Ladies and gentlemen, good day and welcome to Sudarshan Chemical Industries Limited Q1 FY 2026 earnings conference call hosted by Anand Rathi Shares and Stock Brokers Limited. 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, you can signal the operator by raising the hand. I now hand the conference over to Mr. Nitesh Dhoot from Anand Rathi Shares and Stock Brokers Limited. Thank you, and over to you, Mr. Dhoot.
Yeah. Thank you, [Neerav]. Good afternoon, everyone. We welcome you all to Sudarshan Chemical Industries Limited Q1 FY 2026 earnings conference call. Sudarshan Chemical Industries management will be represented by Mr. Rajesh Rathi, Managing Director, Mr. Nilkanth Natu, Chief Financial Officer, and Mr. Amey At halye, General Manager of Finance. We will start the call with the management's presentation, post which we will open the forum for an interactive question and answer session. We will request all participants to ask only two questions, and they can join back the queue for follow-up questions. With this, I hand over the call to Rathiji for his opening remarks.
Thank you. Thank you so much, Mr. Nitesh Dhoot and Anand Rathi for hosting this call. We are looking forward to more interactions today. Firstly, would like to give you an integration update. Some of the information I am going to repeat, as this is important information for everyone to understand and some of you all may not have the full context or may not have heard me last time. On March 1st we completed the transaction where we acquired the legacy Heubach and legacy Clariant business. To give you a context, Heubach or Clariant legacy was among the top two pigment players globally and with a rich history of several organic pigments being invented in this company. So a very rich heritage of technology, and more importantly, a global manufacturing footprint with 17 manufacturing sites across the world.
A very high quality and a broad product portfolio with advanced-- a lot of technical focus, I would say. So this was for us, let's say the Clariant legacy and Heubach legacy, which we acquired. Sudarshan legacy, one of the fastest growing companies in pigment industry. 75 years of experience with customer centricity as our core value and a strong agility culture within the company. So if you combine the two companies and look at the broad portfolio manufacturing footprint and the technical base of Heubach, and we bring in customer centricity, entrepreneurship and agility. So definite formula for creating a world leader in pigments, a value-creating pigment leader rooted in customer centricity and agility. So that's the new Sudarshan I would say. In all, we have 19 manufacturing sites now globally in 11 countries, five continents. We serve almost all customers in every country.
We have a very unique and a broad product portfolio. Our manufacturing footprint is very wide. Given the current geopolitical situation and the tariff situation, this is a big advantage for us as an organization, as we have the flexibility of supplying from India, Europe, Latin America to any of these countries and especially U.S. The manufacturing footprint gives us a big advantage, I would say. If you look at our product portfolio, we serve a very broad product portfolio. We serve the conventional industries of coatings or paints, plastics, printing inks. In addition to this, we also serve digital inks. We supply our aluminum dyes. We are suppliers to cellular phones, and some of our colors are also used in the latest iPhone 17 and 17 Pro. These are the new areas where we sell into with our broad portfolio.
Again, to give you a context, Clariant for the last legacy, for the last five, seven years had decided to divest the business. After that, Heubach took over the business, then there was an insolvency. All this had, within the company, the mindset had become day-to-day survival. We want everyone now to shift to playing to win. Whether you are in the sales team, how do we win against our competitors? Whether you are in the plants, how do we be agile in reducing our cost and being humble? That is the change which we are trying to bring within the organization. Of course, being courageous and bold is very important, but staying humble at the same time is very key. Humbly listening to all our stakeholders, especially our customers, and course-correct our paths where required.
Customer centricity and responsiveness is at our heart, and we are rebuilding our customer service teams, which were disintegrated today. We did not have customer service. Our customer service had become back offices either in Romania, Poland, Mexico, or in India. We are bringing back the front-facing customer-centric teams. Entrepreneur mindset is very important, and speed in what we do. The fourth principle is simplicity. Clariant belongs to the Hoechst legacy. Hoechst was a EUR 35 billion company with many businesses, and hence quite a few of the processes designed may not be relevant today and very complex. We want to drive simplicity in what we do. I think bottom line, financial stability is very, very important. Cash is king. We are investing for the long term, but how do we ensure that short term, we preserve cash and be prudent is also as important.
Our integration has progressed very well, and I would say, all in all, the integration is of three legacies and not two. It is the Clariant legacy, the Heubach legacy, and Sudarshan legacy. We are really actually looking at integrating three companies, and a lot of hard work is going on in that. To give you a more definite flavor on what we have done, especially in this quarter, what we have achieved is we have stabilized all our operations and ensured that product availability is not a concern for our customers. We had to. Some of our supply chain processes are still broken. We are fixing those, but we have ensured that we pump up inventory, that our service levels improve. As I mentioned, we have set up customer service. We have defined a roadmap for our integrated IT systems.
Just to give you a flavor, we were working on four different SAP systems, and we want to integrate those into one. Also, there are several applications outside of SAP, which we use, almost 78 to 80 applications. We want to see how we can reduce those costs and also integrate those applications in that perspective. From that perspective, the next leg where we are playing in is setting up the GCC, the Global Capability Center, from that perspective. Also, we fully finalize our op structure. I would say all in all, our team has really achieved a lot in this short period. One of the areas which you remember I spoke about and which I committed to is turning around the business was important, and that was based on cost reduction and value capture.
As during insolvency, there were several, what do you call them, sir? Several surcharges. Surcharges. Sorry. Several surcharges imposed on customers which were not market-driven, and those surcharges have to be taken back. Hence, we are working on a lot of cost reduction in every area. From optimizing our operations, where we are looking at across what are the areas of reduction in our cost within the sites, but we are also comparing our processes across sites to see how we can reduce cost. Procurement has been a big lever where I think the procurement initially was, as SPB was acquired, group was more focused on Europe. But we're shifting this to Asia, to more competitive sources, and also taking advantage of our combined volumes. IT, as I have already spoke to you all, several ideas on reducing the cost.
When we benchmark the IT costs, the IT costs were at least 3x-4x higher than the world benchmark costs, right? So it's a great lever both from a cost reduction and also bringing in efficiency and processes. The other SG&A cost, we've looked at several optimizing the org structure, which has happened, and that's given us a great benefit too in terms of that. Product management, we were outsourcing several products, which we've insourced, and that will also give us a big advantage. Net working capital will be our next focus on how to optimize cash and working capital. As I always said that we are very excited of our journey ahead. There's a great opportunity. If you look at how the industry is shaped, right? Five or six years ago, there were five global players.
Today, there are only two global players, with Sudarshan Chemical Industries as the only player who's focused on only pigment business, right? So this provides us a great opportunity in creating the most valuable pigment company in the world. Customer centricity, the way we are driving our customer centricity across, and bringing in agility, I think this is going to be a very distinct advantage for us. We will become a world-leading color solution provider because our technical marketing product management teams and our portfolio and the right sales team, we can work with customers really to providing great solutions to the customers. With this, I will start with the Q1 performance update. Just to give you a little bit of a reflection on what's happening in the market. It is a fact that some of our customers today, there are headwinds from a market perspective, right?
Our customers currently struggle with low demand and also high inventory. High inventory was caused by two areas. One was given the tariff situation, some of our customers had built inventory, the geopolitical situation, also anticipating better demand. This was one area. But specific to Heubach, during the insolvency, there were several customers who were very insecure and built up high inventories, right? We expect them to de-stock this and, by December, we should come back to a little bit of our nominal numbers. So there's a double impact, really, for us where we see moderate demand and many customers who have built up inventories, so de-stocking of that, right? Also, we are learning new areas where we see August as from a Europe perspective or Europe is almost shut. Because of that, this is a new seasonal impact which even I have learnt about from that perspective.
However, having said all this, there's a great trust from our customers and customers want to rebuild a meaningful relationship with us. We've already been honored with several customer prestigious awards from both the coatings and plastics industry. We've got the excellent supplier awards, and we are seen as an ideal global partner for combining our expertise and we have great commitment from customers to do business with us. That's a great area to kind of work together on. With this, we'll come to the numbers from our Q1 quarter, and Natuji, you begin.
Thank you, Mr. Rathi. Good evening, ladies and gentlemen. I will take you through the quarterly financial highlights, starting with one, Sudarshan. Total revenue for the quarter stood at INR 2,507 crore. This number includes legacy Sudarshan, acquired group, and RIECO business. Year-on-year and quarter-on-quarter number are not comparable as acquisition of Heubach Global Pigment business was completed in March 2025. Legacy Sudarshan includes standalone Sudarshan and existing subsidiaries performance of the legacy Sudarshan. Revenue for the quarter stood at INR 628 crore, marginally down by 1%, and EBITDA for the quarter is at INR 87 crore versus INR 81 crore last year, and EBITDA margin is at 13.9% versus last year of 12.7%. We are seeing revenue ramp-up starting in the acquired group.
Revenue for the quarter is at INR 1,882 crore versus one-month revenue of March 2025 post deal closure, which was at INR 525 crore. Absolute EBITDA is at INR 78 crore, which is 4.1%. Coming to the pigment business. Legacy Sudarshan revenue from the pigment business for the quarter stood at INR 578 crore, which is marginally down 2% compared to the last year Q1, which was at INR 589 crore. EBITDA for the quarter is at INR 87 crore compared to INR 90 crore last year, and the EBITDA margin is at 15.1%. Revenue from global pigment business, which is legacy Sudarshan pigment business and acquired group, stood at INR 2,456 crore for quarter one FY 2026, with the Adjusted EBITDA of INR 165 crore, which is at 6.7%.
Just to add what Natu said, I think legacy Sudarshan, we may see Q1 and Q2 to be a little flattish or slightly this, but by the year-end, we should pick up our sales. This was mainly in specific geographies and specific customers. Also, we found some areas, like especially Europe and [North Latin America], where demand was sluggish. We are working on winning back some of these areas. As we say, acquired group, the sales ramp-up has started. Though the market is not favorable, we are in a good shape to win back some of the businesses.
Thank you. On the financial ratios, earning per share for the quarter is at INR 6, which is not annualized number. Return on capital employed is at 14.3% compared to 13.7% last year, and net debt to equity is at 0.5%. We continue to drive our focus on the net working capital. Net working capital as a percentage to revenue stood at 23.9%. With this, net debt for the quarter is stood at INR 1,084 crore. With this, I will hand over back to Mr. Rathi for his closing comments.
Net debt, just to explain. Can you go back? That is right.
Yes.
You want to explain that?
Yeah. Thank you. Net debt for the quarter is at INR 1,084 crore compared to INR 652 crore in the Q4 of the last financial year. This is because of the part of the purchase consideration which was paid in June, which is as per the agreement with [audio distortion]
Yes. I think this was just part of the payment which was paid in June as part of the whole purchase price consideration. Yeah.
With this, I hand it over to Mr. Rathi for his view on the outlook and closing remarks. Thank you.
Yes. Our projections, as we said, that we are on track on what we had projected to be the acquired group for EUR 35 million. After seeing this business for five to six months now, I and my team feel very confident that we would be able to deliver not only this year's number, but financial year 2028 or 2029, I would say. We would be on track to delivering the EUR 90 million- EUR 100 million EBITDA out of the acquired group. I've already spoken about tough market conditions, but in spite of that, we would be able to deliver these numbers. All in all, I think a good place where we are in. There are definitely some distinctive advantages which Sudarshan brings into play. One is obviously, one of the fastest-growing pigment companies.
But if you look at all our legacies, the combined experience is probably 300 or 400 years, beyond 400 years. So that's a great history which we have with us, which we can build on. We offer customer-first solutions, and we've really built back that technical expertise, that technical market, the product management, and the customer connect to the sales team. Quite a few of our sales team, major part of our sales team is very technically driven, which helps in delivering customized solutions to our customers. We offer one of the most comprehensive organic pigment portfolio, but now we also have an expanded portfolio into specialty dyes, anticorrosive pigments, pigment preparations, et cetera, which has really given us a great boost in our product range. Probably the most comprehensive global product portfolio.
One distinct advantage we have is if you look at our manufacturing footprint. We are the only ones with such a wide footprint of our manufacturing footprint, and more importantly, 50% of this being in Asia. So a long-term cost comparative. In addition to this, a specialty portfolio out of Germany. And then, of course, we have Latin America also as an important region for us to manufacturing pigments. So this really gives us a great, I would say, competitive advantage, a long-term advantage, as we build this. So thank you, everyone, and thank you for listening to us on that aspect.
Thank you very much.
Thank you. With this, we hand it over back to the moderator for the question and answer session. Thank you.
Thank you very much. We now begin with the question and answer session. Anyone who wishes to ask a question may click on the raise hand icon to ask a question. Kindly announce your company name before proceeding with your question. Participants are requested to restrict to two questions per participant. I am requesting you to join back the queue for a follow-up. Ladies and gentlemen, we will wait for a moment while the question queue assembles. You may click on the raise hand icon in the bottom of your screen to ask your question. Our first question is from the line of Archit Joshi. Kindly announce your company name and proceed with your question.
Hi. Good evening, gentlemen. This is Archit Joshi from Nuvama Institutional Equities. Firstly, many congratulations for a successful integration and reporting a decent quarter. Sir, my first question is regarding a comment rather that you made with regards to being on track to achieve the early guidance that we had given for Heubach's EBITDA, which is roughly EUR 35 million, and as we can see, closer to the annual-- Hello? Hello, am I audible? I think I got disconnected.
No, sir, you are audible. We can hear you.
Yeah. So, sir, as I was saying, the path that you had set up for FY 2026 to achieve EUR 35 million of EBITDA from Heubach seems fairly within reach. But if you could explain what would drive this to take us to our FY 2028, FY 2029 number, I would like a breakup if you can give on two accounts. What would be the cost items that you think are easily achievable or are low-hanging fruits which might help in boosting the EBITDA? And on the sales front, how do you see this INR 2,000 odd crore revenue, quarterly revenue of Heubach, if one annualizes it, let us say to INR 8,000 odd crore every year, to grow at what rate to be able to reach that EUR 90 million- EUR 100 million EBITDA?
Archit, a great question. I think as we had mentioned, there is a great opportunity in cost reduction and value capture in shape, right?
Yeah.
It has several levels, main ones being manufacturing or operations. We expect a large part of the cost reduction to come from them. Equally important is the procurement of purchase lever. Looking at these two levers, then there is a one-time correction in the op structure. Some of the op structure benefits, though we have completed, we are still not seeing in the EBITDA margins as the restructuring cost of that is still there. From that perspective, these are the three main levels. Of course, IT is also. Then there are small levels like IT. There are other functions from our perspective where we are looking at this. We see from a growth side, as I mentioned, till January, we do not see too much of growth coming in from a perspective that we see opportunistic. We are engaging very well with customers.
We will see some growth coming in from that. Then on a year-on-year, we see a natural growth of 4%-5% coming in from that business year-on-year later. These would be the levers where we will kind of come to coming. Please also remember that when we started looking at this business, the EBITDA was zero. As we are working on the, as we are working as a value capture, it takes time for it to come into, have a full impact. So that is where I think we are sitting today.
Great, sir. I think that answers my first question. Second question and then I will fall back in the queue if possible. You had mentioned that 50% of our production comes from Asia, so I am assuming that this is 50% production volumes. Might we also get a number on what we do in Europe and U.S. as manufacturing capacities that we have there?
Sure. I think, these are just ballpark figures giving you a flavor of how this distribution is. I would say ballpark 50% from India, 30% from Germany and balance from Latin America and Japan, right? Other geographies. That gives a very distinct advantage for us because the way we have a global manufacturing footprint, this is definitely a competitive advantage for us, right? Most of our competitors are either fully based in Asia or have no presence in Asia or negligible presence in Asia.
Sure sir. A small one to squeeze in.
Sorry to interrupt you, Archit. Can I request you to come back for a follow-up question, please?
Sure. I'll come back.
Thank you very much. A request to all the participants, kindly restrict to two questions per participant and rejoin the queue for a follow-up question. Next question is from the line of Rohit. Kindly accept the prompt, join as panelist, unmute your audio, turn on your video, introduce your company name and proceed with your question.
Thanks for the opportunity. Rohit Nagraj from BNG 360 ONE. Congratulations on the successful integration and relatively good performance. First question is in terms of the production footprint. Have we started optimizing the production given that Sudarshan legacy business was also exporting some of the products to these countries and now since we have the Heubach facilities, particularly situated in Europe, have we started shifting some of those products to Heubach or where are we in that process of optimizing the production? If so, what is the timeline that we are looking at, in terms of optimizing it and getting those benefits accrued? Thank you.
Great question, Rohit. From a perspective, there are two aspects to look at where to make the product, right? First was as you know, there was a process which was in place where some of the non-specialty AZO pigments were being moved from Germany to India, right? That process is just getting completed now, right? The product management group is in totality looking at what is the right place to make the right product, right? Globally. That depends on two factors, is the manufacturing cost, landed cost of the product, manufacturing, total cost of the product on what geography and what is the capacity utilization impact, right? The product management looks at the entire margin and then decides how to make.
Of course, one caveat is there, we have tariff situation and hence, the tariff situation sometimes will kind of plead the strategy to make this product, locally in Mexico or Germany, and not in India.
Sure. Thanks. Sir, second question on the numbers front. Two sub-questions. One is that the integration cost that we have taken during this quarter, is it going to be recurring in nature? If so, what could be the quantum? Second question, on the net debt front, the debt has increased during the quarter. However, the cost of debt and interest seem to be extremely high. So how are we likely, I mean, what is the kind of average cost of debt that we can take for FY 2026? Thank you.
You want to take it? Continue.
Thanks, Rohit. Firstly on the integration cost. The current integration, restructuring cost is at INR 32.8 crore, and we expect the similar run rate. This is for under initiatives which are currently being driven are go-to-market initiative, value, capture, et cetera. Coming to the finance side--
Please, just to add, some of our IT restructuring cost or the cost of organization restructuring, that is not included in this. That would be over and above this. This is what the current cost was. Please.
On the finance cost, Rohit, while there has been increase in the network, which we had mentioned in our opening remarks, in the Q4, there was a partial timing impact because we had drawn down the loan during March and there was a bit of the timing which was on the lower side. This particular quarter has a full quarterly impact on the finance cost, which is seen in the financials.
Just clarification, no questions. First, the restructuring and integration cost, what is the timeline that they will end? If I take the run rate of about INR 40 crore-INR 45 crore of interest, it looks like on an annual basis, the average cost of debt is about 15%-16%. Just clarifications on these two aspects. Thank you.
The integration, we planned the integration cost for this year and the integration cost should be EUR 10 million plus for this year, excluding the IT or the organization restructuring costs, Rohitji. On the interest cost, Natuji, if you want to comment.
Yes. Rohit, on the interest cost, since right now you are looking at the net debt. If I see on the gross debt, the interest cost should be in the range of 6.5%-7.5%. There are also other accounting impact in the interest cost, which is on account of the lease accounting, where the finance cost on the lease is also captured here. It is not on the borrowings, but it is more of the lease accounting there. From the perspective of the modeling, 6.5%-7% can be taken as the finance cost on the gross debt.
Thanks a lot. These are very helpful. Thank you and all the best, sir.
Thank you.
Thank you, Rohit.
Thank you very much. Next question is from [Manoj Bharat Sail]. Kindly accept the prompt, join as panelist, unmute your audio, turn on your video. Announce your company name and proceed with your question. Go ahead, sir.
Hello?
Yes, sir, go ahead. You are audible.
Rajeshji, how are you? Thanks for the opportunity. Hello? Hello?
Yes, sir, we can hear you.
Yes, sir. We can hear you. Go ahead.
Okay. Rajeshji, in, say, Germany, which is currently contributing 30% of our production, and if I understand that when, in time of acquisition, we were anticipating that the government will do some kind of a restructuring cost structure and everything. Is that already there in the place or is German manufacturing unit is profitable or what stage we are in turning it to be profitable?
Sir, I can't fully follow your question, but what I understood is our manufacturing footprint. If you're talking about our manufacturing footprint--
Correct.
--from Germany, whatever products had to be transferred have been transferred back to India. Now it's a stable manufacturing--
Sure.
It's a stable manufacturing. There are good value capture ideas on Germany and we will ensure that it is self-sustaining on its own.
Okay, great. Second thingy, in opening remark, you also talked of bringing down our working capital. Currently, what cycle, I mean, how many number of days we have working capital and how do we plan to bring it down? What is the sustainable level that we are anticipating? Hello?
Yeah, just a second, [Manoj].
We are approximately at 24%-25% of working capital. We want to bring it down to 21%.
Will it be by year-end or it's gradually that will come down?
Gradually. Our focus is first on building the planning processes and our first target is building customer trust. Ensuring even if we are a little inefficient, we don't want to compromise on that. The good part is pigment inventory doesn't get obsolete. It has a shelf life of infinite shelf life, 20 years. We will ensure that at the right time, once the planning processes are in place, we will optimize the inventory.
Okay, thanks a lot and all the best.
Thank you, sir.
Thank you very much. Our next speaker, shareholder is [Maitri]. Kindly join as panelist. Unmute your audio, turn on your video, announce your company name, and proceed with your question. Go ahead, ma'am.
Yeah. Hi. Good afternoon, sir. This is Nilesh from HDFC Securities. Can you hear me?
Yes, very clearly.
Yeah. Sorry. A couple of questions. First thing on the depreciation. Can you tell us the depreciation for this year and FY27? Will it be the extrapolation of the Q1 number? Second question, in your presentation, you mentioned that our customers currently struggle with low demand and they already have high inventory because they built up high inventory due to insolvency. Based on current demand and outlook on the demand, how many months of inventory do they hold as of now? These are the two questions. Thank you, sir.
Thank you, Nilesh. On the depreciation part, currently for the quarter, the depreciation is at INR 99 crore, and we expect the similar range each quarter going forward for the requirements. Thank you.
On your second question, Nileshj i, I think, of course, there are two impacts, right? One is overall, in general, there is this destocking effect because people have had anticipated demand and also looked at any uncertainties and built up the demand. The second part is also that when it's concerning us, that Heubach built up. Heubach customers, legacy Heubach customers built up demand due to the insecurity, right? So these were the two factors I would say where destocking happens, and that's why destocking is more pronounced for us now, right? Because a lot of customers are destocking.
Customer to customer it differs, but we believe that customers are kind of stocked up on certain products till December, right? And we should see a good area of numbers coming up.
Thanks. Thanks a lot, sir.
Welcome. Thank you.
Thank you. Next question is from [Lanna Hussein]. Kindly accept the prompt, join as panelist, unmute your audio, turn on your video, announce your company name, and proceed with your question.
Hello, am I audible?
Yes, sir. Go ahead.
Sir, just wanted to understand if the domestic market in this quarter numbers were weak, and you've said that in the Q1 and Q2, the numbers will be weak and largely in Q3, Q4. What's the prime reason for I think you've already said in terms of that there is some inventory built-up. But how do you see that in the full year? Can we see a full year revenue growth of more than double digits? Can we see a full year revenue growth from double digits considering that in the domestic business?
Just to clarify, when you mean domestic business, you mean legacy Sudarshan business, I am assuming, right?
Correct.
Legacy Sudarshan business, absolutely, sir. I think the aim at the end of the year is to hit the 10%, in that region, 8%-10% number from the year-end perspective. Q2 should be still a little soft on two reasons. One is, of course, last year, our Q2 was very, very, I would say, was a very robust quarter last year. We had seen significant growth. This, combined with that, seeing last year's robust growth and this year's little bit of a muted demand, these are the two areas where we will see a little bit of softness in Q2, and we should be able to build up that as we go ahead.
Correct. Sir, secondly, when we look at global pigment sector, I think you already in the start said that only two players, so from the earlier five players to two players. On the pricing front, have you seen that the pricing has largely improved because of the two players, being only two players in the segment, largely driving the compared to five players? Has the realization have improved across the board?
I think, frankly, generally, there is a good competitiveness on pigments from Asia. There is, of course, a price differential between the Asian player and a global player. But that has not significantly increased, and I think our focus is on capturing volumes and hence, we will keep our pricing at where we are.
Got it. I think that is the only question from my end. Thank you.
Thank you,[ Friendhi].
Thank you.
Thank you very much. Next question is from [Raja]. Kindly join as panelist, unmute your audio, turn on your video, announce your company name, and proceed with your question. Go ahead, sir.
Yeah. Good evening, sir. Thanks for the opportunity. Sir, just a couple of questions. First one is, you mentioned that some of the commodity business has been moved from Germany to India. I would like to know, has it been moved to Sudarshan India business or the Heubach group India? Also what is the margin uplift you are looking at by moving this?
Some of these products were part of the movement even before we had acquired this group. So it was moved to either the Heubach group companies, either the public listed or the private, both. This was done because these products were not very viable out of Germany. The costs were very high. Hence these were moved to India. From India, I do not recall right now the margins, what this was, but I think it was a very favorable area where we could compete with making these products here, where in Germany we were not able to compete.
Okay. Got it, sir. Sir, the second question is, I see that the power cost is a major component of your other expenses. Particularly on the European region, given--
Can you-- s ir, it is very difficult to follow you. Can you talk louder?
Yeah. Can you hear me now?
Not very clear but--
[Raja], if you can speak little louder or get the microphone closer.
Yeah. Hello, is it audible now?
No, sir, it is still feeble. Can you speak a little louder, please?
Is it okay now?
Let us try. It is very feeble, but we will try to hear.
Yeah. Sir, this question is on the power cost in the European region. Given the war between Russia and Ukraine, generally most of the companies are seeing a higher power cost. I just want to know, is the scenario improving or is it the same or is it deteriorating?
Sure. I think there is also a normal cycle in Europe where in the winter season the power prices do increase. The big surge which had happened during the Ukraine-Russia, for the energy that time, that is not prevalent anymore, right? Hence, the power differential cost during the normal months other than the winter is not significantly very different.
Okay. So it is no longer a headwind for us. Is that a safe assumption?
No, it is not a headache for us anymore.
Okay, sir. Thanks a lot, sir. All the best. Bye-bye.
Thank you.
Thank you very much. Next question is from Nitesh Dhoot from Anand Rathi. Please go ahead.
Yeah. Hi, sir. Thank you for this opportunity. Just a couple of bookkeeping questions from my side. First is on the pigment business gross margin. Can you give the split between the legacy and the acquired group? That is the first one.
Niteshji, first of all, the host cannot ask questions, right? I think currently we are not giving out the gross margin numbers, given that once the business stabilizes, especially of the acquired group, we will be able to do that. But the acquired group does have a higher gross margin than the legacy Sudarshan business. Directionally. Exactly.
Right. And sir, just one more for Nilkanthji. So basically, if you see the other expenses, that includes the integration cost, INR 33 crore, that is related to the acquired group. In the last quarter, if I remember, you had INR 20 crore expense, and that was considered in the Adjusted EBITDA number, which you gave out in the presentation. For Q1, however, this appears to have been left out when giving the Adjusted EBITDA at INR 165 crore. So considering this as a one-off, does it need to be added back to that EBITDA number or how should we go about it?
Niteshji, can you come here?
Yeah.
Before, we have Adjusted EBITDA with INR 20 crore of one-off costs. The current INR 165 crore Adjusted EBITDA, which we had mentioned in our presentation, need no further guidance.
Okay. And just one more on the foreign exchange adjustment. So you have mentioned INR 27 crore as the gain that has been adjusted. And in the reported number, there is another INR 11.5 crore. So, is this part of that number or has it to be treated separately?
Niteshji, the 27 crore, the Forex gain adjustment which we have mentioned in our presentation, this is more of accounting treatment, which is related to the FX translation on the intercompany loan between Sudarshan India and Sudarshan Europe B.V. These loans were given as a part of this transaction. We have excluded this exchange gain from the normal operating EBITDA which is reported.
Okay, fine. That answers my questions. Thank you so much.
Thank you very much. I now hand the conference over to the management for closing comments.
Thank you. Thank you, Mr. Nitesh. Thank you, Mr. Nitesh and Anand Rathi Research. Thank you all the participants for your time and interest in Sudarshan Chemical Industries. We remain confident in the long-term prospect of our business and also on the integration which we have mentioned in our opening remark. We look forward engaging with you again in future. Thank you.
Thank you very much. On behalf of Anand Rathi Shares and Stock Brokers Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.