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

Ladies and gentlemen, good day, and welcome to the NGL Fine-Chem Limited Q4 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Mehra from TIL Advisors. Thank you, and over to you.

Thank you, [ Dan ]. Good morning, everyone, and thank you for joining this Q4 FY '23 Earnings Conference Call of NGL Fine-Chem Limited. The results and investor updates have been emailed to you and are also available on the stock exchanges. In case anyone does not have a copy of the same, please do write to us, and we'll be happy to send it over to you. To take us through the results of this quarter and answer your questions, we have with us today Mr. Rahul Nachane, Managing Director; and Mr. Rajesh Lawande, Whole-Time Director and Chief Financial Officer. We'll be starting the call with a brief overview of the financial performance, which will then be followed by a Q&A session. I want to remind you all that everything said on this call reflecting any outlook for the future, which can be construed as a forward-looking statement, must be viewed in conjunction with the uncertainties and risks that the company faces. These uncertainties and risks are included, but not limited to what we have mentioned in our annual report, which you will find on our company website. With that said, I'll now hand over the call to Mr. Rahul. Over to you, sir.

Thank you, Abhishek. Good morning, and thank you for joining the call today. I am delighted to provide you with an update on the performance of NGL Fine-Chem Limited for the fourth quarter of FY '23. I will spend a few minutes to share the highlights of our performance and address the challenges we have faced in recent months before we open up for questions. First and foremost, I am pleased to inform you that we have successfully maintained our trajectory towards a sequential recovery in our business, as we had anticipated and communicated earlier. Our operating margins for the quarter recorded a significant improvement, primarily due to notable decrease in raw material prices. Alongside this favorable factor, our diligent cost management practices have played a crucial role in enhancing our overall profitability. However, it is important to acknowledge that the demand for our products has remained relatively subdued. The prevailing high level of uncertainty among our end customers caused by the ongoing crisis in Europe and elevated inflation rates in several countries has led to cautious behavior and measures to rationalize inventory levels. As a result, we have experienced muted demand for our products. Furthermore, we have also been impacted by currency crisis in certain regions, notably, among countries such as Turkey, Bangladesh, Egypt and Pakistan. The adverse economic conditions in these areas have further dampened the recovery of demand for our products. Looking ahead, we anticipate that the operating environment will continue to present challenges for the next 2 quarters. However, I am proud to announce that, despite these difficult circumstances, we have managed to maintain our market share. We have also introduced new product offerings and expanded our product portfolio to 24 products in Veterinary API segment and 2 in the Human Health segment. Validation batches for the new products have been completed, and we have initiated the process for obtaining customer approvals. In terms of capacity expansion plans, we have made a strategic decision to temporarily slow down the execution speed due to the availability of spare capacity at our existing site. This approach ensures optimal resource allocation and cost management. As the operating environment improves and visibility restored, we will expedite the execution phase accordingly. Importantly, I want to emphasize that until we see demand recovery, we are averse to funding this expansion to borrowings and will strive to fund our capital expenditure using the internal accruals generated by our business. Now let us turn our attention to the key headline numbers for the fourth quarter of FY '23. Our revenue from operations amounted to INR 73.89 crores, representing a 2.72% increase compared to the previous quarter and a 12.1% decrease year-on-year. The EBITDA stood at INR 12.97 crores, reflecting a robust growth of 32.2% quarter-on-quarter and 22.7% year-on-year. Our EBITDA margin improved to 17.55%, recording an increase of 391 basis points quarter-on-quarter and 498 basis points year-on-year. Finally, our profit after tax reached INR 9.32 crores, marking a growth of 43.6% quarter-on-quarter and 35.66% year-on-year. Before I conclude, I want to express my deepest gratitude to each and every one of you for your unwavering trust and steadfast support. Rest assured, we remain fully committed to delivering long-term value to all our stakeholders. I would just like to add that going forward, we plan to hold analyst calls on a half yearly basis. I am now happy to open the floor for any questions you may have.

[Operator Instructions] Our first question comes from Rahul Jain with Credence Capital.

Am I audible?

Yes, you are.

Sure. So first of all, congratulations, Rahul, in a tough environment. We have followed prudent principles in terms of cost [ resolution ] and which will help us our margin improvement trajectory as promised by you 2 quarters back. So the first question itself is on margin, Rahul. So going forward, given the prices of products and the raw material prices, do we expect the gross margins, which we have reported in this quarter, March '23, to sustain and further improve as we go forward?

Right. Any other questions you have or a just one?

Okay. So my next question is about the CapEx. You have said that we are going a bit slow. Earlier, our plan was to complete this by March '24. So based on the current situation, when do we expect this greenfield CapEx to pick up? And lastly, with regards to our revenue, so typically, with the prices being down and the top line which we have done, so what kind of volume growth we have done? And is the revenue growth -- volumes are growing, but the prices are low, which is where the revenue growth is still some time away? Or how do we look at the revenue growth going forward, considering that we have launched 4 new products?

Right. Thank you, Rahul. With regard to gross margins, things are still very good -- in a very good position right now. When demand is down, there is obviously a oversupply in the market. And there is intense competition among sellers to meet whatever little demand exists in the market. So until that equilibrium is reached again, there will continue to be pressure on selling prices. Now, we were aided by lower raw material costs in the last quarter, which has been coming on the back of a steady decrease in most chemical prices over the last 3 quarters. That peaked probably around May of '23 -- sorry, May of '22, and since then have been coming down gradually over the last 1 year. And chemical prices more or less seem to have bottomed out now. With decreasing prices and lower pressure, there has also been a pressure on selling prices for us. So for the next 2 quarters, there is going to be a pressure on margins and the margins may move a little bit sideways plus/minus 2%, 3% from where we currently are. Once we see a demand recovery, we are confident that margins will go back to the earlier levels, which we have attained over a 5-, 7-year period. With regard to the CapEx, we have deliberately slowed it down because in a market which is -- where we see demand growth a little dampened down, we did not see the need to borrow and invest in a new project. So we are funding the project a little more slowly. So yes, earlier, it was planned to go on stream by March '24, and we may see a further delay of anything from 6 months to a year on that. But again, it is more like a wait and watch thing. I would not like to put a date on it. But we are very sure that, once we see demand recovery, within a period of 1 year, we can execute the entire project because we are fairly advanced with the civil construction. We have identified equipment, started entering into discussion with a group of suppliers. So our equipment are only selected. Final price negotiation and placing of equipment -- of orders will be done only when we see the demand recovery actually coming. And your last point with regard to volume growth, yes, meaning, price realization has definitely decreased for us in a number of our products. Therefore, to attain the same sort of volume, we need to actually this -- attain the same sort of top line, we need to sell much more quantity. Luckily, we have been sort of supported by the new products which we have launched. Quite a few have been in the $100-plus range. And therefore, though the volume growth has been affected, the top line has still been able to -- we have still been able to hold out on our top line. I hope this answers your question.

Yes, sure. And just on the product side, with regards to introducing new products, and you mentioned in your initial remarks, the validations are over or almost done. And in the previous call, you had mentioned about 5 new products coming in and the commercial supply is to start. So as we speak now with regards to these 5 new products, how many products are in the commercial supply stage and with regards to the balance? So what is the schedule of these new products commercial supply is getting started?

We have gone up from a total basket of 22 products to about 26 products now, which are commercialized and being sold. We have got another 6 products, which are being worked in the laboratory and in the pilot plant at various levels. So we hope to take our total product line up to 35 products over the next 2 years now.

Our next question comes from [ Vishal Prasad with VP Capital. ]

Sir, in the past, we have mentioned that market size for 22 products is INR 1,500 crores. So is this the world market, or we are talking about rest of world market size?

Right, any other -- Can you please put all your questions so that we can go through all of them at one go.

Yes. So if you could tell me the world market size for 22 products and probably not world, but rest of world market size? And also, if you can tell me the rest of world market size for top 10 products, that will be helpful? Also, in the past, we have talked about -- we have mentioned that we are #1 in 6 products and #2 in another 5. So is this holds? Or is there some change?

Right. So for the market size for our top 22 products, when we said it was INR 1,500 crores that is, of course, the world market, not just the India market. And it is a world market size in terms of the API sales, not in terms of the finished product sales. I unfortunately don't have the market size for the top 10 products to give you across the table right now. Yes -- and with regard to our market leadership size, we continue to be #1 in our top 3 products and #2 in 5. So there has been no change in that, and we have been able to hold on to our market share in these products.

So sir, this INR 1,500 crores, you say this is the market size world over, but we do not supply -- generally don't supply in the developed markets. So if we try remove EU and U.S., then roughly, what would be the market size for our 22 products?

So the products which we are doing close to about 70%, 75% of these products are basically tropical disease products. So there is very little demand in the U.S. and Europe for those. So there will be probably about 25%, 30% of the products which we do, which have got a demand in the U.S. and Europe. I think we can probably remove another INR 250 crores or INR 300 crores out of it. But I'm just guessing. I really don't have that sort of a number to tell you straight away right now.

Sir, even if we remove the INR 500 crores out of that and we go with...

I did not say INR 500 crores. It would be in the range probably of about INR 250 crores, INR 300 crores.

So if rest of world...

And I'm guessing in this, please -- please don't quote me on this again because it's a very off-hand question and it's just a guess right now.

I understand, sir. So out of INR 1,200 crores, we are doing close to INR 200 crores. So we are just having 15%, 18% market size in 22 products. And then, we say we have -- we are #1 in 3 and #2 in 5. So if I say for top 8 products, we have close to 50% market share. I mean the numbers are not matching somehow for [indiscernible] products, if we say the market size is INR 600 crores, INR 700 crores, and we are doing INR 150 crores, it's just 25% out of it.

But that would also depend on the total market size of each product. So I can't add more to that right now.

Our next question comes from the line of Darshil Pandya with Finterest Capital.

Am I audible?

Good morning.

So basically majority of the questions are asked. So I have few -- 2 to 3 -- a few more questions. I'll ask them in one go.

Can you speak louder, please? You are not really coming out clearly.

Can you hear me now?

Yes, this is much better.

Okay. Perfect. So as you said, that capacity expansion plan has been slowed down. So that assumes that we have a lot of capacity in the existing plants. Can you please provide a number as to what capacity utilization we are running at currently?

We are probably at around 75%, 80%.

75% to 80%. Okay. And sir, you said that we are -- there are new products added to the total product count. So can you please provide what is the -- how much revenue does this new product can generate over the time?

So the 22 products which we were doing earlier, the total market size was about INR 1,500 crores. And we are probably at just about a 15%, 18% market share for the overall. So for the 4 new products we have added, I really don't have a number to share with you right now. But these are all basically products in the range of about INR 30 crores to INR 60 crores sort of market size for each of the products.

Okay. Okay. And one final question, sir. Have we added any new customers within the quarter? How is it like...

Customer addition is a continuous process. So yes, we have added new customers during this quarter also.

Any number, sir...

I will need to check up on that. So give me some time. Somewhere during this conversation, I'll come back and let you know.

Okay. Just one final question, sir. In many of the calls, we are hearing that China has again started up ramp production and they are not -- they're like eventually dumping up. So do you have any views on this? Or is it affecting our business or something that helps us to understand more?

So as I said, see, we are right now in a situation where demand/supply has shifted. So demand has fallen drastically, supply has remained stable. It's not just China dumping, it is also a lot of Indian companies dumping. So let us not just point fingers at one country. But it is a worldwide phenomena where lot of suppliers are chasing very few buyers. This will continue until the demand stabilizes and equalizes. So yes, we are facing pressure, and it is not just from Chinese companies, it is also from our Indian competitors.

Got it, sir. And we expect that you come up with the good numbers going forward.

Our next question comes from Ankit Gupta with Bamboo Capital.

Over the past 5 to -- first of all, congratulations on a decent set of numbers in tough environment. So on the demand side, where are we in terms of inventory destocking? Past 5, 6 quarters, we have seen severe inventory destocking across the geographies that we target. So in terms of inventory stocking, where are we? And when do you think that the demand will come back? That was my first question. Second question was on -- we were under the impression that the new products, which are being launched, will be launched from the new site that we -- the new greenfield capacity, which was coming up. And now we think that we are also manufacturing them in our existing facilities. So if you can give some thoughts on that. And the next 10 set of products -- or the next 10 set of new products that we plan to commercialize over the next 2 years, so they will also be manufactured in our existing setup or not? And my third question was on the existing capacity or the existing capacity that we have, how much revenue can we generate from it now at optimal capacity utilization, given the price decline that we have seen? And if you can also share we will also be increasing the proportion of outsourcing, which as you were saying in earlier calls that we have reduced. So if you can give us a ballpark number on how much revenue can be generated from our existing facilities?

Right. Thank you for your question. With regard to the inventory destocking, which is taking place at across the world, different countries are at different levels right now. So -- but probably, we are looking at the tail end of that whole exercise. It seems to have been completed in most of the countries or customers we are speaking with. And the few of them which remains will probably end up consuming their stocks either in this quarter or latest by the next quarter. With regard to new products, which are manufacturing, all our facilities are designed for as multiproduct facilities. So it is very easy for us to move from one facility to the other and fill in capacity. So the new products which we were doing, all of them were not planned only for the -- with the new facility in mind because that was still any which ways plan to come up in 2024. So whatever new products, which we are doing, we are filling in existing capacity only. At the existing capacity, I have said this earlier also, that we have a revenue potential in the range of about INR 350 crores to INR 380 crores with the capacity which we have got. And finally, with regard to outsourcing, we have more or less brought down the total amount of -- the total quantity of products which we have outsourced. And our total outsourcing over the last 18 months has decreased substantially. So today -- and I will not count whatever we do as Macrotech as outsourcing because that's our 100% subsidiary. So ignoring Macrotech, we are -- our outsourcing is probably just at about between 1% and 3% right now. And it was our objective to take it up to 15% years ago when demand was going up. So we have brought down outsourcing with 2 intentions. Number one, why keep capacity highly in our own factories? Number two, outsourcing is relatively more expensive. So why outsource and why not cut the cost when the opportunity exists? But as and when demand arises, this is something which can go up again. I hope that answers your call -- answers your questions.

Sure, sir. So when the demand comes up, we can increase the outsourcing, and this can also increase the revenue potential from our existing facilities.

That is right, yes.

Sure, sir. And sir, if you can broadly or a ballpark numbers that you can give on how much has been realization decline in our top 3 or top 5, 10 products across the board? How much has been the decline in prices over the past year or so?

So it varies from product to product. In some products, we have been lucky that the decline is not more than 5% to 6%. But there are some products where we have seen a 25% decline also. So on an average, I would say that the decline in price realization is in the range of 15% to 20%.

Our next question comes from Dhwanil Desai with Turtle Capital.

So my first question is, we have mentioned that we'll go slow on our new CapEx. Now you also mentioned that we are operating at around 70%, 75% capacity utilization. So just thinking a lot, but is it possible that since the demand has been dampened and inventory destocking has happened, if suddenly demand comes back and channels are empty, then isn't it better to have capacity in hand, considering our balance sheet is in very good shape? So how do you think about that? That's the first question. Second question is, if I look at the customer concentration, I think, this year, it looks like that the large customers have been giving more business and the long tail that we have had the business has declined. So any dynamics that play there? Third question is, I think, we had China as a very decent market and that market was not available because of the lockdown, now China has opened up. So that -- how the business is normalizing over there? And the last one is -- so I think, last year, we degrown from FY '22 base. So looking at FY '24 with things normalizing maybe 3, 6 months down the line and new products, do we expect any growth from FY '23 base? I think we were looking at some 20% kind of a growth on FY '21 base if I remember correctly? Yes, these are the 4 questions.

Yes. Thank you, Dhwanil. Regarding your first question, if demand certainly comes back, then what do we do with this? So right now, as I said, we are fairly confident that as and when we see demand recovery, we can set this capacity up within a period of just 1 year. So what we have been doing is we have not been sitting idle. Civil work, RCC work, especially, is almost 90% complete at the project as of now. Equipment selection and equipment identification process has been completed. What we have not done is we have not entered into commercial discussions and place orders. So we are fairly confident that within a span of 12 months from the time we decide, we should be able to get this facility up and running. The flip side of having capacity set up right now is, number one, it's a fairly large expansion for our company. We will have to take debt on the books. Interest rates are going up right now. So we will be faced with a double whammy. Number one, we will have a higher interest and depreciation costs on our books. At the same time, the plant will have to be staffed because you can't have a plant and keep it empty. So it will be a drain on the books if there is no demand recovery coming up. So it's a question of how to balance these 2 sides at any point of time. We feel that we have an adequate potential to accommodate up to 20%, 25% growth in our existing plants and probably another 10% growth can be accommodated by outsourcing certain products. So we have a upper leeway of accommodating growth, anything up to 30%, 35%. So with this kind of leeway, we would prefer to not put ourselves in a situation where we are pleased with increasing cost with no revenue earning potential on the horizon. On the second part with regard to the customer dynamics, so there has been definitely a change. We find that there are some customers who are buying more now. And at the same time, when we say the top 10 customers or top 15 customers, even the mix of those customers is changing right now for us. And that is because some major customers, who bought more in earlier years, are now holding on to inventories. So they are cutting down. Some markets where customers are buying more. So it's a very dynamic situation. And in this time, it's -- I would not like to say that this is a long-term shift which has taken place. It's more a short-term in nature shift. Probably, it will pan out by the end of this year. With regard to China, you're perfectly right. China has been a very good market for us. In fact, 2 years ago, it accounted for close to about 13%, 14% of our sales. And we have seen a major drop in our sales to China. And though China is coming back right now, so from February, they have started opening up. The Chinese customers are still not entered into market yet. They still are saying that they are holding on to stock, so their inactivity levels for the last so many months means that they're the people who are still holding on to stock. And this business probably will not come back for at least another 6 months is what we think. So probably calendar year '23 might just go, but demand potential is still very strong in China, and hopefully, '24 will turn out to be a better year. With regard to the growth potential, meaning, for this year, we still think that the first 2 quarters, we will see subdue demand. Part of it is because of countries -- big country markets like China, which are still destocking. And a lot of it is also because of the currency crisis hitting a lot of economies across the world right now. So we talked about a little bit of Egypt and Pakistan and Bangladesh a little earlier. But this currency crisis is actually now a much more wider spread, and we also see that in a number of African countries, a few Latin American countries. And not having currency means that customers are not able to get the currency to import goods. So though there is some demand in these countries, we are still not able to book the order because they are not able to open LCs. So hopefully, this sort of the situation will also normalize. It's something which has come up by spending too much money is what I guess in the last 3 years during COVID. So we will see a recovery coming in that. But the basic demand requirement exists and it's probably just a blip of a year or 2, which we will see now. Does that answer your question?

So do we expect the same level of revenue? Or are we expecting growth or we are not taking a view -- any view right now?

I am unable to give any guidance on that for the current year.

Okay, okay. Got it. And just to follow up on this CapEx, I think, again, we had said that even though CapEx may take time, we will do the pilot thing ready so that we can start taking validation batches and to commercialize and then [indiscernible] that process also been slowed down or that is continuing as it is?

It is continuing, meaning that has not been stopped. But again, as I said, we are doing it at a little slower pace. So then -- it might be instead of the first quarter of '24, probably might come up in the second quarter of '24.

Right. But the idea is still that we will have validation and everything completed by the time the plant is ready to commercialize?

Yes, that is the intention, yes.

[Operator Instructions] Our next question comes from Rajat Setiya with iThought PMS.

Am I audible?

Yes, you are.

Okay. First of all, sir, big thanks to you and the whole NGL team for brilliantly executing during these tough times. We are swinging back to the normal levels of margin, although still some room to grow from there -- here. However, the way we have kept our OpEx -- operating expenditures in control in this year despite slowdown, it's really commendable. So thank you so much for that. Coming to the questions, so first question is about the new products that we have launched. One, if you can talk about the competitive scenario in all these products? And secondly, I think sometime in the past, we had mentioned that some of the new products will be high volumes and low price products where probably market size overall is very huge. And for the first thing, as a company, we would be entering such a space. So if that understanding is correct, if you can help us understand how are we going to -- what's our strategy in terms of making a name for us in this kind of a market? Then, sir, second question is, how is the raw material price scenario compared to -- I mean how are the raw material prices compared to the pre-COVID levels? Are we back to those levels? Or are we still above that? And similarly for power and fuel cost, where are we right now compared to pre-COVID? And do you expect any breather from here onwards? Or do you think now prices have stabilized and don't expect any downward movement? Then sir, the next question is about top 3 products, which contribute, I think, around 50% of our sales. So how is the competition in these 3 products right now in terms of any new player coming in or any -- you have talked about that there is pricing pressure for sure. Other than that, anything different in the competitive scenario? And do you see any risk from here onwards in the top 3 products? And do these top 3 products also contribute in the same way to the margins as the -- let's say, at the company level? Or are they lower or higher than the company level? And sir, finally, how do you see NGL shaping up over the next 5 to 6 years?

Thank you, Rajat, for your questions. With regard to the new products which we are doing, the competitive scenario is -- so I'll just give a little bit of industry background out here. The veterinary product industry -- and I'm speaking only of the API industry out here. It's extremely, extremely rare to have production being dominated by just 1 or 2 companies. For most of the products, there would be anything from 5 to 15 different manufacturers based both here in India and in China. So it's a fairly open market with quite a lot of competition. The new products which we are doing, we are not the first ones to come into these products. These are all products which are out of patent. So we definitely don't have the first mover advantage in these. But that has been our strategy all along. We have always gone in for products which have been out of patent. And it has worked out till now for us. If the competitive scenario exists, it will remain more competitive also going forward. And especially in the current times where demand is low, it's definitely become more competitive and broaden the pressure on pricing of the finished product also. With regard to the products which we are doing, we had mentioned that we will also add a few of the high-volume products to our product basket, which may lead to lower margins for those products. Those have yet not been commercialized. So those are still in the pilot plant stage. And we hope to have them commercialized later -- in the later part of the current year. With regard to the raw material scenario, prices are definitely not at pre-COVID level. But just post-COVID and especially after the Russia-Ukraine crisis, which took place, raw material prices at peak around May '22. And from the pre-COVID level, they had gone up by almost varying from product to product from anything from a 200% increase up to a 350% increase. And they have come down now, though not at the pre-COVID level, they're are roughly in the range of about 50% to 75% higher prices than the pre-COVID levels. But as prices have been coming down, and especially in the last 4 months, especially in Q4 last year, they came down substantially when China came back on stream. Power and fuel cost, power cost is stable. There is not much change in the power cost, but fuel costs are up. We moved over to clean fuel about 3 years ago. And because of the gas shortage going on, gas prices have not come down, though oil prices have come down. So we continue to face pressure on the fuel cost front. On our top 3 products, I mean, we are not sole producers. There are at least 5 to 6 competitors in almost all of them. There are new companies trying to enter the front also. In fact, there have been 2 new companies which try to enter these products during the last year. So the competitive continues. There is no -- it's a -- competitive risk always exists. It is our thought process and our effort to ensure that we keep and retain our market in these products. And we have been successful in doing so till now. With regard to NGL shaping up over the next 5 to 6 years, yes, we are -- we have got our plans for expansion. We hope to get our products registered in Europe and start approaching that market also, which we have not approached till now, which we will definitely do through the new facility. So there is an ample opportunity for growth available in this market, and we look forward to growing in these markets in the next 5 to 6 years.

Sure. Thank you so much for the detailed answer, sir, for each and every question. Then, I wanted to follow up. So for the raw material prices, do we expect them to come back to pre-COVID levels? And similarly, our gross margins to come back to what we were doing earlier, say, 55% plus?

It's really difficult to answer that question because commodity chemical prices are [ actually over here. ] So the prices are still high, so items like caustic also, which used to be in the range of about 30, 35, are still at 50-plus prices. But then they have gone up to almost 85 plus. So in a way, it's come down substantially from that peak, but it is still high. So we have to see how it plays out. It's not something which -- it's not easy for me to answer that question.

Sure, no problem. And with regards to the European registration. So whenever we decide to do it -- whenever we think we are ready, so how long does it really take for the [indiscernible] registration, how long does it take for the approval? And secondly, what's the cost of a registration generally?

So we have actually already filed for the European registrations for 3 of our products. We did this filing last year. Pre-COVID, it used to take anything from 8 months to 12 months to get these approvals. But post-COVID, they are taking as long as 18 months to give approvals. But we hope to have registration approvals by the end of this year, calendar year for 3 products. We plan to file for another 3 products by the end of this year. So those approvals should come through hopefully in 2025. And this is being done from our existing plants right now.

Okay. I think these are plant-specific approvals, right? So if you get the approval here, you will have to...

Sorry to interrupt you once again. Could you please join in the queue.

Sure, no problem -- Yes, yes.

[Operator Instructions] Our next question comes from [ S. Chatterjee with Ashley Capital. ]

I have two questions. One of them is, if you look at the broader picture, say, after 3 years, in FY '26, whenever Tarapur greenfield is commissioned...

Your voice is not coming through very clearly.

Hello, is this better now?

Yes, this is better.

Yes, I'm saying, say, if you look at the broader picture, say, after 3 years, in FY '26, when our Tarapur facility is commissioned, and we are also increasing our outsourcing, so -- and then we can get back to our earlier margin like [indiscernible] which used to be the guidance and our revenue can also go up to INR 650 crores, right, approximately?

So we have always maintained that, in this market, 25% plus EBITDA margins are virtually difficult to meet. We have always given a guidance of -- from 17% to 23% is what we aim to achieve.

Okay, sir. Okay. And my second question is, in recent times, we have seen we are going for poultry and companion animals also. Earlier, we used to be only for farm animals. So say, over a period of 5 years, can we see significant revenue from these poultry and companion animals? And is for companion animals margins are better? That's my last question, sir.

Yes. So what happens is that most of the APIs, which are used for farm animals, also can be used for companion animals. And this is true with regard to anthelmintics, with regard to antipyretics. So the APIs are the same. It is only the end user which changes. So -- and there are very few which are exclusively for companion animals. Most of the -- have various [ fungibilities ]. Now most of the -- the biggest market for companion animals lies in Europe and in the U.S. So when we start registering our products over there, those are customers who are -- India is selling for those markets, we will be able to approach them also.

Okay, sir, which means, currently, our formulation partners are mainly catering to farm animals, right? They are not very much into companion animals?

That is right, yes.

Our next question comes from the line of [ Tarun Sancheti with Finish Capital. ]

Sir, am I audible?

Yes, you are.

Well, congratulations for a great set of number. Just one clarification. My name would be Tarun Sancheti. I'm from Sanchay Capital. So coming to the question, I think in response to one of the previous participant's question, you mentioned about 3 filings for European Union. I do understand that you have CP filing for 3 products. Wanted to check the status of that. Have we received the approval for European region?

Approvals have not received, no.

Okay. So any tentative time line by which we can really see the approval for those products?

We hope to see it by end of this calendar year.

Okay. And directionally, from a market perspective, and I do understand that a couple of products are very limited competition out of those. So how big that market opportunity on those particular products would be, if you can shed some color on that?

Yes, see the market opportunity is large for these products, but there are already existing companies entrants in there. We are not the first to supply. So there are Chinese companies and Indian companies who are already in it. Mainly, that competition comes from China because they have over 90% of the market when it comes to supply to the Europe and U.S.

I was going through this EDQM database. And looks like, at least as of today, there would be 1 or 2 products wherein there is a very limited competition. So are you seeing that 2 people have already registered and they will get the approval before us? Is that the way to read it?

There are at least 5 or 6 companies who have already registered those products. They already have a CEP.

Our next question comes from [ Rohit with iThought PMS. ]

So Rahul, just -- I mean most of the questions have been answered. But just to understand this whole cycle better, so I mean, in the -- if you look at the history of our company last 10, 12 years and even in your past interaction, you've always maintained and you're still maintaining that -- I mean there is steady demand for our kind of products and one would also understand that, given the kind of end user industry that we cater to. So just want to understand, in the last 2, 3 years, what exactly really happened? I mean is it like the demand got pulled forward and people wanted to buy a lot and hence pay because of the uncertainty? I mean if you can share a bit on that, that will really help. And in your -- you've been in this business for a very long time. And how does it unravel usually? I mean just related to that, in terms of supply side, how are your competitors are going through these tough times? And if you can share a bit on that, that will really help us understand the scenario, but you already answered, but just a bit more detail.

Yes, see, COVID was a game changer for many things out here with the lockdown and supply disruptions which took place. So we saw for an extended period of time, transportation came at a standstill, manufacturing was -- had slowed down. And then just when we were recovering from COVID 8 months, 10 months later, there was the second wave which came out. And then there was a little bit of worry across many countries. What happens if there's a third wave and second wave sorry, fourth wave? So during '22, we saw -- '21 and '22, we saw large growth in demand from many countries and customers. And since it was a medical emergency, there was a feeling that people should stock upon medicines as much as they can. And probably most of the top companies out here sort of miscalculated the whole thing. And third and fourth waves really did not materialize, did not meet to any logistical problems. Operations went on as they were. The vaccine came out. And people were left with holding large amount of stocks that people actually bought. So a large part of our growth from '20 to '22, we went from INR 150 crores to INR 315 crores. Lot of it was -- not just by the normal growth of the market but by the requirement of people to have stock so that they could even out any logistical problems, if at all which come up and they did not talk at all. So the last year, we have seen that companies are more or less -- all those companies which held on to large stocks, have more or less delisted from buying, and they are just now destocking their inventories. Wherever we see that destocking has taken place, now there is a new problem with regard to currency issues which customers are facing. So these are things which are affecting the demand right now. And again, it seems more like a short-term trend. And by short-term, I don't mean a couple of months, but it's something which is -- which will take probably a couple of years to unravel. We are already a good year plus into that cycle right now. And it should probably continue maximum till the end of this year is what our feeling is.

Right. And just -- I mean given the end nature of our products are such which are sort of mostly necessity, do you think that given -- this has been exasperated by this currency crisis and all the other macro issues some of the countries are facing. Do you see somewhat the spring [Foreign Language] Sorry, yes, so I was just saying that given the end nature of these products, which are sort of mostly necessity and in the normal pass course of one's life and given that we had a COVID disruption and now we have issues like currency and macro disruption in the country, do you see the sort of whenever things resolve back, the things will sort of again the coil -- the spring will again recoil and the -- whatever excess -- whatever demand which has been curtailed to sort of comeback very fast? Is that understanding correct? Or -- and we may have a similar situation what we saw, maybe not to that extent, but something like the cycle will revert back to its mean or go back to the other side of the chart very fast, is that understanding correct or...

Yes. As and when the cycle completes its turn, come back, then we should see the demand coming back.

Sure. And can you talk a bit on the supply side as well? I mean are there -- how are other companies managing? Or are you seeing some companies sort of going out of business or going through a lot of stress, given the last 1, 1.5 years has been very challenging?

So lower prices does mean that companies which are not very competitive and cannot -- will definitely face pressures on their margins and profitability. And once the product becomes unviable, we will definitely see a change where people will go in. So it's a sort of a thing which keeps on repeating itself in this pharma industry, and I have been seeing it for almost 35 years now. Where companies come in, stay with the product for a few years, go out and when they go out, somebody else starts coming in. So it's really not -- it's a cycle which keeps repeating itself over a period of time.

Got it. Got it. And just one last question. I mean our top 3 products, top 5 products and top 3 clients and top 5 clients in this quarter have gone up quite a bit. Is there -- I mean is that more a quarterly aberration? Or have you gained share in these products within our existing clients as well? So if you can just talk a bit about that.

No, no, it is -- quarter-to-quarter really does not give a comparison in this industry.

Ladies and gentlemen, in the interest of time, we take our last 2 questions. The next question comes from the line of [ Rushabh with Equirus PMS. ]

Hello? Am I audible?

If you can bear a little bit louder?

Just 1 second. Yes, am I audible now?

Yes, this is better.

Yes. Just a small question on the Tarapur expansion. So -- originally, we had planned INR 100 crores expansion. And then due to inflation, we said that it would be around INR 140 crores to INR 150 crores. It was expected to start in November of last year. So just wanted to know how much have we spent as of the date? And have you taken any debt for that?

Yes. As of 31st March, our total expenditure on the Tarapur expenditure -- Tarapur project was INR 25 crores and advances given to suppliers were another INR 6 crores. So we have spent about INR 31 crores, and there was 0 debting for that.

Our last question comes from the line of [ Jhenum Gillani with Swan Investments. ]

I'm fairly new to the company. So pardon me if my questions seem a bit naive. So the Tarapur expansion, what is your capacity post the expansion? And when is it expected to start as of now?

We haven't put a date on when we would expect to start. As I said, we are just playing a wait and watch situation -- game right now. As and when we see demand coming back, that is the time we'll trigger the -- and accelerate the entire expansion. Until then, we are going at a slower pace so that we can fund the entire thing from internal approvals rather than from borrowings.

Okay. And sir, what would be your capacity post the expansion?

So typically, this industry has a capital asset turnout ratio of anything from 2 to 3. Let's say, between 2 and 2.5 would be a good average thing to think about. So on a INR 150 crores investment, we should be able to generate probably in the range of INR 350 crores to INR 400 crores turnover.

Ladies and gentlemen, we have reached to the end of the question-and-answer session. I now hand over the call to Mr. Rahul Nachane for their closing comments.

I would like to thank everyone who has shown so much interest in our company. And thank you for sparing your time to attend this call. As I said, we have now -- we would like -- we are moving to half yearly calls because there's not really much with changes within a 3-month period. So I look forward to meeting with you again when we discuss the half yearly calls for FY '24. Thank you very much, and have a good day.

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