Q1FY18 Conference Call Highlights (my notes - may contain errors/mistakes)
YoY growth in revenue 8.54%; EBITDA 4.9%; PBT 4.1%; PAT 4.35%
Added 6 new customers. Auto OEM export growth 20%. Footwear sales de-growth 3% YoY and increase of 22% QoQ.
PU Plant and market overview:
Full payment made for the land, Govt. has given nod to start construction.
Evaluated 3 suppliers in China for machinery, Mr Poddar visited China in the month of March.
Delivery time of machine is quite low as compared to plant construction lead time. Machine will be ordered six months in advance. Total planned capacity 1M meters (2 lines). Start with first line – 0.5M meters. PU process is divided into wet and dry process. Keeping in mind variety of the product, it is better to have both lines ready. Total 15-18 months for first line – start contributing from Q4FY19. And another 6 months for second line.
No need to have an environmental clearance as land is taken from Govt. Need to apply for Pollution clearance – as a routine practice.
Total capex planned 80-100 CR. The Machinery TUF (Textile Upgradation Fund) subsidy will be funded via Debt and the rest all from internal accruals. Around 20% debt.
PU realization compared to PVC - Less thick material initially – prices will be cheap, later it will become better.
Total demand of PU in India - Aesthetics more closer to Leather. The only disadvantage is a shorter life span of PU as compared to PVC. It disintegrate very fast if quality is not maintained. No official figure for PU consumption in India. Estimates demand of 5M Meters per month, more than 1 Cr meters imported every month as of now. Expect full production 1-1.5 years from first line. Who is using PU in India? Agra is the biggest market, application in Sports Shoe , Ladies footwear
1. Fashion item – difficult to maintain inventory
2. Manufacturers do not trust quality from Chinese suppliers
PU can disintegrate very fast. There is a slight overlap between PVC and PU, might be a shift of few percentage points. We see both will complement each other.
Automotive business is based on programs, business increases when get requirements from new programs. FY19 – new programs – European customers
European customer new program:
Discussions are ongoing with Mercedes. If this deal happens, it can be a big increase to exports. The first audit happened in March. The second audit is planned in 3rd week Nov. The Design pattern is provided by them. We have invested money in rollers. We hope to close the deal by Jan end next year.
After GST implementation – seeing continuous requirements from footwear market. Utlization 85% of capacity. Pricing remains same. Little softening of raw material prices. We are considering PVC business increase from increase in programs from US, European and Domestic customers. Treat PU business growth as a bonus. Difficult to maintain 25%+ margins, might see a slight reduction – stable margins. PU business – expenditure/depreciation in initial year
Revenue forecast 10-12 % growth in FY18.
Breakup of Sales
Export 36%; Domestic 64% - Auto OEM 8%, Auto replacement 14%, Footwear 38%.
Continue to see Footwear 38-42% of sales. Expect growth in footwear business. Volume de-growth for footwear 4.5% decrease YoY, 20% increase QoQ.
Lot of growth in other segments – Auto domestic and international. Next leg of growth – AUTO. Exclusive showroom in Delhi, Wholesale dealers in U.P., Bangalore, Chennai. Capacity utilization 85%.
2.5M meters from 5 lines. 3M meters from 6 lines. Can never be a Tier 1 supplier to OEMs. Always either a Tier 2 or Tier 3 supplier to them. Total 10 Cr debt level (LT+WC). Cost of raw material – higher for export business.
No pressure on margins / pricing. Capacity utilization 64.63 M meters as compared to 59.26 in Q1FY17. Realisations in export market better than domestic market.
Cash on Balance sheet 140 Cr this quarter.
Balance sheet – WC increasing. Earlier supplying to a warehousing agency, now own warehouse maintaining inventory. Improvement in margins as not paying commission to warehousing agency
There is a change in land. Another 2 months to get land title. Plant will be for four lines. On an average 0.5-0.6 M meters / month PVC line capacity. Expect to be ready by March 2019.
Disclosure: Not invested, tracking the story.