Ladies and gentlemen, good day, and welcome to Laxmi Organic Industries.
This call is now being recorded.
Q1 FY 2024 Conference Call, hosted by GoIndia Advisors. As a reminder, all participant lines will be in the 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 a touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Kruti Patel from GoIndia Advisors. Thank you, and over to you, Kruti.
Thank you, Zippo. Good evening, everyone, and welcome to the Q1 FY 2024 Earnings Call of Laxmi Organic Industries Limited. We have on the call Mr. Ravi Goenka, Chairman, Dr. Rajan Venkatesh, MD and CEO, Mr. Harshvardhan Goenka, Executive Director, and Ms. Tanushree Bagrodia, Chief Financial Officer. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risks that the company faces. May I now request Mr. Ravi Goenka to start the call, subsequent to which we will open the floor for Q&A. Thank you, and over to you, sir.
Thanks very much, Kruti, a very warm welcome to all of you, our dear investors, esteemed colleagues, and partners. I sincerely appreciate your time, interest, and unwavering trust in our journey. We recently welcomed Dr. Rajan Venkatesh as our new Managing Director and CEO. Dr. Rajan comes with nearly 2 decades of global experience, having led BASF across functions with the last few years leading a billion-dollar business. I am excited, truly excited, to see him take our company towards the next phase of our growth. It's no secret today that globally we find ourselves in challenging times. Post-COVID, the world has moved from a just-in-case to a just-in-time buying pattern. Restocking of supply chains are impacting the chemical industry tremendously. To top that, the recession in Europe isn't helping.
India remains extremely well-positioned, and I am certain that it will grow exponentially this decade. It seems to be the only silver lining in an otherwise cloudy atmosphere globally. While our company is fully prepared to face the current headwinds, we have many growth enablers that will propel us forward, and I am excited to see our company pivot to our new trajectory under the able leadership of Rajan. Over to you, Rajan.
Thank you, Ravi, and Namaskaram from my side. This has been a greeting I've been wanting to use for many years. I'm glad I'm back home and using that. Today, what I would like to take you through is, I would say, two distinct pillars. One is, after four months in Laxmi, my reflections of what has made Laxmi successful, and second is we have also laid out our ambition on our way forward. Those would be the two key buckets. Let me start by my reflection of what I believe has made Laxmi successful in the past. First, when I engage with the team, when I engage with our customers, when I engage with our board members, and when I engage with our stakeholders, the one thing that stands out is Laxmi as a team is exceedingly agile.
There is a strong willingness to learn, and there is a strong eagerness to win. The other element is our customer base, and our customer base is exceedingly diversified, and a lot of our actions are customer-led. A lot of the investments have been customer-focused. Here I am also wanting to, in the next step, take you through the presentation that we uploaded, and so that was my first who we are reflection. What we have also done with the team is really look across our performance, and for those who are following, this is slide number four, over a business cycle. We have used the acetic acid price as a reference over from financial 2008 to the current point in time. Few key reflections here.
Laxmi has always been prudent in the CapEx and investments and acquisitions because we have landed doing that always in the down cycle. Be it the acquisitions of the Clariant business, be it the diketene capacity expansions, which we did, be it the YCPL acquisitions to augment our ETAC capacity or even the acquisition of Miteni from Italy, which today forms the bulk of our fluorine intermediates. Even our IPO, which happened, actually happened in the down cycle, so that's a very, very important reflection. Second one is if you really pre-see through the cycle. We have split it into three, between financial year 2011-2016, 2016-2021, and 2021-2023 are very distinct business cycles.
Links to the acetic acid price, we have also indicated some macro events like the financial crisis, oil crash, COVID impact, economic slowdown, what Ravi alluded to currently. In all of this, what stands out for me is our return on capital employed. It's on an average, is about 20%. In the financial year 2016-2021, it's about 22%, that was our highest. In the financial year 2021-2023 is about 18%, my one disclaimer there is the fact that this includes our CapEx for the future. It includes the CapEx we have done for Lote, it includes the Dahej land acquisition that we made. Including that, if you take that into perspective, that's about a 200 basis points.
You would be looking at, roughly about 20% if you were to take that out, but we thought in sake of transparency, we make it very, very transparent. The other one is we have consistently deleveraged our balance sheet. Looking from an average debt to equity of 1.06, where we stand today is 0.12. I think all of these are a testimony to the performance of Laxmi, and will also set the basis of how we will steer moving ahead. Moving on to slide five, is why I believe we are geared to win. On the left-hand side, we have attributed our, I would say, key DNA topics.
Our global leadership in a range of products, the cost leadership across technologies that we are engaging in, the large scale, flexible, and safe operations that we have managed, the multiple sites for expansion and business continuity. I will reflect on this in the course of the presentation, focusing on Lote and Dahej. Our well-diversified customer industry, which I alluded to, solid balance sheet, low leverage, and strong cash flow from existing businesses, which have been referred to in the previous calls. An experienced leadership team and an independent, eminent board, and trusted partners to our customers. Those, I would say, I hope, are music to everybody's ears, and certainly to my ears as I come into Laxmi. Our ambition is four-fold. One, is to continue to be in the top five in the segments globally. Let me give some color to it.
In the diketene, ketene, diketene space, we are today top five. With our investment roadmap, we will be top three. In our Acetals business, specifically, if you talk about the Ethyl Acetate, we are outside of the top five today as we speak. We are very, very strong outside. If you carve out China, we are again, very, very strong. As a supplier to the market, our aspiration is to be global top five. The other second topic is continue to have leading cost positions. That is our right to win for any business, and that has been our right to win in the past, will continue to be the right to win in the future. The third element is to balance our export and domestic sales and find the healthy balance there.
In the past, we have had exports in the range of 30%-40%. With the global, global supply chains all looking into India, I think we have a great opportunity to leverage also on the export story. Last but not the least, is the continued trusted partner of choice for our customers. In part of our ambition, what we are also leveraging is what we've always offered, is the shifting of the supply chain. I am coming with this experience, as Ravi said, of leading a business across Asia Pacific, including China. I, I had the opportunity to lead global businesses. Post-COVID, certainly the narrative and the actions that we see from stakeholders and customers is very, very strong. They, they are looking at business continuity as a top priority and wanting to set up a more diversified global footprint.
Here, India, I remain convinced, has a unique position to play, and Laxmi therein, also has a unique position to play. We also see a growing end product markets for the industries that we serve, both in India and outside. That's our ambition, fourfold, and leveraging on both the macro and the micro trends. What we have also approached is really looking at our business, while, you know, we have really strengthened our portfolio when you think about it, from chemistries, looking at our production capabilities, then going into platforms and then customers. That we have done because as Laxmi, we have always bought in technology, be it the diketene, ketene, which I alluded to, or the Miteni fluorine chemistry, that has been our strength.
Over the path, that has been our proven success, and that has broadened our platform to leverage both on assets and capabilities. What we did is we basically also took an outside-in approach. When we spoke to our customers, what we realized is in the AI acetal space, what customers are seeking for most is price, competitive pricing, and what they are seeking for is that the product is delivered in spec, in time, and with good quality. While in our Specialty Intermediates and also fluorine intermediates business, the need and ask from our customers are more on the innovation side, and needless to say, also priority, quality, and in time. Pricing, while important, is not the most important decision point. By looking at that, we have also now decided to pivot...
Given our breadth in portfolio and land, we want to really start even more from the customer interface, bring in the requests, look at our platforms, then build up the capability, and then bring in the product and serve our customers. That's a very distinct approach we have taken. A, proven success, and pivoting from that, building on the customer interface. What we have done now, on slide number seven, if you are keeping track, what we have also done is really looked at customer interaction models. There are about six distinct customer interaction models, that are, I would say, oft-discussed in the space.
On one end of the spectrum is a very, very commoditized, straight-up transactional, and on the other end of the spectrum is something called value chain integrator, where customers come to you and we jointly put, put the assets and make music and money together. When we really map this out across our offerings of acetal intermediates, specialty, and fluorine, what really stands out is the following: The acetal intermediates is in the lean and reliable basic supplier space, while our specialty and fluorine intermediates are in the space of standard package, product process innovator, customized solution provider, and we are seeing more and more an ask for value chain integrator. What we have done is really move forward with two distinct business units. The first one we call essentials.
This encompasses our acetal intermediates, and we have also included the anhydride business, which was part of our erstwhile SI portfolio. In this, this is a lean and reliable supplier, customer interaction model, a very large global addressable market in excess of 12 billion, and the assets to win here are economy of scale and cost leadership. On the specialty space, we have decided to steer both and merge the fluorine and Specialty Intermediates under one bucket. This is because we want to leverage scale, and we want to leverage, I would say, the interfacing with our customers. Let me give you a very tangible example. When we speak to our customers in the Pharma Domain or Agro Domain, they are already buying diketene-based chemistries from us. They will buy fluorine-based chemistries. They are also buying the acetal-based chemistries from us.
We are having distinct conversation with the same customers, in the specialty space, we decided to steer this under one bucket. This will provide us world-class technology platforms, a large addressable market in excess of $3.5 billion, clearly, innovation continues to be a lever for profitable growth. Looking at slide 8, this summarizes the essentials and specialties. On the technology platform in the essentials, we have the esterification and acetylation, on the specialties we have the ketene, diketene, fluorination, we have put new platforms because we are seeing exceedingly good interest from multiple customers to come in, I'll share an example thereafter in the presentation, to really augment and really partner with us with new technologies and platforms. This will be all in the specialty space.
In the bottom part is, you know, the first thing is steering on essentials and specialties. Needless to say, I'm assuming the question in your mind is: What does that mean in our targeted financial KPIs? In our KPIs, we are again, very, very clear in the ambition. For the essential space, our asset turns should be in the range of 3-5, EBITDA margins in the 8%-12% levels, and for the specialties, the asset turns in the 1-2 range and EBITDA margins in the 20%-25% range. Which then provides a combined ROCE at a Laxmi Enterprise level of 20%. We see the music in both these verticals, essentials and specialties, enabling us as Laxmi to continue to deliver 20% ROCE, as we have done in the past, also in the future.
Ravi alluded to growth enablers. I will speak about three distinct growth enablers. The first one is the growth enablement of innovation. As a chemist by myself, obviously I have a slight bias towards this. I believe a positive bias. What we see here at Laxmi is we have invested upward of 2% of our specialty revenues on innovation. As our revenues in specialties will continue to increase, we are committed to invest 2% of that in innovation and R&D. What we are also will continue to strive towards is achieve 20% of our revenues from new products in specialties that have been launched in the last five years. Today, as we speak, in our Specialty Intermediates portfolio, 25% of our revenue is coming from products that have been launched in the last five years.
In our innovation pipeline, we have 11 products that are in pilot and CapEx approval stage. The Miteni infrastructure and pilot assets is a huge plus for us and we will leverage that. I'm exceedingly proud to announce that the new innovation campus, which will start up in Mahape, will be up and running by March of 2024. The second growth enabler is our manufacturing sites. As I would say, for the software, this is our hardware. The hardware here, we, as you all know, we have Mahad two sites, a land parcel of 45 acres, land occupancy of 90%. Product mix essentials and specialties is 60/40. Lote, our, I would say, a baby that is growing up with some growing up pains, but land parcel of 30 acres.
As we complete our phase I CapEx for Lote, the land occupancy will be 50% and a mix of primarily specialties. Dahej, which is a baby, which is just born, and we are looking forward to build this up strong, a land parcel of 86 acres. You will hear our plans for Dahej and with a product mix of specialty to essential, 65- 35. If I reflect, both Dahej and Lote will be scalable brownfield sites, which will enable us growth in the future. The third enabler is the element of our networks and alliances. What do I imply by that? We have an exceedingly we are blessed, as Ravi always says, to have an exceedingly great board of directors, and I'm not reading all the names here.
These people come who the who's who, in both in the chemical space, come with deep innovation experience. Mr. Manish Chokhani is a very well-known figure in the circles, Mr. Bundelu, Sangeeta. This is a network we have at a board level. Needless to say, my management team is also coming with a very, very strong mix of experience and execution. I want to also play something here, which I heard last time, and I want to share this very transparently. The average tenure in my management team, as we execute on these plans, is five years minimum. We have our heads of manufacturing, our heads of R&D, who have been upward of five years. We have the business heads who are in the range of five years. In fact, Tanushree and me, in some ways, are new kids on the block to Laxmi. I also believe...
Those are the three enablers. I also believe for any organization to achieve its ambition is the value system. In Laxmi, we have four distinct values we will leverage on: integrity, innovation, customer centricity, and sustainability. I think I have given little more color on those and will not go through that in detail, but these will be the things we will live on to achieve and deliver on our ambition. On slide number 13, which is talking about the business update for the site at Lote. The cost to complete, as it stands, is INR 550 , and this we have got full clarity because we have opened up all the containers, we have done the health checkup of all the equipment that has reached our stores, and there is nothing there in Italy, Italy at this point of time.
INR 550 is the hardwired number that we know we will commit, and that will give us all elements of EHS, that we can run this site in the future and also provide the right platform. The project has had delays, has had cost overruns. There are various reasons, the COVID restrictions, the freight costs, but we now remain exceedingly confident in what we are establishing in Lote. We are, in fact, on the infrastructure and utilities, also geared up for future expansion. Like I said, 50% of the land is available for expansion. Timelines, financial year, this year is complete commissioning and sampling. Financial year 2025 is ramp-up of production. I hope you will also be excited to hear the first wins. We have successfully established quality on norms of our first products.
We have qualification quantities of a new agro intermediate supplied to an innovator company for their product launch in 2026. We have signed with an MNC to add more technology beyond diketene with a buyback supply agreement, which I believe this is just the tip of the iceberg, as they say, there is more to come. When we talk about the Dahej, also super excited to share that the board has approved the largest investment that Laxmi has put on the ground of INR 710 over the next three years. What are we leveraging here? Again, let me repeat myself. Shifting of the supply chain, China plus one, growing end products on market and growth of the Indian market. This is India's decade, as Ravi said, I am 100% convinced about that. The onus of responsibility is on us.
Of the INR 710 , we plan to cover about 20% of the land parcel of 86 acres. This is also very strongly driven by customer requests, customer growth, and business continuity from what our customers seek. I'm also thrilled to share we already have the first customer-led project signed for Dahej. We will leverage economies of scale, both on the make and the buy side, and our product portfolio will encompass the specialties, diketene and ketene derivatives, and essentials, esters, anhydrides, and aldehyde derivatives. Before I hand it over to Tanushree on Q1 , let me just take away, summarize. We are geared to win, ladies and gentlemen. We have the ingredients in place of know-how, connection, facilities, space, and management. We are always invested at the cyclic bottom. That's exactly what we are doing.
We will have differentiated steering and differentiated KPIs for the business units, and we are committed to continue making 20% ROCE across the business cycle. With that, I will pass it over to Tanushree. Just a few words before, Q1 is what she would share. You will hear the quarter one's performance, also linking to what you heard from Ravi. Obviously, the markets are a bit cloudy. It's a mystery out there, but as they also say, in every challenge remains an opportunity, and that is what I believe that we should tap into. While Q1 numbers are panned out, Q2 looks a little more challenging, where we are having customers also seeking us, postponing some of our deliveries, but we are also hearing from customers that the demand has not vanished. It's more a calibration year.
With that, I hand it over to Tanushree.
Good afternoon, ladies and gentlemen. Before we discuss the financial numbers, I think it's important to shed some light on how our volumes have performed, overall as a company and for the business unit, because at the end of the day, it is the volumes that result into the financial performance of the company. At a company level, the absolute volume sold increased 5% quarter-on-quarter and 9% year-on-year. Within each of the BUs as well, which is essentials and specialties, the sales volumes increased. In essentials, the quarter-on-quarter sales volumes grew in line with the company at 5% quarter-on-quarter and 9% year-on-year. In specialties, the quarter-on-quarter sales volumes grew by 6%, while the year-on-year sales volumes grew by 15%.
The year-on-year growth in specialties comes on the back of the capitalizations that were completed in the last fiscal. Looking at the financial performance, the increase in volumes ensured that year-on-year, the top line remained intact. Q1 FY 2024 consolidated revenue of INR 737.5 was only 3% lower than that of Q1 FY 2023. Versus the immediately preceding quarter of Q4 FY 2024, the consolidated revenue was flat. At an EBITDA level, the consolidated EBITDA of INR 81.3 was 21% lower than Q1 of FY 2023, which is primarily driven by the changes in inventory. In Q1 FY 2023, the inventory increased by INR 48, roughly, INR 47.5 , to be precise. In Q1 FY 2024, the inventory reduced by INR 12.8 .
Other expenses have come down by 15% year-on-year. On a quarter-on-quarter basis, the EBITDA was 26% higher, largely driven by the lower expenses that you can see on the other expenses, and once again, the lower change in inventories. Driven by the EBITDA and the higher depreciation, profit after tax at the company level was INR 38.3 , which is 41% lower on a year-on-year basis. On a quarter-on-quarter basis, it was almost 60% higher. If we look at the business unit level, the revenue contribution of essentials is at 67% of the company, which is comparable at 65% for the full year of FY 2023. These numbers are realigned to factor in the new business unit, where the essentials business unit now factors in the anhydride in addition to the previous products.
The specialties BU contributed 33% of the overall company revenue, which is once again similar to the full year of FY 2023. On the EBITDA front, specialties continues to be close to 70% contributor to the overall company EBITDA, while essential continues to be around 30%. With the capacity addition and changing product mix, the contribution margin percentage for specialties grew 18% in Q1 FY 2024 versus full year FY 2023, like for like. The consolidated cash flow from operations for Q1 FY 2024 was at INR 172 versus INR 250 for the full year of FY 2023. This is a significant improvement overall for the company, and along with the low leverage of 0.2x, it further strengthens the financial position of the company. With this, I would like to hand back the call to Mr. Ravi Goenka.
Thank you for your patience hearing, and happy to take this forward onto the Q&A session and answer any questions that you may have.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star 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. Our first question is from the line of Amar Maurya from Alfaccurate Advisors Private Limited. Please go ahead with your question. [inaudible] Mr. Amar, may we request you to use the handset as you are not audible?
Hello.
Yes, sir. Please go ahead.
First question is, did I hear correctly, volume growth on year-over-year basis is something, 9% for essential and 15% for specialty, right?
Yes. It's... Yeah.
Okay. What would be the utilization for both these BUs?
Our essential BU always runs at the maximum possible utilization.
...As far as the specialty goes, like I said, the 15% year-on-year volume growth also comes from the fact that we had two large capitalizations that came in FY 2023.
Correct. Correct. What would be the utilization now for the overall BU, specialty?
Amar, just to give it more color, right? The essentials vertical, like in most businesses, is a continuous process, so you run it at high utilizations.
Correct.
As, as Tanushree explained, so I must say, sorry, Rajan here first, so that you're hearing my voice maybe for the first time here. Again, essentials focus is really economy of scale, leveraging the economy of scale. While in the specialty vertical, these are batch processes and multi-step plants and reaction. Utilization is not the necessary tipping point, it is the complexity that you are steering through those assets.
Correct.
The ahead investment is really triggered because we are at a cusp where there is a lot more dil mange more from customers, and today we are at a point that we are not able to service all the needs.
Correct. Correct. Why I was asking, like, you know, what I understand is that the last two CapEx, which we had done, was largely more of a backward integration and, you know, which were likely to add more to the profitability and less to the margin. That is why I was asking, like, you know, what would be the utilization in that context?
Sure.
Harsh will jump into the last 2 CapEx, since you asked that.
Hi, Amar, Harsh here. The utilizations have remained fairly good for the new assets as well. The overall specialty concept of utilization, I think, is well, is well shared.
Okay. Okay. Lastly, sir, was there any fluorine specialty FY revenue in this quarter booked?
No.
Okay. Okay, basically, the commissioning will start by, let's say, Q4 , or it will everything will come in FY 2025?
Amar, as we have stated, commissioning has already happened. We have got the first products on spec. This year, we'll go in, doing the same for all our initial phase of products, and the sampling of that will also happen within this year. Large revenues and ramp-up will actually get delivered to the P&L next year.
Okay. Okay. Thank you.
Thank you. Our next question is from the line of Ankur Periwal from Axis Capital. Please go ahead.
Yeah, hi, sir, thanks for the opportunity, and thanks, Dr. Rajan, for your, you know, insight in terms of, you know, how the business is going to pan across the two verticals. I'm just trying to, you know, delve into, into those thoughts. From an RM inflation perspective, you know, erstwhile we had the, the AI and SI business wherein, you know, AI was more, immediate RM pass-through, and we were making typical, you know, margins, or commoditized margins there. How should one look at, you know, both specialty and essentials from an RM inflation perspective, pass-through perspective, and let's say, a short-term, long-term contract, how do, how do we look now?
Good. Thanks. Thanks for the question. I think, you sort of hit the hammer on the nail, obviously the essentials part, and that's why when we were sharing in slide number four, really over the business cycle is what you see as acetic acid as a base, and what our performance has been. Let's delve a little more details into that, right? Prior to the financial year 2016, what you really saw was a stronger contribution coming in from our erstwhile AI portfolio, the Acetals portfolio. Post-financial year 2015, 2016, as we ramped up all the capabilities that we achieved from Clariant, and we further augmented, is where we have seen the kicking in on the specialties. That's what is really driving the EBITDA, and also, as you can see, the ROCE on that element.
Yes, in the acetals or the essential space, there is a closer link up, that's also what we shared, if you refer to that triangle, on pricing and product, while on the specialty space, the linkage per se to raw material. For example, we don't have any cost-plus formulas per se, that we will throw out in the specialties. Right? In the essential space, that's what we would sort of leverage into. I would say, if you want to make it black and white, obviously, there's a gray area, but broadly. That's what I would answer that question with.
Sure. Fair enough. Second bit, you know, on the, sorry, on the fluorination CapEx that you mentioned, the revised gross block at around INR 5.5 billion. Obviously, there is a significant sort of, you know, cost overrun, time delay, et cetera, there. If I look at our numbers, the aggregate gross block for last year is INR 10 billion, on which, you know, we have generated a decent ROC. Given the cost overruns, your medium-term source in terms of maintaining the 20% ROC at a company level, does it imply that incremental business that we are doing in fluorination, will be much, much margin accretive to compensate for the CapEx overrun?
First, let me, you know, restate our elements, and then I'll have Tanushree also jump in. What we said was, in this first phase of bringing all the Miteni assets into India and establishing, as you correctly pointed out, there has been a CapEx escalation, and as we stated, INR 550 crore is, we know, is the final number. The peak revenues that we can envisage from the Miteni asset base is INR 210 . That's why I also put in a timelines, this year, commissioning and sampling. Second, next year is ramp-up, and our aspiration and ambition remains that the financial year 2026, we are closer to achieving the peak revenues from the Miteni assets.
Yes, CapEx has increased, but I think at this point of time, from the Miteni assets, obviously we are not seeing more, I would say, opportunities. That being said, that's why I also alluded to in slide number 13, what we have been able to do is really sign a new opportunity with another MNC beyond the Miteni technology, which we are then able to do in our Lote setup, and that is where I believe the value add is. Lote, as it stands today, we are investing in additional infrastructure and utilities, keeping in mind future expansions and investments, since 50% of the land is available. These next blocks of investments that we do is where, for lack of a better word, I like, always like to say, where the music is with regard to the profitability.
Okay, that's important. Last, if I may, since you mentioned that, you know, on a sequential basis, probably, Q2 looks like slightly soft because of the global macro challenges. Just focusing on the specialty vertical here, from a market share gain perspective, especially in the, in the SI business, how do things look now, not only from a ramp-up in the two new projects that we have capitalized, but also on the existing ones?
Hi, Ankur, Harsh here. Ankur, broadly, the market share of our specialty does not change. We are seeing headwinds where the supply chains of various customers have sort of shifted. As the chairman was referring to, it's more just-in-time as opposed to just-in-case. You had almost all of that fat in the supply chain coming off, but end market demand still remains there. It's more about that. Our market shares are not really impacted.
Sure. Harsh, if I may just, you know, follow up on that. The, the, the leaning of the supply chain or the inventory in the system, do you expect this to come back to normal, maybe once macro stabilize, or probably this is a, is a new world that we live in?
Right. Maybe let me throw some color on this, because this is really from the customer's mouth. You know, we were talking to one of our key customers who is engaged in the Agro Space. Beyond the just-in-case and just-in-time, what he or she was also alluding is Agro by, per se, saw, and I would say, a significant double-digit growth, which if you compare with a normalized growth, which is in the range of 3%-4%, was an outlier. The feedback the customer provided us is, obviously this outlandish or outlier growths are moderating, and it would normalize to the normal growth pattern.
I think, the positive element in that is the growth still persists, but it will not be from the outlier growth that we have experienced in the COVID and, just immediate COVID years.
Okay. That's helpful, Dr. Rajan. I'll get back into you. Thanks for your answers.
Thank you for the questions.
Thank you. Before we take the next question, a reminder to all participants, you may press star and one to ask a question. Our next question is from the line of Nitesh Dhoot from Dolat Capital. Please go ahead with your question, sir.
Hi, team. Good evening. Thank you so much for the opportunity. My first question is on the diketene business, where as we gather, the new diketene plant of one of your domestic competitors has ramped up quite well. Have you seen any impact on our business, however small it might be, on, you know, in terms of the market share?
Let me again try and give some color to it, because this is what I tried to gleam out, you know, regarding our business first. When we acquired Clariant's diketene chemistry, that came with a portfolio of about eight products. Today, as we stand, we have 50+ products that we are leveraging of that chemistry. While I don't think I am privy to talk about competitors, but I think I can proudly share our strength and our right to win, and that is what is giving us the confidence to also further expand at the edge with these chemistries.
Okay. My second question is on the fluorochemicals business. If I heard you correctly, you said a top line of INR 210 on your INR 550 investment, which is less than 0.4x effect terms, and which could imply much lower, you know, return ratios versus your peers in the fluorination space. Your thoughts on the same?
Let me start, and then I will have Tanushree or Harsh step in. First and foremost, the 550 is the number that we are grappling with. When we started off on this journey, we did not envisage the 550. Obviously, we are openly acknowledging there were certain curveballs which were in our sphere of control and outside, like COVID restrictions, like the rise in freight costs and the additional CapEx we are bringing to bring the entire site to a very strong EHS standard. Because one needs to bear, bear in mind, fluorine comes with a certain premium of how you run your site in a safe and reliable manner. Yes, the 550 versus the 210 looks skewed, but that's where it is. That, as I said, the story does not end there.
For us, we are seeing this as a important nucleus that we can further expand on, beyond just the talk, the conversations and the conversions we have had, as I shared openly with two of these customers, is giving us a great deal of confidence that our wave two, wave three of CapExes, that we will make in Dahej, in Lote, will be significantly more value accretive. As I've said, the run rate that we are aspiring for with our ambition in the Specialties is in the range of 1-2, to the CapEx that we employ.
Nitesh-
Tanushree wants to add, yes.
Yeah. Nitesh, I think if you look at it from a point in time, yes, you are right, that the asset turns look, look subdued and the returns look subdued. I think I will request you to take a look at this from the perspective of two, two perspectives, right? A, this is like, Rajan also mentioned, it includes infrastructure and utilities from a future looking point of view. What will be the business with and without this investment? Given that, you know, we've already given you a ROCE of about 20% is what we target, that should actually tell you that the future plans for this will mean that, you know, this business starts to deliver what it's expected to deliver.
The second is, if you look at our own history, and you know, that's there on the slide that is there as well, the ROCEs were subdued, the EBITDAs were subdued, even in the initial phases of our diketene business coming in together. As time has passed, you've seen how the benefits have come about, right? We are, we are seeing an 18% growth in contribution margins of specialties, just year-on-year when we've had two, two more backward integrations. I think we've got to keep a journey in mind and not look at it from a point in time perspective.
Fair enough. Thank you. Just, just, as a follow-up on this, you know, can I have the cash CapEx outlay for 2024, FY 2024, 2025, and maybe 2026, if you already have that, laid out?
Nitesh, couple of things, right? We've said INR 710 in Dahej over a period of three years. We've told you that there is INR 550 that we are looking at Lote. There is no major CapEx that is planned in this financial year for our current unit one and unit two, because we did two strong capitalizations just last year. I think that gives you a fair picture of what we are doing in FY 2024, 2025 and 2026.
Ma'am, Lote's INR 550 of this, a substantial part of what has already been done, as I understand, or am I wrong in my assessment?
No, you're absolutely right, that a substantial piece of it is already done.
Okay. broadly, you know, can we take an evenly spread out CapEx cash outflow for, say, in around INR 300 for the next three years?
I think from a modeling perspective, if you want to take, you know, INR 300 -INR 350 , that's fine.
Ma'am, given that, you know, the fluorochemical investment hasn't ramped up, you know, there's a considerable delay, you know, in terms of the ramp-up there. On top of it, you know, you're planning an INR 700 + kind of an investment. Any possibility of, you know, any excesses on the balance sheet side?
Any? What on the balance sheet?
Any stretch, any stretch on the balance sheet side?
Nitesh, we are.
Given the environment that we are in, especially.
We are 0.2x levered. Our cash flow from operations has been improving quarter-on-quarter, year-on-year. I think from a balance sheet stress point of view, we are actually in, in, in a very, very robust position, and this is also reflected in our credit rating of AA- with a positive outlook.
Thank you. Sorry to interrupt. Mr. Nitesh, may we request you to return to the question queue for follow-up questions, as there are several participants waiting for their turn. Thank you very much. Our next question is from the line of Chintan Patel from Abans Investment Managers. Before you go ahead with your question, ladies and gentlemen, you may press star and one to ask a question. Please go ahead, Mr. Patel.
Sir, there has been a lower pricing as well as some bit of China dumping.
Mr. Patel, sorry to interrupt.
Hello?
May we request you to use your handset, please?
Yeah. There has been a lower pricing as well as some, some bit of China dumping impacting the global demand. What is your action plan to mitigate this risk? We historically doing the export almost 30%-40% of the total revenue. How do you see the growth in the export market? Recently you announced the CapEx of INR 700 . Already we spent around INR 550 on Miteni. How will the CapEx get you the desired returns going forward in the current environment?
I hear three questions in one, so that's very smartly played. I think, let's maybe not tackle all, but let's tackle the pressing topics on your mind.
First is really looking at the China element of where we are seeing, what, what I could glean from your question, how is the China surplus potentially impacting us? The first is really we are very clear with our right to win. Tanushree, in her narrative for our Q1 performance, shared with you our volume growth, right? That already, I believe, should give you confidence that we are gaining market share in our essentials vertical domestically. We are also gaining We have also shown market growth in our specialty verticals. That for me, and I hope gives you also comfort, that we have a right to win and we know how to win. Right? That's the first part of your question.
The second one, I think, was about the CapEx outlay, and I think Tanushree just answered the same, to the other colleague who had asked a question about the CapEx outlay. I have laid out our clear ambition for the specialty, that how the ROCE that we want to achieve, the turns, asset turns, and also the EBITDA percentages that we want to achieve. I hope that is also an answer. We do not post numbers out lightly, so we have our homework done. On the CapEx outlay, I think Tanushree already alluded to it. What was your third question that you so smartly positioned, if you might, if you can just remind me?
how do you see the export market, and what is the growth potential in a export market?
Right. As you said, if you saw the presentation in the SRM, the market opportunity for us in the specialties is upward of INR 3.5 billion, and in the essential space, up to INR 10 billion. That's one. That's the opportunity out there in our verticals. That being said, at this point of time, we are seeing softness in demand in Europe, which we cannot certainly run away from, and that's why also, if you see the slide that we have provided, we do see certain exports, especially on our essentials vertical, where we are actually consciously stepping back from the exports, while on the specialties, we continue to be on a decent run.
The payback period on Dahej facility?
Payback, again, I think, as I said, this is what we have shared with you is a 5-year plan, and we anticipate to have a ROCE of 20% across the essentials and specialties at an enterprise level. I hope that gives you a great confidence in that we know what we're doing here.
Thank you. Sorry to interrupt. Mr. Chintan, may we request you to return to the question queue for follow-up questions. Thank you. Our next question is from the line of CA Garvit Goyal from Nvest Analytics. Please go ahead.
Hello. Good evening. Good evening, sir. Am I audible?
Yes. Yes, you are.
You talked about China dumping of the excess capacity, like the last participant touched upon that. Can you give some color how the things are shaping up from here now, and how the things are looking to you in, in, in, in respect of the global markets as well as India, like China dumping in the market, the prices of the chemicals are falling. How do you look at it from the sector point of view?
I, I think one is, you know, the, the chairman really kept it in perspective, right? The overall scenario on the chemicals with all the destocking that is happening, there is certainly the weakness in the overall space. That is point number one. The point number two, I think, I hope we all understand that when we talk about India chemical demand, we are just about one-tenth of China. China, today, as we speak, is somewhere between 40% - 45% of the global chemical market. One cannot not think about what happens in China, so all the questions coming that way are pertinent. The important thing is what are we doing at Laxmi? For me, the biggest testament is that you are also able to play the volume lever.
That is what we have been able to share with you, that in Q1 , and also last year, we have grown our volume share. We have done CapExes, we have leveraged on that CapExes, and that is what I believe that we will focus on, is what is our right to win with a stronger customer proximity, and also taking conscious call, like I just shared with the other colleague, that we have taken a slightly nuanced position for our exports to Europe in essentials, because we felt there was no point in losing money in that context. I hope I am able to give you a little more on that color.
That thing, I understand, means the Laxmi is obviously doing good. The thing is, we, we are, continuously, we are continuously talking about China plus one from the sector point of view. Now the things are looking quite different, like China dumping of the excess capacity. Where is that China plus one advantage and from where that advantage will come to us, sir? That's, that's what I was targeting.
Oh, okay, I understand. I think the advantage simply comes from a customer perspective in a very simplistic level, right? I, as I, I come from a company which is globally steered, and when I speak to our customers, and specifically, I also gave you very tangible examples that we have actually pinned up customers both for our Lote and also Dahej projects. That already gives me a great deal of confidence that customers, A, are cognizant about they need to switch, but at the same point of time, we have to be competitive.
...Nobody is going to pay you a huge premium, let's be very clear. They are willing to play, I would say, strategic premiums, and that is what we are seeing, and that is what I believe as India, we should leverage.
Thank you. Sorry to interrupt, Mr. Goyal. May we request you to return to the question queue for follow-up questions? Thank you. Our next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead, sir.
Hi, thanks for taking the question, sir. On, on the FI business, you know, if, if you would like to, probably give your thoughts on, you know, from a comparative dynamics perspective, how is Laxmi's positioning versus the more established peers? What is going to be our USP, you know, over the next 3-5 years in the space?
Sure. Nitin, I, you know, Laxmi's positioning versus peers, let's start from where and why we did Miteni. A lot of customers came to us who we were doing various contract manufacturing projects for and requested for the fluorine molecule to be part of several new products. Rather than have us invent the wheel and build out a specialty chemical fluorinated business, we said, "Let's go in for a joint venture acquisition," which is how Miteni came into the frame. Several of our peers have started the journey with refrigerant gases and progressed to specialty chemicals in fluorine. Miteni started, had started with specialty chemicals exclusively, and several of the technologies that Miteni has are not currently present with our peer set.
There is a differentiated technology approach, and fluorination remains one of the steps in several, what we are trying to do in our FI, in our erstwhile FI segment. An example of that is, electrochemical fluorination, which is completely new and unique to India. Secondly, I don't think India is competing within itself. The overall target market of fluorinated chemicals is very large, and there's adequate opportunity for all of us to take. That is really the strategy which we are going for. How can we be a partner to several global players and not really playing within our and impacting ourselves?
Thanks, sir. Very useful. Thank you. Done.
Thank you.
Thank you. That was the last question of our question and answer session. I would now like to hand the conference over to Mr. Ravi Goenka for closing comments.
Thank you, everybody. I do hope this session has been informative, transparent, and very accretive to all of you. Please do feel free to get in touch with us for any other clarifications that you may need. I, I am very confident that I have never been more confident than today of our company's preparedness, not only to handle the headwinds today, but also to pivot to our new orbit and our new trajectory. Somebody had asked, "Why India?" I think India's time is there in the chemical industry for this decade. We have IP protection. You would have heard the finance minister announce that the PLI scheme will be coming in for chemicals, and we have a local consumption, where I believe truly the opportunity is there for large-scale CapExes in the Indian chemical space. Thank you very much. All the best.
Thank you. Ladies and gentlemen, if your questions were unanswered, you can go ahead and contact GoIndia Advisors, and they will revert back to you. Thank you very much. On behalf of GoIndia Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.