Tatva Chintan Pharma Chem Ltd

NSE:TATVA

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day and welcome to the Tatva Chintan Pharma Chem Limited Q2 FY '24 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjesh Jain from ICICI Securities. Thank you and over to you, sir.

[Sanjesh Jain, analyst]

Thanks, Iva. Good evening, everyone. Thank you for joining on for Tatva Chintan Pharma Chem Limited Q2 FY '24 results conference call. We have Tatva Chintan management on the call represented by Mr. Chintan Shah, Managing Director; Mr. Ashok Bothra, Chief Financial Officer.I would like to invite Mr. Dinesh Sodani, GM Finance, to initiate with his opening remarks, post which we will have our opening remark from MD and then we'll move to the Q&A session.Over to you, Dinesh-ji.

[Dinesh Sodani, executive]

Thank you, Sanjesh-ji. Good evening, everyone. On behalf of the management, I am pleased to welcome all of you to Tatva Chintan's earnings call to discuss financial results for the quarter and half-year ended September 2023. Please note that a copy of all our disclosures are available in the Investor Section of our website as well as on the stock exchanges. Anything discussed 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 our Managing Director, Mr. Chintan Shah for his opening remarks. Over to you, sir.

[Chintan Shah, executive]

Thank you, Dinesh-ji. Good evening, everyone, and welcome again to Tatva Chintan's earnings conference call to discuss Q2 FY '24 and H1 FY '24 results and performance. The results have been uploaded on the stock exchange. I hope you had a chance to review the same. In August '23, the company raised INR 200 crores by way of QIP. The funds raised will be utilized towards repayment in full or in part of certain outstanding borrowings availed by the company and for the general corporate purpose.As on 31 July, our utilized working capital limits were to an extent of INR 165 crores, which reduced to INR 52.09 crores as on 30th September, which have further reduced to nearly INR 2 crores as on 31 October '23.The chemical industry continues to face several challenges. The demand has continued to remain low due to ongoing efforts of industry to reduce inventories to realistic levels. The anticipated increase in product pricing also remained short-lived due to low-cost products being made available by Chinese companies.During Q2 FY '24, we witnessed a few orders getting postponed. With the upcoming financial year-end for our global customers, we expect a similar situation to continue until December '23. With the new geopolitical situation in the Middle East, the uncertainties continues to remain high. Until now we have not felt any major implication of this event.Despite of these challenges, our company has performed reasonably well. The diversified portfolio of products has helped us sustain well during these difficult times.During Q2 FY '24, the company reported revenue from operations of INR 967 million, a growth of 7% year-on-year. EBITDA during the quarter was at INR 202 million, a growth of 81% year-on-year. EBITDA margins were at 20.9% versus 12.4% in Q2 FY '23.During H1 FY '24, the company reported revenue from operations of INR 2,110 million, a growth of 18% year-on-year. EBITDA during the half year-end was at INR 416 million, a growth of 58% year-on-year. EBITDA margins were at 19.7% versus 14.8% in half H1.Now, I shall share updates and key developments on each of our product categories. PTCs have registered quarterly revenue of INR 232 million and half yearly revenue of INR 547 million, contributing about 26% of revenue from operations and a de-growth of 25% year-on-year basis. PTC product category has been most impacted in terms of demand leading to order postponements. This product category is facing most challenging times in terms of competition as well.Despite these challenges, our company has maintained all its customers in global markets. Also due to transparent pricing policies, we have been fairly successful in maintaining our margins. We expect similar situation in terms of demand to continue until March 2024.Electrolyte Salts have registered a quarterly revenue of INR 12 million and half yearly revenue of INR 25 million, contributing nearly 1% of revenue and a de-growth of 79% year-on-year basis.Our existing large customer has completed their plant debottlenecking activities. They have resumed procurement of the products, though at a slow pace as they are also parallelly consuming the piled up inventory at another large potential customer, their project is moving at a good pace towards final commercialization. We maintain that FY '25 will be the key turning point in this segment and remain certain of exponential growth in this segment over the next 3 years.Pharma and agro intermediates in Specialty Chemicals registered a quarterly revenue of INR 288 million and a half yearly revenue of INR 598 million, contributing about 28% of the revenue and a de-growth of 22% year-on-year basis. Despite of tough times, most of our businesses within the pharma and agro intermediate space has continued without any significant major impact.During the quarter, a lot of activities and developments took place in this product category. We successfully delivered 2 pharmaceutical intermediates from plant scale for final validation. In a short time, we expect to scale up the third intermediate to pilot levels.We expect commercialization of all these 3 products by early 2025. We also successfully delivered 1 agro intermediate for the plant scale approval, which is running successfully at the customer side. We completed production of a large potential agro intermediate. The validation plan for this intermediate is slightly postponed until January 2024, and commercialization is moved to at half year of FY '25, H2 FY '25.Pilot-scale approval of the third intermediate has been achieved. We are awaiting the plant scale equipment installation to commence production for final validation. We expect to receive this equipment within Q3 FY '24. Our strategy to work on alternative chemistry and offering greener options to customers had rewarded us eventually.With our success to implement these chemistries on plant scale, the morale and confidence of our team at Tatva Chintan is high. The launch pad of growth for this product category is ready, and we expect this segment to take off.FDA's registered quarterly revenue of INR 428 million and half yearly revenue of INR 924 million, contributing about 44% of the revenue in H1 FY '23 and a growth of 487% year-on-year.The commercial vehicle sales have been improving steadily except for China market, where the improvement has been much slower than anticipated. The deinventorization by catalyst producers has also kept the demand on lower side. The sentiments within these segments have been improving steadily.Within this product category, we have a few exciting developments to share. We got formally approved on multiple product applications with a new large potential customer. We expect commercialization to begin from Q4 FY '24 and gradually expect to scale up.The validation for few products or applications with our existing large customer is progressing well and nearing completion, which will provide us with much larger business opportunity in the next financial year. With our newly added customer, the business has been growing steadily, and level of confidence is gradually building up. We expect FY '25 to see a significant growth in revenue in this product category.Flame Retardants. Manufacturing of flame retardants have been still kept on hold due to market conditions prevailing within the segment. With the new geopolitical situation in Middle East, we foresee a few things might change positively for us in this product category.During the quarter, we have received formal approval from a very important customer in the Western Hemisphere. It has taken us nearly 15 months to get this approval. We expect slow commercial production to begin in Q4. Our development work on ultra-high-purity chemicals for electronic applications in this category is progressing very steadily.Within H1 FY '24, the overall headcount has increased by 116 people. These recruitments were largely on account of newly commissioned facility and also partly towards enhancing the R&D capabilities. During H1 FY '24, the employee expense has increased by 44% from nearly INR 18 crores to INR 26 crores.During the quarter, the Dahej SEZ facility has moved to utilization of natural gas as a fuel. This is a slightly expensive option, but an environmentally cleaner option.During H1 FY '24, the power and fuel cost has increased by 50% from INR 12 crores to INR 18 crores. From the high-value inventory of March '23, we consumed only about 11% of that inventory during the current quarter. Most of the production done during the quarter was using freshly prepared raw materials leading to margin normalizations. We anticipate increase in business volumes over the next couple of quarters. The overheads will also start getting absorbed uniformly, translating into better and more realistic margins.To summarize, the chemical industry is definitely going through a never seen before situation and the pain is yet not completely over. However, Tatva Chintan is well placed as we are diversified across product categories and our products find application in varied end industries as well as across geographies. Hence an impact in demand in one product category is being offset by subsequent demand in another product category.To conclude, we remain committed and assure you that we are working hard in developing new products using latest technologies to ensure that we can continuously provide good products and better solutions to our customers.With this, I hand over the call to Mr. Ashok Bothra, our Chief Financial Officer, for the quarter's and the half year's financial highlights.

[Ashok Bothra, executive]

Thank you, sir, and good evening to everyone present on our call today. The financial highlights for the quarter and half year are as below.Revenue from operation was at INR 967 million versus INR 901 million in Q2 FY '23. That is a growth of 7% on Y-o-Y basis. Other income during the quarter was at INR 8 million, a decline of 61% Y-o-Y basis. EBITDA was at INR 202 million versus INR 112 million in Q2 FY '23, a growth of 81% Y-o-Y basis. EBITDA margin increased by 849 bps Y-o-Y basis to 20.90% in Q2 FY '24 due to optimization of internal cost measures as reflected in declining COGS and other expenses by 9.63% and 3.26% Y-o-Y, respectively.However, the impact was offset by increase in employee expenses by 4.3%. That was at INR 78 million versus INR 71 million in Q2 FY '23, a growth of 9% Y-o-Y basis. PAT margin was 8.05% versus 7.89% in Q2 FY '23.The finance cost during the quarter increased by 72%. Going forward, the finance cost will substantially decline on account of reduction in working capital utilization from QIP proceeds.During Q2 FY '24, exports stood at INR 671 million comprising 69% of the revenue from operations. The company has a customer base spanning over 25 countries, including U.S.A., U.K., China, Germany, Japan.Out of net IPO proceeds of INR 2,072.81 million, INR 2,027 million have been utilized so far. That is 98% of the funds have been utilized till 30 September, '23. During the quarter, INR 25 million was utilized. Regarding QIP placement of INR 2,000 million, INR 1,840 million has been utilized so far, that is 95% of the fund has been utilized till 30 September, '23.That concludes an update on financial highlights of our company. I shall now request the moderator to open the floor for question-and-answer session.

[Operator]

[Operator Instructions] We'll take the first question from the line of Mr. Sudarshan Padmanabhan from JM Financial.

[Sudarshan Padmanabhan, analyst]

Sir, my question is to understand now that the first half is over, and we are seeing this SDA sales between INR 40 crores to INR 45 crores, with the new capacity. So the first half, we have done an average of between INR 40 crores to INR 45 crores a quarter on the SDA side. The new capacity is in place. And we talked about onboarding new customers, which will give a fill-up in terms of growth in the second half. I mean we did talk about a fair amount of traction that could happen in the second half and FY '25. So if you can give a little bit more color about how do we see the next couple of quarters? Is the onboarding process giving us that kind of a confidence in terms of growth? Or is there any change in the outlook on that perspective?

[Chintan Shah, executive]

You have asked this question for SDA?

[Sudarshan Padmanabhan, analyst]

Yes, sir, SDA.

[Chintan Shah, executive]

So with the formal approval now in place, which we just received 3 or 4 days back, within this week itself. And with this formal approval in place, this opens a door with one of the largest potential customers globally. Of course, you can understand the first year, so I'm saying first year in terms of calendar year '24, would not be a big start. So this should begin. We expect the first commercialization to begin in February of 2024 and ramping up potentially from the second half of '24. So July onwards is when we will start realizing the full potential of this customer gradually increasing.Also we expect a very decent rise in terms of volumes from our existing largest customer, where we are in an approval stage, nearly completed, almost successful so far. So this gives us opportunity for an application into automotive, but also a large application into the refining catalyst side. So this opens up new goals for us to increase the business volumes with our existing customers as well.And the large customer, which we had added in the last few months, so this customer, we have seen gradual increase in business volumes happening there. And we expect FY '25 to see significant price in volumes from this customer as well.So if I say, let us say, significantly, we will see the volumes to rise from April, April of 2024. And I expect FY '25 to be really exciting in terms of SDA volumes. And we expect at least 80% to 100% growth in this segment in terms of value.

[Sudarshan Padmanabhan, analyst]

Sure, sir.

[Chintan Shah, executive]

We've done some significant work in terms of optimizing certain values where we are giving them benefits in terms of indigenized production of certain key raw materials, which we were largely dependent on imports. So this gives them a coverage in terms of supply of having a non-Chinese origin product completely. So this is where we are bringing in value for both customers, our existing and this large new potential customer. So we intend to backward integrate this and that is where the qualification is right now going on. So we successfully did do some plan, still supply them the product and now that is under the final stages of qualification, so giving them an option of having an independent of China supply chain, which is going well with both these customers. And we expect to have very decent volumes from them from next financial year.

[Sudarshan Padmanabhan, analyst]

And sir, in this context, I mean, we are seeing scale up happening in the PASC and BFR. I mean are we still sticking to the guidance that we had started with for FY '25 as far as the top line is concerned?

[Chintan Shah, executive]

More or less, yes. The answer to that is definitely, yes. And we should see at least a growth of anywhere between 70%, to 100% in terms of growth in revenues for the next financial year.

[Sudarshan Padmanabhan, analyst]

Sir, I'm talking about FY '24.

[Chintan Shah, executive]

I'm saying, no, FY '24, we see nearly flattish growth, maybe 5% to 7% in terms of revenue growth is what we see in terms of top line. In terms of bottom line, we will see a quite decent growth. So we expect to end with an EBITDA anywhere close to about INR 100 crores.

[Sudarshan Padmanabhan, analyst]

Sure, sir. And sir, my second question is on the BFR side. With this, Israel-Hamas war happening, I mean, do we see an opportunity for us? I mean, in terms of on the ground, are we hearing clients coming up and talking to us in terms of advancing the suppliers at an earlier stage? Do we see things to relatively be much better on this part of the business?

[Chintan Shah, executive]

Not really. The reason -- so except for this new customer where we have now got qualified. They are very anxious to hand over at least 30% of their demands to us. But apart from that, in the Eastern Hemisphere, we are not seeing that kind of an encouraging feedback. Primarily, still, there is -- since there's a lot of inventory and also the demands within that polymer sector is really, really low. So that interest levels in doing something new is really missing. So that is the reason why we are not kicking up the commercial production so far.We are already all set. So with this new customer coming in and giving us assured volume is when we intend to start production of BFRs.As far as the PASC segment is concerned, I think all the hard work has paid off commercialization. So any skeptical points about whether we'll be successful in scaling up this new technology or the processes at a larger scale. So all those things we have overcome. We have successfully delivered product, produced them on plant scale.And now we are just waiting for the business to start. So we expect Q1 or Q2 of next year to actually see a strong ramp-up in the PASC segment in terms of product prospect on the Ag side. And on the pharma side, we will see that happening in early 2025.

[Sudarshan Padmanabhan, analyst]

But going by your commentary progressively, we should start seeing the benefit in the second half? I mean the second half will be better than the first half and FY '25 should be significantly better than FY '24?

[Chintan Shah, executive]

Yes. Not on the agro side because agro side, these products -- product one has been delivered, which is right now under qualification. The second product we will deliver between 7th and 15th of January as they have scheduled it. So we are sitting on the product right now. We completed the production in October. We are sitting on that product, but they want us to deliver not before December. So they don't want to see it in their inventory. So we deliver it in first or second week of January.And then, so this actually had to happen in end of September. But then they wanted to postpone it because they took up longer shutdown in the plant. So typically, they have a planned shutdown, which runs for almost 2 weeks, which actually got extended to 6 weeks.So they did not want to take up this product for qualification within this quarter, but which is now scheduled for the next quarter. So this, again, postpones your commercialization by 1 quarter more. So this is what has happened. So we expect that commercialization to happen in May or June of next year.This is a significantly large product for us. So both one which is right now under qualification and the second one, which we will now deliver in January. Both put together can give us a significant impact in terms of top line for the PASC segment.

[Sudarshan Padmanabhan, analyst]

Sir, one question before I join back the queue is on the tax rate. I mean, where do you see the tax rate, let's say, coming down, because as the scale increases from the new plant, I would assume that the tax rate would basically get absorbed as well. So I mean, can you throw some color on that, sir?

[Chintan Shah, executive]

Let me pass on to Dinesh for this.

[Dinesh Sodani, executive]

So right now we have a CapEx of around INR 250 crores in this year. So effectively, we are sitting on the deferred tax liability. So that's why this year, we are likely to having the tax rate of around 29% to 30%, effective tax rate.

[Sudarshan Padmanabhan, analyst]

And that should come down drastically once the deferred tax basically gets completely utilized?

[Dinesh Sodani, executive]

Maybe in the next year, maybe -- financial year '25, it will be drastically down.

[Chintan Shah, executive]

So Padmanabhan-ji, even in -- we have this 50% tax break for the Dahej plant running for next 5 years. So right now, we are in the second year of that, so still 3 more years for a 50% tax paid at Dahej. So once this depreciation gets consumed, then we will see an impact of lower taxation provisions happening in the books, potentially FY '25 we should see that.

[Operator]

We'll take the next question from the line of Mr. Ajit Motwani from Dymon Asia.

[Ajit Motwani, analyst]

So just wanted to understand, firstly, on SDC as a market, in tonnage terms or value terms, where exactly is the size of the market, let's say, this calendar year versus last? At which geographies are lower or higher? And second question is, you talked about, you mean taken a new client on SDCs and because of a new process chemistry. So would it also mean that your ability to garner a significantly higher market share than what was it earlier? If you can throw some light on these 2 aspects.

[Chintan Shah, executive]

Sorry, can you please repeat this again?

[Ajit Motwani, analyst]

So first question is the size of the SDC market. You said it's still lower globally. Second is you said that you've got a new client in this because of a new process chemistry that you developed and have passed on the benefit. So does this mean that you'll be able to garner a bigger market share as and when the market revives?

[Chintan Shah, executive]

So basically, this large customer, which we now have been approved on. So this is an existing customer where we had no presence. So this is definitely acquiring the market share in a bigger way. And this is coming because of adopting this concept of providing them a solution to have a security of supply by having a non-Chinese origin supply chain. So this concept has paid off. So the hard work which we did in developing this complex chemistry at our plant has really moved the customer to get us into the supply chain. So this is definitely nothing new that we are doing for them. This is their existing product, which they are buying from the competition and where we will see a significant contribution coming from Tatva from next financial year. So this, of course, opens up doors for us for a larger market share, again, with my existing customer.So in one of the products, it is exactly the similar thing. So it's a different product though. And this product also, it is a way of backward integration that we are providing them some significant benefits in terms of security of supply, but not only that, but also in terms of pricing, because this also gives us some distinct advantage in controlling the cost of the product of the final product by getting into backward integration of raw matters. So it's a win-win situation for us as well as for the customer.So this is, again, an existing product for them, where we are just having a minority supply situation, which we intend to convert it into a majority supplier for them once this product is qualified. So this again will happen in next financial year going from April.

[Ajit Motwani, analyst]

And these benefits, so net-net, our margins should be better off even after passing on some benefits to the client on these 2 things?

[Chintan Shah, executive]

We are nearly passing on 70% of the benefits today. So yes, our margins will also slightly increase. But if you consider the raw material cost is not significantly -- so there are multiple raw materials and multiple stages through which this product goes through to sell a final SDA. And if we see the overall raw material consumption in SDA, it's anywhere between -- in a range of about 40% to 45%. So when you say there's a benefit in this, it's not going to be a very huge number in terms of percentages compared to the final selling price of the product. But still there will be some expansion in terms of margins for those particular products.

[Ajit Motwani, analyst]

And in terms of the market size, SDAs has they -- how are they -- are they back to what they were, a bit lower?

[Chintan Shah, executive]

Still, they are not -- see, we -- earlier, we had 2 large customer, in fact 3. So currently most of the volumes are coming only from one single customer and the newly added fourth customer. The second and third customers were dead so far. Second customer still continues to remain almost at zero volumes and we don't expect them to resume buying at least until February. And the third customer has now come back to life. And they've started placing smaller volume orders, but at least they are back to life. So still the market is not back to normal scenario. But it is gradually moving towards that. So we can see that the discussions that -- the floor of discussion has been opened up, multiple inquiries about timing of deliveries, lead times, and all of those things have started to happen. So we see that the life is coming back for these 2 customers as well. But -- so still the market is not really at the same levels what it was pre-COVID times, I mean, just the post-COVID times. But we are expecting this to come back to life within a very short span of time. So we see a lot of movement and a lot of activity happening within this area now.

[Ajit Motwani, analyst]

And if I heard it correctly, on the agro side, you're saying you're working on 3 products, one of which has started and one you're saying…

[Chintan Shah, executive]

One is under final qualification running at the customer. One is ready with us. We are asked to make the supplies in the first week of January. So this will go into final qualification. And third product is approved on pilot skill. We are waiting for the necessary equipment. It requires a special equipment to produce it on a commercial space. So this equipment, we expect to be delivered within November, within this month. And then we will produce on a commercial scale and supply the qualification material. So all these 3 products, we expect commercialization to happen from June of next year, between April and June of next year.

[Ajit Motwani, analyst]

So at various levels of sizes, all the 3 will be in the revenue generation space from June 2024 is what you're saying?

[Chintan Shah, executive]

June '24, yes.

[Ajit Motwani, analyst]

And on a steady-state basis, on a full year, what kind of revenue potential these 3 products have for us?

[Chintan Shah, executive]

So basically, we have 3 agro products and 3 pharma products. So from our existing revenue, we expect nearly 200% growth at least to happen. And at a full life and a full volume, this can go up to 300% to 350% of growth in this segment, just with these 6 new products in productions.

[Ajit Motwani, analyst]

And 6 means 3 in agro and 3 in pharma, basically?

[Chintan Shah, executive]

Three in agro, 3 in pharma, yes.

[Ajit Motwani, analyst]

So INR 200 and 300. And how much time do you sort of visualize to achieve these potentials?

[Chintan Shah, executive]

So 2026 is when -- FY 2026 we should hit the full potential. Because first year, even we don't want to move very aggressively, because it's going to be our first attempt to that kind of a commercialization. These are all very technologies by which these are being produced, which we have never done historically. And we have not handled products at such large volumes in multiple stages chemistry. Variety of chemistries are involved in each of these products. So even we want to move slow and of course customer is not going to impact with all their volumes at one go. So they will also time and test us in terms of how consistent and in terms of delivery and quality, we remain.And we expect that '25 will be a learning curve for us as well as for the customers, building up that confidence. And once we deliver, like I said, 30% to 40% of potential in this next financial year, then FY '26 would take us to the fuller potential of these products.

[Ajit Motwani, analyst]

And as far as the headcount increase is concerned, is this related to these 6 products and the other things that you talked about? Or there is no headcount that can come?

[Chintan Shah, executive]

Theoretically, you can say, yes, because see, we basically commercialized the facility, the new expansion. So to run that plant, you need manpower. So that is what has caused the increase in headcount.

[Ajit Motwani, analyst]

But the heavy lifting on the employee addition is done this year and will be…

[Chintan Shah, executive]

No, no, addition is already there in place. So there are [indiscernible]. So when we are doing all these validation production as well, you need manpower to run this new facility. That is what is causing a very disproportionate cost in terms of manpower. So if I see my numbers of this particular quarter, then my employee cost is contributing nearly 15% of the overall revenue, right, which is disproportionately higher compared to your normal values of being between 6% to 8%. So this will also get normalized in next financial year when you hit the required volumes.

[Ajit Motwani, analyst]

And your R&D also will normalize? So in a sense, the revenues will come and maybe the R&D might not grow at that rate.

[Chintan Shah, executive]

So whatever new we are doing or whatever new we will do in future is only going to come out of R&D. So that I would -- honestly, I don't consider R&D expenses as an expense, because without this, we are not going to grow ever. So I would not say this is an expense, I would say this is practically an investment that we are making.

[Ajit Motwani, analyst]

And the capacities to generate these revenues are in place?

[Chintan Shah, executive]

So with minor bottlenecking, INR 30 crores, INR 40 crores of expenses in terms of debottlenecking certain things, that is what we foresee over the next 6 to 8 months' time. But once that is done, then we are ready for going to our 100% growth level with this new facility.

[Ajit Motwani, analyst]

And we look forward to these things materializing for us, and I look forward to that.

[Operator]

The next question is from the line of Nirali Gopani from Unique PMS.

[Nirali Gopani, analyst]

Sir, for your commentary on SDA for next year is very, very encouraging. But to understand PTC and Pharma and Agrochemical a bit in detail for this quarter. So we have seen quite some decline on a Y-o-Y basis. And you mentioned in your opening commentary a few of the reasons. If you can elaborate on the same? However, when you say that you have maintained your customer, so is it only competition from China that has impacted us or there's a general slowdown in the demand?

[Chintan Shah, executive]

First, let us talk about the pharma and agro and specialty. So this particular product category has 3 different versions: pharma, agro intermediates, and specialty chemicals. On the agro intermediate side, we don't see any in terms of challenges, in terms of demand, except for our large product where we are supplying this to a customer, was in a shutdown for 4 weeks. So that is where we had absolutely zero demand for 4 weeks during the quarter, which reflected in lower revenues during that particular -- this particular quarter in the pharma and agro side.The real impact in that category is coming from the other specialty chemicals, where a lot of catalysts and products we are supplying into polymer industry. So this continues to remain impacted since last 2 or 3 quarters, and prices have been declining very sharply. So not only it's not impacting the margins, but pricing per se in terms of -- raw material prices have dropped by more than 50% in most of the cases, which is involved in this polymer application catalyst. So on that segment, I'm not worried at all. The segment which is actually under pressure is the PTC segment. In terms of demand, yes, because all the product postponements that we have seen is only and only coming from this particular sector, on the PTCs.Now, where the applications of PTCs is happening is pharma and agro intermediates is our largest customer base when we talk of PTC. And this is where we have taken the most hit in terms of demand for the PTC. Fortunately, we have not seen any order cancellations happening. It's -- potentially, I believe that it is a good relationship that we shared with the customer, which has led to postponement.But the postponement of deliveries had led to a lot of cost because there are a few containers which are already on the water or which have already landed in the foreign territory or the foreign ports. And now the customer wants to delay the delivery, which leads for us to pick up this container, put it into a storage somewhere within that foreign territory and which leads to a lot of demurrage approvals and stuff like that.And this is what we are managing the situation since last 3 months. And again, we are in a same spot for this quarter as well. So there are about 7 containers on ports or in water, which now needs to be delivered in January, February, March.So this is one challenging time. But the good part is we have not lost a single customer despite of whatever challenges have come through. Margins have remained fairly intact. The biggest challenge that we are seeing is in the domestic area, in terms of PTC, where we have a lot of Chinese product coming in. We have a lot of local competition as well here. And unfortunately, the market is very price sensitive. So here, the value of having a good catalyst is not as important as having a good value or a good price. So to keep up in this domestic area is what is turning out to be quite challenging.So we definitely lost a lot of volume of PTCs within the domestic area. And also the erosion in terms of margin in the domestic market has been significantly high in the PTC. So of course, I see PTC is quite challenging within the domestic area. But as far as exports are concerned, I'm not really worried on that part because we have proven and we have established contracts with this customer. Even we have started building up new contracts for the next calendar year, FY '24. So 2 of our large customers have already contracted the volumes for the next calendar year with us. So in terms of consistency of business in the export market, it's -- we are absolutely in a good shape. The challenges are arising from the domestic market.So among all the segments that we are into, I believe, PTC is the only segment where we potentially see a challenge in terms of competition by way of -- only by way of pricing in the domestic market. Whereas the other segments, because of very strong entry barriers, lengthy procedures in terms of qualification, very expensive qualification processes which has helped us to retain our customers and also helped us to retain the market share and the margins in the other product categories.

[Nirali Gopani, analyst]

In terms of the gross margins trend, we are seeing significant accruals. This is one of the highest that we have seen in the many quarters now.

[Chintan Shah, executive]

Sorry, please, it's not clear. Can you please repeat it?

[Nirali Gopani, analyst]

No, I was just talking about the gross margin. We have seen significant improvement there. This is one of the highest we have seen in a few quarters. And given your commentary on maintaining an EBITDA of INR 100 crores for the full year, so do you think this number is sustainable, the gross margin, because you have seen good improvement there?

[Chintan Shah, executive]

So the more volume -- so really, the margins will be visible from next financial year, when your plant occupancy goes to its peak. As I told you, at these volumes, we are seeing nearly 15% employee cost, which is absolutely unrealistic. So this starts getting realistic when your volumes and revenues start to build up. So what I'm expecting is Q4 seems to be a handsome quarter among all the 4 quarters of this financial year. For Q4, we are expecting very decent growth. And from next financial year, I'm super optimistic about the way we are going to grow.

[Nirali Gopani, analyst]

Perfect. So lastly to summarize this, the FY '24 should be the bottom year of when we see consolidation revenue-wise and we would still be obviously reaching INR 100 crores of EBITDA, which we have seen in FY '22. So FY '25 should look very different, and we should be on the normal growth trajectory from there.

[Chintan Shah, executive]

Yes. That is what I'm confident on. So all these product developments, qualification, validations that have already happened during this year is going to show the fruits in the next financial year.

[Operator]

We take the next question from the line of Mr. Sanjesh Jain.

[Sanjesh Jain, analyst]

First question on the auto side. If you look at the ESS review, which in the industry, this segment is where they are most bullish is auto sentiment. I think inventory is also done because heavy metal prices, which is the other component in the emissions which goes, there has been a steep fall and that I think I now stabilizing. And that is the -- that is one bright segment, the look in terms of volume growth. Are you seeing -- is that the same thing which they're talking with you? And how does it help us in revising the SDA segment?

[Chintan Shah, executive]

So generally speaking, not only one particular company. But that is what I just recent -- just talked on one of the prior questions is, generally, we feel that the life is coming back within this product category. So SDAs, we have now people. There's a lot of chatter happening, a lot of e-mail exchanges have started happening within this particular product category. So life is coming back. People are seeing renewed interest, volumes are steadily picking up. And so despite of, you see, overall, the year has been really challenging for the chemical industry. And the volumes for us in the terms of SDAs have started to pick up. And this pickup is only from my customer #1 and newly added customer #4. Yet customer #2 has still not revived at all. And customer 3 has now started reviving slowly. So it shows that this segment has now started to build up again back so, probably that deinventorization activities are now almost through. People are, wanting more products regularly, putting up inquiries.So yes, I think what the large industries are saying in terms of deinventorization has completed, is now I feel that it is a reality. So we see a good growth in this sector coming back.

[Sanjesh Jain, analyst]

And second, on the revenue side, it appears to be very soft. Can you help us what was the volume and pricing mix? Is it more of a factor of pricing? How is the volume trending for us?

[Chintan Shah, executive]

See, except for PTCs, we have not seen any significant price movements in -- I may point out 1 or 2 specific products. But generally speaking, except for PTC, we have not seen any kind of major price movements in any of the other product categories, any of the 3 other product categories. So our SPAs continue to remain almost at same levels. Of course, the price changes slightly with changes in raw materials. But it is not a very significant change. Whereas, in terms of PTCs, we have seen price movements trending to 20%, 25% in cases. In large products, it has even gone down by 30%. So -- but besides PTCs, I cannot really say that there's any major impact in terms of price. So volumes are reflecting what volumes were years back. So maybe with 5%, 10% price changes here or there is not really significant to talk about.

[Sanjesh Jain, analyst]

And on the PASC segment…

[Chintan Shah, executive]

So of course, when we go to a backward integrated product passing on certain benefits to customers, is when we will see some price reduction happening there because we'll have a significant saving in terms of saving cost for the customer as well. So we'll pass on these benefits to the customer. So we'll see some drop in prices happening. But that would in fact, logically speaking that would push my margins a little bit higher, yes.

[Sanjesh Jain, analyst]

On the margin this quarter, gross profit margin, which is your revenue minus cost of goods sold, it has gone up very sharply to 61%. We used to be in the range of 50%.

[Chintan Shah, executive]

There is one key factor to that. See, we have not -- we have hardly used any inventory, which is lying from the old inventory, because those products have still not started to move. So whatever is there is there, which is not new. So high-value inventory, we have hardly consumed. We think maybe INR 5 crores or INR 6 crores of that inventory is what we consumed. But the rest of the inventories is what we bought within the last 4 or 5 months is what is consumed during this quarter.And this all has come at a significantly lower prices. So yet I'm to pass on the benefit to the customer is to happen from this quarter. So the Q2 has given us some benefit in terms of low raw material costs and selling the finished product at almost the same price levels as earlier. So that is some, I would say, disproportionate gain in a few of the products.Also the product mix has slightly moved in our benefit. So there are 3 products which I could identify today, is these 3 products, we had significantly higher volumes that happened during this quarter. And these 3 products are best products for us in terms of market.So one is coming from the SBA side and 2 are coming from the PASC side. So one is an agro intermediate and one is a specialty chemical. So these 3 products actually moved to a larger volumes, which gave us an unexpected margins coming from the overall quarter.

[Sanjesh Jain, analyst]

Last question, I think we are running out of time, is on the other products like monoglyme, our rare earth chemical. Where are we on all those?

[Chintan Shah, executive]

So the other chemical extraction products we supplied during this quarter. So that supply has happened. We are waiting for their -- for my customers -- customers' approval now. So we are looking at a good next year. So beginning from January 2024, we are expecting very good wallets to get in for the rare earth metal extraction products. monoglyme, the continuous flow, piloting is going on smoothly, of course, with a few hiccups here and there in terms of separation in that. So -- but overall, the plant is running very successfully. So we have already kicked off designing of plant scale equipment based on whatever data has now been accumulated. So you expect this new plant scale production to begin probably in next 12 months' timeframe.

[Sanjesh Jain, analyst]

And that will be our first continued flow?

[Chintan Shah, executive]

That is, yes. And the moment monoglymes comes out of this piloting, we have 2 products already waiting in queue for that pilot equipment.

[Operator]

The next question is from the line of Mr. Krishan Parwani from JM Financial.

[Krishanchandra Parwani, analyst]

Just a couple of questions. So I didn't hear what is the overall top line growth that you mentioned in FY '25?

[Chintan Shah, executive]

Anywhere between 70% to 100%.

[Krishanchandra Parwani, analyst]

So on that, I just wanted to check like do you have any like, let's say, POs in place because there could be continued demand slowdown scenario?

[Chintan Shah, executive]

It is not about PO. So except for PTC, usually, we don't have POs and that too only large customers of PTCs. Otherwise, it is purely on forecast. So -- and see, basically, you are investing something in some equipment, specialized equipment for a customer. It is based on some commitment from their side. So it may not be a documentary commitment. It may be a moral commitment. So that is how the things are working on.

[Krishanchandra Parwani, analyst]

And just a last bit on that front. So from which quarter do you expect to see a step jump in revenues?

[Chintan Shah, executive]

From June of '24.

[Operator]

We'll take the next question from the line of Mr. Yash Shah from Investec India.

[Yash Shah, analyst]

Sir, my first question was regarding this quarter, again, the gross margins. You just talked that we were able to sell higher volumes of the higher-margin products and also we continued a very less of the higher cost inventory. Does it mean for the rest of the year or even in FY '25, when the higher cost inventory will be consumed, at that point of time our gross margins could be under pressure? I just wanted some clarification on that end first.

[Chintan Shah, executive]

Now practically we are sitting on that inventory pre-March to a tune of about INR 24 crores, INR 24 crores to INR 26 crores. I'm not exact on that number, but anywhere in that range. So we have consumed almost 75% of that old inventory, let us say, anywhere between 70% to 75%. So now that impact will be there in any particular quarter where we use that inventory, but it's not going to be very significant. still if I put it very simply, very simply in a layman's language because I'm not an accounts or finance there. But if I put it very simply, I would say, I'm looking at potentially to absorb a loss of about INR 7 crores to INR 8 crores from this inventory. This is what I'm expecting to happen. But it may happen in 1 quarter. It may spread over 3 quarters. It's just about -- because now these are some of the products which we have not produced in the last 3 or 4 months.So when this particular product comes up, its inventory gets consumed that that quarter we will get some hit. So it may not happen at one go. It may happen in multiple quarters. That is a strong possibility.

[Yash Shah, analyst]

Sir, the second question which I had was you guided on the FY '25 growth, which would be somewhere between 70% to 100%. And sir, also you guided that SDAs would also grow around that same range. That would mean SDA's contribution would slightly increase as compared to the other segment, which is also the higher margin segment. So would it be fair to assume that on a base of INR 100 crores, which we are expecting to do in FY '24, the EBITDA will also increase by more than 70% to 100% as the SDA's contribution will increase?

[Chintan Shah, executive]

Ideally, yes.

[Yash Shah, analyst]

And any broad numbers, sir, could you have in mind just on the basis of the trend which you are witnessing in the different segments? Any broad numbers will you have in mind of what the mix would look like by the end of FY '25 or '26 across these segments?

[Chintan Shah, executive]

Roughly about 30% -- between 30% to 35% coming from SDA, about 40% to 45% coming from PASC segment, and about 3% -- 3% to 4% coming from electrolyte salts at the increased revenue levels, I should say.

[Operator]

Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to Mr. Chintan Shah for closing comments.

[Chintan Shah, executive]

Thank you. On behalf of management of Tatva Chintan, firstly, thank you all for joining us on the earnings call today and wishing you all a very Happy Diwali and Saal Mubarak in advance. We hope we have been able to address majority of your queries. You may reach out to our CFO, Mr. Ashok Bothra; or our Investor Relationship partner, Ernst & Young, for any further queries that you may have, and they would connect with you offline.Thank you, Mr. Sanjesh, for hosting our call. Once again, thank you all, and a Happy Diwali.

[Operator]

Thank you, sir. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.