Anupam Rasayan India Ltd (ANURAS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '24 Earnings Conference Call of Anupam Rasayan India Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Sneha Salian from Ernst & Young. Thank you, and over to you, ma'am.

Thank you, Michelle, and good evening, everyone. Welcome to Anupam Rasayan India Limited Q2 FY '24 Earnings Conference Call. Please note that a copy of our disclosure is available on the Investors section of our website as well as on the stock exchanges. Please do note that anything said on this call, which reflects our outlook towards the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risk that the company faces. This conference call is being recorded and the transcript, along with the audio of the same will be made available on the websites of the company and the exchanges. Please also note that the audio of the conference call is the copyright material of Anupam Rasayan India and cannot be copied, rebroadcasted, or attributed in press or media without specific and written consent of the company. Today, from the management side, we have with us Dr. Kiran Patel, Chairman; Mr. Anand Desai, Managing Director; Mr. Gopal Agrawal, Chief Executive Officer; Mr. Amit Khurana, Chief Financial Officer; and Mr. Vishal Thakkar, Deputy Chief Financial Officer. I would now like to hand over the call to Dr. Kiran Patel for his opening remarks. Thank you, and over to you, sir.

Thank you, Sneha. Good evening, and welcome to every one of you to our Q2 FY '24 earnings call. As we complete the first half of FY '24, it should be noted that Indian economy remains robust, while the world economy continues to exhibit volatility. The global economy is crumbling with economic slowdown and elevated inflation. This impact has been more pervasive and persisting across many nations. The agrochemical sector, in particular, for the last couple of quarters, has seen the oversupply from China coupled with excess channel inventory that has led to pricing pressure on agrochemical companies specifically in the generic chemical segment, which is cause of concern to the chemical players across the globe. We expect the prices to stabilize and the excess inventory to rationalize by the end of CY '23 and expect the demand to strengthen over CY '24. On that note, let us move to the Anupam Rasayan's performance. Our H1 revenues was INR 794 crores, giving us a growth of close to 11% year-over-year. Our expertise on working on niche products with innovative and contractual demand minimizes our exposure to volatilities of the market allowing Anupam Rasayan to have a higher revenue visibility, which plays a pivotal role in sustaining our growth. I will let Anand discuss the business performances in detail. Speaking on our sustainability efforts, we are continually pushing the boundaries with new initiatives aimed at protecting our ecology. I am happy to announce that we have signed 3 MOUs with government of Gujarat for aforementioned of afforestation of a total land area of 150 hectares, 50 hectares located in Narmada District, 50 hectares in Tapi District and 50 hectares in Surat District. We have the capacity to plant more than 166,000 trees in these desolate areas. This project will be integrated into the green belt development program, which involves the utilization of designated lands by Gujarat government for the purpose of planting and caring for various tree species. This afforested land parcels will act as carbon sink and shall make significant contribution to our objective of reaching the net carbon neutral with respect to our energy consumption by 2027. Further, we have started disclosing Scope 3 greenhouse gas emission data in our last ESG report, making us one of the few chemical companies in the industry to do so. On this positive note, I will now hand over the call to Anand for his opening remarks. Over to you, Anand.

Thank you, Dr. Patel. Hello, and good evening, everyone. Welcome to our Q2 FY '24 earnings call. Let me provide some color on our performance for the quarter, and then I will move on to business updates for the quarter. Our total revenue for the quarter stood at INR 396 crores with a Y-o-Y growth of 3% on a consolidated basis, whereas for the first half year, our total revenue stood at INR 794 crores posting Y-o-Y growth of 11%. Amidst the challenging external environment, I'm happy that we have been able to hold our ground and deliver growth. That said, we are seeing a resilience in demand, which ensures confidence of delivering growth in the coming quarters. Moving on to the business updates. In Q2 FY '24, we launched 3 molecules which translates to a total of 5 molecules launched in this financial year. Taking the total number of products to 58, our product pipeline includes 5 molecules, which we plan to launch in coming 2 quarters. As of 30 September 2023, we have LOIs and contracts signed worth INR 7,669 crores, giving us strong visibility for the coming years. In HY FY '23, debtors cost stress on account of higher sales to large strategic global customers, coupled with domestic sales, which has a higher debtor cycle. We expect it to normalize in the next 2 quarters, collection in October gives us confidence that the same would be achieved. Another important update for the quarter is that we have Mr. Gopal Agrawal joining us as our CEO. He has 25 years plus experience in corporate strategy, global and domestic M&A, Fund Raise and management consulting. He has extensively worked for Indian companies and MNCs across U.S., Europe and Japan and his core specialization among others, has been manufacturing and Industrials. Also, I have known Gopal bhai for last 15 years, and he knows the company very well. The stage at which the company is today and growth that we are seeing in the medium to long term, the expansion of the management bandwidth is very essential. So contribution of Gopal bhai in this growth will be very pivotal. On a concluding note, our order book remains strong, despite the challenging environment giving us a good visibility of robust growth for the current financial year, and we are positive on maintaining our guidance of 20% growth with similar margins. Before our CFO Amit bhai takes you through the financial highlights, I would like to hand over the call to Gopal bhai to introduce himself. Over to you, Gopal bhai.

Thank you, Anand bhai. Good evening to you all. I'm really excited to join the team at Anupam Rasayan, a company known to me for over 15 years now. I have seen this company grow from nearly INR 100 crores to a market cap of around INR 10,000 crores today. My endeavor would be to use my past 25 years of experience and act as a catalyst to augment overall growth of the company. My idea would be to make the company globally competitive, future ready to be able to grow it manyfold from here. I also eagerly look forward to meeting you in person who have been tracking, Anupam growth story to gain your valuable insight. With that, I hand over the call to our CFO, to take you through the financial highlights. Over to you, Amit bhai.

Thank you, Gopal bhai. Good evening, everyone, and thank you for joining us on the call. Let me take you through the financial highlights for the quarter, and then we'll hand over the call to Vishal bhai to discuss the same further. Let me begin by an update on the CapEx. The plan announced CapEx is approximately INR 670 crores. Out of this, we have spent INR 234 crores till Q2 FY '24. Majority of the CapEx is being used to cater the contracts and the LOIs we have signed. This quarter, working capital got stretched largely due to increase in debtors, which is temporary and will come down in Q3 FY '24 and Q4 FY '24. And our guidance of lower working capital days of less than 220 days still remains the same. We see better growth in H2 FY '24, which would improve the working capital cycle. Anupam Rasayan continue to maintain its margins. Further cash equivalents on the books as on September 30, 2023, is at INR 404 crores, coupled with expected cash generation in the coming quarters, it would be sufficient for the planned CapEx. With further reference to the recent capital infusion announcement of INR 550 crores through a preferential issue with participation from the company's promoters, these funds will be primarily used to retire the company's long-term debt. This strategic debt reduction will lead to decrease in interest cost, thereby making it EPS accretive. With this, I hand over the floor to our Deputy CFO, Vishal bhai, who will take you through the financials in detail.

Thank you, Amit bhai. Hello, and good evening, everyone. Thank you for joining us here today. I would like to briefly touch upon the key performance highlights for the quarter and half year ended 30th September 2023. And then we will open the floor for the question and answers. Before I proceed, I hope you all have had the chance to go through the detailed presentation submitted to the exchanges and uploaded on our website. Kindly note, our numbers for the quarter are on a consolidated basis, and they also include Tanfac numbers. Let me first discuss the consolidated financial highlights for the quarter ended September 30, 2023. Our total revenue for Q2 FY '24 was at INR 396 crores as compared to INR 383 crores in Q2 FY '23, up 3% Y-o-Y. EBITDA, including other income, was at INR 111 crores in Q2 FY '24 as compared to INR 101 crores in Q2 FY '23, a growth of 10% Y-o-Y. This would also translate to an EBITDA of 28% EBITDA margin for this quarter. Profit after tax was at INR 49 crores in Q2 FY '24 as compared to INR 48 crores in Q2 FY '23, a growth of 2% Y-o-Y. Coming to the half year performance. Total revenue for H1 FY '24 was at INR 794 crores as compared to INR 718 crores in H1 FY '23, up 11% Y-o-Y. EBITDA, including other income, was at INR 225 crores in H1 FY '24 as compared to INR 190 crores in H1 FY '23, growth of 18% Y-o-Y. This would also translate into an EBITDA margin of 28% for the half year. Profit after tax was at INR 101 crores in H1 FY '24 as compared to INR 90 crores in H1 FY '23, a growth of 12% Y-o-Y. For Q2 FY '24, our licenses segment contributed 87% of the total revenue, and the balance came from the other specialty. Our top 10 customers contributed 83% of the top -- total revenue and there are total 24 products in -- that we provide to them. With that, we open the floor for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Ankur Periwal from Axis Capital.

I hope I'm audible.

Yes, you are audible.

Yes, great. So sir, first question on the revenue growth overall. You did mention that the growth was largely led by the domestic client. Just trying to understand, this is the existing clients and the stretch in working capital is more a timing issue? And how do you look at that?

Ankur, rightly identified. So these are all customers that we have been doing business with there are very limited number that we have added in the quarter for the additional -- and then the revenue from them is not that meaningful for us. So all the revenue that is coming is from the existing clients, principally. And have -- we are reasonably -- we are very comfortable in terms of their payment cycle and all. So what we are seeing today is a very temporary phenomenon in terms of debtor expansion, which we feel that it should come down in next 2 quarters. And if you see the first 1 month of the revenue or collection, we feel that, that numbers have started unwinding and we believe that it's only a temporary phenomenon. So I agree with you, Ankur, nothing much that we really see beyond a couple of quarters here.

Sure. And sorry, I missed the breakup between the domestic and export, if you can help with that as well?

Yes. So domestic is around 55% and -- sorry, 45% is domestic and 55% is export.

Okay. Fair enough. And this domestic customer that we are talking of will be a part of the top 10 customers, right, and existing ones?

So few are and few are not in the top 10, but yes, few are so...

It's not 1 customer. There are multiple customers, that's why it was...

Yes, yes, yes, there are multiple there -- so of course there are multiple customers. Not that it is only 1 customer that is existing.

Okay. Fair enough. From an export growth perspective or probably in the first half, we have de-grown here. If you can help us understand, is this largely because of the RM deflation pass-through? How do the volumetric growth stack up here? And what will be our current capacity utilization?

So Ankur, if you look at it from a -- from the growth point of view, I think the year-end numbers which you see, we will be steady there. Our large clients in the export market has actually talked about pushing the demand to the next 2 quarters, which is H2. And when you will see the H2 numbers, you will -- we will be able to see that the numbers have been more in line with what the normally that you have been seeing or we have been seeing. So that's there. And on the capacity utilization side, as we have been mentioning that the revenue that we can generate from here is around about INR 1,700 crores, INR 1,800 crores. So to that [Audio Gap]. And second is also these are all [indiscernible] plans so we try to play with the demand that we have, but we have enough and more capacity to continue. Last question that you talked about volume versus price deflation. I think price deflation has not been a very, very significant impact in terms of that. The volumes have also been robust here. Also, we would be -- if you see my RLC would be in the range of 40s and that -- the impact of that in terms of my realization is limited. No doubt, there will be some couple of percentage points moves there, but nothing very, very drastic that we can see from here.

Sure, sure. That's helpful. And just from a -- in the initial comments, we did mention that the generic part of the market is facing slightly more pressure. How does our portfolio stack up right now between, let's say, generic, patented and maybe the recently off patented products?

So if you -- historically also and today also, if you look at my portfolio in terms of my newly launched -- sorry, patented and recently off patented, we would be transmitting into anything around 70%, 75% and above, and two, is also the long generic product, even there, we would be working with an innovator and that's one thing that really helps us in terms of defending -- having a higher visibility of revenue and also the margins typically, because these are all -- there is a limited number of products which are generic multi-customer products, and that really helps us insulate our demand and margin.

Great, Vishal bhai. Just last bit, Slide #17 of the presentation, which talks about the R&D as well as the business development team globally. What is the arrangement that we have with all these representatives across the market? It is more on a business generation basis? Or how should one look at it? I'm presuming none of them is on our own, so.

No. So these are all -- if you look at it, they'll be on the retainer side. So they -- really they are our employees. They work exclusively for us on this topic. Majority of them, 1 or 2 may have other assignments, but largely, they are all for us. And then yes there -- as a business development team always there will be some bit of a performance incentive that would be there. That's the standard customary things that we would have, but large -- they work quite extensively with us and they are more on a retainer type approach. But as you know, and as an Indian company, we would not want to spend so much in terms of international cost and hence, you would always structure it in a manner that there is a very pragmatic balance of retainer versus incentives.

Okay. Great, Vishal bhai.

The next question is from the line of S. Ramesh from Nirmal Bang Equities.

Welcome to Gopal bhai. So if I may just take the balance sheet first, it's a bit surprising that the receivables have gone up and you have been guiding for a reduction in the working capital cycle. So did you have to extend additional time for payment to the new customers? And when you say you expect it to come down, what is the basis for that confidence? Because suddenly, the receivables go up in terms of number of days, it seems to me that implies that you have given extended credit terms. So how do you expect this to be brought down in the next 6 months? I would like to understand that.

Sure. So Ramesh bhai, 2, 3 things. One is if you look at it we have supported our customers with an extended credit or a little longer credit terms than normally than we would have done, we do it, but that is very clear understanding that it is a temporary support to them, and it's not a long-term support to them. One. Two is if you come and see from a -- there is a bit of a more of sales to the domestic supplier -- domestic customers, which [ we have ] so in this quarter, if you see the sales it's little on the higher side on the domestic, which has a little longer period in the first half [indiscernible]. As we go, that number will only drop because [indiscernible] our customers in terms of their payment profile, and two is also, if I look at the first month after the first half, so which is [ quarters ] passed by, we are seeing a fair bit of a collection coming in stream. So that are the 3 reasons why we are really feeling comfortable that we should be able to come back to that number, and historically also, if you see, this is something which we don't see too much moving around, a quarter or 2, it can happen, but I don't -- we don't see it anything long term here.

Okay. And it's interesting that you have plan to raise promoters' equity, which is a welcome step, so when do you expect the promoter funds to -- equity and the warrant to come in? And when do you expect to repay the debt and how much of the equity proceeds will be used to repay debt?

Okay. So first, so we have got a board approval now, today, in fact. So we'll run it with the shareholders' approval, which takes its normal due case of 21 plus few days of operations. And post that, we will be able to bring that money straight into the company. So maybe by the first week of December, kind of first week to second week of December, we should get the money into the bank accounts. If you look at it, of that amount that we've got, majority, it will be around about odd -- 80% odd kind of a number that we would have -- we would use to just repay the debt straight up, but as you can appreciate that this will be in 2 parts. One is -- part of it is pref and the part of it is warrants. So the pref will come straight. The warrants will have only 25% coming in now and then the balance will come within the 18 months. So to that extent, whatever money we get largely the -- first tranche will largely be used fully -- largely be used to just repay the debt. And today, we have around INR-400-and-something-odd-crores of long-term debt, which we'll try and unwind as soon as we get this cash. So we'll try and line it up accordingly.

Okay. And incrementally, if you look at the expansion of the business based on execution of the LOIs and the contracts, once the projects are commissioned. Will there be any incremental requirement for additional working capital that will again require you to borrow funds once this capital infusion is done?

So let me first answer this as if you look at for the money that I'm sitting on today is around about INR 404 crores of cash, which will be sufficient to do by CapEx. So that is one point there. And second is if you look at the growth that I'm seeing in terms of the revenue as we go forward after the CapEx comes into place. Today, if you look at it, there is a reasonable amount of working capital, which is locked in which will also get released. And two is also, if you look at the -- over a period of time, the EBITDA that we generate and the cash that we -- operating cash flow that will be generated, we see that it should be fairly balanced to really not expand our working capital limits that we have today anything significantly. Maybe in 2 to 3 years, when the revenue goes beyond, let's say, INR 2,000 crores, INR 2,500 crores is where you may see a few things. But today, for next 1 year, 1.5 years or 2, I don't see that anything moving very -- anything very significantly from it.

So one last one thing on your operating results and how to -- what to expect for the second half and the next 2, 3 years. So if you can give some sense of how much of your first half revenue on the 2Q revenue was from fluorination in terms of percentage? How you see that move in the second half and over the next 2, 3 years? And what is the kind of visibility one should expect from the LOIs and contracts in terms of addition in value terms in rupees, crores over, say, FY '25 and '26 and then beyond '26? If you can break it up, it will be useful.

Sure. So let me first start with the fluorination part of the story. In fluorination the first half, we had around about 15% of revenue coming from fluorination, and I -- and we expect that the number would hit around about 20 -- just around 20% by the year-end. And if you look at the long-term view, I think fluorination should contribute around about 25% to 30% or 30%-odd kind of a number for us in terms of our revenue portfolio by that time. And mind you that this number is a number which is 30% of that expanded bit of revenue. And to that extent, you may -- you can imagine the kind of revenue that we are talking about here. So that's one part of it. Now let's come to the LOIs and contracts. We believe that for LOIs and contracts, we should be able to continue to grow and at -- in 2 to 3 years' time, 3 to -- around 3-odd years, which is the typical time period for that, we should be able to get to around about 4-digit number in terms of my revenue by next 3 to 4 years' time frame. I think that's what we see because it's staggered LOIs that we have got and the ramp-up also has its own staggered approach, and that is where we would see this to be.

So in total, you are saying the addition will be about INR 1,000 crores from the new contracts and LOIs?

Order of magnitude, yes, you are right. Order of magnitude.

So another housekeeping question, just like the export domestics, but can you give us what is the split between contract revenue and revenue outside the contract for the second quarter and first half? And how you expect to -- how do you see this moving, say, in the next 2 to 3 years?

So historically, and even now also most of our revenues are largely on the contractual side around 70-plus percent is more on the contractual or contractual behavior revenue. And I think there is not much of a movement that you can see. See there may be some kind of a scheduling part of it, and you can see a bit plus or minus on that. But principally, you would see the same number as you see. Even for the year -- this year also, you will see the same and going forward also, you will see that.

[Operator Instructions] We will take the next question from the line of Rohan Gupta from Nuvama.

Sir, my question is, first of all, on our business model, where we are completely selling to chemical industries both in generic as well as innovator. Right now, sir, both of them are going through extremely paining -- pain points while in generics, we see that the -- all the [indiscernible] the PEs in India, they are facing extreme pressure. Probably they may continue to exert pressure on our working capital and we may see some more delays in terms of collection from them. That is on generic. However, in innovators, we are seeing that the global destocking -- inventory destocking continuing. That may -- and even in the year-end balance sheet, what I understand that they will try to strengthen their balance sheet. With all these, probably the near-term money coming back from these customers, both in generics and innovator looks challenging. So how you respond to that, sir? Number one.

No, Rohan, so you're right that it's not that easy conversation with our customers. And what you rightly identified is, yes they would want to strengthen their balance sheet and would want to pass part of it to us as well. And for some time maybe every supplier will always accommodate their purchasing partners. But if you look at it the way this is right now modeled or the way we have been interacting with our customers here. See we have been supporting them. And it's a very clear conversation with them as well that the realization that we need, we need to have it in time that we need. So there, what we have seen from them is that there is a very clear acceptance of the plans that we have with them. So to my mind, that will not be a big challenge. Second is if you look at it, large part of it is coming from the innovators. And if you look at innovators, innovators especially in the international sphere, they have been -- what our understanding is, their challenges were more on the Q1, Q2 ours or Q2, Q3 of theirs and maybe at best we will go to Q4 of theirs, which is Q3 of ours. So we see that, that pressure is organically also easing out. But even having said that, we believe that there is a very clear path to this number. And that's where I'm also saying that even when I look at the October's collections that gives us a reasonable confidence that we should be able to come back to normalcy in terms of debtor collection and we should improve on the inventory piece here.

Sir, in terms of price, which we are expected to commission over next couple of years with the current weakness...

Mr. Gupta, I'm sorry to interrupt, sir. Your voice is not that clear. I would request you to use your handset if you're using your hands free, sir.

Just a second. Sir...

Yes, please go ahead.

Sir, I was saying that with the current weakness in the global market, how we see that our LOIs there is a chance of spillover they may pushed back maybe for 1 or 2 or 3 quarters, how confident we are that all the LOIs are expected to come within the time frame?

See, you're right that [indiscernible] environment and that kind of movements happen. But we also plan our numbers and all, and these all are budgeted. And today, when -- after whatever development we have seen, whatever the activities that we have seen, there is no reason for us to any -- to move this number anything significantly expectation. Now it's a quarter or 2, yes, that conversation can always happen, that's not a question. But if you look at it, it's a portfolio. And if you look at it, the total portfolio is a large portfolio, both from a -- of my existing molecules and also the pipeline molecules. Just to give you a context, today, this year itself, we are going to launch 10 total -- new molecules, right? So if there is a bit of a movement on 1 product to other, then you always -- and that's an advantage of a multipurpose plant as well, right? That if let's say one thing is streaming slower, then you just move to another part and use the asset for that because that's a total portfolio of products that we have. And to that extent, we really get comfortable with the kind of growth that we are seeing. And having said just yes quarter -- I would not guide for a quarter-to-quarter number because, yes, this is not a world which -- this is not a world and this is not a business where we can talk about quarter-to-quarter. But if you ask me annual to annual, I think the consistency will be fairly representative. And to that extent, I assure you.

Sir, just a last bit from my side. Sir, the reason for press issue, is it primarily just to show that the confidence in stock price the promoter wants to show or it's a real need of the money because I think the partial money is only going to come in the near term and another warrants issue. So is there any significant debt reduction, which is expected? Or it is just only showing that promoters showing the confidence in the stock?

I would put it this way that if you see Anand Desai who is the founding promotor, he is -- he was basically -- he has been [ desiring ] for increasing his shareholding in the company, right? And that has been the primary driver for this press. Yes, along with that, there are other investors who have joined along. That's fair, but the original thought and the principle was there, and that's the driver. Now balance debt reduction is just to ensure that we have a better -- we do not impact the ROCE of the company with this one, because we don't need -- beyond a point, the business does not make cash beyond a point. So that is also the reason. And yes, it will help a bit on the EPS accretive behavior. But primarily, the thought origins from the founding promoter's desire to increase his stakeholding in the company, and that's where we come from.

We'll take the next question from the line of Rohit Nagraj from Centrum Broking.

Sir, first question is our guidance for FY '24 and '25. So what are we expecting in terms of top line growth and margins for both these years? And how much of this top line growth will be contributed by the LOIs? I understand FY '23, the contribution from the LOIs was closer to some INR 100-odd crores. So what do you expect in FY '24 and '25?

Perfect. So Rohit, let's first answer the first question in terms of my revenue growth guidance. So I would not want to give a specific year-to-year guidance, but I can definitely say that my revenue growth will continue to be -- at least this first half has been more on the tepid growth side. But I think the second half onwards and here, I think we should be able to get back to the growth momentum that we had in the -- in our historical revenue growth. So from H2 '24 and FY '25 onwards, we would be able to see that kind of a growth that we are saying. And for the FY '25 my increment from today would be around about INR 400 crores by FY '25 from today.

All right. That's from the contribution from the LOIs you're talking about, right sir?

Yes, yes.

Got it. And in terms of the confidence that we are having that second half would be much better than first half. Is it backed by any firm volume commitments that we have engaged with our customers, both domestic and global? Or is it based on the general commentary by global players and the inventory destocking is coming to a fag end, so ideally, the situation in second half should improve. So your thoughts on this?

Yes. So Rohit, let me answer the first -- second question first and then I'll answer the first one or I'll clarify on that. The first is that see, in the CSM business, I would really say that we are more driven by what my customer is doing for that product and product range rather than about the general market. So you are right that the commentary of a larger industry, industry statements are not the -- to be picked up as our anticipation of our business as we go, and that I agree with you. So what we tend to do when we want to look at this growth is that what's the kind of demand indication and the offtake that my customer has given me. As you know that every large MNC, especially in the CSM side, would give an annual forecast for us under the contract or an LOI that we have, and that is the reason why we see that like even when we were in the Q1, we said that Q2 will be flat was for the same reason that we knew that customer has requested us to push the demand to the second half. And now when we are talking to them even in Q2 and now, we see that they are saying that, that will be up we are uptaking and that's the forecast that they have given us. Second, also, the launch of new molecules will also aid to the additional growth that we are seeing. So it's not only the organic growth of an individual molecule, but also the addition of the molecules will continue to be growth to us. So it's a combination of 2, which will be there, and that's the -- that's where it gives us a fair bit of a confidence there.

Right, right. Just 1 clarification here. So say base business of FY '23 without any contribution from the new LOIs, that base business, generally, what should be the growth rate that we can assume given that most of these molecules -- I mean, it will be partially established molecules and partially new molecules. So what could be the average growth rate for that base business?

So see base business, I would not -- I don't want to segment it that way because that's not -- because in any company, if you look at my history also, I -- 5 years back or 7 years back, I had only 4 products, and that was giving me the revenue. Today, that number has gone to 55, 57 and 58 now. So I would not say the base revenue and others. But if you're asking me, yes, the existing molecules typically with my existing customers will typically hit the kind of a -- not a plateau is not to say but they would have taken care of the large part of the potential. So the growth from there would be, let's say, 15% to 25% of the growth -- additional growth would come from there and the balance additional growth would come from the new molecules and commercialization and ramping up, if that helps.

Sir, right, right, right. And just your broader guidance on the margin profile for next couple of years? Will it be similar to what we are currently having? Or will there be any chance of further improvement?

I would really tend to guide at 26% to 28%, though we have done 29%, but I would always caution that 26% to 28% is a fair guidance that I would want to give. If we perform better, we would definitely be happy and that's our endeavor as a management that we improve every single bps of my EBITDA margin. But I would not want to stick my neck out and try and say more because I would want to be more conservative here. Yes, we have been doing it. Yes, there is a buoyancy that we can see in terms of the margin profile. But I would want to be conscious and cautious here. And the reason is not the situation, but just being financial -- a bit more prudent on this.

Right. Just 2 clarifications, 26% to 28% is on stand-alone basis. Is that assumption right?

Yes. But if you look at consol also -- consol yes, Tanfac will play consolidated but typically, if you see historically, we have been guiding at 26% to 28%, and I think that's where I would go by.

Right. And just 1 clarification. You earlier told that fluorination revenues are currently at about 15%. So this is on consolidated basis? Or is it only on stand-alone...

No, no, no. Sorry, that's on our -- understanding. Because if I take Tanfac then practically, the whole revenue gets into the fluorination side of it. So a large part of it so no, no, no. I'm talking only a stand-alone. Yes.

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

Just a couple of clarifications from my side. So you have done about INR 170 crores to INR 190-odd crores CapEx in the first half. So how much are you expecting to incur in second half of '24 and FY '25?

So if you see, we have totally announced around INR 670 crores of CapEx. Till date we have done around INR 234 crores of CapEx. So in the next balance period, we should be able to do the large part of it in next 6 to 9 months' time frame, because I'll tell you the spend is one part of it, but the committed CapEx, like I would have ordered the vessel, and I would have paid let's say 10%, 20% advance on that. But the moment the vessel comes in, or the reactor comes in, I have to pay the balance 80% straight up. So it may look a little skewed in terms of money spent. But if you look at from a gross [ amount ] perspective, this number will be very different. And that's the reason I'm saying that for next -- because it's at the fag end of the construction, where the -- all the equipment get on the site and gets erected. And that's the time when you spend the large part of your money. And that's where you would see that -- in the next 6 to 9 months, you will see a large part of the utilization there, that is.

Yes. Sure. Understood. So that is INR 670 crores, I mean that is for '24. So there's no change in that. So that was part number one of the question. And part number two was for FY '25 how much are you envisaging around INR 300 crores, INR 400 crores or even more?

No, I don't think see, we have gone through one large CapEx cycle now. So now whatever the next year's CapEx will be more on the maintenance and routine side rather than really a large capacity addition kind of a thing. So I don't see that number to be in that -- at that range. I would wait for a quarter or 2 to really give you the guidance on those CapEx numbers, but I don't see that in a significant number for now. Not like what we are seeing. So you would have to -- right now, you should budget a routine maintenance and some bit of a debottlenecking expansion kind of activities rather than the large capacity addition kind of a thing.

Yes, because -- I'm asking because, let's say, if I look at from FY '18 to '23, there has not been a single year where we have spent less than INR 200-odd crores. So I mean there has been some sort of CapEx ongoing. I mean, because you'll have to continuously growing even in '26, right? So you will have to incur some CapEx. Otherwise, then '26 growth for the LOI that you have signed, you might not be able to kind of execute it. Is my understanding correct? Or am I missing something?

So -- okay. Let me answer it first and the -- for the LOIs largely, you will see that the CapEx that I have done, let me put it simply that the current CapEx will take me to INR 1,700 crores to INR 1,800 crores. So INR 670 crores of CapEx another will around about INR 1,100 crores, INR 1,200 crores. So if you look at it, we are talking about INR 2,800 to INR 3,000 crores of revenue from these CapEx. So to that extent, I have a breather. But you're right that some of the other CapEx may come up, like my -- let's say, it's a solar investment or any other investment that may come up. But these are -- that's what I'm saying, it's not in the range of INR 300 crores to INR 400 crores kind of a number. It will be in the range of -- I don't know hazard a guess, and that's the reason I'm holding back because I would rather come with a fair number to you for the next year or going forward, but the numbers are not about large capacity addition. It will be more debottlenecking, maintenance CapEx. And if there is some bit of a -- any other green energy projects or something of that sort that may come into play but it will not really, really swing to the numbers up INR 300 crores , INR 400 crores for now.

Noted. And the last bit of...

Sorry. Sorry, I have not been more clarification that this. Apologies for this, and next call, I won't do that to you.

No, that's completely fine. I mean I appreciate your honesty. That's completely fine. So the last bit I wanted to understand is, so what is the status of the 6-month pricing agreements with our customers? So is it done for the customer, whosoever we want it with? Or is it -- is any customer that we thought to do a 6-months contract is anyone pending?

No, there are a couple of ones that are pending. I would really say that there is around about 60-odd percent of [ tied ] contractor revenue. And what will happen? Two things will happen. We're working with them, and they are also saying that we are actually fully agreeing too. But let's find the right time, just for them this is right time and the world is so volatile [indiscernible] to move to that one. And 12 months having it will only change the mix in favor of where we want the pricing structure to move to. So that will continue to happen. So I think we are in the right direction. And hopefully, we should be looking at it that we get to where we want to.

Okay. Fair enough.

The next question is from the line of Meet Vora from Emkay Global.

I wanted to know your thoughts more on the LOIs that we have signed. In terms of whether these are more of a building block kind of a nature or do we see these molecule -- how do we see these molecules panning out in terms of incremental inflow of advice from these existing customers? That is one. And second is, what was the moat that we had in terms of getting these LOIs over last few months, so to say, is it more that we acquired Tanfac and we have the building block of HF or is it more that we have built a kind of business development teams in say, Japan and U.S., which drove these kind of inflows?

I think, Meet, to answer your second question and the one is that, any business there will be multiple play -- multiple activities or multiple pivots that will play its role to get to the business. [ Now ] the most important thing is that do you have a chemistry and ability to deliver that -- I have developed this product and I can deliver. So that's the first, which is the technical competence that you have demonstrated, which we had demonstrated over the last 5, 7 years, actually. If you look at it, we have more than 30-plus products in our portfolio, which is -- which is -- which are fluorinated products. Then the second is ability to deliver coming from supply chain side because these are all products which are largely into -- so basically, these are all where the supply chain is very, very essential. And there Tanfac coming in really helped to demonstrate that we have a supply chain sorted out here, and that led to the crystallization of the conversations that we have been having with our customers. Third, yes, having teams on ground in the geography that we are looking for business always helps from 2 things. One is from a speed of execution and two is from the demonstration of commitment perspective, and three, the familiarity of the individuals who go and meet the customers. All these 3 really help in accentuating and improving the crystallization process further in terms of our business. And last is to be able to demonstrate that we have enough and more capacity and plans to deliver. So all these 3 or 4 points really play out. And to us, that's what the strategy. That's what is the execution that has happened. So Meet, I would really say that these are the 4, 5 key things, a key development that has really helped us here.

Understood. Understood. So that's one. And second is, so you mentioned that we are the sole suppliers of some of these molecules from Asia. So is this that we are seeing incremental demand in these molecules or incremental supply shift away from geography that we have seen primarily in terms of the -- and where do we see the competitive intensity in these LOIs?

So see, as you can see, historically also, a large part of our business is where we are competing with the European and Chinese players. Now in that scenario, always 3 things help us, right? One is the lineage that we have -- or 4 things that help us. One is the lineage and experience that we have given our customers. And they are the guys who are -- either they are offering us new products or they are -- the -- their peers are offering us and then we are able to attract the customers there. One. Two is the product portfolio. Please understand that this is very, very essential that our ability to demonstrate to our customer that we can offer a high-quality product on a consistent basis is very, very key. And third is supply chain, which is a [ gained ] one. And the last one, what you rightly said that competitive intensity, yes, if you look at my European peers are really today becoming less and less competitive compared to us. And from a China side, they are becoming less and less -- Chinese peers are becoming less and less preferable compared to us. So these are the broad things that really play out. And that's where we would put it up. And also, one more thing that happened is that we work on a value tree. So when my customers feel that, okay, the products are falling in a particular tree or particular value chain, they would be more -- they will have a higher propensity to offer that to me because I can -- I've demonstrated in the value chain, supply chain and ability to deliver. So these are the ones that I would put in here, which has helped us.

No, sir, that's helpful. And sir, just 1 last bit. Sorry for dwelling on this again. In terms of our working capital, when we say that we are trying to bring it to say, 230 or 200 days, what are the kind of arrangements that we are working with customers, if you can highlight on that? And at the same time, whenever we are trying to reduce the working capital, will we see some kind of margin correction in terms of our overall EBITDA margins to deliver the product say early or try to work? If you can highlight on that, that would be helpful.

Okay. So let's break it into 2 parts. One is, if you look at my working capital today, the expansion of working capital is largely on the debtor side which is basically adjusting for a quarter or 2. So I don't see that really -- it's a very clear understanding with the customer that I have extended the working capital cycle. I have extended the credit terms, but it's not for a long period. It's a short term that I've offered them, which we have started seeing that it will come, it is coming back. So that's one part of it. So the -- if you look at if I exist for the debtors just from where they were to where they will be, okay, then I'm knocking off around about 50-odd days of my cycle anyway. So for -- and on the inventory side, it's just that the moment of the revenue picks up and the inventory starts unwinding, I think we should be able to bring that also to a more reasonable level. So put together, I think there I see fair bit of comfort here. It's a quarter -- it's a few -- a couple of quarters discussion that we are talking about here.

Understood.

Ladies and gentlemen, this will be the last question, which is from the line of S. Ramesh from Nirmal Bang Equities.

So you had an agreement with the TI Group for an alliance in CDMO. So how is that progressing? What are the thought process behind that? And when do you see that actually culminating in some kind of impact on your P&L and balance sheet?

So first is that the MOU that we have with the TI and 3xper is primarily on really developing newer molecules. They have an understanding in terms of the pharma market, and we have a strength in, in terms of our chemistry and our process part of it, which is what is really helping -- which is what we are trying to leverage between us. Mr. Govindarajan, as you are were the ex MD of Aurobindo Pharma, he is the one who is guiding us on the interaction with the innovator because that's where we need the understanding that which segment to go to, especially on the innovator side. So that's what we are going to do. Our chemistry strength, flow chemistry and the [ particular ] molecules and also starting from the base molecule is early KSM level is helping us in this. So it's a very symbiotic relationship. When do we see it, it's a very initial stage. And -- it's a very initial stage in terms of trying to tell that when this will translate into revenues, probably the work -- the collaboration has started. We have been working jointly, give us a few quarters for us to really say exactly what kind of a numbers from when we can start seeing.

Okay. And then one last one. Now if you look at the supply chain issues, inventory in China excess supplies and dumping at distress pricing, how much of impact has it had on your business in the first half? And how do you see that shaping up, say, in the second half of the year and in FY '25? What is your reading of that situation, but that seems to be the biggest overhang for the entire chemical sector as we speak today.

No, you're right. See, that is there and that's an overhang for the chemical industry at large, but that is what our MD and even our Chairman shared in their opening remarks as well. And that impact is large on the -- significant on the earlier part of the value chain, which is where the impact is far higher and significant. When you come to more CSM kind of a one-to-one relationship with an innovator, then that impact is fairly less, and with the kind of a pricing structure that we have, where we have a pass-through in terms of cost structure. We see that impact is practically pass-through because it either is impacting in terms of the input costs or any other kind of a cost, which just gets passed through for us. And to that extent, we are reasonably insulated in that sense. The only thing that it can also do is move the demand by a quarter or 2, but -- demand growth by quarter or 2, but nothing really significant that we have seen, at least till now we have seen anything of that sort in our performances for now.

And do we see this abating say, by FY '25, what is the current reading?

See, if you are the expert of the sector, I would really get some guidance from you also. But if I were to use my limited understanding of this sector and what I understand, I would really say that it's -- what we are seeing is it is getting abated. We are seeing that especially the stock coming from the -- in the channel is building significantly. And also the China, if you see the large part of the stock that their general [indiscernible] the COVID phase is now getting released. We believe that it's a quarter or 2 that they would be done with that stock and the new stock will come into the market where they will have to also price the products as per the current market prices. So probably, we are seeing -- we at least are seeing acquire a couple of quarters at best, and depending upon which part of the value chain you are, it may be a quarter or 2 or 3 depending upon where you are on the value chain, that the impact will get start -- will get reduced.

Ladies and gentlemen, as that was the last question, I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Thank you all for joining us today on the call and being part of our journey so far. I hope we have been able to answer all your questions. If there are any that I have not answered, I would -- I promise that over the next few quarters, we will do so. And if there are any specific questions which are left out, please reach out to our IR partner EY, and they will get back to you off-line. I also would like to wish everyone a Happy Diwali on behalf of Anupam Rasayan. See you in the next quarter. Cheers.

Thank you, members of the management. Ladies and gentlemen, on behalf of Anupam Rasayan India Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.