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

Ladies and gentlemen, good day, and welcome to the Q2 FY22 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 Q2 FY22 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 in 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 would now hand over the call to Mr. Rahul Nachane for his opening remarks. Over to you, sir.

Good morning to all of you. Thank you for joining us on this call. Let me open the call with a few remarks on our performance for the quarter and strategy going ahead. I am pleased with the performance our team has delivered in this tough microenvironment. This quarter, we faced major headwinds on all cost fronts, rising input prices, increasing fuel prices and elevated freight costs. However, in spite of these challenges, for the quarter, consolidated sales grew 15% year-on-year to reach INR78 crores as against INR68 crores in the same quarter last year. For H1 FY22, our growth has been 39% year-on-year. So, on a sequential basis, the growth was lower at 3%. We are not facing any challenges on the demand front or any competitive pressures. We continue to hold onto the market share gains in our key products that we had in the last few years. Our Vet API business, which forms over 80% of our revenues witnessed strong growth of 23% year-on-year in Q2 FY22 and grew sequentially also by 13%. We also continue to expand in newer geographies. Our revenues from Rest of world, especially Latin America and Africa, has seen significant traction during this year. These geographies now form around 15% of our revenues. Also, we have made inroads in the U.S. market, which contributed 5% to our revenues during this year. Our EBITDA margins were impacted due to cost disruptions, as mentioned above. Despite that, we continue to maintain strong EBITDA levels of INR17 crores with a margin of 22%. We recorded a net profit of INR14 crores with a margin of 18%. We expect the current macro year sentiment on cost and materials availability to continue for the remaining part of this year and start improving subsequently. Now coming to our CapEx plans. We have already incurred INR28 crores towards our Micro-Tech expansion. We are awaiting the last leg of MPCB approval and expect to start commercialization in the next few weeks. We should see this expansion contributing to our revenues from Q4 onwards. We also plan to increase outsourced production to 15% and continue process improvements and debottlenecking efforts to help drive near-term growth. Our planned Greenfield expansion at Tarapur is also on course, approvals and land are in phase. The expected CapEx for this project will be of INR100 crores, which will bring in a 15% capacity addition and will be funded through a mix of debt and internal accruals. We aim to commercialize and start production by mid FY24. We aim to continue growing our business by leveraging our robust balance sheet with the net debt free position and continue investing in our market position by remaining cost competitive, reliable and offer high quality solutions to all our customers. This is from my side. We can open the floor for a discussion.

[Operator Instructions] Our first question is from the line of Rahul Jain from Credence Wealth.

Sir, 2 questions. One on the gross margin side. So you have alluded in your opening remarks with regards to pressures on the expense side, on the cost side. So we are currently around 55% on the gross margin; somewhere at the lower end, if I observed last 10 to 12 quarters. So are the pressures on the raw material front now stabilizing? Or are they still there or are they moving in the opposite direction, whereby our gross margins can show some improvement in the coming quarters? And second is, sir, on the CapEx front, both on the Macrotech and Greenfield expansion at Tarapur. Macrotech, we had spoken about INR20 crores of CapEx and Tarapur was INR80 crores. So Macrotech now, we understand it is INR28 crores and Tarapur Greenfield, we have put the number now at INR100 crores. So is this -- are we adding some additional capacity or is this kind of cost overrun, which has happened? Yes, that's it from my side, and those are my questions.

Yes. Thank you, Rahul, for that. On the margin front, as you may well be aware, commodity prices have been shooting up since, around April and May this year. And in commodities, I mean almost across the board. So we see commodity chemicals are going up. We see metals going up, steel and iron and also copper going up. Now this impact then has a big impact on all our operating costs. The second major impact has been on export freight and import freight. Freight costs have gone up almost 10x in the last 4 months. Now having said that, given the steep increase which was taking place, has started plateauing sort of a situation right now. But whether these prices will start softening immediately or they will over the next 3 to 6 months is something which is open to discussion. We are hopeful that this is quite probably the last quarter, maybe another 3 to 6 months and not longer than that, and it start softening around that. The key thing over here is that sales growth remains strong as and when commodity prices start correcting themselves, we should see the margin improvement take place immediately due to that. The second part with regard to the cost overall, on CapEx [ front ] as you said, these were just ballpark figures, which we had commit earlier. As we sit down and do the detailed engineering, the actual extent of investment comes through. Now rather than cost overrun, there has been a cost build up because of the cost of metals and cement and commodities. So cost of construction is up; cost of equipment which we have to purchase is up. By the time when we start construction, if the metal prices start going down, then that will also result in lower cost of the project. So these are just initial estimates right now and are subject to change over the next few months.

And this is with regards to Macrotech also, that from 20% to 28%?

So part of it is because of that. Part of it was also because we had convert Macrotech into a zero liquid discharge unit. So that took away a large amount of investment.

Sure. So just one last thing on this. You have mentioned that demand continues to be strong. And in your presentation also, you have mentioned that inventories are higher to cater to the growing demand. So the scenario when the demand is strong, are we able to increase our pricing of products or are we trying to gain more market share during this time so that when the prices of raw materials fall, you are in much better place? What is your strategy with regards to this?

Our strategy is to clearly hold on to market share at this point of time because we have made substantial gains in market share as compared to, let's say, 2 years ago. And we want to not just hold on to these gains, but keep on adding gains as we go along. And till now, it's actually working pretty well. We are very confident of sales growth taking place. If you see year-on-year, we definitely are growing. And very soon, you will see quarter growth also taking place.

Our next question is from the line of Ankit from Bamboo Capital.

Thanks for the opportunity and congratulations for a very decent set of number, given the tough times we are going through. Sir, on this CapEx spend, like currently, we are doing INR78 crores, INR80 crores of quarterly run rate and we -- this Macrotech expansion is expected to complete -- due to be completed in the next few weeks. And there will be increase in outsourcing also from 5% to 15% and through debottlenecking also. So given the current run rate of around INR70 crores or INR80 crores of quarterly revenue, and as we increase to let's say, INR100 crores, INR110 crores post all this expansion plus outsourcing and debottlenecking are completed and if the demand remains strong, will it be possible to reach INR100 crores, INR110 crores kind of quarterly run rate in revenue?

I missed exactly what the question was over here. Can you just please re-ask?

Sure sir. So currently, with the current setup we are doing around INR70 crores to INR80 crores of quarterly run rate, I believe also in the last quarter and Macrotech expansion is expected to get completed in the next few weeks. Plus we will also have the outsourcing change from -- increasing from 5% to 15% and debottlenecking also which will come in. So post all these initiatives, will it be possible for us to reach a quarterly revenue run rate of around INR100 crores, INR110 crores?

We are hopeful of reaching that number probably in the next -- within the next 2 years, yes.

Sure. And this is before the Greenfield expansion comes in?

Yes. So for the next 2 years, the growth path is based on what we have going right now in terms of outsourcing and the Macrotech expansion. And the new Greenfield should take us roughly about 20 months to -- 18 to 20 months to put it.

Sure. And on this -- the new Greenfield expansion that is coming up. So the -- have you started the construction or it will start from the next financial year?

So right now, we are selecting the civil contractor who will do the construction. We are hopeful to start construction by early next month.

And sir, on last question on the new product introduction. The performance of the new product that we introduced over the past few years. So if you can brief us how those 2 poultry products and the other new products are doing which we have introduced in the past 1, 1.5 years?

Yes. See, we have seen sales growth taking place across the board in all our products. The new products, of course, in terms of percentages are showing very, very high-growth numbers, close to about 100%, 150%. But that's because of a very small denominator, which they have. But overall, I can tell you that the Top 3 products which we used to have, which we have, their contribution in the current year has gone down from 41.5% to 38.9%. So there's a 3% decrease in the top 3 products. While these products have grown substantially at the same time, it is the other smaller products also, which are adding to the growth. So we are seeing a complete broad-based growth taking place in terms of sales.

And sir, just the new 5 products that we are planning to launch, what are the time lines for this launches, and plus, will they also be catering to some poultry market or [indiscernible]? And what can be the opportunity size for each of these products, like are they large products, let's say INR50 crore, INR100 crore plus or it will be small niche products that we manually cater to?

So, of the ones which we are doing, there is only poultry product. We have not added any other poultry product right now, we just continue with one. The others are in the farm animal range, in the veterinary field. So those are basically antibacterial and for -- anthelmintics, for worms. And that is the largest market segment in which there is -- which we have.

And are these big products or this has, let's say, some INR100 crore, INR150 crores kind of market opportunity products that we normally use to target or the target set, yes.

No, we don't take those kind of large, very large products. We take products with a potential market size of probably about INR30 crores to INR50 crores. The ones which have got a market share size of INR100 crores and INR100 crores plus, already has many players in the market. So our value addition in those might still be restricted. So we still are looking at the mid-sized segment right now. And there's a lot of growth coming in those niche markets.

Okay. And then the U.S. has been doing pretty well for past, you know this year also, last year does than -- last year also, we entered the market and found the same growth. So with our entry into the U.S. market, how does it open up the entire market for us, can we see -- can this become a large market for NGL going forward?

Yes. See the U.S. market, which we are addressing is a non-U.S. FDA market. So we still don't have any U.S. registrations over there. But we have given customers. So it's customers who are buying in the U.S., and they are able to do it without doing the registration. So frankly, we don't expect a very large traction because there are just 2 customers over there. But hopefully, we will try to develop a strategy over the next 2 or 3 years to see how we can penetrate that market better.

But can this become as big as Europe market for us over the next 3 to 5 years?

It's still early to say because we are still seeing very good growth in the lesser regulated markets. And that is giving us a pretty good push on the top line. We really don't want to be distracted right now by trying to go out too much behind the regulated markets. So we will keep our focus intact, the way we have been doing it right now. At the same time, we would not ignore the fact that there is a good potential market available in Europe and U.S. in terms of the regulated markets. And probably, the next 2 to 5 years is -- probably would be a good time for us to tap into those.

Our next question is from the line of Rupesh Tatia from IntelSense Capital.

Sir, this INR55 crores inventory, can you please give a split between finished goods and rest?

Sure. Just give me a minute, I'll let you know. So of the finish good inventory -- of the total inventory, INR23 crores is in terms of raw materials, INR9 crores in finished goods and about INR22 crores in semi-finished goods. These are the major ones, then there are other smaller items.

But these roughly INR30 crores of finished and semi-finished goods, they will be accounted at cost, right, sir?

Yes, at cost, yes.

Okay. And we expect these to be dispatched in the near-term or is there like some -- to manage the cost escalations, you are doing there?

No, there are 2 factors. There has been a big increase in chemical market commodity prices. At the same time, because prices were going up, there has been a demand supply gap. So supplies have not been very smooth. So we decided to stock, especially on those items where the delivery period is long. And we increased our stocking levels, just to ensure that we don't face any stock outs. And we expect this to continue as long as this commodity market is in this sort of crazy demand supply imbalance. And hopefully, it should start correcting early part of next year. At that time, when supply is a little more eased out, we will also start lowering stock levels a bit to the normal levels.

And sir, most of our export contracts with the customer pays the freight or -- I mean how is the split between where customer pays the freight and where we pay the freight?

So, even when we do the bookings, everything is in spot business. Though it is spot business, normally these contracts are to be executed over a period of between 2 and 4 months. So freight was already included in the contract, which came as a shock to us. We are now moving around towards a situation wherein we pass on the freight cost separately to the customer. But it's something which works with a time line of about 4 months, 5 months for the entire cost increase to be passed on.

So majority of our business is where the freight cost is included in the pricing. Would that be correct at this time, sir?

Yes. We were on CR contracts, most of them.

And you are able to now have conversations with customers and pass on the freight cost.

Yes.

Okay. And then, sir, one little bit longer-term question. We kind of have step growth in our business. We were a small company and now our scale has increased. We are now looking at [ INR18,000 ] crore kind of annual profitability run rate. So in terms of CapEx planning and future growth planning, would we say now, we'll go a little bit more sophisticated and have advanced planning, so let's say, after Tarapur next CapEx would be planned in advance because we also have another -- after the CapEx comes, we have 1 year of validation that is customer audits and things like that. So would we now have theme and things in a way that we do advanced planning now for all the CapEx as post ARPU? So that way from step, we kind of go to the quote to a gram?

Yes, that's a good suggestion. We will look into developing a more longer-term view on CapEx expansion and start doing more on a 5 to 7-year planning. So it takes us a little bit of time to do that, but we will start looking towards that.

Okay. That is good to know sir. And then, sir this -- in this quarter, these other expenses have gone by INR4 crores sequentially. So can you roughly give impact of energy costs, how much energy costs went up and how much freight costs went up? If you can give some color?

Energy cost has gone up by about INR60 lakhs in the quarter. Outsourcing cost has gone up by about INR1.5 crore, and freight cost has gone up by INR75 lakhs. These are the 3 main areas where the cost has gone up.

And these are sequential increases, right, sir?

This is as compared to Q1 of this year.

Yes. Okay. And one last question. We, in general, see regulations tightening up around the world, at least in Agri side, some of these things are very clear. So in terms of risks, where some of our products getting banned. How do you see that risk in our portfolio?

What risk was this?

In Agri, at least we hear you now that PPM levels are high. So Europe is coming with a new regulation. India had some story one or 2 years ago that where some molecules were getting banned. And now a lot of this discussion is moving that whenever the API -- whenever we're feeding animals, there also these regulations are coming in because eventually that food comes for human consumption. So in terms of this risk, where these are geographies, Brazil or whatever U.S. or in Europe, where these molecules are getting banned our regulations are getting strict. So in terms of risk, how do you see this risk to our portfolio of 20, roughly 20 products that we have.

To my knowledge, most of the products where there have been restrictions have been antibiotics. And we don't manufacture any antibiotics. I have not come across any reference or any article or even any rumor from anybody which involves the products which we currently manufacture.

Okay. So the risk at least in your view, is not there. Okay.

Our next question is from the line of [ Yash Singhee ] from Yes Securities.

First question is on Europe. So just wanted to ask, is there like an overstocking situation in Europe currently? And can we see better growth rates once it normalizes.

Europe typically is growing a little -- at a lower pace as compared to the other markets is what we find. So we still think that there will be growth coming in from that, but probably more in single digits. It's the other markets, which are giving us double-digit growth.

Okay. And there is no such overstock situation in the areas that we cater to?

No, we haven't seen any such situation, no.

Okay. And just another question. Just wanted to know the major therapy areas of the diseases, which the top 3 or 5 drugs that we manufacture cater to. So where do we -- where do exactly these drugs are utilized like antiparasitic?

These are antiparasitics basically. So 2 of them are for blood diseases. So they are antiprotozoals. And one is an anthelmintic. These are the top 3 products which we've got.

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

So, the question, Rahul, is that we are getting into new geographies. We are introducing newer products. But barring Macrotech and our outsourcing part, the large capacity is going to come 2, 2.5 years down the line. So, do you see in those 2.5 years capacity becoming a constraint, given that demand environment is very strong and we are gaining market share.

Well it's our approach in the next situation. But to address that problem, what -- as what we have been saying, we are going to do things in 3 different ways; #1 is we are increasing the outsourcing part -- the quantum of outsourcing which the company has. This would typically take us about a year, 1.5 years, and we started doing this around January, February this year. So we will probably optimize our outsourcing around May or June next year. Second part is the Greenfield expansion, which we are taking. Sorry, second part is the Macrotech expansion, which is already through. We hope to start production probably in the next month, within the next few weeks. The third part, which is an ongoing process for us is to keep on debottlenecking processes so that the growth story continues. And in the current year, we already have reached, as compared to a turnover of INR110 crores in the first -- in H1 last year. We are already at INR156 crores in the current year. And we see the growth continuing. We are very confident that what steps we have taken are enough to give us a fairly good growth over the next 2 years.

So we don't anticipate a situation where the demand is there, but we may not be able to supply. I mean, we have enough levers to create capacity. That's what -- should we take that as a conclusion?

Yes, I don't think we'll lose orders because of not having capacity.

So second question, Rahul, is we have mentioned in the presentation that and again, you have guided that some of the cost on players marketing and travel side have normalized. So is it now back to the normal level or we still see some kind of COVID related restrictions impacting that cost and it needs to further go up next quarter or the quarter after that?

So right now, the pre-COVID cost which there was a large postponement of costs pre-COVID. That postponement of cost has more or less been normalized. So everything is back to normal, except for traveling in terms of marketing visits. But other than that, all costs got normalized right now. But, again, some costs are higher up right now because of the higher cost situation which we have got right now. But I believe it should start normalizing mid of next year.

Okay. And we used to incur some cost on regular maintenance, right? And I think that was held back. That part also is getting normalized or is it yet to normalize?

No, no, it is completely normalized now.

And third question, Raul, in some of the previous answers you talked about U.S. market and maybe 2, 3, 4 years down the line, we may want to scale up in that market. But in the past, our strategy has been to kind of remain in unregulated markets. So is it -- I mean, are you thinking along the lines that how do we leverage then products where U.S. FDA approval is not required and still scale up in U.S. market? Or the thinking is that eventually we'll get into products where U.S. FDA approval is required and we'll set up a separate plant. How are you thinking about it?

Right now, we have just 2 products where the registration is not required in the U.S. market, all other products require registrations. So -- and as I said, that going into the U.S. market as of right now is not really a priority for us.

Okay. So whatever scale up will happen will be based on the products where approval may not be required from U.S. FDA?

Yes. Basically, pre-existing business.

And last question, Raul, so I mean, we are increasing in the -- after Greenfield, our capacity will increase by 50% on a much higher base. So, for filling up that capacity, the existing product basket and 4, 5 new products that we are developing, do you think that, that will be good enough in order to fill up the capacity or we need to accelerate the new product development process for filling up that capacity?

No, right now, we are fairly comfortable for the next 2 years. We don't anticipate many shortcomings in whatever we have planned.

Okay. So even for the Greenfield plant, existing products plus new plant products would be sufficient to fill the capacity?

Yes.

Our next question is from the line of Rohit Balakrishnan from iThought PMS.

Again, congrats on a very decent performance. So many questions have been already answered. Just couple of clarifications. So in the ensuing quarters and the next financial year, given that we have this increased outsourcing and Macrotech expansion also coming online. So you said that you envisage sort of reaching INR100 crores kind of quarterly run rate in FY23. Is that right? I mean, did I hear that right?

Yes. As I said, over the next 2, 2.5 years. Not right now, later.

Got it. But that would be priced -- I mean this is before the expansion from Greenfield expansion. Is that correct? I mean, basically, what I want to understand is the expansion that you are trying to do in Macrotech and the outsourcing will help us to kind of reach that kind of opine, whether it is 2 years or 2.5 years, that time to just...?

Yes, that's what our objective is, yes.

Got it. And just one more question on this Macrotech expansion. So will this also help us in increasing our gross margins in the sense that you are trying to go backward integration. Is that understanding correct? Just wanted to get your sense on that.

Yes. Basically, Macrotech expansion is to increase the intermediate manufacturing capacity because we have adequate capacity for making the APIs right now. And making intermediates ourselves helps to increase our margins for every product, because the more you make yourselves, the better off it is. So it's a payoff. Wherever we find that there are some type of reactions, which are better to be outsourced, we are doing those. Wherever we find that, okay, the volume is substantial and it's more economical to make it ourselves, we in source it. So that's a balance which we are trying to strike right now. As I said earlier, we started looking at outsourcing as a solid alternative only early part of this year. We will probably take till mid part of next year to stabilize our entire outsourcing plans.

Right. So I mean, if I look at your numbers over the last many years, they have been in that range of 57%, 58% gross margins, some quarter slightly above some quarters slightly down. But if I take a -- I'm not talking about this year or next year, I'm talking about as we do this expansion and sort of build this into our business model. For the next 2 years, can we -- I mean structurally, can our gross margin improve even from these very good levels. I mean is that the right understanding, let's say, 2 years out?

See margins traditionally has been in our industry, it's moved from average of about 18% to about 25%, 26%. There has been probably a few quarters or periods where it has gone up beyond that number. And that primarily has been because of macroeconomic factors, not because of something which we are doing. So it's not that all of a sudden, the margin goes up to 30%, 32%, it's not something which we have done probably. It's just that commodity prices were at an all-time low at that point of time. So our margins, as I say, will typically move within the range of 18% to 25% based on our product mix scenario. Anything which takes it up or down is more because of macroeconomic factors.

Sure. No. Yes, sure. I understand that. Actually, I was just specifically talking about your cost of goods sold. So, I mean historically when I'm looking at probably very long term, not just last 2 years, but 7 years...

That moved always between of the level of 40% to 44%.

Correct, correct, exactly. So with this backward integration in Macrotech, I'm asking, can this be also -- I mean, this is already very good. And very few companies have these kind of gross margins. So very, very great on that. But I'm just asking, with this step, can we also include that further is the question that I had?

No, that won't change. That will continue within this banks. We don't anticipate it to change substantially, no.

Understood. Also, sir, just one question in terms of -- I think this was also being asked in a few con calls prior to this one in terms of your listing on NSE. So anything that you can share on that part would be very helpful.

So the Board has taken this is decision to go ahead with the NSC listing. We will start the process. We are not very sure how long it will take. But I guess within the next 6 to 8 months, it should be done.

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

My first question was regarding the orders...

Sorry to interrupt, Mr. Rajesh we're unable to hear you clearly. Can you switch to a handset mode and speak?

Hello, is it better now?

Mr. Rahul Nachane, can you hear MR. Rajesh?

It is still not very clear, but go ahead, let's see how it works.

Okay. So I was asking you, what is the revenue contribution from Top 5 and Top 10 products in this quarter?

So the top 5 in this quarter have contributed for 54% to revenues.

Okay. And top 10?

77%.

Okay. And what would be the sort of market opportunity of this Top 10 product currently?

The market opportunity should be fairly large. Because we really are not in a monopoly situation in any product except for we're the Top 2 or 3 where we are over 50% market share. In most of the others, it's a little lower. No, sorry. Now today, I think we would be over 15% market share in almost our Top 6 to 7 products now. And as we add products, we are slowly moving towards those also. So top 10 products would probably have a potential of INR250 crores, INR300 crores for the same hardware, so likely around INR400 crores to INR500 crores turnover on an annual basis.

Right. And for us, with the expansion that you are doing, how many new products will start adding up so that you are not reliant on these Top 10 products to such a large extent?

This year, we are commercializing 3 products right now. And in the next calendar year, we will take up another 3 to 4 products for commercialization. So we hope to expand the market to at least 27, 28 -- between 27 and 30 over the next 2 years.

I see. Okay. And should we assume that even for these 6 new products that you will introduce over the next 24 months, the market opportunity per molecule is roughly in that INR30 crore to INR50 crore zone?

Well, as I said, we don't really hunt molecules which are very large. This will be in the INR30 crores to INR50 crores sort of a market size products. So they would have probably INR200 crores, INR250 crores sort of a potential.

Understood, okay. And then you said about your margins being in this 18% to 35% range. So, given the product basket we have and the visibility you have for the next, let's say, 4 to 6 quarters, would you say your margin in FY23 will be hovering around 20%, plus or minus 1% or 2%?

Right now, EBITDA is about 23% for us. On the downside, I would say it might go down by another 5% if prices continue to be very high. But if prices recover, it should bounce back pretty fast.

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

Sir, my first question is with respect to your non vet API business, your Finished Dosage, Human API, Intermediates et cetera has witnessed very sharp decline Y-o-Y this quarter. Any reason for the same? Is it that it was from high base of last year? Or what is the sustainable run rate for these businesses?

Just I would say seasonality because we are doing this only for 2 customers. We really don't have -- are not hitting it as a trust area for us. We have 2 customers. And based on how their product is moving in the market, it goes up or down. But that part of the business is basically more sort of a service we are rendering to customers rather than any focus area where we do it. We have not made any investment in this sector for the last 5 years now.

While I understand that, the number between FY20, full year number versus '21, there was a huge growth in this. So what is a more sustainable number between the 2?

On an annual basis, we expect Vet formulations to be in the range of between INR7 crores and INR9 crores, not more than that.

Okay. On annual basis, the formulations will only be that much. Understood.

Yes.

Okay. And sir, just while I'm sure that this may sound slightly repetitive. But with respect to your margins for next year, with higher outsourcing and with the RM costs and other expenses of power, freight et cetera, where they are, is it possible to say that maybe for the next at least 4 quarters, our margins will continue to stay under pressure and we may probably be at the lower end of the range that the industry operates and then you've also guided in the past?

Well, I hope it doesn't last that long. I hope that the markets -- probably market starts recovering much earlier than that. Our personal feeling is that, this shouldn't last for more than -- 2 more quarters. By April, May, next year, we should definitely see a softening of prices because it's just not sustainable for industry to pay -- there are some products where we are paying 4x and 5x prices right now just because of the supply/demand imbalance. So it should correct itself. It shouldn't take that long. We don't anticipate it to continue beyond the quarter.

While I understand that while these costs will normalize, but we will have higher outsourcing costs and costs related to probably the Greenfield and the Macrotech expansion also coming in. And like you said, some travel and other COVID costs have not come back. So all of those will come back while these will rationalize in negating any benefit? And is it right to understand that till the Greenfield comes on stream, can we expect them to be slightly limited in this range of what we witnessed in this quarter?

No, with increased turnover that higher cost should also get taken care of. We really don't see margins getting depressed because of those, no.

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

Sir, one question. Sir, historically, when we look at our business model, the way we've grown, we've focused on niche areas, niche molecules, got into them, where there is lesser competition and then build our market share, which has helped us get very high margins. Now my question out here is that as we move forward into the next leg of growth, are we going to be able to scout for such opportunities of such small molecules, niche area? That's my first question. And will -- basically, over the next 5 to -- 5 to 6, 7 years, over the longer term, are there these opportunities still there in the market. So that's what I wanted to know.

Well, the products which we have taken up right now are -- none of them are blockbusters by themselves. But each of them contributes a significant part towards the overall plan for the company. So we still don't anticipate any issues for the next 3 to 5 years in adding products which will help us keeping the growth story intact. So we still have those products on our list.

Okay. So sir, in the same breath, if I would want to ask this, is that if -- do we have enough molecules on our radar, these small niche opportunities to fill up the upcoming capacity that is coming up. So, over the next -- means post FY24?

Yes. We have enough molecules which are on our wish list right now, which should be, as I said, we are right now planning in terms of the product pipeline for the next 5 years. And we see adequate traction in all the products which we are planning to have.

Okay. Okay. And sir, historically, we've not looked out at outsourcing. We've always been an in-sourcing company where we believed in manufacturing in house. Now while we can understand that there is a surge in demand and our capacities are not up to the mark. So is this a short-term stopgap situation, where we will then revert back to in-source manufacturing once our capacities are on stream?

No, it cannot be a short-term thing because you know transferring technology to somebody, ensuring that they're manufacturing, their -- no work can fit in straightway. So everybody has to make certain investments in making changes to the plant so that they can take that immediate. So we cannot work on a short-term basis and leave people in lurks like that. It is going to be a strategy, which will hold on over a longer period of time. But probably as turnover goes up and we do more of insourcing ourselves, the total production amount which is outsourced will probably come down.

As there are no further questions from the participants, I would now like to hand the conference over to Mr. Das for closing comments. Over to you, sir.

Yes. Thank you all for joining the Q2 FY22 earnings call of NGL Fine-Chem. For any further queries, feel free to get in touch with us at Pareto Capital. Thank you and see you next quarter.

Thank you. Bye-bye. Thank you for joining.

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.