Ladies and gentlemen, good day and welcome to the Q3FY25 earnings conference call of Clean Science and Technology Limited. We have with us on the call Siddharth Sikchi, Executive Director and Promoter, Sanjay Parnekar, CFO, and Pratik Bora, Vice President. As a reminder, all participant lines will be in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.
Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded, and I now hand the conference over to Mr. Siddharth Sikchi for opening remarks. Thank you, and over to you, sir.
Thank you so much. Good evening, everyone. I am happy to connect with you all in this new year to discuss the business performance of our company for Q3FY25. I would like to say these are difficult times for the chemical industry. Despite that, Clean Science has demonstrated robust cross-cycle EBITDA margins and firm growth plans underpinned by technology prowess and customer-first approach.
Our business performance continues to reflect the enduring fundamentals and agility. Regarding the standalone financial highlights, for quarter-on-quarter comparison, on a sequential basis, the revenues were steady, with domestic and international sales mix being 40% and 60% respectively. Favorable product mix and utility costs increased EBITDA by 8% to INR 102 crores, while EBITDA margin strengthened to 45%. Profitability of the company increased by 10% to INR 74 crores, with PAT margin being 32.5%. For year-on-year comparison, the sales increased by 20%, and this was primarily volume-led.
Improved sales led to strong EBITDA growth of 18% during this quarter. Consequently, the company reported 19% growth in profitability for the current quarter. Regarding consolidated financial performance, the company recorded INR 240 crore sales for Q3, which is 23% higher on an annual basis and steady on a sequential basis.
Consolidated EBITDA stands at 98 crores, which is 14% higher on an annual basis and 10% higher on a sequential basis. EBITDA margin for the quarter came in at 41.5%. For the quarter, profitability was 66 crore, which is 5% higher on an annual basis and 11% on a sequential basis. On business update, let me first start to discuss the HALS. First, I'm really pleased to report that during the quarter, HALS sales volume scaled to approximately 190 tons, while the December exit rate was 200 tons.
The HALS product offering continues to diversify with revenue contributions coming in from HALS 701, 770, 622, and the newly launched 944, 119, and 783. During the quarter, the company commercialized two new products: DHDT, a pharma intermediate, which is used for the manufacture of lamivudine. Clean Science is the key domestic manufacturer of DHDT, leading to import substitution-led demand traction.
With the commercialization of DHDT, the value proposition of the pharma segment further strengthened, further by creating cross-selling opportunities with our DCC customers. Another product for the performance segment which we added is BHT. It further strengthens the company's position in the antioxidant segment as it is being synergistically sold along with BHA, TBHQ, and ascorbyl palmitate. A little bit on sales profile, the contributions from performance pharma and agro continue to be 69%, 18%, and 13% respectively.
During the quarter, the performance segment witnessed strong growth on an annual basis among all segments led by increased volumes. Regarding Capex, we have incurred Capex of INR 160 crores during the first nine months of FY25, which was primarily towards investment in our subsidiary, Clean Fino-Chem. The construction of the new performance chemical product is expected to be commercialized by H2FY26.
ESG, we have expanded our solar capacity by adding a 400-kilowatt rooftop solar plant at our subsidiary. We have recently uploaded and updated the sustainability report for FY24 on our website based on GRI standards. I am pleased to inform that the board has approved an interim dividend of INR 2 per share. Overall outlook, we look forward to increased growth in revenues led by the scale-up of recently commercialized health series and also the pharma intermediates. Thank you so much. We are open for Q&A now.
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 touch-tone 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 the question queue assembles. The first question is from the line of Priyank Chheda from Vallum Capital. Please go ahead.
Yeah, hi, team. Congratulations for a great set of numbers. My question is on, we were planning to take some price hike somewhere in December, post-December. Have we taken that? Is that the reflection of gross margins quarter-on-quarter improving, or is it because phenol prices have slightly fallen down? So without price increase, also, is what the gross margin gains have come?
Also because of the dollar movement of 87. So we have not increased prices. Our prices have still remained constant. Volume has increased, but of course, as you said, there has been a slight reduction in raw material price, and of course, the dollar impact, which has naturally given us the edge.
Perfect. Now, coming to MEHQ, PBQ, and TBHQ. MEHQ, what has been the utilization based on capacity? Has that improved slightly? PBQ and also TBHQ, if you can highlight. In PBQ, we were supposed to restart in the last quarter. Somewhere, you were given some update. Update on that also will be helpful.
So on performance segment, our utilization is around 65%-70%. Pharma agro is also around 65%. FMCG is around 80%. Okay? Regarding PBQ, because we are still struggling and we were not able to achieve the quality which is needed by the customer, hence we have now decided to drop that product entirely. And in the same facility, we will be starting another product which is called barbituric acid, which is an intermediate used to produce pigment yellow. And this product is not made in India, currently imported from China.
Our product from lab and pilot has been approved by large customers like Sudarshan Chemicals, and we expect to begin this production of barbituric acid in the next three months' time. So same equipment of para-benzoquinone will be converted into barbituric acid. So no Capex, a little bit here and there, but we will start with this new product.
Great. Great to know that quick decisions and quick improvisation. So, Siddharth, anything on what would be the quantum size of the production and the realization from this product that we can expect?
So the gross margins are decent, about 50-odd%. But on production, let me take it on a plan to really understand how much production can be made. But the same set of equipments we have mapped is the same set of equipments can exactly be used to produce this new product.
Okay. Great. And just last question, did we have certain revenue contribution from the new pharma intermediate product in this quarter? Sorry?
Samples are out to customers for evaluation. So I think for this quarter three, there was zero impact from the DHDT pharma intermediate.
Perfect. Thank you. All the best.
Thank you.
Thank you. The next question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.
Yeah, good evening. Thanks, Siddharth, for taking my questions. First, on the cost side, bookkeeping question, there has been a sharp decline sequentially. Is power cost decline can be attributed to the solar plant, or is there something else? And why the other expenses have dipped sequentially by 10%?
See, so the other income has come down because we lost price.
Other expenses is power and fuel.
The power and fuel came down because there was a slight reduction in coal prices. Hello?
Yeah, yeah. I can hear you.
Second was that out of this last quarter, five days we were off for Diwali.
Production. Okay.
So there was production also stopped, and hence the coal consumption was not there. So that is why coal consumptions were lower by 7% because of these two parameters.
Got it. And other expenses?
Other expenses, the largest part is power and fuel. So that is essentially driving the lower other expense number.
Okay, okay. That's the same explanation.
Yes.
Got it. Got it. And if I look at the subsidiary numbers, even on a base sequentially, they have come off, while I understand there is an increase of tick in the HALS that should be from our existing plant in the Clean Science. Anything you want to talk about the subsidiary performance?
So what happened is during this quarter, we also produced 770 in our parent company.
Correct.
So what we did is, Sanjay, we made maximum 770 in our subsidiary.
Okay.
Oh, sorry, in our parent company and in our subsidiary 770, we established this new product called BHT.
Okay.
Because we didn't need so much capacity because the plant is still starting up, so we thought, why I mean, why not use this facility to add on another product, so with very minimal Capex of about INR 2 crores-INR 3 crores, we entered into this new product, BHT, and we will be making this product on a campaign basis for a few of our customers who are also our current customers of BHA.
How much capacity or revenue potential the BHT will have for us? Because I think it's a co-product to be sold.
It's a small thing, antioxidant. Yeah, but now what is happening is as and when. So of course, because it was taken for the first time, so we were also had some teething issues and all. But now we are contemplating to produce about 2,000-3,000 tons on an annual basis.
Okay, and this would be the same.
So it's about the $300, INR 300 product.
Okay.
So, about 2,000-3,000 tons if we are able to make. So, it's about INR 60 crores-INR 80 crores of revenue. But the best part is that there is no Capex needed. And it can be made in our existing health facility where we have enough capacities right now.
Got it. And the same capacity will come down for health? So this is.
Yeah, but today we have ample capacity because I mean, this ramp-up will anyway take three years' time.
Correct.
So why wait for three years? In the meantime, we can start producing another product. And tomorrow, after a year or so, we feel that, okay, we can do about 5,000 or 10,000 tons BHT, then we will go and set up an individual or an independent block to make BHT.
Dedicated.
Dedicated plant for BHT.
That's fair. That's actually very good capital allocation.
Absolutely.
Second on the DHDT, this was a INR 30 crore plant, right? And the.
It is INR 30 crore Capex.
30-crore Capex, and this should yield a revenue of what, INR 100 crores?
Close to INR 80 crores-INR 90 crores.
INR 80 crores-INR 90 crores of revenue. And when do we expect this to happen? So it will take two to three years given our DCC?
See, typically, we expect to get all approvals in the next six months. So in the next two quarters, we expect that we should get some approvals from the large customers. Fortunately, this is a very Indian market. So in the next six months, we should get approval. And the following six months, we will finish all these trial requirements and all that. So the following year, we should be a good year to get 70%-80% capacity utilization. So you assume about one and a half years to reach optimum capacity utilization. We will not need three years here.
Oh, this will be quite good. Great.
Because it is cross-sell. All the customers know us.
That's good. And I get you that our last quarter was 135 metric tons. This year, we did 190 metric tons, and this quarter, we did 190 metric tons in health. So we are on the path to touch this 400 kind of a metric ton end of March, or you think it is more like 300 to 50?
So, next year target, we are, I mean, we are targeting a decent number. I think by next quarter, we should touch about 300. See, now quarter on quarter, we should start expecting increment every quarter on quarter because now I think we have started getting now that all the products are commercially approved and commercially started. Now the only point is to grow our market, grow our distribution network, and that is what we have been doing now. So I think in the next year, we expect about 3,000 tons sales of health in totality.
That's by 2026?
Yes.
That's good. And the blended realization should be higher now, right? More than $5 considering this.
Should be. It should be closer to $5.5-$6. This quarter is worth close to $4, so that should go to $5.5-$6 now.
Very clear. Very clear. Thanks, Siddharth. Very helpful with all your answers, and best of luck for the coming quarters.
Thank you, sir.
Thank you very much. The next question is from the line of Arun Prasath from Avendus Spark. Please go ahead.
Thank you for the opportunity. Siddharth, first on this, apart from 770, in which of those grades we are seeing maximum kind of a good feedback from the customers or distributors, and which is likely to scale up faster where you are hopeful of utilizing the capacity?
So the deal is now that now, see, all these products came one after another. First, we started with 770, then we started with 622, then with 119, then with 944. So as and when these products started coming in, those were the first products which we started selling. But when you start now that the entire basket is there, now we expect that based on our capacity, on similar pro rata basis, we should start seeing the market growth.
I mean, all the distributors whom we have appointed, they were more keen that you I mean, they onboarded us because they know that the entire basket is going to be around. So now going forward, the way we have, so I think 770, 622 is more Indian plus customers which are buying low range of HALS. Then 944, 119 are products which are majorly be useful for Europe and American markets.
Right. In our scheme of things, I think 119 and 944 will be of much higher price. Is that right understanding?
They are of higher price compared to 770, 701, and 622, which you are absolutely right. So 944 is about $7-$8, and 119 is about $8-$9.
Right. And then these distributors who will be distributing our product, previously, were they distributing Chinese or European products of the health?
No, some of them understand the market because they have been selling. See, for instance, our distributor of ours was selling phenolic antioxidants. He understands the customer, but he never had any opportunity to work with any health producer. So these are some of the distributors who are very keen to work with us, so that completes their basket also.
Oh, okay. So for some of the distributors, also the health is new.
They have heard about it. See, it is new. It is like DHDT and DCC. So we know DCC, we know DHDT. It's just about putting it together. So it's not new. They have heard about it. They know that product. And that is why they quickly onboarded us, right? It is not that they don't understand what were the products. I mean, what are these products? It's not that they don't know. They were aware, but they never had any chance to collaborate with because there are only four other producers who are fully backward integrated.
Okay. But what I understand is these distributors, their customers already consume health. Is the understanding right?
Of course. Of course. Absolutely.
Okay. And what is the current status of our direct sales to the, say, direct HALS consumers? Where we are in the whole customer acquisition cycle?
So, samples are being given. I mean, it depends. Again, every customer is different. I mean, we have a long list of customers because this is not a very, it's not like five customers. I mean, this is a very long cycle of customers, long list of customers. So, at some scale, price negotiation is happening. At some, product qualification is happening. So, it's a variety of stages.
Understood. And specifically to 119 and 944, which are the categories, end categories which drive these two ones?
119 is majorly used in agricultural films. Very good market in Turkey, Europe, and in North America, South America. 944 is into polyolefins films. Again, market's very good market in these areas which I mentioned, and also some markets in India.
Okay. So none of the categories, these categories that you have mentioned, is I mean, from the very end category perspective, is there any stress going on, or the product itself, or the category itself is not doing well? Anything that you have picked up from the distributors? Or it's still recovering?
Just price war. I mean, there is China always in the market. Plus, there are Europeans. We are the new boy in the game, right? So people have to trust us. People have to believe our quality. But the advantage is that we have geographical location. Customers who are looking for non-Chinese, non-European, we are the only source. And let's see how the U.S. tariff thing happens because if China gets a large tariff, then I think we will get great openings in the U.S. market. And now we have multiple distributors in the U.S. as well, so who are also very keen to partner and to work with us.
Understood. And secondly, my second question is on the existing business, Siddharth. If you see the alternate process, the spreads in the alternate process, that is MEHQ versus HQ, it's kind of still comfortable for the alternate producers to produce. So what will drive the alternate producers to actually stop producing, and which will enable us to take a higher market share or take a pricing improvement? Any thoughts on that?
Sir, I don't know which calculation you did because if that was the case, we would never gain the volumes which we lost. I mean, which we lost because of destocking.
No, I was talking about the.
Entire growth has come only because of volume, so the spread, again, with the conventional process, cannot lead. It's still way off from the process which we are using.
I understand. I agree with that. I agree with that. In between the spread of MEHQ versus HQ was negative, and it has only once again become positive nowadays. But that's the reason. Are they once again started the facilities outside, or do you see any reduction in their utilization? Along those lines, I was questioning.
That's what I told you. If that was the case, we will not have gained the volumes. So I am not seeing that anymore, but we can connect offline to further get your calculations, I mean, to rectify the calculations again.
All right, Siddharth. Thank you. We'll take it offline. Thank you. All the best.
Thank you.
Thank you. The next question is from the line of Ankur Periwal from Axis Capital. Please go ahead.
Yeah, hi Siddharth. Thanks for the opportunity, and congratulations for a good set of numbers. First, a clarification. So apart from health, we were doing three Capex: INR 150 crore, INR 150 crore, and INR 30 crore. INR 30 crore has already got commissioned. And for the other two, you mentioned both of them will get commissioned by H1 of next financial year. Is that right?
No. The performance chemical one, INR 150 crore, starting in July.
The other one was December?
The other one, December. Construction begins first week of February.
Sure. And sorry, you said construction starts in February, and the commercialization is December this year, 2025?
December .
December. Yeah. So let's say, okay. So let's say Q4 of next financial year. Fair enough. Secondly, again, just trying to understand, since you mentioned the focus on distribution network for health will be the key thing to look out for. Now, I'm trying to divide it into India and global, and India, largely, the distribution network is already in place, or there is still scope for improvement here?
It's majorly direct. We are sitting here. So very few customers prefer distribution. India is majorly all the big ones are direct. In global, outside of India, there are big MNCs where we are talking directly to them. But like India, there is a tail of customers for this because there is combination. It's not one product. It's a combination of four or five products. So now we have established distributors across Europe, Latin, U.S., and also Gulf and South Africa.
Because this business, Ankur, unlike our other businesses, there are customers who even buy small quantities, like anywhere between 500 kilo to two ton materials. So these people need domestic stock points. So now we have appointed and signing contracts with some of the distributors, and now you will start seeing these distributors also getting active.
Sure. And in the global market, North America and South America will be a bigger market for our products right now versus the other markets that you mentioned. Will that be right?
North America and Europe will be large compared to South America.
Okay, and distribution network now is ramping up or probably will deepen further, let's say, over the next couple of quarters.
We have now set more or less just few additions here and there. So you can say 70% network is there. Now business should start coming.
Fair enough. Just trying to understand the competitive landscape here. So as you mentioned, China and Europe is the bigger ones here. The distributor, is there an overlap, or largely our distribution network is different, which you highlighted that some of them are into phenolic-based antioxidants, and they understand what they are not selling HALS right now. So how should we look at that bit?
You should look at it that they were not selling health before. So there is no cross-sell. So they will be exclusively our distributors now.
All of them, or this is only a set?
No, all of them. See, now, ultimately, enough, boss, Ankur, this is also very performance-driven product. If approval takes time in some customers, so now if that is approved, so the link has to be thorough. Now, we also don't want to change the channels, and even the customer does not recommend us to change the distributor. So these are now relationships which will only develop over the next years to move on.
Fair enough.
So we have taken some time to really work and understand whom we are working with. We had a lot of proposals in pipeline, but we have shortlisted whom we want to work. We have personally met them in their countries to understand their reach, and now we have appointed over the last 30 days.
Fair enough. That's helpful. And just last bit on this, the end customers, the end customer, as in from either on the plastic side or polymer side or, let's say, agri side, is common, whether it is for BASF globally or for these new distribution networks, or they are different sets?
No, no. customer is customer. There is a set of customers. They are all.
So they already have a connect with that customer is where I'm coming from.
Sorry?
This new distribution network that we are going through, they already have a connect with the end customer, which is also consuming health.
Of course. They know the market. They know whom they want to target first, whom they want to target second. So yeah, they understand this business very well.
Sure. Fair enough. And just one more bit on the overall growth front, sorry, overall realization front. Are we seeing any further pressure versus, let's say, on a QoQ basis or maybe versus six months for our products, or it is largely stable?
I think, I mean, the prices what we have today are all-time low prices in the chemical segment. I mean, be it our health or be it performance or be it agro segments, I think these are the lowest prices we have seen in many, many years. So I don't expect prices to further dip. It might not increase very soon, but we are comfortably placed. I mean, you can see from that our numbers, right?
Yeah, yeah, yeah. Fair enough. And lastly, we were also thinking of, or we were also supposed to launch blends of the core health products, the five, six, seven products that we had launched. Has it already started?
783 is a blend. So we have also started selling it.
So that's the only one. But are there more in the pipe, or probably let the distribution network get established, and maybe over a period of time, over the next few quarters, we'll start picking up more on that?
The blends are not very complex. It's just mixing two products. See, European clients don't like to do that in Europe. So it is just mixing two products. It's not some rocket science. So we will be doing it as and when the customer tells us. So we know the 783 customer requested that we don't want to buy individual. You please mix it and give it to us. We did that.
Okay. Okay. Fair enough. That's helpful. Thank you and all the best.
Thanks, Sir.
Thank you very much. The next question is from the line of Pankaj from Affluent Assets. Please go ahead.
Thanks for taking my question. Am I audible?
Yes, sir.
Congrats for a very good set of numbers. I'm new to this company, so just wanted to understand that there's a difference between the standalone consolidated EBITDA margins. Can you please help me? What is dragging this? Because the difference in revenues is minuscule as compared to the margin difference, and when can we see it converging down?
Right. So Clean Phenocare subsidiary was commercialized only this year, like last year, March, and it's a 34-acre greenfield Capex, which we have undertaken for tax reasons. The tax in the subsidiary company would be 17% perpetual, and hence the expansion is happening in the subsidiary company. And as of now.
When can we?
Yeah.
Sorry, please proceed. So when can we see it narrowing down, the difference?
Yeah. I mean, as the scale-up of health happens and as the new products scale up, which were recently launched like DHDT and the performance chemicals.
I mean, can you give some timeline, say, this year-end FY26 or so?
I mean, we'll look at somewhere between two to three years. The gross block has already reached INR 376 crores for the subsidiary.
Okay.
So, yeah. So as soon as it's ready, so it could be between two to three years.
Sure. Well, secondly, the revenue to net block is around historically has been around 2. So when can we see our sales picking up? I mean, currently, our net block is around 700 or so. So when can we see the sales reaching 1,400 or 1,500?
So Pankaj, it's similar to the first question, which I just mentioned, that the subsidiary is a greenfield Capex, which we have undertaken. That's why you see increase in the net block, but not a proportionate increase in the revenue, which will start reflecting in the timeline which we mentioned, I mean, as the scale-up happens for the new products.
So is it possible by FY2026, or it will be spilled over to 2027?
Yeah. It might get spilled over to 2027.
Okay. So thank you. Thanks a lot.
Thank you.
Thank you. Next question is from the line of Priyank Chheda from Vallum Capital. Please go ahead.
Yeah. Hi. Thanks for the follow-up opportunity. So this year, INR 160 crore Capex, nine months is broadly for performance chemical, and for next year, we require that INR 150 crore for water treatment. That's the only Capex spend required for next two years, right?
I mean, unless we don't come up with something new. But yeah, so far, these are the numbers.
Got it. Now, did I heard correctly that you said that you're looking out for something 4,000 tons as a target number for health in FY26? Is that right that I heard?
We are targeting 3,000-4,000. See, that is a plan we want to pursue. So we are keeping the bar a little higher. So let's see what we are able to achieve. But now that all the lines are ready, the production is ready, product is approved, customers or distributor network is set up, we think, why we should not be able to do this?
Exactly, Siddharth. So if we have to, if we are planning to reach somewhere around 300 tons per month in Q4 itself, I think we can at least achieve 4,000 plus given the scale-up that is happening. So just was curious to know why, I mean, why just restrict to 3,000 tons or 4,000 tons?
Yeah. Siddharth, so you're right. I mean, last quarter, we closed with a run rate of 135 tons per month. This quarter, we closed with a run rate of 200 tons per month. But you should also understand that between last and this quarter, the product mix has also changed. Now we are coming up with an advanced version of health, which just now, Siddharth, mentioned that this quarter, the average realization was $4.5.
Next year, we are targeting an average realization of close to $6. So we want a distribution channel, which is recently established, to pick up these advanced health also, which is 944119. So that will help us with the realization and the margins both. So we'll have a more clear and candid answer to the volume guidance for next year, probably in a quarter's time, as we see the scale-up happening. Like for this quarter, we have almost 10% of our revenue coming from health at the console level. So we are upbeat on health volume, but we want the product mix also to be favorable now going forward.
Got it. Great. Just last question on HALS, on the competition. Last time, you did mention that you haven't seen any new entrants coming in. Plus, I think one of the local competitors had an issue on the plant with respect to hydroquinone procurement. So, anything on the competitive landscape would you like to comment on, particularly for HALS?
Sir, we are not seeing even till date. If you find out, please connect us offline and let us know. Thanks.
Great. Great. Thank you.
Thank you. Thank you.
Thank you very much. The next question is from the line of Jay Patwa, an individual investor.
Hello.
Yes, sir.
Yeah. Hi, Siddharth. I have a broad spectrum of perspective I want to know. Because your company is entering in a market where you have a few checklists. It should be a clean technology. It should be a unique process. Then basically, it should be an import substitution. And again, if all this fulfills, then it should be a high-margin product. But as a company, how difficult for you to find such product in R&D?
Very difficult, sir. But we are trying our best.
Okay, so is it like, can we assume that in future, if the company wants to grow, then you have to compromise in this checklist either at the level of margin or at the competition will be there or something like that?
We don't want to compromise on few aspects like Green Chemistry. We want to produce chemicals which are clean in nature. It is not that we are averse to making something which is made in India. If we have a better tech, why not? If it is decent, good margins like we have been able to do, why not? HALS, for instance, absolutely new product, never made in India. Very large TAM. We have been able to find this product.
The pharma intermediate, again, not made in India. China produced, China Plus One. Good technology we have developed. Performance chemical one, also the same. So we have been able to find out. So we'll see as the quarter moves on, as the number I mean, you and I will both see how things move along with us. But we are trying our best.
Okay. So the reason why I'm asking is cause I think in previous con calls also, you mentioned that the newer two Capex, which you are doing INR 150 crores each for water treatment and performance chemical, there are already competitors there in the Indian market. Is it correct?
There are Indian competitors. Yes.
Okay. Okay. But the technology will be new or unique process will be there for?
Yes. Our technology will be better. So we feel we will have that edge over the competition.
Even for this DHDT currently commercialized product, we have this UPL Limited, I think, selling it in Indian market. So again, we have any edge over there or something?
I mean, you should check, but to whatever customers we are selling, we are not seeing UPL at all because I think they don't make it themselves. They get it toll manufactured somewhere. Plus, there are quality issues. I think I have been hearing UPL for the last two years. But I mean, where is the product, I think?
Okay. As per you, currently there are no suppliers of DHDT from India?
I mean, if you see the import statistics, 200 tons, 2 [Foreign language] . I mean, that is a clear indication that there is no entrant. Otherwise, that number should drop, right? I mean, that is a clear logic we apply.
Okay. That's great. Great. And one more query regarding three years ago when you planned to go commercialize the health product in a big way, you assume that the gross margins will be similar of 25% at a full capacity, or things have changed in the last three years due to the overcapacity or something like that?
I think we are still a little premature because now the advanced HALS are coming. We expect this to improve only. That was a very base minimum number we had. But I think it should be better than this only.
Okay. But the market dynamics has changed or something like that in the last three years because of the overcapacity or at the beginning itself, we have assumed that the maximum margin level will be 25% around which you have indicated in previous con calls?
I mean, everything, I mean, world has become so dynamic. I mean, it is, I mean, Chinese are there. BASF is there. And we have to compete. I think with advanced HALS, the margin should be better only. I mean, you will allow us to one or two more quarters, and with the whole picture and with the entire distribution network, we'll have a far crystal clear idea of this business.
Okay. Thank you. Thank you very much, and best of luck.
Thank you. Thank you so much.
Thank you very much. The next question is from the line of Huseain Bharuchwala from Carnelian Capital. Please go ahead.
Yes, sir. Just wanted to understand. Basically, how do you see how much percentage will come directly from the client's level and how much you see from the distributor level?
This is a very difficult question because, as I rightly said, it's just been a month that we have started appointing distributors. It is a very difficult question to tell you today that the percentage is X and Y.
Got it. And why is it not approved by the traditional distributors? You said you have appointed new distributors on the health side who had similar products which you will cross-sell in terms of health. So existing new distributors only? Who do you approach? We just wanted to understand that.
I didn't really appoint new distributors for health. Why not existing health? No, no. Sorry. Go again.
We have appointed a lot of distributors who are new, who don't sell health. So why don't we approach the existing distributors of health rather than appointing a new set of distributors who are not selling health but now they are selling health?
One sec. If somebody is already selling HALS, or suppose he's buying from China and selling, why would he buy from us? I mean, he has already taken that distribution from Chinese, right? These are not off-and-on relationships. I mean, these are long relationships, actually.
Got it. Got it. Got it. Got it. Okay. Okay. Okay. Got it. That's a good comment.
Thank you. The next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead.
Yeah. Good evening. Thank you so much. Just sorry, I joined the call a few minutes late, so I might have missed this data point in case you shared it. But for health, what would the total volume have been that we have done year to date? If it's possible to share, please.
Last quarter, we did 600 tons Q3. Q3. So which is the highest. And exit of December was about 200 tons a month, which I had discussed about two quarters ago that our target, first target of the first milestone is to do 200 tons a month, which we have achieved. Now, going forward, we only have to increase these volumes. All the products are commercialized.
Quality is approved. Our product is in line with our competitors. So now there is no problem there. I mean, a few quarters ago, people had this question whether our product would be approved or would be similar to BASF or a competitor. Now those questions are behind us, and now it is only about growing the market.
Got it. Got it. So on a full year basis, would it be fair to, just for modeling purposes, I'm asking, pencil in a number of, say, around 1,800 or 2,000 tons for fiscal 2025?
No.
So I mean, Q1 was 125 tons per month average. Q2 was 135 tons per month average. This time it's close to 200 tons per month average. Right? Quarter 4 would be probably in the similar range of 10%-15% higher.
We will try and see. I think majority sales should start coming in FY 26 because some of the products, I mean, started coming September, October sorts. So network established January, product submission, sample. So I think a large chunk of business we will see in FY 26.
Understood. No, thank you. That's really helpful. And just the other thing I had was on the margin situation in the subsidiary. Acetone prices have corrected. So are we seeing an improvement in the margin profile there, and should we sort of see that starting the fourth quarter, or how are you seeing things over there?
Absolutely. I think because of the main raw material which is acetone, once the price goes off, of course, we should start seeing that flowing through. And I think Q4 and onwards, we will see that reflection happening.
Okay. Great. Thank you so much and wish you all the best with that.
Thank you, boss. Thank you, Abhijit.
Thank you very much. The next question is from the line of Jason Soans from IDBI Capital. Please go ahead.
Yeah. So thanks for taking my question. My question is related to the previous participant also. So she did mention that on a quarterly basis, one Q was around 125 tons, then 135 tons, then 200 tons. So it does lead to a figure of around 1,700, 1,800 tons. Is that a fair volume assessment for HALS for FY 25, I'm saying?
That is true. I mean, now the numbers add with a quarter 4 of about 600 tons again, more or less 600, 650. So I believe the number will be higher, no?
Right. Yes, sir. Yes. And you did also mention that average realization for this year is probably around $4.5. And of course, with the advanced HALS, you are looking to target $5.5-$6 for HALS, right?
This quarter was 4.5. This quarter, quarter 3 was 4.5.
Okay. And of course.
It could be similar, but further on, as we dive into FY 26 with all these new products, we expect that next year, say a volume of whatever, a few thousands, 3,000-4,000 tons with prices of $5-$6.
Sure. And sir, in this, definitely the depreciating rupee or the strengthening USD helps you because HALS generally is targeted towards the export markets. So that would be a fair understanding, right?
Well, even the raw materials are imported, right? So.
Oh, okay. So that kind of gets netted somewhere. That's what you're trying to say. Got it. And sir, in the initial part of the call, you did mention that you have dropped PBQ, and you are diverting the application, yes, to manufacturing barbituric acid. So sir, just wanted to clarify this barbituric acid, where do you slot it into the performance chemicals? Or I believe probably a pharmaceutical intermediate. And what is the end-use application for this, if I may know?
That is used to produce Pigment Yellow. This will be actually our first product which will go into a pigment industry. So we will categorize this into FMCG segment.
Okay. You are categorizing into FMCG. Sure.
About 100 odd tons. Sudarshan Chemicals, Pidilite, I think, and Sajjan, I think there are two, three large pigment producers who are importing this product from China. So I think it at first will be a very domestic market for us.
Okay. You're looking at targeting to manufacture around 100 tons per month, you said?
I don't think I said 100 tons. I just said that we are mapping the capacities, and by end of next, I mean, on the next con call, I will give you exact tonnages what we think we'll be able to achieve in the plant which was earlier built for para-benzoquinone.
Sure. And sir, just wanted to understand one thing. I mean, of course, you have mentioned the timeline for the INR 150 crore Capex, both the blocks of the INR 150 crore Capex. Now, just wanted to know for the performance chemical bit, what could be the revenue potential? I mean, would it be a normal as in the general 2x kind of thing? And also, would want to know the end-use for this performance chemical, some color on that as in terms of where the end-use application for this performance chemical would be.
INR 300 crore is the revenue expected on full run. This is performance chemical, so they find application in antioxidants, stabilizers, and similar such businesses.
Sure. Sure. And the timeline for the peak revenue hit probably around a couple of years, or you would say two years, couple of years for the peak revenue hit? Yeah. Okay. Okay.
Actually, a couple of years.
Okay. Couple of years. Okay. Fine. Sure, sir. Thanks a lot for that.
Thank you, sir. Thank you.
Thank you, sir. Thank you.
Thank you very much. The next question is from the line of Rohit Nagraj from B&K Securities. Please go ahead.
Thanks for the opportunity and congrats on a good set of numbers. First question is, given that now we are expanding and appointing distributors domestically as well as outside, will it lead to the inventories and debtors being higher than the current levels? Thank you.
It won't have a very big impact because the revenues are also scaling up. So we are not stocking very high inventory. And apart from these pharma intermediates and performance chemical segments which are coming up, they have sizable domestic market. So the inventory or the receivable won't pile up. We would remain in that narrow range of 24%-25% of sales as a working capital.
Fair enough. That's helpful. Second question, again, on the health front. So currently, I think you said that about 10% revenues came from health during this nine months, if I'm not wrong.
During the quarter.
During the quarter. Okay. Sorry. My bad. So how much of that has come from domestic and how much from exports? And in FY26, how are we looking at the overall revenues from domestic and exports in terms of just percentage, broader percentage? Thank you.
I think so for this quarter, as we mentioned earlier, also the large contribution continues to come from our starting or the basic health, which is 770. Hence, the domestic contribution continues to be dominant. Apart from that, revenues contributions came in from USA and then some small portion from rest of world. For FY26, it will be a little early to comment on the geography mix given the product mix. I mean, it depends on how much of 622, 944 we sell. That guidance we'll be able to give probably by next quarter, right?
Fair enough. Just one clarification. In terms of pricing, is there differential pricing for the domestic market and the exports market in terms of premium or discount?
I mean, because people have to import the product in India, those are 7.5% duty. When we export to Europe, the European because there are European entities, our product has 6.5% import duty. So we have to keep matching these prices and then selling to these markets.
Fair enough. That's it from my side. Thanks and all the best.
Thank you.
Thank you. The next question is from the line of Jash Gandhi from Dalal & Broacha. Please go ahead.
Hello. Yeah. Can I hear my audio? Hello.
Yes, Jash.
Yeah. Hi, sir. Thank you for the opportunity and congratulations for a good set of results. Sir, my question is on health. So you mentioned that next year you are looking to gather more share from 944 and 119, and that should improve the realization. And you also mentioned that that should improve the margins as well. So what level should we assume? Because earlier we used to say 25%. So any guidance on that?
I think just wait for a quarter. We'll give you more clear guidance in the next quarter call.
Perfect.
The best important takeaway from this quarter is all the products are now commercialized. All quality issues, teething issues are over. Network growth is happening. So now things should only revolve around selling of these products. So give us a quarter to get all these numbers and get back to you.
Okay. And, sir, what should be the margins currently on health?
Gross margin is at least 30%. 25% gross margin.
25% gross margin. Okay. And sir, on the new products, on the water treatment and the performance chemicals for the INR 300 crore Capex, what should be the margin that we should work with?
Sir, these are still quite I mean, these are decently good margins compared to our health segment. So you should expect over 25% for sure.
Over 25%. Okay. Thank you, sir. So thank you so much. Thank you.
Thank you. The next question is from the line of Srishti from Monarch AIF. Please go ahead.
Thank you for the opportunity. I wanted to understand what's China's market share in terms of capacity in health and who is driving this pricing pressure here? China or Chinese sales or BASF?
BASF.
China's market share in terms of capacities or maybe market size of HALS?
Maybe 30%.
30%. Understood. And sir, we were talking about what kind of savings can we expect in our power costs now that we are talking about solar coming in? And has that materialized? Has that fully materialized in this quarter?
No, no. We just installed 400 kilowatts of solar capacity. Kilowatt. Not megawatt, right?
Oh, okay. Okay.
Our utility cost is largely coal, which is essentially fuel, right? I mean, power cost is hardly 15% of utility cost.
Understood. And sir, there was this some noise about funding for the ARV drugs, but that faded. So what do our customer conversations you must have had? What did our customer conversations tell us during that period where there was probability of the funding going away?
Actually, our customers I have no such idea because they have to produce Lamivudine. They have to buy DHDT, and that has been happening for years. I mean, you see imports of DHDT coming from China, and we are just trying to replace from China to our main. That's all I have on this.
Okay. Perfect, sir. Thank you.
Thank you very much. The next question is from the line of Krishan Parwani from JM Financial. Please go ahead.
Yeah. Hi, sir. Congrats on good set of numbers. Just three small questions from my side. Yes. So first one, just wanted to understand of the overall health volume that you have done till now. So just a ballpark number, how much would be like 770? Not the exact one, but just a range like 40%-50% or more.
In all the last questions we have given on health, if you put all these together, you will get all your answers because we are not going on category-wise. We are talking about health in particular in general.
Yeah. Got it. Got it. Fair enough. I don't want you to reveal the confidential details. That's fine. So just secondly, do you expect large revenue contribution from BHT and barbituric acid in FY26?
BHT, see, barbituric acid, of course, I told you we are mapping the capacities. So even if we are able to, they say 400-500. We will have to really map it. Again, these are very approximate numbers. This is about a $4.5/kilo product. So even if we do 400-500 tons, you can do the math. BHT, we estimate we will do about say about 300-400 tons of BHT in this year, in the next year 300. So again, that is about INR 300 product. So then you do the math. So this is what we are estimating for BHT and barbituric acid. So both put together could be around 50-60 or 80 crore. 50-60 crore sort of.
Okay. Got it. Got it. And just a last bit. Given you have achieved 200 tons monthly run rate in subsidiary HALS, I think you manufacture more in the parent company, but just wanted to understand how far do you think the subsidiary break-even is? As in, would it be at the 300 tons monthly run rate?
Sorry. Break-even. No. So I mean, at INR 11 crores-INR 12 crores of monthly revenue, subsidiary would break-even. So whatever we did quarterly, that should come into monthly. We should see a break-even in the subsidiary.
Okay. Fair enough. This is very helpful. Thank you for patiently answering my question. Wish you all the best.
Thank you.
Thank you. The next question is from the line of Arun Prasath from Avendus Spark. Please go ahead.
Thanks once again for the follow-up opportunity. So my question is on the sales to Europe. It seems to be picking up a lot, and especially this quarter. Is this something which is one-off, or this is structural, and we'll be more and more selling more and more towards will be Europe-oriented rather than Chinese? Is that the way it will play out?
Sir, we are trying to increase the market share. So I mean, it is not nothing is one-off now. Now the market should grow. We should start selling a quarter come, a quarter zada. But things should now only start picking up. We have done all the REACH registration except one product. So as and when REACH registrations are also in place, we should start selling in the market. When we sell more, then it is not one-off, i t is what we are trying to achieve, right?
So fair to say that Europe will become the largest for us in a couple of years?
I mean, there is U.S., there is Europe, there is also Latin America. I'm not saying that Europe will be the largest. I mean, Europe will be important for us. So three geographies apart from India is Latin, U.S., and Europe, including Turkey. So these are important markets for us. So we have to be I mean, we have to target these customers very well.
Okay. Okay. Understood. Thanks for that. All the best.
Thank you.
Thank you very much. Ladies and gentlemen, due to time constraint, that was the last question for today's call. I now hand the conference over to Mr. Siddharth Sikchi for closing comments.
Thank you so much, all of you, for spending time to understand our company in this late evening. Have a great week ahead, and thank you, and we'll catch up again on the next quarterly call. Bye-bye.
On behalf of Clean Science and Technology Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.