NOCIL Limited (NOCIL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the NOCIL Limited Q3 and 9M FY '20 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. S. R. Deo, Managing Director of NOCIL Limited. Thank you, and over to you, sir.

Good morning, and welcome to everyone present on the call. Along with me, I have Mr. P. Srinivasan, our Chief Financial Officer; and SGA, our Investor Relations advisers. I hope all of you have received our investor presentation by now. For those who have not, you can view them on the stock exchange and the company website. To start with, let me summarize the first 9 months of FY '20, which has been challenging for the auto tire industry and obviously, for NOCIL because NOCIL continues to be an auto-centric industry. To summarize the salient features of our performance for the period April to December '19 are as follows: domestic industry -- the rubber chemical industry witnessed a de-growth of 14%. Of course, it is lower than the auto industry, which has seen a de-growth of more than 18%. However, the export segment continues to grow at about 9%, thanks to our market penetration, new account relationship in U.S.A. market as well as some improved performance in the specialized application businesses like latex products. On the total company perspective, the volume de-growth has been about 7% during the said period. On the volume front, there has been price pressure all across the segment and is about 15%. On the new product approvals with respect to accelerator products, which was a plan which we started in 2018 December, approvals from major domestic customers are in place and the volume sales have started from January '20. On the second phase of the project, which commenced trial products in mid-October, samples have been sent to all the customers for approval. The capitalization of the said project will be done on very strict product approval from major customers as already communicated to the investors at large. The EBITDA level of Q3 FY '20 of 18% gives us the confidence, even in current challenging situation gives us comfort that business model is quite robust and can perform at better levels as the condition stabilize. This was due to the timely steps on technological initiatives and shifting focus on the export segment with respect to products meant for specialized applications. Turning to the strategy. I would like to spend some time on the strategy. Midway during the current financial year, we decided that the expansion [indiscernible] being near completion, we'd like to gain volume market share from our customers and also pursue newer customers. The price strength in the market have been on a decline, and we did not want to stop supply due to pricing situation. With our capacity scheduled to be doubled, as a strategy, we aggressively are pushing volumes in the market. Further, we are cautiously looking at sales from all our 22 products, and will utilize our capacities with an interplay of capacities so that the productions and sales are optimized. The strategy may have a temporary impact on our margin, but it falls in line with our long-term strategy to expand our sales substantially in view of the expanded capacity coming on the board shortly. The depressed market conditions as it appears are showing signs of bottoming out. Under this scenario, we believe that our strategy of increasing volume and thereafter, regaining the operating leverage benefit will bring back better margins in coming years. Going ahead, we will continue our strategy of gaining market share and optimally utilize our resources. I'm happy to inform you that we are expecting to do highest sales volume performance in the last quarter of FY '20 and confident of maintaining our earlier guidance of margin de-growth in volume for FY '20 in the range of 0% to 5%. With this background, now I would like to hand over to Mr. Srinivasan for giving you a financial update. Thank you very much.

Thank you, Mr. Deo, and good morning to every one of you on the call. Let me take you through the financials for the company for Q3 as well as 9 months ended December '19. The net revenue from operations for Q3 FY '20 stood at INR 194 crores as against INR 210 crores in Q2 FY '20, a drop of 7.4%. There is a drop of INR 16 crores. The broad components of the reasons are explained. INR 3 crores is on account of impact of ADD in this quarter as against the previous quarter where 2 months of ADD impact would have been recorded. INR 4 crores on account of de-growth and INR 9 crore, as Mr. Deo said, there has been a price suppression for retaining the volumes. This was largely due to the prolonged slowdown, which we feel is a temporary scenario. As far as the 9 months revenue data is concerned for the 9 months December '19, it is at INR 634 crores in this financial year as against INR 801 crores in the corresponding period for the previous financial year, a drop of 21%. On the value addition front, the value addition for Q3 FY '20 is INR 102 crores as against INR 121 crores in Q2 FY '20, which is a drop of 16% on a quarter-on-quarter basis. As already stated above or just mentioned earlier, it is a combination of volume de-growth, ADD and price suppression. The prices of raw materials has been on the stable front as well as the quarter ended December '19. Value addition for 9 months ended FY '20 is at INR 352 crores as against INR 445 crores for the corresponding period of the previous year, down by 21%. Turning to operating EBITDA. The operating EBITDA for Q3 FY '20 is at INR 36 crores as against INR 48 crores in Q2 FY '20, a drop by 25%. Operating EBITDA for 9 months FY '20 is at INR 140 crores as against INR 231 crores for the corresponding period of the previous year. Operating EBITDA was down by 39% on a year-to-year basis. The operating EBITDA margins for the 9 months ended December '19 for the current financial year stood at 22.1%. Operating EBITDA for the current quarter stood at 18.4%. You can also notice that the total conversion cost as a percent of revenue stood at the same level at the reduced volume compared to the previous quarter. There has been an effort to control this cost as well. Profit before tax for Q3 FY '20 is at INR 29 crores as against INR 42 crores for Q2 FY '20. PBT for 9 months FY '20 is at INR 122 crores against INR 222 crores for the corresponding period of previous year. Profit after tax for Q3 FY '20 is at INR 21 crores. Profit after tax for 9 months FY '20 and INR 109 crores as against INR 148 crores in the previous financial year. Before opening up for question-answer sessions, we'd like to just give a brief update on the recent amalgamation, the proposed amalgamation of Suremi Trading Private Ltd and Sushripada Investments Private Ltd with NOCIL. Suremi Trading and Sushripada are currently promoter companies of NOCIL Limited, holding 2 crores 7 lakhs shares -- 72,000 -- 2.07 crore shares, representing 12.5% and 89.6 lakhs shares, representing 5.41% on the total paid up capital of NOCIL. The total liquidation aggregates to 2.97 crores, representing 17.95% as of date. Upon the scheme of amalgamation becoming effective, the existing shares held by Suremi and Sushripada will be in the paid up capital of NOCIL shareholders and canceled. Instead in consideration of this cancellation, NOCIL issue the similar number of shares to the shareholders of Suremi and Sushripada as of the appointed date. The scheme has been approved by the Board of Directors. The scheme has been valued by the registered valuer. All those formalities had been done. It will go to the NCLT in Mumbai for regulatory approvals. The more -- the objective we have is to ensure instead of 3-level controls, we want a direct control over the company to promote our products like that. That's the reason they want to have a direct control of the business as well as eliminating these private holding companies. We also wish to assure you that there has been no change in the promoter holding post the amalgamation. In total, there could be some marginal increments if they wish to. With this, I would like to open the floor for the question-and-answer session.

[Operator Instructions]. The first question is from the line of Anand Bhavnani.

I have 2 questions. One is, sir, you mentioned our strategy has evolved a bit in response to the market conditions. Now we are targeting volumes and prices have been reduced. Just wanted to understand in terms of pricing, the levels that we are currently at in the context of, let's say, last 10 years, are these levels the lowest or there have been even lower levels for us in the past?

It's almost lowest.

Okay, in the last 10 years? So this is like decade kind of low price levels?

I think what you may have to look at the price levels, don't look at price levels as a subject or in isolation. You have to look at the corresponding input price on that also for the data. In our view, these price levels have been lower given the current corresponding input prices, and these are not sustainable. We do expect some shake-ups in the marketplace either in the form of competitions, not in a position to supply offered volumes at these prices or coming out of the business or something like that. But that's too premature to talk about it, but one cannot rule out that.

Sure. And sir, secondly, generally, it does happen that volumes do pick up when we offer low prices. So in our case, whatever expectation we had in terms of volume pickup, has it followed through? Have we got the volumes that we expected before reducing the prices? And -- or has there been a disappointment on the volume growth despite the price fall?

Anand, If I may summarize, I would like to explain it to you differently. See, the contract, understanding with the customers are like this, suppose we enter into a contract with the customer, say, for example, 100 tonnes for a particular quarter. Based on this understanding, they give us supply schedules over during the quarter, which will be in terms of 7 days, 10 days, thereabout. Depending on the operating rates at his end, that supply shipments can get modified or changed. So what we face in this quarter was October number, we were facing some sort of a slowdown effect, prolonged slowdown effect. In fact, the operating rates were much lower. But from December onwards, what we are seeing, certainly, the pickup has started. And therefore, in fact, we could have probably lost more, but we managed to regain a lot of lost volumes, still ending at minus 2%.

Sure. And lastly, sir, this price at the strategy of targeting volumes, this is across all our 22 products? Or is it limited to a certain amount of products?

Basically, see, this strategy, I would not call it for all 22 products. See, we have various strategies. Of course, the headline strategy is volume growth. But as I said, we are also looking at interplay. Now in the interplay, we have certain products where we have maybe almost a 98%, 99% operating risk. Now we are looking at all the assets in the interplay so that we start increasing the volumes, okay? The concept is very clear that we will continue to grow in volumes. And once the volume growth, okay, our rest of the things like the bottom line, the EBITDA, the price, everything will fall in line over a period of time.

Anand, I would like to add. The product profiles, the main here -- is in question, is the one -- some of which affects the pricing strategy. Where the competition is more deeper and acute, obviously, the pricing strategy will be much different. And at some verticals where the competition is relatively minimal, you can afford to extend your pricing strategy with the reasonable margins in your pocket. Do you get the point?

Yes, yes, sure, sir. I understand. And I think the same strategy would not be across all geographies, even it would vary according to geography. So in export markets also, it might not...

By and large, being an international market, it's a internationally accepted thing, it is only -- the pricing strategy generally more varies with the product profile rather than the geography. And basically, the key thing in this market is the supply chain has to be identified and approved and -- approved but according to quality. And no -- any newcomer cannot participate immediately. They have to have a waiting period. So when a product has 5 competitions, the pricing will -- strategy will be different as compared to if a product has only 3 supply sources. So to that extent, there is a relative advantage and disadvantage.

The next question is from the line of [ Ketan Gopani ] from Unique Investment Consultancy.

This is Sunil. Sir, my first question is if you can provide me absolute volume during the quarter 3 in terms of intermediate finance.

Sunil, you know here, our capacity is about 73,000 tonnes for this, as I say, central capacity. You can think about 65% thereabout utilization.

Okay, 65% thereabout utilization of 73,000 tonnes total capacity.

Yes.

All right. Sir, second question is -- my question is also regarding [indiscernible] explain this number. So what do you -- basically, we are coming is that this really is a 10-year low and which is not sustainable. What I'm trying to understand, sir, is at 18% EBITDA margin also, why this is not lucrative EBITDA margin and why the space will increase? What are the factors which you take and considers and why you are thinking that this is a very low space. So if you can relate that in the long-term point of view, or if you can share us your thought process, why this is not -- this [indiscernible]?

Partly, I agree with you. I think 18% still is a very different margin. But if you really look at our strategy, I think we decided to invest, we decided to be a leader in the marketplace in terms of volume growth. And all those strategies are in place in terms of hardware, okay? Now going forward, the strategy is very clear, is volume growth and we are certain that once we grow the volume -- okay, this EBITDA margins, of course, our expectations will always be higher, and we are confident that over a period of time, we can grow the EBITDA margin.

I would like to add this thing. You have to look at the business, what the business is overall. Now we are not offering only products which are generating major subsidy by major commodity. We are also offering specialty chemicals, where the competition is relatively minimal and where it is largely due to our technological edge as compared to other suppliers in the rubber chemicals market. So once we are offering such a premium product, why not we expect some decent margin and especially where the market is offering it, too? If some competition is offering a price much lower and we are delivering and pricing it much higher, I see your point, and I think that's unfair. But when we are matching the competition and we are able to meet the competition and we're able to satisfy the customer, the margin has resulted in a number higher than a really targeted number.

Right. And second, given the certain situation in China, last 3, 5 years, we are [indiscernible] in China with environment-related issues and [indiscernible] some products and chemicals, India is becoming second source globally. We are also a global player in raw materials in international market [indiscernible] quality and [indiscernible] relationship and supply and this recent development also on this virus and all. Sir, is there any thought process that this can become opportunity for India and NOCIL at large maybe [indiscernible]?

I would like to address this differently. When we conceived this project of INR 425 crores, larger picture which we were looking at is the rubber growth parameters over the next 7 years or 8 years and how much of the supply is originating out of China and how much is from other than China markets. By and large, the customers are realizing. I don't know how far they have implemented the strategy or changing the strategy. We don't know. And obviously, that can provide [indiscernible]. But they're realizing that to depend on a single source to the magnitude of 75% in a country, it's not advisable proposition in any businesses. So therefore, there is an element of utilization factor coming in. And when we implemented this trial project, we had a plan that we will not target the China -- we will assume the China will continue to be in the market. Now if Chinese government policies are undergoing a change, and as a result, there are some supply constraints coming out of it, any competitor who is not in China who is not a Chinese player will have to develop some sort of migration advantage like any other specialty chemicals. So to that extent, that's one part. As far as the current health issue on China, on the virus issue, we are not sure what exactly is the gravity. It's very difficult to predict. But what we can confirm is that we have been receiving discrete inquiries from various customers, both domestic as well as international, about our availability to offer -- ability to offer, to manage the volumes in quarter 4. No, nothing is concretized, but inquiries have started coming. That I can confirm.

Right, sir. And my last question is on -- we are also a little dependent on China for raw materials. So any thought process on non-availability or maybe scarcity, even in a shorter-term period?

All major raw materials are covered quite adequately by NOCIL, not necessarily depending on China. It would be other than China also where we are sourcing if the international products are available. Maybe a couple of products we are originating out of China. We are not denying it. But I'm not sure -- as of today, we don't see any supply constraints at this point of time. As we go along, we'll let you know in case there is anything.

Okay. And any price change -- certain price change in raw material prices?

In a couple of products, we are seeing it. But we are not likely to see any weakness that impact, in the quarter of March is what we can confirm to you.

We will move on to the next question. That is from the line of Jasdeep Walia from Infina Finance.

So you said that you expect to shake out in terms of capacities globally. Some players migrate out. But your gross margins are still at 52%. So why would any global competitor of yours would get out of the industry at 52% gross margins?

What we generally see is in the performance, the price suppression has been to this magnitude, not warranted. Typically, in the earlier 2 such cycles, business cycles, we witnessed some shakeouts. That's out of the past experience. Now one cannot move. We are not seeing that it will happen, but we are expecting some element of shakeout, possibility, we cannot rule out. I'm not saying it is a certainty, but I cannot rule out that. And more so in a market where one of the main competitors is using 100% capacity utilization, especially in different market conditions, one should understand that there is a possibility that availability in that market probably is [indiscernible] given stories which have not come out. So that is the reason of this assumption or this opinion coming out.

Is this -- which is this main competitor of yours, which is [ 90% ], 100% utilization?

December data is not done. But September data, they are 100% utilization.

Got it. And sir, can you give us an update on how you see -- how you saw the supply situation in China in third quarter? And what do you expect going forward? Are some capacity coming back or companies have announced new capacity additions?

We came to about 2 competitors coming in the marketplace going to the capital market for financing their expansion program. I'm not sure the latest update on that. As far as additional supply in China, China is already commissioned. So that is there already in the marketplace. There are -- we are hearing news some people are planning to expand further, but nothing is concretized so far.

No new capacities have come online in the last quarter?

No, no new capacity have come online.

Got it. And sir, with this gross margin of 52%, is EBITDA margin of 25% possible with volumes increasing in, let's say, next couple of years?

I think what -- if you're looking at different market conditions, I think then the question will be raised. I mean I will not justify that. But I'm now looking at stable market conditions and cannot -- I will [indiscernible] 20% of EBITDA. Once we start optimizing the planned utilization of leveraging benefits, all those things which is coming in, automatically, this will take it up. But if the market conditions are depressed, to that extent, there will be a challenge of 25% to hit.

Got it. And this -- is there a possibility that there might be further price corrections in the coming quarter or this is it and your gross margin will be stable at 52%?

I think if you see the investor presentation, which we uploaded yesterday, we have made what is a statement there. Depending on the relationship, coupled with higher volume offtake, price aggression strategy will be selective and will be rolled out. So it all depends on customer to customer, contract to contract. Now if someone is ready to give in, we will try to -- we may have to participate because ultimately, what Mr. Deo has said is that we are pursuing a volume increment strategy of volume growth strategy. In this quest for additional volumes, you may have to suffer at times for some price corrections, consciously, consciously. So basically, what's happening is you have to get your market share. And thereafter, you have to maintain it. When you are going for an incremental market share, if it calls for some aggression price strategy, we may not hesitate to do it. That is what we have said.

And sir, in your business, the client contracts are selective in the sense one client could have, let's say, pricing at 100 and another client could have pricing at 110. Or once you reduce the price for 1 client, you have to more or less pass...

Basically, what's happening is the pricing is CR based. So when I'm going to a domestic customer, the CR price here is picked up. And if the CR price is X, X in the exchange rate plus the applicable customs duty will be the pricing. And we'll -- domestic premium, landed premium, something advantage as a domestic supplier we may give. Now if the [ CM ] level are undergoing change on this customer to customer, to that extent, there will be a price correction here and there. But largely, it doesn't happen to this magnitude. It is not 10% variation. [indiscernible] plus or minus 1% or 2%.

Sir, what I wanted to understand was, let's say, if some client is willing to give you large volumes, so you'll reduce the price for a client. But would that mean that ultimately, that price would be passed on to all your clients gradually?

Again, it's [indiscernible]. If someone is -- if one is -- for example, you are a customer to me and you are offering 100 to me this quarter. And next quarter, you're going to offer 110. So for the 10, if you're inducing me to supply 10, I may have to give something in return. Next thing. It's the economics of who's desperate and who's not desperate and -- number one. And what is the timing? So -- and you have to see what are the options for you. Ultimately, what's happening is the supplier we need supplying to the customer, he is not looking at what is this price. He is looking at what is the cost -- effective cost to the customer at various options and various sources. And that judgment he will take at each contract, each product, each quarter levels. And then you'll take up all accordingly.

Sir, I understand that for a client who will give you high volumes, you'll give them discounts. But let's say another client of yours will come to know that you've given discounts to this other client of yours and then despite him not increasing volumes, does he get the same price?

Generally, we don't -- see all -- our pricing strategies are subjective in nature in terms of we cannot give any general return on guidelines or formulas like that. It's negotiations at that point of time and what are the customer options. Now if the customer has other options, suppose, for example, you have 3 sources. And he's getting it at one price X, one price Y, one price Z, and the variation is not material. Maybe our -- any item will become X for X volumes, Y for Y volumes, Z for Z volumes. So that's it. So you have to look at the matching price point the customer is giving to other sources, not what I'm giving to other customers. There's no relevance. Suppose, for example, I'll give you a price of 100, just INR 100 [indiscernible] and your options are getting at INR 95. Then you will not buy 100 for me. Then I happen to come around 95. Or you'll do a mutual agreement. Now the same time that I'm entering 95, some other customer is entering 101 also. Now that [indiscernible] [ 102 ] because this volume offtake is resulting in material change. So each customer timing is all different, when you are signing the contract, what volumes, what product and what are the options available to that customer.

Got it. And sir, could you talk about the trend in export volume in third quarter?

9% growth.

[Operator Instructions] The next question is from the line of Rohit Nagraj from Sunidhi Securities.

Sir, my question again pertains to the strategy. So you said you wanted to gain market share and probably will have to forego margins for the time being. So here, who are we exactly replacing, the domestic other players or we are replacing the imports which are happening from China?

Rohit, I would not be in position to guess that because each customer will not show -- inform you where or what are the other sources. You have to make a judgment. So only when the data comes out, we will come to know whether we have replaced a local competitor or we have replaced the import. But yes, we -- largely, it's imports in India which is going to be -- if we get the volume increase, it is largely imports will be the -- who are the main competitor for us.

All right. Okay. And the other part on maybe medium- to long-term strategy perspective, are we looking at any other chemistries, other areas where we are currently doing our R&D and maybe newer applications for similar chemistries? So how is that progress going on? And how do you expect to grow from here, diversification strategy maybe from allied domestic resources?

I don't think so we have anything concrete to say anything of those thing obviously. I think if at all, if at all something, it would be very, very preliminary. I think it's not worth discussing at this point.

Okay. Fair enough. And sir, just last small bookkeeping question. So you said that the Phase 2 CapEx will be commercialized or capitalized only once we get firm orders and commence commercial production from the plant.

I think, let's be clear. You please look into our announcement on October 17, 2019. We have very, very categorically said, that plant can be capitalized only once the customer approves. Because this -- the approval process is a very time-bound process. It may take time. So unless the customers approve, I cannot capitalize it because once I capitalize it, then I have to keep the plant idle because its approval is not in place. So that's still buried. And that, we have already made a statement on that day only. It's not a change of thought. In fact, on the day when we announced the trial production, on that day, we have made it very, very clear.

The next question is from the line of Tarang Agrawal from Old Bridge Capital Private Limited.

I have 2 questions. If I notice your other expenses for the quarter at around INR 45.7 crores, it is probably the lowest expense we have seen in many quarters. So how are you able to manage it? And do you think it's sustainable going forward? That's one. The second question is you'd spoken to an earlier participant where you spoke about supplying speciality chemicals where competition is limited and you have some technological price advantage. So what percentage of your revenues would be coming from those chemicals at an average?

Okay. We haven't given guidance in the past also. That speciality business in totality as a percentage of revenue will be 25%. Okay. The products meant for specialized applications are generating about 25% of the company's total revenue. In goods, domestic as well as exports. As far as the operating expenses, which you are concerned, I think, yes, these operating rates, these operating expenses consist of 2 components, the utilities, the selling and distribution expenses, which are variable in nature; and the overheads which are fixed only and some toll manufacturing. We make a conscious effort to look at the cost very critically, especially in a market conditions as depressed as or volatile like this. Any management would definitely make an attempt to control cost. So we have been fortunate that we could do something in this quarter. We hope to control our cost as far as possible to the fullest extent. Going forward, especially the post-Dahej, the second phase getting commission -- commercialized, there could be related overhead coming in, which we intend to bring it on board depending on the plant-level utilization, which means we are also bringing the concept of flexibility within the resource system, wherein a resource dedicated for a particular task, A, is not [confronted] by -- task A is also given the flexibility do task B. So that options or that process has already been started. And some of those benefits have been witnessed in this quarter.

Because the business environment is a little tepid, so my sense is that you said there are 4 broadheads within this expenditure. Utilities, S&D, toll manufacturing and others. So my sense is there must have been a conscious call to reduce S&D expenses, which would be largely variable, as you said, but...

S&D is relative to volume. S&D is relative to volume, so you cannot do much on that. Utilities is more of optimal utilization of utilities, say, for example, if you use a judicious mix of steam, power, own power and purchased power. These things pay out quite well. And you run the plant very effectively, very efficiently. We will get all those benefits in a different form. So I would say it's an effort, which we -- it's a continual effort, which will show you -- pay your dividends at various periods of time.

Okay. But in terms of sustenance of this level, in terms of the absolute number that comes out. Can I see this going forward or it might probably marginally increase?

As capacity utilization goes up, you are likely to see an increase in these numbers, but not necessarily in the same proportion at these levels. I suppose our guidance has been that this component of conversion cost, which is INR 65 crores to INR 70 crores in nature. Our guidance has been at, post-utilization of Dahej, at a higher level, almost near peak levels. Our guidance has been this will be 25% of revenue. And I don't think so we will like to change on that.

Okay, okay. And sir, if I could squeeze in...

Sorry to interrupt, Mr. Agrawal. [

Okay, I'll come back in the queue.

[Operator Instructions] The next question is from the line of Avishek Datta from Prabhudas Lilladher. As there's no response from the current participant, we'll move on to the next. That is on the line of Dhavan Shah from ICICI Securities.

I have a question on the demand/supply dynamics. So would it be possible for you share the excess supply currently in the market like post -- when new capacity comes in, what kind of volume growth that the tire industry should grow, I mean, to match your supply with the demand, if you can share the numbers?

Dhavan, I will give you a very different proposal. I think if you look at our investor presentation, look at the [ IRIC ] data of rubber consumption, 2019 has seen a degrowth but that [ IRIC ] report, which was issued about few -- last week or 10 days ago, they are -- even today, they are saying the rubber consumption will grow by 2.5% to 2.8% in the next 2 years. And this generally are on a conservative basis, not on an optimistic basis, which is a good sign because moment you're talking about 2.5% to 2.8% growth, it essentially means roughly 25,000 to 30,000 tonnes of demand of rubber chemicals per annum.

And this will take how much time to match your excess supply, the overall industry excess supply?

See, the point is you we don't know the exact story in China. See, if you see, there is an extra supply, then inquiries should not come for additional volumes. Now if inquiries are coming for additional volume, that means there is some supply constraint somewhere. No, I think it's a little premature on the -- at this stage to even speculate. As we get a much more refined data, we will share it with you.

And secondly, you mentioned there's 2 new competitors maybe from China is coming up for the...

They had - across the capital markets.

Yes, yes. So are they coming up with the large capacity, and how much time would it be...

No, they are not coming with a large capacity, especially in terms of Chinese standards. But we expect, even if they do -- are successful, we don't expect them to be in the marketplace for minimum 1.5 to 2 years.

And I mean...

Sorry to interrupt, Mr. Shah.

This is a follow-up of the earlier only. So China also takes 12 to 18 months to commission the capacity like Indian players? Or do they commission early?

18 months is the right time.

The next question is from the line of Avishek Datta from Prabhudas Lilladher.

Just wanted to know because of this U.S.-China trade resolution, so has there been any impact or any pushback, which you have seen or [indiscernible]?

No, we are growing. We are growing in the U.S. markets.

And any update...

We are growing in a very slow and steady stead. We are not going for a big-ticket items because we thought we are discussing with the tire industry, then we may go on to the other markets. The discussions have started -- to start with, we got 2 new accounts, then we expanded to 4 or 5. Now we are receiving inquiries for another 5. So it's a gradual process. Because always better to grow in a gradual manner because once we establish a footprint, then it's permanently with you rather than going for an aggressive entry and then thereafter you find it difficult to service especially U.S. being the second-largest market in the world.

So in terms of volumes, you had already supplied 500 tonnes of volumes. So has there been any more volumes, which are...

Well, as far as 2019 is concerned, I think we are in the region of -- originally, you were expecting 500 tonnes per annum. Now we are in the region of 1,000 tonnes per annum.

And secondly, on any update on ADD.

ADD means what? Which ADD we are talking about? And where -- there is already run out of the system as on July 24, 2019.

So no hearing is...

Even if the hearing comes, it's more of an academical hearing because what happens is, to restore a duty, which has expired 6 months ago, even Supreme Court will find it difficult.

And sir, if you can give that 9 month, the top line is down some 21%. If you can give like in 3Q, you've given the impact because of ADD degrowth pricing. If you can give for 9 month, how has been the trend?

9 months, I would say, we gave you a degrowth of, I think, we gave you a degrowth of what, minus 7% for 9 months. And if it is 21%, there is a degrowth, well, value terms, 14% are value terms. Last time you said 15% is our overall average. I do not see how much is handicapping those things. It will be difficult to calculate at this point of time.

So volume is 7% and pricing is 15%.

14%.

The next question is from the line of Kunal Shah from Carnelian Capital.

Two questions basically, sir. If could help with the volume growth that will happen for us in the exports and the quarter gone by. And also, if you could break what is the volume growth for the speciality chemicals, which comprises 25% of our overall volumes.

I can share the export growth, which we said 9% for the quarter. I don't have the numbers for speciality chemicals at this point of time. I think I say maybe once we get a data, we'll share it with you. You can send us letters of query or something like that. We'll decide.

Okay. And the second question, sir, I had was that in the exports market, is that we are replacing some player who's already present in supplying to them? Or is it completely new products?

I think it's a combination of both. We are expanding in speciality chemical business. We are expanding in speciality chemical business, number one. However, we are also replacing an expensive source to a third market in U.S., like if U.S. has to -- customer has to import from China, he has to pay 31% duty -- at 31.5% as against [indiscernible] sanction duties. As against India, it will be 6.5%. So there is a 25% advantage. So because Indian source are cheaper, we are currently getting inquiries from U.S. And to that extent, we have expanded our footprint there to 1,000 tonnes per annum.

The next question is from the line of [ Niranjan ] from Equirus Securities.

I had a couple of questions. One was on the amalgamation. What is the impact of that on the pledge of shares related to amalgamating entities? The second question was on -- if you could provide us the volume and value split of accelerators and antioxidants in the 9 months of FY '20.

Okay. First thing on the amalgamation of the promoter holding companies with NOCIL. It has no impact to NOCIL, number one. All the shares pledged by those promoter companies will be released during this process of amalgamation schemes. That means if the scheme takes 6 months or 8 months to conclude, during this time, the pledge will be released. So to that extent, that shares will be out of the pledge quota. Insofar as the antioxidants or accelerators split up of volume degrowth or pricing degrowth, et cetera, I don't think so. That is other 2 business-sensitive issues. We would not like to share it.

But can you give us the volume and as well as the value proportion of accelerators and antioxidant? You had given that in the past.

No, I didn't want it -- as a business, it's 45% is accelerators, 45% is antioxidant and 10% is other products. We always -- we cannot share anything. Please respect our views.

The next question is from the line of Nihil Parekh from Dhanki Securities.

I just wanted a clarification. Initially, I think in your remarks, you mentioned that there was a 14% degrowth for you in the domestic market. And so this was for Q3, is it? Or what I've -- there is some mistake in my understanding?

It's in Q3.

Yes, the 9 months.

Okay. So there was a 14% degrowth in our revenue for 9 months?

No, no. I repeat, 14% degrowth in volumes for 9 months. What he said is domestic industry witnessed a degrowth of 14% in sales volume for the 9 months December '19 as against the auto industry degrowth of 18%. Are we clear now with...

All right. And just now, I think, to an earlier question, you've also mentioned that in our case, there has been a 7% volume degrowth and a 15% value degrowth for 9 months.

No, that is for the total business.

Correct. So that is for 9 months for NOCIL?

Yes, 7% and 15%.

All right. And in H1 in the last call, I think you had mentioned there was an 8% degrowth in volume. This time, for 9 months, we are saying there is a 7% degrowth. So just wanted to get some clarity because for the Q3, we are saying there is a 2% volume degrowth.

Sequentially.

So this 2% is sequential volume degrowth. So our overall remains at 7% for the 9 months?

Yes.

The next question is from the line of Pavan Kumar from Ratna Traya Capital.

Sir, can you give us any kind of outlook of FY '21? And over the longer term, how much time will it take for us to actually see the entire capacity that we are setting up and will build?

Yes. Okay. As far as the longer term, I can give you guidance. We originally had communicated to the investors at large that we proposed to load 100% capacity in 3 years on the rate of approval -- from the time of approval. But now we have moderated or revised it to 4, 4.5 years, because of the 1.5 years slowdown, okay? That's one point. Second part is as far as FY '21 guidelines, if what we are seeing indication of December month and Q4 volume indications, what we are getting, if that happens to be true and turns out to be correct, I can definitely say that FY '21 on volume front will be much higher than FY '20. If that is the indicator, it turns out to be true. But we have to finalize those numbers. We'll go into the details at much later stage, maybe in the month of May or once we come out with the annual accounts at that time in May.

Okay. So a lot of the domestic players like CEAT, MRF and [indiscernible], they have come up with new capacity. So at those new plants, are you getting insights from those new capacity [indiscernible]?

Being a domestic player, we'll automatically get our supply -- as a domestic supplier, we'll get a preference in a sense, immediate approvals or not longer approvals. Shorter approvals will be there.

But I'm asking a question in the sense, is there a possibility of a 10% to 15% growth in the next year because of these new capacities coming in?

I think it's too premature to talk about additional growth numbers today. What we are seeing is that the trend has changed on the volume front and differences. From a negative side, it was showing as flattish, and now it's likely to show an uptick. That is more on a sequential basis, that is -- the trend is visible. And I don't argue -- we don't expect that trend to get reversed, at least in the immediate future.

Okay. Okay. So you are saying it is a bit unclear as of now to [indiscernible]?

No, it's clear because also the growth is there, but to what extent, you're asking a specific number of growth percentage. I think that is unclear to wit, so we talked about. What is more important is, least from now onwards, the volume should grow. That is what we are saying. And I think Mr. Deo very specifically said, Q4 '20 will be the highest volume performance in this financial year. And if that trend was as a base, the offering should grow from there. But I cannot predict the percentage.

Okay. And in value terms actually to [indiscernible].

Sorry to interrupt, Mr. Kumar. The next question is from the line of [ Tilav Patel ] from [ Abhinav Shares ].

Sir, my question is with regard to the bottoming out of the auto industry and the rubber chemical industry at this point and in the interim. So what's your view on that particular?

Okay. I think that is best addressed on the datas originating out of China recently, even the [ IRIC ] report indicators return and the operating rates at various customers' ends which we are getting information. The combination of all these 3, we are on that -- all are pointing us towards a bottoming-out scenario. On that basis, we are making this statement. So it's not a one-off statement. It's a considered thought process wherein we have taken inputs from the customers on operating rates. We have taken inputs from [ IRIC ] reports. We have taken information from Chinese market, what's happening on their operating rates and their auto industry issues. So speaking of -- with our holistic view of all the 3 macro factors, we believe we are likely to improve hereon. That's the message.

Okay. And my second question is on like crude prices with respect to our raw material, but pricing are under pressure currently. So currently, the inventory which we have for raw material, is it -- what range of crude? And going forward, are we going to see any positive impact of the lower prices?

Lower?

Lower crude prices.

See, typically, it's not crude in the first stage. We have a product called benzene, which is depending -- a derivative of crude. And our raw materials are derivative of benzene. So it's a downstream of benzene. So what is more important is for our suppliers who are supplying our key raw materials, they look at benzene as a reference point. And from there, they work out the amines of solvents to which they supply to also. So there is a correlation with crude, but the timing, I don't know, is there immediate, 1 month, 2-month lag, one cannot quantify because every market has its own peculiarities. What we are noticing is -- what we can say is we are not likely to be impacted by any adverse raw material cost impact in the coming quarter is what we can say.

[Operator Instructions] The next question is from the line of Rahul Veera from Abakkus [ AMC ].

Sir, just wanted to know some numbers of the private limited that we are merging, sir. The 2 companies.

What numbers you would like to know?

Top line impact, sir.

They are basically investment companies. They don't do any major activities, as I understand. There will be some small assets, which we will be transferred to NOCIL. That's the core process. I don't think so -- it's more of the investment companies they have. So I don't think so there is any manufacturing or trading activity investment. And it's not material, we talked about.

Okay. Okay. And what would be the ratio, sir? What would be the dynamics?

Ratio is the -- as worked out by the valuation experts and the share of stock ratio, et cetera. They have worked out that all the shares of -- see, it's not -- it's a purely -- let's look at -- let's for a moment remove these, what you call, the promoter home companies. Let's assume a new company is getting merged with NOCIL. So what we do is, since we are getting the assets of that company, we issued shares to the shareholders of that company. That's all.

Agreed. Agreed. So what would be the gross block of the assets?

There is no gross -- it is a general investment company so there is no gross block in the sense there are no exceptions at that point.

Okay. So what would be the total assets that would be getting transferred to NOCIL?

It'll not be significant. Well, it's a very small amount, I would say.

The next question is from the line of [ Nilesh Ragley ] from [ HDFC ] Securities.

Yes, sir. On one side, you are saying there in the volume degrowth seems to have been bottomed out in the industry. And price decrease -- you also mentioned that the price depression seems to be more of a temporary nature for the industry. So is this, sir, appropriate time to change the strategy from pricing -- from the volume focus? Is this right time to change the strategy?

We think so. That's the reason we are changing strategies. Time will tell us whether we have been -- our judgments are -- will turn out to be right or not. But I think our estimation, our experiences in this industry have been for almost 4 decades. I think the strategy, which we have consciously thought over it and we have taken it, I think it will pay dividends. I'm pretty confident about it.

The next question is from the line of [ Aditya Khaitan ] from East India Securities Limited.

I would like to know quantum of imports of rubber chemicals from China in Q3 and in 9 monthly basis.

We don't have the recent data on imports. So to answer your question, it is a little premature. But I think what we can give you a broad range is 50% of pure rubber chemicals in India is supplied by -- through imports.

Okay. What will the...

That's the only thing I can give you.

Okay. And also, if it is possible to say -- so can you tell me volume numbers of Phase 1?

Volume number of?

Phase 1 currently. Phase 1.

Capacity -- volume numbers. I think we've already announced. That's about -- from 55,000 we are on to 73,000. That's the production capacities. So I need to find it. I think that has been announced.

Okay. Sir, particularly for Phase 2, can you give it separately, like...

See, I just said, I think Mr. Deo very explicitly said it that post-commencement of this second phase, we are doubling our capacity. So 55,000 goes to 110,000.

That's noted. And sir...

Sorry, sir. The next question is from the line of [ Siddharth ] from SMC Global.

Yes. And sirs, most of my question has been answered. It's just one question. Sir, it might be a little hypothetical. Just for my understanding, do you -- wanted to ask that assuming the price remains at current level, like now what could be the utilization level that you might need to consider to now [ 22% ] stand up in our margins level?

[ Siddharth ], it is a combination of various product profile. So I think it's too detailed in nature, for which we have to do some more analysis for that, number one. Number two, what we can say, we have already given our guidance and it is -- we are increasing at 65% utilization.

The next question is from the line of Saket Kapoor from Kapoor Company.

Sir, firstly in quarter 4, you have mentioned that the volumes will be highest for this financial year. Is that the right understanding?

Correct.

Okay. And what would the likelihood will be, I mean, in terms of utilization level, sir?

Utilization levels. I think it's -- I don't want to speculate any numbers on that because what we are only giving rather, it will be better than Q3, or better than Q1, Q2, Q3. I don't want to get into specifics at this time.

Sir, you are giving the guidance that the trough has been formed by the December quarter numbers. Whatever bottoming out process has happened in terms of the volume demand as well as the pricing has happened for the Q3 and now there is an uptick going forward on this. This can we assumed, sir?

Yes.

Okay. And sir, the peer comparison, can you give, sir? In this segment domestically, who's our nearest competitor? And what is our market share here?

Okay. I'll put it -- in India, the total -- the rubber chemicals demand, now 100%, 50% is imports, maybe around 40% is NOCIL, and other 10% other domestic competitors.

So no major player is there? And major customers...

Now imports to India, it seems to be the major player -- major competitor.

Okay. And sir, who our major customers are here, domestically and the export market both?

All tire companies. Name any tire companies across the globe, they're our customers.

Okay. Anybody who are getting -- we are getting more than 5% of our turnover? Any major tariff here? Or is it doubling?

That is not appropriate to get into these specifics and...

And the raw material basket that you told.

Our industry as a whole rather than get into specific numbers, specific individual entities.

Sir, you please cater one more thing. Benzene derivatives are our raw materials. That is what you addressed. How are being the price trends for the Benzene over the year, if you compare year-on-year also and quarter-on-quarter?

More on the flattish side for last quarter of the year, mainly, there was a price increase in the last quarter or thereabout, but not materially impacting our input pricing.

And what are the major inputs, sir, if we have to track the major raw material?

Aniline, acetone, nitrobenzene and methyl isobutyl ketone.

Okay. And which other domestic players you are manufacturing, sir? I mean we are sourcing this domestically only from the raw material mix?

As I was saying, it's a combination of domestic as well as imports.

And domestically, who is the major supplier to us, sir, the raw materials?

I think let's -- that having -- maybe you can address it to [ SJ ] separately. We'll address it.

Address it separately.

Yes.

[indiscernible]

[indiscernible] specifics, please.

No, no, no. Not at all, not an issue, sir.

The next -- ladies and gentlemen, due to time constraint, we'll be taking the last question coming from the line of [ Neet ] from [ YJ Investment Advisors ].

I just want an update in ADD now. ADD has been totally get out from the rubber chemicals?

These performance for quarter 2 -- 2 months of quarter 2 and 3 months of quarter 3 do not include any ADD benefits, number one. And these numbers are exclusive of any ADD support or any expense.

Almost all -- all of my questions have been answered.

Ladies and gentlemen, that's the last question. I now hand the conference over to Mr. S.R. Deo for his closing comments.

Thank you all for attending this conference call. Friends, I would like to reiterate that we are very focused to ensure the optimization of capacities and using all strategies into play as we have, over 40 years of experience in this business, have seen similar cycles in the past. Our volumes for Q4 FY '20, as I mentioned earlier, will be the highest in the current financial year. And we believe that as the market improves in the next financial year, with higher volumes, pricing improving and operating leverage benefit kicking in, our margin profile also will improve. I take this opportunity to thank everyone for joining the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with me or our CFO, or strategic growth adviser who are our Investor Relations adviser. Thank you very much once again. Good day to every one of you.

Thank you. Ladies and gentlemen, on behalf of NOCIL, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.