Sudarshan Chemical Industries Ltd
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Sudarshan Chemical Industries Ltd
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Thank you, Vivian. Good afternoon -- good morning, everyone. Welcome to the 4Q and FY '22 Earnings Call of Sudarshan Chemical Industries. From the management side, we have Mr. Rajesh Rathi, Managing Director; Mr. Nilkanth Natu, CFO; Mr. Vivek Thakur, GM Finance; Mr. Amey Athalye, DGM Finance; and Mr. Mandar Velankar, Company Secretary.
We will now hand over the call to Mr. Natu sir for the opening remarks and then -- which will be followed by Q&A session. Over to you, sir. Thank you.
Thank you, Kumar, and Ambit Capital for hosting our earnings call. Good morning, ladies and gentlemen. Welcome to Sudarshan's quarter 4 and annual conference call. Our investor presentation has been uploaded on the stock exchange for your ready reference.
I would like to take you through the financial highlights for this quarter. On a consolidated basis, the total income from operations stood at INR 627 crores as compared to INR 577 crores for the same period last year, reporting a growth of 9% year-on-year.
EBITDA for the quarter stood at INR 86 crores as compared to INR 87 crores in Q4 FY '21 last year. EBITDA margin is at 13.7% as compared to 15.2% over the same period last year. Profit after tax is at INR 45 crores compared to INR 48 crores for the same period last year. For the fiscal year '21-22 the total income from operations is at INR 2,201 crore versus INR 1,864 crores since last financial year, a growth of 18%.
EBITDA for the year under consideration is INR 275 crores, compared to INR 288 crores for the last fiscal year. EBITDA margin stood at 12.5% as compared to 15.4% for the last year. Profit after tax is at INR 130 crores versus INR 140 crores last year.
Now going into the details of our segment business. For the quarter, income from operations stood at INR 558 crores, a growth of 5% year-on-year. EBITDA for the quarter stood at INR 76 crores as compared to INR 84 crores in Q4 FY '21. EBITDA margin is at 13.7% as compared to 15.8% over the same period last year.
We saw a softening of the demand and our focus to pass on further input cost increases as related to reduced sales. The domestic sales for the quarter is at INR 287 crores compared to INR 273 crores in the same period last year, a growth of 5%. Sales were lower compared to the Q3 FY '22, owing to the modest demand impact from third wave of COVID-19. Sales in the coating and plastics segment continue to do well, while demand softening was seen in the ink segment.
Exports for the quarter were at INR 272 crores as compared to INR 260 crores, a growth of 5%. We continue to see stable demand across all the -- we continue to see the demand across all the segments, including the improvement in the cosmetics segment in the international market. We continue to monitor the geopolitical situation for any potential impact, specifically in our sales in the Europe region.
Specialty segment sales stood at INR 383 crores compared to INR 363 crores for the previous year's same quarter, up by 5%. Non-specialty sales for the quarter stood at INR 176 crores compared to INR 170 crores for the same period last year, up by 3%. Gross margin for the quarter stood at 41% as compared to 42.9% for the same period last year.
We see prices of the intermediate for specialty segment continue at an elevated level so -- at the stable status in comparison to the inflationary trend seen in the first 3 quarters of the financial year. We see further increases in some of the inputs going in non-specialty segment. We are in the process of passthrough of these absolute cost increases during the current quarter. Apart from the raw material cost increases, we continue to see energy and logistic costs at an elevated level.
Coal prices have gone up further and are about 300% of Q4 FY '21 level. This is pushing up the manufacturing cost. The challenges in the logistics area are continuing. Shortage of shipping containers due to COVID situation in China and congestion at various ports is leading to delays in the shipping. This has also led to the freight cost escalation of 3x to 4x. With the direct as well as the indirect material cost pressure lingering, we will have to continue with selling price increases taking calibrated approach to balance on volume growth.
On a full year basis, the pigment sales stood at INR 2,020 crores versus INR 1,753 crores, which is a [ 6% ] growth. Gross margin for FY '22 is at 43.1% compared to 43.4% during the last year. EBITDA for the financial year is at INR 269 crores compared to INR 281 crores of the financial year '21. EBITDA margin is at 13.3% for the full financial year versus 16% for the last financial year.
We achieved milestone in our domestic business with annual sales crossing INR 1,000 crores mark. Domestic revenue for FY '22 is at INR 1,034 crores compared to INR 856 crores last year, a growth of 21%. Export sales is at INR 985 crores compared to INR 897 crores, a growth of 10%. The specialty pigment sales for FY '22 stood at INR 1,378 crores versus INR 1,203 crores in FY '21, growth of 15%. Non-specialty pigment sales is at INR 642 crores versus INR 550 crores in FY '21, a growth of 17%.
Now coming to the CapEx projects, which is our trust for the future growth. We are in the growth phase to implement the overall CapEx of INR 750 crores. Out of this, we have put to use the assets worth INR 520 crores in the end of financial year '22. Balance INR 2,010 crores projects are a part of the capital work in progress, put to use for this -- project has been pushed out due to the delay in some of the equipment delivery. These projects are at advanced stage of completion, and we expect to commercialize this by end of H1 FY [ '23 ].
About 70% of our CapEx is put to use and started generating the revenue. For the new product CapEx, we are getting goods pull from the customers and these products are at an advanced stage of evaluation. However, for the CapEx that is made for the existing product line, demand environment is subdued. So benefits from this CapEx may be slightly delayed.
We look forward to continuing our growth journey and delivering value to our stakeholders. With this now, we open the floor for questions and answer session.
[Operator Instructions] The first question from Ankur Periwal from Axis Capital.
Congrats on good show on the margin front. So 2 questions there starting top down. So on the demand outlook side, you did mention there is some bit of macro slowdown, but given that our capacities are now getting commissioned over the next quarter or so, and we'll look to wrap it up. What are our thoughts on the export growth front? Where I'm coming from is, if I look at the historical run rate, export growth has been relatively slower versus domestic, which has been doing reasonably well. So your comments there.
Thank you, Ankur. This is Rajesh. I think from our export growth perspective, a lot of our new products were targeted towards the exports, and I think we should see a good attraction on those areas. Of course, given normal circumstances, we would have seen this faster and better growth, but given the current inflation, stagflation situation in some of the continents, we still -- it may be delayed, but I think the exports still looks very promising sir.
Sure. And sir, just a clarification. If I got it right now we are expecting the new plants to be commissioned by end of H1. Is that right, which was earlier Q1 end?
So sir, I think, yes, somewhere between Q1 end -- Q1 end and H1 end, yes, sir.
Okay. And it will take -- we do have the product approvals in place and hence, the ramp-up could be faster? Or there could be some pushback -- some delay in terms of ramping up as well?
I think ramping up could be -- ramping up should be faster -- ramping up would be -- could -- we would try and speed up this, but I think -- so on the new products, that should help a lot. On the existing product lines where we've expanded, there we are seeing not such a large volume growth where we are -- which we had anticipated, right, because given the current external environment.
Okay. Okay. Fair enough. Second bit on the margin front. Now we did see some Q-on-Q improvement in terms of gross margin, while the growth in specialty, non-specialty has been largely okay. So is it the price inflation pass-through that we had done in the earlier quarter, which is visible now? And related to it, how much time do you believe it we'll take to effectively pass-through the entire RM? And just 1 additional point here. You did mention energy, coal, logistics costs also increasing. So when we are taking a price hike, is the total cost under consideration and then you take a commensurate price hike? Or is it only RM inflation that we are passing through and the other costs are a hit on our P&L?
So obviously, the objective is to look at the total cost pass-through, right -- total cost pass-through. However, you always have to balance out between kind of what you lose out and what you -- what volumes you gain. So I think that's the balanced decision we have to take as a management, right? And it's been a catch-up game, sir. Like we said, it's just the costs are not -- costs have not stopped increasing 1 after the other. So as and when we have been getting the cost increases, we have been passing on.
We pass on, as I mentioned, the absolute increases and not the percentage increase rate, so that gap is there.
Sure. But sir, sitting today, just any time lines you can share maybe over 1 quarter, 2 quarter or probably more?
So sir, I think as we speak, I think on the specialty part, I think most of our pass-through has already happened. We've got -- in non-specialty areas, we further got a cost increase escalation, which we are in the process of passing.
[Operator Instructions] The next question is from the line of Chetan G from AlfAccurate Advisors.
Hello?
Yes, kindly proceed.
Sir, a couple of questions from my side. Number 1 is, what would be the volume growth for our specialty chemical business in this particular quarter and the non-specialty business?
Sure. In the context, we don't share this, because our product range is so wide, right? So our product range -- our price of our product range will vary between INR 60, INR 70 to INR 5,000. So it will just give a wrong impression on the volume growth, and that's why we don't give out volume growth. But to talk about directionally, sir, the products which we are focusing on our high performance, et cetera, we're seeing a good growth. On some of the other areas, on our classical pigments, we are seeing a little bit of a subdued demand.
Okay, okay. Because what I understand here is that, sir, broadly -- I mean, not specifically to your product, but if you see the basket of your kind of products, the pricing growth would be at least 20% odd, and our growth is 5% on a year-over-year basis. So is it like there was volume loss in this particular quarter?
As I mentioned, sir, in the high-performance pigment areas, which we are focused on, there is a good volume growth. On the classical pigments, there are some challenges, sir, in volume.
Okay. So when you say good volume growth meaning the high double-digit kind of a growth?
Sir, high double-digit, your interpretation could be 99%. So I don't want to comment from that perspective. But I think it's in the right direction, sir. Given the current condition of the market, et cetera, we are able to grow that.
Okay. And secondly, sir, if I can ask one more. Secondly, on the margin color, as you said that like in the classic pigment you are here to pass on the price. So should I see that even the Q1 margin trajectory would be like similar to Q4, even some in the muted range, like...
I think what is happening is we are in the stage of passing on the increases, but we are not able to pass on to leverage whether the entire absolute increase, and then we are not passing on the percentage increases, right? So from a trend perspective, I would say the trend would be slightly -- I would say, slightly better. We have a few cost production initiatives, et cetera, which we are focusing on. But I wouldn't say there will be a substantial change, but the trend should be slightly better.
[Operator Instructions] The next question is from the line Abhijit Akella from Kotak Securities.
Sir, just on the CapEx, I just wanted to understand what share of the CapEx has gone into the existing products where you said that the demand environment is a little bit on the softer side?
Sir, could you repeat again, the question?
Yes. Sir, I was just referring to your comment that the demand pull for the CapEx that's been incurred on the existing products, that's a little bit on the softer side. So I was just hoping to understand how much CapEx has actually been incurred on those product categories?
We just -- I don't have the number right now. Either we'll come back to you with it or -- I just don't have it on hand right now. We'll come back to you.
Sure, sure. And the exact reason for the slowdown in these existing product categories, could you -- I mean, just help us understand a little bit more about which end-use industries, these might be that are -- that have driven the slowdown? Is it autos? Or is it something else?
It's generally -- I mean, we've seen a slowdown in printing, in plastics. Usually -- I mean if you look at geography-wise, right, we're seeing a lot of trends where you -- Europe, North America are slowing down in these economies. So geography trend has been there, printing inks has been difficult and the plastics market has been difficult in the growth.
Understood, sir. No, that's helpful. And 1 last thing from my side. Just on the margins. The margins have actually improved sequentially compared to the December quarter, quite smartly. And this is despite the fact that, I guess, crude oil rose in the aftermath of the Russia-Ukraine crisis in February or March. So how exactly has the company managed to improve margins? Is it by like passing on the price increases? And then when we look forward into next quarter, the June quarter, should we expect some further impact of the escalation in crude oil prices, et cetera, on the next quarter's margins?
Sir, I think what has happened is some of the pass-throughs we've been able to pass on the increases and we've also been a little more hard on saying that unless we get the pass-throughs, we are not able -- pass-throughs, we are not doing the sales. So we've stopped some volumes on just the basis of that we've not been able to get the increase.
I understand sir. So for next quarter, I mean, do you expect an intensification of input cost pressures? Or have they largely peaked out already and we are not going to get any worse from here?
So I don't think it should get worse from here, but input price on the non-specialty areas is under pressure, is increasing, but we are passing that on.
The next question is from the line of Faisal Hawa from [ HG ] Hawa.
Sir, in what areas are we doing our future R&D and which are the areas that we feel that in 2, 3 years, we could be getting more revenue from and which products just now are not developed, but probably in 2 to 3 years they could give us a good revenue?
There are 2 parts, I would say to your question. I think 1 part is that as you are aware, several new molecules we've developed and we've -- the R&D team is in the process of now commercializing it, right. So a lot of the bandwidth is going into commercialization. The second new areas we are working are on pigments for printing links. There are several developments going on also on the pigment preparation type. A lot of developments are in progress. There are several modifications on our high performance pigments, improvement in the value of use, that's going on.
And the third pillar, I think is looking at backward integration. So some of the important molecules there, so the team is working -- we've developed our basic technology for those. Now we are seeing how to improve our cost position on those backward integration molecules.
So you are not only working on costs for existing molecules, but for future pigments also we are doing R&D.
Yes, sir. Yes. Like I said, the 3 areas -- 3 areas.
Would it be -- I'm not asking for a ballpark, but would it be fair assumption that in 2 to 3 years, at least some new molecules would result in at least 20% extra revenue from new molecules itself, which have been developed, accredited and asked for some approvals from the customers today?
Sir, as I said, a lot of new molecules are already getting commercialized, right? So our growth in the future is going to come from that. I wouldn't like to stipulate a number, but I think a good growth would come from that. And I think the whole transformation story of Sudarshan was that, right? If we were continuing with our existing portfolio, it would have been a very tough situation for us. And that's where I think the whole growth and margin improvements in the coming years should come through this.
[Operator Instructions] The next question is from the line of Dhavan Shah from ICICI Securities.
So I have a question on the volumes part. So you mentioned that we have grown in terms of the volume -- volumes this quarter. But if I look at the capacity utilization for pigment on quarter-on-quarter basis, so in Q3, the utilization was roughly 80-odd percent. And this quarter is roughly 76-odd-percent. So is it so that the volumes have been declined by around 5% on quarter-on-quarter basis? Is this understanding correct?
Sir, I think I would kind of paraphrase and answer in 2 ways. Firstly, I think as I mentioned earlier, sir, our high-performance pigments and the areas -- new areas, I think those products in the high performance and the good -- specialty products, we are seeing -- especially high performance, we're seeing a good growth. And the classical pigments has been a little bit of a challenge.
In terms of the capacity, your question on capacity utilization, we put to use larger capacities now, right? That's why you see the capacity gaps -- utilization gaps.
Okay. So can you share the gross margin differentiation between the high pigment and the lower pigment businesses between these 2.
Sir, from a competitive perspective, we don't share this information.
And secondly, I just wanted to understand about the engineering business. So here, we are doing roughly 10%, maybe around INR 200 crores kind of the revenue every year. But the EBITDA margin is roughly 3% to 5%. So what is the overall motive to continue this business? I mean this little bit margin, not accretive to the overall group. So your thoughts on this.
Sir, the Board is definitely deliberating on this, saying that how do we improve the EBITDA margins. You are absolutely right, sir, as it's -- currently it's a drag on the EBITDA margin, right? So I think the Board is actively looking and saying that how do we improve the EBITDA margins. We've just concluded the day before the meeting and we are discussing with the management saying that how do we -- how does this margin need to improve? Yes.
So we are not going to divest this business, as we have seen earlier for other businesses, so they are going to continue?
Can you repeat your question, sir?
Yes. So we are not going to divest this business, as we have seen for other businesses in the past. So we'll continue with this business, correct? But we'll...
So currently, the Board is deliberating on all options, but I think the first phase is to look at how do we improve our margins, right? Because as you rightly said, 3% to 5% of EBITDA margin just doesn't make sense right -- I think -- so the first focus is to improve the EBITDA margins and then look at it strategically, can we grow this business or should we divest.
The next question is from the line of Ashwini Agarwal from Ashmore Investment Management.
Sir, I had a broader question. If you just zoom out and look at the last 4, 5 years, I mean, you've grown your market ranking on a global basis because of consolidation in the industry. There has been an opportunity to export from India in a lot of these businesses, especially relating to chemicals, complex engineering in chemical products, where you excel that. And you've invested in capacity, but results have not been forthcoming. I mean, either in terms of margin profile or in terms of asset turns. I appreciate that some of the CapEx has been recently commercialized. So to that extent, maybe we are looking at a picture at a wrong point in time.
But do you think that cap turns of 2.5% and ROCE of at least 15%, 16% is realizable over the next 1 or 2 years after all the effort that has gone in or market situation has changed and that's simply not possible anymore?
So Ashwini, very good question. I think, as you rightly said, sir, I think patience is the key. Like our whole -- given the external environment of COVID and the current whole geopolitical situation, right, the situation has been difficult, and that's where some of the delays have happened. Otherwise, we should have started firing from now on, right?
But I think our fundamentals are right. None of the fundamentals have changed, none of the long-term strategy has changed. So our growth delivery, our ROCE delivery, would definitely happen. It's a matter of -- it's just a delay, but it's not that there are any significant changes in the trend. It is just delayed.
Because, Rajesh, my concern is that if you just simply look at the cash flows and over the last couple of years, your debt-to-EBITDA has now reached at 3x number, which is pretty much the line in the sand where think and start to look a little hairy if something goes wrong. So from here, unless we see revenue accelerating far ahead of capital employed acceleration, there is a difficult spot ahead of us. So I'm just hoping that the INR 1,500 crores of revenue potential that you speak about as a result of the CapEx that's already been put into the ground, including the INR 200-odd crores, that's working -- capital work in progress, that will be visible over the next 2 years.
Otherwise, the debt coverage ratios, the return ratios, they will simply not improve. What do you think?
No, there's no question about it. And like I said, whatever CapExes we are putting up, we are having a good attraction. It's unfortunately the COVID happened that time and everything delayed. That's the crunch you're saying. So probably we've already gone through the worst, right? And here onwards, I think we should be -- we just completed our Board meeting yesterday, and that's what we felt. I felt, sir, 1 thing is through this COVID and through this crisis, it wasn't just handling the operations, but it was also delivering the CapEx. So the team has done well to deliver through COVID these CapExes put to use, right?
Now it's the time how we kind of -- the difficult time is over, now it's turning this into good sales, and these are product lines, which are well accepted by the customers. So I think that's where we are very -- I mean we don't have a concern on delivering some of those areas of numbers in the next few years.
No, that's encouraging to hear. All the best.
[Operator Instructions] The next question is from the line of Rajesh Kothari from AlfAccurate Advisors.
Sir, I have a few questions, and it would be great if you can throw a detailed color on that. First thing, I think what everybody is trying to figure out is that while last 2, 3 years were challenging due to 1 or other reasons, how's the future -- what is the story first for future? And for doing that, we require a little bit more, what I would say, concrete in terms of the building blocks, apart from CapEx, that what is happening from your customer perspective.
So from that perspective, from your sales mix, what is the percentage of the sales, which you think is the ink -- the printing ink related or like, for example, you are putting 4 verticals in your presentation, coating, plastics, ink and cosmetics. What is the revenue breakup mix looks like? That's is question number 1.
Question number 2 is, you mentioned that you are trying to pass it on the price increase to your customer. But if I look at your revenue, the revenue has not grown significantly in fourth quarter on Y-o-Y basis despite the cost has been going up significantly. So while the margins are under pressure, that is understandable. Why the revenue is not yet reflecting, what you have been mentioning that you are trying to pass it on?
Because on a 1-year basis, it is not much. It is not even double digit. So is it possible for you to share with us the raw material index that -- I understand there are 200 products and might be 10 types of different raw materials and a number of SKUs. But it is important for us to understand that what is the raw material index is behaving? And what is your sales price index is behaving?
Because clearly, there is a gap, correct. So I will start with the first 2 questions, and then I will follow up with the third question.
Sir, I think firstly, from a number perspective, year-on-year, there's been a 15% growth, right? And to your specific question on quarter, I mean, what we have seen is there has been a demand contraction. And secondly, we had to make some decisions in tunes of passing on the increases, we lost certain volumes, right, to competition.
Sir, is it 15%. Sorry, I thought it is a 9% income from operations, it is 9%, not 15%.
Sorry, come again?
You said 15% revenue growth. Sorry, I'm not able to reconcile. Slide #11 talks about 9% revenue growth and not 15%, correct?
So -- Nilkanth here, our pigment sales is at INR 2,020 crores compared to INR 1,753 crores of the last year, so it is a 15% growth.
Okay. Okay. Okay. And that 15 -- sorry please continue.
So that's a 15% growth.
You were answering in detail here, so 15% versus the raw material index, would have been?
No, I was answering your question when you said that we have not grown. I'm saying we've grown 15% in terms of sales, right?
Okay.
So that's 1 question. To your question on the quarter-to-quarter basis -- quarter-to-quarter basis, like I said, there were 2 factors. One is, obviously, Q4, we did see a demand contraction. We lost Russia. We lost Ukraine. There has been -- in Europe, there has been subdued demand. So -- China has been closed down due to COVID, so we did see a lot of subdued demand. And -- in addition to that, we took certain decisions in India also that we are saying that we want to pass on the increases and we gave up some volume. So that was the Q4 scenario.
Now if we -- so this is -- this was my answer to you.
Okay. And the sales mix, the 4 verticals you talked about coating, inks -- what is the sales mix right now?
The sales trend, I think from a -- I can give you trend perspective. I think printing ink has been a little subdued. And I mean, coatings has been normal I would say. So -- and then other one, plastic was being subdued, cosmetics is doing well.
And what is the ball mark sales mix would look like?
From a competitive perspective, we don't give the split of sales.
Okay, let me put it this way. What is the high growth versus low growth sales mix? If you can tell us something on that?
Could you elaborate your question? I didn't understand your question.
The segments, which you are growing, compared to the segments, which are witnessing probably degrowth or maybe the low growth...
Coatings is growing well.
No, I'm talking sales mix perspective. I'm not asking now segment A, B, C, D. I'm saying if you club the segments, which are probably less growing or de-growing, compared to the segments which growing higher, how your sales mix will look like?
As I just mentioned, sir, we are giving out sales mix segment wise.
Okay. Okay. Fine. My third question was referenced to the raw material index. What is the raw material index, if you look at it on a 1-year basis, what is your sales price index?
Sir, we've mentioned, there has been a general raw material cost increase and other index -- other manufacturing cost increases. And since we have a large variety of products, 300, 350, it's not possible to index on an overall basis. We do follow internal index for each of the smaller SKUs, right? And that's what we internally are up to.
So what's gap right now?
The EBITDA margin reflects, sir, both in the gaps in the raw material and the manufacturing costs -- the logistics cost.
The next question is from the line of Madhav Marda from Fidelity International.
I just wanted to get more sort of elaborate sense on the demand outlook or the current demand conditions that we have in our key export markets? And also India, if you could give us a sense in terms of how the demand is on the ground? That's my first question.
Madhav, to tell you, like I mentioned, sir, on the demand outlook perspective, there are 2 areas, sir. There are -- if you look at the segments, printing ink, we have seen some subdued demand.
I was asking more geography wise, like if you could give me a sense for Europe, U.S., India?
I was giving you all [indiscernible] right? So from a perspective of sales, if you look at Europe, we are seeing a little bit of a subdued demand currently. Of course, Russia, Ukraine is completely closed out sales. U.S., currently, we are okay. But in the future -- I would say, current demand looks good at least for the quarter, et cetera. There is a fear of recession going forward and that -- time would tell us how that reflects on. China has been closed so far, so China sales as we've kind of lost a little bit on China. Otherwise, I think overall, we are looking at -- ensuring that we can get some demand going now.
Okay. So end market, I understand. And also secondly, in terms of -- given we have a new capacity coming up, the expectation is that obviously, Sudarshan will be gaining market share, not just in India, but globally as well. So could you give us a sense in terms of like any new clients wins or how discussions are proceeding there, which could help us ramp these new capacities in the next 1, 2 years. Like are we seeing good traction for the ramp-up?
So for all our new products, CapExes, we are seeing a good attraction on demand. We were expecting on some of our existing products, the volumes to grow, and that's why we have put these CapExes. That an area, we are seeing a little bit of a subdued demand.
[Operator Instructions] The next question is from the line of Ankur Periwal from Axis Capital.
So first question, continuing with the earlier discussion on the global consolidation, now that, more or less, things are stable there. Any thoughts you can share on the competitive intensity overall and our positioning? I recollect you mentioned that our product portfolio after the current round of CapEx should be largely at par there. But on a competitive positioning, if you can highlight and how they are dealing with the RM inflation overall?
I think the number 1, if look at BASF and some chemicals, I think that integration is still in progress, if not still. And I think that would be a slow process, that's what we understand. The second one on the Heubach, SK Capital, Clariant that is in full swing right now. And full swing at -- from both these areas, we would look at opportunities coming up probably in a quarter or 2 where customers would start -- customers are engaging with us more. And in a quarter or two, we will see some more new opportunities coming up due to this.
You rightly said, our portfolio is very comprehensive, sir. And we are -- on the new products, we would get a good attraction from that perspective.
Sure, sir. And on the RM inflation side, is there a pricing differential? Maybe we are passing through more and others are passing through less or vice versa, your comments there?
Yes, sir. I think -- absolutely, sir, I think also, if you look at the Indian industry, we've seen some of the basic chemicals rise far more than the global trend, right, some of the basics. So we seeing a little bit of more of opportunities compared to any of the global players, and that's where we have to pass on a little bit of more increase. And so -- but we are playing the balancing game and seeing how do we balance margins and volume.
Okay. So if I got you right, you are saying the inflationary trend is slightly higher for us, because of RM inflation being sharper for certain basic commodities here in India?
Yes, sir. Absolutely, yes. You got it right. Yes.
And from a pricing perspective, we may not be as competitive as we speak today?
Yes, yes.
Okay. And this is largely a result of the global disruption that we have seen or there is some specific local issue, because of which we are seeing this higher inflation for RM?
Some of the basic chemicals have really shot up in the last 1 year, within India. Whether it's caustic chlorine, whether it is some of your basics like nitrates, sulfuric acid, compared to the global levels, we've seen a large increase income.
Okay. Fair enough. Sir, a second question here on the balance sheet side. And now obviously, given the CapEx of -- the debt has also sort of increased. Your thoughts on 1 incremental CapEx, because you did allude towards doing backward integration for selective products. So what are our thoughts on the CapEx side and whether this should be the peak debt or this number can still go up?
Sir, our focus is first to commercialize these -- commercialize these CapExes generate cash. And as the debt starts slowing, so this is definitely the peak debt. And on the backward integration type, our technology, we have our pilot plants ready. So we are already looking at how do we be ready for that. So from that perspective, currently -- so currently we don't envision at least in this financial year any additional CapEx -- additional CapEx for the backward integration.
Okay. And the nominal CapEx for this year will be?
It will be nominal INR 40 crores, INR 50 crores, which has been approved by the Board.
[Operator Instructions] The next question is from the line of Nidhi M from [indiscernible]
Tanmaya Desai. Sir, just 1 clarification. If I look at the segment on the pigment side, if I look at the EBIT margins, the absolute number has declined on a sequential basis. So if you could just help me understand -- in spite, I mean, the mix changing towards more of a specialty product. And as you are saying that we have margins resided on an absolute terms. So if you could just help me understand the decline in absolute EBIT. Is it due to depreciation primarily? Or is there some other reason as well?
Sir, can you repeat -- please repeat your question?
Yes. So asking on the segmental data that you provided. I was looking at the absolute EBIT in the pigment segment. So there is a decline on a sequential basis. I think I missed the initial part where you were referring to the higher cost. But I think you also alluded that the costs have remained stable on a sequential basis. So just trying to understand where is the contradiction coming from. I mean we have higher salience of specialty segments in this quarter, right? So the EBIT number, I mean, why was it lower on a sequential basis is what I'm trying to understand.
Nilkanth here. So if you see in terms of the pigment, as we mentioned, the EBITDA is at 13.7%. So if you see Q3 of this year FY '22 and Q4, so percentage-wise, it is at the same level. And then as we -- if I see in terms of the value, there has been a marginal INR 3 crores drop in terms of the pigment EBITDA. And as we mentioned in our opening comments also, so there has been a price escalation and price pass-through. However, this inflationary pressure and price escalations are not passing through. These are -- the timing is frequent. So once we finalize the pricing, we have to absorb some part of the cost. However, in the percentage term, we are maintaining the EBITDA.
Sure, sure. And just 1 clarification on the CapEx front. Earlier, we had indicated that out of the INR 1,500 crores additional revenue that you are targeting, roughly INR 600-odd crores would be coming from the new products. So the CapEx for the new products has entirely been commissioned? Or how was it? Some part of it is still pending?
So as indicated in the CapEx front sir, INR 210 crores of that is still to be completed.
So that includes the new products? Or how is it? I was just trying to get some clarity.
Those are the new products.
The next question is from the line of Chetan G from AlfAccurate Advisors.
Sir, 1 more clarification. As you said that you are seeing a strong demand in the specialty part of the business, whereas non-specialty or classical pigment is seeing some slowdown. So is it like this non-specialty part of the business is largely those ink and plastic business?
It's a combination, sir. I would say the specialty products go across the industries.
Okay. Okay. So next year, sir, like as you're saying, like worst is behind. On the other side, you are also saying that there is a caution because Russia -- you lost some sales in Russia, Ukraine, plus there is some slowdown expected in Europe and U.S. So how should we see the next year? Like on 1 side, you are pretty confident. On other side, there is a kind of caution. So next year, what should be the -- what kind of volume growth or what kind of growth we should see on a year-over-year basis? Is it...
I was descriptive to Ashwini ji's question on the cash flow perspective, and that right. What I was referring to is, the CapEx has got substantially delayed, and that's how the debt cash flow are on a critical pressure. I'm saying here on, that picture is going to be better. On the geopolitical side, sir, it's anyone's guess, how it's going to pan out, right? I think -- so I would not like to speculate on that area. But what we are saying is some of our fundamentals on the new products is strong.
And we should be able to get good attraction. It's a matter of time how this happens. And I think that question in that context was -- it wasn't a quarter question. It was more, I think, Ashwini ji, pointed out the [indiscernible] question. And so that's where I think I was coming from.
And now given that new products -- as you're seeing a lot of new products are launched or are on the verge of launching. So your specialty, which is 70% of the overall pigment business, let's say, how it should look in '23?
It will be upward trend. There will be a ramp-up time. However, on the existing product portfolio also, we've added capacity side, so that would also grow, but I think the trend in the next 3 years should positively move towards the specialty.
Okay. So like, let's say, in the next 3 years, are you saying the specialty would be like 80% to 90% of your portfolio?
I would say, yes, it will be towards the positive trend, sir.
And that will percolate also into the margin?
Yes.
Because I believe the specialty margin is at least what 50% higher than the plastic business.
It's higher, sir. So the specialty margin also has a fairly range. So it's much -- it's better than the commodity. And the business sticks more, right? Once you once get into a customer, it's more -- it sticks more.
Sir, any -- lastly, if any commentary for the next year growth, I know you don't give the guidance, but at least any color from the growth perspective, volume or anything?
So I do believe, sir, we've seen the worst part of 3-year. And I think from here, we do have a positive outlook towards the market. Given the -- even in spite of the geopolitical situation, we should be doing better business than last year.
Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments.
Thank you. Thank you participants for your interest in Sudarshan and for joining our earnings call. We look forward to continuing our growth journey and delivering value to all our stakeholders. Thank you, be safe.
Thank you.