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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 Q4 FY '24 Results 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. Thank you, and over to you, sir.
Good evening, everyone. Thank you for joining on the Tatva Chintan Pharma Chem Quarter 4 and FY '24 Results Conference Call. We have the Tatva Chintan management on the call represented by Mr. Chintan Shah, Managing Director; Mr. Ashok Bothra, Chief Financial Officer; and Mr. Ajesh Pillai, Investor Relations.
I would like to invite Mr. Dinesh Sodani, General Manager of Finance, to make the opening remarks and from there, we will take the call. Over to you, sir.
Thank you, Sanjesh Jain. Good evening, everyone. On behalf of the management, I'm pleased to welcome all of you to Tatva Chintan earnings call to discuss financial results of the quarter and year ended March 2024. Please note that a copy of all our disclosures is available in the Investors 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'll hand over the call to our Investor Relations Officer, Mr. Ajesh Pillai, for his opening remarks. Over to you, Ajesh.
Thank you, Dinesh. Good evening, everyone. I welcome you to Tatva Chintan Pharma Chem Limited's quarter 4 and full year earnings call. Today, we are pleased to present our audited results, which we trust you have had the opportunity to review via the materials uploaded on the stock exchange and our company's website.
Allow me to delve into the figures. Our revenue for -- from operations for quarter 4 stands at INR 983 million, demonstrating growth of 17% quarter-on-quarter while experiencing a 21% decline year-on-year. The EBITDA for the period reached INR 156 million, marking a 42% increase quarter-on-quarter and 4% decrease compared to the same period last year. For the full year, our revenue reached INR 3,935 million, effecting a 7% decline year-on-year, with the corresponding EBITDA standing at INR 682 million, showcasing a 13% increase as compared to the previous year.
Now let's walk through the performance of each product segment. Phase transfer catalysts recorded quarterly revenue of INR 272 million, illustrating a 10% increase quarter-on-quarter yet experiencing a 28% decline year-on-year. Annual revenues from this segment stands at INR 1,067 million, showcasing a 25% decline compared to the previous year.
Revenues from Electrolyte Salts amounted to INR 14 million, indicating a 16% growth quarter-on-quarter and 48% growth year-on-year. Annual revenue from this segment totaled INR 50 million, reflecting a 70% decrease compared to the previous year.
Pharma and agro intermediates and specialty chemicals posted quarterly revenue of INR 280 million, marking an 11% increase quarter-on-quarter, while witnessing a 6% decline year-on-year. The annual revenue for the year in this segment is INR 1,132 million, demonstrating a 15% decline year-on-year.
SDA achieved a quarterly revenue of INR 408 million, indicating a 26% increase quarter-on-quarter, although experiencing a 26% decline year-on-year. The annual revenue for SDA reached INR 1,655 million, representing a 30% year-on-year growth.
In conclusion, I would like to pass the call to our respective Managing Director to provide insights to our business outlook. Over to you, sir.
Good evening, and a warm welcome to everyone. Today, I will just brief you about the business outlook and developments. I am pleased to report that our business volumes have shown gradual improvement in Q4. We anticipate to continue our moderate growth over the next 2 quarters with a good uptick expected in Q3 and Q4. The improvement in business sentiment is quite evident with a notable increase in serious inquiries with improved volumes.
Since mid-March, both of our plants have been operating with improving capacity utilization, reflecting the growing demand. What is particularly encouraging is the shift in customer behavior. We are experiencing a notable increase in inputs for early shipments and urgent dollars, indicating a marked improvement in demand within our industry. It is worth noting that except for agrochemicals, all other chemical sectors we serve are reflecting improved sentiments and a brighter outlook.
Contrary to our initial expectations, the prices of several chemicals continued to decline through Q4. In particular, raw material prices of SDAs have seen significant reduction and also certain key raw materials of few PASC products have also declined. However, during the month of April, we have observed a stabilization in prices. With improving demand, we logically feel that the price of chemicals should turn around within next couple of quarters.
Throughout the fourth quarter, freight charges remained persistently high. While there has been a slight reduction in freight charges in the U.S. sector recently, but the European sector continues to face elevated costs.
Now let us go through the outlook of each segment. Phase transfer catalyst, we expect a stable revenue in this segment for FY '25. We have managed to retain all our major customers for PTCs. The recent addition of new business within the segment will offset the continued subdued demand of PTCs from agrochemical sectors in FY '25. In this segment, the raw material price reduction was the most during FY '24, which led to the reduction in its revenue realization.
Structured directing agents, SDAs. SDAs have exhibited strong recovery of business across various applications. I am pleased to inform you that we have been formally qualified in all ongoing applications with various customers. Commercial supplies in most of these cases have also begun. Only one application still continues under qualification.
With onboarding of new customers coupled with improved demand, we foresee a handsome growth in volumes of SDAs in FY '25. But the significant reduction in raw material prices during Q4 will translate into lower price realization of SDAs in FY '25. So the revenue growth will not be proportionate to the volume growth.
Electrolyte Salts. The poor uptick in Chinese markets has led to lower levels of business for the Electrolyte Salts in FY '24. However, there are promising developments on the horizon. The progress of our existing customer, setting up a fully automated production line for energy storage batteries is proceeding as planned. We anticipate a significant uptick in demand starting from August '24.
Furthermore, our ongoing qualification process with another customer is progressing smoothly. This customer represents a significant application of batteries in hybrid cars with our type of organic electrolytes and which will lead to large volumes in coming years with potential commercialization beginning from end of 2024.
In another major development, we have successfully developed formulation of electrolyte for the zinc battery. We are in process of submitting samples to the potential customers. With the trust among car manufacturers to move to hybrid cars and increasing demand for energy storage systems continues to keep this segment exciting. We maintain a positive outlook for significant growth in this segment in the coming years.
PASC segment. Validation of three pharma and two agro products have progressed positively. So far, we have not received any adverse comment and we expect formal validation within due time. Due to ongoing rate problems leading to extremely long transit time to Europe, delivery of our third agro product will be late by about 45 to 60 days, which will translate into delay in formal validation and consequent commercialization of this product.
As we can foresee that we will run very tight on production capacities, we have already commenced production of two new PASC growth products, for which commercial supplies will begin in late Q2, early Q3. This strategic decision allows us to accumulate sufficient inventory to meet the potential committed demand.
We have been -- we have begun commercial production of our first [indiscernible] product. We have faced a lot of initial challenge and few breakdowns, but each of them has been resolved successfully, and production has risen smoothly. In [ monocline ] continuous flow chemistry, we had run into major safety concern on pilot scale trials. Now finally, the correct solution to the problem has been identified. We are completely resetting the pilot equipment and redesigning a new one as per the identified solution.
With necessary safety and control measures in place in the newly designed pilot equipment, we are confident to run [ monocline ] successfully as the catalyst has already performed very well in the earlier trials. Similarly, catalyst of two other products on continuous flow reactor applications have given very satisfactory results on pilot scale, but we shall do piloting again after getting the new pilot equipment to ensure that we run it very safely.
We have successfully developed and piloted four new products of common family, having large volume applications into polymer industry. We have developed the key intermediates of these product range with an innovative electrolysis technology, replacing the conventional high-risk technology. This makes the process much safer and price competitive. We are now gearing up to do plant-scale trials.
Flame retardants. Market continues to remain at unrealistic low prices. We observed a positive change in terms of inquiry flow from a number of different customers with improved volumes. This indicates an improvement in demand scenario for flame retardants. But unfortunately, this is not reflecting in price improvement. We continue to wait for the right moment to resume commercial production. We have successfully completed development of our third [ BFR ] on that scale.
In view of improved business sentiments and various product approvals and their commercializations, we expect FY '25 to be a robust year, and we shall see high plant occupancy, though this demand growth will not reflect proportionately in top line growth due to reduced prices of products led by reduction in raw material prices. Despite of this, we expect to achieve top line growth of 35% to 40%. This is considering the raw material prices continue to remain at such low levels. Any positive changes in pricing will have a direct impact on the top line growth.
With our unwavering commitment to innovation, quality and customer satisfaction, I'm confident that we are well positioned to capitalize on upcoming opportunities and drive further success in coming quarters and years to come. Thank you.
Now I hand over to Mr. Ashok Bothra.
Thank you, sir, and good evening to everyone present on our call today. The financial highlights for the quarter and 9 months are as below. During Q4 FY '24, the company reported revenue from operation of INR 983 million versus INR 245 million in Q4 FY '23. During Q4 FY '24, the company reported EBITDA of INR 156 million versus INR 163 million in Q4 FY '23. EBITDA margins were at 15.9% versus 13.1% in the same period previous year.
During Q4 FY '24, the company reported PAT of INR 96 million versus INR 170 million in Q4 FY '23. PAT margins were at 9.8% versus 13.6% in the same period previous year. During FY '24, the company reported revenue from operation of INR 3,935 million versus INR 4,236 million in FY '23. During FY '24, the company reported EBITDA of INR 682 million versus INR 606 million in FY '23. EBITDA margins were at 17.3% versus 14.3% in the same period previous year.
During FY '24, the company reported PAT of INR 304 million versus INR 455 million in FY '23. Pat margins were at 7.7% versus 10.7% in the same period previous year. During FY '24, the employee expenses was at 13.9% of revenue versus 9.7% during FY '23 due to recruitment on account of the newly commissioned facility at Dahej and also R&D facility at [ Vadodara ].
During FY '24, exports stood at [ INR 2,769 million ], contributing 70% of the revenue. Out of net IPO proceeds of [ INR 2,072.81 million ], 100% of the funds have been utilized until 31 March 2024. During the quarter, INR 10 million was spent.
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] The first question is from the line of Sudarshan Padmanabhan from JM Financial.
In terms of understanding the...
Sudarshan, this time, I am giving the opportunity to Mr. Ashok Bothra and Ajesh to handle this Q&A. I'm sure they are still nervous, new to this role. They may fumble up, but I want them to start taking up these challenges. And if there is any unsatisfactory information or anything else, I can respond to you maybe tomorrow -- to all the participants that I can respond offline by e-mail or something. So let us try to give them the opportunity this time. I hope it is okay, sir.
Sure, sir. Sure. Definitely. My question is to understand more on the EBITDA side. I understand that today, our capacity utilization is very low. In fact, the new plant is significantly underutilized.
In terms of the top line, you had clearly elucidated about the 40% because of the price decline. In certain parts of the business, raw material, which means the margin optically looks higher, which I would assume it's also played in this quarter.
So on the EBITDA side, earlier we start talk about 75% to 100% growth, which is possible driven by operating leverage as well as the volume growth. If the 40% top line growth, where should this kind of converge in terms of expectation, in terms of [ EBITDA ]?
Sir, actually, you are not clearly audible. Can you please...
Let me handle this. So 35% to 40% growth in revenue will -- if I am not wrong, we are at about 16% or 17% EBITDA this year. And with the increase in volume, see, basically, the issue is our gross margins are very satisfactory even as of today, despite of this price scenario.
The issue is observing the overhead. So as your volume picks up, your revenues pick up, your general overhead will start to drop, which will reflect into our EBITDA margins. So if you see my salary cost or the employee cost, it is now typically hitting in a range of about 14% to 15% versus sales. Whereas if historically, I see before -- 1 year before this, and historically, it has remained in the range of 7% to 9% and which is a realistic approach. So when these volumes have picked up, you are automatically -- this general overhead cost starts to coming down and it starts reflecting our better EBITDA margins.
So still, we continue to remain confident with this increasing volume. We should hit EBITDA in the range of 22% to 24% next year.
Sure, sir. And sir, from the operational perspective. I mean on the continuous growth industry, we are quite positive on the PASC commercialization and also talking newer trends on the SDA side, we were expecting clients to start contributing for second half. Can you give some color with respect to -- we talked about some improvement in the first half and the charter improvement in the second half. What could this kind of entail beyond even FY -- the second half, what is the kind of ramp up that one should see from the newer contracts that we are talking?
And also, if you can talk a little bit more because, I mean when you look to FY '26, we should start talking about the BS7 and opportunity as well. So where are we as far as that opportunity is concerned? Do you think that say, 2, 3 years down the line, we should also be able to play back opportunity?
Right now, the scenario in SDAs in terms of volume, we expect to grow nearly 50% in FY '25. So we were in various validations with different customers. So 4 different customers with a number of different applications where we were under validation, which we have now successfully completed. And except for one customer, we have started commercial supplies. Of course, this will take time, 6 months, a year to build up volumes with each of these customers. But all the commercial supplies with all these customers, except for one has already started.
The one customer which has not yet started, we are waiting for certain reach registration to happen, which is already in process. So it should happen within the next 2 months. So we see an exciting year in terms of SDAs next year. But the issue is price. So of course, we will continue to enjoy your defined margins. But the problem is heavy reduction in raw material pricing in SDA last quarter.
So prices continues to slide. And at least, fortunately, now we see that in April, we have not seen any further reduction in price. So I have enough raw material inventory to carry me through this quarter until, which I will be able to maintain my prices at earlier levels. But there, in Q2, prices of SDAs will have to be made proportionate to prevailing raw material prices. So though our volume growth 50%, I expect the maximum revenue growth to cross only 25%. So this is an irony. So unless and until the raw material prices start to increase, this is going to be a scenario.
So the revenue increase will be visible as soon as your prices start to improve. So we are -- actually, everyone would wish that raw material prices should come down. We are now expecting this raw material prices to go up, which can directly impact your top line and also your overall EBITDA margins also.
[indiscernible] SDA to begin with. And this -- when you say '26 , we will have enhanced volumes coming from Euro7 as well. So this will, again, further enhance volumes by another 30% to 40%. So this is turning out to be now exciting in terms of SDA. But now I expect the price revival to happen.
Sir, one clarification from your comments earlier when we talked about it. Today, we are talking about 22% to 24% margin. Earlier, it was more towards 20%. So on EBITDA -- on EBITDA side, a sharp drop in prices is not necessarily an impact significant downturn in your EBITDA? Because if you're supplying on an EBITDA for [indiscernible] basis, I mean, mathematically, your margins will look higher because on a lower base EBITDA for...
What you will see is a INR 400 crores, [ it's not enough ], 20%, let us say, INR 80 crores. Same numbers of 20% on INR 600 crores look very different, right?
Right, so that is the issue...
Let us say, 50% of my plant electricity cost is fixed, cooling tower, chilling plants, we have general electricity plants, lighting, buildings, everything is running, which is [ fine ], whether you run your plant at 5% capacity or 90% capacity, right? So when your volumes start to build up, your values start to build up, that's proportionately per cost of all these things start to drop drastically.
And as I told you, manpower, of course, I'm not going to be. I don't have the power to change it, unless and until I start sending off people home, which we don't intend to do. So we are manpower focused, fix that, maybe -- let us say -- would be INR 40 crores, INR 45 crores in next financial year as an employee cost.
So when my volumes pick up, the percentage of employee cost versus my revenue will start coming to a realistic number, which is today at a very unrealistic level of [ 14 % to 15% ].
The next question is from the line of [ Pritesh ] from Lucky Measurement.
Can you share the blended volume growth in FY '24 as a company as a whole, if possible? And what was the volume growth in SDA?
I don't have the volume numbers off hand right now, but if you can just drop your e-mail and...
E-mail to Mr. Ajesh or me, we will get back to you.
Sir, in the 30% revenue growth in SDA, whatever price decline you have seen is in -- towards the exit month, right?
Towards the exit in last quarter. So really, price reduction we will see from, I believe, by end of May, early June. So still, that reduction is not evident really in these numbers.
In phase transfer catalyst, these numbers are clearly evident, that volume remains constant, but price realization grows by 20%, 22%. And the same thing, we will expect to happen in SDAs from next quarter and quarter 2.
So PTC, you mentioned that the volume was growth -- volume growth was 0 in FY '24 for that 25%...
There was some drop, 5% to 7% drop, but nearly stable, but value degradation was quite evident.
Okay. For the 500,000 kiloliters capacity that we have, that you are mentioning about this employee cost size and -- what is the...
Just to give you a fair idea and a good understanding, we have two large volume phase transfer catalyst where our key raw material is common, which is Tributylamine. If you see the pricing of Tributylamine in March '23, the last import we did in March '23 was at $4.2. And if you see the imports of Tributylamine in March '24, the prices dropped to $1.6, up from $4.2 to $1.6. So this effectively -- and this raw material is our key raw material, the largest raw material which we import for phase transfer catalyst and which goes into our two large products as phase transfer catalyst.
And if you see the drop, it is nearly 60%, 65% in terms of raw material cost. So that translates into lower price realization of their finished products. So you maintain your margins, but your [ daily ] price realization drops drastically.
Okay. What will be the capacity utilization of your company in FY '24?
So it was around 70% as far as reactor capacity is concerned. For assembly, it was around 30%.
But we have two parts in the plant. One is where you have reactors, which is a conventional chemical [indiscernible] these trials. And then you have another portion where we do the specialized chemistry for SDAs. So we need a major expansion in SDA capacity then reactor capacity, both. So the reactor occupancy was about 68%, whereas the SDA plant occupancy was about 30%.
Okay...
And we are now increasing -- so we are seeing improved occupancy of both these facilities from mid of March.
Yes. So when you say 50%, 50% volume growth, basically, which means that SDA assembly side in the next 2 years will easily head to about 70%, 80% capacity utilization.
Exactly. So even if I top up today, even just I'm saying improvement beginning in March, and we are sitting in end of April, early May, our occupancy in assemblies has crossed 55%.
Okay. The way you shared that the PTC for the minus 25% revenue decline FY '24 largely was price-led. In pharma and agro, intermediate for the 15% revenue decline, would it be price led?
It is partially price-led, but not significantly price -- led.
Okay. And I did not understand your outlook, which you mentioned in the pharma and agro intermediate side, where you said there were three new products to be developed, two were done, one had a delayed process...
No, no. Six products. Three on pharma side, three on agro side. Out of these, five products have been into qualification and the qualifications are running smoothly. We have not heard any negative comments -- qualifications. And all these are expected to begin commercialization from September up to early 2025.
Now there was one agro product, which we dispatched up after the rest. So this got stuck up in transit and it got delayed by about 45, 50 days in transit because of the Suez Canal problem. And then now it is getting into validation. So we had expected to receive that validation by August, but now we expect to get it by November.
But what's the sales potential of these six products?
The sixth product, which I'm talking of is the largest of all the six. And overall revenue potential of all these products together is above INR 200 crores.
And the sixth product itself?
Sixth product itself is about INR 100 crores.
Okay. And do you have this capacity of, let's say, this 30% reactor capacity that you have?
We've been down into shortfall, that's what I said. We know that we are going into shortfall. So that is the reason why we want to build up a new plant. There, we ran into a little bit of a setback because our soil testing report did not meet the -- we are basically intending to create a multistory plant.
We have now one site within -- I mean one plot within the existing site, which we had identified and this is the last plant that we can make on that site. And when we got the soil testing report, it did not meet the criteria, which is required for 7 story plant building. So there are two options with us, either we scale down the plant, which we really don't intend to because this is our last opportunity of growth at Dahej plant, then we will have to move to the move site.
So right now, we are undergoing soil testing at 3 another optional locations. If this doesn't work well, then we will be left with no option but to reduce the plant design. So instead of INR 7 crores, we might have to go down to INR 4 crores. So instead of originally designed 150 kl reactors, we might have to spoil it down to about 80 or 90 kl reactors.
So you need these reactors for these sixth products as well, right? So you're constrained by...
Basically, when we are expanding into variety of products simultaneously, there are a lot of additional requirements in terms of solvent recovery. So we did set up a special solvent recovery and distillation plant, which is about to be commissioned, I believe, by end of May or early June and then some of the products we are having a huge recovery of bromine. So we are setting up a bromine recovery plant, which I think should be operational by August or September.
And then you would require these reactors some for tendency and some for recoveries. So without these reactors, we will suffer, but not suffer largely, but some of the things you can get outsourced on contract manufacturing, which is a cost. We can have an impact on your profit, but your work doesn't come to a stance for the time being.
So sir, that 35% revenue growth, which you're mentioning in '25, you are constrained by capacity thereafter retail, right? Because you're at 70% utilization reactor.
We will run into 85%, 90% occupancy by the end of the year.
With the 35% growth itself?
Yes, yes.
The next question is from the line of Rahil Dasani from Mittal Analytics.
Am I audible?
Speak loud, sir.
Yes. Is it better now?
Yes, yes.
Okay. So I have a series of questions. I will present them one by one. In SDA, we are the only one in India and globally, we have the second largest capacity. Considering that we should already be having a significant market share, so on that perspective, if you can help understand the total market size since you are guiding for a 50% volume growth on our already significant market share?
So this is very special type of chemical that is not easily available. We are only players, secondly the largest player having 85% of the market share, that's still with the Tatva. So with the induction or implementation of Euro7, the volume growth will be around 50% per unit of per vehicle. So whether -- and moreover, we -- when [ Euro7 ] implemented, we were -- by that time, Europe, U.S. and Japan already implemented the same. So we were left with the market other than the three top major markets.
Now with Euro 7 we'll come into place, there will be phenomenal growth in this segment. For Tatva and for other player also.
Understood. So just to confirm it, there are only two players in the market. One of them has 85% market share and then next one is Tatva?
Yes.
Okay. My second question is we were to be -- we were approved by a new large customers, larger ship and more [indiscernible] for multiple applications. So how is the offtake going there? And how big is this one in terms of volumes to our current largest customer?
So we have bigger commercial supplies. So of course, it will take time. So we expect full scale opportunity from this customer by end of this year. But we did supply a couple of hundred tons of products within the last couple of months to those customer. And the offtake is good.
And today, this is negligible compared to our existing largest customers as of today. But we expect this new customer, the largest customer, to become as big as total of our all three major customer at [indiscernible]. That is the kind of volumes we are looking for them. But this will take about 1.5 to 2 years to build up to that kind of quarter.
Got it. And also the bigger existing customer, we got up approved two products from them. So in terms of volumes, how will it add up for us?
So that will nearly increase our volumes with this existing customer by about 40%, 45%. And then financial orders for these new applications, which have been approved, as for two applications, the orders have been punched in. And the third application, we expect this to start commercially by end of Q3, probably, I would say, between October to December when we should start commercial supply.
And any particular reason for these players to shift from the dominant supplier to us?
One very key reason is the raw materials for both these SDAs, major SDAs was always China dependent. So there were three suppliers, but all these three suppliers were from the geography of China. And we came up with an in-house production successfully, developed these raw materials in-house. And that is where we laid an option in front of them that we think that's a non-China product, non-Chinese origin material, completely Indian made and this is what we can offer. So this is how we've got this opportunity.
I would say something like China plus 1, but not in reality. But it is kind of safeguarding that if something happens in China, then what is our option then. That is how we got this opportunity.
And in terms of cost, how do we compare with them?
We are very much competitive and without compromising the quality.
So we are honestly speaking if I have to take a probably, a pure decision only as an investor, I will not produce these raw materials because we are not saving more than 10% to 15% in terms of cost of these raw materials compared to what we can already buy from China. But had we not done this, then we would not have seen this business. That is also a reality.
Makes a lot of sense. My second question is around the PASC segment. So previously, we were guiding for 70% to 80% utilization in our Dahej unit. But then last quarter, we guided that we would fully utilize it and also complete the CapEx by August to October. And I understand the products have been approved, but if you could explain the confidence, especially when this, as different technology being used to produce, which we have never done at these large volumes? Do we have some sort of a verbal or some time contract?
Out of these five products, we have -- as I already mentioned, we have already started commercially producing and building up inventory for two products. So you can understand the level of confidence we have. The initial comments and see these validation processes are quite friendly. They will first make the product that is using my raw material, they will meet their active or whatever they need.
And then this active is converted into a formulation and then put into stability study which takes about 5 to 6 months to get approved. But you get a basic approval as soon as they make the active. So using your raw material whatever products they are going to make, as soon as they make it, they give you a formal and an informal intimation that your product looks good, we don't see any problem, and now we are taking it for formulation. So those kind of feedbacks, we have already listened for five products.
Out of this, we have already started manufacturing two products because we know that right now, we do have spare capacity in the plant. But we know that as the year goes by, we are going to get occupied. So we already started producing two products and started building up inventories so that we don't miss on the opportunities because of lack of availability of plant. We want to not miss on volumes of these products.
Got it. So what I'm trying to understand is in 2023, also we expected a similar thing in SDA where we created a huge inventory, but the customer didn't come through for us. So for PASC, how do we cover our downside, if there is something like that again?
Your question is very valid, but the level of business and -- we have with this customer, it is not a new customer for us. So they are our existing customers, these two products, what I'm talking of. So both these customers are already known and very long, about 12 to 15 years of business relationship with both of them. So I don't see any issue.
And they are just giving us I mean, this first year is like a trial year. And they are just allocating 7% to 8% of their overall forcing volume to us. So it is nothing for them. So I don't see that risk.
Adding to sir's point. So in '22, '23, there was chip shortage, resulting in the lower production of the automobile. So it was not because of some bad intent on the part of our customers, but because the business vision, they have taken in view of the ship shortage.
Got it. And lastly, if you can talk a bit on these six products. How well is the selling these products? How complex are they to manufacturer? How did we get our clients to shift from previous suppliers and buy this shift exactly?
If I try to give you a very common answer for these all products is we show them saving in terms of environmental cost. So we are giving you a cleaner or a greener product. We cannot do that on all stages of chemistry. Let us say that each product involves 3 or 4 stages of chemistry. Then we have done some good work in 1 or 2 set of this chemistry, where either we have utilized continuous flow, some catalytic separations or an electrolytic process.
We give them significant savings in terms of waste what we generate. And this is what we indicate to them that this is much more greener chemistry we come up with. So not necessarily, we are giving you any price advantage coming as a new supplier. But we are bringing in a potential, which is a sustainable chemistry. So the current product which you are buying by XYZ route is highly polluting. So whether it is really sustainable for a long term, we are trying to give you a more sustainable solution. So this is the theory on which we are working.
And who else is selling these products?
We are launching four new products, a family of four products for polymer industry. So we are getting into plant trials from next month. And even in this, we have -- there was one of these key intermediates of these four products. So the first stage of these four products is involving hazardous high-temperature catalytic reduction, which is -- one is high temperature. And secondly, it is catalytic reduction where you are using hydrogenation. So it is, again, a safety concern.
In this, we have replaced by our electrolytic technology, which is running in water and using electricity as the source for it. So we basically split water into generating hydrogen, and this hydrogen is used for hydrogenating the desired one. So this is where we could successfully establish these technology. And now we are coming into commercialization from next month.
Of course, this is a very large opportunity, very large volume. But again, it will take us time because again, longer lead times in terms of getting ourselves qualified will depend. These customers again globally spread. And it's not a very familiar segment for us. So of course, we know a few of them because of flame retardant introduction, but we don't have any commercial business even as of [ good on ] flame retardants.
So introduction is going to be tough, but this is a very promising and an interesting segment where we have entered with this kind of an innovative technology. Actually, we have not even seen any patents being filed for what we have already done. So it is something really innovative that we come out with.
That's very helpful. Secondly, in one of the previous points you have mentioned that 1 of these 6 products will be INR 200 crores product. But in this con call, you have mentioned it's INR 100 crore product. So first of all, if you can explain what's changed? And second of all...
This product has a potential to grow beyond INR 500 crores, actually speaking. But for this year and for next year, so until we have our new plant, which we expected to start by September, October, but still we have not broken the ground as we run into soil test reports were not favorable to build a 7-story plant there. So either we have to scale down the plant to four floor or alternatively, we are trying to identify another site or a plot within the premises where we can go up to 7 floors So this is what has delayed the plant. So this is the reason why I'm saying that we have a lesser opportunity because we will have lesser months to operate even in next year.
And the price remain same and it is vastly growable. So -- and again, in these six products, we have successfully done a catalytic separation of impurities, which is quite unique. And this is an in-house developed and produce catalyst that we have used, and we have run up two plant test so we have supplied them about a couple of containers of product for plant validation basis. And this technology has run really nicely.
So currently, the route through which they are buying the product. That also generates a byproduct, we clean it up to about 20%. And today, that byproduct has a good market. So that is why they're competitive. But the byproduct since where it is being used, that product seems to get the band in Europe. So this is the key problem for all the customers using this product where -- because today, the byproduct price is getting offset in this product cost.
But once the byproduct, they are not able to sell when the product cost has to go up. And we have a completely different innovative route through which we will make this product. With this sustainable, we don't have byproduct, we clean it up to 100%, so that is a benefit for the customer on a very long run.
[Operator Instructions] The next question is from the line of Mr. Sanjesh Jain from ICICI Securities.
In the interest of time, I will just ask one question. We said that we really soon run into a capacity constraint. I just wanted to understand, today, given that we had a spare capacity, we were doing all the solvent recovery and destock to keep the plant occupied and have the cost at least under the control. But in a longer run, keeping these things in-house and creating more capacity or constraining the capacity, will we have the flexibility to see that we can produce more and push these cost items outside? Because once we have a margin, which is coming up from producing the final product, vis-à-vis, lower cost, the call generally is to take the business ahead. But...
Until now, we were doing all the solvent recovery, et cetera, within the main plant. But as I told, we already set, we are already in the process, it's nearing completion. So we expect this commercialization in a short time. So we already set up a special different dedicated distillation and recovery plant. It will become operational in a couple of months now.
So if I exclude that, then what is the actual underlying utilization for the manufacturing? Because recovery is not...
So this pays roughly about 15% of the capacity.
On the reactor?
Yes, on the reactor. And there are still a couple of waste treatment that we do within the main plant because this needs to be done in specialized reactor and stuff like that. So that is another thought process which is going on, where we can allocate a small site within the premises and take all these waste treatments to this particular dedicated space instead of blocking the main reactors for this.
So these are the ideas how we can optimize the plant utilization to increase the revenues.
But then the 68% is not an identical number to think. So it is actually 68%...
As of today, it is 68%. But if you remove these recoveries from there, then it comes down to about 50% or maybe even slightly less.
That's the whole point, right? You cannot block the main reactor for recovery.
But at any place, you will need some place to do it, some equipment to do it.
You can always outsource, right? It's cost minus the growth, right?
Solvent recovery, you can outsource. But waste treatment, you cannot outsource, unfortunately. Because that [ GPC ] will not allow me to send your waste outside for treatment.
At least the 15% frees the price, right? So that's...
But that, we have already created a distillation. And again, as you know, Sanjesh, is that our distillation is not simple distillation. We have certain -- if you remember, I had explained to you on one of the calls, that we have one solvent which is mixed with 2% of another solvent, which is inseparable because both have similar boiling point. Then we came up with a specialized catalytics separate technology where one of the solvent that we reacted and acts on the catalyst. So we can recover the main solvent at 99-plus purity and then reuse this. And this is what reduced our consumption of ethylates it nearly 700 to 800 metric tons a year.
Now this you have to do in-house. You cannot give it to someone else because he will not have this catalytic suppression facility.
No. So technically, when telling that once we move to solvent plant, which is what 2, 3 months ago?
2 months, maximum 2 months.
So we can actually double the capacity, right? We are at a 50% utilization. If I say even for 85%, 90%, that means you're talking about a good 80%, 90% jump in the volume, which is possible from the investing plant.
Yes, yes. And still, there are certain ideas where we can do a small setup for waste treatment as well. And we can free up still further space, maybe another 5%, 10% is what we can still enhance. But this will do in a due course of time when we find the correct place to set up this kind of a setup.
Our first priority is to identify where we are going to build the plant. So we still insist that we want to go for the multi-story building and have maximum possible number of reactors within that plant. But if the soil test doesn't come favorable for any of the three identified locations, then only we'll scale down those plants.
The next question is from the line of Krishan Parwani from JM Financial.
Just a couple of clarifications. So firstly, I think you mentioned like you will achieve incremental, probably INR 135 crores to INR 160 crores revenue in FY '25. So could you please like give a segment-wise breakup of this revenue increment?
Sorry, can you repeat your question?
Yes. So I want to know like the incremental revenue that you plan to achieve in FY '25, can you please give segment-wise breakup of the sales?
As far as Electrolyte Salts are concerned, we would find somewhere around 150% to 160% of increase in revenue. And PASC are concerned, we will grow by around 80% to 90%. In PTC, we will be growing somewhere around 8% to 10%. And for SDA, we will be growing somewhere between 15% to 20%.
Understood. And given that you mentioned that you might need some CapEx, so what will be your CapEx for FY '25 and '26?
INR 70 crores.
For FY '25?
Yes. We had already mentioned that in our earlier earnings call also. And as sir rightly mentioned that we hit a road block in the process because we failed with the solid testing of the intended site. And that we will be -- again, it is just postponed by a couple of quarters. And then as soon as we find a suitable location for the same, we'll again be restarting the CapEx. So that would be around INR 70 crores.
Okay. And so would you have any capacity available to achieve top line growth in FY '26?
Yes, yes.
Okay. And just a clarification on the numbers side. So there has been some restatement on the employee cost and other expenses and also on the other current assets for -- and financial asset for FY '23. So can you please explain, what is the rational bandwidth?
So employee cost, first staff welfare expense has been moved from other expense to employee cost. So that is one of the regrouping we have done. And regarding other point...
Other current assets, yes, for FY'23.
So there are minor changes. So I -- we will get back to you on this, so stating the nature and amount for other expense -- for other current assets.
The next question is from the line of Vipin Goel from Mirabilis Investment.
Just some quick questions on SDA. So first one is that the largest -- second largest customer, the Chinese customer, that is from now not coming back, right? That is obviously established. So large part of the incremental growth will be the next year...
Sorry, yes. We expect that to happen, but that promise has been coming to us that expected resumption of and depletion of their inventories, they expect to resume by x month and y month and z months, but that has not happened. The new promise is August, but I would not go with that.
And I'm intending to visit them in July or August. So to know what is actually really happening and why this customer has suddenly gone so silent.
So large part of the growth then has been coming...
Even with customer as well. So we do have some another relationship with that customer beside SDA and that business is running smoothly. So there is no such concern that, that customer has stopped buying from us and not -- and buying from someone else. That is not the issue. The issue is what exactly I want to understand what is happening with them.
Sure. Okay. So large part of the next year's growth is because of the new customer that we just talked about, the largest customer, potential customer?
As our existing largest customers when we got approval into another product. So this is where we see the volume of growth. But the larger part of the growth in terms of volume is coming from the new customers.
Got it. And sir, if you can just give us some idea on what are the current realizations of the SDA product? Like have they reached like lower than $8 kind of number? Or where are they as of now?
No, there are -- see in SDA, there is -- each of these categories has a large basket of products. So giving you one number is difficult. But if I can as an average from the cheapest to the costliest product and the average mix at which we are selling, you can say the average realization is about $8.5 to $9.
Got. Okay. Okay. And sir, last one. Last quarter, we had talked about some two new customers in the auto application, some potential business from them as well. So have they like started coming in at the...
Part of these two customers, we have started commercial supplies with one customer and second customer, approval, everything is committed, we are waiting for a rate registration to begin the business with them. So that is already under process. We expect this to be in place within next 2 months.
Okay. And what's the potential that we can expect from them?
Sorry?
What's the potential business that we can expect from them?
These are again, the world's largest automotive catalyst supplier. Volume potentials are huge. But I'm not sure as of today, how much percentage of that business will come to us. But because it's a new relationship. So it will take a couple of years to build that relationship. But we are estimating a decent volume to begin from first year itself. Let us say, we are estimating about 15% volume of their existing business to begin with in this year.
Ladies and gentlemen, that will be the last question for today's call. I would now like to hand the conference over to Mr. Ashok Bothra, sir, for closing comments.
Okay. Thank you. Mr. Sanjesh. On behalf of the management of Tatva Chintan, thank you for joining us on our earnings call today. We hope we have been able to address majority of your queries. You may reach out to Mr. Ajesh Pillai or me or our Investor Relations partner, [ E&Y ], for any further queries that you may have, and we will reconnect with you offline. Thank you.
Thank you, Mr. Sanjesh Jain for hosting our call. Thank you all.
On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.