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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to SRF Limited Q1 FY '23 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ranjit Cirumalla from IIFL Securities Limited. Thank you, and over to you, sir.
Thank you, Faizan. Good afternoon, everyone. Thank you for joining us on SRF Limited's Q1 FY '23 Results Conference Call. Today, we have with us Mr. Rahul Jain, President and CFO of the company. I would now like to invite Ms. Nitika Dhawan, Head of Corporate Communications at SRF, to initiate the proceedings of the results con call.
Good afternoon, everyone, and thank you for joining us on SRF Limited Quarter 1 and FY '23 Results Conference Call. We will begin this call with brief opening remarks from our President and CFO, Mr. Rahul Jain, following which we will open the forum for an interactive question-and-answer session.
Before we begin this call, I would like to point out that some statements made in this call may be forward-looking and a disclaimer to this effect has been included in the earnings presentation shared with you earlier.
I would now like to invite Mr. Jain to make his opening remarks.
Thank you, Nitika. Good afternoon, everyone. I extend a warm welcome to you all, and thank you for joining us today on SRF Q1 FY '23 Earnings Conference Call. I trust you, your families and colleagues are doing well. I will initiate the call by briefly taking you through the key operational highlights for the period under review, following which we will open the forum to have a Q&A session.
We are pleased to begin the fiscal year 2023 on a strong note despite the ongoing challenging macro environment landscape. We have delivered a healthy performance in all our segments with our core chemicals business performing exceptionally well. During the quarter, gross operating revenue increased by 44% year-on-year to INR 3,895 crores. EBITDA grew by 52% year-on-year to INR 1,030 crores translating to an EBITDA margin of 26%.
Profit after tax saving at INR 608 crores, higher by 54% Y-o-Y. Overall, we believe it has been a stellar quarter for the company, and I am pleased to share that the Board of Directors has approved an interim dividend at 36%, amounting to INR 3.6 per share. This will result in a cash outflow of INR 107 crores.
Moving on to our segmental performance. The Chemical business, which comprises of specialty chemicals and fluorochemicals that registered a growth of 55% year-on-year. We achieved revenues of INR 1,722 crores. Our Specialty Chemicals business did remarkably well, driven by robust demand for our flagship products and the derivative. We continue to expand our product portfolio. And in Q1, launched 1 new agri product that further augmented our offering.
On the cost front, we are focused on diversifying our raw material supplier base to reduce the risk of nonavailability. This, combined with process optimization, resource utilization and other sustainability initiatives has enabled us to lay emphasis on further cost reduction as well as minimize the environmental cost of production.
We are pleased to announce that we have successfully commissioned our state-of-the-art multi-purpose production facility, MPP4 at Dahej. Initiatives are being undertaken to progressively ramp up production from this facility.
Moreover, the Board has approved a number of projects at the base facility for a projected cost of INR 400 crores, including 1 setting up of a new dedicated facility to produce 1,000 metric tons annually of an advanced agrochemical intermediate for INR 250 crores to meet the growing demand of the product in the future; two, to expand the capacity of an intermediate product that finds application in both agrochemical and pharma intermediates and related feedstock of INR 72 crores; and three, in order to address the increase in demand of new and upcoming plants, 2 technical structures will be developed for various agrochemical products or INR 78 crores.
As most of you are aware, the company is extremely bullish on the long-term prospects of the Specialty Chemicals segment and given a few global tailwinds anticipated for the [ set ]. We believe there would be adequate business potential to sustain the current CapEx run rate for the full year. The CapEx of INR 250 crores approved by the Board yesterday will be completed in the next 8 to 10 months and showcases our capability to execute large CapEx in the business in a very short time frame.
Capability building in terms of new announcements of the structural CapEx will also need to reduce time to market and crash the time taken to market some of our new products. The second CapEx of INR 72 crore approved by the Board yesterday is for a product that's a key building block that finds application in both pharma and agro intermediates.
Also, the other capital expenditure announcements are a part of a medium-term strategy that involves capital expenditures in the range of INR 1,200 crores to INR 1,500 crores over the next 12 to 18 months on the back of traction that is visible, leading to conversion of some of the campaign products to dedicated brands.
Our Fluorochemicals segment registered solid results on the back of better realization and healthy volume trends witnessed across HFCs. Prices during the current quarter have significantly increased amid trade measures and global and local demand for key HFCs. The anticipated demand and pricing in the segment will continue to remain strong. Structurally, this business operates in a strong pace and our CapEx investments set to capitalize in the coming quarters. We are excited about the opportunities for this business unit. Moreover, Dymel, HFO-13418, the pharma grade gas that we produce also performed notably well and we were able to increase our market share at a global space. Additionally, healthy contribution from chloromethanes aided performance. We have had a strong Q1 for the current financial year. There is certainly some seasonality in the HFC space that does play out and Q2 is generally weaker than Q1.
The catalyst change for our R 125 plant is also scheduled in Q2. We do remain positive on the additional volumes from our chloromethane plant that is likely to be commissioned very soon and the PPE facility was the early -- towards early Q3. This should add to overall revenue growth for the year as a whole for the chlorochemicals business.
U.S. market or HFCs remained strong, and volumes of H2 are currently being contracted, which we remain very positive about. We have witnessed some increase in our power costs in the Chemicals business, largely on account of increased prices of HSD and some big power costs.
Most of our fuel costs have remained elevated given significant price inflation seen across the world. We do believe that some of these per unit costs will see a reduction going forward as our new thermal plant -- power plant gets commissioned, and our initiatives around securing hybrid power for our Dahej and other facilities comes through. Moving on to our packaging sales business.
The business reported an increase of 44% in its segment revenue, INR 1,496 crores when compared with corresponding period last year. The business delivered healthy performance with significant contribution from BOPP segment and increased sales of value-added products. While we continue to focus on efficiency and cost-effective performance, the BOPET Film witnessed a slight slowdown in demand due to addition of some new lines, which impacted the overall margins.
And as I have stated in the past, we expect pressure on BOPP -- BOPET margins going forward with several new clients being operational. BOPET Films are likely to witness inventory impact due to sharp drop in raw material prices, which I believe will be transitory.
On the other hand, demand for BOPP Film is likely to remain firm. All our capacities -- all our plants are producing to capacity, except for our Hungary plant, which is impacted by higher energy costs due to the current geopolitical situation in Eastern Europe. Our BOPP line in South Africa is also performing well.
Our new BOPP film line in India is expected to be commissioned in Q2 FY '23. And with our already established customer relationships, We are hoping for a vertical start-up of this line as well. We remain extremely optimistic of the medium- to long-term outlook of the packaging business and a cross cycle averages, EBITDA and ROCE profile remains very strong. [ CFB ], mantra of easy to do business with, which is essentially focused on building customer relationships and our global presence in over 100 countries should enable us to better navigate sectoral headwinds.
As a market leader, the company is driving sustainability initiatives and is working towards innovating films that have lower environmental footprint. The Technical Textiles business reported an increase of 16% in its segment revenue to INR 571 crores during Q1 FY '23 over corresponding period last year. The business delivered steady performance led by increased export volumes in the nylon tyre cord and Belting Fabrics segment. However, domestic demand for some of our portfolio products were subdued. The business continues to actively focus on improving operational excellence and productivity parameters.
The Belting Fabrics market is witnessing large opportunities. In this regard, I am pleased to share that the Board has approved a project for capacity expansion and modernization of building fabric operations at our [indiscernible] plant from 1,100 metric tonne per month to 1,800 metric tonne per month at a projected cost of INR 162 crores. This will be spent over a period of next 3 years.
The CapEx will further aid in enhancing our market share and provides a strong margin profile, which is sustainable in the medium to long term. Lastly, in our Other segment, the Coated Fabrics business witnessed normalized demand, domestic demand after 2 years of the pandemic. This favorable monsoon and the commencement of events and outdoor activities we expect domestic demand for the segment to remain solid.
In our Laminated Fabrics division, SFR maintained its pricing and volume leadership with the plant operating at full capacity during the quarter and reaching its highest quarterly sales record. The surplus supply scenario has had a negative impact on the realization in this sector. During the quarter, we also witnessed the rupee depreciation against the U.S. dollar of around 4.5...
This is operator. We can't hear you. Ladies and gentlemen, the line for Mr. Rahul Jain has got disconnected.
Ladies and gentlemen, thank you for patiently waiting. The line for Mr. Rahul Jain has got reconnected. Thank you, and over to you, sir.
Sorry about the disconnection. I was talking about the rupee depreciation against the U.S. dollar of around 4.5% that we witnessed during the quarter due to a volatile geopolitical situation. This led to a restatement of net U.S. dollar-denominated liabilities, which created an exchange fluctuation loss of INR 32 crores, which is likely to be a onetime impact. Our profit and loss account and the balance sheet is highly dollarized. And while large depreciation of the INR versus the dollar has a negative restatement impact, which is [ 1x ], we are probably happier in the long run with a weaker rupee.
At SRF, we prioritize community engagement projects equally and work diligently to contribute to society. During the quarter, the SRF Foundation received appreciation from the Honorable Chief Minister of Madhya Pradesh, Shivraj Singh Chouhan for adoption of 108 anganwadi across Gopal, [indiscernible] and [indiscernible] districts.
During the quarter, we also distributed more than 170 times to the flood affected locations in Assam. I'm also happy to share that during the quarter, SRF was awarded the Best Business family -- family business in the Giga category at the first ever money controlled India Family Business Awards 2021. Our progressive HR policies and culture has led to Fortune India Magazine, naming us as an Employer of the Future. We also received the Finance Transformation Initiative of the Year award at the C2F program.
To conclude, over the years, SRF has built a solid multi-business structure that enables us to withstand a dynamic and volatile environment. While few businesses may face a challenge in the near term, we are confident that other businesses will exceed our expectations and enable us to drive overall growth of the company and create sustainable value for all stakeholders.
On that note, I can conclude my remarks and would be glad to discuss any questions, comments or suggestions that you may have. I would now like to ask the moderator to open the line for the Q&A session. Thank you very much.
[Operator Instructions] First question is from the line of Rohit Nagraj from Centrum Broking.
First question is on the Fluoro Specialty business. So given that there have been issues in the European continent and even apart from that, the weather-related issues for the agrochemical, are we seeing any kind of demand contraction for our business? And what is our view for FY '23 in terms of the issuance process for maybe a quarter, a couple of quarters?
So thank you, Rohit, for your question. This is something that a lot of people have started to talk about in terms of demand slowing out from Europe, given where energy prices are, given where some of the positions has been created. I don't think, as of now, we've seen any contraction. We've not seen any of our customers looking to, let's say, cancel orders or think of delaying some of those orders. That's not happened.
In fact, I would say that to a certain extent, when we look at it, given where Europe's positions are, I think it could also provide an outsourcing opportunity for companies like SRF going forward. Where some of the, let's say, higher-end products that Europeans were still doing, we want to get contracted out to good players like SRF.
So I think that could turn out as a positive. But I don't think we've heard from any of our customers till date that there has been a negative that is prevailing or the orders are being canceled. So that's the position as of now. It's a dynamic and a developing situation. We'll see how it fans out and keep you updated.
All right. This is very encouraging. Sir, second question is on the ref gas pricing. So we've seen over the last 1 year, the prices have been increasing. So in your view, the prices have still been increasing or they have stabilized at elevated levels? And if they're still increasing, what would be the dynamic which will play out to stabilize those pricing environment?
So Rohit, the prices for some of the ref gases, and it is not all across. I think there has been increase in prices of some of the ref gases. Most of the increases happened over the last year or so. Previous year, we had also told you that prices had come down very significantly FY '21 and -- FY '20 and '21 is what we have seen that happening. But largely, I think prices are stable. We don't see any large headwinds in terms of significant reduction in prices.
Also, this is -- typically, there is a seasonality that plays out in the Fluorochemicals business given where heat months are. So February to March, typically are the highest playing out months for the HFC segment. There will be some seasonality that will come in, no doubt on that. You've also seen our presentation where we'll call it out that 125 catalyst change might take 15 days or so, which will have a -- some impact on the 125 production levels.
But again, I don't believe that is very, very significant. It should be a normal position, and it's a normal thing for a chemical plant to change some of the catalysts. Prices, we do believe remain firm. Domestic prices might come down a bit given where demand positions will be. So that's how it should play out.
The next question is from the line of Sanjesh Jain from ICICI Securities.
A few questions. First on the agrochemicals, you did answer a little bit in the previous Q&A. But taking that forward, it cannot be strong crude price with the power price challenge in Europe and other places. How does the demand outlook for agrochemical or how our discussions with the customer are. And now that we have commenced MPP4 and we have announced a very large project total INR 4 billion in the intermediate. Do you think there could be an upside to Fluoro Specialty revenue in FY '23 and '24 from what we have been guiding?
So Sanjesh, yes, there can be an upside, certainly. Our guidance of 20% plus is likely to play out, but it's a volatile environment Sanjesh. We are seeing -- luckily, we have not seen any negative in terms of customer orders being canceled or there has been a dearth of demand for the products. All of that is playing out well. Some of our products are selling phenomenally well where we have seen significant growth in some of our flagship products when we compare them to previous year position. So that's not happening.
But there has been some increase in costs, the costs have been slightly higher when we look at it from an overall perspective for power and fuel, some of the raw material costs have been higher. There will be some contract renegotiation that will happen over a period of time, which will provide a positive push to this. Again, new products, I think there is -- we've clearly demonstrated it when we've increased our CapEx size.
We've also told you that over the next 12 to 18 months, the CapEx is in the space between the range of INR 1,500 or INR 1,200 crores to INR 1,500 crores over the next 12 to 18 months. The INR 250 crore CapEx, the INR 72 crore CapEx and INR 78 crores CapEx are also capacity building CapEx that we are doing in the business, which will, let's say, crash the time to market for some of the products that we're looking to do. Significant traction developing, so all things positive as of now, Sanjesh.
So if I take this INR 1,500 crores of CapEx and generally, we do, what, 1.5x to 2x effect, right? So this -- do you have a clear narrative...
There is the INR 1,500 crore number going some -- overall.
Overall? The INR 1,500 crore is -- including ref gases you are telling.
No, no. So when I'm saying INR 1,200 crores to INR 1,500 crores, that is over the next 12 to 18 months out of which, let's say, INR 200 crores, INR 300 crores has been announced now.
No, no, that's what I underlined. So when we do this entire INR 1,500 crores in 18 months. From there, we have a runway for doubling the revenue, right? We were at INR 3,000 crores in FY '22. And now we are doing the CapEx which can potentially help us grow by double. Will that be a fair assumption?
So again, it's a tough one to answer Sanjesh, but my sense is when you're looking at this assumption, we are probably slightly conservative given the fact that not everything is fully utilized today. Almost INR 3,100 crores.
Double to conservative, right?
Yes.
Got it. Fair. On the ref gas side, you did mention in your opening remarks of HFC contract or the futures we have locked in. Can you give us some color how long contracts these are? And are these are the current prices? That's number one.
So what I was trying to refer to, Sanjesh, the fact that typically, the U.S. export contracts, which is typically October to March shipments will get contracted today. So what I was trying to refer to was the fact that we are contracting some of those at current prices.
So we are locking the prices as well as the contract.
Correct. But typically, contracts are not very long term.
Right. And rupee will also come to aid there, right? So currency has also depreciated, which you rightly mentioned is a long-term benefit for the company, right?
We have -- I think we are happier with a weaker rupee than a stronger rupee is what I would tend to say.
Got it. Sir, any color on the HFO now that we are close to the weekend going off and that would give us further volume growth visibility in the cash. What's -- any update to share on HFO-1234yf side?
I have only 1 word answer. That is wait.
Sorry, sorry, I couldn't get it.
I said the answer to that is only 1 word, wait.
Wait. Fine, fine. So we'll wait for the announcement, but that's in progress, right?
So there is no further progress to be very fair. I've said this in the past as well. The position on that essentially is when we are looking at we are indicating that there are new developments that are happening in the space. There is new work that we are doing in terms of process optimization, all of that is going on. And there will be an announcement at an appropriate point in time, not today at least.
So when this patent getting expired for the innovator?
You know it better than I do so, Sanjesh.
[Operator Instructions] The next question is from the line of [ Trilok ] from Diamond Asia.
So we are -- one of the question is with regards to the end product pricing or the demand, are we sort of witnessing any changes or any kind of moderation demand, particularly agrochemical perspective, I'm trying to understand? And second question is with regards to your comment on the chemical at 125, this catalyst change, is it a routine affair? Or is it that you have highlighted only this quarter will happen?
So to be very frank, I think the first question that you asked, I have actually replied to it in both the earlier questions. We are not seeing a negative in terms of demand slowdown or product approvals not coming through from our customers. All of that is in good shape.
The second question that you had asked in terms of 125, this is a normal process, typically a 3- to 4-year process that happens where some of the categories change in most of the chemical plants will happen. Normal, but yes, I thought it was important to be able to pull a little one but there is something of that sort, which is large from our perspective happening.
Okay. And if you can also just comment with regards to the Fluoro Specialty or ref gas contracted volumes that you're highlighting, which is already happening. So this is what a quarterly contract? Or is it the half year contract?
No, no. The contracts are for a period. So like I said in the earlier comment for October to December volumes, the contracting happens really now.
And we haven't seen any lower offtake in volumes. Is that correct understanding?
No, there is no lower offtakes.
Next question is from the line of Naushad Chaudhary from Aditya Birla Life Mutual Fund.
Two questions there. Firstly, if you can touch upon on your expected additional chromatin capacity and your greenfield PTFE. How do you see the capacity ramp up of these 2 projects, which is expected in '23? And second question is how much capital so far we have deployed in Fluorochemicals business? And of that, how much is unutilized?
So Naushad, the first question is with respect to the to the fluoro Chloromethane capacity that is coming up, I hope it can get capitalized in the next 2 to 3 weeks. So that's what we are looking at. My sense is that most of this is replacement of imports. There are various other companies that are setting it up, but the amount of imports that the country does today for both MDC and CTC, which are the largest products that come out of the Chloromethanes stable. It's largely import substitution. So I don't think there should be a problem selling. Obviously, there will be a time to capitalize and stabilize the plant. This is the largest Chloromethane plant that we are now putting up.
Typically, our plants have been in the 45,000 tonne range. This is the largest one that we are putting up. So there may be some timing in terms of stabilizing the plant, but I don't see that as a challenge as well. So all of that should be in good shape. The second question that you asked was with respect to? I forgot.
Capital deployed to...
PFTE, again, I think is scheduled somewhere in October. So Q3, early Q3 is when it is scheduled. Stabilization, getting some product's approvals, I think typically the quantity that will be available for PTFE will be in Q4, roughly about 5,000 tonnes of annualized capacity, so 1,200 tonnes available.
Hopefully, we should be able to get some volumes out of PTFE in Q4. The third question that you had asked was with respect to the prices, right?
No, no, no. So follow up on the first question itself. So within 1, 1.5 years, we should see chloromethane to touch optimal utilization and PTFE should take time? Is this the correct understanding, sir?
I think chloromethane should be faster. PTFE might take probably the amount of time that you are saying. Chloromethane would probably be 3 to 6 months.
Okay. And second question was how much capital so far we have deployed in Specialty Chemicals business?
My sense is that the overall capital employed for the Specialty Chemicals business is roughly about INR 3,200 crores, INR 3,300 crores. And within the asset base, I think, roughly about INR 2,500 crores of the fluorochemical space.
The next question is from the line of [ Garen Lu ] from BlackRock.
My first question is on the refrigerant gas business.
Can you be a bit louder, please?
How about now?
Much better. Thank you.
And my first question is on the refrigerant gas business. So what is the price in the United States last year? And what is maybe the current level in terms of, say, U.S. dollar per ton. And can you also kindly share with me the refrigerant gas sales, the breakdown how much is to U.S. and how much is sold domestically in India?
So it's a very, very difficult question to answer because there are multiple cuts of it that you are talking about and not all HFCs are the same. So pricing between 30 to 125, 134a blends range between, let's say, from an export perspective, about INR 600 to INR 1,200, INR 1,300 as well. R 125 mostly sold in the U.S. between the domestic side of the chloro portfolio the HFCs, we will probably be in the range of about 6,000 tonnes in overall position from an annualized perspective. While when we look at it from a domestic perspective, Q1 would probably be higher in the domestic side. So that's how it should work out.
The next question is from the line of Chintan Modi from Haitong Securities.
Sir, the CapEx that you have mentioned this new investment bank and INR 1,200 crores to INR 1,500 crores. This does not include the spec-end CapEx, which is already under progress, which is about, I think, INR 600 crores to INR 70-odd crores. Is that right understanding?
You are absolutely right, Chintan. This is a new initiative that we have taken. We believe that in the next 12 to 18 months, there will be more announcements that will come. This is just an indication to you that there is new CapEx in the business that will keep going on.
Okay. Got it. Secondly, sir, can you tell us like how has been the trend of EBITDA margins in Specialty Chemicals over the last 3 to 4 years whether it has been increasing or remain stable?
The EBITDA margin as a percentage of the overall positions in term?
Of Specialty Chemicals only I know you don't declare the numbers, but just if you could highlight the trend out, like it has been improving or remain stable over last 3, 4 years?
We get it from a 3-year term perspective, probably FY '18, '19, we saw probably a flattish position. FY '20, '21, '22, I think all of those would have been a growing position. I don't have the numbers in front of me, so I can't give you an exact answer. But my sense is that there is a positive trend in terms of margin percentage as well as overall number on the margin, both has been a positive trend, given the fact that last year, we grew almost 30%.
The year before, it was about 60%. And the year before that, almost 70%. So I think given that as a position and just basically saying that you will be utilizing better fixed cost the overall margin percentage should also have been higher.
Okay. Got it. And sir, on the PTFE plant commissions, what is the kind of margin there we can expect? I believe the last quarter that things were looking quite optimistic.
Given where current prices are Chintan, I would say from what we have budgeted it at from a normalized perspective, we are probably about 40% higher in terms of EBITDA margin. Gross margin should probably be in the range of 60% to 65% at current prices.
Sure. Got it. And just 1 last, in terms of refrigerant gas, you mentioned that you have visibility today for the March quarter or the December quarter?
No, no, I did not say visibility for March quarter or December quarter. What I said is, to a certain extent, some of the current prices that we are at, we are contracting for H2 for the U.S. suppliers. That's what I said.
The next question is from the line of Sumant Kumar from Motilal Oswal.
My question is regarding chemical margin -- so you were talking about export, particularly U.S., you have contracts for the -- till March and currency depreciation. So in both, and we were talking about speciality chemical margin on those positive trajectory all these 3 factors, can we assume the margin for the Q1 FY '23 is likely to continue for next 2, 3 quarters?
Sumant, again, we don't look at it from a quarter-on-quarter perspective. I would typically tend to say that when you look at it from a year as a whole perspective, on a chemical business as a whole perspective, I would say, let's say, the last year margins were in -- EBIT margins were in the range of about 26%, 27%.
Given where our current products profile is given where prices are. On an annualized basis, we believe there could be a margin expansion that can happen.
So margin expansion on FY '22?
On FY '22 numbers versus FY '23 numbers.
The next question is from the line of Amar Maurya from AlfAccurate Advisors.
A couple of questions. Number one is, you indicated that R gas 15,000 metric tonne capacity where it is likely to commission.
I think it is October '23, but I can check. Give me a second. So Q1 FY '23.
Okay. Q1 FY '23.
FY '24, sorry.
Q1, FY '24.
[Foreign Language].
And secondly, sir, what would be the current utilization of R gas?
Almost fully. All of the gases are producing fully.
Given the heat waves, whatever we are seeing in Europe, is that R gas demand in Europe also increased? And is it somewhere positive for us?
To be very frank, I think as an overall trend, Amar, we will see some of the heat waves panning out across the globe. The first thing that these guys will have to do is set up more of air conditioning. And once that happens, it should be a positive overall from R gas demand perspective.
But nothing immediate. I mean, because why I'm asking because...
[Foreign Language]
[Foreign Language]
because of whatever reasons. So I think in that context, do we see some immediate benefit to us because we have the capacity, we have the market.
I think, again, we have to look at it from a more longer term and a medium-term perspective, Amar. It is not that 1 heat wave will cause all of this to change. But yes, as a trend, it should be a much larger positive going forward.
Okay, okay. And secondly, sir, in terms of the agrochemicals, like if we hear all these agrochemical, global agrochemical companies, everybody is talking about a muted second half. So in that context, like the kind of capacity lineup we are building up. I mean, are we confident that we'll be able to utilize all our plant? I mean, any indication from the client side?
Well, I think I answered it more than once. Maybe you want to refer it back to the call.
The next question is from the line of Ankur Periwal from Axis Capital.
First question on the spectrum side. Now given the rise in RM...
A bit louder, please.
Sorry. First question on the Specialty Chemicals side. Given the increase in RM prices, especially the power cost as well there. What are the time frames by when we are passing through this price -- this rise in prices to the customers?
So Ankur, with respect to speciality on power costs, I think we have started at some of our plants. We are in the process of implementation of the new commercial -- captive power plant in Dahej. My sense is that it should again come up very, very soon in the next 2 to 3 weeks, it should be commercialized.
And as soon as that happens, some of that power that we are doing or generating out of the DG will probably create a positive for us in terms of just the power cost around it. Obviously, coal prices roughly in the range of about INR 13,000 a tonne.
Hopefully, some of that price will also come down, and therefore, cost of generation comes down on the captive side as well. We are also working on getting some additional hybrid power for -- and purchasing that through in our Dahej plant, which will also add to some of the cost reduction on the power side.
So all of those should be positive. Again, we need to kind of take through some of those costs that are transitory in nature into our account. With respect to some of the key raw materials where prices have gone up, some of that will get renegotiated probably in the next 3 to 6 months as contracts come up for renewal.
Sure. So the RM inflation will be passed through, but the power cost inflation, we'll try to manage it at our end. Is that right?
At the end of the day, that's how we should look at it.
Sure. That's helpful. Secondly, on the growth outlook side, you did mention capacity expansion and some bit of smaller CapEx there for the agro intermediates, et cetera. We had earlier guided very strongly on the pharma intermediate side as well. Any thoughts there, any comments?
Again, to be frank, Ankur, there are new projects that are in the pipeline. Pharma typically will take longer than an agro product. We are fairly confident that within the next 6 to 12 months, there will be more announcements. Our PIP will get capitalized probably in the next 6 months or so. Again, we believe there is -- there are already products that we are looking to do on the pharma side in the PIP. Those will add traction on that side, Ankur.
Sure, sir. And just last clarification here. The 15,000 tonne plant, which is going to come in Q1 FY '24. Will it be fair to assume that we'll be contracting this volume starting maybe, let's say, a couple of -- maybe a quarter out September, October.
We're talking about the HFC one.
The HFC one, yes.
No, no. So the HFC is not a long-term contract business, Ankur. Most of it is done on a spot basis. So I don't think there is a need to contract that value. We are fairly confident that given where market demand is, given where our plant positions are given where our customers' future requirements are, we'll be able to sell it through.
Okay. And the other ref gas, I think, the contract renegotiating from a volumetric perspective will happen for H2 now in the coming months?
So again, please understand, one thing was H2 volumes for specifically the U.S. market, which typically get contracted now.
The next question is from the line of Vivek Rajamani from Morgan Stanley.
Congratulations on a very good set numbers.
Just a bit louder, please.
Sir, can you hear me now?
Yes.
Sir, just a couple of clarifications on some of your earlier answers. So if you could just give some color on the operations. Like you said, you're running at almost full capacity on the ref gas side. Could you just share some thoughts on the specialty and the packaging and how you're seeing this evolve over the next couple of quarters. And secondly, sir, on the top point on Europe, you obviously touched upon it a lot. You mentioned that this is possibly a longer-term opportunity that's benefiting you guys and the Indian chemicals names. So any kind of CapEx that you would be thinking on putting through to kind of meet this opportunity? Or it's very early days to talk about that right now?
So the first question that you ask, Vivek, is with respect to?
The operations or utilization rates. Any color that you can give -- like you've shared for ref gas?
Energy utilizations are pretty much full. On the packaging films side, we are selling everything that we can produce, except for Hungary, where energy costs have gone through the roof. And we are only producing to the extent we have the orders available and at the right price.
So that's something that's happening in Hungary. Over a period of time, I think the geopolitical position in Eastern Europe will normalize, whether it happens in the next 6 months, 3 months or a year, we don't know.
Other than that, for the Specialty Chemical side also, I think almost all the capacities are full. And when I say full producing optimally, the MPP4 is the new plant that has come up, we are trying to see what best can be done in terms of utilizing that plant capacity at the fastest pace that is possible.
That's something that's going on. I would also typically say it for Specialty Chemicals, the capacity utilization on an average, let's say, on an overall basis, remains at 70%, 75% given that there are a lot of campaigns that run. So that's how it works out, Vivek. And the second question was, Vivek?
Just on the point on Europe, where you said it could be beneficial for SRF and the industry. Just thinking, would you be considering any CapEx to meet that opportunity beyond the 1,200 to 1,500 that you're currently planning?
Too early to talk about it, Vivek. Again, I think we've given a fairly good indication in terms of the INR 1,200 crores to INR 1,500 crores CapEx, if that's something that's coming out of the European opportunity, we'll certainly look at it.
But again, I think there is fair visibility for us to be able to commit to INR 1,200 crores to INR 1,500 crores CapEx and there are multiple opportunities. We look at the right one to be able to capitalize on and go through from a campaign to a dedicated cloud.
The next question is from the line of Abhijit Akella from Kotak Securities.
Just 2 questions from my side. First one on the CapEx. Last quarter, you had guided to about INR 2,500 crores to INR 2,700 crores for the overall company for fiscal '23, within which chemicals was about 1,700, 1,800. So in the context of this INR 1,200 crores to INR 1,500 crore number that you've announced today, how should we think about those previous numbers? Are those likely to get upgraded?
So I think, Abhijit, when you look at it for FY '23, I think the CapEx guidance will have to go up. My sense is that during FY '23, the total CapEx that we will probably end up doing will be more like INR 3,100 crores, INR 3,300 crores. I also believe that given -- even with that number, I don't see a very large deterioration in any of our financial metrics.
I think all of them then remain very, very healthy. Be it with debt-to-EBITDA, debt-to-network, free cash flow, all of those remain very, very healthy.
When you are looking at the INR 1,200 crores to INR 1,500 crore number, I think about INR 1,000 crores to INR 1,100 crores of that will probably start to get spent in FY24, this therefore, means that the visibility for the FY '24 number, which I always talk about between INR 2,500 crores to INR 3,000 crores is developing also, and that really creates that provision.
Understood, sir. And also just to clarify, within the INR 3,100 crores to INR 3,300 crores for this year, can we assume that the Chemicals segment would be about 2,300 to 2,500?
Yes, that looks all right.
Okay. Understood. And just the second question I had was on the margin front. Packaging, we've alluded to certain headwinds as well as inventory issues. So I mean, how should we think about the margin trajectory in coming quarters for that segment? And then also just on Chemicals, would you expect...
Let me just -- I think if you discount Q2, which is probably something that is going to -- that is very clear that there are some inventory negatives that will come through. When I look at -- and also discount Hungary because that will also be a function of the geopolitical play that is going on. My sense is overall margins will come down at least in the BOPET segment.
We will be aided by a BOPP positive that will come through. Our endeavor will be to sell off all the material that we can produce, don't shut down the line at any point in time. It will probably be coming out at slightly lower margins. But on an overall basis, let's say, my last year number was roughly about 19.8%. And this quarter, we are roughly in the range of around 19.7%.
I don't see that going down to let say, a 10% number. I think we will remain fairly in the green. We will take countermeasures. We will look at our value-added product portfolio. We will look at our customer relationships to ramp up our overall numbers, when we look at it from a year as a whole perspective, given that new capacities are coming in should also be in good shape.
Okay, sir. And that's really helpful, actually. And just on the inventory side, I mean, any sort of sense you could provide us regarding how much of the quantum might be addressed out there for 2Q?
So I can't give you the exact number, Abhijeet, but my sense is that at any point in time, you would hold about 25,000 to 27,000 tonnes on high fees of PTA and that being the most key raw material. So look at where prices are and you will know what the probable impact could be -- inventory.
Understood. That's great, sir. And one final thing if I can squeeze in. Just on refrigerant outlook, while at this point, everything is looking good. There have been some concerns...
Can you repeat, please?
Yes. Just on refrigerants. There have been some concerns about correction in refrigerants prices in China. Any signs that this might be spreading to the rest of the globe? Or you think the rest of the globe is pretty much insulated and prices remain firm across refrigerant industry?
I would typically look at it from 2 perspectives: the local market and the U.S. market. The Indian market will probably have some impact. But I think that's not because of the Chinese prices probably more because of the local position and the demand situation, demand and supply situation in the local market, given there is some seasonality around it.
U.S. prices remain firm, remain strong. Trade barriers are still in place. And my sense is that between 125 and 132, which are -- which have been recently imposed duty between November and February, November '21 and February '22, those don't go away. 134a is under a review. But blends are still under the ADD. So the U.S. prices world remains strong. And to that extent, our ability to supply in the U.S. market is very pretty decent.
The next question is from the line of Prashant Sibadanabu from Spark Capital. As there is no response from the current participant, we'll move on to the next question. From the line of Nikhil Ahuja from [ Zoran ] Solutions.
Yes. My question is due to recession in Europe and America, how do you see the demand of the chemical business going forward?
So again, Nikhil, I think we've given fair color on this in the earlier questions. We've not seen a negative in terms of whether there is no demand from our customers for our flagship products. In fact, some of those demand have only gone up. We also believe that it could provide a larger outsourcing opportunity. Going forward as well in the medium term.
That's something that we will certainly look at. From the U.S. market perspective also, largely, I think the Fluorochemicals business or the ref gases are the ones that get supplied there from a chemicals business perspective. Demand rate remains fair and strong and prices also remain pretty significantly high. So -- and again, I think stable to normalize prices have come through, that will remain as a trend going forward.
The next question is from the line of Madhav Marda from Fidelity.
I think it's like really positive to hear like more CapEx guidance for the Chemicals segment and in general SRF reinvesting for growth. I just wanted to understand that the increased CapEx guidance for chemicals, is it more a function of like China plus one? Or is it more outsourcing being done by our customers? Are they just looking to outsource more of their production? Like what is driving up this CapEx for us?
Madhav, again, to be very frank about it. I think we've told you multiple times that we have worked on multiple products. There have been multiple products that have been commercialized. We are seeing traction in some of those products. Customers are willing to enter into the longer-term contracts with us.
And therefore, I think given where those positions are, we are fairly confident that some of these products could be large products for the future and therefore investing in them, whether it is purely on China plus 1 or something else I really don't know. But the fact is that there is traction from the customer, there is developments that have happened commercialized products and some of those that are, let's say, campaign products becoming more of dedicated plants is the trend that we are seeing.
And some -- and I can tell you, the products that we are talking about, the new CapEx that has been announced is a fairly complex advanced agro intermediary. And therefore, I think it's a product of the future. We are very, very confident, and we are very hopeful that it can become a new and larger product and a flagship product of ours.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Rahul Jain for closing comments.
Thank you, everyone. I hope we've been able to answer if not all, some of your questions. I wish that each one of you will remain safe and easy. If you have any further questions, we would be happy to be of assistance. We hope to have your valuable support on a continued basis as we move ahead. On behalf of the management, I once again thank you for taking the time to join us on this call. Thank you very much.
Ladies and gentlemen, on behalf of IIFL Securities Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.