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

Ladies and gentlemen, good day, and welcome to the Q2 FY '25 Earnings Conference Call of Clean Science and Technology Limited. We have with us on the call Mr. Siddharth Sikchi, Executive Director and Promoter; Mr. Sanjay Parnerkar, CFO; and Mr. Pratik Bora, Vice President. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Sikchi for opening remarks. Thank you, and over to you, sir.

Thank you so much. Good evening, everyone. I wish you all a joyous Diwali and a prospering new year. I'm happy to connect with all of you to discuss the performance of our company for quarter 2 of FY '25. The business environment continues to be encouraging. Our quarterly business performance has been a reflection of encouraging business environment. Coming to the financial highlights. Starting with the quarter-on-quarter comparison. On a sequential basis, the revenue was steady. Domestic and international sales mix was 30% and 70%, respectively. EBITDA remained steady at INR 95 crores, while EBITDA margins continue to be strong at 42%. A comparison on Y-o-Y basis, sales improved by 26%. And this improvement in sales is primarily volume mix. Improved sales led to strong EBITDA growth of 25% during the quarter. Consequently, the company reported 30% growth impact for the current quarter. As the subsidiary operations scale up, the consolidated profitability is expected to improve. We are on track to launch the Pharma intermediary during quarter 3 and look forward to volume scale-up in the high series. A little bit about the sales profile. The revenue contribution from Performance, Pharma & Agro and FMCG Chemicals were 69%, 18% and 14%, respectively. Performance segment witnessed strong growth amongst all segments led by increased volumes. Pharma and FMCG segments witnessed similar growth, which was volume-led. For the quarter, highest monthly sales volume sale to [ 135 tonnes ] a month basis. A little on CapEx update. We have incurred a CapEx of INR 155 crores during H1 FY '25, which was primarily towards investments in the subsidiary. We are pleased to announce announcement of construction activity for another Performance Chemicals segment, which is expected to commercialize by H2 FY '26. FMCG, we are pleased to announce the company has secured a responsible care certification for 3 years. The recognition underscores our commitment to safety, health and environmental management. On the outlook, we are optimistic on the growth going forward, led by launch of Pharma entering Egypt, scale-up of our new products under the HALS series and commercialization of Performance segment products. Thank you so much.

[Operator Instructions] The first question is from the line of Sanjesh Jain from ICICI Securities.

Happy Diwali. I got a few of them. First, you said that entire growth, what we have seen both in Performance and Pharma intermediate segment has largely come through volumes, which is very impressive, 30% plus, right? What current utilization are we running our plant right now in both this segment? And do you anticipate more capacity addition in the coming quarters?

Currently, we are running at 70% capacity utilization in totality. And right now, we have more bandwidth. So right now, we are not looking for expanding on initiatives.

Siddharth, can you break this between the legacy and HALS because HALS is something which is a newer product?

No, I'm not talking about HALS at all. I was only talking about Clean Science [ company ]. I mean as it is an absolutely different volume because the capacities are far larger, and we are probably at 10%, 15% capacity utilization. So the ramp-up has to happen.

So what we are telling is that even in the [ premier ] HQ, DHA and all those GCC and all those our existing products, there, we are running only 70%. So we have a good headroom for growth. So there is no immediate need for capacity addition there, right?

No, we have it. I mean right now, it's not needed. I mean we have debottleneck at various points. So now we are good for some more time.

That's very clear. Second, on the -- again, the parent business, which is the legacy business. The quarter-on-quarter, I see the mix of the business remains steady. Pricing also, you're telling us has been very stable. Any particular reason why there is a 250 bps quarter-on-quarter dip in the gross profit margin?

So, now, Sanjesh, what is happening is the -- see the raw material prices have increased over the past few months, due to the war scenarios. I mean the Israel, Iran thing and all that. So however, we have not been able to increase or pass the price increase right now to the customer. We are right now focusing on getting the volumes back compared to last year. That is one. Second, our product mix is also changing. I mean the principal products are reducing in newer products like the Pharma Intermediate, the TBHQ. So those products are now increasing the basket. And hence, there is a little compression in the margins.

Okay. But on a like-to-like basis, TBHQ and BHA, it won't be so much, right? I can understand raw materials...

Not so much, not so much.

Not to an extent of 250 basis points?

Not that -- it's not there.

Got it. Got it. And do we intend to pass on the raw material pressure or we will now focus on market share gain?

Right now, I think for the next quarter, I think I would like to focus on getting the volumes back, getting the business back on track because now I think the volumes have come back. And I think it's better not to increase the price, and we can see some competition might come up globally, somehow, if there is. So right now, our focus is to remain -- to have the same stickiness of the customer but get volumes as much as we can.

Got it. Got it. And was there any particular activity in America? The revenue sequentially doubled.

See, now our HALS segment, the water treatment chemicals, those markets have opened up from the U.S., that is one. Plus general -- I mean, some -- I mean, because of the last year slowdown, some of our customers of Performance Chemicals, which were not listing materials, have now resumed that. And so that -- those volumes have also now come back to the business.

So, this is sustainable, right?

Yes, yes.

This is absolute revenue question. I can understand growth, but absolutely sustainable, right?

Absolutely. It will also be sustainable.

Got it. Got it. Then the next thing on the HALS side of it, we were 3 products, 701, 770, 119, and we expected to launch 944 and 292. Where are we in that?

So let me go back. 701 launched, selling no problem, 770 [ tank ] kit. Now there are 3 products, which is 622, 944, 119. 622, 944 and 119.

And 770?

All 3 are done. All 3 are now successfully launched. Now we have started receiving approval from the customers. And shortly -- I mean, the sales have also begun. And now I think, hopefully, quarter-on-quarter, the sales and the volumes should start picking up, which we will start seeing.

Got it. Got it. This 622 was the water treatment one, right, you spoke about?

No, no, no. 701 was water treatment.

Okay. 701 was water treatment. That's what picked up in U.S.

Yes, that's also picked up in U.S.

Got it. Got it. The next on the CapEx, you said that the [ INR 30 crore ] pharma should be up and running next quarter -- this quarter, right? Q3?

By 15th November -- 15th to 25th November, which we expect to start putting raw materials in the system.

And this is what, domestic or largely exports?

Majorly domestic. China substitute.

So it is an import substitution?

Yes, China import substitution, right.

Got it. Got it. And we have all the approvals in hand, right? So because it's a relatively smaller capacity, so ramp-up should be faster?

There is no approval because pharma does not want approval from your lab or pilot. They need commercial product for approval. I mean those are very standard practice. But we expect the validation and approval we should get between 1 month to 5 months to 3 months depending on customer to customer. But while the ramp-up happens -- I mean once the approval happens and we start supply, I think the ramp-up should be pretty much easy because the building is ready. We just have to add equipment and that is the capacity.

And how much India imported materials are annually?

Right now, our capacity is 50% of Indian imports.

50% of Indian import. And we are competitive on pricing?

That is the whole reason to put up the plant.

Yes, yes. I'm just confirming. I can completely get that, just reconfirming that.

Of course, I mean, tomorrow's China reduces the price by 50%, then we don't know. But on current basis, I mean, what we have been tracking for the last 3 years, we should be able to catch up, no issue at all.

No issue, at all. And you said that one more product we are launching in second half of '26, that's INR 150 crores of CapEx, what we announced, right?

Yes. So that should start by June, July starts.

June, July of '25?

Of '25.

Got it. And this will be for what application?

Variety of applications, I mean it's quite a versatile product. So it is like a stabilizer, [ using as ] a Performance chemical. So it's for a lot of applications.

The next question is from the line of Priyank Chheda from Vallum Capital.

Congratulations for -- on a fantastic performance on volumes. Again, coming back to gross margins. So if the HALS mix further going up. It is not expected that gross margin mix will slightly deteriorate as well as EBITDA margin mix of slightly little bit. Now when we, again, prioritize volumes, should you think that this would further go down as HALS further ramp-up in the mix?

Sorry, I think there was a -- hello?

Hello. Yes, we can hear you, Siddharth. Priyank, we were not able to follow your question. If you can speak -- I mean, I think there is some disturbance in the line. You have to little slowly for us to catch it.

Am I audible right now?

Yes, you are. And focus on one question at a time.

Perfect. Perfect. The question is on the gross margins, with the HALS mix going up, it was expected that gross margins will slightly deteriorate on the lower side. Now when we are focusing -- yes. And now when we are focusing on volumes...

On consolidated levels.

Correct, correct. On consolidated level. And now that we are prioritizing volumes and we're not able to pass on slight price increases of the raw material, should we think and should we consider that this gross margin deterioration will be -- will further accelerate versus what we were thinking earlier?

No, no, no. It is not like that. So the margin and -- sorry, the price increase, I was more or less talking about the parent company products. That is point number one. Point number two, which is has volume pickup, as it pick up, our overall process becomes more and more robust because the plants are -- when a chemical plant is designed, these are continuous processes, right? So running a plant at 10% and 15% capacity utilization is not a very optimum level of capacity utilization. So as and when our capacity utilization increases, our gross margins will start improving also given the fact that our yields efficiencies will further start increasing or improving. So this will all account by increasing the gross margin. And of course, when we go to the fixed cost, because this is a very large facility, the fixed costs are relatively high. So when the volumes pick up happen, the fixed cost distribution across, the [ fuel ] basis will further improve dramatically and should start contributing more to the margin levels.

Got it. That is clear. On the regional mix, China, we have seen Y-o-Y for the first half going up by 38%. Now -- and as well as in Europe, we have seen a 34% jump. What should be the end market that we should -- end products -- end-consumer products that we should think when it comes to China, Europe? And also, is there a seasonality in India with respect to the September quarter, particularly?

No, no, no. There is no seasonability in our businesses. It is just that, I mean, the demand which you see the last year was a real washout. So these were expected demand -- these were the demand already in place earlier, of course. I mean, there is a small increase of 5% to 7%. And I think that is what has come back now in the system. So these are sustainable -- I mean, volumes.

Got it. And any particular percent in the end consumer market in China that we should think? Any particular end consumer market that we should ...

Acrylic acid producers.

Sorry?

Acrylic acid producers.

Got it. Perfect. And on the CapEx side, you did mention about a product of a product -- another product of Performance Chemicals. I think that stabilizes where we are doing the CapEx of INR 150 crores. You did not touch upon another product around the water treatment, which we have also been doing in the subsidiary company. Anything on that?

That has -- that will also begin, probably, in the next 2 to 3 weeks, we'll start the construction, and we expect that plan to commercialize by December -- December calendar '25.

And that's also INR 150 crores of CapEx. So now we are doing a [ 250 ] -- 2 products. One is Performance Chemicals with INR 150 crores and one is water treatment product with another INR 150 crores?

Total CapEx, INR 300 crores.

Perfect. In the same complex of the subsidiary, we have further room to expand. Now anything from your R&D labs, any breakthrough that we have got to about in terms of further expansion into new products in that line?

There are a few, but let them crystallize and let us -- if we decide to go on commercial scale, we will make the announcement.

Perfect. Now last question on the stand-alone utilization, the standalone business -- apparent business ex of HALS, where we are at 70%. And we have -- we know the key plug-in that we need to do with respect to one that we know is P-BQ, where we had to do some product rectifications. Where are we on that? And the second one is TBHQ...

One question at a time, Priyank, because it is short -- your voice, we are not clear. So P-BQ, we have restarted the plant, okay? We have restarted after our successful pilot trial, and we have submitted the samples to some of the customers. Let us get a feedback and then we will know -- I mean, has there been a process or product improvement in terms of application at the customer then. So we will know the results probably in the next 2 weeks' time.

And on TBHQ, where we were somewhere around 50%, 60% utilization?

No, that has gone up to 70% now.

Okay. So P-BQ and TBHQ are the key plug-ins to be done in terms of stand-alone utilization going up?

No, TBHQ did quite well quarter 2 as well. So that is why our utilization of parent product came down. So TBHQ is more or less settled, as P-BQ is the one, which we have to work on now.

Any other product in the parent where we need to work it on to -- for utilization to go up? Or is it a proper demand, which will drive the utilizations going up?

Right now, I think we are good. In case we see any demand coming up in any of these products, then I think the next stage will be to set up another facility for that.

The next question is from the line of Ankur Periwal from Axis Capital.

Just on -- while you did mention volume-led growth across Performance and FMCG and Pharma. Any Q-on-Q further decline in pricing or we are largely stable there across Performance as well as HALS?

Absolute stable now.

Sure. So -- and the comment that you earlier made in terms of focusing on market share gains, with the RM prices coming down now, is there any price cuts taken by competition? Or they are probably still holding on to the earlier pricing and hence, more market for us to gain?

Holding. Yes, we are holding at the same price now. And there is no real lowering of price. I mean, we are still in that range, plus/minus 3%, 4%. So sometimes it goes up, some news, again, it goes back. So it's more or less we are in the range. I mean I would not say there has been tremendous reduction in raw material prices.

Sure. Just curious, given that we have been consistently gaining volume-led market share here, any price tactic or any strategy being played by the competition? Or it's tough given the market environment?

Very tough given the market environment.

Okay. Fair enough. On the HALS side, we have seen -- last quarter, we were at 125 tonnes-odd, this quarter, we are at 135 tonnes. So gradual uptick there. This uptick is largely led by higher growth in the existing products that we had launched, 770 and 701 or the newer ones wherein we were waiting for the -- okay. So the newer ones which -- for which we were waiting for product approvals from global customers, when is the progress there?

So you will see that the first time -- I mean, of course, the material has been shipped to Europe, they have been shipped to the U.S. Now the customer base is increasing as we are moving forward. Fortunately, the next line of product, which completes the entire basket is also now fully commercialized, approved. So now I personally feel that going on, going forward, the ramp-up should increase with existing as well as new customers. Plus, we are at a point where we are started appointing distributors globally in South America and United States, in Europe. So that also -- the reach is also increasing as we move on.

Yes, that was the next question. So from a distribution point of view, we are there across the globe. So there are no building blocks there? That is already in place?

That is already in place.

So the only thing which you are waiting for is the approval for the newer as well as existing products, which are largely 5 now? Or have we started focusing on the blends as well?

No. So basically, what is happening is we are also making one blend already, which is called 783. And if needed, we can make other blends. But so far, we have not received any other interest in any other blend. So 783 is a more prominent blend. So blend is not a very complex operation. It just means mixing up to materialize an appropriate percentage.

Okay. Sure. And just last bit on the bookkeeping question. So this quarter, our tax rate had increased versus 25%, 26% earlier. Is it a one-off? Or should we read something into it?

It is only one-off, but there is no major increase in the tax rate. It is largely because of the other gains where the tax rate is a little more. The change in -- fundamentally, the change has happened because of the final budget where they have changed the rate for capital gain tax.

The next question is from the line of Arun Prasath from Avendus Spark.

My first question is on the -- our traditional Performance Chemicals business like [ the BHA ] and DHA. You said on the -- you said on a Y-o-Y basis, it's primarily volume-led growth. On a sequential basis, also is it a volume-led growth?

Yes. Yes. On a sequential basis, also it is volume-led growth.

Okay. Because I'm just wondering because in Q2, now price sequentially went up by 7, 8 percentage, but -- which means that we have not increased rates in [ MEHQ ] and BHA and other traditional products? We are not able to...

It was a very -- I mean the price is shorter because of the current news about the war between Iran and Israel. But within a week or 2, the prices again subsided down. So it is -- we are not in this one-off opportunist where we can increase the price so quickly.

Okay. So as of now, our price -- our procurement price is more or less come back to the normal in terms of amount?

Yes.

Okay. And earlier also said that you are going after the volume instead of margin. This is to the MEHQ and BHA or the other traditional Performance products?

I was speaking more or less about our parent products, about the parent business where we are trying to gain those additional market share. In terms of HALS -- I mean, in terms of other Performance Chemical like per se HALS, and we are anyways too little in the market. So we have to only keep adding and growing the market share.

I mean just to correct, we are not going for volumes over margin. We are conscious of not going for further margin dilution. Like we are conscious of ensuring EBITDA margins of 40% plus.

Great. Okay. Okay. So which means is there any capacity additions in our traditional basket of products outside India? Because you said there is an increase in competition, and hence we are not able to increase -- pass on the prices immediately.

Sorry, go again.

Is there any capacity addition outside India from your competition, where they are also placing huge volume in the market?

No. I mean, right now, there is no competition addition. Of course, the conventional route is always available for anybody to make the products which we are making. So we have to be conscious of the fact that we have to place our pricing in a manner that the customer is -- or that the competitor is not incentivized to add or move -- or add more capacity than go to the customers.

Okay. The spread between the MEHQ and the TBHQ, is it still negative, right? So we should still have some room to increase in MEHQ to gain this a decrease?

No, we will look at increasing probably post the December period, once we understand how the market is shaping up. So probably, we might look at it or we look at it going forward in quarter 4.

Okay. Alriht. Siddharth, can you also approximately, what is our current market share in MEHQ? And what is our capacity share in MEHQ global?

In MEHQ, we think our market share would be 55% to 60%.

And on a capacity basis?

On capacity basis.

Okay. On capacity is 60% [ MEHQ ]. Okay. And that means the actual volume share would be lower?

So the mean market share on the production basis, MEHQ could be a little lower because MEHQ also actively continued for BHA.

Okay. And anything you're hearing from your competition on adding MEHQ capacity on this alternate or there is any [ sort ], apart from outside India anywhere you're hearing about that?

No, not at the moment that we are aware of.

Okay. So we think largely this margin reduction in this quarter in the parent business looks like very temporary thing? [ Is it outside the system ]?

Right.

And any reason why in parent business, power and fuel cost is disproportionately higher in this quarter as compared to previous quarters?

In this quarter, it has gone up from 8.7% to 9.6%, primarily led by increased production activity, some impact of monsoon where we got lower net [ of our credit ]. And the third is also little bit alteration in the product mix, which are adverse impact on the power [ and fuel ]. That is from that narrow band of 8.5% to 9.5%.

Okay. Because what I'm seeing is sequentially power and fuel increased to 15 percentage, whereas our volumes probably increased by around 6 to 7 percentage. That's why I was wondering if there onetime, one-off impact in the [indiscernible]

There was a slight increase in the coal pricing also.

Okay. Understood. And finally, on the CapEx side, INR 155 crores CapEx we have done on first [indiscernible], there is an investment or actual deployment of the cash?

Deployment of the cash. Investment in the subsidiary by parent company.

Okay. Not as a deployment, not a deployment because our cash flow CapEx is starting the [indiscernible]

Some part of it is deployed by the subsidiary company. and some part is still in the treasury, which should be deployed in this quarter.

The next question is from the line of Ritesh Agarwal from [indiscernible] Capital Markets.

My question is regarding the recent election outcome of the U.S.A., how do we see this impact on your business, especially vis-a-vis to the exports that you do to China?

I don't think there is any impact on our business per se because -- I mean we had some before also when there was a change. And again, so that has really not impacted much. So I think we are very neutral to this.

So which is tariffs and the trade restrictions, will it take any kind of problem -- any kind of business disruptions or any kind of issue?

The tariffs from India -- you're talking about tariffs from India to U.S.?

No, tariff of any Chinese product and your exports to China, something like that?

No, no, no. The tariff between India and China has nothing to do with U.S. elections. That is one. But the positive part is that U.S. anyways has additional tariff of 25% for Chinese products, which anyway will be helpful to all Indian companies.

Okay. So you see no impact as such by this election outcome?

Not really.

The next question is from the line of Jason from IDBI Capital.

I just wanted to understand that last time we had spoken around sales volume of 125 tonnes per month for HALS and looking at an average of around touching to 200 tonnes per month going ahead in this year. So are we on track to probably have back to 2,000 tonnes of volume for HALS in this year? And if yes, then what are you talking next year? I just wanted a directional sense on HALS volumes.

See, first of all, all the 4 products which are commonly used by the customers are all now in place. That is one most important because earlier when we were offering only 1 or 2 products, whereas the customer had to buy the balance from the competitor. So now we have that entire basket, that is point number one. Second, because this was an absolutely new segment where Clean Science has entered, so the lack of trust, the lack of -- I mean, the first-time entry barriers were already in place. But now that we have started supplying products one already to them. So there is a very high level of confidence in these customers to test our balance to 3 products which we have launched -- which we have launched recently. So with all these things, with basic approvals in place, with getting REACH registrations in Europe, with having distributors set up across the world. I think now we are in a better shape than what we were earlier. So I mean, with this confidence, I think we should be able to, going forward, to touch 2,000 tonnes should be a target in 2025 for sure -- calendar year '25 I mean.

Sure -- financial year '25?

Yes.

Financial year. Okay, okay. And sir, about '26, I mean would you -- I mean, directionally, we have spoken about 4,500, 5,000 tonnes.

Right now, I think putting a number will not be -- so maybe in the next call, I would have more further clarity on how things are. And maybe that is the time we can discuss on this.

Sure, sure, sir. And but realization is not on an average, taking the basic as well the premium each products, we'll stay at around $8 level, I would assume.

$7, $8. Products are about $5 -- $4.5, $5. One is about $10, one is about $7 -- $7, $8. So yes, about $6-ish should be a decent number.

$6-ish should be around a decent number. Okay. Okay. Sure, sir. And just in terms of -- I understand that you've spoken about the CapEx, the 2 INR 150 crores new blocks. Now I just wanted to just confirm my numbers to the water treatment one you said will commercialize in December 2025. And the Performance Chemicals will commercialize in when? Could you just reconfirm those numbers?

June, July '25, about 7 months from now.

7 months from now and the water treatment shall commercialize by December 2025.

13 months from now.

That's right. And sir, again, when you look at -- when you look at the last call, you had spoken about that the Performance Chemical when you look at it at a revenue potential of around INR 350 crores of peak output. And you were probably going to give us a number for the water treatment in terms of opportunity size. So right now, would it be fair to give -- you would have a better assessment on the peak potential for the water treatment plant?

INR 300 crore.

So okay. So you're looking at an asset turn of around [indiscernible] Okay. And sir, in light of the same -- yes. In light of the same, just wanted to understand -- of course, this is INR 300 crores CapEx. So how would we look at our CapEx guidance in '25, '26 at a consol level?

The CapEx in parent company is hardly negligible because there is nothing coming there. I mean unless some people...

No, I'm talking about a consol level, on a consolidated level. I understand all the CapEx is happening in the subsidiary, which is [indiscernible]. So on a consol level, I'm asking '25, '26, what is the CapEx guide?

So, I think apart from INR 150 crores to INR 200-odd crores.

Each year, right?

Yes. So this year, it would be Pharma Intermediate, INR 30 crores. Part of the Performance segment, it could be close to INR 100-odd crores. And next year, it would be the residual part of the performance segment, INR 50 crores and incrementally INR 150 for the other performance segment, which we...

Water treatment, what we call it.

Okay. Sure. So this year probably should be on INR 180 crores on the next year should be around INR 280 crores. That's what the calculation said. Okay. And sir, just lastly, I wanted to ask you in terms of P-BQ, I mean, earlier part someone did ask. So if you could elaborate so what -- is this the same thing where the color was an issue? Is this the same thing the P-BQ -- is that the same issue? Is there some other issues we are working on? You did mention that there is some work on happening on the P-BQ part?

So we started the plant again with some improvement. As I said, it's a very delicate product. You need some approvals from customers to understand it if our product is suiting their application need because that was a problem which otherwise we had to stop the facility to relook at the process. But after the new commercial franchise, commercial -- I mean after the new office has started, the customer all needs new samples, right? That's what I mentioned that it will take us about 2 more weeks to determine if the new process -- the product coming out of the new process is suitable for the customer's application.

The next question is from the line of Shiwani from Monarch Networth Capital.

Most of my question is already answered, but if I could chip in -- this is Shiwani, 2 quick questions. One is around the sustainable margin. HALS is low-margin product, if I recollect. And going forward, what could be the blended margin for the company?

Yes. So parent company could be 30% plus at EBITDA level. And subsidiary, as HALS commercializes, it could be around 25%.

Okay. Sure. And for the new Performance Chemical, so that's coming up, the margin would be similar range of 40%, 42%, correct?

I mean it's a differentiated technology. So margins should be better than HALS, and it's adjustment to our existing products, but we don't want to comment on numbers say, at this stage.

Sure. And lastly, one more thing. We also there a new high-margin, high product, which is also in the pipeline. So could you comment on that?

They are still in pipeline.

Any update or any additional comments? Or it's too early to ask the same?

It is too early.

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

Just 3 questions from my side. So firstly, where are we in terms of approval for our new Performance Chemical, which is supposed to be launched in the first half of FY '26?

Once the plant commercializes, then we send the samples across and it should take between 1 to 3 -- 1 to 4 months for the customers to approve.

Okay. I mean, on the lab scale, are those approved?

Our customers are such that, I mean, lab and pilot will not really hold too much significance in this.

I get it. Okay. And secondly, on this HALS, the 135 tonnes per month volume that you indicated. So is it entirely from subsidy? Or is there any -- is there some volume from the stand-alone entity as well?

It is consol volumes. It is consolidation, yes. but only HALS segments.

Yes, yes. Yes, I got it. Got it. And just a follow-up on that. That's the last question. How long do you think it would take us for a meaningful ramp-up of HALS, let's say, just to be EBITDA positive on the subsidiary side?

This year -- and Krishan -- yes, we expect this year to close on EBITDA neutral, I mean, breakeven basis, FY '25 for subsidiary.

You mean the closing rate should be EBITDA positive, correct?

Yes, we are hopeful for full year because as new products are getting launched [indiscernible], there are more margin accretive compared to INR [ 701, 770 ]. Apart from that pharma launch will also help drive for the subsidiary company.

Okay. And the depreciation of the, let's say, pharma intermediate plant is already there in the numbers? Or it is yet to come in the coming quarters?

No, it has to come. The plan begin operations just in the next 2 weeks or so. We expect the real production to begin. I mean the finish -- the final product to come out, say, by mid of December. And say probably 1 month to 3-month approval from a variety of customers. So we expect revenues starting quarter 4.

The next question is from the line of Rohit Nagraj from Centrum Broking.

First question is, you already mentioned that now we have the [ basic ] products of -- bouquet of HALS products. In terms of our proposition to customers, what are we proposing to the customer? Is it primarily from the cost-effectiveness perspective or anything else in terms of availability or some other parameter?

First is price. Second is geographical location. I mean trade dominance is between China and Europe. So we are the first player from India. So a little bit on geographical say, China Plus One. So that was another parameter. So these are some of the reasons why we feel we should be able to get -- and we are -- I mean our -- with the entire capacity ramp-up our global market share would only be sub 7%, 8%. And the market is already growing at 6%, 7%.

Fair enough. Second question is we have also indicated earlier that there are premium HALS products which are priced above $17. So where are we in terms of the process on the lab scale and maybe putting up the...

Lab pilots are conducted. We have spent some of the samples to some of the customers. As soon as we get some results to understand, then probably we will think of how it can be manufacture it in the existing setup.

For that, we may not have to put in separate CapEx as such, at least in the initial stage.

Very little debottlenecking, some equipment here and there but we have no intention to put up any additional facility right now.

And that will take maybe 6 months, 9 months' time or shorter period?

6 months.

The next question is from the line of Archit Joshi from B&K Securities.

Sir, I have a question on the HALS industry assets with respect to the competitive dynamics as we see today, especially in comparison to maybe a few years ago when we decided to have this entire product portfolio with us for realization for a few dollars higher, if I recall correctly. And we've seen some bit of pressure on realizations in the entire pack, especially the newer ones that we are about to launch. What has changed, sir? And if you can also give a few signs of yours on what would be the drivers to these realizations improving? And mostly, sir, if you can help us explain the competitive landscape within HALS [indiscernible].

So basically, I have said this, I had answered this earlier. Again, I will just answer. So basically, the competition is basically from Europe and Chinese [indiscernible]. We are the fifth company globally to be fully backward integrated. There is tremendous pressure because Chinese have scaled up capacities over the past 2 or 3 years. And that is why they have driven the prices down. And we have to be closer to the market prices. Nobody wants to pay the premium. But at par with Chinese prices, we are able to set businesses. As things move up, as our capacity ramp-up happens, our yield efficiencies will keep improving, which will make us more and more competitive. As capacity utilization improves, as newer products ramp up in the subsidiary, the fixed costs will keep coming down, which will make the business more and more profitable as we move forward.

Sure. Sir, just sort of curiosity since some of our HALS are used in petrochemicals, mostly hydrolysis like polyethylene or maybe polypropylene, you mentioned acrylic acid earlier. You're seeing a situation wherein there is a decent bit of a petchem overcapacity. Is there any parallels between realizations being depressed and products where we are starting them with respect to the application area?

Acrylic acid was a for our other products that has nothing to do with HALS.

Acrylic acid, we mentioned it was for MEHQ. HALS' underlying application is largely polymer industry.

Okay. I thought that would be a derivative of the petchem cycle. But anyway, got your point, sir. Sir, lastly, on these 3 CapExes, one of them, the pharma intermediate batters already underway and the other 2 with INR 150 crores each. If you can just explain how different or similar are they from the perspective of technology, I think we've had great models on our shoulders with respect to the take that we have on MEHQ and the products in the base business, if you can share some of your insights on how cost-competitive we can be on the technology side.

So I will just comment on the Performance Chemicals -- I mean on the pharma intermediate we mentioned, it's a new technology, which we have incorporated. Of course, we don't know exactly how Chinese are making it. But looking at the price point, we feel we have a detailed margin going forward. That is one. In Performance Chemicals, yes, it's again, a newer technology. But of course, when the plant begins and it will be more and more clear to us and also to the market and how we have been able to improve the technology compared to our competitors.

The next question is from the line of Abhishek [ Ranavadi ] from Copeland Capital.

So I joined a little late. So I just wanted to ask you about the capacity utilization segment.

We don't give segment-wise, but overall, on parent company, it is 70% and subsidiary is brand new, so there is far lower capacity utilization.

Okay. And I would also like to know about the margin growth trajectory for the HALS.

HALS is at optimal utilization, we expect EBITDA margin of close to 25%.

Okay. And is it going to be same for the next few quarters? Or is it going to improve?

We will keep improving as we move on.

Okay, because the volume is picking up, it will increase, right?

Yes. Hopefully.

The next question is from the line of Arun Prasath from Avendus Spark.

So I just wanted to understand on HALS. Can you give us the -- what is the full potential revenue potential based on current prices of HALS and targeted mix at full utilization?

So, current, we are manufacturing the base products where the prices are closer to $4. Going forward, we are coming up with products which are closer to $8, $9. So if you do the math, we should be closer to $6.

Okay. $6 on the 10,000 tonnes of capacity. That is a [indiscernible].

Yes.

The next question is from the line of Jason from IDBI Capital.

Just wanted to understand, sir, on the pharma development space, the vertical CapEx, what's the revenue potential of this, sir?

INR 90 crores -- INR 80 crores to INR 90 crores.

Okay. Sure. And sir, just if I may, within this one last one. I mean one of our domestic peers has started their facilities in one of -- in some principal products where we also are large leaders. So sir, just if you could comment on some -- if we are seeing some more competitive intensity on the ground in terms of those products.

As on today, sir, I am not seeing anybody on ground.

The next question is from the line of [ Neal Parik ] from Oracle Capital Advisors.

Okay. So my question is with respect to R&D of the company. If I compare what happened in the last 6 years, in 2018, the count of scientist was 22, which by 2024, increased to 90. The PhD guys in your team in 2018 was a single person. In 2024, it increased to 9. So I want to understand what is the role? How critical are both of these positions in your company and the attrition rate of there?

Very, very unique question. So let me start. The -- I mean the attrition rate is always higher on the chemist levels, which is a very low level in the company because of various reasons, there is one. Second, because there is a huge task force, hence, we are able to put up more CapEx quickly compared to what we were doing probably 10 years from now, earlier. So as you see, the CapEx of INR 300 crores in HALS, additional, additional INR 300 crores, which we have to discuss plus a pharma of INR 30-odd crores. So all the CapEx of about [ INR 800, 300, 650-odd crores ] probably in a period of 2 or 3 years, is the highest level of CapEx, which company has done in the last 19 years since the inception. So that is the role of R&D, to keep churning more and more products and as early as possible to optimize and go to the commercial levels.

Okay. Got it. I have one more question. That is with respect to the pay structure for the scientists and the PhD guys. Because if I look at the R&D cost of the company, it's not getting reflected well, so that's one.

So what is your question?

My question is, what is the cost of the scientists and the PhDs you employ? So for FY 2024, what portion of cost was it?

So point is, apart from salary, there is also ESOP available to scientists. And I think that is the reason why they are still with us.

We'll take the next question from the line of [ Rishikesh Shah ] from [ Adamantem ] Capital.

My question was relating to HALS -- you said that the reasonable margin is...

Louder, louder, please.

Yes, am I audible?

A little louder.

Yes. One second. My question was relating to half the sustainable margin that you spoke is of 25%. Is this margin at current realization of 4% or at 6%?

What is 4% and 6%, sorry?

The sustainable margin for HALS is 25%, right?

EBITDA on 70%, 80% capacity utilization.

70%. And the realization that you assumes $4 or is it $6 -- overall $6 going forward?

$6 average.

The next question from the line of Niraj, an individual investor.

Siddharth, can you comment on the growth potential the rate at which our revenue can grow in coming few years, please?

Which are apart from the CapEx we have done, the CapEx which is planned. I mean we should be closer to 2.5x of our current revenues.

In a period of how much time?

Sir, we want to do it as early. But looking at the market scenario, I think fairly you should assume 3 years.

3 years' time. Okay. Any plans related to the listing -- of a separate listing of subsidiaries, et cetera?

No, absolutely no.

Okay. Any other CapEx is planned or lined up, apart from the mentioned 3 CapEx?

Not at the moment, sir.

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

So thank you all of you for taking time out to understand the company, to understand our quarterly numbers. Thank you always for your support and time. Thank you so much. Have a good one. Bye-bye.

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