Clean Science and Technology Limited (CLEAN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Clean Science and Technology Limited Q4 FY '23 Earnings Conference Call, hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankur Periwal from Axis Capital Limited. Thank you, and over to you, Ankur.

Yes. Thanks, Ryan. Good afternoon, friends, and welcome to Clean Science and Technology Limited's Q4 FY '23 Conference Call. The call, as usual, will be initiated with a brief management discussion on the quarter and full year performance, followed by an interactive Q&A session. Management team will be represented by Mr. Siddharth Sikchi, Promoter and Executive Director; Mr. Sanjay Parnerkar, Chief Financial Officer; and Mr. Pratik Bora, Vice President, Finance. Over to you, Siddharth, for your initial comments.

Thank you, Ankur and good evening, everyone. First of all, I would like to thank all of you for taking time out to attend our earnings call FY '23. I am very happy to connect with all of you again to discuss the performance of our company in the financial year FY '23. I am pleased to inform that it has been a very strong performance by the company, recording its highest-ever revenue, EBITDA, and PAT for a financial year amidst the global macro challenges and volatile raw material prices. Also, as mentioned in the last call, our manufacturing plants for HALS (Hindered Amine light Stabilizers) 701 and 770 that got commercialized in our Unit 3 in mid of November has stabilized and ramping up as per our scheduled time frame. We have received good response from the domestic markets and recorded our maiden sales in Q4 FY '23. We aim to increase our sales gradually in the coming months as we look forward to add new premium accounts in the domestic markets and make headway in the export market. Like most of our products, we are proud that HALS has been manufactured for the first time in India and Clean Science as of now is the only manufacturer of this product. In India, of course. A little on financial highlights. This is the second consecutive year-on-year growth of more than 35% as total revenues recorded in FY '23 of INR 936 crores, which increased by 37% over FY '22. As compared to FY '22 in FY '23, the exports revenue grew by 40% and domestic revenue grew by 30%. Revenue mix was 72% export and 28% domestic. EBITDA increased to INR 403 crores as against INR 300 crores a year of 34% year-on-year. Input prices continues to be volatile throughout the year, but moderated and stabilized in H2 FY '23, leading to strong margin recovery during this period. As a result, EBITDA margins at 48% remained stable at almost the same level as last year. PBT at INR 405 crores and PAT at INR 304 crores, both grew by 33% as compared to FY '22. At INR 191 crores, approximately, the company incurred the highest CapEx in the financial year in the history of the company. In spite of the CapEx undertaken during the year, our balance sheet continues to be tax-free with cash balance of approximately INR 300 crores. CRISIL recently upgraded the company's long-term CRISIL to a A- table and reaffirmed the short-term rating to CRISIL A1+. For the year, our ROCE was 50% and RONW was 30%. Our commitment to dividend distribution policy as highlighted by the fact that this was the first year we announced an interim dividend of 200%. In addition to this, the Board has recommended a final dividend of 300% also. For FY '23, sales improvement was led by a combination of good volume growth and improved realization across all products. For this year, Performance Chemical, Pharma & Agro, and FMCG Chemicals contributed 69%, 19%, 11%, respectively, to the revenues. Derisking of revenue continues with the addition of new products and new customers. New products now contribute has improved to 9% of total revenues in FY '23 as compared to 4% in FY '22. Contribution from Americas and Europe region is also increasing steadily. CapEx update. We have incurred CapEx of INR 191 crores during FY '23, with majority of this going towards our new plans for HALS in Unit 3 and upgrading of our existing equipment for efficiency improvement. Of this INR 65 crores were invested in our subsidiary said Clean Fino-Chem, CFCL, and all CapEx continues to be incurred through our internal accruals only. The construction activity at subsidiary Clean Fino-Chem Limited is on track. Various activities in this regard like site layout, initial civil construction, and allied activities are progressing well. ESG. Since inception, we as a company are fully committed to sustainability and continuously implement several initiatives across the organization. We are continuously upgrading our facilities and investing in various new technologies across all our manufacturing units that help us increase our energy efficiencies and improve our focus on 3Rs of reduce, recycle, and reuse. Our initiative has helped us significantly to reduce water, energy consumption, and also reduce emissions. We continue to increase our share of renewable energy. During the year, our third solar plant was capitalized with 5-megawatt capacity, taking our total solar capacity to 17.4 megawatts. We are committed to continually implement overly benchmarked ESG practices and sustainability is an integral part of our strategy. Under CSR, our core focus area remains to promote education, environment sustainability, and health care. So the basic outlook remains with a new series of products and a strong R&D pipeline, we continue to focus on diversifying our product portfolio and expanding our geographical presence. HALS series and a couple of new interesting products are expected to commercialize during the year, which will add to the existing product portfolio. We have implemented all our projects on time and are pretty confident that our new facility of CFCL will also be commercialized as committed. Our strong financials, strengthening product portfolio, automated manufacturing facilities, global capacities, focus on constant innovation and sustainability by applying clean chemistry provide us with a solid foundation to create a sustainable road map, enabling us to deliver consistent growth going forward. Thank you so much.

Thank you. We will now begin the Question-and-Answer Session. [Operator Instructions] Our first question comes from the line of Sanjesh Jain with ICICI Securities.

I got a few questions. First, on the CapEx, we did INR 193 crores this year. I think majority of it will be in the Slide 3. Can you help us understand what is left for next 2 years in terms of CapEx in Slide 3 and Slide 4?

Yes, Sanjesh. Pratik, this side. In terms of CapEx in the parent company, there will be a very small maintenance CapEx. But in the subsidiary company, this year, the CapEx could be INR 180-odd crores and incremental CapEx will be announcing by Q3 or Q4 that will go for the next line of series of products beyond there.

Now this subsidiary CapEx, it is in the Slide 4?

Yes, yes. Unit 3.

Our Unit 4 or Unit 3?

Unit 4. Unit 3 is in the parent company.

Okay. Got it. And this INR 180 crore will be largely towards sales?

Yes. Majority of that will be incurred this year. This will be primarily towards HALS.

Sanjesh, when we are implementing these CapEx, it is also for the site development, which helps us when future products come online.

So it includes utility, infra and all those things, plus the capacity?

The admin building. It includes the infrastructure, common ETP. It includes solvent storage tanks, the utility block like the boiler houses, the thermos plant, nitrogen plant. So it's a common -- I mean, the overall site development, along with HALS. So when the newer facilities come up, the CapEx is lower because this basic infrastructure is already covered under the CapEx won because it's a greenfield project.

So incremental CapEx will largely go towards production block for a particular product? Got it. Just to understand, in the first phase of commissioning of HALS, we did 3,000 metric tons, which you mentioned previously. And how much we will be adding in this next round of capacity?

No. So the CapEx won in Unit 3 is about 2,000 tonnes, not 3,000 tonnes. That is one. And 2 is the totality of HALS will be close to 15,000 tonnes. And it is a combination of a variety of products, not just one product, but all within the range of HALS.

And when we say 15,000, how many years are we factoring here?

3 to 4 years. I mean, the plant will be of these sizes, but of course, gaining the market share and utilization will take about 3 to 4 years' time.

Got it. Got it. And the average realization is close to $8 to $10, right?

Right. You can assume that.

Fair enough. Second, on the margin guidance and what we have delivered, I remember it probably the end of second quarter, we guided like we will be stable at 40%. In 2 quarters, we have done phenomenally well, no complaints. But do you want to relook at the margin guidance from the medium term with 48% this quarter, how should one see the margins for next 2 years?

Sanjesh, in terms of margin for parent company, there will be a steady -- I mean, relatively a steady state of margin. But of course, I mean, you can't extrapolate Q4 margins because this quarter, we were benefited with the benign raw material prices also. In the subsidiary company, the margins, as you would imagine, would spend on as the utilization levels improve.

Got it. Got it. But I thought the China situation has turned slightly more aggressive for the commodity and the prices are going to fall more is what I can understand and what has been some of the commentaries from your peer who produces your raw material. So in the near term, it is fair to assume that margins will remain robust, considering that the raw material cycle is quite favorable for Clean Science?

So I'll tell you the raw material prices are definitely falling. Of course, there is more stiffer competition because the global -- everything has opened up. So there will be more competition compared to what we had over the last few quarters, but also the commodity cycles, the prices of commodity chemicals, for instance, phenol has fallen as high as 30%. So we will definitely be benefited by that. But of course, there will also be market price reduction of our end product following the market trend.

Got it. Got it. So what should be a steady state margin, Siddharth, in the parent business? I can understand the subsidy - more from the parent business.

So Sanjesh, because these are, again, the prices are reducing. The demand of overall global demand is slightly reducing because of Europe factor, because of the U.S. factor. So you will have to give me a couple of one quarter or 2 quarters to really give you a correct picture of what you should look at in the longer-term preview.

Fair enough. One last question, Siddharth. I'm not dragging, but just one last. This year, particularly this quarter, the volume growth looks quite softish considering what we have delivered in the last 3 quarters. Can you help us ascertain whether it's a pricing decline or volume was slightly under pressure, though we have pulled the margin? What has happened and what is the story on the revenue side?

Sorry, there is a lot of disturbance here. The basic story remains is, a lot of MNCs, a lot of our customers were holding stocks because everybody was really worried about another lockdown or any other scenario. However, over the last 2 quarters that fear of any lockdown is all ruled out. The freight costs have minimalized and they have come to pre-COVID levels. So now if you see this last quarter and maybe Quarter 1, there will be a lot of destocking happening at our lot of customer places. And hence, everybody is trying to reduce their stock levels, which everybody had amplified during the COVID year. So that is what you are seeing that there is a slight reduction in volume. And of course, because of the commodity price falling, there is a realistic expectation of finished products also down and hence, the combination of 2.

Our next question comes from the line of Arun Prasath with Avendus Spark.

Good evening. Thank you for the opportunity. Siddharth, just continuing the discussion on this growth, especially on the FY '23. We had a stellar year or the top end growth of close to 35 percentage. Obviously, this has 3 components; the exchange rate, the rupee depreciation aspect, pricing has clearly has helped as compared to '22, and then the volume growth. And going by the current commentary, it looks like the 2 of the 3 components are not going to be there in this year. So will the volume growth alone will result in a sustenance of our top line? How should we look at this?

So Prasath, there is a lot of disturbance on your line. Can you split the questions into simpler components rather than a very long question.

So now you are able to…

So voice is going actually...

Is it better now?

Little better. Yes.

Yes. So what I was asking is, we had a 36 percentage growth in '23, largely because of the 3 components, one is the rupee depreciation, and then there is a raising of the individual products that were better than '22, and then there is a volume. But it looks like out of the 3, 2 will not happen in this year because rupees more or less stabilized, and you have pricing is also -- we are expecting declines. So can volume growth make up for these and help us sustain the growth? How should we look at it?

See, there are 2 aspects to it. In that typical business cycle, you typically get such one or 2 quarters when such operation occurs where there is destocking happening or where then there is a lower demand. But these quarters are also useful for consolidation. I mean these are the quarters which separate us or separate -- I mean, the fittest are separated and there is a lot of fraud in the market, which also disappears. These are also the times when we keep working on our processes because we have time to repair our maintenance of our plants as well. So these times are utilized for these activities. However, I do not see that such parameters of Quarter 1 will be for entire year. Probably there will be an improvement in Quarter 2 or Quarter 3 and where we anticipate that the volume growth will again return. Of course, if the commodity price still remain and if the crude oil price remains below $75 a barrel. And of course, if the commodity chemical prices are lower, then we do expect the finished product prices also to remain low. However, in absolute terms, in terms of volumes, if the Quarter 3 and Quarter 4, the volumes recover, then I think we are good to go.

On Depreciation. Yes, rupee depreciation did not benefit us largely because we undertake a hedging. So actually, for the year, first half was -- I mean, we reported a negative ForEx. There was no gain ForEx or no ForEx gain per se, in the H1.

Okay. So that means this year, we can expect some benefit because you would have hedged the much higher rates now.

Yes, relatably, we should be. Yes.

Understood. And then on the volume growth, Siddharth, just a follow-up question on that. Do you see any of your customers in, say, acrylic acid or its derivatives adding capacity and the capacity coming online this year?

No. No, nobody is adding capacity. Everybody is trying to consult. And I think that is what I just mentioned that this year would be a consolidation year for several of the businesses.

Understood. And last time, in the previous call, you mentioned that you are targeting 100 tonnes per month of HALS once you commission. How realistic we are now -- how closer to this target at this point of time?

So I mentioned that we should target about 100 tonnes per month after a year of production successful commercialization. So by the end of the year is what we are anticipating to touch that volume, provided the import still remains at about 250 to 300 tonnes. I mean I was on the relative market terms that we will get about 1/3 of Indian markets. So costs reduced because of the master batches consumption reducing, but I still am hopeful that we will be able to touch or gain 30% of Indian market.

Right. And what about the initial feedback from the customers, master batch customers? What is it there?

We have had no rejection even on samples. A lot of places we have given test, I mean, pilot samples, which have been approved at a lot of big accounts. And we have now started supplying in tonnages -- so I think that's a very good sign. In fact, as we are speaking, we are also trying to open up in Europe and in trying to speak to some customers in Europe. Recently, we got approved at a global account who are based in multi-country. So the response is very good and I think once we start our other zone of business or the other premium grades of HALS, which are more expensive grades, I think the response will be faster.

And in India, domestic, we have already touched base with all the leading master batch manufacturers or just?

More or less, more or less. We have touched base with all of them. Some are in the approving phase, some have approved us. But I think all in all, the -- I mean the first category from customers is that, I mean, they are really delighted to have a UE supplier based in India because it is a key component in their entire master batch which nobody has been able to successfully deliver to the quality at par with BSS standards.

Understood. That's very helpful, Siddharth. Just squeezing one last question for Pratik. Of the INR 190 crore CapEx we have done this year; in parent company, we have done close to INR 120 crores. Of that, how much is related to the HALS in Unit 3?

Close to INR 50 crores, but this I'm talking only about the production block.

Our next question comes from Ankur Periwal with Axis Capital Limited.

First question on the inventory situation, which you mentioned, the slightly elevated inventory across the board. Just curious if this is a specific phenomenon maybe in the domestic market or you are seeing the same in export market as well? Given that on a quarterly basis, at least we see especially on a quarterly run rate basis, Q4 is slightly softer on the domestic side.

So this we are anticipating -- ultimately, we are all related to each other. Even if there is a global slowdown or a global destocking, it also impacts my customer if they are based in India because ultimately, either they are exporting or using it for domestic market. So the answer remains that this is a phenomena which is occurring global, including us. So even in some places where we had very key angle deals, which were like very important for our company, where the stocks we had raised to 3x levels because of all these turmoils of transit. Now that we have realized that everything has returned to normalcy. Even we have started reducing our stock in line with our pre-COVID levels.

Sure, sure. And second thing, you did mention that the RM prices are coming down. And obviously, there will be some pass-through of this RM deflation. Has it already started happening or is it probably still some time for that to happen?

So it has already started. So what happens is when the market is soft and over that, when the commodity prices have steeply fallen, there is a very obvious expectation from customers to get a lower price.

Sure. The reason I asked that was that earlier probably people would have -- or normally industry would have likely elevated inventory and potentially there could have been some higher inventory -- higher cost rating inventory on the books. But in our margins, that was not the case even the gross margin expansion. So just curious on that side. Yes. So where I'm coming from, is the gross margin expansion also only a function of RM deflation, lower RM cost or it's also a function of better production?

Yes. So Ankur, we don't carry a very high inventory. It's less than 30 days. So the gross margin benefit is because of the lower RM cost and, of course, better product mix. Okay. Fair enough. So we don't get a much inventory gain, I meant to say.

Yes. Got it. And just lastly, on the HALS side, 701 and 770 largely focusing on the domestic market, but you did mention expansion into Europe as a market and tapping the international customers. From a distribution network point of view, is it in place or is it work in progress and any time lines you can share there?

Sorry, 701 is not an Indian market product. It is mostly export. 770 is domestic. However, the point is that by December, when we come up with the entire other basket, which will have global markets. So we are trying to start marketing and having distribution network globally. So by December, Jan, when we have these 2 products in line, the market network is already in place.

Sure. And have we started producing the samples for the other HALS range of products as well, which will go as a part of the pilot right now?

No, people are not interested in pilot samples because these are very key ingredients in their supply chain. So they would want to test only the commercial samples. And the same is the case with Indian suppliers also.

Our next question comes from Abhijit Akella with Kotak Securities.

Just a few things to clarify. One was on HALS; this 15,000 tonnes. Should we expect that all of it comes on stream in by December this year itself or will it be gradually spaced out?

See what happens is in a chemical plant, when we set up a facility, we have to set up a facility for the -- I mean, if we have installed the capacity of 15,000 because it is very difficult to split into fragmented capacities. However, the utilization will be very low when we begin this because, of course, the market has to absorb these capacities. So the installed capacity, the CapEx is already made for this 15,000 tonnes. However, the realization will start or as and when the market picks up.

Understood. And the total CapEx towards the entire 15,000 tonnes would be approximately how much?

Approximately INR 300 crores, which also includes the site development, which I just discussed with the first question.

Sure. Understood that. And yes, as you pointed out, it will take maybe 3 to 4 years to fully sell out this 15,000 tonnes capacity -- is that correct?

Yes.

So probably FY '24, we could maybe expect something like 1,000 tonnes of sales. And then FY '25, I mean would you have like some rough utilization number in mind?

Not like that because FY '23, the plant will only begin by December. The Quarter 4 of FY '24 will only go in sampling, teething issues, and all those things. So the real business will happen in FY '25.

Right, right. So understood. Also, just to check with regard to growth drivers for the next 2 to 3 years, besides the HALS range, you did mention in your opening remarks about a couple of other promising products. So are those likely to contribute significantly in the next couple of years? If you could -- if so could you please share some color on that as well?

So I do not want to disclose the product line we are doing, but of course, they are into our segments of performance chemical, intermediates for Pharma & Agro. So there is an additional CapEx of INR 200 crores, which we have lined up for these additional businesses, which I think we will start -- construction will commence from July, August this year. And these plants will all probably begin by mid of next year. So that is additional growth driver apart from HALS.

Right. This is mid of FY '25?

Yes. These are none of the existing products, more or less, these are all new products.

Sure, sure. I got it. What about the capacities of the existing products itself like MEHQ and VHA, et cetera, that we have debottlenecked. Do we still have some leeway to grow over there and could those also contribute over the next 2, 3 years?

Yes, of course. So we have a leeway. There is still open volumes which we can supply. And at any given point, if we see for some reason that these capacities are to fully utilized, there is always an option to replicate the plant capacities in our UNIT 4...

And the demand weakness that you're seeing for the time being, is that across the product range? Or is it concentrated to specific end-use industries and products?

See, typically, some of the products are doing well. Some of the products are slow. So it's a combination of both. And these are cycles, these keep changing. I mean after a quarter or after 2 quarters, some of the businesses will start -- they'll pick up some of the businesses will be slow. So it's really a combination of all of them.

Yes, understood. Is there an expectation that we need to pass on some of the raw material cost savings we have had starting the next quarter or so, maybe like just a timing gap between the fall in raw material cost and the negotiation of finished good prices downward.

Yes, definitely. I just mentioned that there's a combination when the commodity prices have sharply fallen and then the demands are slow. I mean our customers also expect because their customers are also expecting lower prices since the cycle and we have and we are a part of it.

[Operator Instructions] Our next question comes from the line of Krishan Parwani with JM Financial.

So just 2 clarifications on the previous questions. So one is, we understand that you would not like to disclose the name of the products. But just wanted to understand the chemistries that probably those products will entail. And our model would be the same? Would it be to focus on differentiated processes?

Yes. So these are newer chemistries which we are doing. And these are also catalytic processes. These are -- some of the products also have zero discharge, zero affluence. So the concept overall remains the same. And I think that is what we are going to take forward.

Understood. And sorry, I think I'm not sure whether you have given any update on PTZ. I mean, is it -- are the problems is all on the PTZ site?

Not yet, cost, not yet.

Okay, thanks. And just one last one. On the CapEx front, I think you mentioned about INR 200 crores of CapEx. So basically, can you break it down for like '24 and '25, what would be the number -- I mean, CapEx number for the full years?

Yes. So Krishan, for this year, we are guiding for a CapEx of around INR 180 crores FY '24. These will go for these new products, which will largely be during second -- last quarter of FY '24 or FY '25.

Our next question comes from Rohit Nagraj with Centrum Broking.

Sir, on the new set of products, so the HALS series, will our working capital requirement go up? And given that we are also targeting the exports market, so will we have to keep our inventory levels elevated given that there will be some transit time.

No. Not really...

Okay. Okay. Got it. And in terms of the new products that you just talked about the INR 200 crores CapEx. So will it also have a similar kind of raw material basket or -- and which can be sourced from domestic market or we will have to depend on imported raw material?

It will be a combination of both.

Our next question comes from Arun Prasath with Avendus Spark.

Thanks, just a follow-up. Sir, I just wanted to talk about PBQ. Have we completely exhausted the capacity here? And how is the domestic market looks like? And what else you are seeing in the export opportunity in this PBQ? Can it be scalable to how big this molecule in the export market? Some color on the PBQ.

So PBQ is majorly an agro business. Right now, that agro business is a little on a slower side. So we have, I mean, unused capacities. And we are also now -- I mean we are supplying already to some European and customers. And I think the volume growth will -- I mean, I hope that we'll see the volume growth probably in the Quarter 3 this year.

Okay. There is no domestic customers for this product?

There is major domestic customers, but ultimately, these are all agro-based customers and the demand is slow with these agro-customers.

Great. Understood. And secondly, on MEHQ, we are very confident that whenever the demand comes with, we'll be able to add replicate the existing plant and add capacities. Is it because others are not adding capacity in this product? Are we the only player who is going to add capacity in this, especially given the European players looks like they were nowhere in the motor riding capacity?

So it's a very difficult question for me to answer on what others are trying to do because we keep hearing a lot of names who are trying to get into this business. Our business is to be as sharp in our price was and try to get as much market share as we can. And when I said that the moment we realized that we are running out of capacities because we do not want shortages of these products in the market. We can add up capacities in a time frame of 9 months because we have done this already 3 times in our history.

Okay. Understood. And lastly, on the new set of products that you are going to start constructing in this year, what is the end product category for these products?

So some will go into performance chemical category. These are a series of products. Some might go into water treatment chemicals; some might go into pharma and remedials.

When you say performance, it is again into the polymer or any other category?

So in performances, I mean there are inhibitors again. So they will be used in a variety of industries.

Okay. But not concentrated in the polymer?

No, no, not specifically into polymers.

Okay. And this set of new products, what is the CapEx they are planning for these sort of products?

Approximately INR 200 crores.

And similar asset turns on margins, that is what you're anticipating?

Similar asset turn, yes, more or less once these products reach those scales. And margins, I think these margins, we will have to [Audio Gap] Our parent businesses. These margins came up after a couple of years because of our improved yield efficiencies, getting premium customers on board. So it will always be a combination.

[Operator Instructions] Our next question comes from Ankur Periwal with Axis Capital Limited.

Yes, just a few clarification. And Pratik, if you may pitch in. So the CapEx for Facility 4 is INR 180 crores, wherein then we'll have the full HALS plant up and running. And the second round of CapEx is INR 200 crores, which is over and above the current capacity getting into new performance chemicals, et cetera, right?

For the new products, right.

For the new products. So FY '24 is INR 180 crore CapEx, which will be largely HALS. And then this INR 200 crores odd for the new Performance Chemicals will be FY '25?

It will start partially in FY '24. But by mid of FY '25, we'll end the -- I mean, these products will be online.

Sure. So the revenue from these, let's say, INR 200 crores CapEx into Performance Chemicals will start, let's say, of FY '25? Correct?

FY '26, yes.

Yes, fair enough. And any -- if you can share product approval time frame over here, will it take 3 months, 6 months? Or it's already work in progress?

Some of the product will be very quick because we are absolutely aware of those markets. We are aware of the customers. Some would be a little newer customers. So that might be between 3 to 6 months' time frame. And more products will be far quicker because we are already into antiretroviral and this is also a product which goes into antiretroviral and we are going to replace the Chinese source -- so I think that could be a little bit more quicker.

Yes, that was my next question. Are these products replacement of some existing vendor with either Indian or international?

I realized that you would ask this, so I thought I'll answer it. Go ahead.

Sure. And the asset turns, as you mentioned, are similar to the current business.

Between 2.53, yes. So yes, it's true.

Our next question comes from Abhijit Akella with Kotak Securities.

Just one clarification with regard to the economics we should expect on the newer products in general. So while I understand that the margin profile on these will be significantly lower than what the parent company makes at least in the initial few years. From an ROC perspective, how attractive would you say they would be -- would they be more or in the same ballpark as the parent company business? Or how would you see that trending over the next few years?

Yes. So, Abhijit, again as the capacities reach optimal utilization level, the endeavor is 2x plus the ROCs with the parent company is clocking -- and then it will be a combination of asset turn, which we are guiding for 2.5x to 3x, but the margin -- I mean, I said turned into margin, right, ROC. So margin profile as we have been guiding that as we penetrate into these markets as we get those premium customers as the utilization increases, then the margins will start kicking in, and hence, the ROCs that we are optimistic of 50% level as it is playing out in the parent company.

Understood. Got it. And in each of these products that we are entering, we are confident that we have some sort of technical edge. That's a prerequisite for us to get into these products. Is that correct understanding?

More or less, yes.

Our next question comes from Chetan Thacker with ASK Investment Managers Limited.

Yes. So just wanted to understand one thing, a small clarification. So FY '24, revenues will be largely from our existing product basket. '25 is when HALS started to kick in and that ramps up over the next 3 years. And mid-of '25, we get these new products, so that should start kicking in from mid-25, '26 largely. That is a fair understanding?

Fair understanding, only thing is the HALS, of course, the plant which have already commissioned for the 770 and 701. Those will be additional in this year in this FY '24.

Okay. And so what is the total capacity of this 770 and 701 that has already been commissioned?

2000 tonnes per annum. -- install capacity.

Once the expanded comes in the other unit comes in, the total reaches 10,000.

15 plus 2.

15 plus 2. Okay.

Our next question comes from the line of Tanush Mehta, an investor.

Yes. A few of my questions have been answered. I just had a very broad question that seeing the way we are clocking our margins, which are nearly industry high. Does some of our customers come to us for negotiation because seeing that the margins are high as compared to what others make in the industry?

So when I also see some of my raw material suppliers flocking very high margins, I cannot go and tell them because the margins or the prices are related to the market prices. So if they are getting at a cheaper price than mine, then there is a negotiation. If they do not get at a cheaper price than mine, then there is no negotiation in.

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

So once again, thank you so much for taking time out to hear our earnings call. I hope I have been able me and Pratik have been able to answer all of your queries and looking forward to again speaking to you after our Q1 FY '24. Thank you so much, and have a great evening, guys. Thank you. Good bye.

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