Q1-2024- concall
1…PERFORMANCE
=Textile sector is amongst the worst hit due to downturn in western world persisting since last 15
months. Exports of textile sector is constantly declining. During June, 23 quarter, shipments of
manmade products saw a 17.22% decline. Slowdown in Europe and US prompted the dumping
from China in domestic market which led to demand and pricing pressure on domestic suppliers.
=Prices of yarn and fibres slided and affected the textile industry top and bottom line .Yarn spinning sector is major contributory to our revenues, we had to face the heat, which came
to us in the form of lower demand as well as drop in prices.
=We feel that the prices have bottomed out in Q1 and so in Q2 we are not looking
for any great inventory loss.
=Due to slow down in export markets, company’s exports were also
hit and it made an export sale of 18.02 crore as against Rs. 33.94 crore during June, 22 quarter.
=Capacity utilization was at around 30% in Warangal facilities but sales volumes were at even
more lower level.
=Nepal facility was ramped up albeit at slower pace and it reached to 50% capacity utilization level during the quarter. So, on consolidated level, PAT was dropped to Rs.
3.45 crore during Q1FY24.
=Major contributing factors in drop in PAT at consol level is interest
and depreciation of subsidiaries, which could not be offset due to lower level of operations.
=In fact, we have not seen such
gloomy market environment in last several years. However, dust is now being settled and
demand and prices have seen some revival from later part of July, 2023. We are expecting to do
better in second quarter on standalone basis and in view of the festive season and other
contributing factors we are hopeful to operate at normal level from Q3 onwards as we were doing
in the past.
…
2…FUTURE GROWTH
A… rPET B2B business
=In Rpet B2B chips, we have finally got the much awaited order from one of the Coke’s bottler and things have started rolling out with more orders are on cards. We are also very
closer in getting final approvals from some more brands and hopeful in getting boarded with
them in coming quarter.
=One more production line of B2B chips is to be installed by OctoberNovember, 2023 and it is expected to start contributing from last quarter of FY24.
B…rPSF business
Why expansion in rPSF despite it is low margin commodity business?
B1…going forward as our understanding and necessity of the circular
economy and recyclability, sustainability kicking in, people are having greater sense of
responsibility towards the environment and so the demand of the recycled material is growing
and so we are also having approvals from some of the global brands for using the recycled PSF
Indian products so number one this trend is going to increase further and we would be able to sell
more of the quantity to the brands here we are getting the better pricing than the general
commodity product, number one.
B2…Number second we are developing some more products, some value added products like short cut fibre which we are pitching in the export market, as well as in
the domestic markets where the margins are higher.
B3…Number three, we are going into the dyed piece of segment where the margins are really higher than the normal commodity product and in
case of Warangal we would be having some added advantage in the form of logistic input as well
as output.
C…Coco cola order(B2B)
=Moon beverages order(for coco cola)
This is not a great quantity but it only from one of the bottle of Coco Cola system so we are
looking for the orders to come from other bottlers also shortly and currently we are not making
any long term contracts with the brands.
=Because just rolling on the products, we are not going for the long term contact. We will meet
long term contract when we will see more clarity from the pricing side of the things.
=Our trials and everything that is happening is happening on the global site and it handled by Coco Cola Atlanta. So once we get the approvals, we get the approval to supply to any of the partners in the CocaCola system that is number one.
=The approval that we have now got from Moon, it is not an
approval it is basically a first commercial order that Coca-Cola has lined up because apparently
they will be the ones to launch the first rPET bottle of Coca-Cola very, very soon.
=Our discussions with other bottlers are also parallelly going on and every bottler is coming up with
their strategy for using rPET in certain SKUs in certain products in coordination with Coca-Cola
centralized OUT.
=For now we are basically in discussions with all the bottlers of Coca-Cola for
starting the ramp up of rPET.
=About the volumes we cannot really disclose how much volumes
Coca Cola might be committing us for this year. They are still finalizing their strategies but yes
they are starting to commercially ramp up their rPET usage from next month onwards.
D…Recycling regulations in india
In india, From April 2025 it is compulsory that 30% of the bottles has to be coming from recycled
=Basically it is also part of the climate change strategy that we are already having in
place. If you know that the government of India has got a huge fund from World Bank for
reducing its carbon dioxide emissions and rPET, bottle to bottle chips is a big contributor to that
fact because in this polymer you are saving on your environmental impact by 60-70% and that is
the reason that it is being promoted very heavily and they are being regulated very-very soon.
E…China dumping
=Government of India has introduced a BIS standard for the yarn and fibres and the
textile products so some of them have been implemented and some has been postponed for the
next quarter. So with the implementation of BIS certainly the dumping from the cheap Chinese
material would stop.
F…Warangal plant
=Capacity utilization was at around 30% in Warangal facilities but sales volumes were at even
more lower level.
=FDY production line is streamlining and we are expecting to get better results from Q3 onwards.
=.PSF line is going to start from September end and so its operations will also reflect from next
quarter onwards.
=By fourth quarter we will be able to
utilize the full production capacity
=.In all, we are very optimistic in enjoying the entire fruits of Warangal facilities from FY25.
G…Nepal plant
= Nepal operations are also expected to be aligned by the end of current quarter where we feel to reach at 75-80% utilization level.
H…Expansion (B2B - bottle to bottle)
H1…Brown field(B2B)
=At the existing plant, we can add 2-3 more lines.At south plant, if we add three more line, the B2B capacity can increase to approximately
50,000 tonnes.
= At present ,we will be adding a line by October, November this year 12,000 tonnes and we are expecting the current capacity to be 90% utilized.
So the new capacity are we expecting full utilization of the 24,000 tonnes by end of FY2025.
.
=Second line which we are putting in, we are having all the
infrastructure and civil work is there and we are having all the utilities also so just the machine
cost is there, which is around 50 Crores for this brown field expansion.
H2…Green field(B2B)
=Here expansion with european wash line and European B2B granule line with a capacity of about 25,000 tonnes is about 225 to 250 Crores
=We will only plan greenfield expansion once we have good capacity utilization
…
3…COMPETITIVE ADVANTAGES
3A…Quality
=Demand
…Basically the market of rPET that is going to be created and the
demand that is coming up globally moving forward is immense.
… In India itself we are looking at
0.9 million tonne to 1 million tonne of market being created by 2028
=Quality supply
…We are talking about setting up a manufacturing capability for circular economy products like this
rPET bottle to bottle it is not easy to achieve the desired qualities that is also very practically
works good just like a virgin plastic at the performance level of the final packaging that is
something because
…When you talk about big FMCG brand , they do not want to compromise at
all with the quality of their packaging
…So definitely some capacities will come up, some of them might not work really good
because we have seen a lot of capacities failing outside as well which have come up. They are
not able to deliver the right product which is suitable for application by FMCG brands.
…We have proved that our quality and capability is better than the most so we are not facing that much of
our pressure or heat in that sense but looking at the market demand that is coming up and the
kind of capability that you need to create this kind of a product is we do not feel that we will face
any pressure from the external market
3B…Sourcing raw material network
=The most major competitive edge is is our sourcing
capability because we are currently capable of sourcing around 500 tonnes of post consumer
waste every day and that is because we have a very huge network of supply chain that we have
built over the years of connecting with small rack pickers, small kabadiwala, and small bailers in
our system and that is one of our big competitive advantages of sourcing the right materials.
=Since we have been operating in this industry since the past 30 years we have a
very good understanding and a very good relationship with most of our vendors and that is
because of which we are capable of scaling our sourcing operations as well and that is the
important part.
3C… Operational efficiency
=The third competitive advantages is that we have is operational efficiencies because the kind of
process control that we are capable of that we have already setup and because of which we are
capable of delivering a very superior quality product and with a much lesser cost levels if you
would compare to any new player coming up, these are the two competitive advantages which
will help us position ourselves much better than any other competitor.
…
4…FINANCIALS
A…EBITDA
=Due to the lower level operations, it might not be great in next one or two quarters, so it may be 15% plus
kind of margins you will see in the Q2 or Q3.
=Even in the down scenario
A1…in PSF business we are hopeful for getting on track by Q3 and 10%
plus EBITDA margin
A2…in Value added business ,we are looking for the margins of 17-18% EBITDA level.
B…Debt
The debt which we are currently having in our book is of 550 Crores and going forward we see
the peak debt would not be more than 600 Crores at any point of time.
C…Depreciation
= The production lines which have started depreciation is for that and going forward we would be
having the PSF line to be operational and the new B2B line is to be started so the depreciation
rate would be increasing because of that extension
=On consolidated level the depreciation level is around 12 Crores on quarterly basis so going
forward we are looking about 35 to 40 Crores depreciation level at Warangal plant and 25 to 26
Crores for the parent company so going forward it may be around 60-65 Crores on the
consolidate level.
…
5…Raw material availability(pet bottles)
=The regulation will come from FY2025. Of course the raw material there might be some shortage
of raw material because the raw material will first go to bottle to bottle chips and after fulfilling
their demands of the bottle to bottle chips it will be for PSF business. So going forward it may
have some pressure around the availability
= But during the growth of pet business itself which is
growing by about 9 to 10% so every year about 100,000 tonnes raw material will also be pumped
in the system.
Disc …invested