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Ladies and gentlemen, good day, and welcome to SRF Limited's Q4 and FY'24 Results Conference Call hosted by ICIC Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjay Jain. Thank you, and over to you, sir.
Thanks, Steve. Good afternoon, everyone, and thank you for joining us today. We at ICICI Securities are pleased to host SRF Limited's Q4 and FY'24 Results Conference Call. We have with us today, Mr. Ashish Bharat Ram, Chairman and Managing Director; and Mr. Rahul Jain, President and Chief Financial Officer of SRF Limited. I would like to invite Ms. Nitika Dhawan Head of Corporate Communications at SRF, to initiate the proceeding. Over to you, ma'am.
Good afternoon, everyone, and welcome to SRF Limited Quarter 4 and Financial Year 2024 Results Conference Call. Joining us on the call today is our Chairman and Managing Director; Mr. Ashish Bharat Ram and; our President and CFO, Mr. Rahul Jain. We will start today's call with us CMD's remarks on the company's performance in financial year '24 and the overall strategy outlook and growth plan in the future, after which the call will be open for a Q&A session with Mr. Mr. Jain.
Sorry to interrupt, ma'am, your voice is not audible. Ladies and gentlemen, we have a disconnection with the management line. Please wait for a moment while we reconnect the management line back. Thank you. [Technical Difficulty] Ladies and gentlemen, we have the management line reconnected with us.
Please note that at we say that refers to our outlook for the future is a and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now invite as the MD, Mr. Bharat Ram to make your opening remarks. Thanks, sir.
Thank you, Nitika, and good afternoon to all of you. 2024 marked SRS 50 anniversary, and I would like to use this opportunity to thank all our stakeholders. It is due to your unwavering support that we have been doing business with the company for half a century. Since our first is [indiscernible] convinced operations in 1974. Our 50-year journey a series of transformations. As we look to the future, our position remains strong and promising for delivering sustained performance, particularly as the end markets begin to rebound. Therefore, despite the recent challenges, we firmly believe that the future remains positive. This optimism is based on our proven track record in developing complex products, all of which are supported by world-class infrastructure, skilled person and exceptional R&D capabilities in driving sustainable growth of our business for people and society at large. Let me now share with you my thoughts on the business performance in the fiscal year gone by and the growth opportunities that lie ahead. Financial year '24 has been a relatively difficult year for the company. Our operating revenue decreased by 12% to INR 13,139 crores and EBITDA dropped by 26% to INR 2,744 crores, translating to an EBITDA margin of 21%. The company's profit after tax decreased by 38% from INR 2,162 crores in financial year '23 to INR 1,336 crores in financial year '24. While our packaging [indiscernible] and chemical businesses witnessed tough market conditions, the technical [indiscernible] business saw marginal growth in financial year '24. Moving to my viewpoint on the performance and the future outlook of our business, three market-leading businesses now, and I'll begin with the Chemical business. During fiscal year '24, the Chemicals business declined 15% and registered revenue of INR 6,297 crores. We underestimated the slowdown to a certain extent at the beginning of the fiscal year. This turned out to be a more protractive inventory destocking cycle from a customer side and led to a pressure -- led to pressure on pricing for some of our products. While we will see some short-term challenges in the Specialty Chemicals business, I'm very confident that the recovery will be strong and will give us a 20% annualized growth. On a quarter-on-quarter basis, while we have done better in the fourth quarter of financial year '24 when compared to the third quarter, we continue to [indiscernible]. Having said that, I would add that the worst is behind us. On the CapEx front, in financial year '24, the Chemicals business has spent INR 1,700 crores on various expansion projects. More specifically in the Specialty Chemicals business, financial year '24 has been a challenging year. The business faced headwinds due to excess inventory in the market, forcing aggregate chemical customers to initiate inventory rationalization measures. In addition, a lot of capacity has come up in China, which makes the landscape more competitive. However, the business has taken several steps to combat this onslaught and emerge stronger. There have been some concerns voiced about our competitiveness in one of our key products. Let me state upfront that this is nothing new in our lives. We have seen this in many other cases in the past. As far as this product is concerned, we have done some major project -- process breakthroughs that will bring our cost structures down significantly. In addition, this will allow us to make an even higher volume share and most importantly, as the market recovers help us grow the absolute profit pool from this product. We actively worked on a customer's new products and the developmental projects, while ensuring the production capability -- capacities were optimally utilized for existing products. Apart from commissioning new facilities, we are working very diligently on our cost structure, ensuring we run our plants more sufficiently. In financial year '24, both the [indiscernible] sites, improve operational efficiency, managing and expanded portfolio of innovative products. We enhanced our capabilities and cultivated expertise in other chemistries. Our inroads in pharma are showing positive traction. And in order to seize future market opportunities, we commissioned 9 dedicated facilities at the [indiscernible] in financial year '24. In the future, our focus will be on putting up the most advanced plants. And for that, we have invested substantially in the equal assets and capability building. Our funnel is very strong. All the AI [indiscernible] working on are on stream. It is a function of how customer registrations pan out. Over the last year, and specifically in the last 6 months, a large number of plants have been capitalized to the tune of approximately INR 1,800 crores. Our focus now will be to ramp them up. We believe that from the second half of financial year '25, we will go back to the higher CapEx intensity in line with our aspirations for the future. Fundamentally, we're extremely positive about this business. We believe that whatever may happen in China, we will continue to take market share from there. And while we may have some short-term challenges, we are confident in the long-term prospects of the Specialty Chemicals business. Coming to our Fluorochemicals business. Financial year was -- financial year '24 was a tough year for the Fluorochemicals business. At the beginning of the year, we witnessed a weak season in the domestic market. There were stress on [indiscernible] prices and volumes due to Chinese dumping in India and the international markets. The U.S. continued to destock HFC inventory. Prices were softer and so were the demand. Overall, the [indiscernible] business remained under pressure in the domestic and international markets. There was an inventory buildup in India when the Chinese prices are low, and we are waiting for that inventory to get liquidated, which seems to be happening quite rapidly now. And as a result, we are starting to see some signs of improved pricing now. Our primary goal for the next couple of years is to maximize our production quota and sales volumes. I would also like to take this opportunity to clarify an issue related to our export of gases to the U.S. While there has been a reduction in antidumping duty on one Chinese manufactured by the U.S. authorities, this is still provisional and is expected to come up with a final review in a few months by the Department of Commerce. The more important element is that the prices for 125 were already down to $9 or $10 for [indiscernible] for the past 8 to 9 months. And thus, the price correction is in the range of only $2 to $2.5. Since R 125 is used as a component of lens and SRF being an integrated player, our focus has always been to offer R-410A. Our pure 125 sales have always been the smallest component of our wide portfolio of debt classes. For the SRF, the focus is to increase our [indiscernible] sales, in which the price correction is less than $1 because it is a blend of R135 and R32. R32 prices have seen a steep price in China recently. It has enhanced [indiscernible] capacity now on steel, we will more than make up any potential loss with additional R120 AA and additional [indiscernible] volumes where we have a unique value proposition. On Industrial Chemicals, chloromethane is going through a weak cycle. Having said that, we are now beginning to see some signs of a pickup in the agrochemical industry, which seems to indicate that demand may improve in the months ahead. We continue to increase our market share on the dime and propelled vertical in both the domestic and international markets and entering new geographies and broadening our customer base. In the Fluorochemicals business, we capitalized approximately INR 1,200 crores of CapEx in financial year '24. That includes the PTFE R32 plants, along with the capacity expansion of the hydro ACL plot. In our [indiscernible] journey, while we have done good work on bulk, we are now moving into the new grades, which are free flow and fine cuts and ramping those up. This is a learning journey, and I believe that the knowledge that we have attained will help us streamline a [indiscernible] polymer projects at a faster pace. In the future, our focus will be to optimize raw material sourcing, cost-saving initiatives, strengthening capabilities in new product portfolio with sustainability as a priority. Overall, the business performance is anticipated to improve over last year with maximum utilization of capacities and commissioning of specialty floor polymer plants. Broadly, I estimate the chemical business to grow at approximately 20% in the financial year '25 and build a strong momentum for the years ahead. Over the packages of business now. During fiscal year '24, the packaging terms business registered revenue of INR 4,489 crores, declining by 14%. Financial year '24 has been a challenging year for the Packaging business. Market conditions are extremely difficult, and margins continue to be under pressure for both BOPET and BOPP. Several new lines BOPET and BOPP were commissioned in the last couple of years, driven by attractive margins during the moped. In addition, severe competition from the Chinese was across regions, particularly in Southeast Asia, impacted order booking and margins. The BOPET segment remains at the bottom of the cycle, and this trend is expected to continue for another 1.5 to 2 years. The BOPP for the segment is performing better than BOPET. Overall, the business achieved its highest ever for past production. Intensive cost rationalization and enhancing business profitability by strengthening our [indiscernible] portfolio, having the major trust areas to survive the down cycle. All this is ensure that we have outperformed our competition quite convincingly. Energy prices have stabilized in Hungary, which should give us some respite and we expect the performance there to be better than last year as we continue to improve our footprint in Mainland Europe. However, until the overall BOPET cycle changes, things will remain under pressure. On a newly commissioned aluminum foil plant, this is a new business segment for us. We had a slightly slow start, which is linked to the fact that it is a completely new product, and the learning curve has been a little longer than we had expected. We also had some technical challenges, which have been streamlined a short while ago. In the future, we see this as a great growth opportunity and are confident of making inroads in the EV and AC finds application segments. No Indian manufacturers in the space, but we will tack and do it once we get [indiscernible] understanding of this product. Work on the upcoming capacitor grade BOPP in project in India, which we announced in 2023, is also progressing [indiscernible] schedule. In the future, [indiscernible] focus will be on enhancing our profitability by further strengthening our [indiscernible] portfolio, improving capacity utilization and cost rationalization. We will commission a new in-line coating machines in Thailand and India and leverage our capabilities fully to further enhance the portfolio. Ramping up the [indiscernible] business will be an important focus area for the packaging [indiscernible] business in the coming months. Moving on to technical textiles. In financial year '24, we reported a healthy performance in the technical textile business, and registered a revenue of INR 1,898 crores. In the [indiscernible] segment, we increased our share of business with the domestic tire companies. We enhanced our focus on the value-added [indiscernible] portfolio. Despite our [indiscernible] operations having been impacted due to the [indiscernible] cyclone in December 2023, I'm glad to share that all our employees are safe, and [indiscernible] able to restore and restart the machinery in record time. Furthermore, we have adequate insurance cover in place and a reinstatement value basis against such occurrences. The demand for belting fabrics was healthy during the year. However, like in our other businesses, we faced competition from China, which led to margin pressures, but it will get made up by the overall volumes. The demand for [indiscernible] was strong in financial year '24. The business successfully commissioned its PIY capacity expansion towards the end of financial year '24 and our initial belting target capacity will also come on stream soon. The expanded capacity inspector to be fully utilized in financial year '25 and become a future growth driver for the business. Overall, the business will experience moderate growth going forward. In our other businesses, financial year '24 has been a good year for our [indiscernible] laminated fabric businesses reporting an increase of 19% and revenue of INR 265 crores. In coated public segment, the demand, particularly for our VAPs, remained strong, which helped the business achieve its highest ever domestic sales. The business made its highest ever EBITDA during the year. In response to the growing demand, SRF expanded textile capacity [indiscernible] 4 new [indiscernible] during the year. We continue to maintain our domestic market leadership in coated fabrics. The business also continued its price and volume leadership in the laminated fabric business by selling at full capacity and achieving its higher sales during the financial year. However, margins remained under pressure in laminated fabric [indiscernible] not be passed on completely to the customers due to excess supply. In the year ahead, our focus will be to enhance capacity [indiscernible] portfolio. In laminated [indiscernible], we'll be commissioning a new hot lamination machine, which will help us sell our customers with superior product offering. On ESG, corporate [indiscernible] and sustainability are core to our business strategy. It ensures we remain focused on resource optimization and contribute meaningfully to the circular economy. At SRF, we maintain a high level of sustainability disclosure, which has helped us identify and measure ESG risks and develop a long-term plan to move on this card. Our chemicals business commitment to sustainability and pioneering work in the area of ESG continuously recognized internationally, leading to our [indiscernible] being awarded a Board medal and financial year '24 in recognition of sustainability achievement by EcoVadis, [indiscernible] one of the most recognized business sustainable ratings on the world. Further information earlier, [indiscernible] will be available in our annual report. On the SRF Foundation, [indiscernible] our purpose is a need to uplift everyone, and we may equal importance in community engagement initiative. We constantly strive to get back to society. With a focus on [indiscernible] to education employability, the SRF foundation working on the [indiscernible] growth quality of academics and scaling programs as focus areas. [indiscernible] reached 480 government schools across 34 locations and 12 states is providing quarterly education to over 165,000 students and across 314 [indiscernible] centers, positively impacting the lives of close to 14,000 children. To conclude, I believe that financial year '25 will be better than financial year '24 for the chemical business and on an overall basis for the company as a whole. While the chemicals business will show a recovery, possibly more towards the second half of the fiscal year '25, the marketing pressure in the packaging [indiscernible] business will continue through the course of the year. Having said that, the team is working on various projects to reduce the impact of downside cycles, which, in reality, is a part and [indiscernible] of this industry. Our balance sheet remains strong, and we are happy to invest in opportunities that will provide growth options for us in the future. We are optimistic about our bright future and our capabilities to deliver a solid performance and drive returns for all our shareholders. Thank you for your time.
Thank you. We can now open the call for Q&A.
[Operator Instructions] The first question is from the line of Rohit Nagraj from Centrum Broking.
Good to see quarterly recovery presentation. So first question is on the Specialty Chemicals business. So we have mentioned in our press release that the recovery will pick up pace in the second half of FY'25 while we gave a very strong 20% kind of growth guidance. So is it that the first half will be relatively noted and a significant portion of the growth will come only in the second half? Just -- I mean, I wanted to understand your confidence on the same.
So Rohit, thanks for your question. To be very frank about it, when we are saying -- when you look at the Specialty Chemicals business, there is always, let's say -- when we look at it, H1 versus H2, H2 is always stronger. Now the way we are looking at it is the fact that we are coming out of a kind of difficult environment. The environment -- inventory destockings have started to happen. What we have seen is that there is some positive that is already starting to build. When we say overall growth of 20%, that's something that we are looking to achieve even in the Specialty Chemicals business, given the fact that this year was a slightly lower year than what we expected at the beginning of the year. Large recovery should come towards H2. But yes, I don't think there is a negative trait here. I think we've always said that we have to look at it from a business as a whole or a year as a whole perspective, rather than looking at it from a quarter-on-quarter perspective. So I think that's the way we are looking at it rather than dividing it into Q1, Q2, Q3, Q4. So that's how we would look at it, Rohit.
Sure, sure. That's helpful. Sir, second question is, again, similar on the [indiscernible]. There also, we have been pretty confident. So given that the U.S. market quotas have been declined [Audio Gap] that there can be significant volume pickup for us from the other geographies to make up for the loss in the U.S. And similarly, a strong traction in terms of pricing so that we will be able to achieve this 20% kind of growth?
So Rohit, again, I think the way we are looking at it is the fact that we have seen a lot of Chinese inventory in the system as of now, largely on 32. We have also said, and I think Ashish also commented on it, that the inventory that had built up over a period because of low Chinese prices is now starting to kind of get liquidated at a very fast pace. As that is happening, we have also seen pricing improve. With respect to where the U.S. market is versus where, let's say, the overall market is. I think the way we are looking at it is that while U.S. HFC market will see some declines, there will be some negatives around it. What we believe is that the overall increase in, let's say, India domestic the Middle East and Southeast Asia should more or less cover it up. And therefore, given that we will have more capacity, more volumes to play here because of the new 32 plants that commissioned probably at the end of Q3 last year, right. We should have a very large presence in the HFC space, both from a -- and therefore, both from a volume and pricing perspective, I think we should be in great shape.
The next question is from the line of Ankur Periwal from Axis Capital.
First, on the chemical side and in our release, we did mention pricing led pressure because of excess capacities at China. So just wanted to get your thoughts in terms of growth, is it that now the overall trend in pricing has come down and we are focusing more on volume led growth, which will drive the growth across both [indiscernible] as well as the Specialty Chemical side?
I mean, let me distinguish this for, Ankur. I don't think we can compare between specialty chemicals and fluorochemicals and the [indiscernible]. What we are saying is that prices have been softer, we are starting to see some price positives starting to come in. U.S. has continued to destock inventory. There is now some local Chinese prices that have started to go up largely to 32. That's what we are seeing. And again, I think the focus for us from our Fluorochemicals business is to look at where quota positioning are and improve our, let's say, capacity, utilize our capacity to the full and sales volumes, so as to maximize that piece. Like I think we have said in the past, when we look at HFCs, quota becomes an important element for it. Also -- and now going back into the specialty capital piece. I don't think it is a general comment that can be made where we can say that we are now looking at more volumes than pricing. What we are saying even in the specialty chemicals space, and I think MD comment is also reflected that, that there are certain, let's say, views in the market coming around to one of our key products, which is essentially saying that the Chinese [indiscernible] crash prices of that product. We have made very significant technological breakthroughs in the product. Our costs have come [indiscernible] significantly. We are continuing to work on cost of those products. While there will be some margin erosion, I think it will be much more taken up by the volumes that we will be able to achieve in that product, which I think should add significantly in terms of our overall profit from the product and specialty chemicals business as a whole. So that's how we would look at it. So the rebound that when it comes in, should be a positive, Ankur.
Sure, sir. Just two follow-ups. So no change to the overall Chemicals business margin guidance that Will that be a fair assumption?
Again, Ankur, I don't look at it from a quarter-on-quarter perspective -- from a year-on-year perspective, I think -- when you look at it, we are still at almost 26% EBIT margin. Our EBITDA margins will still be probably north of 27%, 28%. I think when we started the year, we kind of gave that as a guidance. Again, 2 or 3 key pieces that should play out is that there are new capacities that have been commissioned roughly about INR 1,200 crores for our Fluorochemicals business and roughly about INR 1,800 crores for our specialty chemical business. When we look at all of those, because they are kind of unleveraged as of now, as they ramp up their production. Overall margin positive should also come through. But even 26% EBIT margin is pretty decent, Ankur.
Sure. And just on the [indiscernible] bit, any volumetric you did mention that can be compensated in different markets, whether Middle East or the Southeast Asia?
There will be volumetric growth in the [indiscernible] space without a doubt a good. .
Yes, yes, sure. So what sort of magnitude of that growth is where I was coming from. Are we looking at at a high double-digit sort of growth? Because the [indiscernible], obviously, there will be a growth.
No, no, I would only look at it from a volume perspective, I think anywhere between 10,000 to 12,000 tonnes of HFC volume should get added this year when we compare it to last year.
The next question is from the line of Surya Patra from PhillipCapital.
My first question is on the Specialty Chemical business. So while on the chemical business front, we have seen for the full year, there is a sequential margin correction, obviously, possibly because of the underperformance at the SK front. But sir, can you clarify that this dent in the margin is purely from the ref gas front and may not be from specialty business?
So Surya, to be very frank about it, again, I don't think we have to look at it like that. But in relative terms, if I look at it, Specialty Chemicals business margin has been slightly positive from what we have seen in FY'23. For fluorochemicals business, yes, there has been a margin trend. But you've also got to understand that FY'23 for Fluorochemicals business was also a very high year. Now to that extent, there was some expectation of this coming down. And I think we have excluded to that in our earlier discussions as well. So to that extent, yes, the margin is lower. And to my mind, between FY'23 and FY'24 for futility, margin is flat to slight positive.
Yes. Exactly, sir. That is my point. So in fact, our best calculation indicates that the Specialty Chemical margin has sequentially improved only in FY'24. That's why that I have asked this question. But now having this clarity, so my point is that, see, in the previous year that we have added INR 18 crores -- INR 1,800 crores assets for specialty chemicals. And utilization of those should not be more than 20% or so because in the latter part of the year, only that we have added. So given that there would be a kind of a cost pressure also of underutilization that we would be seeing in the business. And there would be possibly some impact of the prices also that we would be facing currently for our specialty chemical business because of the downturn. So given these two things, reversing in the '25, should not we believe kind of a meaningful recovery in the profitability of the business, which has now become more larger compared to last year?
A very long question. I will try and answer it simply. I believe that what you are saying is right to a certain extent that there is underutilization of assets in the specialty chemical business, given the fact that majority of those were capitalized in Q3 and Q4. Some of them were capitalized in the earlier part of the year. And therefore, some of that, let's say, has been utilized well. To that extent, I would still believe that there is a possibility of a margin expansion. But we've also alluded to the fact that there is certain additional capacity that has come in. And therefore, for some of our key products, we have to fight that out in the market. Again, given where we are, my sense is that there should be some improvement in margin. But again, I go back to that same thing, is 26% margin for the overall Chemicals business on an EBIT basis? Not a good word. So that's how we would really look at it, Surya.
So my -- just an extended question on that, sir, see, since it is the full year performance that we are discussing, can you share what would be the share of active ingredient now in FY'24 and the new product...
The key active ingredient that is there is only one, right, which is roughly about 9% to 10% [indiscernible] specialty chemical revenue.
Okay. Yes, so because now you have added also 15-odd products. So given that, what is the mix that we should think about for '25, sir?
Surya, we believe by the end of FY'25, there will be at least 5, 6 AIs that will come through. But meaningfully, I think there will be only 2 or 3, which will start to contribute to revenues.
Okay. Just one question I'll ask about the refrigerant gas businesses. In fact, we know what happened...
I have to ask a question. You can't keep give asking questions.
No, just last question, sir, if you allow?
[Operator Instructions] We will move on to the next question. The next question is from the line of Vivek Rajamani from Morgan Stanley.
Two questions. Firstly, if I could just make an extension of the earlier questions on [ Fluorochemicals. Would it be possible to give a sense of how you see your geographic profile in Fluorochemicals [indiscernible] in the next 1, 2 years as you transition away from the U.S. and explore some of these other geographies. That was the first question.
Okay. So Vivek, as of now, what we are looking at is roughly about, let's say, from a revenue perspective in the fluorochemical business. On an overall basis, let's say, exports of HFC being almost what 60%, 70% of our overall sales in terms of overall revenues. We need to -- just a second I will just do a back [indiscernible] calculation. So roughly about 53%, 54% is exported and the balance is domestic. Again, over the medium term, what we believe is that U.S. will come down, while Middle East and Southeast Asia will continue to expand. What we end up building over probably a 3- to 5-year period in Middle East, India, Southeast Asia probably getting to 70%, 75% and U.S. coming down very significantly.
Sure, sir. So [indiscernible] the second question was on packaging. I think you've been very clear about the magnitude of the pain and the efforts that you've been undertaking so far, but just from a more medium-term perspective from a strategic standpoint, just wanted to get a sense of what other levers could be available to SRF to best optimize the situation as and when this situation eventually starts to repair itself?
So Vivek, again, I think the way we are looking at it is that -- again, if you break it up, I think Hungary was one of the key elements that we saw kind of performed much lower than our expectation, given where we are and given where energy prices in Hungary are, I think there will be some positions that are going to change on that side. So that's a positive that will come in. Again, on the aluminum foil business, again, that ramps up in this year and should start to contribute meaningfully in our overall packaging film business situation. The third, and again, the most key element here is that we have had some great successes in our value-added products. I think that, as a journey, will continue for us to be able to continue to deliver market benchmarking performance. So that's how we would look at it. [indiscernible] position changing in Hungary for the better aluminum foil ramping up and continue to that journey on a continuous on a long-term basis to provide, let's say, go away from the key down cycles that the business faces as a commodity player. Vivek?
Just one clarification. When you speak about your kind of products, if the benchmark margin would be ex any sense of how much higher this BAP portfolio could be getting you?
Depends on the product to product, but anywhere between INR 20 to INR 35 is what we see.
The next question is from the line of Rohan from Nuvama.
The first question, if you can give us give the [indiscernible] for the current year revenue from the specialty chemical [indiscernible].
So Rohan, last year, the total revenue for Chemical business was roughly about INR 7,400 crores. This year, we are roughly at about INR 6,300 crores, which is a 15% reduction. Fluorochemicals last year was INR 3,200 crores, that is roughly in the range of about INR 2,600 crores this year. And specialty chemicals was about INR 4,200 crores, which is roughly in the range of INR 3,700 crores this year.
Okay. So the group guidance, which you're talking about in chemicals is roughly 20%, it is still driven by both specialty as well as Fluorochemicals. And Fluorochemicals are talking about roughly 10,000 to 12,000 tonnes kind of additional volume growth. You didn't make any comments around that...
Pricing growth as well. Yes.
Yes. So volume -- and I was coming on there. So did you can comment on pricing and margins. So at 10,000 to 12,000 tonnes additional, what kind of we can expect the margin improvement and the pricing gain 1 can expect Fluorochemicals business.
Rohan, I have not broken that up in an overall situation in terms of what is the price or volume is Overall, I think it's best to keep that guidance in terms of what is the growth we are expecting. Now there could be some pricing position that play out, and I have kind of also given you the volume position on it. But saying that how much of it is is from right and volume is a very difficult position to play out for the future. So I'd rather not comment on that.
But sir, this 20% kind of [indiscernible] chemicals, should we should drive EBITDA growth higher than that, right? Because that's where we are assuming the price increase is happening in a ref gases. So I was looking more from the EBIT or contribution from the chemical business in profitability should be higher than the 20%. That's what you are indicating.
So like I said to a previous question also, Rohan, that given where the operating leverage is laying out today, we believe that should be a positive.
Sir, second question is on the ref gas prices, I mean, reduction from the U.S. or China. So what is giving us the confidence that the [indiscernible] not happen on other blends or even other gases as well. We are still saying that the R 410A gas blend prices are still going to remain strong and even may go up. So -- I mean, do we understand the Middle East and other markets may gain overall volume growth, but what is happening in the U.S. can be a volume for us in near term for [indiscernible] margin is [indiscernible]
Again, Rohan, I'd like to answer it in two ways. One, when we look at it, our value proposition always has been to offer blends, which is more [indiscernible] 125 has always been a kind of, let's say, product that we've been supplying on an opportunistic basis also. When we really look at it, the component of 125 in [indiscernible] was very small, say, between 1,800 to 2,000 tonnes. As 125 is, let's say, coming down in terms of the overall demand, again, 125, we had always said that 125 is the gas with highest GWP. And that will be the first one to see a cut, If you remember. Now what happened then is because [ 410 A ] is to let the requirement [ 410 A ] and 32 prices are up, we will end up seeing higher prices of [indiscernible]. Even despite the duty reduction on [indiscernible] the, let's say, suppliers, the pricing differential is not much, roughly about $1 or so. Given that, volumes can be higher given that [indiscernible] be a lower GWP product as compared to 125. And I think our demand traction on that also remains strong. Middle East Southeast Asia should recover home markets, and therefore, demand should, let's say, volume place would be a positive for us. Rohan?
The next question is from the line of Arjun Khanna from Kotak Mahindra Asset Management.
The first one is in terms of CapEx. Could you help us understand what is the CapEx we have planned for '25? If I heard correctly, we said in the second half, CapEx may actually increase. So we spend INR 2,200 crores in FY'24. What's our outlook for '25?
So Arjun, as of now, the CapEx that are, let's say, sanction and running are probably in the range of 1,000 crores INR 1,200 crores or so. Those are the ones that have been sanctioned and let's say, work is going on the [indiscernible] for the year as a whole, roughly about INR 800 crores, INR 900 crores additionally, we believe we'll expect. But that's also a function of some of the projects are ramping up. What's the situation on the land that comes in and multiple other elements around it. But as of now, running projects are probably in the range of about INR 1,200 crores or so, chemicals business as such.
Right. And apart from chemicals, we have the packaging for capacitors. Is there any other large project, which is for the other signals?
No, I didn't catch your question. Could you repeat Arjun?
No. So apart from the chemicals, we have the packaging for capacitors, is there any other project?
Not as of now on the ground, Arjun. I think from a packaging [indiscernible] perspective, there is nothing other than the capacity there that is going on.
Right. So this year, we're looking at roughly INR 2,100 crores?
Should be in that range.
Sure. Sir, the second question is in terms of the guidance provided on the packaging side, we have mentioned probably weakness to continue for maybe 1.5 to 2 years and then move to normalcy. Just want to understand what do we assume to be normalcy? Because historically, margins have been 14%, 15% a bit. Right now for the year, we are at closer to 5%. So how do we look at this business?
Arjun, to be very frank about it is a curve rather than a vertical line. So when we say that we'll come -- we start to come out of it, the margin expansion will also start to happen on a slow pace. So let's say, from 5% to 8% to 10% and in that range because no new capacities are being added, right? And as the market ramps up, the demand really just takes up the additional capacities that have been put in, we will end up seeing margin expansion happening, but it won't be that it goes to 15% immediately. It will be a slow and steady journey also.
And this was indicated for BOPET and BOPP. So aluminum foils, what kind of margin profile we are looking at? Because when we launched the project, we were looking at payback of 4 to 5 years, essentially, that means higher margins.
Yes, Arjun. But again, aluminum foil is also a learning curve for us. We are also understanding the product. We will get into higher value-added products in the aluminum foil space also. But that's also a journey like [indiscernible] during his comment, we believe that there were certain technical challenges that were there in the initial part of the aluminum foil. All of those have now been sorted out. We are now starting to produce fully the the product has now been approved by some of our Indian customers. It's also in the position -- we are also sending samples out to our U.S. and European customers. We will start to tap into the EV and the AC market over probably by the end of this year. So I think a lot is going on, on that side as well Arjun. Yes, margin profile should be better given where current margin profile is for the BOPET as such. But going forward, also, I think we should see probably a delta on that side. What we are essentially saying, Arjun, is that as we keep going into more specialty products in the packaging [indiscernible] also margin profile and the effect of down cycles that we commoditized industry sales should be much lower.
Fair. So just a continuation, PTFs the other molecule, which we had mentioned, we are going through a learning curve, et cetera. How has the progress been there given that they are seeing falling export volumes from India and prices?
So PTF, I mean, I think it's a similar story, Arjun. The bulk has been pretty much in good shape. We are at a decent domestic market share on the bulk side. We are also looking at some of the sampling in Europe starting to go through. We are hopeful that some of those orders will come in this year and some of the sampling for the U.S. customers have also started for [indiscernible]
The next question is from the line of Tarang from Old Bridge.
A couple of questions. One, what would be the maintenance CapEx for the business now? I'll actually just go ahead with my questions and then you can probably take them together. The second, in the second business, how are we in the agro and non-agro segmentation? And if you could just give us a sense of the molecules that you plan to launch what percentage would be in agro and nonagro. And third, you said margins have improved in the spec chem business. Have your per kg margin has improved or your percentage margins improved? Just wanted your clarification on that.
Tarang, the maintenance CapEx for business, again, we don't look at it that way, but let's say, from a more pure academic perspective, anywhere between INR 50 crores to INR 100 crores could be a maintenance CapEx, nothing more than that. Because generally speaking, our majority of our CapEx is should have an ROI or a positive play that has [indiscernible] So that's the first answer to your question. agro and non-agro, when we look at her as a whole, will probably be at 3.5%, 4% from a agro versus farmer. So agro and pharma is the breakup. If you're looking at material time is probably not major on that side. When we talked about margin improvement, I think we maintain margin per tonne margins because there is no single product here where we can compare per tonne margins. It is a multiple products. We follow [indiscernible] 45 products on an annual basis. So it will be really right to be able to give you that positioning because then you are comparing apples and oranges.
You said 3.5%, 4%, sorry, I didn't catch that for your segmentation.
3% to 4%. And so when we look at specialty chemical business, we've kind of given you the breakup, the agro products and non-agro products. And when we say non-agro oroducts, that's pharma. For the year as a whole, that's been the position.
The next question is from the line of Mr. Sanjesh Jain from ICIC Securities.
I got two questions. One is on the refrigerant gas. When we see that our contribution of India in Middle East and Southeast Asia will go up to 75%, it is also fair to assume that the bulk sales will reduce and our direct distribution will increase. Will that be a fair assumption that has [indiscernible]. Hence, we'll have a better ROE on that business as we progress through the year?
Bulk sales -- see, again, when you look at ref gas, Sanjesh, the packaging is either in the [indiscernible] or then subsequently and the lowest level of packaging [indiscernible], right? So depending upon the jurisdiction, depending upon the requirement. In some cases, there are only disposable has to be [indiscernible] in some cases, there are only returnable packaging to be used. So depending upon the jurisdiction that happens, generally speaking. Two things will happen. More from a distributor to a direct sale is obviously the one thing that we are looking to get to, I think that will improve, that mix will improve. And second, I think more of the overall sale will go -- start to go towards can in the medium term, which would, therefore, be also margin accretive.
Fair enough, sir. And second question on the Specialty Chemical. We have added close to INR 1,800 crores of CapEx in FY'24. What is the potential revenue for that CapEx when it achieves the peak utilization?
Again, Sanjesh, I think we've talked about this historically as well. Specialty capital, pure plant on plant revenue, what we've ended up seeing is between 0.9 to 1.1. I don't think it is going to be any different from that given the nature of the business and the nature of the, let's say, the products. Because as we are going up the value chain, the complexity of the products are increasing. I don't think it is going to be very different from that.
So as we go up, these metrics is not going to materially change, that's a fair assumption, right?
Unless you get into a commoditized product.
The next question is from the line of Archit Joshi from B&K Securities.
So my first question on the remarks that we have made on new Chinese capacities I just wanted to understand from a supply chain perspective, has there been any change from what we saw during COVID. Has the nature of the supply chain diluted in favor of Chinese companies off late in the narrative of China plus 1, which was obviously in our favor? Has it been that [indiscernible] started in a very [indiscernible] adopting a few of the Chinese products of late because you're offering a competitive price or the situation remains the same as we saw during COVID?
Very long question, Archit, but let me try and answer it. And because I think our Chairman and Managing Director also commented on it. We believe whatever may happen in China. We will continue to take market share. And while there may be certain short-term challenges, we are really confident of the long-term prospects of this business. So again, I think technological breakthroughs, I think thinking about the customers' requirements, working with them on a continued basis, provides a positive on that side. So it really is not thinking about just one product or one opportunity. I think long-term relationship with customers do help. Now at the end of the day, there are certain capacities that have been put up. And to that extent, we have also taken our cost structure. We looked at our cost structure, managed that through. And we are really confident on the key products. And again, to be able to say it, I think it is [indiscernible] 70, which is where we are talking about, which a lot of you have talked to us about in the past as well. I hope that to clarify it, Archit.
Sure, sir. Sir, one more on ref gases, I think a few months ago, in order to curtail reduction in U.S., there was a rumor probably that the anti-lumping duties were expected to be rolled back. There was a clarification later that this has not been [indiscernible] play out. But with the current reduction of -- the proposal to reduce 125 duties on these Chinese companies, do you see that playing out for other HFCs also? And -- which is probably the reason why maybe we are expecting a higher share of volumes from non-U.S. geographies of that gases?
I don't think it is going to pan out like that, Archit. The reduction of beauty that has happened in essentially for one Chinese player, right? And it is not for all the vessels. I don't think there is a move to look at all the HFCs for reduction of duties, right? Again, to be very frank about it, the one gas, which is R 125 that has been talked about, prices for the last 10 months were already down, right, about $8, $9, $10 a kg. Even if they go down slightly further, our value proposition is to then move into the other product, which is 410 A or 407 C, which is a blend. Now what happens with that is because our country [indiscernible] prices are up, our ability to market to those products is higher. From our regulatory and, as of now, there is no move with respect to other gases. But if that comes through, you will know probably earlier than I do.
The next question is from the line of Krishan Parwani from JM Financial.
Congrats on decent recovery in 4Q '24. So two questions and one clarification. So the first is, when do you expect optimum utilization of your new R32 capacities?
So to be very frank, Krishan, I think if all goes well, by the end of this year, we'll probably be at optimal capacity utilization on that one.
And I think I missed one part that was a clarification. So I think you mentioned HFC exports was [indiscernible] 50% of sales. Did you mean...
High volume by price.
By price around ref gas sales how much was it?
No, sorry, I didn't get the question.
So ref gas exports, all of your total ref gas value.
So we were talking value not volume. We will have to do our calculations for volume. Maybe we can come back to you later.
Okay. And the last question is, how do you think [indiscernible] exports mix playing out in FY'25, given I think you talked about Middle East. So do you -- can you like give some geography-wise breakup in terms of how do you plan to do it?
Okay. Again, I think there is significant traction from U.S. customers with respect to 32, 410 A., so that's a positive. Again, Middle East should ramp up. 32 should ramp up in some of the other geographies. I think blends -- our ability to deliver on blend will be higher. Don't not rule pan out. In terms of breakup, I think we will probably remain in the range plus, minus 4%, 5% here-there, in terms of overall export working domestic.
The next question is from the line of Sumit Kumar from Kotak Securities.
On aluminum business, if you could share revenues from the business in 4Q and in the business making a bit loss? And if so, could you please share the quantum? And how much revenue can you expect from this business in FY'25?
[indiscernible] unfortunately, I don't give revenues or breakup of revenues for product by product. So that's how it has been, it will remain like that. I won't be able to give you specific revenues from aluminum fund. Again, the only thing that I can tell you is that we've seen some issues in the revenue front. There is a learning curve that we have on it. We had a slightly slow start. Some of the machines that the OEM had supplied did not work well for us. All of those issues are now past us. In April 2024, some of those repairs have already got done. And hopefully, it should add positively to our overall packaging film business, EBIT and margins. So that's how you will have to look at it. I don't break up Q-on-Q. As a time of revenue between 1.2 to 1.5 at the peak utilization we should get to.
Sure. And just one more clarification on market revenue growth guidance for Chemicals business of 20% plus. For spec chem also, [ we stick ] by the same growth rate of 20% plus in FY'25?
What we have said in the commentary, initial commentary by the CMD is 20% plus is for the overall chemicals business. Now there will be some pluses or minuses, we will hope to deliver better than this.
The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance.
Just one question is on the ref gas utilization. So if you can just tell me, FY'23 utilization FY'24 utilization ex of this new capacity addition, which was just added in the last few months?
Keyur, I think you'll have to come back to me separately on this. Because FY'23 utilization, again, my sense is of the available capacity, we will probably be in the range of [indiscernible] Of the available capacity in FY'24, we would probably be north of 85%, 90%. But I'll have to come back to you, and I'm not including the new 15,000 tones capacity here.
Sure. Noted. Okay. And just last question on the overall profitability of the Chemicals segment, you highlighted about some operating leverage benefits and some -- I mean, reduction because of the product price cuts. But I mean, in the context of the change in geography in the ref gas from U.S. to non-U.S. or more of Indian subcontinent, will that -- I mean, net-net of all this effect, where do you see directionally margins going? If you can just help on that part.
Could you repeat the question? You are talking about the margin profile of the Specialty Chemicals business going forward?
For the full segment for which you have reported around 26% margin. Where do you -- I mean there are multiple factors, positive and negative factors. One more factor I'm just adding that ref gas is moving from U.S. to Middle East and Southeast Asia and India, will that negatively impact the margin of ref gas and eventually the Chemical segment?
See again, the way I would look at it is that as -- when we look at both the business we put together, roughly about INR 3,000 crores of capitalization that happened. Now in the medium term, between, let's say, 12 to 18 months, we should see some of -- or largely all of those capacities being utilized pretty much fully. And as that happens, there should be a margin profile improvement from [indiscernible] perspective. But when we look at it from a market mix perspective, yes, to a certain extent, U.S. will come away, there will be growth in Middle East, India. Again, both of those things, given where pricing positions are today, I still believe there is a pricing positive that will cover. And therefore, some margin equation. [indiscernible] is 26% or 27% as an overall margin for our business, not a good market. And we have to also look at that as -- see, again, FY'23 was a super cycle that had come in. And therefore, [indiscernible] 32% margin level, right? Despite a huge down cycle this year, we've talked about the cycle, the Specialty Chemicals business talked about a down cycle in the Fluorochemicals, Chinese something happening, multiple other things happening. We are still at 26%. I still believe that at 26% here, we are in better shape than at 32% in the year [indiscernible]
Absolutely. I definitely agree with that point. Point noted.
The next question is from the line of Ranjit from IIFL Securities.
So you have highlighted one product where we have probably relatively higher concentration that is where we are seeing a bit of a Chinese pressure, but we remain confident on protecting the margins on that front...
No, I said is that's a product that we have been talking to us about in terms of Chinese competition. where I have a huge, let's say, dependence on it, probably not. I'm still at probably about 20%, 21% of that overall specialty as well. I'm not saying that I have a large independent. It's a decent dependent, but not a large one. And what we had also clarified is that there will be larger volumes that will come in, there will be larger, and we have done a lot of technological work, to be able to cut costs through it.
My question was that are there any such more products, probably 1 or 2 that you are seeing an incremental competition probably not now for 6 months or 1 year down the line?
So again, I think, Ranjit, to a certain extent, MD also clarified this in his comment. It's nothing new. This will keep happening. Competitive positions will get built. As products go from niche into more larger products, we will have competition that will come in, right? But this is a part of our line that happened in the past will happen in the future as well. Whether there is some singular product today that is happening probably not, but that's how the cycle is, and we will play that out. I think the advantage of the USP that SRF has built over a period of time is to be able to say that we will crack the technology even further. We will do a better job in terms of our costs and therefore, margin should remain good. And as volumes improve, we should be in good shape.
And second, as we move towards more AI, so that should also be margin accretive in nature?
Hopefully, Ranjit, yes.
That was the last question for today's call. I would now like to hand the conference over to Mr. Rahul Jain from SRF Limited for closing comments.
Thank you, everyone. I hope we have been able to answer some, if not all, of your questions. If you have any further questions, we would be happy [indiscernible]. We hope to have your valuable [indiscernible] 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.
On behalf of ICIC Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.