Anupam Rasayan India Ltd

NSE:ANURAS

Earnings Call Analysis

Revenue Dip with Expectation of Future Growth

In Q3 FY '24, the company faced a 25% year-over-year decline in operating revenue, settling at INR 296 crores, while the EBITDA also dropped by the same percentage to INR 81 crores. Profit after tax dramatically decreased to INR 26 crores versus INR 554 crores in Q3 FY '23. Over nine months, revenue dipped slightly by 4%, but EBITDA saw a slight growth of 3%. Despite a tepid short-term outlook, revenue is expected to start rising from H1 2025, driven by long-term Letters of Intent (LOIs) and growth in the pharma and polymers sectors, signaling a potential turnaround in FY '25 and '26. The firm anticipates INR 24 crores in interest savings by FY '25 due to debt repayment of INR 200 crores but isn't on track with the targeted improvements in working capital.

Financial Performance and Profitability

The company experienced a notable decline in financial performance for Q3 FY24, with operating revenues decreasing by 25% year-over-year (Y-o-Y) to INR 296 crores, and a substantial fall in profit after tax to INR 26 crores compared to INR 554 crores in the same quarter of the previous year. Over the 9-month period, operating revenue fell by 4% Y-o-Y, while EBITDA grew marginally by 3% Y-o-Y, demonstrating resilience in margins. However, profits after tax softened by 12% Y-o-Y during this period.

Business Composition and Future Outlook

The company is heavily dependent on its Life Sciences sector, which accounted for 91% of its revenue, with Specialty Chemicals contributing the remainder. The customer base also seems concentrated, as the top 10 customers generated 77% of revenue. Notably, there is an expectation of subdued demand in the short term but stronger customer engagement and contract signings, underpinned by recent Letters of Intent (LOIs), suggest an optimistic long-term demand outlook. Growth is anticipated to come from a combination of historical products providing revenue stability and new ventures in pharma and polymers starting to contribute meaningfully from FY25 onwards.

Cost Management and Interest Savings

The company reported improvements in its capital structure, having repaid INR 200 crores of long-term debt with funds raised from warrants and preferential shares issuance. This repayment aligns with a targeted reduction in interest expenses by approximately INR 24 crores for FY25. Moreover, the company has seen some improvements in working capital management, although it is yet to achieve its target reductions.

Debt Profile and Capital Expenditures

With the reduction in long-term debt to less than INR 400 crores and a cash balance of around INR 570 crores, the company is transitioning toward a net debt-free status. Plans to commercialize new molecules are underway, with a substantial capital expenditure (CapEx) plan totaling INR 670 crores, of which INR 381 crores has been deployed. Additional CapEx will support expansion and growth for the next 2 to 3 years.

Production Capacity and Growth Projections

The company's current capacity allows for revenues up to INR 1,700 to 1,800 crores, and future growth is expected to be reasonably strong from FY25 onwards. With the commercialization of 11 new products in the last 9 months and no requirement for significant external capital, the company is confident in its growth trajectory without the pressure of raising additional funds.

Market Expectations and Segment Contributions

As the company nears the end of a destocking period, demand stabilization is anticipated from Q1 FY25 onward. New growth avenues include the pharma segment, which is expected to contribute double digits to revenue, and the polymer segment, which could add 15-20% to the company's portfolio next year.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Anupam Rasayan India Limited Q3 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Advait Bhadekar. Thank you, and over to you, sir.

[Advait Bhadekar]

Thank you, Viren, and good evening, everyone. Welcome to Anupam Rasayan India Limited Q3 and 9M FY '24 Earnings Conference Call. Please note that a copy of our disclosure is available on the Investors section of our website as well as on the stock exchanges. Please do note that anything said on this call which reflects our outlook towards the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces.

This conference call is being recorded, and the transcript along with the audio of the same will be made available on the website of the company and exchanges. Please also note that the audio of the conference call is the copyright material of Anupam Rasayan India and cannot be copied, rebroadcasted or attributed in press or media without specific and written consent of the company.

Today, from the management side we have with us Mr. Anand Desai, Managing Director; Mr. Gopal Agrawal, Chief Executive Officer; Mr. Amit Khurana, Chief Financial Officer; and Mr. Vishal Thakkar, Deputy Chief Financial. I would now like to hand over the call to Mr. Anand Desai for his opening remarks. Thank you, and over to you, sir.

[Anand Desai, executive]

Thank you, Advait. Good evening, and welcome, everyone, to our Q3 and 9 months FY '24 earnings call. Since we are connecting for the first time since the start of the year, I wish you all a happy new year. Let us look at the broader landscape before we dive into the industry and company in particular.

An uncertain global economic environment that we were facing through 2023 is likely spilling over in 2024 as well. Despite the inflation cooling off and a hope of demand recovery, the geopolitical issues are keeping the world on tenterhooks. At the industry front, the agrochemical sector continues to witness demand issues across the nations. This, coupled with falling raw material prices, is having double impact on the revenue and growth for the industry. It appears [Audio Gap] degrowth for majority of the agrochemical companies.

That said, there are green shoots, and as we speak, raw material prices are stabilizing and demand scenario is picking up in some pockets. Strategically, for Anupam, the higher growth in polymer and pharma sector is expected to compensate the tepid growth in the agrochemical section.

On that note, let me shed some light on the performance of the quarter, after which we can move on to the business updates. Our total revenue stood at INR 298 crores with a Y-o-Y degrowth of 23% on a consolidated basis, whereas for the 9 months, our total revenue stood at INR 1,092 crores, posting Y-o-Y degrowth of 1%. The challenging industry landscape has been responsible for this degrowth, along with Q3 being the end of the year for some of our customers, which meant these clients are off-taking only minimum as per the contract. As we have pass-through model for the pricing, we have been able to maintain our EBITDA margins at 30.1% on a stand-alone basis for the quarter and 27% on consol basis for the same period.

Before I conclude, I would like to draw your attention to one of the most important initiatives at Anupam, and which is very close to my heart. As an organization, sustainability has been deep-rooted in our operations and thought processes. We've been striving to build long-term sustainability initiatives and integrate it in our business. On that front, I am pleased to report that Anupam Rasayan will be investing INR 59 crores towards setting up a hybrid power plant of 9.6 megawatts. When I say hybrid, it's a combination of wind power and solar power. That is 5.6 megawatt of wind power and solar power will be 4 megawatts. This initiative will help us reduce our energy cost of approximately INR 15 crores per year. [ The investments in solar would not translate to significant ] electricity consumption for green energy in coming years.

I firmly believe the industry will witness revival from H1 FY '24 based on the LOIs and the contracts we have signed in 2022 and '23, and strong product pipeline, which gives us a reasonable confidence for growth in FY '25. Before Amit bhai and Vishal bhai discuss the financials in greater detail, I would like to call up on Gopal bhai to share our business updates. Over to you, Gopal bhai.

[Gopal Agrawal, executive]

Thank you, Anand bhai. Hello, and good evening, everyone. Welcome to our Q3 and 9 months FY '24 earnings call. I will quickly share key business updates and then hand over the call to Amit bhai to discuss financials.

Starting with new product launch during the quarter in Q3 FY '24, we commercialized 6 new molecules, 4 of which are in fluorination series and the remaining 2 are from signed LOIs and contracts. In 9 months FY '24, we have launched in total 11 new molecules, all of which will ramp up gradually in FY '25 and FY '26, resulting in a positive impact on our revenue in coming years as highlighted by Anand bhai earlier in his opening remarks.

On the contracts and LOI side, I'm pleased to share that during the quarter, we signed a letter of intent worth $61 million, that is INR 507 crores, for next 9 years. This is the one which is with a leading Japanese chemical company to supply new age polymer intermediate. As per the agreement, the supply will commence from 2024. This product will be manufactured in our existing as well as our new multipurpose manufacturing facilities, and the molecule will be utilized as an intermediate for thermoplastic polymer, which find its usage in structural materials in aerospace industries, semiconductor process material, electric and electronic devices, and high-performance industrial machineries.

One of the key things to note here is that we are fully backward integrated for this molecule. This is in line with our strategy of expanding our polymer portfolio and deepening our presence in Japan. We've been able to expand our existing customer wallet as well as onboard a few new clients. With a market such as Japan that is complex and tough to crack, we have successfully made inroads over the last few years through our relentless R&D efforts as well as investing in talent.

To ensure better control, we have also incorporated a subsidiary in Japan, which showcases our focus towards this important geography. I firmly believe that our Japan business will see strong growth in the coming years and will likely become a major business center for Anupam.

I'm also proud to inform you that Anupam Rasayan won CII 3R Award for best industry practices for managing our own waste. This awards reinforces our belief that sustainability is not just a choice, but our business imperative. It highlights our commitment to [indiscernible] sustainability and responsible business practices. Over the past few years, we have worked tirelessly to implement innovative and effective risk management strategies, and the award validates this effort.

With this, to take you through the financial highlights, I would like to hand over the call to our CFO. Over to you, Amit bhai.

[Amit Khurana, executive]

Thank you, Gopal bhai. Good evening, everyone, and thank you for joining us on the call. Let me take you through the financial highlights for the quarter and then will hand over the call to Vishal bhai to discuss these in depth.

Before I get into financials, let me share an update on our recent fundraise. During the quarter, the company issued shares worth INR 180 crores and warrant over INR 370 crores to promoter and institutional investor, respectively. The company has already received INR 272 crores through equity issuance and first tranche of warrants. Of these, we have already utilized INR 198 crores towards debt repayment till date. We have a sharp focus on deleveraging the balance sheet with an ambitious target of being long-term debt-free company over the next 18 months.

Coming to CapEx for 9 months, we have incurred INR 381 crores out of the INR 670 crores CapEx announced. The balance CapEx will be incurred in the next 2 quarters as per plan. At the end of Q3 FY '24, cash and cash equivalents on the books as of 31st December 2023, stood at INR 577 crores, which is sufficient enough for the planned CapEx.

With this, I hand over the floor to our Deputy CFO, Vishal bhai, who will take you through the financials in detail.

[Vishal Thakkar, executive]

Thank you, Amit bhai. Hello, and good evening, everyone. Thank you for joining us here today. I would like to share some key performance highlights for the quarter and 9 months ended 31st December 2023, and then we'll open the floor for questions and answers. Before I proceed, I hope you all have had a chance to go through the detailed presentation and the results submitted to the exchanges and also uploaded on our website. Kindly note, our numbers for the quarter are on a consolidated basis, and they also include Tanfac numbers.

Let me first discuss the consolidated financial highlights for the quarter ended September 30, 2023. Operating revenues for Q3 FY '24 was at INR 296 crores as compared to INR 392 crores in Q3 FY '23, down 25% Y-o-Y. EBITDA, including other income, was at INR 81 crores in Q3 FY '24 as compared to INR 108 crores in Q3 FY '23, again, resulting in a degrowth of 25%. However, this will translate into an EBITDA of 27% EBITDA margin for this quarter, which is similar to the EBITDA margins that we have been seeing in the past as well. Profit after tax was at INR 26 crores in Q3 FY '24 as compared to INR 554 crores in Q3 FY '23.

Coming to the 9 months performance. Operating revenue for 9 months FY '24 was at INR 1,074 crores as compared to INR 1,122 crores, down 4% Y-o-Y. EBITDA including other income stood at INR 306 crores as compared to INR 298 crores in 9 months FY '23, growth of 3% Y-o-Y. This would translate into an EBITDA margin of 28%, which has been consistently in the range that we have been reporting in the past year as well. Profit after tax was at INR 127 crores as compared to INR 144 crores for the 9 months FY '23, a degrowth of 12% Y-o-Y.

For 9 months FY '24, our Life Sciences segment contributed 91% of the total revenue and the balance 9% came from the Specialty Chemicals. Our top 10 customers contributed 77% of the total revenue, and there are total 23 products that we provide to them.

With that, we'll open the floor for Q&A. Thank you.

[Operator]

[Operator Instructions] We have our first question from the line of Rohit Nagraj from Centrum Broking.

[Rohit Nagraj, analyst]

Sir, my first question is from the LOIs and from customers' perspective. So we have seen that last quarter was an exceptional quarter in terms of the demand scenario. What are we looking at in the current quarter from the orders perspective? And if you could just give a bit about the LOIs as well, whether we are on track in terms of the customer engagements, what they had anticipated earlier the order of volume would be for 2024, or they are slightly taken aback given the current situation, and they will be in a wait-and-watch situation? So your comments on this.

[Vishal Thakkar, executive]

Rohit, this is Vishal. I'll just take your question. And Rohit, if you look at in terms of the LOIs and contracts and the kind of buoyancy there, I would suggest that the LOIs and the kind of engagement that we have been seeing with the customer has been robust, especially when we're talking about long-term kind of numbers.

[Technical Difficulty]

Hello. I'm sorry, my line got a little disconnected. Apologies for this. So when we're talking about LOIs and contracts, the engagement on the customer side on the LOIs has been strong, and their interest with us has been quite robust. If you look at that, that's also the reflection if you see in terms of this quarter also, the quarter went by. We signed one LOI and we believe that there are furthermore interactions that are there and there are quite positive interests that we are seeing from the customers for the longer tenor demand.

Now coming to the shorter tenor demand, the shorter tenor demand is basically, as we have mentioned and as you are also aware that the market has been pretty subdued for this quarter and we see that the next quarter will be also pretty subdued. So I think the question that you're asking on the demand side, short term, for this quarter, next quarter, we may see a little bit of a tepidness. But going forward, from the H1 2025, we should be able to see that the revenue should start coming up.

[Rohit Nagraj, analyst]

Sure. Yes. Just an allied question to that. In terms of -- so we were earlier guiding FY '25 will have our base business. Addition to that will be LOIs and plus fluorination. So how are we looking in terms of overall growth for FY '25 and FY '26? If you can just give broadly a sense of that?

[Vishal Thakkar, executive]

So we've talked about -- Rohit, where I feel that if you look at the demand from the -- revenue contribution from the LOIs and from the pharma sector, pharma and polymers should start giving a meaningful growth for us in FY '25 and FY '26, and that should add to the growth. And the base volumes, which are from the historical products and others, should give the stability to the demand -- stability to the revenue. So I would put it that my historical products will give me stability of my revenue, and the pharma and the polymer and the Japanese market should give us additional volumes for the growth in FY '25 and '26. And '26, again, the historical molecules should also contribute to some pickup for growth as well, as we see.

[Rohit Nagraj, analyst]

Sure. That's helpful. One last bit and then probably I'll just come back in the queue. Given that we have raised the money and we're repaying the debt, what is the kind of interest saving that you are expecting in FY '24 and possibly in FY '25?

[Vishal Thakkar, executive]

Interest savings for FY '24 will be limited because if you look at it, it will be practically for a quarter. But FY '25, the number should be around INR 24 crores of savings on the interest side. This is the estimate that we have for 2025.

[Operator]

[Operator Instructions] The next question is from the line of Krishan Parwani from JM Financial.

[Krishanchandra Parwani, analyst]

Sir, my first question is on the working capital side. Just wanted to understand, has there been any improvement on that front?

[Vishal Thakkar, executive]

Okay. So Krishan, if you look at it on an absolute basis, we have seen that there has been an improvement in working capital. Has it been where we wanted to? Answer is no. But is it in the right direction? Answer is yes.

[Krishanchandra Parwani, analyst]

Okay. So would you be able to kind of share the number of days at 9M FY '24 or not possible?

[Vishal Thakkar, executive]

We have not reported that. So I would prefer if I don't mention that. But in the next quarter, I would definitely share that with you, if that helps you.

[Krishanchandra Parwani, analyst]

Yes. So just going by your target, which you had about 180 to 200 days by end of FY '24, are we still on track?

[Vishal Thakkar, executive]

I would have to say, no, we are not on track on that. Directionally, yes. But in terms of quantum, we don't see that number being achieved, especially in the context of the kind of demand downturn -- demand compression that we have seen and [indiscernible] that we have seen. Because it has double impact, the liquidation of the inventory reduces and also my base number is also lower to that extent. So I have a double whammy on that. So here, would we be in the range that we have mentioned? probably not, I would say that.

[Krishanchandra Parwani, analyst]

Okay. Noted. And in terms of -- I think you mentioned about our gross and net debt position at 9M FY '24 in the initial comments. Did I miss that? If yes, could you please reshare?

[Vishal Thakkar, executive]

We didn't mention, but I can share that what we said was that we have repaid a loan of INR 200 crores as on today, I would say, because the money came in at the end of the quarter. So as on date, we have repaid INR 200 crores of long-term debt from the money that we raised, which is of the warrants and the preferential shares. Today, my long-term debt would be less than INR 400 crores. And I think once we do this, the balance amount comes in, we should be going to 0 debt in terms of long-term debt.

Of that INR 400 crores also, INR 90 crores is my promoter debt. So if you look at the external debt, it is around about INR 300 crores, INR 310 crores only. And from the balance funds that we are raising, we believe that we should be -- at that time, we should be at 0 long-term debt, especially on the net basis. Because if you look at my cash, today, I'm sitting on a cash of our of around INR 570 crores as on 31st March -- 31st December, sorry, not March, my bad.

[Krishanchandra Parwani, analyst]

Okay. So is there any short-term debt as well on the book?

[Vishal Thakkar, executive]

Yes, there is working capital debt.

[Krishanchandra Parwani, analyst]

Okay. No problem. And if I may ask 1 or 2 questions, if I may?

[Vishal Thakkar, executive]

Go ahead. No problem.

[Krishanchandra Parwani, analyst]

See, firstly, congrats on the LOI that you signed in this quarter. So just one suggestion, probably in the Slide 20, whereby you have mentioned kind in quarter, if you could also mention revenue contributing quarter for all the LOIs and the contracts, whenever -- so it would be easier for us to kind of track that.

[Vishal Thakkar, executive]

So Krishan, the only challenge is that many times it's a fine line between two things, one is being prudent in terms of forecast, and two is also guiding the numbers and forward-looking statements. So that's the main reason why we have been avoiding this, because it can tantamount to forward-looking statements, and that may not be a very helpful situation to be in. So for that reason...

[Krishanchandra Parwani, analyst]

Understood. Yes, I get your point. But directionally, would you be able to kind of share the possible revenue-generating quarters for the last 4 LOIs that we have signed in this fiscal? I mean, just a ballpark estimate would do, not an exact number.

[Vishal Thakkar, executive]

See, I think one of them we have said that we would be commercializing it in the same year itself as we'll be also seeing through the last one, and that would happen. The other one, we had also said that it would start from '25 CY and one will be '26 CY. So largely, in next 2 years, you should see commercialization of most of the molecules that we have talked about.

[Krishanchandra Parwani, analyst]

Understood. And last question from my side, just a more fundamental question. So when you mentioned these LOIs and contracts, so is it a must for your customer to purchase a cumulative contracted amount? I mean, let's say, if there is a prolonged weakness like we have seen since last couple of quarters, the cumulative offtake could be lower than the stated amounts. Is that understanding correct?

[Vishal Thakkar, executive]

So see, there are two numbers in this. Typically, when you sign a contract, you will have two numbers. One is the minimum offtake guarantee, which is called MGO, minimum guaranteed offtake; and two is an estimated number that they would want to say that this is the plan that we have and this is the base case scenario on which we are contracting. And then there is always an upside to that.

Now let's look at it in this manner that, let's say, this is a 5-year contract. So do we expect that at the end of the fifth year, they will stop buying from us? The answer is no. Typically, we have seen that the contracts roll over or the demands continue, because they have moved from Europe or from a high cost to the low-cost countries like us. After that, do we expect them to move to any other places? I do not see that as a big possibility. No doubt there is always a possibility because they're contracted for 5 years, and they can. But historically, we have not seen them doing that. And there is a logical reason to it also. Because as long as we don't make a big mistake, they would continue to roll over the contract.

So the question that you are asking is that would the cumulative demand be the same or not? See, typically, if you see what has happened in the last 2 quarters. Last 2 quarters have been where the inventory liquidation is happening at the customer side. So is there a demand disruption? I think demand disruption is not a larger contributor of the tepidness in the demand, but it's more the realignment and reallocation of their inventories and lightening their balance sheet, which is the reason. So in all, to answer your question, we don't see it significantly impacting the overall demand.

[Krishanchandra Parwani, analyst]

Noted. So I think my question was more to understand, let's say, a 5-year revenue trajectory rather than anything else. I know that you have been rolling forward a lot of products since the inception of the company. So that point is very clear. It was just to understand, let's say, standing here, what is the growth outlook for the next 5 years? So that was the reason for understanding. But yes, I think it is very, very clear.

[Operator]

[Operator Instructions] The next question is from the line of S. Ramesh from Nirmal Bang Equities.

[S. Ramesh, analyst]

Sir, I just had a few questions on the numbers, and then some thoughts on the business. So can you split the 26% decline in stand-alone revenue into volume and price?

[Vishal Thakkar, executive]

So this is largely driven by the volume rather than the price. Price has been pretty much stable to my mind. So if there is any contribution, it's not anything significant in terms of price. I think a large part of it is on the volume side.

[S. Ramesh, analyst]

And what is the share of exports and contract revenue in 3Q?

[Vishal Thakkar, executive]

So exports is around about 55% to 56% for the quarter, and balance is domestic. Largely, all the demand is, as we've said, that part of our demand is more contracted in nature.

[S. Ramesh, analyst]

Okay. So if it is all contract revenue...

[Vishal Thakkar, executive]

Contracts and contract equivalent. Because there are some where we don't have a contract, but we are rolling demand continuing for last several years. So that's also...

[S. Ramesh, analyst]

Yes, understood. So yes, in the context of the customers deferring their purchase because of their issues in terms of liquidating inventory, is there a possibility of you getting these volumes delivered, say, subsequently in FY '25? Or is that something which is pretty much lost business? How does it work in your contracts or LOIs equivalent?

[Vishal Thakkar, executive]

So that's where we think, minimum definitely we will get it. And even if you look at it, this quarter also they did pick up the minimum volumes, right? So that will happen. The upside, and if you're asking for the delta on this, typically, see, our sense is that this is more inventory movement and not too much on the demand side. So if it is inventory movement, as and when they stock up the inventory back, they send. But if they continue to run with this thin level of inventory, then you will see that, that demand doesn't come to us, still that inventory is stocked up to the level which they were carrying earlier. But other than that, we don't see too much demand going off the expectations.

[S. Ramesh, analyst]

Okay. So if you were to map your CapEx and the booking of revenue against your LOIs and contracts due for delivery, say, over '24, '25, '26, how much of that, whatever the customers are expected to take delivery of in terms of new contracts, is possible to be delivered from existing assets not part of the CapEx? And how much of that has to wait until the CapEx is completed? And when does that CapEx get completed and do those assets start commercial operations?

[Vishal Thakkar, executive]

So first thing is if you look at my CapEx, we had undertaken a plan for INR 670 crores of CapEx. We have done CapEx of INR 381 crores. We did around INR 150 crores of CapEx in this quarter, so the quarter that went by. And we believe that in the next 2 quarters, we should be able to do the majority of the CapEx that has been planned out. So one plant we should be able to get operational in this quarter and the other 2 in subsequent quarters. So if you look at it, we will have enough capacity for us to grow for the next 2 to 3 years. Like we don't see that capacity being a constraint for servicing our demand from here on. So there is nothing more that we can service for the next 2 years.

[S. Ramesh, analyst]

So the question what we are trying to understand is, you have some -- because in some contracts you've mentioned, they can be delivered from the existing assets. And some of them are possibly from the new assets. So how much growth can you get or how much additional revenue in rupees crores can you get from the existing assets, say, over FY '25 and '26?

[Vishal Thakkar, executive]

So as we had said in the past also, we can do a revenue of INR 1700 crores to INR 1,800 crores from our current capacity. So to that extent, we have enough capacities. Two is, if we were to look at from the LOIs and contracts that we mentioned, even the LOIs and contracts will take time to commercialize, right? And by that time, we should have the plant. And the ones that we are looking at commercializing soon, we have factored in the capacities from our existing plants. So to that extent, the question is that is there any situation where we will have a demand, but not the capacity? Probably the answer doesn't look like yes.

[S. Ramesh, analyst]

So INR 1,700 crores -- this year, you're doing about INR 1,600 crores, right? So if you're -- supposing, you are looking at the existing assets, how much of this INR 1,700 crores, INR 1,800 crores can you deliver, say, in the next 2 years, assuming normalized demand environment and once the inventory situation has stabilized? And on that, what is the kind of delta we can expect from the new contracts, say, over the next 2 to 3 years? Whatever order bank to numbers you can give. So that we are able to map the growth of existing assets as well as the CapEx, and its related to the order book. That's the angle from which I'm asking that.

[Vishal Thakkar, executive]

I didn't get your question right. But if I were to just put the question in my words, what you are saying is that what is the demand that -- what is the revenue that we can subscribe through the capacity that we have created today, and what is it that will happen from the future, right, future cases? And two is the question that you are asking is that from the LOIs and contracts, how much are we looking at going from now? And what is the kind of -- is there any constraint because of the current capacities which are not designed for the LOIs and contracts that we have signed? Is that the question you are asking?

[S. Ramesh, analyst]

No, no, I'm speaking more from the demand side. Since right now, demand seems to be the issue. In your contracting business, you have a potential -- see maybe over 3 years, you cannot see. The point is what can we realistically expect from existing assets and the new assets given a certain stable environment in terms of your reading about the appetite for taking intermediate and final product from your manufacturing facilities if you have some business.

[Vishal Thakkar, executive]

So Ramesh, I will put it in a very simple manner that my demand growth we expect from next year onwards to be reasonably strong. And from '25 onwards, we should be able to see a reasonably strong demand growth, and that should continue for the next 2 to 3 years looking at the kind of order pipeline and the product launches that we have. If you look at the orders, the number of products that we have commercialized in this 9 months is 11 products that we have commercialized. And these itself have a reasonable market size, a reasonable demand size. And if I add to that the products that we are expected to launch in next 12 to 18 months, we see that there is enough that we can look at from the growth. This is one year where you will see that there is an exception in terms of the growth. But going forward, from '25 onwards, you will see that the growth will be robust.

[S. Ramesh, analyst]

So that comes to the final thought process. What is our short-term debt on your books? And on the incremental business you can do over the next 2 to 3 years, what will be the kind of net working capital days you lament, because right now that seems to be the challenge for you, right? Because that has a definite impact on the additional cash you need to raise. So if you can throw some light on your thoughts on what will be the incremental net working capital? And what is the current short-term debt on your books?

[Vishal Thakkar, executive]

So Ramesh, let me answer it in a very different manner, because this is not the quarter where we have shared -- we are releasing the balance sheet. So I'll try and be a bit more cautious on the numbers that I speak up. But let me give you 1 or 2 items. Do I need significant external capital for my current growth? Answer is no. In fact, we are repaying the debt. Okay. So that's one part of the question.

Now the second part of the question is that coming from the working capital side, yes, working capital has been a bit more sticky than what we had anticipated and planned for. For the management, this is one of the top most focus areas for the management to optimize and be more focused on this parameter for us. However, the moment we see that the cycles start moving, which is where we see that in the next year we should be able to see the cycles moving, we should be able to see that the trajectory that we had been envisaging and the trajectory of the working capital that we have been focusing on should be playing out. It has been slower in this year unlike what we had anticipated, but the focus is significantly strong on this parameter of the business.

[Operator]

[Operator Instructions] The next question is from the line of Madhav Marda from Fidelity International.

[Madhav Marda, analyst]

A couple of questions. First one, basically, for our agro portfolio, where are we in the destocking cycle? Because as we understand, the impact really varies by the portfolio that each of the companies has. So from our portfolio perspective, do you expect the destocking to end largely by Q4? Or do you think this impact could extend into Q1? That is my first question.

[Vishal Thakkar, executive]

So Madhav, the way we are seeing it right now, I think what you rightly said is that Q4 may be the end of the destocking period, I would say. We anticipate that the stabilization of the demand should start from Q1 FY '25, and it should only consolidate as you go further.

[Madhav Marda, analyst]

Okay, Okay. And I think you spoke about some newer portfolio coming from the pharma and the polymer side. So could you give some sense in terms of how big these opportunities can be? And if you would like just share like how much of a growth can these contribute in FY '25? How many molecules are these, across how many customers, whatever color you can share would be very helpful. And are the margins better here? Or are they like similar or lower compared to our existing business?

[Vishal Thakkar, executive]

So let me say that -- so Madhav, I'll take it into 2 or 3 parts. Pharma and fluoro will be the segment which should contribute to a significant part of our next year's growth. And the size of that is reasonably large. But I would tend to be cautious on the numbers when I speak on consumption, because these are forward-looking numbers, so I'll try to be aware in that. But you can say that the pharma out should get into double-digit contribution. And so would polymer be in the 15% to 20% range that they should be contributing to -- polymer and other specialty should contribute around 15% to 20% of my portfolio in the next year. And pharma should also be in the double-digit, maybe in the higher teens or above -- higher teens that we should be seeing or above. So that's from the pharma side if I were to say.

The second is on the margin side. See, these are all products which we are doing as an import substitution. And two is we are not into the API side of the play or N-1, N-2 play. We are more on the KSM side of the play in the pharma side, where the competition intensity is pretty limited. Because these are all imported from the other geographies. And hence, we have a strong ability to have a reasonable margin that we can expect from them. Second also, I'll say, from a strategy point of view, if you look at it, these are all products which we are largely vertically integrated, one. Two, these are the products where two-step before, the product may be also getting into agro side of the business, to one-step down, it would be also going into the polymer side of the business.

So if you look at it, that helps us in 2, 3 ways, that my backward integration is stronger. And two is my volumes are reasonably larger compared to the typical pharma manufacturing volumes that we see. And based on that, along with my technical capabilities and my process optimization, there is a strong ability to have similar margins that we are seeing in our agro portfolio. And polymer generally is a segment where -- because, again, we are getting into performance polymers and more value-added polymers where, typically, the ability to generate margins is pretty robust here. So if you look at it from a margin point of view, we feel pretty confident. If you look at it from a portfolio contribution side, pharma and polymers should start contributing. So polymer and other specialty contributes double digit, but it should be in the higher teens. And so should pharma be getting into that kind of a range is what I would say.

[Madhav Marda, analyst]

Okay, okay. Understood. So is it fair to say that as we look at FY '25, we are more positive on the non-agro portfolio, which is pharma and polymers, to do the heavy lifting for growth for us for FY '25? And agro will be also growing, but the heavy lifting is done by the other two? Is that the right way to think as we stand today?

[Vishal Thakkar, executive]

Yes. As of now, that's how we are seeing it as of now. Not that I'm saying agro will have a negative, but basically, heavy lifting will come from 3 parts, one is pharma, polymer, and LOIs and contracts that we have signed, which will also ramp up and contribute to the growth.

[Operator]

The next question is from the line of Ankur Periwal from Axis Capital.

[Ankur Periwal, analyst]

Apologies for joining the call late, so there could be some questions which may be a repetition. First question on the product launches, the molecule launch. Year-on-year, we are seeing an improvement here in terms of number of product launches. Just want to understand the time lines of revenue ramp-up here. How much time for a typical product approval and by when we should see a revenue uptick given the inventory situation that we are in?

[Vishal Thakkar, executive]

So product launches, yes, that is something which is happening well. And that is leading to a good volume. As I was mentioning to even the previous questions, it has started contributing and we believe that this should add and a large part of my growth would come from these products. But Ankur, if there is anything that I have not answered and if you can ask me any.

[Ankur Periwal, analyst]

Sure. So you are saying these new launches have already started contributing to our revenues. If you can share maybe on a 9 monthly basis, what is the revenue share from the new launches, maybe the products which we had launched over the last 1 or 2 years, what will be the share right now from them?

[Vishal Thakkar, executive]

So if you look at last couple of years' launches and their contribution, which will be in the teens, of my total revenue, and maybe on the higher teens side. And we believe that, that number will only increase if I look at the cumulative contribution, let's say, 2 years, to next one year, so like the launches that would have done in the last 2 years, plus 1 year going forward next year, I think it should be in 20s, that would start contributing in terms of my...

[Ankur Periwal, analyst]

Sure. And these launches, these new products are largely maybe a very different segment or a different product, different molecule that we are doing? Or could it be a sort of improvisation of an existing one?

[Vishal Thakkar, executive]

So Ankur, if you look at it, typically, we have gone by the strategy of the tree, as we try to tell, that typically we work on the product tree basis. And these are all molecules largely coming from where we have built on the capability that we have and the supply chain that we have created, right? And then we go forward, integrate forward site, typically, where we try to capture more and more opportunities. As I was mentioning, even when I was talking about the pharma side also, that they are products where we have been historically having strength, N-2, N-3 of that product. Because that's typically where that product may be going into agro side also, maybe going into the polymer side also. So that's where we build that strength on the whole value chain. That's one part of the agreement.

Second is fluorination is definitely now coming up and playing well. And you will see that the next year, the contribution of fluorination will be significant. Even today, it is reasonably strong. But next year, we will see it to be in 20s, if not more. So what we are doing, if you look at from a strategy point of view, is building on our capacities rather than trying to do multiple things at one point. You may see that the application is going to pharma, application is going to polymer, application is going to agro, but at the base, the strength that we have of our technical capabilities, our supply chain and the value trees that we create is what really is driving the whole side.

[Ankur Periwal, analyst]

Sure, sure. Fair enough. And just from a revenue mix perspective, given that lot many products, if I heard you right, are getting into pharma, polymers, while currently our business being slightly more tilted towards agro, how do you look at revenue share over a 3-year window or a 5-year window coming from agro, pharma, polymers, and some other segments?

[Vishal Thakkar, executive]

So please take it with a lot of caution and a bit of caveating, but my estimate is that pharma should be contributing in 20s, and so should polymer and other specialties should be in that range. And the balance would be coming from agro. Agro will continue to be the rock bed in terms of our demand stability and our revenue, and they would grow over the next few years. But pharma and other specialty including polymers should contribute a meaningful worth as we go from here.

[Ankur Periwal, analyst]

Sure, sure. That's helpful. Another thing, on the CapEx side, we had announced around $6.5 billion, INR 650 crores, INR 670 crores of CapEx. Will this CapEx suffice for us to reach the optimum level from an NOI that we have signed and the revenue ramp up? Or probably there could be more surplus left for us to ramp up the revenue there?

[Vishal Thakkar, executive]

Largely, if you see, we would be fairly done by that. So today, whatever is our plan in terms of revenue that we want to reach in the next 3 years odd, I think this capacity should be sufficient. Maybe there may be some debottlenecking and other that we typically do because with the change in the product mix or otherwise we will do that. But if you look at the large CapEx program, I think we should be fairly comfortable that we would have covered for that.

[Ankur Periwal, analyst]

Just last bit. On the revenue sort of deferrals that we have seen, basis your discussion with the client, any time line you want to share when we should see an uptick? Because as I understand, it varies a lot across the product, chemistry, maybe even geography and client. So if you could just comment on that.

[Vishal Thakkar, executive]

So Ankur, the thing is that we see that Q1 '25, we should start seeing the growth coming back. And FY '25 should be a reasonably good year in terms of our growth, and we feel that the momentum should continue. Again, I'm adding back saying that my new molecules that we have launched, LOIs getting commercialized, all that is going to really add to this. And that's where it gives us a reasonable amount of comfort that '25 should be looking good.

[Operator]

The next question is from the line of Meet Vora from Emkay Global.

[Meet Vora, analyst]

I just had one question. Vishal bhai, we are seeing a very high uptick in our gross margin in this quarter. So if you can explain what has led to this jump in gross margin?

[Vishal Thakkar, executive]

So Meet, as in our past discussions also we've been always suggesting that the way our business model is structured, we look at it at the EBITDA levels, because not only my raw materials, but my overheads and my utility costs and everything is a pass-through. Typically, whenever you see us, you see us at the EBITDA levels, because that's a more representative number, because there are products where we may have a higher gross margin and a higher overhead, and there may be products where we have a lower gross margin, but then lower overheads. And that compensates with each other, right?

Because at the end, the customer is willing to pay a particular margin to us on an EBITDA or a PBT basis. That's how we've been building the business. So today, whatever you are seeing in terms of movement of our gross margin is largely the product mix, but there are these products where there is lower RMC, but a higher number of steps that we will be doing in this product. And that's the reason you will see that the overheads are higher here. And that is compensating one to other. So if you look at on the EBITDA side, you will see the similar numbers that we have.

[Operator]

The next question is from the line of Rohit Nagraj from Centrum Broking.

[Rohit Nagraj, analyst]

Just two questions. One is in terms of our CapEx guidance. So how would the CapEx stack-up in '24, '25 and FY '26?

[Vishal Thakkar, executive]

So CapEx, as I said, the large CapEx will be done, INR 670 crores should be completed in next 2 quarters. So let's say, by the first half of FY '25, we should be done with the INR 670 crores of CapEx. And then it will be more a maintenance CapEx or a more that kind of CapEx that you would see for the year 3 now. Because we have not planned any further for me to guide on any CapEx for now. If there are any, I will come back to you in the subsequent quarters.

[Rohit Nagraj, analyst]

Sure, sure. This is helpful. Second question is you just now gave a direction on how FY '25 will look like. So is it that FY '26 should see a quantum jump in terms of our performance given that most of the LOIs and the newer contracts will come into fruition? Along with that, the fluorination piece will also be operational and functional? So could there be a step jump which can be expected from FY '26 perspective?

[Vishal Thakkar, executive]

So Rohit, first, in a little lighter vein, I would love that whatever you said comes true in terms of your -- see, that's also -- if you see, all the factors are playing there. The question is that the timing and the stuff. So right now, I would not want to crystal gaze on the '26 in that specific manner. But what you are saying looks to me also the driver for the growth here, because there are multiple vectors which are coming together for us on the work side. So I see you. But right now, I don't want to put a number to it. But yes, I'm also very bullish on those parameters.

[Operator]

Due to time constraint, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Thank you, and over to you, sir.

[Advait Bhadekar]

Thank you all for joining us today on the call. I hope we have been able to answer all your questions. If we have missed out on any questions specifically, or if you have any further queries, please reach out to our IR partner, EY, and we'll be able to get back to you offline. Thank you very much, and have a good day. Cheers.

[Operator]

On behalf of Anupam Rasayan India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.