Kiri Industries Limited (532967) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. I'm Momita, moderator for the conference call. We welcome you all to Q3 FY '22 Conference Call of Kiri Industries Limited, hosted by Aditya Birla Money. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note, this conference is recorded. I would now like to hand over the floor to Mr. Sumeet Shah of Aditya Birla Money. Thank you, and over to you, sir.

Thank you, and good afternoon, everyone. On behalf of Aditya Birla Money Limited, we welcome you all to the Q3 FY '22 earnings con call of Kiri Industries Limited. From the management side, we have Mr. Manish Kiri, Managing Director; Mr. Jayesh Hirani, Senior Manager Accounts and Finance; and Mr. Suresh Gondalia, Company Secretary. Without much delay, I hand over the floor to the management for opening remarks, followed by the Q&A session. Thank you, and over to you, sir.

Good afternoon, everybody. It's a pleasure to welcome you to the earnings conference call for the third quarter of financial year 2022. I hope everyone is keeping safe and well. Kiri Industries Limited was able to stimulate its business performance in quarter 3 FY '22 due to improved volumes across its diverse product portfolio and also due to our fully integrated plants for dyes and 2-stage backward integration of dyes intermediates, specialty intermediates as well as basic chemicals. For quarter 3 FY '22, the company achieved a consolidated turnover of INR 429.41 crore, which was 38% higher year-on-year basis and 20% higher on a quarter-on-quarter basis. The EBITDA reported for the quarter was INR 48.5 crore and the net profit was INR 24.5 crores. The contributors to consolidated net profit after tax of INR 106 crores in quarter 3 FY '22 includes share of profit of DyStar, associate company of Kiri to the tune of INR 81.49 crore and INR 13.44 crore from launching Kiri Chemical Industries Limited. We were able to pass the increasing input cost to the customers in quarter 3 FY '22, allowing material margins to improve. Consolidated gross margin has improved to 33%, a 3% increase from the previous quarter and is expected to continue to improve in the coming quarters. After the initial hesitant pickup of demand in first half FY '22, the global markets have experienced good demand in quarter 3 FY '22. Kiri Standalone turnover during quarter 3 FY '22 was INR 345.75 crore, which was 47% higher on a year-on-year basis, and 31% on a quarter-on-quarter basis. The EBITDA during quarter 3 FY '22 was INR 29.34 crores as compared to breakeven EBITDA during quarter 2 FY '22 and negative EBITDA of 3.30 during quarter 1 FY '22. During quarter 3, FY '22, Kiri experienced a significant increase in power and fuel costs for the second consecutive quarter with gas prices increasing by 46% and coal prices increasing by around 23% in the current quarter compared to the previous quarter. Furthermore, the upward trend in the raw material prices continued in the second quarter, which could be absorbed by pursuing a right product mix to provide the company with sustainable margins. Material margins improved to 31.5% in quarter 3 FY '22, an increase of 4.7% over the previous quarter. With a diverse product portfolio and strong demand growth, there is still room for further improvement in material margins, which will be seen in coming quarters. In quarter 3 FY '22, dye intermediates accounted for 63% of sales, up from 43% in quarter 2 FY '22. The increase in share of dyes intermediates is due to the production of specialty dye intermediates, which commence operations from January 2022. The rising coal prices, gas prices and lignite prices have impacted power and fuel cost, which while rising crude oil prices have increased the freight cost. Additionally, the ongoing high legal cost on account of litigation in Singapore Court against Senda for the valuation of DyStar and buyout of stake of Kiri by Senda and also Kiri's claim against DyStar for not trading Kiri as its preferred supplier also impacted the financials. So the financials, which you are looking at are after -- are including these legal expenses that company has been paying. During quarter 3 FY '22, working capital cycle has gradually improved and is expected to improve further in the coming quarters. Inventory turnover has stabilized at 31 days from 36 days on a quarter-on-quarter basis. Similarly, trade payables have been reduced to 97 days from 107 days on a quarterly basis. The recovery from receivables has also improved to 34 days from 47 days on quarterly basis. Coming to Kiri's minority operations, as you may already know by now that the Singapore International Commercial Court has awarded a final valuation of USD 48.6 million for Kiri's 37.57% stake in DyStar. Hearing at Court of Appeal, which is Supreme Court of Singapore, took place on 26 January 2022 and 28 January 2022 and completed in relation to the appeals filed by the company as well as by Senda International Capital against the Singapore international commercial cost judgment dated 21st December 2020, 17 March 2021, and 21 June 2021 and regarding company's minority oppression suit No. SIC/4 against Senda. So all the appeals which were filed on various adjustments were all got completed now and the hearing covered all these various orders, which came for the period from December 2020 to June 2022. The judgment of court of appeal is awaited because the judgment is reserved. In another case against DyStar, SICC has delivered judgment on 24 September 2021 on Kiri's counterclaim against DyStar SIC-7 has dismissed Kiri's counterclaim and awarded all cost of SGD 1.13 million to DyStar. The company has already filed an appeal [indiscernible], which is Supreme Court against the said order and the Court of Appeal has fixed hearing on 13th and 14th July 2022. Again, SIC-7 is totally a different case, and -- which has nothing to do with the valuation in the main case. Lastly, coming to future outlook. As you may be already aware that the Indian chemical sector is on the cusp of very high growth trajectory in the coming years. It is entire product range of dyes, specialty dye intermediates, dye intermediates and other value-added specialty chemicals is poised to provide impetus to its order book for exports in the domestic market in the coming quarters, enabling Kiri to achieve larger volume sales and better margins, enhancing bottom line of the company. It is important to highlight that specialty intermediates plant has been operational since January 2022 and will be one of the main -- sorry, and which will be one of the main growth drivers, which will also enhance volume and margins of the company in the future quarters. Now I would like to open the floor for questions. Thank you.

[Operator Instructions] Our first question from [Mr. Aditya Bagaria from Aditi Trading Company].

Congratulations on the numbers. Sir, my main question is, once the valuation comes to and the work is announced and we get the amount in our accounts, what kind of taxation are we looking at? And also again, regarding the disposal of the funds we received, can you give more clarity regarding that.

Just to address your first question, a 20% tax if we do indexing of our investments since 2010. And answer number 2, what are we going to invest and in which areas we are going to invest. I would only say that we have now made our efforts even more aggressive in deriving many further options, and as soon as the decision is made by the Board, we will inform you. Recently, in just last Board meeting, we have tried to try to make an investment committee, including a few Board members. And once the decisions are crystallized, we will definitely announce.

We have the next question from [Mr. Suresh Sarogi from Fast Capital Markets].

Congrats on great set of numbers. Sir, my question is, how much legal expenses have been incurred in this quarter, first? And when do we see these legal expenses waiving off? And my second question is, sir, what is the industry position in China right now? Are they -- the industry had been a little unattractive because of the higher cost that were imposed by Chinese authorities. So how is that shaping up right now?

Yes, Suresh, the first question regarding legal cost, this quarter due to heavy legal load because of the court of appeal hearing, our -- the bills and the invoices would come, but till December, the quarter in which you are seeing the results, it was close to INR 11 crore. So you can add to EBITDA if that legal costs have not incurred to Kiri. And in the same line...

Sorry, just to understand, Kiri, INR 11 crores is for the entire 9 months?

No, no, for the quarter of December. And now from March onwards, it should start tapering down. So from next quarter onward, even this quarter would be heavy legal fees because of the Supreme Court case involved, but from next quarter onwards, from April onwards, we expect it to be lower. Let's see how much lower it can come, but at least 50% lower would be there. Let's see.

Okay. Okay. And sir, second question on China.

The second question which relates to China. You see the major issue in the whole industry in addition to dyes and intermediates, overall industry, you see power and fuel costs have increased, and which I just mentioned in my speech also. China is experiencing the same thing. So their cost of coal, cost of power, cost of gas, all have been going up. And the same experience we see by a lot of our clients in various countries, whether it's Bangladesh, it's Turkey, everywhere you see, the cost increases. And due to the larger phenomena, we are able to pass on the cost to customers and that is exactly what happened in quarter 3. So if continuing trend is there of increase of cost, I think that we should be successfully able to pass on to the forward chain in the value chain. So to that extent, temporarily, we might have to absorb. If there is further increase, the cost increase, but eventually, in a few months, such increases get passed on to the customers.

The next question from Mr. V.P. Rajesh from Banyan Capital Advisors.

So my first question is, if you can give a little more color on the process with respect to the Supreme Court judgment. It's reserved you said, but how soon do we expect it to come out?

Right. Now judgment was reserved on 28th of January. And if we look at our prior experiences, the earliest time we received the judgment was 22 days and the longest time took around 2 months. Now good thing is that out of 3 judges on the bench, 2 judges were the same judges who heard our prior appeals in 3 appeal cases since 2018, right? So judges were quite familiar with the history of the disputes. They had earlier given several judgments also and when we had the arguments on 26 as well as 28, that is we're fully prepared. And we could make out from the way questions were asked by them and also the debates took place between the councils and the judges, they knew in detail about the fact of the cases. Now when we have such a situation, it's expected that the judgment would come earlier rather than later, okay? So our advice is that at least practically, we can say, by end of March or before end of March, it should come. This is our expectation looking at the situation with the case and the familiarity of the case with judge. Now there won't be any further filings. Case is officially announced as closed, and we just need to wait for the judgment. So it's only a speculation, but we should practically expect judgment to be out before March.

Got it. And my next question is that in the prior calls, you had mentioned that you will return some capital to the investors. And then obviously, there are plans to ramp up the business in the specialty chemicals side. So is that still -- it stands correct? Or...

Yes. Yes, it's still stands correct. And post this hearing, we are optimistic, and we believe that there might be positive news for Kiri, which may change number, okay? So once the final number is known, of course, both the plants still remain valid. How much proportion -- what is allotted for each objective will come to know once the Supreme Court judgment is out and the Board decides. So let's say, in the next quarter or 2, you will have that breakup also.

Wonderful. And my last question is, you had talked about margin improvement getting to around 14% or so. And this quarter, obviously, is moving in that direction. So if you can comment on the trajectory, by when do you think you will get back to those kind of margins?

I think -- see, we see some effects and some improvements in the numbers also because of the product mix change on account of starting this new specialty intermediates, and that was one of the triggers which would allow us to have a better product mix margin. On one side, once we have legal costs are going down from April onwards, hoping for that -- maybe April to June or the quarter afterwards, we should be optimistic to reach to that number. So the second quarter of next financial year or maybe even before that, our target is to that number. And my request to you would be that you -- sometimes you would need to look at the results on consolidated basis because there are raw materials which are sold from Kiri to JV, Lonsen Kiri, and then the finished products are sold from there. So in a standalone result, you would not see Kiri's portion of the profit of the finished products. So once you look at the consolidated number without DyStar, only between Kiri and Lonsen, you will see a total picture and the EBITDA margin, which includes raw material margin as well as the dyes margin, the finished products margin. So if you look at that, you will see a better number and close to 11%. And if you take out a couple of percentage of legal effect, we can relatively in a short time reach the 14% number that we desire to [indiscernible].

The next question comes from [Mr. Jay Patija from JV Investment].

Hello. Am I audible to you?

Yes, sir. Please, go ahead.

Congratulations on good set of number. My question is regarding the amount which we are starting to receive from the DyStar case, I wanted to know how fast is it possible to get the amount, like while the judgment is announced?

Right. So if you look at the situation as of today, the value in judgment which came in June 2021, there is no stay on this judgment. Court has not given a stay to Senda on that judgment. So technically, the enforcement of that judgment is on, and as on today, as we speak, Senda is technically at a default in honoring the judgment. Even though the Supreme Court and the appeal has got completed now, but they never had a stay on the enforcement of the valuation judgment. So the amount is due to pay at -- is already on today as far as $482 million is concerned. Now when the Supreme Court judgment comes out, the view is on the day, there is single judgment, correct? And they have already passed by the time close to 9 months since June 2022. That's a fairly long time, and not only that, the new the buyout order is in place since July 2018. So by March, you are almost near to 4 years since they have been proved guilty, and they have been ordered buyout. So it's a very long time, and Kiri would need to exercise all its legal rights if this amount is not paid within a very short time after the Supreme Court judgment is out and even now also, correct? So we do whatever is possible with us, but the only thing I can say that there cannot be much time that Kiri can allow Senda post Supreme Court judgment is out.

[Operator Instructions] Our next question from [Mr. Sanjay Mahajan from Profy Book Capital].

Congratulations on good set of numbers. We are seeing the [indiscernible] moving in the direction [indiscernible] so my question.

Sorry to interrupt. If you could repeat the question, your voice is breaking, sir.

Yes. My question is related to the [indiscernible] case. Is what are the recourses for seeing the enforcement of the judgment? Because what we have been hearing and going through the judgment pages also, it doesn't look like there is any further to be debated from our minority suit and the valuations also been maybe will be contested. So [indiscernible], challenges in enforcing -- and how can we safeguard our interest for that? And in hypothetical scenario, can court also say that in case the Lonsen Kiri is not in a position to pay company, can Kiri ask for controlling stake DyStar?

Right. So -- yes, very important question, Sanjay. And how it would unfold is that Supreme Court number would be crystallized number, whether it's same number or higher or lower, whatever numbers Supreme Court gives is the final crystallized liability on Senda to pay to Kiri and execute this buyout order. Now not doing so would allow Kiri and then Kiri would need to take steps of such as alternate remedy. So Kiri would then need to go to the court and apply to alternate remedy, saying that they have conducted the contempt of court. They have not honored the judgment, and for that, why can't DyStar be sold. The auction -- and then the crystallized liabilities to be paid, right? So when Kiri makes this application, right, it is then up to court. And there are standard process and processes that court follows for any -- and it would be an ongoing sale of DyStar of ongoing business, correct? So the entire process of the sale of company would be then conducted by the court, and then Senda would not only lose control of the company, they would also lose their own shareholding, if the company is sold. And there would be held liable for much more amount than what amount that a third party or anybody is ready to pay because the oppressive acts, which is conducted by Senda, it's to be paid by Senda. So then whatever consequences of contempt of court happens will happen at that point in time.

But is this a remote possibility that an investor can have to think of or it's a very it's very less likely possibility. Just -- it's a hypothetical.

Well, even if it happens, if you look at DyStar's number in 2021 also, its profit after tax after Lonsen taking out money in form of management fees and other fees. So even after they are extracting money out, still the profit after tax is more than $115 million, correct? I -- based on my understanding that the cash balance in DyStar today would be more than $450 million. Again, again, no loans, no borrowings. Now with such a strong fundamentals, such a high level of cash and no borrowing, selling this company would not be difficult task. I think you see what I mean. Even if you -- even if -- I personally believe that the third-party would pay for this company much higher even amount than what got has crystallized in -- on the basis of the valuation date of 2018. So 4 years from now, consistent performance, even higher profits, huge amount of cash, naturally, the valuation in these 4 years has gone up, correct? So Kiri should not be worried too much. Yes, only thing is that there will be some further time gap because selling the company will take some time, and the court process would be followed. So that's about it. The -- I would suggest that the amount that the Supreme Court declared, Kiri should definitely get and would definitely get eventually either Lonsen pays in the form of buyout or company is sold and third party would take to court, and court will complete its responsibility to pay Kiri's crystallized liability.

Okay. But sir, Kiri -- would Kiri be asking that -- would Kiri be interested in controlling stake in DyStar because DyStar is global giant with 21% market share and that's our turf. So knowing that, would that also be a possibility for Kiri and would you look for that also?

Sorry, I missed your question.

So currently, the operating stake or operating controls are with Lonsen as they're holding is higher. We are a minority. If the verdict is not -- it's a contempt of court by Lonsen, then can Kiri ask for a controlling stake and take on the management and run the show? Would Kiri be interested?

Yes. See, when the companies is starting a sell process through the court order by appointing a court representative or an administrator to sell the company, I think company would be controlled by the courts representative neither by Kiri nor by Lonsen. That's what the normal process is when we apply to sell the company. But of course, if they are a defaulter, they would not have say in the company and as Kiri's Directors sitting on the Board protecting interest of Kiri shareholders and to ensure that the buyout is executed, Kiri's Directors would be involved because they are concerned with the amount that the DyStar is going to fetch by selling its entire stake. So Kiri would definitely -- Kiri's Directors would be involved in the process. But if you ask that Kiri take over the majority share, partial share and Lonsen continue as a minority share, that kind of possibility I don't think it's possible. That means that essentially, you are continuing partnership, which is not what the court order says. So that kind of possibility would not be there.

Okay. Sir, could I have -- I have one more question. Could you please give some color on the MoU signed in Vibrant Gujarat 2022, expressing our interest of investment of INR 2,900 crores. So...

Right. So it is one of the aspirational projects and that project comprises of various products with integrated product mix of aniline, nitric acid, nitrobenzene and related products plus annually in various derivatives, which includes a number of products, around 14 products which are produced from aniline. So that's the aspiration project. And that's the project that has been studied in detail and that is also in line with our Atmanirbhar policy that the country is trying to embark upon. So then you know the 82% of current requirement of aniline is imported. So there's a great opportunity. If we are able to put together -- and put together this project with the proper technology, it's a promising project.

Okay. Sir, but is it linked to the cash that -- the money that we are going to receive from this Senda or DyStar.

Yes. Okay. Of course, of course. Any new projects that Kiri would do with such size, definitely, the equity portion [indiscernible] debt equity ratio, equity portion will come from DyStar process, absolutely.

We have the next question from [Mr. Hemant Kanuku from Rajeshwar Impex].

Sir, in last call, you had mentioned that we are basically applying, asking or requesting that the registrar to open an escrow account and asking Senda to deposit $323 million as to what amount they have agreed. So what is the status on that? Like any update on that?

They didn't agree till date, okay? And they didn't accept proposal to put escrow account and give -- and put funds there, and probably that is the reason that they don't have a stay also as of today, correct, on the enforcement of the order since June 2021. So that has not taken place, and that I would say would go against their intention to pay or not. And that is the reason that Kiri has a doubt that they would pay or not, there is a chance that after Supreme Court judgment also, they may -- now they are not saying that they don't pay. They have informed court that they are going to honor the court order. They are going to pay to Kiri. They allow all the submissions to the court and communication with Kiri has been in this direction. But if Kiri has a doubt on this intention, then Kiri has no choice but to go to court and ask to sell DyStar, correct? So which has not happened yet and that's the reason that they don't have a stay also.

Okay. And did they make the payment of the cost order, which was like on the December 27 order? So we had basically show their intention. So were they able to make the payment or it was again appealed?

Exactly, that's the gist of it, okay? If Senda doesn't pay cost of $9 million, how can Kiri believe that they will pay the whole buyout, right? It's a very simple logic. And the demand notices have been sent. Whatever legal notice is required for that has already been taken place as we see, and now we are waiting for the funds to transfer. So within certain weeks, a few weeks from now, if they are not transferred, then naturally, Kiri will take further steps to get court involved. But until now, that fund has not been transferred to Kiri, correct?

Okay, sir. So I want to ask like until the decision comes of the Supreme Court, so is there not a way where we can actually put a stay on Senda liquidating any type of assets or withdrawing cash because since their intention is not clear yet, so they might do -- I mean, I'm not -- I'm just assuming. So how we can actually put a hold in terms of indirect management in terms of cash withdrawal or maybe selling or liquidating some assets? I mean there might be a possibility, but I'm not sure, though.

Yes. See, till now, nothing that sort we have seen or we haven't observed any movement in that direction, right? So we cannot speculate when we approach court. If Kiri sees any slightest sign of their doing or getting indulging into such kind of activities, right, Kiri would definitely immediately approach court to get a stay on any such activities when we see it happening. Kiri cannot approach court in a -- on a speculative theory, saying that this might happen. Then the court would say, where is the evidence. So if they try to pass to do -- to try to do such activities and pass board resolution from the majority or any such action or any such movement if we see, of course, we will immediately go to court right away and say that this has to be stopped.

Okay. Sir, my last question is, sir, on a standalone basis, we are -- actually, we were targeting about in the next couple of years once the COVID can settle down about INR 2,000 crore revenue. So can we expect an EBITDA margin of 15%, which we had actually historic run rate like pre-COVID. So can we do better than that? Or can we actually, on a conservative basis, can do at least 15% everything like after a couple of years when everything is settled on and business goes as usual.

I think we should be conservative and try to calculate our projections based on even 14% to 15%. If it becomes 18%, it would be fantastic. 20%, we would be very happy. But I would suggest, we should keep the projects somewhere around 14% to 15%, correct.

The next question from Mr. Namit Mehta from KC Capital.

I hope all well.

Yes, Namit bhai very good to hear from you.

You as well. You as well. So just a couple of questions from my side. One is, in the event that there is a positive judgment and that is followed by contempt of court, is that -- hypothetical timeline, what is the duration that you expect the process to take? And is that the most delayed timeline in your conception rate?

So if we enter into a situation where eventually the company is to be sold ongoing basis, then you are looking at that sell process may take somewhere between 6 months to a year time. That's the stretch period one should consider, assuming that there is a contempt of court, assuming that the company has put up for sale and auction is being done. So that's the time frame that we should consider.

Understood. And then second question on a completely different note. I know over the last few quarters and maybe over the past year, you've been really building up your organization to become future ready. Can you discuss a little bit more about what happened over the past quarter and how that initiative has continued?

Right. See, past quarter and the next several quarters, we are trying to strengthen the project team. We have added a few more people of various background, and currently, we are trying to build as many options as possible on our investments, okay? Which means that we like to have 2, 3, 5 or maybe 10 options where to invest, where maximum margins and where maximum return that the company can earn from its further investments in future out of dye intermediate area, which is not the area in which Kiri's going to invest in future. We have also basically hired a few more very senior project people who have joined the project team now. So overall, we continue to strengthen. So earlier, we had 3 to 4 people in the project team. Now we have close to 10 people in project team and some are very senior people, so -- who have years of experience along with the young team. So we are expanding it. And once we crystallize on a particular project or on a product group, we would then build that organization chart separate from the existing -- of course, there will be a few top-level people involved, but the operations would be then handled by a separate team.

Understood. Got it. And would those costs be sitting in the standalone P&L as [indiscernible]?

Yes. Yes. Yes, it is there in the standalone, correct.

Would that be a significant component? If you have any ballpark number regarding future project costs sitting on the current P&L?

In the current P&L, if we add the -- I'll give you a rough estimate, it should be around -- because see, we also appoint external agencies to do feasibilities and all sorts of things. We try to -- on a quarterly basis, we would be currently spending somewhere around INR 1.5 crore.

Understood. Understood. Great.

That is sitting there. It's not a big number right now. That's the number that we are spending right now.

[Operator Instructions] Our next question is from [Mr. Mahendra Naik from CMS Investments].

My question is regarding the SICC judgment. Since as you said 9 months have already passed since the adjustment has been delivered, and yes, Senda has not made the payment. Is it not amounting to contempt already?

Yes, exactly. So it's amounting to contempt already. It shows the intention that maybe they may not pay, and Kiri has already raised red flags. But once the Supreme Court judgment is out, then -- and if they don't pay maybe in a few weeks' time, that confirms the doubt that we have currently. So today, if we go with contempt of court and alternate remedy, what amount we would be demanding for $482 million, isn't it? Correct. Once the Supreme Court revised this number or upheld this number, whatever Supreme Court would be doing then that is the number that we would be taking to court for alternate remedy.

Okay. That makes sense. You're saying, we are just trying for the -- waiting for the final figure to crystallize before pushing for contempt.

Yes. Yes. Right. So when I go and apply contempt or alternate remedy, my amount needs to be crystallized and Supreme Court judgment will crystallize it, the amount.

Okay. Got it. My second question pertains to payment of cost and interest. So as I recollect, the SICC judgment has not made any mention of awarding interest and costs. So is the argument made before the Supreme Court as regards the cost and interest of reimbursement?

Yes. Yes, absolutely. So Kiri essentially are due on 4 points. You are right, one of the important points was the interest and Kiri must be rewarded from 2018 July onwards because that seems then Kiri has not received any dividend from DyStar or any other financial benefit from DyStar on the Kiri's part of earnings of Kiri's proportionate profits that DyStar has made. So definitely, we have asked for that enhancement and at an interest rate of 5.33%. Those arguments took place. Kiri also argued on DLOM, discount for lack of marketability. Kiri also argued on the patent license fees because patent license fees was -- another important element where Kiri argued for account of profit or a higher license fees and not a domain license fees. These are the 3 main points Kiri argued for, and we also argued on the effects of patent expiry. So these are the 4 points and a few other points that we argued on 28, correct? 26, their points and their appeal was argued and oral replies took place. 28, we presented our arguments and there is oral replies to those arguments through judges took place.

The next question from [Mr. Mayan Kak from Tata Consultancy Services].

So sir, everybody is talking about if we don't get share. My question is that, let's say, the amount is settled by DyStar in the future. What I observed was that 90% of the profit that we published is our share in DyStar, and this would mean -- in case later on, we will not publish this particular share in our report, the current valuations of the company may not stand, right? Because it would be publishing minus DyStar profits. Is there a concrete plan to offset this devaluation?

Well, the first answer to your question, do we know that the valuation of DyStar is incorporated into Kiri's valuation or not? That we don't know or if it is how much it is, that's anybody's guess, okay? Because of all these years of legal battles and rightfully so with uncertainties and still uncertainty on when, how much amount, what is the timeline. So whether the DyStar's value is fully captured in Kiri's valuation today or not, it is your assessment, and it is your judgment, correct? Based on which you can take a call. Number two, of course, so the -- whatever funds come when the DyStar results are not being added to Kiri's books, you will have cash and that cash would be -- I'm just going with the number which has been already given by SICC, which is close to $482 million, close to INR 3,700 crore. Even if you consider interest of that amount, correct, you won't be at a negative compared to whatever you are adding annually, number one. Number two, our plans to invest in future in projects that can show at least 25% IRR, if not less, correct? So when those projects are implemented or if -- or until that time, the projects are commenced, company would invest also meanwhile to make sure that it has a decent earnings, which should be risk-free. But at least -- and that number, if you compute, it's the current published number, that number, even if the decent liquid earning numbers would not be too far that you can compute. So equal impact actually.

Got it, sir. And sir, the second question was, are we on track with the sales that we expected in this financial year? In our last call, you had told us that you had made some CapEx during the pandemic. However, we couldn't utilize it. So are we on it yet?

Yes. Yes. And this INR 345 crore of standalone sales include that, which is, I think this is quarterly sales, probably one of the highest number in last 3 years. So that includes that and that will increase further in coming quarters.

We have the next question from Mr. Amarchand Goel, he's an individual investor.

Sir, I'm an individual investor. This is -- just take my query from a pinch of salt. But my query is, why isn't the share prices reflecting? After all, we won the judgment. The new products have started from January '21. It's not reflecting on the share price. So there's something which is missing by the shareholder community that it's not reflecting what the way it should be. Do you have any...

Yes, I think that question would be -- I would not be in position to answer this question because I myself asked those questions, which you exactly just said and only investors community or the shareholders' community can have answer to those questions.

Yes. Absolutely, sir, because we've been projecting from a quarter-by-quarter basis. We have an incremental increase. Although I have certain queries about the standalone numbers and -- but I'll come to that in my second question. But yes, this is something we've been struggling to find out. I've been a shareholder for many, many years for Kiri, but that is something which is what making everyone's hedge about the numbers or the credibility of the company or something that's been missing. So I, along with you, ask the same questions. I'm sure many who's on the call has the same question as well.

And if you get some answers, please let me know, you will be helping us to improve and stand in ourselves. Hope you get some feedback.

Yes. So I will do that if I get more information on that, but coming to the question number 2, I see there is a lot of other expenses, which is about INR 66 crores. Do you have any visibility on those numbers? Why there is such a high other expenses?

I think those other expenses numbers which you are looking at include manufacturing expenses. I mean manufacturing cost is included in that, conversion cost, a part of conversion cost is also included in that. And 2 major component is power and fuel and legal fees.

Yes. So even if I take the INR 11 crores out of those INR 66 crores, that amounts to about INR 55 crores.

Yes. Yes, which includes the manufacturing cost.

Do you have a breakdown of those numbers?

Yes, we do have breakdown. In case if you need, can be given.

Yes, absolutely. Because yes, there is a consistent increase on other expenses. So I would definitely be interested to find out those numbers and breakdown of those numbers.

Sure. Sure. Definitely. You please send an e-mail on that today, and you will see on Monday.

We have the next question from Mr. Ashit Kothi, he's an individual Investor.

Hope everyone is fine at Kiri.

All well and hope all is well with you.

Yes. Yes, sir. Now sir, a couple of things which I have queries or questions. One is, what has been our capacity utilization on the plant, which got operational on January 21? That is one, sir. And second thing which I wanted to know, once this is out, I mean, say, we received the [indiscernible ] we receive the cash also, but in terms of profitability and turnovers, how we would replace Kiri's loans and part of it, that is DyStar part of it, which is contributing the maximum as of now to our bottom line. So how are we going to replace that?

Right. So as...

And if I ask...

No, go ahead. I'm sorry.

And do we intend to or do we have where we are able to manage DyStar on our own by buying 14% equity and making our stake as 51%?

Right. So if I answer your last 2 questions and then go to capacity utilization. So the taking over their 14% stake and become majority shareholders is not possible. That is not what court has attempted or that is not what the court order says, right? Either they buyout the 100% share of the company, taking 38% of Kiri and executing the buyout order. And if not, then alternate remedy would be to sell the whole company, 100% stake of the company, correct? Now if 100% stake is going to be sold of the company, Kiri would not have that kind of an option to hold 51% neither they have option to remain in minority. I don't think both the shareholders would be interested or have -- we have broken trust with them. So I don't think there is any way this partnership can continue. So that possibility is not there legally as well as commercially and operationally. Now the capacity utilization which you have asked about, the intermediate capacity utilization was at 78% overall. The new specialty intermediate plant, which has just started, we have operated only 27%. So still, we are 1/4, and dyes was 38%. Basic chemicals was 90% as far as the utilization of plants were concerned. Now once DyStar goes away and Kiri receive this cash, and I just mentioned that this cash would be invested into future projects prudently, where it can earn much more than what DyStar was giving Kiri in terms of its profits. So idea is to even expand that DyStar portion multifold by ultimate investments in various projects. So that is what our next job would be once the funds are realized in our account.

Okay, sir. But again, coming back to what you just now said, there will be a succession period of at least 2 to 3 years.

Of course. Yes. And within -- as I just mentioned earlier, within this succession period, even if you consider this money which is coming and sitting as a cash, even if you consider putting in the liquid, right, that profit would be equivalent or more than what we are considering from DyStar today. You see what I mean? So you are, as a shareholder, not at all at a loss even though that cash comes here and sit in liquid funds risk free.

If Lonsen is not willing to give payments in time or they are deferring, in that case, can we take over Lonsen Kiri Baroda in India?

No, because it's a separate legal entity. So if they do not pay then it would be a contempt of court, and in that case, we -- our remedy is to come from DyStar, not from Lonsen Kiri because Lonsen Kiri is a separate entity. It's a separate legal entity, an Indian company, which has nothing to do with this court case, which has nothing to do with DyStar from its shareholder structure perspective.

[Operator Instructions] So we have a follow-up question from [Mr. Suresh Sarogi from Fast Capital Markets.]

Sir, just a point that you mentioned about 2 con calls back. You had said that you had hired people from GNFC and other chemical companies to struck out a plan for the funds that are going to come into Kiri. So have you had more people? Or is that...

Yes. Yes, I just addressed this question a few questions back, where we have hired now almost 10 people. And for this project team, we are spending right now every quarter close to [indiscernible], which may increase a little bit in coming quarters.

Okay. Sir, and you mentioned in the last question that the recourse will go to DyStar and not to Lonsen Kiri. How would it go to DyStar and not Senda?

No. Lonsen Kiri is not Senda, right? See Senda is the shareholder of DyStar, which is a Hong Kong company, which is 100% subsidiary of Lonsen China. And that Senda holds 62% of DyStar, okay? So recovery can come from DyStar in the sense that by selling DyStar and recovery can also come by winding up Senda, who's shareholder of DyStar. But it has to come either from Senda or from DyStar and not from Indian JV, which is Lonsen Kiri because it has no relevance with the court case or won't allow that company to be part of the dispute, which is not, in fact. So it's not there.

So we have another follow-up question from Mr. V.P. Rajesh from Banyan Capital Advisors.

Actually, all my questions have been answered.

The next follow-up question from [Mr. Sanjay Mahajan from Trophy Book Capital].

Sir, I have a question regarding the product mix. What is really changing? Could you just elaborate on the specialty intermediates thing? And are we referring [indiscernible] a specialty intermediate or is there something I missed on?

No, there are range of intermediates that we make, which we were not used to make earlier. Those intermediates started in a new building, and there are several products which were not in the earlier product portfolio. So those products are comprising of specialty intermediates, which are small in quantity for the [indiscernible] requirement, replacing China's imports, serving not only to dyes intermediates, but few other sectors such as performance chemicals, agrochemicals. So those are the intermediates used in other sectors also, which we have started the first phase. And now we are one by one starting products. There are about 26 products.

Okay. And going forward, how much would be the contribution from this that you would like to see as a total part of the basket of products that we have?

So on an annual basis, for the first phase, our -- based on the price of the market, at least we plan to get around INR 300 crore to INR 400 crore per year. And once the second phase is complete, which is on hold right now, but we would complete it at some point in time and that will bring another INR 300 crore to INR 400 crore. So total on an annual basis, we should be able to get around INR 700 crores to INR 800 crores in the top line.

Okay. And sir, if I'm not wrong, the Bangladesh and Turkey are the key export market for dye and retail. There have been currency turmoil in Turkey. So what is the prudent decision management is taking that we don't take heat on that account or anything just to see?

Right. Actually, we had taken a decision a few years back, several years back that Kiri would not sell any products to Turkey on credit, all right? So only risk is that our sales would go down, but there is no risk from money point of view, from a receivables point of view because we don't give credit to customers in Turkey, to the companies in Turkey. We either sell in LC, letter of credit terms, or we sell cash against documents, but we don't give open credit in Turkey, which we stopped several years ago because of the exactly such kind of reasons which we experienced in the past. This is not first time that the Turkish lira has devaluated heavily. It has happened earlier, too. So we made this decision, and I think it's beneficial for us looking at the situation where we are already seeing a few bankruptcies of certain distributors and trading companies in Turkey.

So would the sales get impacted due to this turmoil?

We will not have any impact -- Yes, Kiri would not -- on the sales, yes. On the sales, there could be some impact because of the slowness of market, but not risk on the receivables.

We have a follow-up question from [Mr. Amarchand Goel], he's an individual investor.

I just have a query about those FCCB conversions that we have. Do we know the profile of those companies? How are we -- do we know about those companies, what my question is.

We -- see, we know them from the shareholders' list point of view and from the participations on the conference calls like this point of view. Otherwise, we don't have any one-to-one interaction till now. I mean it has happened recently, but hopefully, we expect to have in this month, interactions with them because we may have interactions. And if it is, you will see in the public domain. Like every time we announced with interactions with investors, you will see that.

Are those FIIs? Or are those companies from...

FIIs.

Okay. And one last question on that -- follow-up on that. Sir, are we going to receive any money out of those conversions? Or are those going to reflect on the accounts?

Sorry, money from where?

When we make those conversions, FCCB conversions, did we receive any outstanding money? Or was everything paid initially?

No, no, it was all paid earlier. So nothing needs to come now.

So we have a question from Mr. [Deedh Yadav], he's an individual investor.

Sir, I just wanted to check the profit share from the DyStar performance, are we eligible to get that? Or this is just in the book, and we will get only the valuation that's been awarded by the court of justice?

Yes. So we would get the valuation sum, which is awarded to us on the buyout execution. And as I mentioned earlier, we have argued in appeal to get written post July 2018 in the form of at least interest cost. So if Supreme Court orders in our favor, then we would get some enhancement on that part, and we would get the interest. We would get the interest. So it would not be a sharing profit in sense of giving dividends because it is not in cost control, but we hope that the court would reward us at least on the returns that we should be getting because the valuation date and the transaction date are so far apart for almost 3.5 years.

So we have a follow-up question from [Mr. Hemant Kanuku from Rajeshwar Capital.]

Yes, sir. Now sir, after considering the SEC bond conversion of promoter shareholding is approximately 28% or maybe 27-plus percent. So the promoters are not intend to increase the shareholding like considering the current valuation and before the money coming in because that will actually see a very positive signal in the market as well, not for the future of the company as well, not only from the DyStar point of view. So that -- maybe that's the thing...

Definitely, promoter intends. Definitely intends.

Okay. Okay. So anytime soon, do we expect it before the Supreme Court order or something like that?

I cannot comment right now, but you will see everything in time.

Yes. Because considering the market price and the valuation currently that Kiri Industries is trading at.

Of course, of course, of course.

Actually a very, very positive signal in the market that even the promoters are now interested for the future of the company.

Exactly.

Sir, we have a follow-up question from [Mr. Ashit Kothi], he's an individual investor.

Sir, with regards to the previous question where you just said that you asked for interest on the -- old whatever amount has been ordered to be paid to us. Suppose that the court does not agree to pay that interest, in that scenario from 2019 to 2022, whatever we have considered as profit share from DyStar, will we have to reverse that in our books?

No, we don't have to reverse in the books because we are consolidating till the date Kiri is able to sell and transfer its shares to Lonsen, to Senda, correct? So since that date, Kiri continued to be shareholders, and there's a reason continue -- Kiri continued to have that share of profit which actually belongs to Kiri, even though not transferred to Kiri, right? So that is not to be reversed or that cannot be reversed.

But if it does not come, then what? If it does not come...

Profit comes or not is a matter of giving dividend from DyStar, okay? And that dividend from DyStar is not in Kiri's control, but it is majority shareholders' control. And when court looks at that the dividend has not been given for these years, it is court's duty to ensure that we are rewarded for this time gap, right? Because the dividend has not been paid to Kiri and court has recognized this. So I hope that court justice in the order from the Supreme Court. But how can you reverse the accounted profit that -- you cannot reverse it, isn't it? Because Kiri actually owned that shares. Kiri is legitimate owner and Kiri's profit of that books belong to Kiri, but it has not been given and transferred to Kiri in terms of liquidity by them, but that is what the minority operation is and not paying dividend minority operations from the beginning, right?

Your point is 100% right. But in case if the court does not recognize this part of '18 -- 2018 to 2022. In that scenario, what is the remedy in the hands of Kiri?

Well, so in that scenario, our $482 million number, which is $482 million awarded to Kiri is going to remain the same. It's not going to change.

So that's what my point is. So whatever the profit we are accrued income, basically, we have taken into our profitability for last 4 years, which has not been realized by us.

It has not been received in terms of actual cash, correct?

Actual cash. That's right. That's right.

So receiving actual cash and earnings profit, these 2 are different.

But once we don't receive it, and it is very -- it becomes a clear supposedly -- unfortunately suppose, in that scenario, what would be the effect in our accounts?

Our accounts has no effect. Our accounts is going to remain same because court is not looking at -- I mean court is not looking at whether -- I mean the court whatever orders right would enhance the value of $482 million number and $482 million number, when it was decided as the valuation on the date of 2018, 3rd July, right? That valuation took place on that particular date and that -- and that's what Kiri is to receive. Nothing else can be done in that case. So then the enhancement of that valuation, at least by the interest amount in that did, the court -- if court doesn't agree with Kiri, then that portion will not be added to this $482 million. That's the only thing happen. Accounting entries are not to be reversed.

We have a follow-up question from [Mr. Sanjay Mahajan from Trophy Book Capital].

Sir, a lot of questions on my side. This one would be the last of the series. Sir, I would request the management if they can have a presentation only on the standalone business and roadmap for that because looking at our competitor like Bhageria and other -- sorry to name the competitor, the standalone business also the other company.

I'm sorry, we lost your voice for some time. If you could please repeat?

Sir, I wanted -- it's a request to a management that if they can have a presentation only for the standalone business because our competitors are able to show good numbers on vinyl sulfone and H-acid. So if we can -- even if we see the possibility of strengthening our standalone business and if we discount whatever is happening on the Senda side, still we seem to be pretty undervalued on that side. So that's one of the things which I am trying to the management. And the second part, could you just let us or what are the current prices for H-acid and vinyl sulfone?

Right. So for your first part, if I elaborate a little bit, we give you both standalone and consolidated, right? Now when you compare us with Bhageria or others, who are only intermediate producers, the intermediate sell is their final sell. Isn't is, right? When Kiri sells its intermediate to Lonsen Kiri, which is our own JV, which we consolidate line by line. And then JV sells to end customers further from there as a finished product. You would -- if you look at only consider, you would not be able to capture that part of profit, which is 40% profit into Kiri's book. So that can only give you a correct picture when you look at Kiri sell to Lonsen Kiri plus Lonsen Kiri sale to customers. So that will capture the sale of final customer. So that's the reason that in our case because of we are integrated into both intermediate and dyes, you -- if you look at these 2, you would see the correct picture. Now your second part of your question was regarding what? I'm sorry.

So I asked the current prices for vinyl sulfone and H-acid?

Sorry. So vinyl sulfone price right now -- our management would give you the price in the December quarter what we actually realized. But now vinyl sulfone have increased to around INR 380 to INR 390. Maybe shortly, it will touch INR 300. The trend is going up. As I said, it's somewhere around 475 to 485. Again, we expect it to cross 500 anytime in the next month or so. So these are the current levels.

Right. Any uptake on disperse dyes that we had a CapEx -- put in CapEx, anything going on with the dyes.

Yes, disperse dyes also we are gradually and slowly we are increasing. So step by step, we would also be adding more and more sales of dispersed dyes on quarter-to-quarter basis, but it is coming out nicely. Our sale nowadays accounts for more domestic and less exports. So there is a push that we can also increase our exports of disperse dyes. And if we are able to also capture some of the exports market of China, we may add another INR 100 crore, INR 250 crore on sales only on the existing capacities that we have put up.

We have a follow-up question from Mr. [Jay Bhatija], he's an individual investor.

I may be repeating my question. I've always got the answer, but I wanted to know, like on 21, we got an award of $481.6 million. And as you said, that has been -- that should be repaid to Kiri. But the same amount hasn't been paid. So isn't that the contempt of court has been made in that case? And what is the action are we taking for that part? Or is there any provision to take any action for that part?

Right. As I explained earlier, 8, 9 months have passed and they have not honored that order. That means that Kiri can go any time to court and request for alternate remedy to sell DyStar and pay off Kiri's -- obligation to pay to Kiri, right? So that alternate remedy will required Kiri approaching the court and asking for that. Now what amount would you ask court to pay to Kiri? $482 million is already there, but Supreme Court has completed the case, reserved the judgment, and there are chances the Supreme Court may change that number. So when Supreme Court gives the final number, this $482 million would be crystallized. Either it is $482 million or upper or lower, whatever Supreme Court's final decision is. And based on the legal advice, that would be the right time that we have to take actions once Supreme Court crystallizes this amount.

Okay. So we don't have to wait for some window, we have our window open.

Let us let us say, if you go now and tell court that well, sell DyStar and pay me $482 million, fine. Now tomorrow court gives you $600 million instead of $482 million. What would you do then?

Sir, we have a follow-up question from Mr. [Ashish Koti], he's individual investor.

Sir, with regards to Lonsen Kiri, are we receiving in terms of dividend? How exactly we are being paid by Lonsen Kiri?

Yes, in terms of dividend or the profit distribution, no, that has not been done until now, right? So Lonsen Kiri has not paid dividend and the profit of Lonsen Kiri is accumulated in Lonsen Kiri.

So any -- Lonsen Kiri has any plans of distributing the same? Or again, another 5 years on the cards?

Right. So if once this fight is over or maybe I don't know before that because Kiri has been putting up request to the Board to pay the dividend and Lonsen Kiri, by the way, is also debt-free and sitting on a good amount of cash. So there is no reason not to pay dividend. If it is not paid in a reasonable time, again, it would not be correct for Kiri's shareholders, and then we'll need to take appropriate actions like what happened at DyStar.

There are no further questions. Now I hand over the floor to the management for closing comments.

Thank you, everyone, for joining today. Thanks a lot. We'll see you in the next quarter. Thank you for participating.

Thank you, sir. Ladies and gentlemen, on behalf of Aditya Birla Money, this concludes the conference call for today. Thank you for your participation and for using Door Sabha's conference call service. You may all disconnect your lines now. Thank you, and have a good evening, everyone.