Ladies and gentlemen, this is the Chorus Call conference operator. Before we begin this conference, we would like to apologize for the delay in the start of this conference. Good day, a very warm welcome to the Shaily Engineering Plastics Limited Q2 and H1 FY 2023 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and may involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.
Should you need assistance during the conference, please signal an operator by pressing star then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Sanghvi, MD and Promoter. Thank you, over to you, sir.
Thank you very much. Good afternoon, a very warm welcome to all the participants to the post-results earnings call of Shaily Engineering Plastics. I have with me Mr. Sanjay Shah, our Chief Strategy Officer, and SGA, our investor relations advisors. I hope you've had a look at our investor presentation that is uploaded on our website and the stock exchange. Despite a very challenging environment, we have registered half-year end sales of INR 332 crores in FY 2023. We are an export-oriented company with products and customer base in the overseas market. Given the geopolitical situation across the globe, we expect softness in demand in the coming half. We are working closely with our customers to ensure optimal production and inventory levels. We continue to watch the situation closely and will provide timely updates. Now let me give you some highlights on the business performance of the previous quarter.
As I've mentioned on several calls in the past, we are very focused on deepening our foreign IP-related products for healthcare. We have created a scalable model which will aid growth in revenue in the coming years. Healthcare is now the second-largest revenue contributor to Shaily business. Through Shaily UK, we now cater to global markets and create innovative products not just for generics but also for global innovator pharma. The most recent example is our wearable auto-injector meant for delivering large volume injectables for oncology. I'm happy to announce that we showcased our first fully working prototypes at CPHI Worldwide in Frankfurt and have received some very encouraging feedback from global innovator pharma companies. During the first half of the year, we did INR 4 crores of sales through Shaily UK. We are EBITDA and PAT positive right from the onset.
Under our automotive and engineering, we have started commercializing the orders received and expect ramp-up in the current year. In FY 2022, the company raised funds, and we have started utilizing the same to expand the core business. We are planning capital spend of approximately INR 200 crores over the next couple of years, out of which more than half of the spend will be towards pharma part of the business. Growing the device part of the business, which is led by our own IP proprietary products. That is all from my side. I shall now hand over the call to Mr. Sanjay Shah, our Chief Strategy Officer, to give you the operating and financial highlights. Thank you very much.
Thank you, Amit. Good evening, everyone. I shall share with you the highlights of our operational and financial performance of Q2 and H1 FY 2022, following which we will be happy to respond to your queries. During the quarter, we processed 5,145 tons of polymers as against 4,498 tons in Q2 FY 2022, an increase of 14% year-on-year. For the half year, we processed 11,689 tons of polymers as against 8,591 tons in H1 FY 2022, an increase of 36% year-on-year. In this year, we have already achieved 60% of the volumes of FY 2022. Machine utilization stood at 45% in Q2 FY 2022 and 47% in H1 FY 2023. Exports during H1 FY 2023 stood at 77.8% of total revenue as compared to 78.7% in H1 FY 2022. I shall brief you on the standalone results. Revenues stood at INR 160 crores during Q2 FY 2023 as compared to INR 145 crores during Q2 FY 2022, a growth of 10%.
EBITDA stood at INR 25.1 crores during Q2 FY 2023 as compared to INR 23.8 crores during Q2 FY 2022, a growth of 5%. EBITDA margin stood at 15.7% for Q2 FY 2023. PAT stood at INR 9.4 crores during Q2 FY 2023 as compared to INR 10.5 crores during Q2 FY 2022. PAT margin stood at 5.9%. Cash PAT for Q2 FY 2023 was reported at INR 17.1 crores as compared to INR 16.9 crores for Q2 FY 2022. Coming to the H1 FY 2023 highlights. Revenues stood at INR 332 crores as compared to INR 265 crores during H1 FY 2022, a growth of 25%. EBITDA stood at INR 46.8 crores as compared to INR 44 crores during H1 FY 2022, growth of 6%. EBITDA margin stood at 14.1%. PAT stood at INR 16.8 crores as compared to INR 18.5 crores during H1 FY 2022. PAT margin stood at 5.1%. Cash PAT for H1 FY 2023 was reported at INR 32.2 crores as compared to INR 30.8 crores during H1 FY 2022.
Our ROC and ROE stood at 13.6% and 9.1% respectively as on 30th of September 2022. Our debt equity stands at 0.6x and our long-term debt equity stands at 0.2x. On a consolidated basis, revenues stood at INR 339 crores, EBITDA at INR 50.2 crores and PAT at INR 19.5 crores for H1 FY 2023. This is all from our side. We can open the floor for question and answers. Thank you.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may enter star and one on their touchtone telephone. If your questions have been answered and you wish to withdraw yourself from the queue, you may enter star and two. Participants are requested to use answers while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask a question, you may enter star and one. We have the first question from the line of Bhavin Rupani from Investec. Please go ahead.
Hi, sir. Thank you for the opportunity. Sir, my first question is on gross margins. During the second quarter, we reported gross margins of around 35%.
Mr. Rupani, your line has been unmuted. Please go ahead with your question.
Hello.
Yes, go ahead. Yes.
Yes. Sir, my first question is on gross margins. Sir, during the second quarter, we reported gross margins of around 35%. However, earlier we used to report somewhere around 40%. Sir, how should one understand about this 5% lower margins, and do you think 40% margins are achievable in the near future? What would be the sectors which will lead to increase in margins?
Bhavin, one difference between when you look at FY 2022 and FY 2023, is that our development or part of the power revenue comes out from U.K. When you look at gross margins, you need to look at combined U.K. and India balance P&L together, which would basically give you an indication of the gross margins. Second is, as we have talked about in the past calls also, we have seen inflationary pressures and the raw material pass through happened with a lag. That's the reason for some drop in the gross margin, which we would get back to improvement as we speak. Even if you were to look at Q2 FY 2023 as compared to Q1 of FY 2023, you would have seen improvement in gross margin. That's because some of the raw material pass throughs have happened.
That's helpful, sir. Sir, any factors that will lead to increase in margins going ahead?
Bhavin, I'm sorry, I couldn't hear you properly. Could you repeat?
Hello? Hello.
Yeah. Can you repeat, Bhavin?
Yeah. Sir, any margin guidance for second half, for FY 2023?
We don't give a margin guidance, Bhavin. I'm sorry about it.
Okay. Sir, how should we understand the incremental margins going ahead? Currently, we are reporting around 13% EBITDA margins. What would be the major drivers for margins going ahead? Thank you.
Major drivers for margin growth would basically be increase in volume. Second is, as we increase the healthcare part of the business and the pharma part of the business, that will increase in margin performance.
That's helpful, sir. Thank you.
Thank you very much.
Thank you. Participants, if you have a question, you may enter star and one. We have the next question from the line of Aman Vij from Astute Investment Management. Please go ahead.
Yeah. Good afternoon, sir. My first question is on the pharma business. If you can update on the CapEx as well as what kind of orders are we expecting in FY 2023 in terms of our own IP pen?
Let me answer the second part of the question and we'll just take the first part of the question later on.
Sure. Am I audible?
Yeah.
Yeah. Okay. We have a fairly strong pipeline. These are all products that have been filed for stability by various customers. In FY 2023, we definitely see scale-up like we did for the same products we did some scale-up in FY 2022. We see further scale-up in FY 2023, especially for our P60 pen, which is the insulin variant of our Protean pen. We also see scale-ups on our teriparatide pen, which is the fixed-dose pen injector. We are seeing a very large opportunity with one of our new devices, which has been on showcase for the last four to six months. We are just completing the program, and we've seen a very significant.
Opportunity at the exhibition this year as well. We anticipate significant revenue coming from the new pen in FY 2023 as well.
On the CapEx part, Sanjay sir, on the pharma side, you want to take up that?
With the total CapEx which we are doing currently will be above INR 125 crores, out of which part of it has been spent and the balance will be spent during the current year and some of it during the course of next year.
In H1, how much we have spent of this pharma CapEx?
Amit, I don't have the exact numbers right on the top of my head, but I believe we would have spent about INR 40 crore-INR 45 crore. Is that rough?
Rough number is okay. Are we expecting to spend similar number in second half?
The number will be a little higher in second half.
It's work in progress, right, Sanjay bhai?
Yeah.
Yeah. Sure, sir. The next question is on the toys business and the carbon steel business. If you can give the update, any further breakthrough in terms of newer orders or newer clients. As well as utilization level in the carbon steel business currently.
On toys, we are working with our existing customers to basically increase our business on everything. One of the challenges which we are facing is, as Amit mentioned in the early part of his speech that we being an export-oriented company, we are seeing demand slowing down in Europe and U.S. for most of our customers. Getting new business in this scenario does take a little longer time, so we are working with customers for that. Similarly, we continue to explore opportunities with some other customers also. Given the overall scenario, it does take a little longer time. Same is the situation on the carbon steel part of the business. What we are also doing is, we are in discussions with our existing customer to basically see how volumes can be built up there, and that's something which we've been constantly discussing with the customer.
Just to add to what Sanjay bhai said on toys, there's a global drop in demand of 25% in toys that we are hearing from our customers, 25%-30%. Combined with this, the issue is also that increasingly more Chinese factories have become, I think the right word is more competitive. They're just providing giveaway prices that are not sustainable for long-term. We have stayed away from such practices.
Yeah.
On the toys part, sir, at the start of the year, we were thinking of maintaining this business which we did in last year. Given the slowdown, are we expecting like maybe 20% kind of fall compared to last year in our toys business for this year?
There will be some impact. I'm really not sure in terms of the overall impact which will be there. Yeah, there will be some impact.
Sure, sir. What will be the utilization part you left for the carbon steel business?
Again, Aman, we don't report individual utilization levels. What we do is we report utilization levels at an overall company level.
Did it increase versus last quarter or is it at the same level only?
No. As compared to quarter two, quarter one, utilization levels have gone down in quarter two.
Okay. Gone down.
The same demand scenario unfortunately impacts all of our consumer businesses.
Okay. That means one of the major client also is facing some kind of demand issues.
Yes.
Both in plastic and carbon steel.
Yes.
Yes.
That's right.
Sure. My final question is on the machine utilization. What was the machine addition this quarter as well as for the H1? We ended up at around 47% utilization. For H2, do you expect similar number or much higher, or what is your expectation?
We have not added any machines in Q2.
What you are seeing is on the same base as Q1 and Q2.
Utilization levels, I think overall for H2 will probably be more or less in line with whatever we have seen in H1. I think it's still an evolving situation with whatever discussions we have been having with customers.
Sure, sir. I have more questions. I will come back in that case. Thank you.
Thank you.
Thank you. We have the next question from the line of Manish Gupta from Solidarity. Please go ahead.
Thank you for the opportunity. My first question is, Amit, with the benefit of hindsight, do you think the foray into steel furniture was still the right decision for the company?
Hindsight's always like that, Manish. I think given the impact we see the steel furniture is having on our business, I'd say probably not. Really, hindsight has to do more with all the events that occurred post-finalization of the business, COVID having the biggest impact on commercializing that business when the opportunity was there. Unfortunately, we just weren't able to do it because of various technical issues, operating issues that we realized that we put the plant on stream ourselves rather than any of the suppliers coming and installing any of the equipment. This has had a huge impact on how quickly we were able to start the plant and then how we were able to benefit out of it. Unfortunately, the scenario is different right now, hindsight, probably a bad idea.
My question is two parts to that, Amit. One is obviously the ramp-up, which is due to factors beyond your control, COVID and now the recession. Technically, do we think we have mastered the steel furniture business as well as we have on the plastic side? Do you think technically we are there right now or technically still there's something missing?
Mastering any manufacturing process comes with the scale of the manufacturing process and how much experience and exposure you get to it, which is the unfortunate part with carbon steel, that the minute we try to up the utilization levels, the minute we got to a point where we felt comfortable in taking on more orders from the customer, we saw this kind of recession in the West. I'm very confident that if we are given more business, we'll be able to execute. We had some challenges in surface coating, which is primarily powder coating, but we have overcome most of those issues. Given a chance today where we can have increased volumes, I think we'd be able to perform fairly well.
Is the customer exhibiting confidence in our competencies or because when Sanjay mentioned that Q2 will be lower than Q1. Do you think we'd be able to get up to full capacity, let's just say INR 120 crore in this plant by, say, FY 2025?
Yes. Very confident of that.
Okay. My next question, Amit, is just wanted to understand some dynamics of our business. In the IT industry, people have this concept of farmers and hunters, where people are opening new accounts and then there are people like RNs who will deepen the relationship. Now, we've obviously got one large client whom we're working with for a long period of time. We've got a bunch of relationships that are forming on the healthcare side. Just wanted to understand how this thing works for Shaily. Is it that people hear about our reputation and approach us, or have we hired a bunch of people who are going around opening relationships for us? How does the model work in our business?
It's slightly different. I think maybe on the IT side, you can kickstart a project fairly quickly because there isn't much in terms of development upfront that probably takes place. I could be wrong about this, but it's just my knowledge. When it comes to Shaily, it really comes down to us having been able to showcase to a potential customer what our capability is and what can we provide. When you try to do that with too many accounts at the same time, you end up with too many small projects that take up all of your resources without adding any substantial revenue. Because whether we execute a project worth INR 50 crores or INR 5 crores, the amount of resources that go into executing the project are more or less the same. For us, it's very important to try to find customers that can give us scale.
Then it also depends on the segment of the business. For example, on the consumer side, we would not want to take on five, six, seven customers. We'd probably want to focus on adding one or two accounts in a given 12-month period. We have been doing that. We have been actively pursuing some new business with companies similar to the home furnishings major. A lot of these companies, apart from the home furnishings major that we work with, have a model where they buy off the shelf, which means that you already have a portfolio of products that you manufacture, and you can offer something off the shelf. This is your own design, and you've already created the capacities, you invested the necessary capital to provide them the product.
We have been a contract manufacturer, and unfortunately, fortunately, we've not really had an opportunity to create our own portfolio to date. We struggle in terms of working with others like the home furnishings major we work with, but we do pursue these opportunities actively. On the pharma side , we're very much hunters, we very much go out and hunt for new business.
Okay. just a follow-up, Amit, in our—
This is the operator, Mr. Gupta. We are unable to hear you clearly.
Okay. Is this better?
Sure. Thank you.
Yeah. Yes. [inaudible].
Maybe we lost you again. Manish can't hear anything.
Mr. Gupta, sorry to interrupt once again. Your audio is not clear, sir.
Okay. Maybe I can back in the queue. Yeah.
Okay. Thank you, sir. We have the next question from the line of Nikhil Jain from Galaxy International. Please go ahead.
Yeah. Thanks for the opportunity. Just a couple of questions. Number one, when do we expect that we would be able to pass on the impact of raw material price hikes to the customers in all our businesses? Will it be couple of months more, quarters? Any feedback on that? That is one. Second, specifically on the healthcare side, I just wanted to understand that on one of the big products that we are expecting launch probably in 2023-2024, has any of our customer got a tentative approval? Thank you.
Amit, do you want to take the healthcare question?
I can actually take the second question first. On both products that we mentioned, on one of those products, we are expecting approval as early as January. We know the process of how the approval would potentially come and the questions that were raised and the subsequent answers that were given. We are hoping for approval in January. For the other product, it is for the Middle East market where the demand is already there and the customers also already have the product on the market. They will be now using our intent to put the same product on the market.
Really for the second part, it really depends on how quickly we can work with the customer to provide them a full solution on their assembly, help them with creating their testing protocols and release protocols, and then take it forward from there.
Just to follow up on that, is that a tentative approval that we are talking about or is it like a final approval from the USFDA for your device part?
One is the USFDA. One is for the U.S. market, second is for the Middle East.
Right
Their drug product is already on the market. We now need to combine it with our combination product and do the relevant testing to provide the data for filing. It should essentially be immediate approval within a few months, essentially. We're working as fast as we can on that program.
Have we already been inspected by the USFDA and, or do we expect that post this application we will get inspected?
We don't know whether we'll get inspected or not. The fact is that we are certified to MDSAP with the USFDA scope, which means our MDSAP approval essentially gets signed off by the USFDA before us being certified. We don't actually know whether we will actually get inspected or not. Might happen at some point in the future. Happy to take on the inspection. I think we're geared up from a quality perspective.
Okay. Yeah. Okay, fine. Thank you. That was on the second question. On the first question, any feedback, any thoughts?
On the first part of the question, the raw material passing, some of it has happened in Q2 and the balance of it should happen in Q3.
Our margins then, let's say in Q4 should revert back to our normal natural margins, let's say pre-historical margins. Right?
While we don't see any inflation or anything, again, raw material prices going to change or something.
Yeah. Correct. Okay, fine. Sure. Thank you.
Thank you. Participants, if you have a question you may enter star and one. We have the next question from the line of Akshay Jain from Jain Capital. Please go ahead.
Hi. Couple of questions from my side. Firstly, you announced last year that you had raised funds. Where are you utilizing them and how much have you utilized till date and what is the plan going forward?
Akshay, could you repeat your question? I'm sorry there was some disturbance.
No problem. I'll just repeat it. Last year you had announced that we have raised funds and just wanted to understand where is the allocation of those funds and how much have you spent it till now and what is the plan going forward?
We raised INR 150 crores via a preferential offer. Out of which as of 30th of September if you were to look at it, we have spent INR 60 crores and balance INR 90 crores are lying with us. The INR 60 crores is being spent for CapEx.
Understood. Secondly, Europe is under pressure as we speak currently. How do you see demand over there and how much of it will impact our sales and profitability for the year?
Anuj, you want to take that?
I'm sorry, can you please repeat that?
Yeah. The question is, Europe is under pressure currently. How do you see demand over there and how much of that will impact our sales and profitability for this rest of the financial year?
It's not good news by any means. Europe is under substantial pressure, and so is North America, to be honest. It's not just Europe. All of our major consumer business is significantly impacted by this. We are working with the customer to see how additional markets can be assigned to us. The reality is that until we see some normalization in Europe and the U.S., we're not going to have any great impact. We are hoping that as part of regular business cycle throughout the year, we see increasing demand for the same customer starting in February every year. There's always a slowdown period that starts in November and lasts till February. February, we see increasing demand again. We're hoping that the same will continue, but to what level will we see a further additional increase? It's currently unknown.
Understood.
Yeah.
That's helpful. Thank you so much. That's all from my side.
Yeah. Thank you.
Thank you.
Can we—
Sure. Please go ahead, sir.
No, no, please. Go.
Thank you. We have the next question from the line of Manish Gupta from Solidarity. Please go ahead.
Yeah. Is my line better now?
Yes, sir. Please proceed.
Yes.
Amit, just continuing on the previous question that I was asking. What you had mentioned was that you don't want to take on too many small projects, and therefore you are not actively going out on the plastic side, but we are going far more aggressively on the pharma side, on the healthcare side. Would it be fair to say that most of your growth over the next couple of years is actually going to come from customers with whom you already have a relationship?
Most of our growth, next couple of years. Let's give it a little bit larger horizon, if you don't mind. In addition to what we are doing on the pharma side, Manish, we're also working very hard on creating additional verticals of the business. Today, largely, if you see the business, we have consumer, we have healthcare, we have automotive and engineering, and personal care. Right? Now, automotive and engineering, we already know what we are focusing on in terms of the type of products. We're not going to see any very substantial INR 200 crore revenue coming from there. Similarly with personal care. Really the only growth areas we've had so far are from consumer plastics and from healthcare. Healthcare, we continue to build as we are, probably more aggressively. We have added strength to the healthcare business development team.
In addition to that, we are very actively pursuing other verticals to grow business. It's too premature for me to tell you what those other verticals are at the moment, but at the right time, we will inform the investor community.
Okay. Thank you.
Thank you. For the next question, you may enter star one. We have the next question from the line of Utkarsh from FinTree. Please go ahead.
Hi. Thank you for the opportunity. I just wanted to understand our relationship with some of the entities. I think in the annual report I could find Panax Appliances, and it seems we made some investments, and we also have some receivables outstanding. Can you elaborate on the entity and the relationship?
Panax was an associate company. It's not doing any business for the last five, seven years. There is some investment which has been made, and there is some money which Panax has given us. If you were to look at it on a net basis, it's nullified.
Right. There is still some receivable outstanding or?
That's already been provided for. It's a very small amount. It's already been provided for.
Understood. How about Shaily Industry and India Private Limited and Shaily Medical Plastics?
It's similar. All these three companies which you talk about are associate companies of the group, but they have not been doing any businesses in the past five years. There is zero income and practically zero transactions in any of these companies.
Okay. These are not wholly owned subsidiaries, right?
No, these are not wholly owned subsidiaries.
Okay. The other owners of those entities were from the promoter group itself?
Yes.
Okay. Understood. Thank you.
Thank you. Participants, if you have a question, you may enter star and one. We have the next question from the line of Aman Vij from Astute Investment Management. Please go ahead.
Yeah. Thank you for the opportunity again. First question is, any update on the CEO? Update on?
The CEO, which we were looking for, professional CEO. On CEO, Aman. Yes. The search is very much ongoing. We did have the finalization of a candidate about a month and a half ago. Unfortunately, for whatever reason, it didn't work out in the end. The search is still ongoing, and we are actively pursuing candidates.
Sure, sir. Next question is, you are talking about one of the opportunity is a very large opportunity in terms of pens. Is it like 1 million+ kind of pen opportunity? How do you quantify this, a very large opportunity?
The molecules we're doing this particular product for, earliest we can go into We have multiple customers on the same program, which means that we will be making supplies, probably supplies up to 200,000-250,000 pens every year. It's a very high-value product, so the revenue will be quite good. The real opportunity will only come starting 2026, 2027, when our customers will be able to do the launch in U.S. and European markets. The opportunity is upwards of a million. It's again million pens.
Sure, Amit. This year you have talked about these two products, one in Middle East and one in U.S. Any such big product in pipeline for FY 2024 launch?
We will see further scale-up on both these platforms in FY 2024 and FY 2025 as well. We will see substantial volume.
Okay. For next two to three years, these two will be the only growth drivers in pharma. There are no other products because remaining you have talked about in FY 2026 and 2027.
Yeah. You enjoy the one-time fees and the income that you generate out of exhibit batches, because the value of those is fairly high. Given that it is low volume, your pricing points are different than commercial production. You will enjoy that until FY 2025, and then we will see commercial production of the same kind in 2026 and 2027. 2026, 2027, again, it's the earliest it can happen. These are both big molecules. One of them is an $8 billion molecule, and one of them is a $2 billion molecule. We are anticipating good volumes once we are able to make entry.
In terms of pens, do you have some numbers that $8 billion molecule, then converted to pens opportunity, how big it can be in terms of number of pens?
I can tell you. One is about 10 million-12 million pens for molecules, and the other one is 2 million pens. Combined, let's say 15 million. The more number of buyers that jump on to Shaily product, the higher the chance that we have of taking substantial volume of that.
Are we thinking in terms of, say maybe 20%-30% market share in these 15 million pens or even higher?
I'd say at least 20%-30%.
Sure. Final question from my side is, what we have seen in say other allied sectors like auto, that once a customer becomes big, say OEM ask for a price reduction every year. Is it a similar kind of arrangement do we see for our key clients?
In what area? In what segment particularly?
For example, say in auto, because of efficiency, they ask for 1%-2% price reduction every year because they are compensating with increased volume. For say home furnishing, Do the customer expect some kind of price reduction every year because of our improving efficiency and more volume?
The short answer is yes, it's not structured the way automotive is. I know in automotive, you're basically guaranteeing it upfront. In the other businesses we have, especially in the consumers, we work with the customer on specific improvement programs. Improvement programs could be reducing weight of the product, could be changing material, going from a more expensive material to a low-cost material, or in a lot of cases, trying to become more sustainable, going for recycled material. We do various projects during the year. Which with them, depending on the results, the outcome of the project, we share the benefit between Shaily and the customer. There are also times when we go for increases. It's a very mutual understanding. There are factors which are in our control, there are factors which are beyond our control. Nothing is ever fully guaranteed.
We work on these projects very actively with the customer's involvement, and then try to do what we can in terms of the final outcome.
Sure, Amit. To summarize this part, is it right to assume that in auto ancillary, the customers, the OEMs squeeze their clients a lot, but here it won't be the case.
That's right. Yeah.
Thank you. These are the questions from my side.
Thank you. We have the next question from the line of Faisal Hawa from H.G. Hawa & Company. Please go ahead. Mr. Faisal Hawa, please proceed with your question. Your line has been unmuted. If you have muted the line from your end, please unmute and speak. Mr. Hawa, please proceed with your question. Your line has been unmuted. We will move to the next question since there's no response from this participant. The next question is from the line of Nikhil from PIA. Please go ahead.
Yeah. Hi, Amit and team. Could you explain how do you monetize these intangible assets under development? It seems like in the last six months, you spent INR 10 crores on it. I think you just mentioned that you get a one-time fee, how does it go? Could you just enlighten me on this?
Basically, the intangible assets which you've seen are basically the IPs which we are developing. Typically, the total cost on the development would basically be part of that IP development cost, which we would be spending, which is what we capitalize it. The IP basically depreciated over 10 years.
Okay. How do you quantify the one-time fee with your clients? I mean, is there a mathematical equation or how do you handle that?
It'll be difficult for us to get into it. It will depend on molecule to molecule, customer to customer. There will be different contracts which we have.
For each client that you enable for the same platform, do all of them pay you the one-time fee or is it just for the particular client?
No. We try to basically look at it this way that on each molecule or platform, the wish position is that we'll end up with five or six customers. Each of them will be charged an equal amount.
Okay. Let's assume a case where you are working on five platforms or five devices. What's the hit ratio in general?
Well, we can talk about the hit ratio on our existing platforms. On our fixed-dose pen platform, we have four accounts. On our Protean platform, we have three accounts. On our Harmony platform, we have three accounts. On our Neo platform, we have four accounts at the moment. On Toby, which we basically did the whole development in less than 12 months, we currently have one account.
Okay. Understood. Another question is, why do we keep on expanding our capacity when our utilization stands at less than 50%? I mean, this has been happening consistently for the last few quarters. How confident are we? Okay. Let me put another question to this. What is the maximum capacity utilization that we can do in our business?
We are expanding a very specific capacity at the moment. If you think about our healthcare unit, all we really have is about 14 machines out of 180 in China. We cannot use the other capacity which are not in the clean room to manufacture healthcare-specific products because our quality management system is different in the other facilities. We also use all-electric machines in our healthcare business versus using servo or hybrid machines in the other businesses. Right now, at the moment, we're doing a very specific expansion, which is for the pharma side. Every expansion we've done so far has been. I know we're looking at a situation area today where its utilization is low because of what's happening in the world. It's been project specific. We've been awarded the business and we've done the expansion.
We've not done the expansion prior to being awarded the business. The big expansion that we did in 2020 and 2021, the business was fully awarded and we did the expansion.
Okay. This is the first time where we are focusing on expanding in healthcare where you get the business after you do the expansion.
We have visibility on significant portion of where we are expanding capacities. Yes, there will always be 30%-40% that we have to go and seek both expansions.
Pharma expansion, unfortunately, you cannot do it peacefully because you then end up with a lot of disruption in the existing manufacturing setup. While we may be adding capacity, we're not adding the full capacity in one shot. We may be adding it over two years. We've got expansion for 36 machines, but we're only adding 12 in year one. The building and the necessary other utilities and all will be complete from day one.
Okay, understood. One last question is, when we think about expansion, what is the general return ratios that you look at in terms of ROC? What is the long-term ROC that the business can deliver?
Typically, again, different businesses will have different returns. The payback ratio we would look at would likely be somewhere in the region of about 40%, for any new investment which we'll be making.
Okay, that's 15%-18% return that we are looking at from the results.
A little higher than that.
Okay. No problem. Sorry, just putting in that last question is, how does the demand scenario look for the next 12 months or whatever timeline you guys have with you?
I think Amit has already given an indication of that, is we are seeing some demand slowdown from our key customers across Europe and U.S. We are in discussions with these customers, we'll have a better clarity as we move forward.
Okay. No problem. All the best then.
Thank you.
Thank you very much.
Thank you.
Thank you. Ladies and gentlemen, that was the last question, and we will now close the question queue. I would like to hand the conference back to the management for closing comments. Please go ahead.
Thank you very much. Thank you everyone for joining the call. We hope that we've been able to answer your questions adequately. For any further information, I request you to get in touch with SGA, our investor relations advisors. Thank you again, and have a nice week.
Thank you, members of the management. Ladies and gentlemen, on behalf of Shaily Engineering Plastics Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you.