Century Enka Limited (NSE: CENTENKA) Q2 2025 Earnings Call dated Nov. 08, 2024
Corporate Participants:
Krishnagopal Ladsaria — Chief Financial Officer
Analysts:
Vikram Suryavanshi — Analyst
Harsheel Mehta — Analyst
Amit Kumar — Analyst
Shruti Shah — Analyst
Kartik Bhatt — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Century Enka Q2 FY ’25 Earnings Conference Call, hosted by PhillipCapital (India) Private Limited. This conference call may contain forward-looking statements about the Company, which are based on the beliefs, opinions and expectations of the Company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference call is being recorded.
I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital (India) Private Limited. Thank you and over to you, sir.
Vikram Suryavanshi — Analyst
Thank you, Siddharth. Good evening and very warm welcome to everyone. Thank you for being on the call of Century Enka Limited. We are happy to have the management with us here today for question-and-answer session with the investment community.
The management is represented by Mr. Krishnagopal Ladsaria, Chief Financial Officer. Before we start with the question-and-answer session, we’ll have opening comments from the management.
I will hand over the call to Mr. Krishnagopal Ladsaria for opening comment. Over to you, sir. Thank you Vikram.
Krishnagopal Ladsaria — Chief Financial Officer
Thank you, Vikram. Good afternoon, everyone and welcome to our Q2 FY ’25 earnings conference call. I would like to thank our host PhillipCapital for hosting this call.
Now let me first brief you on the operational highlight for the second quarter of FY ’25. For nylon tire cord fabric segment, there was good demand in both OEM and replacement market for two, three-wheeler tires from Q1 which sustained until end of August. However, demand remained muted for truck and bus segment and farm tires. There was some moderation in demand following the easing of supply chain situation and we expect demand to pick up towards end of Q3, again, primarily driven by farm segment due to favorable monsoon conditions.
Margin continued to be under pressure due to raw material price volatility and import from China. Approvals for polyester tire cord fabric have started with bulk tires expected to commence in Q4 of the current financial year.
In filament yarn segment, the industry has experienced improved demand condition compared to previous year, which contributed to higher capacity utilization. The strategy of making more value-added products has helped in reducing the impact of China dumping. Margins have improved compared to corresponding quarter due to improved demand and higher share of value-added products.
Let me now brief you on the financial results for the second quarter and first half of financial year 2025. For the Q2 operating results, our operating revenue stood at INR536 crores, which grew by almost 35% year-on-year. EBITDA for the quarter stood at INR38 crores, which grew by 300% year-on-year. EBITDA margins were reported at 7.07%. Profit after tax was around INR21 crores, representing an increase of almost 400% year-on-year.
PAT margin was at 3.99% for the quarter. Total volume for Q2 grew by 27% year-on-year to 20,368 metric tonne. Tire cord fabric revenue for Q2 FY ’25 increased by around 55% year-on-year to almost INR259 crores, while filament yarn revenue for the same period increased by around 20% year-on-year to almost INR254 crores.
For the first half of FY ’25, operational revenue stood at INR1,064 crores, representing a growth of 29% year-on-year. EBITDA stood at INR79 crores, which increased by 156% year-on-year.
EBITDA margin for the period was 7.41%. Net profit was INR46 crores, which grew by 157% year-on-year and PAT margin stood at 4.29%. Total volume for H1 FY ’25 grew by 27% year-on-year to 40,908 metric tonne. Tire cord fabric sales for H1 FY ’25 increased by 39% to INR538 crores, while filament yarn sales increased by 19% to INR480 crores.
With this, we open the floor for questions and answers.
Questions and Answers:
Operator
[Operator Instructions] Our first question is from the line of Vikram Suryavanshi from PhillipCapital. Please go ahead.
Vikram Suryavanshi
Yeah. Hi, sir. Sir, how is the trial run of this polyester tire cord fabric and response for approval process on the same?
Krishnagopal Ladsaria
So polyester tire cord, because it’s used in passenger vehicle, it usually takes a long time in approval. We have started making the tire cord and we have given samples to the tire company. So after initial lab testing of those samples, they will do the field trials. And we expect that early approval for bulk trial to receive by end of this financial year or early next financial year.
Vikram Suryavanshi
Okay. Got it. And how are the raw material prices for us in terms of caprolactam and other raw material?
Krishnagopal Ladsaria
Caprolactam prices had been in the range of $1,600 throughout the quarter, between $1,680 to $1,600. But subsequent to the quarter because of the oil price volatility, prices have come down significantly. And currently, they are ruling somewhere around $1,500.
Vikram Suryavanshi
Okay. Okay. And in terms of our power cost and particularly Bharuch plant, how is the saving coming up for us with this hybrid renewable?
Krishnagopal Ladsaria
So hybrid — because of hybrid power cost, despite DISCOM keeping high power rate, our power costs for the quarter is slightly lower compared to last year. And because last year also, there was hybrid power cost, which was there for part of the quarter. And we are putting up another capacity at Bharuch plant.
So once that other capacity comes up, we’ll see a significant saving in power cost going forward.
Vikram Suryavanshi
Got it? Yeah. Thank you, sir. I will wait for some questions.
Operator
Thank you. [Operator Instructions] Our next question is from the line of Harsheel Mehta from Mehta Vakil and Company. Please go ahead.
Harsheel Mehta
Hi, sir. Thank you for taking my question. Am I audible?
Krishnagopal Ladsaria
Yes.
Harsheel Mehta
Yeah. So, sir, just wanted to understand in terms of we’ve had — the first couple of quarters have been quite good for us. In terms of sustaining this performance in terms of revenue growth and margins, what is the outlook like, especially considering that the tire companies have not been showing the best results this quarter. So there seems to be some sort of a not slowdown but impact of raw material prices, etc. on tire companies. Do we see that affecting us? Or are we confident of sustaining our performance?
Krishnagopal Ladsaria
So we expect some moderation in Q3 mainly because of a bunch of imports coming in. Til August, there were supply chain constraints because of which imports, which would have been made by tire companies were lower.
And after September, those — the situation has eased out. So there will be some pressure because of higher imports, which we are seeing in October month also. But we expect better — there is a pickup in farm segment and there is a pickup in — and we expect that there will be a pickup in commercial segment also once infrastructure spending starts. So there the replacement demand should be better and that should compensate for higher imports.
So we expect some moderation in Q3. But towards the end of Q3, we should have a similar situation, which was there in first two quarters.
Harsheel Mehta
Okay. And in terms of margin, do you think we can sustain margins at around these levels that we have been showing first two quarters?
Krishnagopal Ladsaria
It’s difficult. But in Q3, there will be some pressure. As I said, there was — there is a fall in caprolactam prices. And there will be some mark-to-market impact on the inventories, which we are carrying. And of course, because of the supply chain situation, we are carrying some higher inventories of raw material.
So there will be some impact in Q3. But otherwise, we expect margins to sustain. And we are taking efforts to reduce the power cost. So going forward that should also help, but that is some time away in next financial year.
Harsheel Mehta
Okay, sir. That’s it from my end. Thank you.
Operator
Thank you. Our next question is from the line of Amit Kumar [Phonetic] from Determine Investments [Phonetic]. Please go ahead.
Amit Kumar
Yeah. Hello. Can you hear me?
Krishnagopal Ladsaria
Yes.
Amit Kumar
Yeah. Thank you so much for the opportunity, gentlemen. Actually, my question was also on the outlook. Since you’ve already sort of given it for the tire cord segment, if you can just help me how are you looking at the filament yarn segment for the second half of the year in terms of pricing, in terms of volumes, in terms of industry demand and in terms of, again, competition, both domestic and possibly dumping. Can you just sort of help us a little bit on that side?
Krishnagopal Ladsaria
So we expect filament demands to remain good, particularly there will be marriage season which will start now. So in terms of demand, we expect it to be reasonable and in line with the first two quarters. In terms of margins, there could be some pressure because of higher cost inventories, which are there in Q3 — Q2 because raw material prices have corrected. So some impact would be there in Q3 because of that. But otherwise, NFI demand conditions are good.
Amit Kumar
All right. And like in case of the tire cord segment, you mentioned that some imports possibly coming into 3Q.
Krishnagopal Ladsaria
Yeah.
Amit Kumar
So again manmade fibers, this is a sort of persistent issue with respect to China. So any sort of thoughts here also, please?
Krishnagopal Ladsaria
Yeah. So we are — along with other industry participants, we are pushing for some quantitative restrictions. So that is an industry effort, which has been made. And other side, we are trying to rationalize our costs and see — to become more competitive within our own business.
Amit Kumar
Okay. That’s it from mine. Thank you so much.
Operator
Thank you. [Operator Instructions] Our next question is from the line of Shruti Shah [Phonetic], who is individual investor. Please go ahead.
Shruti Shah
Thank you for the opportunity. My first question was on the capex side. So what is the update on the ongoing capex that the Company was doing? And what is the spend in Q2?
Krishnagopal Ladsaria
Yeah. So our overall spend in half year is INR18 crore — between INR18 crore to INR19 crore. And we expect similar numbers for next half also. And these capex are mainly on energy saving schemes and we are doing some capacity addition for value-added products for our filament yarn segment.
Shruti Shah
Okay. And for FY ’26, what are our capex plans?
Krishnagopal Ladsaria
So FY ’26, generally, we finalize our capex plan towards end of the year. So those numbers are still not been decided and schemes are also not been decided.
Shruti Shah
Okay. And another question I wanted to have was on the — what is the status of cost optimization efforts that we were taking?
Krishnagopal Ladsaria
So major cost for us is power cost and manpower cost. So on both these counts, we are taking efforts to reduce the cost. In terms of power, we are putting up a hybrid power project for our Bharuch unit, which should bring down the power cost. And manpower also, we are trying to cut down on capacities, which are not viable and not to take new manpower, which is — or where people are retiring, we are not taking new manpower.
Shruti Shah
Okay. So was there an impact of these measures on Q2 numbers?
Krishnagopal Ladsaria
Q2, it’s very difficult to give the numbers. But generally, in case of hybrid power, the per unit cost saving is around INR4. And we are sourcing close to 30% of our power requirement for our Bharuch plant from these hybrid projects.
Shruti Shah
Okay. Okay. Got it. Thank you so much.
Operator
Thank you. [Operator Instructions] Our next question is a follow-up from the line of Vikram Suryavanshi from PhillipCapital. Please go ahead.
Vikram Suryavanshi
Sir. How is the scenario or improvement in supply chain for container availability or freight trade side now?
Krishnagopal Ladsaria
They are almost normalized. So container freight, which was almost double to triple, has now been normalized. And there are some delays because of congestion, which got created in last four, five, months. But otherwise, the situation has improved a lot.
Vikram Suryavanshi
And just to understand our competitiveness compared to China, what is current absolute duty structure for imports? And at what percentage of cost reduction we can become competitive, even if we remove duty, if you can give some sense about duty and cost competitiveness for India?
Krishnagopal Ladsaria
So duty in case of filament yarn is 5.5%, which is 5% plus surcharge. For tire cord, it is 20% duty. So tire cord there is good duty protection, which is there. Most of the imports, which comes to India is against the advanced license where tire companies have done the exports.
And in terms of cost information, it is not readily available in terms of what is the Chinese cost is there because it’s quite opaque. But the imports, which comes from China is generally lower than the price at which we sell the material. So their cost structure is better.
Vikram Suryavanshi
And if a lot of companies are buying for advanced — under advanced license then — even then it will be very difficult to apply tariffs or antidumping because of advanced license they will keep getting at better rate.
Krishnagopal Ladsaria
Yeah. That is there. But generally, advanced licenses are against exports only. So as long as it is — we get to serve the domestic market, it doesn’t hurt much to us.
Vikram Suryavanshi
Got it. And for filament, is there any possibility for us to go to value addition in terms of technical textile because I think some of the states are now giving very good policy support for setting up technical textile products and all that? So is there any opportunity for us or we’ll not consider?
Krishnagopal Ladsaria
Yeah. We are looking into these opportunities. One is that we are doing capex on value addition. There is existing value addition also, which has been done and we are looking to do more capex there. And then some of the other areas which are there in terms of adjacencies, there also we are working. And maybe in next year, we will be able to give more detail on that if those plans are approved by the board.
Vikram Suryavanshi
Understood, sir. Yeah. Thank you very much.
Operator
Thank you. Our next question is from the line of Kartik Bhatt [Phonetic] from KB Investments [Phonetic]. Please go ahead.
Kartik Bhatt
Yeah. Am I audible, sir?
Krishnagopal Ladsaria
Yes.
Kartik Bhatt
Yeah. Sir, so just wanted to understand your outlook for H2 in terms of volumes. So I think volumes have been around 20,000 tonnes this quarter as well as last quarter. And I think on a full year basis, we have the capacity to go up to 92,000 tonnes, right? So based on the demand scenario, currently, how do you see the outlook for H2? I mean, if the demand is good, can we move up to 24,000 tonnes, 25,000 tonnes?
Krishnagopal Ladsaria
See, it’s very difficult to give any outlook in current situation because of — because we also — it’s B2B. It would depend on how the demand for tire companies are there. In terms of nylon filament yarn, we have — we are of the view that demand should sustain. For nylon tire cord fabric, we have mentioned in the call earlier that we expect some softness.
We are experiencing some softness in October and we expect pickup from end of Q3 or maybe mid of November. So it will be slightly lower in Q3. But for Q4, it’s very difficult to give any guidance. And generally, we avoid giving guidance.
Kartik Bhatt
Okay. Sure, sir. And I mean, Q3, how is the demand looking like in filament yarn? Is Q3 sequentially looking better than Q2? And sequentially, are we seeing better demand in filament yarn and also in the value-added products?
Krishnagopal Ladsaria
Yeah, Q3 should be good for filament yarn in terms of volumes.
Kartik Bhatt
Okay. Sure, sir. Yes. And sir, on the value-added products, you spoke about, I think going up to level 1, level 2 and level 3 and so on, I think, in one of the previous calls. So I mean, are we making good progress on that further also? I mean is that a key focus area going forward also? And can we expect some margin improvement from that in the coming quarters?
Krishnagopal Ladsaria
Yes. Yes. We are spending capex on value addition. Last year also, we did some capex on value-added products. And this year also, we are doing some capex. So that should help. But these are incremental capex only and will have a very marginal impact on the margins.
Kartik Bhatt
Okay. Thank you, sir. That’s it from my side [Phonetic].
Operator
Thank you. [Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital. Over to you, Vikram sir.
Vikram Suryavanshi
Yeah. We thank the management of Century Enka for giving us an opportunity to host the call and taking time out for interaction with the stakeholders. Sir, any closing comment you would like to give?
Krishnagopal Ladsaria
So thank you, everyone. Thank you for joining our earnings call. I hope we were able to get — you able to give the answer to your queries and I hope those were to your satisfaction. If you have any further question or would like to know more about the Company, please reach out to our Investor Relation Manager at Valorem Advisors. Thank you.
Operator
[Operator Closing Remarks]