NGL Fine-Chem Limited (524774) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 and FY '21 earnings conference call of NGL Fine-Chem Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rishav Das from Pareto Capital. Thank you, and over to you, sir.

Good morning, everyone. This is Rishav Das from Pareto Capital. We represent Investor Relations for the NGL Fine-Chem Limited. On behalf of NGL Fine-Chem, I welcome you all to our Q4 FY '21 earnings conference call. I have with me from the management, Mr. Rahul Nachane, Managing Director; Mr. Rajesh Lawande, Whole Time Director and CFO; and Ms. Pallavi Pednekar, Company Secretary. We will have brief opening remarks from the management, followed by the Q&A session. Please note that certain statements made during this call may be forward-looking in nature. Such forward-looking statements are subject to certain risks and uncertainties that could cause our actual results or projections to differ materially from those statements. NGL Fine-Chem Limited will not be in any way responsible for any action taken based on such statements and undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances. I would now hand over the call to Mr. Rahul Nachane for his opening remarks. Over to you, sir.

Good morning, all of you. Thank you for joining us on this call. I hope that all of you and your families are safe and well in these difficult times. I will open the call with a few remarks on our performance and strategy going ahead. We are pleased with the performance of our company during this challenging year, where the entire organization has taken wide asserts to ramp up our manufacturing and capitalizing on the demand front. Consolidated sales for the quarter, ended 31st March 2021, has been the highest at INR 72 crores as against INR 35 crores for the same quarter last year. EBITDA stood at INR 21 crores with a margin of 29%, and we recorded a net profit of INR 14 crores with a margin of 19%. Consolidated sales for the year ended 31st March 2021 were INR 258 crores as again INR 152 crores for the last year, representing a growth of 70% year-on-year. Our full year EBITDA stood at INR 80 crores with a margin of 31%. The margin expansion witnessed during the year was on account of significant operating leverage as we scaled up and favorable raw material prices, which prevailed during the last year. Profit for the year was INR 57 crores as against INR 8 crores last year with a margin of 22%. We experienced significant growth in all our business segments, driven by increasing market share in all our products. We successfully ramped up a new capacity in line with the strong demand, with all our facilities running at nearly full utilization levels of over 90%. To continue maintaining our market position and tapping into increasing opportunities, we have planned to invest INR 20 crores in our subsidiary, Macrotech, to expand capacities for intermediate manufacturing. Additionally, we have plans to increase outsourced production to 15% and continue process improvements and debottlenecking efforts to increase volumes. Going ahead, we will be doing a greenfield expansion at Tarapur where we have already acquired land and have the necessary approvals in place to build a new facility with an estimated CapEx of INR 80 crores to bring about a close to 50% capacity increase. We expect to commission and start production by the end of FY 2023. We are today a net debt-free company, and we'll continue to invest in strengthening our financial base and maintaining our market leadership position by remaining cost competitive, reliable and offer high-quality solutions to our customers. This is all from my side now. We can open the floor for a discussion.

[Operator Instructions] The first question is from the line of [ Ankit ] from Bamboo Capital.

Congratulations to the entire NGL team for a great year, last year. Sir, last year, in our Q2 call, we had stated that our top 10 products were doing extremely well, and especially our top 4 to top 10 products, we had taken significant market shares away from our competitors, and they were facing some challenges on ramping up and we were providing our customers with good price and reliable supplies. So how -- given how the situation is currently, how have our competition reacted now? And are we still able to retain market share in those top 20 products? And how do you see growth for these top 10 products of ours for FY '22 and FY '23?

Yes. Ankit, thank you for that. We did take away quite a bit of market share from our competitors during the last year. And we have been successful that we have been able to retain this, the market share, which we have gained over this last 1 year. I don't anticipate any problems in holding on to whatever gains we have made during this period. In fact, we are looking forward to at least a 20% growth in our top 10 products even during the current year.

Okay. Okay. And sir, how are the remaining 8 products, the 11 to 18 products that we do, how are they doing? And what are the plans to commercialize the new 4 products that we had developed in last year because of huge demands from our existing 18 products. We are not manufacturing those 4 products in [indiscernible], if you can throw some light on that.

So our growth has been very wide based during the last 1 year. Our top 3 products used to contribute 47% of our sales during FY '20. Today, it contribute only 40% of sales. So we see such decreasing trend contribution from the top 5 also and the top 10 also, which means that our other products are growing at a much larger pace than these mature products. So we see a pretty good growth coming up as our market share even in these other products that's going up. So we see our overall well-round growth coming up for us.

Sure. And any plans to commercialize those 4 new products in a big way this year? Or are we still facing capacity constraints?

No, no. We have already started manufacturing those products. So those are now part of our regular lineup, and we will keep on ramping up capacity as we are able to penetrate the market better.

Okay. Okay. Okay.

We don't consider them as new products anymore. They are now all within the system.

Okay. Okay. So they are also ramping up in a good pace now.

Yes.

Okay. Okay. And sir, if you can throw some light on the CapEx plan, primarily the debottlenecking at the existing API plants and expansion at Macrotech as well as the new greenfield expansion? So post expansion -- post the brownfield expansion at Macrotech and debottlenecking at existing API plants, how much top line can we reach and our plans for future greenfield expansion, if you can throw some light on that?

We are spending -- investing close to about INR 100 crores in the next 2.5 years, of which INR 20 crores is in Macrotech and INR 80 crores will be at our new greenfield site in Tarapur. The typical capital asset ratio, turnover ratio, we see in this industry is about 2 to 2.5:1. So we expect to attain a similar kind of turnover from our investment.

So suppose this expansion at Macrotech and debottlenecking at existing API plants, we can touch INR 325 crores to INR 350 crores of revenue run rate on an annual basis?

Plus, we will have to also increase our outsourcing simultaneously. But yes, that should be good enough to help us get there, yes.

Okay. Okay. Sir one last question from my end, then I'll come back in the queue. Sir, on a broader level, if we look at it, we currently are manufacturing 22 products, including the 4 new products and we have 5 more products under development, as you have stated in our presentation. So post this brownfield expansion and greenfield expansion at Tarapur, let's say, in FY '24, '25, will this 27 products be enough to fulfill our capacity at the new greenfield plant as well? Or we will have to introduce new products also apart from these 27 products, which are under the manufacturing or underdevelopment?

That's a little difficult to say right now because when we introduce a product, there are always existing suppliers in that. And we have to see how we are able to gain market share from the other. So at times, it takes 1 year; at times, it takes 5 years. So how long or how quickly we are able to fill the capacity in our own plants by increasing demand, it is something which we have to see as we go.

Okay. So we'll keep on working on new products, and apart from these 5 more products, at least next 3, 4 years, there will be some more products, which will be under development or most likely be commercialized.

Yes. It's a ongoing process, meaning we can't obviously stop. It's a pipeline, which we have to keep feeding so that we are able to penetrate markets, add new products and also fill in capacity.

Okay. And this new 5 products, which are under development also have a similar size of our existing molecules that we manufacture, let's say, INR 550 crore, INR 100 crore, these are bigger molecules?

No. Some are smaller molecules, some are decent size. So it's a mixture. So it's -- one really can't -- I can't give you those numbers of what the market size is for each of those products, but it will keep pace with the rate at which we are growing.

The next question is from the line of Ayush Mittal from MAPL Value Investing Fund.

First of all, sir, sincere congratulations and appreciation for the management for a wonderful performance. Having been invested for 5, 7 years now, I can really appreciate the work that the company has done. My question, first, that given the change in the financials and the kind of cash flow that we are generating today, we are at a very different size than what we were 2, 3 years back. So it's obvious that our ambition and future growth plans should change. And it's great to see that you're going to invest almost INR 100 crores over next 2 years. So one key area for us is the R&D part. Can you share what more are we doing on this front? And what kind of plans do you have on the pipeline going forward?

Yes. Thank you for your confidence in our company for the last so many years. In the R&D, we have got, today, a team of close to about 28 people working in Mumbai and Tarapur. And over the next 2 years, we will expand our R&D team also further. In fact, at Macrotech, we are setting up a separate R&D cell for just developing and improving manufacturing of all our intermediates. So it's a continuous process for us, and we will keep on investing in R&D because that's how we look at the future.

But if I see the kind of spend and the number of additions of molecules that you used to do in earlier years, while what we see today, we see the addition of molecules is much lesser as compared in past, while the company has grown quite a lot. Any thoughts on that?

Well, the demand for existing products was growing quite a bit. Now if we are putting in new products, there is a lot of effort which goes into developing that also because in terms of production, it's completely a new process for us. And why give up existing opportunities just because you use the new product capacities for at least existing opportunities out. So we prefer to avail opportunities, which are in the market as of now, rather than just manufacturing new products.

Okay. But you would plan to increase the product portfolio because if we have to grow further, we need to have them from before and then only we can harness them in coming years?

As I said earlier also, it's a continuous process. So R&D is a continuous process. Introducing products in the plant is a continuous process. Getting these products into the market, getting market share, getting customers for that, it's an online process for every product for us.

Okay. Okay. Sir, my second question is when we see -- when we go 3 years back, then also the kind of top 3, 5 products in those, we had a high market share, globally. Today, also, we have a very high market share, and our market share has improved. So does this mean that the market size of these products has grown a lot? Or what has really happened to like the kind of growth that we are seeing is pretty high while we had a very high market share? So can you share more as to what has happened to our key products? And do these have enough growth opportunity for us to grow further from the same basket?

We have seen that the market share for the top 10 products, which we have got, the market size itself has gone up in double-digit numbers during the last 1 year, and we see the same strong growth happening in the current year also. So it's helping us in 2 ways. Number one, the market size has gone up. And number two, our share in that particular market has also gone up, which is why we are able to record much higher growth numbers.

Okay. Okay. And is it also that we have been able to expand the geography and customers? Or is it the same customer and geographies that are driving this growth?

No. we are selling to over 45 countries now and to over 400 customers. So probably 3 years ago, we had probably around 250 customers. So there is a lot of customer acquisition also which has taken place in the last 3 years.

Okay. Okay. Great, sir. Sir, I also have a suggestion that, I think given the stock price, we should definitely consider a bonus or stock split and also a listing on NSE. I hope the management can consider that part, and that will be helpful.

We will definitely consider that, yes.

The next question is from the line of Namit Arora from IndGrowth Capital.

And many compliments to Mr. Nachane, Rajesh and the entire team for a phenomenal performance. My question is linked to your thoughts on right to win and the competitive landscape, and it's partly linked to your detailed thoughts in response to Ayush and Ankit's question. So in your space, there has been reasonable amount of private equity and strategic activities. So could you walk us through some of the differentiators, the way you think about your right to win, some thoughts on the way you are fashioning the organization to sort of continue to demonstrate this performance, which has moved to a completely different level in the last 4 quarters? So just some thoughts on competitive landscape and your positioning as an organization as a team in some things that you're doing around R&D organization, et cetera?

We have positioned our organization on 3 very basic principles: Number one, we want to be extremely cost competitive and offer our customer a very good value proposition; secondly, we want to offer them the best possible quality; and thirdly, we have to be reliable in terms of service which we render to the customer. And these 3 pillars on which we work on has been the main foundations on which we have been able to get our market share. And that is what has given us our competitive advantage.

Got it. And if I may ask, slightly medium term, what are the efforts you're doing in terms of innovation? It could be existing APIs. It could be new initiatives. It could be new engineering or R&D on the process side. So one is scalability -- you already have a fairly large portfolio. So one is scalability of that. And second is some more medium-term initiatives. If you could give us some color on that.

So on the R&D side, we have got 2 basic objectives. Number one is to keep on looking at the products, which we are making and seeing whether there are more efficient ways of making that particular product. So we try to improve the yields, which we can get, improve the input/output ratios, improve the recoveries of byproducts. So that's one part of the R&D focus. The second part is to look at which are the new products, which we can introduce and manufacture. Having said that, there are other efficiency, which are also driven in all the other departments. So in purchasing, we try to drive efficiencies. In our inventory management, we try to drive efficiencies. In manufacturing, we try to optimize production and reduce costs. So there are multiple ways and means in which we try to run and optimize our operations. And it is the overall effort, which we see coming in the form of the margins which we derive.

Got it. That's very helpful. And final question from me before I get back in the queue, sir. About 78% of our revenues are from veterinary API, but you have other 3 segments, the human APIs, the intermediates and finished dosage forms, the FDF. So over a 5- year period, do you see the other 3 human API, intermediates and FDF also becoming a large critical mass and scaling up significantly further? Or do you see veterinary API itself sort of continuing to scale up faster than the other things?

Well, we have seen a spurt in the human API business in the last 1 year. Though it has not been a core focus for us, the focus essentially is veterinary APIs. In fact, all the products in the pipeline have been virtually APIs. But the couple of products, which we have been making in the human field also, we saw these demand for those products. At the same time, we again took away market shares from a couple of other manufacturing network. So even though it was not really a thrust area, it still worked well for us. But going forward, our focus is more on the veterinary line of products.

The next question is from the line of [ Akash Jain from Money Curve ].

Great set of numbers in the last 4 quarters. Like Ayush, I've also been investing in the company for last 3 years. And clearly, feel the fruits of labor for -- from the management team on this. I just have one question. Sir, like you mentioned, and even if you look at the historical numbers, our asset terms have typically been between 2 and 2.5, and that is what you mentioned even in your opening remarks. But for this particular year, our asset turns have been very high, upwards of 3. So what drove that asset turn this year? Is it driven by some outsourcing or something like that? And is it possible to maintain a higher asset turn in the future, looking at what happened this year?

Well, the asset turn is now -- we are looking at a depreciated balance sheet. So the fixed asset, we are not looking at the gross block, but we are looking at a net block where assets have been depreciated. So probably, that is why we are looking at a much higher asset turn as such. But on fresh investments, we don't foresee asset around more than 2, 2.5x.

[Operator Instructions] The next question is from the line of Dhwanil Desai from Turtle Capital.

Rahul and team, congratulations for a very good year. Two questions. So Rahul, now if I remember correctly, when we were talking about the poultry products, the idea was that those are large volume products, but maybe slightly lower gross margin product. And one thing that we have always appreciated about in our company is the level of gross margin at which we can operate and then grow also even though being a very high gross margin company. So just wanted to get your thinking in terms of the new products that are in the pipeline or that we have launched recently. Do we think that 55% kind of a gross margin that we work with even for newer products or we think that, as we grow, we will look for lower margin but higher scale products? How do you think about that?

So we do a mix of both the kind of products where we do low margin but higher turnover. And we are also doing ones where the volumes are lower but the margins are far, far higher. And it's a mix of both these product groups, which we have got, which helps us to get the overall margin. So on the new products, which we are looking at also, they are pretty similar in the structure to what we've got today. So there are probably about 2, which are high-end margin but very low volumes. And there are some of them which are a little lower in volume but higher in -- I am sorry, a little lower in margin but higher in value. So it's a mixture, and it's -- we don't see a drastic change from the existing product mix going forward.

Okay. Got it. Got It. And second question, Rahul, on our interaction, one thing which we got, and correct me if I'm wrong, is that we were not too keen on outsourcing, right? I mean, we were doing all the steps, 6, 7, 8 step processes ourselves. So now we are saying that we will increase the outsourcing percentage. So is this change in thinking because of the capacity constraint or we think that's a far more efficient model to work with? If you can throw some light on that.

Yes. So our outsourcing objective is mainly to ensure that we don't fall short of capacity. So we still think in-sourcing is, overall, a better strategy because that is the way you safeguard margins as well as technology. But having said that, there is -- there are opportunities out in the market, and we shouldn't be losing those just because we don't have adequate capacity ourselves. So that's the reason why we will outsource.

Okay. So for natural corollary to that is that as capacity comes on stream, whatever outsourcing has been done will be in-sourced eventually, right? That's the right way to think.

I don't think so because the objective will be then from incremental capacity, get incremental turnover. So probably the outsourcing, which we do, will be real estate. At the same time, our partners to whom we will outsource, they are putting in investments specifically for us. So it would be unfair if we sort of turn around after a few months and say that, look, okay, we got our own plans now, so we will not be doing it. So we are looking at it as a more long-term association.

Okay. Okay. Okay. And last question, Rahul, is that this Macrotech, our understanding was that largely we had acquired all the consumption works for internal purposes. Now we are putting up a INR 20 crore CapEx. So again, the idea remains the same that to free up the capacity between our NGL manufacturing sites or that we will also be looking out to sell intermediates outside of NGL?

Well, we look at Macrotech as part of NGL itself. So when we say that we are going to do outsourcing, it's outside of Macrotech and NGL. And probably, in a few months' time, we might probably even merge Macrotech into NGL rather than carrying it as a subsidiary. So it's 100% subsidiary, just like any other plant for NGL. This is a plant that -- it's a separate legal entity right now.

[Operator Instructions] The next question is from the line of Sachin Kasera from Svan Investments.

Congrats to the management for an excellent year. My question was, you have mentioned that one of the reasons of the better performance has been gaining market share and the introduction of 2 products. So where are we in terms of the market share? Is it that there's still significant opportunity for us to gain market share in some of these products? And secondly, what is driving these market share gains?

Can you repeat the last part? I didn't understand that.

I'm saying, what is driving these market share gains? What is the key reason for market share gains?

As I said, there are 2 pillars in which we approach our philosophy. One would be cost. Second offer the best possible quality to our customers and offer them the best possible service, and we rely on that at all points of time in terms of delivery of the product, in terms of packaging, in terms of support and documentation, in terms of regulatory support. So these are the basic principles on which we approach the entire market, and each customer is special for us. So these are the pillars, which have helped us to gain market share.

And do you see significant scope for market share even further from here?

So it continues. Even today, we are -- we do see some favorable wins going our way, and we do look at adding additional customers, yes.

Sure. Secondly, can you give us some sense of the geographical mix of our revenues, say, India, Asia, U.S., Europe?

We have already put that up in the presentation. So you will be able to look at the numbers. We have given for India, Europe, Asia Pacific, U.S.A. and rest of the world.

Okay. And from what I understand, we are right now primarily into APIs, intermediates and not too much into formulations, is that understanding correct?

That is right, yes.

And what are your plans going? And do we intend to get into formulations?

No. We look at ourselves as earlier API company.

Okay. And just one last question. You had mentioned that you cannot talk about specific products. But from a medium to long term, say, next 5-year perspective, what could be the size of opportunity for the products that you develop, the cumulative size of the 5, 10 projects that you're working on, that you plan to launch in the next 3 to 5 years?

I'm afraid I cannot give you guidance in terms of numbers. But we see strong growth happening on all our existing products right now. And plus, as and when we keep adding new products, we will see growth coming in from there. So for us, growth comes in various ways. Number one, it comes from getting market share from competitors. It comes from the natural growth, which we see in each product group. It comes from entering new geographies, which we were not present in. It comes from better penetration of each geography by acquiring new customers. So we have seen customers used to buy products with 5-kilo at 10-kilo lots, which we have serviced even when our standard packing used to be 25 kilos. And over 5 years, we have seen quite a few of these customers move from 5-kilo to 500-kilo sort of volumes. So as the customer also grows and he increases his market share, it comes back to us in form of better business.

I was not specifically asking what will be our revenue from those. I'm just asking what would be the industry size of those products like there are -- globally, there are INR 300 crore products, INR 500 crore products. That is what exactly I was looking for.

So what happens is that there is no published data available for this. And therefore, I am not able to quote to you. We form our estimates based on our interactions with our customers and other people. But there is no public data, which I can quote to you.

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

My first question would be actually on margins. So while you've mentioned that you did have some benefit of benign raw material prices and probably some COVID-related cost savings, and because you're going to do higher share of outsourcing, so how do you think the margins -- at what level do you think will they be more sustainable?

The industry margins are in the range of between 18% and 25% EBITDA. We have been at the higher end of these margins for the last couple of years, for probably 2, 3 years. We saw the margins drop in FY '20, but that was mainly because of increased fixed cost as we had a new plant ready and start, but the utilization was not up. Going forward, we expect to be at the higher end of the industry range. I'm not very sure how long these very high margins will last. So I will be a little bit cautious in that. But all I can say is that when the industry is delivering around -- between 15% -- 18% and 25%, we will try to be at the higher range of that particular level.

Okay. Okay. Also, if you could help us with the INR 100 crore CapEx that you're planning to do, will this be funded entirely through internal accruals? Or are you looking at a mix of debt and equity?

So we haven't yet committed to the INR 100 crore entirely. INR 20 crores is already under implementation in Macrotech. That is going completely from internal accruals. For the INR 80 crores, that is just sort of a number which we have looked at. The detailed budgeting is going on right now, and we'll probably be ready by end of July. And we are doing it in a couple of small phases. The first part is to get the civil construction done, which will again be done completely by internal accruals. So we have time until probably mid of next year to raise the -- to look at how to structure the financing for it. So as and when we get to that, we'll get to -- we'll share that information. But right now, I don't have exact numbers or exact sources available. But we'll probably look at a mixture of debt and our internal accruals as of now.

Okay. Right. And sir, while we've seen very strong growth in FY '21, and we know this is because of the brownfield that you did last year, is it possible for you to give a breakup of how much is the volume growth and how much is the value growth?

I am afraid I don't have the number right now with me, but I will keep it ready the next time we have a call.

And just one last question. Is any of your business tender-driven? Or is it largely all B2B?

It's completely B2B.

There's no tender business?

No, we don't do tender business.

[Operator Instructions] The next question is from the line of Rohit Balakrishnan from iThought PMS.

Sir, actually, most of the questions have been answered. So again, once again, many congratulations for all your hard work and hope you continue to scale new high. So I just wanted to understand, I think you answered it and maybe my line was a bit unclear. So can you talk a bit about FY '22 and FY '23 before this greenfield comes? I'm sorry if you've answered that, I just wanted some more clarity. I mean, what kind of growth are you looking at for the next couple of years?

Well, on the lower end, the growth will be in the range of probably about 15%, and on the upper hand, probably around 25%. But I can't give you a more specific number right now, but we will be looking at -- between 15% and 25%.

The next question is from the line of V.P. Rajesh from Banyan Capital.

Congratulations for a good set of numbers. My question was in response to Sachin's question, you were describing that the market share has been going up for a variety of reasons. But I was just wondering what happened last year that either some competitors went out or something materially changed, which resulted in such [indiscernible] is it sustainable?

Well, the pharma industry is a little bit more complex, and the churn in customers does not happen very easily. So we do believe that the customers we have acquired will be -- will remain with us going forward. And it's not a temporary increase in market share.

Okay. And specifically, what led to the win in the new customer accounts? Is it your pricing, quality or some customer -- or some competitor discontinuing, if you can just give more color on that?

I think quite a few competitors faced logistical problems in the first quarter going forward till the mid of second quarter last year due to COVID. And they were probably not able to cope up as well as we did during that period.

I see. And are these competitors smaller than us or they are -- in case of the veterinary industry, from what I understand, it's a very consolidated and large players, but there are some smaller companies also. So were you gaining market share from larger competitors or the smaller guys?

It's a mix of both. There are some which we have gained from the larger companies. There are some where we have gained at the cost of the smaller ones. So it's both ways.

The next question is from the line of Dhawal Shah from Girik Capital.

Yes. Sir, a couple of questions. The first one would be on the outsourcing parts, when you mentioned, so what is the thought process behind the outsourcing? You mentioned you don't want to lose on the business. But then how the -- how our technology is protected? And which -- so in which category of product would you be outsourcing? I just want to understand. Like, in spite of outsourcing, if we are making such great margins, and then in the future, you want to do a higher outsourcing of the total revenue, then it will become a much -- I mean, you'll have a much better margins going forward. So I just want to understand from that perspective.

Yes. So as currently, we don't outsource much actually. We outsource barely between 3% and 5% of our manufacturing. We would likely take this to about 15%. So it will definitely bring a pressure on margins going forward.

There will be a pressure on margins? Okay.

There will be a pressure going forward. But we hope to make up whatever we lose in percentage. We hope to make up in absolute terms because there will be increase in...

Volumes.

In volumes, yes.

Got it. Got it. Sir, what is the -- I mean, so what is the risk to our technology or the IP or the chemistry when you do an outsourcing? So is it like you enter into a take-or-pay contract with the customer? As you said, he's going to put up a CapEx for NGL. So is there kind of a long-term agreement you entered with him? Yes. So what -- how is the arrangement?

Yes. So it is -- there are 2 parts to it. The first part is that the technology has been given by us. So we typically outsource only those products which are multiple-step products. So let's say, there is 1 product, which has about 5 manufacturing steps. So to one particular company we'll outsource just one of those steps. We will not outsource more than one. And another step, if we need to outsource to debottleneck, we will go to another company, not the same one.

Okay. So you divide the reaction stages between...

We divide it. Yes. So one company will be doing only one step of one product. They might be doing 5 different products for us. But at any point of time, only one step of one product. So that helps us to preserve the IP.

Okay. Okay. Okay. And -- yes, that's a good clarity on that. And my second question -- so I was going through your past conference calls. So you mentioned your molecule size to be anywhere between, say, INR 20 crore, INR 30 crore to INR 50 crore, 1 molecule size. Now -- so in terms of our future strategy, when we grow bigger in size with capacity and scale, are we going to keep the same molecule size as our target end market or we are going to increase over it?

Well, no. Those molecules, which we had, which were at INR 20 crores, INR 50 crores, for the last 3 years have probably grown to about INR 80 crores, INR 85 crores or so now. So there has been a significant growth which has taken place in the marketplace, and we'll get pace with that growth. So the veterinary market is growing very strongly right now. The growth rate, which we see, are in double digits, more like between 15% and 18% and 20% also for some products. So it's been a very wide base of growth in the last 2 years.

Sir, why is it growing such high double digit? What is driving this growth?

So the market penetration is pretty low in most of the markets we are working with. So we are not working in mature markets, let's say, like the U.S. or Europe. We are working in the developed...

Got it. You are more in the developing market side.

Yes. So that's -- we are talking about developing countries. So just like we have this situation in India where the health penetration is pretty low in the country, it's sort of similar in most of the other countries also. Having said that, as and when the penetration or health penetration in those markets go up, the market also grows. So -- and that's not something which is very easy to predict.

Got it. Got it. Got it. And this penetration is being driven by some sort of an -- sir, have in -- human -- WHO drives lot of penetration in the LMIC market for various businesses. So is it being driven through some organization or it is the government initiative? How is it? Or is it just more awareness and the way people get more educated about the veterinary health and that's driving it? Because 15%, 20% growth is a very, very strong growth.

So you will see in India, the veterinary market penetration grew because of the COVID movement, because it was difficult for each farmer to afford a veterinary and to come and visit his farm and take care of the animal. But with the COVID movement now, we see that most of the COVID societies, they employ their own team of veterinary doctors, and these go and call on the farmers. I am not really sure about how it works internationally, but I would guess probably something similar, which is happening.

Got it. Very interesting, sir. And so -- great, sir. So just coming back to the margin question. This is my last question. So when you say in personal terms, there will be some pressure. So any broad range would you like to guide investors, say, over -- till the time your greenfield -- once your greenfield CapEx goes live, so what sort of margin should we assume for our company?

As I said, the industry delivers between 18% and 25%. We should be at the higher range of that particular range. So I'm not sure how long we can continue driving above industry average -- above the industry average.

Okay. And in this quarter, there was no onetime gain in terms of any price increase of the end product. It was all normal scenario?

Well, this year has been very favorable because lot of expenditure got postponed because of the COVID logistical problems. No contractors were available for close to the first 2 quarters. So a lot of our regular expenditure also had to be postponed. At the same time, commodity prices reached an all-time low by, I think, July or so. So for example, oil rate is something like $30, $32 around $30.

True.

And now oil is back to $72.

Yes. Sir, my main -- I'm trying understand about the fourth quarter. Like, we did 29% EBITDA. So was there some sort of a very favorable pricing for our end product which expanded our gross margin along with operating level?

Quarter-to-quarter, it can also vary because of product mix change. So in that particular quarter, there is a larger consignment of one particular higher margin product, it sort of jumps at that. It's not really maintainable as a quarter-on-quarter. It's better to sort of look at it more on a half yearly or yearly basis.

[Operator Instructions] The next question is from the line of Aejas Lakhani from Unify Capital.

Yes. Congratulations, sir, for an excellent set of results. Most of my queries are answered. Just a short one that you mentioned operating leverage in your opening remarks. And I see that your fixed expenses are in the INR 75 crores, INR 80 crore range, and it's been growing. So it grew 12% or 11% Y-o-Y. I'm presuming the same benefits of operating leverage will keep playing out in the years to come as your capacities come on stream. Is that understanding correct?

Well, see, it takes time for the capacity to kick in when we -- sorry, when we make that CapEx. For the entire capacity to get used, it takes a little while. So I think similar happened in FY '20, where that capacity was commissioned, but we were doing the validation matches and the trials for different products. The benefits of that came on to us in 2021. So going forward, we can see probably a couple of -- maybe an anomaly here or there, where there is a larger capacity, which we have created. But the capacity utilization in that plant might be only something like 20% or 30% for that particular year. In which case, we see a higher fixed asset cost, which will depress our margins. But again, in the following years as the utilization goes up, it will again yield better results. So there is a possibility of a little bit of up/down happening in those times.

Fair enough. And sir, what is your suggested band for the gross margins? You said that raw material prices were benign. So do you expect gross margins to be in the -- at the higher end of -- or higher than 55% consistently or 55% is what you would sort of work with?

Well, our raw material cost as a percentage of sales is in the range of about 40%. Typically, the range which we have worked with is between 38% and 45%, and that has varied on 2 factors: #1, the product mix for that particular year or quarter; and #2, how the prices have moved. So this year, we saw it at the lowest range. It was at about 39.2% as against 45%, or let's say, even 42%, 43% as it happen. So there was definitely a 3% to 4% kicking in margins because of better raw material prices [indiscernible] prices. We have seen prices have started hardening from Feb this year. Some of them have gone up almost 50% as compared to the low of last year.

Got it. Sir, that's very helpful. And sir, how quickly are we able to pass on these raw material price increases that take place?

Pricing is fairly inelastic because when the prices go down, we are able to keep that to ourselves. At the same time, prices, when they go up, we are not able to pass it on to customers, unless the price increase is significant, in which case, whenever we see something which affects our material costs are more than 2%, 2.5%, that is a time when we start looking at passing it onto customers.

The next question is from the line of Mahesh Agarwal from MV India.

Yes. So first thing to clarify, the name is [ Manish Agarwal ]. So please rectify while we record the call for publication exchanges. And congratulations, first, for significant and very fantabulous set of numbers you posted for FY '21. So one thing I want to ask is, you mentioned that we can have suppress of margins in upcoming times. So we ended with 25% margin in FY '21. So can I safely assume that we will be having a margin of approximately 23% over the next 3 to 4 years. And the guidance of revenue which you have given, so we can assume approximately INR 600 crores top line and a EPS of somewhere around INR 150 till 2024 or '25. Am I getting these figures right?

Mr. Agarwal, unfortunately, we will not give you guidance on margins as such. Because there are too many macroeconomic factors which have an impact. So we will limit our statements to more qualitative issues.

Okay. So we can expect 22% or 21% margin as consistent over the next 5 years, right? Minimum could be...

I, again, would say, we will not commit ourselves to margins. I am saying industry margin is in the range of 18% to 23%. We will -- we always tend to be on the higher band of margins.

Okay. And with the new capacity still 2024, '25, we are expecting approximately INR 600 crores sales, right, at consolidated level?

The new capacity should give us added sales of close to about INR 200 crores, INR 250 crores from current levels at full -- at 100% capacity utilization. So capacity utilization can take up to 4 to 5 years after it is commissioned. See there are 2 ways of looking at it. One can be a very aggressive approach, wherein I say, yes, we can fill it within 2 years, but it can also take longer. So you need to look at it both ways.

Yes. That, I understood, and that is very nice part of you. So today, we are having INR 250 crores as consolidated sales, and we can assume that in 5 years, we are going to double. So 5 years is conservative approach, I think. So we can safely assume our revenue will be somewhere around INR 500 crores, right, in 5 years.

That is what our objective is, yes.

Okay. Okay. And any risk, sir, in this project regarding execution?

Life is a risk. So yes, there are a lot of risk available. But as far as implementation of how the project goes, we have a very strong balance sheet. We don't foresee problems in raising the money and funding the project. And we don't see any problems in executing the project. So that way, we think the risk is pretty minimal. As far as filling in capacity is concerned, that's a different ball game all together.

Okay. And my second query would be on the cash flow side of that. For the cash which you generated for FY '21, how we allocated that? And what are our plans for FY '22 to allocate those cash?

As I said, our capital budgeting is still underway. So we have not -- we don't have exact numbers of how we are funding our expansion. So probably at the next call, we will be better placed to answer your question.

Okay, sir. And I'm very much impressed with the way we are doing business, and I'm looking to be invested for next 5 years at least. So as Ayush mentioned, my request would be a probable stock split or NSE.

Yes. Sure. It was also suggested earlier by Ayush. So yes, that is something which we have been thinking.

Yes, sir. So I would be a very keen to invest for next 5 years.

The next question is from the line of Shivan MS from JHP Securities.

Sir, so most of my questions have been answered. Just one question was on the 2 plants, which had -- which was shut down for some time in the last quarter. So if you could give some color on the issues that were at hand, which caused this and the remediation measures which were taken?

Yes. So we were closed on account of certain violations of effluent permissions, which were added to us, which we contested. There were a couple of their demands which required some remediation, which we did. And unfortunately, there we faced closure for between 3 and 4 weeks for 2 of our plants, which sort of affected in the last quarter. We have 4 plants in Tarapur right now, including Macrotech at that site. One of the plants is completely 0 liquid discharge plant, and we are upgrading capacity in that plant to treat effluent from 25 cubic meters a day to 80 cubic meters a day. By doing this, we will have surplus capacity on our effluent plant. So that the entire recycling of effluent goes through very smoothly. At that plant, to take care of the air pollution level issues, we have converted our boiler from fossil fuel. We were using furnace oil to gas. So it's become a clean fuel plant now. At the other plant in Tarapur, where we have our subsidiary, Macrotech, as part of the investment which we are doing, we are also putting in a zero liquid discharge effluent treatment plant over there. So that plant also, by the end of this year, will become a plant with zero discharge of effluent out into the environment. We will be recycling and reusing all the effluent generated over there. So we are putting in a plant for treating 75 cubic meters per day of effluent over there. At the other 2 plants in Tarapur, they are pretty small in nature. And we really don't have the space for putting in any effluent treatment plant over there. So once the Macrotech plant is commissioned, we plan to approach the authorities and allow them -- ask them to allow us to truck effluent from the plants to Macrotech because the capacity which we are setting up in Macrotech can take care of big itself plus these 2 plants. So we hope that by December 2021, all these issues of pollution control will be taken care of.

The next question is from the line of Rahul Jain from Credence Wealth.

Congratulations, Rahul and team, for a great year and wishing you, of course, all the best for the coming years also. Sir one question regards in the U.S. markets. For the first time, we have seen U.S. sales coming in a company from practically nothing. We have had INR 7 crore sales in the U.S. markets, which is our regulated market. And our strategy always has been, there is still some time to enter the regulated markets. So is this new development, whereby you have had a new distributor, which probably would be, again, selling the same thing to the developing and undeveloped market? How do we look at this U.S. territories? Or how do we look at U.S. territory for us?

Yes. There's no change in our strategy. The product which we are selling into the U.S. does not require registration with the U.S. FDA. So we are still not part of the related voice over there.

So does that mean -- so how do we look at the U.S. opportunity, going ahead, Rahul?

So if -- the way the U.S. works is that there are some products which are allowed to be sold without registration with the U.S. FDA. And the one which we are making is an ectoparasitic, and that does not require registration with U.S. FDA. It requires registration with U.S. PPA because they have classified their products separate -- differently. So we were able to sell that product without any issues.

Very nice. And do we see a larger opportunity for this U.S. market to us now?

There is probably an upside of increasing that sale by another 40% also during the current year.

Okay. And sir, with regards to long-term contracts with customers, are we also thinking in possibility some kind of long-term contracts with some of these customers probably having grown to this size? Is that an opportunity/possibility? Is there -- that -- could that be possible? Because, sir, in FY '20, we had some challenges with regards to raw materials from China, which impacted our sales during that year. So 2 things related to that. Are we trying to enter into some long-term contracts with regards to our customers so that we do not lose on some sales? And also, with regards to China, are we having any plans to develop multiple sources or alternate vendors?

Yes. So the products which we do, it requires some very specific key starting raw materials. And close to about 10% of our total materials are imported from China. Our total imported content is roughly about 20%, of which half comes from China plant and half comes from other sources. So we have been able to reduce our Chinese imports from 15%, which existed about 2 years ago to only 10% of Chinese. So that is how we are mitigated to a certain extent, but not completely being able to mitigate that Chinese reliance because whatever we say, they continue to be the lowest cost suppliers for quite a few products. On the sales side, we continue to have just probably a handful of customers, probably 5 or 6 who do long-term supply contracts with us. Most of our deals are respond basis. So there are 3-month sales booking or 4-month sales booking. There are just about 4 or 5 customers who talk about a yearly savings contract.

So do we already have a yearly sales contract with some of these customers?

There is a few that's about 4 or 5.

So with the CapEx coming up with more outsourcing and the growth, which you seem to be quite confident about the market growth as well as the company growth in coming 2, 3 years, so do we also see a possibility of some larger long-term contracts being -- coming up for us in the near future?

We don't see that particular part growing up much. No. Our sales will continue to be more on the spot business.

Sure, sure. And sir, with regards to -- this is the last question. With regards to regulated markets, we are still sometime away from thinking or planning in terms of regulated markets. We have mentioned some 2 years back that till we attain a certain size, it's a very costly effort to enter into the regulated markets, and probably, we are still some time away from doing that?

Well, we actually started getting our products registered in regulated markets about 4 years ago. And we do have 2 product registrations in the EU. But we found that we are getting uncomfortable in the other markets because of higher cost of operations. So we stepped back and closed our plants for that. We find there are adequate opportunities available in the rest of the world areas.

The next question is from the line of Aman Vij from Astute Investment Management.

My first question is on our wallet share in our top 10 products. So could you talk about the sales? So for how many products we are like the dominant market leader? And also, are the customers okay with this kind of concentration? Because if we keep increasing our market share, then they are dependent -- they are maybe depending on us too much. So normally, in those cases where we are the dominant player, how many other suppliers like us are associated with these customers?

Well, in our top 3 products, we have over 60% market share. And in the remaining top 10 products, we have close to about -- on an average, let's say, 40% market share. Now we are operating in a B2B segment. So there is no company which is going to depend completely on us for supply. Most companies have 2 or at least 3 suppliers coming. When we say that we have gained market share, it is probably that we have moved from being a #3 supplier to either a #2 supplier or a #1 supplier. Does that answer your question?

Yes. Just one clarification, one more question. So yes. So on that point only, so say we have become like 60% market share. And other 2 customers -- other 2 suppliers will be, say, much lesser. So I'm just talking about that point since the market is growing, and we are trying to grow faster than the market. Then again, the concentration with that customer is increasing to us, which is good for us. But then as a customer, could you talk about, are they okay with even 70%, 80% kind of market share to one of the supplier like us?

Sir there is no concentration of our customers. Probably about 5 years ago, our top 5 customers contributed to close to about 20% of our sales -- sorry 40% of our sales. Today, the top 5 customers are close to only about 20% of sales. So it helps us to derisk by having a larger customer base also. So the growth is not coming from concentration on a particular customer.

No, no, I'm talking in reverse sense sir. For a customer, since we are becoming stronger suppliers, so that is why -- like, you are saying, many customers maybe have become from #3 to #1. So I was talking in that term.

Yes. But we are not -- we are offering them a value proposition. We are offering them a good quality. It's not that we are taking a premium for our products. We are being very cost-competitive in our approach towards customers.

Sure, sir. That helps. And the second question is on the poultry segment. So sir, could you talk about your plans in terms of -- we have launched 2 to 4 product sizing in that. So for the next 3 years, what are your plans in this segment? And can we reach those 3-digit number with this 8, 10 molecules? Or will we require much more? I'm talking of poultry segment specifically.

So right now, we have just 2 products in poultry segment. Both products are new. We have started commercial manufacturing only about a year ago. And both are doing quite well. We see good growth coming from them in the next few years. The other products which we are looking at, the new ones are not really for the poultry segment. They are traditional farm animals. So yes, I mean, it's -- in the future, in the next 2, 3 years, we will not probably add many more products in the poultry segment. We'll continue with what we have got.

Yes. And these 2 products are in the range of that INR 25 crores to INR 50 crores or are they in the range of that INR 80 crores, INR 100 crores? Is the poultry market also growing like we have talked about...

Yes. That's a much larger market, yes. That is more like around INR 80 crores to INR 100 crores market segment, yes.

And has it also grown compared to what it was 3 years back? Or they are not growing that fast as the other...

Poultry is also growing very fast, yes. It's accepted all throughout the world, and one of the fastest-growing animal products in the world.

Sure, sir. And the final question is on the Asia-specific region. So I was seeing the numbers. All the regions have done well for us, but Asia has now become much more even than Europe and India. So any particular region or countries which led to this kind of growth? Is there some new customers or new regions? And do you think Asia will remain the main region for us going forward?

No. We have covered almost all the countries in Asia now. So we sell to China, Korea, Australia, Vietnam, Thailand, Indonesia, Bangladesh, Pakistan, Turkey, Saudi Arabia, almost all of the various countries in Asia now. So -- and that is also where the growth in population is also the highest. So our penetration has improved a lot in Asia.

[Operator Instructions] We'll take one last question, which is from the line of Ayush Mittal from MAPL Value Investing Fund.

Sir, one thing that we noticed in the numbers is the major improvement in working capital. The debtor days have also come down sharply in the last 3, 4 years. Any thoughts on this? And how maintainable are these?

So overall efficiency is to drive them. We consecrate on inventory management and on receivables management also. It has -- we have been fairly successful in reducing our inventory days. So we have close to about 150 days inventory probably about 5 years ago. It's now down to about [indiscernible]. And receivable days are also down from about [ 100 days ] 5 years ago to more like about 60 currently. So we do think that these levels are maintainable in the coming years, yes.

Great. Great. Second, like we have seen the issues of pollution in Tarapur for so many other companies. I think every company in that area was impacted. Though we have 0 discharge plants, but the new CapEx is also coming up, which might be a concern for the authorities. Any thoughts on this as a risk for us?

We already hold all the permissions for the new CapEx. And new facilities also be with a 0 discharge plant.

Okay. So we don't need any further approval on this?

No further approval is required, no.

Okay. Sir, third, the existing infrastructure that we have, what kind of investments would we be doing for the debottlenecking or addition of capacity at the existing location?

Well, normally, CapEx every year, which we undertake is in the range of between INR 7 crores and INR 12 crores. So that's what we can expect as normal...

But do we have potential to add more capacity at the existing place? Or this will be just debottlenecking?

No. Debottlenecking. There won't be any new major capacity added. All the 4 locations are filled to the gills right now.

Okay. And sir, last question is that what would be the key raw material for us wherein we might see any price risk or something? Because I think -- is it right that your end selling prices have not increased much for your products and they are stable across the board? Is that the right thing?

Yes.

Yes. So from that perspective, if there's a raw material price increase, any key products that we use or something where we can get that risk?

Well, we have seen prices go up, quite a few products as the oil prices go up. So there are quite a few chemicals which are dependent upon oil. So those have gone up by a good 50%, 60% in the last 1 year. There are 3, 4 products where prices have gone up because of shortages or some plants going -- getting closed internationally. So there are some products. So probably about, I would say, close to about 15%, 20% where we have this price increase going on right now.

Okay. And do you plan to pass it on, like you said, with a lag or your pricing is largely stable?

No. In the short term, we can't pass it on.

Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to the management for closing comments. Mr. Rahul Nachane, you may go ahead with your closing comments, sir.

Yes. Rahul sir, if you can...

Yes, Rishav, you have to go ahead, yes.

Yes. Sure. So thank you all for joining the earnings call for NGL Fine-Chem. If you have any further queries, feel free to get in touch with us at Pareto Capital. Thank you, and we'll see you on the next call.

Thank you very much.

Thank you. On behalf of NGL Fine-Chem Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.