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Camlin Fine Sciences Ltd
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Ladies and gentlemen, good day, and welcome to the Camlin Fine Sciences Limited Q4 FY '22 Earnings Conference Call hosted by Sunidhi Securities & Finance Ltd. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Rohit Sinha from Sunidhi Securities & Finance. Thank you, and over to you.
Thank you. Good afternoon, everyone. On behalf of Sunidhi Securities, I welcome all participants to Q4 FY '22 Earnings Conference Call of Camlin Fine Sciences Limited. We would like to thank the management for giving us this opportunity to host the call.
From the management of Camlin Fine, we have with us today Mr. Ashish Dandekar, Chairman and Managing Director of Camlin Fine; Mr. Nirmal Momaya, Managing Director; and Mr. Santosh Parab, CFO of the company.
Without further ado, I would like to hand over the call to Mr. Ashish Dandekar for his opening remarks. Thank you, and over to you, sir.
Thank you, Rohit. A warm welcome to you, ladies and gentlemen, to the analyst call. We have ended the year and the quarter, and as per our customary procedure, Santosh Parab will give you a brief summary and outline of the quarter and the year. After which, Nirmal Momaya will take your questions as usual.
So without wasting any more time, over to you, Santosh.
Thanks, Ashish. Good afternoon, everybody. As you are already aware, we've already released our results for the quarter and financial year March 31, '22 yesterday. We also released our earnings call presentation today, and both these documents are available on our website as well as stock exchanges.
In the last quarter, all of us were struggling to cope with the challenging economic conditions. The European crisis, as you know, has seen unprecedented inflation across all geographies and across all costs. And this situation has led to uncertainty of huge proportions, making it very difficult to predict the future trends. But despite all this, we believe and are confident to navigate through these difficult times, of course, with smart mitigation strategies and quick proactive actions against the emerging situation.
We assume that you would have produced the basic numbers for these [ dais ] and, hence, we'll not well bearing in detail on them, and rather deep dive into the qualitative and business aspects of these numbers.
Fourth quarter revenue, we witnessed a very high inflationary trend, which impacting nearly all the costs, including prices of feedstocks, that's mainly phenol, cost of power and fuel and also the logistics. Our company was able to partially [indiscernible] trend and was able to hold on to the margins, which basically was due to the calibrated pricing actions and, of course, backed by the optimum capacity utilization of our diphenol Plant at Dahej. The growth momentum backed by the announced prices in all products and geographies also helped, barring, of course, Aroma products. So our Chinese Vanillin plant remains shut -- remained shut for the entire year due to the [ protection ] there.
All this revenue remains stable as compared to last quarter and this quarter, but it did grew by around 19% as compared to last year's corresponding quarter as well as when we compare to the whole of the year last year. The company was able to control other operating expenses mainly because of our effective cost management action. An exceptional increase in energy cost of around INR 27 crores in quarter 4 at CFS Europe has been a dampener on the results.
Even then, our diphenol manufacturing international subsidiary was able to deliver yearly operational, both yearly as well as quarterly, operational EBITDA -- positive operational EBITDA in this quarter as well as last year.
To firewall the operations and subsidiaries from the shutdown of the diphenol plant, which we took in April-May 2022, we did increase our sales to the subsidies in quarter 4, not to dry out them because of lack of supply due to the closure of the plant. Since majority of these stocks remained unutilized at the year-end, we had to -- due to the accounting convention, the profits of around INR 19.54 crore earned by India thereon was eliminated while reporting the consolidated results.
Despite all this, the operating EBITDA of the quarter was at INR 24.3 crores, that is 6.3% as compared to previous quarter. Consequently, the annual operating yield was INR 153 crores, that is 10.8% as compared to around INR 193 crores last year.
European crisis and its consecutive impact on economic conditions are likely to have a continued pressure, at least in near term, with inflationary conditions existing in all product prices, cost of energy and logistics. As I said earlier, this makes it difficult to anticipate or predict by that future trend, but we believe that we are in a strong position to tide over this difficult situation. This is quite evident from the exactly results of our stand-alone entity in India, which has posted one of its highest quarterly and annual turnover ever. And that, too, had a quite healthy margin in the current circumstances.
So restart on the diphenol plant at Dahej on May 14, 2022, with 50% enhanced capacity, that is from 10,000 metric tonne to 15,000 metric tonne, we strengthened our capability in diphenol as well as their downstream. We have also commenced sample trial runs of our methyl vanillin -- of methyl vanillin trial at our newly constructed vanillin facility at Dahej on May 15, 2022. The earlier plans of commencing commercial production in and around July '22 remain well on track. This capacity would modify our place in Aroma product market. It also addresses the lack of margin in catechol as an individual product, as now catechol will get value added into Aroma products.
Due to inadequate supply of vanillin, as you may be knowing, its current prices are short beyond [ USD 0.30 ] per kg from the historical average of USD 10 per kg. The commercialization of vanillin seems to be happening at an opportune time.
Robust earnings on foreign exchange have helped the company to achieve a consolidated PAT of INR 60.4 crores this year as against INR 65.4 crores last year. So even though we have badly -- had been impacted by the energy cost in Europe on EBITDA, we have still been able to post a reasonably good, consolidated PAT.
Now, briefly on the operations of our subsidiary. Yearly, CFS [indiscernible] has now posted turnover of INR 134 crores in this quarter. This is despite the economic situation in Europe, under which there are a few -- and despite the enhanced energy cost, the company, as I said earlier, has posted a positive EBITDA during the quarter and the year.
The CFS Mexico, our subsidiary, which manufacture mainly for Central America, dropped a turnover of INR 76.96 crores in this and it is expected to continue with this impressive performance. Our other 2 subsidiaries, one in South America, CFS Brazil and North American subsidiary, CFS North America, had turnover of INR 27 crores and INR 9.84 crores, respectively, in this quarter. And we -- with the opening of the economies all over the world, we are certain that this will be doing much well in the subsequent quarters.
Now coming to the legal aspect, which has been reported in the financial statements also. As you are aware, National Green Tribunal on January 2022 has revised compensation levied on the alleged pollution in the Tarapur area. The compensation has been revised from INR 5.16 crores to INR 17 crores in January. We had filed an appeal against this order, and we are happy to tell that Supreme Court has stayed that order until final hearing, and the action against that has been stayed by the Supreme Court. At this juncture, we do not foresee any cash outflow on the matter.
Coming to legal case against our partner of vanillin manufacturing subsidiary in China, we are still awaiting the final order of the court, which seems to have been delayed due to the pandemic that has arisen in the cities of Shanghai and Beijing. Though the time lines are not determinate as such and we cannot estimate when we feel that this order should be received in the future few months. However, as a derisking strategy to the situation, company has decided to produce heliotropin and aromatic product complementary to vanillin, converting the facility back to at a very minimal capital cost from vanillin manufacturing facility to a heliotropin manufacturing facility. The subsidiary has already received permission from the local authorities for such conversion, and now we will be seeking further permissions from energy affluent and other related matters for the conversion of the plant from vanillin to heliotropin. So we will update you on the matter as far as it progresses.
Lastly, coming to our battery solutions business. The discussions with Lockheed Martin have been in progress for the supply of battery services for supply of -- for the chemical for the battery storage systems. As told in the earlier quarters, the plan of Lockheed Martin is to commercialize the supply by 2024. Of course, the current economic situation is being closely watched, especially the enhanced cost of infrastructure material such as fuel, cement before taking the decision. We will be sharing more information on it as it progresses, and hopefully, in the coming quarters.
With this, I will hand over back to Rohit for opening the floor to the questions. Thank you.
[Operator Instructions] We have the first question from the line of Amar Maurya from AlfAccurate Advisors.
Yes. I have a couple of questions. Number one is that in your stand-alone business, what would be the contribution from the diphenol plant? I believe now diphenol will be operating at 100% utilization level, right?
Yes, it's operating at 100%.
Yes. So what would be the benefit to the EBITDA would you have seen in this particular quarter?
In this -- the hydroquinone, of course, counting the EBITDA margins have, of course, improved considerably. But catechol yet remains a loss-making product. So therefore, with increase in cost of phenol, the loss on catechol continues, which, of course, will get corrected with the vanillin facility coming on stream now.
Okay. So vanillin capacity would be how much, sir? Around 5,000, right?
6,000 tonnes.
Okay. And I believe in this 10,000, the overall catechol generation would be around 4,000 metric tonne, correct? So you would be having the inventory of catechol left with you, correct?
Yes. We have some inventory of catechol left, yes.
And you said that $25 per kg vanillin price?
That is currently $25. But of course, when we come into the market, there will be a little bit of easing up of the price because of -- we'll start supplying in the market. So we believe that the price should settle between $15 to $20.
Okay. Okay. Okay. And so when we'll be starting our vanillin facility, sir?
So as Santosh mentioned, we've started the trial production. We expect by July to start commercial production.
Okay. So peak revenue, let's say, at the 75%, 80% utilization level, if this $20 or $18 price sustain, so are you saying that the revenue generation from vanillin plant itself would be more than INR 500 crores?
Yes. That's right.
And then you are saying that earlier, which we used to talk, that the hedge once at full capacity utilization would generate at least INR 20 crores to INR 25 crores EBITDA per quarter, so that would fructify then, right?
So I mean, the way it...
Cost savings.
Cost savings, yes. The way it turns right now, we have debottlenecks of plants. So our capacity has increased from 10,000 to 15,000 tonnes.
Okay.
So which will contribute in this year going forward to our top line as well as to the bottom line. The addition of vanillin, because as we produce more, more catechol comes and, of course, that it's sold at a loss. Of course, hydroquinone compensated it, but it kind of dragged down the overall margin. So with catechol turning profitable with addition of vanillin, we believe that the margins will improve.
Okay. Okay. So both operating -- let's say, when catechol going at vanillin and hydroquinone going at your forward at 15,000 metric tonne capacity utilization, full capacity, what is the kind of cost savings you will see at the EBITDA?
I mean, right now, we are losing roughly about, I would say, 5,000 tonnes of catechol -- or 6,000 tonnes of catechol between Italy and Dahej. We are selling for a loss of a couple of dollars per kilo. So that, of course, will become [ profitable ]. But the savings would be like that of from that loss, what the catechol which is consumed in vanillin.
But any content like we would be having INR 20 crores, INR 30 crores kind of EBITDA additional bounce back to the EBITDA?
No. So basically, the math is simple. That if you're losing $2 on catechol, $1.5 on catechol and 6,000 tonnes of catechol is converted to vanillin, that loss of 6,000 tonnes will add about -- $10 million loss will go away and whatever margins we get on vanillin will sit on top of that, yes.
Okay. So then the EBITDA would be huge in that case?
It will improve from where we are, yes.
Because at INR 500 crores, INR 600 crores of vanillin, you would be making at least 20% EBITDA over there?
Yes. I would say yes, it would be high teens, yes.
Okay. Okay. Perfect, sir. Perfect. Secondly, sir, in terms of your Europe operation, I mean, the situation in Europe is really tough at this point of time in terms of the inflation perspective. Let's say, if this remains at this level for another 6, 7 months, we don't know. I mean the situation is very severe there, so what is the plan B? Like, are you in the position, let's say, at a worst case, you can dismantle the whole plant and bring this whole utility and equipment here in India and install it?
See, at this point, it's early days to say anything. It is profitable, so at this point of time, we can't really say what is going to happen. But if the market turns negative, if the gas prices go up or it gas is suspended, we don't know what is going to happen with the crisis going on in Italy.
There's always a possibility to -- in the long run to shift the plant. But it's not -- currently, we are not thinking of that because, like I mentioned, we are yet profitable. The one thing, of course, is good is that we are not any more dependent on any raw material coming from Italy, so we are now completely independent in Dahej for all our downstreams. So Italy -- whatever we produce in Italy is basically sold in the market. So in that sense, our dependency on a strategic level is a little less. But to move it to India is a big project and it requires a lot of work. So that's something that we will look at if the need arises.
Okay. Okay. Okay. And lastly, sir, in terms of the Lockheed Martin. So any commercial supplies you would be doing in FY '23?
In FY '23, yes, we have some commercial supply, but small quantities. FY '24 will be the larger quantity.
Okay. Okay.
[Operator Instructions] We have the next question from the line of Madhav Marda from Fidelity International.
I just want to understand that the issue with the gas in Europe or the energy cost in Europe, is that largely behind us? Or given how prices are still high, we could continue to face sort of cost pressures into Q1 and maybe into Q2 as well? Or are we, like, it's behind us, sir?
So see, the gas prices will remain high until this situation between Russia and Ukraine is -- comes to an end. Because gas prices are not showing any signs of coming down, nor is the crude oil coming down. So that is something that is really very difficult to predict. As far as passing on the increase of gas costs, we are attempting to do that. We've done the part of it. And let us see now if the market accepts that fully or in what percentage, yes.
Okay. Okay. And what about our other businesses, basically the Blends business? Or if you look at your Shelf-Life Solutions ingredient business, like, there -- are we able to pass on the cost largely to the customers? Or is there still some pass-through which is pending?
No. I think more or less, we've been able to do it. I mean there's always a lag like, we've always mentioned, there's a lag of about a quarter. So if you see our gross margins have remained more or less stable, we actually improved it slightly. And I think going forward, there will be some improvement in the gross margin. So in the Blends business as well, we should be able to pass on some of that or most of that. In the Shelf-Life Solutions also, we've been able to more or less pass on the price increases, the cost increases due to raw material logistics.
So yes, I mean, generally, we've been able to pass on, except for like we've always mentioned and said that catechol is the only area where half our product is catechol, about 50% of our volume comes from catechol. It's where we can pass on the cost increases. But hydroquinone cannot compensate that, which will now change with vanillin coming in, because vanillin, we will consume a substantial portion of our catechol, which definitely we'll be at a loss, and we will be able to pass on any cost increases even from here on, on any raw material because of the situation with vanillin.
Okay. And what's the CapEx outlook for the next couple of years? Like, what are the CapEx projects which are pending? And how much do we intend to spend in the next few years?
So I think the vanillin plant is about INR 240-odd crores, which is completed now, which will be by June end will be done. Hopefully, by July, we should commercialize it. Thereafter, it's about an average, per year, would be between INR 70 crores to INR 100 crores maximum.
INR 70 crores to INR 100 crores each in FY '23 and '24?
Yes, at a maximum.
And this is all maintenance strategy? Is there any like of new product?
There will be some additional capacities that we build on new product capacities that we are building. So it's a mix of both, maintenance and a little bit of new product.
Okay. Okay. Cool. And maybe just last question. In terms of the end markets that we service, like, multiple end markets, is that demand largely holding up? Or are we seeing any sort of demand pressures on the client side? Like, just -- I know it's very evolving, but how is the situation right now?
So I would say that about -- almost 80% of our business is directly or indirectly driven by human food consumption, yes. So keeping that in mind, generally, the contraction of demand is very limited in food consumption. Maybe you may switch for one thing to the other. But at the end of the day, you have to consume X amount of calories as a human and you'll continue to consume that. Populations are growing, so the demand is growing.
So in that sense, we don't see significant contraction of demand. Yes, of course, oil prices, edible oil prices, if you look at palm oil, you look at soya, if you look at all these, all of them have gone up in price. There is the inflationary pressure on food. But I think people need to eat. So in that sense, I don't see a big impact to demand.
We have the next question from the line of Varun Ghia from Dimensional Securities.
Can you hear me?
Yes.
Sir, could you help us with the geographical breakup of revenues? Like, how much portion of revenues come from Europe overall?
I didn't get your question.
Geographical breakup of revenues. Like, how much portion of revenues come from Europe? Europe or -- and other countries, if possible.
So the question is that -- how much we've earned by subsidiaries?
Yes.
Yes, that's the question, right? Because otherwise, INR 14 crores -- INR 1,400 crores being sold in which country is a difficult question that I can share. We have shared those numbers in the presentation.
No, no. That is according to the plant, right, based on the different regions. I wanted the breakup of this INR 1,400 crores.
We revealed that -- we don't give the breakup because it's not readily available because it's not tracked like that. We're tracking it on the basis of which country and which geography because the products are in determined and the products are pretty local. Blends are sold locally in Central America by the Mexican subsidiary. Blends are sold locally where North America and the Northern -- America present sales region. So generally, the revenue of the subsidiaries is concentrating on those geographies. India does see revenues all over the world of -- basically of the states.
Okay. And second thing...
In offline, I will give you that...
Okay. Okay. And secondly, if you could provide the gross margin in a normalized scenario, how many gross margins can the company earn on different segments? Aroma, Shelf Life and...
No, we don't give the breakup segment-wise. Overall, our gross margin are roughly about 46%, 47%, and we expect that to remain in that between -- around 50%.
Okay. And one more question. In China, you are going to make a new product. So I wanted to know the usage and how big would be the market, end market for that?
So heliotropin is again, is a flavor fragrance product. It is -- the buyers of vanillin are typically buyers of heliotropin as well. Though it's a much smaller product compared to vanillin, the overall capacity will be about 5,000 tonnes. And we're looking at the capacity, I think, we probably will get is about 1,500 tonnes.
Okay.
While you have to take a 30% market share globally.
That is the majority of consumption is in China?
Mr. Varun, we were unable to hear you. Can you come up a little bit closer to the microphone?
Hello? Yes, I was asking that is majority of the consumption of that product, does it happen in China?
No, no. It's a globally consumed product.
We have the next question from the line of Ravi Mehta from Deep Financial.
So you mentioned that despite the impact of the gas prices, the European subsidiary was still EBITDA positive. When I look at the sales number of the subsidiary, there is a marked step jump from INR 100 crore average to INR 134 crore in this quarter. And I believe that catechol is not a profit-making product, so it suggests that HQ prices have been abnormally high. So is it cost pass-through? Is it the market dynamics or the demand of the product is increasing? Or some flavor on that. Because this revenue run rate looks pretty decent and pretty high. And I think it's taking care of your gas cost.
That's right. And the demand for hydroquinone is strong and it's growing in various applications, whereas supply has not grown at the same pace. So there is a bit of a demand-supply gap, which I think, with our debottlenecking, we should be able to service that gap, which is there.
Also, since a large portion of hydroquinone and catechol, especially diphenol, is also manufactured in Europe, our competitor also has a large plant there probably and they are facing similar issues with us on gas prices. So essentially, that pass-through has happened on hydroquinone and very robustly. So yes, at this point of time, hydroquinone is holding up.
Okay. Okay. So that's encouraging. So another question I had was on the Blends. So again, when I look at the quarterly revenue run rates, for many quarters, we were stuck somewhere around INR 85 crores, INR 90 crores range. And in last 2 quarters, we are seeing a step jump in the range of INR 110 crore, INR 120 crore quarterly run rate. So what is changing in this? And how is the traction on this side?
So basically, last -- if you look at it last couple of quarters now, there has been more mobility with the COVID crisis kind of coming down, people getting vaccinated. There's more interaction, so with customers, prospective customers, for new accounts and new products with old customers. So that kind of is slowly taking traction, which was suspended for almost about 4 or 5 quarters. Actually, 6 quarters we didn't do -- nothing -- very little interaction with customers, and that has kind of come back. So that's the reason why you see that there will be growth.
We believe we'll continue to grow in this year as well. Some very good marketing initiatives as well as new products that we have launched are gaining traction. So we believe that this year, we should be able to grow this very healthy -- healthily.
Yes. So Blends' growth in the whole of '22 is some 26% growth despite things opening in just last 2 quarters. So you're confident to grow healthily on this basis...
Yes. That's right.
Okay. Sure. Sure. I'll come back.
We have the next question from the line of Dhruv Joglekar from Vasuki India.
Can you throw some light on our plans in the nutraceutical segment? What are your plans on the entity that we recently acquired? And what can we expect from this in our books, especially in the near term?
We've taken control of that subsidiary now, and we're scaling up the operations at the site where the plant is located. And in the next -- I think, one quarter, we will really define the strategy for growth in terms of what kind of investments are required for building capacity, end use cases for different products. So I think we'll have a much better idea in the next quarter on what is it that we want to do in which part. Because there are many end users, which -- whether it's human, whether it's animal, whether it's aqua feeds, so we're on several end use cases. So we're just refining our strategy, and we'll be able to update you in the next quarter on what really we want to focus on and what kind of numbers are we looking at in the near term to long term.
Okay. So what exactly would be the potential of this plant?
This plant, with debottlenecking, and there is some space available there. So we can take it up to about 5 tonnes a month, is what this plant would be capable of. But that doesn't stop us from expanding because we do have some land in Dahej, also surplus land available, so we can always set up a plant there. So we'll define this, all of this as -- in the next 3 months because it's too early. We've just taken control. We're understanding, seeing how to look at engineering, look at capacities, to see cycle time improvements. And so there's a lot of work that is going on, on the development side.
[Operator Instructions] We have the next question from the line of Surya Patra from PhillipCapital.
I have a couple of questions. Firstly, as you are saying that the vanilla -- the trial run has already started. So can you confirm, sir, the commercialization plans and -- for that? And the likely ramp-up of the vanillin operation going ahead?
We estimate that the plant should reach commercialization in July. And thereafter, we'll be able to ramp it up to 50% in the next few months. And then based on market conditions, pricing, we decide on whether to take it up to 70%, 80% immediately or over a period of time. So that will be driven more by market and the conditions there and see what is most profitable for us. And as far as technically, in 3, 4 months, we should be able to ramp it up to 70%.
Okay. Then, sir, the related question is that, see, obviously, the vanillin operation has not been there entire of last year. And we have got expanded diphenol operation from India as well as Italy. So what was the actual sales volume of this catechol, which we consider that it is a loss-making product?
So the direct catechol sales would have been about 4,000 tonnes, but there are other products like veratrole which we make, which also, I think, we sold over 1,000 tonnes where we don't make any margins. So if you look at all of that, it's almost about 5,000, 5,500 tonnes of sales without margin or at a loss.
Okay. So to that we'll say, if the vanillin will be started, then I think the loss on this volume will be protected. Right, sir?
That's right. So what we were losing should turn positive.
Okay. So then the second question is on the -- practically the consolidated EBITDA performance. So when we are saying that, okay, there is a kind of an INR 28-odd crore kind of impact on the Italy operation and that would have impacted our consolidated EBITDA performance. But if I see the EBITDA contribution by individual subsidiaries, then I think even Europe, Italy is a kind of positive, Mexico has done well and the stand-alone performance is like robust. I think this is the best ever performance on the stand-alone front. Possibly, we are seeing the benefit of this 100% utilization of diphenol. So still, there is a -- the consolidated EBITDA number is lower than the standard. So what is driving this, sir?
So it's basically in consolidation, like Santosh mentioned, in Q4, we had a large amount of quantities of [ packaging ] sold to our subsidiaries who in turn will convert them and resell them to customers. So all that product, which was not -- which haven't reached the subsidiaries as yet or may have reached and may not have been converted into final product and sold, versus the tune of almost INR 60 crores. And that -- at 46% margin, this is like almost INR 25 crores, INR 27 crores of margin, which was taken away because the cost is already incurred and it's lying at cost and not at -- as a realizable value, so which means the margin was impacted by that amount. So if you look at stand-alone, it's higher than the consolidated, where everybody else is also making a profit. So that was the main reason.
Okay. So that means, in the -- see, in this stand-alone side, possibly the revenue as well as everything would have been booked. But on the consolidated level, that is still there at the cost level. The profit is not...
Exactly, exactly.
Okay. Okay. So then that will cover -- that will, sir, to a greater extent, cover the quarter on performance, although there are challenges that is visible. And also, if you can share some idea about the -- some outlook on the Q1 performance? Because we are already into almost mid or end of the May and the cost scenario globally is really concerning. So given that, how should one look at the Q1 performance?
Yes. So with the shutdown for 1 month in Dahej, that will, of course, will have some impact. But with the debottlenecking coming in now and we're hoping that in June, we will get the full advantage of the debottlenecking or substantial advantage of the debottlenecking, we should be able to recover a part of what we would lose in the 1 month's production.
So overall, I mean, when you look at India, we should be on track as last quarter. And in Q4, we should be able to reach those numbers with the enhanced capacity in India. I think Europe will continue the same trend as it was in Q4. Nothing significantly has shown there is some -- the gas prices have remained pretty stable in the last 1 month or so, so there's no extra increase now. But if something happens tomorrow, we don't know if the prices go up. But barring that, it's more or less on the lines that we were on.
Okay. Sir, just one question -- last question from my side. This heliotropin's CapEx would be what? It would be just a couple of tens of crores? Or it is -- it would be like INR 50 crores, INR 60 crores, something like that? Some sense on that.
It won't be INR 50 crores, INR 60 crores for sure. See, the process is very similar to vanillin. It is from catechol, and it is an aromatic, and very similar kind of equipment is required. So it's just balancing equipment and some specialty equipment. I don't think it should be more than $3 million in that range, so INR 20 crores or so.
Okay. But you are -- the capacity of the heliotropin, what you're mentioning, it is 1/3 of the vanillin capacity what you are having. So it is -- that is the kind of equation for the heliotropin? Or it is spare capacity we'll still have for something else?
No. So I mean, that plant -- it's a very a special plant. So I don't know, I mean, that's something that we're looking at if we can utilize it for some other products as well. So it's not -- we're not ruling it out. We are working on some products, which technically would require that kind of a plant that we can utilize. If there is any surplus capacity left, we can utilize it there. That's work in progress right now.
So that is my basic question, sir. This 1,500 tonnes what you have mentioned for heliotropin, that will occupy majority of the CapEx that is there for vanillin?
Yes. Yes. INR 20 crores. No, roughly that will be the CapEx.
No. I'm saying that of the total capacity available for vanillin there in China, see, this 1,500 tonne of heliotropin will more or less occupy the entire of the capacity?
It would occupy, yes. I would think about 60%, 65% of the capacity.
Okay. Okay. Sure, sir. Wish you all the best.
Thank you.
[Operator Instructions] We have the next question from the line of Anurag Patil from Roha Asset Managers.
Sir, out of this expanded 15,000 diphenol capacity, how much we might sell outside hydroquinone?
Hydroquinone, I don't think we'll have surplus. If it is even there, it'll be a very, very small percentage because we are consuming downstream, more or less we consume everything.
Okay. Okay, sir. That's it from myself.
We have the next question from the line of Nirali Gopani from Unique Asset Management.
So sir, can you please share some further details on this Lockheed deal? Like what kind of revenue can be seen in FY '23 or '24?
FY '23 and '24 would be not significant revenues because they are also in their -- the first commercial battery of theirs will be installed in FY '25, which is for FY '24. We'll deliver the material and then they'll install it in FY '25. So only thereafter, the real large commercial quantities will come.
We plan to start the [ CFS ] for the same in this financial year?
Yes. We are in the process of evaluating what that is and, of course, the first plant will be funded by our customer. So that's -- it's all work in progress right now to see when and how they want, what -- how much material they want and when do they want the plant to be ready.
So revenue from the same in FY '25?
No. For the pilot facility, which we are developing and which we are talking about is for FY '24, but part of that capacity will come into play. But the major revenue will come in FY '25.
Last call, we had guided that in the next 3 years, we'll see additional INR 1,400 crores revenue from various new products. So this will have -- so this will not include Lockheed portion, right?
No, we have not included Lockheed in any of our projections.
The EBITDA margins will be in high teens, the EBITDA margins?
Which one? Hello?
Yes, sir.
One follow-up.
Can you hear me, sir?
Yes, yes, I can hear you. But I couldn't follow that question.
Ms. Nirali, your question wasn't very clear. Can you repeat the question, please?
Can you hear me now?
I request you to kindly go up the speakerphone, ma'am.
Yes. Can you -- is this better?
Yes, this is better.
Yes -- no, I was just asking that in this Lockheed deal, the margins -- EBITDA margins will be high teens? Or can you just give a broad range?
No. So Lockheed deal will be -- ultimately, who's funding what. So based on that, the margins would be defined. So difficult to say right now.
We have the next question from the line of [ Shivaji Mehta ], an individual investor.
Sir, in the last call, you had given an EBITDA margin guidance band of 17% to 20-odd percent. So just wanted to understand, any change to this, given the current situation in Europe where the increase in gas prices could be more structural and may not be transitory.
Yes. So I mean, going forward, we are -- our major focus of manufacturing will be in Dahej in India. So based on the fact that the global gas prices have hit Europe disproportionately, not other parts of the world are more or less -- everybody has been hit, but it's not been had as badly. We're saying that high teens is what the margin should be. We should be able to get there.
Right. Sir, also from, say, a more longer-term perspective, say, next 4 to 5 years, would you still hold that high teens? Or can it be more than that?
Again, it depends on market conditions and what happens to hydroquinone and what happens to vanillin. So it's difficult to predict, and especially right now with all the volatility, very difficult to predict in a very long term. Where the market will go and settle, we have no idea.
Right, makes sense. And lastly, just a clarification. Whatever you're producing in Italy will eventually, once the vanillin plant comes up, will be used to produce hydroquinone, right?
No, what we produce in Italy is both hydroquinone and catechol, which we sell. It's not used for vanillin or for any other product in India, that we produce in Dahej and we use.
Okay. So the status shown in Italy would remain the same going forward, so whatever it is being produced there will stay as is.
Yes.
Okay. And wishing you all the very best.
Thanks.
We have the next question from the line of Madhav Marda from Fidelity International.
Yes. Sorry, just one follow-up on the revenue potential from the heliotropin product. Basically, how much revenue can that 1,500 tonne capacity give us just on a normalized price basis? And what kind of margins do you make broadly on the revenue?
Yes, the revenue from 1,500 tonnes can be about INR 250 crores roughly. And the margins would be in high teens, yes.
Okay. And by when do we expect for this plan to start off?
It depends on once we get the -- we need to get all the regulatory approvals. Once we get the regulatory approvals, it's, I think, 3 to 4 months period of making all the modifications and then we can start up. So if -- I mean, if we say that the regulatory approval coming in 3, 4 months from now, I think by end of the year, early next year, we should be on.
So FY '24, broadly, we should expect that?
Yes, yes, yes.
We have the next question from the line of Amar Maurya from AlfAccurate Advisors.
Yes. So a couple of questions, sir. Firstly, this heliotropin. Basically, what has changed that -- I mean, I understand we will make a vanillin plant in India because of some regulatory issues there. So what makes us comfortable that this heliotropin plant will not come under any regulatory issue or anything like that?
What regulatory issues, sorry...
So why we discontinue that the first place the vanillin plant there in China?
In China, because our partner, who we had bought the 51% from, a case was filed on him by pre-existing producer, a competitor, that the technology that he had from -- that when we set up the plant was picked up from his competitor, which was the case. That was the reason why it was shutdown, nothing else.
Okay. So now this heliotropin plant is basically your own technology?
The vanillin plant is our own technology, yes.
No, no, the new product which we are putting up heliotropin is our own technology?
Heliotropin, yes. Heliotropin is our own technology. That's our own process, yes. Developed in India only, so yes.
Okay. Okay. Developed in India.
Yes, yes, yes. So there's no -- there is -- there are competitors, but they are small and, of course, they have very different process. This is our own process. Because our partner is not in that business, so we have to develop it.
Okay. Okay. Okay. And secondly, sir, as you indicated that almost around $1 or $1.5 we lost in catechol, let's say, during this whole year followed by this INR 28 crores of the -- I mean, the extra expenditure which we are having of Europe, I mean, that may continue. Plus, now vanillin coming by July, so at least you will have at least second half of vanillin. So should we see a meaningful improvement in your EBITDA at an absolute level in FY '23?
Yes. I mean that's the expectation.
Okay. Okay. And according to you, like, both this plan of vanillin coming up and catechol loss going away, and let's say, Europe, obviously, INR 28 crores, whatever we are -- additional cost of INR 20 crores, INR 25 crores, whatever we are having, do you think it can go further worse from here on? Or obviously, we will pass on something, right?
From hydroquinone side, we are trying -- we've been able to pass on, but from the catechol, which is a problem. So the question is whether the gas prices will go further up? Very difficult to answer, yes.
Okay. But then catechol, I mean, which was after the vanillin coming, you can actually use that catechol here in India, right?
No, no. That catechol, which we make in Dahej only will be used here.
Okay, so that catechol very much...
Yes. Anyway, there is surplus catechol for us to use.
Okay, sir. Any plan to utilize that catechol, let's say, over a period of time?
No, nothing really on hand right now.
Because this heliotropin coming, you cannot utilize that catechol there?
Maybe a small part, because we have a decent capacity in Dahej after our debottlenecking. We almost have 8,000 tonnes of which only 5,000, 6,000 tonnes will go to vanillin. The rest will go for other products. So we have room. Maybe we'll consume some part of catechol from there.
Okay. Okay. Ultimately, the dynamics of Europe will not change too much.
Yes, not too much. But I mean, it is required a little more on the downstreams of catechol to take off for it to change significantly.
Okay. But then like vanillin, do you have any other downstream of catechol which are equally profitable like vanillin?
See, heliotropin is profitable, so that will give us -- but reaching the 1,500 tonne will take a couple of years, so that is the issue.
We have the next question from the line of [ Varun Jain ], an individual investor.
Am I audible?
Yes, we can hear you, [ Varun ].
So I would like to ask like, now we have 25,000 tonnes of diphenol capacity total, including India and Italy, so how much of it is sold in the open market and going forward post vanillin plant commercialization? How much of it will be sold in open market? Like, how much of it will be used in making of vanillin and all?
So what we make in Dahej, the 15,000 tonnes we consume internally. And what we make in Italy is for local market that is sold out.
Okay. So more than 80% to 90% of it is consumed captively?
No. Out of 25,000 tonnes, 15,000 tonnes will be captive, 10,000 tonnes will be sold.
Okay. So 10,000 tonnes will be open market. So we don't use any diphenol from Italy to make downstream derivatives, vanillin and all?
No.
Okay. So do we have any plan -- do we have any plans going ahead? Because like this is nothing but a commodity, so we'll have volatility in that product. So we don't have any plans?
Plan for?
For using 10,000 tonnes of Italy diphenol to main downstream products?
No, no, that is, of course -- first, we need to fill up our 15,000 tonnes and then we will look at what we do with the balance kind of.
Okay. My second question will be, conservatively, what could be the minimum EBITDA margin we can make from vanillin sales conservatively?
Conservatively, we should be in mid-teens.
Mid-teens. Okay. And my final question will be like post vanillin commercialization, we won't be having such large CapEx going ahead, so we'll obviously have some free cash flows and all. So do we look forward to deleverage our balance sheet? And like, any plans for that?
Yes. So we don't have any Dahej project or big CapEx lined up. So at this point of time, we're processing -- the free cash flow, we will look at paying down the debt.
Okay. Okay. So are we looking to be net debt free or we'll have some of it on our balance sheet?
Sorry?
Are we looking to be a debt-free company or some of it will have it on our balance sheet?
Debt-free is a long time away. I can't answer that right now.
Because post vanillin, like we'll have a good amount of free cash flow. It would be like INR 200 -- INR 150 crores to INR 200 crores of free cash flow going forward, like in the next 2, 3 years, if my projections are correct. And we are INR 600 crores of debt. So it would...
For us -- see, there are contracted secured loans and books like the financial long term. So one cannot say because it's a contracted loan. So at the time when we will look at the interest rate at that time, then we'll take a decision. Any company wants to be debt-free. But looking at the position in our growth plan, this decision will be there. So it's very difficult to tell you that at what time we'll be debt-free. So whatever is feasible and profitable for the stakeholders, it will be done.
Okay. Okay. All the best.
We have the next question from the line of Abhishek N. from Nirmal Bang.
Could you please help us with the EBITDA margin of all the subsidiaries for the full year FY '22? Am I audible?
Yes. Santosh?
Yes. So you know about India, did -- as we said, we are EBITDA positive in India around 5%, internationally is around 18%.
I'm not able to hear you actually, sorry. Maybe...
You may need to come a little closer to the mic, sir. We are not able to hear you very clearly.
Europe was 5%, internationally was 18%. Brazil was near to breakeven. You have North America, as you know, because it's still gathering traction, it did around INR 2.5 crore EBITDA. Wanglong is closed, the overheads there are around INR 75 lakhs per month.
Okay. Got it. And one last thing on the working capital side. So since this Dahej is commercialized in, I think, second half of this year. But on a full year basis, basically in FY '23, should we expect some improvement on the inventory side? What working capital cycle actually?
Working capital cycle, looking at the whole way it works, there will be some working capital cycle reduction on vanillin production. But on the overall working capital cycle of the consolidated business, it will not be major. But we -- over progressively, we will be migrating from 100, 110 days to 80 to 90 days.
That was the last question. I would now like to hand over to the management for closing comments.
Hello?
Yes, Mr. Dandekar. We can hear you.
You can hear me. Okay. Ladies and gentlemen, thank you very much for patiently listening to us and answering, and I hope we've answered you satisfactorily. I look forward to interacting with you again at our next conference call. Until then, thank you very much. Good day.
Thank you. On behalf of Sunidhi Securities & Finance, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.