I G Petrochemicals Limited (500199) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the I G Petrochemicals Limited Q2 FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pramod Bhandari, I G Petrochemicals Limited. Thank you, and over to you, sir.

Thank you. Good evening friends. Good evening, everyone. On the behalf of I G Petrochemicals Limited, I extend a warm welcome for joining us on the call today. On this call, we are joined by SGA, our Investor Relations adviser. I hope everyone had an opportunity to go through the financial results and investor presentation, which has been uploaded on [ Investor Relations ] in our company's website. To begin with, I will give you a quick overview of the recent development in the chemical industry, followed by the operational and financial performance of I G Petrochemicals. Over the last few years, many global MNCs are pondering their thoughts and are deliberately looking for alternative suppliers. India manufacture more than 80,000 types of chemical, right from bulk to niche and hold a competitive edge in the world on the back of growing domestic demand, business-friendly industrial policy, demographic advantage. India has all the major raw material required for manufacturing various types of chemicals. Indian manufacturers are well equipped with the required technology, infrastructure, skill, workforce and logistic connectivity and now willing to invest more to tap the growth opportunity available. This further enhanced a good visibility for the Indian entire chemical sector, industry has outperformed considerably in the -- over the last few years and has a strong potential to grow further in the future. Phthalic anhydride, the company's main business revolve around the phthalic anhydride, a downstream product of the ortho-xylene, which in turn is converted into -- ortho-xylene is converted into phthalic, and it is also a third derivative of the crude. From crude, it goes into the light naphtha and naphtha to the xylene and xylene to the ortho-xylene and then phthalic anhydride. It is a versatile intermediate in organic chemistry for the production of plasticizers, unsaturated polymer resins, alkyd resins, paint, CPC pigment, which are broadly serving 20-plus end industries. Consumption of PAN and its derivatives are growing rapidly over the last few years. Earlier, the consumption of phthalic anhydride was highly concentrated to the paint, plasticizer and CPC industry. It has changed significantly. Many more industries have increased the application of PAN. PAN is now being used in the production of specialty chemical, agrochemical, specialized polymer, electric -- electronic products, insect repellants, UPR. It is also being indigenously used for the making of plastic currency, paperboard, laser board, sail of windmill. The industry is primarily served by the very few players, not only in India but also globally. IGPL is the largest producer of phthalic in India and enjoy cost reductions driven by the highly integrated and technology-driven state-of-art production facilities at Taloja. The company has fully integrated manufacturing facility of phthalic anhydride, maleic anhydride, benzoic acid and DP, which has been added recently at Taloja. We manufacture PAN product at a high scale with a capacity of 222,000 metric ton per year. This capacity is managed by highly skilled manpower and with high-quality control check. Maleic anhydride and benzoic acid are the key products created by the wash water by producing the PAN, phthalic anhydride. The cost of producing these products are insignificant and the expansion of DP in the downstream commenced in FY '22 with a total capacity of 8,400 tonne per annum. This vertical has also started to show the contribution meaningfully to our total business. It is worth to note that the non-phthalic business has been growing steadily and currently hold around 8% to 8.5% of the total revenue. On the export front, our business has presence primarily in the Middle East market and currently contributing around 10% to 12%. In terms of the expansion, the IGPL has embarked a few growth plans keeping in view the growth demand of the downstream derivatives. The expansion plan of DP has been thrust of the company growth trajectory and same will be manifested in coming years. As I stated earlier, the brownfield expansion of phthalic facility at a similar location, at our existing location is on track and expected to complete before March 2024. In fact, we will start the commercial production before March 2024. Management team are also assessing a couple of projects. Most of them are downstream products. We will announce more detail whenever it is finalized and approved by the Board. Our team has done an impeccable job with respect to the operational excellence at site. Eight out of 10 quarters, we are continuously generating INR 50 crore plus profitability. In Q2 FY '23, we have continued to maintain our growth momentum for the quarter on the back of growing demand of the phthalic anhydride and its derivatives. For the quarter ended Q2 FY '23, the total revenue stood at around INR 575 crores, a growth of 21% on a year-to-year basis. EBITDA was around INR 91 crores with a margin of around 16%. The margin was slightly lower compared to the previous quarter, mainly because of the lower quantity of phthalic and lower realization of maleic anhydride, which has actually gone down substantially compared to the last quarter. On the half year ended, the total revenue for the first half was INR 1,239 crores, a growth of 44% on a year-to-year basis based on the higher volume and the good domestic and international demand. EBITDA for first half of '23 stood at INR 215 crores, a growth of 16% on a year-to-year basis. Operating margin stood at around 17%. Profit after tax stood at INR 137 crores, a growth of 16%. And as of September, the company is net debt free -- net debt zero company. Operating efficiency, combined with the positive cash flow from operations put us in a very comfortable position to explore the various downstream derivatives market. In order to broaden our product portfolio, we have continued to explore the opportunity in downstream, especially the product segment. Over mid- to long term, Indian government continue to underscore the necessity of public investment in infrastructure. We believe the demand for our product portfolio will remain robust for coming period. Long-term reason is to have well diversified chemical company with a leadership position in our phthalic business. We will diversify our product portfolio and expect it to achieve a 30% of total revenue by March 2025 of non-phthalic products. With this, we will open the floor for questions and answers.

[Operator Instructions] The first question is from the line of Nirav Jimudia from Anvil Research.

So I have 2, 3 questions to ask. Sir, first on the phthalic situation in India. So if you can give your thoughts in terms of how the demand has been in Q2 in terms of the imports? Because last when we interacted, you mentioned that Indian demand for phthalic is around 430,000 tonnes. And monthly imports were like around 6,000 to 7,000 tonnes, which were coming to India. So if you can just touch upon that aspect first. And given the current macro situation, what we have been facing in terms of the Europe problems, had the demand of phthalic impacted in India or elsewhere globally?

So in India, we continue to have a demand of around 430,000 to 450,000 tonnes, which continue to be there. In the last quarter also, we have seen the similar type of demand. India continue to import around 6,000 to 8,000 tonnes per month, which is continuing. I think in the last quarter also, we have imported around 25,000, 26,000 tonnes. However, we are seeing some pockets of the sale. We are supplying to all the industries of chemicals. There are some pockets like basically the pigments and all that where the end users are supplying it to Europe and other markets, where we are seeing some sale in terms of the demand because generally, they are not able to sell their product to the European market, which essentially use it and then refurbish it and convert it into other products and selling. Because I think there is a challenge of the inflation. There is a challenge of the energy supply at Europe, the cost is very high. In some pockets, I think we have seen some moderation in the demand, which we believe now generally, it is happening in the Deepavali month also because a lot of guys are on leave. Then we expect that uptick to come in the second half of the November to December. So slightly, there is a moderation in demand because of the geopolitical issue and generally the holidays in their existing market.

Correct. And sir, you touched up on maleic also. Like maleic realizations have fallen sequentially in Q2. So when we last interacted in Q1 conference call, you mentioned that out of the INR 48 crores of revenue what non-phthalic business has done, maleic was around INR 27 crores. So I think this quarter also non-phthalic revenue is INR 45 crores to INR 46 crores. So if you can let us know what was the maleic sales this quarter? And individually, if you can break it down...

Basically -- yes, yes. So basically, the actual realization from maleic although the quantity remains same, but the realization has gone down from INR 27 crores to INR 19 crores. So basically, the realization has gone down from 150 to around 92 to 95 because maleic has gone. For us, the advantage is, whatever is the sales in the maleic is directly converted to our EBITDA. But for other players who are actually doing it for n-butane route, it's a loss-making proposition. So it has impacted INR 8 crores to INR 9 crores of the revenue realization has lowered in the maleic, which directly translated to EBITDA. However, it has been grown by the DP, which was around INR 13 crores to INR 14 crores, has gone up to INR 18 crores to INR 19 crores. So overall, it's around INR 530 crores of the revenue from phthalic. Maleic, benzoic acid and DP is around INR 40 crores and INR 7 crore is from the other income like interest and dividends and all that.

So now are we operating our DP plant fully at around 8,400 tonnes or update the...

No. We are operating right now at 60%, around 58% to 60% and we expect to achieve in next 6 months around 90% to 95%.

Correct. Sir, last question from my side is our phthalic capacity is around 222,000 tonnes, but because we need to change catalyst every quarter, which you rightly explained last time, what could be the maximum capacity utilization we could achieve in a given year given that we need to change the catalyst every quarter, which you have explained right in the last...

We actually change the catalyst every year, not quarter. But having said that, 4 plant is there. In a particular year, we need to change the catalyst thrice. For any block of 3 years, in 1 year we need to do it. So basically, every year, it's given we will change the catalyst once in a year, which is around 30 to 35 days. In a particular year, it may be twice. So generally, after considering that we are at a capacity utilization of around 90%. So if we are able to do twice in a particular year of block of 3, it may be 86%, 87% for that particular year.

Got it. And sir, have we done any catalyst change in second quarter because our other expenditures have gone up this quarter?

So there is no change in the catalyst, basically, the energy cost of the fuel oil which we are using for the purpose of heating. And generally, it is high in the raining season because the last quarter was full of raining season. So that has contributed. And we also provided around INR 2 crores to INR 2.5 crores for the CSR expenditure, which you need to provide as a part of overall expenditure because our liability for CSR is around INR 4 crores per year. So as a prudent practice, we have decided to provide for in the 6 months INR 2 crores.

Sir, small clarification before I join back in the queue. So -- have you done any catalyst change in the first half? Or are we planning to do any catalyst change in...

We have done it in April, May, June for 1 plant. And for last quarter, we have not done any change in catalyst.

Okay. So are we planning to do in second half any of -- because you mentioned it...

I think we may plan, but right now, it has not been decided. It may spill over to next year also or maybe the last quarter of this year.

We move on to the next question. That is from the line of Aditya Khetan from SMIFS Ltd Institutional Equity.

Sir, on quarter-on-quarter basis, there is a decline of 14% in top line. If you can quantify how much was it from the volumes and how much was it from the realization?

So actually, it's 4% to 5% on account of volume, around 4% to 5% on account of low realization of the maleic and balance is the pricing of phthalic.

Sir, volumes was how much, sir, you said?

4% on account of the volume and around 4% to 4.5%, around INR 9 crores is on account of the low realization of maleic and balance is the pricing of phthalic.

Okay. Okay. And sir, lower volume is primarily because of decline in demand in some of the sectors or like what was the reason for decline?

Not exactly. It's demand -- actually, the order book -- but because of some logistic issues, we were not able to supply at the end of September. So inventory -- if you look at September, generally, our inventory is 1,000 or 2,000 tonnes. In September, it was around 6,000 to 6,500 tonnes.

Okay, okay. And sir, you mentioned about...

The volume was slightly lower, yes.

And to the other expenses, you mentioned about the rise into the power cost, but it seems that the power cost is going down when we compare it on a...

No, no. You don't compare power. You need to look at the energy cost. Power is only the power. We hardly use any power because power is used only when we take the shutdown. And it is on a standby basis. We use the internal steam for the purpose of generating power and we use fuel oil for the purpose in the raining season. So if you look at energy cost, there you will be able to see that around INR 4 crores higher.

Around INR 4 crores higher.

INR 3 crores to INR 4 crores, which is generally the case in the raining season. It's always all raining season has a similar cost structure.

Okay. So we can take the last quarter run rate as the normal for the coming quarters like INR 40 crores?

Correct. Correct.

Okay. Sir, on to the ortho-xylene prices, so you might be noticing that there is a sharp uptrend into the prices of ortho-xylene, which has actually squeezed down the spread of PAN and oil. I believe that you had mentioned that so there is some temporary shutdown, which has been taken by Reliance due to which there was a temporary crunch into the market of ortho-xylene. So has the situation been normalized? Or what is the current situation?

Yes. It has been normalized now. Now we are getting the regular supply. And of course, the margin compared to the last quarter, 200, 250 has slightly moderated because of the issues, geopolitical issues in the Europe because end industries, there are pockets of the industries which are supplying it to China or the European side, that has impacted. So from their side, there is slightly moderation in demand.

Okay. But the -- so but the spreads have come down as compared to the quarter-over-quarter...

Yes. Compared to the previous quarter Q1, Q2 spread has slightly gone down.

Okay. So -- but they are -- as far as it's a normal range of $250 per tonne I assume for guidance...

Right now, range is around $150 to $200 compared to earlier it was $200 to $240. It's moving between $150 to $250 for last 6 months.

Okay. And on to the DP front, sir, can you provide the top line figure as you have provided for the last quarter?

I think it is given in the presentation, it's INR 18 crores around. INR 17 crores to INR 18 crores per quarter -- for the quarter.

And sir...

I think if you look at the presentation, we have already provided that. [indiscernible], yes.

Sir, just 1 last question. Sir, by FY '25, you're planning some sort of 30% of the non-phthalic business. But considering now we are expanding into PAN only, that would come by FY '24. So do you think this -- so the 30% target would be achieved -- can be achievable. So considering that, as on date also, we are at around 8% to 9% only so...

Yes, yes, it is easily achievable, provided we are implementing the project what we are planning for. Right now, we can't discuss it because it is still to be approved by the Board.

Okay. But -- so we are confident so we can take that to around...

Yes, yes. That is the target we have set it for us. It may be higher than that. It may be slightly lower than that, but we are completely focused to take our revenue from other products around 20% to 25% of the total revenue. And long-term target is to achieve 50%.

Long-term target is to get to 50%.

Yes.

[Operator Instructions] The next question is from the line of [ Rajesh Jain from NB Investments ].

I have a few questions. My first question is, is it possible to know how much top 5 and 10 customers contribute to the sales?

I don't have it readily available, but I can give you industry-wise. The paint, plasticizers contribute around 40% to 45%. Pigment, PVC are around 10% to 15%. And then balance 30% is specialty chemical, agrochemical, UPR and others.

That you're saying sector-wise. I was asking from the customer. So that you don't have off the hand.

Yes, I don't have off the hand.

No problem. Sir, my next question is regarding this sector contribution. Like how was the contribution from paints, pigments, plasticizer, let's say, 5 years back, and now that the other segments also started taking our phthalic anhydride, how does it look 5 years down the line? Anything you have an idea?

So today, basically earlier, historically, it is paint, plasticizers were the main contributors. Now it has moved to -- the historical guys has moved to around 60% to 65%. Now the specialty chemical -- because a lot of Indian companies are going into the downstream specialty chemicals, agrochemicals, UPR, that is the new segment. In fact, there are -- a couple of new segments are also entering into -- now just enter into like the specialty films or somebody is also producing some engineering plastic, which is used for the Boeing. So there a lot of new segments are coming up. Plus now India is getting into full revamping the infrastructure with trains and all that. You will see a lot of demand in the polymer side also coming up for future.

Okay. No, sir, like you said, let's say, 5 years back, if paints and plasticizers were contributing 90% to the sales, now it has come down to...

60%, now it is 40%.

Now 40%. So how will it look, let's say -- 5 years down, will it come to, let's say, 30%?

Not exactly because a lot of guys in the paint are also setting up the big capacity. You heard that Asian Paints is also expanding and new players are also entering into, like Indigo Paints, JSW Paints and Grasim probably next 1 or 2 years, they are setting up the plant equivalent to Asian Paints. So paint continues to grow because they are expanding and India continue to have a good demand around 10% plus growth. New segments are added. It's like similar way. We are seeing the growth in the electric vehicle with petrol and diesel. Petrol and diesel are continuing to grow. Electric vehicles keep on adding. But overall percentage-wise, they'll remain small.

So you mean to say the contribution from the erstwhile segments will continue to hover around 30% or 30% to 40%.

Correct. You need to see that how India shape up in terms of their infrastructure. If India decided to change the entire infrastructure of underground, where we use the water-based pipeline, which is corroded around 40, 50 years old pipeline. If India decided to change to UPR, if India decided to change to FRC-based polymers for the purpose of all the new metros and all buildup, then you'll see a very good demand in that side. That is the way you can change it in quantum jump rather than in percentage.

Okay. Fair enough. Sir, this UPR, like I think you had mentioned for paints only 2.5% is used, this phthalic anhydride, how much is used for UPR, sir? Any data you have?

UPR, it depends upon the various polymers between 30 -- around 25% to 35%.

So that means in 1 kg, this one, so this will be around 0.3 kg. That's what you are saying.

0.2 to 0.3, which depends upon what type of polymer you are using.

I agree, I agree, but whereas in the paint, it is only 2.5%, correct?

Paint 2.5%, plasticizer 35% to 55% and polymer is around 20% to 40%. Depends upon what type of you are making.

Polymer, how much you said, sir?

20% to 40%.

20% to 40%. Okay. Sir, my next question is, so we are supplying to so many different sectors. Is the margins are same across the sectors? Or it may be differs from one customer to another?

Not exactly. Segment-wise, it's almost same.

Segment-wise -- sector-wise, it's almost the same.

Yes.

Okay. Sir, my next question is about the CapEx, the PA-5. Sir, my first question is regarding the CapEx amount, like we are spending around INR 350 crores to put up a 53,000 brownfield capacity. See compared to PA4, where we have spent around INR 320 crores to INR 330 crores so this looks okay because of the increase in the other materials. But our competitor is putting up this 90,000 metric ton capacity greenfield one at around INR 650 crores to INR 700 crores. So see, you had mentioned earlier the technology, the reactors are more or less the same. So why there is so much increase in cost of the CapEx for us compared to them?

So I will not be able to comment what competitor is saying because if I G is setting up a new plant of phthalic of, say, 63,000 tonnes, in greenfield it costs INR 600 crores to INR 650 crores. So we are setting up at INR 350 crores. That means it is INR 200 crores lower because we don't need land, all power utilities are already available. So entire infrastructure is available, that's why our cost is INR 350 crores. If somebody else is able to set up. We have all equipment, technology, catalyst, everything is there. Don't compromise our cost, which we have mentioned INR 350 crores is the best available cost. With the same technology equipment you set up any other place, it costs INR 600 crore plus.

Okay. Fair enough. Sir, another question about the CapEx only. This we had announced exactly in Q2 FY '22, putting up this PA-5 project, and we are taking more than 2.5 years to commission this brownfield. So they are saying greenfield one they will be putting up within 3 years. So why we are taking more time to put up this plant?

Not -- we are taking 24 to 30 months. And when we are saying March '24, which is end of 30 months, that is the last date. We will be able to start much before that, maybe 1 or 2 months or 3 months. And when we are talking about setting up a brownfield expansion, it's not about the capacity to execute. You can set up like entire plant in 6 to 9 months. It's always about the longly lineup how much time it will take to come from the day you order. So that is the reason. Our time line when we have mentioned 24 to 30 months is the best period available.

Okay. Okay. Sir, my next question is about the EBITDA margin.

Sorry to interrupt, Mr. Jain, may we request you return to the question queue. The next question is from the line of [ Pawan Nahar ], an individual investor.

Yes. So my first question is, as we see in November, I mean, 40 days have gone for this quarter, what do you think -- what is your best guess for spread compared to Q2?

I think the spread is still moving around $150 to $200. So it is not ideally comparable with the Q1 and Q2. Because it all depend upon. You can always talk about phthalic because the maleic price has gone down, actually. Phthalic almost in the same level. But maleic has gone down from INR 150 to below INR 100. So it's a combination of all. We are making good margin in the DP because DP is still at INR 127, INR 128 compared to phthalic which is INR 110, DP is INR 127. So it's a combination of all you need to see. It's not in absolute terms, you can decide only with the phthalic market, how much money we are generating.

So sorry, if I understood right, you are saying that -- you can correct me, phthalic is broadly the same in terms of spread. It's maleic, which has dropped. Is that understanding correct?

Yes. Maleic has dropped by 35%, from INR 150 to below INR 100. But for us, the advantage of the maleic is, there is no raw material, which is involved. So whatever is the sale is directly translated to EBITDA. So compared to the last quarter, which was INR 27 crores, for the same quantity, we have around INR 18 crores to INR 19 crores for this quarter.

Second question what I wanted to ask was maleic can also be made by the alternate route, which is butane blend, right?

Correct, n-butane, correct.

Yes. So of the global maleic consumption of production, how much would be that route, the n-butane...

I think 96% to 97% is on n-butane route.

I was thinking actually that gas prices have gone up so much. So logically, there may have been some shutdowns, some production impacted from the alternate route and you all would have gained. Somehow I see that the assumption was wrong. Can you please...

Actually, what happened is there was a scarcity of maleic between '21 to '22 when maleic price gone from INR 110 to INR 300. Now again, it has come back to INR 110. It has gone to 2 to 3x during the period when it was scarcity of maleic. There was -- shutdown was planned. There were logistic issues. Now a lot of plants have come back. So maleic price has actually moderated. Generally, if you look at the history, maleic is generally available at INR 600 crore to INR 800 over and above the n-butane price. So it has gone to $1,000 over and above butane price, again corrected to now $600 to $650. However, because you are using n-butane, then it is very difficult to make the money at the current prices. But for I G, that is not a restriction. We are manufacturing maleic because it's an opportunity available with us from the wash water of phthalic. Correct way to manufacture the maleic is the n-butane route.

Okay. And would we consider setting up a maleic -- building a plant somewhere where gas is available for cheap?

We are evaluating the opportunity, right now under discussion. So it won't be correct for me to comment at this juncture. I think once we finalize that, it will automatically be in public domain.

So on that same line, I mean, not about you, generally, what would be the cost of setting up a 40,000-tonne maleic anhydride unit?

40,000 is not available, generally it's 50,000 or 60,000 tonnes.

Okay, let's say 50,000 or 60,000, what should be the cost?

It depends on the location. It ranges between INR 1,000 crores to INR 2,000 crores, depend on the location where you are setting up.

INR 1,000 crores to INR 2,000 crores. So we have to assume it has to be in the U.S.A. because your gas costs there will be more competitive. So what would be the cost?

Not exactly because U.S. gas is competitive, but there is a big issue in terms of environment and the logistics. So it's all dependent upon where you are setting up. In Middle East, you can set up at INR 1,500 crores, INR 1,600 crores. In India, you can set up at INR 1,000 crores to INR 1,200 crores, but gas is not available. In U.S. gas is available, but the environment and other operating cost is high. So you need to evaluate plus and minus from all the locations and then decide. And ultimately, you need to be near to the raw material source or customer.

True, true. Okay. The other question is I'm looking at your 15-year plus history. And what I see is that the business profile before -- up to FY '16, so 2007 to '16, was pretty -- I mean, I would say, not good. And rightly so you are struggling to expand or you did not expand. From FY '17 to till date, right, there is a significant improvement where like basically on an average, for every INR 100 of CapEx, you are making INR 25 of EBITDA, right?

Correct, yes.

Happened -- one is that after FY '17, it is just not the COVID impact that I see in the business. Something has happened from FY '17. And the second thing is that your competitor, which is on a stand-alone basis, so excluding the maleic unit overseas has always been almost every year more capital efficient than you. I understand that there is -- we've done a German machine, right, which may have a longer life. So my question is twofold. One, is that -- what is that change after FY '17, which has driven this kind of payback if I may use the word? And is it -- how sustainable you think it is?

So -- I understand your question. There are 2 things we changed after 2017. So when you are operating at below 1 lakh capacity, you're not able to get the operating efficiency and yield advantage. So once you cross 1 lakh, which we have effectively done in '16, '17. So that is the one -- once you cross 1 lakh, 1.50 lakh, 1.60 lakh or 2.20 lakh, the operating efficiency has gone up. Second is your fixed cost, which is now divided earlier in 2 plants. Now it's 4 plant, second. Third, maleic unit was acquired by I G in 2017. So all -- then typically, then we were making maleic around 1,500 tonnes, now it has to around 7,000, 7,000 -- 8,000 tonnes. So that has contributed in a big way because today we are operating at INR 100 crores of maleic sale, that sale directly contributed to your EBITDA. There is no raw material cost. Now if we are doing the DP and benzoic acid, first, the operating efficiency of phthalic plant, which is from 2 to 4 and from 50,000 capacity to 222,000, scale has changed. Second, the product maleic and benzoic acid and DP, which has contributed around INR 170 crores to INR 180 crores on annualized basis, that 2 parameters has -- and the reduction in the overall cost because once you operate at a scale, your overall cost has gone down. So these 3 parameters have changed the history compared to last 15 years in last 4 years.

Just please, I just want to make sure I have got it right. So what percentage -- so let's leave maleic because you make it from wash water, right? What percentage of your own phthalic is used for the other assets and the products that you mentioned or...

Only for the DP, which goes around 50%.

Sorry. I'm sorry, I did not understand.

DP, which we are producing, where we use 38% to 40% of the phthalic. That's all.

So 38% to 40% of your phthalic production is consumed in-house?

No, no. Whatever DP we are manufacturing. In that, we need 40% of phthalic.

Okay, okay. Okay, so that is then not a significant amount as...

That is second point. Third point, the multi-industry use case. Earlier phthalic was limited to 2 to 3 industries. Now it has been used in more than 50 to 20 industries. As India get into the new chemistry, specialty chemicals, agrochemicals, UPR and India move deeper into the infrastructure building drive, you will see more and more phthalic usage will come. So the diversification in the industry also plays a big role in terms of establishment of the good amount of market.

Okay. The related question is we are seeing in India, both key players expand capacity. Anywhere else in the world are you seeing capacities being added?

I think generally, there are some additions we have seen, but that is mainly from account of the debottlenecking. Otherwise, in India, which is driving the growth because India gets to build the infrastructure for next 20 to 30 years.

Okay. So are you like -- are you kind of confident or what is -- confidence is a bad word to you. What is your sense in terms of the spread, let's say, going ahead versus the last 5, 6 years?

So my sense is India in next 7 to 8 years, it's my personal opinion, not the company opinion, we crossed the demand of 1 million tonnes. If India needs to grow their infrastructure, then the UPR, when we are building the bridges, dams, building the metros and everything India need to build, every expansion in infrastructure need phthalic. So I assume that personally that India will continue to grow between 6% to 8%. And by 2013, the demand has to be near to around 1 million tonnes.

One more question. What -- how much time does it take to set up a maleic unit? Let's say, your Board...

24 to 30 months.

So then how on -- like I'm just not able to understand how you will get your 25% or 30% or 20% of revenue...

I never told you that is because of maleic.

No, no. Sorry. Yes, you did not. I'm just -- I'm trying to understand where will that...

It is just you have to wait for some time.

You are already at FY '23 end.

Yes.

Right. So unless it is an acquisition...

Still we have 2, 2.5 years. And that is the vision statement we are trying to achieve this.

And generally, when you make whatever investments that you plan, what is the hurdle rate or payback duration which you...

Typically, whenever we are investing, we need to have IRR of more than 15% and the payback period of less than 5%. That is given for any project. However, there are some projects where we can see the long-term sustainable benefit for 40 or 50 years or you have a monopolistic practice. In that case, payback period may go to around 6, 7 or 8 years also. But generally, 15% and 5 years is the key.

[Operator Instructions] The next question is from the line of [ Chirag Vakharia from Budhrani Group ]. Mr. Chirag, we are unable to hear you.

Hello. Am I audible now?

Yes.

Yes. So sir, just wanted to understand from a quarterly perspective, you said that [Technical Difficulty] is around INR 17 crores to INR 18 crores, right?

Sorry, can you repeat again?

Quarterly...

Sorry to interrupt [ Mr. Vakharia ], your audio is breaking up.

Is it clear now? Hello? Is it clear?

Yes.

Just wanted to get from DP perspective, the turnover was INR 17 crores to INR 18 crores for the quarter.

Correct. INR 18 crores.

Okay, sir. What are the margins on that -- in terms of EBITDA margins, what are the margins here in DP?

DP is actually making 12% to 13% on gross level and net level around 5% to 6%. But this is over and above phthalic.

In terms of number for INR 17 crores, what would be the EBITDA, sir, roughly, if you can share it?

12% to 13% is the gross margin because in DP, the EBITDA is back. So the gross margin at product level is around 11% to 12% and net margin is around 5% to 6%.

5% to 6%. Okay. And sir, your -- if you can share some insight on the spread, I mean, is it -- until the geopolitical situation, do you think spreads will be under stress, how do you see it, sir?

I think geopolitical is one part because if it impacts the industries in the -- across the globe, which are the user of the chemical from domestic market, you will see moderation in the overall margin, which I believe will be running between $150 to $250.

Okay. Okay. And sir, you said something about inventory issues. So what was that, sir? At the beginning of the call.

No, no. I was just mentioning that the quantum of the sales which we have made for the last quarter was around 2,500 tonnes less. And we have some inventory lying over because of some logistic issue. Now it is sorted out, and then there is a free flow of the sales.

[Operator Instructions] The next question is from the line of [ Rajesh Jain from NB Investments ].

Sir, when we had commissioned PA4, other than due to the operating leverage, having used the latest technology for the PA4 plant, so there was some 2% to 3% increase in the EBITDA margins. So when you commission PA-5, can we expect same type of, I don't know, maybe 2% or 3% increase in the margin?

So that EBITDA margin is a combination of your margin in phthalic plus the extra maleic anhydride and benzoic acid you've generated. And third, the fixed cost is divided among 5 plants compared to 4 plants. This is the reason of the incremental EBITDA margin.

Sir, but also since you're using the latest technology, maybe the efficiency is better. I think...

Yes. Yes. Fixed costs will be divided in the 5 plants compared to 4 plants.

Correct. Correct. So can we expect -- what is the minimum we can expect increase in the margins?

I think it will not be correct for me to talk about the margin. I can simply say that the payback period we expect is less than 4 years.

Okay. Fair enough. Sir, in the last call, you had mentioned you're going for the installation of solar panels at the Taloja plant. So I just wanted to know what is the investment for this project? And what are the savings for the company [ average ]?

The project cost is around INR 2 crores to INR 3 crores. It has been installed. And since the government has changed the policy, so whatever electricity we consume in terms of total unit, the units which we are generating through the solar plant are deducted and balance is billed on I G. So there is a direct saving on the per unit of the electricity generated through solar at a commercial rate, which is being supplied to I G.

Okay. So what could be the savings if you have to look in on an annual basis?

It will be between INR 50 lakh to INR 1 crore per year.

INR 50 lakh to INR 1 crore.

Yes, because we hardly use electricity. We generally use steam to power the plant.

I know, I know. You had mentioned that in the earlier call.

But it is good, payback period is less than 3 years for that project.

Okay. Very good. Okay. Sir, my next question is if you could tell us what is the capacity utilization of PA in quarter 2?

The capacity utilization remain same, 89% to 91%, same.

So that means whatever the reduction in volume you had mentioned is purely because you could not dispatch. Other than that, there is no other...

Only 2,000 tonnes. Even -- actually above 51,000. Sometimes you do 53,000, 54,000, sometimes 51,000, it keep on changing.

Okay. So from the regular 51,000, it had come down to 49,000.

No, no, no. It is above 50,000 only. Last quarter was 50,000 to 54,000. Now it is around 50,000-plus. Because our run rate typically is 16,000 to 17,000 per month [indiscernible].

So 16,000 to 17,000 means so it will be around 48,000 to 51,000, right?

Correct.

So that means in Q2, we have done around 48,000 to 49,000.

Yes.

Okay. Fair enough. Sir, do we have any...

Let me correct. Q2, we have 50,000 plus. In Q1, we have 53,000. So there are gap between the Q1 to Q2. That's all, around 2,000 tonnes. But having said that, our run rate is 16,000 to 16,500. So above 50,000, we are in the same range.

Okay. So now for the coming -- this Q3 or Q4, so you expect the same demand and do you expect the same run rate to continue?

I think in terms of production, it will be around 16,000 per month if we have decided to take any shutdown for changing catalyst, then you will see it will be around 45,000 to 46,000.

Sir, I'll put it other -- I'm not asking from the demand perspective -- production perspective, I'm asking from the demand, you are seeing the demand has not moderated...

Demand is generally there because India still imports 8,000 tonnes per month.

But sir, compared to September, now we are in November, is there any reduction in price of phthalic anhydride?

No. Phthalic price has gone down as low as $100, now -- right now prevailing between $110 to $150. So it's a [indiscernible]. When I'm saying phthalic price gone down off, it doesn't make any difference. Ultimately, how it is as compared to the raw material, that is making the difference. So it has gone down in line with the OX prices. Now Ox has gone up, phthalic has also gone up.

Okay, fair. Sir, did we have any inventory loss during Q2?

During the last quarter? Yes, there was a small amount of inventory. I'm not directly calculating, but around INR 3 crores to INR 4 crores of the inventory, which has gone into the system.

Now that you're saying in Q3, the OX has gone up and...

It's not particularly about pinpointing the inventory, but when we're buying asset, say, when buying, let's say, INR 90 and you plan to sell at INR 100 and higher, and suddenly, the INR 90 inventory, which you are carrying become INR 85 and then you need to sell at INR 100, so that INR 5 adjustment you need to do it in your inventory value.

That's right. Sir, lastly, you had said that there is a reduction in the margin of maleic anhydride, any particular reason?

I think a lot of plants were shut down. They have come up in the market. Second is the logistic issues because of extraordinary unprecedented rise in the maleic anhydride prices from $110 to $250 to $300, that has corrected, I think, long back. Now it is moving between right now $90 to $110.

Okay. So now assuming that the phthalic there will not be much more any increase or decrease in price and maleic price also moderated, can we expect around a run rate of INR 550 crores of revenues for -- till you commission the new project?

I think that is all dependent upon the pricing. If the prices remain same, we expect INR 500 crores plus revenue. If prices go down, it will be lower. But I think it's all boil down to the final margin. Price doesn't make any difference, even at INR 450 crores also you can make the EBITDA higher than INR 100 crores. So ultimately margin matters. Sales is only the number in terms of the total value and volume.

The next question is from the line of [ Pawan Nahar ], an individual investor.

What I noticed is that your tender days have been going up consistently year after year, right? This has led to lower conversion into operating cash flow [indiscernible] so if you can explain what is the new normal or it will...

So when we are exporting, we need to give 90 to 120 days credit. However, in domestic market, we are selling around 50% to 60% in cash or LC and balance 40% to 50% in open credit. So number of days debtors has gone up, we are aware of that because there are some recovery, which is also pending from some of the players which has been achieved now. We have started some facilities in our bank through which we can discount the bills of a particular party directly. We use that facility as and when we need cash. If we don't need cash, we don't discount it. So that's why you look better high, but I can discount that INR 30 crores in 1 day. But we don't...

I understand. Discount is as good as borrowing. I understood.

So discount is as good as cash, but we decided not to do.

No, no, that's fine. That's good. So my question still is to use that you need to give 90 days of credit for exports, right?

60 to 90 days, yes. That is the standard practice.

Sorry, and 60 in domestic or 50?

No, no, no. In domestic, we generally sell in cash. Some cases, we give 30 to 60 days credit.

And how much is exports as a percentage of total for you?

12% for last quarter.

Then if half the domestic business is generally that, only 10%, 12% is sold on 90 days, your debtors are like 67 days, as...

No, no, no, no. I will repeat again. 50% of debtor are sold on cash where we get the money in 7 to 15 days...

That is coming off sales, 50% of debtor...

50% of debt -- domestic sale. I'm talking about domestic sale. Balance 20% to 30% is on LC and bill discounting whenever we need money we can get a discount and 20% is on open credit.

So what I'm again trying to repeat is if you do that math, 67 days seems very, very high.

So because we have not discounted. That is what my point is.

What happens is for 50 days, you are doing 0, right? No credit.

No, 10 to 15 days, because generally, 7 days is the delivery period and 7 days is the recovery period.

Okay. And this recovery that you mentioned, how much is the amount? And has it come in Q2, which means...

Yes, yes, all in time. The debtors which you have seen is on September, it has been recovered because there was some pain in the pigment industry there was a delay, now it has been recovered. Why we have not discounted because we have sufficient cash on the balance sheet. As of September, it is around INR 330 crores cash in the balance sheet.

That would be the net gross number. How much is the net number?

Net of debt?

Yes.

Just remove INR 116 from INR 336 crores, around INR 220 crores.

Looks like this [indiscernible], okay. And this 67 will not come down as far -- what is your understanding?

Ideally is 60 to 62 days. 67 is higher side. But I think from next quarter onwards, we will see 60 to 61 days.

Okay. And do you get your raw materials on credit?

Yes.

The next question is from the line of Yogesh Tiwari from Arihant Capital Markets Limited.

I just had 1 question. So in the last conference call, there were some discussion about we were looking at some land acquisition for a new plant. So any update on that you were planning some facility...

Nothing, nothing, it's under process right now.

But we are moving in that direction, right? We are looking for a new facility out of the facility...

Right now, we have 4 to 5 acres available adjoining to our existing facility, so that we will be utilizing first. And then for all future projects, we are looking for the land parcel. I think that is under evaluation. Once we finalize that, then we will be able to communicate.

And sir, that 4 to 5 acres, which we have will be mostly for plasticizers?

So I have not commented which project is. That land is available. That is what my point is.

The next question is from the line of Aditya Khetan from SMIFS Institutional.

Sir, the PA-5 expansion, we have started commissioning on to our existing factory.

Correct.

So this INR 60 crores of CWIP, which we are witnessing as on date on the balance sheet...

That's PA-5.

Would you capitalize some amount of that expansion?

No, no. WIP is reflecting the project in progress, which is for PA-5. INR 60 crores is the money which has already been spent and then LCs and others are open, which has not been reflected in financials. So INR 60 crores is purely for PA-5 project.

So this is for PA-5, okay.

Correct.

So apart from this, you mentioned to the last participants also you are having 4 to 5 acres of land available, which is excluding which we are doing expansion onto the PA-5 side?

Absolutely right.

Okay. And sir, on to the exports part, so considering if we move more towards the downstream derivatives, so will that be focused more on the exports part and that would increase the export share in the total revenues?

So I think it all depends upon what type of products you are producing. If you are producing some, say, plasticizer, then domestic, if you are producing some polymer, then maybe 50-50. So it all depends upon the type of product. But generally, we keep the option of export and domestic open, and that is the reason we set up the plant nearby by the port.

Okay. And demand for PAN, you have mentioned that, so that is quite handy. But sir, when we are talking to other chemical companies, so they are stating that even the agrochemicals, the dyes and pigment, even to some extent pharmaceuticals are witnessing some sort of demand setback. You are saying that demand...

There are moderation in the demand because there are some challenges in the downstream industry because there are some challenges in the European and that side whoever is supplying, like pigment is generally supplying to China and Europe. So there are challenges in that side. We have seen the moderation of demand in pigment segment. Paint is doing well. Plasticizer is doing fine. Pigment, there are some challenges. And there are multiple industries you supply. All industries can't perform well all time.

Okay. So sir, is there some news of any -- any players into the Europe has taken permanent shutdown or closure of capacity for PAN?

The only thing we heard is that BASF has decided to put 50% of their capacity from Germany to China in view of the restriction in supply. Okay. That's all. But there are challenges in Europe because the cost of the natural gas and electricity has gone 7 to 8x. So it's not easy for them to operate.

So this can be an opportunity for us to supply more to Europe and capture the market share?

It is in 2 ways because the opportunity is if you can produce the product, which is manufactured by Europe, India can be not only China plus 1 but Europe plus 1. You can set up the plant here and supply to the European counterpart. Having said that, if you are a supplier to European industry, and if they are not operating, then you will be in slight trouble. So it's 2 ways. If you can set up, you're supplier of raw material to the European one, then you will face the challenge. If you are supplying something which is consumed by European, then you are in a better position.

Okay. So we are supplying to Europe, sir...

We don't supply. We have our exposure to the Middle East. We are supplying 10% to 15% all of our exports in Middle East, not Europe because we produce in flakes, it's in powder, Europe consume phthalic into the liquid.

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comment.

With this, I would like to conclude the call. The only message I need to give is just look at the phthalic and the type of industry, it's just beginning of the era of infrastructure buildup in India. It's a long way to go to highway to bridge to dam to metros. A lot of infrastructure activities expected to come up in next 20 years. We expect there may be a moderation maybe for 1 or 2 quarters. We expect phthalic demand to continue to grow next 15 to 20 years. Having seen the good polymers as well as the UPR as well as the pigment, specialty chemicals, they all will do well longer. In short term, there may be some hiccups. But on long run, the sustainable growth of India is directly linked and phthalic demand is directly linked with that. With this, I thank you everyone else. And if you have any query, get in touch with SGA or directly send a mail to us, we are happy to respond to you. Thank you very much. Bye.

Thank you. Ladies and gentlemen, on behalf of I G Petrochemicals Limited, that concludes this conference call.