Filatex India Limited (FILATEX.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '26 Earnings Conference Call hosted by Filatex India Limited. [Operator Instructions] I now hand the conference over to Mr. Bhavin Dedhia 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 participants for Q2 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, Chief Visionary Officer; Mr. Nitin Agarwal, Chief Financial Officer; and Mr. Vedansh Bhageria, Vice President, Corporate Strategy. We will have opening remarks from Mr. Madhu Sudhan Bhageria to give an overview of the company's performance. This will be followed by Q&A. Thank you, and over to you, Madhuji.

Thank you. Good day, everyone, and a warm welcome to all attendees joining us for the second quarter FY '26 conference call. Joining me today are Mr. Ashok Chauhan,, Nitin Agarwal and Vedansh Bhageria. I trust you have had a chance to go through our investor presentation, which has been uploaded on both our website and the stock exchanges. Let me now take you through the highlights of our performance this quarter and share some perspective on the broader journey through the first half of the financial year. Q2 FY '26 was an important quarter for us. The company continued to make steady progress across all key parameters, reflecting both operational consistency and a clear focus on improving profitability. On a Q-to-Q basis, revenue growth -- on Q-on-Q basis, revenue grew to INR 1,076 crores from INR 1,049 crores. Sales volume also moved up from 97 to 63 metric tons to 101.391 metric tons, indicating healthy demand and improved capacity utilization. Our EBITDA rose by 14.36%, reaching INR 88.93 crores compared to INR 77.76 crores in the previous quarter. PAT followed a similar trend, increased by 16.8% to INR 47.58 crores, up from INR 40.74 crores in Q1. This consistent demand -- this consistent quarter-on-quarter progress underscores the benefit of our ongoing focus on efficiency, cost discipline and better product mix management. Looking back at the first half of the year, we are pleased with a steady improvement across all key metrics. Revenue for H1 '25-'26 stood at INR 2,125 crores compared to INR 2,103 crores in H1 '24-'25, marking a stable performance despite a challenging external environment. Sales quantity increased to 1,98,654 metric tons, up from 1,92,218 metric tons in the same period last year, driven by consistent demand and smoother plant operations. What is truly encouraging is the improvement in profitability. EBITDA for the first half rose sharply to INR 166.7 crores from INR 106.6 crores, while PAT nearly doubled to INR 88.32 crores compared to INR 45.77 crores in the corresponding half of '24-'25. This reflects our strong operating leverage and the result of several internal initiatives from process optimization to better energy management and tighter working capital control. In short, the first half of FY '26 demonstrates that the actions we took last year are now delivering visible results. Domestically, we continue to perform well despite global uncertainty and raw material price volatility. Demand for polyester yarn remained stable with encouraging signs of recovery visible in the downstream textile value chain. That said, there are some policy level changes, which we are watching closely. The proposed anti-dumping on MEG, a key feedstock could increase production costs across the polyester ecosystem. Nevertheless, our strong Q2 performance demonstrates that we are well positioned to navigate such headwinds through operational excellence and prudent cost management. As we had earlier shared -- shared earlier, we have embarked on a total investment plan of around INR 650 crores, covering capacity expansion, sustainability and energy efficiency. Additional yarn capacity project, INR 235 crores, progressing well with major machinery orders placed, completion as per target by September 2026. Recycling project, civil construction is underway and major equipment orders have been placed. Production is scheduled to begin by September 2026. Steam infrastructure project, [ INR 85 ] crores already in the implementation phase, turbine orders placed and pipeline work is progressing well. Completion is expected by June 2026. Renewable energy initiative being implemented under MOU with Torrent Power, it is currently awaiting statutory approvals. As a part of routine efficiency improvement, we had initiated automation in rather labor-intensive post-winding operations, including docking and packing of FDY and POY lines with an investment of INR 40 crores. The infrastructure is ready and shipments of equipment will begin from end of this month, except for minor regulatory delays in renewable approvals, all projects are progressing as planned, reinforcing our commitment to sustainability, efficiency and scale. We remain optimistic about the medium-term outlook for the polyester industry and availability of key input materials. The upcoming PTA capacity additions, 1.2 million metric tons of GAIL likely to start by September -- sorry, February 2026 and 1.2 million metric tons of IOCL to start by September 2026 and 3.2 million tonnes by Reliance Industries, likely to start by early 2028. All these are expected to significantly reduce India's dependence on imports, lower freight costs and improve supply chain stability. As these capacities come on stream, raw material availability should improve, pricing expected to become more balanced and volatility in import costs will moderate. Combined with an anticipated recovery in domestic textile demand and more positive global trade sentiments, we believe these developments will create a structurally stronger environment for the entire polyester value chain. To sum up, Q2 FY '26 and the first half of the year reflects steady growth, improving margins and growing operational strength. Our strategy of disciplined expansion, sustainability focus and cost optimization is now translating into clear financial outcomes. We have always believed in robust growth of polyester yarns in global fiber consumption, and we continue to move forward with confidence, building efficiency, investing in the right areas and creating long-term value for all our stakeholders. Thank you.

[Operator Instructions] The first question is from the line of Surya Narayan Nayak from Sunidhi Securities & Finance Limited.

Am I audible.

Yes sir, you're audible now.

So just a couple of questions. Just to understand that the average selling price is remaining in the range of INR 106 to INR 109 for last year and current year to date, but down slightly around 1% to 2%. So just to understand whether the gains on the GP side, gross margin side is due to the lower -- I mean, relief from the PTA or MEG side or what actually? That is first question. And regarding the packing lines, where -- I just couldn't understand where we are because it was scheduled to be operational from the June '26. So has it got preponed?

See, regarding the pricing, there is a slight fall in the finished goods pricing, but the raw material has fallen much more than that. So that's why the margins have improved. And as per the packing lines, no, the delivery is starting from end of this month, and the shipment time is 45 days as it's coming from Europe, and this is the first lot of shipment. It will keep on coming. The final commissioning will happen by June 2026 only.

So whatever the plants, be it the packing lines or let's say, RE power and the...

All on course. Only the RE power might get a little delayed because the company with whom we had the tie-up, they are facing some issues in the -- from the government getting the connectivity and all those things. We are exploring from others also if we can get power from some other sources.

So that would be postponed to second quarter, sir?

So that would get postponed to maybe something like July, August 2026.

Second quarter, sir, right?

Yes, second quarter of FY '26.

And regarding, sir, your recycling foray, so just to understand that you have recently tied up with 2 companies for the supply chain -- waste supply chain.

That is [indiscernible]. We are in advanced talk with some other brands also. So I feel that we should be able to have some more tie-ups in the next -- by end of this quarter.

So the current tie-up is sufficient to get the requisite raw material -- waste raw material for the unit? Or you are still negotiating this...

It's a 2-way tie-up. They will also supply raw material and also buy the finished goods.

No, I'm talking of the input side. I'm talking of the input side.

It is not for the full volume.

Okay. So when are we expecting the full volume tie-up will be -- for input tie-ups will be in place?

Input tie-up is already there with the local suppliers. There are local suppliers around the plant, which is in Surat area. There are a lot of consolidators who buy pre-consumer waste and that is ample available. This supplier is for the post consumer. They buy fabrics, tone fabrics and that they will supply to us.

So that is the fabric which you have currently dealt with is post-consumer, not the pre-consumer, right?

We can deal with both of them. Only post-consumer, the sorting is a big issue because we need to know what is there in the fabric. Pre-consumer, it is easily known what is there in the fabric. Post-consumer, you have to check it whether how much polyester is there, how much nylon is there, how much cotton is there, woolen is there. So that's the challenge there. So that's -- these guys are sorting it out and giving it. So we have had a tie-up with them. And they cannot give the full volume, but they might be able to give us around 10%, 15% of our requirement. And we are talking to other suppliers also similar. So as and when we have a tie-up, we'll announce that.

So before the commissioning, maybe by June, July, we should be in place to...

It is not going to stop because we have tie-up of pre-consumer suppliers already. So it's not necessary that we go for 100% post-consumer.

No, I'm talking of pre-consumer because pre-consumer it would be easy because...

Pre-consumer, we have the full volumes available. That's not an issue.

Okay. Okay. And sir, is there any chance that we would be thinking of setting up more units after the testing success maybe in the second quarter of -- sorry, third quarter of the next year. So -- I think because...

Based on the performance of this plant, we will definitely be going for multiple plants or a bigger plant. That will decide after this production comes in. Definitely, we will putting up more plant. This is just a starting plant only.

So far as the -- one of the virgin fiber is concerned, after this 12% expansion of the capacity, we'll make a full stop with [ sweetening ] of the production facility with more productivity programs, right?

I will not call it a full stop, yes, but there will be no major expansion. There can always be 2%, 4% expansions.

That's okay, sir.

There will not be any major expansion in the virgin. Main focus would be only recycle after this.

And sir, balance sheet side, some repayment has also happened. So is there any chance of influx of more -- any dates in the second half because we will be -- maybe we'll be buying -- actually paying the amount to these vendors. So this year, any influx of the date likely in the second half?

In Filatex, there will be no influx of the second half. In textile, definitely, there can be some loans which we will take, because we have already tied up with the banks in textile for the loans. And maybe in the second half, we will have some disbursement.

But sir, the cash flow from operations in the first half itself is very robust. So do we require...

Yes, we wait and watch. If we require, then only we'll take it. Till now, we have not taken up. So I cannot say that we'll not take it. As and required, we'll take it. If not required, we'll not take it.

Okay. And sir, with the GAIL facility coming in or, let's say, later IOC, what kind of margin expansion we can perceive incrementally?

See, both of them come in, I think we should have a margin expansion from the raw material at least of around 2%.

2%, and with the addition of the productivity programs that is currently underway, which will be commissioned in the second half or, let's say, maybe second -- or close to second half. So that will be further adding how much percentage overall EBITDA?

See, the volume expansion will not add as a percentage. It will add as a number definitely.

The volume percentage is only 12%, I agree. But productivity programs, I'm saying. I mean, the steam and others, steam RE power and others.

Steam is likely to add around INR 60 crores of EBITDA in the full year of operation. And the new capacity addition, which we are doing of INR 235 crores should give around INR 70 crores, INR 75 crores of EBITDA in the full year of operation.

And in the recycling fibers, you have earlier advised, let's say, guided that around EBITDA percent is 35% as against the virgin fibers EBITDA of 9% current ruling. So nearly about 4x jump. So hardly -- can you...

We are confident, we should do an EBITDA of around INR 80 crores, INR 85 crores in the virgin fiber businesses.

So currently, I mean, that kind of -- so just to understand from you that because the -- what sort of compulsion that is there with the brands to buy the recycled fiber at such a high price when the virgin price is quite low. What is the requirement? I mean that is what I -- just commercially, just want to understand from you.

The European Unions have made it some compulsions for them to use recycled fiber. And a lot of these brands have their EPR commitments with, so they have to become 100% recycled by 2030 or 2031. So that is why they are all going for it. And they have been told to use textile-to-textile, not bottle-to-textile, because that doesn't become the sustainability for them, no. So circular economy is only complete if they are doing textile-to-textile. Currently, they are using bottle-to-yarn kind of recycling.

So sir, currently, who else are the global players who have been successful because we have done some research to understand the kind of competitive...

Few global players, but they all are in the very initial stage like us or maybe there all plants are expected to come by '27 or '28. No plant is coming by '26 as per my knowledge. All are in a similar kind of a stage, putting up plants or talking to people and doing the tie-ups.

So you are saying that the such kind of facilities across the globe are waiting to be scaled up, maybe that is in the primitive stage and that will be -- once the success will be there, then definitely they can be easily scaled up. That is the idea?

Yes, yes. So all are in the initial stages and putting up plants of different capacities. But I don't -- as per my knowledge, nobody will be commissioning plant by end of 2026. Plants, which will be commissioning in '27 or '28.

[Operator Instructions] The next question is from the line of Bhavin Dedhia from Share India Securities.

Am I audible?

Yes sir, you're audible.

So my first question was like how big is the first mover advantage, which you can gain since your plant will be operational in FY '26 as compared to '27 and '28 for other players?

Sorry, I mean, if can slow down. Echo is there. I think you are on a speaker phone or...

Can you hear me now, sir?

No. There is a lot of echo.

Okay. I will call back.

So the next question is from the line of Varun from -- an individual investor.

Congrats on good set of numbers. I just wanted to understand how has been the raw material price movement for Q2 and also the first month of Q3? Has there been any increase? If you can just throw some light on that? And also, there is one thing that is eating up the profitability of the company, that is the exchange fluctuation. How does the company plan to mitigate that or hedge that?

So the raw material side, this quarter is quite stable and maybe it will go up slightly. Last quarter also, it was quite stable. I mean it was not a downward trend compared to Q1. The prices were very stable or they inched up by 1%, something like that. So I don't see much of volatility in the raw materials going forward. But some volatility always remain, 1% or 2% volatility will always remain until unless there is a drastic change in the crude prices.

Okay, sir. So for Q3 also, do you expect them to remain in the same level?

Sorry, can you repeat?

For quarter 3 also, do you expect them to remain in the same level as the raw material prices?

Yes, yes, it will be at a similar level. It can slightly edge up 1% or 2%, nothing more. So it will remain at the similar levels. Nothing major is happening right now.

I mean exchange fluctuation, sir.

We had hedged only a portion of our outstanding, which we were supposed to pay in this year, we had hedged it. But the rest of it, we didn't hedge it. And because of that, the loss is there. That's a notional loss. That's not an actual outgo. And maybe once the things cool down, we expect it to come back to maybe around 100 or something because the hedging cost is also pretty high. If you hedge it regularly, we would have been still at a higher level than what we are at today.

Okay, sir. Sir, do you expect it to come at that 100 level that you see for FY '27 or which quarter?

It depends. See, we have a consultant who guides us. We are not expert in this. So based on his guidance, we take the call.

Okay sir, just wanted to understand this CapEx of INR 63 crores that the company is doing, how much it will be funded through debt? And how much would it be funded through internal accruals? And how will this impact your finance cost going ahead? If you can throw some light on that?

Yes. See, so we would be taking around INR 200 crores of debt for the recycle project. That's the outer side. Maybe we might not take if we have internal accruals better, we can reduce that. For the INR 235 crores of the yarn expansion, we have already tied up for the machinery finance. So there, the loan amount would be around INR 125 crores or INR 130 crores. These are the two loans which we'll be taking up. Rest will be through internal accruals only. And that INR 200 crores can go down if the internal accruals are healthy, we might reduce that.

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

Congrats for the good numbers. A few questions. One, what -- you said about the anti-dumping on MEG. Can you elaborate on that?

So there is an anti-dumping which has been recommended by DGTR. Although you might have seen there are a lot of advertisements in the paper by the MEG producer and from our association also regarding that the government should not put it because Finance Ministry has the discretion whether to put it or not put it. That's one thing. But even if it is put, then also see there's a lot of material available from U.S.A. U.S.A. doesn't have anti-dumping. And since this raw material is in short supply, I think in all prudence, I don't think the government will put it. And there is no planning of any new plant capacity of MEG coming in India in the next 3 to 5 years because this is a commodity, which is overall worldwide surplus. So hence, the margins are a little under pressure. And based on that, they have found the dumping. Although dumping is not there, it is just the profitability is bad. It's not dumping because these producers who are giving to India are not giving at a lesser price than what they are selling to the other parts of the world or locally. Even if it comes, I think there are certain ways to mitigate that to a major extent because, like I said, U.S.A. is a lot of surplus MEG now, which they have been supplying to China. And recently, we have also bought 1 or 2 parcels from U.S.A., which are available at a better price than what is current prices in India.

Okay. The second question is on the polyester recycling. In the past, you had said that the recycling realization is INR 40, INR 45 higher. So what would it imply -- what is it right now, recycling prices over the...

Still in that range, INR 45, INR 50 depending on that. It's still in that range.

But then your EBITDA -- and you said you'll go INR 80 crores, INR 85 crores EBITDA.

That's on the yarn side. See, we are making only the chips. So we'll not be enjoying the 100% INR 40, INR 45. We'll have to pass it some to the yarn guy also. So our margins would be a little bit like maybe INR 30, INR 35 a kg. That's why I said around -- we should do around INR 80 crores, INR 85 crores. Like our capacity is 27,000 tonnes. So if you multiply that by INR 35, what you get around that number, INR 30 to INR 35.

Got it. So -- but do you not have plans to make yarns from that, the forward integration?

Plan, already we have our own facility there, we can make and give it. But in future, we don't want to go and make yarn for that. That is the very normal thing to do. Our specialty is in converting waste to chips. After that, it's a normal process. So going forward, we would like to put more plants of waste to chips rather than making yarn. We can always supply yarn and I mean, make -- let people know that this can be done and this is the quality what you can get.

Got it. Got it. So -- and what is the possibility of it being delayed or it being earlier, the entire CapEx for the polyester?

I don't see more than 1 month or 2 months here and there, max.

Okay. And have you -- do you have enough raw material availability to scale up the production within the 3 or 4 months of the commercial production to start?