Ladies and gentlemen, good day and welcome to the Camlin Fine Sciences Limited Q3 and Nine Months FY 2023 Earnings Call hosted by Sunidhi Securities & Finance 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, please signal an operator by dialing star 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 & Finance Limited. Thank you. Over to you, sir.
Thank you. Good afternoon, everyone. Thank you for joining us for Q3 and 9-month FY23 earnings call of Camlin Fine Sciences Limited. I would like to thank the management for giving us this opportunity to host the call, and I would like to congratulate them for successful commissioning of Vanillin plant and expanding capacity at Dahej also. From Camlin Fine Sciences management, today we have with us Mr. Ashish Dandekar, Chairman and Managing Director, Mr. Nirmal Momaya, Executive Director and Managing Director, and Mr. Santosh Parab, CFO of Camlin Fine Sciences Limited. I now hand over the call to the management for their opening remarks. Thank you, and over to you, sir.
Thank you. Thank you, Rohit. A warm welcome to you, ladies and gentlemen, to the quarterly earnings call. As we've been doing each time, we will start by our CFO, Mr. Santosh Parab, giving you a brief synopsis and running you through the quarter's performance, after which all your questions will be answered by Mr. Nirmal Momaya, MD. Thank you. Thank you, Santosh.
Thanks, Ashish. Good day, and thank you for joining us on Camlin Fine Sciences Q3 FY23 earnings conference call. Before I begin, I would like to clarify that some of the statements made in today's discussions may be forward-looking in nature and may involve risk and uncertainties. Your attention is drawn to the safe harbor statement made in our investors' presentation published on the stock exchanges and hosted on our website, along with the unaudited financial statements for Q3 FY23. I hope you were able to have a look at them. As you are aware, high macroeconomic uncertainty prevailed globally in Q3, especially the situation in Europe and COVID surge in China. After unprecedented growth observed in Q2 FY23, we had to battle with the destocking across distribution channels and general market slowdown in Q4.
Despite this ongoing deterioration in macroeconomic environment, CFS Group has been able to not only increase its gross margins but also grew its EBITDA margins. The percentage level operational EBITDA improved by 140 basis points to 12.8% quarter-on-quarter, despite the demand trends impacting the operating revenue by 19.7% quarter-on-quarter. The revenues were also impacted by three weeks of maintenance shutdown in our Dicynone unit in Europe as well as due to softening of Dicynone prices in European markets. The trend has arrested to an extent by around 2% owing to favorable foreign exchange across the globe. Our resilient business model, which proactively addressed the current challenges, helped in improving gross margins, which were mainly fueled by increased yields at Dicynone unit in Dahej.
Coming to the operating expenses, the surge in energy costs in European subsidiary observed in last few quarters eased to an extent in this quarter. Subsidy to compensate high energy costs of around INR 15 crore was received from Government of Italy, which also helped to sustain margins. As compared to Q3 FY22, that is last corresponding quarter, the energy costs in Europe still remain high. The unfavorable trend seems to be reversing, but it all depends on how the Russia-Ukraine crisis pans out in the near future. Coming to our operations of subsidiary, CFS Europe recorded an operating revenue of INR 99.3 crore in Q3 FY23, despite all the issues I just discussed earlier.
CFS Mexico and its subsidiaries in the Latin American markets were able to post an operating revenue of INR 88 crores and has effectively bucked the negative macroeconomic headwinds in that part of the world. In year-on-year nine months period, the operating revenues of Mexico and its subsidiaries have grown by 10.74% and are expected to grow at similar level for remaining financial year. CFS Brazil posted an operating revenue of INR 29 crores and has been near to EBITDA break-even. We have embarked upon restructuring its organization to optimize the business and also introduced a cost mitigation program to reduce at least 20% of fixed operating costs, which will certainly improve the EBITDA in the year to come. CFS North America posted revenue of INR 24.6 crores in quarter three.
As compared to last year's nine months period, revenue has grown by 35% year-over-year. That's a good situation looking at the way it has been performing during the COVID period. We are pursuing some exciting business opportunity in the US with some big business houses in the region, which will improve the profitability of the unit substantially in FY 2024. We'll certainly come back to you when the efforts fructify. CFS Vadodara, our Chinese subsidiary remained closed due to the Supreme Court action in that against our partner. However, we have substantially progressed in the approval procedure for change of use of the plant to a new aromatic product, which is a catechol downstream. We are contemplating restart of the plant after refurbishing a part of it in the second half of next financial year.
You are aware that our ethyl, methyl vanillin manufacturing composite plant commenced its commercial production on January 22, 2023. We are concurrently operating the plant above 50% capacity with a plan to ramp it up to 100% by the end of FY23. We have started the process of sampling of the product with large customers across the world. The initial response about the product is more than satisfactory. We expect to start the supply post completion of approval process before the end of this year. The prices remain high in developed markets, which in fact is our target market. With the quality of our supply, this will certainly help to recapture our market share in aroma market. As you are aware, this development will help to override the current negative margins in catechol. Coming to some of the balancing items.
Debt of the company especially. Despite destocking in end markets, that had an impact on working capital, but the stress has been managed with effective financial management. Overall net debt stood at INR 667 crore as compared to INR 637 crore in September 2022. Increase was mainly on account of drawing of INR 47 crore from a Dena Bank, which was part funding the CapEx of Vanillin plant at best. Coming to the scenario going forward, especially Q4 and thereafter. Stabilization of cat downstream through vanillin has led the company to concentrate more on high H-H2 downstream products now. Products like MEHQ, HQ, Chloranil, PBQ, Naphthol, IH or G will be concentrated more for increasing their production, where we have available and identified capacity in the company.
We feel that the macroeconomic uncertainty is likely to prevail in Q4, but the opening of China and general improvement in demand should bring back the customer confidence. The real picture however should emerge only after Q1 FY 2024. Needless to say, the management of your company, as in past, is confident of facing this challenge. Thank you very much. We will now open the floor for questions.
Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to re-withdraw 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 will wait for a moment while the question queue assembles. The first question is from the line of Prathamesh Sawant from Axis Securities Limited. Please go ahead.
Yeah. Good morning. Good afternoon, sir. My question is with respect to the vanillin facility. Just to make it clear, you are saying that it would take one more year for us to keep on with the sampling process and the commercial realization to the company's top line would start post FY 2024 is what you are trying to say?
Post FY 2023 is what Santosh said.
Okay. Q1, from Q1 we can start seeing the commercial.
Yeah.
it adding to the top line.
Yeah.
Okay. What is the volume at 50% utilization levels? Are we seeing at 6,500 metric tons of production of only?
Yeah, 6,000 tons is the capacity.
Okay. Okay. Okay. Sir, thank you. Sir, on the other end, the North America vertical of the business saw some serious de-growth in the current quarter. I just wanted to get some clarity on that.
De-growth in the current quarter.
No, we have posted INR 24 crores of turnover, which is not a de-growth. The turnover last quarter was INR 16 crores. In fact, we have grown 35% year-on-year in the 9 months period. Okay, okay. Okay. That is where I'm at. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, you may press star and one on your touchtone phones at this time. The next question is from the line of Raj from Arjun Partners. Please go ahead.
Hello. Hi. Wanted to know how your FY 2024 is going to look like. Yeah. Am I audible?
FY 2024 is leading to EBITDA. As in the past as we are saying that, this from next year we will be getting the full benefit of the vanillin production coming. We are looking at a growth of as compared to this year, a growth in revenue of around 30%-35%.
30%-35% growth. Okay.
Yeah.
And, uh-
How are your expansion plans going to plan, looking at three to four years from now, you know? What do you think the company should be after all?
Basically, our focus is on two or three lines of businesses that we are in. One is, of course, our diphenol chain. All the downstream products that Santosh mentioned earlier on hydroquinone stream will be expanded and will be built on. Our aroma business will be expanded, so that vanillin and some heliotropin and some other products that we have in the pipeline. We have, of course, our blends business, which is growing at about 30% a year and will continue to grow at 30% a year. We also have some. Within the blends business, we also have good opportunities for expanding our portfolio of natural products, which is what will be the focus in the next few years to address the market for specialty natural products.
We also have our omega-3 fatty acid business, which will get scaled up in the next three to four years. There's a lot of activity planned out for the next few years.
All right. Yeah. Yeah, thanks. That's it. Good luck. Bye.
Okay.
Thank you. Participants who wish to ask a question may press star and one at this time. The next question is from the line of Ravi Mehta from Deep Financial. Please go ahead.
Yeah. Hi. Thanks for the opportunity. Just wanted to check on the HQ realizations. How has it been in Q3 and where are it currently?
Basically in Q3, HQ, what we sold in Europe, the realization has come down because of the gas price is coming down. We are at about around $9 or so.
Ex of Europe it's even further down?
Sorry, 9 EUR. I'm sorry, not dollars. 9.82 EUR.
EUR 9.8.
was the average.
Ex of Europe, how is it?
Currently we are selling only from Europe. really that's where we are selling within Europe from Europe.
Okay. No, no. Probably there's a commentary that, probably you will now be focusing on HQ downstream because now that you've done with vanillin. I was just, you know, probing from that angle that, as the HQ prices come off, which makes sense for you to now go downstream or, ahead.
Yes. Our focus is only on the Dahej hydroquinone. With the expanded capacity of Dahej hydroquinone now, we have hydroquinone available to us for value-added downstream products. It's from that perspective. Europe will continue to sell hydroquinone in the European market. That does not change.
Okay. Yeah. And the steep drop in the power cost, the energy cost in Italy, probably that has helped you to, you know, report a good number. Is the price further coming down looking at the stress in energy coming out?
What is happening there is, you see the hydroquinone pricing, is dependent on the energy price, right?
Yeah.
That's where it gets passed on to. What was EUR 11 plus in the quarter before came down to EUR 9 plus purely because energy costs came down. Very difficult to answer. It is stabilizing around this, but, you know, you never know when things will change.
Sure. Sure. Sure. On the blends, the quarterly run rate is really appreciable. Like, you've been holding on to those levels. What I see is that the non-Mexican piece is growing faster, maybe on a lower base. Mexico has been like now at a steady state for like few quarters. Can we... is that the market saturating for Mexico or-
No.
Can we have a steady growth?
In some of the products, yes, we have very large market shares. We have a whole, also new products that we are in the process of launching, launched or in the process of launching in those markets, which will give us the growth that we are looking at. We yet continue to, in the next year we should be able to grow the Mexico market by at least 20% with those new products also coming in.
Sure. Brazil seems to be at inflection point, looking at the quarterly run rate of close to INR 30 crores that you're doing.
Yes.
Probably, you know, the growth here can be even faster. Any color here in the Brazil?
Yes. I mean, growth in Brazil will surely be good, but I think we have even a better opportunity right now in the U.S., where we are in the process of now negotiating and actually getting some large volume customers in the pet food industry, which we hope from April onwards the business will become on stream. This can be substantially higher than what we've done in the past.
Nothing of that is reflecting in Q3 numbers. Like, you already done INR 24 crores.
Yeah. Nothing of that. No.
Okay. This can stay at a steady state and further the new client addition can happen from next year?
Yes.
Okay. Okay. Thank you. Thank you. Good luck.
Yeah.
Thank you. Ladies and gentlemen, to ask a question, you may press star and one now. The next question is from the line of Amay from Banyan Capital. Please go ahead.
Yeah, thanks for the opportunity. Sir, I missed your comment on vanillin. You told that the revenues will come from next year. Why is that the case, sir?
Vanillin next year. We didn't say that.
Okay.
In vanillin we didn't say that next year. See we started the plant only in January.
Right.
Second. We are ramping up the production, we are sent for sampling, because once the plant starts, we have to qualify your plant and send for the sampling. We have sent for sampling. We are certain that there are already samples have been passed in many customers. We are certain that we'll start supplying to these customers before the end of the year. In the meantime, we are also ramping up our production, which is at 50%, at this year, at this point of time to near to 100% by the end of this quarter. Sales will start in this quarter, some extent, but the real fun will start from Q1 2024.
What are the revenues that you are expecting in this quarter from vanillin?
It is difficult to say, but we feel that we'll be doing fair bit of revenue.
Okay. Any guidance for the next year, sir? Assuming, what is the current price of vanillin, sir?
In the international market, it is in the developed market like US and Europe, on which we are looking at that market, the prices are $13 and $15 plus. We feel that it will remain at that level, because this, as you know, lot of vanillin comes from China and there are anti-dumping duties levied on Chinese vanillin in US. There's hardly any Chinese vanillin going to US. The prices remain high. In India, there have been a $12, $13, that's because of $13, thirteen and a half dollars. That's what's always been paying. The customer in India has to also pay to 8% custom duty on that product. Landed price in India also is $14, fourteen and a half dollars.
The prices are at $14 and a half dollars. In the developed market are much higher. We are looking more on the developed markets.
Okay. Any, you are to, you know, run your plant at minimum 50% capacity. At least, INR 351 crores or 3,000 tons you will be selling next year, right? From vanillin.
Yes, that is the expectation, about INR 300 crores or so.
Okay, understood. sir, what would be your gross debt? You told the number for net debt.
One sec. Gross debt is INR 778 crores. We are sitting on INR 110 crores of cash. This is cash from the business. There is no cash lying from borrowed money.
Okay. Just two questions more. Sir, can you give a number of profit before tax for the subsidiaries for this quarter?
No, we don't give those numbers. It's too granular and people use it. You can go and see on my website, because we hold those numbers on the website. All the balance sheet of subsidiaries are on the website.
Okay. That will be for a conference. Anyway, sir, any update on Lockheed?
Lockheed, the same as the last call, that we have an order for their first commercial battery, which we have to supply by Q2 of FY 2024. Actually Q1, end of Q1. It's on track for that. Further orders are all in discussion. Once they have commercialized and sold commercial batteries in locations, the next step will be discussed.
This is just a trial, piece that you are sending for them, right? No major business will come.
Commercial order. It's their first commercial order.
Oh, okay. Okay. Okay, that's it from us. Thank you.
Yeah.
Thank you. Participants who wish to ask questions may press star and one. The next question is from the line of Manan Shah from Moneybee Investment Advisors. Please go ahead.
Hi, this is Anurag Roonwal here from Moneybee. Uh, my question is regarding, uh, vanillin. So the prices, uh, you know, they, they used to be around twenty-four, twenty-five dollars. And, uh, uh, uh, they have come down significantly to, uh, yeah, $13, $14 like you mentioned, uh, uh, some time back. What I would like to understand is that, I mean, in terms of capacity, uh, uh, uh, is, is it because of new capacity which has come up in vanillin or is it more related to demand perspective that the prices have come down? Uh, because my understanding was that, I mean, we would be coming up with significant capacity. No other player is sort of adding in capacity. So the prices would sort of, you know, there won't be a significant fall in prices. But, uh, this, this, this fall seems to be quite significant.
Basically, if you see all raw material prices have also come down considerably. Generally, across the board, we are seeing prices cooling off. Logistics costs have come back to now pre-COVID levels, which had gone up by five times. General cost drops have happened and are happening as we speak. A lot of the vanillin pricing coming off is also because all raw materials pricing in, which goes into the raw vanillin has come down by more than 30% and 40%. As far as capacity addition goes, we are playing in a market where our principal competitor is Solvay, which is a European company. Our target market is really in the U.S. and Europe, where high quality vanillin is preferred.
We and Solvay are the only two companies which are fully integrated, starting from catechol, making catechol to vanillin. Which is the reason why, they've always been preferred suppliers by in the developed markets and we are, you know, we are pushing ourselves into that position as an alternative to them.
Okay. Our capacity being, you know, around 20% of the global capacity, you think, we will also add on to the pressure?
It's possible. It's possible that there would be some price pressure may come, but that's okay. I mean, we factored that in.
Okay. No, because see, earlier, I mean, when we used to sort of, discuss on vanillin, my understanding was that we used to, in our projections, we used to take around $16 per kg kind of rate. Now it's come to $14. With our capacity coming up, I think, the projections would be lower even further. Is that the case?
Look, I'm not an astrologist, so very difficult to answer your question. Our internal target is that we, the pricing should stabilize around $15.
Around $15? Okay. Okay. Our cost of manufacturing is around $11, right? Or...
No, it's lower than that. All raw material prices have come down, so it's much lower than that now.
Okay. Yeah, so in terms of EBITDA, you think we will still be around, we should make good margins in this, 20% up kind of margin?
Yes.
Okay. In terms of catechol, we were making losses in catechol. What's the scenario right now?
It's the same. It continues to be the same.
We were sort of losing around $1.5 in catechol. That remains the same?
No. In Europe we were losing close to $4, four and a half dollars. In India we were losing close to one and a half dollars, and it continues to be the same.
Okay. Okay.
In Europe it has come down slightly because raw material prices have come down, so losses have come down. Even here in India, it's about $1 now, is the loss, from one and a half, because costs have come down.
Okay. The Indian losses should sort of get absorbed due to vanillin, right?
Yes.
Okay. In Europe, The Hydroquinone was sort of compensating for catechol. Will that again remain the same, you think?
That continued in this quarter, yeah.
Okay. Okay. Okay, sir. Thank you. I'll get back in the queue. Thank you.
Thank you. The next question is from the line of Abbas Panjani from InCred Capital. Please go ahead.
Hi. My question was regarding vanillin. Just wanted to know the tonnage of the vanillin for this quarter, and that's it.
I didn't, we didn't get the question. Can you just repeat the question, please?
How many ton of the vanillin we have done for the?
We have been running the plant at 50% capacity. Our annual capacity is 6,000 metric ton. Our plant has been continuously running from 25th of January. We have been running at 50% capacity.
50% capacity. Okay. Thank you.
Thank you. Participants who wish to ask questions may please press star and one. The next question is from the line of Harsh Jhanwar from Centrum PMS. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, I wanted to further know on the vanillin. What will be our current cost of manufacturing for vanillin? You said it's below $11, but what would be-
We just answered that question.
Exactly we have said that our cost of manufacturing has come down. Six months prior from here you said that it's $10.5. Just trying to get the more accurate number on cost of manufacturing.
It is sub INR 10. The question came earlier was whether our cost is INR 11. We said that it has come down now. It is sub INR 10 now.
Okay. Understood, sir. Sir, on Lockheed deal, so sir, once we supply the commercial order, can you help us understand the timeline when we can expect a bigger order, six months or, you know, what should we expect in terms of next order?
1 second. There are few questions in that Lockheed Martin when will the scale-up happen on the subsequent orders?
Subsequent orders will be, probably towards the end of FY 2024.
Towards the end of FY 2024.
Yeah.
Next was regarding, you know, now that Vanillin plant is commissioned, so what will be, you know, growth drivers after from FY 2024? We have not announced any major CapEx as such, so just wanted to get an update on that.
No, so we have surplus capacity which we are filling up on some of the downstreams. vanillin itself will take two years to scale up to 100% from a market perspective. as we go along, there are several products in our HQ downstream which we are scaling up, like MEHQ, paraben Dicynone, HQEE, Chloranil, Naphthol. There are whole host of products which are in the process of being scaled up and we'll add capacity as we go along.
Sir, I didn't understand. You said that by end of this year we are looking to reach 100% capacity utilization. Now you said from market perspective it will take 2 years.
Yeah.
I did not get that.
No, we can produce at 100% capacity. The market will define how much we will produce. That is what it means.
Okay. For first year we are looking at operating at a lower capacity utilization-
Yes.
Later on slowly moving to 100%. Is that right?
That is right. That is right.
Okay, sir. Understood. Thank you so much.
Yeah.
Thank you. The next question is from the line of Shivaji Mehta, an individual investor. Please go ahead.
Hi. Thank you for this opportunity. I had a question on vanillin. If you can provide some color on the demand and supply situation? You know, what is the demand expected to grow by? Is there some new supply that is coming up?
There's no new supply. We've just built the capacity. The market is growing at about 4%.
Right. Also this top line that we had guided for of about 2,500 crores by FY25. Now with the vanillin prices expected to sustain at these levels, you know, would you like to, you know, kind of keep the guidance at the same levels or can this, you know, move upwards from here?
There is a possibility of it moving upwards, but, at this point of time, it's too early in the day to say what the pricing will look like for all the products.
Right. Right. also on Lockheed Martin, post FY 2024, you know, once you're able to deliver on this order, you know, just trying to understand, can this, be a significant contributor to our top line, say 10%-20%? Is that something, that Lockheed Martin can do post FY 2024?
Yeah, it depends on how successful their, you know, ultimately their product is in the market. It's contingent on that. We think and we believe that, they're on a very strong position in the technology and in the development. There's no reason why it will not be successful. If it is, yes, it has the possibility of being more than 10%-15% of our business.
Wow. Sir, thank you so much and wishing you all the very best.
Thank you.
Thank you. The next question is from the line of Abhishek Navalgund from Nirmal Bang. Please go ahead.
Yeah, thanks for the opportunity, sir. My question is also on vanillin. Basically, if I'm right, Solvay has recently launched the first ISCC PLUS certified mass balance vanillin by end of January, wherein they are saying that this certification is mainly related to the better sustainability and also traceability of the feedstocks, green feedstocks. Just trying to understand whether it will change the demand dynamics wherein at least the bigger companies would prefer those kind of products? Also second question is whether we are also planning to have this kind of certification in place? Like you mentioned, this is mainly for the developed markets wherein we are also present. Just wanted some clarity on that, sir.
It's a process that we have embarked on purely because, I mean, ESG is in itself a topic for conversation which will take hours. The question really is, in the developed markets, every large consumer is looking for a net zero or carbon neutral products. It's an endeavor which all companies are setting out targets in the next five, seven, 10 years to reach that. As long as you have a process and procedure in place to go up that chain and achieve those targets, I think companies are happy to deal with you.
Sure, sir. Thank you.
Thank you. The next question is from the line of Ankit Shah from Envision Capital. Please go ahead.
Yes. Now is it good?
Sir, the volume on your line is very low. If you could speak closer to the mic.
Yeah. Am I audible now?
It's a little better, sir.
Yeah. Is this better?
Yes. Go ahead.
Yes, sir. Thank you, sir, for taking my question. For the past few years, we've had acquisitions and raising of debt. In FY 2024, will you be operationally cash flow positive and so it will reduce debt?
We will be increasing our turnover also. The endeavor is to not go for a huge CapEx in this year. We feel that internal accruals will take care of our maintenance CapEx, which is around INR 20-30 crores per annum. As far as working capital goes, for the initial six months, we may require INR 20-30 crores. working capital requirement, but this will be tapering down by the end of the year, next financial year. Secondly, we are also sitting on the FCCB $15 million, which is at the option of IFC and is likely to get converted at 105, which brings down around INR 115-120 crores of my debt.
All right. All right. Thank you, Dinesh.
Thank you. Participants, if you wish to ask a question, you may press star and one. The next question is from the line of Surya from PhillipCapital. Please go ahead.
Yeah. Thank you for this opportunity. In fact, I joined a little late, so possibly there could be some couple of repeat of questions. First question is on the, let's say, the standalone performance, what we are seeing in terms of revenues. There is a sequential, sharp decline. It is entirely due to the price correction or something else, is driving down the revenue this quarter, sir?
This quarter, it's volume and price both. More volume than price because we did see some destocking that happened in large customers globally. People had built up stocks last in the last year in the first few quarters. The slowdown started from October. What we saw was that there was a substantial destocking in, you know, ongoing through that quarter till December. From January onwards again, you know, there has been a pickup, and we expect that by April, I think it should be back to normal.
Okay. Sure. Now, just an extended question, sir, to this. To understand the growth trajectory for, let's say, FY 2024 and 2025 better. We have talked about a product like MEHQ, so be a kind of meaningful one going ahead. So far, possibly it not been a case. In the now we are having the vanillin also that will be contributing. If you can talk something about your key contributing products going ahead to the growth.
Sure. Vanilla, as we know, in the next 2 years, we should be able to fill up the capacity. That is almost a INR 700-800 crore kind of opportunity in the next two years. MEHQ again is a key product for us now since we have our own hydroquinone made in Bharuch to be value added and sold. We see ourselves playing a very strong role in the MEHQ market because, you know, we package our HQ and MEHQ to a customer. The acrylic acid and acrylic producers require both as a product. That's the package that we are offering in the market. Since January of this year, we've started now entering the MEHQ market.
You will see traction in the next two years, where we expect that we should at least take 50% market share, in the MEHQ market on a global level.
Okay. Okay. That means FY 2024 from that angle is a kind of a important year, at least from the, from the perspective for these two product, right? vanillin as well as MEHQ.
Yes. Also, the focus also will be on two or three other HQ downstreams. There is HQEE which is gaining traction again. HQEE, we've been seeding the market for the last 1 year, and now, we kind of got established in Europe and establishing ourselves in U.S. Next year I expect some growth to come from HQEE. There is Para-Benzoquinone where we're launching that product also in this quarter. We expect attraction to come from the second half of FY 2024. There is Naphthol AS-IRG which is a yellow pigment, precursor to yellow pigment.
Yes.
which also we will be launching now by the end of this quarter. Next year you will see a lot of action coming from there, because none of the producers of any of these products are fully integrated like us, where we start from basic raw material to the finished product. There are opportunities in these products which I think FY 2024, 2025, we will exploit as much as we can based on capacities available with ourselves as well as with third-party tollers and contract manufacturers.
Okay. In fact, again, on that growth aspect, sir, basically, we have seen, with the, screws normalizing, crude price correcting, the energy cost normalizing across various part of the world. The chemical product prices also witnessed some kind of a repricing, which was to the tune of 10%-20% kind of a correction in the prices. Despite that, the growth for FY 2024 would be, definitely should not be compromised for us. Is that the understanding or?
Yeah, that is the understanding. In fact, on a volume basis, we expect to grow considerably as compared to FY23. Pricing really is not so much in our hands.
Yes.
Even with the corrected prices, I think, also it has had an impact on our raw material pricing as well. Those have also softened. Overall on a profitability basis also I think. The pressure, of course, will always be there when prices come down, but I think the volume growth will be able to counter that. Not only that, but also, you know, like Santosh mentioned in his speech that improving yield and improving our processes and technologies is something that we're working on very seriously through our R&D team. We expect, you know, a few percentage points of margin to improve purely based on all that work we are doing.
Okay.
Yeah, that's why we are trying to negate everything. I mean, we know that prices are coming off. We understand that there will be pressure, and that is going to happen in the next 12 months. We're trying to mitigate it by, you know, improving all our processes, yeah.
Okay. Just two points that I will touch upon, if you can talk on that. This conversion of the China plant to heliotropin, so where is that currently? When could that really start contributing to the numbers? If you can, we can discuss on that, if you can share that. Secondly, even on the LM, so now onwards, from the modeling perspective, everybody will start building FY 25 also. If you can give some sense about that.
Right. On heliotropin, we have moved further on our approval process. We expect the approvals to come by end of Q1 FY24. We'll start work on the plant thereafter. We should be hopefully by end of FY24, in, you know, ready with the product. FY25, you will see some traction for heliotropin.
Okay.
Then on LM, FY24, of course, we've already logged in one supply that we need to do. FY25, there is some negotiations going on. We have very limited capacities available right now. Our capacities are roughly about 800 tons a year, which I think FY25 will get filled up because they already have some orders in the pipeline, which will fill that up. The real question then will come during FY24, during this next year, is when will another plant have to be built and, you know, on what basis and, you know, all of that. That's a discussion that will happen, I think, during this year.
Sure, sir. Thank you. Thanks for answering all the questions.
Okay. Thanks.
Thank you. Ladies and gentlemen, to ask a question, please press star 1. The next question is from the line of Jayesh Mestry from Asit C. Mehta Investment Intermediates . Please go ahead.
Good afternoon, everyone. Am I audible? Hello. Thank you.
Yes, sir. You are audible. Please go ahead.
Yeah. Thanks for the opportunity. I do have a couple of questions on margin expansion and another on growing, like growth going ahead. My first question is, like, are we aware about, like, recently, the, on a, like, country aspecting in mind and India's specialty chemical market size and growth momentum is, like, almost good. This segment is growing fast in our country and is further expected to reach around, please, make me correct if I'm wrong, INR 60 billion-70 billion by 2025 as per sources. What's your view, sir? What's your view in terms of growth prospects and other expansion opportunities coming years?
We expect to grow at roughly 25% a year.
Okay.
-going forward for the next few years. That's our expectation.
Okay. Okay. As we already know that this sector is highly capital-intensive with a long payback period, as you might be aware. In recent budget also, the measures have been shared by our Finance Minister, Shri Nirmala Sitharaman, on, in order to encourage the large capacity expansion and capital subsidies for investments. What's your take on this move by this year budget and company's future growth opportunities in this area?
I don't think they've given anything much for subsidies for chemical companies. We have to continue to do what we have to do. I don't think there are any big shops or benefits which have been offered to us.
Okay. Any kind of margin expansion we should expect from, like from the Vanillin plant and commission and Delhi running at almost, full with expanded capacity?
Yes. I mean, that is the expectation, that from a loss-making product to catechol, we convert catechol to vanillin. It will be margin accretive, and there should be a margin expansion once we are full fledged in the vanillin market.
My last question is, like, what should be the growth for 2024 and 2025 on the revenue front and EBITDA front? like, would you release some.
It should be at about 25%, like I mentioned.
Okay. That's fine. Thanks.
EBITDA margin will expand as a consequence of that.
Okay. Okay.
As a consequence of vanillin. Yeah.
Oh, fine. No problem. Thanks. Thanks. That's from my side.
Thank you. The next question is from the line of Abbas Panjani from InCred Capital. Please go ahead.
Hi. Again, one question on vanillin. Have you started supplying vanillin to clients?
No, we are yet sampling. I think, Santosh answered that question.
Okay. Okay.
Thank you. The next question is from the line of Prathamesh Sawant from Axis Securities Limited. Please go ahead.
Just to clarify on my earlier question, when I mentioned that North America revenue were down 80%, it was year-over-year. I saw that we were doing INR 100+ crores revenue last Q3. We just wanted to understand what has happened there and can we move back to that level in the coming quarter? As you said, you have new orders, lining up from Q2 onwards.
Pardon, I think you are co-confusing CFS Mexico with CFS North America. Our Mexico was doing around INR 90-91 crores. North America always did INR 15-20 crores.
Okay.
Are you asking the question on Mexico?
No, no, on North America. A year back it was, you're saying INR 10 crores.
Last year, nine months it was INR 42 crores. This nine months it is INR 58 crores.
Okay. Okay, sir. The other question is on the further derivatives of HQ. We are also seeing certain price pressure on MEHQ prices. Going forward, do you expect these products to be having lesser margins compared to the HQ margins?
No, it's a value added to HQ.
From a channel check, we were seeing certain prices for certain, further, integrations slightly lower. Can you just give a idea on, do you see these prices higher than earlier? Or where, any?
No, MEHQ prices also will come. All chemical prices are softening, as we mentioned earlier. Even MEHQ prices will come down as a consequence of all raw material prices coming down. As a consequence should be the selling prices are coming down.
Okay. Okay, sir. Thank you.
Yeah.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you for being with us, ladies and gentlemen. We value your time. We look forward to interacting with you at the next conference call. Thank you.
Thank you. On behalf of Sunidhi Securities & Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.