Ester Industries Ltd
NSE:ESTER
Ester Industries Ltd
NSE:ESTER
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Ladies and gentlemen, good day, and welcome to Q4 FY '22 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. Good day, everyone, and a warm welcome to Ester Industries Q4 and FY '22 Analyst and Investor Conference Call. We have with us today Mr. Arvind Singhania, the Chairman; and Mr. Pradeep Rustagi, Executive Director of Corporate Affairs. 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 discussion may be forward-looking in nature, and a note to this effect has been shared with you in the invite earlier. We trust you've had a chance to go through the presentation and the documents for financial performance.
I would now like to hand over to Mr. Singhania to make his opening remarks. Over to you, Arvind.
Yes, thank you. Thanks, Gavin, and thank you, everyone, for joining us today. I have alongside with me Mr. Pradeep Rustagi, Executive Director of Corporate Affairs.
I will begin the call with a brief overview of all our businesses, post which Pradeep will walk you through our financial performance for the quarter and the year. FY '22 has been a good year for us. A year, which also marks a new beginning for us. I'd say good bearing in mind the challenging macro environment, particularly in the second half. All our businesses performed well, delivering good top line growth and profitability.
I also say new beginning because, as most of you must be aware, we recently announced the sale of our Engineering Plastics business to Radici Plastics India Private Limited. Post the transaction, Ester Industries becomes more focused and committed towards scaling up its core business of Films and Specialty Polymers. I will talk a bit more about the transaction later, but suffice to say that the new focus entity is now even more dedicated towards creating value and growth for our shareholders.
Starting with the headline numbers. We are pleased with our performance for the quarter, wherein we delivered strong top line growth of 30% over the previous year. The growth was well spread with all our businesses' verticals performing well. I'm also happy to report that we have been able to improve our operational profitability in absolute terms amidst rising raw material environment. PAT for the quarter was lower, largely due to higher interest and tax outgo.
Moving on to individual businesses, starting with Specialty Polymers. FY '22 has been a stellar year for the business with revenues and profitability both registering healthy growth. Demand momentum for our marquee legacy products as well as the newly introduced funds remain strong. We have seen volume growth of 94% for MB 03 over last year. Innovative PBT as well has picked up pace on expected lines following a benign Q3, with volume growth of 14% over FY '21.
Both these products continue to see good traction, and we are confident of sustaining the momentum in the coming years as well.
EBITDA margins during the quarter under review in absolute terms is better than the previous quarter, but lower in percentage terms due to larger denominator effect.
Specialty Polymer, as I had indicated in the past, is largely IP protected, which in turn ensures that the business generates and sustains higher margins.
Basis progress during last year, we expect substantially higher sales of MB 03 as well as Innovative PBT during FY '23 onwards. Some of our recently introduced products as well are shaping up well and have the potential to do well in years to come. We expect that existing products, coupled with new products, will help us sustaining the momentum going forward.
Moving on to the film business. We have seen yet another solid performance for the year. Overall volume for the year stood at 58,151 metric tonnes against 56,336 metric tonnes delivered during FY '21.
Realization for the quarter were relatively better on sequential basis, although the scale was largely owing to higher raw material prices, which was passed through, ensuring margin maintenance in absolute terms.
In the near to short term, we expect pricing to be volatile given new capacities likely to hit the market, which may result in margin compression in the near term despite volumes remaining elevated. On long-term basis, though, we expect the demand supply to remain favorable.
The other positive part of our Q4 performance was we improved margins despite lower volumes. We delivered 300 basis point margin expansion during the quarter on a sequential basis, which was largely owing to better product mix. And we have been reiterating, one of our objectives for Film business was to increase the share of value-added products.
As of Q4 FY '22, value-added products constituted 23% of the overall mix. Our aim, as we have stated earlier, has been to increase the share of high-margin products to 30% of the overall product mix, and we are well on track towards attaining that.
A quick word on our new plant before I move on to Engineering Plastics business. Our 48,000 tonnes per annum plant at Telangana is progressing as per schedule, and we expect commencement of commercial production by October 2022.
Moving on to our Engineering Plastics business, as mentioned at the beginning of the call, we have entered into a business transfer agreement with Radici Plastics India Private Limited to sell our Engineering Plastics business in an all-cash slump sales transaction amounting to INR 289 crores. The transaction is aligned with our strategy of focusing resources and commitments in segments where we have core competency and we believe we have an opportunity to create value for our shareholders.
The proceeds from the transaction will not only help us further strengthen our balance sheet, but also provide the requisite growth capital for scaling our Film and Specialty Polymer business.
Furthermore, the transaction with a global major in the Engineering Plastics space is also reflection of our capability in building a business and creating value for stakeholders. As part of the transaction, some of our talented human resources [Audio Gap] Radici Plastics India Private Limited. We expect closing to fructify by July/August 2022.
As mentioned earlier, our efforts will now be directed towards building innovative and path-breaking products in Specialty Polymer business besides improving product mix in Film business by increasing the share of value-added products.
As far as Q4 performance is concerned, Engineering Plastics delivered a revenue growth of 9% on a year-on-year basis. The growth was largely driven by higher sales realization, though volume of sales was more. EBIT margins for the business declined on a year-on-year basis, largely on expected lines given that Q4 FY '21 was an exceptional quarter for the business with unprecedented margins.
Since Q4 '21, we are witnessing a gradual rationalization of margins. So margins are still at very good levels.
To conclude, I would just like to state that we believe that we are well placed to create value for our shareholders. Post the Engineering Plastics transaction, we'd be able to channelize all our energies towards growing the core Film and Specialty Polymer business. Specialty Polymer, given its innate strength, should grow at a good pace over the coming years.
Furthermore, as mentioned above earlier, given the IT protection the business enjoys, the margins and profitability are not a concern at all. Our attempts are directed towards enhancing the sales velocity and building new innovative offerings to maintain a healthy product pipeline for the business.
As far as Film business is concerned, the core underlying demand across domestic and international markets remains strong. Realizations, as mentioned earlier, may see some volatility in the short term owing to commissioning of new capacities, but we expect the demand-supply dynamics to improve over medium to long term.
We are also working towards further improving the product mix that will help us in sustaining the margins.
Lastly, the commissioning of the new plant will help us further scale the business and contribute towards starting a new path for the business.
That concludes our opening remarks. I now hand over the floor to Pradeep to walk you through our financial performance. Thank you.
Good afternoon, everyone. Thank you for joining us today. I will quickly walk you through our financial performance for the quarter and year ended March 31, '22, post which we can begin the Q&A session.
Starting with the top line, revenues from operations stood at INR 388 crores as against INR 297 crores reported during Q4 FY '21. That is higher by 31%. While on a yearly basis, revenues stood at INR 1,406 crores as against INR 992 crores, higher by 42%. The growth was well spread out with all businesses witnessing good traction in their revenues.
EBITDA for the quarter stood at INR 65 crores, as against INR 60 crores generated during Q4 FY '21, higher by 8%, while on a yearly basis the same stood at INR 252 crores as against INR 244 crores generated during FY '21, up by 3%.
Margins in percentage terms though compressed during the period under review, mainly due to larger denominator in terms of higher sales value.
Finance cost for the quarter stood at INR 8.6 crores as against INR 5.7 crores outgo reported during Q4 FY '21. While on a yearly basis, the same stood at INR 24.9 crores as against INR 18.6 crores outgo reported during FY '21.
As of March '22, our outstanding interest-bearing cum debt net of free cash stood at INR 267 crores, while interest-bearing working capital liabilities stood at INR 88 crores.
Interest-bearing debt net of free cash as a multiple of EBITDA remained at a comfortable level of 1.06x as of 31st March '22.
The proceeds from the Engineering Plastics transaction will further strengthen our balance sheet and significantly improve the already healthy level of gearing. We will continue to pursue the policy of maintaining debt at better than prudent levels.
Depreciation for the quarter stood relatively stable at INR 9.9 crores, while for the year, the same stood at INR 38.6 crores as against INR 35 crores during FY '21.
Profit for the quarter stood at INR 33 crores as against INR 34 crores generated during Q4 FY '21. While for the year, the same stood at INR 139 crores as against INR 142 crores generated during FY '21.
To conclude, I would just like to reiterate what Arvind ji has said earlier, we are well positioned to deliver consistent growth and drive the next phase of growth for the company. Thank you.
Thank you. Should we open the call for Q&A session now?
Yes, please.
[Operator Instructions] The first question is from the line of [ Ayush Agarwal ] from Mittal Analytics.
I'm new to the company, so pardon me if my questions are basic. First, I'd like to understand on our Specialty Polymer business, given that we have scaled up massively here in the last couple of years. So if you can explain the journey of how did we envisage this new division? What kind of capabilities did we have? And how did this entire thing come about? What the customer acquisition cycle was like, and other things? Because in the new business, we have done INR 180 crores, INR 170 crores revenue with very high margin. So a journey here in a little detail would really help.
Okay. Your voice was not very clear, but whatever I've understood, I'll try to answer that to the best of my ability.
As you can see, there has been a substantial growth in sales turnover in FY '22 compared to FY '21. I think in FY '21, we had sales of about INR 59 crores, and now we have touched INR 170 crores. This is a substantial jump. Some of our marquee products have improved volumes substantially. For example, MB 03 doubled, Innovative PBT went up substantially. There are various other new products in the pipeline as well, and we expect a substantial increase in turnover in the coming year as well.
So sir, I don't think I was clear or not, but what I really wanted to understand was the journey of our Specialty Polymer division. How did we envisage this division? How did the business come about? How did we think about it? And what kind of capabilities, how did we build them? Because this is a very high-growing high-margin business. So some insights on them would be really helpful, because it's a completely new division for us.
Mr. Agarwal, I would be very happy -- it's a long answer, it's not a short answer, and I would be happy to take this offline with you, if you don't mind.
Sure, sure. Please, please. Absolutely.
You know, the call will have a -- you want to know about the journey of how we started. I mean this is something that we can discuss offline.
Absolutely. No worries. I won't take your time.
The next question is from the line of Sachin Kasera from Swan Investments.
First question is regarding sale of this Engineering Plastics business. It seems that [indiscernible] 4x EBITDA, which is quite low.
But it's...
Yes, I'm saying the consideration that we received is roughly around 4x the EBITDA that we've reported for the current financial year. So that seems quite low. So is it that you think the current numbers are not sustainable, hence, we've got a lower valuation? If you could give us some sense what was the mathematics that went behind the valuation for the Engineering Plastics.
Yes. So FY '22 was an exceptional year. And if I can just share with you some numbers about the EBITDA margins over the last 8 years, starting from FY '14. In FY '14, our EBITDA was INR 4.42 crores at 3.05%; FY '15 was INR 8.79 crores at 5.08%; FY '16 was [Audio Gap]; FY '17 was INR 10 crores at 7.3%; FY '18 was INR 8.3 crores at 4.88%; FY '19 was INR 2.76 crores at 1.4%; FY '20 was INR 6.13 crores at 3.81%; FY '21 was the first year where we had a major jump at INR 37 crores at about 18%. And in FY '22, it was INR 60 crores at 20.42%.
So these 2 years have been exceptional years, and you can never expect to get 10x or 11x EBITDA multiple only based on exceptional user. Any buyer will also see what is the past history and what is it going to be going forward?
So I think if we take -- we have got the average of FY '20 and '21. I think it's a very reasonable and a good EBITDA multiple that we have got. And from a buyer's perspective and the seller's perspective, from both perspectives, I think it's a win-win situation for everybody.
And what would be the net proceeds post the transaction fees and the taxes that will come into the company?
The net proceeds after expenses and tax, et cetera, should be in the region of about INR 225 crores, after repaying the tax and the expenses related to the transaction, INR 225 crores.
And sir, what is the intent? How do you plan to utilize this money that we got from here?
For the time being, we are going to immediately pay the debt. And over a period of time, we'll see what opportunities come in front of us. Could be some inorganic growth in terms of acquisition of some businesses, small businesses, or could be towards the expansion, as the case maybe. But for the immediate, we are going to pay down the debt, reduce interest costs.
As it is, our total debt right now is only about INR 267 crores. Total term loan -- total interest-bearing liabilities of the company as on date is INR 267 crores. So with the reduction of INR 225, we'll have a debt in Ester of only about INR 30 crores, INR 35 crores left, or INR 40 crores.
But does this -- are you talking about standalone numbers or you're talking about consolidated numbers?
No, this is only standalone Ester. Because the Telangana operations have not yet started. So we are not counting debt of that business.
Sure, sure. And you...
Even if you take on a consolidated basis, the multiple that we have is going to be extremely prudent as a multiple of EBITDA.
Sure, sure. Secondly, you mentioned that you could look at some acquisition opportunities. If you could give us some sense, which areas are we looking at? What type of acquisition opportunities we are looking? What is the type of ticket size you would be comfortable in, that would be helpful. And what are the key parameters that you would look at in terms of the return ratios or the metrics before we [indiscernible] acquisition.
I'm afraid I can't share any particular details because we don't have anything as yet, but most likely, it's all going to be towards technology products.
No. But will it be in the same field that we continue to operate or we could look at some other field or [indiscernible]?
No, no, not Engineering Plastics for sure. Because we've been divesting of it. So we're not going to go down acquiring anything to do with Engineering Plastics. Anything that we will do will be towards Films and Specialty Polymers.
Okay, okay. Secondly, sir, if you could tell us a little bit about what is your sense of the coming year in terms of the Specialty Polymer outlook volumes margin. That would be it.
Yes. So as you know, we did about INR 170 crores turnover in FY '22, which is in line with the guidance I had given. In fact, it's a little bit more than the guidance I had given earlier, over a turnover of INR 59 crores in the previous year. We are looking at turnover in FY '23 of about INR 250 crores.
And any sense on margins for this year with a strong margin of 32%?
Yes. Margin levels will be in the same ballpark figure.
Okay. And this, sir, normally, we have seen you validate the fact that Film business is expecting some volatility because of capacity coming in. Can you give us some more details, what is the overall demand supply tenacity? Because normally what we have seen is that every time we see good 8, 9 quarters of performance by the industry, they are again followed by some bit of pain that the industry has to go through because everybody has capacity. So if you could give us some sense on how the demand supply variable is looking to you for the next 2 to 3 years for the industry?
Well, like I said, in the short term, because of start up of new capacities, there may be some volatility in margins, but overall, in the medium to long term, we expect this new capacity to get consumed between domestic market and exports.
Okay. What type of margin pressure you think on a per kg basis we could see in the next 1 to 2 years and quarter 2?
In the next 1 to 2 years?
Yes. Or at least let us say for FY '23 because of these new capacities that are coming in currently and what type of margin you could see on a per kg basis on the margin front?
There will be some rationalization in margins in FY '23 over '22. I think we can certainly expect that.
[Operator Instructions] The next question is from the line of Rohan Gupta from Edelweiss.
Sir, a couple of questions from my side. One is on this PBT, that's in Specialty Chemical segment, if you can share some more detail, some detailed outlook that how this business is going to grow in future and what kind of more customer profile we can expect? And how the margin difference are there in this segment?
Okay. So as far as the Specialty PBT is concerned, we did about almost 1,200 tonnes in FY '22 compared to about 1,100 tonnes in FY '20. And before that, it was 465 tonnes. In the current year, we expect to touch -- we are hopeful, as per the forecast given by the customers, we can touch 2,000 tonnes this year. So it'll be almost, not double, but an increase of about 80%, 90%. Margins will remain intact.
Okay. Is it only 1 customer we are catering to? Or we are expecting more number of customers in this segment? Or it's only that customer restriction is there in terms of sharing the technology with any other customer?
Yes. So this product is sold only to 1 customer as per the contract with them. We are not permitted to sell this product to any other customer. It's a contract manufacturing that we do for them.
And the technology part you have developed, or it is shared by the customer?
Well, the patent belongs to the customer, but the operational know-how belongs to us.
So you are more like a CRAMS player there, right?
What player?
I mean more of the contract manufacturer player for them.
Yes. You can say contract manufacturer. We are the only company in the world that supplies the material to our customers.
Okay. Just want to know that in terms of our packaging film that we are providing, Specialty packaging, what kind of our entire product basket you are catering to this Specialty packaging, which is not catered by more than 2 or 3 players globally, and where we can have a complete pass on of the raw material with the protection on the margin?
I'll just come to that, but before I go to that question, I just want to complete on the Specialty PBT. We can expect very good volume growth going ahead. So if we are talking about doing about almost 2,000 tonnes in FY '23, I think we can look at doubling the capacity or doubling this volume over the next 2 to 3 years.
Okay, doubling the volumes from the current year, which you mentioned that anyhow will be 2,000 tonnes?
Correct.
So we can go to 4,000 tonnes over the next 2 to 3 years in that?
Absolutely correct. And now on the Specialty Films, which you say are not being done by more than 2 to 3, I'll pass the mic over to my colleague, Mr. Girish Behal, who is the Business Head of Polyester Films.
Specialty [Audio Gap] talking about, they have a variety of products, which are made by different, different numbers of players in the world. And each and every application is unique in all respects, so all the players, whosoever are present in these products, do not have the same portfolio of the products.
So in terms of our entire revenues coming from the specialty packaging, if you can just share the number, like in terms of revenue mix, what product basket will be Specialty in terms of completely the customer requirement? And what is the commodity part in the revenues?
Our total share of our Specialty Films is about 30%. The volume is 22%. The value is 30% in the financial year '21-'22. That shows that it is sold at a premium to the normal films.
Okay. So roughly 70% of the revenues come from the commoditized part of the business?
Absolutely. Absolutely.
Can you share some more on this that how this ratio has changed in last 3 years? And where you expect it is going forward over the next 3 years?
So I'll give you the numbers. FY '20, this value was only 21% -- 20%. That then increased to 25%. And in the financial year '21-'22, it is at 30%.
Okay. Where do you see that over the next 3 years, some guidance there?
In terms of volume, we want to reach 30%. But up to now we've been talking of 30% of our existing capacity only. Once the Telangana [Audio Gap] this percentage will once again drop because when you add a new denominator, this percentage will drop. But over a period of time, including our new capacity, we want to take it up to 30%.
So in tonnage, it will be increased year after year.
Correct. Got it. So in tonnage, in terms of volume, which is right now 22%, you expect it to go to roughly...
24%.
22% -- 23%.
23%.
At 12,500 tonnes. It will increase year-by-year. 12,500 will be increasing.
Got it, sir. Sir, here, once again, just if you can share more about your customer profile. So on this Specialty, what kind of profile we have from the customer? How much coming from the FMCG and Pharma players?
It's very difficult for us to answer that question right now. In any case, some information is also very confidential on this because we don't want to...
I understand, sir. But it will be fair to assume that because generally FMGG, pharma, these are the end user industries which are categorized as Specialty products, because rest of the end user industry more or less will be commoditized. So would it be fair to assume that your entire 30% of the revenues coming from Specialty will be primarily coming from these 2 segments?
Well, you can say a substantial portion, yes.
Sir, sorry, if I take liberty to ask further more question. On this packaging film, we have seen that in BOPET, there is a kind of capacity increase has happened in the global market and the prices are under pressure. I understand that you are not directly catering to BOPET, but still our packaging film business derived our margin...
We are a BOPET company. We make BOPET films. We are a producer of BOPET films.
No, no, sir, I was coming from the Specialty product basket, which is 30% of the revenues, where you may not be directly linked with the BOPET volatility. Just wanted to understand, with this rising BOPET capacity globally, do you see that your margins and sales mix can change significantly. How this increasing capacity of BOPET globally will affect your margins and revenues and utilization?
So the whole idea of getting into Specialty Films, value-added products in film business is to mitigate the commodity cyclicality in BOPET films. So we don't expect a major effect of price volatility on commodity pricing to have effect on margins of Specialty Films.
And in terms of our 70% revenue, which still comes from commoditized products, will that be under significant pressure over near term because of the capacities commissioning in BOPET?
There will be some rationalization in margins because of the new capacities coming in on the commodity portfolio.
And sir, just last, what kind of the margin difference will be there in your specialty versus commoditized business in terms of basis points?
So our average realization, let's say, for March quarter was about INR 143. And if you look at the average rate for the Specialty Films, it was -- just a minute, it was close to INR 230. So we were getting INR 70 to INR 80 over and above the normal films.
The next question is from the line of Saket Kapoor from Kapoor & Company.
Sir, firstly, thank you for the detailed investor presentation, sir. And your opening remarks mentioned there, that covers a lot part of our discussion here. And definitely, we are enlightened by the enriched discussion that is happening during the call this time.
Sir, firstly, if you could give some color on the utilization levels also for this quarter, as it was mentioned that the margins were lower. So the utilization levels, especially for the film segment, what were they for this quarter and for the year as a whole?
Yes. So we have sold about 58,000 metric tonnes, so we were more than 100% during the year. And for the quarter, I'll just share the number with you.
And sir, then coming to the greenfield project part also. Sir, in the capital work in progress, we find around INR 447 crores, I think so being there at CWIP. So that is -- INR 435 crores to be precise. So what portion is towards the new greenfield project out of this INR 435 crores?
It is entirely because the Telangana project is coming up in a 100% subsidiary and there is nothing else being implemented there. This entire CWIP that you are seeing is towards the project only.
Okay. Okay, sir. Because when we look at the standalone number, it is INR 19 crores and...
Yes, but that is standalone Ester, no.
Yes. So I was just looking at the difference. Is the entire INR 435 crores towards the Telangana plant only? Or something towards the film segment also that any debottlenecking exercise we are doing there?
Saket, Telangana project is under Ester Filmtech, which is a separate company. Accounting is done separately. And therefore, INR 400-odd crores is entirely the amount spent on the Telangana project. The CapEx done in Ester Industries are reflected in the balance sheet of Ester industries, not in Ester Filmtech.
Correct, sir. That was my question only. INR 19 crore has been shown under capital work in progress for standalones?
Yes.
That is attributing to which segment?
And you were talking about the capacity utilization for Ester films. During March quarter, we were at about 95%.
So for this Engineering Plastics part, the net cash accrual would be INR 225 crores, you mentioned, post the debt?
Yes.
And sir, for when this capacity will come into stream post October onwards, what would be the likely mix between the Films and the Specialty Polymer segment, say, about for H2 and also for the next year as a whole with the improved volumes in the Specialty Polymer segment? And then the increased Films segment, I think so it will happen in a phased manner. So what would be the likely mix in terms of the revenue, sir?
You see this year post the closing of the Engineering Plastics business, we'll lose the revenue from the EP business. We will be adding about 6 months of production coming on in Telangana on a consolidated basis. And plus the increase in the volume -- sorry, the turnover of the Specialty Polymer business.
I think overall, you can expect to see similar -- a little higher number in terms of overall turnover for the company in this current year. And next year should be substantially higher because we'll have full operation of the Telangana, full operations of Film in Ester, and a further increase in turnover of the Specialty Polymer business.
So in the current financial year, '22-'23, we will lose close to INR 200 crores on account of Engineering Plastics, because we would lose about 8 months of production and sales, but we would add Telangana and increase in the Specialty Polymer.
But you are expecting that we did a top line for March '22 at INR 1,406 crores precisely for the company. And this is where we will stand post this commercialization of the Film line and also the increased volume of Specialty Polymer?
Yes, subject to the raw material prices being what they are today. If there is any volatility in the prices...
The raw material prices have doubled over the last 1 year almost.
[indiscernible] overall turnover.
Sir, for the next half, H2, how the ramp-up will happen in the Film business? Will it be -- we will be reaching 100% in H2 itself? Or will it happen in a phased manner, because it is a substantial capacity?
We will start production in October, and it will take a few months to reach 100% level. No line can start at 100% on day 1.
Right, sir. So that was my understanding. What would be the average utilization levels you are expecting depending upon your customer base also where you will be catering to?
I think, if you take for 6 months, I'm not taking on an annualized basis, but only if I take 6-month period, it should be in the region of about 60%, 70%.
[indiscernible] production percentage of available capital.
Correct, correct. and sir, if you could give us the mix for this raw material consumed? How the raw material prices for the MEG and the PTA behaved for this quarter?
Yes, so March '22, the PTA was at INR 73 and MEG was INR 57 as compared to INR 68 in December for PTA and INR 60 for MEG. So the per kg cost, it increased to INR 82.5 from INR 78.5. And currently, we are at about INR 95 per kg of film. So INR 89 is the raw material rate for PTA and INR 54 is the MEG rate.
Okay. So there's a slight decline in the MEG prices and an upward tick in PTA?
But [indiscernible] MEG consumption is less, it is only 0.34. PTA is 0.86.
I didn't get it, sir. Come again.
MEG, you only use 0.33 MEG per kg of product. And the effect of the lower price is very little because the consumption itself is very small.
Yes. Sir, last point was on the employee benefit expenses. On a year-on-year basis, it is down from INR 24 crores to INR 19 crores. Could you please explain the reason for the same. And for this year, what has been the contribution to the KMPs in terms of the percentage of net profit being shared.
So what had happened, in March '21 quarter, there was a provision effect of extra implements and PLI for '19/'20 that was distributed in the March '21 quarter. So this year that effect is not there and we are at the normal level of about INR 19 crores. As far as the commission on profit is concerned, that's capped at INR 12 crores. In the current year, '21-'22, the provision is amounting to INR 12 crores only.
So out of the employee cost on an annualized basis of INR 67.41 crore, INR 12 crore is towards the contingent of the promoters?
Yes.
Correct, sir. Sir, we find that the team, including you, Mr. Singhania and Rustagi ji, has really turned around over a period of time. But the confidence among the investor community has still not been there. What could be the major reason that still in your shareholder base we do not find people who are convinced in the long-term story, although you have been guiding and also you are walking the talk over the last 2 years and that is very well reflected in the dividend payout, the increase in market capitalization, the profitability, but the traction is not gaining, neither in the mutual fund community, nor in the foreign institution.
So where is this disconnect that is still prevailing. And what steps are you taking to bridge that confidence over a period of time? Or sir, is it the typicality of the business that is keeping the long-term investors at bay from investing in your business, sir?
Saket ji, it's very difficult for me to answer on the investor's behalf. We are the promoter, management of the company. How the investors react is something that's very difficult for me to answer that question, but we are going to make a lot of effort to bring more noticeability about our company and what we are doing and how our Specialty Polymers is going to move ahead in the future. I think slowly, we will -- we are very confident that we'll be able to convince the investor community that this company means what it says. We've proven it over the last 2 or 3 years despite COVID. Despite all the adversities that the world has faced, we have proven our competence, our capability to perform. And Specialty Polymers, you can see how it has jumped substantially. We are very, very confident of the Specialty Polymers business going ahead and becoming a substantial business over the next 3 to 4 years.
And this is a message that I would like to take to the investors again and again, and we will draw the plan to do that. And we are objectively also to do all this while keeping the balance sheet at a healthy level.
The next question is from the line of Miraj Shah from Dalal & Broacha.
Sir, I wanted to know that in the Specialty Films and films business, do we have anything apart from BOPET or -- I think one line of BOPET is coming, but from the current capacity, do we have anything apart from BOPET?
No, we don't have anything apart from BOPET right now, but we do have [Audio Gap] going forward. It's not going to remain only BOPET.
Sir, can you come again. Apart from BOPET?
Right now, in the film business, we only have BOPET in our portfolio. But going ahead, we have full intention of getting into other substrates like polypropylene.
Okay, understood. And within BOPET, can you tell me what are the realizations currently for commodities and then specialty Films?
So the commodity films, we're talking about 12 micron corona, the current rate is about INR 153, INR 154. And during the March quarter, it was INR 143.
Specialty, you can do about INR 60 to INR 70 extra on an average, in specialty films.
Okay. And for the entire quarter, it was INR 153 to INR 154?
INR 153, INR 154 for commodity, yes.
The next question is from the line of [ Pratap from Forbes Marshall ].
So I would like to have 3 questions. First question, the Plastics business sale revenue will be realized by which month, so that we can have a clear idea that, that Plastic business revenue, once realized in book, now it will not be part of the book, but it will be managed or compensated by other business. Secondly...
We expect to have closing of the Engineering Plastics business by July, August.
Correct, sir. So on continuation with this question, what is your plan to invest this cash into the core segment or subsidiary segment, or it is...
Right now, as I mentioned earlier, we will use this money to pay down our existing debt.
[Technical Difficulty]
Pratap, we cannot hear you. Pratap, please unmute yourself and confirm. It seems we've lost the audio from his end. So we'll move to the next question, which is from the line of B. Surendra, an individual investor.
Sir, congratulations for good results. [Foreign Language] Telangana plant, is it mechanically complete?
The erection is almost complete. The commissioning activities will start by end of next month.
[Foreign Language] How we can make out in FY '23, '24?
Gap, I mean, the Engineering Plastics business is being sold as a business. If you're talking in terms of the revenue loss, that will be made up by Telangana plant and increase in the Specialty Polymers business.
One more. Our dividend policy will remain there, same?
Yes. That's a policy. It doesn't change every day.
No. What I mean to say is that there is a substantial profit in the next year, FY '23, so will we maintain at that level, 70%?
Our policy states that we will distribute up to 20% of net profit as dividend and that policy remains and will remain.
The next question is from the line of Tushaar Talwar from Regulation30.
Sir, I just wanted to ask that, in terms of -- that we are aiming to have 30% specialty volumes and around 70% commodity. I just wanted to know what prevents us from being more aggressive in this space and targeting higher specialty films revenue? That's my only question.
Well, we are growing as we can realize the opportunity. I think we could grow from -- instead of up to 30%, we could take it to 60% overnight, but that is impossible. It doesn't happen like that. It takes time to build specialty product volume. It involves product development. It involves product qualification, customer qualification. There are a lot of steps to go through in increasing volume of specialty. It is not like commodity. Commodity, you can go to the market and in the price itself. But in specialty, you have to go through a process. And that process is quite long and tedious at times.
The next question is from the line of Yogansh Jeswani from Mittal Analytics.
A couple of questions on your Specialty business. So what is the total PBT capacity that we have?
Sorry, what?
What is the capacity of our PBT plant, sir?
Our plant is fungible between different products. So it's not specifically meant for 1 product. Our plant is flexible enough [Audio Gap] products that we sell out of Specialty Polymers business.
Okay. So this entire 30,000 tonne Specialty Polymers capacity is fungible between PBT, MB 03, MB 07, and so forth.
These are the products, and it's also our mainplay capacity because capacity also depends on each product. Each product doesn't have the same cycle type. So this is just an indicative number. Don't take it as a gospel truth. This is indicative capacity number.
Sir, that's helpful. That clarifies couple of doubts. So, secondly, again a follow-up on your PBT. So earlier we had announced that this was a long-term contract win for us for 2 years with, I think, 400 tonnes of committed order, which we had easily surpassed every single year. Why, this year I noticed in your presentation that there is no minimum order commitment that has been mentioned for FY '22 or for FY '23. So going forward, is it fair to assume that this is no more a long-term contract with volume commitment, but just something which depends on client's end demand and we will supply accordingly.
Yes. So there is no formality in terms of a written agreement, but the volumes are growing as you can see and will continue to grow.
Sir, is there a possibility of our end customer also developing another vendor or source for the same product just to -- because maybe they were also testing this product and now that they are seeing volumes, even they would like to have 2 sources minimum. So are we seeing anything of that sort in this? Or do we think we will be the sole suppliers?
We don't expect that to happen. Anything can happen for that matter, but highly unlikely that another source will come up. It's a very complicated process. It's not easy to operate.
Okay. And sir, also, I think this is a fairly new segment for us. And from the look of it, the kind of margins that we are making in this product is very, very high. So it has to do something with the capability.
So if you could talk more about why this end customer chose us as their vendor to develop this product? What kind of inherent capabilities or challenge we had? And given the pipeline that we have, what is the kind of talent and skill set that we have? If you could just touch upon a few of those softer points, that would be really helpful in understanding how we have grown this business.
You answered the question yourself, my friend, we have the capability, and capability is not only restricted to 1 part, in terms of equipment, it is process know-how, it is infrastructure. It is various -- it's a team of people, the talent, plus the processing parameters. It's a multitude of factors. It's not 1 factor, and we happen to possess it all for this product and for many other products. That's why this company has chosen us.
Sir, lastly, in terms of the other products, if you could share say, for example, the MB 03 and LMC and all those, what is the kind of traction we are seeing in those? Like PBT, you mentioned we have a very strong traction, almost 90% kind of volume growth expected. So what is the kind of volume growth expected in these products?
The MB 03, I think, will grow by at least 30%, 40% over FY '22 and FY '23. In the Specialty Polymer -- Specialty PBT, I have already given the numbers, that we expect to touch 2,000 tonnes against 1,100 tonnes this year -- or 1,200 tonnes this year.
So there is a good traction. Apart from this, our other products are also gaining traction. One product has taken a bit of a slowdown, the MB 16, because of the Chinese lockdown. China has been under lockdown for the past 2 or 3 months. So there is absolutely no movement. And until that opens up, it's very difficult to say how that will proceed. But the product has qualified, we are expecting to start seeing volumes once China opens up.
Apart from this, we have 3 or 4 other very interesting products, which have slowly started moving, which I can't talk about right now. But all these are expected to attain very good volumes and extremely good margins in the coming years.
Got it, sir. Sir, last question from my end. I mean also on your specialty chemical side. So like PBT, MB 16 and MB 07, MB 03. So are most of these products to 1 or 2 clients only or the 1 client that we are supplying to PBT, or we have different set of clients for all of these products? And if you could just share the quantitative number, how many clients we have. If that is not part of some confidentiality clause. If you could share that number.
Yes. We really can't talk about the number of clients we have for each product because it's a very big thing. But I can suffice to say that Specialty Polymers does not have a huge clientele list like a commodity product. If the number of customers are like commodity, then this won't be Specialty anymore.
No, what I meant to ask was, is the client that you have for PBT, is that the client for MB 16, MB 07, and MB 03. That's what I'm saying. You have at least different clients for these products, or...?
Separate lines.
The next question is from the line of Himesh Shah, an individual investor.
Sir, I wanted to know that since we are not very highly leveraged, are we not using the money to pay back the investors as a special dividend?
We'll consider it. We'll take it to the Board. I can't give an answer right now, but let the deal consummate and we'll take it to the Board. It's a Board's decision at the end of the day.
Okay. And 1 more question. Since we are so optimistic about the Specialty Polymers business, I wanted to know what is the CapEx that we would require to continuously -- as we are saying, we might see that increase in the turnover by 30%, 40% even this year over last year. Then is there any significant CapEx for this division?
There is a CapEx underway right now, which is about INR 60 crores, INR 70 crores, which will finish by FY '23 or early start FY '24, which will aid us for our requirements for the next 3 to 4 years at least.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Thank you very much for joining us for the FY '22 earnings call. I look forward to seeing all of you again for the Q1 FY '23 earnings call later this year. Thank you.
Thank you. On behalf of Ester Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.