Ester Industries Limited (500136) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Ester Industries Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you, sir.

Thank you. Good day, everyone, and a warm welcome to Ester Industries Q1 FY '25 Analyst and Investor Conference Call. We have with us today Mr. Arvind Singhania, the Chairman and CEO, Pradeep Kumar Rustagi, the Executive Director of Corporate Affairs; Mr. Girish Behal, Business Head of SBU, and Sourabh Agarwal, 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, a note of this effect has been sent to you in invite earlier. We trust you've had a chance to go through the financial documents and the presentation. I would now like to invite Mr. Arvind Singhania to make opening remarks. Over to you, Arvind.

Thank you, Gavin. And thank you, everyone, for joining us today. I will briefly talk about the key business developments. Post which Pradeep will walk you through our financial performance. We have started this fiscal on a positive note. Especially, Specialty Polymer business, which has seen a sharp growth both on year-on-year, as well as quarter-on-quarter basis. Film business as well after undergoing challenges over the last 24 months has finally started witnessing some positivity in terms of pricing and margins, basis robust both in domestic as well as global demand. The demand supply in the mismatch has started to narrow. We are, therefore, hopeful of a more balanced environment going forward and consequent pricing, margin and profitability improvement. Moving on to individual businesses now, starting with the Specialty Polymer. So Q1 registered a strong growth led by higher volumes with better product mix.

Sorry, sir, we have lost the audio of your line. Ladies and gentlemen, the line for the management has been dropped. Please stay connected while we reconnect the management back. Ladies and gentlemen, the line for the management has been reconnected. Sir, please go ahead.

Thank you. So moving on to individual businesses, starting with Specialty Polymer. Q1 registered a strong growth led by higher volumes with better product mix. As I've also emphasized, this business is protected by intellectual property, which safeguards our margins and profitability. Q1 registered revenues of INR 45 crores with an impressive EBIT margin of 43%, largely on the back of higher uptake of our marquee products, namely MB03 and Innovative PBT. For the quarter, our overall volume stood at 982 metric tons as against 526 metric tons during Q1 FY '24 and 853 metric tons during Q4 FY '24. We exported 527 metric tons of MB03 during the quarter under review, as again 247 metric ton in Q1 FY '24, whereas Innovative PBT sales for the quarter stood at 301 metric tons as against 79 metric tons in Q1 FY '24. We expect the momentum to not only sustain but accelerate further throughout the fiscal year, leading to growth in revenue, margins and profitability. We remain focused towards building a healthy product pipeline and expect positive contributions from some of them over the coming years. Moving to the Film business now. After the witnessing challenging challenges over the last 2 years, primarily due to significant oversupply in the market caused by bunching of new capacities. I'm pleased to report that we have started to witness some respite over the past few months. While the demand supply gap still purchase, it has started to narrow surely and gradually offering well for the business, a better pricing and margin environment aided in sustaining revenue despite lower volume for the quarter. Our volumes at a stand-alone basis, that is at Ester Industries level stood at 11,126 metric tons for the quarter as against 12,462 metric tons during Q1 FY '24 grow by 10% and 13,048 metric tons during Q4 lower by about 14%. Lower volume growth during the quarter was going to shut down of Film production line 1 and 2 for maintenance and other reasons for a few weeks. In addition to a better pricing environment, I'm also pleased to share that our efforts towards improving product mix by increasing the share of value-added products have started delivering results, share of value-added and specialty products stood at 30% during the quarter, and we are hoping to scale it to up to 40% by FY '26. Our subsidiary Ester Filmtech generated revenues of INR 81 crores with volumes of 6,501 metric tons during the quarter. We expect the entity to generate revenues of about INR 450 crores to INR 500 crores, upon achieving optimal utilization at reasonable prices/margin by next fiscal. Better pricing environment resulted in positive EBITDA for the quarter. As for Ester Industries, robust growth in domestic as well as global demand will lead to improvement in margins and profitability of Ester Filmtech in coming quarters, years as well. Traffic-based Management rules are scheduled to come into force from April 1, 2025. These rules will maintain utilization of 10% recycled content in flexible packaging laminate. This is expected to lead to increased demand and consequent better margins for polyester film with conversions taking place from other substrates like BOPET Polyester. As regards to our JV with Loop Industries, I'm happy to inform you that it is progressing as per schedule. A new company by the name of Ester Loop Innovative Technology Enterprise Private Limited has been incorporated, which will be adequately funded to equity and debt as per need basis, project implementation schedule. Various teams have been created the representative from both Ester and Loop to pursue various activities for implementation of the project in right earnest. Our target time line is to commence commercial production in the first half of calendar 2027. To conclude, we expect a better performance during the year. Specialty Polymers has already demonstrated strong revival during the first quarter, so has the Film business in-part. We believe both our SBUs are well positioned to deliver growth and create value. And the joint venture with Loop, which is a transformative initiative will pave the way for profitable growth for the company in the years to come. That concludes my opening remarks. I now hand over the floor to Pradeep to walk you through our financial performance. Over to you, Pradeep.

Thank you, and good day, everyone. Thank you for joining us on our Q1 FY '25 earnings call. Let me quickly walk you through our financial performance, post which we can commence the Q&A session. Starting with the revenues on a stand-alone basis, the sales stood at INR 244 crores as against INR 206 crores in the corresponding quarter last year, higher by 18%. The primary reason for the growth is the strong performance of Specialty Polymer business and revival in Film business, as reflected by better pricing environment. As mentioned by Arvind earlier, the Film business after undergoing a challenging time over the past 2 years has now started to see some early signs of revival in terms of pricing and margin improvement. Specialty Polymer business, though, as we have been indicating, is largely an IP-protected business for, the threat of competition does not exist and margins remain protected. EBITDA for the quarter stood at INR 17 crores as against INR 13 crores generated in Q1 FY '24, higher by 35%. Margins for the quarter stood at 7% as against 6% during the corresponding period last year. The business incurred a loss of INR 2 crores during the quarter as against loss of INR 5 crores generated during Q1. Moving on to the performance of Ester Filmtech Limited, our wholly owned subsidiary. Revenues for the sales stood at INR 81 crores for the quarter. In terms of volume, Q1 FY '25 generated 6,501 metric tons of sales, with the pricing trend improving and demand-supply mismatch narrowing, we are confident that Ester Filmtech will contribute positively to the overall growth of the business in the coming years due to its low operating cost. We expect the unit to generate revenues worth INR 450 crores to INR 500 crores upon achieving optimal utilization by FY '26. Despite losses incurred, both companies Ester Industries and Ester Filmtech are up-to-date in servicing debt, both interest and principal as per schedule. In addition to existing liquidity, equity induction of INR 99.90 crores in the month of March '24 by promoters and others, has enabled the company to maintain comfortable liquidity and financial position. Gross term debt and net term debt in the books of Ester Industries Limited as of 30th of June stood at INR 180 crores and INR 92 crores, respectively. While in the books of Ester Filmtech it has stood at INR 347 crores. Financial leverage as indicated by total outside liabilities to total equity ratio, it stood at 0.5 or as of 30th June for Ester Filmtech Limited, total outside liabilities to total equity ratio stood at 1.4 as of 30 June '24. In summary, as mentioned by Arvind earlier, we believe both our SBUs are well placed to deliver growth and create value for our shareholders. Especially Polymers business has already demonstrated the kind of performance it can deliver and the Film business's performance is expected to get better after quarter aided by higher proportion of value-added and Specialty Films and improving pricing/margin trend. Domestic demand for Film continues to grow at a healthy rate, helping to breathe the demand supply gap. The joint venture with Loop industries is progressing as planned and will prove to be a true game changer for us. Once it begins commercial operation, it will significantly transform the growth trajectory and profitability profile of the company. Thank you.

Sir, should we open the floor for questions?

Yes, please.

[Operator Instructions] Our first question is from the line of Krushna Parekh from Dollat Capital.

My first question is related to Films business. The growth in the Films business has been subdued, given the demand and improving margin profile for the industry. How do you see the next 2 to 3 quarters playing out?

I think the improvement has just started a couple of months ago. I think you can expect to see substantially better numbers in the coming quarters.

Okay. That's helpful. My second question is what is the progress with JV with Loop?

So the JV with Loop is progressing very well, and we have made a time schedule, and we are -- as of now, we are able to stick to -- more or less, we are able to stick to our time schedule. And we are hopeful of breaking ground in the first quarter of calendar year '25 and start up in the first half of '27.

The next question is from the line of [ Jatin Damania ] from Svan Investments.

Good show on the polymer. I just wanted to understand on the Films business. Now as you indicated in your opening remarks that the demand supply measurement has narrowed. So can you throw some figures in terms of the demand supply with how much new capacity is likely to hit the market?

Yes, sure. So currently, the installed capacity, including one line, which is going to start up in the next 2 or 3 months is about 110,000 tonnes per month. Against this, that is the installed capacity of 110,000 tonnes. Operating capacity can be taken at about 100,000 tonnes even efficiency, micron. Because this 110,000 tonnes is based on 12 microns. But in effect, a lot of thinner microns are made like 10 and 8 microns, a lot of it is made. So effective capacity actually, it is 100,000 tonnes or lower. Domestic demand is estimated at about 65,000 tonnes per month and exports is taking away about 20,000 tonnes. So total demand for Films, domestic plus export is about 85,000 tonnes against effective operational capacity of 100,000 tonnes. So the demand supply gap has now narrowed to about 15,000 tonnes. And that is why we are starting to see the improvement.

And this has been narrow to 15,000 tonnes, what was it earlier?

Earlier meaning everything is related to time. So we pay...

If you look at the last quarter, now you said that the numbers -- I mean the realizing the pricing has been improved in last couple of months. So if you -- if I want to compare it with the last quarter, are probably a full of FY '24...

Last quarter -- better would be to compare it to the same period last year. Same period last year, this demand of 85,000 tonnes would have more like 70,000, 75,000 tonnes.

10,000, 15,000 tonnes extra. And sir, in terms of this -- now with the demand supply mismanagement has narrowed. So can you help us in understanding the spreads of the Films business?

So the spreads over PPA and MEG would be in the region of about INR 37 to INR 38 per kilo as we speak now.

And what was it in Q1 and last corresponding quarter last year?

Q1 was about INR 20 -- INR 17 to INR 18.

And in the June '23 quarters, it was about INR 23.

Okay. And sir, now when we indicated that now we have taken a shutdown, right, after a couple of lines. So I mean -- I now we have returned for a commercial reason, but do we see this line coming back into operation anytime soon with the improvement in the spread? Or shall we work on the same volume numbers of 11,226 for the full year on a quarterly basis?

It will keep improving as the demand supply gap keeps improving and narrowing the productivity and sales will keep going up.

Okay. So I mean, so we expect these lines to come back into operation, right?

They're not permanently shut off. We -- who -- don't be under the impression, the lines are fully operating even today they are running. We have not shut them down permanently. It will continue production as and when we feel the need.

When we're looking at the industry now, a couple of players in -- one of the competitive have reported the numbers, in the BOPET, they reported a significant turnaround India BOPET numbers. Whereas if you look at our packaging Films and the Chips business, we still continue to make a loss at the EBITDA level? So can you help in understanding...

No, our EBITDA level is excellent.

Yes. No, no, sir. I'm just talking about the Polyester Chips and the Films business. On the Specialty Polymer, we did make a good profit, but on the Polyester Chips and the Films business, I want to understand the business dynamics.

Actually, if you compare with the peer companies also, most of the companies which have reported better results than us, they are into Polypropylene space as well. And polypropylene business has been doing quite well. It's really extremely well for the past few months. So Cosmo, Uflex, Jindal Poly and SRF, they are the one who have come out with their results. Jindal Poly despite being in Polypropylene has reported EBIT of -- negative EBIT of 1.3% for Films segment. And Uflex, they are both into Polypropylene, Polyester and laminate business, they have reported 9%, Cosmo is 4.34%. So it's not very different from our performance.

Yes. Okay. Because we reported a loss that's why on that number, so we were bit worried. But the industry is improving -- when the industry is improving, so definitely, I mean, the numbers on the loss of INR 7 crores looks big alarming. That's why.

No, also polypropylene has made a lot of difference in their performance.

All the other companies who have reported. There -- who are publicly listed. They all have Polypropylene, and Polypropylene has been doing very well for the last few months.

Sure, sir. And so definitely now it's our time because the stats have also improved from INR 17, INR 18 to INR 37, INR 38 as of currently, what we speak. Improvement will be seen in the coming quarters?

Yes.

And sir, coming to the JV that we are doing it, I mean, what is the CapEx that we have -- I mean, we'll be spending in FY '25 for that JV?

[Foreign Language] Because we only want to be breaking ground in the first quarter of calendar, which is the last quarter of FY '25. So the outgo in this current financial year will not be too much.

And sir, in terms of the funding, how are we looking to fund this CapEx of $165 million?

So very simple. We have a CapEx of about $165 million. Which is going to be funded at 60-40, only outlet could be 70-30. If you take 60-40, 40% of the -- almost $56 million will be the equity, which will be shared 50-50 between Ester and Loop. And the balance, about $100 million will be raised as debt in the joint venture company.

The next question is from the line of Aditya Agora from Share India Securities.

Great set of numbers from the Polymer business. I had a question on the Specialty Polymer business. One is that could you just highlight how the demand is with a major customer for PBT and MBO3? That's one thing. And secondly, if I have to take the Polymer business, we've done roughly INR 45 crores of revenues. So are we on track to achieve INR 200 crores of revenue in this financial year?

Yes. I think circa INR 200 crores, which we'll definitely be able to achieve in the financial year. And we'll continue to grow because they are now introducing new Polymer with new field. So we are expecting to grow -- our internal target is to grow by at least 20%, 25% per annum in our Polymer business.

Right, right. So if we take the Polymer business, we say 2 years down the line in '26, '27 where do we see this business? And what is the peak revenue you can generate from your capacity?

I have enough capacity right now. And we could -- in about 3 years' time, we are looking at, at least, I would say, at least near double.

Right. So INR 400 crores is something you can look at, right?

In our market it's very difficult to deliver the exact number...

I understand.

Substantially better, substantially better.

This will be very high-margin business, because you used EBIT of 40% plus. So these are very high-margin lucrative business.

So we've always talked about in the past. If you remember my discussions, we've always said that we made circa 35%, but we've actually this quarter, achieved 43% in this quarter.

Right, right. Sure, sir. And just one thing on your Films business. You -- I think you mentioned your average set for 1Q FY '25 was roughly INR 17. And those 30% share of the value-added products. So what would be the spreads in the value-added products for the 1Q FY '25?

There are -- it's a wide range, but I think the average proportion -- average would be about INR 50 to INR 60.

Over and above normal value.

Okay. So basically, you're saying the blended is INR 17, which is a mix of your 30% and the remaining 70%.

No, no. The INR 17 is not blended. INR 17 is --12 microns. In domestic market.

And if you look at the domestic market, blended, it is about INR 22. In the value-added products are majorly sold in the overseas market, where the total value addition would be about INR 78 to INR 80, which is about INR 60 to INR 65 over the normal value.

So technically, over the next couple of quarters and FY '25, when your share of value-added products go higher from 30% to 35%, which are targeted, I'm sure that you help increase your spreads also right?

That also plus the improvement in domestic spreads in normal Film, but INR 30 to INR 35 will not happen in a quarter. It will take time.

It will take one year. That's what I'm assuming.

Yes, exactly.

Right. And is it safe to assume that while 1Q, we didn't get the full benefit of improving spreads in the BOPET segment, 2Q and 3Q could be far, far better than 1Q. I mean could we talk about 50%, 70% increase in our gross spreads?

Your voice is not clear, Aditya. Can you just ask your question again, please?

Sure, sir. So what I was asking is that is it safe to assume that in the first quarter of FY '25, we've got the benefit of increase of BOPET spreads. But is it safe to assume that in second quarter and third quarter, the maximum benefit would be seen to the extent of 50% to 70%, if you take the current spreads which are there in the last week of July and August?

Yes. So basically, the improvement started in the month of June, yes, June. Basically started in the month of June. So we really didn't get the benefit for the whole quarter. That's why, even somebody else asked the question previously, I think September and December quarter will be far better.

The next question is from the line of Prashant Rishi from Cascade Capital.

My question was, is there any other scheduled BOPET capacity, which is coming on steam in the next 2 to 3 years?

There is one line starting up this year, which is already taken into the capacity calculation of 110,000 tonnes, which is going to start up in the next 2 or 3 months. And then there is 1 more line expected in '25, which is another year away or so. [Foreign Language].

Okay. And the 1 in '25, how much is the capacity expected there?

3,500 tonnes. That is only part of the calculation of 110,000 tonnes.

The 1 which is in 2025, also you've taken into account when your calculating?

110,000 tonnes, that is already accounted for.

So in that case, so besides 110,000 tonnes capacity, nothing is coming until 2027, you're saying?

1 more line is coming next year.

Let's say '25, '26, 1 more line.

After that it will be in '27.

Okay. And the 1 which is coming next year, sir, the line which is coming next year, how much would the capacity be approximately?

It will be 3,500 tonnes, 3,700 tonnes. It's not going to be -- be the growth in demand. I don't think that's going to offset the [ Apple Card ].

Assume 2 lines would be needed every year to support the growth in demand.

Minimum 2 lines earlier will be required.

Right. So then am I right in my estimate saying that at least from the next calendar year, we might even see some very -- starting tightening of the capacity. The tightening of supply and better realizations, if not starting right now with maybe 1, 2 quarters.

The improvement has already started. I told you -- we've answered this also in today's call. Improvement has already started, and you will use better results in September and December. And one more thing is to know, plastic waste management rules, which are coming into effect on 1st of April '25, are mandating 10% recycle content in laminates. Now Polyester is the only substrate which can offer recycle content. BOPP and other substrate cannot offer this. There is no viable alternative to that. So we believe there will be some shift from other substrates to Polyester, which will help in reducing the demand-supply gap faster.

Understood. Understood, sir. Sir, one more question. I know the company is not into BOPP, but what is the situation like in BOPP segment. You said that it has seen a much earlier rate of improvement than in BOPET?

Again, we are not in BOPP. I won't like to delve too much into detail about it because we are not fully informed. So it will be not prudent of me to make a serious comment, but what I believe is that BOPP has done quite well in the past few months. But I believe some strains have started already there. But I'm not pleased, again, I'm not in the BOPP sector. I don't want to make any major judgement calls there.

The next question is from the line of Yash Dedhia from Maximal Capital.

I just wanted to know like you a alluded earlier, my question was pertaining with the same thing. When the PWMR rules will kick off, how do you see the demand for BOPP be transitioning for Polyester?

So it will improve. But to what extent it will improve, time will tell. But [ 10% ] improvement, that's a huge number.

Yes. So currently, there is no such guardrails, which are dominating the Polyester demand?

No. So since the rules are only becoming effective next year, trials have started with a lot of brand owners. We are now in trial more with many, many companies, many, many brand owners who want to try out products with recycled content. So -- which goes to show that there is a serious interest in converting to product with recycled content.

That should boost, should boost BOPET demand better in coming year?

Of course, because other substrates are not able to offer it. And this is something which you can find out yourself. It's nothing -- there's no secret to it.

And sir, what is our spread on Polyester Chip right now?

Polyester Chips is a marginal business. I mean, it's an intermediate product. So really it's more of a top line number with very, very small internal marginal quantity.

We are giving it from Ester Industries to only Ester Filmtech. So in the consolidation, that gets eliminated.

Okay. So it is usually being captively consumed?

Correct. On onset prices, but in consolidation, it gets eliminated.

Okay, and our BOPET peak on Q1 end was?

What, sorry?

On Q1 end, that is in June end, it was?

What was what?

The BOPET spread, commodity spreads? Right now, it is INR 37. In June, it was the last month of the quarter?

The entire June quarter was much less. It was about INR 18. But July month, it improved to INR 35 to INR 38.

April, May, June was around INR 17, INR 18 only. And then a sudden improvement happened?

April and May were not good. June, it get started to improve. June quarter was INR 17 to INR 18 each kg, but April and May were very low.

Then for us, the blended amount would be less than INR 17.

So [Foreign Language], April, it was about INR 13, INR 14. May was also in the same range. June it improved to INR 26 and blended for the quarter was INR 17 , INR 18.

We are not able to hear.

Yes, June ended on INR 26, correct?

Yes. INR 26. June month, it was about INR 26.

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

Thank you for a very elaborate call and a very elaborate presentation also. So if it answers practically all the questions and we could make also the conclusion that the downtrend which our industry in which we operate is now over, and there are more indicators that we would be -- we are on the path to showcase improved set of numbers. That is -- that should be the basic understanding, as a sum and substance of the current number than the business environment, sir?

Yes.

Right, sir. Sir, for the Specialty Films, what was our total sales mix for this quarter?

The quantity? Sales in Specialty Polymer was INR 45 crores with EBIT margins of 43%.

Sir. I'll come to the Polymers. I was asking for the Films part. We have the commodity Films, where you are mentioning -- yes. For the Specialty Films, how much -- what was our sales mix out of the total?

In Ester Industries, the total quantity of Films sold was about 11,250 tonnes, out of which value-added and specialty film was close to 30%, 3,200 tonnes. In terms of value, quantity, it was 30%. But in terms of value, it was 42% of the sales made by the company.

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language].

Okay, okay. But yes, this benefit we will be occurring for the second quarter? Or will it take third quarter to get translate into the numbers?

Partly in the second quarter and more so in the third quarter.

Okay. Just to clear it. So from third quarter for the Specialty Films, the spread will improve to INR 80 to INR 85. That is what you are -- INR 85 to INR 90, that will constitute 30% of the sales for Ester Limited? Your standalone companies?

Ester Industries. Yeah.

[Foreign Language]

[Foreign Language]

[Foreign Language] If you're just specifying on the number on the base of 25,000 tonnes, what should we look for this year for Ester Filmtech?

32,000 to 34,000 tonnes [Foreign Language].

Okay. And that will be 50% of the only total nameplate capacity [Foreign Language].

The capacity at Hyderabad is 48,000 tonnes. So if you take 34,000 tonnes, it will be close to 70%.

[Foreign Language] Ester Industries we are already at 90%, 95%.

[Foreign Language] We should be at 85%.

Okay. And for the year as a whole, blended 75% we can take for both the capacities altogether?

[Foreign Language]

Now coming to the Polymer business participating [Foreign Language]. So going ahead [Foreign Language] trajectory, what are we seeing in terms of the bid pipeline and in terms of the deliverables also, how is this segment going to perform for the current year? And what factors are influencing the performance of the Specialty Polymer segment, sir?

Again, going by the first quarter, we are very confident that we shall achieve ballpark INR 200 crore turnover, with EBITDA margins or EBIT margins in the region of about 40%. So -- and we expect the 20% to 25% growth rate year-on-year on the business.

Okay. Sir, you mentioned INR 200 crores to? I missed the revenue part.

I think in the range of INR 200 crores, we'll achieve plus minus INR 8 crores or INR 9 crores with 40% EBIT margin. And going forward, we expect to achieve about 20% to 25% annualized CAGR growth.

Okay. Okay. For the next year also, we are getting the comfort of this?

Yes.

Right. So last point on the RM mix, [Foreign Language] in terms of PTA and MEG?

Raw material has been going down for the last few weeks. [Foreign Language] Raw material has no meaning in our business. [Foreign Language] Both business whether in Polyester Films or Specialty Polyester. In Film business, the margin is decided by demand supply. And once the margin is decided by demand supply, the raw material cost gets passed on plus or minus. In Specialty Polymer business, the margins have been decided many years ago, and we just adjust the raw material pricing movement every month. So really raw material has no role to play.

Basically, the variation is not -- has been too much. If you count from, let's say, September '23 till date, it is ranging in INR 82 to INR 85, INR 86. So the total variation is about INR 4, INR 5.

Okay. Okay. Right. Sir, Specialty Polymer, what constitute the major raw material -- the raw material basket for Specialty Polymer?

The PPA as of -- there are various other chemicals in there. I can't name all of those -- proprietary, I can't name those chemicals.

The next question is from the line of [ Amit Kumar from Datamind Investments ].

Just one point which I'm just trying to understand, you seems to have a fair bit of confidence on demand growth. Our understanding is that segment that you operate in, and principally, the service the FMCG industry. I think the industry, we are still seeing volume growth in low to mid single digits. Now I understand factual packaging. The use cases are sort of expanding. So I just wanted to -- can you just give me a sense, I mean, the top 2, 3, 5 sectors which are sort of growing strongly, from an industry or Polyester market perspective? And what would be the mix of FMCG versus non-FMCG in your sales? If you can also help me with that?

Largely, we are all FMCG, because it all largely goes for food packaging, some goes for non-food. So largely, it is all FMCG-related. 35% of our business approximately go for snack foods. Now snack food is a huge growth business in India. If you take all the major brands, they're all growing phenomenally. So I think you all do your independent research on downstream and FMCG. But snack foods itself is something that the world doesn't have like we have in India.

Anything else, when we basically seem to getting almost a double-digit growth in our demand. I mean is that all driven by growth in factory or is there anything else sort of also driving this parallel.

No, FMCG is the one that's mainly driving. [Foreign Language], I do not know, how much drill down you do in your FMCG research. Because when you talk about FMCG, maybe only a smaller percentage is actually using flexible packaging. And you'll have to really drill down into the entire product range of FMCG companies to see which products are growing at single-digit, which products are going at double digits. But we are giving the actual factual numbers, what the Indian industry, Indian demand is and the export demand is.

The next question is from the line of Subrata Sarkar from Mount Intra Finance Private Limited.

Yes, I have a few basic understanding. One is like, as you told like, the spread is a function of like demand supply rather than the raw material price and impact. Sir, like if you see the, let's say, last decade or so we have always been a very cyclical industry. So from a perspective of capital allocation, you know you are into this industry for a very long time. So what is the thinking of the players? Like why they -- because all of you are like wise mature tracking this industry for a very long time. So you can ascertain like that what will be the demand for, let's say, 2 , 3 years. So why we go through such a deep cyclicity, when a lot of capacity comes on and then supply outpaced demand, and we started doing negative EBITDA? And then a period happens -- the last period, we gradually pick up and then against that. So my point is like you people are all mature players in the industry.

Let me answer it. So there are 17 players in the Polyester Films industry, now the 17 players don't sit together and decide how much capacity to grow every year. Everybody takes the individual decisions. So obviously mismatch is bound to happen. There is a permit system, now that there is no single agency, which is saying that listen you only need this amount of additional capacity next year. We won't expand more than this. And then they allocate who will expand. Everybody is taking their individual decisions.

But my question is that when your supply -- as you told, your demand is a function of FMCG, which is structural growth which is not very cyclical. That's the volume growth, more or less here and there. So like whoever is in your industry, they can quite well ascertain what will be the yearly growth? And then, sir, as you are giving figures, like this capacity will come on in FY '25 and then FY '27. So all these players are also clear...

There are 17 players who are in this industry, everybody is taking his own decision. Everybody has its own view on the growth and demand. Everybody has their own view on everything, how can -- how can we coordinate? There's no way to coordinate the effort and it will be illegal also to coordinate this effort.

Got it. I got it. This part is understood. Now coming to our side, sir, as you told, like in the industry, that is how pricing is determined? Generally based on the demand supply, people try to do I estimate that per tonne, we will do -- this should be -- what I'm trying to understand, what is the markup that you decide? First, you decide that per tonne this should be the spread I should get in an ideal situation. And then the price of the finished product is determined based on the raw material? Or how the pricing system works?

Demand supply based, is how much the market can take, is that the estimate we make and we do our pricing accordingly. I do my pricing accordingly. And also, we have to see what is the import transparency. So import are open. So we have to also keep in mind what is the price at which imports can come in. Although imports are very difficult to do in that business, but still some Polymer imports can come in. So there are many factors we have to do. And basically, it is a market with a commodity, it is a market which determines.

The next question is from the line of [ Aman Kumar Sonthalia from AK Securities. ]

Sir, there are a few questions. Sir, we export, I think, a little bit of quantity. So what is the spread there compared to India?

The spreads in exports are better than domestic. If you look at the plain film to plain film, we have -- because in exports, we are not selling commodity film, as much as we can in domestic market. So we have to look at the blended, blended is about INR 65 to INR 75. That's the range we're currently prevailing value addition. Because it has a lot of value-added and specialty products. The proportion of value-added and specialty products in export would be much more than 30%. 30% is for Ester in totality. For export, it would be more than 70%.

Okay. So if you take the commodity apple-to-apple, then export gets better margin than India?

As of now, yes.

Okay, sir. And sir, because of this Red Sea crisis, whether our cost of freight, has it gone up?

Yes, there has been. It is applicable to everybody.

Okay. even after paying such a high freight charges, it is more profitable than selling to international market than to India.

Yes. And sir, we have our own Chip plant. So what is the cost advantage we are getting from our own Chip because I think it's a very negligible margin product.

So what happened is that we have to run the continue polymer plant at a certain capacity. If you run it at the higher capacity, the incremental power and fuel cost is on marginal cost in basis. So for additional quantities that we produce, the power and fuel cost is negligible. And therefore, it makes sense for us to producing Khatima for, to sell to -- as to fintech in Hyderabad. [Foreign Language]

Okay, sure. And sir, one more sir. The BOPP and BOPET [Foreign Language] Otherwise, because their price difference is quite high.

Generally speaking cost of production, variable cost of production in BOPP is lower than Polyester. But I don't know if that number.

One of the reason is that in Polypropylene film, it is the raw material Polypropylene film. Forget the raw material part, the difference the variable cost is lower in Polypropylene. But how much is it exactly? I don't know, we don't produce it.

[Foreign Language] there's a split difference of INR 60. But other than a split difference, is there any extra cost we incurred on making this specialty film compared to commodities film?

Yes, of course, there is a distilled cost.

So net-net, what is the extra realization?

[Foreign Language] On the conversion side, the incremental cost is not much.

And sir, one last question. Domestically, we are near to demand supply balance. But internationally, what is the situation?

It is actually a very difficult to establish very accurately because we are unable to get accurate numbers from China, which is the largest player. So we depend on Wood Mackenzie report, but even that has a large amount of inaccuracy. But our -- but there is a substantial amount of over production in China. To what extent we don't know exactly. But Chinese production is largely limited to the domestic assumption. And to the extent they're not able to consume, they keep their line shut. It's very little that exported out.

And the total export that India made as compared to the size of the overseas market is negligible.

The next follow-up question is from the line of [ Amit Kumar from Datamind Investment. ]

Coming back on to the demand base. On the export side, right now, you don't seem to indicate that export spreads are a little bit better. India domestic demand versus export demand, how are we sort of seeing this? And again, the export demand, again, where is this really coming from? Because at least as far as the major markets are concerned, U.S. and Europe, typically, volume growth is very negligible, actually 0, but let's say, 1%, 2% also. So could you just throw some light on that? Or is it that India -- the Indian players are basically gaining market share, in these markets and if so at whose expense?

Please understand there is a global demand for Polyester Film in countries like America are short. They don't produce enough for their consumption. And India is exporting because it has excess capacity, which is able to export at fairly, I would not say very extremely remunerated prices, but at reasonable prices. So what is the volume that India exports? Nothing...

I think, in terms of growth, what are the domestic versus export are we...

There is no major growth in export market. Please understand. There is no major growth in export market.

So the growth is sensibly coming from the domestic side.

Domestic side. Right.

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

Thank you, ladies and gentlemen, for attending Ester Industries Q1 FY '25 Earnings Call. We look forward to seeing you for the earnings call for Q2. Thank you very much, and have a good day.

On behalf of Ester Industries Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.