Laxmi Organic Industries Ltd

NSE:LXCHEM

Earnings Call Analysis

Robust Growth and Strong Financials at Laxmi

Laxmi achieved remarkable growth in challenging market conditions, with record volumes leading to an 8% jump in standalone revenue, reaching INR 698 crores for the quarter. Standalone Q3 EBITDA rose by 17% to INR 70 crores, and PAT soared by nearly 70% quarter-on-quarter at INR 39 crores. The Essentials business unit introduced new products, while the Specialties business continued its strong growth. The consolidated figures were also positive, with revenue climbing 6% and EBITDA improving by 22% quarter-on-quarter. Tight control over working capital resulted in a significant cash flow boost, with a 150% jump from last year to INR 329 crores for the nine months. Gearing remained low at 0.13x, and the company's credit rating was reaffirmed at AA- with a positive outlook.

Company Delivers Profitable Growth Amid Industry Challenges

Despite a challenging backdrop for the chemical industry, the company has managed to achieve profitable growth on a stand-alone basis. This performance is attributed to deliberate actions within the company's control: stronger customer engagement, a strategic product mix, and manufacturing operational excellence achieved using data analytics. These improvements have led to increased output from existing assets and effective working capital management.

Record Dispatch Volumes and Revenue Growth

The company has reported its highest volume dispatch in the third quarter, with a significant 17% increase year-on-year for the quarter and a 19% surge over the 9-month period, all without adding new capacity. Revenue growth stood at 8% year-on-year for the quarter, reaching INR 698 crores, and INR 2,047 crores over the 9-month period ending December 31, 2023. At the same time, earnings before interest, taxes, depreciation, and amortization (EBITDA) rose by 17% versus the prior quarter and 6% year-on-year.

Profitability Enhancement Despite Increased Depreciation

Improved profitability has been observed with third-quarter EBITDA for the standalone business at INR 70 crores, representing a 17% rise from the previous quarter. However, the company noted a 24% decline in profit after tax (PAT) on a 9-month basis, primarily due to a INR 27 crores increase in depreciation from capitalization made in the previous fiscal year. At the consolidated level, the PAT was about 2.5 times higher than the previous quarter but flat year-on-year.

Operational Efficiency Gains from Data Analytics

Through the application of data analytics, the company has seen improved utilization of its assets without additional capital expenditure. This efficient operation has led to higher outputs, optimizing the company's existing resources to meet demand. However, executives hint at the inherent limit to efficiency gains which could necessitate further capital investments for growth.

Preemptive Measures to Mitigate Export and Supply Chain Risks

In light of ongoing market uncertainties such as the Red Sea situation that could affect raw material availability and freight costs, the company has negotiated export pricing to incorporate these potential impacts. Efforts are also being made to secure the supply chain and mitigate risks proactively, ensuring a stronger position to face fourth-quarter challenges.

Working Capital Improvements Fuel Cash Flows

The company has improved its working capital cycles, as evidenced by its nine-month cash flow from operations reaching almost INR 330 crores. Inventory days have reduced by more than 10%, and debtor days by around 15% to 16%. While creditor days have increased due to more imports, this is not as substantial as the improvements in inventory and receivables, staying in line with a roughly 30-day net working capital goal.

Strategic CapEx and R&D Initiatives to Sustain Growth

The company is advancing its R&D for fluorine chemistry, having established fully operational labs in India despite initial plans to continue work in Italy. This move has already allowed for the transfer of technology and researching of new products. Alongside, the firm plans to start construction of the Dahej project, with an 85-acre land bank estimated to cover only 20% for the first wave of CapEx. Overall, the qualitative outlook for FY '25 remains focused on growing volumes, diversifying product mix, and developing customer strategies with expectations of new revenue streams from projects like Lote starting in the second half.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Laxmi Organic Industries Limited Q3 and 9 Months FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nishant Dudhoria from Strategic Growth Advisors. Thank you, and over to you, sir.

[Unknown Attendee]

Thank you, Anuja. Good afternoon, everyone, and thank you for joining us on the Q3 and 9-month FY '24 Earnings Conference Call for Laxmi Organic Industries Limited. We have with us on the call Mr. Ravi Goenka, Chairman; Dr. Rajan Venkatesh, MD and CEO, Mr. Harshvardhan Goenka, Executive Director, Strategy and Business Development; Mr. Tanushree Bagrodia, CFO. The company has uploaded its financial results and investor presentation on company's website and stock exchanges. I hope everybody had an opportunity to go through the same.

We will begin the call with opening commentary by the management followed by the Q&A session. Before we begin, I'd like to point out that this conference call may contain forward-looking statements about the company, which are based on the belief, opinions and expectations of the company as on the date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict.

I would now like to invite Dr. Rajan, MD and CEO for Laxmi Organic Industries Limited, to give his opening remarks. Thank you, and over to you, Dr. Rajan.

[Rajan Venkatesh, executive]

Thank you. Namaskaram. And I think after the auspicious prana pratishta that recently took place, Jai Shri is in place. Today, what we would like to take you through, as always, is give you a view of how we have performed, take you through first on the macro environment that we are operating in as a chemical industry, then we will provide you a certain level of granularity of how our customer segments are evolving in their demand patterns. We will also take the opportunity to provide you how our key raw materials have evolved in quarter 3, and how is this potentially looking into quarter 4. The rate fee crisis, which is the last thing we needed at this point of time, but certainly comes from a logistic lens on top. We'll give you a flavor of how do we see the competitive landscape, provide you an update on the projects, and then Tanushree will take you through with our numbers.

So let me start with the macro. And I think all of us who have not yet also avoid -- attended Davos had the opportunity via YouTube to get all the deep dive of Davos and all the discussions that happened there. So for us, it was a very nice cost effecting and prudent way to get a deep presence in Davos by not physically being there. The key takeaway is what you sense from a lot of the conversations there and also in a lot of the reports that you see on the economic backdrop is the global economy is still very tentative, is expected to be slowing in some senses, depending on the narrative that you hear. Certainly, it is still below the pre-pandemic growth levels that we have seen in the past. And certainly, there are also certain curve balls or positive momentum that could swing it either way, elections in various economies, including ours, is going to be an important element. Obviously, the U.S. elections as will have it say the physical monetary policy, whether the easing happens and what implications that would have would have a certain impact. So it will be fair to say at this point of time, there is the economic outlook looks a bit more murky. But that being said, let me end on a positive there in India as the country tops the growth starts and that is also anticipated to progress also into 2024. So that certainly we continue to be a shining light in what appears to be a very murky environment.

Now that being said, if you reflect that, obviously, into the chemical sector, which has obviously large implication of how the buyback and macro happens. Not surprisingly, the chemical demand was in the course of 2023, very muted. But what we are also certainly seeing is there is a certain stabilization that has happened, especially in the last quarter. And stabilization, but the weaker demand continues. So that's what I would talk with you when you talk about the chemical space at a global level. We certainly see big markets in the chemicals places like China continuing to be very, very weak. There is quite some upstream cracker capacity in China, off-line or at running at a very reduced rate. Parts of Europe are also continuing to be weakish when it comes down to the demand pattern. So those are, I would say, the macro environment that we're contending with as we are operating in Q3 and also as we move into quarter 4 of 2024 and the full year of 2024.

Then coming very specifically to certain of the key segments where Laxmi serves our dear customers. Let me start with the first, which is CASE, which is the coating, adhesives, sealants and elastomer segment. Towards the end of last year, last financial calendar year, we saw quite of the innovator companies where we provide our solutions sort of tapering down with their inventory. So there was a slower pickup. But as this year has started, which is the new financial year for many of the foreign or innovator companies outside of India, we are seeing a certain demand pickup coming in that lens. When it comes down to the packaging segment, specifically keeping the domestic lens, and we are seeing this also in the results of a lot of FMCG companies. And our customers who tend to serve the FMCG companies certainly are reflecting that the post festive season lull is -- and rural consumption is on weaker side. So that's going to be certainly a watch out for us as we enter our quarter 4.

When we talk about pharma, the sense we get in discussion with our customers is exports continue to be weaker, but domestic focus driven demand continues to be still reasonably strong, relatively spoken. When we talk about the space, the overall conversation of inventorying the pipeline is adding away now, but that seems to be something, I would say, is not as prominent in conversations with customers, but it is going to be -- it's more the topic of demand pickup and more competition that certain of the customers and especially certain of the innovators continue to see a cheaper substitutes from their competition. That's primarily from Asia.

So that gives you, I hope, a good bit of a sense about the key industries. We certainly as Laxmi are serving more industries, but we felt these were some things that this would be food for thought for the audience in the call. When it comes down to raw materials, I'll state to 2 raw materials, 1 is acetic acid and then ethanol. These are the key building blocks for us. The last time we had the opportunity to have this conversation was October, and we were sharing with you in September, we had seen an unusual spike in the acetic acid prices went upwards of $600 per metric ton. We had also at that point of time shared with you that we felt it is not sustainable because that spike was really driven by an unprecedented and unplanned shutdown in capacities, was not dependent on demand. And since then, we have certainly seen the prices moderating lower. So in the whole of quarter 3, our quarter 3, we have seen prices in the range of about $430 to $440 for acetic acid. And as we also move into our quarter 4, we are seeing prices at that range or maybe slightly less by $10 to $20. So I think there seems to be, from today's perspective, enough capacity to serve the demand that is how they're in the market.

The other element is ethanol. And ethanol prices, also what we have seen in quarter 2 were sort of peaking out at $860. Since then, we have also seen the ethanol prices moderating lower. And as we speak and as we see now, ethanol prices are in the range of about $725 in quarter 4, they are looking at about $770 to $740 in range of ethanol prices. This is also linked with the fact that in U.S.A, the prices have softened as a result of enough inventory, lower corn prices and Brazil, which is another big market where ethanol is produced, we are seeing there is surplus inventory of sugar, so sugarcane has been diverted to ethanol manufacturing, thereby putting pressure on ethanol prices in a downward trend. So those are the 2 big raw materials, which we also felt that we wanted to share the development in quarter 3 and what we see in quarter 4.

The other element that have certainly taken all of us by surprise is not surprisingly the Red Sea crisis that we are all now familiar with. Does it have consequences? Yes, it has consequences. The implication of that is it is taking much longer for the ships. So there are delays if you go via the Cape of Good Hope, this is delaying the impact transit time in the range of about 4 to 5 weeks. We have also seen prices increasing in the range of 2 to 3x times than where they were -- they are actually subsided to pre-COVID levels. In fact, the prices before the Red Sea crisis, now we are seeing them spike. So obviously, the element of vessel availability, space constraints, container shortages are all being prevalent and being experienced. Recently, there were also reports that a lot of the European producers could depend on imports from Asia feeling the pinch even more. So I think there are also conversations that's happening with customers to secure, again, talking from a supplier liability flexibility.

When it comes down to the element of competitors, talking about the local competition, again, it depends product to product. We are seeing that -- and you will see that in our business performance, certainly, we are able to hold our own. And we are seeing -- we are being resilient by being very, I would say, on one side, being -- defending our share, on the other side being aggressive and going hunting more and expanding our customer base. So that's keeping us in good stead. The Chinese competitors and the capacity I started this conversation with, certainly, there seems to be overcapacity in China, certain of this is moderated, especially in certain of the exports market, we continue to see a lot more competition from China with very, very aggressive pricing. So that gives you a sense on competition.

Then let me just come closer to home, talking a bit about our -- how we have talked on a qualitative basis on our performance. So as I said, the operating backdrop for the chemical industry continues to be challenging. And in this environment, I'm really happy and I'm thankful to the Laxmi team that we have really delivered on a stand-alone basis, we have delivered quarter-on-quarter and year-on-year basis profitable growth. This has been achieved by the levers that are in our control. One, stronger customer engagement; second, a product mix tiering within both the business units; the third one, the manufacturing operational excellence, which we have embarked on even more stronger with data analytics, which has resulted in higher output from an existing asset base and an active working capital management.

When we talk about our projects and we have shared that in the past, so the double clicking on that. The first project, which is I'm assuming top of your mind is our florochemical projects in Lote, that, as we speak now, is taking excellent shape and all key units are slated to be operational by end of financial year 2024. This will enhance our asset capability and expand our specialty product offering to our customers. For all projects, not excluding Lote, we remain on track. We have done a focused t tiering on cost and time line adherence is why we are now very confident as we embark on completing projects and starting new projects.

Speaking about our Dahej project, we are working diligently with the relevant authorities to receive the environmental clearances, to start construction post which the project execution is execution to take anywhere between 18 to 20 months for the approximately INR 710 crores that we are investing and in the hedge, our asset turn there is estimated to be 2 to 2.5x. And this is -- we have shared our asset turns in the previous presentations for Essentials vertical and also our Specialty vertical. The CapEx split in the hedge is 65% is for our Specialty business and 35% is for our Essential business.

Healthy cash flows from operations, and you will hear the numbers from Tanushree, and the recently raised funds from the qualified institutional placement are funding our growth projects. Our head product portfolio catering to diverse industries across geographies. Ongoing CapEx to serve our customer needs will all deliver future growth. We are gearing ourselves to drive positive change and create long-term value. We are also building the muscle, the process, people, systems in the organization to deliver on our growth ambitions and commitment as we move ahead.

With that, I will segue into Tanushree we to take us through the financials.

[Tanushree Bagrodia, executive]

Thank you, Rajan. Good afternoon, ladies and gentlemen. I'm wishing you all a very abundant 2024. As Rajan mentioned, the market conditions continue to remain challenging in Q3 of FY '24, but at the same time, Laxmi team resilience also continued to remain steadfast. The overall volume dispatched by the company has been the highest. In the third quarter, we saw a 17% increase in the volume dispatched year-on-year for the quarter, a 19% increase for the 9-month period. These additional volumes come without capacity additions in this fiscal. In addition to the increase in volumes, the Essentials business unit saw new products taking a more prominent presence in the product mix. The Specialties business, product mix remains to be strong and the business continues to grow in line with the strategy.

The volume increase has resulted in a top line increase of 8% year-on-year and quarter-on-quarter on a stand-alone basis. The revenue for the stand-alone was at INR 698 crores for the quarter and INR 2,047 crores for the 9 months ending December 31, 2023. The improved product mix gave a boost to profitability with the Q3 EBITDA for the stand-alone business coming at INR 70 crores, which is 17% higher than that of the preceding quarter. Year-on-year, the quarterly EBITDA on a stand-alone basis was 6% higher. And on a 9-month basis, it was 7% higher at INR 213 crores. There was no additional capitalization in quarter 3 of FY '24 at the stand-alone level. And hence, the depreciation remains unchanged quarter-on-quarter. The PAT for the quarter stood at INR 39 crores, which is almost 70% higher quarter-on-quarter and almost 15% higher year-on-year.

On a 9-month basis, the depreciation has increased INR 17 crores, which is on account of the capitalization made in quarter 2 and quarter 3 of last fiscal, resulting in the PAT for 9 months ending 31st December 2023, coming at INR 100 crores, which is just INR 9 crores lower than the 9 months of the previous period. At a consolidated level, the overseas subsidiaries also saw an improved performance for the quarter. And this is true both on a Q-on-Q and a 9-month to 9-month basis. This has resulted in the consolidated revenue at INR 700 crores, which is 6% higher quarter-on-quarter and year-on-year.

On a 9-month basis, the revenue of INR 2,093 crores is about INR 20 crores higher or about 1% higher. While on the revenue side, as Rajan mentioned, that the teams have had a very customer-focused approach, improving the quarterly top line, the cost optimization efforts have yielded profitability benefits. With these efforts continuing, we are confident that the financial performance of the international subsidiaries will be in line with the company's internal estimates.

YFCPL, the 100% subsidiary at Lote continues to be on track from a cost to complete and internal cost estimates points of view. Given that we are still in the preproduction ramp-up stage, the cost share continue to be borne by LOYF. The consolidated EBITDA for the quarter at INR 68 crores, is 22% higher quarter-on-quarter and flat year-on-year. On a 9-month basis, the EBITDA at INR 186 crores is INR 6 crores lower than the previous 9-month EBITDA. There is no additional capitalization done at any of the subsidiaries. And hence, the depreciation quarter-on-quarter remains unchanged. The PAT in quarter 3 of FY '24 at INR 27 crores is about 2.5x of the PAT of the previous quarter and flat year-on-year. On a 9-month basis, the PAT at INR 76 crores is 24% lower than that of the previous period, given the depreciation increase by INR 27 crores. Cash flow from operations remains to be a key metric that we continue to monitor. In the 9 months ended 31st December 2023, the cash flow from operations to that INR 329 crores, which is 150% of the same period last year. A large part of this increase in the cash flow from operations comes from the continued focus on working capital that Rajan also spoke about. And I can share that both on inventory and debtor days, there has been a significant improvement year-on-year. The balance sheet continues to remain strong with the gearing at 0.13x which is very, very low. And once again, the penetrating of the company has been renewed at AA- with a positive outlook. Our rating agency is India Rating.

And with this, I'll hand the call back to Nishant.

[Unknown Attendee]

We can begin with the question and answer

[Operator]

[Operator Instructions] The first question is from the line of Ankur Periwal from Axis Capital.

[Ankur Periwal, analyst]

Congrats for a decent set of numbers. My first question was on the volume growth side, given that we have found good growth there. Two questions. One, where is this growth largely originating from? Whether it's new products and -- or the older products scaling up? Or is the new customers that we have added in either of Essentials or the Specialty vertical?

[Rajan Venkatesh, executive]

thanks for your commendation to the performance of Laxmi team has delivered. So to your question, specifically, it's a combination of both. As Tanushree said, one is taking an internal focus is where we have looked at operational excellence using data analytics. That's where we have brought out more volumes coming from the existing asset base. And the other thing has been really concerted -- given the market backdrop that we are operating is basically positioning ourselves in the existing customer base, and growing some of our market share there because we're seeing also certain of the competition getting impacted, not having the cost position and ramping down their capacity and utilization, which is giving us headroom. And there are also new segments that we are entering into. As we have always said, in our specialty business, one of the big strengths has been that we have a large exposure one into we have -- even exposure into pharma, into agro, into pigment Solutions and industrial solutions. And we consciously capped our market share 25%, and we are also well hedged between our domestic and exports. So that also gives us an interesting and good headroom to grow. I hope I've answered your question.

[Ankur Periwal, analyst]

Sure, Rajan. So just taking it on the segment specific. So if I look at the Q-on-Q trend, Essentials have shown a decent growth on a quarter-on-quarter basis, while Specialty is largely flat. Would it be fair to say that large part of this benefit was derived on the session Essential front?

[Rajan Venkatesh, executive]

On a quarter-on-quarter basis, we are taking from a volume lens?

[Ankur Periwal, analyst]

Yes, volume because realizations, as you said, because of the global competitive intensity, my sense is realizations would have been largely stable.

[Tanushree Bagrodia, executive]

So on a quarter-on-quarter basis, you are right that the volume growth that comes, comes from the Essentials fee I think what's important also to note is Ankur that year-on-year, there is also a significant increase in the volumes for the specialty business.

[Ankur Periwal, analyst]

Sure. And just a clarification on the specialty bits because if my memory serves me right, if you exports were slightly weaker given we were focusing more on the domestic market. How has been the trend now? And there were new products that we had launched in specialty, how has been the ramp-up there?

[Harshvardhan Goenka, executive]

Ankur, Harsha. So you're right, Ankur, we had the there's a little bit of shifting going on in the specialty between domestic and export, but nothing significant. We have seen this quarter that more or less, we are back to where we were in the specialty export of where we were last year. And the new products continue to be resilient because they're largely contractually backed.

[Ankur Periwal, analyst]

And this contractual is on an annual basis or there could be some shifting possible there as well?

[Rajan Venkatesh, executive]

From an annual basis in some quarters, but we are always having that flexibility with the that we have in the specialties.

[Ankur Periwal, analyst]

Fair enough. And just a last bit on the side, we had mentioned earlier that while we are still guiding at the full capacity will be operational by the end of this financial year. From a product feedback perspective, pilot perspective, anything that you can share on that side?

[Rajan Venkatesh, executive]

Yes, sure. Again, we released it in our presentation that we've again had a successful launch of another product group that was -- that had not started last quarter. So this quarter, we successfully produced that, achieving better quality and norms than -- and we're very happy that the teams have strived to achieve that. The products has gone for qualification. We have some answers from our customers. Ankur we say, what we have we stayed to the commitment is what Tanushree said, we shared particularly the cost to come had escalated. We stay with the 550 number, and we are bringing this on board. We are also saying that the first year of revenue from this site will be derived in financial '25, stay with that commitment, and we also stay with the commitment we have given that this would take a certain ramp up as is normally the case for most plants over a 3-year period. So those are all the things we are double clicking on.

[Ankur Periwal, analyst]

Sure, Rajan. So my question was more on the incrementals. I take your point in terms of the CapEx investments and the ramp-up. But in terms of number of products and, let's say, from a quarterly run rate perspective, maybe the revenues from Lote should start coming in H2 the financial year '25 or we should start being in Q1, Q2,

[Rajan Venkatesh, executive]

It a fair analysis to say we have always been also very transparent in saying once we sample customers, it will take a minimum of 6 months for them to qualify. So H2 of financial year '25 is where we'll see revenue being contributed from Lote. That would be a fair understand.

[Operator]

[Operator Instructions] The next question is from the line of Dhaval Shah from Advisors.

[Dhaval Shah, analyst]

So my question is on the volume side, you mentioned that because of the -- one of the factors is data analytics, which led to improve the volume growth for this quarter. So can you share some more light on this, what kind of data analytics you have done? And I mean, is that sustainable?

[Rajan Venkatesh, executive]

So Dhawal, maybe I take it and then the entire DG, center of excellence is under Harsha, he will give more color to it. So data analytics, basically, we have -- we all are plants, we have DCS integration. It is really leveraging, looking at historical data coming and then looking at tweaks and what is the sweet spot, how we should operate our assets, what should be run rate, what are fee ratios, what is temperature, what could be the best-in-class technology. So I think, obviously, it's not one element, it is really looking at history trying to -- as I said, when we also embarked on our strategy, which we presented about 2 quarters ago, we also did a top-class benchmark analysis. And we found that Laxmi, we are in the top quartile of producers when it comes down to Essentials and Specialty. So it was building on all of that learning and certainly, to the question of is it sustainable? Certainly, it is very sustainable. With that, I will also pass it to Harsh to bring in his perspective.

[Harshvardhan Goenka, executive]

Yes. So Dhavan, I think the basic philosophy, how can you use your assets more. That's what we're trying to do and some of that has come out last quarter in a difficult environment and believe that would be sustainable.

[Dhaval Shah, analyst]

And what is the capacity utilization right now? And how much of the volume growth you attribute because of this analytics out of the 17-odd percent?

[Rajan Venkatesh, executive]

So we'll keep that a little bit confidence in on. But essentially, we are operating at good level of capacity utilization like we always have been. We have not turned down the plants despite having difficult demand and will continue to be at this rate.

[Operator]

[Operator Instructions] The next question is from the line of Rohit Nagraj from Centrum Broking.

[Rohit Nagraj, analyst]

Congrats on good set of numbers. My first question is regarding the exports breakup. So on Slide 19, we have given last year 9 months, we had a significant exposure to Europe with 56%, and this time around, partially that has been taken care by higher exports to Asia Pacific, if you can just give us a little more understanding in terms of which segments we have supplied to in Asia Pacific? Which are the geographies that we have penetrated? And any other reason for the shift which has happened during the last 1 year?

[Rajan Venkatesh, executive]

Thanks for that question. So as we've also been sharing very transparently that our Europe part of the business for our essentials, which in our income passes a large chunk from just purely a volume perspective is the one where we have consciously taken a bit of a backseat because of the demand decline that we observed in Europe and also the price arbitrage where even the local competition, given that the pie had shrunk, were a little more aggressive to take market share and some of the Chinese were also in predatory pricing. So that's where we have seen a dip primarily on our essentials part of the portfolio and very specifically acetate. We want to be very specific about that. And that therein, we have also seen our domestic demand and also across Asia, when we talk about Asia for us, we have also certain elements in Middle East, Africa, we are seeing certain opportunities there where we have been present in the past where we can slightly augment but we are also seeing in the domestic space that we have been able to garner market share because some of the marginal producers with the swings that have happened in the feedstocks, they are no longer producing and that's where opportunities came

[Rohit Nagraj, analyst]

Right. Just one clarification. So you categorically mentioned Chinese competition as far as Europe is concerned. In these other geographies, did we not face any Chinese competition? And would it be safe to assume that incrementally, also the 5 would be shifting to what has happened in 9 months FY '24?

[Rajan Venkatesh, executive]

Can you just clarify what do you mean the pie would shift in the sense?

[Rohit Nagraj, analyst]

So the concentration, which was there in Europe, which was more than 50% and now it has come to say, 30% would probably remain at similar levels of, say, 30%, 35% or so.

[Rajan Venkatesh, executive]

I think it is going to be evolving because when you look at our Essentials portfolio, there is a large bearing on feedstocks, right? And now we already see, for example, in the end of quarter 3 and also slightly into quarter 4, we are seeing opportunities opening up where end-to-end, there is still value creation that we can do. But we will take it case by case. So I would, at this point of time, not simply swat it away saying that the pie would shrink or it would remain. The essentials portfolio, what we do from an export lens primarily into Europe, are going to be -- we have some regular customers, and we have other certain opportunistic customers. So we will view it from that lens for our specialty part of the portfolio, that will be even more solid because that is really solution offerings that we are providing.

[Rohit Nagraj, analyst]

Sure. That was clear. The second question, again harping the data analytics and its resultant increase in output. So is it safe to assume, say, last year, the capacity was 100 and now the capacity has become 170. And whether increment -- is there any incremental upside from this 117 million to me 120, 125 given that we are probably still in the process of implementing those solutions.

[Ravi Vasudeo Goenka, executive]

So I think just let's give some color. So we should not look at 100 and 117. We have multiple reactors when we start from the essential part. And each reactor has a certain output that we've been able to design, there are continuous operations. So net-net, what we are seeing is we are with the data analytics and what we are able to out, we are able to have improved utilization without a dollar of CapEx being spent. But as is the nature of the beef at some point of time, we do it a feeling, right? The until and unless, you augment that capability by putting another CapEx. So at this point of time, I think we are in a good space, and we are really to paraphrase, work, we're using it out. And I think that's really what we will continue to see and where is the sweet spot that we are able to get across this range of assets. .

[Rohit Nagraj, analyst]

Right. And just one clarification on this. Is there any further possibility of debottlenecking at these existing assets?

[Rajan Venkatesh, executive]

So what we have always said in our Mahad setup, both at Unit 1, 4 plus the land bank, we are basically blanked out we have fully utilized assets, as you heard from Harsh, we are also reasonably very well utilized across these assets despite the macro operating environment. So at this point of time, really, to have large CapEx, I think there is no possibility, and hence, for us, it's really looking at smarter option at the existing sites, portfolio mixes and others and especially when you talk about the specialty in the multipurpose reactors that we have. And then really the big for us is the Dahej project, which comes in with a large land bank, as we have explained in the past, of 85 acres. Our first wave of CapEx will only cover 20% of the land bank. And then obviously, our chloro chemical projects at Lote provides even a 50% additional land bank for other ideas to be installed.

[Operator]

[Operator Instructions] The next question is from the line of Arjun Khanna from Kotak Mahindra Asset Management.

[Arjun Khanna, analyst]

First question is, in the opening remarks, you did talk about the impact of the Red Sea situation. I just want to understand what kind of impact would it be? Is it a availability of raw material, that's an issue? Secondly, in terms of ability to export or freight cost itself have moved up to a large proportion. What impact do we see from the same in the fourth quarter at this point in time?

[Rajan Venkatesh, executive]

I was waiting for somebody to ask that question. So I'm glad you asked it. So when I was giving you this information, I was sharing this at a more macro level. So the elements of cost increasing 2 to 3x. This is experienced by most market players. Vessel availability is more relevant now because it takes some time before it starts hitting you and the space constraint. Now specifically speaking about Laxmi, the way we are positioned, especially for our export business of finished goods, the entire Essentials portfolio we have freely negotiated. So this is something we are already able to capture in the pricing and account for. And Specialty is also, obviously, from the learnings from the COVID period when we had these escalations, these are also hardwired into contracts and formulas. So that flexibility. So at this point of time, as we look into quarter 4 where certain of these impacts will come, we are well positioned to navigate through them. And we are also certainly taking more preemptive measures when it comes to raw material to secure our supply chain internally.

[Arjun Khanna, analyst]

Sure. That's good to hear. Sir, the second question is in terms of our cash flow. So we've talked about cash flow from operations of almost INR 330 crores in 9 months and our EBITDA is substantially lower. So effectively, it means that our working capital cycles have improved. So could you help us which part of it? Is it payables, which have increased to historical levels? Is that the right way to understand this?

[Tanushree Bagrodia, executive]

So than, as I had also mentioned, both on the better days and the inventory was there has been a substantial improvement. So from last year to this year, our inventory base has reduced by more than 10%, right? And our debtor base itself has also reduced by about 15% to 16%. So that's the one large delta. On the creditor days, yes, there has been because we've been importing a lot more. So yes, the creditor days have increased versus last year but that delta is lower than the delta on these 2.

[Arjun Khanna, analyst]

9 Sure. Fair. That helps. If we look at it more sustainably in FY '20 and, say, FY '21, we used to run at less than 30 days working capital. Is that the right direction where we are headed? Or is it more in terms of closer to the 2 months period in terms of the working capital days?

[Tanushree Bagrodia, executive]

So I think the roughly 30 days net working capital is fairly okay from an operating standpoint. I think higher days comes in, in blips. But on a sustainable basis, operating working capital at 30 days is okay.

[Arjun Khanna, analyst]

Sure. That helps. My final question, sir, is on the R&D for a fluorine chemistry. We had stated once the plant started, we would look at facility, both in India and in Italy. Could you help us with the thought process on that? And what's the progress in setting up these labs?

[Harshvardhan Goenka, executive]

Yes. So Arjun, when we move the -- when we initially conceptualize the Miteni project, we had planned to continue on with the labs at Italy. However, with the entire COVID scenario, we had to change plans and were forced to set up a pilot plant in India to fast track a learning process, which then led to us establishing and starting research even before the plant had moved. So while our Italian colleagues ended up not coming to India, a lot of the transfer of technology and new product research already have started in India. So we've had a lab now that's fully operational in India. We are expanding on that lab, which will start up in the first quarter of next year in Mumbai. And the piloting facilities have already delivered and we have dispatched new products to innovate the customers for launches in the future.

[Arjun Khanna, analyst]

Sure. So just to understand then, so we wouldn't be having a lab in Italy at this point in time, and we -- and the erstwhile Miteni personnel who we had stated would work with us as consultants, they would be working remotely. Is that the right way of understanding this?

[Harshvardhan Goenka, executive]

Yes, that's correct.

[Operator]

[Operator Instructions] The next question is from the line of Raj our Partners.

[Unknown Analyst]

I wanted to know your outlook for FY '25?

[Rajan Venkatesh, executive]

I'm looking at my CFO, as a public listed company, whether we can give an outlook for FY '25?

[Unknown Analyst]

No, you can always give us qualitative outlook of the same.

[Tanushree Bagrodia, executive]

Quantitatively, we don't give a...

[Unknown Analyst]

Qualitatively. Qualitative outlook.

[Tanushree Bagrodia, executive]

Qualitative, I think if you look at our trajectory for FY '24, right, if you just look at the 9 months to 9 months, I think it is fair to say that on a volume perspective, we have grown, we have also diversified the product mix, we've also gone ahead and had a better customer approach strategy. I think those are the elements that we will focus on in FY '25, the other key elements to look at from a business perspective would be our Lote plant coming on stream and revenue starting to come in the second half. And of course, then this year also, the other thing qualitatively, which is important from this for the company is to start the construction and the hedge because then that is where with the changes to the financials are also coming from. I will then let Rajan add.

[Rajan Venkatesh, executive]

So Raj, I -- in my opening statement, I gave you what is the macro environment and what implications it has for the chemical industry. So from today's perspective, as we look into 2024 as a calendar year, I think it still remains challenging. That would be fair to say. While the demand has stabilized, that's the important part of the puzzle, but we are still to see the demand pick up happening. And we will continue to steer our businesses across as we have Tanushree just alluded to and as we shared in our performance for quarter 3.

[Operator]

That was the last question. I would now like to hand the conference over to management for closing comments.

[Rajan Venkatesh, executive]

So thank you for all the questions. And I think let me conclude by firstly again thanking the whole Laxmi team. Some of them who are on the call, it's very pleasure and pride to lead this team and especially what makes it fun is in a tougher environment. When things are easy, then you can always play things -- because of us. It's when things are tough, that the true mettle of the team has seen. So again, a big thank you from my side and the whole management team to the Laxmi colleagues. And let me conclude by also saying our hedge product portfolio catering to diverse industries across geographies, ongoing CapEx to serve our customer needs will all deliver future growth. And we are gearing ourselves by building the muscle to drive this positive change and create long-term value for all stakeholders.

With that, thank you, and have a wonderful year ahead.

[Operator]

On behalf of Laxmi Organic Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.