Century Enka Limited (CENTENKA.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Century Enka Limited Q2 and H1 FY '26 Earnings Conference Call hosted by Ventura Securities Limited. [Operator Instructions] Please note that this conference is being recorded. Before we begin, I would like to point out this conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict. I would like now to hand over the conference to Tushar from Ventura Securities. Thank you, and over to you, sir.

Thank you. Good day, ladies and gentlemen. On behalf of Ventura Securities, I welcome you all to Century Enka Limited's Q2 and H1 FY '26 Earnings Conference Call. The company is today represented by Mr. Suresh Sodani, Managing Director; and Mr. Yogesh Shah, Chief Financial Officer. I would now like to hand over the call to Mr. Suresh Sodani for his opening remarks. Thank you, and over to you, sir.

Good morning, everyone, and welcome to our earnings conference call for the second quarter and first half of financial year 2026. I would like to thank our host, Ventura Securities for hosting this call. Now let me brief you on the operational highlights for the second quarter FY '26. During the quarter, revenue declined compared to the corresponding period in the previous financial year. In the tire cord fabric segment, volumes continue to remain impacted due to subdued demand and higher imports from China, though we did witness some improvements compared to previous quarter. Margins also remained under pressure on account of these low-cost imports. However, with the recent GST reductions on tires and improving outlook for the auto industry, we are seeing early signs of recovery in tire cord demand. We expect the second half of the year to be better, supported by festive season and a favorable monsoon, which should boost rural and farm incomes. That said, continuing geopolitical and trade tensions, along with tariff-related uncertainties remain a key risk for the value chain. Meanwhile, the approval process for PTCF is progressing well and remains on schedule. In the filament yarn segment, sales volume improved sequentially following successful restart of our plant after the fire disruption and subsequent revamp. Our recent investments in mother yarn and value-added products have contributed to better margin realization during the quarter. Our margins on commodity products remained under pressure due to significant increase in low-priced imports from China, both year-on-year and sequentially. The industry, along with relevant authorities, is actively pursuing imposition of antidumping duties to address the issue of low price dumping from China. On the raw material side, caprolactam prices continued to decline to record low during the quarter, though the rate of decline has moderated. Our renewable energy initiatives at Bharuch plant have aided in controlling power costs and improving cost efficiency. Additionally, our continuous focus on operational efficiency and process optimization has helped offset some of the margin pressures arising from volatile raw material prices. I now request our CFO, Mr. Yogesh Shah, to brief you on financial performance.

Thank you, and good morning, everyone. Let me now brief you on the financial results for the second quarter and first half of the financial year 2026. For the quarter under review, the operating revenue stood at INR 409 crores, which declined by almost 24% year-on-year and increased by 2% quarter-on-quarter. EBITDA for the quarter stood at INR 32 crores, which declined by around 17% year-on-year and increased by 59% quarter-on-quarter. EBITDA margin were reported at 7.73%. Profit after tax was around INR 22 crores, which increased 4% year-on-year and 45% quarter-on-quarter. The PAT margin stood at 5.46% for the quarter. For the first half of FY '26, operational revenue stood at INR 810 crores, declining by 24% year-on-year. EBITDA stood at INR 52 crores, which declined by around 35% year-on-year. EBITDA margin for the period was 6.37%. Net profit was INR 38 crores, down by 17.5% year-on-year and PAT margin stood at 4.65%. Total volume for H1 FY '26 declined by 14% year-on-year to 34,992 metric tonnes. Tire cord fabric sales for H1 FY '26 declined by 32% to INR 365 crores, while filament yarn sales declined by 16% to INR 404 crores. With this, we open the floor for questions and answers.

[Operator Instructions] The first question comes from [ Vipulkumar Shah from Century Enka (sic) Sumangal Investments ].

So what type of volume we can expect in this quarter? And what was the caprolactam price in last quarter? And what is the price this quarter? And what is the outlook? And had we any inventory gain or loss during the second quarter?

So while we do not give any forward-looking statements in terms of volumes or realizations, we do expect better volumes compared to quarter 2, mainly from the reinforcement market, as already mentioned in the opening comments that post GST, there has been initial uptick in terms of demand. And we expect that once the inventory in the pipeline is -- gets normalized, it should reflect in more production, both as a tire companies and also all the raw materials that are required for tire manufacturing. So in those -- in that light, we expect better volumes. But as I said, there are so many variables, particularly the geopolitical tensions and the current -- continuing uncertainty on U.S. tariffs. So these 2 will also have an impact on the volumes for the industry. As we mentioned also, we are pursuing the antidumping duty on NFY. And since the pricing and the volume increase is significant, pricing pressure and the volumes, so if any positive developments happen on that front, that could also support the volumes on the NFY segment. As far as the caprolactam is concerned, it was in the range of about $1,200 for the quarter. We expect that it should not go down significantly now because it is one of the lowest levels with the underlying raw materials, which go into manufacture of caprolactam. But I mean, international oversupply could be one of the reasons that the prices could come down further. But as already mentioned, the pace has come down. It is not falling at the same pace that it was in Q4 and Q1. So hopefully, we may be close to the bottom of caprolactam cycle unless there is a continuously -- I mean, completely different pricing scenarios in the crude oil value chain. We did not have any significant impact on the fall in our caprolactam prices because we had narrowed down -- reduced our inventory levels. And since our value-added products have done well, we did not have to do any significant inventory losses for the quarter.

So what is the status of the antidumping duty cleared by the industry and the companies? And what is the level of protection the company has asked for?

So the level of protection is always determined by the ministry, by the DGTR. We only give the base data and then they do the calculations. All the interactions with the industry players, with the producers, with the consumers, collection of data is at almost the final stage. And all the data that was required from the industry side, all the players in the industry have already been submitted. The import data is already -- more authentic data is available with the government authorities. So we expect some positive developments in quarter 3, hopefully, before December.

So if antidumping duty comes, then we can expect substantial improvement in the volumes, sir?

Our volumes for NTCF are not dependent on antidumping duty. This antidumping is only on the nylon filament yarn. So more importantly, the margin pressure that is there on the commodity products. While our VAPs and new investments are able to compete even at low-priced imports from China, the commodity products, which are mainly coming from China at very, very low prices are -- should help the margin improvements, particularly in certain segments. But we would have some improvement in the volumes as well. But since the major volume impact is on the reinforcement side, that we expect should pick up through the improvement in the demand on the -- from the auto sector and the replacement market.

So just for clarification, are we seeing dumping by Chinese player in both yarn and reinforcement market?

Yes, but more in the yarn side. We are seeing more dumping on the -- in fact, the volumes have doubled on year-on-year quarter on the yarn side. That kind of intensity is not there on the tire cord side because it's more a technical product. Yarns, especially the commodity yarns are significantly volume has gone up.

So industry has asked antidumping duty on yarn, not on reinforcement. Is that understanding correct?

Yes.

Okay. And what is the status of this PTCF approval, sir?

So it is going on. We are working with 2, 3 tire companies, and we expect some commercial supplies to start in quarter 4.

So it will start quarter 4, right?

Yes, we are hopeful of that as of today.

And PTCF will have better margin, right, sir?

PTCF is a reinforcement. So it will have similar reinforcement kinds of thing. But since we have invested in it, it will start giving some positive to the top line and the bottom line of the company.

So PTCF will add to the margin or it will add to the volumes, so...

Both. I think it will add to both.

So what is our capacity of PTCF plant at full capacity?

We do not give product-wise breakup because of competitive reasons. So -- but it would be about 10% of the industry demand.

10% of the industry demand?

Current demand, yes.

[Operator Instructions] The next question comes from Mohit, an individual investor.

So just one -- I had a question on the demand shaping up in H2. So like how do you see the demand trend shaping up in H2, especially after the GST cut on tire and the festive season impact?

So we did see some positive uptick both at the retail sales as well as inventory liquidation at the tire companies. And since there was a lot of waiting for the GST cuts to kick in. So that all happened only during the last week of September since 22nd, it became effective. But we are expecting -- I mean, the initial signs are good even for October. And we are hopeful that the trends that have come should continue for other months and the quarter following that. So we are quite positive that GST should help in improving the demand for -- particularly for the tire cord segment.

Okay. And what are your expectation for NTCF demand, so recovery now for that inventory adjustment, tire manufacturer is largely complete. So what is your expectation on that?

Actually, the tire companies are also waiting for clear signals that the demand is sustainable for ramping up their production. So I mean, we'll know more from -- in this month as well as in December, whether the demand that uptick, which happened post the GST cut is sustained or not. But there is a general positivity amongst the value chain that this should sustain and lead to better demand.

Okay. Okay. And lastly, what was your -- like your EBITDA margin improved sequentially to 7.7% in Q2. So just a general layman question that what drove this improvement in H2? And is this sustainable in H2?

See, the improvement that you see is mainly because the raw material prices have fallen. But the margins kind of remain at almost similar level, whether the caprolactam is at 1,200 or 1,500. So at the top line, the denominator value comes down, the margin looks better. So that is the main reason. Yes, the volumes have improved because our NFY post fire at Bharuch, we restarted. So we got volumes for that in this quarter. But the main driver for a certain significant increase in margin has been the low-priced raw materials.

The next question comes from [ Mr. Anish ], an individual investor.

Sir, yes, my question was, sir, what is the company's strategy -- pricing strategy to counter cheap imports from China in both yarn and tire cord segments?

So in the yarn, it has been always that we want to move up to value chain in terms of more specialized products and our investments in value-added products, mother yarn has been towards that end. And that has given some benefits in this quarter as well. Otherwise, the pricing on the commodity products is still highly challenged because of the very cheap imports from China. So we will continue on improving our value-added products portfolio and also offering niche products to the customers, which are difficult to import or which are more customized to the -- for the customer. So that would continue to be our strategy for nylon filament yarn. As far as the reinforcement is there, we continue to work to provide superior service and better quality compared to imports. But since these are technical products, these are basically driven by the tire companies on what specifications are required. While we are -- the main driver would be increase in the demand for the tire cords itself. And our investments, particularly the new investment that we have made in polyester tire cord, which goes in passenger car tires is directed towards increasing our offerings in the tire reinforcement market. So going forward, our focus would be, if any -- if this project really does well, then the expansions and the growth will come from the polyester tire cord segment, which we will wait once the current investment starts paying for and shows good traction in terms of demand and capacity utilization. But that's the major thing that we would be doing. We would look at other verticals as well, but that is still at a very preliminary evaluation stage because we are part of technical textile value chain. So we would look at opportunities that could arise by utilizing our current yarn capacities, which are going into the tire cord segment.

Also, sir, I had one more question. So what is the current status of the PTCF approval process? And when do you expect to commercialize commercial supplies to begin?

I mentioned in the previous question with the previous speaker is that we expect commercial supplies to start in Q4.

The next question comes from [ Mr. Vipulkumar from Sumangal Investments ].

So what is the CapEx we have incurred for PTCF projects, sir? And what should be the...

Approximately INR 100 crores.

Okay. And what is the expected IRR on that?

We have an internal target of IRRs of more than 12%. I will not be able to give any specific number, but it was in excess of that.

And you mentioned value-added products. So value-added products means that is for only nylon filament yarn, right, sir?

Yes, yes, right.

So out of the total volume of NFY, what percentage of our volume is means value-added products? And what type of realization -- higher realization you get in percentage terms as compared to commodity for that particular volume?

So again, without being very specific, it's over 35% of our portfolio is in value-added products. And we get good margins, which justify additional investments into value-added equipment to make this -- so as we said, we have internal minimum threshold that it has to be crossed. And these are much higher than these values, and that helps in improving the viability of the NFY segment.

So then should we assume that commodity part that 65%, rest 65%, which is commodity business, we are incurring losses on that business?