Jubilant Ingrevia Limited (JUBLINGREA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of Jubilant Ingrevia Limited. [Operator Instructions] And there will be an opportunity for a question after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Pavleen Singh Taneja, Associate Director, Investor Relations, Jubilant Ingrevia Limited. Thank you, and over to you, sir.

Good evening, everyone. Thank you for being with us on our Q2 and half year FY '22 Earnings Conference Call for Jubilant Ingrevia Limited. I would like to remind you that some of the statements made on the call today could be forward-looking in nature, and a detailed disclaimer in this regard has been included in the press release and earnings release that have been shared on our website. On the call today, we have Mr. Shyam Bhartia, Chairman; Mr. Hari Bhartia, Co-Chairman; Mr. Rajesh Srivastava, CEO and Managing Director; Mr. Prakash Bisht, CFO, Jubilant Ingrevia Limited; and Mr. Anil Khubchandani, Group CFO. I now invite Mr. Shyam Bhartia to share his commentary.

Thank you. Good evening, everyone. Welcome to the Q2 FY '22 earnings conference call. With immense pleasure, I would like to announce that we have delivered yet another strong financial performance in Q2 FY '22 and reported our highest ever revenue during quarter and half year ended 30th September '21. Supply disruptions from China is coming to our advantage due to which we are witnessing strong demand in most of our products that is giving us an opportunity to increase our share with global customers. While on the sourcing side, we are having negligible dependence on China. We are finding unprecedented increase in almost all the input raw materials, fuels like coal and gas and logistics cost. However, our business team is confident to pass on the incremental costs by working closely with the customers. In our Specialty Chemicals segment, we witnessed strong growth across the products, led by growing demand from pharmaceuticals and agrochemical customers. In Nutrition & Health Solutions, the demand of vitamin B3 has been stable and prices started to increase in vitamin B3. We continue to work to improve our market share in niche segments like food and cosmetics. In Life Science Chemicals segment, we witnessed healthy demand from pharmaceutical and agrochemical customers, resulting in volume growth in all the products. I'm happy to announce that we have reduced the net debt further by INR 193 crores during Q2 FY '22. Looking ahead, we are excited with the growth of opportunities in our businesses, and we are fully committed to realize them. We have developed a strong product pipeline using in-house R&D. Our technical expertise into various chemistry platforms and long-standing relationship with global pharmaceutical and agrochemical customers including Innovators. We are prioritizing and investing in several growth CapEx in the next 2, 3 years to launch these products to achieve our growth target of doubling the revenue by FY '26 from the base year of FY '21. With this, I now hand over to Rajesh to discuss about the business in detail.

Thank you, Mr. Bhartia. A very good evening to all of you. At the onset, I hope you all and your loved ones are safe and healthy. I would like to welcome you all for joining Q2 FY '22 Quarterly Investor Call of Jubilant Ingrevia Limited. It gives me immense pleasure to report a healthy financial and operational performance of Jubilant Ingrevia Limited for the second quarter and half year ended 30th September 2021. Revenue during the quarter was INR 1,223 crores, demonstrating a growth of 56% year-on-year, driven by 17% growth in Specialty Chemicals, 43% Nutrition & Health Solutions and 84% in Life Science Chemical business segments. EBITDA during the quarter was at INR 202 crores, up 44% year-on-year, led by significant growth in Life Science Chemicals business segments and also by Nutrition & Health Solutions business. As highlighted by Mr. Bhartia in his speech about the strong demand in most of our products due to supply disruptions from China and logistics disturbances, we at Jubilant Ingrevia are fully committed to realize them into our business growth using our long-standing relationships and proven track record with global customers. Now let me take you through the update on all the 3 business segments: Specialty Chemicals. Specialty Chemicals revenue grew by 17% on a year-on-year basis, driven by higher volume across the product segment. Major demand turns was witnessed in pharmaceutical, consumer, nutrition and industrial end-use segments. EBITDA remained flat in value terms, while EBITDA margin declined due to volatility in price of input costs. Overall demand scenario continues to be strong. Domestic demand also improved due to shift of some of the pharmaceutical and agrochemical end product customer from China to India leading to increased market share. However, amid the challenging environment, we successfully maintained our global leading position in pyridine and its 11 derivatives and in several products, improved our market share globally, Nutrition & Health Solutions. Nutrition & Health Solutions revenue grew by 43% on a year-on-year basis, driven by higher volume and prices, and the EBITDA margin were 19.5% during the quarter. During the quarter, due to reduction in African swine fever in China, there has been strong demand of vitamin B3, niacinamide and niacin. Therefore, we were in a position to place higher volume both on quarter-on-quarter as well as on year-on-year basis. We also continue to focus on improving our market share in this segment like food and cosmetics. And we are also focusing to enhance our market share in North American markets. Demand in Animal Nutrition segment remained strong, primarily driven by recovery in poultry and aquaculture. We continue making efforts to increase share of our specialty premixes through various initiatives. Life Science Chemicals. We delivered another outstanding performance in our Life Science Chemicals segment, with 84% growth in revenue and 160% growth in EBITDA on a year-on-year basis, along with a healthy margin of 13.8% during the quarter. This superior performance was based on account of favorable market condition driven by the disruption in Europe and China market driven by forced majeure by key supplier of acetyl products. We witnessed acetic acid sharp price increase due to end of the -- during the end of the quarter. However, the average price during the quarter were lower in comparison to Q1 FY '22. Acetic anhydride demand remained strong during the quarter. We managed to place better volume of acetic anhydride during the quarter, both on quarter-on-quarter as well as on year-on-year basis. We also maintained the domestic market leadership of acetic anhydride and increased the market presence in Europe, Americas and Rest of the World. During the beginning of the quarter, demand of ethyl acetate was lower, which improved significantly during the later part of the quarter. Therefore, with respect to better demand, especially during later part of the quarter, we could place higher volume of ethyl acetate in India as well as in Europe on quarter on quarter basis. Specialty ethanol market demand also continued to be strong, which has resulted in higher sales volumes on a year-on-year basis and stable on quarter-on-quarter. Growth plans and CapEx. Progress our first phase of Diketene CapEx is as per schedule and is expected to be commissioned during the quarter, January to March 2022. During the year so far, we have already committed investments INR 450 crores for following growth CapEx. At peak capacity, these investments are expected to generate additional annual revenue of INR 900 crores to INR 1,000 crores at prevailing prices. Number one, CDMO GMP facility at Bharuch, which is expected to be operation during the quarter April to June 2022. 3 multipurpose plants of Specialty Chemical, which is expected to be in operation during the quarter July to September 2022. Food grade acetic acid, which is expected to be in operation during the quarter April to June 2022. Acetic anhydride plant, which is expected to be in operation during the quarter January to March 2023. Agro Active Phase 1, which is expected to be in operation during the quarter January to March 2023. Our expected CapEx cash outflow for the year will be in the range of INR 350 crores. Outlook. Demand of most of our products is expected to remain strong in H2. Though input costs are increasing, our business teams are confident to pass on the incremental costs by working closely with customers. With this, I now hand over to Prakash to discuss the financial [ results ].

Thank you, Rajesh. A very good evening to everyone, and thank you for joining us on Q2 FY '22 quarterly earnings conference call. I would now highlight the company's financial performance during the quarter ended 30th September 2021. I would like you to recall that the Life Science ingredients business of Jubilant Phormova demerged into Jubilant Ingrevia Limited effective 1st February 2021. And in FY '21, our results comprise results only for 2 months of operations starting from 1st February 2021. However, similar to earlier quarters, to provide the comprehensive picture of the operation of the company on a continuing basis, the results for the previous period has been presented on a pro forma basis in this Investor Day and also during the call by driving the fee from the published results relate to discontinued operation of LSI segment of Jubilant Phormova Limited. The details in this regard are provided in the Investor Day and Note 5 of our published results, and we request you to go through the same. Revenue from operations during Q2 FY '22 was at INR 1,223 crores as compared with INR 784 crores in Q2 last year. Similarly, revenue from operations during H1 FY '22 was at INR 2,367 crores as compared with the INR 1,520 crores in half year last year. EBITDA during the quarter was INR 202 crores as compared with INR 140 crores in Q2 FY '21, with margins at 16.5% during the quarter. Similarly, EBITDA for H1 FY '22 was at INR 490 crores as compared with INR 267 crores during H1 FY '21. Margins were at 20.7% during H1 FY '22 as compared with the 17.6% for the same period last year. Depreciation and amortization expenses during the quarter was at INR 31 crores. Finance cost during the quarter was significantly lower at INR 7 crores versus INR 17 crores in Q2 FY '21, a reduction of 59% Y-o-Y on account of repayment of debt and the lower interest rates. The tax expenses for Q2 were higher at INR 54 crores on account of higher profits. The cash tax is expected to remain at 17.5% during FY '22. PAT during the quarter was INR 111 crores as against INR 77 crores in Q2 FY '21. Similarly, PAT for H1 FY '22, was INR 279 crores as against INR 130 crores PAT in H1 FY '21. The company maintained a steady deleveraging in Q2 FY '22. Also, the gross debt was reduced by INR 193 crores in Q2 FY '22. Gross debt as on 30th September '21 stands at INR 263 crores as against INR 457 crores as on 30th June 21. The company's net debt stood at INR 193 crores as on 30th September 2021, a reduction of INR 193 crores from 30th June 2021. Net debt-to-EBITDA ratio further improved at 0.2x from the earlier level of 0.5x as on 30th June 2021 on the basis of trailing 12 months EBITDA. During the quarter, we also divested our stake in [indiscernible] for a consideration of USD 18.2 million, approximately INR 134 crores, consequent upon its merger with another company. With this, I would like to conclude our opening remarks. We will now be happy to address any questions that you may have.

[Operator Instructions] The first question is from the line of Jason Soans from Ashika Group.

Sir, just wondered some color. On the Life Science Chemicals business, now as we have seen that this business, the margins tend to be a little volatile. So in 1Q, the margins were around 27%, which has dropped around 14% in Q2. And I know in previous calls, you have spoken about looking at the segment on an absolute EBITDA point of view. So just wanted your sense on what are the long-term sustainable margins for this business? And you also spoke about a force majeure event. So I just wanted to know if everything goes back to normalcy, what's the long-term sustainable margin for this business?

So as we have explained in the first quarter, that in Life Science Chemicals business, we had certain favorable conditions. Plus in the first quarter, there was a significant increase in acetic acid price, vis-a-vis, the past quarter of Q4. And we had certain benefits on inventory. So the second quarter performance is close to the normal performance, though the prices settled down during the quarter. But at the same end of the quarter, acetic acid price further went up. But as a whole, quarter 2 was more or less a normalized performance. Yes, there is a disruption from China. But in any way, these products of Life Science Chemicals really do not come from China to India. So the Indian market is mostly dependent on Indian manufacturers. So more or less Q2, you can assume is more or less a normal performance.

Okay, sure. And sir, when I look at your gross margins, now then you have a dip in the gross margins of around 850 bps quarter-on-quarter, when I refer to it. So the gross margins have dropped 850 bps on 40.9% in 2Q, which clearly shows -- clearly [indiscernible] a rise in input cost, and you have highlighted that. So just wanted to know and also acetic price -- acetic acid price also fell about 20% in Q2 from around [ $2,100 to $950 ] in Q2 average. So just wanted some color on this as well. I mean what's the exact reason for such a sharp drop in gross margin of 850 bps?

Prakash, will you?

Yes. So the drop in the gross margin, if you would see that there is a raw material price increase, which we are passing on. But if you would see that the overall sales price that has gone up when you are comparing it to Q1, it's by 6.9%, whereas the raw material prices has gone by 24.6%. So which is also reflecting in our gross margin. So mathematically, if INR 100 has increased and you pass on INR 200 in sales price, as a percentage, when you would see it would come down. So that is the reason why it is reflecting in the gross margin.

Okay. So sir, do you mean it will get passed on with a lag? And is that -- can I -- is that what you mean? Will it get passed on? Will it take some time for to pass on the input increase input prices?

So what I'm trying to explain you is that in our Life Science Chemical business, when you pass on the raw material price increase in the value of sales, since the value of sales as a percentage, it would always change. It would not always be the linear percentage.

Okay. Sure. And my final question would be, I just wanted to know something about the potential for the pyridine chemistry in India and globally. Now I understand that you have a significant market share in 11 derivatives and significant scale as well -- So just some color on the pyridine chemistry in India. And I see that the building blocks for Specialty Chemicals start from your Life Science Chemicals business, especially being acetic anhydride and ethyl acetate. So could you talk about some color on the pyridine's potential for pyridine chemistry and the integration of Life Science Chemicals into Specialty Chemicals and how you could look at, yes, growing that aspect. Yes.

So Life Science Chemical integration to our pyridine chemistry is basically, we are producing acetaldehyde in Life Science Chemicals, which is transferred to pyridine business, right, so Specialty Chemicals business. So that continuously transferred internally. Now coming to pyridine business future. As we have explained earlier also that we continue to do value addition in our pyridine chemistry platform, and we continue to add new products in pyridine derivative. And based on those new product demand, if you see, we are adding 3 multi-purpose plant because of the increased demand, which we are finding from the global market. But of late, as we have also seen that some of the production of end products shifting to India is also giving us opportunity to capture more market share our pyridine derivative. Because of these 2 trends, we have taken decision to augment our capacity in almost every derivatives, which we are producing plus launch the new products which we have developed where the new requirements are coming.

The next question is from the line of Rohan Gupta from Edelweiss.

Sir, first question is on our Specialty Chemical business. So I understand, sir, this quarter compared to last year on your pro-forma number, a lot of growth in Specialty Chemical in other businesses driven by the price increases. However, EBITDA number on Specialty Chemical business looks flat. So you mentioned that it has been basically the rising input cost, probably which has impacted the EBITDA margin. So just wanted to understand if you can just quantify the kind of volume growth we have seen in the current year in the Specialty Chemical business on a Y-o-Y basis? And what can be the sustainable margins in the Specialty Chemicals business going forward?

So we have mentioned that in Specialty Chemical business, Y-on-Y we have seen significant growth. But you are right that in the last quarter Q2 there has been very, very high volatility in the input prices. And as you know, Specialty Chemical businesses, this is not a spot business always. So there is a little time lag to pass on the price increase. But we are very confident that all of our costs increase, we are going to get from our customers. We are working very closely with customers but we can only tell you the demand of Specialty Chemical is strong, and we continue to see a good traction of our volumes in Specialty Chemical business. And we are confident to pass on the cost increase which we are seeing, of course, is very volatile, but we are very focused to pass on this cost increase.

Also, 17% in Specialty Chemicals business revenue growth Y-on-Y. Sir, would it be possible for you to share the price-led growth and the volume growth for the quarter?

I think majority of it is volume led. And Y-on-Y we have seen both volume growth as well as price growth.

Okay. So it is not that only price increased 17%. There has been some volume growth angle also?

Yes, yes, absolutely. Correct.

Because of what we have seen then definitely, the commodity chemical, I mean, the input prices, acetic anhydride and ethyl acetate all those prices have gone up sharply. So what it looks like that is Specialty Chemicals, all the growth is only coming from the price led. But you said that it's driven by both volume as well as price. So I take that.

Absolutely. Absolutely. If you see year-on-year, there is a volume growth significantly in Specialty Chemicals along with the [ price ].

Okay. So it means that when there has been volume growth, but Specialty Chemical EBITDA on Y-o-Y have not increased. So it's only because the price increase will come with some lag. So we expect that going forward, in the second half, there should be margin improvement should happen and should get reflected in Specialty Chemical business. Am I right?

We really do can't comment on margin percentage. But definitely on absolute EBITDA, it has to be -- we should do a consistent performance, definitely.

Okay. Sir, second question is on the Life Science Chemicals business. So you mentioned that definitely. And also in your opening remarks, you mentioned that in general, we are benefiting from the current situation emerging from China. I think that you refer to the power crisis in China. We are not much dependent as far as the raw material is concerned from China, but we benefit from the end product pricing. Sir, can you just share a little bit more on that, that how is the current scenario. And we have seen that the ethyl acetate and acetic anhydride prices are continuously moving up. So if you can just give a current scenario in the current month the prices, and we are also seeing the acetic acid, that is a key raw material for us, where also the price started moving up significantly. So if you can just share a little bit more on that, sir, how will be impacted in the spread of our Life Science business in the current quarter or in the current scenario?

Yes. So in Life Science Chemical business, the -- as you very rightly said, we have no dependence on sourcing parts from China. But you are right that the only impact that we find because of China disruption is on the prices of acetic acid. And as and when there has been disturbances in the global market and production in China, this price of acetic acid has been volatile, which we all are experiencing. But other than the price of acetic acid, the volume growth and volume demand of anhydride and its ethyl acetate is absolutely not because of China disturbances. Volume growth is a very normal growth, which we are finding in India for anhydride and [ ethyl acetate ] both, which we have mentioned earlier also in the call that we had taken a decision to add capacity of anhydride because of the demand growth in India as well as global markets. And nobody else is adding capacity. So the -- except for the fact that acetic acid price will be volatile based on the global environment, the demand of anhydride and ethyl acetate will be continuing to be strong because that is depending on the various end product demand, which is in India as well as in outside India, but not depending on China. So if acetic acid price changes, just like if price goes up, obviously, because we are a large producer, we gain in terms of our overall profitability. So that is the only change which happens from this disruption. Else, the market situation, the market demand is all actually very sustainable, and that's the reason we have taken a decision in the past to add capacity. We have also taken a decision to add on more capacity, which will be coming up in the FY '23. I hope I have clarified this.

Yes, sir. Very much. Sir, another question is on our long-term strategy and especially the new chemistries, which are going to commission in Q4 FY '22, especially with Diketene. If you can -- we are just -- Q4 is just only a couple of months away from here. So I just wanted to understand how you see that the customers' engagement with the company in terms of -- we -- I believe that there is still restriction on a global travel. In that kind of scenario, do you see that the customers are still able to audit the plant? And when we commission our Diketene plant in Q4, there will be significant ramp up immediately in our [ dead ] plant or because of the pandemic issues, we will see some delays in commissioning of those plants or ramping up of both plants?

No. I can tell you very clearly, there is absolutely no impact of pandemic with respect to the delay in commissioning of the plant. We are almost close to start commissioning in the Diketene plant. So I don't think there is going to be any further delay on that. On your point of customer engagement, even during the pandemic, our customers have been doing audits virtually. So most of the customers in India are very much aware, very much knowing us, they have visited our sites in the past. So if they are not visiting for last 6 months or 1 year, they are not worried about our situation on quality and compliance. Just on virtual audit, they are okay. Most of these customers, for your information, are already our customers. So you name any agrochemical or pharmaceutical customer in India, we are supplying 1, 2, 3 or 4 products to them. So for them to approve us for a new product, like Diketene, is not a big challenge because there are no Jubilant. They have already experienced us supplying very high quality and very, very chemistry-driven product in past. I think that's not a big challenge. And with regards to demand situation, we have already mentioned in the past with regards to Diketene already, there is an import volume happening to the tune of 15,000 to 16,000 tonnes on an annual basis. So the volumes which we are targeting in Phase 1 should not be challenging for us to place as quickly as possible.

Sir, I completely agree with your point in terms of clients. The profile of the client doesn't change much because we have already been engaged with them. But my whole point was because we are getting to do chemistries. And the new products based on the Diketene and the new chemistry. So I understand, though, definitely, we have proven track record in pyridine and value added in pyridine. But definitely, it's still getting into new chemistry. So probably customers wanted to probably see a sampling basis or on a trial basis, definitely wanted to do the [ trial programs ] with us when we are getting into new products. So just wanted to get more comfort on that, which you already clarified that it is going as per scheduled. Sir, with that proximity of the completion of the Diketene in just next quarter, sir, can you give some sense that from the current customer engagement and the kind of product approval, which would have already happened so far now, what kind of retail revenues you can expect from Diketene and new chemistries in FY '23, sir.

So FY '23, we are very confident to place our capacity, which we are building up. Because we plan to have Phase II startup immediately after we finish the commissioning and place the volume for Phase 1. So we are very confident that FY '23, we should be in a position to place our capacity, whatever we are building up. And we have very well planning in terms of product-wise, customer-wise, where we will sell. So FY '23, we will be in a position to place our volume which we are going to produce. And capacity for this particular Phase 1, we have already told you, it is in the range of 6,000 to 7,000 tonnes, which we are also looking at how to debottleneck it further to see if we can increase it further. So we are working on that.

So out of the roughly 30,000, 35,000 tonnes market, in the first phase, we're already going to have roughly 7,000 that's almost close to 20% market share. We are targeting just in the first year itself of the commissioning of the Diketene plant, right?

Yes, but that's easily possible because that import is happening and these products are -- the Jubilant is well known. Our quality is well known. Nobody wants to have [indiscernible] [ in port ] every time and we can supply on time. Plus, you are reading about antidumping duty on these -- some of these products. So all those hassles looking at those customers are actually looking forward to for our products. So if it was any other thing, then probably we could have discussed that. But here, I don't think that should be a challenge.

The next question is from the line of [ Karan Agarwal ] from [ Allbridge Capital ].

Three questions from my side, sir. Just wanted to get a sense on how your contracts are generally structured with your customers in the Specialty Chemicals business are they take or pay or in terms of pricing, in terms of volumes? Just to get a sense in terms of your ability to eventually regain the north of 20% EBITDA margin territory.

Okay. So most of our products in Specialty Chemicals, particularly the fine chemical and crop science chemicals. We are -- in domestic market, we work on quarterly basis. right? So we agree on a quarterly price and quarterly volume. On export, specifically in Europe and U.S., the customers are asking us to commit volume for annual basis and also price on an annual basis. But obviously, with those customers, we have an understanding that there are significant increase or decrease in pricing, they are considering our request to really revise that. So -- and that is the reason it takes a little time lag to get into the revised pricing based on the impact of raw material price. But we don't have any take and pay tariff of contracts with any of our customers in fine chemical, crop science chemical or even in CDMO. So CDMO is mainly the campaign-based annual order and annual price, which is more or less we commit on a campaign basis. So I don't think we have any take and pay situation in any of our product in Specialty Chemicals.

Sure. Sir, my second question, if I look at your industry and you split, about INR 245 crores of your revenue is from customers operating in Nutrition. When I look at your Nutrition & Health Care business segment split, the revenues are about INR 179 crores. So there's a balance of INR 66 crores of revenue that is coming from either the Life Science Chemicals or Specialty Chemicals business. So if you could give us some granular sense on what products are these? And which of Jubilant segments is this 66 crore revenue attributable to?

We had some of the Specialty Chemical products, which are used by the nutraceutical industry. So they are used as a precursor of ingredients, right, which are pyridine based. So we have those products which are also going to nutrition market, and that's why you find that percentage there.

Got it. And sir, my final question, you've gotten significant traction in your North America and ROW geographies, if I just compare them on a Q-on-Q basis. My sense is that has to do everything with your Specialty Chemicals and the Nutrition business. Would that be accurate?

Yes. Specialty & Nutritions are major. But in ROW, we also have Life Science Chemical partly. But mainly, you are right, only Specialty & Nutrition.

The next question is from the line of Vineet Gala from Monarch Network Capital.

A lot of my questions have already been answered. But if I can push you on one more question on [indiscernible]. I just wanted to understand on the direction of the absolute spread that is the EBITDA per tonne. So as you mentioned that there has been no increase in input prices during the end of the quarter. How do we expect the EBITDA per ton to be in the medium term?

Yes. So good question. I think off let, I would say, last 3, 4 quarters, we have seen because the demand is shifting towards India, particularly on this paracetamol and agrochemical and other products on anhydride and ethyl acetate, we have seen the per kilo margin also of our products improving quarter-on-quarter, which is a very positive sign, and we realized that should be more or less a good scenario of our future. Because as you know that our -- we have increased our capacity 1.5 years before. We are adding much more. So our -- we have huge volumes available to service our all the increased demand in domestic market. So obviously, the demand has gone up and we are ramping up the capacity -- So we have seen a little bit improvement in our particular margin side, yes.

Okay. But just to clarify, like, I mean, per kilo increase in the EBITDA, the absolute EBITDA. Wouldn't be in proportion to the overall increase that you see in acetic acid?

No, no, that is -- when we say per kilo, then it is after taking care of that increased price acetic.

Right. But like numerically, the top line would increase at a much faster pace.

Obviously, obviously. That's what Prakash was trying to explain, that even though our per kilo margins are improving, but the top line is improving faster. And that is a temporary phenomenon, as you all know, because top line is not only acetic acid price, it's also coal, it is also other , utility, freight, everything, right? So everything is going up. So therefore, you see the margin impact.

Fair enough, sir. Sir, my last question is on if you could throw some light on [ concept ] incentives. So I understand that the rates have not been properly announced, but what is the sense, what is the benefit that we can get on both consolidated? And also, just one clarity, if these benefits are going to accrue on a retrospective basis since the cancellation of MEIS extension.

No. So [ RODPP ], as you know, is not still announced for any chemical products. So whatever MEIS, we have -- we had to claim we had already claimed and some MEIS have been realized in last quarter also as a cash flow -- But we have no [ RODPP ] anything pending now for future.

Right. But there would be some rate effective 1st of January, right?

We don't know. They have been talking about first half December, then there's certainly an increase also, we really don't know. But yes, if it happens, then obviously, that will be in addition to what we are currently, we have.

The next question is from the line of [ Rachit Chak ] from [ Vito Capital ].

Pardon if my question is repeated. My line dropped off. Sir, my question is dialing back to your Life Science Chemicals business. If you see that the Q2 performance actually the margins have improved, although the margins sometimes have been order in that segment. So is it purely increasing your gross margin related so the selling price increasing faster than your cost? Or is there some operating leverage benefit is also coming because I think we are seeing some increasing capacities. So just wanted to see, understand, is there some significant portion of the operating leverage also playing out in the Life Science business?

Yes. You are very right. If you see quarter-on-quarter, we are improving on capacity utilization of the new plant, and our volumes have grown both year-on-year and quarter-on-quarter. And at the same time, I explained in my last question that we are also because the demand is growing. We have a situation of better margin in these products. So both together is showing better performance.

Sure. And one more extension to that question is that you alluded to the increase in paracetamol manufacturing, et cetera, leading to improvement in [ asset EBITDAs, absolute EBITDAs ]. So let's say, over the medium term, I mean, looking beyond 6 months or even 2 to 3 quarters, do you think that these kind of EBITDA, improved EBITDA is largely sustainable in a broader rate and gives a normal volatility? Do you think that kind of margins are sustainable on an absolute basis?

If you would have asked me this question last quarter, of course, we answered no. But this quarter, we have more or less normalized. But you never know the market situation. But we are confident that in the near future, at least few quarters, things should be stabilizing rather than making further disruption. So we are looking at markets to be more stable. As I said that more or less more and more volumes have shifted to India, so the customers are well settled. Unless we see an end market disruption very badly, then we can see some changes, but which is not visible at least to us in global market for next few quarters to come.

Sure. That's really helpful. And just one last question as an extension to that. So sir, overall apart, not only Life Science, but of course, the value chain, if I were to see some of the competitors as well as [indiscernible] that all these prices should stabilize of most of the products in Q3 itself or probably it has always stabilized. So actually Q4 onwards, the margin should look more stable on a quarter-on-quarter basis. Is that some kind of visibility you are seeing at least sitting as on to the, of course, I mean, things are subject to change tomorrow, but sitting as on today?

I don't know where you are seeing a stabilization of input prices. In fact, as late as last week, we are seeing huge price increase in every raw material. So it is very difficult to say things are going to be stabilized in next quarter because what we can -- what I can tell you is that the disruption of China, which has happened in the last 2 months. Probably, it is my personal guess and my personal experience is. It may not correct before December because they had some plan of Olympics in December, January. And they have given the cut of power and energy conservation and guidance to the country. So I think 3, 4 months, I don't see big changes. Of course, slight correction here and there will continue, but not going back to normal situation in next quarter.

The next question is from the line of [ Bruce Muchal ] from HDFC AMC.

Sir, my question is related to the Life Science business unit. Sir, in the commentary, you mentioned that there are some force majeure events for some of the capacities in Europe and China. But sir, given that India is largely, I believe, a net exporter for majority of our products in Life Science. So does it have any positive implication for us? And are these force majeure events, what temporary? Or do you see them a longer-term thing?

So I just mentioned about China that because of the energy conservation target and guidance they have given, they also defined certain territories to the red territories. They don't want industry to run up after a particular percentage of production because of which the input price, as I mentioned, acetic acid is really going to be volatile. That is what we are expecting. And -- but other than that, I think the demand scenario within Europe India and ROW for our products are going to be strong. So that will continue. But yes, the input pricing not only acetic acid, but other raw materials also not depending to Life Science. But there will be a volatility in the input prices.

Yes, I think adding to Rajesh's comment, there is -- Rajesh has mentioned that there is a force majeure in one of the European company on -- for ethyl acetate. Therefore, the demand for ethyl acetate has gone up, both demand and the prices have gone up in Europe.

And sir, given -- okay, so ethyl acetate perspective, that becomes a positive because -- and the short-term thing which is happening in China that right, sir. And sir, the second thing was on your comment that you're not seeing a lot of capacity additions in these products. So is it something which has changed structurally? Or any particular reason why people are not adding capacity given that, as you mentioned, demand is growing, but we don't see a lot of -- as you mentioned there, much of capacity addition. So what could be...

The reason of that is that anhydride and ethyl acetate is solely depending on acetic acid. And acetic acid, most of the capacities are available now in China or in Asia -- Southeast Asian countries. Now there is no additional acid capacity that has been announced in the past or is being announced now either in Europe or U.S. So because there is less availability of acetic acid nobody is encouraging to add capacity of these products in Europe and U.S. In fact, it is becoming more and more challenging now to source acetic acid in Europe and U.S. Most of the capacities have come down to this part of the world. And that's where the -- we realize this opportunity and we put the decision to add capacity.

Okay. So okay. So when I was talking about capacities, right? So in U.S. and Europe, the capacity are not getting added. But in Asia, you don't see that as a concern. I mean there could be capacities that can come.

Other than China and India, there is no one produces anhydride in this part of the world. The technology is not available as of now. But you never know what can happen in the future. Nobody can say. But not a simple product to add on easily.

And sir, lastly, how -- just if you can speak something about the [indiscernible] expansion potential in these capacities. I mean, how quick can that can be? And is it about adding reactors and you're producing additional volumes? Or it's a completely different setup. You have to go fully backward and put all the capacity, some thought there would be helpful just to understand how -- if the demand continues to supply how capacity can be added?

So this is not like any multipurpose plant or other reactor, or other column. This is a unique facility which requires a very specific technology and chemistry. It's a cracking technology, which is not available at many places, not proven by other companies. So it's not so easy for even -- you don't find many research of such kind of equipment. -- only those companies who can produce certain technological equipment, they are specializing to this. It's not a general reactor additional type of client. It's a good amount of investment, if you see.

The next question is from the line of Rohit [indiscernible] from NK Global.

[indiscernible]

Rohit, you are echoing a lot.

Yes, Rohit. May I request you to come on the handset mode, please.

Is it better now?

Yes, yes. Please go ahead.

Yes. Sir, the first question is in terms of your long-term guidance, that you have said that will be doubling our revenues. In that aspect, how much of the incremental revenues would come from new products?

Yes. So if you see our new investor presentation, we have given that what capacity we are adding up for the new products and what capacity we are adding up from the existing plant. So this will give you, but in terms of our growth projects, if you see our growth projects, which we have announced, one is acetic anhydride, which of course, our existing product. But all the multipurpose plants, which we are adding up, mostly is for new product addition. So that will be in a Specialty Chemical business.

Right, right. Sir, and in terms of margins, so incrementally, when we'll double the revenues, would the margins be going up? Or will they remain at similar levels, I mean, historical margins?

So if you see our investment, we are talking about major investment in its Specialty Chemical and nutraceutical, right? Except one in Life Science Chemicals. Now that the major investment is happening in its facility and nutraceutical, and both these businesses, our margins are better. So obviously, going forward, on a whole, we can see improvements in margin.

Right, right. And sir, just last question on this. So basically, we feel that there will be volume growth, which will elevate our revenue profile. And that is primarily, as you just said to the earlier participant, that none of these incremental capacities are getting added anywhere in the world. That is a precise reason why we are expecting the growth, so it will be completely through volume side?

Yes. So we are -- whatever we are giving the guidance is based on the volume, too. So it is very difficult to give a guidance on the price of input. So because that is changing. Because I think acid price is changing every quarter. But yes, even if we are talking growth, we are talking on a current pricing level. We say if you take current pricing level, our volume will grow double. That's what we are doing.

Right, right. And just one clarification. On the force majeure that have happened, any chances of some of these capacities going out of the system or mothballed or these will come back once the situation relatively normalizes?

So we have found force majeure mainly in China, except 1 in Europe for ethyl acetate. One in Europe for ethyl acetate is more or less temporary. It will come back. In China also, it is not a very, very long term. But as I mentioned earlier, it could be for a few months or maybe one quarter or a couple of quarters. But after that, of course, things have to normalize.

The next question is from the line of Alisha Mahawla from Envision Capital.

Most of my questions are answered. I just had 1 clarification with respect to the CapEx that you're doing. For the 3, 4 projects that you have identified in your presentation and even in this call, the CDMO plant, the MPP plant, et cetera, the total CapEx, this is INR 450 crores, of which we will be spending 350 crores this year. I just wanted to clarify my understanding.

No. So 450 crores is the CapEx. We have approved this so far. That is investment. And 350 crores is a cash outflow in the current financial year.

Okay. But for these 3, 4 projects that you have identified, there could be a need for incremental CapEx also for the timeline that you've identified that they will come on stream in FY '23?

No, let me clarify. The CapEx which we have mentioned in our presentation, the value of CapEx is 450 crores, which part of this we will spend in this year, part of this will be spent next year. But current year cash outflow will be 350 crores.

Understood. Understood. Understood.

Just to clarify it once again. What we have said is, over the next 3 years, we are going to spend around 900 crores. So out of that 900 crores, 450 crores is what we have approved and 350 crores is our cash out overall.

Understood. Understood now. And just one last clarification. The peak revenue with respect to the INR 450 crores that you were mentioning earlier of INR 900 crores, INR 2,000 crores. This is excluding the Diketene CapEx that we're doing, correct?

Yes. This is excluding the Diketene CapEx. You're right.

The next question is from the line of [ Farid ] Gupta from Edelweiss Securities.

Sir, my question is to the Life Science segments. So there like you have a market share of about 66-odd percent. So just wanted to check that with the recent news, which is coming on the [ antidumping ] front on the [ acetyl intermediate ]. So what kind of a benefit it can be having on the pricing front going ahead?

The antidumping which you have seen is not acetyl product. It is basically Diketene product.

Right, sir.

Yes. So there is no antidumping [indiscernible].

So like on the 8 products, which we will be entering. So there will be antidumping duty going ahead. So that will be a key positive for us, right?

So you are talking about the Diketene derivative, which we will be entering in one of the group of products, which is analyzed, there will be anti-dumping duty. You are right.

Right, sir. And in terms of the pricing, like that will be domestically consumed? Or is it also exporting opportunity, which would be there pertaining to Diketene derivatives as well?

So most of our volume, I think I have answered this question in the earlier question, most of our volume of the Phase I is meant for domestic market. Of course, we will explore export market for future -- But as you know, domestic market is part of product to the tune of 15,000 to 16,000 tonnes. So most of our volume will be for domestic market. So obviously, the antidumping duty, which has been announced will also benefit us.

And so in terms of the new products which we are [indiscernible]. So if you look even on the EBITDA percent basis, so that will be similar to what we are currently enjoying in the Specialty [indiscernible]. Am I right in my understanding on that?

Yes, you are right. In general, yes, I can say it will be in line with that. It depends on product to product again. So -- but on an average basis, you are right.

The next question is from the line of Cyndrella [ Thomas ] Carvalho from Centrum Broking Limited.

Sir, just one clarification. If we look at quarter-on-quarter prices, what is the sense that you can help us with in terms of Specialty and Life Science segment? And how do you see this scenario from China and Europe in region in terms of supply disruptions improving overcoming through the 3 quarters? And would that impact the price meaningfully in any way?

You are talking about Specialty Chemicals?

Yes, sir.

So on Specialty Chemical, because of this disruption and input price increase, as we have mentioned earlier also that because the disruption was very, very fast, so we are taking a little bit of time to pass on, but we are very confident that we'll pass on the price. Having said so, as I also mentioned that the volume it is also happening to India. So therefore, we are finding the overall strong demand of our product, which is leading to our volume increase and volume-related increase, revenue increase. And also because the demand is improving, our price is also stable. So we are in a position to make our EBITDA based on the current demand. But of course, that price increase, which has happened in input price, we are trying to take that advantage in due course of time.

So would you be able to quantify what kind of inflation in the input price you have seen? And [indiscernible].

I can tell you in some of the products, which everybody can see, that solvents has gone up almost 150% increase. And some of the products like coal, which has gone up almost 200% or 150% of price increase. So input price has been very, very volatile, very unprecedented in terms of numbers. It's very, very scary and very high number. I don't think we will be right now in a position to have the number exactly to tell you how much has gone up because of input price and how much we are getting in the price increase.

And so as a percentage of raw materials basically to our sales. That's what I was looking for. So okay. And sir, on the overall product pricing, in terms of we are emphasizing on volume growth, but what I understand is that current scenario has some disruption advantage from our finance, do you see that coming back to normalization given that you expect certain to come back in China as well as in Europe or at least [indiscernible] 3 quarters as you were mentioning in your earlier comments?

I'm not sure if I heard you very clearly because in between your voice is gone, but I could understand what you're asking. I don't see in Specialty Chemicals we have any situation which is onetime requires demand increase. So there is -- I don't see any reduction in future. In fact, if you see the last year, same quarter Q2, we had a little positive scenario because we had some come out of COVID in the second quarter. We had some positive scenario last year, which has actually normalized this year quarter 2. So I don't see anything which we have seen in quarter 2, which is exceptional or onetime. It's strong demand. It is increasing continuously. I don't think there will be going back on volume reduction in Specialty Chemicals.

The next question is from the line of Rohan Gupta from Edelweiss.

Just a couple of questions raw materials, acetic acid is a key raw material for us and it's still very important for our Life Science business. Sir, you mentioned that there are not many global capacity coming in acetic acid in India and China, just to remain the key manufacturer of acetic acid. So with the rising requirement of acetic acid for you, do you have any plans to go into capital manufacturing of acetic acid? Or do you think that enough availability will be there and you will be completely dependent on outside purchase?

So first of all, I will correct. I said there is no additional capacity coming up in Europe and U.S. But in Southeast Asia, we have good capacity available. But -- and also in China, there have been additional capacity is not 2, 3 years, but operating rates are very low because of disruption in China. Now coming back to your question on can we produce or should we produce. Yes, we have the technology, we have the capability and we also have announced that we are starting the food grade acetic acid. And we are evaluating the option to see if we can produce. But as you know, our route of production is from renewable source, which is ethanol, not from petroleum root, which is what normally people produce. So therefore, to look at large volume for future, we will have to evaluate whether it will be beneficial for long term. So that evaluation we are doing and maybe if we see some consistency, then I will come back to inform you. So we have capability, but of course, we can't say that unless we are sure that the acid price in long, long term will be same, which nobody can say. If we are sure about it, we can obviously, we have capability to build on capacity of acetic acid. But if price goes down, we don't want to come to a situation where we regret later on. And that's what we are evaluating right now.

Then also in the current quarter, the net debt being as low as almost INR 193 crores, and I believe that in the second half, the company will generate further cash, probably looking at debt-free balance sheet by end of the year. So in the last quarter, I mean, on call, you mentioned that definitely [indiscernible] has already benchmarked the INR 950 crores CapEx that has already been decided by the Board, but there is always a possibility to top it up with a further CapEx if there are further growth opportunities for [indiscernible]. Just wanted to know and clarify, is there any further thought process in topping up the CapEx plans and over the next couple of years, going a little bit more aggressive what we have already planned, given our free balance sheet, debt-free balance sheet and solid cash flow generation.

Yes, Rohan, if you remember, even in our earlier discussions, I have informed you that we have a good pipeline of product further into our system. And looking at the market situation, we are going to quickly look at some of the expansion plans to expedite faster. And some could be the repeat, like Phase 2 of Diketene, we will expedite. And we have some new products, which we are planning to bring it to next year, probably we will expedite to do it -- So we are working on it. Give us some time. We will probably come back at the right time to announce further expansion in our investment.

So just a last clarification from our side, sir. So don't know standalone consolidated number. There is a basic difference between the Life Science Chemicals and the EBIT contribution from the Life Science Chemical business. So it seems that on our subsidiary, we are incurring some losses, especially in the Life Science segment, given that our standalone and consolidated operation. So if you can just give some clarification on that.

So Rohan, this is Prakash. So I think I see the numbers on H1 basis. So you will get your answer. So on a quarter-on-quarter basis, sometimes there can be some consumption pricing adjustments. But if you will see the H1 numbers, you will see that they are [indiscernible]. So we're not making any [indiscernible] then they get a fixed market.

Okay. So there is just more of the accounting differences rather than any [indiscernible].

Then we will see Q1 numbers that will be completed.

The next question is from the line of Pratik Kothari from Unique CMS.

Sir, just in continuation to the last question, if you compare the activity level between standalone and consolidated, market different in quarter and we saw from standalone to consolidate a 40 crore profit at PBT level and here, we are seeing 20 crores of loss.

If you see, again, H1, if you see the H1, H1, there is a profit. So you must appreciate that the subsidiaries are traded substitute and then the only trading that. So that's on a quarter-on-quarter, there are certain accounting adjustments. Otherwise, H1 number is contested. You will see that there is a profit that has been rated by the subsidiaries also and standalone.

Thank you. Ladies and gentlemen, that was the last question for today. I now hand conference over to the management for closing comments.

Thank you so much for the conference call. And if there are any further questions, our Investor Relations we'll be happy to answer and coordinate with our CEO and CFO for any further clarifications. Thank you so much for attending this conference call.

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