Filatex India Limited (NSE: FILATEX) Q2 2025 Earnings Call dated Nov. 13, 2024
Corporate Participants:
Madhu Bhageria — Chairman and Managing Director
Unidentified Speaker
Analysts:
Aditya Vora — Analyst
Unidentified Participant
Sandeep Raj — Analyst
Harsh Patel — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Filatex India Limited Q2 and H1 FY ’25 Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Aditya Vora. Thank you, and over to you, sir.
Aditya Vora — Analyst
Thank you. Thank you. Good afternoon, everyone. On behalf of Share India Securities, I would like to welcome all the participants for the second quarter and 1H FY ’25 earnings conference call of Filatex Limited.
We are pleased to have with us the management team represented by Mr. Madhu Bhageria, Chairman and MD; Mr. Madhav Bhageria, Joint MD; and Mr. Ashok Chauhan, Chief Visionary Officer. We will have opening remarks from Mr. Madhu Sudhan Bhageria to give an overview on the company’s performance. This will be followed by the question and answer.
Thank you, and over to you, Madhu Ji.
Madhu Bhageria — Chairman and Managing Director
Thank you so much. Good afternoon. A warm welcome to all attending this conference call for the quarter and half year ended September 2024.
Joining me in this session are Mr. Madhav Bhageria; Mr. Ashok Chauhan; and Mr. Nitin Agarwal. I presume you would have gone through the investor presentation, which has been uploaded on our website as well as on the stock exchanges.
Let me quickly take you through the standalone results of the quarter Q2 FY ’25 over Q2 FY ’24. Revenue was INR1,049 crores against INR1,108 crores. EBITDA stands at INR45.7 crores against INR54.2 crores. Net profit is at INR13.5 crores against INR23.1 crores and half year H1 ’25 versus H1 ’24, the revenue was INR2,103 crores against INR2,177 crores.
EBITDA was INR106.6 crores against INR99.1 crores. Net profit is INR45.7 crores against INR40.7 crores. The performance year-on-year basis is almost the same in H1 ’25 as was in H1 ’24, just a few points better in comparison, but it is still not normal as the margins continue to be under severe pressure.
On quarterly performance, we would say that in Q2 ’25, we had a stable performance amidst strong headwinds like a steep fall in raw material prices, leading to rather erratic and subdued offtake in the months of July-August. Due to falling crude prices, the buyer sentiments have been wait-and-watch. The gradual fall in crude prices has been across the whole quarter. In a gradual falling input price regime, the buyers deferred their decision looking for the bottom and buying is limited to daily requirements. The demand for yarns in the domestic market has been reasonable, but there were frequent lumps in mind. Overall, in the segment of textile, the domestic demand was subdued.
The consumer sentiments beat due to higher inflationary pressures, the ruler demand is showing some signs of recovery and in fact, is visible in textile segment. We observed encouraging uptick in both demand and margins across our operations since beginning of October. The growth trajectory in the last three years in India has been flat as several successive waves of turmoil have rippled across the globe, which have affected Indian manufacturers. Crude prices and consequently, petroleum derivatives are still not stable and fluctuations are visible almost on a daily basis.
Geopolitical tensions have marked many aspects, be it inflation rate or exchange rate, or international prices of raw materials and commodities and shipping rates. However, the long-term outlook remains buoyant due to strong fundamentals. Polyester continues to be the most widely used worldwide fiber.
With an annual production of around 71 million tonnes, polyester market share was around 57.2% of the global fiber production. India’s share in global supply is not growing at the same pace. Sparsity of key raw materials and some policy issues have restricted growth. Continuous pressure on the margins has been — also been a better end. Some long pending policy corrections like inverted duty structures in GST on polyester input material will give impetus to the domestic industry.
Another request under consideration is shifting these materials under chemical — from chemical and fertilizer to textile ministry. It would help them to take a holistic view of the global competitive scenario. For textile yarn export, it is equally difficult to compete in international market against lower Chinese prices worldwide. Global textile industry has been identified as one of the major polluters. The footprint of pollutions are everywhere, be it reverse or groundwater, air, soil, biodiversity, marine life, textile industrial scrutiny for identifying processes and practices that cause pollution and remedial measures are moving from the suggestive stage to the enforcement stage. Norms are being defined to phase out all the chemicals. International brands and their consumer are increasingly demanding traceability in offering of sustainable products and regulations are tightening to ensure technical and environmental practices throughout the supply chain. We strongly believe that this is the time for textile transformation.
To ensure sustainability and reduce environmental impact from the textile and apparel industry, utilizing a sustainable circular economy model is of primary importance. It is one of our topmost priorities to be contributor to this model. Sustainability is a survival mantra for our planet. To carry on business, imbibing this is not as a mere compliance of stipulated key parameters, but also a way forward to grow business.
As mentioned earlier, we have been carrying out R&D for textile-to-textile recycling. We have developed and patented a process based on molecular regeneration of polyester, which can be recirculated infinitely. We are running a pilot plant to use miscellaneous types of textile garments home and waste. Simultaneously, we are in advanced stage of discussion with equipment suppliers for a 26,250 tonnes per annum capacity plant, we have procured the land, are in the process of seeking permissions to set our recycling facility as a greenfield project.
In our assessment, we should be completing this project by end of first quarter of 2026. Meanwhile, the process parameters of the pilot plant are being tested for a larger-scale upward. It is a time-consuming process as there are no ready-made equipment. Several field trials at vendors plants are underway for efficient use of energy and waste-heat recovery. Our future path for growth is likely to be through recycling of polyester and we are in touch with leading brands.
To certify recycling there are several international organizations. Their representatives are visiting our pilot plant to carry out life cycle assessment. Textile Exchange, the global leading organization has chosen our plan to review and assess how to standardize actuation and certification contained for recycling across all the continents. One of the key elements of recycling certification will be traceability of all inputs which means that our all resources of supply for all imports would also have to be compliant with a uniformity — uniformly stated procedure. Several companies all over the world are experimenting to develop commercially viable technologies. We are of firm belief that though sustainability in textile may sound difficult, it would the way forward and it may pave way for Indian companies to set up plants on foreign soil.
In the existing plant, we are consolidating operations and taking steps towards compliances to sustainability standards. We have sourced around 30% of our energy from wind and solar power sources, thereby reducing our carbon footprint.
Thank you.
Operator
Should we begin the question-and-answer session, sir?
Madhu Bhageria — Chairman and Managing Director
Yeah, please.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We’ll take our first question from the line of Amit Vora from Ginnar Consultant [Phonetic]. Please go ahead.
Unidentified Participant
Good afternoon, gentlemen. Thanks for the opportunity. Just extending from the opening — from the remarks that you mentioned in the presentation that you are witnessing a turnaround in the industry. If you can just give some color on that?
Madhu Bhageria
Yeah. See, the industry is turnarounding because the demand has increased and we can see the margins improving, and whatever stocks people were carrying more in the last quarter, that have also reduced significantly. And going forward, if the demand continues like this, I don’t think there’ll be enough material to give because previously we had some stocks of the first quarter and beginning of the second quarter, which got sold in the end of the second quarter and also in October. But from November, I don’t think there’ll be so much of availability of material if the demand continues to be buoyant, which I feel should remain buoyant.
Unidentified Participant
Okay. Understood. Sir, one question is on your Ester Industries, which is one of the companies which have announced a tie-up with Loop for a recycling plant. In comparison to that, how are we different, if you can just give some broad outlook on that, sir?
Madhu Bhageria
See, what they are doing is they have tied up in Loop industries. Loop has been doing in research for a long time. Their cost of production, whatever they have claimed in the presentations by Loop is also very high and also they are going back to the raw material, they would be making DMT and MED. Then they further need to polymerize it to make granules or they are, I think polyester. Ester is in film business, so they would use that to make films.
So in our business, we would be not going to raw material stage. We will bring it very close to that, purify it, and then make directly the polymer. So there is a difference in that. Also, the cost of production what they have declared, the total capex, so they would be almost more than 60% more capital intense than us. And I don’t think Loop has tested this in a big way in their pilot plants or anywhere. There are no such records of that they have perfected this technology.
Unidentified Participant
Okay. Understood, sir. Just one more question on the recycling plant, sir. Once we are having the plant up and running and it starts contributing to the revenues. At full utilization, is there a ballpark number that what we can achieve and achieve in terms of sales and return ratios on the plant, sir?
Madhu Bhageria
I think the top-line would be close to INR270 crores to INR300 crores and we should get a EBITDA of 35% to 40% on that.
Unidentified Participant
35% to 40%.
Madhu Bhageria
Yeah. So you can say we should get EBITDA of more than almost INR100 crores.
Unidentified Participant
Okay, understood. Sir, I have a question on your cash flow, sir. So this first half our cash flow from operation post-taxes and working capital stood at INR45 crores and this number last full year was INR168 crores and taking this back further, in FY ’23, we were doing almost INR325 crores of cash flow from operation. So what is the reason for this deteriorating cash flow, sir? So if you can just explain, then I’ll have a question on that, sir.
Madhu Bhageria
The deterioration is because of the margins. The margins have deteriorated, so the profitability has gone down, cash flows have gone down. Also, we had in FY ’22, we had paid lot of repaid the loans. This year also we had paid almost INR52 crores prepayment of the loans.
Unidentified Participant
Okay. So, sir, if we were to assume from what has been presented and what your commentary has been that the turnaround is visible. So can we see that in FY ’26, we would be doing INR300 crore-plus cash flow from operations with this working capital improvement and margin improvement that we are foreseeing? Is that a fair assumption?
Madhu Bhageria
Yeah. We will do much better than INR300 crores in FY ’26.
Unidentified Participant
Great, sir. Sir, one question to extend on that is current our net debt is around INR160 crores, about INR300 crores is our planned capex, which will happen. With this kind of cash flows that are going to happen, we would be approximately a debt-free company by FY ’26, is that the right way where I’m pointing towards?
Madhu Bhageria
Yeah, we should be very close to that because we are also planning one more small capex to increase our capacity of yarn like we had added cationic plant of making polyester chips. To utilize that, we are planning to put almost 75 tonnes of new yarn capacity, which will be 50% FDY, 50% POY. So that will need a capex of INR120 crores, which is yet to be given to the Board. But yeah, maybe I’m just watching the market. If I see the market very good in this, what I’m hoping it should be, then we’ll go ahead with that project. So after that also, we should be very close to debt-free in end of FY ’26.
Unidentified Participant
So that would be a significant improvement in terms of cash flow, sir.
Madhu Bhageria
Investment of INR120 crores in that.
Unidentified Participant
Okay. Okay, sir. One last question if I may squeeze through and then I’ll get back in the queue. Our ROCEs were about 14% in FY ’24 with this entire working and the turnaround that we are seeing in the industry. My calculations suggest that we should be upwards of 22% ROCE by FY ’26. Is that a fair working?
Madhu Bhageria
Yeah, I have not calculated the ROCE. I can tell you the EBITDA will be more than double-digit in FY ’26 for sure.
Unidentified Participant
That is helpful, sir. I have a couple of questions, but I’ll join back in the queue. Thank you so much and all the very best.
Madhu Bhageria
Thank you.
Operator
Thank you. [Operator Instructions] Next question is from the line of Aditya Vora from Share India. Please go ahead.
Aditya Vora
Thank you for the opportunity. Madhu Ji, I had a couple of questions.
Madhu Bhageria
Yeah, please.
Aditya Vora
One is with regards to our margin, I think in FY ’21 and ’22, we were doing 14%, 15% margin. I understand those were the best years and currently, we are at a 5% odd EBITDA margin. Strategically and going forward, what needs to change over the next six months to nine months so that we can get back to our margins of, say, 8% to 10%? So can you just highlight that?
Madhu Bhageria
A lot of things have already changed. First of all, demand is growing, no new capacity has come in so much. Second is that there were a lot of imports of fabric in India at very low ridiculous prices from China. The government has put a minimum import price on the fabric, so that has also stopped. These are the main reasons the demand has increased and because of the demand increase, the margins have to come to a level where people can put more capacity and that is almost 14%, 15%. We don’t make, 14% 15%. I don’t think new capacities will come in India. Government wants to grow textile and textile growth can only happen through polyester that has been seen in last 10 years, 15 years. The major share of the growth in textile has always been polyester. India did not focus on that. That’s why India has not grown in textile so much. China had been growing.
Now the focus has come back. So I see the margins improving and at least we should be more than — I mean in some middle double-digit number, then only new plants can come in because the new plant costs around INR1,600 crore, INR1,700 crores for a 2 lakh tonne plant. So the margins are not that way, nobody is going to put the plant.
Aditya Vora
Right. And so you highlighted on-demand. You are saying that demand was fairly robust in the past one or two months. Maybe July, August was a bit slow. But how do we see demand going forward because from what I understand, demand has not been much of a problem, it is only the pricing and the cheap imports from China, which has led to low realizations for this.
Madhu Bhageria
In the commodity, a small disruption can lead to losing the margins, no. So we were getting almost like a 900 tonnes of material every day in the form of fabrics from China. So that has stopped. So that will make a huge difference, no. So, 900 tonnes is almost I would say we make around 15,000 tonnes. So 900 you can say is around more than 6%. So that is top. So that will increase the demand for the local fabrics and in turn for the yarn.
Aditya Vora
Right. Okay, sir, thank you so much and I’ll come back in the queue for more.
Operator
Thank you. [Operator Instructions]. We’ll take our next question from the line of Sandeep Raj from Oculus Capital Growth Fund. Please go ahead.
Sandeep Raj
Hi, sir. Good afternoon. My question was regarding the new recyclable plant. I just wanted to know what is the timeline, what is happening there, when will it be commissioned to be still, and that will commission by the end of calendar year 2025.
Madhu Bhageria
Yeah, good afternoon. I don’t think so. Maybe we will go up to first quarter ’26. But there is a probability we might complete in end of ’25, but definitely by first quarter ’26.
Sandeep Raj
Okay. And what’s the progress there like are.
Madhu Bhageria
See, it’s a greenfield project and also it’s a new technology to identify the machines to test them in the — and then buy them is a very tedious and a long process. But still, I feel we should be commissioned in the first quarter or in ’26.
Sandeep Raj
Okay, so quarter one FY ’26 will be the latest by when.
Madhu Bhageria
That’s what I think.
Sandeep Raj
Okay. And where are we on it right now? Like are we on the approval stage, the land acquisition registration?
Madhu Bhageria
Land we have got it. [Indecipherable] we have applied that should be get it in end of November and then we have to submit plans for the building. So that we are already trying to finalize. Machinery suppliers we are in advanced talks to finalize those machines. We are testing those machines in a smaller way, whether they’ll work for us or not. So all that is going on.
Sandeep Raj
Okay, got it, sir. Thank you. That’s it from me. Thanks.
Operator
Thank you. We’ll take our next question from the line of Rahul Rama from Vista. Please go ahead.
Unidentified Participant
Hello, can you hear me?
Operator
Your voice is not clear. Can you use your handset mode, please?
Unidentified Participant
Ma’am, I’m actually in handset.
Operator
You are sounding muffled.
Unidentified Speaker
Ma’am, let me just disconnect my earphones. Hello, can you hear me now?
Operator
Yes.
Madhu Bhageria
Yeah, please go ahead.
Operator
Yeah, please go ahead.
Unidentified Participant
Sir, I have been why [Indecipherable] since you first mentioned this.
Aditya Vora
I’m sorry, we lost you again.
Unidentified Participant
Yeah, sir. Sir, can you hear me now?
Madhu Bhageria
Yeah, now it’s better, but.
Unidentified Participant
Okay. So I’ll just try again. Sir, my question is pertaining to the — this recycled polyester.
Madhu Bhageria
Yeah.
Unidentified Participant
So I think I’m not sure, but it was maybe two or three years ago when you first mentioned it and I’ve been just tracking your progress on it, sir. So what I wanted to know is that when you first — I asked you what are the margins to be expected, you said 35% and even on this call, you maintained that it would be around 30%, 35%. So I’m just trying to understand because I’m trying to understand for you, the industry dynamics a bit better, I guess, because usually when you see this kind of margins, it attracts competition and people want to come in, but even after three years, you are still maintaining that 30%, 35% margins. So sir, what is like the holder? What is like preventing other players to come up with capacity, sir?
Madhu Bhageria
The last three years also, no new capacity in this has come up. Everybody is in the research stage on putting up a plant. So the margin would remain that level only till the time there is too much of capacity in this coming up. The demand is much higher than what the people are producing. I think the demand would be today maybe eight times to 10 times what the production is happening. The production is very, very low. And also what people are producing is mostly out of pet bottles. Nobody is producing after textile waste.
And now in Europe, there is an extended producer responsibility which has been — which will come in force from 1st of January 2025. India also is putting lot of producer responsibility for bottle to bottle. So availability of the bottle will also go down. And whatever technology we are using our cost of production is that, that we will be producing the polyester at a much cheaper price than the virgin polyester. So that will also give us some margin and plus the premium what you get on the virgin that will give us. So the margins would remain. If you go and see the presentation of Loop and all, they are claiming 40%, 45%. I’m not claiming that and their investment is almost double than what we are doing. Still, they are claiming such a high profitability.
Unidentified Participant
So, sir, I have done my fair bit of research on this Loop and other players as well and I am aware of what you said. And I also remember you saying that all of these players, they are not from the textile industry, they are mostly startups with science background and you would have a distinct advantage versus them because you’re one of the few players, who is actually a textile producer, I mean a — what do you call polyester producer, who is venturing into recycled polyester? So over the last three years, sir, what have you been learnings? Has it like actually materialized into you having a cost advantage as you just mentioned? And if so, like what can you tell us about it? Like how has that translated into you having a cost?
Madhu Bhageria
We have been able to first of all check each and every process in-house what we’ll be doing. And also, first, we also started from pet and yarn waste. Now we have been able to use even the fabric waste pre-consumer because we need to know what is inside that’s happening. So we are using pre-consumer waste of the fabric, which is like the small cut ones, which you get from the people who are making fabrics or the process houses or the garment producers. So that we have been successfully been able to use and convert it back. Now we are just trying to fine-tune the process and also trying to get the machines which will be suitable for such a large production comparatively. So that the ease of operation is also there.
Unidentified Participant
Got it, sir.
Operator
I’m sorry, Rahul, we lost you again.
Unidentified Participant
Hello.
Operator
Yes, we could hear you now. Go ahead.
Unidentified Participant
Yes. So also, I do understand that because this is also like a novel project for you guys, it has — the commissioning of the plant has taken a lot longer than you initially had envisaged and that’s understandable. But sir, like all that is fine. On your side, you have done everything right, let’s say, right, and you perfected the recipe for producing this virgin polyester. What is — what does it take from the client side because I’m guessing there must be some even from the client side to make sure that the quality is up to mark and there’ll be some trial runs. So even if say you get the plant commissioned, so how do you see the offtake happening here? Will it be like a slow process or client just actually hungry for this virgin polyester, I think?
Madhu Bhageria
See, we are already in talks with the clients and in case they want some trials, we can do it from our pilot plant. So, hopefully, by the end, when the plant — the big plant is running, we should have the clients in place, maybe not 100%, maybe 50%. And then within next three months to six months when the client can see the operation, they might do it faster. So, yes, for three months to six months, the productivity could be lower. But definitely, it should come to almost full capacity within six months because we’ll be doing the client feeding from. Now only we are in talks with them, what are their requirements, what are the environmental requirement they will need in the new plant we should take care. So all that we are taking care.
Unidentified Participant
Perfect, sir. Sir, just one last request from my side, or the only request actually. Like whenever you do commission this plant and let’s say you get your first maiden customer, it would be really helpful for us investors if you could notify the exchanges once you bag your first customer, sir.
Madhu Bhageria
Sure. I would do that once I have some positive approvals from one customer and will have notified the name also if they allow.
Unidentified Participant
Yes, sir. Perfect. Thank you so much, sir. And good luck to you for this.
Madhu Bhageria
Thank you.
Operator
Thank you. We’ll take our next question from the line of Amit Vora from Ginnard Consultant [Phonetic]. Please go ahead.
Unidentified Participant
Yeah. Thank you. Thank you for the follow-up. Sir, one question is on the EBITDA that you mentioned that you would be at double-digit. How far have we come on that, sir and what is the near-term understanding on the EBITDA margin that we can look at?
Madhu Bhageria
I think we should be very close to 8% in this quarter and we should do approximately double-digit in the next quarter. And then going forward, it should improve.
Unidentified Participant
Okay. So every quarter from here on, we should see some improvement on quarterly basis and then probably double-digit is where we should stabilize.
Madhu Bhageria
Right.
Unidentified Participant
And one more thing, sir, our interest cost has gone up quarter-on-quarter to around INR8 crores from INR5 crores, I think. So what is the reason for this, sir?
Madhu Bhageria
In this quarter, we had a mark-to-market loss on long-term borrowings. We have long-term borrowings in euro, which we don’t hedge as a policy. Overall, we have gained quite a bit because of that. So this quarter, I think on 30th September, the rate was almost close to 93 points something, which has come down below 90 points now. So this quarter it will get negative. It’s not a cash loss, it’s just a notional loss, which we had.
Unidentified Participant
Notional. Okay. Understood. Yeah, that’s it from my side. Thank you so much and all the best.
Operator
Thank you. [Operator Instructions] Next question is from the line of Harsh Patel from Share India. Please go ahead. Mr. Harsh Patel, can you please unmute yourself?
Harsh Patel
Hello, am I audible?
Operator
Yes.
Madhu Bhageria
Yes, you are audible.
Harsh Patel
Thank you so much for the opportunity. Can you — so can you let me know what’s the festive demand for this — for this year? And can you show throw some light on capex for coming quarters?
Madhu Bhageria
See, coming quarters, there is no capex planned. The main capex, which we are doing is on the recycling. So that will be very low in the first one or two quarters. It will pick up, I think by end of second half of next financial year.
Harsh Patel
Okay. So what would be the amount of capex which we are planning?
Madhu Bhageria
We are doing in recycling is INR300 crores. And one project, which we are planning to do would be INR120 crores to enhance the yarn capacity in the existing plant.
Harsh Patel
Okay. And can you show — throw some light on festive demand?
Madhu Bhageria
Festive demand is good. That’s why what I said, the demand has been good in October. So that’s the festive season. Demand has been pretty good. And I think it should continue what we see from the offtake of the fabric happening with the people. Every fabric guy had lot of stocks. So, all stocks have been almost wiped out in the October month.
Harsh Patel
Okay. Thank you so much.
Operator
Thank you. [Operator Instructions]. As there are no further questions, I would now like to hand the conference over to the management team for closing comments. Over to you, sir.
Madhu Bhageria
Yeah. I thank all the participants for sparing their time in joining us and hope to see them in the earnings call of the next quarter and end of financial third quarter. Thank you so much.
Operator
[Operator Closing Remarks]