20161111_SRF_EarningsCall_SRF_IN_2017-01-03T15_13_23_EARNING

Company Name: SRF Market Cap: 89,013.
26 Bloomberg Estimates - EPS

Company Ticker: SRF IN Current PX: 1550.2 Current Quarter: 22.280
Date: 2016-11-11 YTD Change($): +3.75 Current Year: 86.863
Event Description: Q2 2017 Earnings Call YTD Change(%): +.242 Bloomberg Estimates - Sales
Current Quarter: 12059.500
Current Year: 49841.500
Q2 2017 Earnings Call

Company Participants
• Anoop Kumar Joshi
• Rahul Jain
Other Participants
• Rohan Gupta
• Chintan Modi
• Nihal Mahesh Jham
• Ritesh Gupta
• Surya Narayan Patra
• Pavan Kumar
MANAGEMENT DISCUSSION SECTION

Operator
Ladies and gentlemen, welcome to Q2 FY 2017 Results Call of SRF Limited, hosted by Emkay Global Financial
Services. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask
questions at the end of today's presentation. [Operator Instructions] Please note that this conference is being recorded.
I would like to hand the conference over to Mr. Rohan Gupta, Senior Research Analyst of Emkay Global. Thank you,
and over to you, sir.
Rohan Gupta
Thanks, Sangvi. Good evening, ladies and gentlemen. On behalf of Emkay Global Financial Services, I welcome all the
participants logged in for the conference call of SRF Limited, to discuss their Q2 FY 2017 results. From the
management, we have Mr. Anoop Joshi and Mr. Rahul Jain. Good evening, gentlemen.
Operator
Yes, sir. The line has disconnected. Sir, yes. It has connected.
Anoop Kumar Joshi

Yes, yes. Good evening.
Rohan Gupta
Yeah. Mr. Joshi and Mr. Rahul Jain, good evening, sir.
Page 1 of 15
Company Name: SRF Market Cap: 89,013.26 Bloomberg Estimates - EPS
Rahul Jain
Good evening.
Anoop Kumar Joshi

Good evening.
Rohan Gupta
Sir, I will just request you first if you can just give us a brief quarterly result performance. Before that I'll also like to
inform that this call – I'd like to point out that some of the statements made here in this call maybe forward-looking and
a disclaimer to this effect has been included in the earnings presentation shared with you earlier.
And with this remark, I will hand over the call to you sir, and if you can just start with sharing your quarterly results.
And any industry trend, we can follow it up with the Q&A session, sir.
Anoop Kumar Joshi

Thanks, Rohan.
Rohan Gupta
Thanks.
Anoop Kumar Joshi

Good evening, everyone. I warmly welcome everyone to SRF Limited's Q2 results call. I thank you for taking the time
out to participate in our earnings call. I'll initiate this call with a brief overview and key highlights for the quarter and
first half ended September 2016. In addition, I will also cover events and happenings that have had an impact on our
businesses. As always, I will keep my initial remarks brief so that you can have a healthy and elaborate Q&A
discussion.
We've reported stable performance during the quarter especially keeping in mind the challenging economic
environment, which adversely impacted some of our businesses. This performance further reinforces the management's
belief that having diversified business is one of our key strengths. So, despite our revenues being steady, we were able
to deliver a healthy PAT growth of 17% year-on-year (sic) [QoQ] (2:45).
I will briefly take you through the performance of each of our business starting with the Chemicals Business. The
Specialty Chemicals Business continues to report subdued performance and had a tough quarter owing to weak demand
in the agrochemicals space. As covered in the previous calls, higher inventories in the system is leading to lower
demand as customers continued to defer orders.
On the positive side, Pharma segment is witnessing positive trend. I'm also pleased to share here that we commissioned
a new facility at Dahej complex to cater to the growing Pharma segment. This was set up at a CapEx of around INR 43
crores. We continue to lay emphasis on accelerating growth in this space. Overall, our focus is to keep the funnel
optimal and keep the pipeline of molecules robust in both Pharma and Agro segments. We continue to remain positive
and optimistic for this line of the business.
Page 2 of 15
So, as we have been saying, the fundamentals of the Specialty Chemicals Business remain very strong. We believe the
slowdown is temporary. And as demand for global agrochemicals picks up, we will witness better demand traction as
existing pipelines run down. As the contribution from the Pharma sector should also helps the segment going forward.
The Specialty Chemicals segment remain a core part of our business model, and we will continue to invest significantly
in this business. In line with this stated strategy, the board today approved CapEx aggregating to INR 128 crores at our
Dahej chemical complex for augmenting new facilities and the production of new products in existing flexible
multipurpose plants and setting up of cGMP plant to tap upcoming business opportunities in the Pharma sector that
require cGMP compliance.
This year, we have spent a lot of time in launching, producing, trial loads for the whole range of new products. The
performance of the Fluorochemicals Business was as per our expectations on account of higher volumes in both R134a
[ph] and blends (5:14). Higher volumes enabled us to expand our market share in the largest manufacturer of
refrigerants in India. R22 export prices remain soft, leading to decrease in margins. China competition continue to
remain aggressive.
In addition, we continue to increase product offering both new and adjacent products to make SRF a one-stop shop for
customers. Globally, HFOs will witness increased demand since signing off HFC amendment recently. In our view in
the longer term, our technological capabilities will help us in developing products for the future as substitutes to HFC.
We also remain focused on expanding the market share both domestically and globally in our current HFC portfolio.
Moving on to other businesses, our Packaging Films Business reported steady performance during the quarter under
review, despite industry headwinds. I'm glad to state that we are creating new benchmarks and maintain our position as
the lowest cost producer in India and Thailand. We have been able to successfully optimize product mix, human
resource and raw material costs, which enabled us to report higher margins during the quarter.
Also, it's noteworthy that we continue to run full capacity in spite of increasing competition. We continue to improve
our product mix to request on value-added products. These products constitute almost 24% of the sales, and the demand
for these products is expected to keep growing at a faster pace, which is much faster than plain vanilla products. We are
making good progress in establishing our BOPET and BOPP facilities in Indore, and are expected to be commissioned
as per schedule, in fact, maybe BOPET line gets commissioned ahead of the schedule by early January.
On the international operations front, Thailand and South Africa continues to deliver healthy performance. South
African domestic market, however, remains soft.
Coming to the Technical Textile Business, the Nylon Tyre Cord business posted a healthy performance on account of
higher volumes and cost reduction measures. The capacity utilization improved to 83% in Q2 2017 from 77% in Q2
2016, enabling us to report better margins. Two-wheeler, four-wheeler and SUV segments have shown a positive
growth trend, so we hope to further augment utilization levels going forward. However, we also continue to face
competitions on lower priced Chinese truck and bus radials.
Performance of the coated and laminated fabrics was healthy despite challenging market conditions, and we were able
to maintain market leadership in both these segments. Our initiatives towards enhancing operational performance and
optimizing product portfolio have borne results.
On a gross basis, our interest cost has reduced from INR 33 crores to INR 24 crores, mainly due to renegotiation of
interest rates with our partner banks and rebalancing our loan profile in line with the business needs.
In conclusion, I would like to state that we are firmly established ourselves as a technology and innovation driven
company across all our business segments. We will continue to focus on enhancing cost efficiencies across all our three
business segments. Our endeavor is to stay ahead of the curve and focus on building knowledge-based value-added
products across all our businesses. Thank you very much as well.
On that note, I conclude my remarks and would like to thank you all for joining us on this conference call. We would
now be happy to discuss any questions, comments or suggestion that you may have.
Page 3 of 15
Q&A
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions]
First question is from the line of Chintan Modi from Motilal Oswal. Please go ahead.
<Q - Chintan Modi>: Yeah. Hi, sir. Thanks for the opportunity.
<A - Anoop Kumar Joshi>: Hi, Chintan.
<Q - Chintan Modi>: Sir. Hi. So, firstly on the Specialty Chemicals; of course, across the industry, we have seen this
pressure. But post Q2, have you seen any improvement on the ground, I mean inventory is getting clear and new orders
start flowing in?
<A - Anoop Kumar Joshi>: There are no indications, as of now, which suggest that in the very near future the things
are going to turn around. But having said that, as I said, our long-term focus remains very positive on this. And, general
consensus amongst the leading players is that the things will probably start looking better by 2017 and/or maybe the
financial year 2018. After that, I think there is expected to be a lot of positivities returning back to the sector.
<Q - Chintan Modi>: Okay. And typically, sir, once we get approvals, how much time does it take to actually start the
commercial production? So, we can get an idea like when the orders start flowing in, from what time it will start
reflecting into revenue?
<A - Anoop Kumar Joshi>: The facilities – we have adequate installed capacity to cater to any order as and when we
receive sufficient quantity to be produced. So, qualification is an enabling thing. That, okay, the initial quantities, initial
pilots, initial quality checks everything has happened, the products have, in that sense, been launched at a pilot and at a
commercial phase. But, therefore, as soon as we get an adequate quantity or a good quantity order, we are able to
execute. That's why if you see we continue to invest heavily in making our facilities always at the time of to keep up
pace with the future requirements of the customers.
<Q - Chintan Modi>: Okay. And...
<A - Anoop Kumar Joshi>: In no time, I mean, whatever is the minimum production time that you will take to supply
an order and the logistics and wherever it gets delivered, but it's not something that which is a huge time lag between
the orders being received and being executed.
<Q - Chintan Modi>: Got it, sir. And sir, in terms of guidance, we had given around 15% to 20% growth guidance in
the Specialty for the full year. Would you be revising it downwards as the things are not looking that good?
<A - Anoop Kumar Joshi>: See, we are working on a lot of things around this that the funnel is complete as far as we
are concerned. We are working on lot many pharma molecules; and even on Agro, we continue to work with the
existing customers and even some of the new customers on various molecules that we are working on. So, as far as we
are concerned, long-term story, as I said, remains intact, but as far as this year is concerned surely we don't see as of
now a significant upside. So, what we internally will say and evaluate it is the growth for this year is expected to be
only marginal.
<Q - Chintan Modi>: Okay. And just last two questions. One is, if you can share what was the growth in Specialty
Chemicals for the first half. And secondly, the reason why the margins dropped to 17.5% on the PBIT level in the
overall Chemicals business, which I think was the lowest in many quarters.
<A - Anoop Kumar Joshi>: PBIT levels, [ph] PBIT (13:04) margins will definitely fall because if you see, we have
been investing a lot and, therefore, depreciation will continue to remain and increase as soon as we keep on capitalizing
various plants. Secondly, the fixed cost which is a part of the game that you cannot suddenly reduce it because volumes
have gone down.
Page 4 of 15
<Q - Chintan Modi>: Correct.

<A - Anoop Kumar Joshi>: PBIT margin will definitely come down on a lower base, that is the fact. I mean, only
when the reversion takes place, only when the capacity utilization increases, the orders come in pipeline, PBIT will
increase. So, it's only a temporary phenomenon, but yes you're absolutely right. For this quarter, PBIT margins have
come down compared to what you have been seeing in the past.
<Q - Chintan Modi>: Okay. And sir, what was the growth in the Specialty Chemicals for the first half?
<A - Anoop Kumar Joshi>: Growth. In the first half if you see, not much I would say, I think overall, the Specialty
Chemicals separately as a segment, we don't report on a chemicals basis, that you can have a look in the numbers that is
already published. May not be much as far as this quarter and the half year is concerned.
<Q - Chintan Modi>: Okay. And just one more question if I can squeeze in. On the Pharma side, how many molecules
we would be working on right now? And how many have we commercialized in the last quarter?
<A - Anoop Kumar Joshi>: See, we have launched five to six products in the last quarter and in fact the last half year.
And we are working on them as far as the work around both Pharma as well as Agro. The exact bifurcation between the
two is [ph] around quite (14:34), need to share at this point of time, but there are as many as six molecules newly which
have been, we are ready with in terms of the qualification those have already been produced, they've been approved.
So, whenever the order starts, whenever the demand picks up, we are just trying to get the order very soon.
<Q - Chintan Modi>: So they should start contributing to growth in the second half?
<A - Anoop Kumar Joshi>: If not next quarter, may be the last quarter of this year. As I said, when the Agro thing
turn around the Pharma seems to be good at this point of time. So they will, to that extent, we're likely to get orders
from new customers in the markets, but Agro will take a little more time.
<Q - Chintan Modi>: Sure, sir. Thanks. That was helpful. I'll come back in the queue.
<A - Anoop Kumar Joshi>: Okay.
Operator
Thank you. [Operator Instructions] The next question is from the line of Nihal Jham from Edelweiss Capital. Please go
ahead.
<Q - Nihal Mahesh Jham>: Hi, sir. Good evening.
<A - Anoop Kumar Joshi>: Good evening.
<Q - Nihal Mahesh Jham>: Just continuing on this question. So, in case of Pharma, how many products have we
launched in H1 FY 2017? You mentioned in total, we've seen five to six products.
<A - Anoop Kumar Joshi>: I said about five to six.
<Q - Nihal Mahesh Jham>: That's for both Agro as well as Pharma, is it possible to get a break up?
<A - Anoop Kumar Joshi>: We don't quite keep a track at that level. There are as many as five to six products which
we have launched.
<Q - Nihal Mahesh Jham>: Okay. And what was the mix between Pharma and Agro in this quarter, sir?
<A - Anoop Kumar Joshi>: Between 25% to 75%.
<Q - Nihal Mahesh Jham>: Okay. But if we're seeing mainly the slowdown happening in agrochemical as you're
seeing, and Pharma, I guess, is remaining robust. Hasn't this mix improve then compared to last year?
Page 5 of 15
<A - Anoop Kumar Joshi>: Not really. See, we continue to work. Our strategic intent is to increase the Pharma
contribution going forward that is a stated strategy always, because the pharma products are pharma complies. They
have many tests, which are involved. And the lock-in of the customer is for a longer period compared to Agro. It has
got more of a specialty and the niche product compared to a little flavor of a commodity business in an Agro. So that is
the stated intention always.
So, but we continue to work on both these segments. So, hopefully, when these products are launched and we get
substantial quantities in terms of order and so on, this proportion may increase going down. But as of now, this is more
or less at the same maybe in the last quarter, it was 23%/77%, now it is 24%/76% that kind, not significant change as of
now.
<Q - Nihal Mahesh Jham>: Yeah, because we've seen that the performance as we've been saying of Pharma has been
good. So maybe this mix should have ideally improved as we compare it to last year?
<A - Anoop Kumar Joshi>: I think, but for the Pharma, maybe to return even this kind of results may have been
difficult. So, our strategy of working simultaneously and continuously on Pharma, obviously, has chipped in to the
extent that we have been able to maintain on a 17% PBIT margin. And at a revenue level, more or less the stable
performance compared to the same quarter last year.
<Q - Nihal Mahesh Jham>: Okay. Sure, sir. And just one last question on agrochemical, Specialty Chemicals
specifically, is it that this quarter the pace of launches or say new products going into a dedicated plant have been
lower, or are we seeing a de-growth in orders itself for the regular orders that we're running?
<A - Anoop Kumar Joshi>: People have been deferring. As I said, there has been kind of built up of inventories
across all the buyers of the agrochemicals and so on. The companies also who buy from us, so the inventory both at the
pharma level as well as agrochemical company levels has built up. So, people are deferring their orders. It's not that
they've cancelled, but they said hold-on not this quarter, maybe next quarter, maybe next quarter. Everybody is on that
way as to when the turnaround really takes place.
<Q - Nihal Mahesh Jham>: So, even for existing molecules, there has been a bit of de-growth in quantity and the fact
that we've not been able to see a new product launches coming ahead.
<A - Anoop Kumar Joshi>: Yeah. I'm saying launching in the sense that we are ready with the product.
Commercialization is yet to take place only when the order and the turnaround happens. New innovative products
really gets into the market, we will get the better orders. But as of now, yes, there's been certain deferments from the
customers.
<Q - Nihal Mahesh Jham>: Fair enough, sir. I'll get back to the queue. Thank you so much.
Operator
Thank you. The next question is from the line of Ritesh Gupta from Ambit Capital. Please go ahead.
<Q - Ritesh Gupta>: Yeah, sir. Thanks for taking my questions. Sir, my question is on the CapEx side. So, basically
given that the agrochemical has not been picking up, and you've always maintained that most of your plants are
flexible. I mean, given that the demand has been fairly weak, I mean do you think the establishment of the new plants is
probably kind of creating excess capacity to some extent for at least for the near-term?
<A - Anoop Kumar Joshi>: See, we want to be ready with whenever the turnaround happens, because our belief in the
long-term story remains absolutely intact. And therefore, we know the kind of funnel kind of molecules that we are
working in, kind of inquiries that we are receiving. It's not that the world is coming to an end or the demand will just
vanish, because the Agro and the Pharma demands will continue to remain there and grow. It's only temporary blips.
So, we want to really catch whenever there is a sudden turnaround, we don't want to be caught on the wrong side that
we don't have adequate capacity.
Page 6 of 15
So, based on the molecules that we have seen, we want to establish capacity. As you said, as you will be aware the
multipurpose plan that we set up that board approved in the last board meeting was INR 180 crores, and even in this
board meeting, as I mentioned, INR 126 crores worth of CapEx have been approved. So, we don't want to come in a
position where we don't have the capacity to supply the orders as and when the turnaround takes place. Because
long-term story, as I said again, remains positive.
<Q - Ritesh Gupta>: Sure, sure. And secondly, on this year, you have said that, Specialty Chemicals growth will be
flat on a YoY basis. Is that correct interpretation?
<A - Anoop Kumar Joshi>: Yes, yes.
<Q - Ritesh Gupta>: And consequently, you will see a margin decline because of probably higher depreciation
charges and higher operating costs as far as new plants being established.
<A - Anoop Kumar Joshi>: That is unfortunately their arithmetic. I mean, if the depreciation charge goes higher, if it's
margins will slowly come down. And as we continue to invest in CapEx, whether we're not holding ourselves back,
unfortunately that arithmetic may continue to be there for some time.
<Q - Ritesh Gupta>: Correct, sir. And on this, can you just elaborate a little bit more on the cGMP plant that you are
establishing? Any specific line that you – is it a new client or is it like for an existing client you are doing it?
<A - Anoop Kumar Joshi>: See, as are stated, first, on the Pharma segment of the Specialty Chemicals, some of the
pharma companies even while we may not be a sort of active ingredient supplier and so on, they insist that the facilities
should be cGMP. So, now in that context, we'll be able to – because as I said, we are working on lot of molecules and
there are lot of qualifications and there are no new molecules that are in the pipeline and many of them have also to
serve to the pharma customers. So, we need to be ready to catch it and [ph] every (21:58) in that molecule and in that
space. And if some of the customers have the requirement that our facility should be cGMP compliant. So, we need to
have that facility in place.
So that if a pharma customer is there, I have developed a molecule, but my facility is non-cGMP so it doesn't take it
from me that will be the first thing to happen. So, again, capability building and on the ground capabilities building, we
continuously do, because we do see that future, it's not maybe a couple of quarters away.
<Q - Ritesh Gupta>: Sure, sir. Thanks so much, sir. That's all of my questions.
Operator
Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
<Q - Surya Narayan Patra>: Yeah. Thanks for this opportunity. Sir, again on the Chemicals business, sequentially we
are seeing a 13% kind of decline on the revenue front. So, you have already indicated that there is a kind of slowdown
in the Agro-led businesses. Apart from that, whether you are seeing any price correction in the refrigerant gas front or
also in the Fluorospeciality Business, are you seeing some sort of a pricing pressure, why because simultaneously we
are seeing meaningful correction in the EBIT margin though there is higher depreciation obviously would be there.
<A - Anoop Kumar Joshi>: So, your question is around refrigerant gases, right?
<Q - Surya Narayan Patra>: Yes, yes.
<A - Anoop Kumar Joshi>: See, refrigerant gases, we continue to increase the R134a volume also in terms of margin
side. In the plants, we are increasing our supply. Our market share keeps on increasing, which are the new things. And
R32, which was newly developed by us as a replacement to R22. That, of course, the production started sometime early
in April, but we see [inaudible] (23:50) market and also explore the export of the R32, because recently although R32
was not imposed the anti-dumping duty, but the blends which use R32 and anti-dumping duty has been imposed by
U.S. So that will take away for us to even export the blends.
Page 7 of 15
So, on the refrigerant gas side, on the HFC side, we seem to be moving in the right direction. On R22 front, which is
the HCFC, the international market is seeing lot of pressure because China continues to be very aggressive, the prices
have come down quite substantially. They're unable to use their entire production quota. And therefore, they are left,
right and center selling at whatever price they can sell. So, that has obviously hit us a little.
And even in India, gradually, instead of R22, people are now moving to R32. We've also been approved. Our product
has also been approved by some of the domestic bias like Daikin and others. And therefore R32, to the extent, initially,
until we reach, has the entire operating [ph] datas (24:55) in place, obviously the margins on R32 will be lower
compared to R22.
And on the blends also, it will take a little while before we really catch-up and meet or met the similar margins as
compared to R22. So, overall, on the HCFC front, there may be a little challenge, but I think it is more than met by
HFC, which is R134a, as I said, and some of the other products that we have recently started acting on the solvent side
and business some of the other byproducts that we sell. So, taking into consideration, yes, the refrigerants is in this
quarter has done better in terms of market as well as margins.
<Q - Surya Narayan Patra>: Okay. But whether the prices of the gases has come down sequentially, sir, that was my
brief question about the refrigerant gases.
<A - Anoop Kumar Joshi>: Which prices are you talking about, which product?
<Q - Surya Narayan Patra>: The gases, refrigerant gas prices, whether it has sequentially come down?
<A - Anoop Kumar Joshi>: No, no, no, no.
<Q - Surya Narayan Patra>: Whether that was one of the reason for the correction in the margins?
<A - Anoop Kumar Joshi>: No. I said, in India, R22 prices haven't come down.
<Q - Surya Narayan Patra>: Okay.
<A - Anoop Kumar Joshi>: But on import front, because we can't sell the entire quantity in India, it is a limited
market. On the export market, yes, the prices have seen some pressure because of the aggressive competition by stand.
<Q - Surya Narayan Patra>: Yeah. But on the R134a front, sir?
<A - Anoop Kumar Joshi>: R134a front, I said we continue to increase our quantity, both in India as well as export
quantity. And there is a sustained increase in both production and the sale and hopefully, it will only increase going
forward because recently of course, I mean, U.S. has indicated there's a provisional anti-dumping duty imposed on the
China, but this is yet to get certified by January or February or March maybe 2017. If that happens, then it will pay for
us to export more to U.S. R134a. So that continues to work the way we had envisaged, both in terms of volume and
margin.
<Q - Surya Narayan Patra>: Okay. Sir, for R134a, what is the price stream that I'm asking for the sequentially,
whether it has come down?
<A - Anoop Kumar Joshi>: No.
<Q - Surya Narayan Patra>: Okay. Okay. It's remaining almost static enterprising scenario. Okay. And about the
cGMP plant that we have announced. So, is it kind of a dedicated plant kind of a plant, or it is a multipurpose plant or it
is something different apart from the kind of plants normally we used to set up for the Chemicals business?
<A - Anoop Kumar Joshi>: It's a multipurpose plant where the products which are being bought by some of the
pharma companies who insists that the product has to come out of the cGMP facility. Maybe it's one of the last
processes have to go through the cGMP facility, both of them they really, so to say, accessible to such pharma
companies. So, there is a, yes, dedicated facility, but it is in the nature of a multipurpose where we can root many of the
products that we have on the pharma side would be produced through that.
Page 8 of 15
<Q - Surya Narayan Patra>: Okay. And this year through starting January, means, throughout 2016, we have
announced so many CapExs. So, for FY 2017 and FY 2018, what is the kind of CapEx that you would be doing, any
consolidated sense that you can provide?
<A - Anoop Kumar Joshi>: We have already indicated at a larger level that...
<Q - Surya Narayan Patra>: Yeah. Correct.
<A - Anoop Kumar Joshi>: ...20% of that INR 3,500 crore over the next four years is going to be...
<Q - Surya Narayan Patra>: Correct.
<A - Anoop Kumar Joshi>: ...Specialty Chemicals and that you've been seeing that.
<Q - Surya Narayan Patra>: Yeah.
<A - Anoop Kumar Joshi>: INR 180 crores last time, INR 120 crores, we have almost crossed INR 300 crores in the
six months, and six months are yet to go. As I said, many molecules on which we're working, some of them may
require a dedicated facility depending upon how soon we get big order on those. So that, I mean, the direction is very
clear, 70% of about INR 600 crores to INR 700 crores will keep on going to the Specialty Chemicals.
<Q - Surya Narayan Patra>: Yeah. So, total overall CapEx for current year would be somewhere in the range of
around INR 800 crores around?
<A - Anoop Kumar Joshi>: INR 650 crores or maybe INR 700 crores, more or like INR 700 crores.
<Q - Surya Narayan Patra>: Okay. And just one more last question. So, since on the NTCF front, the capacity
utilization level that you're seeing is now 83%. So, are you seeing any capacity expansion in the near future on that
front?
<A - Anoop Kumar Joshi>: Not really. No. No. We don't intend increasing our capacity.
<Q - Surya Narayan Patra>: Okay. So, optimal level would be that 90% or it would be 85% kind of utilization?
<A - Anoop Kumar Joshi>: Well, it has just been at the similar level. 80% capacity utilization and the commodity is
fairly good, beyond that it may be difficult but yeah, when opportunity comes, we can always make our plans use and
go at the 90% also, but additional capacity is not in the plan.
<Q - Surya Narayan Patra>: Okay. Thank you, sir. Wish you all the best.
<A - Anoop Kumar Joshi>: Thanks.
Operator
Thank you. [Operator Instructions] The next question is from the line of Pavan Kumar from Unifi Capital. Please go
ahead.
<Q - Pavan Kumar>: Sir, I just wanted to understand what would be the price differential between R32 right now
versus R22? And what are the kind of volume market shares are there in the market, R32 versus R22?
<A - Anoop Kumar Joshi>: See, R32 is hardly some of the manufacturers have started using, as I said. The people
who started the first time was Daikin, who globally had a facility to manufacture R32 elsewhere, and they used to
source from there. Now they have even approved our product, but if I say it's very insignificant at this point of time,
maybe 5%, 7% that kind of.
<Q - Pavan Kumar>: Okay. And what would be the price distinction, sir, R32 versus R22 as of now?
Page 9 of 15
<A - Anoop Kumar Joshi>: R32, since it has to replace R22, pricing is more or less similar, but going forward
because there is a free import of R32, which is allowed in India, whereas R22, there is a restriction on various things.
So, I think R32 will be priced a little lower than R22.
<Q - Pavan Kumar>: Okay. So, restrictions are not there for R32, is it?
<A - Anoop Kumar Joshi>: R22 is a restricted item on import whereas R32 is not as of now.
<Q - Pavan Kumar>: Okay. Okay. But sir, so, when we are entering this particular market, we are competing with the
foreign capacities used?
<A - Anoop Kumar Joshi>: Yes. On R32...
<Q - Pavan Kumar>: Yes, R32.
<A - Anoop Kumar Joshi>: Yes. R32 in India, we are the only producers of R32 gas. In India, we started sometime in
April as I said. There is no producer of R32, but R32 various other international producers will do the net. China, for
that matter, is a producer of R32.
<Q - Pavan Kumar>: Are there any major challenges in the Indian market, which prevent people from going from
R22 to R32 as of now?
<A - Anoop Kumar Joshi>: I think there maybe some at a technology level, because you need to maybe consider
some part of your production process to have R32 as the ingredient rather than R22. There may be some, but those are
not we believe are not very significant one. They don't require huge capital expenditure, so, but surely some changes
may be required at their end.
<Q - Pavan Kumar>: No, sir. The only point I was trying to actually understand here from the conversation was like,
see, if R32 is a better environment-friendly refrigerant then, why isn't the conversion happened as of now?
<A - Anoop Kumar Joshi>: That's what I'm saying, when R32 will be a little costlier compared R22, we are the only
producer and manufacturer, and some technological changes surely will be required. As I said, only recently, Daikin
has started using R32 initially. They are on and now they have accepted our product also. So it will take a little while
for anything to get replaced. It doesn't happen that soon. People are used to R32. To the extent that it is really available,
it is there. And in the replacement market, people will continue to use R22, because whosoever has got a car with an
R22 or an air conditioner with an R22 initial charging, he would not like to take a chance with R32, it is only the
original equipment manufacturers who may switch it.
<Q - Pavan Kumar>: Okay.
<A - Anoop Kumar Joshi>: Obviously, the demand has to catch up and it will take its own time.
<Q - Pavan Kumar>: Fine. Regarding the Nylon Tyre fabric business, so, are we expecting the utilization to continue
at such a higher level, or do we expect that the growth to come down?
<A - Anoop Kumar Joshi>: See, there are many things in NTCF, because as I said 30% of the demand of NTCF is
met by imports. So, many times because of the anti-dumping duty and various other changes that may happen at the
exporter level so to say, how attractive it's for them. Sometimes it happens that the domestic demand needs to be filled
up by the existing producer. So you get a better demand, better traction and you increase your – but I mean, we have
that – okay, one-time since it has gone to 83, it is likely to only increase or remain at the same level, it's a
quarter-to-quarter phenomenon. How much imports has taken place, what is the outlook of those exporters into India
and so and so forth.
And there is a domestic producer also, which is coming in, who has now put up some facility Madura Industrial
Textile. So that also plays out at times. So, it's not going to be – I won't call it as a factual change, which has led to this
increase in this thing, but we are tactically depending upon the demand supply at that point of time, it may change a
little bit here and there.
Page 10 of 15
<Q - Pavan Kumar>: Fine, sir. I'll return in position. Thank you.
<A - Anoop Kumar Joshi>: Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Chintan Modi from Motilal Oswal Securities.
Please go ahead.
<Q - Chintan Modi>: Yeah. Hi. Thanks for the follow-up. Sir, just couple of questions, which looks beyond results.
Considering that sir, we have created very strong R&D capabilities in Specialty Chemicals, could we capitalize that in
creating newer models? So, like, for example, custom synthesis business where we are not there right now, and one of
our peer companies have been doing really, really good in that. So, considering that capabilities that we already have,
could we expand into such kind of business models, which could be another area of growth for us?
<A - Anoop Kumar Joshi>: See, as of now our concentration is around Fluorochemicals, and Fluorochemicals related
specialty. Yes, the capability is there. Tomorrow, if something is exciting enough for us to really look at it and which
has to do more with the mind rather than the commodity play, we don't mind looking at it, but as of now there are
enough as I said our funnel is full on the Specialty Chemicals coming out of Fluorochemicals, why should we look at
something else. Only when we find that okay, maybe there is a complete, it has adjusted completely, there are no more
opportunities, et cetera, et cetera, then we'll look at something else. As of now, the pharma and agro, that's relating to
Specialty Chemical is good enough to keep our entire team engaged, because as you may be aware, we filed as many as
11 patents in this six months period also. And so, we have passed 90 and we'll also cross 100. So there are a lot of
intellectual property in which people are engaged and they keep on working. And if we are able to capitalize on this
alone, the future will be quite bright, why should we look something else, every company has its own strategy.
<Q - Chintan Modi>: Correct. Correct. Got it, sir. And sir, what would be the average cost of debt after this
renegotiation?
<A - Anoop Kumar Joshi>: It's about 5%, less than 5%.
<Q - Chintan Modi>: Less than 5%.
<A - Anoop Kumar Joshi>: All the forex borrowing and everything together.
<Q - Chintan Modi>: Okay. Fine. Thank you, sir. That's it from my end.
Operator
Thank you. The next question is from the line of Nihal Jham from Edelweiss Capital. Please go ahead.
<Q - Nihal Mahesh Jham>: Thank you so much. Sir, just one follow-up. I'm not sure if you commented on it. What is
the status of the anti-dumping duty on R134a in the U.S.?
<A - Anoop Kumar Joshi>: See, sometime in August or September, I'm not sure, which date, their provisional duty
has been imposed by U.S. government on Chinese R134a, but it is yet to be finalized. We understand that the final
determination, it may or may not happen one does not know, is likely to be decided sometime in the month of February
2017.
<Q - Nihal Mahesh Jham>: Sir, till that time no duty will be applied?
<A - Anoop Kumar Joshi>: Whenever it gets applied, this would start from the retrospective date. The original duty
has been imposed. If it is finally applied, then whatever imports have occurred during this period, they will also suffer
Page 11 of 15
anti-dumping. So, typically in India, they ask us to execute a bond at the time of the clearance of the goods. So, if any
duty gets imposed from a retrospective period, we'll have to pay.
<Q - Nihal Mahesh Jham>: But the order has been finalized on blenders we saw a few months back.
<A - Anoop Kumar Joshi>: Blends, they already imposed. I stated sometime ago in my conversation.
<Q - Nihal Mahesh Jham>: Fair enough. Sure, sir. Thank you so much.
Operator
Thank you. The next question is from the line of Ritesh Gupta from Ambit Capital. Please go ahead.
<Q - Ritesh Gupta>: Yeah, sir. Two questions. One is, how much is the likely volume you're going to do in R134a and
on 1234yf why and when do you expect kind of trials and all that to come over time you'll be start doing into
commercial production.
<A - Anoop Kumar Joshi>: R134a quantities, we are likely to maybe touch around 10,000 this year, which was about
7,000 last year. At times we do 9,500 to 10,000, we should be able to do considering the way the order booking and the
pipeline is. As far as the 1234yf is concerned, we have already set up in the process of setting up a pilot plant. And we
should hopefully be ready maybe in 12 months' time with the product, but the thing is, when will we start producing on
a commercial level is something I can't today able to do, because the demand has to be significant enough in India and
abroad for this product at a higher price and to sustain what kind of a facility that I put up because as of now what I put
up is only a pilot plant.
Commercial [Foreign Language] (39:38), it has to justify what kind of a market demand is going to be invent. So, I
really can't answer at this point of time as to when 1234yf commercially will become viable for us to put up a dedicated
plant for that.
<Q - Ritesh Gupta>: But as your product gets ready, would be commercially competitive to anybody else it will be?
<A - Anoop Kumar Joshi>: Yes, yes. We will be more than competitive. The way the prices are as of this point of
time. Now depending upon when the demand arises and who are the other competitors at that point of time, I don't
know. I mean, it's too premature for us to say, but we will be competitive enough.
<Q - Ritesh Gupta>: And, sir, any sense on Packaging Films, because I think mid of early next year some capacity
will start getting commissioned. So, any sense on demand supply for Packaging Film industry in India and probably
abroad?
<A - Anoop Kumar Joshi>: Supply overhang will continue, but we believe we'll be able to sell what we produce. And
therefore, our line which is scheduled to come sometime in March 2017 here in India are likely to be pre-formed by a
couple of months, maybe we'll start that line early January. And we should be able to still sell because as our strategy
of having more value-added products having a very severe thrust or very, very focused us on reduction of the cost and
so and so forth.
We should still be able to sell, but you are right, a couple of capacities are lined up. One of them has already started in
the month of October, some of them maybe in November, December, so that will pause as far as the supply side is
concerned. Yes, there will be difficulty. But having said that, even today domestic capacity utilization is about 65%,
70% and we are able to have 100% capacity. Utilization, hopefully, we'll be able to repeat that is our thought and
concerned.
<Q - Ritesh Gupta>: And any impact on realization that you see? I mean...
<A - Anoop Kumar Joshi>: Realization will continue to remain under pressure because even in this quarter, there has
been no margin have been under pressure, but we continue to work a lot on our cost side and improvement side and
better margins, some of the value-added products and working with the big corporates and the converters rather than
Page 12 of 15
going to the kind of the nil customized at the lower level. So, all things together we're still able to make decent margins
on this and hopefully, we'll continue to do that.
<Q - Ritesh Gupta>: So, you don't expect any realization changes for you maybe say coming into [indiscernible]
(42:08).
<A - Anoop Kumar Joshi>: The realization may go down, but I say that margin is something that we would like still
endeavor to continue.
<Q - Ritesh Gupta>: Okay. Okay. Thanks so much, sir.
Operator
Thank you. [Operator Instructions] The next question is from the line of Pavan Kumar from Unifi Capital. Please go
ahead.
<Q - Pavan Kumar>: Sir, I just wanted to understand what has been the refrigerant segment, your volume growth this
particular year, and was there any kind or do you think it has been maybe a standout year and the next year demand is
expected to normalize or how does it play out?
<A - Anoop Kumar Joshi>: Refrigerant market is growing because in India R134a, as I said, the volumes have grown,
the margins have grown, R22 also. The absolute market – because there are different kinds of product which gets you
there. The R134a is there, then R22 and replacement of that is to R32 and then the blends and so on and so forth. The
absolute market will keep on growing. I mean, there's been, I think, 12% to 15% growth, which happened last year on
the air-conditioning market as such and we are able to capture most of it. I don't see it going down. The only thing the
permutation combination may change, instead of R134a, R22, if not, R22 blends, instead of blends various other things
that may keep happening, but the market will continue to grow.
<Q - Pavan Kumar>: So, 10% to 15% range you think is the normalized demand growth rate that is really expected?
<A - Anoop Kumar Joshi>: Yeah, sure.
<Q - Pavan Kumar>: Okay. Okay, sir. Fine. Thanks.
Operator
Thank you. As there are no further questions, I now hand the conference over to Mr. Rohan Gupta of Emkay Global for
closing comments.
<Q - Rohan Gupta>: Thanks, Sangvi. Sir, we already had a long discussion just only before we close one clarification,
sir, I need on this CapEx in the current quarter, which we're talking about is INR 128 crores. Am I right, sir?
<A - Anoop Kumar Joshi>: That's right.
<Q - Rohan Gupta>: Yeah. Because in the press release in the results, it is talking about the couple of plants with the
INR 165 crores, with the INR 180 crores.
<A - Anoop Kumar Joshi>: Yes. INR 180 crore and INR 165 crore, I think for the last quarter board had approved,
INR 180 crore for the multipurpose plant and INR 165 crore for CMS plant.
<Q - Rohan Gupta>: Correct. And INR 128 crore is in addition of these two plants.
<A - Anoop Kumar Joshi>: Yes, yes, 100%. INR 128 crore has been approved today...
Page 13 of 15
<Q - Rohan Gupta>: Right.

<A - Anoop Kumar Joshi>: ...which is couple of plants as cGMP is one, I mean out of those, and couple of others, the
smaller ones on the Specialty Chemicals side. It was that we continue to invest in Specialty Chemicals despite you're
seeing the slowdown.
<Q - Rohan Gupta>: Right. Right. So, is it close to another INR 700 crore committing in a Chemicals and Specialty
Chemicals? I think most of these facilities will be up for running by FY 2018 something.
<A - Anoop Kumar Joshi>: Definitely. It takes anything between 12 to 18 months depending upon the complexities or
the size of the plant. And how fast we also want to – I mean what is the visibility on the order side. So, all of that I
think anything within 12 months to 18 months is a typical time of any facility to get to start list.
<Q - Rohan Gupta>: Right. So, sir, we will be ready with all that by end of FY 2018. And so those facilities will be
ready to use by FY 2019. That is INR 700 crores CapEx, which we're putting. Given that the current industry which is
going through a weak environment, do you see that there will be further need for putting any CapEx next year? Or we
will first focus on ramping up these facilities only where the CapEx we are committing right now?
<A - Anoop Kumar Joshi>: See, Rohan, these capacities many of them are very specific to a specific product also,
now, because you need to consider certain things, as I said many products that we have launched many molecules that
we're working on that requires some bit of dedicated, some bit of multipurpose and so on so forth. So, wherever our
confidence level is higher, we'll obviously put up this capacity and wherever it is low, obviously it will be done through
a multipurpose plant and so on. Obviously, there is no need for the capacities to be put up, why we will. But as you
rightly observed by the FY 2018, we should be in a position to take advantage of the turnaround, which is expected to
happen around that time on the Agro side.
<Q - Rohan Gupta>: Okay. And sir, since even the current environment didn't seem to be improving, so the margin
dip, which we had seen in the current quarter may continue for balance half of this year also.
<A - Anoop Kumar Joshi>: As I said, the growth is only expected to be marginal, so it is expected to remain at the
same level.
<Q - Rohan Gupta>: Right. Right. Sir, that's all from my side and thank you very much for giving us your valuable
time.
<A - Anoop Kumar Joshi>: Okay. Thank you.
Rohan Gupta
On behalf of Emkay Global, I also thank all the participants for logging in the conference call. Thanks, everyone.
Thanks a lot.
Anoop Kumar Joshi

Thank you very much. Bye.
Operator
Thank you. On behalf of Emkay Global, that concludes this conference. Thank you for joining us. And you may now
disconnect your lines.
Page 14 of 15
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Company Name: SRF Market Cap: 89,013.

26 Bloomberg Estimates - EPS

Q2 2017 Earnings Call

MANAGEMENT DISCUSSION SECTION

Anoop Kumar Joshi

Anoop Kumar Joshi

Anoop Kumar Joshi

Anoop Kumar Joshi

<Q - Chintan Modi>: Correct.

<Q - Rohan Gupta>: Right.

Anoop Kumar Joshi

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