Filatex India Limited (526227) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Filatex India Limited Q3 FY '22 Earnings Conference Call hosted by K.R. Choksey Research. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikrant Kashyap from K.R. Choksey Research. Thank you, and over to you, sir.

Thank you, Inba. Good evening, everyone. On behalf of K.R. Choksey Research, we welcome you all for the Q3 FY '22 Earnings Conference Call of Filatex India Limited. I take this opportunity to welcome the management of Filatex India Limited represented by Mr. Madhu Sudhan Bhageria, Chairman and Managing Director; Mr. Ashok Chauhan, Executive Director; and Ms. Stuti Bhageria, SVP, Corporate Strategy. We will begin this call with a brief overview of the company by the management, followed by the Q&A. I now hand over the call to Mr. Madhu Sudhan Bhageria for his opening remarks. Thank you, and over to you, sir.

Thank you. Hello, good day to all of you. Once again, a warm welcome to everyone attending this earnings call for the quarter ended December 2021. We are still not out of danger to health and life, the third wave of COVID has finally caught on. I hope all of you are safe and are observing necessary precautions to contain COVID. We hope this third wave would soon ebb out and we will restore our daily life and business activities in full swing. Coming back to matters of business. I presume you would have gone through the presentation, which has been uploaded on our website as well as on the stock exchanges. You would have noticed that our performance in third quarter of FY 2022 has been better than the second quarter, both in terms of top line and bottom line. We have, for the first time, crossed INR 1,000 crores in revenue in one quarter. Let me quickly go through the results of this quarter Q3 FY '22. We achieved a production volume of 86,366 metric tons as compared to 88,918 metric tons in Q2 FY '22. The production is slightly lower by around 2.9%, which is predominantly on account of product mix. However, the sales volume achieved in Q3 FY '22 were marginally higher at 90,398 metric tons as compared to 90,054 metric tons in the previous quarter. The revenue for this quarter was INR 1,074 crores, which shows a growth of 11.3% over INR 965 crores in Q2 FY '22. When compared to on a year-on-year basis, the growth is 49% over INR 722 crores in Q3 FY '21. The operating profit EBITDA is around INR 159 crores, a growth of around 27% over the preceding quarter at INR 125 crores. Profit before tax is INR 148 crores, which is an increase of around 35% over INR 110 crores. The net profit PAT has increased to INR 98 crores in this quarter, an increase of 32% over INR 74 crores in the previous quarter. As evident from the numbers, the performance is consistently improving. Comparing the performance of this quarter on a year-on-year basis, EBITDA stands at INR 159 crores compared to INR 120 crores, a growth of around 32%. Profit before tax is INR 148 crores compared to INR 91 crores, a growth of 63%. While net profit PAT stands at INR 98 crores compared to INR 66 crores, an increase of 48%. The market has shown good recovery ahead of the festive season. Though there is some buoyancy in the sentiments of the market, the offtake has been cautious. Northern Indian market surprisingly were quite dull. The pre-Diwali business, coupled with the start of wedding season, has been good. Prospects for exports are also looking upwards but are somewhat marked by very high shipping rates and erratic schedules, which made us uncompetitive against Chinese prices. The government has recognized the importance of synthetic fibers for growth of textile business. Government has announced several policy initiatives which have helped in stimulating the sentiments in the domestic market. To mention a few initiatives, like Production-Linked Incentive, PLI, which is mainly to promote MMF, apparels and garments; RoDTEP; RoSCTL mega textile parks, these stimuli have perked up demand and are likely to lead to fresh investments. It is high time that we look beyond domestic market and looked at global perspective to catch up growth rates and trends. Let me give you a global perspective of polyester in textiles. The global polyester filament market is projected to grow at the rate of 5.1% CAGR. The significant growth in the use of polyester in textile industry, including apparel and home furnishing, and growing demand for polyester filament yarn in manufacturing of automotive textiles are some of the prominent factors driving the polyester filament market revenues. The demand for both DTY, drawn textured yarn, FDY, fully drawn yarn is growing in the textile industry. The demand for polyester filament in textile industry is expected to witness healthy growth. The textile industry is creating strong demand for polyester filaments, which have the ability to substitute cotton yarn to some extent. With cotton yarn prices at relatively higher levels, the demand in sales of polyester filament yarn is constantly rising. End-use industries will increase the proportion of polyester filament yarn used in the products with an aim to control costs. Polyester filament has its application in various end-use industries, including textile, automotive, health care and others. Due to the extraordinary properties of polyester filament, manufacturers are mostly preferring it for making protective clothing fabrics. The ease of its usage and a wide range of industrial applications are the primary factors behind the overall market growth of polyester filament. Also polyester filament is cheaper than its substitutes, nylon, cotton, et cetera, which makes it more suitable material to be used for several applications. The rapid increase in the Dope Dyed polyester adopted by the automotive and textile industry has translated into a significant increase in demand for polyester filament, in turn, driving the overall market growth. The future of textile manufacturing is at an inflection point. Global production of textile and apparel has rapidly increased over the last decade, which has led to generation of large amount of textile waste. Polyester, owing to its affordability and versatility, is the preferred and most dominant fiber. To ensure sustainability and reduce environment impacts in the textiles and apparel industry, utilizing a sustainable and circular economy model is of utmost importance. As mentioned before, we had initiated in-house research work on chemical recycling of polyester waste in all forms. After extensive research and trials, we now have moved to next stage and are setting up a pilot plant of capacity 1,500 kgs per day. This plant is likely to go on stream by April 2022. In this pilot plant, we will be able to revalidate our process parameters and more accurately compute cost of production for recycling. We have already started planning for 100 tons per day plant, which will go into execution phase after successful trial of smaller 600 kgs per day pilot plant. Sustainability in the textile and clothing industry has gone beyond just using organic materials and efficient processes. Recycled fibers are fetching a hefty premium. The pressure on international brand is high as these brands and retailers are increasingly being held accountable for what happens throughout the value chain. Coming back to update on our manufacturing facilities, we had commissioned our 30-megawatt captive power plant. High prices of coal, steep freight rates and erratic shipping schedules have put a huge strain on coal users, like steel plants, processing houses and power plants. After having run our plant for several weeks, we had stopped generation from captive power plant from 29th October. With some eased prices availability of coal, we have started generation from 11 Jan 2022. The work on our planned project of de-bottlenecking melt capacity of 50 tons per day and manufacturing lines of 100 tons per day POY is progressing well. We are targeting to complete the installation and commissioning activities by June 2022. To sum up, as mentioned earlier, our capacity utilization is almost 100% in case of yarn. The demand is good and our cash flows are steadily increasing. On the strength of strong cash flows, we are reducing our debt and the cost of capital. As you may be aware, we have been able to release the pledged shares. The future prospects of polyester filament industry after several sequential disruptions like demonetization, introduction of GST and the havoc caused by shutdown to control COVID, look bright. As ever, we are confident, buoyant about the prospects of our company. Thanks for listening. I'm all yours for responding to your questions. Thank you.

[Operator Instructions] Our first question is from the line of Sudhir Bheda from Right Time Consultancy.

Hearty congratulation on super set of numbers. Congratulations to you and your entire team for delivering the almost triple-digit profit in the Q3. So congrats for that, sir. Sir, my questions are like I believe that going by these results, I believe that you will be generating close to INR 900 crores of cash in next 2 years. And with the expansion plan, whatever you have narrated, it will not take more than a couple of INR 100 -- or a couple INR 100 crores, INR 200 crores, INR 300 crores. So what's your plan, sir, going forward to utilize the cash generated over the next 2 years?

Thank you. You're right. Maybe in next couple of years, we will have cash flows around INR 800 crores to INR 900 crores. Out of that, we have planned to use at least INR 300 crores. But we are also planning to put up more facilities. So we have made paper plans for that. But we are just waiting for the COVID to subside substantially world over, and the world to open up. So that plan, we would require an investment of around INR 1,000 crores to INR 1,200 crores. We have also identified a new piece of land and are in talks with the Maharashtra government also to get the benefits. So once the things are more clear, we will take that into execution.

So it will be a greenfield plant, right?

It will be a greenfield project, because now a lot of incentives are available if it's a greenfield project. And it will be in a subsidiary company, not -- it will be in subsidy of...

Yes, so there will be tax benefit also?

Yes. So a lot of tax benefit and other incentives are only available if it's a new entity.

And the recycling plant which you are envisaging at 100 ton per annum, also will be putting in that facility? Or it will be like...

Yes, it will be in the same facility.

Okay. And sir, my other questions are like your EBITDA margin is quite high this time. So it is a bump-up we have seen due to commodity prices? Or it is a sustainable kind of margin which we would be generating over next year, next financial year?

I think it's a sustainable margin. I can't say, see, maybe 10% here and there can always happen. But by and large, it's a sustainable margin as a bottom line. See, the top lines can change in our industry, as I have been saying, because of the raw material prices and because of sometimes product mix also. But EBITDA, we should be able to sustain somewhere close to this, what we have got in this quarter.

Great, great. And sir, lastly, what is the volume guidance for next year as we are going for some 120 ton per day plant and...

Yes. So that 120 tons will be operational by June end and first quarter maybe we'll get around 75% of the production. And then after that, we will have full capacity into production. So within normally 3 to 6 months, we are able to ramp up to full capacity and we are able to market that. Normally, it takes 3 months, but sometimes the market is not very conducive, it can take up to 6 months. That's all within that. So that will add up to our next years of volume. So next year, we should be doing around -- roughly around 88,000 to 90,000 tons per quarter plus this 120 tons means 3,600 tons will get added from the second quarter of next financial year.

Great. So 90,000 to 93,000 tons would be a run rate as far as second half is concerned next year, right?

Yes. Next second half, we should be able to do 90,000 to 93,000 tons consistently.

[Operator Instructions] Our next question is from the line of Niraj Mansingka from White Pine Investment Management.

Good numbers. Just wanted to clarify, on the CapEx that's ongoing, right now are you only putting money -- additional CapEx of polyester DTY plant 120 tons per day, am I right?

No, I'm putting a CapEx for a POY additional plant and some de-bottlenecking in the polymerization. So that's INR 130 crores. Plus we are spending some more money on creating more stocking facility. So that is another -- around INR 15 crores. And we are also spending some INR 8 crores or INR 10 crores in Silvassa plant to modernize some of the lines and increase their productivity. So overall, our total CapEx is around INR 160 crores, INR 165 crores. And then we will be doing another CapEx once this recycling project is cleared by this -- our team and they are more confident. So that should happen by June. And then we'll be spending around INR 150 crores for the recycling project. So these 2 are firmed up. And second, which I have told about a bigger greenfield project, that we will take a call once we are pretty sure that now there should not be any more disruption and we can be more sure. So then we'll take up. We already have our road map on paper what we need to do and what we want to do.

Okay. But you're not expanding DTY capacity?

DTY, as of now, we are not expanding because DTY margin as of now are quite not very good. So this POY, we will initially sell in the market. As and when we feel DTY margins are improving, then we can put more DTY. We'd like to put DTY also along with the new project so that we can get more benefits from the government. Rather than putting here, we'll put it at the new location.

Some numbers I wanted to get from you. In terms of the gross margin or EBITDA margin, whatever you track, can you tell us just more about gross margin or EBITDA margin for the DTY and FDY for the quarter?

See, DTY margins have been pretty bad. I mean, from POY to DTY margins, EBITDA has been hardly INR 2, INR 3 in this quarter. So that's why we just postponed our decision to put more DTY machines. So POY has been around INR 15 a KG. And FDY would be in the vicinity of around INR 20 a kg.

And this is you're talking about EBITDA, or you're talking about gross margin?

No, I'm talking about EBITDA, not gross.

Okay. Got it. And how was this number quarter back, the POY to DTY and FDY margin under rupee?

You mean in the second quarter?

Yes, during the second quarter.

Second quarter, I think DTY was similar but maybe and POY and FDY were INR 2, INR 3 lower than what we got in this quarter.

Okay. Got it. Got it. And the POY also was lower?

Yes, POY is also slightly lower in the second quarter.

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

My question is on the quarter-on-quarter, your sales quantity has been -- has almost been the same, 90,000 metric tons versus 90,000 metric tons. Your revenue has gone up. Is it basically because of the -- of a product -- better product mix or because the selling prices have gone up?

It's a combination of both. So product mix also like chip sales have been pretty almost very, very low in this quarter compared to last quarter. So that has made the difference. And also the prices have gone up. So the average realization has gone up by at least INR 10 to INR 11.

And is this price realization sustainable according to your view?

Yes, these are quite sustainable because this has been the -- the increase in price is not only because of the margin, it has also been because of the increase in the raw material price.

Okay. Okay. Yes, I understood. Sir, regarding your recycled polyester, what you are going to put up a 1,500 kg plant. This is going to be operational from June, correct?

No, this will be operational in April only. June I was talking about my POY expansion, that will be operational in June. So this 1,500 kg will be operational in April, and then we will have 2, 3 months of extensive trials which will revalidate whatever we have thought. And once that is revalidated, we will go for a bigger plant.

Okay. Revalidation means you will be giving these polyester to the...

It's whatever experiments we have done on the smaller plants. So this is a bigger plant where it will be much more practical and we will have an idea how much energy, how much waste and different things and the quality wise also. And this quantity will not so small, we can do some seed marketing. We can make yarn and fabrics out of it also.

Yes, you can make some yarn and fabrics and then give it your end customer, correct?

Yes. See, what is the quality, what more improvements needs to be done. Based on that, we will make the big plant. So any changes in the technology we need to do. So all that, we will be able to do it in this plant.

Okay. Once you are successful with this plant, is this going to be a big turnover for Filatex? This...

No, it is not a big turnover, but it's a big change because we will be now having raw material as a waste for this plant. So all different kinds of polyester waste will be used to make back the polyester. And there's a huge premium on these products because all the branded industry, this fabric -- sorry, garment industry, they want recycled yarn and fabrics made out of recycled yarn. And they are willing to pay a huge premium for that. And these yarns are not available in the market as of now.

Are there not many players in this industry for this recycled yarn?

For -- this is a very, very new technology, so very few people are able to do it. And still everybody is in a more on a developing stage of this technology. This is hardly a 4-year back phenomenon. Out of this 4, 5 years back, 2 years have gone in COVID, people have not been able to do much in this. So it's a very new phenomenon which is coming to the market. This is chemical recycling. Normally, mechanically, people are making fibers. But this is chemical in this. We are able to take out the impurities which are inside the waste also, not only surface. So anything which is embedded in the waste, we are able to take it out. So all the brands like Uniqlo, Patagonia and various other big brands, they want to switch to 100% recycled material by 2025 if available. So there is a huge demand, and they are willing to pay a huge premium for these products.

This could be a changer for Filatex, correct?

Yes, this will be a game changer for us. And going forward, then we would like to invest in this more by putting more plants for this in various locations where the wastes are available. Rather than going into the conventional thing, we would like to expand more into this going forward.

Right, sir. And your -- my last question is in your last...

This will be unique to us, and we'll have our own technology which we have already applied for patents. So we'll have our patents on this technology.

Very good. Very good. Sir, in your -- my last question is, in your last conference call, you told that you have developed new fibers, but you were not able to put it in the market because of COVID. Now have you been able to market your new generation of fibers?

Yes, we started marketing of that. These filament yarns which we give different treatment and they give a different effect in the fabric. So we have started that. And hopefully, we should get good results.

Your exports are not -- are only 11% of the turnover, correct?

Yes. Exports, as I explained in my thing, that because of the high freight costs and availability of containers and all, disruptions, the exports have been slightly lower.

Our next question is from the line of Vikrant Kashyap from K.R. Choksey Research.

Sir, I'm just drilling on the recyclable plant questions from the previous participant. Sir, could you throw some more light on the prospect of the yarn in the domestic business. So you are talking about international market where the big players are kind of looking at recyclables. But do we see a similar demand or similar market in the domestic market?

No, demand is there in the local. What I'm saying, these brands are sourcing their products from India also. So people who are making garments and fabric for these products would buy from us and make and give it to them. So these buyers are prescribing that they want a fabric which should have like 50% or 100% recycled yarn. But since they are not able to source, they are not able to give it to them. So we will be supplying to local producers only who are, in turn, giving the products to these buyers.

Okay. So it will be a distributor-led model that we are following. And this player will supply to the international players?

No, no, no. It's not distributor-led like if somebody is making a fabric so we will sell it to him. And then he -- his fabric is then used for making garments being supplied to, let's say, Uniqlo or Patagonia or Zara or people like them. So ultimately, it goes to them, but the chain till the garment manufacturing is based in India only.

Okay. And sir, given the current pricing scenario for recyclable, so how much spread we will get and what benefit it will add to our EBITDA or maybe just add...

Right now, the margins are pretty, pretty steep, like our normal yarn if it is INR 110 a kg. The same yarn, if it is recycled, then it is fetching anything from INR 170 to INR 180 a kg.

Okay. And that's very good. And...

And the manufacturing cost is very similar to the version what we are making at INR 110. So you get an additional INR 50 margin in this product.

Okay. And does this require customer approval?

Yes, it will -- no, there is a certifying agency who will certify the process that, yes, we have made it from the waste. So that's a certifying agency. So they will certify the process and then give us a certificate that this yarn has been produced through waste recycling.

Okay. Great, sir. Sir, on the other thing, in the last couple of quarters, if you see the trend, the realization per trend for our company has improved on the blended basis. So given the challenging environment we have seen raw material prices going up and there is also prospect of going up further in the coming quarter or 2. So do you see the spread being maintaining at this level or improving further?

Yes, I feel that we should remain at these levels. Maybe see the January month was a little dull because of high COVID rate in the country and some lockdowns. But now every state has started lifting the lockdowns. So going forward, we feel it should be much better. See, one thing you can see is even though the raw material prices have increased, we have been able to increase slightly more than the raw material prices. So that's -- it is very easy to pass on the raw material prices in our industry.

Okay. So there is no stress on the margins?

No, no. There is a stress in the case of the raw material prices are going up. Only when the raw material starts falling, there is a stress because the buyer backs out and tries to wait for the bottom. So then there is sometimes stress. But if they are going up or they are steady, there is never a stress.

Okay. Great, sir. Another question, sir, our product mix towards value-added is 80%. And you are not coming out with DTY or maybe FDY plants in the near future, mainly focusing on recyclables. So does the spread expected to remain at 80% till the recyclable plants comes in?

Yes, it will remain at 80%. We are adding more POY, so maybe it will go down by 2%, 3% because POY portion will increase and DTY, FDY will not increase. But eventually, we plan to put DTY. We have just postponed it by 1 or 2 quarters, the decision. And we will put it in the new facility. So eventually, we will have more than 80%. But yes, for some time, it can drop a little bit.

Okay, great sir. Sir, on the coal plants, we have seen since our commissioning of the plant, we have some stop and go kind of thing due to the raw material pricing scenario coal -- because of the coal pricing scenario. Sir, does it impact on our financial position, so starting and again stopping the plant? Does it hurt in anything?

No, no, no, there is not much cost on starting and stopping. Only thing is we are not able to get the gains what we should have got from the captive plant, so that we have not been able to get. Because we don't want to run at a loss the plant, because the coal prices have gone very high. And they came down in December but then, again, there are some issues with Indonesia. They had stopped exports for some time. Now they have restarted. So maybe in a month or so, again, the prices would come down. But we have some inventory which we can take care till March mid. So let's wait, if the prices don't come down by mid Feb, we might have to take a shutdown again. But there is no major cost for starting and shutting down.

Okay. Great. Sir, my last question is on your export side. You did mention that there is a good opportunity in the market but due to shipping and other related costs in the global market, we are not competitive to the Chinese players. So are we facing a lot of competition from Chinese players? Or this is how that this current scenario has created a kind of dent to our positioning?

See, normally, we don't face much problem. But for some time, we are seeing that the freights from China are slightly lower to certain countries, especially South America and America. So there, they have been more competitive. Otherwise, it's normally -- we are quite competitive against China. So this is a phenomenon for a short term, I would say. Because they are sending goods in some refrigerated containers, which they get very cheap because there inward is there and outward they are going virtually empty, so they are getting it exceptionally cheaper at this moment.

Okay, got your point, sir.

Otherwise, cost of production-wise, we are quite competitive with China. We don't have any issue in that.

So by the time the shipping issues or related issue goes away...

Yes. But still, I mean, we are exporting, we have exported around 10%, 11% of the turnover. Normally, we would do around 15%, 16%.

Your next question is a follow-up from the line of Niraj Mansingka from White Pine Investment Management.

A few questions, sir. One, what are the various regulations from the government which is needed? Or is it left to have some more impact on the margins? Like in the past, there was a removal of antidumping duty then so all of imported goods, et cetera. So what are the various other regulations which you think are as a potential threatening or a threat for this industry?

See, antidumping duty was removed in 2020 Feb.

Yes, yes. That was a tailwind. But is there anything forward-looking you see in the regulation that can halt or...

I don't see. Only one problem we have is we have an inverted GST, which we are already talking to the government to correct. Rest, I don't see. There is an antidumping duty investigation for MEG going on. But I don't think so government is going to put any anti-dumping duty on the raw materials even if the investigation finds it so. Because a lot of anti-dumping duty, if the investigating authority has even recommended, the Finance Ministry has chosen not to put it in the interest of the larger industry. So the government is, these days, not putting antidumping duty on raw materials because they have realized if they put antidumping on the raw material, then the downstream industry will not develop. And right now, government is putting too much of thrust on developing manmade. So there is no way I think this will happen. And this inverted GST also is likely to get corrected maybe in another quarter or so because government has recognized this. But there is a lot of agitation this time, so they had to back track. So hopefully, in a quarter or so after the elections they should be...

How is this the impact of your demand for the products change with the inverted GST?

No, the demand will not change. Only thing, it will save us some cost. Our money gets blocked in the GST, which we get refund later on and some of the things we are not able to get full refund. So it is a credit line with us, like capital goals and some services which are not getting refunded. Otherwise, it's not having any material impact. Of course, it puts some stress on the working capital, that's all.

Right. And on the industry outlook, where do you see going forward the growth coming in terms of customers? Are the government price sutures or in the domestic market? I just wanted to understand the growth in consumption, either to export -- government exporters or is it the domestic market?

I think there will be very good demand in the local market and the price realization in the local market should outdo the exports. Because there is a lot of expansion happening in the downstream in India, so which will create a lot of demand for the yarn. So there's not much expansion happening on the yarn side. So it will create a very good margins for us going forward. Maybe exports get declined because if there is huge demand in India and you get a better price in India, why we need to export?

Yes. And what was the order cycle time? Like if you order for a new plant which you're talking about large CapEx of INR 1,200 crores, how much time...

Anything from 21 to 24 months once you have the land.

After you have a land from the...

Land is something we don't know how much time one would take. But once you have the land, and then around 2 years is a reasonable time to put up the plant.

Okay. Sir it's quite [ out there ] in terms of requirement for shipping because I'm guessing you won't require to do CapEx for that project for 1 year, 1.5 years to -- or maybe a year definitely from now. Is it right assumption?

Sorry, can you repeat? I could not get it.

Is it a right assumption that a year, 1.5 years from now only the real estate that greenfield project start, if it goes right, not before that?

Yes, within next 2 years, I don't think any greenfield project will come because there has been no order for any new machinery, this we are quite sure. Only 1 plant Bhilosa Industries which got burned in February 2020. So they had ordered the machines. So that would get operational by somewhere around September this year. So that is around 600, 700 tons per day, which is around 5% of the capacity. There is no big expansion coming in for next 2 years, at least.

Okay. And you all will also take 3 years from now? Is a fair assumption, right?

Yes. Even if we want to do, we will be operational not before '24, mid-'24.

Right. And sir, in terms of cash flow, while your cash flows are so strong and your CapEx requirements are also not large, so do you think you should reward shareholders with a good dividend or some buyback like -- so that...

Yes, yes, we are planning to do -- reward the shareholders. And mostly depending what the budget gives the picture after the budget, we'll see. So it could be a buyback or dividend, whichever is more tax efficient.

Okay. Sir, I would suggest to do a buyback because for shareholders, it's quite tax friendly. And we get...

But as if now if there is no change in the decision by the government, it would mostly be a buyback.

Okay, great. Last question. On the margins for polyester, you were planning to do a chemical processing. But can you give some color on the margins or the prices for a mechanical processing polyester recycled yarn?

See, mechanical polyester filament, very few people, there's hardly any production in India. Only mechanical recycling is happening in fibers. So there, I think the margins are roughly wavering from INR 8 to INR 10 a kg EBITDA.

Okay. So you don't plan to move to that modality of making mechanical polyester fiber?

No, I don't plan to move that I mean that -- because we are developing our own technology, and we are very sure about it, and it will be very unique to us. So we would rather concentrate on something which will be unique to us and where we can get very good margins. Even, let's say, today, the margins combined may be INR 70 a kg. But even going forward, if they reduced, still we can get INR 30.

Our next question is from the line of Piyush Mehta from Caprize.

Can you hear me?

Yes, sir, we can.

Okay. So one -- the first question was on what is the current debt level and the working capital cycle?

See, today our debt level term loans are roughly around INR 450 crores. And our working cycle is around 45 days, roughly 45 to 50 days max.

Okay. And do you see any change in trend on that one?

Working capital cycle, I don't see much trend, maybe 4, 5 days here and there, depending on the time, but never going beyond 60 days.

Okay, okay. And we mentioned the additional capacity coming on the POY expansion. So once that is up and running, what is the additional revenue that we can generate from that?

So that will be roughly, I can see...

The reason I'm asking this question is we are at 100% capacity. I believe we could at best do 105% maybe capacity...

Yes, see, the yarn side, we are 100%. Chip side, we don't do full capacity utilization because the margin in chips is very, very poor, so that we don't do much.

What could be the additional revenue generation?

Maybe yearly basis, it can be close to around INR 500 crores.

Okay. Okay. And on the recycling plant that we're talking about, the greenfield expansion plant. And...

Yes. Once the big plant is commissioned, I think that will also fetch another INR 400 crores to INR 500 crores of revenues.

Okay. So...

But there, EBITDA expected is quite high. There, EBITDA could be upwards of INR 100 crores in that [indiscernible].

Okay. Upwards of INR 100 crores. Okay. So are we expecting like 25% margins on that business?

Yes.

Okay. But -- so we'll be investing about INR 1,000 crores, INR 1,200 crores on that and...

No, no, no. In that, we are investing only INR 150 crores.

In the recycling bit?

Recycle. Because we are just doing a partial we will -- from the waste we'll make polyester chips. And from those chips, yarn we can make in the existing facilities. So we're not investing as of now on the yarn side.

So over the next 2 years just to be...

If that is successful, then we will put up that INR 1,000 crores and I'm talking about, a big plant where the polymerization and things what we are doing today, we will be able to do more. It has nothing to do with the recycling.

Understood, understood, that was confusion.

Because recycling will take 1.5 years. And our cash generation, till that time we will have huge cash addition. So we can do both the things together.

So basically, over the next 2 years, the only capacity expansion that is happening is the tune of INR 250 crores, INR 260 crores, while we'll be generating INR 900 crores. And...

Yes. So that's what I said. So maybe by June, we would take a decision to invest another INR 1,000 crores in a greenfield project to increase more capacity. So we will increase our capacity by another 2 lakhs thousand -- 200,000 tons, by putting more polymerization, POY, DTY, everything.

So that basically means we'll be -- we could increase our capacity by another 50%?

Yes.

Okay. And...

That decision, of course, on paper, we are getting ready. But we are not committing anything to it as of now. Once we are more clear about how things are worldwide, then we'll take a plunge.

Okay. So that is the reason you spoke about...

From there we will need to raise some debt also.

Okay. So that is the reason you mentioned that over the next 2 years, with these kind of cash flows, we could do a dividend or a buyback?

Yes. So till that time, we will do reward the shareholders with some buyback or dividend, let's see, whichever is a better option.

Okay. And what was the timeline which you mentioned in terms of the pledged shares? When would you be able to take care...?

No, pledged shares already released, I think, in October somewhere we released November? 1st -- 5th November we released. All the shares have been released.

Okay, okay. And what is the raw material procurement pattern as of today?

See, raw material, as of now, we are importing around 30%. But going forward, our imports would increase more because what has happened is our main supplier Reliance, they have taken over a few local plants. So now their captive consumption has gone very high. So what Reliance produces raw material, they are using 70% almost captively, means with these plants and their own plants. So only 30% they are marketing. So if they have any disruption, so they cut the supply of the 30%. So we are reducing dependence on them and increasing more on imports. Because locally, there is no other supplier. Whatever IOC is there, they are also tied up.

So what could be the price differential? And is it easily -- can you easily pass that on?

It's easily available, but the price differential is not much, nothing significant. Maybe INR 200, INR 300 a ton sometimes costlier or sometimes cheaper.

Okay. And...

So -- and we will also maintain a slightly higher levels of inventory so that there are no disruptions going forward.

Our next question is from the line of Sudhir Bheda from Right Time Consultancy.

Just a quick very simple question. The interest in the Q3 is much higher than Q2 actually. What is happening there?

This is because of some provision on the currency loss and because of the fluctuation in the currency on the term loans. We have some term loans of euro. So if the euro prices changes, you have to provide for that loss. And this year quarter, we had some gain. So that is the main reason.

So what would be the onetime expenses in that?

What do you mean by one time? There's no one time.

I mean, it is not recurring, like nonrecurring...

But every quarter, there is -- like supposing like in first September, the currency was INR 88. And now on December 31, it was INR 86. So you have to book INR 2 as a profit and then your interest cost would go down.

What is the absolute interest like on the loan? And what will be that component?

Absolute interest on the foreign currency portion is around 1%. And local, we are paying around 7.5% to 8%.

And what would be the...

50-50. Right now, our mix of rupee loan and foreign currency is 50-50. And we are paying 5% plus whatever currency profit or loss we...

Yes, yes. And what is the guidance of debt as of March '22, at the year-end?

March '22, I think total debt should be close to a little less than INR 400 crores, we should close.

[Operator Instructions] Our next question is from the line of [ Arvind ], an Individual Investor.

Sir, just two questions. One, on the raw material side, it seems the pressure is significantly lower on a sequential basis. So can you throw some light over there?

What do you mean by pressure is lower on the raw...?

Your realization, your gross profit has improved sequentially still on per...

See -- but the price of crude have also gone up sequentially. See, I'll just give you some idea where the major raw material price in -- yes, okay. So Q1, our price or PT MEG combined, which we use for 1 kg was INR 68.33. Then Q2, it went to INR 73.04 and Q3, it went to INR 77.56.

Sir, how much it went in Q3?

So prices have been going up. You have seen the crude prices going up. So raw material price is not fully in line, but they follow somewhat crude prices.

So despite that, you are saying your sequentially gross profit per Kg has seen an improvement?

Yes. That is a just a factor of...

Is it driven by pricing or is it driven by mix?

[indiscernible] and this so if I'm able to pass on the price of the increase in raw material plus something extra. Also then some portion is also because of the strong gain. So you are carrying a normal stock with you always. And if your prices are moving up, the cost of the stock which you are carrying goes up in the value of the stock. So that also is reflected in the profit. Some portion is also because of that.

But your raw material cost, what is general lag for you? Is there a quarter lag? Or it is not -- it is a month lag? Whatever the spot price is, when does it start getting reflected [indiscernible]?

Locally, the prices are very dynamic. Every week, the prices change. And in imports, it is lagging by 1 month.

By 1. Okay. And on inventory side, generally, what kind of inventory you have?

See, in the plant, we don't have. Raw material we have normally is around week 10 days. And I think a few days of work in progress. And finished goods normally varies from 6 to 7 days. And once we had more than 20 days also. But normally, we have 7 to 10 days of finished goods.

Second question was, if I read through your commentaries on your capacity, effectively, we are talking of a low single-digit growth adjusted for the base of Q1. So for Q2 onwards, it will be low single-digit growth on volume for us because we are anyway touching 88,000, 90,000 MT PA and you're indicating reaching up to 90,000 to 93,000 MT PA in second half of next year. So is there any -- is it a right assessment?

[indiscernible] there will not be much growth in the volume side.

Okay. And so that is for...

We are doing almost full capacity utilization. So there cannot be a growth until as we put new capacity. So new capacity, which we are putting, would get operational only in June 2022. A small -- very, very small portion in Silvassa might get operational by March or April. That's very small, maybe 7, 8 tons per day, some modernization which we are doing in that.

So how does the product mix help you if volume is not there and if you -- then the focus should be on product mix, right, so that your revenue growth...

Changing our product mix and see which products can give a higher margin. So we keep trying to produce more and sell those products more. So that's a constant exercise.

And in '24, if I have to look at your volume capacity, how should we look at it? What kind of capacity would come in '24 for you?

'24 is too far off. Maybe if we put that greenfield project, capacity could go beyond 0.5 million tons.

Sir, why is that for '23 we have not planned in advance for a slightly higher capacity given the underlying strong demand and tailwind that is there. So why were we conservative? What was your top offer?

It's not planned much. And we are now basically targeting more to invest in the recycle thing. That's why maybe for some time, we'll not be able to invest much. But our main focus is to work on recycled and then going forward grow in the recycle side more. That will be very unique to us rather than we remain only in the commodity. So that will take us out of the commodity race, and it will be a very unique feature for Filatex because none of the companies in India are doing at the moment. There's a small company, Polygenta, which used to do, and they are doing only 20 tons per day. And they are also trying to expand more so -- and very few out companies in the world are doing this. So we would like to invest something which would be unique to us and will -- nobody can copy that or do that same thing same commodity more if we are able to do that successfully which we by maybe June max. So we'd rather like to wait then invest. And now the world is also, see, going to sustainability. So everybody is looking. And I think once this COVID is over government in India is also going to make some regulation where people who are producing polyester and other things should do some recycling and work to other sustainability.

Sir, once your pilot plant you are comfortable with the output and the efficiency of pilot plant, what is the next thought process? What will be the next leg of capacity addition would look like?

So that is, like I said, 100 tons per day plant we'll put up. And that will take another 12 to 15 months. So maybe at best by '23 September we should be in production with that plant. And once we are successful with that, then we can put similar plants in multiples. It's not necessarily put one plant. We can put 5 plants, 8 plants, wherever. And it can be at various locations where the waste is available, inside India or outside India also.

Okay, sir. Sir, one last question on PLI. I don't know whether you have the information, but on PLI, is it possible to indicate that it is because the for the entire manmade chain different type of underlying...

Mainly for man-made fabrics. Fabrics made of manmade yarn and garments and processing house. These are the 3 major things, and technical textile so manmade -- making of yarn is not a part of it.

No, I know that. But sir, what I'm trying to understand is polyester-based fabric, is there any indication how big capacities could come across? Because that entire scheme is available for all type of man-made fabrics, right? And we are only focused on the polyester side.

See manmade, the biggest share is polyester only. Worldwide, I think almost 85% is polyester is manmade. We'll be putting polyester mainly.

Okay. Because we are adding some contracting articles over there. So I thought I'd just ask you on that.

You will see that it will be majorly usage of polyester because that is the most durable and cheapest yarn available and there is huge demand for that. Now a lot of properties have been incorporated in this yarn which can give a different comfort what you get from natural and other fibers. Like all your sportswear is now polyester filament yarn instead of cotton. All these dry fit and other products.

But sir, is there any clarity that whether when those capacities are coming up, et cetera, and because that will have a direct impact on your...

I think it will at least 1.5, 2 years for those capacity to be operational. Right now, only the registration has started. Now people will -- and it has to be a new company. So it will take at least 1.5, 2 years for them to come into production.

Our next question is from the line of Forum Makim from Equitree Capital.

Sir, what is the kind of raw material that you'll be using for the fibers project? And where would we be sourcing it from?

Yes, this raw material, like we can use our own waste we are generating in the plant and also we can use the PET bottle waste.

So the uniqueness lies in the technique of production and not the raw material waste used?

No, no, no. The uniqueness lies in the technique where we are able to take out impurities which are inside the product. Surface, people clean. The surface wash the thing and then melt it and use it. We are going to melt it and take out the impurities which are inside them, like colors and other metallic substances, that we are able to take it out and then re-polymerize the yarn and bring it to very close to the virgin. So other than the color part of it, maybe the color in our case would be a little not so white. Rest, all properties will be very similar to the virgin material.

Thank you. Ladies and gentlemen, that was the last question. I now hand the floor back to the management for closing comments.

Yes, I would like to thank all the participants for sparing their time and attending our call. Thank you very much.

Thank you. Ladies and gentlemen, on behalf of K.R. Choksey Research, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.