Apcotex Industries Limited (523694) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '26 Earnings Conference Call, Apcotex Industries Limited. [Operator Instructions] Please note that your conference is being recorded. At this time, I would like to 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 first quarter of financial year 2026. 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 them for their opening remarks. We have with us Mr. Abhiraj Choksey, Vice Chairman and Managing Director. Without any further delay, I request Mr. Abhiraj Choksey to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Nupur. Good afternoon, everyone. There is an echo, Nupur. Can I request you to press the mute? So thank you again. Good afternoon, everyone. It's a pleasure to welcome all of you to the earnings conference call for the first quarter of financial year '26. With me, I also have our CFO, Mr. Vivek Thakur; and our GM, Finance, Mr. Suraj Badale. I hope you have had an opportunity to review the financial statements and earnings presentation, which have been circulated and uploaded on our website and the stock exchanges. Let me provide you with a brief overview of the financial performance for the first quarter ended 30th June 2025. The operating revenue for Q1 FY '26 stood at INR 376 crores, reflecting a year-on-year growth of around 12%. Operating EBITDA stood at around INR 39 crores. That's a robust 22% year-on-year growth. And the operating EBITDA margin improved to 10.3%, up from 9.45% in Q1 of FY '25. There was a strong growth on PAT as well with a total profit after tax this quarter of INR 19 crores. The PAT margin for the quarter was 5.11%. The strong performance was driven by the highest ever quarterly sales volumes. Overall, our volumes grew by 25% year-on-year, even though the revenue grew only by 12%, combination of product mix, I guess, and of course, raw material prices are lower in Q1 of this year compared to Q1 of last year. So overall 25% year-on-year volume growth. And I would say, mainly driven by export revenues that grew by 37% year-on-year as far as revenue in terms of rupees crores is concerned. And the overall exports contributed to 37% of the overall revenue. So the highest ever that we have had in terms of exports. I'm also happy to report that we have delivered consistent sales volume growth for 6 straight quarters. Improvement in EBITDA margins were also driven by higher volumes and improved capacity utilization, reflecting enhanced operating leverage and cost efficiencies. Overall, while the environment around still remains fairly uncertain, especially around the tariffs and several geopolitical tensions, our capacity utilization in Q1 for the latex plant in Taloja is at about 85% and our Valia Nitrile latex plant was around 90%. And for NBR and other products, we're pretty much running at almost 100% capacity utilization. So we will be planning certain debottlenecking and expansion projects, which we will announce shortly once the details are finalized. With this, we can now open the floor for the question-and-answer session. Thank you.

[Operator Instructions] The first question is from the Dhaval Shah from Girik Capital.

My question is with respect to the export performance. It has been phenomenal, 25% volume growth. Can you share more details about the reasons you think for such a good performance on the export front with respect to -- has it been more a product approval with customer competition from other countries, other exporters? Has it weakened or some other factor? And how do you see going forward from a strategic perspective, we are at 37% of our revenue for the exports. How do you see this number going forward? And also a little bit from a longer term perspective, how do we -- once we do an expansion, what will be our strategy with respect to the exports?

Sure. Thanks Dhaval for the question. So just to correct you, there's been a 37% growth in volumes for exports. The 25% -- not volume, sorry, value, 37% value growth in exports. And that is, yes, largely come from new approvals. As you know, our Nitrile Latex business, we are at almost now 100% capacity -- I would say about 90% capacity utilization, not 100%. So we are about 90% in Q1. So obviously, a lot of new approvals have come through. We have been aggressive in terms of gaining market share as well. And in addition to that, there have been some new products launched for some specialty applications and construction applications, which has also resulted in this increase in export revenue and export customers.

Okay. How do we see this share going?

Overall, I think once -- if you recall, and I think you have been there on previous calls, when we did about INR 200-odd-crores, INR 220 crores of expansion, which we commissioned in April -- March, April 2023, March 2023. So it's been a little over two years. And we had said that at that time, we were a little over INR 1,000 crores in revenue. And we had said that with these expansion projects, we would be looking at about INR 1,600 crores to INR 1,700 crores in about three years. I think we're on a run rate to get there, if not this year, then early next year, a quarterly run rate. So that's what we're delivering on. And we also had said that it will be about 40% to 45% would be exports out of that. And I think that's where we will end up by next year, somewhere between 40%, 43%, 40%, 42%. And the idea is not just for the sake of doing exports just to -- it was also -- if you again recall from about 10, 15 years ago, Apcotex has been mainly a domestic company, and we were mainly dependent on the India market. Now obviously, we have diversified -- just as a diversification strategy that we do want a good chunk of our revenues to come from outside India and which is what has happened, but India still remains our main strategic market with over 60% of our revenue.

Got it. And second question is with respect to our exports to Turkey. Given the kind of hostility in terms of relationship between the two countries, have you seen any impact on your revenue?

Not because of the political issues between the two countries. I think we -- I mean, our sales -- we've definitely had higher revenues to Turkey in the past. But I would say it's more because of the wars and the issue around the Suez Canal that sometimes it's taking longer to get to Turkey, the material. As a result of it, some customers are not too comfortable with the long lead time. So that is the main reason why business to Turkey has been affected. I think maybe two, three years ago, it would have been our highest sales to Turkey. It's definitely dropped since then. But of course, it's been made up from other countries, and we continue to do business in Turkey.

Our next question is from the line of Aditya Khetan from SMIFS Institutional Equities.

Sir, first question, sir, in this quarter, both the Nitrile Latex and SBR latex both have contributed to volumes, but that has not [ flown ] to EBITDA. Any particular reason like cost you had mentioned that the raw material prices are lower, the RM prices are lower and volumes are kicking in, ideally so gross margins could have picked up, but it is lower compared to Y-o-Y and quarter-on-quarter.

Yeah. I think the reason why is because the average EBITDA margins for Nitrile Latex are much lower than our average EBITDA margins and obviously, a good growth has come from there. So in spite of getting some operating leverage due to increase in quantities, the truth is that Nitrile Latex margins have -- are still not great because of overcapacity. So while we are pushed through with volumes, the margins still remain a challenge, and they're still fairly low. Without Nitrile Latex, our margins would be maybe -- we have to do the exact calculation, but at least a couple of percentage points higher.

Got it. Sir, this number, like we were earlier talking of INR 600 crores addition to the top line. So INR 400 crores already has been added in a span of three years. But sir, that has again not flown to EBITDA, like as you mentioned, that Nitrile latex has lower margins. Sir, when you see like that picking point would be like any particular quarter you see wherein we will start making better margins in nitrile because that was our earlier ambition when we started this project. When you see margins returning to normal?

I would say we have added INR 400 crores in about two years, not three years. And then as you'll see that over the next one year or so, further addition would happen. So hopefully, INR 1,600 crores or so by next year or a little bit higher. I agree. Look, what happened post-COVID was unexpected. I mentioned in many calls that a lot of -- first, there was a lot of gloves inventory, then a lot of overcapacity, which continues in the industry. Difficult to say when it would turn. We've also in the middle, had a better quarter like Q4, we thought was a better quarter then the U.S. tariffs uncertainty started and Q1 has again been not such a great quarter in terms of EBITDA for Nitrile latex. I would say it's been a little lower than Q4. Again, we see improvement in Q2. But until we now see two, three quarters of consistent improvement, we won't really know where the market is going. So there's a lot of uncertainty around these tariffs, as you know, and finally where it will land, we won't know perhaps for another couple of quarters. And that's affected the glove industry. It's affected because the glove industries in China, Malaysia, Thailand, so Vietnam, Sri Lanka, everywhere. So eventually, it's about how those tariffs will affect because the U.S. does remain -- it remains the largest market for medical gloves.

Got it. Sir, just one last question. Sir, although the demand of end user so like the paper and construction, which is still muted, like the last quarter, we were mentioning that. How is -- has that changed materially? And sir, second also the expansion, like so debottlenecking, we are planning to complete that by this fiscal end? And what would be the CapEx and the amount of the capacity expansion?

Yeah. So to mention, yeah, paper and domestic market overall does remain challenging. No question. There is overall -- feels like a slowdown, but we have still pushed through, as I said, some pockets have grown, not as much as exports, of course, but some pockets have grown. As far as expansion plans are concerned, I mentioned in my opening statement that once the details are worked out, we will definitely sort of come back to you at the right time. I think shortly, it will be quite shortly, and we are going to focus on our latex, SBR latex, styrene acrylics and NBR. This is going to be the focus of our expansion plans, and we'll come back to you with the questions that you've asked very shortly.

Our next question is from the line of Balasubramanian from Arihant Capital.

Sir, my first question regarding the capacity. I think our current capacity may be sufficient for next one or two quarters. You mentioned about some debottlenecking and all. So how much CapEx expected in this financial year? And how much is for growth CapEx and how much is for replacement CapEx?

Yes. So I think look, we should have enough capacity for this year, for this financial year and perhaps for some amount of next financial year as well. We will come back to you with -- as I told the previous caller as well, Mr. Aditya, that we'll come back to you with the exact expansion plans perhaps by next quarter or maybe even earlier than that, if you're ready to announce.

Okay, sir. Sir, long-term perspective, we are targeting around 14% to 15% kind of margins. Like what are the levers in terms of product mix, fixed cost absorption? So what are the levers to achieve those margins maybe in the long-term perspective?

So one of the strong -- one of the levers, of course, is Nitrile latex margins that we need to ensure that, that comes up to the mid-teens or early teens. In addition to that, focusing on some specialty [indiscernible] those to improve margins. And the third, of course, operating leverage will kick in -- already kicked in, I would say. It has been a challenging few quarters, of course, in terms of margins, mainly because of Nitrile latex, but also because of capacity added for other products, and we have added for SBR latex, VP latex, several other things that we have done in the last two years. So there has -- that capacity absorption takes time. And we have seen that as capacity gets to about 85%, 90%, then margins tend to improve as well. So that's what we expect over the next few quarters. So three or four things that help in improving margins over the next few quarters.

Okay, sir. Sir, regarding that hybrid power projects, so like it's around 65% to 70% of Gujarat power plant needs. I just want to understand what kind of cost savings and how this will impact in upcoming years in terms of margins and cost savings?

Look, in terms of cost savings, it's not significant. That's not the main reason why we are doing it. One is to, of course, be a responsible corporate citizen and ensure that more and more of our sort of power comes from renewable sources so that we reduce our carbon footprint. That's the main reason. The total investment from Apcotex site for the Gujarat project is, I think, around INR 3.5 crores or give or take, INR 3.5 crores, INR 4 crores. And the payback and the IRR is very good. Obviously, that will start kicking in from next year once the project is commissioned. But I don't think it will very largely impact the total EBITDA of the company. I think we've done it more from an ESG standpoint. And of course, commercially is very viable.

Okay, sir. Sir, my final question regarding export side. I think U.S. tariffs on Chinese gloves and latex have disrupted trade flows. We are seeing any pricing pressure in non-U.S. markets because of redirected Chinese supply. And secondly, recently Israel-Gaza conflict has impacted corporate latex exports, especially on Turkey and Egypt side. And how this demand is really right now? Any alternative markets we are exploring?

Sure. So to answer your first question, yes, the Chinese -- the tariffs on China have sort of appended the glove supply chain overall. And our customers tell us that non-U.S. markets, there is more competition because of China. However, as we are a small percentage of the total glove latex manufacturing for gloves. So I think our customers are -- overall, I think there is a benefit with what has happened for our customers. But still, there is a lot of overcapacity in the market, both on the glove side and the latex side. So that will slowly take some time to -- capacity utilizations to go up. Obviously, no new capacities have been announced. The second question on Egypt and Turkey, yes, certainly, our exports, especially to the carpet industry have been affected. It's not that it has not been affected, but it's not -- but we're still continuing to do business. Maybe our volumes have dropped somewhat over the last two years, but we continue to do business. Unfortunately, we can't make it up specifically in the carpet segment because those are two large carpet manufacturing countries. Of course, to some extent, Saudi, UAE, where we continue to do business and grow that business.

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

Congratulations on the strong results. I just firstly wanted to ask about Nitrile Latex and what sort of level of profitability are we at, at this point? And what are the signs that you see going forward?

Farokh, voice is not very clear. Can you repeat that question?

Yeah. Can you hear me now? Yeah. So my first question was on Nitrile latex. What kind of sort of margin level are we at this point? Because obviously, we've now come up to almost whatever full capacity. And so are we -- what is the sort of way forward you feel given the experience of the last few quarters?

Okay. Any other questions?

And the other question is, I know you mentioned that you will revert with the CapEx plans, et cetera. But I just wanted to ask that would that mean that we will be running a higher debt equity going forward or will we be largely be able to fund things organically?

So as far as the Nitrile latex, yes, I mean, it's at low margins. As I've mentioned, it improved in Q4. Q1 was -- I mean, again, actually deteriorated in Q1, to be honest, for Nitrile latex overall margins. Again, Q2, we are seeing some small improvement. So let's see how the rest pans out. As I told the previous caller, that overall, these economies of scale plus overall main issue overall market, honestly. So the market needs to improve for us to go back to about 12%, 15% EBITDA margins as we were expecting. And as far as the CapEx plan is concerned, we would -- it would be a combination of debt and internal accruals.

Okay. But do we see a substantially higher debt equity ratio going forward?

Not substantially higher. I mean our debt equity ratio is anyway very -- you have one -- currently, it's at 0.3. And I mean, it would maybe go up slightly in the short-term, but not significantly.

Our next question is from the line of Manav Vijay from MV Investments.

Am I audible? Okay. So sir, first question is regarding the small investment that you have made for the wind power [ FPV ]. So apart from this INR 3.4 crores, do you intend to invest more for such power going forward?

Hi Manav. Yes, our intention is to invest more. In fact, for Maharashtra, we were very close to also signing an agreement for our Maharashtra plant. Unfortunately, there has been some rule changes that have been announced recently as a result of which we've kind of -- we're just waiting to see how that lands. MSEDCL has made some rule changes on not allowing banking, et cetera, which has changed the commercials completely. So in the short-term, maybe our Taloja plant, but in the long-term, as our power consumption goes up in Valia with further expansions, then we would look at it, but not immediately, maybe after a couple of years.

Okay. Okay. My second question is regarding your freight cost. So now after power cost, this has become the second biggest item and now almost equal to your power cost. So has the freight cost normalized because now exports are forming a large part of your sales. And going forward, you're mentioning that exports will continue to move up.

Yes. Yes. So what's the question, sorry?

So my question is, so has the freight cost normalized all the -- so all the volatility that we were witnessing, let's say, a couple of quarters back, so that volatility has subsided?

Yes. Look, certainly things are not as bad as they were just during the post-COVID years. And there are certain corridors, especially around the Suez Canal where freight costs are still reasonably high, but they're settled. This is what it seems is what it's going to be. I mean, unless those, as I said, the wars and all obviously will have an impact from time to time. These tariffs may have an impact from time to time, but it's not what it used to be during that COVID period 2 years ago.

Sure. My next question is regarding the ADD case that we were having -- that we had filed with the government. So any update on that, if you can share?

Yes. So that's in sort of, I would say, advanced stages of the investigation, definitely moved forward, and it's been about 9 months or so since -- or maybe more, 9.5, 10 months since we initiated the case. Generally, these cases are disposed within a year. So if not a year, there might be a delay of a couple of months. I think in the next 2 to 4 months [ we'd know ].

Hello.

Yes. I said in the next 2 to 4 months, we should have an idea of how that pans out.

Sure. Okay. Sir, my last question is regarding your XNB Latex. So if we look at the results of some of these companies like, let's say, your Top Glove and the Hartalega types, so we said the volumes for them have moved up on a Y-o-Y basis very strongly. But actually, prices haven't. So is there any kind of, let's say, discussion, let's say, that you're having with them that they are, let's say, telling you what kind of outlook that they are having on price improvement for next, let's say, 1 year or 2 years? Is there any kind of a discussion that you're having with them?

Look, those are constant discussions, but they're all generally speculations. And we have seen in the past that customers have also been wrong both ways. Sometimes they're too pessimistic and suddenly things improve due to some -- as I said, the tariffs, for example, in April has actually helped them in terms of their volume, the American tariffs on China, some of these customers. But overall, as I said, the main issue seems to be capacities that were created for gloves and for latexes in 2022-2023, that slowly -- obviously, the utilizations have improved, but until they get to about 80%, 85%, these margins will be under pressure for sure.

Okay. Sir, my last question to you. So in your annual report, you have disclosed that you had a INR 12 crores of export incentive against INR 450 crores of export sales, which is roughly 2.5%. So is that the maximum benefit that we are eligible for?

Yes. That's the maximum benefit we're eligible for. Correct.

Our next question is from the line of [ Rohit ] from iThoughtPMS.

Am I audible?

Yes, Rohit, go ahead.

So sir, just a couple of clarifications. So you mentioned that we are pretty much almost at the peak utilization in most of our products and maybe another quarter or 2 or maybe, let's say, 2, 3 quarters, we'll probably get to the peak utilization. And you also mentioned that we will probably do some debottlenecking and some CapEx. So at the same time, the margins for most of the things have -- most of our products have not -- especially Nitrile latex have not really improved. So I mean, previously, you had mentioned that you would sort of wait for the things to improve, especially on the Nitrile latex part. So can you just share your thoughts at this point of time how are you thinking? Because as you have alluded that you've really improved on the top line, but the cycle has really not enabled us to get margins. So with more capacity getting added from our side, for most of the products, we are the leaders. So how do you see the margins, except, of course, Nitrile latex , but how do you see the margins evolution and in that context, the capacity expansion that we're planning, let's say, in a year?

So obviously, we are not looking at expansion for Nitrile latex at all. In the current context, it doesn't make sense. The expansion would be for other products that we are currently already in. And those products, even though there also some of the margins or EBITDA margins have not been as strong as they were, let's say, a couple of years ago. The returns on the investments, and as I said, once I have the exact numbers of the CapEx investments in crores as well as the additional volume and value that we would derive from this, even at sometimes difficult margins, the return on capital or the IRR for these projects will still be above our threshold that we look at while investing in any project. I hope that answers your question. But clearly, we're not looking at any Nitrile latex investments right now.

Okay. And in Nitrile latex, what is the utilization that we are at roughly?

We are at about 90 -- in Q1, we were close to 90% or around 90%.

Okay. So we are pretty much -- so I think -- sorry, maybe I misheard you or I didn't hear you properly. But you said that margins will improve as utilizations inch up, right?

What I meant is industry utilization, not company utilization.