SRF Limited (SRF) Q2 FY23 Earnings Concall Transcript

SRF Limited (NSE:SRF) Q2 FY23 Earnings Concall dated Nov. 04, 2022

Corporate Participants:

Nitika Dhawan — Head of Corporate Communications

Rahul Jain — President and Chief Financial Officer

Analysts:

Sanjesh Jain — ICICI Securities — Analyst

Rohit Nagraj — Centrum Broking — Analyst

Ankur Periwal — Axis Capital — Analyst

Surya Patra — Philip Capital — Analyst

Vivek Rajamani — Morgan Stanley — Analyst

Abhijit Akella — Kotak Securities — Analyst

Arjun Khanna — Kotak Manta Asset Management — Analyst

Nitesh Dut — Papua Liladher — Analyst

Vishnu Kumar — Spark Capital — Analyst

Naushad Chaudhary — Aditya Birla Sun Life — Analyst

Archit Joshi — B&K Securities — Analyst

Rohit Sinha — Sunidhi Securities — Analyst

Bobby Jay — Falcon — Analyst

Ishmit Arora — Arora Family Office — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY ’23 Earnings Conference Call of SRF Limited hosted by ICICI Securities. [Operator Instructions]

I now hand the conference over to Mr. Sanjesh Jain from ICICI Securities. Thank you, and over to you, sir.

Sanjesh Jain — ICICI Securities — Analyst

Thanks, Siva. Good afternoon, everyone. Thank you for joining us on SRF Limited Q2 and H1 FY ’23 Results Conference Call. We have us today, Mr. Rahul Jain, President and CFO at SRF Limited. I would now like to invite Ms. Nikata Dhawan, Head of Corporate Communications at SRF, to initiate the call proceeding for the results con call.

Thank you. Over to you, Nikita. Thank you.

Nitika Dhawan — Head of Corporate Communications

Good afternoon, everyone, and thank you for joining us on SRF Limited Quarter two and H1 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 the forum for an interactive question-and-answer session. Before we begin this call, I would like to point out that some statements made in this call may be forward-looking, and a disclaimer has been included in the earnings presentation shared with you earlier.

I would now like to invite Mr. Jain make his opening remarks.

Rahul Jain — President and Chief Financial Officer

Good afternoon, everyone, and thank you for joining us today on SRF’s Q2 and H1 FY ’23 Earnings Conference Call. I trust all of you had the opportunity to go through our results and the presentation shared with you earlier. I will initiate the call by briefly taking you through the key highlights for the period in the region, following which we will open the forum to have a Q&A session. SRF has delivered a good performance during the period under review. The results were primarily driven by our Chemicals business. The Technical Textiles business and the Packaging Films business witnessed a challenging operating environment. During the quarter, on a consolidated basis, revenues grew by 31% Y-o-Y to INR3,728 crores. EBIT grew 21% Y-o-Y to INR689 crores, and profit after tax came in at INR481 crores in Q2 FY ’23, higher by 26% Y-o-Y.

Coming to our segmental performance. In Q2 FY ’23, our Chemicals business performed exceedingly well with revenues increasing by 62% Y-o-Y to INR1,830 crores. Within the Chemicals segment, our Specialty Chemicals business continued to register strong performance on account of the healthy demand for new and our flagship products. We also witnessed traction from global innovators who engage with our R&D team on more complex and downstream products. This bodes well for the long-term prospects of the business as it has always been an endeavor to keep enhancing the level of complexity in our product portfolio. And today, we believe SRF has developed robust R&D capabilities to work on some of the most complex chemistries in the world.

Furthermore, our raw material prices are expected to trend downwards, and we are continuously working on derisking our supply chain from any shocks or geopolitical situations. In this regard, as communicated earlier, we recently commissioned state-of-the-art multi-purpose plant facility, MPP4 at the range is starting to ramp up. Further, the Board has approved a capex of INR604 crores of four new agri plants and capacity expansion for an existing point in the region. These initiatives, which are component of our broader Specialty Chemicals business expansion strategy, are expected to come on stream within the next 10 to 12 months. Additionally, the Board has approved a project to develop Aquilo Lab and Bhiwadi meet the needs of the pharma market at an anticipated cost of around INR9.8 crores.

Year-to-date, we have already announced capex of more than INR1,000 crores and are well on track to fulfill the stated objectives that we have spoken about earlier. So despite the subdued global macro economic outlook, we remain bullish on the outlook of the Specialty Chemicals business. The order book of the business remains strong, and we are optimistic that we will achieve growth in the business more than what we had projected during the beginning of the year. In our Fluorochemicals business, we delivered a steady performance on the back of higher realization and stable volumes despite the impact of a seasonally soft quarter. Our HFC 134a pharma great gas continued to expand its presence in several countries and recorded good growth. With solid demand outlook in important markets like India, U.S. and the Middle East, we will continue to focus on operating facilities as efficiently as possible to maintain the business’s dominant market position.

As stated earlier, R-125 catalyst replacement has been completed successfully in this quarter. So we expect to accrue benefits in H2 FY ’23 from the catalyst change and availability of R-125. We are seeing structural demand trends emerging in the refrigerant segment and expect to deliver a much stronger performance in the second half. Q3 would remain focused on order booking for some of the likely demands of the U.S. market in Q4 for our refrigerant gas segment. During the quarter, our team successfully commissioned a captive power plant. It to meet the growing needs of the business and the site. Furthermore, our second CMS plant in the region is currently in final stages of commissioning, and we hope to ramp up the capacity from this plant in the very near future. Additionally, the key focus of the team is to get the product approval for the PTFE plant, which is also likely to start commercial production very soon.

In our Packaging Films business, SRF reported an increase of 24% to INR1,331 crores during the quarter. As we have discussed in the past, several new voted lines have come onstream, both locally and globally, leading to sharp contraction industry margins. Our profitability was also impacted on to revenue power cost in Hungary and went down in the commodity prices. However, this trend was partially offset by the sustained demand of BOPP films. I’m pleased to share that we successfully commissioned a new BOPP film line in India during the quarter. This client will further boost company’s position in the BOPP market in India and enhanced volume growth for Q3 onwards. While there is strain on margins, we believe that the demand is trending towards global suppliers with multi-location facilities.

And in this regard, SRF Packaging Films business is well positioned. We will also continue to focus on our operational efficiencies to ensure we remain one of the lowest cost producers in the world while maintaining adequate utilization levels. The continuously expanding value-added product portfolio of the Packaging Films business also bodes well for the future for the business. Moving on to our Technical Textiles business. Performance was impacted on to subdued demand for Nylon Tyre Cord however, Belting Fabrics and Polyester Industrial segments witnessed healthy growth during the quarter. Lastly, in the Other businesses, SRF maintained its domestic market leadership in the Coated Fabrics on the back of steady demand. In the Laminated Fabric segment, SRF retained its pricing and volume reduction.

With the plant operating at full capacity and recording its highest in Q2 FY ’23. Q2 FY ’23 also witnessed the impact of volatility in exchange rates, where rupee depreciated against the U.S. dollar by another 3%. U.S. dollar also appreciated against major currencies and the effect of the same is a part of the ForEx loss of around INR36 crores that we incurred during the quarter. As far as overall position of being a net exporter and, therefore, a weak rupee doesn’t affect long-term margins and remains a positive while impacting our Q-on-Q profitability. Additionally, we are also witnessing some impact of the hardening interest rate curves both on the rupee and the dollar, which are leading to slightly higher interest costs being charged off to our P&L. Coming to our balance sheet. Our net debt marginally increased by INR300 crores to INR3,100 crores as of 30th September. This is despite our increase of capex of around INR1,250 crores in H1.

In conclusion, I would like to state that despite geopolitical and operating environment challenges, SRF has delivered a resilient performance with growth in our Chemicals business being a strong positive. Over the years, we have established a world-class infrastructure, developed superior R&D capabilities and had adequate resources to invest in upcoming opportunities across various industries in both agro and pharma verticals. We believe large opportunities exist in the Chemicals business, and we can sustain our growth going forward. capex plans remain robust, which and our current announcements — sorry, capex plans remains robust, and our current announcements are a testimonial to the same.

We closed the current headwinds being faced by Packaging Films business and the Technical Textile business, meaning in the medium term, we expect recovery in these segments as well. On that note, I conclude my remarks and would be glad to discuss any questions, comments or suggestions that you may have.

I would now like to ask the operator to open the line for the Q&A session. Thank you very much.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead.

Rohit Nagraj — Centrum Broking — Analyst

Yeah thanks for the opportunity and good afternoon routes are. Sir, first question is on the technical textile business. So last year, during Q1, you had given a perspective that the pricing as well as margins have improved structurally because some capacity closures in China. However, in last — in Q2, the margins have corrected. So there is only an aberration due to the demand side issues in NTCF? Or we expect that margins probably be moderate from those levels, which we have witnessed in the last previous four quarters?

Rahul Jain — President and Chief Financial Officer

Rohit, thank you for your question. Too many times, I don’t think there is any structural change that has come through in Q2. What is seemingly happening is that there is a lot of talk about recession. There is a lot of talk about what is happening in the market. And what we’ve seen as of now is a change in terms of what people are — the buying patterns of the customers. Now what has also happened is over a period of time, there is the commodity price change of the commodity price reduction that has started to happen, which typically also leads to lower pipeline and lower inventory. So inventory cleanup is also happening is something that we’ve seen in the past happen.

Now that’s why we have also said that while there has been a slightly lower positioning in terms of the margin profile for the Technical Textile business when you compare it with Q1 last year, the demand uptake was significant. Some of that has populated down where, let’s say, our overall capacity utilization has come down. We do believe that some of these demand trends that have kind of shifted in Q2 will probably start to show a positive trend going forward, wherein some of the, let’s say, operating leverage playing out, maybe there is a position of better margin going forward.

Rohit Nagraj — Centrum Broking — Analyst

Right. Got it, sir. Yes, yes. got it. And second question is on the Chemicals business. So in the first half, you mentioned we have grown by almost 33%. And normally second half is stronger, plus we have the additional HMC capacities. And your commentary also suggested that we will be growing better than in first half. So do you want to change the guidance that we had given or we had kept at a 20% plus Chemicals business growth for FY ’23 for the entire year?

Rahul Jain — President and Chief Financial Officer

Rohit, let me first distinguish this. What we have given as a guidance was growth in the — of 20% plus in the Specialty Chemicals business, which effectively you will come to know when we talk about the year-end numbers. So that’s one difference in terms of what you are saying and what I am saying. I have always said that the Fluorochemicals business will probably see a growth based on volumes and price realization. That’s something that is seemingly playing out now as well.

From a Specialty Chemicals business, we believe where our order book is, where our positioning is, the 20% growth is pretty much eminently achievable, and there is the possibility of us bettering that growth going forward again. So that’s how we are looking at it. Hopefully, there will be a positive play in terms of growth. But let’s just wait for another quarter before I can give you an even better color on the growth numbers from a Specialty Chemicals business perspective. I hope that works with you.

Rohit Nagraj — Centrum Broking — Analyst

Yeah absolutely fine sir thanks for the answer and, best of luck sir. Thank you.

Rahul Jain — President and Chief Financial Officer

Thank you.

Operator

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

Ankur Periwal — Axis Capital — Analyst

Yeah, hi. Sir thank you for the opportunity. First question on your commentary on the Fluorochemicals side. On the rev gas bearing, you are saying that the outlook is pretty strong. given the global dynamics. So just your thoughts in terms of pricing trend. We have seen a lot of pricing benefits earlier led by antidumping duty in U.S. So what are your thoughts, let’s say, two, three years sense on the demand outlook overall?

Rahul Jain — President and Chief Financial Officer

There are two things that you are asking here, Ankru, One, what is the pricing trend that is going forward? And what is the demand outlook, right?

Ankur Periwal — Axis Capital — Analyst

So my question — go ahead, yes.

Rahul Jain — President and Chief Financial Officer

Is that what you’re asking, Ankur?

Ankur Periwal — Axis Capital — Analyst

Yes, yes. So I was setting both on the demand outlook, not only in terms of volume metric, but the pricing also, you believe there could be further uptick there.

Rahul Jain — President and Chief Financial Officer

So again, I think prices where they are today, we think prices can remain stable of all of the adjustings. There is really some volatility in some of the adjusting, but I think from an overall large ticket perspective in the near to medium term, prices remain pretty stable. We’ve seen some of the Chinese prices come down, to be very frank about it. But there are various other elements to it why some of those production are happening in China. I don’t know whether you know, but the U.S. trade — PIC, has also reconfirmed the duty on 134a Chinese exports into the U.S., which was under concept until April ’22. So that’s been reconfirmed. So again, given that as a situation, given trade barriers, both in India and in the U.S., which are large markets, I think demand outlook as well as price stability is something that can continue in the HFC space going forward.

Ankur Periwal — Axis Capital — Analyst

Sure, sir. That’s helpful. And a second question on the both packaging as well as the TTP segment. Any inventory losses which you would like to quantify for this quarter? And what could be the steady state margin one can assume here?

Rahul Jain — President and Chief Financial Officer

Okay. Ankur, very difficult question to answer. But let me try and tell you some background and some details around it. When I look at it from an overall perspective, the H1, what we probably saw as a positive overall negative was roughly about — from a particular perspective. Was about — Q2 was about INR13 crores, INR14 crores, right? I mean, there has been volatility in prices. And when I look at it from a first half perspective, the amount was roughly INR seven crores, right? So that’s the position on the volatility side for the Packaging Films business. Technical Textile business, I don’t think there was a very large position in terms of, let’s say, inventory numbers.

But the overall number is probably in the range of about INR two crores from a Technical Textile business perspective. When I also look at the one timers in this, I don’t think there are too many other than the ones that I just talked about. So that’s how the business is. In terms of what margins can be, again, I still believe that there will be some positives in the Packaging Films business that come through in Q4. Again, there’s — we are all hoping that some of the challenges that are there in the Eastern Europe, specifically Hungary for us, will get sorted out with respect to the cost of energy there, right? And if those do happen, I think we will have a positive that, that can flow through. But I mean, these are all geopolitical in nature. There are various things that will pan out, how does the account go through.

There are various discussions that are happening today. All of those are fluid in nature. So very difficult to comment. But what I can only tell you, Ankur, is that as you will start to see more results of some of our peers in the industry also coming through. This is a pressure that is being faced in the packaging film business — packaging film industry, specifically on the BOPET side by everyone. And given our customer relationships, given our value-added product profile, we are already slightly in better shape. As things start to improve, there will be some positives that will come through. I hope that answers it, Ankur.

Ankur Periwal — Axis Capital — Analyst

Sure, sir. Just one clarification. So INR300 — almost INR300 crore EBIT came to INR100 crores, The number that you mentioned was around INR130 crores, INR140 crores for a loss?

Rahul Jain — President and Chief Financial Officer

No, which are you talking about?

Ankur Periwal — Axis Capital — Analyst

The inventory loss of the mark-to-market there.

Rahul Jain — President and Chief Financial Officer

I said about INR13 crores — INR13 crores, INR14 crores for the quarter.

Ankur Periwal — Axis Capital — Analyst

INR13 crores, INR14 crores for the quarter. Okay. And — okay. Fair enough. I’ll get back into thank you for this thanks thank you.

Rahul Jain — President and Chief Financial Officer

Thank you.

Operator

The next question is from the line of Surya Patra from Philip Capital. Please go ahead.

Surya Patra — Philip Capital — Analyst

Yeah. Congratulations for the great set of numbers despite challenges. So my first question is on the clarification, sir. In fact, you mentioned for the supply chain derisking for Chemical business…

Rahul Jain — President and Chief Financial Officer

Surya, can you pick up the handset? Your voice is muffled.

Surya Patra — Philip Capital — Analyst

Okay. Sir, on the derisking of the supply chain for your Chemical business, what you mentioned…

Rahul Jain — President and Chief Financial Officer

Chemical or Chemical Speciality?

Surya Patra — Philip Capital — Analyst

Yes. So derisking — so what the input material that you’re talking about, derisking the supply chain, sir?

Rahul Jain — President and Chief Financial Officer

No specific materials, but there are various things that we procure because, again, you have to understand, Surya, that there are a very large set of products that we do which involve multiple reactions. Now there could be one product that is missing, right, which creates a problem for the entire product. So it is not that I’m talking about the single raw material or a single issue that we are facing. It is just saying that we are now developing more sources of key raw materials so that our production doesn’t suffer. In case there is a need to take a call in terms of inventorizing certain key raw materials, certain materials, which we are production planning for, we are taking those calls. So that was the idea that I wanted to talk about.

Surya Patra — Philip Capital — Analyst

Okay. Second question is on the Packaging Films, sir. Basically, two small points in that. One is that have you seen any meaning from the impact of our Hungary operation in this quarter because of whatever situation that has been going on there? And secondly, while we have witnessed BOPP — challenges in the demand side for BOPP as well as price impact and all that, what is driving the demand for BOPP?

Rahul Jain — President and Chief Financial Officer

Again, you’re absolutely right. We have seen the challenges in the cost in Hungary, and therefore, production capability in Hungary has come down very, very significantly. It is actually only producing to the extent we can get appropriate orders at a growth rate price. Wherever we can lock the cost of energy is where we try to do the best in terms of the available spot prices that we have. So yes, there is a negative in terms of the Hungary that is, let’s say, rest in the number that you are seeing on the sheet. So yes, no doubt on the fact that last year, for example, Hungary made an EBITDA of roughly about EUR eight million to EUR nine million. This year, this is probably flat to negative. So that’s where it is. And therefore, from a comparative basis, there is a negative of coming.

Surya Patra — Philip Capital — Analyst

What are the numbers, sir? EUR eight million to EUR nine million?

Rahul Jain — President and Chief Financial Officer

What was that, Surya?

Surya Patra — Philip Capital — Analyst

This is EUR eight million to EUR nine million, what you mentioned, it is a quarterly number, sir, last year?

Rahul Jain — President and Chief Financial Officer

No, this was the annual for FY ’22. And again, think about it, That plant was ramping up at that point in time. There are various new things that we would have done. But even this has that has come in, everything have its impact. And the second question that you are talking about is what is sustaining BOPP demand. BOPP, in fact, is a product that is a very large, let’s say, three times the size of BOPET. And therefore, let’s say, the cycles that BOPP are slightly lower than what BOPET would be. That’s one. Second, BOPP also has a very large, let’s say, value-added product portfolio when you compare it to BOPET.

So that’s the second piece. The third and another key, and most important, is the fact that BOPP is now becoming more sustainable because the discussions that are happening in terms of the single layer package is not similar. The mono family structures is coming through in BOPP, and people are kind of looking at more BOPP opportunities on that side because of the recyclability and the ESG position that everyone is starting to do. So those are the positives for BOPP BBB perspective, and that’s how it works, Surya.

Surya Patra — Philip Capital — Analyst

Okay, okay. just last question, sir, on your permission. See, on the Chemical business, so here again two angles to it. So recently, BASF has mentioned about the permanent certain cutting down manufacturing activities in Europe. And we have in the recent meetings indicated about our talks with the European chemical as well as agrochemical players for potential supplies. So any development on that side that you have seen, sir?

Rahul Jain — President and Chief Financial Officer

Well, I think it was more generic in nature. There are discussions that are going on. There are — there will be development, there will be new products that will come through. And again, I think what we are seeing here or is the amount of capex that we are announcing is the amount of positions that we are taking on capex, newer products coming in, some of the, let’s say, backhaul integrations happening. So we are starting to make some precursors as well. So I think that is the overall story that is playing out. It cannot be turned to a single quarter in terms of one single product. So it’s a generic story. It’s a more like a robust trend that we are starting to see on that side. And that’s our experience.

Surya Patra — Philip Capital — Analyst

Okay yeah thank you sir thanks a lot.

Rahul Jain — President and Chief Financial Officer

Thank you.

Operator

[Operator Instructions] The next question is from the line of Vivek Rajamani from Morgan Stanley. Please go ahead.

Vivek Rajamani — Morgan Stanley — Analyst

Hi sir thank you for the opportunity. Sir, just two clarifications over here, one related to the previous question. You obviously gave some numbers on the challenges that you’re seeing in Hungary. Would it be possible to quantify the impact of the energy cost that’s driving this pain there? Or it’s a function of both energy costs as well as the lower production that you highlighted? That was the first clarification. And secondly, if you could just touch upon what’s the utilization rates that you’ve seen across your segments in this quarter? And any commentary on how you see that trending in the next two quarters? That would be really helpful.

Rahul Jain — President and Chief Financial Officer

So let me first answer your Hungary question. the cost of power and the spot power and whatever you contracted has gone up so much that the price that you can deliver the product to the customer has gone through the roof, right? And again, when you look at some of the commoditized numbers, the customer has choice to buy from somewhere else as well. And therefore, our ability to supply without the contract with the customer, because your costs have gone up significantly and largely on the power, is where we are unable to operate the plant at the peak level. You are kind of operating it at 25%, 30% level based on the contract that you can get and secure the cost of power. And therefore, it’s kind of becoming more spot in nature. So that’s how Hungary is operating.. The second question — do you have a follow-up on that, Vivek, or should I go on to the second one?

Vivek Rajamani — Morgan Stanley — Analyst

No, sir, That was really clear. If you could just go on the other utilization rates that you’ve seen across the other segments?

Rahul Jain — President and Chief Financial Officer

To that extent, let me just keep taking through the utilization rates on the Technical Textile. On the NTCF side, I will say roughly about 2% is our capacity utilization on a quarter-on-quarter basis. So this quarter, that was more referred to us. Rez gas is — other than R-125 as the category change was happening almost pretty much whatever available was being produced and slightly lower than that because, obviously, Q2 is probably a seasonally adjusted quarter. So to that extent, slightly lower than that. Fluorochemicals, again, full production. Packaging Films probably in the range of about 80%, 85%, 90% overall is common India perspective, Thailand and South Africa. South Africa, in fact, is producing as much as it’s completely full. On the Specialty Chemicals, again, we don’t talk about capacity because it’s something that — to that extent is back also. So it depends on the demand from the customers and also the batches that you have. So that’s the rundown on the utilization rates.

Vivek Rajamani — Morgan Stanley — Analyst

Thank you sir very helpful rejoin the queue for follow-up questions thank you.

Rahul Jain — President and Chief Financial Officer

Thank you.

Operator

The next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead.

Abhijit Akella — Kotak Securities — Analyst

Yeah good afternoon, Rahul ji thanks a lot for taking my questions. One on the Chemical segment capex plan that we’ve announced in the past. Just…

Rahul Jain — President and Chief Financial Officer

This quarter?

Abhijit Akella — Kotak Securities — Analyst

No. Actually, the meeting in September, etc, or just prior to that, the INR12,000, INR13,000 crores capex plan that you announced for the next five years for the Chemicals segment.

Rahul Jain — President and Chief Financial Officer

So you’re talking about the longer term capex. Keep going.

Abhijit Akella — Kotak Securities — Analyst

Yes. So I was just hoping to understand whether all of it is revenue generating in nature or whether there are some other EHS and other supporting activities included within that? And what kind of rough asset terms could we work with on that for utilization?

Rahul Jain — President and Chief Financial Officer

Abhijit, I think we spoke about this. But let me clarify again. See, please don’t — please distinguish between a vision statement and an operating statement, right? When I tell you what is my capex plan for FY ’23, FY ’24, I would be in a position to give you a rundown in terms of what are the capex is that I’m but when I’m making a statement that, this is the intent, I want to do INR3,000 crores, INR3,500 crores of capex annually. I can’t give you asset rundown. I can’t tell you which are the projects that I’m doing.

What I can tell you is this is the vision statement. This is the vision statement that I have. We can look to both projects as we look to enhance our capacities, our capabilities. We will do whatever is needed to ensure that growth keeps running. But I can’t give you a rundown of what projects will be doing in the fifth year. So FY ’24 to FY ’28, That’s pretty much impossible to do. That’s the — we have to distinguish between what is the vision statement and what is an operating statement.

Abhijit Akella — Kotak Securities — Analyst

Okay. No, I understand. That’s very clear. But just to — yes, that’s fine, sir. And the other question I just had was a clarification with regard to Packaging Films. Adjusted for the inventory impact this quarter of about INR13 crores odd and the Hungary situation that’s underway, which is probably about EUR two million a quarter kind of impact on a quarterly basis. Other than that, I mean, the rest of the segment performance is attributable basically to the supply/demand scenario in the industry. Is that how we should interpret it? And then we should expect some improvement heading into 4Q as hopefully, Hungary improved on the energy front and the agreement losses [Indecipherable]? Is that how we should think about it?

Rahul Jain — President and Chief Financial Officer

Are you asking a question or giving an answer?

Abhijit Akella — Kotak Securities — Analyst

Just taking your perspective.

Rahul Jain — President and Chief Financial Officer

You’re absolutely right, Abhijit. See, again, you’ve answered it, in fact. You are absolutely right. We would — we think that some of these situations that are created out of the geopolitics are probably — is probably going to come down over a period of time. And therefore, the energy costs after the winter, let’s say, go away, will be probably better off in Western Europe and Eastern Europe as well.

And therefore, some of that plant will start to recommence. Obviously, there is the new BOPP line that we’ve just commissioned. And therefore, to that extent, we will see a volume benefit also coming in. BOPP, like I also said, has been relatively less impacted by the capacities that are coming. And therefore, we should see a positive trend going into Q4 and exiting probably Q4. But for the short-term BOPET, we will still continue to see some.

Abhijit Akella — Kotak Securities — Analyst

Got it. That’s very helpful. Just oone last thing, if I may. The unallocable income within the segment reporting is a little bit low this quarter. If it’s possible to share on the reason for that might be.

Rahul Jain — President and Chief Financial Officer

Abhijit, I’ve not looked at it. When you are comparing 2Q, 1Q, I think it is higher than allocable expenses net of income. Is that what you’re talking about?

Abhijit Akella — Kotak Securities — Analyst

Yes, exactly. INR26 crores compared to INR64 crores.

Rahul Jain — President and Chief Financial Officer

Again, I don’t read Q1, Q2. When I look at it, it will probably be looked at from a Q-on-Q corresponding period last year perspective, and I see that to be higher. My sense is that there were certain onetime item that I can come back to you.

Abhijit Akella — Kotak Securities — Analyst

Sure thank you so much and all the best sir. Thank you.

Rahul Jain — President and Chief Financial Officer

Thank you.

Operator

The next question is from the line of Arjun Khanna from Kotak Manta Asset Management. Please go ahead.

Arjun Khanna — Kotak Manta Asset Management — Analyst

Thank you sir for taking my question. My first question is just on the capex for FY ’23.

Rahul Jain — President and Chief Financial Officer

Can you speak a bit louder, please?

Arjun Khanna — Kotak Manta Asset Management — Analyst

Yes. Just about the capex for FY ’23. We had talked about doing roughly INR3,000 plus crores of capex for this fiscal year. We have done roughly this INR1,200-odd crores in the first half. So just wanted to know, are we looking at shifting our guidance? Or you are pretty much confident of doing that INR3,000 plus crores in this fiscal?

Rahul Jain — President and Chief Financial Officer

Roughly about INR3,000 crores was our guidance. I think we will be able to achieve it. For the first half, we’ve already done INR1,250 crores, INR1,260 crores. And to that extent, the capex plans remain robust, and we will be able to achieve the guidance.

Arjun Khanna — Kotak Manta Asset Management — Analyst

But the context is that the previous year, the entire year you did INR1,800 crores and now you’re turning INR1,800 crores in the second half?

Rahul Jain — President and Chief Financial Officer

Well, we have done INR1,200 crores in the first half also [Indecipherable] INR1,200 crore and the revenue plan that we’ve announced.

Arjun Khanna — Kotak Manta Asset Management — Analyst

Sure, sure, sure. The second question is you have mentioned in terms of product approvals for the upcoming PTFE plant. So will you be commercializing it in this quarter itself?

Rahul Jain — President and Chief Financial Officer

So Arjun, the plan is to cause the right product in. So my sense is that it will come in Q4. But as soon as we can get our product approvals in these, we’ll start, let’s say, getting our — the initial batch coming through going through the product approval process, all of that will happen. My sense it will probably be Q4 only, not Q3.

Arjun Khanna — Kotak Manta Asset Management — Analyst

So we will see revenues coming from Q4 or from first quarter FY ’24?

Rahul Jain — President and Chief Financial Officer

Revenues probably in Q4.

Arjun Khanna — Kotak Manta Asset Management — Analyst

Okay. Sure. Just the last question I had was on the packaging side, the new BOPP lens. In terms of utilization, obviously, it’s been during the quarter.

Operator

Sorry to interrupt. Your audio are sounding a bit muffled, so if you can just change the mode of your handset.

Arjun Khanna — Kotak Manta Asset Management — Analyst

Sure. Hello?

Rahul Jain — President and Chief Financial Officer

Please go ahead, Arjun.

Arjun Khanna — Kotak Manta Asset Management — Analyst

Just in terms of the new BOPP line, which came during the quarter, are we expecting to see high utilization in the third quarter itself? Or we are yet in the ramping of sales and any from the fourth quarter, you could see revenues from the same?

Rahul Jain — President and Chief Financial Officer

See, the BOPP capitalization has happened already. We are already seeing good capacity utilization on that side, Arjun. Obviously, the first price there is to be able to get to a number, which is better than what — from a value-added product perspective. And therefore, as much as you can start to do more value-added products, you will start to do better. So my sense is it’s already a vertical ramp-up that we’ve seen. But as time goes by, you will also get product approvals for more value-added products, which will add to the margin play that we have.

Arjun Khanna — Kotak Manta Asset Management — Analyst

Sure. So on a run rate basis, we’ll probably be where we expect to be for FY ’24 from the first quarter?

Rahul Jain — President and Chief Financial Officer

For BOPP.

Arjun Khanna — Kotak Manta Asset Management — Analyst

So the new BOPP line in terms of the…

Rahul Jain — President and Chief Financial Officer

One is already there in Q3. You will see some more revenue in Q4, Q2 and Q3 and Q4 as well. So it’s already started it, Arjun.

Arjun Khanna — Kotak Manta Asset Management — Analyst

Right. No, during the second quarter. So I was just wondering in terms of ramp up the margins…

Rahul Jain — President and Chief Financial Officer

So you will increase the feed over a period of time. Your products will become better, You will do more value-added products. So that is what will happen, not in Q1 FY ’24. It’s already started.

Arjun Khanna — Kotak Manta Asset Management — Analyst

Okay perfect thank you.

Rahul Jain — President and Chief Financial Officer

Thank you.

Operator

The next question is from the line of Nitesh Dut from Papua Liladher. Please go ahead.

Nitesh Dut — Papua Liladher — Analyst

Okay sir thank you for the question. My question also pertains to capex. So basically, you mentioned INR23 crores of cash outflow on capex, if I got correctly.

Rahul Jain — President and Chief Financial Officer

I’m unable to hear you. Your voice is completely muffled.

Nitesh Dut — Papua Liladher — Analyst

Sir, is it any better now?

Operator

Mr. Dut, if you can change the mode of your handset, please.

Nitesh Dut — Papua Liladher — Analyst

Sure, let me do that. Hello?

Rahul Jain — President and Chief Financial Officer

Yes, please.

Nitesh Dut — Papua Liladher — Analyst

Sir, is it any better?

Rahul Jain — President and Chief Financial Officer

Yes, it’s much better. Thank you.

Nitesh Dut — Papua Liladher — Analyst

Yes. Okay, okay. So sir, my question was on capex. You mentioned INR1,250 crores of cash outflow on capex in H1. My question is on the commission project. So if my understanding is correct, it’s around INR1,000 crores of commission capex and something around INR1,100 crores to INR1,200 crores of capex, which is yet to commission in FY ’23. Would that be a correct understanding? Or I mean, how much would — how much of the capex…

Rahul Jain — President and Chief Financial Officer

Certainly the number from the previous number. So that’s absolutely right.

Nitesh Dut — Papua Liladher — Analyst

Sure. So that takes it up to around INR2,100 crores to INR2,200 crores of gross block increase in FY ’20. Would that be right?

Rahul Jain — President and Chief Financial Officer

From a capitalization or a commercialization perspective?

Nitesh Dut — Papua Liladher — Analyst

Capitalization perspective, yes. Capitalization perspective.

Rahul Jain — President and Chief Financial Officer

This year, our total capitalization in India would be about INR2,200 crores, INR2,300 crores, slightly higher than that. Because there are projects from the previous year that have also capitalized use, right? So that’s the capitalization number. Because, again, you’ll have to see. So those that we have incurred in the last year as well as we are proposing that probably will get capitalized this year itself. My number is probably about INR3,000 crores. So — but cash spend in some of those projects would have been done over the past two years as well.

Nitesh Dut — Papua Liladher — Analyst

That’s correct. No, actually, what I was trying to figure out is only on the capex — only on the commission, the capex for this year. So if my understanding is correct, I mean…

Rahul Jain — President and Chief Financial Officer

Commission?

Nitesh Dut — Papua Liladher — Analyst

We have BOPP line at Indur and there’s a multipurpose MPP4 that is commissioned, and there’s another agrochemical facility of around 58.

Rahul Jain — President and Chief Financial Officer

Those are a long list of projects. Come back to us, and we will give you a good sense of it because I can’t talk about each of the projects. There is a long list.

Operator

The next question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.

Sanjesh Jain — ICICI Securities — Analyst

First one is the agrochemical for clients, which we have announced in this results, Can you give us a sense how much of it is AI? And out of the INR600 crores, what is the asset turn that we are targeting? That’s one.

Rahul Jain — President and Chief Financial Officer

Okay. Out of the INR600 crores, there are two products that we are doing, which are effectively a precursor to our existing product. So there are margin expansion projects that we will see to come through. Also, the two of these products, we are also believing that can go into another AI, which should probably explain somewhere in the future. So that’s how it will work, Sanjesh. The projects that we have announced are more agrochemicals and non-AI, but there are also precursors to some, which effectively all of the — all of those precursors, we are manufacturing.

Sanjesh Jain — ICICI Securities — Analyst

So out of four, two is…

Rahul Jain — President and Chief Financial Officer

Yes. The other projects are new products that we have supplied from a multi-purposed and that are dedicated.

Sanjesh Jain — ICICI Securities — Analyst

Okay. And in MPP, how many products are we projecting? And just one related question, now that we have announced…

Rahul Jain — President and Chief Financial Officer

Are you talking about MPP4 or some other MPP?

Sanjesh Jain — ICICI Securities — Analyst

No, no, MPP4 because that’s the one we have started. How many new products are planned there in MPP4? One related question to the previous question, sorry. We have announced INR1,200 crores of capex in Specialty Chemical in 12 months, right? What is the potential revenue it can add in next 12 to 15 months?

Rahul Jain — President and Chief Financial Officer

Again, the fact is that from an MPP4 that we have capitalized recently, we are almost doing two to three products on a continuous basis. Now what happens also in MPP is that you manufacture it on a batch, and then do the suppliers over a period of time. It is expanding. The ability of this MPP is probably to do almost 78 products. But those are large products also. So that’s the MPP story, Sanjesh. The other piece in terms of overall revenue potential, I think, again, we don’t look at it from that perspective. the fact is that some of these are precursor, pre feed to the existing one and therefore, add to the margins of the business assets. The other thing — but I mean, I think it can remain in similar nature or similar trend that we have seen in the past. So between 0.9 to 1.25 is a decent assumption.

Sanjesh Jain — ICICI Securities — Analyst

Got it sir thanks sir thank you just one last question from my side well as the 3rd one and you are the host of the call no then. I will come back on the queue thank you sir thank you, very much.

Rahul Jain — President and Chief Financial Officer

Thank you.

Operator

The next question is from the line of Vishnu Kumar from Spark Capital. Please go ahead.

Vishnu Kumar — Spark Capital — Analyst

Thanks for your time sir on the this follow-up on the — just a follow-up on the previous person’s question. On the agri…

Rahul Jain — President and Chief Financial Officer

Vishnu, you’re not audible. Please speak a bit louder.

Vishnu Kumar — Spark Capital — Analyst

Yes. I hope this is better. This is a follow-up on the previous question of the aggregate capex that we’re doing. You mentioned it is mostly pre-AI. I mean, are you generally getting more inquiries from the West that, okay, let’s do one more step because of all the energy cost that is happening on the West? So are we going closer to one more step. Do you see that possibly playing out in the next couple of years?

Rahul Jain — President and Chief Financial Officer

The amount of work that is going on that we are doing with respect to existing projects and existing products as well as converting some of those inquiries into U.S. is very, very large. And I’m hoping in the next few quarters, you will also hear some of the announcements of AI as well.

Vishnu Kumar — Spark Capital — Analyst

Okay. So I present the INR600 crores, you said part of it is margin enhancement and part of it goes into fresh new products?

Rahul Jain — President and Chief Financial Officer

That’s correct.

Vishnu Kumar — Spark Capital — Analyst

Got it, sir. Sir, if you could just give a list of the projects that are going to get commissioned, I mean, large projects over the next 18 months across all — across the segments, that would be quite useful.

Rahul Jain — President and Chief Financial Officer

I don’t think in the Brooklyn both on the all wish new that, but certainly happy to give you a good sense of it.

Vishnu Kumar — Spark Capital — Analyst

Whether it okay got it sure thanks for. I will touch base again. Thank you.

Operator

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

Naushad Chaudhary — Aditya Birla Sun Life — Analyst

Hi thanks. A few clarifications, sir. Firstly on the — can you share the status of our thermal plant capex? And once it’s fully operational, what kind of benefits we should expect from this capex?

Rahul Jain — President and Chief Financial Officer

What thermal plant capex? What is thermal plant?

Naushad Chaudhary — Aditya Birla Sun Life — Analyst

I mean, two years back, you had announced around INR200-odd crores of investment in thermal power plant.

Rahul Jain — President and Chief Financial Officer

That’s right. I think it’s already in commission. It’s operating fully as of now.

Naushad Chaudhary — Aditya Birla Sun Life — Analyst

So this quarter, numbers would have reflected the benefit of this plant?

Rahul Jain — President and Chief Financial Officer

Capital in this quarter itself. So the overall benefit probably will come through in H2 and going forward on a continuous basis.

Naushad Chaudhary — Aditya Birla Sun Life — Analyst

And would you be able to quantify the expected benefit from the plant?

Rahul Jain — President and Chief Financial Officer

That’s in the cost of steel, power and therefore very difficult to quantify. But let’s say, from a unit by unit perspective, it is almost 40% to 50% cheaper than [Indecipherable] or even more, for that matter. And again, which — not say to understand. We have a large requirement of steel. And therefore, it also feeds into the requirements of the future and the need of the site for the future as well.

Naushad Chaudhary — Aditya Birla Sun Life — Analyst

All right. Secondly, just a clarification again on the FX in Packaging Films margin. Was it impacted purely because of inventory spread and operating deleverage? Or was there something else, any one-off cost which may not be there in the next quarter? Or has it become a new normal now demand and utilization has to go up to get back to the previous margin?

Rahul Jain — President and Chief Financial Officer

In the previous one, I’ll just give you a quick rundown. There are no very large one-timer so that — if you expect that then to go up go forward, I don’t think that is happening in this one. But my overall sense is that for the Technical Textile business, that there is a positive on demand that we see coming through probably more towards the end of Q4. Packaging, both will continue to be a bit of a negative. But hopefully, some of the UP capacity that we have put in the value-added product profile, we’ll do slightly better going forward. But BOPET certainly, at least in Q3, which looks a lot of difficult times going forward.

Naushad Chaudhary — Aditya Birla Sun Life — Analyst

Okay. And can you share your full year basis — expected debt cost on a full year basis?

Rahul Jain — President and Chief Financial Officer

My sense is that from a debt perspective, our overall costs have gone up between 2%, 2.5%, which is effectively what we have seen from the side as well as the Indian results that the now if these rates there’s another 50 basis points increase or RBI in the next one does. I don’t want deliver or a large increase, there will be an impact on the floating rate position that year.

As of now, the costs have gone up by about 2% from where we were. Hopefully, this will not be a long, let’s say, thing. And given the growth concerns the world is facing, some of the cental banks will have to start reducing interest rates, not in six months but at least 12 months going forward. So it will probably be a shorter term in later. But yes, that’s how it will account.

Naushad Chaudhary — Aditya Birla Sun Life — Analyst

Sure thanks, I’ll come back and give.

Rahul Jain — President and Chief Financial Officer

Okay. Thank you.

Operator

The next question is from the line of Archit Joshi from B&K Securities. Please go ahead.

Archit Joshi — B&K Securities — Analyst

Thank you for the opportunity. Sir, just one question on Technical Textiles. Sir, we have seen margin around seven, eight quarters in 20%. And the capacity utilization this quarter was in 70-odd percent. So the margins that have dropped, is this essentially because of negative operating leverage? And as you know, capacity utilization ramps up going ahead, we can see a similar level of margin in the interim. So that’s just one clarification I had.

Rahul Jain — President and Chief Financial Officer

We will not go back to that number, but yes, it will pay out better because at the end of the day, Archit, what you also need to do is, in fact, if you want to apply at a differential, you will have to ensure that your plant is running. So to that extent, if you are even lowering your margin to a certain extent, you are good to go because the operating leverage plays out. But we will not go back to the 19%, 20% number..

Archit Joshi — B&K Securities — Analyst

Got it sir thank you thanks a lot that’s it from my side.

Rahul Jain — President and Chief Financial Officer

Thank you.

Operator

The next question is from the line of Rohit Sinha from Sunidhi Securities. Please go ahead.

Rohit Sinha — Sunidhi Securities — Analyst

Yeah hi thank you for taking my questions sir. I hope I’m audible. So first question is if you can give an update on the aluminum business? And secondly, on the Packaging Films side, just wanted to know the overall market perspective as people are talking about the sustainable products. And thankfully, we are not into the single-use plastic side. But what is the acceptance market is having towards value-added products? And how we are looking at this — I mean, overall going forward, how the product mix would be shaping in terms of domestic as well as the export market?

Rahul Jain — President and Chief Financial Officer

Very long question, Rohit. Let me try and address some of it. Aluminum project is on track. Again, September of ’23 is when we expect it to get commissioned, hopefully. Some of the equipment is already coming onstream. They are looking to install it. So that’s what’s happening on the aluminum side. With respect to sustainability angle that you’ve talked about, I think some of the chat around sustainability has also kind of died down a bit given that the geopolitical situations are. But again, we are very, very cognizant of the sustainability initiatives that we are taking.

BOPP today is being considered as a better product from a sustainability perspective. Hopefully, over a period of time as new products developed on the BOP — BOPET side also, they will also become [Indecipherable] structures because it’s kind of adding a property into the film, which can be used for various purposes going forward. So that’s how it will work out. But I did not catch your full question. So maybe we can take it off-line, Rohit.

Rohit Sinha — Sunidhi Securities — Analyst

Focus on the that’s it from my side thank you.

Rahul Jain — President and Chief Financial Officer

Thank you.

Operator

The next question is from the line of Bobby Jay from Falcon. Please go ahead.

Bobby Jay — Falcon — Analyst

Yeah hello for the BOPET, do you make the resins, the PET resin?

Rahul Jain — President and Chief Financial Officer

Bobby, could you pick up the phone and talk? I’m unable to hear you?

Bobby Jay — Falcon — Analyst

Yes. For the BOPET, do you make the PET resins?

Rahul Jain — President and Chief Financial Officer

Yes. For the BOPET, we use PET to make the resins. We have one facility in our SEZ in India. We also have one in Thailand.

Bobby Jay — Falcon — Analyst

Okay. So the — what led to the low margins? Is it because the PET prices have come down? What’s the driver for the low price?

Rahul Jain — President and Chief Financial Officer

The margin is effectively when we talk about the conversion margin. So the price of the final product on the finger — on the trim side has combined significantly during capacity. Therefore, people being to supply at lower price which, therefore, means that the conversion margin, so let’s say — and the conversion margin is the price of the — net price of the product minus the raw material, in our case, PET and energy [Indecipherable] a reason. So that’s the conversion margin. So effectively, what has happened is that because people are willing to drop prices on a continuous basis. the price come down and therefore the overall margins come down.

Bobby Jay — Falcon — Analyst

So this is a complete commodity in that sense. There is no special process you’re making? You make the same processs, right?

Rahul Jain — President and Chief Financial Officer

So again, this is what I talked about in generic nature for the full, which is commodity in nature. There will always be specialty films, some of which we do, which is the value-added product case, which will always have a delta over the base. And therefore, when you look at our bundles, we do those services as well.

Bobby Jay — Falcon — Analyst

And how long do you think this — the overcapacity will last?

Rahul Jain — President and Chief Financial Officer

There is a large amount of capacity for our pipelines that have been added in India. Some large amount have been added in China as well. I don’t really — I’m not really in a position to be able to give you a sense by when this will completely be taken up by the increase in demand. But I do believe the next two quarters are bit likely.

Bobby Jay — Falcon — Analyst

Okay all right thank you very much.

Rahul Jain — President and Chief Financial Officer

Thank you.

Operator

The next question is from the line of Ishmit Arora from Arora Family Office. Please go ahead.

Ishmit Arora — Arora Family Office — Analyst

Hi sir congratulations for a good set of numbers. My question was linked to the fluoropolymers value chain. Do we plan to go into PVDF, SPM and the other types of fluoropolymers?

Rahul Jain — President and Chief Financial Officer

Unfortunately, Ishmit, I am unable to comment on it as of now because there are court processes around it. We are talking about more no specific projects on the ground as of now. You will come to know in due course.

Ishmit Arora — Arora Family Office — Analyst

Right, sir. Second question is, looking at the Chinese as resilient players because we have three Yankees opportunity is already coming up. Are we seeing them shifting their capacities to some of the Chinese players also being capacities they’re doing to basically [Indecipherable] U.S.?

Rahul Jain — President and Chief Financial Officer

Could you repeat your question? I’m a bit confused.

Ishmit Arora — Arora Family Office — Analyst

So basically, are you seeing any Chinese players setting up capacity because capacity of refiguring gases in UAE to basically bypass the antidumping duty?

Rahul Jain — President and Chief Financial Officer

[Indecipherable]

Operator

[Operator Closing Remarks]