Key takeaways of the call

Indian operations (70% of total revenue) of the company were subject to strict lockdown for a large part of this quarter. It was only in phase-3 and in phase-4 of the lockdown, that the company resumed operations subject to the limitations and strict health guidelines. Overseas units were not as severely impacted as they were able to get permission from the respective governments to run plants.

Overall production is ramping up month on month basis and expect to return to normalcy by end of H1FY21.

Sales volume for the quarter was down by 43% driven largely by 51% fall in India volume and that of overseas was down by 25%. Sales in value was down by 45% to Rs 475.20 crore. Value added products de-grew by 42.2% in Q1FY21 as compared to Q1FY20. This is lower than the de-growth in established products of 46.0%. The share of value added products is 21.3% of total sales in Q1FY21 as against 20.1% in Q1FY20. The company's focus remains to increase the share of value added products in its revenue and improve margins.

Incurred a total capex of Rs 14.5 crore in Q1FY21. Capex for balance period of FY21 will not be more than Rs 100 crore which is largely towards maintenance and debottlenecking programmes.

Of Q1FY21 capex about Rs 6.3 crore is toward established Products for capacity expansion, re-engineering and automation; Rs 8.2 crore for Value Added Products.

Capacity utilization for Q1FY21 was 45% overall with38% for India operations and 56% for overseas. Capacity utilisation as of today was about 60% in India and 65-70% for overseas.

It is difficult to give outlook at current moment how overall FY21 will be and target to be at 75-80% of last year. The production improved in Q2FY20 after easing of local lockdown. Expect Q2FY21 to see 25-30% growth over Q1FY21. Expect Sep 2020 onwards things to get normal. So Q3FY21 is expected to come closer to Q3FY20. And things will get settle down in Q4FY21 and will be comparable or marginally higher compared to corresponding previous period.

Of the total expenses about 80% is variable and 20% is fixed.

Composite Cylinder

The Company is getting overwhelming response from customers for Composite Cylinder for use in filling of LPG.

The Company has received in August 2020 coveted approval from Petroleum And Explosives Safety Organization (PESO) and Bureau Veritas for the first time for Indian Cylinder under International Standard ISO:11119-3:2013 as applicable for manufacturing of Fully Wrapped Carbon Fibre Reinforced Type-IV Composite Cylinder for CNG Cascades. This highly technical product has huge business potential and has been developed by Company's R&D Team in last 3 years.

The market growth of CNG cascade and on board application has to be watched out.

The composite cylinder weighs just about 23% of the weight of the steel cylinders and will be better suitable for CNG vehicles.

The company will initially establish the CNG business by diverting some capacity of LPG cylinders and once established and required volume is achieved, the company will go for separate CNG cylinder capacity. The company will put up 80000 cylinder capacity for CNG in two phases (40000 cylinders in first phase).

The CNG cylinder plant is not an immediate one. As the gestation period is just about 6 months the plan will be finalised once the business got established or clocked sizeable volume. Once set up the CNG plant will get incremental revenue of Rs 300 crore 2023-24.

Industrial Packaging

Company has commenced production in August, 2020 at its third green field manufacturing facility at IOWA in USA, for manufacturing of packaging products i.e. IBC and large sized drums for servicing to the customers in local surrounding regions. The company has earlier completed Greenfield expansion at Chicago & Houston, USA and company is receiving overwhelming response. The revenue potential of all the three greenfield plants is about USD 35-40 million. The US operations will get an EBITDA margin of 16-17%.

With the company being the fourth player in the US market has strong growth potential. The company has strong relationship with some of leading US companies such as BASF etc. in Asia and thus not an unfamiliar one for most of the companies in US. As the established players could not maintain delivery schedule the company could capitalize on it.

Brownfield expansion in India and overseas locations continues for future growth and leveraging of existing infrastructures.

Pipes

PE Pipe business continues to have a healthy Order Book of about Rs 325 crore.

The company has done virtually nothing in Q1FY21 and the monsoon in Q2Fy21 is not allowing pipe laying impacting burnout of order book. So the company expects burnout of Rs 200 crore of order book in FY21 that too depend on the payment by EPC contractors who in turn depend on payment from State Governments.

Supply of newly launched new generation multilayer PE pipes for power /communication cable duct with silicon in-lining continues to get overwhelming business. The pipes/ducts have substantial business potential especially in Smart Cities.

MOX: Company innovating new applications of the MOX films and is launching new products in the market like Truck covers, Pond Liners, Mulching Film & Poly house Films. Focusing on new export markets i.e. Thailand, Malaysia, Germany, UK & USA.