SRF Limited (503806) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 and 9 Months FY '21 Earnings Conference Call of SRF Limited hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rohit Sinha, Research Analyst of Emkay Global. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. Thank you for joining us on SRF Limited's Q3 and 9 Months FY '21 Results Conference Call. Today, we have with us Mr. Rahul Jain, President and CFO, SRF Limited. I would like to invite Ms. Nikita Dhawan, Head of Corporate Communications at SRF, to initiate the proceedings for SRF's con call. Over to you, ma'am.

Good afternoon, everyone, and thank you for joining us on SRF Limited's Quarter 3 and 9 Months FY '21 Results Conference Call. We will begin the 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 will 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 comments.

Thank you very much. Good afternoon, everyone, and I extend a warm welcome to you all, and thank you for joining us today on SRF's Q3 and 9 Months FY '21 Earnings Call. I hope you, your colleagues and family are keeping in good health. I will initiate the call by briefly taking you through the key operational highlights for the period under review, following which we will open the forum to have a detailed Q&A session. I am happy to share that we have registered a strong performance for the quarter under review, primarily driven by robust results in Specialty Chemicals and Packaging Films businesses, supported by meaningful contributions from the Technical Textile business. With the economy gathering pace, almost all of our businesses have returned to normal operations. During the quarter, gross operating revenue increased 16% Y-o-Y to INR 2,146 crores. EBITDA grew by 43% Y-o-Y to INR 566 crores with EBITDA margins expanding to 26%, which is an increase of roughly about 500 basis points. Profit after tax stood lower at INR 324 crores in Q3 FY '21. This was due to certain onetime tax adjustments in the corresponding quarter last year, necessitated out of change in the regulatory environment for an amount of INR 123 crores. Net of this are quarter-on-quarter PAT increased by about 46%. The Board has declared an interim dividend at the rate of 190%, amounting to INR 19 per share, which will lead to a cash outflow of INR 113 crores. The overall dividend payout for the current financial year at 240% with the cash outflow of an aggregated amount of INR 141 crores is significantly higher than the previous year. Moving on to the segmental performance highlights. The Specialty Chemicals business delivered a robust performance on account of improving demand, leading to enhanced volumes across products. We are seeing substantial demand from our global agri customers. Higher volumes also led to improved capacity utilization of both dedicated and multipurpose plants. This, in combination with process enhancement and optimal utilization of resources, helped us improve our operating efficiencies, leading to stronger operating performance during the quarter. The current CapEx plans that are under implementation are largely on track and are accretive to our product portfolio. I am also pleased to report that during the quarter, we successfully concluded campaigns for a few key products. In addition to new molecules, revenues from existing products continue to improve. A growing portfolio would further assist us to deepen our client engagements. We continue to pride ourselves as a preferred supplier with most of our customers. Here, I am pleased to share that our company has been awarded the Syngenta Supplier Award 2020 for performance at Syngenta Global Suppliers Meet. We believe that the Indian Specialty Chemicals industry is at the cusp of a major transformation, and the company is well positioned to tap this opportunity. Accordingly, the company will continue to implement timely CapEx initiatives to broaden and develop our capabilities across various product segments and new product lines. Fluorochemicals business reported a stable performance on the back of improved sales volumes, led by a healthy demand witnessed from both automobile and the AC segments. The business also reported higher volumes of Refrigerants, both in the domestic and export markets. We continue to stay aligned with all major retailers in the U.S. market for wider penetration of HFCs. Additionally, sales volume for passenger vehicles as well as ACs witnessed healthy increase leading to higher demand during the quarter. The business witnessed higher production of key HFCs and achieved better capacity utilization as well. However, our revenues -- overall revenues when compared to corresponding period last year remained flat Q-on-Q. As indicated earlier, we are witnessing a trend of higher prices of key refrigerants, which should augur well for the ensuing quarters. During the quarter, the Packaging Films business delivered a robust performance when compared to corresponding period last year due to better operating leverage, improved margins and a healthy demand from our domestic and international clients when compared to third corresponding period. We aim to remain focused on consistency and timely delivery, improving operating efficiencies, growing global customer penetration and increasing the percentage of value-added products. During the quarter, the Thailand resin plant was successfully commissioned despite travel constraints, restricting the presence of OEM's field experts on the site. This clearly exhibits our understanding of the technology and our ability to manage current and future plants efficiently. With the Hungary greenfield facility now commissioned, the team continues to focus on its easy-to-do-business-with philosophy by coming closer to the customer base in Europe. The line is expected to ramp up in the next few months with healthy demand anticipated from existing and prospective customers. Coming on to our Technical Textiles business segment. SRF has delivered steady performance with improving market dynamics. It is mainly due to faster-than-expected recovery in the tire industry and our continued focus on initiatives to enhance operational performance. With a pickup in the economy, replacement demand is anticipated to be healthy in the ensuing quarters. It is also to be noted that due to the uncertainties in supplies, customers have tended to prefer domestic suppliers, leading to a notable decrease in imports. The Belting Fabrics segment contributed significantly to the overall performance of the Technical Textiles business. Lastly, in our Others segment. Amid a slow demand scenario, the performance of coated fabrics was in line and continues to sustain steady domestic market leadership, both in terms of price and volume by enhanced procurement and plant performance. In the Laminated Fabrics segment, SRF's semi-hot and hot lamination divisions were well-received in the market and reported healthy uptick in volumes. While we maintain a solid balance sheet position, SRF continues to retain liquidity across various term provisions, money market operations and debt management during the quarter. We reported lower interest payments and higher interest earnings during the quarter, primarily from the cash available from the QIP proceeds and efficient working capital management. We continue to focus on efficient working capital management, which should lead to better balance sheet position going ahead as well. During the quarter, SRF Foundation, our CSR arm, established InnoSTEAM Labs in 3 government senior secondary schools of Gurugram to promote the future skills of students. We also launched the IBM Artificial Intelligence Program in 173 CBSE schools and 13 state government schools of Haryana. Across all our facilities, we continue to be deeply committed to supporting our communities. In conclusion, throughout these unpredictable last few quarters, SRF has delivered exceptionally strong performance. We are confident of managing any such external challenges on the back of our focus on technological advancements driven by our robust R&D team. We have a unique competitive edge across all our business segments owing to our solid R&D expertise, innovative technologies, skilled workers and processes. With a solid system in place and unmatched R&D skills, we intend to offer meaningful outcomes and enhance value to all our stakeholders in the future. In addition to building and enduring SRF brand that benefits its stakeholders, we are also establishing a deeper relationship with all our consumers and expanding our global footprint. On that note, I would conclude my remarks, and would be glad to discuss any questions, comments or suggestions that you may have. I would now like to ask the moderator to open the line for the Q&A session. Thank you very much.

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

Congrats on a good set of numbers. Sir, the first question is on the Chemicals business. So on Slide #17, we have mentioned that the global agrochemical market is expected to continue to experience moderate growth. So does it mean that for the next year, we will also have a similar kind of growth rate or moderate growth rate in this segment?

So, Rohit, the question that you are raising from the presentation that we have uploaded for the investors, what we are saying there is that this is a market trend where, overall, what we are witnessing is moderate-to-low growth in the segment. However, you should also read that in conjunction with the second comment where we are telling that India, as a market, seems to be improving and becoming a focus for, let's say, the customers that we have, which should augur well for us.

Okay. That's helpful. Rahul ji, the second question is again on the next slide. We have talked about Chemical Technology Group and key focus on high-end molecules. If you could just briefly explain what does it mean by -- in terms of high-end molecules? Are these the initial-staged molecules and they have a higher growth potential? Or the categories in which these molecules are, those categories maybe having a higher growth potential?

So, again, Rohit, it's difficult to answer it in the manner that you believe that we can. The fact is that we are looking at higher, let's say, more difficult products, more complex products. And as you keep looking at more complex products, your ability to, let's say, get better margins will always be significant. So I would really comment that much in terms of the kind of products that we are looking at. We are looking to increase the, let's say, the complexity of the products, which should lead to better margins also from a product-by-product perspective.

The next question is from the line of Ankit Gor from Systematix Group.

Rahul, despite strong...

Ankit, could you be a bit louder? I'm unable to hear you.

Sure. So despite a strong spec chem revenue growth, overall Chemical division growth was moderate. So was it mainly because a lower offtake mainly at Refrigerant division? And precisely, that could be the reason for overall EBITDA improvement since product mix was more squeaked towards spec chem, which is higher margin?

So right and wrong because when I look at it from an overall Chemical business perspective, we believe that the growth, when we look at CPLY, was about 11.6%. To that extent, yes, there was a higher growth in the spec chem business. And the Fluorochemicals business has probably been the business that has been the most impacted business by -- due to COVID. Fact of the matter is that we've also said that we are looking at much higher prices and significantly better margins in the Fluorochemicals business going forward. Volumes have improved, and we have also seen improvement in, let's say, to some price, which is -- which should augur well for the future.

Sure. On one of the slides, we have mentioned that overall production of refrigerants was on uptrend and the offtake for the quarter was flat. So does it mean we are building up inventory for next season? If you can just clarify that?

So what happens in the industry, you will build up -- because there is the seasonal demand that comes through in Q4, Q1, right? So you will always build up more inventory for higher supplies in Q4 and Q1. The plants are only, let's say, available for that period, where, let's say, even if there is an inventory buildup that does happen, you will probably have that sold out in the next few quarters.

Right, right. And probably lastly on Technical Textiles side, there is a sharp increase in margin on Technical Textiles. How much is attributed to caprolactam inventory gain and probably a pure operational benefits?

So again, when I look at December '19 and when I look at even Q1 of this year, we have seen significantly lower volumes because of the COVID impact, right? December '19, there was no COVID impact, but December '19, the overall trend of the industry was witnessing much lower numbers. You are aware, in terms of sales of heavy vehicles, the economic downturn that was happening and all of that going through. What has changed in the Specialty Chemicals business -- oh sorry, in the Technical Textiles business, overall, is the fact that given the geopolitical scenario, given where imports are today, all of that has led to, let's say, lower imports of the base products, which has led us to be able to, let's say, completely ramp up our production. We are now, in fact, going ahead with the 400 tonne yarn capacity, which would add to even more volumes for us.

Okay. So there was no sort of -- no, we should not consider any inventory gain or...

See, there was no large caprolactam negative or a positive here. There is always some because prices keep fluctuating, but nothing to mention in that side.

The next question is from the line of Ritesh Gupta from AMBIT Capital.

Just on the continuing from the previous question. So when I see a 13% growth on revenues and 33% growth on EBIT -- or 12%, 13% revenue growth and 33% EBIT growth, I'm just curious that would we have seen a decline in the Fluorochemicals business in line with, let's say, what probably has been the trend in last 2, 3 quarters? And given that...

You can see into it, because you will keep reading into it. To my mind, I can't keep telling you the sales of each quarter of these businesses. I have told you, it has remained flat. Let's leave it at that. There is probably a small increase, but not a significant one, that's all I can tell you. Capacity utilizations have been much better. And therefore, if you want to read that the Specialty Chemicals business has done better than, let's say, earlier expectation, that is pretty much true.

No, because -- see, Fluorochemicals has been flat, and I'm just kind of going by the commentary that you've given, then Specialty Chemicals -- fluoro has been, let's say, flattish, so then Specialty would have largely done about 25%, 26% growth, which is -- I mean, which I think probably is in line with our -- I mean, in some sense, we would have expected about 30%, 35% growth this year. So is there anything specific in this quarter on the Specialty Chemicals side, which we should -- I mean, is there any kind of demand fluctuation you saw in Specialties there?

Ritesh, like I had said last quarter, that -- so when I was doing the, let's say, the June results, I have said we are looking at a 20% or 20%, 22% increase in sales from the spec chem business. We did last quarter's number, I had said, north of 25% for the year in terms of spec chem sales. Let me guarantee you that it's going to happen.

Got it, sir. Got it. And sir, just on the Packaging side, I mean, clearly, I mean, any trends that you see there? This quarter also the profitability was pretty decent. So anything in terms of the supply side addition, anything coming up in next 1 or 2 quarters, if you could just guide us on that?

So to be very frank, really, if you would have gone through the presentation, we've seen 2 lines getting added. One -- and again, we are talking global here, not India. There's one line that has, I think, added in Nigeria, one in Colombia. The first one is a PET pipeline. The other one is a BOPP line. So there is -- there will be some margin -- pressure on margins that will remain. But again, I'm not saying that there will be much lower margins or much higher margins coming through. What we need to keep focusing on is how we do business. Whether we are in a position to ramp up the Hungary line, which is still in the position of ramping up. There would be the resin plant that has got commissioned in Thailand that will give the positive and, therefore, some margin improvements would happen. But given the fact that, that is something that is more internal to me. Externally, we do see some pressure on margin coming through in the next quarter and probably a couple of other quarters as well.

Got it, sir. And just one clarification I need on the Refrigerant side. Is it that Q4, Q1 is a higher domestic sale year?

Generally speaking, yes.

The next question is from the line of Chintan Modi from Haitong Securities.

Sir...

Chintan, could you be a bit louder?

Yes, sir. I am good now, sir?

Yes, very good.

Yes. So sir, I wanted to understand like the robustness that we are seeing in the spec chem business. Is it primarily driven only by this China Plus One strategy? Or is it that you're seeing some shift of business happening from European CRAMs player to Indian players?

See, again, I think we had said this earlier also, Chintan. The fact is that there is a push from a China Plus One factor that has come through. That has augured well for us that we -- keep giving us more opportunities in the future. But the overall piece from the China Plus One is probably something that has started much earlier. I think major customers had been looking at alternate strategies, let's say, derisking from China to a bit much earlier. And I guess, what you are saying is also right that some of these new products that we are doing are also coming out of some of the European, let's say, players, which are probably slightly more inefficient as of now. Both the things are going on in tandem.

Right, sir. But do you think going ahead, this could be a much larger opportunity, the shift happening from European players who did this?

I certainly believe that there is a possibility. But again, I think you should look at it not from a Europe to India shift. You should look at it from a customer perspective, where they are looking to diversify their risk out of China or Europe or managing costs a bit better.

Sure, sir. sure. And sir, we've seen this commodity prices increase in like steel, cement, and everything. We have a sizable amount of CapEx going on. Do you see any kind of increase in those CapEx? And if yes, like how much? If you can give us some sense here?

You are absolutely right, Chintan, in the sense that, let's say, 1 year ago steel prices and cement prices were at a different level than what they are today, right? And to that extent, whatever impact of that will come through will come through. It will be an impact, but I don't see that as an impact on, let's say, how my IRR looks for the product.

Okay. Okay. Sure. And sir, we had kind of postponed that announcement on PTFE. Any fresh update on that?

So we are relooking at it. There is work that is starting to commence on PTFE. We will come back to you with a new date in terms of when it should get commissioned. There is work that is already starting to commence on the PTFE one.

Okay, sure. And one last one. Sir, we have seen this drop in the interest expenses this quarter. Is it primarily to do with this debt repayment that we have done or some other different angle to it?

2 or 3 things have happened, Chintan. You would have seen, let's say, the interest rates across the world, be it India or for that matter, international rates, all of them probably falling down post-COVID at a much significant pace, right? So 2 things. One, there is repayments that have happened, which is absolutely right, from the cash flows, either through the QIP or better cash generations at our end. And second, the interest rates, we had kept floating, to a large extent, anticipating this, which has helped us in terms of reducing our interest costs.

The next question is from the line of Sanjesh Jain from ICICI Securities.

First, 2 questions on the HFO side -- sorry, from the Refrigerant aspect. First on, you've mentioned that you're seeing hardening of prices in ref gas. Is it predominantly in R-134a or it's across the gas? Because I was looking at R-22 prices, it looks like it's falling very sharply. So can you give us some clarity on which gases we are seeing more hardening of prices, which could benefit us most? That's one. Number two, again, on ref gas...

You read it incorrectly, Sanjesh. I had said that there has been hardening of HFCs.

Okay, HFCs. So it will be more of 134a and, got it. Got it.

And you do the analysis on a month-on-month basis, product-on-product basis. I'm not disputing your analysis.

No. No. No, sir. and I just -- I did not heard that HFC, my mistake. Right, sir.

I'm just joking.

Yes, yes. Okay. Second on the HFO. We are now in 2021. We had some talks earlier that in 2022, that product is coming out of patent. Any clarity on HFO and any plans around that for us?

So again, I think the stand is the same, Sanjesh. We have technology established for HFOs. Appropriate time, we will think about putting up an HFO plan. We will probably be able to give you slightly more clarity on this once we've seen how the market has -- is shaping up and goes forward in, let's say, the western world. There is the exact regulation in Europe, which needs to be taken care of, which we are looking at it. So there are multiple things that are happening. I don't know whether U.S. gets back to the Paris Accord or not or the Kigali Agreement or not. So there are multiple things that are happening. It's a bit, let's say, fluid as of now in terms of the position that we have. We will have to revert back to you in terms of the plans around it.

Got it. Got it. One question follow-up on the Specialty side. We said that we are running a multiple campaigns, can you give some color on how many products are we running? Is there a significant contribution on pharma because that is one space we have been trying to increase the contribution and we also have put a cGMP plant? So one on the product, which we are and second on the pharma side, I think that is from my side.

So Sanjesh, at any point in time, there will always be 6 or 7 campaigns that are running. That's one. Second, on the pharma side, we have the cGMP plant. Let's say, it's about 50% utilized. Over a period of time, we hope to get to 100% utilization on the cGMP.

No, I was asking more on the campaign just because of the fact that now we are planning to do a much larger campaign...

Whether there is a campaign over specific pharma products being run, that's not...

No. No. No, not on the pharma, not on the pharma. I'm talking overall campaign, now that we are planning for a much larger CapEx in the Specialty Chemicals, do we plan to increase the campaign?

See, again, the way I would look at it is that the multipurpose plant has to be free to run the campaign. As we keep going through new products and more dedicated plants, the multipurpose plant gets available for running the campaign. In the cGMP plant also, we can run a couple of campaigns that is possible. So to that extent, I would say the demand from agro is very robust as of now, both existing products and new products. And therefore, there will be some pharma campaigns that we will keep running. But the robustness of agro does take care of the viability of the spec chem business overall.

The next question is from the line of Ankur Periwal from Axis Capital.

Congratulations for decent performance. So large part of the questions have been answered. Just a couple of clarification. Continuing with the earlier question, given that incrementally a significant money is going to be spent on the spec chem side. One, how do you see the R&D side as well as the molecule ramp-up side, while over the last few years also, we have seen an uptick in terms of the absolute molecules that we have been synthesizing? Both in agro and pharma side, if you can put some light there?

So Ankur, I would say that when I look at it, we -- it is correct that there will be significantly large CapEx over the next 2 years that happened on the spec chem business. I would typically say that, like I said earlier also, that the agro push today is very significant. The amount that we are working on with new products with our existing customers and some of our new customers is very large in terms of the potential. Again, like I said last time and earlier as well, while we see growth in the spec chem business happening this year at a significant pace, we also do believe that a large amount of growth, obviously, is sustainable going forward as well for the next few years. The only thing that you have to also understand is that given where we are in terms of COVID, in terms of major requirements from our customers, we see some of the, let's say, growth in certain types of products, some preponing and some postponing, which will keep happening in the business going forward as well.

Sure. Fair enough, sir. Sir, just a follow-up there. Broadly, from a directional point of view, the incremental revenue growth for us, while we are putting up CapEx, which is for the existing as well as the R&D side, which you highlighted the new molecules, the incremental growth, what could be the broad breakup between the existing portfolio driving the revenue growth for us and probably the newer molecules, wherein we're seeing more interest, whether it is from China Plus One, global consolidation or on that perspective?

Ankur, I don't think it is possible to be able to comment on it because these things are developing stories.

So sir, where I was coming from was, the existing products have been doing decently well for us, but is there a scope that the incremental products, probably, are much more bigger in terms of size and potential, while the other -- while the earlier ones, the existing ones also going, but is there a scope of a scale difference there going ahead? And I'm trying to jell this with the higher CapEx that we are doing as well.

So Ankur, again, you will come to know the new CapEx numbers probably in the Bay Board Meeting, which will be announced. But again, typically, we keep doing, let's say, INR 50 crores, INR 100 crores of small CapEx-es, which are value accretive. Now when I look at it from a new product and an existing product perspective, maybe 20% to 30% on a 3-year basis -- rolling basis could be new product versus existing products. Some of the existing products or new products will become existing products in an 18-, 24-month time frame. So that's how we would look at it.

Okay. Okay. That's helpful. Sir, just one last thing. On the TTB side, while in the earlier quarter also, you had mentioned that there is a lot of inquiries coming in and we have seen a ramp-up further in this quarter. Is this the peak number that we have achieved both in terms of revenue and margin? Or do you believe there is further scope going ahead?

So again, I would say that we are doing a lot of debottlenecking, given where we are in terms of the demand. We are doing a lot of work on noncapacities, which should augur well for the future in terms of existing capacities being ramped up. Our, let's say, twisting, weaving capacities, plus the stitching capacities are already in place. Yarn was a bottleneck. We've done a 400 tonne per month yarn debottlenecking, which should actually -- probably be happening as we speak. To that extent, there will be opportunities to keep debottlenecking and keep growing. But like we have always said, you won't find us putting up a 20,000 tonne plant or a 50,000 tonne plant.

The next question is from the line of Amar Maurya from ALFA Accurate Advisors.

Sir, my first question is on the Chemical business. And largely on the R gas side. I mean in -- because of the COVID, like you indicated, the R gas was the highly impacted business in terms of the COVID. So in R gas, like OEM business or the replacement business, which has got impacted more?

Both. Both. Replacement market is almost as we are 60% of the overall HF market. So first quarter, we saw replacement market completely going away, right? So both are impacted. It is now starting to come out of it. So when I said, if you would have heard it, I would have said that the volumes are much higher, right? But again, from a revenue perspective, flattish. Again, there is a certain seasonality that is in built into the business. You will always find Q3 and -- sorry, Q4 and Q1 to be much better quarters because of the seasonality.

Correct. Correct. Correct. So sir, in terms of the recovery perspective, I mean, whether the replacement market is recovering faster or the OEM market is recovering faster, because given the durable numbers, it seems that the OEM market is doing better?

Yes. But the replacement market is a larger market. And probably Q1 is when we see the much larger impact on the replacement market because that is when the season kicks in. As of now, what you are saying is right, Amar, that the OEM market is doing very well for us, but the replacement market has also started to kick in. We will see the result of that in Q1, not Q4 also.

Okay. Okay. Perfect. And secondly, sir, in terms of the new CapEx, whenever you come for the Chemical business...

What are you talking about? Are you talking about fluoro or you're talking about spec?

Specialty. Specialty. I mean we are looking to do a large CapEx in Specialty Chemical, right? So in terms of that, I mean, whenever we do, I mean, is it fair to assume that this time the absorption of the CapEx would be much faster because now the momentum -- given such that the momentum of the business is very high? And secondly, can we also see a better fixed asset turnover ratio into this new CapEx?

Again, Amar, I would only say this in this manner that when you look at Chemicals as a business, the -- there are different challenges that come through. When you are looking at, let's say, doing it at a smaller scale and commercial scale, so the ramp-up, there is -- yes, there is momentum. There is positive that, let's say, momentum that has built up. It should help us in taking on new products and new campaigns. But when you do a commercial scale plant, there are challenges also that come through. The positive on our end is that we are -- we, because it's our own technology, are able to solve those challenges. In some cases, it takes us more time than we initially anticipated. But we are able to solve that on our own, which gives us multiple positives in terms of cost advantages and in terms of, let's say, product ability to sell to various multiple customers.

Correct. Correct. Correct. No, my only point was to understand is that like the kind of ROCs we probably will generate in the newer CapEx, is it going to be better than probably what we had generated in the initial times of the Chemical business or the Specialty business?

Amar, I would say the same thing. As long as I am doing more CapEx, my ROC numbers remain slightly suppressed because of these ROC works, right? So to that extent, as of now, the focus is to remain on a growth path. The focus is to juice all the assets. The focus is to do new products and get a better engagement with customers and not necessarily ROC, but given the fact that there is a new base that has built up, ROC should technically be improving on a continuous basis.

The next question is from the line of Udit Sharma from Investing Hut.

Rahul ji, congratulations for clocking good set of number. I mean most of my questions are already answered. I have only 2 questions. I'll quickly summarize my questions. So I mean, my -- the basic question is like we are clocking a strong set of margins in Chemical and Polythene business. So what do you think, I mean, it will continue going forward or it will increase? Because when I was reading commentary yesterday from Ashish sir, so he has written that we are cautiously optimistic. So is there anything -- I mean, we are worried about anything in upcoming quarters?

Cautiously optimistic doesn't mean, Udit, that there is a negative trend around. Cautiously optimistic is also a way of saying that we are looking forward to a positive going ahead in the next quarter as well. Now whether there is increase in margins of one of the businesses, I'm not in a position to comment on that because there is -- let's say, we've also commented that the Packaging Films business will probably see pressure on margins. And you would have read that as well.

Yes, yes.

So hopefully, going forward, as we said, and if you look at each business on an individualized basis, there seems to be more positive than negative. So that's why he said that he's cautiously optimistic.

Okay. Okay. So might be I confused about it.

The next question is from the line of Abhijit Akella from IIFL.

Just 2 questions from me. First on the Packaging Films business, there is a quarter-on-quarter moderation in revenues. I was just hoping to understand whether this is entirely because of prices or whether there has been some volume impact also because of maybe some kind of logistical disruption or the resin plant coming up in Thailand. Is there anything like that? And second, on the Hungary plant and the new Thailand plant that have come up, by when do we sort of expect them to reach full utilization?

So on the Packaging Films business, what we have seen in terms of the revenue drop Q-on-Q from, let's say, about INR 830 crores to INR 800 crores, it's a INR 30 crore drop. What I can tell you, Abhijit, that the volumes overall have been positive and the impact of this that you see in terms of the EBIT is roughly again about INR 30 crores, which is also because of the lower margins. So 2 things: one, the margins are lower because of, obviously, reduction in price, which I had already indicated, is something as a trend that we are seeing going forward; and the volume positive has also come through in this. What I can also tell you with respect to the Hungary plant is that, yes, there is a ramp-up that is happening. We do believe that in the next couple of quarters or a few months, we should see a positive on that side also, given the fact that as vaccinations go through, the travel restrictions ease, people will be able to travel and ensure that, let's say, the sales pitches are made appropriately. Thailand, yes, it is almost ramped up to good capacity. What should come through in Thailand is when the resin plant starts to kick in fully, there should be a margin positive that should come through there as well.

Okay. Understood. That's helpful. And the second question I had was on the Chemicals segment. Could you just roughly help us understand what the capacity utilization is in the Refrigerant side right now on the expanded capacity? And second, on the Fluoro-Specialty side, should we expect continued quarter-on-quarter growth in that business regardless of any seasonal kind of impacts?

Your first question is the capacity utilization of the Fluorochemicals business and mostly on the ref gas business. What I can tell you, exiting December, almost all the capacities are today full. Like I said, the productions have gone up. There is the positive that is developing on each gas overall and some of it is also being inventorized for the future. So that's the position in terms of the capacity utilization, exiting December. And again -- I am warning you again, it is exiting December, not for the full year. It has had the impact of COVID during the first 2 quarters. What was the second question, Abhijit? I've missed it.

Yes. On the Fluoro-Specialty side, just to check whether we should continue to expect quarter-on-quarter growth going forward of the high base that we've already seen in the last couple of quarters.

See, I don't look at quarter-on-quarter growth. I had said this earlier also, we will always keep facing, let's say, demand from customers where certain products are -- which are -- which were to be supplied in the future has to be preponed and for certain products, which are to be -- let's say, which we had planned for, get supplied later. We will always keep facing that. Therefore, there will be the -- let's say, some volatility in the growth number that will come through. Like for this year, you will see a much larger growth number than what we had initially expected. And some of that, we will probably be running from our next year's growth, which will come through. So that's something that will happen. On an overall basis, I do believe that there is potential for the business to grow between 15% to 25% on an annualized basis, that's something that is pretty much possible.

Just -- if I may just clarify the first response you gave on the Refrigerant side. So when you're saying full utilization, this is on the expanded capacity of 45,000, 47,000 tonnes across all products, right? And so in that case, I know we had expressed this target of doubling revenues in that business over the next 12, 18 months. Given that we are already hitting full utilization, can we assume that, that target is kind of being pulled forward a little bit?

Revenues are a function of the period that you are working with, Abhijit, right? So next 12 months, the ref gas revenues, given that the production should ramp up fully, we should see larger numbers there. No doubt on that.

The next question is from the line of [ Bhavik Shah ] from Arihant Capital Market.

Yes. Most of my questions have been answered. Sir, there's one question which I have is on the debt side. Sir, any guidance for a long-term perspective, how do you see your debt going down?

So again, I think I am at a good debt number today, right? When I look at my key leverage ratios, be it debt-to-EBITDA or be it debt-to-net-worth, I think I had a very good number today. I would probably be happier seeing a position where my CapEx numbers grow up very significantly. And therefore, if I have to take some debt, I keep taking that. But from an overall perspective, I think debt-to-EBITDA in the range of, let's say, 1.5 to 1.75, I should be in good shape.

The next question is from the line of Naushad Chaudhary from Systematix Shares.

A couple of clarifications, sir. First on the Textile business, you have answered 2x. Apology if I'm repeating it again. So as I see, the margin of Textile business is almost all-time high and at the revenue run rate of around only INR 360 crores. So in the history -- historically, we have done around INR 550 crores of run rate in Textile. So if we can -- if we go back to those run rates...

What is run rate? On revenue?

Yes.

Naushad, I've said this multiple times. Revenues in the Technical Textiles business are always a function of the price of key raw materials.

No. Sir, the question is not yet completed. So I'm just trying to understand the margin which we have clocked today despite not having any benefit of caprolactam and there was some suppression in the anticipated spread also. So can we see -- if the utilization goes up, can we see further improvement in the margin from this level in Textile business? Or was this just a one-off kind of -- or the margin should remain at this level despite increasing utilization?

I'm not commenting on the margin level of the business. Again, like I said, because of the fact that there is a variability on, let's say, the price of lactam, which has an impact on sales, which is also an impact on the businesses overall, let's say, EBIT number. When you look at this year, we have seen a lower EBIT number going overall because of the COVID impact. As I said earlier, the fact is that there is multiple debottlenecking opportunities that have happened, some that have already happened going forward. We do see business in a stable position going forward as well. And even for that matter, in a better position going forward. I'm not commenting on the percentage margin as such.

Okay. Second one is on our -- the product R-467A, which we had launched I think last year. Have we started dispatching this product? What is the response from the client? Any comment if you want to make on this?

Yes. Some dispatches have happened over a period of time, largely into the Middle East. But it is a product that is more for the future, which will probably become a decent product going forward as well.

How do you see this product shaping up for us in next 3 to 4 years? Can it be INR 100 crores, INR 200 crores of product for us?

I don't comment on the revenue potential of a product.

Okay. On the spec chem side, sir, would you be able to quantify how much capital so far we have deployed in this business, Fluoro-Specialty Chemical business as of today?

Roughly about INR 2,100 crores in terms of the gross assets that we have put on this.

Okay. And out of INR 2,100 crores, how much we would have added in the quarter gone by in the third quarter of this financial year?

Nothing significant.

Okay. Lastly, on the Packaging margin side, sir, again, there's a declining trend in the margin. Any quantitive number, which you would like to say at this number it should get settled down or some commentary on the margin side?

To be very frank about it, I see that there is a Q-on-Q reduction in margin. This is something that we had commented on earlier also. There is some -- more pressure on the margin, but I can't give you a gross number on the margin year-on-year because of the key fact there is, let's say, an impact of the price of key raw materials here as well, [ BT ] or MEG, which are monetized.

Okay. Lastly, on the CapEx, which is in the pipeline for Packaging business, our BOPP plant in Thailand and Indore, would you -- are these CapEx on schedule? Or do you see any delay in these CapEx -- Thailand CapEx of 3...

We don't see a delay. In fact, the team is working on putting up these plants well in time despite the COVID impact. I think BOPP is scheduled to commence in June -- or June of the Indore facility. We scheduled to commence in June, July of -- no, sorry, the Thailand facility is June, July. And the same June-July is '22 is for the BOPP facility in Indore.

Financial year '23, right?

Yes, calendar year '21-'22 means '22-'23.

The next question is from the line of Rishita Raja from PhillipCapital.

Sir, I just wanted to understand that...

Ma'am, a little bit louder. I'm unable to hear you, please. Hello? Hello?

I'm sorry about that, sir. The next question is from the line of Rohan Gupta from Edelweiss.

Sir, first question is on this impact on our ref gas business because of the rising fluorspar prices. I think they have gone up by almost 3x to 4x in last 4 to 6 months period and are still continuously rising. So any impact do you see that our ref gas business is going to see? Or you are in position to absorb all the input cost increase, which is going to happen?

Again, Rohan, I don't see that fluorspar prices rising 3 to 4x. I don't think that has happened.

Okay. So you see that fluorspar prices have not gone up and they are on a flat trend?

I think that fluorspar prices have gone up, but not as much as 3 to 4x. Whatever they have gone up, we've been able to, let's say, manage with the existing, let's say, prices. And again, when I look at it, the overall impact of that on my overall Specialty Chemicals business because fluorspar does become a key raw material in terms of the usage of fluorspar, HF and related products. But I don't see that having a very large impact on our margins.

Okay. And sir, extension on this from the previous question itself, from the previous participant, when you said that ref gas capacities, definitely, we are now close to 45,000 to 48,000 tonnes, including all the gases. So earlier, we were talking about roughly 3 years -- or 2 to 3 years for achieving a full utilization and ramping up the -- doubling the revenues in next 2 to 3 years. Do you see that in the current scenario? And it -- like that you are giving -- I was not very much clear, but you are saying that over next 12 months to 18 months, you are going to achieve the full utilization of this ref gas plant. Is it right to assume, sir?

So as I said, Rohan, as of now, we are seeing exit capacity, which is kind of fully utilized. We will probably see better utilization of the capacity going forward as well. Hopefully, in the coming 3 quarters, we will probably have gone to full capacity utilization.

So sir, we have already added the capacity right now, right? We are right now working on 45,000 tonne capacity. And you are saying you are already at full utilization. I just wanted to clarify that.

45,000 tonnes is coming from -- give me a minute. Are you including R-22 also in the capacity?

Yes. Yes. Yes, including all the gases, sir.

Rohan, look at HFCs only, which is roughly about, I think, 30,000 tonnes -- 30,000, 32,000 tonnes.

40,000 tonnes.

35,000 tonnes.

HFCs, okay?

Yes. All the 3 put together. See, because 22, in any case, when you look at it, it's something that is probably -- so the advantage that I have on 22 is that I'm using it for own captive.

For own captive consumption. Okay.

Right? And 22, as a product, is now selling for other uses also, be it pharma and other types of uses as well. So the ban on 22 is more from the perspective of it being sold as a refrigerant.

So when you are talking about HFC, 45,000 tonnes total capacity, you are excluding R-22 because it's going to be used for captive purpose?

Correct.

Right. And this 45,000 tones utilization, you are saying that we are going to achieve full utilization in next 12 months?

[Foreign Language] 12, 18 months.

Okay. Okay. Sir, second question is on the Chemical business, Specialty Chemicals. So now, sir, after the successfully raise of the money in last quarter, you mentioned that you have increased the CapEx guidance from almost INR 1,200 crores to INR 1,300 crores to INR 2,000 crores this year and also INR 2,000 crores for next year.

[Foreign Language]

Sir, INR 1,750 crores [Foreign Language] mid of that. So even in that CapEx, do you see that there are enough opportunities to be invested in Agrochemicals, Specialty Chemicals only? Or you have to go in or venture into pharma also to consume this kind of CapEx? I mean are there enough opportunities in Agro or you have to venture with other segments?

We put it recently, Rohan. As of now, the CapEx-es that I have already announced, the CapEx-es that are on the ground, right, almost for -- and the cash to be spent on those, for FY '22, right, '21-'22 is almost about INR 1,200 crores to INR 1,300 crores. That's something that is already in the pipeline, which I have already announced. My sense is that we will probably do another INR 300 crores, INR 400 crores, which will get you to that number of INR 1,500 crores, INR 1,700 crores. So most of these in the spec chem business will currently be focused on agro. I am -- as I said last time also, I'm not looking to cannibalize agro opportunity for one, the pharma.

The next question is from the line of Madhav Marda from Fidelity International.

I just had a couple of questions. One was, we've heard this, news flow around, like something, duty being imposed on refrigerants in India. Any thoughts around that by when it could come through and then the likely impact it could have for our profitability?

You are talking about duty-free import of what? I didn't get your question, Madhav.

No, sir. My question was that there was some news flow around government imposing antidumping duty on some of the refrigerant gases, I think R-32 and one more variant, I'm forgetting which one. For them, there is an antidumping duty likely to be imposed, right, in India?

There is a lot of chat around this. But we've seen in many cases where, let's say, the duty has been recommended by DGFT, but the Finance Ministry has not imposed it. If that comes through, it should be a positive.

Okay. Got it. And my second question was, because of this rise in freight rates and container availability was a challenge last quarter, because of that, did we see any challenges in us meeting our sort of delivery schedule in the sector or our operations are largely not affected?

See again, while there -- there is, let's say, a higher cost of freight that we are meeting, our key intent remains to deliver to the customer on time. And in some cases, the costs get renegotiated and we share the cost. But based on whatever, let's say, the freight rates are, I'm not going to let my customer go away.

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

Congratulations on the Syngenta Supplier Award. So I actually had a question around that. So is it -- was SRF the only one who got this award or how was it? And what were the attributes that were probably considered while you guys got this award?

So Tarang, you are asking a technical question. I will have to check back with businesses. But 2 things that I can tell you on this is that this was a performance award that was given by Syngenta. Out of, let's say, about 300 to 400 suppliers, we were selected as one of the, let's say, key partners for them for doing business with them and being innovative enough. So that's something that they valued enough. And what were the key attributes? I will have to check up with the business in terms of what they were. What I can also tell you is that this is not the only award that they give. They have about 5 or 6 categories. This is one of the categories for which we have got it.

Okay. And the second question is, sir, generally, when you supply your goods, is it on CIF basis, FOB basis?

Various products, various customers, it depends on the contract with the customers. It's -- let's say, my packaging solution, if I'm selling to U.S., it would be a different methodology for my -- for Syngenta, which is purely ex works. So it depends on customer to customer and his arrangements in terms of transporting the product within the country.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Rohit Sinha for closing comments.

Hello. I think we can hand over to management for the closing comments. If anything is there?

Yes. Thanks, Rohit. I hope we've been able to answer some or at least, if not all, some of your questions. If you do have any further questions, we would be happy to be of assistance. We hope to continue to have your valuable support as we move ahead. On behalf of the management of SRF, I once again thank you for taking the time to join us on this call. Thank you very much, guys.

Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.