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Sudarshan Chemical Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Sudarshan Chemical Industries Limited Q4 FY'24 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that conference is being recorded. I now hand the conference over to Mr. Ankur Periwal from Axis Capital. Thank you, and over to you, sir.
Yes. Thank you, Manisha. Good morning, everyone, and welcome to Sudarshan Chemical Industries Limited Q4 and 12-month FY'24 post-result earnings call. The management team from sud Chemical Industries will be represented by Mr. Rajesh Rathi, Managing Director; Mr. Nilkanth Natu, Chief Financial Officer; and Mr. Amey Athalye, General Manager, Finance. We'll start the discussion with a brief management overview on the earnings performance, followed by an interactive Q&A session. Over to you, Natu J, for the initial comments.
Thank you, Nakur. Thank you, Axis Capital and Ankur Periwal for hosting our earnings call for Q4 FY'24. Good morning, all of you, and thanks for joining to discuss Sudarshan quarter 4 FY'24 and financial year '24 financial results. It is a pleasure to be with all of you.
During the call, we could make forward-looking statements. This statement consider the environment we see as of today and carry risks and uncertainties that could cause our actual results to differ from those expressed in today's call. We do not undertake to update any forward-looking statements made on this call. We have uploaded our financial results and investor presentation on the stock exchanges. Now I will request Mr. Rajesh Rathi to give his perspective on the business side.
Thank you, Mr. Natu. Thank you Axis Capital and Mr. Periwal for hosting the earnings call. I'm very pleased to report that our pigment business has delivered a robust financial performance in financial year '24. We went through a phase of subdued performance in FY'23, however, has bounced back much stronger. The quarter and fiscal year is a milestone moment for our pigment business. We have achieved our highest ever quarterly EBITDA above INR 100 crores in Q4 and an annual EBITDA above INR 300 crores in the financial year FY'23.
At the same time, we've made a strong foundation for future growth. This risk turnaround in business performance is a result of our overall strategy on building Sudarshan's core pillars towards lead [indiscernible] which we are working for the past few years. One of our strong pillar is focused on research and development. We have more than 100-plus technical members working in R&D under the leadership of global pigment veterans. Team constantly strives to explore new products, technology, processes that can be used to develop superior and sustainable color solutions.
The R&D center is well equipped with the state-of-art equipment, a world-class application lab and analytical testing facility, thus enhancing the product development and scale-up process. This has helped us in creating the widest product portfolio in the industry, which is at par with any Tier 1 supplier. This gives us a definite edge offering a holistic solution to our customers.
Our second pillar of world-class manufacturing. We have two world-class manufacturing sites located in Roha and [indiscernible]. In fact, after the expansion, Roha is one of the largest single pigment manufacturing site globally. We have created global steel capacities and infrastructure in terms of best-in-class affluent treatment plants, warehousing. With our world-class manufacturing capabilities, Sudarshan is well positioned as a global reliable pigment supplier.
To enable our reach to customers, Sudarshan has established a strong go-to-market framework, consisting of local regional sales teams, customer service support technical marketing teams and local stocking points. This has resulted and Sudarshan now serving all significant pigment markets directly. We believe that our growth should be sustainable. And for this, we have a well defined sustainability pillar. We already have more than 60% to 70% of our purchase power from green energy. In addition to this, we have a strong decarbonization plan, and we have committed to SBTI targets. We have many [indiscernible] our care for society.
We moved our focus from workplace safety to process safety and set up a strong corporate governance framework. All the above pillars have strengthened Sudarshan and has provided a unique opportunity to take the global leadership position. The current tailwinds, such as [indiscernible] India initiative the turbulence in the global pigment industry and the uncertain global geopolitical situation would further accelerate the growth for the company.
I would like to conclude by expressing my gratitude to all our stakeholders for their continued support and faith in us. I look forward to going together with all of you and achieving our collective vision of being a global leader of global leading color solution provider. I will now request Mr. Natu to speak about some of the financial highlights.
Thank you, Mr. Rathi. I will begin with the quarterly financial performance. On a consolidated basis for the quarter, total income from operations stood at INR 764 crores compared to INR 691 crores for the same period last year, higher by 11%. EBITDA for the quarter is at INR 119 crores compared to INR 85 crores in quarter 4 FY'23, higher by 41%. EBITDA margin stood at 15.6% as compared to 12.3% over the same period last year.
Profit after tax is at INR 57 crores compared to INR 33 crores for the same period last year. On the annual performance for FY'23, '24, total income from operations on a consolidated basis is at INR 2,539 crores versus INR 2,302 crores in FY'23, a growth of 10%. EBITDA for the period is INR 31 crores versus INR 211 crores last year, higher by 50%. EBITDA margin has improved by 330 basis points and seen at 12.5% versus 9.2% during FY'23.
Net profit is at INR 110 crores compared to INR 45 crores for the year FY'23. Now going into the details of our pigment business. For the quarter FY'24, income from operations stood at INR 644 crores compared to INR 594 crores for the same period last year, a growth of 8%. On a sequential basis, operating revenue has grown by 23%.
Domestic sales for the quarter is at INR 345 crores, higher by [ 50% ] compared to INR 301 crores same period last year. On a sequential basis, domestic sales have grown by 24% compared to INR 278 crores of Q3 FY'24. Exports for the quarter grew to INR 299 crores versus INR 293 crores in the same period last year, higher by around 2%. On a sequential basis, exports have grown by 23% compared to INR 244 crores of Q3 FY'24.
Year-on-year, [indiscernible] export is going to continued challenge in the Europe market. While Europe region has shown improved demand environment quarter-on-quarter, this region has registered marginal degrowth on an annualized basis. North America market continues to register double-digit growth on sequential and year-on-year basis. Other major export geographies have also shown improvement in the demand scenario. We continue to remain watchful towards international geographies considering the geopolitical issues.
Specialty segment sales stood at INR 439 crores compared to INR 412 crores in the same period last year, higher by 7%. On a sequential basis, revenue has grown by 23% compared to INR 358 crores in Q3 FY'24. Nonspecialty sales for the quarter is at INR 205 crores, higher by 13% as compared to the same period last year. On a sequential basis, nonspecialty revenue has grown by 25% compared to INR 163 crores of Q3 FY'24.
Gross margins of pigment business for the quarter has increased by 250 basis points to 44% as against 41.5% for the same period previous year. Year-on-year increase in the gross margin is due to softening of the raw material prices and also improvement in the product mix. EBITDA for the quarter is at INR 100 crores in quarter 4 FY'24, the highest ever EBITDA for the quarter as compared to INR 73 crores in the same period last year, which is higher by 37%. This is the highest ever EBITDA we have achieved in our pigment business. EBITDA margin stood at 15.6% as compared to 12.3% over the same period last year. On a sequential basis, EBITDA margin is higher by 230 basis points.
Speaking about the financial year performance of pigment business. The total income from operations stood at INR 2,223 crores versus INR 2,079 crores in the same period last year, a growth of 7%. We did see double-digit volume growth in this year. However, value growth is lower due to price pass-through. Gross margin has improved to 44.3% for March '24 as compared to [ 42% ] for FY'23. EBITDA is at INR 300 crores, which is highest ever versus INR 194 crores in the previous year and EBITDA margin has increased by 420 basis points to 13.5% versus 9.3% in the previous year.
The company has, during the year, declared ending dividend of INR 3.6 per share, which is 180% and the Board has recommended final dividend of INR 1 per share, which is 50% of its value, taking total dividend outflow to 230% for the year, which translates to the dividend payout of 35% of profit after tax.
Now coming to the balance sheet. The balance sheet of the company as of 31st March, 2024, have [indiscernible] and this is reflecting from the improved financial ratio. The net debt of the company stood at INR 394 crores in quarter 4 FY'24, down from INR 797 crores in quarter 4 FY'23 at INR 434 crores in quarter 3 FY'24. With the overall better results from the operation and monetization of assets during Q1 FY'24, the debt of the company has reduced substantially resulting [indiscernible] financial ratios.
The net debt to EBITDA stands at 1.2x as of March '24 compared to 3.8s in Q4 FY'23 and 1.5x in Q3 FY'24. Debt to equity stands at 0.3x at March 31, 2024, compared to 1x in Q4 FY'23 and 0.4x in Q3 FY'24. The working capital cycle has been effectively managed throughout the year, thereby resulting into cash conversion days of 66 days in Q4 FY'24 as compared to 74 days in the last year Q4 FY'23, which has, in turn, improved the current ratio to 1.4x compared to 1.1x last year's same quarter
To sum up -- to summarize, it has been a good quarter and financial year. We are poised for growth driven given the capabilities we have built and a strong [indiscernible] in our favor. We are confident that our long-term prospects remain intact. We remain confident in our growth strategy and continue [indiscernible] commitment to deliver long-term value to our stakeholders. With this, we now open the session for Q&A. Thank you.
[Operator Instructions] The first question is from the line of Sanjesh Jain from ICICI Securities.
First on the global scenario of the pigment, now that it looks like we are back to the growth track and utilizing the network. How do you see next year panning out of the pigment business? And how is this global supply chain disruption going to [indiscernible], number one. Number two, which of the geographies do you think will benefit Sudarshan . Will it be more North America or Europe or rest of the world? Number three, there is consolidation in the industry. Can you help us understand which are the pigment category where you think the opportunities are rising and will Chinese competition is more benign [indiscernible] is more competitive, high-performance pigment or less competitive. More color into it would be helpful. This is initial questions. Hello, operator?
Yes, sir.
I hope I was audible, right? .
Yes. Sorry, I was just saying that if you could repeat the first question for me, there were 2, 3 questions, right?
Okay. First question is on the pigment growth for next year, considering that [indiscernible] the industry and which geography do we think we are better placed to capitalize that? That's number one. Number two, [indiscernible] your perspective, where are we well placed and where the competition is more benign, [indiscernible] versus HPP versus [indiscernible] pigment? And probably a follow-up question is on the application, which are the applications which will benefit because of all the [indiscernible]
So I think -- I think there are 2, 3 areas to answer your question for our growth, right? From a perspective, Sudarshan has been investing itself on the journey of becoming a global leader player. We're trying to set the 4, 5 pillars, which we've been working on and which are now playing out, right? So we've created the broadest product portfolio, created a good world-class manufacturing facility. And given the current events, right, given the current events of -- given the current events when you've seen a lot of turbulence in the pigment industry, it gives us some -- gives us a golden opportunity of accelerating our growth. And so in terms of quantifying the numbers, I would say, our margins are back to normal, right? And now we are really focusing on growth. It is very -- with the recency of the event, very difficult to give you and the uncertainty is very difficult to give you a pointed number. However, I can tell you directionally that all these positive tailwinds, we have very deep engaged -- engagement with customers, the velocity of our opportunity [indiscernible] has really accelerated. So we do see a good set of numbers coming forward, right? In terms of our global landscape, I think Sudarshan has a very unique place where we are placed now in terms of being the global reliable supplier with the [indiscernible] product portfolio, right? There are other competitions from China and India with a narrow product portfolio and a limited go-to-market strategy. So that's why we kind of [indiscernible] yourself or that's our US in the market.
No, again, my question was the geography. Do you think we are better placed to grow...
So geography is definitely Europe, North America, South America. I think all these geographies, the international geographies are going to be playing a significant role in our growth going forward. And that's why the engagement is more.
No, I think I asked a question on the portfolio overlap versus the consolidation happening. I know we have the broadest portfolio, but that broadest portfolio, does it overlap with the customers who are in the turbulence? And number two, how long does that approval cycle for those product takes if somebody wants to replace them?
Right. So yes, we probably have the most complementary product with the global players, probably 80% of our portfolio would be complementary, right? And we have been preparing ourselves where we've been, like I said, the opportunity has accelerated. Now it depends on customer to customers. Some customers have really decided to accelerate the approval process. And so whatever you would have taken 6 months or 1 year could happen in 3 to 4 months.
So that process has already begun. Is that understanding right?
Yes, the process has begun. And a customer for the base and the biggest opportunity we have is in the coatings industry. And the approval process generally is a year, but we feel this will get [indiscernible]
Got it. That is very helpful. Second question on the gross profit margin. Sequentially, though investment Y-o-Y has improved, but sequentially, there has been a drop in the gross profit margin. Any particular reason? Because I think the raw materials still remains at a very reasonable level and what is the reason for a decline in the gross profit margin sequentially. And I don't see mixing too different in this quarter versus previous quarter?
So I think as the raw material prices -- this is a pass-through of raw material prices. We were able to hold a larger portion in Q3 than Q4. That's one reason. Natu J, you would like to add anything more?
So one reason as we explained, is we were able to hold on the raw material price pass-through in Q3 compared to Q4. Also, there has been a marginal product mix between the specialty also. There has been a product mix changes and the inventory effect. So total put together, we see that our gross margin for the quarter has been in the range of around 44%, which is if you really see on a long-term basis, it is a long-term average.
But I think we -- over a period, our mix has only become better, right, with more high performance [indiscernible] effect. So long-term average is not a benchmark we're looking at, right?
Yes, Mr. Sanjesh. So I agree with you. The long-term average, the reason why we mentioned is both the raw material inflationary trend, we are seeing that we are coming back to the normalcy. And as you rightly mentioned, the mix would play out favorably in the coming years.
[Operator Instructions] The next question is from the line of Madhav from Fidelity Investment.
My question was on the margin profile for Sudarshan over the next 2 or 3 years. If you look at the past, I think, our product mix used to be very different in what it is today, and we've been working for the last 4, 5 years to expand the portfolio. It seems like it's been played out. [indiscernible]
You're not clearly audible. Maybe can you be slightly closer to the mic and slightly slow down the pace. It is coming -- I'm not able to hear it clearly.
So is it better now?
No.
Is it better now?
Slightly, you can go ahead.
I speak a little loudly. My question basically was that if you look at Sudarshan's margin profile pre-COVID, we used to be in that 14% to 15% range. That is in our product portfolio. We used to be very different than what it is today. And I think since 2017 or '18, we've been speaking about expanding this portfolio [indiscernible] place now. So my question was that if you think from a Q3 perspective, as some of these newer product FTUs starts [indiscernible] up for us, can the margin profile of the company move above that 14%, 15% into the, let's say, 17%, 18% range? I don't want an exact number, but but actually, is there scope for margins to be higher in the coming few years versus what it was pre-COVID?
Yes. This is Rajesh here. So that's a very good question. I think there are two factors, sir. I think if you see average before COVID, right, our margins probably were around 14%. One year was kind of outlier, but our endeavor first now was to come back on margins and create a healthy balance sheet, which has happened now. Now we are focused on growth, right?
We need to get growth first. And then, again, focused on optimizing and improve our margins. So going forward, definitely, economies of scale should play up our EBITDA margins should improve going forward.
And could you give some sense in terms of how different the gross profit margins are for the [ newer ] portfolio versus the older portfolio? Like how many is it like 300, 400 basis points higher? Or how different is the margin profile broadly?
Natu J, would you like to take this question?
Nilkanth here. So we don't give the specific between the specialty product portfolio and the rain between the specialty product portfolio. But as Mr. Rathi mentioned, that the new [indiscernible] is more on the specialty side and that on the higher performance pigment. We see that overall basis, our margin -- it should be margin accretive once we see the CapEx [indiscernible].
The next question is from the line of Rohit Nagraj from Centrum Broking.
Congrats on good sets of service and margin recovery. Sir, first question is on the sequential side in domestic. So domestic, again, we have shown a very strong growth. So what has -- which all are the segments that have seen this growth and which in all segments are still relatively lagging behind?
So in India, usually, the Q4 quarter is a stronger quarter and what we found is, in this quarter, a lot of our plastic customers, the ramp-up happened and they were also stocking up. So plastics stood very well. I think printing [indiscernible] muted [indiscernible]
Sure. And second question is, globally, the largest player has called out [indiscernible] insolvency. So are you seeing any signs of traction because of that? And I mean, based on our talks with our customers across the geographies, how does the foreseeable future looks like? And what is your understanding of the entire phenomenon that because of the insolvency, would there be any capacities which have already gone out of the system or will go out of the system?
So sir, I think it's a dual effect, right? I think we were positioning ourselves as a global reliable supplier, and that's what we've been engaging with our customers. I would also like to admit that the current event has accelerated product samplings more [indiscernible] interaction with customers and our velocity of opportunity funnel has improved, right? And -- so that's the current scenario from perspective of the market, right? And your second question -- sorry, could you repeat your second question?
Yes. So have we seen any capacity going off the screen or whenever we are talking to our customers, customers are now looking at incremental order flow to us given that there could be some disruptions.
Yes, sure. So wherever we are already approved, we are seeing a bit of [indiscernible], but I think what's more important is [indiscernible] new set of customers are getting engaged, which is very important for us. It's not -- the capacity is going off is very, very, very difficult to comment right now because the -- it's -- the recency of the event is -- it's a very recent event. So it will take some time to kind of come to that stage.
The next question is from the line of Archit Joshi from B&K Securities.
Congrats on a very solid Q2 performance. So my first question is with regards to the new assets that we have capitalized after the INR 750 crores CapEx that we did. I just wanted to understand what would be the utilization levels of the new assets given a strong operating leverage that we saw in the fourth quarter? Point being trying to understand is on the current base, how much would be the realizable sale that we can garner from the leftover utilization that we have?
Natu J, would you like to address a few things and I can add on?
Sure, sir. So, this Nilkanth Milan here. So on the new CapEx ramp, this new CapEx projects, we have commissioned in the FY'23. And as we guided the market then -- this product has been well received by the customer. The approvals are in place, and we are seeing the good traction. The targets which we are setting for us as a company for the first year, we are on target for that. And we have guided the market that it will be the gradual ramp up. So we are seeing that we are on track in terms of getting those assets utilized over a period. Mr. Rathi, over to you if you would like to add anything.
Yes. So I think -- and your question on how this plays out, sir. It's very -- we are hoping that we are able to -- our earlier guidance was 4 years that these fully [indiscernible] assets fully are utilized. We are hoping that we will be able to accelerate this now, but it's too early to comment on what that period would be.
Sure. Sir, one final question on the previously spoken of comments on the insolvency proceedings. Sir, obviously, there are multiple subsidiaries of the incumbent. And I think the news is that there's only insolvency proceeding happening in -- with their parent entity. Would you have any assessment of the scenario across the group given that they have a sizable market position in terms of market share. And would these lead to irreversible opportunities for us in garnering whatever market share that we can with the enhanced stocks that we are having with our customers as on date?
Sir, I think it has definitely created a big uncertainty in the market, which has opened up some of the doors for us, right -- and opened up some of the doors and we started a deeper engagement with our customers. Now how this plays out and how this works out is going to -- time will kind of -- we will find out in the recent times. But I would say that we are looking at not one-off demands, right, we are looking at ensuring that we are deeply engaged. We are able to get a sustained order book, and we are not playing with one-off demands.
The next question is from the line of [indiscernible] from Union Asset Management.
Yes. I just had one query. So -- the -- what has been the price -- I mean I think you had mentioned that the recovery in FY'24 versus '23 has been largely volume [indiscernible] how do we see pricing in third quarter versus -- sorry, fourth quarter versus third quarter and fourth quarter versus first quarter?
Natu, would you like to take this question?
Sure. So as we have seen during the year the raw material prices have been more or less stable after the quarter 2. Between Q3 and Q4, we saw the raw material prices were fairly stable. And as I mentioned in my opening commentary and then a follow-up question, we had done the [indiscernible] pass-through, which is very calibrated during these 2 quarters. But in terms of the pricing differentiation between Q3, Q4, there has not been much [indiscernible]
Okay. And [indiscernible] versus 1Q so far?
Can you repeat the question, please?
1Q as in the current quarter, which we are in, versus the fourth quarter average. I mean, is it higher, lower?
Versus the last year, correct? Q4 to Q1, you are talking about?
Yes.
Yes, sequentially. Natu J?
Yes, I'm here on the call. So if I compare -- yes, so as I mentioned, between Q3, Q4, sequentially, it has been fairly stable. If I compare with the Q1, it has been a steady decline in the raw material prices. And last year Q1 FY'24 compared to now Q4 '24, we have seen the sequential price reduction compared to the H1.
Okay. And regarding CapEx for FY'25, what -- how much are we looking at? And what will be the focus of the CapEx?
Natu sir, we've already given the guidance, right?
Yes. Yes.
Do you want to take this? The CapEx is mainly maintenance led, right? And we are -- the figure for CapEx is around INR 100 crores.
The next question is from the line of Dhavan Shah from [indiscernible] Advisor.
My question is on the growth of the fourth quarter. So we did roughly 35% quarter-on-quarter growth. I understand that the fourth quarter is always the largest one. But can you share, I mean, how much of the incremental revenue has come up from the the recently, we did the CapEx of roughly INR 700-odd crores. So how much of that revenue comes from the new CapEx? And at what utilization that CapEx operating right now?
So as I have given the guidance, our capacity [indiscernible] going to get utilized in 4 years. And we would be -- this was the first year where of our CapEx. So we were at around 1/4, I mean that kind of number less than that as some of the CapEx has got online a little later, right. Natu J, would you like to add more?
Yes. So as we mentioned in our opening commentary and the follow-up question, this has been a gradual ramp-up. And currently, what we see the current scale-up for the first year has been as per the target which has been defined. And we don't declare the capacity utilization as a group. So I would not like to comment on that, but it is in the early utilization stage for this capital.
Sure. And on the quarter-on-quarter and Y-o-Y, what we are seeing the margin improvement in EBITDA. This is largely coming from the lower O&M, I mean, operating and [indiscernible] expenditure. And if I look at the breakup of these manufacturing costs, I think the majority of them are variable like power and fuel, freight. And given that the volumes have been increased, so what led the lower other cost during this quarter. Can you please explain?
Natu J?
So as Mr. Rathi also mentioned that we worked on the dual strategy. One is the growth and then the coupled with the EBITDA improvement. So there are two effects. During the quarter, the revenue has been on a sequential basis, has grown up, which is normally the strong quarter during the year. At the same time, we have also seen that on the other expense side, we have seen the reduction in the coal prices, which has also helped the company in lowering the manufacturing cost. Third effect is overall increase in the revenue and with the cost being moderated or lower has also helped us in better operating leverage.
The next question is from the line of Nitesh Dhoot from Dolat Capital.
Congratulations on a good set of numbers. So my first question is with the strong volume growth coming through and with a healthy improvement in cash flows and the balance sheet, are we looking to reevaluate the backward integration CapEx?
I will take it, sorry. So basically, there is no big -- our focus right now is on growth and given the opportunity of what we have on board we are focused on banks currently. We have put on the -- we are not -- we are getting some benefit of our backward integration because we get some of our raw materials to manufacturer, right, the technologies which we have developed. We don't see this investment coming back in the next -- this financial year at least for the macro indication. So that's what the board has taken. I think we wanted to ensure that our balance sheet becomes very healthy, right? But the technologies are developed. And though we are not getting all the benefits of -- if you are able to make them ourselves as we together manufacturing a higher price.
Sure, sir. So are we buying the competitors, domestic assets or any part of it?
So sir, I think, firstly, like I said, we wanted to ensure that the debt has gone to a very high level. So first thing was to manage the debt, right? Because this was not by design, right? The Board never wanted us to -- this was only because of COVID happening -- our CapEx is getting delayed and the geopolitical situation, which came in, right? So from that perspective, from an M&A perspective, once now our balance sheet is also healthy. We want to make sure we don't take on debt whereas. But at the same time, we are very open to any inorganic opportunities if it makes financial and strategic [indiscernible]
And sir, are we reevaluating the divestment of repo industries by in terms now that it is an EBIT positive and there's a turnaround apparent. So are we reevaluating the direction there?
So I think first, we want to -- I think there's a scope to improve the operations further -- so we are now focused first on bending the business performance performance. So that's where the Board is taking a decision to transform that company too.
Which is why [indiscernible] now with the rising focus further on the pigment business, this noncore business could be reevaluated.
The next question is from the line of Dhruv Muchhal from HDFC AMC.
Question was in the last few quarters, we have seen improvement in your working capital cash conversion days that we report. So is that broadly achieved? Or is there still further scope? And Broadly, if you can give some sense, is this because it some change in industry structure? Or this is something that -- something internal that we've achieved?
This is Rathi, what we've achieved, we've improved our planning cycles or inventory management greatly. We are pretty much -- there may be a slight scope, but in further improvement, but I think we are very much to that level. Natu J, would you like to add?
So Dhruv, as Mr. Rathi has explained, there has been a lot of process improvements, which we have done and which we have driven it internally. And if you really see the last entire year, the working capital cycle has improved, and we will continue that. Currently, it is at [ 66 days. ] So maybe the optimal days, but we will also look for any further opportunities. However, given the current short-term scenario and the way market is looking out, as you know, given the recency of the event, we might take some calls in terms of the stocking up at our overseas marketing arms. But otherwise, we remain confident that this working capital efficiency will remain in this division.
Got it Yes, sure. And sir, my second question is probably just a clarification. If you look at the performance of the last few quarters, it has been given primarily domestic and primarily very nonspecialty, which would suggest that your specialty is yet to reasonably ramp up, which is more, I think, to expose and relatively higher margin. So I understand you don't give exact margin guidance, but it is reasonable to assume that 15%, 16% that you have currently has a meaningful scope of improvement as some of your new product segment starts to develop, primarily exports and the specialty state. That would be a fair understanding?
Dhruv, can you please repeat the question. There was a some disturbance.
I could hear it. He is talking about quarter 2. So I think two areas, sir. One is, I think as we mentioned, our baseload will be -- our baseload will be the some of the nonspecialties, which is already there. There would be improvements, of course, some margins coming through specialties and as we ramp up the CapEx, right, CapEx. But more importantly, I think where the margin improvements will come in through economics of sale as our fixed costs get leveraged. [indiscernible] give the main increase in margins going forward.
The next question is from the line of [indiscernible] from Bajaj [indiscernible] AMC.
A very good set of numbers. Two questions primarily. One is on the peak revenue potential from our current fixed asset base, A few quarters back, you had guided that it would be somewhere around INR 3,000 crores to INR 3,300 crores in the overall pigment business. Now if I look at FY'24 specialty versus nonspecialty, specialty is somewhere around INR 1,500 crores, whereas nonspecialty is INR 700 crores. Can we get a sense of the peak revenue segment size, like specialty. How -- what can be our peak revenue potential vis-a-vis non-specialty?
Natu sir? I don't -- I'm not sure what numbers...
So currently, the revenue mix between the specialty and nonspecialty 2/3, 1/3 and -- which is 67%, 68% to 32% in the nonspecialty side. Given the recently commissioned CapEx, majority of them, which is on the specialty side. So when we guided the market of INR 3,300 crores, we also guided them saying that we expect the [indiscernible] in the specialty to go upward maybe in the percentage point by -- around 4% to 5% across number. So that [indiscernible] will be closer to 72% to 74% number compared to the now based on the full utilization of the CapEx -- newly commissioned CapEx.
Got it. Okay. That's helpful. And directionally -- a follow-up to that, directionally, our exports and specialty mix should improve. And that should further help in margin improvement? I know this is a bit repetitive in nature, but just wanted to have your views on it.
Sure. As we had mentioned that directionally, what we see is a specialty in the exports, specialty segment and export as a market, we should see the growth coming in. And it is more -- the margin will be led more by the increase in the specialty segment over a period, which will have the margin accretive profile for us as a company.
Got it. Second question on the -- you have mentioned in 1 of the slides in the presentation that Y-o-Y growth in full year non-specialty segment is due to improvement in the [indiscernible] pigments. You reported about 9% growth whereas the specialty pigments segment saw 6% Y-o-Y growth in revenues. This in value terms, if you could help us, what would be the volume growth in both nonspecialty and specialty?
Yes. So sir, we don't specific -- we don't give the specific volume growth number. But as we have mentioned that during this year, we have seen a volume growth, which is in the higher double digit. Between specialty and nonspecialty on the overall period, I see both the segments are performing equally well. Barring the quarterly abbreviation, but otherwise, on a yearly performance, both the segment growth has been in line.
[Operator Instructions] The next question is from the line of [indiscernible] from [indiscernible] Capital.
I wanted to ask how much of our sales come directly to clients and how much of our sales comes from distributors?
So I think we always have a dual distribution strategy in every geography. So the range of our direct business would be between 60% to 70% and our distribution would be balanced.
And you mentioned that you are seeing increased traction after the [indiscernible] announcement. So I wanted to understand under which category of pigment [indiscernible] are you seeing increased traction?
So sir, I think we are seeing for our specialty products more traction.
[indiscernible]
Yes. [indiscernible]
The next question is from the line of [indiscernible] from [indiscernible] Capital.
So with the ramp-up of the new capacity, how much volume growth do we anticipate for FY'26 and FY'27. Any guidance there?
So I think from a perspective, sir, we don't give volume. But like I said, directly, we are seeing a good traction. And we should be able to grow our business. But I think we won't be able to give you particular numbers. Natu J, would you like to add anything?
Yes.
So.
Sir, we don't give the number of forward-looking statements. But as Mr. Rathi has mentioned, there has been a positive -- there have been a lot of positive tailwinds companies poised having a lot of capabilities built up over a period. So we expect this current year should be good in terms of overall performance. would directionally, it will be good, but we would not like to put a number.
Due to time constraint, that will be the last question for the day. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you, Axis Capital and Ankur Periwal, and thank you for participating, for your time and interest in Sudarshan Chemicals and putting forth business questions. We remain confident in the long-term prospect of our business, and we look forward to engaging with you again in the future
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.