Filatex India Limited (526227) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Filatex India Limited Q1 FY '27 Earnings Conference Call hosted by Sunidhi Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Gulshan Singh from Sunidhi Securities. Thank you, and over to you, sir.

Thank you, ma'am. Good evening, and very warm welcome to everyone. On behalf of the Sunidhi Securities, I welcome you all to Filatex India Limited Q1 FY '27 Conference Call. Today, we have with us the management represented by Mr. Madhu Sudhan Bhageria, Chairman and Managing Director; Mr. Ashok Chauhan, Chief Visionary Officer; Mr. Nitin Agarwal, Chief Financial Officer; and Mr. Vedansh Bhageria, Director at Ecosis Limited. We thank Filatex India Limited for giving us the opportunity to host the call. I would now like to hand over the floor to the management for their opening remarks, post which, we will open the floor for Q&A. Thank you, and over to you, Madhu Sudhan Sir.

Thank you so much. Good afternoon, and a warm welcome to everyone for joining us today for the Q1 FY '26-27 earnings call of Filatex India Limited. I trust all of you had the opportunity to review our investor presentation. Let me begin by summarizing our financial and operational performance for the quarter. Q1 FY '27 was another steady quarter for Filatex as we continue to deliver resilient financial performance despite an operating environment marked by geopolitical uncertainty, volatile raw materials and cautious customer buying. Our revenues increased by 16.3% to INR 1,145 crores, compared with INR 985 crores in Q4 FY '26, reflecting improved realization driven primarily by higher raw material prices. Sales volumes remained stable at [ 89,872 ] compared with [ 89,841 ] in the previous quarter. PBT rose by close to INR 65.87 crores from INR 53.47 crores in Q4 FY '26, driven by continued healthy operating performance. PAT increased by 22.1% to INR 49.1 crores compared with INR 40.3 crores in the previous quarter, reflecting improved overall profitability and efficient financial management. Compared with the corresponding quarter of the previous year, revenues increased by 9.1% to INR 1,145 crores from INR 1,049 crores. Sales volume stood at 89,872 metric tons (sic) [ 89,972 metric tons ] compared with 97,263 metric tons. While production during the quarter was [ 84,035 ] metric tons against 94,996 in Q1 FY '26. PBT stood at INR 65.87 crores compared to INR 54.89 crores in the corresponding quarter last year, driven by healthy operating profitability. Profit after tax increased by 20.7% to 49.1% from INR 40.7 crores in Q1 FY '26. Overall, these results demonstrate the resilience of our business model, our continued focus on operational excellence, disciplined cost management, product mix improvement and financial prudence has enabled us to improve profitability despite a volatile business environment. The global textile and polyester industry continue to operate under a highly dynamic environment during the first quarter of FY '27. Although the intensity of the conflict in West Asia moderated from the disruption witnessed during the previous quarter, geopolitical tensions involving the United States, Iran and the broader Middle East continues to create uncertain -- uncertainty across global petro products and IT markets. The Strait of Hormuz remains one of the world's most critical energy and petrochemical shipping corridors. Even temporary disruptions or security concerns have an immediate impact on crude oil prices, petrochemical feedstock availability, freight rates, marine insurance costs and overall supply chain reliability. Consequently, prices of PTA and MEG and other petrochemical feedstocks remain highly volatile during the quarter. Manufacturer across the polyester value chain was required to operate in an environment of rapid changing raw material costs while customers continue to adopt cautious purchasing strategies. Although freight availability improved compared with the previous quarter, logistic costs continue to remain above historical averages, and shipping should use remain less predictable than before the geopolitical disruptions with government planning, therefore, continues to require greater flexibility and higher inventory discipline. India's dependence on imported MEG remains one of the key structural risk for the domestic polyester industry. There is no shortage of MEG globally. However, disruption in international shipping and logistics can create temporary supply uncertainties and increased costs. As part of our risk mitigation, we procured a parcel across MEG from U.S. before the blockade at Hormuz. This proved to be prudent decision, helping us maintain uninterrupted operations during the disruptions of regular shipping through the Strait of Hormuz. Demand across textile value chain remained selective during the quarter. Customers largely followed a need-based procurement approach, which shot up booking cycles, lean inventories and cautious working capital management. Nevertheless, domestic consumption remained reasonably stable, supported by steady demand from April, home textile and technical textile segment. Despite the short-term uncertainties, the long-term structural fundamental of the Indian textile industry and polyester industry in particular, remain extremely encouraging. India continues to strengthen its position as a preferred sourcing destination as Global Brands diversify supply chain beyond China. The implementation on the India U.K. free-trade agreement and the expected operationalization of India EU free trade agreement are expected to significantly improve India's export competitiveness over the medium term by providing professional market access to go of the world's largest textile market. At the same time, higher tariff exposure on Chinese textile exports continue to encourage global buyers to diversify sourcing towards countries such as India and Vietnam, creating significant long-term opportunities for Indian manufacturers with scale, quality and integrated manufacturing capabilities. One of the most encouraging developments for the Indian polyester industry is the substantial domestic PTA capacity currently under implementation. Various PTA project at Mangalore is almost ready for trial production by August and September 2026. While Indian Oil Corporation's PTA project continued to advance steadily and is expected to be commissioned by March 2027. Together these projects are expected to add nearly 2.4 million tonnes per annum of domestic retail capacity. Reliance Industry is also implementing an additional 3.2 million tonnes per annum PTA expansion, which is expected to significantly spend India's raw material ecosystem over the next 2 years. These investments will materially reduce import dependence, improve supply reliability and hence domestic availability and strengthen the long-term competitiveness of Indian polyster industry. At Filatex, our focus remains firmly on executing long-term strategy while navigating short-term market volatility with discipline. Our comprehensive capital expenditure program of approximately INR 690 crores continues to progress steadily. The brownfield PFI expansion will enhance our FDY, POY and DTY capacities, while increasing the share of value-added products in our portfolio. The election and commissioning activities are constrained, we expect to complete 50% by September 2026, and balance 50% by October 2026. EPA importance is our entry into the textile to chemical recycling business, which represent a transformational milestone for the company. Filatex India Limited through its subsidiary, Ecosis established strategic partnerships to accelerate the development of a circular textile economy. The company has signed a landmark, memorandum of understanding with [indiscernible] Private Limited, a Decathlon group entiry [indiscernible] conducting structural trials of Ecosis recycled polyester, chips and yarn across its extensive network of Indian manufacturing partners. In addition, we have entered strategic collaborations with American Afird Global LLC A&D trades for premium industrial trade applications, trials and global [indiscernible] and marketing initiatives for the Ecosis recycled polyester platform. Through this project, Filatex will become one of the 4 integrated polyster manufacturers in India to establish a circular polyster platform. [indiscernible] of converting end-of-life textile ways into virgin like polyester chips suitable for manufacturing premium polyster yarns. We firmly believe that circularity will become one of the defining growth drivers of the global polyester industry over the coming decade. International Apple brands have already announced ambitious recycled content and circularity commitments, creating a rapidly expanding market for high-quality recycled polyester produced through advanced chemical recycling technologies. Our recycling project, therefore, positions Filatex not only as a polyster yarn manufacture, but also in an important participant in the encouraging circular textile economy. Alongside this automation initiatives at our Dahej facility continues to improve manufacturing efficiency. We reduce on manual operations and enhance productivity. Our renewable energy program is also progressing well and will significantly increase the proportion of green power in our overall energy mix, thereby reducing long-term energy cost and carbon emissions. The steam distribution project aimed at supplying surplus team from our captive power plant to a neighboring industry is another example of improving asset utilization, while generating an additional revenue stream. I'm pleased to share that all our major projects continue to satisfactory -- to progress satisfactory and remain broadly aligned with our execution schedule. Looking ahead by geopolitical developments, crude oil volatility and supply chain uncertainty may continue to influence near-term market sentiment. We remain optimistic about the medium and long-term prospects of both polyester industry and Filatex. India's growth -- growing domestic consumption, increasing penetration of manmade fiber, improving sport opportunities through trade agreements, significant domestic PTA capacity additions and the global transition towards sustainable textile collectively create a strong foundation for long-term industry growth. For Filatex FY '27 represent an important transition year. As our ongoing investments in value-added products, textile-to-textile chemical recycling, automation, renewable energy and operational excellence begins to come on stream, but we believe the company will be well positioned to deliver sustainable growth, stronger margins and enhance shareholder value over the coming years. We remain committed to disciplined execution, proven capital allocation and building a future -- future-ready business that combines operational excellence with sustainability and innovation. I thank you once again for your -- support and trust in cx India Ltd. Thank you. And now I'll be happy to take your questions.

[Operator Instructions] The first question is from the line of Harsh Mittal from Emkay Global Financial Services.

So my first question is, how has the polyester yarn prices shaped up in the past 1 quarter, basically pre the U.S. Iran war and post, and how it is trending currently?

See, polyster yarn prices have definitely gone up in line with the raw material prices. Pre-Iran crisis, the raw material prices were from today roughly around 20% lower. So the raw materials have increased by more than 20%. And so as the prices of the finished products. So the margins are more or less intact or maybe improved than what it was before the Iran war.

Okay. And then how as we see the import duty on PTA and MEG got expired on 31st July rather -- sorry, 30th June, how has it impacted on your spreads or just spreads? Any color on that side?

This is like a price rise in the raw material prices only for us. Because if the duty is not there, then the domestic prices also get reduced once the duty is incorporated when the domestic players increased their prices, also the import prices increase. So we pass it on to the customers, and we have been successfully able to pass it on to the customer.

The next question is from the line of Pramit Jain from JM Financial PMS.

So 2 questions from my side. You see the other players are also developing similar recycling products. So how do we compare in terms of like CapEx or open technology? And what is our key competitive mode?

There are a lot of international players who are developing this, but they all are in a developing stage. They have announced ambitious plan to put a plant. And I think nothing is coming before end of FY -- I mean, calendar year '27. Most of them are coming in '28, '29. But their CapEx per tonne is at least 3 to 5x more than what we have done. And also whatever numbers we gather their operating costs are also pretty high. So we are very competitive and we have got approvals from a lot of brands of our products. So I think we should be able to do well and get the first mover advantage.

Got it. So the second question is, what is the stabilization period that we are resuming for equity -- where we are going from [indiscernible]?

Anything from 3 to 5 months initially because it's a new product, new technology and everything. So I think we should be able to stabilize everything by end of this financial year.

And for the utilization for FY '28?

FY '28, I think our utilization should be close to above 80%. As a year as a whole, it will progress slowly. But year as a whole, I think we should be able to do 80% and by the end of the year, we should be close to 100%.

The next question is from the line of Parth from IDBI Capital.

Congrats on good set of numbers. So my first question was on our scale subsidiary that we have opened recently. So what is the exact purpose of that and what business assumptions exactly?

I'll ask [indiscernible] to explain you that.

So one of the key reasons of the operating [indiscernible] also for us to be part in European forums and become members of the European bodies, which potentially advise on the policy drivers and the policymaking decisions in the EU, which is specifically targeted at circular economies and the EPR mandates. And this in Europe entities, and only European entities get to become a part of it. So this was one of our ideas that we wanted to start taking part in these forums and be part of policymaking decisions. So that's why we incorporated the company.

Understood. And also, there was recently some regulation on you have in [indiscernible] sort of unsold clothes. So will it be -- will it open any doors for exactly. Can you quantify that?

Right now, we have -- actually the policy when EU no longer able to discard any consumer -- post-consumer waste. But currently, there's no recycling facility to do anything. One of the other policies, which EU has also what you call it started, is that they're not allowing export of post any waste outside of Europe. But see the environment of textile-to-textile recycling in Europe is very at early stage. So once these policies developed further and technologies develop, I think these policies will be revisited.

The next question is from the line of Nirali from Unique BNP.

Sir, in your commentary, you mentioned that the plant -- Ecosis plant is expected to commence operations by October. And in your view, is there any chances of further delays?

I don't think so at the best maybe 15 days or something like that. That's very difficult to predict right now because all the machines are under installation and then commissioning. It's a greenfield project. So there are a lot of things which we have to put together. But I don't think it's got a very, very -- I can just get delayed by another 15 days or months, that's all, max. That's a max-out I'm giving.

Fair enough. And sir, once the plant commences operations, so you said that 3 to 5 months to stabilize the plant. But will we need any approval from the clients also before we start the shipment for quality? Or will they come and inspect the plan? Anything of that sort will be pending?

Yes, that will also happen. But we have product improvements from a lot of companies. But yes, they will have a statutory visit to the plant to see that we are compliant with all the things which they normally see that we are adhering to all the laws and everything. So for that single visit, which can happen anytime in end October or early November. But that should not hamper our production capacity. I mean, we can start production and definitely start supplying. I don't think that should happen. But it's a new technology and everything is new. So maybe to stabilize the product and everything, it can take a few months.

Okay. Perfect. And lastly is the total INR 700 crores of CapEx is expected to give you an EBITDA of INR 200 crore or INR 210 crores as per your presentation. So, majority part of this will come in next year only, right? Because Ecosis will itself operate at 80% next year. So is that understanding correct?

Ecosis, which is going to deliver around anything to INR 80 crores, INR 90 crores of EBITDA, that is going to come primarily next year. But other than that, most of it will come in this year only, at least 5 months of that will be definitely in this year. So if you take out from [ 220 to 230 ] is our estimate, if you take out to 80, around [ 150 or 140 ]. So around 40% of that will come in this year.

The next question is from the line of Pritesh Chheda from Lucky Investment.

So what are the challenges in Ecosis?

Challenges are barely none whenever you do a new project, but I mean we have tried everything before committing this big project. We have run a pilot for last 2, 3 years, and we are pretty confident about over the technology, which we have developed. Each and every equipment which we are putting, we have tried it in our pilot plant in a smaller scale. Products have been approved by most of the brands. So we have not got any disapproval or any problem in the products. But yes, there could be some teething problem, which should not last more than 3 to 5 months, which I've already said. It would be earlier, that's the latest I feel we should be able to stabilize by end of this financial year for sure.

It's a piece of equipment, which is fabricated in India by Indian vendors, that's how we...

It's a mix of a lot of machine. It's not one piece of equipment. There are a lot of processes from which the fabric and everything goes through. So there are some imported equipment, some Indian fabricated equipment.

And between your process and the other companies that you're mentioning would have created the plant at 3, 4x...

I don't have privy to other processes. So it's difficult for me to comment on those.

So, you don't know the process difference also?

I know the process difference, but I'd not like to comment anything on the other people's process.

Okay. And sir, what stage is this plant today, so you're installing the machine, right?

Yes, today, the machines are under installations.

And when should the commencement of operations start or commercialize...

End of October, early November.

Okay. And the key raw material hear will be old fabric, right?

Fabric waste, yes.

Fabric waste. And source of the fabric waste will be?

That is around Surat and all the surrounding areas. There is a lot of fabric wastes available from the manufacturer of fabrics, the process houses, the garment manufacturers. And post consumer, there are certain agencies who are collecting and are able to give post-consumer waste also.

Is this organized where you can have...

Yes, this is very organized. They are our consolidators. We are already in touch with them. And we have been buying from them for last 3, 4 years for our trial. So we know and we have done our service. So there is no dust based as of now for this special plant.

And my last question is, so if -- can one assume that the capacity is kind of presold if you are successful to generate output?

I don't think so. It's not resold. But yes, I mean, we are confident we'll be able to sell it. It's like a [indiscernible]. Once you have the product, then you get buyers. That's a new thing. Buyers also don't commit till they see it. Yet, they have tried and they have approved our product.

The next question is from the line of Suraj from Yes Securities.

So my question is regarding the recent CapEx, which has been made to increase the cost. So what kind of improvement do you see in the margins after commencement of these CapEx projects?

See, main projects are to improve the profitability by adding capacities and of new projects. We have 3, 4 projects. One is increasing the production. So that will definitely increase the profitability because we are increasing the production. The operating costs are low when you add a brownfield project. The CapEx is also low per ton. So that will increase the profitability overall. And with the enhanced production, definitely profitably increase. Second is the Ecosis project, it is altogether new project where I've already explained should give us a good EBITDA. And the third is steam, which we'll be selling, yes, that is a new thing which we are doing. But it's not that I am doing -- they're 1 or 2 players who are already doing it. So we are also going to do that. And we have tied up with almost whatever we want to sell 60% of the capacity we have tied up and rest is also under discussions. So hopefully, we should be able to tie up fully by end of this calendar year. Once it is operational, then you get more buyers easily. But we have initially 60% buyer, we can start delivering them. Overall, because of the availability of PTA in India, the prices of PTA should come down the premium which the local producers are charging will come down. And the demand is also increasing. So overall, everything will lead to enhanced profitability in the existing business as well as profits from the new businesses, which we are adding.

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

Two questions. One on the PTA and MEG import duty, which was withdrawn. How much would it impact on the EBITDA?

EBITDA impact will not be much, but see, it's a pass-through. It's an increase in the raw material prices. So that's why when you reduce the duty, the prices was very high. The crude went beyond INR 100, that's when the government reduced the duty. But the effect of that was not too much. We didn't know they will reduce the duty, and they did it for just 3 months and then extending 15 days. Nobody knew that they'll extend for 15 days on the 30th of June. So that expansion was basically meaningless. So you can't import anything in 15 days. So I mean, there was a slight improvement in the margin because that time margins were very low because the volatility in the raw material was there. But now margins have stabilized. The demand has also stabilized. People can't wait anymore to produce slots because now the season is there. The winter season is very big for the fabric. So there is hardly any impact of this on EBITDA.

What is the import right now on PTA and MEG?

It's 5% to 10% surcharge, so 5.5%.

Okay. Got it. The other question was on the Ecosis. What is the current selling price of the recycled position of the quality that you produce?

Recycled or non-recycled?

The recycle [indiscernible] the quality that you produce?

So we are able to sell anything from -- depending on product to product from $2 to $2.3.

So $2, means almost INR 180 to INR 190, right?

Yes, but that's the yarn. In Ecosis, we will make only the chip.

Okay. So in terms of the chips would be how much [indiscernible]?

Chips could -- I mean, if you -- what we have sold small quantities, the prices are very high. I mean, we sold at around INR 140, INR 150.

And what is the total cost for...

[indiscernible] It cannot be very -- I mean...

Sir, what would be the cost -- cost of making...

Cost? I'll not be able to disclose the cost.

Okay. No issues. But you have stated in your presentation, you have stated INR 80 crores for EBITDA, which is implying INR 30 a kilo. So that would be the...

I'm not giving you a very optimistic number. It's a new project. So I have been a little cautious, otherwise EBITDA should be much more once the plant start. I'll be able to give you a much more better number in Jan.

The next question is from the line of Mayuresh from Invest Valley Capital.

Congratulations for good set of numbers, sir. Sir, my question is on the Ecosis. Could you update us on all MOU signed for Ecosis so far and beyond Decathlon and American Global? Are any other customer or brand types under discussion, sir?

Yes. [indiscernible] under discussion. Some have improved the product [indiscernible] them. So I cannot disclose the name. Once we sign the NDA and then we can really disclose this.

Okay. And so, as you mentioned, by the next year, we will utilize almost full capacity. So what are the potential plan for the next expansion? And also, what will be the sustainable EBITDA margin like there is 30% to 35%. So what will be the sustainable margin?

Can you repeat, please?

Sir, once the initial plant get fully utilized by next year, as you mentioned earlier, so what are the potential future plans for the expansion?

Once this is stabilized and established, then we plan to put at least 2 more plants of 1,50,000 tonnes each in next 2 to 3 years, one in India, one outside India.

And what EBITDA margin can we expect?

EBITDA margin will be minimum 30%, it can be more, but minimum 30% for sure.

The next question is from the line of Sharansh Gupta from Swan Investments.

Congratulations on a good set of numbers, sir. Sir, I just had one question, like what is the current debt as of now, as of the end of the quarter?

End of the quarter, it will be close to around INR 200 crores.

And by -- once we are like, how much have we already deployed for out of the [ 700 ] kind of CapEx?

I don't have that number, but almost INR 450 crores to INR 500 crores.

So by the end of the year, we can -- we will be somewhere around [indiscernible]?

By the end of the year, our date would be in the vicinity of INR 350 crores to INR 370 crores from the -- but net debt, if you see, I think net debt, we might be around INR 150 crores to INR 200 crores. So we have free cash flow even today of more than INR 150 crores to INR 200 crores.