Ladies and gentlemen, good day and welcome to the Chemplast Sanmar Limited Q1 FY 2027 earnings conference call. 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. 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 a guarantee of future performance and involve risks and uncertainties that are difficult to predict. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. S. Ganeshkumar, Managing Director from Chemplast Sanmar Limited. Thank you, and over to you, sir.
Thank you. Thank you so much, and good morning, everybody. On behalf of Chemplast Sanmar Limited, I extend a very warm welcome to everyone joining us on our call today. On this call, we are joined by our CFO, A. R. Balaji; Dr. Krishna Kumar Rangachari , heading our Custom Manufactured Chemicals Division; N. Muralidharan, Executive Director of Finance; and SGA, our Investor Relations Advisor. I hope everyone has had an opportunity to go through the financial results and investor presentation, which have been uploaded on the stock exchanges on our company's website. Q1 FY 2026/2027 was shaped by a volatile global environment, with geopolitical events influencing raw material availability, feedstock costs, and demand across several of our businesses. We are seeing respite in the feedstock prices with supply conditions improving towards the end of the quarter.
Against this backdrop, the company reported a consolidated revenue of INR 1,125 crore for the quarter. However, a sharp increase in input costs severely impacted profitability, resulting in EBITDA loss of INR 115 crore. Getting into the details, on the Paste PVC side, the demand remained volatile throughout April and early May, primarily due to lower downstream operating rates caused by PNG, LNG supply issues, and elevated input costs. However, the market turned around in June as the Middle East situation eased, providing better visibility on raw material availability and helping downstream operating rates to recover to 70%-80%. We remain confident that this demand recovery will continue in the coming quarters. Pricing improved compared to the previous quarters. Supplies from Europe and Asia remained limited through much of the quarter before turning aggressive again from late June as market conditions normalized.
On the regulatory front, the Ministry of Finance allowed the anti-dumping recommendation against imports from European Union and Japan to lapse, prolonging import pressure on the domestic industry. In response, we filed the writ of mandamus before the Madras High Court and obtained a favorable order directing provisional assessment of imports and execution of bonds by importers to facilitate retrospective recovery of ADD should it ultimately be imposed. The basic customs duty on Paste PVC was waived off from April 1st, 2026 to June 30th, 2026, with the waiver extended until July 15th, 2026. This was reinstated with effect from July 16, 2026. With the reinstatement of customs duty and the ongoing legal proceedings relating to ADD, we expect a moderation in low-price dumping from Europe and Japan, which shall provide a more balanced competitive environment for domestic producers.
Operationally, productivity improvement initiatives at the Cuddalore Paste PVC facilities are progressing well, and the 7,000 tons debottlenecking project remains on track for commissioning in October 2026, further strengthening our manufacturing capabilities. Coming to Custom Manufactured Chemicals Division, the segment delivered a much improved performance during the quarter, reflecting encouraging signs and recovery from the slowdown witnessed over the past few quarters. Backed by a healthy order book accelerating customer engagement on the best product pipeline, we are confident that this positive momentum will continue through FY 2027. On the execution front, MPB 3 phase III and pilot phase III have been successfully commissioned and are operational. Our business development initiatives are also yielding encouraging results. The appointment of a business development head for Europe and a representative in Japan has significantly strengthened our customer engagement and new product opportunities.
Our molecule pipeline has expanded close to 50 molecules, with 14 being commercialized, reinforcing our confidence in the long-term growth prospects of the business. On our Refrigerant Gas business, following the commencement of commercial production of R32 in May 2026 from our swing plant, customer engagement continues to progress. Feedback from customers on product specs has been positive. On the new plant, project commissioning is underway and progressing as per plan. Moving to our Value Added Chemicals business, caustic soda and chloromethane continued to operate in a challenging market environment during the quarter, with pricing remaining under pressure due to weak regional demand and excess supply. While demand for caustic soda remained stable across key end user industries, chloromethane volumes were impacted by softer demand in select end-use segments.
Hydrogen Peroxide volumes improved on a sequential basis as raw material availability normalized, although prices moderated from elevated levels seen at the beginning of the quarter. On July 17th, a rare fire incident occurred in our PVC plant in Karaikal, resulting in manual shutdown of the facility. There were no injuries to employees or contractors. Neither was there any spillage, and the fire was fully extinguished within 15 minutes. We are working closely with the concerned authorities and undertaking all necessary corrective actions to facilitate the safe and timely restoration of operations, with the safety and well-being of our employees remaining our foremost priority. On Suspension PVC business, market headwinds impacted the Suspension PVC this quarter due to declining prices, particularly in April 2026. The quarter was marked by significant volatility following the Middle East conflict, which disrupted feedstock availability and led to elevated VCM prices.
To support the domestic economy and reduce import costs, the government exempted customs duty on PVC resin and reduced the duty on VCM to nil from April 2nd, 2026 to 30th June 30th, 2026. This led to higher imports, particularly from China, putting pressure on domestic market. In addition, the demand softened towards the end of the quarter due to seasonal factors. Re-imposition of the customs duty and the introduction of the minimum import price on low price Suspension PVC imports are expected to provide some pricing support. During the last quarter, we mentioned about formation of a committee comprising of three independent directors to examine the strategic priorities of the company with a view to enhance the long-term value creation for stakeholders. The committee is currently evaluating the various options available and have engaged advisors to assist them in the process.
Once there is a definitive development or a concrete outcome to share, we will certainly provide an update. The improving outlook of the specialty business, coupled with few positive developments in our PVC products portfolio, gives us confidence in the future. The strong momentum in CMCD, together with our ongoing investments in capacity expansion in the specialty segment, positions us well to drive profitable growth. We remain focused on disciplined execution, creating long-term value for our stakeholders. I request our CFO to talk about the numbers.
Thanks, Ganesh. Good morning to all the participants on the call. Coming to our financial performance for quarter one FY 2027. On a consolidated basis, the company reported revenues of INR 1,125 crore compared to INR 2,900 crore in the corresponding quarter last year. The company reported a net debt of INR 1,419 crore for the quarter. Moving to segment wise performance. The specialty chemical segment reported revenues of INR 427 crore during the quarter, with volumes registering a healthy 31% year-on-year gain. The Value Added Chemicals Segment reported revenues of INR 179 crore compared to INR 458 crore in the corresponding quarter last year. The Suspension PVC Segment reported revenues of INR 565 crore compared to INR 608 crore in the same quarter previous year. In terms of revenue mix, the specialty chemical segment contributed 38% of the consolidated revenue.
The Value Added Chemicals Segment accounted for 11%, while the Suspension PVC Segment contributed the remaining 51%. On a standalone basis, the company reported revenues from operations of INR 596 crore and EBITDA of INR 74 crore for this quarter. We conclude the presentation and open the floor for further discussion. Thank you.
Thank you very much. We will now begin 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 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 will wait for a moment while a question queue assembles. The first question is on the line of Rohit Nagraj from 360 ONE Capital. Please go ahead.
Yeah, thanks for the opportunity. The first question is in terms of VCM sourcing. What is the current condition in terms of sourcing from different geographies? Given that the VCM prices have been largely similar to the product prices PVC, at any point in time, would we be taking the decision to partially shut down the facility? Because anyways it is not making money as of today. Thank you.
Thank you, Rohit. The VCM high price in the inventory that we had booked, which was close to $1,000+ , that affected the first quarter, and we will consume everything by July and part of August. As of today, if I look at the replacement cost, the VCM is priced at about $700 delivered price, and we are selling PVC at about $900+ . There is a spread of $150-$160 net of taxes, which is available for us to offer.
We will continue to evaluate the situation. We are trying to look at alternate sources of VCM sourcing. To give a perspective, the reason why the prices went up early in end of March, early April, was primarily due to lack of the feedstock for the VCM plants, which used to come from the Middle East. That has now eased out and plants have started going back to their 70%, 80%, 90% capacity. We see that VCM prices will continue to soften as we go into the next quarter.
Sure, sir. Second question is in terms of the margins for Suspension PVC as well as Paste PVC. Given that the ADD investigation or the ADD did not go through for both the products, how are we foreseeing the margins for the next one and a half years? You mentioned about the Madras High Court we've appealed. Beyond that, from an ADD perspective, have we been going ahead with any incremental process so that again, it can be taken up by the government? Thank you.
One is the ADD suspension. Yes, suspension, we are relooking at taking it up as an industry in terms of we are working on the data to see what is in favor of ADD proposal. On the Paste side, I think this itself, this court directive itself is pretty strong and will be a deterrent to low price dumping into the country because it is against the provisional bond of retrospectively collecting duty in case if it is applicable. It means that the prices will adjust in a normative approach as we go.
For the next steps of application for Paste, that is something which we always keep reviewing on a quarterly basis in terms of how are we with respect to the data and whatever that we need to do as an action. That will continue to be a consistent process to represent with the government and see how to get an anti-dumping duty on Paste PVC. The focus of anti-dumping duty is also only a level playing field. As long as we get a level playing field, we are competitive technically with the global players into the market.
Got that, sir. If I can squeeze in one more on the CMCD front. In the commentary, you mentioned that this quarter has seen a good amount of pickup and good traction on the business. Is it because of any external factors, or do we feel that this is going to be a case incrementally for the quarters and the pickup will continue? Where are we on the INR 1,000 crore target for CMCD as of now? Thank you.
I will hand it over to Dr. Krishna Kumar. Let him respond to this.
We are on track on the INR 1,000 crore target as we communicated in the last call. Going back to your first question, this is a reflection of the molecules that we have commercialized over the past few years starting to ramp up as we had expected them to. We expect the trend to continue in the coming quarters as well.
Perfect. Thanks a lot for all the answers and all the best, sir. Thank you.
Thank you. The next question is from-
Hi, sir. Thanks for the opportunity. Continuing on the CSM, the CMCD side. We were working on 40+ molecules earlier and were expecting commercialization of around 15, 17 of them this year. Any changes to that thought or any update on that? How are we looking at the product commercialization side? This will be largely at chem, right? Or there are some other non-chem molecules as well that we are looking to ramp up.
Thank you. Good question. The pipeline continues to be healthy. Our number of molecules in the pipeline that we track continues to increase. We are close to around 50 molecules in various stages of development. We have currently 14 commercials, but we anticipate more commercialization in the coming months. We have also deployed resources both in Europe as well as in Japan to accelerate our business development efforts in these regions. The activities in terms of BD is not just restricted to AgChem. This pipeline that I am talking about of close to 50 molecules includes markets in pharmaceutical as well as in other specialty chemical end markets. We are trying to diversify beyond just AgChem.
Sure, Dr. Rangachari. If you can just highlight maybe in percentage terms or whichever way it works, how do you see, let's say, the INR 1,000 crore revenue that we are looking at, maybe three years out. What would be the potential breakup of this between AgChem and non-AgChem? Secondly, from a client diversification or concentration perspective, you did mention BD efforts in Europe and Japan, but do we have visibility on revenue from incremental newer clients or the same client is adding more business here?
The INR 1,000 crore would continue to be pretty much AgChem. That number is reflective of what we have done till now. What we are doing now will reflect a little bit down the road. The action overall market continues to be subdued. It is reviving, but there is still significant competition with respect to generics from China. Majority of our molecules that we have commercialized, many of them are pipeline molecules, those are more linked to long-term goals and things like that. The growth for us is coming from what we have developed and commercialized, and they are going through the ramp-up phase that we had originally anticipated. Some of them could have been delayed by a quarter here and there, but overall, they continue to be on a healthy, positive trend.
Sure, sir. That is helpful. Just one last bit on R32. We are looking at 14,000 tons of capacity. One, any timelines on that side in terms of commissioning? Secondly, how are you looking to sell this across? Is this largely going to be a domestic sale, or are you looking at some global tie-ups, et cetera? Thank you.
Thanks, Rohit . All the capacities will be online by end of this fiscal. That's the plan. It's not something which is changing as of-
Sorry, end of this quarter?
Fiscal. Fiscal.
Ok. Yeah.
This fiscal.
Thank you.
This fiscal. That has been the plan always, and that is how we are on track to deliver on that. Second is regarding the go-to-market strategy. The go-to-market will encompass both domestic and international space. We are in active discussions with various partners, and by the time we get the capacity online, we would have tied up some of the partnerships.
Sure, sir. That's it from my side. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Sajal Kapoor from Antifragile Thinking. Please go ahead.
Yeah, hi. Thank you for giving me this opportunity. Sir, I've got three questions, I'll put them across one by one with your permission. First one is, you just disclosed and also in your annual report that you have 14 molecules in commercial production on the CMCD side. Without naming customers or products, how concentrated is that revenue? I mean, what share comes from, let's say, top three molecules and how broadly distributed the revenue base is across these 14 today?
A section is concentrated mostly in AgChem, Beyond that, we don't want to comment on both customer concentration as well as product concentration because many of them, as I've indicated before, we have confidentiality obligations with the customers. I can assure you that it's with multiple customers and across multiple innovators and multiple products.
Yeah. Products, we know that it's 14, You also just mentioned that you have got multiple innovators or customers across the 14 molecules.
Absolutely.
Okay. Yeah, sure. I guess there is slight delay in the line, but that's fine. My second question is, you have expanded the CMCD capacity from roughly 1,100 tons - 5,400 tons. Excluding the uncontracted pipeline, what utilization does the current order book support today, and what utilization is required for CMCD to earn your targeted ROCE?
To answer on the utilization side, as you are aware, just this quarter, we commissioned the phase III of the expansion of the MPB 3. If I exclude that, our utilization will be maybe close to 60%-70% on the assets that are already commissioned. Again, that's a fairly healthy utilization because if you also recall, these are multipurpose blocks, so can handle multiple products, but there are times required to change over from one campaign to another. Utilization in these blocks can never be 95% or 100%, let's say. The question on ROCE.
Yeah, absolutely. It will never be. I will clarify the question. For the blocks that are reasonably well utilized.
We don't break it up.
If I can clarify very quickly, I think there is some delay in the line.
Okay.
Sorry, if you can repeat the question. It's not clear.
Yes, sure. I will repeat. My question was that on the gross block that is reasonably well utilized, 50%-70%, are you getting the desired ROCE based on your internal estimate on that part of the gross block which is utilized? I'm just trying to understand the overall economics and that at a certain utilization, yes, of course, we will never get 90%-95% utilization on a sustainable basis because these are multipurpose plants, the changeover, et cetera, will impact the utilization. These are not dedicated capacities, one molecule continuous manufacturing, et cetera. I completely understand that. On the part that is reasonably well utilized, are we getting the desired ROCE? That's the question. Thank you.
Sure. Thank you. I think that Krishna explained. One, the order book is healthy and the delivery even has been healthy, and the utilization has been at reasonable levels. Of course, it can sort of go up marginally. In terms of return expectations, I think earlier also we indicated with new products, the return, the contribution margins gradually increase. I think we are now reaching a stage where we are more or less able to optimize the cost levels and then get to the industry levels of returns. That's where we are. I think we will get there this year.
Okay. Understood. Thank you. My last question is on the debt levels. We have a positive operating cash flow, but with the interest cost now around INR 235 crore annually and free cash flows are still negative because of the growth CapEx. What level of sustainable operating cash flow do you need to service the interest and the debt repayments while completing the committed growth CapEx without requiring additional capital, be it dilution of equity or some external funding? Thank you.
Yes. Thank you, Balaji here. We have generated cash over the years. That along with the current surplus will take care of all the debt servicing obligations. We have enough liquidity in the system to take care. It should not be a cause for concern.
Okay, understood. Thank you so much for answering all my questions. Thank you.
Thank you. The next question is in the line of Sanjesh J ain from ICICI Securities. Please go ahead.
Hi. Thanks for the opportunity. A couple of questions. First on the PVC. Sorry, I joined a little late in the call, but want to understand how has been the spread starting this quarter because are we still carrying the high-cost inventory? There is a significant impact of high-cost inventory in Q1. How should we think about Q2 and Q3 considering the current prices, if they sustain the way they are?
Hi, Sanjesh . Thanks for the question. The high cost PVC still continues. Part of it is still there. Was there in July and will be there in part of August, and after that we are getting into the normal price between. Getting into September and getting into Q3, we should be in a better position if the same price levels continue on both sides, whether VCM and or PVC. We are talking of a spread of around $160 between PVC and VCM.
Between PVC and VCM. Are they sustaining now?
They are sustaining now. Now that the customs duty is back, the MIP is imposed for the next six months. Both of these things will ensure that prices will not go below this level.
When we say $160, it is India spread or we are talking about the global spread? If I take $160, then should I add the differential in the excise duty, freight cost to come to a natural spread?
This is our spread.
This is our spread [crosstalk] This is our spread. This is an India spread.
Got it. Second, on the Paste PVC, we have done a 7,000 metric tons of debottlenecking, which is a great thing. How is the spread in the Paste PVC business? Your standalone has done reasonably well when we compare it to your subsidiary. Is there a difference in the inventory carrying base for both the business and how has been the spreads for the Paste PVC?
Here the Paste PVC realization has been much better for us compared to the Suspension PVC. There is always a positive spread between Suspension and Paste. That's some of the reasons why we are pushing for the Paste debottlenecking. That is what has helped us to put the standalone P&L in a good position.
Spreads there are, what is the differential spread today in the Paste versus Suspension PVC?
That is roughly around $200 is the spread between Paste and Suspension.
Got it. My next question on the Value Added solid. The production appears to be lower. Is it because we have bought more VCM from the market because of the ethylene shortage? Or is there anything else to read there?
We went through a membrane changeover. Because of this, during the membrane changeover and conflict, the production plant is shut down. That is where we had lost the capacity, and knowingly, it was a well-planned initiative. Post-membrane changeover, the productivity improved. In the long term, it benefits. That is why you see that delta.
What will be today our capacity in the caustic? We were at 120,000. Still there or?
We are still at that. Capacity is that, different electrolyzers, because of aging, have different efficiency. 100-120 will always be the range in which we operate.
Got it. One on the custom manufacturing business. We were considering this year of a decent growth. Has the visibility improved, or you still see there's a challenge in the underlying agrochemical market?
We don't see any challenges in the underlying agrochemical market. The concern that we would have is how the pipeline in the agrochemical market moves. I've talked about this in the past in terms of new molecule launches are getting delayed and are not taking off as originally our customers were expecting because of price pressures on existing molecules and availability of cheap generics which motivates the farmers to continue using existing chemistries and formulations and not move to new molecules. Our underlying don't see significant downsides to the demand that we have on the molecules that we've already commercialized.
Where has been the pickup of some of the molecules? We did some of these patented, I thought, considering the revival, there will be a push from an innovator for the patented product. Are we seeing that happening in the market? Are there more optics for our products?
The molecules, if they are commercialized, many of them are pipeline or are linked to customers' newly launched products, right? We are seeing good positive revival and momentum on some of those already.
Krishna, anything beyond the agrochemical we are thinking at this point of time, or we are largely focused on getting this agrochemical entire diversification?
No. We talked about this, I think, probably before you joined. We have invested, or we are investing in resources both in Europe and in Japan to support our business development. These are fairly senior-level resources. The intent is to look beyond. Obviously, AgChem is a focus because there is significant opportunity both in the near and long term, we are not going to move away from that. We believe that there is good opportunities there. At the same time, parallelly, we are looking at pharmaceutical and other specialty chemical applications and customers where we are seeing some traction as well. It's, again, our intent to diversify beyond AgChem in the long term.
Very given. Have we hired the people or we are still in the process of identifying the talents?
No, the resources are already on the ground and running.
On the ground and running. Great. Thanks for answering all those questions and best of luck for the coming quarters.
Thank you.
Thank you. The next question is from the line of Rashmi Gohil from Arihant Capital. Please go ahead.
Hi. Thanks for giving me this opportunity. With four consecutive quarters of losses and thin margins, what is management's plan of a tide to EBITDA breakthrough and by when?
See, the challenges have been continuing for a long time, mainly driven by the e-segment. What we are looking at is four broad triggers in terms of positive triggers. First is if you look at Suspension PVC, we are looking at the reinstatement of customs duty, the MIP that is being implemented. Globally, the market is recovering very marginally. Even though marginal, the MIP and the reinstatement of duty will bring up the price levels. This, accompanied by the drop in VCM prices, will help us to improve the spread as we move into the next quarter.
We may still have some challenges in this quarter, as we move into the next quarter, we see that this margin should be able to sustain. We are talking of reaching a spread of close to $160. This will be healthy for the Suspension PVC business. Coming to Paste PVC business, there is of course the duty which has come back. That is the first one. Second is, while we did not get the anti-dumping duty, we filed a writ in the Madras High Court in terms of seeking reinstatement, and till the time a decision is taken, provisionally allowing importers to clear the consignment on a bond with the ability to retrospectively recover the duty if imposed. This has already started seeing offshoots in terms of prices going up. To that extent, it's a positive sign.
Third is on the CMCD, Krishna has explained that we've had a strong quarter. There are 14 molecules which are already in play. We have a strong order book as we speak for the remaining nine months of the year. The new molecule pipeline activity which will move around and start getting into concluding phases as into the next few quarters. Fourth is the RefGas which will come across. Part of the plants are already operational. The full capacity will be in the last quarter of this fiscal. By that time, we will also start getting into the profitable growth. All the four put together, I think we have a strong, resilient position today to see that the business turns around and moves towards the positive.
Good. Thanks for answering. My next question is around Refrigerant Gas that is R32. Now that the commercial production has started, what is the current utilization rate and when do you expect full ramp-up? What will be expected revenue and margin contribution from R32 in FY 2027?
Full ramp-up will happen only in the last quarter of this year and the first quarter of next year, because that is when all the capacities will come up. As we move, we see a healthy margin contribution there as of today. It's too early to give a forward-looking statement on how much will that scale. Yes, it is as per our plan, and we see this is going to be one of the profitable things.
How does the interchange feasibility between R22 and R32 get decided commercially?
We would be moving to R32, then depending on if we have an opportunity, we can take a call later. As we see the entire country and the global moving towards R32, we may not have significant demand for R22.
Okay. Thank you. Thank you for answering my question. All the very best.
Thank you.
Thank you. The next question is in the line of Kiran Gadge from Knightstone Capital Management LLP. Please go ahead.
Hi. Good morning. What is the PVC VCM spread in Q1?
PVC VCM spread in Q1 was negative. It was a negative spread for us. It was because of the high cost VCM, because if you look at the average landing of VCM in Q1 was about $1,000+ per ton, and the realization was close to $700-$750 / ton.
Okay. At what spread it may be a bit positive?
We are looking at, what do you say, to become EBITDA neutral, we need roughly $120-$130 ton.
Kiran, actually you are sort of, like Ganesh has mentioned, the Q1 had the impact of the high cost VCM, which we had spoken about in the last earnings quarter. Currently on a replacement basis, if we look at the PVC and VCM prices, I think the current high cost material will move maximum by August. Post that we'll realize the current market spreads. Current market spreads like Ganesh is explaining, somewhere around $160.
Yeah.
That will give us a reasonably healthy EBITDA numbers on an annualized basis.
Okay. For PBT positive, what kind of spread will we need?
Maybe another $20-$30 of spread will make it PBT positive.
Another $30.
Okay. Thank you.
Thank you. The next question is on the line of Riya Mehta from Aequitas. Please go ahead.
Thank you so much for the opportunity. I just wanted to understand that the current spreads of your Suspension PVC is around $160-$200. I just wanted to understand the trend of this while the PVC prices have gone up significantly, and what are they currently? Similar for Paste PVC.
Yeah. Riya, a couple of clarifications. The $160 is basically the spread at a replacement level. If you look at the replacement market today, if I buy VCM and convert to PVC and sell it will be at $160. We still are carrying contracts and obligations of high price VCM. We have still not reached that level.
That will happen from September.
Okay. For Paste PVC?
Paste PVC, we are on the positive side. As I mentioned earlier, we are on a $200 support with Suspension PVC in terms of realization.
Got it. While our MIP has increased and it creates a floor for us, what are the final price or the realization is more of a global determinant factor. Just wanted to understand that does this create a lower margin or a lower spread, or are you able to pass on the incremental hike or the increase in PVC price because of the MIP?
See, today as we speak, the MIP is lower than the market prices as we speak. As we say, this is a base floor that helps us to calibrate as we go along with the market fall in future. Ultimately, we are selling on global prices. It's a commodity traded globally, the global prices determine the price on the ground.
Okay. Just wanted to understand as inventory, like you mentioned, would get replenished by almost September. What are the current VCM prices which you are getting?
See, we buy mostly VCM. We don't buy so much of VCM, because the mover and shaker is the VCM, which is the majority of it. VCM replacement price today in the market is roughly about delivered at $700 / ton.
Okay, got it. I'll get back into you for further questions.
Thank you so much.
Thank you. The next question is on the line of Dharma Teja from Teja Investment. Please go ahead.
Sir, I just want to know, can you just give guidance how the number is going to be from this quarter? I'm sorry to say this, I do not know when it's going to turn profitable, this quarter is
We don't want to give you a guidance on the exact number. Like Ganesh explained, few positive triggers have happened. On the Suspension PVC side, the MIP has been announced. Customs duty, which was kept in abeyance for a few months, that has been restored back. With all of that, the Suspension PVC prices have moved up. The high-cost VCM that we carried are also getting washed out within this month. Inevitably, going forward, we will be able to realize the market. That's because the Suspension PVC price is moving up. I think there will be a reasonable EBITDA that that business would generate. On the Paste PVC as well, the customs duty impact. There again, the duty has been restored back, the positive impact of that.
Along with the fact that we have also got a favorable order in the writ that we had filed in the High Court which has helped improve the Paste PVC realization there as well. Paste PVC realizations and margins are at a reasonable level. Custom Manufacturing business, like I said, the order book is good. The Q1 performance has been good, the outlook for this business is strong. Overall, I think we believe the worst is over, I think the outlook is reasonably positive, more so on the specialty side of the business.
The last two quarters, yes, we did see two quarters of underperformance, which primarily were driven significantly by the dumping we have experienced over the period. The last two quarters has been more due to the high-cost VCM that we carried. With all of that getting washed out, I think from Q3 we should see a reasonable performance. I don't want to guide an exact number to you, but I think we should see a reasonable performance from Q3.
Yes, thank you so much, sir. One last question. Are we seeing any visitations from pharma towards the site regarding CMCD?
Your voice is not clear. Can the moderator help us with the question?
Sir, I just want to know, are there any visitations from pharma towards the CMCD?
Any pharma. Yes, we have various projects ongoing with pharma innovators as well. Most of them are in the pipeline at a development stage. We would see some of them becoming commercial either later this year or by early part of next financial year.
Thank you so much, sir. Have a good quarter seven.
Thank you.
Thank you. The next question is on the line of Rajakumar Vaidyanathan from RK Invest. Please go ahead.
Yes. Good evening.
Yes, please.
Yeah. Thanks for the opportunity. My question is on the onerous contracts for which we made the INR 152 crore provision last quarter. There was a comment made in the conference call that the provision will be reversed in the current quarter. Also you mentioned there are one or two more contracts where you will be losing. Can you give color as to what has happened in this quarter with reference to these clients?
The entire onerous contracts have been fully reversed, of course, we have certain high cost inventory coming in again during the current quarter. The net provision is around INR 90 crore for Q2 and INR 30 crore for Q1. That will get reversed during the current quarter.
The entire provision is going to get or you are carrying any further provisions?
Subsequent inflows, we do a mark to market contract. Net provision is around INR 90 crore, right now, NRV provision, INR 30 crore for 10 months.
INR 90 crore you're carrying in the balance sheet. Is that what you're saying?
That will get reversed during the current quarter.
Okay. Extending the same question, I just want to know, when your margins are in the region of 4%-5%, what is your interest level to sign fixed price selling contract while keeping the raw material portion exposed?
Normally, what we have seen during the last couple of months, starting April, has been an anomaly. It has never been the case. We have seen PVC-VCM spreads in the range of $100 ±. Idea is, it was not fixed price contract, it was a market contract, which we had to take. I hope I'm able to answer your question.
Yeah. Sorry to labor on the point. Just let me see, if you are having a lower margins, sorry to be blunt on this, from a prudent standpoint, you should have your selling price also protected if there is a raw material escalation, right? Keeping the raw material portion exposed completely and while having the selling price fixed, it's kind of putting a lot of pressure on the bottom line. I also want to know how many such contracts you have to be executed in the future as well.
Look, see, the contractual formula-based pricing that we have has basically worked for us for years. Okay? It is just that as an anomaly, these two, three months, when these market prices went up and we had to pick up. Otherwise, it has never exposed us to this extent. Second, market price is also not fixed. Market price is also based on the global market, how it shapes up. These are two separate commodity cycles that we are working on. Normally, PVC to VCM spread is maintained at 100, 150, between 80- 150. That range is there. This is only an anomaly. I don't think as an anomaly, we should make a decision and go back to spot purchases, because if you would have it in spot, then even today we would have been buying at a much higher price.
I just want to add to what Ganesh is highlighting. Actually, it's not that we have fixed the PVC price. PVC price was also dependent on the market price, and VCM is also linked to the market price. They are contracts, they are always linked to the market price. This is a particular situation when in March, the PVC prices were quite high, and at that point of time, because of the war situation, the availability of materials became a question mark.
We had booked certain parcels at that point in time, keeping in mind the PVC prices prevalent when we booked the parcels. Subsequently, PVC market prices dropped. That is the reason we are sort of seeing this negative impact in Q1. In general, PVC prices is floating and VCM prices are also market-driven and they are floating. We don't lock one side and keep the other side open.
Okay. Thank you, sir. Thank you so much for the clarification. I was thinking it was a fixed price. Okay. Thanks for the clarification. Okay.
Thank you. Due to time constraints, we take that as the last question. I now hand the conference over to management for close and comments.
Okay. Thank you so much for joining us on this earnings call. We appreciate your interest in Chemplast Sanmar Limited. In case you have further queries, please do contact SGA, our Investor Relations Advisor. Have a great day. Thank you.
On behalf of Strategic Growth Advisors Private Limited, that concludes this conference. Thank you for joining us and you may now disconnect your line.