Emmbi Industries Q3FY18 Concall Summary

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 Financial Highlights

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  • Revenues are up by almost 17% for 9 months Y-o-Y.
  • EBITDA levels are up by 112 basis points compared to 9 months Y-o-Y.
  • PAT is up by almost 30%.
  • Emmbi is constantly improving its working capital cycle and at the end of this year at least reduction of 10 days will be achieved.

Taxation

  • Emmbi would fit in the MSME tax bracket but due to expenditure on R&D, tax rate would still remain in MAT (Minimum Alternative Tax).
  • Hence, effective tax rate would be around 22%.

GST Refunds

  • Emmbi got 90% of GST refunds for the months of July, August and October and the rest is expected in the due course of time.
  • Percentage of export sales is almost 46% and export incentive (SEIS) is 4%.

Manufacturing 4.0

  • It is this quarter’s innovation.
  • A substantial part of Emmbi’s manufacturing is connected to exports, so most of the exports are in the batch process. This batch production may sometimes lead to export surplus which are sold at a discount.
  • So, Manufacturing 4.0 is basically productivity management by machine learning.
  • In simple terms, they have devised a new productivity management system, which helps them to stop the production at the right time, so that there is no reduced or surplus production.
  • Actually Emmbi is creating a grid of communication between the machines using the IoT technology.
  • 4 machines have already been commissioned in the last 2 months with successful trials and in the next 2 quarters, the entire fleet of machines at Emmbi would be connected with this kind of sophisticated electronics.

IoT and AI

  • Emmbi won’t be cutting manpower by using IoT, rather Emmbi wants to improve productivity per worker by making them more empowered to take decisions as decisions would be simple and governed by pre-decided protocols.

CAPEX

  • 1.2 crores to be utilized in the next six months for upgrading entire base of Emmbi
  • The expected return of investment of 1.2 Crores is to the tune of maximum two quarters. So it is a very challenging thing.
  • Emmbi has already setup a facility of 24000 metric tonnes per annum which is going to take care of topline up to 400 crores by 2020.
  • No special CAPEX is required till 2020 apart from R&D CAPEX which is around 5 crores.
  • The new drawn focus would be instead of spending extra money and building new capacities, make these capacities more efficient by using modern technologies.
  • R&D activity would remain as a forefront of the company as Emmbi believes change is the only thing which is constant.

Employee Cost

  • Due to change in statutory compliances in the country, PF has gone up from 7500 to 15000 and bonus has moved from 3200 to 8000 for the workers. So, the employees cost have gone up.
  • In Q3 FY17, employee cost was 3.5% of the topline but in the current quarter, it is 5.5% due to new wage and PF rates.
  • In the near future it would come down and would be somewhere between 3.5 and 5.5.
  • 1% decline is expected as the new 6000 tonnes capacity is no being fully utilized but it will happen in the next 18 to 24 months.
  • So, employee cost would march down to around 4.5% from 5.5%.

Polypropylene Cost

  • Contribution of raw material (i.e. polypropylene) in the total product cost is around 50% and the contribution of crude oil in the cost of polypropylene is another 20%. So entire product cost and the crude linkage is not a hard-wired thing.
  • Also, Emmbi do not get the shock of polymer prices fluctuation as the changes in prices are actually borne by their customer and the markup over the polypropylene prices remain constant.

Price Surge

  • There was surge in prices at the end of Q3, mostly because of change of tax structure.
  • Due to increase in 0.5% of tax on polypropylene after the budget, inventory of polypropylene has increased and right now India is polymer surplus.
  • Combining above two factors, there is not going to be a big surge but a little bullish range is expected from $1270 presently to $1300 in the near future.

Opportunities in the field of Water Conservation

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  • Emmbi have created a pond in the desert of Jaisalmer which helped to create a patch of greenery. So, the opportunities remain limitless with the ability to create artificial oasis.
  • Almost 54% of India is in high water stress area and that creates a very poor scene for the productivity of the country. So, for water conservation, Emmbi came up with Pond Liner.
  • Generally whenever there is a shortage of water, people go for micro irrigation and ponds are the first building block of the micro irrigation.
  • Underground water levels are consistently depleting, so the ponds function as an auxiliary storage devices that can be used across the year for agricultural activities.
  • India has not been able to reach even 20% of micro-irrigation but developed countries have crossed 70%.
  • So, with growing demand of micro irrigation, Emmbi’s product will be benefitted.
  • There are multiple policies by state as well as central governments for e.g. offering subsidy for making a pond etc. to increase the productivity of Indian farmers.
  • In this budget, govt. decided to include 96 districts for intensive irrigation scheme. So, whenever somebody wants to use sprinklers or any other intensive irrigation process, they need a stagnant source of water and pond is the most viable objective today.

Earlier Innovative products’ overview

  • Wool Pack is getting dispatched commercially in Oriental area.
  • Coffee bag is already in the market and is being sold
  • Poultry curtain is being distributed through distributors in the Maharashtra market.

Future Plans

  • Emmbi entered into retail for water conservation products in 13 districts of Maharashtra via KrishiSeva Kendra or the holders in rural areas and is planning further expansion.
  • Emmbi is planning to enter 4 more states in the next 3 years.
  • Madhya Pradesh and Karnataka have been confirmed as 30 out of 96 districts included under govt. schemes lie in Karnataka and MP. Other two states are yet to be shortlisted.
  • There is subsidy of 100% on type 1 pond (3 year pond) in Karnataka and a subsidy of 50% on type 2 pond (5 year pond).
  • In next 3 years Emmbi will be able to do 1 pond in 1 hour with existing capacity. Currently it is 1 pond in 8 hours.
  • Emmbi is working in very close coordination with one of the Israeli companies for additive technology which can be used in pond liners.

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