Ester Industries Limited (500136) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q4 and FY '25 Earnings Conference Call of Ester Industries. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Sharma from Adfactors PR. Investor Relations team. Thank you, and over to you, sir.

Good evening, everyone, and a very warm welcome to you all. Thank you, everyone, for participating in the earnings call for the quarter and financial year ended 31st March 2025. Before we begin, please note that this conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. The statements are not a guarantee of future performance and involve risks and uncertainties that are difficult to predict. On the call today, we have with us Mr. Arvind Singhania, Chairman and CEO; Mr. Vaibhav Jha, Deputy CEO; Mr. Pradeep Kumar Rustagi, Executive Director, Corporate Affairs; and Mr. Sourabh Agarwal, CFO. The management will take us through the operational and financial performance for the quarter and financial you have gone by, following which, we will open the forum for Q&A. I now request Mr. Arvind Singhania to take us through the company's performance. Thank you, and over to you, sir.

Thank you, Amit, and thank you, everyone, for joining us today. I will briefly talk about the key business developments, post which Sourabh will walk you through our financial performance. We are pleased to report a strong performance across both our business segments this year. Revenue from our Specialty Polymers business segment saw strong growth of 72%, while the Film segment recorded a healthy 15% increase. The Specialty Polymers SBU contributed significantly to the overall increase in consolidated EBITDA and delivered a remarkable 164% rise in EBIT. Now let me tell briefly on the performance of each business segment. Starting with the Polyester Films business, we continue to witness sustained growth in demand, which has positively impacted the demand-supply scenario, leading to improvement in margin profile and overall profitability. Additionally, a larger portion of high-margin value-added films contributed significantly to improve financial performance. Our transformation from commodity to specialty films player is progressing well. We expect to achieve improvement in profitability through a better product mix and improved operational efficiency going forward. With the plastic waste management rules, PWMR mandating a minimum 10% recycled content in flexible packaging laminates with effect from 1st April 2025. The demand for BOPET terms is likely to get a boost with accelerated conversion from other substrates to polyester. To serve the growing demand emerging from PWMR, we are enhancing our rPET capacity by putting up a production line of 20,000 tons per annum in Hyderabad, which is expected to be operational by over -- by August 2025. Moving to wholly owned subsidiary, Ester Filmtech Limited. EFTL generated revenue of INR 352 crores in value terms and 27,071 metric ton in volumetric tons an increase of 25% and 6%, respectively, over FY '24. The EBITDA for Q4 FY '25 was adversely impacted due to the foreign exchange fluctuation of INR 7.1 crores, the impact of the same financial year being INR 4 crores. However, on a year-on-year basis, the overall performance has improved with better margin profile on account of improved demand supply scenario. We anticipate that continuous growth in demand, improving production efficiencies, higher operating leverage and a favorable product mix will help us achieve better profitability going forward. Moving to Specialty Polymers segment. Specialty Polymers with a strong year-on-year growth with 72% rise in revenue and 164% jump in EBIT. The growth was primarily owing to strong demand from our marquee products, MB03 and Innovative PBT. For the quarter, our overall volume of sales, excluding rPET 754 metric tons. On yearly basis, volume, excluding rPET stood at 3,165 metric tons compared to 2,339 metric tons achieved in FY '24, higher by 35% on a year-on-year basis. In terms of key products, MB03 volumes 348 tons during Q4 FY '25 as against 368 tons during Q4 FY '24. Volume of sales of Innovative PBT for Q4 FY '25 stood at 374 metric tons as against 194 metric tons during Q4 FY '24. Specialty Polymers, as previously mentioned, are primarily produced for sales to overseas customers with substantial share of its sales directed towards clients in the U.S.A. and China. The primary applications of these products are within the carpet and consumer electronics sectors. From a margin and profitability standpoint, the business remains largely protected due to minimal competition and intellectual property safeguards associated with its key products. We are confident that the business will maintain its growth momentum in the coming years, supported by a promising product pipeline and human capital to pursue aggressive and focused R&D and marketing strategy for achieving growth in this segment. As far as rPET is concerned, the revenue from rPET FY '24 was only INR 2 crores, corresponding to volume of 157 metric tons. During FY '25, sales in volumetric terms increased to 1,486 metric tons, that is 1,486 metric tons and in value terms from -- to INR 16 crores, a notable increase. RPET manufactured and sold by us is primarily used for rigid and flexible packaging applications. Ester manufactures benchmark setting premium quality food grade rPET. This makes Ester a preferred supplier of rPET for many large FMCGs and brand owners. With regards to our 50-50 joint venture with Loop Industries, Inc., we are pleased to report that the execution of our joint venture plans are advancing according to established timelines. We are diligently pursuing various activities related to implementation of the project. In conclusion, we are confident about the long-term prospects of both our businesses. While the improving demand/supply dynamics and favorable policy environment in Film business are creating strong tailwinds, our emphasis on product innovation, efficiency and sustainability is positioning us well for the future. We expect Specialty Polymers to sustain growth momentum and deliver consistent performance in years to come. That concludes my opening remarks. I now hand over the floor to Sourabh to walk you through our financial performance. Over to you, Sourabh.

Thank you, and good day, everyone. Thank you for joining us on our quarter 4 financial year '25 earnings call. Let me quickly walk you through our financial performance, post which we can commence the Q&A session. I would like to start with the standalone financial performance. Total income for quarter 4 FY '25 stood at INR 261 crores, up by 19% on a year-on-year basis. EBITDA for the quarter was INR 36 crores, translating into EBITDA margin of 14%, a significant improvement compared to EBITDA margin of 4% earned in quarter 4 FY '24. Profit after tax for the quarter stood at INR 12 crores compared to a net loss of INR 9 crores incurred during quarter 4 FY '24. For the full year, the total income stood at INR 1,085 crores, achieving a growth of 23% on a year-on-year basis. EBITDA surged to INR 134 crores from INR 23 crores in FY '24, a significant increase by 485%, driven by improvement in performance in performance of both Film and Specialty business. EBITDA margin expanded from 3% to 12%. Profit after tax stood at INR 41 crores, a strong turnaround from a loss of INR 43 crores in the previous year. Profit after tax margin stood at 4%. Coming to the subsidiary as Ester Filmtech, the total income for the quarter was INR 78 crores. EBITDA earned during quarter 4 FY '25 stood at INR 2 crore, which reflects a margin of 2%. EBITDA and profit would have been higher but for adverse foreign exchange fluctuation of INR 7 crores on account of foreign currency loan availed by the company. Exchange fluctuation is on account of reinstatement of foreign currency liability as on 31st March 2025. For the full subsidiaries income stood at INR 352 crores as compared to INR 281 crores during FY '24, which is a 25% increase on a Y-o-Y basis. Company could earn EBITDA of INR 31 crores as compared to a loss of INR 19 crores during FY '24, translating into an EBITDA margin of 9%. Ester Filmtech recorded a lower loss of INR 26 crores compared to a loss of INR 78 crores incurring in FY '24. On a consolidated basis, we delivered a strong performance for the quarter with total income at INR 321 crores, reflecting a 15% year-on-year growth compared to INR 280 crores in quarter 4 FY '24. EBITDA increased sharply to INR 39 crores from INR 9 crores, registering a growth of 300%, while EBITDA margin expanded from 3% to 12%. Profit after tax turned positive at INR 2 crores as compared to a loss of INR 24 crore in quarter 4 FY '24. For the full year, our performance has been in line with our expectations. We achieved a total income of INR 1,298 crores backed by strong revival across both the businesses. EBITDA surged to INR 164 crores, a remarkable increase from INR 3 crores in FY '24. This achievement is a reflection of the transformative progress we have made as an organization. EBITDA margin expanded significantly to 13%. Profit after tax earned during the year amounted to INR 14 crores compared to a loss of INR 121 crores last year. This exceptional term is driven by strategic clarity, relentless focus on increasing proportion of value-added products and ramping up sales of Specialty Polymers. Both EIL and EFTL have been absolutely regular with repayment of term loans as per schedule. Basis the budgeted improvement in profitability, coupled with free cash flow and bank balance in hand, we are absolutely confident of adhering to the repayment schedule. On the working capital front, both companies have adequate limits to sustain budgeted enhanced operations. Liquidity of EIL and EFTL as defined by current ratio stands at 1.71 and 1.68, respectively. On a consolidated basis, net debt was INR 591 crores, which as a multiple of EBITDA stood at 3.61, a substantial improvement as compared to 31 March 2024. Financial year '25 has the year marked by strong revival and margin expansion across businesses as we return to profits. The implementation of strategic initiatives translated into solid revival both in operational and financial terms. Our progress in recycling, sustainability and value-added offerings positions us well for a long-term sustained growth. With a strong foundation in place, we remain confident of a better FY '26 and beyond. That concludes our opening remarks. We can now commence the Q&A session. Thank you.

[Operator Instructions] The first question comes from the line of Saransh Gupta from SVAN Investments. [Technical Difficulty] The participant line has been disconnected. We'll move to the next participant, that is Saket Kapoor from Kapoor Company.

Thank you for a very detailed presentation, rather a revamped one. And that not only covers all the aspects but we have also chosen the right set of colors and the background to have a better presentation. So kudos to the team for improved set of not only the numbers but also improved set of investor presentation. I hope we follow the modules going ahead. Sir, firstly, when we look at -- in the presentation, we have mentioned about rPET part under the Specialty Polymer segment. So if you could just explain to us what would this contribution going to be? How are the realization you did alluded to it in your opening remarks? [Foreign Language]

So actually, the rPET is more going to be focused on supplying the polyester film with rPET content with recycled content. So this will actually move to the Film business slowly.

Okay. So that will be an arm's length transaction where it will be booking the revenues on -- firstly, on the Polymers side and then the same goes the -- value addition goes to the Film. That is how the sales will go pass through to the P&L?

So, basically, RPET is right now a part of the Specialty Polymers business segment and we are going to move it from a reporting point of view to the Film business segment from next year onwards. So from a legal entity structure point of view, there's no arm's length transaction because it is a business unit of the company, and the sales are made to third party, which is outside the company.

Okay. Sir now coming to point -- yes, yes, please.

The rPET that we are getting commissioned in Ester Filmtech, if that is required to be sold to Ester Industry, that will be at arm's length.

Sir, when we look at our consolidated number, that is the performance of our Telangana unit, it was affected because of noncash items, which was mentioned about INR 7 crores exchange fluctuation. Other than that, sir, what were the key factors on a Q-on-Q basis that led to lower profitability from the 7 unit Ester Filmtech?

Okay. So the -- one of the main reasons was that there was a surge in imports from China and Thailand at predatory pricing at very, very unremunerative pricing. And that is the reason we had to -- there was a correction in the pricing in the domestic market for us there. But we are taking adequate steps to protect our interest because these prices are unremunerative, they're dumping prices, they are dumping and therefore, we are now moving to protect our interest in the domestic market, and we are moving the government to address the situation.

Sir, could you throw more light, how have the realization shaped over the quarterly period because even on a stand-alone basis, there is a dip in the profitability. So if you could just give us how the per kg contribution move from December to March quarter? And what are the current trends?

So in December quarter, the selling price of 12-micron -- 12-micron commodity film was INR 117 when talking about Ester Filmtech, which reduced INR 210. The value addition dropped from INR 36 a kg to INR 26 a kg because of the region, which Mr. Singhania just now mentioned.

So there was a drop in valuation of INR 10, which is quite substantial. That is the main reason for the drop in profitability.

Okay. And what are the current trends, sir?

Current trend is slight better. As we speak now, it is slightly better, not back to December quarter numbers yet.

But we still have -- 1.5 months of the quarter is still left with us.

Right, right, sir. And also on the utilization levels, part that I think so, our 7 unit has utilizing levels closer to 60%, 57%, as mentioned. So taking into account the stress and the current environment, what are we eyeing in terms of the utilization levels going ahead?

I think now we are seeing a far more balanced demand-supply scenario, and we expect the utilization levels to be at much, much higher levels that we have seen in FY '25. I think FY '26 will see a substantial improvement in capacity utilization. I think it will be in the 85% plus.

And last year, on a consolidated basis, the capacity utilization in Film was close to 70%.

This year, it will be 85% plus.

Okay. Right, sir. And on the CapEx part, what are we -- so we have closing balance for consol level at INR 40 crores? So what are we going to spend for the current year?

So we are going to be -- we're not adding any capacity, no major -- no capacity expansion is taking place. We are only doing CapEx which is required for sustenance and maintenance and improvement in quality of the assets. So -- and of course, which includes about INR 50 crore investment in rPET, which is going to be commissioned in August in Hyderabad. So including that, our total capital outlay for this year is about INR 110 crores to INR 120 crores.

Okay. So INR 50 crores towards the rPET and the balance amount?

The sustenance and maintenance CapEx.

Okay, sir. And lastly, sir, you alluded to some factors, although you have just given some clarification that margins have started to improve. But taking into account a tariff, introduction of tariff and the geopolitical reasons because of which there was a sudden dip in the margins or because as per the capacity addition, we have not seen any major capacity addition in the BOPET segment. So what led to this sudden decline in margin? And what would happen in order to arrest this fall? And what should be the sustainable number as per your thought process on that?

I just told you that the reason for the fall in margin was because of this surge in imports from China at a very, very low pricing. And that is the reason why we had to drop prices and margins spend. But going forward, this will be maintained at about INR 30 to INR 35 value addition, gross value addition. Going forward on a 12-micron film basis. The geopolitical situation, tariff war has not caused any major -- is not the reason for this problem. For us, we have not been hit by that very marginally, so at all. Very, very marginally so. So going forward because of increased capacity utilization, which I just mentioned will be more than 85%. And even if the margin gain at -- the gross value addition remaining at 30%, 35% -- INR 30, INR 35, we also -- with the impact of the increased value-added sales, I think we're going to see much better numbers going forward.

[Operator Instructions] The next question comes from the line of Saransh Gupta from SVAN Investments.

First question was that, can you give us some light on the JV, like how is it going ahead?

JV is progressing very well, and we are moving as per the timelines, and we are moving towards -- we just completed our FEED engineering study. That was to reconfirm the CapEx estimates that we have made and the -- and that has been reconfirmed by the engineering company that the estimates that we had made were in line exactly -- very much in line with what we had made. And now we are moving towards the acquisition of land. And -- so we are progressing very well, and we hope to start in the second half of calendar year '27.

Great, sir. And also, sir, how much CapEx investment will we be doing in FY '26 for the same?

So the total -- that's a joint venture. It's a 50-50 joint venture between Ester Industries and Loop industries of Canada. So the total CapEx outlay is expected at about $175 million to $180 million.

With a debt equity of 70-30.

So approximately both Ester and Loop will be investing about INR 250 crores to INR 255 crores as equity, both of us each, INR 255 crores will be investment from and INR 255 will be the investment from Loop in terms of equity. The balance will be debt, which will be raised by the joint venture company, which is Ester Loop Infinite Technologies Private Limited.

Correct. Sure, understood. And sir, what are the current spreads going on like for the April and the May month?

[Foreign Language]

Yes, sir.

It is about INR 103 for 12-micron film.

Does that answer your question, Saransh?

Sorry, sir, can you repeat? I guess I missed the amount.

Yes, it is INR 103 approximately for 12-micron film.

Okay, perfect. And sir, one last question that the capacity that we are expanding for rPET, will -- like is there any capital consumption for that? Or are we like selling it only?

No, no. The capacity expansion is meant for captive use largely because like I said that the plastic-based management rules have mandated, a minimum 10% recycled content in the laminate, and this will require us to supply our customers with polyester film containing recycled content. So largely, it is targeted for self-use so that we can meet the customers' demand for polyester film with recycled content.

Okay. Understood, sir. Sir, just 2 more questions that I have. Sir, what can be the peak revenue from Specialty Polymers that we are looking at?

Peak? In which for what period are you talking?

FY '26 and '27.

Well, peak can be anything but we are targeting a growth -- CAGR growth of 25% to 30% in Specialty Polymer business year-on-year.

And we closed '25 with a turnover of about INR 170 crores in Specialty Polymer.

Okay, understood. Sir, just one last question. What was the import by China done in FY '25 or if you can tell us about calendar year '24?

I wouldn't have that number, but I would -- I can tell you, approximately, don't hold me to it but approximately about 40,000 tons of import took place in the last 6, 7 months.

Jan to March quarter, the imports would have been at least 24 to 25 kgs.

And sir, does the same trend continue in the month of April and May because you indicated that the value-added margin has declined by INR 10 a kg in the last quarter. So for the April, May or for the current quarter, does the trend remain same? Or we have seen some sort of softness as well?

April, it was -- the trend was the same. May, we have yet to see because May numbers will only be known in middle of June.

But what we see is that or what we anticipate is that now the tariff situation between China and U.S. has eased up. So that should lower the pressure of Chinese suppliers in terms of dumping their material in India. So we are expecting a sustained trend of reduction in the import numbers going forward.

The next question comes from the line of [ Rahil ] from Crown Capital.

Yes, sir. So in terms of like on a consolidated level, what are you expecting in terms of revenue growth by FY '26? And what will be the key growth drivers there?

I think -- yes, we -- so we closed the financial year '25 with a consolidated turnover of INR 1,100 crores. We are expecting anything between INR 1,450 crores to INR 1,500 crores in FY '25, '26.

But what kind of EBITDA margins do you think you can do?

So EBITDA margin should be in the range of about 13% to 16% for the company.

Okay. For FY '26. And with regards to the key growth drivers, like where is the demand the strongest.

There will be a growth in Specialty Polymer business. Like I said, we expect to grow by about 25% in Specialty Polymers. And of course, because of better capacity utilization, up from 70% to more than 85%. So there will be a substantial jump in turnover because of polyester films. And on top of that, we are expecting a very healthy growth in our value-added and specialty film portfolio. So we closed the year with -- on a consolidated basis of 23% of our production was of Specialty Film, which we expect to grow to.

27% to 28%.

27%, 28% in this year. So all these will contribute to the...

And this proportion of 27 is in a higher volume of total sales of film business.

Right. Okay. And sorry, just a confirmation, what was the ForEx fluctuation you mentioned earlier, the amount for the whole year?

So the amount for the whole year was INR 4 crore. This is basically on account of the foreign currency loan that we have taken in Ester Filmtech from OLB Bank Germany in euro denomination.

The next question comes from the line of Deepak Malhotra from CapGrow Capital Advisors.

Okay. First of all, congratulations to you on a very good set of numbers. I think the problem what we saw in quarter 4 or I should say, almost 18 months back, I think that is over, and that's showing you the numbers. But what is typically -- what we have seen over the last 30 years in the industry, we are going to see it again. Now again, we are seeing that Polyplex have announced some time back almost INR 560 crore expansion to put other 50,000 ton to put up a 50,000 tons polyester film plant. Jindal Poly has announced INR 700 crores expansion program, part of which again will be in polyester film. And overall, this nameplate capacity in polyester film is again going to go to almost 16 lakh tons per annum and BOPP also, a similar number if all the lines, which are now being imported as they get installed over the next 2 years. So while we are, again, basically come up from a situation of a trough in the cycle, we are again seeing substantial capacity expansion within the country. And obviously, as you also alluded to China dumping in the quarter. So how do you see really the market developing over the next 2 to 3 years? And where are we in the cycle? And two, how it will affect the margins, please?