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Sudarshan Chemical Industries Ltd
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Ladies and gentlemen, good morning, and welcome to the Sudarshan Chemical Industries Limited Q4 FY '23 Earnings Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Tejas Sonawane from Dolat Capital. Thank you, and over to you.
Thank you, Ryan. Good morning, everyone. On behalf of Dolat Capital, I would like to thank the management of Sudarshan Chemical Industries Limited for the industry opportunity to host their Q4 FY '23 earnings conference call. From the management team, we have with us today Mr. Rajesh Rathi, Managing Director; and Mr. Nilkanth Natu, Chief Financial Officer.
Without further ado, I would like to hand over the call to the management for their opening remarks, post which we'll open the forum for a Q&A session. Thank you, and over to you, sir.
Thank you, Ryan. Thank you, Dolat Securities and Mr. Tejas for hosting our earnings call. Good morning, ladies and gentlemen. Welcome to Sudarshan's Q4 FY '23 Earnings Conference call. Our investor presentation has been uploaded on the stock exchanges for your [ reference ].
I would like to take you through the financial highlights for this quarter. On the overall basis, it has been a strong performance in the quarter 4 of the current financial year FY '23, both on the sales and margin side, compared to the challenging quarter of Q2 and Q3 of this current financial year.
On the quarterly performance, on a consolidated basis for the quarter, total income from operations stood at INR 691 crores as compared to INR 627 crores for the same period last year, higher by 10% year-on-year. EBITDA for the quarter stood at INR 85 crores compared to INR 86 crores in Q4 FY '22. And EBITDA margin stood at 12.3% compared to 13.7% over the same period last year. Profit after tax stood at INR 33 crores as compared to INR 45 crores for the same period last year.
Sequentially, revenue has grown by 31% at INR 691 crores compared to INR 528 crores of Q3 FY '23. And EBITDA has grown by 100-plus percentage to INR 85 crores compared to INR 42 crores of Q3 FY '23 with the improvement in EBITDA margin from 7.9% in Q3 to 12.3% in Q4 FY '23.
On a yearly basis, total income from operations on a consolidated basis stood at INR 2,302 crores versus INR 2,201 crores in FY '22, a growth of around 5%. EBITDA for the period ending 31st March is at INR 211 crores compared to INR 275 crores last year. And EBITDA margin on a yearly basis is at 9.2% versus 12.5% over the same period last year. PAT is at INR 45 crores compared to INR 130 crores for the same period in the last year.
Now going into the details of our Pigments business. Q4 FY '23 has been the strong quarter for us. For the Q4 FY '23, the income from operations stood at INR 594 crores compared to INR 558 crores for the same period last year, a growth of 6% year-on-year. On a sequential basis, the revenue is higher by 23% compared to INR 483 crores of sales revenue in Q3 FY '23.
India sales for the quarter is at INR 301 crores compared to INR 286 crores in the same period last year. On a sequential basis, India sales is higher by 20% compared to INR 251 crores of Q3 FY '23.
Exports for the quarter were at INR 293 crores compared to INR 272 crores last year, higher by 8% year-on-year. On a sequential basis, revenue is higher by 26% compared to INR 232 crores on the Q3 FY '23. In both domestic and export markets, we are seeing early sign of demand revival in both plastic and coating segments.
The specialty pigment sales stood at INR 412 crores as compared to INR 388 crores for the previous year same quarter, 6% higher year-on-year. On a sequential basis, the revenue grew by 21% compared to INR 340 crores in Q3 of the current financial year.
Nonspecialty sales for the quarter stood at INR 181 crores as compared to INR 171 crores for the same period last year, while on a sequential basis, revenues grew by 27% compared to INR 143 crores in Q3 FY '23.
Gross margin for the Pigment business for the quarter stood at 41.5% compared to 41% for the same period last year. Comparing with the sequential quarter, it showed improvement over Q3, which was at 40%.
After experiencing the volatility in the raw material prices for first 3 quarters, we are seeing softening of the RM prices now in Q4 FY '23 due to drop in basic cost drivers such as crude oil, benzene, toluene, et cetera. This should help us in stabilizing the gross margin level. Apart from the raw material costs, we are seeing softening on the energy costs in Q4 and also reduction in the coal prices, which should benefit manufacturing costs in the coming quarters. Logistics costs are also coming off from the peak level seen earlier, and we expect this trend to continue.
EBITDA for the quarter stood at INR 73 crores in Q4 FY '23 as compared to INR 76 crores for the previous year same quarter. EBITDA margin at 12.3% compared to 13.7% over the same period last year. Sequentially, EBITDA has grown compared to INR 38 crores in Q3 of the last year. EBITDA margin shows improvement over sequential quarter, which reported at 7.8% in Q3 FY '23.
Given the difficult external environment, management has aggressively focused on the cost reduction initiatives throughout the year. Overall, [indiscernible], softening of the RM, raw materials, other costs, aggressive push on the cost reduction has helped us increasing the margin and EBITDA for the quarter under review.
However, we will have to continue with the pricing decisions with the calibrated approach to balance on the volume growth. We have also worked extensively on the reduction of the working capital, especially on the inventory level, accounts receivable, relieving the free cash flow, which has helped us in releasing the working capital backlog.
On the yearly performance, yearly basis, total income from operations stood at INR 2,079 crores for the Pigment business versus INR 2,020 crores in the same period last year, a growth of around 3%. EBITDA for the period ending 31st March '23 is at INR 194 crores compared to INR 269 crores last year. And the margin is at 9.3% versus 13.3% over the same period last year.
A recent update on land monetization. The company has on 6 April '23 executed deed of conveyance with Birla Estates Private Limited to sell company's freehold, clear, marketable titled land admeasuring 5.76 acres along with the structures thereon located at 162 Wellesley Road, Pune 01 for a total net consideration of INR 356 crores. The company has completed the sale transaction and company plan to strengthen the balance sheet from the proceeds arising out of this transaction.
On the CapEx side, let me inform you the status of the CapEx projects which will drive the company's future growth. I'm happy to inform you that we have successfully commissioned all the CapEx projects in this financial year. With this, we have transformed our product portfolio with one of the widest and most comprehensive product range in the industry. For the new product lines, we are getting good response from the customer, and these products are at advanced stage of evaluation. Given the current global scenario, we expect a slow ramp-up in the short term, but we remain confident in the midterm that this CapEx will accrue the expected benefit.
So to summarize, there are many positive tailwinds from the external side like consolidation of top players in the industry, supply disruption from the prominent players in the North America, the emergence of India as a key global manufacturing industry and softening of the raw material prices and energy costs, which will be positive for the company. At the same time, we are very well prepared internally with all the CapEx projects being commissioned with wider range of product portfolio, cost-efficient operations and capacities to quickly ramp up the sales.
To summarize, the year has been challenging for pigment industry and us on sales as well as the margin front. We are seeing this pressure in the first 3 quarters of the current financial year. Q4 FY '23 showed strong revival and performance on overall business and financial parameters. We are confident in our growth journey and look forward to continuing the same and delivering the value to all our stakeholders.
With this, now I open the floor for question-and-answer session. Thank you.
[Operator Instructions] Our first question comes from Sanjesh Jain with ICICI Securities.
A few questions. Sir, first on the China competition, we have been hearing from the other chemical company that China is getting aggressive, the domestic consumption has slowed down, and that has led to a lot more aggressive Chinese operator for the export market. And now that the commodity is also softening and demand even on the global side doesn't look very exciting, considering all the situation, how should we expect FY '24 for Sudarshan Chemical?
So I think China, if you compare to last year, last year, China's demand was at the lowest, right, due to the lockdowns, due to the various lockdowns, et cetera. And there was surplus production. So that trend, I think, has improved. But at the same time, you're right, we don't see that ramp-up happening on that.
The second thing which has happened is there has been antidumping duties posted in -- post China for [ green ] pigment from India. So both, I think, from a perspective of India supplying [ green ] pigments into China has become a concern for the entire industry. And China's surplus, whatever they have in terms of supplies, they've been kind of, I would say, supplying at very aggressive costs in Asia and other regions.
So I feel from a perspective of last year, the situation is slightly better, but the situation still remains concerning. And that's where we differentiate ourselves with some of our portfolio and the services which we offer to our end customers.
Fair enough. So considering that our -- all the CapEx programs are completed and our commodity prices have also eased out, how should we see the revenue growth for FY '24? can we achieve a 20% growth considering that we had a very soft quarter -- soft year in FY '23? Do you see a challenge to that?
And again, you did mention that you have seen revival in both coating and plastic segment. We can see that gives a little bit of confidence. But [indiscernible] from the sales perspective, is 20% kind of a growth realistic?
So I think from an external tailwind perspective, we have very good tailwinds. As Natu J. explained in the conference call, a lot of top players consolidating, a little bit internally focused, a lot of focus on India as a key hub. At the same time, we're also well prepared with our CapEx and the product portfolio growing. So we do expect -- I do not know -- I don't have -- given the several uncertainties in the market, I can't give you a figure saying that this is what it is, but we do feel that the worst is over, and we should be able to kind of move on from here in the right direction.
Fair enough, sir. Next, on the margin perspective, first, on the gross margin; second, on the other expenses. Gross margin on a consolidated basis, we are at 42%. And Pigment, you mentioned that we are at 41.5%. Historically, we were at anywhere between 43% to 42%. So that 200 basis point improvement can be achieved with this softening in commodities? Is that the right understanding?
Second, on the other expenses, there has been a drop in coal prices, freight costs and everything. But from our other expenses perspective, it still shows a very high inflation of 25%, 26% for a revenue growth of 10%. Can you help us reconcile the other expenses?
Yes, Sanjesh. So Nilkanth here. From the gross margin perspective, what we have seen is a gross margin of 43.5% in the year FY '21, and they will normalize the cost consideration. What we are announcing in the current quarter, the gross margin of 41.5% compared to the earlier quarters, which were at around 40% or sub-40%, we expect that this stabilization in the raw material costs -- and one is the softening, and second is the stabilization in the raw material prices should help us because earlier we had seen it has been not only the inflation but the timing during the quarter also, we used to get the disruption in the raw material prices. Given the stable outlook, I expect that this particular gross margin trend should continue.
It also -- is also the impact on earlier we have seen in a couple of quarters the demand pressure and the pricing pressure due to that, wherein the percent pass-through were difficult. With the current revival in the demand, we expect that this level should get stabilized and we should get some uptake in the coming quarters if the raw material prices remains at the same level.
On the other expense side, while I agree with your observation on totality basis, the company has done aggressive cost push in terms of the various levers. A couple of factors which has impacted during the year, one is in the ForEx exchange lost sales, which is around INR 16 crores, which has been published in the note. This is due to our -- the CapEx loan. And it is more structural, and we monitor it based on our [indiscernible]. We are aware of those variability in the foreign exchange.
Second factor also which has impacted during the quarter and overall during the year is our RIECO business has also shown a good growth. And the site expenses related to that has gone up during the quarter as well as corresponding year.
And the first factor which has also impacted during this particular year is the rising coal cost. So while we saw the stabilization coming in the quarter 4, the coal cost normally were higher in the first 3 quarters, which has also impacted that variability in the other costs while we have taken a lot of measures in controlling the other expenses, which are more of discretionary.
Second, the company has -- to reach out to the customer and key customer engagement and key account management, we have also started investing in what I can say as a good business expenditure, which is travel as well as the execution cost. So we have reached out and we have participated in a couple of executions in the last quarter and in the H2 of this financial year. So with this, the other expenses is on a slightly higher side, but these are more of a structural and it's from the long-term perspective.
For next year, they should significantly normalize, right, the cost reduction?
Absolutely. Absolutely. So while there has been a focus on the cost reduction, which helped us during this year, the focus remains constant. We would like to cut the unnecessary parts in the system in terms of the fixed cost, whether it is fixed or variable. The operation -- manufacturing operation has become very cost efficient, and we will continue that trend. We will be prudent in that matter.
Fair enough. Sir, my last set of question is in the new product contribution now that we have commissioned the CapEx. What is the number of products we anticipate and what is the contribution we expect in next 2 years from the new products in our overall revenue? And what is the capacity utilization as of FY '24 for us? And what is the CapEx plan for FY '24? These are my last questions.
So I think from a CapEx perspective, we've completed our CapEx plan completely. We don't expect any CapEx accepting the regular maintenance CapEx or any minor CapEx coming up. But otherwise, the CapEx program is full on. As Natu J. explained in the note, I think all our products are good to use now, right? So several chemistries have been launched. Whether it's the [indiscernible] new product, Yellow 128C introduced earlier, but various versions we've launched through the years, CICP complex pigments, CICPs we've launched, solvents that we've launched. So all our product portfolio now is complete, and we've launched this.
We expect -- we are already seeing a good traction for this product line. We end up in the very -- in the short term, we expect a little slower ramp-up given the economic slowdown. But we are very confident in the 3-year, 4-year horizon, we should be able to meet our -- midterm horizon, we should be able to meet our CapEx targets.
And the capacity utilization?
So right now, we've ramped up our capacities, and we are ready to go. I think right now, we are not publishing from competitive sensitive information, but we have enough headroom to grow, sir, with the CapEx breakdown.
Our next question comes from Ankur Periwal with Axis Capital.
Congratulations for a good rebound and -- in the numbers this time. So -- okay. So starting -- continuing with the product side, you did mention launch of many products there. From a stability perspective, have we reached a stable state here or there could be some sort of time taken for these products?
So we've launched these products, sir. Now it's the time to get the approvals and we ramp up sales on that, right? So from an internal perspective, we are all ready now. Now it's all getting approvals and pushing those products into the market.
Was that your question, Ankur?
Yes. Yes. So from a technicality [indiscernible], typically, initially, it may take time for the product to stabilize. That part is done. It's only the product approval which is...
Yes, sir. Absolutely, sir. Absolutely.
And how much time -- and so second question, related to that, from a product positioning or the target market perspective, are large part of these products domestic market oriented or international? And how much time will it take in both the geographies?
It's a global product range, and we expect to realize the benefits between 3 to 4 years.
So Ankur, Nilkanth here. So as Mr. Rathi mentioned, these are the niche products. And as we already mentioned earlier regarding to the specialty pigment side, so the market will be both in domestic as well as the export market. Slightly the state will be on the export side. As Mr. Rathi also explained, technically, these products are proven. It is the customer approval we are in the process of getting a couple of them are on board. So it will help us in both the markets going forward.
Sure. Just on the product approval time line, sir, so I understand different products may be different, but broadly a range will be helpful.
So sir, the approval time kind of varies between 3 months to 6 months, right? And so we started this process. What we are saying is, so the ramp-up earlier expected would be slightly slower given the slowdown in the market. So from that perspective, especially some geographies like Europe, et cetera, we see slightly lesser uptake than what we were expecting initially. But that should soon -- we should soon see a ramp-up in the midterm side given the tailwinds which we have.
Sure. Yes, that's perfectly fine. On the margin front, we have seen a good jump on a Q-on-Q basis as well. Just trying to understand the earlier delays in RM inflation or the pricing-led discount that we were facing earlier. Both of them are largely through, and now there could be some benefits of RM deflation, let's say, starting next quarter?
Ankur, Nilkanth here. so I agree with you. So the softening of the RM prices and with the stable RM environment, given that we also have the good Q4, wherein our sales numbers were higher, the effect of this RM purchasing or new pricing should come in and which we are seeing in Q4 also. And if this trend continues, we expect that this will get stabilized, and we should see the normalized gross margin going forward.
And this normalized will be the historical average of around 42%, 43%-odd?
Yes. If you really see historically, we were in the range of -- if you see from FY '19 to '22, we were in the range of 41.5% to 43.5%. I would like to have the numbers maybe 42% and 42.5%. So maybe a quarter -- maybe 100 basis points further. But it will take time to go to that level. I'm right now expecting the current level of the gross margin to sustain for the quarter as we move along with the new pigment range coming in and all that, we should be at the midpoint level for them.
Sure. Sure, Natu J. And the last bit from my side, for the quarter specifically, if I look at the consol and stand-alone, which is the subsidiary revenue had seen a pretty sharp jump. So could you help us understand what exactly are these subsidiary revenues for? These are largely the marketing entities that we have? And the -- correspondingly, the overheads are also slightly elevated here. So just a clarity on that.
Yes. So Ankur, if you really see the performance in the segment side, so there has been the increase in the, as you know, RIECO business revenue from INR 44 crores to INR 96 crores on the consolidated basis, while our trading now in the U.S.A., Mexico and, to some extent, Europe also has helped us in revival of the demand there. And overall growth on the following subsidiary has been also good in Q4.
In terms of the other expenses which have been elevated, as I mentioned earlier, reforming a price-oriented business into the capital goods industry, with the revenue getting double between Q3 and Q4. There has been some ramp-up in the cost there. And a couple of things which we did in the Q4 on the execution and reaching out to the customer has slightly given me the elevated Q4 cost. But we feel it should normalize in the coming quarters.
Our next question comes from Amar Maurya with AlfAccurate Advisors.
A couple of questions from my side. Firstly, sir, what would be the volume growth for us in this quarter?
Amar, can you -- I didn't understand you. Can you please [ repeat it ]?
Volume growth. What would be the volume growth? Am I audible to you?
So Amar, Nilkanth here. So normally, we have not published GST volume data. But just to give you the directional number, the growth has been good in terms of the volume pickup compared to the Q3.
Sir, we have seen the volume pickup compared to the Q3. Okay.
Yes.
And this volume pickup was, sir, largely, let's say, from the coating segment or from your -- basically, the plastic segment?
So Amar, this volume pickup or volume growth we have seen in both the markets, domestic as well as export, and in both predominant segments, which are plastic and coating, both. With the plastic segment, what we have earlier also said in a couple of quarters, Q1, Q2, where we have seen that there was a lot of raw material variability in the plastic segment which was on polymer side. It was the variability in the prices, and second was the availability.
And in the scenario wherein the raw material prices were very much elevated, the masterbatch manufacturers used to hold their buying decision, which we have seen in the earlier quarters. Now with the stabilization in the raw material prices and with the stable outlook, we have seen the pickup in the plastic segment, and we expect this to continue.
Okay. And sir, in the coating, the coating is largely linked to the automobile or digital decorative coating, let's say, in the export perspective?
It is in both, slightly the sales is higher as far as the decorative coating is concerned.
Both in global market also?
Yes, sir.
Our next question comes from Nitesh Dhoot with Prabhudas Lilladher.
Sir, my first question is on the market share. So for a few years now, as per our presentation, our domestic market share has remained constant at around 35%. So why is it that we've not been able to gain market share despite the increased focus towards Pigment business over the years? And will this increase especially with the large CapEx that has been put on ground over the last couple of years?
So I think from a domestic market, what we are able to gain is more on this product -- specialty product side. There is some fierce competition on some of the commodity products where -- so though we lose on that side, we are able to gain on the specialty product side. And I think that will -- we will continue our trend towards focusing on the specialty side. We do see good tailwinds coming in with a lot of investment in the paint section, which -- in the paint manufacturing area, in which we would be -- we are really focusing on or, yes, participating in that growth -- on that growth.
That's helpful. Another question is whether there is a meaningful difference between the pigments which you sell in the domestic market and that in exports and in terms of end applications and the pricing of the products.
So sir, I mean, some of the product portfolio is -- so even the Indian market is changing, where a lot of specialty products are getting used, but the percentage of usage in some of the advanced economies, I would say, is more there. And that's how the product -- I would say, the product mix changes. And certain product range, we do not take it globally, right? Some of the inorganic chrome pigments or the -- and oxide pigments, et cetera, we do not sell these globally, we sell only in India.
Our next question comes from Gagan Dixit with Elara Capital.
Sir, I see the quarterly trend. So it looks like your specialty, this revenue on a quarter-to-quarter basis improves almost INR 70 crores something, while I see similar growth in this export revenue also, this almost INR 60 crores plus. So can I safely assume that this mostly the -- your specialty growth is driven by the export market revival that's more -- or you say relatively as compared to domestic?
Sir, Nilkanth here. if I see the domestic and export, which is 51%, 49%, and as we mentioned, there has been a INR 60 crore growth in the export quarter-on-quarter. Similar way, we had seen INR 50 crores in the Q3 to Q4 for the domestic. The specialty and nonspecialty still remain between 69% and 31% at the basket. And we see this particular growth coming in from both the markets, which is domestic as well as export. As Mr. Rathi mentioned, a couple of inorganic products are not being marketed in those export markets because of the regulation. We see slight skews in the export market on the specialty side.
And sir, which are the export market you see more revival? Because I see in the presentation that you mentioned still there are problems still going on in Europe. This demand is flat. And also, there's the China issues also. So if you can indicate that, I mean, overall, just on a quarter-to-quarter basis or Y-o-Y, where, I mean, the demand is more a bit ramping up as compared to others, sir?
Long-term trend, we see a great potential in the Americas, even the South American market, which we are also focusing and driving our growth. There are several initiatives which should really help us in the midterm, including Europe. For example, Europe, we've onboarded a BASF subsidiary, BTC, as a distributor. And it also talks about our -- it's also a testimony of we being a reliable and high-quality supplier that BASF, BTC has taken us on board. And this will definitely help us strengthen our midterm perspectives and reaching out to small and medium customers, right?
So each geography, I would say, has the area. It depends on how it plays out, right? So with Europe, probably demand is rising, I think these 2 areas should help us. Americas, we are driving growth. So these are some of the areas which we are growing. In Japan, the digital ink market is -- and Korea, the digital ink market is very favorable, which we are selling some of our products in the digital inks. And we are ramping up our sales there.
Sir, regarding the China competition in the export market, so typically this -- on the pricing front, typically, is there any Chinese price advantage or we are at par with your product prices?
So it depends on the product range. There is definitely a product range where we are not able to compete, especially in some of the commodities, right? Those are the areas where we -- with China we are not able to compete. On the other specialty areas, if the presence of Chinese is less, but we are able to compete on those areas.
Our next question comes from Rohit Nagraj with Centrum Broking.
Congrats on a good set of numbers. Sir, first question is on the specialty and nonspecialty mix. So currently, you mentioned 59% to 41%. Over the next 3 years, once we tap the new CapEx of INR 750 crores, will this mix change more towards, shall we say, FY '25 or what is your perspective?
Rohit, Nilkanth here. thanks. So with respect to the specialty and nonspecialty sales, which is at around 69% and 31% currently, with the CapEx program which is commissioned and major focus is on the specialty side, we expect this particular stage will be on the specialty side, wherein the specialty current percentage in terms of the revenue should move up from 69%. I would not like to put the number as is, but it should be around -- on a higher side compared to what we have seen now with respect to the specialty. So upward direction will be there.
Second thing is also between India and domestic, what we have seen, 51% and 49%, which is fairly a balanced mix, with this CapEx being commissioned, the sales also should slightly move on the export side going forward.
Right. That is helpful. And second question is particularly on the balance sheet side. So we have seen a very strong improvement in working capital to 74 days from 96 days. So earlier target probably is closer to 90 to 100 days. Is this 74 days of working capital sustainable going forward?
And second question is, given that we have received the money from land sale, what is the kind of debt reduction that we expect by FY '24?
Thanks, Rohit. So on the working capital side, as you rightly mentioned, we are at now 74 days of the net working capital cycle. And as I mentioned in my opening remarks, the great work done by the team internally to reduce the inventories and also to make the operation lean and with the collection of the accounts receivable, if you really see our net working capital as a percentage to sales is at around 20%. And historically, we used to operate between 24% to 25% earlier.
And earlier, we indicated as a management that we would like to go gradually to the 20% level. And we were targeting 22% as one of the ways to get into that particular aspiration level. But happy to share that we are at around 20% at the year end.
While there may be certain variability in this particular percentage during the year based on the raw material supplies availability, maybe some strategic call, we expect and we will work towards maintaining this level plus/minus 1%. That is something I can look at.
And that has also helped during this particular year for the debt number. Despite the EBITDA being down by INR 70 crores, INR 80 crores, our debt numbers are flat, which is at INR 794 crores, INR 796 crores in terms of the net debt.
Regarding your second question on the land monetization, so yes, this land monetization will help us in improving our balance sheet. Currently, we are at around INR 794 crores of the numbers. If I see the net debt, if I consider this INR 300-plus crores of land monetization, we are closer to INR 500 crores. So we will -- we as a management have taken a call to reduce the debt over a period. And we should be more leaner in the next year as far as the base numbers are concerned.
Yes. Just one clarification. During FY '23, were there any onetime consultancy charges for the projects which are undertaken and which will not be recurring in FY '24?
Come again, Rohit? We can't...
Any consultancy charges that we had paid for any third-party consultants? I think we were working on the margin improvement projects with some of the external consultants. Is there any, I mean, onetime expense for those consulting starts during FY '23 and which may not recur incrementally?
Yes. So Rohit, we did not have any onetime or contingency charges on the margin improvement, et cetera, in the current financial year FY '23. So there was no onetime of that.
Our next question comes from Archit Joshi with B&K Securities.
Sir, just one question. So the market leader has kind of indicated that there are a couple of areas where there's been an improvement. And the outlook in cosmetics and displays as a category within which pigments are used, that's showing some signs of revival. I just wanted to understand if we have any exposure to these industries where we can see some revival globally.
Also, they have mentioned that some of the key categories like coatings, plastics and printing are still under -- really under a lot of pressure with respect to inventory adjustment. And our view, when do we see this reversing for us specifically even if it's not for the industry? That's it, sir.
So I think for us, yes, cosmetic and displays are -- digital inks are an important segment for our growth, too. However, if you look at the market size, compared to the entire market size, these 2 market sizes are quite small compared to the percentage to the total market and -- so though we'll be growing there, whether they have a significant impact on an overall perspective is a question, but these are very important segments, strategic segments for us to grow.
With this, sir, I think there are -- so it's a comparative area. And we have seen some improvements compared to last year on the demand side from the 3 traditional industrial sectors which you spoke about. And so we do believe that the worst in demand things are over, and there is a gradual improvement which is coming up.
Understood, sir. Sir, while you say that the displays or the cosmetics, these categories are pretty small in the overall scheme of things. Would you -- can you throw some light on the displays business or the displays industry? Where exactly are these pigments used? I mean, from the application perspective, is it more towards electronics and laptops or with smartphones growing quite significantly? Would this be a growing area going ahead, if you can share some of your insights on this segment?
Sir, digital inks is important because this comes under digital inks. And under digital inks, there are 2 segments. One is the inkjet, the toners and displays, widespread displays. So overall perspective, these are the areas where these products go.
We think it's a strategic area, which is a good growth area. Though the entire volume is this, the margins would also be better, and that's how we had embarked on this. All our development work in this area was completed between our R&D in India and Germany lab. And our product range is completely ready, and these are the products which we are really selling into Japan and Korea now. And we have several approvals in this area.
Our next question comes from Aatur with ICICI Prudential Mutual Fund.
Sir, just 2 questions. One, what would be our CapEx number for next year in terms of ballpark range, if you could...
So Aatur, Nilkanth here. So as we mentioned, the majority of the CapEx program is over. And this year will be a stabilization phase for us. So we will only continue with the sustenance and the maintenance CapEx. We'd not like to put the number, but it will not be [indiscernible] significant.
Our engineering business, which was a small portion, has been ramping up well. So any valuation to eventually sell it? Or any thoughts on that? How should one think given it's noncore?
So Aatur, yes, so there has been a revival in the RIECO business. The Board is also looking at this revival, and this year has [ EMR ] in terms of the turnaround compared to the last year. So both will take in an opportune time the decision regarding that. As of now, there is no discussion in terms of the [ date ].
Our next question comes from Madhav Marda with FIL.
I guess what I'm getting is you are sounding much more confident on ramping up the new capacity versus earlier. And so it seems like there could be some like recent market share gain opportunities, which has been the thought process in Europe, South America and North America. Is that the right understanding I'm having that, finally, all this consolidation which is happening in the pigment industry and on new CapEx coming in product portfolio expanding, now all of those things are coming together, and now we should see like a steady growth? Of course, macro is something not in our control. But what's in our control seems like things are falling into place. Is that the right sense I'm getting?
I think as you well summarized, like you said, so we were always very confident about our CapEx program, right? That was the area of transformation for the company in order for its growth and good sustainable growth, right? So given that we have so many headwinds in the last 2 years when we began the CapEx program, we did face it very well, I think. And we have now kind of completed the whole CapEx program. We should -- we do feel that the ramp-up will be there. The first -- the initial part may be a little tougher because of the slowdown. But I think given that there has been no [ berth ] of attracting the customer for the product line. So there's a lot of [ full ] there, right? How we ramp up is the real question in the short term, is a little bit of a concern. But I think overall, in the overall midterm period, we are very confident that we should meet our CapEx benefit package.
Understood. Understood, yes. And then the second question was it seems like our gross margin, like you said, you kind of said that 1 quarter more maybe, and then we should see some bit more of an uptick on the gross margin side. And even on the fixed cost side, there has been obviously like high freight cost, I mean, on the other expenses and then high coal prices. So all these things, I mean -- and we always -- like if I look before COVID, this would be the 14%, 15% EBITDA margin range. So do you think we can get back there towards the end of FY '24 as we approach like quarter 3, quarter 4? Of course, given like macro is remaining and inflation is remaining where it is, on a steady-state basis, our margins can see some more uptick from gross margins and a little bit more on the cost side?
Madhav, Nilkanth here. So as I mentioned, yes, with the gross margin stabilization currently at 41.5%, with the raw material stabilization and the stable outlook, I expect that this trend should continue and should sustain. And if it continues, then definitely it will reflect in terms of the EBITDA. While we had historically achieved the number of 15% in FY '21 given the market scenarios, then I would not like to put the number as of now for what is the EBITDA for the next year. But directionally, with the stabilizing coming in and overall the confidence of volume bounce-back, I expect it should help us in improving the EBITDA percentage in a couple of quarters.
And just last question, the land proceeds have already come in, right? Like we've already received the money from the land sale?
Yes, Madhav, we have received it.
In this financial year.
In this financial year, in April, part of Q1.
So Q1 on this year, got it. Got it. Okay. Yes. Perfect.
Our next question comes from Chetan Thacker with ASK Investment Managers Limited.
Sir, I just wanted to understand more from a medium-term point of view. So we've historically seen your gross profit margin in the range of 41% to 43% given that the products that we've launched and we fill the basket in. Would it be a fair understanding that over a medium term, we can add a couple of basis points to this range as those products increase in terms of contribution? And that plus the efficiencies will eventually drive the OPM over a more medium term?
Chetan, Nilkanth here. So directionally, yes, given the current -- the range of what we have seen earlier, 41% to 43%, more stabilized range of 42%, while the specialty and nonspecialty state was around 69% and 30%, with the ramp-up and the new product CapEx, which are more in the high performance in the specialty side, directionally in the coming year, this should give us a better benefit in terms of the gross margin.
Got it. And the capacities that we set up, fair to assume in 3 years, if things go normally, which we've not seen some time but still assuming it goes, most of these capacities would then be utilized. That would be a fair understanding?
Absolutely. So given the current scenario, we are expecting that the ramp-up will be giving 3 to 4-years period of time. Absolutely.
Our next question comes from [ Janam Ilani ] with [ Swan Investments ].
Sorry, I missed the initial part, sir. Could you tell me what was the -- like what was the amount we received in the land deal?
Nilkanth here. So we have received INR 356 crores in terms of our land monetization.
And sir, assuming we achieve peak utilization in 3 to 4 years, what can be our current revenue -- like the revenue that can -- the peak revenue that can be reached in 3 to 4 years with our current capacity?
So within the current -- within the capacity ramp-up from the new product CapEx and the full utilization, we expect that the revenue with the current normalized pricing scenario should be in the range of around INR 3,000 crores to INR 3,300 crores going forward in the next 3 to 4 years period of time.
Our next question comes from [ Jay Ketan Shah ] with [ Capital BMS ].
Congratulations on a good set of numbers. A couple of questions mainly on the specialty side. When you say that you are trying to increase the mix to specialty products and already have started the work, what is the approach of the company? Is it more like we chose the sector or a client, and then we look at creating entry barriers using chemistry? Or is it more of a pull from the client saying that this is the kind of applications they are looking at, and then you become a helping hand to them? So I just wanted to understand, one, is that question. And second, like you said...
Sorry to interrupt you, the last one, can you please repeat the question?
Sure. Can you hear now? Is it clear?
I can hear you.
Perfect. So when you say that the mix between specialty and the nonspecialty is going to be leaning more towards specialty, what is the approach of the company? Is it more that you first use a typical chemistry and try to create entry barriers for the peers? Or is it more like the client asks you to make something, which is technically challenging in a way you can say in terms of chemistry, which kind of gives you a moat [indiscernible]? So what is the approach when you say specialty of the company?
Right. So it's a good question, sir. I think when we -- 3 years ago, we embarked on a whole -- looking at our whole global strategy and how -- what's going to differentiate us in the market. The answer came out very clearly that we have several capabilities which we can exploit. And one area was in the differentiated product range. Because the commodity product range was already very crowded, and we could see the writing on the walls that the margins in that area was going to reduce, and this is where we are seeing a lot of bloodbath if you look at the [indiscernible] or other pigments.
So that was the overall strategy to kind of travel the difficult path in creating this product portfolio. And I'm very glad to say that right from scratch to developing the chemistry to pallet trials, to commercializing this on the plant, putting up the whole plants, this -- our internal team has been able to do this.
And it's a wide variety of chemistries, right, when we talk about all the product range we are seeing. It's not like in the pigment industry, you have one product which is going to give you like a bullet of INR 1,000 crores or something, right? It's a very, very broad portfolio where you have to look at. So that's been our strategy.
Then of course, once this was clear in our strategy, then we started engaging with customers on what was their pathway. Obviously, at each stage, lab samples were exchanged. Detailed discussions were happening. And this is -- and we are now right now on the stage where this got certified into real products where we're engaging with customers now to -- for these products.
Okay. Got it. And secondly I wanted to ask, you said that there is a lot of movement happening in the paint manufacturing sector, so are you guys looking to even tap into the pigment dispersion country like -- someone like what [indiscernible] are doing? So are we even looking as that as an ancillary stream of revenue or we'll focus on kind of pigment side?
So pigment dispersion is an important strategy, but we would never compete with our customers, right? And that's how we had exited our masterbatch business also, where we said we want -- one of our values are it's going to be -- and it's a close partnership, and one of the pillars of our differentiation is customer intimacy and building that trust. So we would never compete. In fact, with our customers, you mentioned about [indiscernible], a very dear customer to us, and we would never think of competing. But what we do is, on the pigment dispersion side, we -- coating companies are always making a make-or-buy decision. And from that perspective, we are -- so that's where we work with the customer to make those product pigment dispersions for them. So that's one segment for coatings for pigment dispersions. But there are specialty applications where pigment dispersions also go in, and we are again ramping up our product range to reach out there. We've already done that actually.
Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to hand the conference over to Mr. Nilkanth Natu for closing comments.
Thank you, Ryan. Thank you, Tejas. And thank you, participants, for your time and interest in Sudarshan Chemical. We remain confident in the long-term prospects of our business, and we look forward to engaging with you again in the future. Thank you.
Thank you. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us. You may now disconnect your lines.