Laxmi Organic Industries Limited (LXCHEM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Q3 FY '22 Earnings Conference Call of Laxmi Organic Industries hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Agarwal from DAM Capital Advisors Limited. Thank you, and over to you, sir.

Thanks, Rituja. Hi. Good afternoon, everyone, and a very warm welcome to Laxmi Organic Industries Limited Q3 FY '22 earnings call hosted by DAM Capital Advisors. On the call today, we have representing Laxmi Organic Industries' management, Mr. Ravi Goenka, Chairman and Managing Director; Mr. Satej Nabar, Executive Director and Chief Executive Officer; Mr. Harshvardhan Goenka, Executive Director, Business Development and Strategy; and Mr. Partha Roy Chowdhury, Chief Financial Officer. To start the call, we'll request the management to make some opening comments, and then we will open the floor for questions. Please go ahead, sir.

Thank you, Nitin, and very good afternoon, all the participants to the investor call today. A warm welcome to all of you and I hope that all of you are keeping well, in spite of the third wave, which fortunately has been reasonably in control, at least in the major cities and in India. With a heavy heart, I have to, firstly, inform you that in the last quarter, it was a bit of a setback to me personally when I lost both my parents in quick succession and my father was the founding Chairman of our company, Laxmi Organic Industries Limited. And from the early years of Laxmi, he set the governance standards, the highest level of independent directors, and laid out the road to always keep your ambition fired and to grow the company in a trajectory that was in line with its potential. I'm sure that their blessings are still on our company, and I'm sure that it is their blessings that continue to inspire and lead us. I'm glad to announce that this quarter, we have bounced back from the setback caused by the floods last quarter. It has been a quarter wherein both the businesses acetyls and specialty intermediates performed strongly. While our specialty intermediates business points towards a consistent improvement of the financial matrices, the acetyl business brings in the necessary cash flows to fuel the future growth and the investments. The robust performance of the specialty intermediates is attributable to ramped up production following the flood restorations, increased realizations, and a better product mix optimization towards higher value-added products. This performance was also aided by the continuing buoyant demand for our products from international markets. Today, exports constitute nearly 30% of our total SI sales, which was less than 10% until recently. Our raw material prices are correcting, and we expect the margin to sustain in this business. The strong performance of the acetyl intermediate is largely on account of increased realizations and higher volumes, supported by the capacities of Yellowstone Chemicals Private Limited, a wholly-owned subsidiary of Laxmi now. The prices in the overseas markets also remained strong through most part of the quarter, especially in Europe. While the volume growth will sustain in the future, given that raw material prices are softening, the commodity cycles are normalizing, both prices and margins will normalize in the next quarter. As we stated earlier, our medium-term goal is to continue to move ahead in the value chain in the SI business, while unlocking value through de-bottlenecking and expansions in the AI business. The numerical details are already available in the investor presentation uploaded on our website. We remain on track to commercialize our SI projects and these will start clocking in revenues from quarter one of financial year '23. Our Fluoro platform remains an exciting opportunity for Laxmi. The Indian and international markets offer a large opportunity for companies like ourselves to play in. The project is facing a time delay and certain cost escalations on account of COVID, time delays, prices increase in the construction materials and the high cost of freight that has impacted the entire globe. As a matter of strategy, while we had earlier decided to launch the fluorochemical business in Phase I and Phase II, we have now decided to launch Phase II of the CapEx to add incremental capacity simultaneously. The commercial production is expected to start in Q3 of financial year 2022. Further details can be provided during the Q&A. In the finance bill, import duty on acetic acid, one of our primary raw materials, has been reduced from 7.5% to 5%, which will have a favorable impact on our raw material costs. Just to give you some numerical numbers, our standalone financial highlights for 9 months ended December 31st, our total income was INR 2,106 crores compared to INR 1,145 crores. We had 84% growth year-on-year. Our EBITDA margin was INR 263 crores for the 9 months compared to INR 147 crores, growth of 79%. Our EBITDA margin continued to be at 13% year-to-date December '21, in line with year-to-date December '20. Our profit after tax is at INR 190 crores for the 9 months as compared to INR 91 crores, a growth of 108%. For the quarter, October, November, December, our total income was INR 876 crores compared to INR 396 crores; our EBITDA was INR 102 crores compared with INR 60 crores; our EBITDA margin stood at 12% and contracted by 350 points year-on-year; profit after tax at INR 81 crores in Q3 of FY '22 as compared to INR 41 crores in Q3 of FY '21. I take this opportunity to thank all of you, and thank you also for your messages, various messages of prayers for my parents and Chairman Emeritus Vasudeoji Goenka. I thank all the employees and all other stakeholders for your support and confidence reposed in our company. On this call, I'm accompanied by Satej, our CEO; Partha, CFO and Harsh, who is Executive Director on the Board of the company. I will now leave the floor open to your questions and answer it to the best of our abilities. Thank you.

Thank you very much. We will now begin the Question-and-Answer Session. [Operator Instructions] The first question is from the line of Ankur Periwal from Axis Capital. Please go ahead.

Yes. Hi. Good afternoon, sir, and our prayers to you and your family there. So on the business side, so congratulations on good performance this quarter. First question on the SI business segment. Pretty healthy and strong growth reported both in the domestic and international side. If you can share some light in terms of how the international part is expanding. I recollect earlier you did mention there were some supply disruptions in one of the European players. So is this a sustainable benefit that one should think of and probably will grow further from there? And second question related to that, your comments on the new molecules that you had launched and any outlook there in terms of incremental growth?

Sure. Hi Ankur, Harsh here. So Ankur, on the SI front, there was no disruption in Europe at all. There was a disruption more than a year and a half back in the US, but that has not changed our strategy and outlook for the SI. So SI has continued to be a model in which we develop new molecules, pilot them and then grow them into either dedicated or multipurpose plants, and get internationalized the contractual business or some form of business that's a little bit more sticky in some of our other businesses. So the kind of growth in numbers that you're seeing in the SI would continue and as our new plants commercialize with revenues in the next quarter, that would continue to support this strategy and trajectory the SI is in.

Sure, Harsh. That's helpful. On the new products side, we launched a couple of molecules in the last quarter, but how do you see the ramp-up there happening across both the pharma and the agro space?

Yes. So, the molecules that we launched go into multiple applications. I won't go into those details, but they've been piloted out, and they will start giving us additional either revenue or profitability in FY '23. So the homework has been done in Q3 of this year. Revenues will be followed in about 3 to 5 months, depending on when we are able to commercialize them to the full scale.

Sure. And lastly, as Mr. Goenka also rightly mentioned, incremental profits from AI business, the cash flows they are getting or will be reinvested into the business on the higher growth of the specialty side. So any thoughts on the CapEx side, as well as on the fluorine vision, given that we are thinking of ramping up the second phase there as well?

Thanks for the question. So as we have stated earlier as well that the AI business will continue to remain the cash generating engine. And in terms of the investments, we have had a bout of investments in the SI, which are coming to fruition towards the end of the year. So come FY '23 quarter one, all these CapEx would start firing commercially. However, as our Chairman had mentioned, the fluorochemical CapEx has gotten into a time delay and into a CapEx overrun as well. So a lot of our attention will now get diverted towards implementing that project and our target to implement that commercial production is towards the end of quarter 2 of FY '23 and quarter 3 beginning '23. So therefore, the additional CapEx, which this project would require would, of course, be funded by the cash flows from AI as we see it now. Yes? In case we have other projects coming up, which are there in our minds, we will come out with those information as the plans get crystallized.

The next question is from the line of Amar Maurya from AlfAccurate.

Sir, a couple of questions from my side. Number one is like in specialty intermediate business, how much would be the export contribution in this quarter?

About 30%.

Okay. So it improved from 20% to 30%?

Yes. So it was about 10% last year, and before that, it was about 8% to 9%. We have significantly been changing that as mentioned, and that's been our strategy, since we had gone listed.

Correct. Because if I'm not wrong, sir, in June quarter, basically it was 20%. So almost around INR 240 crore revenue of the overall specialty, so INR 48 crores was export and in December quarter an already INR 80 crores kind of export number, so basically even on the -- because September was impacted, so it has doubled from the June quarter. So just wanted to understand. Yes.

No, you have the numbers right. [Foreign Language] of course, there is some lag and spillover, because we had a shutdown. But it's going to remain in this range and from a normalized basis, you will continue to see growth in this area as well.

Okay. So basically my point was that is the growth in this area would be very sharp than the overall growth of the specialty intermediate business?

See, the way you should look at it, we've had a significant jump in the last year. Now, this will sustainably grow, not at the same level of growth where you will have a step-level change again. It's not going to become 70% export, this business, because the domestic market does remain a very important part of our business proposition. But it will continue to grow in product mix as well as in kind of customers that we have.

Okay. But you're saying 30% is now the steady state number, is going to stay for the specialty in export versus domestic?

More or less in that range. Depending on the shipment timing schedules, et cetera, something is going to be up and down, [Foreign Language] over here.

Correct. Secondly, sir. In terms of the specialty intermediates business, what would be your utilization today?

About 70% of the capacity. But I don't think that is the way to look at it. Because product mix plays a very significant role in terms of aligning the profitability. So, capacity is not the only parameter to evaluate this business. Yes?

Okay. So I understand that. Sir, probably you are hinting that diketene, more of the diketene will have a higher margin versus, I believe, acetic anhydride business is also included into this is. If that is more sold, then the margin would be less, is that you are indicating?

See, I'm not indicating anything. I am just trying to say that product mix plays a significant role and within the diketene derivative basket also, product mix plays a role. Yes?

Okay. So let me, sir, rephrase my question. I wanted to understand what would be the diketene-based -- because I believe the plant is different for both, right? So diketene-based, what would be the utilization and what would be the utilization for acetic anhydride?

See, the plants are not different for us. Okay? So, actually, this is a bit of a technical complexity and there is some amount of fungibility between diketene and acetic anhydride. So, you do not have a plain vanilla capacity availability to draw up the future P&L and all that. Yes?

Sorry to interrupt, may I request Mr. Amar Maurya to please rejoin the queue. We have participants waiting for their turn, sir.

Should I finish this question? Hello?

Sir, if you can…

Excuse me, I'm just continuing this question. I'm not asking any third question. This is my second question only.

Sure.

Yes. So, sir, wanted to understand basically whatever is the current gross block of the speciality, what could be the peak revenue, that is what I'm trying to understand?

See, the way you want to arrive at that is look at the growth rates that we've achieved and look at the mix of products and growth in margin that we'll achieve. The revenues will come with more CapEx-es. You would have the upstream capacities present, but when you see and doing more of the same does not give you the necessary profitability. So only when you're able to get into downstreams and value additions is when we're really able to do that. So the strategy for the SI business and the AI business is inverse. SI will continue to put up CapEx-es, which are more margin-focused and AI will continue to put up non-incremental smaller CapEx-es, which gives you the necessary growth in market share or maintenance of market share. That is what we are targetting.

Okay. So when you say SI business, you are combining fluorine as well as diketene, both right.

No, this is just SI. Just the original SI business, FI is a separate basket.

Thank you. May I request Mr. Amar Maurya to please rejoin the queue, sir. We have participants waiting for their turn. [Operator Instructions] The next question is from the line of Saurabh from AMSEC.

Sir, if you could provide CapEx that will go for the phase II of fluorochemicals? And also, as you mentioned in your presentation, you are looking at expanding the product portfolio, so what kind of product or end-user industry you would cater to?

So our initial CapEx plan was of the order of INR 280 crores to INR 290 crores. Okay? Now, our reassessed value is of the order of about INR 450 crores. So part of this increase is because of the overruns, the time overruns and the cost escalations, as mentioned by our Chairman. And a significant part of it is on account of increasing the capacities of some additional products and enhancing capacities of some of the current products. We are also investing in the infrastructure to speed-up our future expansion. So a lot of civil costs and infrastructure costs are also going in now, which would hasten the process in the future for commercialization of newer products.

Okay. So this incremental INR 150 crore, INR 160 crore CapEx will have lower asset turnover?

No. So, look at it this way. To establish a greenfield site would take up a larger chunk of CapEx, and it becomes almost like a beachhead for us. But thereafter, we have got several downstreams and value-added products planned, and we have just taken up the Phase II of it right now with some few ones, where we have got a very, very high visibility. So that is what's getting combined. As this continues, your asset turns and return ratios overall increase.

Okay. And sir, my second question on the volume, so we have seen a good revenue growth, but if you can provide us the volume growth number on Y-o-Y or Q-o-Q basis?

Yes. There has been the growth, which you see on the one-pager now, it is a function of both volume in both the segments and prices as well. So the volume growth are going to be there into the future. Yes?

But any percentage number in terms of volume growth AI and SI?

No, I mean, we don't share these splits.

The next question is from the line of Nakshita Mehta from Credent Assets.

Congratulations on good set of numbers. So my first question is on the acetic acid, your key raw material, right. So how much of it is imported, and how much do we procure locally, if you can just give us an idea?

Sure.

In percentage terms, yes.

So let me give you the bigger picture, first. India is a very small producer of acetic acid, but one of the largest consumers globally. So India imports more than 1 million tons of acetic acid annually from various countries. Small percentage is from China, though it's not ignorable, but there is acetic acid plants all over Southeast Asia, US, Europe, which also give and supply material to India. So most of our -- you can think of it this way, overall, as a country, more than 90% would be imported and we would be going in the similar range.

So 9%?

90%.

90%. Okay.

More than 90%. It just depends on the buying and the overall sourcing strategy.

Right. Okay. So my another question is on the Yellowstone acquisition that we did. So how much incremental revenue or EBITDA have we seen because of the acquisition solely?

So it's about 5%, 7%. You see it's equivalent to Yellowstone's capacity. But this merger has happened on 1st of October and the entire revenues and profitability have not actually flown in, so you will have to refer to the consolidated results to get to know this number.

Right. But even in the future, how much can we expect from this, since it has just -- we have just taken you, right, that we cannot see the effect very immediately, but in the future also, how much do you expect, how much incremental?

See, this is an acetyls business and our combined capacity in acetyls business is of the order of about 200,000 tons. So depending on the price and the margin profiles, et cetera, the numbers will keep on varying. But the volumetric number is 200,000.

The next question is from the line of Anurag Patil from Roha Asset Managers.

Sir, how much of the SI segment CapEx is completed and how much is pending?

Sure. So just to give you a number, last quarter in the SI segment or as a company as a whole, we did about INR 60 crores of CapEx. But one of the big plants is more or less in the last phase, and we're looking to commission it towards the end of this quarter. And similarly, with the other plant is a month thereafter that. So you're looking at revenues hitting our financials starting Q1 of next year.

What could be the total CapEx for SI segment combined, completed till date and pending?

So what we had declared earlier as well was about INR 200 crores.

INR 200 crores. And incremental capacity, what would be in terms of tonnage?

That remains confidential, so we would not be able to release that for obvious competitive reasons.

[Operator Instructions] The next question is from the line of Tej Prakash, an individual investor.

Hello?

Mr. Tej Prakash, may we request you to please speak a little louder.

Sir, my question is what would be the turnover expected in initial phase to fluoro specialty chemicals?

We expect a turnover of the order of INR 280 to INR 300 crores to start with. Yes?

And sir, what would be the total CapEx, including that, you just said that additional capacity is also being added?

Yes, that should be of the order of about, say, INR 450 crores.

And sir, what would be the EBITDA margin for the same?

No, I mean, I can't allow you to write my P&L of that business, which has not yet started, no? So, but you have indicative numbers. There are fluoro companies in India as well, so our margins would be consistent with that trajectory.

The next question is from the line of Amit Sen Pal, an individual investor.

Congratulations for the good set of numbers. Sir, throughout this quarterly results, like, previous 3, 4 quarters when you see the other expenses were somewhere in the range of INR 60 crores to INR 70 crores, in this particular quarter, it has suddenly come to INR 140 crores. So is there any specific item that had cost like double of what was there in the previous quarters?

Yes. There are actually 2 fundamental items. One is the energy cost, because of a huge rise in the cost of coal between these 2 periods. And the other is, of course, export expenses, including the logistics cost, the export freight. Yes? So these are the 2 main blocks.

Okay, got it. And sir, just wanted to know, like, last year, our percentage of specialty chemicals as a total percentage of revenue, has increased from the last year. But still our EBITDA margin are, like, on the same edge, like, we had some 12% to 13% in the last year overall, and this year also. So is there any specific thing that is dragging it or something like that?

Yes, good observation. And that's the nature of the acetyls business. When you have those volumes and prices rising to the extent, the EBITDA margins can look muted. However, if you look at the absolute growth in the SI business, which is going to be the more sticky and consistent compounding business, that actually speaks for itself. This has grown much better than what we had projected and continues to perform even before our major CapEx-es are implemented.

So we will be expanding the margin from here, I guess?

Exactly.

And because of last quarter, whatever happened, due to flood, so can you give us like a breakup of how much was the spillover from the last quarter revenue in some like specialty chemical, the revenue that came in the last -- this quarter from last quarter? And will it be continuing to next quarter also, or it has all been done now?

No. So here was definitely some spillovers, especially on the export side, but nothing significant to write home about and take special note of. There is nothing major pending, which will trickle into Q4.

Okay. We will be doing maybe from there onwards then.

That's right.

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

Hello. Am I audible, sir? Hello?

If you can, speak a bit louder, sir. That would be great.

Hello, I am audible, sir?

Please go ahead.

My question is regarding the growth that appear in the financial statements. Regarding our TTM revenue is, I suppose, INR 27,000 crores. And for financial year '21, it was around INR 1,700 crores. So I want to know whether this growth is only on account of the better capacity utilization or because most of the CapEx that are going to happen to it, that means that will contribute to revenue in future. So I want to know from where this particular growth is coming from. So, that's my question, sir.

So this, as I responded a little earlier, this is a function of both volumetric growth in the AI business, as well as in the SI business and the growth or the incremental pricing in the AI business, which has influenced this growth significantly.

Okay. You are just thinking it is because of the incremental pricing in the AI segment?

Correct. There is also an incremental pricing impacting the SI, but it's not so significant.

Not that much significant. And from the volume aspect, it is also due to some volume aspect also, no, you are seeing?

Absolutely.

More from the value aspect, it's from the volume aspect also.

Yes, and product mix. So there are a variety of reasons. Yes?

Okay. And that means your current CapEx of -- that is around INR 500 crore, if I talk about FI and SI, cumulatively, so that will contribute the CapEx revenue in future, that's what I'm getting?

Yes.

[Operator Instructions] The next question is from the line of Amar Maurya from AlfAccurate.

Yes. Thanks a lot for the opportunity again. So sir, I was just trying to understand, like, as you indicated that in SI business INR 200 crores of CapEx, so, is this CapEx done or is it going to be commissioned in the following quarters?

No, it's not yet done. They will be commissioned in the next 2 to 3 months and will provide revenues and profitability to the company in Q1, starting Q1 of the next financial year.

Okay. So, sir, in SI, how much the capacity would be expanded because of this INR 200 crores CapEx, ball park?

Yes. So, that's what we mentioned. To arrive at that or just look at the growth that we've achieved, that would sort of add to our profitability. I would not focus as much on the volumes, because it's more about the product mix that it provides. So while the volumes to the overall might be different, the profitability it gives to the overall business are a lot higher.

Okay. So basically then, sir, 2 CapEx-es are getting commissioned. One is the SI CapEx and second is FI, fluorine CapEx, which will also start by the Q1 right?

No. I think you misunderstood. There are 2 CapEx-es within SI that will get commissioned right now. The FI CapEx will get commissioned in Q3.

Q3. Okay, so 2 CapEx-es in SI and one CapEx that is FI, which will commission in Q3. Fine, sir. Thank you.

The next question is from the line of Bharat Gupta from Edelweiss Securities.

I have a couple of questions. First is in regard to the diketene chemistry base. So definitely since we are one of the market leaders in this product segment, so generally, how are we seeing, like, in terms of the good traction which is there in the market? So any outlook on the theme, sir?

So the diversified customer base and application base that we are present in is it remains fairly robust. So we would be supplying into a variety of industries like agrochemicals, pharmaceuticals, colors and pigments, inks, adhesives, et cetera. All of these industries continue to grow, some more than the others, and therefore, we would continue to see demand growth in the overall segment in this year and the years coming ahead. So, the traction remains fairly strong. And given our leadership position in this space currently, we're looking to expand that with product changes, product mix enhancements, and value additions to our customers and that's the strategy we're pursuing.

In terms of the market size, if I look, so diketene as a whole, if I look at the derivative base itself, so that will be near about INR 700-odd crores and that way, we are having a 50% market share out here in India. Just wanted to get a traction like in terms of a competitor, which is also entering into this particular space, so going ahead, do we see that we will be competing against the similar product lines, which the competitor is also trying to enter into and there will be margin compression going ahead?

So, yes, there are. There is a competitor entering the space, clearly speaking about the market attractiveness the space provides. Globally, if you look at it, there are not many players in this space providing ample opportunities for all. Laxmi's position remains differentiated for a variety of reasons. We are the largest product portfolio company in this space globally. We have a large international footprint that we have been present in, and a fair bit of supply chain synergies that allow us to operate quite efficiently vis-a-vis others. So these are the factors that really support the company and will provide its resilience and ability to grow coming ahead.

Right. And sir, even if you look at the margin profile in this particular segments, so that will be, like -- is there a variation amongst the products in which we are dealing in, like, is there a wide variation in the products, where we deal with respect to the different derivatives of diketene?

I mean, I will have to give a generalized answer there, because we won't be able to get into specifics, but yes, of course, any product basket that you see in the chemicals space, not just at Laxmi, would have differentiated margins depending on the type and kind and complexity of each molecule. That's just the nature of the business. So, yes, there would be a variety.

And sir, like, in terms of our revenue mix, so, generally with respect to diketene, so, are we also catering to the export market also in this segment or it is purely import replacement kind of opportunity where we have captured the market out there in India?

So a few years ago, we were primarily a domestic player, but strategically we decided to go and explore international markets and that's the efforts we've been taking over the last few years. And now we are clocking 20% to 30% of our revenues come from international sources.

Right, sir. And sir, another question in respect to the Fluoro specialty base, where we're trying to, like, post the acquisition of Miteni Italy, we are trying to enter into and diversify our presence across the Fluoro specialty base. So, how are we seeing the traction, particularly, with respect to the fluorine-based chemistries, like, in the current scene, many players are trying to enter into this field with respect to intermediate development pertaining to agrochemicals and pharmaceutical. So do you see that there is likely a -- competitive intensity is likely to increase in the years to come and that will ultimately yield to be a segment, which may not remain a favorable position, like, in terms of the margins, where we are currently looking at? So in the near term, there might be a margin compression, which will be there in this segment?

So you're perfectly right. A lot of players are entering the Fluoro space, primarily because it remains an attractive area. Most new agrochemical, pharmaceutical molecules, a lot of industrial applications require fluorine. Now, fluorine itself remains a very, very vast opportunity in the different slices of the pie and areas to play in. The space that we are playing in has a 50 to 60-year history of production and actual assets which have done that. So that gives Laxmi a great starting point in an area to play in. Of course, just like any product cycle, fluorine will not be an exception to that. They will continue to get commoditized over a period of time, but that's when you've got new products sort of entering, and you keep the churn on. So that remains the strategy, not just for our SI business, but the same will be applicable for the FI business too.

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

Sir, just wanted to firstly know what is the current capacity utilization for our AI business?

It's there in the presentation. It's about 80%, 82%.

Yes, that is for FY '21. I was just thinking for 9 months, the utilization.

By and large, it's the same 2%, 3% here or there.

And is this the peak utilization level, or can we go up to 90%, 95%?

We are not sure. I mean, we need to test that out. Obviously, there will be days and months, where our capacity utilization must have been higher. But over a period of time, this is the sort of utilization one can expect.

Okay. And I'm sure that in the 9 months, we also have the Yellowstone incremental capacity which is -- so that is also now fully utilized or near peak utilization?

Yes. This full utilization is sort of a misnomer. As we have stated earlier in our various conversations, we can always keep on debottlenecking these capacities, put in incremental investments and keep on increasing the capacity utilization, because we have the infrastructure in place, and we have all the support requirements in place. Yes?

Okay. The reason for asking this is that, like you were mentioning, that's the sort of the utilization level that you all are currently at and maybe for the incremental volume growth, there will be some amount of de-bottlenecking required. The incremental SI capacity and FI capacity is also coming towards the second half of next year. Just wanted to understand, in the interim, what kind of growth can we expect from the business? Because also in the first half of this call, you were mentioning that the realization trend in the AI business is expected to normalize, so just was trying to understand where is the incremental growth going to come from at least as the newer CapEx-es come on stream?

Incremental growth is going to come from the SI piece. And the new CapEx-es in the SI are getting commercialized towards the end of this quarter itself, at least 2 of the large CapEx-es. So that is from where the incremental growth is going to come, until the FI kicks in and the balance SI CapEx sort of kicks in.

Okay. Understood. And just my next question is a clarification on your FI CapEx. So you said that we were looking at doing some INR 280 crores to INR 290 crores of CapEx and this was towards Phase I, which is now facing time and cost delay overruns. And now we're expecting this to go up INR 400 crores, which will include Phase I and Phase II. Is this understanding correct?

Yes. Upwards of INR 400 crores. Yes.

Okay. And from this, we are expecting, what, a 1 times or 2 times kind of asset turn?

No. In fluorochemical, you can never get 2 times kind of asset turn. So, 1 times was our targeted CapEx turn, but we are going to get around INR 280 crores, INR 300-odd crores of revenue. And these are all very ROE-focused initiatives. So I do not think that the asset turn is the right measure for this investment.

Sure. And just one last clarification. What is the reason for this delay by almost 3 quarters, because I believe plant was expected to be commercialized in Q4 of this year? And now we're saying it will probably come in H2, the reason for this delay, which is not affected by…

The reason for this delay is mainly COVID-related restrictions.

Okay. And are we expecting the ramp-up to still be over 3-odd years, like we were all here estimating?

Sorry, can you come up with the question again, please?

I was asking, are we still expecting that once the plant comes on stream, to hit full utilization or peak utilization in 3-odd years?

Yes.

Yes. So Alisha, just to supplement Partha here, primarily the delay is because of COVID where we physically could not enter Italy due to legal restrictions. So that is, I would say, 80% of the issue, which has caused the delay multiple times, lockdown one, 2, 3. But coming on to the growth, the utilizations will start off, and we have been looking at ramp-up fairly fast. That's why we are fast-tracking Phase II, which is into the value-added products. Because the demand pull remains very strong, not only from an import substitution, but even from an international contractual and long-term contract perspective, both of these areas are sort of pulling us and making us fast-forward our CapEx.

Understood. And one last question, if I may. So we do have some contracts in hand or some discussions ongoing, which is giving us visibility of good utilization in year one, once the plant commercializes.

Of course.

The next question is from the line of Tarang from Old Bridge Capital.

Hello sir, good evening. 3 questions from my side. One, sir, if you could just give us a broad range of realizations on a per sort of kg basis for your, say, SI business and what you anticipate for your FS business? A broad range of products, I mean, it will range from, say, dollar-this to kg to dollars-that, could you give us some color on that?

No, I don't think we can give any color, because these are all very versatile chemistries. So the same assets depending on the knowledge that we impart to those assets could give products at different levels. Just to give you an example, the same asset can give us a 3 and $23 product, depending on what we choose to do or what we can do.

Got it. Sir, but, I mean, we've seen in case of FS, there are people who are making $200, $250 product as well. So would we be going at that level or would we be in the range of, say, $30, $50?

We are just about starting, so, maybe we can have this conversation 3, 4 quarters down the road.

Sure. And what would that be for your diketene derivatives piece, sir?

Similar.

Okay. Similar to?

My response would be similar for the diketene piece as well.

Okay, got it. Second, sir, this Italy CapEx, right, where Phase I and Phase II, you're now envisaging INR 400 crores of outlay. What was the ballpark that was estimated, which has led to a overrun to INR 400 crores now?

INR 280 crore to about INR 300-odd crores.

But that I believe was for Phase I only, right?

Yes. So if you want to, I mean, the overrun component is this is of the order of 20%-odd.

Okay. Sure. And at some point to the initial participant's question, you said that maybe asset turns may not be the most appropriate way to look at that business. We are looking at it more as an ROE-accretive sort of a business. So was that an indication that, okay, this is, maybe, low asset turns-high margin or there was an element of how you're financing it as well to it?

So the answer is yes. Okay? This is how it is going to remain at all points in time in early phases of every CapEx. Yes, it has got no relationship with the means of finance or your gearing. Yes?

Got it. So basically the more margin-accretive sort of a business, that's why more ROE-accretive, correct?

So Tarang, as you go downstream and you get into further niches, we're not looking at these large volume bulk products in the FI space. Looking at these niche molecules, and you've got several molecules to choose from and that's why we're adding assets and capacities.

Right. And last, would this, I mean, the asset -- the end customer, would they largely be ag-chem guys or there are a mix of both ag-chem, as well as pharma and maybe industrial chemicals as well?

Yes. So it remains all 3. In our business plan, we have taken pharma a little bit staggered out, because the approvals take slightly longer, but the mix would remain in all 3.

Ladies and gentlemen, this will be the last question for today, which is from the line of Tej Prakash, an individual investor.

Sir, this is not a question, it is regarding the presentation. The presentations would be in terms of margins for different segment?

So, Tej Prakash, if you see our accounts, we treat all our businesses as one segment, which is chemical segment, right. And that is a consistent policy, which we have been following in the past, and we would like to continue to follow going forward.

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

Okay. So on behalf of all of us here in Laxmi, thank you very much for attending this call. I hope that we've answered all your questions to your satisfaction. And in case you have any more questions, you can approach our IR team, and we'll be very happy to respond. Lastly, since we are meeting here for the first time in this year, all the best wishes from all of us to you and your families. Thank you very much.

Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.