Apcotex Q1-2024(july 2023)
1…PERFORMANCE
=In Q1 FY '24, on the back of new capacity commissioned, we witnessed our highest ever quarterly volumes
=Export volume growth of 22% and 110% respectively on a year-on-year
basis which was led by nitrile latex carpet and construction.
=In spite of 22% increase in volume,
revenue from operations fell by 9% due to sharp fall in raw material prices, which led to lower price realization of finished goods.
=EBITDA margins were affected due to lower margins in NBR and paper binders because of
pressure on demand, falling prices and inventory losses.
=Furthermore, PAT margin declined due to increase in depreciation and increased costs only because of the expansion projects
commissioned in March 2023.
2…Export
=I am happy to say that this quarter, 31% of our overall sale is from export market.
=However, you know, many years ago, almost 8, 10 years ago, we were only at 2% or 3% of sales
were exports.
= It’s not only in one country. So, that’s another good thing. So, now at least from a geographical risk perspective, we feel better about the company’s sort of current position
3… Competitive advantages
A…Low cost manufacturing than european manufactors
B…Services to customers
=We have been able to provide services that are better than our competitors
4…Apcobuild
=We are slowly building a distribution
network. So, we are earlier we were only in Bombay. We moved it to Maharashtra. Now we
are in four or five states.
=So, we are growing at perhaps about 20% a year for the last two years (barring the, you know, one year in COVID, one, one-and-a-half year in COVID, which was difficult.)
=As the total value of the business, it’s still a very small percentage of overall
Apcotex revenue.
=Over time, over 5, 10 years, we expect it to play a more significant
role in terms of profitability and the
business is a little different from the b2b business. . Building the
brand, building distribution network takes time
5…Nitrile latex plant utilization
=Our utilization level was approximately 30%. . And obviously, every quarter or every month rather, we are looking
to increase that and so we hope by the end of the fourth, by the fourth quarter, we would be at 70%, 80% capacity utilization for that quarter
=Unfortunately new plant came in at a time when the market
is at the bottom. Thats why only 30% utilization
=So, our focus is on improving our capacity utilization or market share and at the time when it turned, you
know, we will be there. We will be there in the market and there are a lot of opportunities not only in Southeast Asia and with some of the big customers but in South Asia and Sri Lanka, India, some opportunities have arisen with specialty products in the West, in Turkey, Europe.
So, we are now focusing not only on Southeast Asia but other markets as well.
6…Why inventory losses(for all chemical stovks)
=Exactly about a year ago, it was the other way around, there was a lot of
tailwinds.
=However, later there was crash on raw material prices in lasy quarter and the drop for some reason has been so sharp and so unexpected in the
last quarter that even with regular stock we have had to bear with these inventory losses.
=It continues into Q2. It’s little bit recent, but in the last week or
10 days I would say things have seemed to have bottomed out, but I think it’s too early to say.
We have to wait for another couple of weeks, but it was still dropping as of July. So, it’s difficult
to predict where. If you were to ask me, in my opinion, there is not much left to go below it.
Really some of our petrochemical raw materials are at the lowest that I have seen in many
years, you know, even some of them below COVID if you believe it or not when the first COVID
wave hit. So, it’s unbelievable.
=Decline in raw material price
=, it’s a big drop. It’s one of the biggest drops you have
ever seen in such a short period of time in a quarter. It has happened in the past as well, but
it’s very, very rare.
=Because of China slowdown that was unexpected and therefore there has been a sharp drop and then, of
course, that also has had an impact on the demand for these raw materials, so as a result of
which sudden crash has happened.
7…Nitrile latex business
=When it runs at full
utilization level, 40% sales will be from export
8…Gloves
A…During corona time,. All medical whether it was gloves or masks or
everything else, you know, demand was through the roof. So now onwards ,obviously compared to those numbers, you can’t count growth,
B…However, in long run, this industry will definately grow.
The quality of health care and the awareness of personal protective equipment in Asia is really almost at the bottom. That only can go up.
While in America and Europe , it’s a mature market.
C…Within gloves also, there is natural latex gloves and nitrile gloves. Now because of the availability issues, uncertainty of availability plus
the protein allergies in the west, you know, issues around those things, the market is moving from natural latex gloves to nitrile latex gloves. So, as a result of which nitrile latex gloves are growing at a faster clip than overall other PPE markets. So, we continue to remain bullish.
=All reports show that, you know, growth over a 10 year period for nitrile gloves worldwide
9…NBR v/s latex
=NBR is a little bit of a cyclical
commodity market unlike our latex products which are not easy to store, not easy to transport.While , NBR you can store anywhere. You know, it’s a synthetic rubber. You can store it
for six months, one year.
=In last few quarters, demand was pretty poor in China.
So, raw material prices came down.That leads to destocking
happening which typically doesn’t happen in latex products but in rubber products that can happen. People don’t want to say they run at very low inventory. So, there is a amount of destocking.
=We see it turning now going forward because it’s kind of bottomed out . That cycle continues for two, three months till it kind of bottoms out, you know.
=So, volumes and margins have been quite challenging for NBR in the last quarter for sure.
10…Capex
A…Latex@100cr capex completed
…As of now we have just completed a CapEx of 100 crore over the last year or two. So, we are more in the consolidation phase and what we have is enough for the next couple of years.
=So, we are just consolidating right now watching our cash flows, debt levels.
B…NBR
… In the meanwhile ,we have completed the detailed engineering and budgeting for expanding our NBR business where we are trying to double detailed engineering, but we were trying to see now we are
working at sort of advanced stages to see how we can reduce the CapEx cost and investment
cost. At the same time, you know, there is enough work going on in terms of selling this
additional capacity that we have just invested in.
C…Additional latex
= When the nitrile latex market turns in terms of margins, you know, at a minimal investment we can
further expand volumes by about 60%.
D…New products
=We are looking at new products, new
opportunities which are very different from our current sets of products.
11…Next growth
A…Latex
The last chunk of the growth is going to come from the latex products, nitrile latex and latex and styrene butadiene latex, styrene acrylic latexes and so on.
B…NBR
=But even NBR we are expecting a growth because we have done some
debottlenecking recently, which I had not announced earlier, but to the extent of another 15%,
20%, we should be able to. We are working on the exact numbers because we were able to
free up a lot of the capacity since nitrile latex now has moved into its own new plant.
12…Dumping risk in India which we faced in 2019? (For nbr)
=That risk is always there because NBR is store product. China is really the main consumer of NBR. Anytime we see China demand slowing
down, we see dumping.
=Dumping meaning much lower margins and when I define dumping,
it’s much lower prices or margins than the average that you would see over a period of five, seven years and it happens from mainly Korea, Russia, china
13…Roce and asset turnover
= Till FY '22, all our assets were pretty
lower and suddenly we have this large chunk of 200, 250 crores coming
in in one year as a result of which and the volume hasn’t picked up that much and therefore asset turn is lower in that one shot. Same thing happens with ROCE, for example, ROCE
14…High depreciation/ interest expense
=In the last con call ,
I had mentioned that please expect higher depreciation in finance costs going forward. Simple
reason is that we have commissioned two projects worth about more than 200 crores in the
month of March or around Feb, March in Q4 of last year and therefore, the depreciation of
those projects and the loan that was taken to partly finance those projects, all those start
hitting the P&L from Q1 of this year.
= So, you can expect depreciation and interest going forward for the next few years, next few quarters to be at these levels.
= Of course, as we repay the loan
from next year, interest amount will come down, but depreciation will be high for a few quarters.
15…Turnover
=Our turnover as I explained to one of the previous callers, that our volumes
have gone up by 22%, but as a result of the decline in raw material prices, overall our realizations have come down by 30%. Therefore, it looks like our turnover has come down by
9%, which is true, but please don’t look at our turnover only in terms, you know, that will correct depending on our raw material prices and business that we are in where there is a huge
volatility and turnover.
16…Summary
=Just to summarize, I want to mention, it’s been a difficult
quarter for us on two, three front.
=Raw material price falling sharply resulting in inventory losses,
=Margins in some of our products also falling sharply irrespective of the raw material prices coming down, in general,
=It’s been difficult, especially in NBR and to some extent in the
paper industry as well where we supply our binders or polymers there.
= In the long term, we continue to walk on the charted plan and our target.
= The silver lining is, of course, the 22% growth in volume.
=So, we are focusing on volumes and market share and increasing our
geographic breadth and depth with each customer .
Disc…invested