Ladies and gentlemen, good day, and welcome to the Laxmi Organic Industries Limited Q2 FY 2023 Conference Call, hosted by GoIndia Advisors. As a reminder, all parties on the line will be in the listen-only mode, and there'll 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 and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Monali Jain from GoIndia Advisors. Thank you, and over to you.
Thank you, Mike. Good afternoon, everyone, and welcome to the Q2 and Actual FY 2023 Earnings Call of Laxmi Organic Industries Limited. We have on the call Mr. Ravi Goenka, Chairman and Managing Director, Mr. Rajan Venkatesh, Chief Executive Officer, Mr. Harshvardhan Goenka, Executive Director of Business Development, and Ms. Tanushree Bagrodia, Chief Financial Officer. We must remind you that a discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risk that company faces. May I now request Mr. Ravi Goenka to take us through the business financials and the business outlook, subsequent to which we will open the floor for Q&A. Thank you, and over to you, sir.
Thanks, Monali, and very good afternoon, everybody, ladies and gentlemen, and welcome to this earnings call for the first half of the fiscal year. At the end of September, our company entered into an MoU with Welspun Corporation to purchase a 90-acre land parcel, along with constructed civil structures in the NH for a consideration of INR 130 crore. We hope to complete this entire transaction, hopefully in this quarter itself, and this acquisition will enable future expansion of our business while simultaneously de-risking our operational footprint. Both of these steps are key to our five-year vision of growth and consolidation of the specialty chemicals business. Towards the end of the first half of FY 2023, we received a court order approving the merger of our subsidiary, Yellowstone Chemicals Private Limited, into Laxmi Organic Industries.
As per the order, the merger is effective October 20, 2021. This has resulted in recasting the past results to reflect the merger, thus enabling a fair comparison. The last quarter of this financial year, the company undertook a 21-day plant shutdown for maintenance at both our units at Mahad. Since the floods had impacted us last year, we were unable to take the annual maintenance work, given the paramount importance. Given the paramount importance to health and safety, we decided to take the same in the last quarter.
Inventory to the extent possible for this was stopped. I'm very pleased to report that not only was the maintenance work completed successfully, but we were also able to integrate two new manufacturing facilities that we have capitalized in the first half of this fiscal. Today, both the units are running smoothly. Let me give you a brief overview on the business before we discuss the results. Starting with our acetyl business. In Q2 of financial year 2023, this segment saw both demand and price pressures.
While the price impact was very well anticipated and factored, the global recessionary environment, coupled with the euro currency movement, impacted our customers, leading to a far lower demand than we had thought of. In the last quarter of this financial year, the transportation and the energy costs, including coal, significantly increased year-on-year, impacting both our business segments. As we have entered the second month of Q3 2023, we see some green shoots in this segment and some relief coming in from European prices, reduction in freight, and the stability in the currency rates.
During the quarter and the first half, the AI segment contributed approximately 65% to the top line. The contribution of this segment to the margins reduced considerably in Q2, while for the half year FY 2023 it was about 35%. We continue to maintain our strategy of maintaining our market position in this segment and only investing to the extent of debottlenecking. Coming to the SI or the specialty intermediate segment. While the AI business has faced significant headwinds, our SI business robustness can be seen. We entered this business in 2010, and over the last two years we have scaled it up through capacity addition and by introducing new products through focused R&D. Our technology can cater to a complete range of derivatives with application across multiple sectors.
Today our basket of 40-45 products is much deeper than the 6-8 products that came with the acquisition. The last quarter and the half year, this segment contributed to 35% of the revenue, albeit its contribution to the margin for the first half was 65%. The maintenance shutdown altered the product mix, leading to a lower contribution margin this quarter versus the previous quarter. Phase one of our second large SI plant was capitalized in Q2, and we are keenly looking forward to the production commencing in Q3 2024. Along with plant commission in Q1, the two plants should start showing their performance in full force by Q4 of this fiscal. Our strategy in this segment has been to provide for import substitution domestically, and that has given us the market leadership in India.
Globally, we have been able to make significant inroads with varied customers, gain market share, and with these strong and sticky customer relationships, we are now honored to be long-term suppliers to some of the world's leading brands across industries. These customer associations are also helping lay the foundation for our upcoming FI segment, as global sourcing strategies for large companies are changing. We remain focused on investing to strengthen this trajectory of the SI business journey. I will now give an update on the FI segment. As you are aware, we entered the fluoro segment through the acquisition of Miteni's assets in Italy. These assets are being relocated to their new home in Lote Parshuram in Maharashtra. The works on the site are in full swing and in line with our discussions.
We are confident of commissioning the plant in this fiscal, and to that extent are ensuring that the customer and supply contracts are secured in the cases where discussions were ongoing and not closed. This acquisition catapults Laxmi into a highly specialized area and gives us access to technology, equipment, and a library of more than 100 products, including products in R&D, 14 patents, REACH registrations, and many formulations. Miteni generated revenues of over EUR 25 million with contributions in the early 30s%. Our strategy in this segment is to work with our existing customers and fulfill their requirements of FI products, thereby ensuring that we establish ourselves as a reliable supplier of AI, SI, and FI products.
It will also enable us to start working with customers on fulfilling their requirement, which requires technological expertise of both these segments or platforms. Simultaneously, we aim to reestablish market share with the earlier customers of Miteni as much as possible. Let me briefly discuss the financial performance for the last period. In Q2, the consolidated income for the company was INR 655 crores, which was down 14% quarter-on-quarter, largely driven by the lower volumes. In the same period, the inventory of the company decreased by INR 48 crores, which while having an adverse impact on the P&L, has had a positive impact on the cash flow. The cost control efforts have led to a reduction in the other expenses. The profits for this quarter stood at about INR 9 crores.
For the first half of the fiscal, the revenue grew by 4%, which is largely because this fiscal, the factories operated for a longer period than last year, which witnessed the floods for more than 65-70 days in July 2021. In the first half, cash generated from operations stood at approximately INR 75 crores, which is a four and a half times increase from the INR 16 crores figured in the same period last fiscal. This is also an improvement over the full year number of FY 2022, which was INR 102 crores. This instills confidence that we are on the right track, maintaining strict vigil on inventory and receivables while continuing to buy locally. We believe our company is on the right track and is in the right strategy.
Before I open the floor for questions, I would like to discuss the chemical sector outlook. I believe the Indian chemical sector is poised for a CapEx super cycle and is already benefiting from the global turmoil caused by the energy crisis in Europe. EU, for the first time ever, has turned a net importer for chemicals and is struggling to compete in the global markets where chemical businesses are more favorable.
All this gives India an opportunity and a company like ours to scale up and increase our footprint to become a respectable and a sustainable specialty chemical company in the coming years. It is to this end that we acquired a large land parcel at Dahej to set up our new CapExes for new businesses. Thank you very much. With this, I would like to open the floor for questions. Thank you.
Thank you. We will now begin the question & answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. We have the first question on the line of Gautam Gosar from Permittivity Ventures. Please go ahead.
Hi. Thank you for the opportunity. I have two questions. Firstly, on the Acetic Acid prices. There has been a declining trend in the Acetic Acid prices. Is there any lag in the pass-through? Secondly, can you highlight about the new products in pipeline in AI? And have you seen any new customer addition during the quarter? Also if you could speak on the competitive landscape for us, and do we have any plans to launch and initiate new chemistries within AI to compete with the peers? Thank you. These are my two questions.
Sure. Hi, Gautam. Happy to take that. Harsh here. Regarding acetic acid, yes, it has been showing a declining trend. You will see that acetic acid and ethyl acetate over time move in tandem. We have shared some details on our investor deck as well that will show you the trend lines. The way we purchase acetic acid is over about a 45- to 60-day period of inventory. Indeed there is a lag in the pass-through, and this reverses when the trend line reverses as well. Regarding new customers for and new products in the AI segment, our strategy as Laxmi is to actually debottleneck and maintain market share in our acetyl intermediate space. Most of our 90% of our CapEx are going towards our SI and FI segment.
That is something that we are focusing and targeting on. We have a fairly robust pipeline of products in SI and FI, and we'll deploy these CapExes with time, which is why we've bought and invested in a large piece of land as we're seeing big demands for these new products and some of the existing products as well.
Got it. On the peers, like, what do you see on the competition side?
I'm not sure what you're alluding to. Could you be more specific?
Like the peers which you have seen in this period.
Yeah. There are peers in this space in the segments that we operate. We have leadership position in the segment that we operate, but of course there are peers who we play along with.
No, I was majorly coming from the fluoro space, so from that side. Yeah. Anyways, thank you. Thank you for your response.
Thank you. Thank you, Gautam.
Thank you. Participants who wish to ask a question may press star and one on your touchtone telephone. We have the next question from the line of Ankur Periwal from Axis Capital. Please go ahead.
Yeah. Hi. Good evening, and thanks for taking my question. First bit on the SI side. So while on a year-on-year basis the numbers have been, you know, pretty good because of the low base as well, there is a dip on a quarter-on-quarter basis. Is there any seasonality which impacts here or how should one look at it?
No real seasonality, Ankur. SI, while some segments were impacted more than others, because of our large basket, we've been able to switch the product mix a bit. That's what resulted in a slight difference in the overall contribution margin of the SI. Nothing significant with regards to that. Primary impact on SI is because of volumes, which is fairly planned because of the annual shutdown.
Okay, fair enough. You know, when you said some segments were seeing probably some demand issue, is this more, you know, in the international market versus domestic because of some demand disruption, et cetera?
Ankur, I think we chatted about this earlier. We are seeing markets of international and domestic merging, and it's more got to do with which industry you're serving. Primarily because either our customers are also exporting or there are chains going, everyone's interrelated in some way. The pigment industry in particular and the pharma industry in particular started to experience some slowdown, but we were able to manage by going slightly more aggressive on the other segments.
Sure. Fair enough. You know, your thoughts in terms of medium term, you know, we did mention that, you know, AI is seeing some bit of, you know, green shoots, starting Q3. In SI also is there similar outlook here? Because, you know, there will be an incremental contribution from the new projects as well, which will be coming in the second half. Put all together, how your growth outlook on the SI side. Not from a near-term perspective, but more from a two, three-year perspective.
I think, Ankur, our SI business, we continue to remain very bullish and strong on. Europe has thrown up more opportunities as well. We are seeing ourselves becoming more and more active in various markets and various segments, and which is why the need to grow this and a clear path to grow this business. That's what we are doing, that's what we are investing in, and we keep on churning new products and new business from this segment. You will see those investments coming up, as time goes on.
Sure. Harsh, just if you could remind what sort of product approval cycle is required, you know, the time required here, let's say if you are entering a newer geography or maybe a new customer?
I can't generalize it, Ankur, but it can be as long as a year to as short as six months. Depending on the complexity, some molecules take even longer. How close they are to be active plays an important role.
Sure. Fair enough. The new land parcel which you also highlighted, you know, in the opening remarks, any immediate plans to build capacities over there, whether it is for FI or SI, or it is more on need basis and maybe we'll take a call over the medium term?
No, we have crystallized our plans for the new land. We will be informing everyone, I think, maybe in the next quarter once we have it approved with the board. Our plans are fairly crystallized, and soon you will hear about them.
Okay, good to hear. Just lastly, on the overhead side, if I'm not wrong, this expense or this increase in the overheads is largely because of the power and fuel cost and, you know, some bit of logistics which should normalize going ahead in the coming quarters?
Yeah. Power and transportation have played the largest impact in the line item that you see. Coal costs, as you've seen and tracked across all industries as well as transportation is what has impacted us. Over time will go on. I think Q3 is still experiencing some part of that, but it is normalizing in this quarter. It's starting to normalize in this quarter.
Sure. No one-time, right? Because of the maintenance shutdown, etc. , there's no one-time cost in this one.
No. No.
Okay, great. Thanks for the clarification and all the best. Thank you.
Thank you, Ankur.
Thank you. Participants who wish to ask a question may press star and one on your touchtone telephone. We have the next question on the line of Amar Maurya from Alpha Credit Advisors. Please go ahead.
Thanks a lot for the opportunity, sir. Couple of questions from my side. Number one is, in specialty business, I believe, your export has done well, but domestic business was, either a flat or kind of a neutral growth or a zero growth kind of a thing. Any specific reason for that?
Yes, very, very much, Amar. As mentioned to you, the pigment industry, not just in India but globally, is facing some headwinds. The pigment and pharma, both of these, you'll see them in the pharma results as well for the entire industry, and we are impacted by that.
Because that is the big chunk of our business, so how do you see it going to shape up going forward?
You know, Amar, we, because of our portfolio size, we've been able to shift the product mix and still be able to service other industries and other customers.
Okay.
While some industries might face issues, I think the other industries will help us balance out this volatility in the SI business.
Sir, the contribution from the new plant, if you can give us what will be the utilization in this particular quarter of the new plant?
Think of it this way. We had about a 21-day shutdown.
Okay
over the entire period. That's the rough utilization that you can take to make your assumptions.
Let me ask a little bit differently, sir. Like, basically this piece of new plant which had come up, I think we have invested something around INR 100 crore, right? INR 150 crore overall for the phase I and phase II. Basically, wanted to understand at a peak, is it like 2x kind of a suggested turnover ratio for the overall CapEx?
Okay. I see where you're coming from. I think the new plants that we've invested in are gonna be more margin accretive than revenue accretive because they're derivatives of our existing products.
Okay.
You will see the impact more on margin than revenue. Therefore, the turns may not be as high, but the profitability will be.
Okay. In terms of the payback, like, you know, normally, is it like three years kind of a payback period then in that case?
Yeah. Most investments that we look at, especially on a brownfield basis, should be at that limit or better.
Secondly, sir, in the SI business, like as you indicated that things are on track. Just to understand a little bit more in detail, like, you know, I mean, this plant which we are importing from Miteni or imported from Miteni is basically for four years. I mean, the plant was basically closed there as well for the four years. Obviously the customer base who were buying from Miteni, they either found their alternative sources.
Now we are importing that plant, stabilizing it, and then getting those inquiries. I'm just trying to understand if you can give us some more color on this, that how we are basically building this whole pipeline and stabilization of the plant. You know, I mean, how fast we can basically, you know, start getting some business line items.
I understand. I think I get where you're coming from, Amar. You're fully right. The plant was shut for a prolonged period. COVID didn't help us, but the supply chains obviously shift. We expected that when we went in with this acquisition. We expected the supply chains to shift, and no customer will wait up for Miteni to restart. What we saw is that Miteni has about a 100-product basket that they have produced in their life.
Among the 100 products, after customer conversations, we have boiled it down to 10-12 products that we're gonna be starting off with. All of these products have been either produced at our kilo lab scale and are at various stages of qualification with the customers. We're fairly confident that while all the products may not come back, we are able to churn the product mix and able to still recover the overall business that Miteni was getting.
I think that at a peak they used to do $250 million kind of a revenue, right?
No. No, not 250, 25.
Okay, $25 million.
25-30. Yeah, that's definitely the aspiration.
Okay. In year one at least we can do the half of what they were doing?
I won't comment on that, but I think we are principally, the way we are looking at it is you have a strong base that has been built up with the small size of business, which will be more like building blocks and forming the core. Thereby, what we have managed to do with the SI business is what we will look to do with the FI business as well, as we see adequate opportunity to grow in various intermediates in the FI space.
Okay. Whatever products we are making, sir, today, we don't have any domestic competition today.
That's right.
Okay. Perfect, sir. Thanks, sir. I'll come back in case. Thank you.
Thank you. We have the next question from the line of Chetan Thacker from ASK Investment Managers. Please go ahead.
Good afternoon. Thank you so much. Am I audible?
Yes. Hi, Chetan.
Hi, Harsh. I have just two questions. One was on the AI bit. Is there any one-time inventory impact there in terms of profitability?
Yes, exactly, Chetan. It's more to do with you're carrying a higher stock, raw materials, and then you've got a falling price which impacts the quarter.
This will normalize by Q4?
That's right.
On the SI bit, just wanted to understand, is it just this maintenance shutdown and inferior mix which is impacting profitability and Q3 should again normalize, or that will also get pushed out to Q4?
No. We are seeing signs of normalization a little bit sooner than the AI business. Pharma segment, I think, is still experiencing some difficulty, but there are signs of recovery. The pigment segment might take a little bit longer, but we do expect within the next 3-4 months, both of these segments have showed sign, the first signs of recovering again.
Q4 technically should be in line with what has been more medium-term kind of trajectory in terms of.
Correct.
Profitability and them.
Correct. Yeah.
Okay, Harsh. Thank you so much for this. All the best.
Thank you, Chetan.
Thank you. Participants who wish to ask a question may press star and one on your touch-tone telephone. We have the next question on the line of Anurag Patil from Roha Asset Managers. Please go ahead.
Thank you for the opportunity. Sir, in terms of fluoro specialty CapEx, as you suggested, around EUR 25 million-EUR 30 million.
Mm-hmm.
Take revenue is possible and around INR 400 crore per CapEx as announced. If we consider comparable margins to other fluoro companies, our IRRs are coming barely single digit or the low double digits. Just wanted to understand, am I missing something here?
No, you're not missing something. It's very true that IRRs for the initial phase will be lower because we've had to invest heavily in the basic infrastructure to establish this plant. We had some additional costs associated with COVID of maintaining the plant in Europe, which was not producing or could not move. That was the issue which this asset faced. However, all other CapExes which will come up on this will attract industry parity margins and IRRs that you are usually used to.
Okay, sir. Okay. Sir, for this land and parcel, how much you have spent?
We bought about a 90-acre land, and we have spent INR 130 crore. That's the agreement that we have come into Welspun with. This comes with some basic infrastructure, as it was an existing operating plant with a different industry.
Okay, sir. That's it from my side. Thank you very much.
Thank you.
Thank you. Participants who wish to ask a question may press star and one on your touchtone telephone. We have the next question on the line of Rohit Sinha from Sunidhi Securities. Please go ahead.
Hello. Am I audible?
Yes. Hi, Rohit.
Hi, sir. Thank you for taking my question. My question is basically on the acetyl side. How are we seeing this acetic acid prices? Currently, the lower prices is predominantly because of oversupply situation or lower demand side. Going forward, I mean, what would be the dynamics where we can see some uptick in that side? Secondly, if you could update on the diketene business, how currently we are performing there post this margin. Given the, as you are mentioning, slowdown in the pharma side, how we should look this business to shape up in next two, three quarters?
The first part, Acetic Acid, I think it's a very large market globally. It's difficult for several people to predict, and we don't even try to predict it. We base our business model agnostic of where the prices of Acetic Acid move. We have to move along with that, and we buy and sell at all points. I hope that's able to give you a perspective there. On the diketene business, I think the pigment business and the pharma business continue to remain slightly soft. We are seeing green shoots of them coming out of their own troubles and increasing capacity utilizations of our customers.
We think that will be fully up by the end of this quarter, and that's when you'll see back to the realization that was earlier. Even then, the business continues to remain robust and strong because we have been able to shift the product mix and leverage on the portfolio offerings that we have for various industries.
Okay. Okay. That's it from my side.
Thank you, Rohit.
Thank you.
Thank you. We have the next question from the line of Neeraj Thakkar. Please go ahead.
Yeah, thank you for taking my question. I'm audible?
Yes. Yes, Neeraj.
Mr. Neeraj Thakkar, you're requested to kindly come closer to the microphone. Your voice is a bit low on the call.
Yeah. Can you hear me now?
It's still a bit low. Please go off the speakerphone.
Okay. Yeah. One second. I'm audible now?
Yes, you are.
Sir, I have two questions. One is regarding this, since you are doing so in an expansion mode, so how much cash we are generating, and are we expecting to take some debt in future for our future expansion?
Hi, Neeraj. Tanushree here.
Yeah.
Neeraj, the company today is completely unleveraged. If you see our balance sheet is, you know, the debt equity is about 0.18.
Mm-hmm.
We did take about INR 25 crore of long-term debt at the end of Q1. That 0.18 debt to equity comes in after having taken that INR 25 crore of long-term debt. There is enough room for us to take debt. Having said that, you know, you will also see that our cash flow from operations in this half has improved. It's at about close to INR 75 crore, about 4.5 times of what it was in the previous year, same period, right?
The company continues to generate cash, and the CapEx is not going to be a one-time expense. We will keep investing using internal accruals as we get, and we will take some debt, but we will be prudent in our borrowings. At this point in time, we don't envisage our debt equity of going above 0.5x.
Okay. Thank you. Thank you so much. That's it from my side.
Thank you. Participants who wish to ask a question may press star and one on their touch-tone telephone. We have the next question from the line of Anand Sharma from AB Capital. Please go ahead.
Yeah. Thanks for the opportunity. Just wanted to understand about the new product pipeline in FI.
Mm-hmm.
Given that we already have around 50% of market share there. I just wanted to understand what is the next step, what is the next direction that we are going in terms of expanding it? Just wanted to understand any major scope of further gaining market share over there.
I think, Anand, you've got adequate opportunity in domestic and international markets in some of the areas you're already serving. That remains the strategy. There are various areas that we're not yet part of, and there is space to grow, and there are new areas upcoming too. The SI segment, as we continue to see it, has a basket of more than 10-12 chemistries. The addressable market is fairly large, and that gives us adequate opportunity to have new products in this basket continuously.
Okay. Thanks for this. Secondly, I wanted to understand about that CapEx that you are doing in FI. What is the expected outcome that you are, you know, planning over there in terms of what are the sales and margins expected over there in the near to medium term?
You're talking about the CapEx in SI, right, if I heard you?
FI, not SI. FI, yeah. Not SI, sorry.
FI. No, FI business, you know, we stated it in our opening remarks as well. Miteni would do about EUR 25 million business in Europe, and they had fairly healthy contribution margins. You could call these contribution margins similar to what you would see with many other peer set companies in the fluoro space. We will start with a basket of products that I would call them building blocks in a way. They're not basic building blocks, but little bit more advanced than that, but yet not where we want to take the business to eventually. Those will be at a slightly lower margin, but then eventually catch up with new CapExes that we will be doing in the business.
Okay. Thanks for this. I'll get back in touch with you for any further questions. Thanks. All the best. Yeah.
Thanks, Anand Sharma.
Thank you. Participants who wish to ask a question may press star and one on their touch tone telephone. We have the next question on the line of Amar Maurya from Alphaac Credit Advisors. Please go ahead.
Yeah. Thanks a lot for the opportunity again. Harsh, in terms of the SI business, I mean, we were the only player in the country, I mean, for the last, let's say, you know, before one year back. Like, sir, do you feel that we were less aggressive, that is why we have given an entry to one more competitor into that?
Well, there are two ways to look at it. I think our strategy on SI was to, as we stated when we went public, Amar, get into certain large contract molecules, go international and consolidate on local.
Got it.
We've done all three of that. Industry attractiveness, I think, speaks for itself when you are attracting new entrants. We are new entrants in the FI business, as we are seeing that as an attractive investment opportunity as well. Yes, it can be viewed that we could have been more aggressive, but I think our strategy has been to do a little bit more lateral work when you go into an alternate segment and also focus on certain things only in the SI segment.
Okay. Secondly, sir, like, you know, the new land which we have acquired, obviously we're going to disclose the detailed plan probably in the coming quarters. But is that idea is to do the extension of the current line of business, or this could be a very different set of business from what you are doing currently?
I think, you know, Amar, our strategy is laid out where we will invest in businesses which are SI and FI like. 90% of our CapExes will go in that. Now, which molecule or which product, I'm not able to give a clarity on that. Those are the kinds of businesses which we'll be putting up at our new Dahej site.
Okay. Perfect, sir. Thank you.
Thank you. Participants who wish to ask a question may press star and one on your touch tone telephone. We have the next question on the line of Jenish Dilipgara from Individual Investor. Please go ahead.
Hello. Thank you for the opportunity. The current quarter margins are around 4%-4.5%. Management highlighted that the new plant will be more margin accretive. What is the management guidance for margin in near future? During last year, we had a flood in our plant. Have you received insurance claim for the same? Since in last quarter also it highlighted that the same is pending. Will it have P&L effect or balance sheet effect?
Sure. Jenish, we don't give any guidance, as of now. I think we have alluded, if you can see in the call to several things, and I'm sure you can figure out where we are trying to head out. Regarding insurance, we have not yet received the claim. We are working actively with the insurance company to get this and unlock the cash that has been blocked for some of the insurance repairs that we have conducted. That is there in our accounts as well.
Okay. The new land parcel that we are purchasing, so it will be financed through equity or debt? Means how much, how will it be financed ratio? What will be the ratio?
Jenish, I'm, as I said, you know, the company has been producing cash. Our cash flow from operations is improving. For the purchase of the land parcel, we will be utilizing internal accruals.
Okay. Yeah. Thank you.
Thank you. Participants who wish to ask a question may press star and one on your touch tone telephone. We have the next question on the line of Meet Vora from Axis Capital. Please go ahead.
Yeah. Hi. Thanks for the opportunity. Just wanted to reconcile on the revenue contribution from AI and SI for H1. Is it 65%-35% or is it 70%-30%?
The revenue contribution for the first half is 65%-35%. For the quarter it is 70%-30%.
For the quarter, it is 70-30. In our presentation on slide 8, we have written 70-30 for H1.
That's a typo. Thanks for pointing that out, Meet Vora. We will correct that.
Sure. Regarding the EBITDA contribution. We have written 30% of the margin has come from SI segment. Is it absolute, as in 30% of EBITDA has come from SI?
No. I think what this slide is actually trying to say, Meet Vora, is while we were talking about the EBITDA CAGR, right? What we are trying to show is that as the SI revenue contribution has been going up from 23%-40%, your EBITDA CAGR has gone from 4% - 31%. Now, obviously, for one half, I don't have a CAGR. Here, I think what we are trying to say is, and we'll reword it. Thanks for pointing this out. What we are saying here is that this time the actual margin contribution from SI has been higher than it has been on the AI side, and it's on the contribution margin versus the EBITDA margin.
Okay, sure. What is the EBITDA breakup for Q2 or H1 between AI and SI?
Neel, why don't we connect on a call and I'll help you reconcile all the numbers.
Sure. No, it's okay. Thanks. That's all from my side.
Thank you. Participants who wish to ask a question may press star and one on your touchtone telephone. We have the next question on the line of Chintan Patel from SATCO Capital Markets. Please go ahead.
Sir, can you quantify the spread for the Ethyl Acetate? How much it is down or up, sequentially and year-over-year?
We are not sharing that data exactly on every quarter. To give you an idea, the AI business operates in high single digits to low double-digit EBITDA spread over a prolonged period of time. Of course, you've got some quarters that are higher and some quarters that are lower.
This is the operator. Mr. Chintan, we can't hear you very well. If you could go off the speaker phone and on the handset, would be better. I'm sorry, Chintan, we still can't hear you. Are you on your handset mode?
Yes, sir. Hello. Am I audible?
Yes. Now we can hear you.
In the first half, how was the spread? Is it higher as compared to the last year or it is lower?
No, it's been lower and that's reflected in the results, Chintan.
Mm-hmm. Okay. Sir, can you quantify the payback period for the Miteni acquisition?
You know the Miteni acquisition, while the initial phase will have a longer payback, because as I had already mentioned earlier, we're looking at this as a platform play. As we get into more and more derivatives which will have the standardized IRRs that we expect from all businesses, you will see that catch up in its payback.
Okay, sir. Thanks. That's all from me.
Thank you. Participants who wish to ask a question, may press star and one on your touch-tone telephone. We have the next question from the line of Mahesh Shah, an individual investor. Please go ahead.
Hello? Hello?
Yes, Mahesh, we can hear you, but there's a lot of disturbance in the background. Would you wish to try and call?
Sir, I am coming. Sir, are you? I am audible?
There's a lot of disturbance, Mahesh. Could you please come on the handset mode?
Yes, sir. Yes, sir. Now, sir? Hello?
Yes, Mahesh, it's still pretty low.
Yeah. Sir, I have only one question. Hello?
Yes.
Yes.
We can hear you.
Sir, I have only one question. I have examined last three or four year of annual report and balance sheet. I have found that there is some heavy flood issue at Mahad plant. Because of heavy rain or flooding, all the time there is some problem waiting for 20-21 days, sometimes 45 days, to stop the work due to flood.
Yes, Mahesh. That is true. Was there a question around that?
Sir, I have only one thing, that if every year or after one year, two years, when flood is issue, then it is a risk for the business, and it costs the revenue and affect the profits of the company. I just want any solution of all that, as shift of plant or any other that we can avoid that issue of flood and heavy rain.
No, I think it's a very valid point, Mahesh. I think, again, we can't control rain, so there are three controllable that we have. The first is that we moved stocks to a warehouse outside of the Mahad region. So we are stocking our products there, so to at least ensure short-term continuity to our customers. The second point, we have spent significant money to flood-proof our site to the extent possible.
This does not mean that we will be able to operate in a flood, but this means that we can restart a lot faster if a flood were to affect us and in a safe manner. The third is get a third site outside of the region, which we have also done in this current quarter. We have announced that we will be having another site at the location at Dahej.
Okay. Thank you, sir.
Thank you, Mahesh.
Thank you. Participants who wish to ask a question may press star and one on your touch tone telephone. We have the next question on the line of Amar Maurya from Alphaac Credit Advisors. Go ahead.
Hello? Hello, Jasmina?
Yes. Hi, hi Amar.
Hi, sir. Just slide number 18, the contribution to profit, basically contribution to top line and contribution to profit. Is this a contribution or is this a growth?
The split. When we are talking about 70-30 on slide 18 for top line, this is what we are saying. INR 100 was my top line, INR 70 comes from AI and INR 30 comes from the SI business.
Correct. Correct. What about the contribution to profit?
Same thing.
Same thing, right?
Same thing.
INR 100, let's say INR 100 EBITDA, INR 67 from the SI and INR 33 from the AI, correct?
From AI, yes.
Okay, perfect, ma'am. Thank you. This is for the first half. This is for the first half, right?
70-30 is for the quarter. Half is 65-35.
65, 35. Where is that number?
That number is not there. That number was in MD's opening remarks, and that's what I'm reconciling for you.
Okay.
The numbers on slide 18 are for Q2 FY23.
Okay.
Not for first half FY23.
Okay. This is for Q2 itself. That's it.
Yes, sir. Yes.
Okay. Thank you, ma'am. Thanks.
Thank you. That was the last question. I would now like to hand it over to the management for closing comments.
Thank you very much, and thanks everyone for your patience and for being on this call. It'll be a pleasure to answer to any of your queries offline. Feel free to touch base with us by mail or phone, and happy to clarify all your questions. We are looking forward to a sustainable long-term, respected company in Specialty Chemicals. Thank you for everything. Goodbye.
Thank you. On behalf of GoIndia Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.