Filatex India Limited (526227) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Filatex India Limited Q3 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Madhu Sudhan Bhageria, Chairman and Managing Director, Filatex India Limited. Thank you, and over to you, sir.

Thank you. A warm welcome to all of you attending this conference call for the quarter ended 31st December 2022. Joining me in this session are Mr. Ashok Chauhan and Ms. Stuti Bhageria. I hope you have gone through investors presentation, which has been uploaded on our website as well as on the stock exchanges. A quick recap of the results of this quarter, Q3 FY '23. We achieved the production volume of 99,969 metric tonnes in this quarter as against 97,169 metric tonnes in the previous quarter. The sales volume for Q3 is 100,468 metric tonnes as against 101,488 metric tonnes in Q2. The sales revenue achieved this quarter is INR 1,070 crores as against INR 1,163 crores in Q2 FY '23. The operating profit EBITDA is INR 44.44 crores as against INR 46.26 crores in Q2. Net profit is INR 2.74 crores against INR 25.16 crores. Comparing it on year-on-year basis, the EBITDA in 9 months FY '23 is INR 165 crores as against INR 385 crores in FY '22. Net profit is INR 71.31 crores as against INR 224 crores. The financial numbers of Q3 FY '23 gives an impression of a gloomy situation, this is not so. We had a good performance -- operating performance in this quarter, and we achieved the highest monthly sales volume in December 2022. As was in Q2, we operated at almost 100% of our capacity. The drop in profit before tax and PAT in this quarter is due to weakening of the rupee in this quarter against the Euro, which resulted in notional mark-to-market exchange losses on account of our Euro loans. China's prolonged Zero-COVID policy continues to adversely impact the Indian polyester sector. Strict lockdowns and restrictions on people and goods across the major slowdown of the Chinese economy, resulting in slump in domestic demand. Chinese polyester filament manufacturers have flooded international markets, including India, with low priced goods. Indian traders and customers have imported more than 200,000 metric tonnes of filaments in the last 9 months. This heavy import at low cost has forced the domestic manufacturers to match price -- import prices, resulting in squeezed margins. So the battle in the Indian domestic market is still on. Low priced Chinese products were available worldwide. And obviously, the Indian manufacturers could not match the Chinese prices in global markets. Thus huge incoming imports coupled with loss of export volumes created excess supply in the Indian market. The price churning was also rather extreme and needed adjustments every day. However there are signs of decrease in import [indiscernible] as China has finally relaxed its Zero-COVID policy. With easing of restrictions in China, the domestic demand is gradually building up. Dumping of material in excess of demand has hurt Chinese players too, and they are also looking at increasing their margins. These factors are having a positive effect on domestic margins in India and sign of improvement in the markets are also visible. A quick update on plant operation and expansion projects. We have completed all of our ongoing capital expenditures planned and are now running the plant at full capacity. We improved our product mix and offer winder [indiscernible]. We have placed orders for some additional winders. These winders will increase our production capacity by 25 to 30 tonnes per day in [indiscernible] POY and is expected to be commissioned by end of May 2023. To further enhance our product basket, we are putting up a new Cationic chips line at Dahej with a capacity of 70 metric tonnes per day, which will be completed by March 2024. In regard to our captive power plant, there is a downward movement in coal prices, although they have not reached pre-COVID levels. Therefore, we'll be restarting captive power generation by mid-March. The work on the recycle polyester pilot plant is in full swing. We are carrying out process trials with different kinds of [ ways ] and establishing norms for efficient operating conditions. It is meticulous and time consuming task and we are achieving good results. We have taken trials of spinning and recycled chips and converted it into cloth to test the parameter. The results are positive and encouraging. Committed to reducing our carbon footprint, we partnered with Fourth Partner Energy for a hybrid wind and solar power project with a capacity of 10.8 megawatt. The wind turbines have been erected, the solar panels are being installed, and the final approvals are under process with the state authorities. The project is on schedule and expected to start delivering power to our plant by April 2023. In conclusion, the opening of the Chinese economy and enhancement of our product range are expected to drive improved profitability in the upcoming quarters. We are confident about prospects of our business in the coming years and remain dedicated to providing value to our shareholders and stakeholders. Thank you. Now you can ask questions if you have any.

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

So I just wanted to know some color on the current last quarter consumption. You said you ran that plant at 100% utilization. Can you give some color on the industry as far the POY is concerned and also the downstream demand in India?

I couldn't follow but whatever I have understood. The consumption is quite robust in the downstream. As you -- I have told that the imports were also there and also the exports have reduced. In spite of that, we have been able to run at full capacity and have been able to sell the full capacity. So that means the demand in the downstream is quite robust. So going forward, as the imports will reduce and the exports will increase, I think the margins will also increase.

Okay. No, I was more referring to -- if you look at the results of a lot of companies indicating as an industry. Do you see that the polyester related or non-cotton demand will continue to grow? And which other areas do you think might be contributing to the demand? Like is it the fast fashion or is it the school kids or is it the formal clothing?

Now polyester is present in each and every field. We will stick to that. And today, polyester is virtually -- even in MMF, it is around 80%, 85%. And if you see the whole basket, it is more than 60%. And there is no competition as far as price is concerned between natural and other MMF because it's one of the cheapest. Today if polyester is INR 100, cotton would be more than INR 300. And even other MMF are more than INR 150 type spent of nylon. Nylon would be more than INR 200, INR 250. So there is not price competition and the demand for polyester is rising day by day because the properties which have been incorporated in this, they are quite near to the natural fibers also and the other MMF. And this is very easy to weave and maintain.

Yes. Okay. That's true. The other thing, a related question was, if you said the supply from China was almost 2 lakh tonnes in 9 months average would be -- an estimate. What would have been this import a year back from China?

Year back, I think it would have been less than a 1 lakh of tonnes. And in last 3, 4 months, it increased quite a bit, in this 2 lakhs also. And last 3, 4 months, it has been almost to the tune of around 30,000 tonnes per month. Like, October was around 30,000, then 35,000. December also around 35,000.

Okay. And has it subsided or do you think this is continuing?

Now from January -- the December supplies have come in January. Now from February, it has gone down because the prices in China have gone up, and it is not too much of a benefit for the people to import. We can meet those price expectations. It's not fully gone down, but I think it is going down. Maybe it has gone down by 30%, 40%. Also the exports have also started trickling in because China has also started offering, export prices are also improving. So we are able to compete in the export market. So as our exports had gone down by at least 75%, 80%, so we were doing only 20% of the normal volume. Now I think we are going to 30%, 35%. So the -- it's too early because China has just opened up last week only. And even the full labor force and there also the full downstream and not started. So I think within the next couple of weeks, we'll see more effect of this. But definitely, the prices will improve. They are also making losses in these kind of prices, so they also want to come into green and increase the prices. So they have kept their production low, even though they have start -- they're not increasing their production capacity until the market stabilizes.

Got it. Got it. And the other thing you said about the combined hybrid power -- wind and solar project for Filatex. What will be the approximately savings that you will see? And...

I think we would save anything around INR 10 crores to INR 12 crores annually. So we'll be getting around roughly 5 crore units per year, and we'll save around INR 2.5 to INR 3. So INR 12.5 crores.

Also so how much is the 30-week target?

Sometime at the end of March, I think, second half of March, there also, if not much, at least, we will have annual savings of at least INR 2, around INR 70 lakhs, INR 80 lakhs with the power plant starting up. And as the prices of the coal go down, I think the savings can still go up.

Okay. And other thing is on a capacity -- while you are running full capacity even at the India's low demand scenario, any thoughts on expanding capacity on the polyester side?

We are just waiting for the market to stabilize and give us clear-cut direction. And we are doing small expansions. Like this 25 tonnes, 30 tonnes, we'll expand in by May. Then we are putting on more stream to make Cationic chips, so where we can expand by 70 tonnes and we can also put more yarn for those 70 tonnes, but we're going a little slow, seeing the market conditions.

And this would add how much revenues, for the winder and the Cationic chip?

Like 25 tonnes would be like almost INR 30 lakhs per -- means may be around INR 12 crores, this 25, 30 tonnes. And that 70 tonnes would be -- maybe INR 70 lakhs, INR 80 lakhs, so maybe INR 250 crores. Overall by FY '25, we'll have around INR 300 crores of extra top line by these 2 things.

So how much was for the 25 tonnes per day was, the total yearly revenue? The winder, 25 tonnes per days at ...

Around INR 12 crores, INR 13 crores per annum.

So that is a small one, the...

Yes, it is very small, the investment is also around INR 12 crores, INR 13 crores. And in the 70 tonnes, the investment is around INR 40 crores. So that we'll be all doing from internal accruals. We're not taking any new loans. And in this -- till now also in this current year, we have prepaid almost around INR 40 -- INR 50 crores of loans we have prepaid other than our regular payments.

[Operator Instructions] We have next question from the line of Vishal Bagaria from Roha Asset Managers.

Sir, I had a few quick questions. I just wanted to know what are our current margins for POY and FDY in terms of EBITDAs?

The margins for the last quarter, I would say, POY would be around INR 4, INR 5, and FDY would be in the vicinity of around INR 10. And this has started improving, I think we can already see in tune of INR 1.5, INR 2 in both of them.

Got it, sir. So sir, if we compare it with the same quarter in the last year, we were somewhere in the range of INR 15 and INR 20 per kg respectively for both POY and FDY. So what is your view and expectation in the next 1 year time period, how are we...

This quarter we should at least do INR 6 and INR 13 -- INR 12, INR 13.

From INR 5 and INR 10 respectively?

Yes. So we should have an improvement, INR 2 or INR 3 in both.