Ester Industries Limited (500136) Earnings Call Transcript & Summary

Thank you. Good day, everyone, and a warm welcome to Ester Industries Q4 and FY '20 Analyst Investor Conference Call. We have with us today Mr. Arvind Singhania, the Chairman; and Mr. Pradeep Kumar Rustagi, the Chief Financial Officer. We will begin this call with opening remarks from the management, following which we will have the floor open to an interactive Q&A session. Before we begin, I would like to point out that some statements made in today's discussions may be forward-looking in nature, and a note to this effect was stated in the invite sent to you earlier. We trust you've had a chance to go through the documents and financial performance. I would now like to invite Mr. Singhania to make his opening remarks. Over to you, Arvind.

Thank you, Gavin, and thank you for joining us on our Q4 and FY '20 earnings call. I have with me Mr. Pradeep Rustagi, our CFO, who will walk you through our quarterly and annual financial performance later. Before I begin, I hope all of you and your loved ones are safe and healthy. And to appreciate the medical workers, social workers, police and staff of municipalities and local corporations across the country for their efforts in fighting the COVID-19 pandemic. At company level, we have implemented stringent policies and measures to minimize risks for those who continue to work from our factory and offices. To begin with, the past few months have been truly unprecedented. The transformation of COVID-19 pandemic from health crisis to economic crisis caught everybody off guard. With time, though, things are gradually reverting back to normalcy, albeit at a slow pace. Moving on to our performance. I'm pleased to say that we managed to deliver a robust profitability growth of 220% for the year. Film business continued its strong performance, while Specialty Polymers has delivered one of its best performances to date. Engineering Plastics business was, in fact, gradually improving but the recovery was halted abruptly following the outbreak of COVID-19. Further on account of lockdown, the inflow of orders in Engineering Plastics got impacted. This, coupled with suspension of the operation for the Engineering Plastics business to comply with the central state government orders, has activated the problem for the business. Further, I'm happy to announce that we have taken on board the suggestions of our stakeholders and have incorporated our formal dividend distribution policy. From the current year onwards, the Board of Directors will endeavor to pay out up to 20% of profits post tax as dividend to our shareholders. Moving on to individual businesses, starting with Specialty Polymer business. FY '20 turned out to be one of the best years for the Specialty Polymer business. After the initial phase of ups and downs, the business has started to demonstrate the consistency we had envisaged. Our marquee products, namely MB03 and innovative PBT, have begun enjoying steady and consistent offtake. These products have been developed over the past years after a lot of hard work and R&D efforts and patience. Further, we are witnessing encouraging progress in the development of another new product for the carpet industry in the U.S. Sales during Q1 FY '21 have been impacted due to slowdown in the U.S. on account of COVID-19 outbreak. However, due to economic activity starting to return to normal in U.S. and EU, we expect normal levels of operation to resume soon. But for COVID-19, growth momentum achieved in FY '20 would have been maintained in FY '21. Despite the impact of COVID-19, we are reasonably sure of doing better than FY '20. While external challenges may have weighed on the near-term performance, we are quite confident about long-term prospects as business fundamentals remain structurally strong. Moving on to Film business. We had a strong year on the back of increasing volumes and improved margins. Through various initiatives, we were able to enhance productivity on a sustainable basis by about 11%. Since polyester film finds application in packaging of food items, drugs, pharmaceuticals and medicines, et cetera, it is considered as part of the essential commodities, and therefore, company's plant was allowed to operate during lockdown period. We had to marginally scale down our production and sales amidst the restricted movement of material and labor only during the month of April 2020. However, we have been able to resume normal levels of operations from May 2020 onwards. Further, our attempts towards improving the product mix by increasing the share of value-added product is expected to enable us in preserving margins and profitability. As mentioned in our previous call, we are targeting to increase the share of high-margin products to 30% over the next 1 to 2 years from present levels of approximately 16%. Commissioning of an offline coater in May 2020 is a concrete step in achieving the targeted proportion of value-added and specialty products. As regards of [indiscernible] capacity by 48,000 metric tonnes per annum with a capital outlay of about INR 500 crores announced in the month of March 2020, we would like to state that active steps are now being taken to begin the implementation of the project. Moving on to the Engineering Plastics business. The business was gradually improving till the outbreak of COVID-19. We saw marginal improvement during FY '20 as compared to FY '19. Given the softness in auto and electrical and electronic industry, the biggest end user industry for the business, recovery is expected to be protracted. We are, however, undertaking steps towards improving the product mix and profitability of the business. Before I conclude, I would also like to state that encouraging performance of both Film and Specialty Polymer business during FY '20 has given us belief and confidence to deliver satisfactory performance on a sustained basis. We continue to be prudent in our approach as far as leveraging and liquidity profile of the company is concerned. To conclude, I would like to state that while the COVID-19 challenges will prevail in the near term, on a long-term basis, though, we will be able to regain our growth momentum. The fundamentals of the business continue to remain strong, giving us the confidence to tide over the current situation and emerge as a much stronger player. Film business will continue to perform well as the demand from FMCG players remain strong. Specialty Polymer business as well will regain its momentum soon. We are seeing broad-based demand for our products, which would help us sustain the performance. Further, the pipeline as well looks exciting. As far as the Engineering Plastics business is concerned, the challenges may continue in the near term. We are nevertheless undertaking steps towards reviving the business. However, we do not expect return to normalcy before the second half of the current financial year. With that, I now hand over the floor to Pradeep, who will walk you through our financial performance. Thank you.

Thank you. Good afternoon, everyone, and thank you for joining us on our earnings call. I hope all of you and your loved ones are at home safe and healthy. Let me quickly run you through our financial performance, post which we can start the Q&A session. Starting with the revenues, total revenue for the quarter remained relatively steady at INR 254 crores on the back of strong performance of Film and Specialty Polymer businesses. For the year as well, our revenues remain more or less steady, amounting to INR 1,039 crores, higher by 1%. But for the reduction in [ per unit realization ], revenue from operations would have been -- would have increased by INR 90 crores due to higher production in sales of Film and Specialty Polymers. Reduction in [ per unit sales realization ] was on account of reduction in feedstock prices, though margins improved as compared to previous year. Moving on to segment-wide performance. Film business aided by increased production [indiscernible] margins recorded EBIT of INR 50 crores during Q4 FY '20 as compared to INR 36 crores during Q4 FY '19. Earnings before interest and tax margin percentage improved from 18% to 26%. On a yearly basis, EBIT improved from INR 120 crores during FY '19 to INR 182 crores during FY '20. EBIT margin percentage improved from 15 to 23. Specialty Polymer business on account of higher volume of sales with better product mix achieved revenues of INR 18 crores during Q4 FY '20 as compared to INR 6 crores during Q4 FY '19. On a yearly basis, the revenue increased from INR 30 crores to INR 73 crores. EBIT improved from negative of INR 1.43 crores during Q4 '19 to INR 6.49 crores during Q4 FY '20. On yearly basis, EBIT improved from INR 1 crore to INR 28 crores. EBIT margin percentage improved from negative of INR 24 crores during -- 24% during Q4 FY '19 to 38% during Q4 FY '20. On a yearly basis, EBIT margin percentage improved from 4% to 38%. In Indian Plastics SBU, revenue dropped from INR 195 crores to INR 161 crore due to reduction in [ per unit realization ] consequent to reduction in feedstock prices. However, the EBIT margin improved from 4% to 5%. EBITDA for the Q4 FY '20 stood at INR 53 crores as against INR 31 crores reported during Q4 FY '19, higher by 72%. While for the year, the same stood at INR 198 crores as against INR 114 crores, higher by 75%. Higher production sales quantities and margin in Film and greater contribution with significantly improved performance from high-margin Specialty Polymers business contributed to higher operating profitability for the year. Final cost for the quarter stood at INR 5 crores as against INR 8 crores reported during Q4 FY '19. While on an annual basis, the same stood at INR 24 crores as against INR 34 crores, lower by 29%. As on March '20, our outstanding interest-bearing term debt stood at INR 74 crores, while interest-bearing working capital [indiscernible] INR 68 crores. Interest-bearing debt as a multiple of EBITDA stood at is 0.72 as at March 31, '20. We are confident of maintaining total outside [indiscernible] ratio at prudent levels going forward. We are diligently working towards continuously deleveraging our balance sheet and improving our leverage ratios. Out of the repayment of INR 24 crores for FY '20, we have already repaid INR 8 crores during April, mid-June and will repay another INR 2 crores by end of month. From the financial and liquidity perspective, we are in a strong position and hence have decided not to opt for RBIS moratorium scheme with respect to laundry payment. Liquidity position of the company, as indicated by net working capital, has improved significantly with net working capital at INR 149 crores and current ratio at 2.09 as at 31st March '20 as compared to net working capital of INR 55 crores and current ratio of 1.26 as at 31st March '19. Depreciation for the quarter and full year stood at INR 9 crores and INR 35 crores, respectively. While profit after tax for the quarter and year grew by 359% and 220%, respectively, over the corresponding period last year. To conclude, I would just like to say that while the revenues during Q1 FY '20 may have been affected for the Specialty Polymers and Engineering Plastics business due to COVID-19 outlook, we expect return to normal level full for the Specialty Polymer business. We believe that fundamentals of the business continue to remain strong. Film and Specialty Polymer business will continue to see good momentum while performance of Engineering Plastics should reverse. Thank you.

Thank you, sir. Can you open the call for a Q&A session now?

Yes, please. Go ahead.

[Operator Instructions] We take the first question from the line of [ Nishood Pura ] from [ Aliante ].

This is [ Nishood Pura ] here. [Foreign Language]. Has company been able to benefit with the -- like [Foreign Language]. Are we in a position to pass on the increase costing in oil back to the consumer?

Yes. So I've always maintained, if you were there in my previous earnings calls, that our -- in our business, the raw material is a pass-through model. So whether the prices come down or the prices go up, it's a pass-through. The margins are dependent on demand and supply. So even though the raw material prices have come down dramatically over last year, there has been a reduction of almost INR 18 a kilo on raw material prices. Our margins have gone up in FY '20. There is really no direct impact of decrease or increase of raw material in our business. It's a pass-through model.

Okay. So you mean to say we don't hedge the oil prices and take the advantages?

No, no, no.

We take the next question from the line of Yash Joshi from Emkay Global.

My question is related to the expansion line. If you can share the status of the new line, which was announced in Feb. And is it -- what is the expected time for completion of it and the location for the same?

The location is most probably going to be in South India, and the expected time frame for completion would be about 18 to 24 months.

Okay. And if you can share the breakup of domestic and export sales volumes for the months of March, April and May and the utilization period -- capacity utilization for the same.

Okay. So the capacity utilization dropped to about 60% in the month of April because of the COVID. We had a shutdown and also there was a demand contraction for a short period of time. So we got impacted only in the month of April. May, June have been running at full capacity.

And the breakup of export sales on...

How much is that? May, we did about 1,600 tonnes of exports.

[indiscernible]

Percentage.

Total about 1/3.

About 1/3 is in export.

[Operator Instructions] Next question is from the line of [ Rangan Venkataraman ] from [ Brilliance Securities ].

What a brilliant performance you have done that. Because I can see that the turnover has not at all increased, but you increased the PBT, good level, 3x. Can you tell me what are the major reasons for the existing improvement? And regarding the expansion of over INR 500 crores, don't you think that we are taking [ very hit ]? And how much will be the turnover -- will be for every INR 1, you put it like that. I would like to know that. And what is the useful life of the, I mean, assets, everything we have? And what is your USP? Because [indiscernible] what is your market share also?

Okay. I'll start from -- I'll start backwards. So our market share is in the region of about 11% -- 9% approximately in the domestic market. It is not at all a large [indiscernible]. As we mentioned in my opening remarks and also by our CFO, our leveraging is very, very low. At the moment, we already got INR 140 crores. And therefore, we don't have an overstretched balance sheet at all. We have to be perfectly placed to take on an expansion of this size, INR 500 crores, and this will increase our capacity by almost 50,000 tonnes per annum, which has helped us to maintain our market share in the market as well. Our USP is that we are one of the oldest players in this business. We know this business very well. We have a very large customer base, both in India as well as internationally. We export to 75 countries approximately in the world. We have an increasing share of value-added products, and we have a very low cost or very low cost of production, amongst the lowest in the industry. So I think it is absolutely essential for us to go in for expansion. There is the demand growth in our product line, is between 11% to 13% per annum, which is on today's consumption base, almost about 60,000 to 70,000 tonnes of additional polyester film is required only domestically. On a global basis, the demand growth is anything between 5% to 6%. So when there is a demand growth, it is absolutely justified for us to go in for an expansion because we'll be able to sell this product, and we don't have a over-leveraged balance sheet, which will put strain on it.

How much time you'd be able to -- hello?

Yes.

How much time you'll be able to do the turnout for INR 500 crores? Like that 3x, something like that? And what is the [ bonus ] for them?

A INR 500 crore will give us 1.2 to 1.3x. So a INR 500 crore investment will give us an additional turnover of about INR 600 crores to INR 700 crores additionally.

Any concessions there where you're putting the plan? And also in the income tax or GST or anything of that sort?

Those things are under discussion with the concerned [indiscernible].

We hope you are coming to Chennai then. Good luck.

Thank you.

We take the next question from the line of Keshav Garg from Counter Cyclical Investments.

Sir, I wanted to understand that our operating margins, 3 years back, they were 6%, and they have tripled to 18% last year, FY '20. So sir, what has changed so dramatically over these past 3 years?

Well, number one, like we said before, our Specialty Polymers business was struggling, has really shot up and performed brilliantly in FY '20. It has contributed by about INR 32 crores to the bottom line. So that is one of the biggest reasons that has taken place. Number two, we have been able to unlock some of the production gains, which we were expecting, and we managed to increase productivity by 11%. So additional about 6,000 tonnes of production took place in FY '20, which is on a sustainable basis going forward as well. So productivity gains means all to the bottom line. And on top of that, the margins for Polyester Films business have been very favorable during FY '20, and it's increasing over the last 2 years. So these 3 are the primary reasons for this improvement in profitability.

Sir, and in Polyester Film, sir, who would be your main competitors in India?

We have -- there are about 8, 9 companies -- 10 companies in Polyester Film business. We have Jindal Poly, SRF, Polyplex, Uflex, [ Spark ], Vacmet, SML. So there are 8 to 10 companies, 10 companies.

Okay, sir. And sir, are we also into BOPP film in our Film division?

No. No, we are not in BOPP films.

Okay, sir. Sir. So lastly, sir, so you think that this kind of margins will be able to sustain around 18% going forward?

Well, I think FY '21 looks very good to us for sure. And I think even going forward, the margin should be healthy. Maybe not as high as these, but definitely, going forward, it will be healthy enough.

So sir, approximately 15%? Or like, sir, any range that you would like to say that, okay, between this, we will [ subdue it ]?

I think I don't want to talk about the exact number. But I think the margins will remain healthy. I'll leave it at that.

Okay. And then also, sir, I missed it. You mentioned that there is a INR 500 crore CapEx, and that CapEx will give you around INR 600 crore to INR 700 crore of turnover, is that right?

Correct.

And sir, this CapEx is in the Film side or in the -- your Specialty Polymer side?

Film, film, film. Polyester film.

Okay, sir. And this CapEx, sir, sir, when will it get commissioned?

It's about 18 to 24 months.

Okay, sir. And sir, also breakeven, so basically, is it a greenfield plant or a brownfield expansion?

It's a greenfield plant.

Sir, so how much time, once it is commissioned, will it take to ramp up? And sir, what I want to understand that initially, will there be some losses until the utilization has ramped up?

No, no, no, We don't expect any losses. We're a running company. It's not an entirely new company or a new project, but there'll be losses. We are an existing profitable company. Why should there be losses when annual [indiscernible]. So no, we don't expect any losses. And ramp-up should happen very rapidly. It shouldn't take too long. Maybe to reach 100% capacity utilization will not be more than 3 to 6 months.

We take the next question from the line of [ Park ] from B&K Securities.

Sir, just 2 things on the Polyester Film side. Firstly, when you see the value-added products in the BOPET film, what would be the incremental margin that you get on these particular -- this particular production, the commodity to the value-added product?

The incremental margin on value-added products varies from certain products in terms about INR 20 incremental margin to -- it goes as high as INR 100, INR 150 incremental margin.

And secondly, on the new CapEx side. Sir, you are putting in INR 500 crores for a 48,000-tonne plant. Now also, this plant, is it well-equipped to manufacture the value-added grade or you have to incur incremental CapEx in order to manufacture the value-added grade for the plant -- for the BOPET films?

Well, when we'll be able to manufacture some small -- some small portion not because this is a base film line. So some of the coated products, the line coated products can be manufactured in this line. But to manufacture the very high value-added products, you have to do additional work, which is offline.

So right. So any indication to how much incremental CapEx have to incur in order to manufacture those value-added products? An approximate...

It's not -- it will be a small percentage of the total CapEx on the main line. Maybe 10% to 15% is what you have to spend to make more value-added products.

We take the next question from the line of [ Surendra Bichava ], individual investor.

Sir, my question is regarding the Specialty Polymers business. What is the status of our project?

Project? Which project?

Expansion projects.

We -- as we -- oh, yes, yes, yes, the [indiscernible]. You see, we had to put a hold on it because of the COVID-19. And we are still studying it right now to see the impact of COVID on that. Fortunately, we had not invested any money in it. And we are studying it, and we'll take a call on it in the next 2, 3 months.

Okay. Sir, one more thing that we are starting manufacturing on the specialty polymers because of the -- this batch [ ports in line ], which we are were [ alluding for ] in [indiscernible]. My question is, sir, can we be able to use this line for manufacturing of these polyester films again? If there is demand for polyester film?

Well, of course, it can be used, the batch line can be used to make polymer for film, but I would never do that because the cost of production for that is too high.

We take the next question from the line of Giriraj Daga from Visaria.

So what was the spread we earned in the last quarter? And what was it like Q-o-Q in the Polyester Film business?

For the March quarter?

Yes, March quarter.

So the gross value-add in Polyester Film for March quarter was about INR 52.

[indiscernible]

INR 52. And what was it...

[indiscernible]

Yes, the base business, the base commodity side, right?

Yes.

Yes. And what was it in the December quarters, sir?

December, it was INR 46.

INR 46. And how is the like quarter 1 looking so far on the spread side of it?

I think you will be pleasantly surprised with the results that we will declare soon.

No. As I can understand that BOPET prices have been going up. But has the cost also going in sync with that? Or it's not that [indiscernible]?

[indiscernible]

Total cost is [indiscernible] is in the range of INR 45 to INR 47 kg per kg of film.

Sorry, sir, I missed that. What you said, INR 45, INR 47?

Raw material prices have been very steady in the last few months.

In March quarter, it was INR 56 per kg of film. And June quarter, it would be INR 46 to INR 48 per kg of film. So there's a drop in the raw material prices as compared to March quarter.

Okay. So we are possibly looking for a better spread in quarter 1 also? Okay. Okay. And second one then, sir, I would like to view the revenue guidance on the specialty volume for FY '21. I can see product-wise, we have given details, sir. But any overall revenue guidance?

Well, FY '21 would definitely have been much better than FY '20. Had it not been for COVID, this momentum would have continued. But this COVID has definitely impacted because there was a complete shutdown in America as well, which is our biggest market. And we lost a lot of volume in Q1. But fundamentally, the business remains very strong. It's starting to come back. And hopefully, we should start picking up the volumes in Q2. And by Q3, we should be back to full volumes or more. So if I were to -- don't hold me to it, but I think we should be able to -- still be able to do better than FY '20 and FY '21.

Okay. Okay. Sure.

It would be substantially better had it not been for COVID.

Our next question is from the line of [ Saket Kapoor ] from [ Kapoor and Company ].

Yes, sir. Sir, firstly, sir, thank you then for articulating the dividend distribution policy, and you have lent the years. Not only lent the years, but you have also implemented the [ same ]. So many thanks to the team and the Board.

Thank you.

Yes, sir. Sir, firstly, I have some balance sheet queries from Mr. Rustagi. The current work in progress is INR 23 crores, so it is catering to this segment and when it is expected to be...

This is mainly for off-line coater that we commissioned for Film business. It was commissioned in the month of May.

Okay. So the one -- the middle quarter which you have spoken in your release, that is what...

Yes. And therefore, we are expecting improvement in the volume of [indiscernible] products in Film business.

Okay. Sir, materially, you were looking for a 30% mix in the value-added segment in a 2 years' time. So with this CapEx, what should be the proportion of value-added products for this year?

This year [indiscernible], about 25% for FY '21.

25%?

Yes.

23% to 25%.

23% to 25%.

And next year, it will be 30%?

For sure.

And what is the per kg difference, sir, in the margin accretion between the value-added and the normal segment?

Like we already answered this. It's a range from anything from INR 20, INR 25 at the bottom going up to INR 150 a kilo of incremental contribution.

Okay. And sir, generally, [Foreign Language] which industry are we capturing? In the same segment, we have this value-added product.

So it is going to various applications. It's going to packaging, it's going to graphics, it's going to -- I mean, it's a very wide application range.

That is what I'm asking, sir. INR 23 is also the profit and INR 150 is also the profit. So INR 150 in catering to which segment? Which is able to pay you INR 115 margin per kilo, that is what my question here.

The INR 150 margin also comes from a variety of industries. This includes packaging, which includes even industries like insulation as well as graphics. So it depends on product to product.

Within the same industry, there could be different applications.

That INR 150 product could again be catering to various applications.

And sir, in the other financial assets, we see a figure of INR 21 crores. What does this contribute? And similarly, the other current [ asset ] also.

Yes. Yes. So we had given an advance, which we have received that. So that's about INR 12 crore. And there was a fire in our plant in the month of -- on 19th March, for which we have lost the insurance claim and the amount of insurance claim recovery by about INR 9 crore is coming in the other financial assets. So the other financial assets are increasing by about INR 20 crores on account of these 2 counts.

INR 12 crore [indiscernible] line got dropped.

We had given an advance to a machine supplier, which -- that order has been cancelled, and we have now received the advance back in the month of May.

Okay, sir. And about the other financial liability, that is also the recent INR 42.42 crore. What does this contribute, the increment?

No. There's a provision made for payment of commission to the directors that's appearing as a liability. It was approved by the Board on 17th June, so it will get paid in the June quarter.

Okay. And what is the percentage, the directors are being entitled to of the profit?

10%. 10% for the executive directors.

For the executive directors.

10% of the profit before tax.

The profit is calculated as per Section 198. So close to -- it is 10% of INR 150 crores.

Okay. That is INR 15 crores?

Minus the remunerations of the total commission, our goal was about INR 11 crores.

I didn't get you, sir. Come again?

The total commission, our goal was INR 11 crores.

INR 11 crores. Okay, sir. Now coming to the maintenance CapEx part. Sir, generally, how much maintenance CapEx have been done for this year?

It is close to INR 17 crore to INR 18 crore is the total amount of CapEx, maintenance CapEx, et cetera. Total CapEx was about INR 20 crores. Out of that, maintenance would be about INR 10 crore to INR 12 crore.

Total was INR 20 crores?

INR 20 crores. I'm not telling you about the movement in the CWIP, about the addition to the gross block, about INR 20 crores, out of which maintenance would be about INR 10 crores to INR 12 crores.

Okay. And remaining will be?

There are a few machines added to the plant and to the gross block. [indiscernible]

Okay, sir. I'll speak off-line, sir. First, now coming to the fire incident part of -- which you have told already. We have taken a -- written off the asset at INR 9 crore -- INR 8.83 crore. So where has this been [ made for ] in the P&L?

So there are -- please try to understand the asset part is coming in the financial assets recoverable part. The write-off and the claim [indiscernible] has been netted off against each other. So there was a -- we recognized the claim recoverable as income. And then there was a loss of INR 8.83 crore on discarding of assets. Both have been netted off against each other. So the loss is not there. In the loss and income, both are not there in the P&L. There is a note, if you see the Note #4 in the account results, you will understand it.

Right, sir. And sir, you spoke about the raw material price trends. So there has been a decline of INR 10 in the blended cost for this quarter?

Yes. March -- as compared to March, the June quarter raw material cost per kg of film would be lower by about INR 8 to INR 9.

And sir, even in the lockdown, our film facility has been running at optimum level?

Yes, except for April. April, we were at 60% because that was the first month of lockdown. And there was a demand contraction as well as limited production because there were a lot of restrictions and movements of material and men. So that also impacted our capacity to produce. So only April was impacted, but May and June we were running at full capacity.

And sir, could you provide the breakup between the Film and the Specialty segment out of this INR 210 crore, both on the revenue and the profit?

Yes, yes. I'll give you.

This time in the presentation was not mentioned, sir.

So on the volume side, we did total volume of 58,000 tonnes, out of which close to...

Film, film.

Yes. 58,000 tonnes in the Film business. 9,600 is the -- the volume of VAS products, which is about 16%. On the value side, we did INR 148 crores out of INR 724 crore, it's about 21%. In value terms, it is the VAS production, Film is 21%; in quantity terms, it is [ 16% ].

This is this for the year as a whole you have given -- sorry.

One moment, one moment. He wants to know each product, the [indiscernible] margin, margin percentage et cetera. [indiscernible].

[Foreign Language]

Okay, we were talking about VAS. [indiscernible]

[Foreign Language]

Two major products is MB03 and innovative PBT. [indiscernible] business. [indiscernible] I'm getting [indiscernible]. Okay, I'll give the breakup. Just hold on for a minute.

Yes, sir. [Foreign Language]

[Foreign Language]

Right, right, right, sir. And make it, sir, that [Foreign Language].

[Foreign Language]

[Foreign Language]

[Foreign Language] in the presentation.

In the presentation, you're going to [indiscernible].

Then go through the [ same set ]. Sir, then -- and go through the [ same set ], looking into -- sir, then this quarter, we will not be having a major abrasion, sir, then it should not -- it should be a similar quarter to what March was?

Like I said, Film business, we lost only in the month of April. If April hadn't been there, it would have been even better. But I think, like I said, June quarter will be a very good quarter as well.

I'll give you the sales value of each business. Polyester Film was INR 70 crores. Specialty Polymer was INR 72 crores. Polyester Film is INR 724 -- INR 730. Engineering Plastics is INR 161 crores. And there is other sales of about INR 6 crores, that mix INR 1,039 crores.

Margins and percentages?

So margins are -- Film business, it is the.

EBIT.

Yes, 24% for the year. Specialty Polymer is 38% and Engineering Plastics' EBIT margin, earnings before interest and tax, is 5.5%.

Sir, do you think this 24% for the Film is sustainable, sir? Or we have peaked out in terms of the margin?

Well, FY '20 was very good. I guess, FY '21 will also be very good. Going forward, the business is increasing. It's very difficult to say whether it will be 24% or it'll be a little less. But I think there will be very healthy margins going ahead.

And sir, we have wiggle room for volume expansion for this year. So volume would be in these levels only at maximum peak capacity?

No. We are still working to debottleneck further. There might be some improvement, maybe not 11% again this year. Maybe about 3% to 5% would be further improvement in volume.

Film is already affected. Film is already affected.

So yes. So we lost in 40% volume in April. So that has to be taken into account as well. Because if you take April out, then we would improve volume by about 3% to 5% in FY '21.

Okay. And that is a permanent loan. We can't work above 100%, 110% [indiscernible].

Full capacity [Foreign Language].

Sir, I didn't get you.

No. What -- we are already operating at full capacity. It's impossible to recover the 40% loss in April.

Right, sir. Correct, sir. So we are looking for a similar year. As of normally this quarter, we'll give you -- we'll give further trend as the problem for COVID evolves going forward. Then only you would be able to give further sense of how [indiscernible].

Yes, right. It is going -- [indiscernible] see a very strong demand growth. And [ FLC ] sector is showing very good demand for our products. And demand growth for polyester film is going up by about 11% to 13% per annum in domestic market. And on a global basis, it's going up by 5% or 6%. So there is a very healthy demand growth. Additional capacities are required to fulfill this demand.

Right, sir. And this Khatima facility is catering to which segment, sir, which got affected in the fire accident?

All 3 products...

Fire exit.

So all 3 product lines are in Khatima.

Okay, sir. So [indiscernible], which segment got affected?

It was only for 2 days. We had a shutdown. We are now back up. Boilers were able to take on the load.

Right, sir. And sir, last point is on the CapEx part. I mean, taking into account, generally when the trend improves in a segment and people are more excited to come up with CapEx, it generally happens that there is a glut going forward in 2 to 3 years' time. Because this is a -- it may be a cyclical effect or some other market forces also. So how prudent it is, sir, to go ahead with a big CapEx of INR 500 crores because already [Foreign Language] we reached after a lot of hard work. So [Foreign Language]. So the justification was more needs because, first, if we could have earned better from the Specialty Polymer and then gone ahead with lesser borrowing, that would have been better way to fund that CapEx. And is funding [Foreign Language] going forward?

We are only at INR 140 crores debt for an EBITDA of more than -- about INR 200 crores. Investment and [indiscernible] and the additional investment is going to bring in additional revenue. So even if you have to take -- and we will be taking the debt to fund this expansion, but it is -- we're not stressing our balance sheet at all. It's not -- even despite this, we will not be over leveraged, and we have to grow. If we don't do it, somebody else will do it, and we have to maintain market share also. And there is a growth [indiscernible] listen, there is a growth in demand in our product line. So the [indiscernible] is required.

Right, sir. I get your point. How much -- what kind of debt are we going to take on the balance sheet? The long-term debt, that is what my question is. Out of the INR 500 crores, the total CapEx, [Foreign Language]

60-40.

60-40. Or let's say, 60% to 65% debt and 40% to 35% equity.

You see, please understand, by the time this unit starts up, the existing debt will be 0. So this existing debt of INR 140 crores is 0 for the expanded capacity, having a debt of INR 300 crores or INR 350 crores is nothing for our balance sheet.

18 months ago we had about that kind of debt in our balance sheet.

[indiscernible]

The summer '18, the debt was INR 275 crores.

Right, sir. Right. And your Specialty Polymer segment, what is the road map for this, sir, going ahead? [Foreign Language]

[Foreign Language] whatever incremental, that will come will further help reduce the debt.

Okay. This is only on what the cash flow is from the Film segment. That is what you are taking into account for the INR 300 crore debt. You're not factoring the cash flow from the Specialty Polymer segment.

No, no, no. And whatever additional incremental cash flow will come from Specialty Polymer segment will help further reduce that debt.

Okay. And what is the -- what are you advertising [ and advising ] going forward from this segment to contribute for the coming 2 years or even 1 year vis-à-vis COVID? [Foreign Language] you have also mentioned about INR 11 crores sales in the month of May or June in the Specialty Polymer segment.

For the June quarter, yes. So to fight the COVID, we were able to do it about INR 10 crores, INR 11 crores. And going forward, I think we should do better than last year in FY '21. It would be substantially better in FY '21 had it not been for COVID.

No, sir, I didn't get your point. For the year, what are you [Foreign Language] in terms of revenue?

For Specialty Polymers, it should be around between INR 70 crores to INR 90 crores.

INR 70 crores to INR 90 crores. And this should be ramped up -- this trajectory should only improve for the next year since you are improving your profile also?

Absolutely. For FY -- we were talking about FY '22 will be substantially better than this.

[Foreign Language]

It's difficult to put a number to it, but I would imagine anywhere between INR 130 crores to INR 150 crores.

Okay. And the bottom line [Foreign Language]

About 35% to 40%.

25% expect [indiscernible]

35% to 40%.

35% to 40%.

35% to 40%.

35% to 40%. So that will be a substantial cash flow will be generated [Foreign Language]. And for last question is on the depreciation part. sir. Can it be 5% to 10% [Foreign Language]

[Foreign Language] is taken at almost 30 years. So the depreciation would be for the capital investment of INR 500 crores, the depreciation charge would be INR 15 crores per annum, 3% to 3.5%. And there is no other major CapEx. So there would not be any significant jump in the amount of depreciation that we are charging to be in there.

Okay, sir. Sir, and do PPE also come from another -- yes, yes, yes. I got a lot of opportunity, ma'am.

We take the next question from the line of [ Vitesh Kopa ], from individual investor.

Sir, I don't know if dividend point has come into this. I list concerns I missed. But my question is, we have given a good amount of dividend. That is quite happening for investors, like from INR 0.50 to INR 2.50 per share, if I'm not wrong. So I would like to know that whether we would be able to continue this high amount of dividend. Or is there any other guidelines?

We've already given out -- our Board has approved a dividend policy, which we have shared with the investors. And it is going to be our endeavor to distribute 20% of our PAT to the investors going forward, up to 20% of PAT.

Sir, does that answer your question?

Yes.

Next question is from the line of [ Rahul Nantani ], individual investor.

Yes. Sir, first of all, I would like to congratulate you for an amazing set of results for the company. I wanted to understand, like, based on the assessment of the company, the 3 main verticals. The Engineering Plastics is the laggard for the entire business. And whereas your Polyester Films is doing really great in terms of volumes and in terms of margin. And in case of your Specialty Polymers, it's a high-margin business for you. So a couple of questions which I had. First thing, in terms of the margins that you have, the EBIT margins for the Specialty Polymers, which is around 30-ish percent for last year. So is that sort of a margin sustainable if you compare it to your peers in the same industry? That was the first question.

[ We have no peers ].

Okay. You don't have any peers in that comparable -- okay.

Because what we do is a largely R&D driven innovative -- innovation driven. And the products that we are doing largely are patented and controlled. So there is really -- there are really no peers in the business that we are in. And the second part of your question. Yes, the margins are definitely sustainable.

Okay. And one more question in relation to Specialty Polymers business, which I [ heard was ] -- so there is an MB03, which is -- for which you have order from a U.S. -- reputed U.S. company of around 400 metric tonnes, as a quantum.

That is innovative PBT.

Okay. But it falls under the Specialty Polymers business, right?

Under the Specialty Polymer business, yes.

Yes. So just wanted to understand. And the MB03 component, which is there, so that contributes -- that is mainly used in the carpet industry in the U.S., as per the presentation. So just wanted to understand one thing, is what is the impact on the overall Specialty Polymers business because of the overall recession that we've seen in the U.S. That is the first question. And to what extent do you see the chances of the renewal of that agreement with the U.S. company because it was only for 2 years till FY '21? Do we expect the renewal of the [ team ] agreement going forward?

Yes. So you're talking about 2 separate products. As far as the MB03 is concerned, overall Specialty Polymer business is on a fundamentally very strong wicket. This drop in volume in the June quarter and maybe to some extent in the September quarter, it's purely because of COVID. It's a short-term phenomena. The business is fundamentally very strong. So as soon as the economic activity recovers, this business will come back to us. For Poly -- the carpet business, the MB03 business is not impacted on the long term. It's only a short-term impact because of COVID. As far as the second, the innovative PBT is concerned. We have, again, 400 tonnes for last year. We have, in fact, exceeded the volume beyond 400, that's about 465 tonnes. It is for similar volumes in the second year. We will exceed the volumes in the second year as well. And we definitely expect this contract to be renewed going forward.

Okay. And just 1 more question on -- which I had on the Polyester Film business. So what I understand one of the components of this polyester films get used at FMCG, which is a very strong piece even in like a COVID sort of a scenario. So just want to understand what would be the proportion of your sales which you can attribute to applications in the FMCG industry.

Very, very large portion.

Can you quote a number just as a range? Is it possible?

More than 70%.

Next question is from the line of [ Kamal Jeswani ] from [ India Finance ].

Yes. Sir, first of all, congrats on the excellent numbers you have posted for this quarter in spite of the COVID impacting the last week of March. In spite of that, the phenomenal numbers. Sir, I just wanted to know how is the quarter -- this current quarter or April to June shaping up as far as the exports is concerned in the Film business. Is it still having -- yes.

Yes. Exports has been doing very well in this period as well. In fact, export demand was not impacted much at all. In fact, it has gone up. The demand from exports went up by 30%.

Okay. I was just hearing from a few other con calls that there is some fresh capacity, which has come up in international markets, maybe Thailand or somewhere, I think, has added to that.

Yes. SRF has started up very recently.

So will that have an impact...

So I have been saying there is a very good growth in demand in polyester film globally and in India. And new capacities are going to continuously come up to feed this new demand.

Okay. So that could lead to any moderation in the margins going forward as the first capacity comes in? I heard July also there some new plant coming up.

July, one line is starting up in Hungary of SRF.

Yes, right.

Yes. So like I said, capacities will continue to come. When there is growth in demand, capacities have to come. And you may see some moderation in margins going forward. But with the -- as the demand growth for -- in India today, the demand, domestic demand, is in excess of 550,000 tonnes per annum. And capacity is -- minimum capacity was -- used to be 30,000 to 35,000 tonnes per line. Now when you have demand of only 200,000 or 250,000 tonnes and you put in a 30,000- or 40,000-tonne line, the impact was much greater. When the base grows to 500,000 or 600,000 tonnes, 1 line doesn't impact you so much. So you may not see such violent cyclicality as you've seen in the past. There will be some moderate cyclicality, but not violent.

Next question is from the line of [ Pramod Agarwal ], individual Investor.

This is [ Pramod Agarwal ]. Sir, first of all, I want to congratulate the management for the excellent results. I am a shareholder since last [ 20 ] years of our company. Sir, I want to know regarding this OPM and NPM. This OPM last 4, 5 years, we are continuously, it is growing. So whether we can expect in the same line, the OPM will go up in the coming years?

Well, EBITDA margins in future, you will see a lot of EBITDA margin growth coming from the Specialty Polymer business.

Okay. Right. So we expect the OPM and NPM will be maintained.

We hope to continuously improve it. I mean if COVID wasn't there, we would have definitely improved it. But if you take the COVID away, but we come back to normalcy, I think we will see very healthy growth in Specialty Polymer business, and Film will continue to grow as well.

Okay. Sir, my next question on the borrowings. We are continuously paying our loans. So I think this year, we are having INR 132 crores. Last year, it was INR 243 crores. So what is the expectation? Will -- to what time we are going to pay this amount?

So this year, repayment liability is about INR 24 crores for FY '21, out of which INR 8 crores has already been paid, INR 2 crores more will be paid by the end of June. So out of INR 24 crores, INR 10 crores will already be paid by end of June. And we will meet the rest of the liability in time. There's no problem in repayment obligations.

And what about regarding R&D of our company, what is the [ case ]?

About the what?

R&D.

R&D. We continue to do R&D. It's a continuous process for us.

Next question is from the line of [ Saket Kapoor ] from [ Kapoor and Company ].

Yes, sir. So last point was on the PPE part, sir. Are we, in the PPE manufacturing, are we -- we are trying to look into it? Does it fall in this?

No, no, no. It's a completely different business, completely different product line. Our equipment is not capable of manufacturing PPE.

For expansion, the future will be -- priority will be on the Film line business?

Yes, on the Polyester Film business, yes.

About the Specialty Polymer, [ it will consider only ] next year?

We are not -- we have already approved and it is actually a kind of a diversification in the Specialty Polymer business that was also approved for INR 110 crores earlier this year. But we -- because of the COVID, we are studying the impact of long-term impact on this diversification. So we will take a view whether to move ahead with it or not in the next 2 to 3 months. So right now, we are moving ahead with the polyester film expansion for INR 500 crores.

This will -- will this impact our capability as an [ announcement ] on the specialty polymer?

So this INR 110 crore expansion that we had got approved earlier from the Board was for capability enhancement to make a newer kind of product. But this has been put on hold for the time being.

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.

Thank you, everybody, for joining us for the call for discussing FY '20 numbers. And we look forward to seeing you again soon to discuss the Q1 FY '21, which will happen shortly. Thank you very much.

Thank you.