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Ddev Plastiks Industries Ltd
BSE:543547
Ddev Plastiks Industries Ltd
BSE:543547
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Earnings Call Transcript
Other Earnings Calls
Ladies and gentlemen, good day, and welcome to Q3 FY '25 and 9 Months FY '25 Earnings Conference Call of Ddev Plastiks Industries Limited hosted by PhillipCapital PCG Desk. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Renuka from PhillipCapital India Private Limited. Thank you, and over to you, ma'am.
Thank you, Rutuja. Good morning, everyone. On behalf of PhillipCapital Private Client Group, I welcome all of you to the Q3 and 9 months FY '25 Earnings Conference Call of Ddev Plastiks Industries Limited.
Today from the management, we have Mr. Narrindra Suranna, MD; Mr. Ddev Surana, CEO; Mr. Rajesh Kothari, Director; and Mr. Arihant Bothra, CFO.
I now hand over the conference to Mr. Surana for his opening remarks, and then we will open the floor for Q&A. Over to you.
Thank you. Good morning, ladies and gentlemen, and welcome to our quarter 3 and 9 months financial year '25 earnings call. Our investor presentation has been uploaded to the exchange, and we hope you had an opportunity to review it.
We are also proud to announce that Ddev Plastiks was recently listed on the NSE, marking a significant milestone in our growth story. This listing enhances our visibility and strengthens investor confidence. We remain committed to leveraging this momentum to drive long-term value for all our stakeholders.
I'm very pleased to share that Ddev Plastiks has delivered a strong performance in quarter 3 and the 9 months financial -- for financial year '25. This fiscal year, we witnessed a robust growth in all the cable segments and a strategic shift towards niche and high-voltage products drove higher volumes, particularly from domestic cable players. In quarter 3, our revenue stood at INR 661 crores, marking a 19% year-on-year growth driven by strong trade volumes as well. We reported an EBITDA of INR 75 crores, maintaining an 11% EBITDA margin, while our profit after tax grew 17% compared to previous year to standing at INR 47 crores, reinforcing our sustained growth momentum. Our operating margins have also remained stable this year, reflecting the agility in navigating a dynamic market environment backed by resilient domestic economy.
At Ddev Plastiks, we have strongly established ourselves as a leading player in the polymer compound industry with a notable more than 50% market share in the XLPE, that is the cross-linked polyethylene compound segment essential to the power cable sector. Over the years, we have diversified our portfolios to include 5 key categories, that is the XLPE compounds, engineering plastic compounds, PVC compounds and halogen-free flame retardant compounds and antifabrication compounds. These versatile products cater to a broad spectrum of applications, ranging from food packaging and automotive components to wire and cable and electronics, reflecting our dedication to innovation and excellence.
Over the years, our strategic investments in the manufacturing facilities, advanced equipments and the state-of-the-art R&D centers have also solidified our leadership in the XLPE and Sioplas compounds segment. Our largest facility located in Surangi in Silvassa, boasts of world-class infrastructure and cutting-edge R&D center led by a team of highly skilled engineers. As one of India's largest manufacturing of polymer compounds, we operate at an impressive installed capacity of 233,400 metric tons annually. Our operations are supported by 5 manufacturing plants, which are strategically located in West Bengal, Daman and Diu, Dadra and Nagar Haveli. This geographical diversity enhances our logical efficiency, significantly reducing our freight costs by leveraging the strategic presence in all sectors of the country.
In the first full year budget of this government, an ambitious balance has been sought between 3 key objectives: driving progressive economic growth while maintaining fiscal consolidation; sustaining momentum in capital expenditure and defense; and strategically boosting consumption through targeted tax relief. CapEx growth, including internal and external budgetary resources like the IEBR stands at 11% year-on-year based on the financial year '25 revised estimates, which aligns closely with the nominal GDP growth. The budget places a strong emphasis on key sectors such as defense, power and renewables and critical infrastructure development as well. Key sectors like the renewable energy got an allocation of -- got a growth of 12% growth of annual allocation. Power sector got a 21% rise in the growth annual allocation. Defense got 13% growth in the annual allocation and urban poverty alleviation got 40% -- 48% growth in the annual allocation. Further, there was also emphasis on growing public-private partnership mode as well.
The global supply chain continues to present challenges, including the rising freight rates and container shortages across multiple shipping routes. However, with the new U.S. President taking chair, his focus on reducing war escalations may pave the way for harmony and peace. This is expected to give exports a new trajectory in the upcoming quarters, which would also revive faster with the depreciated Indian currency.
Moreover, domestic business remains strong, driven by a surge in oil in order demand across all business verticals this quarter, a trend we expect to continue. Additionally, we are awaiting approval from the Underwriters Lab for exports to the U.S., which we anticipate we will be receiving by the end of this fiscal year. Furthermore, the export-oriented measures announced in this budget aims to boost international trade through improved access to credit through FTAs and through development of global capability centers in Tier 2 cities.
The global energy transition, particularly in the renewable energy sector presents significant opportunities for us. India has set an ambitious target of achieving 500 gigawatts of renewable capacity by 2030, having already surpassed 200 gigawatts milestone. In the recent union budget, various incentives were announced to support electricity distribution reforms and enhance intrastate transmission capacity. Additionally, the government has launched a nuclear energy mission targeting 100 gigawatt by 2047 with an allocation of INR 200 billion for the development of small modular reactors. This highlights the growing need for evacuation and transmission infrastructure, which will drive demand for wires and cables and polymer compounds.
Moreover, ongoing efforts to resolve bottlenecks in the power sector, coupled with the expansion of data centers are further accelerating this growth. We anticipate sustained multiyear expansion across various segments, including solar energy, wind energy, railways and data center cables, all of which will contribute to a significant drive in the demand for our products.
We are currently in the exciting phase of growth. The real estate market is also currently in a multiyear upcycle, which is expected to grow to INR 1 trillion by 2030 and INR 1.5 trillion by 2034, driven by the urbanization, as well as the emergence of global capacity centers in Tier 2 and Tier 3 cities. Sectors like energy and [ locality ] are expected to see growth while growing demand, as well as increasing investments embarked for the sectors will also boost it.
Over and above this niche upcoming sectors like data centers, electric vehicles, aerospace and defense, exploration are expected to witness exceptional growth by going ahead. These factors can completely create substantial opportunities for wire and cable industry and according to us. To meet the growing demand and capitalize on the rising opportunities in India, particularly in the wire and cable sector, the company also plans to invest in expanding capacities in the existing location, as well as new sites to enhance the capabilities over the next 3 financial years.
Now, I would like to ask CFO, Mr. Arihant Bothra, to take it forward.
Thank you, Ddevji. Robust execution capabilities, fiscal discipline, strategic higher trade volumes have enabled us to deliver a better financial performance in this quarter.
Speaking of our road map for the upcoming quarters, we have planned an investment over the next 3 years to expand our manufacturing facilities at existing, as well as new sites, address operational bottlenecks and develop new greenfield sites as well. So around INR 43 crores has already been deployed in the first 9 months and a total commitment up to the first 9 months have been close to INR 70-odd crores.
Having said that, on the financial front, quarterly financials for this third quarter FY '25 are as below. Revenue from operations stood at INR 661 crores, giving a growth of 19% year-on-year basis. EBITDA stood at INR 75-odd crores, reflecting a 19% year-on-year growth with a margin of 11% in the third quarter. PAT stood at INR 47-odd crores at 17% year-on-year growth with a margin of 7% for the third quarter.
Now, moving on to the 9-month results. Revenue from operations stood at INR 1,867-odd crores for the first 9 months. EBITDA stood at INR 208 crores with 9% year-on-year growth with a margin of 11%, while PAT stood at INR 134-odd crores with 11% year-on-year growth with a margin of 7-odd percent.
As of December 2024, our installed capacity has stood at 233,400 metric tons per annum with the capacity utilization overall at 79%. In the first 9 months of FY '25, our total volume stood at 139,000-odd tonnes, accompanied by an improved and better revenue per tonne of INR 137,000 and an EBITDA per tonne of INR 15,599 for this quarter.
We now open the floor to question and answers.
[Operator Instructions] The first question is from the line of Dolly Choudhary from Niveshaay.
Am I audible?
Yes you are.
I just had a few questions. So first of all, I wanted to understand on HFFR side. So like seeing our volumes and [ capacity ] utilization. So HFFR has been consistent from the last quarter but our PVC compounds have shown a good growth in comparison to this. So I wanted to understand on HFFR adoption as we're also doing the CapEx in that. So what is the current scenario on that?
Kothariji?
Arihant, I was not able to hear the question clearly.
She is asking about HFFR adoption in the country.
Okay. So HFFR adoption part, as we have discussed in previous conferences also, HFFR adoption in the building wire where it is very important to have safe electrification in the residences. There the pickup is not that great yet because people are happy with the PVC cables with flame retardant properties. So there, the adoption is very slow. However, in the rest of the areas, where say, multiplexes, complexes, public places, the awareness is growing in general awareness for HFFR is growing, and that is why the adoption is improving.
And also the project -- various projects which are coming up, supported by good technocrats and the electrical authorities there, the HFFR consumption is growing. Even for power cable application where the jacketing earlier used to be PVC or polyethylene non-flame retardant, now people are putting more of effort to make HFFR as a jacketing compound. So there, the adoption is happening. But the key driver where the exponential growth can come in HFFR area, which is the building wires, residential electrification, there, we see a very slow movement.
Perfect. Just in this quarter, there has been no volume growth in comparison to last quarter. So -- but going forward, we are positive on it that it will have a good growth because our utilization level still is 57% in comparison to last quarter.
Yes. See, if you look at quarter-on-quarter, I'm sure HFFR utilization has improved compared to last quarter. And we'll see this quarter, it will improve further. And that is why we have planned the next capacity for HFFR. And as we have discussed earlier also that it takes a little bit of time for getting customers' approval and building an order pipeline or a building of approval, then you are having huge number of approvals in your kitty, then the orders keep on coming rotationally. So that process is going on. We hope that by end of this year, we'll be reaching almost full capacity utilization of the HFFR capacity what we have today. And then we'll be installing fresh capacity next year.
Okay, sir. And sir, next question I had that our gross margins have been reduced in comparison to last quarter and year-end. So what would be the reason for it?
Arihant?
Yes. It is mainly the product mix. There has been some increase in the PVC and the film compounds in this particular quarter, which has led to this. However, since on a broader sense, the exports are down for this quarter again. So that is the major reason why it is so. The export is contributing close to 18-odd percent, which was on an average last year at 25-odd percent. So we expect the same to improve from next quarter. And accordingly, the margins and other -- rather the gross margin is also expected to improve from next quarter.
Okay. The follow-up on HFFR, sir, when are we expecting -- we are expecting in FY '26. So when will the facility is expected to commercial for HFFR?
HFFR 5,000 tonnes is already in operation. Another similar capacity has been ordered and is expected next financial year. So you can expect by end of H1 of next year will be the operational time line. Rather the Q2 will be the operational time line you can say.
Okay. And just the last question. Like in XLP, we are already operating at 87% utilization levels. As of now, the new capacity will come in financial year 2027, if I'm not wrong. So like we should expect similar volumes in next year also in FY '26 because we are almost at 87% to 90% utilization level?
So we are already ordering on a phased basis. We have already ordered 1 machine for East and in process of installing the same. We'll be able to get the output by next financial year. So capacity will again go up from next financial year rather from April to some extent. And similarly, all the planned CapEx is in pipeline. So whatever targets we are doing on HFFR on XLP, similar capacities are already being added as and when it is required.
The next question is from the line of Sudarshan Padmanabhan from JM Financial.
Sir, if I look at the last 3 to 4 years, we have expanded or the [Technical Difficulty] towards high-value products have improved quite visibly. Now, with the new capacity also coming in, I mean, where do we see the mix? I'm just talking about, say, in the next 2 to 3 years.
And my second question is also in line with this. I mean, if I'm looking at our supply chain, I mean, I would assume that a fair amount of our raw materials is basically supplied by large players like Reliance or Indian Oil. So from that side, can you talk a little bit more about your supply chain strategy? How does this movement towards high value kind of help you to improve or even keep your gross margins fairly stable in a turbulent scenario?
Thank you, Mr. Sudarshan. First of all, I would like to take the first question, and we'll hand over the call to Mr. Kothari for second. On the first question, currently, the wire and cable segment is contributing close to 80-plus percentage of the overall turnover, and we expect the same to continue. And with the capacity additions in the same line, probably for some time, it may go beyond 80% also, but we expect the same to continue over the next 3 to 4 years of time.
On the supply chain front, I will request Kothariji to take up this.
Yes. See, on the supply chain side, we see, if you look at the major segment is wire and cable and within that, the major products are based on polyethylene. And India is having multiple players offering polyethylene, be it LLDP, HDPE or LDPE. And we are having a very strong relationship with all these local players. And also, we are having a long relationship with the overseas players also because our volumes are so large that we are able to handle multiple relationships, multiple offtake agreements with all these suppliers. So we are having tie-ups with all local players, be it Reliance, be it IOCL, HMEL, OPaL and also international players like SABIC, Exxon, Dow. So with this kind of wide-ranging arrangement for our product, we are well secured as far as availability is concerned.
And if you look at the global capacity scenario that what is the demand and supply situation of polyethylene products, so I would say that from today till 2028, '29, we foresee that there will be no shortage of availability of the polyethylene. So it will be a reasonably good period for people like us who are using polyethylene because the capacities are being added all across the world in the Middle East, in China and also in India constantly. So that should make product availability quite easy.
Sure. And sir, with respect to the pass-through, I mean, if I look at the last few years, I mean, there is a little variance in the gross margins, but considering the raw material, which tends to be a little bit more volatile, our gross margins has been fairly stable and growing. I would assume it would also be because of the mix moving towards more value-added products. But going forward, I mean, do we have a pass-through in place? Or if there is a spike, do we pass it across over a period of time? Can you give some color on that as well?
Yes. See, I tell you, our margins have been stable and going up because of -- purely because of product mix change. Now, if you look at the proof of our capability to pass on the volatile movement in the prices, the good example is the COVID period because in COVID period, supply chain was so disrupted and prices were moving up and down depending upon the availability of the material. Some quarters, it was down by 5% and some quarter, it was up by 5%. And during that volatile period also, we were able to pass on this increase or decrease to the customer almost instant.
So generally, our prices are linked, means increase and decrease of our product prices are linked with the price list of the Reliance Industries. So whenever the price of any polymer product from Reliance goes up, our price list goes up. When it goes down, it goes down, there is a ratio settled. For example, if it is based on PVC, if INR 1 of PVC goes up by Reliance, our product price will go up by INR 0.50 because the ratio is 1:0.5. In case of polyethylene, it is almost 1:1. So if polyethylene price goes up by INR 1, our price list goes up by INR 1. If it goes down by INR 1, instantly, our price list goes down by INR 1. So whatever orders you have in hand, of course, those are on the old price. But against that, you are holding the inventory. But the new orders will come at the new rate. So the pass-through is instant.
Sure. Sir, one final question before I join back the queue is, if you look at our exports, we talked about opportunities in newer geographies. I mean, given that currently, the export component is relatively small and also in the context of the uncertainty which we are seeing in the global market, how do we see the export market being an opportunity for us in the longer term to -- mid- to longer-term?
Yes. Now, see, export opportunity is basically driven by the demand growth in the international market. So every market is looking for new suppliers who can fulfill the product requirement and also new category of products are required in various markets. For example, the Middle East or, say, North Africa, they are now trying to export as Indian companies are trying to export to America because which is the biggest buyer as of today for the cables. So everybody is trying to export to those markets. Now, since we are good at making products for U.S. market and supplying to Indian customers, we are having an experience in that area. So the customers from North Africa, from Middle East are also approaching us for those products because they also want to export to U.S. market. So this is how the demand is getting generated for us.
And you look at whether all Western market, be it U.S. or Europe, they are all adding capacity of power distribution. So that is opening up a window for all of us to supply them products either directly or by proxy. For example, the cables are being exported to Europe, Australia and America, and they all are having a raw material component from our side. Similarly, the -- and the cable capacity is not being added with the same speed in -- particularly in the U.S. and European market. So maximum demand there of the cable increased demand is being fulfilled at the moment through imports. So a lot of people, be it from India, be it from UAE, be it from Egypt, be it from Israel, those cable companies are exporting the cables to these markets. And that is where the opportunity comes our way.
So as a proportion of sales, that should keep expanding, I mean, over a period of time?
Yes, yes. Last year, I would say that export market was in difficulty because of high sea freight, and we decided deliberately because if we are not getting better EBITDA in export market, then we stepped back for some time because local demand was very strong. So we moved the material for the local market. And now we are adding capacity for XLP as Arihant has explained. So -- and also sea freight rates are now much benign compared to what it was, say, 2 quarters back. So we are gaining back our export share now.
Sure. And the profitability should be better than the export market because the working capital, I would assume would be higher, right, for the exports?
No, no, working capital is in cases, it is better than even the local market. For example, whenever we are exporting on cash against document basis, we get our payments in 30 days' time, okay? And maximum is 90 days. So it is better than the local market, number one.
Number two, to begin with, the starting -- the operating margin itself or EBITDA itself is around 2% to 3% higher always compared to the local margin. And that is why Arihant said in the beginning when somebody was asking about the margins not being so great this quarter compared to last quarter. One of the factors is that, export volume has been down and export contributes more margin and improving the average margin.
The next question is from the line of Ankur Bhadekar from ULJK Financial Services.
So a couple of questions from my side. First question is, we have observed an increase in capacity utilization in the engineering plastic compounds. So wanted to know the reason behind the same? And is it sustainable going forward?
Arihant?
So we have reduced the overall capacity of engineering plastic. Earlier, it used to be having 14,500 tonnes. Now it has been reduced to 2,400 tonnes. So as a percentage, you see a better -- and there is a marginal, you can say, requirement in this particular quarter, which has gone up by close to 100-odd tonnes. Otherwise, on a regular basis, we have a target to only achieve 50% to 60% of the utilization just to recover the cost unless we get a niche product. If we are getting niche products like this quarter, then definitely we'll utilize more.
Okay. And are we on track to achieve our guided volume growth for FY '25? And how do you look at the business going forward in FY '26? So like what is the strategy and outlook for FY '26? If you could give some light on that part?
So, as of now for '25, we have already achieved close to 139,000 tonnes of volume versus the target of 185,000. So definitely, we are on course of our targets. As far as the next year is concerned, definitely, as we explained earlier that we will -- we are targeting CAGR growth of 15% on the volumes. And since we are maintaining the same for the last couple of years, we expect the same to be there. Rather apart from the XLP and HFFR compounds, we are now adding capacities for PVC compounds as well because we see a good opportunity coming in those compounds as well.
And have we finalized any sites in the East or West for capacity expansion? And if so, where are they located? And when will they become operational?
In East, we have sufficient space in the existing site. We are doing the expansion at that site. While in West, we have already taken one land and that particular process is on. Whilst we already -- for the interim, whatever machines are in pipeline, we are doing it in the existing sites.
The next question is from the line of Bhargav from AMBIT Asset Management.
First of all, congrats on a good set of numbers and a detailed presentation. My first question is on the application of HFFR in solar power. So we believe that herein the application warrants far, far importance. So what is the update on this, if you can share your thoughts?
Mr. Bhargav, can you repeat your question, please?
I'm saying, sir, if you can share your thoughts on the adoption of HFFR in solar power? How is the acceptability in solar power of HFFR?
Yes. Acceptability in solar power of HFFR is quite high, means this solar power application is outdoor application. And from the solar panel to the battery position, the connection is through the cables, which should have the weatherability, means they should handle the weather hazard, they should handle the high temperature and also, they should be able to protect against fire in case it happens. So halogen-free flame retardant is the most suitable material for this application, which can impart properties like EV resistance, weatherability and flame resistance. So -- fire resistance. So that is where the most of the requirement is met by HFFR compounds only.
So, sir, are we selling to this segment?
Yes, yes, we are selling because we are selling to the cable producers. So they are making the cable for solar application, as well as other applications also. So our products are going for this application also because in the solar application, 2 kind of halogen-free flame retardants are generally in market. One is thermoplastic and another is cross-linkable. So for solar application, the products are cross-linkable. So we are selling cross-linkable variety of HFFR as well.
So what percentage of our revenue will be coming from solar and HFFR?
I would say the cross-linkable variety, which may go to solar and other applications also because it is difficult for us to really identify the cross-linkable variant is going for -- which one is going for solar and because it goes for the oil exploration cables also. So I would say that around current capacity utilization, whatever sales we are achieving, around 20% is coming from the cross-linkable variety.
And secondly, sir, is the industry growing for HFFR? Or are we taking market share from, say, Shakun or from any other import players?
It is growing. It is growing.
Okay. Secondly, sir, any update on -- we were planning to move up the value chain to 220 kV in the future. So if you can share any updates?
Yes. So now first, we discussed that first is 132 kV. Now 132 kV, the product in our plant, our plant is capable of making the product. Our -- what we call prototype testing in the laboratory has been done, okay? But the challenge is to find space and time with the cable supplier to make a prototype cable and get it tested. We are in touch with 2 key suppliers -- 2 key customers in India who made a promise to do it trial every quarter it is getting shifted. But now we have got a firm promise from 2 of them to try on their cables of 132 kV in the first quarter of 2025-'26, FY '26. So that is the time when we hope that we'll be able to try this product on the cable. And then the type test, whatever time it takes, and then we can move towards the commercialization.
So generally, the gestation period would be how long, sir, for this trial process?
See, if they start trying, say, for example, if they make a cable somewhere in the April, May, so then another 9 months' time would be taken for testing the cable type test, the entire test completing. So entire calendar year 2025 will be taken to test it. And once the test is done, then those will the customers will start using in small quantum because they want to see the repeatability. One cable is not a final, what you call out means confirmation of product being good. So they will start taking in small lots. But in earlier some discussions, I have told that commercial aspect may happen in calendar year 2027. '25, '26 will be the years of development and approval and testing and getting the third-party approval.
And sir, coming to the adoption issue on the residential housing side of HFFR. So as an industry, what we are trying to do to get that up to speed? Because, obviously, cable and wire companies may not push the real estate developers to adopt HFFR. So as an industry, are we planning to liaison with the real estate developers to get this adopted?
See, this is one way of doing it, but the difficulty is that, we are -- ultimately, we can sell this idea. And this idea is being sold by some of the cable players for quite some time. But unfortunate part is the real people who can move these things in this segment are either the builders themselves or the construction code or the cable producers. Because even if I -- means they plastic go -- and promote HFFR products properties, ultimately, the cable made with HFFR with the right pricing should be available in the market. If that is not there, then the promotional impact will be lost. And we see that none of the cable players are willing to make investment or changes in that area. We have filled it very strongly with all our cable customers.
So is the pricing an issue or they'll have to align their production line?
It is pricing and production line both.
[Operator Instructions] The next question is from the line of Arnav Sakhuja from AMBIT Capital.
So I just wanted a bit of insight into the raw material prices. So I think in the last quarter call, you had mentioned that there is a drop in the raw material prices, which is why the revenue per tonne figure took a bit of a hit. We just want a bit of an insight as to how the RM prices are progressing now.
Arihant, would you please respond to this?
The RM prices have started to move on. It has bottomed out in the last quarter. And this quarter, there has been some revival. And that is reflecting in our average realization as well. If you see the blended realization for the third quarter, it is standing at close to INR 137-odd versus the last quarter of INR 130. The first quarter stood at INR 136. So we can fairly say that it is in line with first quarter now. So the prices have already bottomed out and started to revive again.
Okay, sure. And this would be the RM across products, not for any specific product?
Mainly it's petrochemical products.
The next question is from the line of Anand Mundra from Soar Wealth.
Congratulations on good results. So what is the volume growth for quarter 3, sir?
In the third quarter, the volume growth is close to 7-odd percent. However, when you see the same growth on a year-on-year basis, then the growth is around 22-odd percent.
So 7% is for quarter-on-quarter?
Q-o-Q only.
Okay. And 22% year-on-year?
Yes.
Okay. And sir, I missed that part. What is the reason for the slowdown in export business for the last 2, 3 years, sir?
It's mainly the current year, we have seen the slowdown. It is mainly because of the war, Red Sea issue and the escalating shipping rates. That was the main reason. Now with -- as Ddevji highlighted, with the new U.S. President coming in, you can see in the news that a lot of war escalations are coming down. It is expected the shipping rates will also come down. The most important factor is, whether the shipping rates come down or not. But if the transit time comes down, definitely, the shipping rates will come down. So that is something which we expect now to be happening, and it is also showing some signs of recovery now. But as and when the results were out, before joining the chair, there has been some shipping rates softening. So we hope the export market to be reviving in the next financial year.
Arihantji, what I was saying is, last year, FY '24 also, there was a degrowth in FY '25 also, but you are saying now things may improve from here on. But someone would have taken our market share over there?
No, let me give you a number. In FY '23 versus FY '24, when you see, the absolute numbers definitely have come down. But when you see the average pricing, the last year overall average, I'm not considering only export. The overall average selling price was INR 174, which came down to INR 146 in the last entire financial year. So last year in export market, there has been a volume growth because of the prices coming down, this was showing a downward trend. However, in the current financial year, both the prices and volumes have come down.
Okay. So this year, lower volume from our side, but whether the customer over there would have bought from some other place or the...
Yes, definitely. They would have bought from probably Europe or other countries where the freights are viable because from India to a lot of countries, even for that matter, to a few countries of the Middle East, the freights are unviable.
Understood, sir. Understood. And sir, one guidance which you have given for 2030, about INR 4,500 crores to INR 5,000 crores revenue, how much CapEx we need to do to achieve that revenue, sir, over the next 3, 4 years?
So it's in tranches. We have already announced for up to FY '27 that whatever capacity of close to 45,000 tonnes of HFFR and PE we are adding. However, in addition to that, we are also adding some capacities of PVC compounds, which will be close to 12,000 to 15,000 tonnes. So all put together, we are targeting CapEx of close to INR 200 crores to INR 300-odd crores in the next couple of years, rather, you can say, in 2, 2.5 years' time. But FY '30, when you are talking about, it will require another INR 250 crores to INR 300-odd crores.
So total INR 500 crores CapEx is required over the next 4, 5 years to achieve that kind of revenue?
Technically, you can say it will generate a turnover ratio of close to [ 1.45, 5x ].
Okay. Understood. And sir, my last question. Last year, quarter 4, we had very good EBITDA margin because of the annual incentive scheme on purchases, which you settled in that last quarter of the financial year. Similar thing can we expect in this financial year also?
So this year, there is a minor change. There has been some income, which has been -- as per the negotiation with all the MOU players have been already got in the first 3 quarters on a quarterly basis. Yes, there will be some part of it coming in the next quarter, but not exactly the same jump.
[Operator Instructions] The next question is from the line of Amish Kanani from Knowise Investment Managers.
Partly my questions are answered. Regarding exports, is there any particular geography, sir, where we are facing challenges or it's across the board because of the freight issue, sir? Yes. Can you hear me?
So these challenges are across the geography, across the globe because sea freight rates have gone up for Middle East, for Europe, for the U.S.A. for every market, these have gone up. So in some of the markets, it has impacted our competence -- price competitiveness. And in some of the markets, it has not impacted to that extent. So -- but freight rates were high across the globe.
Okay, sir. And sir, also the previous participant asked about the fourth quarter incentive, which has bumped up our EBITDA in the fourth quarter. The question is for a decent Y-o-Y growth, sir, 9 months, we have seen a good growth. But for a decent Y-o-Y growth, sir, fourth quarter profitability, higher profitability will be a challenge for us. So any thoughts on annual profitability given that the fourth quarter incentives are not repeating?
Arihant?
Yes, yes. So if you see the numbers which have been already announced, we are constantly giving a guidance of INR 15-plus of EBITDA and close to 185,000 tonnes of volume. So you can calculate yourself, but this is the guidance we have been giving in all the earlier quarters.
How much EBITDA, sir? How much, sir? Sir, I missed the number. How much per capita, per kg?
INR 15-plus per kg and 185,000 tonnes of volume is the target we are working on.
So that includes the incentives.
INR 15.50 and on a blended basis, we have achieved close to INR 14.9. So rather you can say INR 15 of EBITDA. So we are already on course.
So that includes the incentive is what we assume is what you're saying, sir, right? Hello?
Yes.
Okay. Okay. And sir, about that 220 also has been answered. So then the last question, sir, is how is the top 5 customer as a concentration? And any interesting addition that we are getting in terms of new application or any new customer addition that is exciting that we should look forward to for FY '26, sir?
So if you see the top 5 contributors, they contribute close to 20-odd percent of the revenue. However, the major players remain the same. People like APAR, Havells, Polycab, KEI are the top leaders who are in the top 5. However, when you talk about the top 10, definitely, there are many big players which we'll add on the queue.
The next question is from the line of Abhijit Mitra from Aionios Alpha.
So I'm just trying to understand the impact of exchange rate depreciation that we are seeing, both on the OpEx and on the revenue as well as on the balance sheet side, if you can help me sort of understand what has been the impact in this quarter and what kind of impact or benefit that we can expect in the next quarters, both on the P&L side and on the balance sheet side?
So when you talk about on the P&L side, this quarter has a minor impact of close to INR 30-odd lakhs on a net basis. However, it is important to understand over here, we have been a net exporter for the last couple of years. And this year, also, we are a net exporter. So whatever depreciation happens, it will be on benefit side to us only.
Okay. And on the balance sheet side, there are no receivables or any other unhedged foreign currency exposure, which can sort of impact...
We have a risk management policy which says that for the next 3 months, whatever receivables are due, we need to hedge the same. So accordingly, the same has been hedged and restated. And the impact of debtors and creditors put together is at INR 30-odd lakhs in this particular quarter.
Understood. Understood. That's very clear. And also, if I -- if you can help me understand what are the components of this interest cost that we are seeing? Because, I mean, the debt levels and all are quite low, but still we are seeing around INR 13 crores or actually on a run rate basis, INR 6 crores, INR 6.5 crores of interest cost for the quarter. So, I mean, what all components are there, if you can help me understand?
So generally, if you see the interest cost came down last 2 quarters a bit. This particular quarter has a marginal increase because of the processing fees and everything. So this quarter, you cannot say that is in line with the regular exception because of the renewals and processing fees. Otherwise, the utilization levels have come down and the average finance cost is expected to remain within INR 5 crores of payment.
The next question is from the line of [ Bobby J from Falcon ].
I wanted to understand the cost -- your financial structure a bit better. So you have -- your gross margins are only 10% to 15%. So it's mostly an inventory management game that you play, right, because your asset turns are very high. So your profitability depends on how well you manage your inventory. Is that correct?
Kothariji, would you like to take this question?
Arihant, I could not understand the question very clearly. So it is better if you can answer.
So your question is highlighting towards the inventory management, but our policy as a principle is that, we book the orders and the raw material simultaneously, as well as whenever there is a change in price, we pass on the same rather than new orders are booked at the new prices. So in our particular raw material side, there is no hedging structure like in metals and other things. So we hedge in 2 ways. One, getting the raw material lined up immediately as soon as the order is there. Second, in case there is a volatility in the market, get the raw material and trade it off when your required grades are available. So yes, inventory management is important, but inventory is tied up one-on-one basis with the orders available on hand.
Sir, how long do you hold the inventory?
Generally 1 month at max.
So within that month, the prices can easily drop, right, for PVC or LDPE. That is what we always see with companies like Supreme Industries. They hold for a month. So anything can happen within a month. So in that case, you will have to take a margin hit or an inventory loss, correct?
No, no, no. Here, you are seeing only the inventory value, while I am saying that if I have a 1-month inventory, then definitely I have an order pipeline of 1 month in hand. So I have a one-to-one correlation between my order book, as well as the inventory pipeline.
So you get actually direct order -- you don't sell anything in the wholesale market. So you get direct one-to-one orders from your customers?
Yes, yes. It's all order-driven sales.
Yes. If I can add to what Arihant is saying that you have mentioned about Supreme. See, the business of Supreme and our model are different because they are B2C and we are B2B. So our raw material procurement is basically driven by the order book in hand. So most of the time, our inventory is sold off inventory, not unsold inventory. The portion of unsold inventory is what is going to give you inventory price increase advantage or disadvantage. So generally, the inventory what we have is most of the time is sold, maximum percentage.
Okay. Understood. And the other question is, you see your value add is not that much. Like I said, it's 80% of your cost is just the raw materials. But still, you are consistently profitable. But if you look at someone like Chemplast Sanmar who does PVC resins, they are constantly making losses. So is it because the competitive structure is different?
No, their business structure is different because if you talk about the Chemplast, they are polymer producers, and we are basically converters. So the margin picture and the cost picture will be entirely different for this 2 set of industry because if you look at the CapEx per tonne basis, their CapEx per tonne would be much higher than ours, and asset turnover ratios would be much different than us. And that is why even at 20% gross margin, they may not make money, but the converter can make money at 20% gross margin. If you look at the cable guys, they are also kind of a converter who buy all commodities and then they convert it into a finished product like cable. So there, you see their gross margins would be in the similar range and still they are making profit. So these are 2 different set of industries.
I understand. I was also wondering whether it's because the competitive structure is better in your industry because there's enough competition, your margins can come down, right, because your value add is not high, and it's not a technology-driven industry. So the process which you use could be used by all of your competitors. So I'm wondering if the competitive intensity is not high, which is a good thing.
No. See, when the margins are not so great, you will not have competition. This is a cycle.
Right. So it is not that high is what you're saying?
Yes.
Right. And the other question was, when you say you actually supply to the solar sector for solar cables, how do you know that? Are the compounds you supply different for solar cables versus general power cables?
Yes, there are different specifications. Every cable is made based on certain specification, okay? So the specification for power cable is going to have some different component and the specification for the solar cable are going to have some different specification. As I told in an answer to Mr. Bhargav's question that a cable which is going for power cable, generally, HFFR is thermoplastic. But if it is going for solar application or if it is going for oil sector, oil refining sector, then that cable has to be cross-linkable. So the moment you see that specification demand cross-linkable, you know for sure that either it is going for the solar sector or for oil or some -- those kind of applications. So cable are supplied as per the specification.
So essentially, you have to guess a bit, right? I mean, they don't tell you -- your customers don't tell you what it is going for. They just order the compounds.
Yes, yes. Yes. They know because there is a governing standard like IEC, VDE, UL, [ IS ], those standards govern the cable specification. And based on that, you have to offer a compound, a raw material. And we declared to our cable customers that look here, this is a grade of ours. This is a product of ours, which will meet these specifications and then they order accordingly.
I see. Got it. And who do you supply to for exports? Is that -- when you say you do exports to the U.S., is that American companies?
No. See, U.S., we are not exporting directly, okay? U.S., we are giving our product because for exporting to U.S., you need to have Underwriters Laboratories certification for your product. That is where the certification turns out to be very important. So what we do, we are supplying our raw material because we are not cable suppliers. So U.S. is mostly buying cable as an import, not the compounds mostly. We are supplying to the cable producers, whether they are in India, exporting to U.S.A. or in Middle East or in North Africa or in Europe who are exporting to U.S. market.
So it's deemed exports actually, not really exports.
Yes, yes, it is proxy. It is proxy. It is deemed because for me, it is a physical export if I'm exporting something to a company in Israel, and I know for sure that they are exporting it to U.S. market because they are asking for those kind of specification of the product. So I know it is going to U.S. market or to Canadian market. So this is how we offer our product to other customers also for that market.
So your compounds are actually exported to other countries. What you're saying is they're not exported directly to the U.S. It could be to Dubai.
It could be Dubai, it could be to Israel, it could be to Egypt. It could be to Turkey, it could be to any European country. And we know that when they send us the specification that we need a product meeting UL #4 and so, then we know that it is going to U.S. market.
Understand. But how do these suppliers in Turkey and all these countries know about you? How do they find out about you?
Yes. Because some of our products are listed on UL website, partially approved, fully approved. So they know about us that, yes, we are having a product meeting UL requirement.
So you don't have any marketing organization in those countries or anything? You actually get a reverse inquiry.
Yes, we get reverse inquiry for the UL-based product. But otherwise, our marketing setup is like this that we participate in various trade fairs happening globally to promote our product. And then by now, we are a very well-known name. Any cable producer globally, be it the biggest one being Prysmian, Nexans, Elsewedy's, Ducab, all they know us for years.
The next question is from the line of [ Abhishek from Task ].
Sir, can you just explain the competitive intensity...
Sorry to interrupt, but we are not able to hear you.
Hello?
Yes, sir.
Sir, can you just explain the competitive intensity in this polymer compound space?
We compete with people like Dow, LG, Hanwha and Borealis on the global front. Whereas when you talk about India, a lot of these players are having export in India as well. When you talk about in India, there is no apple-to-apple competitor as such. There will be product-specific competitors available in India. But in terms of capacity, they will be much smaller in terms of capacity than us. So when you talk about a right competition to be compared, definitely it's people like Dow, LG, Hanwha and Borealis on the global front.
And given the demand trends in the wire and cable space, have you seen capacity expansion by these players also?
Yes, yes. Kothariji, can you guide on this?
Yes. See, we have seen expansion -- capacity expansion from these suppliers -- these competitors also, Borealis, Hanwha, they have added capacity. The important thing to note here is that, how we are different from these competitors are that we buy our polymers and make compound. So adding capacity for us is much faster because we simply need to buy machines set up and then start producing. Whereas these competitors, they have the back-to-back integration with their polymer manufacturing capacity. So if their polymer availability is tight, if they don't have a spare polymer to convert it into compound, then they have to think of expansion from the cracker phase. So their expansions take longer time. So we have seen some capacity expansion happening Hanwha and Borealis in last 1 year.
And even like for the incremental capacity expansion which you are doing, the asset turn will be upwards of 8 to 10x?
For us?
Yes.
Arihant, you should be able to answer it in much better way.
Can you repeat the question once again?
Asset turnover he is looking, he's asking that whether it is going to be the range of 10x.
No, no, it's not going to be 10x. As I explained, the existing assets were much older in terms of physical infrastructure. That is why you are seeing an higher asset turn, whilst going forward for fresh CapEx we are eyeing 4 to 5x of asset turn.
The next question is on the line of [ Saket Kapoor from Kapoor Company ].
Firstly, sir, congratulations on a consistent set of numbers. As alluded in the earlier call we have been posting very disciplined set of financial and operational performance, and we hope for the continuity. As again, sir, mentioned about our EBITDA per kg in the vicinity of INR 15.5 should be the number we should look for the overall for the financial year '24, '25, sir, closer to INR 15 for 9 months.
So the guidance is only INR 15-plus because first quarter happened at INR 14-odd. So we cannot commit right now INR 15.5-plus. But definitely, we are working very hard. And we are committing INR 15-plus of EBITDA numbers depending on the existing scenarios available in the market. Once the export revise, definitely, that is also an opportunity going forward in the coming quarters.
Right, sir. And sir, if you could just throw some light on our expansion initiative and also the initiatives on the efficiencies that can be built into the number to improve the gross profit margins going ahead? Where are the areas where we are working that may result?
And third point is, we have mentioned in our presentation that about the 5 key players in the wires and cable segment that contributes to 22% of the revenue. So taking into account their numbers in public domain and their outlook, what is the fillers we are getting and how traditionally Q4 is for the industry and for us? And how are things currently trending? These are my submissions.
On the second question, we are going ahead with the CapEx plans, as explained in the earlier calls. We have already taken the land at Vapi, near Vapi. And just to highlight what activity we are doing to ensure increasing efficiency is that, at the existing sites, we are replacing smaller machines with a higher capacity machines so that we can get better output, as well as on the smaller machines, which can be used, we are using for making masterbatches and small items, which are part of the existing, you can say, package. So we are not discarding those machines. We are shifting them for the smaller ones, which can be made at a smaller output and not wasting the higher machines higher output. So that is how the efficiency is being worked down.
On the new site also, let me guide you that whenever it completes the operations, we will drive our focus more to drive the power from solar and other renewable resources, whichever is possible to reduce the overall cost. So everywhere, our focus is to work on efficiencies. Just to highlight a small point, in our Surangi plant, which is the biggest plant we do have, we have a pond type of reservoir for 27 lakh liters of water. And every year post rain, rather during the rain and post rain, we collectively do a rain water harvesting of 1 crore plus liter every year. So that is the kind of efficiency we are using. We are not wasting the water, but rather we are reusing and making it possible to use as much as possible.
On the third front, the additional question which you mentioned, I think Kothariji can highlight better on that.
Yes. So Mr. Kapoor, if you can repeat the question, it will help me to respond in a better way. The last portion of your question.
Sir, I think this was regarding the key fillers from our existing pipe players in the wire and cable segment. And traditionally, sir, we see that financial year -- closing of financial year, Q4 is the year of a lot of buoyancy in the economy -- economic activities are at peak. But just to reframe my questions, what we have seen overall in the 9 months with this being an election year, things have been very somber. And even the budget part also there is reduction in the type of expenditure on certain line items. So [Foreign Language].
[Foreign Language] which is there in the public domain. So everybody is talking that despite the challenges of last year [Foreign Language] despite the year being slow and somber on new order releases from the government side [Foreign Language] particularly on the renewable side is very, very strong. And the key driver is key electricity demand [Foreign Language].
[Foreign Language] We congratulate you on a very, very descriptive presentation that highlights all the aspects that are needed for the investors to have an informed -- to make informed decisions and we hope for the continuity of the same going ahead. And all the best to the team.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments.
Ddev, you would like to speak something?
You go ahead.
You go ahead, [Foreign Language]. You go ahead.
So I just wanted to thank everybody for your time. We've maintained a robust and consistent performance as we've always promised. And even for the next quarter and the next financial year, we are quite optimistic that we'll continue with this momentum.
And just thank you, everybody, for joining. I'll see you. Thank you.
Thank you, members of the management team. Ladies and gentlemen, on behalf of PhillipCapital India Private Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.