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Hikal Ltd
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Ladies and gentlemen, good day, and welcome to Hikal Limited Q3 FY '23 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 future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Sameer Hiremath, Managing Director from Hikal Limited. Thank you, and over to you, sir.
Thank you. Ladies and gentlemen, a very good afternoon to all of you, and thank you very much for joining us today for our Q3 and 9 months FY '23 earnings call. I am Sameet Hiremath, Managing Director of Hikal Limited. On this call, I have with me Anisha Swadi, Senior Vice President of Business Transformation; Kuldeep Jain, our Chief Financial Officer; Manoj Mehrotra, our President Pharmaceutical business; Vimal Kulshrestha, our Crop Protection Business, our strategic group adviser of investment relation since [ advisors ].
I hope you had a chance to go through our earnings release investor presentation and the financial statements for the quarter. These are available on websites of Hikal as well as the stock exchanges. While the energy prices in Europe, slower growth rate across all sectors internationally, and rising inflation continue to cause macro level geopolitical issues, cost will peak in '21/'22 has steadied as raw material prices have started to decline.
While we see marginal benefit of the input prices softening this quarter, due to the inventory on hand, we expect it to improve with the lag effect in the upcoming quarters. These elements, along with our proactive action and the expansion of our supplier base have helped in the stability of raw material supplies. Both our businesses face significant challenges during the first half of the fiscal year, but as we have previously indicated, we anticipate an improvement during the second half.
On the back of our cost improvement programs and business excellence initiatives, we are already producing positive results, coupled with an external factor that input prices softening, we expect a quarter-on-quarter steady improvement. We have had an improvement in performance sequentially and are working towards having a stronger end to the year despite some macro level volatility caused by global uncertainty.
Customers are looking to diversify their supply chain geography, which continues to offer positive table for future growth. Margins continue to be impacted as expected as outlined in the previous call, due to a steep increase in cost of raw materials, solvents and utilities. Also the [indiscernible] and crude oil prices have significantly impacted energy costs. We, however, have seen some prices of key raw material softening and expect the trend to continue in the upcoming quarters, therefore marginally improving our margins and profitability.
Talking about the numbers for this quarter, we recorded a revenue of INR 540 crores against INR 559 crores in the previous quarter. Our revenue for the 9-month period stood at INR 1,478 crores against INR 1,440 crores the last year. We have been able to improve EBITDA margins of 130 basis points in quarter 3 compared to quarter 2. This is due to improvement in the product mix and cost improvement initiatives. Hikal's long-term credit rating is maintained at [indiscernible]. Also, the company has determined an interim dividend of 40%.
Now I'd like to hand over to our President Pharmaceutical, Manoj Mehrotra to take us through the performance of the pharmaceutical division. Over to you, Manoj.
Thank you, Sameer. The Pharma business recorded revenues of INR 292 crores in quarter 3 FY '23 versus INR 290 crores in quarter 2 FY '23. The EBIT of the division stood at [ INR 1,526 crores ] which is a 9% margin in this quarter compared to 3.6% in the previous quarter. The corresponding revenue figure for the 9-month period were INR 806 crores compared to INR 822 crores last year.
Our business excellence initiatives have resulted in reduction of costs, which helped in partly adopting the impact of higher input costs. Regarding our business verticals. On the API side, over the years, we have added several new customers and [ taken presence ] in new geographies such as the Middle East and Latin America. We have a strong development pipeline and we will launch 3 to 4 new products [indiscernible].
Our CDMO business continues to [indiscernible] increased inquiries from existing as well as new customers. Our future pipeline for CDMO business remains [ probes ] with multiple upcoming opportunities being worked on. Our discussion with innovative animal health [ core ] for new opportunities are progressing well. Development of processes for multiple active pharmaceutical ingredient as part of the multiyear animal health project with a leading inventor is on track and we intend to complete the plant committing in quarter 2 FY '24. FY '23 has been a year of consolidation. We now find ourselves back on track to chart a new growth drive increase.
Q3 FY '23 showed improved performance, and this momentum will continue in the next quarter, helping us end the financial year on a strong note.
Now I would like to hand over to our President Crop Protection, Vimal Kulshrestha, to take us through the performance of the Crop Production business.
Thank you, Manoj. Good afternoon, all the participants in this call. The crop business recorded INR 248 crores revenue in Q3 FY '23 versus INR 269 crores in Q2 FY '23. The average for the decision was at INR 27 crores at 11% margin in Q3 FY '23 on the back of higher input cost of raw materials solvent energy as against INR 35 crore in Q2 FY '23 at 13% margin. Corresponding revenue figure for the 9-month period stood at INR 671 crores compared to INR 619 crores last year. All our plants continue to operate at optimal utilization.
Demand for our own products was strong in the domestic market, we are focusing on optimal product mix to improve revenues and margins going forward. Regarding our business verticals, our own product segment, demand for existing product [ remain intact ]. From our key customers, we are also planning to complete the plant commissioning for our new fungicide by end of FY '23 and start revenue as early FY '24.
We will also continue to explore new product opportunities in the business. In CDMO business, we continue to receive new inquiries from existing as well as new customers, we have several new inquiries in the pipeline.
Now I would like to hand over to our Senior President of Business Transformation, Anish Swadi.
Thank you, Vimal and Manjoj. With our business heads, having talked about their respective businesses. I would like to take you through some of our key priorities for the short term. As you may be aware, over several quarters now, we have been working with a global strategic consultant and have formulated the future strategic direction for the company. From choosing the right products to strategic partners, right technologies for the future, including enhancing our R&D and manufacturing capabilities to stay ahead of the curve, these initiatives being implemented will drive our future growth and profitability.
On the cost rationalization front, our business excellence initiatives, including an in-depth capital efficiency program has started yielding positive results. We continue to work on improving our yields and solvent recoveries, including backward integration and a shift to renewable energy and biomass. Our Animal Health business continues to be on track. Our deep relationships with global innovators to be a partner of choice in this space. based on our capabilities in handling complex chemistries and providing end-to-end support in developing processes or complex molecules and scale-up requirements positions us on a very strong day. The progress on our multiyear contract is going ahead as per plan. It is a diversified contract with multiple products in a multipurpose asset, which is expected to come on stream in Q2 of FY '24. ESG is a pillar of our new strategic direction. While we have been active in the space of using clean renewable energy, we have also embarked on a journey to create a positive environmental footprint all the way from development through manufacturing operations. Hikal has made significant investments to facilitate this shift across all our sites. We are currently working with our international partners to map out our baseline practices and define a road map for achieving our ESG ambition of decarbonization, waste and water management. in the forthcoming year, you will hear from us about a lot more initiatives that we launched to fast track our journey towards leadership and sustainability.
With this, we will now open the floor to questions and answers.
[Operator Instructions] First question is from the line of Ankit Gupta with Bamboo Capital.
So sir, if you look at our gross margins, there has been a significant improvement in our gross margins from -- on a quarter-on-quarter basis, but higher employee cost and increase in other expenses have not resulted in translation to higher EBITDA margins. So if you can talk about what was the reason for that? And a portion that our finance costs and depreciation has also increased during the quarter. So if you can talk about it.
Sorry, I couldn't hear you. You were not very clear. Can you please repeat the question? It was not very audible.
Sure. I was asking about -- we have seen a sequential improvement in our gross margins by almost more than 400 basis points but our EBITDA margins have not improved that much, primarily because of higher employee expenses and other expenses. So what was the reason for that? And finance cost has also increased during the quarter. So if you can talk about the reasons [indiscernible]?
Yes. I think the fixed cost, if you look at the personnel cost, we have done a lot of recruitment for the new plants that we're commissioning in the next couple of quarters so that those people have already been recruited because there's a lag for commissioning and training of those employees, and we had some recruit things in that.
Due to that, the first [ teleports ] has gone up. On the finance cost, our debt has gone up marginally to fund this CapEx. And there's also been an increase in the interest rates compared to the last year same period. So these are the 2 increases that we had. But this is just a one-quarter type of impact. I think on an annualized basis, we have planned for this. And once the group plan start delivering results from next year, which will even itself out.
And on the CapEx front, how much CapEx have we spent on the new agrochemical plant and the new retinal API plant? And how much asset tons can we expect from both these plants?
So yes, so I'm not giving -- they're not giving the exact breakup of the 2. But as I said last year -- last call, [indiscernible] about INR 300 crores of CapEx this year. And the asset cost that we're anticipating is between 1.4 to 1.5, a full utilization and peak utilization, which should be after a couple of years.
Sure. Because if you look at [ something ] last year also, we did almost INR 280 crores [ CapEx ] INR 270 crores to INR 80 crores of CapEx. It's actually because of the industry and the challenges we had to face over the past 2 to 3, 4 quarters. We haven't seen a subsequent increase in the top line. So if you look at INR 300 crores of CapEx this year and almost INR 270 crores of CapEx last year. So we have almost spent INR 570 crores of CapEx in the past 2 years. So all this could present an increased top line over the next 2, 3 years?
That's correct. It will take 2 to 3 years for peak optimization of the CapEx.
So let's say, INR 550 crores of CapEx over the past -- over FY '22 and FY '23 should result in at least INR 700 crores to INR 800 crores increase in our top line.
Over the next...
Over the next 2, 3 years? Yes. And so one broader question. If you look at our company, in past 3, 4 years, 4, 5 years, in FY '18, we did almost INR 1,300 crores kind of revenue and our operating margins were around 8.5%. And in FY '22, it's almost INR 1,900 crores kind of revenue almost 40% -- 35%, 40% kind of growth you have seen on the top line. Despite that our margins did not increase significantly. They have remained in the range of around 18%, 19%. So when we achieved INR 2,800 crores, INR 3,000 crores kind of top line, do you think we can reach to our ambitious target of 22%, 24% or even 25% kind of EBITDA margins. Because in the past, we haven't seen operating leverage kicking in, in our business. and our margins haven't increased in line with the increase that we have seen in our top line.
Ankit, I mean, as I've been saying consistently in our last few calls as well, we've been expecting the last few quarters on real product mix rationalization. And all the new products that we're launching and the new CapEx that we are doing with a much higher gross margin, much better EBITDA margin and a much better asset terms. So the blend, as you said, we should spend INR 575 crores, INR 580 crores in the last 2 years. That's a peak utilization that will result in x number which you mentioned and that the EBITDA margin of that [indiscernible] will be significantly higher than historical EBITDA of 18%, 19%. So we anticipate the EBITDA to get to 21%, 22% in the next couple of years.
[Operator Instructions] Our next question is from the line of Pranay Dhelia with Panchatantra Advisors LLP.
We are very happy to see that we are back to all-time highest revenue. What is only concerning is margins that you answer -- just a couple of quick questions on this. What is our total debt as of now this quarter vis-as-vis last quarter? .
Yes, Kuldeep, [indiscernible].
[indiscernible]
I couldn't hear you, sorry.
It's INR 800 crores total debt.
INR 800 crores. How much of it is long term and short term?
It prove INR 500 crores in the long term, INR 300 crores in short term.
Okay. And what is the cost of funding for long term and short term?
We have [ stopped ] funding 8.5% for a long term and 7% for the short term.
Okay. And when do we start repaying this debt because of the belief -- because of the CapEx, we are more or less done with the -- this is a peak debt I would assume. So when does the repayment start?
Yes, yes. So we are only repaying certain loans, which we borrowed 2, 3 years back. Whatever loan we have borrowed now will have a 2 plus 6-year [indiscernible]. Yes, every year, we are paying loans -- equipment [indiscernible] loans.
So it will be safe to assume this is the peak tech. We are not going to be borrowing more for further CapEx?
See, unless -- we have been more or less, yes. But unless we had some good projects, we'll go for this.
Okay. Great. And just to the crop protection as well as pharma, what has been the volume growth we've seen this quarter?
Yes, one second. I just had those numbers. On the volume. Yes. volume growth for crop protection for the company has been about 5%. For Pharma, volume growth has been about 20% for crop, there's been a [indiscernible] volume of about 18%.
Have we seen a degrowth in volume 18% and pharma 20% increase?
Crop increase of 20%, Pharma degrowth of about 20.5%.
Is this primarily because of the excess stocking with almost every company? When do we expect this to improve?
So we expect a couple of more quarters. I mean I think by quarter 1 to quarter 2 of next year, we expect the pharma business volumes to start coming back. And what we are doing in the meantime is -- this volume is -- even though our volume has gone down downwards at more than 17% in pharma. From a value perspective, we still increase our value. So we've been able to change the product [ mix ]. [indiscernible] high margin, high value product. Yes.
And what is the capacity utilization at our manufacturing places? .
[ About ] 80%.
Across both pharma and crop?
Yes. Probably 80% to 85% depending on the site in that range. .
Okay. Great. But also, most of my question is that our revenues are back to a peak, our EBITDA margin, as you are seeing will catch up shortly within the next quarter, and we'll be seeing EBITDA margin improvement. So we can safely assume that we'll be back to our target as Hikal has protected -- projected INR 200 crores of cash in the next year, 1.5 years?
We are starting to start coming back. I mean, as I mentioned in the last February call, we did a sequential improvement quarter-on-quarter. Even this quarter, it was better than last quarter from our margin and absolute -- EBITDA absolute profit. Although revenues were down, we include our product mix within cost optimization. And the new CapEx have come on stream from quarter 1 of next year and quarter 2, quarter 3, we start benefiting next year. And we'll start moving back to a steady state pre-'22 margins, we start getting back to that towards from quarter 2 onwards [ early ] next year.
Great. So it's just that we've been out of the $1 billion club for some time. I hope to our company [ regave ] it very soon.
Yes. Thank you so much.
Our next question -- [Operator Instructions] Our next question is from the line of Sajal Kapoor, Independent H&I.
I have a couple of qualitative questions, please. So many new Indian CDMO players, who are previously focused purely on the human pharma domain, are now scaling up there and see CDMO in animal as well as agrochemicals as they have secured firm commitments and commercial contracts from global innovators. So the question is how do you see the emerging landscape from both the opportunity side as it's becoming increasingly clear that global innovators are now looking at India as a credible source on a much bigger scale, so that should help Hikal. But also from the competitive landscape perspective, because if new players are adding animal and agro and custom synthesis and to their domain and capability, does that not mean increased competitive intensity from these Indian players who were previously not into agro and animal CDMO, right? So that's one. .
And secondly, Hikal started the Pune R&D center for innovator synthesis and generic R&D about 14 years back, I think in 2009, and yet we have not seen any material traction in the [ anti-CDMO ] segment as majority of our CDMO revenues today is -- still come from supplying those off patent molecules to innovators versus some of our competitors in India started this segment of [ NC ] scale up just about 7, 8 years back, and they have demonstrated significant traction in their [ NC ] scale-up and commercial shipments. So why it took us so long to scale up on our [ NCE grams ]? Those are my 2 questions.
Yes. So I'll answer the second one first. I think Well, if you look at our shift, which has made now, I think there are several new projects in NCs development and they're getting commercialized. So I mean, why it happened in the past, I think that also rather than talking about the past talk about the future. I think the future is very bright. There's several new projects in NC, both pharma and in crop whether developing products, which are on factoring funder for registration and on the animal side as well. So the future will look very different from the last 10 years or you say 14 years. And if you started up, in Pune, it was a CRO because not a CDMO R&D side. We were doing contract research for FTE basis. So that was the change in business model about 4, 5 years ago, we will change the business model of Pune.
So yes, you're right, we started in 2008, '09, 14 years ago. But for almost 8 to 10 years, we did CRO work in Pune and the development only started 4, 5 years ago. And those projects take time, as we said, 7, 8 years, but I think we're seeing a lot of light at the end of the tunnel and several projects are moving into silicon Phase 2, and Phase 3 and we're getting some good traction on the customer side. This was second one.
Your first question was regarding increased competition animal and crop. I mean, yes, there are a few players we're looking at trying to do both. But eventually, it's about scale and about track record. And there is -- we have both for over 20 years. So there will be increased competition because we increase outsourcing happening, but we have to have a track. [ We've ] got the deep customer relationships with our customers and have been proven with our multiyear project contract at this time with a big innovative country.
So we will work with companies of [indiscernible], and we have -- we have all our -- both our divisions have a significant scale now with a track record of almost 20, 30 years of goods. And we have blue chip clients and [indiscernible] much more with us. Customers are also looking at concerning a supplier base.
While you may have your new entrant in this space that doesn't mean you guarantee business just because you have a plan. You have to have a relationship, you have to have a track record for the FDA. You have to have so many other angles in order to get [ review ]. You have to have -- fix the boxes in most of these. And yes, we're not the only ones in this space, but we are one of the top tier in these 2 segments and the first segment in animal. And we continue to grow as [ COVID ] some of our competitors, and we show above industry growth going forward in this segment.
Right. So that's helpful. So just to clarify, when I look at our historic gross margins. We have been hovering -- we've been pretty flat in this broad range of 45% to 50% sort of gross margins, whereas we all agree that the innovator NCE scale-up margins are significantly better. But I understand that you just mentioned we changed our strategic positioning only 4, 5 years back. So past is not the right way to look at our gross margins and future will be significantly better. So can we assume that over the next, let's say, as our gross margins will be materially better even on a blended basis than what we have been delivering in the past?
That's an absolutely correct statement because the CDMO business gross margins are significantly better than the generic margin would be historically high. And our portfolio is changing over the next few years are doing a dramatic change in product portfolio. And we're looking at optimizing and requesting some of the older policies with a new generation, high-margin products. So I'd use our current assets to do that. So the margin profile is under a significant change in the next 3 to 4 years compared to where we are today.
[Operator Instructions] Our next question is from the line of Mr. Kunal with [ Carnelian ] Asset Management.
My question was on crop protection business, right? So you mentioned about volume details whereas in the last quarter, demand is [indiscernible]. The demand for agro chemicals continues to remain strong for both the CDMO and [indiscernible] product segment. So just wanting to understand, I mean, more on the crop protection side and also on the margin side, how should we look at going ahead and also first question putting crop protection?
The second, also the ongoing CapEx [indiscernible], right, if you can help the status of the [indiscernible] will be upgraded?
As for the first question, I will hand it over to my -- Vimal [ asked ] us to answer the second. I think there is no volume degrowth in crop. The volume degrowth has been in pharma. There's been a significant volume growth in farm actually. So that's the time to clarify that for you. And the second part of the question, Vimal [indiscernible]...
So I'll answer that...
I will [indiscernible]. So there was a volume growth in the crop, but then the value growth was not there, if I understand correctly. Because -- hello?
Yes. That was [ in ] the product mix. I mean it's quarter-to-quarter, I think we should look at it more from a 9-month basis. From a 9-month basis, our volume and value grow growth for the crop business, significant quarter-to-quarter...
The number which you mentioned was for 9 months or for a quarter-on-quarter basis, the volume growth number [indiscernible].
Only for the quarter I mentioned.
Okay. Okay. If you could help with the second part of the question on the CapEx front.
Yes. So this -- we have completed the mechanical completion, and we have started the commissioning of this plant. And we start -- we expect to start production from Q1 of FY '24. So revenue as well -- yes.
Okay. revenue for this [ Panoli ] plant basically will start from Q1 FY '24?
Q1 FY '24, yes. And then...
And revenue [ alone ] that we have spent on what?
So I'll not be able to give you a breakup of the spend. But total last year, as Sameer has mentioned, we have spent INR 300 crores CapEx. I mean this year.
[indiscernible] CapEx. Anything specific for this particular plan?
Yes. So split, we'll not be able to give you.
Okay. Okay. Fair enough. And what is the amount of CapEx that is yet need to be spent in the current year? Or are we done completely with the complete CapEx and now the maintenance [ CapEx ] will be there.
Yes. So we will spend INR 100 crores and more during the quarter 4.
Sorry, INR 100 crores more for this particular financial?
No, it's all together for the company.
INR 100 crores is yet to be spent basically what you mean? .
Yes.
Our next question is from the line of Jay Parekh [indiscernible] with Centrum Broking Limited.
Am I audible?
Yes. Yes.
Yes. So my first question was regarding the raw material prices. As you rightly said in your initial comments, that the raw material prices have softened and the -- and the effect would be seen with a lag in next quarter. So do we have witnessed the -- any price softening impact in current quarter as well?
The current quarter, not much because there's inventory, it is a lag effect always. So margin -- sorry?
So the complete effect would be seen in next quarter Q4?
Q4 [ almost ] [indiscernible] next year [indiscernible] .
Okay. And my second question would be regarding the channel inventories in both your Pharma and Crop Protection segment. Can you throw some light there?
Well, pharma charging inventories are still there, they've come down in the last couple of quarters, but we expect -- we think -- we still think it will take 1 or 2 more quarters for the channel inventory in the pharma Phase II build up. On the crop side also, there has been some planned inventory buildup. Again, we think about 1 to 2 quarters of correction in inventory demand will be there in the crop business also. But derisking this is [indiscernible] product mix optimization and increasing the number of products, we have a big cascade of products we can move around. So that's how we are ensuring that we try and maintain revenue growth and margin improvement.
Our next question is from the line of Dhwanil Desai with Turtle Capital.
So my first question is on this multipurpose plant that we are putting out for animal health -- global animal health provider. So if I understand correctly, that will come on stream in Q2 FY '24. So will there be a period for stability batches and validation? And how long that will be. So when will the commercial supply start from [indiscernible]?.
I'll hand it over to our head of animals. Anish, you can take this?
Sure. So yes, as we currently mentioned, yes, there will be a period of validation for the products that we put through. and that will take anywhere between about 11 to 12 months from the date of commissioning the plant.
So the commercial supply will start from FY '25 second half? Is that a fair assumption?
Yes, that's a correct exemption. Yes.
Okay. Got it. And second question is, Anish, we talked about RM prices softening. But how is the trend on realization? Because generally, what you understood is that in a lot of products, the realizations also have come down. So will it impact our revenue growth objectives in any manner?
The animal health business or full [indiscernible] space?
No, no. For both crop protection and pharma in general.
Look, I mean, as you've seen in crop protection, basically prices have been more or less stable. In pharma business, you've seen some prices come down, especially if you look at what other companies have also reported, the generic market, primarily in the Pharma business has been pretty shaken up. So the U.S. market has been quite severely affected, and prices have come down substantially.
Now with the softening of raw materials, it's yet to be seen whether prices remain stable or even further come down. As of now, we are seeing most of the prices holding steady, but we'll see probably by mid to end of next quarter what happens to the prices.
Okay. So in that context, how do we see volume growth both for pharma and crop protection for FY '24?
I think for Crop Protection, I think volume growth is mixed as of now. There are a lot of global macro uncertainties. Yes, we do have contracts in place. But because of the uncertainties, people are reluctant to commit for the entire financial year over the calendar year. So we are seeing some changes. But for the most part, it seems to be intact. I think on the pharma business, it's a little more volatile because of the generic market. From a CDMO perspective, it's definitely more stable than what you see on the generic side. So it's still a work in progress.
Okay. So are you kind of factoring in 12%, 15% volume growth for next year? Or any ballpark number around that?
Yes. Well, at this point in time, we're not giving any future forecast. Right now, we're just trying to see what the customers are asking for, what's confirmed, and then we'll build out a forecast. So we'll probably have a better idea at the end of Q4.
Our next question is from the line of Gokul Maheshwari with [ Arena ] Capital.
Sir, in the previous questions, you've answered about the gross margin profile changing more from a direction sense from the next 3 to 5 years. In the past 7 to 8 years, our return on capital employed have been around the mid-teens. How would this change as you are changing the business model more towards higher gross margin products, more NCE products?
Well, I think the return on capital employed to start increasing year-on-year. So the new products and the new CapEx that we have put in place, the -- our ROCE targets are much higher than the blended current ROCE that the company has been doing historically. So we are looking at going up to the 16% to 17% to 18% we are seeing going forward in the next couple of years. .
Our next question is from the line of Ankit Gupta with Bamboo Capital.
If you can [indiscernible] talk about how many molecules on the pharma CDMO side do we do for innovators? How many of them are commercialized, how many of them are in sales to overall Phase 3?
Yes. I'll hand it over to Manoj. Manoj, if you can take this answer?
I think we are bound by certain [ content ] agreement with the customer. It's very difficult for us to give a number [indiscernible] Phase II and [indiscernible] in Phase III many.
But by and large, our business models say that we enter into this development more in Phase III because the cycle has got manufacturing facility for higher volumes. And we have several customers who are there in that segment currently. You see them going towards commercialization in 2024, 2025.
And how many have been currently in commercialized space? Like how many molecules are the manufacturing, which are already approved by Phase II, Phase IV?
Five molecules which are already in commercial sales at this point of time. There are all feedback in materials, and they will ramp up as we go further.
And on the overall business side, given the uncertainty on the agrochem side, do we still stick to our guidance of mid- to high teens kind of growth in FY '24?
I think we're not giving any guidance for next year. I think we are waiting and watching and we'll come back at the end of quarter 4. There's a lot of backlog global uncertainties as I said in my opening remarks, we're waiting and watching.
But at least on the pharma side, we are pretty confident of achieving the higher growth numbers that we were targeting earlier because that hasn't been impacted much compared to agrochemicals?
No, actually, agrochem hasn't been impacted by Pharma. Pharma industry has got impacted, right? We expect things to start improving from quarter 2 onwards of next year.
[Operator Instructions] Our next question is from the line of Rohit Nagraj with Centrum Broking.
Congrats on potential growth in terms of operating performance. So first question is in terms of the CapEx. So you indicated in an earlier question that until now we have invested about INR 300 crores and INR 100 crores in Q4. But close to about INR 400 crores invested during this year, what kind of asset terms are we looking at from this CapEx? And how much part of this CapEx is already converted into revenues during FY '23?
So the total CapEx is going to be around INR 300 crores. So it's not going to be INR 400 crore. This 100 -- we currently spend about INR 200-odd crores for the 9 months and the balance INR 100 crores will be spent in the last quarter, taking a total to around INR 300 crores -- slightly above INR 300 crores. The peak asset turn that we expect for this is between 1.4 to 1.5, but that is 2 to 3 years after commercialization. .
The last -- this is basically divided into 2 major plants. One is the animal health plant, which [indiscernible] quarter 2 FY '24. And the second part is the crop protection [ mighty ] purpose happens, which is commissioning this quarter as commercial production will start from next quarter.
All right. And any guidance on CapEx for FY '24?
It's too early right now in the budgeting process as well. So the priority is now to complete this presidial CapEx that we have, commission our plants and optimize our product mix and wait and watch on the global environment. We are getting a lot of new inquiries and we're looking at finalizing some major long-term contracts. And in the meantime, the debottlenecking our current assets [indiscernible] asset starts from our current setup. So we going to wait for a quarter or so before we finalize our large CapEx. I don't we want to complete over the next 3 to 4 months all the pending CapExs, so that end of quarter 1 or CapEx [indiscernible] completed.
And then we start generating revenues and improving our margins and [indiscernible] clarity for next year. And if a major new contract comes up, then we will look at, definitely, new CapEx.
All right. Just to understand a bit better in terms of the conversion of CapEx into assets. So normally, what will be the time line if, say, some order comes in Q1 FY '24 in terms of executing the project and putting the steel on the ground and starting production.
Typically, acquiring a business is the first in a process development that is piloting and then there's CapEx. So it takes anywhere between 18 to 24 months after acquiring a contract depending on the size of the project?
Right. Just one last question. In terms of customer acquisition, any new customer acquisitions, which have happened over the last 3 quarters in pharma as well as agro?
Yes, there is actually some very exciting customer acquisition and unfortunately, they all gone back confidentially. They are the top blue chip companies in [indiscernible] in pharma as we've acquired customers and we've already got some RFPs and some projects that we started with them. And there is significant traction with new customers that we're acquiring and with a lot of audits and customer visits taking place right now at our site. And when we're in a position to talk more, I'd be happy to talk more about this.
Our next question is from the line of Ashish Koji, Individual Investor.
The reason for acquiring [ Stakes and ] Solar, I mean say, instead of buying solar power, you're buying stake in a company who is providing solar solution or something? That was one.
And second part is, when are we going to become truly 0 affluent company? What -- we should be possibly be in line with your ESG commitment?
Okay. I'll answer the question 1 part and the Solar part, I'll hand over to my CFO [indiscernible] it. From a 0 effluence, our pharma business already has 0 effluence in Bangalore, we have already implemented that. Any new projects that we're implementing in our crop and our pharma sites right now are all 0 effluence [ with ] recycling. So over a period of time, our water consumption per kilogram of product being produced is decreasing year-on-year. And our wage transition also decreasing year-on-year. We are monitoring this, and we are very strict target over the next couple of years as part of our ESG initiatives that we've taken. So we are moving towards reducing our water [ power ] footprint and our recycling of our waste to a large -- very large extent, and it's a work in progress. And solar is also part of our ESG initiative to increase our renewable energy initiative and could be probably...
[indiscernible].
Sorry?
Yes, sir.
Did you ask a question?
Yes, [indiscernible] 12-megawatt power for our Maharashtra units. We should start using power by this month.
So it would be replacing your existing power consumption from [ GE ]?
Yes, definitely. From Maharashtra Electricity Board. Definitely.
Okay. So how much of benefits we will be achieving in that?
The data is very, very, very good. It's less than [ 1 year ] as a payback. One is the cost and second is the ESG and the carbon footprint so that was also a very big benefit, which is very positively viewed by our customers and I'm sure investors also look at that and also look for carbon reduction, decarbonization of [indiscernible].
Okay. And just to add to my first question of 0 effluence, 0 effluence would mean that no effluence is being given to the [indiscernible], what was being done and what will change the problem.
So pharma said we've already moved to 0 effluence. In our crop side, also, we are moving towards that in a sales manner.
For the new projects here.
And for the existing ones?
Sorry, the existing one also did a major base reduction program, which has been implemented in the last 9, 10 months. And this is a work in progress. And every quarter, we're reducing our effluent reduction and are -- very little is going out to the [indiscernible] introducing quarter-on-quarter.
And any update, sir, on the forecast?
Anish, if you can take this?
Yes. So the growth case is still ongoing. We've won in the Gujarat High Court. We won a positive order in the Gujarat High Court. And right now, it's status quo with relation to the [ solar ] incident.
So that [indiscernible] is over, does that mean, sir? .
It means that the court cases are still going on in the background. That is basically dates are being given by the cost as the matter has not come up yet.
Okay. So it's going to linger on for some more time?
Yes. I mean that's the Indian judicial system as of now, right? It takes time.
And we don't need -- we are not planning to do any provisioning for the same as a proven measure?
Beginning with relation to what exactly?
In case any liability arises.
No, not at this time. We are very confident in terms of our case. So at this point in time, we're not doing any provisions. .
Thank you. As there are no further questions, I would like to hand the conference over to Mr. Sameer Hiremath for closing comments.
Thank you. Thank you, everyone, for joining our quarterly earnings call, and we have continued interest in the company. FY '23 was anticipated to be a year of consolidation, while input prices have begun to softer in terms of pricing, several uncertain macro challenges are still off the horizon. However, we expect the sequential recovery to extend into quarter 4. The increase in number of customer inquiries, product mix optimization, cost improvement and business excellence initiatives have put us in a stronger position to remain competitive and win new opportunities as well as tying on new multinational clients for long-term contracts. I would want to reaffirm all of you that the pipeline is strong and the future is bright for both our businesses. We are certain that we will hit the goals we have been aiming for over the previous quarters. .
With that, I would like to close this call. Should there be any further questions, please feel free to reach out to us or our Investor Relations partner strategic goal advisers. Stay safe, take care and wish you a very good evening. Thank you very much.
On behalf of Hikal Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.