Ladies and gentlemen, good day and welcome to the Camlin Fine Sciences Limited Q4 FY22 earnings conference call hosted by Sunidhi Securities and Finance Limited. As a reminder, all participant lines will be in the listen-only mode, and there'll be 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 and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rohit Sinha from Sunidhi Securities and Finance. Thank you, and over to you.
Thank you. Good afternoon, everyone. On behalf of Sunidhi Securities, I welcome all participants to Q4 FY22 earnings conference call of Camlin Fine Sciences Limited. We would like to thank the management for giving us this opportunity to host the call. From the management of Camlin Fine, we have with us today Mr. Ashish Dandekar, Chairman and Managing Director of Camlin Fine, Mr. Nirmal Momaya, Managing Director, and Mr. Santosh Parab, CFO of the company. Without further ado, I would like to hand over the call to Mr. Ashish Dandekar for his opening remarks. Thank you, and over to you, sir.
Thank you, Rohit. A warm welcome to you, ladies and gentlemen, to the analyst call. We have ended the year and the quarter, and as per our customary procedure, Santosh Parab will give you a brief summary and outline of the quarter and the year. After which, Nirmal Momaya will take your questions as usual. Without wasting any more time, over to you, Santosh.
Thanks, Ashish. Good afternoon, everybody. As you are aware, we have already released our results for the quarter and financial year March 13, 2022 yesterday. We also released our earnings call presentation today, and both these documents are available on our website as well as stock exchanges. In the last quarter, all of us are struggling to cope with the challenging economic conditions. The European crisis, as you know, has fueled unprecedented inflation across all geographies and across all costs. This situation has led to uncertainty of huge proportions, making it very difficult to predict the future trends. Despite all this, we believe and are confident to navigate through these difficult times, of course, with smart mitigation strategies and quick proactive actions against the emerging situation.
We assume that you would have studied the basic numbers published by us and hence will not dwell in detail on them, and rather deep dive into the qualitative and business aspects of these numbers.
Fourth quarter review, we witnessed a very high inflationary trend which impacting nearly all the costs, including prices of feedstock, that's mainly phenol, cost of power and fuel, and also the logistics. Our company was able to partially tamp this inflationary trend and was able to hold on to the margins, which basically was due to the calibrated pricing action and, of course, backed by the optimum capacity utilization of our diphenol plant at Dahej. The growth momentum backed by the enhanced prices in all products and geographies also helped. Barring, of course, aroma products. Our Chinese vanillin plant remained shut for an entire year due to the COVID action there.
The performance revenue remains stable as compared to last quarter in this quarter, but it did grew by around 19% as compared to last year's corresponding quarter, as well as when we compare to the whole of the year last year. The company was able to control other operating expenses, mainly because of our effective cost management action. An exceptional increase in energy cost of around INR 27 crores in quarter four at CFS Europe has been a dampener on the results. Even then, our diphenol manufacturing intermediates subsidiary was able to give both yearly as well as quarterly operational EBITDA, a positive operational EBITDA in the quarter as well as last year.
To firewall the operations of subsidiaries from the shutdown of the diphenol plant, which we took in April-May 2022, we did increase our sales to the subsidiaries in quarter four, not to dry out them because of lack of supply due to the closure of the plant. Since majority of the stocks remained unutilized at the year-end, we had to, due to the accounting convention, the profits of around 19.54 crores earned by India thereon was eliminated while reporting the consolidated results. Despite all this, the operating EBITDA for the quarter was at INR 24.3 crores, that is 6.3% as compared to previous quarter. Consequently, the annual operating EBITDA was INR 153 crores, that is 10.8% as compared to around INR 193 crores last year.
European crisis and its consequential impact on economic conditions are likely to have a continued pressure, at least in near term, with inflationary conditions existing in all product prices, cost of energy and logistics. As I said earlier, this makes it difficult to anticipate or predict the exact future trend. We believe that we are in a strong position to tide over this difficult situation. This is quite evident from the exemplary results of our standalone entity in India, which has posted one of its highest quarterly and annual turnover ever, and that too at a high margin in the current circumstances. The restart of the diphenol plant at Dahej on May 14, 2022, with 60% enhanced capacity, that is from 10,000 metric tons to 15,000 metric tons, will strengthen our capability in diphenol as well as their downstream.
We have also commenced sample trial runs of our methyl vanillin at our newly constructed vanillin facility at Dahej on May 15, 2022. The earlier plans of commencing commercial production in and around July 2022 remain well on track. This capacity would fortify our place in aroma products market. It also addresses the lack of margins in catechol as an individual product, as now catechol will get value added into aroma products. Due to inadequate supply of vanillin, as you may be knowing, its current prices are sharp beyond $20 per kg from the historical average of $10 per kg. The commercialization of vanillin seems to be happening at an opportune time. Robust earnings and foreign exchange have helped the company to achieve a consolidated PAT of INR ten.
INR 60.4 crore this year as against INR 65.4 crore last year. Even though we had been badly impacted by the energy costs in Europe on EBITDA, we have still been able to post a reasonably good consolidated PAT. Now briefly on the operations of our subsidiaries. CFS Europe, which manufactures diphenol, posted turnover of INR 134 crore in this quarter. This is despite the economic situation in Europe under which they operate. Despite the enhanced energy cost, the company, as I said earlier, has posted a positive EBITDA during the quarter and the year. CFS Mexico, our subsidiary which manufactures blends in Central America, clocked a turnover of INR 76.96 crore in this and is expected to continue with this impressive performance.
Our other two sub-subsidiaries, one in South America, CFS Brazil, and North American subsidiary, CFS North America, had turnover of INR 27 crore and INR 9.8 crore respectively in this quarter. With the opening of the economies all over the world, we are certain that this will be doing much well in the subsequent quarters. Now coming to the legal aspect, which has been reported in the financial statements also. As you are aware, National Green Tribunal on January 24, 2022, had revised compensation levied on the alleged pollution in the Tarapur area. The compensation was revised from INR 5.64 crore to INR 17 crores in January.
We had filed an appeal against this order, and we are happy to confirm that Supreme Court has stayed that order until final hearing and the action against it has been stayed by the Supreme Court. At this juncture, we do not foresee any cash outflow on the matter. Coming to legal case against our partner of vanillin manufacturing subsidiary in China, we are still awaiting the final order of the court, which seems to have been delayed due to the pandemic that has arisen in the cities of Shanghai and Beijing. Though the timelines are not determinant as such and we cannot estimate when, we feel that this order should be received in a future few months.
However, as a strategic response to this situation, the company has decided to produce heliotropin, an aromatic product complementary to vanillin, by converting the facility back, at a very minimal capital cost from vanillin manufacturing facility to a heliotropin manufacturing facility. The subsidiary has already received permission from the local authorities for such conversion, and now we would be seeking further permissions for energy, effluent and other related matters for the conversion of the plant from vanillin to heliotropin. We will update you on the matter as it progresses. Lastly, coming to our battery storage business. The discussions with Lockheed Martin have been in progress for the supply of chemicals for the battery storage systems. As told in the earlier quarters, the plan of Lockheed Martin is to commercialize the supply by 2024.
Of course, the current economic situation is being closely watched, especially the enhanced cost of infrastructure material, suggesting delaying before taking the decision. We will be sharing more information on it as it progresses and hopefully in the coming quarters. With this, I will hand over back to Rohit for opening the floor to the questions. Thank you.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. We have the first question from the line of Amar Mourya from AlfAccurate Advisors. Please go ahead.
Thanks a lot for the opportunity. Sir, I have a couple of questions. Number one is that in your standalone business, what would be the contribution from the diphenol plant? I believe now diphenol would be operating at 100% utilization level, right?
Yes, it's operating at 100%.
Yeah. What would be the benefit to the EBITDA would you have seen in this particular quarter?
In this, the hydroquinone, of course, so the EBITDA margins have, of course, improved considerably. Catechol yet remains a loss-making product.
Correct.
Therefore, with increase in cost of phenol, the loss on catechol continues, which of course will get corrected with the vanillin facility coming on stream now.
Okay. Vanillin capacity would be how much, sir? Around 5,000, right?
10,000 tons.
Okay. I believe in this 10,000, the overall Catechol generation would be around 4,000 metric ton. Correct? You would be having the inventory of Catechol left with you, correct?
Yes. We have some inventory of Catechol left, yeah.
You said that $25 per kg vanillin price?
That is currently $25. Of course, when we come into the market there will be a little bit of easing up of the price because of you know we start supplying in the market. We believe that the price should settle between $15-$20.
Okay, when will you be starting your vanillin facility, sir?
As Santosh mentioned, we're starting the trial production. We expect by July to start commercial production.
Okay. Peak revenue, let's say at a 75%-80% utilization level, if this $20 or $18 price sustain. Are you saying that the revenue generation from the vanillin plant itself would be more than INR 500 crore?
Yes, that's right.
You are saying that earlier we used to talk that the hedge once at a full capacity utilization would generate at least INR 20 crore-INR 25 crore EBITDA per quarter. That would fructify then, right?
I mean, the way it stands.
Cost saving.
Cost saving, yes. The way it stands right now, we have debottlenecked our plants, so our capacity has increased from 10 to 15,000 tons.
Okay.
Which will contribute in this year going forward to our top line as well as to the bottom line. The addition of vanillin because as we produce more catechol comes and of course it's sold at a loss. Of course hydroquinone compensates it, but it kind of drags down the overall margins.
Mm-hmm.
With Catechol turning profitable with addition of Vanillin, we believe that the margins will improve.
Both operating, let's say when catechol going at vanillin and hydroquinone going at your forward at a 15,000 metric ton capacity utilization, full capacity, what is the kind of cost saving you will see at that EBITDA?
I mean, right now we are losing roughly about, I would say 5,000 tons of Catechol or 6,000 tons of Catechol between Italy and Dahej.
Mm-hmm.
We are selling for a loss of a couple of dollars per kilo.
Mm-hmm.
That of course will become profitable. The saving would be in excess of, you know, that loss. What the catechol which is consumed in vanillin.
Any quantum that, you know, you would be having like INR 20 crore, INR 30 crore kind of EBITDA, additional bounce back to the EBITDA?
No. If basically the math is simple, that if you are losing $2 on catechol or $1.5 on catechol and 6,000 tons of catechol is converted to vanillin, that loss of 6,000 into $10 million loss will go away. Whatever margins we get on vanillin will sit on top of that, yeah.
Okay. The EBITDA would be huge in that case.
It will improve from that year, yes.
Because at INR 500-600 crore of vanillin, you would be making at least 20% EBITDA over there.
Yeah, I would say it would be high teens. Yes.
Okay. Perfect, sir. Secondly, sir, in terms of your Europe operation, I mean, situation in Europe is really tough at this point of time in terms of the inflation perspective. Let's say if it remains at this level for another 6, 7 months, we don't know. I mean, the situation is very fluid there. What is the plan B? Like, you know, are you in the position, let's say at a worst case, you can dismantle the whole plant and bring this whole utility and equipment here in India and install it?
See, at this point, it's early days to say anything. It is profitable. At this point of time, you know, we can't really say what is going to happen. If the market turns negative, if the gas prices go up or if gas is suspended, we don't know what is going to happen, you know, with the crisis going on in Italy. There's always a possibility in the long run to you know shift the plant. It's not currently we are not thinking of that because like I mentioned, we are as yet profitable. The one thing of course is good that we are not anymore dependent on any raw material coming from Italy. We are now completely independent in Dahej for all our downstreams.
In Italy, whatever we produce in Italy is basically sold in the market.
Mm-hmm.
In that sense, our dependency on a strategic level is little less. To move it to India is a big project and, you know, it requires a lot of work. That's something that we will look at if the need arises.
Okay. Lastly, sir, in terms of the Lockheed Martin, so any commercial supplies you would be doing in FY23?
In FY23, yes, we have some commercial supplies, but small quantities. FY24 will be the larger quantity.
Okay. Perfect, sir. I'll come back in due.
Yeah.
Thank you. Participants who wish to ask a question may press star and one on their touchtone telephone. We have the next question from the line of Madhav Marda from Fidelity International. Please go ahead.
Yeah. Mr. Nirmal Momaya, thank you so much for your time once again. I just want to understand that the issue with the gas in Europe or the energy costs in Europe, is that largely behind us or given how prices are still high, we could continue to face sort of cost pressures into Q1 and maybe into Q2 as well? Or are we like behind us, sir?
The gas prices will remain high till this situation between Russia and Ukraine is, you know, comes to an end because gas prices are not showing any signs of coming down, nor is the crude oil coming down. That is something that is really very difficult to predict. As far as passing on the increase of gas costs, we, you know, we are attempting to do that. We've done a part of it. Let us see now if the market accepts that fully or, you know, in what percentage, yeah.
What about our other businesses, basically, the blend business or if you look at your Shelf Life kitchen ingredient business, like are we able to pass on the cost largely to the customers or is there still some pass through which is pending?
No, I think more or less we've been able to do it. I mean, there's always a lag. Like we've always mentioned, there's a lag of about a quarter. If you see our gross margins have remained more or less stable. We've actually improved it slightly. I think going forward there will be some improvement in the gross margin. In the blend business as well, we should be able to pass on some of that or most of that. In the Shelf Life Solutions also we've been able to more or less pass on the price increases, the cost increases due to raw material prices. Yeah, I mean, generally we have been able to pass on except for like we've always mentioned and said that catechol is the only area where half our product is catechol.
About 50% of our volume comes from catechol. Areas we can pass on, you know, the cost increases. Hydroquinone kind of compensates that which will now change with vanillin coming in because vanillin will consume a substantial portion of our catechol which therefore will not be at a loss. We will be able to pass on any cost increases even from thereon on any raw material because of the situation with vanillin.
Okay. What's our CapEx outlook for the next couple of years? Like, what are the CapEx projects which are pending and how much do we intend to spend in the next few years?
I think the vanillin plant is about more than 40-odd crores, which is completed now. It will be by June end, it will be done. Hopefully by July we should commercialize it. Thereafter, it's about at an average per year would be between, you know, 70-100 crores maximum.
INR 70 crore-INR 100 crore each in FY23 and FY24?
Yeah, at a maximum.
This is all maintenance largely. Is there any like
There will be some additional capacity that we build, new product capacity that we are building. It's a mix of both, maintenance and little bit of new product.
Okay. Maybe just last question. In terms of the end markets that we service, there are like multiple end markets. Is there demand largely holding up or are we seeing any sort of demand pressures on the client side? Like, just I know it's very evolving, but how is the situation right now?
I would say that about almost 80% of our business is directly or indirectly driven by human food consumption. Yeah. Keeping that in mind, generally the contraction of demand is very limited in food consumption. Maybe you may switch for one thing to the other, but at the end of the day, you have to consume some amount of calories as a human, and you will continue to consume that. Populations are growing, so demand is growing. In that sense, we don't see significant, you know, contraction of demand. Yes, of course, oil prices, edible oil prices, if you look at palm oil, you look at soya, you look at all the seeds, all of them have gone up in price.
There is the inflationary pressure on food, but I think people need to eat. In that sense, I don't see a big impact to demand.
Got it. Okay, I'll come back to you then.
Thank you. We have the next question from the line of Varun Jain from Dimensional Securities. Please go ahead.
Hello? Hello? Can you hear me?
Yes.
Yeah. Could you help us with the geographical breakup of revenues, like how much portion of revenues come from Europe overall?
Hello?
Hello.
I didn't get your question.
Geographical breakup of revenue. Like, how much portion of revenues come from Europe and other countries, if possible.
The question is that how much I earn my subsidies?
Yeah.
That's the question, right? Because otherwise INR 14 crore net cost we sold in which country is a difficult question. I can share. We have shared those numbers in the presentation.
No, no, that is according to the plant, right? Or based on the different region. I wanted the breakup of this INR 1,400 crore.
We are giving you this breakup because it's not readily available because that is not tracked like that. We're tracking it on the basis of which country and geography, because the products are intermingled and the products are pretty local. Blends are sold locally in Central America by the Mexican subsidiary. Blends are sold locally in North America. The North American subsidiary produces the same unit. Generally, the revenue of the subsidiary will concentrate on those geographies. India does sell revenues all over the world, basically to the States.
Okay. Secondly,
I will offline and give you that.
Okay. Secondly, if you could provide the gross margin in a normalized scenario, how much gross margins can the company earn on different segments, Aroma, Shelf Life and
No, we don't give the breakdown, segment-wide. Overall, our gross margins are roughly about 46%-47%, and we expect that to remain in that region, around 50%.
Okay. One more question. In China, you are going to make a new product. Wanted to know the usage and how big would be the market, end market for that.
Heliotropin is again a flavor-based product. The buyers of vanillin are typically buyers of Heliotropin as well. No, it's a much smaller product compared to vanillin. The overall size will be about 5,000 tons. We're looking at, you know, it's the capacity I think we probably will get is about 1,500 tons.
Okay.
The idea is to take a 30% market share globally.
Majority consumption is in China?
Mr. Varun, we were unable to hear you. Can you come up a little closer to the mic and talk to the phone?
I was asking that, is majority of the consumption of that product, does it happen in China?
No, no, it's a globally. It's a green product.
Okay. Thank you.
Thank you. We have the next question from the line of Ravi Mehta from Deep Financial. Please go ahead.
Yeah, hi. Thanks for the opportunity. You mentioned that despite the impact of the gas prices, the European subsidiary was still EBITDA positive. When I look at the sales number of the subsidiary, there is a marked step jump from, you know, INR 100 crore average to INR 134.4 crore in this quarter. I believe that Catechol is not a profit-making product, so it suggests that HQ prices have been abnormally high. Is it cost pass-through? Is it the market dynamics or, you know, the demand of the product is increasing or some flavor on that because this revenue run rate looks pretty decent and pretty high, and I think it's taking care of your gas costs.
That's right. The demand for hydroquinone is strong, and it's growing in various applications, whereas supply has not grown at the same pace. There is a bit of a demand-supply gap, which I think with our debottlenecking we should be able to service that gap which is there. Also, since a large portion of hydroquinone and catechol, especially hydroquinone, is also manufactured in Europe. Our competitor also has a large plant there in Norway, and it's, you know, they are facing similar issues as us on gas prices. Essentially that pass-through has happened on hydroquinone and very robustly. Yes, at this point of time, hydroquinone is holding up.
Okay, that's encouraging. The other question I had was on the blends. Again, when I look at the quarterly revenue run rates, for many quarters, we were stuck somewhere around INR 85-90 crore. In last two quarters, we are seeing a step jump in the range of INR 110-120 crore quarterly run rate. What is changing in this and how is the traction on this side?
Basically, if you look at it, last couple of quarters, you know, there has been more mobility with, you know, with the COVID crisis kind of coming down, people getting vaccinated. You know, there's more interaction with customers, prospective customers, so new accounts and new products with old customers. That kind of is slowly taking traction, which was suspended for almost about four or five quarters. Actually six quarters we didn't do nothing, very little interaction with customers. That has kind of come back. That's the reason why you see that there will be growth. We believe we continue to grow in this year as well. Some very good marketing initiatives as well as new products that we have launched are gaining traction.
We believe that this year we should be able to, you know, grow this very healthily.
Blends growth in the whole of 2022 is some 26% growth.
Yes.
Despite, you know, things opening in just the last two quarters.
Yes.
You're confident to grow healthily on this base is.
Yes, that's right.
Okay. Sure. Sure, thanks. I'll come back. Thank you.
Yeah.
We have the next question from the line of Dhruv Joglekar from Vasuki India. Please go ahead.
Hi, thanks for the opportunity. Can you throw some light on our plans in the nutraceutical segment? What are our plans on the entity that we recently acquired, and what can we expect from this in our books, especially in the near term?
We've taken control of that subsidiary now and we're, you know, scaling up the operations at the site that, where the plant is located. In the next, I think, one quarter we will, you know, really define the strategy for growth in terms of what kind of investments are required for building capacity, end use cases for different products. I think we'll have a much better idea, you know, in the next quarter on what, you know, what is it that we want to do in which part. Because there are many end users which, you know, whether it's human, whether it's animals, whether it's aquafeed. There are several end use cases.
you know, we are just refining our strategy, and we'll be able to update you in, you know, in the next quarter on what really we want to focus on and what kind of numbers are we looking at in the near term to long term.
Okay. What exactly would be the potential of this plant?
This plant with debottlenecking, and there is some space available there, so we can take it up to about five times a month, is what this plant would be capable of. That doesn't stop us from expanding because we do have some land in Dahej, also surplus land available, so we can always set up a plant there. We'll define this, all of this as you know, in the next three months because it's too early. We've just taken control. We're understanding, seeing how to look at engineering, look at capacities, you know, to see cycle time improvements. There's a lot of work that is going on the development side.
Okay. Thanks. That's it from my side.
Thank you. Participants are requested to kindly restrict your questions to two questions per participant. We have the next question from the line of Surya Patra from PhillipCapital. Please go ahead.
Thanks for the opportunity. Hey, couple of questions. Firstly, as you were saying that, the vanillin, the ethyl vanillin has already started, so can you confirm, sir, the commercialization plans and for that and the likely ramp up of the vanillin operation, going ahead?
We estimate that the plant should reach commercialization in July and thereafter you know we'll be able to ramp it up to 50% in the next few months. Based on market conditions, pricing, you know, we decide on you know whether to take it up to 70%-80% immediately or over a period of time. That will be driven more by market and the conditions there and see what is most profitable for us. As far as technically concerned, 3-4 months we should be able to ramp it up to 70%.
Okay. Sir, the related question is that, see obviously the vanillin operation has not been there the entire of last year. We have got expanded Diphenol operation from India as well as Italy. What was the actual sale volume of this catechol, which we consider that it is a loss-making product?
Direct catechol sale would have been about 4,000 tons. There are other products like Veratrole, which we make, which also I think we sold over 1,000 tons there. We don't make any margin. If you look at all of that, it's almost about 5,500 tons of sales without margin or at a loss.
That means if the vanillin will be started, then I think the loss on this volume would be protected, right, sir?
That's right. What we were losing should turn positive.
Okay, the second question is on the practically the consolidated EBITDA performance. When we are seeing that, there is a kind of a INR 28 crore kind of impact on the Italy operation, and that would have impacted our consolidated EBITDA performance. If I see the EBITDA contribution by individual subsidiaries, then I think even Europe, Italy is a kind of positive. Mexico has done well. The standalone performance is, like, robust. I think this is the best ever performance on the standalone front. Possibly we are seeing the benefit also this 100% utilization of diphenol. Still, the consolidated EBITDA number is lower than the standalone. What is driving this, sir?
It's basically in consolidation, like Santosh mentioned, in Q4 we had a large amount of quantities of products to be sold to our subsidiaries, who in turn will convert them and resell them to customers. All that product which hadn't reached its subsidiaries as yet, or may have reached and may not have been converted into final product and sold was to the tune of almost INR 60 crore. That, you know, was at 46% margin. It was, like, almost 25-27 crore of margin which was taken away because the cost is already incurred and it's lying at cost and not at realizable value. Which means the margin was impacted by that amount. If you look at standalone is higher than the consolidated.
Whereas everybody else is also making a profit. That was the main reason.
Okay. That means, in the standalone side, possibly the revenue as well as everything you have booked has been booked, but on the consolidated levels, you know, that is still there at the cost level.
That's right.
The profit has not been seen.
Exactly. Exactly.
Okay. So then that will, to a greater extent, cover the quarter on performance. Although there are challenges that is visible. Also if you can share some idea about the some outlook on the Q1 performance, because we are already into almost mid or end of May, the cost scenario globally has been really concerning. Given that, how should one look at the Q1 performance?
With the shutdown for one month in Dahej, that will of course have some impact. With the debottlenecking coming in now, and we are hoping that in June we will get the full advantage of the debottlenecking or substantial advantage of the debottlenecking, we should be able to recover a part of what, you know, we would lose in the one month's production. Overall, I mean, when you look at India, we should be on track as last quarter. Q4 we should be able to, you know, reach those numbers with the enhanced capacity in India. I think Europe will continue the same trend as it was in Q4. Nothing significantly has changed.
There is some, you know, gas prices have remained pretty stable in the last one month or so. There's no extra increase now. If something happens tomorrow, we don't know. If the prices go up. Barring that, it's more or less on the lines that we were on.
Just one question, last question from my side. This Heliotropin CapEx would be what? It would be just couple of tens of crore or it would be like INR 50-60 crore, something like that?
No. It won't be INR 50-60 crores for sure. The process is very similar to vanillin. It is from catechol and it is an aromatic and very similar kind of equipment is required. It's just balancing equipment and some, you know, specialty equipment. I don't think it should be more than, you know, $3 million, in that range, you know. INR 30 crores or so.
The capacity of the heliotropin what you are mentioning is one third of the vanillin capacity what you are having.
That-
It is, that is the kind of equation for the Heliotropin.
Yeah.
Spare capacity we'll still have for something else?
No. I mean that plant, it's a special plant, so I don't know. I mean, that's something that they're looking at if we can utilize it for, you know, for some other product as well. It's not, they're not ruling it out. We are working on some, you know, products which technically would require, you know, that kind of a plant. That we can utilize if there is any surplus capacity left, we can utilize the same. That's work in progress right now.
That is my basic question, sir. This one, 1,500 tons what you have mentioned for heliotropin, that will occupy majority of the CapEx, that is there for vanillin?
Yes. 20 crore, no? Roughly that will be the CapEx.
No, I'm saying that of the total capacity available for vanillin there in China.
Yeah.
See this 1,500 tons of Heliotropin will more or less occupy the entire of the capacity?
It would occupy, yes. I would think about 60-65% of the capacity.
Okay. Okay.
Yeah.
Sure, sir. Yeah. Thank you. Wish you all the best.
Thank you. Thanks.
Participants are requested to kindly restrict your questions to two per participant. We have the next question from the line of Anurag Patil from Roha Asset Managers. Please go ahead.
Thank you for the opportunity. Out of this expanded 15,000 diphenol capacity, how much we might sell outside hydroquinone?
Hydroquinone, I don't think we'll have capacity. If it is even there, it'd be a very, very small percentage. Because we are consuming our downstream. More or less we consume everything.
Okay.
Yeah.
That's it from my side, sir. Thank you very much.
Thank you. We have the next question from the line of Nirali Gopani from Unique Asset Management. Please go ahead.
Okay. Sir, can you please share some further details on this Lockheed deal? Like, what kind of revenues can be seen in FY 2023 or 2024?
FY23 and 24 would be not significant revenues because they are also in their first commercial battery of theirs will be installed in FY25, which is for FY24. We deliver the material and they'll install it in FY25. Only thereafter the real large commercial quantities will come.
Do we plan to charge a case rate for the same in this financial year?
Yes, we are in the process of evaluating what that is. You know, of course, the first plant will be funded by our customer. That's it. It's all work in progress right now to see when and how they want, you know, what, how much material they want and when they, you know, when do they want the plant to be ready.
Revenue from the same in FY25.
No, from the pilot facility which we are developing or which we are talking about is for FY24. That's part of that capacity will come into play. The major revenues will come in FY25.
Last call, you know, we had guided that in the next three years we'll see additional INR 1,400 crore revenue from various new products. This will not include Lockheed portion, right?
No, we have not included Lockheed in any of our projections.
These were the margins? Will be in high teens%, EBITDA margins?
For which one? Hello?
Yes, sir.
Didn't follow.
Can you hear me, sir?
Yeah, I can hear you, but I couldn't follow that question.
Miss Gopani, your question wasn't very clear. Can you repeat the question, please?
Can you hear me now?
I request you to kindly go off the speakerphone now.
Yeah. Is this better?
Yes, this is better.
Yeah. No, I was just asking that, in this Lockhead deal, the margins, EBITDA margins will be high teens or can you just give a broad range?
No. Lockhead deal will depend on, ultimately, who's funding what. Difficult to say right now.
Okay. That's it from my side. Thank you, sir.
Thank you. We have the next question from the line of Shivaji Mehta, an individual investor. Please go ahead.
Hi. Thank you for this opportunity. Sir, in the last call you had given an EBITDA margin guidance band of 17%-20-odd%. Just wanted to understand any change to this given the, you know, the current situation in Europe where the increase in gas prices could be more structural, and may not be transitory.
Yeah. I mean, going forward, our major focus of manufacturing will be in Belgium and India. Based on the fact that the global gas prices have hit Europe disproportionately. Everybody's been hit, but it's not been hit as badly. You know, we are saying that high teens is what the margins should be. We should be able to get there.
Right. Sir, also from, say, a more longer term perspective, say next 4-5 years, do you still hold that high teens, or can it be more than that?
Again, depends on market conditions and, you know, what happens to hydroquinone and what happens to vanillin. Because, you know, it's difficult to predict, and especially right now with all this volatility, very difficult to predict in a very long term. Where the market will go and settle, we have no idea.
Right. Makes sense. Lastly, just a clarification. You know, whatever you're producing in Italy, will eventually, once your vanillin plant comes up, will be used to produce hydroquinone, right?
No. What we produce in Italy is both hydroquinone and catechol, which we sell.
Right.
It's not used for vanillin or for any other product in India. That we produce in Belgium, we use.
Okay, the status quo in Italy would remain the same, going forward. Whatever
Yes.
Is being produced there, will stay as is.
Yeah.
Okay. Thank you. I'm wishing you all the very best.
Thank you. We have the next question from the line of Madhav Marda from Fidelity International. Please go ahead.
Yeah. Sorry, just one follow-up on the revenue potential from the Heliotropin product. Basically how much revenue can that 1,500-ton capacity give us just on a normalized size basis? What kind of margins should we make probably on that revenue?
Yeah, the revenue from 1,500 tons can be about INR 250 crores, roughly. The margins would be in high teens%.
Okay. Sir, when do we expect, sorry, this plant to start off? I understand.
It depends on once we get we need to get all the regulatory approvals. Once we get the regulatory approvals, it's I think 3-4 months period of making all the modifications and then the start up. It's I mean, if you say that the regulatory approvals come in 3-4 months from now, I think by end of the year, early next year, we should be on.
FY24 broadly, we should expect that.
Yeah. Yeah. Yeah.
Okay. Okay, great. Thank you.
Mm-hmm.
Thank you. We have the next question from the line of Amar Mourya from ALF Accurate Advisors. Please go ahead.
Yeah.
A couple of questions, sir. Firstly, this, you know, Heliotropin, basically, you know, what has changed that, you know. I mean, I understand that we moved a vanillin plant in India because of some regulatory issues there. What makes us, you know, comfortable that, you know, this Heliotropin plant will not come under any regulatory issue or anything like that?
What regulatory issue? Sorry, no, I don't know.
Why we discontinued in the first place the vanillin plant there in China?
In China because our partner who we had bought the 51 percent from a case was filed on him by a preexisting producer, you know, a competitor, that the technology that he had from 2012 when we set up the plant was picked up from his competitor.
Okay.
Which was the case. That was the reason why it was shut down. Nothing else.
Okay. Now this Heliotropin plant is basically your own technology?
The vanillin plant is our own technology, yeah.
No, no. The new product which we are putting up, Heliotropin, is our own technology?
Heliotropin is our own technology. That's our own process, yeah.
Okay. Okay.
Developed in India only. Yeah.
Developed in India.
Yeah. There are competitors, but they're small and plus they have very different process. Yeah. This is our own process.
Okay.
Because our partner is not in that business, so we had to develop it.
Secondly, sir, like, you know, as you indicated that, you know, almost around $1 or $1.5 we lost in catechol, let's say during this whole year, followed by this INR 28 crore, you know, I mean, the extra expenditure which we are having in Europe, I mean, that may continue. Now vanillin coming by July, so at least you will have at least second half of vanillin. Should we see a meaningful improvement in your EBITDA at a absolute level in FY23?
Yes. I mean, that's the expectation.
According to you, like, you know, both this plant of vanillin coming up and catechol loss going away and let's say, you know, Europe obviously, INR 28 crore, whatever we are, I mean, the additional cost of INR 20 crore-INR 25 crore, whatever we are having, do you think it can go further worse from here on, or obviously we will pass on something, right?
Well, hydroquinone side, we are trying, you know, we've been able to pass on, but from the catechol, which is a problem. The question is whether the gas prices will go further up. Very difficult to answer, yeah.
Okay. Catechol anyways, because after the vanillin coming, you can actually use that Catechol here in India, right?
No, no. That Catechol which we make in Dahej only will be used here.
Okay. That catechol.
Yeah. Anyway, that is surplus Catechol for us. What is in Italy?
Any plan to utilize that Catechol, let's say over a period of time?
No, nothing really on hand right now.
This Heliotropin coming, you cannot utilize that Catechol there?
Maybe small parts, because we have a decent capacity in Dahej after our debottlenecking.
Mm.
We almost have 8,000 tons, of which only 5,000-6,000 will go to vanillin. The rest will go for other products.
Mm.
We have room. Yeah, maybe we'll consume some part of Catechol from there.
Okay. Ultimately the dynamics of Europe will not change too much.
Not too much. I mean, it is. No. It will require a little more on the downstream of catechol to take off for it to change significantly.
Okay. like vanillin, do you have any other downstream of catechol which are equally profitable like vanillin?
Heliotropin is profitable, so that will give us. Reaching that 1,500 tons will take a couple of years, no?
Okay.
That is the issue.
Okay. Sounds okay, sir. Perfect.
Yeah.
Thank you.
Bye.
Thank you. We have the next question from the line of Varun Jain, an individual investor. Please go ahead.
Hello, am I audible? Hello?
Yes, we can hear you well.
Okay. Thank you for giving me the opportunity. I would like to ask, like, now we have 25,000 tons of diphenol capacity total, including India and Italy. How much of it is sold in the open market and going forward towards vanillin plant commercialization, how much of it will be sold in open market? Like, how much of it will be used in making of vanillin and all?
What we make in Dahej, the 15,000 we consume internally. What we make in Italy will be sold to the market, the 10,000.
More than 80%-90% of it is consumed captively.
No. Out of 25, 15 will be captive, 10 will be sold.
Okay. 10 will be open market.
Yes.
We don't use any diphenol from Italy to make downstream derivatives.
No.
Blends and all?
No.
Okay. Do we have any plans going ahead? Because, like, this is nothing but a commodity, so we'll have volatility in that product. We don't have any plans.
Plans for?
For using 10,000 tons of annual diphenol to make downstream products.
No, no. That is, of course, first we need to fill up our 15,000, and then we will look at what we do with the balance 10.
Okay, fine. My second question will be, conservatively what could be the minimum EBITDA margin we can make from vanillin sales? Conservatively.
Conservatively, it should be in mid-teens.
Mid-teens. Okay. My final question will be like, post vanillin commercialization, we won't be having such large CapEx going ahead, so we'll obviously have some free cash flows and all. Do we look forward to deleverage our balance sheet and, like, any plans for that?
Yes. We don't have any big project or big CapEx lined up. At this point of time, of course, as soon as there's free cash flow, we will look at paying down the debt.
Okay. Are we looking to be net debt free or we'll have some of it on our balance sheet?
Sorry?
Are we looking to be debt free company or some of it we'll have it on our balance sheet?
Debt-free is a long time away. Difficult to answer that right now.
Because post vanillin, like, we'll have a good amount of free cash flow. It would be like, INR 150-200 crores of free cash flow going forward, like in next 2, 3 years, if our projections are correct. We have INR 600 crores of debt. So it would-
Sir, on the beverages and pet food legacy, there are contracted, secured loans on books like ECB, which are long-term. One cannot say it will be the contracted loan. We will look at the interest rate at that time and we'll take a decision. Any company wants to be debt free. Looking at the position in our growth plan, this decision will be there. It's very difficult to tell you that at what time we'll be debt free. Whatever is feasible and talking to the stakeholder will be done.
Okay, all the best. Thank you for answering my question.
Thank you. We have the next question from the line of Abhishek N from Nirmal Bang. Please go ahead.
Could you please help us with the EBITDA margin of all the subsidiaries for the full year, FY22? Am I audible?
Yes.
Yeah. You know about India. We did, as we said, we did the EBITDA positively in Europe around 5%. Dresen is around 18%. Hello, sir. I'm not able to hear you actually. Sorry. Maybe
Sir, you may need to come a little closer to the mic, sir. We are not able to hear you very clearly.
Europe was 5%. Dresen was 18%. Brazil was near to breakeven. Here the North America, as you know, because it's still gathering traction, it did around INR 2.5 crore negative EBITDA.
Okay. Bengaluru is closed. The overheads there are around INR 75 lakh per month.
Okay. Got it. One last thing on the working capital side. Since this Behaves is commercializing, I think second half of this year but on a full year basis, basically in FY23, should we expect some improvement?
Improvement in what?
Working capital cycle, actually.
Working capital cycle, looking at the whole way it works, there will be some working capital cycle reduction on vanillin production. On the overall working capital cycle of the consolidated business, it will not be major. We over progressively, we will be migrating from 110 days to 80-90 days.
Sure, sir. Thank you.
Thank you. That was the last question. I would now like to hand over to the management for closing comments.
Hello.
Yes, Mr. Nirmal Momaya, we can hear you.
You can hear me? Okay. Ladies and gentlemen, thank you very much for patiently listening to us and answering, and I hope we've answered you satisfactorily. I look forward to interacting with you again at our next conference call. Until then, thank you very much. Good day.
Thank you. On behalf of Sunidhi Securities and Finance, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.