Apcotex Industries Limited ($523694)

Ladies and gentlemen, good day, and welcome to the Q4 FY '26 Earnings Conference Call of Apcotex Industries Limited. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to hand over to Ms. Purvangi Jain from Valorem Advisors. Thank you.

Thank you. Good afternoon, everyone, and a warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent Investor Relations of Apcotex Industries Limited. On behalf of the company, I thank you for participating in the company's earnings call for the fourth quarter.   Before we begin, a quick cautionary statement. Some of the statements made in today's 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, assumptions, and information currently available to the 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, and Mr. Vivek Thakur, Chief Financial Officer. Without any delay, I would now like to hand over the call to Mr. Vivek Thakur for his opening remarks. Thank you, and over to you, sir.

[Technical Difficulty] For the fourth quarter, I hope you had an opportunity to review the earnings presentation, which has been circulated and uploaded on our website and the stock.  Let me provide you with a brief overview of the financial and operational highlights for the fourth quarter and the financial year ended 2026. For Q4 FY '26, the operating revenue stood at INR 398 crores, registering a growth of 14% year-on-year. This was supported by higher volumes and continued pricing discipline. While total volumes for the quarter grew by 14% reflects steady demand across key segments. Operating EBITDA stood at INR 5 crores, with EBITDA margins that are driven by higher volumes, better realizations, and enhanced operational efficiency.   Profit after tax for the quarter stood at INR 35 crores, which reflects a strong growth of 107% growth year-on-year. PAT margins improved to 8.73%. This performance was supported by a financial disciplined execution across key operational parameters, along with a continued focus on cost optimization and efficiency improvements. We also continue to execute our ongoing CapEx projects with rigor and discipline aimed at supporting strategic growth during the quarter, led to heightened and some moderation in export demand across select markets. key raw materials to ensure operational during the period. While we, the company continues to remain resilient Demand is stable across key core markets and the proactive risk mitigation measures help us along with a strong balance sheet position, help us navigate this volatility.   For FY '23, the company delivered a strong performance, record high sales volumes, up 14% year-on-year and highest ever export volume also grew growing at 14% year-on-year. This reflects the robust demand across both domestic as well as international markets. INR 1,442 crores, which is a growth of 4% year-on-year. Operating EBITDA reached a new peak at INR 177 crores, up 42% year-on-year. EBITDA margins expanded to 12.31% for the year, supported by strong volume growth, improved margins and higher capacity utilization. Net profit stood at INR 101 crores, reflecting a growth of 88% year-on-year. PAT margins are at 7.03%. Company has maintained a strong liquidity position during the year and remained net cash positive. Cash and borrowings by approximately INR 70 crores.  Our net debt to equity also improved. Lastly, the Board has announced a final dividend of INR 5.5 per equity which is subject to share the total dividend for FY '26 to INR per share, including the interim dividend. Before I conclude, I would like to briefly highlight certain provisions and accounting adjustments recognized during the quarter. Employee benefit expenses include certain provisions of approximately INR 14 crores, which relate to long-term incentive plan, pending on external legal advice and higher gratuity and leave encashment obligations arising from policy changes. Additionally, an impairment assessment of turbine and related accessories at our Valia facility resulted in recognition of impairment loss of about INR 4 crores has been charged under other expenses.   Further following an internal technical assessment, we revised the useful life of certain plant and machinery resulting into additional depreciation of about INR 2 crores during the quarter. These accounting adjustments better reflects the economic life of these assets. Some of these items are one-off and may not recur. With this, now I open the floor for question-and-answer session. Thank you.

[Operator Instructions]  Our first question comes from the line of [indiscernible].

During the quarter, I understood this employee benefit expense. You also mentioned in that some INR 13 crores of additional cost has been taken towards some pending litigations  increase when we look at the history over the last 5, 6 years. This additional number, what is exactly if you can quantify what is based on?

Sure. And what's your second question? You said you have two questions...

The second question, I would like to know this quarter again, like this policy changes in deprecatingly we are changing some policies on depreciation like in a quarter where we are able to get good benefit. But still we sort of some, one-offs in other expenses also of some INR 4 crores. If you can also quantify what is the turbine losses exactly also why there is a policy change in depreciation, particularly only in this quarter?

So I'll answer both questions. I think these are everything to do with certain provisions that were made, and I realize that they are higher and other people may have questions on the same. So maybe I'll spend a little bit of time on this and hoping that everyone else also would have questions, those are also answered. So first, to answer your question on the employee benefit expense, there are 3 or 4 provisions that were taken by our, of course, the management auditor, Audit Committee Board has gone through the whole process. It was the end of the year.  So there were all provisions that were taken thought it was prudent to take them.   So one was a new policy on long-term incentives for certain senior management employees that we have just introduced in the last quarter. It is to be paid out over a period of 5 years. So that provision has been made. That will be paid out in the fifth year in 2030. So that provision has been made this year, and that will be made every quarter from now on. Obviously, this year, since it's happened at the end of the year, the entire year's provision has come into this quarter. Going forward, the provision will be every quarter will be less. So that's on long-term incentive.   The second reason is there are some pending litigations that were against the company. And again, this was discussed with the auditor, Audit Committee. It was transparently discussed with the Board as well. And we thought it was prudent to make a provision at this stage. Unfortunately, I can't talk a lot about it since the matter is in the court. And I think in the next 2, 3 years or whenever it is, at that point, we will see. But at this point, again, we thought it was a conservative call but a prudent call to take that provision.   The third thing was some changes in gratuity policy that happened this year. This is neutral to the company. It's just that actuarial valuation change due to certain gratuity policies that we have undertaken. Obviously, the new wage that has come about triggered this discussion. So we made some changes in our gratuity policy as well. And as a result of which we've had to make a provision of that as well. Again, it's the numbers are in the notes for all those 3. And all those 3 together have had the impact on employee benefit line item.   The second question on the depreciation actually this is the Cogen power plant that we had invested in a few years ago. Now in the last few quarters, we have not been using the turbine because the power available from the grid is significantly cheaper than generating our own power. When we made the investment at that time, coal prices were lower, so it made sense and the grid power prices were higher. So as a result of which, again, we found it prudent impair this turbine, which at some point, we may even sell it. Right now, we've just kept it as a backup, but we may choose to sort of liquidate that as well.   And so as a result of that, even all the Cogen power plant assets, which were the depreciation was taken over 40 years has been reduced to 15 years. So that's resulted in the change in depreciation. So it's linked to the 2. So we felt that it was end of the year sort of and we wanted to sort of clean up whatever pending issues were mostly one-off nature and we don't expect.  [indiscernible]

Let me ask one more follow-up, please, and then we can move on.   I wanted to know is it possible to quantify the inventory gains during the quarter it, any update where we stand today in terms of [indiscernible]?

So inventory gains, yes, there has been some inventory gains. I don't think it has been significant there has been Jan, February kind of in March, there was some on March 1 is when the whole war situation started.  So I would say there was not a significant inventory gain, but some inventory gains. I think largely the has been late. That has definitely been one of the reasons for a good quarter.  The war situation, we are actually better placed than some of our competitors in March in the month of March. So that helped for sure initiative margins as far as long term is concerned, it still remains an oversupply.   We are running at almost 100% capacity utilization now for nitrile latex. And going forward, we expect to run at full 100% captive. So from a capacity utilization standpoint, no issue. But from a margin standpoint, short-term margins have certainly improved right now because of the war situation and some of our competitors have been able to consistently supply to our customers. So that's helped. Long term, as I've been mentioning that it is improving slowly, and we expect it to continue to improve. There might be some short-term gains due to this war situation in terms of margins for Apcotex.

Your next question comes from  Ankit Minocha  from Adezi Ventures Family Office.

So congratulations on the good set of numbers. I just looking at, I think, EBITDA for Q4 amongst the highest numbers in the last few quarters. So would it be safe to assume this Quarter [Technical Difficulty] but it hasn't happened yet. [Audio Gap] So I'm not sure how it's going to play out. If it makes sense, we will see on legal. However, we have not built it into our plans. We continue to expand, and we continue to almost double our NBR capacity by next year.  And we feel fairly confident that, as far as the return on investment with all the work that we have done over the last few years, with or without antidumping, it should be good. But obviously, yes, we wanted some support from the government for a period of 5 years since we were coming up with a significantly large NBR.

The next question comes from the line of Sajal Kapoor from [indiscernible].

Can the existing assets support further growth? Or has utilization already entered the constrained zone because the new CapEx is further away? And so going into fiscal '27, I mean, how do you see at an overall aggregate basis and the capacity that is still available?

No, you're right. So for us, capacities, we have 4 or 5 different plants in our 2 locations, 5 different plants in our 2 locations.  So I would say in 1 or 2 plants, we still have some capacity available. But for NBR, for example, we were at 100% capacity utilization for a few quarters and will continue to be so for the next 4 quarters until new capacity comes up in Q1 of the following financial year.   For synthetic latex, we are building new capacity again, which will come up in the following financial year. There, we have some leeway, and we can grow. In Nitrile Latex for Q4, we were at almost full capacity utilization. So that will continue to be at full capacity utilization. But there, we hope margin expansion will be there over the next 4 quarters. So, we are running at fairly high capacity utilization.   Yes, that's true. So there is some leeway for growth. Fortunately, when I look back, of course, in 2020 hindsight, we were anticipating reaching full capacity utilization in some of our products by Q2 or Q3 of this financial year, '26, '27. But fortunately, Q4 was very strong for us. So yes, that's where we are today.

What part of the current margin [Technical Difficulty] because there is a lot of [indiscernible] happening globally, you have acknowledged [Technical Difficulty]. How much of this improvement [indiscernible].

If you see, Jan and Feb were fairly stable months. The tariffs on. There were no major wars. I think Jan and Feb for us were very good months. Sure, in the month of March, we were better placed than [indiscernible]. So there might be some amount of, as you would say, cyclicality or temporary benefits that would have come. Hard to quantify. But in this quarter, I think not a very large amount in Q4.

The next question comes from the line of Mehul Panjwani from 40 cents.

Congratulations on the great change of numbers. What are the challenges on [indiscernible] on Nitrile Latex, level of capacity?

[indiscernible] financial year, but for Q4 it was between 90% and 100% across all our plans.

Are we planning any [indiscernible]?

FY'27, no, most of this capacity will come in FY '28. So in FY'27will have growth for the whole year, and [indiscernible] which will help a little bit, but yes, you're right, there is no major capacity expansion project that will come on stream in FY '27.

Which quarter[indiscernible] will give of FY capacity?

I think Q1 FY '28.

Okay. And sir, with the current geopolitical scenario we have, I mean, now that most of it is out, but still there is some conflict going on.  So I believe that the inventory of raw materials is earlier. So, how are we placed for the upcoming 2 quarters?

Great question. Look, I think the way we look at the 2 kinds of raw materials, 3 kinds, rather, ones that are available in India. Those obviously were better placed. But even for those raw materials that are available in India, their upstream supply chain sometimes is an issue when they're importing, especially from the Middle East. Then second set of raw materials that we were importing directly from the Middle East from Saudi, Kuwait, that was affected immediately as soon as the war started within the first week as soon as upon those.  So that remains an issue and it remains a challenge. Fortunately, we've been able to run our plant without even one day of shutdown because we were able to take some bold calls in early March, we covered material, as Vivek mentioned in his opening remarks that we took a risk covered a lot of the materials so that we could keep the plants running in March and April as soon as the material stops from the Middle East. The third set of materials that comes from other parts of the world, which continues. Obviously, the prices have gone up, but availability so far is not a problem. The problem is even though there is a cease fire today, the Strait of Hormuz is still closed. The Strait of Hormuz is closed, there are not only oil, but a lot of petrochemicals that the world is dependent on the Middle East region for those petrochemicals. So we don't know what the long-term impact of that is. As of now, it seems that we have managed it quite well. But honestly, it's day-to-day, I would not say day-to-day, week-to-week situation. So far, we feel fairly confident that we are covered up to the end of June.

Your next question comes from the line of Ankit Kanodia from [indiscernible].

FY '26, we have generated INR 200-plus crores of cash flow from operating activity. And I see around INR 50 crores of that is because of working capital adjustments. So should we consider this or how much of this should be structure and how much of this can be one time? If you can just throw more color that would be very helpful, sir.

Nothing onetime or very little because I mean the whole year, that was a challenging year sometimes one.   In March you can, arguably there were some perhaps shorter penetration but remaining 11 months were  regular 11 months with challenges so [indiscernible] on an annual basis.

Basically when I look at the working capital situation over here, it is a positive number in this compared to the general sense of always working capital being negative. So that was my main question.

You're right. So that way because working raw material prices were fairly muted for about 9 or 10 months of the year, that definitely helped with sort of cash generation, so to speak.  Now obviously, in the context where the prices are the highest in many, many years. So some of it now will be working capital. From that point of view, yes. But I meant from a profitability point of view, we only expect it to improve. So overall working capital requirements may go up and down based on sort of raw material pricing and volatility. But overall, I think structurally from a profit point of view, we expect things to only improve from last year.

My second question was related to ApcoBuild. We had a good run on ApcoBuild for three, four years. And I think this year, probably we have not grown that much. If you can throw more color as to how do we see that? And what are your views over the next two, three years directionally in general, I'm not asking for any guidance. And how is the competition shaping up in this?

Actually ApcoBuild we had, initially so your question also [indiscernible] there were some internal issues for us in terms of our [indiscernible] of the year, but that will now corrected, relook at our distribution channel.  So I think we have a fairly good place, we have a new leader who's taken over last year. So, we still fairly confident that we will continue to grow at double digits giving as I said, we are in a niche space in a few geographies or few products. We are trying to improve and grow in that as and when there is any additional information that is material related will.

The next question comes [indiscernible].

Abhiraj, first question on likewise data still sort of profitability shaped up in that quarter? And now is that contributing to overall profitability?

Yes. The short answer is yes, of course. Just to recap the history that when we commissioned the plant in April '23 or March '23, obviously, it was the down cycle. It was the lowest in all of '23 towards '23, '24 and '24, '25, the margins were the lowest they've ever been even pre-COVID. Then things started improving in '25, '26. And every quarter, we've seen a gradual improvement in margins.  In Q4, there was a significant improvement but one of the -- as I mentioned earlier [indiscernible] could have been a little bit of a blip because we were better placed than some of our competitor [indiscernible] some of it may come down in the coming two quarters. But as of now, [indiscernible] structurally remains still a challenging business but temporarily it will very good for us. It terms of margin.

And secondly, on the CapEx that we are doing, which is obviously 12 months away [indiscernible] midterm prospective on that that given the [indiscernible] the world that we are leaving in, basically assume that this is take us for that things are not going to prospective for a while. Any, sort of medium term plan on how are place do we need to do something to [indiscernible] supplier that engage with? Just want to understand picture on the two, three main raw material that we use. How the [indiscernible] that?

No, you're right. I mean, as I mentioned in one of the previous calls, it's very difficult because I'll just give you an example of raw material called styrene that we import from the Kuwait and Saudi Arabia. Obviously, those given the Strait of Hormuz being closed those avenues close right now.  So large chunk is coming from China now. So, so far so good, we have been able to get it. And I think we covered till the end of June. It's so hard to predict what will happen in the future. I wish I could. But we feel fairly confident the way things have been initially in the month of March, obviously, there was a lot of panic, but I think supply chains in the world are quite resilient. And thanks to the Chinese overcapacity in most manufacturing, we've been able to ride through that. Some other raw materials like butadiene are available in India.  As long as they don't have an issue with their upstream supplies, we don't expect any issue there. And most of the other - as of now, the issue in getting material doesn't seem to be an issue. And we are hoping that in the next few weeks, if the war ends and the state reopens and things normalize, then of course everything is back to normal soon, hopefully.

Congratulations on a Great show on the cash flow in the tough times. I mean, it's outstanding work by the team to pay down the amount of debt that we paid down, and the balance sheet is as strong as ever. That's a great job done.

Yes. I mean, that was the idea. We wanted to keep a strong balance sheet even in the most difficult time. And as you rightly said, the team deserves all the credit. We worked in the month of March and April to ensure that our customers don't suffer, our plants keep running, and our customers' plants keep running. That's been the endeavor.  And I'm glad it worked out. Another thing I'll mention though is that some of this is about managing risks. I'll give you a small example. Both our plants run on energy streams.  So, for example, our Taloja and Valia plants can use gas and can also use coal. In this context, during March and April, as you know, there was a shortage of gas, and we were able to manage without even a single day of production loss, whereas I know many other companies, especially in Gujarat, had to cut down production by 50% or more.  So our team has worked really hard to manage this.

The next question comes from the line of Farokh Pandole from Avestha Fund Management LLP.

Congrats on the excellent numbers. Some of my questions have already been answered.  My first question was on nitrile latex. When we had initially commissioned the project, we had spoken of a step-up increase in capacity at a very low cost. Is that still applicable? And could it be possible that in the next 6 to 9 months we could get some capacity there, all going well with margins, et cetera? Is that a possibility? Or will that, if it has to happen, get pushed into the following year?

Yes, absolutely. The plan is ready to go ahead and do that. We were waiting to see how margin improvement happens.  Honestly, the margin improvements, as I mentioned to a previous caller, have been better than expected in January and February. March was excellent. April was also excellent, but that may be partly because of this war situation. So we're waiting to see how things settle once things normalize.  Otherwise, we are ready to go ahead with it, and it's almost a question of bringing in equipment. The lead time is basically the equipment ordering and delivery time. We expect that to be around 8 to 9 months in the current environment.  I think we'll probably take a call on that in the next 3 to 6 months. But again, that capacity would come on stream only in the next year.

And then I just had a question on some of these numbers that you mentioned in your initial comments.  Firstly, where are we with regard to net cash? We have all our investments and cash, etc., and some debt. So where are we on a net cash basis?  And relating to the earlier comments, apart from the litigation provision which you have taken, what else among the numerous provisions that you mentioned are nonrecurring?

Litigation is also nonrecurring.

Right. So apart from that, what else is nonrecurring?

The long-term incentive will be recurring, but the difference will be that the INR 2.7 crores is for the whole year, and going forward it will be done every quarter.  Yes. So that will be recurring. The other thing was the gratuity policy changes. That was also a one-time thing, so that will be nonrecurring.  The impairment of the asset -- that turbine asset -- is nonrecurring as well. Of course, it's a one-time thing.  Depreciation we have taken for the year, I guess that will be kind of recurring because we have reduced the useful life from 40 years to 15 years for a few assets linked to the turbine.  I would say the majority is nonrecurring. There will be some amount, maybe INR 3 crores to INR 4 crores, that may be recurring.

Correct. So there will be INR 260 lakhs, which will be the incentive. Obviously, it won't be INR 260 lakhs; it will be INR 260 lakhs per annum. That's the rate at which the incentive will happen.  There's an accounting aspect regarding time value adjustments, so that will differ every year. But yes, per annum, correct. It's per annum. So from now onwards, we will be providing this in every quarter.

Sure. So providing for it every quarter, but the amount will relate to the annual amount, whether up or down.

And the cash position or the net debt position?

Vivek, do you have that number as on March 31? It's only improved since then, but as on March 31.

As of March 31, we have a total debt of about INR 90 crores. And our investments and cash bank balances are INR 160-odd crores.

It includes working capital loans as well, right?

It includes all loans -- term loans and working capital loans. Total debt is INR 92 crores. So we are net positive by about INR 70 crores to INR 80 crores.

The next question comes from the line of Mr. Michel Rudraksha Raheja.

Sorry, I didn't hear the name. Can you repeat?

It is the line of Mr. Michel Rudraksha Raheja. Sorry to interrupt. Mr. Raheja, you're sounding a little indistinct. If you're using a speakerphone or any external headset, may we request you to use a handset, please?

On a basket basis, how much percentage increase have we seen on the raw material side?

Sorry, can you repeat the question? I didn't hear that.

Yes. How much increase have we witnessed in raw material prices?

In which period? Are you talking about Q4?

Yes, yes. Q4. I mean, I don't have the exact number like how much. Average increase in raw material prices in Q4 compared to Q3. Vivek, would you have that number?

I don't have the blend, but I think it was in line with the increase in crude prices. We have seen the crude prices have gone up by about 70% in a couple of months. So that's about round about the increase we are also looking at in prices.

I think what Vivek is saying, if you were to compare the raw material prices on Jan 1 and March 31, obviously, it was a huge jump. But the blended average of Jan-to-Jan, to 7, March and there are so many raw materials that we have, I mean, honestly, if you just look at the cost of materials COGS and you will see the blended. So that's the increase.

And since we have been able to maintain or I would say, we have improved our margins. We have been able to pass on increase on the finished good side as well.  So my question is do you see like more resistance from customer side if we further have to increase prices going forward?

Short answer is yes, absolutely. I think that's a big worry because in the long run, I don't know what the kind of high energy prices and high petrochemical prices.  I don't know but nobody knows. I don't think anyone can predict what the demand destruction will be.   In some industries, they are price inelastic to some extent. So there maybe it won't be, but in some industries, I know some of our customers who, for example, supply to the automotive companies are really facing the brunt because they're not getting the price increases from automotive companies and all the raw materials have gone up, not just our products, but all other products as well. And they're being squeezed really hard. So I don't know how they'll react. Some of them have even decided to run the plant at losses for 1 or 2 months, but I don't know if that's sustainable. Obviously, that's not sustainable. So it's very difficult to say. But I would say in the long term, I think inflation due to this issue, I think it's definitely a big cause of concern and it should be for all industry, not just us.

Sir, one more question from my side. In what situation, sir, would you expect that margins would deteriorate sharp further increase in crude prices or a sharp fall in crude prices?

I think, fall will definitely hurt us because we are covering for material. The call we have taken is that we raw material plants are running and we're not going to take a call on where crude prices and petrochemical prices go.  Once we have decided that, obviously, as I mentioned to one of the previous callers that we have covered till June. Now suddenly if prices were to fall and we are stuck with high-cost raw materials, there could be a quarter or a few months or a quarter where we would have to live with lower margins, and that's fine. And that's the nature of our business that there are some quarters that could be really good and some quarters that we'd have to keep it growing and protect our market share, we'll have to take that call.   So I would say, obviously, a sharp drop in prices will definitely affect margins in the short term. Increase in prices, I'm not sure. I think we'll be able to pass it along, but if we can't, then it could also impact.

Just hypothetically, had we operated on 100% capacity utilization in this quarter across all plants, what would be our revenue levels in that scenario, assuming current prices?

We are at very high capacity utilization anyway. So assuming current prices, you could assume a little bit more.  I don't think we have too much room to grow, but maybe 5%, 10% more. No, I don't have the answer. I'm just guessing. I shouldn't be guessing, but I'm just guessing a little bit more.

Your next question comes from Hemali Gandhi, an individual investor.

Actually, most of my questions have already been asked and answered. So I have no question.

The next question comes from the line of Aditya Khetan from Institutional Equities.

[indiscernible] to quantify for this fiscal FY '26, what would be the top line contribution and similar EBITDA contribution? And secondly, sir, on this suppose for this quarter, we have done a 15% EBITDA margins. So base business margins versus the nitrile latex margins, how are these 2 margins today as on date? And also, sir, you had also said to an earlier participant that the demand or the margin improvement into the nitrile that seems to be more of a temporary in nature. Structurally.  So what are the levers you see whether this business can improve or it will continue to remain in oversupply mode and things will continue to go back when the crude prices fall and all things go back to normal.

I'll answer your last question first. I think you misunderstood structurally also there was an improvement. Over the course of the year, every quarter, there has been a structural improvement in margins. Sometimes there were a few quarters we had 0% EBITDA margins that had improved in Q3, Q4. Of course, in the month of March, there was some benefit that our company had, especially in nitrile latex. But that only for that 1 month in the whole of the last year where you could say it's not structural.   So at some point, of course, we feel as the capacity utilization in the world increases for nitrile gloves and nitrile latex margins will go back to pre-COVID level. They were still not at pre-COVID levels in February. But at some point, in the next few quarters, they'll continue to improve and get to those levels is there are some short-term gains and sometimes as I mentioned in the previous call, short-term losses as well that we may have to live with. But I do not have a crystal ball. I mean, I don't, you would appreciate in the current scenario, who can predict what's going to happen in the rest of the quarter on the rest of the year.  So I don't have any number for you in terms of giving guidance for nitrile latex margins and all of that in the next 1 year. I hope that answers your question.

Of course. FY '26, if you can direct you can say like compared with the base business margins would be lower.

Structurally it has been lower. That's the question I didn't answer. So compared to the base business margins have been lower but catching up I don't exactly know what will happen for the rest of the year. But I expect structurally it will catch up eventually, it should reach the base. I don't know when that will happen, but that's what will happen.

Contribution of Nitrile Latex will be probably I'm guessing 15% to 20%.

Vivek, do you have a number approximately for how much we expect nitrile latex revenue to represent as a percentage of the top line?  I know none of our product lines are more than 20% of our total top line, so it would probably be around 15% to 20%, which is what I expect. Vivek, do you have a number?

Your next follow-up question comes from [ Sajal Kapoor from Antieetinking ].

I just wanted to understand your overall R&D approach and thought process around innovation. I mean, how can we structurally transform this business over the medium to long term to make it more sort of value-driven rather than volume-driven? And any initiatives that you are currently very positive about as far as the R&D innovation approach is concerned?

Great question. Two things. Number one is, we are in different industry verticals largely, paper, carpet, construction, textile, rubber footwear and gloves. These are large segments. In each of these segments, we have multiple grades of products within each segment that are specialized where we are supplying for 2 or 3 customers that nobody else in the world, for example, I can give you some examples, a few grades in oil and gas, specific application of oil and gas, which broadly falls under the construction segment, but it's actually a specific oil and gas segment. Within paper as well, we have for certain specialty paper.  So that's how we look at it. There will be parts of the business which will be what we call commoditized. But even there, I feel that you can't call it a commodity product because a commodity is something like cement. None of our products are like cement. None of our products are like steel. It's not as commoditized, but sure, there are multiple competitors and we don't have that much differentiation as far as product is concerned. So therefore, those are commoditized.  So for each of those segments, we look at where can we move up the specialty value chain and do something for our customers wherever there is a demand. Another new thing is for batteries, we are developing something for battery binders, which is very specific for a few customers. So those kinds of things will happen.  Second thing we're doing is we're building a new R&D center this year, which we've got approval from the Board and we're going to spend somewhere between INR 20 crores to INR 25 crores building a new R&D center not only in our current industry segments, but even in different types of polymers.  We'll be doing new research, new molecules. And as and when that is commercialized, we will, of course, come back.  Nitrile Latex is a good example of something that came from our R&D. These other examples that I give you for technical and gas all came from our R&D. There are many other examples, for example, in the NBR space as well. So sorry, I'm passionate about it, for a long answer.  And so yes, we are developing a new R&D center. We plan to spend, as I said, INR 20 crores to INR 25 crores in infrastructure. And also in our kind of business, it's very hard to get this kind of talent.  So we have to actually get some raw talent and groom them and retain them to ensure that they add value and they can add value to our customers not only in India but globally.  So that's a few things that we are doing. In addition to that, we're looking at obviously brand-new areas that have low competitive intensity, something that would be required more in the future, and obviously where we have that polymer capability and expertise and where we can develop that. I hope that answers your question. Those are a few things we're doing in R&D.

The next follow-up question comes from the line of Mehul Panjwani from Great.

How do we expose business [indiscernible]?

Great question. It's been a challenge, especially in the Middle East, obviously, last 2 months remains a large chunk of our export business exports to UAE, Kuwait, Saudi, Egypt, Turkey, those areas. While Egypt and Turkey are not affected by the war, freight rates have gone up. Our cost of certain raw materials that we are getting from the Middle East are now coming from elsewhere, so that's gone up.  So that's one of the concerns for us. One is if those customers themselves are right now running at lower demand, lower capacity, so that's a concern. And the customers in Egypt and Turkey that are running are getting competitive products now because our costs have gone up significantly maybe compared to some of our Chinese competitors. For the first time, we're seeing in Turkey and Egypt, for example, Chinese latex coming in there. So that's something we're watching closely.  But again, structurally, we feel that will completely reverse again. So while there are some temporary benefits that we have got from the war, there have been temporary disadvantages as well from this war. This is a big one. We think that will correct very quickly once the war ends and things normalize in the state of Oman. So there are some positives and some negatives because of this war as well.

Sorry, one follow-up on this. How much does Middle East contribute to our top line?

Probably around -- I mean, when I say Middle East, I'm looking at Egypt, Turkey, UAE, Saudi all put together. As I said, the business is good, but the margins have been affected. So about probably, Vivek, 7%, 8% of the total top line so, 12% so it's definitely a significant number.  We are trying to make that up from other geographies, including India. And so far in the month of March and April, we have been able to do a good job. We'll see what happens in the future.

Of course. I mean, do we have any incentive to do higher margins from this region?

No, no. This is a strategic region that we have developed over a few years, and we obviously like to make sure we keep the market share and make sure the customers also are healthy and do well. Some of it is out of our control. But whatever is in our control, we'll try and do our best.

And sir, Europe and U.S.? [indiscernible]

I would say less than 3%, 4%, 3%.

Next question comes from [Technical Difficulty]

You mentioned we are looking for 5% to 10% growth. That's a volume number or the revenue number?

I did mention 5% to 10% growth. I meant compared to, I mean, we expect the growth to be more for the whole financial year compared to last year, but compared to Q4, which was a very strong quarter in terms of volumes. So yes, value-wise, very difficult to say because we don't know what the prices are going to be. So yes, volume-wise is what I would say.

Running at full utilization. So are we looking for low double-digit volume growth this year?

In Q4, I'm talking about Q4, we were running at 90% to 100%. Q1, Q2, Q3, we were at lower capacity utilization.

So what kind of volume growth are we looking for this year, sir? I mean, for FY '27?

I think, as I said, the whole world is a little uncertain right now. But if the demand is there, we do have capacity to grow by another low double digits in volume terms. And realization growth will depend on raw material prices. If you see FY '25 earlier, we had 14% growth in volume but only a 4% growth in revenue just because of raw material prices. So it's very hard to predict what will happen to revenue. I can talk about volumes.

The next question comes from [indiscernible]

Just one question on NBR. So how is that performing for us because with freight costs increasing, imports --

I think in the short term, yes. But I think we are also seeing a pushback because the prices have also been the highest in many years, probably the highest I've ever seen.  So I think overall, yes, imports are down, but then demand is also quite challenging in the current context. But things are margin-wise better for the last couple of months.  Overall, things are okay. NBR is okay, doing well, steady. We don't have capacity, so we're running at full capacity. And our main endeavor is to ensure that we run at full capacity every month from now on.

Ladies and gentlemen, we will take that as our last question for today. I would now like to hand the conference over to the management for closing comments.

Thank you, Sagar. So we thank all the participants and investors for attending the conference and for the continued trust and engagement. We also look forward to your continued participation in the next quarter's earnings call. Thank you and have a good day.

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