SRF Limited (503806) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon, and welcome to the SRF Limited Q4 FY '20 Earnings Con Call organized by Batlivala & Karani Securities India Private Limited. [Operator Instructions] I would now like to turn the conference over to Mr. Ranjit Cirumalla. Please go ahead, sir.

Yes. Thank you, Yashasvi. Good afternoon, everyone. Thank you for joining us on SRF Limited's Q4 and FY '20 Results Conference Call. We thank the management for giving us this opportunity to host the call. Today, we have with us Mr. Rahul Jain, President and Chief Financial Officer, SRF Limited. I would like to invite Ms. Nitika Dhawan, Head of Corporate Communications at SRF, to initiate the proceedings of SRS con call. Over to you, ma'am.

Good afternoon, everyone, and thank you for joining us on SRF Limited's Quarter 4 and Financial Year '20 Earnings Conference Call. We will begin this call with brief opening remarks from our President and CFO, Mr. Rahul Jain, following which, we will open the forum for an interactive question-and-answer session. Before we begin this call, I would like to point out that some statements made in this call may be forward-looking, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Mr. Jain to make his opening remarks.

Good afternoon, everyone. I would like to extend a warm welcome to everyone joining us today on SRF's Q4 and Full Year FY '20 Earnings Call. I hope you, your team and loved ones are safe and doing well. I will begin the call with quickly addressing the impact of COVID-19 outbreak on our businesses, then I will broadly take you through the key operational highlights for the quarter and full year under review, following which, we will open the forum to have a detailed Q&A session. The global economy and diverse industries across India and international markets have been witnessing an unprecedented health and economic crisis due to the outbreak of COVID-19 pandemic. In this environment, our primary focus was on ensuring business continuity, considering all relevant guidelines as well as taking appropriate actions for the safety and wellbeing of our employees. In line with government directives, we have taken necessary steps to shutdown our facilities and subsequently also begun operations at various sites, post receipt of requisite approvals from state and local authorities. Various measures have been put in place to ensure social distancing and safety of our employees, which is paramount and non-negotiable. Further, to ensure business continuity, appropriate liquidity measures have been affected, so as to ensure smooth operations at our locations. I am pleased to share that we have registered a healthy performance for the quarter under review despite domestic -- despite the dynamic domestic and global macro economic challenges. In Q4 FY '20, the consolidated revenues stood at INR 1,858 crores with EBITDA at INR 395 crores. SRF posted an 8% jump in profit after tax at INR 194 crores for the March quarter as compared to corresponding period last year. The company's PAT rose from INR 592 crores in FY '19 to INR 916 crores in FY '20, an increase of 55%. SRF's EBITDA increased -- in FY '20 increased 12% from INR 1,349 crores to INR 1,507 crores. The numbers I've stated above are excluding the impact of discontinued operations that arose during the year from the sale of our Engineering Plastics business and closure of operations of the Technical Textiles business at Thailand. Including the impact of these, for the year FY '20, we registered a PAT of INR 1,019 crores as compared to INR 641 crores in FY '19, an increase of 59%. Going on to our segmental performance now. In our Chemicals business, which comprises of the Fluorochemicals and the Specialty Chemicals business, I will start with the performance of the Specialty Chemicals business. This segment has been the focus and key growth driver for SRF. The business delivered robust performance on account of strong demand from the export market substantiated by the team's efforts towards optimal utilization of our capacity. While we did not witness any demand-related issues in to the pandemic, we did face some logistics issues, which led to delay in certain shipments in the relevant quarter. As a result of COVID-19, the production facilities were completely closed for 15 days. And from mid-April '20, a calibrated startup has been effected. As discussed in the previous calls, a healthy demand from both agro and pharma segments is encouraging. With the right investment and with the right investments that the company has made in this business, we are ready to seize all opportunities that arise in the future. The expansion of capacities, which we announced in the past for new products are on track. You would remember that we had given an outlook of 40% to 50% of revenue growth in the Specialty Chemicals business at the beginning of last year. I am happy to share that our overall revenues for the business are in excess of INR 1,650 crores, which is higher than what we had initially indicated. Given the management's confidence in the business and its long-term growth outlook indicated at the beginning of the fiscal, we have not only met the expectation but exceeded on all performance parameters. Further, the business has also found significant improvements in the margins as the operating leverage has played out. We continue to be optimistic that the new product opportunities will emerge in both agro and pharma segment and exhibit a positive trajectory for the business in the future. From that standpoint, our order book looks strong in the upcoming financial year as well. Overall, we continue to strive towards maintaining a healthy pipeline of new products and expect to report a healthy performance in FY '21 as well. Moving on to our Fluorochemicals business now. Performance of the business segment was subdued, owing to prolonged and severe slowdown in the auto and white goods sector, leading to low demand of refrigerants. In addition, the price of key refrigerants remained weak during the quarter in the review. Given the COVID-19 impact of various industries, we believe that demand for refrigerants from OEMs will remain low in the near term. However, we do anticipate that once the lockdown is lifted, the replacement market will witness significant increase and are gearing up for the upswing. Having said that, while there is a slowdown in the domestic market, we continue to focus on developing new international markets to further enhance exports. Additionally, we have been strengthening our presence in key export markets like the U.S., where we are now working closely with all major retailers. Regulatory actions in U.S. on Chinese products may also lead to additional export demand, which we are fairly well positioned to cater to. We expect that recently commissioned HFC capacities to gradually ramp up volumes over the next few quarters. The operating leverage will play out so as to lead to expansion in overall margins as well. Further, the volumes of chloromethanes also contributed positively to the overall revenues of the business. While prices of certain chloromethane products witnessed a fall, our ability to quickly switch between products helped us manage our position. We are now beginning to see a normalization of operations at our facilities in Bhiwadi and Dahej, post the lockdown announcement by the Government of India in March 2020. As one of the few fully backward integrated producers of refrigerants in the world, we are confident of the growth momentum deriving in the upcoming quarters. Coming to our Packaging Films business. We have delivered strong performance in both BOPET and BOPP segments due to improved volume growth, along with increased sales from our value-added products. In Q4, EBIT margin stood at 21.7% as we continue to improve efficiencies due to savings from strategic sources and other cost initiatives having yielded positive results. All of our plants in India and internationally have been operating at optimal capacity. Even during lockdown, all the Packaging Films plants were operating at reasonable capacity. Our value-added product sales have also grown significantly. I must highlight here that as we go into FY '21, operating margins are expected to moderate as new lines in domestic and international markets start affecting the demand supply scenario. I am also pleased to share with you that in May 2020, we commissioned a BOPET film line of 40,000 tonnes per annum in Thailand for a cost of around USD 51 million. This will help to boost our volume growth and revenues in the future as we ramp up production. With an existing strong customer base and wide distribution channels across Thailand and Southeast Asian countries, we are expanding the network in the Far East Oceania region and North and South America as well. The commissioning of our Hungary project has been delayed owing to severe spread of COVID-19 pandemic in Europe. We now anticipate to commission in Q2 of FY '21. In line with our stated philosophy, we will continue to focus on efficient operations and further optimize the product mix towards increasing the share of value-added products. While COVID-19 lockdown has had an impact on domestic sales, our ability to leverage relationships internationally have kept us in good stead, ensuring higher export value. Moving on to our Technical Textiles business. The performance of Tyre Cord Fabric business has been adversely affected due to sluggish domestic demand. However, the business continued to focus on enhancing the operational excellence parameters at all its plant locations through cost saving and energy-efficient methodology. We also saw an improvement in the upstream process capability parameters. While quarter-on-quarter, we saw stable margins as compared to corresponding period last year, the overall volumes were higher despite the COVID-19 impact. There was an impact of inventory valuation during Q4 FY '20 and due to continued weakness in the price of lactam, some future impact is also expected. Additionally, we believe that while OEM demand may take slightly longer time to recover, replacement demand is likely to kick in towards the end of Q2 FY '21. Therefore, H2 FY '21 is likely to be a much better -- is likely to be much better performance than H1. In other businesses, in both the coated and laminated fabric business, we continue to report a stable performance with several new products added to the portfolio. In the Laminated Fabrics division, however, margins were under pressure on account of ongoing supply situation -- oversupply situation. On to our balance sheet and the overall position. On the tax front, you would have noticed that the company's tax expense for the current quarter and for FY '20 is significantly lower than FY '19. I would like to point out that the company has recognized an amount of INR 180 crores as income tax gains during the year. Essentially, these are on account of onetime deferred tax remeasurement exercise carried out in view of the income tax ordinance announced in September 2019, allowing companies to operate up for a lower tax rate subject to renunciation of certain deductions. Applicable accounting guidelines require deferred tax assets and liabilities to be remeasured, which has resulted in a onetime deferred tax gain of INR 136 crores. Further, consequent to sale of EP business in June 2019, a deferred tax gain of INR 43 crores was also recognized during the current financial year. Aggregating these off, the effective tax rate for FY '20 on a stand-alone basis was about 25.4%. Details of the same are available in explanatory notes 8 and 9 of the results that we have published. Our net debt position as of 31st March, 2020, was higher by about INR 300 crores when compared to the close of FY '19. In spite of heavy CapEx and related changes in our working capital position, we would also like to highlight that the impact of higher debt on the interest costs was negated by better rate negotiations and change in debt mix. This resulted in interest costs remaining at similar level as that of last year. The volatility in exchange rates, especially in the emerging markets, towards the end of the year was significant due to COVID-19-related uncertainties in the financial market. This led to an exchange currency loss of INR 27 crores in Q4 FY '20. The liquidity position of the company, however, remains strong. And recently, the rating of the company has been reaffirmed by CRISIL all-India rating. During this ongoing dynamic situation, we experienced several operational difficulties owing to lockdown and inter-state border control. Since then, the supply chain scenario has been steadily restored, with gradual lifting of restrictions and is expected to normalize soon. The company's export sales remained robust despite logistical challenges. As the lockdown continues to ease, we expect to see a rebound in demand for most of the domestic B2B revenues. I am also delighted to share with all of you that our Chairman, Mr. Arun Bharat Ram, was confirmed the EY Entrepreneur of the Year 2019 award in the manufacturing category. At SRF, we deeply care for our people and the communities in which we operate. We have an important role to play during the COVID-19 crisis and commit ourselves to the support of the communities, especially the migrant workers who've lost their livelihood, as well as the authorities who are fighting tirelessly against the spread of coronavirus. SRF Foundation, the corporate social responsibility arm of SRF Limited, is working to provide emergency response through the distribution of family essential kits, kits for frontline workers and hospital support material. Additionally, the team of SRF Foundation is working with its partners to support the education and learning needs of children across our intervention schools by bridging the digital divide through innovative methods. In conclusion, we are confident at our growth potential and business opportunities that each of our segments exhibit. As the domestic and international operating environment improves gradually, we are optimistic of a healthy performance. We believe that this is possible due to our investments in world class infrastructure, competent resources, superior R&D capabilities and a strong adherence to safety portfolio, which is the cornerstone of our sustainability endeavors. We are also confident of creating sustained value for all our stakeholders as we progressively step into FY '21. On that note, I conclude my remarks and would be open to discuss any questions, comments or suggestions that you may have. I would now like to ask the moderator to open the line for Q&A. Thank you very much.

[Operator Instructions] We have a question from Sanjesh Jain from ICICI Securities.

Yes, a quick question, sir, a couple of them. First, on the Chemicals segment, congrats on a very, very strong set of specialty, I guess, again, we have easily surpassed our guidance. But on the margin front, that doesn't look like. So there is a margin contraction of 170 bps Y-o-Y. What has went wrong? Was the refrigerant gas prices steeper? Is that hurting margin for the chemical business as a whole?

Sanjesh, can you repeat the last, please? You said there was a margin contraction Y-o-Y?

Right, Y-o-Y in the chemical business. Whereas our mix looks like it has improved more towards Specialty Chemical, right? Which we have a higher-margin versus refrigerant gas, correct?

So again, we are comparing corresponding period last year to current year. So roughly about 1.8% is the margin contraction that you are talking about quarter-on-quarter.

Correct, correct, correct.

Yes. Again, I have said this not once, many times, that this is not a business to be looked on, on a quarter-on-quarter basis. You should look at the year's margins. Look at the margin for FY '19 versus FY '20, you will still see roughly about 150 basis points of expansion in margin. My point is that from about 16%, it is up to about, say, 17%, 17.5%. So I would really look at it from a year as a whole perspective, rather than looking at it on a quarter-on-quarter perspective. Secondly, yes, there has been some really nice work that has happened in the Specialty Chemicals business. We have been fairly confident in telling you that we will grow about 50%, 40% to 50% is what we had initially said. But again, as I said, and as you would have heard on the call, the growth is far beyond that. This is also despite the fact that for April 2020 -- 2019, there was a negative month because of the closure that happened at the end of last year, as also there was some impact of COVID that I had explained to you. So to that extent, I would say there is some contraction that has happened. But I'm not really worried about the quarter-on-quarter margin contraction that we are looking at. I am really looking at this business from a year as a whole perspective. And to that extent, happier to see the fact that there is margin expansion that has happened. Also, the fact is that for Chemicals business, the new HSE plants have recently been commercialized or capitalized. Because of COVID-19, there again, let's say, the operating leverage on those plants that are still to play out. So those are kind of the reasons.

Fair point, fair point, sir. Just 1 confirmation. We haven't talked about our guidance for Chemicals business in FY '21, right?

I don't give you guidance on chemical business overall. But yes, this is something that we do on an annualized basis. For the Specialty Chemicals business, my sense is that our growth, depending upon how COVID plays out, should be in the range of, say, about 25% -- 20% to 25%, let's say, to be on the safer side.

That's a fair -- even these are the healthy numbers given the conditions we are -- respect for that, sir. On the refrigerant...

Kind of 40% to 50% number on a continuous basis is not possible because of the fact that now you are working with the INR 1,600 crore revenue, even a 25% number is a INR 400 crore increase, not a small job to do.

Yes, yes. Absolute addition remains still healthy. I take that point. On the refrigerant gas side, I thought that the China shutdown in the quarter 4, where we were still operating, there was a room for us to benefit from that. And it looks like it hasn't come in. Was the demand weaker than what we were estimating? And what are the reasons for pricing correction there, given that there could have been a substantial pressure on the supply side as well? So just wanted to understand that.

Because it's not a India play in terms of the overall pricing. I think it is an international play on the overall pricing.

Yes, international, correct.

And because of the fact that China was looking to sell a lot of product which they were unable to, there were pricing corrections that were happening. To a certain extent, I would also say that [Audio Gap] were slightly on the higher side earlier as well. So to that extent, they are now moderating. Even with the current position on the prices, I think we are in a fairly good position to be a substantive player, not just in the Indian market, but in the international market as well because of the fact that our cost competence is very, very significant in the business. As I said, there is -- the fact is that we are a player that has complete backward integration. Probably that would leave us in a good position in the international market as well, Sanjesh.

Got it, sir. Just 1 clarification here. Our earlier guidance that we will consume this HFC capacity probably over next 3 years still stands true, right?

I would still expect that to happen. 3 years is still a very large time frame. I would really expect this to be faster.

Okay. That's a good news. Last question on the Packaging Film.

If you still have questions, Sanjesh, you will have to come back in line. Other people will say, there is no more questions left.

[Operator Instructions] We have a question from Mr. Vivek Ramakrishnan from DSP Mutual Fund.

Sir, congratulations [Audio Gap]. I had 2 questions. You have been investing in capacity significantly, and that has kept your return on capital employed a bit depressed. So is this pace of CapEx going to -- are the pace of CapEx going to continue or you will be able to make a better return on capital employed? That's question #1. And question #2 is, is there any guidance that you'll give on debt levels too in terms of how it's going to look like in '21 and '22?

Okay. Let me answer both your questions. The first question that you asked is about the operating leverage or, let's say, the return on capital employed. Now yes, you are right that we've been investing very heavily in CapEx. But the return on capital employed does come over a period of time. If you look at the return on capital employed at any point in time, it really does take into account those CapExes that have recently been commissioned or are likely to be commissioned in the future. To that extent, I would really look at the denominator on a T minus 1 or T minus 2 basis, which would give you a pretty healthy return on capital employed. From a CapEx perspective, there are certain CapEx plans that have already been announced. Those we are still going ahead with. There is the PTFE plant that is going on in the Chemicals business. We have recently announced INR 230 crores of CapEx in the Specialty Chemicals business. We expect other spillover CapExes from last year that are still continuing. Our sense is that roughly about INR 700 crores to INR 800 crores of CapEx spent in FY '21 is reasonable. There could be another INR 100 crores of CapEx that we have not budgeted today. Plus whatever is going on in the BOPET -- BOPP in Thailand, in BOPET in Thailand and in Hungary aggregates in the range of about INR 1,200 crores, INR 1,300 crores. So that's our CapEx guidance for FY '21. Obviously, we will be frugal about it, depending upon how the cash flow situation pans out. We will certainly look at seeing whether there can be certain things that we can do better in terms of managing the CapEx. But on an overall position, we are not looking to, let's say, curtail our existing CapExes because they provide us the growth for the future. The second question that you asked is whether there will be debt reduction in the future. Given our current estimates, we believe anywhere between INR 200 crores to about INR 300 crores is a likely debt reduction in the future, given our current numbers that we are looking at. But all of these depend on what CapExes we are doing, how much EBITDA we are generating, what is the impact of COVID and all of those things. I would really not worry too much on debt because my operating leverage ratios as well as my debt to net worth, cash to net worth, all of those ratios are in pretty good shape. So while I'm looking that there will be some reduction of debt, I'm not very worried about it.

We have a question from Mr. [ Vihang Subramanian ] from Samsung Asset Management.

Sir, when I look at the Packaging Films business margins, like on a full year basis, it's jumped from like almost 15% to almost 21%. So just wanted to know like how does like the crude oil price movement like, has it played like any beneficial role? Or like how does it sort of affect margins in packaging? And if it has any impact on other segments as well, if you could just clarify that?

See, there is always an impact on the Packaging Films business and on the Technical Textiles business of the way crude oil plays. The crude oil drop in prices typically leads to lower revenues. However, the, let's say, the final margin or the final profitability of the EBIT does not depend on crude prices. It's a function of the conversion margin and the conversion price that I'm getting for my key raw materials. So to that extent, you would see that overall, my revenues from Packaging Film business are kind of subdued or flat for the quarter as well as for the year. However, my margins are higher. Essentially, that is the reason -- the margins are actually a demand and supply play, plus what you can do from a value-added product perspective, how much of additional margins you can generate, those are key plays there. Also on the Technical Textile business, the price of lactam does have an impact. And in the opening statement, I had given the rundown of that. There was a negative new impact on -- of inventory valuation on the Technical Textiles business. We believe it was in the range of about INR 3 crores to INR 4 crores. However, you've seen that between March to now also crude oil prices went down very significantly, then have gone up. So there may be a slightly, let's say, lagged impact of inventory valuation that may come through in the Technical Textiles business.

Okay, okay. Got it, sir. And just my second question is, you mentioned on HFC side where we are expanding that, you kind of still expect to see the ramp-up to full utilization in like 2 years. But I just wanted your sense on like how do you not see any impact there given like what is happening with auto? And how like generally, like the industrial segment is like kind of seeing muted demand. So do you not see any impact there?

No, no. I'm not saying that there is no impact on this. There will be an impact of the auto, there will be an impact also because of the white goods industry. But we are also fairly cognizant of the fact that a lot of the white goods are today moving from, let's say, the standard R-22 to R-32 and the other blends of refrigerant gases. We are in a unique position because of that, and therefore, we believe we have a unique advantage there. And therefore, our capacity utilizations can be much higher, relatively. I'm not at all saying that there won't be an impact of the industrial thing or the industrial activity. What I'm also saying is that the replacement demand also kicks in because of the, let's say, the OEMs are not producing much or, let's say, the sales are lower. To that extent, India is still a hot country and to -- and therefore, the replacement demand kicks in. Those are our assumptions. Hopefully, we should be doing better. The third thing also is the fact that there is a large export potential to various other countries. Some of it, we have taken through, and we believe there is a larger potential on the export side, which we will be able to meet.

Sir, just 1 thing on the refrigerants bit, like the INR 1,300 crores or whatever, INR 1,300 crores, INR 1,400 crores of revenue that you are currently doing, would you be able to give us any exposure in terms of how much is auto and white goods?

No, no, that's not possible because there are various blending happening and other things. So between auto and white goods -- what I can tell you is 134a is all auto and others are all blended. So not really able to give you that.

Okay. Sir, and just a last quick 1 from my side is just on the Technical Textiles business, how do we sort of look at this segment now in terms of growth, given that your main focus is chemicals and packaging? So just in terms of growth, how do we sort of look at it over the next couple of years?

Yes. I mean, we are committed to doing certain CapExes in the business. We are committed to keep serving our customers. While there may not be a large amount of CapEx that is going into the business for committing new growth, we believe the 3,400 -- 3,500 tonnes per month to 4,000 tonnes per month is pretty much doable. And to that extent, we will keep growing the business in that sense. But there won't be a jump of growth in the Technical Textiles business. It will be a stable business for the -- pretty much for our future in our perspective.

We have a question from Mr. Tarang Agrawal from Old Bridge Capital.

So just a couple of questions. The first 1 on the spec chem business, how is the Board looking at it from a 4 to 5 year horizon, considering the entire China to India shifts that we've been talking -- hearing about? And are there any CapEx plans in the medium-term for this business?

I didn't get you, Tarang. Could you repeat, please?

So on the spec chem business, how is the management looking at it from a 4-year -- 4 to 5 year horizon? And are there any CapEx plans in the medium term?

So again, the -- as I said, there are current CapEx plans. We are expanding a lot of capacity. Even in the February Board meeting, we had announced the INR 250 crore CapEx to be incurred in the next 12 months or so, which adds new products. The idea is to keep the package -- the pipeline full. The idea is to keep innovating new products in R&D in our various labs. And therefore, we believe that the Specialty Chemicals business is the growth driver for the company going forward. Over the next 3 to 4 years as well, we believe there will be a positive traction in the Specialty Chemicals business.

Okay. Sir, what is your blended cost of debt? And how has it changed from FY '19 to FY '20?

Again, when I look at my blended cost of debt, overall, I would say it is in the range of about 3.5% to 3.75% on a globalized basis, probably about a 75 to 100 basis points change between the 2 years.

Okay. And sir, in your Packaging Films business, what is the share of value-added products in the INR 2,600 odd crores in FY '20? And how has that moved from FY '19?

Growth in value-added products during the year is in the range of about 20%, 22%. The overall share, again, I'll have to dwell into what is a value-added product and all of that, maybe we can do that offline.

Okay. And sir, the last question. The recently commissioned BOPET line in Thailand is on top of an already existing 30,000 tonnes line, right?

That's right.

We have a question from Mr. Tejas Sheth from Nippon India.

Rahul, congrats on good set of numbers in Specialty Chemicals. On the Specialty Chemicals only, are we seeing any inquiries or something commissioning on the pharma side with this whole COVID thing issue coming up? I mean, there's a lot of pharma demand picking up globally, are we seeing there any opportunity?

See, there are previous inquiries that are there on the table as of now, Tejas. But how long will it take for them to fructify is a wild guess today. I can't tell you, in a 3-month time frame, we will be able to do something about it. So there are a lot of inquiries, yes. But whether they will fructify in a 3-month or a 6-month or a year's time frame, difficult to predict.

Okay, okay. On the refrigerant side, we have kind of -- you would have clearly missed the domestic season. With our increased capacity and can we cover up the balance part of your sales for the missed domestic season?

See, the next domestic season only kicks in, in Q4 next year.

No, so that's what I'm saying. So we have missed domestic season, right? Now the export side of the season is still yet to play out, and we have increased capacities, right? So can we cover up the domestic season loss from exports? Is what my question is.

It won't be for 100%, but yes, we will be able to cover some.

Okay, okay. And lastly, on Packaging Films, both the plants which are getting commissioning this year, are there any delay on the ramp-up side or the inquiries for the volume remains strong?

So, the inquiries are very, very strong. The BOPET film line in Thailand has already been commissioned. Hungary is due in July sometime. And therefore -- and again, the product inquiries are pretty strong. The only thing is, Europe takes more time to ramp up because of the product approvals and all of those things. We are fairly confident that we'll be able to do this.

And the per tonnage spread remain healthy even in Q1?

April may have been pretty much all right. I can't give you any further details than that.

We have a question from Sneha Talreja from Edelweiss.

Just wanted to check with you what has been the EBITDA number for Specialty Chemical business and Packaging?

Specialty, we don't share it specifically on...

Or for Chemicals as a whole?

That's a math number. You please go ahead and do this. It's available in the balance sheet.

We have a question from Surya Patra from Philip Capital.

Congrats for the good set of numbers, sir, on the Specialty Chemicals side. Just on the manufacturing opportunity, which is looking robust, given the -- or in the post-COVID scenario, so do you see really any manufacturing -- any diversification of a manufacturing opportunity from the current Fluorochemicals to some other area? Or whether you are also seeing any kind of incremental manufacturing opportunity in your existing lines of business because of the China factor, now people are preferring ex China kind of product supply chain. So on that front, anything that you can update, sir?

Surya, to be very frank about it, if you want to talk about a single product, single inquiry, diversification of my production facilities, whether I'm able to produce PPE kits or something of that sort or sanitizer, no such intent.

No, no, no.

Right.

No, no. I'm not talking about the sanitizer part, sir.

I'm just completing the answer, just give me a minute. The second thing that you asked about is China. I think that's very relevant. And to that extent, we are -- we believe that there is an opportunity that a lot of our customers who are looking to diversify their, let's say, requirements from -- out of China. I think that's a huge opportunity that presents itself. We are in a good position to be able to leverage that opportunity. Our facilities are in good position. We have now cGMP facilities available to cater to pharma needs. And I think that's something that we are also looking forward to. That's essentially the answer to your question. If you are asking about a specific product, I don't have that information.

No, no, that's fine, sir. But -- and I was just trying to understand whether you can go beyond Fluorochemicals in term of manufacturing opportunity that is visible in the post-COVID scenario.

I told you last time as well that it is not just Fluorochemicals that is important. It is -- it is the chemistry that is something that we are looking at. More difficult the chemistry, we are happier to do it. Fluorochemicals are not only the ones that we are looking at. Not that we are saying that -- fluoro is a specialty that we have. But we have the ability to diverse into others as well.

Okay, okay. Fine, sir. And my second question was -- yes, second question was on the split between Specialty Business and the refrigerant. So what would be the split for the current full year, sir, since it is the year ending performance? And also, given the kind of geographic penetration and all for the refrigerant gas business, so what growth outlook that you are -- if you're guiding anything on that?

The first question is, what is the split between?

Specialty and refrigerant gas?

Speciality and refrigerant gases. There is no such split available. There is Fluorochemicals business and the Specialty Chemicals business. I told you, during the year, roughly about INR 1,650 crores was my Specialty revenue, balance is Fluorochemicals. I'm not breaking that up into refrigerant gases, fluorometers, blends and others. So that's not happening. That's one. What's your second question?

Second question was like on the refrigerant gas front, given the kind of expansion in the blends, all the blends initiative that we have taken, and also the geographic penetration that we are seeing for ourselves and there is a kind of a China play also that is there on that front. So given all these factors, can you share some outlook on the refrigerant gas business plan, sir, for next year or next 3 or something like that?

So again, within the next 2 years, all the additional capacity that we are putting up, we are wanting to have them fully utilized. And appropriately -- obviously, the operating margin and all of the other things of the Fluorochemicals business should play out positively. Whether that happens in the next 18 months, 24 months or 30 months, I really am unable to say this. Yes, there is a positive that is emanating out of the duty structures and all of those things in the U.S. We are fairly well positioned to be able to take advantage of that.

We have a question from Resham Jain from DSP Investment Managers.

Sir, I have just 2 questions. So first is on the EBIT margin, you had improved 150 basis points this year. But when we look at your historical margin performance, it has been quite healthy and very good. So should one expect that based on your comments on operating leverage coming into play in refrigerant as well and more brownfield expansion happening on Specialty Chemicals side, the margin should move up further from the current level?

Resham, I think that's a reasonable expectation to have.

Okay. But is it fair to assume that what you used to do, let's say, 3 years back, is that something which you can strive for in the next 2, 3 years?

[Foreign Language] So you'll always have a position where you want more. But again, let's be reasonable, 3 years -- 3 years ago, our Specialty Chemical revenues were about INR 500 crores, right? So and today, we are talking about the INR 1,650 crore revenue and talking about 20% to 25% growth. So at a INR 2,000 crore revenue, similar, let's say, EBIT margins or EBITDA margins are pretty much wild. The endeavor is always to get to higher numbers, but even 100 basis points expansion is very, very decent.

Okay, okay. And sir, my second question is that in the Specialty Chemical, our medium-term outlook is very good. And given that our current site in Dahej has seen lot of expansion over the last 20 years, do you expect that we have to go for the new greenfield location in the next year or so to expand beyond FY '21?

No, no. For the next year or 2, I think we have enough land available. Even in the last year, I think there was some land that we had bought in -- adjacent to our Dahej site. So to that extent, I think, for the next 2 to 3 years, we have enough land to be able to expand our footprint at the existing site. But in a 5 years’ time, probably, yes, we will have to think about something.

We have a question from Niket from MOAMC, Mumbai.

Sir, I just had 1 question. If you can just give us some sense on what kind of imports do we have from China as far as the Chemicals business is concerned? And do we have any thought process to increase our backward integration as a proportion of our revenues?

So we would have some imports from China in our Specialty Chemicals business. But again, if you look at our overall imports, I don't think it is a very substantial number. Whatever were being risked, we have been able to derisk them. So we are in good position. As of now, there is no specific thought of backward integrating anything. In fact, in many situations, we were looking to see if some of the processes can be managed outside our plants, and we end up doing, let's say, slightly higher end or more technical processes. So that's more the way we are looking at it, Niket.

Sure. I was just kind of understanding how does your customer thinks about it because when he wants to derisk from China to India, and essentially, if we are not largely backward integrated, does the customer think they're essentially still going to depend on China in some format or the other because even your raw material is essentially going to come from China, right?

No. So again, let's look at it. What is the key raw material for my, say, the Chemicals business? The key raw material is fluorspar. I have told you that we have completely been able to derisk from China. If I don't get 1 gram of fluorspar from China, I'm able to source it from across the world. There are no problems with that. There are other raw materials that I procure from China. But as I said in my previous remarks, we've been able to derisk that completely. So that's also not a challenge.

We have a question from Abhijit Akella from IIFL Securities.

Congrats on a good year. Just 2 quick questions. One was on the Packaging Films business, you talked about some new capacities coming up during FY '21. So if it's possible to just put some color around how many new lines or how much capacity is coming up? And how large those are relative to the world markets? That would be helpful.

Abhijit, it's roughly about 4 or 5 lines scheduled in the next 3 to 5 quarters. At least 1 has been commissioned by us, 1 more being commissioned by us. There is 1 in Pakistan. There are a couple of other lines in Poland and other -- some other jurisdictions. But more or less, 4 or 5 lines.

And in terms of what kind of increment to world capacity, this would be in terms of percentage terms?

Roughly about 38,000 to 40,000 tonnes per line, so multiply that by 5, 200,000 tonnes. World capacity is actually less than 5%.

Right. And this is all in BOPET only?

Yes, I am talking BOPET only.

Okay. And BOPP, you're not seeing such pressure?

No, BOPP still started to do better, but no major new lines coming as of now.

Okay, great. And second, just on refrigerants, is it possible to just share the total volumes we've done, sir, in FY '20?

I think the capacity utilizations for refrigerant has been increased to 70%, 75% because volumes are a function of what kind of sales you're making, whether they are in tonnages or in tankers or in small cans. So all of those are different to each. And therefore, it's not fair to be able to give you actual production of each of those. Roughly, let's say, about 70% to 75% of all our HFC capacities have been utilized.

Okay. And this is including the new capacity that we've just commissioned?

That is including the new capacities on a prorated basis.

We have a question from Mr. Rohit Sinha from Emkay Global, Mumbai.

Most of the questions are already answered. Just quick thing on R gas. Since we have added new capacity, what would be the overall new incremental employees addition in that business?

Employee addition, you're talking about, Rohit?

Yes, yes.

I would not know addition to -- can you come on off-line?

On the increment?

[Technical Difficulty] As a total, I think we've added about 300 employees on an overall basis, but I've not looked at it. I will have to revert to you.

Okay. No issues, sir. No issues. And just looking at your Specialty Chemicals segment, as you mentioned that almost INR 1,600 crore kind of revenue is there. And since most of -- almost, I think 90%, 95% is export, what kind of opportunity in the Specialty Chemicals we are seeing in the domestic market given the Make In India thing or Atmanirbhar Bharat kind of initiatives?

We will have to check that out there. Domestically, again, the focus is exports. I think we continue to focus on exports because those are more innovative products and more with large agrichemical majors across the world. We will have to check out if there is more opportunity on the domestic side due to Make In India. I really don't believe so.

Okay. And just wanted to take on this tax rate, what would be our consolidated tax rate going forward, given that new tax regime...

27%, 28%. And when I am saying that, this is only on a stand-alone basis, because for global jurisdiction, tax rates are very low or we are still in a tax holiday period. South Africa has some, but not very significant.

We have a question from Mr. [ Amar Mourya ] from ALFAccurate, Mumbai.

Yes. Sir, 1 understanding, like your employee cost for third quarter, sequentially, I'm talking, had gone up by INR 7 crore and INR 10 crore for third quarter and fourth quarter. So is it -- this is primarily because of what reason?

Sequentially on third quarter...

By INR 7 crores -- yes, yes.

I think it is because of the capitalization of new plants. Till the point these plants get capitalized, they would probably be going into pre-operating expenses. And for that, it would go to P&L. I think because of capitalization, this would be the impact. But I will have to completely check out and come back to you.

Okay. So this has nothing to do with like the employee addition part or this will also include the employee addition part? Because this is a very large number if I calculate the 300 employee part.

No, no, there would be. So I'm saying that largely, I think that this is the normal thing. For an employee cost to increase, you will have to either add new employees, either give larger increments or you -- the third is capitalization of costs, which are not being done because of the plants getting capitalized. I think the largest component of that will be because of plants getting capitalized. If I recently tell, the HFC plant got capitalized in September end or the end of October. So to that extent, this does impact there.

Okay, okay. And sir, now this newly commissioned HFC plant, what would be the utilization currently?

[Foreign Language] Amar, that on an annualized basis, my HFC capacities overall were utilized about 75%, 70% to 75%.

But I believe, sir, new capacity utilization [Foreign Language], right?

[Foreign Language]

Correct. Sir, [Foreign Language] R gas, what would be the replacement --

Mr. [ Mourya ], I'm sorry...

Can I just finish the question?

Sorry, can you please come back in the queue?

Okay. Can I just complete it?

Yes, yes. Please go ahead, sir.

Yes. So basically, sir, what would be the mix between the replacement and OE for R gas?

OE maybe roughly about 40%, 45%, the balance will R gas, 55%, 60%. So it keeps shifting in that sense. And when I am talking OE, I'm only talking 134a and cars.

We have a question from Mr. Ritesh Gupta from AMBIT Capital.

Sir, just 1 question on the refrigerant bit. So I think somewhere in the presentation, you highlighted that the refrigerant prices were soft. And that kind of was a problem in FY '20. But do you think the same situation may get aggravated in FY '21, especially on the auto refrigerants? Because auto and white goods both, because of the sales, et cetera, in the first 3, 4 quarters -- 3, 4 months would have been weaker across the globe. So do you think the realization for refrigerants could be a challenge, while operating leverage-led benefit will come in refrigerants? So could there be a gross margin problems in refrigerant which we may sustain from the last year?

So Ritesh, they are at such levels that they will only go up from here. Even if they're so muted, I'm okay because my operating leverage flows will be pretty much taking -- keeping me in good position. Even despite whatever the prices are, I'm still making more money, right?

Okay. So basically, you're saying that pre-COVID, even when Feb or March whatever your realization or EBITDA burden was, has not seen any major decline in the recent months also, I mean, post, let's say, March also?

So [Foreign Language] price [Foreign Language] flattish [Foreign Language]. It is not because of the price that the issue has happened. I think it is more because of COVID, because of the overall economic slowdown and the overall impact of the current environment.

Correct. So it should aggravate from the 4Q levels, right, is what the right thing to say is right from a gross margin perspective?

I said that in the remarks also.

Okay. And sir, just on the balance sheet side, you have seen a decent reduction in receivables, and I think inventories also have been pretty steady. And especially in exporters, your working capital has been 1 of the best, which I see across a lot of chemical exporters. So this is something which is sustainable and like you can further improve from here on? Or is it like already operating at some of the best levels that you can operate?

See, the working capital is already operating at best levels. The point is [Audio Gap] of price of the lactam and, let's say, [indiscernible]. So given the fact that the prices have crashed, to that extent, it has shown in my inventory levels also. If the prices start rising, inventories will start to go up and to that extent, my value of debtors and receivables and all of those things will also start to go up. So it's [Technical Difficulty].

Okay. And on the days that they do, you don't think anything can change or it's just pretty much good is what you're saying?

Point, Ritesh, is the fact that this is the environment that we are operating. So if my supply chain can leverage my ability to raise money at better rates, why not? So to that extent, I am okay with some, let's say, deterioration in this, if I can be on a stronger weighting.

Due to time constraints. I would now like to hand over the call to Mr. Rahul Jain for closing comments. Please go ahead, sir.

Yes. I hope we have been able to answer all your questions. If you have any further questions, I would be glad to be of assistance. We hope to have your valuable support on a continued basis as we move ahead. On behalf of the management, I once again thank you for taking the time to join us on this call. Thank you very much, guys.

Ladies and gentlemen, this does conclude your conference for today. We thank you for your participation and for using iJunxion Conference Service. You may please disconnect your lines now. Thank you, and have a great day.