Ester Industries Ltd
NSE:ESTER
Ester Industries Ltd
NSE:ESTER
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Ladies and gentlemen, good day, and welcome to Q3 and 9M FY '23 Earnings Conference Call of Ester Industries Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you, sir.
Thank you, again. Good day, everyone, and a warm welcome to Ester Industries Q3 and 9 month FY '23 analyst and investor conference call. We have with us today Mr. Pradeep Kumar Rustagi, the Executive Director, Corporate Affairs; and Mr. Girish Behal, the Business Head. We will begin this call with opening remarks from the management, following which we will have the floor open for an interactive Q&A session.Before we begin, I would like to point out that some statements made in today's discussions may be forward-looking in nature and a note to this effect was sent to you in the invite earlier. We trust you have had a chance to go through the documents on financial performance.I would now like to invite Mr. Pradeep Rustagi to make his opening remarks. Over to you, Pradeep.
Thank you, Gavin, and thank you, everyone, for joining us today. I'll begin this call with brief overview of our businesses, followed by a walk-through of financial performance for the quarter and 9 months under review. While our results for the quarter had been subdued, our performance during 9 months though has been positive, despite the external challenges.Furthermore, we are happy to report that Ester Filmtech Limited, a wholly-owned subsidiary of the company, recently has started commercial operations at its new plant -- film plant in Telangana. We expect the same to start contributing to our growth journey in the years to come. Commenting on our performance, film business, as we have been stating as well in our earlier calls, is facing near-term headwinds, significant new capacities entering the market has caused excess supply and thereby compression in sales realization and margins.With regard to Specialty Polymer business, I'm sure that you all must be aware of the recessionary concerns grappling the global and U.S. economy at present. U.S. being the primary market for our Specialty Polymer products, prevalent economic situation in that region has affected us.Let me elaborate on the performance of each segment. Starting with Specialty Polymer business, like we have highlighted in our previous calls, the overall growth for the business is largely dependent on the health of the global and U.S. economy, given that it is primarily an export-oriented business. Amongst the major markets, U.S. is a dominant market for our Specialty Polymer business, and hence prevalent economic concern in that even had adversely affected business performance during the quarter. Q3 FY '23 performance is reflective of those economic challenges, we have seen lower offtake of our products during the quarter. Lower share of high margin products during the quarter resulted in margin and profitability compression.The actual sales during Q3 FY '23 has dropped to 405 metric tons with revenues of INR16 crores due to economic downturn in U.S. as compared to 1,248 metric tons of sales with revenues of INR72 crores during Q2 FY '23 and actual sales of 953 metric tons with revenues of INR44 crores during Q3 FY '22.We are hopeful of increased exports and, again, reaching volume of sales that we achieved in H1 FY '23 as the economic situation in U.S. improves. On a 9-month basis though, we have reported a steady performance, which is reflective of the inherent strength of the business. Speciality Polymer, as we have been highlighting in the past, is an innovative and largely patent-protective business, as a result of which the threat emanating from any competitor doesn't arise.Furthermore, we have started to see signs of recovery in the business and are hopeful of increased volumes over next couple of quarters. We have full faith and confidence in its ability to bounce back once the external environment starts to improve. Our product pipeline as well remains strong, which further reassures us of the long-term growth prospects of the business.Moving on to Film business. Q3 performance, as we have been indicating, is reflective of the current challenges. Intense and heightened competition coupled with elevated [ convergence ] cost has granted the profitability of the quarter. However, similar to Specialty Polymer business, our 9 months' performance though has remained positive. Addition of significant new capacities in India has resulted in an increase in overall supply, which in turn has resulted in pressure on margins. The slowdown in U.S. and Europe and demand-supply [Technical Difficulty] to see the industry continuing to face challenges during the couple of next quarters.In addition to the external challenges, there was a breakdown in continuous polymerization plant due to which company suffered loss of production and therefore sales in CP plant and Film Plant 3 for about a month as Film Plant 3 runs only on [Technical Difficulty]. This has also impacted our performance during the quarter. Company has already lodged a claim with the insurance company for damage as well as loss of profit. The insurance claim will be accounted for in the books of accounts as and when it is accepted and approved by the insurance company.While the outlook remains challenging for the next couple of quarters, we expect the situation to normalize gradually and expect the realization margin to improve both on account of enhanced volume of value-added and specialty products within the Film segment, as well as growth in demand that continues to be robust. Our continuous efforts and focus, coupled with commissioning of new machines in near future, will enable us to enhance volume of value-added and specialty products within the Film segment. We also, on a continuous basis, review various elements of cost and are working with enhanced focus to explore possibilities of reduction in the same.Furthermore, as I have highlighted at the beginning of my remarks, I'm happy to announce that we have started commercial operation from our new unit in Telangana. It's spread over 50 acres, the 48,000 tons per annum BOPET film plant and 10,000 tons metalized BOPET film unit has been set up at an approximate cost of INR665 crores, including margin limit for working capital and accumulation of input tax credit of GST paid on machines. This plant is expected to generate revenues of approximately INR600 crores upon achieving optimal utilization. We also plan to export part of the production from this film unit ranging 25% to 30% of the output.I would just like to reiterate that while outlook for the businesses over next couple of quarters may remain challenging, we remain confident in the ability and prospects of the company to tide over any hurdle and continue on its journey towards achieving of the stated objectives. I'll now quickly walk you through our financial performance for the quarter and 9 months ended December 31, '22, post which we can begin the Q&A session.Starting with the top line, revenues from continued operations stood at INR197 crores, as against INR288 crores reported during Q3 FY '22, lower by 32%. As indicated earlier, while film business performance was impacted by intense competition and breakdown in Film Plant 3 for about a month, recessionary concerns in U.S. affected Specialty Polymer business.Revenues from Specialty Polymer for the quarter stood at INR16 crores as against INR44 crores generated in Q3 FY '22, while revenues from the Film business stood at INR181 crores as against INR244 crores garnered during Q3 FY '22. On an [Technical Difficulty] broadly steady and steady and stood at INR825 crores as against EUR807 crores generated during 9 months FY '22, higher by 2%.Revenues from Specialty Polymer on a 9-month basis stood at INR146 crores as against INR125 crores, while revenues from Film businesses stood at INR679 crores as against INR682 crores registered during 9-month FY '22. Contribution to the revenue from operation from divested of the discontinued business of engineering plastics, revenues during the 9 months ended December '22 was [Technical Difficulty].EBITDA for the quarter from continued operations stood at INR6 crores as against INR47 crores generated during Q3 FY '22. On a year-to-date basis, it has stood at INR98 crores as against INR129 crores generated during 9 months FY '22. Lower profitability were largely owing to compression in margins in Film business, breakdown in Film Plant 3 for about a month, lower volume in Specialty Polymers and high conversion cost. PAT from continuing operations for the quarter stood at negative of INR9 crores and during 9 months ended December '22, it stood at INR33 crores.Upward revision in policy rates by RBI, continuously since the month of April '22, has caused increase in rate of interest on our borrowings. As a consequence, finance expenses have increased from INR16 crores during the 9 months ended December '21 to INR22 crores during the 9 months ended December '22. As of 31st December, '22, our outstanding interest-bearing term debt, net of free cash and liquid investments of about INR200 crores, stood at INR124.39 crores, which is 0.8x our annualized EBITDA for the current financial year.I would like to highlight the interest-bearing debt, net of free cash and liquid investment is 0.2x our annualized EBITDA. Strong balance sheet and leveraging, coupled with cash reserves and liquidity ensures that EBITDA is serviced as per schedule without any issue and problem. We remain committed towards maintaining a strong balance sheet that is supportive of our growth initiatives.That brings me to the end of my opening remarks. We would like -- now like to throw open the floor for questions. Thank you.
[Operator Instructions] The first question is from the line of Pratik Shroff from Dolat Capital.
Sir, just had a couple of quick questions. At what capacity are we presently operating at? And what is the visibility in the BOPET space and where do you see new capacities coming up to start with?
I think the question is not really clear to what. Can you just repeat once again?
Sir, currently at what capacity are we operating at? And where do you see new capacities coming up? And what is your visibility for the BOPET space?
See, as of now, we are operating at full capacity at our Uttarakhand plant. And as mentioned by Mr. Rustagi, we have new [Technical Difficulty] in this quarter, in January to March quarter, and that particular plant is currently is operating at 70% operating rate.
Okay. And sir, what is the visibility in the BOPET space?
See, I think, Mr. Rustagi briefly touched about it, the demand continues to be robust. There are external factors which is the discretionary impact, and as well as the demand-supply imbalance, which is expected to surge short to medium term, and keep pressure on margins.
Okay. Sir, so on this elongating -- this thing -- on that -- thesis on that, there is a slowdown seen in the U.S. and it's expected to continue in the current year. So, what gives us the confidence of SP doing better in the near term -- in the near or mid-term? And what product lines have we seen demand for?
So, in the first 6 months, we did a revenue of about INR132 crores, majority of that has come from the exports to U.S. So, the December quarter was badly affected because there was a stock in the pipeline also. We are seeing some revival in the March quarter. March quarter is going to be better than December in terms of volume and value of sales in Specialty Polymer. And with that, and the forecast that we have received from our customers in U.S., we believe, in the next, let's say, couple of quarters, we should be doing reasonably well in Specialty Polymer. And as the economic situation in U.S. improves, we should be back to the volumes that we did in H1 FY '23.
The next question is from the line of Saket Kapoor from Kapoor Company.
Sir, you mentioned that we did capacity utilization levels of 70% for our Film segment for Q3.
No, no. Girish mentioned that a Telangana plant which got commissioned on 20th January is now running at about 70%.
Okay. Sorry, sir. And then, what was our utilization level? What was our utilization levels for Q3, sir, the original [Technical Difficulty]
The existing Telangana -- Khatima plant, Uttarakhand plant?
Yes, sir. Yes.
We were running at almost full capacity, but for the Film Plant 3, which was down for about a month because of the breakdown. Otherwise, we were running at almost full capacity.
So, sir, in tonnage terms, what was the percentage loss because of the...
Because we lost 3,000 tonnes of production from the Film Plant 3, which is the largest plant in Khatima. In a month, we lost about 3,000 tonnes, so that's the reason for the lower volume.
Okay. So, what does that translate into the utilization percentage, sir? 3,000 tonnes per month?
3,000 tonnes -- our quarterly capacity is close to 15,000 tonnes, so that is tantamount to almost 20% for the quarter capacity.
Okay. So, on a likewise basis, we were down in volume by 20%. And now, coming to the conversion part, how have the margins -- are also lower the per kg realization, if you could give some understanding?
So, in December quarter, plain films, we were -- we got about INR96, INR97 a kg, 12 micron Corona. And the metalized was selling at about INR112 to INR114 a kg in December.
Okay. And the comparative number for the September quarter and what are the current prices?
In the September quarter, it was INR112 for 12 micron Corona, and metalized was at about INR130, INR132. So we are seeing a drop of almost about INR15 to INR16 on an average basis as compared to September.
Right, sir. And how has been the price trend, sir, for the month of Jan, and if some color also on Feb?
The December quarter was the worst. Things are marginally better. I would say, January, February, we are at INR97, INR98, INR99, kind of -- let's say, INR97 to INR100 a kg.
For 12 micron?
For 12 micron Corona. Metalized at about INR114 to INR115.
INR140?
INR115, the metalized.
Okay. Okay, sir. And sir, for this quarter, we will be operating -- the shutdown which happened, that has recovered, and we will be producing at optimum level. What is the update on the same, the third line?
Yes. Yes, we should be operating at optimum level in the existing plant, and the Telangana plant will gradually increase the capacity utilization. Because that's the [indiscernible] plants, many new plants -- film plants will operate. It takes time to build up the capacity utilization.
Okay. Sir, what are the factors that led to the drop in these realization levels? How much is -- because of the raw material cost going down, if you could give some color, and also then on the demand side? And yes, firstly, the color on -- the factors that led to lower realization.
So, basically if you see, the way demand -- there is no issue with the demand, demand continues to grow. It is the compression in margin which has come because of the competition. So, Girish can explain you in detail the domestic market scenario.
See, as you might be aware that there are many capacities which have started in last 12 months or so, which has resulted in to temporary demand supply imbalance, which has impacted or put pressure on the margin level we are operating at.
So, can you give some more color on the domestic capacity addition and also on the global part, sir, just to gauge an understanding how the -- what have been the addition in percentage terms?
Yes. I think, in total, about 8 lines have started in last 12 months -- 8 to 9 lines have started. So [indiscernible] try to compare to the total capacity level that could be nearly about 50% of the existing capacity.
Okay, sir. 50%?
50%, yes.
Okay, okay. But all of those lines have not still ramped up to the optimum level. Every lines would be ramping up in a phased manner. So, the nameplate capacity...
The line would be ramping up -- would be in a phased manner. But I think whatever our best estimates are that all nines put together must be at least operating at 75% operating rate.
Okay. So there will be [ precessor ] going ahead also because they need to find buyers, and the offtake has not risen in commensurate to the capacity additions.
I think, the demand is very strong, and there is additional capacity. That additional capacity is serving demand, but still there is a demand-supply imbalance, which is the main reason for the pressure on pricing and margin.
Okay. Sir, this you have spoken about the...
This scenario globally improved, we should be able to park more volume outside of India, all the Indian manufactures. So that should reduce some pressure on the domestic prices also.
Okay. Sir, this is the addition domestically. How have the global space fared in this period over the last 12 months?
Yes. I think, globally, yes, there are certain pressure on what was happening earlier. But whatever the countries or the market is getting served from India earlier, those markets continue the momentum. And there's reasonable exports happening from India and there are strong chances of it to grow in coming future.
Okay. So, globally -- just to conclude on capacity utilization, so globally the capacity that has risen is totally -- is on from India only and not the other geographies?
No. I think the capacity expansion has happened in many countries, including India. But in India, it is 1 of the largest.
It is 1 of the largest. Okay, sir. Sir, in your presentation, it was mentioned that mitigation strategy is under implementation. So, please allude to the factors -- what steps are you taking to, first of all, contain these margins? And also, since the realizations have [indiscernible], how have the raw material basket is behaving? So, our margins per kg, how has the margin per kg being affected for the last quarter, and what should be the likelihood for the current quarter?
So, first of all, I'll come to the raw material cost. The raw material cost will be, let's say, in December quarter or January, February has been more or less stable. In December, it was INR79 a kg per kg of film, PTA and MEG put together. In February, currently, it is at about INR79 a kg. So, in between January, there was some drop, but it has again regained. So we are in the ballpark [Technical Difficulty] to INR80 in terms of raw material per kg of film, as well as the selling price we have already discussed, what the selling prices for the film are.What is the next question?
I think you have to repeat your remaining question.
Yes, sir. I was looking for the mitigation strategy, sir, which you have mentioned that is under implementation. So, if you could give some more color to it, what are the steps currently being taken? And sir --yes, sir, then I'll come for the follow-up.
It is because we are, as Mr. Rustagi mentioned earlier, we have a very strong pipeline on Specialty Polymers, and Specialty Polymer has already seen signs of early revival, [indiscernible]. We are working on a range of specialty films and planning to increase it at a faster pace. There are many new products which are currently under various stages of, let's say, commercial volumes. And also, apart from these 2, we are also looking at other venues to increase profitability, including cost rationalization and all other possible areas.
Sir, for value-added films, what was the -- out of the total sales, what percentage attributed to value-added and how is this number going to shape up going ahead?
So, in December quarter, we did about 20% -- of the total volume that we did, about 23% came from the value-added and specialty portfolio, whereas in terms of value, it contributed 35%. So 25% -- 23% of value-added products portfolio contributed 35% in value terms. And going forward, our target is to take it up to 30% to 35%.
In terms of volume?
Existing Khatima capacity, I'm not including the Telangana capacity in it.
Okay. Sir, when we look at this value-added film part, is it the same capacity where we are doing some after work that goes into value-added or value-added lines are separate than what the general film lines are?
It is both. Some products are produced on the larger assets and some products are required for the steps to be further converted into a final product. So it's a mix of both.
So, there are extra machines also. Apart from the main production line, there are other machines also, which are used to make value-added and specialty films.
Correct, sir. Sir, was there any impact of foreign exchange losses also for us in this quarter?
On the exchange fluctuation, so far we have had positive impact because we are in [indiscernible] net exporter and, therefore, we have more receivables in foreign currency than the payables. And the depreciation of rupee against dollar resulted in to a gain for the company. So we had exchange fluctuation gain in December quarter. For example, I mean, for that matter in the current financial year, so far, we have made a deal of about INR5 crore on the exchange fluctuation in Ester Industries.
The next question is from the line of Gaurav Lohiya from Bowhead India.
Can you please -- sir, can you please share the June quarter utilization as well? You shared the December and September.
Pardon, Gaurav. Can you come again?
Can you please share the realization for June quarter, 12 micron film and metalized film?
June quarter -- June '22 quarter, we had realization of 12 micron in the range of INR145. But at that time, raw material cost was significantly high. It was about INR95 a kg.
INR95. Currently, it's INR80, right?
Currently it is about INR78, INR79.
And so, INR145 was for 12 micron, and metalized would be about INR160-odd?
INR160.
Understood. And currently metalized is about, I missed that, INR97 to INR99?
INR116, INR117.
Okay. INR117. And do you -- considering the situation so that the supply pressure is there in the market, do you think that these prices can drop to INR90-odd levels or, that's not possible, basis on the EBITDA per kg that we are making or all the industry players that are making in the market, it's difficult to price correction from here onwards.
We don't think so there is any scope for prices to drop further because the prices are already at the lowest level.
Okay, okay. And is there a significant...
[Technical Difficulty] cannot go any down further.
Understood. Is there any significant difference between export prices and domestic prices?
Yes, export prices are better.
They are better, okay. And sir, in this specialty business, as you know, how much visibility generally do we have? When these clients, when they share their order with you, is it easier for them to retract it, if they see the demand is not going to be good? Or generally they go ahead and take the order from you?
Sorry, I'm not clear. You have to repeat your question.
I'm saying that, in the specialty business, how easy it is for your clients to retract the order? Because if I see in September and October, we were quite confident about the specialty business on the volume side, right? But this came as a surprise that because of the pipeline or weak demand in the U.S., we could not meet those expectations. So I am saying that, how easy it is for a client to retract from the orders that they had given to you?
I think, it's not about retracting the orders. In case [Technical Difficulty] spoken earlier that many of the products what we sell is on the specialty space are patent protected, so there is no competition. So the volume has dropped only because of the demand at our customer end has seen a drop, which was in the last quarter, and now we are already seeing signs of recovery.
So, generally how much visibility do we have? Is it a 1 month or 2 month visibility? There must be 2 months or 3 months kind of...
Yes. Go ahead, please.
Yes, yes. No, please go ahead, sir.
So, I think usually we have forecast available and the customers keep on revising the forecast as per their demand consumption schedule.
Understood. Understood, sir. I think it's helpful.
But we should be doing much better in the March quarter in terms of specialty polymer, both volume and value, as compared to December quarter.
[Operator Instructions] The next question is from the line of [ Rahil Shah ], an individual investor.
Sir, just wanted your broader view on the current industry scenario. When is it expected to improve? In how many quarters you will say? When will the industry -- and even the company for that matter -- will produce normal performance. So, when is the exact turnaround expected in a strong opinion?
So, in film business, as we have stated in our opening remarks, we should be seeing recovery -- the recovery will be gradual, number one. Number two, it should start coming in after 1 to 2 quarters, after a couple of quarters. There would be definitely because the December quarter, a lot of things went negative at the same time. So we had a breakdown, the slowdown in U.S. and many other things. So we should be seeing revival starting from March quarter, and through a gradual process, we should be back to some sort of positivity after 1 to 2 quarters.
Positivity in the numbers on top line and margins you're saying?
Yes.
Okay, okay. So, that is -- is this like because the company is expecting good demand or is it -- are you expecting overall industry scenario to change and become positive?
Sir, the demand will definitely increase. We will find new avenues as the global economic situation stabilizes, there would be more demand from outside of India. And within India also, we believe the growth in the market and many other things with many other initiatives that we are taking one, increasing the proportion of [Technical Difficulty] volume cost, all that should help us in reducing in, let's say, turning to positive performance in 1 to 2 quarters.
Okay, okay. Are you in any position to give any guidance?
Very difficult because there is dynamic and volatile situation as of now. So, we know the efforts that we are putting in terms of enhancing volumes of [Technical Difficulty] and cost reduction and improving efficiencies, et cetera. All that should result into some improvement. And this is the guidance that at this point in time, we can share this much only.
The next question is from the line of [ G. Surendra ], an individual investor.
Hats off to Mr. Rustagi, you are carrying so much responsibility in finance and secretarial department. You are the pillar of our company, and I appreciate your efforts, as you are a strong pillar of this company.
Thank you, sir. Thank you very much.
Sir, my question is on that. There was a breakdown and it was reported in this current quarter by auditor. The event was happened in September, I think, correct?
Yes, 28th September.
Correct. So, why it was not reported in Q3 -- Q2, sorry?
So what happened, each company has a certain materiality threshold. And the materiality threshold is decided by the Board of Directors generally, anything which has an impact of more than 10% of the net worth is considered material. So, in terms of both bottom line and the top line, the impact was much less than 10%, because our net worth is close to INR700 crores, INR750 crores, and the 10% of that would be about INR70 crores, whereas the loss of sales was only INR30 crores. And the impact on bottom line was only INR3 crores, INR3.5 crores. So it was not considered a material event. And when the breakdown [Technical difficulty] we were not sure how many days will it take, but it was something which was very unexpected. So that's the reason it was not considered material enough to be informed to the exchange.
Sir, but then, now why auditor has -- I mean to say, why auditor has put [indiscernible] material event, when Board of Directors think not so.
In the accounting, the standard, the listing requirement requires, it is not by the company, because we had to -- to the leader of the results to the investors, we had to inform the drop in sales value. One of the reasons was the breakdown in the plant and machinery for about a month in Film Plant 3. So that's the reason we had put this not in the results.
But also that you are not informing con call Q2?
We may have missed it. We take note of your observation, and we would be more careful.
Some information was missing in this part, and we investors misunderstood.
Pardon?
Because of not this information informed in con-call as well as include wherever in reports are not informed to the stock exchange. So we missed -- we investor misunderstood. We thought that company will perform better. Though 1 or 2 quarters, the situation of the polymer, film line situation, you have guided us that there is a competition in prices of parking. But this information really are to the company.
We did not say anything about this.
[Foreign Language] I need to say -- you are saying that presently new capacities are running around 25%, something like that. So, 1 of the...
No, we did not say 25%.
The new capacity, I'm talking about 8 to 10 plants that have recently operationalized in '22, '23, okay? New plant -- 8 to 10 new plants for film plants -- 8 to 10 film plants are operationalized in '22 -- FY '22, '23. And they are operating at 25% roughly. Correct?
No. I think what I mentioned was that 9 lines have started in last 12 months. And we don't have any -- we can only make a guess that collectively at what operating rate all these plants collectively are performing. And our internal estimate is that, that number could be anywhere between 70% to 75%.
Okay. Sir, just I mean to say that in the next 2 to 3 quarters, if they start performing at 100%, will it be a situation like glut in the market? And also, presently in January, we have benefited by one fire in the plant of Jindal, right? So, might be because of this, situation should have been improved in January to March. But in future, all the plants like this, they are operating 100%, there will be glut in the market.
I'll try to answer your question in a different way. The capacities are added over the last 12 months. Those are operating at, let's say, as far for internal estimate 70% to 75%. There could be a very small impact of Jindal, 1 of our competitors' plant. But 8 or 9 lines operating at 70% to 75% of run rate is a very, very significant number, and that talks about what kind of demand growth our end consumers are having. But demand continues to be very robust. We are growing at about 12% to 13% per annum domestically, and globally also 6% to 6.5%. 13% on a very large base is a very good healthy number.
Sir, in Q4, can we estimate it will be at least breakeven level?
Pardon, sir?
In Q4, we will be at least on breakeven level of profit, at least minimum, no profit, no loss. This is because in Q3 we have a loss of INR11 crores to INR13 crores. And you are saying that there is a small improvement in this quarter in prices as well as specialty polymers.
Sir, we definitely see an improvement in the top line. There would definitely be some improvement in the bottom line. Whether we would be able to -- we would strive to achieve net breakeven at least, but this is something which market dynamics have to play a very important role. And therefore, it is difficult to give at this point in time in numbers, but we are working in the direction of achieving the net breakeven.
Sir, there is 1 small question.
We are working on that actually.
What is our -- whether we have put on hold our expensive plan of the specialty polymer or is it going on?
Can you please repeat once again. I think your voice not clear.
[indiscernible] specialty polymer?
That was -- the expansion plan was for the debottleneck of certain capacity as we are going a bit slow on that because of the situation in U.S., et cetera.
The next question is from the line of [ KC Puvan ], an individual investor.
I have 2 simple questions regarding our Telangana investment.
Telangana investment, yes, please.
About the Telangana investment. [Technical Difficulty]Regarding the Telangana investment, there appears to be a cost overrun as well as a time overrun to the extent of about 25% Originally, your investment estimation was about INR500 crores for the project, and it was to commence -- the production was to come in sometime in September of '22 -- September, October '22. Now -- then the project cost was enhanced to INR576 crores. Now you are saying that ended at INR665 crores. And you have gone into production only in January this year. Does it affect the viabiality of the project -- viability of the investment? Because the...
Can I answer that, sir? Have you completed your question? Maybe I'll answer.
Yes, tell me.
The original project cost approved by the Board of Directors was INR586 crores. When the project was finally notation specific was conceived, it was INR586 crores. We started the project in October of '20. Since then, there has been massive increase in the building and construction costs. So this was 1 reason. Secondly, the project cost -- in the project cost, we had taken margin money for working capital as part of the project cost. Because of the increase in the crude oil prices, et cetera, the margin money for working capital, which is not an investment in the fixed asset, it is more in the current asset. That has increased from INR15 crores to INR30 crores.Secondly, the GST component on the machines that we have purchased, which is now appearing as a current asset -- balance in the current asset side and input tax credit of GST accumulated, that is about INR35 crores. So, INR586 crores plus INR50 crores, that makes it INR636 crores, and balance INR29 crores is on account of the increase in the construction costs, time overrun costs resulting into higher prelocative expenses. And the reason for the time overrun was that we did not get power connection from the state government. We were ready to commence commercial production in the month of October, but there was delay in the -- getting the power collection from the state government. So we have kept the cost of the project under control. So, INR35 crores plus INR15 crores, [ control ] is appearing as a current asset in the balance sheet. It is not part of the fixed asset. So, INR665 crores minus INR50 crores, INR615 crores and INR586 crores. The balance INR30 crores-odd is because of the time overrun and construction cost.
So you are not envisaging this escalation in construction costs when you...
We could not have -- we didn't know what would be the construction cost. We conceived the project in the quarter ended June '20, but the land allotted to us in the month of October. We started construction and because of first COVID, there was huge increase in the construction cost. Cement, steel prices have gone through the roof. And that is the main reason for the increase in the project cost.
What was the reason for the power connection delay?
See, the power connection delay because the industrial area where we have our plant, the new substation was being built by the government, which got delayed.
What's that? Please come again.
So we have a plant in a newly identified industrial area -- many notified industrial area, where for our plant, the new substation was being built, which...
Okay. Got it. After commissioning the plant, is the plant performing to your expectations in efficiency as well as product?
Yes. I think, our plant is performing as per our expectation now. So we have started selling commercial sales to our customers. The product is well accepted.
Product quality and plant efficiency is up to your expectations, right?
Yes.
The next question is from the line of [ Pratab Jagwani ] from Forbes Marshall.
My question to Mr. Singhania.
Singhania is not able to attend this call. He had some other engagement which could not be avoided. So, I am Pradeep Rustagi, Executive Director - Corporate Affairs.
Yes, Mr. Pradeep, I have 3 questions. Starting with first, in this quarter, Q4 '23, the revenue from Telangana and your Dahej expansion, what you have done last year, what will be the total revenue contributed in top line approximately? That is the first question.
Should I answer this first?
Yes.
So, Telangana, the commercial production has started only in the month of January. So there is no contribution to the revenue from Telangana operations in the December quarter.
In Q4 by March '23...
In Q4, if we should be achieving close to, let's say, a revenue of about INR70 crores to INR75 crores from Telangana operations in Q4.
Okay. And from Dahej?
So, Dahej plant was for Indian plastics. Before it could commence production, the business has already been sold to Radici Indian plastics business. So that plant was under construction when the business was transferred from Ester to Radici. So it had not started commercial production till 15th September when we sold the business to them.
Okay. My second question is, once this insurance claim is approved and once it is available, when it will be available in top line?
Sir, there are 2 aspects to the insurance claim. One is the property damage and the other is the loss of profit. So, the property damage claim is always settled more community and in a timely manner. The loss of profit takes time. We are expecting by end of March or early April to get the insurance claim settled for the property portion, which is close to INR3 crores. For the loss of profit, we may take 6 months, it may get settled in the June quarter.
Okay. Now, question is that your Q2 was the top line and bottom line seeing significant increment due to the plastic sale business, which should have been taken apart. And due to that, your quarterly performance and Y-o-Y performance is getting compared with that one-time benefit what you got. So, now Q4 is also subdued and you are seeing some INR70 crores additional revenue from Telangana plant and 75% is your total capacity from Khatima 1. So that is, I think, expected to be the good one. But again, the Q1, due to this insurance, then will be again the jump on that. So, when the investor like us can expect that there will be a steady growth rather than this [indiscernible] onetime adjustment and then the corporate and then loss. So, what is the plan for investment to get this steadily growth to be done?
From June quarter, we should have steady operations both at Telangana and Ester because we commenced production in Telangana only on 20th January. It takes time to stabilize the plant, and it takes time to gradually pick up the production and increase capacity utilization. And we also are expecting revival in specialty polymer over the next 1 to 2 quarters. So on June quarter onwards, we should be starting to reach the steady stage of -- in terms of top line.
Okay. And so that will significantly improve the bottom line also, correct?
That is what we are striving to achieve here.
The next question is from the line of Saket Kapoor from Kapoor Company.
Sir, you mentioned that the volume loss because of the breakdown was 20% of the entire volume.
20% in volume terms. In value terms, it was close to INR30 crores. So my annual quarterly capacity is 15,000 tonnes of polyester film. We lost about 3,000 tonnes, which is 20%, 3,000 tonnes would translate to INR30 crores of top line.
INR30 crores of top line for the month -- the last period.
For the December quarter, had we not -- if the breakdown was not there, our film lines -- film top line would have been higher by about INR30 crores.
And what was the impact on the bottom line in that case, because of this...
Going by the margins that were prevailing, I think the impact, if we take an average, about INR3.5 crores is the impact on the bottom line. And on top of that, we spent certain amount on the expiration of the damage effect, that has also been charged to revenue. And when we get the claims settled by the insurance company, it will come in the other income part.
What was the other expenses, sir?
So, in fact of the breakdown and loss of profit, you can consider in the ballpark of about INR5 crores to INR6 crores.
No, sir. Profits part we'll get some insurance, but how much extra money we have spent on restoration?
Restoration, our policy is 100%. So we get -- the deduction is only INR50 lakhs. So on the restoration, we lost only INR50 lakhs.
Okay. So, for the next quarter...
This is given under the insurance policy.
So, for the next quarter, this INR3.5 crore impact will not be there. It will be a normal cost of deposit?
If we get the claim settled in March, otherwise it will come in the June quarter.
No, no, sir. My point is, this volume loss and the loss in profit of INR3.5 crores, which happened because of the lower volume, will not be there for the fourth quarter. We will be operating at the normal levels and the margins will be similar.
Yes, Saket, your assessment is right.
Yes, sir. And sir, if we take the blended margin per kg, taking into the [ commoditized ] as well as the value-added films, if you could give us quarter-wise, for the June quarter, what was the kg margin? What was the average for September and how have December fared?
June, the blended margin in domestic market was close to INR60. And September, it dropped to INR35. In December, it is at about INR25, and we expect this to improve going forward.
Okay. So we will be in the midst of INR25 to INR35 for the March quarter?
I would tend to agree with you. Sir, there are 2 aspects to achieving breakeven, one is the capacity utilization, the second is the margin. At the current margin, at 75%, the net breakeven would not be possible. But as we improve the capacity utilization and as we expect the margins to also improve in after 1 to 2 quarters, we should be seeing net breakeven in Telangana plant as well.
So, sir, at INR70 crores top line, [Foreign Language]
[Foreign Language] we should not focus too much on the first quarter, because first quarter is generally a stabilization quarter. During the steady stage of second quarter, we can look at some numbers. But at this point in time, I would shy away from giving any number because the market is a bit volatile and dynamic in nature and difficult to assign a number. But our endeavor would be to achieve net breakeven in both Ester [indiscernible] as early as possible. It's not in the first quarter, at least in the second quarter, we should be achieving this.
But any depreciation number [Foreign Language]. So what should be the additional depreciation from Telangana plant?
[Foreign Language] INR1.6 crores per month. So, let's say, INR4.5 crores to INR4.8 crores per quarter depreciation.
INR4.8 crores, correct.
The depreciation should be about INR19 crores a year, and that I'm breaking into the quarterly of about INR4.75 crores to INR4.8 crores.
2 more points, sir. Firstly, cost of funds, what is our cost of fund correctly, with the working capital and the long-term borrowing?
In Ester Industries, we don't have foreign currency debt. We have only rupee debt. So, our blended working capital and [indiscernible] put together is about 9%. 2.5% has been the increase by the RBI. So, our interest cost, one of the reason why the interest cost has gone up from INR16 crores to INR22 crores in the 9 months period is because of the increase in the policy rates by Reserve Bank. In Telangana, our interest rate would be lower because we have a foreign currency debt. We should be at about 7.5% blended.
Quarterly, what should be the interest part for Telangana unit?
Telangana interest [Technical Difficulty] the range of...
And when a rating due, sir? Credit rating [Foreign Language].
We have got the credit rating done for Ester Industries, next due is in August of '24.
Okay. No. With this conditioning of...
And Ester Filmtech is also renewed at the same time. Coming to the interest cost, our interest cost for the quarter should be about INR7 crores.
INR7 crores per quarter? Yes. So, 7% and 5% is the number. The depreciation is 4.5% and 7% is the interest.
Yes, sir. Sir, last point is, sir, 1 suggestion is...
INR15 crores is the EBITDA required to achieve net breakeven.
And then, on a top line of INR70 crores, this is not a...
INR70 crores is in the first quarter when we have [Foreign Language]. So we are now operating at 70% when we have almost completed 1 month. So gradually, we will increase production. And initially, there is a second amount of B-grade production also at any plant, it is not like a car on the road. [Foreign Language] It is a plant, it takes time to come to the optimum level. So, my request would be to let go the first quarter of Telangana operation. That should be considered more of a trial period rather than the commercial sort of operation because it takes time to stabilize, it takes time to achieve optimum efficiency. Everything makes the difference.
[Foreign Language]
It's a single machine, we don't have capacity to do more value-added there. We have metalized sales, and we have certain in-line coated products. So, the value-added products in Telangana would be less as compared to -- much less as compared to Khadima.
[Foreign Language]
And 2 suggestions, sir, just to conclude. Firstly, sir, Singhania sir could not attend today's call. So, next time we hope to -- from him to attend the call, sir. And secondly, sir, this -- informing to investors, which was very well pointed out that 1 of the investors, we should take extra caution in coming up -- or whatever is material or immaterial part, whether 10% or not, this should come up with a clear thought that this breakdown has happened and the assessment will come thereafter. So, God forbid that [indiscernible].
And lastly, sir, on the website part, if you look at the scale and the size of the work our company is doing and the type of website we host, I think -- so we need to revamp our website also because that is the interface for us not only for your investors, but for the customers also. So whatever little knowledge I have for the business part, I could not find the website in any way to be up to the mark. And last updation was also in the year 2014 if I can look at the bottom, if that makes any sense I could not understand that also. Why I mentioned date of 2014 is mentioned there. So, kindly look into it.
Pardon, I couldn't -- can you repeat your last question?
Yes, yes, yes. I just repeat, sir. When we log in to your website, Ester Industries, and at the bottom of the page, we find the at 2014, the copyright Ester Industries, all right reserved. Whenever we look at other websites, the websites are updated till 2022 or 2023. So what is this copyright 2014 stands for?
I'm not in a position to answer at this point in time because I'm not aware of it.
Right in bottom of the website, please look into it and what good can be done for this also. And also, sir, for the Telangana unit, if we can plan a plant which is -- it gets stabilized to invest, or a video being uploaded of how the function -- how the unit is performing, that would give us some understanding what kind of infrastructure have we created?
Okay. Point well taken, sir. I'll take up this with my colleague in the company, sir.
Right, sir. And for the capacity expansion at Telangana, sir, [Foreign Language] we have extra space there?
We have enough land. We have 50 acres of land. [Foreign Language] we have 35 acres of land in Khatima and 5 acres is occupied by the colony. So, in 30 acres, we have special polymers, refill plants, 2 metalizers, 2 offline quarters, et cetera, et cetera. In Telangana, we have 50 acres, a perfect rectangle floor, and it can accommodate many more lines.
[Foreign Language]
In Khatima, we have 60,000 tonnes of polyester film. Telangana, we have 48,000 tonnes of polyester film. And in Khatima, we have 13,200 tonnes of metalized polyester. In Telangana, we have 10,000 tonnes of polyester. In the specialty polymer, we don't have in Telangana, other products we don't have. This is the only film plant in Telangana as of now.
Thank you, sir. Thank you. We continue to remain committed to the revival -- coming back to the profit, working hard to make sure that we will bite out losses as early as possible. Thank you so much.
Thank you That was the last question. I now hand the conference over to the management for any closing comments.
Thank you, sir. Thank you, everybody. See you in the next quarter sometime in the month of May.
Thank you. On behalf of Ester Industries Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.