July 2024(Q 1 -2025 concall)
1…VOLUME GTOWTH
=The company has grown volumes at 40-45% over the last 18 months
=On operational front, we achieved an impressive 14% year-on-year volume growth.
2…EXPORT
=On the international front, export volume grew by 12% year-on-year
3…Segmrnt wise growth
=We have had growth in June quarter largely led by paper and
construction as well as tyre cord. So, those are the three large ones that in terms of growth, those are the highest. So, overall, it’s been a good growth segment in terms of volumes
3…CAPEX COMPLETED
.There were two projects that we
invested in last year, about
A…Rs. 150 crores – Rs. 160 crores in Valia @Nitrile latex @for the gloves project
=50% capacity utilization
=We expect capacity utilization over the next 1 or 2 quarters to move to 65%.
=Volume growth
=Ebita neutral
=No profit at present
B…Rs. 50 crores in Taloja @ styrene butadiene and other latex.
=70% capacity utilization.
=We expect to go to 100% over the next one year, 1 year to 15 months.
4…WHY LOW MARGIN
A…NITRILE LATEX
=Nitrile Latex has been obviously going through a tough period and now closer to breakeven or slightly below breakeven due to excess capacity created at covid time
=Look, I think there’s two things right. One is the inventory of gloves and inventory of Latex.
=Inventory of Latex is not never a problem. You can’t store latex for very long, it’s difficult. It’s 55% water and so on. So, the issue is your inventory of gloves, which as you rightly said, is from all imports being utilized or come to an end now.
=Now the issue is mainly the additional capacity of gloves and latex that was put up and so the capacity utilizations are at maybe 50% to 60% is what we are hearing. The market growth is still there, double digit market growth for gloves
and therefore latex. So, as it goes up to 75%-80% again, margins should look fairly healthy is what we think.
= We have a small capacity compared to the global capacity of Nitrile Latex
and that should not be a problem. The issue is margins. So, when an industry is running at a low capacity utilization, automatically margins are muted because buyers are able to negotiate
harder right and sellers are wanting to sell their capacities. So, the margins is what is the main issue with lower capacity utilization.
=Non latex has also low margin
There are 2 other areas of business where margins have sort of come down, mainly
B…LATEX FOR PAPER
=One is on paper, the latex we make for paper and that’s because both us and BSF or our competitor has added more capacity over the last year or two. So, that we are going through a
cycle, I think things will improve.
C…NBR
= The other is NBR. Over the last year or 14-15 months, if you
see NBR margins being lower than what we have seen in the past. What I would say is the average over the last 6-7 years. So, that’s been another challenge. And I think the main reason china slow down and russia issue leading to excess dumping in india
=However, since we are the only manufacturer in India,
we continue to run at 100% capacity utilization for this NBR business. But margins have been
lower than the average as I would say over the previous 7 years that we have run this business. So, these two are the reasons why margins are a little lower in the rest of the business.
5…MANAGEMENT OPTIMISTIC
=All sort of industries go through this cycle. I think the chemical industry is going through a cycle of lower
margins. I would not say terrible margins, but lower margins in general for most chemical
companies that have been watching. So, I think we are in the same boat.
=I just wanted to say that look, these cycles continue and we’ve seen this in the past when capacities
are added for a year or two, margins are an all-time low and then not all time low, but they are
lower. And then they go higher up and as the capacity utilization total volumes go up, the
margins will go up in this real fashion.
=Margins will improve slowly. In fact, we’re already seeing margins in Q1 have been marginally better than Q4, for example, and we expect
Q2 to be marginally better than Q1. Now whether they will go back to the pre COVID levels or
when they will go back to the pre COVID levels is where we are not sure
=So, this is what I suspect, so earlier we used to be in the
6% to 10% range. Now we’re in the 10% to 15% range and so we’ll perhaps over the next 4-5
years, I expect that you would see outside the 13% to 17% range. So, this is how I think things will go, will happen as long as we keep growing and growing at a reasonable margin
6…FUTURE CAPEX
A…R and D
=There is also plan to build a new R&D building and this seems to be a great time to invest behind research with a new R&D chief
B…Styrene butadene latex
=Second investment is which we will announce again in the next 3 to 6 months is additional investment for our styrene butadiene latex products because we expect that capacity to be utilized by end of next year. So, we will
have to start working on that because the lead time is typically a year to complete that project
C…NBR
=The margins have been challenging for two reasons, Russia NBR as well as overall Chinese slowdown.
= So, at this stage, I don’t think it
justifies for us to make an investment in NBR.
I think if we see some longer term viability, we’ll look into it. It’s still not a bad investment, but I just feel like or we feel as a board as well and
senior management of our team feels that there could be better
opportunities to invest in.
=So, we are just waiting and watching.
=We’re at 100% capacity utilization. We would love to grow
and given the Atmanirbhar Trust of the government, this would really help India also with
reducing the imports of NBR because even currently, around 70 or more than 70% of NBR is being imported in the country. So, we would love to do that. But given the current CAPEX costs,
it was not working out to be viable. I think in the next year or so, we’ll see if it makes sense
Disc…Invested
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