Filatex India Limited (FILATEX) Q3 FY23 Earnings Concall Transcript

Filatex India Limited (NSE:FILATEX) Q3 FY23 Earnings Concall dated Feb. 09, 2023.

Corporate Participants:

Madhu Sudhan Bhageria — Chairman & Managing Director

Analysts:

Niraj Mansingka — White Pine Investment Management — Analyst

Vishal Bagaria — RohaAssetManagers — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Filatex India Limited Q3 FY ’23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Madhu Sudhan Bhageria, Chairman and Managing Director, Filatex India Limited. Thank you, and over to you, sir.

Madhu Sudhan Bhageria — Chairman & Managing Director

Thank you. A warm welcome to all of you attending this conference call for the quarter ended 31 December, 2022. Joining me in this session are Mr. Ashok Chauhan; and Ms. Stuti Bhageria.

I hope you have gone through the investor’s presentation, which had been uploaded on our website as well as on the stock exchanges. A quick recap of the results of this quarter, Q3 FY ’23. We achieved a production volume of 99,969 metric tons in this quarter as against 97,169 metric tons in the previous quarter.

The sales volume for Q3 is 100,468 metric tons as against 101,488 metric tons in Q2. The sales revenue achieved this quarter is INR1,070 crores as against INR1,163 crores in Q2 FY ’23. The operating profit EBITDA is INR44.44 crores as against INR46.26 crore in Q2. Net profit is INR2.74 crore against INR25.16 crore. Comparing it on year on year basis, the EBITDA in nine months FY ’23 is INR165 crore as against INR385 crore in FY ’22. Net profit is INR71.31 crore as against INR224 crores.

The financial numbers of Q3 FY ’23 gives an impression of a gloomy situation. This is not so. We had a good performance — operating performance in this quarter, and we achieved the highest monthly sales volume in December 2022. As was in Q2, we operated at almost 100% of our capacity. The drop in profit before tax and PAT is — in this quarter is due to weakening of the rupee in this quarter against the euro, which resulted in notional mark-to-market exchange losses on account of our euro loans.

China’s prolonged zero-COVID policy continues to adversely impact the Indian polyester sector. Strict lockdowns and restrictions on people and goods have caused a major slowdown of the Chinese economy, resulting in slump in domestic demand. Chinese polyester filament manufacturers flooded international markets including India. With low-price goods, Indian traders and customers have imported more than 200,000 metric tons of filament in the last nine months.

This heavy import at low cost has forced domestic manufacturers to match price — import prices resulting in squeezed margins. So the battle in the Indian domestic market is still on. Low-price Chinese products were available worldwide and obviously, the Indian manufacturers could not match the Chinese prices in global markets. Thus, huge incoming imports coupled with loss of export volumes created excess supply in the Indian market.

The price churning was also rather extreme and needed adjustments every day. However, there are signs of decrease in import streams and China has finally relaxed its zero-COVID policy. With easing of restrictions in China, the domestic demand is gradually building up. Dumping of material in absence of demand has hurt Chinese players too, and they are also looking at increasing their margins. These factors are having a positive effect on domestic margins in India and sign of improvement in the markets are also visible.

A quick update on plant operation and expansion projects. We have completed all our ongoing capital expenditure plans and are now running the plant at full capacity. To improve our product mix and offer binder, winders. We have placed orders for some additional winders. These winders will increase our production capacity by 25 tons to 30 tons per day in several POY, and is expected to be commissioned by end of May 2023.

To further enhance our product basket, we are putting up a new cationic chips line at the Dahej with a capacity of 70 metric tons per day, which will be completed by March 2024. In regard to our Captive power plant, there is a downward movement in coal prices. Although they have not reached pre-COVID levels, therefore, we will be restarting Captive power generation by mid-March. The work on the recycle polyester pilot plant is in full swing. We are carrying out process trials with different kinds of ways, and establishing norms for efficient operating conditions. It is meticulous and time-consuming task, and we are achieving good results. We have taken trials of spinning and recycled chips, and converted it into cloth to test the parameter. The results are positive and encouraging.

Committed to reducing our carbon footprint, we partnered with Fourth Partner Energy for a hybrid wind and solar power project with a capacity of 10.8 megawatt. The wind turbines have been erected, the solar panels are being installed, and the final approvals are under process with the state authorities. The project is on schedule and expected to start delivering power to our plant by April 2023.

In conclusion, the opening of the Chinese economy and enhancement of our product range are expected to drive improved profitability in the upcoming quarters. We are confident about prospects of our business in the coming years, and remain dedicated to providing value to our shareholders and stakeholders. Thank you.

Now, you can ask questions if you have any.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions] We have the first question from the line of Niraj Mansingka from White Pine Investment Management. Please go ahead.

Niraj Mansingka — White Pine Investment Management — Analyst

Yeah. I just wanted to know some color on the current last quarter consumption. You said you were running this plant at 100% utilization. Can you give some color on the industry and as far as the PFY is concerned and also the downstream demand in India.

Madhu Sudhan Bhageria — Chairman & Managing Director

I couldn’t follow but whatever I have understood, the consumption is quite robust in the downstream. As you — I have told in the — that the imports were also there and also the exports have reduced. In spite of that, we have been able to run at full capacity and have been able to sell the full capacity. So that — the demand in the downstream is quite robust. So going forward, as the imports will reduce and the exports will increase, I think the margins will also increase.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay. No, no. I was more referring to — if you look at the results of a lot of companies which are indicating as an industry, do you see that the polyester limited or non-cotton demand will continue to grow? And which are the areas do you think might be contributing to the demand, like is it the fast fashion or is it the school kids or is it the formal clothing? Just wanted to…

Madhu Sudhan Bhageria — Chairman & Managing Director

Now, polyester is present in each and every season.

Niraj Mansingka — White Pine Investment Management — Analyst

Yeah. It is there. Right. Yeah.

Madhu Sudhan Bhageria — Chairman & Managing Director

Something to that, and today, polyester is — virtually, even in MMF, it is around 80%, 85%, and if you see the whole basket, it is more than 60%. And there is no competition as far as price is concerned between natural and other MMF because it’s one of the cheapest. Today, if polyester is INR100, cotton would be more than INR300. And even other MMF are more than INR150-type spend. Nylon would be more than INR200, INR250. So there is no price competition and the demand for polyester is rising day by day because the properties which have been incorporated in this, they are quite near to the natural fibres also, and the other MMF. And this is very easy to weave and maintain.

Niraj Mansingka — White Pine Investment Management — Analyst

Yeah. Okay. No. That’s true. The other thing, related question, but if — you said that supplies from China was almost 2 lakh tons in nine months FY ’23 as an estimate. What would have been these imports a year back from China?

Madhu Sudhan Bhageria — Chairman & Managing Director

Year back, I think it could have been less than 1 lakh of tons. And in last three-four months, it increased quite a bit. In this 2 lakhs also, in last three-four months, it has been almost to the tune of around 30,000 tons per month. Like October was around 30,000, then 35,000. December also, around 35,000.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay. And has this subsided or do you think it is continuing?

Madhu Sudhan Bhageria — Chairman & Managing Director

No. From January, it has — like, December supplies have come in January. Now, from February, it has gone down because the prices in China have gone up. And it is not too much of benefit for the people to import. We can meet those price expectation. It’s not fully gone down but I think it is going down. Maybe it has gone down by 30%, 40%. Also, the exports have also started trickling in because China is also starting offering, export prices are also improving. So we are overall — complete in the export market.

So as our exports had gone down by at least 75%, 80%. So we were doing only 20% of the normal volume. Now, I think we are going to 30%, 35%. So it’s too early because one is — China has just opened up last week only, and even the full labor force and they are also — the full downstream has not started. So I think within the next couple of weeks, we’ll see more effect of this. But, definitely, the prices will improve if they — they’re also making losses in these kind of prices. So they also want to come into green and increase the prices. So they have kept their production low. Even though they have started but they are not increasing their production capacity till the market stabilizes.

Niraj Mansingka — White Pine Investment Management — Analyst

Got it, got it. And other thing is you said about the combined hybrid wind power — wind and solar projects for your — Filatex. What will be the approximately savings that will see and…

Madhu Sudhan Bhageria — Chairman & Managing Director

I think we would save anything around INR10 crore to INR12 crore annually. So we’ll be getting around roughly 5 crore units per year, and we will save around INR2.5 crores to INR3 crores. INR2.5 crores.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay. So how much is the per unit charges?

Madhu Sudhan Bhageria — Chairman & Managing Director

By the end of March, I think second half of March, there also — if not March, at least we will have a annual saving of at least to — around INR70 lakhs, INR80 lakhs with the power plant starting up. And as the prices of the coal go down, I think the savings can still go up.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay. And another thing is on this capacity — now you are running full capacity even at the India’s low demand scenario. Any thoughts on expanding your capacity on the polyester side?

Madhu Sudhan Bhageria — Chairman & Managing Director

We are just waiting for the markets to stabilize and give a clear-cut direction, and we are doing small expansion, like these 25 tons, 30 tons, we’ll expand in — by May. Then we are putting one more stream to make cationic chips, so — where we can expand by 70 tons. And we can also put more yarn for those 70 ton, but we are going a little slow, seeing the market conditions.

Niraj Mansingka — White Pine Investment Management — Analyst

And this would add how much revenues for the binders and the cationic chips?

Madhu Sudhan Bhageria — Chairman & Managing Director

Like 25 tons would be like almost INR30 lakhs per weave, so maybe around INR12 crores, it is 25 tons, 30 tons, and then 70 tons would be maybe I can now — INR70 lakhs, INR80 lakhs, so maybe to INR250 crores. In overall, by FY ’25, we will have around INR300 crores of extra topline by these two things.

Niraj Mansingka — White Pine Investment Management — Analyst

So how much was for the — 25 tons per day was, the total yearly revenues?

Madhu Sudhan Bhageria — Chairman & Managing Director

I would add…

Niraj Mansingka — White Pine Investment Management — Analyst

The binder — 25 tons per day that you.

Madhu Sudhan Bhageria — Chairman & Managing Director

That would be around INR12 crores, INR13 crores per annum.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay. That’s the small one. The…

Madhu Sudhan Bhageria — Chairman & Managing Director

That’s very small. The investment is also around INR12 crores, INR13 crores, and in that 70 tons, the investment is around INR40 crores. So that we’ll be all doing from internal accruals. We’re not taking any new loans. And in this — till now also, in this current year, we have repaid almost around 40 — INR50 crores of loans we have prepaid other than our regular payments.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay. Got it. I’ll come back in the queue. Thank you.

Madhu Sudhan Bhageria — Chairman & Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Vishal Bagaria from RohaAssetManagers. Please go ahead.

Vishal Bagaria — RohaAssetManagers — Analyst

Yeah. Good evening, sir, and thank you for the opportunity. Sir, I had a few quick questions. Just wanted to know what are our current margins for POY, FDY in terms of EBITDAs.

Madhu Sudhan Bhageria — Chairman & Managing Director

Margins for the last quarter, I would say, POY would be around INR4, INR5 and FDY would be in the miscellaneous fee of around INR10. And that currently started improving. I think we can already see a improvement of INR1.5, INR2 in both of them.

Vishal Bagaria — RohaAssetManagers — Analyst

Got it, sir. Sir, so if we compare it with the same quarter in the last year, we were somewhere in the range of INR15 and INR20 per kg respectively for both POY and FDY. So what is your view and expectation in the next one year time period, how are we seeing…

Madhu Sudhan Bhageria — Chairman & Managing Director

I think the — this quarter, we should at least to INR6 and INR13 — INR12, INR13 for these.

Vishal Bagaria — RohaAssetManagers — Analyst

From INR5 and INR10, respectively?

Madhu Sudhan Bhageria — Chairman & Managing Director

Yeah. So we should have a improvement by INR2 or INR3 in both.

Vishal Bagaria — RohaAssetManagers — Analyst

Yes, sir. And then in terms of raw material side, sir, if we see, what are our average prices for the quarter for PTA and MEG combined on a per kg basis?

Madhu Sudhan Bhageria — Chairman & Managing Director

In the last quarter, which we see, it’s a combination of PTA and MEG, the average price was INR77 for each.

Vishal Bagaria — RohaAssetManagers — Analyst

Sir, so if we see, these were the similar prices what we saw for raw material in Q3 FY ’22 approximately. Yeah.

Madhu Sudhan Bhageria — Chairman & Managing Director

Q2 was INR85.97, so these are — it has been a drop of INR8.77.

Vishal Bagaria — RohaAssetManagers — Analyst

7%.

Madhu Sudhan Bhageria — Chairman & Managing Director

For Q3.

Vishal Bagaria — RohaAssetManagers — Analyst

Sir, but if we compare it with the same quarter in the last year?

Madhu Sudhan Bhageria — Chairman & Managing Director

It will be more or less stable or might be a increase of INR1 or INR2. So that also gives a lot of difference also. This quarter, like Q2 and Q3, we have also had inventory losses.

Vishal Bagaria — RohaAssetManagers — Analyst

Okay. And what would be that ranging to approximately?

Madhu Sudhan Bhageria — Chairman & Managing Director

I think could be around INR10 crore, INR12 crore in both the quarters.

Vishal Bagaria — RohaAssetManagers — Analyst

Okay. Sir, so just wanted to have your view right now on how are you expecting the demand and the entire market to be in on medium to or longer-term basis. Not to expect on the short-term basis.

Madhu Sudhan Bhageria — Chairman & Managing Director

I don’t really know what I’ll explain because see, on an average, if we see the full year, we’ll end up around imports of like 225,000 to 230,000 tons. And then exports, which have gone down is also in the vicinity of around 3 lakh tons. So 0.5 million tons extra material will be in India and which has been consumed by the downstream industry. So as and when the situation normalizes, that means the downstream in India requires another 0.5 million tons of more material. So downstream market means people who are making subjects have grown quite a bit. So if the new capacities also are coming in small-small, they will be easily absorbed.

Vishal Bagaria — RohaAssetManagers — Analyst

Okay, sir. Got it. So my next question is on what is our current working capital days.

Madhu Sudhan Bhageria — Chairman & Managing Director

Working capital days is only close to 40 days.

Vishal Bagaria — RohaAssetManagers — Analyst

Working capital is down to 40 only. Okay. And so the last question is — yeah.

Madhu Sudhan Bhageria — Chairman & Managing Director

The full cycle is 40 days. Otherwise, we are basically working on a negative working capital because the credits available by our suppliers is 30 days to 60 days. So mostly we are using only LC, so the utilization of cash credit is not there.

Vishal Bagaria — RohaAssetManagers — Analyst

Yes, sir. Sir, in terms of our raw material imports, how much is that as of now as a percentage, and how much of the imports would be from China?

Madhu Sudhan Bhageria — Chairman & Managing Director

No. We are not importing raw materials from China significantly. It will be a very, very low percentage. Some additives and other things, which is main PTA and MEG we don’t import anything from China. We are importing mainly from PTA from Taiwan and a very small quantity from Thailand. And MEG is mostly from Middle East.

Vishal Bagaria — RohaAssetManagers — Analyst

So if we see as a percentage, so that would be total how much?

Madhu Sudhan Bhageria — Chairman & Managing Director

I would say, MEG would be around 60%, and PTA would be around 35%.

Vishal Bagaria — RohaAssetManagers — Analyst

60% and 35%. Okay, sir. And, sir, just wanted to understand how are we doing on the recycling plants, like what is the update and how do we expect them?

Madhu Sudhan Bhageria — Chairman & Managing Director

Recycling, we achieved very good results recently, and now we did lot of changes in the plant, so just trying to get the quality. Now we are ready refurbishing the plant so that we can have a regular production. So, hopefully, by next month, we should be able to produce. So whatever we produce, we could make decent yarn and a fabric also out of that. Very encouraging. I think in next two, three months, we should decide to go for a bigger plant.

Vishal Bagaria — RohaAssetManagers — Analyst

Okay, sir. That will be all. Thank you so much.

Madhu Sudhan Bhageria — Chairman & Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] We have next question from the line of Niraj Mansingka from White Pine Investment Management. Please go ahead.

Niraj Mansingka — White Pine Investment Management — Analyst

Sir, just wanted to know below — so I was adding — I was putting up the capacity again after the incident that they had, so has those computative plant started.

Madhu Sudhan Bhageria — Chairman & Managing Director

Yeah. Some more than 50%, 60% has started. Rest is under installation. Maybe in next three, four months, that will also come in production.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay. And do you see the impact still being there or do you think the demand will itself tick — improve so it won’t…

Madhu Sudhan Bhageria — Chairman & Managing Director

I think demand will tick because already exports have started increasing and the imports have started coming down. So that will take care of that because that will be hardly — we will be starting another 300 tons to 400 tons per day, and today, the industry is around 14,000 tons. So that is not too much, maybe 2%, 2.5% — 2.5%, 3%.

Niraj Mansingka — White Pine Investment Management — Analyst

Right. Sir, so I’m looking on the cotton versus polyester, do you see the last six months or three months, there has been a lot of movement of usage of cotton towards more polyester in terms of blending side, in terms of blending with for garment…

Madhu Sudhan Bhageria — Chairman & Managing Director

Blending, I have no idea because see, blending, people use polyester fibre which we are not using currently.

Niraj Mansingka — White Pine Investment Management — Analyst

Right, right. Yeah.

Madhu Sudhan Bhageria — Chairman & Managing Director

It is very difficult. Just price difference is very much. So polyester fibre is today also priced at around — let’s say around INR100, and then raw cotton itself is more than INR225. So even after reduced prices, INR200 or INR225. So it’s very difficult to say that because of blending, it will be used more.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay. Got it, got it. Yeah, that’s all. Thank you very much. Yeah.

Operator

Thank you. [Operator Instructions] As there are no further questions, I would like to hand the conference back to Mr. Madhu Sudhan Bhageria for closing comments. Please go ahead.

Madhu Sudhan Bhageria — Chairman & Managing Director

Thank you. I’d like to thank all the participants for sparing their time and joining us, and hope to see you in the next quarter con-call. Thank you very much. Bye.

Operator

[Operator Closing Remarks]