Filatex Q3FY17 Concall Summary

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Financial Highlights

Filatex Q3FY17 Performance

•    Quarterly performance was impacted mainly due to two factors – demonetization and increase in the raw material prices
•    Revenues in Q3 FY 17 grew by 23% y-o-y to reach INR 368 crores as against INR 299 crores in Q3 FY 16
•    On a 9 month basis, revenues witnessed a growth of 18.6% to INR 1,102 crores (9m FY 16: INR 929 crores)
•    The company has achieved about 24% export volume in volume terms. On a 9m basis, the export volume has increased to 18%.
•    EBITDA for Q3 FY 17 stood at INR 29.7 crores as against INR 17.9 crores in Q3 FY16, thus growing by 66% y-o-y. On a 9m basis, EBITDA grew by 58% over the previous year
•    EBITDA margins were strong compared to previous year EBITDA margins (Q3 FY17 – 8.9% as against Q3 FY16 – 6%)
•    Net income for the third quarter was INR7.2 crores as against INR5.7 crores in Q3 FY 16, growing at 25.4% y-o-y. On a 9m basis, net income registered a growth of 121% to INR 28.1 crores as against INR12.7 crores last year

Filatex Q3FY17 Segment Performance

Demonetization impact 

  •    INR 500 and INR 1000 notes contributed to about 86% of the company’s currency – at the time of demonetization
•    Due to demonetization, regular activities in textile sector were impacted. Further, the final transactions with end customers were through cash, which were again hampered.
•    Filatex moderately reduced the production capacity for some time due to subdued demand
•    Payments of wages to workers, transporter, etc. were impacted

Key business update

•    Recently the increase in raw material prices were witnessed in two key raw materials – PTA and MEG
•    PTA is sourced from Reliance and Indian Oil. Further, the raw material is even imported to balance out the remaining. Proportion of domestic and import in PTA is about 80 to 85% local and the remaining imports.
•    MEG is sourced from IOC, which is the only source in India and the balance is imported from Middle East. Moreover, proportion of domestic and import in MEG is around 25 to 20% in local and balance imports.
•    There wasn’t much price increases in the finished product (to pass on the raw material price increase) as the performance of November was not up to the mark. However, from December onwards the company has been able to pass on the price increase in the raw material – in January it was fully passed on.
•    In November, the stock levels were up. The group was able to sell what was produced in December but the extra inventory (from November month) was carried over.
•    About 15 to 20% of production levels were cut across the product chain & gradually it was increased to full level.
•    There has been working capital increase in this quarter. Also, before this in the expansion phase, the interests were being capitalized, which has come into this quarter.
•    The group has contracts with most of the suppliers – based on international pricing published by ICIS and Platts, which is a formula, based pricing. The formula and the discount get negotiated once every year.
•    The company has different term loans with an average of 7 years of repayment. About 1 year of a moratorium and 7 years repayment.
•    When compared to its peer Sumit Industries, Filatex’s margins are 8% (Sumit – 9 – 10%) mainly due to chips, which adds to the topline but doesn’t provide the much-needed boost to the margins.

Production and Capacity

•    Capacity utilization is at 100% except for the chips portion, which mostly depends on the market condition
•    Total production in Q3 FY 17 was about 51,000 tonnes and the sale was 48,400 tonnes. The total stock was about 2600.
•    For 9m the total production was 1.49 lakhs tonnes and the sale was 1,44,500
•    Last year export was about 1400 tonnes for the third quarter and this year it is about 11000 tonnes
•    On a 9m basis, export last year – 8600 tonnes & this year – 23600 tonnes
Key expansion/Capex related updates:
•    Currently, the company has enough internal accruals in place to take care of the expansion part.
•    Expansion of the textured yarn qualifies as TUFF from centre as well as the state. The company has already filed applications with the centre and is expected in this quarter. This amount will be about INR 85 lakhs for the Q3.
•    Further, a similar amount is expected from the centre in Q4. On the other hand, the state subsidies will be quite less about INR 40 lakhs per quarter. Both the state as well as centre subsidies are expected to continue for a period of 5 years on a reducing balance.
•    The new capex that the company plans will not be coming under any subsidy program. However, there is a new provision launched by the Gujrat government where the company can claim VAT or state GST as a refund of 70% of the total amount paid in 10 years (maximum limit of 7% per year).

Company Outlook

  •    Post the expansion phase, the company expects to generate revenues in the range of INR 2,500 to INR 2,600 crores. This is at the current level of raw material prices, which plays a key role in the top line.
•    New investment is expected to be in the range of INR 343 crores, out of which INR 210 crores over a period of 10 years will come under the subsidy over the ten year period (70% for 10 years).
•    The company plans to repay about INR 55 crores in FY 18
•    Post the expansion, the company expects enhanced productivity and the EBITDA for full year should be close to 13% (for FY 19 – which will be the optimum year of full production)
•    Filatex is doubling the count of thread lines. In Dahej plant, the company plans to add extra 4900 thread lines in the new expansion.