Gujarat Fluorochemicals Ltd
NSE:FLUOROCHEM
Gujarat Fluorochemicals Ltd
NSE:FLUOROCHEM
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Ladies and gentlemen, good day, and welcome to Gujarat Fluorochemicals Limited, Q2 FY '22 Earnings Conference Call hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rohit Nagraj from Emkay Global Financial Services. Thank you, and over to you, sir.
Thanks, Nurha. Good evening, everyone, and hope all are in good health. I would like to welcome the management of Gujarat Fluorochemicals Limited, and thank them for providing us the opportunity to host the conference call. We have with us today the senior management team of the company, represented by Mr. Vivek Jain, Managing Director; Mr. V.K. Soni, Head of Projects and New Initiatives; Mr. Manoj Agrawal, Chief Financial Officer; and Mr. Vibhu Agarwal, Head, Investor Relations. I shall now hand over the call to Mr. Manoj Agrawal for his opening remarks. Over to you, sir. Thank you.
Thank you, Rohit. On behalf of Gujarat Fluorochemicals Limited, I would like to extend a very warm welcome to all participants. We are happy to inform that the Board of Directors of Gujarat Fluorochemicals Limited at its Board meeting approved the reviewed financial results of the company for Q2 FY '22. The financial results are uploaded to the website of the stock exchanges, BSE as well as NSE, and also on the website of the company. We have also uploaded the earnings presentation for Q2 FY '22. I will take you through this presentation initially. And then we can open the call for any questions that you all might have. Starting with the financial results overview. Revenues of the quarter Q2 FY '22 stood at INR 964 crores, which is 56% higher than the revenues for Q2 FY '21, which were at INR 617 crores. Further, on quarter-to-quarter sequential basis, as compared to Q1 FY '22, which was at INR 912 crores, [ based on growth ] of about 6%. Looking at the EBITDA numbers, EBITDA for Q2 FY '22 stood at INR 296 crores as compared to INR 157 crores in Q2 FY '21, up by 88%. When compared with the EBITDA for the preceding quarter, that is Q1 FY '22, EBITDA was INR 255 crores. Currently, it is higher by 16%. As far as PAT is concerned, PAT for Q2 FY '22 is at INR 205 crores, up 159% from Q2 FY '21, which was INR 79. Compared from the previous quarter, Q1 FY '22 was at INR 151 crores and is now up 36% at INR 205 crores on sequential basis. So this was the brief financial overview of the company at the aggregate level. Now if you look at the performance of the various business verticals. The company revenue from operations comprises of 4 different business verticals. That is, Bulk Chemicals, which comprises of caustic soda, chloromethanes and refrigerants. Fluoropolymers, that is, PTFE. New fluoropolymers, comprising of FKM, PFA, FEP, PVDF, PPA, and micro powders. And lastly, Specialty Chemicals. I'll take you through one by one through the performance of all business verticals. Caustic soda earnings revenue for Q2 FY '22 stood at INR 102 crores as compared to INR 72 crores in Q2 FY '21, up 42%. Caustic soda revenues when compared to previous quarter, that is, Q1 FY '22 is up 16% from INR 88 crores on a sequential basis. Chloromethanes revenues for Q2 FY '22 stood at INR 122 crores as compared to INR 83 cores in Q2 FY '21, up 37%. Chloromethanes revenue when compared to previous quarter, that is Q1 FY '22, is up by 30% from INR 94 crores on sequential basis. Refrigerants revenue for Q2 FY '22 stood at INR 92 crores as compared to INR 88 crores in Q2 FY '21, marginally better. Refrigerants revenue when compared to previous Q1 FY '22 is almost flat on sequential basis.PTFE sales are -- now covering the polymer business, polymer vertical. PTFE sales for Q2 FY '22 were at INR 360 crores as compared to INR 205 crores in Q2 FY '21, up 76%, gaining significantly on account of rising [ both prices ] and volumes due to robust demand across all the other things. PTFE sales when compared to previous quarter, that is, Q1 FY '22, is up 12% from INR 320 crores on sequential basis. New fluoropolymers sales were at INR 182 crores, up 184% as compared to INR 64 crores in the same quarter previous year versus Q2 FY '21. New fluoropolymer sales when compared to previous quarters, that is Q1 FY '22, is up by 23% from INR 148 crores on sequential basis. Lastly, the Specialty Chemical, is down by 11% from INR 73 crores to INR 65 crores when compared to same quarter of previous year, Q2 FY '21, mainly on account of demand displacement for certain drugs due to COVID. But the company has posted robust growth in most of the business verticals. So this was a brief quantitative description of the financial performance of the company. Now apart from the financial performance, we have all seen the presentation included qualitative description of each of the business verticals. I will briefly take you through each of them.As far as the caustic soda is concerned, the plants are currently running at full capacity utilizations. Caustic soda prices started strengthening during the quarter and are expected to increase further during H2 FY '22. The demand-supply situation is expected to remain favorable for the next few quarters. There has been increase in cost because of rising energy prices. However, this cost increase was expected to be offset from the higher realization. Within the Bulk Chemical segment, as far as Chloromethanes are concerned, the plants are also running at full capacity. Demand for MDC, which is mainly used in pharma sector, remains quite strong. On the price front, it is likely to be impacted from Q1 FY '23 as some additional capacities are expected to commission domestically. Similarly on the raw material side, the methanol prices has increased but has been offset by the higher product prices. As far as our refrigerants are concerned, our '22 volumes and prices remained stable in Q2 FY '22. Similarly, for refrigerants, demand is expected to remain suppressed in 3Q FY '22 due to stability and expected to be normalized by Q4 FY '22. But our productions will continue to increase due to rising feedstock requirements and prices are also expected to be increased due to cost push on inputs of raw materials as well as energy and logistics. Coming to the fluoropolymer vertical, PTFE. Plants are running at full capacities, demand is very robust across all geographies. Prices have moved up due to both rising demand as well as the cost push. Demand is expected to remain robust for the next few quarters. And the basis of this, management has planned the capacity augmentation in line with the demand growth. On new fluoropolymers, capacity are increased for all the 6 new fluoropolymers. Various grades under each polymer already have been established and few new PVDF grades are developed in the process of customer qualification and commercial ramp up. Capacity utilization during the quarter is around 65% and expected to reach full capacity utilization by end of this financial year. On the demand front, there is a substantial increase in demand for FKM, PVDF as well as Micro Powders. And additional capacities for these products are also under installation and commissioning. Prices are also, for both FKM and PVDF, have moved up due to rising demand and cost push of key raw material R-142B. And to mitigate this, GFL is backward integrating to produce R-142B for captive feedstock requirements for both FKM and PVDF as well as for exports. And lastly, under Specialty Chemical verticals, all 11 products have been fully commercialized. However, capacity utilization remain low for pharma-related intermediates due to demand displacement in favor of COVID-related drugs. We expect that this will start normalizing from Q4 FY '22. Additionally, we had to discontinue to do 2 products due to cost increases which eroded the margins. Our 3 new plants for manufacturing of 8 additional products are expected to be commissioned by Q4 FY '22. With all this, we expect a substantial increase in revenues will commence from Q1 FY '23, with the new plants fully operational. So that was the brief qualitative outlook of each one of these business verticals. Apart from the macro level for these business verticals, overall at the company level, our expansion plans are well in place. We are in process of augmenting existing as well as adding new capacities in New Fluoropolymers and Specialty Chemicals, which are yet to be fully commissioned. The same are expected to reach full utilization in the next 2, 3 quarters leading to higher revenues and profit. So given this, RoCE is expected to further improve given higher margins from these incremental sales. As regards to new age Products, we are in the process of setting up an integrated battery chemicals complex. In addition, GFL has developed suitable PVDF grades for cathode binder applications. This initiative will require significant CapEx in next year and will ensure a robust growth in revenues and profit. GFL is also in process of setting up India's first PVDF solar film project, which will be commissioned in next financial year. With our own integrated PVDF manufacturing facilities, this plant will be ideally suited to cater to both domestic and international markets. GFL, with its rich experience and a portfolio of major fluoropolymer, is well-equipped to cater to fluoropolymer required for hydrogen electrolyzers, fuel cells and charging stations. GFL has also taken the product to indigenously develop and produce PEM membranes. We believe that our new age products will see substantial growth in next year with higher margins, will lead to us to further improvement in our financial ratios. GFL expects all these initiatives to offer sustained business growth for the foreseeable future. So with that, ladies and gentlemen, we walked through to the presentation. I would like now to open this up for any questions that you might have that we'll try and answer. Thank you.
[Operator Instructions] The first question is from the line of [ Hansal Dakar ] from [ Valcar Securities ].
First of all, a heartfelt congratulations on what might possibly be one of our best quarters in the recent past with [indiscernible]. I have two questions, sir. One about the existing business and one about the new age vertical. About the existing business, so I just wanted to know what is the status of our captive wind power asset? There seems to be a delay. So I'm just wondering if you could give some time line on the installation and the realizing of the cost [ spend? ]
Sorry, didn't get your question right.
So I was wondering if you could give a time line on the installation of our wind power assets, the 125 megawatts of wind power asset that we were to install?
Yes. So there has been certain delays there. But by 31st March 2022, we will put up our -- we'll put up about 20-, 25-megawatt of capacity. Then the delay is taking like -- which is largely due to the fact that there was a wind power policy [ taken in Gujarat ], which was going to be updated in -- on -- in April 2021. But due to COVID, that policy renewal is now going to take place only in April '21 -- '22. Now what that policy was going to do was that it was going to lift a current restriction on wind power projects -- installation of wind power projects because of -- in the previous policy, it was restricted to 50% of the contract demand -- sanctioned contract demand. Unfortunately, because the policy revision has not delayed, we had to wait until April '22 for this [ advance ] to go through. Then we will be able to put in additional capacity for which we had such sanctioned. In the solar policy in Gujarat, we had already removed the ceiling on the contract demand. And as such, any amount of solar capacity [ can be ] put up for captive use. A similar kind of thing was supposed to have been done for wind. But as I explained earlier, there has been a delay, and we expect that to happen in the next financial year, April. Now while the 30 megawatts which we are planning to put up just now is on the basis of contract demand, which is already available with us. So that is something which is possible [ to put up just now. ] And as you might know, that there has been a massive increase in energy prices in the last 1 year, coal has gone up by 4 times. Gas has doubled, tripled. So energy costs have become very high. So the renewable energy projects will have improved in return expectations. And once we are clear about the government policy, then we intend to put up the balance capacity also. However, if there is a restriction in the new policy, which is announced by the government of Gujarat, then by 30th of June next year, whatever capacity which is not permitted to be fulfilled, the advances which have been given by GFL will be returned back to the company.
Okay. Sir, on the new expansion, I believe we've seen clearances from the proposed expansion for which we've received the [ TUR ] in September. So I think we should be receiving those clearances in the next 15 to 30 days, I'm guessing. So my question actually is, I just wanted to know that what is the time line and the status of the trial production of these new age chemicals like the lithium hexafluorophosphate and the electrolytes? I mean, are these tried out successfully in our labs and accepted by our customers as of now?
Our commission plan will be commissioned by about 30th September '22. And thereafter, our test lab with the customers will begin. And we expect that it probably takes about a quarter for the product quality to be fine-tuned to the requirements of the customers.
Okay. All right. So this -- like the PVDF and the electrolytes and the LiPF6, which are using as a salt, so I would assume that this would be the EV vertical of the business. So are you in a position to let us know what percentage of our revenue can come from this EV segment particularly?
So you see, at this point of time, it is difficult for us to give you a number. But all we can say is that once these new products, for instance PVDF as well as LiPF6 projects are successful -- PVDF we are already manufacturing. We are pushing the gates for approvals by the EV battery manufacturer, and we've already sent -- sent it for evaluation.Once we are successfully tested and approved by customers, we see a huge potential for growth in the next coming years, because the entire EV business is slated for a huge expansion. I think the numbers on the -- number of -- numbers which the government of India is talking about, what Europe is talking about, the U.S. are talking about are huge. And so the potential to expand in a way for a company like us is in a way, unlimited.
[Operator Instructions] The next question is from the line of Ketan Gandhi from Gandhi Securities.
So what is the current price of PTFE we are selling in the market?
Current average price of PTFE would be about -- PTFE prices are around the average. [indiscernible]
Perfect. Sir, my next question is in the existing business, the management has very prudently mitigated the risk with the procurement of the raw material like sulfur and salt, which gives you the final product. So similarly, what is the strategy of the management to mitigate the raw material risk of lithium carbonate, phosphorus pentachloride and [indiscernible] [ lithium carbonate ]. Because as I've been tracking the price of the lithium carbonate, it has gone from -- by almost 2 or 3x in the last 1.5 months -- 1.5 years.
So actually, there are 2 raw materials, basically, as you rightly said, lithium carbonate and phosphorus pentachloride. So regarding the latter, we plan to make it ourselves in a phased manner. Regarding the former, the lithium carbonate, we are in serious discussions with many parties around the world and facilitated by [indiscernible] and [indiscernible] who are organizing these. So we don't see any issue whatsoever in making available the raw materials.
Sir, what about ethylene and dimethyl or propylene carbonate, which is required for the making of electrolyte?
A [ Phase 2 ] program starting with the main sold, which is lithium -- LiPF6 -- and additives as well as the electrolyte formulation. And making lithium chloride in-house, PCl5 in-house. This will be followed later with the solvents. At the moment, solvents will be [ bind. ] The 2 solvents will be [ bind. ] So in the electrolyte sector, we'll be limiting presently to the main salt, the additives and the formulations.
Perfect. And sir, there is a lot of buzz regarding green hydrogen lately in India as well as abroad. And I believe that generating green hydrogen through electrolysis of water using PEM -- that is, proton exchange membrane technology, which requires a lot of PTFE and PVDF as a critical requirement in the process. So can you throw some light on the -- I mean, how we are thinking about this? Because we will be tying up with somebody and supplying the material? Or we will make this thing ourselves and we'll be selling like a product company or a service company?
You see, regarding hydrogen, it is firstly, as you rightly said, produced in the electrolyzers. Electrolyzers have 2 requirements, where GFL figures in. One is the fluoropolymers for the various parts of the electrolyzers like [ gas placed steels ], et cetera, and also the frames to support the membrane. So these are naturally our natural products, and we'll be supplying for the electrolyzers, which make green hydrogen. There is another part, which is the proton exchange membrane, PEM membrane, which we'll be doing R&D with indigenous institutes. And that would be a new product, which we'll be launching, but it will take a couple of years' time because we have to develop the same. Regarding fuel cells, the story is the same. It also needs membrane, which we'll be developing -- as well as it needs even greater intensity of fluoropolymers, which are our natural products, and we already make them, and we'll be supplying those.
So we will be a product company, right, sir, if I'm not mistaken?
Yes. So we won't be going into -- at the moment into making green hydrogen, but we would be facilitating it greatly by giving the components to electrolyzers and the fuel cell.
Makes a lot of sense. And sir, you have spoken about the expansion. I believe in the next 2 years, we are doing around INR 800 crores CapEx. So for this incremental capacity, what would be your asset turn?
Asset turn -- for the CapEx, the INR 1,100 crores. We have given INR 600 crores by FY '22, INR 900 crores by FY '23 and about INR 1,000 crores by FY '24. So the CapEx asset turnover would vary because the substantial part of the CapEx would be done for fluoropolymers and battery chemicals, where the asset turnover ratio is better. So you want -- I didn't understand. You wanted for the company as a whole or for the new CapEx?
No. New CapEx only, sir.
New CapEx will be definitely [indiscernible].
Yes, probably about 1.5x.
Yes. Yes, 1.5x. For -- more than 1.5x. Yes.
[Operator Instructions] The next question is from the line of [ Sanjay Shen ] from ICICI Securities.
First on the -- continuing with the CapEx thing, I was looking at -- we have a CWIP of 5.6 [ million. ] And we intend to do INR 600 crores of CapEx this year, and we have already spent INR 250 crores. So that means this year, the capitalization will be upwards of INR 700 crores, INR 800 crores. Is that understanding, right?
No. Actually, if you see the slide we have given, total figure for FY '22, that is INR 600 crores.Includes the CapEx -- CWIP expenditure already done by us, a tune of around INR 300 crores to INR 400 crores and balance INR 200 crores will be done in the second half.
So the balance INR 200 crores will be done in the second half. So total capitalization will be INR 600 crores, right?
That depends on the completion of the project as we envisioned and planned.
Got it. Got it. Can you give some color on the CapEx for this year, at least, where are we spending this INR 600 crores on? Whether it will be PTFE because we are running at a full capacity already in the PTFE? Number two, do we have enough R22 to support the expansion of PTFE? And again, within the fluoropolymer, the 6 fluoropolymer, new age fluoropolymers we have, which are the ones we are looking to expand. So can you give just some color on this INR 600 crores of CapEx we are incurring in FY '22? And it will be helpful if you can also give us some color on FY '23 spend.
Yes, just a moment please.
[Operator Instructions]
Yes. So regarding your first question, the CapEx of INR 600 crores, about INR 250 crores to INR 300 crores will be on Specialty Chemicals and about INR 300 on fluoropolymers, as you mentioned, the 3 fluoropolymers, FKM, PVDF and micro powders.
Okay. And next year, because we are running that PTFE, that means volume growth for PTFE [indiscernible] existing level, right?
Yes, that's right. Volume growth will be limited to our current capacity.
Got it. So when are we planning to have the PTFE capacity for the growth in that segment?
That is happening in the next financial year, which is part of the INR 900 crores CapEx which we have indicated. Almost about INR 250 crores, INR 300 crores will be put in to that, and that we come up by the first quarter, January, 30 March '23.
Got it. Got it. And if you can give us color on the R22 capacity for all this expansion?
We will have enough R22 capacity.
So R22 is not [ a problem area, there's no reason to ] expand the capacity for the fluoropolymers?
Sorry?
I'm asking, the existing capacity is fully covered for the future growth in the fluoropolymer from the R22 side?
Yes, we will have enough R22 available for meeting the requirements [indiscernible] requirements of [ R22 ] [indiscernible] capacity in [indiscernible].
Got it. Got it. And last question from my side. I'll come back in the queue if there's more. If you can just explain when we say the -- we are able to commission an integrated battery chemical contracts. What does it really mean? [indiscernible] What will this entire complex consist of?
So basically, integrated battery chemical complex will mean that we are going into -- starting from lithium carbonate, which is a mined and refined ore. And the basic raw materials are like red phosphorus and yellow phosphorus and chlorine. So that means all the components of making in-house [ PCFI or PFI ] or AHF or lithium chloride will be all included in this complex. It is integrated from basic raw materials up to the last step of electrolyte formulations, which go into the lithium battery makers.
Got it. And we will be the only manufacturer of LiPF6 in India?
Definitely. Yes.
The next question is from the line of [ Nikhil ] from [ Garin International ].
Congratulations on a great set of numbers. Absolutely fantastic. Just two small questions. We've been reading a lot of, let's say, reorganization of [ GFL and Inox ] over the last couple of weeks in the papers and through the disclosures. So anything that management would like to comment on this, if possible and if not confidential?
No, there's nothing controversial. It has been a very amicable realignment. And within the family and the Gujarat Fluorochemicals and the Wind operations are -- they're lively. And the other 3 businesses in the [indiscernible].
So the alignment of the [indiscernible] reorganization alignment would be kind of complete, right? So all the growth funding and all...
It's all completed, everything is amicably settled.
Sure. And the second question was on this -- we have a borrowing [indiscernible] a loan limit of INR 1,000-odd crores to the group company. So can we expect that over the next 1 to 2 years, once things have stabilized and everything goes well. So these units will no longer be required and hence, we will not be supporting the [ group ] company?
Yes. I would say that by 31st March '23, most of these guarantees will be returned back.
And there are no fresher guarantees?
There's no further requirements. There's no further requirement because the business itself is now becoming strong, and there is a huge opportunity of growth there.
The next question is from the line of Mithun Soni from Geecee Investments.
Yes. So a couple of questions. One, in the caustic soda segment, what would have been your realizations? Realizations in the market has gone up, but revenue has not really reflected as much. So what would be our average realizations?
The realizations are going up now, and we'll give you the [indiscernible]
The average realization is around 27,000 to 28,000 [ per equipment ].
During this quarter, during this quarter.
But we would have been running it at full utilization? Or it would have been running in [indiscernible]?
Full utilization.
Okay. Coming in terms of the PTFE and New Fluoropolymers, what would be your current capacity utilization? You had indicated that we will almost reach full utilization by year-end. So what will be the current utilization in these 2 segments?
So PTFE, we are running at full capacity, which is almost about 1,500 to 1,600 tonnes per month. And for New Fluoropolymers, we are at about 550 tonnes and our capacity is at 700 tonnes. So by March '22, this will be fully utilized.
Okay. So basically then, in case of PTFE, the new growth will come only once we start seeing the capacity -- the new capacity comes on?
Yes, which is going to happen January, February, March '23.
So basically, for one, it's almost like 1 year now, almost 4 to 5 quarters. And so if you could give some breakup on INR 900 crores of CapEx, what would be -- [ and INR 1,000 crores ], so that if I'm understanding correct, INR 900 crores will be spent in FY '23 and then INR 1,000 crores additional in FY '24. So if you can just give a broad guidance as to where are we going to spend all this money?
So you want the breakup for FY '23 INR, 900 crores, right?
Yes, sir. Yes, yes.
Actually, the -- we would be spending on the 3 chemicals. And the EV, fluoropolymer components, that is PVDF, we are spending about INR 250 crores.
On the PVDF?
And also on the PVDF, which we said is spending about INR 100 crores. And we'll be spending on PTFE expansion about INR 250 crores. And on intermediate for backward integration into chemical sector for our fluoropolymers, we'll be spending about INR 100 crores. And the rest INR 250 crores for infrastructure, energy, et cetera...
And wind.
Which includes the wind power. Just now, as Mr. Jain mentioned.
So that would be it. And one last question, if you may...
[Operator Instructions] The next question is from the line of [ Aray Gotha ] from [ GS Investments ].
I just wanted to know about the recent imposition of antidumping duty on some of our products and what could be -- not the intention of the renewals, what could be the impact on our company, sir?
As usual, no impact.
How come, sir? If you can...
Very, very limited competition, which we are directly doing with Russia, maybe it is about 10, 15, 20 tonnes in a month. So it's not -- and there is enough demand. We can sell that volume anywhere. So it is not really impacting anything which we are doing heavily today.
There were some concerns on the company on the related party transactions, I think, so that was a big overhang.
We discussed that already, which is related to the wind advances which have been given for the wind capacity we are going to put up with our fluorochemicals for our own requirements of wind. Because of -- energy's costly, because energy constitutes the biggest single cost element for the company, and we were going ahead with this investment to reduce our energy costs.
And so what was the second generation [indiscernible] is then going to claim the company? [indiscernible]
Sorry?
The son of the founder, so what are -- is it playing in this [indiscernible] company looking [indiscernible] change in the Gujarat Fluorochemical side?
Yes, in a year or 2, he will start involving himself with the chemical business also. Once this settles in the next year, he will have enough time to do -- to start devoting to the chemical business also.
The next question is from the line of Viral Shah from Enam Holdings.
So would it be possible to share PTFE volumes for the quarter? And how would the mix be between [ general ] PTFE and [ commodity period ] of PTFE?
On the very, very general side, you have a value of PTFE would be about 55%, and the general [ brake ] PTFE would be about 45%.
The second question, if I look at the other income this quarter, there is a quarter-on-quarter rise of around INR 20 crores. So what is this pertaining to, sir? INR 26 crores for other income?
Gain is for the INR 19 crores. Gain on the sale of our office. [indiscernible]
Sorry, sir. I could not hear you. If you can repeat that, please?
The gain on the sale of property, which is our office property in Mumbai, we have shifted our entire operation from Mumbai to [indiscernible] so that office is no longer required, and we have disposed of that.
Okay, sure. And just last question, I think you've done -- there has been improvement in working capital If I look at -- compared to the March quarter or the previous September quarter. Is there further [indiscernible] improvement [indiscernible] or do you think that you are already at optimum levels?
Our internal target is to take it down to 100 days. But you must remember that our business is different from other businesses. In the fluoropolymer businesses, which constitutes the bulk of the business, we export 75% of our product. We service our customers very, very efficiently there. So we maintain 1 month of stock in our warehouses in U.S. and Europe. There is 1 month of inventory in transit on the seas and 1 month inventory is there with us, [ to meet the ] earnings requirements from customers with us in India. So the nature of our business is such that it requires a higher inventory of finished goods. It may be different for other companies who also handle bulk chemicals because chemicals, in any case, you can't hold much inventory because it is all liquid and has to be garaged in bulk storage. So by nature of the business, our business requires a higher inventory. And that is where much of our -- part of our working capital has been allocated. Secondly, there is also the issue of the terms at which you sell your products. Now if for instance, somebody -- some companies [ would ] sell the products through distributors and get the money upfront, then they're [ blocking ] the funds and working capital [ will be met ]. On the other hand, we give more credit because we get a better price. So it's all between better margins or lower working capital. But we are now looking at the entire working capital again in a very focused manner to try and ensure that we are able to further reduce the overall working cap. And we believe that in the next 1 year, we should be able to get it down to 100 days.
The next question is from the line of [ Dhimant Sha ] from [ Wanof Financial ].
Yes. Am I audible, please?
Yes.
Yes.
Two quick questions. As we graduate to -- I believe we do most of the grades in PTFE, both general grade and the value-added grades. Is there any grade that we currently not address and are likely to take it up in the forthcoming CapEx?
That could be possible. But as we see that there is going to be sufficient additional demand coming in for grades, which we have already developed. But at this point of time, we don't see a gap in the product portfolio which we currently offer to the market. So frankly speaking, I won't be able to answer that, but really, it doesn't matter because we would have enough demand coming in to be able to suggest -- to be able to utilize additional capacities which we are proposing.
Great. And secondly, in your opinion, the new fluoropolymer segment would be at the forefront in terms of both growth and margins as we move forward? So clearly, if you have to kind of lay the -- do a kind of analysis of the better performing segment, it would be New Polymers then PTFE, then Specialty and then Bulk -- or the order would be different? Also in terms of growth, RoCE and margins.
The new fluoropolymers, the margin and the growth will be higher in terms of percentage. That will -- the volume will go up, especially because of the requirement of PVDF in EV batteries and solar fields. So we see a huge potential for growth there. So in the next 2 to 3 years, as these markets grow, we will keep on increasing capacities to meet those requirements.
Correct. And as an associated question since we are again undergoing our CapEx cycle, what in your opinion -- because I think past 2 years, your consolidated operating profit is in the 500, 600 range -- INR 500 crores, INR 600 crores. So do you see a significant rise or do you see the debt -- kind of the peak debt, kind of -- what kind of number...
So all our operating profitability is much higher. Secondly, we will keep on growing if there is an opportunity. We put in CapEx when there is an opportunity. And at this point of time, you see a lot of opportunity in the products and business segments in which we are currently working. So that is the reason why these additional CapEx have been put in. And we expect that the terms from these additional capacities would be similar, if not better, than the margins which we are currently getting. We expect most likely that the margin would be better.
Super. So if you have to put a rough kind of estimate on the growth, would it be upwards of 15%, 20% for next few year -- or next 2, 3 years? Because...
I won't say exactly. In the region of 20%, 25% for sure.
Super. And lastly, if you can comment on the competitive landscape that we are likely to face in -- especially PTFE because I think SRF also wanted to kind of enter this space. So if you can enumerate?
I don't think it is possible for me to say what will happen when they come in. But all I can say is that the market is large enough, it is growing. And we have -- we perhaps might not be competing in -- certainly in a very small percentage of our total PTFE portfolio.
So in new polymers, we would have no competition? In specialty, by and large, we would have no competition. PTFE, there would be possibly no overlap. So...
Yes. But there could be competition. You can't say that there won't be any competition, but we are not overly concerned about it.
The next question is from the line of Ranjit Cirumalla from B&K Securities.
I have two specific questions, sir. You gave a breakup for FY '23 CapEx. I would like a similar breakup for FY '24, which we are taking a 1,000-odd crores.
So these are broad numbers which we are giving, and this could end up with a change, because the situation is constantly evolving. But we will indicate to you what we currently have in mind.
So most of the CapEx about INR 1,000 crores is for the new age product because it comprises of 2 components. One is for the fluoropolymers, basically PVDF and its monomer for the new age products, which is -- I mean binders for the EV batteries and the [ long ] for the backsheet for the solar panels. And almost the other half is for further expansion in the electrolytes, LiPF6 and formulations, et cetera.
And this CapEx would take at least a couple of years to fortify?
No, actually, just directly, we are putting the capacity ahead of the demand because the demand is with all projections expected to come. So it would be in pace with the demand rise in India as well as abroad, especially in Europe.
Okay. And the second question, we had this income tax refunds that we have recognized a couple of years back. Have we received the full money? Or is it still something that's standing on that front?
No, everything is received. In fact, last year, we had moved to a reduction in the settlement also and we have now moved to concessional tax regime. If you see our effective tax statement for this year, it is 25%.
So referring to the reduced -- the tax refunds from the carbon creation [ conducted had kind of a recognize? ]
It's all that.
The next question is from the line of Rohit Nagraj from Emkay Global.
Congrats on a good set of numbers. So the first question is on the R&D front. So how are we currently positioned in terms of our R&D strength infrastructure? And given that we are involved in the EV space, which probably will have more focus on R&D and developing more products in terms of indigenous technology, what are the steps that we are taking on this front? If you could elaborate, that would be helpful.
No, we have a sufficient strength at this point of time. We keep adding people into the [ team ] as and when required. So frankly speaking, we don't see any message. We also work with some of the laboratories, both in India and abroad to be able to benefit from their expertise, which we already do it. And I think for the time being, our R&D strength is sufficient to be able to cater to the requirements which we have for the next 2 to 3 years.
Right. Sir, the second question is in terms of supplying the EV-related products to the customers. So are we going in for any long-term contracts with domestic companies or the global companies? And so what are your thoughts on this particular process? How the entire process will pan out once we start commercializing these products?
Really early to say this at this point of time. All I can say is that there is a huge interest from all the potential manufacturers of EV vehicles in the country, and we are also talking to several people overseas also. So there is enough interest which is coming in. We have to now go step by step. There is the plan to commercialize it, get the product tested, qualified and then move on. So the -- and that is the time when we'll start looking at the commercial terms on which we are going to sell our products. It's still too early.
Correct. And just a follow-up on this. So once we commercialize any project, usually, what is the time frame within which we'll be able to utilize the plant optimally? So is it 2 years? Or 3 years? Or upwards of 3 years?
Just now after commissioning, it could take a couple of months or a quarter for process tweaking and getting the quality aligned to what is going to be required by the customers, et cetera. Once that happens, when we start sending out initial quantity, et cetera, we would expect, given the demand and the current capacities which we are putting up, there in the second year after commissioning, we should be running the plant at full capacity.
The next question is from the line of [ Anand Jain, ] an individual investor.
Congratulations on a great set of numbers. The first question that I have is our performance in the fluoro Specialty Chemical segment has been rather weak. Because from what I remember from earlier conference call is that we have -- the INR 700 crores is what we expected as the annual run rate. In this quarter, it's [ INR 365 crores ]. How do we see this segment going ahead? And the new products that we are adding up, do you think we'll be able to reach a much higher capacity utilization? And what would be the size of -- or what would be the total sales when these new age products gets added in the Specialty Chemicals side?
See, what I will give you briefly is numbers, which we are likely to achieve in terms of turnover next year on the fluoro specialty piece without the chemical which are going into the batteries. So yes, we had estimated that we would be able to have a run rate of about INR 600 crores annually from the investments which we have made in Specialty Chemicals up to now, which is about INR 300 crores to INR 350 crores. This year, again, we are investing about INR 250 crores, which will make a total investment of about INR 550 crores to INR 600 crores in fluoro Specialty by 31st March '22. In the financial year '22, '23, we are expecting a turnover of about INR 800 crores to INR 900 crores from the fluoro Specialty business, which would be -- which would indicate, roughly be about 1.4x to 1.5x, [ et cetera. ]This year, the performance has been weak for 2 reasons. One, there has been -- in 2 of the products which we made, there is an intense competition. Margin has eroded, both because of competition in China and increase in raw material costs and which we were not able to pass on to the customers and therefore we had to withdraw. And there has been a decline in sales of some of our pharma intermediates because of -- because a lot of the customers moved into making COVID-related medicines. We expect that this will start coming back from Jan, February, March next year. And in the following financial year, it should come back to a normal sales volume situation.
The second question that I have is -- so in the fluoro specialty -- on the fluoropolymer side, the specialty fluoro on polymer side, do we have products which are like made for specific clients in the sense that -- and also do we have long-term contracts with these clients for the supply of these products?
No. In [ usual ] fluoropolymers, we do not have long-term supply and neither for PTFE. That is not the way we conduct our business or the business is conducted globally. So it is -- normally it would be [ stocked ] 3 monthly, 6 monthly rarely at the most.
Is the same thing true in Specialty Chemicals, sir?
Fluoro specialty chemicals, in the [ funding ] which we are, it is -- it follows a similar pattern. But of course, in fluoro specialty chemicals, depending upon what product and what kind of commercial agreement we have with buyers, it could be much longer. It could be 3, 5 years or whatever it is. But we have not as yet got into those kind of products.
Okay. And last question, sir. On the semiconductor side, I think we have an approval from the semiconductor. So is there -- for fluoropolymers for semiconductor -- so are there opportunities here for large contracts? And what is the overall opportunity size in semiconductors?
That's very, very difficult to say. We are a very, very small part of the semiconductor industry. While the products are -- one of the products which we made, which -- one of the fluoropolymers which we make, which goes into semiconductor, is a product called PFA. So if PFA our capacity is about 60, 70 tonnes in a month, we are already currently at about [ 60%, 70% ] and the balance 30% is what we are trying to supply to the semiconductor industry. So it's not a humongous business opportunity for us. But yes, the PFA, it's a high-value polymer and which finds an application in semiconductors. And that is where we will -- we are now getting our grades approved to go in for that application.
[Operator Instructions] The next question is from the line of [ Rupesh Tatia ] from [ Intelsense Capital ].
Congratulations on the great set of numbers. My question for you is in H1, we have roughly INR 300 crores of new revenue -- from new fluoropolymers. [ Of INR 330 crores, ] roughly, what percentage would be the new age applications, 5G, semiconductors, solar panels?
No. Up to now, nothing. And this is going to come in the future.
Okay. And then this new fluoropolymer are at full capacity utilization, if you are saying 65% for Q2, I see roughly INR 1,000 crores plus segment. So next 2, 3 years, the new segments, right, 5G, EV, all of these will become this size? Is that roughly -- can we work with that kind of assumption?
Your voice is not very clear. Can you please repeat your question?
So what I'm saying is, sir, this new fluoropolymer at full capacity utilization is roughly INR 1,100 crores kind of size for us. And then this new age, right, is another business unit or profit center we're creating is new age application, 5G, EV, solar panel. Can we work with the assumption that this new age segment will be just similar INR 1,000 crores kind of number in next 2, 3 years?
I think it could be potentially much larger.
Okay. Okay. But at least that kind of number, management has in mind?
Yes, of course. We think -- we believe it could be much larger. But again, at this point of time, we don't want to give any numbers out because frankly speaking, we have not done detailed calculation on what would be the position in the next 2, 3 years. But all I can say is that it looks to be substantial and looks to be quite promising.
Ladies and gentlemen, we'll take the last question from the line of [ Nikhil ] from [ Galaxy International ].
So just looking at the opportunity size and the CapEx that we are doing, so can we estimate that we will be a $1 billion organization by 2025, FY '25? What -- any thoughts? [indiscernible]
I mean, are we close enough to that? We have not done the numbers out for '25, but perhaps we should be near about that.
All right. Sure. 1 million thousands, that would be great. So that is one. Second, sir, have you given any thoughts to have any forward integration in some part of [indiscernible] material supply, right? So right now, what we do is all chemicals on the [indiscernible] But is there any thoughts or anything for power integration either in API or in [indiscernible] facilities and other things? So it's slightly [indiscernible].
Just now, at this point of time, we have worked so much on our plate. We see huge opportunities for growth in the segments in which we are now venturing into, that we don't want to defocus. And even the products which we are manufacturing or go to manufacturers, they require very, very sophisticated processes and very, very clean environment. So really speaking, at this point of time, we are not looking at those areas. Perhaps in the future, yes, because, yes, we can also look at those areas. But at this point of time, we are focusing more and more on what we have already started.
The next question is from the line of Ravi Mehta from Deep Financial Consultants.
Just one small clarification I think. So in the earlier calls, we were given an understanding that the current gross profit, what was there, ignoring the new CapEx that you are announcing, that had a potential to generate INR 3,600 crores kind of a top line and which with some kind of CapEx being planned can go to INR 4,200 crores. Given the whole pricing environment now, and just ignoring the new CapEx and the new verticals, future-ready businesses, what these numbers could now be? Some kind of color you can share?
I didn't get your question. Are you talking about the expected turnover for this financial year?
Maybe not this financial year. So we were given a sense that maybe by '23 or '24, you can hit a peak turnover of INR 4,200 crores, with the gross that you had. This was in some of the earlier calls a few quarters back. So given the dynamics of the environment, what could be a peak turnover from the current gross profit you have, and ignoring the battery chemicals and the new businesses. Maybe some number on...
Give a minute. Investments, which we would only have taken by 31st March '22. We can expect a turnover of about INR 4,500 crores to INR 5,000 crores.
Okay. Okay. And the recent margin uptick of upwards of 25%, closer to 30%, is that kind of a sustainable margin given the pricing environment you are in?
You said 30% EBITDA margin, is it?
Yes, EBITDA margins.
Yes. I think this will be sustainable. Maybe it will improve in the next few quarters. But I think long term, this should be sustainable. Given the nature of products which we are going in for, I think this would be sustainable.
And also any color on the peak debt number, which can be, given the CapEx?
The debt will only reduce -- in the next 1 year, we will see a further reduction in debt. All these new CapExes will be funded from internal valuation. It will not be funded through debt.
Thank you very much. Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to the management for closing comments.
Thank you, ladies and gentlemen. Due to the time constraints, we would have liked to take some more questions [ that we will do ]. Well, as always, I would like to thank you for your interest in the company and look forward to your continued participation on these earnings update calls and look over to your support as well. Thank you.
Thank you very much, and we look forward to further earning calls quarter-by-quarter and for improved performance as we move on.
Thank you very much. On behalf of Emkay Global Financial Services Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.