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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 Q3 and 9 months FY '23 Earnings Conference Call, hosted by Kotak Securities Limited. [Operator Instructions]
I now hand the conference over to Mr. Abhijit Akella from Kotak Securities. Thank you, and over to you, sir.
Thank you. Ladies and gentlemen, good afternoon, and thank you for joining us on SRF Q3 and 9-month FY '23 post-results conference call. On behalf of Kotak Securities, it's my pleasure to welcome Mr. Rahul Jain, President and CFO of SRF Limited for this call. We'll begin the call with opening remarks by management, following which we'll open up the floor for a Q&A session. I would now like to invite Miss Nitika Dhawan, Head of Corporate Communications at SRF, to take proceedings forward. Thank you, and over to you, Nitika.
Good afternoon, everyone, and thank you for joining us on SRF Limited Quarter 3 and 9 Months FY '23 Results Conference Call. We will begin this call with brief opening remarks from our President and and CFO, Mr. Rahul Jain. Following which, we will open the phone 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, and good afternoon, everyone, and thank you for joining us today on SRF's Q3 and 9-month earnings conference call. I trust all of you have had the opportunity to go through our results and the presentation shared with you earlier. I will begin the call by briefly taking you through the key financial and operational highlights for the period under review, following which, we will have the open -- we will open the forum for a Q&A session. During the quarter, we have reported a good performance given the challenging times being faced by some of our businesses. The Technical Textiles and Packaging Films businesses continued to witness a difficult operating environment, while the Chemicals Business performed exceedingly well, both on operating and financial parameters. On a consolidated basis, revenue grew 4% year-on-year to INR 3,470 crore in Q3 FY '23. EBIT stood at INR 726 crore, down 9% on a Y-o-Y basis, which is largely attributable to the weakness in TTB and the Packaging Films business. Profit after tax stood at INR 511 crore in Q3 FY '23, up 1% Y-o-Y. During the quarter, the Board has approved a second interim dividend of INR 3.6 per share in addition to the first interim dividend of a similar amount declared earlier. This will result in a payout of INR 106.71 crores. Coming to our segmental performance. Our Chemical business reported robust growth. Revenue grew 23% Y-o-Y at INR 1,757 crore in Q3 FY '23. Within the Chemical segment, our Specialty Chemicals business delivered record performance with a successful addition of new products that received substantial market traction. The ramp-up of the state-of-the-art MPP 4 facility at the rates and strong demand for key products and downstream derivatives. High level of customer engagement with global innovators continues to be our [indiscernible] as complex and advanced products and AI remain in focus. Our pharma intermediate plant is also being commissioned and should be ramped up fairly quickly. New CapEx are in line with the projects that we are doing for our key customers. We have now made announcements on capital expenditure in the Specialty Chemicals business over the last 2 quarters that aggregate more than [ INR 13,000 crores ]. I am pleased to share that the Board has approved another project for setting up a new and dedicated facility to produce an agrochemical intermediate [indiscernible] at a project cost of INR 110 crore to meet the growing demand of the product in the future. In addition, a new plant building structure at [indiscernible] was approved at a cost of INR 40 crore to meet the future requirements. All these projects are expected to be commissioned over a period of 1 year. Our customer engagement, execution capability and operational excellence gives us confidence of the long-term success of the business. Our R&D and scale-up facilities were further augmented, developing a variety of new technologies and platforms to bolster SRF into next level technology to play in the future. Our Fluorochemicals business registered healthy performance on account of several key factors, including strong traction in the domestic market for refrigerants, continued demand for our Dymel HFC 134a AP pharma-grade gas, healthy contributions from chloromethane and gradual ramp-up of volumes of the recently commissioned facilities. All of our Fluorochemical plants are running well and full benefit of the recently commercialized Chloromethane plant should be available from next quarter onwards. The Chloromethane plant has been successfully ramped up. Outlook for domestic demand for HFCs remains strong, and we are also witnessing traction from the U.S. market. There is, however, a slight delay in commissioning of the PTFE plant due to certain logistical issues for which we have already put countermeasures in place. I'm also pleased to announce that the Board has approved a project to establish a range of specialty polymers at the cost of INR 595 crore. The project seeks to enter into the lucrative PVDF, FEP and FKM space, which caters to range of industries that include battery, chemical, coating, solar, automotive and aerospace. With a highly backward integrated value chain, we believe that we will start to take out to the needs of a growing segment. The project is expected to be commissioned in 24 months. In total, we have now announced more than INR 1,700 crores of CapEx over the past 9 months in our Chemicals Business, which demonstrates our commitment to invest in the business. At our [indiscernible], we have also recently commissioned a new 20-megawatt captive power plant, which should allow us to optimize our energy costs at [indiscernible]. Our Packaging Films business reported a revenue of INR 1,203 crore in Q3 FY '23. The business faced headwinds with several new lines getting operationalized both in the BOPP and BOPP segments in India and overseas. In addition, a decline in global demand, elevated energy costs in Europe adversely impacted our Hungary operations. Surplus supply in the near term are unlikely to get corrected, but we do believe that BOPP will start to witness an improving trend going forward. Energy costs in Europe are also witnessing some softness, and we are hopeful that better -- of a better performance in the next quarter while full benefit of the reduction in energy costs will likely reflect in the next financial year only. Our that story remain on track and the aluminum foil project is also expected to start during the end of Q2 FY '24. The company remains optimistic that Packaging Films business is well prepared as demand to mix towards global suppliers with multi-locational facilities. Furthermore, the business remains focused on operational efficiencies, initiatives to mitigate volatility in this segment.
Moving on to our Technical Textiles Business. We reported revenue of INR 426 crore in Q3 FY '23 versus INR 538 crore in Q3 FY '22. The segment witnessed a subdued performance during the quarter, owing to weak demand for nylon [indiscernible] fabric and polyester industrial. The company anticipates an uptick in the medium term based on customer interaction. Belting Fabrics segment continues to do well. Lastly, in our Other segment, revenue stood at INR 92 crores in Q3 FY '23, both the coated and laminated fabric businesses met expectations in a challenging external environment. The weak rupee also led to a recognition of a ForEx loss of INR 15 crores during the quarter. We believe that some of this should unwind over the next quarter. And given that, SRF is a net exporter, a weaker rupee should aid to our overall profitability. Additionally, we also witnessed increased interest [indiscernible] during the quarter from INR 29 crore corresponding period last year to INR 62 crore during Q3 FY '23. This is largely due to the current interest rate scenario prevailing both globally and locally. The Fed has remained steadfast in its interest rate increase cycle and so as with the RBI. While some of the interest amount can be attributed to larger borrowing profile, majority of the sales is due to the increased interest rates that we have witnessed. You would also have noticed as a recognition of a bad credit previously written out now being recognized. The company has recognized a [indiscernible] of INR 52 crore during Q3 FY '23, and additionally, [ INR 22 crores ] will be recognized in Q4 FY '23. This has been necessitated due to the expected shift to the new regime in FY '24 from an SRF standalone perspective. I am pleased to share that during the quarter, SRF has received multiple awards across its businesses and functions. SRF chemical facility in Diwari, Rajasthan was awarded The Bhamashah Award for contributing to education and infrastructure development of government school in [indiscernible] Rajasthan. As far as Packaging Films business won the IAQ Quality Sustainability Award from the International Academy for quality, and our Fluorochemicals business unit in Thailand was honored with The Best Supplier Award by [indiscernible]. SRF continues to grow and evolve its businesses in a purpose driven.
I am pleased to share that our CSR wing, the SRF Foundation, launched Smart Shiksha Digital Bus in 3 locations, namely Kashipur in Uttarakhand, Harij in Gujarat and [indiscernible] during this quarter. Furthermore, in our constant endeavor to promote Indian art and culture, we organized a 2-day Indian classical music concert, namely [indiscernible], to honor the both [indiscernible] start earlier as [indiscernible]. To summarize, SRF has demonstrated resilience in the face of external challenges in the Packaging and Technical Textile segments, with performance in our Chemicals business being a notable highlight. The company's ability to work the headwinds is a testament to a strong foundation, its infrastructure, well-developed R&D capabilities and investments in opportunities across various segments. Overall, we believe our solid multi-business model will withstand external challenges and create sustainable value for all stakeholders going forward. On that note, I conclude my remarks, and we'll 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.
[Operator Instructions]
The first question is from the line of Rohit Nagraj from Centrum Broking.
Congrats on strong Chemicals performance. First question is on PTFE. So you indicated that it's been delayed. So what are the timelines that we are looking at in terms of commissioning, and then probably in terms of the optimal utilization of the facility?
So Rohit, thank you for your question. We believe either by the end of this financial year or early next quarter, probably very early in April, we should be commissioning the plant. From a ramp-up perspective, I think we are in fairly good shape to be able to ramp it up [indiscernible] even customers that we are already starting to speak with, we believe in the next 6 months, we should be able to ramp it up very, very swiftly.
Right. Got it. Second question is on the Packaging Films business. So during the first 9 months on a year-on-year basis, have you seen a volume increase? Or is it flattish volume than the prices have been on the impact on the margins?
I would only say, Rohit, that the new facilities that we have commissioned have actually led to higher volumes when we compare it to corresponding period last year, 9 months. And therefore, when you look at it, our overall sales on a 9-month basis in the Packaging Films business have been kind of higher when we compare it. So about INR 3,300 crore to about INR 4,000 crores in the 9-month period in what we have witnessed. Largely, I think it is volume driven because majority of the -- let's say, when we think about it from a margin perspective that has come down. Also, when you look at it from a utilization perspective, I think we've been fairly good in terms of overall utilization. Q3 utilization would have ranged between 80%, 85%, and that's the situation. It would have been a negative because of the fact that there is the higher energy for [indiscernible] prevailing on that.
The next question is from the line of Sanjesh Jain from ICICI Securities.
First off, continuing with the Packaging Films. In our presentation, we have mentioned that we are also seeing some demand tapering down. So it is fair to assume that the spread contraction, what we are seeing in the market, is a combination of both excess supply and demand weakness? Will it be a fair assumption?
A fair assumption, but I think the comment in the presentation was more referring to Q3 as such, while not in terms of saying that the overall demand, when you look at it on an annualized basis, that is [indiscernible]. I think, let's say, from a pure quarter-on-quarter inventory, destocking and certain other things happening, that's the situation that we saw just pure quarter-on-quarter, Sanjesh.
So it is nothing. It's just a transitory one quarter kind of an impact, right?
That's right. So from a demand perspective, but from a supply-demand perspective, supply still outsticks demand to a very large extent, and that's the comment we would have seen in the overall Packaging Film commentary as well.
Got it. Got it. Second question in the fluoro specialty side of the business. I appreciate the details you have given, but can you...
Specialty or Specialty Chemicals Business?
Fluorospeciality. Specialty fluoro polymers.
Specialty fluoro polymers. So you are talking about the new...
SKM and FEP, we said. Can you share further detail in terms of capacity, if you can? As well as one clarification, this entire process will be free of PFAS kind of a product? Is that the right thing to understand?
Yes. So from an overall capacity, I am unable to share similarly the capacity, but overall capacity should be ranged -- in the range of 4,500 tonnes or so when you look at it in a total perspective. In terms of saying whether the process is PFOA, I think the technology that we will be using will be PFOA.
Okay. Okay. Fair enough. My last question, it's a bookkeeping. So I will -- so on the ForEx loss, what we have incurred INR 15 crore, it is more to do with the receivables and payables. Is that the right assumption, right? What...
So what happens, Sanjesh, is there are certain types of liabilities that I always have on my book, which don't -- which flow through the [indiscernible] and the restatement, the weaker rupee will lead to a negative in that sense, and therefore, there will be a negative in the profit and loss amount because of the liability restatement that happens. With respect -- and the other pieces in it will always be the receivable payables that we have. Also, to a certain extent, the hedges that we have created over a long period of time, which have always been a positive for us, because of the sudden depreciation, it's a small negative that also flows through the [indiscernible].
It says a lot of it is just a book [indiscernible], not a cash loss, right?
Majority of it should be, yes.
The next question is from the line of Vishnu Kumar from Spark Capital.
So firstly, on the Chemicals business, good results. On the margin front, any thoughts as to which segment has done well for you? Is it the R gas or spectrum? And because we have seen a Q-o-Q increase in the margins, so some thoughts on this.
Again, I would say that the R gas segment has done decently well. There has been no erosion. It's been slightly positive, but the majority of this has flowed out in the Specialty Chemicals space. And that's something that we believe is the one that has aided our margin for the quarter.
Okay. Sir, in this spectrum, again, within the -- is it true with any raw material or any pricing or margin increase or new product launches that is leading this kind of growth?
It is a combination of all of those. To a certain extent, I would say, there is a pricing benefit that has come in. If you remember, in the last call also, I said that some of our Specialty Chemicals business is contracted in which as some of those contracts have got renewed. There is a pricing benefit that has come in. To a certain extent, we've seen weakness in some of the key raw material prices also. That's also created some benefit. That's how we would look at it. It's a combination of all, and there are a couple of new products that have been launched which have also been a positive in that sense.
Broadly, in the next couple of quarters, this EBIT margin level should sustain? Or any thoughts?
Again, I think purely just going by the number in terms of whether the overall margin should sustain, I think we have a fairly good visibility over the next 1 or 2 quarters that we should be able to sustain these. But again, you also understand that we don't look at it from a pure quarter-on-quarter perspective, right? Again, we said that in the chemical business, the intent is to go into more high value-added products, both in the specialty chemical space and the fluorochemicals space. So when we look at it and to a certain extent, the Fluorochemicals business has also some seasonality that play out in it. Now when we look at it from a 9-month perspective, although you would see that the overall margin has expanded. When you look at it Q-on-Q, be it comparative or corresponding period last year or the previous quarter, again, there has been an expansion. My sense is, we can sustain this going forward, but business has remain dynamic, Vishnu, and they will keep on going through some business cycles. As of now, looks pretty much in good shape.
Sir, just wanted to understand what are the new plants that will come live with over the next 3, 4 quarters? Broadly, if you could just give us some thoughts on it. The plants are going to come like across various [indiscernible].
Over the -- let me just talk about the Specialty Chemicals first. The ones that will come in probably are the TIP, the tier 1. The recent announcement that we have made for 2 or 3 products that will be there. We will have the -- on the Fluorochemicals side, the PH1 and PH2, which is the existing production that will come on stream. We have the Tier 1 that will come on stream. We have the [indiscernible] CapEx that we were doing, that will come on stream. They're going to be the dedicated to 38 plants that will come on stream. So multiples -- and again, I think we have given time lines on each of the projects from when they are coming on stream.
Got it, sir. And finally, one question on the Packaging Films business. Are we seeing some energy cost normalizing? So should we see some reprieve on that the next couple of quarters in your international segment?
So again, I have said that in the initial commentary also, I think we are seeing some normalization in terms of energy cost in Hungary coming in. However, these are not significant from a Q-on-Q perspective, we believe, as we go through that journey. Next year is when we can see significant benefit of that coming in.
Any rough margin trends you think this business will settle down at least...
Really, can we be able to give you a percentage margin trend, but what -- as a generic thing, what I can tell you is, wherever we are today from an annualized -- from a quarter-on-quarter perspective, we should be exiting better, and next year should be even better than this.
The next question is from the line of Surya Patra from PhillipCapital.
Sir, the first question is on the core chemical or the Chemical business EBIT margin increase. Sir, is it -- in the current financial year, we have seen a kind of a much improved margin scenario compared to the historical period. So whether it is due to largely because of the improved product mix to downstream and active in grade rather than the initial compounds. If it is so, could you also say, what would be the sale of this derivative or downstream products or the [indiscernible] in the overall chemical business.
So Surya, the answer to that question is absolutely right. When we say that the product mix has been better, we are producing a larger set of derivatives. We are doing change -- we are bringing in new products that have given us the benefit, SS20. A couple of other products have also come in. That's creating the positive. Whether it is -- the second question was whether you think it is sustainable or not, I think that is pretty much there in terms of sustainability. But again, you have to also understand that fact is that we are continuously investing. Like I said in the initial commentary also, more than INR 1,000 crores of CapEx is what we've announced over last 2 quarters, right? Again, timeline of execution of these CapExes are probably about 10 months to 12 months, right? When we look at it from that perspective, I think growth positions that we are taking in the business are very significant. And majority of these are largely -- a majority of these are based on customer discussions, customer contracts that are coming. So that's how we are looking at it rather than just the mix that you're talking about.
Okay. And [indiscernible], if I link this same question to the R gas. So this quarter, generally, seasonally, it should be a much weaker quarter in the overall year. And sequentially also as we see the margin improvement considering that there is no contribution from the R gas, which was benefited by the price rises. So considering that the performance looks really good for the core chemical business in terms of margin performance. So next quarter, we will be going into the season of [indiscernible] and the continued performance in the core chemicals could other support the margin percent going ahead? Is the understanding correct, sir?
I can only answer that in one word, Surya. Correct.
Okay. My second question, sir. R gas, whether it's a Y-o-Y growth in terms of export for the quarter?
So Surya, we don't look at it from a Y-o-Y perspective. It is the annual number that we have to look at, and when we look at it from an annual volume perspective, I think there has been growth in the HFC space as well as in the [indiscernible] given that we have recently commissioned the plant. The point to make also is that the Chloromethane plant got commissioned somewhere in the middle of Q3. Full benefit of the Chloromethane plant on the volumes will come through in Q4 as well as when you look at it from an annualized perspective, the year as a whole. So that's how we would look at it today.
Sure, sir. Just last one question, sir. With regards to the polymer that you have announced and the earlier polymer [indiscernible] for that we had the indicative. So now 2 developments, obviously. But on a futuristic basis, your thoughts about the polymer? And how integrated that you want to create? And what would be the kind of thought process about customer acquisition, market average, cost efficiency. What [indiscernible] if you can shed some brief view about it that would be really helpful.
Surya, 2 or 3 things to point out here. First, the PTFE, which is the earlier fluoro polymer that you have talked about is going to be commissioned very soon, and I alluded to that during the earlier part of the comment. Probably, end of Q4 or early Q1 next year, we will have PTFE. We believe we are in a good situation to be able to ramp that up on a very, very fast basis. So that's the positive. What we were looking at it strategically was the fluoro polymer space overall. And given our ability in terms of execution of the project, in terms of our technological capability going backward and integrating that to key raw materials for PVDF, [indiscernible] and subsequently, various other positions that we are taking on it, we think there is a large positive that we can create on that side. Customer acquisition with the specific question that you asked is probably still some way down the line. While we have already started work on that side, it's the first thing to be able to do is to be able to supply the product. And once you have that product in flow, only then you can talk about customer acquisition. So that's how we would look at it, Surya.
[Operator Instructions]
The next question is from the line of [indiscernible] from Nuvama.
Rohan here and from Nuvama. Sir, a couple of questions. Sir, first is on your new CapEx on Specialty Chemical. So roughly, we have done some INR 1,700 crore total chemical CapEx announcement in last 9 months. Recently, when we visited our plant, I think that one thing which came very strongly that our capabilities to deliver the CapEx part and shortening the overall CapEx commissioning time frame, which earlier used to be close to 18 months plus, now we are confident in delivering in almost in a 3 years' time. So do we expect that all this CapEx benefit will be visible over the next 12 months or which will be prominently benefiting in FY '24?
So again, Rohan, I think it is a journey. Those that were announced in Q1, right, have already been probably get commissioned by the end of Q1 next year or Q2 next year. So again, 8 to 10 months project. And again, I think we will continue to engage with the stock exchange to tell you where the positive is. Some of the future year growth, which is FY '24, will always be driven by the new projects that will get capitalized during the year. So I don't believe the entire [ 750 ] will come in. But when you look at it from an overall perspective, a majority of that should at some part of, let's say, H1, H2 in FY '24 is what we would look at. Again, I think the key projects that are getting commercialized or capitalized in FY '24, which will even benefit, will be the pharma intermediate plant, the PTFE plant, CMS, which was commissioned only in November. There are about 2 or 3 projects that may get commercialized in FY '24. So all of those will certainly hit Q4 -- it will hit FY '24, but I think we have to look at it from a more longer-term perspective rather than just quarter-on-quarter perspective, Rohan.
Sure, sir. Sir, second is on our HFC volumes. You have mentioned that in the domestic market, you have seen a strong demand. Surprisingly, this is a weak quarter, I mean, for -- as far as the R gas users are concerned. So how we are looking at this HFC volume, which has seen a good traction in domestic market, it is primarily driven by the import replacement or we are taking market share from the unorganized market in the domestic market? How this domestic demand is?
There is no unorganized market are. There is either us or imports on that side. On the domestic side, I think the goals we are looking at is that the domestic auto manufacturing segment has grown about 22% over the current quarter when we look at it. So that's the market growth that is giving us that demand. And even the RAC segment has grown about 40% over the current period -- corresponding period last year. So that's where the domestic demand is coming in. We also believe that there is very strong traction in the domestic position on the refrigerant gases for Q4 and Q1 as well. So that's something that we believe is going to be a much larger positive one.
So it is basically the entire market itself has grown significantly, that is helping us to grow in the domestic market.
When you're talking only about Q3. From an overall perspective, I think we have a position from an overall perspective at a very large market share from -- in the Indian market.
The next question is from the line of Vivek Rajamani from Morgan Stanley.
Two questions from my side. Firstly, you had touched upon this before, but if you could just comment on the operating rates that you've seen across your different segments in this quarter. And maybe just for Hungary, if you can just talk about how you're running the plant since January. That would be really helpful.
Okay. So I didn't understand the first part of the question. Operating rate is what you said?
Operating rates for your different segments.
Operating rates. So Vivek, I think when we look at it from a Technical Textiles perspective, probably in the range of about 65%, 70% from an overall NTCF positioning, melting is pretty much full in terms of the capacity that we have. On the Packaging Films side, about 80%, [ 82% ] is the operating position on that. This is also including Hungary in that sense. But when I look at purely Hungary, Hungary is probably operating at 40%, 50% in terms of the operating rate on the Hungary side. On the Fluorochemicals, all the plants are running very well. While there is some things that would have been obviously inventorized for future sales, but the plant -- even the new CMS plant is running very well. On the Specialty Chemicals, again, I think pretty much full on operating efficiencies in the plant. MPP by design will have some spare capacity available, but even the MPP 4, we are very happy with the way it is starting to ramp up. So that's what I would probably put through. On the -- yes, so that's the operating rate.
Got it, sir. Very, very helpful. And just a clarification, sir. On Hungary, would it be fair to say, they're still at 40%, 45% in this current quarter?
Between 40% to 50%.
Got it, sir. And sir, secondly, just on the strategic standpoint on the CapEx. Just if you could give some color in terms of your new investments. Will now we focused more on some of these new applications like polymers going forward? Or will agrochemicals continue to be the bigger focus as has been the case for you?
Yes, I think that what you are looking at it, Vivek, is from a timing perspective. I think when you look at the investments that we are making in the Specialty Chemicals side, the investment typically would cost between, for a smaller plant, INR 75 crore to INR 125 crore on an aggregate, INR 300 crore to INR 350 crore [indiscernible] . While when we look at it from a Fluorochemicals perspective, investments are larger, right? Again, I am not differentiating between whether we are only doing this or that. I think given the opportunity that we are seeing both in the Fluorochemical space as well as the [indiscernible] space, we are happy to invest if we are getting our appropriate IRRs there.
The next question is from the line of Madhav Marda from Fidelity International.
I just want to understand the kind of business that SRF is targeting in the global agrochemical market. Is it fair to say that we are targeting a lot of pipeline molecules of innovator customers? Is that also the kind of market that we're going after, which could kind of help drive growth over the medium term in the space?
So again, we've always said this, Madhav, that our key customer sets are global innovators, right? And when we look at it, their pipeline becomes an important element for us as also the, let's say, expansion of their existing products become then an important element for us. So when you say that we are targeting that, yes, that's probably the way to look at it as well.
Understood. And what about the pharma business? How is that scaling up in terms of sort of our pipeline getting closer to commercialization. I think you did mention one product was commercialized in the pharma space.
When we say commercialize, Madhav, what it really means is that a commercial lot has been supplied. It will ramp up over a period of time. Again, I would say, it's a journey. It's not something that happens overnight, and again, we've always said this, don't look at it on a quarter-on-quarter basis.
The next question is from the line of Arjun Khanna from Kotak Mahindra Asset Management.
Congratulations on good set of numbers on the chemical side. Just to understand a little bit on the tax rate. So you did in the presentation alluded to the bad credit and moving to the new regime. If I look at the consolidated tax rate for FY '22 and '21, I see 25.5%. So is it a correct understanding that the...
Arjun, I have always said this, whenever you are looking at tax rate or when you start to look at it on a consolidated basis, it creates a very volatile picture. The best thing to do when you're looking at tax rate is you get standalone numbers. That's how you should look at it. And when you -- I would typically say that the utilization of the credit, which was previously written off, some portion of that, about INR 52 crores, has been accounted for in this year. This quarter, INR 22 crore will get accounted for in the next quarter as well because that's how the accounting standards are structured. They don't allow you to take it immediately whenever you are recurring. You are saying that there is a possibility of recognizing it, it has to flow through the effective tax rate. So that's how it happens. But from a guidance perspective, I think the way the numbers are structured today, the way projections are [indiscernible] do longer-term projections when we are looking at tax rate, we believe we will shift into the new regime next year, which then means that we will be probably at an ETR on a standalone perspective at about 25%. Therefore, the global rate will actually be much lower than that.
So we definitely probably be lower than the 25% going forward on...
I go back to the same point. Look at standalone, I can give you guidance on that, and that's what I've said.
Sure. Sure. And just to refresh, in terms of Hungary and Thailand, what would our tax rate be?
Hungary is a very low tax rate. Practically, it's used to 2.5% is where it is on an ETR perspective, Thailand is probably in the range of about 25% on a -- 20% on an overall basis, but there is a very large tax holidays based on the investments that we've done. So that's how Thailand will turn out. South Africa is now in normal tax rate, which is around [ 27% ]. But again, you would have some previous year losses that will come through. There will be allowed to be used. There would be certain position that we've taken. So all of those -- that's why I don't give you a consolidated tax position. I, therefore, give you the standalone one, which is more easier to understand.
Sure. Perfect. No, this helps a lot. My next question is, in terms of U.S. HFC sales. So in the last quarter call, we mentioned we'd probably do booking in the third quarter or the fourth quarter onwards, HFC sales in the U.S. Any update in terms of outlook?
Yes. Again, I think we've always -- we said that the U.S. market, a majority of the sales to the U.S. market will pan out in Q4. We have good traction on that side, Arjun.
Sure. And our new CapEx is on stream for the HFCs? Would that be within expected timelines?
No, I didn't catch that. Could you repeat, please?
So we are undergoing a CapEx expansion for HFCs also, would that be in the timeline as we envisage?
Yes. As of now, we believe September is when it should come up.
The next question is from the line of [indiscernible] from Nuvama Wealth.
A question related to the Textile and the Packaging business [indiscernible], but I wanted to understand that we have significant reporting invested there. An oversupply in [indiscernible] is unlikely to ease the next 2, 3 years.
Yes. Things will do well.
So even in a [indiscernible] because I understand that the volume will be difficult to ramp. So pricing, how we are going to play with the pricing of volume [indiscernible]?
[indiscernible], I'm sorry, I don't understand the question. Could you please repeat?
So I wanted to know that now spread has already come down significantly. So wouldn't the pricing where we will be playing there by reducing the price or we can even having the same price, we can increase the volume going for that on the basis of our customer demand.
The virgin margin is a function of the price, right? Because there is excess supply available in the market today, we are seeing a reduction in conversion margin that will happen. Again, to a certain extent, this business is commoditized. This business has a supply situation that is there in the market today, especially in BOPET. We believe that while there will be some negatives around it, we should be better off given our customer contracts, given our value-added product profile, given our R&D capability and given our position with some of our key customers. So while the industry will go through, let's say, to a certain extent and extended well, BOPET should still do better than BOPP. So that's how we are looking at it. And your question with respect to, can we go with the price? It's not really relevant. You are -- there is a certain market price that you're dealing with, and therefore, if the market price has come down, our conversion margin also has come down.
Okay. Okay. Can I look at what your spread currently in BOPET segment?
Not really. The current [indiscernible] localized. From an India perspective or a Thailand perspective or a South Africa perspective, each one will have a different kind of spread, whether it is exporting or domestic market, very, very different positions to play around from that. So very -- even if I aggregate up the spread and give you a single BOPET, that would really not be the right thing to do.
Okay. Okay. And secondly, in [indiscernible] segment, the growth we see in [ Q3 ] or even 9 months, how much of this is attributed to MPP 4 ramp-up?
Not very significant. MPP 4 is something that we commissioned only in Q3. So while there are a couple of products that we have sold, the full ramp-up of MPP 4 will come through in Q4 as well as FY '24. So I would not attribute a very significant change in terms of, let's say, the revenue growth of 23% that we've seen over corresponding period last year to just on MPP 4. MPP 4 is a good positive, but not only the positive that's there.
Okay. So like for [indiscernible] pharma intermediates currently we have started. So can you give any guidance for [indiscernible] we are likely to have? Or any existing product which we already -- we have started it with the ramp up -- how all the ramp is going to happen in that existing product?
The [indiscernible] plant has not been commissioned as of now. We have said in the commentary as well, the need that the [indiscernible] plant is in the process of getting commissioned. And what we are -- what we believe is that we will ramp it up very, very fast. So that's what we've said.
The next question is from the line of Abhijit Akella from Kotak Securities.
Just a couple of clarifications. One is with regard to the CapEx on the specialty fluoro polymers. While you've indicated the capacity roughly, is there a broad revenue and margin profile kind of outlook that you could share with us?
So roughly speaking, I think we have roughly about a 25% to 28% IRR positioning on this one. Probably, about 4-year payback that we believe we can generate. To be able to give you, let's say, stable store sales or current positioning on it, it's very difficult. I think it should be similar to the chemical business, say, between 0.8 to 1.2 is what we believe will pan out on this one. But I think it is also important to understand is that this is a strategic investment that we are saying that we will do. And we believe that this will allow us to cater to the large fluoro carbon [indiscernible] in total rather than just being on the, let's say, Fluorochemicals space. So that's how we're looking at it, and therefore, we believe this is a strategic goal that we are taking to get into fluoro polymers.
Understood. That's helpful, sir. And then just on the CapEx for this year and next year, we are still on track for our INR 3,000 crores plus numbers for this year, I presume. Any broad number...
[indiscernible]
Yes. For next year as well, should we assume a similar kind of number?
Again, Abhijit, I will probably be able to give you better clarity on the number going forward in the next call because there is work going on in terms of what is going to be the CapEx. But given where our current CapEx announcements are, right, we believe anywhere between [ INR 2,000 crores ] or, let's say, about INR 2,500 crores of CapEx are already on the ground. Some of it will get incurred in FY '24 and some will probably like the new fluoropolymer CapEx is a 2-year CapEx, right? Some of that will get incurred in FY '25. So from a visibility perspective, we believe INR 2,200 crore to INR 2,500 crore is pretty much well doable. INR 2,800 crore to [ INR 3,000 ] crore is what we should be targeting going forward.
Got it. Got it. And one last quick thing. Last quarter, you had told us that for fluorospecialty, you do expect to do better than the 20% revenue growth guidance you have provided at the beginning of the year. Any further updates you would like to meet to that guidance?
You've seen the 9-month number. You are putting me on a spot. To be very frank about it, I think there is significant traction that we've generated in 9 months in the fluoro -- in the Specialty Chemicals Business space. The next question I know that you are going to ask, what is your target for next year. Again, I'll give you better clarity on that next quarter, but yes, that 20% number is far out of the window for FY '23.
The next question is from the line of [indiscernible] from ICICI Prudential Life Insurance.
Sir, the question is on the 2 new products that we are starting. So first, aluminum foil; and second is PTFE. Since both the products are new in our portfolio, so basically just want to understand what would the peak utilization or peak revenue or asset turn? And from that peak, should we assume 30% kind of utilization in [indiscernible] since they are -- I mean since it's new for us.
So both are different animals. Aluminum foil is the Packaging Films, let's say, substrate within the business provisioning that we have. And therefore, we -- the kind of rates that we've seen in the Packaging Films state and specifically on aluminum foil would probably be 1.75 to 2x asset terms. Also, all of that does depend on the market pricing of some of these products. PTFE should also typically be following a similar to a Chemicals Business positioning in terms of the overall revenue. Given the current rates of PTFE, I think the peak revenues that it could get to is 1.25, 1.3 of the overall cost of the project. On the -- whether everything will hit through FY '24, again, both of these are kind of coming up in September. So the rated capacity availability of these is only about 4 to 5, 6 months. Aluminum foil should be faster. PTFE will come in April, and therefore, 6 months in terms of the product approval and that cycle should take, and therefore, typically be available for a 6-month period in the FY '24 as well from a full utilization perspective.
The next question is from the line of Ranjit from IIFL Securities.
The question is on the Chemical business. So the 9 months [indiscernible] that we have seen. Would you like to call out some trends of historically what we have seen the export side been a bit heavy on the Fluorochemicals and the Specialty Chemicals, but of where we are also seeing some traction in the domestic market for both these segments. So just wanted to get a sense from you how these trends are shaping up? And what is the likely trend to be in the future?
So again, when you look at the Specialty Chemicals business, Ranjit, we see H2 to be always heavier than H1, right? Again, you of all people know the fact that Fluorochemicals business, especially in the R gas space, there is a seasonality that does play out. From a trending perspective, we believe that we have good traction on the Fluorochemicals business and the R gas. Market is looking very, very positive for us. The domestic demand is very, very significantly positive. Despite on more, let's say, seasonally weaker quarter Q3, Q4 should performing as it has already. I think Q4 should give us very, very large traction in FY '23. Again, from an FY '24 perspective, the seasonality play in the Fluorochemicals space will remain. Q1 should do well, but again, that seasonality trend does play out. In the specialty chemicals space, as our new plants get capitalized, plants that commercialized, TIP does well, there is large traction that we are seeing from an overall sales perspective in the specialty chemical play as well. Ranjit?
But more on the export versus domestic, the traction is likely to be equal?
In the specialty chemicals play or the Fluorochemicals side?
[indiscernible]
See, again, Specialty Chemicals Business in itself is focused on export. Now largely the new projects that are commissioned are also -- are being commissioned are also through export focus. So to that extent, the focus remains on exports. The positioning that we are creating in the Specialty Chemical side is also largely exports. So that's how it should play out, Ranjit.
Okay. That's helpful. The second question, in the opening commentary, you did talk about a variety of technologies and platforms in the spectrum space. Just wanted a bit more granularity on that front. I know this might be a bit more technical, but would be helpful to us.
Ranjit, if you want to get into the technology piece of it, I will have to get an expert to talk to you about it. I will -- I'm not the expert here. So maybe we can come back to you in terms of what we are talking about on that.
The next question is from the line of Shaleen Kumar from UBS.
Congratulations, sir, on good set of numbers. More of a hypothetical question, if you can answer. So in our Specialty Chemical getting benefited with the cost of production going up in Europe, so giving us a chance to move up the value chain. Is this right way to think?
To a very large extent, the role we should look at it, Shaleen, is that while cost of production purely that piece is transitory, it could come down in the future, given where energy prices are now coming down in Europe. I think the thought process of the customers and the innovator is more important here in terms of saying that we want to outsource more. And I think that as a trend is flowing out where we are getting the benefit of that. Cost of production coming -- going up today is probably no transitory, Shaleen.
I agree with you. That could be a triggering point and I agree with you that it's maybe delineate giving us an opportunity to move up the value chain and hence, a reaction in our margin.
[indiscernible]
Okay. Okay. Sir, secondly, I got dropped off in between, so not sure if you have answered already. Any sense on the prices...
Your voice is kind of tracking. Could you just get the phone to your -- close to you so that we can hear you.
Okay. Is it better? I just moved.
[indiscernible]
Yes. So sir, one more thing. I don't know if you have already answered this question because I was dropped off in between. On the pricing of [indiscernible]. So like any color that how is it shaping up for you? Because we are entering into a strong season or we are already in a strong season.
Yes. Again, unfortunately, I can't talk about just the pricing of R gas for the future. There are contracts that we are doing. There are positions that we are creating on that side. It only happens that when there is excess demand and lower supply, prices do go up. But very difficult to be able to comment whether generically the prices will keep going up in Q4 or Q1 FY '24. So that's very difficult to be able to comment on it, but yes, I think the way we look at it, I think the pricing should remain strong, both from a domestic and an export market.
As we stand today, pricing is quite strong.
Forward looking [indiscernible].
The next question is from the line of Resham Jain from DSP Investment Managers.
So my question is on the agrochemical, the end market for us. [indiscernible] global companies have mentioned about slightly high level of inventory. Are you seeing any inventory kind of situation for you in your products, like in the near term or no such issues for us?
Not really, Resham. I think what we have seen is good traction from customers. We've not had a position where some of the customers have ended up either deferring or changing their contracts or orders. So that's remain for us. So I've not seen a position there, let's say, where some of the orders that got deferred or delayed because of the customer having large inventories, not as of now, Resham.
Okay. So our overall inventory remains -- inventory days remain in Specialty Chemicals specifically similar to normalized level?
That's a different question. You are -- with the first question that you have asked was whether we are seeing, let's say, higher inventory levels that customers then, and therefore, a higher position where it is getting different. That's not happening. The second question that you're asking is my inventory level. Now again, some of the products that we do are also in batch. And therefore, to a certain extent, we have to kind of inventorize it when the next sales process comes in. So there could be some changes, but overall, we believe that when we look at it from a year as a whole perspective -- year-ending perspective, I think we should be in fairly good shape in terms of our working capital management even in the Specialty Chemicals Business.
The next question is from the line of Tejas Sheth from Nippon India. We'll move to the next question from the line of Nitin Tiwari from [indiscernible] Securities.
So my question is related to the Chemicals business. Is it possible to give us a bifurcation of Chemicals revenue in terms of Fluorochemicals and Specialty Chemicals? That's one. And secondly, a bifurcation of growth in terms of growth from pricing and volume?
Nitin, unfortunately, we do that only from an annualized basis. So on a quarter-on-quarter or a 9-month to 9-month period, we don't differentiate between -- and we don't give the numbers out for SpeChem versus Fluorochemicals. So that we don't do. I will give you the number for the year as a whole post March end.
So any broad indication, if possible, if not exact numbers?
No, we don't do that, Nitin. Sorry.
All right, sir. And secondly, sir, you only answer on the guidance that -- so I'll make -- I won't ask that question. So on the contract terms and duration, do you see changes in terms of contract terms and duration post the real change in the cost of production and the volatility of raw material prices that you've been simply observed in the past few quarters. So your plans, are you observing any change in the duration of contracts that you're entering into?
Are you talking about the Specialty Chemicals Business, Nitin?
Yes, yes.
Again, contract positions are typically 1 to 3 years, depending on the product that you are making. If it is a CDMO kind of a position or a CMO kind of a position, you would typically get a 2- to 3-year contract. As you go out and ensure that the product is a more longer-term commitment that the customer has made, you will then kind of get into annual contracts. So that's how it works, Nitin.
Sure, sir. That's...
In terms of what was happening earlier or what is happening now.
So that remains the same. There is no change as such in terms of these terms.
Not really. The positioning of that remains similar.
Due to time constraint, that was the last question for today. I now hand the conference over to management for closing remarks.
Yes. Thank you so much, everyone, for getting on the call. I hope you've been answered -- we'll be able to answer some of your questions. I wish that each one of you continue to remain safe and healthy. If you have any further questions, we would be happy to of assistance. We hope to have a 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. Bye-bye.
Thank you. On behalf of Kotak Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.