NOCIL Limited (NOCIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to NOCIL Limited Q2 and H1 FY '22 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 very much. Good morning, and very warm welcome to everyone present on the call. Along with me, I have Mr. P. Srinivasan, our Chief Financial Officer; and SGA, our investor relations advisers. I hope you all have received our investor presentation by now. For those who have not, you can view them on the stock exchanges and the company website. We trust and pray that you and your families are safe, healthy and secure. Let me start with the business highlights for the period. We recorded all-time high revenue in Q2 FY '22 of INR 375 crores. However, the unprecedented increase in raw material, freight costs and other input costs has impacted margins on a sequential basis. During the quarter, we have registered revenue growth of 9%. As indicated during previous earning calls, we were forced to consume high-input legacy costs coupled with increase in utility costs, which impacted the operational performance. The global consumption of rubber data for both natural and synthetic rubber continues to show sign of upward trend. The rubber consumption on annualized basis based on Jan to June 2021 period shows a growth of approximately 9% compared to full year calendar year 2020 as against a de-growth of 6% in calendar year 2020 as compared to calendar year 2019. Accordingly, we see that demand improved for tire industry on easing of localized lockdown by state government since May '21. The tire majors who had announced their CapEx have not made any major changes in their business plans. And they continue to see good demand visibility for their expanded capacities going forward. We continue to monitor the markets very closely, and we are ready with our capacities to fulfill the future growth. So we are also strengthening our presence in the export market for our products and diversify our geographies. There is a lot of R&D and brand building that we are doing in export market. The recent disruptions in China due to power shortage, along with higher ocean freight, has impacted the global supply chain, leading to unprecedented rising commodity prices. This is the brief from my side. Now I would like to hand over to Mr. P. Srinivasan to give you update on the financial performance.

Thank you, Mr. Deo, and good morning, everyone. Hope you all are safe and in good health. Let me take through the financials of the company for Q2 and H1 FY '22. On the sales volume front, the volumes for Q2 FY '22 grew by 35%, taking a base of Q1 FY '20. That's a index level from 100 has gone to 135, whereas on quarter-on-quarter sequence, the volume registered a de-growth of 5%. So 130 has become 135. Revenue -- on the revenue parameters, the net revenue, as Mr. Deo highlighted, net revenue for operations for Q2 FY '22 stood at INR 375 crores, a record high, as against INR 345 crores in Q1 FY '22, a sequential growth of 9%, a combination of volume, price adjustments and [indiscernible] product mix. The sales growth net revenue from operations for H1 FY '22 stood at INR 720 crores from INR 328 crores as against H1 FY '21, a growth of over 119%. On the operating EBITDA. Operating EBITDA for Q2 FY '22 stood at INR 49 crores as against INR 73 crores recorded in Q1 FY '22, a de-growth of INR 24 crores. For H1 FY '22, it was -- the operating EBITDA stood at INR 122 crores as against INR 39 crores for H1 FY '21. We saw a big drop in EBITDA margin by more than 8% as compared to Q1 FY '22. For H1 FY '22, the EBITDA margin has stood at 17% as against 12% H1 FY '21. Mr. Deo explained the reasons for drop in EBITDA margin, but again, it's driven by -- primarily driven by increase in input costs largely due to legacy input cost and some element of [indiscernible] cost. On the PBT parameters, the profit before tax parameters, the PBT for Q2 FY '22 stood at INR 41 crores as compared to INR 63 crores in Q1 FY '22. PBT for H1 FY '22 stood at INR 104 crores as compared to INR 32 crores for H1 FY '21. The PAT parameters, profit after tax. The profit after tax for Q2 FY '22 stood at INR 31 crores as compared to INR 47 crores for Q1 FY '22. On the half yearly performance, PAT for H1 FY '22 stood at INR 78 crores as against INR 28 crores in H1 FY '21. Based on the market conditions and H1 performance, we are still hopeful of achieving a volume growth of more than 10%. Obviously, we would strive for more, but it all depends on how the market unfolds because of the current uncertainties prevailing in the international market. And we expect the revenue growth of minimum 45% over FY '21 to FY '22. With this, we would like to open the floor for question answers.

[Operator Instructions] The first question is from the line of Mr. [ Dhimant Shah ] from [indiscernible] Finance.

Two quick questions. Number one, the fall in gross margins, how much of that would you attribute to: a, only raw material and particularly raw material increase from China; and secondly, if there is any element of as doing a penetrative pricing in any of the export markets that you mentioned that you would like to focus on? So that is question number one. And question number two, any fruition of plans on the CapEx side given what you had mentioned during Q1 that you'd possibly free some plans for future CapEx and future growth? So if you can just answer these 2, please.

[ Dhimant ], I would like to clarify the gross margin. I think we had given hint in the Q1 call that in Q2, we will see legacy cost. And Q1 had a -- the original plan was a higher volume, but due to COVID second wave lockdown, we had booked some high cost inputs, and that got spilled over to Q2. So if you really ask us, very frankly, there is a shift of INR 10 crores here and there. What was INR 10 crores supposed to come in Q1 went to Q2. And that's the reason the profit of Q1 stood at [ 60 ] and Q2 stood at [ 40 ]. Otherwise, it should have been [ 50-50 ]. That was the point number one. Coming to the penetrative pricing on the export market, no, there is the prices of competitive pricing, and we are getting a reasonably good price. I don't see we need to undercut any pricing there.

No, meaning, you had mentioned earlier that if you open a new plant, I think the client takes time for specific approval of that particular plant. And for that, they would [ tie ] the chemicals any -- for a time period of anywhere upwards of 6 months. So it was only alluding to that.

Yes. On that front, we would like to clarify here is that there are some expanded products on which the capacity hasn't been expanded. We are penetrated to the international market with a higher volume share in the international market. And of course, not necessary to really undercut significantly, we are actually -- we're getting more or less comparable pricing in domestic market adjusted for duties. That's the second part. On the CapEx plan, I think that I would like to leave it to Mr. Deo, our MD, to answer that.

Basically, as you are aware that NOCIL had already completed its CapEx plan of INR 450 crores. And as we have been briefing all of you in all the previous con calls that the first objective is to ensure that all these volumes which we have put in place, okay, we come to a stage that the capacities are covered in terms of our markets. As far as the future CapEx plans are concerned, of course, we continue to look at the future of the company. But right now, it's not the time to share it with anybody. As and when we are ready for concrete CapEx plan, then we will come back to you.

Great. And if I can just take half a minute on the previous question, any other raw material basket where you still see the pressure on as far as impact on margins go?

As far as the raw materials and the energy costs are concerned, I think you should be aware that the situation is really unprecedented. And to talk about the margins, it's very difficult because there are all sorts of problems. You are aware that the energy costs have gone up. The trades have become extremely difficult, okay. So even to look at the current quarter in terms of that and comment on that will be difficult. But as we said, our endure is always going to be to increase the volumes in the market and keep on increasing the top line.

Fair point. No, no, what I was trying to get is, is there any particular basket or a particular set of raw material products which even moving forward can continue to impact our margins or either in terms of sourcing or either in terms of pricing or either in terms of logistics or whatever can impact, which you still see can have a spillover in Q3, Q4, just in case?

I think it's a very, very difficult question to answer looking at the current market situation, okay. And I don't think that we can specifically talk about a specific raw material or a specific source because, overall, the situation is constrained by all these factors, the availability, the pricing, the freight costs. And I don't think that we can say one raw material, but this is an overall situation in terms of supply chains.

Okay. Just to rephrase that, sorry for this. The China -- hello? Are we importing anything from China which can continue to impact us?

No. We have various sources in terms of our supply chain. We have source from China. We have source from Europe. The impact of China would be little on our business.

I would need to clarify here, when China is not there in the active market space, then there is this supply chain constraint originating on the global space. And that reason, the prices show an abnormally distorted price increases. So what we are not saying that we are saying China sourcing is not available, Chinese source is not available, hence, prices going up more. If China has reduced its production or there is a constrained originating out of China, all the price, the global price of that particular product or sector gets impacted. And that's what we have seen across all sectors.

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

Just one question. We've seen [ Indian ] manufacturers coming out -- rolling out electric vehicles. Now we've read that electric vehicles are heavier than the normal IC engine vehicle. So when you'll speak to the tire companies, what are the effects of this on the tire and, consequently, its effects on the utilization of rubber chemicals? So the quantum of the rubber chemicals used and the type of rubber chemical used, if you could give some broad idea on this.

Okay. Now first and foremost thing, whether it is IC engine or whether it is EV, any type of vehicle, first thing the vehicles will require tire. Okay. So as far as the tire business is concerned, tire business will continue to grow. Now as far as the tires are going to use, natural rubber and synthetic rubber combination, they will require rubber chemicals to manufacture. In fact, as you are rightly saying that EV tires are likely to be heavier, so probably higher rubber and higher rubber chemicals can go over there. If you are looking and asking the question from the business trade in terms of change from IC engines to EV, I don't -- we don't see any business trade in that.

Okay. And in terms of the types of rubber chemicals, are there newer types of chemicals that are going to be introduced or are in the R&D pipeline for that particular segment?

As of now, no. As of now, whether again, I will repeat the same, whether it's IC engine or rubber chemicals, natural rubber and synthetic rubber combination, we will use the same rubber chemicals. And there is no thought process in terms of changing the rubber chemicals.

Okay. Okay sir, got your point. And sir, any changes in the supply side dynamics of the rubber chemical industry as the new capacity is coming globally in Korea, China, elsewhere?

No. I think from last 18 months, we have not heard of any additional capacity which is coming up. Okay. We have seen in China Sunshine, some announcements, that is coming in -- insoluble sulfur, something in accelerator, something in anti-oxidants. Apart from that, we have not heard anyone. Domestic suppliers, we don't know what is their exact plan.

The next question is from the line of Rohit Nagraj from Emkay Global.

Good to know that we've been able to increase the volumes on a Q-o-Q basis. Sir, the first question is in terms of the China disruptions that we have seen -- and back because of the energy issues and all. So did it have any impact on the volumes going out of China and the pricing environment has subsequently improved based on the volume availability? And as I understand that in the last 4 quarters, every single quarter, we have been taking the price hikes based on the renegotiation of incremental contracts. So the same has been taken during the Q2 -- Q3 quarter as well?

China disruptions volumes, we have encountered some disruptions originating out of China -- Chinese competition supply chain on rubber chemicals. We have seen that. We contracted prices which we have entered in for Q3 is we are normally concluding mid-September or end September. So what we are now seeing is some spot price corrections that are happening. So which we are for spots customers, we are adjusting the cost increases. For contract customers, we are working out some alternate arrangements.

All right. Got it, sir. Sir, on the second question on volume growth, so in our presentation, we have indicated that we expect volume growth of 10% in FY '22. And given that FY '20 to '21 we had 14% volume growth, does it not look a bit muted given that FY '21 was also COVID affected first quarter? And our commentary also suggested that the exports market is also improving, and we are penetrating more from a market share perspective, so just wanted to hear your thoughts on the same.

These estimates are on a conservative basis, we would obviously strive for more. But we are also looking at taking cognizance of the current situation which is happening in the marketplace, particularly the domestic tire industries and our domestic non-tire, where in view of the high price regime, some of the small-scale manufacturers may review the -- what to say, their production activities or production plan. And we will be in a better position to exactly give you those clarifications at the end of the Q3 reports.

Sure, sir. Sir, just one number. What was the exports number for first half? I think Q1 was about INR 135 crores.

I think INR 260 crores or -- INR 260 crores thereabout.

The next question is from the line of Aditya Khetan from Stewart & Mackertich.

Sir, my first question is again on the gross margin spend. Sir, when you -- as you said in your initial remarks that gross margin decline is led by the high inventory cost. Sir, first thing I wanted to understand, sir, if you look at your major raw material, which is aniline and carbon disulfide. So if we take the price of aniline on quarter-on-quarter basis, the price increase is actually not that much. So I just wanted to understand that if the aniline prices has not shown that sort of an up move, what was the actual reason for your -- for the contraction in the gross margins? So was it completely attributable to the higher inventory cost? Or what was the reason?

I think we have given the explanation in the first question to the first question raised by one of the participants. We said that we were aiming for a higher operating rates in Q1, hence, we are booked at high cost inputs, not necessarily aniline, it includes several input parameters. And unfortunately, due to second COVID wave lockdown, our operating rates came down because of the customers lockdown [indiscernible]. Therefore, these high cost booked material had to be passed on in Q2 -- to Q2, and that is what we have given enough clarification in the Q1 call. And that's what we want to give. This is -- actually, this is the real reasons for it.

Okay. Okay. So that completely -- so the high cost -- so legacy cost has been taken for this quarter or there is still left for -- to pass it on to Q3?

No, everything is consumed in Q2.

Okay. Okay. So definitely, so from Q3 now, now we are also with...

I think Mr. Deo will clarify that.

I think since you are talking of aniline cost. And it looks that you are tracking the aniline cost, please track it for Q3 the October cost, and it will answer your question.

Okay. Okay. Sir, so now suppose if the aniline prices starts to rise, so are we also planning to take some further price hikes to pass it on? Or this...

I think we answered that in the earlier question where we said for spot customers, we are going to take cognizance of that. For non-spot, contracted customers, we are working on alternate agreements.

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

Sir, just 1 on the cash flow. So cash flow was impacted largely because of higher inventories. So is it because of the value or in the volume terms also we are carrying higher inventories?

Gentlemen, in the past, we have given a clarification for any level of activity improve, increasing level of activity, at least 25% of the increased level of activity -- incremental activity will be deployed in working capital. So if your turnover is going from INR 925 crores to INR 1,400 crores thereabout, on INR 475 crores -- 25% is INR 120 crore, INR 125 crores, and that's what has happened.

Okay. And just 1 clarification on your earlier remark in terms of price hike taken on the spot contract, so what is the current mix of business of the spot and the contracted business?

Typically, spot is 40%, and [ smart at ] is 60%.

So on this contracted business, so we'll be able to take a price hike in the next 1 year?

We are not sure. I think we have given -- if you recollect, if you refer to our investor guidance, the presentation, we have already said that there will be some time lag that we have already given a clarification, #1. #2, we have -- nonetheless, we are trying for an alternate arrangement, but we are -- at this stage, we don't wish to disclose what is that alternate arrangement. And it is not appropriate.

[Operator Instructions] The next question is from the line of [ Aksh Vora ] from [ Raj ] Financials.

Yes. Sir, I just wanted to know what's our current capacity and capacity utilization.

We have already announced it is 110,000 production capacity. And we are usually utilizing the region of 70%.

And sir, given that the legacy cost of input cost has been behind and, in the recent past, there has been [ readily ] announced on key raw materials, so what would be the margin impact? And from when can we expect that margin and -- incremental margin of ADD?

Can you repeat the question? I just -- I lost you somewhere, I'm sorry for it.

Yes. Given that the legacy cost of input cost is behind us and even the margins would be normalizing in second half, and the ADD in recent past, ADD has been announcing key raw materials, so from when incremental margin improvement and ADD-related raw materials would kick in?

I think we have to look at a stable market conditions, not as volatile market conditions. For any margin predictions or consistent sustainable margin parameters, we should look at stable market condition. What we are today encountering is a very unusually, unprecedented volatile market where everything has gone through the roof. And it is not good for the economy or consumers at large to trade in a high-price regime. That's not advisable. So unless the market stabilizes, I don't see it is proper on our part of giving any margin guidance at this stage. What we are more concerned about is absolute numbers. We are trying to protect the absolute numbers. That is what we are more concerned about, not the margin percentage.

[Operator Instructions] The next question is from the line of Rohit Nagraj from Emkay Global.

Deo sir, if you could just tell a little more about the exports market and what is our strategy there. And in Q2, did we face some pressure because of some of the contracts being CIF based and where the utilities cost -- I mean, the logistic costs are certainly impacted? And incrementally, we will be going with maybe not the CIF-based contract but exports. Any thoughts on the same and generally how the exports market is shaping up?

Export market, I think the first clarification we would like to give is here on the freight aspect, yes, we have witnessed unprecedented freight increase in most of our cargoes. We have negotiated with the customers on FOB plus action freight. So their revenue parameters factor the incremental freight costs which we are supposed to incur. And that's one of the reasons why if you see the revenue parameters in absolute term is showing a 9% increase over sequential quarter as compared to 5% increase in volume. Some portion of the freight aspect is already built into that along with the product mix. That's number one. Number two, export market is still growing. We had a setback in Q2 because of the Southeast Asian markets locked down. Other than that, we don't find any challenge in export market. We are still -- the contracts are entered based on the offers given by us and the customer's requirement, and we are meeting all those schedules.

Right, right. That's interesting. Sir, the second clarification, just again from the China front that given that there have been disruptions in China, so have we seen in the last 1 month price increases across our accelerators or antioxidants products?

I think we clarified that the spot prices have shown a correction on that to -- commensurate with the cost increases.

[Operator Instructions] The next question is from the line of Niranjan from Acuitas Capital.

[indiscernible]

[Operator Instructions]

Can you hear me now, clearly?

Yes, much better.

Yes. First -- a couple of questions. The first one would be any update on the ADD front, Anti-dumping duty? And the second would be how is the U.S. market shaping up in the export market?

The first question, if I'm not mistaken, is ADD. I think on the Anti-dumping duty on [indiscernible], that has been not been accepted by the incentive government. The recommendation by DGTR has not been accepted by the Central government. So that's the state. The other 3 cases, investigations are currently ongoing, so we are awaiting the final decision from DGTR. The second question, I did not get. Can you repeat please, sorry?

How is the U.S. market shaping up in the export market, United States market?

It's -- I think if I look at an index of 100, we are at already 170. If I look at 2018, '19, it was 100. Today, we are going at the rate of somewhere in the region of 200 or 190, doubled in 3 years time.

[Operator Instructions] The next question is from Sagar from Phillip Capital.

Sir, how do you classify specialty chemicals segment? And what products are these? My second question is from the 3-year point of view, can you explain -- give some kind of guidance for what should be the mix between specialty and the commodity products? And what is the margin profile between them would be helpful.

Point number one, any application which is meant for specialized application, we categorize as specialty chemicals. Though rubber chemicals per se is a niche segment but with China coming in, in a big way, it is getting into some sort of a commoditized market. So what we are trying to distinguish is a product in our portfolio about 22, 23 products, almost 50% are meant for specialized applications. So that may -- we can say that. From an industry perspective, specialized segment on the total rubber chemical scenario is not more than 10%, whereas mostly the basket is more than 25%. So that's the current state of it. As for the margin profile, in specialty, generally, the competition is being minimal, it is a cost-plus scenario.

Okay. So any ballpark margins? Any difference would you like to share generally? Historically?

I think that's not appropriate.

And sir, how do you classify the specialty, I mean, application of these [indiscernible], like specialty chemicals products?

Application may be in any field. It's not done by all the customers. It's only done by select group of customers or select industry. So that's the reason we have categorized as specialized applications.

Okay. And sir, one more question on domestic market share. Generally, it has been in a press about 40%, 42%. So is there any scope of improving market share from next 3 to 5 years' point of view?

Yes, we have, we have.

So maybe any steps, if you can guide on that, sir?

Some of the capacity expansions are meant towards that.

The next question is from the line of Amit Kadam from Canara Robeco.

Sir, my question is, sir, so in that long-term contract, how the price negotiations or how the discussions are happening with your clients? Because as we understand that we always maintain that our particular product may not be a substantial part of their COG or their raw material. So how the negotiation is happening, are those -- whenever the contract comes for renewal, they are okay with the adjustment what we are trying to report as a price or they are asking for some -- maybe some adjustment in their favor so that maybe a midway between the price that this is too high make it reasonable? How does price negotiation is happening every time long-term contracts or the contractual agreements are coming for the price renewal?

Very simple. Each contract is generally meant for a quarter or 3-month period. Since China is controlling 75% of the supply chain, obviously, China will be the price dictator in these products. Therefore, it's a competitive bidding. And depending on the competitive -- if you are in a competitive range, we will get that volume whatever is being asked for. And in case we are not in the competitive bid, we will be given an offer or we will be given a chance to improve our offer in case we wish to. And at that point in time, we take a call whether it is worth pursuing for additional volume or price drop or loss of margin. Those -- all these, the marketing function take considerate leverage call in consolidation of the management's objectives and accordingly each customer, each product to product basis. There is no standard formula. Each customer is different. Each quarter is different.

So basically, the spot market is immediately gets adjusted. So what I can sense from your comment is that the contractual -- the long-term contracts that we talk about, even though they come for a quarterly renewal, it is actually reflecting whatever the current price scenario is first that we have to compare it with the input parity or maybe the China prices, and that's how things get settled. And if you are able to supply them at that competitive bid price, they are happy to buy it from. So it maybe a matter of time or a lag of a quarter or so that even those contracts get readjusted to what's the current price scenario.

Because that is what we have seen in the last 1 year.

Okay. Okay. So it is our efficiency whether we can compete with China? And if yes, then there is no problem in getting the product...

Depends on product availability, my dear friend. There's a product availability and the availability is there, if the supply is there more than the demand, automatically the price pressure is there. If the supply is equal to demand, our price adjustment is there commensurate to the cost increases. It's a very simple economics, and that's what is playing here.

Okay. Okay. Fair enough. I got my answer.

[Operator Instructions] The next question is from the line of Nirav from Anvil Research.

I have 2 questions. Sir, you mentioned in the earlier remarks that the endeavour is to protect the profit or the per kg margin. So if you have it the same with respect to the -- that whether were referring to -- with respect to the average of H1 in terms of the per kilo margins or are the Q2 margins what we have reported this quarter?

Nirav, we would like to ensure that we would like to aim for the -- we are very greedy. We would like to expect a move. But in reality, we have to look at the competitive pricing, and we have to work towards in a competitive market scenario. And the challenges are there. What we are trying to say, we will try to maximize under the constrains, given the constrain what, under which we are operating. So we would like to improve the margin for sure, but we cannot be very specific. But yes, we would like to protect as far as possible wherever we can. But it all depends on how the market unfolds, how the customer reacts to those offers. And that's -- it's a puzzle which is regularly being solved every quarter. Some quarters, we win, some quarters, we lose, so that's part of life. But if we are able to adopt this approach consistently and it is paying dividends, I think we are on the right track. We can presume that.

Got it. Sir, and second question would be in terms of if you can give some sense in terms of our domestic market share, how it has been in the last 6 months. So let's say, the start of FY '22 and what has been the situation currently, so has it improved in the last 6 months, our domestic market share?

Of course, it has improved. It has improved. I don't have exact data of imports right now with me. But as and when we have, we will share with SGA, and then SGA will share it. But we believe we have improved because the requirements in Q2 was better than Q1. So therefore -- and we were forced to supply that thing. So that's a very clear message that requirement, the supply from other sites were literally -- they were restriction of probably.

Okay. Sir, if you can share FY '21 numbers also, that would be helpful. So that next time when you will share the data on probably H1 of FY '22, we can correlate.

We don't have -- I do not have the data right now with me. In the next presentation, we'll include that.

The next question is from the line of [ Brian Chira ] from Standard Chartered Securities.

Am I audible?

Yes.

Just wanted to clarify 2 points, which I might have missed out while you spoke about. So the legacy cost in Q2 that we have booked, it was upto INR 10 crores, right?

Yes.

Okay. And sir, if you can again clarify what was the capacity utilization in the current quarter?

70%.

70%, okay. So just a thought process. So if you're guiding on the revenue growth of 45% for the full year of FY '22, which ultimately means that in H2, we would be growing at roughly around 5%, which is a significant deceleration versus what we have been thinking about to ramp up the utilization. So any thoughts on that as such a conservative guidance on the revenue front?

I think we are at the start of [indiscernible].

[Operator Instructions] The next question is from the line of Aditya Khetan from Stewart & Mackertich.

Sir, my question is, as I clearly remember sir last -- so 2 quarters back, in Q4 FY '21, that we had asked you this question regarding the [indiscernible] merger, like they are -- so their plant was about to start in December '21, this year, that you had said 2 quarters back. So just wanted to take an update what is the -- what's an update on that front because they are the second largest player in the domestic market in rubber chemicals. So any update on how you see the competitive scenario change thereafter, like if that plant was about to start in the next month?

They have started the plant in a limited scale. I don't think it's a big volume. But every manufacturer has plans, but how it unfolds, maybe time will tell us. But today, yes, they are in the business both on manufacturing front and also importing from China and selling in the market. Basically -- they're largely trading some element of manufacturing is there.

Okay. Okay. So sir, how do you see the competitive scenario then shaping up? So like are we facing some sort of like pressure in the pricing from them also? Like what is the like scenario?

He is importing from China. Obviously, he has to pull the margin for himself. We are confirmed with the landed cost from China, and then we have pricing on that business. And some intermediate he is imported from China, and it's converting it. So that's a regular strategy. So far, it's not that significant from our perspective.

Okay. Okay, sir. Sir, if you can share the half yearly volumes in the U.S. market, sir, which we generally share it anyway?

I think we just answered, now in 3 years' time, from '18, '19 on index of 100, it has already gone to 200 -- 190 or 200. So what more do you want?

Okay. Okay.

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

So just one thing on the capital WIP. So I could see about [ 22, 23 ] kind of a number. So it is in regards to what CapEx?

Ongoing CapEx which is yet to be commissioned. This is rupee in CapEx. Yes, it's about INR 20-odd crores is there. So last part of it is -- will be capitalized by the end of this year. I think at the beginning of the year, we had INR 14 crores, if I'm not mistaken. So that is some additional expenditure, and we expect to capture this in our routine operational CapEx.

So any benefit on the backward integration or any ending quarter -- kind of benefit from this?

It's not backward integration. I think we have the CapEx which comes in many times in terms of some improvements okay? Or maybe see better type of equipment, instrumentation and upgradation of the plant, okay? These are normal CapEx.

Okay. Okay. And what will be the full year CapEx guidance for this year?

No, no, we don't have any other plan at this stage. As and when we have any significant CapEx expansion plan, we'll let you know.

The next question is from the line of Sagar from Phillip Capital.

Sir, just one question on the share pledge. I know it's not very big, so any guidance on that as well of invoking the share pledge?

We are not aware of -- at least I'm -- we are not aware of it. It's a Promoter's thing. And I don't think it is appropriate on our part to comment on that.

[Operator Instructions] The next question is from the line of Amit Kadam from Canara Robeco Mutual Fund.

Sir, lastly, you had given a guidance of like fully utilizing the entire CapEx or the capacity by September 2023, which is like almost like 2 years from now. That guidance stays with the current -- in the current scenario?

It stays.

Okay. And then the follow-up to that is, in that state, it's 2 years from now, so -- and the question on the CapEx or the future CapEx to maintain the growth momentum continuing for our company beyond '24, '25. So it's almost a 2 years' time where the announcement has to become -- be coming from the Board and then the engineering construction fee. So do you think that we'll be able to be -- this 2 years enough for that cycle to get complete and new CapEx or new plan -- something getting ready by September '23 so that our growth continues, thereafter?

Yes, we have plans. I think we have answered this question in the last quarter's transcript, our MD's already given a clarification. Our request is please refer to transcripts.

The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

Sir, I joined a bit late. Just one question. The gross margin reduction that we see in POQ is a function of RM aniline price-wise or it's a function of any realization thought which would have happened?

It's a basket of the entire imports. Basically, we have clarified this in the earlier questions. What happened is during the Q1, we were expecting a higher volume uptake, and we have booked inputs for meeting the higher volume offtake. Unfortunately, due to the second COVID wave lockdown, the operating rates came down. And as a result, those type of raw materials were spilled over to Q2. And that is the reason this -- impacted. So it's about INR 10 crores right now, shifting between Q1 and Q2. Otherwise, the profitability would have been 50%, 50% for both the quarters. Unfortunately, this INR 10 crores got spilled over to Q2. That's why it came to 60%, 40%.

So basically, you consumed a slightly higher priced inventory on raw material in quarter 2. Is that the assessment?

Yes, I think that we also mentioned in the Q1 call that there will be Q2 will have a legacy input cost.

And incrementally, based on the finished good [indiscernible] are spread, so realization might be aniline costs, are you back to more elevated gross margin numbers back again, which you saw in quarter 4 and quarter 1 of this year and quarter 4 of last year?

Gentlemen in a highly priced regime, I think we should not be looking at gross margins as a percentage. And we should be looking at what is an absolute number, and that's what we are keen.

That's why I asked you the spread, right? So I did mention the margin numbers. So on a spread basis, are you back or...

If you are adjusted Q1, Q2, the INR 10 crores adjustment, it would have an ideal.

The next question is from the line of Niranjan from Acuitas Capital.

Sorry, I missed it, you said [indiscernible] 70% in the quarter? Is that correct?

Sir, I just missed you, please.

Or you just mentioned, I missed that, you said the utilization level in this quarter was 70%?

Yes, Q2 was 70%.

But I think you said in Q1 also, it was about same range, 70% as well. So how is the volume growth possible, then 5%? Is there any different number?

Gentlemen, you look at the stock change in the financials. That answers your query. We are talking about production operating rates.

Thank you very much. Ladies and gentlemen, that was the last question for today. I will now hand the conference over to Mr. S. R. Deo for closing comments.

Thank you very much. To conclude, I would like to say that we believe the growth story continues to be very vibrant and very strong. We will continue to pursue top line growth driven by volume as well as value in the coming quarters. We expect to close the year with a volume growth of more than 10% and revenue growth of more than 45%. I take this opportunity to wish you a very, very happy Diwali and a Happy New Year. I 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 Mr. Srinivasan, our Strategic Growth Adviser, our Investor Relation Adviser. Stay safe. Thank you once again. Thank you, everyone.

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