Q2 23/24

Nov 6, 2023

Ladies and gentlemen, good day and welcome to the Q2 FY24 earnings conference call of Sudarshan Chemical Industries Limited, hosted by ICICI Securities Limited. As a reminder, all participant lines will be in the listen only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjesh Jain from ICICI Securities. Thank you, and over to you, Mr. Jain. Thanks, Michelle. Good morning, everyone. Thank you for joining on Sudarshan Chemical Industries Limited Q2 and H1 FY24 results conference call. We have Sudarshan Chemical management on the call, represented by Mr. Rajesh Rathi, Managing Director, and Mr. Neelkanth Natu, Chief Financial Officer. I would like to invite Mr. Neelkanth Natu to initiate with the opening remarks, after which we will have a Q&A session. Over to you, sir. Thank you. Thank you ICICI Securities and Mr. Sanjesh for hosting our earning call. Good morning, ladies and gentlemen. Welcome to Sudarshan's Q2 FY24 earning conference call. Our investor presentation has been uploaded on the stock exchanges for your ready reference. I would like to take you through the financial highlights for this quarter. On overall basis, there has been a growth in the top line as well as improvement in the EBITDA margin. However, global uncertainties and macroeconomic factors, coupled with recent geopolitical development continues to be the key challenge. The quarterly performance on a consolidated basis for the quarter, total income from operations stood at INR 601 crore as compared to INR 528 crore for the same period last year, higher by 14% year on year. EBITDA for the quarter stood at INR 66 crore as compared to INR 53 crore in Q2 FY23, and EBITDA margin is at 10.9% compared to 8.1% over the same period last year. Profit after tax stood at INR 18 crore compared to INR 5 crore for the same period last year. Coming to H1 performance. On half yearly basis, total income from operations stood at INR 1,209 crore versus INR 1,083 crore in the same period last year, a growth of 12%. EBITDA for the first half is at INR 135 crore versus INR 84 crore last year, and EBITDA margin is at 11.2% for the current half year versus 7.8% over the same period last year. PAT is at INR 39 crore compared to INR 12 crore for the same period in the last year. Now, going into the details of our pigment business. For the Q2 FY24, income from operations stood at INR 522 crore as compared to INR 476 crore for the same period last year, a growth of 10% year-on-year. On a sequential basis, the revenue is marginally lower by 3% compared to INR 536 crore of Q1 FY24. India sales for the quarter is at INR 272 crore, higher by 16% as compared to INR 235 crore in the same period last year. On a sequential basis, India sales is marginally higher by 3% compared to INR 265 crore of Q1 FY24. Export for the quarter were at INR 250 crore compared to INR 242 crore, higher by around 3% year-on-year. On a sequential basis, export revenue is lower by 8% compared to INR 272 crore of Q1 FY24, mainly due to weak demand resulting from inflationary pressure in EU, U.S., and effect of de-stocking. We continue to be vigilant towards the international geographies considering the recent geopolitical issues and global macroeconomic situation. In plastic segment, we continue to see relatively stable demand, and ink segment has seen improvement in demand in Q2 FY24. We expect this to continue in the coming quarter. We continue to see subdued demand scenario from coating segment, majorly due to domestic players differing buying decisions owing to falling price regime and also due to the late festival season. Demand in the coating segment is expected to pick up in H2 FY24. Specialty pigment sales stood at INR 362 crore as compared to INR 330 crore for the previous year same quarter, 10% year-on-year higher. On a sequential basis, revenue has remained flat as compared to INR 363 crore of Q1 FY24. Non-specialty sales for the quarter is at INR 160 crore, which was higher by 10% as compared to the same period last year. On a sequential basis, revenue is lower by 8% compared to INR 134 crore of Q1 FY24. We are seeing healthy and progressive engagement with our customers for our product basket offering from the recently commissioned capacity. Gross margin of pigment business for the quarter increased to 44.8% as against 38.8% for the same period previous year. Comparing with the sequential quarter, gross margin have gone up by 190 basis points. This is mainly due to lower price, raw material prices, and change in the product mix. During the quarter, we continue to see softer raw material costs and coal prices as compared to the previous year. Logistic costs have remained stable in Q2 FY24, while it has come off from the peak levels seen earlier from the previous year. Further, evolving geopolitical environment can pose some uncertainty, which may have impact on crude prices and other intermediary prices. EBITDA for the quarter stood at INR 67 crore in Q2 FY24 compared to INR 39 crore for the previous quarter. EBITDA margin stood at 12.8% as compared to 8.2% over the same period last year. On a sequential basis, EBITDA is higher by 90 basis points. In H1 FY24, profit income from operation for pigment business stood at INR 108 crore versus INR 1,002 crore in the same period last year, a growth of 8%. EBITDA for H1 is at INR 131 crore versus INR 80 crore last year, and EBITDA margin is at 12.3% versus 8.3% over the same period last year. Now coming to the balance sheet. The balance sheet of the company has strengthened with stable business operation in first half of the year, and funds received from monetization of the asset. The net debt of the company has reduced substantially to INR 445 crore in Q2 FY24 from INR 926 crore in Q2 FY23, and INR 503 crore in Q1 FY24. The reduction in debt has resulted in improved net debt to EBITDA to 1.7 times in Q2 compared to 3.8 times in Q2 of the last year. The working capital cycle has been effectively managed, thereby resulting into the cash conversion days at 82 days in current quarter compared to 90 days in the sequential quarter Q1 and 108 days in Q2 of the last year. On ESG focus. Before we conclude our management commentary, I would like to take this opportunity to highlight our ESG focus. Sudarshan always maintained high standards in this area as seen from the direct restart permission for treated effluent from Roha plant, British Safety Council five-star rating Sword of Honour award, and Sudarshan's CSR work in the plant location community. Our focus is further enhanced with clearly formulated vision to be the global leader in pigment industry by operating responsibly and growing sustainably. To achieve this, we have formulated the strategy towards key pillars of the environment responsibility, strengthening social inclusiveness, business accountabilities with continuous focus on manufacturing excellence. We believe that companies will get differentiated based on the ESG practices in coming years, and our continued focus and sustainability journey with concentrated efforts will strongly position us globally. To summarize, positive tailwinds from the external factors such as consolidation of top players in the industry, China Plus One, India gaining economic momentum due to continuing global uncertainties are expected to favor Indian pigment industry. However, we continue to be cautious considering evolving geopolitical situation and global macroeconomic situation. We are well prepared internally with all the CapEx projects in commission, with wider range of the products portfolio, cost-efficient operation, and capacities to quickly ramp up. We are confident in our growth journey and are committed to deliver the long-term value to our stakeholder. With this, I now open the floor for question and answer session. Thank you. Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask questions may please press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take the first question from the line of Madhav from Fidelity. Please go ahead. Hi, sir. Good morning. Thank you so much for your time once again. Just wanted to get an update on, now that our product range is finally ready, we have our expanded capacity in place. Could you just help us understand how the traction is building up? Not from a near-term perspective, I understand there are geopolitical challenges that could happen near term. But if we take a 2, 3-year view on the company, could you give us some sense? Are we in a better shape to sort of gain more business in export markets from a year perspective? Thanks, Madhav. Neelkanth here. As we mentioned in our opening commentary, we have recently commissioned all our CapEx and product offering in terms of our new products that has been well received from the customer. As we mentioned, considering the current scenario, we are seeing the ramp-up to happen over a period of 4 years. This is whatever the internal target we have set for ourselves in the first 3 years. In the first half, we are achieving those. We are on track in terms of achieving the target for this ramp-up, and you will see those results coming in over a period. And this 4 years, in your view, you're being a little bit conservative or this is more realistic? What kind of assumptions are we making? Madhav, the 4-year review, which we are right now giving is more based on the conservative basis, given the current geopolitical scenario and the macroeconomic conditions. While our endeavor remains for the quick ramp-up, 4 years is more on the conservative side. Sure. The second question which I had was, now that our product mix is expanded and we have more, how should I say, more specialty portfolio in place versus what Sudarshan was five years back. If you look at our margin profile before COVID, where we used to do 15%-16% EBITDA margin. Would it be fair to say if we take a three, four-year view, EBITDA margin should be higher? We do not want the exact number, but just given the change in the product portfolio, margin should be higher versus what it was over a five-year period before COVID. Madhav, to answer this, yes, strategically, directionally, it should be higher than what we had seen earlier as a 15% EBITDA. These are our history. We had the EBITDA margin of 15% in 2021, which given the new CapExes which are put to use more the focus on the specialty. Over a period of the time horizon, which you have mentioned, three to five years period, I see that structurally, the gross margin and the EBITDA should move up, and we should see the EBITDA margin higher than the numbers which we had anticipated earlier. But it is over a period of time. Directionally, what you are interpreting is correct. Wonderful. Okay. Thanks so much. Thank you. I will take the next question from the line of Ankur Periwal from Axis Capital. Please go ahead. Yeah. Hi, sir. Thanks for the opportunity. A first question on the pricing or the overall growth on the revenues front. So congratulations for a decent performance across domestic specialty as well as the export bit. Just trying to understand how should we look at this growth from a pricing and volume breakup perspective. Is pricing a component here or it is largely volume driven? Yes. Hi, Ankur. Yeah. Hi, Natu-ji. Yeah. Hi, Ankur. Neelkanth here. So, as we mentioned, we are seeing the softening in the raw material prices, logistic cost, and coal cost. So the current revenue scale up which we are seeing is more from the volume front because there has been the softening of the price regime, which we have seen in the first half. So it is more driven from the volume side. Sure. Just a clarification, the RM deflation, has this been passed through in Q2 or will we be passing it on, let's say, next quarter onwards? We have passed on this, Ankur. This softening of the raw material prices, other costs, we do the pass on quarter. Okay, thank you. Second question on the global competitive and our positioning as well as from a landscape perspective. We have been seeing excess capacities in China which has kept prices under pressure for most of the chemical companies. How is competition for us, given that there were certain plant shutdowns and China in price, they are big on segments. Probably, you can highlight how the demand supply situation sort of pans out there. Ankur, this is Rajesh Rathi. I think the situation. So two sides are. One is the industry in general is probably passing through a worse phase, right? If you see our European competitors or the large players, they are not doing very well. Also, given the demand scenario, especially in the major geographies, if you talk about U.S., Europe, China, Japan, is not very good right now. So the situation is tough, but I think we are able to make good traction given our whole storyline and our whole strategy on growth over a very reliable and a broad-based product manufacturer. So from that perspective. Sure, Rathi. Is any new capacity coming in globally or maybe excess of supply given the demand is lower and hence- I think we are seeing a shutdown in capacities. Certain capacities in Europe have shut down. No major addition of capacities in China, I would say. Great. From a new product approval or let's say, ramp-up perspective, I know the macro has been weak, so probably won't be right to look at the ramp-up as such. From a product approval perspective, where are we for our new project that's been commissioned? I think we're doing quite well, sir. Whatever our four-year plan was, we are right on track. The next one and a half, 2 years would be to see how can we exercise that and do that. But as of now, we are on track, sir. Okay, sir. Just one last question, if I may, for Natu-ji. Our working capital has improved in this quarter, largely led by lower inventory. Is it sustainable? What are our thoughts there? Well, as we guided earlier, we were at around 25% last year, and we said that our endeavor is to be in the range of 20%-22%, given the situation around. So right now also, we are at around 21% of the working capital, and I expect that we will be in the same range of 20%-22%. I don't expect major changes in working capital. It has been fairly managed, and we will continue our focus in managing our working capital efficiently. Sure. Great, sir. That's helpful. Thank you, and all the best for you. Thank you. Thank you. We will take the next question from the line of Archit Joshi from B&K Securities. Please go ahead. Hi. Good morning, sir, and thanks for the opportunity. I have a few questions, sir. Firstly, just wanted to pick your brains on a comment that you have made in the presentation with respect to value chain integration in some of the projects. Can you elaborate what sort of value chains are we looking at here? Is this in the current scheme of things with respect to the products that we have, or there is an exploration of any HPP, azo sort of a pigment in the value chain? Archit, we cannot hear. You are listening to the transcript of the presentation? No, sir. There is a slide, business outlook, FY2024 and beyond, wherein we have mentioned execution of cost improvement and value chain integration projects. I think what it means is some of our backward integration projects will continue to focus. Some of the waste streams which are generated are getting some value out of it. I think those are the two areas which we have focused on. Okay. Nothing new on the product side, right? Or any other- No. I think we have completed all the products. Nothing new on the product here. That is all. Okay. Got it, sir. Secondly, with respect to the application areas, if I split this into three larger categories of the industries that we service, paints, coatings, wherein you have mentioned auto and reco, and plastics packaging and inks. So where exactly are we seeing pain globally? I see that you have seen some traction, especially in the domestic front. But where do we see this restocking or demand times this revenue? Is the question only pertaining to export market or all, including Only export. Only export, right? So export, I think it is more of a geography phenomena rather than the applications where, I think, U.S. was doing well till last year, and this year we are seeing a major effect and a lot of restocking happening in U.S. Europe is at the same trend as last year, little bit improvement, but China is also been. So it is more of a geography phenomena rather than the industry areas globally in the exports market, international markets. Got it, sir. So if I just put it as the ascending order, so U.S. followed by Europe and China, would that be a fair assumption, where we are seeing more pain? In general, as a market, I think China, U.S., Europe, I would put that in the sequence. But for us our largest takes are in U.S. and Europe. Got it, sir. Sir, one last. This quarter, our subsidies, I just threw up, petrol minus and so on. Subsidy performance seems to have improved quite a bit. Can you throw some light on what is driving this, and what should we apply a run rate to look at going ahead with respect to the subsidy performance? Thank you. Archit, you are mentioning about the reco, correct? Yeah. In terms of the reco, they are receiving the good order. Being in the capital goods industry, they are seeing the upcycle and current order book and the revenue, if you have seen in the current year, it has been at INR 151 crore compared to the last year of INR 80 crore. And they are positive in terms of the EBITDA and EBT. They have turned around over the last two years period in terms of their performance, and we expect that this trend to continue for the current year. And we should see the decent improvement over INR 223 crore of the last year in terms of the revenue. Sure, sir. Thank you. Yeah. Thank you. Thank you. Participants who wish to ask questions may please press star and one. We will take the next question from the line of Yogesh Bhaiya from Sequent Investments. Please go ahead. Hello, sir. Congratulations for this. I wanted to ask, can you tell us from the new facility, what is the revenue that we have booked in this quarter and what are the expenses that we are currently incurring for this facility? Hi, Yogesh. This is Neelkanth here. Currently we are not publishing that number. As we mentioned that we are on target as far as our internal targets, which have set for the first year and the revenue ramp up, the sizable ramp up we should see in the coming year. This is the market. Basically, if we get some sense on the expense side also, we will be able to understand that if the margins are subject because of the excess cost to the facility or something of that sort. It will give us some idea that how far are the margins expanding for the company. Yogesh, Neelkanth here. As you have rightly mentioned in your question, currently the capacities which are there for the new product are utilized at the lower end of the cycle. As we improve our utilization, we will see the benefits of the higher utilization getting into the gross margin and contribution margin over the period. Currently we are monitoring all the parameters and whatever we have taken for this particular year, considering the utilization levels, we are achieving those numbers. Maybe I request you to be at least maybe a couple of quarters, we will see the performance getting into there, and then we will start looking at it separately. Okay, no problem. Thank you. Thank you. Thank you. The next question is from the line of Nitesh Dhut from Dolat Capital. Please go ahead. Yeah. Hi, team. Jasmal, and thank you for this opportunity. My first question is on the European distribution tie-up. Have we really started benefiting from that, and how do we see this tie-up for the next 2-3 years going forward? We are engaging well with the European distribution tie-up. Like we said, these were for midsize and smaller companies. We are going through a product approval cycle, and I think in time to come it should expand. Right now the groundwork is going on with that. Sure. My next question is on the sale of the chemical industries. I think we had planned earlier for disposing this arm. So where are we as far as that proposal was concerned? The board is constantly reviewing the area at what stage we should be doing that. As soon as they come to some conclusion, et cetera, we will definitely come back to everyone. Great. And sir, just lastly, on capacity utilization, you mentioned that your new facilities obviously are at lower utilizations. But I just wanted to ask on the payment of EBITDA margins. Right now we are at 13%. So on an optimum utilization, where can we see these margins going forward? I understand that from a portfolio perspective these impact the margins. But purely from the utilizations of all the previous facilities I saw the new products that you made, where can we head to? Hi Nitesh, Neelkanth here. As I mentioned earlier, what we are seeing this year is getting back our margin trajectory, which we had seen in the last years of 9% to now 12%-12.5%. This is a positive incremental change which we are seeing. Couple of factors which has helped us is one is the softening of the RM prices, good governance in terms of the pricing, in terms of the pass-through as well as the pricing in terms of the products which are being offered. Third is also the volume gain, which we had seen in the current year. All these factors are benefiting us in terms of getting back to our margin trajectory backed by 3.5%, maybe 3%-4% up from the last year. Now, structurally, if you ask me, I see this particular year wherein we should see the margin momentum to continue. And once we go back to the higher level of the utilization with the new products also getting scaled up in the years to come. As I mentioned to Madhav earlier, we should directionally see our EBITDA margin going up from whatever the highest level, which we had seen earlier at 15%+, but this will be over a period and this we will continue to monitor as the management. But directionally it has to go and scale back to the level which we had seen earlier over a period of time. And right now we are seeing that particular momentum in the first two quarters also. It is positive for us. Yes, sir. Certainly. That's very helpful. Sir, just one last thing. On the domestic side, which new segments have driven the growth for us in this Q3? On the domestic front, the plastic segment has continued doing well. That segment has given us a good growth. Sure, sir. Thank you so much for answering my questions, and all the best. Thank you. Thank you, Nitin. Thank you. The next question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead. Yeah, thanks for the opportunity. Sir, my first question is, in your comment you mentioned that European some of the capacities have shut down. So what is your assessment in terms of whether these are permanent shutdowns or mothballed, or whether it's because of the current crisis in terms of the energy and high cost these capacities have been shut down. Thank you. It's a permanent shutdown. And just clarification, are these sizable capacities in the overall scheme of global capacities? I would say they're reasonable. I wouldn't say They're reasonable from a perspective of if you look at the total European capacities for that product line. Sir, second question is, one of the articles suggested that RIECO Industries is planning to increase workforce to about 500 plus by 2025. And we are focusing more on the custom processing and value addition solutions. So just get your view on this particular subsidiary of ours. At one point in time, we were trying to divest it, and then it turned around in the last couple of years. So what is the focus on this part of the business? On a normalized basis, what could be the growth trajectory for RIECO? I understand that constantly fluctuations may be there depending on projects. But on a yearly basis, what could be the growth trajectory? Thank you. As mentioned earlier, sir, RIECO is not absolutely core business for Sudarshan. The board is constantly reviewing the performance and what should be the future plan, I think. As soon as there is more clarity on what we are doing, we will definitely come back to you. Sure. Thank you very much. Thank you. Let's take the next question from the line of Sanjesh Jain from ICICI Securities. Please go ahead. Good afternoon, sir. Thanks for taking my questions. First is on the product portfolio that we are expanding and the European shutdown. Can you give us some update on the new product launches which have happened, which are in the approvals, have you started to client them? Where are we in terms of milestone on those new products which is relevant to us? Thank you, Sanjeshji. As I mentioned earlier in my opening remark also, and couple of questions also, we are seeing a very healthy and progressive engagement with our customer for our new product offering from our recently commissioned capacity. We are seeing the approval for our product being given by the customer, and the engagement with the customer is ongoing. As I mentioned, in terms of our internal target for this current year, as far as the revenue from the new product is concerned, we are absolutely on target, and we will continue our drive to get the new business from this product. What will be the contribution of new products today in our overall revenue basket? Sir, currently, as we mentioned, it is at the lower end of the capacity utilization. So it is not significantly material to report the number. So once we scale up to a number in a year's time, we will start publishing that. We will look at how to publish that number. Sure. Second question is on the European shutdown and those particular products being a supply shock. How many of those products are in our portfolio? Should we benefit out of it? I think the European shutdown will benefit more on the printing ink areas and some plastic areas. Mainly printing ink areas. The printing ink, sorry? Plastics. Plastics. Okay. Okay. Plastics. We were trying to also expand the footprint significantly in the I am sorry to interrupt. Closer to the mic. We are not able to hear you clearly. Yes, sir. Sir, your voice is breaking. Is it good now? Yes, sir. Much better. Yes, much better. Sorry. We were trying to expand our footprint, particularly in the U.S., particularly on the printing side. Sorry to interrupt you, but it is the same. Actually, we are not understanding you speaking. I would request you to use your handset, if possible. Yeah, I'm doing. Sorry. Thank you. Is it good now? Yes, sir. Please carry on. We were trying to expand our footprint in the auto component segment in the U.S. market. How is it progressing there? Well, we could just understand U.S. market. U.S. auto component segment. We were trying to expand our footprint in- Automotive segment is not just U.S., but it was a global phenomena, which we made good progress on that, and we continue to work on it, sir. Got it. One last on the Chinese side. We have seen increased supplies from China, both raw material as well as finished product. We also buy a lot from China, and we are also competing with them. Is it positively impacting us or it can be discretionary for us? Sir, can you please repeat your question again, there was some lag. Mr. Jain, there is a disturbance. We are feeling that you are not in the network area. Previously when- Can you hear me now? Yeah. Please talk from the place from where you were talking previously. Can you hear me now? Can you hear me? Yes. You can try. Okay. I was talking of the China side. China, we have seen increased production. We do buy from China as well, and we do compete with Chinese in the end market. How is it? Mr. Sanjesh, I am sorry to interrupt. Your voice is really not audible now. Yes. I can see. I am at the same place, I think the network is not. Thank you, sir. Sanjeev, I think we. Okay. Hang on. Okay. Yeah. We can go to the next participant. Sure until he gets back to us. We'll take the next question from the line of Rohan from Nuvama. Please go ahead. Yeah. Hi, sir. Good afternoon. Thanks for the opportunity. Sir, one question if you can just share for the current quarter in revenue, the contribution from volume growth and the price decline, if you can give some sense of that. So, hi, sir, Neelkanth here. Since there has been a very broad product range and the range of the value is very high, we are not declaring it in terms of the volume as such. But as I mentioned to Ankur earlier, we are seeing the softening in the raw material prices and other costs. So the kind of sales revenue which we are seeing now in our quarterly numbers as well as in the previous quarter, majority of this is coming from the volume side. This also gets translated in our EBITDA percentage compared to the last year. So majority of this thing is also getting driven from the volume side. Okay. But in general, with the falling raw material prices, overall basket would have seen some decline in average realization. What I am just trying to get at, our volume growth would have been much higher than 12% in the revenue growth. So that is what I just wanted to understand. Yeah. So, sir, as you have rightly mentioned, raw material prices has declined. So majority of the revenue is from the volume side. This is also giving us the benefit in terms of our cost margin percentage, in terms of our realization. While our realization percentage has gone down due to the softening of the prices, but in terms of the percentage EBITDA, we are seeing a positive sign. Okay. Sir, second question is on our non-pigment, though it is very small in terms of revenue contribution, but it seems like, that we are incurring some losses there in our non-pigment basket. Any particular reason? Any inventory losses or something like that? Yeah. So, sir, your observation is correct. In the Q2, they had an overrun in the project business. We had executed a couple of big project orders, and in Q2 we had seen due to the size of the project, it got slightly delayed and the time delay has caused some overrun in the cost, which has been reflected in the Q2 performance. So it should normalize going forward, right? Even this non-pigment business is also profitable. It is not like that it will be- If you really see the H1 performance, they are profitable. Due to, there has been the dip due to the project delay, time delay in execution and the related costs. H1, they are positive, and we expect that for the current year, they will remain profitable. Sir, what will be our going forward share of specialty in pigments? How is it likely to change? And what kind of average margin difference we have between a specialty versus commoditized set of the pigments? So, sir, if you have seen our specialty and non-specialty split, it has been barely two-third, correct? Yeah. 66% on specialty and 33% on the non-specialty side. While majority of our growth CapEx is on the specialty side. Once the scale-up starts in terms of the new CapEx, we see that the tilt toward the specialty revenue, specialty revenue will go up maybe by a couple of basis point, maybe upwards of which will further drive our gross margin as a percentage because the specialty always has some shade better in terms of the gross margin. I think the next question was the difference between the specialty and non-specialty gross margin. So as we mentioned earlier, the difference between these two is in the range of 4%-5%. Okay. I will just ask from my side, and I will come back to you. Sir, we have seen a very solid volume growth from you in the current quarter, though the global markets are struggling. Export markets are definitely under pressure. End user industries, even including autos, paints and all and everything is showing weakness. A lot of inventory destocking is what we are hearing in China dumping. So in respect to that, you have grown very significantly in volume. What was the main driver for this volume growth, and have we taken some share from Europe and replaced some of the European suppliers? And how is the pressure basically coming from China? Because we have been hearing a lot of pressure is in commodities coming from China. So what was the main driver for the growth for us in the current quarter? Our entire strategy is to get market share in these newer geographies, which we are entering. And we have been now successful with the product portfolio and our connection with the customers looking at saying that our story on being broad portfolio and being a reliable supplier. So we are able to penetrate more in the market with this. Obviously, the growth is in there and obviously that happens, we are taking market share. So it is basically new geographies which we have entered, which means products which have helped us in volume growth. However, is there pressure in terms of overall volume in the market? Can you please repeat? Sir, I am saying that the volume growth driver for us was basically more product launches in new geographies. However, in general, there was still a weakness in the market in terms of end user industries or volume growth. In general, industries have lost volume in the current quarter. Yeah. Industries lost volume, but it is not just the new products, but even our existing products, we have been able to piggyback our existing products with our new products and it having a better engagement with the customers, given the broad portfolio now. Right. It is not just getting the new product sales, but also getting a larger pie on the existing products. Okay. And this was mainly in export market you are saying. Adding new categories, that is what has helped. Yes. Okay. However, sir, the presentation represents that Q1 versus Q2, the export markets have declined. So it is clearly indicating that exports have not done well from Q2 versus Q1. Growth is only driven from the domestic. No, I think we are looking at a longer trend. If you compare last Q2 to Q2, from that perspective, it is a much better growth. And I think if you look at Q2 to- Just one second. Yes. So sir, if you also look at the H1 number, the quarter being very coined period comparison, if you really see the H1 performance compared to the last year, we are seeing 5% increase in our export revenue from INR 499 crore to INR 522 crore. As we explained, given the backdrop of falling prices, this 5% is the value. There has been a good amount of volume growth, which we have seen in the export market. That is what Mr. Raki was mentioning. Copy. Sir, thank you so much for answering my question. Thank you. Thank you. Thank you. We'll take the next question from the line of Aryan Paresh Makwana from Axis Securities. Please go ahead. Hi. Good morning, sir. Am I audible? Yes, sir. Please proceed. My question is on the top line. We had said that we expect some INR 3,000-INR 3,300 growth top line in next three to four years. Shall we stay on the same item or are there some revisions expected? Can you repeat your question, please? Hi, am I audible? Yes, you are. Yeah. My question was on top line. Sir, we had said that earlier that we expect a INR 3,000-INR 3,300 growth of top line in three to four years. Can we expect the same guidance or are there any revisions? Thank you. Yeah. So earlier we said that we should do that into around three years period, as we have guided now the market that conservative estimate for us to scale up the revenue from the new categories for a year. So we expect that this guidance is valid now for four years, over a four-year period. All right. Thank you so much. Thank you. Thank you. We will take the next question from the line of Madhav from Fidelity. Please go ahead. Mr. Madhav, I have unmuted your line. Kindly proceed. Yeah, can you hear me now? Yeah. Yeah. I just wanted to check that in the Q1 call, we had mentioned about a Canadian pigment supplier looking to scale down capacity. I think this call we are mentioning about a few European players looking to scale down capacity. So it seems like demand-supply outlook, if you see in the last three, four years, seems to have improved quite a bit which is kind of showing up in our volume market share also picking up. Is that a fair assessment that we are making of the pigment industry globally from Sudarshan perspective? Europe, I would say one supplier has decided, has reduced capacity. I think also last year and now even, the industry is going through troubled times. So it is a matter of how, when talking about one of the suppliers who was in financial, I think obviously some players are able to kind of walk through this industry. It has not been favorable with the Indian industry getting anti-dumping duty in China. So from this perspective, since we have a broader product range and we have a good storyline that we are able to capitalize on some of the tailwinds of the industry. Right. That's where I think our growth story is and will continue. How much longer before the destocking in the pigment value chain comes to an end? Is it another quarter or two quarters before the destocking ends? Good question. Because I do not understand this destocking, I keep asking customers, "How much stock did you have that you are still destocking?" On a more serious note, people expect destock in Q3 in the international market, especially being the year-end. Q1 onwards, we expect Q4, sorry. Q4 onwards, we expect stock building, again, buying to start in a normal way. Understood. Okay, thanks. Thank you. The next question is from the line of Archit Joshi from B&K Securities. Please go ahead. Hi, sir. Thanks for the follow-up. Sir, I just wanted to check with you with respect to the business mix and on the distribution side. You mentioned that we have a European distribution set up. Sir, compared to maybe a few quarters back or maybe a few years back, has there been a change with respect to the way we do business? Have most of our sales been largely B2B driven with the customer directly, or has there been a distribution model always? We always had dual distribution policy where we do the major customers directly as a company salesperson, and that's where we maintain our stocks too. For the smaller customers, we use distribution. The only difference now is we had different distributors in different geographies in Europe. Now we have a pan-European distributor. Okay. Would that mean, sir, for the larger customers also that we have in Europe, the model will be led by distributors? Can you please repeat the question, Archit? Yeah. Sir, I was asking, like Rajesh sir said, there is a pan distributor for the European geography. Would that mean most of our sales in Europe, even with the larger customers, are through the distribution model? I will repeat again. We have a dual distribution system. We do direct customers. The direct customers are handled by our sales team directly, and we supply directly to them from our stocks in Europe. For our smaller customers, earlier we had distributors country-wise, for which we have now replaced them with a pan-European distributor. Got it, sir. Sir, meanwhile, sticking on the same issue, we were sort of targeting some market share gains because of the level of consolidation that we saw in the last few years among the multinational companies. Would that have a positive bearing to the current dual distribution model that we are having? Or would the next set of market share gains that we might gain in the future, would that be through our existing relationships with some of the large customers? Or the model seems to be tilting more towards smaller customers where distribution is kind of able to generate more sales for us. I think larger customers have much better consumption. I think we'll continue growing with the existing customers, our larger customers, and we should be doing more with the larger customers. On the smaller customers, we are not doing so well. With this new distribution arrangement, we are hoping that we are able to penetrate the market better. Understood, sir. Thanks a lot, sir. Thank you. We'll take the next question from the line of Nitesh Dhoot from Dolat Capital. Please go ahead. Yeah. Hi, sir. Thank you for the follow-up. Sir, just on the pigment revenue mix in terms of applications, that is coatings, plastics, and inks. So where are we currently? And where do you see this mix, say, three years down the line when our distribution have ramped up? We have four areas of our business: coatings, plastics, paintings, and cosmetics. We are focusing on growth in coatings, plastics, and cosmetics. As we go on our trend, to answer your question, in the next 3 years, this should grow, and there should be a larger growth in the coatings area. We already have a very good presence in plastics. Sure. Just in terms of numbers, if you can just say, in FY 2023, what percentage of our revenues came from coatings, plastics, and cosmetics separately? This is Niket here. As Mr. Raku mentioned, coating and plastic continues to be the significant application for us. Cosmetic is the niche application, but as a percentage of the segment, it is not much material to report. But we continue our drive to get the cosmetic margins are better. There, the margins are better. All right. Okay, sir. Thank you so much. Thanks, Niket. Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir. Thank you, ma'am. Thank you, Sandesh, and thank you, participants, for your time and interest in Sudarshan Chemical. We remain confident in the long-term prospects of our business, and we look forward to engaging with you again in future. Thank you. Thank you very much, sir. On behalf of ICICI Securities Limited, and the audience of this conference, we thank you for joining us, and you may now disconnect your lines. Thank you.