Sudarshan Chemical Industries Limited (506655) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening, and welcome to conference call of Sudarshan Chemical Industries Q4 FY '20 earnings organized by Batlivala & Karani Securities India Pvt. Ltd. [Operator Instructions]. I would now like to turn the conference over to Mr. Parth Adhiya. Please go ahead sir.

Yes. Thank you, Yashasvi. Good afternoon, everyone, and thank you for joining on the Sudarshan Chemical Industries Limited 4Q and FY '20 Results Conference Call. We thank the management for giving us the opportunity to host the call. Today, with us, we have, Mr. Rajesh Rathi, Managing Director of Sudarshan Chemical Industries; Mr. Vivek Thakur, General Manager Finance; and Mr. Amey Athalye, Deputy General Manager Business Analytics. I would now like to hand over the call to Mr. Rajesh Rathi for his opening remarks. Thank you. And over to you, sir.

Good evening, ladies and gentlemen. Welcome to the Sudarshan Chemical Industries Limited Quarter End Financial Year Ended March 2020 Earnings Conference Call. Investor presentation has already been uploaded on the stock exchange and Sudarshan website for your ready reference. I hope you've been able to access it. I will be -- I would start with a business update and how recent global events around COVID-19 has impacted us and how we see this going forward. We do operate in a globalized economy and have managed to partly mitigate the level of disruptions to our business, given our early investment in setting up the right in-house capabilities and prudent planning. Our business, to some extent, is dependent also on getting our raw material supply chain right. And we were able to ensure continuity in our business and the right level of inventory to tide over the annual closures from Chinese New Year. With our beefed-up stock inventory, we were covered for the remainder of the quarter. The situation in China improved by year-end, and our business and logistics on the ground recovered from the lockdown. Currently, we do not see any disruptions in raw material supplies or in pricing, and we are also maintaining advocate level of inventory. We continue to monitor the situation. And barring any reimposition of lockdown, we expect the business to improve from Q2. On the demand side of business, we saw uptake in demand from export business as there was supply disruption from China and also tailwinds to move supplies from China to India. We continue to see that shift building momentum. We are witnessing very good engagement levels with our existing customers and thus will give us a good opportunity to grow our business in the upcoming quarters. Due to COVID-19 situation, we did see an increase in demand since March and have been trying to fulfill the demand requirements to best ability. Our export continue to be strong in these uncertain times. Now coming more on to the COVID-19 situation in the India market. The lockdown started in the last week of March. But in Maharashtra, where our plants were located, lockdown started even earlier than the nationwide lockdown. Our order book for the month of March was very strong, and we were unable to convert a large part of our orders into sales due to the lockdown, leading to the lower sales in the quarter. I would like to highlight that we were able to get government permissions to restart our business with necessary precaution within 3 weeks since the lockdown started as we cater to some of the essential sectors such as food packaging and personal care. The lockdown across the country was lifted only in phases, and hence, we have seen a severe impact on our domestic demand and also in the Q1 financial year '21. Now on the quarterly performance. On a consolidated basis, the Q4, the total income from operations is INR 449 crores as compared to INR 430 crores for the corresponding period in the previous year. So a marginal increase of 4.5%. We were -- if we were to remove the impact of loss of certain confirmed orders due to COVID-19 lockdown, in the management's view, the revenue for the quarter could have been higher by INR 125 crores, which would be INR 574 crores, a nearly 33% increase in sales, and EBITDA would have been higher by INR 45 crores and around INR 99 crores. Gross margin has recorded a significant growth of 429 bps this quarter, with margins at 44.1% as compared to 39.8% for the corresponding period of the previous year. Our employee costs were higher on account of strengthening up our R&D and management teams. Profit after tax for the quarter at INR 27.3 crores is almost flat to INR 27.4 crores for the same period. Profit margin at the same level compared to the period -- last year period is at 6.1% in Q4 FY '20 versus 6% over the Q4 FY '19. On the CapEx front, we have invested about INR 255 crores in CapEx project during the financial year FY '19/'20, and further INR 355 crores of projects are in execution. This execution, we are seeing around a 6-month delay in execution to the COVID-19 scenario. We remain committed to deploying capital and invest in our business, given the confidence in the long-term demand for our products as per our plan. With this, I'm open -- I would like to open the floor for any questions. Thank you.

[Operator Instructions] We have a question from Mr. Ankur from Axis Capital.

Congratulations on a decent performance, given the challenges that we all are facing right now because of COVID. So sir, I missed your opening comments on the projects under execution on the CapEx bit. So my first question will be on that. If you can highlight that. And since we had spoken on the expansion plan [ into your ] segment, the capacity expansion there, if you can please highlight that?

Yes. So the projects worth INR 255 crores have been executed during the FY '19/'20. And there are various projects, which are at the stage of execution, about INR 345 crore, which will go into the current year. And however, we are seeing about 6 months' delay, considering the COVID-19 situation.

Sure. And any implication COVID had on our CapEx guidance for FY '21? You did mention there was around a 6-month delay. So should one presume that further extension of 6 months on these projects as well?

So I think, sir, projects were to be -- what will be completed in the earlier part of the year, I think this will be at least -- they will be delayed by at least 6 months. And currently, we are -- that's our current estimate on all of the projects various issues, sir. So all in all, we were -- we expected quite a few of these projects to be completed in the first half of 6 months, and I'm saying that it would go towards the second half now.

Perfect. Very nice. Sir, second question on the specialty and nonspecialty bit. Now if I look at your quarter number or your full year number, there has been a healthy expansion in our gross margin, which has flowed through from the profitability point of view. My understanding is specialty would have grown at a higher pace. But if you can share the revenue mix number between -- or the growth number between specialty and nonspecialty and if you can further cut it down between export and domestic?

Sure. In the presentation, we've not -- can you share those numbers? So we have uploaded those numbers.

So yes. Sir, I have the export and domestic results. But what I wanted was 2 things. One was on the revenue mix between specialty and nonspecialty. And within exports, let's say, so how big will be specialty among exports from that perspective. I have the absolute number of export and domestic with us, but wanted to slightly differ.

Yes. So specialty and nonspecialty, both portfolios saw muted growth in Q4. And in terms of the exports and domestic front, exports in Q4 was about 50%, slightly higher than the full year export to domestic ratio.

Sure. And just on the specialty, nonspecialty breakup for the full year, FY '20?

We don't give breakup in terms of the share of specialty versus nonspecialty.

Okay. Maybe if you can term out the growth then, if that works? Because I think last time we did share on the...

Yes. Yes. We will share those numbers, and we'll put them on the website, too.

We have a question from Mr. Ashwini Agarwal from Ashmore.

Very, very encouraging sort of performance in very, very difficult time. So couple of questions. How are you seeing the situation now? I mean you've enumerated in your presentation how some of your manufacturing started in early April and then gradually most of your other facilities are up in over April and May. But what is the capacity utilization that you've been running at during Q1?

So challenges have been that we were slowly ramping up our capacities to ensure that we maintain the social distancing norms and also the labor availability. So we've been slowly ramping up our capacities in Roha and in Mahad. Our capacity still run at low rates. We see -- Q1, we wish, we will see -- we expect to have very muted growth or a little less than last year. But we have been -- I think the major thing is, like I mentioned, we've seen -- we are seeing good export demand. However, demand from India has been very poor, and that's been the challenge. And I think Q2, we -- Q2, we look at really ramping up the India demand too.

Okay. And your inventory from the balance sheet numbers that you put out along with your results release showed increase of about INR 92 crores with your inventories. I'm assuming this would be all on account of shipments that couldn't be completed in the last couple of weeks of March. Would it be a fair assumption to say that these sales would come back in April, May?

No, sir. I think -- so there were 2 combined effects. One, the India business, obviously, was totally lost because the manufacturing stopped, right, for a very long time. So that was one scenario. The other -- and in terms of our -- in order for us to supply and then there was a few challenges in the export front to ramp up the supplies.

Okay. So some of that inventory would still stay on your books as of the June quarter?

So there are 2 things. Obviously, we've looked at shipping something, but I think we've also covered a lot of raw materials, given the uncertainties and what was happening, right? So as a mix, we wouldn't see the Q1 inventories to improve. We expect much improvement -- we expect much improvement by the first half.

Okay. Okay. No, that's useful. Sir, if I look at your pro forma numbers for Q4, you're talking about a 17.2% EBITDA margin, which is pretty much one of the highest that we have seen in a long, long time on a quarterly run rate basis. Was there any significant reason for this kind of a margin, pro forma margin? Or is this -- sort of once the COVID challenges are past us, this is kind of the run rate, which would be normal?

Our target is always to move towards that percentage. But I think if you're referring to the 17.2%, if you look at, there was a huge utilization. We could have done, as I said, from a management's view perspective. It's all unaudited numbers. We could have done INR 574 crores. Equivalent to that, that utilization, that growth would have been 33%. And given the economics of scale, the fixed cost gets well leveraged, and that's why you saw the 17.2% margins.

Okay. And would it be fair for me to assume, I don't -- I know you don't give out these numbers that exports have offer a much better margin than domestic sales?

So I think that margin really depends on the industry you serve, right, rather than the geography. So there is slight geography trend, but I think it's more towards the -- this.

We have a question from Mr. Madhav from Fidelity.

I just wanted to understand that on the global side, there has been an M&A transaction which went through or is about to be completed maybe this year or the next year? Once that happens, can we expect that lot of more orders start coming to Sudarshan? Or how should we sort of look at that? Because it's a fairly large transaction that's happening globally in that segment here.

I would say, so not that one event, I think, but there are 2 points. We've been in the process of changing our portfolio. We would have a better product mix as we progress. That's one. And then, of course, there are strong tailwinds, both to look at the tailwinds towards the India specialty chemical market, right? So we are part of that. So moving away from China to this. In addition to this, in the pigment business, one transaction -- the one large transaction has been completed. The second one may get completed. So that's the second tailwind, I would say that is playing both. So these are tailwinds, and I wouldn't say that this one action would kind of automatically increase in this, but these are favorable trends towards saying that how do we kind of grab more opportunities in the market.

How does that really work at the customers' end? Like, say, 2 of their suppliers consolidates into 1 which is a fairly large supplier for them. Like, how does it work in the customer side like they start looking for more vendors for the supply that they want of segment? So if you could give some color, that would be helpful.

Well, I think, yes, that's -- obviously, customer to customer, the wallet share of both BASF and the other part being -- the other part, I think, are getting [indiscernible]. So I think given the combined wallet share, depending on the customer, [ this is how ] they would look at that. And in general also, look at diversification of their -- through a wider supplier base. I think that's how it would kind of work with, right? And then from that perspective, our product portfolio needs to match our technical requirements, and that's how it would get completed.

Got it. And just one last question from my side. In the India part of the business, could you give us a split between the end industries that we serve like between, say, ink versus paints versus auto? If you give us some sense there.

We do give a global trend, right? Whole sales trends. Okay. So right now, sir, we are splitting exports and domestic. We will see how to publish that intervention more openly, yes?

[Operator Instructions] We have a question from Mr. Ritesh Gupta from AMBIT Capital.

Sir, just one thing I wanted to get a clarification on. So you did about INR 250 crores of CapEx this year. You are looking at similar or probably higher CapEx for FY '21. That is linked to some of the specific products that you were looking to put out. So how is the plant rollout shaping up on that side? So if you could just highlight from a plant perspective that when they get commissioned? And how is the situation on the plant that could commission somewhere in Q3, Q4?

So I think from a perspective, like I mentioned, all our projects are at least running 6 months delayed. We were first wanting to ramp up our production and then look at focusing on capacities. So like we mentioned, we should be able to complete the -- progress of about -- progress is about INR 350 crores in -- and we are kind of hoping that we'll have a more realistic time line very soon because we are still under kind of gathering our fleet together to ensure and start execution. Some of the -- there have been 2 major issues: Obviously, that much of manpower availability on the projects; and second is a lot of the equipment is imported. So you need technicians from abroad to travel, which is restricted at least till 1st of September, right? So those are going to be kind of mixed issues where we see the exact execution time lines for this INR 350 crores of projects.

So this is also -- Yes. So is there a spillover of that INR 250 crores also into that INR 350 crore? Or that INR 350 crore is fresh CapEx that...?

No, no. INR 250 crores is complete -- INR 250 crores is completed...

Completed and commissioned. Okay. Okay. All right. And what's the ramp-up on the projects that has been completed? I mean how is that client approvals, et cetera, working? I think you commissioned something in second half. So I was also asking about the second half projects. How was the ramp-up?

So the INR 250 crores, I mean, some of the ramp-ups, one of the ramp-up, a little bit slowed down because even people don't -- one of the last priority for the manpower is to test new products right now in labs, right? Everyone is trying to get the manufacturing started and trying to restrict the number of people to come in. So there is a little bit slowdown. So we don't really -- we would get a clearer view in the next quarter. But there is a slowdown, sir, in the ramp-up, I would say.

Got it, sir. Just one last one. On a sequential basis, I see consistent improvement in gross margins over the last 4 quarters. So I think your presentation shows 40% has almost gong to 44% in the last 4 quarters. So is it already some molecules where you have got approvals and they are driving that kind of gross margin improvement? Or is it more of raw material pressure kind of easing up? Because I think in FY '19, you had some raw material pressure as well, so that is kind of easing up and that's why your gross margins are improving?

Sir, as you -- as we were discussing, we are gradually improving our product portfolio. So that's on multiple levels. It's not one. And there were several initiatives of production, right? So all of them put together, I think, is giving that impact.

We have a question from Akul Broachwala from IIFL.

I just wanted to check on how is the outlook for our revenues across the segments? Like you're already envisaging a CapEx of INR 350 crores. So how is the demand shaping up? Has there been any kind of order losses? Like you did mention domestic business is suffering right now because of lockdown. So just wanted to get a sense of that.

Sure, sir. So if you look at geography-wise, I think currently, like I mentioned, India is the worst affected. From a perspective of, let's say, each industry, directionally, what's happening is, let's say, the coating industry. Coating industry in India is, as we know, is affected, and there has been a delay in the last quarter. However, some of the industries in U.S., et cetera, in coatings, saw an uptick because a lot of people were staying home. And most of them paint their houses -- it's do-it-yourself, right, DIY. So they were painting more houses. So there was demand, which saw a higher this. So that was one trend we saw in the coatings. In plastics, whatever goes into food packaging, et cetera, saw uptrend. However, other segments of plastics, we saw it lower. And in terms of automotive, we did see automotive is probably worst hit, right, in general trends [indiscernible].

Okay. And secondly, like, again, talking about this Capex. So what's the target debt equity ratio that you are targeting on this? Are there any separate targets that you would like to maintain?

Do you want to reply, Vivek?

Yes. With the CapEx that is expected to happen this year, we might -- currently, we are at 0.8% in debt to equity terms. And we expect it to go up to about 1%, 1.1%.

We have a question from Mr. Naushad from Systematix.

Two or three questions I have. First, on the margin side. If I look at the segmental reporting, in the pigment business, despite having a similar quarterly run rate of INR 100 crore, we have seen a sharp decline in the EBIT margin, sir. Can you explain this?

I think given the quarterly performance, I think, as we mentioned, we had already ramped up -- we had planned for much higher sales. And hence, some of our cost, employee cost, et cetera, which we had ramped up, was much higher, right? Some of our R&D expenses were much higher. Given our CapEx also, you would see from a CapEx perspective, some of our depreciation and interest cost was also higher, right? So that was the -- that was primarily the reason on seeing a decline in.

Was there any one-off cost we faced in this quarter in pigment division?

No.

Okay. Similarly, in the segmental reporting, the other segments have reported around INR 6 crores of EBIT profit versus loss of around INR 50 lakhs, INR 60 lakhs last year. So what do we actually count under this other segment? And what has made -- help us to generate this INR 6 crores of EBIT?

This was mainly our engineering business, which is turnaround now and which was suffering till last year. And so that's the business which is turned around, and we should be able to maintain similar margins on that business.

And since many of the CapEx projects are executed in Q4, so the quarter performance has been very good.

For the engineering business.

For the engineering business.

We have a question from Mr. Manish Poddar from Nippon India.

Just wanted to understand. So this revenues, which didn't occur due to COVID, these are postponed or these are lost permanently?

So there was a part which was lost because India demand itself went away, right, April, May, right? In terms of exports, we could get some business, but a small part of it. The other part went to, obviously, even we couldn't supply -- for 4, 5 weeks, we couldn't supply. So obviously, some of the -- whereas some of the export industry was fully on. So we did lose that. So I would say only a partial demand from that was -- that could have been -- we caught that, rest all was gone.

So would you be able to quantify that? So let's say, out of this INR 120-odd crores, will it be fair that INR 70 crores, INR 75 crores would come up in Q1?

No, not that high because I right now don't have a breakup. Like I shared a very marginal demand was over Q2, Q1. And also Q1, the ramp-up in supplies was much slower, right, from our side, manufacturing side.

And 2 more questions. So first is, could you probably give us an idea or probably how is demand panning for the mica products?

Is there a particular reason only that product line? I mean just wanted to understand the background.

No. It's -- in my view, that's largely discretion in nature. But there is still some bit of supply constraint, which happens given that there's a lot of imports which happened for these sort of products. So just want to understand, are we able to gain share due to that, despite the discretion [indiscernible]?

No, no. I think there's a big cost difference between us and the imports, and we don't participate in those markets of textile or plastics at all. We send our micas into coatings.

Okay. And just one final one. So these orders which you got in Jan, Feb, March some, were these largely from the existing clients or were these new clients altogether? And if I understand, just for instance, when a product uses a particular sort of colorant or, let's say, a chemical, you can't really switch in the products which you cater to. So would it be fair that if you've got a foot in the door for the new clients, you would have -- you would get repeated orders from these clients going ahead?

So I think from a perspective of -- most of this demand, obviously, as you answered the question that people can't switch overnight. So most of the demand was from existing customers. And this was a little bit of a planned thing where some of our new approvals were coming in, et cetera, which we were expecting some in the Q3 also, but that got postponed, and we got everything in the Q4 thing.

We have a question from Mr. Rohit Nagraj from Sunidhi Securities.

Sir, on Page #18 of the presentation, you have provided the 4 segments that we cater to. If you could just give a broader revenue bifurcation across these 4 segments for FY '20. And how was the growth across this segment? And which one of these segments have been most impacted due to COVID-19 in FY '21?

So as I mentioned, sir, the segment -- the COVID impact, I mentioned, if you look at coatings industry, that was the most affected in India, right? However, overseas, coatings did in some parts where there's do-it-yourself and people are mostly home, they were painting more, right? So the demand seems good. In terms of plastics, the segment for food packaging industry did very well. And in terms of inks also, the food packaging segment did well. However, the newspaper, et cetera, news inks, et cetera, did not do very well. And cosmetic has been muted.

Okay. And revenue bifurcation in terms of percentage across these 4 segments?

Right now, we don't publicly give this, but I think the -- our #1 is coatings, the #2 of our market is inks -- plastics, and #3 is printing inks, and #4 is cosmetics, the same range, the same.

Okay. And sir, the second question is in terms of Q4 employee cost and operating expenditure. So I understand that probably most of the CapEx has been done in Q4. And that's a precise reason there has been increase in both these expenditures. So would this be a run rate going ahead, at least for a couple of quarters till the new CapEx is not executed?

Could you please repeat your question again?

Yes. Sir, Q4 staff cost and other operating expenses have gone up on a Q-o-Q basis as well as Y-o-Y basis. Probably, this is mainly due to maybe execution of our CapEx. So would this be the run rate going for the next couple of quarters until the new projects again come into effect and that will increase probably some operating expenditure as well as the staff cost?

So I think the staff cost should not increase as much. But in terms of depreciation and interest, yes, that would be the correct way to look at it.

We have a question from Mr. Umesh Patel from TCG Asset Management.

Yes. A few questions from my side. Sir, I just wanted to know what proportion of raw material comes from China. If I'm not wrong, I think BON acid is the key raw material, right?

I wouldn't say -- yes, I wouldn't say BON acid is the key raw material. There are several raw materials, which do come from China. But I think about 25% of our raw materials come from China, 25% to 30%.

Yes. So is there any alternate source because of the current ongoing situation or manning few imports from China? Is there any particular sourcing availability in the world?

No, there are some products where there are alternatives. And however, not for everything, and that's one of the areas we are looking at how do we derisk ourselves, right?

Sure. Sure. And any benefit that to arise due to China that 2 Indian players, particularly in pigment, and any price correction that you see because of the volatility in crude price and slow demand in domestic and global market?

No, I don't -- we don't see that as any corrections right now.

Yes. So I mean, any benefit do you expect or your industry expect in pigment segment?

Not anything right now. But there are some products which are which China dumps in India. So that's one area which -- that's one concern area. But other than that, we don't see any particular benefit which would come -- which we are seeking -- which we're looking at from the government right now.

Sure. And the last question was related to the yellow pigment, which was supposed to start in April. So just wanted to know, I mean, after -- as you mentioned in the earlier remarks that is that the new plant will start contributing, but because of the delay, it would get some delay in commissioning. So what were -- what is the revenue potential? And when can we expect this to start contributing? It was supposed to start from June or July, right?

Yes. But I think what has happened is, obviously, like I said, all our new projects are delayed by 6 months. And the old project, which was commissioned, we were not giving priority to that with the limited labor and limited areas. We were first producing material for supplies. So that was our focus areas. And also quite a few of our customers today have limited manpower to test new products. So there will be a delay. We can't quantify that right now because we are not sure how things will change and ramp up globally.

Sure. And you mentioned about inventory, that INR 92 crores the inventory which was carrying. So can you give us the breakup? Because of the lockdown, what was the finished goods inventory as of now do you have with -- which is ready for export or ready to ship in domestic markets?

Right now, top of my mind, I wouldn't have it. But I think quite a few of that inventory was built up for supplying to exports and which we probably did some in April, May, but there were different challenges where, like I mentioned, though we may have got rid of that inventory, we had to put up more inventories for raw materials given the current -- all the COVID situation, uncertainties. And that's where we did have a few concerns.

[Operator Instructions] We have a question from Archit Joshi from Dolat Capital.

Sir, if you can just give some clarity on what exactly has been happening in China. Because our interaction with some of the experts has sort of indicated that they could be coming back strongly, with certain environmental norms over there being relaxed. And since we have significant amount of CapEx that is lined up in the near to mid-term, would that have any sort of negative bearing on our future prospects?

Yes. So I think the situation in China, I think China has been ramping up certain capacities, of course, not reached to full levels. And I think there was a lot of pent-up demand in China itself. So I think quite a few of their suppliers were -- quite a few of them were like because all the industry in China had opened up, the manufacturers were focusing on the China demand. That's what right now our focus is. That's what our information is.

Right, sir. Just one last question, sir. Sir, if you can just throw some light on the current raw material situation that we are seeing. Has the prices normalized? Are we expecting that they could come down a little bit even more? Because I believe one of our competitors, which is an MNC, has taken very recently taken price hikes. Are we also planning to do that? Or we have done that already?

I'm not sure we've taken a price hike, but we've not seen a major price hike in the industry. Obviously, it's a very mixed scenario of muted demand, some products muted supply. So I think we are going with very -- we're going with cautious that we don't lose any demand in this cycle.

Right, sir. And sir, just on the previous one, if you can just comment on the RM trend or how we are sensing it to be...

RM, I think, is pretty stable now, raw materials.

We have a question from Mr. Ashwini Agarwal from Ashmore.

Sir, a couple of follow-up questions. One is that, obviously, with this lockdown, your travel and market development activities would have come to halt. Does that sort of change things in a significant way for business plan? Or because a lot of your business is to continuing customers, that shouldn't have such a huge issue?

So I think I would [ mixed bag ] -- as a long term, we don't see much impact, right? I think our team -- sales team is in constant touch with customers. I think what short-term impact we may have is people have limited resources on testing new products, right? So the question comes in, if I produce -- make my normal production and supply into the market or whether I test new products. I think so that's a challenge which people are facing. And that's where we need to balance out how things are happening. So that's the only short-term challenge, I would say.

And now that you've adopted the new tax regime with effect from 1st of April 2020, next year onwards, it would be a straight cash tax rate equivalent to about 25%. There would be no deferred tax, et cetera, starting 1st April. Would that be the correct reading?

Ashwini, just to clarify, we have not adopted the net new tax regime. We expect to adopt in a future period. So we haven't -- for the financial year ended, we have not opted. Either for this year, we have decided as yet. We'll continue to review our situation. And depending upon what is beneficial from a taxation perspective, we'll do that. However, just to clarify maybe the note, whenever we adopt the new tax regime, that time the liabilities, which we have created as a deferred tax liability, they will reverse at a lower rate. So the liabilities were created at a higher rate and will reverse at a lower rate. So they have been restated, and hence, the tax impact during the current year has been on the lower side.

So just to understand, what you've done is, you've assumed that you may be shifting to the new standard at some point. And therefore, the net deferred tax has been restated to the new accounting standard and the difference has been accounted for in Q4?

Absolutely. Your understanding is right. Future, whenever we expect to migrate to the new tax rate, at that point of time, what liabilities are, they are restated now.

There should be no further change from there? So all those impacts have been captured now?

Yes. Obviously, this is an estimate. Depending upon how close we are to estimate, depending upon that, things are not going to be much different.

And on the FX side, you reported a INR 6 crore loss. Usually, this number is a much smaller one for you and fairly consistent. Any reason? Any particular event?

Yes. So we have a hedge policy based on which we hedge our exposures, both mostly committed exposures. And those committed exposures when hedges are taken, they are required to mark to market. And because of a sudden depreciation, a very sudden depreciation, those mark-to-market losses have been accounted.

Okay. So you didn't get the lift in your revenue line, but you've got the hit on your mark-to-market because it was -- the depreciation happened towards the end of the quarter.

We got the -- the sales has been recorded at a higher number because that's the exchange rate month-on-month on the date of the transaction -- on the date of sale. So sales number has also increased.

Okay. Okay. Okay. And last thing for Rajesh. Rajesh, Europe -- again, just going back to the gross margin and EBITDA margin and those kind of jaws. In the past, you've always said that, look, we are investing in marketing. We've put out a team in Europe, built a R&D center facility in Europe and invested a lot of money towards new product development. I'm assuming that your gross margin lift is sort of partly accounting for a richer revenue mix. And I'm also assuming that a lot of these kind of fixed expenses are probably now more stable than they were in the past, and that is going to be the key driver of your margins going ahead. That -- would that assumption be fair?

Yes. Absolutely.

We have a question from Mr. Dhavan Shah from ICICI Securities.

So I have 2, 3 questions. Firstly about the other segments. So I just wanted to understand, I mean, what kind of engineering work do we do under this segment? And any plans to exit from the noncore activities like we have seen in the past as well from the engineering side? If you can share thoughts on that?

So these are -- so this is the engineering business under the brand of Rieco, which focuses on pneumatic conveying systems, pollution control...

Size reduction.

And size reduction, right? So that's -- so this -- the current guideline -- the Board kind of looks at it, and current guideline is to see how we can revitalize that business. And that's what the focus has been to ensure that we are able to turn around. And I think the engineering management team has done a great job in turning around the business right now. This is under active review of the Board as to what next steps we should be taking.

Okay. And secondly, about the top line growth, so would it be possible to share the growth between the volume and the realization? And if you can -- I mean, if you can also share the volume numbers -- I mean the sales volume number for the quarterly and the yearly basis, that would be helpful for the pigment business.

So I think we will -- we'll look at these -- there are a couple of more requests. So we'll see what we can work from a competitive perspective and definitely share it on our website and also with everyone on the call, yes?

We have a question from Mr. Vikrant Kashyap from Kedia Securities.

Congratulation on good performance despite being challenging conditions. Sir, just 2 questions. You said your dependency on Chinese raw material, for some products, it's manageable from other sources. For others, you are looking for a way out. Do you think -- are you planning for a backward integration kind of thing or any kind of permanent arrangement in domestic or export market? Could you share some light on that? Because we are seeing India, China supply trade tensions building up. So it's a long-term impact going to happen that what we see. What is your outlook over there?

So I think irrespective of the current situation because the current situation may be short term, we don't know how this will pan out. But I think irrespective of the situation, one of -- we were looking at 2 areas. One is from a derisk and also from a value capturing perspective, we were looking at making some of our backward integrated. We were looking at some molecules where we backward integrate. The second line of -- this [ whole thing ] we wanted to look at some of the players in India who are small, how can we partner with them and help them build their capacity so that they can supply to us or restart some of the products which they were making in the past.

Okay. And sir, on the export front, you said there was good order buildups in March. So can you share which geographies -- the change in pre-COVID and post-COVID scenario, which geographies do you think are doing well for you or expected to do well?

So I think good question, sir. I think some of the key markets which we were investing in Europe, U.S., we saw better demand and that's where we will -- that's where we were kind of looking -- those were the demands where we were seeing better.

So you are accepting, like, see, that as the situation improves post-COVID that these 2 geographies for us will do better.

Yes, sir. Yes.

We have a question from Mr. Avishek Datta from Prabhudas Lilladher.

Sir, can you just give an update on how do you see the global markets shaping up? Is there any consolidation happening? And how do you expect Sudarshan playing a role in the global markets going forward, 5 years down the line?

Sir, I think to answer your question, as we've said that the top 2 consolidation is happening, the #1 player -- the #3 is buying the #1. That transaction is clear. The #2 was in the market to sell their business. But right now, given the current situation, there may be some delays. Yes. So that was one. We -- and of course, the strong tailwinds from China moving to India supply source.

Also, are you seeing -- like China has increased the export benefits to around 13%. Are you seeing increased competition from China because of that?

Not currently because I think their supplier ramp-up is also happening right now. But I think in some of the commodity areas, we will see some hit from that.

I would now like to hand over the call to the management team for closing comments. Please go ahead, sir.

Thank you very much, all of you all for your participation and thank you for your interest in Sudarshan. We are very bullish on the long-term prospects of our business, and we continue to invest for the future. And I would also like to thank B&K for their -- helping us with this call. Thank you.

Ladies and gentlemen, this does conclude your conference for today. We thank you for your participation and for using iJunxion conference service. You may please disconnect your lines now. Thank you and have a great evening.