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Edited Transcript of SRF.NSE earnings conference call or presentation 5-Nov-19 10:00am GMT

Q2 2020 SRF Ltd Earnings Call

New Delhi Nov 13, 2019 (Thomson StreetEvents) -- Edited Transcript of SRF Ltd earnings conference call or presentation Tuesday, November 5, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Nitika Dhawan

SRF Limited - Head of Corporate Communications

* Rahul Jain

SRF Limited - President & CFO

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Conference Call Participants

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* Abhijit R. Akella

IIFL Research - VP

* Ankit Mukesh Gor

Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps

* Atul Tiwari

Citigroup Inc, Research Division - VP and Analyst

* Kunal Mehta

Vallum Capital Advisors - Research Analyst

* Naushad Chaudhary

Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps

* Nitin Agarwal

IDFC Securities Limited, Research Division - Analyst

* Resham Jain

DSP Investment Managers Pvt. Ltd. - Assistant VP

* Ritesh Gupta

AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals

* Rohit Sinha

Emkay Global Financial Services Ltd., Research Division - Research Analyst

* Sanjesh Jain

ICICI Securities Limited, Research Division - Research Analyst

* Sneha Talreja

Edelweiss Securities Ltd., Research Division - Research Analyst

* Sudarshan Padmanabhan

Sundaram Asset Management Company Ltd. - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the SRF Limited Q1 and H1 FY '20 Earnings Conference Call hosted by AMBIT Capital Private Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Ritesh Gupta from AMBIT Capital. Thank you, and over to you.

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Ritesh Gupta, AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals [2]

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Hi. Good afternoon, friends. I welcome you all to Q2 FY '20 call for SRF Limited. We have with us Mr. Rahul Jain, President and CFO for the company, to discuss the quarterly results.

I would like to hand over the call to [Mr. Shrina Ragaku] for his opening comments.

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Nitika Dhawan, SRF Limited - Head of Corporate Communications [3]

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Good afternoon, everyone, and thank you for joining us on SRF Limited Quarter 2 and Half Year FY '20 Results Conference Call. We will begin this call with brief opening remarks from our President and CFO, Mr. Rahul Jain, following which we will open the forum for an interactive question-and-answer session.

Before we begin this call, I would like to point out that some statements made in this call may be forward-looking, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier.

I would now like to invite Mr. Jain to make his opening remarks.

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Rahul Jain, SRF Limited - President & CFO [4]

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Good afternoon, everyone, and I extend a warm welcome to all the investors and analysts on SRF Limited's results call. I will initiate the call by briefly taking you through the quarter's key operational highlights, following which we will be happy to have a detailed Q&A session.

I am glad to inform you that during the quarter, we have reported a healthy performance. Most of our business segments have delivered encouraging operating and financial performance in a challenging domestic and volatile global environment. Growth was primarily driven by our Chemicals Business, where our revenue grew from INR 542 crore to INR 678 crore in Q2 FY '20, registering a growth of around 25% as compared to corresponding period last year.

Overall, in Q2 FY '20, revenues were stable at INR 1,738 crore. EBITDA increased by 12% to INR 357 crore, and the company reported a PAT increase of 56% from INR 129 crore to INR 201 crore when compared with corresponding period last year. This excludes profits from discontinued operations.

Let me share the segmental performance of our Chemicals Business, which comprises our Fluorochemicals and Specialty Chemicals. In the Specialty Chemicals business, we performed well, with strong demand witnessed in the overseas market. I am happy to share that our Dahej facility is now on track to deliver the planned customer commitments for the year ahead.

Speaking of the global scenario. The emerging markets such as Brazil and other LATAM markets recorded healthy growth, while U.S. market was affected due to adverse weather conditions. We continue to focus on increasing the portfolio for both agro and pharma offerings and further enhance our customer base in existing and new geographies with particular focus in U.S. and Europe.

Our Board has recently approved the CapEx of INR 40 crore to expand the capacity for production of a specialty product that also serves as the feedstock for certain emerging products. We expect the project to be commissioned by July 2020 and expect the capacities to ramp up in the next few years.

Revival in the agrochemical space was witnessed, and Pharma segment continues to sustain a positive trajectory, thus leading to higher sales during the quarter. On October 31, 2009 (sic) [October 31, 2019], we had also commissioned a dedicated facility to produce an agrochemical intermediate at a cost of INR 166 crore. There was a INR 26 crore increase in the cost due to the installation of additional effluent treatment equipment and changes in the design of the plant, as was initially envisaged. We believe that the ramp-up of this facility will be at an expedited pace and can significantly add to profitability in the medium term.

Coming to the Fluorochemicals Business. The business performed in line with the expectations during the quarter, owing to an increase in domestic volumes and market share of key refrigerants, despite the auto sector slowdown and an overall drop in global pricing of refrigerants. The sales growth covered [nested] ACs and refrigerator segment compensated for the subdued demand from passenger vehicles.

As an update on our newly commenced operations in South Africa, we are happy to report further strengthening of our market share. Our [fluorometerings] plant continues to perform well and contribute significantly to the overall business performance. As you will be aware, in August 2019, the Board had approved setting up of an integrated PTFE plant along with an R22 plant as feedstock at a cost of INR 424 crore. This will enable the company to enter the fluoropolymer stream, a new business segment, and further enhance the value chain. Going forward, we hope to successfully leverage SRF's inherent R&D and innovation capability in the PTFE segment as well as to develop long-term profitable business opportunity. The approvals for Dymel are on track, and supplies have driven to major Indian players and some of our overseas customers as well.

Over the last few years, SRF has transformed into a dominant player in the fluorochemical space with a healthy year-on-year growth. We have made prudent investments in innovation and technology, which will make us one of the very few fully backward-integrated producers globally. We are well positioned to further strengthen our leadership in the industry as demand scenario improves, and we leverage on our existing facilities to deliver superior performance.

On the CapEx front, I would like to share that on 31st October, we commissioned multiple facilities that enhanced our HFC capacity at a cost of INR 477 crore. This has been higher than our initial estimate of INR 356 crore on account of a few reasons, which include changes in scope of the facilities so as to allow for capacity enhancements at a future date and other impacts, which included rupee depreciation on imported equipment and changes in input costs such as steel and cement. While there has been an increase in the cost, we believe impact on IRR of this will be limited as we are confident of ramping up our volumes at a fast pace. This is a key expansion for us and will drive growth for this segment in the coming years.

Moving to our Packaging Films Business. We recorded a healthy performance during this quarter on account of higher volumes and improved margins. The exports and domestic markets, both in BOPET and BOPP segments, delivered a steady contribution to the performance.

EBIT margins remained healthy at 19.6%, an expansion by about 200 basis points. The business performed well, due to continued focus on maximizing savings by keeping costs under control, improving the product mix and working towards sustainability initiatives. While the BOPET capacity utilization of the industry is estimated to have improved globally, new BOPET lines are being commissioned that is expected to increase the supply in the short to medium term. SRF's own lines are also expected to be commissioned in H1 FY '21. All the new lines that are in the pipeline will add to global capacities of the BOPET films. So all these lines ramp up. After all these lines ramp up, we expect our margins to decline in the coming quarters.

Sustainability initiatives remain the topmost priority for the industry. Government of India is working aggressively on reducing their use of single-use plastics. This directive pertains to use of single-use plastic products such as plastic plates, cutlery, straws, plastic beverage bottles, et cetera, and its recycling. Our products do not cater to any of these end use and are used in multilayered packaging, which are not a part of the definition of single-use plastics. We are an environmentally conscious company and adhere to all environmental laws in all our manufacturing facilities. With the help of our in-house R&D, we are working our processes to -- so as to enable us to use more and more recycled chips in our field productions.

Further, SRF continues to garner accolades for its focus on superior operational performance. Our Indore SEZ and the DTA facility received 5-star rating for occupational health and safety from the British Safety Council, a first-of-its-kind recognition in the Indian packaging film industry.

Our Board has approved setting up of a BOPP film line in Thailand by SRF Industries (Thailand), a wholly owned subsidiary of the company, at a total cost of $50 million, making it our third BOPP line with facilities with India, South Africa and now Thailand. This line is expected to be commissioned by October 2021. While there is a demand-supply challenge in the industry currently, we believe our track record of BOPP lines established globally is solid. And Thailand being a net importer of BOPP films and our existing customer relationships, we are confident of replicating the success at this facility as well. Both BOPP and BOPET have their respective cycles, and this line will enable us to have a healthy diversification between the 2 substrates.

As an update to our upcoming facilities in Hungary and Thailand, we have already begun machine-erection works at both locations. With our new site in Hungary, we will be in a position to serve our existing customer based in Europe and also ramp up delivery to existing as well as new customers.

Moving on to the Technical Textiles Business. The segment reflected a subdued performance in the quarter and the whole year. The tire cord fabric segment performance was adversely impacted because of serious slowdown in the auto sector. Due to shutdowns and production cuts by tire companies, there was a notable slowdown in volumes, which on a month-on-month were lower by about 20%, 25% when compared to corresponding period last year. Replacement demand was also impacted due to financing issues faced by the industry.

Further, we also took a onetime hit of INR 28 crore on account of stamp duty demand, which stemmed from a negative decision by the honorable Supreme Court of India. The same was provided for during the quarter and subsequently deposited with the state revenue department. The company is on appeal and is seeking a clarification as regards to penalty.

In belting fabrics, the performance was in line with the expectations as value-added products aided higher growth in sales. In polyester yarn segment, the performance was impacted due to domestic slowdown and intense competition from Chinese peers. The Board also approved the capital expenditure for capacity enhancement and modernization of the tire cord fabric value chain at an estimated cost of INR 125 crore. This is an enhancement of the CapEx of INR 81 crore approved by the Board in its meeting held on February 4, 2019, to cater to enhanced customer requirements, stemming from the shift of some of our customers from SRF Industries (Thailand), Rayong. Capacities are being rebalanced with a view to maintain market share in the medium to long term.

Coming to the other segment. In coated fabric, we continue to maintain price and volume leadership. The laminated fabric segment witnessed an uptick in the sales volume on a year-on-year basis. The supply over situation -- the oversupply situation continues with new competitors coming into the fray that adversely impacted overall performance.

Our consolidated net debt position remains at similar levels as that of March 2019. We believe with further working capital initiatives, the overall debt levels will witness a reduction by the end of the current financial year.

You would also remember that on May 11, 2019, the company had announced sale of its Engineering Plastics business to DSM. The sale transaction was subject to meeting of certain closing conditions. These have since been complied with during Q2 FY '20, and the sale of the business has been effected. Post-transaction cost estimates and tax expenses, an amount of INR 175 crore has been included as packed under discontinued operations pursuant to the sale transaction.

The Board of SRF Industries (Thailand) Ltd., a wholly owned subsidiary of the company, announced the disclosure of the Technical Textile Business operations at Rayong as it was becoming economically unviable to continue running the plant. The relevant numbers have been reported under discontinued operations as well. The impact of the sale based on current estimated fair value of our assets and liabilities is estimated at around INR 76 crore. The disposal of assets and settlement of all liabilities will be completed by H2 FY '20. The net effect of all of the above will be recorded in discontinued operations in subsequent quarters as well.

Net-net, during Q2 FY '20, PAT was higher by an amount of around INR 100 crore on account of the above discontinued operations. On September 20, an ordinance was promulgated by the Government of India allowing Indian corporates to opt for a lower tax rate subject to disallowances of certain exemptions, and MAT credit not being available for [setoff]. As of date, the company is evaluating the impact of the same on its future and current tax liabilities, and any impact of the sale has not been considered in Q2 FY '20 results.

Before we conclude, I am happy to share with you that SRF Limited has recently been conferred National CSR Award 2018 in the category corporate awards in CSR in challenging circumstances, North, by his Excellency the President of India, Shri Ram Nath Kovind, in recognition of SRF Foundation's work towards improving the quality of education and revitalizing the infrastructure of government schools in Mewat, Haryana.

In conclusion, I would like to once again reiterate that our robust R&D capabilities, new capacities, skilled manpower and processes have given us a unique advantage in the business. Moreover, we are building deeper relationships with our customers and expanding our global footprint as we build an everlasting SRF brand delivering value to all its stakeholders.

On that note, I conclude my remarks, and we'll be happy to discuss any questions, comments or suggestions that you may have. I would now like to ask the moderator to open the line for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Ankit Gor from Systematix.

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Ankit Mukesh Gor, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps [2]

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Sir, my first question is with regards to spec chem, and you've guided for around 40%, 45% growth in spec chem for the full year. Also, while net in line with that number to track full year guidance of around INR 1,400 crores to INR 1,500 crores, really, I'm just -- obviously, I'm not trying to go get a breakup there, but I'm just trying to get the trajectory right or not.

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Rahul Jain, SRF Limited - President & CFO [3]

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I would think, Ankit, the point is that we are still going on with the guidance that we have given in the past with respect to the Specialty Chemicals Business. We believe that the H1 performance, other than the performance that had happened in Q1, which was slightly negative because of the shutdowns that had happened, we believe that Q2 has come out to be much better, and we are believing that Q3 and H2 in overall should give us a position where the guidance should be pretty much well met.

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Ankit Mukesh Gor, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps [4]

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Okay. Secondly, with regards to ref gas, as we mentioned that domestic volume and market share will improve comparatively, globally. Was it mainly because of any anticipation of [adverse] shutdown and the consumer -- maybe the inventory built up more, so you must have seen domestic volume and prices of product for air conditioning. Just can you give some light there?

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Rahul Jain, SRF Limited - President & CFO [5]

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Well, let me tell you, Ankit, the -- what you are saying is right to a certain extent that R22 has performed better domestically. The overall position on the ref gases has been better but more on account of non-car because the vehicle or the sales of, let's say, passenger cars has been much lower than expectations. And obviously, the negativity is pretty much well known across the country. So 134a did not do as well because of certain reasons on the technical side. What had happened during early August and September was that we ended up losing production of about 1,000 -- 700 to 800 to 1,000 tonnes because of some of the reactor capacities were not performing fully to the expectations. And when we opened up -- the technical team opened up the reactor, they found that the reaction capability had gone down. So we had to make some technical changes due to which the availability of R134a was much lower than our expectations. But despite that, as a fact, overall ref gases, including 22, 32, and the blends have done well. The negativity on the 134a still remains because of the lower availability for 134a as also the negativity on the passenger car sales.

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Ankit Mukesh Gor, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps [6]

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Okay. Got it. My next question with regards to the -- if I minus -- if I do consol minus stand-alone for us, if I put that number in Excel, I get EBITDA margin off that number is around 34%. So can you give us some insight on this? Because for example, EBITDA of consol -- understanding if you do and similarly, net sales is an EBITDA margin of 34% there. I'm just surprised for the reason.

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Rahul Jain, SRF Limited - President & CFO [7]

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Well, on a trend-by-trend basis, I can tell you that the standing joke now is actually, when you do consolidated minus stand-alone, what you end up seeing is only the Packaging Film Business because all of the Technical Textiles Business has moved into discontinued operations, right? What you are saying, I have not done the math on it. I have not seen the way you have looked at it. We will certainly have a look at what you are saying and come back to you with reason. But on an overall basis, I do believe that the performance of the overseas unit has been better.

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Ankit Mukesh Gor, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps [8]

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Okay, okay. My last question with regards to BOPP line. I mean we said we are setting a BOPP line 45,000 tonne with INR 350 crore sort of CapEx. So will it be a greenfield or a brownfield, this would be?

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Rahul Jain, SRF Limited - President & CFO [9]

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Well, it is in an existing site. So it is in the existing site on our -- in Thailand. So it is a brownfield expansion.

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Ankit Mukesh Gor, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps [10]

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Okay. So just to simplify this correctly, last capacity came in from Cosmo Films. These are bigger ones, which was around 60,000-tonne BOPP. Obviously, it's in India. They did a CapEx of around INR 200 crores with all metallizers in place. So that will -- the CapEx per tonne was around INR 39,000 per tonne in that case. And for us, the CapEx for tonne at this kind of math is around INR 77,000 per tonne. So can you please help me understand that, are their machines are more advanced? Or because -- what I'm seeing, they spend around INR 200 crores, I mean, including the currency and all those additional expenses now that they would have to set up capacity now. So I'm just trying to understand the cost explanation with regards to upgraded machines or some customized machines.

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Rahul Jain, SRF Limited - President & CFO [11]

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The line that we have ordered is a 10.6-meter line, right? So the cost efficiencies of this line will probably be higher. But again, I am not in a position to comment on what Cosmo did. So we will have to do an analysis in terms of what you are saying and see if there is value to it. But probably one of the best technologies is what we have ordered, and our line size is much bigger than the existing lines that are there in the market. So we will have to do a comparative in terms of what you are saying, but I can't comment on what CapEx

Cosmo did.

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Ankit Mukesh Gor, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps [12]

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Yes, sure. And just to tell you, they also did a 10.6, and they also bought from Bruckner's.

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Rahul Jain, SRF Limited - President & CFO [13]

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I have to check that out, Ankit.

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Operator [14]

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The next question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.

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Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [15]

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Sir, my question is on the opening remark, when you talked about rival in the agrochemical space and said that there is a lot more moat coming in from the emerging markets. While, I think U.S. continues to suffer. Sir, a bit more color with respect to the kind of inventories that are there in the market. And second is, when do we see U.S. also normalizing so that we could also benefit from both the developed markets as well as the emerging markets gathering momentum?

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Rahul Jain, SRF Limited - President & CFO [16]

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The comment that I've made in the opening remarks was more from our own product perspective. Now what kind of inventories, what kind of positions my customers are running with respect to other raw materials or other finished products, I'm not really sure. What I will tell you is that this is something that has happened over, let's say, H1 FY '20 where we've seen larger agro demand coming through, specifically for our products.

Now in my view, U.S. should normalize in H2. So to that extent, there should be some positive development on the U.S. side. But again, as of now, largely, our customer base is European. Some of our customers are now U.S.-based also. So to that extent, there should be some benefit that should come through. But when I look at the overall picture, the impact of the U.S. on our position is slightly lower than we would estimate otherwise.

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Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [17]

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Yes, sir. And sir, the kind of benefit that you are seeing, is specifically for select few products or basically for the -- most of the bouquet of products that you're offering to your clients on the agrochemical space?

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Rahul Jain, SRF Limited - President & CFO [18]

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That's not clearly identified or quantified. Fact is that, let's say, 5 or 6 of our key products have found traction. Other products were also doing well. There had been a negative over the last 2 years that we are seeing, which is now probably turning up and saying that the inventory buildups are happening. Again, it is very difficult to be able to quantify each of those in the specific region somewhere.

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Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [19]

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Yes. Sir, my final question is on the packaging division. I mean across BOPET and BOPP, I mean when you talk about capacity is coming in and the profitability kind of moving down, if you can separately talk about where we are seeing more pain points in the near term in terms of capacities, in terms of basically the spreads? And if you can elaborate a bit about -- because as the earlier participant also talked about margins being disproportionately high on the packaging businesses outside, I mean do we see that even this margin is going to sustain outside India and also within the capacity that we have in India?

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Rahul Jain, SRF Limited - President & CFO [20]

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Again, as I said, BOPPs have gone through some -- one of its worst cycles ever, right? Over the last 4 or 5 quarters, you would have heard us say that BOPP negativity is very significant and BOPP does not seem to be coming out of a negative position anytime soon. But again, to be able to tell you that BOPP is now showing some signs of recovery. More from the demand and supply matching perspective, there seems to be more -- let's say the demand growth is now taking over the current capacity. And therefore, the capacity utilizations are better. And to that extent, there is the positivity of the BOPP that's developing.

For BOPET, as I said last time as well, 2 lines were due to commence in H1. One of them was started by Jindal in end of August, and the other one was recently started by -- end of October by Polyplex. Now all of those capacities, 2 lines of SRF also coming through, [one of a channel], a couple of other lines also coming through in the next 12 to 18 months. There should be some additional capacities -- will be some additional capacities that created in the market, which will lead to, let's say, lower margins. Again, I would like to reiterate that our product profile and our customer mix has been structured in a manner that we should be in a position to deliver slightly superior results to the market. As more of the value-added products we do are delta, our value-added products should consistently go up. And that is something that we are aiming for.

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Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [21]

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Okay. And a little bit comment on your subsidiaries, sir. I mean on Hungary and the other subsidiaries, how their profitability is expected to be?

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Rahul Jain, SRF Limited - President & CFO [22]

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Still under construction, so there is no profitability on Hungary that is coming through in our results. As I said, you differentiate between the stand-alone and consolidated results, you will find the differential. All of that business is now Packaging Films Business. That is something that you can see in the results.

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Sudarshan Padmanabhan, Sundaram Asset Management Company Ltd. - Research Analyst [23]

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So sir, does margin -- is it sustainable in your expectations on the subsidiary?

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Rahul Jain, SRF Limited - President & CFO [24]

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One is BOPET and the other one is BOPP. Now as I said, BOPET margins overall worldwide are likely to get slightly lower than current levels. Again, our intent and our initiatives are in the range where we want to see our value-added products to be higher and therefore try and sustain margins. But although -- the value-added products will be sold at a delta from the (inaudible) or the commoditized product. So if the commercial margin or the commoditized product is lower, the delta will [renew] but give you a lower profitability.

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Operator [25]

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(Operator Instructions) The next question is from the line of Sneha Talreja from Edelweiss.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [26]

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It was pertaining to Packaging Films segment. Last quarter, we highlighted that there could be pressure mounting up in the coming quarters, but even in this particular quarter, we have seen pretty much positive margin. As you mentioned, there are 2 plants which have already come up, Jindal, and [one more]. So do you -- when do you see this pressure starting to come up in the Packaging Films segment?

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Rahul Jain, SRF Limited - President & CFO [27]

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What I have said was there were 2 lines that were expected to commercialize in the first half of the current financial year. Now one of them was to happen in June, July, that was delayed until August. The other one was to happen by July -- again, by July. That was delayed until end of October. So to that extent, there is a positivity that, that has been seen in the current quarter. We believe that this could be -- the [rollover] in margins will start from, let's say, November, December. And to that extent, there will be slightly lower margins that we will be able to foresee for future.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [28]

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Sure, sir. Good. Sir, are there any inventory losses within the Technical Textiles segment in the particular quarter?

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Rahul Jain, SRF Limited - President & CFO [29]

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Yes. We believe that the amounts range between INR 9 crores to INR 10 crores. This is largely on account of caprolactam going down from about $2,000 to a tonne to about $1,300 to a tonne.

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Operator [30]

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The next question is from the line of Resham Jain from DSP Mutual Fund.

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Resham Jain, DSP Investment Managers Pvt. Ltd. - Assistant VP [31]

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Yes. Sir, just one question on capital working progress. Out of INR 1,100 crores of total capital work in progress, I think we have around -- you mentioned INR 477 crores or some number for fluorochemical -- fluoro specialty chemical, which has happened in October. So can you just help split this number that how much is the number which we are going to capitalize in the overall chemical business and, within that, how much in refrigerant and how much in specialty chemical? That's it from my side.

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Rahul Jain, SRF Limited - President & CFO [32]

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Resham, the capital work in progress of INR 1,100 crores that you are seeing is -- does not include any of the INR 477 crores. That is there as of this date. That has all -- Okay. I understand. About INR 477 crores was capitalized on October 31, which has been adjusted. INR 160 crores was specialty, which was again capitalized on October 31, and the balance was specifically in my mind is the Packaging Films expansion.

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Resham Jain, DSP Investment Managers Pvt. Ltd. - Assistant VP [33]

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Okay. And sequentially also because of this incremental capitalization in Specialty Chemical, we will see improvement on a quarterly basis also in the Specialty Chemicals?

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Rahul Jain, SRF Limited - President & CFO [34]

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Yes. That was capitalized in October, we believe will ramp up at a faster pace.

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Operator [35]

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The next question is from the line of Rohit Sinha from Emkay Global.

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Rohit Sinha, Emkay Global Financial Services Ltd., Research Division - Research Analyst [36]

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Sir, just wanted to know that since we are pretty much on track for FY '20 Specialty Chemical numbers, so when will we be ready for commenting on FY '21 pipeline or growth target in Specialty Chemicals, please?

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Rahul Jain, SRF Limited - President & CFO [37]

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In Q4 sometime.

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Rohit Sinha, Emkay Global Financial Services Ltd., Research Division - Research Analyst [38]

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Okay. And just wanted to know, post this Technical Textiles shutdown, what kind of quarterly run rate you will be expecting in the Technical Textiles segment?

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Rahul Jain, SRF Limited - President & CFO [39]

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I can tell you roughly the volumes that we are kind of anticipating. Other than that, what will happen is something that is difficult to comment. More or less, my volumes have gone down by almost about 800 to 1,000 tons per month. To that extent, there is the negativity. We believe that by Q4, we should see some revival in this, some because of rebalancing of the portfolio of Technical Textiles, Thailand along with operations with some of these customers in -- from India. And obviously, on the margin side, we believe that there could be some more expansion in the margins because of the fact that total cost of production in India is lower than Thailand. So those 2 things should benefit. But again given the current slowdown in the auto sector, how that will pan out, how will that affect us going forward, numbers will depend on that as well.

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Operator [40]

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The next question is from the line of [Amar Moria] from Alpha Credit Advisors.

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Unidentified Analyst, [41]

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I have 2 questions from my side. Number one is the 1,600-ton expansion of this Specialty Chemicals, which we are talking about, is this a Chloromethane expansion.

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Rahul Jain, SRF Limited - President & CFO [42]

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Amar, I don't understand what your question is.

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Unidentified Analyst, [43]

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Sir, I'm saying the Specialty Chemicals expansion, which we had announced of around 1,600 metric ton additional, is this a Chloromethane expansion, which we mentioned that in a volume of the Specialty Chemicals?

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Rahul Jain, SRF Limited - President & CFO [44]

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Fortunately, I don't -- I'm unable to figure out the 1,600 metric ton that you were talking about. I don't understand your question.

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Unidentified Analyst, [45]

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Sir, I think we had -- I mean, in this, definitely, you had announced something for Specialty Chemicals also, around INR 30 crores of expansion for Specialty Chemicals?

--------------------------------------------------------------------------------

Rahul Jain, SRF Limited - President & CFO [46]

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That is purely for Specialty Chemicals. That has nothing to do with Chloromethanes.

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Unidentified Analyst, [47]

--------------------------------------------------------------------------------

Okay. So this is [agri] product.

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Rahul Jain, SRF Limited - President & CFO [48]

--------------------------------------------------------------------------------

Right.

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Unidentified Analyst, [49]

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And secondly, like probably a little bit of a high-end kind of a question. [Why take the] view, like given that now the kind of capital allocation, which we are doing, if you take a clearer view, what would be the kind of the mix we will have for the capital allocation of chemicals -- are there -- I mean, chemical overall as well as the Technical Textiles and the Packaging, worse than the current gross block? And how the revenue mix would look like in the next 3 years?

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Rahul Jain, SRF Limited - President & CFO [50]

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Amar, this question will take me 0.5 hour to answer. You want me to start?

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Unidentified Analyst, [51]

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If you want to -- I mean, probably...

--------------------------------------------------------------------------------

Rahul Jain, SRF Limited - President & CFO [52]

--------------------------------------------------------------------------------

Because the 3-year capital mix depends on how the market will behave. How much of a cash available that I have? What is my current expansion on my chemical side? What are the opportunities that will present themselves? What is it that I'm looking to do in the PTFE side? What is it that my Packaging Films business will do? To answer it in a bit short, let's say, a 2-line position is that our position on the Specialty Chemicals is that given the current situation, given our view on these Specialty Chemicals, we are saying that all the available cash that we have, given the right kind of opportunity, given the right kind of product, given the high-end molecules that you are targeting. If we are able to do that, there is no restriction on CapEx in the Specialty Chemicals Business. Fluorochemicals Business, we've just completed one CapEx we have just seen. We are now implementing CapEx on the PTFE. As these things pan out over a 2- to 3-year period, we will see the opportunity and look at Fluorochemicals Business. Packaging, again, we have just -- we are just in the process of completing 2 BOPET expansions, one in Hungary and the other one in Thailand. We've just announced another CapEx on BOPP, which will take about 24 months to complete. And based on our position and the cash available, we are saying that overall CapEx for FY '21 and '20 is kind of -- '21 is kind of straight up additionally INR 200 crores to INR 300 crores could be allocated. And going forward, we will see how the CapEx allocation happens.

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Unidentified Analyst, [53]

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Why I'm asking this thing (inaudible) the overall gross block, around what, 50% is allocated to (inaudible) and chemical. And given that now you don't have a margin left in the hedge, and then what -- now probably for -- you have to go for a greenfield expansion going forward?

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Rahul Jain, SRF Limited - President & CFO [54]

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That capability and available land in the hedge to expand further. In a 3- to 5-year time frame, there may be a position whether we will have to look at, let's say, a more greenfield expansion on the chemical side. But as of now, we have enough capacity in the hedge to expand the site further.

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Operator [55]

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The next question is from the line of Atul Tiwari from Citigroup.

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Atul Tiwari, Citigroup Inc, Research Division - VP and Analyst [56]

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Congrats on a good set of numbers. So just the consolidated net debt number, if you can share that, please?

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Rahul Jain, SRF Limited - President & CFO [57]

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It is there on my balance sheet, roughly about INR 3,700 crores.

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Atul Tiwari, Citigroup Inc, Research Division - VP and Analyst [58]

--------------------------------------------------------------------------------

Okay. Sir, if I remember correctly, we did talk about like a slight decline in this number this year. And it doesn't look like...

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Rahul Jain, SRF Limited - President & CFO [59]

--------------------------------------------------------------------------------

What I also commented in the opening remarks, Atul, we are saying that as of now the CapEx intensity has been higher, due to which the debt number seems to be higher. But luckily, my overall position also is the fact that my -- at the time a little bit higher. So my balance sheet leverage and the P&L leverage is pretty much all in control. We believe by the end of this year, there will be some reduction in this net debt number.

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Atul Tiwari, Citigroup Inc, Research Division - VP and Analyst [60]

--------------------------------------------------------------------------------

Okay. So we are -- I mean, broadly on track to at least keep it at somewhat lower level?

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Rahul Jain, SRF Limited - President & CFO [61]

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Broadly on track.

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Operator [62]

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The next question is from the line of Nitin Agarwal from IDFC Securities.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [63]

--------------------------------------------------------------------------------

Sir, on unit disruption, you talked about on the R-134a, how long do you see that persisting?

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Rahul Jain, SRF Limited - President & CFO [64]

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Now we've started. We have recently capitalized a new 135, and those issues that were there with R-134a, have, let's say, 70%, 80% sorted. Some of those are still being managed, but we are probably kind of getting back to full capacity in R-134a.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [65]

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And then secondly, the expansion that we've capitalized in October on R gas, by when do you see it getting optimally utilized?

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Rahul Jain, SRF Limited - President & CFO [66]

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Maybe in the next 18 to 24 months.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [67]

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This is effectively doubling off our current capacities, right? More or less across on aggregate level?

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Rahul Jain, SRF Limited - President & CFO [68]

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On the HFCs.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [69]

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Yes. On HFCs.

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Rahul Jain, SRF Limited - President & CFO [70]

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That's right.

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Operator [71]

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The next question is from the line of [Ritesh Jera] from Lucky Investment.

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Unidentified Analyst, [72]

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Sir, just one clarification on the CapEx and the CWIP, the INR 477 crores is basically the HFC capacity that you're adding, which is the 25,000 ton going to about 40,000 ton, 45,000 ton, is that correct, sir?

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Rahul Jain, SRF Limited - President & CFO [73]

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So roughly about 17,000 tons going to about [35,000].

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Unidentified Analyst, [74]

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Okay. And this is largely HFC capacities, right?

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Rahul Jain, SRF Limited - President & CFO [75]

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Yes. All HFCs.

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Unidentified Analyst, [76]

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Yes. Then there is this INR 165 crores petchem. Do you have any other petchem capacity expansion lined up? Or this is the INR 165 crores?

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Rahul Jain, SRF Limited - President & CFO [77]

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There are other capital work in progress items on the Specialty Chemicals that are there in the figures -- figures number I got as of September 2019.

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Unidentified Analyst, [78]

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And the CWIP includes INR 458 crores of your Packaging Films, which is Hungary and Thailand?

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Rahul Jain, SRF Limited - President & CFO [79]

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Yes. About that much, yes.

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Unidentified Analyst, [80]

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Okay. Now the additional CapEx is what you have announced, which is INR 135 crores Technical Textiles, INR 40 crores of feedstock for gas and $50 million of BOPP line. Is there any additional CapEx other than this or balanced CapEx, which is yet to be incurred?

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Rahul Jain, SRF Limited - President & CFO [81]

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Those strategies that are -- these are the 3 new announcements that have been made. There were previous announcements that have been made, which are still under implementation.

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Unidentified Analyst, [82]

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So there is PTFE of INR 450 crores?

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Rahul Jain, SRF Limited - President & CFO [83]

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Yes. But there is no large spend as of date on it. There is some spend, some that has been spent.

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Unidentified Analyst, [84]

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On PTFE?

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Rahul Jain, SRF Limited - President & CFO [85]

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On PTFE, then there is 317, there were other items also. So those that have already been announced, small and large, to a certain extent.

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Unidentified Analyst, [86]

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So what is the total CapEx that is announced totaling? And what is under implementation?

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Rahul Jain, SRF Limited - President & CFO [87]

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The total announced, which is under implementation, maybe about INR 800 crores, INR 900 crores. But I can't give you CapEx-wise detail as of now.

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Unidentified Analyst, [88]

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No. I don't want CapEx-wise detail, I just want a total amount.

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Rahul Jain, SRF Limited - President & CFO [89]

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Total INR 900 crores, which are now balanced.

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Unidentified Analyst, [90]

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Under implementation? Announced and under implementation is INR 900 crores, and what is announced is what you -- I mentioned these 3, 4 items, right? Which is a $50 million BPOP line, INR 450 crores and the INR 135 crores Technical Textiles INR 40 crores feedstock?

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Rahul Jain, SRF Limited - President & CFO [91]

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Right.

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Unidentified Analyst, [92]

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Right. That is announced, but not under implementation?

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Rahul Jain, SRF Limited - President & CFO [93]

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The implementation, that has already started. To some extent, it would have happened on these, minor.

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Unidentified Analyst, [94]

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Minor, right? But it's still is not in that INR 900 crores figure?

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Rahul Jain, SRF Limited - President & CFO [95]

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Not largely in the serious number. But not very significant amount in the serious number.

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Unidentified Analyst, [96]

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Okay. And then this totals 2-year number, whatever, about INR 2,000-odd crores?

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Rahul Jain, SRF Limited - President & CFO [97]

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Not sure what that means.

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Unidentified Analyst, [98]

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I said about this year and next year put together, that is FY '20 and FY '21, what will be your total CapEx spend?

--------------------------------------------------------------------------------

Rahul Jain, SRF Limited - President & CFO [99]

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Roughly in the range of INR 1,000 crores to INR 1,100 crores this year and about INR 700 crores next year.

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Unidentified Analyst, [100]

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That's what I was actually indicating, out of INR 2,000 crores?

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Rahul Jain, SRF Limited - President & CFO [101]

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What I'm trying to make is BOPP will get implemented over a 2-year period. The PTFE category INR 125 crores, that will be implemented over a 3-year period. Now to that extent, there is cash flow differentials that will happen over this period. So everything does not get clubbed in FY '21 is what I was trying to say.

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Unidentified Analyst, [102]

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Okay. PTFE will be over 3 years?

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Rahul Jain, SRF Limited - President & CFO [103]

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Over 2 years.

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Unidentified Analyst, [104]

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Over 2 years, PTFE.

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Operator [105]

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The next question is from the line of Sanjesh Jain from ICICI Securities.

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Sanjesh Jain, ICICI Securities Limited, Research Division - Research Analyst [106]

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One question on the margin side of Specialty Chemicals. I know it's not right to compare quarter-on-quarter. Just wanted to get a sense on the margin trajectory and how should we look at it from here. We have added around INR 75 crores of revenue quarter-on-quarter and a margin increase of around INR 52 crores. So this -- the way to look at it is there will be change in mix, and we have some savings, which would have cost us in last quarter from the H plant shut down, is it right to look at it?

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Rahul Jain, SRF Limited - President & CFO [107]

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Yes. Sanjesh, I believe you are looking at the chemicals business rather than just Specialty Chemicals Business.

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Sanjesh Jain, ICICI Securities Limited, Research Division - Research Analyst [108]

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Yes. Chemicals business as a whole. Sorry.

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Rahul Jain, SRF Limited - President & CFO [109]

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So what we are saying on the chemical business, there has been a margin expansion, let's say, between quarters for September '18 to quarter of September '19 by about...

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Sanjesh Jain, ICICI Securities Limited, Research Division - Research Analyst [110]

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But I'm talking about this quarter ended June '19 and September '19?

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Rahul Jain, SRF Limited - President & CFO [111]

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Again, roughly revenue about 600 basis points of expansion. Again as I said in the opening remarks also, the Fluorochemicals Business has kind of remained stable. So the large, let's say, impact of Specialty Chemicals Business has been seen this quarter. We've also guided you that the Specialty Chemicals Business cannot be looked at from a quarter-on-quarter perspective. You need to take more of an annual view on the Specialty Chemicals Business. As we said, the expansion seems to be well in place as of now. We are doing well on certain products. Certain products are adding to our revenues and our profitability, and thereby adding to the margin and the operating leverage as well.

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Sanjesh Jain, ICICI Securities Limited, Research Division - Research Analyst [112]

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Okay. We have guided earlier for a 25% EBIT margin in this segment over the next 3 years if I remember it right. Is it possible that given the kind of revenue trajectory we are witnessing, we may reach that margin earlier than anticipated?

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Rahul Jain, SRF Limited - President & CFO [113]

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What we are talking about, Sanjesh is something that I had said that -- what is the expectation from the Specialty Chemicals Business as an overall margin expectation? Our intent would to get there faster than, let's say, what we had initially estimated. But whether it will happen or not is something only time will tell.

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Sanjesh Jain, ICICI Securities Limited, Research Division - Research Analyst [114]

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But it looks like we are tracking much better than expected, is that the sense you're getting or...

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Rahul Jain, SRF Limited - President & CFO [115]

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(inaudible)

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Sanjesh Jain, ICICI Securities Limited, Research Division - Research Analyst [116]

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Okay. On the net debt, now that we are talking of net debt direction in coming quarters with improvement in working capital, which I can see on a Y-o-Y basis, our working capital basis has come down from 55 to 48. And given the EBITDA trajectory we are seeing, the 2x net debt to EBITDA, which we have and besides, we may reach it earlier now. So are we...

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Rahul Jain, SRF Limited - President & CFO [117]

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It will be reached this year-end.

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Sanjesh Jain, ICICI Securities Limited, Research Division - Research Analyst [118]

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Yes. Easily, this year-end. So how should we look at from there in terms of balance sheet and net debt to EBITDA? It's that we may accelerate more CapEx and look for more opportunity? Or we are looking at further deleveraging of our balance sheet? How should we look at it?

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Rahul Jain, SRF Limited - President & CFO [119]

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So it is a function of the ability to do more CapEx. If I do get the right size opportunity for expansion in any of my business, I am happy to go ahead and do more CapEx, because balance sheet is pretty much well leveraged. But it will depend on the kind of opportunity that presents itself.

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Sanjesh Jain, ICICI Securities Limited, Research Division - Research Analyst [120]

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Okay. One last question, just book-keeping question, 2 of them, probably. One is what will be your full tax rate for the full year, FY '20?

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Rahul Jain, SRF Limited - President & CFO [121]

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It's better that I look at it from a standalone basis rather than look at it from a consolidated basis because consolidated, there are multiple fiscal, let say in terms, that play out in Thailand, Hungary, South Africa and others. So when I look at it, I would say that in the range of about 29% to 30% on a standalone basis. This quarter, you have seen an impact of about INR 43 crores, which is there in the most to be accounts, which is essentially a onetime impact on the tax. Other than that, I think on an overall basis, it's about 29% to 30%.

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Sanjesh Jain, ICICI Securities Limited, Research Division - Research Analyst [122]

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No, already you have income tax in your log that says 25.2. So that should be an indicative...

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Rahul Jain, SRF Limited - President & CFO [123]

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If you would have gone through the notes, Sanjesh, and also the opening remarks. We have clearly indicated that we have not taken into account the 115b-a impact of the lower tax rate. This is something that is still under evaluation. We have a large max credit that is lined to our account in our balance sheet, which is purely the cash that will be available for set off. Appropriately, whenever there is the right time, we will take a call to move to the new tax regime, because the tax regime does not allow you to move back and forth into it. Once you've taken a call then you've taken a call.

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Sanjesh Jain, ICICI Securities Limited, Research Division - Research Analyst [124]

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Yes. That was probably very, very clear. Just one last small question. What is your maintenance CapEx for the entire year?

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Rahul Jain, SRF Limited - President & CFO [125]

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Even I don't count it like that. We look at CapEx on the return on investment basis.

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Sanjesh Jain, ICICI Securities Limited, Research Division - Research Analyst [126]

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Okay. We don't segregate it between the growth CapEx and then the maintenance CapEx.

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Operator [127]

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The next question is from the line of Abhijit Akella from IIFL.

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Abhijit R. Akella, IIFL Research - VP [128]

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One clarification on the Technical Textiles margins. So if I adjust for this INR 28 crores one-off charge we had there, the segment margins still seem very healthy this quarter at 15% plus, and that's despite the sharp compression in revenues. So how exactly are you seeing margin performance there going forward? Is this a sustainable level despite the slowdown?

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Rahul Jain, SRF Limited - President & CFO [129]

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Abhijit, again as I said during the opening remarks also, this is a function currently of the capacity utilization. Now if I am able to sustain the current capacity utilization, margins should remain normalized in that range. But given the current position that we are seeing, given the kind of extended negativity on the auto slowdown that we are seeing, looks a difficult thing to happen at least for Q3. Q4 should be kind of better. But again, as of now, it's very, very difficult to pinpoint in terms of how this will turn out.

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Abhijit R. Akella, IIFL Research - VP [130]

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Yes. But just to clarify, this quarter also the utilization would have been low, right, because the revenues are down almost 30% year-on-year?

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Rahul Jain, SRF Limited - President & CFO [131]

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Yes. But again, I have told you multiple times don't look at revenues because revenue is also a function of the price of key raw material which is lapping, which had fallen from $2,000 to a ton to around $1,300 to $1,400 to a ton. So my revenue number may not be the right, let's say, benchmark to look at my overall capacity utilization.

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Abhijit R. Akella, IIFL Research - VP [132]

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That's helpful. And one last thing was on the Fluoro Specialty business is on track for a very good year this year, and I know it's probably a bit early to talk about FY '21, but are the early signs that you are seeing in terms of order inflows, customer inquiries, et cetera? Are those -- those sort of indicate another strong year going forward next year?

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Rahul Jain, SRF Limited - President & CFO [133]

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Only in May of 2020, will you get a comment on that.

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Operator [134]

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The next question is from the line of Kunal Mehta from Vallum Capital.

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Kunal Mehta, Vallum Capital Advisors - Research Analyst [135]

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I have 2 questions. First, can you just give us some guidance on the indication on fluorspar? How is availability? And what is the pricing that you see for the next year -- for the coming 6 months and the next year?

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Rahul Jain, SRF Limited - President & CFO [136]

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Fluorspar, we have strategic raw material. We have a good enough stock for it. As of now, pricing seems to be the in range to $600 to $800 per ton. Again, depending upon the position, we will take a call in terms of increasing or decreasing our strategic stock. But I don't see that as a challenge today.

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Kunal Mehta, Vallum Capital Advisors - Research Analyst [137]

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Okay. And the second question is with respect to the Specialty Chemical Business. So in terms of your contracts with the top 3 customers, how are these contracts structured? I mean, what visibility do we have in terms of, should you think your production? And in terms of the chemicals that we manufacture here in this business, in -- of those chemicals you mentioned, which of those will be the ones we are one of the top few Fund II suppliers onto manufacturers in the world for those specific specialty chemicals? Just -- I don't want the names but the numbers.

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Rahul Jain, SRF Limited - President & CFO [138]

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I didn't understand your question. Can you please repeat?

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Kunal Mehta, Vallum Capital Advisors - Research Analyst [139]

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Yes. So in terms of the top 5 chemicals that we manufacture, are all those chemicals the ones where we are one of the -- maybe the top 1, top 2 only suppliers globally?

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Rahul Jain, SRF Limited - President & CFO [140]

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It's difficult to say because each quarter or each year, depending upon my contract, depending upon my customer requirement, there could be a position where we have some product, which has a higher revenue potential or generate a higher revenue. Then, let's say, my top 5 in FY '19 would be completely different to my top 5 in FY '20, right? More important thing to look at and understand is that we have a many-to-many relationship rather than a one-to-one relationship. So one of the products -- I have multiple products that I'm supplying to one customer, and I have multiple customers taking the same product from me also. So we have a many-to-many relationship. It is very difficult to say that what is the product that I am supplying to you and whether it serves to me as the top product for my revenue. I would really not be able to comment on specific products as such.

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Operator [141]

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The next question is from the line of [Pranav Agrawal] from Goldbridge Capital.

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Unidentified Analyst, [142]

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Sir, I just have a small question. At optimize -- at optimal utilization levels, what is the minimum threshold ROC, ROIC that the Board looks for before authorizing any CapEx?

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Rahul Jain, SRF Limited - President & CFO [143]

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It's different for each business.

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Unidentified Analyst, [144]

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But is there any flow to it for -- irrespective of the business?

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Rahul Jain, SRF Limited - President & CFO [145]

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When we look at it, we say it -- about 8 to 10 percentage points higher than our weighted average cost of funds.

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Operator [146]

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The next question is from the line of Naushad Chaudhary from Systematix.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [147]

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2, 3 quick questions I have. One is on R&D if you can share how much we spend on the R&D in first half of this financial year?

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Rahul Jain, SRF Limited - President & CFO [148]

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Again, from an overall perspective, Naushad, the amount of INR 75 crores to INR 80 crores on a revenue and about INR 25 crores to INR 30 crores on the CapEx annualized basis.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [149]

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Would you be able to share the last year same 1H number in R&D?

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Rahul Jain, SRF Limited - President & CFO [150]

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It is available in my annual report, please. And I can't share you -- share with you specifically on each H1 on a quarter-on-quarter basis.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [151]

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Okay. One thing I had in my mind when I was looking at your innovation portfolio, the number of patent filed in this presentation, you said, it was around INR 182 crores versus if I compare it with the margin, it was INR 170 crores. So in terms of growth run rate, I see there is a -- historically, in last 3, 4 years, we have been increasing this portfolio by more than 30%. But this time, it was around only 7% in one half. So there is a slowdown in terms of percentage. Any comment on this side, sir?

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Rahul Jain, SRF Limited - President & CFO [152]

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Unfortunately, I'll not be able to comment on that. This is a process that takes place over a period of time. At a certain point in time, you will always have to -- again, when you were saying 30%, the base may have been smaller, right? The numbers are still there or the results in my mind, but I'll have to check it out.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [153]

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Okay. In your Chemicals Business, this quarter EBIT level, we reported around 19% of EBIT margin. Do you see a further scope for improvement from this level? Or this is the base we'll work on?

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Rahul Jain, SRF Limited - President & CFO [154]

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Not possible to comment on that, Naushad, because we are not in a position to give you projected margin numbers. I can only tell you that the intent is to be able to see the operating leverage we have a bit better. But again, what is the guidance that I can give you on the margin percentage, sorry, not possible.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [155]

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Okay. Same for Technical Textiles Business. If I do the math, your adjusted margin was around 14%, 15% in this quarter. And you said the caprolactam prices were quite favorable in this quarter. So...

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Rahul Jain, SRF Limited - President & CFO [156]

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I said it was favorable. I only said we were lower. That doesn't mean that -- so in the -- again, as a percentage, the sale goes up.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [157]

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Okay. So considering the similar price of caprolactam in coming quarters with the lower utilization of your MPP capacity, do you see margin could be in pressure from current level in next coming quarters?

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Rahul Jain, SRF Limited - President & CFO [158]

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And I have said this multiple times, Naushad. The fact is that this is a function of the amount of traction that we see on the economy on the auto sector from our perspective. If there is a larger traction, if the, let's say, auto sales pick up, we would likely see more, let's say, operating leverage play out and the sales a bit higher, which would lead to an increase in margins. On the other way around, if the negativity continues, margins could taper off (inaudible).

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [159]

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Actually, what we are trying to understand, despite of lower utilization or adjusted margin or that quite similar level of historical peak of around 14% to 15%. So I'm just trying to understand, despite of lower utilization, we have been able to maintain this margin. So what are we...?

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Rahul Jain, SRF Limited - President & CFO [160]

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You're happy, right?

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [161]

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Yes. I'm happy about it, but I was just trying to understand whether this will be a benefit of the better raw material prices or some other factor, which would not be there in the coming quarters?

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Rahul Jain, SRF Limited - President & CFO [162]

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I have said this a lot of times. For the Technical Textiles Business, you need to look at the overall EBIT or the overall cash that it generates from an annualized perspective, rather than looking at it from a percentage margin perspective because, let's say, price of lactam goes up to INR 2,000 and my conversion factors remain the same, my percentage margin comes down. On the other hand, if the price of lactam goes up -- goes down, and my percentage margin and my conversion margin remains the same. My overall percentage margin goes up. So it is not really worth looking at it from percentage margin perspective, it is better to look at it from an overall EBIT or an overall cash number.

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Operator [163]

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The next question is from the line of (inaudible) from (inaudible) Securities.

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Unidentified Analyst, [164]

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I have a question on the new CapEx for BOPP. So you just mentioned that currently the demand/supply is largely balanced and this particular CapEx will come into effect in the next 24 months. So what is the rationale behind putting CapEx in Thailand? And with that, we are looking strong growth in the market? Or is it that we are going to replace the imports coming into that geography? And what are the kind of margins that we are looking for in this business?

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Rahul Jain, SRF Limited - President & CFO [165]

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So let me just clarify a couple of things. One, I never said that the demand and supply was balanced. I said that in the BOPP segment, we are seeing a pick up where the demand and supply is getting balanced. We believe that over the next 12 to 18 months, this will get balanced. As of now, supply still over exceeds demand by a large margin. Okay. We are saying that over a period of time, we are seeing the BOPP, let's say, the demand catch up with the current supply, and that is when our BOPP plant will come in.

Second, Thailand is a net importer of the BOPP Films. And because of our existing customer relationships, we believe we will be able to leverage those customer relationships. We now have 2 BOPP clients, one in South Africa and one in Indore. Technology for us is established, we are able to produce the BOPP Films as well. So therefore, we believe there is a possibility of ramping this up 50 as well.

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Unidentified Analyst, [166]

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Okay. And what is the margin...

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Rahul Jain, SRF Limited - President & CFO [167]

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I can't give you the percentage margins on the BOPP, specifically.

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Unidentified Analyst, [168]

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Okay. And generally speaking about the competitors, is there any possibility of somebody else also coming up with BOPP capacity? I mean, it is -- from your understanding of the market, have you heard of it? And if somebody wants to come up with capacity, those producers also will take 24 months for downstream capacity expansion, or it takes a lesser amount of time?

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Rahul Jain, SRF Limited - President & CFO [169]

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No. So typically, the delivery lead time of the line is anywhere between 24 to 38 months. We believe that anyone who announces a line today will take about that much time to install. There is no restriction on anyone coming up. So if anyone who wants to can put up a BOPP line. So there is no way we can go out and restrict that.

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Ritesh Gupta, AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals [170]

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Thank you very much. Due to time constraint, that was the last question for today. Ladies and gentlemen, on behalf of AMBIT Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

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Rahul Jain, SRF Limited - President & CFO [171]

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Thank you.