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

Ladies and gentlemen, good day, and welcome to the Q1 FY '22 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 NGL Fine-Chem Limited. On behalf of NGL Fine-Chem, I welcome you all to our Q1 FY '22 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 on 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 these 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 will 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 all of you and your families are safe and well. I will start the call with a few remarks on our performance and strategy going ahead. We are pleased with the performance of our company, which has continued to deliver this quarter. Consolidated sales for the quarter ended 30th June 2021 have reached a new high of INR 76 crores as against INR 42 crores in the same quarter last year, a growth of 80%. This has mainly been due to a strong volume uptake and demand persisting in our Vet API and Intermediates business. We managed to continue sustaining our operating leverage and EBITDA at INR 24 crores, a growth of 76% year-on-year leading to a robust EBITDA margin of 31% for this quarter. We recorded a net profit of INR 19 crores as compared to INR 9.4 crores last quarter, a margin of 24%. Our continuing efforts to ramp up our manufacturing capacity and cater to increasing demand has seen and experienced steady growth in all our segments driven by increasing market share of our core products. All our facilities are currently running at about 95%, which is near to full capacity utilization. In our previous call, we had announced our CapEx plans for the next term. Our plans are currently on course. Our INR 20 crore Macrotech investment is currently under implementation, and we will be completed in the current ongoing quarter. We also have plans to gradually increase outsourced production from the current 5% level for about 15%. We hope that these measures and continued process improvements and debottlenecking efforts will help drive near-term growth. Our planned greenfield expansion at Tarapur is also on course, approvals are land in place for an estimated CapEx of INR 80 crores to bring about a 50% capacity addition. We aim to commercialize and start production by mid-FY 2024. We aim to continue growing our business by leveraging our robust balance sheet with a net debt free position and continue investing in maintaining our market position by remaining cost competitive, reliable and offer high-quality solutions for all our customers. This is from my side. We will now open the floor for discussion. Can we start the calls, please. Questions?

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

Congratulations for a great set of numbers. Sir, post this completion of Macrotech expansion, how much will our capacities expand?

Our typical capital turnout ratio is roughly about 2x. So with that INR 30 crore deployment, it should go to about INR 36 crores, INR 40 crores worth of sales should come in.

Okay. Okay. And post completion of the debottlenecking and sourcing, can we expect further additional capacities, which will come in?

Yes, those will come in, but we are unable to quantify them right now because it's a more gradual process.

Okay. Okay. Okay. And sir, in this quarter, we saw significant growth in Intermediates. Last year, we did INR 16 crores -- INR 16.8 crores sales in Intermediates and June itself, we have done almost INR 10.4 crores. Any significant reason for such sharp jump in Intermediates?

It's just that orders came more towards the first and second quarter. It's the same contract but it got skewed a little bit, but I guess it will even out throughout the year.

Okay. On a medium-term basis, I think the growth for Intermediates might remain in line with the company's overall growth is what you are trying to imply?

Yes. [ I mean ], yes, our quarter 2 shorter period to look at the overall trend for the year. So it will come as we go along.

Sure, sure. And sir, last question on the U.S. sales. We started supplying the U.S. markets or supplying to customers in the U.S. in FY '21, we saw almost INR 6.8 crores sales. And in this quarter, we have done INR 3.1 crores sales for -- in the -- for U.S. customers. Can you throw some light on how this opportunity, [ more or less ], we are not selling in the developed markets. So what is leading to this jump in revenues from U.S. markets?

Well, these are again non-U.S. FDA products, which we are selling over there. So we have been able to develop a parallel market where the U.S. FDA is not involved parts. These are ectoparasiticides. And those products have got registered and that's opened a new market for us.

Okay. And how big can this opportunity be for the products that we supply in the U.S. markets?

It's not a very big one. Meaning, probably at a cap of about between INR 12 crores and INR 15 crores, I would put it that way.

Okay. Okay. And sir, any other products which we manufacture currently, which also won't require any FDA approval that we can supply in the U.S. market currently that we manufacture or in pipeline?

There may be just one product. But not many of them actually. Most of them will fall under the U.S. FDA mantel.

The next question is from the line of Keshav Toshniwal from Kamadhenu Industry.

Sir, firstly, I would like to congratulate the team for producing some amazing set of numbers. And I've got a couple of questions to ask for. Firstly, in the second half of financial year 2020 and '21, we were able to capture some significant share because of the value proposition that the company was doing. My question is whether we are getting the repeat orders from the new acquisitions, which we got in the second half of last year?

Thank you, Mr. Toshniwal for the kind words you used for our company and our team. With regard to your question, yes, we have been able to maintain our sales growth and that necessarily comes from repeat orders coming from customers.

Okay. Okay. Second question is with respect to the percentage of sales. Like in the last con call, you spoke that the percentage of sales of the top 3, 5, 7 products has been reduced from 47% to 40%, right? Now like the -- what is the composition like the percentage of sales being the top 10 products in the 11 to 20 products, if you could just quantify what percentage they are contributing to the turnover?

The top 3 products?

Yes. The top 5, 7 products, what is the percentage of sales and the rest of the products? What percentage...

Almost the same as earlier. It's about 53%.

Okay. Okay. And last question is with respect to like we have been seeing increasing demand for our products, which is related in our turnover. So as we were planning to increase the production outsourcing from 5% to 15%, like -- and our next plan is going to take like 1.5 or 2 years. Do -- can the company plan like to go aggressive in terms of outsourcing the production because of the pent-up demand and the market share, which we have captured in the second half of last year?

There are a few things which we need to control when we are outsourcing. The first is that we need to have very reliable companies with which whom we can tie up for this outsourcing. So that the product quality and yields not suffer. The second part is on technology. So there are certain sensitive process manufacturing steps, which we cannot outsource, which are our proprietary technology, and we will like to retain in-house. So for us, it's a gradual step rather than going very aggressive with any particular strategy. And it's also a question of building -- having the faith and trust with other companies with which we start work. So I would say it's a more gradual process. 5% will not go to 15% 6 months or 1 year, it will probably take 1.5 years to get to that level. But that is definitely one of our options for ensuring that we go a little asset-light and at the same time, building capacity.

Okay. Okay. Okay. The thing was just that because we are getting the demand because of the things which we have done in the past, the thing was just not to miss out any extra demand which we receive at this present juncture. So it was with respect to that. And that is fine. And lastly, I would want you to ask whether the company is considering the stock split and about like when the company is planning to list on NSE?

With regards to the NSE listing, we are examining the requirements. And as and when we qualify for it, we will definitely opt for NSE registration. So our company typically is currently examining that possibility. Apparently, we will become -- hopefully we'll be eligible after the AGM. After the 3 year's dividend paying record is a requirement. So we will get eligible probably after this next AGM. As the stock split, it's something which has come up in earlier discussions also, and we will definitely consider that as we go ahead.

The next question is from the line of Dhwanil Desai from Turtle Capital.

And congratulations for a fantastic set of numbers you guys have been delivering for a long time. So congratulations to the entire team. Two questions, Rahul. So one, we have always guided that our EBITDA margin range is anywhere from 18% to 25%. And of lately, we have been saying that we may be at the upper end of that margin range. But if I look at the gross margin, we are at 57-odd-percent. And this quarter, probably, there are no one-off cost, which is not that we -- you might not have incurred and we still managed to do around 30% EBITDA margin gain. So I mean, with that, we may do better than what we have guided for. And if not, what would be the cost which will come in, which will reduce margin to 25%? If you can help me understand that.

Well, Dhwanil, we still go by that part where we say that the industry norm should be more like a 25%. Right now, we are at the higher end over there at a much increased level. And you have to realize that these are a little unusual times which we are faced with right now during COVID. There has been a drastic reduction in marketing and sales expenses. Traveling is at a standstill. There is no participation in exhibitions because all exhibitions are canceled. So business promotion expenses are literally at a 0 level right now, and they can only go up from this level as we go ahead. Secondly, just like last year, again in April and May this year, we have had the second wave of COVID, which has resulted again in a large postponement of expenditure because we wanted to reduce interaction with outside contractors within the company. We wanted to keep our own employees isolated and safe. So a large amount of work was again restricted and postponed. So these are a little unusual times. And going forward, as the -- as different expenses get restored back, there is bound to be a decrease in the margins. So I can -- see it's like this, these are good times and in terms of profits, but difficult times in terms of actually operating the businesses. So it's a sort of a sea saw, which we are playing right now, which we are on right now. We need to balance it out. But going forward, my personal feeling is that we will see a reduction in margins.

Okay. Got it. Got it. So I mean -- so again, this year -- this quarter, your expenses have come down compared to last quarter and last quarter, we had some one-off in terms of insurance write-off. So these are like sparring for the cost that you mentioned in terms of doing regular maintenance and scaling up of business promotion. This is more of a normalized in terms of other expenses, right?

Correct. Yes. Manufacturing overhead and other expenses. That's right. Our material cost has already grown, meaning this is what we were saying earlier also that chemical prices and commodity prices have gone up. So we have seen our material costs go up back to the traditional levels of about 40%. Last quarter was really a durable one because chemical commodity prices which were at their lowest. But they are now at -- I guess, they have regained all the lost price levels, and they are now at pretty high levels. We don't think that they will harden beyond the current levels, frankly. But we don't know because things are pretty unusual right now. Freight expenses have gone up enormously. So now any imported item, that cost has gone up by close to about 4%, 5% just on freight. So we need to wait and watch and see how the macroeconomic factors will play out also.

Okay. Got it. Got it. And any update, Rahul, on the poultry product rollout and how they are scaling up? And are they going to be a meaningful driver of growth in the next couple of years?

So out of the 2 for poultry for which we had started, one is actually kept on hold right now because of, again, capacity constraints. And there are some tax issues on that product with regard to local sales because it's currently being imported. There are some differences in tax factor, which is affecting its sales. So we need to figure that out. The second one is doing very well. So that's slowly creeping along. And we see in the current year, it should have quite a decent size in terms of turnover.

Okay. And you need a separate kind of a distribution network or set of dealers for rolling out this product or our existing marketing setup can take care of that?

No, the same set of customers.

The next question is from the line of Rajat Setiya from ithought Financial.

Sir, what was the utilization level in quarter 1?

Close to over 95%.

Okay. And with the debottleneck exercise that we are planning, how much can it increase by?

Debottlenecking, normally as between 3% and 5%, so.

Okay. So this is what we expect for the current year as well, right?

Yes.

And the Macrotech expansion, you said that will be ready in this year itself, right?

Yes. We hope to start commissioning activities in September, and we hope to start our trial production from October.

Okay. And that will be used for captive consumption? Or we will be selling the products in the market?

No, it's for captive consumption.

Captive. So -- but that will increase our overall capacity in some ways or no?

Yes, our Intermediates capacity goes up drastically. So that helps us here.

Okay. So is it like 1:1? Can we say that if you said INR 40 crores is the potential of Macrotech, then can we say that the potential of the company also goes up -- sales potential also goes above INR 40 crores?

Yes. I'm talking in terms of what it will help NGL, yes.

Understood. Understood. And sir, the Tarapur CapEx that we are doing whenever it is done, just wanted to understand, is this -- I think this is a brownfield expansion, right?

The Macrotech one is a brownfield work. And the other Tarapur, which NGL is undertaking, is a greenfield one.

It's a greenfield. So -- and so whenever -- I mean, currently, we are doing -- we are going to spend INR 80 crores there. So the one question is that, will there be room for doing more CapEx? I mean, are we planning in such a way that whenever required we can expand at the same location?

No, this particular location will go full out and occupy it completely. In addition to that, we have 2 other tracks of land [ Marg ] and in Ambernath. So we will first get this rolling, and we'll also start looking at the other areas. But everything depends on how capacity utilization goes because we would not like to invest and sit on idle capacity.

Of course. Of course. And one question about the -- like we mentioned our top 3 products, we have market share of around, I think, up to around 50%-plus. So what is the market share of our products, which are, let's say, top 4 to 10?

There are some where we are broadly only 5% or 10% in a couple of them. In probably about 4 or 5, we are probably in the range of about 35%, 40%. And in one of them, we are probably at 60%. So it's a little varying sort of thing. I would say, right from 10% up to 60% would be the range depending on the product.

Sure. And what will be the CapEx for the 0 liquid discharge facility at our second plant?

At Macrotech and NGL would -- at Macrotech and one of our sites in Tarapur where we are upgrading the 0 liquid discharge, total CapEx is close to about INR 10 crores.

Okay. And sir, do we see any associated quality risk with the outsourcing mix going up?

Which is why we are a little cautious initially. We would like to see that the product -- 1 by 1 products go out, they get stabilized, the quality and yield gets stabilized. Only after that, we add other products. So we are pretty cautious on that. We don't want the quality to be affected at all.

The next question is from the line of Anand Jen, an Individual Investor.

My first question is that since in the Macrotech tech plant, we are going to make intermediates. So we have the formulation capacity for them in the main units of NGL?

No, these are intermediates for making APIs, not for formulations. These are intermediates which are pharma intermediates, which will make to make final APIs in NGL.

So we have that capacity in NGL right now to make -- in terms to convert the intermediates...

Yes. We have adequate lines to make those, yes.

Okay. And when you say INR 40 crores contribution, it is INR 40 crore contribution coming in total? In total like including -- I mean, the finished products from NGL? Whether it is or for [indiscernible].

That is right, yes.

So this is our one lever of growth. The other lever of growth that you are saying would be more outsourcing, which should be like some 5% to 15%, right? And when are we looking to take it to that level? Would it be like next quarter? Next to next quarter?

It will be over a period of between 12 months to 15 months.

Okay. It will be between a period of 12 to 15 months.

It will go up gradually. It won't go up abruptly.

And then we are also looking to do some kind of debottlenecking in our NGL plants as well, right?

That is right, yes.

So that should also increase capacities by like what 10%?

As I said earlier, I'm unable to put a number on that. Normally, debottlenecking gives between 3% to 5% advantage, not as high as 10%.

Okay. And until like for this year, we have sorted in terms of our growth path. Next year, our new capacity should come up by December?

No. If you are talking about the greenfield project, that is likely to come up by September 2023. This year, Macrotech will go on production. But as you know, it's a -- will be a new plant. By the time it reaches a 80% or 90% level of capacity utilization, it will take at least 1.5 years. So it will go up gradually. Outsourcing will go up gradually. So it's going to be a mixture of 2, 3 things, which will help us go up.

So until the greenfield facility comes up, what are our next plans for growth from here on? Because are we looking at more debottlenecking or more smaller expansions in our facility?

Well, we just listed those out. There are 3 pronged strategy. One is debottlenecking our existing plants. Second is to outsource and the third is the Macrotech expansion, which kicks in this year.

The next question is from the line of Ayush Mittal from Mittal Analytics.

Congratulations on a good performance yet again. A couple of questions, sir. This greenfield expansion that we are looking to do, have we now finalized everything and have we kickstarted started the process?

So the plans are being kicked -- are gone up. We hope to start construction as soon as the monsoon is over. So we -- The construction will start around 1st of October.

Okay. Okay. And sir, just as a strategically like when you -- the way the business has grown, the way the numbers have come for the company and the market leadership we have gained. You -- are you also thinking of increasing the CapEx or doing something on this expansion now that you are on more advanced stage of planning because the cash flows and the demand that you're seeing perhaps in the case that you can do more and we can invest more, even if the margins are to stabilize to lower levels?

There is always that -- the desire to grow faster. But at the same time, we need to balance it out by looking at the risk and the downsides also. So currently -- well, we probably invested INR 100 crores over the last 10 years, and now we are talking about investing another INR 100 crores over the next -- So I guess that's a good amount of investment which you are undertaking. Let us complete this and probably once we are midway through this investment, we will again think about how the market is going and what kind of margins we continue to draw. And then we will talk.

Got it. Got it. And this greenfield that you're doing, is it that 80 is the max we can do here or there is potential to have more bigger capacity of bigger reactors and have bigger capacity if we want to?

No, no. This investment will more or less fill the [indiscernible] side.

The next question is from the line of Sachin [ Shetty ], an individual investor.

Congratulations for a good set of numbers. Sir, my question is presently, we are outsourcing 5% to 15%. In your presentation, you mentioned that 5% to 15% you're going through also. So my question is, so this outsourcing, how much is contributing to our revenue, like INR 75 crores. So how much is from the outsourcing?

Well, when I say we are currently at a 5% outsourcing on a INR 250 crore turnover, it means 5% of INR 250 crores is coming in from outsourcing.

Okay. And going forward, we are just increasing to 15%.

That is right.

Okay. Sir, this Macrotech expansion as this expansion is already completed or is yet to commence commissioning of the plant?

The plant commissioning will start in September. It will take between 1 to 2 months to commission. We hope to start some trial production in the month of October.

Month of October. By year-end, this will be fully commercialized, right?

That is right, yes.

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

I had a couple of questions with respect to the Tarapur greenfield. Firstly, the CapEx of INR 40 crores were doing, is it to be funded completely from deal accruals? Or do we have -- are we in to take some debt also for the same?

We will be taking on debt for it, but we haven't actually frozen the entire project cost yet. We just have a general outline ready. It will take us probably another 2 or 2, 3 months to get a firm idea of the total project cost, which is the time we will start engaging with banks to decide how much to borrow. Until then, the civil construction will start completely from internal accruals. So our requirement of funds would probably start around Q1 '22, '23.

Okay. And sir, because it is a greenfield but at Tarapur only. Would we need a separate EC for this? Environment Clearance?

We already have environment clearance. We also have a NCB consent to establish.

Okay. So just generally speaking, unless there is another COVID wave or delay in construction, we should more or less be on track? Nothing can throw us off because we have the approvals in place.

Yes. We also have the MIDC approval. We have the fire NOC. All the statutory approvals are already in place.

Okay. Got it. And sir, the debottlenecking that you were referring to earlier, the 3% to 5% incremental capacity, is there something that will just gradually keep coming during the year? Or is it like the Macrotech, say, probably will be available from H2 of this year?

It will be a gradual thing, which will take us between 12 to 15 months to reach that 15% level.

I'm referring to the debottlenecking, not the outsourcing.

The debottlenecking is also gradual because what happens is that there is one particular product where you see that there is a potential and you debottleneck that particular product or one particular equipment. So it is a gradual process. It's not something which goes at a click of a button, no.

Got it. And sir, are you evaluating any other inorganic opportunities similar to the Macrotech opportunity be evaluated and flows upon a couple of years ago?

We are always open to it. So if an opportunity presents itself, we are always open to it. So we'll keep our eyes open, nothing as of now. But if something comes up, yes, we'll definitely be open for it.

Got it. And sir, just one last thing I wanted to understand, while we're present across geographies, is it any one geography offers any better margins or anything like that? Or is it more equal across geographies?

No, there is no price advantage if I sell -- if we sell, let's say, to Latin America and to Asia Pacific not. There is no -- nothing like that.

Sure. And just one last, if I may squeeze in. This gross margin of 57-odd-percent that we achieved in Q1. Is this number a sustainable number because you have explained in the past that there were certain advantages in FY '21. But unless obviously, there are some unforeseeable circumstances, 57% kind of gross margin sustainable?

This gross margin, when you say, what are the costs which you are taking into account?

I'm simply excluding the COGS based on the results that you report. I'm saying I simply remove the cost of goods sold based on the results that you report.

One minute. I need to have a look at that before I can comment. So I am not arriving at this 57%, which you get, but let me put it this way. If we say gross margin is mainly the material cost, I am ignoring all the other costs like employee costs and finance and power costs. If I take only material costs into account, traditionally, over close to about 7- or 8-year period, our material cost has moved in the range of 38% to 44%. So it -- and this depends on why it goes down and up is on basically macroeconomic factors. And the only internal factor, which can affect it is the product mix. But that would be adverse only for maybe a one or couple of factors. It's mainly due to macroeconomic factors.

The next question is from the line of Ishrat Khatri from Omkara Capital.

So I just have 2 basic questions. One is, based on all the CapEx plans that we have, including the debottlenecking and increasing the outsourcing and the Macrotech effect plus the Tarapur greenfield. What kind of incremental revenues will we see in the coming 2 to 3 years cumulatively from all these CapEx? I just want to understand in terms of absolute numbers where do we see the top line in the next maybe 2 to 3 years from the current INR 250 crores, INR 260 crores that we did last year?

Madam, we do not give indicative guidance figures as for revenue.

Okay. Okay. But any incremental revenue that we see from this additional CapEx cumulatively? Because for Macrotech, you said, INR 20 crores of investments will give about INR 40 crores. And anything other than that, the Tarapur, would it be about INR 160-odd-crores of incremental revenue?

2x is roughly what we look at our capital output ratio, yes.

Okay. Great. Also in terms of our EBITDA margins, obviously, FY '21, we witnessed a spoke in the EBITDA margin. And you mentioned on the call that we are expecting some rationalization because raw material prices have increased. So what would be a more -- and you can give a range if required, but what would be a more long-term sustainable EBITDA margin considering the future plans that we have?

If I were to take a 7-year perspective into account, then the industry traditionally has delivered between 18% and 25%, and we have typically been at the higher end of that spectrum over the period of time.

The next question is from the line of [ Tanuj ] Mehta, an Individual Investor.

Am I audible?

Yes, you are.

Firstly, sir, congratulations on a good performance and most importantly a consistent one. So sir, I have a couple of questions. Sir, fist is regard to -- with respect to the product selection. So we are into the unregulated or we can say, markets where we don't have any steel regulation. So one is how do we select the product in that case? That's the first question. So second, related to the growth that we are witnessing right now, how much can we attribute mainly to volume growth and value growth? And thirdly, sir, that in the earlier part of the Q&A, you mentioned that you've done INR 100 crores of CapEx in the last 10 years, and now we're doing that same in just a couple of years. So where can we assume the cash flow and the asset on this?

What was the first part again which you asked?

Sir, first one was on the product selection. How do we select the product with respect to the market that we are entering?

See, today, we already have a big basket, a fairly decent basket of products. We do close to about 20, 22 APIs. We keep adding products as in when we go over a period of time. Now product selection is based on roughly 2 or 3 factors. One is we look at similar chemistry because there are products where it's a similar chemistry, it's easier to get into the market and much more easier for us to convert that chemistry into a product, which we want. So that helps to add a few products. The second part, that is, when we have customer requirements. So when we engage with customers, they come up with what their requirements are or what they are looking for new products in -- or new suppliers or it might be an existing product, but they are not happy with their existing supplier or they are looking to add 1 or 2 suppliers because it's -- the supply chain is not very good. So we take customer recommendations. And the third part is, we are also doing our own part of research of trying to find out which is a good product to fit in with our requirements. So these are the 3 ways in which we are looking at product selection.

So just to add upon what you said. So if we were to just see it on a broad picture out of the 3 verticals that you just mentioned, one will be on the chemistry part, one will be under customer requirement and one would be on the own R&D that the company does. So which of these 3 buckets is giving the maximum traction here?

All 3 work for us, which is why I mentioned those 3.

Okay. Sir, my second question was with regards to the volume growth and the value growth that you've seen in the last quarter as well as in the last few quarters. If you could just throw some light on that.

Prices in this -- in the pharma area are pretty stable. Prices are pretty inelastic. So if raw material prices go up or go down, it's difficult. Meaning if it goes up, it's difficult to pass on the price increase. And if it goes down unless there is a very strong competition, which is also offering reduced prices, you don't need to -- you don't end up passing the price decrease to customers. So prices remain stable over a period of time. So mainly the growth, which comes is more on account of quantity growth rather than value growth. So not price-oriented but more on volumes, which we have. I would attribute to over 90% of our growth to volume growth.

Okay. And sir, the last question was on the CapEx. So as you already mentioned that INR 100 crores was done in last 10 years and now INR 100 crores is being done in just a couple of days. So where do you see the asset turn -- the end turning out to be? And how can we look at the cash flow at that point of time? If you can discuss that?

I think, asset turn, what happens is when you look at the balance sheet to the asset, the assets are depreciated. Whereas when we say asset turn, based on fresh investments, it's based on the fresh investment. So if I have to talk about what asset turn, which will we achieve on fresh investment, it would be probably 2x to the investment. But if we are talking about it in terms of the balance sheet, it will be a completely different number.

Okay. Okay. Sir just the last question if I may?

Yes, sure.

Yes. So just to understand on a very broad basis, so like we are there -- as I earlier mentioned, we are doing products which are unregulated. So are there any risk of these products coming into regulation or these market having some changes. So I just wanted to understand on a very broad picture, like is there any possibility? Or is there any things of markets coming into a bit regulated one of the products that we are selling to our end, the regulation part of, can that happen? Or how are we different from that? Just wanted to understand about that.

Yes. So just a little perspective in terms of regulations that pharmaceuticals are regulated all over the world. It is a degree of regulation which differs. So for example, the regulation here in India will be different from, let's say, the regulation in the U.K. and will be different from regulation in the U.S.A. So when we say regulated markets, normally everybody refers to the more developed markets like the U.S., Canada, Europe, Japan. Those are the ones which is -- which are referred to as the regulated markets. The rest of the world is considered to be unregulated, but I would not call it unregulated, let's us call it lesser regulated markets. Because there are regulations for registration in every country. No country allows you to manufacture pharmaceuticals without registration and regulation. Now having said that, each country would really like to increase the amount of regulation and have greater control over quality of products being manufactured. So let us say, if we were looking at the U.S. as a 10 and, let's say, India would be at a level of probably 4 or 5 in terms of regulations. So the other countries would lie somewhere between this 1 and 10 sort of a range. So there will be a threat, but regulators are also not -- they don't take overnight decisions. When there is a change in regulation, there is a window which is allowed, which is open to you. That window is normally not short also, it's close to about a year or even longer at times, for which you -- for you to comply with those regulations. So it's really not that big a threat as such in terms of how we will get affected by a change in regulations.

The next question is from the line of Varun Mehta from [indiscernible] Investments.

Congratulation, sir, on a great set of numbers, especially for continuous a few quarters, you're been doing very well. I just wanted to know on the pollution thing, is it all over? Or still we have some issues going on which we had last quarter, sir?

No, it is not all over. As far as we are concerned, there will be one unit of ours, which we will not be able to convert to a 0 liquid discharge. So one is currently a liquid discharge and that is undergoing a revamp in terms of increase in capacity for treatment. And Macrotech is also getting converted. So by, let us say, December 2021, let us say, about 75% of our production will come from sites, which are 0 liquid discharge and with very low amount of threat. 25% of our production will still come from sites, which are not 0 liquid discharge.

So we have to be 0 discharge or we can at least manage on that one?

No, it does not required. See what the norm say that we can discharge out to the central FM treatment plant. And the central FM treatment plan needs to be -- the affluence further. Now what happens is that the infrastructure currently available in the central FM treatment plan, we're not adequate to take the entire FM from the industry, which is what is creating all these problems. So there are -- there is an expansion being taken at the CDP. But as you know, it's a cooperative and it's a long process and a slow process. So we are trying to insulate ourselves by doing whatever we can. Wherever we have the space and the opportunity, we are converting it into a complete 0 liquid discharge. Where we don't have an opportunity, we will do our best to comply with the changing situation.

Secondly, I want to know we are like 70% or 80% export. So we are doing on CI basis? Or how are we doing some are the export prices have gone up, the logistic costs have gone like incrementally pretty high.

I'm sorry, I did not understand the question.

Sir, I'm saying that 75% to 80% of revenue is export.

That is right.

Are we doing export on CIS basis or how we are doing this actually?

Export of what?

The export of our commodities, we are doing on CIS basis, like cost of trade is included in the price?

Yes. CIS Basis, yes.

So as the costs have recently gone up, sir, so the margin would have come down. Am I right on that?

No. Normally, our priority is on FOB basis always. And then the freight is added extra. So in the shorter run, we did suffer because of that. In the long run, we have been able to pass on the freight to the customer.

The question is from the line of Ankit Gupta from Bamboo capital.

Sir, the -- currently with the greenfield and brownfield expansions we can gross revenue of, let's say, somewhere around INR 500 crores. And our philosophy of product collection has largely been focusing more on smaller molecule, let's say, in the range of INR 50 crores to INR 100 crores, even lesser. Now the growing scale, do you think a time has come where we have to look at larger molecules as well and target bigger molecules where we can also get more scale?

Yes. What you are saying is to probably a couple of years down the line, we will have to start looking at a different set of products, not just niche products. But currently, the pipeline we have got, we are quite happy with it. We don't think we need to change our strategy at least for around 2 years or so.

Okay. So that will -- the current pipeline of new products and existing products will be sufficient to save our capacities even in the greenfield plant at Tarapur?

That is right, yes.

Okay. Okay. And sir, in FY '22 and FY '23, how many new products that are we planning to launch, and that will be largely focuses on mammals, so we'll also be launching some more products on poultry side?

No. We are still looking at mammals only. That is where we -- our strength lies. And probably another our objective is to add a couple of products every year for the next 2 years now.

Okay. And they will all be mammals, no poultry?

In poultry -- sorry in mammals.

The next question is from the line of Rohit Balakrishnan from ithought PMS.

Am I audible?

Yes, you are.

Congratulations on great quarter. Sir, just a couple of questions. One was, sir, so in the Tarapur plant, which is a greenfield facility, are we going for the existing products or there will be new products also. I just wanted to understand that. And if there are...

It is a sort of a 2-in-1 you can say. There are some products where existing where we see that we need to increase our capacity quite a bit. So those are being factored in over there. And at the same time, there are -- so we are putting in about 6 API lines over there. So about, let's say, 2 or for existing products increasing capacity. About 4 are for new products.

Got it. So those 4 new products will have to -- I mean, we'll start the work on validation, et cetera, closer to the -- close of the commercialization?

Yes.

Right. Got it. The second question was, sir, I mean, since last year, we've been able to increase our market share in, let's say, the 4 to 10 top -- the top 4 to top 10 kind of products, and we've been able to sustain that. So just want to understand, I mean, are the guys whose market shares you've taken? Are they also -- like do you see any sense -- any sort of threat for them coming back and taking their original share? Or do you think the share that you have taken now will sort of sustain in? If you can give some...

In this quarter we still are holding on to it. So I hope that it will continue in the future also.

Right. And probably, I mean, if you can just allude to some more qualitative point as to why you think you can hold on to it and why those can't in terms of maybe cost or something else? Whatever you can share?

See, we believe our philosophy is very simple. We bring it down to only 3 factors. One is that we need to be very reliable suppliers to our customers. Second is offer them the best cost solution which you can. And the third is to offer them quality, which is far superior to anybody else in the market. And these are 3 simple pillars which have helped us all along until now. And I still believe that these are the 3 factors which are which helped contribute or retain customers far more effectively.

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

Just one clarification. The asset turn is 2x or 2.5x?

Asset turnover -- well, it depends on the product which we do. If we do a product with only, let's say, 5 steps of synthesis, we would reach a turnover of 2x -- sorry, 2.5x. If you do a product with 7 steps of synthesis, you will probably reach 2x. So it will be somewhere in between.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Rishav Das closing comments.

Thank you all for joining the Q1 FY '20 earnings call of NGL Fine-Chem Limited. For any further queries, please go in touch with us at Pareto Capital. Thank you.

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.