...Ladies and gentlemen, good day, and welcome to the Camlin Fine Sciences Limited Q1 FY 2025 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 involve risks and uncertainties that are difficult to predict. As a reminder, all participants' 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 call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I'll hand the conference over to Mr. Ashish Dandekar, Chairman and Managing Director. Thank you, and over to you, sir.
Thank you. Welcome, ladies and gentlemen, to this quarterly earnings call of our company. As is our usual practice, our CFO, Santosh Parab, will be first giving you a brief synopsis of the quarter's performance, following which our MD, Nirmal Momaya, will be there to answer your questions. Over to you, Santosh.
Thanks, Ashish. Good afternoon, everyone. Let me start with a brief on the current business environment, which we experienced during this quarter before diving into the performance. The supply, demand, and dynamics during the quarter have remained largely unchanged in the sectors in which our company is operating. Global industrial growth was stable, but remained hampered by weaker global demands in many of our markets. Regional demand remains resilient in USA. China seems to be stagnant and struggling with its local economic weakness. Softness in Europe is more than evident, as you know. We are observing fast returning to normalcy in Latin and South American markets, which is reflecting in our performance, while the Asian and Middle Eastern markets looks a bit of a mixed bag. Traditionally, as you know, quarter one is soft in our case, and it has panned out as expected.
Though the demand seems to be recovering, there are strong pricing headwinds, and despite all these issues, the top line revenues have been quite stable. The gross margins have improved with better product mix, even though increase in cost of some of our important raw materials have an adverse impact on the margins. Consolidated revenue was reported at INR 395 crore, which is slightly lower by 1.5% as compared to quarter 4, FY 2024, and around 5.7% lower with respect to fourth quarter of the last year. The last year's quarter, as you are aware, included the running operations of diphenols facility in Europe, and that revenue is not there in this quarter. Gross margins are at 44.9%, which is stable when you compare it to quarter 4's FY 2024's adjusted margins of 44%.
The margins have remained steadfast due to sustained momentum, momentum in our blends business. The revenue from blends have grown at a rate of 13.4% as compared to last quarter. We expect that this momentum continues during the year, resulting in strengthening the overall revenues. Revenue of performance chemicals remains muted due to pricing headwinds. Catechol remains at sub-$1 sale price, which not only impacts top line but also our margins. Coming to aroma business, that is vanillin. We have now liquidated almost the entire legacy inventory of vanillin. The revenues of aroma were INR 13.42 crores in current quarter. The new campaign of ethyl vanillin was commenced, as we had declared in the last investor call also, by the end of May. This new campaign has resulted in process stability as well as quality of the product.
As you are aware, validation of this vanillin aroma products is an ongoing process, and in response, we see that the response to our new product or the new production from all major customers are more than encouraging. We are observing that the selling price of vanillin are steadily moving up in last few weeks, as well as the initiation of anti-dumping action by local manufacturers in U.S. and Europe against the dumping and predatory pricing by Chinese manufacturers is likely to now have a positive impact on our business whenever this anti-dumping regulation is promulgated by the U.S. and European governments. Our European Diphenol facility in Italy remains under shutdown. As you are aware, we had planned to repurpose the facility, and we would apprise you of the development at the opportune time. Operating costs have been largely stable.
The major impact increase has been due to the foreign exchange volatility in our Brazilian subsidiary. The resulting EBITDA stood at 7.2%, which is a significant improvement as compared to the last quarter. Coming to the inorganic growth, as you are aware, we acquired Vitafor Invest NV, Belgium, on June eleventh, 2024. This acquisition paves way to the group to extend its blends and related businesses in Northern Africa and other East European markets through the Vitafor subsidiary network. Vitafor has manufacturing facility near Antwerp, Belgium, which caters products mainly in animal feed, offer the complete range of food ingredients, nutritional products, hygiene products and disinfectants. So this has a synergy with our existing blend business.... This offers an excellent avenue to the base for cross synergy, geographically as well as with respect to products.
We are excited and confident that Vitafor will mirror the growth of its holding company, CFS Mexico. A bit on the future scenario, our endeavor remains to successfully stabilize the performance and revenue, and consequently, the margins. The economic theories are pointing towards enhanced demand and growth. We expect robust growth in blends to sustain. The temporary weakness in aroma would be overcome in second half of this year, with improved quality and quantity of course, which augurs well for us in this year. Thank you. I will now revert to the conductor to open the floor for question- and- answer session.
Thank you very much. We will now begin the question and answer session. Participant present on the audio bridge who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participant, you may press star and one to ask a question. The first question is from the line of Tushar from Kamakhya Wealth Management. Please go ahead.
Yeah, good afternoon, sir. Thank you for the opportunity. Just wanted to know the EBITDA contribution from European facility, and you are trying out some new product in that facility. Update on the same.
As we disclosed in our results, the overall loss in Europe was around INR 15 crore for this quarter, and we had a negative operating EBITDA of INR 10 crore. We did have some revenue of INR 30 crore, which is mainly trading of some of our products and some blends also in there. Negative EBITDA was around INR 10 crore in this quarter in Europe, and a loss of 15%.
Okay, fair enough. And sir, are you, do you see that loss to narrow down going forward, in next two or so?
We are trying. As, as I said, because there are fixed costs, because we are doing a repurpose and we are working on the strategy to use this plant. It is likely that this negative EBITDA is going to continue in the... at least for the next quarter.
Okay. And sir, any update on the new product which you are, you know, looking for in the Europe facility?
We are working on that, as we told last time that it's a repurposing. So there is a lot of work going on that. We are looking at the avenues, looking at the market. We will come and revert. We'll be closing this in next month or so, and then we'll come back and inform the stock exchange or the investors.
Sir, last question. Do you see for next two onwards the negative for profitability?
It's too early because the repurpose activity itself is going to take six months. So we think that there will be a negative drag for a couple of more quarters from this company.
Fair enough. I'll get back in the queue.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Surya Narayan Patra from PhillipCapital. Please go ahead.
Yeah. Thank you. Hello?
Yes.
Yes. Am I audible, sir?
Yeah, you are.
So my first question is about the pricing situation you have indicated. So in fact, let's say for HQ hydroquinone value chain products or antioxidant value chain-based products. So till last quarter, we have been seeing a kind of a stable pricing situation. This quarter, whether the pricing scenario is meaningfully different than what we have been witnessing till last quarter?
So it's come down slightly, but there's not a very major swing on terms of pricing on the hydroquinone downstreams. The blend business, of course, continues to have this, you know, same margin profile.
Mm-hmm.
The pricing really, as Santosh mentioned earlier, is that we are seeing in the last few weeks, especially on the vanillin side, there is some improvement in pricing.
So as you rightly asked, the other HQ chain-
Mm.
We are seeing a downward trend. It's also the other parity at raw material, maybe because crude is going up, the raw material prices are going up. But hydroquinone chain, the prices are -10% in the last one month.
Okay. Is it, is it broad-based? This is a China dumping kind of a trend again, that market is witnessing, that one should believe, or it is just product specific, because I think the aggression of the Chinese suppliers has gone up in the recent months. So is it a broad-based trend for the chemical industry as a whole, or it could be specific to a certain segment?
So I would say that the China onslaught yet continues. It's not that it has changed significantly.
Okay.
The softening of pricing is, like, like, we said, is it's small. It's not like we've seen in the past 12 months. It's not been that rapid. And, I think it's like kind of at its bottom now. Demand also is, slowly, coming back, that we see in some of the products. So I would say that, yes, the Chinese impact continues. Let us see now in the next quarter or two quarters, what, you know, what and how that will pan out.
Okay. Okay. Regarding the vanillin theme, that I think, initiatives what has been taken by the Western world to have a dumping duty against the Chinese suppliers. So, possibly the timelines for U.S. and Europe would be different, but, as per your understanding, when that we can think about or we can see some kind of benefit for our product, and supply opportunity on that front?
So, U.S. anti-dumping will probably come before the E.U. Typically, that is what we understand. Timeframes can be 2 months to 6 months for these to come, but any which way, since this is an open public information and action, we are already seeing that impact of that, specifically more so in U.S. and Europe, where the buyers know that this is impending and around the corner, so are wanting to develop us as a supplier in the long term. So that is kind of giving us a benefit already.
Okay. Because, since we know that, vanillin is a largely 3-4 player in the market, and Chinese used to have a kind of influential share also in the Western world. So, if they will be curtailed, then that could definitely lead to a kind of significant volume opportunity, considering the current situation that we'll be having in terms of the volume that we would be doing. So, should one think this as a kind of a big developer development, changing the earning trajectory in the near term for those reasons?
Yes, that is right. The volumes would be in these markets are significant, so if they shift... And we can see that slowly people are looking at that. And in the next few quarters, hopefully, that should give us some positive results then.
Okay. My next point was about the acquisition, Vitafor, Vitafor acquisition. So, obviously, possibly that was the way it was acquired and the theoretical understanding, whatever that is there, then it is in the... Or it complements our blends operation. But, given the focus what we have in that space and the kind of defocused operation, the acquired operation was in, so considering all that, the synergetic benefit in terms of the numbers, how that one should think about over the next quarters. I think, this acquisition will be implement or effective starting this quarter, then how the numbers can be panned out post this integration?
So, basically, the blend business-
Yes.
As you are aware, is predominantly in the countries where we have our own operation. Almost 80% of our business comes from our subsidiaries. Keeping that in mind, the Vitafor acquisition is a good opportunity for us, not only in some of the markets where Vitafor has presence, but also their product portfolio opens up some new avenues and some new technologies for us. There's a mix of reasons why we actually made that acquisition. The idea is to use our existing distribution network and scale up the business, which, you know, Vitafor has in some of the markets where we are present, they're not present.
So the synergistic effect of that, of course, it's not going to happen in one or two quarters, but, since these are products, new products, which, do take some time to establish in markets. But, we had, in fact, started this process, in Mexico about a year ago of, you know, taking those products to the Mexico market, which has now started showing some results. So in terms of, impact, I think currently they run at about EUR 1 million a month, top line.
Mm-hmm.
You know, low EBITDA margin. I think that will improve as we go along in the next few quarters to more like what we see in the other businesses.
Okay. Okay. Just last one question, if I may. So, in fact, there are so many things which are playing out currently, whether it is the Chinese pressure on certain market of our product or it is the opportunity on the vanilla side, or it is the acquisition which potentially could contribute. And also for the fluctuating crude and all this war situation and all that... So obviously, situation is dynamic, but is it possible to have a sense that, okay, what is the likelihood of, or what is the kind of a guide, or is it possible to share some sort of a guidance about the business and the profitability for the full year?
So profitability, I mean, very difficult to really say, you know, in terms of where this can go to. Because a lot depends on, you know, what, what happens in the market. But certainly we should be going into the double digits for the EBITDA margin, and growth of top line also.
Okay.
will be healthy and substantial as we had guided for the year. So we are on target for that, you know, to go get it at around 2000 mark.
Okay. Okay. Sure, sir. Yeah, I'll be there in the queue.
Yeah.
Thank you. The next question is from the line of Vishal Saini from Axis Securities. Please go ahead.
Thank you. So sir, my question is around the increased finance costs. So just wanted to understand the reason there is, in case you have explained it earlier, will you repeat it? And also, the tax expense has been high for this quarter, so what are our expectations for the year?
So, first the question on interest. Interest rates are not; the borrowing costs are not increased, but you see there has been a foreign exchange hit in some of our geographies and finance costs because of depreciation of their currency. The interest portion includes foreign exchange, and you can go and see in my results; you will see that finance cost increased on consolidated around INR 6.5 crores of foreign exchange. And that has made the increase. Mainly because of that, the overall finance cost has not increased. The second question was regarding... I just missed your second part of the question.
It was about tax, so-
Yeah.
Okay.
In tax, again, if you see on an overall basis, we have also mentioned in our results, and there are some geographies where we have not done a deferred tax conservatively. For example, Europe has turned out an INR 15 crore loss, but there is no deferred tax made. There are profit-making subsidiaries like Mexico and US, where there is a 30% tax. So the net effect, because in some sovereignties we don't, we have losses, however, we don't have a deferred tax conservatively done. The tax expense looks at 47%, but overall tax expense should be in the range of 25%-30%.
Understood, sir. Thank you.
Thank you. Participant, you may press star and one to ask a question. The next question is from the line of Shikhar Mundra from Vivog Commercial Limited. Please go ahead.
So just wanted to understand, you know, since we are facing pricing headwinds and we have had a disappointing quarter in terms of margins. So, I mean, how are we confident of, you know, still keeping our guidance intact for the full year, FY 2025? I mean, are we seeing any green shoots in pricing, some increase in price rebounding?
Yeah, in some of the products we are seeing, like in vanillin, as we mentioned earlier, that there is a green shoot in pricing and volumes. Also on the operating side, operating efficiencies, we are working on a program to improve the operating efficiencies, which should give us a few percentage points improvement. So a combination of some green shoots and operating efficiencies is what we are looking at, to say that we'll probably end up at where, you know, where we wanted to be for this year.
So, I mean, for last quarter when we were, you know, targeting 10%-12% margins, for the whole year, were we anticipating quarter one to be this way?
Yes.
Okay, so...
Quarter one was going to be soft.
Additionally, our quarter ones are a bit softer.
Okay. Got it. Got it. Understood. Thank you.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. A reminder to all the participants, you may press star and one to ask a question. The next question is from the line of Shantanu Pawar, an individual investor. Please go ahead.
Hi. Am I audible?
Yeah.
Thank you, sir. So my first question is about our Heliotropin business in China. Could you please provide an update on the required CapEx to repurpose the existing plant, as well as the market size and margin profile of this business?
... So we are expecting a cost between INR 20 crore-INR 30 crore on repurposing the plant. So this cost had to be borne by our partner, this will not be to the company. He's working on it, so it will be INR 20-30 crore, is the expectation. We'll actually ask. It's a fairly aromatic product of around 2,000-ton market. We are looking at 1,000 tons on this, and we expect the margin, because it's a catechol derivative, we're looking at a margin of at least 10% at the current prices.
Okay. Thank you, sir. And my second question is about the Lockheed Martin. So can you give us any details on the current order book, as well as the required, sorry, expected timeline of this business to materialize, and its contribution to our top line over the next couple of years, and margin profile sequentially?
So Lockheed Martin is actually, they're commissioning their first commercial battery, which will happen during this year. Thereafter, they will look at commercializing, in a sense, try and scale it up. So I think, it's too early in the day to estimate what that business will look like in the near future. But two to three years out, the kind of numbers that are that could potentially be will be substantial. But at this point of time, it is difficult to pinpoint because they have to commercialize, they have to launch the battery, et cetera. So it's in the pipeline.
Thank you, sir. My last question, before I hand over to you, is about the projected loss from the Italy operations in FY 2025. As well as what will be the CapEx requirement and timeline to repurpose the Italy plant, and what are the revenue potential margins for the same as well?
It's an anticipated cost of INR 2 million-INR 3 million on CapEx. It will take 6 months-9 months to complete the project, and the revenues will start from the next year. The minimum expected EBITDA is around 10%-12%, but the pricing and the current situation may change it.
Okay. Thank you, sir. I'll hand over to the queue.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. A reminder to all the participants, you may press star and one to ask a question. As there are no further questions from the participants, I now hand the conference over to Mr. Ashish Dandekar, Chairman and Managing Director, for closing comments.
Thank you. Thank you, ladies and gentlemen, for giving us your valuable time and interacting with us. We look forward to the communication with you again at the next quarterly review. Until then, wish you safe journeys wherever you are. Thank you.
Thank you. On behalf of Camlin Fine Sciences Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.