Time Technoplast Ltd
NSE:TIMETECHNO
Earnings Call Analysis
Q3-2024 Analysis
Time Technoplast Ltd
The company delivered a robust performance in Q3 FY 2024, with impressive year-on-year growth. Volumes expanded by 20%, driving revenue up by 17%; particularly noteworthy was the value-added products segment, which surged by 25% due to strong demand for Intermediate Bulk Containers and Composite Cylinders. Even the established products, such as Polyethylene pipe businesses, saw a substantial increase of 15%. The financial health of the company was further highlighted by a remarkable growth in EBITDA and PAT margins, increasing by 26% and 50% respectively. This surge is attributed to a greater share of high-margin value-added products, coupled with stable core industrial business demands. With this momentum, the company confidently expects to meet its full-year targets.
Financial figures for Q3 FY 2024 show a solid improvement, with consolidated revenue rising by 17% from the same quarter in the previous year and by 11% from Q2 FY 2024. Key metrics like EBITDA and PAT witnessed significant growth, reflecting a keen focus on profitability and efficient operations. With an EBITDA margin improvement from 13.5% to 14.5%, the company managed to pull off this performance due to an increasing proportion of revenue from value-added products, cost controls, and improved capacity utilization. The first 9 months of FY 2024 alone have already matched the full previous year's profit, forecasting a substantial bonus in earnings for the remainder of the year.
A notable strategic move is the decision to divest 50% of the business in the Middle East for a valuation of around USD 25 million, roughly equating to a 7.5% contribution to the consolidated revenue. This sale is expected to conclude within 90 days, subject to due diligence, and is aimed at debt reduction and enhancing shareholder value. Despite this divestment, the company is poised to continue its growth trajectory, with a focus on the remaining 50% of the business and other regions. FY 2024's revenue target of INR 5,000 crores is set to be only marginally impacted by this move, and the value-added products' contribution is expected to remain stable at 26%. Management envisions further growth and margin improvements in the coming years, projecting revenue growth around 15% and better margins beyond the current year's target of approximately 14%.
Operational highlights for Q3 include a reduction in total debt and a strategic focus on improving working cycle times, which aims to optimize the operational cycle from 112 days to 90 days within the next six months. The company's capital expenditure for the year is projected to be lower than initially planned, coming in at around INR 175 crores instead of the targeted INR 200 crores. On the horizon, new product development initiatives toward green energy solutions indicate a forward-looking approach. The company is investigating options including composite hydrogen cylinders and larger-capacity CNG cylinders, suggesting a keen interest in positioning itself in the evolving energy landscape.
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Ladies and gentlemen, good day, and welcome to the Time Technoplast Limited Q3 FY'24 Earnings conference call hosted by PhillipCapital India Private Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikram Suryavanshi, from PhillipCapital India Private Limited. Thank you, and over to you, sir.
Thank you [indiscernible]. Good afternoon, and very warm welcome to everyone. Thank you for being on the call of Time Technoplast Limited. We are happy to have the management with us here today for question-and-answer session with the investment community.
Management is represented by Mr. Bharat Kumar Vageria, Managing Director; Mr. Raghupathy Thyagarajan, Whole-Time Director; Mr. Sandip Modi, Senior Vice President, Accounts and Corporate Planning; Mr. Hemant Soni, Vice President, Legal and Corporate Office.
Before we start with the question-and-answer session, we'll hear opening comments from the management. Now I hand over the call to Mr. Bharat Vageria sir for opening comments. Over to you, sir.
Thank you for the introduction, Vikram. Good afternoon to all of you. We are here to talk about our results for the Q3 and 9-month FY 2024 and outlook for the rest of the year. We are pleased to announce a robust performance for Q3 FY 2024 with a year-on-year volume growth of 20%; revenue growth of 17%; the value-added products segment witnessed a growth of 25% year-on-year, driven by good demand of Intermediate Bulk Containers and the Composite Cylinders. While the established product grew by 15% backed by improved performance of Polyethylene pipe businesses.
EBITDA and PAT margins also witnessed a significant growth of 26% and 50% year-on-year, respectively, driven by increased share of value-added products with the good order book positions for CNG products and PE pipes coupled with the stable demand for core Industrial targeting business, including IBC, we are confident on achieving our target set for the full year.
Coming to the financial numbers, the results are already announced. I will just to walk you through some of the key financial and operational highlights. On a consolidated basis, Q3 FY'24 revenue grew by 17% as compared corresponding quarter last year. Q3 FY'23, and even 11% up as compared to previous quarter of Q2 FY'24.
During the Q3 FY'24 on a consolidated basis, [ net sales ] reached to INR 1,327 crores as against INR 1,131 crores last year. EBITDA of INR 192 crores as against INR 153 crores last year. Profit after tax, INR 92 crores as against INR 61 crores last year, which I have mentioned to you, 50% up compared to last year.
Key highlights for the quarter compared with the corresponding period, [ net sales ] increased by 17%; India, 19%; overseas 14%. Volume increased by 20%; India 22%; overseas 16%; EBITDA increased by 26% and PAT increased by 50%. EBITDA margin was 50 basis points higher, which we got at 14.5% as against 13.5% increased by 100 basis point margin improvement due to increasing revenue shares of the value-added products, cost control and increase in the capacity utilization.
During 9 months FY'24 on a consolidated basis, we achieved a turnover of INR 3,621 crores as against INR 3,100 crores last year. EBITDA INR 508 crores as against INR 411 crores last year. And I am pleased to tell you that profit after tax is INR 280 crores -- INR 218 crores as against INR 155 crores last year. I am pleased to inform you that last year, our whole of the profit was -- whole year profit was INR 219 crores, which is achieved in the first 9 months itself. So remaining 3 months is the bonus for this current financial year.
Key highlights for the 9 months compared with the corresponding period of previous year, net sales increased by 16%; India 18%; overseas 13%. Volume increased by 18%; India, 20%; overseas 15%. EBITDA increased by 24%. And in the 9 months also consolidated basis increased by 40%. PAT is increased by 40%. In 9 months, EBITDA margin was 14.1% as against 13.3% during the corresponding period last year.
Now share of the business, value-added product grew by 27% in the 9 months as compared to 9 months of the previous year, while established products grew 13%. The result of the value-added products is 26% of the total sales as against 24%. As you have seen, because of the increase in the percentage of value-added products, margins and EBITDA margins, both are improving.
Now share of the Indian, overseas business, which is 65%, 35%, as against previous year also, it was in 66%, 34%, little percentage-wise India has increased because India growth is higher compared to the overseas. The total debt is reduced in the 9 months, which is stood at [ INR 745 crores ] as against INR 810 crores, net debt as on 31st March 2023. So 9 months debt reduced by INR 55 crores. And as initially planned, but it will be reduced by more than INR 100 crores before end of this current financial year.
The same targets will continue in the further period also. But another thing, I'm pleased to inform you is ROCE because when your margin has increased spread has increased. The ROCE is -- as we have promised earlier also that ROCE will increase by 1.5% to 2% every year. So as against last year, ROCE was 13.5%, which is now increased to -- in 9 months is 15.6% there's a 2% increase in the ROCE.
So compared to last year, it has increased, 13.5% [indiscernible] in the 9 months, it is 15.6%. So it's a 2% increase over the previous year. CapEx 9 months, INR 144 crores, which includes INR 63 crores towards the capacity expansion reengineering automation for the established products, which are always required on account of the maintenance cost reductions and to maintain the capacity, and INR 81 crores towards the value-added product expansion mainly for Composite products and IBC.
Total CapEx full year will be in the range of -- I'm just reducing the target for the CapEx full year, will be in the range of INR 175 crores as against original target of INR 200 crores. Continuous focus on improving working the cycle time and targeting to reach 90 days in the next 6 months time, being as against 112 days was in 2023. Consolidation of the overseas business. The Board has approved and authorized subject to due diligence for the acceptance of the disinvestment of 50% business in Middle East on tax and cash-free basis for a valuation of around USD 25 million. I think people can calculate, 100% valuation is USD 50 million. The geographical agreed for the disinvestment contribute only 7.5% to the consolidated revenue. We estimate to complete this disinvestment transaction within a period of 90 days, including the due diligence period, the process as per the direction of the Board and already shareholders' approval that there were used for debt reduction and benefit to the shareholders. The company has adequate resources available for expansion of value-added products for the internal accruals. Now in the last quarter, I have reported that company and management has identified certain noncore assets for a valuation of INR 125 crores, which we are keeping ourselves target to become 0 by March 2025. And therefore, to initiate the first transactions of INR 26.5 crores have been agreed and that transaction will be completed and for sale of the land and building [indiscernible] the reasons and completed the 90 days' time to -- with the compliance of the local authorities. And proceeds from this sale of the entire [indiscernible] will be used for the debt reduction. Our product under development towards the green energy for using the city gas distribution, compressed biogas, CBG and the automotive industry. Products under development towards the green energy include composite hydrogen cylinder, CNG cylinder for the larger capacity of 250 and 350 liters to make products more competitive and other composite products also under development for use in the automotive industries, like composite air tanks, hydrogen fuel tanks, et cetera. I would now like to open the floor to answer [indiscernible] questions. Thanking you to all.
[Operator Instructions] The first question is from the line of Jatin Damania from Swan Investments.
Congrats on a good sort of numbers. And finally achieving that what we are talking in terms of the divestment. So just wanted to understand, sir, this 7% contribution to overall revenue. So just trying to assume that margin for the value-add or the margin in the middle is in this range of 13%, 14%? Or is it lower? Because to understand the overall valuation on the EBITDA numbers.
Yes, yes. You are right. I think the margin in the range of 13% to 14% EBITDA, right. I think you want to understand the valuation, at what valuation it is done. It is very clear that it is in the range of 13% and 14%. And I mentioned to you in earlier also my overseas revenue distributed in the 3 regions; U.S.A., we do 20%, Southeast Asia is around 50%, and Middle East around 30% -- MENA region, where the Middle East is around 23%, 7% in North America. We have one plant in Egypt also. So we are talking about the consideration, which is now only for the Middle East, that is in units in Dubai. units in Bahrain and units in Saudi. So Egypt has been kept a part and that's the valuation considered is the 7.5% of the total revenue -- in consolidated revenue means, INR 5,000 crores revenue, if you take it whole of the year, so -- 7.5% or INR 5,000 crores around -- INR 350 crores approximately revenue. But please note that we are agreeing for only 50%. So balance, 50%, management -- our management will continue.
Okay. And the company will be operated as a joint venture, and we'll be managing the entire operation, right?
Operating will be done because this is just initial state. Yes, definitely, whatever way, there will be joint venture agreement will be there in that country. And accordingly, the operation of 3 countries will be look after [indiscernible] advice of the bankers.
Right. Now since the INR 300 crores goal of the system and for FY'24, we will be achieving a target of INR 5,000 crores, which we have guided with an improvement in the margin. But if I want to look from the FY'25, FY'26 perspective, excluding the Middle East, what is the revenue growth, which we are anticipating because of the -- and the growth that we can see in value-added product as well?
Jatin, you know very well, and I think we are growing by around 15%. So at target is INR 5,000 crores. Out of that, we will reduced only INR 175 crores, okay? Because the 50%, so INR 5,000 crores, minus INR 175 crores, that is working out to INR 4,825 crores. So again, next year also, will we be achieve more than that, 15% growth is there.
And sir, the overall contribution from the value-added business -- value-added products.
That is going [indiscernible], that will be very marginally impacted. Value-added products is going to be continued as the value-added product sale is increasing. So contribution, which is currently how much contribution of diluted products? 26%. So that percentage is going to be continued because that has a very marginal impact. 7.5% dividend by 2%, 3.75% minus in the revenue will not affect much in the 100%.
Sir, that's true, that I'm not talking about, but just wanted to understand the overall increase in the percentage of the value-added in the overall basket further the improvement in the margin that we can see in the coming years.
Yes. Yes, I don't think coming year target will be got achieved, and that's what we are estimating 50% growth in -- across the revenue, EBITDA impact will continue. And even some basis point improvement in the margin, net margin will be there. As we have seen last year, whole of the year, the PAT -- EBITDA margin was 13.5%, which current year, we are targeting to reach cost of 14%, and we may estimate yearly maybe internally, we are estimating 14%, but I think we crossed that also.
Sir, last two questions from my side. And on the last con call, we were discussing that we will be targeting the auto segment in terms of Composites. So any work on that, we have any update on the same?
It will be -- what I tell you, as currently the capacity, we will catch up the automotive industry when the expansion plan will be completed. Currently, I have already order book, at least for next 6 months order book is in hand. So main net expansion, which are expecting to do it in 2024, '25, from that expansion, we will supply to the automotive industry. But as far as other Composite, small products [ a receivable ] tank, that is going to be continued.
Okay. And sir, lastly, on the update on the LPG orders from other [indiscernible] excluding U.S. IOCL?
That -- last orders continue and some -- still some tenders are in the pipeline. So we'll also participate in the new tenders, which we are expecting before March. So that will take care of the next year business.
The next question is from the line of Scientific Investing.
Congratulations for the great performance and also for taking the initiative for restructuring the whole asset. My question is around the second part. And if we look at the initiatives you have taken so that we can go balance sheet in terms of debt free, we can invest that capital into high-growth, high-margin businesses. My question is, if we look at the return on capital, if we look at the free cash flow, once we finished this exercise, how do you see our -- the free cash flows growing at what rate free cash flow will grow? Also, I understand our assets are a little higher depreciating asset because I believe we spent a lot of money on the maintenance CapEx.
So freeing up those assets, will it lead to improvement in our depreciation leading to better free cash flow that means leading to better reinvestment at a higher ROE, ROCE. What is your view from how it will look like next 2 years, 3 years down the line?
I think [Foreign Language] Okay, sorry. Can I understand your name, please?
My name is Saurabh, sir. I'm from Scientific.
Okay. Saurabh, in fact, I think in the last two con calls also, we were talking, the ROC was 14%, which ourself has kept the target to reach 20% in the next 3 years' time. So you have seen, as I mentioned in my call also, at ROCE, which was 14% is increased to 16%. So we are ourselves targeting to increase the ROCE by 2% every year, and that is possible by way of increase in the margins, reduction in the working of the cycle time and increase the productivity.
Now you are talking about the maintenance CapEx. You know that CapEx for the last 5, 6 years, even more than 7 years was in the range of INR 200 crores, which have been reduced. And now I'm targeting almost around INR 60 crores to INR 70 crores CapEx both on the maintenance because we are more than 35 years old company. So we -- to maintain the cost under control, to get the productivity, we have to upgrade the equipment, automation, reengineering is time to time required because otherwise, labor cost will go up.
So that, at every of the year, the depreciation amount, which earlier was around, I think, INR 160 crores, which is now reducing trend. You will see in the period ahead because most of the equipments which are expiring within the period of the life of the assets. So we are replacing by the new assets if required. Otherwise, the depreciation -- out of the depreciation, you see more maintenance that meant the 50% of the depreciation amount only. And the balance is for the value-added expansion, which in the last 2 con calls also I mentioned, expansion major CapEx will go in the value-added product, which includes the CNG and the hydrogen, which is the main where the value addition, margins are high and the cycle time is less.
So we've been able to increase our ROCE, it is our main target and focus. Addition to that, we are focusing continuously improving margins at the same time. We would like also to have a debt free company, and that's our internal target in the next 2.5 to 3 years, we will be debt free.
Great, great. And I must appreciate the efforts you are putting in. And sir, for this 15% growth rate, like what are the things which can go wrong if we talk in terms of risk? Like if it can go wrong for 1 or 2 big reasons, what it could be?
If you ask me percentage-wise, I will give the 9 out of 10 chances are really 10% less because the product we've selected is a high productivity and government also have to meet their target because we are pulling the government policy and you and we all are very well aware of that this BJP Sarkar is going to come in the might and that policy for the next 5 years is going to be continued. And now what we are doing our expenditure for the best of the policy market size of the market.
You know that Composite product market itself is INR 28,000 crores. Hydrogen [indiscernible] market yet to take under the -- our working, which we are not yet considered because it is the development stage. And now other products, packaging, which we are there, we are considering growth in the range of 10% to 12% only, but we are expecting more growth in the product where the government initiative is also there in the green energy.
The next question is from the line of Varun Arora from Safe Enterprise.
Sir, my questions are around CNG Type 4 cylinders. So if you could let us know your expectation of growth from CNG Type 4 cylinders next year given the capacity expansion that we are undertaking?
I think I have mentioned in my CNG composite in there, we are incurring the CapEx of INR 125 crores for increase the capacity from 480 cascades to 1,080 cascades, where we can generate revenue in the range of INR 850 crores. As far as this current year is concerned, CY'23, '24, we are achieving INR 350 crores. We have a current capacity limitation. So Composite product; LPG, CNG to put together, we are achieving this year in the range of around INR 500 crores. . But definitely, next year, it's around INR 800 crores we are projecting because we will get some contributions from the expansion of the activity in these cascades business and by way of expansion at the new locations. But if you ask me 2 years down the line, definitely composite products, which is currently INR 300 crores, we are targeting in the next year's time, it should reach to INR 1,500 crores.
Sir, in the CNG cascade opportunity, are we seeing competitive intensity picking up? We have noticed that there has been entry of some new players. So if you could give some color if you are seeing competitive intensity picking up and whether in the orders where you're bidding, are you still kind of winning 100% of orders where you are actually bidding? So if you can comment on the competitive intensity. And in that light, sir, if the competitive intensity will pick up, do we expect to keep our margins, which are around 20% in this business, do we expect to keep those margins?
Admittedly, I must tell you that the level of technology that we are into on Composite cascades has been on the Type 4 technology, which has been the latest that is available globally. Whatever we have seen a little amount of competition has been on the basis of some imported cylinders, which have been one run lower that is on Type 3. The local manufacturer is mostly around the Type 1, which is about fourth generation behind as far as the technology is concerned. So whatever competition is building up is mostly in the Type 1 cascade where they are fighting for the steel cylinder part of the pipe.
When it comes to the Type 4 cascade, they are far, far more economical in terms of the model, in terms of the application. They are far more rigorous in terms of the pressure applications that they are at a different level. So we are in a position to justify these investments and be able to be head and shoulders above the rest of the players in the field.
Sir, is it fair to say that wherever you are bidding, you are winning 100% of those tenders?
I would say, to a large extent, you're right. But in some cases, maybe there is a split that takes place between us and the small imported components might be, but that is very, very small. We are in a position to say that we are able to garner a good share.
Okay. My last question, sir. In the previous calls, you have spoken about the addressable market for Type 4 CNG cylinders. And in those calculations, you have assumed that whatever would be the incremental CNG cylinders cascades, 50% incremental share would be for Type 4. So this 50% number that we have taken on the assumption, have we seen that in the last 6 months? So for example, like I mean whatever CNG cascade requirement that would have come in the last 6 months, type 4 cylinders be kind of meeting 50% of that demand?
Yes. I think so we are more or less in that time gap because slowly and steadily, the influence of the Type IV cylinder is also improving. And especially with the new expansions that are coming up with the [ CBG ] players, mostly they are settling for the higher level of technology, and that gives us a better share as well.
The next question is from the line of Ankur Saawariya from Saawariya Foods.
I really congratulate you for the excellent set of numbers. My question is regarding the disinvestment. I'm still not clear about -- in the last con call, you said that out of three regions, two of the regions are in advanced phase of disinvestment, and that should be done by the month of January. And third, you were hopeful that it will take place in the month of March. But what you have said right now is that 50% is being disinvested from the MENA region. So what is the complete picture out of the disinvestment that we were looking out for?
Ankur, you're right [indiscernible]. I mentioned that we have 3 continents, U.S. where we do 20% business; Southeast Asia, we do 50% business; middle East, we have 30%. That is also in two parts, Middle East 27% and South Africa, 7% [indiscernible]. So 30% MENA region. But now what happened, with the grace of the God, third happened first. So balance 3, they are not closing, but we will see as per the guidance of the management, if we get our price, we get our expected distinct valuation, we will think on that, and we will take the approval from the Board. You know the international and global situation where -- whatever is going on and disturbances there, all over cost of the funds have increased in the U.S. market and everything. . But I'm pleased to tell you all the units is earning. There is no any compulsion for me. You have also seen for the debt reduction, which is, again, management target is there. So we have identified INR [ 185 ] crores value of the assets, which already disposal positions have been started, and we are completing that also in the next financial year. So right opportunity, if we get our valuation, we will consider that. Otherwise, we have no any desperation for setting up any of the business. This, we got it, good partners. With the 50% only you see, we were talking about 80%, but we are now agreeing for 50%.
Yes. Sir, I am also of the point of view that it is not necessary that since we are doing so great, it shouldn't be a desperation for us to sell the business at a lower...
No, no, no, Ankur. We are not going to do it. We know very well. What's the valuation I am getting here and what's the valuation I'm going to get from overseas because of the 6 months or 12 months or 18 months incident and geopolitical situation arising in the country, we are not able to sell our business desperately or any kind of this thing. We'll see our right price, then only we'll see because as the promoter, we are also 51.6% partner.
Right. So as of now, the thing is that we are right now selling 50% of the Middle East business. And rest of us, we are still in the advanced stage, as you said earlier, right?
Don't take it as advanced stage because we are already closed calendar year '23. We'll again talk on the new chapter, old chapter is closed, we'll take the new chapter based on our earning estimation of 2024 because when we are growing 10% to 12%, so nobody can -- and we have not [indiscernible] for '21 or '22 EBITDA. The new chapter has been opened now, syllabus has been changed. Okay. And you know we always see a syllabus change. New exams, new papers.
Okay. The second question is regarding one of the company name as Confidence Petroleum. They have recently said that they have also ventured into Type 4 cylinders. So is their technology something proprietary to us or anyone can open the same business that we are in?
With due respect to the company's name that you mentioned, the technology for Type 4 cylinders is not available very easily. We -- you know the background that we've been in Type 4 cylinders for almost more than about 15 to 20 years now since the time we acquired the company for manufacturing LPG cylinder. We've been doing this business for that long. Over a period of time, we have kind of graduated from LPG cylinders to CNG and then we are looking at hydrogen very confidently, we've been able to tie up a lot of technology partners as well. I am personally of the opinion, it's not that easy. But anybody who wants to attempt it, I -- we do not wish any ill will.
My last question is regarding the oxygen cylinders. Sir, have we able to get any concrete order, say, from defense or any other company in India?
Ankur, you are talking about the oxygen cylinder, right?
Yes, sir.
I think in last call also I mentioned order book for the LGP cylinder itself is full. I've used the oxygen cylinder supply when I have a capacity remaining is there. So we have got approvals looking in the future, but in fact, we have started our [ registering ] process with the Army and Navy authorities. The process is on. We have appointed consultant who is completing the formalities. You know any government authorities, the formality of the vendor registration itself is the 6 to 12 months and the approval takes time.
Yes, sir. And that was from my side, sir. One thing more last week, I saw the LPG cylinder manufactured by Time Technoplast in Lucknow. And I was really, really happy to see it sir, as if it as from my company.
The [indiscernible] wide distribution channel, [indiscernible] is also now encouraging and giving a good understanding education to the average society. So use of that composite cylinder, light weight cylinder increases, usage will increase.
The next question is from the line of Mahesh Muralidhar [indiscernible] from MB Associates.
Doing extremely good. And with this, Varun, Saurabh and Jatin's questions, actually all my queries have been answered. I only wish you all the best. And as investor, I think I should be benefiting from your company.
This -- your word itself is give us the more strength to give -- to do the more work.
The next question is from the line of Deepak Poddar from Sapphire Capital.
Am I audible?
Yes.
First up, I think you mentioned this overseas disinvestment is revenue is INR 350 crores at 13%, 14% margin, right, that entity?
Yes.
Okay. Fair enough. And I mean, when we say we are looking at 15% CAGR in terms of top line, so how much growth we have factored in that in terms of value-added and how much growth we have factored in established product?
In Composite product, value-added products, we are considering growth projection 30% CAGR, especially in Composite products more and established product we are taking into consideration 10% to 12% growth. But in that also in established products, if you ask me the packaging products, it's around, I can say, 10% to 11%, but especially PE pipe products, government initiative in infra businesses, so we are considering growth of 25% in our PE pipe business. Because you know very well last year, the pipe business was INR 100 crores, INR 200 crores because the COVID impact was there. But now this year, we are taking on the projection of INR 260 crores. And definitely, at least for the next 2 years, we will grow around 25%.
Okay, okay. So 25%, 30% CAGR growth in your value-added product and 10%, 12% growth in your established products.
Combination, you can take it around. It will be around to 15% to 17%.
So coming at 15% to 17% CAGR, that once can assume for 2, 3 years, right?
Of course, if visibility is there only. As for the order book motions, government initiative and everybody is hoping that the same government will continue at least for the next 5 years.
Fair enough. Fair enough. And given our value-added product has much higher margins as you -- as compared to your established product, so is share, which is currently at 27%. So ideally, it per year based on what you are saying, per year issued increased by 3% to 4% per year -- for next 2 to 3 years, like it can go from 27% right now to 35%, 36%.
You are right. If you ask me the 3 years down the line, it will be around 64% established product and 36% value-added product.
36% value-added product. That is also coming as per [indiscernible]
That will give the substantial EBITDA margin increase, which is currently 14% to 16% can go up.
So 14% to 16% EBITDA margin in next three years, right?
Yes. Yes. You're right.
That is by FY'27, we are targeting?
Yes.
14% to 16% EBITDA?
You will see this year also the EBITDA expansion of 70 -- around 70 basis point.
This year, you're talking about which year, FY 20...
FY '24.
'24. Yes, of course. We are already seeing EBITDA margin expansion of 70 basis points.
The similar will continue as a percentage of value-added product, the increase will come.
Fair enough. I got it. And now coming on to the debt side, when we say that we are going to receive this $25 million, so that is -- that value we are saying for that 50% disinvestment thing, right?
Yes, yes, 50%. $25 million. It is roughly, we can say around INR 200 crores. And maybe the neck of the stability tax rate in everything may be around INR 175 crores -- but that entire thing will be used for the -- as I mentioned to you, for the debt reduction and benefit to the shareholders that we will decide on receive [indiscernible] consideration. And otherwise, the expansion of value-added product is ongoing as the company has adequate internal accruals available to take the expansion in -- which is already finalized.
Correct. so this INR 175 crores net -- on a net basis and plus INR 125 crores also you expect to realize over the next 6 months on noncore assets?
No, it will take, I can say, because we have just identified the last quarter only. Out of that, 1 transaction is already agreed. Balance, internally, we are keeping target to make it 0 by March '25.
By March '25. So by March '25, what should be our debt target?
If you ask me if we don't do anything divestment further, and then we will do the realization of these [indiscernible], at least we can reduce from INR 800 crores to around INR 400 crores.
How much?
INR 800 crores to around INR 450 crores.
INR 450 crores. So that's a significant debt improvement.
Of course, that will give the benefit of the interest cost, which is in the range of INR 100 crores will go down to INR 50 crores, INR 60 crores.
INR 50 crores, INR 60 crores. Yes, that's what I was trying to understand.
Yes, yes, you are right.
We can expect INR 50 crores, INR 60 crores interest cost for FY'25 as a whole?
The interest cost because it's inclusive of the non-fund facility cost also because we are in the government tendering business, especially in Composite Products in multinational companies where we used to provide -- we need to provide this performance guarantees for a certain period of 2 years, 3 years, 5 years. So we consider around INR 15 crores to INR 20 crores expenses on the account of the import, export documentation and the bank that the bank guarantee commissions, [ LC ] commission, et cetera. So even when we are debt free, but at least INR 25 crores to INR 30 crores expenses will continue considering the size of the revenue of the company.
So INR 50 crores, INR 60 crores, plus INR 20 crores. So ideally INR 70 crores to INR 80 crores.
No, no, no. Overall, I told you. It's INR 800 crores debt, the cost of the INR 80 crores plus around INR 20 crores, INR 100 crores are there. INR 100 crores will go down to INR 50 crores or INR 45 crores something. So around INR 60 crores, INR 70 crores cost we can expect for next year.
The next question is from the line of Rikesh Parikh from Rockstud Capital LLP.
Congratulations on a good set of numbers. Sir, first question is with respect to our divestment of this 50% stake. So does the contract [indiscernible] in 18 months or 24 months, we'll be selling the residual 50% by chance?
No. It is at least -- because the investor has come out, at least we'll see because it's a 50% we are selling. Balance 50%, the management [indiscernible] we will continue. And we'll see in the next -- at least, we will continue to run at least for 3 years. We have no any -- we don't require at all because you know very well. India and the Middle East relationship is increasing. You see how many times Narendra Modi has seen the -- Saudi and Middle East countries. Where the good expansion opportunity is there, we are taking the partners locally because we can grow faster. Even presently also we are growing 10% to 12%, but we want to grow faster, 18%, 20%, that is possible to do the faster expansion in the Saudi, especially where the good demands are coming new chemical companies are coming. Right?
Sure. And just an extension to that. So our current revenue mix between established and value-added 73-27. So this being traditionally being an established product, so that it will change to that 70-30 kind of thing if I exclude the Saudi 50% stake as such. Is the understanding right?
It's a very small, I tell you, as a INR 350 crores revenue for 3 countries, which almost either 50% selling point means 3.5% of the total revenue is INR 200 crores only. It's a very negligible in terms of the overall total turnover of the company. So it is not giving the much impact in the revenue part is concerned [indiscernible] part is concerned. But I again tell you, I think in the last call, somebody has asked me about this -- regarding the value-added products and the established product witness. As I mentioned in the 3 years' time, we are estimating 64% established business, [indiscernible] products and 36% value-added product in the next 3 years' time.
Sure. Yes, definitely. And secondly, just wanted to understand that we have a multiple registration regarding -- you answered the part about the oxygen cylinder. For CNG, we were doing an entire -- we are working with some auto company. So any progress on that, whether it's approved or something?
I think approval is already there as far as the automotive industry is concerned. Currently we are not capturing because we have already some value-added products are available, which is a cylinder plus entire set. So we are selling currently as a complete cascade. Definitely, automotive industry, a lot of things had to be done because presently, the entire industry is using the metal cylinder for the CNG applications. So we will -- we have approached, our process is on because process and approval time -- approval is already there for 60-liter cylinders. We have a capacity limitation. Therefore, we are not capturing that market currently. But definitely, after the completion of this expansion, which is going to be completed this financial year itself, we will definitely export the possibility and we get the business from automotive industry.
Okay. And sir, my last question. So we were exploring some negotiation in MENA region. Right now, we have not dropped [indiscernible] Is the understanding right?
No. MENA region, Middle East and South Africa.
Southeast Asia.
In Southeast Asia, as I mentioned to you now, the syllabus have been changed. Because we have already closed calendar year 2023 with a good result. So we'll see -- we'll talk again if we get our expected price, we are not desperately and we are not desperate to sell off that business.
The next question is from the line of Dolly Choudhary from Niveshaay Investment Advisory.
Congratulations on a great set of numbers. I had a question specifically regarding the IBC segment. So I just wanted to know the after the whole restructuring happens, so what will be our capacity by that time? Because I believe that some part of IBC also do overseas. So what will be the capacity after restructuring?
Restructuring is what is not negligible because currently, if you ask me, I have a IBC -- complete IBC and IBC bottle manufacturing. I have a capacity, all put together 1.9 million pieces, which includes overseas 1.4 million; India, 0.5 million. Overseas 1.5 million, which we are talking in the Middle East, we are manufacturing in the Middle East only, and that is a very negligible 50%. Capacity is 100,000. So it is affect hardly 50,000 IBC, which that is also not affecting I'm telling you. We are selling only 50%. It will come 100% revenue and 50% we will include in our revenue. So it is negligible [indiscernible] because IBC is the major business of IBC in U.S. and the South Asian countries, where our business will continue.
Okay, sir. Sir, this is like 0.5 million is in domestic business?
[indiscernible] 1.9 million, it will be 1.85, nothing, negligible impact. 500,000 only.
And like, are we planning to expand in some like 2, 3 years, the IBC business?
That's, of course, their already, we have expanded my subsidiary company, TTL Plastic, last quarter. They have completed one expansion project for 180,000 manufacturing capacity increased in the hedge. Another also expansion plan is there, looking to the requirement of the regions.
Okay. Sir, how much growth are we projecting for the coming 2, 3 years, let's say?
In fact, IBC projections, we are taking in the range of around 15% we are taking, being the export from India is increasing and bulk packaging is increasing compared to the -- because it's very clear, IBC is replacing some kind of the metal drum business and the plastic drum business because in [indiscernible] of 5 drums, they can handle the 1 IBC. One drum, 200 liters, 5 drums, 1 tonne, is equal to the 1 IBC, one-time material. So if asked me, packaging, plastic drums and [indiscernible] growing 8% to 10%. But if you ask me the IBC's, it is growing around 15%.
And India, we have majority of market share, right?
Yes, yes, of course, of course. Even wherever we are manufacturing IBC, out of 10 countries in 7, we are leaders, U.S., we are not leaders because very, very big manufacturers are there in the U.S.
The next question is from the line of Jayesh Gandhi from Harshad H Gandhi Securities.
Sir, I heard you talking about your intention to take ROCE to 20% in the next 3 years. And then that one of the parameters which you said is reducing the working capital cycle. So if I was just looking at your last 5, 7 years of data, it looks to me like we were closer to 100 or below 100 in working cycle. We are closer to 140 or something. Are we thinking of moving down to 100 or we'll not be able to do that?
No, no, it is there. In fact, we have -- when I -- I think you were there or not when I have given my brief about the presentation I mentioned very clearly, working the cycle time, which was in 2023. Last year, it was 112 days, which I am targeting to 90 days. If you ask me, even though I have not required 9 months, but if you ask me for the quarter, it is in the range of around 102 days. [indiscernible] reducing more. But again, ROCE is not only increase by way of working in the cycle time. ROCE is increased by increase in the percentage in total business of the value-added products, right? And increase in the overall EBITDA margin percentage basis that only will increase the ROCE.
Since I'm new to the company, I actually wanted to understand the opportunity size in composite cylinders, which is LPG, CNG and oxygen, if you can sell out 2 minutes on that.
I think if you want to understand more, you are welcome to my office, but in short, I can say -- we are in composite products. We have LPG cylinder capacity is 1.4 million sellable capacity, 1 million cylinder whereby utilization is around 90% is [indiscernible], and we are doing exports as well as local supply to [indiscernible] company. As far as CNG is concerned, we have a current capacity of 480 cascades manufacturing. I'm considering 60 cylinders in1 cascade. If you ask me the number of the cylinders, it is around 30,000 cylinders. Now my expansion for 680 cascades, which around 40,000, another cylinder is going to come this year itself. So my cascade business will be expanded in terms of the cascade will be 1,080 where we can generate the revenue by INR 800 crores around. So INR 800 crores plus INR 200 crores -- INR 250 crores from LPG, INR 1,000 crores from composite product we can do. Now the oxygen cylinder, there is no any separate capacity. It is within the capacity of LPG, we have manufactured and developed these products, and we got the approvals, but under process for the Army, Navy, government process is on. So whenever in the future we got ourselves ready if the [indiscernible] demands come from the oxygen cylinders we can supply that.
I think somebody has asked me previously why we are not expanding in the LPG? Because currently, we are supplying to government and some private [indiscernible] company, you must have seen the ad in [indiscernible]. GoGas, which is the confidential petroleum company. They are putting the edge, GoGas is the lightweight, explosion proof cylinders that is coming on every day. I also watch the same TV. You must have seen the red color cylinder. That is manufactural bus. We are supplying to team, supplying to them as in demand comes. Now the LPG, some private gas distributor companies are using in a government company, IOCL is using.
Now we are expecting some kind of a good business from the other gas distribution company, that is BPCL and HPCL, then only we will think about the expansion plan. But currently, in our expansion plan, we have CNG for the gas distribution industry, plus CNG cylinders for the automotive industries. And another thing for the CNG cylinders for the automotive industry, which is a very large market currently as the infrastructure, new gas stations are developing and expansion is there when the availability of the gas would be easy, then further -- you must have seen sales of the CNG gas cylinders are decreasing day by day. And every company -- every gas station company is increasing the gas station. If you go through the policy of October 2020, the business potential is around INR 12,000 crores for 8,000 new gas stations allotted by the government, right?
And sir, one last question is, can you define on the market share in LPG or CNG currently?
You've asked me LPG, if you asked me market share, who are the suppliers? We are the suppliers and other part of supreme industries where we are the 2 only in the LPG, but I'll just give you the data. LPG cylinder for a number of the years, you and we are all aware that the metal cylinders are in popular, 40 crores cylinders are in population, 40 crores. Every -- considering the life of the 15 years -- every year, 2 crores cylinders are required by the government companies and private gas distribution companies.
Against that, ours and supreme capacity is hardly, we can say the 2 million cylinders, which is the 10% of total capacity. So market is very big. Only just replacement take place. I tell you our experience in polymer drum. If you go back to 30 years back, or 35 years back, 100% metal drums were in population. Today, 60% drums converted from metal to the polymer drums. It took 30 years. Similarly, whenever this -- yes, apart this -- we are considering apart from gas line, government is also planning to give the gas connections, but it is gas connection pipeline is possible, economical the high-rise building. It's not economical in the villages, this is not economical in the small towns because cost of the [indiscernible] is very high.
How about CNG, sir?
Pardon, please?
And how about CNG?
CNG, still, I'm trying to collect the data, how many metal cascades are all leading the market, but I could not get. I'm asking every company what gets you in line. But just I have seen some of the paper cutting where somebody is telling we will grow by CNG cascades by 15%, we'll do -- because every automotive sector is growing by 15%. There is no -- because we tried ourselves to collect the data, how many CNG cascades of the metals are available in the [indiscernible] condition? We could not get it. If anybody who's hearing on the call, if he has, it will be good use for us. They can share with us because you must be attending all of many companies.
The next question is from the line of Priyam Parikh from Abacus Asset Managers. LLP.
Am I audible?
Yes.
Yes, sir, we have -- during this quarter, we have seen very good growth in the packaging product and the IBC business. So my question is around like due to the geopolitical issues and dumping of Chinese product in India, the chemical sector is facing headwind. So just wanted to -- in that context, just wanted, what -- how we are able to grow this well during this quarter?
My partner Raghupathy will answer you this.
So as we are facing -- as we know that China is facing headwinds, we are also in a position to experience a good amount of buoyancy overall. Multiple reasons are -- can be attributed. Overall, we are also in a position to see that there are enough people who are looking at options to China in terms of an optional buyer, and that is where the chemical industry is also be in a position to really experience that kind of shifting of the demand that could be really be seen. . Secondly, overall, the growth in the Indian industry is also for everybody to experience as the infrastructure industry is also growing very fast. There are lots of other couple of industries also which are investing and growing. The overall growth for the packaging industry also is keeping pace with these [indiscernible]. So we are also in a position to experience buoyancy not only in India, but even the geographies that we are in, whether it is the MENA region or whether it is the East Asian region, both the geographies also doing extremely well.
Okay. So rather than the headwinds, it is a tailwind for us. That's what you are trying to convey?
Yes, that's right.
Okay. Got it. Sir, on the CapEx side, you said that initially, we were targeting some INR 200 crores of CapEx during the year, but now that has been revised to INR 175 crores for this year. So I just wondered, are we postponing some CapEx to next year? Or is this -- we can achieve the targeted capacity with a lower amount of CapEx. So how would I interpret it?
I think you can consider yearly CapEx because once this year, it is estimated more because of the value-added product expansion of the CNG and hydrogen was ongoing, which, in fact, we had anticipated, it will come in this current year itself. But looking at the current progress of the machine and progress of the equipment, we expect that it will go to the next year. But it does not mean next year, it will increase to INR 200 crores. We, ourselves -- I think as I mentioned to you, we can take around INR 70 crores to INR 75 crores on account of the maintenance, automation, reengineering to maintain the capacity, to maintain the cost under control for molds and everything. And balanced expenditure we'll see time to time value -- if you ask me the next year, if net of the CapEx, we -- I think that INR 100 crores because we will get the sale of the assets also, which is there around INR 125 crores. INR 25 crores [indiscernible] is already under complete INR 100 crores, which ourselves keeping the target for next year. So net assets increase will be less than INR 100 crores.
Okay. Net of the receipt we are going to get?
Yes.
Okay. Got it. So on the conservative side, I go to your guidance about 15% to 17% increase for next 2 to 3 years. But if everything goes right, are we aspiring for higher amount of growth considering the good growth in this quarter?
No. I think growth, 17% and 18%, we got it. As I mentioned, you are aware that we got first quarter 22% business; second quarter, 24%; third quarter, 26%; fourth, 28%, right? This is our biggest normal scenario for the last 10, 15 years, like that we -- everybody has to target and government coverage Indian companies like that we achieved that business. Especially this year, quarter-on-quarter is also high. But as I mentioned to you, overall growth, combination of the composite products and other products, if you heard in my last -- somebody has asked me about the growth plan, I told very clearly, packaging product and other products, we are considering growth in the range of 10% to 12%.
Composite products, we are considering growth of around 13%, so combined growth, at least 15% to 17%, we can tap looking in the current scenario, at least for the next 3 years. Thereafter, hydrogen cylinders, which we have not considered only the trial testing approval part we have taken for -- till expenses part is concerned. But we will estimate the demand only on the after approval of the products. And after we will come back when we will do the revision in the next year, the growth plan, then we will able to tell you. At least visibility currently for the next 2 years, is there.
Okay, sir. And sir, if I can squeeze in, just want -- I missed the IBC bifurcation between the domestic and outside of India side. So can you just repeat it once, sir?
Yes, yes. The IBC means intermediate bulk containers, complete IBC. Then there is the second -- first part, IBC complete when we have an intermediate bulk continuous bottle that is called the bottles IBC, which is quite a part of the products. So we considered the first product is the IBC bottle manufacturing capacity, we have a 1.9 million means [Foreign Language] If you ask in -- I'm asking you still a lot of rooms are available. My utilization overseas across the property, I take it together, it's around 60%. Still there's too much gap is available to achieve their targets. And in India, it is around 75%.
Yes. So in terms of the sales amount debt also holds true for the sale amount as well. Is it correct to assume, sir?
Yes, sales will also grow because I tell you, IBC is the various components from there...
The bifurcation part, sir. So we are doing some 566 in the last 12 months in the IBC business. So the business coming from the outside India part and India part is the same proportion that you mentioned for the volume, right, sir?
No, no, no, little percentage of the overseas is more because capacity is more there. Almost if you asked me the realization point of view, it's 60% or 40%, 60% overseas IBC business, 40% in India.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
First of all, thank you very much to all to listen carefully and understand and asking about the -- in fact, we get more experience from you when you ask people so many questions. We keep ourselves ready. And we always valued our investor because you made so many people, and we are looking after our business in surrounding area. Thank you very much once again. Thank you.
Thank you, members of the management. Ladies and gentlemen, on behalf of PhillipCapital India Private Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.