Sudarshan Chemical Industries Ltd
NSE:SUDARSCHEM
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Sudarshan Chemical Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Q1 FY '23 Earnings Conference Call of Sudarshan Chemicals Industries hosted by Prabhudas Lilladher Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitesh Dhoot from Prabhudas Lilladher Private Limited. Thank you, and over to you, sir.
Good evening. On behalf of Prabhudas Lilladher, I welcome everyone to Sudarshan Chemical Industries Limited's Conference Call to discuss Q1 FY '23 results. We have the management team from Sudarshan Chemicals represented by Mr. Rajesh Rathi, Managing Director; Mr. Nilkanth Natu, Chief Financial Officer; Mr. Vivek Thakur, General Manager of Finance; and Mr. Mandar Velankar, Company Secretary. Without further ado, I will now hand over the call to the management for making their opening remarks. Over to you, sir.
So thank you, Prabhudas Lilladher Private Limited and Nitesh Dhoot for hosting our earning call.
Good evening, ladies and gentlemen. Welcome to Sudarshan's Q1 FY '23 Earnings Conference Call. Our investor presentation has been uploaded on the stock exchanges for your ready reference. I would like to take you through the financial highlights for this quarter.
It was indeed a very challenging quarter, both on the sales as well as the margin front. On a consolidated basis, total income from operations stood at INR 554 crores as compared to INR 474 crores for the same period last year, reporting a growth of 17%. EBITDA for the quarter stood at INR 41 crore as compared to INR 52 crore in Q1 FY '22. EBITDA margin is at 7.5% as compared to 13.1% over the same period last year. Profit after tax is at INR 7 crore as compared to INR 26 crores for the same period last year.
Now going into the details of our segment business. For the quarter, income from operations stood at INR 526 crores as compared to INR 453 crores for the same period last year, a growth of 16% year-on-year. EBITDA for the quarter stood at INR 44 crore as compared to INR 66 crore in Q1 FY '22. EBITDA margin stood at 8.3% as compared to 14.5% over the same period last year. Domestic sales for the quarter is at INR 268 crores as compared to INR 202 crores in the same period last year, a growth of 32.5% year-on-year. So this was on a lower base of last year Q1, which was COVID impacted due to COVID wave 2.
We have seen buying decisions determined by the customer due to volatility in overall sizes, which is resulting in lower inventory level at the customer's end. Sales in the plastics segment is impacted due to the supply chain issues related to the polymer availability and also pricing volatility during the quarter. Polymer prices have crashed by more than 10% in the last 1 month due to which customers are anticipating further price drops and the buying decisions were deferred. Export for the quarter were at INR 258 crore compared to INR 251 crore, a growth of 2.8% year-on-year. Runaway inflation across commodities, tightening of monetary policy by majority of the central banks, rising interest rates, geopolitical situation due to Russia-Ukraine war are leading to subdued demand across majority of the region.
Specialty segment sales stood at INR 352 crores as compared to INR 318 crores for the previous year same quarter, up by 10.7%. Nonspecialty sales for the quarter stood at INR 174 crores as compared to INR 135 crores for the same period last year, 28.9%. Gross margin for the quarter stood at 40.3% compared to 47.1% for the same period last year. We see prices of intermediates for specialty segment continued at the limited level, though at a relatively stable status in comparison to the inflationary trend seen in FY '22. We see further increases in some of the inputs going into the nonspecialty segment. Apart from the raw material cost increases, we continued to see energy and logistics cost at an elevated level. Coal prices have gone up further at around 200% of Q1 FY '22 levels. This is pushing up overall manufacturing costs. The challenges in the logistics area are continuing, shortage of shipping containers due to the COVID situation in China, congestion at various ports leading to delays in the shipping. This has led to freight cost escalation of 2x over Q1 FY '22.
Softer demand in the international geographies did put additional pricing pressure to pass on full increases in the indirect cost. With the direct as well as indirect material cost pressure lingering, we will have to continue with our pricing decision with a calibrated approval to balance on the volume growth. Now coming to the CapEx project, which is our thirst for future growth. We are in the growth phase to implement overall CapEx of INR 750 crores, out of which we have put to use assets worth INR 528 crores till now. Balance INR 202 crores [indiscernible] are part of the capital work in progress, put to use for this project was pushed out due to delay in some of the equipment deliveries. These projects are at the advanced stage of completion, and we expect to commercialize it by end of H1 FY '23. About 70% of our CapEx has been put to use and started generating revenue.
For the new product CapEx, we are getting good response from the customers, and these products are at advanced stage of evaluation. As we are stabilizing the new CapEx project due to heating issues, the operational performance has not been up to the mark. That is lower [indiscernible] and higher manufacturing costs. And we expect it to smoothen in the next couple of quarters, and then this CapEx project will start generating expected performance.
Happy to share with you that Sudarshan has won the honor of Brands of Maharashtra in the first quarter. Company has stood out as a leader, which exemplify excellence and impact to the society at large. We look forward to our continuing -- we look forward to continuing our growth journey and delivering value to all our stakeholders.
With this now, I open the floor for a question-and-answer session. Thank you.
[Operator Instructions] The first question is from the line of Sanjesh from ICICI Securities.
Couple of questions. First, on the demand side, Mr. Rathi did mention that we have seen some slowing down of demand because of the deinventorization by the client. You mean deinventorization for our product or for the polymer? And was this only for the plastic segment? Or we have seen this for the other segment also? Now given that the prices are on a declining trend, customer could be anticipating lower prices. And that is the reason they are looking to deinventorize or there is an issue on the demand side? So what is leading to this slower growth?
So this is Rajesh Rathi here. Thank you, sir, for your question. I think the -- what we were talking about is if you look at the 3 segments in India, coatings and printing inks has been performing quite well. The main issue has been in the plastic market. I think for more than, I think more than 50% of the time there was a polymer availability issue, and then there was a lot of price increases in the polymer. So that's where we saw the demand to be reduced. Now what we are looking at is the polymer prices have started drastically reducing. And people are looking at -- people are just ensuring that they don't carry the high inventory, and that's why they're just delaying what it is. Going forward, we see this -- the plastic demand probably was the worst in the last quarter. This quarter, we should see some improvements and the quarter after that should come back to normal. That's what we feel.
So this should impact us also right? We are also carrying enough inventory and falling inventory prices, falling raw material prices, this applies to us as well, right? We may see a heightened impact on our margins and probably one of the reasons why our margins are so low in this quarter is because we are able to sell off a high cost inventory, and we are selling it at a lower price now as the prices continues to decline? Is this one of the reason why margins are under so much pressure?
So I think the margins are further -- margin pressure was 2 areas, sir. There's a lot of -- the volume -- there has been a volume drop. So you see a sales increase. Volumes have not dropped. We have been able to pass on the raw material increase, but all the increase in coal and freight has not been able to be passed on. So it's like a double whammy.
No, no, sir, I'm looking more from the gross profit margin perspective. I understand below gross profit there is an increase in coal and indirect costs, which…
Broad [indiscernible] the main issue, I think, sir, absolute increase we've gotten. So the percentage looks not in line, but otherwise we've been able to pass on the absolute increases. So it's not a question of the high raw material issues here.
So per kg basis, we are able to protect the gross profit per kg?
Yes, yes.
Got it. Got it. And then there is a volume decline. So just to understand, how should we see this going forward for Sudarshan. In the H2, we will be commissioning all of our plants and hopefully we stabilize the plant, all these [indiscernible] issues are behind? Is it really possible for us on a low base to hit a 25%, 30% kind of a growth in the second half?
So I think it's a very difficult question to answer because of the global -- we are seeing a lot of global slowdown in several of the export markets, right? As far as India is concerned, like I mentioned, plastic, we hope that it recovers and what it is. So it's really how the export demand really picks up, right? And how the situation across the world we are seeing a much lower demand. And I think the industry is also showing -- seeing a much lower demand. So I think it really looks how the global scenario shapes up.
No, for us, it's a new product, new category, new CapEx?
Sorry?
So for us, we are adding a significant capacity. It's a new product for us. For us -- I can understand the global problem, which was growing -- pigment was growing at 3%, 4%, may probably end up declining this year. But for us, the situation is very different, right?
Yes. So our situation of the CapEx, et cetera, should be much better in the H2 certainly, definitely.
Okay. Just one last question from my side. There is a steeper decline sequentially in the specialty, while the nonspecialty part has not declined so much, it's just 1.1% decline for nonspecialty. Specialties declined more steeper. Any particular tenant in specialty which has caused this decline?
I think so the main decline in the specialties has been in the plastics area, which we were talking about.
Okay. Plastics is generally the specialty part, which has declined, what you're telling.
[indiscernible] yes. I'm sorry.
Okay. Sorry, sorry. I was thinking one last question here. Again, on this overall CapEx, what is the issue which we mentioned about the [indiscernible] issue which has impacted our yield and increased the cost. Can you help us understand that a little bit more and how serious it is or how much time will it take to stabilize?
No, nothing serious. I think you anticipate certain margins, no, with your CapEx. We have not been able to realize those margins because, obviously, the capacity utilizations are very low, and some of the initial things on some of the yields, et cetera, has been much low -- have been lower compared to what we expect. So all these feeding issues should definitely get streamlined in H2. So nothing major which is a problem, but the margins have not been at the expectation.
That's mostly to do with the yield part of it, right?
Yield and also your higher -- some of your higher manufacturing costs.
[Operator Instructions] Next question is from the line of Amar Maurya from AlfAccurate Advisors.
So first question is like a little bit more to understand when you say that the volumes are not much even in this quarter. So what would be the volume growth in this particular quarter?
Yes, sir. So coming quarters, sir, I think coming quarters, like I said, the export demand looks quite subdued. We are hoping that the Indian demand starts recovering on the plastic side a little bit. And I don't think we are not anticipating a very bullish Q2, right? But in Q3 onwards, we expect a much better recovery. So on a full year basis, like what kind of volume growth you expect in '23? And what was the volume growth, let's say, in '21 because '22 was broadly again, a subdued year for us. So in terms of that, like what kind of growth you expect in the full-year basis? It's very difficult to answer that given the global scenario, what's happening, right? So major economics like Europe a slowed down. China has not been -- China has a force -- China has had zero tolerance for COVID. So lot of the markets, and lot of the business, a lot of the industry was almost under shutdown, right? So it's been a very -- it's a very difficult time for the industry, I think.
Okay. But sir, what I understand here is that broadly, we are not exporting anything to China, right? I mean what -- and in terms of our overall contribution to the overall industry is less, and we had commissioned like almost around a significant amount of CapEx. So despite all that, we don't see the visibility, let's say, in second half '23, what kind of volume growth. Because I believe by the time your new products will also come, right? All the [indiscernible] manufacturing issue, which you have, those also will be resolved by that time.
So there's a significant thing on the new products, but the pace of our other base products are significantly -- there is significantly declining, right? So the issue when you ask me for our outlook, really, that demand needs to be regained again, right? That's been the -- that's the main concern, sir. And that's when I'm not able to give to our forward-looking numbers saying that our growth is going to be substantial. Definitely, CapEx is -- there's a good attraction on the new CapEx [indiscernible] there.
And when you say, sir, this polymer business, this would be how much percentage of our revenue?
Plastic is a very important -- plastics is a very important market in India for us, sir.
So like, let's say, domestic market, 45%, 50% would be polymer in terms of your…
-- just for [indiscernible]. So plastic is a major one. And plastics, coatings, inks and then cosmetics have kind of [indiscernible].
Plastic coatings and then ink, that is for the domestic or this is for the overall company?
Domestic, sir, domestic.
So like, let's say, if we see plastic, plastic would be 50% of our revenue?
Sir, we don't give a split up right now, but I think it's a major -- it's a good part, sir…
Okay. Okay. And sir, export, like you are -- I mean, plastic, I can understand that. But if I see the growth in the revenue, I mean, is it like your -- because you are a little bit concerned about the export also other than the domestic. So what is basically haunting us in the export? Same segment, same sector?
Major economy, major economy, sir, like Europe, as I said, first quarter was okay, but next quarter also I just met all the customers. Everyone is looking at a subdued demand. And Europe is already, we are looking at a big subdued demand. So all economics, like Europe, Turkey, China already was under this. I would say, all economies were under slowdown, and now U.S. may join in the next quarter. So that's what we are concerned about it.
Okay. Okay. And secondly, sir, about -- one last from my side. In terms of your below the EBITDA -- I mean, below the gross profit, your cost which has gone up is largely the power cost or this is new manufacturing coming up for the new employee cost, and that is also going to -- that is also impacting your overall cost?
Mainly power and logistics, sir.
The next question is from the line of Meet Vora from Axis Capital.
So when we say that we are seeing slowdown in demand from the -- from our customers, how do we see the pricing of our products? Because as we see subdued demand, is there pricing pressure as well on our products? And at the same time, there is a pressure from the input side as well. So will we see some kind of margin contraction going forward because of this?
So I think whatever margin contracts had to happen, I think it has happened now, it should not get worse than this. The good part is we're also seeing a lot of raw material costs are decreasing, right? Yes, there is a pressure on the finished goods also, but good part is we're also looking at raw materials, which have started decreasing now, right, of course. So that's the scenario right now, sir.
Yes, sure. And on the new CapEx side of this INR 520 crores that we have already put to use, I mean, approximately how much of this we are using and you are guiding how much of asset turn on this? Because as we say that there are…
So there are partly, so there were new products. The new products CapEx and this, we are able to -- so there were 3 parts to it, right? One was -- one major part was on the -- one major part was for the new products, then there was existing products ramp up. And then the third was on your utilities and EBITDA improvement, right, EBITDA improvement projects. So the utilities today, because of the coal prices, we are not able to utilize and gain those benefits because it makes sense, it makes better sense to purchase the electricity. On where we have increased our volumes on existing products, we are not able to utilize that now because the existing demand itself has dropped. On the new products, there's a good attraction right now.
Sure. So of this total of INR 750 crores, how much will be new products?
Sir, I think right now we don't give that breakup, but I think I would say that -- I would say that there's a fairly good mix in the 3 areas, right?
Okay. Sure, sir. So maybe like 2/3 of the CapEx which we have already commercialized, we are not able to utilize it fully. And this balance of INR 220 crores to INR 230 crores, which is yet to be put to use, will be what part, it will be utilities or, I mean, new products or existing products?
New products.
It will be new products. So the ones which we are still yet to ramp up, is still yet to commission?
Yes.
The next question is from the line of Dhruv Muchhal from HDFC Mutual Fund.
Sir, just to understand the industry structure a bit better. So you mentioned demand is a bit weak, which is -- probably is understood. But on the supply response, you mentioned that the fuel and other costs and logistics costs, you are not able to pass on fully. But I'm just trying to understand this fuel cost or logistic cost increase probably should be for all players in the industry. So isn't the supply responding well? Or is it because the supply -- I mean there is a significant oversupply in the industry? Or I mean I'm not sure what's causing this? Because you mentioned that the RM prices you are able to pass on, which on a per kg you are able to maintain this. But the fuel cost, you are not able to pass on, the power cost. So I mean, is it differently structured, the industry is differently structured versus you? Or what's causing this?
No, I think almost all the major -- this is an industry phenomenon where we have not been able to pass on because the increase is too high, too steep, right, the industry is not seeing this. And it just happens that the raw material part has not passed on because it's very transparent. This is the first time in the history where you've seen some of the fuel prices increase so much. That's the reason the industry has not been able to absorb those increases.
Okay. Okay. Okay. So even the larger players are not able to take this price increase on account of you? Because now, for example, now we even see some of your peers in, probably in Europe are also facing this cost of fuel significantly, probably even higher than you. Even they are not able to pass on the cost increase, particularly for fuel.
I think, so generally I think you have to wait for the results, but what we understand in the industry news is that the utilization demand has been low, and that's been a concern for everyone to then pass on the increase.
So basically, a bit of both. It's a bit of weak demand and probably a situation of some bit of oversupply, probably caused also because of weak demand.
Yes. Yes. Yes. Yes, true.
Got it. Sure, sir. Sir, the second question is, we are seeing some decline in the freight cost. Earlier in some of the calls you had mentioned that the freight is a big issue when you're trying to export it to euro because of the sea freight, how has that moved? You've seen some decline in freight cost over the last probably few months or so. So is the situation improving now in terms of your competitiveness to export? Or I mean it's still not much different versus what it was earlier?
Sir, it's definitely softening, but it's not going back to the original levels at all. So you still -- I mean, face that pressure from the local manufacturers in Europe? They don't face that freight cost, is that clear?
Sorry, can you repeat that, sir?
I mean the local manufacturers in Europe don't have to suffer from the freight cost and hence that differential to you remains an impact.
Yes. Yes. Got it. And sir, also you mentioned -- last 2 questions, sorry. You mentioned that you're facing some equipment ability issue for some of the upcoming CapExs in your opening remarks, if I got it correctly. So are these equipments very different or very unique because we have seen some -- I mean, consistent delays in some of our CapExs, probably part of the -- I understand was the reason of COVID, but some delays consistently. So are these equipments very unique, very customized and very specific to us because I see across companies the execution has been relatively been on mark. But for us, there has been some delays. So just trying to understand this better, sir?
Sir, in general, I think not -- in general, there has been a lot of equipment delays earlier times because of the -- because of COVID and shutdowns. But I think now we are almost for everything going and we should be completing all the CapExs by H2.
Okay. Sorry. Okay. The reference was to earlier delays, okay. Got it. Sorry, my mistake. And sir, lastly, you mentioned that intermediate prices are still increasing in the opening remarks. But then later on you had mentioned that you're seeing some softening in RM. So just trying to get this better. Are we seeing still some pressures in RM? Or there is RM pressure softening now?
Firstly, to clarify, firstly, to clarify, I think the context of saying increasing was -- this was the June end, right, June end below, right, where we are referring to softening of demand, which is happening now in August, right? So that's the classification we'd like to give. So in June, June NPS, we were still looking at some increases, but it's suddenly -- now in August it's starting to come down.
The next question is from the line of Viral Shah from Enam Holdings.
Sir, one question on the power and freight cost side. Would it be possible to share the number for the quarter and for the comparable period in the previous quarters? I mean, this would just help us get a better sense of how those costs have behaved and the kind of impact on the margins.
We don't break up the numbers [indiscernible] gross margins and increases majorly contributed due to that, sir.
Sir, second question is on the cash conversion cycle. If I look at the presentation, it says the cash conversion cycle has increased to 114 days from 96 days quarter-on-quarter and year-on-year basis. So can you give us more information on the same, what led to this increase?
[indiscernible] so on the cash conversion cycle, there has been [indiscernible].
Hello?
Hello. Can you hear me?
We had lost you, sir, in between.
Viral…
Sorry to interrupt. Mr. Viral, sir, there is a lot of disturbance from your line. May I request you to please mute yourselves while management is answering your question?
Sure. I've done that.
Thank you. So, Viral, the cash conversion ratio or the number of this cycle has been increased to 114, couple of reasons. One is we paid our creditors on the due date and which has actually reduced the DPU by 15 days and there has been also some improvement which has been done on the data side. Couple of days DIO increase. So put together, it is slightly higher. But I see that this is more coming from our due date payment to the creditor has been improved.
Okay. Okay. Okay. And just a clarification. You said that the ongoing CapEx projects of close to INR 220 crores, should that commercialization happen by the end of H1 FY '23, is that right?
So as we mentioned, Viral, that this will get put to use by H1, and post that it will start commercialization.
The next question is from the line of Amar Maurya from AlfAccurate Advisors.
Two questions from my side. Number one is about -- in terms of the current revenue, what would be the revenue from the new product -- I mean, new product which we had commissioned, let's say, in the last 1, 1.5 year? And second question is, when you say that majority of the EBITDA margin got impacted because of the power and logistic cost. So are you saying that INR 34 crores was the impact to the overall this, cost?
There has been an impact because of 2 reasons. One is that the demand has been lower. So we've not seen a good demand volume increase. And the second has been on the both sides. So I would say that both have contributed, but the fuel and the logistics costs have a higher contribution to this.
Sir, I would request if you can mention that because as it would be helpful for us, like is that the quantum was INR 10 crores, INR 12 crores, I think that would be -- make our life easy.
Okay, okay. We'll consider that soon.
And secondly, in terms of the revenue, what would be the new product contribution in the current quarter's revenue?
So currently from a competitive perspective, we don't declare that, sir.
Sir, at least percentage, that will help us to understand the CapEx which got commissioned. I mean, how far it is getting mature, what is the update on that? Like because it's not significant CapEx for us, right?
Absolutely. It's a significant CapEx. And I think we going forward we'll look at it. But I think one of the areas is, as mentioned, the -- so we will look at it so how we could give it without declaring much of the…
Yes, I mean, that would be -- at least you can give us utilization or whatever -- I mean, that will -- because otherwise, I mean everybody is in darkness. We don't know what is new, what is old and how it is coming up.
Understood, sir. Understood.
Does that answer your question, Mr. Maurya?
I think sir is going to answer, right, in some time? Is it that?
We will look at it going forward, sir. Going forward, we will look at it.
But sir, at least for the power cost, I mean, can you disclose what would be the impact of the power and logistic cost in this quarter?
It's a -- sir, we'll have to declare it as a -- on the stock exchange first, whatever information we give. So we look at it from a -- this perspective of how we…
Okay. But I think we can disclose, sir. That is basically -- I mean, that is where the call is, right? I mean the call is for getting more detail. Already you had announced your results.
We'l look at it, sir, we will -- how we can split up and break up. And if we are able to -- we will publish it on this.
The next question is from the line of Rohit Nagraj from Centrum Broking.
Sir, first question is what would be the peak debt post commercialization of the ongoing projects? And what is the average cost of debt?
Nilkanth here. So as we mentioned that we are nearing the closure of this CapEx growth cycle incurrence. So I see that peak days, the current level of days should be the highest and we should see the [indiscernible] gradual decline to it.
Right. And the average cost of debt?
So majority of our CapEx loan are, those are from the -- those are in the foreign currency. And 1/3 is only the working capital. So I see the cost of funding to be in the range of 4% to 4.5%.
All right. And second question is now since we are putting up a massive CapEx which will come to fruition. For the next couple of years, do we have any further plans in terms of new products which may get commercialized or probably our focus will be predominantly to utilize the existing facilities until they're utilized till 60%, 70% utilization?
Part of this strategy on our new products are getting introduced. So we will -- the first focus will be to ensure that we are able to utilize all these capacities and drive revenues and margins up, right? We don't see any kind of gross investments immediately.
All right. And one just last question. In terms of the new products out of the 4 segments, what would be our major focus area. You said in terms of plastics, coatings, inks and cosmetics. So where will be our focus line for the new product from the new facility?
Coatings and plastics, sir.
[Operator Instructions] The next question is from the line of [ Govindlal Giladan ], an individual investor.
I got only 1 question. Sir, in last call, if I remember right, you guided that the first quarter margin will be little better than last quarter, fourth quarter. So the call happened on 26th to May. It is almost 2 months have gone for this first quarter. So what went wrong in 1 month of that margins have almost from put into it has come down to 7%?
I think -- so we did not anticipate the raw material increase. So it wasn't much. I mean, we were looking at a perspective from the April perspective. So I think we were not -- we had not anticipated the cost and the decline in demand simultaneously. Industry did not anticipate it, and entire industry -- it's been a very tough time for industry. Neither did [indiscernible] India [indiscernible].
With the due regards, sir, I appreciate your concern. I can also understand, but my only concern is that instead of 2 months it could engage going forward, just 1 month was remained in quarter so we have given guidance. That's what I was wondering, in 1 month, you cannot things go so wrong that EBITDA can become 14% to 17% -- 7%, and where we are expecting little better than 14%. So at least 1 month visibility we didn't had. That's our [indiscernible].
Right. So as I mentioned, sir. So I think firstly our view was from April set to May was not completed. I think we were seeing a good demand in April, and that's where we were coming up with the picture. May and June have been completely subdued demand and the costs have further increased, yes. And we did [indiscernible] subdued demand.
The next question is from the line of [ Shanon Nandicur ], an individual investor.
Okay. So my question is like from last 2, 3 years we have been hearing that 2 major players in this segment are now like they quit this industry, like -- so just want to know how are you getting benefited from that? Obviously you should be getting benefited from that. From when that is taking effect. I also want to know any new competition has been come into the picture in India as well as outside. Because of that, the growth is like not happening in Sudarshan.
So, sir, the integration process of the [indiscernible] BASF, SUN, DIC is still ongoing. We have not seen. So they are not -- we've not seen any impact of that on the market. There's still work, that integration effect. But Clariant, Heubach and SK Capital, that integration is in progress currently. And I think we expect by the end of the year this process should get completed and we should be able to acquire. But the scenario of getting benefit is, of course, is there on the -- there are tailwinds. However, given the market scenario us currently so subdued, that it will take some time for us to see that portfolio with us.
And on the second part of the question, like any new player entered in this segment in India and the outside because of that you're seeing the competition and that's the impact on the growth?
So we've not seen any new players, sir, coming to India right now.
Okay. And many other companies, although not in this segment but different segments, they have been able to pass the prices of logistics and commodity to their end customers. Only they were suffered for the first quarter when this issue happened. So why you are not able to pass the price to the end customers? Like it's been like almost like 3 to 4 quarters of challenges with respect to logistics and commodity price increase, right? So what's the challenge, why are you not able to pass the price to the end customers? Is it because of the competition? What is it?
Because I think from a perspective, the industry -- there has been such a steep increase in RM, fuel and logistics that the entire combined increase to pass on has been very tough for the industry. Also, I think our raw materials, the customers understand, but they are not able to gather the, fathom up the energy, et cetera, crises, which has not -- so the industry has not been very successfully passed on.
Okay. But going forward, how are we planning to handle that? Like will we be able to pass on the price where we have had a dialogue with all the end customer partners to pass on the price? Or if the situation continues because the challenges never end sometimes. If we see the latest events which happened in China, Taiwan, so we never know, right? So whether that we have started that discussion.
The challenges have been twofold. One is the entire pass-on and then shrinkage in demand, right? So that's what has yielded to this decrease in EBITDA margin. We -- as I mentioned, I think, as I mentioned, we've of course constantly been having dialogue with customers on what we can pass on, what we can increase. But it really in a subdued demand perspective, it's really tough to do that. Now, the good part, as I mentioned is raw materials are coming down. So that should help.
But overall, if you see, the automobile sector numbers are going high and many other sectors also there even the -- if you take FMCG numbers, some of your products goes there as well, cosmetics and automobile numbers. Overall, we see all those numbers look good from a few of the major players across the globe. So then why there is no demand for you? Like what do you mean by demand is shrinking when we get to know all these good numbers from the automobile and cosmetics and FMCG, even in the paint industry, even like India, there are many new players entered into paint. So when we see outside, we keep aside the Sudarshan. When we see outside, there is a demand we are seeing from their numbers. Then why is the demand shrinkage from your perspective and from your statement.
As I mentioned, it will split up the demand in the domestic perspective, domestic perspective, we -- our demand for coating and printing ink was very good. We were badly hit in plastics, right, as an industry because more than 50% of the time there was polymer availability issues in the market, and that's how our customers got impacted. On a global scenario, I think if you look at our product range and where our products were going, I think if you look at first the decorative paint industry, which is the largest consumer in Q1, I think most of the industry has not been doing very well, right? The second industry, I would say, is the plastic coloration market, again, has not been doing very well. These are the 2 major markets which drive our growth, which have not been doing well. So it's not that our end industries are doing phenomenally well, and that's what has happened.
The next question is from the line of Rohit Nagraj from Centrum Broking.
Sir, just one question on the engineering business. So does it have a seasonality as well? Or is it purely based on the demand and probably projects the way they are executed?
So, Rohit, Nilkanth here. So it is typically the engineering business wherein the…
Project business.
Yes, it is a project business. So the Q1 revenue ramp-up is normally slower, which is around 15%. But there is no demand issue as such, and the company is on the correct path. We should see in Q2, Q3, the quarterly profit number should come. We have revised last week before our Board meeting. So this is -- these was anticipated. It is on the correct path.
And as I understand, we also had a project in terms of optimization of resources and the entire rejig in terms of structure. So any palpable benefits from those projects where we had hired even some of the consultants, et cetera, over the last couple of years. So any material savings from those projects?
Sure. I don't know which project, but we had looked at a -- we had looked at the entire strategy for growth and optimization of costs, which had happened in the last -- that was completed. What we are really impacted right now is by the increase in costs, and that's where we can see that.
The next question is from the line of [ Punit Kabra ], Individual Investor.
Yes. The question that I had was how was the CapEx that we did, how much of that was for backward integration? And are we seeing the benefits of that already or that ramp up will be to yet to happen and we see that in the future? On the backward integration, we have not done like we had indicated earlier. We have not done much of the investment in this space. We are looking at how we can partner with some of the vendors and as some of the technologies have been developed and see how we could get those benefits. And second question, sir, is, I believe recently one of our products had got an antidumping duty imposed. Could you throw some light around how that's playing out for us? I mean, are we now able to get a better pricing on that product or what's exactly happening since that antidumping duty got imposed? And what contribution does that do if you can share that?
So that product line, that product line, we are having some -- there are some legal issues which are getting sorted out by our antidumping team. So we expect those issues to get sorted out and then we should be able to see better margin, sir.
So as of now we are not getting benefited by that antidumping duty.
There has been -- we started -- we had started getting benefit. However, as I mentioned, after that, there were some legal issues which are getting spotted out. And after that, we should then see -- we should then see a good benefit coming in.
Okay. And can you share what percentage of our raw material continues to be imported from China or overseas? Could you share that number?
So, currently it is in the range of 30% to 35% of the total [indiscernible].
The next question is from the line of the [ Deep Paul ] and individual investor.
Sir, my question is since now industry is [indiscernible] and there is 2 players. So it will be a duopoly market, right? And Sudarshan with only 3% market share is aiming to gain market share. So what do you think -- why it would be possible? What kind of cost leadership do Sudarshan has which will make us win in this market?
So I think the market -- in the market, when there is lot of consolidation happening, customers are looking for alternatives as a customer doesn't want to depend on one source for the additional, and that's where our tailwinds are there, and that's where we will get benefited.
Okay. Yes. So we are completely based on cost compared to our competitors? Or we are at par at cost level?
We really focus when we are selling on -- when we are focused, we are selling our value to the company, value to the customer and try to deliver -- how we can prove that our products deliver a better value rather than the cost conversation, we cannot focus really on how ads are going to deliver better value.
The next question is from the line of Amar Maurya at AlfAccurate Advisors.
Sir, 1 question from my side. Basically, if you see the revenue growth, I mean, last quarter you indicated that you are basically choosing the customers because whoever is not giving the price hike, we were not basically keen to sell those kind of customers. Now in the Q1, basically the whole demand got collapsed. So scenario is further worsened for us. So basically, the point which we are trying to understand is that both from the revenue perspective and from the EBITDA margin perspective, do you see the worst is yet to be seen from here on because the scenario is completely changed now for us?
So I think Q2, we expect -- we don't expect a major recovery. Firstly, we feel the worst is right there, right? We can't -- nothing was. Q2, we don't see a major kind of a complete turnaround. However, as I mentioned, raw materials have started softening. And Q3 onwards, we should look at good demand. Our CapExs also would be streamlined by that. So those -- we'll be starting to gain benefit from there too.
Okay. So basically, when you say Q3, post Q3, you will see good demand. So when you say the new product, I mean, the existing CapEx, which got commissioned, do you have some lineup? Do you have some commitment from the customer, something like that, which gives the visibility that Q3 is going to be actually better than Q2?
Yes. Yes. So we already -- like I said, there's good attraction on those products. We have to make sure that we get -- we are able to realize our targeted margins in Q3.
Okay. And this is largely with the yellow pigments?
Yes, sir, there's yellow, there is also red, various pigments, yes, sir.
Ladies and gentlemen, this was the last question for today. I now hand the conference over to the management for closing comments.
Thanks, Rutuja. So thank you. Thank you, Nitesh, and thank you participants for your time and interest in Sudarshan Chemicals. As we mentioned, it was indeed a difficult quarter both on volume as well as margin trends. But as we have gone through, we remain confident in the long-term prospects of our business. We look forward to engaging with you again in the future. Thank you. Stay safe.
On behalf of Prabhudas Lilladher Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.