Filatex India Limited (526227) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '26 Earnings Conference Call hosted by Filatex India Limited. [Operator Instructions] I now hand the conference over to Mr. Tanish Bansal from Share India Securities. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. On behalf of Share India Securities, I would like to welcome all the participants for Q1 FY '26 Earnings Conference Call of Filatex India Limited. We are pleased to have with us management team represented by Mr. Madhu Sudhan Bhageria, Chairman and MD; Mr. Ashok Chauhan, Visionary Officer; Mr. Nitin Agarwal, Chief Financial Officer; and Mr. Vedansh Bhageria, Vice President of Corporate Strategy. We will now have opening remarks from Mr. Madhu Sudhan Bhageria to give an overview on the company's performance. This will be followed by Q&A. Thank you, and over to you, Madhuji.

Thank you, Tanish. Good afternoon. A warm welcome to all attendees of this first quarter FY '26 conference call. Today, with me are Mr. Ashok Chauhan, Mr. Nitin Agarwal and Vedansh Bhageria. I trust you have reviewed the investor presentation, which has been uploaded on both our website and stock exchanges. Let us have a quick recap of our key financial indicators. Comparing the first quarter of FY '26 to last Q4 of FY '25, in Q1 FY '26, the revenue was INR 1,049 crores as against INR 1,080 crores in Q4 FY '25. The sales quantity stood at 97,263 metric tons, a slight increase from 96,561 in Q4 FY '25. However, EBITDA grew by 2.7% to INR 77.8 crores, up from INR 75.7 crores. PAT declined by 1.69%, reaching INR 40.7 crores, down from INR 41.4 crores in Q4 FY '25. The decline in net profit is on account of rupee depreciation against euro, adversely effect of appreciation of euro against rupee. Comparing Q1 FY '26 performance against first quarter of last year, the revenue was INR 1,049 crores as against INR 1,054 crores in Q1 FY '25. The sales quantity stood at 97,263 metric tons, an increase 9,962 metric tons in Q1 FY '25. However, EBITDA grew by 27.75% to INR 77.8 crores, up from INR 60.9 crores in Q1 FY '25. PAT rose by 26%, reaching INR 40.7 crores, up from INR 32.3 crores in Q1 FY '25. In domestic market, despite geopolitical upheaval and raw material price volatility, the demand was reasonably stable, and we expect gradual improvement. However, the export market for textile yarn continues to face pressure. High raw material cost makes us uncompetitive in export market. The traders in India are still find ways and means to import yarns fabrics at low prices from China, thereby causing pressure on margins in the domestic industry. Let me update you on the status of various ongoing projects. Additional yarn capacity with the investment of INR 235 crores. This expansion is expected to be completed by September 2026. Major machinery orders have been placed. Once operational, we expect an EBITDA of INR 70 crores in full years of operation. Recycling project, the investment would be INR 300 crores. Building construction has started. Ordering of major equipment is going on. We expect to start production by 2026 September. In a full year operation, expected EBITDA is INR 80 crores. Stream infrastructure investment is INR 85 crores. Order of turbine done, construction of pipeline started. Hope to be completing it by June 2026. We have also signed MOUs with more than 50 tonnes buyers. Expected EBITDA is INR 60 crores in full operation. Renewable energy investment will be INR 27.6 crores. MOU signed with Messrs Torrent Power, expected to start getting power by February 2026. Energy cost saving in full year would be INR 18 crores to INR 20 crores annually. We have identified material handling and packaging as an area of concern. We have been facing frequent disruption in our packing areas on account of increased volumes as well as acute labor shortage. Packing is a labor-intensive and tiring work. Labor shortage is perennial and becomes a serious issue during festive season. To mitigate the problem of labor shortage in this section, which needs around 340 persons every day, we have opted for automation of postwinding tasks like tossing and packing of FDY and partially POY. This will reduce the manpower requirement at least by half to around 180 persons per day. Investment of INR 40 crores is being done in that. We expect it to complete by June 2026. Reduction in operational cost will be INR 6 crores. By reducing human handling is likely to have some benefit in quality also. We are buoyant about prospects of our industry. Upcoming PTA capacities of 2.4 million tonnes of IOCL and GAIL and 3.2 million tonnes by Reliance will reduce dependence on imports and freight exposures. We expect raw material prices to reduce once these plants are operational. In our assessment, these factors bring prospects for polyester filament business. Thank you. Now we can go for the question and answer.

[Operator Instructions] The first question is from the line of Param Vora from Trinetra Asset Managers.

I wanted to ask here a question regarding the Chinese dumping of polyester yarn and other related products. So what are your views on the competitive industry from Chinese players? And how is Filatex protecting its margins amid this?

See, Chinese dumping is happening, but it has reduced considerably. The government has put MIP on a lot of HS codes, but there are a few HS codes still left. So we are working with the government to put an MIP, the minimum import price on that so that this can be stopped. In the future, I hope we should be able to stop that. So we are working with various forums with the industry associations to get it resolved.

Okay. And another question what I wanted to ask was, can you provide insights into the profitability and revenue contribution of value-added products? And what is the strategic focus to increase their market share?

See, most of the products are value-added other than the POY. So POY is hardly now 25%, 27%. There is not much difference. I mean, the value-added products are giving like FDY gives a good profit. So we are producing almost out of -- 350 tonnes per day of FDY out of the total production of 1,050 tonnes, approximately 33%, 34%. That gives a better margin than compared. Second is textured yarns. Textured yarns are around 40% and the balance is POY. Exactly, it's very difficult to say, but the value-added products would, on an average, give you INR 2, INR 3 more than the non-value-added at the moment.

The next question is from the line of Niraj Mansingka from White Pine Management.

Yes. Can you hear me?

Yes, sir, please.

Yes. A few questions. One, what about the GAIL PTA plant? When will it start? And how will it impact your supply...

GAIL is the first one to start. I -- whatever I had to talk with them, they expect to start production by December this year. IOC is delayed. IOC is now gone to second half of next year. So maybe around August, September next year, it will start. But GAIL is most likely to start by December of this year.

With 1.2 million metric tons, right?

1.2 million metric tons. India is short by almost 2 million at the moment. So this 1.2 million will help a lot. This will reduce overseas prices. And in return, Indian prices will also get down because they are benchmarked with the landed prices.

Okay. Sir, can you also give some comment on the imports because what industry was expecting that after the ISIN codes being implemented, the imports will go down, but you're saying there's few more codes, HSM codes still being used for importing. Can you share some data on that?

No, I don't have the data, but generally, I think I would say the imports which were happening, let's say, if it was 100, it has come down to 30, 40. So almost 60% of the imports have gone. Still 40% volume is coming.

Got it. But who are fulfilling those supplies in India in the domestic market?

Domestic people. Domestic people demand has increased.

But just a question -- a related question. In that case, your margin should go up or the inventory should go down. So anything -- any comment on that?

So the margins have slightly improved in the first quarter. Normally, first quarter is not very good because there is a lot of labor shortage and the weavers also run the plants at a lower capacity in the summer. The labor is a migrated labor everywhere. So they go back to the villages. So there is a shortage of labor. And also the consumption is not that great. Now from the second quarter, it starts picking up, the labor also starts coming back from mid-June till end July, they start coming back. So traditionally, first quarter is not a very good quarter.

Okay. So whatever impact the government had on the imports on the MIP, whenever there is a larger demand increase, that time you will see an improvement in the margins...

Yes. Already some we could feel. That is why there is a slight improvement in the margin compared to last quarter in this quarter. Last quarter means first quarter of FY '25 compared to this...

Okay. That's one. Secondly, on the CapEx, you said about -- can you just repeat the first item, INR 235 crores of CapEx, when it will complete and what is about?

I said it will complete by September 2026. We have ordered the machinery. So machinery, that will only...

Not the recycling one. Not the recycling one.

No. This is about the increase -- the first one is increase in the capacity of the existing plant. The second one, recycle also is likely to get completed by August, September 2026.

And the capacity of existing -- the INR 235 crores CapEx is complete by September '26, what EBITDA will it add?

It will add around INR 70 crores of EBITDA in the full year. Recycle is just INR 300 crores, that will add around INR 80 crores.

What is the tonnage for the existing capacity that you're adding, which adds the INR 235 crores CapEx, how much capacity will get added on that, sir?

Our total will be around 125 to 130 tonnes per day, including FDY, DTY, POY.

And you are adding mostly FDY?

Yes, FDY is more. FDY is around 48,000 tonnes and DTY is around 14,000 tonnes and POY is around same, 14,000 tonnes.

That's quite a decent CapEx that we have lined up actually.

Yes, if I add up all, the total CapEx is coming close to INR 700 crores.

Yes, quite decent. And all this will complete by, say, September '26.

Work will be completed by September 2026.

Okay. And in terms of -- can you also share when the margins improve? Generally, what type of margins can we improve more? FDY or...

Altogether blended margin, we should expect around 11%, 12% kind of margins, EBITDA margins.

The next question is from the line of [ Udit Sehgal ] from Pinpoint X Capital.

So I wanted to know regarding the margins, sir. In the commentary, you said that the margins will start gradually improving for now. So what are the kind of margins we can see in the coming quarters as the season picks up? And what would we take as a blended average for the year? Am I audible sir? Hello? [Technical Difficulty]

Sorry to interrupt, sir. The line for the management has been disconnected. Please wait while we reconnect them. [Technical Difficulty] Ladies and gentlemen, the line for the management has been reconnected. Yes, sir, please go ahead.

Shall I repeat?

Yes, please.

Sir, in your management commentary, you have indicated that we can see the margins going up in the coming quarters. So what would be the range of margins they could go up to? And what would be the like a blended average for the year?

See, for the year, I expect the margins should be around 8.5%, 9% EBITDA. And by the fourth quarter, I expect the fourth quarter, we should be in double digit.

Okay. Great, sir. And with respect to the CapEx we are doing, sir, for next year, most of it will come online by H2 September '26.

Before FY '26 H2.

Okay. So the EBITDA numbers that we are indicating, say, you spoke of 70% on the polyester expansion and -- INR 70 crores and INR 60 crores EBITDA on the recycling CapEx. Plus I think some steam project also we are expecting some savings from that.

INR 70 crores for the yarn project, INR 80 crores for recycling, INR 60 crores from steam and around INR 20 crores from power -- renewable power. These are the 4 broad.

Okay. So these are figures for considering that the CapEx will come online for half year only. So if we go to the next year, then the figure should be double.

Then you can expect half of all this.

Double of all this, I suppose.

No, no, no. This is for full year. So in FY '27, the effect will be 50% of all this. But yes, for power like it will come full because power will get started in this financial year only. And steam is likely to get completed by first quarter of the next financial year. So that will be like 3/4. And the other 2 will be 50%.

Okay. And sir, how confident are we about this new recycling technology? Because I believe we are one of the few players in India who are doing like textile to textiles.

We are confident that's why we are investing so much of money. We have tried in a small plant and then a bigger plant. So I mean, we are very confident that we should be able to do. Maybe it can take some time, maybe 6 months to establish the product initially. But yes, we are fully confident about the product and what we are doing.

And you spoke of some tie-ups we already have for the offtake of this product.

We are in the process. Some tie-ups have started, but yes, it will take time. We have already started working on that.

And we are expecting superior like EBITDA margins like 35% kind on this project.

Yes, yes. Definitely.

The next question is from the line of Anush Jain from Finterest Capital.

My question was regarding the difference from a competitor like Sanathan, which you mentioned in the previous con call, like they are also having their expansion. So how are we different from them because our margins are relatively low from them. And as you mentioned, we are aiming for double-digit margins by the end of HQ -- sorry, by the end of Q4. So how are we bringing that in?

See, for Sanathan, our yarn and their yarn, there is not much difference. The margin you are seeing, but if you see the ROCE or ROE, you will find there is not much difference. This is the product mix which we do. Like we produce more of course yarns. Course yarn, the production is more, the margins are lower, but the investment per kg is also lower. So if you do your ROCE or ROE, you will find not much difference in the returns on the investments. Same machines can produce like 100 kgs. If you make a courser dyed yarn, if you make a finer dyed yarn, same machine will produce 60, 70 kg. So it's a product mix which one chooses to be in. It's not the absolute number. If you see return on the investment or return on the capital employed, then you will get a better idea of the margins. And they are -- also have some portion of cotton and they are also into some industrial yarn, which is [indiscernible] altogether. But although those portions are small, but yes, they have. I think cotton would be maybe 15%, 20% of their production and I have no idea, but approximately 5%, 7% would be the industrial yarn.

Okay. And sir, regarding the other income, which was around INR 11 crores, it is being reported from last 2 quarters. So could you explain from where it is coming?

See, mostly, it is the free cash flows which we have, which we invested in debt and other securities. In this quarter, we got a refund from GST. So there also, we got INR 3 crores interest back, these kind of income and plus the FDs, which you have to give to the bank for opening LCs and all interest on that also comes in other income. It's a combination of all these 3 things.

Okay. And is it expected to be normalize like at what amount or something?

I think normally, it should be between INR 6 crores and INR 7 crores, not more. INR 3 crores is additional which we have got this year -- this quarter. So that will go away. So it should be within a vicinity of INR 6 crores to INR 7 crores depending on the free cash flows, which we maintain. As the cash gets utilized in the project, this will drop.

Okay. And sir, one last question regarding the investments reported in the balance sheet. It has been gradually increasing over the 3 years. So that's regarding like investments in bonds or something, like what are these investments?

Yes. The free cash which we have invested in the mutual fund debt side, that is that.

Towards capital market side.

Yes, yes.

[Operator Instructions] The next question is from the line of Kenil Mehta from Boring AMC.

Sir, just wanted to know what would be our revenue from the recycling plant? What type of [indiscernible] should we expect from our INR 300 crores investment and also from the growth CapEx of INR 230 crores.

Not able to hear you properly. For recycle, what I've heard you [Audio Gap] of around INR 280 crores to INR 300 crores in a full year.

And for the growth CapEx?

CapEx is INR 300 crores for recycling.

No, no, I'm asking [indiscernible] INR 235 crores CapEx which we are aiming at.

So INR 235 crores CapEx will all give you a revenue of around INR 450 crores.

Sir, going forward, should we expect our other income to fall down?

I can't hear you properly.

Mr. Kenil, can you please use your headset?

Hello. Is my voice better now?

Yes, now better. You can...

Should we expect our other income to fall down going forward as we start investing our surplus cash...

Yes, it will definitely come down. First of all, I said INR 3 crores, which we have received this quarter will not come. So it will come to INR 7 crores. And then gradually, as we start investing money for the projects, it will come down.

The next question is from the line of [ Pritesh Chheda ] from Lucky Investments.

Sir just reiterating the expansion of INR 245 crores is growth CapEx for the existing polyester yarn capacity expansion, another INR 300 crores to be spent in recycled polyester. And you gave out a total of INR 700 crores, which will include the steam project and the solar power project, correct? That's how the INR 700 crores is.

Yes, roughly.

Roughly. And then you said that the EBITDA will be INR 75 crores from polyester, INR 80 crores from recycled polyester and another few numbers totaling INR 175 crores of EBITDA from INR 700 crores of expansion, that's how it is?

Yes, correct.

Okay. Now which portion of this will come in FY '26 and which portion will come in FY '27? Which asset is operational in FY '26 and '27?

Only the power will come in FY '26. Rest will come in all FY '27. Steam will get started by end of first quarter FY '27 and balance by second quarter of FY '27.

So basically, the solar power project will come in '26.

Correct. We have tied up with Torrent and we have taken 26% equity so that it becomes captive. We are putting the project. We have done an MOU with them to buy around more than 20 megawatts of hybrid power. So that will reduce our power cost.

So solar comes in '26 with all other capacity related benefits come in '27. Now I don't see a CWIP still. So why is it so? In March '25 balance sheet, CWIP was not there. So what -- where will we see this INR 245 crores plus INR 300 crores this polyester expansion, recycled polyester project?

Sorry, you are not audible. There was some disturbance in the line. Can you repeat that?

I said I don't see a capital work in progress number in FY '25 balance sheet where you are spending at least...

Investment has started from this quarter only. So that's why there's not much capital work in progress. And this recycle we are doing in a different company, which is 100% subsidiary. The name of that is Texfil. So you can see that in the consolidated balance sheet, we have purchased the land and that cost is already there in the March '25 balance sheet.

Okay. And my last question is, you gave a double-digit margin number in quarter 4. So somewhere you're building in the PTA benefit in that number, that's how it is double digit for quarter 4 or some other assumption is there?

Some pettier benefit will come, maybe not much, but maybe a 1% or something like that. The rest will be through demand in the market.

Okay. And the power benefit is assumed in this double digit or...

Power benefit I have not assumed because it is coming in February, it can get 1 month here and there. So that I have not assumed.

So you assumed some benefit from PTA and basically market supply-demand economics improvement is what you build in quarter 4.

Already, we are at 7.4% and 1% 8.4% and another 1.5% to 2% will come from the market improvement.

[Operator Instructions] The next question is from the line of [ Sasha Porwal ] an individual investor.

So as you've seen like the Chinese players have continued to export yarn at aggressive pricing. Are you seeing any risk of further price undercutting in India? And how do you see it going forward in FY '26?

I don't see price cutting due to Chinese imports, but in India already, we have tried to stop quite a bit of it, and we are working to stop the balance also. It is not that they are producing at a lower cost. The people are getting at [Audio Gap] what the government is trying to stop, they are putting a minimum import price, which is the actual price of the fabric so that pay proper duties and then it comes to India. That is the main reason.

The next question is from the line of [ Sevni, ] an individual investor.

Hello?

Yes, ma'am, you're audible. Please go ahead.

I just have one question. I just wanted to know if you could give us CapEx guidelines on the next 2, 3 years. I don't know if I've missed the question with that before, but if you could help on the CapEx guidance.

See, till September 2026, I've already given the guidelines. We'll be investing around more than INR 700 crores in various projects. Beyond that, we've not thought of. We would like to invest more money once our recycle plant starts. We would like to expand in the recycle business mainly. Once the recycled plant starts, we would like to put up more recycled plants. So major investment will be decided after that. Till 2026 September, this is the investment plan which we have already given, which is around INR 700 crores.

The next question is from the line of Niraj Mansingka from White Pine Management.

Yes, I just had 2 questions. One, the CapEx of INR 300 crores, does it include the land CapEx of recycling or it excludes that?

Yes, it includes land, everything.

Which is how much? The land would be how much?

Land was around INR 11 crores, INR 11.5 crores.

And in terms of your -- you said that EUR appreciation led to lower impact on the EBITDA side -- margin side. Can you share some thoughts on how it led to [indiscernible] It was of some payables or...

So we had a euro loan. We have a euro loan. So as the euro got appreciated against the rupee and the rupee depreciated. So we had approximately INR 10 crores of it because of the currency loss, which is notional and when the rupee recovers against euro, it can come back. But if we take the full tenure of our loans, we are still better than hedging it. And we did hedge some euro, which are payable in this year. So 3 million, we have already hedged where we have a benefit of around INR 75 lakhs, which are payable in this year. Which are payable in subsequent years, we have not hedged. And as per the guidance of the person -- adviser we have kept for ForEx, we are moving ahead.

This has not impacted the EBITDA margin. It is more impacted below the EBITDA, right?

Yes, yes. This has not affected the EBITDA. This is below the EBITDA. So net profit, this has affected, not the EBITDA. This is...

And the impact will be to the extent of INR 10 crores for the quarter.

Yes, INR 10 crores [Audio Gap] just because of the losses. But that is not outgo. It can be recovered in subsequent quarters.

But the interest that you have booked is INR 4.9 crores. So where is the other remaining part?

We have return of INR 4.9 crores and there is one more item, which is currency loss...

Okay. ForEx loss of 9.9.

Yes, 9.88.

The next question is from the line of Janvi Shah, an individual investor.

Hello?

Yes.

Sir, I just have like an industry level question actually. What trends are you observing in the downstream demand from the apparel, home textiles and the technical textiles? Which of these segments do you think will be structurally more important to your revenue mix?

So textile, mainly fabrics and garments is more for our products. And I expect it to grow. I mean, with the FTAs being signed, like U.K. will likely to get signed within a day or 2, if the U.S. FTA gets signed or other FTAs get signed, the demand will increase significantly.

Okay. And sir, just another question. Since the improving profitability and the lower interest burden, are we reevaluating the dividend payout ratio?

Yes, definitely, this year, if we are doing well, we will increase the dividend. But since we are investing a lot of money in projects, we have to CapEx. So that we have to also keep in mind because that's a trade-off. If you give more dividend, you'll have to maybe borrow some more money for the CapEx. So...

The next question is from the line of [ Viral, ] an individual investor.

Hello.

Yes, go ahead.

So I wanted to ask about our product mix strategy. As our product mix is static, so are any plans tilting towards higher product value DTY or any specific yarn to derisk our spread?

We are not increasing DTY much. We are adding a very small volume of DTY, which is 14,000 tonnes per annum. POY, we are adding 19,000 tonnes. Initially, I wrongly mentioned 14,000, it's 19,000 tonnes. And FDY, we are adding is 28,000 tonnes. So this will get added by September 2026. Texturizing will start within next 2, 3 months. But POY, DTY is a long delivery item. So that will start by September 2024.

So currently, what is the margins in 3 of us segment?

DTY has the worst of the margins. So DTY margins are hardly 2%. FTY would be close to 12%, 13% POY would be around 6%...

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

I just have one question. Sorry, if I might have missed it because I joined a little late. So what percentage of revenue comes from the top 5 customers? And like has this concentration changed meaningfully in the last 1 year?

Top 5 would contribute maybe around 7% or 8%. We have a very wide base of customers. So there's no one customer taking more than 1.5%, 2%.

Okay. Got it. And like can you share the name of the top 5 customers? Like who are the ones who are... Hello?

I don't have it ready. I cannot give you the name.

The next question is from the line of [ Udit Sehgal ] from Pinpoint X Capital.

Sir, just a follow-up question on the recycling technology, Ecosis. So is there anybody else in the world who is doing the same? Like have they proven this technology? And I suppose in India, there is another company called Ester, which is doing a JV with Loop. Other than that, are there any companies who are experimenting with the same process?

See, India Ester has announced. Ester, I don't know whether they are still going ahead or not because Loop technology is still not proven [indiscernible] like the one in U.S. Ambercycle, then another one is Carbios.

Okay. And what kind of capacities are these people processing, sir?

So they are planning to put -- like Carbios is planning to put, I think, around 100 tonnes per day.

All experimental.

They are all on the similar stages. They have not gone ahead and their productions are expected anywhere in calendar year '27, not before that. And it's a lot of money like Carbios might have spent more than $50 million, $60 million in research. Loop has spent more than $100 million.

Okay. So do we...

Ester is still going ahead. I heard a rumor that they are cropping this project.

[Technical Difficulty]

Sorry?

Sorry to interrupt, Mr. Udit. Your voice was not audible. Could you please repeat your question again?

Can you hear me now, sir?

Yes.

I'm saying, sir, it's such a first and unique technology. So once we establish it at a full scale, do we plan to scale it up further? Or you will think of licensing it to other manufacturers?

We can do both. The demand is so much, both can be done. We will definitely like to scale it up ourselves also. And if we find good people and we can license it to, we will definitely look into that also.

And the sale rate of these recycled fibers, are they different from the rates of the fiber recycled from PET bottles?.

[indiscernible] today, even though that is not up to the mark, it's still sold at around INR 45 to INR 50 more than the virgin fibers.

[Operator Instructions] The next question is from the line of Reet Jain from First Water.

As you said that the price of the recycled fiber is INR 40 to INR 50 higher than the virgin fiber. Is this the main reason we are going to make higher margins in the recycling project or there are some other reasons also?

That's the main reason because the customers, mostly branded clothes manufacturers, they want to produce everything from recycled. They are not able to buy recycled as much as they want. So it's based on that only. But yes, we have factored in even if it drops to like INR 30, INR 35, still the margin should be intact because our cost of production will be much [Audio Gap] will give us some extra margin, then the margin of the virgin and then this extra margin on top of that.

Okay. So if the price gap normalizes in the range of suppose 15% higher, so what could be our normal margins in recycling project?

Yes. So then our margins will -- what I have said INR 80 crores can drop to maybe INR 55 crores, INR 50 crores.

Okay. So we can still be making a good profit?

Yes.

[Operator Instructions] As there are no further questions from the participants, I would now like to hand the conference over to the management for their closing comments.

Thank you, everyone, for joining us and sparing their time to join us. We hope to have con call again after 3 months in the next quarter results. 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. Thank you.