Archean Chemical Industries Limited (ACI) Earnings Call Transcript & Summary

ladies and gentlemen, good day, and welcome to Q1 FY '27 Earnings Conference Call of Archean Chemicals Industries Limited. This conference call will contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve with the uncertainties that are [indiscernible]. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rampraveen Swaminathan, Managing Director. Thank you, and over to you, sir.

Good morning, everyone, and a warm welcome to our Q1 FY '27 earnings call. Thank you for taking the time to join us today, and I hope you all are safe, especially those of who are in [indiscernible]. On this call today, I'm joined by Mr. Ramamurthy Natarajan, our CFO; Mr. Rajeev Kumar; DGM Financial and Strategy and members of our finance team and SGA Investor Relations advisers. I hope you've had a chance to go through the results and the investor presentation, both of which are on our website and the stock exchanges. In my opening comments, I'll briefly cover the operating environment, a key developments in the quarter and our business and financial performance. From an overall perspective, the focus in Q1 was on delivering to our commitments and driving the segmental performance in grooming [indiscernible] derivatives while optimizing industrial salt in a challenging external environment. And I believe that Q1 performance validates the actions we set out with all of you in the last call. On a stand-alone basis, revenue for the quarter was INR 3,321 million, up 14% year-on-year and up 9% sequentially. This is the highest quarterly revenue in the last 5 quarters. EBITDA was INR 888.7 million, up 26.3% versus the sequential quarter, but margins expanding from 21.8% in in Q4 FY '26 to 25.3% in the quarter under consideration. Our profit after tax on a fully consolidated basis -- the profit tax in a standalone basis was INR 405.3 million, up 36% sequentially from the prior quarter. Margins were down year-on-year, largely due to higher logistics costs and purchase price variance on these raw materials, which could not be fully offset by our operating performance. On a consolidated basis, revenue for the quarter was INR 3,328.1 million, up 10.7% year-on-year. EBITDA on the fully consolidated basis was INR 728.7 million, up 48.5% sequentially and profit after tax was INR 300.5 million, more than double the preceding quarter. Year-on-year consolidated performance was affected by standing business performance as well as a scaling cost of our semiconductors. [indiscernible] drove our performance overall in the quarter. Actually 4 things. 3 of them on structuring and on call [indiscernible] out. Firstly, bromine volumes were the highest in the last 5 quarters and realizations for the quarter are up 50% year-on-year. Secondly, our derivatives business, Acume, has turned EBITDA positive for the first time. This has been an important area of strategic focus for us, and we continually good progress there. Thirdly, on Sulphate of Potash, trial solar fees. First Phase I trial was successfully completed in June 2026. We are in the process of doing our Phase II trials by financial year, which will then validate the modified process for commercial production. Operationally, we continue to carry a headwind in industrial salt logistics, which I will address briefly in a while. Both [indiscernible] logistics and steel freight increase have impact our profitability. In addition to road logistics, [indiscernible] costs have also increased by 30% to 35%, impacting our landed cost to customers in East and South Asia. However, the shape of the business remains positive and we are confident of entering H2 FY '27 stronger momentum. It comes -- just a quick overview on our overall markets and highlights on our business. On the demand environment, bromine and bromine derivatives demand has remained firm across geographies. The supply imbalance of the previous 2 quarters has normalized, but underlying demand from clean retardants, [indiscernible] chemicals and energy storage applications remain healthy and our pricing actions continue to hold. Our booming realization improvement reflects for the market and the approach we have applied to contracts and to customer selections. As the supply shortages are normalized, there has been a correction in pricing. Landed price in China, for example, have declined at 30% to 40% in the past 12 weeks. In this environment, we work -- we tone to work closely with our customers to ensure being able to sustain the improvement of [indiscernible] pricing. In industrial salt, the pricing environment has stabilized after a decline through most quarters in FY '26 realizations in Q1 are broadly flat. Competitive intensity remains new capacity additions in Australia and elsewhere and the challenges of an under pricing, which I've mentioned earlier. But we are starting to see a flow in terms of market pricing and our customer relationships and our market position remains fully impact. The pricing challenge that you have is a reflection of the gap in South and East Asia -- of the gap in Southeast Asia between landed prices from India versus landed price of domestic salt in those regions and sold they source from other regions. On the broad macroeconomic environment, the India U.S. trade discussions, the India UFP negotiations and the kind of new normal in the Middle East continue to shape trade growth. Freight and fuel costs have remained above pre-conflict levels. They actually increased in Q1 for us versus Q4, though we have now started to [indiscernible]. The conflict in the Middle East has [indiscernible] impact demand from QVC and the [indiscernible] customers of ours of salt and also offtake of derivatives from the oil and gas segment, which has seen a volatility because of this. However, we continue to see good traction in customer interest and new [indiscernible], which has helped to offset some of this volatility. An important element for us in the quarter, obviously has been logistics. As mentioned earlier, in last quarter, we've been impacted both by an increase at distance and the fuel costs into to higher diesel prices. The road construction of the corridor from Hajipir plant to the Jacana and Mundra [indiscernible] Port has continued through Q1, as we had guided earlier and remains on track to be completed by end of September. The longer haul distance can affect free turnaround in fuel consumption and is the single largest reason for our declining in sale volumes and the profitability for the quarter. We continue to expect this construction to be completed, as I said earlier, by end of September, after which we expect solid volumes to normalize and improving in our transportation costs as well. The cost of HSD continue to include increase during April and June, though it has normalized in July. Compared to last year, prices we improved [indiscernible] do nearly 60% higher. We have mitigated a large part of this to route optimization, additional fleet contract in commercial [indiscernible] and device dispatch scheduling, but we did see an impact in the quarter, which is quite significant. Banking expansions, which we spoke about last quarter remain on schedule. We are concrete in most of Phase 1, and we are optimistic that we're actually re-own commissioning of Phase 1 to post the [indiscernible]. [indiscernible] extension discussions are ongoing, and we are already in positive of closure of the same in the coming months. Let me now talk about the business in a little bit more detail. The bromine segment delivered revenue of INR 1,333 million, up by 58% year-on-year on volume of 4,175 tonnes. Realizations are broadly [indiscernible] up, and we expect them to largely remain for the other INR 300 per kg level. On production levels, which we have from Sabri [indiscernible]and have fully sustained themselves through the quarter. I guided earlier, our throughput has been improving steadily, and we expect the quarterly run rate to improve. Our production was up 7% year-on-year despite lower [indiscernible] and we also had an impact around 3 days of production due to grid power shortages and schedule insurance programs, which are designed to be both that capacity through the rest of the year. Industrial salt generated revenue of INR 1,713 million on volumes of 982,000 tonnes, down 12% on a year-on-year basis. Dispatches were impacted by vessel shortages, fuel supply shortages of diesel and order deferments due to the ongoing West Asia complete, resulting in higher finished goods inventory. Logistics and transportation costs, as mentioned earlier, expect to normalize over the coming months as would diesel prices normalize and the highly infrastructure work is completed. We expect good recovery from Q3 of this year. Our booming derivatives. It's a quarter -- an important quarter for Acume Chemicals as it turned EBITDA positive. Assumable EBITDA of INR 19 million this quarter against an EBITDA loss of INR 27 million in Q1 of last year. Revenue was up 28% year-on-year. We continue to focus on our future higher value basket and the operating leverage is beginning to show up. Our organic derivative has been contributed meaningfully through the year with a large increase in our PBR volumes. Capacity utilization for the quarter was around 40% and contribution margins, we can improve as utilization bills and as a share of the organic derivative share of the basket increases. The company has launched new products earlier this year with additional products under development on campaign basis such as NPPR for pharma, additional spec mediums of ABR and so on. [indiscernible] Sulphate of Potash, the reengineering of the manufacturing process, which we discussed in the last call, has largely been positive, and we continue to work on completing Phase II trials by December of this year. SOP revenue for Q1 was INR 113 million against INR 35 million for the full of last year, right? But the technology successfully proven. Our focus is now on finishing Phase II trials and then redoing our operational processes and then kind of scaling up volume. Higher sulphate process prices do remain a near-term challenge from a stock as sourcing perspective. The Oilfield Chemicals business, or [indiscernible] as we call it, revenue was remained muted and was around INR 3.5 million for the quarter as we continue to focus on plant readiness and trial customers' orders. This business is an early stage, and we are investing ahead of revenue with an EBITDA loss of money of INR 13.4 million in the quarter. Customer trade continued progress at 3 plants commissioned over the -- when we started the work over the last 12 months. Gujarat is production ready, and we have now -- and we have continue to wait for necessary state approvals there. At Nazarian -- Pradesh, we have completed the reference of our product road map has started impact, and we are now working on developing those products and some products are actually in the middle of customer trials. Semiconductor product project in notice following the fiscal support agreements, signing of the Government of India. There moving firmly in execution as per schedule. As far as energy storage, the [indiscernible] Energy labs business is concerned, our investee company has inaugurated 10-megawatt, our zinc [indiscernible] battery pilot lab facility at Hook in the United Kingdom. We are in the process step there [indiscernible] process of stabilizing operations of the pilot. And over time, this will be a source of pull-through demand for our domain in our larger debates. So talking about the financial numbers in more detail and we begin stand-alone performance on a stand-alone basis, total income for Q1 FY '27 was INR 3,321 million, a growth of 14% year-on-year and 9% sequentially. The business mix in the stand-alone business for the quarter was -- industrial [indiscernible] was 54%, bromine sales at 42% and SOP was 4%. In terms of the geographical mix, exports around 70% of demand compared to 78% for the same quarter last year. And domestic business was around 30% of our volumes, up from 32% last year. This largely reflects the shift in our product mix of -- due to higher sales of bromine and SOP in the quarter. EBITDA for the quarter was INR 839 million with a margin of 25.3%. On cost, employee costs was INR 162 million, and other expenses were INR 2,063 million against INR 1,664 million. This increase in other costs was largely driven by increase in 2 large elements. We had a sharp increase in our freight costs due to higher logistics costs, which we have discussed in detail. And secondly, we have higher costs in stores and spares this quarter. If you recall in my comment, I mentioned that we took plant outages in the quarter to support some of our debottling programs for the rest of the year, and those result in higher stores and spares expenses during the quarter. Overall, I think the large part -- obviously a dominant part of it was logistics costs, which, as we mentioned earlier, we expect to start tailing down with lower fuel prices and obviously, the [indiscernible] construction getting completed by end of [indiscernible]. Depreciation was INR 199 million for the quarter and finance was INR 86.4 million against INR 44.6 million for the previous year. Profit before tax was INR 553 million and stand-alone corporate after tax was INR 405 million. On a consolidated basis, total income for Q1 was INR 3,328 million, up 10.7% year-on-year and 8.6% sequentially. EBITDA was INR 728.7 million. Profit after tax was INR 442.2 million and PAT was INR 303.5 million against INR 122.3 million in the prior quarter. Basic EPS was INR 2.48 for the quarter. A large fact diverse in the consol performance that really the standalone performance. The impact of the cost increase in our stand-alone performance, we largely grow the decline in the consol performance as well. From an entity perspective, Acume delivered revenues of around INR 600 million, up 28.1% and a positive EBITDA of INR 19 million against a loss of INR 27 million a year ago. It's a loss for tax [indiscernible] INR 50.6 million, down from INR 103.3 million in the previous year. obviously, this is a 40% improvement. [indiscernible] reported revenues of INR 3.5 million. The EBITDA loss of INR 13.4 million for the quarter. [indiscernible] 6 collectively on consol basis, the quarter revenues of INR 0.4 million with an EBITDA loss of INR 5.6 million as both of them -- as that business largely remains the investment phase. A detailed breakup of the sum of the parts and not constant relevance of our consolidated performance is provided in the earnings deck on our website. Let me -- before I close let me summarize key priorities and outlook. To summarize the quarter, I think sequential improvement across all our line items, margins were up around 340 basis points versus the prior quarter and a continued shift towards a higher volume business mix, a broader customer base and a stronger balance sheet. Our 3 priorities, which will be -- I've outlined to you in the last couple of calls and cause unchanged Concerning core salt and bromine business, again, the focus Bromine is recovering and improving and salt pricing is stabilized with the change in transportation, infrastructure and softening of fuel prices, we expect that to be back -- move towards higher gears. Scaling of our derivatives business, which is oilfield chemicals and our [indiscernible] chemical business, is the second priority which I have detailed. Our Derivatives business is now EBITDA positive, and we are now in customer trials for several products in our [indiscernible] business. And we continue to invest in long-term operations advanced materials. [indiscernible] is now an execution phase, right, off grid has started its pilot plant, and we continue to remain committed to these investments, which we think are going to be very accretive in a 24 to 48 months window for the company. And we didn't continue to remain focused on stronger cash flow and more disciplined capital allocation. For the balance of F '27, we expect salt volumes to normalize in Q3 as the highway work completes. We are focused on holding our guidance, which we had given earlier in terms of Bromine volumes. And obviously, trying to maintain our -- maintain most of the price increases which have implemented derivatives to continue to build on breakeven and then we scale up volume and completing our SOP scale by the end of this year. And therefore, I think we feel positive about where we are in the early part of the second quarter of the year. With that, let me open up the floor for questions, I'll come back towards the end for closing comments.

[Operator Instructions] First question is from the line of Sanjesh from ICICI Securities.

I've got a couple of questions. First, on the Bromine volume, we did 4,175 metric tonne this quarter. We guided for around 20,000 metric tonnes for FY '27. And we said in the previous quarter that we have reached a production of 55 metric tonne per day, which would have actually translated to 4,500 metric tonne. Where is the gap? And are we still confident of achieving the 20,000 metric tonne kind of a volume for FY '27. That's number one. And the question on Bromine is the pricing. We generally do an annual contract for export. Now that the realization has crossed INR 300, is it fair to assume that next 3, 4 quarters, the realization barring domestic volatility should be in the range of 300, which you did mention, but how strong is the outlook for the pricing. So these are the questions on the Bromine.

So let me address the pricing issue for us. So obviously, very volatile pricing environment. I mean, that goes out same. As I said, it's always concerned when the prices are going up sharply and that [indiscernible] prices come down sharply as well. I think from our perspective, 60% of our business, 70%, as I said earlier, is long-term contracts and the 30%, 35% has been short-term spot business. We are not -- we are reasonably confident. Obviously, there is -- customers are raising concerns around pricing for sure. But we do believe strongly that we'll be able to hold and weighted average blend, which I mentioned earlier on the external market. Remain fairly confident about that. There is obviously work to be done there, but we have -- we believe strongly in our -- in the customer partnerships and the historical long-term approach we are used with them. That should hopefully reap us benefits. Some impact will be there on spot segment of the business, but we are working closely to ensure blend is in line with what I had said earlier, right? In terms of volume, firstly, I think I just want to restate what I had said earlier on was that we expect to exit the year at the 20,000 to 25,000 tonne run rate. And you are right that, that would basically translate into 4,500 tonnes for the quarter. What -- we had 2 challenges or 2 things which really impacted the volume in 325 tonnes short in the quarter. And a part of that was power shortages in the review during the -- during the quarter, we had certain power cuts, right, in the grid power supply. And that meant that we obviously have to shut down, we start plans and work through it. We probably lost 3 days of production, 5 days of production there, which is probably close to around 175 to 200 tonnes. We also took plant shutdowns. As you know, Q2 and Q3 is really the real test of our improvement. I don't really like to conserve Q1 as a test of our improvement. Last year, I think the Q2 was down around 3,000 tonnes, right? And so we are continued to working on debottlecking the plant, and we did take around 2 to 3 days of additional shutdown on the feedstock plant in terms of upgrading some of the infrastructure on the feedstock plant to drive improved recovery. One of the things which you would be aware of, Sanjesh, is that there'll be a very high inflation in cost of sulfur right, through the quarter, through the last 5 months, which is largely the Middle East, a big source of sulfur manufacturing. And there's been a very large increase in coal costs have almost doubled. The improvement in recovery is part of how we have been able to offset those cost increases. So it's not necessary improvement throughput that has happened. We'll also be able to chemically improve recovery, and that has actually offset the cost increases. And that -- and we have to continue to invest in the plant obligations and debottlnecking the [indiscernible] happens. So it's obviously a multiple set of factors we are working with. But I think broadly, at a headline level, I continue to believe that what we remain on par to what I said earlier last quarter and remain confident about that. We're working on it. As I said, Q2 and Q3 will be meaningful opportunities for us to demonstrate that improvement. In Q1, GPL did decline versus last year, but we still were able to show a 7% production improvement despite which I think is a reflection of the growth. But I think broadly finance, we lost probably 200 tonnes because of power and we lost some 150 tonnes because of our planning shutdowns. Without that [indiscernible] tonnes.

Very clear. And that's super clear. Second, on Salt, we said there were some volume spillover from past quarter also if I had the Q4 compound. And this quarter, it's more seasonality demand postponement of Middle East or you see there's a real challenge in the -- because caustic soda prices have been quite firm up. The demand could not have been issued, right?

I think -- so overall chlor-alkali has remained positive, though I would say that the conflict has impacted some of our PVC demand, which obviously has some flow through into our business. But overall, the headline level, demand has not moved backwards at all [indiscernible] so that remains positive. I think our challenge is to remember last quarter, I think we told you that we have 200 tonnes of shipment, 110,000 tonnes of shipment being impacted, one, because of the order differ from QVC as they continue to see the Middle East crisis and around and one ship which got deferred because of logistics issues. And this quarter, we've seen the same issue, right? I think you've seen QVC remains -- actually remained on hold, right, because of the conflict situation is not fully eased for them to start operations and we continue to have a lot of issuance in logistics. As I mentioned that we were talking a lot about road logistics, Sanjesh, the actual reality is that sea freight has also reflected a sharp increase in both of a change in trade flows and the increase in fuel costs. And that has meant that the 16%, 17% of our volume is customer nominated vessels. And therefore, we have been obviously seeing different delays, bunkering issues right and those kind of challenges, which are there both issues and so on and so forth, which has resulted in delays [indiscernible] our growing and deliver the business as well, by the way. It's not just ensure salt. It gets called out and afford within romancing positively. But in Bromine as well, we've had issues and derivatives as well towards the end of the quarter, we had cutoff issues, but vessels not getting over -- the vessel in area not being available, slots not being [indiscernible]. So those challenges will remain. What we have done, and actually called this out earlier, what we have done in this quarter is we also started this quarter, which is will start in -- in July and September quarter, we'll also start shipping some [indiscernible] and by increasing our throughput overall spread from 2 ports to 3 ports. We just built our stockyard out in Kandla. And as you start building that, Sanjesh, what will happen is that our flexibility in the shipments will improve and freight liners were running to Kandla instead of Mundra. I actually find it more [indiscernible] to both and would not do planning signings on us. So there is work happening to solve that problem, but that is the way the situation is right now. I think we also try to exit commercial discipline on some contracts, right, which also has probably impacted us a little bit, though we not see any actual order loss because of that, where we are trying to pass through this cost increase to our customers. And that's something which we are trying to push a lot on as well because of the large increase in costs. And that, to some extent, probably has a [indiscernible] conversion rates as well, which I hope will pick up from Q3 onwards.

Just one last one, the SOP. What was the volume this quarter?

2,200 Tonnes.

Okay. And whether this run rate will continue until we complete.

I understand correctly, the actual volume of sale was INR 1,942. I probably referred to production number. As you say it's gone to INR 1,952 as an average realization of our [indiscernible] to the math, but roughly around INR 58,000 per tonne.

Got it. And whether this number at least is sustainable through the year or even this could be volatile.

No, obviously, feedstock effects [indiscernible]. We do know our business pretty well. But as I said, as I've said towards -- as I said last quarter, for the full year, our target is to do a 9,000 to 10,000 tonnes, and we still remain very confident about able to develop through that throughput. In terms of month-to-month [indiscernible] to some extent, it depends upon actual feedstock quality, which comes from the crystallizer and water deal we can get. But the 10,000 to 11,000 tonnes, which has given us -- 9,000 to 10,000 tonnes had given last quarter as in target for the quarter, for the year, we still remain positive on that. And we've been trying to push production up, which is why this quarter, as you've seen, actually we will do really 2,000 tonnes. So we are on it, though I won't say that that's going to happen month-on-month. If you're asking that question, I'm trying to say for sure that's going to happen month on month, but full year number, we still remain [indiscernible].

Very clear. On the Bromine derivative, what really drove to the breakeven. And this breaking will continue and volume ramp-up will continue from these [indiscernible].

So I think it's 3 things. I think, first of all, it's increasing volumes from improving mix. So if you look at it historically from last year, our focus really was our volumes largely were [indiscernible] brand to its products like CABR and sodium bromide. We actually have stopped taking sodium bromide because the yields are very low on it, and we re-purpose that demand back to calcium bromide. We've also had an increase in PBR volumes, which last year, for example, where same quarter last year, we won 25, 30 tonnes. This quarter has been on 350 tonnes for the quarter, right? So organic derivatives actually give us much higher end of the pricing basket. So one big lever is a product mix itself. More products are under release right now, right? We are working on several alkali bromides and also derivatives of our existing products. I mentioned earlier comments, this quarter, for example, we released a pharma-grade [indiscernible] which allow us to basically get more penetration on the pharma demand. So one part is was that. The second part, obviously, was cost management at the [indiscernible] plant with higher volumes were also able to optimize our BCT and a cash compression times, our consumption of end [indiscernible] and several other elements which are there in our consumption basket. And the third one obviously this was commercial discipline. We distributed price increase in Bromine, our focus was [indiscernible] We're commercial discipline in derivatives as well. please.

[Operator Instructions] Next question is from the line of Aditya Khetan from SMIFS Institution Equities.

Just a couple of questions. Sir, first, my question is on to the cost side. As I mentioned in your presentation that there was some route changes now we have changed to ABCD and diesel out was also in [indiscernible]. Sir, what is all the cost come down sort of diesel sizes and the route also becomes our earlier route. How much [indiscernible] cost you see in -- how much savings for cost per quarter [indiscernible].

So I think a simplistic -- let me just look at the past because that's probably a good indication on the future rather than giving any guidance on this. I think we see that our other costs have increased for [indiscernible] results on the website. Our other costs are increased approximately INR 40 crores year-on-year. And around 60% of that was driven due to the increase in logistics costs. right? That logistics cost is divided roughly 60% to 40%, 60% is the increase in distance. So for example, Jakao, Mundra which used to be for the plant [indiscernible] which used to be -- but I say 270 to 350 kilometers, they have actually gone up by nearly -- deployable to 500 plus kilometers, and Mundra went up by 40% to 50% because of route change. So that's roughly 60% of the number and 40% of it is pricing, right, which has been a factor, which as I said earlier, has gone up by around 40% to 50% year-on-year. Both of these tied normalized will basically reflect back in on earnings, right? So -- right, we'll depress in our earnings. We have obviously mitigated that some amount of the diesel price increases. So don't -- I mean, all of that has not gone through. We reduced vehicle downtime. We improve the rerouting -- we've done our best to cut out [indiscernible] scheduled vehicles differently, source from multiple new locations. So doing nothing that our share help us mitigate some of it. But at a head level, I think a large part of this cost increase will get mitigated as the resets happen. As fuel prices come down and as road [indiscernible] reset, this is [indiscernible] -- there's no structural cost increase. These are short-term issues, I mean which we have to just work through. And as I said, fundable dynamics of business in salt have been positive. Our customer relations should remain intact. We have gone from 2 ports, 3 ports. I think we've created stockyards in all 3 ports now, we expand our own fleet to reduce dependence of on old inefficient market fleet to become more efficient in terms of fuel efficiency and improve the tax time of items. So all of these start -- I wouldn't say breeding in the results reflecting our numbers in Q3 and should help us first improve profitability and then secure more [indiscernible] as well.

Okay, sir. Sir, my second question is on to the pricing of the Bromine derivatives. So if we look at this quarter, so bromine prices are up by 25%, but the bromine derivatives are up by only 10%. So should we assume like the subsequent quarter, that 15% gap of higher realizations would be recruited by the Bromine derivatives with a lag defect. First sir. And second, sir, adding on to this, any updates around to the lease side, like we have also mentioned in our [indiscernible], but we have -- so we are quite confident also. But sir, when I look at -- so 2 to 3 years back, so government was more seen for the bidding process. So has that changed and government now awarding to the players who have existing brand -- has the policy been [indiscernible] by the volumes and what gives you the confidence that we can.

Let me report 2 things. I think I'm not sure about the numbers you quoted on Bromine derivatives specifically. And I think -- we reach out to our team, we'll give you specific numbers on this, most specific numbers. But broadly, one thing which I would just say is that bromine funding upon the derivative we view as Bromine as a percentage of the cost. So it could be 40%, it would be 50%. So example in calcium bromide, Bromine is around 50% of the cost. So when you say whenever you expect Bromine grows up by x, we must just recognize that Bromine derivatives will go up by that fraction of X in a perfect world. In a perfect world, they'll go up by that faction of X. Therefore, to assume that -- and therefore, assume that Bromine is up 25% or 50% and therefore, derivative prices will increase the same percentage is not actually consistently defensible pricing action in the market. I reach out to our team, our Investor Relations team or our finance team, we'll give you more specific numbers about how those moments have happened. I would probably just say that your numbers don't seem really accurate at this stage. But directionally, it is right that we can never get the same price increase in Bromine. On derivatives, as we see it in Bromine, all other things being equal, it's a fractional cost increase, right? So that's one. As far the lease is concerned, I covered in my opening comments, we remain confident about closing this in the coming months and completing the agreement signing process of the government of [indiscernible]. I anticipate from my knowledge, and I'll go back and check this back to our team, but I don't think there has been a bidding process on existing leaseholders in the state of Gujarat, under the lease holder has not been paying money or there's been some performance issue or a lack of interest on the leaseholder. So I think to the extent we have known that scenario has not happened. As I said, we are working very closely with the government. We're very confident based on where we are in the discussions with them. and the feedback from them that we expect to close this in the coming months. Operationally, as I mentioned earlier, we continue to find our back-end. They continue [indiscernible] the noise so the and accept those things. We have been increasing rents as per the geo in terms of annual increases, pricing movement once in 3 years and we have been accepting those price increases and raising demand movies on us in line with that. So we don't see any particular reason. And given the state of our negotiations right now, we pretty optimistic that this will get done in the coming months.

[Operator Instructions] Next question is from the line of [indiscernible] Nagrath with 361 Capital.

Congrats on the [indiscernible] Bromine private plant commercialization. Sir, what are the timelines that we are looking at, given that this standalone pilot has now come up from this to 1 gigawatt scaling capacity in India, how the process will be in terms of validation, qualification and in terms of the projects, start-ups and then commissioning. So broader time line should also do.

So let me [indiscernible] quantifies just probably it about how we see operate, okay? Because having other relevance to your question. I think we are investing in [indiscernible]. We are a strategic investor in [indiscernible]. Upgrade has got and as a management team is working on the execution of the pilot. And our interest on it has been 3 fold. One is in [indiscernible] as we see. We see here off grid energy solutions for a stand-alone basis was the interesting business opportunity for us. Secondly, there is close demand of chemicals, especially zinc bromide for us. We are the primary supplier of zinc bromide for the [indiscernible] business. And third, obviously, is a chance for us to breed up and scale up some plus megawatt plus kind of projects in India, right? These 3 -- how do we see very different time lines because they all are not compressible into one natural slow, right? So firstly, I think they are right now on 10-megawatt pilot. Obviously, a plant of this in Colombia to be successful immediately, right? So the management team of [indiscernible] grid, which is expensive for success of the pilot operation is working on the execution of the pilot. And I would say it's probably going to be several months before we can actually say that it is completely done and [indiscernible] and one has to go by their guidance and acquisitions on that. So the second one is a zinamide demand is concerned, we continue to supply them on -- and I think in might we continue to supply them. We are just finishing our REACH certification for zinc bromide of the Jagasia plant. And once that happens, the volume will scale up further. I think after the pilot plant is fully demonstrated at scale. And we look at scale up into the open business overall that we will actually look at megawatt plus kind of launch in India, right? So that's Phase III, the [indiscernible] III. I won't say it is anything, I won't time it. I think it's difficult to put a specific time on it right now. But these are 3 horizons. Horizon 1 is [indiscernible] internal operations, which I think are about -- continue to focus on scaling up. Horizon 2 is scaling up our zinc bromide delivery, which will happen along with their scale-up and Horizon 3 is working together with them on launching megawatt, 1 megawatt plus kind of power plants in India on a commercial power supply basis, which I think is a third horizon. But right now, we've not specific time around that.

Sure, this is helpful. Yes. And sir, second question on the Semicon project. Where are we currently -- and again, here, if we can give us a broader time line as to how we are looking at the progress of the project.

Let me opening comment, I'll see Rajeev also add a little bit more very closer to the actual scheduling of the project. But broadly, I think we have said earlier, 24 to 27 months right from , which is what we said last quarter that once we finished the FSA. Our target is to kind of get this done in 24 to 27 months. And we are on executing to that schedule, right? So that's broadly the number. Bear in mind that 24, 27 months is commercial SOP. Start-up production, then, of course, scale up takes time after that. It's not a binary equation. At the moment, the day we launched the plant [indiscernible] 100% capacity. So there's always a capacity ramp up in an projects. But that's the high-level status that we see. Rajeev?

Sorry, just to add to what Ram sir said. We signed our FSA Government of India on 11 May. Post that, we have completed the other operational requirements like signing of TRA agreement and some other documents. We are currently in the process of obtaining the environmental clearance and consent to establish cost with the construction work will start. So sometime late August, early September is when the construction work will start. We have already onboarded the general contractor. The design readiness, in fact, the overall can be changed in the instance.