Kiri Industries Limited (532967) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '21 Earnings Conference Call of Kiri Industries Limited. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to hand over the conference to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.

Thank you. Good afternoon, everybody, and a warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Kiri Industries Limited. . On behalf of the company, I would like to thank you all for participating in the company's earnings conference call for the fourth quarter and financial year ended 2021. Before we begin, I would like to mention a short cautionary statement as always. Some of the statements made in today's earnings conference call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual result to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The focus of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now I would like to introduce you to the management participating with us in today's earnings conference call. We have with us Mr. Manish Kiri, Managing Director; Mr. Jayesh Hirani, Senior Manager of Accounts and Finance; and Mr. Suresh Gondalia, Company Secretary. Without much delay, I request Mr. Manish Kiri to give his opening remarks. Thank you, and over to you, sir.

Good afternoon, everybody. It's a pleasure to welcome you to the Fourth Quarter and Financial Year 2021 Earnings Conference Call. I hope everyone is keeping safe and well under the current circumstances. As you can see from the financial performance in the fourth quarter of financial year 2021, there has been a significant turnaround in the operations. The revenue from stand-alone operations for the fourth quarter was around INR 275 crore, which grew by around 30% on year-on-year basis. EBITDA was reported at INR 26 crore, which increased by around 135% on a year-on-year basis with EBITDA margin 9.34%, while net profit after tax was reported at INR 22 crore versus INR 33 lakhs loss in the corresponding period in the previous year. For the financial year ended 2021, on a stand-alone basis, the company reported revenue from operations of INR 689 crore, with EBITDA was reported at a loss of INR 90 lakhs and earnings after tax reported at a loss of INR 37 crores. The company has attained a gradual recovery in volumes in quarter 4 financial year '21, enabling absorption of its operational costs. Operational expenses have remained under tight vigil during the quarter and hence, are lowered by 24% as compared to quarter 4 financial year '20. The quarter-wise gross margins earned during the last 6 quarters demonstrates recovery post lockdown. Kiri has attained near to normalcy in its mark by achieving 37.3% gross margin in quarter 4 financial year '21, which was around 41.3% in quarter 4 financial year '20. The company envisages further strengthening of gross margins in coming quarters with increasing turnover by attaining optimum product mix, financial cost too has reduced on account of reduction in finance charges, pertaining to discounting of letter of credits and other bank charges. On a consolidated basis, for the fourth quarter of financial year ended 2021, revenue from operations were INR 363 crore, which increased by 22% year-on-year basis. EBITDA was reported at INR 49 crore, which improved by 60% on a year-on-year basis. EBITDA margin at 13.5%, while profit after tax was INR 39 crores, up by 115% year-on-year basis. For the financial year ended 2021, on a consolidated basis, the revenue from operations were INR 957 crores with EBITDA reported at INR 83 crores, with EBITDA margins at 8.63% and profit after tax was INR 22 crores. During quarter 4 financial year '21, DyStar attained turnover of $240 million and earnings after tax of $24.02 million. The valuation of stake of Kiri in DyStar has now been crystallized on the basis of financial position existing on effective valuation date of July 3, 2018, as per the judgment of Singapore International Commercial Court in minority oppression suit, which was upheld by Supreme Court of Singapore and hence, the financial performance of DyStar included in the consolidated financial performance is to comply with the statutory requirement of consolidation until the transfer of shares in compliance with SICC order takes place. This is a reduction of a share of profit of associates by 18% on a year-on-year basis, which is on account of reduction of profit after tax of DyStar, but it is important to note that the share of profit of DyStar does not have any impact on the valuation of stake of Kiri in DyStar, which has now already been awarded by Singapore International Commercial Court. With regards to the update on Kiri suit in the matter of DyStar, Kiri has been awarded valuation of $481.6 million for its 37.57% stake in DyStar Global Holdings Singapore, as on July (sic) [ June ] 21, 2021, by Singapore International Commercial Court which has been crystallized based on financial position of DyStar again as of July 3, 2018. Lastly, coming to the future outlook, as you may already be aware, that the Indian chemical sector is on the crops of very high growth trajectory in the coming years. Kiri's entire product range of dyes, specialty chemicals, dyes intermediates is supposed to provide impetus to its order book for exports and domestic market in the second half of financial year 2022. We all know that the current quarter, the first quarter of this financial year has started on a rough wicket. It is important to highlight that the specialty intermediate plant, which has been operational since January 2021, is one of the growth drivers, which shall also enhance well -- volumes and margins of the company in the near future. Now I would like to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Manish Ostwal from Nirmal Bang.

Congratulation to the team Kiri for the DyStar judgment. My question on the DyStar related only. Sir, what is the timeline for the now the Supreme Court judgment is also out. So what is the timeline for the Kiri Industries to get the money? So that is the one -- first question. Secondly, in terms of FCCB conversion and the usage of the cash available, what are the key areas where we will deploy that money?

Okay. So let me answer your first question, which is related to the timelines to receive funds. The order which we have received is the final order from Singapore International Commercial Court and which can be challenged in the Supreme Court, and that can go in appeal. There are 30 days to file an appeal from the order date. So exactly 30 days we'll come to know and highly probable that the parties will go for an appeal against this order. And that will take its process for appeal hearing at Supreme Court. We expect that at least next 4 months to 5 months would be there. So earliest date, we can expect somewhere around October, November, where Supreme Court hearing can take place. And subsequently, we may have order from the Supreme Court. However, as on today, there is no stake on the execution of this order, which means that Kiri is right to enforce and execute this order, are going to continue. And whatever legal steps and whatever rights Kiri has under law to execute this order, Kiri is going to exercise those rights in the coming days and coming months. So we'll have to work towards execution of this order by the time Supreme Court hears this matter. So to give you a practical timeline, by the time funds can come, can take anywhere from 4, 5, 6 months to 8, 9 months. From the legal advice and from the way we understand the timelines, it may be the first quarter of 2022, where we can expect to see the funds arrive to Kiri. So that was your first question. Your second question was related to the use of funds. Now knowing the amount, having the amount crystallized, we have already started expediting our project evaluation process. And whenever we reach to a decision, and whenever Kiri's Board reaches to a decision where and which projects we are going to implement, in which areas, including specialty chemical areas, we will announce, we will make disclosure and we will also make you aware that what are the next plans for Kiri to go to the next level and where we are going to invest. So that you will come to know in due course.

So there's no plan for the existing shareholders in terms of buyback of [ dividends ] because earlier there was some plan around that.

Of course, special dividend, buyback, these are also part of the plans. And Kiri's Board will deliberate now in the due course and decide on what could be the allocation of $481.6 million. And we will inform you. But that is definitely there as one of the objectives.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

So first question, sir, is regarding your CapEx, which was done last year. So how much of CapEx amount has been spent, how much is pending. And if you can give some sense of how much revenues incrementally, we will expect out of this. And what will be the overall gross margin impact because these are intermediates in some way?

Right. So if we talk about this, the financial year which has just ended, we have invested almost INR 57 crore for the specialty intermediate facility. So that was for Phase 1 and also partially for Phase 2. And Phase 2 investment we have put on hold right now. And CapEx has been put on hold currently unless it's something essential. And we would restart to complete Phase 2, and parallelly, we would have Phase 1 up and running fully. That would -- that expansion would add to our top line, depending on the market price, somewhere around INR 300 crore to INR 400 crore minimum. on an annual basis. So our objective is to capture that and to have those numbers reflected in our performance quarter-on-quarter. And post that, we will have Phase 2, which would be kicking in. And that would also almost earn the similar revenue with normalized EBITDA of 15% to 18% minimum, we should be able to earn on the new facility.

Sir, just to clarify, here we spent INR 57 crore, you are saying you will get INR 300 crore to INR 400 crore revenues by just spending INR 57 crores, additionally.

No. No. INR 57 crore was spent on the last financial year. Let me just clarify, right, if we are talking about the year ended. Also year before we had spent and if you wish will give you how much we have spent on total that number also we can provide to you later on, if you wish to. But the -- it has been last 2 years where we have been putting CapEx for this project.

Okay. So you will get INR 300 crore, INR 400 crore from Phase 1 at 15% to 18% EBITDA margin. That I understood. But because these are backward integration, you should have some -- some of it will not show in your increase of revenues, right? It will show in a way that you are making your own raw material and your margins are higher. So what is that margin impact for the remaining whatever, INR 900 crore, INR 1,000 crore, INR 1,200 crore of revenues that you have?

At least we should have 2% to 3% of EBITDA incremental when the plant is operational fully. So based on our projections, which would be adding bottom line EBITDA of the entire company because of some of the backward integrated products by 2% to 3%. That is what we plan earlier. And hopefully, we should be able to achieve in a normalized year.

So on Phase 1, you will get INR 300 crore to INR 400 crore additional revenue at 15% to 18% EBITDA margin, plus your existing business should show 2% to 3% higher margin.

Yes. 2% at least a higher margin for the entire turnover of the company.

Okay. And then on Phase 2, how much are you going to spend? You said it will also give INR 300 crore to INR 400 crore, additional revenue.

Yes. Phase 2, also a lot of funds have already been invested. For example, building of Phase 2 was ready much earlier, right. That's sort of have not been put inside. So when we complete Phase 2, partially, Phase 2 is also invested for in last 2 years, but we'll be spending at least another INR 30 crore to complete Phase 2. Minimum INR 30 crore to INR 35 crore is what we are expecting to complete Phase 2. And that will add another INR 300 crore to INR 400 crore. Because buildings are ready, some of the machinery are common, utilities are common. So to that extent, we'll be able to spend lower to also have Phase 2 up and running.

Okay. And now, sir, coming to a general question now, a lot of industries and sectors have been impacted by COVID, but very few have seen this sort of a poor performance in FY '21 vis-a-vis FY '22, as we have seen in the case of your company. So is it because of the industry sectors that we are facing, which is mostly textiles, maybe because of dyes and intermediates. Or is it some -- because even if you look at other chemical companies results in FY '21, many of them have been even better than FY '20. So what are the specific factors which are leading to us getting impacted much more because of COVID compared to many other sectors within chemical and outside of chemical as well?

Right. I think the most important point which you rightly mentioned is the dependency on textile, right? So dye is an intermediate industry, including intermediates too, is majorly dependent on textile and retail of textile. So that's the main impact, which we see in terms of margins as well as in terms of demand. So if you look at the current quarter, we were expecting the current quarter to similar or better than last quarter. But since the second wave started there was an impact on domestic textiles and also there was an impact on various countries and lockdowns in various countries, such as Bangladesh, Turkey, which are textile centers, again, caused a negative impact in first quarter too. And demand went down, margins have been impacted as well as the sales has been impacted. So over dependency on textile, I think it's a main factor, which is comparatively different from other industries such as agro chemicals, other specialty chemicals, API. So when you compare those chemical companies with dyes intermediate industry, that's the main differentiating factor.

And is it fair to say that your dependence is more on non-home textile because home textile, for example, have been on a boom itself because of much higher export revenues and all that. So are you mostly in apparel, which is leading to this?

Not necessarily. See the range of products which are used in home textiles also use cotton, right? It's -- and majorly, you will see polycotton whether -- so as long as the consumption of cotton and as long as cotton is used 90%, at least 80% to 90% of Kiri's products or finished products are used there, whether it is home textile, or its garment, or any other applications where cellulose and cotton is used. . So not necessarily. But if you look at including home textiles, including garments, including overall demand of cotton-based textile and in general in textiles, including polyester and disperse which are used, which is also lower compared to earlier times. Our exports are lower. For example, last 2 months, India's exports of reactive dyes was ranging somewhere around 17,000 to 18,000 tonnes per year. Last month, export was 12,000 tonne per year of reactive dyes. So that also shows that there is an overall impact, not only in India in home textile, but also, globally with less consumption compared to normalized levels of consumption, right? So that's almost 35% to 40% reduction in exports in recent months. And overall, also, there is a reduction in exports. Plus because of lockdowns and restrictions last 2, 3 months, domestic was down. Domestic textile consumption was down. . So overall impact is there, maybe less impact due to home textile and more impact due to others. But when you combine overall impact, which is -- which has been negative impacts since April onwards.

Okay. Now sir, on the dyes and part, assuming that, let's say, you get INR 3,500 crores by March of 2022. Now we are a company where, probably the invested capital is INR 1,000 crores or something and thereabouts, till now, cumulatively. So what is the plan, because this is a multiple of what we have invested cumulatively throughout the year, say, INR 3,500 crores is a very large amount compared to what we had invested cumulatively in this company over maybe through past 20, 25 years. So I mean, broadly, how will you think about spending this INR 3,500 crore because that would be the most crucial, I think, decision that you will ever be taking till now?

Very true. Very true. And that is the reason that the decision would be taken prudently and that will completely change face of the company. Where we invest this INR 35 crore, will completely change profile of Kiri, what you see today right? Only thing I can tell you -- we will give you the details of where we would be investing, when it is crystallized. But as you rightly said, it cannot be an overnight decision. It would be well thought through decision, and it would be investments in areas other than dyes and intermediates because we -- Kiri's Board has already made decision that majority and almost all of these funds are not going to be invested in dyes and intermediates industry. Because we are at a saturation points where lot of capacities are there, and Kiri has enough internal generation for future requirements related to dyes and intermediates. So new funds are not required there. So wherever we are investing is going to change everything, which relates to the business of the company. You may see that dyes and intermediate remains less than 10%, 15%, 20% of the total business of the company post that -- post our plants are announced. You may also see that we are prominent in -- we would become prominent in lot more other sectors. You are looking at somewhere between $1 billion, $1.5 billion of topline added to the existing. So it would be completely change the profile of the company, I would say.

[Operator Instructions] The next question is from the line of Palak Agarwal from Prabhudas Lilladher.

Yes. So as you mentioned that Kiri's traditional business, which is dye business is already at a saturation point. So how Kiri would be going ahead with the traditional business? As in, how much growth I can expect from our traditional business, expect the new CapEx of this intermediate plant and another INR 3,500 crore?

Right. So if we keep the new money aside, let us don't talk about it right now. Only based on the traditional business and only based on our CapEx plans and expansion plans, which have been regularly announced in last during last 2 years, right, on a standalone business, we plan to expand from maybe INR 1,000 crore, INR 1,100 crore to more than INR 2,000 crore, almost double from where we are. Unfortunately, our CapEx getting over and the pandemic getting hit are coinciding with each other. But the moment things are regularized, we should be able to take off. And with minimum further pending CapEx, which I just mentioned about INR 30 crores, INR 35 crores, which we would complete from internal generation. Then only from existing investments, to fully utilize, to sell products in the market, and to generate revenue would bring us to INR 2,000-crore plus. So if it takes, let us say, another 2 to 3 years, if we are delayed by 1 year due to pandemic, then in 3 years, we are looking at doubling our existing revenue, at least, you will see growth of 25% plus on traditional business.

Okay. And then the new revenue from the new plan, which would be crystalized soon by you guys for INR 3,500 crores would be another additional thing for our company?

Yes. Which would not be related to dyes intermediate business, but maybe related to specialty chemicals, maybe other chemicals and maybe whatever Kiri's Board will make decision. Those all sectors would be additional to what I'm just saying to you on traditional business.

Okay. So -- and if I could ask that how far we can take our EBITDA or PAT margin, say in the next coming years?

Well, 2000 -- this financial year, which has just started in the first quarter, getting over. If on a stand-alone basis, if we reach to almost close to INR 900 crores to INR 1,000 crores, that is what we have currently budgeted for. Knowing that the first quarter started with a rough scenario, but hopefully, we should be able to get there. On the consolidated basis, we should be able to achieve INR 1,400 crore to INR 1,500 crore, which would be -- which would bring us to a normalized year. So 2021, '22, we are expecting to become absolutely normalized year what was there pre-pandemic and then add 25%, 20%, 25% plus at least by '22, '23. So that is what the existing forecast is.

And this would be sustainable?

Yes. It would be sustainable. Correct.

Also another thing I wanted to ask that right now, we are seeing a very good traction in cotton yarn export. So how have been the demand for Kiri and for the overall industry over there because as our dyes also go into the cotton fabrics and the yarn?

Yes. So it depends on -- yarn is one part of the application. It depends on those yarns, which are exported are dyed yarns or non-dyed yarns. And if you see most of the export taking place is non-dyed yarn and dyed yarn export is lesser comparatively, right. So if you ask me to give you some link, then higher the yarn used in our own country domestically, higher the dyes are used. And the more the exports of yarn, less is the consumption of dyes and less is a dyeing of those yarn, which is exported in India. Because majority of the yarn exported is non-dyed yarn.

Okay. So the -- this export trend is not favoring much to the domestic dye company if I'm correct.

No. You are correct. Not actually. But if instead of having this yarn exported, its processed in India, used in India, made fabric in India, dyed in India, processed in India, then we would have better chance and we would have better opportunities to sell our products, which are dyes, colors and related chemicals in India.

Okay. And last question from my side is from the recent CapEx in the intermediate plant, which can have around INR 300 crores of revenue for us, which can give us. So is there any other CapEx plans apart from that INR 3,500 crores, we are planning? .

No. No.

Because I want to know that the doubling of this revenue in next 2 to 3 years, what would be backing this up. Is it only the traditional dye business and the intermediate business. Or there's any other business which we are planning?

Right. So post this CapEx, there is no further CapEx which has been planned in this year. Let me put it this way, right. This is the only CapEx that we are going to complete. The ramping up, completing Phase 2, and going to full swing of production and sales that can generate INR 700 crore to INR 800 crore of top line would be our target, not only pertaining to dyes and intermediates sector. The specialty intermediates are used and will be sold to 3 different sectors: agrochemicals, performance chemicals and dyes and intermediates. So we will have our sales into few other sectors and to achieve those we might take some time because we would be a new entrant for those products, specific products in those sectors. So when I say 2 to 3 years, that is to consider the time it may take for us to generate overall business in all 3 sectors and to utilize facilities at full scale at an optimum capacity.

[Operator Instructions] The next question is from the line of Keval Ashar from DSP Investment Managers.

Manishji helping for -- and congratulations for riding the business through turbulent times. I have two questions. So first is by when do we see the Phase 2 of our CapEx commencing? And what will be the margins when you achieve 100% utilization?

Well, we would be taking our time currently, because the first objective is to strengthen further our working capital and to utilize whatever first phase, we have invested for. So to answer your first question, it would take throughout the year, and we will invest slowly. I would say before the end of this financial year, we will complete that. Before March 2022, we would complete the second phase the capital investment. Second question regarding margin is at least 15% to 18% depending on the market price, we would be able to generate from this incremental sales using utilizing new capacities. So that's the margin part which we are expecting. Hopefully, prices would maintain based on even last 1.5, 2 years' experience, prices of those products, which are leased, specialized, non-commodity, we should be able to get the forecasted and projected prices on these products.

Correct. Correct, Manish ji. And one more thing is that, I understand that our company is on a new trajectory from now on because you faced through event in the past and now it's time for us to perform. So we are close to closing of our DyStar piece as well. So by when do we expect the final hearing after the Singapore company files the application results, the [ child ] company.

Well, the 30 days is the timeline to file an appeal. So if the order was 21st of June, so the...

20th July.

20th July. Yes, because 20th July would be the -- 20th July would be the time -- the deadline to file an appeal. And as I said, based on the legal advice that we are getting, the earliest hearing date from the court of appeal, which is the Supreme Court of Singapore can be around October, November because there would be a process of filing pleadings, grounds of appeals, then replies to each other's filing. So that process will take several months. And then Supreme Court would give time for and the date for hearing. That hearing based on our prior experience, could be a 1-day hearing because all prior hearings, including the first minority operation hearing was for a day. So this might also be -- again, this is all our expectation, would be 1-day hearing somewhere in October, November, and post which the judgment would come. Based on our last 3 judgments from the Supreme Court of Singapore, they are quite fast. And we have received final judgments from Singapore within -- Supreme Court within short times, sometimes less than a month, sometimes within 2 months. So let's expect that the same experience would continue even in this appeal, and we would get the final judgment from the Supreme Court soon after the hearing.

So we received the payment. How much time will it -- so we basically have lent for the expansion -- further expansion for specialty chemicals and intermediates...

For the expansions investment is from the internal approval and the profits of the company. If it has no relevance, it is not dependent on the Singapore funds at all.

No. No. I'm talking about when do after we receive the payment?

After we received the payments, yes. Sorry, my misunderstanding. After we receive that funds, there would be a mega plants, as I mentioned. It would be changing the face of the company and the platform of the company completely what you see today. And we will make announcements of investments in due course. But it would be non-dyes intermediates, and it would be in other sectors. You will hear that. And that will make the company's overall portfolio of products and businesses much, much stronger. And we will have at least, as I mentioned earlier, $1 billion, $1.5 billion, minimum topline from those investments. But we'll give you specific details when time comes.

[Operator Instructions] The next question is from the line of V.P. Rajesh from Banyan Capital.

The first one, I was just trying to understand when you were talking about cotton being a male product where our chemicals are used. So how much of our chemicals are being exported versus used in the domestic market or meaning in terms of revenue?

They are around 50-50. Sometimes 60-40. So last year, it was almost 60-40. So 60% was exports and 40% was domestic sales.

Okay. And is it correct to assume that 90% of our revenues are from the cotton side?

Ultimately, yes. Let me just explain to you in detail. When we sell our finished dyes, which are used for textiles and mainly for cotton and 10%, 20% also, we sell for polyester, like the disperse dyes, which we sell export as well as sell domestically are used for synthetic fiber, mainly polyester. So that's on the dyes part. There are many intermediaries that we sell. And those intermediaries then are further used by dyes producers to make dyes and then sell those dyes for textile applications. Sometimes, they are also used for wool, for nylon and for silk, not only for cotton. So if I give you the rough idea of both, let us say, dyes sold used in cotton, and intermediate sold used, converted into dyes and then ultimately dyes used in cotton, would be around, I would say, 70%. Others would be polyester, others would be silk, nylon and wool, if I talk about textile usage.

Right. Okay. That's very helpful. My second question is in your CapEx, you're talking about Phase 1 and Phase 2. So when will that Phase 2 be completed? And how long will it take you to ramp up production after that is completed?

So the Phase 2 would be completed before the end of this financial year, which is March 2022. And '22, '23 is a year which we will have full Phase 1 and Phase 2 to be utilized. It depends on how fast we can ramp up sales and how fast we can perform on the invested CapEx.

And DyStar -- on DyStar what...

Sorry to interrupt. We are not able to hear you clearly.

Is it better now?

Sir, there's a lot of disturbance in the line. The audio is breaking.

Is it better now?

Yes.

Okay. Sorry, I was asking that, when you get these proceeds from DyStar, what is the tax you will have to pay on this?

Which would be 10%, if we don't take indexing, which is 10% of what we get would be paid as tax. And 20% if we do indexing. So indexing will take place from 2010 till 2022. So almost 12 years of indexing. But most probably, indexing is not going to help. So -- because the original investment of Kiri was close to INR 100 crore in 2010. So mainly, it would be on your estimation, you should take 10% of whatever is coming.

Understood.

It's prediction on long-term capital gain tax.

The next question is from the line of as Riddhesh Gandhi from Discovery Capital.

Just a follow-up question on the use of proceeds. And I know you guys haven't yet laid out specific plan, you alluded towards getting into at least actually a specialty chemicals. Now they're a nature, why chemicals are considered the specialty is, recall there are reasonably high barriers to entry and the ability to break it to clients, has there a longer gestation period or is the technology is hard. So I mean, how easy is -- do you think it's going to be to expand in that area, given it's not something that we existingly do? And how do we plan to sort of buildup capabilities in an area, which is comprising you?

So I think you addressed -- you mentioned right points. Number 1 is to access to technology. So the areas which we are exploring right now, all those areas and all those projects would have technology aspects, which would be very important. And that would be the key area that we have access to the technology, which may not be necessarily from India and more than 80% of the projects that we are evaluating, the technology supplier would be from outside India. So that is first and the restrictive barriers. Second is, we have to build the bandwidth, management bandwidth. And because of that, we already have initiated process. And there are many senior people that we are in the process of hiring to bring them on board. Some of them are already there with Kiri today, who have worked with those companies in India, outside India. So we are trying to build the management bandwidth for experienced people to execute those projects, which we do not have experience in. The third entry barrier, which you rightly said would be the CapEx. So the CapEx that we are trying to envisage, those CapEx would only be possible with large-scale investments. So compared to the areas where you have fierce competition and numbers of hundreds of players, this would be more or less a kind of 2, 3 players in the whole country or #1 player in certain products for the whole country. So that would give us in an oligopoly situation, where those investments and CapEx would also somewhat barrier. I don't think that investing INR 3,000 crore is barrier for some companies and not for others. But for many medium and small scale, it would be barrier to enter. Large-scale companies can still do. So those are the hurdles where we would see to position ourselves. And we enter into something which is having long-term consumption in India. So every of our project areas would have our own growth in India, our domestic consumption in India. An important element is the replacement of imports and replacement of what we are currently importing from other countries, including China. So these are the factors which would influence our decision in addition to, of course, financial parameters, some return on investment and equity and capital employed. But besides those, this would be the soft aspects and the real-term aspects of the business to be able to successfully implement those projects.

Got it. That's extremely helpful. And just a last question for me. So I mean, just to clarify what you were saying was that, on the existing asset base that we had, plus some small CapEx which we need to do, we should be able to generate, you're saying roughly, about INR 1,500 crores of revenue? And should we assume about, a, I mean, 10% to 12% at the EBITDA level. Or how do you think about that?

Yes. So on a domestic -- I mean on a traditional business, yes, INR 1,500 crores of revenue on a stand-alone basis in 2022, '23. That's our target and the budget to -- for the next year when we make 3 years plan and to generate more than 12% actually. We want to have at least 13, 14 minimum percent of EBITDA and optimistically 18%. So that's the range within which depending on how market supports, we should be able to generate on a traditional basis on an ongoing basis. Correct.

Got it. And just as a last follow-up question on the nature of your dyes and intermediaries, which is there. How much of it is sort of commodity based where we are a price taker. And if you could just run us through maybe some of the demand supply. So I mean, who do we compete with? How much is the supply? How should we be thinking about these things? Because we do see a degree of the recovery happening once stuff normalizes in textiles, be it export or barrier domestic. So how should we think about this overall opportunity and tighten our and a competitive dynamics?

Right. See the area of dyes is an area which has been commoditized to a large extent. That means that your margins are more or less equivalent to tolling margins, be it export or be it domestic sales. Intermediates is the area where margins are better. Intermediates is an area where profits are better, where number of players and the level of competition is relatively lower, and that is where we also make major profit on a stand-alone business when you talk about dyes, intermediates as well as basic chemicals, all 3 areas that we are present into. So middle area, intermediates area from the nature of its manufacturing, from the level of -- I mean, from the market competition perspective would be the most profitable segment out of 3 segment we are present in. Dyes is the most comparative and highly commoditized area. In intermediate, there are 2 or 3 intermediates out of almost 30 intermediates, which we will be making are also considered to be commoditized area because they are consumed in large volumes, and the price fluctuations are higher. And those intermediates, you can somewhat classify as commodity intermediates for the specific industry. So that's the competition level. And when you talk about competitors, for export markets out of the overall exports, you would see that the majority of the export is polarizing among hardly 5, 6, 7 players, okay. So for example, Kiri Group, there is non-listed company, Colourtex another non-listed company, Jai Chemical, then Bodal and make money which is listed. So if you look at the overall export and the names which I told you, because you asked the names of the peer group competitors. These are the 5, 6, 7 players and few more. They would be -- they would be almost 60% to 70% of India's exports, right. And year-on-year basis, it's more and more concentrated among these players. Remaining 20%, 30% is among various other small and medium-scale producers who do export out of India, but that share is shrinking day by day. If you talk about domestic sales, there is a larger sales of domestic by small- and medium-scale producers. In terms of this industry scale, I'm not talking about in a general sense, but relative scale of the producers and players in this industry. So these players, which I just mentioned you names, who have larger market share for export, they must have around 40% market share for domestic and 60% is still being served by players, who are many and who are domestic players in India for Indian domestic market. So that's how it is divided among.

The next question is from the line of Sanjay Mahajan from WealthWise. The line is off for the current participant. The next question is from the line of Vishal Srinivas Jajoo from Tycoon Mindset.

Sir, I Just want to know like sir, currently, if you look at the last 2 to 3 quarters, most of the dyes intermediates companies or sort of peers, Bodal and even the textile chemical companies, who are the manufacturing of the end product textile, they are sort of giving out a good recovery and almost they are back to like prepandemic and even they are having higher growth with respect to prepandemic. But in [ series ] sales, we are still not at the level of pre COVID or at the level of 2018 sales which we can look in this quarter as well. So sir, is there any reason like why we are having currently troubles. You have mentioned in the call previously that the home textiles are not showing growth, but however, other chemical companies are showing somewhat growth, so is there any specific things, which I have missed out in the company like, why we are not having that much growth and not back to the pre COVID levels in terms of revenue, just the OpEx in terms of gross margin, but in the revenue terms?

Yes. If you talk about only revenue terms, 2020, '21 revenues of some of the companies, particularly, in this sector, in dyes and intermediate sectors, I think almost all are impacted. Some may be less, and some may be more impacted. But they are performing better, and higher revenue compared to FY '18 or FY '19, I think we should check the numbers...

Not so on the year term basis, but just speaking on the last 1 or 2 quarters because the last quarter in the yarn, precise in textile segment, I guess a boom was very high, much because the prices of yarn were also increased and the demand for exports were also increased. So I just want to know if there is any correlation like sort of in the demand of yarn in domestic India is increasing, so our chemicals business is also getting higher sales and margins. So I just want to connect from that place. Is there any correlation in textile segment? And if it's there, then is the growth in textile segment was higher. So didn't the dye segment in the last 1 or 2 quarter, all over India has seen higher growth?

Yes. Correct. You are right. And that's the reason that our growth of quarter 4 is the best among all other 4 quarters. So quarter 4, if you look at our Indian consolidated sales is INR 362 crore on EBITDA of INR 50 crore, which was from the -- let us compare only on the revenue of INR 362 crores is almost on a quarterly basis, equivalent to the normalized year. If I talk about only quarter. So quarter 4 of Kiri maybe, same with other producers was a very good quarter, and everyone had a good quarter, which was -- for which the results we are talking about today. Now there is definitely a link. And you are right, how much yarn, cotton yarn is produced in India, how much processed in India in various sectors, how much polyester consumed in India, how much leather, wool, paper, all this nice growth would be linked to all of this consumption. And the highest consumption would be related to cotton because we are cotton-producing country and our -- cotton-processing country. The large part of our textile industry, irrespective of their final application here we are, is related to cotton and processing, and dyeing, and finishing of cotton. So you are right, it is linked to it. Highly linked to it. How much cotton exported out of India maybe dyed with Indian products or maybe dyed with Chinese products, it is hard to sell. But I can definitely tell you that the consumption in India would be directly linked.

Okay. And sir, one another point, if you can give in such a scenario you know where the benefits of yarn or the yarn industry is going well. So are we getting more benefits more in terms of the dye intermediates side or the dye's final product like, we are getting higher margins because we are backward integrated and there are very few players in India, I guess, which are backward integrated, fully backward integrated in terms of dyes -- end product dyes. So are we getting more benefit in terms of the margin in dyes intermediate segment or the end product dyes or end dyes side?

Dye intermediate segment. And to the extent, as you rightly said, backward-integrated, fully integrated players like us, dyes is only a mechanism or a mode of converting intermediates to dyes and selling dyes. So in other words, for players like us and others, we are selling dyes in -- we are selling dyes, is just converting intermediates and not capturing much profit margin as an incremental margin at the dyes level. Most of the margins are captured at intermediate level, whether we sell intermediate outside or whether we consume intermediate inside, captively. So it's all captured at intimate level. Yes. Intermediate -- Incremental margins at dyes level are much lower based on the nature of industry and based on the fierce competition prevailing for dyes segment.

Okay, Sir. So have you seen any increase in price in H-acid and vinyl sulfone?

Prices of H-acid and vinyl sulfone were good in last quarter. But in the running quarter, currently, they have gone down. H-acid has reduced from INR 400, INR 410 to INR 350. Vinyl sulfone has also gone down from INR 270, INR 280 to INR 230, INR 225. So that range.

Okay. So again, sir, this quarter, the pressure is from gain from the China side. And what's the outlook over in the China? Has the production over there in the dye segment has been back to normal or due to their environmental issues, there has been China plus policy and their production of China has also reduced with -- Chinese outlook, where that industry is standing?

I think the major pressure this quarter, as you have rightly said is coming from mainly China and the way Chinese prices are prevailing. The reason for vinyl sulfone and H-acid to go down is also because Chinese vinyl sulfone prices reduced down from $4.5 to $3.20, $3.30. Because Chinese domestic textile demand has gone down, and there is a link between -- their environmental compliances are also at the same level. I have not seen any evidences where their environment compliance levels have gone down. Today -- for pollution control is still there. But I think there is an embargo on Chinese cotton. And there is some kind of sanctions not to use clothes and the garments and the products which are from textile industry, which are coming from an area where there are problems of operation of minorities, and you know the news.

Yes.

So they are -- so those international buyers and certain countries are avoiding to purchase. And I was told that there is a link between nonuse of that cotton within China, causing -- and it's a big cotton growing area. So there is a reduction in demand from Chinese textiles, and that has reduced Chinese demand on dyes to some of the lowest levels. And that's the reason for reduction of prices of dyes and intermediates in China. And that is definitely impacting India because Indian producers and Indian players also will need to align, and we need to make sure that they can compete Chinese prices for exports market. So -- and that's one of the main factors that has affected. The second factor which has affected is also the reduction in the raw material prices. Some of the raw materials compared to last quarters have gone down. For example, by February, March, the price of aniline was higher, somewhere around INR 170, INR 180, which went up -- went up almost INR 210, which has now reduced to INR 150. Similarly, few other raw materials have also gone down. And I think effects of both are there [indiscernible]

[indiscernible] or there is impact baring this wave 2 effect.

I would say January to March quarter, quarter 4 of the financial year, last financial year was almost at pre COVID and April, May, June, we definitely see effects of second wave and reduction in demand. But recently, the way the order book has now started coming, we are positive for July onwards. So let us see how far next quarter can reach to normalize level, whether it comes to similar to January to March quarter or it remains little lower. It's uncertain right now. and things are opening up. Let's see how July onwards month-on-month basis, how business performs, and that would give us a better idea.

[Operator Instructions] The next question is from the line of Srinivas Adarasha, a shareholder.

Sir, my question is now we have taken a case against [ Lone Star ], you have another joint venture with them. So how will that get impacted because they lost this case? So what will be the future of the joint venture? And if you're looking at any acquisition to speed up market share and all the things, like if you -- are you planning to buy any small acquisition in, in and around Gujarat?

Well, the joint venture in India is not part of the court case. That's a separate reason.

No. No. The partner is the same person, right? So they will be angry with you. So how you want to mend things up with them, now that they have to give you such a big pay up? So they might try to sabotage this joint venture?

Yes. I'm trying to come to that point only. The operations of that joint venture has not been impacted in past, not impacted today. And we don't see that the Chinese partner is trying to disturb that company, or we don't see any possibility as of today that they sabotage the operations of Indian joint venture, which is there are no signs of it. . The operations were normal earlier, and we expect the operations to be normalized in future also. As far as shareholders are concerned, there are no talks right now. There are no discussions on separation at the moment. I think both the partners are waiting for a proper separation and execution of court order at DyStar level first. And I hope that there might be some discussion after that. But operationally, there is no impact. There are no signs to have impact in future, and we do not foresee any negative impact on the Indian joint venture. So that's your first answer. The second question which you talked about the acquisition. There is no acquisition on table right now. There are no plans to acquire. There are no targets which have been identified. If any opportunities come, we will be open to look at it. But not right now. Not in this year. In 2022, we'll definitely explore, if some attractive opportunities come. But there is nothing on the table, currently.

The next question is from the line of Bhavesh Khandelwal from RII.

Sir, my question is basically, and most of my questions have been answered. So just another small clarity. The outlooks look very promising. I mean you mentioned about so many things. So what is the reason that the promoter is reducing its stake, I mean, that's what I wanted to check.

Look, promoters are not selling stake or nothing like that. The reason, the stake may reduce is because of the earlier FCCB conversion, which may take place. Otherwise, promoters are not at all selling any stake or anything like that. That could be the reason.

Okay. Okay. Got it. Sir, my another question is like, sir, do you think any, there's any impact on the stand-alone business because of this I mean, because of this DyStar, I mean, you are moving out from the joint venture?

No. There is no impact on stand-alone business at all because stand-alone business was not selling anything to DyStar since 2014, '13/'14. So stand-alone business as its customer base is completely different, and the markets and the sales profile and the distributors are all different. So there is no relation between the standalone business and DyStar's operations. No.

The next question is from the line of Sharad Singh, an Individual Investor.

Sir, what are the company's option? Is there a scenario where the DyStar refuses to pay out the quantum? And if so, what are company's options?

Sorry. Can you repeat your question? Maybe I didn't hear properly.

Sorry. Is there a scenario where DyStar might refuse to pay up the judgment order, quantum? And if so, which are the options.

You mean Longsheng's signed?

[indiscernible] process. Yes.

Yes. Yes. So I understand. No issues. So it's up to them. See, the order has been already made against them. And Longsheng has enough financial capability to buy and to execute this court order and whether not to honor court order and face a situation of contempt of court is up to them. There is enough cash in DyStar and there is enough cash at Longsheng's level. Based on the publicly available information, Longsheng is seeking on more than $900 million of cash, which we all know. So if somebody doesn't want to intentionally not to honor Court order, then it would be -- it would be quite a difficult scenario. And at this moment, there is no reason for us to think so or believe so, because all the indications that we have seen till now, seems that they should be honoring the Court order.

Okay. Sir, another question is like the renewable energy subsidiaries incorporated subsidiary, is it related to the funds that we received for the existing business?

It's not much related to funds we received. It is mainly to utilize the new solar policy of the state of Gujarat. Where the benefits are awarded for the solar renewable power captively produced by the large power using groups. And having all our units, having substantial power consumption, idea was to set up solar plant in future, and that is why this company is formed. And that will provide benefit in terms of reduction in power cost. So currently, our average power cost is above INR 7 a unit. And the idea in future is to reduce it down close to INR 4 a unit. And that can directly add to the bottom line and to the profits of the company. So that is towards objective of reducing power and fuel cost of the company in future years. That's the objective.

The next question comes from the line of Ashish Koti, an Individual Investor.

Sir, I would just want to ask you two questions. One is, we, in a way, we have lost an opportunity in a decade in DyStar?

Yes. Very true. We lost 10 years in DyStar. And especially 7 years of my life standing in Court, we have lost a lot, so I feel full.

You're right. So how do you see we recoup or recapture that? That is one.

Yes. Correct.

And second question is, if Lonsen says that, we are not in a position to buy this out or we are not interested, let them buy our stake. Is it possible? Is that scenario possible?

Okay. So number 1, answer to your question is that, yes. We have lost many years. And more than 10 years are lost because, Kiri was deprived of receiving its share of profit from DyStar. All these years, why DyStar was performing, making money and doing good. So Kiri was deprived. Court has given justice to Kiri by awarding buyout order to sell its shares. And that buyout order is expected to capture the loss year's value because all these years, DyStar was profiting. And that is why you see a number of something like $481.6 million because it captures the essence of Kiri being not rewarded all this years and deprived of DyStar's profit. . So that is to answer your first question. And how we can recoup? It all depends on how prudently, how best we use this once in a lifetime money for the company to create its next phase of platform to be in a high growth and to be in an area that can define its future, okay. So we will work towards investing this money very smartly, prudently in a way that can give a new platform, and that can increase growth of this company multifold. That will -- that is the only way by growing fast, by growing in an area where we can bring all more returns to our shareholders and recapture the time lost. Number 2, question, what if -- see, there is -- the order is very specific and very direct. Order says very clearly that there is -- the Longsheng is one -- I mean, Senda is one, their subsidiary, has been directed by Court to buy Kiri shares. That's a period there. Nothing beyond it. Which means that there is no scenario, there is no order or there is no option for Kiri to buy their shares. That's not on the table. It's what Kiri has to receive, Kiri has to sell its shares and Longsheng has to buy. That's it. Nothing beyond it. If they do not buy or by any reason, and if they dishonor Court order, they will face the consequences, whatever Court decides. And -- but there is no option, and there is no provision in court or anywhere for Kiri to buy their shares. So that's not there.

The next question is from the line of [ Prashant Jariwala ] an individual investor.

Congratulations for the judgment.

Thank you, Prashant ji.

So most of the questions are already answered. So not much to ask.

The next question is from the line of Mansi Shah, an individual investor.

May I know the segment-wise revenue and the volume of the company like the dyestuff and the intermediatory?

Yes. Sure. So if you -- for the full financial year, dyes was 56% of the revenue. Sorry, dyes was 40% of the revenue. Intermediates was 56%. And basic chemicals was 4%.

Okay, sir. The volume in million tonnes, if you can help me.

Right. In terms of quantity?

Yes.

So what break up I gave you was in -- there was a breakup in revenue, right?

Yes.

So dyes quantity was 12,281 tonnes, intermediates was 14,714 tonnes, basic chemicals was 72,708 tonnes. So these are the -- so the total quantity for the year was 99,703 tonnes. So like 100,000, almost 100,000 tonnes was the quantity.

Okay. This is for financial year '21, full year, right?

This is for the full financial year '21. Correct.

The next question is from the line of [ Harsh Gupta ] an Individual Investor.

Manish ji, congratulations on great court order.

Thank you. Thank you very much.

Yes. My question sir is twofold. Firstly, on the government side. Is there anything why the PLI scheme or whatever be the replacement under MEIS orders, or interest subvention, or on pollution checks. What do we expect on the public policy side with respect to Kiri and its expansion. Because last year, one of the plants was closed for a few days because of the pollution check as well. And was the PLI scheme is coming up. So that's the first question. And then once you answer it, I'll go to my second question.

Yes. So regarding the environment compliance is concerned, there are no issues. We have further strengthened since last August when we had one incident, where government gave certain directives to make certain changes. We implemented successfully. And environment compliance or policy related, there are no issues at all in any of our plants and facilities. So that is not there. . Your part of question was related to the PLI or MEIS scheme. So we all have been eagerly awaiting the replacement of MEIS that there have been several discussions at associations level, representations to government have been made. And I think government is actively preparing because the interaction which I see, government is also almost ready and seems to have done fabulous job in what I know is giving little bit better than what was there in MEIS. So I'm sure that once the announcement comes, we will have better than what we used to have with MEIS. But that scheme has not been announced yet. So once it is available, we would be able to start claiming incentives in that scheme. That's one. And PLI is not -- I haven't seen much products, which are part of the dyes intermediate industry under PLI scheme. One of the areas that we are examining and looking into is API in future and where the PLI has already been announced with identified products. On existing product portfolio, PLI scheme benefit has not been announced yet. Or let me put it this way. None of our existing product portfolio has been included in PLI scheme, currently. So unless the revise or the new list comes, which is not part of it right now.

Okay. Just on the first question itself, anything on the interest side that we have seen benefit from the policy or in general reduction of interest rates. I know you mentioned working capital in the call earlier. So anything on that?

Yes. We -- our -- you must have heard during the conversation today that we are starting these new facilities. And we have already availed, which we are starting to claim benefits now as the Phase 1 of expansion already started, would be related to the refund of state GST, okay? So we have already got an approval from the state government. And we are eligible, and we would be getting a part of our state GST refunded back to us, which is like 70% of your payment of SGST is refunded back. So that was the policy, which was an earlier incentive policy of state government, and we had applied for it. We had got approval for it. And we would -- we're now starting to avail that benefit now onwards. I think our first refund would be coming in the next quarter. So that benefit definitely we would get. And we are already qualified for that.

Okay. My second and last question, you mentioned, sir, is, you want to build out the management bandwidth as Kiri goes to the next phase and becomes very different company once it receives those funds and those CapEx. So what -- how do you plan to prove out having a much deeper second layer of management and within the promoter family also -- what is -- is there any bright, young person in your family coming up just to understand the next 10 years from the point of view of promoters and the senior management?

Yes. See, the senior management of existing business, if you evaluate, currently, it has been run, day-to-day decisions are made, operations are being handled and delegations of authorities have already been given to 2 Chief Operating Officers, our CFO, our Chief Technology Officer, our Chief Marketing Officer. So they -- there is already a team which is existing, running and operating Kiri's business on day-to-day basis at Baroda facility as well as in Ahmedabad facility. My monitoring, involvement and review has been quite in detail, but slowly, it will reduce when we go to new investments. And then my focus will also change. I can tell you that to run, operate existing businesses, we have team in place, which is very capable, experienced team. And the management bandwidth is required to be strengthened for the new businesses, to be obtained for the new businesses. As far as the promoter's family is concerned, there are no family members who are immediately required to be on board, but the company would be run, operated, managed by professionals at least for foreseeable years. My son is still young in his third year of college, studying chemical engineering in University of Michigan in the U.S., still takes some time till master's experience. So at least 5, 6 years away till the new generation takes the flagship. But I can give you assurance that we'll have enough professionals, who would be able to operate, run and manage company. And my supervision, my monitoring will continue to be there.

We take the last question from the line of Palak Agarwal from Prabhudas Lilladher.

So one question, which I wanted to ask regarding the management only. So as we are planning to get into the businesses, which are other than dyeing the intermediate business. So what about the expertise into those areas? Because as our current management have been into the business of dye and dye intermediates and the stuff thing since many years. So are we planning to add someone into the management who can -- who could have those expertise?

Yes. Absolutely. As I mentioned earlier, we will hire a new team, new very experienced people. For example, we have already taken on board today, the ex-Executive Director of GNFC. We have also onboard the ex-Strategy Head of Deepak Nitrite. So we -- and a few others. We have already on board the Head of Projects, which -- who has come from GNFC. So we have already started building team. And we have already started hiring good talent, experienced talent and for new businesses, there will be a completely new team, new people and experienced people and relevant people. So that's how we are going to build new business with relevant experience in those specific files. But yes, we will be doing that, and that is also our key agenda when we decide what projects we are going to get into as new sectors, we would also ensure at the same time, who are the key management people who run, manage and build and operate those businesses, absolutely.

Okay. This is a really good news. And another one last thing that I wanted to ask is, sir, before COVID, it was very much -- it was very much evident that people in India are buying these dye and other things from China. So after COVID, all this [indiscernible] and everything. So do we see any material change from import -- from China imports? Are people shifting sustainably to domestic products? Or they are going to shift again back to China?

I think there is definitely a shift happening. And majority of the buyers and when you talk about major brands in retailers in this industry, they are all working on or looking for second source and substitute to Chinese supplies. They all want to build, and they are all looking towards India to have that second source. And we see that happening. We see that the buyers are shifting their orders towards India in more increasing quantum than what they used to do earlier times. But to change dependency, to have their volume plus, plus required specifications, quality of products, to be established would take some time. And which is happening now. There are also certain -- there are also certain gaps in terms of feedstocks and major raw materials because India still continue to have dependency on China on several basic chemicals. . The more successful we are in having indigenous production and Atmanirbar on those basic chemicals, the better chance and the faster speed we can cater to those customers who are already willing to change and willing to have India as a second source, but not sacrificing competitiveness. So everybody wants to have second source, but to be as competitive as China. So that's where the more work is required. And I think industry as a whole is working towards it.

That was the last question. I would now like to hand the conference over to the management for closing comments.

I thank you all for participating in today's conference call. All the best wishes to all of you and see you in the next quarter. Thank you. Bye.

Thank you. On behalf of Kiri Industries Limited, that concludes the conference. Thank you, everyone, for joining us, and you may now disconnect your lines.