SRF Limited (SRF) Q1 FY23 Earnings Concall Transcript

SRF Limited  (NSE:SRF) Q1 FY23 Earnings Concall dated Jul. 22, 2022

Corporate Participants:

Ranjit Cirumalla — Vice President

Nitika Dhawan — Head of Corporate Communications

Rahul Jain — President & Chief Financial Officer

Analysts:

Rohit Nagraj — Centrum Broking — Analyst

Sanjesh Jain — ICICI Securities — Analyst

Trilok — Dymon Asia — Analyst

Naushad Chaudhary — Aditya Birla Sun Life Mutual Fund — Analyst

Unidentified Participant — — Analyst

Chintan Modi — Haitong Securities — Analyst

Sumant Kumar — Motilal Oswal — Analyst

Amar Mourya — AlfAccurate Advisors — Analyst

Ankur Periwal — Axis Capital — Analyst

Vivek Rajamani — Morgan Stanley — Analyst

Abhijeet Akela — Kotak Securities — Analyst

Nikhil Ahuja — Sorin solutions — Analyst

Madhav Marda — Fidelity — Analyst

Operator

Ladies and gentlemen, good day and welcome to the SRF Limited Q1 FY ’23 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr Ranjit. Cirumalla from IIFL Securities Limited. Thank you, and over to you, sir.

Ranjit Cirumalla — Vice President

Thank you, Faizan. Good afternoon, everyone. Thank you for joining us on SRF Limited’s Q1 FY ’23 results conference call. Today, we have with us Mr. Rahul Jain, President and CFO of the company. I would now like to invite Ms. Nitika Dhawan, Head of Corporate Communications at SRF to initiate the proceedings of the results concall. Thank you.

Nitika Dhawan — Head of Corporate Communications

Good afternoon, everyone, and thank you for joining us on SRF Limited quarter one and FY ’23 results conference call. We will begin this call with brief opening remarks from our President and CFO, Mr. Rahul Jain, following which we will open forum for an interactive question-and-answer session.

So before we begin this call, I would like to point that some statements made in this call may be forward-looking and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now to invite Mr. Jain to make his opening remarks.

Rahul Jain — President & Chief Financial Officer

Thank you, Nitika. Good afternoon, everyone. I extend a warm welcome to you all and thank you for joining us today on SRFs Q1 FY’23 earnings conference call. I trust you, your families and colleagues are doing well. I will initiate the call by briefly taking you through the key operational highlights for the period under review, following which we will open the forum to have a Q&A session.

We are pleased to begin the fiscal year 2023 on a strong note despite the ongoing challenging macro environment landscape. We have delivered a healthy performance in all our segments with our chemicals business performing exceptionally well. During the quarter, gross operating revenue increased by 44% year on year to INR3,895 crore, EBITDA grew by 52% year-on-year to INR130crore, translating to an EBITDA margin of 26%. Profit after tax camein a at INR608 crore, higher by 54% Y-o-Y. Overall, we believe it has been a stellar quarter for the company and I’m pleased to share that the Board of Directors has approved an interim dividend at 36%, amounting to INR3.6 per share. This will result in a cash outflow of INR107 crores.

Moving on to our segmental performance. The chemical business which comprises of specialty chemicals and fluorochemicals reistered a growth of 55% year-on-year to ahieve revenues of INR1,722 crores. Our specialty chemicals business did remarkably well, driven by robust demand for our flagship products and their derivative. We continue to expand our product portfolio and in Q1, launched one new agro product that further augmented our offerings.

On the cost front, we are focused on diversifying our raw material supplier base to reduce the risk of non-availability. This combined with process optimization, resource utilization and other sustainability initiatives has enabled us to lay nemphasis on further cost reduction as well as minimize the environmental cost of production. We are pleased to announce that we have successfully commissioned our state-of-the-art multipurpose production facility MPP4 at Dahej. Initiatives are being undertaken to progressively ramp up production from this facility.

Moreover, the Board has approved a number of projects and the base facility for a projected cost of INR400 crores, including one setting up of a new dedicated facility to produce 1,000 metric ton annually of an advanced agrochemical intermediate for INR250 crore to meet the growing demand of the product in the future. Two, to expand the capacity of an intermediate product that finds application in both agrochemical and pharma intermediates and related feedstock of INR72 crore. And three, in order to address the increasing demand of new and upcoming plants, two technical structures will be developed for various agrochemical products for INR78 crore.

As most of you are aware, the company is extremely bullish on the long-term prospects of the Sspecialty Chemical segment and given few global tailwinds anticipated for the segments, we believe there would be adequate business potential to sustain the current capex run rate for the full year. The capex of INR250 crores approved by the Board yesterday will be completed in the next 8 mothn to 10 months and showcases our capability to have issued large capexes is the business in a very short timeframe. Capability building in terms of new announcements of the structural capex will also lead to reduced time to market and crash the time taken to market some of our new products.

The second capex of INR72 crore approved by the Board yesterday is for a product that’s a key building block, that trying the applications in both pharma and agro intermediates. Also the other capital expenditure announcements are a part of a medium-term strategy that involves capital expenditure in the range of INR1,200 crores to INR1,500 crores over the next 12 to 18 months, n the back of traction that is visible, leading to conversion of some of the campaign products to dedicated plants.

Our Fluorochemicals segment registered solid results on the back of better realizations and healthy volume trends witnessed across HFCs. Prices during the current quarter have significantly increased, amid trade measures and global and local demand for key HFCs. We anticipate demand and pricing in the segment will continue to remain strong. Structurally, this business operates in a strong space and our capex investments said to capitalize in the coming quarters.

We are excited about the opportunities that this business brings. More over, Dymel, 134 AP, the pharma grade gas that we produce also performed notable well and we were able to increase our market share at a global space. Additionally, healthy contribution from chloromethanes aided performance. We have had a strong Q1 for the current financial year. There is certainly some seasonality in the HFC space that does play out and Q2 is generally weaker than Q1. The catalyst change for R125 plant is also scheduled in Q2. We do remain positive on the additional volumes from our chloromethanes plant that is likely to be commissioned very soon and the PTFE facility towards early Q3. This should aid to overall revenue growth for the year as a whole for the fluorochemicals business.

US market for HFCS remain strong and volumes of H2 are currently being contracted, which we remain very positive about. We witnessed some increase in our power cost in the chemicals business largely on account of increased prices of HSD and some grid power costs. Most of our fuel costs have remained elevated given significant price inflation seen across the world. We do believe that some of these per unit costs will see reduction going forward as our new thermal plant — power plant gets commissioned and our initiatives around securing hybrid power for our Dahej and other facilities comes through.

Moving on to our packaging films business. The business reported an increase of 44% in its segment revenue INR1,496 crore when compared with corresponding period last year. The business delivered healthy performance with significant contribution from BOPP segment and increased sales of value-added products. While we continue to focus on efficiency and cost effective procurement, the BOPET films witnessed a slight slowdown in demand due to addition of some new lines, which impacted the overall margins. And as I have stated in the past, we expect pressure from BOPET margins going going forward with several new clients being operational. With this trend, are likely to witness inventory impact due to sharp drop in the raw material prices, which I believe will [Indecipherable]

On the other hand, demand for BOPP films is likely to remain firm. All our capacities are — all our plants arse producing two capacity except for our Hungary plant, which is impacted by higher energy costs due to the current geopolitical situation in Eastern Europe. Our BOPP line in South Africa is also performing well. Our new BOPP film line at Indore, India, is expected to be commissioned in Q2 FY’23. And with our already established customer relationships, we are hoping for a vertical start-up of this line as well.

We remain extremely optimistic of the medium to long-term outlook of the packaging films business and across cycle averages, EBITDA and ROCE profile remains very strong. ESG mantra of easy to do business with, which is essentially focused on building customer relationships and our global presence in over 100 countries should enable us to better navigate sectorial headwinds. Aas a market leader, the company is driving sustainability initiatives and is working towards innovating films at a lower environmental focus.

The technical textiles business reported an increase of 16% in its segment revenue to INR571 crores during Q1 FY ’23 over corresponding period last year. The business delivered steady performance led by increased export volumes in the nylon tire cord and belting fabric segment. However, domestic demand for some of our portfolio products were subdued. The business continues to actively focus on improving operational excellence and productivity parameters. The belting fabrics market is witnessing large opportunities. In this regard, I am pleased to share that the Board has approved a project for capacity expansion and modernization of belting fabric operations at our Viralimalai plant from 1,100 metric ton per month per month to 1,800 metric ton month at a projected cost of INR162 crores. This will be spent over a period of next three years. The capex will further aid in enhancing our market share and provides a strong margin profile, which is sustainable in the medium to long term.

Lastly, in our other segment, the coated fabric business witnessed normalized demand — domestic demand after two years and the pandemic. With favorable monsoon and the commencement of events and outdoor activities, we expect domestic demands for the segment to remain solid. In our laminated fabrics division, SRF maintains its pricing and volume leadership with the plant operating at full capacity during the quarter and reaching its highest quartely sales recovery. The surplus supply scenario has had a negative impact on the realization in the sector. During the quarter, we also witnessed rupee depreciation against the US dollar of around 4.5% [Technical Issues]

Operator

This is the operator. Sir, we are not able to hear you. Ladies and gentlemen, the line from Mr Rahul Jain has got disconnected, request you all to please stay online while we reconnect. Thank you. Ladies and gentlemen, thank you for patiently waiting the line, Mr. Rahul Jain has got reconnected. Thank you, and over to you, sir.

Rahul Jain — President & Chief Financial Officer

Sorry about the disconnection. I was talking about the rupee depreciation against the US dollar of around 4.5% that we witnessed during the quarter due to volatile geopolitical situation. This led to a restatement of net US dollar denominated liabilities, which created an exchange fluctuation loss of INR32 crores, which is likely to be a one-time impact. Our profit and loss account and the balance sheet is highly dollarized. And while large depreciation of the INR versus the dollar has a negative reinstatement impact, which is one-time, we are probably happier in the long run with a weaker rupee.

At SRF, we prioritize community engagement projects equally and work diligently to contribute to society. During the quarter, the SRF foundation received appreciation from the Chief Minister of Madhya Pradesh, Sri, Shiviraj Singh Chauhan for adoption of 108 anganwadis across Bhopal, Bhind and Dhar districts. During the quarter, we also distributed more than 170 tents to the flood affected locations in the Assam. I’m also happy to share that during the quarter, SRF was awarded the Best Business family — Family Business in the Giga category at the first ever Moneycontrol India Family Business Awards 2021. Our progressive HR policies and culture has led to Fortune India Magazine naming us as an employer of the future. We also received the finance transformation initiative of the Year Award at the C2FO program.

To conclude, over the years SRF has built a solid multi business structure that enables us to withstand a dynamic and volatile environment. While few businesses may face challenge in the near term, we are confident that other businesses will exceed our expectations and enable us to drive overall growth of the company and create sustainable value for all stakeholders.

On that note, I conclude my remarks and we’d would be glad to discuss any questions, comments or suggestions that you may have. I would now like to ask the moderator to open the line for the Q&A session. Thank you very much.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] First question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead.

Rohit Nagraj — Centrum Broking — Analyst

Yeah, good afternoon, and thanks for the opportunity and congrats on a stellar Q1. First question is on the fluoro specialty business. So there have been issues in the European continent and even apart from that, the weather-related issues for the agrochemical. Are we seeing any kind of demand contraction for our business and what is our view for FY ’23 in terms of if the issues persist or maybe a quarter, couple of quarters? Thank you.

Rahul Jain — President & Chief Financial Officer

Thank you, Rohit for your question. This is something that a lot of people have started to talk about in terms of demand slowing from Europe, given their energy prices are given where some of these positions have been created. I don’t think as of now we have seen any contraction. We’ve not seen any of our customers looking to — let’s say cancel orders or think of delaying some of those orders. That’s not happened. In fact, I would say that to a certain extent when we look at it, given where Europe’s positions are, I think it could also provide an outsourcing opportunity for companies like SRF going forward where some of the, let’s say, higher-end products that European were still doing may want to get contracted out to good players like SRF. So I think that could turn out as a positive. But I don’t think that we’ve heard from any of our customers till date that here has been a negative that is prevailing or the orders are being canceled. So that’s the position as of now. It’s a dynamic and developing situation. We’ll see how it trends out and keep you updated.

Rohit Nagraj — Centrum Broking — Analyst

This is really encouraging. Sir, second question is on the ref gas pricing. So we’ve seen over the last one year the prices have been increasing. So in your view, the prices has still been increasing or they have stabilized at elevated levels aand if they are still increasing, what would be the dynamic which will play out to stabilize those pricing environment? Thank you.

Rahul Jain — President & Chief Financial Officer

So, Rohit, the prices for some of the ref gases and it is not all across. I think there has been increase in prices of some of the ref gases. Most of these increases happened over the last year or so. Previous year we had also told you that prices had come down very significantly, FY’21 — FY’20 and ’21 is what we are seeing seen that happening, but largely I think prices are stable. We don’t see any large headwinds in terms of significant reduction in prices. Also, this is — typically there is a seasonality that plays out in the fluorochemicals business given where heat months are. So, February to March typically are the the highest played out months for the HFC segment. There will be some seasonality that will come in, no doubt on that. You also see in our presentation where we have called out the 125 catalyst change might take 15 days or so, which will have some impact on the 125 to the production levels. But again, I don’t believe that is very, very significant. It should be a normal position and it’s a normal thing for chemical plantto change some of the catalysts. Prices, we do believe remain firm. Domestic prices might come down a bit given where demand positions will be. So that’s how it should play out, Rohit.

Rohit Nagraj — Centrum Broking — Analyst

Thank you so much, sir, and best of luck.

Rahul Jain — President & Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Sanjesh Jain from ICICI Securities, please go ahead.

Sanjesh Jain — ICICI Securities — Analyst

Good afternoon, Rahul Ji.

Rahul Jain — President & Chief Financial Officer

Good afternoon.

Sanjesh Jain — ICICI Securities — Analyst

Few questions. First on the agrochemical. You did answer a little bit in previous Q&A, but taking that forward. With ethynol being strong, crude price where they are, our price challenges in Europe and others, how does our demand outlook for agrochemical or how our discussion with the customer are? And now that we have commenced MPC4 and we have announced a very large project of total INR2 billion in the intermediate, do you think there could be an upside risk to fluoro specialty revenue in FY’23 and ’24 from what we have been guiding?

Rahul Jain — President & Chief Financial Officer

So Sanjesh, yes there can be an upside certainly. Our guidance of 20% plus is likely to play out, but it’s a volatile environment, Sanjesh. We are seeing, luckily we have not seen any negative in terms of customer orders being canceled or there has been a dearth of demand for the product. All of that is playing out well. Some of our products are selling phenomenally well. We have seen significant growth in some of our flagship products when we compare them to previious year position. So that’s not happening. Yes, there has been some increase in cost, the cost little higher when we look at. From an overall perspective for power and fuel, some of the raw material cost has been higher. There will be some contract renegotiation that will happen over a period of time, which will provide a positive push to this.

Again, new products, I think there is, we’ve clearly demonstrated it when is increase our capex size. We’ve also told you that over the next 12 to 18 months the capex is in the space, would be in the range of 1,500 — INR1,200 crores to INR1500 crores over the next 12 to 18 months. The INR250 crore capex, the INR72 crore capex and the INR78 crore capex are also capacity building capexes that we are doing in the business, which will, let’s say to crash the time to market for some of the quarters that we are looking to do, significant traction developing. So all seems positive as now Sanjesh.

Sanjesh Jain — ICICI Securities — Analyst

So if I take this INR1,500 crores of capex and generally we do what, 1.5 times to 2 times, right.

Rahul Jain — President & Chief Financial Officer

So this gives us a clear [Speech Overlap] where is the INR1,500 crore number of income. Overall, the INR1,500 is…

Sanjesh Jain — ICICI Securities — Analyst

Including ref gases you are telling.

Rahul Jain — President & Chief Financial Officer

No, no. So, when I am saying 20 to INR1,500 crore, that is over the next 12 to 18 months, out of which let’s sayINR200 crores, INR300 crores has been announced now.

Sanjesh Jain — ICICI Securities — Analyst

That’s what I am telling. So assuming we do this entire INR1500 crores in 18 months, from there we have a runway for doubling the revenue, right. We were at INR3,000 crores in FY’22 and now we are doing a capex which can potentially help us grew by double. Will that be a fair assumption?

Rahul Jain — President & Chief Financial Officer

So again, it’s a tough one to answer, Sanjesh, but my sense is, when you are looking at this assumption, we are probably being slightly conservative given the fact that not everything is fully utilized today [Speech Overlap]

Sanjesh Jain — ICICI Securities — Analyst

Double to conservative, right?

Rahul Jain — President & Chief Financial Officer

Yeah.

Sanjesh Jain — ICICI Securities — Analyst

Got it, fair there. On the ref gas side, we, you did mentione in your opening remark of HFC contract for the features we have locked in. Can you give us some color how long contracts these are and are these are the current prices? That’s number one.

Rahul Jain — President & Chief Financial Officer

What I was trying to refer to, Sanjesh, was that typically the US export contracts which is typically October to March shipments will get contracted today. So what I was trying to refer to was the fact that we are contracting some of those at current prices.

Sanjesh Jain — ICICI Securities — Analyst

So we are locking the prices as well as the one.

Rahul Jain — President & Chief Financial Officer

Correct. But typically contracts are not very long-term.

Sanjesh Jain — ICICI Securities — Analyst

Fair, fair, fair, and rupee will also come to aid us there, right, so currency has also depreciated which you rightly mentioned is a long-term benefit for the company, right?

Rahul Jain — President & Chief Financial Officer

I think we are clears with a weaker rupee than a stronger rupees is what I would tend to say.

Sanjesh Jain — ICICI Securities — Analyst

Got it. Sir, any color on the HFO now that we are close to, the patent going off and that would give us further volume growth visibility in that space. Any update to share on [Indecipherable]

Rahul Jain — President & Chief Financial Officer

I have only one word answer, that is wait.

Sanjesh Jain — ICICI Securities — Analyst

Sorry, sorry, I couldn’t get it.

Rahul Jain — President & Chief Financial Officer

I said the answer to that is only one word, wait.

Sanjesh Jain — ICICI Securities — Analyst

Wait, Fine, fine, sir. So we’ll wait for their announcements. Its in the progress, right?

Rahul Jain — President & Chief Financial Officer

But there is no further progress to be very farnk, Sanjesh. I’ve said this in the past as well. The position on that is essentially is when we are looking at, we are indicating that there are new developments that are happening in the space. There is new work that we are doing in terms of process optimization. All of that is going on and there will be an announcement at an appropriate point in time, not today at least.

Sanjesh Jain — ICICI Securities — Analyst

Sso when is this patent getting expired for the innovator?

Rahul Jain — President & Chief Financial Officer

You know it better than I do, Sanjesh.

Sanjesh Jain — ICICI Securities — Analyst

Fairly,sir. Thank you. Thank you very much for all the answer and the surplus for the future quarter.

Rahul Jain — President & Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Trilok from Dymon Asia. Please go ahead.

Trilok — Dymon Asia — Analyst

Yeah, hi. Good afternoon. Thanks. So we are — one of the question is with regards to the and product pricing or the demand, are we witnessing any any changes or any kind of moderation in demand, particularly agrochemical perspective, I’m trying to understand. And second question is with regards to the, your comment on the chemical R125, this catalyst change, is it a routine affair or is it that you have highlighted only this quarter it will happen?

Rahul Jain — President & Chief Financial Officer

So to be very frank, I think the first question that you asked, I’ve actually replied to it in both the earlier questions. We are not seeing a negative in terms of demand slowdown or product approvals not coming through from our customers. All of that is in good shape. The second question that you had asked in terms of 1.25. This is a normal process, typically a 3 to 4 year process that happens where some of the catalyst change in most of the chemical plants will happen normally. But yeah, I thought it is important to be able to tell everyone that there is something on that of that work which is large from our perspective happening.

Trilok — Dymon Asia — Analyst

Okay. And if you can also just comment with regards to the specialty ref gas contracted volumes that you’re highlighting which is already happening. So this is what a quarterly contract or is a half yearly contract?

Rahul Jain — President & Chief Financial Officer

No, the contracts are for a period. So like I said earlier comment, for October to December volumes with the contracting happens really now.

Trilok — Dymon Asia — Analyst

And we haven’t seen any lower off offtake in volumes. Is that correct understanding?

Rahul Jain — President & Chief Financial Officer

Oo, there is no lower offtakes.

Trilok — Dymon Asia — Analyst

Okay, thank you very much. I’ll come back in queue.

Operator

Thank you. The next question is from the line of Naushad Chaudhary from Aditya Birla Sun Life Mutual Fund. Please go ahead.

Naushad Chaudhary — Aditya Birla Sun Life Mutual Fund — Analyst

Hi, thanks for the opportunity. Two questions, sir. Firstly, if you can touch upon on your expected additional chloromethane capacity and your greenfield PTFE, how do you see the capacity ramp up of these tow projects which is expected in ’23. And second question — second question is, how much capital so far we have deployed in chloromethane business and of that, how much is unutilized?

Rahul Jain — President & Chief Financial Officer

So, Naushad, the first question is with respect to the chloromethane capacity that is coming up. I hope it can get capitalized in the next 2 to 3 weeks. So that’s what we are looking at. My sense is that most of this is replacement of imports. There are various other companies that are setting it up, but the amount of imports that the country does today for both MDC and CTC,, which are the the largest products that come out of the chloromethanes stable is largely import substitution. So I don’t think there should be a problem selling. Obviously, there will be a time to capitalize and stabilize the plant. This is the largest chloromethane plant that we are now putting up. Typically, our plants have been in the 45,000 ton range. This is the largest one that we are putting up. So there may be some timing in terms of stabilizing the plant, but I don’t see that as a challenge as well. So all of that should be in good shape.

The second question that you asked was with respect to, I forgot.

Naushad Chaudhary — Aditya Birla Sun Life Mutual Fund — Analyst

Capital deployed in your [Indecipherable]

Rahul Jain — President & Chief Financial Officer

I think is scheduled somewhere in October. So Q3, early Q3 is when it is scheduled. Stabilization, getting some product approvals, I think typically the quantitiy that will be available for PTFE will be in Q4 and roughly about 5,000 tons of annualized capacity, 1,200 tons available. Hopefully, we should be able to get some volumes out of PTFE in Q4.

The third question that you had asked was with respect to the pricing, right?

Naushad Chaudhary — Aditya Birla Sun Life Mutual Fund — Analyst

No, no, no, follow-up on the first question itself. So within one, one and half year we should see chloromethane touch optimal utilization and PTFE should take time. Is this the correct understanding, sir?

Rahul Jain — President & Chief Financial Officer

I think the chloromethanes should be faster. PTFE might take probably the amount of time that you have said. Chloromethanes should probably be 3 to 6 months.

Naushad Chaudhary — Aditya Birla Sun Life Mutual Fund — Analyst

And second question was how much capital so far we have deployed in fluorochemical business?

Rahul Jain — President & Chief Financial Officer

My sense is that the overall capital employed for the specialty chemicals business is roughly about INR3,000 crores to INR3,000 crores and within these asset base I think roughly about INR2,500 crores of the flurochemicals is.

Naushad Chaudhary — Aditya Birla Sun Life Mutual Fund — Analyst

Okay, that’s it, sir. Thank you so much.

Operator

Thank you. The next question is from the line of [Indecipherable] from BlackRock. Please go ahead.

Unidentified Participant — — Analyst

Hi, can you hear me. Thanks a lot. My first question is on the refrigerant and gas business. Thank you for the presentations and my first question is on the refrigerant gas business. So what is the price in United States last year and what is just maybe the card level in terms of say US dollar per ton. And can you also kindly share with me this refrigerant gas sales, the breakdown, how much is to US and how much is sold domestically in India?

Rahul Jain — President & Chief Financial Officer

So, its a very, very difficult question to answer because there are multiple parts of it that you are talking about and not all HFCs are the same. So prices between 32, 125, 134A and blends range between, let’s say from an export perspective about INR600 to INR1,200, INR1,300. RI 25 mostly sold in the US. Between the domestic side of the the HFCs, we will probably be in the range of about 6,000 tons in overall position from an annualized perspective. While when we look at it from a domestic perspective, Q1 would probably be higher in the domestic side. So that’s how it should work out.

Unidentified Participant — — Analyst

Okay, got it. Thanks a lot. That’s it from me.

Operator

Thank you. The next question is from the line of Chintan Modi from Haitong Securities, please go ahead.

Chintan Modi — Haitong Securities — Analyst

Yeah, thank you for the opportunity. Sir, the capex that you have mentioned, this new investment pipeline INR1,200 crores to INR1,500 crore. This does not include the spec chem capex which is already under progress, which is about I think INR600 crores to INR700 odd crores, is that right understanding?

Rahul Jain — President & Chief Financial Officer

You are absolutely right, Chintan. This is a new initiative that we have taken. We believe that in the next 12 to 18 months there will be more announcements that will come. This is just an indication to you that there is new capex in the business that will — that will keep going on.

Chintan Modi — Haitong Securities — Analyst

Okay, got it. Secondly, sir, can you tell us like how has been the spread of EBITDA margins in specialty chemicals over last 3 to 4 years? Whether it has been increasing or remain stable?

Rahul Jain — President & Chief Financial Officer

The EBITDA margin as a percentage of the overall position, Chintan.

Chintan Modi — Haitong Securities — Analyst

Of specialty chemicals only. I know you don’t declare the numbers, but just if you can highlight the trend like it has been improving or remains stable over last three, four years.

Rahul Jain — President & Chief Financial Officer

From a 3-year trend perspective, probably FY ’18-’19, we saw probably a flattish position. FY’20, ’21, ’22, I think all of those would have been a growing position. I don’t have the numbers in front of me so I can’t give you an exact answer, but my sense is that there is a positive trend in terms of margin percentage as well as the overall number on the margin, both have been a positive trend. Given the fact that last year we grew almost 30%,the year before it was about 60%, and the year before that almost 70%. So I think given that as a position and just basically saying that we will be utilizing better fixed cost, the overall margin percentage should also have been higher.

Chintan Modi — Haitong Securities — Analyst

Okay, got it. And sir, once the PTFE plant commissions, what is the kind of margins there we can expect? I believe till last quarter things were looking quite optimistic.

Rahul Jain — President & Chief Financial Officer

Given where current prices are, Chintan, I would say from what we had budgeted it at from a normalized perspective, we arse probably about 40% higher in terms of EBITDA margins. Gross margins should probably be in the range of 60% to 65% at current prices.

Chintan Modi — Haitong Securities — Analyst

Sure. Got it. And just one last. In terms of refrigerant gas, you mentioned that you have visibility today for the March quarter or the December quarter?

Rahul Jain — President & Chief Financial Officer

No, I did not say visibility for March quarter or December quarter. What I said is to a certain extent some of the current prices that we have, we arecontracting for H2 for the US supplies. That’s what I said.

Chintan Modi — Haitong Securities — Analyst

Okay. Okay. Sure, sure. Got it, Sir. Thanks a lot.

Rahul Jain — President & Chief Financial Officer

Thank you, Chintan.

Operator

Thank you. The next question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead.

Sumant Kumar — Motilal Oswal — Analyst

Yeah, hi, Rahuk ji. My question is regarding chemical marginal. So you were talking about export, particularly US you have contracts till March and currency depreciation, say both, and you were talking about speciality chemical margin on the positive trajectory. So on these three factors, can we assume the margin for the Q1 FY ’23 is likely to continue for next year 2 to 3 quarters?

Rahul Jain — President & Chief Financial Officer

Sumanth, again don’t look at it from a quarter on quarter perspective. I would typically tend to say that when we look at it from a year as a whole perspective for our chemical business as a whole perspective, I would say last year margins — EBIT margins are in the range about 26%, 27%. Given where our current products profile is, given where prices are on an annualized basis, we believe there could be a margin expansion that can happen.

Sumant Kumar — Motilal Oswal — Analyst

So margin expansion on FY’22?

Rahul Jain — President & Chief Financial Officer

On FY’22 numbers versus FY’23 numbers.

Sumant Kumar — Motilal Oswal — Analyst

Okay, okay. Okay, sir. Thank you.

Operator

Thank you. The next question is from the line of Amar Mourya from AlfAccurate Advisors. Please go ahead.

Amar Mourya — AlfAccurate Advisors — Analyst

Sir, thanks a lot for the opportunity. Couple of questions. Number one is, you indicated that R gas 15,000 metric ton capacity, when it is likely to commission?

Rahul Jain — President & Chief Financial Officer

I think it is October ’23, but I can check, just give me a second. So, Q1 FY’23.

Amar Mourya — AlfAccurate Advisors — Analyst

Okay, Q1 FY’23. Okay.

Rahul Jain — President & Chief Financial Officer

FY’24, sorry.

Amar Mourya — AlfAccurate Advisors — Analyst

Q1 FY’24. Okay, sir. Secondly sir, what would be the current utilization of R gas.

Rahul Jain — President & Chief Financial Officer

Almost full. All of the gases are producing fully.

Amar Mourya — AlfAccurate Advisors — Analyst

Okay. And third, sir, given the heat waves whatever we are seeing in Europe, is that F gas against demand in Europe also increased and is it somewhere positive for us?

Rahul Jain — President & Chief Financial Officer

So, be very frank, I think as an overall trend, Amar, we will see some of these, these heat waves spanning out across the globe. The first thing that these guys will have to do is set up more of air conditioning and once that happens, it should be a positive overall from R gas demand perspective.

Amar Mourya — AlfAccurate Advisors — Analyst

But nothing immediate. I mean, because I’m why I’m asking because…

Rahul Jain — President & Chief Financial Officer

[Foreign Speech]

Amar Mourya — AlfAccurate Advisors — Analyst

[Foreign Speech] and production not happening because of whatever reason. So I think in that context, do we see some immediate benefit to us because we have the capacity, we have the market.

Rahul Jain — President & Chief Financial Officer

I think again we have to look at it from a more longer-term and a medium term perspective, Amar. It is not that one heat wave will cause all of this to change. But I think it should be a much larger positive going forward.

Amar Mourya — AlfAccurate Advisors — Analyst

Okay, okay. And secondly, sir, in terms of the agrochemical, like if we hear all these agrochemical — global agrochemical companies, everybody is talking about muted second half. So in that context, like the kind of capacity line up we are building up. I mean, are we confident that we’ll be able to utilize all our plant, I mean any indication from the client side?

Rahul Jain — President & Chief Financial Officer

Well, I think I answered it more than once, maybe you want to refer it back to the call.

Amar Mourya — AlfAccurate Advisors — Analyst

Okay, fair enough, Sir. Thank you.

Operator

Thank you. Okay. The next question is from the line of Ankur Periwal from Axis Capital. Please go ahead.

Ankur Periwal — Axis Capital — Analyst

Yeah, hi, sir. Thanks for the opportunity. First question on the spectrum side, now given the rise in raw material…

Rahul Jain — President & Chief Financial Officer

A bit louder, please.

Ankur Periwal — Axis Capital — Analyst

First question on the specialty chemical side. Given the increase in RM prices, especially the power cost as well there, what are the timeframes by when we are passing through this price — this rise in prices to the customers?

Rahul Jain — President & Chief Financial Officer

So Ankur, with respect to specifically on power costs, I think we have have started at some some of our plants. We are in the process of implementation of the new captive power plant in Dahej. My sense is that it should the again come up very, very soon in the next 2 to 3 weeks it should be commercialized. And as soon as that happens, some of that power that we are doing or generating out of the DG will probably create a positive for us in terms of just the power cost aournd it. Obviously, coal prices roughly in the range of about INR13,000 a ton. Hopefully, some of that price will also come down and therefore cost of generation comes down on the captive side as well.

We are also working on getting some additional hybrid power and purchasing that through in Dahej plant, which will also add to some of the cost reduction on the power side. So all of those should be positive. Again, we have to kind of take through some of those costs that are transitory in nature into out account. With respect to some of the key raw material where prices have gone up, some of that will get renegotiated probably in the next thee to six months as contracts come up for renewal.

Ankur Periwal — Axis Capital — Analyst

Sure, so the RM inflation will be pass-through, but the power cost inflation we’ll try to manage it at our end, is that a right understanding?

Rahul Jain — President & Chief Financial Officer

At the end of the day, that’s how we should look at it.

Ankur Periwal — Axis Capital — Analyst

Sure. That’s helpful. Secondly, on the growth outlook side, you did mention capacity expansion and some bit of smaller capex there for the agro intermediates, etc. We had earlier guided very strongly on the pharma intermediate side as well. Any thoughts there, any comments?

Rahul Jain — President & Chief Financial Officer

To be frank, Ankur, there are new projects that are in the pipeline. Pharma typically will take longer than an agro product. We are fairly confident that within the next 6 to 12 months there will be more announcements. Our PIP will get capitalized probably in the next 6 months or so. Again, we believe there is, there are already products that we are looking to do on the pharma side in the PIP. Those will add traction on that side, Ankur.

Ankur Periwal — Axis Capital — Analyst

Sure, sir. And just last clarification here, the 15,000 ton plant which is going to come in Q1 FY’24, will it be fair to assume that we’ll be contracting this volume starting maybe let’s say couple of, maybe a quarter out, September, October.

Rahul Jain — President & Chief Financial Officer

In October the HFC one.

Ankur Periwal — Axis Capital — Analyst

The HFC one, yes.

Rahul Jain — President & Chief Financial Officer

So the HFC is not a long-term contract business, Ankur. Most of it is done on spot basis. So I don’t think there is a need to contract that revenue. We are fairly confident that given where market demand is, given where are plant provisions, given where our customers’ future requirements are, we’ll be able to sell it through.

Ankur Periwal — Axis Capital — Analyst

Okay, and the other ref gas pricing, the contract renegotiating from a volumetric perspective will happen for H2 now in the coming months.

Rahul Jain — President & Chief Financial Officer

So again, please understand [Technical Issues] was H2 volumes for specifically the US market which typically gets contracted now.

Ankur Periwal — Axis Capital — Analyst

Okay, that’s perfect for US then. Fair enouggh. Great, sir. That’s it from my side. Thanks for the clarification there. Thanks.

Operator

Thank you. The next question is from the line of Vivek Rajamani from Morgan Stanley. Please go ahead.

Vivek Rajamani — Morgan Stanley — Analyst

Hi, sir. Congratulations on very good set of numbers.

Rahul Jain — President & Chief Financial Officer

Little bit louder, please.

Vivek Rajamani — Morgan Stanley — Analyst

Hi, sir. Can you hear me now.

Rahul Jain — President & Chief Financial Officer

Yes.

Vivek Rajamani — Morgan Stanley — Analyst

Yeah. Sir, just a couple of clarifications on some of your earlier answers. So if you could just give some color on the operations. Like you said, you’re running at almost full capacity on the ref gas side. Jf you could just share some of the thoughts on the specialty and the packaging and how you’re seeing this evolve over the next couple of quarters?

And secondly, sir, on the PowerPoint on Europe, you obviously touched upon the lot. You mentioned that this is possibly a longer term opportunity that’s benefiting you guys and the Indian chemical names. So any kind of capex that you would be thinking on putting through to kind of meet this opportunity or it’s very early days to talk about that right now? Thank you so much.

Rahul Jain — President & Chief Financial Officer

So the first question that you asked, Vivek is with respect to?

Vivek Rajamani — Morgan Stanley — Analyst

The operations or utilization rate. Any color that you can give, like you’ve…

Rahul Jain — President & Chief Financial Officer

I said the HFC utilizations are pretty full. On the packaging film side we are selling everything that we can produce, except for Hungary where energy costs have gone through the roof and we are only producing to the extent we have the orders available and at the right price. So that’s something that’s happening in Hungary. Over a period of time, I think the geopolitical position in Eastern Europe will normalize. Whether it happens in the next 6 months, 3 months or a year we don’t know.

Other than that for the specialty chemical side also I think almost all the capacities are full. And when I say full, producing optimally. The MTP4 is the new plant that has come up. We are trying to see what best can be done in terms of utilizing that plant capacity at the fastest pace that is possible, that’s something that’s going on. I would also typically say that for specialty chemicals the capacity utilization on an average, let’s say, on an overall basis remains at 70%, 75% given that there are a lot of campaigns that run. So that’s how it works out, Vivek. And the second question was, Vivek.

Vivek Rajamani — Morgan Stanley — Analyst

Just sir, on the point on Europe, where you said it could be beneficial for SRF and the industry. Just thinking would you be considering any capex to meet that opportunity beyond the INR1,200 crores to INR1,500 crores that you currently planning.

Rahul Jain — President & Chief Financial Officer

Too early to alk about it, Vivek. Again, I think we have given fairly good indication in terms of the INR1,200 crore to INR1,500 crore capex. If that’s something that’s coming out of the European opportunity, we’ll certainly look at it. But again I think there is fair visibility for us to be able to commit to a INR1,200 crore to INR1,500 crore capex and there are multiple opportunities. We’ll look at the right one to be able to capitalize on and go through from a campaign to a dedicated plant.

Vivek Rajamani — Morgan Stanley — Analyst

Got it. Sir. Very helpful. And all the best for the other results. Thank you so much.

Operator

Thank you. The next question is from the line of Abhijeet Akela from Kotak Securities, please go ahead.

Abhijeet Akela — Kotak Securities — Analyst

Yeah, good afternoon, Rahul ji. Thank you so much. Just two questions from my side. First one on the capex. Last quarter you had guided to about INR2,500 crores to INR2,700 crores for the overall company for fiscal ’23, within which chemicals was about INR1,700 crores, INR1,800 crores. So in the context of this INR1,200 crore to INR1,500 crore number that you’ve announced today, how should we think about those previous numbers, are those likely to get upgraded?

Rahul Jain — President & Chief Financial Officer

So I think Abhijeet when we look at it for FY ’23, I think the capex guidance will have to go up. My sense is that during FY ’23 the total capex that we will probably end up doing will be more like INR3,100 crores INR3,300 crores. I also believe that given even with that number, I don’t see a very large deterioration in any of our financial matrices. I think all of them remain very, very healthy [Indecipherable] free cash flow, all of those remain very, very healthy.

When looking at the INR1,200 crore to INR1,500 crore number, I think about INR1,000 crore to INR1,100 crore of that. We’ll probably start to get spent in FY’24, which therefore means that the visibility for the FY’24 number which I always talk about between INR2,500 crore to INR3,000 crores is developing also, and that really creates that provision.

Abhijeet Akela — Kotak Securities — Analyst

Understood, sir. And also just to clarify, within this INR3,100 crore to INR3,300 crores for this year, can we assume that the chemical segment will be about INR2,300 cores to INR2,500 crores?

Rahul Jain — President & Chief Financial Officer

Yeah, that looks all right.

Abhijeet Akela — Kotak Securities — Analyst

Okay, understood. And just a second question I had was on the margin front. Packaging, we’ve alluded to certain headwinds as well as inventory issues. So I mean how should we think about the margin trajectory in coming quarters for that segment? And then also just on chemical, would you expect, I mean [Speech Overlap]

Rahul Jain — President & Chief Financial Officer

I think if you discount Q2, which is probably something that is going to, that is very clear that there are some inventory negatives that will come through. When I look at — and also discount In Hungary because that will also be a function of the geopolitical play that is going on. My sense is overall margins will come down at least in the BOPET segment. We will be aided by the BOPP positives that will come through. Our endeavor will be to sell off all the material that we can produce, don’t shut down the line at any point in time, which will probably be coming out at slightly lower margins. But on an overall basis, let’s say, my last year number was roughly about 19.8% and this quarter we are roughly in the range of 19.7%. I don’t see that going down, let’s say a 10% number. I think we will remain fairly in the green. We will take countermeasures. We will look at our value-added product portfolio. We will look at our customer relationships to ramp up. Our overall numbers when we look at it from an year as a whole perspective given that new capacities are coming in, should also be in good shape.

Abhijeet Akela — Kotak Securities — Analyst

Okay, sir. And that’s really helpful actually. And just on the inventory side, I mean, any sort of help you could provide us regarding how much of the quantum might be at risk out there for 2Q?

Rahul Jain — President & Chief Financial Officer

I can’t give you the exact number, Asbhijeet, but my sense is that at any point in time we would hold about 25,000 to 27,000 tons on [Indecipherable] and that’s being the most key raw material. So to look at where prices are and you will know what the raw material impact could be, inventory.

Abhijeet Akela — Kotak Securities — Analyst

Understood. That’s great, Sir. And one final thing, if I may squeeze in, just on refrigerant outlook. While at this point everything is looking good, there have been some concerns…

Rahul Jain — President & Chief Financial Officer

Can you repeat, please.

Abhijeet Akela — Kotak Securities — Analyst

Yeah, just on refrigerants, there have been some concerns about correction in refrigerant prices in China. Any signs that this might be spreading to the rest of the, or you think the rest of the globe is pretty much insulated and prices remain firm across for refrigerant industries.

Rahul Jain — President & Chief Financial Officer

So I would typically look at it from two perspectives, the local market and the US market. The Indian market will probably have some impact, but I think that’s not because of the Chinese prices, probably more because of the local position and the demand situation, demand and supply situation in the local market given there is some seasonality around it. US prices remain firm, remain strong. Trade barriers are still in place and my sense ays that between 125 and 32 which are, which have been recently imposed duty between November and February, November ’21 and February ’22, those don’t go away. 134A is under review, but blends are still under the ADD. So the US prices will remain strong and to that extent, our ability to supply in the US market remains pretty, pretty decent.

Abhijeet Akela — Kotak Securities — Analyst

Understood. Thank you so much and wish you all the best. Sir.

Rahul Jain — President & Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Prashant [Indecipherable] from Spark Capital. Please go ahead. Mr. Prashant, please go ahead with your question. Mr. Prashant, your line is in talk mode, please go ahead with your question. As there is no response from the current participant, we will move on to the next question from the line of Nikhil Ahuja from Sorin solutions [Phonetic] Please go ahead.

Nikhil Ahuja — Sorin solutions — Analyst

Yeah, very good afternoon, Rahul ji. My question is due to recession in Europe and America, how do you see the demand of the chemical business going forward?

Rahul Jain — President & Chief Financial Officer

So again, Nikhil, I think we’ve given a fair color on this in the earlier questions. We’ve not seen a negative in terms of whether there is low demand from our customers for our flagship products. In fact, some of those demand have only gone up. We also believe that it would provide a larger outsourcing opportunity going forward as well in the medium term. That’s something that we will certainly look at. From the US market perspective also largely I think the fluorochemicals business or the ref gases are the ones that get supplied their from a chemicals business perspective. Demand remains fair and strong and prices also remain pretty significantly. And again I think stable to normalized prices have come through, that will remain as a trend going forward.

Nikhil Ahuja — Sorin solutions — Analyst

Thank you, Rahul ji, and all the best for the coming quarters.

Rahul Jain — President & Chief Financial Officer

I missed it. Could you repeat, please.

Nikhil Ahuja — Sorin solutions — Analyst

I’m saying thank you for your answer and best of luck for the coming quarters.

Rahul Jain — President & Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Madhav Marda from Fidelity. Please go ahead.

Madhav Marda — Fidelity — Analyst

Yeah, hi, sir. Good afternoon. Thank you so much for your time. I think it’s like really positive to hear like more CapEx guidance for the chemical segment and in general SRF reinvesting for growth. I just wanted to understand that the increased capex in chemicals, is it more a function of like China plus one or is it more outsourcing being done by our customer? Are they just looking to outsuourse more of their production? What is driving up this capex for us?

Rahul Jain — President & Chief Financial Officer

Madhav, again to be very frank about it, I think we’ve told you multiple times that we have worked on multiple products. There have been multiple products that have been commercialized. We are seeing traction on some of those product, customers are willing to enter into longer-term contracts with us. And therefore I think given where those those are, w are fairly confident that some of these products would be large products for the future and therefore investing in them. Whether it is purely on China plus one or something else I really don’t know. But the fact is that there is traction from the customer, there is developments that have happened, commercialized products. And some of those that are, let’s say campaign products becoming more of dedicated plants is the trend that we are seeing.

And I can tell you the products that we are talking about, the new capex that has been announced, is a fairly complex advanced agro intermediary. And therefore I think it’s a product of the future. We are very, very confident and we are very hopeful that it can become an even larger product and a flagship product of ours.

Madhav Marda — Fidelity — Analyst

Thank you so much, sir. Wish you the best. Thank you.

Rahul Jain — President & Chief Financial Officer

Thank you.

Operator

Thank you, ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Rahul Jain for closing comments.

Rahul Jain — President & Chief Financial Officer

Thank you, everyone. I hope we have been able to answer, if not all, some of your questions. I wish that each one of you will remain safe and healthy. If you have any further questions, we will be happy to be of assistance. We hope to have your valuable support on a continued basis as we move ahead. On behalf of the management, I once again thank you for taking the time to join us on this call. Thank you very much.

Operator

[Operator Closing Remarks]