Aether Industries Limited (AETHER) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Aether Industries Limited Q1 FY '23 Earnings Conference Call hosted by HDFC Securities. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Nilesh Ghuge from HDFC Securities. Thank you, and over to you, sir.

Thank you, Michel. Good evening. On behalf of HDFC Securities, I welcome everyone to this Aether Industries conference call to discuss 1Q FY '23 results. It is a pleasure of having with us top management team from Aether Industries represented by Dr. Aman Desai, Promoter and Whole-Time Director. Mr. Rohan Desai, Promoter and Whole Time Director, Aether Industries; Mr. Faiz Nagariya, CFO; and Mr. Ravi Bhojani, Lead Investor Relations for Aether Industries. Without further ado, I will now hand over the floor to the management for making opening comments. Over to you, Ravi.

Good evening, everyone, and thank you, Nilesh, for the introduction. On July 25, 2022, our Board has approved the results for quarter 1 FY '23, which ended on June 30. And we have released the results on the -- same on the stock exchange as well as updated on our website. Please note, this conference call is being recorded, and the transcript of the same will be made available on the website of Aether. Please also note that the audio of the conference call is Corporate Material of Aether Industries Limited and cannot be copied, rebroadcasted or attributed in press or media without specific and written consent of the company. Let me draw your attention to the right deck on this call. Our discussion will include certain forward-looking statements, which are predictions [ productions ] or other estimates of future events. These estimates reflect management's current expectation on future performance of the company. Please note that these estimates involve several risks and uncertainties that could cause our actual results to differ materially from which is expressed or implied. Aether industries or its official does not take any -- not does not undertake any obligation to publicly update any forward-looking statement, whether as a result of future events or otherwise. Now I hand over the call to Mr. -- Dr. Aman Desai to share the updates. Over to you, Dr. Aman.

Thank you, Ravi. Good evening, everybody. I hope everybody is doing well, and I'm very happy to connect with you to discuss the performance of our company for the first quarter of the fiscal year '22, '23. Let me begin by sharing the ongoing expansion and the current near future strategy of the company going forward. And then I'll request our CFO, Mr. Faiz Nagariya to cover the financial highlights for the period under review. And then finally, Mr. Rohan Desai will wrap up and talk on a very high level about Aether's business. So I wanted to kind of touch base upon the various expansion activities that we have already talked about in the previous calls and that are going on aggressively on the R&D front and the product plant and the production front. And these are on track and on plan. The third manufacturing [indiscernible] Slide 3, which is the next greenfield manufacturing facility, which we have talked about always and showed to many of you is completed in the civil construction, and we have started installing the reactors in the facility. And we are on track and on plan to finish this new greenfield manufacturing facility and commission this facility by the end of this calendar year, December '22. And we expect to have revenue contribution from this new manufacturing facility in the fourth quarter of this fiscal year, that is any January, February, March of '23. As mentioned before also, we are launching 5 new products in this facility, which combined have a conservative market potential of about INR 1,200 crores imports into India, which can be driven by any simple data analysis of import data. The average selling price of these 5 new products will be higher than the current product basket that Aether has in the large-scale manufacturing business model. And also then looking at the demand of these products, which we are going to be manufacturing and launching for the first time in India, we are launching one of these products. One additional product of these 5 products in the current manufacturing facility on a limited scale to validate the process in the existing manufacturing facility at production scale. So when the new plant is commissioned, we hit the ground running in the production, and we can immediately start the revenues from that particular product, which will be the first one in the greenfield site. Very interesting and very recent development in the site 3 manufacturing site is also that we are in advanced discussions to acquire a plot of land, which is about 2,500 square meters, which is right adjacent to site 3. This is very interesting because this will be the right adjacent to site 3, and therefore, we'll share all the utilities and share all the resources of site 3 and we don't need to go into an additional greenfield manufacturing site for the same. And so this will immediately give us increased capacity from the site 3 itself. In the site 4 that we've also always talked about, documentation is well in process, and we are kind of wrapping the documentation up and we will be starting the civil work and the construction work in the site 4, which will be the second greenfield manufacturing site after the monsoon's end. So I guess as an expansion plans on the production side, and we are on track and on plan. We have already finished a double expansion of the R&D, as we already mentioned in press calls and that is fully commissioned and fully handed over and we are in the process of finishing the triple expansion by the end of the next month. We will be selling 55 new fume hoods in this expanded R&D facility, which if you compare to the 18 fume hoods that we had for the fiscal year '22, it's a significant expansion in the R&D, and we are very confident on the pipeline of our various business models to fill up this R&D. In terms of the R&D expenditure, we continue to expend significant amount of resources and money towards R&D. Our quarterly expense of R&D was up to 6.92% revenue plus capital of R&D expenditure as a portion of the overall revenues. And we are also aggressively hiring scientists and engineers, PSP levels and masters levels in the R&D. We have also acquired a plot measuring 1,500 square meters, approximately near our R&D and pilot plant site for future expansions of the R&D and pilot plant as well. And the pilot plant has already been expanded to 3x times with more than 100 reactors installed and fully commissioned now, and it's amongst the world largest pellet plants. And so R&D pellet production, aggressive expansion plans, and we are on track and on plan with all these expansion plans. The 16-megawatt solar power plant commissioning is complete, and we have started getting the power supply from this. This will help save us 50% of our electrical load, supply like 50% of the electrical load from solar energy, and we will offset 24,000 tonnes of carbon dioxide per year. Our 3 business models continue to be robust and we continue to equalize these 3 business models. Large still manufacturing has been the driver. And I already mentioned the 5 new products we are launching in this current year in the manufacturing site 3 coming up. We also exhibited in Chemspec Europe in Germany and Chemicals America in Charleston, U.S.A. in the last 2 months in this quarter. And as predicted in the post-pandemic era, we see now a tremendous influx of [ CRAMS ] opportunities already. And this is already being evidenced by the reasonable growth in the CRAMS business model that we have in this quarter as compared to the last quarter or even the same quarter of last year. We continue to talk at the highest technical [ launch ] of numerous multinational innovator companies across the industry spectrum, and this is a very promising space for us. And finally, the contract exclusive manufacturing business model is also growing its share of the overall pie of our revenues and we anticipate this to accelerate in the years to come. So this is a very high-level overview and update on our various expansions and strategies of the company. And now I'll hand over the call to Mr. Faiz, our CFO to give you the essential highlights of the quarter 1 of FY '23. Faiz?

Thank you, Dr. Aman. Good evening all of you. I'm glad to inform you all that we have achieved a total revenue of INR 166.16 crores for the Q1 of financial year '23, reflecting a growth of 13% over the previous quarter, Q4 of financial year '22 and 10% over the Q1 of financial year '22. The sales revenue of the company increased by 9% from INR 147.5 crores in Q4 of financial year '22 to INR 160.01 crores in Q1 of financial year '23. The sales revenue of the company increased by 1% from INR 150.02 crores in Q1 of financial year '22 to INR 160.01 crores in Q1 of financial year '23. The average selling price of our products being the Q1 of financial year '23 has been at the north side of that, which was in finance. The company has been able to generate EBITDA of INR 48.61 crores in Q1 of financial year '23 against INR 47.49 crores in Q1 of financial year '22 and INR 42.02 crores in Q4 of financial year '22, thereby showing an increase of 15% from Q4 of financial year '22. EBITDA margin have been at 29.25% for Q1 of financial year '23. The increase in revenues and EBITDA has allowed the company to capitalize on the [ pet ] levels, which have increased by 18% from INR 26.02 crores in Q4 of financial year '22 to INR 30.63 crores in Q1 of financial year '23. We have applied assets worth INR 43 crores during the year. And we have also -- we also have capital working progress of around INR 166.64 crores. The use of IPO funds is done for the CapEx for the greenfield project repayment of loans from the banks and various working capital requirement which are as per the object close, which were defined in the prospectus. We have utilized the funds as per the object close -- utilized the funds as per the table which -- as per the details provided below. We have used around [indiscernible] crores for our CapEx of the [indiscernible] project 3 from which we have utilized INR 7.5 crores in up to 30 June and remaining funds of INR 13.5 crores have been using this current month which is going on. Out after the INR 165 crores for the working capital requirement, we [indiscernible] INR 30 crores from the [ monitoring ] agency, and we have used all the INR 30 crores for the payments of raw materials and various other working capital requirements. The repayment of loan is already been done, and we had also informed in the Q4 earnings call that we are [indiscernible] company as we speak and today also we are [indiscernible] company. We are not utilizing any other term loans. We have no term loans spending in the company. Only the working capital requirement has acquired and as per the object was provided in the prospectus has been used. The general corporate purpose, we have grown down INR 56 crores and the INR 56 crores have been used for various purposes like solar power and payments to various other -- utility payments and other things. Now I will request Mr. Rohan Desai to talk on a high-level overview of our business.

Thank you, Faiz, for the financial highlights, and we are committed to make these numbers look better in the quarters to come. Despite the various ongoing challenges like raw material costs and product volatility, increase in the utility costs like steam and energy costs; and lastly, the global geopolitical and economical situation, Aether is happy to announce that we have seen growth and upcoming demands in all the 3 business segments. We have also exhibited in Chemspec Europe and [ Chem ] outsourcing U.S.A. in quarter 1, as Aman suggested, which gave us a good idea of the upcoming growth and the opportunities for Aether. In the 3 independent business models in quarter 1 of financial year 2022 to '23, we have seen 53% of our total top line coming from large cell manufacturing, 12% comes out of contract research and manufacturing services, which also funnels into third and interesting business model, which is contract as excessive manufacturing, which contributed to 33% of our total top line. Our endeavor is to achieve balance between large cell manufacturing business model and transancontract manufacturing and excessive manufacturing business model so that we are not dependent on any single business model. Our sales mix spend as Pharma 50%, Agrochemicals, 34%; [ material science ] 4%, high-performance photography 7%, coating 4% and others at 1%. Our export stands at 69%, which includes export to [indiscernible] and new units in India and domestic sales stands at 31%. Exports outside the geography of India accounted for 38% of the total revenue from operations. Lastly, before we enter the Q&A mode, we at Aether would like to thank each and everyone who have been associated with Aether and have put your trust and confidence in us, and we look forward to our interactions with you along the way and enjoying the journey together. Thank you. Back to you Ravi.

[Operator Instructions]. The first question is from the line of Saurabh from Asian Market Securities.

Sir, if you can give some color about the top 4 or 5 molecules in terms of how the volume was in the Q1 and also realization for those molecules.

All the molecules have -- Saurabh, thank you for the question. All the molecules have grown considerably well. We would not like to disclose the molecules at the moment because these transcripts are available in the public knowledge. And our competition is with China. So we would not prefer doing this. We can do it on a one-on-one basis if required. And over the year-end, we will give you all the complete colors in the call of Q4.

Okay. But there was volume growth, right, for most of the molecules.

Yes. The volume was growing the contract less exclusive manufacturing has grown tremendously. And also the contract research and manufacturing services have shown a good growth over this quarter.

Okay. The 5G molecules, which you mentioned in your opening commentary, so how you launched all the 5 molecules or these still trend production is on started or something?

Yes. So all the 5 molecules will be launched one after the other in the quarter 4 of this financial year, and it will be done in a matter of 1 month. And also as someone persisted in this call, molecules, the first molecule is going to be launched in this quarter.

So 1 molecule in this quarter and the rest in the Q4.

Yes. So 1 molecule is launched in a limited capacity just to have to complete the learning curve in the existing facility where we have an opportunity. Hence, we are launching it before time.

Okay. Sir, now coming to the margin performance. So we have seen a decline on Y-on-Y business also on a Q-on-Q basis. So was it attributable to the higher cost? And should we assume that with the pass on of the higher cost, we should see normalized margin from Q2 of Q3?

Yes, I'll take this question. So you are right that the reduction -- actually, there is no reduction in the margins from our percent. But if you are comparing the margins because of the Q1 of financial year '22 and financial year '23, of course, in the time the raw material pricing was quite low. And after that quarter 3 of financial year '22, the pricing of the raw material has started increasing. And that increase is still being felt and the raw material which we have used in this quarter, quarter 1 of '23, the materials which have occurred in the last quarter of '22 were used. So now we are -- what material we have purchased in this quarter are castability at a lower price than what we purchased in the last quarter. So we are definitely going to get this better margin in the next quarters because we'll be using the material -- raw material, which has been purchased at a lower price.

Okay. And how is the utilization level. So should -- can you further improve on the current quarter revenue for next 2 quarters until our site 3 gets ready.

Capital utilization is around 70% for the first quarter for us. And we have a lot of -- ample of opportunities to ramp it up and we opted in the last quarter so that we can go up to maximum 90% and 91% and keep 9%, 8% for our any kind of contingencies. So we have room, and we would be helping up these capacities.

[Operator Instructions]. The next question is from the line of Girish Bakhru from OrbiMed.

So just on the molecule side, I know you are not disclosing the molecule wide growth, but the top 7, if the contribution still stay around 76%, 77%? Or has that changed in this quarter?

Yes. The contribution is the same. I mean the margin contribution is the same for us. There is no change in this quarter.

And overall pharma is 50%. I was under impression that pharma will eventually increase gradually in the mix, it has actually come down. So if you could guide where the, let's say, the volatility is coming from in terms of the mix changing.

Yes, Girish, you are right. But as you see, you're comparing it with the last year, there are 3 more quarters left for this year. And we will see the pharma being picked up because the 5 new launches are happening also in the last quarter. Also, we are launching 1 out of these 5 molecules in this current quarter. Hence the pharma will take a lead in the next 3 quarters, but we -- our endeavor is to have a balance of 50-50 between the trans contract, decision manufacturing services and excessive manufacturing and large scale manufacturing. There is a endeavor which we believe that will be -- will come -- the outcome will come to the desired levels in the next 2 years.

So in the exclusive manufacturing it, if you can give more color as my understanding is that's largely agrochem is there a pharma company in the closure [indiscernible].

No. So it's majorly agrochem only on contract as exclusive manufacturing. Also, we have oil and gas in contracts that has been manufacturing. So majorly, agro is the base of contracts as exclusive manufacturing.

Right. And 5 molecules that you announced. I mean total pipeline over the next 3 years, what is it looking like? If you could give some color there.

Yes. So 5 molecules which we are launching is in the current calendar year. And then the next calendar year, we have another set of molecules which we'll be launching, we'll be announcing that very soon. However, on the R&D side, we have 18 molecules in the pipeline, and that is what the pipeline looks out like in the R&D.

And these are largely pharma, right?

Pharma, agro, material science and oil and gas.

The next question is from the line of Rohit Sinha from Sunidhi Securities.

Congratulating for a good set of number. So my question would be on the business segment. I mean out of these 3 segments, I know it would be not advisable to pin point the margins. But are these all 3 business segments having a similar margin or have a different margin. And going forward, when we are saying that with this new critics coming up, how this new -- I mean, after 2 years on like how these business segments contribution would be look like in the overall revenue mix? And subsequently, definitely how margin profile would be looking.

Yes, Rohit, thank you for the question. I could not hear half of your question, but I'll try and answer it and correct me if I'm wrong or I'm going out of the way on this answer. So the 3 business segments are large-scale manufacturing, which is approximately having a margin of 28% to 30%. EBITDA margin. We have contracts like exclusiveness model, which also has a similar margin, whereas contract research and manufacturing services, which is called CRAM has a 70% EBITDA margin for us. And looking to the new launches, the launches will be in the large all manufacturing business model, which will be in the north of 28% EBITDA margin.

Okay, okay. And the mix should be -- I mean, this 50% large scale and CRAMS -- sorry, 12% CRAMS and 33% contract manufacturing. So these would largely remain in the same line? Or there would be some kind of skewness towards maybe CRAMS what will be focusing going forward?

No. Our objective is to live all the 3 business models. We'll be lucky if we can do it in this year. But our endeavor is to equal as it as fast as possible so that we have -- each many of the business model individually. We are trying all that to do this, and we hope that we'll be able to achieve it in the future.

Okay. Okay, sir. That's helpful. And secondly, when we say 50% as of now is our pharma contribution. So would it be possible to segregate between that as domestic and export also? I mean out of that 50%, how much is export and how much is domestic?

We do not have it handy right now, but we can connect on a separate call and give you all the information...

Okay. And then in export part, since 69% is export. So geography wise, would it be possible to share the details which region we have maximum exposure as of now?

Yes, I'll take this. So actually, this 60% also includes exports to [indiscernible] units in India and deemed exports, which is also in the Indian territories, but they are [indiscernible] is exports. So if you see geography in India, it is only -- in India, it is only 43% and -- sorry, 57% in India and 43% is our Europe exports.

Okay. Okay. That has been -- okay. And sir, ultimately, I mean, after all this always CapEx is coming into stream by -- maybe '24, '25, what sort of revenue size you're targeting?

We have -- if we have -- on the site 1 and 2, we have achieved INR 600 crores top line last year, INR 590 crores of top line. So imagine 2 more sites coming in with a production capacity of 6,000 tonnes. And imagine a 9,000 tonnes capacity coming up in the calendar year '23 and calendar year '24'. I believe Rohit, you can do the math yourself.

We cannot give any guidance [indiscernible].

Got it. And how quickly we can scale up to this capacity, I mean utilizing level how much we can scale within maybe 6 months or a year and when we can reach up to the peak utilization?

So the utilization of 50% to 60% can be achieved in a matter of 2 years.

50% to 60% in 2 years?

Yes.

Okay. Okay. And this INR 9,000 crore is the additional capacity, I mean apart from INR 6,000.

Yes.

So total, it would be INR 15,000 crores, correct?

Yes.

The next question is from the line of Kalpit Narvekar from Allianz Global Investors.

So firstly, on the mix change that happened this quarter on contract manufacturing be higher versus, say, exclusive right. So could you share some like color on whether there was some kind of degrowth in the large scale in the exclusive -- sorry, in the large scale manufacturing business. Or was it just driven by very strong growth? Because you're saying that you didn't add any customers, right, only agrochem were the customers. So some color on that would be helpful.

Yes. So there's no degrowth or there's no less growth in the large scale manufacturing. The growth is going on as we are manufacturing the products as per the orders we received. We do not -- putting the inventories of [indiscernible] goods more with us, only the raw material in the put on. So there is no degrowth in any of the sectors. Of course, CRAMS has gone up this time more, and that is good for us because it is a lower margin driving cement. So there is no degrowth in any of the segments. And we will -- as we have told that with the new facility is coming up, it is going to be towards -- all the profile products that was large scale manufacturing, so that will again ramp up the large scale manufacturing and it will end up with the highest revenue generator for this year also.

Okay. And my second question was, are there any order wins or anything in the contract manufacturing piece.

Any other?

Can you repeat the question?

Any order win from any large clients or anything, any updates on the order side?

So we have not seen any order risk from large clients as of today. We are already in touch with all our customers on a regular basis, and we see no such thing happening at the moment.

Okay. And could you -- could you explain the seasonality in the business. So like just to understand the utilization during the year, which quarters do you usually see higher utilization? Because Q-o-Q, the utilization came off versus last quarter, right, at 70%. So I guess you were talking about maybe like 77%, 78% last quarter, right? If I'm not wrong?

Yes. So it really depends on the composition of the products. If you're making a high-value product, your capacity utilization will get decrease in various ways. And so it is very tough to predict capacity utilization on quarter-on-quarter basis and predict how it will happen in the next quarters to come.

[Operator Instructions]. The next question is from the line of Nitesh Dhoot from Prabhudas Lilladher.

I mean my question is on capacity utilization for first quarter. So I'm not sure if you've already answered, but what is the capacity utilization?

It's 70%.

Okay. And sir, would it be fair to say that the contract manufacturing growth was led majorly by BFA that is [indiscernible] in this quarter?

There are 2 products in already mentioned in the contract manufacturing plus exclusive manufacturing space, and both has led this growth.

And also for a large-scale manufacturing at the revenues have largely remained flattish sequentially as well as on a year-on-year basis. Is there some demand sluggishness plus key molecules?

So the pharma sector has shown quite a good volatility, but we were unaffected and we remained on the stable position at the moment. So we are already in touch with all our customers on regular basis, and we do not see the struggle in the pharma space as of now for Aether.

Okay. So how do you see the rest of the year shaping up as far as large scale manufacturing is concerned?

We see the prices of the commodities coming down for the next 2 or 3 quarters and stabilizing to the organ level is possible. I mean we would be lucky if you stabilize this to the actual level. However, we see a good 3 -- next 3 quarters per se in terms of the demand and in terms of the raw material pricing.

The next question comes from the line of Rohit Nagraj from Centrum Broking.

My first question is in terms of contracts. So how are the contracts shaped up in terms of if there is a pricing volatility for a short period, do we get compensated for the same or whether we have to absorb it. And generally, what is the contract period for all our products? I mean, is it normally a 6-monthly yearly contract but some volume commitments and price reset on particular intervals?

Yes. So great question. We have multiple types of contracts. We have multiyear contracts, which is price restarted at every 1-year interval. We have a yearly contract where we can go and discuss it on the price on a quarterly basis if required be. And then we have 6 monthly and quarterly price agreements, which we have to adhere to. So if there is orders of 3 months to 6 months, we have to adapt the price, and we cannot go and change the price. However, the inventory levels of 4- to 5-year month is helping us to maintain that contract and deliver the material at defined price. However, the contracts will not include the steel cost or utility costs. It does not include commodity prices, changes like caustic soda [indiscernible] and flakes. So we have to take that kind of hit into our margins because there is no way out. Although at certain places, if the contracts are in the local territory that is domestic, and the material is being imported. You have to take a risk of the rollover is Indian currency exchange rate. However, if it is an international contracts, we can renegotiate the pricing based on the currency movement. Did I answer your question, Rohit?

Sir, we have lost the line of Mr. Rohit. We'll move to the next question, which is from the line of [ Pavia ] Gandhi.

Sir, if at all, if it's possible to answer what would be the ROC of each business segment? Say, for example, large scale, what sort of IRR or ROCE levels we generate for each segment? That is my first question. So you mentioned about the margins, 28% to 30%, but on the ROC level?

ROC levels of the individual business segments will not be possible for us to give. I mean we have not done that study, but we can do that and connect to again with you on a separate call. However, we are -- a little bit of information is available with us right now.

Sure. And sir, on the data days, is it possible to throw some light for each business segment? How are the data days for each segment?

No. Each segment is -- we do not do seperate or segment wise datas. Because even there is overlapping of the customers in various models. So it is not possible to give the separate data days in this seperate [indiscernible].

Okay. Fair enough. My last question would be regarding your R&D. So for example, you are bringing in new molecules. So how do you assess which molecule to bring in? Is it based on -- like is there a ready market available? Is it the size of the molecule? What are the factors that we sort of get decide before entering into that molecule?

Aman, can you take this?

Yes. Basically, there's multiple factors that are considered. We -- for the last [indiscernible] which have been import component, the first. There's various criteria of selection, the fact that even nobody in India is making these products that we -- one of the most important criteria's we follow. The good fit for our competencies of chemistries and technologies and so, we retain the 8x8 metrics of chemistry and technology competencies and try to remain in these competencies. There's an aggressive pricing of the molecule on the basis of our techno-commercial evaluation, the effective volumes coming in like multiple customers of that molecule. There are some of the criteria's to selection of molecules and products for [ the largely ] manufacturing business model. In the CRAMS and competition contract manufacturing business model, the identification of projects are client and customer-driven and guidance, and we usually engage with the customer in joint idenification of appropriate targets in the pipeline and the launch molecules portfolio of the various customers that we work with. And so that's the very high-level idea of how we go about selecting these molecules.

Yes. And sir, 1 more question. Last question is we have what 2,500 square meter land, right? So isn't it small in terms of size?

Can you repeat that question?

So we bought 2,500 square meter adjacent to our existing site, isn't it small in terms of size. So are we planning some small CapEx? How is it like because...

So the current site is 55 -- about 6,000 square meters, site 2, and which has a smaller production capacity as compared to the current production capacity that we have. And so from the perspective of the 6,000 square meter site, 2,500 square meters is a reasonable amount. And you remember that all the utilities and all the resources will be shared in the same side. And so from that perspective, you're talking about manufacturing block that can be getting into that additional site in the sharing of all the resources and the utilities and the manpower and the base treatment plans of the existing center. So from that perspective, it's not a trivial purchase.

Okay. Fair enough. And sir, do we look internally for CFO versus EBITDA because our cash flow from operation conversion is quite low.

Mr. Gandhi, we cannot understand what you're speaking, as you're speaking very close to the speaker.

Okay. Now can you hear me?

Yes. Please go ahead.

So do we internally monitor cash flow from operations to EBITDA because that means to be on a lower side.

Yes, you are right. We do monitor all the cash flows from operations also in EBITDA, we have the cash [ that ] was worked out every month-on-month basis. And you are right, due to it is low, but this is going to be changed after the IPO which has received the working capital cycle improving to be much in better set than what is being seen in the last year and this current quarter also.

Okay. Fair enough. And what working capital cycle do we expect going forward?

At least 120 days.

The line of Mr. Rohit Nagraj have been connected now. Mr. Nagraj, please proceed with your question.

Yes. So I was asking about the second question. So we put some of the trade shows, and we have our overseas business development people, so what is the sense that we are getting currently, given that in Europe, there are issues in U.S., there are some inflationary pressures. So across the geographies, what is the sense we are getting from new product development perspective and opportunities.

Aman, would you like to take it up?

Yes. Yes, I can take this question up. It's a great question, Nagraj. The problems that are happening in the U.S. and Europe are at a very macro level. At the micro level of our industry and the chemical industry, there is no absolutely no difference that has been found, whether there is only positivity and optimism that has been found in the post-pandemic era, the external research program, the external research work is getting started aggressively and with engine because it was all cooked up the last 3 years. And so from the European and the American shows, both of which we accelerated in. We have had a tremendous inflow of opportunities. And then and that has actually translated into project proposals and activated projects, new projects on the CRAMS side on a significant fact. And so that all has actually happened. These tremendous impact of opportunities and promising meetings have actually translated into active projects that are currently going on right now in the CRAMS space with various innovators across the industry, some of which who we have started relationships and projects for the first time in the last 3 months. And so from that perspective, it's been very promising. We are not seeing any negative impacts and any downward trends rather, it's quite contrary to that.

Got it. That is really encouraging. Just one clarification. So in the press release, you have mentioned that we are a member of UN Global Compact, so what exactly is the advantage from this? And how is it different from the other certifications or so for something like the TFS also.

Rohit, can you repeat the question. We lost you from quite a bit.

Sorry. Sorry. Is it better?

Yes.

Yes. So in our press release, we have mentioned that we are a member of UN Global Compact. So how this particular memory is different from, say, TFS or other memberships. And does it help in terms of our mentioning our capabilities in the overseas market.

Yes. So UN Global Compact is actually a platform where various companies are joining their hands, and they will be working towards commendable of CSR, corporate governance and various ESG initiatives. It is basically towards -- mostly towards the CSR activities wherein all the large corporates are joining hands and initiatives to be taken on a global level due to CSR activities.

The next question is from the line of Ranjeet from IIFL Securities Limited.

Quickly wanted to get a sense of whether it would be possible for us to share the large-scale camp and exclusive manufacturing revenues for the first quarter FY '22. The reason I'm asking this is that we have said that our exports, including the SEZ sales are up around 17-odd percent Y-o-Y. But when we look at the overall revenues, it is only up around 6%, 7%. So it's clearly the domestic segment, there seems to be a bit of [ pain ]. So I just wanted to understand where and in which specific segments are we seeing a bit of subdued sales.

You are talking about Q1, right?

Yes. Yes, Q1 '22.

That information, we have not separately worked out because it was not relevant to this 1 number. [indiscernible].

Sure. In that case, just wanted to get -- sorry, sorry, go ahead.

Yes, on a separate call, we can connect and we can give you these details if you want.

Sure, would be happy to connect. Just wanted to get a sense that since the release mentions that the exports are up almost 17%, and then the overall sales are just 6%, 7%. If you can highlight in this specific segment on the domestic side, we have seen a bit of subduedness and the outlook on the same whether the things have started to improve on that front.

Yes. The domestic sales as I told even in the beginning, so that if you see a geography-wise breakup, sales into India and its out of India. In India, sales is accounting for around 62% and export is only 38%. So in the export sales, we are including team export and SSL, which are also part of India. And domestic sales, we are definitely increasing. There is no -- it's not that we are competing more on the export market and exporters. It is mostly both are on a parallel side if you see.

So I want to get a bit more clarity within domestic, since we are also giving a bit of more bifurcation with pharma and agro. So it is the domestic pharma and domestic agro, which where we have seen a bit of subdued sales?

Sure. We will definitely share this also in a separate call with you.

Sure. And the final question, we have shared an order book of INR 246 crores. So what is an executable time line for this particular order book.

INR 246 crores are for this current year. We do not take any further years into consideration when we consider our order book because that's more of an indicative or per order books. So what we are looking at is the order book, which is to be completed in this financial year. and we are holding that approximately at INR 226 crores as of today.

These are the fixed commitments that we would be to execute during the year and there would be an addition to this order book because there would also be a spot sale that we keep on doing it.

Yes, absolutely. And every month, you had -- or every week, you add orders under this order book. So it's an ongoing process. So it's a never-ending story after and maybe in the next quarter, although they would be in the same range.

Is there any difference between the order book margins and the ones that comes -- which is excluding this order book margins or the margins should be largely be similar?

Margins would be largely the same.

The next question is from the line of Gagan Thareja from ASK Investment Managers.

Sir, my first question is on the sales growth of [ 8.5 ] Of around 7-odd percent first reported for the quarter. How much have the sales volumes or tonnage grown? And how much has pricing contributed to sales growth.

So it is a mixture of tonnage and -- there's no -- as we have mentioned in our speech also -- I mean the speech also that the average pricing of the product is at the same average selling prices, which was there in the financial year '22. So it's more of growth to be driven by volumes.

Okay. And on the input prices, you indicated, input prices remain elevated year-on-year comparison-wise, how high are the input prices compared to the first quarter of last year? And if possible, could you give some idea on solvents and utility prices separately? How high they are compared to the same quarter?

Yes. So last year -- last quarter, if you see our margins also, we have mentioned that the raw material costing was around 47%, 48% which has gone up to 55% in this quarter. So this is basically because of the raw material pricing, which was increased, which were in the third and the fourth quarter of financial year '22. The raw material is being used by us in this quarter for production. So that is a major factor of -- for the same. And the utility prices that also have increased due to the crude and oil, not so due to the dollar factor. And those prices have not -- there have a [ low ] impact, but that has been our impact on our EBITDA. But the raw material pricing, we were able to pass it on to our customers. So the major impact which we are seeing in the EBITDA levels is because of the utility pricing, which [ has gone up ].

Okay. So in your pricing -- in your contracts on as far as pricing is concerned, are you able to have price escalation clause for key starting materials, but are you also able to have price escalations for solvents and other inputs?

They didn't know. So we are only having price escalation for key setting materials and major contributors. However, we -- until today, we do not have all the molecules -- I mean all the raw materials of the particular product written down with the CC ratios. Also on all the contracts, these are our own molecules. So we do not deem fit that we give the all ratios to the end customer because we are going -- majorly giving all the recipe of a particular product to the customer which we don't prefer to give.

Okay. But solvents by volume or by value would constitute a significant portion of your input materials? Could you give some idea how much would solvents be as a portion of total RM cost for you?

It really depends whether it can be in the range of 5% to 10% of the total molecule selling price. So -- so there are many factors. I mean, in the specialty chemicals build, it's not A&D or if able to see that many ABCDEF which makes that as I said in the beginning. So there are a lot of products which contribute at various percent levels and all has seen an upward trend in the last few quarters.

Right. Last quarter, you did indicate that OTB and prices are under pressure. I also understand that 4 NEP prices are also sort of have come off is that information correct? And as of today...

Both information is right. OTB is in pressure. However, NEP prices are not under pressure.

Okay. So year-on-year NEP prices sustain, but OTB prices are lower? Am I...

Yes.

Okay. And for the new capacities that will come on stream starting December of this year, what is the -- at what utilization would you be breaking even on those?

Breaking even...

See [indiscernible], it should be -- we should be able to break even at around 25% capital utilization. That is for sure, because whatever the initial production will be there, we would by reaching 20%, 25% inflation we should be breaking on a -- then only it will be profitable for us.

And the 5 molecules which you intend to introduce with the commissioning of the new plants. If you could give some idea to us around your competitive landscape, how many suppliers are there in those 5 molecules, are they all from China? And therefore, also from a costing perspective or from a quality perspective, would you be having a USP?

Yes. So I will take this question. [indiscernible] intermediate competition from China only. There are 2 Chinese manufacturers who are manufacturing majorly out there, whom we know. [indiscernible] intermediate is again China. 2 manufacturers in China. And [ amrizole ], there is only 1 manufacturer in China at the moment. And majorly, all these molecules have competition from China.

Okay. But by and large, 2 suppliers for -- on an average for each [indiscernible].

So conservative -- I mean, let's take 3 -- maximum 3 suppliers of each product.

And what's the volume of these products in the Indian market, if you could give some -- just a ballpark understanding of...

Yes. [indiscernible] would be in the range of 150 tonnes per annum.

This is for your portfolio -- for your intermediate.

I'm talking about....

All the intermediates?

Yes. So all the intermediate combined together?

No, I'm -- I mean for the intermediates that you will be supplying, I'm asking for the addressable volume markets in...

Do you want individually or do you want to combine?

Individually.

Yes. The [indiscernible] intermediate would be 150 tonnes into India. [indiscernible] combined would be in the range of 2,000 tonnes. And [ Amirzole ] will be in the range of 180 tonnes.

Ladies and gentlemen, due to some constraints. That was the last question for today. I would now like to hand the conference over to the management for closing comments.

Thank you, everyone, for joining the call. We hope that we have covered most of your questions. If you still have any further questions, please feel free to reach directly to us. Stay safe. Have a great day. Thank you. Thank you everyone.

On behalf of HDFC Securities, that concludes todays conference. Thank you for joining us, and you may now disconnect your lines.