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

Ladies and gentlemen, good day, and welcome to the Q3 FY '25 Earnings Conference Call of Clean Science and Technology Limited. We have with us on the call Siddharth Sikchi, Executive Director and Promotor; Sanjay Parnerkar, CFO; and 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 am happy to connect with you all in this new year to discuss the business performance of our company for Q3 FY '25. I would like to say these are difficult times for chemical industry. Despite that, Clean Science has demonstrated robust cross-cycle EBITDA margins and firm growth plans, underpinned by its technology prowess and customer-first approach. Our business performance continues to reflect the enduring fundamentals and agility. Regarding stand-alone financial highlights, for quarter-on-quarter comparison, on sequential basis, the revenues were steady with domestic and international sales mix being 40% and 60%, respectively. Favorable product mix and utility cost increased EBITDA by 8% to INR 102 crores, while EBITDA margins strengthened to 45%. Profitability of the company increased by 10% to INR 74 crores with PAT margin being 32.5%. For year-on-year comparison, the sales increased by 20%, and this was primarily volume-led. Improved sales led to strong EBITDA growth of 18% during this quarter. Consequently, company reported 19% growth in profitability for the current quarter. Regarding consol financial performance, company recorded INR 240 crores sales for quarter 3, which is 23% higher on an annual basis and steady on a sequential basis. Consolidated EBITDA stands at INR 98 crores, which is 14% higher on an annual basis and 10% higher on a sequential basis. EBITDA margin for the quarter came in at 41.5%. For the quarter, profitability was INR 66 crores, which is 5% higher on an annual basis and 11% on a sequential basis. On business update, let me first start to discuss the HALS. First, I'm really pleased to report that during the quarter, HALS sales volume scaled to approximately 190 tonnes, while December exit rate was 200 tonnes. The HALS product offering continues to diversify with revenue contribution coming in from HALS 701, 770, 622 and the newly launched 944, 119 and 783. During the quarter, company commercialized 2 new products, DHDT, a pharma intermediate, which is used for manufacture of lamivudine. Company -- Clean Science is key domestic manufacturer of DHDT, leading to import substitution-led demand traction. With commercialization of DHDT, value proposition of Pharma segment further strengthened, further by creating cross-selling opportunities with our DCC customers. Another product for Performance segment, which we added is BHT. It further strengthens company position in antioxidant segment as it is being synergistically sold along with BHA, TBHQ and ascorbyl palmitate. A little bit on sales profile. The contribution from Performance, Pharma and Agro continue to be 69%, 18% and 13%, respectively. During the quarter, Performance segment witnessed strong growth on an annual basis amongst all segments led by increased volumes. Regarding CapEx, we have incurred CapEx of INR 160 crores during first 9 months FY '25, which was primarily towards investment in our subsidiary, Clean Fino Chem. The construction of the new performance chemical product is expected to -- we expect to commercialize the production by H2 FY '26. ESG, we have expanded our solar capacity by adding 400-kilowatt rooftop solar plant at our subsidiary. We have recently uploaded an updated sustainability report for FY '24 on our website based on GRI standards. I am pleased to inform that Board has approved interim dividend of INR 2 per share. Overall outlook, we look forward to increased growth in revenues led by scale-up of recently commercialized HALS series and also the pharma intermediates. Thank you so much. We are open for Q&A now.

[Operator Instructions] The first question is from the line of from Priyank Chheda from Vallum Capital.

Congratulations for great set of numbers. My question is on -- we were planning to take some price hike somewhere in December -- post December. Have we taken that? Is that the reflection of gross margins quarter-on-quarter improving? Or is it because phenol prices have slightly fallen down. So without price increase also is what the gross margin gains have come?

And also because of the dollar movement of INR 87. So we have not increased prices. Our prices have still remained constant. Volume has increased. But of course, as you said, there has been a slight reduction in raw material price and of course, the dollar impact, which has naturally -- which has given us the edge.

Perfect. Now coming to MEHQ, P-BQ and TBHQ. MEHQ, what has been the utilization based on capacity? Has that improved slightly? P-BQ and also TBHQ, if you can highlight, in P-BQ, we were supposed to restart. In last quarter, somewhere you had given some update. Update on that also will be helpful.

So on Performance segment, our utilization is around 65%, 70%. Pharma, Agro is also around 65%. FMCG is around 80%, okay? Regarding P-BQ, because we are still struggling and we were not able to achieve the quality which is needed by the customer, hence, we have now decided to drop that product entirely. And in the same facility, we will be starting another product, which is called as barbituric acid, which is an intermediate used to produce pigment yellow. And there is -- this product is not made in India, currently imported from China. Our product from lab and pilot have been approved by large customer like Sudarshan Chemicals, and we expect to begin this production of barbituric acid by -- in the next 3 months' time. So same equipment of para-benzoquinone will be converted into barbituric acid. So no CapEx, a little bit here and there, but we will start with this new product.

Great. Great to know that quick decisions and quick improvisation. So Siddharth, anything on what would be the quantum size of the production and the realization from this product that we can expect?

So the gross margins are decent, about 50-odd percent. But on production, let me take it on a plant scale to really understand how much production can be made. But the same set of equipment, we have mapped it, the same set of equipment can exactly be used to produce this new product.

Okay. Great. And just last question. Did we have certain revenue contribution from the new pharma intermediate product in this quarter?

Samples are out to customers for evaluation. So I think for this quarter 3, there was zero impact from the DHDT pharma intermediate.

The next question is from the line of Sanjesh Jain from ICICI Securities.

First, on the cost side, a bookkeeping question. There has been a sharp decline sequentially. Is power cost decline can be attributed to the solar plant? Or is there something else? And why the other expenses have dipped sequentially by 10%?

See, the other income has come down because we lost...

Other expenses is power and fuel.

Power and fuel came down because there was a slight reduction in coal prices. Second was that out of -- in this last quarter, 5 days, we were off for Diwali. So there was -- production was also stopped and hence, the coal consumption was not there. So that is why coal consumptions were lower by 7% because of these 2 parameters.

Got it. And other expenses?

Other expenses, the largest part is power and fuel. So that is essentially driving the lower other expense number.

Okay. Okay. Got it. And if I look at the subsidiary numbers, even if, say, sequentially, they have come off, while I understand there is an increased offtake in the HALS that should be from our existing plant in the Clean Science. Anything you want to talk about the subsidiary performance?

So what happened is during this quarter, we also produced 770 in our parent company. So what we did is, Sanjesh, we made maximum 770 in our subsidiary -- sorry, in our parent company. And in our subsidiary 770, we established this new product called as BHT. We didn't need so much capacity because the plant is still starting up. So we thought why not use this facility to add on another product. So with very minimal CapEx of about INR 2 crores, INR 3 crores, we entered into this new product, BHT, and we will be making this product on a campaign basis for a few of our customers who are also our current customers of BHA.

And how much capacity or revenue potential the BHT will have for us? Because I think its co-product is sold as still antioxidant.

Yes. But now what is happening is as and when -- so of course, because it was taken for the first time, so we were also -- we had some teething issues and all. But now we are contemplating to produce about 2,000 to 3,000 tonnes on an annual basis.

And this would be same...

So it's about $3 [Foreign Language]. So about 2,000 to 3,000 tonnes if we are able to make, this is about INR 60 crores, INR 80 crores of revenue. But the best part is that there is no CapEx needed. And it can be made in our existing HALS facility where we have enough capacities right now.

Got it. And the same capacity will come down for HALS? So this will...

Today, we have ample capacity because, I mean, this ramp-up will anyways take 3 years' time. So why wait for 3 years. In the meantime, we can start producing another product. And tomorrow, after a year or so, we feel that, okay, we can do about 5,000 or 10,000 tonnes BHT, then we will go and set up an individual or an independent block to make BHT, dedicated plant for BHT.

That's fair. That's fair. That's actually very good capital allocation.

Absolutely.

And second, on the DHDT, this was a INR 30-crore plant, right? And...

It is INR 30 crores CapEx.

INR 30 crores CapEx, and this should yield a revenue of what INR 100 crores?

Close to INR 80 crores to INR 90 crores.

INR 80 crores to INR 90 crores of revenue. And when do we expect this to happen, say, it will take 2 to 3 years given our...

See, typically, we expect to get all approvals in the next 6 months. So [Foreign Language] quarter, we expect that we should get some approvals from the large customer. Fortunately, this is a very Indian market. So in the next 6 months, we should get approval. And the following 6 months, we will finish all these trial requirements and all that. So the following year, we should be a good year to get 70%, 80% capacity utilization. So you assume about 1.5 years to reach optimum capacity utilization. We will not need 3 years here.

This will be quite good. Great.

Because it is cross-sell, and all the customers know us.

That's good. And I get you that our last quarter was 135 metric tonnes. This year, we did 190 metric tonnes. And this quarter, we did 190 metric tonnes in HALS. So we are hoping to touch this 400 kind of metric tonnes end of March? Or do you think it is more like 300, 250?

So next year target, we are targeting a decent number. I think by next quarter, we should touch about 300. See, now quarter-on-quarter, we should start expecting increment every quarter-on-quarter because now I think we have started getting -- now that all the products are commercially approved and commercially started, now the only point is to grow our market, grow our distribution network, and that is what we have been doing now. So I think in the next year, we expect about 3,000 tonnes sales of HALs in totality.

In FY '26?

Yes.

That's good. And then the blended realization should be higher now, right, more than $5.

It should be. It should be closer to $5.5, $6. This quarter, it was close to $4. So that should go to $5.5, $6 now.

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

Siddharth, first on this, apart from 770, we are -- in which of those grades we are seeing maximum kind of a good feedback from the customers or distributors and which is likely to scale up faster where you have -- you are hopeful of utilizing the capacity?

So the deal is now that now -- see, all these products came one after another. So first, we started with 770, then we started with 622, then with 119, then with 944. So as and when these products started coming in, those were the first products which we started selling. But when you start -- now that the entire basket is there, now we expect that based on our capacity on similar pro-rata basis, we should start seeing the market growth. I mean, all the distributors whom we have appointed, they were more keen that -- I mean, they onboarded us because they know that the entire basket is going to be around. So now going forward, the way we have, so I think 770, 622 is more Indian plus customers which are buying a low range of HALS. And then 944, 119 are products which are majorly be useful for Europe and American markets.

Right. And in our scheme of things, I think 119 and 944 will be the -- are of much higher price. Is that the right understanding?

They are of higher price compared to 770, 701 and 622, which you are absolutely right. So 944 is about $7, $8 and 119 is about $8 to $9.

Right. And then these distributors who are -- who will be distributing our product, previously, were they distributing Chinese or European products of the HALS?

No, some of them understand the market because they have been selling -- say, for instance, a distributor of ours was selling phenolic antioxidants. He understands the customer, but he never had any opportunity to work with any HALS producer. So these are some of the distributors who are very keen to work with us. So that completes their basket also.

Okay. So for some of the distributors also the HALS is new?

They have heard about it. See, it is new is -- it is like DHDT and DCC. So we know DCC, we know DHDT, it's just about putting it together. So it's not new. They have heard about it. They know that product, and that is why they quickly onboarded us, right? It is not that they don't understand what were the products -- I mean, what are these products. It's not that they don't know. They were aware, but they never had any chance to collaborate with because there are only 4 other producers who are fully backward integrated.

And -- but what I understand is these distributors, their customers already consume HALS. Is the understanding right?

Of course. Of course. Absolutely.

Okay. And what is the current status of our direct sales for the, say, direct HALS consumers? Where we are in the full customer acquisition cycle?

So samples are being given. I mean, it depends -- see, again, every customer is different. I mean, we have a long list of customers because this is not a very -- it's not like [indiscernible] customers. This is a very long cycle of customers, long list of customers. So at some scale, price negotiation is happening, some product qualification is happening. So it's at a variety of stages.

Understood. And specifically to 119 and 944, which are the categories, end categories which drive these 2?

So 119 is majorly used in agricultural films. So very good market in Turkey, Europe and in North America, South America. And 944 is into polyolefin films. So again, markets -- very good market in these areas, which I mentioned and also some markets in India.

Okay. So none of the categories, these categories that you have mentioned, is -- I mean, from the very end-category perspective, is there any stress going on or the product itself or the category itself is not doing well? Anything that you have picked up from the distributors? Or is it still recovering?

Just price war. I mean, there is China always in the market, plus there are Europeans. We are the new boy in the game, right? So we have to -- people have to trust us. People have to believe our quality. But the advantage is that we have geographical location. Customers who are looking for non-Chinese, non-European, we are the only source. So -- and let's see how the U.S. tariff thing happens because if China gets a large tariff, then I think we will get great openings in the U.S. market. And now we have multiple distributors in the U.S. as well, who are also very keen to partner and to work with us.

Understood. And secondly, my second question is on the existing business, Siddharth. If you see the alternate process, the spreads in the alternate process that is MEHQ versus HQ, it's kind of still comfortable for the alternate producers to produce. So what is -- what will drive this -- the alternate producers to actually stop producing and which will enable us to take a higher market share or take a pricing improvement? Any thoughts on that?

Sir, I don't know which calculation you did because if that was the case, we would never gain the volumes which we lost. I mean, which we lost because of destocking.

No, I was talking about the...

Entire growth has come only because of volume. So the spread, again, with the conventional process, cannot lead. It's still way off than the process which we are using.

I understand. I agree with that. In between the spread of MEHQ versus HQ was negative, and it has once again become positive nowadays. But that's the reason are they once again started the facilities outside? Or do you see any reduction in their utilization? In that -- along those lines, I was questioning.

That's what I told you. If that was the case, we will not have gained the volumes. So I'm not seeing that anymore, but we can connect offline to further get your calculations -- I mean, to rectify the calculations again.

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

Congratulations for a good set of numbers. First, a clarification. So we -- apart from HALS, we were doing 3 CapEx, INR 150 crores, INR 150 crores and INR 30 crores. INR 30 crores has already got commissioned. And for the other 2, you mentioned, they -- both of them will get commissioned by H1 of next financial year. Is that right?

No. The Performance Chemicals one, INR 150 crores, starting in July.

And the other one was December.

Other one, December. Construction begins first week of February.

Sure. And -- sorry, you said construction starts in February and the commercialization is December this year, '25.

December, Jan.

December or Jan. So let's say, Q4 of next financial year. Fair enough. Secondly, again, just trying to understand, since you mentioned the focus on distribution network for HALS will be the key thing to look out for. Now I'm trying to divide it into India and global. And India, largely the distribution network is already in place or there is still scope for improvement here?

Majorly direct. We are sitting here. So very few customers prefer distribution. India is majorly -- all the big ones are direct. In global, outside of India, there are big MNCs where we are talking directly to them. But like India, there is a tail of customers for this because there is a combination. It's not one product. It's a combination of 4, 5 products. So now we have established distributors across Europe, Latin, U.S. And also Gulf and South Africa. Because this business, Ankur, unlike our other businesses, there are customers who even buy small quantities, like anywhere between 500 kilo to 2 tonnes material. So these people need domestic stock points. So now we have appointed and signing contracts with some of the distributors. And now you will start seeing these distributors also getting active.

Sure. And in the global market, North and South America will be a bigger market for our products right now versus the other markets that you mentioned. Will that be right?

North America and Europe will be large compared to South America.

Okay. And distribution network now is ramping up or probably will deepen further, let's say, over the next couple of quarters?

Certainly. We have now set more or less, just a few additions here and there. So you can say 70% network is there. Now business should start coming.

Fair enough. Just trying to understand the competitive landscape here. So as you mentioned, China and Europe-based players are the bigger ones here. The distributor, is there an overlap or largely our distribution network is different, which you highlighted that some of them were into phenolic-based antioxidants and they understand but they were not -- they are not selling HALS right now? So how should we look at that bit?

You should look at it that they were not selling HALS before. So there is no cross-sell. So they will be -- exclusively will be our distributors now.

All of them or this is only a set?

No, all of them. See, now -- ultimately, Boss, Ankur, this is also a very performance-driven product. Approval takes time in some customers. So now if that is approved, so the link has to be thorough. Now we also don't want to change the channels and I don't -- and even the customer does not recommend us to change the distributor. So these are now relationship will be -- which will only develop over the next years to move on. So we have taken some time to really work and understand whom we are working with. We had a lot of proposals in pipeline, but we have shortlisted whom we want to work. We have personally met them in their countries to understand their reach. And now, we have appointed over the last 30 days.

Fair enough. That's helpful. And just last bit on this, the end customers, the end customer as in from -- either on the plastic side or polymer side or, let's say, agri side is formal, whether it is for BASF globally or for these new distribution networks or they are different sets?

No, no, customers is customers. There is a set of customers. They are all...

They already have a connect with that customer is where I'm coming from.

Sorry?

This new distribution network that we are going through, they already have a connect with the end customer, which is also consuming HALS.

Of course. They know the market. They know whom they want to target first, whom they want to target second. So they understand this business very well.

Sure. Fair enough. And just one more bit on the overall growth front -- sorry, on an overall realization front. Are we seeing any further pressure versus, let's say, on a Q-on-Q basis or maybe versus 6 months for our products? Or it is largely stable?

I think, I mean, the prices what we have today are like all-time low prices in the Chemicals segment. I mean, be it our HALS or be it Performance or be it Agro segments, I think these are the lowest prices we have seen in many, many years. So I don't expect prices to further dip. It might not increase very soon, but we are comfortably placed. I mean, you can see from that our numbers, right?

Yes, yes, yes. Fair enough. And lastly, we were also thinking of or we are also supposed to launch blends of the core HALS products, the 5, 6, 7 products that we had launched. Had this already started?

We started. 783 is a blend. So we have started. We have also started selling it.

So that's the only one. But are there more in the pipe or probably let the distribution network get established and maybe over a period of time, over the next few quarters, we'll start picking up more on that.

Blends are not very complex. It's just mixing 2 products. See, European clients don't like to do that in Europe. So it is just mixing 2 products. It's not some rocket science. So we will be doing it as and when the customer tells us. So we know the 783 customer requested that we don't want to buy individual, you please mix it and give it to us. We did that.

The next question is from the line of Pankaj from Affluent Assets.

Am I audible?

Yes, sir.

Well, congrats for a very good set of numbers. Sir, I'm new to this company. So just wanted to understand that there's a difference between the stand-alone consolidated EBITDA margins. Can you please help me what is dragging this? Because the difference in revenues is miniscule as compared to the margins difference. And when can we see it converging down?

Right. So Pankaj subsidiary was commercialized only this year -- last year March, and it's a 34-acre greenfield CapEx, which we have undertaken for tax reasons. The tax in the subsidiary company would be 17% perpetual. And hence, the expansion is happening in the subsidiary company.

So when can we see it narrowing down, the difference?

Yes. I mean, as the scale-up of HALS happens and as the new products scale up, which we have recently launched like DHDT and the Performance Chemicals.

Can you give some time line, say, this year-end FY '26 or so?

I mean, we'll look at somewhere between 2 to 3 years. The gross loss has already reached INR 376 crores for the subsidiary. So as soon as it -- so it could be between 2 to 3 years.

Sure. Secondly, the revenue to net block is around -- historically has been around 2. So when can we see our sales picking up? I mean, currently, our net block is around INR 700-odd crores. So when can we see this reaching -- the sales reaching to INR 1,400 crores or INR 1,500 crores?

Pankaj, it's similar to the first question, which I just mentioned that the subsidiary is a greenfield CapEx, which we have undertaken. That's why you see increase in the net block, but not a proportionate increase in the revenue, which will start reflecting in the time line which we mentioned, I mean, as the scale-up happens for the new products.

So is it possible by FY '26? Or it will be spilled over to '27?

Yes, it might get spilled over to '27.

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

Thanks for the follow-up opportunity. So this year, INR 160 crores CapEx 9 months is broadly for Performance Chemicals. And for next year, we require that INR 150 crores for water treatment. That's the only CapEx spend required for next 2 years, right?

I mean, unless we don't come up with something new. But yes, so far, these are the numbers.

Got it. Now did I hear correctly that you said that you're looking out for something 4,000 tonnes as a target number for health in FY '26. Is that right that I heard?

We are targeting 3,000 to 4,000. See, that is a plan we want to pursue. So we are keeping the bar a little higher. So let's see what we are able to achieve. But now that all the lines are ready, the production is ready, product is approved, customers or distributor network is set up, we think why we should not be able to do this.

Exactly, Siddharth. So if we have to -- if we are planning to reach somewhere around 300 tonnes per month in Q4 itself, I think we can at least achieve 4,000 plus given the scale-up that is happening. So just was curious to know why just restrict to 3,000 tonnes or 4,000 tonnes.

Yes, Priyank sir, you're right. I mean, last quarter, we closed with a run rate of 135 tonnes per month. This quarter, we are closed with a run rate of 200 tonnes per month. But you should also understand that between last and this quarter, the product mix has also changed. Now we are coming up with an advanced version of HALS, which just now Siddharth mentioned that this quarter, the average realization was $4.5. Next year, we are targeting an average realization of close to $6. So we want the distribution channel, which is recently established, to pick up these advanced HALS also, which is 944, 119. So that will help us with the realization and the margins both. So we'll have a more clear and candid answer to the volume guidance for next year, probably in a quarter's time as we see the scale-up happening. For this quarter, we have almost 10% of our revenue coming from HALS at the consol level. So we are upbeat on HALS volume, but we want the product mix also to be favorable now going forward.

Got it. Great. Just last question. On MEHQ, on the competition, last time you did mention that you haven't seen any new entrants coming in, plus I think one of the local competitor had an issue on the plant with respect to hydroquinone procurement. So anything on the competitive landscape would you like to comment on, particularly for MEHQ?

Sir, we are not seeing even till date. If you find out, please connect us offline and let us know.

The next question is from the line of [ Jay Patwa ], an individual investor.

I have -- broad-spectrum perspective I want to know because your company is entering in a market where you have a few checklists, like it should be a clean technology, it should be a unique process, then basically, it should be an import substitution. And again, if all this fulfills, then it should be a high-margin product. But as a company, how difficult for you to find such product in R&D?

Very difficult, sir. But we are trying our best.

Okay. So is it like -- can we assume that in future, if the company wants to grow, then you have to compromise in this checklist either at the level of margin or at the competition will be there or something like that?

We don't want to compromise on a few aspects like green chemistry. We want to produce chemicals which are clean in nature. We don't -- it is not that we are averse to making something which is made in India. If we have a better tech, why not? If it is decent, good margins like we have been able to do, why not? HALS, for instance, absolutely new product, never made in India, very large TAM. We have been able to find this product. The pharma intermediate, again, not made in India, China produced, China Plus One, good technology we have developed. Performance Chemicals one, also the same. So we have been able to find out. So we'll see as the quarter moves on. I mean, you and I will both see how things move along with us, but we are trying our best.

Okay. So the reason why I'm asking is because the -- I think in previous con calls also, you mentioned that the newer 2 CapEx, which you are doing INR 150 crores each for water treatment and Performance Chemicals, there are already competitors there in the Indian market. Is it correct?

There are Indian competitors, yes.

Okay. Okay. But the technology will be new or unique process will be there for...

Yes. Our technology will be better. So we feel we will have that edge over the competition.

And even for this DHDT, currently commercialized product, we have this UPL Limited, I think, selling it in Indian market. So again, we have any edge over there or something?

I mean, you should check, but to whoever customers we are selling, we are not seeing UPL at all because I think they don't make it themselves. They get it toll manufactured somewhere, plus there are quality issues. I think, I have been hearing UPL for the last 2 years. But I mean, where is the product, I think.

Okay. So as per you, currently, there are no suppliers of DHDT from India?

I mean if you see the import statistics, 200 tonnes [Foreign Language]. I mean that is a clear indication that there is no entrant. Otherwise, that number should drop, right? I mean that is a clear logic we apply.

Okay. That's great. And one more query regarding -- 3 years ago, when you plan to go commercialize the HALS product in a big way, you assume that the gross margins will be similar of 25% when -- at a full capacity or things has changed in the last 3 years due to the overcapacity or something like that?

I think we are still a little premature because now the advanced HALS are coming. We expect this to improve only. That was a very base minimum number we had, but I think it should be better than this only.

Okay. But the market dynamics has changed or something like that in last 3 years because of the overcapacity or at the beginning itself, we have assumed that the maximum margin level will be 25% around, which you have indicated in previous con calls.

I mean everything -- I mean, world has become so dynamic. I mean, it is -- I mean, Chinese are there. BASF is there, and we have to compete. I think with advanced HALS, the margin should be better only. I mean, you will allow us 1 or 2 more quarters. And with the whole picture and with entire distribution network, we'll have a far crystal-clear idea of this business.

The next question is from the line of Huseain Bharuchwala from Carnelian Capital.

Sir, just wanted to understand basically, how do you see -- how much percentage will come directly from the clients level and how much you see from the distributor level?

This is a very difficult question because as I rightly said, it's just been a month that we have started appointing distributors. It is very difficult question to tell you today that the percentage is X and Y.

Got it. And why are we not approached by the traditional distributors? You said we have appointed new distributors on the HALS side who had similar products, which you would cross-sell in terms of HALS. So existing distributors [Foreign Language] approach. Just wanted to understand it.

Why did we appoint new distributors for HALS? Why not existing HALS?

No, sorry, go again.

We have appointed a lot of distributors who are new, who don't sell HALS. So why don't we approach to the existing distributors of HALS rather than appointing new set of distributors who are not selling HALS, but now they are selling HALS.

One sec. If somebody is already selling HALS, or I suppose he's buying from China and selling, why would he buy from us? I mean, he has already taken that distribution from Chinese, right? These are not off-and-on relationships. These are not -- I mean, these are LO relationships actually.

The next question is from the line of Abhijit Akella from Kotak Securities.

Just -- sorry, I joined the call a few minutes late, so I might have missed this data point in case you shared it. But for HALS, what would the total volume have been that we have done year-to-date, if it's possible to share, please?

Last quarter, we did 600 tonnes.

Q3.

Q3, so which is the highest, and exit of December was about 200 tonnes a month, which I had discussed about 2 quarters ago that our target -- first target or the first milestone is to do 200 tonnes a month, which we have achieved. Now going forward, we only have to increase these volumes. All the products are commercialized. Quality is approved. Our product is in line with our competitors. So now, there is no problem there. I mean, a few quarters ago, people had this question whether our product is going to be approved or would be similar to BASF or a competitor. Now those questions are behind us, and now it is only about growing the market.

Got it. Got it. So on a full year basis, would it be fair to, just for modeling purposes I'm asking, pencil in a number of, say, around 1,800 or 2,000 tonnes for fiscal '25?

'25, no.

I mean, Q1 was 125 tonnes per month average. Q2 was 135 tonnes per month average. This time, it's close to 200 tonnes per month average, right? Quarter 4 would be probably in the similar range of 10%, 15% higher.

We will try and see. I think majority sales should start coming in FY '26 because some of the products, I mean, started coming September, October sorts. So network established January, product, submission, samples. So I think major -- large chunk of business we will see in FY '26.

Understood. That's really helpful. And just the other thing I had was on the margin situation in the subsidiary. Acetone prices have corrected. So are we seeing an improvement in the margin profile there? And should we sort of see that starting the fourth quarter? Or how are you seeing things over there?

Absolutely. I think because of the main raw material, which is acetone, once the price goes off, of course, we should start seeing that flowing through. And I think Q4 and onwards, we will see that reflection happening.

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

My question is related to the previous participant also. So he did mention that on a quarterly basis, 1Q was around 125 tonnes and 135 tonnes and 200 tonnes. So it does lead to a figure of around 1,700, 1,800 tonnes. Is that a fair volume assessment for HALS for FY '25, I'm saying?

That is true. [Foreign Language] with quarter 4 of about 600 tonnes again, more or less 600 ,650 [Foreign Language].

Right, right. Yes, sir. And you did also mention that average realization for this year is probably around $4.5. And of course, with advanced HALS, you're looking to target $5.5 to $6 for HALS, right?

This quarter was $4.5. This quarter, quarter 3, was $4.5. Quarter 4 would be similar. But future on, as we dive into FY '26 with all these new products, we expect that next year, say, a volume of whatever, a few thousands, 3,000, 4,000 tonnes with prices of $5 to $6.

Sure. And sir, in this, definitely, the depreciating rupee, the strengthening USD helps you because HALS generally is targeted towards the export markets. So that would be a fair understanding, right?

Well, even the raw materials are imported, right? So...

Okay. Okay. So that kind of gets netted somewhere. Okay. That's what you're trying to say. Okay. Got it. And sir, in the initial part of the call, you did mention that you have dropped P-BQ and you are diverting the application, yes, to manufacturing barbituric acid. So sir, just wanted to clarify this barbituric acid, where do you slot it into, the performance chemicals or I believe, probably, a pharmaceutical intermediate? And what is the end-use application for this if I may know?

It is used to produce pigment yellow. This will be actually our first product, which will go into a pigment industry. So we will categorize this into FMCG segment.

Okay. Okay. You're categorizing into FMCG.

About 100-odd tonnes. Sudarshan Chemicals, Pidilite, I think, and Sajjan. I think there are 2, 3 large pigment producers who are importing this product from China. So I think, it at first will be a very domestic market for us.

Okay. You're looking at targeting to manufacture around 100 tonnes per month, you said?

I don't think I said 100 tonnes. I just said that we are mapping the capacities. And by end of next -- I mean, on the next con call, I will give you exact tonnages what we think we'll be able to achieve in a plant, which was earlier built for para-benzoquinone.

And sir, I just wanted to understand one thing. I mean, of course, you have mentioned the time lines for the 150 -- both the blocks of the INR 150 crores CapEx. Now just wanted to know for the Performance Chemicals bit, what could be the revenue potential? I mean, would it be a normal as in the general 2x kind of thing? And also would want to know the end use for this Performance Chemicals, some color on that as in terms of where the end-use application for this Performance Chemicals would be?

So sir, INR 300 crores is the revenue expected on full runs. And this is Performance Chemicals, so they find application in antioxidants, stabilizers and similar such businesses.

Sure. And the time line for the peak revenue hit probably around a couple of years or you would say 2 years, a couple of years for the peak revenue hit, yes. Okay.

Actually, a couple of years.

The next question is from the line of Rohit Nagraj from B&K Securities.

Congrats on a good set of numbers. First question is, given that now we are expanding and appointing distributors domestically as well as outside, will it lead to the inventories and debtors being higher than the current levels?

It won't have a very big impact because the revenues are also scaling up. So we are not stocking very high inventory. And apart from these Pharma Intermediates and Performance Chemicals segments, which are coming up, they have sizable domestic market. So the inventory or the receivable won't pile up. It would remain in that narrow range of 24%, 25% of sales as a working capital.

Fair enough. That's helpful. Second question, again, on the HALS front. So currently, I think you said that about 10% revenues came from HALS during this 9 months, if I'm not wrong.

During the quarter.

During the quarter. Okay, sorry, my bad. So how much of that has come from domestic and how much from exports? And in FY '26, how are we looking at the overall revenues from domestic and exports in terms of just percentage, broader percentage?

I think so for this quarter, as we mentioned earlier also, the large contribution continues to come from our starting or the basic HALS, which is 770. Hence, the domestic contribution continues to be dominant. And apart from that, revenues contributions came in from U.S.A., and then some small portion from Rest of World. For FY '26, it will be a little early to comment on the geography mix given the product mix. I mean, it depends on how much of 622, 944 we'll sell. So that guidance, we'll be able to give probably by next quarter end.

Fair enough. Just one clarification. In terms of pricing, is there a differential pricing for the domestic market and the exports market in terms of premium or discount?

I mean, because people have to import the product in India to sell is 7.5% duty. When we export to Europe, the European -- because there are European entity, our product has 6.5% import duty. So we have to keep matching these prices and then selling to these markets.

The next question is from the line of [ Jash Gandhi ] from Dalal & Broacha.

Congratulations for a good set of results. Sir, my question is on HALS. So you mentioned that next year, you are looking to garner more share from 944 and 119, and that should improve the realization. So -- and you also mentioned that, that should improve the margins as well. So what level should we assume? Because earlier we used to say 25%. So any guidance on that?

I think just wait for a quarter, we'll give you more clear guidance in the next quarter call. The best important takeaway from this quarter is all the products are now commercialized. All quality issues, teething issues are over. Network growth is happening. So now things should only revolve around selling of these products. So give us a quarter to get all these numbers and get back to you.

Okay. And sir, what should be the margins currently on HALS?

25% gross margin.

Okay. And sir, on the new products on the water treatment and the Performance Chemicals for the INR 300 crores CapEx, what should be the margin that we should work with?

So these are still quite -- I mean, these are decently good margins compared to our HALS segment. So you should expect over 25% for sure.

The next question is from the line of [ Srishti ] from Monarch AIF.

I wanted to understand what's China's market share in terms of capacity in HALS and who is driving the price -- who is driving this pricing pressure here, China or -- Chinese biz or BASF.

BASF.

And China's market share in terms of capacities or maybe market size of HALS?

Maybe 30%.

30% Understood. And sir, we were talking about what kind of savings can we expect from -- in the power -- in our power costs now that we are talking about solar coming in? And has that materialized -- has that fully materialized in this quarter?

No, no. We just installed 400 kilowatts of solar capacity.

Kilowatt, kilowatt.

Kilowatt, not megawatt, right? Our utility cost is largely coal, which is essentially fuel, right? Power cost is hardly 15% of utility cost.

Understood. Understood. And sir, there was some noise about funding for the ARV drugs but that's faded. So what were customer conversations? We must have had -- did we -- what did the customer conversations tell us during that period where there was probability of the funding going away?

Actually, our customers, I have no such idea because they have to produce lamivudine, they have to buy DHDT, and that has been happening for years. You see imports of DHDT coming from China, and we are just trying to replace from China to our name. That's all I have on this.

Next question is from the line of Krishna (sic) [ Krishan ] Parwani from JM Financial.

Congrats on good set of numbers. Just three small questions from my side. So first on -- just wanted to understand of the overall HALS volume that you have done till now. So just a ballpark number, how much would be like 770, not the exact one, but just a range, like 40%, 50% or more?

In all the last questions we have given on HALS, if you put all these together, you will get all your answers because we are not going on category-wise. We are talking about HALS in particular in general.

Got it. Got it. Fair enough. I don't want you to reveal the confidential details. That's fine. So just on the -- secondly, on this, do you expect large revenue contribution from BHT and barbituric acid in FY '26?

BHT is -- see, barbituric acid, of course, I told you we are mapping the capacities. So even if we are able to, say, 400, 500 tonnes, we will have to really map it. Again, these are very approximate numbers. This is about a $4.5 kilo product. So even if you do 400, 500 tonnes, you can do the math. BHT, we estimate we will do about say about 300, 400 tonnes of BHT in this year -- in the next year 3. So again, that is about INR 300 a product. So then you do the math. So this is what we are estimating for BHT and barbituric. Both put together could be around INR 50 crores, INR 60 crores sort of.

Okay. Got it. Got it. And just the last bit, given you have achieved 200 tonnes monthly run rate in subsidiary HALS, I think you manufacture more in the parent company, but just wanted to understand how far do you think the subsidiary breakeven is, as in would it be at the 300 tonnes monthly run rate?

I mean, at INR 11 crores to INR 12 crores of monthly revenue subsidiary would break even. So whatever we did quarterly, that should come into monthly, we should see a breakeven in the subsidiary.

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

Thanks once again for follow-up opportunity. Siddharth, my question is on the sales to the Europe. It seems to be picking up a lot and especially this quarter. Is this something which is one-off or this is structural and we'll be more and more -- selling more and more towards will be Europe-oriented rather than Chinese? Is that the way it will play out?

Sir, we are trying to increase the market share. So I mean, it is not -- nothing is one-off now. Now the market should grow. We should start selling [Foreign Language], but things should now only start picking up. We have done all the REACH registration, except one product. So as and when REACH registrations are also in place, we should start selling in the market. When we sell more, then it is not one-off. It is what we are trying to achieve, right?

So fair to say that Europe will become the largest for us in a couple of years?

I mean, there is U.S., there is Europe, there is also Latin America. I'm not saying that Europe will be the largest. I mean, Europe will be important for us. So 3 geographies apart from India is Latin, U.S. and Europe, including Turkey. So these are important markets for us. So we have to be -- I mean, we have to target these customers very well.

Ladies and gentlemen, due to time constraint, that was the last question for today's call. I now hand the conference over to Mr. Siddharth Sikchi for closing comments.

Thank you so much, all of you for spending time to understand our company in this late evening. Have a great week ahead, and thank you, and we'll catch up again on the next quarterly call. Bye-bye.

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