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

Ladies and gentlemen, good day, and welcome to Camlin Fine Sciences Limited Q3 FY '22 Earnings Conference Call hosted by Sunidhi Securities and Finance Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rohit Sinha from Sunidhi Securities and Finance. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. On behalf of Sunidhi Securities, I welcome all participants to Q3 FY '22 earnings conference call of Camlin Fine Sciences Limited. We would like to thank the management for giving us this opportunity to host this call. From the management of Camlin Fine, we have with us today Mr. Ashish Dandekar, Chairman and Managing Director of Camlin Fine; and Mr. Nirmal Momaya, Managing Director, and Mr. Santosh Parab, the CFO 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 open the floor for the Q&A. Over to you, sir.

Thank you. Thank you, Rohit. A warm welcome to you all, ladies and gentlemen, to this con call. As you can see from our published numbers, we are well on the way to the strategy that we embarked on about 5, 6 years back. And we are solidly on the path. We have had some hiccups and some delays, but all of them are behind us now. And as you can see, the numbers have started showing it. So we are quite excited about the way forward. And as is our usual practice, I will ensure that I hand over to Santosh, who will give you the salient features, and then Nirmal is there to answer your queries. Thank you very much for being here. Santosh, over to you.

Thanks, Ashish. Good afternoon, everybody. As Ashish said, it has been a tumultuous road, a roller coaster ride, both on the numbers as well as on the environment here. The early part of the quarter was showing green shoots, with pandemic slowing down, economy reopening, inflationary trends in cost also stabilizing a bit. However, fourth quarter, as you know, has ended with a fear of another viral wave, by now seems to be ending. Rising costs, again, due to spike in the crude very recently. And of course, the volatile situation in some of the countries in Europe. Despite these, we remain positive about the business. Of course, we'll say this with a word of caution. Without taking much time, I present the highlights of quarter 3 ending December 2021. I guess you had an opportunity to look at the unaudited financial results as well as our presentation for the results, which we have uploaded on our site and also on stock exchanges. We are glad to inform that we have recorded the highest ever turnover in this quarter, both at stand-alone and consol level. Stand-alone was INR 200.22 crores while the consol was INR 380.82 crores. Consolidated quarterly EBITDA, PAT and PBT for consolidated are also [indiscernible]. Consolidated gross margin has improved by 166 basis points over last quarter. This in spite of sustained higher raw material costs and also the largest [indiscernible] cost in this quarter. Consolidated operational EBITDA margin was at 14.5%, almost 700-plus basis points improvement as compared to last quarter. In the real terms, our consolidated operational EBITDA was at INR 55.17 crores as against INR 22.17 crores in the last quarter. The increase in margins was primarily fueled by impressive revenue growth across all product lines and stabilization of diphenol plant in Dahej. This is despite the onetime expenditure in the current quarter of INR 3.98 crores on account of reversal of the export benefit under MEIS scheme, which was done by the government in this quarter. Consolidated PAT has also improved from a loss of INR 3.88 crores in the last quarter to a high positive PAT of INR 27.15 crores in this quarter. At standalone, gross margins have improved by 295 basis points to 40.6%, while the operational EBITDA has also improved by 873 basis points to 11.6%. The stand-alone EBITDA in real terms was INR 23.13 crores, which is highest-ever quarterly operational EBITDA. PAT [indiscernible] audited to INR 12.38 crores from [indiscernible] INR 10.15 crores in last quarter. Overall, for the 9 months, the current PAT has recouped the last 2 quarters' loss and now stands at INR 14 crores positive. Let me now update you on the status of the legal case against our partner of vanillin manufacturing subsidiary in China. As informed in the last quarter, the review petition was heard by the Supreme Court of China in the month of October '21. We are awaiting the final order of the court, which seems to have been delayed due to the pandemic situation in Beijing and Chennai. Though the time lines will not be determined as such at this moment, we are [indiscernible] the receipt of order before the end of this financial year. The Chinese plant remains closed till then. Our CapEx program remains on track. The construction of ethyl vanillin and methyl vanillin at Dahej [indiscernible] would achieve mechanical completion by end of this financial year, that is March '22. We are targeting attaining commercial production in and around during June, July 2022. We are augmenting stock of category to brace for ethyl and methyl vanillin plant. We're confident of managing the working capital needs for the sale without any additional external [indiscernible]. The positive impact of capital will get reflected on commercial production of ethyl vanillin, methyl vanillin FY '22. Company is also continuing its [indiscernible] mission on increasing value-added downstream, which would fructify in the coming quarters. During the quarter, company, as you know, and which have declared, have completed the acquisition of minority of subsidiary in Mexico, Dresen Quimica. Company now holds 98.5% of the subsidy. This will further [indiscernible] the returns to the owners. Company also completed the acquisition of AlgalR NutraPharms, whereby it has now become 83% -- 80% subsidiary of the group. It is an exciting business approach, and then we'll talk about it more and more in the future quarters. Discussions with Lockheed Martin are progressing well on the supply of proprietary chemical of battery storage systems with a deal for commercial supply in financial year '24. We'll be sharing more information on it in coming quarters. As you have read in our financial statement, there is a note on the National Green Tribunal. National Green Tribunal, on January 24, 2022, has revised the compensation leverage for the environmental impact on near the Tarapur MIDC from INR 15 crores to INR 17 crores. The addition is unfair and unlawful. We have initiated process or legal action against it. At this [indiscernible], we do not foresee any cash flow out on the matter, and we are confident that this compensation order will be revised. Briefly on the operations of our subsidiary, CFS [indiscernible] in Europe, Ravenna, which manufactures diphenol has posted a turnover of INR 87 crores during this quarter, which is after an annual maintenance shutdown of [indiscernible] during this quarter. So in spite of a shutdown for annual maintenance, which is a [ regime ] feature, we have posted INR 87 crores. CFS Mexico [indiscernible] turnover of INR 91 crores in this quarter, and we expect it to continue its impressive performance. CFS Brazil and CFS North Americas with turnover of INR 22 crores and INR 13 crores, respectively, are expected to improve [indiscernible] more performance in the future quarter. The group, overall, the group remains positive in all verticals. Of course, the [indiscernible] continuing inflation trend in crude prices, logistical costs should -- really should not be a dampener. Lastly, I would request you all to keep wearing masks, get vaccinated and take care of your health. We will now open the floor for questions.

[Operator Instructions] The first question is from the line of Susmit Patodia from Motilal Oswal Asset Management.

Congratulations on a great set of numbers. And I wanted to -- if you could -- I mean, you probably have spoken about Lockheed Martin starting in FY '24 for the first time. So I just wanted to understand what would be the milestones leading up to that this batch, the sample batch, the commencement of construction. Can you just help us understand that in more detail?

The milestone really is -- Lockheed is finalizing their first commercial orders with their customers. And as soon as those are done, correspondingly, orders will be placed on us. This is in advance of the plant that we're setting up. This will be -- these batches will be carried out or the supplies will be carried out from our existing facilities between Tarapur, [indiscernible] and Delhi. So we expect the business to start from FY '24. The plant is a 300-metric ton plant. Program should get finalized in the first half of this -- of FY '23 and to be commercialized by end of FY '24. So that's where we are as far as Lockheed is concerned.

So sir, is it fair to say that whatever trial batch you had sent, that has now got approved and you are officially their partner? Is that...

Yes, we've always been actually, since 2017 we did that.

[Operator Instructions] The next question is from the line of Surya Patra from PhillipCapital.

And, sir, congratulations for the good set of numbers. I think we have really very strong, the best ever kind of revenue and profit this quarter. But in terms of the margins, if you can share, if I see the trend, let's say, the gross margins, which [indiscernible] used to be in the range of 40%, 50% or were slightly better than that. But in the last couple of quarters, we have seen between in the range of 44% to 45%, 46%, in that range. So is it led by any one-off thing or in the prevailing kind of price challenges what we are seeing? Or it is because of the catechol issue that what we have been seeing possibly because there is no vanilla -- conversion to vanilla enhance the position of the catechol. So could you clarify, sir? And how should you really look at the gross margin scenario going [indiscernible], sir?

Yes, you're right that the major impact has been because of catechol, since we've not been converting into vanillin, which has impacted the gross margin. On the hydroquinone side, whatever the cost increases we faced in the last 2 quarters, we've been able to pass it on with a lag. And we expect and believe that, that is something that we can continue to pass on. It's only the catechol which is impacting the margin. And with vanillin plants now nearing completion, we are expecting that we should be back to the gross margin that we used to have at that point of time when our plant in China was functioning. The vanillin market yet remains very strong. The prices are extremely attractive at this point of time. And we expect our entry into the vanillin market during the financial year should give us the improvement in margin -- gross margin that we've seen in [indiscernible].

Okay. The margin scenario would be meaningfully different than the historical trend. Because what I am saying is obviously, this margin scenario for the conversion into vanillin, that was not great whenever the China operation was on. But -- and the vanilla pricing were also significantly lower. And considering the much superior pricing condition prevailing currently and [indiscernible] only possibly will be better only going ahead, compared to the historical trend. So -- and our -- in this very large site, which is an integrated one, so that possibly will offer a meaningful better margin compared to the earlier [indiscernible] margin was the operation that was [ opting ]. That is one. And the full optimal utilization of this, the hedge plant. Considering these 2 things, should we see a kind of meaningful different number in target for gross margins?

Yes, with a word of caution that yes, that it's subject to what the vanilla prices would sell down at. Currently, of course, they are -- historically, these used to be at $10 to $12 and now they are at almost 3x that. We do expect that with our supplies, the prices should stabilize and rationalize. But yes, our expectation is it would be much higher than what used to be in the past and the pricing that was there traditionally. The pricing would remain higher. And yes, that would impact positively the gross margin.

Okay. Then sir, can you update us about the vanilla plant decommissioning? Where are we currently? And what is the stage of this set of progress? And when exactly that we are likely to see the commercial benefit out of it?

So basically, our commercial production should start between June, July of '22. We expect the trial production to start some time in April. So it takes time to qualify for -- with the customers, the product from trial batches. So keeping that in mind, the time lag that it takes to get those approvals, I think June, July is a fair estimate for commercial production to start.

From a customer valid -- yes, the customer valuation when [indiscernible], will that be a kind of a time continuing on? It would be like a couple of quarters or your kind of thing? Or how is that?

It typically is a 2, 3 months process.

Okay. Okay. And my next question is on the state consolidation, what you have achieved in the present subsidiary. So after that, what is your game plan for the Blends operation? I think that was one of the [indiscernible] contributed to the Blends operation. Now you are almost like full [indiscernible] there. So any thoughts on that side progressively?

So we continue to grow in those markets. We are expanding our reach in the Central America market as well as the Latin American markets by opening new countries with our own sales network, and we continue to focus on new product lines for both animal feed as well as food. So we expect that we continue to grow the Blends business at the 20%, 25% a year going forward.

Okay. Just last one question, sir. If you -- we have been working on various things like the [indiscernible] based product. We have been talking about, about this emulsifiers and new assets also new product listed that we have been talking about, so largely targeting the food and feed segment. So anything -- any progress on that? And let's say, [indiscernible] like new initiatives possibly. So across 3 years down the line, what is the worst expectation that one should really have from Camlin?

So on the food ingredients and feed ingredients, apart from the Blends, we are working on several product lines and products which we are at different stages of development of commercialization, including our fermentation business and some other products. Our estimate is that going forward, these food ingredients that we are in the process of executing, in the next 3 years, we should be targeting at least the top line of between INR 250 crores to INR 300 crores.

But is that different from or is that a different margin profile or how is it?

Here in this -- the CapEx is much lower. So the asset turn will be much higher than what we have in our traditional diphenol and downstream businesses. So we expect that's a INR 30 crores, INR 40 crores kind of investment will give us INR 300 crore to INR 400 crore kind of top line. CapEx would give us that kind of top line. and these are assets like products more on technical application and more on really the expertise that we have on our application side because of application laboratories and technical support staff. So we kind of expect that this margin will be quite healthy in these products. And also this not a very CapEx-heavy business. The kind of return that we get will be significantly better than what we have in our traditional chemicals in this [indiscernible].

[Operator Instructions] The next question is from the line of Dhruv Shah from Ambika Fincap Consultants.

Congratulations on a very good set of numbers. I have one question on TBHQ. Your competitor commented yesterday that they are getting into this. Is the market large enough for both large players to exist? Or will that impact our sales?

Market is about 5,000, 6,000 tonnes, between 5,000 and 6,000 tonnes globally, annual market. And [indiscernible] our market share would be roughly about 4,000 tonnes out of that. For a new entrant to come, I mean, surely, somebody can come, but to be fully integrated with hydroquinone and the backward upstream also under our control, it's kind of a bit difficult to remain very profitable for a newcomer who is buying hydroquinone and doesn't have the upstream capacity. It always is challenging on the margin side because to buy merchant hydroquinone and convert to BHQ, the margins are very limited in that.

I just have one follow-up question on that. He even mentioned that HQ and catechol is recently available in the market. Is that true? And if so, what will be the spread between what we sell it and what if we buy it and resell it?

Catechol is really available because we are selling it in the market, but as we don't have an [indiscernible] plant starts, catechol also will go into -- really, there are 2 big producers, Solvay and [indiscernible] and we won't be selling, and Solvay also will have a restricted amount of sales. So catechol [indiscernible] is very limited. So any which ways, that's never an issue. Hydroquinone. Hydroquinone is in short supply, very short right now, and we expect it to remain short for some period of time as the revenue markets that are opening up for hydroquinone consumption, newer capacity for [ actinates ] and actinic acids that are coming up in countries like India, Asia, China and other parts of the world where the consumption of hydroquinone is going up. So we expect the hydroquinone situation to be tight.

Okay. So that should help us, right? And even because we were considering downstream from HQ, but considering the spread in Asia itself, we might reconsider that.

No. But we will go with the downstream. Wherever there is an additional margin in the downstream, of course, we will continue to do that.

[Operator Instructions] The next question is from the line of Ravi Mehta from Deep Financial Consultants.

Congrats on the numbers. Just one question. The trade sales have also grown substantially in this quarter. So we are anyway the big market share holders in this segment. So how are we able to sell? Is it price-driven growth or some color on that?

Significantly, it's the strength of our upstream of hydroquinone because hydroquinone is short in the market, and our capacity came in time. We are able to gather and gain market share because our competitors don't really have access to enough hydroquinone. So it's not price-driven. We're not discounting anything, which -- we are not undercutting anyone, but it's purely because of the hydroquinone situation.

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

In terms of key goalposts that you would want to benchmark in the current year, given that the hedge is stabilizing and more than stabilizing there, what are the critical things we would want to -- so when does the catechol get converted to vanillin and some of these other goalposts that you would want to achieve in the current year, if you can just outline those.

Vanillin is the biggest one for this year. And we expect by June, July, we should be in commercial production for vanillin. So that, I would say, is one of our main growth force. And then we also have other products that in the food ingredients and feed ingredients space that I mentioned earlier. There are about 5 or 6 products which we will be launching in the very much immediate future, and to scale those up to a certain level is a key goalpost for this year.

Correct. And secondly, what would be the CapEx for next 2 years? Better than that, what would be our maintenance CapEx look like?

So I mean once our [ lending ] is done, they're looking at about between -- I would say typically, the CapEx would be between INR 60 crores to INR 100 crores, not more than that annually.

Sorry. How much?

INR 60 crores to INR 100 crores. Maximum would be INR 100 crores, in the range of INR 60 crores to INR 80 crores.

Okay, okay. And overall, with the CFS also, all the overseas also kind of coming back to their potential, what would be the critical thing we would be looking at, at least from those geographies?

So in North America, one good breakthrough that we have got now in the pet food market, which is what we were working towards for the last 4 years, and ultimately now, finally, we've actually been able to make a substantial breakthrough in that market. So I think the next 12 to 24 months will be to gain market share in North America in the pet food segment, a substantially large market. It's almost -- the universe is almost close to $100 million. So we have a long way to go. And that, of course, is very small, but that's really something that we are going to push for in North America. In Central America, which is Mexico and neighboring countries, we already have well established with most of the large consumers in -- whether it's in animal feed, whether it's poultry or swine. And also on the food side, we're well established. So we are expanding our portfolio products into those customers as well as -- geographically, we are getting into Ecuador, which is a big goalpost for us this year, which is one of the largest aqua market, which is shrimp and that segment of the market. So that's where we focus -- growth area for us. And in Brazil, it's the animal feed business, where we've kind of restructured our team and now have strengthened that team in animal feed market. And the focus will be to launch and introduce all the products that we have in the animal feed portfolio in Mexico and India and actually take that to market in Brazil. So these are largely our goalposts there. In India, we are also expanding our footprint on the animal feed side, got into the aquafeed market as well as establishing ourselves across the country on poultry and dairy. So that's also a big focus area for us in this year as well as in the Asian markets. Southeast Asia, we are focusing on Vietnam and Malaysia and Thailand. These are 3 markets that we are focusing on in this -- in the next 12 months, there -- we expect to make breakthrough on the animal feed side. So yes, broadly, this is the kind of thing for the next 12 months.

Right. And two quick questions, if you can allow. First is do you anticipate any further adverse impact from the environmental for our new Bombay plant?

No. So there, what we have done is we've actually reached a very advanced stage of getting into [indiscernible]. So by end of the year or April '22, we should be in a [indiscernible] situation. So once we've reached [indiscernible], there will be, there is no risk of any environmental issues.

But the order was supposed to be for the prior year events rather than post factor.

Yes. So all the prior events were covered by that order. So in that sense, there is nothing beyond that, which is...

Okay. So worse come worst, there could be a INR 4 crores, INR 5 crores adverse impact, just in case?

It's difficult to say, but I mean, we don't expect really -- because originally, it was INR 5 crores. They went to Supreme Court. Supreme Court handed back and they will actually increase it to [ 17 ]. It doesn't make sense. So anyway, working legally what we can do, but we don't anticipate a very substantial kind of event there.

Sure. And if one takes a few years ago and a few years in tandem, then our gross margins were much higher. In your opinion, in this current year, would we be closer to that? And in terms of pass-through of raw material, which has seen a lag for most of the chemical guys. So...

No, I explained earlier about the catechol to vanillin, and then we will be back to that and pass through. For hydroquinone, we've already done that. So it's only a question of more catechol but vanillin will be able to do that so we come back to the margin as we were earlier.

Right, because there is still a substantial gap there. So...

Yes. Yes. [ We expect ] the same gross margin, yes.

[Operator Instructions] The next question is from the line of Amar Maurya from AlfAccurate Advisors.

A couple of questions from my side. Number one is, sir, as you indicated like in North America, we got a good breakthrough. I basically wanted to understand like we were talking about getting a lot of new orders in North America probably 3, 4 quarters back. So is that the same kind of breakthrough? Or this is something new, which we got [indiscernible]

No, it's the same thing that we were expecting 3, 4 quarters ago. There was pandemic. It all got shifted. So now with personal meetings have opened up, and the U.S. is far more open than both sides of the world. So that's where we are getting traction now.

Okay. So, let's say, sir, as you indicated, that universe is very large. And I'm not sure we would have got large clientele over there. So what kind of a run rate we can see in next 4 quarters from there, the U.S., today?

We expect by the end of the fourth quarter, we should be in a situation where we will be about breakeven, for sure.

About breakeven. When you say about breakeven, that is in the fourth quarter of '22, correct?

Yes. On a run rate.

Okay. And when we will be back -- I mean, when will we become profitable in the U.S.?

Starting next year is our expectation there. FY '24, we should be making money there.

FY '24. So basically, when you say that you've reached a breakeven in Q4, so FY '23 will not -- will just maintain the breakeven situation there or will make some profit also?

No, FY '23 I'm saying will be at breakeven and FY '24.

Okay, FY '24 will be the profitability.

Yes. Yes.

So ultimately, like in the U.S. in the large [ everything ] and we were targeting it from a long period of time. And let's say, what would be the contribution of U.S. to the overall revenue in FY '24?

Well, that will be not very large yet. The total revenue, it won't be very large yet. It will be probably 5%, 7%. Nothing more than that.

And secondly, sir, about this China issue. The plant, I believe, is still closed there. What would be the solution for that? Will we be getting the opportunity to get those machines here in India? Or what we will do with that investment there?

There, we are converting that into another product called [indiscernible]. And we've already applied for environment clearance. We expect in the next few months, it will come. And once that comes and the court order is passed, we can then convert it to that product, which is nice and, again, catechol-based product, market price being $25, $30, so decent margin. So that's the idea, to move that facility into another downstream [indiscernible].

Okay. But then we will not be able to produce vanillin there?

No, because there is far more competitive, it's all integrated and we'd rather focus on Dahej for vanillin because they back some margin. So we don't want a higher cost product to compete with our low cost product.

Okay. Okay. And sir, vanillin, just to understand, vanillin, the total investment was around INR 250 crores, right? Or INR 150 crores?

INR 250 crores.

INR 250 crores. And this will bring at least 2x of asset ratio?

Yes. So I mean at today's prices of vanillin, it's still very [indiscernible]. But even if it's stabilized at [ $20 ] and you're talking about 6,000 tonnes, we're talking about INR 700 crores, INR 800 crores, top line at peak.

Okay. Okay. And this will be a similar margin business, like what company average kind of a margin? Or higher margin business?

This will be slightly higher than what we have today at current -- at current costs and current prices of vanillin. So I don't know what will happen to the price of vanillin. But it be where we are or where we expect it to be, will be a better margin than what we have.

Okay. And sir, your plant of MEHQ, I mean, I believe it is ready and we were looking to do some expansion there as well. So any plans there?

Right now, MEHQ from hydroquinone, it is better to sell hydroquinone. You make a better margin selling hydroquinone and then selling MEHQ. [ We stopped ] converting into MEHQ because it doesn't make sense. Alternatively, we can make MEHQ from an alternative route, which is from [indiscernible]. And we are in the process of understanding whether we should go that route or should we see what happens to hydroquinone prices as we go along. So it's something that we are working on. We've not yet firmed up exactly what we want to do.

[Operator Instructions] The next question is from the line of Nirali Gopani from Unique Asset Management. Please go ahead.

Sir, my question is on the Lockheed Martin deal. So if I understand correctly, we will be supplying roughly 600 tonnes of [indiscernible] by December 2023, right?

Yes.

And this will resolve all our existing capacity and we'll not need any further CapEx for this capacity again. And what kind of revenue can this capacity generate, the 600 tonnes?

Difficult to say as of now because we are in the process of trying to finalize that, yes. But it won't be -- it's not going to be significant in the scheme of seeing what we are doing.

Right, right. And sir, just 2 quarters back, like in Q1, we were expecting vanillin capacity to generate INR 400 crores of revenue. And today, we are saying INR 700 crores, INR 800 crores. So this is just based on the price volatile...

No, no. That's at the peak. We said INR 400 crores would be at 70%, and at peak, it will be INR 700 crores.

Okay. And will it take 2 years to achieve this optimum utilization?

Yes, at least.

Right. And sir, we had this EBITDA margin aspiration of 17% to 20%. So when the raw material issue is resolved, the freight costs normalize and vanillin comes into the picture. Can we achieve that kind of margin?

Yes, that's right. Assuming vanillin price will be in that range.

Great, sir. And then any guidance that you would like to give for revenue growth over the next 2, 3 years?

Revenue growth, I mean, will add about INR 600 crores, INR 700 crores of vanillin. On the Blends side, we will add about 20%, 25% annually. And some new products that we spoke about, the food ingredients, feed ingredients, will add in 3 years another at least INR 200 crores, INR 300 crores. So you put all of that together, we should be adding at least about INR 1,300 cores, INR 1,400 crores in the next 3 years.

[Operator Instructions] The next question is from line of [ Atul Shah ], individual investor.

Congratulations for a very good set of numbers. I just have a few -- just two questions regarding the pricing with clients. Just want to know whether it's been done quarterly basis or a yearly basis. And this...

It's all quarterly now.

It's on a quarterly basis.

Okay. Nobody is now doing any annual contracts just because of the way the market is.

Okay. Okay. And just another question that -- we directly deal with the clients or to the distributors? As what was the proportion between it?

I would say 70% of our business will be direct. 30% would be through distributors.

Okay. 70% is direct and 30%...

60% to 80%, 30%, 40%. A very small part of our business is distributor-driven.

[Operator Instructions] The next question is come the line of [ Shivaji Mehta ], individual investor.

Just one question, which was in regard to one of the previous participants. So you mentioned you want to add INR 1,300 crores in additional top line in the next 3 years. So this -- just to confirm all the numbers, this would be about INR 3,500 crores by FY '25. Is that right?

Yes.

The next question is from the line of Amar Maurya from AlfAccurate Advisors.

I just wanted to understand in this [indiscernible], how you would be expecting the revenue [indiscernible] will come in the first quarter. So what kind of utilization we can expect for the full year for FY '23?

Commercial production will come Q2. I think we probably of the total [ 2,000 ], I mean, we probably get 9 months of -- we should be doing about 2,000 -- around [ 2,000, 2,200, 2,400 ] that range. $20 if you take average -- $20, you're talking about $40 million to $50 million.

Okay. So kind of a 40% kind of utilization for the first year.

Yes. Yes.

And what would be the utilization for that after that? I mean by the time your trial and everything will be done to the client or not?

So next year, we should take up our utilization to 80%.

80% utilization.

Yes.

Okay. Okay. And sir, when you say that you are targeting INR 1,300 crores to INR 1,400 crores revenue, so I believe your accounting INR 800 crores or INR 700 crores revenue. Then the remaining INR 500 crores, INR 600 crores is largely your [indiscernible], right?

And some new products that we are working on.

[indiscernible] the natural products.

Natural fermentation, other chemical products also in the food ingredient and feed ingredient space.

Okay. But then for that, you have to do some investments also.

That's what I said about INR 30 crores, INR 40 crores will be the CapEx and maybe more -- some other ancillary investments, and that should give us opportunity for top line of almost about INR 300 crores.

[Operator Instructions] The next question is from the line of Ravi Mehta from Deep Financial Consultants.

Just wanted to know that the 4-week shutdown with [indiscernible] Italy. So during such a ramp down and ramp up, are there yield disruptions? Or just wanted to understand whether the gross margins can be even better? Or it was just a normal thing?

It's a normal annual shutdown. I mean, yes, the yields do get -- when that's very weak, I mean for a couple of days. So it's not even down over a period [indiscernible]. So it won't really impact too much.

Okay. Okay. And also another question I had was this ethanol blending becoming a big thing in India. So are there any antioxidants or blends that can be addressed to this market? Or are we working towards this?

No, not for ethanol. Ethanol does not require antioxidants. It's the biodiesel which requires antioxidants. So if it is vegetable oil-based or animal fat-based, those are the ones which require antioxidants. Ethanol, on its own, is a very stable product. So we don't see too much of an opportunity in ethanol-blended feeds.

Okay. And one more question was on the utility costs. So most of the company did see a big spike in Q3, and somehow you guys have managed it really well. So anything different we are doing or some long-term contracts or some benefit we are getting? If you can share.

We also got hit by oil prices going up, yes.

Then probably, I think you had levers of other cost rationalization because your costs were pretty stable.

Yes, yes, because power and fuel actually did go up in the quarter by almost INR 5 crores. But yes, the other costs correspondingly have come down. [indiscernible]

[indiscernible] These cost rationalization are sustainable, like -- or it was just kind of one-off, you tried doing it in this quarter?

No, no. Last quarter, there was -- because of the average, there were some costs which were the one-time costs and costs were bloated because of fixed cost being higher. So that's it.

The next question is from the line of Susmit from Motilal Oswal Asset Management.

Two small questions. One is on your debt level now that your majority of the CapEx was finally done. Is there a plan to go to become debt-free in the next 2, 3 years as well? Any thoughts on that?

Not really debt-free, but of course, we will bring down the net debt for sure as we go along, partly across some conversions of [indiscernible] are expected and some repayments, of course. We continue to repay. So the idea is to reduce the debt as much as we can. But there's no plan to make it debt-free in the next quarter. It will probably take a little longer.

Okay. And the second thing just this whole additional INR 200 crores, INR 300 crores of revenue. This does not include Lockheed, correct?

No, it does not include Lockheed.

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

Sir, just wanted to understand, I mean, as you have indicated that for China, we'll be looking to convert it to make something [indiscernible] more product would be there. So just wanted to understand [indiscernible] on after getting the environmental clearance, what would be the time line to do all those conversions? And how much cost would be there overall and possibly, if you can quantify any kind of a return on that.

So basically, the additional costs will not be substantial because the plant is more or less very similar to the management facility. So there will be some building CapEx. It won't be significant. As time -- from the time we get approval to restart as well as the environmental clearance, it's about 3 months to modify the plant and not more than that. Very small modifications that is done.

Okay. Okay. So by when we can expect the revenue contribution from that facility?

So the environment clearance is about 4 months, is what we understand. So another 3 months or by the end of the year, we should be ready with the facility.

Okay. Okay. And by that time, would there be cost recurring in that [indiscernible]?

There is some [indiscernible], yes. That's very small.

Okay. Okay. And sir, just wanted to understand the [indiscernible] on the subsidiary side. I mean the [indiscernible] exposure. So as you are saying that the Ecuador is the next target for us. So that would be on the top line side. What would be the potential there maybe after getting into the market? And secondly, how does Mexico growth we should be looking at going forward now?

[indiscernible] Mexico. So when we say Mexico, it doesn't mean only Mexico. It means all these countries around [indiscernible]. We're just saying that the 20% to 25% growth in Mexico will be largely driven by something like Ecuador and new product launches in the existing markets.

Okay. Okay. So I mean, we keep on exploring new region as well that would be bringing the growth in -- and possibly exploring new regions [indiscernible] over the next year.

The same, similar range because there's no real investment. It's only sales people. Service is not so bad.

Thank you very much. As there are no further questions, I now hand the conference over to the management for closing comments.

Thank you. Thank you. Thank you very much, ladies and gentlemen, for participating in the call, and we look forward to interacting with you again in the next quarter's results. Thank you, and be safe. Until then.

Thank you very much. On behalf of Sunidhi Securities and Finance, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.