SRF Limited (503806) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the SRF Limited Q1 FY '22 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjesh Jain from ICICI Securities. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. Thank you for joining us on SRF quarter 1 FY '22 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, our Head of Corporate Communications at SRF, to initiate the proceedings for SRF con call. Over to you, Nikita. Thank you.

Good afternoon, everyone, and thank you for joining us on SRF Limited Quarter 1 FY '22 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 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.

Thank you, Nikita. Good afternoon, everyone, and I extend a warm welcome to you all, and thank you for joining us today on SRF's Q1 FY '22 Earnings conference Call. I trust you, your families and colleagues are in good health. I will initiate the call by briefly taking you through the key financials and operational highlights of the period under review, following which, we will open the floor to have a Q&A session. I'm pleased to begin financial year '22 on an excellent month, showcasing robust operational and financial performance despite short-term challenges going to the lockdowns. The company worked on various countermeasures to address these challenges, and this enabled us to deliver a notable performance. In Q1 FY '22, on a consolidated basis, revenue grew 75% from INR 1,545 crores to INR 2,699 crore INR, and EBIT increased 102% from INR 295 crore to INR 595 crore in Q1 FY '22 when compared with corresponding period last year. Profit after tax came in at INR 395 crore in Q1 FY '22, higher by 123% over CPLY. As you all know, performance of Q1 FY '21 was impacted due to large-scale disruption from the initial COVID lockdown. But it would -- should be noted that despite the low base effect that was witnessed, we did achieve substantial volume increases and higher realizations for several key products, resulting in a healthy all-round performance from all businesses. Q1 FY '22 also had significant impacts of all-round increase in cost of export logistics, where export freight rates have witnessed large increases and with our export purpose business, we have seen a negative impact. Before I begin delving into the segmental performance, I am glad to share that the Board of Directors have approved an interim dividend of 120%, amounting to INR 12 per share. This will result in a cash outflow of approximately INR 71 crore. Let me now give you an overview of our segmental performance. During the first quarter of the fiscal year, our Chemicals Business demonstrated a healthy performance, with revenues growing 58% from INR 705 crore to INR 1,114 crore during Q1 FY '22 over CPLY. Within the Chemicals segment, our Specialty Chemicals Business reported a positive performance, driven by improved demand from global markets and increased volumes of key products. Our pipeline of new molecules remains robust, both in agrochemical space and the pharmaceutical space, so that we can serve our customers better as well as strengthen our overall engagement with them. While export trade costs have been a negative during the first quarter, we believe these will come down to more reasonable levels in the short term. So the raw material costs have also witnessed a significant uptrend, which has led to an overall reduction in the current quarter margins as you would have witnessed. In Q1, we introduced 2 new products and had a strong funnel of products that will drive our future growth. Our business will continue to focus on improving its sustainability-led parameters through various investments and processing payments. I'm happy to share that we have conditioned 2 dedicated facilities at Dahej, which will cater to the agrochemical segment. These facilities will help us tap in with the thriving agrochemical market -- agrochemicals market space across all our key markets. Similar investments combined with increased efficiency and optimal capacity utilization should enable us to provide operational efficiencies and achieve even superior outcomes in the future. SRF is focusing on expanding its product portfolio in the pharmaceutical sector. We remain positive on the agrochemical space and will be looking to tap into additional opportunities that we are currently focused on. Fluorochemicals business, SRF reported a healthy figure performance driven by higher sales volumes in the refrigerant segment from both domestic and export markets. Looking ahead, we expect the demand to grow further in the upcoming quarters. During the quarter, the segment witnessed an uptick in auto sales, led -- which led to a higher uptake of R-134a revenues. We introduced AHC, anhydrous hydrogen chloride for industrial applications. Overall, I must mention that business was adversely impacted by lockdowns on account of second wave of COVID-19, which resulted in disruption of supply chains, leading to a lower domestic uptick, and we did lose some volumes due to the same. Timely counter measuring, however, reduced the impact to a better extent. Also, prices of key refrigerants have witnessed an uptrend, and the same is likely to continue. Domestic market has also started to look up and should be in better shape over the next few quarters. We have authorized a project worth INR 550 crores for the integrated expansion of fluorocarbon-based refrigerant facility at Dahej. This project is expected to be completed within the next 24 months. The plant is likely to be a same plant between the HFC, and where we would be able to test and manage technology to manufacture various HFCs in the same facility. And also includes capacity for certain key raw materials for the Chemicals business. Our technological capabilities, integrated capacity, distribution network and production capabilities do provide us with a unique position in the industry, which we will continue to build on. The Board has also approved installation of a 200-KV grid at a cost of INR 135 crore to meet the growing power requirements of the existing and future plans at Dahej. I'm also proud to share that the chemicals facility in Rewari has received the State Safety Award 2021 by the government of Rajasthan. To support and exemplifies our company's commitment to safety, which is built on a strong safety culture, all executed compliance procedures and effective use of latest safe -- safety technology. Coming on to our Packaging Films business. We continue to perform well despite impact of COVID-19 second wave from domestic markets. SRF was able to maintain uninterrupted delivery of all key raw materials, even while we were able to reduce some costs, resulting in uninterrupted production across all our facilities. SRF has established itself as a valuable player in the global packaging segment, which is a result of the business still focused on scale, quality, R&D capabilities and enhanced portfolio of value-added products. With our focus on increasing contribution from value-added products, we are happy to share that we have launched 2 new products in the category during the process. We also continue to focus on improving product quality and delivery to increase engagement with our multinational customers, bolstering the mantra of easy to do business with. SRF has now presence in over 100 countries and of course, a diverse range of specialty fuels. Our overseas businesses performed well during the quarter, owing to the commencement of the second BOPET line in Thailand. At the same time, our newly commissioned facility in Hungary ramped up its operations to capacity. The reemergence of COVID in Thailand, Indonesia, Vietnam and Indonesia, basically the ACR regions, is also having an impact in these key markets for our high subsidiary and will have an impact in the short term. You may also be aware that there were riots in South Africa in July, and we had to shut down our plant for a few days to ensure safety of all our employees. This will also have a short-term impact on the South African subsidiary. As market leaders in this space, the focus on sustainability mean initiative is our responsibility, and we continue to work towards innovating things that had a lower environmental footprint. Moving on to our Technical Textile business segment. The business performed exceedingly well across nylon type fabrics, the Belting Fabrics and the Polyester Yarn segment. I would like to mention here that there has been a structural change as we have been able to renegotiate contracts with our key customers that have positively impacted our overall results. In addition, the customers' preference to buy for local suppliers like us aided overall growth. We are confident that we should be -- we should continue to register such healthy performance in the upcoming quarter also. As we have mentioned in the past this segment has always been a major cash flow generator for SRF, and we see the trend of free cash flow generation continuing at a much larger scale going forward. Lastly, in our other segment, the Coated Fabrics division continues to maintain market leadership, both in terms of price and volumes, despite an overall sluggish market. This was facilitated by efficient sourcing strategies and excellent brand performance. The business continues to innovate and introduce new products in the market. In Q1 FY '22, our Laminated Fabrics business segment maintained its leading position and performance was in line with expectations despite the demand being effective owing to the second wave of the COVID-19 pandemic. New products are currently being developed for the domestic market. Further, the antidumping duty on Chinese PVC flexes have also been extended until January 31, 2022. On the balance sheet front, our debt remains within acceptable levels and no significant increases were witnessed on the overall debt profile. Working capital management remains robust, and we continue to monitor the same to ensure a strong balance sheet. At SRF, we care deeply for the people and communities that we operate in, especially related to counter the COVID pandemic. We have organized COVID-19 vaccination camps for the communities in Bharuch, Rewari and Gurugram. In addition, we have set up oxygen generation plants have taken at our government hospital in Amreli District of Gujarat and Dhar District of Madhya Pradesh for community usage. The team of SRF Foundation was also involved in distribution of oxygen concentrators to government hospitals in Tamil Nadu, Madhya Pradesh and Nadia District of West Bengal. In other initiatives, SRF Foundation launched the Atal Tinkering Labs program in collaboration with Capgemini India and NITI Aayog. We are -- we also conducted month-ling digital summer camp to 5,304 students across 11 locations, so that education doesn't stop because of the rural, urban digital demise. To conclude, we are confident our future growth and the market potential that each of our businesses offers. SRF has established a reputable multi-business entity that has enabled us to navigate with the volatile environments over the recent years. Our strategic innovations, add by solid R&D, has benefited the company to withstand external challenges. With strong infrastructure in place and outstanding R&D skills, we are confident in our ability to provide a healthy and sustainable performance that will enable us to create value for all 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 MK Global.

And congrats on a good overall performance. My question relates -- first question relates to the raw material. So we have seen increase in raw materials for our Chemicals segment. And we have seen that even the product prices, we are trying to increase. So how is the scenario looking like currently? And whether the price increases in specialty just to pass on the increase in the raw material cost?

I think there was some confusion here, Rohit. The fact is that we have witnessed price increase across raw materials, where we were also talking about the Specialty Chemicals business. There has been some price increase in the Fluorochemicals business also. However, that one is a bit neglected -- bit significant from a Specialty Chemical perspective when we compare the 2. The Other thing that you are seeing in terms of a pass-through, I don't think it is. We've seen positive prices that have come through for the Fluorochemicals business in terms of the rest of classes. That's what I had indicated in the opening remarks also. We do believe that is a trend that is likely to continue in the future as well. I hope it answer that.

The second question is on the new CapEx of INR 550 crores. So is this predominantly for captive convention? Or is there any split between captive and external sales? And from backward integration, which and all are the areas where we'll be putting that money?

So, Rohit, the plant is mostly for external sale. The -- let's say, about 50% of it is a component, which is likely 40% to 50% of it is a component, which are key raw materials to the products that we are looking to manufacture. So that's how we are looking at it. Let's say, when you are looking at it from an overall sales perspective, the overall cost of the facility, which is for external sales will be about 40%, 50%.

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

What I'd like is the CapEx number for this year and next year totally in terms of whatever you plan to spend on Capex? That's the only question I have. This is Vivek Ramakrishnan, by the way.

So my sense is that for this current year, the cash CapEx that we will do will be in the range of about INR 2,000 crores. For next year, given where our current CapEx plans are, I think the ones that have currently been under implementation, we will probably keep the range of INR 800 crores to INR 900 crores or to INR 1,000, crores. Though that are currently, let's say, under the -- that are under implementation, those that we have announced. Over and above that, on a modular basis, INR 500 crores to INR 600 crores, INR 700 crores of CapEx on an annualized basis, we will keep announcing going forward as projects get finalized. So my sense is that INR 2,000 crores this year and between, let's say, INR 1,600 crores to INR 1,800 crores for next year as well on a consolidated basis.

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

And congrats to the management team on a good set of number. First thing, I wanted to understand on the NTCF part, especially, the major growth, was it driven by end user industry growth? Or was a bit of the market share gain? Because in previous quarters, we have mentioned that there were some global capacity consolidation in this part. So this is my first question. And follow-up to that, if we can quantify what percentage of global capacity would have been consolidated in NTCF?

Let me try and answer the second question first because I don't know the answer to that question. I will have to check and come back. So that's a simpler answer. We will have to come back to you in terms of what capacity that got consolidated, we will do that. To be -- to answer the first question in terms of the shift in margin. When you look at it and compare it to quarter 1 last year, you will see a significant growth in volumes, given the fact that Q1 last year was completely elongated by the lockdowns that had happened across the country. There were 4 lockdowns of plants, plants took 1.5, 2 months to start-up again. All of those things had happened. So therefore, the growth in volume is significant. However, even if you compare to probably, let's say, last quarter, we have seen significant growth happening in volume. And like I said in the opening remarks as well, there has been a structural shift in the industry. We have told you that because some of these capacities in China had closed down and are looking to consolidate. Prices of the products have gone up. The landed prices of, let's say, imported products have gone up significantly, which has allowed us also to renegotiate our longer-term margins with our customers. So that's probably the way things have happened here. I hope it explains it, Naushad.

Yes. So would it be fair to assume it was largely because of the market share gain instead of end-user demand, if we can broadly quantify how much the ...

The market share percentage is probably remained flat to, let's say, 100 basis points increase around. The most of the gains have actually come through price positive, which we believe is likely to continue at least in the short to medium term.

Okay. And where do you see this 27% of EBIT margin in textile business is getting settled because historically we have ...

Some pages may be super close because a lot of it does depend on the capital [indiscernible] pass-through. Therefore, I may not be in a position to give you a percentage here. What I can tell you is that this looks like a more robust trend, it looks like that the prices that we have been able to negotiate with our customers are more, let's say, longer to medium-term in nature, which should lead to, let's say, slightly even better performances going forward.

You plan any capacity expansion in this product?

Modular capacity expansion will keep going on, Naushad. But I don't put up a 2,000 tonne line at any point in time.

Okay. And lastly, on the packaging side, sir, as here we have known -- we have been reading that there is a gradual shift in the packaging industry towards these circular model. So I just wanted to understand what percentage of our total portfolio in the packaging sales would be recyclable? And if it is needed, would it be easily -- easy for us to convert into recyclable product by adding some properties?

So, Naushad, almost all of the packaging films that we produce are recyclable. The problem is actually collection mechanism and reuse mechanism and inter solution mechanism of these -- for us to be able to recycle it. We have the ability to recycle. Whenever there is an established way of collection users comes through, we should be in a good position on that side as well. While there is a chat about moving to a circular model, it will take more time for it to get affected and, let's say propagated well.

Currently, are we doing it? Any percentage as far as sales ...

Naushad, I think we need to let others also answer question -- ask questions.

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

And congratulations for a good set of numbers. First question on the Chemical business here. This INR 550 crore, I'm sorry, just a clarification there. Out of this INR 550 crores, you mentioned external sales will be roughly 40% to 50% of that. What is the typical asset turn that we are certainly seeing there?

Maybe, I made a mistake at that point. I said the plant that we have put up, there will be about 40%. That will be for the CapEx, 40% for captive use, which will be a key raw material for the product that we will be manufacturing in the fluorocarbon refrigerant. My apologies. Maybe I made a mistake there. It is the other way around.

Okay. So 40% will be captive and the balance, 60% will be largely addressing the export market?

I said the market not necessarily export. It's a extremely HFC plant, to be very frank about it, Ankur.

Okay, sir, that's interesting. Okay. Sir, secondly, in the last quarter, we did mention on the CapEx side, around INR 375 crore, INR 400 crore CapEx coming from the new plant, wherein we were not looking at fluorination, but also on the non-fluorination side. And joining that with a INR 2,000 crore CapEx that we are expecting for this financial year. Any thoughts on the Specialty Chemical side, on the growth side? Or it will be -- given the new transient becoming in FY '23 and hence, we can see a bigger delta there?

So when -- my sense is that you are asking the question about CapEx in Specialty Chemicals business because what you seem to be believing that this is not something that is important for -- from an overall Chemicals business perspective. Let me tell you, we've completed a large amount of CapEx very, very recently, the INR 258 crore CapEx is already been completed or on the verge of being completed. There will be future announcement that we'll make. We are probably also currently implementing CapExes, which are smaller in nature, but about, let's say, INR 250 crores to INR 300 crores for the current and the next year going forward as well. So that's all in place. Hopefully, there will be newer projects that we will do. And going forward, more announcement on the Specialty Chemical side should be seen.

Okay, sir. And just one last on the Packaging Films side. The presentation does mention that expectedly more capacity is coming in on the site on BOPP and BOPET as well. Your sense on the, let's say, overall demand supply scenario for both BOPP and PET, are we seeing probably a short-term blip there in PET while PP may still look -- continue to look better? Would that be a right understanding?

There are a couple of lines on -- 2 or 3 lines on PP that are also coming in. One of them is actually our line only, which is -- was recently commissioned. There are 2 other lines that are coming in probably in Q2 and Q3 going forward. So on PET side, also, we see 2 lines that should get commissioned very soon. The point to note is that it will create a short-term demand supply in balance, growth still seems pretty robust. And therefore, our belief is it should remain a bit the short-term in nature rather than very long term.

Sure. Sir, where I was coming from was, if I look, historically, there has been volatility in the overall industry margins there, given the demand supply mismatch. But now because the demand is probably growing at a much stronger pace. This supply will create short-term blips, but longer-term trajectory remains intact. Will that be right understanding?

Mostly. The only change that I will do to your understanding is that if there are newer lines that keep coming in, right, the demand and supply imbalance could be a much larger one than what is currently visible.

[Operator Instructions] We take the next question from the line of Arjun Khanna from Kotak Mutual Fund.

And congratulations for a good set of numbers. So just trying to understand the INR 550 crores CapEx on cash, which is further. Sir, it's obviously stated it's is an integrated complex. Sir, just to understand, so while you did clarify that part of the input would be probably using creating other HSFs. But essentially, what would be the output in metric tonnes that's saleable?

So it -- so current configuration that we are thinking about, it should be in the range of 15,000 to 16,000 tonnes per annum from an HSC perspective. But it is tweakable and changeable, depending upon what configuration that we work with to top of about 20,000. Unfortunately, it's impossible to give you an exact number on the capacity because it really does have a lot of variables around earning. The fact is that if you are doing a certain type of product, you will have lower capacity. You could be doing a certain product, which has a lower ethylene time and therefore, larger capacity. So on the current configuration basis 15,000 tonnes, which can expand to 20,000 tonnes at an appropriate time, depending upon how do we repopulate it how we are using that one.

Sir, to just understand this, so theoretically, we could, say, produce R-32 and 134a or 125 depending what [indiscernible]. So these have some facilities? Or it's basically just one that or other key components?

Interesting.

Sure. Sure. Sir, just to understand this question further. In terms of -- for PTFE, we had talked of augmenting R-22 capacities. So maybe if you could help ...

[indiscernible] what we you saying?

Now for PTFE, we had -- when we had announced PTFE, we said to make EFE, we may look at augmenting capacity. So that obviously is different from this?

Arjun, you brake off. I couldn't understand the question.

Sir, for PTFE, our polymer business, which we have announced a CapEx before. We have talked of increasing R-22 for making EFEs. So that obviously is different from this. Is that the right understanding?

Absolutely. So that's a completely different project.

Sure. And for our polymer project, have we thought of maybe PVDF or FEB -- PFA other polymers? Or right now, we are just looking at PTFE?

Arjun, there are probably 10 other polymers that you can look at. As of now, the focus is PTFE. There is no, let's say, bar or need to go into multiple other polymers on flooring or peak or, let's say, TEQ or multiple others that are there. So those can be looked back at a certain point in time, but the focus now is PTFE. And we will look at first, let's say, commercializing the plant and then ramping it up. And then looking at various other opportunities and products.

Sure. When do you expect commercialization of the PTFE plant, is there any further delay?

On November 22.

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

Sorry, I'm taking on that CapEx of INR 9.5 billion. We are saying that it's a swing capacity. It will also include R-134a, but we expect R-134a capacity expansion freezing sometime in the near future, right?

It is not this R-134a, it is all HFCs. December 23 for India.

December 23 for India, all HFS will be freezed for any further expansion. Is that what you're ...

For air conditioning or let's say that type of use. Like for R-22, you cannot increase capacity for refrigeration use. You can use it for raw material use or any other downstream use. Maybe, there are some uses that we mentioned that develop over time, we don't know. But you are right. It is for refrigerant purpose, yes, capacity will get -- you may not be able to put an additional ones.

Sir, this is in December 23, and it includes all kind of HFCs, including R-32, 125, all those capacity?

Not India as a green the [indiscernible].

Okay. Okay. That means this capacity will help us to cater that demand in the future when it comes. Even after the December 23 time line?

Yes. So it is, let's say, focused on future demand.

No, that's fair. That's fair. My second question is on the Specialty Chemical guidance, which we shared in -- at the end of last quarter. With this robust performance in Q1, do we are rethinking on that number in terms of upgrading because this performance look way better than probably our guidance. And the new molecule addition, which we are talking, that also increases the outlook for us?

Sanjesh, there used to be Pepsi ad that used to come in. It's [Foreign Language], right? So that seems to be the case, right? I'm not commenting on it. We are sticking to the guidance that we have given, the 15% to 20% increase in revenues of the Specialty Chemicals business. We are sticking to that guidance. Maybe next quarter when we have more visibility, we will come back to you. But as of now, leave it.

Got it. One last bit of question from my side before we go to others. We talked about ramping up of pharma in Specialty Chemicals. So what gives us confidence because we are now coming and telling, we also have put a CGMP plan a few years back. And we have been slowly scaling up, but now we look like we are much more confident in terms of molecules, in terms of market and all. So how should we look at the mix? And how should we look at the growth in pharma for us?

Again, the point to note is we are about 10%, 15% on pharma as of now. Intentionally, we want to grow the business, it will probably take us 3, 4 years to get to a better scale. We want to get to a 25%, 30% level over a medium-term period. What gives us more confidence and more visibility is the fact that we are running a couple of campaigns for pharma products, those seem to be in very good shape. And as those come through, we will probably do much better on other pharma products also is something that we are very confident about. So that's how it is working. Unfortunately, for confidentiality reasons, I cannot give you the names of the products. That's how it is, Sanjesh.

The next question is from the line of Ritesh Gupta from Kotak.

Am I audible?

Yes, you are, please go ahead.

Sir, just wanted to check on both -- I mean, Fluorochemicals -- I mean, for refrigerant as well as on the packaging and capacity utilization. So you have gone through -- just before COVID, you had expanded R-134a capacity almost about 25,000 tonnes. As of my understanding, as R-32 also got expanded, R-134 also expanded. So just wanted to get an update, like on 1 -- first quarter or, let's say, last 2 quarters, have you started selling most of those volumes? Have you reached the 80%, 90% [indiscernible] there? Or is it because of the COVID situation those volumes continue to remain -- the utilization continues to remain under optimized? And then if I understand correctly from the previous quarters ...

I'll let you answer the -- ask the second question. Let me answer the first long one first.

Yes. Yes.

What you are saying is right, the capacity utilization has been better in -- was better in Q4 relative to Q1. Given the fact that we are aware of Q1 is typically the best offtake season for the Fluorochemicals of the refraction. Given the fact that the country was in partial or multiple lockdowns that were happening across the country. We had no storage facilities. We were probably lower by about 15% from our budgeted numbers in terms of what we would have planned to sell in the domestic market, maybe in the range of 1,500, 1,600 tonnes, we would have done better, had there been less of a COVID impact. So that's how it is structured. These are able to mitigate some of it by being able to sell more in the export market. There were some impacts in terms of availability of manpower also during the quarter, given that there were some, let's say, some of our people in the plants were getting hit by COVID as well. So multiple factors have played out. We are very confident that we will be able to ramp up all of these to full capacity in the very near future, given where we are -- orders are good traction that we see. So I hope it explains it, Ritesh. Please, go ahead with the second.

. Yes, it does answer. It does answer. So when you look at the new capacity that is coming in HFC, that's more of you're trying to -- I'm just reaffirming what we stated about this 5%. This is largely to cater to the demand after 2023 before sunset, I mean after the sunset kicks in?

The plant are coming at the end of July. So it's a 24-month project. So let's say, by the end of Q2 or FY '24 is when the plant comes in. Again, I would say that there is an understanding of the plan that comes in to be able to ramp it up to full capacity, it will take 6, 8, 10 months to take it there. And therefore, what we are saying is also right that it will meet the projected demand for the future. We've seen multiple heatwaves that have stepped across the world today, not just in India, but the Northern American continent. Europe is going through a heatwave. The need for that regulation will seemingly growing at a pace that is faster today. Hopefully, we should be in a good position to cater to all of that heat. Given the fact that the Chinese can't put up additional capacities for refrigerant and the developed market also cannot.

Got it, sir. And on the Packaging Films side, the 2 new line expansions that we have in Thailand and Hungary. Now as we speak in the quarter 1, they were fully utilized from a volume perspective at least.

Yes.

Okay. And just on the refrigerant bit, the export versus the domestic demand, so like because it's a large market, let's say, once you put up the capacity, you are able to utilize the volumes there quickly. But then there is a domestic market that grows at, let's say, 10%, 12%. So is it that your margins in domestic are far better than let's say, what your export margins or an export more of -- kind of utilization volume play rather than heavy margin growth?

It really is a function of time, Ritesh. Generically, Indian parameters will come to parity with export prices, right? And because we are a large Indian player, you will probably end up paying a price, which is slightly lower than the parity price to be able to capture the market. General existing domestic margins should be better. But it really is a function of the time when the prices that are prevailing in the international markets.

[Operator Instructions] The next question is from the line of Tarang from Old Bridge Capital.

Just one question. If you can give us a split of the INR 2,000 crore CapEx in terms of -- I know the INR 550 crore and the INR 140-odd crore went power, but that is also going to be deployed over maybe the next 2 years, right? So if you could just give us a sense on the split of this INR 2,000 crore CapEx for FY '22?

My sense is about INR 1,000 crores to INR 1,100 crores on the Chemical business. I think about INR 400 crores to INR 500 crores on the Packaging Film business. These are not just the line CapExes, but multiple other CapExes that are going out. Roughly about INR 200 crores of CapEx that we are budgeting today for those that will come up during the year. And some of these new ones that we have mentioned, we will start to incur money on those. And probably, the balance will be Technical Textiles and balancing CapExes that we would do.

Okay. And this, obviously, the INR 1,100 crore of Chemicals would be new capacities plus maintenance. So nearly INR 500 crores of Packaging Films will be new -- debottlenecking plus maintenance, correct?

So I would say maintenance is separate. It's not -- these are all ROI denominated CapExes.

So there is INR 2,000 crores is growth CapEx?

Truth, yes.

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

Just one clarification on the Chemical segment. So you talked about the higher raw material costs and the freight charges, which impacted margins this quarter, if I heard you correctly. So is it correct to sort of assume that this headwind could sort of fade away in coming quarters as we try to pass it on and as freight costs come down. So we should expect some margin improvement in Chemicals going forward?

You are right, Abhijit, because again, we believe that these are short-term in nature. Some of the commodity raw materials have gone through the routes because of the polar storm that had happened and multiple other things that created supply shorter in the market. There is no shortage of capacities in the world as more capacities come back online, prices will come down. And therefore, to a certain extent, we have not negotiated that with our customers. If this is more, let's say, a continued phenomenon, there will be some negotiation that will have to happen with the customers on these ones.

Understood. That's great. And just the last quick one for me. On the Packaging Films business, you had talked about 2 new product introductions. If you could please shed some color on that, that could be helpful.

Mostly, value-added products are -- there are various types. I don't have a sense of the nature where there may be a PCR versus a Chemical recycling good, TCR PET and some large seal grade for BOPP. Those are the ones that got launched. But there are multiple that we keep doing. Again, there will be small volumes today. They will grow up in volumes over a period of time.

The next question is from the line of Rohan Gupta from Edelweiss.

And congratulations on providing such a context of numbers. A couple of questions from my side.

Rohan, I am not able to -- just pick the handset, you will be great.

Sir, I hope, is it better now?

Slightly. Please go ahead.

Okay. Okay. Sir, first question was on our Chemicals business. So almost on a similar revenues of Q4 is that our EBIT margin to the Chemical business was lower in the current quarter. I just wanted to understand is there any raw material pricing pressure, which is getting reflected in the margins? Or it was just only some product mix came with [indiscernible] kind of margins drop in the Q1, not in Q4?

Well, you seemed to have joined late, I have already answered it.

Sir, sorry if I [indiscernible] on that.

I've already answered it. I do not intent to do it again.

Okay. Sir, second question is on the Packaging Films business as we have keep on moving up in the value chain, as you have mentioned that the value-added shares has been going up. Sir, if you can just give some sense that whenever we see that the Packaging Film business or the industry dynamics will change. There will be pressure, margin pressure across the industries. Then there will be similar pressure, we will bear in our value-added total basket also? Or we see that the margin profile in that value-added basket we remain same in on kind of margin we see right now?

Rohan, the value-added product basket is typically a delta over the basic margin. Now whatever be the price of the rate base, we determine the margin of the scale or in the OTC flow is such as 8 micron or the 12 micron, which is the base for you. The delta may not change all the value-added products. But if the base price have come down, the net margin that you can make does come down.

So sir, but the delta, we will continue to make, right? This is -- suppose our base margin are 10%, and we are right now enjoying 12%. So it is the base margin goes to 0, we still be enjoying 12% kind of margin in terms, right?

Yes. Let's not talk about the percentage. Let's say, if the conversion margin is INR 100. This could be really in the range of INR 125 to, let's say, INR 150 at the delta. If the base margin goes down to INR 70, the data of that INR 25, INR 35 remains. So the base margin will probably be INR 105, INR 120. So that range. So that's how we do it rather than on a percentage basis.

Fine. That's very helpful. So just only clarify on that, what will be the base margin, average base margin right now? And what kind of delta we are enjoying right normal than we are?

That is something that I've never given out, and we're going forward, also not provide it.

The next question is from the line of Nitin Agarwal from DAM Capital.

Sir, on the Fluorochemical expansion as you mentioned, the vertical integration that we're doing, vertical integration we've been doing along with the project. I mean what come -- what are the trends of basic business model based on what you don't have right now? Is this something that is critical that you are not doing earlier? And how do you change the equation for us getting these away?

I'm probably unable to figure out the question. What you are probably asking is, how does it change in the current scenario?

Yes, I mean when we change, does it change our value chain, and you have meaningful way? What is the integration that we're going to do as far as expansion?

What it only changes is that because it has given me a swing ability. Depending upon where market is, I have the ability to then shift to a new, let's say, within the HFC thing, whatever HFC is needed, I am able to then switch to it. So that's what it changes. The value chain that we have found about, be it from the chloromethane plant or the R-22 or the fluorination molecule, or PET, all of that remains well entrenched.

And then a swing capacity capability comes from only for the incremental project, not for -- it does not impact the balance part of the portfolio or already there?

So we have already got a swing plant in our Rewari location where we can change between 32 to 134a. So that's already there. This one is probably an even better, larger plant, that was a relatively smaller plant between, let's say, 5,000 to 7,500 tonnes. So this is a much larger plant induction. So swinging of a larger plant is probably more difficult. We now got the confidence that we will have the ability to go to that as well.

Got it, sir. And sir, secondly, on the business this year, as you already mentioned, again, was impacted by euro sort of software from lockdown in the domestic market employee business ...

Unfortunately, if you could be a bit slow in your question, I would then be able to understand it better.

Yes. Sorry. In terms of -- on the Fluorochemicals market on the domestic side, you mentioned because of various kind of lockdowns during the quarter, there was an impact on the demand uptake. Is there a way to clarify, sir, versus your peak capacity that we could have applied to -- I mean, how much did you sort of -- what opposite do you operate as during the quarter?

Over the quarter, I think because of the pandemic, our current estimate between 1,500, to 1,600, tonnes of what we lost. Maybe some export, we made up 300, 400 tonnes So that's how it works out.

The next question is from the line of Vishnu Kumar from Spark Capital.

So you commented on the senior retail across the globe helping us on the ref gas side. The same is kind of also what impact us on the agro. At some point, Brazil and U.S. are facing significant stress. Any indication from your suppliers in terms of offtake in the second half, is there on the lower side or anything that you could highlight on this, sir?

I don't -- know, I don't see a negative around the agrochemical space. Our order book seems to be pretty robust. I would also say that even the Specialty Chemicals business was kind of affected by the lockdown because of availability of manpower and some of our plant people not being able to make it. And therefore, for us to be able to operate the plant safely, there was a certain number of people that was always required. We were not able to operate it well in certain situations, and therefore, we did lose some volumes on that side as well. But as of now, I don't seem to see a negative around the existing products. The campaigns that we are doing for new products are running very well. Hopefully, those will also provide better traction. The business is also, to a certain extent, seasonal as -- seasonally linked to Q3 or Q4, where some of the export markets start demanding certain types of products in that season. And therefore, I don't see a current negative around, to be frank about it. And that's the reason we have stuck to the guidance that we provided as well.

Got it, sir. And secondly, just on the margin, sir, between the 2, if the RM costs continue to kind of impact, let's say, continue to impact us in the forthcoming quarters as well. Which segment is easier to pass on or at least on agro on the ref side, which is where you can't pass it on? If you could just give us some thoughts on it.

Once that margin prices are typically linked to international parameters, right? And generally speaking, international prices with the raw material prices are much higher, we'll also kind of adjust to. And therefore, while I have necessarily may not have a singular ability to pass it on, the market does adjust the price to a certain extent. On the specialty chemicals business, this is a trend that continues for an even longer period. We will have to go back to the customers and renegotiate. That's the only way to do it.

Just one -- if I can squeeze on the -- we are seeing super normal demand of the auto across the world. Now would it mean for next year, probably, there could be a slight decline in ref gas demand from an export opportunity side because at every market, auto demand is phenomenal. So should we say this year ref gas would probably be super normal and next year, it should normalize, any thoughts on that?

I would only defer to it from an overall perspective because most of the export demand that we also service is less or more of the secondary market. I don't see the secondary market demand falling off.

The next question is from Manish Gupta from Solidarity.

Sir, just explain how the pharma side of our business has developed. You did mention in your earlier comment that it's about 15% of your business. But would you comment on how it has developed over time, what challenges you faced? And whether the development is in line with your expected pace a few years ago? And just a little bit more color on the pharma side of your Specialty Chemical business.

So Manish, I would say, if you talk to a customer, they would really like and open the pricing. Now in certain situations, you will have to look at what you can do, where are you looking at squeezing the costs? Where are you looking at developing your position on the product, what is the kind of volume the customer is talking about, what is the kind of effort that you need to make in your plans to be able to manufacture the product. And those will become, let's say, requirements for you to be able to give a price. Now also, what happens is that you know where the current product has been sourced from, if it is a more generic product in nature. And therefore, you are really able to assess what's your cost of the product and price it appropriately. Wherever you are doing joint development with the customer, we are then able to talk to the customer in terms of what are the equated margins that you and the customer can work with. And therefore, they decide on more to price of the product. That's how it typically works in most situations, but there could be other situations as well where the prices can be renegotiated either on a spot basis or on a contracted basis, depending upon what you are doing with the customers.

Sir, I'm not clear. Is your point that our margin expectations are far higher than customers are willing to give us?

From a new product perspective?

Sir, sorry, I'm not clear. So you're saying that our -- we are expecting far better pricing that customers are willing to give. Is that right?

No, I never said that, Manish. What I'm only saying is, it's covered the price appropriate.

I'm sorry, sir, I'm not being able to understand your answer.

Manish, let's do it separately rather than on this call because there will be other people looking to ask questions. I'm happy to sit down with you and ask the -- answer separately in terms of how the product pricing is.

The next question is from the line of Vibha Batra from FairConnect.

My question is on your Technical Textile business, which has seen, I think, over 25% growth in top line and also very significant expansion in EBIT margins. So is it sustainable going forward?

I think I did answer that earlier. I think there has been a structural change where we've been able to do in terms of the price negotiations with the customer. The overall, let's say, import prices of the products have gone up significantly. That does remain. And therefore, both from a volume perspective as well as pricing and margin perspective, we do believe that we are in good shape for at least the next 12 to 18 months.

We'll take that as the last question. I would now like to hand the conference back to Mr. Rahul Jain for closing comments.

Thank you, everyone. I hope we've been able to answer some of your questions, if not all of them. I wish that each one of you to continue to remain safe and healthy. If you have any further questions, we will be happy to be of assistance. We hope we have your valuable support on a continued basis as we move ahead. On behalf of the management, I once again thank you for taking the time to join us on this call. Thank you.

Thank you very much. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.