Time Technoplast Limited (TIMETECHNO) Q3 FY23 Earnings Concall Transcript

Time Technoplast Limited (NSE:TIMETECHNO) Q3 FY23 Earnings Concall dated Feb. 15, 2023.

Corporate Participants:

Bharat Kumar Vageria — Managing Director

Analysts:

Abhijeet Purohit — PhillipCapital India Private Limited — Analyst

Hitesh Taunk — ICICI Securities — Analyst

Sandeep Dixit — Arjav Partners — Analyst

Mahendra Jain — Way2Wealth Brokers Pvt. Ltd. — Analyst

Raghupathy Thyagarajan — Director Marketing

Umang Shah — Indiabridge Capital Management LLP — Analyst

Unidentified Participant — — Analyst

Hiten Boricha — Joindre Capital Services — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Time Technoplast Q3 FY ’23 Earnings Conference Call hosted by PhillipCapital India Private Limited.

This conference call may include forward-looking statements. These forward-looking statements involves a number of risks, uncertainties, and other factors that could cause actual results to differ, mainly from those suggested by the forward-looking statements. These risks and uncertainties include but are not limited to our ability to successfully implement our strategy, our growth, and expansion plans, obtain regulatory approvals, our provisioning policies, technological changes, investment and business income, cash flow projections, our exposure to market risk as well as other risk. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date thereof. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Abhijeet Purohit from PhillipCapital India Private Limited. Thank you and over to you, sir.

Abhijeet Purohit — PhillipCapital India Private Limited — Analyst

Thank you. Good evening, everyone. On behalf of PhillipCapital India Private Limited, I welcome you all to Q3 and nine month FY ’23 earnings conference call of Time Technoplast Limited. From the management, we have with us Mr. Bharat Kumar Vageria, Managing Director; Mr. Raghupathy Thyagarajan, Whole-Time Director; Mr. Sandip Modi, Senior VP, Accounts and Corporate Planning; Mr. Hemant Soni, VP, Legal and Corporate Affairs.

I now hand over the call to Mr. Bharat Kumar Vageria for his opening remarks. Over to you, sir.

Bharat Kumar Vageria — Managing Director

Thank you, Abhijeet, for introducing all of us management side. Now, you all know that it has been a year since now as we lost Mr. Anil Jain, Co-Founder and Managing Director of the company last year, the 6th of February, but his vision is continued, remain strong with his values. We will continue to work towards his dream of the growing the company.

The company continued to strengthen its market position in the Industrial Packaging segment despite challenging global economic conditions. We are pleased to announce a strong performance during the nine month with the year ended — year revenue growth of 19%. The Value added products segment grew by 29% year-over-year driven by good demand of the IBCs and composite cylinders. Good order book position for CNG cascades coupled with the stable core Industrial Packaging businesses, increasing popularity of type-IV LPG composite cylinders will help us to achieve our target set for the years.

The results are already announced, but I just walk you through some of the key financial and operational highlights. The key numbers are on a consolidated basis in Q3 FY ’23, revenue grew by 20% as compared to corresponding quarter last year Q3 FY ’22 and 10% as compared to previous quarter Q2 FY ’23. In FY ’23 on a consolidated basis, net profit stood INR1,131 crores as against INR943 crores of the previous year. We made about INR153 crores as against INR137 crores. Profit after tax INR61 crores as against INR54 crores. It means net sales increased by 20%.

I’m pleased to tell you where the India is 11% overseas is 42%. Quite good growth in the overseas market. Volume increased by 16%, India 8%, overseas, 37% because of the company is getting good volumes in the new part of the geography like USA where the expansion was there, the result has come out in the previous year. So EBITDA has increased by 12%, PAT increased by 14%. EBITDA margin was 13.5% as against 14.5% decreased by 100 basis point. Margin was slightly impacted owning to challenges, macroeconomic environment that we all are aware, too much volatility in the last quarter in the exchanges, and the polymer prices, which took some time in the passing to the customer.

Now, in the nine month FY ’23 on a consolidation basis, sales stood INR3,100 crores and with the previous year, the same nine month was INR2,012 crores. EBITDA achieved INR411 crores as against INR369 crores. PAT is INR185 crores as against INR133 crores. Yeah, INR155 crores as against the previous year of INR133 crores. Now, key highlights for nine months, net sales increased by 19%, India, 14%, overseas, 29% in the nine months. Volume, 13% overall, India 9% overseas, 23%. EBITDA increased by 12%, PAT increased by 17%. As the volume is increased, value is affected in that way. That also got same positive increase. In nine months FY ’23, EBITDA margin was 13.3% as against 14.1%, the slightly 14% is — 80 basis point lower.

Share of the business. I’m glad to tell you share of the business on the Value added products grew by 29% in nine months of FY ’23 as compared to nine months of FY ’22, while established products grew by 16%, the share of the Value added products is 24% of the total sales in FY ’23 as against 22% in FY ’22. Now because of — you have heard that trade in the overseas has grown in terms of the percentage, therefore, the share of the India and overseas business revenue in nine months in terms of the percentage is 64% and 36% as against 58% and 32% of the previous year. That almost remained the same stood in around INR800 crores, and as of 31st March also, it was the same around. Despite of business has increased by 20%, just our — all the team level maintained in the company.

The capex incurred by the company is INR169 crores, which includes INR53 crores towards the capacity expansion, reengineering, and automatization, but mainly capex incurred this current year is on account of the Value added product, which is CNG cylinders and IBC. And in this reference, I think just — you will see some kind of the company’s sent intimation to the NSE, BSE reference to the CNG, one largest order received by the company and intimated to the exchange is just 20 minutes before the market closing because we just got in the night that orders, and that has been circulated and informed to the exchanges. This is a large order company has received.

In terms of the revenue, I can say now because it’s INR134 crores value of order we received at company, it’s the single largest order. Now the consolidation and restructuring, yes, I would like to update because we all are aware that the Board’s and shareholders agree with the approval, but you know that this process, company has a presence in 10 overseas countries and it took time in the due-diligence process. So that had been completed. But again, it was earlier based on the 2021 financial figures. But now, as we have completed 2022 calendar year, because in overseas, we follow the current year. So matter is under discussion with the prospective buyers and with our advisors, and the results of which will come out in the period ahead shortly.

So, company has still continued and focusing on doing some kind of the disinvestment of overseas business. And further, as you heard my message recently that overseas business has grown more than 23% in the ’90s, so definitely we reserve our rights to enhance the value of the self investment, so which we have lost the period of this last three, four months. So very soon this company will — management will update you time to time in each of the meetings.

Now, I would like to open the floor to the answer specific questions in this press — in this call.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]

The first question is from the line of Hitesh Taunk from ICICI Direct. Please go ahead.

Hitesh Taunk — ICICI Securities — Analyst

Thanks for the opportunity, sir, and congratulations on a good set of numbers for the quarter. Though the number was impressive on a Y-o-Y basis, sir, but my question on a bit on a three-year CAGR basis. Three year CAGR basis, the revenue CAGR is still in single digit, so I just wanted to know on which business segment according to you is underperforming or below our expectation? I mean, segment wise, if you can throw some light on the performance front, please.

Bharat Kumar Vageria — Managing Director

Yeah, I agree, Hitesh. You know very well as I think overall company has grown by 20%, but as — which is especially Composite Products is giving more in terms of percentage and the Packaging business overseas has done very well, but India Packaging business has grown in the range of around 7% to 8% in terms of the percentage. But if you tell me the overall sale of the — this product wise sale, then I’ll give you as far as nine months of this FY ’23 is concerned, the regular products, the packaging excluding the IBC because that comes under the Value added products, lifestyle, Auto, Batteries all segment is in the range of around INR200 crores, we got it revenue as against nine months of the same, INR95 crores. So that all grew by 16.5% if you compare nine month.

But yes, I agree that in the pipe business, it grew only 6% because in the first half, very, very less orders were there. The price too much volatility was there. And thereafter, government has also initiated release some money to the EPC contractor and the second half this business has started picking up. So in Q3 and Q4, company has a good booking as far as pipe orders are concerned. So especially you are asking me which business, it’s the PE pipe business, which is grew hardly in the single digit 6%. All other businesses are more.

In Value added products, you will find the sale of the nine months is INR740 crores as against INR573 crores, which grew were at 29%. We got the good growth in the IBC, composite cylinder has more than 50% growth because the base was very small. Our composite products, which includes LPG and CNG, both together. And at least in the next three — two to three years, you will see more than 100% growth in the composite cylinder business because base is very small and company’s market demand is more, and company is also doing expansion, substantial expansion in the composite cylinder for CNG applications. One another is the MOX films also, which has grew hardly 8%, so these two products where the business growth is less than in single digit. Otherwise, every — therefore, the average growth is 19%, which we have seen in the first nine months.

Hitesh Taunk — ICICI Securities — Analyst

Sir, so going forward, let’s say for the Q4, how the demand recovery you are seeing on the ground level for this — for those products which are not performing? And if you can give some kind of future guidance on the other segments also as far as the revenue growth is concerned that will be very helpful.

Bharat Kumar Vageria — Managing Director

Yeah. I noted the point. Normally, we don’t provide guidance, but as quarter has already — two months is past of the current quarter. But as far as Q3 as business, we did INR1,131 crores, definitely Q4 means higher. And you see the past track record always in the first half, we do 45%, Q3 we do 27% to 28%, but Q4 always we used to do around 30% business. So definitely year closing, we are looking for more than INR4,200 crore business we are expecting. So definitely, this quarter we will have more than INR1,200 crore business.

And especially Q4, we had a good order book of the Composite Products, good order book for the Pipe that all will be executed, and the Packaging business, as we are sure we are taking a growth of — in the range of 10% to 12% only. But definitely, overall in the year, we can say ’22, ’23, we should grow in terms of the volume 15% and value terms also will be around 16% to 17%. This is our projections currently. But certainly, if you ask me the next year, definitely looking to the growth, looking to the product in-hand, bookings, expansion plans of the Composite products in the company because our two — another two, three products we have developed in Composites, which has a good demand we are expecting. So overall, I can say at least for ’23, ’24 also whatever market condition may be, but we are definitely going to grow around 15% in the period of ’23, ’24.

Hitesh Taunk — ICICI Securities — Analyst

Okay, and sir, my next question on the gross margin front. Though you have — you had given some input saying that there was volatility in the raw-material prices…

Bharat Kumar Vageria — Managing Director

Yes.

Hitesh Taunk — ICICI Securities — Analyst

But, sir, I just want to understand when our Value added product categories have grown so sharply even on a Y-o-Y basis is for the quarter also and for the nine month also, the gross margin — there was a pressure on the gross margin. The gross margin is still much below than our pre-COVID level approximately. I understand that there was — there would be — would have been a delay on the passing of the prices and all, but I just wanted to understand what — is there any kind of structural issue or say this is the margin you are happy with or the gross margin you see will improve going forward? I just wanted to understand which kind of growth — gross margins should we look going forward from the current level, especially when your raw material prices have again moving up?

Bharat Kumar Vageria — Managing Director

No, I — it’s a good question asked by you, but one thing I’m just clarifying is two ways. You have asked me the COVID period and the later on. COVID period you know that many restrictions was there initially in the — if we can say, the 2021. All the production was not allowed. Only the essential products were there, mainly packaging products. And at the time, because of the COVID restriction and the limited supply of the raw material product availability, we have increased the prices also. So if you stacking the overall product margin, as we have always suggested, will be in the range of 14% to 15%. Yes, COVID period there was certain COVID expenses, additional expenses was there, therefore, we have asked for increasing the prices, but now as far as ’22, ’23 is concerned, everything is stabilized, percentage of the business revenue was also stabilized.

And I agree that business of the Composite product is increasing as 22% increase to 24%. Therefore, we have seen that there is a substantial improvement in terms of the — if you see the first — last quarter of September where the EBITDA percentage was 13.1%, which is now increased to 13.5%. Further, as the whole of the year, I am looking that it should be around 13.8% means I can say near to 14%. But yes, if you ask me, the year of next year ’23, ’24 is concerned, definitely we’ll surpass 14% because value of the Vale added products are going to increase.

In other words, I tell you the polymer prices increase or decrease, we have a system of passing on because 92% business we do B2B directly. All educated customers when price increase is there, we pass on to them, if price decrease is there, we pass on to them. Only the good two businesses where — are there like composite products where we have order booking, we always keep the reasonable and good margin looking to the contingency and there’s a price fixed for the yearly contracts. We always keep that much in hand on account of the contingency.

Further, PE pipe business is there where we also take the order very cautiously looking to the market trends, but we know that EBITDA margin in that product is in the range of 11% to 12%, so we have to work within that for existing capacity utilization in that business. And that going — and as I mentioned in my last call also that we are not going to expand in Pipe business because it’s a low EBITDA margin business. We will do our focus on the Value added products and the Composite products.

But yes, if you ask me the future, company is focusing and management is very — increase in the operating margin, and it will be in the range of between 14% to 15.5%. 1.5% I’m keeping the range on account of the transfer means the pass on on the price increase or decrease. But certainly, it’s 14% — we — our target. In addition to that because everything is linked with the improvement of the ROCE part because when the margin will improve then definitely ROCE as we have not changed any focus on the ROCE. Definitely by ’25, ’26, we are targeting to achieve ROCE over 19% by changing the combination of established product in the Value added products.

Hitesh Taunk — ICICI Securities — Analyst

Okay. Sir, my last question is about the LPG cylinder what we are delivering to one of the oil and gas company, the IOCL. So how much volume and value we have generated in Q3 by supplying them?

Bharat Kumar Vageria — Managing Director

Actually, as far as Q3 if you are asking me because you know that LPG cylinder we got the approval for more than 48 countries. And I’m glad to tell you every quarter we add one or two countries and my supply is increasing that region. In fact, when the — before the IOCL order, even company was happening a good order book and supplying to various countries. I’m glad to tell you your company cylinder is now approved in Korea, approved in Taiwan, approved in Sudan. All government has visited our plant. So regular orders are coming from that things also.

So now as far as you’re asking me as per the quarter is concerned, around 288,000 cylinders in this quarter, but you ask me the nine months, we crossed 7 lakh cylinders as LPG cylinders are concerned.

Hitesh Taunk — ICICI Securities — Analyst

Sir, my — I’m asking particular for the domestic LPG player. I mean, the IOCL company. How much — on a volume terms and value terms, how much have you delivered and…

Bharat Kumar Vageria — Managing Director

See, numbers don’t available, but that supply is on and services is on to the IOCL customer.

Hitesh Taunk — ICICI Securities — Analyst

Okay, and have you received any kind of further indication of repeated order or anything else?

Bharat Kumar Vageria — Managing Director

I think I had mentioned in my — the previous call also, one year already extension is there in the order itself. Without changing the price terms, they can extend the same and they have extended also that next year also the same quality and same price will continue. The decision is with them only, repeat orders.

Hitesh Taunk — ICICI Securities — Analyst

Okay, so sir, in the previous call you have also mentioned that on the overall Composite products, that composite cylinder category you are — you have given an revenue guidance of INR300 crore for FY ’23 and about INR500 crores by FY ’24, so obviously with the new order in the hand in the cascade category, you want to revise that guidance upward for Composite…

Bharat Kumar Vageria — Managing Director

I have one restriction you know very well because I think you — if you go through my recent — just on our past, I have given my intimation to the exchange and — BSE and NSE that my capacity 100% booked as far as CNG cascade party is concerned because I am completing the expansion phase one. Now, phase two expansion, which is going to be completed in January ’24, so as far as guidance part is concerned for the Composite product, LPG and CNG put together in the range of around INR500 crores, I’m talking about ’23, ’24, not much because I don’t have available capacity.

Hitesh Taunk — ICICI Securities — Analyst

Okay. INR500 crores.

Bharat Kumar Vageria — Managing Director

Yes. Over INR500 crores. Maybe plus or minus 5% maximum.

Hitesh Taunk — ICICI Securities — Analyst

Okay. Okay, sir. Sir, if I have any questions I will — I will come back.

Bharat Kumar Vageria — Managing Director

Yeah. You’re welcome.

Hitesh Taunk — ICICI Securities — Analyst

Thank you, sir.

Operator

Thank you. The next question is from the line of Sandeep Dixit from Arjav Partners. Please go ahead.

Sandeep Dixit — Arjav Partners — Analyst

Everything is answered. Thank you. Nothing to ask.

Operator

Thank you, sir. We’ll move on to the next question that is from the line of Panak, an Individual Investor. Please go ahead. Mr. Panak, your line is in the talk mode. Please go ahead. As there’s no response from the current participant, we’ll move on to the next that is from the line of Mahendra Jain from Way2Wealth. Please go ahead.

Mahendra Jain — Way2Wealth Brokers Pvt. Ltd. — Analyst

[Foreign Speech]

Bharat Kumar Vageria — Managing Director

Yeah. [Foreign speech]

Mahendra Jain — Way2Wealth Brokers Pvt. Ltd. — Analyst

Sir, my question was regarding only this divestment process or strategic partnership and all these things. We are like discussing last so many quarters, so if there is any hurdle or any progress which you can share with us on the direction like because of this — I mean, Packaging business and not having more Value added business that’s why we are suffering from issues or something like that, or can you just put some highlights what is the right now the process is going on, in which direction?

Bharat Kumar Vageria — Managing Director

Mahendraji, I know your concern and you are right that our talk is ongoing for last three quarters because initially you know that we’re talking last year ’22, ’23 and it is delayed by three months because of the sad demise of our honorable Managing Director.

Mahendra Jain — Way2Wealth Brokers Pvt. Ltd. — Analyst

Yes.

Bharat Kumar Vageria — Managing Director

Subsequently, the remaining promoters took back this process on. And you know that overseas business has presence in the 10 countries and all are in different geographies. One is USA, several in Southeastern Asia plus far east Asia, Taiwan, and Middle East. So it took us time. In fact, we were estimating that we will able to complete in the six to eight month time, but considering the due diligence process, it took more time. So now and as we complete the due diligence process in the year of the 2022 end.

So as I mentioned in my first remark also, we have not hold up this — any process. It is on, but at the same time, we have seen the growth also, more than 30% business has grown overseas, okay. So as far as this business is concerned, good business is there, but again as a promoter, as an investor, we also would like to have a good value is concerned, overseas part is concerned. So we are talking with them. And now, we are talking overseas as a whole also and as a part that open is for the decision.

Yeah and another thing. Based on the ’22 that decision will be come out and I think — I’m not asking you much time but yes, in the next 90 days, some result will come out.

Mahendra Jain — Way2Wealth Brokers Pvt. Ltd. — Analyst

Okay. Okay. Okay.

Bharat Kumar Vageria — Managing Director

The Packaging business stays. Overseas, we do Packaging business and nothing to worry. Packaging business has grown and further, we are expecting growth in ’23 also for more than 12%.

Mahendra Jain — Way2Wealth Brokers Pvt. Ltd. — Analyst

Correct. Correct. Sir, this domestic packaging business, are you planning any restructuring or can you put some highlight on that?

Bharat Kumar Vageria — Managing Director

Not now because you know very well because it’s a very cumbersome process. At many locations, I do packaging product, I do Composite products because — just I’ll tell you. Packaging products I use the blow moulding and injection moulding process. For my Composite products also, I use the blow moulding and I use the injection moulding, then we use some kind of other Composite products. So this is prestocking of the process. So, it is because then in India we have 16 manufacturing locations, and Composite products, we are manufacturing at four plus two, six locations. So it is a time taking process and I can’t comment right now, but yes, my first objective, disinvestment of the majority stake for the overseas business in whole or in part. Then, second stage, we will take the India restructuring also. Not now.

When the business is growing and the good growth is there, and again I repeat that, we are not compromising of our business of the Value added products because we have a good — we have a — leverage on the balance sheet is good, we have a capacity of the borrowing capacity, so CNG expansion as the demand is increasing, yes, we are doing the expansion and we are not compromising any Value added product business based on my disinvestment. We have not planned that. That was the — one of the objects is if I disinvest, it will be a benefit. I will do the expansion in CNG, it will benefit the shareholders, and repayment of debt. These are the three objectives of the disinvestment. If still there, as they’ve been materialized, we will do but not at the cost of the expansion of the Composite products. That will carry on without any — whether if disinvestment happens or not happens.

Mahendra Jain — Way2Wealth Brokers Pvt. Ltd. — Analyst

Yes. Yes. Yes. Sir, there is the biggest advantage is that if it happens then we can take care of working capital, low — long term loan, and all these things like…

Bharat Kumar Vageria — Managing Director

Yes. Yes. I agree, Mahendraji. You are right.

Mahendra Jain — Way2Wealth Brokers Pvt. Ltd. — Analyst

Yeah.

Bharat Kumar Vageria — Managing Director

We are worried because cost of the fund has also increased and second thing, woking of the cycle time, time to time it is improving. And you know that COVID period when we reached back to the 130 days, now reduced to the around — we are targeting to less than 100 days in the next six months time because the Value added product share is increasing, which is currently 24% and I am targeting by ’25, ’26, my Value added products sale will be 40% and other sale will be 60%. By the time definitely working cycle time will be in the — near to 80 to 85 days.

Mahendra Jain — Way2Wealth Brokers Pvt. Ltd. — Analyst

Correct. Correct. Okay, sir. Sir, anything you would like to share regarding the hydrogen cylinder projects like anything? Very long term…

Bharat Kumar Vageria — Managing Director

Yes.

Mahendra Jain — Way2Wealth Brokers Pvt. Ltd. — Analyst

But would you like to share anything?

Bharat Kumar Vageria — Managing Director

I give Mr. Raghupathy because last time we had clarified what is hydrogen cylinders and then he will be there because my function line is also covering some kind of the development part. That Mr….

Mahendra Jain — Way2Wealth Brokers Pvt. Ltd. — Analyst

Sure. Sure.

Bharat Kumar Vageria — Managing Director

My colleague partner Raghupathy will explain to you.

Raghupathy Thyagarajan — Director Marketing

Yes, good afternoon. We have been working on the Composite cylinders. As Bharat has been informing you, we’ve been very — progressing very well as far as the hydrogen cylinders or CNG application is concerned. Hydrogen theoretically comes in as the next step of this development process wherein the working pressure for CNG is about, let’s say, 250 bar. So hydrogen would be 350 bar and 500 bar and 700 bar. So these are the steps at which the local customers will also give their approvals.

So our expansion that we are also planning for the composite cylinders has been incorporated to ensure that we are in a position to use a part of our capacity for hydrogen cylinder manufacture as well. We are in discussions with quite a number of potential users also. We recently participated in the India Energy Week, which was inaugurated by Honorable Prime Minister Modi as well where there’s a lot of emphasis on CNG, natural gas as well as for hydrogen. There has been a fantastic response that has been received. There are people who are in the pipeline wanting us to really develop because we are definitely going to be first and for a long time the only company in the country who will be able to offer the hydrogen cylinders as well. So we’re working very rigorously.

As the new equipments are also in place, by year-end we should be in a position to [Technical Issues] I hope [Technical Issues]

Operator

Sorry to interrupt, sir. Your audio is breaking up.

Bharat Kumar Vageria — Managing Director

Pardon me?

Operator

Sir, your audio is breaking up.

Bharat Kumar Vageria — Managing Director

Okay.

Raghupathy Thyagarajan — Director Marketing

Okay. I do not know where it broke. I just would summarize once again. We are working definitely towards the development of the hydrogen cylinders. Theoretically, it’s one step over the development of the CNG cylinders. There are enough inquiries that are there in the pipeline for hydrogen cylinders also. We recently participated in India Energy week where there has been a recognition for Time Technoplast as a good manufacturer of high-pressure cylinders. So there are — there is very clearly a pipeline requirement. We — our plan to manufacture is coinciding with the investment that we’re doing for expansion of this composite cylinder project, and by this year end, we should be in a position to have this announcement also of an indigenous manufacturer of hydrogen cylinder as well.

Mahendra Jain — Way2Wealth Brokers Pvt. Ltd. — Analyst

Okay, okay. Yeah, thank you.

Raghupathy Thyagarajan — Director Marketing

Thank you.

Operator

Thank you. The next question is from the line of Umang Shah from India Bridge Capital. Please go ahead.

Umang Shah — Indiabridge Capital Management LLP — Analyst

Hi, sir. Thank you for taking my questions. Am I audible?

Bharat Kumar Vageria — Managing Director

Yeah, Umang.

Umang Shah — Indiabridge Capital Management LLP — Analyst

Yeah. Sir, the first question was can you tell me the difference between the working capital requirements for the Value added products and for the base business?

Bharat Kumar Vageria — Managing Director

Yeah. If you ask me, two things are different. The Value added products, which includes IBC that means the MOX film and especially composite products.

Umang Shah — Indiabridge Capital Management LLP — Analyst

Yeah.

Bharat Kumar Vageria — Managing Director

Composite products, I tell you, is the voluminous business because when anybody gives us the order, they give us in certain volumes. I have to produce that, then the inspection carrying out. I have to carry out the inventory because in Composite products most of items are imported, inputs are there. It’s a long delivery process time, so I have to get the inventory looking to the contingencies of the shipping line considering delivery time. But in a nutshell, I can say, the difference between the working capital cycle, time of the established product and the value added product is established product needs a working capital cycle time of around, in normal I’m telling you, 110 days. But in case of a value added product, it will be 70 days.

Umang Shah — Indiabridge Capital Management LLP — Analyst

Okay, okay. So sir, the reason I’m asking this question is if I look at long term fundamentals of the company on our ROCE and ROE front, the company has not been able to reach 15%, 14% in the last 10 to 15 years.

Bharat Kumar Vageria — Managing Director

Yeah.

Umang Shah — Indiabridge Capital Management LLP — Analyst

So on return on equity front, how do you think about the business overall? Do we think that it’s because of less utilization of the capacities or do you think it’s because of higher working — investing the working capital?

Bharat Kumar Vageria — Managing Director

So in fact, I tell you, apart from this COVID period where the working of the cycle was increased substantially in past two years, ’19, 2021, and ’22, two and a half years something COVID period. Prior to that, my working capital cycle time was 85 to 90 days, so we are coming back on that period. Target is there. In fact, by end of this ’23, we are keeping target of less than 100 days. But definitely I am keeping my internal target of 85 to 90 days in the period of ’23, ’24. And as I mentioned to you, value added product when the sale will be 40% and the — this sale will be 60% by ’25, ’26, so definitely net working cycle time will be in the range of 75 days.

Umang Shah — Indiabridge Capital Management LLP — Analyst

Right. And what was the, sir, impact…

Bharat Kumar Vageria — Managing Director

And still again, I’ll just add it further. Another thing, the ROCE part is concerned currently which is in the range of 13% in the next three years time by ’25, ’26, we are targeting ROCE over 19% and that change as I’ve said ROCE is — can — we’ll achieve it by improving the working of the cycle time, by improving the margin — EBITDA margins currently, PAT margins all put together. That means improvement in the ROCE.

Umang Shah — Indiabridge Capital Management LLP — Analyst

Right, sir. And, sir, one question is you had a massive capex program from 2010 to 2014 where you almost doubled the gross profit from INR800 crores to almost INR1,500 crores.

Bharat Kumar Vageria — Managing Director

Yes.

Umang Shah — Indiabridge Capital Management LLP — Analyst

After that in last five, six years, the capex has been more or less to the extent of maintenance capex, broadly here there. So first question is the machinery that you’ve installed in the first capex cycle of ’10 to 2014, how long can it further go for and did you have any major maintenance capex coming out?

Bharat Kumar Vageria — Managing Director

I’ll explain in two way. Yes, you are right. As you know, that capex — company has did the capex in the — you are talking about 2010, ’11 onwards. First, five, six years, company has expanded overseas and which, as I mentioned, when you were on the call that the fruits are coming and that fruit will come when the company management will take the decision of the disinvestment. And I tell you, definitely the investment which was — which has — which we received the return in the period ahead. And further, as the capex, which we are currently incurring is the value added products major, and that is where the EBITDA margins are also higher compared to regular products where the EBITDA margins is a range of 11% to 14%. But value added products in the range of around 16% to 20% is the margin. So company is making more investments thus working of the cycle time. So these are the return based plans. And three years as I mentioned to you, working of the cycle time will also be reduced.

Umang Shah — Indiabridge Capital Management LLP — Analyst

Fine. And, sir, one final question is what is the update cycle in machinery. I mean, machinery of yours would have an age of 15 to 20 years, but the new machinery might take the current machinery of the make size.

Bharat Kumar Vageria — Managing Director

I’ll explain in this way. You consider as a plant because in the processing industry, there is the investment in the moulding machines, maybe injection, extrusion, blow, whatever maybe there. In addition to that, we have our blow moulds where it depends on the cycle time, depends on how many products you have made from that. But normally, we consider life of the machines is around 15 years we consider. Life of the mould we consider 10 years as far the policy. And we take always — because we are 25 years old firm, more than 25 years old company, okay?

Raghupathy Thyagarajan — Director Marketing

Manufacturing.

Bharat Kumar Vageria — Managing Director

So, from manufacturing side, be it normally, this automatation, repairs, and maintenance cost we consider, 50% to 60% top of a depreciation amount we consider required on account of the maintenance and to maintain the capacity which we were having at the time to maintain that machines, okay? Then, mould replacement based on the customer requirement, based on customization of the product, and based on the — how many products you have produced from that moulds. So around — I consider, you’re right that we have in fact, I tell you, my capex for the last three, four years in the range of INR150 crores to INR200 crores except in the COVID period it was less. But now as you have seen the product, which is CNG product, major focus is on the value added products company is incurring.

And another thing also I would like to tell you, yes, this year capex will be in the range of around INR225 crores considering the major expansion in the CNG products where the order booking is more and the demand is more and we have enough capacity. But yes, next year onwards, definitely the capex will be less than INR200 crore net of that thing because company has some kind of the — put some kinds of the assets which are not in use, some kind of the assets which have been — to be disposed off. So that’s considering the net of the capex for next year will be less than INR150 crores because the company will do the disposal of the assets which have been held for the sale.

Umang Shah — Indiabridge Capital Management LLP — Analyst

Right. Got it, sir. Thank you so much.

Bharat Kumar Vageria — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Ankur, an individual investor. Please go ahead.

Unidentified Participant — — Analyst

Good evening, everyone. Thank you for giving me an opportunity to raise my question.

Bharat Kumar Vageria — Managing Director

Yeah.

Unidentified Participant — — Analyst

My question is regarding the disinvestment of the foreign business.

Bharat Kumar Vageria — Managing Director

Yeah.

Unidentified Participant — — Analyst

Sir, are we talking to a single buyer or we have different buyers for different countries for the foreign business?

Bharat Kumar Vageria — Managing Director

I tell you if — those who are in this packaging business, just — I will give this answer by my partner, Mr. Raghupathy will provide you because he’s handling this matter with the advisors and the party.

Raghupathy Thyagarajan — Director Marketing

We have talks ongoing with the strategic investors, two of them and financial indices. There are multiple people who are interested. Talks are in an advanced stage with one of the strategic investors and the diligence process is already almost completed. So that’s where the process is. There are other people also in the standby wanting to — expressing their interest, especially after the ’22 results have also been announced. So there are options that are there being considered by the company.

Unidentified Participant — — Analyst

Okay, and sir one thing more. As far as the revenue share is concerned, it is about 34% for the foreign business, and if in case I see the book value of the company per share is about 95%. What would be the share of the book value of the foreign business as compared to the Indian business?

Raghupathy Thyagarajan — Director Marketing

I think I’ll have to work it out. That’s where we have not worked out, but you — I will work it out and you can — I’ll — we can then — we’ll clear your answer because I’ve not worked out in that way. That figures are not available with me right now.

Unidentified Participant — — Analyst

Yeah, because I was interested in the new disinvest. What would be the balance book value of the company be after disinvestment? That was my…

Bharat Kumar Vageria — Managing Director

That is telling the overseas turnover of — in the range of around INR1,200 crores. If you tell me that as we are estimating INR1,400 crores. INR4,200 crores business of — overall business out of that INR1,200 crores business, we are estimating from the overseas. So balance INR3,000 crores business is in India. And as I have told last time also, the — whatever business we will lose from the overseas disinvestment that will be created by way of a value added product in the next three years time in India.

Unidentified Participant — — Analyst

Yes, sir, I’m very hopeful of that. But the only book — how will the book value be affected after disinvestment of the company? That will not depend on the revenue share, but…

Bharat Kumar Vageria — Managing Director

I think you can share that number with my, I can say, Investor Relationship Manager and we’ll provide you that working.

Unidentified Participant — — Analyst

Sure, sir. One last question sir is regarding the oxygen cylinders that you talked about that you’re working on.

Bharat Kumar Vageria — Managing Director

Yes.

Unidentified Participant — — Analyst

Is there any development on that regard?

Raghupathy Thyagarajan — Director Marketing

Yes, I’m very pleased to inform you that the development of the oxygen cylinder has been completed. The in-house testing results have been positive. We’ve been able to surpass the requirement. We have applied to the PESO for approval for three different sizes. It’s just a matter of time when we should get the formal approval. The capacities for the manufacture are also being put in place. We should be able to launch it probably by April of this year.

Unidentified Participant — — Analyst

Thanks a lot, sir. That’s all from my side.

Bharat Kumar Vageria — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Suresh Varan, an individual investor. Please go ahead.

Unidentified Participant — — Analyst

Yeah. Good evening, sir.

Raghupathy Thyagarajan — Director Marketing

Good evening.

Unidentified Participant — — Analyst

Sir, we have been discussing about on-board CNG cylinder actually for more than one year. Have you got any order for this one?

Raghupathy Thyagarajan — Director Marketing

Admittedly, as far as on-board cylinders are concerned, we would be launching it only coinciding with the new manufacturing program, which is coming on-board by end of this year because whatever current capacities are available, they are all being utilized for the cascade part of the requirement. And even as per the chain of requirement goes, the cylinders are normally put into the supply part of it wherein the cascades put into use and subsequently as this gas moves down from the retail station, then they will further find their way to the — among the retail dealers. So these cylinders for on-board applications will also be developed by this year end as we have some surplus capacity available.

Unidentified Participant — — Analyst

Okay, sir. Okay, sir. And my next question regarding the MOX films. Sir, what is the advantage of our MOX films? Actually, we — I’ve seen many players are offering the two-year warranty for pond liner and tank covers. What is our advantage to crack this market?

Raghupathy Thyagarajan — Director Marketing

Yeah, as far as the MOX film is concerned, it is a process of manufacture, which keeps us distinctly apart from the others because here the process is technologically oriented and a little more advanced. In terms of how we are in a position to manufacturer our cross laminated or MOX film, we are able to give it better tensile strength as compared to any other film and we are able to get that price to grammage advantage for sure. All the other people, I would put it, 7 out of 10 in the market today would claim to be a cross laminated film, but half of them are not even there as a cross laminated film. They are kind of deceptively similar, I would say that. It’s a matter of time when these films also starts performing differently and the consumer will be in a position to find the advantage. So we are sticking very securely to the process that we have adopted and we’ll continue to deliver the superior products as we do and offer.

Unidentified Participant — — Analyst

Okay, sir. Okay, sir. And another my question is regarding the HI-TECH — our another HI-TECH product, DEF urea tanks. So we are getting — what is the reception, sir? The market now?

Raghupathy Thyagarajan — Director Marketing

Yes…

Unidentified Participant — — Analyst

Are you getting order for this one?

Raghupathy Thyagarajan — Director Marketing

Yes. As you are aware, the urea tank is used for the urea application, which goes along with the diesel. As per the BS-VI norms are concerned, these have been put into place. We have already developed three different sizes of urea tanks, which we are supplying to OEMs. The tank is doing exceptionally well. There are additional sizes also — have also been ordered which should see further growth in the business. So we are working with OEMs. These are strictly OEM products. The product is manufactured using the technological advantage that we have and we are able to successfully exploit it. I think there are very few successful players offering these urea tanks in the country today.

Unidentified Participant — — Analyst

Okay, sir. Are we expecting any — we are working for the foreign order also from other countries for this OEM tank?

Raghupathy Thyagarajan — Director Marketing

Admittedly, potential would exist in terms of quality, but then, obviously, when we are looking at the tank, it is a hollow product. You end up exporting air. So there would be preference why the OEMs develop local players. They don’t normally want to develop a player or depend on a player who is situated abroad. In fact, they not only want it within the country, but they want it in their own district and region. So, OEM products normally are — you can develop the business if you are there in the neighborhood.

Unidentified Participant — — Analyst

Okay, sir. Okay, sir. And my next question, sir. So now the lot of big players are coming for green hydrogen, okay…

Raghupathy Thyagarajan — Director Marketing

Yes.

Unidentified Participant — — Analyst

So — yeah. So they can — they have deep pockets, they can manufacture hydrogen cylinder also. What do you think, sir? Actually they can manufacture hydrogen cylinder because it’s small part of their business far as the backward integration. So then, in the sense, how can we compete?

Raghupathy Thyagarajan — Director Marketing

Admittedly, the process of manufacturing of hydrogen cylinders is not very, very easy. People who would want to do that will require a lot of capex that will be required to be done. When you are in the business of making hydrogen, globally there is yet — we are yet to experience any single hydrogen manufacturer today in the world who has been able to develop a hydrogen cylinder successfully. We are very clear about it. We will develop the hydrogen cylinder. There will not be one, but there will be 20 manufacturers of hydrogen because it is a heavily decentralized process of manufacture of hydrogen.

So over a period of time, you will find that the hydrogen process of manufacture will start almost in every nook and corner because at the end of the day you electrolyze water and you get hydrogen. And if you are in a position to give — provide green power to it, then you get green hydrogen. So wherever the hydrogen is manufactured, the biggest challenge will be how this lightweight gas would be able to be captured in a cylinder and what pressure you can do so that the cost of carrying the cylinder would be as optimum as possible. So we are able to foresee that whatever in the business, the strategy that we’ve adopted should be able to see as very successful in the years ahead. We are not really bothered about such a possibility.

Unidentified Participant — — Analyst

Okay, sir. Okay, sir. Then my last question is still are we looking for disinvestment of battery division, sir? Our battery division?

Bharat Kumar Vageria — Managing Director

Yeah. I think, yes. You mean to say, we are open, but not at the distress level because the battery division is self sustained company, self product company. And yes, I know that ROCE from that business hardly 7% to 8%, but yes, that company is also doing — developing the electrical batteries, lithium-ion batteries development is on. We have produced some kind of the samples, submitted to some authorities for the approvals for especially two-wheelers and three-wheelers. But yes, we are open. It’s good value we are getting along with the auditors. We can discuss with them and do it.

Unidentified Participant — — Analyst

Okay, sir. Okay, sir. That’s all from me, sir. Thank you. Thank you for answering my question.

Bharat Kumar Vageria — Managing Director

Yeah.

Operator

Thank you. The next question is from the line of Hiten Boricha from Joindre Capital. Please go ahead.

Hiten Boricha — Joindre Capital Services — Analyst

Hello.

Bharat Kumar Vageria — Managing Director

Yeah.

Hiten Boricha — Joindre Capital Services — Analyst

Yeah, sir. Thank you for the opportunity, sir. Sir, I — most of my questions have been answered. I have only one or two questions left. So first is on the guidance. You have given 15% growth for FY ’24 as well as FY ’23. Would you like to give a breakup of value and volume, sir?

Bharat Kumar Vageria — Managing Director

There is a — different products are there. Volume will be each of the segment, there is a different volume, I tell you. The guidance I’m giving over 20% if you ask me, the established products and the value added product I can tell you. Value added product we are expecting growth of around 25%, more than 25% for example. Existing products, established products, we are projecting growth of around [Technical Issues] 12%. So combined growth [Technical Issues]

Hiten Boricha — Joindre Capital Services — Analyst

So sorry, sir, but your voice is breaking. You told value-added product growth is 25% and established is? I missed that number.

Bharat Kumar Vageria — Managing Director

Yeah, established products in the range of 10% to 12%. And [Technical Issues] around more than 25%. You can take 30% because the CNG products, cascade products, which we are expanded is going to get, as against current year projections, of business of around INR350 crores. The next year, we are booking around INR550 crores. So the growth is more than 40% in CNG products, but if you take the entire value added product growth will be over 25%. [Technical Issues] and we will achieve that revenue over 15% volume and [Technical Issues] to both.

Hiten Boricha — Joindre Capital Services — Analyst

Okay. So 15% for this year and any number for FY ’24, sir?

Bharat Kumar Vageria — Managing Director

Number you can take as I had in the prior on my call just now. See, INR3,100 crores revenue is already achieved in the nine months, so we are projecting this year considering this Q4 quarter in the range of around INR4,200 crores. It will take 15% on INR4,200 crores, which worked out around INR4,800 crores, but we will try our best if possible. If prices also remain on the higher side, they can — we can get INR5,000 crores also. But you know the revenue is dependent on the polymer prices. But yes, we are sure as far is margin is concerned, we will able to achieve EBITDA margin in the range of 14%.

Hiten Boricha — Joindre Capital Services — Analyst

Okay, okay. Yeah, sir. Thank you. Sir, just last question on the divestment side. Would you like to give any ballpark number what kind of inflow we are expecting from this divestment assuming we are selling the whole business?

Bharat Kumar Vageria — Managing Director

Yeah. I know that because the can happen in the part, can happen in the full and again, it will be the — the disinvestment may be in the range of 70% to 80%. Percentages are different, so exactly figure of the inflow cannot be given. But I tell you, as initially we had kept target, if for example INR1,000 crores then that will be used for the repayment. 50% will be used for the repayment of the debt, balance benefit to the shareholders because I’m also one of the shareholders, investor is there, and the balance will be used for expansion of CNG products, which already we have talked. And you will see my communication, which is sent back — one and half hour back, it is sent to the exchange also, and that expansion is already on committed and we are going to get it done.

Hiten Boricha — Joindre Capital Services — Analyst

So it’s just around INR1,000 crore, right, about? Hello?

Bharat Kumar Vageria — Managing Director

You can take it — you can take it roughly. I gave you the example of that.

Hiten Boricha — Joindre Capital Services — Analyst

Okay. Okay. Yeah. Thank you, sir.

Bharat Kumar Vageria — Managing Director

INR1,000 crores for 100% value, then what will be the percentage of it, I say. 80%, then I will get INR800 crores. So depending on the how percentage disinvestment depending on the — because we have seen in the overseas, practically nobody sells 100% always continue because wherever we have also got some businesses in the last 10 years, we bought initially 70%, then later on we bought the balance equities also and become today 100% on the [Technical Issues]

Hiten Boricha — Joindre Capital Services — Analyst

But this INR1,000 crore is pre-tax number, right, sir?

Bharat Kumar Vageria — Managing Director

Tax wise we will have to see the — each of the country’s tax rules are different, each of the regions because we are holding this through our holding companies in the overseas countries different regions. So taxation, you know the overseas taxation is the rate in the range of 20%. Pre and post-tax, we will see it depending on the — each of the country liabilities because we’ve hired a holding company in Singapore. There is no tax on the capital gain tax, but I have — now I just heard in Middle East, there is some taxation rules have come out recently in 2023, so we will work it out when the absolute transction will take place.

In India, yes. India — if any — India disinvestments because most of the companies are through the holding companies overseas, but the companies which are holding through the India. India you know the tax liability is in the range of 25%. The exact amount with the taxation is worked out, then we will be the nearest to the transaction side. You can take it. It is a pre-tax working with the high overall just giving you the example.

Hiten Boricha — Joindre Capital Services — Analyst

Okay. Okay. Thank you for the clarity, sir. Thank you.

Bharat Kumar Vageria — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Fanak, an individual investor. Please go ahead.

Bharat Kumar Vageria — Managing Director

I think last time he had come. Fanak? He’s not on the line I think. Last time he was there. Fanak?

Operator

As there’s no response from the current participant, we’ll move on to the next that is from the line of Manish Omar from Manish Investments. Please go ahead. Manish, your line is unmuted. Please go ahead.

Bharat Kumar Vageria — Managing Director

I think he is also not there.

Operator

There’s no response from the current participant. [Operator Instructions] Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.

Bharat Kumar Vageria — Managing Director

Yeah. I would like to convey thanks to all participants who heard carefully about the Q3 and nine month results of the company, and definitely as I promised, we will try our best to keep the — looking to the present scenario and to achieve the targeted revenue of the company. And as I mentioned in the beginning remarks to fulfill and to complete the dreams of our honorable Shri Anil Jain. We’ll try our best. Thank you very much.

Operator

[Operator Closing Remarks]