Filatex India Limited (526227) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Full Year FY '22 and Q4 FY '22 Earnings Conference Call of Filatex India Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikrant Kashyap. Thank you, and over to you, Mr. Vikrant.

[Audio Gap] FY '22 and Q4 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; and Mr. Ashok Chauhan, Executive Director. We 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. Bhageria for his opening remarks. Thank you, and over to you, sir.

Thanks, Vikrant. Good day to all. Once again, a warm welcome to all of you attending this earnings call for the quarter and financial year ended March 2022. A quick word about COVID. The third wave of COVID is still on, though it has abated in India. Its effect in other countries is still there, more -- especially in China, which had gone under stringent lockdown due to its zero tolerance policy. The lockdown of industrial hubs in China caused disruption in supply chain and schedules of shipping lines. Irrespective of constraints and hiccups, we are somehow managing our operations to the best of our efforts. As the Q4 ends with the fiscal year, I'm covering numbers on a year-on-year basis rather than a Q-on-Q basis. I presume you would have gone through the presentation, which has been uploaded by us on our website as well as on the stock exchanges. We have closed the year with all sorts of records, be it production and sales volume or the revenue or EBITDA or PBT or cash profit or net profit. You would have noticed that our performance in FY 2022 has been much better than last year, both in terms of top line and bottom line. Let me quickly go through the results of this year. We achieved a production volume of 3,41,480 metric tons. The production on a year-on-year basis is much higher by around 32% as compared to 2,58,693 metric tons in FY '21. This disparity is due to national lockdown and restriction on account of COVID-19, we had to shut down our plant in FY '21. The sales volume achieved in FY '22 are higher at 3,40,480 metric tons as compared to 2,59,905 metric tons in the previous year. The revenue for this year is INR 3,828 crores, which shows a growth of around 72% over INR 2,227 crores in FY '21. Comparing the performance of FY '22 versus FY '21 on a year-on-year basis, EBITDA stands at INR 531.1 crores compared to INR 347.3 crores, a growth of around 53%. Profit before tax is INR 458.6 crores compared to INR 239.6 crores, a growth of 91%. The net profit -- PAT achieved is INR 302.7 crores compared to INR 165.8 crores in FY '21. An increase of 82%. Post-COVID, the demand for Indian textile and clothing has been gathering steam mainly because of 2 reasons. Pent-up demand and the new geopolitical situations evolving due to the trade tensions between China and the U.S. The growth was also aided by some proactive measures of the government of India to give a boost to this sector. Though it seems like a smooth ride, in a world of unpredictable geopolitical events, unprecedented market volatility and ever evolving technologies, today, the challenge is ensuring that chaos in the operating environment doesn't create uncontrollable havoc in our operations. In the environment of uncertainty, organizations must be very agile and swift in making decisions to steer the ship in choppy waters. As is evident from the numbers, we have been able to respond to these external challenges. A healthy cash flow surplus has given us an opportunity to prepay a large share of our term loans in this financial year, resulting in our reduction of debt ratio -- debt equity ratio to 0.33 from 0.77. The other ratios have also improved, return on equity, up from 24.4% in FY '21 to 32.76% in FY '22. And return on capital employed improved from 21% to 32.76% in FY '22. And Return on Capital Employed improved from 21% in FY21 to 31.16% in FY22. Since the company had a good performance, the Board members expressed their desire to reward the shareholders with a good buyback offer. The Board approved the buyback offer of -- at the rate of INR 140 per share for an amount of INR 59.50 crores. The buyback offer of equity share was announced in March 2022. Continuing in the spirit of rewarding shareholders, the Board has recommended a final dividend of 10% per equity share for the financial year 2021, '22. Though there is some buoyancy in the sentiments of the market, the offtakes have been -- still been cautious. Northern Indian markets remained dull and in comparison, opportunities for exports are also looking upwards, but have been marred by extremely high shipping rates and erratic shipping schedules. Raw material prices have been quite volatile. Food prices do have an impact on PTA and MEG, our major raw materials. There is a shortage of raw material in the domestic market. Key suppliers of [ PTA ] had several unplanned shutdown last year. As per global market research company study, the global polyester filament market is expected to increase at a CAGR of 5.1% from 2022 to 2032. In our assessment, the demand for the polyester filament in the textile industry is expected to witness healthy growth. The textile industry is creating strong demand for polyester filaments that can substitute cotton yarns to some extent. With cotton yarn prices at relatively higher levels, the demand and sales of polyester filament yarn is constantly rising. End-use industries will increase their proportion of polyester filament yarn and used in the products with an aim to control costs. Global production of textile and apparels especially the ones termed as fast fashion garments has rapidly increased over the last decade, which has led to the generation of large amount of textile waste. Polyester owing to its affordability and versatility is the preferred and most dominant fiber. Global brands have committed to supporting sustainability and reducing environmental impacts in the textile and apparel industry. Many global forums are insisting on utilizing a sustainable and circular economy model. The pressure on international brand is high as these brands and retailers are increasingly being held accountable for what happens throughout the value chain. As mentioned before, around 2 years ago, we initiated in-house research work on chemical recycling of polyester waste in all forms. After extensive research and successful lab trials, we now have a set up a pilot plant with a capacity of 1.5 ton per day. One section of the plant depolymerization is already commissioned. The polymerization part is under testing. This plant is likely to go on stream by 10th June 2022. In this pilot plant, we are going to revalidate our process parameters and more accurately compute the cost of production for recycling. This will also help us in doing seed marketing our recycled products. We have applied this global recycle standard which through their authorized external agency Messrs. Control Union will audit every step of our chemical recycling process. It is only after a successful certification that we'll be able to offer our products. Sustainability in the textile and clothing industry has gone beyond just using organic materials and efficient processes. Recycled fibers being in short supply are fetching a good premium. Coming back to the update on our manufacturing facilities, we had commissioned our 30-megawatt Captive Power Plant. But acute shortage of coal, coupled with high prices, instructive bands by exporting countries, cheap freight rates and erratic shipping schedules have put a huge strain on all coal users, like steel plant, processing houses and power plants. At current landed cost of coal at our plant, it is not viable to operate the Captive Power Plant. At our Dadra plant, we have replaced old POY lines with new equipment, which will increase the capacity by around 8 tons per day and reduce the operating cost. These lines are already operational for end of May '22. In Dahej plant, the work on our planned project of debottlenecking melt capacity of 50 tons per day and manufacturing lines of 120 tons per day POY is progressing well. We are targeting to complete the installation and commissioning activities by July 2022. This capacity addition will lead to an increase in demand for power. Our Captive Power Plant is rated 30-megawatt and after auxiliary consumption, the net power is 27 megawatts. To meet this additional demand at a competitive cost, we have signed up with a reputed renewable power generation company Messrs. Fourth Partner for our hybrid wind and solar power plant with a capacity of 10.8 megawatts. Our company will have to invest INR 10.26 crores for a 26% equity stake in the project to qualify as Captive user, which allows waiver of cross subsidy and additional surcharge. The purchase power agreement will be for a period of 25 years. The generation company will deliver around 50.5 million units annually at a tariff of INR 3.65 per kilowatt. That added cost at the plant end will be around INR 4.21 per kilowatt at a saving of INR 3.05 per unit, the benefit will be INR 15.4 crores annually. This project is scheduled for commissioning by March 2023. To wrap it up, our capacity utilization is almost 100% in the case of yarns. The demand is good and expected to remain stable. Our cash flows are steadily decreasing. We are reducing our debt and cost of capital. The prospects of polyester filament industry looks good. We are convinced about future prospects of the company and are fully committed to serving the best interest of our stakeholders. Thanks for listening. Now I request Vikrant to line up the questions from the participants. Thank you.

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

Congratulations for the good numbers and sharing the cash flow to the investors. I want to know on this wind plus solar project that you have your stake of 26% will have a spending of INR 10 crores. Is it right?

Yes, INR 10.26 crores we will have to invest, which will be returned to us after the expiry of the contract.

Okay. And how much yields will you get out of it? Like we say, 50.5...

At around 50 million units annually. So INR 5 crore units and the saving of INR 3 so almost INR 15 crores. So first year, only our investment will be out.

But what I understand is the yield generally will be around 20% to 25% yield, so 10.8 megawatts itself is in [indiscernible].

No, no. So this is actually 10.8 megawatt they will put solar and 10.8 megawatt they will put wind. This is a hybrid scheme by the Gujarat government, where both similar volumes of solar and wind, you can put. And then the transmission charge is only levied on 10.8 megawatt. So this is a scheme by the Gujarat government. And it is restricted to almost 45% of your sanction load. You cannot put as much as you want. So as per our sanctioned load, we could get 10.8 megawatt. And that is how it will work. And this will be put up by the Fourth Partner, and they will invest 74% of equity. So they work on their IRR, which -- which I know that they would get around 11% to 12% IRR even at these tariffs. Rest they take the loan. So it's like a 30-70, 30% equity, 70% loan and out of that 30% we take 26% to fall as a Captive user. It's in [ SCD ] particularly for this purpose only.

So effectively, your ownership would be 5 megawatt, right? [ 20-megawatt ] plus into 25% approximately.

Yes, ownership. But we will get the power of the full 20 megawatts. Power will be totally sold to us. They are in only commercial investment.

Okay. Got it. So if you include now this CapEx, can you talk or give a detail of the -- what are the CapEx due all the -- there is plant there is yarn and recycling. How much money will you spend for the CapEx for the FY '23?

See, FY '23, power plant has already been commissioned. We don't need to put CapEx on that. That is not running due to the coal price is very high, which started coming down -- expected to come down in the next 3, 4 months to a level that we can start operating. In this the CapEx is INR 10.26 crores only. And then the CapEx in the running -- which I've said about the POI, the total CapEx is around INR 130 crores out of that we spent around INR 50 crores, INR 60 crores last year, and the balance is being spent this year. And there, we have taken a foreign currency loan of around INR 50 crores on the imported machinery in Europe. So the total outflow in this year would be hardly INR 32 crores, INR 35 crores in that. And in the Silvassa we had done almost a CapEx of INR 9 crores. And then once this -- is successful, this recycled, then we will be investing around INR 150 crores for the recycled project. Right now, these are the CapEx. We are also looking for some other opportunities to increase some productivity and add some more products. So as and when we find, we will inform. But there is no big CapEx plan as of now. So all these can be financed through internal accruals easily.

Okay. So I just want to reiterate, you are putting an equity of INR 10.26 crores for the wind and solar, for the POY you'll be spending INR 35 crores. And for the Silvassa plant, you'll be spending INR 9 crores.

Right. That's exactly what is on the cards as of now. And maybe INR 3 crores, INR 4 crores we have spent on the recycled project.

Okay. Okay. And you'll come to know about the recycle after you run the pilot plant and you see the cost...

The pilot and will be operational from 10th, already some trials have started. Small problems are coming, which I think within a week, we should be able to rectify those things and that pilot plant would be commissioning. One part has already commissioned where we do the depolymerization and purification of the polymers. Then to repolymerize that part has yet to start.

Right. So another thing on the industry. Can you just give some more color on how the buyers are behaving? How is the demand scenario? And also some thoughts on what you think will be a demand growth in the filament side or the spun side, just some thoughts will be very useful.

See filament is the main driver in the textile industry worldwide today because cotton is stagnated, the production of cotton in India has rather gone down, worldwide also it is not increasing. So the main driver and supplier for the extra garment is only polyester, rest other products are very small. Even polyester fiber is not doing too well, whatever growth has come in polyester fiber is in the recycled fiber form. So these pet bottles getting mechanically recycled that is taking up whatever growth is coming in the recycled -- I mean the fiber side. So filament side is doing pretty well. And going forward, I assume it should do well. And internationally, said around 5.1% incremental. And total, I think, the supply in the world is around 45 million to 50 million tons. So you can see around 2.5 million to 3 million tons additional is required. And India is producing at the moment around 4.4 million tons of filament yarn. So almost 60% to 70% of India supply is needed every extra in the world, which is supplied by China. But now China cost is also increasing and they are not too inclined to increase more in polyester. So India has a good chance to take up that space.

I was just wanting to know on the more demand side, like the marriage season will be there...

Going forward demand should be very -- increasing very exponentially because PLI scheme announced by the government is also for only man-made fibers. Fabrics made out of man-made fibers and garments made out of man-made fibers and technical textiles, which is also made out of man-made fibers. So once this new companies with the PLI schemes come into operation, the demand for yarns would be very high.

So on your filament side or do you see the spun also increasing.

Spun should also do well, but I have not much idea about that. But I think spun should also do well. Definitely where the polyester is there, but cotton availability is poor and the cotton prices have also gone through the sky. So I don't see much in the cotton side, but polyester spun should do well.

[Operator Instructions] The next question is from the line of Vikrant Kashyap.

Many congratulations sir for very good set of number. A couple of things. We understand that there has been a lot of volatility in the crude oil prices. And it should be impacting our realization as well. So has the pricing scenario -- what has been changed in the pricing scenario over the last few quarters, if you can tell?

See mostly, it is a pass-through only, I would say, since after the -- between Russia and Ukraine war, people have become more skeptical and the buying has gone down. So then the prices have not been able to passed so much. So there has been a pressure on the prices after that on the margins. But otherwise, it's passed through because polyester is one of the cheapest yarns available. There's no yarn which is cheaper than polyester filament yarn. So I don't think we should have much problem. And traditionally, also see this April, May, June are a little slow months. Because lot of labor goes away back to their villages and all, which starts coming in second half of June. Then from June -- I mean July onwards till next February, March and there is no looking back. That's how traditionally things happen. Now this time, it has been coupled with the war scenario and the price size with the crude also. That is having some effect in this quarter. But otherwise, I don't see any problem going forward.

Yes. We have seen that our volume -- production and volume shares in terms of sales, both has gone up Y-o-Y and Q-on-Q.

Yes, because the raw material prices have gone up, so top line has increased because of that and also because of the volumes last year, volumes were low because of the COVID. And we are mostly operating our yarns at full 100%. Sometime Chips, we are not doing much because the margins in Chips are very poor. And going forward, once our POY is operational, we would not have left with any extra Chips capacity substantial.

So largely, it will be consumed in-house?

Yes, yes. So everything will be consumed and converted in-house, maybe a very small quantity if it is there. So as and when we find some good buyers, we will make it otherwise, we'll not make it.

You also did mention that raw material prices have been quite volatile and has shortage...

Yes, there is a shortage, but we have shifted now more toward imports, and we have increased our inventories of raw material to see that the operations are smooth. So we are not having any problem since Jan, Feb of this year. Because of raw material, we have not suffered. Before that, there were sudden shutdowns with the local plants. So we had problems.

So going forward in quarters to come, which would not be...

I don't think so -- we are planning quite meticulously. I don't think we should have a problem because we are keeping sufficient stocks so that we don't suffer a loss of production because of raw material.

So is there any differential in pricing while we are importing comparing to the domestic market?

There is a slight differential but not very significant. Sometimes it's cheaper also. Because there's a time lag between imports and the local. Local prices are done on a weekly basis. And imports the prices are on a monthly basis and also it takes almost 20 days for the vessels to arrive.

Okay. And also...

If you are regularly importing it evens out, you get average price of the whole year.

Okay. Okay. Good. On the consolidated basis, you don't have much problem?

No, you don't. Sometimes you gain, sometimes you lose because you pay charge, you average price of each month of dispatch. So if you take the whole 12 [ years ] and if the volumes are almost similar, then it will even out.

Sir, do you have any plans for putting up incremental DTY plants to convert the newly added POYs?

We do have plan, but we'll wait for some time and see how the market is pans. Because the margins in DTY is not very good at the moment. So I thought it's better to wait and then go ahead. We don't have much space in the existing, so we might have to find a new area where to put up. And also on DTY, we can get some benefits from the government because that becomes a part of the Textile Ministry, there we can get some incentives with interest and other things and some concessional rate on the power also. So we'll wait for a quarter and then decide.

Okay. We'll look for the update. And it seems that you have made a very good deal while investing [indiscernible] to power, but to take it forward, we are losing on the current coal power plant that we have, that shutdowns and then restarts. So where do you think the current coal pricings are at? What are the breakeven for us, where we can continue with our coal consumption? Or do you think...

If the coal prices landed -- coal prices to us becomes INR 8, we should be able to restart our plant. And at the moment, it is around INR 10.

Okay. It's about 20%. So we had quite a time to go. And do you think that we should look for a similar kind of partnerships or deals that we have tied up to bring down since you are coming up with large CapEx...

This was only possible because of the policy of the government. The government policy has -- there is not -- that we could not have done more than 10 megawatts. The government is restricting it to 45% of our sanctioned loads. So our sanctioned load today is 27 kilowatts. So 45% of that and then you get turbines like this is a turbine of 2.7 megawatts, so into 4 becomes 10.8 megawatts. So if I go with this, then it will exceed my allocation.

Okay. Sir, I have one last question on the recyclable projects, since we are, I think -- from my understanding, we are now currently, we are doing that batch processing. And we are doing R&D to change it into continuous processing. So can you tell us some update on that, where we are in terms of the progress?

So I told you, there are 2 parts of it. One is purification of the waste. That part has already started almost 20 days back. So we are purifying the polymer and keeping it in stock. And the polymerization part would start within next week. Already commissioning activities have started. So there are some small initial hiccups, which we are facing. So it can start any day from today onwards. Max a week, which is I'm just thinking. Otherwise, maybe tomorrow or day after also it can start. And then once it becomes stable, we will have our products out, and then we will see how to improve the quality of those products. That would take 3 to 6 months to come to a conclusion how to go about with the big part.

The next question is from the line of Prerna Jhunjhunwala from Elara Capital.

Sir, could you help us understand the demand in the various segments of your customers where the demand is very buoyant, domestic export and various user segments to help us gauge where the demand improvement is coming faster...

The domestic demand is rising very rapidly. Exports also, we were doing well. But from last almost 1 year, the freight rates have gone heavier. So that is why we're not able to export. Normally, the export in export the freight rates from China and India, there used to be a differential. India freights were cheaper to the Western world and America, South America, North America than China. But for last 1 year, the freights from China have been equivalent or cheaper than India. So there, they are having an advantage so our exports have gone down. As and when the export market -- the freight market becomes all right, our exports will increase, but the local market is doing well, and there is a good demand in the local market. So the offtake is good in the local market.

And sir, which user segments of the...

User segment, basically, it's like home textiles and garments and everything. All the segments are doing well. There is nothing particular actually. There are only 2 major segments, which is home textile and garments -- garment means, sorry fabric, then garments is later on, but our product would go for fabrics.

Okay. And in that knit, woven, what kind of products?

Yes, both. Knit and woven both are doing well.

Both are doing well Okay. Okay. And sir, how do we look at your margins?

I think our margins to look at is a per kg basis because the raw material prices would create a distortion in the percentage. So per kg is a better way to look at our margin.

So right now, what is the per kg margin? And how...

INR 14 to INR 15 per kg EBITDA.

INR 14 to INR 15. And that is sustainable is what...

Yes, that is over a year, it is sustainable. Maybe in a quarter, it is not sustainable because like first quarter is normally a low quarter and then it picks up.

The next question is from the line of [ Jigar Shroff ] from Financial Research.

You mentioned in earlier calls that the polyester waste recycling plant would be a game changer for the company. Can you throw some light on it, sir, in terms of once the pilot plant goes onstream on 10th June, as you mentioned, the commercial grade plant, what would be the CapEx involved, when will it come up and turnover and expected from it in terms of capacity utilization and profitability?

I think we will be able to take a decision for the commercial operation for the new plant, maybe end of this year. Or -- then it will come up by end of calendar year '23. It will take at least 12 to 14 months to come up. The CapEx involved would be approximately INR 150 crores. And the -- one second. I think the top line should be close to INR 300 crores to INR 320 crores with EBITDA of around INR 100-plus.

And that can -- this can be scaled up further or this INR 150 crores is the first stage or...

No. This is the first stage, we will put up a big plant. And once that is successful, then we can put multiple plants bigger or smaller as we experience. So it's not that -- after the first plant, we can put 3 or 5 or 8, whatever we decide simultaneously also or maybe bigger plant. That will all depend on the experience what we have in this big plant. Yes. But then the scalability will not be an issue once the one big plant is running, then we can scale it up as much as we want, either in multiple plants or in the size in one plant whichever one is more feasible.

And concurrently, the existing capacities would...

Existing also, we will keep on increasing some incremental capacity. We don't have any plans to put up a new polymerization at the moment. But yes, some small incremental polymerization or some small incremental increase in POY or DTY, that will keep on going.

Okay. And sir, any FY '23 guidance, sir, would like to share, sir?

I don't have any guidance. I think we should do better than last year. That's what I can say. We are adding some new capacity, and I hope the margins should also remain healthy.

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

Yes. Sir, just a follow-up. What would be the EBITDA for your POY, DTY and FDY for the last quarter?

I think the DTY would be around INR 3, POY, INR 12 and FDY should be INR 20-plus.

Okay. So that's what you are saying that the DTY margins have compressed and so...

Yes. There's a lot of investment, a lot of labor and the margins are low, but it's needed to take care of POY. Sometimes selling POY becomes a problem. So we -- right now, we can handle this additional POY. So we will see if and feel we need to put it, we'll put it. But we can take some time, we'll not lose much in this.

When you say DTY is INR 3 then the DTY excess of POY right?

Yes, yes, plus INR 12. Just from POY to DTY, I'm saying to you.

And POY to FDY? Sorry...

FDY is direct. So FDY is 20 plus.

Got it. Got it. And like what margin levels would you be planning to invest in DTY and FDY capacity?

It's not a question of margins. We just want to wait and see if we are able to sell POY and generate INR 12, INR 13. But going forward, I think DTY margin should increase. DTY actually opens up the market for you. DTY, you can sell throughout the world. POY is the limitation of the customers is there. But they are the customers who converted to DTY, and they are all confined to the Surat and Silvassa area and very few are left. So sooner or later, we'll have to put DTY, but we can wait for some time.

And when you say that there will be demand POY based products, is it more than DTY-based product or the FDY itself?

It will be DTY or FDY they will be making fabrics and garments. So they will not buy POY.

Okay. Got it. So when your cash flow, if you -- at least the numbers will be better than last year, then will the reasonable cash flows for this year as well?

Yes. So we will retire some debt and then some all these investments we need to do and see and maybe to reward our shareholders, if we have extra money.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Vikrant Kashyap for closing comments.

Thank you, everyone, for your active participation in the conference call. And I thank management for giving us the opportunity. Thank you very much.

Thank you, everyone who's participated. Thank you for sparing their time and listening to us. Thanks a lot. Bye.

On behalf of Filatex India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.