SRF Limited (503806) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to SRF Limited Q4 FY '21 Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ranjit Cirumalla from B&K Securities. Thank you, and over to you, sir.

Yes. Thank you, Stanford. Good afternoon, everyone. Thank you for joining us on SRF Limited's Q4 and FY '21 Results Conference 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 for SRF's con-call. Over to you, ma'am.

Good afternoon, everyone, and thank you for joining us on SRF Limited Quarter 4 and FY '21 results 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, 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.

Thank you, Nitika. Good afternoon, everyone, and I extend a warm welcome to all of you and thank you for joining us today on SRF's Q4 and FY '21 earnings conference call. I trust you, your families and colleagues are safe and in good health in these unprecedented times. The second wave has hit our country hard. And I only hope that the situation will begin to plateau out from here, both from an individual wellbeing and an economic sustainability perspective. 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 for a 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. Amidst the second wave of COVID-19, our primary focus has been on ensuring business continuity, considering all the relevant guidelines, as well as taking appropriate actions for the safety and wellbeing of our employees and communities around our plants and offices. The health and wellbeing of our employees and our communities is of paramount importance to us, and we remain focused to help them in all possible ways. Overall, we have ended the year on a strong note, with SRF delivering robust performance in Q4 FY '21. The Chemicals and Packaging Films businesses have been exceedingly well and were supported well by our other business. In Q4 FY '21, gross operating revenue increased 40% Y-o-Y to INR 2,608 crore, and EBITDA grew 64% Y-o-Y to INR 647 crore. The company's profit after tax, PAT, increased 96% from INR 194 crore to INR 381 crore in Q4 FY '21, when compared with corresponding period last year. Let me now take you through our segmental performance. The Chemicals business delivered a robust performance during the period under review. In FY '21, our Chemicals business has displayed a robust growth of about 23% year-on-year to achieve record revenues of INR 3,645 crore. During the quarter, our Specialty Chemicals business has performed exceedingly well, led by higher demand from overseas markets and increased volumes of few key products supplied to our major European customers. Throughout the year, we expanded our products and added various new products to our Agro and Pharma portfolios. During the quarter, SRF commissioned 2 dedicated plants to produce agrochemical products. On an expanding revenue base, the company remains focused on cost-cutting initiatives and process improvement initiatives to maximize asset utilization and margin profile of the products. As we grow our revenues, we plan to continue investments in this segment to sustain healthy growth rates over the next few years. We believe this is commendable owing to notably higher base. In this regard, I am also pleased to share that the Board of Directors has approved for setting up a fourth multipurpose plant at a cost of INR 375 crore. Dahej site comprising of 3 existing multipurpose facilities that have enabled the business to launch new products successfully. These facilities have now approached almost full capacity utilization and [indiscernible] original site to add higher capacity multipurpose facilities that could cater to both technically superior products and higher commercial quantities. As the business is growing, it is essential to optimize such facilities to capitalize on emerging business opportunities. With an expanding product portfolio, a new multipurpose plant facility will further support our endeavors to tap emerging business opportunities and ensure a robust pipeline of new products in the future. Similar investments, alongside improved efficiency and optimum utilization of capacity, should enable us to deliver operational excellence and results even in better performances moving forward. The Fluorochemicals business registered a strong performance led by significant volume of refrigerants in both domestic and international markets. During the quarter, higher contribution from chloromethanes enhanced the overall performance of the business. SRF continues to expand its domestic market share of HFCs and the Dymel brand has initiated exports to various countries. With the resurgence of COVID-19 in its second wave, we have seen return of local lockdowns and restrictions enforced by local authorities in some jurisdictions. This may have an adverse impact on the business performance in the short term. In the medium term, however, with vaccination drives being carried out across the nation, we anticipate normalization in economic activity, leading to healthy recovery in demand from both the auto and the air conditioning segments. Moving on to our Packaging Films business, which registered an exceptional performance during the quarter, with both domestic and international facilities delivering robust results. In FY '21, our Packaging Films business has displayed a robust growth of 26% year-on-year to achieve record revenues of INR 3,292 crores. [indiscernible] operating leverage, better margins and strong dividend from marquee customers across the globe have helped SRF establish itself as a renowned player in the global packaging industry. Healthy contribution from value-added products has further aided growth. On the domestic front, civil work for SRF's new BOPP Line & Metallizer at Indore is progressing as per schedule. Similarly, SRF's first BOPP Film Line in Thailand will be commissioned in the upcoming quarter. Our recently commissioned Hungary facility is now also anticipated to ramp up to maximum capacity in the coming months. Moving on to our Technical Textiles business. The business reported an encouraging performance aided by a quick recovery of the tire industry. Customers continue to favor domestic supply owing to supply volatility, which has resulted in import substitution. In Belting Fabrics, our focus has been on customization of fabrics required by our customers from time to time and deliver products in time for their needs. Lastly, in our Other segment, SRF continues to maintain its market leadership in the coated fabrics business with a high-volume share, driven by improved sourcing initiatives and plant efficiencies. Despite the lockdown the Laminated Fabrics business performed well. SRF Semi Hot product has been very well received in the market, and we are seeing increase in its volumes. On the other hand, due to severe oversupply situation, margin pressure is expected to continue for some more time in the segment. Moving on to our balance sheet. In FY '21, SRF's sustained liquidity -- was able to sustain liquidity across several term provisions, money market activities and debt management, while ensuring a healthy balance sheet position. Our net debt position was lower by almost INR 1,000 crores when compared to FY '20. This is despite continued investment in CapEx and higher working capital requirements on account of new plants starting up. The balance sheet saw 33% reduction in its interest costs at a consolidated level on account of lower volumes as well as better rate negotiations. During the year, volatility in exchange rates, especially in [indiscernible] markets remains very high. However prudent hedging and risk management strategies have been put in place to minimize the impact. The liquidity position of the company remains strong, and recently, ratings of the company have been reaffirmed by all the rating agencies. Our capital expenditure plan for the ensuing financial year are proceeding well and sanctioned capital expenditure plans and those that will be sanctioned during the year will probably require an additional cash allocation during FY '22 in the range of INR 1,600 crores to INR 1,900 crores. While mostly, these will be funded by internal accruals and cash generation, some additional debt may be required to fund this, which could range from INR 200 crores to INR 300 crores over the year. Despite the above, our balance sheet remains strong, and pretty much underleveraged to encash on the other opportunities that come through during the year, which we remain open to. It is gratifying that we continue to garner recognition for our work and various other initiatives. Recently, SRF Packaging Films business facility in South Africa has been restored the 5-star rating for occupational health and safety from British Safety Council. 5-star operational health and safety audit by British Safety Council is one of the most comprehensive, contemporary, quantified audit processes available anywhere in the world, and is a testimony to our strong commitment towards maintaining the highest OHS level across our facility. At SRF, we care deeply for our people and communities that we operate in. During the quarter, SRF Foundation organized a 9-day free eye screening camp in association with the Vision Institute, benefiting more than 1,500 people, living about 9 villages in Mewat, Haryana. SRF Foundation also installed digital classrooms in 50 government schools across Mewat, Dahej and Bhopal. SRF's Technical Textile Business facility in Gummidipoondi, Tamil Nadu, awarded scholarships to students from marginalized communities. In view of the current crisis, as far as Packaging Films business in Indore, Madhya Pradesh, donated oxygen concentrator -- concentration machines and vital drugs to the Dhar district administration. We are humbled that our initiatives in the CSR space have been recognized from time to time. During the quarter, SRF Limited was awarded CSR Best STEM Education Project through partnerships, Large Impact at the 9th India CSR Awards in January 2021. To conclude, we remain optimistic about our future growth and the market opportunities presented by each of our businesses. We continue to evolve at a steady pace as the international and domestic operating environments strengthen. Our investments in world trass infrastructure, qualified personnel and unparalleled R&D capability have led us to this position. With a solid infrastructure in place and unmatched resources, we are confident of our ability to achieve positive outcomes and create value for all of our stakeholders in the future. On that note, I 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 Q&A session. Thank you very much.

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

Two questions on the custom synthesis. Before that, congratulations on a good performance -- on all around performance. So on the custom synthesis, currently, how many molecules are in early-stage growth stage and the maturity stage, either in terms of number of molecules or a percentage of our current basket?

Rohit, the -- I would say, typically, at any point in time, there are about 50 to 60 molecules that are in various staging of development. At this point in time, I would say there are about 60, which are there in various stages, some which are at lab scale, some at pilot plant scale and some at -- in the kilo lab and various other states. Typically, what we've been able to do over a period of time, Rohit, is get to at least 2 or 3 products, new product launches during the quarter. I suppose this is something that can continue for the future, and hopefully, add more value going forward as well.

That is helpful. Another concurrent question to this is in terms of the commercialized molecules, in their product life cycle, how many of them would be in the early stage and growth and maturity? So we may be having a certain basket of, I don't know how many molecules, but they have come -- they've been commercialized maybe 5 years back, 7 years back or 2 years back. So how many of them would be in these 3 stages?

So, Rohit, at any point in time, we would be by selling almost 15, 16 products, let's say at any point in time, I'm talking about the quarter-on-quarter position in that sense. And in some cases, what we have seen is that the products that are being sold are largely those that are [indiscernible] the products are does that have to multiple on or products that are being sold out of our multipurpose plants. And the balance are more, let's say, normalized products, products that we've been selling for a long time. So that's how we would look at it. Let's say, 20% -- from 20% to 30% from multipurpose plants and the balance would be a lot more dedicated and more products that we've been doing for a long time.

[Operator Instructions] The next question is from the line of Ankit Gor from Systematix.

Rahul, my question with regards to Chemicals, wherein this quarter, we have seen good volume from refrigerant as well as chloromethane has also done better. I have a second, have done, do you face any capacity there? Why I'm asking this capacity concern -- why I'm asking is because we rely see Y-o-Y, there is a growth of 13%. And if you adjust for that 15-day loss last March, there's a growth of 10%, roughly 10% to 12% in Chemical. And obviously margin side, we have done much better there. So any color on there? If you can give some details that will be helpful, Rahul.

So I would typically say, Rohit (sic) [ Ankit ], on that Specialty Chemicals performance for the year has been a very, very encouraging performance. The overall revenue of the Specialty Chemicals this year have been in the range of about INR 2,300 crores, INR 2,300 crores, INR 2,350 crores in total, which -- and roughly, let's say, about INR 1,250 crores of revenues from our Fluorochemicals business. Again, the first quarter for the Fluorochemicals business was pretty much a difficult quarter given there were -- given the fact that there were lockdowns that were imposed. And first quarter last year -- and typically, first quarter is a very good quarter for the Fluorochemicals business. It had a kind of a negative impact on the Fluorochemicals business. But when I look at it, Chemicals business as an overall performance, I still see from a margin perspective, from roughly about 17% EBIT margins to almost 20% EBIT margins from a year-on-year basis as well as about 600 basis points EBIT margin expansion on a quarter-on-quarter basis. Again, I would also like to point out here that in the Specialty Chemicals business Q4 was a very good quarter for us, given the fact that we were selling you some of the very high value-added products. Some of those will probably come through a bit later in the future. But yes, the overall performance of the Specialty Chemicals business has been a fairly robust one during the year.

Okay. And what is your guidance for pet-chem, at least, for FY '22 and '23?

Well, I would really keep my guidance down to FY '22, actually as of now, and then you a more generic statement in terms of how we look at the Specialty Chemicals business. We believe, even this year, despite the strong base that we have developed, a 10% to 15% growth in Specialty Chemicals is pretty much possible. Given that we have new capacities that have been added. Some of those are ramping up going forward, given that we've seen global agrochemical markets being fairly robust. The Indian Specialty Chemical market being -- becoming very, very positive, our plants almost stabilizing to much better levels, almost all the capacity utilizations being full. Given all of those as facts, we believe a 10%, 15% growth even this year is a possibility in the Specialty Chemicals business. I would also like to add that some of our new orders are also kicking in, and that should add as a positive going forward.

Sir. Lastly, on our CapEx side in pet-chems, currently [indiscernible] 2 dedicated plants, which...

Your line broke, please. Could you repeat, please?

Hello? Am I audible now?

Yes, please, go ahead.

Yes, Rahul, my question with regards to CapEx is currently, we have 1 announced, which is recently announced MPP 4 and 2 dedicated plants, so apart from these, any other CapEx we have in pet-chems announced and not yet come...

I would say -- so these are large projects that have been announced, which require Board approval. At any point in time other than these projects also there are about INR 100 crores, INR 150 crores of CapExes, which are much smaller value-add CapEx and CapExes that have, let's say, a very, very strong IRR possibility, a very strong possibility in terms of growth opportunities that they offer. In some cases, some of the CapExes that we keep doing, our CapExes of the nature where, let's say, the cost measures that can be brought down in terms of the product costing is something which is very, very significant. And those will keep going on. So that's something that is going on currently and will be going on going forward also.

The next question is from the line of Atul Tiwari from Citigroup.

Yes, and congrats on a very good set of numbers. Sir, just breakup of CapEx...

Thank you, Atul.

Yes. So this CapEx that you have guided for INR 1,600 crores to INR 1,900 crores in FY '22, would it be possible to give a rough breakup of this CapEx across segments, across 3 segments that you have?

Yes, I can give you a rough breakup. I think overall, 70% of this CapEx is -- 60% to 70% of this CapEx will be in the Chemical business, given the fact that we are doing the PTFE, the chloromethane expansion is going on, the R-22 part of the thing is going on, the 32 expansion is going on, the expansion on products in Specialty is going, there are various other small CapExes going on. There is the water security CapEx that is going on. So all of these put together, I think today -- and again, the INR 375 crore CapEx announcement, which is a 14-month CapEx, major portion of that will have cost incurred during this year. I think about 60% to 70% would be Chemical business, I may be off some bit here, Atul. There is a BOPP CapEx going on in Thailand and in India. And then there are various small CapExes that are going on in the Technical Textile business, that'll get into on INR 100 crores or INR 150 crores. So that's something that is going on. When I say INR 1,600 crores to INR 1,900 crores, it includes, let's say, INR 200 crores to INR 300 crores of CapExes that has still not been announced, which will get announced over a period of time, Atul. So I'm including that as part of the Specialty and including -- or the Chemicals business, when I'm saying the overall CapEx number.

Yes. Okay, sir. Very clear, very clear. And sir...

[indiscernible] okay?

No, no, sir, that is quite good. And sir, on the Packaging Films business, would it be possible to give an idea of capacity utilization on currently commissioned capacity, including the Hungary plant? I mean are we close to like 90%, 95% or lower than that?

So each plant is different, Atul. Our Indian capacity is completely utilized. Thailand capacity, let's say, somewhere around it. And when I'm saying currently, I am talking about exiting March because it is very difficult to give you an overall picture of the capacity utilization through the year, right? So that's why I'm thinking exiting March, our India capacity on BOPET and BOPP is fully utilized. Thailand, all the old lines are fully utilized. The BOPET is, let's say, about 70% to 80% utilized. The BOPP is to come in, which is probably be June next year. Hopefully, in the next 6 months after it's commissioning, it will also be fully utilized. Hungary capacity is probably about 75%, 80% utilized. South Africa is 100%. I suppose I have covered every location that we have.

Okay. Great. And if you allow me one last one on your guidance. So obviously, your Chemical business has been doing very well. But in that light, the guidance of 10%, 15% growth in FY '22 in Specialty Chemical does look a little bit of on the softer side, especially compared to your own track record? Any color on that?

So Atul, I would say 2 things. You know that this year is the Specialty Chemicals business, the growth has been pretty much phenomenal, right? Almost INR 2,400 crores of revenue as against INR 1,650 crores of revenues last year is a growth of about 45%, that has come through. The -- overall, I would also say that during Q4, we had a lot of products that were high-value products, that were kind of batch products that was what we sold out. And those were sold during the quarter. So there has to be some tapering in terms of the revenues for those types of products that will come through, right? And therefore, we are saying if we normalize this, we are looking at 10% to 15% growth, given the fact that almost every plant that we today have is there at full capacity or at least, let's say, more premium capacity utilization have come through. We are adding new products, we are adding higher value molecules. We are also adding new products and the MPP that will come in. And all of these will add value going forward, where we will see positives in terms of both revenue and margins coming in. But at a INR 2,300 crore, INR 2,400 crore base, I do believe that 15% or a 10% to 15% number is still a very decent number, Atul. And again, [Foreign Language] you will have to live with a slightly smaller number this time.

No, no, sir, especially on a strong base, it is quite okay.

Absolutely. I think that's what's very, very important to understand, Atul.

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

So first of all, many congratulations on such a robust performance. Sir, I wanted to understand on the Spec Chem, again, like, see, this new INR 375 crore plant also we are setting up. So are we kind of signing up nonfluorine molecules also? And within fluorine, are we looking at now adjacent markets?

So the 2 questions that you've asked is, Chintan, 1 about nonfluorine and fluorine. Again, we've said this in the past and we are saying it, it is not purely fluorine that we are looking at today. I think the complexity of the molecules and the way this new plant is being set up -- again, think of it this way, Chintan, that for a INR 375 crore plant to be setup is a 14-, 15-month time frame is in itself was very, very big achievement. This is a plant, multipurpose plant that is of a much, much larger technical superiority than the other -- earlier MPPs that we have. It has capacities that are much higher than existing MPPs. It can cater to much larger commercial quantities going forward, right? So all of those things are positive. And we have said this in the past that we are not limiting this to fluorine. Anything that is a complex chemistry, we are willing to do, fluorine or nonfluorine. So I hope it basically clears.

Got it. Got it. So I was trying to understand which are the -- yes. So I'm just trying to understand which are the other adjacent markets that you would be looking at? Like would it be fluropolymers or pharmaceutical where you are getting all those...

See, fluoropolymers today -- Chintan, fluoropolymers today comes under the Fluorochemicals business. We are already doing the PTFE piece, right? That project is still -- that is going on. That's there. Within this, there will be various agrochemicals and pharmaceutical products, which either are an extension of an existing product or, let's say, an active [indiscernible] or existing nonactives, which are to be, let's say, my customer requires a better-quality product or a product which is, let's say, forward derivative of an existing product. So all of those are happening here.

Sure. And sir, could you share the utilization levels of refrigerant gas?

What?

Hello? Could you share the utilization level of refrigerant gas at our facilities?

So exiting March, almost everything was fully utilized, be it 32, 125, 22 or 134a for the matter. But there have been technical challenges that we have seen in some of the products. There were startup issues that came in after the lockdowns in March and April that had happened. Also, we are having a very large catalyst change coming up in the 134a, which will, one, increase our operational efficiencies in 134a, but to a certain extent, also have an impact in terms of [indiscernible] production going forward for probably a month's time, which will probably have a slight impact on the availability of 134a in FY '22. So those are the 2 things, but as of now, almost fully utilized. 32, 125 blends are running fully, full-on.

The next question is from the line of Shalini Vasanta from DSP Mutual Fund.

Sir, congratulations. This is Vivek Ramakrishnan. I had this 1 question. You had been deleveraging for the past few years significantly and even I think last year net -- the debt would have come down by INR 600 crores, given the strong cash flows. Given the CapEx, it looks like you're comfortable that you don't need to releverage again unless you have increased payout to shareholders. So I just wanted to know what are your -- whether you expect the leverage to go up or remain roughly at this level going forward? And would there be any payout to shareholders?

So's I would typically say 2 or 3 things. One, the fact that the total dividend that we paid out this time was also much higher dividend that we've been paying out in the past, that's one. Second, the key element here is to look at growth opportunity, is to look at what -- where the next level of growth is coming in and therefore, keep reinvesting back into the business. Now given where our CapEx plans are, we believe if these CapEx plans are executed fully during the year, overall, my debt, as a total number goes out slightly higher, maybe INR 200 crore, INR 250 crore, INR 300 crore higher than what we have ended with March 21 way. But I would also say that this is something that is -- that will -- only time will tell in terms of how my leverage plays out. Overall, from a ratio leverage perspective, I don't see us deteriorating very significantly.

The next question is from the line of Niket Shah from Motilal Oswal.

Sir, just a couple of questions. One on the -- again, on the Specialty Chemicals, when you guided for 10% to 15% growth for '22, just wanted to understand because this year any which ways of first quarter was dramatically impacted and some part of the second quarter. And only in the second half, we have been back to our normal growth rates or in terms of higher utilization. So if I go look at '22, the first half, any which ways it will be higher growth as compared to FY '21, so what is really putting this 10% to 15% guidance? Don't you think that is on the slightly the lower side of you know...

See, again intent to obviously a think higher numbers. The intent will be to look at more opportunities. But let's be fair about it. We are talking about a growth number which is still a 10% to 15%. The need to, let's say, grow INR 400 crores -- INR 300 crores, INR 400 crores is pretty decent from where the business size is today. So we also have to be cognizant of the fact that capacity utilizations have gone to a total level. We also have to be the cognizant of the fact that the base has grown very significantly. We have also know that the opportunities that are presenting themselves are large. But we'll take more time in effectuating out. And therefore, we've kind of said that we want to look at 10% to 15% growth. Obviously, intent from both growth perspective and margins are sustainably higher, but let's live with that number as of now.

Sure. Just -- and the other question was on the packaging side of the business, where do you see spreads really shaping up, given the fact that apart from India, other global markets have kind of really opened up reasonably and COVID cases have been coming off? So on the packaging spread. And the last question would be on the utilized -- on the -- again on Spec Chem, so assuming no capacity is coming through, hypothetically, existing capacity can give you what revenues at peak utilization?

So 2 questions. Let me first answer the Packaging Films question, about -- in terms of the margins -- so what is happening is I think is that there were new lines to be commissioned, come some in March and some in April BOPP side, some of those have got delayed, given the fact I think India has had a very large impact of COVID. Engineers that were to travel from Germany has kind of been not allowed to travel, which has an impact. So to that extent, when we were making our budget numbers, when we were looking at these, they were slightly depressed given that we knew that some new lines were starting up. That's something that is likely has had to change. We believe that for at least the next few months, things are not looking as bad as they were initially. And that's something that we are looking at. However, you are also right in saying that when I look at the international market or our European operations or the Thailand operations as well as the South Africa operations, they are looking in fairly good shape. Hopefully, all the benefit of the [ business ] that we had put up in Thailand will come through. The full utilization of the BOPP, let's say, about 9 months of this year will add to increase in volume and therefore, profitability of the Thai unit, as well as the Hungary unit ramping up fully is something that we are looking forward to. So lower spreads in India, generically, but better utilization internationally is something that should play out as the theme for [ India.] On the Specialty Chemicals side, you had asked for what is the revenue potential going forward? I still believe that as our base is improving, this year, maybe a slightly lower revenue guidance in 10% to 15%. Going forward, if we do keep...

No, sir, my question was how much peak revenues can we generate. My question was how much peak revenues can we generate from the existing capacities?

My sense is from existing capacities and not taking into account new CapExes that are [indiscernible] online today in the range of about INR 2,700 crores, INR 2,800 crores.

The next question is from the line of Madhav Marda from FIL.

So I think 1 more question on the Specialty Chemicals side, I think there's been quite a few. My question was that we are spending on that INR 1,700 crore, INR 1,800 crore CapEx about 60%, 70% is for -- on the Chemical side, which is about on INR 1,000 crores, INR 1,100 crores, could you help us understand how much of this goes into Specialty Chemicals versus refrigerants and PTFE? And I think PTFE CapEx is back on track, right? It was a bit delayed last year. So are we assuming it's back on track...

Yes. It was delayed by about a year. It is delayed about a year. I think September '22 is when it comes up.

Okay. So could you help us understand the INR 1,100 crore, INR 1,200 crore CapEx in Chemicals, how it will be split across the different segments within it?

I will have to come back to you on that total CapEx by CapEx perspective. You could write to us, Madhav, and we should give you that information separately.

Sure. And the second question was on the...

My rough sense, Madhav, is that it is probably in the range of about INR 500 crore, INR 600 crore, INR 600 crores, INR 650 crores in the Specialty Chemicals and the balance over INR 400 crores, INR 500 crores will be in the Fluorochemicals, but we will have a relook at it and come back to you.

All right, sir. And the second question was, in the Specialty Chemicals side, we've been about 80/20 between Agrochem and Pharma, is there any change in the outlook in terms of next 2 years in the molecules in the pipeline? Can the Pharma piece be higher or largely we'll maintain those shares for the next few years?

So the intent here, Madhav, is to say that there has to be another focused approach on the pharmaceutical products that we need to develop. We are looking at generating more pharma leads. We are looking at specialized pharma teams, looking at pharmaceutical opportunities. In the next 3 to 5 years, I think the share should go up. However, if the opportunities that present themselves today in the agrochemical space are the way they are, we believe both can grow at a fast pace. But we will have renewed focus on pharma, for sure.

Okay. Got it. Okay. And sir, just the last one, maybe if I can ask, the -- even if I look at Specialty Chemicals, we are spending about INR 600 crores in CapEx. And even if you assume a 1x kind of asset turns and the existing capacity itself has some more room, I mean I just wonder, given we're committing CapEx, can't the growth still be higher, considering our capacities are expanding at a pretty healthy pace?

Madhav, that is all conjectures.

Okay.

The fact of the matter is that even existing plants or new plants that are being put up will take 12 to 18 months' time to ramp up. And yes, even if you assume a 1x, a INR 600 crores number will add to revenues at a pace. But look at it INR 600 crores on INR 2,300 crores is 20% over an 18-month period. Taper it down, it comes to about 12%, 13%.

The next question is from the line of [ Dhruvam ] from HDFC Fund.

Sir, just the question back to the FCF generation and the debt increase. Sir, if I look at the consol -- the overall EBITDA this year is about INR 2,100-odd crores, say next year is plus/minus 10-odd percent, given various numbers, various scenarios. And your CapEx of about INR 1,600 crores to INR 1,900 crores. And we have a cash balance also of about INR 400-odd crores, so sir, why would the debt be higher is what I was trying to understand?

So again, I have said that at INR 1,600 crores to INR 1,900 crores, again, clearly, the way the cash flow or structured from an entity-by-entity perspective, we believe that INR 1,900 crores, there may be a INR 200 crore addition, right? So it is not that I will use the entire cash up. It is also not that the entire business scenario will change. It will remain where it is. And therefore, given, let's say, a 10% increase in our EBITDA, minus the dividend, minus taxes, minus interest and others, I -- we do believe that the differential could be in the range of INR 100 crores, INR 200 crores. So that's why we were saying that we are cash -- debt maybe higher by that much. Again, it will depend on what is the exact amount of CapEx that ends up getting done. It will depend on what is the exact amount of working capital management we are able to do and various other balance sheet initiatives that we are looking at. So all of those things will become key.

Got it. So if it's probably at the INR 1,900 crores end, probably then there will be a debt increase is probably that would be fair to say. Got it.

Yes. And again, see, the fact is it doesn't matter in terms of the exact number. But there will be an increase in my leverage base -- be it debt to EBITDA be it debt to [ net worth ] I don't think that is happening.

Yes, yes. True, true. Sir, the second question was on the -- when we were mentioning about the CapEx in the Chemicals segment, you mentioned about R22 and R32. So are there some expansions even there? I understand fluoromethane was expanding. PTFE, now we have started...

R22 is a part of the PTFE CapEx that has been put out.

Okay. So PTFE, R22 and R32 is...

[indiscernible] INR 261 crores.

Okay. Got it. Got it. And sir, 2 more questions, quick ones. Any, sir, guidance that you can give for the margins for the Chemical business for '22? The exit rate for '21 is pretty strong. So any guidance that you can give?

No, I would typically say that for the Chemicals business overall, again, I think the Fluorochemicals business will play out in terms of higher capacity utilizations, higher sales numbers from existing products, the new fluoromethanes kicking in somewhere in the third quarter or the fourth quarter, the higher sales from 32 and various other capacity utilizations being higher is something that we will look forward to in the Fluorochemicals. And given you the number guidance in terms of the Specialty Chemicals in 10% to 15%, so you can aggregate those 2 up.

Got it. Got it, sir. And sir, one last bit is, if I look at the capital employed in the Chemicals business is about...

No. I think it's better that you come in the queue, there are other people waiting.

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

Congratulation for a very good margin in our Chemical business. Sir, my question is again on the Specialty Chemical and largely from the guidance perspective. Like the 15% to 10% guidance which we are giving, is it largely because of the capacity constraint? Because I don't see any issue in the demand, right? Hello?

Well, it is difficult to answer, Amar. I would say, yes and no. Today, the way our order book is structured; today, the way our product profile is structured, I don't think there is an issue in terms of what will be supplied to the customers. The only point that I will make is that there will always be a position in terms of what can meet the growth. Now when we are saying 10% to 15%, obviously, this is something that we would look forward to. You can keep guessing whether it is in be higher or lower.

Okay. No why, sir, I'm asking is, like if I take a 3-year quarterly average revenue addition per quarter, I mean, it has been INR 200 crores, INR 130 crores and INR 160 crores. Now if we do this math, it is like INR 86 crores to INR 90 crores revenue addition per quarter, which is lowest in your historical track record history. I mean -- and kind of commentary, which I can understand that you are giving from the demand perspective and looking to the global scenario, I don't see any issue in the demand. So that is the reason I was trying to understand is it the temporary issue just because that we are operating at a higher utilization level and probably, by the time new capacities kick in, we will probably need to see this kind of revenue growth?

Really difficult to comment, Amar. I have not looked at it from the perspective that you are looking at it from an average increase in the annual or quarterly average or whatever you are looking at. Fact of the matter is that today we are at INR 2,300 crore, INR 2,350 crore annualized turnover. Given where our current capacity utilizations are, given where the markets are, given where our order book is, we have kind of worked on giving you the guidance here. Now obviously, as I said earlier, also, the intent is to do higher, to do better. But this is the best that I can do today. Hopefully, I'll be proven wrong going forward.

Okay. Because, sir, you had guided for 25 and you did 40. So now you're guiding...

You keep on guessing. [Foreign Language]

Sorry, sir?

[Foreign Language] I'm saying keep conjecting, I'm happy.

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

Sorry, I hope I'm audible?

Yes, please, go ahead.

Yes. Sure. So sir, just continuing with the Spec Chem side, now your commentary did mention that some bit of focus on the pharma side. And earlier also, you mentioned in the call that batch production, which came in the Q4, wherein which has sort of given a boost to the Spec Chem revenues further. So 1 clarification, was this specific related to pharma? And how are you looking at the pharma space? I understand you gave a commentary from a 3-, 5-year perspective.

More agro products is what I -- is what were these even in our [indiscernible] customers. From a 3- to 5-year perspective, I think the overall thought process here, Ankur, is growth level, which is higher than 15%, 20% on a generic basis given that we will keep continues to keep investing in the business, given that we will keep continuously looking at newer products, given that we should be in a position to enhance existing assets and utilize existing assets. Therefore, we believe that there is a possibility of a much higher growth that is there. But again, you've seen a larger number in terms of growth coming through in FY '21. FY '22 should slightly will be lower in terms of growth, given that, again, the way things have panned out. Whether that is something that we are limiting ourselves to? Certainly not. We do believe going forward growth can be even larger then. And what was the second question, Ankur?

Yes, yes. So commensurate to that, as referring your earlier comments, wherein we do expect a good ramp-up in ref gas, given this at least the first half of this year was slightly subdued on the ref gas side. So ref gas ramp up happening as well as the utilization scaling up on the spec chem side. Your thoughts on the overall margin front. And this is also where you did mention that there are certain continuous process improvement sort of initiatives that we keep taking on the margins front. So should 1 consider that 20% is the base here? And what sort of -- let's say, 3 to 5 years, what sort of views there are on the margin front?

I can't comment on the number. But generically, 2 or 3 things. As higher capacity utilization in the Fluorochemicals space kicks in, the operating leverage should play out and therefore, lead to much better and higher margins. As our base becomes larger, as our ability to continuously supply some of the products to our customers continuing to be there, the costs do come down, and therefore, there is a better margin play that does happen. And given that the scale is growing at a pace which is very, very significant, I think the benefits of scale will also come through over a period of time. But what will be the number is something that I can't predict, Ankur, and I don't want to also.

Sure, sir. Fair enough. Fair enough. And if I got you -- just 1 clarification. If I got your comment right on the Packaging Films, you said there are certain delays in those incremental capacities coming in because of which you believe that those favorable spreads will continue for the next maybe couple of quarters. Was that right?

I did not say a couple of quarters. That is something that you read into. But I'm saying for a for the next 2, 3 months, there seems to be some positives on that side.

And this is on the BOPET side. BOPP has been steady state?

No, I was saying on the BOPP side. BOPP continues very strong. There are new capacity on the BOPP that were coming in, those seem to have got [indiscernible] in India.

The next question is from the line [ Sujit Vora ] of from Birla Sun Life Insurance.

Sir, I just have 1 question. Regarding your Specialty Chemicals business, where all our chemical business put together, as you mentioned that the capacity are almost at full utilization, sir...

Sorry, my apologies. Your voice is not clear, if you will be talking on the handset, please. I'm unable to hear you.

I'm on the -- am I clear now? Probably some network issues.

Much better. Thank you so much.

Yes. Yes. Sir, I just wanted to say 1 thing. Since you said that all your capacities in Specialty Chemicals and Chemical business, everything put together, running at optimum utilization. Sir, will it be a right statement to make that, sir, return ratio now from this business, say, if I extrapolate the fourth quarter numbers, the return ratios on the capacities are at peak? Will it be a right statement to make?

I'm not sure what does that mean to my mind. Return ratio from an EBIT perspective is what you're talking about?

EBIT. Yes, ROCE. Say, for example, the return on capital employed, you get that number on a quarterly basis. So is it be fine to assume that the return ratio now pick and whatever we growth we get here on would be driven by largely by newer CapExes?

Difficult to say. There is still some possibility of expansion of return ratios happening from where we are. When I said optimum utilization, the optimum utilization meant most of our clients are today fully utilized. Again, these things keep changing. And when I said exit of April, sorry, exit of March is something that I meant from an overall perspective. There will be some plants that will -- which have recently been put up, which are likely to add to revenue, and therefore to the returns of the business. You are aware SC16, SC17 we had commissioned in the last 31 number, right? So those will be there. The new MPP will come through. There are certain other cost measures that we are taking, which will have a positive. So all of that will happen. And I would not say that we've reached the peak. Hope it explains it, I am not sure.

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

So thank you, everyone, for joining us on the call here. I hope we have answered some of your questions. If you do have any other additional questions, please feel free to mail them to our team. Whatever is in the public domain, we will try and answer them. And I have, once again, thank you for taking the time to join us on this call. Thanks. Bye-bye.

Thank you very much, sir.

Ladies and gentlemen, on behalf of Batlivala & Karani Securities, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.