Alkyl Amines Chemicals Limited (506767) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Alkyl Amines Chemicals Limited Q4 FY '21 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, Aisha. Good evening, all. On behalf of HDFC Securities, I welcome everyone to this Alkyl Amines conference call to discuss the results for the quarter and full year ended March 2021. It is a pleasure of having a top management team from Alkyl Amines, represented by Mr. Yogesh Kothari, Chairman and Managing Director; Mr. Kirat Patel, Executive Director and Chief Financial Officer; Mr. K.P. Rajagopalan, Corporate Adviser; Ms. Kanchan Shinde, Senior Manager, Finance and Accounts; and Mr. Chintamani Thatte, General Manager, Legal and Company Secretary. Without further ado, I will now hand over the floor to the management for making the opening comments. Over to you, sir.

Thank you, Nilesh. It's my pleasure to welcome you for today's investor conference facilitated by HDFC Securities. My name is Yogesh Kothari, and I'm the CMD of Alkyl Amines. My happiness for our successful year 2020-'21, it's somewhat diluted by the COVID situation in India and all around the world. I'm hoping that this evil virus will be out of our lives at the earliest and we all live in an atmosphere of happiness. Some of the Alkyl Amines employees have also had a bad experience of COVID, and we had a few casualties. Our company is doing its best to reduce the burden of our employees and their families by changing our employment policies. As most of you must be aware, Alkyl Amines has 3 different locations of manufacturing plants: Patalganga in Maharashtra, Kurkumbh in Maharashtra and the Dahej in Gujrat. We are producers of ethylamine, methylamine, ethylhexylamine, isopropylamine, acetonitrile, diethyl hydroxyl amine, several derivatives of ethyl and methylamine. Most of our plants have been put up by our own in-house teams of R&D, process engineering, technology teams. All the basic engineering work is done by the in-house teams. We had -- we have not bought any technology after getting the original methylamine and ethylamine technologies. Our current projects going on are Acetonitrile plant at the Dahej and a new amines' plant at Kurkumbh, again with in-house technologies. Current market for our products, our sales, our pharma industry, agrochemical industry, rubber chemicals, water treatment, et cetera. Fortunately, pharma market in India are doing very well, and we are getting advantages. I would now request Kirat Patel to take over and move forward.

Good afternoon, everybody. I'm Kirat Patel, Executive Director of Alkyl Amines, and I'll welcome you to this investor conference. And without further ado, I would like you to, in fact, to go into the question-and-answer mode of the conference. So Nilesh, if you could activate the questioning mode.

[Operator Instructions] The first question is from the line of Kishan Gupta from CD Equisearch.

Yes. So essentially, you did some turnover of INR 1,250 crores this time. So how much scalable is your business from here on?

You mean what is our capacity utilization? Or how much more can we do with the same assets on the ground?

Yes. And in fact, even after CapEx, so what sort of growth you are expecting for the next few years in terms of your business?

We have said this earlier. We are -- in terms of volume, we have -- fairly optimistic because a large portion of our sales are to pharmaceuticals and pharma industry is doing quite well. So over the next foreseeable future, 10% to 15% volume growth is what we expect, maybe on the higher side of 15% with a few blips up and down, but that would be the kind of range we are looking at going forward over a longer -- medium-term period, meaning 3 to 5 years. Of course, there will be some years where we have a little burst because we commissioned a new plant and we bring in new capacity, like this year we hope to commission the Acetonitrile, so second half of this year may see a little spurt in volumes.

So most of the companies -- chemical companies have benefited -- who have supplies to pharma have benefited in the last 1 year or so. So how much do you think is this sustainable?

Well, I think it is sustainable over a longer period because Indian pharmaceutical industry is still growing. And our penetration of pharma drugs is fairly low in the country, and there's a lot of potential. So on the back of, say, pharma or agro or for that matter, even our other end users, we are still a nation which has to grow further. And, when that grows, we grow. So I don't think there is a limit to how much we can grow. Why did we get our act together. We have assets on the ground. We reinvest in CapEx or capacity and we keep growing.

And is there any further scope to increase existing capacity through debottlenecking?

Yes and no. In some plants, no. There are some plants which have reached the limits, but there are other plants which we are constantly debottlenecking. But as you can see that we are putting up a new aliphatic amines plant in Kurkumbh because we foresee that the limits of debottlenecking may be reached fairly soon in the other 4 plants.

[Operator Instructions] The next question is from the line of Amandeep Singh from AMBIT Capital.

That except for the COVID impact in 1Q, the growth for the amines players in India has been resilient. So in that context, can you help us with volume growth, which you would have seen in 4Q FY '21 and entire FY '21?

In -- as you can see, our top line has grown about 25% to 26%. Most of it is a value growth, mainly because the first half, remaining the first quarter mainly, our volume growth was a little suppressed, in fact, there was a degrowth because of the April-May of last year where we had supply chain issues when the lockdown -- or the first lockdown happened. And subsequently, we have caught up and approximately 1/3 of that growth which you see on the top line is volume and about 2/3 is value, I mean, price.

Sure, sir. And what would be the trend for the fourth quarter? Any sense on that?

Yes. The fourth quarter was -- as you can make out, because we had a slump in the first quarter, and yet we made up all the way up to 10% volume growth, which means the second half has been definitely stronger.

Sure, sir. And just as a follow-up to this, will it be possible to indicate current capacity utilization on a blended basis, it would differ across plants, but just on a blended basis?

A bit difficult because there are different plants of different size. You'll have to take a weighted average kind of thing. But I can say we are running most plants to fairly high utilization. And perhaps we have some headroom left, but not too much. That's why we need to put more steel into the ground, both in the key products like aliphatic amines and acetonitrile.

Sure, sir. So I mean, secondly, coming on to your expansion plans across acetonitrile and ethylamine, also with your competitor recently adding capacity in ethylamine and also debottlenecking its acetonitrile capacity. So can you help us with your thoughts on the outlook for these products and expected impact on realization consequently as the supply increases?

Yes. So take the acetonitrile first, as we have discussed earlier in these investor conferences, there is a large market in India. We are only servicing about 40% or so of that market. And that is 60% unserved. Yes, our domestic competitor has started servicing some part of the market, but it's still a smaller market share than odds. And largely, the rest is covered by imports. So we hope to narrow the imports with our new expansion, which will probably get commissioned and be out in the market in the second half of '21, '22. Of course, this is subject to the troubles we are having right now with the COVID situation with manpower and oxygen and things like that, which all people across the board are suffering, supply chains are having some difficulties. But assuming that these get resolved fairly quickly now, and we will be looking at commissioning acetonitrile somewhere in the second half of this year and try and capture as much market share as possible of the domestic. But there is also a big export market available. So we hope to push into that market also today, which we are not able to serve fully because we have capacity constraints. As far as aliphatic amine is concerned, we will be -- we have 4 plants making a range of aliphatic amine from methyl, ethyl, isopropyl, butyl, EHA. So 2 or 3 of these plants are multipurpose. So we'll have to reshuffle these plants around. And the new plant, which will come up, will add about 30% capacity to our aliphatic amine's portfolio. And so it will be certainly, at the beginning, there will be a little bit of extra capacity, but we have a couple of products, which we do want to introduce into the market, which will get then some space in the plants to make. And hopefully, all 5 plants, aliphatic amine's plant will run at a reasonably good capacity.

Sure, sir. That was really helpful. And sir, just lastly, with cash of INR 1.3 billion on your books and healthy cash generation, can you give us some sense on expansion plants at acetonitrile and ethylamine or any new products that you might be looking at? And also when you would start scouting for new land for the next round of expansion? Any sense on that?

Yes. So we had earlier, in fact, mentioned that our acetonitrile plant is going to cost a little upwards of INR 150 crores to INR 160 crores, which is on track. This year, that is the year ending March '21, we have spent approximately about INR 140 crores to INR 150 crores in CapEx. In the coming year, '21, '22, we expect to spend approximately INR 200 crores depending on how these COVID situation eases off. And going forward, the ethylamine's plant, the aliphatic amines' plant in Kurkumbh is along with its because almost a greenfield plant, is going to cost somewhere close to about INR 300 crores, INR 350 crores. So a lot of this cash will, as you said, which is cash and cash equivalents sitting on our books will get absorbed by this capital expenditure, plus we are looking for new land, which hopefully, we will try and acquire in the next year for further growth. We do have some headroom or elbow room available both in Kurkumbh and Dahej for a few smaller plans. But I think we will be using that up over the next 3 years. So we need new land, which will probably acquire in the next year, meaning the year '22, '23. And it would be probably a large piece of land, maybe 5,000 acres. So it would absorb a lot of cash.

The next question is from the line of Dhruv from HDFC Bank.

Sir, just a few clarifications on the capacity numbers if you do share them. The methyl expansion -- methyl capacity expansion was completed in FY '21, right?

Yes.

And do you share what is the total capacity for methylamines now for us?

We had mentioned earlier that we are going to increase from 100 to 150 tonnes per day. We have completed that in the middle of '21 -- '20, '21.

Okay, 150 tonnes per day.

Approximately because there is the mix changes. It depends on mono MMA, TMA, DMA TMA, so.

So approximately 45,000 tonnes on an annual basis?

Yes, approximately.

And the acetonitrile plant will be completed by the end of, you mentioned, end of 2Q...

We were hoping to complete it earlier by June end, but now because of the 2 COVID waves, we had to postpone it by a quarter. So it will not commissioned before October, it looks like.

And that's about 15,000 tonnes?

That is well -- yes, about 15,000, a little more than that, but about that, yes.

Okay. And, sir, little bit confusion, the ethyl expansion, I believe in the last call, you did mention something about expansion on ethylamine. So is that announced? And is that part of your CapEx guidance that you have given? And how is that...

yes, in fact, it was announced in our Board meeting of, I think, February, we put up stock exchange. It's about a INR 350-crore investment into the new aliphatic amines' plant, mainly it's be designed for ethylamine and its utilities around there. We are developing the whole plot around it for further end users, so.

Okay. And sir, the capacity would be, approx?

We are not mentioning that. But generally, our total capacity we have mentioned will go up by about 30% of Alkyl Amines. So there, we will have 5 plants.

Got it. And is it fair to assume by the end of 4Q, given the strong demand that you're seeing, a large part of your existing capacities will be fairly utilized. I mean decent utilizations would be...

Yes. Yes. I would say, yes, by the middle or end of next year, it will be fairly well utilized, the aliphatic amine site.

Got it. Sir, the CapEx, you mentioned for FY '22 is INR 200 crores. And given that the ethyl is also coming up, there would be a similar CapEx in FY '23?

Yes, I think it will be around the same, if not a little more, maybe around the same.

Got it. And the ethyl expansion will be completed in FY '23 -- sorry, the second expansion in the aliphatic...

Yes. The aliphatic amines' plant in Kurkumbh will be completed in '22-'23. Say, middle to third quarter of '22-'23.

Okay. And sir, one last question, is -- sir, is it -- so the acetonitrile is also a key growth driver for us. So is it possible to share what would be the import volumes by India, say, in FY '21, broad number? Some rough number would also...

I'm not 100% sure because these numbers keep a little difficult to exactly pinpoint. But I would say that it would be about 60% -- 50% to 60% of India's requirement is imported. And approximately, India needs about 30,000 to 35,000 tonnes.

Okay. That is also helpful. Got it sir.

But it's a round number. It does go up and down month-to-month.

Yes, approximate number.

[indiscernible] from Kotak Mutual Fund.

Yes. Congrats for the strong performance. Sir, my first question is on acetonitrile realization. Sir, if you can just give some qualitative trends in terms of how are they holding up?

I'm sorry, can you repeat the question? I couldn't hear the last line?

Sir, I'm saying that on acetonitrile realizations, if you can give some thoughts in terms of how are the realizations trending up?

Well, the realizations over the last year have been fairly steady at whatever the rate of 250 to 300, It's been in that range for some time now. And it remains steady at that level.

Okay. Secondly, sir, we've seen a 400 basis point gross margin decline on a Q-on-Q basis as compared to the December quarter, we have seen some decline in our gross margin. So what could this be attributed to? Is it that there is some raw material inflationary trends, which has come up for which we'll be sort of taking a price hike in the ensuing quarter?

There are 2 parts to it. Yes, you're right. The first question that, yes, the raw material prices, which we have been enjoying a long period of very benign raw material prices for some time has turned around in the last quarter. Mainly, what is that, crude oil prices have gone up. And on the back of it, petrochem prices keep going up. Some of them out of proportion, some of them well as a natural cause. And yes, all -- I would not say across the board, but a large number of our raw materials have seen major hikes, which we have not been able to commensurately pass on to the customer. Whether in the future, we'll be able to pass that on is, of course, speculative question. We can't predict. We hope to, but we can't say for certain about that.

Sir, my last question is that you mentioned that bulk of the revenue growth in FY '21 was realization led [indiscernible] growth. So is that because of capacity constraints? Or is that -- our competitors have taken some market share?

No, no, no. It is -- what has happened is that -- if, for example, the first quarter of last year had been a normal quarter, we would not have made that statement. Probably our volume would be even higher. But we had -- we struggled in the first, not just us, our competitor also struggled, both of us or all 3 of us, all of us had problems. In April of '20 and May of '20, all of us struggled to get our plants going. Fortunately, our supply chain held up and the pharma industry did manage to get the materials when they needed it. So I would say we all played our roles in making the supply chain strong, so -- but if that not, yes, we would have probably grown even more.

And how is the situation this time around? Are all the facilities operating at full capacities? Or because of the second wave, you have to shutdown...

No. The second wave has hit us a little more severely than the first wave because it's been -- in the last couple of months, April, May, especially, we've seen a large number of people, as our CMD mentioned, getting infected. However, because we are more ready this time, it was not kind of a sudden lockdown like last time. We got a lot of notice. So we were able to plan, and none of the plants have been actually affected in terms of production. Yes, people have got impacted. People have been working a little overtime. Some people have substituted it for others. But people are recovering. And fortunately, almost 80%, 90% of the people who have got infected are back on their jobs. Unfortunately, we have had some fatalities about 3 or 4 people, and we are taking care of the families and whatever we can do best for the people they have left behind.

The next question is from the line of Kaushik [indiscernible].

Hello Sir.

Hello.

Hi sir.

Yes.

Hello. Yes. Hi sir. Sir, can you give me some thoughts on your next 4 years' planning on the company on the top line as well as the bottom line?

Yogesh bhai, you want to take this, last -- next 5 years' view?

No, it's difficult. I don't think that's allowed.

So sir, because I see that there is more capacity being installed in the company. So I just wanted to know what drives the capacity for the company altogether?

We are putting up new capacities, [indiscernible] new capacity which can meet up in Dahej, end of this year, it could be there online. Then new aliphatic amine plant is coming up in Kurkumbh. That would be by end of next year. In between, we are -- we had already done some debottlenecking in some of the plants. So we are quite comfortable with the capacity going over that. So we have been able to manage in the last quarter which is quite volatile, but we do not see that as a profit [indiscernible].

And sir, what about the net profit margins will be sustaining for the future coming because in this couple of years, I'm seeing very good net profit margin. Will this be consistent or it is going to be contacted or get down rated?

Difficult to say that, but we hope that it remains in the same range.

And sir, I just wanted to know, amines is a very difficult product to be transported because you get -- corrosion is higher, so how the company has been equipped for this risk?

Kirat?

Yes. Okay. I think amines are not per se more difficult to hire, except there are some like isopropyl amine and nitrous or methylamine, which are gaseous, so they need to be transported under pressure vessels. But the others are liquids. And they're not corrosive. They are, yes, hazardous, but not corrosive. And therefore, it's kind of a mix. Methylamine, yes, are difficult to transport across, say, nations. But within the country, yes, in domestic transport, it's not difficult. And the others are fairly easy to transport. They are liquids at ambient temperatures.

Sir, can you...

They all come under hazardous category, so...

Yes, but they would be hazardous. You have to handle it carefully.

Sir, can you throw some light on like how the industry growth will be in next coming years, is there something that you have in the demand because your given so much of capacity there?

The thing is that over a period of last 2, 3 years, if you have see our requirement of [indiscernible] has gone up a lot, internally as well as externally. Lot of small-scale and medium-scale type of companies have started using our products for -- they are developing products based on our products. And this is the set of the way things are happening. Earlier, as you have rightly had said that transportation and other things. The international transportation is still difficult, it's not that difficult. It's available. So now when it is available in your own country, people are more courageous in picking up things which is based on the amines. So that's why we are very confident that new plants started by new entrepreneurs will start absorbing more amines. Whereas, of course, the pharma industry is expanding in India, being a large country, the requirements will always go on increasing. So that's my answer to you.

Sir, some more light on the employees. Sir, what is the frequency of the employees coming into the organization. Is there any plan that even the [ experienced ] people will be coming [indiscernible] is there any plans or something like that to just to protect the employees from the COVID?

Yes. So we have the usual practices of sanitization, distances -- social distancing, mask. We have been practicing this for the whole year. In fact, in the factories they also do 12-hour shifts, alternate days, team A, team B. They have reduced the number of people sitting in any place. Training programs have now gone online. As far as the offices are concerned, almost 9 months of the last 15 months, we have been working from home. No more than about 25% of the office is occupied at any point in time. Same applies to the Hadapsar technical center, where the R&D and the technical people work. People have got used to working from home. And in the office spaces -- of course, the factories cannot. So they have pinned down their requirements as much as possible. But -- and kept their distance things. Fortunately, in our kind of industry, there is no cause for large number of people to gather. There are large plants with hardly any for example, in Patalganga, if you go in the night shift, when both the plants are running, we have less than a dozen people in the whole site of 7 acres. The rest are all security and people like that. So actual operating staff is less than 10, 12. We don't need that many because of automated plant. So that way, we are a bit fortunate that across our sites or how many -- more than 100 acres in the 3 sites, no, in fact, more than 110, 120 acres, there are about 500 or 600 people any day, and that is in 3 shifts. So we don't have much crowding to that extent. But we take a lot of precautions in sanitizing, distancing, keeping people separate on the bus and things like that. But of course, when they go home and outside, back again, they face the same dangers that you and I face if we step out. And in case some unfortunate, we -- and they are hospitalized, we take care of all their medical expenses. And in case of the 2 or 3 people who have unfortunately expired, we have a policy to take care of their family to the extent possible, their children, medical, their spouses for a couple of years, whatever. We try to support them as much as possible. We can't actually replace the family member, but you can do as much as possible to help.

[Operator Instructions] The next question is from the line of [indiscernible] from Value Economic Research.

I just have one question. What is the margin visibility in the specialty chemical business for the next financial year, if you could explain on that?

I'm sorry, come again with the question?

The margin visibility in the specialty chemical business, especially in the acetonitrile product?

Difficult question to answer because that's a speculative one. Based on raw materials and supply situations and things like that. But if you go by history, yes, we have been enjoying a good margin like that but it will remain in the same band, somewhere plus/minus a few percentage points, but it will remain in this kind of overall...

This time the aliphatic amine price has gone up a lot, so that may affect a little bit in the margin.

The next question is from the line of Nirav Jimudia from Anvil Research.

Sir, I have a question on methylamine. So sir, as we have expanded our capacity in methylamine, have you also expanded derivative capacity like DMAHCL? Or are we selling more of the DMA in the market?

So we have also expanded DMAHCL, a little ahead of this last year itself. One more plant has come up. So it's in tandem. And we hope next year to put up another one.

Okay. So how much is DMA being sold outside. So if you can give us a mix like how much is consumed internally for our derivatives and how much...

No, I would think it's very difficult. I would not put it, but across all aliphatic amines, I could say that we are fairly large -- we are our own best customer.

Okay. Okay. Okay. And sir, on the ethylamine side, I think we have seen a fairly good amount of price increases which have happened over 1.5 years. So I think -- and that have now stabilized at a certain level of point. So if you can help us understand like, is this because of the demand-led which has happened to the increase in the realizations, particularly on triethylamine side? Or it is because of the raw material prices moving up and the realizations have moved up?

I think the alcohol price have gone up substantially, it helped to some extent, given us for increase in the price.

Okay. Okay. Okay. So -- and sir, a related question would be like we have also slowly gradually expanded our ethylamine's capacity also. So how do you see now Indian market for ethylamines and our market share?

For us, we use -- we consume ethylamine internally also, the specialty products. And those are also growing. Sometimes, we have to allocate whether to give in the market or to use it ourselves. So now with the ease of availability, that situation will not be there.

Okay. Okay. Okay. Got it. Got it. And, sir, last point would be on how do you see the demand for DMAPA from the personal care product because I think in last 1, 1.5 years, probably personal care products have seen an uptick in the demand. So how do you see that product moving on?

That product is doing quite well, both locally as well as in the exports market. So we have done very reasonably well in the DMAPA.

Okay. And are we planning any expansions there also? Or we would stick with the current capacities?

We are currently not looking at immediate expansion, maybe after some time. That is a multi-purpose plan. So there will be expansions take place, not just because of the DMAPA because of the other projects -- other products also. So by putting up new reaction -- reactors and columns and all there, it's not just for DMAPA, it's for other products too.

The next question is from the line of [indiscernible] Shah from Elara Capital.

Hello.

Yes. We can hear you.

Sir, I wanted to understand the sectoral breakup like pharmaceuticals, how much revenue -- revenue-wise sectoral breakup, if you can provide me that?

Yes. So it's about the life sciences that is pharma and agro, and that is dominated by the pharma is almost 70% of our sales. I would say 55% or 60% would be pharma. Of course, changes a bit here and there, but approximately 70% is these 2 segments, agrochemicals and pharma. And then the other segments are the automobile segment, which goes into foundry and retrochemical and things like that. And there's a dyestuff, the lab chemicals, there is water treatment. I already mentioned the dyestuff. And then there are miscellaneous other small, small users.

Yes. So any kind of -- what kind of share is coming from rubber chemical and dyestuff?

Sorry, from?

Rubber chemical and dyestuff?

Chemical, you get like ethylamine goes for [indiscernible] which is going into the -- in tube, in the rubber tubes and all.

Okay. Okay. And sir, any idea of which particular segment gives you the highest business, in terms of margin percentage?

That is difficult. We won't be able to give margin for which sector?

No, no, just the higher-margin business, that's it, not in number terms...

Then everybody will put up a plant like -- no, it's not a sectoral difference. It's not as if we sell at a price to pharma another price to agro.

The advantage is we have multipurpose types of plant. So we are able to take that advantage.

[Operator Instructions] The next question comes from the line of Rajeev Rupani an individual investor.

Yes. Congratulations, sir, on a good set of numbers. Sir, I had a follow-up question on ACN. Now, sir, we are adding about 15,000 tonnes, and our competitor is doing some debottlecking by which they are increasing to about 20 tonnes a day. So my question is, are the current prices of ACN sustainable, so what's your outlook on the same?

The ACN is a product, which is really -- I mean, it is made internationally, of course, some like acetonitrile process, most of it comes from that. While what we make in India, given our competitor also make some acetonitrile and this is what is differentiating the Indian producers versus -- okay, there are some in China also which who make like this. So whenever there is an upswing in the acetonitrile market, either the producers over there or not wanting to make more acetonitrile or something. And that's why there is a demand/supply gap. Often the plants are shutdown for various other reasons. The demand itself in acetonitrile is both in pharma as well as in agrochemicals. It's a very versatile solvent. And we do not see any reason why it will not do well.

So a follow-up question. From what I understand, the prices of acetonitrile used to spike up for a month and 2, and we have enjoyed higher prices for more than a year. So do you think there is a possibility of some drop in the prices?

Well, the internal -- the raw material costs have gone up tremendously. They've gone up to -- the acetic acid price was in the range of, say, INR 40, gone up for than INR 100. So there is a lot of difference. So a better technology company will definitely have the benefit of that.

No, I'm talking about the finished price of ACN. Are these...

That's what I'm saying, finished price, even if it remains in the same range, if the cost of production is taken care by a better margin -- better yields and other things, we are definitely going to get an advantage over others. It may last for some time because acetic acid price may come down gradually. So we are not sort of in a situation where we have to think so much about it.

Okay. And a follow-up question on ACN. Your competitor has said they have -- if ACN prices come down, they can make a product called THF. Do we have the capabilities to make the same, tetrahydrofuran?

No, no, we have not tried to -- we don't want to do it.

Okay. And one last question. In last con call, you had talked about DMS. So do we have capabilities to produce DMS like your competitor?

We have some different process, maybe some later on -- later stage, we may go for it.

The next question comes from the line of [indiscernible] a shareholder. [Operator Instructions] As there is no response from the current participant, I have muted the line. The next question is from the line of the Vinayak Mehta from [indiscernible] Research.

Sir, congratulations on a great set of numbers. I just had one question. Can you -- like while you're expanding capacities and going forward, you'll be expanding it further, in the long run, can you reiterate what kind of EBITDA or net profit margins is sustainable in the business, given that it's been expanding over the last few years now, and for the current year it's somewhere in the range of 33%, 34%. So just wanted to understand the sustainability, given there's always a pricing pressure from raw material and the finished goods part?

Kirat, I think you can answer this.

Yes, this EBITDA margin have risen from in the region of about 24% to 26%, which used to be there in olden days. In fact it has been as low as 18% earlier. But I would say it's 20%, 25% -- in the region of 25% used to be norm, as it risen to over 30% now. How sustainability, there are a couple of points. I think the -- one factor which has changed structurally is that the volumes which we are producing now as compared to the overheads have shifted marginally. So we will not go back to the EBITDA margins of the old days, but whether this kind of margins will sustain is a very difficult question to answer. As I mentioned earlier in the call, the benign raw materials which we had over the last year or so have ceased because of the crude oil prices. And it depends on how much we can pass on our cost increases to the customer. So it could vary and so there is a range, [indiscernible] the high end of the range or it's still some way to go, one cannot say.

Just to have a fair assumption, then it is -- according to you, it's not going back to the previous range, but the sustainability in the current range is not sure of, right?

Yes.

The next question is from the line of [indiscernible] Holding.

Sir, what is our CapEx plan? And how -- what are our plans to grow the volumes? I can understand the price fluctuation can -- maybe determinantal but what is our plan to grow the volumes?

If you look back, we have been actually growing in volumes about 10% to 15% every year over the last 10 years. And I do not see any reason that should slow down. Now there may be a couple of years where we will grow only at 7%, 8% because of some XYZ reasons. But it will fall back into the next year, you will have 15% and 18% and then back again. So looking at that, and that is based on the way our economy is growing. Ultimately, India is going to grow at kind of 6% to 8% per annum. And when we move at that pace, the requirement of specialty chemicals that our kind of products increases at about 1.5x that. So we don't see any reason why our volume growth should slow down.

Are you working with CapEx, sir -- are you putting up CapEx and...

Yes, as I mentioned earlier in the call, we have the acetonitrile expansion, which is coming up in the middle of this year. And the aliphatic amines expansion coming up next year in the middle. So these are substantial expansions. And in acetonitrile, it is more than doubling the capacity, which exist today with us. And in the aliphatic amines, it's about 30% additional capacity of the total aliphatic amine plants we have.

But sir, our gross block was somewhere around INR 500 crores. And what I can see in CWIP is only INR 130 crore. So roughly capacity expansion is in the tune of 25%?

In terms of CapEx, yes. We'll be putting up another INR 200 crores this year and maybe another INR 200 crores the year after. All of that lead to further top line growth.

Understood. And you said, sir, why is this margin picked up in the last quarter? What is the reason? As you said, it is not sustainable, but what are the reason margin, why it picked up very rapidly?

I think if you -- somebody earlier mentioned that the margin for this quarter has been lower than the previous quarter. That is because of the raw material prices this quarter have been a little -- this quarter by which I mean in January, March...

Yes, it was 38% last quarter. This quarter, it came 35%, but still, it is above 30%. Last 2, 3 quarters, the margins are very, very high as compared to earlier year quarters. So what is the reason? And how -- what is the main reason for increasing margin?

I think the range of products, which are -- some of them are specialty products. And those have been selling better than what they were doing earlier. So that has helped us.

Right. And do you see a competitive threat in those products, that's why you're guiding lower margin? Or why you're worried...

We don't want to give a wrong impression that it will remain like that all the time. But it could be better than this also if those products do well.

The next question is from the line of Abhishek Verma from Fidelity International.

Just want to understand, do you serve any anchor customers? Say, for example, who have been with you for, say, 5 years? Just want to understand the proportion of repeat business in your portfolio?

We have customers who have been with us for 40 years.

oh, 40, okay.

All our top 10 customers are over 10 years.

Okay. And what proportion would that...

And some of them who have been buying from us since we began in the '80s.

Okay. Okay. That's great. And what proportion would that be, sir?

Repeat customers?

Yes.

99%.

I mean your entire portfolio is repeat portfolio, almost...

Everybody who buy from us, comes back to us. Unless his business has some change. That has also happened since [indiscernible]. The rubber chemicals business, for example, has changed dramatically over the 40 years. Only one person remains standing is now [indiscernible] It used to be called earlier [indiscernible].

And sir, on the nature of contracts, do they sign long-term contracts, I just want to understand that?

They're not normally. Normally, it's not more than a quarter. It's a monthly kind of a deal, and some people want it quarterly. In the exports, we have a few customers who want an annual commitment. But then that gets tied to some formula for dollar/rupee and raw material price.

Okay. Okay. Okay. And on the acetonitrile, sir, what is the key industry for this particular product?

Sorry, what is the main use?

What is the key industry that the acetonitrile product, sir?

It's mainly pharma. Pharma is one industry, which use acetonitrile as a solvent, then it's also used in lab chemicals. It used in agrochemicals and some specialties in electronics and stuff like that.

[Operator Instructions] The next question is from the line of Rohit Nagraj from Sunidhi Securities.

Congratulations on good set of numbers for Q4 as well as the entire year. Sir, I just want to ask, what is our strategy behind expansion, so is it dominated by maybe import substitution or the domestic growth rate? And generally, when we are putting up a capacity, what is the duration that we look at in terms of optimally utilizing the capacity?

Yogesh bhai?

Yes. I think normally, the idea is that we sort of manage to remain on top in all the products and the utilization of capacities and all comes with that. I actually not -- sorry, my mind was somewhere else. So can you just repeat the question?

Sir, you know what I would...

Look at it like this, you're asking for how do we plan our CapEx in terms of time lines. When do you...

Yes. And then what's our thought behind it? I mean, is it predominantly by some import substitution of our products or the domestic growth that is very high. And generally, how much time does it take for our new capacity to get complete utilized?

Okay. The new capacities normally take about 18 to 24 months to come up. And then maybe 2, 3 years before they are completely utilized. The reasons are normally that we are interested in growth more in India, plus to some extent additional exports, which we can take because there are not too many dominant players in this amines, except [indiscernible] and of course, some Chinese people. So we would like to be one of the leaders in the world in this. So that's what is our hope. And that's why we strategize to put up CapEx based on that.

I'd like to add one more thing over here, that when we put up the plant, after 2, 3 years when its capacity utilized we normally going for a debottlenecking exercise. And we think of that side at the beginning to reap some margins for such an activity because we know that over a period of time, we will need more capacity of the product if it succeeds. So almost all our plants have had multiple debottlenecking exercises carried out.

Right. Right. That's interesting to know. Sir, and this is primarily because the global players either are not expanding the capacity or probably going -- reducing their capacity or going out of this particular space, which is benefiting us and players like us in India?

To some extent, probably, yes. But also, you must look at that our whole Indian market is growing fast. Well, except for China, I think ours would be one of the fastest-growing markets in the world. So our own backyard is going so fast that it doesn't matter what the international competition is doing. They would be also looking to supply here.

Right. Right. And sir, just a clarification on how are we placed in terms of our [indiscernible] initiative? How many of our facilities are -- ZLD facilities? Or what is the time line that we are looking at from that perspective?

Okay. So Kurkumbh is about 50% recycling, and it will go to ZLD in another 1.5 years. Patalganga will be ZLD in maybe 3 months from now. It's a process, in fact, it got a bit delayed because of this COVID situation. But by June, we were expecting it to be ZLD. Dahej is going to be 50% as soon as the acetonitrile plant is commissioned and going to 100%, maybe 1.5 years after that. So in another 2, 3 years, we'll be having the capacity to do ZLD, whether we will run the plants for ZLD is a separate discussion because depending on the [ CPCB ] and how it operates because being ZLD also adds to your cost. So it's more like an insurance. We have the ability to do it. Whether we would like to operate the plant on ZLD is a question which will be on numerous issues, the availability of water, the efficiency of the [ CPCB ] and such like.

But the new expansions that we are doing, we already have thought of the ZLD initiative, and those are planned in a similar fashion, right?

Yes, it's planned in the -- the all new facilities will have planned ZLD kind of...

The next question is from the line of Paras Adenwala from Capital Portfolio.

I just had a few questions, sir. One, I think that the number as far as FY '21 is concerned in terms of breakup between volumes and realization. That was #1. #2, if you could give us a feel about the volatility in the realizations of your products from your past experience? And #3, I just had a question on management bandwidth. Mr. Kothari has been driving the company so successfully for all these years. Is there someone from the family also involved? Or if not, what is management bandwidth in terms of looking at the long-term for the company?

I think Mr. Suneet Kothari who is my son, he is also the second Executive Director, and he and Kirat Patel, they both have really leading the team just now. But we are also making preparation for the next line after that. And that will be put through -- part of it will be put through this year. And we'll be going on adding more senior people at the plant.

This process of people retiring and new people coming in has started about 3 years, 4 years ago, to ones in earnest. And hopefully, over the next couple of years, you will see -- of course, Sunit has been with us for about 25 years now. So I don't call him a new person, but much younger than us, yes. So we do have people who have -- younger team, but has been with us for -- have been with us for some time.

All right. Okay. If you could respond to the first 2 questions, please?

Sorry, what are the other -- just can you repeat the first one?

Yes. Missed out on the FY '21 breakup between volumes and realizations. And...

The growth on the top line has been about 26% or so. About 2/3 of it would have been value and 1/3 of would have been volume, approximately.

Yes. And the final one was on the volatility of realizations from your past experience. I think, as you right reported 2 years back, you were at about 18%. But next year, you shot up to 25%. And this year, you're at about 32%, 33%, so which is remarkable, so -- which is a mix of both volumes and realizations. So I just wanted to understand the volatility in realizations, which can really impact your margins?

The volatility in price realization as product to product changes. Sometimes, they are very stable for a long time and then suddenly jump up. The part of the reason there is some supply/demand mismatch. And part of it is a push from the raw material side. Except for acetonitrile, which has 2 separate routes for making a product, our aliphatic amines and others are more or less everybody in the world follows the same route. So if it affects me in the raw material price, it affects my competitor. So giving a phase lag of a quarter here and there, the prices move based on raw material this thing, price increases. After -- beyond that, it's a question of demand/supply shortage and then sometimes prices high -- spike a little.

Okay. So what I really wanted to understand was a swing in the margins that is possible. Like in commodity companies, you could see 35% operating margins, and in the next year, it dropped to about 26%, 27%. Are the realizations as volatile in your business as we've seen in some of the commodity companies?

Slightly less because...

It will be less for us.

Right. See, some specialty products also help us to sort of -- for that volatility.

The next question from the line of Nikhil Jain from [indiscernible].

I just wanted to ask one thing, right? Currently, it's a very huge scary scenario, which we are operating, things are doing very, very well. And I think whatever we are able to see, I think we are anticipating good visibility going forward also. I just wanted to know, is there anything on the competitive activity given that the space is, let's say, looking so interesting and growing so well. So are you seeing some additional competition coming in from China. India, we know already, there are only 1 or 2 more players, but anything outside of that. So outside of India, which can impact our trend. And second thing is on the export side, you have been looking at exports, where still domestic is the main part of our business. So what is your sense on how much exports can actually contribute going forward on this? So those are the 2 questions.

Yogesh, do you want to talk about competition?

First question is on -- can you just repeat the first question?

About the competition, what do we expect from...

Yes. Yes. So anything new that we are seeing or observing on the competition because we know generally for many of these chemicals, the Chinese are actually the -- are the biggest force, right? So however, in this case, we are not finding them to be so active. So it taking small or there is some other constraints which is there, which is not allowing them to come and play big time. So anything that you're observing -- yes.

China already has several plants. And the thing is their own requirements in China has increased, so in the last -- like last maybe 1 or 2 years. So that has to some extent helped us. That's the size of our projects are not that large for any real larger companies to come and invest over here or invest in their own countries also. So that's way, we are in a niche nice area, which is comfortable for us and our local, you say, competitors.

Okay. Okay. And second question was about the export push, right, so do you think that we would primarily be a domestic company? Or do you anticipate over the next 2 to 3 years, our contribution coming in from exports will change quite significantly?

I think the exports will always be [indiscernible] more exports, but there are [indiscernible] one -- say, one is in -- I mean, both are in U.S.A. -- and of course, Germany, sorry [indiscernible] and of course, the Chinese. So it is not so easy just to export over there. Only if any of these companies decide to not pursue further manufacturing of these products, then possibly, we will have a larger share of the market. So this is the way things are happening.

That was the last question. I would now like to hand the conference over to the management for closing comments.

Yogesh bhai.

Yes. So thank you very much, HDFC. Thank you very much for all the investors who have -- wanted to listen to us. And thank you to my colleagues, Kirat Patel, Chintamani, Shinde. Hopefully, when we meet next, we will have better results in this and by that time, hopefully, COVID also will be over. Thank you, everyone.

Thank you, everybody, and please stay safe.

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

Thank you.

Thank you.