Apcotex Industries Limited (523694) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the 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 from Valorem Advisors. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and a warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations 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 first quarter of financial year 2022. Before we begin, I'd 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. Let me now introduce you to the management of Apcotex Industries Limited participating with us in today's earnings call. We have with us Mr. Abhiraj Choksey, Managing Director; Mr. Sachin Karwa, Chief Financial Officer; and Mr. Anand Kumashi, Company Secretary. Without much delay, I request Mr. Anand Kumashi to give his reopening remarks. Thank you, and over to you, sir.

Thank you, Anuj. Good evening, and welcome, everyone, to this earning conference call for the first quarter of FY '22 under review. Along with me in today's earning call, I have our Managing Director, Mr. Abhiraj Choksey; and Mr. Sachin Karwa, the Chief Financial Officer. I hope you had an opportunity to review the financial statements and earnings presentations, which has been circulated and uploaded on the website and of stock exchanges. To brief you on the financial performance for the quarter -- for the first quarter of FY '22, revenue from the operations was around INR 185 crores, with operating EBITDA at INR 29 crores, with EBITDA margin at 15.82%, while the net profit was INR 22 crores with PAT margin at 11.83%. As you can see, the results are flattish as compared to the previous quarter on account of slightly lower volume due to second wave of COVID-19 and partial maintenance shutdown at Taloja plant during the month of June 2021. On the CapEx front, all de-bottlenecking projects will be completed in Q2 of FY '22, which will give an additional revenue of around INR 60 crores to INR 70 crores per annum once completed. We also obtained initial environmental clearance in Q1 to start the construction for 2 new brownfield projects, 1 each at Valia and Taloja plants. The total CapEx for these new projects are expected to be around INR 140 crores to INR 150 crores, which will be incurred over next 4 quarters. On the antidumping duty front, on NBR for both the petitions, after thorough investigation, DGTR recommended an antidumping duty but the Ministry of Finance has decided not to notify the duty. As of now, no anti-dumping duty exists for NBR imports into India. And lastly, the Taloja plant 3 years agreement with a unionized workmen was amicably signed in this quarter. With this, I'd like to open the call for questions and answers.

[Operator Instructions] The first question is from the line of Ankit Kanodia from Smart Sync Services.

So we have got an EBITDA margin of almost 16%. How confident are we that it can be sustained throughout the year and why?

Yes. Thank you, Ankit, for your question. Can you hear me?

Yes. Yes, I can hear you. Please go ahead.

Yes. This is Abhiraj Choksey. Thanks for your question. As we have been mentioning in previous con calls, and I think you have been part of a few con calls, we have consciously made an effort to increase our margins from sort of the low teens, in fact, 10%, 11% to almost the last now 3 to 4 quarters, we've consistently been doing somewhere between 14% to 16%. So we feel fairly confident that at least this 14% to 15% number is doable. We are at high capacity margins -- high capacity utilization. That's why it's healthy. And therefore, we have been able to also improve our product portfolio, product margins and manage our customer margins as well as product-wise margins better. We feel fairly confident that -- of course, there'll be a couple of quarters where we may see some ups and downs in our kind of business that does happen. But on average, I think we're fairly confident of doing somewhere in the mid-teens now.

Okay. That helps. And before I move on to the next question, thank you for sharing more details about ApcoBuild in the annual report. That really helps. And the second question is about the antidumping duty. In the last call also, we had a discussion where you said that if that antidumping duty does come, then we are really confident that we'll go ahead with the CapEx plan. Now that the Ministry of Finance has put that on hold, so is it on hold or they are just -- they're not doing it at all?

No. They are -- as of now our information is that they are not -- they have not notified it. And for one of the cases, there is also a notification that comes and they will not be -- for one of the petition that they will not be sort of implementing it. However, there are some legal processes that we have available with us, which we are evaluating whether to do it or not. But for the last 6 months, there has been no -- in fact, since December 2020, there has been no antidumping duties in place in India for any import of NBR. As far as CapEx is concerned, the CapEx that has already been approved by the Board and which we are going ahead with both our largely latex projects, which is one is in Valia, INR 110 crore CapEx, and another one in Taloja, which will be somewhere between INR 30 crores to INR 35 crores, which I think we have mentioned in our earnings presentation as well. So that we are going ahead with. As far as the NBR is concerned, anyway, we are waiting for environmental clearance for that project. So we have some time to decide. The environmental clearance is expected sometime next year, maybe by April of 2022. Only after that, we can go ahead with that project. So we have some time to decide. But we need to go ahead with it because, frankly, in the last 6 months, we have completed effectively, we have tightened our belts, we have implemented a few things, reduced costs, and -- It's a question of where we want to allocate our capital. The NBR business, according to us, is still attractive, and we will decide by next year. We have applied for the environmental clearance approval for that project.

That helped again. And regarding the export, which is doing really well for us today. So how much are we expecting? As in, I know you can't give any guidance, but any ballpark direction? As in, can we see exports doing even better throughout the year? So it's already 24% of that, if I got it correct.

Yes. It is -- this last quarter was 24%. There were 2 reasons though. And frankly, we don't -- it's not that we're doing exports for the sake of doing exports. One was, of course, we wanted to derisk out of India because something like what happened lockdown. We've seen a couple of times in the last year, where India has gone through lockdown. So we were, therefore, able to quickly -- even in April and May, when we had this problem in India, we were able to quickly pivot and make sure we didn't lose sales and we were able to sell more in the export market. Now that percentage may vary, maybe 20% next quarter if the domestic market picks up, it just depends. But now we're quite comfortable with this kind of 20% to 25% exports. And even our exports market are largely in Southeast Asia and the Middle East, right, that is our, I would say, 80% of our exports happen around that area. Now what we are seeing currently, for example, in the month of July and even August from what I heard, countries like Thailand and Malaysia have gone into a strict knockdown because the Delta variant has now erupted there, which was the case in India 2, 3 months ago. So now it's happened there. So there, some of our customers are shut. So the percentage of exports may vary. The only thing that's important from my -- from our point of view is, frankly, that we have now the capability and we have built products, a team, sales and relationships with customers that we can even -- we can go up to 24%, 25%, we're able to do export sales.

Okay. Anything drastic change in ApcoBuild or is it still a minor portion of our revenue? Or do we expect something significant in this year?

We are -- in fact, this year, we have -- we expect to -- earlier, we were around -- even around the Mumbai-Pune region, more around in Maharashtra, now we have expanded to Gujarat, MP, Goa. So we're trying a few other territories and seeing how it goes. So we expect while it will still be a small part of our business. We are seeding it. We continue to seed it. It's a good profitable business, but a much smaller part of it.

Okay. One last question. EBITDA per tonne, are you near the the peak right now? Or do we see more like from here as well, looking at the raw material prices and all? I know you don't share the exact number of EBITDA, but directionally...

Yeah, we know this is a number, but frankly, we feel comfortable with these numbers. I don't know if it's at the peak or not. But yes, I mean, the raw material prices are -- have been rising for the last few months, as you know. I'm not sure, difficult to say, but we feel confident that this kind of EBITDA numbers are possible, going forward as well.

[Operator Instructions] The next question is from the line of [ Manav Vijay from Deep Financial ].

First of all, congrats on very good set of numbers. I have a couple of questions. First of all, on the XNB Latex. So last year, when you started talking about the expansion, you started around 30,000 tonnes of expansion, then somewhere you increased that to around 40,000 tonnes, and then in the latest AGM, you talked about a 60,000-tonne expansion plan. So if you can just, first of all, explain as to -- I mean what is the kind of expansion that we are looking at? What will be the CapEx? And what kind of sales you expect to make from that project at the peak level?

So as of now, the first phase in Valia is 50,000 tonnes of latex. I don't think we had ever said 30,000 tonnes. It was always somewhere between 50,000 and 60,000 tonnes. So right now, as of now, we feel confident that we'll be able to -- once the project is commissioned next year, now it will be sometime in 2022, we will be able to make 50,000 tonnes per annum, annually, but we will be leaving some more space in our civil -- in our buildings to add more reactors if required and more equipment is required in the future. But initially, we are going to be investing around INR 110 crores for about 50,000 tonnes, which would be around INR 400 crores of revenue under current -- with current prices at conservative levels. In Taloja, we are planning around the INR 30 crores, INR 35 crore project, again, to start off after the monsoons, construction after the monsoons. Again, it will be ready by the middle of next year. That is a project that will give us flexibility to make either 10,000 tonnes of XNB Latex or we can make other latexes as well, the traditional XSB. So it will be a combination plant. Conservatively, again, that will be about, I think, around INR 80 crores to INR 100 crores of revenue -- INR 80 crores of revenue. So overall, we are looking at about INR 140 crores to INR 150 crores CapEx on these 2 projects besides maintenance CapEx and so on, that would happen, of course, through the course of the year over the next 12 months, 12 to 13 months, and that would be about little less than INR 500 crores of revenue in top line.

Sure. Abhiraj one of the main, I would say, achievement that you have mentioned in the last couple of calls that you have said that we want to stick to the time line. So you believe that this INR 150 crores or INR 140 crores of CapEx in next 12 months without any kind of exceedance, I mean, 1 month here and there is obviously beyond anybody's control. But 12 months is something -- 12, 13 months is something that you will be able to finish it off because since now you have the [indiscernible] in place and the speed at which you move is now up to you. So you believe that is doable?

Yes, absolutely. It's doable. And we -- as you said, it's now, of course, it will be more in our control. You were waiting for some environmental approvals, which is what delayed it by a few months. But now immediately after the monsoon, we expect to start construction. We've already finished the detailed designing of the project. We are already manufacturing this product in reasonable quantities for the last 1 year now or more than that. Even before pre-COVID, we were doing it in smaller quantities. But now, of course, we -- given what happened, we modified some of our reactors to make Nitrile Latex for gloves in the last 1 year. And we are fairly confident. We have everything in place, right? We have the technology. We have the customers. We have plant capabilities. It's only about project execution. So as you said, 1 month here or there, unless some third wave hits us badly. And of course, there are those kinds of challenges where some of our vendors like, for example, even in April and May, whatever machines really had ordered, some of it got delayed because of the second wave and some of them were shut, especially in the north. So barring those kinds of things, we feel fairly confident about a 1-year time line.

Now you also mentioned that apart from the 50,000 tonnes in the Valia plant, you will -- so you will have some space. So after this expansion, I believe that is a plot of around 22, 23 acres, and currently, I think you are using some around 7 to 8 acres. So post this expansion, how much space you will still have to do any future expansion apart from the NBR that you are planning?

As of now, we are looking at this Nitrile Latex project of 50,000 tonnes and, as I said, we'll be able to add some more. So we'll have enough space maybe to increase capacity in the future by up to 50%. Exact numbers, I would only have to work out, I'll be able to tell you by end of next year, but for Nitrile -- and then NBR, NBR, that's it. I think beyond that, I don't think we'll have more space.

Okay. And for this INR 150 crore, so I believe you have around INR 80 crores, INR 90 crores of cash on books. So you would -- so you would want to, let's say, raise some debt or you believe that the internal accrual plus, let's say, that you have the portfolio, all that is sufficient to fund this expansion?

Yes. Frankly, we feel confident that the internal accruals and, of course, if we use all the cash that we have on our books, then that's sufficient to fund the next 1 year. But we do plan to take on some debt, at least, because we do want to -- in our kind of business, we have seen in the last 10, 15 years, there have been cases where, It's always good to add some cash in the books because the volatility in raw material prices, sometimes availability, sometimes what happened with COVID last year. So we would not use up all the cash that we have on our books. So we would take that -- and as of now, we are almost debt-free. So we have the ability to raise some debt at least.

Sure. And then last question from my side is that -- so I've been saying -- I mean, guys for the last almost 10 years. So in last 1, 1.5 years, so you've added some people at the top level. So do you believe that now the size of the business has become so big that you need extra hands to take care of it?

Yes. I mean as the business grows, I'm sure you would agree that you need people at all levels, and that's what we do. As and when we think, we require people, we recruit.

Next question is from the line of [ Manoj Sejpal ] from Avadh Developers.

[Foreign Language].

Sorry to interrupt [ Mr. Sejpal ], but [Foreign Language] we are not able to hear you. Can you speak a bit louder?

Hello?

[Foreign Language].

[Foreign Language].

[Foreign Language] Overall business is strong. Things are looking good. We don't give exact guidance on percentage [Foreign Language]. Overall, I can just say that business is looking okay. There are obviously challenges, as I mentioned earlier. Currently [Foreign Language], like Thailand, Malaysia, [Foreign Language], but India market has picked up. Also, this is a monsoon season. So a lot -- a few of the markets -- a few of the industries that we are catering to, like construction, carpet and paper, this is there sort of not that peak season. So those kinds of quarter-on-quarter challenges can happen. But overall, we're looking at overall, nothing substantially changes in the business quarter-on-quarter.

Next question is from the line of Alisha Mahawla from Envision Capital.

So I hope this is a audible.

Yes, it's audible.

First, I'd like to understand that for the kind of growth that we're witnessing, is this all volume growth? Or is it some kind of value realization growth that we are witnessing?

Compared to which period?

Obviously, while I understand that Q1 is on a low pace, but in general for the last 1 year for the kind of growth that we've seen, just wanted to understand that is it a volume growth? Or is it a realization growth? Or are we seeing a mix of -- maybe the volumes are going up, that materialization are correcting? Just wanted to get some that kind of...

So if you see the last 1 year, then, of course, we've had mostly around volume growth. But if you see the last 1 quarter, yes, realizations have also gone up. It was a combination of realization and volume. For example, if you compare Q1 of this year, which is this quarter compared to the previous quarter, which is Q4 of last year, the top line is about the same, it's about flat, but frankly, our volumes have been a little bit lower. Again, we don't give exact numbers, but I would say in the single-digit percentage lower. And we -- and the main reason is because we had a long partial shutdown in our Taloja plant, which affected production, and partly also because of the lockdowns in India, that affected sales in some of our segments, some of our customers were shut in, especially in the north, for weeks, 3, 4 weeks because of a lot of COVID cases. So obviously, those kinds of things happened in Q1 that were not there in Q4. But by and large, if you were to compare a whole year, it's been largely volume growth driven.

Got it. The other thing that I wanted to understand is that this quarterly run rate of about INR 180 crores, INR 190 crores that we're doing, we can maintain this with our existing capacity? Or is there scope to improve this with the current capacities?

Yes. So we have invested in the last 5, 6 months, and we continue -- and I think that's also mentioned in the investor presentation, is that we have spent some amount for debottlenecking and which will increase capacity by about 10%, 15%, somewhere between 10% to 15%, which will obviously keep us going for the next 1 year. And after that, of course, these 2 new projects are coming up as well by next year.

Sure. And the last question that I have is the new capacity, for the brownfield that you're doing that is expected in FY '23, you're expecting it to be utilized in about [indiscernible]? Or in general, does it take longer to get utilized?

I mean, yes, I think -- that would be a conservative assumption, but we obviously would like to do it quicker than that. It will take time as soon as it gets commissioned because a lot of our customers would -- because even though it's in the same plant, it's a new plant, right, and it's a new building, new reactors, so our customers would sort of slowly ramp up. I'm hoping we can do it in 6 months to 1 year, but certainly, definitely, in 2 years we'll be able to ramp it up.

Next question is from the line of Satyan Wadhwa from Profusion Capital.

You mentioned that raw material prices are inching up. Just wanted to get a sense of how much end product prices are moving as well, so that is there likely to be a compression in margins in the near term or in expansion? And if you could shed some light on when the new brownfield expansion will be ready and how much they would contribute to the top line in FY '23? And what is the full -- at full capacity top line contribution likely in FY '24 at current pricing?

To answer your first question, we are, in general -- our endeavor is always to pass along the pricing, the cost increase. And by and large, we've been successful. So even, for example, in Q1 compared to Q4, we were able to pass on the cost increase. And in fact, we may have done a little bit better in that. Therefore, our EBITDA margins were, frankly, a little bit better than -- or around the same as Q4, our EBITDA was around the same as Q4. As far as the projects is concerned, look, we expect it to be sometime -- by the next con call, I should have a more accurate number because we have recently received these approvals and our project team is now reworking the entire time line and schedule, but we expect it to be sometime in the middle of next calendar year. So sometime in the middle of '22. And as I was telling the previous caller that we'd want to ramp it up in less than 1 year. So it's very hard to exactly pinpoint what would be the revenue extra generated only for FY '23. But overall, as I said, at full capacity with the new volume, we expect revenue of about INR 500 crores to be generated from the new CapEx.

How much of that, at full capacity?

INR 500 crores per year, additionally.

INR 500 crores. Okay.

Next question is from the line of Abhishek Basumallick from Intelsense Capital.

I just wanted to understand a little bit on the lay of the land for your latex plot space because I've been reading up a little bit, and I find that there is a -- I was looking through LG Chemicals and [indiscernible] and some of the other players in the space. And they seem to be saying that there is a very large demand, which is there. So basically, I wanted to understand -- also Top Glove. So trying to understand what are your thoughts on the demand scenario? And what kind of volumes you're expecting, say, in the near term or the medium term, especially when you're competing with other MNCs, and what would be your competitive advantage, if there is any?

Yes. So one is that even pre-COVID, we had identified this product range way back in 2015, '16 as something that was worth looking at because of 2 reasons. One is general -- the level of hygiene going up in Asia, Nitrile latex or Nitrile gloves taking more of the market share from natural latex gloves because they have some inherent properties that are better than natural latex gloves. And the competitive scenario or the competitive space being limited, there are a handful of players mostly in Asia that manufacture this product. So we had identified it 4, 5 years ago. It took us 2 years, 3 years to develop the product. We started selling -- started building customer relationships. And now we're at a stage where we are selling reasonable quantities of this product for the last 1 year and then investing more into it. So overall, I would say, look, the space of nitrile gloves and latex pre-COVID was obviously attractive. And now given what's happened with COVID, obviously, it's expected to be even more attractive for the next 1 or 2 years given overall the hygiene levels and overall vaccination drives also, which will be continuing for the next couple of years. We all need to get boosters at some point even after your first 2 shots and so on, where also gloves are going to be used. So -- And Asian countries typically had much lower glove usage per capita, glove consumption per capita, which I think will also -- or we think, and as per all reports, are going up. So all this makes it an attractive sort of segment to be in both for glove manufacturers as well as the raw materials for glove manufacturers. As far as Apcotex is -- of course, we do have certain competitive advantages. The one is our capital...

Sorry to interrupt, before you get there, I mean, could you quantify in some manner, what kind of growth can be possible, what the numbers look like or possibly what is the market size that you're looking at?

One, I mean I have all these numbers, not with me at the current -- immediately, number one. Number two, we don't share details of the market research that we have done because we believe that's proprietary. But having said that, even pre-COVID, the expectation was that this market would grow at 12% to 13% per annum. Obviously, last year, the growth has been phenomenal. That's not likely to continue that kind of growth. But at least 10% to 12% per annum is something that we see easily growing over the next 5, 7 years. And given that even at 50,000, 60,000 tonnes that we plan to sell, even up to 100,000 tonnes, it won't even be, according to me, maybe 5% of the global market for Nitrile Latex. So we're not aiming towards a high market utilize -- or high market share, which, of course, some of these guys already, like you mentioned a couple of peers in East Asia, they have larger plants than ours, and they do have certain advantages in terms of economies of scale. But I believe we have certain advantages in the way we have developed a product and the way we make it in terms of cost as well as some amount of quality parameters also where we think we're stronger than them. So we do have some advantage -- competitive advantages as well.

Next question is from the line of Nikhil from Perpetual Investment Advisors.

Congrats on a good quarter. So my question is about IOCL has announced plans to build a styrene plant in Panipat, which might take a couple of years. And if we assume that another company plans to add a plant for acrylonitrile, we have all 3 monomers being produced in the country. So what is your opinion on how does this change the downstream industry? Does it open newer markets, I mean, product or market for newer products for us? Or will it only help in reduce our working capital and help with logistics costs and further increase the pace of import substitution?

Yes, absolutely. I think it's absolutely critical in terms of having certain -- some of these monomers, which I believe are critical building blocks if a country wants to develop in industry -- a downstream industry because more than the cost, I think the issue is when you have security of supplies. And when you have strategic players, our strategic supply of these products in the country, it really gives people like us a huge level of confidence to put in more investments downstream. Today, one of the things that we look at is in these kind of -- we are necessarily, as you said, having large inventories, more working capital, and we're still dependent on imports for a lot of things. So acrylonitrile, you mentioned, just a few months ago, there was a huge shortage. In fact, a lot of companies use acrylonitrile in India that had a shortage. They have to shut down their plants for 2, 3 weeks. Now those kinds of things don't happen if there is at least some amount of inventory or some amount of supply that is within India. So I think it's extremely critical, whether we'll be able to -- just because they have new products, I don't think so. I mean, that's an internal issue. That's our internal R&D, and that's depending on the competitive landscape. So that's a different issue, but it will certainly give us a lot of confidence to invest more.

Okay. So I mean, I think that more or less, it will increase the pace of import substitution, but it will make you aggressive in terms of CapEx, going forward.

Absolutely. Yes. Because, for example, going forward, once both our plants are completely utilized, and we've been discussing at the senior management level and the Board level is also that if you want to -- the next phase of growth, if we do want to do a greenfield project, one of the important considerations is raw material availability, then why would we -- there is option to do it in other parts of the world, why do it only in India, and raw material availability is a huge consideration. By then, if there are raw materials that are available in India, then that makes the case for India better, for us. Yes, of course, that helps.

Yes, I think you sort of just touched on my next question. So I wanted to ask, so now if you are planning a third plant, can we expect it to be in a petrochemical complex, where there is consistent supply of butadiene, which will again help you save on working capital and logistics.

Yes, absolutely. I mean, it's not easy because we have to work with other parties to make that happen, considering we don't have our own petrochemical plant. But certainly, yes, I mean, that's one of the big considerations for future expansion.

Next question is from the line of Amar Mourya from AlfAccurate.

So Abhiraj, I mean, my question was pretty long term. I mean I had watching this company from last 10, 11 years. So one thing is that there is a fair amount of visibility you reaching to INR 1,000 crore revenue, either by '23 or by '24. So the thing which I asked you 10 years back that broadly, at that point of time, you were having 5 chemistries, which were at certain level and you were already a market leader. I think the same kind of situation now looks in the majority of your chemistry, except the gloves latex. So how do you now plan to change the whole course of the business? Or I mean, how do you plan to include new products into the business so that the next level of growth can come faster and probably the size, which we are at INR 1,000 crores, can become double in the next 3, 4 years?

Yes. So frankly, we have, in the last few years, seen opportunities. What we have done is we have realized what our strengths are and played to our strength. Therefore, the acquisition that we made 5 years ago was also with an objective that, look, we understand the chemistry. It was a new product and a new market for us and we understood the chemistry and we added value. We turned around the company. And now we are building in that facility because we -- at that time also we knew that Nitrile Latex was something we wanted to get into. Similarly, we do have other products on the horizon, which we are seeding now. But obviously, those are things that we don't talk about, and it will be a little premature to talk about that. But certainly, we do have plans to try and develop other products. Again, keeping in mind our strength and keeping in mind the market opportunity, we do have a few things in mind that we're working on.

So those products like are a large-sized product, kind of gloves latex, which can take you global and which can basically give pretty larger run rate than the earlier ones?

Well, there is 1 or 2 products that are more specialty, don't have the kind of global market size that Nitrile Latex, for example, does or styrene butadiene latex, for example, does. But there are more niche products, but certainly large enough for a company Apcotex's size, which is, as we said, for INR 1,000 crore company if you need to grow to the next level. We are also mindful of the -- we're conservative in terms of investment and taking risks, taking a lot of debt and so on. So we will take it step by step. For now, I think our hands are full for the next 2, 3 years. And at the right time, of course, we would be talking about the future plan or growth. And of course, we are open to also not only investing in brownfield or greenfield, but also potential acquisition that could add value.

Next question is from the line of Rajesh, a retail investor.

Am I audible?

Yes, you are. Please go ahead.

So this is regarding the Valia plant. It was shutdown in the beginning of this month, right? Is it up and running now?

Yes. It was a maintenance shutdown we needed for about 10, 12 days. It's up and running now.

Okay. And with the Maharashtra facility, is there any impact because of the recent rainfall?

No. Fortunately, not, we're in the Taloja area, which is not in the parts of -- I mean, it's in Raigad district, but not in the parts where there was heavy rainfall. So we have had no impact on production because of the recent rainfall.

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

Just a couple of questions. Firstly, this expansion at Valia, you mentioned 50,000 tonnes, and you also mentioned that you're making provision for a further expansion at an appropriate time. So what is that -- what is -- given once this 50,000 comes up, how much further can be expanded and at what cost?

I alluded to the fact that we are about -- we are at least making provisions for up to 50% more expansion. And it will be at, obviously, a much -- is a marginal cost, additional marginal cost. We haven't exactly worked that out. And if you don't mind, let's get going. The idea was to first sell the 50,000 tonnes to make sure -- we are currently doing a good volume, but this would be a different scale of operations. So we just wanted to first stabilize and then take a decision on the further. But obviously, it would be [indiscernible] asset turn ratio would be much better than what it is currently.

Got it. And just wanted to get some sense on this Finance Ministry not notifying on the antidumping duty or -- so assuming a status quo on that front, what will be the determining factors for this NBR project? Or could it also be that you may shelve the NBR project entirely and look at maybe new products or maybe look at expanding gloves capacity further? Or what's the thinking? I mean I don't expect you to commit to anything, but just in terms of what are the deciding factors or whether this will go ahead or not presuming things remain status quo?

So good question. So I just want to mention 2, 3 things. One is that for the last 6 months, there has been no antidumping duty in India and we have competed effectively with all the steps that we have taken. So we feel fairly confident that NBR also -- we are quite competitive at these levels. If we do decide to go ahead and double the capacity for NBR, obviously, we will become even more competitive because some economies of scale will start kicking in. Number two, the Indian market itself, will be larger -- is large enough where even currently at only about 25% market share. So we feel the Indian market itself has that. And the third important factor is just a month ago, one of our large competitors has announced they're coming out of the NBR business by December. So we'll wait and watch. We have applied for environmental clearance for that project as well. We expect to get it sometime next year, calendar year in 2022. Given our experience over the last 6 months, I don't want to commit to which month or which quarter, but sometime in the first few months of 2020 is the current expectation from what my team tells me. So I think we'll take a call on -- we'll have another year to decide on that. Also from a risk point of view, we want to focus on the current 2 projects that we've taken up, finish those and then we'll decide. And the issue is, I frankly don't think -- I think the NBR market personally, I think, will be attractive to -- in India to invest as well. But it will depend on where we want to allocate our capital at that point.

Got it. Okay.

So that's the thinking I hope -- as I said, it's -- we haven't committed to it, but we are optimistic that it would work out. And we are leaving space in Valia for now. And well we may pick up that project next year.

That's good enough. And just lastly, if you could -- you mentioned earlier, one of the earlier questions was regarding the interim 12 months before the new capacity, the 2 new projects go on stream. Is it fair to assume a 10%, 15% growth between volume and price for the next 4 quarters going forward in terms of revenues, given that, as I said, we are in this zone of being high on our capacity utilization at this point in time and still 4 quarters away from the new projects.

And as I said, we have invested some for debottlenecking in the last few months, which will all come on stream in Q2. Some of it has already started playing out. So yes, I think we should be okay for the next 1 year for 10% to 15%, yes.

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

Congratulations for a great [Audio Gap]. Sir, now that we don't have any antidumping duties in place for the NBR, so just wanted to understand the pricing delta between our pricing and what is the landed price?

So look, we are forced to price it at whatever price it comes in at, right, because we have to compete. If we want volume, even if our prices was 5% higher, buyers won't buy from us, 5% or 10% higher. It's more of a commodity than latex is in that sense. So the pricing at the end is the same. Yes, there was injury, there is -- we want some duty, and we had a very good case for duty, the DGTR, which is under the Commerce Ministry actually went into the details, it was a 1-year detailed investigation. And for most petition, they did impose some duty, different types of duty for both petitions, but they did think our case was strong and agreed to it. It is unfortunate that the Ministry of Finance did not notify. And I think it's not only us, from what I understand, this is happening for a majority of the cases these days. So I hope that answers your question.

Yes. Yes, that does. I just also wanted to understand how far are we with respect to our historic high realizations or margins, especially in the NBR portfolio?

Our NBR portfolio, quarter-on-quarter, there are changes, of course. Certainly, NBR in the last 3 to 4 months has not been the historic high margins because we went through April and May, where we had really -- because of the lockdowns, especially the automotive industry in the north went through some trouble. So It hasn't been historical highs recently.

All right. So I just wanted to understand how far are we? Is it a 10% or a 20% lower in terms of pricing or in terms of margins?

I don't know exactly. I don't have the exact numbers with me right now.

Right. No issues. And just one last question, if I go ahead. We are catering to varied set of industries in latex. So how is the overall sense for FY '22? Which industry you feel can grow faster and which can be a laggard or like -- which can be a flattish industry?

We supply, as you know, to several industries, paper, corporate, construction, auto, gloves, a lot of industrial other parts. And what we've been seeing for the last 6 months is a fairly -- at least in India, a fairly bullish trend and everyone seems to, in general, feel that this year is going to be quite strong for them. However, we have to wait and watch, and the way we are building our business at least is that we're making sure that from an industry point of view and from a geographical point of view, derisk and in case one of the industries doesn't do well even, at least some of the volumes can be pushed into another geography or another industry. So we're trying to derisk from that. But yes, in general, it seems that people are -- our customers seem to be quite bullish for the next year.

Next question is from the line of [ Vinay Nagori ], an individual Investor.

Congratulations on the great set of numbers. Sir, my first question is, for the last 3 quarters, we've been spending on repairs and maintenance to make our reactors fungible. So going forward, from the next quarter, as you had guided before, do we expect some operating leverage coming from here?

Frankly, I don't know where the question is coming from. I don't think repairs and maintenance is that large line item that significant advantage would be there. And look, as whatever is required, we -- both our plants are now fairly old, INR 30 crores to INR 40 crores -- 30 to 40 years old. And so as and when repairs are required, we do them, and we ensure that assets are maintained at a high level. So there are some quarters where we have higher-than-normal repairs and some quarters that are better, but I don't think it's going to be a big, big factor in terms of overall margins or anything like that?

Okay. And just wanted to understand. So now 3 years down the line, we'll be reaching a top line of around INR 1,100, INR 1,200 crores. So we'll be having a very strong cash flow. So then after that, are we thinking of, say, going downstream in NBR or, say, brand building in ApcoBuild? Are those logical steps am I thinking into?

As I said, our hands are quite full for the next 3 years, I think, if we go ahead with all the plans that we have. I think it's a little premature to talk about it. But certainly, we have besides seeding products and businesses that we are already doing, we also have opportunities at that point. And when we feel that there are comfortable amounts of cash, again, we are going to take on some debt this year. And as and when we feel comfortable, we have enough levels of cash, you may even look at other opportunities, inorganic opportunities. So most options are on the table.

Okay. And I just wanted to understand how many -- have you added a good amount of customers in the last 1 year? And have you developed some new products?

Well, this -- for Nitrile Latex or glove, certainly has been a new big industry for us, and we've added quite a few customers in that space. As far as the other industries are concerned, we obviously all add in -- but it's a good point. One of the things we -- at least I don't track very closely how many number of customers we have, but I know our sales and marketing department tracks that. Next time, I'll perhaps get that number for you. But certainly, we add -- every quarter, we add new customers. And even within the industries we are in, we are -- grades are always increasing or peaking or changing. You always find niche applications within those industries, like paper and construction, as well. Okay. Yes. I hope that answers your question.

Next question is from the line of Deepak Mehta, an Individual Investor.

Thanks for a good set of number in this quarter, sir. So my question is around the products and R&D. What is the pipeline for new products and R&D?

Mr. Mehta, look, we have a pretty good strong R&D team. And again, within the industries that we are in, we are constantly doing work for improving the number of grades -- increasing number of grades, improving our current product range, reducing costs wherever we can. And as far as completely new ideas are concerned, we have a few. But as I mentioned to one of the previous callers, that's something we don't really talk about until we are sure we're going to invest in that business and go ahead with it.

Okay. So my next question is around the -- you mentioned that one of the competitors is exiting the market and we have market share of 25%. So if you can throw out how much market share is with that competitor? And what's -- in terms of market share we can grab due to this exit?

Well, I think this competitor, at least in India, the market share was low. It was in the single digits, I think, maybe 7% to 9% from what I recall last. But the more -- the bigger issue would be that with one big plant shutting down, they are diverting their capacity elsewhere to other products, not making NBR -- they're not going to make NBR from what I understand. It would, of course, overall, globally or in Asia helps the entire demand-supply ratio. And I'm not sure if immediately we'll be able to increase market share by too much because we are already running at pretty close to 100% utilizations for the Indian market. If we feel the margins are good enough, next year, we will double the capacity in NBR and then take a call going forward.

Next question is a follow-up from the line of [ Manav Vijay from Deep Financial ].

A couple of questions from me. So now, in the next, let's say, 12 months, you will have your XNB project ready. And you also mentioned what kind of sales it can generate for you. So help us to understand one thing is that as far as your current existing business is concerned, there, the number of customers that you have are large, whereas as far as XNB is concerned, they are -- the number of customers would be lower. So you believe that once you have this entire sales in your P&L, the volatility in margins that you have will actually subside to a large extent? Or we still continue to have, depending upon the way raw material prices move that volatility?

I'm not sure -- in Nitrile Latex for gloves, there are many customers, all over the world, mostly in Asia, of course, these days. But in the future, I believe America also we might have -- now America and Europe, there are a few glove manufacturers that are coming up from what we hear. So they're also interested in importing latex from Asia. So I don't think the number of customers are bearing on margins. it's just the volatility of the raw materials that we're in and sometimes you do -- because we are importing so many raw materials, sometimes we do get stuck with higher cost inventory that does happen, and therefore, our margins quarter-on-quarter could get affected by a few percentage points. As I said, it's very hard to predict what happens. I'm just saying historically, what has happened is that margins have gone affected quarter-on-quarter. Overall, if you see our endeavor has been -- if you see annual numbers or take any 4, 5 quarters together, our endeavor has been to slowly improve margins, and we have done that by and large, from the single digits to the last, I would say, almost 1 year, we've been in the mid-teens, right, between 13% and 16% for the last 4 quarters.

Actually, Abhiraj, my question was slightly on the longer term. I mean, yes, let's say, for the last 10 years, you have increased your margins from around, I mean, 8%, 9% to almost 15% or 16%. All I'm saying is that because of the volatility in raw material prices, your margins move very sharply. And I guess you always, I mean, will be in a position to pass on that with a certain time drag. But because of the lower number of customers, it's all relative on the XNB side, the margin placability will be better or not? That is my sole point.

I'm not sure. Frankly, the answer is I'm not sure. I just said, it's a new business for us as well. And as we do higher volumes, I think margin predictability would be a little better, but I'm not sure because suddenly raw material prices are -- we are stuck with some high-cost raw materials and overall market falls or whatever reason, then the margins will fall in that segment as well. So I'm sorry, it's not a great answer, but our real answer is I'm not sure.

Sure, sure. My next question is, so whatever little understanding I have on the -- I mean as far as the NBR rubber is concerned, so auto is a large part of, I mean, business for you of your current business. You believe that the way, whatever changes that we have -- that is happening on the EV side, do you believe that, that is going to have any kind of impact on the demand of NBR over next 5 to 7 year time frame?

The short answer is absolutely, yes. The long answer is that overall 30% to 35% of the Indian NBR consumption is in autos, according to our studies that we have done. And within autos also, there's 2-wheelers, 3-wheelers, passenger cars, trucks and buses. So obviously, within that, we do think in the next 5 to 10 years, especially 2-wheelers, 3-wheelers, there will be a large amount of electrification that would happen. But if you see the remaining will grow. So overall, while the growth in -- on the NBR market may not be as strong as some of the other products and segments that we are in, I do feel that there will be a good single-digit growth either way, with or without electrification. And of course, electrification is going to happen. There's no question about it.

My last question to you is that you mentioned that because of this -- the debottlenecking, we will have around a 10% kind of growth, let's say, for next -- I mean I was -- until the time the expansion comes in place. So would it be safe to assume that the quarter 1 sales becomes a baseline? And that whatever you do, let's say, whatever that will come from debottlenecking will be on top of that?

Yes. I mean, I would say, in Q4 and Q1, so the previous quarter and this quarter, we have been at somewhere between 90% and 95% capacity -- almost 100% capacity utilization. Anything about 90% is almost 100%, I would say. And the only reason is because in some products, obviously, our capacity is not absolutely -- we can't make every product in every asset that we have. So there are some products that were at maybe 80%, 85% capacity utilization and some products were 100%. So I would say, yes, if you see the last 2 quarters, there would be a good benchmark on a good base.

Okay. And what kind of tax rate is possible for this year and next year? Because last year also, your taxes was around 42%. Quarter 1, you are at 21%. Whereas normally, so let's say, if you move to the new regime, you will be paying 25.6%. So what would be a safe number to work with?

Yes, I think we had some carryforward that credits that we could take for a couple of reasons. I believe the -- I mean, they've come to an end. We don't have any more credit. So I think the safe assumption would be 25%.

Next question is from it Darshita Shah from Axis Securities.

Congratulations on the good set of numbers. Most of my questions are already answered. I just needed the revenue contribution between the segments that we have, that is latex HSR and NBR, for the current quarter and also for FY '21, if possible.

FY '21, I think, it was overall about 55% latex and 45% rubber. In Q1, I think, it was more latex because some of our rubber customers were affected due to the lockdown in India. So I don't have the exact number, but it will be more latex, maybe 60%, 65% latex in Q1. But on average, I think we expect latex to be going forward at least about 55%, 60% in rubber.

Thank you. Ladies and gentlemen, that was the last question for today. I now hand over the conference to the management for closing comments. Over to you.

Thank you very much. Thank you for once again joining us, ladies and gentlemen. We look forward to meeting you next quarter again. Until then, stay safe. Thank you again.

Thank you very much. Ladies and gentlemen, on behalf of Apcotex Industries that concludes today's conference call. Thank you all for joining us, and you may now disconnect your lines.