Sigachi Industries Limited (SIGACHI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Sigachi Industries Limited Q2 and H1 FY '25 Earnings Conference Call hosted by Go India Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Priya Sen from Go India Advisors. Thank you, and over to you, ma'am.

Thank you, Lizanne. Good afternoon, everybody, and welcome to Sigachi Industries Limited Earnings Conference Call to discuss the Q2 and H1 FY '25 results. We have on the call Mr. Amit Raj Sinha, Managing Director and Chief Executive Officer; Mr. O. Subbarami Reddy, Chief Financial Officer; and Mr. Vivek Kumar, Company Secretary and Compliance Officer. We must remind you that the discussion on today's call may include certain forward-looking statements and must be, therefore, viewed in conjunction with the risks that the company faces. May I now request Mr. Amit Raj Sinha to take us through the company's business outlook and the performance, subsequent to which we will open the floor to question and answers.

Thank you, Priya. Welcome, everyone, to Sigachi Industries Limited Q2 and H1 FY '25 Earnings Conference Call. I hope you have had a chance to review the financial results and the investor presentations available on the exchange. In Q2 FY '25, Sigachi has shown notable growth with our core product, MCC, achieving substantial increase in both volumes and value. This growth stems from strong demand and improved utilization of our 7,000 metric tons per annum capacity added, which is currently operating at 75% utilization of the total capacity in store. Our asset-light O&M segment continues to expand in alignment with our strategic focus. Revenues from O&M grew by around 19.8% year-on-year in H1 FY '25, underscoring our expertise and partnership with leading companies like Gujarat Alkalies, Aditya Birla Group, ONGC, Lords Chloro and Adani. I'm also pleased to share that our API unit we acquired last year has successfully integrated into our operations. We currently operate at 100 KL capacity with plans to scale up to 250 KL. In the API segment, we are focusing on high-margin regulated markets with 9 planned CEP approvals. Several additional filings underway in the EU and EDQM markets. Our target is to complete 9 CEP filings this financial year and enable access to high-margin markets to drive both top line and profitability. A key advancement this quarter is our entry into the pharmaceutical coatings with the introduction of PureCoat and UltraMod brands. These products are specifically designed to enhance drug stability and bioavailability aligning with the regular standards of modern drug delivery. This milestone highlights Sigachi dedication to R&D and the stringent quality control behind creating products that match and meet top-tier standards. We are also progressing with the establishment of 1,800 metric tons per annum CCS facility in Dahej, scheduled for commercialization by FY '26. This additional capacity will expand our offering in the excipient range, and we'll be able to serve our clients better. In terms of expanding our reach, we operate in both domestic and international markets exporting towards 65 countries. Our presence in the Middle East is strengthened by partnerships through Sigachi MENA FZCO, Sigachi Arabia, working alongside with Saudi National Projects Global Investment and iConnect to explore growth in the region and leverage our full product portfolio. Our commitment to quality, innovation and sustainable growth keeps Sigachi Industries well positioned to continued success. By broadening our portfolio and reinforcing our market position, we aim to deliver enduring value to all our stakeholders. Now I'd like to invite our CFO, Mr. O.S. Reddy, to present the operational and the financial highlights for the quarter. Over to you, Mr. O.S. Reddy.

Thank you, sir. Good evening, everyone. Let me first brief you on the financial performance. The company delivered a strong Q2 FY '25 performance with solid growth across key metrics. Operating income rose by 25.91% year-on-year, reaching INR 124.9 crores EBITDA. EBITDA also saw a significant growth, increasing by 36.91% year-on-year to INR 29 crores with a margin of 21.38%. Net profit surged by 39.09% year-on-year to INR 21 crores, resulting in a PAT margin of 16.81%. Building on last year's momentum, revenue from NCC increased by 15.35% year-on-year from INR 149.72 crores to INR 172.69 crores. Revenue from the O&M segment in Q2 FY '25 grew by 21.08%, reaching to INR 10.51 crores. The API segment contributed INR 8.25 crores to revenue in Q2 FY '25. As we continue executing our strategic growth plans, we are confident in achieving economies of the scale and enhancing the operational efficiencies, lying to the groundwork and sustainable growth and long-term value creation for our stakeholders. This concludes the presentation. We would now be pleased to address any questions. Thank you all.

[Operator Instructions] The first question is from the line of Rikin Shah from the Boring AMC.

My question is in terms of numbers, I'm digesting the numbers, I'm seeing a very sharp gross margin contraction both Y-on-Y and Q-on-Q. So is there any particular reason or a change in revenue mix, which is leading to the...

Yes. There is -- in this quarter, there is a PLI income is there, which is recognized. Anyway, we are reliable up to 2028 financial year. Because of that, there is a sharp increase in revenues. Anyway, this PLI incentives will continue to receive until 2028.

So that is not sort of considered, then how much is it from Q1, the PLI income in Q1 is recognized to the tune of what amount?

Q1, we have not recognized. And in Q2 only, we got the approval and then we have recognized in coming quarters also, there would be PLI.

But if you have not recognized, then it is an erosion in gross margin, right?

Not recognized -- why it is an erosion? That time we didn't receive the approval, that's why we didn't consider in Q1. In Q2, we got the approval and then we have considered it.

Okay. But Q1, your gross margin is 57% and now it is 47% . So it is a 10% reversion, right?

Gross margin?

Yes.

Please come back again.

Gross margin in Q1 FY '25 is 57%, it's 47% in this quarter, with a 10% gross margin erosion.

Not erosion. The only thing is in the second quarter, there is an enhanced capacity is there. We push our products into the market and wherein a little reduction in margins are there. But in Q3 onwards, it will continue, normal margins. Because we wanted to grab the market. That's why we have the increased revenue also, it is increased if you observe.

Right. But if you -- obviously, those are -- I'm not asking about operational expenses pertaining to expansion, but this is more a pricing-related erosion rate in the margins.

Yes. Pricing also, when you want to penetrate into the market, you have to compromise with the pricing. After grabbing the market, after once you penetrate and you get the market, your scale up operations will increase, and then gradually, we can increase the price and then it will go on like that. First, our intention is to get our bigger pie in the market share.

So this should not continue from Q3 onwards, we should see some reversion in margins?

Yes, there will not be any decline in margins.

No, I'm not saying decline. I'm saying, will we get back to what we used to do. So if we compare Y-on-Y, we did 53% in Q2 of last year and we have done 47% this year. So maybe the margins will move upward or they will stay the same?

Yes, margin will move upward. Margins will move upward only.

And your other income is showing a very big amount this time. Obviously, the explanation in the results perhaps is not sufficient. Perhaps could you expand on that, why the other income is very high this quarter?

Yes. In other income, it is high because PLI income is added. PLI and the foreign currency fluctuations are there majorly in that.

Okay. And I can also see a proposal to raise $100 million via foreign currency convertible bonds. So could the management perhaps expand on that? And like what is -- what would be the purpose for the same?

Yes, yes. We see the $100 million on overall, that is up to $100 million, there is a proposal, but this is towards -- yes, this is as and when there is an opportunity, we keep on increasing -- raising the funds, maybe $10 million at a time after $15 million at a time like that. But we are placing before the board and then -- we have placed before the Board and then got the umbrella approval. Once we get any specific opportunity comes, then again, we'll put it. This is towards the acquisition of industrial land for future expansion. This is to secure strategically located industrial lands for expanding the company's manufacturing and operational capacities -- capabilities in India and outside India. And so that this will allow Sigachi to establish new production units, increase output capacity and meet the growing demand in the products and thereby market prices also we can increase. And also, in Sigachi U.S. also, the company proposed to set up a manufacturing facility because the transportation takes around 60 days. And also the freight cost is very high when we transport our goods from products from India to USA. And to reduce the time and the cost, we thought of -- we are proposing to set up a manufacturing facility in USA, so that initially, we can acquire industrial lands in USA, thereby, our presence in North American markets tap into the local demand in the U.S. and also the benefits, the proximity to the customers, reducing lead times and logistical costs. And apart from this, we also expand our operations in Sigachi Arabia. Sigachi Arabia is a giant venture company owned by Sigachi MENA, which is wholly-owned subsidiary company, which holds 75% and 25% hold by S&P National Projects -- Saudi National Projects. And wherein we wanted to increase our presence and our business operations. And also Sigachi Global also is there, which is a joint venture company by Sigachi MENA, 75%; and iConnect 25%. There also, we wanted to increase the operations. And Sigachi MENA, which is a wholly-owned subsidiary of Sigachi Industries situated in Dubai. There also, we have wanted to increase the operations. And for this, we require funds. Whenever there is a good opportunity there, we'll tap and then these funds will be utilized for that purpose.

And my next question is pertaining to API. So API revenues have in H1, clearly upwards, they are now 8% of the pie compared to 4% in last H1. So what is the plan in terms of ramping it up or maybe what kind of a share do you see API getting to in terms of the overall revenue mix, maybe 1 year or 2 years down the line?

Yes. In next 2 years, now -- anyway last year, we have entered and there is a reasonable growth is there when we compared to H1 of last year versus this year. And by end of March, there would be some incremental growth is there over last year. But for next year, FY '26, we can see a reasonable good growth we can observe.

So can you give a band?

Yes. Maybe in overall revenue, maybe 20%, 25% because MCC also is going up. The total revenue, it is going up, and 20% to 25% contributes from API revenue would be there next 2 to 3 years.

Right. But sir, you've not given any segmental margin, but is the Trimax part making losses right now or it's profitable?

At present, it is almost -- we are incurring losses. But being initial, now we are identifying. We are going for the European licensees, European EDQM and CEP licenses. And USFDA is there for intermediates and then we want to be trying for API also. And we are concentrating now on high-yielding, high-margin products, tthereby becoming...

Is the gross margin contraction more to do with API than contribution of API increasing?

Yes, API also that is a -- some of it had contributed towards that.

I would say it's a combination of grabbing more market share in the expanded capacity of MCC and a bit from the API segment because we are still trying to work out the best portfolio, which aligns with our competencies and as much with the market demands.

And sir, just last question from my end. In the other, like the Allied segment, do we think we have sort of lagged by any chance based on perhaps the expectation we had last year?

When we say Allied, what is it that we are referring to you, you mean to

No, not the O&M part, the Allied Trades part in your presentation, revenue contribution, the food and the other segment.

So after -- I would say after our API acquisition, we have been trying to kind of strengthen that part because that is a high-growth segment. So our focus has all been on the API growth part, and that is how we have not really been looking at other allied part. Trading part, whenever there are synergistic opportunities, we do indulge in that, and that definitely adds up to margins because we don't have any additional fixed costs on that, but definitely, API has been our focus.

[Operator Instructions] The next question is from the line of [ Deepesh Sancheti from Manya Finance. ]

When do we expect the API unit to ramp up to 250 KL?

Sorry, we didn't get your question, when do we expect?

The API unit to ramp up to 250 KL.

So in the Q4, I mean, so by January '25, we are commencing the additional 150 KL expansion. That should take us around 9 months to 12 months before we have the full capacity in place for the additional 150 KL. So I would say that by Jan '26, we would be in a position to commence operations from the added capacity.

Are we maintaining our previous revenues and EBITDA guidance?

On the API?

Yes.

Sancheti, can you please repeat your question?

I'm asking that, are we maintaining our previous revenue and EBITDA guidance?

Yes. This year, we'll maintain. But next year, definitely, the better margins we are expecting from the API business. Next year and even after increasing FY '26, we are expecting better -- good margins.

So what is the revenue guidance for FY '25 and FY '26 across MCC, CCS, API and O&M?

On we maintain this -- not less than -- this growth is very sustainable and not less than 25% to 30% growth is there every year. We hope it will continue and then even better than.

So still last 3 years, we have been maintaining 27 -- approximately 27%, 28% revenue growth. Should we expect a similar kind of revenue growth going ahead also? Or we should better it?

We are expecting even better, but this is a minimum. This is guaranteed kind of thing.

We will -- Mr. Sancheti, we will be better on this because what I believe is that we will have added capacities coming in plus the additional new product of PureCoat and UltraMod. So I believe we will be marginally better and probably touching 30% top line growth for this particular financial year.

Okay. And EBITDA will be the same? Or I mean, will be working on a similar EBITDA margins or that will also become better?

I think in the short term, we'll work to see that we are sustaining the margins. In the long term, we are working to see that we ramp it better. Because APIs turnaround and improvement in the EBITDA is going to take time because the CEP approvals take at least 3 quarters. I believe in the long term, we will be able to better our margins. But in the short term, we will definitely sustain.

Okay. Just 1 question was there. What is the difference between the lower microns and higher microns excipients? And how do formulation excipients defer from preformulation excipients?

No, there is -- okay, I'll tell you first -- to the first question. The lower micron and the higher micron excipients. Basically, depending upon the API particle size, the kind of excipients are used. Now for all of us who are aware, if we are aware of curcumin or turmeric. If there are turmeric tablets, which are there, these tablets, the turmeric or the curcumin is a very fine powder. And for that, tableting to be done, you need a very coarse grade of buying them, which is the MCC. So you made a particle size around 180 to 200 to 250 micron. Whereas if you have paracetamol pallets, which are very coarse, which are sometimes even 800-micron to 1,000-micron, therein, you need very fine powder of binder. so that when there is a compression, there is plastic deformation taking place and the tablet is formed. That is the prime reason that there is a range of particle size going in from 15-micron all the way to 1,000 microns. Did that answer your question?

Okay. And the second question, if you can answer, how do the formulation excipients defer from preformulation excipients?

So there is nothing as us like a formulation excipients. It is pure excipients. Pure excipients are single ingredients, which get used in the formulation. Now in a formulation, you always require a binder, a glidant, a lubricant, a disinterant. What a pre-formulation excipient does is that we've taken all these functional ingredients. We combine it in the best possible form so that a major chunk of the formulas are able to use the preformulated excipients. So thereby, what a formulator is going to do in his facility, we are able to do it in our facility and give them bulk. So he doesn't have to buy 4, 5 different excipients, stock them, test them and then mix them in their plant usage. So he just takes the preformulated excipients, puts in the API, blends it and directly compresses the tablets. So it's a value add.

Okay. My last question is regarding this promoter shareholding. Our promoter shareholding has been consistently declining. Any particular reason for that? Or it's just normal promoter selling?

No, there is no selling from the promoter. We recently -- we have issued preferential issue of share warrants, wherein a promoter. This is even after -- by end of this year, it will increase. In this promoter's contribute -- once we fully paid the promotes contribution, it will go up automatically. There is no selling. There is no selling. There is no anything.

There is no dilution actually.

And what about the pledge percentage, pledge shares? Are we going to release them also?

Yes. Pledge shares, we'll release it later. Now anyway, there is -- anyway, the pledge funds also, we are infusing into the company only. That shows the confidence on the business.

The next question is from the line of [ Aryan Modi ] from Abakkus Asset Management.

So first of all, I would like to congratulate the management on a great set of results, increasing both quarter and quarter and year-on-year. The first question would be why is the difference in the other income figures shown in the quarterly statements and the investor's presentation.

Can you please repeat, the other income increase you are asking Mr. Aryan?

No, no. Why is the difference in the figure of other income, which is reported by the company in the quarterly statements and the investor presentation. The both figures are different.

Yes. Anyway, this PLI, this is nothing but the -- it is linked to operations only, even that is the PLI income is there in the operations. That's all. There is no this thing. That is very much related to the operations that is on the product -- based on the product portfolio and the investment based on that, that is sanctioned. That's why we have mentioned that.

So why wasn't it reported in revenue from operations in the quarterly statements?

Yes. And one more thing. Mr. Aryan, this revenue will continue until 2028.

So why aren't we showing in the revenue from operations in the quarterly statements?

Yes. In the -- we are -- we thought there is a clear cut, the other income is there, but we have mentioned that we have -- anyway, that is from operations only. It is what is wrong in that. Anyway, that is there in the total income, and that is business income only. And what is the problem in that?

So why are we showing it as order income in the quarterly statements, while we are clearly referring to as the revenue from operations in the investors presentation?

Yes. Anyway, you have mentioned what is -- we are giving the clarification. What is your problem in that. What is your problem?

My problem is why aren't you showing it as revenue from operations in the statement filed to BSE also?

Yes. We have filed this one also to the BSE, NSE. This is -- see, both the statements are available to all the investors.

So maybe Mr. Aryan, maybe the confusion is on account of statutory compliances and the investor presentation. Statutory compliances, the auditor has a need to differentiate a certain set of income coming in, which directly comes in from operations and something which is as a reimbursement. So there is a need of a statutory compliances. Whereas in the investor presentation, it has more to do with graphics and the way we want to present what we have kind of earned. And that is how the difference comes in. Otherwise, it's all very much part of our revenue from operational income.

Yes. Anyway, we are completely transparent, and we are expanding it also.

Right. So my second question would be regarding the API segment. As mentioned in the previous quarters, you were expecting the -- all the certifications should be done by the Q3 or Q4 of this year. What's the current status of those certificates and what's new time line for those approvals?

So Mr. Modi, I would say at this moment, we have filed 4 CEPs with the European Director of Quality and Medicine. And we are -- for the first one, we are expecting the whole thing to be completed in the next 6 months. So propafenone hydrochloride, we are looking at completions or getting the final CEP approval by March 2025. And for the other ones, it would probably be another 3 to 4 months beyond that. And in the whole current cycle, we are looking at a total of 9 CEP filings happening. The usual CEP filings take us around 3 quarters before the approval comes in. Sometimes on account of additional queries, it might stretch to the fourth quarter also. But at this moment, we are looking at 9 CEP filings.

Right. So what would be exactly from which quarter of next year, can the 100 KL capacity it will be used in like revenue?

The first one, the propafenone hydrochloride, that will come into effect from Q1 of FY '26. That is April 2025, we will be able to use the capacities primarily for the products which have CEP filing.

Right. So What would be the exact utilization out of the 100 kiloliters till April 2025 in the fourth quarter of next year?

No, that's a very difficult question, Mr. Modi, because it's a combination of various products demand of those products at that moment, are customer requirements, stocks available in the market, the pricing. So it's very difficult to kind of give you an indication of how much quantity of that product we will make it out of the 100 KL. But one thing is that whatever is the approved product portfolio Sigachi has at that moment, we will work to see that we have a best combination to align with what the customer needs and of course, better our margins.

Can you give me an rough estimate of the figure? The main reason for me to ask the question was because the management was planning to expand the 100-kiloliter capacity from January itself. So there might be a usage, there might be projection until next year, the existing capacity would be fully utilized so till next Jan according to the 9 months, we've taken to expand it to 250 kilo kiloliters. So till 9 months of next year with the existing 100 kiloliters we used or the capacity would be expanded and it would be unutilized for the next year.

No, no, no. The additional 150 KL capacity by the time it comes into effect and it gets commissioned, it will be Jan 2026. By then, we would have already got at least 6 to 7 CEP approvals. We would have already been having our other product, wherein we are engaging with our earlier customers who were there with our subsidiary company, Trimax, even before we acquired them. We have Emcure, Laurus with us, MSN labs with us. So they continue to give us the base. It is just that we are kind of moving beyond the intermediates to the APIs and then subsequently to the CEP approved APIs. Basically, the transition is happening to get better EBITDA margins than what we were historically in APIs.

Right. So exactly -- so I'm not giving a clear answer. So will you be able to use the 100-kiloliter capacity only until the next year-end?

Next year and would be by FY '26 end?

Correct.

Yes. FY '26 is very far away. FY '26 is -- it's very far away. In fact, I believe that by the mid of FY '26, we would have already been touching 9,500% of our capacity. In fact, it will be much earlier. It is just that we want to have the best combination of products, which kind of aligns with customer requirements and improve the margins.

Right. So in the last quarter, there was guidance regarding the revenue -- overall revenue going forward in the overall company's revenue structure and API would, according to the management guidance, it would cover almost 50% to 55% of the total revenues. So where are we on track to reach that revenue share in coming years?

I'm not sure if it was 50%, 55%, Mr. Modi, because 55% would have been a very big figure. I think maybe there is some miscommunication somewhere. But definitely, we are ramping up our capacity utilization of our Trimax to be able to get better at our percentage of the total revenue of Sigachi. We are looking at nearly 30% of our total revenue at Sigachi for the current financial year.

And I would just verify the figures. Okay. And then I'll move on to my next question. What is the -- when are we planning to start the project work on the CCS plant? We have been talking about it since a long time since the year forward, but there's been no progress regarding the plant project starting, when is it starting?

Absolutely. I very much agree with you. Unfortunately, pollution control board are having certain issues, and we have had elections in between. And I mean, so many things which have come in way. We were supposed to get the approval in October prior to Diwali. Unfortunately, the approval has not yet come in. We are in discussion with the concerned authorities to see that we get the approval ASAP. In fact, internally, I'm working on seeing that I get the approval by December 2024.

So the project would start approach how much time after we get the approval?

So my estimate is we will be having 18 months in hand to completely commission the plant.

Okay. Also, my next question would be regarding the margins. So what would be approximately the margins which we are expecting in the API segment? And what would be the difference, especially in the starting where you're trying to expand it, and later once you have gained sufficient market share, how would the margins differentiate from the start when you're trying to gain your market share or getting a bigger piece of the pie?

So in terms of margins at this moment, I would say they're not as healthy. But once we have our CEP approvals in place, I'm quite confident that we should be positive of the 20% EBIT margins. Our product portfolio is not -- is only having intermediates and it doesn't include any of the approved CEPs list of APIs. Once we start exporting this to the regulated markets, I'm very confident of having 20% EBIT positive.

Yes. So my last question would be regarding MCC itself. Basically, MCC overall globally growing approx 10%, and we are going approx 15% to 20% on the MCC part. So what is -- well, where are we gaining the market share? Are we able to get the growth rate? Or are we able to occupy the market share of the existing competitors because of better price in globally?

So it's a combination of both of your answers. It's a combination of grabbing the new market Also, it's a combination of grabbing the world #1 and the world #2 plays market share into our fold on account of better service, on account of flexibility in terms of minimum order quantity and the grade. Just to tell you, Sigachi is the only company in the world which has more than 60 different grades of MCC to cater to any formulation needs of our customers.

The next question is from the line of [ Ankur Sawaria ], an Individual Investor.

Congratulations on a very good set of numbers once again. So, my first question is, our CapEx for the MCC is over, right completely?

Yes, very much.

And what is the utilization that we have had this quarter?

This quarter, there is an increase of additional 20%. In next coming quarter and then by end of this year, we'll utilize almost. When we see in terms of the numbers, it is almost by end of this quarter, we have utilized 8,153, almost 50% we have utilized. And when we compare it to previous -- corresponding previous year, there is an increase of 20%. And coming quarters, it will increase further, total the capacities will occupy by end of next year, we completely fulfill or maybe in next quarter 3, quarter 4 and the first quarter of next finance year, we like to pay the complete capacity.

Right now, you are running at 50% utilization. Is that correct?

Yes, yes, 50% because in the second quarter only, the majority of the -- this thing -- expanded capacities have come into place. And once we compare previous year versus this year, there is a 20% increase is there in the capacities.

Absolutely. So is there any danger that if in case we further bring up our utilization, the margin might come down. Is that in...

Yes. Yes, slightly to the -- to grab the market, to penetrate into the market, there may be a slight compromise, but not much.

I would just like to add here. Even though the -- it would look as if the margins are coming down, that's only to penetrate and grab the market share. But eventually, with the increase in revenue and the cost remaining fixed, our margins will only get better.

What you are trying to say is that maybe in percentage terms, the margin may look down, but in absolute terms, the profit will increase, right?

Even in the percentage terms, it will increase. I have to -- assuming -- let's just take an example. I'm trying to sell my product at INR 250 a kilo and the competition is selling at INR 240 a kilo, and I need to get into that customer. So at this moment, to give an incentive to the customer to have an eventual change, I would probably give him a 10% discount, and I would eventually get in, build up my rapo, show my service, show my quality. And then as time goes by, I'll ramp up the capacity, I'll ramp up the pricing to be able to get better than what I was charging to him when I entered.

Are we decreasing the price for our existing customers also or only for the new customers?

No, only for the new customers. Why would I decrease the pricing for the existing customers? My value proposition is so strong that I'm commanding a price which is better than the others in the market, there would be no reason for me to drop my prices.

You're hopeful that you will decrease the price first but later on, the same customer will be willing to pay us more than what he was paying before to the other seller. Is that correct?

Absolutely. Yes, absolutely. This is how you bring forward your value proposition. Till the time they don't experience you, they don't value you. The moment they experience you, they value your products, they use your products, then they can't let you go. This is what is bringing forward a value proposition with respect to your competition.

Absolutely. Sir, as far as the other income is concerned, is it fair to assume that the amount of the other income that we are in will approximately remain the same until 2028 or is it a factor of the volume of revenue that we do?

Yes, it is the factor of volume of revenue. Any additional on incremental sales, we are eligible for PLI and then that will continue to...

Continue actually. It will only get better, I would say.

Right. Because if in case a revenue, as you say, will increase 30% year-on-year. So PLI will increase. Am I correct?

Yes, only for particular MCC only, not overall 30%. Not in API, not in O&M. Only this is on MCC products.

Right. And sir, since you have guided somewhere about 30% increase in the top line. So last year, we did INR 400 crores, and approximately 30% would be INR 520 crores top line this year. Out of which we have done INR 220 crores in the first half of this year. So the remaining would be INR 300 crores for next 6 months. So we are hopeful that we'll be able to achieve INR 300 crores in the next 6 months, sir?

Yes, we're hopeful of that. The expanded capacities have come in third quarter and fourth quarter also we do...

Very right, CFO. We are very hopeful because the expanded capacities will come into play. Our APIs will strengthen up and our new product portfolio of UltraMod and PureCoat will add up. So it will come back as additional revenues, and we are quite confident of touching our 30% growth for this current year.

Very good, sir. And one thing regarding the O&M service, do we have any new partners that you've introduced in the -- in this quarter, sir?

No, nothing at this moment. So nothing at this moment. In fact, as and when we have a new partner being introduced, we will declare it to the stock exchange. This is a very slow process. And once it comes in, it's usually a 5- or a 10-year contract. So it's a slow process.

I was hoping that in the MENA region, you would think there are a lot of people who are taking these services. And hopefully, we'll get the contract?

Yes, Mr. Ankur. You're absolutely right. MENA has been our focus. And because we have local partners present there, the penetration is as much easy. We are just trying to align opportunities with the risks there so that effectively, we stand to gain and the growth is sustainable.

Okay. And my last question, on let's say second last question, in case no one is waiting. What will be the approximate promoter percentage once we have fully paid up our preferential shares?

Around 48% it will come, 46% to 48%.

And 1 final question that I had is that since as a company, what I see is that we are trying to grow in each and every segment that have, let it be MCC API, CCS and you, time and again, I think you require funds to grow as well. And that might be the reason that you are looking forward to increasing -- raising funds again. So don't you think that once we -- if in case we -- what would be the structure of -- can you explain the structure as to when we raise funds through unsecured or foreign currency convertible bonds. Will we also liquidate our -- will we issue new shares to them? Or how will it take place, sir?

CFO, I just put in my bit, then you can add in. Ankur, here, it is such that we are not really trying to expand across everything. MCC has been our cash cow. And we continue to be #1 in India and among the top 5 in the world. So naturally, I would like to continue to grab more market share and grow my presence. That's number one. CCS is very complementary. It's also a form of cellulose. And anybody who buys MCC has to buy CCS. So it comes in very complementary. We have the chemistry with us. That is how we are expanding. Now the third part, which comes is the APIs. Now when I'm giving most of my formulator customers, the preformulated excipients, I'm giving them the binder, I'm giving them the CCS, it is but natural that I want the bigger share of his wallet, and I offer him the APIs. So this is how the APIs are coming. So all these are very complementary in nature that we are kind of expanding our facilities and aligning with the regulatory licenses to be able to grab more markets. So this is the overall scheme of things. Now in terms of getting FCCBs in place, at this moment, we're only taking an umbrella approval because it's a big process. RBI approval comes in, SEBI approval comes in, shareholder approval comes in. As and when we need these funds to be able to take it into the company for growth, we will look at it. It is just that it's an umbrella approval at this moment. And I mean it's a long process and you have a merchant banker and all, this has been looked at. It's nothing else. CFO, you might add anything which I've missed.

Yes, sir, that is all fine. Anything -- you want any clarification, Mr. Ankur?

Yes. What I'm saying is, I'm not against the kind of growth that we are targeting. And I'm sure that whatever decisions you are taking, you are in a much better position than an outsider to take best decision possible for the company. What I'm asking is that the funds you're raising, right, time and again, when we try to raise fund, these share price always comes under pressure. So we -- the umbrella that you are trying to build, is it when we issue unsecured convertible bonds or something, do you also issue them a share or it is like a loan that we get from banks? I'm not clear about that.

Even right now anyway, whatever the best opportunity comes and then whatever is the best way, we'll take it. We'll adopt and then we'll take it forward. As of now, there is no...

And for this FCCB also, there'll be a coupon rate. There will be a coupon rate, which we have to service. So it is -- and it is not that we are raising all of this immediately today. Like I said, it's just an umbrella approval, and we look at it as and when we have needs to be able to strengthen and capitalize on what you want to do further in the business.

The next questoin from the line of Hardik from Alpha Plus Capital Associates.

What are current pricing trends and future outlook for MCC and wood pulp markets?

Hardik, you're asking pricing trends?

Yes, in wood pulp and MCC markets, yes.

Yes, both are in incremental, there is a chance to rise both sides. But whenever there is an increase in wood pulp price, we can pass it on to the customers easily. And moreover, we have a very good plan in the procurement of the wood pulp. 70% of our annual requirement we'll place it this AMC kind of thing. Annual contracts we'll enter into. And 30%, we'll go for opportunity purchases. Whenever there is a drop or a drop in prices of wood pulp, we'll procure from outside also. If there is an increase in prices, then we'll take it from our annually agreed quantities at the agreed prices. And even though if we acquire at competitive prices or pre-agreed prices, any increase we'll pass it on to the customers. The trend is always, it is increasing trend because of inflation or because of the market strategy or trend. It is an increasing trend only.

Okay. And are there any new CapEx trends anticipated over the next 2, 3 years?

Under CapEx plans, one is API expansion is there and CCS expansion is there. And as and when there is a need, definitely, we'll go for additional CapEx. You'll see the cost benefit analysis. If it is best interest of the company, really, it is going to help us, then we'll tap that opportunity by entering that.

Mr. Hardik, here, I'd like to just add, see, considering that we are looking at 50% of our new capacity is being utilized in MCC by the end of March 2025, and the fact that we need 18 months for turning around a new CapEx of MCC, I believe that very soon, we should be at the drawing board to look at an additional capacity for MCC because our consumption of the new capacity is going on track and going at a good speed. Probably if you have a horizon of 2 to 3 years, beyond doubt, we will be looking at adding more capacities of MCC. And for that, there will be a reasonable amount of CapEx.

That's helpful. And lastly, can you highlight some of the key products in our API segment?

Key products in the API?

Yes.

So we have Propafenone as one of our main products. Propafenone continues to be one of our main products. Pregabalin also is one of our main products. Other than that, we have a reasonable level of advanced, intermediates, which are being supplied to the regulated customers for their regulated markets. When we acquired the API facility, it was primarily a U.S. FDA approved facility for advanced intermediates. So those set of customers and those transactions continues, but we're gradually moving the product portfolio from intermediates to APIs.

The next question is from the line of Munjal Shah, an individual investor.

Mr. Sinha, I would expect your advice actually. There is -- when we mentioned that the contribution of API will increase, right now, the contribution of API is at 7% of the overall revenue. And MCC contribution is 81%. Like considering the contribution from the respective segments, the sales growth has been really good. The problem is that the margins. So basically, I just wanted to this thing specifically. So if we don't include INR 14 crores of the other income, which has come from PLI. So if we take out that motion, the margins have drastically reduced by 10%. So can you, sir, explain what has been the major reason? So you mentioned that for entering into the new market and to grab market share, we had decreased prices or made our prices more competitive. But then 10% reduction, can we -- will we be able to regain this margin again going forward?

Mr. Munjal, just that not -- first and foremost, the PLI is not for INR 14 crores. So maybe we should just discount out that. The second thing is the 10% discount has not been given. It's a combination of a lot of consolidated balance sheet wherein we have, of course, given discounts to be able to enter new markets for our expanded capacity. The second thing is on our API front facility, there are losses which we are adjusting. So there also the margin drops. Over and above that, we have 3 entities in the Middle East, the Sigachi MENA, the new joint venture at Saudi and another one at Abu Dubai, the Sigachi Global. So all these are there, the revenue stream is still not started kicking in. So these are all costs which are adding up and reducing our effective margins.

Sir, this will be on the operating level, right? I'm talking about the gross level. So basically, when we reduce the raw material and traded goods from sales, so I'm talking about the gross margin right now.

Mr. Munjal, the gross margin, even API also affects the gross margin and our Dubai entities also because it is a newly incorporated entities, there are initially, it's not making profits. With CapEx, gross margins only, both even any gross margin is material cost is there in API. And once it increases, this -- when there is a thin line between the sales and the costs, then obviously, the profits -- there, we are incurring losses at present. That is the reason there is gross margin have come only 47%.

Okay. And sir, then -- the next question is that, our employee expenses and the other expenses have substantially increased. So like -- the employee expenses have gone from INR 14.5 crores to INR 18.5 crores. That is I'm talking about year-on-year. And the other expenditure has moved from close to INR 17 crores to INR 23 crores. So this is like considering 30%, 40% increase in this cost. So sir, if you can just help me understand the increase and throw some light on this.

Yes. The employee benefit expenses as a percentage, if you see, it is almost around 14% is there on top line, both even last year when it was 14 or now it is 18. And in other expenses, the major point goes for freight expenses. And there is an increase in freight expenses, obviously, that expenditure is going up. That's why we wanted to set up our plant in -- this manufacturing plant in USA to reduce this cost -- the logistics costs and even the time gaps also. And wherever there is an increase in the expenditure, that can -- that will pass it on to the customers in freight expenses. Employee benefit expenses, anyway we are setting up all the systems in place and the expansion, the API and then this Sigachi MENA also. That's why, over a period of time, it will increase and then later on it will -- as a percentage of total revenue that is well within the limits. And also the O&M is basically on manpower base. The O&M operation -- the revenue increases, the manpower expenses also increased. In O&M, only the manpower is the expense. Otherwise, we don't have any other expenditure other than manpower.

Because in this quarter, the O&M contribution has also reduced from 11% in Q1 to 8% in Q2. So like are we developing team before working on the contracts? Or if you can just help me understand that?

Yes, it is a simultaneous thing and then sometimes we after getting the contract, we'll vote in or sometimes -- yes, it is a combination. Because the operation will continue and then manpower of the assets there in O&M.

Okay. And so the increase in the freight cost is passed in the same quarter or it comes with a lag?

Yes, in the -- it is a common -- throughout the quarter, it comes. That is there uniformly whenever the freight expenses increases that is international condition situations also it matters.

Most of our exports are on CIF basis?

Yes.

Okay. So sir, currently, have you taken the hit on our margins? And do we intend to pass on the cost in the next quarter to our clients? Or we will take a hit of the increase in freight cost?

Mostly in the same, but sometimes for some customers next quarter, it will come. It is a combination. Because we export almost -- our presence is there more than 60-plus countries, and different customers more than around 300 customers out there.

My next question is, you had mentioned that you are planning for 9 CEP filings by FY '25, right? And we have a capacity of 100 KL. So where are we envisaging to use this capacity completely by what time? And what can be the estimated turnover basis, the use of 100 KL at average pricing?

Yes, average, more or less around -- once we achieve -- it depends upon the product, but roughly, we can -- INR 90 crores to INR 100 crores we can achieve.

[Operator Instructions] The next question is from [ Damodar Baliga from DB Investments. ]

Congratulations on good set of figures. My question is to Mr. Amit. You had already alluded regarding increasing the capacity of CCS, maybe within next 12 to 18 months. So just wanted to know, do we have space at the existing plots? Or do we have to look for alternate site?

Damodar, it is just that in the same SEZ premises in Dahej in Gujarat, we have taken an additional plot of 18 acres piece of land. And it is for that particular site that we are getting the environmental clearance in place. So once this 18-acre site has the environmental clearance, we will comfortably be able to have a reasonable level of production blocks, and we will not have any challenges of a greenfield project troubling us in terms of delay.

So this greenfield -- the pollution board approval that you have applied and waiting for, that includes both for CCS as well as for MCC? That is what you are trying to say, correct, sir?

Right now, it is only for CCS. MCC, there is nothing specific because MCC capacity has already come into force and we are selling a reasonable percentage of the new installed capacity. Right now, the environmental here is only for CCS.

So that means you will have to reapply for the pollution board approval for MCC if you want to come up with the SEZ place?

Yes, that's right. But once the EC is granted, adding products is not really a challenge. It is usually that when it is a greenfield project and the local area, the local water streams, the air conditions are not available, there are -- there is a long queue in the list for a central pollution control board and the local pollution control board, that ends up in a delay.

Okay. Second is regarding your CCS, as and when you said, it takes 12 to 18 months to complete the project. And since it is a new product from a new plant, you will have to get the approval from the pharmaceutical customers for this product also?

Very much that, that is right.

So that means that would take subsequent to that another 3 to 6 months to get the approval from all the new customers.

Yes, 3 months at least is a fair quantity.

Third is about your Gulf operations. When can we expect some reasonable contribution to the revenues from the our subsidiary.

We move on to the next, that is from the line of [ Ashish from North Bridge Capital. ]

My question has to do with the PureCoat and UltraMod. I was a bit late to the call. Could you just reiterate what the plan was for these 2 products? And what is the CapEx if so? And what is...

The CapEx -- Ashish, the CapEx is all in place. We have commenced operations, and we are sampling at this moment and giving it to our same customer base who are taking our MCC excipients for taking trials on the tablets coating.

Okay. So just to understand. Sorry, this is my second question. But is the product similar to a cellular base or how -- when was the capacity really put in place?

So the product is not similar to a cellulose base. Our primary product or the cash cow is MCC, which is microcrystalline cellulose, which is technically called a binder. What we are doing is when we were selling MCC earlier, we were selling the core of the tablet, the main body of the tablet. Now we are selling the coating of the tablet, but that is how the difference is.

When was the CapEx for this put in place?

So this CapEx was put into place along with the expanded capacity of our Dahej plant in MCC.

Okay. So the 7,200 MTPA expansion, at the same time this was also conducted?

Yes. In the same block, we've set up a separate block for the expanded capacity of MCC, and in that, we have segregated a different flow for the coating section.

Okay. Got it. So as of now, the main expected CapEx is the CCS 1,800 MTPA and 150 kiloliters API?

You're right. You're right.

Okay. So 1 question, sorry. Sorry to extend, mainly -- so as per my understanding, you had more of a push strategy to gain market share this quarter. So what was the realization for MCC this quarter?

This quarter, the realizations are around INR 212 per kg.

The next question is from the line of [ Purushottam from Volkswagen IDS.]

First of all, congrats on putting such robust performance in this tough Q2 times. So first of all, my question to Mr. Raj after the quarter 1, the company has given a document on the exchange regarding the $180 million revenue visibility from the Saudi JV. So where are we on that? Actually, I joined the call a little bit, so I might have missed some part. That's why I'm asking.

No. No issues, no issues. We're very happy to answer your questions. So unfortunately, our joint venture partners, and we are still trying to grab markets, which has got a reasonable mix of being sustainable and a reasonable level of risk. I mean, there are opportunities there in Saudi, but we are just trying to work out and have a fair mix of opportunities which remain sustainable and are risk balanced. So on account of that, we have let go certain opportunities, and we didn't really look at them because we didn't feel that we were in a position to be able to execute those standards, products in line with those stipulated norms. But we are working to see that we gradually strengthen this, build this up and get better at taking further risk to be able to generate revenue there.

Okay. So can we expect the same revenue from next year -- next financial year?

Absolutely, sir. You were asking me, and I think I've been pushing my team in the Middle East, the Sigachi Arabia as much for commencing operations because we are incurring costs. There are opportunities lying in front of us. We just have to balance out and strike a chord and just commence. They can never be a perfect moment.

Okay. Yes, I can understand. My next question is, I could ask quickly. So in the U.S. market, the government is trying to establish a biosecure act, which will be -- as per the analysts, which will be beneficial to the -- mostly to the Indian pharma segment. So can we get -- since we are working in Pharma also, can we get some advantage of these biosecure, any comment on this?

Yes, you're right, sir. We are expecting a better -- I mean, support in terms of our pricing and adoption of volumes in the U.S. market on account of this.

Okay. My next question, I will ask to CFO quickly. So in the -- after -- I think after quarter 2, you said that at the end of this financial year, we will be a debt-free company. So are we on the track of debt-free? Or any comment on this?

Yes, we are on the track.

Okay. My next question is like what pace we are giving the sample regarding our -- the new tablet coating? So when shall we expect revenue from this year or maybe from the next year?

So Mr. Purushottam, we expect a certain level of revenues to come in from the nutraceuticals segment in this financial year itself. But any segment would at least take in at least 3 months of stability data before the customers come back to us. So I'm expecting that by -- probably by Jan or Feb, we should have some trial orders coming in on a reasonable quantities from the nutraceuticals customers.

Okay. So my second last question is related to the margin front. So you have given the revenue guidance of 30% for this whole year. So what will be the overall EBITDA margin? Can you comment on this?

Yes. We hope we'll maintain EBITDA margins.

So what will be the percentage profit perspective?

Yes, that is around 21%, 22%.

Okay. Thanks a lot, sir, for giving me the opportunity. I'm actually a retail investor of this company. And I'm really admirer of Mr. Amit Raj Sinhaand his peronality and his achievement. And I am a great follower of him on LinkedIn also. So, all the best to you and the team also.

Thank you Mr. Purushottam. I wish you good luck. Keep working hard and keep rising.

The next question is from the line of Damodar Baliga from DB Investments.

Sir, my last question, since you have already answered regarding the Gulf operation. So we could expect some revenues in the next financial year. So my question is regarding the Trimax investment. So when it was applied, we were given a target that we will do around INR 40 crores in FY '24. And then in FY '25, it was expected to do around INR 80 crores. But if you see as on H1 of this financial year, we have done only INR 18 crores. So at the most, we can reach INR 40 crores or INR 50 crores during the current financial year. So my question is, I know there are a lot of delays and hindrances in getting the approval from the regulatory authorities. So what gives you confidence to go ahead and increase the capacity from 100 KL to 250 KL, then the current capacity, which can be I think as we acquire said INR 90 crores or so. So we are not even utilizing hardly 50% of that capacity.

Mr. Damodar, you're absolutely right. The cash point is that at this moment, there are uncertainties, but our horizon is so large and so big, that if you don't look at an additional capacity and when we have 9 CEP approvals coming in by the mid or end of the next financial year, we will be high and dry. And we will have approvals in place, but we will not have capacities to cater to the regulated market for those CEP approvals. It isn't very fair this thing rather than doing it at the end moment and building up capacity, it's good to have a couple of quarters before and build up the capacity so that when auditors come to inspect and audit, the audit passing the percentage also is 100 out of 100. There's nothing else behind this. It is just giving us the confidence that, yes, our API vertical is very much on track, and we are on track to be able to complete all the expansion and the approval simultaneously.

Sir, in case if you get the approval by this year end as you have mentioned, these customers will take some more time to approve our facility as well as our product, right?

So it is not that customers are going to come at it again. Once the CEP approval comes in, most chunk of our regulated customers would immediately go in for sampling and stability of the formulation. And once the stability is done, they would -- maybe meanwhile, they would come for a customer comfort audit and subsequently start trials.

So that would minimum take 3 to 6 months, sir?

No, sir, I would say it is not as much. Once the CEP approval comes in, it is far, far, far quicker. CEP approval is iron gate.

The reason is some of your projections for this Trimax has not been made. I don't know whatever the delays or something you're not accounting. So worry is since it is, in fact, pulling down the consolidated revenue, I mean the profitability, so just you wanted the -- eager to know how fast you turn it around. So when you start doing the additional CapEx to increase the capacity and the depreciation and the interest we'll also have whereas we may not be utilizing the capacity. So that is the worry. So are we confident at least before you have the new capacity, the existing 100 KL capacity would be running at full utilization?

Very much, sir. I'm very confident of this statement. There are no second thoughts about it.

And as and when you were running at 100 KL, you should be doing EBITDA of 10% plus, right?

10% plus if the moment I have the regulatory approvals of CEP in place, I'm confident of achieving a 20% EBIT margins on these.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Amit Raj Sinha for his closing comments.

Thank you. Thank you all for participating in this earnings con call. I hope we were able to answer your questions satisfactorily, and at the same time, offer insights into our business and the group. If you have any further questions or would like to know more about the company, please reach out to our Investor Relations managers at Go India Advisors. Thank you, and have a wonderful week.

Thank you, members of the management team. Ladies and gentlemen, on behalf of Go India Advisors, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.