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Camlin Fine Sciences Ltd
Earnings Call Analysis
Summary
Q2-2024
The quarter presented mixed results for the company, facing a challenging macroeconomic environment. Operating revenues decreased to INR 105.88 crores, while the Blends segment showed promising growth due to successful expansions in North America and Brazil, contributing to increasing revenue streams. However, CFS Europe's temporary shutdown resulted in reduced revenues to INR 42 crore versus the previous INR 155 crores. The business is looking to enhance growth in downstream products with higher margins and realization. Gross margins declined to 44.9%, with EBITDA margins at 7.8% of revenues, signifying a fall from previous quarters. Debt position improved, with total net debt down to INR 565 crores from INR 680 crores. There's cautious optimism for improved business in the second half of the year with forthcoming festivities potentially driving greater growth and profitability.
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Ladies and gentlemen, good day, and welcome to the Camlin Fine Sciences Limited Q2 and H1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Ashish Dandekar, Chairman and Managing Director. Thank you, and over to you, sir.
Thank you. Ladies and gentlemen, welcome to our conference call. We are going to follow the usual routine that we do. Along with me are my colleagues, Santosh Parab, CFO; and Nirmal Momaya, Managing Director.
We've been navigating tough times in the chemical industry, but we are doing adequately. And to explain to you more in detail about how the quarter has gone, here is Santosh.
Thanks, Ashish. Good afternoon, everyone, and thank you for joining us on our Q2 H1 FY '24 earnings conference call.
Before I begin, I would like to mention that some of the statements which we will be making in today's discussion may be forward-looking in nature and may involve certain risks and uncertainties. Your attention is drawn to the safe harbor statement made in our investor presentation published on the stock exchanges and hosted on our website along with the unaudited financial statements for Q2 H1 FY '24. I hope you were able to have a look at them.
As you are aware, we are back after a force incognito mode for last couple of quarters due to the ongoing procedure of open offer. A lot has happened after the last time we interacted back in February '23, and you would be largely aware of those through our disclosures.
Current financial year started with array of challenges to get by a slower-than-expected recovery of the key global economies, the cold hanger, global macroeconomic pressures, weak Chinese local demand and further weaker Chinese economy, intense destocking in supply chains, geopolitical tensions in Europe and now in Southeast Asia, higher interest rates and also reducing global prices.
Widening diverges among economic sectors and regions has made it more and more difficult to strategize for the future in our industry. Slower-than-expected recovery of Chinese market and its underperformance, deepening geoeconomic fragmentation, crude prices may also be impacted by the Israel-Palestine war. And also [ erratic waiver ] in various geographies may result at the trend of softening of consumption of goods and weak productivity growth to linger and impact even the fourth quarter of this year. The management, however, has tried to navigate through these difficult times without leaving focus on the long-term strategy.
Now coming to the financial results. Company's operating revenues for the quarter are at INR 105.88 crores, which is 3.3% and 16% down as compared to last quarter and the corresponding last year's quarter, respectively. The stability of revenue though was achieved despite temporary shutdown of our CFS Europe diphenol facility in Italy, delayed scaling of manning contribution and lower prices. The boost has been due to an excellent growth in the Blend's business, which has been and remains our primary focus for our future strategy of becoming a significant and large player in [indiscernible] markets.
Revenue in [indiscernible] CFS Europe due to the temporary shutdown reduced to INR 42 crore as compared to INR 112 crores in Q1 FY '24 and INR 155 crores in Q2 FY '23. CFS Europe's primary markets -- primary markets, hydroquinone and catechol, which are, as we call them as Performance Chemicals. These have naturally negatively impacted the revenues from Performance Chemicals segment.
We are closely monitoring the market dynamics that we would restart the operations when the conditions turn favorable. At the same time, we are exploring avenues for likely alternative use of the plant as well as devising cost mitigation strategy to reduce fixed costs during the shutdown period.
The Blends showed excellent growth in the revenues due to stabilization of business in our subsidiaries in North America and Brazil. Significant breakthroughs were achieved in North America, which will sustain the growth in the Blends business.
CFS Mexico is supporting previously CFS North America for the servicing of this turnover. CFS North America achieved a revenue of INR 67 crores in this quarter as compared to INR 61 crores in Q1 FY '24 and INR 16 crores only in Q2 FY '22.
In Brazil, we have reached the efficient strategy. We are focusing on higher-margin products, leaner team and extensive cost reduction program. Brazil is steadily growing both on the revenue and margins. CFS Brazil's revenue for the quarter was INR 41 crores as compared to INR 39 crores in quarter 1 FY '24 and INR 33 crores in quarter 2 FY '23.
CFS Mexico has continued its dominating position in South and Latin America with a turnover of INR 119 crores which, of course, includes INR 34 crore in the turnover for servicing revenue of CFS North America.
The Indian markets are not our primary focus. We are making excellent inroads for increasing the Blends business in India in animal nutrition and related markets.
Now coming to our Aroma business, and of which we primarily manufacture and market, vanillin, ethyl vanillin and related value-added products. The price of vanillin has been under considerable pressure due to Chinese oversupply. This oversupply has had a negative impact, not only on the supply side, but pulled the prices southwards. In our opinion, competing with Chinese and prices is a futile exercise and a bad long-term strategy. And up till now, we have followed a cautious and patient approach towards this situation by having controlled production, efficient inventory management, trying to provide superior product than the Chinese and working on value-added products. However, we are evaluating other options also to circumvent this Chinese onslaught.
In the month of August '23, we have started production of ethyl vanillin and the composite vanillin plant at Dahej. As you are aware, we would manufacture both ethyl vanillin on campaign basis in this plant. The manufactured product is commercial quality and the samples there are being shared with prospective customers for approval. We plan to continue production of ethyl vanillin until end of November '23 before we shift back to manufacture of methyl vanillin.
The diphenol plant in Dahej which manufactures the feedstock of hydroquinone and catechol was working at capacity utilization of 86%. And at present, we are fully consuming the hydroquinone in-house, while around 75% of catechol is used or will be used for in-house consumption.
CFS vanillin, our Chinese subsidiary, remains closed. However, we have substantially progressed in the approval for this procedure for change of use of the plant to a new aromatic product. Aromatic product heliotropin which is a category downstream. We are contemplating restart of the plant in the second half of next financial year.
The gross margins have reduced to 44.9% in current quarter, which is 367 basis points and 575 basis points lower than the gross margins of Q1 FY '24 and Q2 FY '23, respectively. The margins were impacted primarily due to reduction in volumes and softening of prices on weak demand.
Raw material prices have moved down in the current quarter, but the fall in selling prices have outpaced these reductions. We were able to control other operating expense despite the reduction in volume. Substantial reduction is also on account of reduction in power costs and lower volumes in CFS Europe.
Naturally resulting EBITDA was severely impacted. The operating ForEx adjusted EBITDA stood at INR 31.67 crores in which -- which is at 7.8% of the revenue. It entails a fall of 285 and 362 basis points over quarter 1 FY '23 and quarter 2 FY '23, respectively. The increase in depreciation compared to last year's quarter is due to capitalization of composite vanillin plant in the month of January '23 in last fiscal.
Interest net of foreign exchange losses increased due to recognization of interest on the foreign currency's long-term loans utilized for the composite vanillin plant.
The overall debt position of company has improved from the end of the financial -- last financial year with conversion of USD 15 million pertaining to FCCB issued by [ IFC ].
Robust cash generation from operations of INR 142 crores has helped the company to tide over the difficult economic situation and has allowed the company to keep its debt in check. The total net debt as of September 30, 2023, stood at INR 565 crores as compared to INR 680 crores as on March 31, 2023. Of course, the credit situation remains a bit tight, but we are confident to work for it with intelligent credit and financial management.
Now coming to the future scenario, we feel that the macroeconomic uncertainty will prevail in the remaining part of this year, but we hope that the second year of the -- second half of the year with the festivities around the populace world like Christmas and Diwali should probably help us to end the year with a greater, better growth and profitability. However, the real picture should emerge only after quarter 3 FY '24.
We are focusing on the growth of downstream products of diphenol, which are expected to yield higher margins and realization. Robust growth in Blends business across all geographies will provide further growth opportunities. Of course, we will keep our constant results on the restart of CFS Europe plant and [ derisk ] to ultimate use.
Needless to say, the fundamentals of our company remain strong, and the management of company is confident of facing and overcoming such challenges that it has done in past.
I would thank you and wish you a very happy Diwali and a prosperous New Year. Now we'll open the floor for questions.
[Operator Instructions] The first question is from the line of Surya Patra from PhillipCapital India Private Ltd.
Looks like a difficult quarter, but the first question, what I would have is on the Blends side. In the first -- this quarter as well as in the first half, it looks like a very strong growth, 40% kind of Y-o-Y jump. That is what we are seeing.
So what is this driving? And how sustainable is this? Is it price-led growth? It is volume more driven? How should one really think about this segment? Because we have always been saying about 25% to 30% kind of growth in this business segment, which despite of the market condition, we are seeing that is happening or even outperforming. So your outlook and your view on this, sir?
Right. Thanks, Surya, for the question. Basically, our focus, as has been in the last few years, on developing products, developing supply chains, developing services to be able to address markets in Americas, Europe, India. And now we are also expanding in other geographies.
The focus, which was there on, specifically U.S. and Brazil, where we had substantial exposure and a large team there focusing on trying to develop the market, has got reasonable breakthroughs, which we were probably hoping to have done a few years ago. Due to COVID, it did get pushed a bit. But now I think they're on track.
We have -- our main focus, I would say, about 60% of our business in U.S. and North America right now, comes from servicing the pet food and rendering business, where I think this is a good, sticky business. The right to win, we got. It really was not necessarily price driven. Of course, there were some price advantages. But we also focused on our offerings of service, our offerings of delivery systems, equipment, and it was a combination of many factors which led to this side to win. And we continue to -- as we speak, we continue to get more and more of these businesses in the pet food and rendering business in North America.
In Brazil, our focus was on biodiesel, where we've taken a very strong leadership position in the biodiesel market where I would say that we probably are at almost 60% of the -- between 50% to 60% market share in the biodiesel antioxidant market. However, the real growth, we believe, is yet to come, which is from the animal nutrition side, where we have started making some good progress and breakthroughs.
So I think not only sustainable but also growing from the situation that we are in, should continue for the next few years. We are very hopeful and confident that this part of the business will continue to grow.
We are also focusing on the rest of the world. It's not only the Americas. Our focus is on the pet food market in Europe where we are making some progress. And I think we'll have some good breakthroughs coming in the next couple of quarters, even for the European market.
From India, we are servicing and growing India in the fish meal, in the aqua feed market, where we are seeing good traction. We're also similarly launching these products in markets like Vietnam and Thailand, which are strong in the aqua feed market, in the aqua market. And also looking at opening up on the animal nutrition side, some channels in Europe and Africa.
So the focus on the Blends business continues. And the growth opportunities, as we've claimed in the past, are yet pretty much on the cards. And I think we've got now a slightly stronger base, and we'll grow from this.
Okay. So this is now from the 30% kind of revenue mix, now has formed 40% plus in the first half. So do you really see that this moving ahead and kind of capturing the largest chunk of the overall business mix, let's say, for the next year and going ahead?
See, a lot will depend, of course, on how -- what we do in Europe, right? Because Europe was a considerable part of the Performance Chemicals section, which has come down considerably in this quarter. So as a percentage mix, this looks much bigger than what it was in the past purely because the reduction that happened in Performance Chemicals.
Now in Europe, of course, at this point of time, you've taken a temporary shutdown. We're evaluating on what we should be doing with the European facility. Of course, prices of hydroquinone seem to be firming up in the current quarter. Maybe there's an opportunity which will come in Q4 to restart this plant. But at the same time, I think we have a very good business case. We are evaluating it. And of course, we'll come back to the market with more details on it. But at this point of time, there is an opportunity to convert that plant into a multipurpose plant, making hydroquinone and catechol, and on campaign basis also running it for making MEHQ and guaiacol from any source.
It's a very similar process. Only raw material starting for hydroquinone and catechol is resorcinol or MEHQ and guaiacol is anisole. So all the other processes are very similar. So we think and we believe that in the next few quarters, we will come back with something in Italy. So then the product mix again changes from that quarter onwards. The Blends, which look today at 40%, 50%, will again probably come down by a few notches because the Performance Chemicals will pick up.
So that's the way we are viewing it in the current short term. In the long -- very long term, of course, Performance Chemicals and Aroma is also a substantial business, which is not contributing anything right now, but that also will contribute. So the Blends business will probably remain at that -- between the 30%, 40% market. The others will grow.
Okay. While the growth momentum will continue, but it's revenue mix possibly will remain around 30% levels?
Correct.
Sir, about the Aroma. So obviously, I think we are still in the product validation phase. And possibly the contracting cycle that would be there for any product during December -- October to December for following year generally. So possibly, we are there in that phase currently in Aroma, and hence, possibly would not have seen any kind of a ramp-up, but that is my view. You can correct me.
What would be your real expectation about the aroma plant or vanillin plant seeing ramp up? And can we see -- start seeing even if it is the understanding then fourth quarter onwards, since that is falling under the next year, we'll see a kind of meaningful progress and hence, according progression subsequently ahead?
Yes. So that is right. What we've always said is that there are several segments of the market in the aroma. And some of them are large flavor and fragrance houses, which contract for a good period of 6 months to 1 year, typically 1 year. And we've been -- we've qualified for making the bids for most of the -- I would say out of the top 10, all top 10 or maybe 9 which were qualified and we are bidding for those. So we expect by -- in the next 30 to 45 days to get closure and see, and hope that we do get a substantial part of those bids. So the business will take momentum, will pick up momentum.
Price is a big problem is because of the oversupply situation, and the Chinese producers dropping prices because of their large inventory buildups. The pricing is not very favorable right now to really push in the trader and distribution market, which we are being very careful not just to get into the market at very, very low prices. So that's the reason why we've been a little more conservative.
However, we look at how the Chinese suppliers are looking at and competitors are looking at the market in the next 45 days, and then devise a strategy on what we should do, whether we should follow on one side volume-driven business or really high value protective business. So this is really a choice that we have to make, which we will make it during this quarter.
Okay. So that means -- sir, what is the differences between the contractual prices and the spot prices if I just try to -- for vanillin?
So I think the price differences can be between 15% to 20% between contracted prices and spot prices, typically.
Okay. And now the contractual prices should be in the range of around $12-odd? That is the understanding? Or it is...
It will be lower than that. It will be lower than that. Because the Chinese on the spot have come down to almost $8. So our expectation is more at probably $10 or so.
Even they are so influential even in the international, I mean, advanced market like U.S. and Europe, sir?
So what happens is that people generally don't buy from them, but that becomes the benchmark, right? The spot prices kind of become a benchmark for the year. And they use those spot prices, and they use that versus where they're really actually going to buy from. So in that sense, we believe that if the spot is at $8, then you're looking at around $10. That's for vanillin. And for ethyl vanillin, it will probably be more like $11 to $12, maybe a little more.
Okay. Just last, with your permission, last question from my side, sir. The Italy plant, which is currently off. What are the fixed costs that we are currently facing out of that? And let's say, till the time that we are not resuming, what is the kind of fixed cost that it is going to hit to the consolidated number?
The fixed cost is around INR 12 crores...
Per quarter, sir.
Per quarter, yes. So -- but we also have some small Blends business where there is some margin there. So it will be in that region. I think our fixed cost should be in the region of INR 12 crores.
[Operator Instructions] The next question Jatin Sangwan from Burman Capital.
I read an article that Camlin has appointed Univar Solutions for the distribution of vanillin in North America. Sir, could you please shed more light on this? What kind of partnership is this? And what kind of pickup in revenue are you expecting from this?
So Univar, of course, is -- that partnership is for distribution of vanillin in the food and beverage segment, so which is the premium segment. That's where you get the best realizations for the vanillin. That's progressing well. We've supplied a couple of containers. And now I think they've gone into the market, distributed it and reorderings should start in the next 30 days to 45 days.
The idea really there is to take a position, which is at the premium end of the market. The pricing for that end of the market is even today northwards of $12. But the volumes are, of course, not as large as they are in the flavor and fragrance ones.
Got it. And what kind of our utilization, are we building in for vanillin, especially for FY '25? And what kind of margins will we make at a contract price of around $9 or $10?
So basically, of course, at this point of time, looking at the raw material prices, our gross margins couldn't be anything between 25% -- 15% to 25%, depending on the prices of raw materials. And capacity utilization really will be driven by ultimately in these contracts, what percentage of those contracts are awarded to us. If we get even 50% of those contracts of what we are bidding for, then we can ramp up the capacity utilization very quickly.
Okay. And you mentioned that gross margin would be 15% to 25%, EBITDA would that be like in lower single digits?
Sorry?
You mentioned that the gross margin would be in the range of 15% to 25%. So EBITDA margin -- will it be in the range of lower single digit?
No, there is not much cost under the gross margin for selling of aroma. So those costs are in a few percentages there.
Okay. And now are -- you were producing vanillin also 50% of capacity. And since we haven't sold much of vanillin, so can you clarify how much of vanillin is currently lying on our inventory?
So on our inventory, we have about INR 50 crores worth of vanillin. We are also now building -- we've started making ethyl vanillin. So we've taken the -- on a campaign basis. We have moved to ethyl vanillin because we need to get that qualified as well. So by end of November, we should have about 200 tonnes. That's another INR 20 crores roughly of inventory of ethyl vanillin. So combined, it will be about 70, but now we are in the process of some liquidation as well.
Got it. And just one clarification, your fixed expenses are INR 12 crores for Italy plant per quarter?
Yes.
Moving forward?
Moving forward, yes.
[Operator Instructions] The next question is from the line of Ajit from Nirzar Enterprises.
Sir, I just have three questions. So the first question is on the Lockheed Martin. Sir, could you please provide update on our deal with Lockheed Martin? And when we will start receiving the orders from them? And can the negolite will be used in other flow or battery storage solutions also? And shall I go for the questions or...
Yes, I'll answer you the Lockheed Martin question. The Lockheed Martin, we are progressing well. We are supplying material to them, of course, a bit on a small scale because there are some commercial orders, which they need to fulfill, which is on a smaller scale. The scaling up, as we mentioned in the past, will require a new plant to be built because the capacities that are required would be substantially larger than what we can -- we are capable of doing right now.
In the meantime, of course, we are putting up some small capacities in the hedge for the negolite, but that's probably only for 750 tonnes a year, though ultimately, that becomes more like between 5,000 to 10,000 tonne business in a couple of years from now. So that's essentially where we are with Lockheed Martin.
And this negolite factory, the CapEx will be done by us or by Lockheed? Just want to...
Actually, for the 750 tonnes that's being done by Lockheed, the bigger one, we'll have to -- that's some time away. So we have to yet [indiscernible]
Okay. So the second question is, sir, one of the listed players name Vinati Organics is entering into manufacturing of anisole with fully backward integration, which require guaiacol also. So sir, is there any probability of the entering into manufacturing of vanillin? And if they enter, how this will impact our business, sir?
So it will depends on what is the size and scale of MEHQ, guaiacol they put. We don't know what their strategies are and what their size and scale is. So it depends on that. Now if the guaiacol capacity is limited, they probably will not enter the vanillin market. It doesn't make sense to enter into this business unless there is substantial volume. So it depends on what their capacity, what they've building as capacity.
Okay. Sir, I have -- like, I guess I missed a part on the vanillin team. So can you just update on what will be the turnover and volume you are expecting from our vanillin business this year or maybe the next financial year?
So in this year, we are expecting that we should be able to liquidate the stock we have and a little more than that as well. Again, what I did mention in the past is that we have bid for some contracts where supply should begin from January. We are awarded those contracts even if it's 30%, 40%, 50%. So a lot will depend on what percentage we get. And accordingly, the turnover will be based on that.
For the next year also, is dependent on how much of this business we get awarded because we are not really yet focusing on the distribution or the trader market, as it's called, the traders that buy substantial vanillin because that's being supplied through the Chinese competitors who are very aggressive on the price. So we are evaluating. By the end of this quarter, we'll decide on what strategy we should follow.
And just the confirmation, you said that the CapEx for -- the initial CapEx will be done by Lockheed Martin for that. Is it? Or?
No, sorry. You're asking about vanillin?
No, no, sorry, sorry. It was about Lockheed Martin only...
The investment for the current capacities is as. The future capacity, which is there, so what the 750 tonnes, the future, whenever the larger plant comes, that's a discussion which is ongoing on who will invest.
Okay. So currently, they'll invest?
Yes.
The next question is from the line of Rehan from Equitree Capital.
Firstly, I wanted to ask, is the anisole process less catechol generator, like just to understand the chemistry? So you would -- so you have better HQ and MEHQ realizations that has higher margin, right?
So what happened -- yes, that's very true. What happens is when we take phenol and the hydroxylate phenol, we get a higher percentage of catechol and a lower percentage of hydroquinone. When you take anisole and you hydroxylate anisole, you get lower percentage of guaiacol, which is equivalent of catechol and higher percentage of MEHQ, which is the equivalent of hydroquinone.
Okay. So basically, you'll get more hydroquinone, right?
That's right. That's right.
Secondly, a peer to you in your industry for vanillin has reported a very poor Q3 as well. [ India ] Q3 was realized, there was poor demand and pricing. So what do you feel with the capacity we have which is quite significant in the vanillin space? Would we come up with that significant? Do you think that we would see that $10 to $12 realization in the next, say, 6 to 9 months?
Yes. So it's a very tough situation to answer because the Chinese competitors have been very aggressive on the pricing. There are some import duties in the U.S. So U.S., there is a bigger opportunity to compete versus the Chinese because there are larger import duties on -- versus the Chinese product.
Rest of the world, it's more or less the same kind of import duty. So then it's really a question of the quality of product versus their quality and reliability. And people are willing to pay some premium, but how much of that premium is a little unknown.
The problem was that all the other majors had a large amounts of inventories, the customers. And they were unwinding their inventories, and that's where the demand also dropped and the price has also dropped. So our sense is that the demand should pick up in Q4 and should start showing some progress. And quality suppliers will ultimately will have some advantage over the -- what currently is being serviced.
Okay. And one last question, if I can squeeze in. What kind of EBITDA margins do we expect from vanillin even in a ballpark range if you could give, like even a range is fine.
Yes. So I mean, I did mention that the gross margins will be between 15% to 25% based on what the raw material prices will remain. If the raw material prices, if crude goes up on one side and raw material prices go up, and if our competitors don't pass that on, then there can be a squeeze on the margin. But it's typically 15% to 25% gross margin, and we have a few percent of costs for selling. So it will be in that range.
[Operator Instructions] The next question is from the line of Aditya Jhawar from AK Capital.
I have a couple of questions. One is on how much capacity -- how much CapEx we have spent on vanillin project?
We spent INR 290 crores on the vanillin project.
Okay. So basically, what can you expect the payback period here?
So originally, our payback period was 3 years. Now with the market conditions, it could probably get pushed to between 4 to 5 years.
Okay. Okay. And currently, we see we have long term -- total consolidated debt is around INR 600 crores to INR 700 crores. So is there any -- how much CapEx is in the pipeline? And what is our maintenance CapEx yearly? And when are we looking for long-term debt as debt free or something? Do we have such plans?
So essentially, we don't have any large CapEx planned for the time being. Our net debt situation is about INR 565 crores. Of which, a large portion is also working capital. And the long-term debt stands at about INR 230 crores, which is repayable over the next 5 years -- 5 to 7 years.
But what's your process? Do you want to clean it up in 1 or 2 years? Do you want to...
Sorry?
Sir, what is your thought process on becoming debt free?
So at this point of time, it's difficult to answer that because the market condition's the way they are. We got to keep things -- keep a lot of alternatives in mind. So even though we would wish that we could be debt free in the next 2 years, but we don't know whether it will be in 2 years or 3 years or 4 years. But the idea is that we have a debt structure to repay, and we'll follow that for the time being.
Okay. And the next final question is really long term on the view. So this kind of situation we have seen in the past also, right, like Chinese are dumping on the chemical prices. Now it will be like 6 months or 1 year phenomena. So how do you see this inventory gets cleaned up and maybe the next day, the prices start moving up, because in 2007 or '08, that also happened in the same cycle. But can you just throw some light, what are your thoughts here? How do we see the prices moving up and coming back to normal?
I think going back to 2019, the pre-COVID prices, I think that normalization should happen in the next few quarters is our belief. Now because of the supply chain disruptions and it was artificial pricing for both for raw materials as well as for sales both -- on both sides, the pricing was a little worked during this period of 2020 to 2021 or maybe till '22 December for 2 years. The normalization of that once the destocking is over and people are back to producing at capacities which were existing in 2019. I think to get back to that pricing seems to be a few quarters away.
So what would be the pricing? Can you quantify?
So what -- we have 40 products, now you want me to enumerate?
No, no, no. On vanillin, on vanillin, on vanillin.
On vanillin. Vanillin was $10. In 2019, it was -- the Chinese pricing was at $10.
Okay. Currently, also, we are at below $10 you're saying?
We are selling at $8. We are selling at $8.
Okay, okay. So we're...
We used to sell between $10 and $11 because our plant was also working in China at that time. So average utilization in that -- during that period was between $10 to $11.
So -- but will not make enough EBITDA on $10 to $11, right?
No, we will because our costs have also now rationalized, right? The raw materials.
Okay. So $10 to $11, we will make sufficient amount of EBITDA, you are saying?
Yes.
[Operator Instructions] The next question is from the line of Nirali Gopani from Unique PMS.
Sir, so what I understand is that the current Chinese prices for vanillin is $8, and we are planning to sell our capacity at $10. So I just wanted to know that if this is a contractual thing and the entire contract for say, 6 months or 12 months, and this is a price? Or is there any scope for volatility in this price also?
Generally, what you bid for and if you're awarded that contract, it's like a fixed price contact.
Okay. So then the Chinese pricing will not impact our contracts? So, there is no clause that will impact the...
No, no, no. It's not linked to others. If you get the contract, it is a debt contracted itself.
Right. Sir, so to get a better understanding, in February, when we had done our last call, we were assuming that the prices will stabilize at $15 and hence a revenue of INR 700 crores to INR 800 crores, which is now currently down to INR 500 crores is what we can expect from [indiscernible].
Correct.
And do you feel that we can achieve this revenue by -- in say, in the next 2 years, like leaving FY '24 aside?
The idea is, yes, in the next -- by FY '26, we should be in a position to get that kind of market share. That's the assumption that we are working on.
Perfect. And currently, we're not being in the market and bidding for the contract. So our product coming into the market will not impact the prices further, right?
No, that's a very good question. The point is that how much will the Chinese continue to produce and lose money and for how long. So that is the reason why we believe that it is kind of equalized, and it will come to a level where the pricing should stabilize at this $10 mark.
Okay. Okay. And sir, I do understand that we would be working on a lot of other products also. So if I would like to understand, what is the total market opportunity we have? If I want to look at growth over a little longer period, say, next 2, 3 years, with all the newer products and our existing products in your view, how should we look at it?
Yes. Our Blends business, of course, the addressable market is considerable. There we can continue to grow at 25%, 30%, as I indicated earlier in the call. In the Performance Chemicals, again, depends on how we rejig our Italian subsidiary and those operations. There are some downstream products coming out of hydroquinone and catechol also, which we are focusing on where we can get reasonable growth in these products. And on the vanillin side, what we said earlier that in 2 years, we should be able to ramp it up to the -- to at least 90% of capacity, yes.
Perfect. And sir, last question. So is this a bottom part on the margin side? Or we do see any pressure in the coming quarters also?
Very difficult to answer that at this point of time. But raw material prices seem to be stable for the last few weeks. But again, dependent on what's going on in the Middle East. And if crude prices run away and run up very quickly, that could impact in the short term because it does take a quarter for us to pass on all the prices. So that can impact the margin if the crude prices run up. But what we are seeing also is, on the sales side, also, there seems to be a slight improvement, which will start showing from Q4 onwards.
The next question is from the line of Saurabh from Multi Act.
This is Rahul Picha from Multi-Act. So I have a couple of questions. The first question is on vanillin. Like you said that you have bid for some contracts. So just wanted to understand on an aggregate basis, like what kind of volumes have you bid for?
It's about in excess of 4,000 tonnes.
4,000 tonnes. And we expect a percentage of that to finally come to us, right?
Yes.
And normally, these contracts are for what duration? Like are these annual contracts?
For 1 year, yes.
1 year. And for 1 year, we have fixed pricing. So whatever volatility that happens on the raw material side that we have to bear on our P&L, right?
Yes, yes. Unless, of course, it is more than a bank, then of course, you can go for a revision.
Okay, okay. And my second question is on the Lockheed 750 tonnes initial plan that you are talking about. So that 750 tonnes could convert to what kind of revenues for us?
That can convert to about -- I would say about -- not much. About INR 60 crores, INR 70 crores.
Okay. Okay. So that will be small for the time being?
Yes, yes. It's just like a pilot plant.
The next question is from the line of Rohan Advant from Plaid Capital.
My first question is...
[indiscernible] volume for you is unclear.
Is this better?
This is much better. Sir, please go ahead.
Yes, yes. Sir, my first question is that what is our current loss on catechol? And with the shutting the Italy plant, would that reduce the catechol available in the market and help the vanillin pricing in any way?
I think there is a significant oversupply. So I wish that was so easy. But no, there is a considerable oversupply of catechol in the market. So us shutting Italy right now currently and reducing the catechol in the market, I don't think will have a very immediate impact on vanillin prices, yes.
Okay. And sir, what is our loss in catechol now?
So in -- at the edge because Italy is suspended. So in the edge, it's about $1 -- roughly $1, $1.10.
Okay. And sir, from the India plant, whatever catechol we are making, we are selling 25% of it and using 75% for vanillin right now. Is that how it is?
Yes. So that is proposed. Right now, of course, till vanillin is scaled up, it is not at that level.
Okay. And sir, lastly, just wanted to understand the motivation of the customers or the prospective buyers for vanillin to buy from us versus their current supplier. So are we cheaper? Are we looking for a second or third source to diversify their suppliers because it's going into food items. Would the customers be willing to experiment with your supply?
So basically, what really has happened is that due to the supply chain, and due to all that happened and transpired between 2020 and now, most large consumers of vanillin or, for that matter, any chemical are very clear that they want to be not only dependent on one company, one supplier or even one geography. So they are trying to kind of divest themselves and spread their risk on supply chain, where if it's only China dependent and if there's an alternative, which is India, they would certainly give India a large chunk of -- an opportunity for a large chunk of that business.
If it is Europe, they are worried about the European sustainability of production in Europe, and they've seen in the past that when there is a market crisis and prices go up, they've been out of the market, they were short on material. So even with contracted volumes in place. So what our understanding is that they want to diversify their risk, whether there's two or three suppliers, they will try and diversify the risk.
Got it. Got it. Sir, and based on this, our confidence of utilizing our capacities by FY '26 is very high, right?
That is true.
The next question is from the line of Jatin Sangwan from Burman Capital.
Sir, I wanted to understand what are the key raw materials that are required for the production of vanillin? And how has their prices moved over the last 2 years? And if you could also tell what is the current course of production for us for vanillin? It would be really helpful if you could break up that by the heads.
Sorry. Break up what? I didn't follow.
If you could also break up the cost of production of vanillin by different heads, by raw material, power and everything else?
No, that is competitive. We can't give you that kind of information. But we can -- I can tell you that, yes, the raw material prices, the key raw material is phenol, hydrogen peroxide, caustic and glycolic acid. There are four key raw materials.
All of them in the last -- are today at a much lower level than they were, say, 3 years ago. In all, at its peak was at $1.50 a kilo. Today, it's at $1 a kilo. But these are all commodities, they keep moving. So very difficult to say what will happen tomorrow. But at this point of time, they have kind of come back to levels which were 2019 levels.
And what is the total cost of production on -- and doesn't in USD terms buy kg.
So it's basically, like I said, our gross margin is between 15% to 25% depending on the raw material prices.
Okay. So our costs will vary from the 7.5% to 8.5% .
Correct.
Next question is from the line of Ajit from Nirzar Enterprises.
I just had one follow-up on the antioxidant opportunity in Brazil. So sir, how big is the biodiesel antioxidant opportunity in Brazil? And can it replicate it in India and other markets also?
So the Brazil, Argentina are two big producers of antioxidant of biodiesel. U.S. also has some production. India is very limited. And then there is Indonesia and Malaysia. So the total market opportunity in Brazil would probably be about $12 million, U.S. would probably be $5, $6 million. The total global -- Europe also, there is an opportunity. I think the total market size, we estimate it to be about $40 million. We are at about $6 million of that volume.
Okay. Understood. And sir, just one question. Can you give volume and prices of -- across our categories in this quarter and Y-o-Y and Q-o-Q, if is it possible?
That's impossible to do right now because we have three products.
Maybe head wise in a sense, is your channel.
No, [indiscernible].
Thank you. We have no further questions. I would now like to hand the conference over to Mr. Ashish Dandekar for closing comments. Over to you, sir.
Thank you. Ladies and gentlemen, thank you for participating in our conference call. We look forward to meeting you again at the end of the next quarter. Until then, I wish you and your loved ones a very happy Diwali and a prosperous New Year. Thank you.
Thank you. On behalf of Camlin Fine Sciences Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.