Apcotex Industries Limited (523694) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Q3 and 9 Months FY '22 Earnings Conference Call of Apcotex Industries Limited. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to hand the conference over to Mr. Anuj Sonpal, CEO of Valorem Advisors. Thank you and over to you, sir.

Thank you. Good afternoon, everyone, and a warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations for Apcotex Industries Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings conference call for the third quarter of financial year 2022. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings con 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 participating with us in today's earnings call. We have firstly Mr. Abhiraj Choksey, Managing Director; Mr. Sachin Karwa, Chief Financial Officer; and Mr. Anand Kumashi, Company Secretary. Without any further delay, I request Mr. Sachin Karwa to give his opening remarks. Thank you and over to you, sir.

Thank you, Anuj. Good afternoon and welcome to today's earning conference call for the third quarter and 9 months of financial year 2022. Firstly, let me take this opportunity to wish you all a happy New Year and I hope you all are keeping safe and well. Along with me in today's earning call, I have our Managing Director, Abhiraj Choksey; and Mr. Anand Kumashi, our Company Secretary. I hope you've had an opportunity to review the financial statement and earnings presentation, which have been circulated and uploaded on the company website and stock exchanges. To brief you on the financial performance for the third quarter of financial year 2022. The revenue from operations grew by about 52% on year-on-year basis to INR 251 crores. The operating EBITDA grew by about 40% on a year-on-year basis to INR 34 crores with EBITDA margin reported at 13.5%. EBITDA percent compared to Q3 of FY '21 is lower, but that is on account of higher prices compared to last year. EBITDA margin per metric ton is an important metric we monitor and that is better than last year. The net profit grew by about 43% year-on-year to INR 24 crore and PAT margin stood at 9.5%. For 9 months of FY '22, the revenue from operations grew by 92% year-on-year to around INR 679 crores while operating EBITDA grew by more than 100% to around INR 95 crores with EBITDA margin being reported at 13.9%. Net profit grew by more than 100% to around INR 68 crores while PAT margin stood at 9.99%. From the numbers, you can make out that we have reached historical highs in Q3 FY 2022 across all financial parameters. Quarterly volumes grew Y-o-Y for both Q3 and 9 months FY '22 due to the full benefit of all debottlenecking projects, all of which were completed between Q2 and Q3. In addition, we witnessed a healthy broad-based volume growth across most industries, customers and geographies. We have registered the highest quarterly export sales of INR 53 crores contributing to 21% of overall revenues. On the project front, work on new expansion projects is on schedule and is expected to be completed around Q2/Q3 of FY 2023. Finally, I am pleased to announce that we have declared an interim dividend of INR 2 per equity share and February 11, 2022 has been fixed as record date by the Board. With this, I would like to open the call for question-and-answer session. Thank you.

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

My first question is related to margins. So what do we -- what is the reason for the margins to still be relatively stable? Can you speak a little on that?

Thanks for your question. I'm not sure I understood your question. You're talking about EBITDA margins being stable and what is the reason they have not dropped or what is the question again?

Yes, not dropped because across the board we are seeing commodity price increase and we have still managed to continue to hold on to our margins. So what has led to that? That is what I wanted to know.

Couple of things. Obviously the commodity prices have gone up and then for us raw materials have gone up, but we've largely been able to pass it through. And as I've mentioned before, in our kind of business -- for example I'll tell you about this quarter, the revenue is up by 52% compared to Q3 of last year and our volumes are up by about 20%. So the volume growth has been 20% compared to Q3 of last year and the rest of it is margin growth. So obviously the volume growth has helped. And by and large as far as on a rupee term, we have been able to pass through all the cost increases and in fact our EBITDA per ton if you look at rupees per ton has actually gone up. EBITDA percentage may be stable or even little lower than last year, but had there been no inflation, then our EBITDA percentage would have been much higher -- in percentage terms been higher than 3Q of last year. We have been fortunate and we've been able to pass it along and obviously a lot of things done internally at our end as well. The product and customer mix, we are running at almost 100% capacity utilization. So that has helped overall. There's not excess -- there doesn't seem to be any excess capacity right now, very strong demand. So all those things have really helped and we feel confident on these margins overall.

So I mean just a slightly longer-term view on the same thing, I mean if I just follow up on that. Since we are entering -- the general belief is that we are entering into an inflationary phase right now and it may carry on for say about 2 years, 3 years or maybe 4 years, we don't know yet. And if you look at it in the past -- so if you can share with your own experience in the past when the crude was -- so crude is right now approaching $90 or it's already $90 I guess. So what -- how does it affect us and how easy or difficult it is for us to keep -- maintain that margin in that kind of an environment? Because in last 3, 4 years, the crude was pretty benign. But now in the last 1 year and the projection over the -- in the future also like it may shoot up. How do we see us in that kind of environment?

Look, first of all, the company compared to the past and now the company is also different. Our -- the different strategies that we have executed over the last 2, 3 years after the acquisition along with a lot of debottlenecking projects, product mix, customer mix and so on, new products that we've introduced. So we feel a lot more comfortable. We are also at a much higher capacity utilization. The industry overall seems to be at a higher capacity utilization. So it does seem that these margins and this is more sustainable than before. However, you know that the macro environment and how inflation overall affects demand and such, it's hard to predict really. All I can say is that we feel pretty confident that we will remain range bound in these kinds of percentage margins anywhere between 12%, 13% to 17%, 18% I would say depending on where crude is. Now if crude goes to $150 just for example, our margins may even fall further in terms of percentage. But in terms of actual rupees per ton margin, we'll ensure its protected or we'll try and ensure that's protected at least by the different things that we've already done and we'll continue to do. And as you know, this year we are also looking at substantial capacity improvements. That should also overall help in improving EBITDA margin. Of course most of that will come in into the second half of the year not in the first half of the year but -- next financial year. So overall, we feel pretty confident about it.

That really helped. And speaking about capacity, in the last call you mentioned about INR 220 crores to INR 230 crores of CapEx over the next 12 to 15 months. So in terms of timeline, we are on course of that or we are...?

Absolutely on course, yes. As of today, all the projects -- both the projects on both the sites are on course.

Yes. And then last question on ApcoBuild. So last call, you mentioned about you entering Madhya Pradesh. Any other new states we have entered or we are still concentrating on...?

Yes. So Gujarat, Madhya Pradesh, within Maharashtra also increased our footprint and Goa. So we're in 4 states. We're also doing small business in the south a little bit. But I would say largely these 3 states, Maharashtra expanding our footprint and entered Gujarat and Madhya Pradesh over the last year.

Is it possible for you to just share on Q-on-Q basis what are the growth rates in ApcoBuild number in Q1, Q2 and Q3 just pertaining to this?

I don't have specifically Q1, Q2, Q3, but I have the YTD numbers. And I would say for this financial year as well, the growth will be over -- it will be almost 150% to 200% for ApcoBuild this year, 150% at least.

And broadly, sequentially you have grown in the last 3 quarters also quarter-on-quarter also.

Yes. Of course Q2 is always -- in this business always a little lax, but even then we have grown Q2 compared to Q1. Q2 because of the monsoon season, that's where the construction is a little lax.

The next question is from the line of Keval Ashar from DSP Mutual Fund.

So first of all, congratulations, Abhiraj sir and your team, for a good set of numbers and also the way you've spanned out your company over the last many years. Sir, I have a few questions. So first is you are into emerging polymer chemistry and if we see your global competitors like Synthomer and Trinseo and the way they scaled up, I believe that we have a huge size of opportunity lying ahead of us. So first of all, I wanted to understand from you that once our current CapEx commences and we start generating cash flows, what are the new products that you plan to scale up and what is the size of opportunity that you see for Apcotex?

Absolutely. Look, obviously Synthomer and Trinseo and some of the other global companies, they operate in multiple countries and multiple continents so therefore they are larger. We also see a lot of opportunity and good growth and we have seen that this year itself where for the 9-month period, our volume is up 40% of course and revenue is up about 92% on account of inflation. But -- and of course last year April/May of 2021 was obviously -- because of the lockdown and the plants were shut and so on, obviously was challenging on the base of that. But yes, absolutely the opportunities are there. On the latex side of course, I think it's more of a regional play. That means we focus on Southeast Asia, Middle East and India because latex is about 50% water so to transport it over very long distances may not make sense. So I would say yes, absolutely the opportunities are there and we continue -- and that's what we have actually also exploited and our export was close to 0 10 years ago. Now it's at 21% of the total revenue. This year we expect almost INR 150 crores to INR 200 crores -- maybe almost INR 200 crores of top line to come from exports. So we have exploited that. We have taken advantage of that. And by proving again and again, it takes time in this kind of industry to prove to the customers that we're a consistent supplier, consistent high quality supplier and give them that now. And so one of the growth engines as I've told you has been nitrile latex for gloves and that's what we are focusing the next 12 to 18 months on. In addition to that, we have -- as I've mentioned before that even in our current industries; paper, carpet, construction; the demand has been very strong I would say in the last 9 to 12 months and we continue to grow with that as well. In fact if you see Q3, we are at almost 100% capacity utilization. In fact we've had to let go of orders for the first time and unfortunately not be able to take all the orders that we would have liked to take especially -- both domestic and exports in fact. So overall, we feel quite confident.

Okay, sir. And if you can throw some light on new products that you'd launch post the current CapEx if you're working on key products.

We are working on a few products. As I mentioned last time, as of now our focus and what we've announced is the current CapEx for latex products, which is nitrile latex in Valia and a multipurpose latex plant in Taloja, which will include all our current products as well. And in addition to that, after that we also -- we only have about 30% or less market share in the NBR business in India and we are largely exporting. We believe that in the long run even though it's not a very high growth industry compared to, let's say, nitrile latex or some of the latex products, we believe there is a good opportunity for import substitution -- further import substitution in India as well as export into Southeast Asia, Middle East and Asia. And so we may double our capacity. At least we have everything ready on paper and we may do that in '23, '24 depending on the macro environment as well as depending on how the company is doing. So that would be our next phase of growth. And as far as new products are concerned, yes, we are new -- completely new ideas that are not in our current sphere. There are a few things we are working on. But as I said -- as I mentioned in the last call as well, it would be a little premature for me to talk about it. We're also looking at inorganic growth opportunities and it'll be very premature to talk about it until something happens. But obviously all those opportunities are -- there are a few opportunities and few things in the works that we will of course mention to the investor and analyst community when they are ready.

Sir, my second question is on ApcoBuild. So we understand that you've assigned a separate team for ApcoBuild and cautiously expanding the product. So can you throw some light on how do we stand out in this construction chemical market compared to our peers? What is the market size and...?

We don't really worry about market size, market share and so on as far as that is concerned. Basically we are backward integrated and a lot of our products are being used in the construction chemical space. So we have a natural obviously cost advantage because we're backward integrated. In addition, we have of course added a few other products to complete a minimum range, but we are not necessarily competing with the large players in the construction chemical industry. We are trying to capture our downstream margins, which we've done and focus on a few other specialty products that we are outsourcing that we believe we can add value and which we understand again in the polymer and waterproofing space and repair space that we understand. We are not everything to every one kind of construction chemical company.

Okay. And sir, given the lower base of revenues currently, what do you think can be our top line in next 3 to 5 years in ApcoBuild?

We don't give separate numbers for ApcoBuild. It is -- as I mentioned before, it's a small part of our company so far. We believe in the next 3 to 5 years it will become a larger chunk and as and when we feel it has some critical mass which is worth reporting as a separate segment, we will do that.

Okay. And sir, just one last small suggestion. So that if you can give product-wise volumes and product-wise revenues in quarterly presentation, then that would be great for us also.

As I said before, we would love to be as transparent as possible. But I hope you would appreciate that there are certain things that are competitive advantages to us and certain proprietary information that we don't want getting out in the market. While obviously it's not the investor community, but a lot of other people also follow our investor con calls and our data, which we would like to avoid giving this kind of...

The next question is from the line of Nakshita Mehta from Credent Asset Management.

Congratulations on a good set of numbers. So my question is one is the expansion project that we are doing it and this is for nitrile latex, right? So how much revenue are you expecting out of it -- incremental revenue? How much incremental EBITDA margin are we targeting?

Look, we are doing 2 projects. One is mostly nitrile latex in our Gujarat facility and in Taloja is a multipurpose latex plant. In the beginning, initially we are looking at a total of additional 60,000 tons which would give us about INR 500 crores of revenue. But as I mentioned before that the additional CapEx that will be required for an additional revenue that will come, another INR 300 crores, INR 400 crores will be at a marginal cost. So it will be about INR 500 crores of revenue once both the plants are fully utilized. And as far as EBITDA margin is concerned, obviously EBITDA margins should only improve because our fixed costs will not increase by that much. So we are hoping as we grow the capacity utilization, as we increase the capacity utilization of the new plants, EBITDA margins should only go up.

Is there any particular number we're targeting for EBITDA margin?

No. As I told you earlier that percentage margin varies quite dramatically in our kind of business. We would be satisfied with anywhere between 13% to 18% is what -- 12% to 18% even is fine depending on where oil prices are. The most important metric for us is return on capital and as long as we're delivering a healthy return on capital, EBITDA margins we are happy to let it vary.

Correct. Okay. And nitrile latex, you are mainly using for ApcoBuild, is it?

No, no. Nitrile latex is not at all for ApcoBuild. That is all the glove industry -- medical glove industry.

Okay. Also another question is what would be our EBITDA per ton? Do you have a specific number right now presently?

No, I'm sorry, we don't reveal those numbers. Again as I mentioned, I mean we would love to be as transparent as possible, but I'll say the same thing I said to the previous caller, that it's for proprietary reasons. There are certain numbers about volumes, EBITDA per ton, those kinds of things. We have taken a conscious call and we have done it consistently for years by the way. We just don't want to put those numbers out.

Okay. And my last question is on your revenue stream, which sector would you think -- can you just give us a breakup from where is the major revenue? Can you throw light on that?

So what do you mean by stream, if you can elaborate on that question.

Basically the sector [Technical Difficulty] goes into paints or the construction chemicals and the synthetic rubber, the paper companies, carpet, gloves, construction, automobile suppliers. So where -- can you just give us a rough breakup as to where is your maximum revenue?

We are actually quite well diversified I would say. We have a few industries that we are catering to. Obviously like one of the large industries would be paper and paperboard, but even that would not be more than 20% of our overall sales, maybe less than 20% in fact now in the current context, 17%, 18%. Then followed by construction, which includes construction chemicals and paints. Then followed by tire industry, carpet -- there's also NBR, which goes into several industries, right, which is a lot of rubber industries. So that would be another 25% of our sales. So fairly well diversified. We're not dependent on any one major industry. Nothing is more than 20% of our overall sales.

Okay. So it's basically well diversified so there is no concentration.

No, no concentration.

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

Congratulations on the solid numbers. I just had a couple of questions on the CapEx and I think firstly -- Hello? So firstly on the NBR, as you rightly said in response to an earlier question that both from a macro and a business standpoint, I think things are going pretty positively for the company at this point in time. And so why would we -- and our balance sheet is very strong and obviously cash flows et cetera are favorable. So why would we not accelerate that process in tandem with the existing plan that we have for this year rather than waiting for '23, '24 and thereafter the gestation period of putting up the facility, et cetera? Why would we not work on that in tandem and be a little bit more aggressive over here? So that was the first part. And the second is if you could just mention the CapEx again what you had said -- the CapEx which has already been announced. I think you mentioned INR 500 crore incremental revenue from that CapEx and then you also mentioned the further INR 300 crores to INR 400 crores. So is that on a second leg of minimal investment that we could get that incremental? Did I understand that correct?

Yes, that's correct. So I'll answer your second question first. Yes, that's correct. So just to clarify that these 2 projects that we are doing is about INR 180 crores to INR 190 crores of CapEx. Both the projects are on schedule and likely to be -- at least for the trials to start sometime towards the end of Q2 and early Q3. The total -- so for the INR 180 crores of CapEx, we are looking at about INR 500 crores of revenue. In addition, after that there will be perhaps an incremental CapEx of -- it would be under INR 100 crore. It will be in 2 digits -- somewhere within 2 digits. We haven't worked out the exact number, but intuitively we know it will be quite good. And we expect another INR 300 crores to INR 400 crores from that -- from the incremental because a lot of the civil, the buildings and so on, already they have been created in this first phase. So afterwards, we just need to add the equipments as and when required. So that incremental CapEx could even happen one by one, it may not even happen at a time. So that's something we'll look at depending on the demand and how things are going.

Time won't be a factor to that as well. As you say, you can do it one by one.

Not as much. It won't be -- I mean sometimes some of these things have a lead time. Some of the equipment have a lead time of 6 to 8 months, but that would be about it. Taking long like -- there's no civil jobs and stuff required then. To answer your first question, you're absolutely right. We have debated it over whether to be aggressive or not. Frankly, we went through a period of about 1.5 years when NBR margins were very low. As you know, we filed for antidumping as well which the DGTR in fact sided with us, but unfortunately the Finance Ministry did not -- the Ministry of Finance did not notify for various reasons. That's in appeal. We have gone in appeal and that's in the courts now. We don't know how that will pan out. So I would say the last one year has obviously been better. We're also waiting to see there are -- obviously overall on the macro side of NBR globally, one of the biggest consumers of NBR globally is the automotive industry and it's the traditional automotive industry. So if there was a huge change towards electric vehicles, then there could be an impact of slow demand. While the rest of the market where NBR supply is growing quite well, but if automotive were to come down, there could be a glut of NBR in the market which could result in depressed global margins. So therefore, we are just waiting to see also from just a management bandwidth point of view, which of course is something we could do, but -- and also we need certain environmental permissions which we have already applied for, which should come through this year. So even if we wanted to, we could not start that plant till we receive those environmental permissions, which are expected in this year in 2022. And so for both -- 2 or 3 reasons, we just decided to go a little bit slow on that and just wait and watch to see what happens this year.

Right. And also you mentioned that you were operating at full capacity and that you had to delay some orders both export and domestic in this quarter. Now for the fourth quarter and for the first quarter of the next fiscal until such time as the sort of next leg of capacity comes on stream, which I'm presuming will be the third quarter -- will be the second quarter of the next fiscal year that's the September quarter.

In fact by the time the volumes, it will be the third quarter. So yes, because we will likely start commissioning and trials, this will be end of Q2 and early Q3. Our Valia plant should be ready first in end of Q2 and Taloja's expansion plan will only be early Q3. So obviously by the time the volume and obviously with being a new plant, that also takes up time. Even existing customers will want to take some trials from the new facility before scaling up. So I just wanted to correct that. So it's in fact the next 3 quarters that we are going to -- we are at 100% capacity utilization.

Sorry to interrupt. May I request Mr. Farokh to please rejoin the queue. We have participants waiting for their turn.

Let me just finish this question. Do we have anything to mitigate this issue of capacity coming up against capacity? Are there any things that we are working on for the next quarters?

Unfortunately, yes, we are -- the short answer is yes, we are working on certain things but also we don't expect any major uptick. What -- we in fact, created almost 15% extra capacity over the last couple of quarters and at least as of the last couple of months, even that has been completely used up pretty quickly. So the demand has been extremely strong. We do expect that in the second -- Q2 some of our segments -- some of the industries, sorry, like construction and paper even to some extent because of the monsoons, demand does come up. So in that case, we will take more export orders. But you're right, in terms of financial numbers in terms of volumes, I would say there isn't much room for significant growth over the next 3 quarters. Of course compared to Q1 of last year and compared to Q2, we would grow because of we didn't have those capacities then. But compared to -- I would say Q4 would be somewhere at the max levels if Q4 goes well and then Q1 and Q2 would be I would say similar to Q4, maybe a little. We're trying to do small things and tweaks to get as much out of the plant as possible.

The next question is from the line of Nikhil from Perpetual Investment Advisors.

Congrats on a great quarter again. My first question is about this quarter. So Q-on-Q while the sales is more or less the same, our gross profit has gone from almost INR 70 crores to INR 88 crores. So at least as per my estimate, the EBITDA should have been higher. So what caused this significant growth in other expenses? Could you help us understand that?

Yes. Look, there are a few things that have come about. One is -- and I'll have to go look at the numbers. But obviously because of COVID last year, there were no increments. Obviously the employee costs have gone up because we've had to give reasonable increments this year if you look at quarter 3 of this year against quarter 3 of last year. So obviously the overall employee costs have added to the team size. The team size has gone up so overall employee cost has gone up. In addition to that because there's been a few good quarters, we've also taken a -- and frankly, last year because of COVID for 2 reasons. One is because of COVID, we couldn't get a lot of contractors into our plant so we didn't want to get a lot of contractors, I'm talking about 2021, and so a lot of repair jobs and maintenance jobs were held up which we have really taken up in Q3 -- Q2, Q3 and going forward also for the next 1 or 2 quarters before the monsoons. Those are the only 2 reasons that I can think of. Other than that, as I said, we look at EBITDA per ton versus EBITDA margin and we are quite happy. And EBITDA per ton has actually gone up for us. I know we don't give those numbers out, but EBITDA per ton is up by 15%, 20% so we're quite happy with that.

Because there's no one-time expense in the other expenses in this quarter is what I actually meant to ask you apart from I think you had higher...

These are regular expenses. These are not one-time, but these are regular expenses. As I said sometimes -- I was just giving an example of certain repair works, painting works that are significant but we couldn't do in the previous year, which we have taken up after the monsoons of this year. So that may have been to some extent, but...

Okay. Because then in that case, see broadly I think that NBR is probably doing pretty much well for you now and since butadiene was down almost 50% in last quarter so there should have been the margin expansion which has already happened. So why...

Just because raw material goes down does not automatically mean margin expansion happens because we are also forced to pass along that cost increase or decrease.

Taking a price decline in your end products also.

In fact Q3 compared to Q2, our value growth has only been 3%, but our volume growth has been more than double that. So we've actually had to give some decline to our customers as well. Some of it is on formula pricing. We do some of it on annual contracts and formula pricing.

Okay. So if we continue Q4 at the same rate, would other expenses be the same in Q4 and Q1 and so on?

I think so. One more thing I must mention. Sorry, there's one more reason for other expenses. I'm glad you mentioned -- you brought that up. One of our plants we run on thermal power plant and also the backup boilers run on gas. Both gas and coal costs have gone up significantly so that also plays a part in other expenses.

Okay. So are they normalizing now or no?

I would say they have reduced in the last month or 2, but not what they were about a year ago for sure. So that's something we've had to absorb.

Got it. So would that be double of what we usually do?

It was that -- specifically the coal costs were more than double of, let's say, a year ago?

Okay. So after debottlenecking, can you tell us what is the capacity for latex now? I think it was 55,000 tons before debottlenecking and can we assume it to be 63,000 tons?

At about 60,000, 62,000 tons, we are on the run rate of about 60,000 tons plus, yes.

Okay. And you already mentioned about the staff so nothing on that.

60,000 tons plus, I just want to mention when we mention capacity, obviously look, we have many products and depending on the cycle times, if we were to only manufacture products with lower cycle times, we could even go up to 70,000. But sometimes we take a conscious or we want to be across the board in several segments and several industries and several customers. So currently at 60,000, 62,000 tons.

Understood. And one last question is what was the split between rubber and latex in the last quarter?

Don't have the exact -- Sachin? I'll just request one of my colleagues to answer that. My -- Sachin, Suraj, do you have that number? It's in one of the excel sheets if you can look it up. I think it's about 55%, 56% latex and 45% rubber. It's been about the same for the last few quarters.

The next question is from the line of Rohit Sinha from Sunidhi Securities.

Congratulations for a good set of numbers. So most of my questions are already asked. So just a few things. I mean when we are talking that volume growth has been close to around 20% this quarter, where we have seen maximum traction or this across the segment? And secondly, again if we say 20% volume growth was there so -- and obviously we are almost full load capacity. So next quarter since prices have been -- I mean what I feel is that the price increase which has happened in the commodity prices and the price realization, what we have been taking, maybe still something is spending which could reflect maybe in Q4 or Q1. So I'm just assuming that maybe volume growth would not be significant from the Q3 levels, but still there's room for realization improvement. So these 2 questions are from my side.

Yes. Look, the volume growth, as I mentioned that most of the debottlenecking projects were completed in Q2 and Q3. So Q4 of course we would have a little bit more headroom for volume growth not significantly more, but little bit more. And as I mentioned to one of the previous callers that Q4 onwards maybe for another 2 quarters, we may not have headroom for volume growth. But exactly what you said is right. Obviously depending on customer mix, product mix, some amount of headroom for margin growth as well because we are running at 100% capacity utilization and because the demand cycle is quite strong, obviously we will try and do that and we hope to do that. So in terms of profitability and bottom line, we hope to improve on Q3 numbers going forward.

Okay. And about that volume growth where we have seen maximum traction or is it...

Frankly, across the board. We have seen domestic, international whether it's paper, paperboard, construction, textiles, carpet. It's really almost across the board. And of course medical gloves right now obviously the demand is high and whatever we can manufacture from our current plant, we are supplying. One place where we don't see great amount of volume growth is the automotive industry where we are supplying NBR to. But the rest of our industries where we are supplying NBR to, industrial components, hoses, all kinds of other agriculture products; there we are seeing good growth except automotive, which obviously from -- mainly because of the chip shortage I would say, most automotive companies have not been able to [Technical Difficulty]. So that's been the only one point of where there has not been much growth, but again we are running at 100% capacity utilization. So if there was growth, we're not able to give any more NBR.

Okay. And just one last question on the balance sheet side. I mean looking at the CapEx which we are looking at, how our balance sheet will be looking like, the cash positioning and the debt positioning would be?

Yes. As on March 31 of last year, we hardly had any loans. I don't think -- maybe little bit working capital or one small-term loan was there. Obviously we will be taking -- we have already taken some debt for CapEx and that CapEx will be funded from these 2 years cash flow, which is FY '22 and FY '23 along with some of our net debt would be needed for the CapEx, which we hope to repay it back shortly thereafter.

Okay. So I mean overall what sort of debt number will be there for FY '23?

Maybe close to around INR 100 crores net.

Okay. I mean not more than INR 150 crore -- kind of between INR 100 crore, INR 150 crore.

INR 100 crores term loan is what we expect to utilize.

The next question is from the line of Manav Vijay from Deep Financial.

First of all, I -- so my first question is actually a slightly broad question. So we have been hearing that some of the logistics issues -- so since you import and export a lot, if you can help us to explain as to -- as far as the logistics costs are concerned, the container availability, the debottlenecks that were there with I would say with China. So all those issues are still persisting or there is some respite on those issues? Because many companies have been mentioning that it is not the demand which is fueling the inflation, it's these debottlenecks with the supply side due to which inflation is higher than normal.

Yes, that could be the case in terms of inflation. I don't know, I mean there are multiple reasons for inflation. That's not the only reason. I would not say that's the only reason. But as far as the company is concerned, we have -- I would say the issue of supply chain peaked in Q2 in terms of lot of problems that we had to get raw materials. We were fortunate that we didn't have any major, major issues. We did have some delays, we did have some shortages, but we were able to overcome them. One of the things we have done is of course increased the inventories. Obviously not the most financially prudent thing to do increasing inventories. But in the current context of where the world is with so many uncertainties, with a lot from dependence from China direct or indirect. Even if you're not directly importing from China certain critical raw materials, our vendors' raw materials can come from China. So because of that, we have taken a strategic call to increase all our inventories of some critical imported raw materials especially. And -- but we have seen in general while there have been delays, obviously shipping rates have gone up substantially, it's not led to major issues in terms of our supply chain and our production.

Okay. My second question is as far as XNBR Latex is concerned so apart from Pawa Gloves, have you signed up with other manufacturers as well?

Yes, of course we have many customers. There was just 1 or 2 that we have mentioned in our presentation because they're well-known customers. The other problem that we have is a lot of other customers are telling us that look, you don't have the capacity now, why would we go through this whole process and you won't be able to give us anything for another 9 months? So why don't you come to us closer to the date and then we will go through the process. But a lot of them we have done lab trials and whatever we could, but unfortunately, we're not able to give bulk quantities because we just don't have the capacity today and it would be at the expense of other customers, which also we don't want to do which is not a good idea as well.

Correct, agree. So in that case, Abhiraj, we will have the capacity available, let's say, by quarter 3 and we will be done with all the trials as well. So would it be a safe assumption to believe that in FY '24 you can run the plant at full capacity and you can generate INR 500 crores of top line from both the plants put together.

I've mentioned in one of the previous calls that the safe assumption would be at least 6 months to scale up. So I would say it's not INR 500 crores, we should be able to see 70%, 80% of that in FY '24 assuming that we take 6 months from November to scale up so it may take April, May to scale up and it could be even little bit longer than that. So the quality issue, it's not only about the quality and the volume, but it's also about supply chain and getting that right. We would have never done these kinds of volumes and supply chain. And while we are working through and preparing for it, when it actually comes to executing it, we experienced that there are issues. There can be unforeseen issues that do come up. So I would say 6 to 12 months is what I had mentioned in one of our previous calls. We will hope for 6 months, but it could be as high as 12 months to completely scale up. I don't think the entire INR 500 crores in FY '24, but we do hope a large majority of that would happen in FY '24.

Okay. Now Abhiraj, since Pawa Gloves is actually listed and they also declare results every quarterly so they have detailed out even their expansion plan in terms of doubling the capacity from almost 100 billion pieces to 200 billion cases over the next 4 years. So whatever will be their requirement, let's assume for a second that Pawa Gloves would be your wholesale buyer. So at let's say 200 billion pieces, how much percentage of their raw material you would be supplying at your max capacity?

Look, I would say I don't have the exact calculation with me and I don't want to talk about one specific customer, et cetera. But one thing I can say for sure that even today even with our total capacity that is coming up, it will not be enough for 2 or 3 of the largest glove manufacturers. Their consumption is already more than what we can supply for each of them -- one of them.

Okay. So let me ask you slightly differently. So you will have a 40,000 ton capacity and if you decide to...

Both put together, 60,000 tons.

Okay, 60,000 tons. So 60,000 tons including the second order for expansion as well, am I right?

No. This is in our first phase between Valia and Taloja, we will have about 50,000 tons in Valia and 10,000 tons in Taloja. Whether or not we use the Taloja capacity to supply to the glove industry or a current some other product, that is a decision we will take later on. But at least as of now, 50,000 tons has been earmarked for the glove industry.

Fair enough. So on 50,000 tons, you will add around 50% as well. So at around 75,000 tons or even at 85,000 tons, how much of the total industry capacity you will have; 5%, 7%, 10%?

Not even 5% because -- not even 5%. I'm talking about global capacities. Some of the large players in this industry are much larger than us and they are also adding capacity. As you know, the glove industry is growing, nitrile latex industry is growing so I mean I don't even think 5%.

Okay. Now Abhiraj, in last almost I would say 18 months, Pawa Gloves which used to around 15%, 16%, 17% of margins went up to 63%. It has again come down. Now because of this wild movement of margins, the pricing that you get from them or I would say even from other players, is that pricing is also under pressure or no?

Look, when we initially made a decision to get into the nitrile latex market, there was no COVID. This was back in 2016, '17 when we started developing it. Obviously during 2020 and the first half of '21, glove availability and -- glove demand and glove availability and therefore glove prices, whether it's natural gloves or nitrile gloves, were at historic highs. And therefore, obviously the players that were in the nitrile latex market also got good margins. Now the margins I would say have normalized. They are not under pressure, but they have normalized than what they were earlier -- that what they were for the year. And so all our projections were based -- have been based on normal margin, our returns have been based on normal margins. They are obviously not as great as they were 6 months or a year ago because demand has come off now for gloves in general. There's also a lot of inventory and so on. But that's fine and that every industry, whether it's carpet, tires, paper; they all go through the ups and downs and demand cycles.

Correct. And Abhiraj, in this assimilation, what kind of working capital requirement will be there because in your existing business, you have around -- so you're generally between 30 to 45 days kind of a number. So this would be the similar number even for the expansion or would be slightly higher.

Sorry, it was breaking in between. I'm not sure if I caught.

I'm saying in terms of working capital for this project. So as of now, the working capital that you have is between 30 to 45 days. So even for this expansion, you will have that kind of working capital cycle or it will be slightly different?

No, it would be quite similar.

Okay. And last question from me. On your investment portfolio, have you booked any profits or not?

Yes. From time to time, we do book profits. As I mentioned before that all this is managed by outside financial wealth advisors and they do book profit from time to time as and when they feel it's right. And of course they keep us -- we have almost a monthly call with them and we take calls.

[Operator Instructions] The next question is from the line of Alisha Mahawla from Envision Capital.

Sir, my first question is, is it possible for you to call out what has been the volume growth Q-on-Q?

It's been about 20%.

It has been 20%.

Yes, volume growth quarter in Q3 of this year compared to Q3 of last year. Is that what you meant?

No, I mean Q2 versus Q3.

It's about 6%.

6% okay. And can you also mention what will be the peak revenue with -- once the additional capacity comes onstream excluding all the pricing -- the higher realization at which you are currently witnessing? Like you mentioned 9 months was almost 30%, 40%. So if we exclude all that with the capacity and the new capacity that comes in, in H1 of '23, what will be the peak revenue?

Frankly, I don't know what is high and low. We have had higher of these in 2011 -- somebody could argue 2021 was the lowest and it's never going to come back again because of COVID. So I would say there is no high or low, it's what it is and we've been wrong before on what's high and low. But assuming at these levels which is let's say we are already at a run rate of INR 250 crores from our current facilities or current plants, which means we are already at a run rate of about INR 1,000 crores, which will add another INR 500 crores at the minimum. And then as I mentioned that we will have created enough capacity to go up by another INR 300 crores, INR 400 crores. So fortunately there will be additional investments. So we think at the peak we can do INR 1,500 crores, INR 1,600 crores as much as INR 2,000 crores once we do the second phase of expansion.

Okay. And just one last question. In NBR, what is the split between auto and non-auto?

Typically, India auto is about 25% to 30% -- maybe 25% not 30% a little high, 25%, 27% of the total NBR consumption in India is auto. Globally I think that's higher -- the number is higher. Globally the number may be about 40% maybe in auto. But we are largely in the India market so far for NBR.

So about 30% of the NBR revenue?

Yes.

The next question is from the line of Keval Ashar from DSP Mutual Fund.

So sir, since you are expanding into export markets. Wanted to know where there is presence of much larger players, what is the edge that we have over them?

There are multiple things -- there are 2, 3 things. But one of the things is obviously that the technology with which we are manufacturing has been different from what they are doing. We believe there are certain inherent advantages that we do have. Second is, as I mentioned that export market. I mean if you were to export to, let's say, America or South America -- North America, South America, I would say we are at a disadvantage because of the freight costs and so on. At least Southeast Asia and Middle East, we feel that we are fairly competitive with our raw material costs. Most of -- some of our raw materials are available very close to our plants. The others are imported, but again available close at very reasonable rates from the Middle East; Saudi, Kuwait, et cetera. And the technical service, the customization that we provide versus some of the large players in the past has really been our competitive strength and advantage and helped us gain market share and we think we'll continue that path. Having said that, we have to -- not to say that we can do away with our competition, they also have certain advantages. They have scale, they have depth that we have to build over time and -- but certainly we feel confident that we can at least compete with them in the market both from a cost perspective, quality perspective and service perspective.

Okay. And one more question is on the raw material side. So we import majority of our raw materials. So do you see any Indian companies in coming times doing CapEx in styrene and butadiene and if you have any insight of that?

As far as butadiene is concerned, there is already an excess of butadiene in the country. There have been a few projects announced, but I don't know how far they are in terms of execution. Styrene also, there have been a couple of projects announced, but I'm not quite sure on the execution. However, as far as styrene is concerned, it's easily available from various sources in East Asia as well as the Middle East. So we sit quite -- being in Mumbai, which is close -- or Gujarat both to Taloja -- both in Maharashtra and Gujarat, sometimes the freight costs are cheaper coming in from Saudi or Kuwait or UAE compared to bringing it from Delhi or the East -- from the north or the east of India. So we are okay with it.

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

Sir, 2 questions from my end. One with respect to CapEx spend for the current year and for next few years. And while you mentioned with respect to the asset turns on the XNBR business, can you guide us with respect to the asset turn on the NBR business and the normal latex business?

Sorry. Just let me repeat the question. Your first question is on -- what was the first question again?

CapEx for the current year and for next 2 years.

Yes. So current year -- I would say between FY '22 and FY '23, we are looking at about INR 225 crores. The large chunk of it would be these 2 expansion projects. We're also implementing a zero liquid discharge facility in our Valia factory, which for several reasons. One is obviously environmental -- the main reason being the environmental reason. So totally about between INR 200 crores to INR 250 crores over the next -- this financial year and next financial year. Beyond that is something we are not sure of yet. We will make that decision over the next 6 to 12 months. And your second question was on…

So we are still factoring in NBR CapEx at least by next year?

NBR CapEx, we're not factoring in this INR 200 crores, INR 225 crores as I said. Then in the following year '23-'24, we'll probably look at NBR CapEx. We will see depending on how this year goes. And as far as asset turn is concerned, as I mentioned, we're looking at INR 180 crores right now for these 2 projects, which will give us a turnover of INR 500 crores. So that works out to be an asset turn of less than 3 I guess. But as I said, we are -- or about 3 I think it will be. But over time, the future CapEx after that will be at an asset turn of maybe 8 -- 7, 8, I'm not sure. So average maybe 4 or 5.

So my question was while you shared the XNBR asset turn, can we expect the NBR business to be of a superior asset turn to this or maybe at a lower asset turn to this?

No, NBR business is at a lower asset turn because the investment will be as much as and the value of revenue will be lower so therefore, I think we'll see. Therefore, the hesitancy on whether to do this project, whether to utilize the funds for doing something else, it's not as compelling a case so far, but we may still go ahead and do it because it may be a good opportunity in any way. So we'll see how this next following year goes and then take a call.

So it all depends on the antidumping duty or something else?

No, not dependent at all. You cannot put up a project based on government interventions. No, not at all. We would take a long-term call based on what we feel is going on with the market, market growth, how EVs are factored in, how the auto index worldwide is affecting the NBR business worldwide. We've had one competitor already announce that they are going to leave this business. If that happens, that may significantly improve competitiveness in the market for the players who are already there. They've announced it, but they have not yet executed it. They've announced their intention to exit the business. So we'll see.

Right. So on the NBR business, are we back to the historic realization and restoring margins or we are far from there?

I don't want to comment specifically because this matter is sub judice, it's in the courts. We have appealed. So I'd rather not just discuss NBR specially margins and so on.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

Thank you all for joining us on this Q3 conference call with Apcotex Industries Limited. We appreciate your time and we hope that you stay safe in these difficult times and you and your families are safe. We look forward to seeing you in the Q4 conference call in next quarter. Thank you very much.

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