ESTERNSEQ2 FY2413 November 2023

Ester Industries Limited

4,392words

56turns

5analyst exchanges

3executives

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Management on call

Arvind Singhania

the Chairman and CEO, Mr. Pradeep

Girish Behal

Business Head.

Pradeep Rustagi

Executive Director-Corporate Affairs and Mr. Girish Behal

Key numbers — 40 extracted

Rs. 244 crore

ce. To start with the headline numbers on a standalone basis, our revenue for the quarter stood at Rs. 244 crore with EBITDA of Rs. 3 crore and a loss for the quarter at Rs. 13 crore. The underwhelming performa

Rs. 3 crore

numbers on a standalone basis, our revenue for the quarter stood at Rs. 244 crore with EBITDA of Rs. 3 crore and a loss for the quarter at Rs. 13 crore. The underwhelming performance as previously highlighte

Rs. 13 crore

ue for the quarter stood at Rs. 244 crore with EBITDA of Rs. 3 crore and a loss for the quarter at Rs. 13 crore. The underwhelming performance as previously highlighted mirrors the on the ground hurdles our bu

14%

ties and inflationary worries grappling the US economy. In terms of product offtake, we have seen 14% growth in volumes on a sequential basis, although on a year-on-year basis it has degrown. The pres

Rs.130 crore

ters as the US economy starts to recover. It is important to mention here that basis revenues of Rs.130 crore of specialty polymer SPU generated during half one of FY23 we have achieved annual run rate of ab

Rs. 260 crore

specialty polymer SPU generated during half one of FY23 we have achieved annual run rate of about Rs. 260 crore. With EBITDA of approximately Rs.85 crore, as soon as global and U.S. economy revive, we are confi

Rs.85 crore

one of FY23 we have achieved annual run rate of about Rs. 260 crore. With EBITDA of approximately Rs.85 crore, as soon as global and U.S. economy revive, we are confident of bettering these numbers. We are c

11%

n October 2020. While the growth in demand continues to be robust with domestic demand growing at 11% to 12% per annum and global demand growing at 5.5% to 6% per annum, the supply has surpassed the d

12%

er 2020. While the growth in demand continues to be robust with domestic demand growing at 11% to 12% per annum and global demand growing at 5.5% to 6% per annum, the supply has surpassed the demand b

5.5%

ues to be robust with domestic demand growing at 11% to 12% per annum and global demand growing at 5.5% to 6% per annum, the supply has surpassed the demand by significant percentage leading to a chain

e robust with domestic demand growing at 11% to 12% per annum and global demand growing at 5.5% to 6% per annum, the supply has surpassed the demand by significant percentage leading to a chain react

25%

dded products. On a standalone level, we have seen our share of value-added products comprising 25% during the quarter. We are also working on new products that will enable us to improve profitabili

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Guidance — 19 items

Arvind Singhania

opening

“Most of the production lines that got commissioned in the recent past were put under implementation after we started implementation of Telangana project in October 2020.”

Arvind Singhania

opening

“Our efforts till then will be directed towards enhancing efficiencies and improving product mix by increasing the share of value-added products.”

Arvind Singhania

“We have only one more line left to be commissioned which will be commissioned by the end of this month or early next month, and I think we should start seeing some improvement in the next couple of quarters definitely.”

Arvind Singhania

“So, actually we are now I think in the next couple of quarters we should start seeing some improvement in terms of margin and I think by 2025 we will be in reasonably good shape.”

Arvind Singhania

“And I am very hopeful that towards the end of next year, we should be coming back to the numbers of last year.”

Pradeep Rustagi

“More or less the raw materials have been stable for the last two to three months and we don't foresee any major variation in the raw material cost going forward.”

Arvind Singhania

“They contribute very largely to the specialty polymers business, about 70% to 80% and right now because of the like I explained, because of the recession in the U.S and global recession actually the volumes have fallen quite substantially and we are hoping that this will start reviving by middle of next year, by the middle of next calendar.”

Arvind Singhania

“So, hopefully by sometime during next year, we should hear some positive if we get start getting positive effects of it also.”

Arvind Singhania

“So, I believe, or we believe that there will be a big switchover from BOPP towards polyester once this becomes effective.”

Arvind Singhania

“It's very difficult to give numbers, but I would imagine there will be a substantial boost to the consumption of polyester film.”

Risks & concerns — 9 flagged

On the other hand, the Specialty Polymers division safeguarded by intellectual property rights is not exposed to direct competitive risk, but it is nonetheless exposed to the challenges of a slowdown and the uncertainties grappling the U.S economy which is its primary market.

— Arvind Singhania

The performance of the specialty polymers business has also been affected by continuing recessionary pressure in the US, which is key and major market for this business.

— Arvind Singhania

We believe the pricing pressure will continue for a couple of quarters before the stabilization process starts.

— Arvind Singhania

EBITDA losses are largely owing to lower utilization level and the stress in the film business prevailing currently.

— Pradeep Rustagi

So, we had a meeting with the rating agency in the recent past and looking at the comfortable liquidity position they are not taking any negative view on the company per se, but in three months to six months’ time they would be looking at the industry in totality and then they may come out with some sort of correction if required, but this is our discussion with the rating agency as of now, there is no risk to the downgrade of the rating that we have obtained.

— Pradeep Rustagi

It's very difficult to give numbers, but I would imagine there will be a substantial boost to the consumption of polyester film.

— Arvind Singhania

And so coming to your quarterly numbers because compared to last quarter we had some impact of the shutdown at our facility in Telangana.

— Jatin Damania

And the last question, which is on the specialty polymer, so because we are seeing the near-term headwind because we are seeing a decline in the demand.

— Jatin Damania

Internationally, there is no capacity that we know of other than China, where some where some substantial expansions are taking place, but to get absolutely accurate information out of China is very, very difficult and they don't export anything, it's not really a threat to us.

— Arvind Singhania

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Q&A — 5 exchanges

Sir, firstly thank you for the opening remark that was very vivid and covered a lot of the aspects about the business part, but sir, if we take into account the cycle in which we are currently we must have faced this kind of excess capacity earlier also. If you could guide us, where are we in midst of the glut and then again the demand rising and again we returning to our normal margin situation. So, are we in midway or is the worse still there in terms of the pricing part and the lower utilization levels which would definitely happen as all players are bleeding and also new capacity. I think

Arvind Singhania

In terms of the pricing, we are at the bottom, we can't go any further, I mean, at least, substantially further. We are I would say, more than midway through the cycle. We have only one more line left to be commissioned which will be commissioned by the end of this month or early next month, and I think we should start seeing some improvement in the next couple of quarters definitely. Please also know one very important thing that as per the new plastic waste management rules which have been declared, they demand 10% recycled content in all packaging material. Now this is possible, and this is

So, I was saying, what are the sectors one must look at to see the signs of potential growth revival for Films business?

Arvind Singhania

What sectors should we look at? Polyester film actually addresses the flexible packaging business, while the specialty polymer addresses many sectors across the board, including consumer electronics, carpets, textiles, industrial rigid packaging, flexible packaging. So, we are we are actually addressing the host of applications in specialty polymer while polyester film addresses largely flexible packages, And the flexible packaging would be mainly consumer FMCG sector. So, my question is MB03 and innovative PBT these two products how much they contribute to the specialty polymer business? They

Sir, just wanted to understand more from an industry perspective now I mean you mentioned in the opening remarks that there was an oversupply and probably we are at the mid level of cycles and there's only one more line coming up in the coming month, but if you look overall, the industry, there are number of players are increasing our capacity. So, if you look in, I mean almost 58% capacity, we have seen an increase over December 21 in BOPET and similarly 23% in the BOPP and almost two third of the capacity is another lined up in March 2026. So, over a longer period of time how shall one look

Arvind Singhania

See, it's all a question of demand and supply. Right now, the supply is much more than demand, that is the reason why the margins are under compression, but the good news is that the demand growth is extremely positive, and it is growing at about 10% to 12% domestically and about 6% globally. So, this will lead to closing the gap between demand and supply very soon. So. let's say right now if you're at about 65%, 67% capacity utilization, the moment we start touching anything between 75% to 80%, we start seeing improvement in margins. So, it's wouldn’t not be too far away before we start seein

Sir, I was looking for an answer for the new capacity that will be commercialized in the near future, domestically also and internationally also the size?

Arvind Singhania

I think as far as the domestic is concerned, there's only one line coming up this year and one is coming towards end of next year. That's all. And there is nothing else stated till ‘26 or ‘27. And internationally, sir? Internationally, there is no capacity that we know of other than China, where some where some substantial expansions are taking place, but to get absolutely accurate information out of China is very, very difficult and they don't export anything, it's not really a threat to us. And sir taking into consideration the current domestic demand? Are films being imported in the country

Thank you all for attending the earnings call today and I look forward to seeing you all for the next earnings call for the Quarter 3. Thank you very much and have a good day. .

Management

Speaking time

Arvind Singhania

Saket Kapoor

Moderator

Jatin Damania

Pradeep Rustagi

Ajinkya Jadhav

Gavin Desa

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Opening remarks

Gavin Desa

Thank you. Good day everyone, and a warm welcome to Ester Industries Q2 &H1 FY24 Analyst and Investor Conference Call. We have with us day Mr. Arvind Singhania – the Chairman and CEO, Mr. Pradeep Kumar Rustagi – the Executive Director- Corporate Affairs and Mr. Girish Behal – Business Head. We will begin this call with opening remarks from the Management following which we will have the floor open for an interactive Q&A session. Before we begin, I would like to point out that some statements made in today's discussion may be forward-looking in nature and a note to this effect was shared with you in the invite earlier. We trust you have had a chance to go through the financial performance. I would now like to hand over to Arvind Singhania to make his opening remarks. Over to you, Arvind.

Arvind Singhania

Thank you, Gavin and thank you everyone for joining us today. I have alongside with me Mr. Pradeep Rustagi – Executive Director-Corporate Affairs and Mr. Girish Behal -- Business Head Film SBU I will briefly talk about the key Business Highlights, post which Pradeep will walk you through our “Financial Performance”. The current business landscape continues to pose challenges for both BOPET Films and the specialty polymer sectors. On a standalone basis, though the quarterly performance reflects improvement on a sequential basis at a broad level, it does mirror the pressures being faced by both these industries. We have seen our industry peers in the BOPET Film business report subdued performance in the same period as well. Starting with the BOPET Film sector and we have been emphasizing the significant increase in supply due to the introduction of new capacities, this surge in supply has negatively impacted pricing margins at overall profitability. On the other hand, the Specialty Polym

Pradeep Rustagi

Thank you and good day, everyone. Thank you for joining us on our Q2 FY24 Earnings Call. Let me quickly walk you through our financial performance post which we can commence the Q&A session. Starting with the revenues on a standalone basis the same stood at Rs. 244 crore as against Rs. 308 crore in the corresponding quarter last year, lower by 21%. The reason for the degrowth as mentioned by Arvind ji pertains to excess supply in film business and recessionary worries in US, the key market for our specialty polymer business. EBITDA for the quarter stood at Rs. 3 crore as against Rs. 30 crore generated in Q2 FY23 lower by 91%. Lower realizations in margins in the film business coupled with adverse product mix for the quarter in Specialty polymer business led to lower profitability and margin for the quarter. Loss for the quarter stood at Rs. 13 crore as against profit of Rs. 8 crore garnered in Q2 FY23. Lower offtake coupled with weaker realization/ margin resulted in loss for the quart

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