Ester Industries Limited (500136) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Ester Industries Limited Q2 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you, Mr. Desa.

Thank you, Janice. Good day, everyone, and a warm welcome to Ester Industries Q2 and H1 FY '22 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 an interactive Q&A session. Before we begin, I would like to point out that some statements made in today's discussion may be forward-looking in nature. So note that this effect was sent to you in the invite earlier. We trust you have 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, Mr. Singhania.

Thank you, Gavin, and thank you, everyone, for joining us today. I have alongside with me Mr. Pradeep Rustagi, our CFO. I will begin the call with a brief overview of all our businesses, post which Pradeep will walk you through our financial performance for the quarter. We've had a good first half that can be seen from via our financials. Revenues for the first half grew by 50% over the previous year. All our businesses are performing well, and we are confident of sustaining the revenue momentum during the second half as well. Specialty Polymer business, as guided earlier, has seen a sharp pickup. Our Film business too maintained its volume run rate on the back of steady demand from the end user industry. Engineering Plastics business clocked in yet another quarter of good performance marked by higher realizations driven by higher feedstock prices. Let me now move on to individual businesses, starting with Specialty Polymers. As indicated earlier, we continue to see strong traction and demand for our products, translating into higher revenues and margins. Overall volumes of the business during the quarter stood at 884 metric tons as against 484 metric tons during Q2 FY '21, a growth of 83%. MB 03, our marquee product, which finds application in the carpet industry maintained its decent momentum with volumes more than doubling over the previous year. In absolute terms, volumes of MB 03 during the quarter stood at 240 metric tons as against 92 metric tons during Q2 FY '21. After the challenges posed by the pandemic last fiscal, we were confident that the product will bounce back sharply, given its inherent and unique quality and value proposition. We believe that H2 will see similar kind of numbers, if not better for the product. Innovative PBT has also performed well with volume growth of approximately 27% over the previous year; absolute numbers being 284 metric tons during Q2 FY '22 as against 224 metric tons during Q2 FY '21. Innovative PBT, as many of you know, is a product we manufacture for a global chemical leader. Besides these 2 products, we are also witnessing good response for some of our newly introduced products, which gives us the confidence of sustaining the overall growth momentum of the business over the coming years. MB 07 is one such product of which we recently started commercial sales. Volumes for the product during Q1 FY '22 stood at 74 metric tons, while for Q2 we clocked in volumes of 262 metric tons. MB 07, just to give you an update, is added to make polyester dye-able with deeper and darker color. We had to work hard for over 3 years before finally obtaining the customers' approval. We are confident of the product and expect the volume to scale up steadily over the coming quarters. We have also commenced commercial sales of LMC 03. We are close to achieving techno commercial qualification for yet another innovative product MB 16. As indicated in our earlier call, we expect the volume for LMC 03 to pick up significantly over the next 2 to 3 years, while we envisage potential for sizable sales volume for MB 16. I would just like to reiterate again that we remain positive on the business and expect the strong performance to continue over the coming years. The belief largely stems from the traction we are witnessing for existing as well as newly introduced products. Our product pipeline as well remains exciting giving us the confidence to lower business dependency on a particular product. Besides volume growth at rising feedstock prices with a group base resulted into revenue from operations increasing from INR 12 crores to INR 46 crores. As a result, EBIT for the Specialty Polymers has been stood at 36.9%. Eliminating the impact of increase in feedstock prices from raw material consumption and revenue from operations, the EBIT margin during Q2 FY '22 would have been about 50%. Moving on to the Film business. With this increased feedstock prices, Film SBU excluding chip sales clocked a revenue of INR 195 crores during the quarter under review, a growth of 3% over the previous year. Margin compressed during the quarter owing to the excess supply following commisioning of new capacities. High shipping freight costs exerted pressure on volume and margins as far as exports business is concerned. As I've been reiterating, the domestic demand continues to grow at about 11% to 12% on an annual basis. Performance of the SBU would have been better, but for the production loss due to shutdown of the Film plant number two, undertaken for a few days during the quarter for maintenance. Eliminating the impact of increase in feedstock prices from raw material consumption and revenue from operations, the EBIT margin during Q2 FY '22 would have been about 17%. While margins/profitability scenario is likely to remain subdued over short to medium-term, mitigation strategy focusing on enhancing volume of value-added and off-line coated products is being pursued relentlessly. The share of value-added products during the quarter stood at 20%. We believe that we are very much on track on our guidance for increasing the value-added mix to 30% of the overall product mix by March '23. Despite the near-term challenges, we believe the demand supply equation continues to be favorable for the business on a long-term basis by a wider expanse of application. A quick word on our new plant at Telangana, before I move on to Engineering Plastics business. As many of you may recall, we are setting up a new greenfield unit with 48,000 tons per annum state-of-the-art plant in Telangana through our wholly owned subsidiary at a cost of INR 587 crores. Work on the plant is progressing as per schedule, and we expect the unit to commence commercial production by October 2022. We believe the new unit will help us better serve our customers besides adding to the overall growth of the business. Moving on to Engineering Plastics business. Q2 saw yet another quarter wherein the business registered a healthy revenue run rate. Revenues for the quarter stood at INR 74 crores as against INR 49 crores during Q2 FY '21, higher by 51%. Though realizations have improved largely owing to rising input costs, margins in percentage terms were lower on a sequential basis. Eliminating the impact of increase in feedstock prices from raw material consumption and revenue from operations, the EBIT margin during Q2 FY '22 would have been about 34%. As I mentioned earlier, the margins, which we have been generating in recent quarters are not sustainable in the long run, and we should expect some moderation. Having said that, we remain committed towards maintaining reasonable margins in the business by improving our product mix, and we certainly expect the relocation of the unit to add to the profitability of the business. Shifting the unit will not only help us better serve the customers, it will also help us cut down on the logistical expenses, which should improve the operational efficiency of the business. To conclude, I would just like to state that all our businesses are performing well and are well positioned to deliver consistent returns over the coming years. Specialty Polymers business has demonstrated its resiliency by delivering strong performance during the first half, and we expect the buoyancy to continue in the second half of this fiscal as well. As far as Film business is concerned, long-term prospects of the business are good, though a near to short term, we may see moderation of margins. As far as Engineering Plastics business is concerned, we expect the same performance, but the same to perform well on the back of improved demand. Current levels of margins, as I mentioned, may not be sustainable, but we expect the same to be retained, given our decision to relocate the plant. Furthermore, our internal measures as well towards improving the profitability of the business should continue to contribute positively to the overall business. That concludes my opening remarks. I now hand over the floor to Pradeep to walk you through our financial performance. Thank you.

Good afternoon, everyone, and thank you for joining us today. I will quickly walk you through our financial performance for the quarter and half year ended September 30th, post which we can begin the Q&A session. Starting with the top line, revenues from operations stood at INR 333 crores as against INR 251 crores reported during Q2 FY '21, higher by 33%. On a half yearly basis, revenues stood at INR 652 crores as against INR 439 crores, higher by about 50%. The growth is on account of traction in Specialty Polymers and Engineering Plastics and increasing realizations consequent to increase in feedstock prices, which are group-based products. EBITDA for the quarter stood at INR 59 crores as against INR 73 crores generated during Q2 FY '21, while on a half yearly basis, it stood at INR 123 crores as against INR 126 crores generated during H1 FY '21. EBITDA margin for the Q2 FY '22 reduced to 17.7% as compared to 29.1% a year ago. Eliminating the impact of increasing feedstock prices from raw material consumption and revenue from operations, the EBITDA margin during Q2 FY '22 would have been about 23%. Lower profitability during the quarter was primarily on account of lower profitability in Film business. Moderation in profitability of Film business was partially made good by strong performance of Specialty Polymers and EP SBUs. Finance costs for the quarter remained steady at INR 5 crores as against INR 5 crores outgo reported during Q2 FY '21, while on a half yearly basis, the same stood at INR 10 crores as against INR 8 crores outgo reported during H1 FY '21. As of 30th September '21, our outstanding interest-bearing term debt, net of free cash, stood at INR 160 crores, while interest-bearing working capital by liabilities stood at INR 49 crores. Interest-bearing debt, net of free cash, as a multiple of annualized EBITDA remained at a comfortable level of 0.85 as on 30th September '21. We are committed towards maintaining better than prudent debt equity levels going forward. Depreciation for the quarter stood at INR 10 crores as against INR 9 crores reported during Q2 FY '21, while for the first half, the same stood at INR 19 crores as against INR 17 crores during H1 FY '21. Profit for the quarter stood at INR 33 crores as against INR 46 crores generated during Q2 FY '21, while for the first half, the same stood at INR 71 crores as against INR 75 crores generated during H1 FY '21. To conclude, I would just like to reiterate that we are confident of sustaining the decent growth momentum. All our businesses are well placed to perform consistently over the coming years and create value for our shareholders. Thanks. Over to Gavin.

[Operator Instructions] The first question is from the line of Saket Kapoor from Kapoor & Company.

Sir, firstly, sir, if you could give the details for how the raw material basket behaved, sir, for this quarter and its comparison with the first quarter?

So during this quarter, the raw material cost for PTA and MEG per kg of chips was about INR 75, whereas in September '20, it was only INR 45.

And I was asking for June, sir -- June to September.

June '21 it was INR 72.

Okay. And so that means there was not a lot of volatility, the prices were in the...

Yes, there was not much volatility. But compared to September '20, there was a significant increase, almost about 80% -- 85%.

And sir, how have been the month for October? I mean we have seen that various commodity prices have been moving here via -- post the exit of the month of September, in the month of October. So have you seen any significant change with respect to the PTA and MEG prices?

Yes. So September quarter, it was INR 75, but the month of October was INR 80. And between October and November, there has not been any volatility. The raw material rate is about INR 80, INR 81 in the month of November so far.

Right, sir. And sir, further out -- more details, can you give what is the PTA prices and MEG prices month on month?

Yes. So September quarter, the PTA price was about INR 66, MEG was INR 55. In the month of October, the PTA was INR 69, but MEG was INR 62. And then November, the MEG -- PTA prices are INR 70, but the MEG has dropped to INR 60.

Okay. But it is still hovering in a 5% to 8% band, not significantly.

Yes. September, October, November is more or less stable. October, November is absolutely identical.

Right, sir. And sir, about the new projects, where are we in midst of that? And what amount of fund we have drawn? And any -- what is the update on the current greenfield project, sir?

The project is very well placed. It is going as per schedule. Our original schedule was for startup in October '22 and the schedule is being maintained. There is no delay. And all the funds, the financial closure for the project has taken place, and we are absolutely on track on every accounts.

Right, sir. Sir, total cost of the project and how much funds have we drawn? And what are the interest rate terms for the same?

So we have a project cost of INR 587 crores, which is to be funded by INR 176 crores of equity. Out of that, INR 154 crores, as we speak now, 15th November, we have invested INR 150 crores -- INR 154 crores. The term loan -- foreign currency loan, euro-denominated loan, the disbursement has started. Till 30th September, it was about INR 3.5 crores. But in the month of October, there has been significant disbursement of about INR 14 crores. Rupee term loan, the documentation part is completed. The disbursement is expected by end of November. Foreign currency loan is at about 2% per annum. Rupee term loan is about 8% per annum. The working capital, which will come in due course of time, would be at about 7.5% to 8% per annum. So all-in cost would be about 5.5% to 6% per annum.

Sir, for the euro loans, any hedging we have to go? Or it will be a natural hedge against the Specialty Polymers and other products are being exported...

Yes, they're exports.

Okay. Then what was the -- our export mix, sir, for the first half out of the total revenue?

[ Total ] export mix is about 30%.

And if you take the total mix of the total sales of INR 333 crores, what would be the -- what proportionate...

Yes. Just hold on for a minute. You can ask another question. I'll just share the exact number.

Correct. Sir. My next question is attributed to the Specialty...

May I please request you to return to the question queue for your follow-up as we have other people waiting for their turn. The next question is from the line of Rajesh Agarwal from Moneyore Investment.

Sir, your comments on margin going forward, how the margins will play out and the CapEx?

In what product?

In all products, Film -- basically Film.

Okay. So as far as the margins in Polyester Film are concerned, up to now, in the third quarter, we are witnessing a slightly better margin in Polyester Film compared to Q2. As far as Specialty Polymer is concerned, the margins are steady, as I've always maintained before, that it's a pass-through model. So the margins are maintained. In absolute terms, the margins are maintained and will be maintained for all -- for long time to come because these are specialty products, so there is really no competition. And as far as the Engineering Plastics is concerned, the margins have been extremely good, and they expect to remain extremely good for the short to medium term.

And the CapEx?

The CapEx will be composition of -- yes, go ahead.

And the focus on CapEx.

So CapEx, as just mentioned, we have a CapEx of INR 587 crores in our wholly owned subsidiary for Polyester Film, which is expected to start production by October '22. That will add about 48,000 tons of Film capacity.

And when it will come onstream?

October '22. October 2022.

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

I had broadly 2 queries. The first one pertains to Polyester Films. So if I'm seeing the data correctly, the absolute profits, not the margins, in Polyester Films, has fallen to maybe a 10, 12 quarter low. What is the reason behind that? And was this fall led by the domestic market or by the export market or both?

It was both actually because some new capacities have started up globally. And also the Polyester Film was affected quite badly because of increase in freight rates, which ate away into export margin. So the increase in raw material prices, freight rates going up, some other costs going up domestically because of power and transportation, et cetera, so it was a combination of many factors that contributed to this.

And sir, why the domestic market -- because based on all the previous conversations we had, there are no imports in India. So the new capacity come in India as well or because you were not able to export, therefore, those capacities got diverted to India to that extent, and that's what impacts the domestic profit?

Yes. While there are no imports or no significant imports coming into India, but at the end of the day, global -- it's a global economy now. So even if domestic capacity has not increased, global capacity has increased to that extent, your export margins come under pressure and therefore more volume is available in India.

I see. Would you have some data about the industry, sir, in terms of like how much was exports in [ backdoor ], let's say, for you, how much was the exports in tonnage in Q2 '21 versus, let's say, Q2 '22 or versus Q1 '22? Whatever you can share?

I don't have that right now, but I can give it to you offline.

Understood. So sir, this INR 28 crores kind of run rate which you achieved, is that here to stay? Your second lowest run rate has been actually INR 35 crores, INR 36 crores in the last 12 quarters. So that's what we're trying to understand. And has any new capacity started in India also?

Yes. So like I said, the third quarter is showing better margins over second quarter. And new capacities are expected to start up in the next few months. So I think one line will start up in the third quarter, another line will start up in the fourth quarter. And so on, there will be more lines coming in over the next 2 to 3 years.

Sir, my second question pertains to Specialty Polymers. So what I wanted to ask, obviously, because of crude, the previous numbers, which you guided,, let's say, one, one and half years back wouldn't be valid because this is cost plus and you're able to pass on. So -- and the profit has been pretty robust. So how do you see the second half for you in Specialty? The INR 17 crores kind of EBIT profit, is it sustainable? And now what kind of revenue are you expecting for the full financial year and year-end, assuming these crude prices? Because crude has [ doubled ], I'm sure that the revenues wouldn't remain the same.

Yes. So in the beginning of the year and at the end of the first quarter, I had given a guidance of INR 130 crores to INR 135 crores revenue for the whole year. In the first half, we have already achieved about INR 80 crores, INR 81 crores revenue. So I maintain the guidance that we had given. We should be able to repeat the first half in the second half as well. And [indiscernible] as you can see, and they will remain robust.

And the profitability would remain around this, let's say, INR 30 crores level which we have in the first half in the second half also?

Yes. Margins is not an issue here because there is no pressure in absolute numbers. The percentage fall in margin because of raw material price increase, that's another story.

No, sir, I was referring to the fact that with the opening of the U.S. market, are you expecting any further increase as compared to what you've already delivered? That's what my question was referring to.

It will -- I think for the second half will remain pretty much the same because U.S. market is starting to open up slowly.

Understood. And any new product launches we expect over the next 6 months?

Any new what?

Products in the space we are planning to launch in next 6 months?

We have 1 or 2 products which are in the pipeline. But I am afraid I cannot talk in detail about that right now.

The next question is from the line of [ Ravi Nakka ], individual investor.

[Foreign Language]

We don't have any such concrete plan right now to demerge the Specialty Polymer business.

[Foreign Language]

It's going to pick up slowly because the product stands approved -- techno commercially the product stands approved. The customer is starting to introduce it. It's a very big product launch that's going to take place. And that's going to start by -- in the first quarter of next calendar. So depending on the success, I think we may see some good volumes coming in, in 2022, but the major increase in volumes will start from '23 onwards.

And there is also a product called LMC 07?

That is not a major product.

Okay. And MB 16?

MB 16 is already on its advanced stages of approval. I think we might start seeing volumes from next year.

The next question is from the line of [ Pratap Makwana ], individual investor.

Congratulations for the fantastic result. I have 4 questions, so I will repeat one by one. Sir, in this quarter, you have shown one-time inventory cost. So hopefully, that one-time inventory cost will realize into the net raw material for the upcoming quarter and will realize in the better EBITDA. And my second question is the production -- upcoming production realization from October '21 from the Telangana plant. How much contributions will be there for the export revenue from this plant? And which plant will come into the operational from which month of the next year? My third question is that annual maintenance shutdown plan, in which month and for how many days? And my fourth question, sir, is the continuation from the last investor meet from the last quarter, the energy enhancement project, which you -- which regularly getting carried away and it is benefiting in terms of the energy. You can throw the light on the furnace oil prices because the furnace oil is not the burning commodity, it's a heating commodity -- indirect heating commodity and the rice husk is not much more impacted into the fuel price. And so it will not affect the energy prices, but energy prices will be sustained, and so that will not affect the revenue in terms of the going forward. So how much will be the contribution and the sustenance will be there going forward for this? So these are my 4 questions, sir.

So as far as the export volume from Telangana project is concerned, we would be exporting close to 30% to 40% of the production from Telangana in the overseas market. The hedge -- it is not the hedge. We are putting -- shifting Engineering Plastics unit to Baroda, and that should start operations by July '22. On the annual maintenance, it's a phased sort of maintenance plan. We have 3 different plants. Each plant is undertaken for annual maintenance, depending on the availability of repairs, et cetera. And energy cost is -- we are hardly using any quantity of furnace oil. Furnace oil is used as a standby when there is less availability of husk or there's some pressure on supply of husk. But husk prices have also gone up. Because of the heavy rainy season, this time the husk prices have also gone up. So energy cost -- power cost is -- we are drawing from the State Electricity Board, and that's going to remain constant in March of '22.

Yes. And onetime inventory cost, which you have shown for this quarter?

No, there is no inventory loss in the quarter ended September '21 -- September '22, Q2 FY '22.

[Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor & Company.

Sir, you were explaining about the export mix.

Yes. So out of INR 333 crores, INR 106 crore is the export, INR 46 crores of Specialty Polymers, [ 15 ] and Engineering Plastics, INR 9 crores. So about INR 32 crores at company level, INR 32 crores is the -- 32%.

Right. Right. Sir, in the Film business, if globally, you could explain us what are the dynamics in play since it's a global foray altogether and any capacity change globally or demand have sliced -- skewing on any side will have an impact. So how is the global capacity and the demand aligned? And what can we expect in terms of the pricing going forward globally?

Girish, are you there?

Yes.

Would you respond, Girish?

Yes. Yes, sir.

You have to please respond to this question.

I think there are few capacities planned across the globe, and the capacity always comes in some bunches. And I think coming -- going forward, there's some capacity expansion happening in India. A few lines are coming and then few capacity expansion is happening in China as well. So this time, the change what we are seeing is that expansion is also happening beyond India and China and in U.S. also and Africa also. Does that answer your question or do you have anything specific to ask?

Sir, I was looking at the material impact. [Foreign Language] How is that getting aligned? Whether it is the demand that succeeds the supply or vice versa?

See, in any case, there is always a gap between the -- when the capacity gets added and the demand goes on at a much flatter curve and capacity comes in bunches. So there are capacity expansion plans which were planned in last couple of years, but those expansions were impacted due to COVID. Now those capacity expansions are coming onstream. But let's say, if you look at 5- to 7-year period, so the capacity expansion and the demand expansion in this period is aligned. There is no issue.

Sir, out of the total annual requirement domestically for the country, how much is met through the Indian players and how much is met through import?

See, there is hardly any import coming on Polyester Film in India. So largely, the production, whatever happens in India is, let's say, I would say that 70%, 80% is supplied to the domestic market, rest is exported.

Out of the total production in the country, 70%, 80% is being consumed and 20% has been exported?

Yes, yes, 20% to 30% is exported.

So there's surplus in the country that -- sorry, are we doing export for our clients' specific purpose?

So in Polyester Film business -- this particular business, India is a major exporting hub for this product. So there's always, let's say, the capacity in excess of domestic supply because we have a -- as a country, we have good clientele base for supplying Films across the globe.

Right, sir. And for this higher value-added Films part, I think so we did some CapEx also 15 months ago. Where are we in midst of that? And what is the percentage of the value-added Films of the total proportionate for this quarter and for the first half?

So I think what I can say in this question is that we have invested in off-line coated capacity, which is -- as we speak now, is operating near optimum level. And then I don't think we would be able to give an update on exact number. And we are also building further capacity and getting into various different kind of value-added products. So product development activity is going on, yes.

So currently, our proportion is, in the September quarter, in terms of volume, it was 20%. But in terms of value, it was 28% from the value-added and the off-line coated product.

Right, sir. And have we reached the optimum level? Or we are going to improve on this? And how are the margins different from the other ordinary prints, if I may use that term? [Foreign Language]

Girish, can you answer that?

See, I think the -- in case if we were to give a syndicated number on the margin difference between these products compared to other products, so that could be, on an average, I can say, it's easily the product made from off-line coated contains, let's say, an incremental EBITDA margin of around 10% to 15%.

Right, sir. And any specific end-user customers that we have for this customized Films evaluated, sir?

So it's going into various applications. It goes into packaging, it goes into decorative, it goes into very, very different kind of industries. It's broad-based.

Right, sir. And if we take our customer profile, 5% and above, sir, which industry are we catering to?

The Film business largely serves packaging customers.

I didn't get you, sir.

So in Film business, the bulk of the volume goes to flexible packaging business.

Right, sir. And the key customers, sir, can you -- who are our key customers?

Sorry, we cannot reveal the names of our customers.

Name of the customers cannot be revealed.

[Operator Instructions] The next question is from the line of [ Shailendra ], an individual investor.

Sir, my question is regarding this -- in Telangana we are putting Polyester Films plant. So we are also putting Polyester chips plant there?

Not yet, not in the first phase. That may come in the second phase. When we decide to go in for the second Film line, then we'll put up our chips plant.

So then what will be the sourcing?

There are plenty of options available to us to fire the Polymer for the Film plant.

And one more question, which is especially the Polymer. MB 03, sir, what would be our target for FY '22 and FY '23?

FY '23?

Yes.

It'll be about 1,500 to 1,700 tons.

The next question is from the line of [ Ravi Nakka ], individual investor.

Sir, what is the status of Specialty Polymer CapEx that we have announced last time INR 80 crore CapEx?

Yes. That is ongoing. And it's in phases. So the first phase should be complete by June or July of -- sorry, August of next year -- August '22.

Okay. And sir, what is the turnover that we hope to achieve with this INR 80 crores CapEx, turnover?

It's not only because of this INR 80 crores, this is not for the short term, it is part of an ongoing performance of Specialty Polymers over a longer period of time. So over a period of the next 3 to 4 years, we expect to reach a turnover of about INR 400 crores to INR 500 crores.

And in the INR 80 crores, we are not only spending on the polymerization, we are also spending a lot of money on the utilities -- balancing of the utilities.

And sir, what is the target of -- revenue target next year for Specialty chemical -- Polymer business, next year?

It will be much better than FY '22.

INR 300 crores, we can expect?

We'll give you that number towards -- when we -- towards the end of the year.

We're still 6 months away from closure of the financial year.

The next question is from the line of [ Arnav Kapur ], an individual investor.

Just 2 questions. One is on the value-added piece on the Polyester Film. You've given a target of 27% to 30%. Do we -- is there any timeline specific that you can indicate for that?

Well, in terms of value, we've already achieved 28%. In terms of volumes, we're at about 20%, 21%. And I think within the next one year or so, we should be at 30%.

And from a margin perspective, do you expect to maintain like late-teens or it can go beyond -- go back up into 20% and plus?

So the incremental margin from off-line coated products will be in the -- incremental over and above the normal Films, should be in the region of about 10% to 15% additional EBITDA margins.

Okay. And the last question on Specialty Polymer, given that this is like a high-growth area for us, from a people perspective, do we have the right set of team on the ground? Or are you also looking to ramp up from an R&D perspective and from a sales perspective?

Well, currently, we have the required requisite number of people with the desired skill set already available. And as and when we keep needing additional people, we keep -- we are fully adequate right now.

The next question is from the line of Saket Kapoor from Kapoor & Company.

Sir, what should be the likely peak debt for us when the projects -- at the start of commissioning of the projects, what would be the cash accruals that will be attributed further or we will be keeping the ratio at the 30:70 mark itself? Whatever has the contribution been, the remaining will be from the debt only, these cash flows will not be utilized for the CapEx.

In Telangana, initially, whatever cash accruals are there would be used for payment obligations and for building up -- reducing debt, improving the debt leveraging. So we would undertake CapEx only when it is utmost necessary and important.

No, sir, I was just looking for the utilization of cash from our standalone...

That's exactly what Pradeep has explained that in Telangana, the -- in the initial part, we will use the cash accruals to reduce the debt.

Right, sir. So what are the current key risks for our industry? And what steps can be taken in our in hand so that we can mitigate those risks going forward, especially the Film business?

There are really -- I don't see -- I mean apart from any God-given calamity, I can't talk about that. But in generally speaking, as far as the Specialty Polymer and Engineering Plastics businesses are concerned, the risk levels are very low in Specialty Polymer business, especially. I don't see many major risks there. As far as Film business is concerned, it would largely be the capacity creation, which could create a short- to medium-term imbalance in demand/supply. And for the biggest mitigation there would be in 2 ways. Number one, keep our debt very low, which we already have. And number two, increase the value-added products to take care of the fall in margins of the commodity films with specialty films. So both these things are underway currently.

Right, sir. And sir, what should be the explanation for the decrease in the margins for the Engineering Plastics, if you have answered, sir, I missed the point. Quarter-on-quarter, we see the margins reduce, although the turnover has moved up from INR 59 crores to INR 74 crores. The incremental -- the margins, the absolute numbers are lower. So please explain that, sir?

Yes. You are talking of Q2.

I'm talking about June, yes, Q1 versus Q2.

So one of the reason is that the margins, we have explained in the previous calls, we have seen unprecedented margins in Engineering Plastics. So there were some moderation because the benefit of the cheaper raw material inventory that was in hand or in pipeline, that has been built, number one. Number two, because of the margin percentage would have been almost 34%, if the raw material increase had not taken place. So in fact, there is no -- in terms of margin, if you take away the increase in the feedstock prices and sales value, the margins have been maintained. But because of the higher denominator, it is appearing to be low.

And here also, sir, the same feedstock is there in the same proportion, PTA and MEG?

It's all petrochemical. So it's basically linked to crude.

Right, sir. Are the -- other than the 2, the ones which we discussed, the PTA and MEG, other than that, there is another component also in the raw material basket?

In the Engineering Plastics, we are importing [Audio Gap] Nylon 66, Polycarbonate, PBT. So these are all petrochemical products.

PTA, MEG is not getting used in Engineering Plastics.

Can you come again, sir? My line got disconnected. What is the -- what are the raw material component here?

PTA, MEG is not used directly in Engineering Plastics. It is all polymers which are being imported.

Okay. And there also the price change have been very erratic, sir. The prices have, along with...

That is very much similar to, in fact, what's been PTA and MEG.

Okay. You mentioned Nylon 6 also, sir, as a raw material?

Yes.

And Nylon 6 is available domestically also, sir, or we have to import? Nylon 6, actually GSFC is the only producer in the country.

[Foreign Language] They are available, but the kind of quality and grade we want is not available.

So we can expect these margins on a sustainable basis for H2 also, sir?

Yes.

That we can conclude, even for the Engineering Plastics, these are the margins that are here to stay?

Yes, yes, yes.

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

Thank you very much, ladies and gentlemen, for joining us for the earnings call. I look forward to seeing you after the close of next quarter. Thank you very much, and have a good day.

Thank you.

Thank you. On behalf of Ester Industries Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.