Ester Industries Limited (500136) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call of Ester Industries Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Sharma from Adfactors PR. Thank you, and over to you, sir.

Thank you, Sagar. Good afternoon, everybody, and a very warm welcome to you all. Thank you, everyone, for participating in the earnings call of Ester Industries Limited for the first quarter ended 30th June 2026. On the call today, we have Mr. Vaibhav Jha, CEO; Mr. Pradeep Rustagi, Executive Director, Corporate Affairs; and Mr. Sourabh Agarwal, CFO of the company. The management will take us through the operational and financial performance for the quarter, following which we will open the forum for the question-and-answer session. Before we begin, please note that this conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. The statements are not a guarantee for future performance and involve risks and uncertainties that are difficult to predict. I now request Mr. Vaibhav Jha to take us through the company's performance. Thank you, and over to you, sir.

Thank you, Amit. Thank you, everyone, for joining us today. I will take you through the industry environment and key business developments during the quarter, following which Sourabh will walk you through the financial performance. I would first share with you a short perspective on the industry landscape before I move to company-specific key updates. The operating environment for the BOPET film industry continued to improve during Q1 FY '27. Global prices of BOPET have seen stability due to tighter trade flows, raw material shortage as well as increase in raw material and freight costs. At the same time, the disruptions and uncertainties caused by imposition of reciprocal and punitive trade tariffs by U.S.A. during Q2 and Q3 of FY '26 have largely moderated, subsequent to rejection of such trade tariffs by the Supreme Court of U.S.A. India now enjoys a favorable import tariff scenario for imports into U.S. This has resulted in regaining of lost market share in U.S. between Q2 and Q4 of FY '26 in this quarter. We continue to see strong structural tailwinds emerging from the circular economy. The implementation of plastic waste management rules and the increasing requirement for the PET and BOPET films, which stipulated post-consumer recycled content, are creating additional demand opportunities for rPET and recycled content BOPET films. Amongst the various films and substrates used for the flexible packaging, BOPET film is the only food-grade approved substrate and the only substrate which can have sufficient post-consumer recycled content to help brands meet their sustainability targets. Further, new capacity additions are projected to be moderate and evenly phased out given the volatile scenario experienced by the industry players during last 2 to 3 years. Overall, while industry cycles will continue to influence the business, we believe the combination of improving industry discipline, buoyancy in international prices and growing demand for recycled content products provides a more favorable operating environment for the BOPET industry. Sustainable solutions are at the core of Ester's strategic growth platform. The regulatory environment is becoming increasingly supportive of recycled materials. In India, recycled content requirements under the plastic waste management framework are stipulated to increase progressively. For Ester, this creates an opportunity to participate across multiple points of the value chain. Ester has invested in creating recycled PET capacities of 30,000 tonnes per annum. This enables us to produce recycled PET for use as feedstock in the recycled content films. In addition, this gives us a platform to supply best-in-class bottle-grade recycled PET to prestigious brands as well as textile grade and film-grade recycled PET to various leading customers. We are also building capabilities to participate in higher-value circular applications over time through ELITe. Against this backdrop, Ester continues to strategically transform itself into manufacturer of specialty BOPET films and polymers. The consistently increasing volume and proportion of value-added specialty products and strong business development pipeline of new products within specialty polymers showcase this key strategic focus. Exploring new customers in new market in various other geographies continues to be highest priority. We continue to invest rapidly in R&D to innovate at a rapid pace and fast track our journey to specialty manufacturer. These strategies are aimed at improving realizations, enhancing the overall product mix and importantly, reducing earning volatility arising from the inherent cyclicity in the commodity BOPET film products caused by demand-supply imbalances from time to time. Now moving on to the key business updates, starting with the Polyester Film segment. In this segment, we delivered a healthy improvement in the performance during the quarter. Consolidated film volumes increased 2.7% year-on-year to 22,120 metric tons, while Film segment revenue grew by approximately 38% to INR 399.5 crores. The significant difference between volume and revenue growth reflects the improvement in realizations and margins as well as the continued improvement in our product mix. Consolidated capacity utilization also improved to 84% compared with 82% in Q1 FY '26, supported by the better market scenario. A particularly encouraging development was the continued growth in our VAS films portfolio. VAS volume increased 23% year-on-year to 6,368 metric tons in this quarter, and their contribution to total film volumes increased to approximately 29% from 24% a year ago. We consider this shift in mix to be an important indicator of the progress we are making in the business. As the volume and proportion of VAS products increases, our ability to compete in increasing -- is increasingly based on product performance, satisfying new application requirements and customer qualifications rather than being driven purely by price. Encouraged by the recent performance and positive outcomes of our strategic focus, we are targeting proportion of VAS products at about 50% to 60% over next 2 to 3 years. We will, therefore, continue to invest in product development, customer approvals and capabilities to serve more specialized applications. Chip business revenue during the quarter was around INR 5 crores, driven by higher third-party sales volume. In this quarter's performance, we saw a significant improvement in realizations driven by growth in VAS sales as well as favorable industry dynamics. Consolidated film revenues grew by approximately 38% year-on-year, while the segment delivered around 10% EBIT margins, supported by better throughput and a higher contribution from VAS products. Going forward, our focus will remain on maintaining price discipline, improving utilization and increasing the volume and proportion of VAS products. We believe this will help us improve the overall quality of earnings and build greater resilience in the film business through industry cycles. Now turning to Specialty Polymers. The segment reported consolidated sales volume of 725 metric tons during the quarter compared with 954 metric tons in Q1 FY '26. Consolidated revenue stood at INR 32.7 crores compared with INR 48.1 crores in the corresponding quarter last year. While the overall volumes and revenue were lower due to demand pressure in one of our high-margin specialty products, the profitability of business improved meaningfully with EBIT margin increasing from 31.7% to 45.3%. This was primarily driven by a better product mix during the quarter. We continue to focus on optimizing the product mix and expanding the portfolio while maintaining the healthy margin profile of this business. The growth in Specialty Polymers will be driven by increase in volumes with a mix of high-margin specialties as well as mid-margin value-added products or VAP. The focus on VAP will help us improve operating leverage and cash flows while also diversifying our business while the growth in high-margin specialties will provide the profitability buoyancy. However, given the strength of our business development pipeline, we expect to recover the revenue growth in this business by the end of this financial year. We are targeting growth at a CAGR of 20% over the next 3 to 5 years in the Specialty Polymer segment. Coming to the rPET business, consolidated volumes increased 19% year-on-year to 1,394 metric tons, while revenue grew 24% to INR 17.5 crores during the quarter. We continue to see rPET as an important part of our broader film strategy as well as an important sustainable solution that we offer to our customers at large. Coming to Ester Filmtech, we saw a meaningful improvement in the business during the quarter. Capacity utilization reached approximately 83%, the highest level achieved so far, while sales volume increased 22.7% year-on-year to 9,807 metric tons. More importantly, the business is now beginning to demonstrate the better operating leverage that comes with higher capacity utilization. The improvement is being supported not only by higher throughput, but also by better production efficiency and a healthier product mix. As we continue to ramp up utilization and increase the contribution from VAS and recycled content products, we see Ester Filmtech becoming an increasingly relevant part of the consolidated business. Our focus will remain on continuing this ramp-up, improving the mix and translating the improvement in operating performance into consistent cash generation. I would now like to touch upon ELITe. Our 50-50 joint venture with Loop Industries. We see ELITe as strategically different from our existing recycling activities as the objective is to establish a chemical recycling platform for polyester textile waste and enable textile to textile recycling. The project is progressing through the engineering phase. The FEED study has been completed by Tata Consulting Engineers and Toyo Engineering India has been appointed for detailed engineering. Land acquisition is also progressing and is expected to conclude within the next 2 months. The facility is targeted to become operational in CY 2028 and will use Loop's proprietary depolymerization technology to convert 100% textile waste streams into virgin quality monomers, which will then be polymerized into virgin quality polyester resin. An encouraging development for ELITe has been early and regular customer validation. Following Nike's earlier commitment as an anchor customer, our JV partner, Loop Industries has now secured a letter of intent from a leading global sports and athletic brand for the potential offtake of up to 15,000 metric tons per year of Loop PET fiber grade resin annually under a multiyear commercial framework. The resin will be supplied from the upcoming manufacturing facility in Gujarat to be operated by ELITe, the 50-50 joint venture between Ester Industries and Loop Industries. With commitments from these marquee global brands, a substantial portion of the planned capacity is now covered with contracts and LOIs well ahead of commercial startup. We view this as an important validation of both the technology and the market opportunity, and it reinforces the growing interest from global brands in circular textile to textile recycled polyester. We will continue to progress the project through the remaining qualification permits, approvals and execution stages in a disciplined manner. Looking ahead, our priorities remain clear. We will continue to focus on sustaining the improvement in film realizations and capacity utilization, increasing the volume and proportion of VAS products and expanding the specialty polymers through new products, customers and geographies. At the same time, we will continue to scale our rPET capabilities and integrate them more closely with BOPET film business while progressing ELITe in a disciplined manner towards its targeted commissioning in calendar year 2028. With that, I hand over to Sourabh to take you through the financial performance. Over to you, Sourabh.

Thank you, Vaibhav, and good afternoon, everyone. Let me take you through the financial performance for the quarter, after which we will open the floor for questions. I will begin with the stand-alone performance of Ester Industries. Stand-alone total income for quarter 1 FY '27 increased 22% on a year-on-year basis to INR 347.7 crores compared with INR 284.9 crores in quarter 1 FY '26. The improvement was primarily driven by the Film segment, where higher realizations, better capacity utilization and an improved product mix supported the revenue growth. Stand-alone EBITDA increased 25.2% on a year-on-year basis to INR 40 crores, with the EBITDA margin improving to 11.5% from 11.2% in the corresponding quarter. Profit after tax increased 50.5% to INR 14.5 crores compared to INR 9.6 crores in quarter 1 FY '26, resulting in an improvement in PAT margin from 3.4% to 4.2%. Overall, the stand-alone business delivered improved improvement across revenue, operating profitability and the bottom line. Coming to Ester Filmtech, our 100% subsidiary, the quarter marked a significant improvement in the financial performance of the business. Sales volume increased 22.7% year-on-year to 9,807 metric tons, while the total income increased 62.7% to INR 159.6 crores. EBITDA improved to INR 19.5 crores compared with a loss of INR 2.7 crores in quarter 1 FY '26, resulting in an EBITDA margin of 12.2%. PAT also turned positive at INR 4.7 crores compared with a loss of INR 16.5 crores in the corresponding quarter last year. As Vaibhav mentioned earlier, capacity utilization in BOPET film in Ester Industry stood at 85%. Capacity utilization Filmtech reached approximately 83%, which is the highest level so far. This resulted in a consolidated capacity utilization standing at 84%. Coming to the consolidated performance of the company. Consolidated total income increased 27.4% year-on-year to INR 441.9 crores compared with INR 346.9 crores in quarter 1 FY '26. Consolidated EBITDA increased 103.4% to INR 58.9 crores with the EBITDA margin expanding to 13.3% from 8.3% in the corresponding quarter. Profit after tax turned positive at INR 18.6 crores compared with a loss of INR 7.2 crores in quarter 1 FY '26. PAT margin stood at 4.2%. The improvement in consolidated profitability was broad-based with all businesses, including polyester chips, polyester film, Specialty Polymer rPET contributing meaningfully to the operating profit. Though Polyester Film segment remained the principal contributor. Within the Film segment, consolidated revenue increased approximately 38% year-on-year to INR 399.4 crores, while segment EBIT increased significantly to INR 39.1 crores from INR 6.9 crores in quarter 1 FY '26. Consequently, EBIT margin improved to 9.8% from 2.4%. Film volumes increased 2.7% year-on-year to 22,120 metric tons, while rPET volumes increased 19% to 1,394 metric tons. Specialty Polymer SBU also continued to demonstrate the strength of its business model. While volumes and revenue were lower year-on-year, segment EBIT stood at INR 14.8 crores with EBIT margin improving significantly to 45.3% from 31.7%. This reflects the continued strength of Specialty Polymer business and its contribution to the overall quality of earnings. As on 30th June 2026, the gross total debt of the company was INR 722 crores and liquidity of INR 236 crores. The company aims to gradually deleverage in the coming years by paring its debt on an overall basis. Overall, the company has demonstrated resilient operational progress with enhanced margin and profitability during the quarter and setting the stage for improved profitability in the coming quarters. This concludes our opening remarks. We can now commence the question-and-answer session. Thank you.

[Operator Instructions] First question comes from the line of Shlok Patel with ZenFlow Finance.

Firstly, congratulations on good set of results. I just wanted to know that can we maintain similar run rate for the rest of 3 quarters? And were there any one-off gains in this quarter?

Yes. Thanks for that question, Shlok. So yes, as you must have seen in the financial statements, there is an other income component. Other than that, I think the industry structure is quite favorable to us on the BOPET film industry side. We are seeing very stable and reasonably priced global markets. We are seeing that there are enough opportunities to place volume profitably in India as well as across the world. And we are also seeing opportunities to be at a sustained higher volumes compared to our past quarters because of the current supply-demand balance in the industry. So all this give us confidence that we should have sustainable good earnings going forward, not only for the next 3 quarters, but I would go on to say, for next 6 to 8 quarters.

Okay. That helps. And another question, just wanted to know about our goal for next 2 to 3 years. As you said that now the cyclicality has moved away and the industry is improving now. And once you mentioned that our -- with our existing facilities, we can generate some INR 2,000 crores to INR 2,200 crores of revenue with our business segments. Just wanted to understand that which segments will drive these revenues? And how will margins come up in next 2 to 3 years as our product mix from value-added products will increase a lot and also our existing capacities will get utilized more.

Yes. So you have answered the question in your question itself. So this increase in the revenue will be driven by multiple factors. So one is the price itself. Like I said that we are expecting that the global prices to hold at a higher level than what we have seen in the last 2 to 3 years. So that itself is going to lead to improvement in revenue. Other than that, the capacity utilization is going to improve not only in films, but also in specialty polymers going forward as well as rPET. Third, the -- as the share of specialty products increase in our product mix, these specialty products are usually much higher priced than the commodity products. So as the proportion increases, it will automatically lead to increase in the revenue because of the increase in the high-priced sales that we would be doing. The fourth factor which is playing out is that as we march towards operational excellence, we are able to run the plants more efficiently and are able to derive more tonnage out of the same asset class that we have. So even that is going to lead to better production and better sales volume. And all of these put together are going to result in increasingly improved top line.

Okay. So is it fair to assume that in next 2 to 3 years, we can achieve that target of INR 2,000 crores to INR 2,200 crores?

Yes. I think we are steadily marching towards that, and we should definitely be hitting there in next 2 to 3 years.

[Operator Instructions] Your next question comes from the line of Saransh Gupta with SVAN Investments.

Congratulations on a decent set of quarters. Sir, I had a few questions. First of all, I just wanted a ground reality on the China anti-involution policy that they have implemented. Like have the imports declined? And is that leading -- is that benefiting us in price [ wars ]?

Okay. So let me address this question. So see, in general, what has happened is that the global price situation has improved simply because the trade flows are restricted right now, right? And what we are seeing is that this set of factors which are playing are going to sustain. So multiple factors are leading to stability in the prices that we are seeing right now globally and also in India. In India, specifically, if you see, there has been hardly any capacity addition in the last couple of years. The capacity addition, I would say, has lagged the demand growth. And we see this trend lasting for next 2 to 3 years. So especially in the local market, we see the demand supply balance being strong. And similarly, in global market, we see enough opportunity for Indian manufacturers to place their volumes profitably.

Understood, sir. Sir, and what were the spreads last quarter?

So spreads last quarter were in the range of INR 28 to INR 30. When I say spread, I mean VA, value-add over raw material for 12-micron film.

Understood. So for the base BOPET film of 12 micron, the spreads would be around INR 7 to INR 8 for last quarter?

No, I said INR 28 to INR 30 for 12-micron corona commodity film.

And sir, we charge a higher premium of around INR 20 to INR 25 on the value-added, right?

Yes. So value-add products range from INR 25 to much, much higher levels because it's a mix. So the more specialized the product, the more value add we are able to get out of it.

There are off-line coated products which command higher premium, much higher than the normal value-added products.

Understood, sir. So sir, with this China anti-involution policy, will it be fair to assume that these spreads can sustain for the year-end?

See, like I told you that we are very positive that for next 6 to 8 quarters, the global and domestic supply-demand balance is going to hold. And I think that is going to give us some respite and is going to keep the margin steady.

Understood, sir. So sir, I just wanted to understand like currently, our value-added contribution in this quarter was 29%, which has been highest since the implementation. So what can the contribution be by the year-end? Is it going to be in the similar levels? Like we are aiming for 50% to 60% in the next 2 to 3 years. So -- but I just wanted to understand like with exports being opened up for U.S. as well. So what can be the contribution by the year-end?

See, we are seeing up to 35% contribution of VAS product out of our own -- up to the overall portfolio by the quarter end, I mean, in the exit quarter.

Sir, just one more question. Like in this quarter, our rPET volumes declined sequentially. So I just wanted to understand like what led to that decline?

See, this is a temporary, I would say, slowdown because what you are seeing is external sales. And the external sales had to take a hit because the demand -- internal demand for rPET in our packaging films increased. But we see that this situation should change in the -- in this quarter towards -- in September of this quarter, and this trend will be more visible in the quarter of October to December, wherein you will see a much larger rPET volumes being sold externally.

Understood. Sir, just one last question, then I'll come back in the queue. Sir, with our ELITe project being operational in the calendar year '28 and by -- in the next 2 months, we'll have the land buy with us. So I just wanted to understand that there are other competitors as well who are getting into the same segment of textile to textile recycling, and they have already set up the capacity. So will we be a bit late or will there be a competition by the time we are ready with the facility?

See, first of all, the market for this type of product is very large and the demand is very high. So the space is there for many, many players. Number two, the technology is fundamentally different. And what we will be able to do is we will be able to process low-cost feedstock, which cannot be processed by our competitor technologies. And that is the differentiator for us and which is going to bring in the required economies and is going to create a much larger appeal for our customers. So just to expand on this factor a little bit more, the competitor technologies usually look for textile waste, which do not -- which are close to 100% polyester. And there is a difficulty in processing when there is a blend along with polyester. And if you look at any practical textile waste, it is always a blend of polyester, whereas our technology can manage any kind of blend with any kind of color, pigment, dyes and give out virgin-like quality. Also, the maturity of this technology is far, far higher than our competing technologies in most cases. Loop has been working on this technology for a long period of time for more than 10 years. They have scaled up to a small-scale plant in Canada. Where all the practical textile waste has been processed, all possible combination has been checked and not only by us as a joint venture partner, but also by these customers who are going ahead and giving large volume contracts to us 1.5 years ahead of the planned commissioning. So the maturity definitely is at a different scale. And therefore, the -- I would say, the production confidence in terms of being able to process the waste and hitting the rated capacity is much higher in our case. And the economics are much more -- I would say, we are more confident about economics in our case than the competing technologies.

And there is another point. We are targeting to park all our volumes coming out from the ELITe project outside of India. We are not sure or we are not aware of the marketing strategy of the competitor. But for us, the entire production is going to be exported.

Understood, sir. So it will -- just to close it up, so it will be a good assumption that we will also have a better premium to the market at that moment when we are available with the facility.

Absolutely.

The next question comes from the line of [ Raj Shah ] with [ Prudent AMC ].

So I wanted to understand from a 2- to 3-year view, how do you see the rPET volumes now we have that we have a 28,000 tonne capacity. Over the next 2 to 3 years, do we plan to reach optimum utilization and revenues of close to INR 400 crores, INR 500 crores? And what can be the margins at those levels?

See, I think let me clarify about rPET. So the major logic of investing in rPET for us was in-house consumption. However, we saw a demand for high-quality rPET in the market, which was very -- which was not being fulfilled by many of the existing players. And therefore, we thought of utilizing that opportunity to make bottle-grade rPET and other film and textile grade rPET. But that is, to be honest, more of a secondary objective for us. Our objective is to derive value with our in-house consumption. Having said that, I think the right measure of knowing how we are doing with respect to rPET would be the value generated by rPET through external as well as internal utilization -- external sales as well as internal utilization. So let me tell you that giving you approximate numbers right now, we are producing any much larger volumes than what we were producing last year. And we are extremely confident that we will hit more than 100% of the rated capacity by the exit quarter of this financial year. So a lot of it won't be visible in the financial statements because it would be used internally, but a large part will be observed in the external sales. But like I said, the logic for us is the internal consumption as much as the external sales.

Understood. And on Specialty Polymer, we saw margins up close to 12% to 13% on a year-on-year basis. So I mean these margins are sustainable at these levels because the value-added share is increasing? Or what could be the full year kind of margins for FY '27, assuming I mean, the prices stay at these levels?

Yes. See, right now, the share of VAP is at a much smaller scale because we have built a pipeline and this pipeline takes some time to mature. And therefore, the influence of mid-margin VAP is not too apparent. But you are right. As we go forward, we are going to see some moderation of the percentage margins, right? Because the mid-margin is going to pull down the high specialty margins a little bit in percentage terms. But because of the improving operating leverage, we are going to see better financials in terms of EBITDA or EBIT because we are essentially just improving the capacity utilization and improving the operating leverage. But I think we should focus more on the absolute top line growth as well as absolute EBITDA growth and EBIT growth.

Understood. And lastly, in terms of debt repayment, so what is the targeted debt repayment for this year? And -- and for the ELITe also, would we require any additional debt?

So this year, the debt repayment target is around INR 100 crores. And as far as ELITe is concerned, as you are aware that it's a separate project other than Ester. It's a joint venture between Loop Industries Canada and Ester. So there is going to be additional debt, which will be raised in the JV company, not in Ester balance sheet.

And it will not be consolidated with Ester because it's a 50-50 JV.

Correct. Understood. And ex of the JV, there is no major CapEx for FY 2027.

Sorry, can you repeat the question?

Ex of the JV, there is no major CapEx for FY '27 in the stand-alone and polymer business.

No, no. So apart from our sustenance and maintenance CapEx, we are not planning any major CapEx.

The next question comes from the line of Charchit Maloo with Genuity Capital.

Sir, can you give me the split of other income like the INR 10 crores split?

So the other income basically comprises of our income from our investments. And as you know, that we have got a total cash available with us in plus of INR 200 crores. So that is number one. Second, the other income also comprises of the favorable gains on the foreign exchange, which we have got, which was a negative last -- in the last quarter.

Okay. Like -- and just if you can give the guidance for FY '27 and FY '28, that is revenue, EBITDA and PAT.

Can you repeat the question? I'm sorry, the line is a little disturbed.

Can you give the guidance for FY '27 and FY '28 of revenue, EBITDA and PAT?

So I think what we can say is that we are looking at sustainable growth in revenues and our profitability. But at this point in time, we would just hold back from giving very firm guidance on the specific revenue and EBITDA numbers.

Does that answer all your questions?

Yes.

[Operator Instructions] Your next question comes from the line of Saket Kapoor with Kapoor Company.

Sir, firstly, coming to the other income part. Sourabh ji, you mentioned this is out of the treasury operation. So can you elaborate more since we are also -- net of how do this income got generated? And what is the ForEx exchange benefit included into it?

Yes. So the other income, Saket ji, if you remember, in the last quarter, there was a pressure on the other income in terms of negative foreign exchange loss as well as we also had some negative return on our mutual fund investments in the last quarter. And in this quarter, we have a positive return on the investments as well as a favorable gain on a foreign exchange because of which the other income is looking on a higher side. But again, this is a onetime gain. On a sustainable basis, you're not going to see this high number on a quarter-on-quarter basis.

Can you give the split of the same? How much was the foreign exchange contribution and the treasury? And sir, since we are having debt, what is our book size currently for mutual funds we have invested into?

The total book size for mutual funds is around INR 60 crores. And the total FD that we have right now is more than INR 160 crores. I will explain you. If you remember, Saket ji, we have already raised money for the purpose of equity contribution in our joint venture, right? So there was a share warrant, which the company has raised, and we have already got the money in our bank account. And so the primary driver for our other income is mainly because of the interest on that piece.

Okay. Do you have the split, sir? How much was from the treasury and the interest -- FD interest? I mean I just wanted INR 9.8 crores split between ForEx, treasury and ForEx and the treasury.