Key takeaways from the Analyst Meet
Total capex over FY19-21 expected at Rs27bn, led by 1) US plant capex of Rs7bn, 2) Bhuj plant capex of Rs5bn, 3) Waluj plant capex of Rs5bn, 4) Carbon black facility capex at Rs4.25bn and 5) Maintenance capex of Rs6bn. Capex in FY19, FY20 and FY21 is expected at Rs7bn, Rs10bn and Rs10bn respectively. Though the capex requirements can be met by internal accruals, company may resort to low cost debt to meet 40-50% of requirements.
Waluj capex is expected at Rs5bn. New facility of 30,000MT would be setup in lieu of existing facility. Capex is towards plant of 30,000 MT, power co-generation facility of 5MW and warehousing unit. Of the machinery required for the plant, 60-70% would be new machinery, and remaining would be existing machinery. New facility would have 200-300bps higher EBITDA margin in comparison to the existing facility.
Bhuj capex of Rs5bn is towards plant of 5,000MT for large diameter tyres (49, 51 and 57 inches). Plant capex, mixing facility and warehouse would cost Rs3.5bn, Rs1bn and Rs0.5bn, respectively. Mixing facility compounds would be exported to other facilities. Large diameter tyres have better realizations (~Rs260/kg). EBITDA margin expected to be higher at ~35%.
US capex of $100mn or Rs7bn is towards plant of 20,000 MT. Company is negotiating with local governments for incentives and actual capex could be lower. Having a local manufacturing unit will provide better traction with customers, as lead time for supply reduces notably. Commercial activity is expected to commence in FY21/22.
US plant in comparison to India plant will have cost savings in terms of import duty savings (CVD duty of 5.36%) and lower logistics costs (2-3%). However, operational expenses will be higher in US, resulting in lower margins. US plant EBITDA margin is expected at 15-20%. As employee cost is high, company plans to have high level of automation in US plant.
US plant is only to create better traction with customers. All future capacity expansions are likely to happen in India.
Demand situation remains positive. FY19 volume guidance stands at 225,000-230,000 MT, which implies growth of 13-16%. FY20 growth is expected at 10-12%.
EBITDA margin expectation stands at 28-30% for FY19. EBITDA margin to improve by 150-200bps in FY20, due to favourable currency and captive carbon black facility.