Camlin Fine Sciences Limited (532834) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Camlin Fine Sciences Limited Q1 FY '21 Earnings Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Archit Joshi from Dolat Capital. Thank you, and over to you, sir.

Thanks, Vardaan. On behalf of Dolat Capital, I welcome all participants to the Q1 FY '21 Earnings Conference Call of Camlin Fine Sciences Limited. We would like to thank the management for giving us this opportunity to host this call. We have with us today, Mr. Ashish Dandekar, Managing Director of Camlin Fine Sciences Limited; Mr. Nirmal Momaya, the Director; and Mr. Santosh Parab, the Chief Financial Officer of the company. Without further ado, I would like to hand over the floor to Mr. Ashish Dandekar for his opening remarks. After which, we will have the floor open for a Q&A round. Over to you, sir.

Thank you. Good afternoon, ladies and gentlemen. Good morning. Welcome to the investors conference call. The details of the first quarter will be explained to you by Santosh Parab, our CFO. And after that, Mr. Nirmal Momaya will take questions. Over to you, Santosh.

Thanks, Ashish. Hello, everyone, and a very good morning. As Ashish said, I will start the call with some highlights on the performance of the company for the quarter, and then we'll open up for the questions. We have had a good performance in the first quarter of the financial year, and we are extremely proud of our team who have been able to achieve this in this most trying times. As you are aware, our manufacturing plants were working, even though there was lockdowns and also in the global arena also our plants were working. This was because of our products are under Shelf-Life solution business, which generally falls under the category of essential services. The authorities have since extended the permissions to manufacture other products as well. At present, all our manufacturing facilities situated in India and globally are working at an optimal capacity in spite of the tepid circumstances. I will now share some of the highlights of the financials, starting with the stand-alone financials. Our operational revenue in the stand-alone was INR 121 crores as against INR 139 crores in last quarter, while it was INR 143 crores in the corresponding period in last financial year. The operational EBITDA was INR 16.3 crores, which represents an EBITDA margin of 13.45%, an expansion of 349 basis points on year-on-year, while 454 basis points sequentially. Company posted a profit after tax of INR 3.8 crores in the quarter against INR 16.5 crores in last quarter and INR 1.6 crores in the corresponding last year's quarter. Now on a consolidated basis, the company posted a record operational revenue of INR 305 crores. This is the first time that we guys passed -- crossed a quarterly revenue of INR 300 crores. As compared to the last quarter's revenue of INR 292 crores and corresponding last year's quarter, it was INR 260 crores. This represents a growth of 4.4% sequentially, while 17.5% on year-on-year basis. EBITDA stood at INR 51 crores as compared to INR 34.3 crores in last quarter and INR 35.5 crores in the corresponding period in the previous financial year. This is an improvement of 497 and 303 basis points, respectively. Profit after tax was INR 20 crores in the current quarter as compared to INR 2 crores only in the last quarter, while it was INR 16.4 crores in corresponding last quarter. The increase in the top line and margins is mainly due to favorable product mix, which was buoyed by the situation under COVID and, of course, efficient expense management. Geographically if we start to look at our global business, CFS Europe posted an operating revenue of INR 111 crores in the current quarter as compared to INR 74 crores in the last quarter and around INR 103 crores in year-on-year. Our Mexico subsidiary reported revenue INR 72 crores in the current quarter as compared to INR 74.8 crores and INR 56.8 crores quarter-on-quarter and year-on-year, respectively. CFS Wanglong, our subsidiary in China which manufactures vanillin, clocked a revenue of INR 59 crores in this quarter as against INR 29 crores in last quarter and INR 46 crores in the corresponding period last year. CFS Brazil netted a revenue of INR 15 crores as compared to INR 17 crores in the sequential quarter and INR 11.9 crores in year-on-year. CFS North America posted a revenue of around INR 8.8 crores against INR 7.6 crores in the last quarter and INR 12.2 crores year-on-year. In this situation of COVID pandemic, the company has been able to record a better performance in this quarter. However, the COVID scenario remains unpredictable and uncertain. The company is bracing itself to face this uncertainty in the quarters to come. While achieving these results, our focus has been on the well-being of our employees and efficient delivery to our customers. Company had desisted from restricting the salary of its employees and had rather focused on increasing their efficiency and output of the workforce in this circumstances. Company has retained its entire staff across the globe, and our employees have proved our faith in them with their unflinching support and efforts during this pandemic. In the current times, the priority was also focused on efficient cash management and maintaining the liquidity position. The company was successful in maintaining its indebtedness at a tad below the level as at financial year '20 year trend. As you are aware, the trial runs were impacted -- this is regarding Dahej project. As you are aware, the trial runs were impacted first in March due to the nationwide lockdown, and then due to the unfortunate blast that occurred at our neighboring factory on June 3, 2020. This frequent and major disruptions have impacted the successful completion of the trial runs. The company has produced diphenol during this trial run, and it is being internally consumed at Tarapur plant. Looking at the progress of trial runs at present, the commercial production is likely to commence before the end of quarter 2 FY '21. Lastly, the shareholders of the company approved the preferential issue of our -- up to INR 180 crores in last week of June 2020. Post the statutory approvals, the agreed amount of part subscription of this issue is expected in a very near future. Companies plan to acquire the balance stake in the Mexican subsidiary and building of vanillin facility in India is on track as per envisaged plan. With that, we can now open up the call for questions. Thank you.

[Operator Instructions] The first question is from the line of Madhu Kela from MK Ventures.

Yes. Nirmalji, fantastic set of number, congratulation to you and the entire team. See, I wanted to ask one thing that in the last 5 years, there has been significant free cash outflow from the company. Basically, the company has not generated free cash. With the implementation of this Dahej plant and the profit improving, when do you think the company will be in a position to generate some substantial free cash flow because that will be the key to re-rating of this company?

Sir, this is the operator. The audio is breaking from your line, sir. [Operator Instructions]

Sorry, could you repeat the question? I have a very bad -- poor network today, so.

So Nirmalji, I was asking, first, congratulating you for a fantastic set of numbers in this quarter, you and the entire team. I was asking that the company has been in an investment mode and working capitals have also increased. So essentially, the free cash flow out of the company has been to the tune of INR 450 crores in the last 5 years, negative. When do you expect that we'll be able to get back to free cash flow from the operations, sir? That was my question.

Okay. Thanks. Thanks, Madhuji. Yes. Our expectation is by FY '22 we'll be back in a positive free cash flow position. Because FY '20...

And do you think that after that, we'll intend to reduce the debt out of free cash flow or you'll still going for some acquisition or some other investments?

So at this point, we don't have an acquisition plan, anything on the table. But the idea is that over a period of time, we want to reduce the debt, for sure, in the next 3 to 4 years, any which ways, we have an IFC debt, which is 2023, maturing '23 and also we are paying off our Mexico debt. So the 2 long-term debts will get cleared in by FY '24. Yes.

And Nirmalji, the other -- the second question which I had, can you give a little bit more detailed color on the Dahej plant? It is not only the commercial production is starting. But over the next 2, 3 years, what are the possibility? How the backward integration will happen? How the value addition will happen? Can you speak a little bit about that?

Right. So Dahej facility, basically, we are currently -- the plant that is being commercialized is for diphenol, which is hydroquinone and catechol, which are the base raw materials that we make in Italy. So we have a capacity of 10,000 tons in Italy, total combined capacity and a similar capacity we've set up in Dahej. So the total capacity of our hydroquinone and catechol will double. And our idea is in the next 2 to 3 years, the downstream products made from hydroquinone and catechol, we will start producing those as we go along so that we become 100% fully backwardly integrated for our hydroquinone and catechol. So which means we will consume the entire hydroquinone and catechol built -- produced from both these facilities. So the idea really is that today, they're consuming about 10,000 tons of hydroquinone and catechol, and our business size is x. With this, we will double our business size with taking that as a basic raw material and then value adding in the next 2 to 3 years.

The next question is from the line of Surya Patra from PhillipCapital.

Congratulations for the great set of numbers, sir. Just -- although you have mentioned about the plan for consolidating your position in the Mexico business and vanilla business and as well as the kind of activities towards the health and -- health care and product areas, so that is on track. But if you can give some more incremental update on that side, how is that progressing? And also, if you can give me some sense, what was the kind of a EBITDA contribution of Mexico and the vanilla business for the quarter?

Right. So well, the talks are progressing as we had discussed on our last call. And we are hoping by end of the year, we will finalize the -- complete the acquisition of Mexico minority interest. And the vanillin facility also in the next 12 to 15 months, depending now because of COVID, setting up the facility in Dahej, transferring it from China or also setting up some brand-new facility -- capacity here would take anything between 12 to 18 months purely because of labor and conditions that we are in -- currently facing in India. So difficult to give an exact time frame, but it is within the next 12 to 18 months, that facility will be ready. And on the health and wellness front, we are progressing. We are setting up an extraction facility, which -- in Karnataka, which should be -- we've acquired it -- rather we've taken on lease 1 facility, which ultimately we will acquire and that should become operational in the next quarter. And that will start giving us contribution in terms of sales coming from the natural products in the health and wellness division, so you will see some contribution coming in from the next quarter.

Okay. And so that is good. Interesting piece is that you're saying that immediately, we'll be seeing some traction on the health and wellness side. But how big is that investment or anything on that front?

Right now, the investment is small because they're starting small.

No, means the capacity that you are going to that acquire there.

Yes, so that -- yes, that can give us potentially annually about INR 50 crores to INR 60 crores of top line, which is expandable -- this capacity is expandable to about INR 100 crores in this facility. So that's the first step for us.

Okay. And investment in that?

No, the investment is small, it will be of a couple of crores, yes. Yes.

Okay. Okay. So is it because of the kind of low volume, high-value nature of this product or anything else?

Yes. Yes, that's right. Because we are taking this on lease. Ultimately when we acquire it also, it's not -- the total acquisition is not much. I mean the products are typically INR 4,000 to INR 5,000 per kilo. So therefore, it's a very high-value and the volumes you handle are much lower. So the investment and the turnover that you get in terms of investment is much larger.

Okay. Now since we are internalizing that in the minority stake of Mexico as well as the China one. Can you just share, sir, what is the EBITDA number for this quarter for these 2 entities? Minor entity number?

So the -- so China is at breakeven. Of course, there is some margin we make in guaiacol, but on the final vanillin, on the CFS Wanglong, it was at breakeven on EBITDA level. And Mexico was about 25 -- 26% was the EBITDA margin.

Okay. Okay. So whether it has gone up, sir? Why because see, last year, I think...

Yes, it has gone up. Yes, it has gone up from about 20% to 25%, yes.

Okay, fine.

In the quarter, yes.

And sir, coming to the overall revenue mix, sir, if you can share, what is the share of blend this quarter in other product areas? So my interest is just to understand that whether the product mix has changed or the kind of a superlative margin performance what we have seen, I think this is one of the best over last 4- to 5-year period, annually...

So it's not really so much the product mix. I think the COVID effect has done 2 things. One is some raw material prices have come down, which we saw with the crude prices going down so in that quarter. So that, of course, is -- does help a little bit. But also some of the currencies have also devalued. So our business is in dollar, but expenses are in local currencies. That also helps in the profitability. And also in the COVID, since there were some logistics problems and stock problems and things, realization also has improved slightly in terms of the pricing that one has charged has improved a little bit. So it's a combination of many factors, which has led to this improvement in margin. So if you were to look at it, it's not 1 thing that really has given us that.

No, that's right. But if you can say, sir, what was the blend share for this quarter?

Yes. Santosh, can you give the numbers. He will give you the exact numbers, yes.

Yes. On a consolidated basis, the total business, blend on a stand-alone only blend was around 27% of the total revenues. And Shelf-Life, the balance states are around 24%.

Okay. Okay. So that is -- really this is interesting fact that despite blends remaining relatively lower than the 30%, which used to be generally. This quarter, the margin performance, we are seeing a kind of a significant surprise. So my question here is that, is it fair to believe the base business -- see, the base old business, what we used to generally have, so that has got a kind of a margin put in say like this and which would further be complemented with the commissioning of the Dahej plant and also the way that you are indicating the health care product, which is, obviously, value wise is a value proposition addition. And on the top of that, even the Mexico, the way it has performed margin-wise. So all those are giving any kind of a significant margin growth trajectory or expansion trajectory. Am I right or any or anything else to be factored?

Surya, I mean I'd like to be a little cautious on this is that times are not very certain with COVID.

Certainly, sir.

Especially in some geographies. And now we are seeing in India also new lockdowns may come, new things -- already we have a lot of rumors of what is going to happen. So keeping that in mind, keeping how interest rates are, how currencies are, everything is connected ultimately. And keeping all that is coming, we are hoping that this is the base business. We are hoping that this is the base business. But with these uncertainties, it's really, really difficult to say that -- peg it and say that this is what it will be for sure. But having said that, we are seeing that there is an increment in the margin. And the business itself we haven't seen too much contraction in volume offtake. In some markets, there has been, because of the lockdown, some markets, there has been more because the lockdowns happened at a different point of time. So it's all very uncertain the next 6, 8 months, 9 months. So it's just very difficult to say whether this becomes your base case. But yes, I mean, this is what we hope that it will be our base case. And yes, of course, with Dahej commissioning around the corner in this quarter, over the next 2 quarters, we will see the upside that we will get from Dahej. As well as we will see certain debottlenecking that we are doing in our Tarapur facility. We will see upsides of that because they're increasing capacity in some of the Performance Chemicals by almost 30% to 40%. So the value addition that will come out, we will see some upside coming from there as well in the next 2 quarters.

Okay. And last 1 question from my side. See, on the blend side, I was reading somewhere that because of the increased demand for the packaged food and all that, so generally, there is a kind of a significant positive scenario or a demand outlook for antioxidants. So whether that is applied to your product also? And secondly, whether that is giving any kind of a additional visibility in terms of growth trajectory for your blends business?

So there are 2 aspects to this. One is, of course, the packaged foods means oil consumption goes up, oil consumption goes up, which means antioxidant consumption goes up. So that cycle will see some -- surely will see some volume uptake increasing in TBHQ sale, especially because that's where -- what goes into edible oil. So that -- yes, but at the same time, on the animal nutrition side, because of the lockdowns and because of some institutional selling, the restaurants not being open and there's more home consumption, so there is a bit of churn that is happening in that market. So there, you will see some -- somewhere you will see a bit of volume contraction in -- during these lockdown times in some parts of the world. So if you balance the 2, I think we are okay. We are very well balanced to cater to both sides of the market. So whether it's home consumption or whether it's restaurant consumption. So from that perspective, I think we are okay. We'll be very much on target, yes.

Okay. On just the same question, sir, the blends what I was asking. So whether any optimism that you're finding? Mean, in terms of your overall outlook for the blends business, how should one really look at given the current scenario that is prevailing in the world across?

So I think, I mean, in the next 3, 4 years, what we've set out to grow in excess of 25% a year, that looks on track in blends business. Give or take a few quarters here or there. But generally speaking, we will grow at 25%.

The next question is from the line of Tarang Agrawal from Old Bridge Capital.

Congratulations for a great set of numbers, especially for CFS Mexico. I have a couple of questions. One, I wanted an update on the shifting of plant from China to India. Second, if I look at your India business, look at the stand-alone business, there's a revenue of around INR 120 crores in Q1. And your Europe business is with a revenue of around INR 111 crores. So just wanted to get a number of what would be then Europe's captive sales to India and India's captive sales to China in those numbers?

Santosh, you can answer that.

Yes. Europe sold around 40 -- INR 38 crores to India during this quarter. From India to China, there was a sale of only INR 10 crores.

So balance, Europe and balance, India is largely all external, right?

Another 10 -- INR 12 crores from India was the sale of subsidiaries -- sales to subsidiaries, other subsidies.

Sure. No, sorry, I wanted your few bits on China, movement of the China facility.

To China. So we -- as soon as -- we just got the approvals now. And once we have the money, we will start the conversation for that project. So we will give an update in the next meeting. But overall, it's -- like I mentioned earlier in the call, it's between 12 to 18 months.

The next question is from the line of Rohit Sinha from Emkay Global.

Congratulations for great set of numbers. A few questions from my side. First of all, on the gross margin, if you look on the consol basis, it's slightly down. But on a stand-alone basis has gained gross margin, the revenue was down there. So how has been the volume and pricing that have played in the stand-alone and proprietary level?

So basically, if you look at it, the gross margin is slightly down maybe 0.25%. We have, in Italy, we have produced in record production in the last quarter compared to in the past. So where the gross margin is slightly lower. So that is the reason, but the volume is much higher. That's the reason why you will see that the margins are -- at the EBITDA level have improved. And in India, to answer your question on India. Our -- we got a slightly better price rise and product mix. Basically, we sold more of the food products because first 2 months we were allowed only to produce for essential items, which was food and pharma. So the balance 15%, 20%, which is nonfood business, we were not producing at all. And that is a slightly lower-margin business. So India had a better margin profile. And overall, the margin profiles remain constant or very same.

Okay. Okay. So basically, I mean, on the subsidiary level, so main -- how would take a -- main culprit is the Italy facility where gross margin has come down or other subsidiaries are also some contraction in the gross margin?

No, they more or less remain the same. Everywhere, it's remained more or less the same. That's why it's almost the same on the top line.

Okay. And secondly, as you mentioned, the EBITDA margin of Mexico jumps over almost 500 to 600 bps. So was there some -- I mean, how we should see going forward this thing? I mean majorly, I believe it would be some currency benefit as well in there and this slightly gross margin benefit also. But going forward, how -- what kind of a stable gross margin would be there? And how we should see that progress?

So I answered that earlier, Rohit. I said that in these COVID times, it's very difficult to say in the next -- for the next -- especially for the next 6 months and 9 months depending on lockouts and if there's a lockdown, the plants running, not running, all of that is always a question mark because we're in so many different geographies. So very difficult to say that whether this is the base margin or it can be improved or it will be lower, but we are hoping it will remain in this region.

The next question is from the line of Mithun Soni from GeeCee Investments.

A couple of questions, most of it has been answered. In terms of our capacity utilization, other than like you indicated that Italy is almost running at full utilizations. How is the situation in -- is in blends and aroma and all those -- where is it that we can get that additional revenue other than the Dahej plant?

So in Aroma, of course, we have additional capacity. We are at about 60%. So we have scope in that. Blend capacity is never a problem. So we can easily produce 50% more if required. Because it's a -- blending operation is just as -- it is a blending operation. So it's not really -- capacity constraints are not significant. And in the Performance Chemicals, we have potentially, which I mentioned earlier, we are debottlenecking our Tarapur facility to increase capacity in our Performance Chemicals products, which will reflect in the last 2 quarters where there is potentially about -- we can debottleneck by about 30% to 40%, so there is a chance of at least growing that business by about 30% to 40%.

And by when will this debottlenecking happen?

By September end. So that's why I'm saying from the last 2 quarters, October to March, the last 6 months of the year.

Okay. The second half, you will see. In the blends business in last year, December quarter, we had run -- done almost like about INR 120-odd crore of top line. Can we -- are we seeing an increased demand from people who want to move away from China or any increased inquiries? Can we hit that sort of revenue again?

Yes. So China is not really a player. So the blends business is all local. You need local blending facilities to sell. We are producing everywhere wherever we are present locally. And yes, there is an opportunity, surely. Like I said earlier in my -- in the call that COVID lockdowns can impact some of the plants, which were shut down for a month, 1.5 months in some of these geographies. So keeping that in mind, I mean, the demand will come back once everything is normalized.

Okay. So basically, currently, for the coming 2 quarters, your benefit, what you can get is a little bit from the aroma because the Dahej plant will -- and the Dahej plant will start coming towards the end of the quarter and the Tarapur facility will come...

No, towards this quarter.

After 2 quarters from the top line perspective?

No, no, no. For the -- in this current quarter, which is September ending, we will finish Dahej commercialization and we will finish our debottlenecking. And from October onwards, those capacities are available to us.

Okay. So Dahej will not give any revenue in September quarter?

It's difficult to say, I mean.

Okay. But we'll see in the December quarter. From December quarter, we'll see the benefit of both Dahej and as well as Tarapur?

Right.

Perfect. Perfect. And 1 question this quarter compared to -- we have seen the lowest operating cost and compared to even the last 2 quarters, any particular area where we got the cost savings and sustainable?

Yes. So I mean, this work-from-home and a lot of the travel and establishment costs and things -- we saw a lot of -- and we did rationalize many other costs. We got many opportunities to cut costs on an operating level as well. So going forward, I mean, work-from-home looks like it's the new normal. For most of the functions, we have been able to do it very efficiently and very effectively. So kind of sustainable in the long run, these kind of costs, even if there is a slight increase in the cost, we are not going to add many more people or -- for the added turnover. We just see that it's so much more efficient people working from home than traveling 4, 4, 5, 5 hours really to their workspace when they actually are not really required physically, if everything can be done online. So we see that, that benefit will continue.

Perfect. And what would be your current net debt?

The current net debt would be around INR 420 crores or so.

INR 420 crores. Okay.

The next question is from the line of Sumit Bhalotia from MK Ventures.

Yes. Congratulations for the good set of numbers. My question is on an update of Dahej plant. So assuming that our commercial production will be from September end. So what is the strategy for the Italy plant production in the second half? I mean, how are we going to absorb the second half production of HQ and catechol given the current demand environment? And so basically, is there a plan of moderation in utilization of the Italy plant? That was the first question? And secondly, how is the product quality? And how is the cost structure we are seeing compared to whatever assumptions we had done, we had shared a few years back so basically that $1 cost savings, is it intact? Are we seeing that kind of efficiency in current production?

Yes. Okay. So the first part of the question, the first question is what are we going to do with the hydroquinone and catechol. So basically, we have that what I said earlier that we have done some debottlenecking, which will give us at least 30% to 40% more capacity for the downstream Performance Chemicals products as well as we have debottleneck our Shelf-Life solution. That is the TBHQ, BHA. So we have an opportunity there also to gain more market share. So the idea is really to continue to consume from Italy, the hydroquinone and catechol. Specifically, I would say, about 80% of the catechol and about 60% -- 50% to 60% of hydroquinone. And the balance only -- that portion will be sold in the market, for which we already have a predefined market. So we are not going to cut down or curtail the production because of market -- because of absorption of material. And the second part of your second question was on the cost structure, yes. And so we are seeing in the trial production, pretty much that -- the assumption that we had is pretty much visible.

Okay. So I understand that, as you mentioned earlier, it's difficult for you to comment on the sustainability of the margins that we have reported this quarter but whatever would be the base case margins, the margin benefit that we were really expecting from the Dahej plant from both low production cost and as well as the release of capital, those will be intact?

Yes. That will be intact. Yes, absolutely.

Okay. Sir, if you can just share a little bit on the working capital improvement that we would be seeing once Dahej plant commences, that would be very helpful.

Yes. So currently, for our, I would say, at least, beside the blends business, all the other business, the raw material comes from Italy, which is a long cycle. Because produced in Italy, shipped to India, produced -- and then converted in India then shipped to China. Converted in China or shipped to customers. So it's a long cycle. So here, we are eliminating for at least more than half of the raw materials. We're eliminating the long period that we have because Dahej is right here. So we save at least 45 to 60 days in the cycle for the product that comes out of Dahej. So on a blended basis, because we will be importing, it's not that we're not going to import from Italy. So on a blended basis, there should be a good amount of reduction in the working capital cycle, yes.

Okay. Sir, in that case, other than the INR 50 crores, INR 60 crores of working capital requirement that we have already planned and provided for in Dahej, our net debt, which is currently INR 420 crores and including the expansion plant, it should not sore up beyond INR 550 crores, in the next 3 years?

Yes, correct.

The next question is from the line of Andrey Purushottam from Cogito Advisors.

Congratulations for a great set of numbers. You had mentioned that commercial production in Dahej will start from, let's say, Q3 onwards, okay. So what I would request you to do is to give us a comprehensive idea as to how would your capacities ramp-up of -- from Dahej, let's say, from next calendar year onwards. And also trace what is going to happen in Italy? Will you be utilizing the entire 10,000 tons of capacity, and you gave us some hints that 80% of catechol and 50% to 60% of that production will go to India. Does that mean that the balance quantity will be sold in the European market? And the balance quantity on what capacity utilization should I make that assumption? The second thing is that how -- what will be the margin improvements that will happen as a result of the operation in Dahej in terms of improved EBITDA either per ton or in terms of your margins? And simultaneously, in China, if you're going to be there for the next 12 to 18 months, what is going to happen in China in that period? And you also mentioned that there's a possibility that your transfer of your Chinese operation to India, which we thought was a transfer earlier may also happen through a possibility of a brand new facility, which is the word that you used, which is the first time I'm hearing that in a conversation. So I just wanted to check whether there's some rethinking on that or some other alternatives that you're talking about. So that was the -- I just wanted a comprehensive update on the picture.

Yes. So I'll start with your last question first. So there's no rethink. What we are saying is we're building a ethyl vanillin facility in India, which has always been the case. And for the vanillin, we have to look at the shift from China to India. So there is no difference in what we said earlier and what is on the table right now.

Sorry, I didn't understand that. Could you just repeat that, sorry?

I said it was always the case that we were going to build, and we are building a facility in India for ethyl vanillin. And for methyl vanillin, it is a shift of plant from China to India.

Okay. So that remains?

That remains. Yes. So that is -- there's no difference in that. And as far as capacity, we will be selling the surplus that we have on a 100% capacity basis, 40% to 50% of hydroquinone in the European market and 20% of catechol in the European market from Italy.

Right. So that 10,000 tons capacity will remain at 100%?

Yes, yes, yes.

And there are enough customers for you to be able to feed them -- so that it can ensure 100% capacity utilization?

Yes. Yes.

Okay. And then what is the ramp-up plan in...

The ramp up plan in Dahej is...

Sir, this is the operator, sorry to interrupt you. Sir, there is a slight echo from your line. Mr. Purushottam, please self-mute your line, please. Please self-mute your line while your question is being answered.

Okay. Okay.

Yes. So basically, the ramp-up is commercial production will be announced or we will commercialize it as soon as we are at 70% capacity utilization. And from there on, the ramp-up to the 10,000 tons, which is about 800, 900 tons a month should take not more than 3 to 4 months.

Okay. And can we talk about the EBITDA expansion in terms of margins?

So in terms of expansion of margin, there are 2 levels. One is at the Dahej level and one is on -- also on the Performance Chemicals where we have debottlenecked. So there will be some additional margin that will come from the new business, the new capacities that we're getting. So both put together annualized, we should be able to improve the margins by at least 3%, 4% here and there.

Okay. 3%, 4%. And this would happen by, let's say, what, end of calendar year next year or?

No, we'll be start from calendar year next year. Because all these capacities are all in -- falling into place now.

Okay. So this 3% to 4% will be available from, let's say, January of 2021, roughly?

Yes, yes, yes.

Okay. And what is -- what will be happening in China with your current vanillin plant? What kind of capacity utilization are we talking about?

So we're at about 60%. So we're working at 60%, we continue to grow in the market. So the idea is that to take at least 70%, 75%, the shift any which ways will take 7, 8 months before we are ready to ship out, the shift given the COVID situation. So till then, they're ramping up and they're trying to sell more and more.

So there is no whittling down of production in this period, in China I'm trying to understand in this 12 to 15-month period?

No, there will be at some point, we'll have to shut the plant because if you're shifting it here, we'll have to close it and then move it here.

And that period entails a closure of production for how long? Between the time that...

Between 6 to 8 months. And depending again this COVID situation, labor and all on this, especially on the India side, it's all very uncertain. China, it's quite -- we know what you can do, what you can't do, and you can very well estimate it, but in India is very it's very difficult. Even today, to get labor for construction or for repair work or for anything, it's not easy. So we don't know based on these lockdowns what will happen and how things will progress. We are hoping it won't get worse than where we are. If it is not worse than where we are, I think, 6 to 8 months is a fair estimate.

But at the end of 12 or 15 months, hopefully, there will be no COVID situation, right? So that shouldn't...

Yes. So that's what, that's what we're saying. So the worst-case is this, unless it gets worse in the interim, so.

The next question is from the line of Anurag Goyal from Ampersand Capital.

Yes. Congratulations, sir, for the great set of numbers. Sir, I have 2 questions. One is on the recent acquisition that you have done. So what is the strategy? And are there any plans of further fund envision in that subsidy?

Which acquisition, sorry? We've not done any acquisition.

Not acquisition, the shareholding that you purchased.

That we are proposing to purchase, yes.

Yes. Yes. So what is the strategy and any further fund required there in the...

No. So I think that has already been answered earlier. We've already -- that we have to buy this balance 35% of our partner in Mexico, yes.

Okay. Okay. And on the net position, net debt as on June 30, if you can give and what will be the position going forward?

So I think, we answered that earlier also, it's about INR 430 crores then going, it will grow to INR 560 crores, INR 570 crores in the next 1 year.

Okay. And it includes a working capital requirement at Dahej plant?

Yes, yes.

The next question is from the line of Ravi Mehta from Deep Financial.

Congrats on good numbers. So one...

Mr. Mehta, sorry to interrupt you. The audio is breaking from your line, sir. It's not clear.

Yes. Congrats on good set of numbers. Just 1 question is that are there thoughts of putting up guaiacol in Dahej because once you get catechol and you intend to make vanillin, I think guaiacol is a missing piece, so are you actually thinking to have a full integrated facility in Dahej?

At some point, we'll have to do it. But right now, it's costing us about INR 1.50 or so in terms of per kilo in terms of logistics costs. So yes, at some point, not immediately. Maybe in 2 years' time, that would be logical to do to have it in 1 location.

Also on the debt number what you just spoke about, if you intend to probably have a 6, 7 months of a shutdown of vanillin plant to relocate it to Dahej, and you may have to build inventories to sell in those periods. So are you factoring that, I think, or that could have some more maybe temporary hit on the debt number because you would be building the inventory I believe?

Yes. I mean, it could have some impact, but also all the investment is also not front-ended in the shift. So we try and balance it as much as we can, so that the investment, especially on some of the construction and some of the moving and some of the acquisition price also could be back ended, yes, so that's the idea. Difficult to answer it today, it's something that is yet work in progress, yes.

And is the negotiation done or your still in the process of buying back the minority?

No, no, no, not as yet. Not as yet. We can't travel out. Right now, there's challenges traveling out of India, it's not permitted. So we're just hoping that in the next 1 month, it opens up.

The next question is from the line Surya Patra from PhillipCapital.

In fact, just I was looking at the kind of a relatively longer term approach, the business model of Camlin if I try to understand. You see, now this Performance Chemical which is the industrial chemical. So that is around 30%, on a sub 30% level. So then all of the business are like food ingredient business. And that positioning becoming even stronger with the entry of the health and wellness segment. So if this is the case so 2 to 3 years down the line, how should one really look at the business model of Camlin? And should one consider this is a food ingredient company or food additive company rather than a true chemical company the way it is understood today?

Yes. So I would say at least 60% to 70% of the business down the line will be as a food ingredient, food or animal feed, additive. It's the additives business, whether it's food or animal feed. I would said that, yes, it would be predominantly that. Of course, the Performance Chemicals will always remain and will always -- we have several projects that we're doing right now, expanding capacity and all of that. So that -- it's not going to go away. But yes, it will be more food -- already, I mean, if you see we are closer to almost 70%, even today is food ingredients. So yes, I mean...

Yes, correct. But the value progress work, that is visible, like because of the end-to-end integration and the true benefit of integration flowing after the integrated activity, manufacturing activities Dahej side. And the value-added health and wellness proposition work we're adding. And with the even further expansion of the Dahej capacity, all that, probably, the mix between the industrial product and the food ingredient product that should improve towards food ingredient area. So that mix gives me a kind of an understanding base. See, if that is the case, then obviously, the value -- means -- or the margin profile, what we are currently seeing, we should ideally be looking at the margin profile of other food-oriented ingredient or chemical companies, right?

Right. That is right, yes.

The next question is from the line of [ Sharath Singh ], individual investor.

My question is like once Dahej is operational in Q3, where should...

Mr. [ Singh ], this is the operator, sorry to interrupt you. Please use the handset mode. We are not able to hear you.

Sir, my question is, once Dahej is operational in Q3, where should our top line be given we'll be selling out from Italy, the producer in Italy?

So I think our top line should -- I mean over last year, we are expecting this year to be in excess of about 20% growth. And overall, we'll continue to grow at 20% to 25% every year.

Okay. Okay. And sir, the entire ramping of Dahej should be done by what time that? As in that when we start the production we will at 70%?

Yes. That's right.

So the optimum utilization, which is 100% would be by when, sir?

So at 3 to 4 months, it will take to scale it up to.

Okay. And by then our top line will be up by 25% year-on-year? That should take us further.

Yes, yes.

The next question is from the line of Srihari from PCS Securities.

Firstly, on the production ramp-up on the diphenol front. I mean, if you could please state that out, I presume you would be running at around 10,000 metric tons currently. So for fiscal '21 and '22, how do you see that ramping up? And secondly as far as vanillin is concerned, what is the share of guaiacol bulk in sales currently? How do you see the sales of vanilla ramping up there? And will the shift to India make a significant difference in the context of share of vanilla? And if you could please talk about the value addition as well? How is it different for guaiacol bulk and vanilla?

So vanilla shifting to India the advantage that we get, of course, apart from the cost advantage is also from a market advantage because the U.S. has special duties on Chinese products. Second, post COVID, a lot of the European companies also want alternative sourcing abilities moving away from China. So we are being encouraged by all our customers that if we can produce in India and manufacture in India an Indian product. That will give us an advantage over a Chinese product. So clearly, capacity utilization and market penetration advantage is significant if we make the move to India and start producing in India. And as far as margin goes, also, there is an improvement in margin, not only purely because of capacity utilizations, but also the cost structure in India is cheaper. So we do see an improvement in margins, which we were to produce in India. As far as guaiacol goes, guaiacol is consumed 1:1 for vanilla. So if we are selling 2,000 tons of vanilla, it's 2,000 tons of guaiacol, which is produced and shipped from India.

Can you tell the current realization for the 2 products?

You want per kilo realization?

Yes. Guaiacol bulk and vanilla, what are the realizations currently?

So, yes, the value addition -- the guaiacol will be typically 40% of vanilla and vanilla is about $10.5.

Yes. And I also asked about the production ramp up for diphenol how is that likely to happen overall?

That I already answered, no. That will take 4 months to get to full capacity.

So -- and that would effectively mean doubling of your production?

Yes.

So you mean to say, effectively your production is going to double in a certain period.

Yes, that's right. Yes. Yes.

So rather -- so like doesn't that mean that the top line should double?

Not necessarily -- the top line will not double there. I mean, I think you need to understand the business model, please, on this call, it's too long to explain the whole business, yes.

Ladies and gentlemen, due to time constraint, we'll take that as the last question. I would now like to hand the conference over to Mr. Ashish Dandekar for closing comments.

Ladies and gentlemen, thank you very much for participating in this investor conference. I hope we have satisfactorily answered most of your questions, and we look forward to interacting with you at the next occasion. Thank you, and good afternoon.

Thank you. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you now disconnect your lines.

Thank you.