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Tatva Chintan Pharma Chem Ltd
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Ladies and gentlemen, good day, and welcome to Tatva Chintan Pharma Chem Limited Q1 FY '24 Earnings Conference Call hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Kumar Saumya from AMBIT Capital. Thank you, and over to you, sir.
Thank you, Nirav. Good evening, everyone. Thank you for joining us on 1Q FY '24 earnings conference call of Tatva Chintan Pharma Chem. From the management, we have with us, Mr. Chintan Shah, Managing Director; and Mr. Ashok Bothra, CFO.
I'll now hand over the call to Mr. Dinesh Sodani, GM Finance for opening remarks, post which we will open floor for Q&A. Over to you, sir.
Thank you, Kumar. Good evening, everyone. On behalf of the management, I'm pleased to welcome you all to Tatva Chintan earnings call to discuss quarter 1 financial year '24 results.
Please note, a copy of all our disclosures are available in the Investors section of our website as well as on the stock exchanges. Anything said on this call which reflects our outlook for the future, or which could be construed as a forward-looking statement must be reviewed in conjunction with the risk that the company faces.
Now I shall hand over the call to Chintan sir for opening remarks. Over to you, sir.
Thank you, Dineshji. Good evening, everyone, and welcome to Tatva Chintan's Q1 FY '24 earnings conference call. We declared the results today and I believe we have got a chance to review the results as well as the investor presentation uploaded on the stock exchanges as well as on the company's website.
FY '23, as you all know, was definitely a challenging year. It would be prudent to be critically watchful in FY '24 as well. As the year has started with loads of new challenges, recessionary pressures in Europe, weaker global demands, dropping prices, increasing financial cost, which has pushed companies into cutting down the inventory pipeline, which is further hampering the demand, pricing pressure and very recently, the U.S. sovereign rating downgrade.
Despite of being in such testing times, Tatva Chintan expects a year of decent growth and also quite exciting as few of our product developments are getting into commercialization during the current year. I'm pleased to inform you that Tatva Chintan has begun this financial year on a quite satisfactory enough. It is pretty much in line with our expectations, and we expect the improvement to gradually continue over the coming couple of quarters. The year has started with better takeoffs and also a favorable product mix, which has translated into better numbers from this quarter.
During this quarter, the company has reported revenue from operations of INR 1,144 million. a growth of 29% from INR 884 million. EBITDA during the quarter was INR 213 million. EBITDA margins were at 18.7%. The inventory other than spares and packing materials at consolidated levels have come down by nearly INR 125 million from INR 1,325 million as on March '23 to nearly INR 1,200 million as on June '23.
From the March '23 inventory of WIP and finished goods, we consume nearly 2/3 of it during the quarter. Interest costs continue to remain high, largely on account of increased benchmark rates. And last, schedule repayment of existing term loans is in Q1 of next year. Our employee cost has increased on account of new recruitments for our expanded facility at Dahej, and we are still adding more head count during Q2.
The logistic costs have steadily reduced to realistic levels, which has come as a breather. Also, the price reduction in chemical space seems to have lost pace and the prices have begun to stabilize since few weeks. I'm quite happy and in fact proud, to inform you that we successfully commenced commercial production from the newly expanded facility at Dahej SEZ. With this, the installed reactor capacity increased to 500 kiloliters from 294 kiloliters and assembly lines increased from 27 to 39. We expect gradual increase in capacity utilization and reaching to the tune of 50% utilization within next financial year.
Let me highlight the segment-wise performance. PTCs have registered revenue of INR 316 million in this quarter, contributing 28% of the revenue. The uptake in PTC is stable. We continue to work on new opportunities in this segment, and we see a quite steady demand growth. Electrolyte salts have reduced revenue of INR 13 million in this quarter, contributing 1% of the revenue, with 2 new customers are progressing well towards commercialization. After successful lab approvals on electrolyte solutions, we are working towards implementing the piloting successful. Though quite challenging, we are confident to achieve the desired quality levels within this quarter.
The offtake from one of our large customer, which was on hold has resumed from June, and we expect increased volumes to begin in Q3. We maintained that FY '25 will be a key turning point in this segment and sell sheet robust growth over a few years due to exponentially growing demand of energy storage systems.
Pharma and Agro Intermediates and Specialty Chemicals have registered a revenue of INR 310 million during this quarter, contributing 27% of the revenue. After loads of structure on various fronts right from equipment to formation of catalyst, now I'm extremely happy and proud to inform you that we have overcome all the obstacles and are now starting the piloting of monoglyme on continuous growth basis.
Also, the commercial supply of products in the area of metal extraction are starting from this month. The plant scale production has been running very steadily for our second product to continuous on a continuous flow basis. We are preparing the material for full-scale plant trial for the customer, which we expect to begin commercial supplies in Q4.
We are producing plant scale trial material for yet another product and are scheduled to supply in next month, and expect -- post qualification, we expect to begin commercial supplies in Q4. We are working on 3 new pharma intermediates, currently we have ongoing plant scale production of 2 products going to the customer for validation.
Post successful validation, we expect the commercial business to begin in early 2025. The development on the important base material for multiple agrochemicals on a continuous flow basis has progressed extremely well during this quarter. Also, the work on downstream, 2 different products is progressing equally well.
Besides this, we have 3 other active development projects on continuous flow chemistry and 2 projects on electro chemistry. SDA has registered a revenue of INR 496 million during this quarter, contributing 43% of the revenues from operations.
For the new large potential customer, the plant trial material has performed very well so far, and the feedback is quite encouraging. We expect to receive formal approval in couple of months for 2 products and other 2 products approval are expected by end of the year.
The heavy-duty vehicle sales continued to suffer in the large Chinese market, which is not letting complete revival of demand yet. Having said that, still the demand of SDA is steadily increasing, we anticipate stronger demand ramp up in SDA by end of 2023.
The global demand of flame retardant continue to remain extremely subdued, pushing the prices to extremely low levels. The price reduction bottomed out during the quarter, and prices have stabilized or marginally improved from there on. We have multiple large customers approval in place and now it seems to be in good timing to get into this segment. We will make a slow start in this segment from September of 2023.
Our development work on ultra-high-purity chemicals for electronic application is also progressing quite steadily. I take pride in highlighting that the company has always been forthcoming on technology upgradation, and focused to manufacture products using clean and green chemistry.
On that front, I would like to highlight certain initiatives and developments taken by the company over a period of time. Using continuous flow, we are successful in selectively removing the impurity and getting to the desired high purity levels in cost-effective and environmental friendly manner. Secondly, the newly expanded plant is designed to make efficient use of gravity and thereby enabling production from production up to packing with least human intervention.
With successfully running dehydration system and selective absorption systems, we are able to recover and reuse nearly 80% of the high-volume solvents being used in our plant. Similar system is being currently installed at our Ankleshwar facility. We are now beginning to use natural gas instead of LDO at our Dahej plant. We are already using natural gas at the Ankleshwar plant. This will help us to achieve reduction in emissions in a big way.
To conclude, I would like to thank the whole team of Tatva, who has worked relentlessly on development, engineering, production and analytical's, during the quarter as multiple new products have hit the production floor and are being running successfully. We will remain committed to develop products using latest technology and provide environment friendly solutions to our customers.
With this, I hand over the call to Mr. Ashok Bothra, our CFO.
Thank you, sir. And good evening to everyone present on this call today. I shall highlight the financial update during the quarter.
Revenue from operation was at INR 1,144 million versus INR 884 million in Q1 FY '23. That is a growth of 29% Y-o-Y basis. Other income during the quarter was at INR 10 million, a decline of 46% Y-o-Y basis. Basically, this other income consists of mainly of interest on FD, which we kept -- from IPO proceeds.
EBITDA for the quarter was INR 213 million versus INR 152 million in Q1 FY '23, draw growth of 40% Y-o-Y, basis. EBITDA margin increased by 145 bps on Y-o-Y basis to 18.7% in Q1 FY '24, due to decrease in other expenses by 7.53% Y-o-Y basis. However, the impact was offset by increase in COGS and employee benefit expenses by 5.68% and 0.40%, respectively.
PAT was at INR 95 million versus INR 98 million in Q1 FY '23, a decline of 3% Y-o-Y basis. PAT margin was at 8.3% versus 11.1% in Q1 FY '23. The net profit reduction is due to high finance cost on account of increase in benchmark rates during the year as well as higher utilization of working at the facility. The impact is also on account of increase in depreciation by 1.5% Y-o-Y basis.
During Q1 '24, export stood at INR 889 million, comprising 78% of revenue from operations. On the working capital side, our -- we utilized 71% of the total sanction limits of INR 2,200 million. Out of net proceeds of INR 2,072.81 million, INR 202 million have been in play so far. That is 97% of the funds have been utilized as on 30 June '23. During the quarter, we utilized INR 48 million.
That concludes an update on the financial highlights of the company. I shall now request the moderator to open the floor for question-and-answer session.
[Operator Instructions] First question is from the line of Sudarshan Padmanabhan from JM Financial.
Sir, my question is on the gross margins and the other margin side. So if I'm primarily looking at the gross margins, there has been a sequential increase and also considering your commentary that there has been a fair amount of utilization on the high-cost material. Is that primarily on account of the mix and the high-cost material? Or is it also because the end products -- the raw material prices come down eventually, you will reduce your realization as well, which is explaining that there is probably flattish to lower Q-on-Q sales, but your gross profits have gone up because your gross contribution per remains fairly constant. Is that the right way to look at it? I mean in that case; your EBITDA and gross profit would grow at substantially higher than your actual reported sales in terms of rupees million?
Yes. So Sudarshaji, primarily, your assessment is very correct. So had we not be sitting on the high cost inventory during the quarter, the profits would have looked much more healthier. So typically, we consumed almost 2/3 of the inventory almost INR 60 crores worth of inventory on SDA, WIP was consumed.
Out of about -- I'm not very precise on this number, but it was somewhere between INR 90 crores and INR 92 crores as on 31st March. So this has definitely some impact on profit erosions. Otherwise, in terms of reducing prices, so this is a cyclic thing. So not many orders have been executed at lower prices, despite of having materials on higher value.
And then eventually, after a 1.5 months' time frame, mostly the newly arriving materials were used for executing the balance orders, so that was kind of balanced out. So I would say, yes, so had we not been sitting on the high-value inventory, the numbers would have impacted. And the reason why we are seeing this every margins is -- the only reason for that is the favorable product mix that we have achieved during this quarter.
Sure, sir. And below the gross margins and also a little bit on the depreciation. I mean, pretty surprising and quite happy as an investor to see that the margins -- other costs are reduced quite sharply despite of a negative operating leverage, I would assume on Dahej because that facility just came on stream.
So one is your comment that the cost, the power cost, the transportation costs and things have completely reduced. Going forward, I mean with the gross margins normalizing? And also the cost getting rationalized and Dahej also starting to contribute more, shouldn't this be the base case for the margin for the time being? And things would sequentially keep increasing going forward?
Right. That would be the case. So still, the utilization of the newly expanded capacity is not very high. And we expect to start utilizing at a substantial levels potentially from December when -- see currently, basically, we are only executing one container reach of plant scale trial material for the new products, which are being sent to the customer for validation purpose.
And we expect to start actual commercial production somewhere end of November or early December. That is when the plant will actually see very high occupancy levels. And this will actually bring down your operational cost and reflect in the numbers. So as of now, potentially, until December, we can consider this as a benchmark. And then we can see an upward revision in the margins happen because of plant utilization with healthy levels.
Sure, sir. And 2 things before I join back the queue, is on depreciation. I mean, I would assume that this is a INR 150 crore facility. I mean, the new CapEx and the depreciation on a quarter-on-quarter is up by about INR 3.5 crores, INR 4 crores. So I mean, the earlier plant, I would assume is depreciated at around 5% to 6%. But the newer plant, we are looking at the life to be about 10 years. Or is there anything else or one-off sitting on the depreciation side, that is one? The second is, I mean, since the margins are surprisingly good, would there be an upward revision in the margins? Or would you kind of keep this as a surprise for the investors at a later point of time?
So regarding depreciation, so depreciation, not on expansion of one [indiscernible] applies around INR 231 crores or INR 235 crores per days plant. So we are good [indiscernible] and assuming a lifespan of 20 years, so this is coming to the increase amount.
And with regards to your second set of question, as I have been saying that the qualification of our multiple SDAs has been progressing well with a very large potential customer. And also the demand from our existing suppliers -- customers is also steadily picking up. So I believe -- so this is my strong belief that the product mix will continue to shift in our favorable side. And we may steadily see a rise in margins because of the favorable product mix to happen.
But all these phenomena should begin -- potentially, we expect the new customer to start buying supplies to begin, so potentially if we get the approval by October then somewhere in December or January. This is where we will see the shift happening.
Next question is from the line of Yash Shah from Investec.
Sir, my first question was regarding order book pipelines. As of previous quarters, we had multiple products which were under pilot stage, and we have received formal approval. Sir has there been any update as of this product has any of those been comforted to the commercialized sales as of this quarter, during the quarter, it's my first question.
So there are 2 products already on the floor on commercial scale. So not on commercial scale as in sense of commercial scale, but we are producing at a planned scale to fulfill the demand for 1 container load of product for customer validation. So this activity has begun during the quarter. And post approval of these products, we expect the commercial supplies to begin by late December or early January.
Secondly, we have -- so these are 2 agrochemical products that are going on stream. And then we have 2 pharmaceutical products on floor currently, which again are going into validation for the customer. And these 2 products would see commercialization happening in early 2025.
Got it. So this is the 2 products -- the 4 products which you mentioned right now, are on top of the 2 POs, which we have received in the previous quarter in the PASC segment. Is that right, is my understanding correct?
Sorry, please repeat again, your voice is little shaky.
Just 1 second. Is this better?
Yes.
Yes. So the 4 products which you mentioned right now, is it over and above the 2 POs, which we had received in the last quarter in the PASC segment, that are...
2 are the same. And so out of 4, 2 are the -- 1 which I talked about in last call, and 2 are the new ones on the pharm side.
All right. Okay. Got it. Got it, sir.
This one now hit the production floor. So currently, we are producing these 4 products -- 4 new products on the plant for the first.
All right. Got it.
And out of these 4 products, 1 of the products is the one where we have successfully implemented our edge technology and continuous progresses to selectively remove the impurity and then the product [Foreign Language] high purity level.
Okay. Got it. And sir, my second question was regarding flame retardant. In the previous quarter as well that the prices had corrected 35%. And as you mentioned that the prices are further corrected from there on as well. And we are given a guidance that we'll be able to do about INR 20 crores by FY '25.
So the guidance still remains the same, sir, of -- or do we see -- because we've seen 1 quarter of delay, we were supposed to start the flame retardant from this quarter itself. Now we are starting it from September onwards. So does the guidance remain the same there as well?
So we expect the revenue to remain anywhere between INR 25 crore to INR 43 crore during this financial year for flame retardants. The markets have really bottomed up. So your estimate of 35% price reduction is still way off. I believe the price reduction is to a tune of nearly 60%. So there has been a significant.
So of course, the raw material prices have also dropped significantly, which is leading to this. And the key reason behind this is very weak demand. But now we see that things have kind of stabilized and now customers are showing interest that we should start. And we already have formal approval in place from these customers. So how they feel that it is a good time to introduce a new vendor for these products, and that is where we are now contemplating to start production by late August, early September.
So it will be fair to understand that instead of INR 250 crores, which we are going to do by FY '25, it will be somewhere around INR 220 crores, INR 230 crores by FY '25 from plant Dahej?
Again, it depends on what -- see basically, we estimate we can produce to a tune of about currently with all the new product introductions, we believe about 1,000, 1,200 metric tons is what we can produce currently without having any further expansions and considering the variable product mix.
So depending on prices, I believe the prices have to rebound. This is my very strong belief. So these are all unrealistically low-level prices. So if prices rebound, then definitely, this estimate still stands tall.
Got it, sir. One last question from my side, sir, on the SDA segment. Sir, in the SDA segment, last quarter, we had done INR 68 crores and this quarter, we've done somewhere around INR 50 crores. Even after China opening a certain majorly during the quarter. What has been the bottleneck of not being able to ramp up the revenues there in the SDA segment, sir?
So exactly, China is the problem. So the demand of the heavy-duty vehicles in China is still not coming up back to full scale and that is what is keeping the market demand slightly depressed, but things are improving, and that is what we have been observing that interest from customers is going there, volumes are steadily picking up. And we have been also continuously producing these SDAs, though not at a full scale, but utilization is very steadily going up since last 4 quarters. So it's a good trend, and we see that this is now going into a very steady mode. And we shall see a very strong pickup in Q3 in this segment.
Next question is from the line of Nirali Gopani from Unique PMS.
And sir congratulations on a very good set of numbers. Sir just on to start with, if you can just sir speak about the pricing pressure in general. You had mentioned that April saw a raw material price reduction of about 15%, which eventually obviously led to the pricing pressure on our final product or SDA also saw 20%, 22% price correction. So is it stable now or you are still seeing some price corrections?
So that's what I told in my opening remarks, the prices seems to have bottomed out. And since last 2 to 3 weeks, we are observing that prices have remained quite stable or even we are seeing some upward moment in prices, very slight. But this is a different indication than what we have been observing since March. So since March it was a continuous, continuous drop, drop, drop. And now we see that this kind of a bottom out. And honestly speaking, this is kind of an unrealistically low pricing level, and it's not sustainable for a long time.
And pricing pressure in a lot of product or segments, though we are fortunate that in certain of the PASC products where we are working one-on-one with a customer or on SDA and electrolyte salts where the entry barriers are really strong. But if you consider the PTC segment, let us say, where you have multiple competitors to face. And it seems that people are just worried to have revenue and not really working on whether they are generating profit or not. So that is a kind of something that we are seeing from domestic as well as Chinese competition.
But again, in this segment, we are fortunate that we have tied up this business on a raw material pricing-based model with our large customers. So that is keeping our margins pretty much intact.
Great. And you sounded very positive on SDA, the demand pick up. So should we -- you want to improvement to -- from the next quarter onwards, like this quarter has also been very good, but do you see gradual improvement happening throughout the year?
I would say a really good improvement happening should begin from November of this year. So till that time, this could be considered as a kind of a flattish thing until October kind of a level. And then we should see a very good growth in this particular segment.
Right. And so [indiscernible] this quarter also, there will be some operational costs from Dahej except for employee costs also. So whatever the increase in employee cost that we are seeing that is largely because of the new facility?
Yes. Yes. So that is a simple increase in head count because we almost nearly doubled our production capacities at Dahej. So you require more manpower to run those plants. So that is what is the impact in terms of employee cost increase.
Right. And with everything going in our favor. So next year, we see going back to our older margins of 23%, 24%, if SDA pickup plays out as we expect, and the new plant also stabilizes? Do you see that happening?
So if the product mix -- I mean, of course, in terms of electrolyte salts picking up and SDA demand picking up, then that is a true statement. And that is what we expect to happen from the Q4 of the current financial year.
We expect the favorable product mix to tilt really well in our favor. And this could cause a favorable shift in EBITDA margins. And by that time also, we expect the Dahej plant getting pretty much occupied with these currently trial products and going on. So those getting into commercial products from December or January. So with the increase in occupancy of Dahej facility, that will also have a marginally additional impact on margins. Basically, not margins but cost side assumptions.
Right. Right. And lastly, just one point. So I know that we are going to raise funds for the next growth or next [indiscernible]. So how comfortable are we diluting our equity at this valuation? Like, do you have any other option, or this is how it is going to be?
So we are in the process of raising fund to the tune of INR 200 crores by a way of QIP. So we have already intermitted the [indiscernible] action also in this regard. And we are in the process of getting the approval from shareholders. So in the first phase of expansion, say, our CapEx won't be more than say INR 200 crores, INR 250 crores. So we are pretty sure that funds won't be any intents for future growth.
[Operator Instructions] Next question is from the line of Kumar Saumya from AMBIT Capital.
Sir my question is firstly towards the electrolyte segment. If you could highlight any recent developments that we're seeing because there were a couple of customers in the pipeline that we were planning to start supplying, so please?
Right. So this as I already mentioned, so both customers are -- so we have been discussing a few hundred kgs of product now for them, and they are definitely going into the commercial side. So we expect December is when they should start commercial activity. So '24 should be a good year, but '25. So I'm talking about in terms of financial year and saying in calendar year '24 should be a good year, but '25 is going to be a turnaround year in this particular segment.
And the demand for energy storage system with a lot of renewable energy plants coming up, and they definitely require energy storage systems so because they cannot put the generated electricity directly to the grid. So this is causing a exponential growth in terms of energy storage system demand. And this is where we expect a very strong growth too.
So we are in a very good shape with 4 customers already, and we are still working with one new potential customer in Far East. So all these things are pretty much in pipeline. And now we are actually working on -- so we successfully completed R&D. So lab scale trials got approvals on the electrolyte solution. And now we are working religiously on getting this successful on the pilot. So that is our target to at least deliver the first trial order on pilot scale from the Dahej plant by October. So this is what we are internally targeting, and we are working towards that.
Okay. Sir, roughly, how long does it take starting from the R&D stage to the final commercial stage?
We have been in this segment since 2013.
Okay.
So it's a long-done process. And again, this is an equally strong entry barrier area as SDA, because any change in quality parameters or any abnormality can be improved incidences with the bad time. So once you are qualified and the quality is accepted, then it becomes really a very strong entry barrier area for the competition to get into it.
And so these 4 customers you indicated, are these all 4 customer export market or domestic market also there?
All export. All export. So we have 1 potential customer, which is setting up a plant in India currently. And they expect to get into commercial production by late 2024, if I'm not wrong. And we are already in qualification process with this customer as well.
But still, the Indian market so that -- besides this 1 customer who is setting up a plant, I'm not aware of any other company in India who is getting into this side of super capacitor or energy storage systems. So all the -- currently all the customers, what I'm talking of are on the export side.
Okay. Sir, lastly, if you could share some developments on the land side that we were planning to get some approvals. So if you could throw some light, if there are any developments?
Environmental clearance, our final hearing has been completed for the new land, which we bought in '21 -- November 2021. So that final hearing on environmental clearance has been through. So now we are expecting the permission to be as potentially in any time. I mean, potentially, if we are lucky, then in August itself.
Next question is from the line of Parth Mehta from Vallum Capital Advisors.
So congratulations, first of all, on a very good numbers, and thank you so much for this opportunity. I just had 1 question from mine, what is the current utilization -- capacity utilization on our existing capacities?
So my existing capacity, you mean existing plus expanded capacity or only the existing?
No. The only existing, which we had previously.
That is near full utilization. So that is near full utilization. And the new capacity, in fact, since mid of July, the new capacity is also almost fully occupied on the reactor side, not on the assembly side. But the reactor side is also fully occupied, but this is a temporary phenomenon as we are executing these 4 new products on a plant scale. So this will remain occupied until end of August or early September. And then the occupancy will again drop down to about 30%, 35% on the expanded capacity on the reactor side.
Okay. On the assembly side?
On the assembly side, still, we have not started utilization on the new -- newly refunded lights. But this, we again expect as I'm saying the demand is picking up. So we expect decent [ uti ] -- potentially up to 65% to 70% utilization happening from November of this year.
Next question is from the line of Vipin Goel from Mirabilis Investment Trust.
Sir I have 3 questions regarding...
Vipin, your audio is not clear. Can you come closer to the phone?
Yes. Am I audible now?
Yes.
Better.
Yes. Actually regarding the PASC front...
Vipin, sorry to interrupt you once again. Can you please speak with the handset?
Yes. Okay.
This is better.
Yes. So a few questions regarding PASC. So I mean just wanted to know the kind of impact that you're seeing in this segment on the current base of products, not the new products that are coming in. So I mean what portion of that -- what are the factors that are largely contributing? I mean there's a component of China dumping then this RM correction and then there's lower demand. So which of -- I mean if we have to segregate between these 3 factors. So which one is the most -- any -- I mean any ballpark numbers on the impact of these things?
All the 3 reasons are true. I mean I would not have an accurate estimate of -- in terms of what is a percentage contribution of each of these. But all the reasons that you are putting forth are very much true for this particular segment as of today.
But we have been -- see, basically PASC segment came into existence because of our relationship with the customers on the PTC segment. And that is where we got opportunity in developing products for the specified customers on a one-on-one basis. So this has kept our business pretty much protected. So we are not seeing much erosion in terms of business.
And again, when we -- see the recent suffering is coming from the agrochemical side. But on agro side also, not all the agro actives are suffering. So selectively, there are certain product ranges on the agro side, which are largely impacted, and certain product side are pretty much still stable.
And by grace of God or maybe it is our good fortune that the part of PASC where we are cater into that has pretty much remained stable. So far, as of now, we have not seen any erosion in demand, neither we have seen any postponement of orders from -- except for one -- in one particular case where we are supplying PTC for the agrochemical where we are seeing postponement of demand by customer by a couple of months, which has just recently happened.
But apart from that, on the PASC segment, we have not seen that phenomena fortunately happening for us. So it depends again on what kind of agro active your product is going on. And fortunately, we are on the side, which is still not impacted by this adverse moment that is happening in the market.
So we have been -- yes, of course, there is a price pressure. So customers want because they are also suffering, so they want to equalize that margin pressure and past certain pressures on to us. So that is one-on-one. But pretty much the business remains stable, and it has been growing nasty. Actually, some of the PASC products have realistically in fact, picked up volumes in this adverse situation.
Okay. Okay. So much of the impact is largely on the realization. On the volume side, we are kind of stable?
Yes.
Vipin, do you have any follow-up question?
Yes. So on the PASC segment, if you can just give certain, I mean clarification...
Vipin, we are losing your audio. Can you come in a better reception area, please? The line for the participant disconnected.
Next question is from the line of [ Prashwa Veer ] from Individual Investor.
Am I audible?
Yes.
Yes.
Well I had this 1 question regarding the QIP. Will that be reducing your stake? I mean, the promoter stake, will they given other shares, or the new shares will be issued?
So new share. Basically, this is that we are bringing the capital back into the company. As you are aware, we have this new piece of land, which is on the verge of getting environmental clearance. And as I already told that we should be hitting about 80% to 85% occupancy under newly expanded facility in next financial year. So we are -- and there are quite a few products which are in pipeline. So we are definitely looking for the next phase of expansion. So the company needs the fund and this QIP is getting the funds back into the company.
Well, that will also bring the promoter stake to below 75% if I'm not mistaken.
Yes. Yes.
By that way you will adhering SEBI guidelines as well?
Yes, absolutely.
And coming to the energy storage -- I mean, can you just throw some more light like really what is happening in the green hydrogen space and solar space -- like the solar energy, solar panel. So how do you see yourself in this particular space? [indiscernible] if you can -- could not be transferred through the grid, without revise, right?
Yes. So basically, we have not associated with hydrogen, green hydrogen, or solar cells or things like that. But wherever we have renewable energy generation. So you cannot feed that generated energy directly to the grid. So now you require -- mandatorily required to have a storage system, so when the grid demands, you put that energy into the grid or else you need to store it for the time being. So this is where the energy storage comes into picture.
And energy storage systems are nothing but batteries. So there are multiple types of batteries involved here. So to speak as the most popular one, again, are the lithium batteries, then we have zinc batteries, then we have sodium batteries. So the area where we have our products getting into are the zinc and the sodium batteries, yes. So a very specific segment of the energy storage systems is where we have our electrolyte having applications into those batteries.
Well, in that case, if I understand correctly, the green hydrogen which will generate electricity or the solar panels or the solar energy, which will generate electricity and -- they'll have to store that electricity, will not have a goal to play through your electrolytes, right?
They don't -- the electricity doesn't have anything to do with my electrolyte. Electricity which is generated has to be stored into something and those somethings are the batteries, where our electrolytes go in.
I understand. So in that case, this solar energy produced, will that be using your products for storing that?
Yes. Not -- currently it is only -- that not necessarily only my electrolytes. So as I told, there are multiple types of batteries available in the market.
I get it.
Yes. So very specifically, our product gets into the zinc and the sodium battery sides.
So any customers currently of your -- like the existing customers that have this kind of application using to store...
yes. Yes. Yes.
Electro -- your electrolyte for solar...
The customer which I'm talking of which are a large customer, which demand was on hold, and they are expanding their capacity. Now we have resumed supplies to them. So in the last phase, they executed 1 solar energy plant. So the storage systems were supplied by them, which is based in out in California.
Okay. Because -- like really great lifting in the coming year, solar energy and green hydrogen. So just wanted to get a comment on that? You will also be going a part, especially in the solar, right?
Technically, yes. Not directly, but yes, we will be a part of that.
And anything in green hydrogen that you might be somewhere in the chain of production, storage, supply?
No. Nothing as of now. No.
Next question is from [ Gordon Fernandez ], an Individual Investor.
Am I audible?
Yes.
Sir recently, a lot of repeated has been so [indiscernible] extreme volume electron plant manufacturing, so you can get into manufacturing...
Sorry, again, your voice has become a little shaky.
Is it audible now?
Kind of Yes.
So recently, I saw in the article, regarding you have focusing in area regarding electronic manufacturing push and the semiconductor manufacturing push [indiscernible] India. So do we have any -- do any of our products fit into those profiles?
Not as was today, but I talked about -- and I have been talking about one of our ambitious development project of ultra-high-purity products, which even I talked about it today in my opening remarks. So this is the product which goes into manufacturing of semiconductors and also have applications into manufacturing of ICs.
So as of today, we don't have anything commercial neither we have anything which is already developed. But we are trying to get into that part. And that's what I told that we have seen a remarkable progress in development of that chemistry.
So we are moving steadily. And trust me, these are so high purity products that still, I continue to say that this is our ambitious project and I hope we succeed. So -- but we are moving very steadily towards success and pretty much the confidence is slowly and steadily building up. So this can actually -- if we do this potentially, then we would be the only producer of this key starting material for semiconductor in India.
Next question is from Yash Shah from Investec.
Just one clarification question. I'm not sure if you clarified this earlier. Sir, we had 2 products in SDA, which were on hold from 2 large customers, and which were expected to start from July. Have they been started, sir?
They have started, yes.
And the ramp-up has been back to the previous levels? Or have they been conservative in approach?
No. Still, it is conservative, but they are gradually ramping up. So we even have the next dispatch scheduled in September of this year. So they are ramping up and the project is now moving quite steadily ahead.
Next follow-up is from the line of Parth Mehta from Vallum Capital.
Just had one question on the gross margins. I'm not sure that this is asked before, pardon me for the -- my knowledge. But we had a fall in our gross margins in the previous quarter, and they have again ramped up. So was that because of any specific one-off? Or was that pricing pressure? And have those prices come back to its normalcy?
Sorry, can you please repeat the question? I could not listen it properly.
Am I audible now?
You are audible, but I could not grasp the question basically.
Okay. Okay. So in the previous quarter, our gross margins had fall to around 39.8% and they have come back to 49% again. So have we taken any surprise increases higher or at sort of an impression...
No, I understand that question. So no, that is not the reason. So basically you might be following that we were sitting on pretty high inventory on SDA. And suddenly, so -- and the drop in SDA [indiscernible] happened in the beginning of 2033 or mid-'22 and we were caught with high inventory levels for almost a year.
And these inventories and by that time, the chemical prices started to grow, and prices went up. So any ancillary products, which we required to complete the production, for example, solvents or certain other ancillary stuff. The prices tied up a bit. And we are already sitting on a high price inventory. That is what led to the disposal of SDA inventory happened, but it could not generate a realistic profit margin.
So that was the real reason why the margins have dropped on that front. But -- so this is what we see today is normal, what we saw in earlier quarter was a bit abnormal.
Okay. I get it. So from here on, will this be in the range of 50? Or can we expect it to go to 55 as well, which we had a year or 2 years back?
So still, we are -- as I told, we are still in the process of clearing of that high-priced inventory. So we are nearly through. So we almost consume potentially INR 60 crores worth of that inventory in this quarter. And we still might have about INR 30 crores, INR 32 crores of residual inventory. So this might have some impact. But yes, we can look at getting back to the earlier levels quite soon. I believe October, November should be that point.
Okay. So in Q3, we may see the comeback of our gross margins around 55%?
That's what I'm expecting to happen. Yes.
Next question is from the line of Prashanth Kamath from JM Financial.
Am I audible?
Yes.
Yes.
Yes. Congratulations on a good set of numbers. So just one sort of depreciation question. So I think depreciation for the quarter has sort of increased to -- I think INR 6 crores, vis-a-vis I think INR 2.5 crores last year and -- INR 2.3 crores last year and INR 2.5 crores this year. Any color and why the depreciation increased so much?
Because we completed our expansion in Q1 of this year because -- and we roughly spend around INR 235 crores in Dahej and we spent around INR 20 crore in our Dahej facility. In March '23, so that translate into annual depreciation around INR 24 crore on fully on all fixed [indiscernible]. We started commercial production in April of this year, so this whole capitalization of the newly expanded facility has happened in this quarter. So that is what is leading higher depreciation provision.
Sir, this is limited to this quarter only, right? It won't at least for those...
Yes.
Yes.
No, it will grow on, on a quarterly basis. So it will remain at the same level. It will remain throughout the year.
As there are no further questions, I will now hand the conference over to the management for closing comments.
Thank you, everyone. On behalf of management of Tatva Chintan. I thank you all for joining us today on our earnings call.
We appreciate your support and trust on Tatva Chintan. We commit to deliver and see the market for our products to improve going forward. We hope that we have been able to address most of your queries in the last 1-hour. You may reach out to our CFO, Mr. Bothra, or our Investor Relationship partner, E&Y, for any further queries that you may have, and they will connect with you offline.
Thank you, Mr. Kumar Saumya for hosting our call, and thank you, everyone, and have a great evening.
Thank you very much. On behalf of AMBIT Capital, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.