NOCIL Limited (NOCIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the NOCIL Limited Q4 and FY '21 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. S. R. Deo, Managing Director of NOCIL Limited. Thank you, and over to you, sir.

Thank you, ma'am. Good morning, and very warm welcome to everybody present on the call. Along with me, I have Mr. P. Srinivasan, our Chief Financial Officer; and SGA, our Investor Relations advisers. I trust and pray that you and your families are safe, healthy and secure. Hope you all have received our investor presentation by now. For those who have not, you can view them on stock exchanges and the company website. As stated in our earlier calls and communications, the performance of the current financial year got impacted due to lockdown in Q1 FY '21. As the economy started to unlock gradually, we saw our performance started to improve from July 2020 onwards. Our business operations started to pick up pace, and we saw a month-on-month improvement in our production levels. It is commendable on the part of the NOCIL team that during this challenging environment, we managed to achieve the highest ever sales volume in FY '21, expanding the year by over 14% than when compared with de-growth parameters, which was largely prevalent for most part of H1 FY '21. As already stated, during the previous investor call, the tire import restrictions did help the domestic tire customers to operate at high utilization for the last 7 and 8 months of FY '21. The pickup in volume is backed by uptick from tire majors in domestic as well as international markets. The demand from them has been driven by a buoyant replacement market and an improving OEM segment. Revenue has grown by over INR 47 crores in Q1 FY '21, indicating an increase of over 17% sequentially as against the similar increase in our input costs. Going forward, we expect further price increase sequentially to get reflected in QE June '21 earnings, as we expect price increases in some of our inputs. Resultantly, on the revenue front, we could achieve a growth of 9% on a full year basis in view of the price increase put into place from January '21. This was indicated earlier to all investors during Q3 FY '21 investor call. With improvement in opening of economy, we had expected to improve our volume guidance for the future. At this juncture, we are not in a position to give any growth guidance for FY '22 in view of the recent surge in the second wave of COVID-19 pandemic. We shall be able to give our estimates for FY '22 during our next earnings call as situation due to pandemic is quite fluid. The recent expansion plans announced by some of our domestic tire customers augers well for our business. Given that our capacities are in place, the unutilized capacities will enable the company to continue the growth trajectory going into the coming years as we work towards being valued as a reliable partner to all the major tire companies. The China Plus strategy has played a pivotal role in achieving that goal. It may be recalled that we had capitalized Phase II (a) of INR 140 crores last year. And as indicated during the previous earnings call, we have commissioned Phase II (b) amounting to INR 160 crores in Q4 FY '21 after successful trial runs. Apart from the small capital work in progress of INR 14 crores, all the pending capital WIP at the beginning of FY '21 have been commissioned and capitalized in the books of accounts. Quickly on the industry scenario, the global consumption of rubber, both natural and synthetic rubber, have shown signs of upward trends. The annualized consumption for the first 6 months of calendar year 2020 showed a de-growth of approximately 15% compared to calendar year 2019, whereas the annualized consumption for calendar year 2020 de-grew by 6%, indicating improved consumption during H2 of calendar year 2020. The auto numbers also echo the same trend of volume pickup, aided by increasing demand for OEMs, leading to revival in demand for tire majors in both OEMs as well as replacement markets. The OEM demand is returning after muted performance in the last couple of years as well as disruptions due to COVID-related challenges in the initial part of the year. As a matter of additional information, the monthly rubber consumption has reached to early 2019 levels. With NOCIL being one of the key players in non-Chinese area with presence across entire portfolio of rubber chemicals, the outlook seems to be positive. Our aim is to achieve -- to continue the ramping up of our capacity utilization. And if these indicators are sustained, we are reasonably confident to achieve 100% utilization by September 2023. That's all from my side. Now I would like to hand over to Mr. P. Srinivasan to give you an update on the financial performance.

Thank you, Mr. Deo, and good morning, everyone. Hope you all are doing quite good and are safe. Let me take through the financials of the company for Q4 and annual FY '21. The performance for the year of FY '21 are strictly not comparable with the same period last year of FY '20, in view of the Q1 FY '21 performance, which was impacted due to lockdown. On the sales volume front, the volume grew by 49%, taking base of Q1 FY '20, whereas as compared to H1 FY '21, the growth during H2 FY '21 has been 75%. On a month-to-month basis, as stated by Mr. Deo, our production has picked up, and we are further ramping up under 6 strict safety and hygiene protocols. On the sales revenue parameters, the net revenue from operations for Q4 stood at INR 322 crores as against INR 275 crores from Q3 FY '21, a sequential growth of 17%, highest ever quarterly revenues from the rubber chemicals business. The growth has been largely driven by better volume offtake for the reasons already stated by Mr. Deo and also the price increases which we put into place from January '21. For FY '21, revenue stood at INR 925 crores as against INR 846 crores for FY '20, indicating an increase of over 9%, as was already indicated during the Q3 FY '21 investor call. Coming to the value addition part. The value addition for Q4 FY '21 is at INR 142 crores, which is 44.2% of sales. As stated during the previous earnings calls, our absolute EBITDA has improved during Q4 FY '21. As indicated earlier in our earlier interactions with the investors, we, once again, say that we had to incur an unprecedented high price of some of our inputs despite the building blocks not displaying such massive increases. This probably happened due to temporary shortage of supply chain. We undertook this aspect keeping in mind the long-term relationship aspect with key domestic and critical international customers. The logistics aspects, too, delayed some import parcels with the results that we were forced to buy some spot buying to maintain and deliver our commitment to our customers. Operating EBITDA. The operating EBITDA for Q4 stood at INR 50 crores as against INR 37 crores during Q3 FY '21, indicating a sequential growth of 37%. Conversion costs showed an improvement sequentially by 175 basis points. In other words, what was 30% in Q3 FY '21, it is now 28.3%. EBITDA margin for the quarter, Q4 '21, stood at almost 15.95% as against 13.4% in the Q3 FY '21, indicating an increase of 250 basis points. For FY '21, the operating EBITDA stood at INR 127 crores. Going forward, with stabilization of input prices and steady improvement in capacity utilizations, as we have built capacities for the future, we are reasonably confident that our absolute EBITDA will show an increasing trend, and the margin will also increase as both the parameters improve. Profit before tax. Profit before tax for Q4 FY '21 stood at INR 43 crores as against INR 29 crores reported in Q3 FY '21, indicating a growth of -- improvement of 45%. For FY '21, it is at INR 104 crores as against INR 152 crores for FY '20. Just to reiterate, during FY '20, we had the anti-dumping protection in the first 4 months. On the profit after tax, the profit after tax for Q4 FY '21 stood at INR 36 crores as compared to INR 22 crores in Q3 FY '21. For the year, FY '21, it stood at INR 86 crores -- INR 86.5 crores for the year. With this, we would like to open the floor for question-answers.

[Operator Instructions] The first question is from the line of Rohit Nagraj from Sunidhi Securities.

Congrats on delivering the very good performance on volumes front as well as the realizations have been increasing. Sir, the first question is how much market share have we gained because of our volume push? And the price increases that have been effective from Jan, have they been only predominantly to take care of increased cost? Or is there an element of increasing based on the trend in terms of consumption?

Rohit, we can say what we have data is for calendar year 2020, as the March numbers are still yet to be finalized. Calendar year 2020, we are seeing a minus 7% de-growth in rubber consumption world over, 6.5%. India, the rubber consumption de-growth was minus 5%. As against that, in performance of calendar year '20, NOCIL reported a growth of 5%. So it's a fact that we have eaten some shares of other players. So that's point number one. What's your second question, on the price increases? I think we have already indicated that the price increases were in relation to the proportionate cost increases of our particular finished product. So it's not that we kept the value addition percentage or -- because when you are in a high-price regime, you have to ensure that the customers are not passed on additional -- we are supposed to load additional price increases to the customer than what was not necessary. So we have maintained that absolute EBITDA parameters rather than percentage parameters.

Understood, sir. Sir, the second question is now that our CapEx is completely done and we'll be having free cash flow generation over the next couple of years, from the capital allocation strategy, what is the management expecting from long term? So I'm not talking about 1, 2 years, but from a 3- to 5-year perspective, how are we looking at in terms of the next leg of growth?

Mr. Deo will answer that.

Rohit, I think you have rightly pointed out that as we go along, we will have basically the profitability going up. So as far as the growth is concerned, yes, we are looking at the growth of the business. But at this point of time, I would not be able to give you how exactly we look at the growth. We would first see the challenges and uncertainties which are being faced at the current level in the market due to COVID and various other parameters. And as we go along, when we make consolidated plans, we will let know to all the stakeholders.

[Operator Instructions] The next question is from the line of Aditya Khetan from East India Securities.

Congrats on a good set of numbers. Sir, my first question is that despite some of the one-off, which we have taken in last quarter, as you have told that a particular client had needed some supply due to which we had bought the raw material on spot basis and that had impacted our margin in Q3, but sir, in this quarter also, we are looking that our gross margins have only seen a minor uptick of 71 basis points only to 44%. I would like to understand that has the benefit of operating leverage has not kicked in? And are you witnessing that to come in the subsequent quarters?

I think, gentleman, Mr. Deo has addressed in his opening speech. He made a statement that these are disproportionate price increases in our inputs. And you cannot adopt the same percentage of -- value addition percentage in a high price regime. What you need to do is you need to protect your cost position, and that's what we have done. We expect the price parameters to stabilize over a period of time. And once the price -- the raw material price stabilizes, all those value-addition parameters, which earlier were the [ guiding ] factor, hopefully, start getting rectified. And let the market stabilize, I would say.

Okay. So sir, if you can give a rough idea, so how has been the benzene/aniline gap for the last 3 years as compared to the accelerator or antioxidant realizations? Is there any idea which you can give?

I think these are 2 specific questions. Maybe -- my request is maybe you can address a separate query. We will address it separately.

Sure, sir. Sir, one more question. Sir, when I look at the last 3-year financial from fiscal year '18 to '21, so that is 3 years. So consecutively, we had seen a decline in gross margins. I would like to understand, like, what is the actual reason despite the removal of antidumping duty. Now we -- since we are also a cost-plus model, and we can actually pass on the raw material pricing effect to the end. But that doesn't seem to be going for the last 2, 3 years. So what are your thoughts on this?

Gentleman, I think the first thing is until July '19, we had the antidumping duty protection, which we have always said it's in the region of INR 45 crores per annum. So that was [ sticking in ]. So that benefit has gone out. So once the new antidumping duty, if at all it gets accepted and approved, et cetera, then that benefits -- some of those benefits can come in on the new case, which we have filed in jury. Second is, in a situation where the auto sector de-grew by more than 15% over the last 2 years between October '18 to October '20 or September '20 and which resulted in a temporary excess supply over demand, obviously, the competitors will try to push for their volumes and get the volume. So the price pressure was there. I think what we have seen coming December '20 or January '21, those excess supply over demand has got neutralized. At this stage, what we understand, at least based on the various data which we are seeing, we believe the price corrections are happening in relation to the cost increases largely due to the supply-demand mismatches has been settled. So in certain products, maybe the demand is more than the supply. That's a separate issue. But what we are trying to say is, those corrections have happened. And once these corrections happen, then these delta parameters always get rectified over a period of time. What is more important is, we have also taken a conscious call that having set up a capacity, you need to ramp up your utilization or the volume of capacity utilization, and that's our priority. So it's a mix of both. The good thing is, the corrections have started happening. As we go along, these things will improve over a period of time.

Okay. Sir, one last question. Sir, if we look at the working capital cycle or the receivable days, so that has shot up to around 120 days in FY '21, the receivable days particularly, so versus our average of 85 to 90 days. So can we expect this to normalize in the coming years?

I think, gentleman, you have missed the point. Basically, you should relate the receivables to the quarterly sales. If you see the quarterly sales of INR 322 crores, I guess that receivable is INR 308 crores, which is directly proportionate to that. And mind you, receivables include the revenue plus GST. So if you look at INR 308 crores, INR 308 crores includes the GST component of maybe 18%. So it could be -- it would be INR 270 crores or INR 275 crores. So if you look at INR 275 crores as a percentage of INR 322 crores, maybe it is 80 days thereabout. [indiscernible].

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

Congratulations on tough numbers and a good year in a tough time. Sir, firstly, on the high-value products, as what you have been maintaining in a couple of calls and also in your presentation that you have a strong position in high-value products, so as we speak today, if you could share some more details on the high-value products proportion in this year which has ended? And how does it pan out in the next 2 years to come?

The specialized applications revenue parameters as a percentage of total revenue continues to be hovering around 25%. Though we have plans to improve that percentage, what we can say today is, maybe after 3 months, we will be in a better position to understand the market and give guidance on that.

And sir, with regards to other expenses, I believe you have capitalized further CapEx in this quarter. But other expenses have gone up by almost 16%, 17%, whereas the volume growth has been around 3%. So is this increase related to the capitalization of the entire capacity and thereby capacity not being utilized, so some of the expenses have come in this quarter? At the same time, how do we look at the other expenses part going ahead?

I think -- gentleman, I think you missed the point, one thing. In Q3, you had a stock change debit of INR 20 crores, whereas in Q4, the stock change is a credit of INR 5 crores. So when you have a stock change debit, it means the production was not adequate to meet the marketing when we have sold something out of the inventory. Whereas in Q4, when you have a INR 5 crore credit, the production is equal to marketing -- or the market demand or production slightly ahead of demand. So therefore, the conversion cost as in Q4 related -- sequentially compared with Q3 will be on a higher side. That's point number one. The very important point is, we have seen the trend from, say, for the last 2 years or last 8 or 9 quarters, we believe the conversion cost as a percentage of revenue is coming down, what has been guidance. So maybe it was at peak level of 35% in Q2 F '19/'20. Now today, it is 28%. So we already have made an improvement of 6% to 7%. So I think on that front, we are making a conscious effort to bring it down over a period of time. And those things will come in as we ramp up more capacity utilization.

Sure. And just sir, last bit to just reconfirm what you have mentioned in your initial remarks and also your replies to the earlier participants. We do understand the raw material prices went through the roof. There was a sharp increase both in quarter 3, quarter 4 and probably initial part of the new year. And did you -- or did I understand it right, as we go ahead, if the raw material prices are becoming more stable and probably follow a declining trend, but once we have increased our price on the product and given the supply demand situation, the raw material decline will somewhere get reflected into our better gross margin? Is that a fair assumption?

As a percentage of revenue, yes, as a percentage of revenue, you will get a -- see, if you are maintaining the delta, delta on a lower base will look higher and delta on a higher base will look lower. And if your absolute delta, say, for example, it is 50 on 100, it is 50%. But 50 on, say, 120, it will be 40%. So you have to understand that part. It's a relative context.

Sure. Sure. And last, just a small bit. With regards to the capacity utilization in quarter 4, given now that we have capitalized the entire CapEx expansion, so what could be the average capacity utilization in quarter 4? And that will be in relation to what total capacity you would consider that?

We have often announced capacity of 90,000 tonnes during Q4, though additional 20,000 got capitalized -- commissioned in late -- last quarter of March '20 -- March '21. So if I look at the production parameters vis-a-vis the capacity set up at the beginning of the quarter, it is about 85%.

Okay. So you are saying 85% on 90,000, not on 110,000?

110,000 has come now. So that we are saying it will take September '23 before we touch 110,000.

The next question is from the line of Nirav Jimudia from Anvil Research.

Sir, I have 2 questions, so one to Mr. Srinivasan and then to Mr. Deo. So sir, when we add new customers in the export market, so how much time they normally take for taking the incremental volumes? So let's say, when they start with a particular volume, and they want to take the higher volumes for their plants across all the geographies, so how much time they take for taking those incremental volumes across their several global plants? And once they start taking the volumes, how is the stickiness of volumes with them? So if you can help us understand.

I think this is a strategy which is a game regularly being played every quarter with every customer. But insofar as internal -- international customers are concerned, whenever you are discussing with this large tire players, you need to understand your long-term strategy and how deep you are committed to their requirements. So if you are consistent enough to supply volumes on a regular basis, I think the volumes will come in. Obviously, they will first try with one plan, second plan, and then they will expand it to various plans. So based on your satisfactory performance of commitment, deliveries, et cetera, and also the commercial terms, obviously, the improvement in volume parameters will improve over a period of time. Typically, it is very difficult to give any specific deadline that one customer may respond very favorably during 1 year, some other customers may take 2 years or 2.5 years. So it depends on customer to customer and position product to product.

Okay. But sir, if you can give us some examples based on your past track record. I'm not talking about the future, but based on your past track record with the customers, how quickly they ramp up the volumes? So let's say, if they are taking X, so how quickly they go up to X plus 20% or...

I think the only -- I mean, an example, which we can share probably is the U.S. market becoming accessible to us post the U.S. levying sanctions on China exports. So maybe we started on X maybe 3 years ago. Today, we are at almost 4x -- 3.5 to 4x. And it is improving every year.

Okay. Okay. And sir, the second question is to Mr. Deo. So when we see our largest competitor in China, they separately mentioned the CapEx amount intended to spend on treating the environment waste. So just want to understand when we built our CapEx, so what we have spent INR 470 crores in Phase I and Phase II, how much is the CapEx built up for the environment treating or for -- this was not required in Phase I and Phase II, and we have not built up in our CapEx numbers? So this is one. And a part question to this is, I was just reading to -- one of the press releases about our largest competitor. So they have mentioned that they have reduced their power consumption per tonne of finished goods by roughly 4.7% on a Y-o-Y basis. So if you can explain whether we also benchmark our power cost in terms of reducing per-tonne consumption every year? Or how do we set our benchmarks for the same?

Okay. Your first question about benchmarking NOCIL with Chinese competition. Now I would say that it's unfortunate that a Chinese company has to talk about a very specific investment on environmental issues because probably, historically, they were not paying any attention to environmental issues. And now they have to impress upon for their sustainability that we are spending money on environmental issues. In fact, if you really look at NOCIL, NOCIL has been extremely careful in terms of handling safety and environment. So when we built our CapEx, in the CapEx or when we built our technology, the 2 major things which gets addressed as a part of the CapEx is safety and environment. So we don't have to mention the separate numbers in terms of safety and environment. They become a part of our CapEx, okay? And probably, that is one of the reasons NOCIL has a very good recognition not only as a company with product, but with a company which has a very high level of sustainability, which is now being emphasized by Chinese companies, which NOCIL never had to do, okay? So I think that, hopefully, answers your first question. Okay. The second question, will you please just give me a hint? I will be able to answer.

Yes. So I was just telling that insofar as what they have mentioned in one of their press releases that they have reduced their power consumption per tonne of finished goods.

I am coming to that. Okay. Now let me tell you one thing. I think if you recollect, I think we are basically ISO 9000, 14001, 18001 responsible care certified company. Also, we have been recently certified for ISO 50001, which is basically the energy conservation. Now one of the major aspects, which are seen, particularly in 14001 and 50000 (sic) [ 50001 ] is a continuous improvement in terms of use of natural resources. Now when you talk of use of natural resources, it obviously includes energy. So basically, the performance at the time of certification is not seen in terms of whether you are maintaining the standards. It is always seen in terms of continuous improvement in the standards. And I think all our auditors are extremely happy in terms of NOCIL performance because in all the areas, whether it is environment, whether it is safety, whether it is energy, NOCIL has been consistently showing an improvement in the performance. Again, I think the Chinese competitor probably have to impress upon that they are improving in this area, which has been a culture of NOCIL maybe for the last 15 years.

Okay. Okay. And sir...

I would like to add here just to be clear. I think in our Directors' report, there is going to be a mention of the conservation of energy and the benefit. I believe we should be about 5% benefit during this year. That also is coming up.

Okay. So Mr. Srinivasan, like, what you earlier mentioned to the earlier participant in terms of the gross margins, like, on a higher base, the percentage falls and on a lower base, the percentage improves. But sir, when I see your quarter-on-quarter numbers, I think we have clocked a realization of 14% and a volume growth of 3%. So let's say, if the Q3 base was 100% and if we take 14% realization growth and a volume growth of 3%, actually, our gross margins improved by roughly 8% to 10%. So is this a correct assumption? Or am I missing something in between, sir?

I don't want to get into specific numbers, yes, but if you -- if you are expressing as a percentage, I think on a per-kg basis, there could be some correction because that's the reason your profit numbers are also going up, if the volumes are not significantly increasing. So that's a derivation, which you can -- mathematical derivation, which you can do in any case. What is more important is, when we are dealing with the customer, it's more important to get the volumes, get the market, and with the competitive price, are we able to manage our cost within that price. That's the challenge. And that's a continuous challenge for -- across all products, across all customers. So that's how it is. So what you're seeing is an absolute number at the end of a particular reporting period, but on a day-to-day basis, when you are dealing with a customer, you have -- you cannot get into that specific numbers. What we look at is averaging and how do we do the business as a whole.

Okay. So sir, safe to assume that whether the prices move up or the prices move down from the raw material point of view, our endeavor would be always to protect the per-kg margin?

Yes, that's the least we should do, if not better, because every entrepreneur would like to record profits and generate profits. But at the end of the day, the competition, the market condition also influences a lot. And in case it's a recessionary market, these things get -- [ come under the ] challenge. But in a stable market and a growing market, these things get magnified or exacerbated or you will start showing a better performance because of the introduction of a new product or development of high-value products, whatever you may call it.

The next question is from the line of Saurabh from Asian Market Securities.

Sir, can you give the breakup of domestic and export volumes or mix in Q4 as well as for the FY '21?

In volume terms, I think we should be -- 65-35 is what domestic and exports. For Q4, maybe it's slightly 67 and 33, probably.

Okay. And sir, any update on the antidumping for the 1 product as well as for the 3 products what we have filed?

The investigations are currently on. So we are yet to wait for the outcome of that. It's -- the investigations are on. So those queries, exchange of communication is going on. So we have not heard the final decision.

So for the one product, it should come anytime, right?

Basically, it got hampered due to the second wave COVID in Delhi. So otherwise, this would have come by this time. So because of that, it has been got delayed a bit.

Okay. And sir, if you can just give broad, like, what percentage of NOCIL's portfolio would be this core product?

No, I think it's too premature to talk about it. And it's not appropriate at this point of time.

The next question is from the line of Avishek Datta from Prabhudas.

Sir, congratulations on a great set of numbers. So just wanted to know, now that the Chinese economy is also revising and their exchange rate has also actually appreciated on a Y-o-Y basis because -- on a one-year basis, are you getting more legroom to increase the prices for the end products?

See, Avishek, the main point is the competitive -- I think we start -- we made a statement at the beginning that the prices are basically competitive in nature. So you have to look at what the customer is getting -- what is it costing to the customer on a particular product or a particular volume. And so long as it's in the competitive range, you get the business. What we have seen -- I think what we are trying to communicate across the investors is that the -- there are -- there is an unprecedented increase in the input cost. And therefore, we -- each competitor was not in a position to pass on because the supply was in excess of demand. But now in the last 4 months or 5 months, we are seeing supply is equal to demand or, in some cases, supply is shorter than the demand requirement. That has enabled the price corrections happening, and that's how we are able to pass on the cost increases. Secondly, if you see the -- as far as NOCIL is concerned, we have additional capacities in place. So that also plays well for us to offer additional volumes wherever required. I hope I was able to answer the question.

Yes. Sir, Mr. Deo alluded to some price hikes, which will be reflected in the month of June. So have you taken any subsequent price hikes post the January hike?

Yes. Yes. I think we have said it. We have already -- Mr. Deo announced it, no, that in April also, there are some price corrections because it's commensurate with the cost increases.

Okay. And sir, finally, I just didn't get this utilization thing correctly. Like -- so you are saying that 85% of 90,000 tonnes is for the Q4 average?

Correct.

And when can we expect -- like, what will be the peak utilization, like, 90% for the whole 110,000 is what you were referring?

95%, I think, we said September '23.

The next question is from the line of Niranjan S. from Equitas Capital.

So we compare the gross margins for NOCIL as well as China Sunsine for the period of this March '21 versus H1 CY '20. So what we see is the numbers from NOCIL have lessened drastically, whereas for China Sunsine it has improved. To give you the numbers, NOCIL number, it was 49% in H1 CY '20, and now in this March quarter, it is 44%. And for China Sunsine, it has improved from 23% to 31%. So I wanted to understand what is the disconnect over here?

What we have data with us is that the China Sunsine gross margin is about 40% today. And we have the data from calendar year '13. It starts from 36% to 40% over a period of 7 years, whereas we are at 44% today. So I think that's just for your information. I think the second issue is, I don't know where you're getting this number of 23%, I'm not able to understand, but what we have the data is 36% to 40% over the last 7 years, China Sunsine.

I saw your press release for H1 FY '20.

So maybe there could be some element of expenses, which is not forming part of raw material costs. As far as NOCIL is concerned, yes, they are including as part of the gross margin calculations. We do a very simple thing, gross margin of sales minus RM cost.

Okay. Fine. We will look into it. So do you still stick to the guidance of 50%, as you mentioned in Q3, gross margin in, say, long term or medium term?

I think we have already answered that. Mr. Deo has answered that. I think the issue what he says is today, we have a situation where there's a high-price regime, high-cost regime. Therefore, absolute EBITDA per kg or absolute EBITDA margin is what we are interested in keeping it or protecting it or delta, what we call it. So as the thing stabilizes, these parameters will improve.

Okay. So another question was, we saw the recent release of China Sunsine. So they mentioned that they're focusing on continuous production process in their [ ongoing ] capacity. So I want to understand how does NOCIL fare in terms of -- how can you benchmark NOCIL in terms of them? And how is it better compared to them, the production process?

I think this is a very tricky question to answer in terms of benchmarking -- benchmarking the technologies. But what I can tell you is, as we have been saying, we have a research center. We develop our technologies, and our endeavor is to create technologies which are world-class. I think in the previous answer, I also told you about environment, okay? Now we also develop our old technologies for environment. So as far as the technologies are concerned, I will still place that NOCIL is better than China Sunsine in terms of technology. However, I think if you look at their volumes, their volumes are far more higher, okay? And that gives them an advantage.

The next question is from the line of Levin Shah from ValueQuest Investment Advisors Private Limited.

My first question is on this conversion margin. So we had like from -- obviously, the margins have come down. I mean conversion cost has come down from like 30% to 28-odd percent. But we had previously mentioned that over the medium to long term, we are seeing that this margin should -- so conversion costs should come down to 25%. So is that -- does that guidance still stay? I mean, we are looking at conversion costs coming down to 25%, right?

I think we have already answered the first part. From 35% or 34.5%, we have come to 28% over a period of time. And this is not fully 100% of capacity utilization. So when you go into 100% capacity utilization, these things will automatically get stabilized. And we are reasonably confident that once we touch the 100% capacity utilization, these parameters as a percentage of revenue, 25% is achievable.

Okay. Okay. Sir, my next question is on this export market. So in the past, we have spoken about being in -- so supplying some quantity to some of the export customers and post-approval and all, testing at their front, we would see a ramp-up in those accounts or plants happening. So where we are in that space? Have we started seeing incremental volumes from those customers? Or it is still some time away?

We are seeing improvement. And I think we have already answered to one previous question. So I think let's not -- so we have already answered that question.

But sir, just a follow-up. So do we see any further, like, are we engaging with other few clients where there is a possibility that we might see a big volume uptick in the future?

Yes. I think we are in discussion with all the customers. And wherever there is a scope for additional opportunity to do additional business, we will definitely explore and conduct the same.

The next question is from the line of Rushabh Sharedalal from Pravin Ratilal Share and Stock Brokers Limited.

I just wanted to understand on this antidumping duty front. So what is the price of the imported PX13 rubber chemical that is being imported? And what is our price and what sort of a percentage of antidumping duty on it are we actually -- as a consortium, we have made a representation to the DGFT. So what sort of a percentage of antidumping duty are we expecting on this PX13?

Gentleman, I think as far as the antidumping duty determination is concerned, that should be left to the discretion of DGTR, Director General of Trade Remedies. So it is not our claim. It is their determination, and they will quantify that impact, whatever that they feel, number one. Number two, as far as our pricing is concerned, we are pricing in CIF landed price into India plus appropriate customs duty and exchange rate. That's our competitive pricing.

Yes. So I just wanted to know that what sort of a difference is there between the price that is imported and our CIF price? Just wanted to understand that.

It's a CIF equivalent. If CIF price is $100, if you -- and you are just putting exchange rate of INR 72, 100 x 72, INR 7,200 is the landed price plus normal duty of 8% or whatever it is. So I think you should understand when a foreign competitor is offering in India CIF, say, $100, the equivalent rupee parameters plus customs duty is what the domestic-landed customer will buy from you. Unless you are competing, there is no incentive for him to come to you, no?

Okay. So the price that is -- the imported price and our price is roughly the same. Is my understanding correct?

Yes. Yes. Yes. Correct.

Okay. Okay. And just one more question on this antidumping duty only. So what sort a -- I mean what is the legal team at NOCIL trying to gauge of the situation that has been presently there? So the period has been extended by 2 months. So what is the expectation of the legal team at NOCIL?

I think it's too premature to -- matter is under investigation, and it's not appropriate to make any assumption or comment on that. I think we leave it to the discretion. We have submitted our contentions. Now it's for the authority to conclude and whatever -- we have to await their decisions.

The next question is from the line of Sanjaya Satapathy from Ampersand.

Sir, congratulations, once again, on a good set of results. Sir, your hesitation in giving a guidance for fiscal '22. Can you just explain it like how bad has been this quarter 1 and that -- and if this issue of lockdown gets over, let's say, in quarter 1, and then what will be your expectation of a full year number?

Gentleman, the first point is, what we said is, while commenting on FY '21, we said Q1 FY '21 was bad, whereas Q1 FY '22 as compared to Q1 FY '21 is definitely better. And we would like to expand our capacity or pursue the growth. But once the lockdown gets opened up or once the economy starts opening up, we will work out accordingly. But what we are seeing is the first 1.5 months or 50 days of sales what has happened has shown a good trend. The question is how long this lockdown will persist, we don't know. But to summarize, the Q1 FY '22 volumes will be far better than Q1 FY '21.

And how does it compare with quarter 4?

No. That's too premature to talk about it today.

No. I mean, you already know quarter 4 number.

We have quarter 4 number, but we are yet to -- we have this June month, which is uncertain and which is the last few days of May uncertain. So we don't know what's going to happen. Wherever we are -- possible, we are able to conduct our sales. But there are challenges. So it's a little premature to talk about it.

And exports is in no way going to mitigate the near-term softness of domestic demand.

See, the contracts are generally entered before the commencement of the quarter. So once the export volume is fixed, you have to supply us for that. There could be some minor tolerance a bit here and there that we may -- that additional quantity we may explore it and supply it, but not otherwise. And logistic challenges are also there in exports. So even in March, we had some delayed shipments so -- which got postponed to April. So that's part of life.

And the logistics issue, which was there probably because of Suez Canal, et cetera, is that something which is not yet normalizing?

It's still not normalized. There are some challenges.

And sir, lastly, I just want to understand from you that -- as you were kind of in the middle of your -- firming up your next expansion plan, will the next expansion plan be simple expansion of current product lines or you have scope to decisively move into something which is different from your current product line, both in terms of value addition as well as different types of product, which will kind of give you not only scale but also some kind of a diversification benefit in times like this?

Mr. Deo is going to answer this question.

See, basically, as far as the expansion plans are concerned, we continue to scrutinize various options. Now the options could be in terms of continue to expanding rubber chemicals, the options could be to look at the other products which are value addition. And at the end of the day, we look at the feasibility and then decide where NOCIL should grow. So I think we keep both the options open, and we will look at it as we go along.

And when do you think you'll be able to share your trend, sir?

I think right now since we are in the midst of COVID and there are a lot of uncertainties in terms of everything, in terms of even the manpower availability, I think we will start looking at real time in terms of implementation, and then we'll come back to you.

The next question is from the line of [ Deep Shan ] from DB Investment.

We have really gone through some tough times, and our company has performed really well. So congratulations on that, sir. Sir, my first question is regarding the DGTR and second about an allotment of ESOPs on 20/04. So sir, going on to the allotment first, I see that senior management has been allotted with 115,075 shares. So can you please enlighten us who is the senior management who has been allotted the shares? And is Mr. Srinivasan a part of this?

Gentleman, we all of us, over 20 employees, are being given ESOP grants as per the Board remuneration committee. And these grants, under the ESOP policy, generally are valid for 10 years from the date of grant. And each employee is given the freedom to exercise as per his needs. So some employees have exercised as per their needs. That's an ongoing process. So there's nothing -- and Mr. Deo, myself and others are also part of this scheme.

Understood, sir. Understood. Sir, I see that you have a very good -- like, a very good trajectory with ESOPs. So that's just a point of curiosity as an investor from my end. Sir, second question is on DGTR. I see that the team has put a lot of efforts into this. And in regards to the PX13 case that is ongoing, sir, the preliminary findings say that the antidumping duty could be of $1,200 to $1,500. Now the team of NOCIL is very good financially. We must have done some cost-benefit analysis here. If -- and that's -- if we get this, do you think we would see any significant changes in EBITDA and net margins? And if this happens, is there any particular number that you can give us as guidance?

Again, I think we have answered to a previous question on this. It's -- and the investigations are on. So it's not appropriate to talk about what are the impact on EBITDA because we don't know what is going to finally come in. So let's wait for the final, what to say, decision from the government bodies, number one. Number two, the DGTR levies antidumping duty on specific exporters. So you will have to look at the weighted average of that and what are the customers' options to that. So it's a jigsaw puzzle by itself. So let the final decision come, then we'll take a call appropriately.

Sir, one last question on our expansion front. Sir, NOCIL has been really good with the expansionary front, and we have utilized our CapEx very well. And we are prepared for the auto pickup sector, which was very well timed and kudos to the management there, sir. Sir, going forward, I see that you have said this previously that 95% of 110,000 capacity is the goal by September '23. But over the current financial year of FY '21/'22, what do you think should be the company's guidance on capacity utilization? What are we hoping for?

Gentleman, I think, Mr. Deo, in his opening remarks, made a statement that today being an uncertain area or a challenging area during this time, it is not appropriate to comment on it. During the Q1 earnings call of FY '22, we will definitely give you guidance.

But as an investor, none of the questions that have been answered were very helpful on a direct matter. I love the company. I have been an investor for a long time. My partner has been an investor since the last 15 years, but sir, I would really appreciate when times do get certain, we'll get better guidance. All the best to your company, sir.

This is uncertain time, so please wait until the final decision comes. We'll get back to you.

Understood, sir.

We take the last question from the line of Sachin Kasera from Svan Investments.

Congrats for a good set of numbers. Sir, my question was a little from the long-term horizon, say, from a 4 to 5 years' perspective. You mentioned that by Q2 of this year, this new capacity should probably fully stabilize and maybe another 4 to 8 quarters, from there we should be able to fully utilize it. So -- and since our balance sheet is very strong even now, from a long-term perspective, is there sufficient scope for the company to further keep increasing capacity in this area or at some point of time we look to have some adjacent categories as a company if we want to grow?

I think partly I have answered this question. First thing, if you look back the history of NOCIL, I think as we started accumulating cash, we have flowed it back into the business. The strategy is very clear that there has to be a continuous improvement in terms of capacities and business. So this basic strategy will continue. Now to answer your question, whether we would grow only in rubber chemicals or whether we would look at some other avenues, I think we keep both the options open. And as we go along and when the plans are concrete, we will definitely share it with you.

I understand and appreciate that fully, sir. My question was from a little different perspective that with these capacities, we would be -- say, compared to 7, 8 years back, we have grown much faster than the market, right, [ on a CAGR ] basis, right?

Correct.

So our market share in the global and in India has gone up in the last 7, 8 years and will further go up in the next 6 to 8 quarters once we fully utilize this capacity, right? So is there enough scope for the company that we can keep growing faster than the market in the next 5 years and that our market share can keep going up? Because there's one limit to the market share global that we can assume, right? That was my perspective. And if we see that there could be certain limitations to -- beyond which we cannot grow our market share in the rubber chemicals, then we may have to look at adjacencies because the company is actually looking at growth options.

See, if we really look at it, I think one of the major changes which has happened in the world market is a China Plus strategy. Now how this China Plus strategy is being implemented by all the people, that will create avenues for NOCIL to grow. And since NOCIL is one of the largest rubber chemical manufacturers out of China, NOCIL has a great advantage to be in this business and continue to expand in case the China Plus strategy is being implemented by all the customers to a certain extent. So we also see that NOCIL also could grow in rubber chemicals business.

That was our last question. I would now like to hand the conference over to Mr. Deo for closing comments.

Thank you, ma'am. So gentlemen, these are challenging times, which does not bring some -- which does bring some element of uncertainty. We are hopeful that India will bounce back and all stakeholders will take India forward. And we are hopeful with the capacities already in place, we shall see further movement and growth in volume as well as revenues in FY '22. I take this opportunity to thank everyone for joining the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with us or Strategic Growth Advisors, our Investor Relations adviser. Thank you very much.

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