Apcotex Industries Limited (523694) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Apcotex Industries Limited Q4 FY '23 Earnings Conference Call. [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 afternoon, everyone, and a very 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'd like to thank you all for participating in the company's earnings call for the fourth quarter and financial year ended 2023. Before we begin, let me mention a short cautioning statement. Some of the statements made in today's earnings 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 call is probably 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 and hand it over to them for opening remarks. We have with us Mr. Abhiraj Choksey, Managing Director; and Mr. Sachin Karwa, Chief Financial Officer. Without any delay -- any further delay, I request Mr. Karwa to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Anuj. Good afternoon, and welcome, everyone, to today's earnings conference call for the fourth quarter and financial year ended 2023. I hope you had an opportunity to review the financial statements and earnings presentation, which have been circulated and uploaded on the website and the stock exchanges. Let me first brief you on the financial performance for the fourth quarter of financial year 2023. The revenue from operations were reported at INR 256 crores, which declined by about 8% on a year-on-year basis and increased by about 9% on quarter-on-quarter basis. Operating EBITDA stood at INR 34 crores which declined by about 25% on a year-on-year basis and increased by about 11% on quarter-on-quarter basis, with EBITDA margin reported at 13.32%. The net profit stood at INR 23 crores with declined by about 25% on a year-on-year basis and increased by about 14% on a quarter-on-quarter basis and PAT margin stood at 9.06%. For the financial year, we reported highest annual revenue at around INR 1,080 crores, which grew by around 13% year-on-year. Operating EBITDA stood at INR 159 crores, growing by around 13% year-on-year with EBITDA margin standing at 14.68%. The net profit was around INR 108 crores, which crossed INR 100 crores mark for the first time with a growth of approximately 9% on a year-on-year basis. PAT margin stood at 10%. Q4 FY '23 margins were impacted due to overall pressure on demand Nitrile Latex, while NBR margins returned to normalcy due to fall in import freight. On the CapEx front, both the projects in Taloja and Valia were commissioned during the quarter, with capacity of 35,000 metric tonnes per annum for Multipurpose Latex Plant at Taloja and 50,000 metric tonnes per annum for Nitrile Latex Plant at Valia. Additionally, I am pleased to announce that we have declared a final dividend of INR 3.50 per equity share. With this, I would like to open the call for question-and-answer session.

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

Congratulations on a good set of numbers. My first question is in terms of the revenue how do you...

Slightly the audio is muffled from your line, please use the handset mode.

Yes, is it better now?

Yes, sir, go ahead.

Okay. Great. So I just wanted to understand in terms of revenue, how much of this number is volume led and how much of it is value led, if you can give some color?

Yes. Sure. For the quarter, I think the volumes are flat. So most of it is due to sort of naturalization going up or product mix changes. For the year, I think we are up -- Sachin, do you have the exact number for volume increase for the year, but I think it's about...

8%, yes.

8% yes.

Okay. Great. So in the last quarter, we mentioned that basically the EBITDA decline were due to raw material and chemical inventory which were being carried on the books. Are those the same reason in this quarter as well?

Yes. I mean, look, that -- no volume -- for Q3, definitely, that was a big impact. In Q4, there was a slight impact on that. In fact, for 1 or 2 raw materials will still carry some of the high-cost raw materials only that will be exhausted by [indiscernible] largely that's been exhausted. I think as Sachin mentioned in his opening remarks, we have had 2 reasons. One is the NBR margins compared to Q3 and Q4 of last year and Q1 of this financial year were fairly strong because of shipping rates being very high. So we're obviously being the only manufacturer in India for NBR that was an advantage to us. And so that is normalized sort of in Q3 and Q4. And the second is that Nitrile Latex margins continue to be extremely weak, mainly the glove market is -- as you know, there were a lot of extra logs produced during COVID times and then post COVID over the last year. Glove demand has been extremely muted, down by 20%, 30% compared to the previous 2, 3 years. And so margins for Nitrile Latex for gloves are even lower than pre-COVID levels. So that's been a challenge for us, frankly. And we have -- of course, we're making small quantities so far, or we were making and now with the new plant coming up, the volumes will go up for cost structure over the next 3, 4 months would also go down, that should help the margins, but that is a challenge this year.

Yes. So you don't see the demand picking up anytime soon? Or the do you see any [indiscernible] less demand...

Yes, I mean, look, the demand should pick up because it should go back to pre-COVID level, just that there's a lot of inventory in the pipeline for gloves, which is causing pressure for the raw materials as well. And additional capacity has also been created over the last couple of years. So I think in terms of volume, it's not an issue. We still think we will achieve our targets in terms of volumes for the year. It's just that margins are obviously lower and being a new entrant, it's difficult to get any premium margins at this stage. But over time, you will see how it goes. I think in the long term, we're still bullish about the business. We're one of a handful of manufacturers that can manufacture this product. They have been manufacturing quantities over the last 3, 4 years. And now with the 50,000 tonne latex plant, obviously, our volumes are going to go up.

Sure. And one last question before I go back in the queue. How has been the performance of ARPU doing for this quarter? And how do we see that in FY '22?

Excellent, we've had some fantastic growth because we've entered new markets in the year. I mean, I don't know what -- I don't specifically want to talk about the quarter. But for the year, it's been great. It's obviously a much smaller part of what keeps saying of our total business, but we're growing it slowly, but surely, we've entered new markets, new states. And yes, I think we're quite happy with the growth. I think it should be around 25% -- or 25% to 30% this year -- last year.

25% to 30%. What is this number -- growth?

Growth, yes.

And in terms of the total contribution to sales, would be staying single?

It's much smaller. It's not much. If we don't -- we are not revealing those numbers yet, but it's not much.

The next question is from the line of Aditya from Securities Investment Management.

Sir, we have commissioned 2 plants in this quarter, but there hasn't been much increase in our OpEx cost. So will we see an increase in OpEx cost from next quarter onwards?

Yes. I mean there will be a slight increase, but the way the plants have been designed it's not a significant OpEx cost increase. The only OpEx that will go up is in terms of fixed costs that will go up is some manpower in both the plants. And I don't think it's going to be significant at all. When you say OpEx, what exactly do you mean? Obviously, raw material, power and utilities and all will go up, of course, as the volumes build. But both the plants are commissioned in March, so obviously, a large chunk of the growth will come in this year going forward.

So my question was related to the fixed cost because...

Yes. So it's not much of a fixed cost increase in either case. It's just manpower. And some maintenance and all but you don't expect much in the first couple of years.

Okay. And if you could throw some light on the competitive intensity you're seeing in the Synthetic Latex segment? So with reducing freight cost and slowdown in global economy, are we seeing global players exporting more products in India? Because I think similar situation like this has happened because before then there is a slowdown on global demand competitors try to dump their products in India. Are we seeing this kind of situation happening over here?

Not in Latex at all because Latex is more of a regional business. So on the contrary, in fact, I think we are doing better exporting in the latex market, but in NBR, for sure, that is -- that has been the case with freight rates -- shipping freight rates being quite low now, we are seeing higher competitive intensity for NBR.

Okay. So not much competitive [indiscernible] integrated.

No. I mean look, there are local players in India, which is mostly us and one more company hold about 80% of the market share. So most of the companies have recently increased capacity. So I think in the short term, there is a little bit of excess capacity, I would say, for the next year or 2. But it's not -- I mean, margins have been affected a little bit in, for example, Styrene-butadiene Latex, the main place where margins have been affected in Nitrile Latex for gloves, where there is no other manufacturer in India, and we are exporting, I think there -- globally there is a glut of logs and therefore, latex as well. And that's caused the real slowdown in margins or decrease in margin there.

And in the Synthetic Latex segment, do some industries [indiscernible] higher margins compared to a paper or carpet?

Yes and no. I mean, in some cases, we do see -- within -- so for example, we are in construction, carpet, paper, textiles. And I would say -- and then there are some specialty as well. So the specialty applications within each of these industries that we are supplying to, there we would see higher margins. So I would say, overall, margins are fairly similar. Paper is sometimes low -- is generally lower than the rest, but not by much. By and large, they are very similar to see an average of, let's say, 4, 5 years.

Sir, the reason I was asking this question is because [indiscernible] has been moving out from the paper, carpet industry because it is seen that it is a commoditized industry. And it is focusing more on the adhesives and coatings industry. So is this a similar situation or you are seeing in India as well.

Not really. No, not really. I think we come from a smaller base. In Europe, it's a little different. What's happened for, for example, I'll give you a paper, paper in Europe, mills are shutting down as the demand for paper has gone down due to digital overall -- the digital industry has taken over. In India, we came from a very low base and paper includes packaging as well. So as our population is growing and as our GDP per capita is growing, it is at a very low level right now is $2,500 or even less than that. Therefore, we are not seeing that in India at all.

Okay. So that is good for industries to the paper and carpet industry to grow in India?

Yes, absolutely. We are not seeing it in India. And we are largely -- I mean, obviously, the export is well to the Middle East, South East Asia and we're not seeing it there either. But I agree, I mean, the company you mentioned is largely in Europe for those paper, carpet. And Europe is going through a tough time even in terms of energy costs and other issues. So...

Right. So -- just a related question, the increase in export which we have seen, one of the reasons is because the [ peers ] over there are shutting down are not [indiscernible] to these kind of industries, would be that -- would that be one of the reasons which is why we're an increasing our exports?

No, I don't think they're not catering. I think they're nearly refocusing that maybe -- I mean some -- at least some information that you have. But of course, they're still in the market as far as we know, and we do compete with them in some of the export markets there.

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

Congratulations for the INR 1,000 crores top line and the INR 100 crores bottom line. How have exports done for fourth quarter and for the year FY '23? And how do you see that at least for the next 1 year to see so?

Sachin, do you have the numbers in terms of volume growth for exports?

Yes, for the quarter, we have an export growth of -- in volume terms is 28%. And for the year, we have grown 16% in volume.

15%?

16%.

Okay. Okay. Okay. And any further clarity on the NBR project doubling up capacity out there, anything concrete out there?

We're going through the detailed engineering, which should be done in the coming quarter. And then we will -- once we have the final costing and we also want to just see how the market is in the next few months, and then we'll take a final call, yes. No, not yet.

Okay, okay. And apart from the [indiscernible] user industries that we cater to in Latex, which among the 2, 3 might be really doing well and which may be [indiscernible], any qualitative commentary out there?

Yes. I mean what I already mentioned, look, I think as far as paper, carpet, construction, textiles, tires, all those are being -- I mean, frankly, well. As I said, for our markets, which is mostly India, Southeast Asia, South Asia and the Middle East, North Africa, I think, nothing to complain at all. The only Latex, Nitrile Latex for gloves, which is a new product where we've invested 50,000 tonnes. So as a result of that, we have obviously posited and converted our Kanoria plant into a multipurpose latex plant, which includes Styrene-butadiene latex and Styrene acrylics and so on. And so we did that, and that should be -- it take maybe a couple of years for us to fill that capacity of 35,000 tonnes. That is in addition to our current 65,000 tonnes, which is almost more than a 50% capacity increase. The other is in Valia, which is a 50,000 tonne Nitrile Latex plant, that is definitely a challenging market in the current context. But in the long term, we're quite bullish on it. And I think -- we think that the margins will turn at some point. Volume, we are again confident of doing. We have a set of customers that we have developed over the last 3, 4 years, and that will continue to sort of grow in terms of volumes and value, where the concern is margins, yes. And on the Synthetic rubber front, as I mentioned, by and large, status quo steady. Of course, there is some volatility in margins from every now and then. But I mean, if you see a course of a year or 2, we've had similar margins for the last 2, 3 years, I would say, since 2020 after the first COVID phase, July 2020, it's almost 3 years. But there have been quarters up and down. And there, we are the only manufacturer in India, so...

Right, right. And still, we don't hear anything on the continuities or any prediction to...

No. Well, there is -- I mean, you can follow it, it's public now. We have filed appeals and we've had some very good results in sort of our appeals with the High Court and the Supine Court, and we hope to hear some good news soon. I'm not sure how things will play out. But I mean it's out in the public domain, you can know what's going on with those and it's not only asked by the way, that is in the board, there are many different industries and many different companies that have filed appeals and they are at different stages of the appellate process. A lot of it is public and looking positive for everyone who file the appeals of why antidumping was not levied even though the DGTR or the Ministry of Commerce has recommended it. So we'll see what happens. I think we should know more in the coming few months, couple of quarters.

Sure. Sure. Sure. And is it safe to assume a INR 150 crores, INR 200 crores of top line for the new project, like I'm talking only about the latex gloves.

Sorry, what is the question again?

It's safe to assume a INR 150 crores, INR 200 crores in the first year of operation from the latex gloves part of the business?

Yes. Look, we -- totally, we can -- with the capacities that we have added, we can add up to INR 600 crores to INR 700 crores in top line with these capacities. We hope to get to full capacity within -- and when I say full capacity, I mean, on a monthly basis., So within 2 years, Nitrile Latex may be a little bit faster because we are new in the market, and we are able to get good volumes already in the first month of operation, although we're going through some trials because it's a new process. So we are quite bullish on that. And we think -- so Sachin, I don't know if you have the numbers, but I would say -- I mean, I don't have the number off the top of my head, but I would say about, yes, INR 200 crores to INR 250 crores top line from both these plants, additional top line in the coming years, should be possible.

[Operator Instructions] The next question is from the line of Nikhil from SIMPL.

One thing -- 2 questions. One is on the margin side. Now if you -- and not on -- specifically on the quarter, but if you look at last year's whole year margin, the first half was very good and second half, we had these inventory issues and everything. And on a blended basis, we still did around 13%, 14%, and there were push and pulls in the industry. If we have to adjust the one-off costs, would you say that this 14% to 15% is kind of a base margin at which the business will operate over a longer term because of the -- probably the diversification of the industries and everything?

So first of all, for the year, and Sachin, correct me if I'm wrong, but our EBITDA margins have -- are above 15%, right, for FY '22 as well as FY '23?

Yes. So we are at -- operating margins, operating EBITDA is at around 14.68% and 14.67% for last year.

Operating, okay. I was [indiscernible] total margins, which included other income, I guess. But yes, around 15%, look, I mean, obviously, you did have in both the years, '22 and '23 -- FY '22 and FY '23, there were some tailwinds that have helped us, obviously, like very high margin for Nitrile Latex because of COVID at that time and the demand for gloves was high. That is not -- that is actually gone the other way around where margins are maybe less than half of pre-COVID levels. So I think that will go back to pre-COVID levels. And therefore, I think in the short term, because of the Nitrile Latex margin, there might be a margin hit for the few quarters. But other than that, I think we are looking at this 14%, 15% as sort of the base. And of course, as we grow in our kind of business, the -- as one of the previous callers asked the operating expenses are not very high in terms of increase -- increase in operating expenses are, in fact, very low. So as we grow and -- actually the economies of scale, in fact, we are aiming at a higher EBITDA margin of 17%, 18% in the long run, when things normalize for Nitrile Latex. So just to give you an idea, Nitrile Latex margins have been much, much lower than what they were pre-COVID and they're much lower than all our other products, which -- and typically, historically, pre-COVID, there was higher than other products -- other latex products. So we believe it will go back to pre-COVID levels at some point. When that happens is anybody's guess, to be 6 months, 9 months, I'm not sure, but in the long term, it's a good business to be in. It's a technology that's not easy to master. We've done a good job in terms of being the only manufacturer from India and obviously, getting approvals in a lot of customers in Southeast Asia, South Asia -- and South Asia as well. So we're quite happy with where we were. Obviously, with circumstances of entering the market with a new launch with a large capacity is obviously not ideal, but that's something you can't predict in time in business.

I understand that the industry cycle just didn't support us at this point in time. It should improve. One question. Now in our previous question you mentioned that among the industries, the specialty would have a higher margin while there is no one rule for all the industries that some industries have low margin, some industries have high margin.

No, because within the industry, there are specialty products and sort of what somebody else termed it is a commodity products, but what we call large volume, fast-moving products would be at a lower margin. And obviously, larger -- big customers would be able to negotiate a better price sometimes. So I think -- I don't think it's industry-wise in our kind of business, it's more so it's application wise. So within paper, you could have some applications that are for sort of commoditized paper and margins there would be less the quality requirements and not as stringent. But then there are some applications that are obviously at a much higher margin because the specialty applications, which are made by 1 or 2 people in the world, and we are one of them for a few applications. So similarly in carpet, construction, textiles there are -- it's very similar, yes.

So just my question was that because what we choose to do, the business will define the ROCEs and our CapEx investments for future. So -- and because it's 2 diverse industries and within industries, there is further vertical diversification. As an investor, how should we understand in terms of what's your -- how do you choose upon what we will produce, what we will not produce, because if we go by history, our margins are not what we are doing today even in a distressed environment. So what all choices in terms of -- is it like we've exited some of the businesses among industries which were not profitable or ROCE accretive. And even in future, when we think of CapEx, as an investor, how should we understand our investments?

Yes. So for example, I'll give you -- it's a good example about 10, 15 years -- 10, 12 years ago, we had embarked on making emulsion for the paint industry. And we felt that was highly, highly commoditized, margins were much lower. We completely exited that business. I would say not completely, we're still making some specialty emulsion for the paint industry, but largely exited the business, I would say. Whereas in the other industries that what I just mentioned, paper, carpet, construction, tires, we believe it's the competitive intensity is not as high. The barriers to entry are quite high. So when -- as a business, we look at barriers to entry. We look at competitive intensity. We look at, obviously, the industry that we are supplying to, what is their future growth prospects. And we have a checklist of things before deciding what to invest in. So that's on a higher level. As far as day-to-day operations, obviously, we look depending on customer and industry from time to time, like I just mentioned in the glove industry, they go through the business cycles. And unless it's a very long term, we believe that in the long term, things we don't say we would not exit that industry or that customer. We have done business with customers who at low margins as well for a few months. We've made a commitment, prices have gone up. Sometimes we -- in the past, we have done quarterly pricing, even today for a few customers, we may do quarterly pricing and you lose out on margins is suddenly raw material prices go up, but we don't -- we have our strategic customer and strategic markets, and we stick with them. We're a long-term credible suppliers. So I hope that I answer your question. I'm not sure -- is that what you were asking, but I hope that answered the question.

Next question is from the line of Raj from Arjav Partners.

Yes, so looking at the -- all the expansions and everything which you have done. So can you give an outlook on FY '24?

I mean, look, you don't really give guidance as an outlook, but as I said...

Qualitative outlook I'm asking for.

Yes. So the qualitatively, as I said, no, I can give some quantitative numbers also. This money that we have invested or these funds that we've invested is expected to gear us some additional revenue of INR 600 crores, INR 700 crores at today's prices. And I would say today's prices are -- yes, so today's prices, let's say, in the last few months. And so that could even go up if pricing go up, unlikely to go much lower. So this would be conservative. And then we obviously hope to get full capacity -- or get the full capacity within 2 years for both our plants. And -- I mean that's the outlook.

So by looking at this by FY '26 and FY '27, you will be doing an incremental sales of approx. around INR 1,000 crores also. Am I right?

How will you get INR 1,000 crores?

I just did a rough estimates and everything. INR 600 crores, INR 700 crores.

I mean our current plants will give us another INR 600 crores, INR 700 crores. So we have about INR 1,100 crores today, we should get to about INR 1700 crores, INR 1800 crores maybe in FY '26, I would say. And obviously, we have other plans to grow as well and invest so when that happens, so that may happen as well over the next year or 2.

All right. Understood. Understood. And how about EBITDA and everything? So in FY '24, can you expect a similar EBITDA range?

And look, in the last couple of, you had our EBITDA has been lower in the first couple of quarters. But on average, as Sachin mentioned, we are at about 14.5% it's very hard to predict exactly had the Nitrile Latex market, for example, been absolutely normal, you would have been very confident in giving that guidance and, look, this is an EBITDA margin that going forward, we should be able to do. But obviously, you've seen in Q3 and Q4 for a couple of reasons, the EBITDA margins have been lower. One reason was that you got stuck very high-cost raw materials for some of our products. And the second reason was Nitrile Latex margins kept falling all through '22 and into early '23. And obviously, that on an average, when if you are going to have 50,000 tonnes of Nitrile Latex coming up at a lower margin, that's going to pull the EBITDA down. Do you believe it's a short-term issue? We're still going to push through and get our sales number. So in the short term, you could see EBITDA being lower. But in the long term, as I said, look, we think the way we're building this business and the way we have developed it. And with economies of scale as we grow, it should be at 14%, 15% and even higher.

The next question is from the line of Alisha Mahawla from Envision Capital.

So just wanted to understand that our outlook for '24. I'm not looking at numbers which is directionally. So on NBR side, with fall in freight shipping costs, you're seeing more competitive intensity from imports on the Latex side, again, because of higher inventory, we are seeing some amount to slowdown. In light of more...

No, no, we're not seeing any slowdown -- sorry, we're not seeing any slowdown. That's not true. The second part is not true. Sorry, go ahead.

Okay. Okay. So my understanding was that is still replacing some amount of pressure in demand on the Latex side, anything that's not true anymore.

No, no, not overall Latex. I said only Nitrile Latex margins -- only Nitrile Latex margins, demand is very strong for everything. I mean we are doing our volumes. We've been running at 100% capacity utilization for the last more than 2 years. And even in the last quarter, we didn't have -- even though we had these 2 new plants come up, the reason why we didn't see any volume increase was because we had shutdowns. We had in fact -- to hook up the new plants, we had 10 days shutdown in one of our plants and a shorter shutdown in another plant. So we lost a little bit of production, which we were able to make up in the month of March from the new plant. So overall, the volumes were flat. So yes, we are not seeing any slowdown in terms of demand. In fact, we are seeing growth in terms of demand. Our only concern for FY '24 is margin. And that also main reason is Nitrile Latex for gloves.

Is it possible for you to shed some light or color on how much lower is it versus pre-COVID level versus that [ average glove ] company at your portfolio?

Say that again? Sorry, can you -- I didn't hear you well.

I wanted to understand the margins in Nitrile Latex. You said that it is lower even compared to pre-COVID level, overall company level margins also. Just wanted some color on how much lower is it at this point in time.

At this point, it's much, much lower than average company level. So for example, if you were to remove them for the last 6 months, if you were to remove the Nitrile Latex sales that we did, which was only about -- at about 10% of our overall sales, we would -- EBITDA margins would have been higher by about 100 basis -- 100 or 200 basis points, so 100, 150 basis points. So obviously, it's very low EBITDA margins right now or overall contribution margins for Nitrile Latex and going forward, obviously, that's going to also have a larger chunk of the volume. So next year, our total sale of Nitrile Latex maybe 15% to 20% of our overall sales. Sachin, do you have that number as far our projections, what should be the -- in terms of revenue?

You're right. It will be to that extent.

It'll be about 20%? 15% to 20%?

Yes, yes.

Yes. The reason for the low margin is because there is an oversupply?

Yes, oversupply of gloves, I guess, not oversupply, yes oversupply as well as a reduction in demand because there was so much oversupply during COVID that a lot of extra gloves were ordered. So I mean a few new plants have come up. So I think the supply/demand situation in the glove industry has changed dramatically. And if you can actually some of it is public information, you can check the top 4 or 5 glove manufacturers in the world. And you see there -- most of them are public -- publicly listed in other countries, and you can see their results are not very good.

Any sense on do we see this normalizing say, in the next 1 or 2 quarters. Is FY '24 also going to be difficult for this product and probably some amount of balance one the demand/supply side and we expect it only in FY '25 now?

It's hard to say when exactly. Obviously, it's very hard for anyone to predict. Well, some people say that, look, the glove expiry dates are within 2 years typically. So if gloves were made in end of '21, early '22, they would sort of expire end of '23, early '24. So it's hard to say when exactly. Of course it's very hard to predict, frankly. And there are different industry views on this. Most of them are saying 6 to 12 months.

Okay. And just one last question. Last time, you were mentioning that the 50,000 tonnes [indiscernible] gloves, but the 10,000 in Taloja is more like a swing capacity, and we were evaluating some newer products. Have we identified new products? Or have we started -- is it expected, any color on that?

No. So what we did with the 10,000 tonnes because while we were building the plant in the last 6 to 8 months and we realized that this is what's happening in the Nitrile market, we made minor additional investments, and we have converted our 10,000-tonne Nitrile Latex capacity in Taloja to 35,000 tonne multipurpose latex plant, which is able to make Nitrile Latex and also able to make other -- current product, which is Styrene-butadiene, Styrene acrylic. And that demand is very good, very strong. And in the first 2 months itself, we are utilizing 20%, 25% of that capacity. So that's expected to keep going up over the next 1 to 2 years, and we expect to get to 100% capacity utilization at some point in the following financial year for that plant. So that's what we have done. And so that's what, I think, Sachin mentioned in the opening remarks as well. I hope that's clear.

Sure. And this will be relatively better margins.

Yes, absolutely.

Sure. And just one clarification, with Taloja plant will reach for utilization in '25?

Sometime in '25, yes, which does not mean that we will sell 35,000 tonnes in the whole year. So I mean, you have to break it up monthly. So for example, with 3,000 tonnes a month. At some point in '25, we will reach 3,000 tonne, yes, for the new plant.

[Operator Instructions] We'll take the next question from the line of Savi Jain from 2Point2 Capital Advisors.

I just had the question on your treasury operations. I see there's a lot of active equity investing in other stocks. So I just wanted to understand what is the [indiscernible]?

Actually, it's not active. Frankly, we have outsourced it to experts who actually manage treasury and wealth. So we don't manage it in-house. And those -- there, we have invested about 70% is in equity, a little less than that sort of INR 88 crore INR 87 crores or INR 90 crores NAV, let's say, INR 90 crores NAV about 70%, right, Sachin, is in equity. And that's also broken up into equity mutual funds. And then some PMS's also have been invested in and that's why it feels like there is a churn, but there is really not.

Well. No, I can understand the funds and mutual funds, et cetera. But I see a lot of stocks also being bought and sold. So in this -- like there's a lot of exits and new entries between 2 financial years. So that is something -- and it's extremely highly diversified. There are like hundreds and hundreds of stock. So it seems a little bit noncore toward your businesses. And it's not -- it does not even look like long-term investing, some of the stocks have been completely sold in a year, new stocks have been bought in a year. So I mean...

Look, I don't think we are holding back. It may be true and we look into it, but..

FY '22 annual report 120 direct stocks you own.

Yes. It could be because there are -- but I'm sure FY '23 will be lower because we exited one of our wealth managers completely in FY '23. I think they're reducing that. And FY '23 annual report, you'll see that's a lower number. But our long-term view is, look, we have this treasury that we have kept for either potential nonorganic acquisition growth or partnerships that we may get into or sometimes we also quick expansion decision we want to take, we should have some liquidity. And in terms of -- it's not a very large amount in our view, it's about INR 90 crores, which is less than 1/10 of our total revenue from a market cap point of view, so it's a small percentage of our market cap. We just -- and then you want to maximize -- for the long term, we want to maximize it, and we believe equity generally over the long term, give you better returns than debt mutual funds or just...

Not for example but...

This is well taken. Your point is taken, and we'll try and see if we can reduce that. But the idea was not to changing stock, that's not the idea at all. It may be because we have given it to 2 different managers in FY '22 and FY -- part of FY '23. I mean they in turn have given it to a couple of other PMS managers, and therefore, it looks like a lot of stock. But if you see the percentage that are in stocks, is I don't have the exact number. It would not be a lot. Most of it is in mutual -- equity mutual funds.

10% to 15%, yes, that's it. Rest all in mutual funds and debt funds.

Yes. Okay. Got it. In terms of -- just the outlook you mentioned about the 2 new plants. But is there anything else that is in the pipeline in terms of new products or new categories that you're getting into?

So one is for our NBR -- it's all new, but for NBR, we are the only manufacturer in India. We've been running at full capacity. Some capacity will be freed up when we move our -- right now, we're making Nitrile -- not right now, sorry -- until March, we were making Nitrile Latex in our NBR reactors, which will move out so it will give us some additional capacity there, maybe about 15%, 20% additional capacity. So we want to try and see if we want to double that capacity because the market is there. We've done a good job. We are just waiting for a couple of things to see the CapEx costs -- the current CapEx cost [indiscernible] the returns will make sense. Of course, there are new products that we're looking at as well. No decision has been taken. When the time is right, we will announce so this is -- as far as investment is concerned.

We'll take the next question from the line of Aditya Khetan from AK Capital.

It was not AK Capital, it is SMIFS Limited. So there might be some [indiscernible]. Sir, on to the demand side, as you had mentioned earlier, the demand has been started to witness an uptick into the glove side? I believe for the last quarter when we discussed on this. So you had mentioned that there is some pain of 6 to 9 months. Again, this quarter, we are guiding that, so there could be some pain for again 6 to 9 months into the glove segment. So when we see this pain to end into the Nitrile Latex segment? And what is our target utilization for FY '24 when the capacity will start?

Good question. So 2 things, one is that demand is not a big issue. 50,000 tonnes in the Nitrile Latex market is very small, it's not even couple of percent of the total market, even at these a little bit lower level. So demand is not an issue. The issue is margins, margins are very low, unfortunately, as we've entered the market. And what was your second question?

Sir, what would be the utilization levels from...

Yes, so we expect utilization levels to be somewhere between 40% and 50% for the year.

For the complete 85,000 tonnes or only for the Nitrile Latex 50 tonnes?

No, Nitrile Latex 50,000 tonnes. And for the company -- yes, that also for the remaining 35,000 tonnes, there also we would have been at 50%, honestly, but we have to wait for some -- we have got permission to only manufacture a certain amount because earlier as you recall, the Taloja plant was a 10,000 tonne Latex plants. So we had applied for environmental submission for only that amount. Now because XSB Latex or other Latex, we are able to make 35,000 tonnes, we have applied for additional permission to make more products on the same plant that also require some environmental permission. So I don't -- when that comes through, especially in the next 6 months, we should be able to increase that as well. So that, we are a little bit dependent on those environmental permissions, but we are hopeful they'll come through in the next 6 months because there isn't -- it's not very complicated. We are not -- don't have to put up a new plant or anything of that sort. So hopefully, in the next 6 months, that should come through. So I would say if you look at the entire 85,000 tonnes, I would say maybe about 35% -- 35% to -- yes, 35% of the total.

Sir, on quarter-on-quarter so when I was looking at your -- so when I was thinking at the raw material prices and some of the finished product prices. So there's a clear contraction in terms of spread, which is seen quarter-on-quarter but still the numbers have been good. Let's say quarter-on-quarter basis, the margins have been flat. Is there a -- have we stopped up inventory at lower prices and that benefit we have got in this quarter. That is why the number which are reflecting on to the spot prices, that is not replaced into the results.

I am not sure if I understood the question clearly.

Sir, I'm asking that you the -- so the spreads of the Styrene-butadiene and Acrylonitrile and your some of the finished products like NBR [indiscernible]. So that spread going quarter-on-quarter onto [indiscernible] so that is the decline but our margins have been constant. So I was just wondering, so have we stock inventory at lower prices because the raw material prices, so they have started to go up but the finished product prices, they were going down. So the spread that contract. So I was wondering whether we had kept some inventory...

Sorry, what is -- I'm little confused, but what are you looking at -- so how are you following Styrene-butadiene and Acrylonitrile prices.

So this Styrene prices, so we are tracking some of the Styrene prices and Southeast Asia prices...

Okay. So I would say that in the -- and that's not always -- so what happens in reality not what is published, right? So for example, as I mentioned in the last quarter that we had some high-cost raw material inventory that you were stuck with in the previous quarter that now in Q4 is somewhat normalized. And therefore, you can't really compare that, just because those are published rates, is not what Apcotex rates are. So sometimes published rates would be maybe lower than our Apcotex rates, sometimes it could be a little higher also. So I would not look at the published rate as -- I mean, it's not a benchmark, but it's not really accurate. And yes, to answer your question, Q3, in fact, you were -- it's the other way around, Q4 is, by and large okay. Q3, you were stuck with higher cost raw materials. So even the published rates may have gone down, our rates were not down in Q3.

The next question is from the line of Mohit Arora from SOIC Ventures LLC.

So sir, first question is on FY '24 in spite of the increase -- slight increase in OpEx. Do we think the absolute growth in EBIT?

Yes. Of course, Yes, yes, yes. That's -- we do expect an increase in EBITDA. In fact, what you would see happening in FY '24 is the profit before tax will go down because we have a large CapEx, which we've never done before and all the CapEx has come on stream in the last quarter. So upwards of INR 220 crores to INR 230 crores. So that depreciation is going to start hitting in Q1. And the interest, which was so far being capitalized because we have taken a loan -- term loan for -- to partly fund the CapEx that will start hitting the P&L as well. So from an EBIT point of -- EBITDA point of view, you would -- we would obviously on an absolute basis, we will see some growth -- we would hope to see some growth. But on the PBT level, because of depreciation and interest going to be much higher in FY '24 going forward from Q1 of FY '24 than it was in the past. I hope that's clear.

Right, right. Sir, second question is in terms of like what is the overall vision of the company over the next 3 to 5 years? Are you beginning to launch any new products or are we looking to like -- just a broad vision of the next 3 to 5 years.

Yes. Look, I think we have a lot of opportunity in the emulsion polymer space that we are in. And even if you see the last 5, 6 years, we have done 4 things. One is growing the current business in India. Second is we've grown the current product range outside of India. Third thing we have done is acquired a company in -- which was an adjacency for NBR and Allied Products. As a result of that acquisition, we were able to put up an Nitrile Latex plant in that facility in Gujarat. So these are the 4 things that we have done. Going forward, we want to, as I said, one thing is obviously growing emulsion polymer space. We're looking at other spaces as well. But no -- obviously, I think that's pretty mature to talk about. We will continue to grow our exports. We will continue to grow Nitrile Latex, NBR. So those 4 -- and our current product range where there's a lot of opportunity that we do see. There are some specialty products within the emulsion polymers that we're looking to add. For example, textile, which is a very, very small part of our business 5 years ago, is now becoming a larger part of our business and another strong leg -- another industry that has become quite strong for us. So yes, various things, and obviously, we're looking to grow both from a inorganic opportunities. Obviously, we are evaluating all the time and looking to grow through a new product pipeline, if possible. If it makes sense. But it's too premature to talk about this.

We'll take the next question from the line of Ankit Kanodia from Smart Sync Services.

I just have one question related to the exports. So can you give some geographical breakup as to which part of the -- you have mentioned that we cater to 7 continents, maybe you can just quantify that maybe...

I don't think we are supplying to Antarctica, but the other. But Sachin, you have the numbers for that? I mean broad figure of -- as I told you, Ankit, we're mostly in Southeast Asia, Middle East. So I -- in Middle East, North Africa and, Southeast Asia, I'm covering South Asia, like Sri Lanka, Bangladesh and Nepal in those countries as well. If I were to venture a guess, I would say, Sachin, 80%, 85% of our sale is in this region?

Yes. In these 2.

What you're talking about Southeast Asia and Middle East?

Southeast Asia and Middle East, right, which includes Sri Lanka, yes. And then the rest in Europe, China, even America, some of it, South America. I mean there's some specialty products we export everywhere. But a large chunk is in this region.

Any color of difference in terms of demand between the Southeast Asia and Europe, do you want to comment on that?

What do you mean -- Sorry, what's the question again?

The question is, any color on what is the situation? Or what is the different situation between Europe and the Southeast Asia? Or are the...

As a I said, Europe is not a very big market for us, mostly Southeast Asia and Middle East, and we're finding -- we're growing quite well in these 2 markets. Europe, North America, Japan, those are we supply some specialty products to and they're fairly steady. Yes, we have had no major issue. But they're not a -- I would not say there is a strategic market just because of the distance it takes and the time that it takes, not on the latex side to ship that much water across continents. It's not necessarily feasible, unless it's a specialty product.

We'll take the next question from the line of Bhavya Sonawala from Samaasa Capital.

I just have 2 questions. First question is just wanted to know that gloves manufacturing CapEx and the Latex CapEx, have they grown in line in the past few years, if that's possible to...

Sorry, again, what's the question?

So basically, I wanted to understand that the glove manufacturing and latex manufacturing, the CapEx for both have they grown in line?

I mean, look, I think glove manufacturing, because of COVID, I think a lot of people entered the glove manufacturing business because it's more of a low-tech business in that sense and low CapEx as well -- lower CapEx as well. So we've seen a lot of companies in America, China, Southeast Asia into the market. And as a result, there's a lot of glove. In Nitrile Latex, we also seen extra capacity come on soon, but it's been from existing players. For example, like us, we have been an existing Latex player, and we have entered started manufacturing Nitrile Latex couple of years ago and then obviously invest in the plant. Similarly, some of our competitors in the industry have added some capacity in their existing plants. And some were announced, but I believe they've all been put on hold given the current market value.

Okay. Okay. Got it. Sir, and the last question, you had mentioned about the high-value raw material inventory that we were holding. So just try to assume that probably this will be the last quarter we have the high value raw materials or...

Yes, yes, absolutely. I mean, Q3 was a big hit, I would say. Q4 was slightly less, and [ Q5 ], we're largely done with barring a few specialty raw materials that we keep 6 months inventory and, for example, we had ordered in September, October from and it came in November, December, and then now we'll probably be done with it in this quarter. So -- but yes, I mean slowly coming down, and I would say largely almost done now.

Next question is from the line of Aditya Khetan from SMIFS.

To one of the participants, you had stated that the capacity expansion would give a revenue of INR 200 crores. I believe, sir, you had given a guidance of INR 550 crores to INR 600 crores. Just wanted to verify...

No. The capacity expansion is INR 600 crores to INR 700 crores. For this year, for FY '24 is INR 200 crores to INR 250 crores in our best estimate.

Okay. And the total would be somewhere around INR 600 crores to INR 700 crores [indiscernible].

At full -- exactly, fully utilization, correct.

[Operator Instructions] The next question is from the line of [ Om Prakash ], an individual investor.

[Foreign Language]

[Foreign Language] They're working hard at increasing sales. So we're quite confident.

The next question is from the line of [ Jaan Pal Singh ], an individual investor.

[Foreign Language]

I already answered. [Foreign Language] So that project will be over. Now depending on the final CapEx amount. [Foreign Language] Board will take -- Board and senior management to a team will take a final decision over the next few months on when -- if and when we want to, not if, I think, when we want to go ahead with it? So we have not yet decided. [Foreign Language]

[Foreign Language]

[Foreign Language]

The next question is from the line of Raj from Arjav Partners.

[Foreign Language]

[Foreign Language] I answered the question. It's a margin issue. [Foreign Language] plant is a small plant, so we are confident of doing 50,000 tonnes of latex. [Foreign Language] is not a problem. But [Foreign Language] because overall market is quite weak, we have very low prices to be able to sell. And generally, the market margins have reduced considerably compared to a post-COVID level, but also during pre-COVID level. So -- that's the reality. So we're confident of doing 50,000 tonnes because millions of tonnes are being sold in the market. So 50,000 is not a very big amount.

And this a supply issue, no. We can assume it.

Yes, the industry is not doing well. So there's a lot of pressure on the raw materials of gloves also. Glove industry is not making money, they want to ensure that raw material suppliers also -- I mean they can't afford beyond a point because glove prices have really fallen. We have to support them for some time till things normalize.

Ladies and gentlemen, we'll take the last question from the line of Nikhil from SIMPL.

One question, Abhiraj, when we -- because in the call, you mentioned that the demand is pretty strong and we had the ability to switch the CapEx from NBR -- Nitrile Latex to NBR...

No, no, on, Nitrile Latex to other Latex.

Yes, other latex -- pardon, what I wanted to understand is that when we put the capacity, is it like we have -- how good sense of demand do we have in terms of the market. I'm not specifically talking on the gloves part of it. But overall, as a general rule, is it like we have commitment from the customers that 40%, 50% of the demand, we believe that the capacity can be filled by existing customer orders? Or is it an assessment of the market based on what the CapEx plans are organized. I'm not specifically talking on gloves, I understand it was a one-off scenario. But as a general rule, how do you plan it out?

Yes, absolutely. So look, we -- it's obviously talking to customers, we do not have contracts signed in advance before the plant comes. But if you see the industries that the latex products that we are supplying to and it is, as I said, 75 plus percent in India, 25% exports. We believe that all the industries paper, carpet, construction, textiles, tires, all in India is a growth industry. And we have talked to all our customers. We have got their 3-year projections or 5-year projections. And you want to try and invest in projects where we at least see 25%, 30% ROCE when we start the project -- when we plan the project, return on capital. And we see that we can utilize that capacity within a period of 2 to 3 years.

Okay. So that -- the reason for asking the question is that because I don't know, like during the call, you mentioned that you are -- even whatever is happening on gloves, you are still confident that the capacities will be optimally utilized in a period of 2 to 3 years. So just wanted to understand that when we plan for the capacity even in other products, like is it pure assessment? Or is it like customers are also like giving a good enough design that when we put the capacity at least 40%, 50% utilization we will be able to reach easily. Is it like -- that kind of an assessment do we have?

As I -- I'm not sure -- I thought I answered your question. Yes, we talk to customers, but we don't take any written commitment from customers. But, yes, customers do tell us, look, we are putting up additional capacity, for example, that's in the paper industry, right? We are close to many -- most of our customers and they will tell us, look in the next 3 years, we are putting up this capacity. So we will need this much more binder or latex over the next 3 years. So we try and time it with that. And then, of course, part of it is an assessment as well, for example, construction. The construction and waterproofing market has been growing really well in India. It's double-digit growth. And the last 5, 6 years, it's been growing at double digits in the next 5, 10 years also, that's the assessment. So, yes, I mean it's a combination of assessments, seeing where new capacities are coming up. And overall, seeing the growth in Asia, we've been predominantly an Asian company and catering -- manufacturing in India and catering to India and Asia.

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

Sachin, do you want to do the closing comments?

Abhiraj, you sure?

So thank you, everyone, for joining for our Q4 conference call. We finished the year at a strong -- with a good strong set of numbers. We are quite satisfied and happy. Of course, the projects were delayed by a few months. But we're also happy to share that the projects are both on stream and going reasonably well, and we hope to now utilize this capacity over the next few quarters. We will also come back to you with future growth plans at the right time. Just one thing to keep in mind is the depreciation and interest will be going up over the next 2 quarters because of the large CapEx that we have done in the last quarter. So PBT numbers will be affected going forward, but EBITDA numbers is what we are going to focus on. Thank you very much. Look forward to seeing you all next quarter. Thank you.

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