Apcotex Industries Limited (523694) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '25 Earnings Conference Call of Apcotex Industries Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Nupur Jainkunia from Valorem Advisors. Thank you, and over to you, ma'am.

Thank you. Good afternoon, everyone, and a warm welcome to you all. My name is Nupur Jainkunia from Valorem Advisors. We represent the Investor Relations of Apcotex Industries Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the fourth quarter and the financial year 2025. Before we begin, a quick cautionary statement. Some of the statements made in today's conference call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now I would like to introduce you to the management participating with us in today's earnings call and hand it over to the management for their opening remarks. We have with us Mr. Abhiraj Choksey, Vice Chairman and Managing Director; and Mr. Sachin Karwa, Chief Financial Officer of the company. Without any further delay, I request Mr. Sachin Karwa to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Nupur. Good afternoon, everyone. It is a pleasure to welcome you all to the earnings conference call for the fourth quarter of financial year 2025. 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 provide you with a brief overview of the financial performance for the fourth quarter and financial year 31st March 2025. The operating income for Q4 stood at INR 349 crores, reflecting a year-on-year growth of 12.5%. This performance was supported by highest ever quarterly volume and export volume, which grew by 15% and 22%, respectively, on a year-on-year basis. EBITDA came at INR 39 crores, marking a robust 23% growth, primarily driven by higher volumes and improved capacity utilization. Consequently, the EBITDA margin improved to 11%, up from 10% in Q4 FY '24, and significantly higher than 7.63% in Q3 FY '25. Profit after tax stood at INR 17 crores, an increase of 10% on year-on-year and a strong 44.8% growth on a sequential basis. The PAT margin for quarter stood at 4.81%. This performance highlights a positive trend in profitability, supported by operational efficiencies and improved capacity utilization. Now coming to the financial performance for the year ended 31st March 2025. The revenue from operations increased by 24% on a year-on-year basis to INR 1,392 crores. The company achieved strong operational revenue growth. This growth was driven by a 16% rise in overall volume and a 24% increase in export volumes, further supported by enhanced product mix and better price realization. EBITDA margin was at INR 125 crores, which increased by 9.5% on a year-on-year basis. EBITDA margin stood at 9%. The profit after tax stood at INR 54 crores with a PAT margin of 3.89%. Cash profit for the year has increased by INR 10.3 crores to INR 95.6 crores. With this, I open the floor for question-and-answer session. Thank you.

[Operator Instructions] The first question comes from the line of Dikshant Gupta from Geojit PMS.

So my first question would be, can you provide a mix of the revenue from various segments like latex and rubber?

Overall, for the year, I think -- yes, Mr. Gupta, overall, for the year, I think we are at about 2/3 -- a little over 2/3 is the latex segment. Obviously, a large chunk of the growth over the last couple of years has come from the latex segment since the investments were there. So it's about 2/3 latex and 1/3 rubber, approximately.

Okay. And going forward, will you be focusing on expanding the latex segment more or the rubber segment more?

I think we're making a plan to expand both. In the rubber segment, specifically for NBR, nitrile butadiene rubber. So as I've mentioned before that we are sort of waiting on the antidumping investigation final conclusions before taking a call and going ahead with it. So we're working -- so that project is ready, and we would be -- we are quite hopeful that we'll be able to expand there. And the latex segment, of course, we would be expanding.

And what is the capacity utilization? And how much capacity are you planning to add every year?

So for last year, in the NBR side, we were almost at -- I would say about 95%, 96% capacity utilization, close to 100%. And on the latex side, for the new nitrile latex project, which we are at about 75% plus now. I'm talking about monthly run rate. For the year as a whole, we were lower, of course, but Q4, we were at about 75%, 80% -- between 75% and 80%. And so there, we probably have another year or 2 left, but their margins is an issue. And as far as the other latex business is concerned, which most of those latexes are manufactured in our Taloja plant, there, we are at about 80%, 85% -- 82% capacity -- 80%, 82% capacity utilization. So there, again, in the next 1.5 years, we suspect we'll need more capacity.

Okay. And my next question would be, as the crude oil prices are falling, will it be beneficial to you? And will it improve the margins further?

See, historically, we have seen in the short term, it's not so beneficial because when prices fall so sharply, we are left with some inventory push, finished goods and raw materials. And that's going to be the challenge really this quarter in Q1 because as you've seen that compared to March end to now, crude oil has really fallen around -- I think it's our Brent crude, is almost $60, a little over that, but around that versus it was over $80 perhaps a couple of months ago. In the long term, of course, we -- I think we all prefer lower oil prices, it does help. But we are not concerned more about the margins.

Okay. Okay. And my final question would be, are your sales -- like has your customer base diversified? Or is it dependent on 1 or 2 customers?

No, not at all. We have a very diversified customer base. In fact, I don't think we have any one customer with more than 2%, 3% total sales.

[Operator Instructions] the next question comes from the line of Aditya Khetan from SMIFS Institutional Equities.

Sir, with the lowering of crude prices, sir, earlier, we have seen a trend that whenever crude prices goes down, we always book some inventory losses. In this quarter, sir, like there has been some benefits on inventory despite crude oil prices declining. How should we look at this, sir?

Q4 was a little strange. Actually, the prices went up between December and February, and then came down sharply in March. So overall, you're right, there has been a slight benefit for the quarter, but the sharp decline was in March, April. So I don't know if that answers your question, but yes, there was a slight benefit this time. Generally, we see in a quarter, there's a general sort of increase and then decrease, but we didn't have a clear trend this time. But we did benefit slightly.

Got it. Got it. Okay. And sir, this sequential dip in top line, I believe, sir, our volumes from nitrile latex is improving. So ideally, the price reduction should have happened in the base business, which is why our top line has declined...

That's right because volumes sequentially are up by -- just one second, we'll give you the data, but volumes sequentially are I think up by 9%.

Okay. So the decline is largely dip in the realizations in the base business?

Yes, that's right.

Okay. Sir, just one last question on to the nitrile latex. Earlier, sir, we had given a guidance that we would be touching around INR 600 crores of revenue. Is that guidance still intact?

Yes, I think that INR 600 crores, from what I recall, was at 80,000 tons. At 50,000 tons, we would be closer to sort of INR 400 crores, INR 450 crores. So what's the investment done so far, we have left a small investment for later, which we would only do if the margins improve. So right now, the nitrile latex business, we expect to be about somewhere between INR 400 crores, INR 450 crores depending on the price of the latex.

And sir -- and what would be the top line contribution in FY '25 from the nitrile latex?

I'm sorry to interrupt Aditya. Those were your 2 questions. If you have any more, please fall back in the queue.

Maybe we can let him complete. But yes, I would request just to give everyone a chance -- I'm sorry, Aditya, but just to give everyone a chance. However, since you started the question, why don't you complete it and we'll close that.

Sure, sir. Sir, I was asking on FY '25, so what would be the contribution from the nitrile latex?

In terms of revenue?

Yes, sir.

It's about 14% or so -- 14%, 15%.

The next question comes from the line of Rudraksh Raheja from ithought PMS.

My first question is, sir, could you help us understand what led to this major expansion in gross margins for quarter 4 of FY '25? And can we assume that we have bottomed out and recovery should start from here onwards?

Yes, there were a couple of reasons. One is, overall, we saw improvement in nitrile latex margins, which were very low. The second was, in general, in Q4, we did see slight improvement in margins across the board as well. And one of the reasons was there was some -- in Jan and Feb, prices went up and we were able to do some great buying. So there certainly has been some benefit to that as well. So a combination of 2, 3 reasons. And the fourth reason is also volume going up. As volume goes up, margins overall go up as well, EBITDA margins. So that's -- these are the 3, 4 reasons. Obviously, there's been one big change, which is compared to Q4 and Q1. So coming to your second part of your question, whether that has bottomed out or not. So I think, look, the -- that was our hope. But given these tariffs, the U.S. tariffs and the uncertainty around that issue, where we -- what we are seeing in the market is a lot of uncertainty from some of our businesses that are more U.S. focused. So for example, we are not directly -- we don't have much exposure to the U.S., but indirectly, some of our customers have exposure to the U.S. They export to the U.S. And -- so obviously, they are affected in these uncertain times. Obviously, the duties -- except for China, the duties worldwide is now 10% into the U.S. But given the uncertainty and that could change again in June, right, after 90 days -- sorry, in July after 90 days. So I think there is a lot of uncertainty. So there is -- in Q1, at least in Q2, perhaps this U.S. situation may create a lot of uncertainty in the world and -- for some of our customers. Directly so far, at least in Q1, we haven't seen our business affected too much, but the outlook is -- the best word I can use is uncertain.

Got it, sir. And sir, on the CapEx front, if the current trajectory continues, we'll run out of capacity as you have acknowledged as well. Can you share more details on the CapEx?

Yes, we will run out -- so we expect that -- again, as I said, we'll wait and watch. Of course, we are making multiple plans for further expansion of our current product range, which is NBR, styrene-butadiene latexes, styrene acrylic latexes and nitrile latex, we will not be expanding immediately. We'll probably wait a year or 2 depending on how the margins play out. The plans are on, and we expect we will be okay till perhaps middle of next financial year. So we should have enough capacity. We will be sort of informing our investors about our CapEx plans once they are firmed up and approved by the Board.

The next question comes from the line of Sani Vishe from Axis Securities.

So coming on to the answer that you gave to the earlier participant. So margin improvement is -- are driven by multiple factors. So -- and besides volumes, I think the most of the factors are external. So are we saying that our margins will keep varying depending on external factors? Or is there something that you are doing to improve the margins on a steady basis?

So one is, of course, we are growing volumes. That will obviously, as you said, expand margins. There are a few other plans as well to kind of reduce costs, which are ongoing. But, however, yes, external factors, especially in the nitrile latex business, which has pulled down the margin overall for the year and for the quarter as well, although there's been an improvement in Q4. There is that external factor. There are external factors right now. And over time, the other external -- I don't know if I'd call it an external factor, but the whole industry added a lot of capacity just post COVID. Now in the last 2 years, there's not been any major capacity expansion in any of the latex businesses. So when the capacity utilization sort of goes to a healthier level, like we, for example, are 80%, 82% capacity. We generally find our 80%, 85% capacity utilization and above, things start improving in terms of margins. So I don't know if you would call it an external factor, but that's more of an industry dynamic. And -- so if you see our 4 years results, we had 2 years where our margins -- EBITDA margins of 15%, 16%. And then the last 2 years where the EBITDA margins have been obviously lower, maybe closer to 10%, 11%. So -- yes, so I would say that industry dynamics are also changing now going forward. The whole post-COVID boom or during post-COVID boom, a lot of capacities were created in Asia. So that kind of slowly is sort of petering out, right, that excess capacity.

Okay. So that's what I was trying to understand. So things have improved. I mean it's not just that the crude prices, peripherals or something like that. So I think we can expect relatively better margins going ahead compared to [indiscernible] that you had?

Sorry, I didn't understand. I'm sorry, there's -- it's not very clear.

Okay. So I was trying to say that -- that's what I was trying to understand that it's not just the crude prices, but I think in general, the things have improved, and we can be hopeful of more stable margin levels going ahead, right?

Absolutely. And honestly, the crude prices for us, unlike maybe FMCG companies that are using crude as a base, or FMCG is the wrong word, but any company where -- I don't think -- okay, let me put it this way. I don't think crude prices in the long term affect us too much, whether they're up or down. We obviously prefer them lower than higher. But in general, it's about the margin between our raw material prices and the finished goods prices. So being a B2B company, we have to move quickly and reduce and increase prices, as the raw material prices go up and down. So it is the delta that we focus on.

And lastly, if possible, could you share now or later the realization -- average realization for the whole year?

You mean -- what do you mean by -- what...

Realization per kg for the latex.

[indiscernible] Mr. Vishe.

The next question comes from the line of Jasdeep Walia from Clockvine Capital.

Sir, can you just give us a general performance update on various segments of the business for FY '25? Specifically, if you could talk about volume and margin trends in the SP latex business, NBR, HSR and nitrile latex? And any underlying trends which drove growth or margins in FY '25 and your prognosis for next year in all the different segments?

Okay. So as I mentioned earlier, we're about 2/3 -- let's say, 2/3 is latex and 1/3 is the rubber segment. Out of it -- I'll start with the easy one. The HSR segment, the margins are sort of steady. Volumes are actually somewhat declined in the year compared to last year. So it's only about 5% of our total business now. It's not a growing business. In fact, it's a degrowing business. So we are sort of continuing with the business without investing any funds. So that's a little flavor on high styrene rubber. In terms of nitrile rubber, we are at 100% -- almost close to 100% capacity level for FY '24 -- sorry, FY '25. And we will be the same for FY '26. No new capacity is going to be added. Margins, we are dependent a little bit on international prices. And of course, now this antidumping that we have filed. So there also margins in Q4 were better. Overall, they were steady for the year. On the latex side, where we've -- as far as the paper, carpet, construction, for the year, it was definitely more challenging than the previous couple of years. Again, as I mentioned, capacity being added. On top of that, some of our exports were affected, especially in the carpet industry to Turkey, to Egypt because of all these -- the war issues in Israel -- Israel-Gaza issue. So because of all these issues, carpet was affected. However, overall, for the year, we have seen -- as you can see, we have still pushed through growth. Overall, we had a 16% growth in volumes, 24% growth in value terms and -- for the year.

16% growth in volume is including nitrile latex as well, right?

Including nitrile latex -- yes, absolutely, including nitrile latex. And...

Sir, I'm talking about -- sir, can you give us numbers only for the SB latex business? How is that business...

We don't give sort of each -- for each segment, we don't give growth numbers. I'm just trying to give you a flavor without -- unfortunately, I'm not able to give those numbers for sort of obvious reasons because we have different competition for different latexes, and we just don't want to talk about them individually.

Got it.

But overall, of course, NB latex also, we have -- I can talk about overall for -- the non-nitrile latex segment has also grown. We'll pull out the growth numbers in a second, but I hope that gives you a little bit of a flavor. In terms of margins, as I said, it has been challenging for paper and carpet for sure, compared to the previous year. Construction has been steady. Overall, we've seen cash profit grow by about from INR 85 crores to about INR 96 crores. So what -- percentage is about 13%, 14%.

And sir, your prognosis for next year for SB latex business?

Yes, 12% growth in cash profit. And he's asking about non-nitrile latex, if you have that available? We don't really give a prognosis or a guidance for the following year. But yes, for SB latex, we are quite bullish that we have a very strong market share. We are #1 in that segment in India. We're growing well exports. So as long as the India growth story continues and we are able to continue to grow in export, there also, we expect good growth. Obviously, it will not be like nitrile latex because we are -- in nitrile latex, we just started a couple of years ago, but we expect good growth there as well.

Got it, sir.

So even in the non-nitrile latex segments, we have grown at about 8% to 10%.

Volumes?

Volumes, yes. And it will be probably a little bit more.

Sr, in the nitrile latex business, you were of the view...

Sorry to interrupt, Jasdeep, you are done with your 2 questions. Would you please fall back in the queue if you have any more? The next question comes from the line of Raman [ KV ] from Sequent Investments.

Sir, I just have 2 questions. One, with respect to the guidance for the coming year. So what sort of volume growth are we expecting in terms of the latex and rubber segment? And secondly, are we expecting any further price margin improvement driven by the decline in crude oil prices?

As a policy, we don't give guidance. But as I've mentioned in the rubber segment, we do not expect growth because we don't have capacity this year. So we will try and improve our margins in the rubber segment, if possible. On the latex segment, of course, we expect growth. We have runway. So we will push. Again, we don't give specific guidance in terms of growth in -- for specific segments or even as a company as a whole.

Sir, so with respect to the rubber segment, so are we adding capacity in this year?

We will be deciding in the next 3 to 4 months, I suspect.

Okay. And sir, other thing is I want to understand, see, this quarter, we had an EBITDA -- the operating margin has improved from 8% to 11% on a quarter-on-quarter basis. And you said it was because of better price realization. At the same time, you said the inventory which you have is of a higher crude -- was basically when the crude price was higher. So when will the effect impact of -- lower crude price be impacting on the company level?

See, as I said, again, I'm repeating that lower crude prices don't necessarily mean it's great for the company. Lower crude prices, once they're steady, if it remains steady, it does help, of course, from a working capital angle, customers from -- also from a pricing angle, it helps a little bit. But while they are falling, as we have seen in the last couple of months, it's actually a little bit not great for the company because we are forced to sort of reduce finished goods prices very quickly, and we may be stuck with some higher cost raw materials or finished goods. So -- of course, we try and manage it as best we can, but we are sometimes -- what we've seen historically, we are sort of -- sometimes a quarter or so can be affected with these kinds of sharp movements as we have seen -- and not just crude, it's more than crude. It's -- the raw materials we specifically buy, which are petrochemicals, which are downstream crude. So even if crude goes down by 20%, does not necessarily mean that our raw materials will go down by 20%. In fact, some raw materials have gone down by 10%, 15%, some have gone down by 25%, 30%. So I hope that answers your question.

Yes, sir. Yes, sir. Only one last question. It's on the part of price realization. What is the realization per ton with respect to latex and rubber for FY '25?

Again, we don't give sort of per kg numbers, as I told the previous caller as well.

The next question comes from the line of TK Pandya, an individual investor.

First thing, I would like to know that Apcotex had acquired 26% of shares from Opera Vayu Narmada and this company is a special purpose vehicle and has no business operations. What prompted you to take this line of going in for power -- wind power generation because wind power generation production is very erratic and shutdowns are very frequent. You have a power purchase agreement and your power purchase agreement, have you safeguarded yourself from any of these vagaries of wind energy production?

Yes. Thank you for your question. So this is specifically for the Gujarat plant, where we -- Gujarat facility where we are investing in a hybrid power project. It's not only wind. And the -- whatever power is generated, we get a credit in the consumption of our Gujarat plant. So it's a Gujarat government scheme to promote renewable energy. And obviously, the payback and the savings from this project is quite lucrative, and that's the reason. And more than that -- and above -- over and above that, more than the savings and the commercial aspect of it, we are also -- from an ESG perspective, we will be sort of moving at least 60% to 70% of our current consumption -- 65% to 70% of our current power consumption in our Gujarat plant to renewable energy and therefore, reducing our greenhouse emission -- greenhouse gas.

The cost of green energy, wind power or hybrid, whatever you are saying, as compared to the conventional cost of power from conventional sources, how much is the difference? How much profit or how much savings would you be able to make?

It's a significant difference, Mr. Pandya. It will result in reasonably good savings per year for the Valia plant. It's at least -- it's quite -- it's -- I mean, I don't have the exact numbers with me, but it's a significant saving.

Do you think your investment of INR 3.27 crores is worth it and we will not regret it?

Yes, definitely.

Okay. The second question is your current liabilities and noncurrent liabilities total is about INR 184 crores, so where have we utilized these borrowings?

So the current liability are on 2 fronts. The total borrowing was -- one was used for the project that we invested in 2 years ago, where almost -- more than INR 200 crores were invested in 2 expansion projects. And the second is gone obviously to fund the working capital. And our total, as on March 31, '25, the long-term liabilities would be -- or not long term, total borrowings would be about INR 185 crores.

That is what it is, but INR 185 crores is very high compared to -- your profit is only around about INR 50 crores or so -- INR 51 crores. How much is it? It's about INR 54 crores. The net profit is INR 54 crores, your net profit. So it will take about more than 3 years to square off these borrowings?

See, some of it is term loan. So against that, we have debtors as well -- sorry, some of it is working capital loan. So the working capital loan is probably more than half of this, and the term loan is probably a little less than half now. So we don't see it -- In fact, on the contrary, I think our balance sheet is extremely healthy. And we also have cash in the books of about INR 100 crores that we have kept for future sort of opportunities or immediate opportunities. So, I beg to defer, but I think our balance sheet is one of the healthiest that you would see.

Okay. More discussion on that. And last...

I'm sorry to interrupt Mr. Pandya. You're done with your 2 questions.

One second. Just one second, please. The margins at the end of the financial year, profit margins, earlier, you had about -- between 10% and 15%. Now it has -- in the last quarter, it was 4.8%. When do you expect your profit margins to come around 10%, profit margins?

So as I mentioned that in the last couple of years, there have been some internal challenges and some external challenges, which in the year FY '22 and FY '23, obviously, we had better margins compared to the last couple of years. We expect that in the next year or 2, things should turn around as capacity utilization goes up across the industry. I think things should turn around. Of course, there are certain uncertainties right now with the tariffs from the U.S. I think that's the main issue right now. And of course, the India-Pakistan situation, I don't want to comment because it's too recent and no one knows how that will play out. But for now, the tariff is the big issue and how it affects us and the customer and the economy as a whole. But overall, we obviously expect the margins to improve over time.

The next question comes from the line of Rohit from ithought PMS.

Sir, most of the questions have been answered. Just 2 questions again. So sir, I think historically, we've been talking about so nitrile latex when we envisioned this project, it was higher margins and of course, the situations have changed post-COVID. However, I think in general, you've spoken about improving your overall margin band from, let's say, around the peak margins that I can see that you have done is around 14%, 15% during the good years of COVID. But I think you've talked about the normalized margins being around 14%, 15% going on from here, of course, say, for these tough periods. So I just wanted to get your comments around that, how confident you are? I'm not saying this year, this -- I mean, I'm not talking about the immediate quarters. So I just wanted to understand from you -- from -- if I look at the last probably 10 to 12 years of your historical numbers, your -- the highest margin that you've done is during the COVID years. Now you've been saying that those will be your normalized margins and probably you have a -- if you get some good years, then probably it can go even higher. So maybe if you can just help us understand what gives you that confidence? I'm not talking about the current times. I understand these are tough times and there is overcapacity, and we are all trying to get the way out of it. But if you can just maybe help us understand -- yes, that's my first question.

Look, it's not fair to compare 10, 12 years because the company was very different 10, 12 years when we were probably a INR 400 crore company, now we are INR 1,400 crore company. And -- so one is we are achieving scale slowly but surely, right? We are achieving -- going closer and closer to global scale. So for example, our styrene butadiene latex and styrene acrylic latex plants are now with global scale, I would say. Obviously, what has happened is because of the COVID year boom -- a post-COVID boom between '21 and '23, a lot of capacity was added. That typically doesn't happen in this industry. It gets added slowly. I think the whole industry was running at full capacity very quickly in that '22 -- 2022, 2023 period. And so quickly, a lot of capacity got added, which typically doesn't happen. So therefore, when that normalizes, we expect margins of those products to go back to normal. Nitrile latex, because it's used in medical gloves, mostly, even more capacity than normal was added. I mean more capacity was added in the last 2 years in nitrile latex than the previous 10, 15 years. So it's really been a very unusual period in terms of capacity addition. So as the capacity utilization normalizes, we expect the margins to normalize at about 14%, 15% now. Had it been 7, 8 years ago, Apcotex may not have been able to achieve those margins because we were subscale. And therefore, the confidence that we can do this. We would have to, of course, increase margins for NBR, for all our products as well and introduce some higher sort of value-add products. So all that helps overall. So I think even in -- let me put it this way, even in years that have been very challenging, we have achieved margins of about for the last 2 years, close to around 10%, right? So this is when nitrile latex is pulling our margin down for the company as a whole. So without nitrile latex, we would have had maybe 11%, 12% margins, 2% more. So around, let's say, 12% margins, I'm told. And that's not such a great year. So once capacity, we should go back to 14%, 15%. That's what I feel.

Very clear, sir. And sir, just one more question. So given you mentioned that we will probably run out of capacity probably sometime next year -- I mean, this financial year, and you're deliberating on capacity expansion. And you said that we are now -- in many products, we are like a player of scale. So given that the margins are not great across the board, given the capacity increases and general realizations being down, would that not impair our margin recovery as a company? Just wanted to get your views.

Sorry, I didn't understand the question. Why would it impair margin recovery because of?

I mean you putting more capacity, I mean, more supply coming in because you are a player a decent scale for all these products now, would it not impact -- like in excess supply scenario you are putting more supply is what my question was actually.

So what I'm saying is, yes. But -- look, again, I'm just trying to mention what happened 2 years ago was we came in with a capacity and our competitors came in with capacity. So as a result of which, a lot of capacity was added. Now we will, of course -- now I think it will be sort of normal capacity expansion going forward. It will not be in the sort of post-COVID capacity, gold rush, as we call it. Now it's going to be sort of more measured capacity increase for what we need because if we don't increase capacity, that's also an issue, right? And obviously, one eye is going to be a return on capital. So whatever additional capacity we do set up, we will want to utilize that capacity also in 2 to 3 years. And we would want to do it at a cost where our return on capital is quite healthy. As a company, we look at 20% to 25%. We target at least 25% return on capital. So as long as we are convinced that there is a high probability of that happening, we will invest.

Got it. And can I squeeze one more question, if it's okay?

Sure, go ahead.

I think, sir, you mentioned in the last couple of calls about this tariff issue probably helping you, given there would be a tariff on Chinese gloves exports. And given the current situation, there will be the tariffs on -- largely the tariffs on China stand and other tariffs are not at that rate. So how is the situation now evolving for you guys specifically and your customers essentially, yes?

Obviously, the difference between last time and this time is that last time, it was specifically -- I mean, last time when we met in January, it was specifically on Chinese glove that the U.S. had imposed 50% duty starting Jan 1. Now what's changed dramatically was on April -- since early April is that tariffs were announced across the board and then reverted back. And now obviously, only China has more than 100% -- I don't even know the number anymore. It keeps changing, but more than 100% tariffs on all products from what I understand. So as a result of which, of course, the Chinese glove industry has been affected. And what we are seeing is that -- what we are hearing from our customers is that now China is -- it's not viable for them to supply to the U.S. So they're coming to Europe and Asia and other parts of the -- they see more Chinese gloves hit those markets. And similarly, on the latex as well, because their overall glove -- what I understand, glove industry has been affected in China. They have excess latex. So that's also coming out of China, and we are seeing it in some markets. It's a little early to say because all this started only in March, April, I would -- or April rather, after April when the tariffs were increased even further. So far, no direct impact on us. But we have to wait and watch. For example, some of our customers who are Sri Lanka, Indonesia, Malaysia, they are not sure what their duties will be when they export into America 2 months later, right? So there is a lot of uncertainty. People are basically holding off on building big inventories or sending big parcels to the U.S. And it is uncertain. Really don't know how it will play out. So far, I can tell you this -- at least so far this quarter, which is almost half of the quarter is done, our business, our volumes have not been affected. We are still pushing through and it's not -- it's all okay -- looking okay so far. But the outlook is uncertain. So it could change at a short notice, right, depending on what happens.

The next question comes from the line of [ Srushti Hanswara ], an individual investor.

My first question is, any updates on ApcoBuild?

No, actually, it has been a little bit of a challenging year, this year. I think overall, the Indian market, that ApcoBuild is entirely for the Indian market and more for the sort of Western and Central region. We have seen growth, but slight growth, but we don't -- as I said, it's still a small part of our business. So we don't really report on it.

Okay. What exactly are the triggers for our nitrile latex segment to grow, which could potentially lead to higher margins overall?

Sorry, I didn't understand the question.

What exactly are the triggers for our nitrile latex segment to grow, which could potentially lead to higher margins overall?

Yes. So in terms of volumes, then we are perfectly on track. Our original thought was that we would reach 100% capacity utilization within 2 years. I would say we are at a run rate now of about 80%, so we are a little bit short on that. But that is also because the margins have been very low. So we are only focusing on customers where we are getting at least some margins. So over -- there, I think we're just waiting for the whole industry to kind of turn because the capacity utilization in this industry really became very low with so many -- so much capacity added and then post-COVID demand going down as well. So now the demand is back to kind of pre-COVID levels and a little higher and all the inventories that were in this sort of -- the glove inventories have been utilized that additional gloves produced during those COVID years. But we are seeing a lot of capacity utilization -- idle capacity utilization. So when that turns, margins will go up. That's the main trigger.

Okay. And what about freight cost updates? Are they reduced or...

I'm sorry to interrupt. You have done with your 2 questions.

Let us finish one question. Sorry, go ahead.

I was asking about freight cost update. Are they reduced or...

Sorry, were you talking about freight cost, ocean freight?

Yes.

Ocean freight have been definitely better. They've reduced over time. Some pockets still remain a little higher than what we would like, especially to Middle East and Turkey and so on. Middle East, meaning, sorry, Egypt, anyway we have to pass through the Suez Canal, even Europe. Those costs remain high because some ships are going around South Africa now. But overall, I would say freight cost is not so much of an issue now, except for the markets in textile -- for carpets mainly, which is Turkey, Egypt, that area, Saudi.

The next question comes from the line of Hemali Gandhi, an individual investor.

I wanted to ask that currently, exports contribute 30% to our revenue. But given the current scenario, how do you see that panning out ahead? And what could be the headwinds and tailwinds we could see?

In exports?

Yes, yes, in exports.

Okay. So currently, we are at about 1/3, 32%, 33% is -- 32% of our total turnover is exports. Honestly, it's -- for us, it's not so much about exports, domestic. Obviously, over time, since we are very strong in the domestic market for most of our products that we are in, the real big driver for growth is exports. So we do expect it to go above 40% over the next couple of years. There is no major headwind, I would say, because we're focusing more on regional exports, Southeast Asia, Middle East, North Africa, so the MENA. These regions are probably 2/3 of our total exports and the remaining in other parts of the globe. So headwinds there -- it's mainly this overall global capacity addition that will happen in nitrile latex and some in our other latexes as well -- other synthetic latexes. That's the main headwind. Otherwise, we don't see much of an issue.

Okay. Okay. Just had another one question. Can you -- like on a broader basis, can you give us the industry-wise revenue segmentation cater to 7 industries?

So approximately the rubber, we are at about 1/3, it's about 30% -- 32%, 33% is the rubber industry. Tires is probably another 10% or so. And then largely, we have paper, construction, carpet, textiles, which would be all around 15% each. So 15% paper, 15% construction, 15% carpet and textiles put together. I may be missing one. And nitrile latex, of course, is another 15%. So -- I mean, it may not exactly add up to 15% but -- add up to 100%, but gives you a little bit of a flavor.

Sir, can I take one more question?

Sure, yes.

If the geopolitical issue turns favorable, would we be able to capitalize it in the short term? Like can we do CapEx within a few months? Or would it take more than here to do CapEx and you would be able to have benefits of CapEx-led growth, like how will it go?

So again, I didn't perhaps understand your question fully, but -- correct me if I'm wrong, but you're asking geopolitical issues, is there any benefit that we can take out of this? Are you specifically asking...

If the current scenario somehow turns favorable, will we be able to capitalize it in the short term and...

Yes. So in the short term, certainly, because we have -- from the latex side, we have capacity on both nitrile latex and our other synthetic latexes. It's a question for next year. We expect that the capacity will be ready by the time we'll really need it. But in case, as you said, there is spurt in demand this year and we get some 25%, 30% growth suddenly, then yes, we will not be able to capitalize in terms of volumes, but we'll take advantage and try and improve margins in that case. But honestly, given the current geopolitical environment, I don't think that's going to happen. There is not a lot of stuff that's looking great.

The next question comes from the line of Ankit Kanodia from Zen Nivesh Advisors..

Congrats on decent set of numbers, given the external environment. Sir, most of my questions have already been answered. Just a couple of ones. Number one is, in one of the questions, you said that you had a difficult year for ApcoBuild. Can you just throw some more light as to what's happening there?

Difficult year in the sense that we have been used to 18%, 20% or maybe more growth earlier. This year, the growth is in single digits. So I just mean from that point of view, it was not such a great year, but the last -- because the previous sort of many years, 6, 7, 8 years, we have had good growth. We've just seen the Indian sort of construction chemical space has been crowded. The growth hasn't been there. And I think you can see that in the other sort of allied building materials segments as well. I think I just -- I think that's not such an issue.

Got it. But I think we started this somewhere in 2017. So even after 8 years, if it forms less than 5% of our -- or maybe lower single digit to our revenue, don't you think we are growing this much lesser than what we would have liked?

Yes. I mean, look, we -- obviously, we could have done better. We can do better. But as I said, it's more of a downstream play. We have a few of the main raw materials. So we're trying to capture the downstream margin. And we are quite happy with the way things are progressing. Things could have been better, of course, and we would have preferred to be a bigger business than it has. But it's still a profitable business on its own. We run it like a stand-alone P&L, and it's a good, small profitable business.

Got it. My second question, sir, is slightly longer term. So if I have to look at how we have grown and how we have basically added more products, added more geographies and also added -- I mean reduced the customer concentration risk over the years. What we have -- what I have generally observed is that your business has achieved scale also. And inherently, the margins -- EBITDA margins have also increased over the years, even though in between there have been periods when margins have been very high and then they are very low. So is my understanding correct when I see that in the last 2 years when the margins are closer to the bottleneck and the next 2 years -- 2, 3 years from here, we should see both from margin and asset turn perspective, the number should go up? I'm not asking for any definite number, but...

Sorry, can you repeat the last part, you said from a margin and what perspective?

Asset turns. Even your asset turns also sometimes become more than 8, sometimes it comes down to 2, 3, 4. That's a very wide range of asset turns, which we see in the business from a cost...

Obviously, as I said, this -- what happened in '23, '24 was unusual because a lot of assets -- added more than INR 200 crores of assets literally in 1 quarter. So therefore, the asset turn fell. And then obviously, as the capacity is used up, the asset turnover goes up again. So whenever I look at ROCE for the company or asset turn, I think you have to -- at least I look at it for any company, not just my company, for any company, you can't look at it as -- at least I don't look at it as in one point in time, but an average over a period of 5, 7 years, that gives a better flavor. And as far as margin is concerned, again, the same issue, right? There's a lot of capacity that was added in that FY '23, '24 period for us and for the industry as a whole, which is the main reason why EBITDA margins are lower. But as a business and -- we are definitely much stronger now in terms of scale, in terms of, as you said, geography, in terms of industry coverage. So we're not dependent on any one industry. And so therefore, the downside is quite well protected. And so earlier, our margins were between -- I remember many years, I mean, 15, 20 years ago, margins would be between 3% and 8%, depending on good years and bad years. Now what we are looking at is 10% and 15% between good years and bad years. So I think over time, that will keep improving as we scale up more and more.

The next question comes from the line of Rudraksh Raheja from ithought PMS.

Sir, could you tell us about your debt repayment plan, if you have any?

We don't have -- as I mentioned to the previous caller, we had one long-term loan that we had taken for about INR 125 crores for the projects that we did, and we are paying it back as per the schedule. We expect -- go ahead, Sachin. Sachin will give you a flavor that it takes how long.

So we have already repaid a year of term loan installments. And in the next 3 years, we will close the loan. So it's a 4-year period in which the loan will get closed.

I honestly think it's not a big deal. We have INR 100 crores of cash against our term loan, which is also currently what, INR 95 crores?

INR 100 crores.

About INR 100 crores. So against the term loan, we already have that cash, and the rest of the borrowing is working capital borrowing. And if you see for INR 1,400 crore company, our working capital borrowing is about INR 80 crores, which is less than a month of working capital. So we're very sort of -- in fact, we have got feedback from some of our Board members that we're being too conservative and wish we should have more debt.

Sir, in terms of the latex product, sometime back when we expanded our capacity, you mentioned that another player in the industry also expanded at the same time. So that's why prices crashed. So specific to that...

I think the margins were affected because we wanted to -- everyone is holding on to market share or trying to improve market share. It happens. And it's just that -- also don't forget that post-COVID, that huge jump in '21, which no one was expecting. In fact, if you remember calendar year '20, everyone was so worried about COVID and what would happen to businesses. And suddenly in calendar year '21, what we saw was a huge pull from the market, as people are sitting at home and ordering goods. So all manufacturing went up. So in '21 and '22 and parts of '23, we were running at 100% capacity utilization. And those 2, 3 years, everyone panic that we didn't have enough capacity. And when I say we, I mean, the manufacturing industry as a whole and our industry in latex and these products. And we built more capacity than we perhaps needed to at that time, thinking that it will be used up quickly. In our case -- but we have been conservative. We have been very good at using it up. And I think we've done a good job overall. So that unusual period has gone away now. Now people are a lot -- I think companies are going to be a lot more measured about adding capacity.

True sir. But are margins coming back there? Capacities, we have filled, that is true.

They will. They have to. To have -- because to invest further, you need a healthy return on capital, so you need healthy margins, right? Otherwise, no investment will happen.

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

Thank you, everyone, for joining us on the Q4 and financial year '25 conference call. We look forward to seeing you in the new financial year now for the Q1 results in July. Thank you very much for your time.

Thank you, sir. Ladies and gentlemen, on behalf of Apcotex Industries Limited, that concludes this conference. You may now disconnect your lines.