work over the last 8, 9 months since April-May, since COVID to make our assets more flexible. We're really focused on that. So we expect this kind of capacity utilization to continue. And therefore, the -- at least the performance should be that much more consistent in terms of volume.

The next question is from the line of Dhiral Shah from PhillipCapital.

Yes.

Sorry to interrupt, Mr. Shah. Can you speak a bit louder? We're not able to hear you.

Sir, if you can segregate how much revenue contribute from each end user segment, like auto, maybe paper, maybe footwear?

I mean I can give you a broad percentage numbers. As I said, in the current quarter, we are in about 55% latex and 45% synthetic rubber. Out of the rubber, around 30%, 35% is coming from NBR and about 10% is coming from high styrene rubber. So when I say NBR, NBR and related products that we have. And out of that NBR, maybe half of that is coming from auto. The other half is all other applications that are there, like rice roll dehusking. And there's a whole host of rubber -- industrial rubber products. Out of the latex, I would say, out of 55%, about 20% is paper and paper mode, 10% is construction, 10% is tires, and now about 10% is nitrile latex, and about 7%, 8% is corporate and textile.

Okay. So this 50% growth, which we have seen, majority is from the volume growth. So which segment that delivered this kind of a strong growth? I believe it would be auto, right?

No, across the board, right. 50% is the value growth. Volume growth is a little less than that, as I mentioned in my previous question -- somebody else asked the same question. So volume growth is a little bit lower than that, but it's still extremely healthy, upwards of 40%. And we actually saw the across the board certainly auto compared to 2019, '20, Q3 of '19, '20, Q2, Q3 of '19, '20 is much better now than it was earlier. So that has helped some volume growth. But I would say across the board, plus the new product, that is also there. So of course, the product was the last year as well, for the latex and gloves, but the volumes we're doing today are like 10x what we were doing last year. So all that together has helped volume growth.

Okay. Okay. And sir, this fresh petition which we have filed against Russia, China, Japan and EU. So what is the percentage of imports coming from this region and this is particularly for which products?

Only for NBR. As I mentioned, NBR is about 30%, 35% of the total business. And that is where about -- I would say, about 40% to 50% of the imports are coming from Korea, and about 40% of the imports are coming from these 3 or 4 regions, Japan, China, Russia and EU. I mean that pretty much covers 90%, 95% of the imports coming in.

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

Congratulations for good set of numbers. Following up on one of the earlier questions, you mentioned that there were 2 Korean manufacturing they are having different antidumping duties. So can you just explain a little bit why 2 different antidumping duties for 2 companies?

Yes, I'm not -- I think from what I understand is one of them did not respond at all to the Ministry of Commerce or to DGTR. And so when an importer doesn't respond at all, they obviously -- they don't provide the data. So then the calculations were not in their favor. This is what I understand. That's why one of them is much higher.

Okay. So government cannot do anything about it? I mean, why is this disparity? That is what is puzzling?

I agree, it's puzzling. I don't have an answer, yes.

Okay. So second question is, as you mentioned, regarding the pent-up demand in the case of construction industry. So as we have been discussing over the last few con calls, where you were saying that our product ApcoBuild is still a very small proportion of the revenue. Can we expect that to speed up over the next 1 year or so?

No. Look, in fact, the percentage growth rate has been very, very good for ApcoBuild. But as I said, as a percentage of the total company, it's still a small part in terms of revenue. But in terms of profitability, it's improving quite dramatically. But yes, building a brand in and getting the distribution right for these kind of products in a fairly competitive market space, we need to make sure we have the right set of products, the right branding, the right set of distribution network and the right geographies. And so we are literally in only 2, 3 states right now, 3 states. And we're growing slowly. That's what I will -- I mean slow in the sense, yes, we do it much faster, yes, if we invest a lot more then we could, but we are -- we want to grow profitably, and we're able to do that.

The last time, you mentioned that there are only 2 states, Maharashtra and Gujarat. So which is the other one?

And Goa. Goa.

Goa. Okay. And one last question. So I mean if you just look at our asset turnover. So it has been all over the place depending -- I mean, mostly because specifically not only the raw material prices, but also the end product prices and also this antidumping duty. So in FY '19, we were doing around -- on an asset base of INR 75 crores. I mean, we had an asset turn kind of 8%. And then FY '20 is 4%. And right now, we have around INR 150 crores. And if we take this INR 100 crores, INR 140 crores of new CapEx. So just a broad range on a sustainable basis, that's INR 300 crores of asset base, what kind of asset turns are we looking at a broad range on that? Because INR 490 crores...

It's not fair to compare that because 2 years ago, they were on new investments. Most of our plant was depreciated, therefore, the asset turn looked higher.

Actually, we have only INR 75 crore asset base at that time.

Correct. Yes. So I should -- for example, we're investing in the power plant, right? And we spend INR 35 crores, INR 40 crores on the power plant. And that did not -- that increased the asset base, but did not create any extra turnover, right? That was not for creating turnover, that was more for consistency of power, which is in the area we are in, in the rural area we are in, that was a problem. That was one of the reasons we invested in the power plant besides cost cutting. So it's not really fair to -- or it's not necessarily apple-to-apple comparison every year. Now -- but of course, we -- in general, we look at an asset turn of at least between 3% and 5% turnover ratio, when there are new investments for expansion. So for the current investment that we're doing of INR 100 crores, we're looking at 3.5x asset turnover. But don't forget that we are leaving some space by investing a few more crores, we can almost double our capacity. So the next time around the asset turn will be much higher also, right? There will be also a lot -- it will be 7x. So these are things that are contextual.

So would it be fair to assume that asset turn in 2023 would be better than 2021 and '22, right?

Absolutely. Yes. Yes.

And one last question is...

Sorry to interrupt Mr. Kanodia.

Just one last.

Go ahead. Let him complete.

Just one last question is would it be fair to assume that in terms of EBITDA per tonne basis, we are having probably one of the best -- or the best quarter per tonne?

Yes. Yes, yes. I think so.

Can you share the numbers?

No, we don't share the numbers. It's -- we don't give per tonne numbers. But as I said, part of the reason has been good raw material buying. But part of it has been better product mix, new products, new customers, all those things that helped in the last few quarters.

The next question is from the line of [ Sumit Kumar ] from [ Reliable Investment ].

Mr. Abhiraj, I'm old investor who is attending the third conference of yours.

Okay. Welcome back.

The result is very good for this quarter. I'm very happy to congratulate you, but then I've some lot of other questions, not many, but mainly 2. Number one, the profit growth for the last...

Sorry to interrupt, Mr. Kumar. Sir, we're not able to hear you clearly.

Profit growth. Can you hear me now?

No, sir. Your voice is breaking up.

Yes, I can hear it though. Go ahead, Mr. Kumar. We are getting the question. Go ahead.

Profit growth for last 10 years was 7%. For last 5 years, it has come down to minus 6, which is last 5 years is not a short period. I'm not going to talk anything on the future. Last 5 years has not been something that we should be seeing very happy about it or rather they're alarming. That's point number one. Point number two, whenever you talk of growth, you talk about capital investments and new products. You never talk in terms of can we make our product line cost competitive internationally. What are the bottlenecks? How can we reduce? What are the other options? Because you have such a brilliant contacts because of lineage and because of the qualification that you can do wonders. But you have to evaluate the performance of the company. It is good, but it is nothing great that can talk about Mr. Abhiraj's greatness.

Okay, Mr. Kumar. First of all, I must correct you. I don't know, sometimes when you look at last 5 year numbers, 10 year numbers, that is -- I would say contextual again. I bet to defer. Yes, we've certainly had a 12-month period, which has an extremely challenging. 12-month period started from July 2019 to July 2020.

About I'm not questioning them. No, no.

Listen to me now. Let me finish. I heard you very patiently. Yes. So that was -- so if you see '18, '19 was our best year so far. So when you say 5 years, there's been negative growth, I disagree. For '18, '19, till March '19, we had excellent growth, both in top line and bottom line. In fact, '18,'19 was our best year ever. '19, '20 has definitely been challenging the real reasons. I'm not going to justify it again. [Foreign Language]. 2021, again [Foreign Language]. The companies across the world have had bad results for the first 6 months. And unfortunately, we were part of -- because of COVID that happened. So that's what I'll say about that. The numbers are there to speak, however people want to interpret the numbers, they can. My job is to do the best we can, and we are, as a team, doing a fairly good job with what the products we have and the growth we've created and doing that. So that's all. And your second question was, can you remind me again, one was on growth? And second one was?

Cost competitive?

Yes. So we are extremely -- we would not be able to compete if we're not cost competitive. The -- as far as the latex products are concerned, this is a business we have been in for 30 years. We are #1 in India as far as all these latex are concerned, paper, latex construction across the board. We are #1 or a strong #2 or joint number one, I would say, by and large, along with one of the largest chemical companies in the world. So we compete very, very effectively with them. Because large chunk is water, 50% is water, these are regional products. This cannot be shifted to Europe and America. It's not competitive to do that. But in the regional, in India, South Asia, the Middle East, we are -- we have established ourselves as one of the top players in our region. As far as the other products of synthetic rubber are concerned, it's a company we bought 5 years ago. We have grown it. We have doubled the business in 5 years. Now in fact, in the coming year, we have more than double the business in 5 years. But we went through some competition pressures. And yes, we don't have a general scale plant like some of our competitors, but we want to do that. We want government support to do that. Hopefully, the antidumping comes in our favor in the next couple of months, and we might in about 4, 5 years, I'm sure we will be able to do that as well. I hope I've answered your question?

Abhiraj, sir, you're too good with your background qualifications, et cetera, et cetera. But we expect slightly better in terms of Apcotex being a company, not an investment company.

Thank you, Mr. Kumar. Thank you for your questions.

We'll move on to the next question. That is from the line of Nikhil from Perpetual Investment Advisors.

Abhiraj, congrats on a good quarter. It seems like the company is finally out of the woods. I had a broader question that what's the core competency of our company? So if we divide it in 4 segments, let's say, the people, the process, the plant and the products, what is the core competency according to you?

Look, there are multiple core competencies, I would say. The #1 core competency is that the range of products that we have today in the business we have are the most wide that we've ever had. And we continue to widen that range. I think a lot of plants globally are not able to do that. We have figured out our technology and our plant processes to be able to switch between products, and we are constantly doing a better and better job of that, including this year, where we introduced a new product. About a year ago, if you'd ask me, I didn't think we could do that, but through innovativeness of our people, we've been able to do that. #2 is the depth of knowledge that we have about our customer processes and our customers' technology and able to make sure that our products are constantly evolving with their technology chains, whether it's gloves or paper mode or paper, construction, anything. Third is, of course, managing this kind of raw materials. The raw materials we manage are not easy to handle. And as again, a competency that comes over long period of time, and you would have seen large multinationals that cannot handle these kind of chemicals that we look. Fourth is, of course, product itself, our product quality. And fifth is people. Yes. So these are, I would say, 5 or 6 competencies. I'm sure I'm forgetting 1 or 2, but these are 4, 5 that come up at the top of my head.

Yes. So coming to people, I sort of see that we are building quite a good team on the R&D side. You've also hired someone from Avery Dennison recently. So could I think that as I think that going forward, you will be moving into adhesives or waterproofing? I mean, a majority part of the business, moving in the next 4 to 5 years, will be coming from this side of the business?

We are already in waterproofing. 10% of our sales comes from the segment, which is largely in waterproofing, that's growing quite well. In terms of percentage, it has grown. In terms of volumes, it has grown. And going forward also, as the construction industry in India does well, we expect it to grow quite well. Absolutely.

Nothing on the adhesive side?

As of now, no. But there are products that we may look at in the future for this. Yes.

Okay. And one last question is, do you have any plan in place to seal the company completely from the volatility in raw material prices? I think if we move most of the businesses towards the downstream products, would that be possible? I'm talking over a longer period.

Unfortunately, the business that we are in, raw material is a very large chunk of our costs, 60% to 70%. So unlike some other businesses like FMCG, where there are many other costs and the raw material is only 20%, 30% of the cost. And therefore, they are shielded to some extent from the volatility. Or at least as investors, we may not see the impact of those numbers go significantly in their businesses. In a B2B business like ours, raw material is a very large chunk and therefore, unless we completely change to a completely different model of business, which is not B2B, not in petrochemical, the volatility will stay. We've learned our managers, as I mentioned in one of the earlier replies is that, look, we may have a -- quarter-on-quarter, there are -- could be large differences. But year-on-year, I think, generally it evens out.

Okay. And I'm sorry to squeeze in one more question. So can I get your sense on this? I'm maybe missing out something, but I think that the realizations have moved up significantly, at least over the last quarter. I mean the raw materials also have moved up but not in the same proportion. So am I missing something on whether the gross margin should have seen more expansion?

Yes, certainly. As I mentioned, we've had some benefit of buying raw materials at a lower price when prices started -- for finished goods started moving up more quicker. Second has also been some amount of product mix changes that have resulted in overall net realizable value being higher. These are the 2 reasons.

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

Sir, on the latex front, I guess trying to build in...

Sorry to interrupt, Nikhil, your voice is breaking up.

Yes. Is it audible -- is it better now?

Yes, go ahead.

Yes. So sir, I just wanted to understand the competitive intensity in the gloves product that we are trying to build and scale it up. Just a gross [indiscernible] market, and we might see growth for the years to come. But where and how the intensity is there in this space would be helpful.

I'm not sure if I heard your question correctly because your voice was breaking up. But you were asking about competitive intensity in the glove -- in the latex for gloves market, right?

Yes, sir. Yes, sir.

Yes. It's -- of course, there is competition, but -- so far, there are only, I think, a handful of companies, maybe 5 or 6 companies, mostly in East Asia that have this technology, and we developed 3, 4 years ago, a long time before COVID hit, 3 years ago. And we started sort of getting approvals also way before COVID hit. And now that COVID has hit and the glove demands have gone up, nitrile latex demand has gone up, we are there at the right time, I guess, in that sense. But yes, certainly the competitiveness is there, perhaps less than some of the other products we're in, as of now.

The next question is from the line of Karan Bhatelia from Asian Market Securities.

Sir, how are exports shaping up? Because we keep hearing that a lot of issues on availability of consignments.

Yes. I mean, look, for us, yes, recently, there have been issues on shipping, but we've had long-term contracts. And as I said, 15% to 20% of our sales are exports, our logistics team has managed quite well. But yes, we had to pay higher rates wherever in the last few months.

And how is now the pricing delta...

We have so far not lost sales because of [indiscernible] containers or shipping.

Right. Right. And how is now the pricing delta between European prices and Asian market prices?

For raw materials, it has come down dramatically. It was much higher in Q2 and early Q3 or even in Q3, but it's come down quite a lot.

And last question, if I may chip in. Sir, if I exclude the inventory gains for the current quarter, then what could be this 14.7% look like?

Frankly, very, very different, as I mentioned. But as I said, we expect the margins to continue in the low teens at least, if not early 14% to 15%.

The next question is from the line of [ Akash Zaveri ], an individual investor.

Abhiraj, congratulations on record performance. So if I look at the financial results and compare it sequentially, are other expenses have increased significantly, like 25% quarter-on-quarter? So what would be the reason for this growth in other expenses?

Other expenses, if I'm not mistaken, it's just also production, right? Volumes have gone up. So other expenses includes power costs and other variable costs, that will also go up as the volumes go up. That would be, I suspect, the major contributor. Other than that, as our plant reopened after COVID, there were many sort of plant-related special repairs and such that we could not do for the first 6 months, but that were required to be done immediately after. So some of it is also because of some of those that were taken up in Q3. But I would say a large chunk of other expenses is to do with our power cost at both of our plants, power and other variable cost. Power, steam and so on.

Okay. Perfect. And another question was, if I look at our FY '20 annual report. So in other expenses, you have something like a line item of miscellaneous expenses, which is about 2% of our revenue, which we are putting on the miscellaneous. If you have the underlying items like power and fuel, like traveling, all those things are already under separate line items. I just want to understand what will be the constituents of this miscellaneous expenses, which is 2% of our revenue?

I'll have to go back and check. But unfortunately, I am not with my team but I think things like repairs, then we also have a lot of technical consultants who come from abroad. So those kinds of things, like technical consultants...

Actually, there R&D is already a separate line item, even professional fees is separate line items. So I'm wondering why...

Okay. That's also separate line. Okay. I'll have to get back to you. I'm sorry, I didn't catch your name. What is your name again?

[ Akash. Akash Zaveri. ]

May I request you to send us an e-mail, and we'll respond to you on that, and I'll try to answer your question as much as possible.

Yes, yes. Sure, sir. I'll do that. Yes, yes. No problem. And just a last question, if I could squeeze in. So currently, butadiene prices have been on the decline. So is it a fair assumption to take that you have higher realizations in the current quarter?

I'm sorry, did I understand your question. You said prices are the decline, therefore?

So the butadiene prices are on the decline. So is it a fair assumption that in Q4, we would see our average realizations increasing?

Not really. Again, it depends quarter-on-quarter, but when sometimes what happens is we are stuck with higher cost raw material or higher cost finished goods because we have to keep a few days inventory for our customers. So if you are stuck with material made from higher cost butadiene or if you are stuck with some higher cost butadiene, then to that extent, margins are in fact or net realization, in fact, lower and therefore, margins are lower. I think it's very hard to say it's still early in the game, but -- for Q4, but it's -- no, that would not be accurate.

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

Abhiraj, congratulations on the very encouraging numbers this quarter. I just had a couple of questions. Firstly, from the momentum that we've seen in this quarter from a short-term standpoint, do you see that continuing in the fourth quarter as well? And from a longer-term standpoint, with all of the initiatives and the explanations you've given to, I think, a couple of the earlier questions that were asked. Is it fair to say that we are now heading into from a growth standpoint, a sort of zone, which is maybe more secular than the past? And I know that we've had a lot of issues at a company level and at a macro country level, et cetera, over the last couple of years. But if you leave that aside, just from a business standpoint and a growth standpoint, would it be fair to say that we are now in a more secular sort of phase going forward?

I think it will be fair to say that we, as a company, have become more resilient. And therefore, the growth, and as I mentioned, one of the things about making the assets more flexible because we cater to 7 or 8 different very caring industry. In the past, what we have seen is in one industry do badly, we can't do much about it, and we weren't able to utilize those assets somewhere else. Now with a new product coming in and over the last 9, 10 months, making our assets more flexible -- not just the 9, 10 months, even a few years before then but more so in the last 9, 10 months. I think you're right, we do expect that this growth will be more sensitive, secular is the word you used. And definitely, the company will be more resilient to these kinds of shocks. I hope that answers your question. As far as Q4 is concerned, as you know, we don't really give out specific guidance on Q4. But as of today, at least, we see the -- as far as volumes and demand is concerned, we see an uptick across most segments today, more industries than we are there. The one flip side is that our raw material prices like butadiene and all have come down in the last few weeks. That -- the impact on that, I'm not yet sure.

Okay. Okay. Great. And also I add a second question on the INR 100 crore CapEx that we are doing through December of this year, is it -- is the capacity going to be in phases? Or is it going to be step-wise as in all the capacity comes on in December? And also -- and I think I sort of alluded to this question in the last call as well. What is the confidence that we have in terms of delivering this capacity by December of this year? And what's the risk to that not happening?

So frankly, the capacity will always come on stream on time. The problem -- not the problem, I would say, but the issue is that because it's new reactors, because it's completely new setup, there will be some amount of, I would not say approval, but by the time customers will ask us slowly for initially from 10 tonnes to then 30 tonnes and to 50 tonnes. So the step-up -- of course, it will take a few months to step up to sell the full capacity. I hope that answers your question.

Okay. So as far as you will be there by December, but it may take you a few months more to be sort of firing on all cylinders?

Exactly, exactly.

Okay.

And there the bottleneck is mostly customer approvals. As I said, the product is already approved. But every time it's a new plant, the customers are -- especially for latex technologies, they are quite sticky, and will do it slowly.

Okay. And then last question, just in terms of our cash position, are we still net cash? Or have we now sort of moved into sort of a minor debt situation?

No, no. So -- the second part of your question, which is the risk to this project is environmental clearances. We need one to start construction. And what we have seen in the last 6 to 8 months is environmental clearances in India, which were anyway slow have become even slower because of COVID. Earlier the offices were shut. Even now, they don't allow people to go into the offices, by appointment only and such. So we do need environmental clearances at different stages. Other than that, our team is very, very confident that we can deliver it in the Q3 of FY '21, '22. So that was the second question you asked. I just wanted to mention that as a risk, which also, as a company, we have learned how to manage, but I'm just informing all of you the risk that exists with the reality of doing business in India, manufacturing in India. And also because we've fall in the higher hazardous chemical category, so it takes even longer. After consent to establish, we also need the consent to operate and such. So all those are taking more time from what I understand from other friends in our industry. As far as cash is concerned, we are absolutely net cash positive. I think as of now, we only have, I think, one long-term loan of, I think, about INR 20 crores or so. Other than that, we have no other loan. And we have enough cash on the book. So there is absolutely no cash.

So our cash or our liquid sort of investments, et cetera, would be in excess of the INR 20 crores then?

Far in excess.

Okay. Okay.

Yes. Far in excess. I'm sure those numbers, you will get on March 31. But I think some of those numbers are on September 30 as well. But on March 31, we will be publishing in the balance sheet.

Ladies and gentlemen, that is the last question. I now hand the conference over to Mr. Abhiraj Choksey for the closing comments.

Thank you once again for joining us on our third conference call this year. It's been quite a year, and we're happy that we're back on track. We look forward to your support, and I look forward to seeing you in the next conference call. Thank you all for your time.

Thank you. Ladies and gentlemen, on behalf Apcotex Industries Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.