Ester Industries LtdQ1 FY23Industrial Products

Ester Industries Ltd

Q1 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

N/A

Order

N/A

Capex

Yes

1 of 3 growth signals are positive — mixed outlook.

Full analysis

Revenue guidance

Category 3

→Specialty Polymers business expects steady long-term growth post economic revival in the US despite near-term impact over next 2-3 quarters due to global headwinds.
→Revenue growth of 14% was achieved in FY23 over FY22 despite recessionary pressures.
→Films business is gradually recovering with volume improvement due to commissioning of a new plant in Hyderabad.
→Margin improvement in Films business expected gradually over 2-3 quarters, aiming for double-digit EBIT margins.
→Specialty Films focusing on increasing value-added segment from ~23% to 30-32% over about a year to improve margins.
→Current Film business capacity utilization is ~65%, with potential to reach 75-80% soon depending on market margins.
→Demand in domestic market remains robust, though global recession fears may impact exports.
→Improvement in volume and profitability is expected sequentially going forward, with better performance anticipated in FY24 and FY25.

Margin guidance

Category 3

→Earnings Recovery: Gradual improvement expected; Operating margins projected to enter double-digit EBIT margins in 2-3 quarters for Ester Industries.
→Film Business: Margin pressure due to oversupply; expected to improve over 7-8 quarters reaching previous levels gradually.
→Specialty Films: Focus on increasing value-added products from 23% to 30-32% over a year, aiding better margins and profitability.
→Ester Filmtech: Operating at ~65% capacity; profitability depends more on margins than capacity utilization; break-even and better performance expected with margin improvement.
→Net Profit: Rs.136 crore seen previously included one-off Rs.111 crore from plastic business sale; normalized profit from operations was Rs.49 crore in FY22-23.
→Specialty Polymers Business: Expected steady growth long term post-economic revival in the US over 2-3 quarters.
→Debt and Liquidity: Improved debt/EBITDA ratio anticipated as EBITDA normalizes with plant ramp-up and market recovery.

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Fundraise plans

→No explicit mention of any current or planned new fundraising through debt or equity in the call.
→The company highlights a comfortable liquidity position with Rs 150 crore invested from the sale of Engineering Plastics business into safe, liquid investments yielding ~8% p.a.
→Net debt on a consolidated basis stands at Rs 625 crore, with servicing of debt not considered an issue due to adequate liquidity and under-utilized working capital limits.
→Pradeep Kumar Rustagi mentioned maintaining a strong balance sheet supportive of growth initiatives but did not specify any new fundraising plans.
→Debt-EBITDA multiple is expected to improve as operations normalize, implying no urgent debt raising.
→Overall, no announcements or indications of imminent equity or debt fundraising were disclosed during the call.

Order book

→The transcript provided on the pages does not explicitly mention the current or expected order book or pending orders for the company.
→However, there is a consistent mention of robust demand in the domestic market, especially in the specialty films and polymer segments.
→The management highlights a gradual ramp-up in volumes from the new plant commissioned in Hyderabad, contributing positively to sales and revenues.
→Margin improvements are expected as demand-supply gaps narrow in the coming quarters.
→Overall, demand in domestic markets remains strong despite global economic uncertainties.
→No specific numeric data or forecasts related to order book or pending orders are mentioned in the document excerpts provided.

Capex plans

Yes

- Investment in an off-line coater expected to be commissioned soon to increase proportion of Value Added & Specialty portfolio. - Certain capex items under Capital Work in Progress (CWIP) of Rs 79 crore related to offline coater and other projects at Khatima to be capitalized in the current financial year. - New Film Plant in Hyderabad with 48,000 MTPA capacity built at ~Rs 680 crore, expected to generate Rs 500-550 crore revenue at optimal utilization. - Plans in place to export part of the new plant’s output. - Continuous efforts on Business Process Re-engineering, Digital Transformation, and Business Process Automation to improve efficiency and cost-effectiveness. - Rs 150 crore investment made from proceeds of Engineering Plastic Business sale invested safely, generating ~8% returns as a liquidity cushion. These initiatives indicate ongoing and future capital expenditure aimed at capacity expansion, product mix improvement, and operational efficiency.

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