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Tarsons Products Ltd
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Ladies and gentlemen, good day, and welcome to the Q1 FY '23 Post Earnings Conference Call of Tarsons Products Limited hosted by PhillipCapital India Private Limited. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company, as on the date of this call. These statements do not guarantee the future performance of the company and it may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Apurva Shah from PhillipCapital. Thank you. And over to you, sir.
Thank you, Renju. Good afternoon, everyone. And welcome to the Q1 FY '23 Earnings Conference Call of Tarsons Products Limited. Today we have Mr. Rohan Sehgal, Whole Time Director; and Mr. Santosh Agarwal, CFO of the company, to take us through the results and answer all your questions. So now I hand over the conference to Mr. Rohan Sehgal. Thank you, and over to you, sir.
Good morning, and a very warm welcome to everyone present on the Q1 FY '23 Earnings Conference Call for Tarsons Products Ltd. Along with me are Mr. Santosh Agarwal, Chief Financial Officer and Company Secretary for Tarsons Products Limited; and SGA, our investor relations advisors.
Let me begin with the financial performance for the quarter and few other highlights I would want to share. Our revenues for Q1 FY '23 was flat as compared to Q1 FY '22. Generally, in our industry, Q1 tends to be the weaker quarter, and we have observed similar trends for FY '23. Only exception to this was Q1 of FY '22 where there was a sudden surge in the demand for products related to COVID testing on the back of the second wave of the pandemic. However, our sales for the conventional products used in research, pharma and academia were affected due to intermittent lockdowns across the countries and slowdown in the overall economy in Q1 FY '22. Our full year FY '22 had 15% revenues related to COVID, of which 2/3 was skewed towards the first half of FY '22 and hence we had a high base for Q1 FY '22.
I'd like to point out that COVID-related revenue contributed significantly to the sales in Q1 FY '22, but it's now negligible in this quarter. It is worth noting that despite losing COVID-related revenue, we were able to maintain a flat performance because our conventional business which had been impacted by COVID returned. So when you compare on a like-to-like basis, our conventional business has witnessed y-o-y growth during this quarter.
Let me touch on the demand scenario. We have been witnessing steady demand across the product categories and are seeing huge inquiries for our products across industries. With new products in the pipeline, our pan-India reach and Tarsons being a trusted brand across the life sciences community, we are optimistic of the demand scenario going forward. Our gross margins have been lower as compared to Q1 FY '22, majorly due to the inflationary commodity environment on account of supply chain disruptions and geopolitical tensions due to the Russia-Ukraine war. Our margins were impacted as raw material, freight and other input costs have risen at an unprecedented rate. Gross margins were also impacted due to change in product mix since we have more than 300 product segments and 1,700-plus SKUs. We have however taken price hikes for FY '23 which comes into full effect with a quarter lag.
Many a time customers accept the price hikes after 45 days to 60 days period, and hence the full effect will be visible for the balance 9 months of FY '23. On the EBITDA front, we have been constantly investing in strengthening our senior management team in various areas of sales, production and other important functions which has led to increased employee costs. We have also been investing in manpower for our upcoming facilities for which revenues will start coming from the next financial year. We have also been expanding our footprints in global markets by participating in various fairs and exhibitions across the globe, which has entailed higher sales promotion, marketing and traveling expenses for the current quarter. However, these investments will reap benefit as revenue starts ticking in.
As mentioned in my earlier conversations, that the industry size in the export market is around INR 50,000 crores, and we are just like a drop in the ocean. Hence, with our dedicated efforts to provide products of global standards and trust and the brand created for our products, we are confident of gaining market share in the exports market. For this, we will have to expand our capabilities and presence in the export market by incurring some initial costs in terms of marketing and improving distribution channels.
Let me give an update on our ongoing CapEx. Our upcoming manufacturing facility in Panchla, West Bengal, is on track, and we are expanding our manufacturing for both existing and new products. PCR and Cell Culture are the new products that we will include in our basket through these facilities which has seen increased demand in the domestic as well as export markets. In addition, we intend to build a new fulfillment center in Amta, West Bengal, to consolidate our warehouse operations at 1 centralized location for synergies and cost. We also intend to do backward integration in the manufacturing process at the same location by constructing an in-house sterilization center for captive consumption.
To conclude, I would like to reiterate that with the large product basket of global standards, our deep domain knowledge in the labware industry, long-standing relations with our dealers and distributors in the domestic market, and expanding presence in the global market, we are rightly placed to capitalize on the huge runway of growth in the labware industry for the next 5 to 10 years.
With this, I would like to hand over the call to Mr. Santosh Agarwal, CFO for Tarsons, for his comments on the operational and financial highlights.
Good morning, everyone, and a very warm welcome to our Q1 FY '23 earnings call. We have uploaded our latest investor presentation on the stock exchange for our Q1 FY '23 results. I hope everybody had an opportunity to go through the different same.
On the revenue front, revenue from operations for Q1 FY '23 stood at INR 68.6 crore as compared to INR 69.2 crore in Q1 FY '22, a degrowth of 1% on y-o-y basis. As mentioned by Mr. Rohan Sehgal, our revenues were impacted due to high base of COVID revenue Q1 of FY '22 which had impacted sales from our conventional business. But if one would analyze, despite negligible sales with respect to COVID in Q1 FY '23, we still maintained our revenue run rate and have grown in our conventional product range. Revenue from exports stood at INR 20 crores, a growth of 14%. And domestics degrew by 6% on y-o-y basis. For Q1 FY '23, exporter sales contributed around 29%, and domestic sales contributed around 71%. On the gross profit level, our gross profit for Q1 FY '23 stood at INR 54.3 crore as compared to INR 56.7 crore in Q1 FY '22, a degrowth of 4%.
GP margin for Q1 FY '23 stood at 79.1% as compared to 82% in Q1 FY '22. However, in absolute terms, our gross profit was down by INR 2.4 crore approx. Gross margins were impacted due to change in product mix, higher raw material cost, freight and other ancillary costs with respect to procurement on the back of supply chain disruptions. At the EBITDA level, EBITDA for Q1 FY '23 stood at INR 31 crore as against INR 37 crore in Q1 FY '22, a y-o-y degrowth of 15%.
EBITDA margin for Q1 FY '23 stood at 45.4% as compared to 53.2% for Q1 FY '22. EBITDA margin were lower on account of our investment in manpower costs for future growth prospects. Also higher shares of sales promotions, marketing and traveling expenses to tap the export geographies had impacted the EBITDA margin. This will however be compensated once we see the higher growth from our export revenues. On PAT front, profit for -- profit after tax for Q1 '23 was lower by INR 4.54 crore and stood at INR 20.3 crore, which indicates a degrowth of 18%. PAT margin for Q1 FY '23 stood at 29.6% and for Q1 FY '22 it was 35.9%.
With this, I would like to open the floor for Q&A.
[Operator Instructions] First question comes from the line of Karan Khanna from AMBIT Capital.
So Rohan, during the fourth quarter you guided for the volume growth of around 20%, 25% for the whole year from existing capacities, and has indicated that you'd be able to sustain the growth momentum achieved during FY '22. However, in light of the reported 1Q revenue, achieving that would imply over 30% organic revenue growth for the rest of the year, given negligible share of COVID revenues. Do you believe there is enough demand momentum to support that, especially given leading diagnostic teams have indicated the sluggishness at the non-COVID revenue.
Sure. Thanks, Karan. So the first quarter has been almost flat. But if you look at the first quarter, it's been a very strong quarter for us because we have seen our COVID revenues almost falling off and going close to 0, but we've seen a very strong demand for our conventional businesses. And at this point of time, I will not be able to speak about the whole year, but our entire product basket and the demand outlook outside COVID testing looks very strong and robust, and we are optimistic about the performance for the remainder 9 months of FY '23.
Sure. Yes. Is it also possible to understand what was the share of COVID revenue in the first and second quarter of last year?
So I believe that we did about -- out of INR 300 crores, about INR 45 crores to INR 50 crores was directly linked to COVID, and about 65% of that was linked to the first half, primarily the first 5 months. That is because we got the largest wave of COVID when the country was almost semi-open. It was very different to the first quarter of FY '21 where the country was in complete lockdown and hence the number of cases and the number of testing was not high as in the first quarter of FY '22. So we witnessed dramatic amount of testing and it was the highest probably quarter in the last 8 quarters which we have witnessed in COVID for COVID revenue. But on an overall basis, I believe 65-odd percent of that INR 50 crores came in the first 5 to 6 months of FY '22.
Great. And second, one of your competitors has recently raised around INR 500-odd crores to expand their labware presence, both organically and inorganically. Given even other labware players are expanding aggressively, how do you look at this in terms of the capacity overhang that this would create, especially in the domestic market?
So I look at it very positively. I think the industry is receiving a -- a lot of people are looking into this industry and is receiving a lot of recognition. I think the more investment, this industry is slated to grow in the future. And we believe that Tarsons is well-positioned irrespective of the number of competitors to grow very, very strongly, both in the domestic as well as international markets. I think we've laid down our plans and strategies for the future, very, very meticulously and we are very optimistic about it.
Okay. And in terms of the raw material pricing, if you can give us some sense if the prices have started cooling off. And what's your sense on the price hikes which became effective last quarter? Do you expect the gross margins to sustain at these levels or possibly improve if raw material prices start reversing?
So I think the -- most of our raw material purchases are from Europe and U.S. Europe is going through a tough period at this point of time. But the good part about the raw material price hikes is that they've not really started cooling off, the specialized resins what we are importing, but we don't see further hikes coming in. So things have been fairly stable over the last 3 to 4 months after it has reached its peak. However, we see certain other costs such as packaging and paper gradually getting a little better and cooling off. So that's a positive for the company moving forward in terms of input costs. And in terms of gross margin, I believe that our gross margin in Q1 are exactly in line with what we are looking at. And even moving forward in our previous calls, we've always maintained mid- to high-70s. And we are -- I think we are on track to do that for the full year.
Great. And lastly, on your CapEx program. So how much CapEx have you incurred at Panchla, Amta in existing facilities by end of first quarter? And how much is remaining for the last -- for the rest of the year?
Sure. Karan, in Panchla we already planned everything. We've already given the estimation of about to be INR 500 crores approx running CapEx. Out of that, we already incurred INR 250 crores. And Panchla -- on the Panchla plant, we've already seen significant progress. And the CapEx plan and all the construction is going as per our plan.
But can you quantify in terms of the amount which you would have incurred in first quarter and for the rest of the FY '23.
We can only say that in the first quarter, overall, the major CapEx has been done in Panchla. And overall, in first quarter, we have paid about to be INR 228 crore.
Next question comes from the line of Praveen Sahay from Edelweiss Finance.
So sir, this COVID revenue is a part of a domestic only or there is some export as well?
Sir, COVID revenue is a part of the entire company, which includes the total revenue, which includes domestic as well as international business, but the focus on domestic would be higher than international because domestic business, the supply chains and deliveries are instance in international business, it's about 55 to 60 days because 99% of our international business is sea-freighted and not air-freighted.
Okay. And the seasonality you talked about for the first quarter, it's for across your business, international as well as domestic? The first Q is -- used to be lower?
The first Q -- the seasonality of the business is more towards the domestic business because it's -- for Indian market, it is quarter 1. But for international markets, it is quarter 2. But historically, and even now, the international business is just about close to 1/3 of our entire business.
So basically, I had seen that in the last 4 quarters, the prior to the first Q, you had done far superior numbers in the export. So what exactly happened if I look at on a sequential basis for export revenue, INR 20-odd crores versus INR 25-odd crores? Is that a seasonality or there is a slowdown or something there also you are seeing?
So we do not see any slowdown in the overall business of Tarsons both in domestic as well as international markets. Of course, there is a slowdown in the testing part of the business, which is the COVID-related part of the business. But at this point of time, looking at international business on a quarter-on-quarter basis would not probably be the most accurate measure because of supply chain disruptions. So we could have a lot of orders ready in our warehouses, ready to be shipped, but cannot be billed because of container availability issues. So container availability issues have got slightly better from when we last spoke in our last earnings call, but still continues to be a major problem globally.
Okay. The next question is related to the gross margin. And here as well, on the sequential basis, I have seen some improvement. So -- and you are saying to maintain your gross margin over here.
So we -- as I've always stated, somewhere in the mid- to late 70s is where we expect our gross margins moving forward, and I think we are well positioned to achieve that.
And it is very difficult to compare the gross margin on a sequential basis on a quarter-to-quarter basis because we are having about to be 1,700 SKUs, has created about 300 product segment. So gross margin can differ quarter-to-quarter. But our vision is to maintain the gross margin at mid 70s.
Right, right. And lastly, on the domestic business, the volume growth numbers, can you able to give?
See, on the domestic business side, on a volume-wise we don't track on a volume basis because we have different SKUs, right, And with a different volume, right? For example, we have -- we will sale from INR 0.10 to INR 5 lakh to kind of finished goods. So it is very difficult to give any kind of data on a volume front. But of course, on a value front, we track it.
Okay. Just trying to understand whether this 6% of a degrowth is because of a volume or is it because of a realization?
No, it's mainly -- if you look at it, it's volume because we've not reduced our prices anywhere. Prices continue to remain stable or have started increasing, and we've not received most of the price increases. As I've said in my opening speech, I think we would start looking at price realizations over the next quarters.
Next question comes from the line of Anshul Mittal from Care Portfolio Manager.
So actually I wanted to know the cost breakup of the CapEx of INR 500 crores, which we have announced recently. So can you give the breakup between the building machinery and the [indiscernible] plant?
See, on INR 500 crore of CapEx, you will have to give a small, approx breakup. Approx INR 250 crores is the Panchla. Approx INR 100 crore is the Amta. And the remaining is for the existing plant…
Okay. So [indiscernible] INR 250 crores plus INR 100 crores is for land and building?
No. In Panchla put together, machines, building, land, everything, approx INR 250 crore. In Amta, including land INR 100 core. And the remaining part is the existing plant. And out of this INR 500 crore, we already incurred approx INR 250 crore.
The next question comes from the line of Rishabh Parekh from Sunidhi Securities.
Just a couple of questions. One was on revenue. So if you assume that INR 50 crores was COVID revenue for the full year, of which 65% was in H1. And you assume further that 60%, just hypothetically 60% was in Q1 and 40% was in Q2. So that actually implies 30% base business growth. Is that accurate? Broadly?
Absolutely. That's accurate. It's also on the basis of a very low base over the last few years because this portion of the industry was not fully functional due to COVID lockdowns and on and off waves of COVID. So it is on the basis of that as well, yes.
So 30% growth in base business, assuming that the COVID revenue in the base year goes -- runs down by Q2. So H2, can we see 30% like-for-like growth?
It would be very difficult for me to make a statement for Q2, but looking at the market scenario, moving forward for the 9 months, the demand outlook as well as the market looks quite strong and robust minus the testing.
Minus the testing. And Q2 would still see some impact of the base quarter because of COVID, correct?
Absolutely because there was a large portion. If you look at last year, FY '22, we went through very tough months which started cooling off by around September of 2021. So if you look at post-November, right up to March, there was very little COVID impact as we are seeing what it is today. So most of the impact of COVID was faced in the first 6 months of last year.
So it's pretty healthy if you adjust for that, assuming a 30% base business growth.
Absolutely.
My second question is on margins. So just a little surprising, because last -- in Q4, the call that we did, we took a price hike of 5% to 7% of the domestic market from the 1st of April which you said would get passed on in a phased manner, 100% pass-through would happen in 1st of July. And this you had mentioned would take care of raw material increase and packaging cost increases. So is there a change to this thesis because I didn't expect such a contraction in margins?
No. I think the thesis remains the same, and there has been a major increase in input costs basically because the environment has been so volatile, so uncertain. And it is very difficult for us as a company or anybody in the industry to continuously keep taking price increases. So things are moving. So the things are so volatile, every month there has been -- there is global uncertainty. So we have not been able to -- given the price increases, but in the first quarter, we have not been able to extract the complete price increase because it takes time for the prices to come in. So a lot of the revenue in quarter 1 has been on older prices with increased price inputs. Also, there has been a lot of -- there's been a lot of development in the company to build for the future.
So we are building up 2 new facilities, and we've spent a lot on employee costs. We've brought in new people. We've brought in people in R&D. We've brought in people in development. We brought in senior level production people in our current facilities, and we are training them up to handle our facilities, which are going to be coming up in the next 8 to 12 months. So there have been a lot of input costs in that way. We -- the world has opened up over the last 6, 7 months. We've increased our promotional exhibition activities in a big way. We've increased our distributor promotional activities in a very, very big way because you're preparing to go up in a big way with these 2 new facilities. So a lot of input costs have significantly gone up without revenue moving too much, and that is what's impacted the margins.
So just for the next 9 months, there'll be 2 triggers playing out. One is the revenue growth will become normalized because the COVID effect will wean off. And second impact on revenue will be the price increases will come through. So revenue degrowth will not be as stuck. And margins also should be maintained between 46%, 48%, 50%.
Absolutely.
Next question comes from the line of [ Nikhil Choudhary from Cruz PMS ].
More or less, all my questions have been answered. Sir, just probably on the target that we had set for the financial year '24, we hope to achieve that if you don't go by quarter-by-quarter, like ignoring the base effects of COVID and all. So just wanted to understand on that front, that's it.
Absolutely. I think we are very well-positioned to achieve what we've indicated earlier. And the company is moving towards its goals very, very strongly. And the focus from the markets, the demand looks very strong, the industry looks very strong. Apart from the COVID testing, everything is in line.
Understood, sir. And sir, lastly, on the PCR and Cell Culture, I guess if we had started to probably test the products in the market, how has been the response so far on that front?
We received a very strong response for our PCR consumables. It's very well-appreciated. Quality has been up to global standards. For Cell Culture, we are yet to produce the products because that CapEx would only enter into Panchla. We cannot conduct any of that CapEx in our existing facilities.
The next question comes from the line of Aditi Bhatted from Niveshaay Investment Advisor.
Sir, majority of my questions have been answered, but I wanted to understand the industry point of view, like with various government measures like single-use plastic ban and I'm sure it doesn't really affect your product. But do you see any inferences with all these policy measures to your line of industry or to your product directly or indirectly?
I think, overall, we don't have anything -- any of the policy measures really affecting us. One thing which really goes in our favor in India, and we are very, very bullish about this moving forward, that the government is very focused on a Make in India initiative. And a lot of these government bodies like CSIR and ICMR are very focused on buying more Make in India products which are indigenously manufactured and developed within the country rather than more imported products. And that gives companies like us, which have been on the forefront of development since the last 3 decades, a very, very strong opportunity to go forward.
Okay. So the plastic ban thing has no effect on your product for any of your raw materials?
No, absolutely not. We are in the business of medical labware and we continue to use medical-grade resin [Technical Difficulty] use our products for testing and research.
[Operator Instructions] The next question comes from the line of Anika Mittal from Nvest Research.
Can you please again explain the reason behind the seasonality in quarter 1?
So historically quarter 1 has always been the slowest out of all the 4 quarters. Generally quarter 4 has been the strongest primarily because most of the business in India are towards the year-end. Distributors are always buying larger quantities to complete their targets. End users are buying larger quantities to complete their budgets. And hence, Q1 is the silent quarter or the slower quarter post a very, very strong quarter. So Q1 always comes after Q4. And Q3 -- Q2 and Q3 have always been somewhat similar quarters.
It's very, very difficult to differentiate between the 2. Some years Q2 has been stronger, some years Q3 has been stronger because the years when our exports are going very well, Q2 tends out to be stronger because that becomes a Q4 for international markets, for the closing quarter for international markets. But historically, Q1 has always been slow. Rate contracts take time to be signed off. Price revisions take time to be implemented. People are revising contracts. People are realigning their stocks. So most of the time just goes in realignment after a very, very strong previous quarter, which is Q4.
Okay. Understood, sir. And our pricing policy is to revise the prices for customer once in a year, as you mentioned in the earlier meet. Like for domestic market, we revise them in [ FL ] and for international market it is March. So my question is, with the current pricing policy, how are we going to pass on the input costs on a regular basis as happened in this quarter where our margins got dip by 6%. So what can be the methods to pass on these kind of cost increases on the regular basis because we are currently revising them in -- revising the pricing on an [ India year ] basis?
So it's our policy to revise prices annually, but it's not necessary that we revise our prices annually. Prices are revised only based on certain increases in input costs. Otherwise, price increase will be very negligible, less than 1%. We cannot have policy to increase prices on a quarterly or a monthly basis because the industry would not accept such a price increase. So most of the times we would have to increase prices annually only. And unless something drastic goes wrong throughout the year and then you would have to call for a midyear price increase, but that is very, very rare, and I have seen that once or twice in the last 3 decades of the history of the company. So there is no other option but to absorb price increases in the short and medium term and change prices only once a year. And unless on an emergency a mid-year price increase, but nothing more than that.
That is okay. But in this quarter, whatever is the inflation, whatever is the cost hike, how we are going to pass on to the customer?
No, we have already included a lot of these input cost increases on our price increase on 1st of April, and that would take time to implement. And we believe that in the coming quarter and moving forward in the 9 months, the changes in price would be implemented.
Means whatever the cost increases in this quarter, we are going to get them from the customers in the coming quarters. That's what you are saying?
No, whatever the cost increases were calculated in the beginning of the year, that we would start getting from this quarter onwards because we made a price change in 1st of April, not on 1st of July, not in the starting of this quarter, but the starting of the financial year.
That's what I'm saying. The cost increases in, for example, happens in the current quarter, like after April, whatever is the cost increase, how we can going to -- get from the customer in our price?
We will have to absorb those costs. And generally costs have remained flat from 1st of April. We've not seen a tremendous increase so far. But only if it is an abnormal increase, you would have to consider a mid-year price increase, but things are looking very, very stable and normal for this point -- at this point of time. And there is no reason that we will be changing prices.
Okay, it means from your current increased prices you are saying we can get those instated prices, instated costs from our customers on…
We believe so.
Okay. Right, understood. And what is the expected growth in top line for upcoming 3 quarters? And how shall the operating margins are going to shape up going forward?
So I cannot give, at this point of time a statement on a number towards the end of the year. But things look very, very good and strong. And in terms of operating margins, we look to be in the mid- to late 40s. As I've stated earlier, we would remain -- our EBITDA should remain in range and so should our gross margins. On the PAT level, it would depend based on the CapEx and the depreciation. PAT could move somewhere here and there, but for the operating and the gross margin, we should remain online.
Okay. And what is the expected time line for those additional capacities to come on production? And by when the ramp-up for these is likely to take place?
I think the additional capacity should be in place between June and August 2023, which is next year. Again, the markets are very volatile. In terms of construction of our facilities, we are right on track. But there have been global chip shortages, global semiconductor shortages and various other ancillary part shortages which also play a role in our building of our automation and other products such as molds, stainless steel, has been at an all-time high. So depends on the global environment how the deliveries of our machineries and equipment would take place. But in terms of building our infrastructure, we are absolutely on time for both our facilities that is Panchla and Amta.
Say it is completed by August 2023, then how much time it's going to take for ramp-up?
We are coming up with large capacities, but I think about 3 to 4 years for a complete 100% ramp-up, depending on the quality of products, what we build, depending on the market acceptance, depending on the markets, how they shape up over the next 3 to 4 years. So there are a lot of ancillary factors. But generally, on the past history, what we see, 3 to 4 years to ramp up new products. The capacity expansion should be slightly faster for ramping up capacities.
Okay. Understood. Understood. And what is our current inventory days? Like there was a substantial increase in previous years. So what is the current level of inventory days we are seeing?
On the inventory front, currently we have about to be more than INR 90 crores to INR 95 crores of inventory, right? Raw material is about to be INR 30 crore odd, and finish would be about to be INR 42 crores, and remaining are packing matters, work in progress and others.
Sir, I'm asking inventory days, inventory days, how many inventory days, like in financial year '23.
Inventory days?
Yes.
Inventory days, on a turnover front, we can say that we are keeping inventory of about 3 months.
3 months right now. So historically I think…
That is very much required because we are manufacturing 1,700 SKUs, splitted about 300 segments. So we need to keep this kind of inventory.
Going forward also, you are saying this will be the 3 months only.
We will plan to reduce inventory. That's our endeavor. But it depends on what kind of sales we are doing because in consumables, [indiscernible] different grade of raw materials. And we also have some kind of [indiscernible] concept. So sometimes we receive order for a very laser quantity, but we manufacture in batches. But we will try to reduce it. It depends on the global forecast. There could be possibilities of slight reduction in inventory. But at this point of time, we need to keep a lot of safety stock of raw materials. Global environment is not very feasible at this point of time, and we are heavily reliant on our raw materials coming in from Europe and the U.S.
Understood. And that Tarsons is targeting the Cell Culture PCR bioprocess product side, which is approximately INR 600 crore market in India. And where players like [ Appen Rope ], [ Thermo Fisher ], [ Aika ] are already present. So as per our own statement, customers are quality conscious here. So do you think we as a new player will get the demand as existing customers will not shift from their existing suppliers?
No, I think we relish the opportunity of serving customers who are quality conscious because that's what Tarsons stands for. So working on quality conscious, high-end markets has always been far simpler for Tarsons rather than working in price-sensitive areas. So we look forward to that opportunity by building good products.
That is okay. But are you sure the customers will shift from their existing suppliers to Tarsons?
That's what we have seen in the past. And I can only talk based on past data how people have shifted from competitor companies to Tarsons in the past. We expect the same in the future.
And we also have a zero-base level, so our growth momentum can be better.
Okay. And our CapEx plan was initially at INR 400 crore. And [indiscernible] by 20% to 25%, approximately it should be INR 500 crore. And in earlier phone calls we said INR 190 crore was already incurred. So approximately INR 180 crore to INR 200 crore cash flow will be required over the so next 15 months. And on 31st March, 2022, your cash balance was I think somewhere around INR 80 crore. So balance from where we are looking to get, means it is…
From our value [indiscernible] as well as internal accruals.
[Operator Instructions] Next question comes from the line of Keval Ashar from DSP Investment Manager.
Just wanted to understand one thing that [indiscernible] and what are the applications for that?
We cannot hear you very well. Your voice is not clear.
Yes. So wanted to understand which are the products in which you are replacing glassware? And what are the specific applications for the products?
We are not replacing glassware in any products. These are products such as volumetric ware, such as volumetric flasks, beakers, cylinders as well as reagent bottles, where we have an alternative line compared to glass and plastics. I've said that before as well that plastic has its own industry and own set of customers and so does glass. So we're not going around replacing customers from glassware to plasticware. Glass would continue to serve its customers and we would continue as a plasticware company to serve our customers.
[Operator Instructions] Next question comes from the line of Rishabh Parekh from Sunidhi Securities.
Just a couple of questions. One is post our CapEx, what is the depreciation likely to be?
So post our CapEx, it depends on whether it moves from -- it will be there in the [indiscernible] or it will move to the plant and machinery, and it is put to use or not. For example, Panchla, we are planning to ramp up everything by mid of FY '23, right? So at that moment, whatever will come into -- put to use, we will start driving to [indiscernible].
Correct. What was the quantum likely to be? It's a INR 500 crore CapEx. Useful life, if you assume 15 years, is that the right way to think about it?
Yes. Because we are using the reducing balance method, so you can calculate and assume approx 18%. So basically, Rishabh, it will be INR 200 crores for land and building and other infrastructure and INR 300 crores for equipment, right? So I think different land and building would incur different depreciation compared to plant and machinery. So this would be the breakup.
And secondly, our INR 500 crore revenue guidance for FY '25 still stands?
Absolutely.
Next question comes from the line of Yash Jain from Niveshaay.
Sir, my question is related to the PCR or Cell Culture products. Can you throw some light on the demand scenario for future on these products that you are catering?
Sure. So PCR products, the demand of PCR products pre-2022 was very, very strong and has been -- and has grown exponentially in the last 2 to 3 years because of the pandemic because a lot of testing has been conducted through the RTPCR technique, and that has incurred a lot of sale of PCR plastics. But prepandemic as well, demand was quite strong, both in India as well as globally, and it's a product which we've developed towards the end of the pandemic.
And with a 0 base, we have a long runway for growth in PCR products. And Cell Culture products, though had very limited usage in the pandemic was slightly muted because the customers were in academia and pharma, and there was -- it was not functioning to its full potential during the pandemic. But prepandemic, and now the growth for Cell Culture consumables looks very, very robust. And starting from a base of 0, we are very, very confident of very, very strong growth in the Cell Culture consumables side as well.
Okay. Next question is, can you throw some light that still we are importing plasticware laboratory products? Or we can enough for domestic requirement?
So there are enough domestic manufacturers, but quality parameters are very, very stringent in this -- in the labware industry in India, and there are various strong multinational brands which have established a very strong customer [Technical Difficulty]. So eliminating imports completely would be close to impossible. I think the multinational brands have very various high-quality products, many unique products which serve the life sciences industry, and they would continue to play an integral role in the Indian life science industry moving forward.
Okay. Sir, can you tell us about the new products that you are launching, you are planning to launch in various segments?
So as I've said, we are launching more on the PCR and Cell Culture side, and that's all which I could speak at this point for competitive reasons. We can't go into more details of the products, but the markets would have these products as we move ahead in the next 8 to 12 months.
The next question comes from the line of Anika Mittal from Nvest Research.
Sir, my question is, what is the status of Jangalpur unit, where INR 1.99 crore is to be approved by competent authority. Any development from Mr. Krishna Gopal Kedia who is your consultant?
Sir, we almost completed all the CapEx in the Jangalpur facility. Jangalpur facility is already operational. There is more space available. You are talking about conversion?
No. Yes, right. I'm talking about basically the approval from the competent authority like conversion.
Sir, already we got the 40% approval, and the remaining approval is in process.
Is in process. And by when it is likely to be given? Is there any development from that side?
It's under the -- it depends on the government. So we cannot comment on that. Depends on when the government would give approvals. As I've said in my earlier calls, this approval process is not just related to our facility, but it's related to the entire park which is there, which includes more than 1,000 factories. So our approval has gone along with various other hundreds of factories and it remains to see when the government would finally give the approval. But we cannot comment on the time line because we would not -- it would not be an accurate one.
Okay. And one more clarification. As you mentioned earlier, our FY '25 top line target is INR 500 crore. And you're saying Panchla facility will come into production by August FY '23. So -- and simultaneously, you are saying it will take 3 to 4 years to ramp up. Then how it is possible that by FY '25 we shall double our revenue?
We are already at INR 300 crore, so we are not actually doubling our revenue to INR 500 crores. And we have that in FY '22. And we have enough capacities at this point of time to grow from this INR 300 crore base in our existing facilities as we do a lot of CapEx in our existing facilities as well. And by ramping up, I mean, reaching full potential or reaching closer to full potential, but that does not mean that we will have 0 revenues in the first 1.5 years of Panchla being operational. Revenues will start coming in from day 1, but ramping them up to pull capacity would take our revenue beyond that number, but we will definitely have quite a lot of revenue coming in from both Panchla as well as Amta in the first 1.5 years of operation before FY '25.
The next question comes from the line of Praveen Sahay from Edelweiss Finance.
So it's related to the manpower investment which you had said for the quarter has been increased because for future sales growth. So from where like in the enhancement of the existing facility you have taken an increase in the manpower or it's more to do with the export?
No, it's a mix of everything. It is international markets, it is development and design, it's R&D. It's also grooming people for our new facility because when we start our new facility next year, we cannot go from 0 to 500 people in 1 month or 2 months, it would be a gradual process. And people would need to be trained beforehand, who would be running our facilities in these 2 new facilities which are coming up. So it's quite a significant expansion. And it needs a lot of preplanning which we have been undertaking.
Okay. The next question is related to the export. So are you increasing the number of geographies in the export to drive the growth? Or from the existing geography only you are getting a good traction?
So we are increasing the number of geographies as well, but the immediate and the short term or the short- to medium-term growth will come from the existing geographies because they would be the ones which have been present with us for various years, reaching inflection points where are brands or our OEMs are gaining traction after a few years of trust. And the newer geographies which we started introducing in the last year, and this year would start showing traction more towards the 3-year, 4-year period after we have significant history with that partner or that market.
So what's our guidance on the ODM and the branded number in the next 2 to 3 years contribution?
I think it's very, very difficult to predict because we can predict our branded business because as we grow more countries, as we increase our penetration in existing countries, the branded business will steadily keep growing. But on the ODM number, it is based on contracts, right? So it would be a very sporadic growth, it could be flat or it could be small growth for a few years. And then suddenly you have a few contracts signed and that would be a big spike in growth. So predicting ODM growth would be quite difficult for us over the next 2- to 3-year period.
So basically just to add on to this question, you are also trying for ODM sales to grow as a similar quantum, what you are doing for a branded sales?
Absolutely. ODM business is a very rewarding business for us. We have been very successful in this, and we are very comfortable doing ODM business in international markets. It's a very important part of our international strategy, and we continue to focus very strongly on the ODM business.
[Operator Instructions] Next question comes from the line of [ Bobby Jay from Falcon Investments ].
Yes, coming back to the COVID products, could you explain how do you differentiate that from the regular products? Because say if a customer buys a Petri dish or a pipette. How do you know whether that's for COVID or just for regular business?
So there are certain product lines where you see very high exaggerated growth where the market did not have that sort of a demand. So they see more like onetime demand for testing, for example, pipette tips or centrifuge tubes or micro centrifuge tubes or bottles coming in from particular distributors where the demand has suddenly -- when things go suddenly down or suddenly up, you try and inquire through your people, through your distribution channels, and that's how you know that this is being used for particular projects, a particular testing, which was not existent in the past and which will not be existent once COVID moves away, and that's what we are seeing today.
Yes. But if I actually go through your transcripts for the past 2 calls, you don't mention the COVID. You in fact downplay the effect of COVID. You say that you had -- you haven't seen any supernatural growth because of COVID. That was your position then. But now you're suddenly saying that apparently COVID played a huge role. I didn't get it.
No. COVID, there was a spike in revenue during COVID, during -- particular industry, which is the testing industry of the diagnostics. But what we said was that there is a spike in the power revenue, but the other revenue, there is a certain down play in that revenue because these industries are not functioning to its full potential due to on and off lockdown. So that's what we've seen in this quarter. We've seen that COVID has trickled down to almost nothing and most of our other industries which were not performing very well have started growing at a very, very strong level. And we expect the other part of the business, which was our complete business pre-COVID to start growing to pull up to better numbers and COVID to almost become 0 which it is today.
Yes, true for this quarter. What I'm saying is, in the earlier call you said your major COVID growth was in FY '21. And from FY '22, that trickled, become negligible, right? But now apparently you're saying…
In our calls we've always said that 30% of revenue in FY '21 came from COVID and 15% revenue in FY '22 came from COVID, and we stick to that.
Well, well, the other thing is, from what I know, unless it's directly PCR products, which were very much driven by COVID, right, the other product is virtually impossible to say that they were COVID [indiscernible] unless…
No, I don't agree. I will tell you there are lot of products. Pipette tips has been deemed the biggest COVID product which is not a part of PCR.
Right. But pipette tips are what percent of your sales? You have like 1,700 SKUs, right?
Right. So I do not have exact percentage of what filter pipette tips was a part of our sales. But yes, filter pipette tips and PCR products have been a larger portion of our sales in quarter 1 FY '22 as compared to quarter 1 FY '23. We've seen a lowering of volumes in both filter pipette tips in a big way as well as PCR products and increase in volume of our conventional products which are not related to COVID.
Right. Okay. Now that -- since PCR products, you agree are -- were heavily driven by COVID and now that driver is completely dissipated, correct? You agree with that?
Absolutely.
For PCR -- yes. But then why are you starting on PCR products then, why the -- what is the rationale behind that, that you want to enter into it just when the excess demand is evaporating?
Because it's more than a $0.5 billion global market, and we have built a channel all across the globe as well as in India to tap very large opportunities. We started base 0 because it's less than a 12-month old product line for us, and we see significant growth potential over the next 4 to 5 years. So COVID is just a phase. Beyond Covid, there is a large market because PCR product line was not created for COVID. PCR product line was created to serve the life sciences industry, which is where it's a very critical product line. Today there are companies which are built on PCR which were built in the '80s and '90s all over the world, and they continue to do very, very well. They might see a slight slump because they had a large revenue in COVID, but that doesn't stop the PCR business from growing anywhere. PCR business is a very, very strong business moving forward, not only in India, but all over the world.
And just to add, we started the PCR CapEx in 2019. And COVID came into 2020.
Yes. So the idea of PCR was not to build for COVID demand, it was to build our product line and product base and move forward.
Okay. But anyway, the excess demand has gone. Okay, I take that point. But now that you say, was FY '22 quarter 2, did that have any COVID demand?
Could you repeat that, please?
FY '22, quarter 2, did that see excess COVID demand, or was it negligible?
Yes, I said that earlier as well. Out of the INR 45 crores to INR 50 crores of COVID, I think 65% came in the first half of FY '22, and I believe about it was either 50, 50, 60, 40 from Q1 in Q2. So the major 65% was in the first 6 months of FY '20.
So next quarter, we'll again see a high comparison there?
There would be a portion of COVID which would not be existent unless we have another wave or unless testing dramatically increases in the next 2 months.
Right. So the comparison will be with a higher COVID period even for the next quarter, right?
Absolutely.
Okay. Well, okay. And the other part, you say your import prices have increased for the -- for your inputs. Could you specifically say what inputs, what resins are these? No, it's competitive in nature. And we can only talk about plastic resins. We can't go into details on what resins we import from where and what input prices have been increased. You did mention in one of your calls that these resins are not purely driven by crude oil prices, right? They had their own supply-demand [indiscernible] is that correct?
Absolutely. That's right.
So the supply demand -- right. So you don't know when they have tapered down because crude has already come down a lot.
So it's not dependent on crude, number one. Number 2, they're all coming in from Europe and some are coming in from the U.S. I don't think it's the most ideal environment at this moment to produce in Europe. Europe is going through its own set of challenges and cost increases and price hike. They're struggling to maintain costs, and that's what's falling on us because we are biased from there.
So all our peers in India, they also import this resin from Europe?
I'm not sure because I don't have access to where their import -- where my competition is importing from.
No, what I mean is that this is only there, right, in Europe and U.S. You don't have domestic sources for this?
Not for like-for-like resins, not for resins what are approved by our quality management. So we have certain benchmarks if you manufacture products, such resins are not present to maintain those benchmarks.
Right. So you're all on the same base really with the peers because there are no substitutes. You can't use normal resins, they have to be in medical-grade.
I would -- there are normal resins available and we can manufacture in mold plasticware, labware, but the industry which we cater to, the customer base what we cater to, we will not be able to cater to that customer base using local resins.
Due to time constraints, we have reached the end of question-and-answer session. I would now like to hand the conference over to Mr. Rohan Sehgal for closing comments.
I take this opportunity to thank everyone for joining the call. We will keep updating the investor community on a regular basis for incremental updates on your company. I hope we have been able to address all your queries. For any further information, kindly get in touch with us or Strategic Growth Advisers, our investor relations advisers, request all of you to be safe under the given circumstances. Thank you once again. Stay safe.
Thank you. On behalf of PhillipCapital India Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.