PCBL Ltd

NSE:PCBL

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to PCBL Limited Q4 FY '24 Results Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sanjesh Jain from ICICI Securities. Thank you. And over to you, sir.

[Sanjesh Jain, analyst]

Thanks, Manav. Good afternoon, everyone. Thank you for joining on the PCBL Limited Q4 FY '24 Results Conference Call. We have PCBL management on the call represented by Mr. Kaushik Roy, Managing Director; Mr. Raj Gupta, CFO; Mr. Saket Sah, Group Head, Investor Relations and ESG; Mr. Pankaj Kedia, Vice President, Investor Relations. I would like to invite Mr. Kaushik Roy to initiate the call with his opening remarks, post which we will have a Q&A session. Over to you, sir.

[Kaushik Roy, executive]

Thank you so much. Very good afternoon to each one of you, and a warm welcome to the call. Thanks for joining. As you know that PCBL is the seventh largest global -- seventh largest globally in carbon black with a very, very strong presence in rubber black, performance chemicals and specialty chemicals. And over the years, as you must have observed that we have tried our best to consistently perform well, riding on the additional capacity and a strong focus of research and development. And also, over a period of time, we have built a diversified product portfolio. Climate industry, we have also increased our global footprint, and I'll talk about it later in detail. FY '24, there are ups and downs. As you know, globally, there are uncertainties in the global market because of these wars which are going on. There are issues with U.S. economy as well as the European economy. But I'll say that in spite of this difficult situation, PCBL has performed pretty well, and we are confident that going forward, we'll use the same thing again, repeat the same thing.

In FY '24 -- let me now talk about this year, in FY '24, we commissioned the greenfield Carbon Black project in Chennai with 147 KT, 1,47,000 tonnes. And with this, our total installed capacity for the company on consolidated basis now stands at 7,70,000 tonnes.

In parallel, we have also commissioned the cogeneration captive power plant at Tamil Nadu site, having a capacity of 24 megawatts. And with this, the total cogeneration power capacity now stands for the organization at 122 megawatts. This new Tamil Nadu greenfield facility is based on Industry standard 4.0, which provides cutting-edge technology that includes AI, machine learning and data analytics, and we are confident that it would definitely give benefit financially to the organization as we go along.

It is a smart factory that will improve our reliability, our quality, standard and yield benefit. The plant was operating at 60% capacity during quarter 4 and on a full year basis, it was about 55%. And we are hopeful that we'll reach full capacity utilization in Tamil Nadu plant by quarter 3, quarter 4 of FY '25.

Besides this, during last year, we also commissioned 1 Specialty Black line of 20 KT, 20,000 tonnes in Mundra, Gujarat. And another specialty line of 20,000 tonnes is under implementation at this point of time and will be commissioned during the current year.

These strategic initiatives are expected to increase PCBL's total manufacturing capacity to 790 KT, 7,90,000 tonnes in the current year itself, further strengthening the company's position in the industry. And you all are aware of that recently PCBL acquired further land measuring 28 acres in Mundra, and this will help us in future expansion requirements.

I'm also happy to announce at this point of time that we are going ahead with brownfield expansion of 90 KT, that is 90,000 tonnes of Carbon Black at PCBL Tamil Nadu facility. This will be completed in 2 phases. The first, which will be having 30,000 tonnes capacity, and the second one will have 60,000 tonnes of capacity, and we expect to complete this expansion next year. And once this expansion is over, we could take our total capacity to 880 KT, close to 9 lakh tonnes.

We are also, in parallel, evaluating a new greenfield expansion for which necessary discussions are already underway. This would take our capacity beyond 1 million tonnes in near future. And this will also help us to significantly increase our global market share.

Most of you are aware of that PCBL recently acquired Aquapharm Chemicals Private Limited, which is a leading specialty chemical company with end applications in detergent, water treatment, oil and gas chemicals and multiple other applications. This acquisition allows us to enter global specialty segment with multiple applications and propel PCBL from single platform to multiple platforms, enhancing its offerings in line with company's vision of becoming a trusted global player with a diversified specialty chemicals portfolio.

It represents a pivotal moment for both PCBL and Aquapharm, changing the company's position in fast-growing and high-margin specialty chemicals sector. For your information, Aquapharm derives 75%-plus revenue from Western markets, U.S.A. and Europe, and these markets are pretty lucrative.

Their key products include phosphonates, polymers, green chelates and oil and gas chemicals. In terms of phosphonates, their global customers represent FMCG majors like Procter & Gamble, Unilever, Henkel, Reckitt & Colman, et cetera.

Oil and gas companies like Halliburton, Baker Hughes, they're their major customers in that particular segment. And on the other hand, there are chemical giants like BASF and Ion Exchange as their customers.

It has got manufacturing plants in U.S.A., India and Saudi Arabia. This acquisition was completed on 31st of January 2004 (sic) [ 2024 ] at a total consideration of INR 3,850 crores. The current quarter's consolidated financial captured only 2 months. Because it is concluded on 31st January, it captures only 2 months of operations post acquisition.

At this point of time, we are working on integration of the business with PCBL and aligning the vision of Aquapharm with the growth vision of PCBL. We plan to expand capacities of various specialty chemicals in Aquapharm rapidly. And this would help us to accelerate the growth momentum going forward.

We have also focused on another area which is a growing segment in EV battery chemicals. PCBL and Kinaltek, a Sydney-based Australian company, has executed a JV agreement on March 16, 2024 to form an Indian joint venture company called Nanovace Technologies Limited. I'll repeat the name Nanovace Technologies Limited, which will develop nano silicon additives to be used in anodes of a lithium-ion battery.

The transaction involves acquiring the IPs and lab-scale assets in Australia by Nanovace Technologies Limited for a consideration of USD 16 million. PCBL will own 51% of Nanovace Technologies Limited, and Kinaltek will hold 49% shareholding.

It also involves the infusion of INR equivalent amount of USD 28 million by PCBL in the JV company towards capital expenditures and commercialization of the technology over next 1.5 to 2 years.

Kinaltek Private Limited is an innovation company, specializing in advanced technologies. Kinaltek has developed a patented mobile proprietary technology for direct production of metallic alloys and compounds, including nano silicon which will have applications in lithium-ion battery.

The technology developed by Kinaltek provides a breakthrough in production of nano silicon enabling lower cost and lower carbon footprint manufacturing process. Kinaltek has been awarded global patent pertaining to the above-mentioned technology. This JV will help us to foray into the high-growth battery materials segment with innovative technology, giving a huge impetus to the originally developing conductive Carbon Black grades like Energia to a multi-specialty material portfolio for, one, enhanced battery capacities, enabling higher mileage to EV; second, faster charging; third, safer battery chemicals; and fourth, reduced carbon footprint and cost per unit energy stored.

During the current year, we plan to start work on designing and setting up the [indiscernible] plant. In April 2023, PCBL incorporated a wholly-owned subsidiary company in the name of PCBL Europe SRL in Belgium. The European subsidiary would significantly enhance our capabilities to increase research and development initiatives at our global R&D center, Sushila Goenka Innovation Center, in Belgium.

It would also allow us to serve our European customers better by enabling local involvement and just-in-time delivery of both rubber grade materials as well as specialty chemicals.

Coming to another area, PCBL also secured 2 patents in relation to oxidized and surface modified grades, which will further strengthen the Specialty portfolio of the company. Oxidized grades have applications in ink and coating. While the surface modified grades improves fuel efficiency and tire life.

In March 2024, our Board of Directors approved the issuance of 16 million warrants convertible into equity shares at an issue price of INR 280 per share aggregating up to INR 4.48 billion to promoter group. This would help us to deleverage the balance sheet. It also demonstrates the commitment of the promoter group towards the growth of the company.

Let me focus on another area. At PCBL, research and innovation are important drivers of both technical advancement and business expansion. In recent years, the company has intensified its commitment to research by making substantial investment in infrastructure, human capital and streamline processes.

These investments have significantly bolstered PCBL's capabilities in new product development, customization and application as well as process efficiency.

Let me now give you some detail of our Q4 FY '24 performance. Let me talk about some numbers. PCBL reported a strong quarter with the highest ever volumes and best ever quarterly financial performance despite the prevailing geopolitical situation, which I talked in the beginning itself.

During the quarter, our consolidated sales volume was 142 KT, up by about 20% on year-on-year basis. While consolidated revenues from operations was INR 1,929 crores. EBITDA grew by about 166% year-on-year to INR 332 crores. PBT stood at INR 149 crores, while PAT increased by 9% year-on-year to INR 111 crores.

Consolidated EBITDA a metric tonne in Carbon Black business stood at INR 22,600. The profit for the quarter factors in an interest cost of INR 60 crores approximately, and amortization of INR 15 crores relating to acquisition of Aquapharm Chemicals.

During the quarter, PCBL Tamil Nadu achieved the sales volume of 19 KT, that is 19,000 tonnes, which is roughly about 60% of the capacity available during the quarter. We expect further ramp-up of Tamil Nadu facility in the current financial year.

And as I mentioned earlier, we are hopeful that by end of this financial year, we will be at full capacity of the plant. Of the total Carbon Black sales volume, domestic sales volumes stood at 88,000 tonnes, while international sales volumes stood at 54,000 tonnes.

Now moving on to our segment performance. Tire accounted for 82 KT or 82,000 tonnes. Performance Chemicals reported sales volume of 45 KT or 45,000 tonnes. We also achieved Specialty sales volume of over 15 KT or 15,000 tonnes, which is again the highest ever in our history. We continue to expand our product portfolio and customer base.

The volumes in our recently launched Energia brand is increasing, and that shows acceptance by the customers. Trials rounds have been being conducted by EV battery manufacturers, and we expect good volumes once the key approvals are received.

We also achieved the highest ever power generation and sales volume during the quarter. Power generation increased from 156 million units in Q4 2023 FY to 181 million units during the quarter with external sales volume of 106 million units as against 95 million units in Q4 2023.

PCBL's average realization stood at INR 3.98 per kilowatt. With commissioning of 24 megawatts PCBL Tamil Nadu, power generation and sales volume would increase further going forward. The Q4 FY '24 financial includes 2 months of financial or recently acquired Aquapharm Chemicals Private Limited. For FY '24, our consolidated sales volume was 531 KT, up around 20% on a year-on basis.

Our consolidated revenue grew by 12% on a year-on-year basis and came to INR 6,420 crores. EBITDA grew by around 39% year-on-year to INR 1,074 crores, and PBT stood at INR 676 crores, while PAT increased by 11% to INR 491 crores. And I'm happy to share with you that this is the first time, we have crossed an EBITDA of INR 1,000 crores per annum. Thanks for all your support.

The long-term prospects of all the business segment generally look very positive, and we believe there will be adequate business potential to sustain the growth momentum what we have at this point of time.

Considering the changes in global supply chains and consumption patterns, demand and margins in Specialty Chemicals should continue to remain strong. Structurally, we are increasing resource allocation to the segment.

Current -- let me talk about current market scenario and outlook now. The Indian tire sector is witnessing a strong growth opportunity and the industry appears to be well positioned to drive a long-term growth opportunity.

Indian tire sector is a big beneficiary of supply chain derisking strategy by global OEMs following the continued supply chain disruptions over the last 3, 4 years. Adding to this, favorable government policies that advocate Make in India. We expect tire industry to grow by high single digit to low double digit for the next few years.

The only concern, which I also talked about in the beginning, is the worsening geopolitical scenario. While we don't have much trade with conflicting countries, there may be indirect impact due to trade route disruptions, high oil prices and inflation.

We, as an organization, remain watchful of the developing situation and continue to work on strengthening our supply chain, improvement in our product mix and also cost optimization initiatives within the organization.

The recent Red Sea crisis has led to export freight remaining elevated on routes to Europe. We remain engaged with our customers to pass on the elevated freight costs to our customers. However, this comes with a lag effect. And it may not be full, it may be partial.

And with this, I think I've given you thoroughly the complete picture. And I conclude and open the house for any questions. Thank you so much.

[Operator]

[Operator Instructions] We have our first question from the line of Sailesh Raja from B&K Securities.

[Sailesh Raja, analyst]

Sir, Europe ban on Carbon Black to start in next 38 days, so do you see any change in the market or the buyer behavior? Sir, players like Orion Engineered Carbons, they mentioned in the recent call that their company is witnessing competition from Indian supply in the Europe market. So...

[Operator]

Sorry to interrupt Mr. Raja. I would request you to please use your handset to ask questions.

[Kaushik Roy, executive]

Just hold on. We're not able to hear anything. Just hold on.

[Sailesh Raja, analyst]

So Europe ban on Carbon Black, it starts in the next 38 days, so do you see any change in the market or the buyer behavior? Or if you see the players like Orion, they mentioned in the recent call that the company is witnessing a lot of competition from Indian supply in the Europe market.

So on an average, we are doing roughly 50,000 volumes in the exports. So in that, how much is going to Europe market right now and how do you see that mix improving in the next 2 years?

[Raj Gupta, executive]

We are doing about roughly 14%, 16% of our international volume in Western Europe and that market is becoming bigger for us. We are also laying down our infrastructure -- supply chain infrastructure. In the last 2 years, we've opened a number of offices. We have put up an R&D center. We have created a subsidiary. And now we are also invoicing our European customers locally. And Europe holds a lot of potential. It is very large when we combine all the Western European countries, right, it's about almost close to 2 million tonne market. And net debt deficit importing significant quantities from -- I mean, in past, they used to import mostly from China and Russia, but now they're also looking to source from other countries, so it creates a large opportunity.

[Sailesh Raja, analyst]

Yes. Sir, can you give some numbers, sir?

[Unknown Executive]

We did about 28,000 -- Europe.

[Sailesh Raja, analyst]

So how this number will change, sir, in the next 2 years?

[Raj Gupta, executive]

It will also depend on -- see, I mean, being the industry leader in India, we also have commitment to the local tire manufacturers. So -- and at the end, we have commissioned in FY '24, we are going through that approval process from the major customers. So we'll also have to kind of create a balance between how much we would allocate to overseas market.

We are currently constrained by capacity in a way, so as new capacities come up, our absolute volumes will go up. And like I said that Europe and North America holds a lot of opportunities, now that they are looking to change their resources of procurement.

[Sailesh Raja, analyst]

Sir, after the 1st June, roughly, the opportunity is going to open up roughly around 1.5 lakh tonnes of volume in Carbon Black because of ban on Russian Carbon Black. So in that 1.5 lakh tonnes, how much we can get it, sir, roughly?

[Kaushik Roy, executive]

See, it is not that the Russian ban means the Russian material is not going to go to Europe. It will still be going, maybe the route will be via Turkey. Already it has started. But yes, there will be some impact. The moment it is a longer route and [indiscernible] route through Turkey, there's some impact of this. And as Raj just now mentioned that Europe is a critical focus area for us.

As the market is anyway, there's a supply deficit. So we are looking at Europe. And our desire is to grow as quickly as possible in Europe. Last year, we did about 20,000 as Raj mentioned -- 28,000, sorry, 28,000 we did last year. And we'll definitely be looking at a very strong growth.

It's difficult to say exact numbers, but the intention is to grow as quickly as possible. The exact number will depend on the scenario over there, the opportunity over there. But we are already working with quite a few European customers very closely, and they are showing keen interest to have our products. So we are very hopeful for a very fast growth over there.

[Sailesh Raja, analyst]

Okay. Sir, can you give us the CapEx number for next 2, 3 years? How much is maintenance CapEx and the growth CapEx in Carbon Black and Chemical business?

[Raj Gupta, executive]

CapEx, currently, we are looking to add 90,000 tonnes in Tamil Nadu and another 20,000 tonnes in Mundra, which will be a specialty line, but this can only cater to about a U.S. kind of a requirement. So we have already started working on -- at least on the discussion stage for a larger greenfield plant. For the brownfield expansion of this 110,000 tonnes, the capital outlay will be around roughly INR 500 crores to INR 550-odd crores, which will be spent over current year and next year.

And by next year beginning, we would be starting the construction on the greenfield project also. And that would be kind of similar to our TN size, Tamil Nadu size. So where the capital outlay will be around roughly, say, INR 900 crores to INR 1,000-odd crores.

But exact specification or the size of that greenfield is still under consideration, and we will come back to you with more clarity once we have finalized everything.

[Sailesh Raja, analyst]

Okay. In the Chemical business, sir?

[Raj Gupta, executive]

In the Chemical business, in India, we have some capacity, which we plan to utilize this year and next year. So in India, we will be doing some small brownfield where we would not be incurring much, maybe about INR 100-odd crores.

In U.S., they are now running at very high capacity. U.S. in 2 phases, we will be spending about INR 180-odd crores over current year and next year.

[Sailesh Raja, analyst]

Okay. Okay. So totally, you're going to spend around INR 1,600 crores, 1,700 crores over the next 2 years...

[Raj Gupta, executive]

That will be over 4 years. I mean, that will be over next 4, 4.5 years.

[Sailesh Raja, analyst]

Okay. Okay. Okay. So just my rough estimate of cash part over the next 3 years is roughly around INR 1,000 crores and the working capital requirement is around INR 650 crores. So net CFO, including interest, is around INR 2,400 crores. Then again, this CapEx of around, say, INR 1,700 crores in next 3, 4 years, then the debt reduction, including the warrants we are getting from the promoters, that is around INR 450 crores. So rough debt reduction will be only INR 1,100 crores over the next 3 years. My understanding is right?

[Raj Gupta, executive]

I couldn't understand the exact math, but -- I mean, broad numbers, I mean, just to give you a sense of -- I mean, some color around how we look at FY '25. We did about INR 1,075 crores of EBITDA this year, which is FY '24. Tamil Nadu capacity was only utilized to the extent of roughly say 50,000 tonnes and we can go up to 1,25,000 to 1,26,000 so that 75,000 tonne capacity -- additional capacity is available, right?

So that 75,000 tonne capacity is going to give us roughly about INR 200-odd crores at current run rate, right? Aquapharm in the current year, only 2 months financials, got consolidated, right? And we believe that Aquapharm on a full year basis is going to add another INR 250 crores to INR 300 crores, right?

Now if you do the simple math and if you add these numbers, and I'm not considering anything on the efficiency side, like yield improvement or [indiscernible], I'm not even considering that. If I simply add up these numbers to our current year performance, then we are already looking at -- around INR 1,400 crores to INR 1,500 crores.

So there will be enough cash generation not only to support our growth plans, but also to manage our debt servicing obligation. Is that was your question? I mean, your voice was not very clear, but...

[Sailesh Raja, analyst]

Yes, sir. Yes.

[Operator]

The next question is from the line of Aditya Khetan from SMIFS Institutional Equities.

[Aditya Khetan, analyst]

Sir, my first question is, is this Tamil Nadu plant of 90,000 tonnes. So we are planning to commission this by Q2? So we should factor in volumes from second -- so from second half of FY '26?

[Raj Gupta, executive]

It will come in 2 phases, Aditya. The first phase will be around 30,000 tonnes, and which should be ready by end of this year or maybe first quarter of next year, right? So that capacity will be available [indiscernible] next year. The 60,000 tonne capacity will come around third quarter or fourth quarter of next year.

[Aditya Khetan, analyst]

Okay, okay. And sir, so you are talking on to the greenfield expansion. So you highlighted that the CapEx could be in the range of INR 900 crores to INR 1,000 crores. So that is the estimated CapEx as of now?

[Raj Gupta, executive]

See, like I said that we are yet to do the final working on the size, on the specifications, right, the technology that we're going to use there and also the location. So this is a very [ sketchy ] currently, but I mean just to -- I mean typically, in Carbon Black 150,000 tonnes is considered as a normal economic sized plant. And therefore, we could see from Tamil Nadu capital expenditure and therefore, this number. But exact numbers, we will come back to you once we have done the math, et cetera.

[Aditya Khetan, analyst]

Got it. Sir, on to the Aquapharm. Sir, I believe, sir, we have not shared any sort of breakup like -- so what is the breakup of capacities into phosphonates and the green chelating agents? And what are the utilization level currently and what we are targeting for next year?

[Kaushik Roy, executive]

For Aquapharm, as I mentioned a while back, we have 3, 4 major products. The biggest one is phosphonate, which is 50%-plus. And in phosphonate, they are a global leader, you can say, okay. There's one company from Italy and this Aquapharm. And then other than that, they have oil and gas chemicals which is produced in the U.S.A. and then green chelate and polymers, which are produced again in India.

Now at this point of time, in India, the capability is not fully utilized, so our first target in India is to utilize the full capacity. For example, last year, FY '24, we were somewhere around 55% capacity utilization. And we are hopeful that in this year, we will be going beyond 80% for sure, maybe closer to 90% capacity utilization.

And as Mr. Raj Gupta said a while back, in U.S.A. the capacity is already fully utilized, and we are going for capacity expansion over there by spending CapEx. So this is the situation as of now.

[Aditya Khetan, analyst]

Okay. And sir, like sir, like -- sir has mentioned that the estimated EBITDA from the Aquapharm is INR 200 crores to INR 300 crores in FY '25. So sir, subsequently, what is the estimated PAT for FY '25 and FY '26?

[Raj Gupta, executive]

So we don't want to talk about FY' 25 numbers. And also this INR 200 crores, INR 300 crores, these are broad indicators, these are not numbers because we get to look at the market condition, et cetera, et cetera. So we will not talk about 2025 performance.

[Kaushik Roy, executive]

So I think give us some time. I think you will see substantial improvement in performance of Aquapharm vis-a-vis what they did in the past in recent times. But as far as the numbers are concerned, give us some more time to get back to you with more accuracy.

[Raj Gupta, executive]

Yes. That number was basically extrapolation of last few months. I mean those numbers will be consolidated in FY '24 financials. I mean I just gave an extrapolation of that coming through..

[Kaushik Roy, executive]

Yes. So that may not be the exact fair calculation or the right way to look at it. We have already started taking a lot of initiatives, both in India as well as in U.S.A. focusing on full utilization of capacity, focusing on new product development, focusing on cost control and cost reduction initiatives across the whole organization, particularly in the area of the manufacturing, procurement, logistics, et cetera. So a number of areas we have started focusing on. So give us some time, I'm sure the result would be very positive and all of you will appreciate, I'm sure.

[Aditya Khetan, analyst]

Got it. Sir, just 1 last question. Sir, on to the Carbon Black capacity expansion. Sir, is there an estimated figure, how much expansion is coming in India for next year and for the subsequent year? And will this expansion like put any pressure like onto the supply side if supply goes beyond demand? So we have to be dependent on export like some markets like Europe where we have a lot of potential?

[Kaushik Roy, executive]

It is not about just expansion of others. The largest expansion is obviously happening with us now in India, as you are aware of, the Chennai plant. But there are some expansions planned by some other companies. I'm not giving too much of detail on that but because of obvious reasons.

But at the same time, other than Indian market, our focus has been on international market for some time. [indiscernible] responsible and the leader of the market in India, it is important that we take care of our customers' interest in India first, which we are definitely going to do and we'll continue to do so.

At the same time, we're looking at the international market in a big way. As I mentioned during the opening remarks, almost 40% of our production goes out today to international market. So that shows, and we have started putting all the building blocks in terms of having logistics system, in terms of having warehouse, our own offices so that we can be locally invoicing our own people from technical and commercial side so that they can engage meaningfully with our customers over there, overseas customers.

So it is not that we'll go away from Indian market. We will not. We'll remain the leader in Indian market. At the same time, we will be growing outside India in a big way, and that's why we're adding so much of capacity. So I don't think there will be any major pressure on us here in India.

[Operator]

The next question is from the line of Sanjesh Jain from ICICI Securities.

[Sanjesh Jain, analyst]

I know you mentioned that Aquapharm has not performed at full potential...

[Kaushik Roy, executive]

Can you please be louder, we are not able to hear you at all?

[Sanjesh Jain, analyst]

Can you hear me now?

[Kaushik Roy, executive]

Yes, it is better now, yes. Go ahead.

[Sanjesh Jain, analyst]

Okay. So first, on the Aquapharm. I know you did mention that this quarter is not a representative one, but what has gone wrong? It is general weakness in the chemical business, the transition? That's number one.

And number two, what are we fixing in terms of leadership in the Aquapharm that would be 1 key area to watch? Because I think promoter will be moving out of the business, so we need a leader there. So what is the thought there?

And number three, how is the competitive intensity in that business now that phosphorus prices have also fallen, and the ease of procuring phosphorus is there versus what it was, say, 1.5 years back? How are we looking at this business and what will drive the turnaround?

[Kaushik Roy, executive]

Okay. So about the numbers last 2 months and naturally, it was -- we were a bit disappointed, to be honest. It was not very encouraging, and we're not looking at that kind of number. So that's why we were disappointed.

The reason, I would say, is a mix of things. As you rightly said, the market was not really good. Chemical was at its lowest, possibly last year. So that is one of the reasons. The other reason is obviously they were the kind of internal planning to sell this company also. There was a lack of focus. Honestly, there's lack of focus in the operation and efficiency and other parameters.

So they lost sight on the business, to be honest. And as you also rightly said that it was a promoter-driven company, they were the MDs and joint-MDs, et cetera. And they lost focus because they were in a mood to sell it off. So naturally, it impacted the whole organization. They unfortunately also ended up with 1 problem, which was possibly because of lack of focus. They ended up with a very high inventory -- at a high cost inventory of raw material because of maybe poor planning, et cetera, it happened.

And eventually, they had to liquidate that at a very low price in terms of sales price and made huge losses there. So a combination of reasons. These are the basic things now.

Now let us look forward. What is the point in mulling over whatever has happened. Promoters are already out of this, by the way, okay? They are not involved at all in this business at all at this point of time. So all the decisions are taken by us, RPSG basically, right?

And as far as Aquapharm team is concerned, it is in terms of skill and capability, I'll say, it is quite decent. Maybe some difficult -- some areas not so good, some difficult calls we might have to take or rather we have started taking already to bring in right kind of skill and right kind of competency there.

So that has started happening already. Going forward, we'll also -- going forward, we'll also be looking at a business head to take care of the entire business. We are already on the search and I think in next 2 to 3 months' time, the person should be in place. So these changes are happening in the team. At this point of time, the team from PCBL who are kind of in deputation over there to look at various aspects of the business.

I am personally spending a lot more time on Aquapharm to ensure that we are able to set right kind of strategy, devise right kind of strategy, and set right kind of direction and action plans and will drive it very hard.

We have also engaged Mackenzie to help us in this journey -- the initial journey to define the road map as we go along. And because of this reason, we feel very confident. And I talked about primarily 3, 4 critical areas. So one is the utilization of the full capacity, one is new product development, like better portfolio.

Third one is efficiency across different functions, especially in procurement, in logistics, and in manufacturing, you just now talked about yellow phosphorus. Yes, there are changes in the pricing, and we should try and get benefit out of that.

So these initiatives are already in place. And also, we are trying to drive a culture of performance over there and aligning it with PCBL in terms of the KPIs and [indiscernible]. So this is what it is.

I will say that FY '25, which is the current financial year will be more of a transition, but I'm sure you'll get to see some good improvement in the numbers in the performance. And I think the potential is really, really very high for this organization, Aquapharm.

[Sanjesh Jain, analyst]

Fair enough, sir. That's really an elaborate and really appreciate that answer. Second, on the Carbon Black side, what kind of volume growth are we looking for, say, next 2 years because it appears that we are adding close to 110,000 metric tonne additionally both at Chennai and Mundra and then we are looking at, say, another 200 metric tonne in a greenfield. So we are adding 300 metric tonne on a base of 800. So will that -- that should come in next 3, 4 years, that will be a fair assumption?

[Kaushik Roy, executive]

I think so. What you are saying is right because we are already about 770 at this point of time. And as Raj already mentioned, that 90,000 already work has started, will be coming in 2 phases. Mundra further expansion is happening in Specialty. And another greenfield we are already looking at, which will be in terms of size will be, again, somewhat like Chennai 1,50,000 type. So we're looking at 250,000 to 300,000 tonnes addition.

We are looking at maybe 11% to 12% CAGR kind of growth. That's what we are looking at. We are looking at fast growth, to be honest. We have a big ambition, and we are looking at a fast growth. We'll continue to remain leader in India. We'll not vacate that position for sure. That remains, but we want to grow quickly in the international market. If you look at our numbers, over the last, say, couple of years, you'll realize that earlier in terms of international market, we are just about 15% roughly in terms of export.

And today, we have already started hitting 40%. So that shows the intention very clearly that we are becoming more and more a global player with presence across the globe.

[Sanjesh Jain, analyst]

Got it. Got it. Last bit on China competitive intensity, how does...

[Kaushik Roy, executive]

Can you be a bit louder again? Your volume is breaking.

[Sanjesh Jain, analyst]

On the Chennai -- on the China side, how is the competitive intensity from China? It still remained benign?

[Kaushik Roy, executive]

I mean it is blow hot, blow cold. Sometimes it is -- they are very active, very aggressive and they start dumping at times and sometimes they just disappear. But you know why it is good for us. I'll tell you the reason. The customers have lost confidence in them in the process. They look at China as a kind of fly-by-night kind of characters. So sometimes they come in, sometimes they go out at their convenience. And the reasons only is known to them. Nobody else knows the reason really, which in a way helps us because customers get much more confidence with companies like us towards kind of who kind of believe in long-term strategic relationship rather than spot transactional relationship.

It helps and as far as the numbers and the competition in terms of technology, in terms of productivity, yield, et cetera, I think we are one of the best in the world, so why should we bother about China at all. We have enough space to play.

[Operator]

We have our next question from the line of Sunil Kothari from Unique PMS.

[Sunil Kothari, analyst]

Sir, just 1 a little bit more on this Aquapharm. I have no doubt you have seen some really big opportunity in this business and the segment. And that's why we paid this much amount whatever we have paid. And I'm sure that will be -- will generate a very good return over time.

Just wanted to understand, in the past, a good -- whenever in a good time, what type of EBITDA margin or EBIT margin Aquapharm was able to do. And I'm sure with your efforts and improvement, you will be getting those numbers again. So something on possibilities talk and pass some bright times [indiscernible]..

[Raj Gupta, executive]

If we leave aside FY '24, then in the previous 3 years, they were operating at about 20%. And this was when they were operating at around 60%, 65% capacity utilization. So certainly, there is significant operating leverage, which is available. And we have reasons to believe that I think the market has bottomed out already the things have started looking better from here, both in terms of demand and also pricing. So starting from current year, possibly, we will see and margins moving up.

[Sunil Kothari, analyst]

Okay. So sir, their capability to generate revenue is roughly about INR 2,000 crores over a time with your efforts and some balancing and all?

[Raj Gupta, executive]

You're talking about revenue?

[Sunil Kothari, analyst]

Revenue capability, yes.

[Raj Gupta, executive]

No. So they achieved INR 2,000 crores revenue in FY '23 with just about 60% capacity utilization. So like I said that there is significant upside and also we are adding new products, we are adding new capacity now, especially in the U.S., which is currently sold out. So certainly, there is significant scope both for top line and bottom line to move up.

[Sunil Kothari, analyst]

Great. And sir, just last question. I think over time, we'll be also able to generate EBIT margin, which we are generating in our Carbon Black and Specialty Chemical business, that hope is or expectation is justifiable, maybe over time?

[Raj Gupta, executive]

Yes, in terms of chemistry, it's a little more complex chemistry and therefore, it should attract better margin compared to our conventional business. Our business is primarily -- I mean, though we have now created a large value-added product portfolio, but still almost 60% of our volumes come from kind of foundation grades, like tire grades.

As compared to that, Aquapharm's portfolio contains specialty chemicals, which are complex to manufacture. The market is very niche. And we believe that with proper kind of tailwinds, et cetera, or maybe, I mean, in absence of headwinds, the company should perform much better than what it is performing now.

[Operator]

[Operator Instructions] We have our next question from Krishan Parwani from JM Financial.

[Krishanchandra Parwani, analyst]

I think, firstly, on the Aquapharm, you mentioned on inventory liquidation. So if it had not been there, what would have been EBITDA of Aquapharm for this 2 months?

Again, I think in the press release, you have mentioned EBIT for this [indiscernible], this is only the Aquapharm, right?

[Raj Gupta, executive]

Krishan, I think we have already said that post acquisition, this was only 2 months of operations is when we have taken control, and the market has been soft last year. So post the liquidation of the low cost, the high cost entry et cetera -- inventory et cetera, today I think the way we are looking forward is how to align Aquapharm with our growth vision. The capacity utilization is low, that is the fact.

And the markets have bottomed out in terms of chemicals is what we believe so. I think the whole thing the way we are looking at is how do we grow the business this year. And we believe that this year, we should be able to grow it nicely with higher capacity utilization and more customer acquisition. Plus, we are looking -- lining up a launch of a large number of new products in our category. So this will drive growth from this year onwards. This is how we look at it.

[Krishanchandra Parwani, analyst]

Understood. So basically, whatever that was things should normalize and probably, as Raj you mentioned earlier, about it can go -- EBITDA can go up to INR 250 crores, INR 300 crores or even higher basis the utilization. Is that correct?

[Raj Gupta, executive]

Yes. I mean business should perform better. I mean, we are seeing better market conditions currently. So FY '25 should be better than FY '24.

[Krishanchandra Parwani, analyst]

Understood. And secondly, 2 bits. Firstly, on the working capital side. As in how do you see the overall working capital cycle with the inclusion of Aquapharm?

[Raj Gupta, executive]

See, Aquapharm currently, they have an operating cycle of about 90 days, which is high. Part of that is also because of they're sourcing from a country, which is landlocked and therefore, it takes more time to bring in material to India. We are looking at alternate geographies for this.

And also, there is scope for improvement on receivables and payable terms. It will take us some time, but we are -- I mean -- and of course, the market condition is also not very conducive. So maybe gradually over next couple of years we'll try and squeeze the operating cycle to somewhat lower number.

[Krishanchandra Parwani, analyst]

Understood. So maybe on a consolidated basis, 70, 75 days is the right number to look at?

[Raj Gupta, executive]

It is possible, although there is no industry benchmark, it's a very niche industry. In India, there is no like-to-like business, but typically, what we have seen in chemical is that 60 to 70 days is normal. So yes, I mean there is a scope.

[Krishanchandra Parwani, analyst]

Noted. And just on the continuation on that -- on the debt front, where do you see the debt from, let's say, currently, I think the gross debt is INR 4,700 crores, if I'm not mistaken. So how do you see it in FY '25?

[Raj Gupta, executive]

See, immediately next 1 year time, debt may not go down, though the ratios would improve because we'll be generating better EBITDA and our equity will also go up with profitability, increasing profitability. So our ratios would improve. But with the kind of growth plans that we have, our absolute debt number may not go down significantly.

[Operator]

We have our next question from the line of Rohan from Nuvama.

[Rohan Gupta, analyst]

Sir, first question is on our CapEx plans and capital cost of putting a new greenfield plant, which we just mentioned that maybe next year onward, we will start looking at further greenfield CapEx. So what is the ideal CapEx cost now for the Carbon Black plant?

[Raj Gupta, executive]

Carbon Black brownfield the capital cost is typically around INR 50,000, INR 55,000 and greenfield, it is about a tad higher, maybe around roughly INR 60,000 a tonne.

[Rohan Gupta, analyst]

Okay. So sir, in terms of our ambition to keep on growing this business in terms of Carbon Black and you mentioned that you're also looking to capture a higher share in the European export -- market in exports. So if I look at this over the next maybe 2 to 3 years, 3 to 4 years, slightly longer term.

So how much capacity do you think that the company we have planned to add and the CapEx for that at INR 50,000, INR 55,000 per tonne, does it justify the margin profile -- current margin profile justifies the ROCE you will be looking from that angle? Or you will first put that capacity and then expect the margin to ramp up slowly?

[Raj Gupta, executive]

No. First of all, when we take the CapEx decision, this is based on the payback period, and we normally don't consider investment unless we see a less than 5-year kind of a payback, right? Even Tamil Nadu, for that matter, if we look at how it has performed in the first year and the capacity came up in phases into 2024.

And yet, we could utilize it to the extent of 55%, right? So we do a market assessment and then we take our investment decision based on what is going to be the payback period.

Next 2 to 4 years period or rather I would talk about maybe period up to 2030, our assessment of the market is that we are in a long-term growth phase, right? There's a lot of consolidation which has happened in different part of the world and which has created a very large and long-term growth opportunity. We believe that every year, we'll have to keep adding between 80,000 to 100,000 tonnes of additional capacity going forward.

Part of it will come through brownfield, part of it will come through greenfield. We are acquiring land, which are adjacent to our plant. We are also planning to acquire land with, say, government help where we want to put a greenfield plant. That's the broad strategy.

[Rohan Gupta, analyst]

Okay. Sir, second question is related to Aquapharm. So though I understand that in a recent time frame that there would have been some high cost inventory liquidation in the industry dynamics. But in general, now since the significant time have after the acquisition of this Aquapharm. So now in your understanding, the business dynamics of this Aquapharm, what are the sustainable margins and growth profile you think that the company can have over next 2 years to 3 years' time frame and will it require further investment or CapEx?

Because right now utilization may be a tad low but after achieving the 70%, 80% capacity utilization, do you think that there is further CapEx opportunities? What are your game plan for achieving this in Aquapharm?

[Raj Gupta, executive]

Well, we -- I mean, so like we said that India currently has some capacity cushion. So India, we are not looking to do any significant amount on CapEx. U.S. is currently running at almost full capacity. And therefore, immediately, we are planning some capacity increase there. With respect to the margin profile, like you said, except 2024, if you look at the previous 3, 4, 5 years, generally this business was generating about 20% plus kind of EBITDA. And that was with around 60% capacity utilization.

So at a higher capacity utilization, operating leverage playing its own role, there is significant cushion for the margins to go up. Having said that, it's a new business for us. We are still trying to integrate it with our businesses efficiently and that will also play a role. The synergies between the 2 businesses are the best practices that 2 businesses have developed even that is going to create some benefits for both the businesses.

So give us some time, maybe 2, 3 quarters later, we will be in a much better position to comment on what kind of margins can be achieved. But I think we are very hopeful about performance of this business.

[Rohan Gupta, analyst]

Okay. And sir, from the -- one from the balance sheet point of view. So sir, currently definitely we are running in a very -- I will not say that unfavorable scenario, but yes, still -- I mean the leverage balance sheet, which probably we have not seen in many years in the company.

So the current year you mentioned that the debt may not come down, but I'm just looking from next 2 years, 3 years perspective, I mean, the limited cash flow generation and limited free cash flow generation to repay the debt because you still have ambition also in terms of PCBL's Carbon Black business as well that we require another INR 500 crore, INR 600 crores and including, I mean, on the top of the working capital.

Even the Aquapharm is also looking at growth. So the working capital requirement will remain quite high. So I just wanted to understand that the balance sheet situation, you are quite comfortable with the debt level, what we have right now continuously remains there in the same ratio for next 2 to 3 years as well? Or you will try to bring it down by any way, so that in any tough situation or any unforeseen industry scenario, we are not stuck with the leverage balance sheet?

[Raj Gupta, executive]

See, 2, 3 things there. One, as a matter of our policy [indiscernible] all through the last 10 years, if you look at we constantly keep -- kept on repaying our debt and brought it down to almost negligeable level. We hardly had any long-term debt on our book. And that remains our philosophy. So we are not comfortable with any level of debt, leave aside the current level of debt.

Having said that, the current market conditions offer significant opportunity, both for organic and inorganic and just for the sake of avoiding debt, as a matter of policy if you compromise on growth that would not have been a right strategy.

And therefore, the debt that currently we have. Also, with all this capacity addition and new business acquisition, our potential to generate higher cash from operations that is increasing every year.

Like I mean, between last year and this year also if you look at the consolidated EBITDA numbers, FY '23, we did INR 775 crores of EBITDA. And this year, we have done INR 1,075 crores, so it's a significant 38%, 39% kind of a jump in EBITDA, and we remain optimistic about return on our new investments, both in organic space as well as inorganic space. So from that perspective, with the potential of returns that we can generate, the debt that currently we have on our balance sheet is not much.

[Rohan Gupta, analyst]

Sir, just last bit from my side. So sir, in the last 4 to 5 years, we have seen that our margin profile and EBITDA basically have been improving and now gone up to INR 17,000, INR 18,000 per tonne. Still not sure whether these are the margins which are going to remain there because if you look at INR 17,000, INR 18,000 EBITDA per tonne and the CapEx cost down to just close to INR 50,000 to INR 55,000 per tonne. I think that there is a still a case for other players to add the capacities and margin may in the future come under pressure if the capacities increases?

Or you think that these are the new industry norms and margin profile is going to get [indiscernible] here and unlikely to go below INR 17,000, INR 18,000 in any near future?

[Raj Gupta, executive]

See, markets will go through cycles. All industries go through cycle. Our industry will go through cycle. We understand that. But we don't focus on market conditions, and our focus is primarily on how to improve our efficiency, how to improve our product portfolio and how to increase our market share, how to ensure that we continue to retain our capacity utilization like at a higher level? And those are exactly the few things which have helped us in the last few years to maintain a good financial performance across different kind of industry situation.

And that gives us confidence that even when capacity is getting added by other players, and temporarily, there is over supply, then also we can maintain our margin. In fact, having spoken about surplus capacity. In last 3 years, India has added almost 600,000 tonnes of capacity and which was 60% of their previous capacity.

This addition was almost 60% in magnitude. The markets are oversupplied last 2, 3 years. Yet, if you look at our performance, we have constantly improved and that is because of our ability to move between markets, our ability to introduce new products, right? And also to continuously improve our operational efficiency. So therefore, I'm not saying -- I'm not commenting on whether we will be able to improve this margin from here or it will go down. Market may have conditions, but we are very confident about our own initiative.

[Operator]

We have our next question from the line of [indiscernible] from ICICI Prudential.

[Unknown Analyst]

Sir, just 1 question on the balance sheet. On -- one is goodwill and the other is the intangible assets. So goodwill is fine INR 1,160 crores. But if you can just help understand what exactly is this INR 2,166 crores of intangibles, some breakup or some color on what these intangibles are?

[Raj Gupta, executive]

Okay. So [indiscernible] as per Indian accounting regulations, when we acquire a business at a value which is higher than its network, then the difference is allocated to different intangible assets. So there's a fair valuation of tangible and intangible assets, right?

And which is done by valuers, certified valuers. In our case, Deloitte has carried out this valuation. So what has happened is in the process of fair evaluation of assets of Aquapharm, intangible assets got created, like technical know-how, their IP, their customer relations and these are -- this will all carry. These are all tax deductible. So there will be amortization of these assets over a period of 20 to 25 years.

We will, of course, I mean, this is not amortized, it is tested for impairment, but all the other intangibles which get created, they carry a tax benefit. And with the kind of intangible valuations that we have been able to -- this business have been able to get, there's a good potential for some INR 500 crore, INR 600 crore kind of tax savings going forward.

[Unknown Analyst]

Sure. So basically, you're saying this INR 2,000 crores will not get amortized, but you are saying we will test for impairment basically. And basically, more or less, this is more of a technical know-how. The transaction-related goodwill is INR 1,100 crores. But this is the separate which was there on the books of Aquapharm, basically, what you are saying?

[Raj Gupta, executive]

No. So what happens is in the fair valuation, whatever allocation can be made to specific assets, tangible or intangible, that is first made and the residual value appears as goodwill. Now goodwill is tested for impairment every balance sheet day, but rest of the intangibles has an amortization period. So this INR 2,200 crore worth of intangible asset will have an amortization period of 20 to 25 years. So there are a number of intangible assets, which have different amortization period.

[Unknown Analyst]

Got it. Got it. So basically, we have to amortize this INR 2,000 crores over a period of time?

[Raj Gupta, executive]

It's a fairly long period, 20, 25 years.

[Unknown Analyst]

Got it. Okay.

[Raj Gupta, executive]

And goodwill, we don't expect the impairment to be there.

[Operator]

Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you. Thank you, everyone.