Ester Industries Limited (500136) Earnings Call Transcript & Summary

Thank you, Aman. Good day, everyone, and a warm welcome to Ester Industries Q2 and H1 FY '21 Analyst and 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 for 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 has been sent to you in part of the invite earlier. I would now like to invite Mr. Singhania to make his opening remarks. Over to you, sir.

Thanks, Gavin, and thank you, everyone, for joining us today. I have alongside with me, Mr. Pradeep Rustagi, our CFO. I hope all of you are safe and healthy. I will begin the call with key highlights from each of our businesses, following which Pradeep will walk you through our financial performance for the quarter and first half. To begin with, I'm pleased to report that we continue to build on our business momentum. Revenue and profitability both grew at a healthy clip during Q2 on the back of stellar performance of the film and engineering plastics businesses. Let me now talk about the individual businesses, starting with Specialty Polymers. While performance during the current year is likely to be subdued primarily because of COVID-19-related restrictions in customer markets, the business fundamentals remain structurally sound, and we expect strong recovery from next year onwards. Business momentum is slowly picking up steam following challenging Q1, which was disrupted by COVID-19. But for COVID-19, performance of Specialty Polymers SBU would have been much better than FY '20. We are very encouraged with the introduction of 3 new products, namely LMC-03, Low Melt or Cationic Dyeable Master Batch MB-16 and the Deep Dyeable Master Batch MB-07 in recent weeks and expect these products to contribute substantially going forward. Commercial sales have already started on a small scale. These products find application in textile/carpet industry and are expected to contribute significant volumes starting very soon. We are already witnessing revival in demand for MB-03. Demand for innovative PBT continues to remain strong. We have already achieved in the first half sales of 535 metric tonnes as compared to sales of 465 metric tonnes during FY '20. Innovative PBT finds applications mainly in consumer electronics, currently and is now being propagated for other applications such as automotive, textiles, cosmetics, et cetera. The fundamentals of the Specialty Polymer business are strong. We expect sales revenue upwards of INR 150 crores, with EBIT margins in excess of 40% in FY '22. Given that Specialty Polymers is an IP technology-driven business; and secondly, it is largely patent protected. which acts as a very strong entry barrier. Moving on to our film business. Film business continued its recent momentum on the back of strong demand from the end user industries. COVID-19 pandemic appears to have had positive effect on the film business with a growing number of customers preferring more packaged products for health, hygiene and safety uses. Stronger demand resulted into improvement in sales, volumes and capacity utilization. Domestic demand has been growing at a healthy clip of 11% to 13% annually in recent years, which has translated to steady margins. Additional capacity created on account of commissioning of 2 new lines in FY '20 were absorbed with minimal disruptions, as I had already mentioned in my last call. We are also working towards improving our product mix by close to doubling the share of value-added products to 30% by end of FY '22 from 16% at present. Commissioning of the offline coater during the previous quarter was a step in this direction. Higher proportion of value-accretive products will enable us to improve margins and profitability of the film SBU. We expect the demand momentum to continue over the years to come. And in line with this, we have started setting up a new film manufacturing unit through the wholly owned subsidiary in the state of Telangana to help meet growing demand of domestic and international customers. As informed in earlier calls, the project will be judicially funded through a mix of debt and equity. We are in advanced stages of tying up funds, both foreign currency and rupee term loans for the project. The overall cost of debt for this project is expected to be about 6% per annum. We are targeting to complete this project by June 2022. The commissioning of the new line will provide a further leg up to the business and help drive revenue growth. As far as the Engineering Plastics business is concerned, COVID-19 adversely impacted the performance during Q1 FY '21. However, the revival has been sooner and stronger than I expected, demonstrated by substantial improvement in volume of sales and margin in Q2 FY '21. In fact, Q2 FY '21 has been the best quarter both in terms of value -- volume and margin in the history of the SBU. Like film business, we are working towards improving the product mix for this business. We are confident of such a much better performance of Engineering Plastics SBU going forward. To conclude, I would like to state that we remain confident about prospects. We see significant headroom for growth across all our businesses. While film and Specialty Polymer business are structurally well placed with strong demand visibility, Engineering Plastics business would start delivering steady performance and contributing meaningfully to the overall growth of the company going forward. Volume offtake for most of the products under Speciality Polymer business is improving. We expect the business to deliver good growth over the coming years following pickup in demand for established and emerging products. Film business as well is expected to perform well basis strong double-digit growth in demand. Further our efforts towards improving the product mix as well will have positive impact on the performance of film business. That concludes my opening remarks, and I hand over the floor to Pradeep to walk you through our financial performance.

Good afternoon, everyone, and thank you for joining us today. I'll quickly walk you through our performance for the quarter and first half, post which we can begin the Q&A session. Starting with the quarter, revenues from operations stood relatively stable on year-on-year basis at INR 251 crores as against INR 254 crores generated during corresponding quarter last year. However, one needs to consider Q2 FY '20 included revenues worth INR 16 crores from sale of chips as against 0 revenues during the current quarter. Adjusted for that, we would have delivered growth on a year-on-year basis. For the first 6 months, revenues stood at INR 439 crores as against INR 538 crores reported during H1 FY '20, lower by 19%, primarily owing to COVID-19-led challenges, which impacted revenue during Q1. EBITDA for the quarter stood at INR 73 crores as against INR 46 crores generated during Q2 FY '20, higher by 58% on the back of better margins in film business and significantly improved performance from Engineering Plastics business. For H1, the same stood at INR 126 crores as against INR 100 crores garnered during H1 FY '20, higher by 26%. Finance cost for the quarter stood at INR 4 crores as against INR 7 crores outgo reported during Q2 FY '20, lower by 43%. On a half yearly basis as well, the volume declined by 43% to INR 8 crores as against INR 14 crores. As of September 30, 2020, our outstanding interest-bearing term debt net of free cash stood at INR 65 crores, while interest-bearing working capital liabilities stood at INR 32 crores. Interest-bearing debt net of free cash as a multiple of annualized EBITDA stood at a healthy level of 0.39 as of 30th September '20 in comparison to 0.8x as at 30th September '19 and 0.47x as at 30th June 2020. As mentioned by Mr. Singhania earlier, we are committed towards maintaining better than prudent debt tangible net worth ratio. Investment as equity into the wholly owned subsidiary will not materially alter our gearing ratio. The overall cost of debt for the same project would be about 6% per annum, as we plan to take advantage of low-cost Euro-denominated foreign currency loans. Depreciation for the quarter stood at INR 9 crores on a half yearly basis, the same stood at INR 17 crores. Profit for the quarter stood at INR 46 crores as against INR 19 crores generated during Q2 FY '20, higher by 139%. While on a half yearly basis, the same stood at INR 75 crores against INR 43 crores reported during H1 FY '20, higher by 74%. To conclude, I would just like to restate that our business momentum is now taking up stream across all the verticals. Film business continues to benefit from favorable demand supply dynamics and strong demand growth. Specialty Polymer business as well is showing encouraging signs with steady demand for most of our products. Volume for MB-03 as well has started to pick up gradually. We continue to remain positive on the business and expect significant growth in the coming years. Engineering Plastics is showing improvement and is expected to perform well going forward. Thanks.

Sir, should we open the floor for Q&A?

Yes.

[Operator Instructions] The first question is from the line of Rahul Nadkarni from SR Industries.

Sorry, I'm actually -- just to correct I'm an individual investor.

There's a lot of background noise from your side. We can't hear you.

Can you hear me now?

Yes.

So my question was just to correct, I am an individual investor and not from SR Industries, just to clarify. My questions are in terms of -- first question is relating to the films business, polyester films business. So in this -- in the investor presentation, you have mentioned that the polyester film chips revenue has been 0 for this quarter. So is it like this business has been totally discontinued.

No, it has not been discontinued. It has only been discontinued for a short while. In any case, this was just to fill up capacity. It's not -- it doesn't deliver as very high margins. It just -- we have spare capacity in chips, so we sell it and we make a couple of bucks. So it's not really a very meaningful bottom line provider.

Okay. So it's just about whichever spread capacity minus capacity that remains you utilize it for that purpose.

Correct.

Okay. My next question is in relation to the new entity that you have formed and the new projects that you're coming up with. I understand there is an increase in the project cost by around INR 87-odd crores. So in that, I wanted to understand, there were 2 figures which were appearing in terms of as on September, there was an amount of around INR 28 crores. And as on 26th October, there was a figure of INR 75 crores. So I just wanted to understand, is this completely equity or this is the investment which is made?

Okay. So this is the equity, which has been given by Ester Industries into the wholly owned subsidiary. And there has been an increase in the project cost, which was earlier estimated at INR 500 crores. It's now about INR 585 crores. This is largely on 2 accounts. Number one, that we have increased the land area that we have taken and a better location has been chosen. So the price of land per acre is higher, and we will be able to accommodate more number of lines going forward. So this has increased the investment. Number one. Number two, there has been -- there will be an upfront payment for the euro loan that we are taking of about INR 15 crores, which is built into the all-in cost of 2%. So that amount was added on of INR 15.8 crores. And then the third is because of the depreciation of the rupee versus the euro and some more equipment, which was underestimated has been added on. The project cost is now frozen at INR 585 crores and will not undergo any further improvements.

Okay. So in terms of out of that INR 585 crores, what would be the debt quantum and how much of it is tied up as of now?

Okay. So the equity will be to INR 175 crores. The equity will be INR 175 crores and about INR 400 crores will be the debt in the wholly owned subsidiary.

Okay. And then the [ INR 75 crores ] which is done till 26th of October, entirely equity. No debt drawdown has been made till date.

No. In the wholly owned subsidiary, no debt has been taken.

No debt has been taken, okay? And then my next question is on Engineering Plastics division. There has been a significant improvement in terms of -- if I look at on a quarter-on-quarter basis, in terms of this business, which was a laggard for the company as a whole. So what exactly has changed? If you can throw some light on this business.

Well, 2 things happened. Number one, there was a lot of pent-up demand because Q1 was horrible for this SBU. And so volumes were substantial. We were geared up to take care of this volume. That was point number one. We also took advantage of very cheap raw materials, which are available in Q1. Because prices across the globe had fallen for all materials, and we took advantage and we bought very cheap raw materials, which gave us a lot of success for the SBU. And auto and electrical segments have picked up tremendously.

Okay. And just to understand in terms of if the investment in the wholly owned subsidiary was around INR 28 crores as on September, so within 26 days, we made an incremental investment of INR 50 crores. Did we have that sort of cash on our books as of 30th of September?

Yes. How have we made the payment if we don't have the cash. We had and the. Hello?

[Operator Instructions] The next question is from the line of Viraj Mahadevia, an individual Investor.

Mr. Singhania, Mr. Rustagi, congratulations. Good results. I'm a relatively new investor, but I'm trying to understand the story a bit better. Can you give me a sense of the expected revenue growth going forward? Obviously, we've had a growth in profitability, but it's come largely from the cost side of the equation. So can you give us a sense as you think about the next 1 or 2 years of how you see revenue growth at a consolidated level for the company?

Well, let me put it this way that, first of all, the margin improvement has come because of the margin improvement in film largely right now. And then of course, in Q2, Engineering Plastics has contributed as well. Going forward, by -- let me give you a number that by FY '23, at exit of FY '23, we'll be at a run rate of about INR 2,000 crores per year.

Right. Okay. So one can back up the numbers in terms of annual growth rate.

On a consolidated basis.

Hello.

Yes.

Are you thinking double-digit growth rates then in general over the period?

Well, we are at about INR 1,000 crores right now. And for, let's say, FY '24 full year will be at about INR 2,000 crores. So we will double our turnover in 4 years' time.

New films land will be commissioned in June of '22. That will also add to the remaining.

Understood. Second question, Mr. Rustagi for you. When I look at the margins, 29% in Q2 of FY '21 versus 18% in the same quarter last year. After 11% bump up in margins, how much of that has come from mix change towards Specialty Polymers, raw material benefit due to crude? Or thirdly, any other cut in operational expenses. Can you give us a sense of the breakup in these 3 buckets?

The improvement in margin is only on account of the margin improvement in film business because as we have been telling in the past, there is a pass-through model. Any movement in the raw material price is passed on to the customer. So the demand and supply situation determines the margin. So the improvement in the result is on account of implementing margins only.

Understood. If I understand you correctly, it's not on account of RM because that's a delayed pass-through, but it's largely operating leverage and mix.

It is a leverage coming out of the demand supply because we were running our film plant at almost 100% capacity. So there is not much room for increasing the production. So it is -- the demand supply...

Film business has improved, and that is what is showing the results.

The margins in films have improved.

Yes.

And is that because of operating leverage again or what has changed there?

Demand, supply.

So essentially, you've had greater demand for your products and consequently, for the same level of operations, you have a greater supply.

We don't. We are restricting the supply. We don't have capacity. We are running at full capacity.

Right. So then how do you see improvement in margins if you're already running at full capacity?

Prices have gone up. The -- so the difference between selling price and raw material has increased. The value additions have increased.

So value addition has increased on account of mix, et cetera. Okay. Understood.

The next question is from the line of Himesh Satra from Sequent Investments.

So my question is, what is the revenue potential that you are looking from the new facility that will come in from June 2022?

Engineering Plastics?

Yes.

The expansion is in film business.

Yes, yes, correct. I mean from the film -- new facility that we are starting from June 2022 in the film business. So what is the revenue potential that you are looking for?

About INR 500 crores at full capacity utilization.

At full capacity, okay? And so just MB-16 also, as we were on our way to reserve through commercial orders. So have you received any commercial orders for MB-16?

Yes. Yes. It's already -- So this was the old MB-06, which used to report in our presentation. This has now been renamed as MB-16.

So any amount ...

So we've already received our first order. It has been executed. It is being run by the customers. The first trial has been very successful. They are now running a larger 18 tonne, and this material is expected to be approved. And once it is approved, we will start doing larger volumes immediately.

The next question is from the line of N.M. Modi from -- as an individual investor.

Sir, my query is regarding investments, which we are going to make into subsidiary. So the amount of loan, which we will be providing to them, will we be charging any interest on that company?

We are not providing any loan to the subsidiaries, it is all going as equity.

By the way of equity only?

Yes. The [indiscernible] loan in their books.

Loan component, they will be arranging themselves?

Yes.

That company will be arranging themselves.

Absolutely.

The next question is from the line of Arnav Kapoor as an individual investor.

Congrats on a great quarter. I had a couple of questions. One is on the SP business. There seems to have decreased in the margin guidance had been approximately 35% blended. Would you say that are we trying to sell more at the expense of margin? Or do you feel for the next year we'll be at 30%, 35% from a margin perspective?

So basically, the margins in SP business in terms of per kilo has not changed at all. It's only that our volumes have fallen because of COVID. Once the volumes come back, the margins will go back up to the same number, but we are presuming fixed because fixed costs remain fixed.

Got it. Got it. Okay. That's very helpful. And from the Engineering Plastic division, I think this question also came in earlier. There's been a margin improvement, and you also mentioned in your opening commentary that it's been the best quarter. What is the current capacity utilization? And do you think can it sustain? And I think you've also mentioned that you're looking at expansion. What is the overall driving for the bullishness that you have on the EP business going forward?

You see the auto and the electrical segment has shown a tremendous rebound in Q2. We expect this momentum to be maintained going forward. And we are also looking at investment because we are looking at relocation of the plant, which will help us in serving the customers better and reduce our costs substantially because there's a lot of logistics costs involved because of our current location, bringing in raw materials from the port all the way up north and then distributing it all over India. So we are looking at an investment to relocate the facility with the new extruder -- additional new extruder to take care of growing demand. And it is fully justified because the relocation itself will increase EBITDA margins by about 3%.

And the current capacity utilization is about more than 70%.

Okay. Got it. So it's capacity utilization plus the cost optimization that you're looking for.

And the investments in the Engineering Plastics business is not very large. It's very, very small. So including relocation, including relocation and a new extruder, the total cost would be under INR 20 crores.

And the same has been more than justified this.

Got it. Okay. Okay. That makes sense. And just 2 last questions if I have the opportunity to ask. The BOPET spread, you will expect the spreads you expect them to maintain between 50 and 60 throughout this year and also going forward, do you expect that to fall or any increase in that or we expect that to sustain?

I think it will sustain for the next 18 to 24 months, at least.

Okay. And just one final question, given the second wave of COVID in -- at least in the Northern hemisphere that we are seeing. Do you expect that to impact your SP business at least given that it's coming from the U.S. entirely the revenue in 2020 was about INR 73 crores. So we expect INR 75 CR still to happen in this year barring the second wave, if that comes to or not in the U.S. at least.

So basically, in the Specialty Polymer business, only one product got impacted, which was the MB-03. We've already seen revival of that business starting to happen. And we expect this to continue. That kind of lockdown what we saw and the panic that was created there in the first quarter, we don't expect that whatever be the COVID situation. I don't expect businesses to shut down and be under lockdown the way it happened in Q1. Because no country in the world can afford closures anymore. Business has to run as usual. And plus the expectation of the vaccine coming is going to ensure that business returns to normal faster. So we don't expect any negative impact from COVID anymore. And in any case, as far as the -- like I said, SP business was only impacted on the MB-03, no other product.

[Operator Instructions] The next question is from the line of Faisal Zubair Hawa from H. G. Hawa & Company.

[indiscernible]

The next question is from the line of Ajay Bodke from Prabhudas Lilladher.

Yes. So you mentioned in the interaction on CNBC that the spreads in July, which had gone up to 75 levels and subsequently come down to 50 levels. What is your estimate about the spreads going forward in film business for the next 6 months? That's the first question. Secondly, in Specialty Polymers, for FY '22, you've given a guidance of INR 150 crores and a margin 40%. What kind of revenues are we looking at in FY '21 for Specialty Polymers? And what kind of margins for the full year 1 should bake in? And lastly, if you could just dwell on the demand-supply dynamics in the film business. Have any new lines come up since the start of the financial year?

Can we go -- can I ask you question-by-question? Because ...

Yes, certainly, certainly.

Okay. So I have mentioned that the spread in film will remain between 50 to 60 going forward for the short to medium term, and I've maintained that.

Okay, sir. Sir, the Specialty Polymers, what kind of revenue should 1 break in FY '21 and margins?

FY '21 should be about the same as last year, INR 70 crores, maybe INR 60 crores to INR 70 crores. Largely it because of MB-03.

Okay, sir. And because MB-03 mainly goes in the restaurant business, whether the carpet size is dropping multiplexes?

Commercial, commercial carpet application.

Commercial carpet, okay? Do you expect that business to come back in the second half in America and in West?

It has already started coming back earlier than we expected. And it was -- so we had lost half the year. And therefore, we have had a substantial loss of that business in this current year. If this hadn't happened, if COVID hadn't happened, we would have been in excess of INR 120 crores in the SP business in FY '21.

Okay. And about the demand supply dynamics in the industry...

This will rebound. And I've given a clear guidance that FY '22, we expect our turnover to be in upwards of INR 150 crores with margins of 40%.

Yes, sir. Sir, and lastly, on the demand supply dynamics in the film business. Have any new capacities come up, sir, when you start with the financial year in the industry?

No new capacity has come up in currently -- in the calendar year of 2020. And the next capacity expected to start up is around September, October of '21.

September, October. And how much would that be, sir, capacity?

40,000 tonnes approximately. The second line, I'm not sure because they've all been delayed because of COVID.

The next question is from the line of Sonaal Kohli from Bowhead.

I have a couple of questions. Firstly, on your packaging business, how is the demand doing? And considering new capacities, it will take a while to come, you said September 2021. How would you service your growing demand in India? I guess the demand is growing at 12%, 13%. So in the exports as an industry and company in particular, And would you to reexport again on 1/10 of new capacities in the industry.

Yes. So you're absolutely right. There will be a change in dynamics between domestic and export. And once the new capacity starts coming, we can always increase export again. [ Zari ] demand is bad to full almost.

And sir, where are currently margins higher and due to the recent COVID cases like we saw in July and August, Do you expect restocking in Europe to increase for the packaging products or despite the repair, so we may not see that kind of situation?

With the revised -- I think whatever the COVID scenario, we expect that the stocking situation will again take the previous shape, what we experienced in first quarter.

So you expect stock could go up in Europe because of this.

Yes, because originally stocking was done to at least continuity on essential good supply. So things normalize and then the stock levels were reduced. And with the second wave coming in, of course, that scenario has to come back again.

And sir...

Next time, it could be different than what we saw earlier.

Sir, as far as your product mix in packaging is concerned in terms of value-added and non-value-added products. Can you give some idea incrementally, let's say, going forward. How much more EBITDA or revenue you could make because of this business, let's say in 2021 and 2022 as compared to your normal non-value-added business and how this mix could change over the years, let's say, 2021, '22, '23 as compared to FY '20, a very broad direction?

So I said that the value-added business will give you additional margins of about anything between [ 50 ] -- let's say on an average, INR 60 over and above plain film. So if you do 4,000 tonnes per year more, it will give you about INR 24 crores.

And sir, is this what your -- and when would you expect this 40,000 on a quarterly run rate basis, at least 10,000 kind of number, to start...

10,000, I'm sorry, your numbers are wrong. 30%. So we have already at about 16%, 17%. By March, we'll reach about 25%, 26% exited.

So sir, what I was trying to understand in terms of incremental volume like you said, 40,000 is that the incremental volume you're talking about? And we don't...

It's not 40,000. We said. 4,000, sir.

Sorry, 4,000. So what I'm trying to understand, let's say, your profitability in packaging business was, let's say, INR 100 in the preceding quarter, which has gone by, When do you think because of your -- what could be the profits, let's say, 12 months down the line just because of change in product mix? That's what I'm trying to catch right now? And what could a medium-term direct...

I'm giving you exact number that it will be approximately INR 25 crores more because of this particular coated business.

Over the next 12 month?

Once we reach full capacity utilization, which we expect to reach by March.

Lovely. And sir, as far as your Specialty Polymer is concerned, do you expect Q4 to be a bigger quarter than Q3? And how do you expect the mix between existing and new products for 2022? I guess you've got some new patents as well. And Would you -- we've seen a guidance from your side for FY '23, et cetera, So how are you building those estimates? And what gives you confidence are these -- is it like you're adding new customers? Or are you meeting only small part of the demand of existing customers? And You have some kind of visibility from them that they would increase the offtake from you? Or is it you're betting on success of new products? Or is it a mix of all of these? I'm just trying to understand because it's a very high growth rate and trying to understand the probability of success in that business and the various moving parts. So an elaborate answer on what gives you that kind of confidence for a 300%, 400% growth rate will be very healthy.

It's very clear. It's a mix of all 3. Number one, we expect our MB-03 to come back next year substantially. Number two, the 3 new products that we have introduced are going to start giving us volumes to PBT. And number 3, we have got -- we expect the innovative PBT to increase volume substantially next year. And this is all based on clear guidance by the customers.

So innovative PBT, we already have done 535 tonnes in first half as compared to 465 tonnes last year.

Against the contracted volume of 400 tonnes per year. So this year, we expect to cross 800 tonnes. And next year, this will be in the region of 1,200 to 1,500 tonnes.

The new product and the revival of MB-03 and IPBT -- innovative PBT.

Innovative PBT.

And sir, as far as your -- this business is concerned, would we reach saturation of the markets in FY '23, FY '24? Or how big is the pie? How conservative or aggressive are your assumptions in context of the size of the pie? And the number of customers you still have to tie up or your existing customers, let's say, they do 100 volumes? What are you catering to them currently for those kind of products? It's like, are you expecting 100...

Let me answer that, Sonaal. so, let me -- I have understood your question. Let me answer that very quickly. Here, we are creating the pie. There is no pie to take a slice from. We are developing new products and creating a new pie to eat. So as per the current visibility, we are very confident. As we have mentioned, we are very confident of doing upwards of INR 150 crores in FY '22. And by FY '24 or '25, we will be at about INR 400 crores revenue with 40% plus EBITDA -- EBIT -- EBIT margins.

Sir, as far as the existing products are concerned, have you -- I'm not talking about the new products, the market which they cater to. Have you taken -- I mean, get scratch only a part of the -- small part of that pie? Or just I try to get idea about the existing...

It's not a small part. Again and again, I keep telling you this is a patented product. Nobody else can supply this product.

We have 100% share.

WE have 100% share.

Sir, okay. Let me rephrase my question. I understand it's a patent product, and that's why it's a [indiscernible]. What I'm trying to understand is, let's say, the end usage industry, where your products are introduced, what kind of penetration have you achieved in those products? And how big the potential pie, let's say, over a 5- year period could be for your existing products? So let's say you cater to a particular industry because the new product, obviously, it takes time for the uses to increase. So what is the level of the...

It's a very long answer if I had to go product-by-product. Sonaal, it's a very long answer.

Your key 1, 2 products. The key 1, 2 products. That's existing.

MB-03. MB-03, we are target -- we are estimating to sell about 1,700 tonnes by -- if we should do about 1,400 to 1,500 tonnes next year, 1,700 tonnes in FY '23. And it could have a potential of going up to 3,000 tonnes per year. But I'm not factoring that in. That is not factored in. I'm only stopping at 1,700 tonnes.

[ 400 tonnes ].

On IQ PBT, it's going to continue to grow year-on-year. So we are -- last year, we did 450. This year, we expect to cross 800. Next year, we expect to do about 1,300, 1,400, 1,500. And this will keep growing incrementally every year and could reach 4,000 tonnes, 5,000 tonnes in the next few years. Then as far as MB-16 is concerned, we are talking with one customer for 3,000 tonnes per year. This could grow to 6,000 tonnes, 7,000 tonnes. But I'm not factoring 6,000 tonnes, 7,000 tonnes. I'm only factoring 3,000 tonnes, what I got clear guidance from 1 customer. On the MB-07, I have clearcut guidance of 1,000 tonnes from 1 customer. We are in talk with another customer for similar volumes. So each -- and there are various other -- and then LMC-03, which is our hot melt adhesive. We are factoring only about 5,000 tonnes, 6,000 tonnes by '24, '25. This has a potential to go up to 40,000, 50,000 tonnes if it's a super hit in the market.

[Operator Instructions] The next question is from the line of Faisal Zubair Hawa from H. G. Hawa & Company. Hello, Faisal? Sir, I think there's a disturbance from his line. We'll move to the next question. That is from the line of Shailendra Agarwal from Agreya Capital Advisors.

Mr. Singhania, congratulations for a good set of numbers...

Shailendra, your audio is breaking. So request you to speak a bit loud, please?

Am I clear?

No, it is still breaking.

Mr. Singhania, just wanted to understand from you...

Shailendra, you are not audible. Shailendra, may we please request you to join back in the queue and reconnect. The next question is from the line of Saket Kapoor from Kapoor & Company.

Sir, firstly, you spoke about the new lines of 40,000 metric tonne coming up in September '21. Is it correct, sir, for the film business?

That's what we understand.

Okay, sir. And that is from your competitors?

Yes, one of our competitors is starting up. It is expected to start up by September, October next year.

That is the biggest Jindal Poly will be the one that will be commissioning next year?

No, I don't believe in Jindal Poly.

Okay, sir. Then can you correct me, sir, which -- if you take the peer comparison in terms of capacities in the pecking order, sir, the players, the Indian players, sir?

Jindal is the largest in polyester film, followed by SRF. And then Surat Metallics and Vacmet.

And where do we rank, sir, in that pecking order?

We have a capacity share of about 9% in order. I think we would be in the fifth to sixth category. There are many players in our capacity range.

Right. Right, sir. Sir, can you give some color on the -- how the raw material basket has shaped up for the in the second quarter?

The property has been rock steady since March. And there has been a mild -- there's been a small increase in the last 2 weeks.

Okay. Is it in the PTA prices or the MEG prices?

Both have increased, but marginally.

Marginal increase.

What has been the price rental for MEG and PTA, sir?

PTA is at about INR 40.50 per kg as of now, and MEG is about INR 40 per kg.

Okay. And month-on-month, for the month of October, you were telling me this price?

For the month of October, average would be INR 38.5 PTA. And INR 30.5 MEG.

There is a marginal increase only.

Marginal increase.

Marginal increase has been there, sir. And so looking at what the world scenario is currently, do we anticipate anything -- any inflationary trends coming in the raw material basket? Or these trends are going to continue going forward?

We don't expect any major upward trend. But even if it happens, there will be a pass-through model. So it doesn't matter.

This is our discussion with the PTA, MEG suppliers, we don't expect.

Right, sir. And sir, about this Engineering Plastic segment, sir, this was a cause of concern, and it was -- even if I'm not wrong, we were interested in the putting on block also going forward, if correct me on that front also. So sir, as the auto segment trend has changed and the segment started reporting better numbers. And you are currently looking for relocation of the plant from the current site, sir, for Engineering?

Yes. Yes.

Okay. So sir, what are our plans currently? Where are we shifting it? And where are they housed currently?

It is -- currently, it is housed in Uttarakhand in our plant of Ester Industries where all the facilities are. And we'll move to a more conducive location where we'll take full advantage of logistics costs and reduction of logistics.

Okay. And what are the synergies between the film and the Engineering Plastic segment. How do these 2 segments?

0 synergies. There's nothing in common.

Nothing in common. So it can be hived of sir, going forward also, sir, when we become a major player in the film segment, we can look for hiving off this segment into a separate entity altogether?

Yes.

That could be the case, sir.

Yes.

Okay. And sir, on the real estate front, sir, you were earlier looking for the disposal for the -- your real estate to be also sold the office.

We are trying, but it's not happening. I'll be very happy to talk to you.

Okay. So the market is not currently...

No, it's very bad. Real estate market is very bad. Commercial real estate is very bad.

Commercial real estate market is very bad. But sir, going for the next half, also, sir, the type of -- the quality of numbers, we have -- which now we are getting quarter-on-quarter, sir. How confident are you that for the H2 also, this -- at least this trend can continue? The numbers which we have posted for Q2 won't be just as -- luckily numbers have come up because of x, y, z reason. But it is on a sustainable basis, we can report numbers of this absolute number going forward also, sir?

Let me put it this way that largely, we hope and expect that half 2 will be similar to half 1.

[Operator Instructions] The next question is from the line of Mohammed Patel from Blue Banyan Advisors.

What is the peak sale that we can do on the Engineering Plastic side?

We can do about -- on an annualized basis, we can do about 14,000, 15,000 tonnes.

In terms of revenue?

Value, value.

Value. It would be about INR 220 crores.

INR 220 crores to INR 230 crores, sir.

Okay. Okay. And what is the peak sales that can we do in the Specialty Polymer segment roughly?

There is no limit to that.

No, on the current capacity.

We have to build the market, as we keep building the market, we'll keep selling.

Okay. Okay. Understood. Understood. And you say that 3% margin increase after that relocation. Sir, is this based on Q2 margins? Or is it on the normal margin basis?

This has nothing to do -- relocation is a cost saving. It has nothing to do with current margins.

No, no. You said there will be 3% saving in the margins. We will increase the margins by 3%, EBITDA margins.

We'll increase the margins. By relocation, we'll save cost. That's how the margin will increase.

Understood. So this increase will be on the average EBITDA margin that we have done historically or on the Q2 basis?

It's a cost reduction.

And the next question is from the line of Surendra as an individual investor.

Sir, congratulations for very stellar performance of the Ester Industries. Sir, my question is , just now you told that you are relocating that Engineering Plastics business. This will be happen in FY '21 or FY '22?

It will happen in FY '22.

FY '22. Sir, one more question is that our film business. Right now, we are running at 100% capacity utilization. Is there any opportunity for outsourcing the film?

Sorry, say again?

Is there any outsourcing opportunity for Ester Industries to source the film and then market?

No, no, no. No question.

Sir, one more question about this that the Specialty business. So it's just -- you are seeing that you are a bit of INR 150 crores turnover is in FY '22.

Yes.

That this will required any further on the capital expenditure?

Marginal, nothing great.

The next question is from the line of Anirudh Thakre as a shareholder.

Sir, I just want to understand, like looking at this new -- are you looking for any new product development for this vaccination or for any opportunity in this COVID-related market?

No. I'm not in the pharma business. So even packaging, no, no, no.

The next question is from the line of Ajay Bodke from m Prabhudas Lilladher.

So what were the exports for the current quarter? And how do you see the trajectory in the medium term for exports in various divisions?

Okay. Specialty Polymer is all exports. There's nothing in domestic. About 30% of the volume in film will be exported. And in the Engineering Plastics business, it will be a very marginal number of exports.

5% to 10%.

Maybe 5% to 10%.

Are the realizations in exports on par with the domestic realization? Or are they better?

In Specialty Polymer, anything is exports, so there is no comparative.

No, no, I'm talking about film business, sir?

Yes, it's competitive.

Next question is a follow-up question from the line of Rahul Nadkarni as an individual investor.

Yes. Can you hear me?

Yes.

Yes. So my question was on Speciality Polymer business. So we have an innovative PBT contract, right, for 400 tonnes from chemical -- global chemical players. So that is supposed to be renewed in some time. So are there any talks in terms of what is the quantum? Do you see any increase in quantum in terms of renewal? Or when will we get a confirmation on the renewal piece?

I've already mentioned that we've already got an indication for increase in volumes to about 1,200 to 1,500 tonnes next year. So contract renewal is only a formality.

Okay. So you have a commitment on at least contract might follow, but around 1,200 tonnes is this the number?

Yes, 1,200 to 1,500 tonnes for next year.

Okay. That was the first question. My next question is in terms of the euro loan, which you are planning to take. Why and what is the quantum of that loan? Is the entire debt would be foreign denominated in euro loan? Or do we have a domestic component as well?

So there would be rupee term loan also. The rupee term loan would be about INR 160 crores. Foreign currency loan in rupee terms would be about INR 250 crores, and INR 175 crore would be the equity investment from Ester Industries. So that INR 585 crore will be funded.

Okay. And in terms of the INR 250 crores, will -- is it -- would it be completely hedged or you will have natural hedge by way of your exports?

We have a natural hedge by way of exports.

The next question is from the line of Rajesh Bhatia from ITI Long Shot Fund.

Sir, my question was on in polyester film business, which is basically, it's a global commodity. And in India, also we have SRF and [ global players ]. What makes you so confident that the margins would sustain? Why I'm asking this question is, again, where can we -- the pricing is global for these kind of products. So globally, anyway, if the capacities are coming up, that can put pressure. Another thing is a company like SRF, they have been saying and they expect the margins to become softer because of global capacity and so it's -- they might be more aware of obviously. So that's been one of the things we have been sort of repeatedly guiding, but we are at the peak, and it's a cyclical business. So packaging film business, let's say, for SRF has received, there was period in FY '12, '13, when even negative margins are there, and then it's suddenly shot up. So we are at -- are we at the peak of the cycle or where exactly we are? Just wanted your thoughts and outlook on that.

I've already mentioned that the margins will remain between INR 50 and INR 60 for the next -- in the short to medium-term period.

Okay. But you don't see any risk to these margins?

In the short to medium term, no. After -- in the longer term, as capacities come up, there would be a softening of some margins, but not immediately.

Even in globally also, we don't see any great capacity additions and obviously, will be more or because we don't come across...

Capacity additions are going to continue to happen in this business because globally, there is a demand growth of about 6% per annum. So capacity additions will have to happen to cater to increase the demand.

Okay. And domestically also, like most of these players have plans for capacity addition. So even when our capacity comes up, you don't see that there could be any bunching up of capacity in 2 years down the line?

There could be period. There could be a short period where capacity is get punched up. That is definitely a possibility, but it's not happening for the next 2 years.

The next question is from the line of Yash Joshi as an industrial investor. [Operator Instructions] Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for the closing remarks. Thank you, and over to you.

Thank you very much ladies and gentlemen, for joining us for the earnings call for Q2 FY '21, and we look forward to seeing you all again after the next quarter. Thank you.