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Camlin Fine Sciences Ltd
Earnings Call Analysis
Summary
Q3-2024
The company's revenue and margins have suffered due to pricing pressure rather than weak demand. This situation is influenced by new Chinese capacity leading to an oversupply in the market. Despite this, the company has seen volume growth in downstream products. Their new products are expected to contribute at least 10% to the business in the next year. While the company is carrying inventory at a slightly higher price, executives anticipate that the sale prices will align with their cost price. Ongoing initiatives include environmental clearances and basic engineering for new plants in Italy and China, which are expected to entail minor investments once approved.
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Ladies and gentlemen, good day, and welcome to Camlin Fine Sciences Limited Q3 and 9 Months FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of the future performance and involve risks and uncertainties that are difficult to predict. [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. Welcome, ladies and gentlemen, to our quarterly earnings call. As is our usual procedure, our CFO, Santosh Parab will give you a brief of the quarter, following which we will be open to asking -- to answering your questions. So I hand over now to Santosh.
Thanks, Ashish. Good afternoon, and thank you for joining us today. As you are aware, today's call is being recorded, and it will be accessible for replay on our website in due course. Diving down to the results and the scenario in this quarter. As you are aware, the global economic condition has been taking more than expected period to come back to normalcy and overall growth rates across the economies have increased, but those rates remain quite tepid.
Generally, macroeconomic conditions remain uncertain and hence, extremely challenging. We are witnessing weak demand across most markets. The situation is further accentuated by weak Chinese economy and its weaker local consumption. The Chinese action of predatory pricing in our markets continue, and it puts pressure on pricing and consequentially the margins. Despite all these difficulties where most of these factors were not within our control, we were able to post a stable operating revenue of INR 385 crores, which is 4.9% lower than the sequential quarter and only 0.5% lower than the corresponding quarter. There was significant decline in volumes of performance chemicals, primarily due to the temporary shutdown of our diphenol manufacturing capacity in CFS Europe. This dip was largely offset by robust growth in products in shelf-life solutions, including blends.
Revenue from blends remained at almost same level as sequential quarter, which is quite commendable considering the festival holidays in American and European continents in the second part of December. CFS North America and CFS Brazil, which predominantly sell blends have been able to carry the momentum with an operating revenue of INR 65.6 crores and INR 33.7 crores respectively during this quarter. Coming down to our Aroma business, we have just completed the campaign of manufacturing ethyl vanillin at our Dahej plant and are in the process of shifting to methyl vanillin now. This shift generally takes 3 to 4 weeks. The revenue from Aroma during the quarter was [ INR 6.34 crores ] which will grow in the subsequent quarter with the liquidation of inventory which we are carrying.
We are bracing for the annual contracts with large flavor companies as well as fragrance companies, and which are delayed this year due to cautionary wait and watch strategy by all these large consumers. Customer seems to be desisting from entering long contracts, owing to the large -- the large volatility and uncertainty in the market. Here, we try to provide products of optimal quality to these customers and that -- they will continue with approvals from almost all prospective customers. As mentioned in our earlier call, we are exploring avenue that our facility situated in CFS Europe for an alternative use by manufacturing another HQ downstream product by different chemical chemistry. We would be finalizing the course of action before the end of March 2024. Obviously, we'll keep you apprised on this development.
Diphenol plant in Dahej continued at an optimum capacity utilization and has been supporting the downstream products and its sales. Gross margins remained stable despite sales price headwind. Operating expenses remained under control despite onetime costs like reversal of power subsidiary of INR 6.36 crores in CFS Europe as well as devaluation of Argentinian peso in our Argentina subsidiary for INR 11.85 crores. Of course, these 2 items have an adverse impact on the profit after tax for the quarter. Comforting aspect has been the result in EBITDA margin, which stood at 8.4% vis-a-vis 7.8% in sequential quarter. In the given circumstances, this is quite a good thing.
China, I will come to the Chinese subsidiary, which remains closed, we are working on the procedure for change of use of the plant to a new aromatic product, Heliotropin, which is a Catechol downstream. We are closely watching the current scenario in China, time the transition based on it. However, at present, we contemplate restart of this plant in the second half of the next financial year.
Just giving you some understanding on the future scenario as we look at the business, we would reiterate that the business fundamentals remain solid and our resilience is also more steadfast.
We'd like to focus on the levers which are within our control by striving to protect the margins, recalibrate our foods cost and optimize the product mix. We are hopeful that the macroeconomic indicators will ease out in the very near future. And it is pertinent to remain relevant and be ready for the growth thereafter.
I will now turn it back to the conductor to open the floor for questions. Thank you.
We will now begin the question-and-answer session. [Operator Instructions]
We have our first question from the line of Mr. Ajit from Nirzar Enterprises.
Sir, my first question is on Lockheed Martin. So could you please clarify on -- I mean, give some clarity on Lockheed Martin, what is the current order book? And what is the status in all?
Yes. So we continue the supplies for the first order that has been placed with us and which will be completed by [indiscernible] and there are some...
I couldn't get sir, -- I couldn't -- I missed your line.
No, I said we have -- our first order that we had to fulfill will be fulfilled by end of March '24. So that -- which is for their first battery that they have set up.
Okay. And what is the order book -- I mean, current order book other than this, I mean if you can quantify all the amount of this particular...
No. So right now, this is the order book for Lockheed. We expect to further -- after the supply of this material, the next step would be then to look at a higher capacity to be built. So that's a conversation which is ongoing. I think we'll have more clarity on that in the next quarter.
Okay. Okay. And sir, could you please talk about vanillin scale-up product -- production scale up? I mean.
Yes. So the production scale up, we have been able to achieve. The only thing is right now the market conditions are yet not very conducive because the Chinese producers are continuing to dump materials across the world. And we've done our -- as Santosh mentioned, we've done our ethyl vanillin run. And now we're going back to methyl vanillin and we'll start producing. But we are calibrating the production based on market uptick.
Okay. And for this conversion from ethyl to methyl, like how many days the plant will be closed and how much that will impact on our -- maybe on our top line or...
So the top line may not get impacted because like I said, the market conditions are not so conducive to really push for very large production. So that -- but the turnaround time is about 4 to 6 weeks.
Okay, 4 to 6. And just last question, sir. Like, we are -- how much inventories are holding off to vanillin currently? And what will be revenue from vanillin in FY '25, in this quarter -- I mean, coming quarter?
The coming quarter, difficult to give you a number right off the bat, but we are holding a total quantities are roughly about -- I mean, in value, it's about INR 70 crores.
Okay. Understood. And can we expect vanillin production to go up and scale up to optimum level in FY '25? And what percentage of utilization are you expecting, sir? That's it from my side.
So in FY '25, our expectation is about 40% to 50%, we should be able to fill that much up from a market perspective. But again, it depends on the market conditions. We are seeing that the destocking is almost complete. So if the market conditions improve, we can certainly scale up further.
[Operator Instructions]
We have a next question from the line of Rehan from Equitree Capital.
Regarding the CFS Europe plant, as per the last con call, you had mentioned that we would be doing the nasal, we would try to do the anisole process for MEHQ from the CFS Europe. In an unforeseen situation where we're not able to do the same or any other reason that we cannot proceed with anisole over there. What would be the future course of action for the plant?
The future course of action of course, for some reason, we cannot do this, would be to keep the plant on hold till such time as market conditions [ get better ] for hydroquinone and catechol and then take a decision going forward on what really we can do with that facility.
Okay. Second would be, if you could share the data or the volume for hydroquinone for this quarter and catechol for the quarter?
No. Sharing that data is a bit difficult because of competitive reasons. But we've worked our Indian Dahej facility at almost 90% of capacity.
Okay. And how much of catechol are we sitting on inventory, like on our books?
We are sitting on about -- I would say about under 3,000 tonnes.
Sir, I couldn't hear you. Could you repeat?
Under 3,000 tonnes.
Under 3,000 tonnes. Okay. And lastly, would the management be looking at any further open offer considering the price we've seen could relatively face some pressure. So do you think the management would consider another open offer or something similar of this sort?
I don't think so. I'm not that I'm aware of, but...
[Operator Instructions].
We have our next question from the line of Jatin Sangwan from Burman Capital.
My first question is on vanillin. So now in the previous call, we mentioned that we have orders from our clients that we will start dispatching in Q4. So have we started dispatching those orders or let's say, if they are delayed. And what are the reasons for the delay and by when are we expecting to start dispatching those orders?
So we have already started selling in this quarter. And our expectation is that as we go forward, the momentum of sales will improve. But we've already started selling in substantial quantities.
Okay. And we mentioned that we'll be selling around 130 tonnes to 150 tonnes per month. So is it around the same number or the number has reduced because of the [ recurring margin ].
In that range. It will be in that range starting from February.
Okay. So not from January. It will be from February.
Yes, yes. It will be a little less, yes. But I think from February, March, we already are in that range.
Okay. So we will be selling around 300 tonnes of vanillin at a price of $10.
Yes, roughly, give or take.
Okay. Got it. And are there any plans to sell vanillin in India because India is also a 2,000 tonnes annual market of vanillin. So are we also looking at Indian market or we're just only looking at exports?
No, no. We're also selling in the Indian market. It's not that we are not selling. But right now, the price pressure is immense from the Chinese producer. So that's why we're not really pushing higher in the Indian market. But as prices improve, when things turn, of course, India will be a focus market for us.
Okay. Got it. My second question is around Europe. Europe this quarter had a loss of INR 28 crores. Let's say, if I exclude that INR 6 crores from power subsidy, the loss turns out to be INR 22 crores. Are there any steps to minimize this loss before [indiscernible] or before we take any action on Europe? Or is it like a going-forward number of INR 22 crores that will go for let's say 1 quarter or 2 quarters before we decide anything on Europe?
So there are some actions that we are taking to reduce the fixed cost specifically with the employees, we put them on furlough, which kind of reduces our labor costs and some other interventions also. So I think we are looking at, at least INR 7 crores to INR 8 crores per quarter reduction in costs.
Okay. And also, if I look at from, let's say, the PBT loss was INR 28 crores or let's say INR 22 crores. But if I look at revenue of INR 30 crores. Now this revenue may start coming up after, let's say Q4 FY '24 [indiscernible] Q1 FY '25. So what are the total cost, let's say, if I exclude the revenue because we would be having some variable profit due to the sale of INR 30 crores that we had in this quarter.
We didn't exactly get your question, but you are saying how much margin came from the INR 31 crores -- INR 31 crore revenue. Is that the question?
So I was asking Europe get INR 30 crores of revenue and [ INR 32 crores ] of loss. So there would be, let's say, fixed cost and variable cost. So I want to ask within the fixed cost, let's say if the revenue goes to 0. So what will the fixed cost that will remain?
The fixed cost is entirely fixed cost because we have not produced anything during this quarter. And what we are selling is the inventory, which we had produced before shutting down the plant. These are the orders which we had on an annual basis, which we had produced, and we are satisfying those orders.
Yes. But there would be some gross margin you would have availed on this INR 31 crores. No?
The gross margin, we earned around 10-odd percent on those sales because these were -- costs were high, then this has produced, the selling price has gone down. So we would have done around 10% margin on this.
Okay. So if I do the math, right, the fixed cost around INR 25 crores, and you are planning to reduce it by INR 5 crores, INR 7 crores every quarter.
INR 7 crores to INR 8 crores, yes.
Okay. My last question is around the subsidiary part is basically on the blend. Now if I look at, let's say, the overall number, Europe did an PBT loss of INR 28 crores. India was at a loss of INR 18 crores. And if I exclude also the INR 12 crore loss that was due to currency depreciation. So the number comes out at the subsidies in our Brazil, Mexico and North America, they are making a PBT profit of INR 45 crores, and the revenue in this quarter was INR 223 crores. So budget actually driven this margin because last year, if I take FY '23, North America and Brazil was not making any money at PBT level. Mexico was at like 10%, 15% margin at PBT level. So what has driven this margin with all the subsidies combined are now making a PBT margin of around 20%.
Yes. So basically, in North America and Brazil, if you compare what the sales last year compared to this year, there has been a growth, which is significant in both these markets. And growth in North America has also been I think exponential as compared to last year. Therefore, the margin profile has changed from where it was with a low base of sales, but fixed cost being high. The fixed costs haven't really gone up much, but the gross margins have improved as well as the numbers on top line have increased considerably.
So if you look at it in North America, we were doing INR 25 crores, [indiscernible] INR 65 crores now in the quarter. as compared to last year's corresponding quarter. So that's really what is driving the margins up. Similarly, in Brazil as well, we've grown. And the gross margins have improved from 25% to almost 31% and even the business has -- the revenue has grown by almost 15%. So that's what is driving the margin. Even in Mexico product mix and our focus on costs has helped us improve our gross margins by almost 4% to 5%.
And as you mentioned that we have grown significantly in North America, are there any one-offs in this growth? Or is it sustainable growth that we will be looking forward to.
At this point, it is, at least for the next few quarters, it's sustainable. We are also looking at some new businesses flowing in as well. So I think this is kind of sustainable at this point of time.
Okay. And what kind of growth, let's say, are we looking for in North America and Brazil for FY '25 and FY '26? Or is it too early to comment on that?
Sorry, what was your question?
What would be the growth in...
Growth, yes. So the growth, I think in FY '25, should be at least 25% or so.
For North America and Brazil?
Yes.
[Operator Instructions]
We have a next question from the line of Ankur Periwal from Axis Capital.
Just looking at the stand-alone numbers here, which is largely India operations, right? If you can help understand the sharp decline in the operating profit, even if I look at the adjusted numbers on a sequential basis.
Yes. So the gross margin has come down by about 5%, which is driven by reduction in the sales price in this quarter for most of the products that we are selling, including hydroquinone and catechol and all the downstreams, that has kind of led to the erosion of gross margin by about 5%. The price pressure continues to remain in this quarter as well. But we are expecting in the next 2, 3 quarters, this price pressure should start easing off.
And what will be driving that uptick in prices, as you suggested?
Sorry?
You mentioned there in the next couple of quarters, we should see some pricing uptake?
Yes. Yes. That's because of China, I mean what we understand of the year and what we understand is that some interventions will be taken by the Chinese government to kick start their economy which is expected in the next 2, 3 quarters. And if that happens, then the dumping that the Chinese producers are doing because of no market, because the local markets not been -- not really being lucrative. I think that pressure will ease off and that's what is the expectation of the industry at this point of time.
Okay. So largely, we are expecting the Chinese demand to pick up not any [ parts ] at the supply side.
Yes.
Fair enough. And not only for the quarter, but if I look at, let's say, the sequential performance, and I'm comparing the consol minus stand-alone, there is a sequential uptick in terms of profits from the subsidiaries there. What is driving the growth here, given that the China subsidiary and Europe, we are still facing some pressure?
Yes. So basically, it's our blend business, which is -- which I mentioned earlier, in North America, Mexico and Brazil, which is growing and doing well with decent gross margins. So I think that is what is really driving sequentially what is driving the business, yes.
Okay. And we do expect that part of the business to sustain the profitability going ahead?
Yes.
Okay. From a cost of production perspective, you did mention India facility is operating at around 90-odd percent utilization. Was that right?
Yes, yes.
So at a INR 480-odd crores revenues in India, how much more is there a scope for us to grow? And is it largely -- the incremental growth largely here will be pricing linked, or there are certain other revenues that we should look at.
No. So if you see in this quarter, our vanillin sales was insignificant. And that's where the real growth will come from is the scale-up of vanillin in the market and potentially it's substantial market for us to play in, and that's where the real big push in growth will come from. And also, of course, our blends business, which is really -- capacity is not such an issue is something that we are pushing and going in the Indian market.
This blend, we will be increasing capacity here?
Yes. I mean the capacity is -- blending is -- we have enough capacity. The 90% that was for hydroquinone and catechol. For blends, it is the capacity is available.
Sure. I'm sorry, going back to the first part, the pricing pressure or the margin pressure that we have seen in stand-alone operations, which is India, is because of the pricing at the vanillin side. HQ prices is still okay or there is pressure there?
No. Both. Vanillin actually is not sold much. The pricing pressure is on all fronts, HQ and it's all downstream because HQ prices are down, downstream prices come down. So it's been across the board.
Okay. And sir, just last question. From an India standpoint, the cost of production, let's say, for HQ for us versus our peers or maybe more global competition. how big the gap will be? I'm just trying to understand if China is dumping maybe they're selling at cost or they are -- there is a -- they have an advantage in terms of the cost of production as well.
No, I don't think they have much of an advantage on cost of production because costs are slightly higher in China than they are in India. So as far as the Chinese competition is concerned, I think they are probably selling at a loss at this point of time, when you look at both combined hydroquinone and catechol. We know in Italy what our costs are and it's not viable. So the producers in Europe for sure are not making money. Producers in the U.S. also at these kind of prices, would probably be losing money. So I think it's across the board, people are losing money. So I think it's a matter of time till this turns around.
[Operator Instructions]. We have a next question from the line of Surya Narayan Patra from PhillipCapital India Private Limited.
My first question is on the subdued performance, obviously, on the top line as well as on the margins. Sir, is it the target -- currently whatever performance operating that we are seeing, is it because of the pricing pressure or it is the weak demand? So because why I'm asking this means, HQ that we would be supplying or we would be one of the leading global supplier. So whether it is the demand for HQ is low, hence, prices are low. And accordingly, whether demand even for the downstreams are low or it is the pricing -- dumping of the Chinese downstream product that is driving down the earnings?
No. So I think on the HQ level, the pricing has come down. Demand is not such an issue for us. At least we've grown our downstream volumes in this quarter as compared to last quarter whether it's TBHQ, BHA, MEHQ, all of them. So I don't see that as so much of a problem, but it's more pricing than demand. Of course, pricing is also due to the fact that some new capacity also came up in China for HQ in the last year. So therefore, obviously, there is a bit of oversupply situation, which has led to this price erosion. But my sense is that the demand in -- specifically HQ and some of the other downstream, nonfood downstream in China has slowed down, and that is causing the big problem in HQ pricing, which -- as soon as the demand picks up in China, I think we'll see a turnaround, yes.
Okay. Sir, just an extended one to this. So -- in fact, the integrated nature of the new plants, what we have created, [indiscernible] both the diphenol as well as the vanillin plant. So obviously, it is well known that it is integrated one of the significant low-cost manufacturing base compared to the global peers and all that. But the benefit of that has not flown in because of, either it is pricing pressure [Technical Difficulty] and this situation is likely to continue possibly for a couple more quarters or so. So if that is the scenario, is there any corrective action from our side that is possible? Or it is we have to be awaiting for the market to really correct?
No. So see, our focus is on several fronts, right? One, of course, is aggressively growing the blends business. which we are seeing that the margin profile is reasonable, and it can be scaled, and that's one focus area for us to, in the short term, to try and grow that as quickly as possible. So that's one end. Second end is in the downstreams, what we are seeing is it's kind of reached a bottom of the price. We haven't seen the price eroded in the last 45 days. And I think there is a bit of a hydroquinone prices have also started moving up, they've come down at 1 point to even $4.5. And now we see that competition is coming at about $5, $5.2, a bit more. So there is a bit of a turnaround in the last 45 days in terms of pricing of hydroquinone, so which in the downstream will get reflected in the next quarter.
Okay. And in regards to vanillin contract, so the long-term supply contracts or the annual contracts. So whether the tendering period or that has been over or how is it, in fact, generally it is built there?
So all of them generally have now converted from annual, they've actually gone down to quarterly because of the uncertainty in the market right now. They also understand that it's a dumping situation. And there is a risk for them also to tie up long-term contracts and then they're not honored. And it's an unnatural situation, right? I mean they understand that people are selling, the Chinese are selling under cost. They've made a lot of money in the past few years, and now they are just doing predatory pricing, which, of course, the buyer understands that this is predatory pricing. So they're being very careful on wanting to sign annual contracts. I think most of them have kind of gone for quarterly contracts. Some of them have gone for half yearly, and they're opening up those half yearly if sure.
So for example, one large [indiscernible] company, we bid, but we didn't go down to the Chinese prices, but they've come back to us and wanting a supply at a slightly better price than the Chinese, which, of course, we did not get that till. So we are seeing that kind of thing. So they are also very uncertain because of the uncertainty of the market. They are also being careful and not to make long-term commitments, knowing very well that they may not get supplied at all, if they make those kind of commitments.
Okay. Sir, generally, the perceptions in COVID now that has been created among the western world that any food element or food input -- food-related input manufactured out of China may not be reliable and that's how what we have been seeing in case of pharma industry and all that. So is it not that playing out here in vanillin?
It's difficult because what happens is they may give you a preference, but the pricing benchmark then kept in that, right? So that's a bigger challenge. And some of these applications because it's fragrance, where they don't care where the material is coming from. So that kind of becomes a benchmark pricing. So that is what we are -- for us, that is the challenge and that's what we are trying to do. We are not trying to enter into a price war and try and play at the lower end [Technical Difficulty] where a customer is willing to pay more for better stability and quality, yes.
Okay. Just last one from my side. Sir, in fact, you talked about refurbishing of the Chinese plant as well as the Italy plant. So if you can throw some light about your plans in terms of executing those strategies and kind of a money that you would be requiring to whatever modification that you would require for that?
Yes. So for the Italy plant, we have -- the basic engineering is in process. The environmental clearance is in process. So by March end, we will have a clearcut idea of what time line and what is the cost required to convert it to, but it's not going to be very significant because the process is very similar as what we have today. So unlikely there will be a very substantial investment. Similarly, in China as well, environmental clearance because of the region that we were in -- went through 2 or 3 regulatory changes. And now it's getting more clear. So our team is actually going to be there soon and figure out how long it will take for the environmental clearance -- to get that environment clearance. Once we have that -- we know that the investment is not substantial to convert that plant [indiscernible]. But it will depend on the environmental clearance.
Okay. And sir, for this new plant, the Italy plant, it is derivative of H2 that you're talking about. So then if it is that, then the existing plant will remain as it is or you're talking completely replacing with some other products?
No. So we are looking at what we are exploring is to make MEHQ and guaiacol from anisole. So it is a very similar process as our current hydroquinone and catechol. And apart from -- I mean, here, you're using anisole as raw material. For hydroquinone and catechol, you are using phenol as raw materials. But the process is almost identical.
And the target market for that operation would be China since that is the largest target market or it is even in Europe and the other advanced market you have.
For MEHQ, it will be -- the target market will be U.S., Europe, Southeast Asia, China, all because it's a large market of almost 5,000 tonne, 5,500 tonne market. So there, we will focus on the global markets. As far as guaiacol is concerned because it's a joint product with MEHQ, in all likelihood, we'll bring it to India to convert to vanillin.
We have our next question from the line of Jainam Ghelani from Svan Investments.
So I have a few questions. So initially, sir, we are planning to launch new products in quarter 4, mainly in downstream products of blends. So what is the update for that?
So that is a continuous process. We made several new products that we have now introduced in the market. The scale up and the rollout will happen aggressively in the next financial year. But yes, we have already put -- placed all these -- the new products that we've developed into the markets in different markets. It's in Central America, South America, India, parts of Asia -- so yes, that's progressing well.
Okay. And what was the contribution of new products in the current quarter? And what do we expect it to be in the upcoming quarters?
So in the current quarter -- in Q4 that these products will start flowing. We expect going forward next year, about at least 10% of our business should come from the new products.
Okay. So what would be the fixed cost for our Europe plant and Chinese plant for each quarter?
I think that has already been answered and Chinese is about INR 2 crores per quarter.
Okay. And sir, we were also planning to get vanillin orders from this quarter. So any update on it? And what could be the pricing for the same, if you could tell us, please?
I think we just answered all these questions. Yes.
We have our next question from the line of Tushar from KamayaKya Wealth Management.
Just wanted to understand the vanillin situation, how do you see that in terms of utilization for FY '25 and FY '26, sir?
I think we've answered that question earlier.
Okay. Sir, in terms of utilization, plant utilization.
Yes, we answered that question for FY '25, that they're looking at about 40% to 50% depending on the market conditions as we see the market condition.
Okay. And so like you mentioned in the past that would be reaching INR 600 crores to INR 700 crores from that plant. Do you maintain that like that revenue? Or like do you see a dip in that.
No. So it's again depends on the pricing that we see in the market. Our capacity is 6,000 tonnes. So potentially, if it's a $10 market, it's $60 million at this point of time, that's [ we are executing ] now.
Okay. And sir, how do you see -- how are you seeing the Q4 current quarter in terms of margins and growth?
Difficult to say at this point of time, yes.
[Operator Instructions]. We have a next question from the line of Jatin Sangwan from Burman Capital.
I had just 2 follow-up questions on vanillin. First one is around the inventory that we are carrying, so is my understanding correct that we are carrying this inventory at a very high cost. Now we know that our cost of vanillin has dropped to $8, $8.5, but this inventory that we'll be liquidating would be at a substantially higher course. Is my understanding right?
Yes. So there is -- the inventory that we are carrying is at a slightly higher price. But I think -- it's not substantially very -- the impact will not be very substantial but yes.
But the sale prices we expect to be same as our cost at which we are selling.
Okay. So it's around $10.
Yes. Less than $10, but we are expecting that average realization will be [ tough ]. So we don't expect making huge margin on that.
Okay. Got it. And second question is around the vanillin utilization. Now, I mean, of course, we have given our guidance of 40% to 50% utilization for FY '25 for vanillin. But what kind of visibility, let's say, [indiscernible] what kind of visibility we have of now. Of course, the market will be holding, but what kind of visibility we have now [indiscernible] or from the dealer to distributors we are in terms with?
Yes. It's based on that. Based on that visibility, we are saying it should be at this level.
Okay. So it is the minimum kind of utilization that you will do? And if the situation improves, it could be higher than this.
That's right.
As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Ladies and gentlemen, thank you very much for giving us your time. We look forward to interacting with you again when we have our next call after the quarter. Thank you very much. Have a good day.
Thank you. On behalf of Camlin Fine Sciences Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.