Apcotex Industries Limited (523694) Earnings Call Transcript & Summary

Ladies and gentlemen. Good day and welcome to Q4 and FY 21 Earnings Conference Call of a 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, Mr. Sonpal.

Good afternoon, everyone, and a very warm welcome to you all. I hope this -- I hope everybody is safe and well. 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 Q4 FY 21 and the financial year ended 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 participating with us in today's earnings call. We have with us Mr. Abhiraj Choksey, Managing Director and Mr. Anand Kumashi, Company Secretary. Without any delay, I request Mr. Anand Kumashi to give his opening remarks. Thank you, and over to you, sir.

Thank you, Anuj. Good evening, and welcome everyone to this earning conference call for the fourth quarter and for the financial year ended 31st March 2021 under review. Along with me in that today's earning call, I have our Managing Director, Mr. Abhiraj Choksey. I hope you had an opportunity to review the financial statements and earnings presentation, which has been circulated and uploaded on the website and on the stock exchanges. To brief you on the financial performance for the fourth quarter of the financial year ended '21, I'm happy to report that this quarter, the company achieved its highest ever quarterly revenue, EBITDA in flat numbers with export also achieving the highest ever numbers. The revenue from the operation grew by about 61.7% on the year-on-year basis to around INR 186.9 crores, the operating EBITDA stood at INR 30 crores with EBITDA margins reported at 16.05%, which is an increase of 922 basis points. The net profits stood at INR 22.6 crores and PAT margins stood at 12.09%, which is an increase of 941 basis points. There are strong demand across most industries. The company scaled up the production and sale of XNB latex which is used for manufacturing of hand gloves from existing plant with most plants running at full -- near to full capacity. The customer and product mix has been optimized in the quarter with a better procurement of raw materials and implementation of a cost saving projects over the last few months and during the year, which assisted in grossing the margins. The company has finished -- the company has filed a fresh petition for anti-dumping against Russia, Japan, France. That hearing has been completed and final recommendation from DGTR are expected during Q1 FY'22. On the CapEx front, there has been a delay in commission -- commissioning of the construction of a new CapEx on XNB latex for blows due to delay in obtaining the statutory clearances from the environmental department. For the financial year ended FY'21, the revenue from the operations stood at INR 540.6 crores with operating EBITDA margin of -- operating EBITDA of INR 68.5 crores, EBITDA margin of 12.671%, which is an increase of 594 basis points. The net OpEx stood at INR 44.2 crores and PAT margins stood at 8.18%, which is an increase of 483 basis points. Also, the company declared a final dividend of Rs. 2.00 per equity share of Rs. 2 each for the financial year 2021. With this, I'd like to open the call for question and answers. Thank you.

[Operator Instructions] First question is from the line of Ankit Kanodia from Smart Sync Service.

Congratulations on a good set of numbers. We have had this discussion over the last 2 to 3 quarters like on this metric of EBITDA per tonne, I think it would be fair to say that we were on one way up over the last one year or 12 months, as you see. So on a broad range, if it is possible for you how much percentage would you ascribe to these aspects, like better product mix, raw material price movement and customer profiles in terms of your EBITDA [ button ] moving up over the last one year.

So it's very hard to actually because there were few reasons why this quarter was good. So it's very hard to attribute percentages to each region, so as we mentioned in our opening remarks there was a strong demand, there was scale-up of new product line, we were able to get to a 100% capacity due to utilization better, optimize customer and product mix, as well as there was certainly tailwinds with lower good raw material buying. So -- and of course on top of that savings from some of the projects that we've undertaken over the last couple of years have all come to fruition and obviously we're maximizing it as we increase capacity. So honestly very hard for us to attribute to all these 4 or 5 points, but what I would perhaps -- it could help you as what I can say is, besides the fact that -- look raw material prices are volatile and we had good buying, the rest of them, the team is pretty confident that this is sustainable now going forward. There might be -- EBITDA margins may vary from sort of industry to industry because as you know we cater to 7 or 8 different industries and they're fairly well-diversified portfolio that we have now that may vary from quarter-on-quarter little bit, but by and large, besides the tailwinds of very strong demand and good raw material buying, the rest of it is fairly sustainable going forward.

And regarding this EBITDA per ton, would it be fair to assume that we are -- we have the peak EBITDA per ton or are we confident that we are still having a lot of room to improve going forward?

Look, I think obviously, it's been a very good quarter for us. There is obviously room to improve as we go along. As we mentioned in our opening remarks that we are almost at 100% capacity utilization, we are -- in the course of the next 3 to 6 months, also, there will be some amount of debottlenecking that will happen, which will allow us to further improve volumes and therefore EBITDA per ton will also improve because the fixed costs don't increase at that level. So we're hoping we can at least for the following year -- we can make [ do ] with these debottlenecking exercises that we've taken up and investments that we've taken up, but really after that we would need a significant more capacity in at least a couple of our products and which is what we are working on in now both topline. So one of the -- one plant in Valia, we've already announced this project for XNB latex for gloves which unfortunately, we've not been able to start the construction and now it looks like it will only happen post the monsoons because we're very close to the monsoon so that project is definitely delayed. In Taloja as well, we are at almost 100% capacity utilization and so we are going to invest some more to increase the capacity in Taloja. Again I will be announcing that perhaps in the next quarter. We are working on the details of that project. Again, both these projects are now likely to be commissioned only early next financial year.

And regarding all the products, which you are catering to right now, we are probably #1, 2 or 3 now, not all the segments which we are catering to, but we also have a decent market share also, but the overall market size as of now currently appears to be looking small. So how do we see that growing. I am talking about the domestic market as of now and how do you see export playing role as we grow over the next 2 to 3 years, 5 years.

So some of -- again, it's very difficult to pinpoint exactly because different industries have different growth rates. So paper and paperboard packaging is growing quite well -- growing at a higher than GDP growth rate. Similarly, tires is growing at higher than GDP growth rate. We have had some tailwinds on the tire business as well, because government announced some anti-dumping on tires. So there was no manufacturing of tires now happening in India versus it being imported from China. That has resulted in demand for our products, our VP latex, which goes -- one of our polymers that goes into tires going up. So we expect that at least the industries -- we are in construction paper, tire, carpet, auto. We think that all these will grow over the next couple of years, 2 to 3 years. However, we are also focused on the export market and I'm happy to report that in Q4, in fact, we've had our highest export sales and even in terms of percentage, it's at around 20% of our sales is now exports. So we do want to diversify in terms of risk while India will remain -- for a while will remain our strategic market and the focus will be here, but we do want to export and diversify for reasons like what's happening now, COVID is raging in India much more than elsewhere and the uncertainty of what will happen in India over the next 2 to 3 months is much more than some of the exports markets. So it gives us a good flexibility to divert sales in case India slows down or we see some issues with the demand in the short term.

Right. And you discussed -- the last question in terms of the anti-dumping duty, which we have with casino over a long time now. So how confident we are that in the end, as we have mentioned that in our presentation that things will get -- be done in the quarter one.

You know unfortunately we have actually -- we had 2 anti-dumping cases, 1 was against Korea and that was actually DGTR recommended an anti-dumping duty, unfortunately the Finance Ministry has not notified it, so for whatever reason, and we are representing there and figuring it out how to do that. In the meanwhile, we have also had -- in the meanwhile last year, we had also filed against these 3 or 4 other countries and we are quite confident that the case was quite strong; however, as a company, we don't want to rely on duties whether it's customs duty or anti-dumping duty and at this stage -- and don't forget this is only for the NBR business right, which is only about 30% of our total sales. So while it's significant -- these numbers are without any anti-dumping duty, in fact the anti-dumping duties last in December and Jan, Feb, March, we were able to do without anti-dumping. That's not to say the dumping is not happening. It is happening today, but, obviously we've been able to diversify and make our assets more flexible and then focus on some other products as and when the margins are difficult and there are some countries that are still dumping, even till today still dumping, it is quite high margin. So we expect that certainly some anti-dumping duties will be levied by that by DGTR, which falls under the Commerce Ministry, but the Finance Ministry is a different thing. I'm not sure.

And even in the longer term, so you don't you think that we should be...

I will request you to come back in the question queue for a follow-up question.

Sure.

But let him finish, since he was just -- I think we will just finish with anti-dumping matters, we don't mind. Go ahead and ask your last question, please.

Sir, he is out of the...

Okay. Fine. He will come.

The next question is from the line of Parthiv J. from NVS Brokerage.

Yes. I will ribcage the gentlemen's question forward on the anti-dumping duty. Just wanted to understand once -- what do you expect once the anti-dumping deals in place and everything. What kind of move it would give you to the top line.

Top line is not really, frankly we are still selling -- we are selling at the -- we have to compete and we'll sell, but certainly, bottom line, we will see a reasonable increase again given where we are in the company. It's -- and the way we have adapted, it may not be a significant loss or a significant boost either way. I'm trying to understand how do -- I'm just trying to maybe in terms of percentage points, yes 1 or 2 percentage points more. That is what I would...

Okay. Yes, I just wanted to understand, once the -- all the CapEx whatever you're planning internally, I mean streamlined over next and debottlenecking streamlined over the next 1 or 2 years, whatever it takes down, what kind of growth in the topline your -- you expect to witness say FY '23 and onwards?

So of course, a big fill up will be the new XNB Latex plant that we put up and from -- and if as we grow, the total top line should go up by about another INR 350 crores to INR 500 crores, of course it will not be overnight, but INR 350 crores to INR 500 crores over 1 or 2 years.

Okay. And I just wanted to understand sir, what is that overall -- like you explained the previous gentlemen also, but I just wanted to understand what is the overall future demand, what do you perceive domestic and even in international market and what kind of a growth opportunity, what you can see.

We think India and our company both are poised. We are in an inflection point. So assuming this COVID issue -- we assumed that 3 to 6 months ago and maybe there was a wrong assumption, but frankly we -- when I say we, I mean I meant the country as a whole, we thought it was over, but luckily as a company, we decided to sort of build our assets to be more flexible over the last 6 months and we continue to do that and invest for the next 3 to 6 months. So we see great growth opportunities in most of the industries we are in. In India, even though we have high market share, all these industries are growing at a reasonable clip now. In 1920, we saw it was a difficult year for a few months, but at least in the last 6 months, we've seen really good growth rates in India and as you know because of the specialized nature of our products, where they are only one or zero companies manufacturing similar products in India, we think we'll continue to grow at the rate of this industry, which is paper construction. When I said paper, it's largely packaging. So packaging, construction, tires, all these are growing quite well. Auto, auto is one thing that has been up and down, but by and large the Indian market is growing well and in exports, we are really not -- we are a very low market share. So the opportunities are very large. It is up to us to take advantage of those opportunities and really work out some of the issues whether it's logistics, convincing customers which takes longer, sometimes in exports. Yes. So we are quite bullish about it for the next 3 to 5 years.

Okay. So you are bullish over next 2 to 5 years.

Yes.

[Operator Instructions] The next question is from the line of Farokh Pandole from Avestha Fund Management.

Congratulations on the stellar numbers, and I think it's a good validation of all of your efforts over the last couple of years. I just had a couple of questions. So firstly, on the margins. I think the last time you had these margins was in March of 2018. So it's been a gap of some time before we saw this level of margin. And at that time, if you look at the gross margin, the gross margin today is significantly higher. I think about 350, 400 basis points higher than what it was at that point in time. Yes. That increase in gross margin hasn't translated into the EBITDA margin. Now I'm talking about 2018 March and today because the EBITDA margin is up maybe 100 basis points or a little more than 100 basis points relative to the much sharper increase in the gross margin. So if you could just explain that difference and while explaining it, if you could give a sense of -- and I think you alluded to it in the previous participant question, also of the cyclicality of this margin that we can sort of hope to deal with going forward.

Yes, so I assume you're talking about Q4, you're talking about quarter-on-quarter numbers.

Yes. Quarter-on-quarter Q4 of 2018. Was that one set of high margin numbers that we saw and then again in this quarter. We've done well and we've got reasonably high margins again.

Right. So a couple of things, one is that at least compared to FY '18 versus FY '21 Q4, in terms of overall quality of the EBITDA margins, I think the team is quite confident of carrying on with the quality of these margins in the sense what I mean by that is, we feel confident at that point, maybe there was -- and of course there were tailwinds in Q4 of this year as well and they were at that time as well in raw material buying, etcetera. But we still feel confident of doing about 14% to 15% even quarter-on-quarter now, there may be -- as I have told you in our business sometimes, it does drop to even lower than that. As long as through the year, we have 14 % to 15% percent and we feel that it's -- going forward, that's going to be -- we feel reasonably comfortable to be able to do that. Given where we are with our current business, now I will have to look at the numbers, and frankly I have not comparing Q4 of FY '18 with Q4 of FY'20 and we will come back to you, if you say that the gross margins were much higher this time around versus Q4 of last year and yet EBITDA margins were not as high as they should be. One of the things, I can think of is we have had some fixed cost, some repair works, a lot of things in the last 3 to 4 months that we've had to do which we couldn't do from March to October, just because -- March to November I would say just because of COVID. So lot of higher fixed cost have come into Q4 and maybe continuing into Q1 as well. That may have been the reason for EBITDA margins not going up as much of the gross margins. But as I said, this is something I'm venturing a guess, but I'd have to look at the detail numbers.

Okay, great. Also, you mentioned the delay in tax and also I think in the presentation, you have a slide which shows 3% to 5% -- 3x to 5x of asset terms. So on incremental investments -- am I do understand that on incremental investment we should look at the range of 3x to 5x of asset turns and specifically with regard to the XNBR project, now that we are talking about the first quarter of the next financial year, is that again a time that we sort of feel good that we will be able to deliver by that point in time. And on the NBR expansion, if indeed we do see the anti-dumping come through, then is -- again is that a sort of focus area and we'll be looking again at that the larger size of projects that we've spoken off in the past.

Right, so yes, the first question is 3x to 5x turnover is for this new XNB Latex plant, also we would be targeting that in fact with current prices we're looking at about 4x plus, minus a little bit more. The second question was on the time line of the project. Look, we are ready, we are ready to go -- it's quite unfortunate that it takes -- it's taking very long, and I mentioned that -- I think you had asked that question last time.

Absolutely.

And there you asked me what the risk was, if I recall correctly, and I said, look one of the risks in this business or, what we are trying to do an expansion is really only the risk that I can foresee is just this environmental clearance is not coming on time and unfortunately because of COVID now, we are not even able to visit these offices personally. So that's causing a delay, but other than that we are ready to go. We are -- we finished detailed designing of the project, we feel very confident that as soon as we have it, we will start construction in October and we can deliver it in 6 to 8 months. So we are getting for Q1 of next year now and as I said, we are also -- not only in Gujarat, but we are also looking at a smaller expansion in Taloja for current set of products, because we are only 100% capacity utilization and for that also, we've applied to Maharashtra Pollution Control Board for permission. And as I said, I'll talk about that in only in the next quarter once we have a little bit of details on those numbers, but both these, we want to do in the first or want to complete in the first quarter of next year ideally. We feel very, very confident that we can do it given this one permission that we need or both of these permissions that we need from each state. And your third question on NBR, certainly, we are also -- it's on the cards. In fact, we're just with this part of this provision that we would need, so anti-dumping is one aspect of it and it's certainly on the cards. As I said we have sort of kept it on hold, because there is a lot of opportunities right now elsewhere as well. So we are looking to sort of conservatively grow and we will take that call in the next few months on doubling our NBR capacity.

All right. And related to that, what is our cash position as of -- are we sort of net cash or are we net -- what is our net debt position on it, cash position as well.

Yes. I think the balance sheet has been published. So I think from that you will see that our actually -- we are only have about INR 7 crores to INR 8 crores of long-term debt and we are barely utilizing our working capital limits. I would say how close to zero debt and we do have cash in the books of about INR 80 crores to INR 90 crores so at the current market value. So I think we are of course net cash right now and we are waiting to deploy it. So quite a healthy balance sheet.

I will request Farokh to come back in the question queue. [Operator Instructions] The next question is from the line of Nikhil Chowdhary from Kriis Portfolio.

And congrats on a great set of numbers. I have just one question. Probably last time, same time during the year, we saw COVID first wave and now we are seeing wave 2. I just wanted to understand that demand from industries, how was it last year vis-a-vis how we are even this year, is industry more prepared or are we despite having a very severe wave, just wanted to get a sense on that perspective so as to assess the demand going forward.

Look, last year was very different from this year's wave in the sense, last year, I would say COVID was barely in India at this time. It was just a lockdown that caused all the disruption. This time around, at least as far as manufacturing is concerned, there is no government mandated lockdown, but yes, the wave is -- the COVID wave is a lot more intense. The demand of certain industries is certainly going to be impacted, difficult to say how much, I think anyone can give you numbers, no one really knows what will happen. Certainly auto is something that could be affected we feel, but some of the others like tire which is largely linked to commercial vehicles -- commercial vehicle movement is not really reduced much. Similarly packaging is doing well. The glove industry that is the newer product that we have is in fact doing much better because of COVID in India and worldwide. So difficult to say what's going to happen with demand, but it's a very different type of wave this time than it was, let's say or different type of situation than it was a one year ago. So at least from a supply point of view, we feel confident that it won't be an issue at our end. We will be able to continue to running our plants as we have been for the last few months even through this COVID secondary, we continue to run it. But yes, I'm not sure about the demand and what will happen in this [ limit ].

Got it, sir. And sir, last thing on my side is just wanted to understand, with this entry of gloves division and all, probably we are making our revenue more stable going forward. Is my understanding correct because probably the demand from the auto, the building material segment is -- tend to be volatile and goes along with the cycles. So probably going forward as and when we do the gloves CapEx is on stream. Can we expect certain stability in the revenue going forward?

To some extent, yes, because every time we introduce a new pillar, we call it pillars. We have now different pillars. We have paper, paperboard, construction, carpet, lot of specialty products that go into various applications in the latex side, we have auto, we have non-auto for our synthetic NBR. We focus too much on auto, but that's only one-third of the Indian market frankly for NBR. There is a price role, there are industrial applications. So -- and we have added this glove product for -- the medical gloves in this year. Obviously, that will give us another pillar and as I said we have tried to make our assets more flexible and having said that, there will always be some amount of variability quarter-on-quarter, month-on-month, but we feel pretty confident of doing reasonable set of --- sets of numbers going forward and the company is more well-positioned in terms of where we are and has much healthier and qualitatively much healthier position than it was a year or 2 ago.

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

It was regarding the anti-dumping duty. Sir, please let me understand, maybe my understanding of this is not very clear. So what I wanted to understand is what's the long-term frame -- is it right to assume that we should be willing to work with this dumping thing because we can't always think of helping -- getting the help from the anti-dumping duty because that is something which is out of our control.

Absolutely. Yes. I agree. Yes. So our contention has been and this is what we have been telling DGTR or the commerce ministry as well is that today, we are the manufacturers of NBR in India and we just wanted some time, but from a scale perspective, we are much smaller than some of our global competitors or a couple of our global competitors. In India, if you want to be self-sufficient and I think you would all agree that in India, we would want to be self-sufficient, we just wanted some time to able to invest more money and double our capacity so that we reach somewhat at least by doubling our capacity will be at somewhat global scale, still not very huge global scale, but still somewhat scale. Right now 70% to 75% of NBR is being imported into India and the remaining Apcotex is catered into. So we wanted to double our capacity and be able to cater to about 50% to 60% of the current market, which is growing anyway. And so that was the idea, but you're absolutely right. And as we grow and as we become double, our cost per ton will come down, our EBITDA margin would improve and it will just give us a little bit of time, but you're absolutely right in any business, you do want to be cost competitive without any duty. Why only anti-dumping, even without customs duty. So we are very clear on -- that we are quite competitive as far as cost is concerned, but to be as competitive as some of our global peers, we need to double our capacity and we need some time and some breathing space and that's what we're asking for anti-dumping duty for another five years.

So just to speak about the scenario, even if this anti-dumping duty doesn't come in our favor, what they were changing, which we have done in our business like we have focused a lot more on -- mostly with export. So do we see or can we believe that in the next few years, we'll be able to slowly build up our capacity in India and will be much better in position even if this anti-dumping duty doesn't come, then also we will be able to...

Yes, as I said, the decision on whether to double or not, has not been taken. If the anti-dumping comes, then for sure the comfort factor that the Board and the management has will be much more than we have 5 years to invest and recoup some of our investments. Then the other thing will come about is do we spend the same amount of funds on this product or do we spend those funds on other products and maybe there was a better opportunity and better return. So we'll come down to that, but obviously we feel there's a great opportunity where we only have 25% to 30% of the market in India -- market share in India and we do want to -- we feel that we are well positioned to -- we are well positioned to be the #1 supplier in India for India. And this is a good opportunity as well.

Got it. So our CapEx will be determined by this anti-dumping duty if I got it correct.

Yes, I mean let me put it this way, the anti-dumping comes, it will definitely give us the confidence to go ahead with it right away. If it doesn't come, then we would reconsider, we may still go ahead with it, we don't know.

[Operator Instructions] The next question is from the line of Harsh Bhatia from Emkay Global Financial Service.

And congrats on the great set of numbers. Just to highlight what would be the projected budget for CapEx in FY '22, given that we have shifted the XNBR Latex project. Do I think FY '22 if I'm not wrong?

No, no, no. You would -- so we hope to start that project as soon as the monsoon is over and we hope, the next 3 to 4 months, we will get this environment permissions that we need. So we would -- it's a good question -- we are looking at significant amount of CapEx happening in the current financial year assuming that does come through obviously a large chunk of the CapEx that project is likely to be about INR 100 crores to INR 110 crores now. It would be over FY '22 and early FY '23. In addition to that, there is a maintenance CapEx every year that we are seeing is about INR 10 crores to INR 12 crores -- INR 10 crores to INR 15 crores now maybe -- this year, we made investment more and looking at a new project in Taloja to enhance capacity there. And as I said, that's something that we'll announce shortly, but we are looking at anywhere between -- in my estimate somewhere between INR 100 crores to INR 150 crores in FY '22 if all goes well.

That's really helpful. Just to address it from another point of view, if you are -- you are earlier seeing some sort of revenue potential from this project that we were supposed to put up, how much of you -- how much of that do you think has been deferred into FY '23. I am talking specifically from the gloves project.

Well, the entire thing would be deferred. We are not going to be ready with the project by FY '22.

I mean quantify that if that's possible?.

So we expect about -- around INR 350 crores to INR 400 crores revenue once the plant start and of course, it's not going to be overnight. Once the plant starts. It takes time to build up the field, but at full capacity, it's about INR 350 crores to INR 400 crores.

Just one last question from my end. Did we see any supply chain issues, both on the procurement as well as our sales side?

Yes, fantastic question. Yes, absolutely. Absolutely, that's been a real challenge, I would say. Fortunately, our company has managed it quite well. Some of our competitors really had major problems on supply chain. We have also had some challenges with various material because of Suez Canal issue. We have had obviously -- current -- recently 1 or 2 months COVID has hit some of our customers. So they've had to our customers in some cases, where they have had to shut their plants, you might have heard some of the auto companies already announcing reasonably long-planned shutdowns. How that's going to affect demand in the next 2 to 3 months remains an uncertainty and that, yes, that is the risk and that is an uncertainty going forward because the COVID situation in India. But on the raw material side, things are improving compared to, let's say, 3 to 4 months ago, it's definitely improving because for the rest of the world where imports were coming from, those -- there that -- this is a well in control now -- COVID is well in control. So we don't expect major issue in raw materials going forward.

Right. Any commentary on ApcoBuild?

No, it's going well actually. As I said, it's a small part of our business, I have always said so and we will write something. We will we have a note on it in our Annual Report this year. But it's going well. It's a very -- it's still a very small part of our business. That's why we don't really focus on it and it's a profitable part of our business, it's a small brand that we have started a few years ago and we have actively grown it and it's a good profitable brand, but it's still a small part, it's regional, it's in the Western region, we focused on that and we are growing it slowly.

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

Congratulations Abhiraj and team. Couple of questions from my side. So I think in the last call, you had mentioned that you were undertaking a small debottlenecking of about 10% to 15%. It should come in May or June of this year at the current time. Has that come through and if that has, what does that do in terms of the attributes that we now -- given that we are running at a 100% utilization. I'm just trying to understand the volume growth potential?

Yes. You're right absolutely. So this will be done in Q4, where it will be completed in Q4 and exactly what you said, we will have around 5% to 10% more from -- sorry, in Q1, it will be completed in Q1 and we'll have 5% to 10% more from the debottlenecking. Of course the kind of demand that we saw in the last 4 to 5 months, it caught us by surprise and we are happy you're pleasantly surprised and for the year of course, if you will look at the FY'22 versus FY'21 numbers, of course there will be much better, because of first 3 months of -- first 3 to 4 months of the financial year '21 was very tough because of lockdowns. Obviously things will be much better, but in the quarter wise, we have very little headroom right now. And it will be -- it will come through the debottlenecking exercises. After that, it will be through this 2 projects, one is this latex project that we're looking at in Valia, XNB latex, plus we are looking at latex project in Taloja as well, which will help us to some extent increase capacity in Taloja as well. So that, as I said I -- it's a little premature to announce, but I will perhaps hopefully make that announcement in the next quarter. In addition to that, NNR line too, which is the bigger -- which is the big project to double our NBR capacity, which decision we have not taken, but hopefully we'll take it in the next 6 to 8 -- 3 to 6 months.

So Abhiraj, in fact my next question was that. For it to be a viable side, what is the minimum size that you can -- you need to put whether their duty comes or not, because you said that for us to be sort of globally competitive. Do you think that we need to double our size. But let's say that...

No, sorry. Not double our -- no. Sorry. I just to correct you, not double our size, but double our NBR production...

NBR from 21 to 40, let's say.

Yes.

Is that the sort of the minimum plant size or addition that you can -- line size that you need to do to make it sort of cost competitive rather than doing it piecemeal 2-3 size?

Exactly.

That's helpful. And secondly, just sort of looking at the full year numbers, do you have sort of other expenses line because we don't have the breakup yet, the annual report is not out in other expenses sort of go up from INR 75 crores to INR 76 crores, which was the case in FY'19 or FY'20 to about INR 90 crores, this year. Is there any sort of one-off in this, like you mentioned that maybe you took some sort of repairs or maintenance work which was done in October, November or even some of it in this quarter. I'm just wondering if there is some of it is not going to get repeated because that is sort of one line which seems to have hurt the EBITDA jump this year, I think Farokh has that question and maybe that is part of the upcoming, try to understand if you could quantify that, it should be there is a one-off.

Well, one and I'm not sure of these numbers exactly. Again I'll have to look at the details, but obviously our volumes have been higher in the last 6 months or at least the last 2 quarters. And therefore, I don't know if the utility cost like power and fuel, water and so on. Obviously if that's part of it or not. But obviously that has gone up, but in addition to that, yes, we certainly had some one-off expenses that we could not pick up between March and October and therefore they have come in the last 3 to 4 months, I would say and also I remember FY'19, '20. Yes, I know. I'll finish that. I know you're comparing financial year. And even in financial year '19, '20, it was a difficult year for us in terms of margins following, dumping was very high at that time from for NBR. So we have held off on some expenses which then we approved in the last few months. So yes, there are certain -- some one-off expenses for sure, but I would have to go back and look at the details. Currently, I don't know these numbers exactly what you're saying. So if you can send us a small email, then we can clarify this.

And one final thing from my side, so [ love ] this sort of a relatively new pillar as you said that we've started, just to get essentially over the last 3 to 5 years, anything other than that has been a new sort of products either innovation or the launch products or the geographies like this one big change we are seeing is the 20% in the current quarter being exports. Anything else that is sort of a relatively newer business for us, which has the room to sort of ramp up, other than crops or other latex or gloves?.

Well, our current businesses as well, we have obviously introduced new products. We don't talk about it because it's different grades in the same product line, which is also allowed us to grow. We've added new customers, both in India and abroad. And of course this gloves is a new industry that we're focused on. But over the last -- if you ask me last -- if you see the last 5 years, one is we made this acquisition of the OMNOVA plant in the Valia plant. In addition to that we added products in Valia, we've added products in Taloja, we expanded our geography and this new pillar of gloves. So we've done multiple things.

Okay. And the main export markets were for this quarter in particular.

Southeast Asia and the Middle East remain our main export markets. We also export into Europe. And as far as America and everywhere else, but a large chunk of the business comes from these 2 geographies, Southeast Asia, Middle East, and North Africa.

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

Sir, just wanted to understand the pricing differential between our NPR products and what is there on -- the imports from Korea and what quantum of duty are we expecting this time?

Look, the pricing -- there is no pricing differential in that sense, because we have to compete with whatever they price and whatever the number, that is Korea, Russia, China wherever it's coming from. So we have to somewhat compete, but obviously, we think that the price and DGTR for the Korean case, they recommended dumping duty in terms if I were to convert into percentage off between 3% and 25% to Korea, depending on the suppliers, 3% to 4% was for one supplier and for another supplier was upwards of 20%. I think it was 20% to 23%. According to us, look a fair duty -- again it will depend from country to country. Some countries. I think the fair duty would be 20%, some countries, the fair duty would be 10%, that's up the DGTR to decide, but we think somewhere between -- somewhere around 10% and 20% depending on country and it is definitely required.

And also on the margins, if I have to remove the inventory gains. What could be the sustainable margin, maybe you can provide for Q4 or for the full year FY '21?

Look, I've always said that if we implement our strategy well, and we have done that quite well in the last 1 or 2 quarters, around the 14%, 15% margin on average is definitely doable. We've of course done better than that in Q4 and we expect that for the year as well, there will be some ups and downs, some hits and misses, but we hope to do in the mid-teens sustainably.

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

Sir, as you earlier said that you are working at almost 100% capacity and maybe you are doing some kind of debottlenecking, but do you feel that in FY '22, we will be doing double-digit kind of a growth, volume growth.

Of course, FY '22 compared to FY '21 we'll do this, definitely doing more than double-digit because don't forget for the first 3 months of the year, we were shut for the first 2 months and our fourth quarter was the really -- we had a lot of challenges. So you know our first quarter numbers. That is held, but of course if you compare quarter 4, quarter 4 is -- we were working at almost 100% capacity, capacity utilizations of quarter-on-quarter compared to quarter 4, we have a little headroom to grow. But compared to FY '21, the numbers will definitely be much better.

Okay. And sir, when you're talking about the CapEx, so what kind of incremental ROE, ROC you are looking after that.

As a company, we don't do any -- we wouldn't make any CapEx investment if it were not 20% to 25% ROC, but obviously in -- we would want to do better than that.

The next question is from the line of if Sameer Dalal from Natverlal & Sons Stockbrokers Private Limited.

Two questions. The first one is you keep -- you mentioned that we will grow at what -- I mean our growth rate will be that based on certain industry is growing at 4%. Is there any sort of break up you can share, in what percentage of your sales, your products go to which industry.

Yes, I think we've mentioned that approximately yes, we can -- I can tell you now approximately 20% is paper and paperboard, which is a large chunk of that is packaging, some of it is for paper applications as well, but a large chunk of it is for packaging. Another 10% or so is the tire industry, another 10% is construction, another 10% -- 10% to 15% is carpet and specialty products. Footwear is again another -- about 10% to 12% now. Then we have auto, which is about maybe 15% and a range of other rubber applications, which is another 15% to 20%. I don't know that's approximately to about 9500, I think. I hope that gives you a sense.

That's more or less of what we want. So it's accurate certain growth rates in both industries.

Exactly. So it's a highly equal distribution. I mean fairly, I would not say equal, but diversified distribution and we are not -- I mean compared to logistics, let's say 7 years ago when we were highly skewed to the paper and footwear industry that's definitely come down, the dependence on the industry.

The second question has to go around the NBR I plant that you're talking about, where you are wanting this anti-dumping duty, is this that plant right now is delivering significantly lower ROEs and ROCEs than the rest of the business and putting a drag on the overall margin. Is that fair to assume and if that is the case and you feel that the operational efficiencies that come through if you double up would help you get the higher ROEs, ROCEs, then why not still go ahead with it is unless the ROEs are really, really bad, I mean I'm just trying to understand what's happening on that.

No, you're right, you're right. So number one, what's happened with this -- with the NBR business is there has been years and quarters where the ROE has been very good and then there has been '19-'20, where we saw that the ROEs were largely dragged down -- the results of the company were largely dragged down due to NBR. As a result of which you have done a couple of things, one is we have worked on -- luckily, we've had a few cost saving projects that we've implemented, which is that will be helped improve the NBR margins with or without dumping. Number two, we have made up plant more flexible to actually make other products from the same plant. For example, this XNB Latex or gloves, we have been able to make it in the same reactors where we make the nitrile rubber, the first part of nitrile rubber profit. So we made our more flexible and to your point, it may still be and that's the decision, we have not taken -- it may still be with or without anti-dumping, it may still be worth it to go ahead and do that expansion. The only question is do we use those funds for NBR or can we utilize those funds better for some other opportunities. So it has come down to that. It perhaps may not come down to whether the ROE of the NBR plant is viable or not, the answer is yes, it may be, especially when you double and especially when you reduce your cost per ton by doubling and you get economies of scale, but it will be a question of where we want to spend our funds, where we want to invest our fund.

What kind of cost would that NBR plant be?

We have estimated around INR 180 crores right now. So it's a fairly large investment.

It is a large investment.

Exactly. So I hope you understand now why we have a little bit of concern.

The next question is from the line of [ Ankan Jain ], a shareholder.

Congratulations on good set of number. Hope you and your staff, all are safe and taking care.

Well, so far. We have had a lot of COVID cases in the plant. But we've had a quite a few COVID cases in the company, but fortunately everyone has recovered without any serious sort of -- serious disease. Unfortunately, we've had a few family members of our employees who have -- who unfortunately we lost, but none of our employees so far.

Okay. It's nice to know that. So I have 2 to 3 questions. One is on this CapEx part where you have planned 3 different CapEx's. One is, debottlenecking at Taloja plant. Then second is the gross project at Valia, and of course proposed, it's still not approved for the NBR project again at Valia.

And the fourth one I've alluded to today is additional capacity in Taloja, but I will giving details of that project only in -- perhaps in the next quarter con call.

No, what I want to know was once we are done through all these projects, will we have sufficient space for future expansion at both the locations?

You mean after these projects for more expansion. We may. I mean we'll have to see how things work out once we've implemented it because one of the other things cognizant of is also not just putting up a plant, but the logistics required for moving material, both incoming raw material, outgoing, finished goods it is going to be get more difficult after these -- all these projects are implemented and yes, from that point of view, we've also started thinking of a third location for our sort of long-term growth is 4 to 5 years down the road.

Okay. Fair enough. The second thing I want to know was some years back, we had done -- we had made some products for the paints industry, but unfortunately at that time, it was found out that the margins were not remunerative one and there was severe competition or so. Is that the status has remained even the -- that is it remained same even now?

What we did is we are by the way, still supplying to the paint industry. It comes under our specialty portfolio, what we call it. So we are only supplying some specialty products to the paint industry, where we have a certain edge and where we are getting the margins that we feel are healthy and sustainable to grow in that business. But yes, as a strategy we tried it out, it did -- we phased the margin. We have a range of products, we have -- we had developed, which we can still manufacture any time, but I think there was a lot of competition in that industry. So we decided to sort of take it little slow and only focus on certain products.

Okay. So that means it has remained even now severe competition. Okay. Next, about this carpet industrial buildings where we have developed exclusive products for the Gulf region. I believe I think it was more than 8 to 9 years back we had done, and that time the potential given was around INR 800 crores. Now if you see the export part, you have said that around 20%. We should also include loans. So I don't have how much percentage of revenue goes to the carpet industry. So even on that some role, if I take 10% also that workflow to be less than INR 60 crores. So INR 60 crores out of INR 800 crore potential that time is still less than 10%. So is there any particular reason why they are not going aggressive there?

No. Actually, we have done a very good job and we are one of the key suppliers, and you're right, it's a very big market, it may be even much more than INR 800 crores. Now I will have to rework it now, but as I said, look strategically India -- so what's happening is there are only a handful -- I would say less than in single-digit, less than 10 big customers for the carpet industry and the competitive pressures there in the margin were much lower than some of the other customers' industries geographies. So while we continue to do business there and anytime we want, we can increase the sale as well. It's a question of where the margins are more lucrative, and especially in the time line on this, we are working at 100% capacity utilization. One other thing I mentioned was better product and customer mix or optimize product and customer mix. So we optimize that what is strategic and we focus on those customers, but we may not want to grow significantly in those customers. There are also payment issues and all those other things that we have to worry about. So given all that, we will continue to focus on that, but we may not have aspirations to become #1 in that geography for that industry.

Okay. And my last question is -- so you had mentioned about having implemented the flexibility in the production in both the plants at Valia and Taloja, does that include even for this rubber -- HSR rubber, where we have our own 7,000 metric ton of capacity.

Yes, that's correct.

Okay. So that also we can make at the other related or other products or based on the demand.

No, they -- sorry. So I meant HSR, we are able to make in both locations, but due to the nature of the reactors that we have -- we can only -- now we can only make HSR from those reactors. We are looking at replacing a couple and making it more flexible, so we may do that, but as of now, we can make HSR in both our plants, but those specific -- that those specific plants are not that flexible as of now, we are trying to make them more flexible.

Sorry, if I could squeeze in last question. So these supply -- this VP later to the tire industry.

That's right.

So that can be used even for the radial tires.

No, that is mostly -- so it's a -- it mostly goes into biased tires as far as truck and bus is concerned, but for passenger cars, it goes into -- passenger and 2 wheelers, we can use it in all tires, it is used across the board.

But for passenger, you want to say, even there are radial tires also.

Yes.

So other than us, do we have any local manufacturers for this product?

I'm pretty sure you can do the research. Google will tell you all those.

So ladies and gentlemen, due to time constraint that will be the last question for today. I will now hand the conference over to the management for closing comments.

Thank you. Thank you very much, Peter. Thank you to everyone for participating and taking the time out to come to our Q4 con call. We look forward to seeing you all in -- at the end of Q1. We all hope that it will be a better year for all of us. I know it started off very difficult for India and we can hope and pray that we can come out of it. By the time we meet next time, hopefully, the situation is much better. Thank you very much.

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