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

Ladies And gentlemen, good day, and welcome to Sudarshan Chemicals Q1 FY '21 Earnings Conference Call, hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankur Periwal from Axis Capital Limited. Thank you, and over to you, sir.

Yes. Thank you, Stephen. Good evening, friends, and welcome to Sudarshan Chemical Industry's Q1 FY '21 Earnings Call. As usual, we have with us Mr. Rajesh Rathi, Managing Director; Mr. Nilkanth Natu, Chief Financial Officer, maiden conference call for him; Mr. Vivek Thakur, GM Finance; Mr. Amey Athalye, Deputy GM Finance; and Mr. Mandar, Company Secretary. So we'll start with the initial remarks from Mr. Rathi, and then we can open the floor for Q&A. Mr. Rathi, over to you, please.

Thank you, Ankur Ji, and Axis, for hosting this call. It's a real pleasure to interact with all of you. Is my voice -- my voice is clear, right?

Yes.

Yes, sir. You're clear and audible.

Okay. Okay. Good evening, ladies and gentlemen. Welcome to Sudarshan Chemicals Industries Limited Earnings Conference Call. Our investor presentation has already been uploaded on the Stock Exchange and Sudarshan website for your ready reference. I hope you have been able to access it. I would like to thank this opportunity -- I would like to take this opportunity to introduce Mr. Nilkanth Natu, who has joined us as a CFO. In this role, he'll be working closely with Mr. Vivek Thakur, Amey Athalye and their team to achieve Sudarshan's vision. I welcome Mr. Natu to Sudarshan. Mr. Natu and I look forward to engaging with you all in the subsequent call and meetings. Let me start with the update on the business and the key developments for the quarter. I would like to thank the team at Sudarshan that work seamlessly and efficiently to allow us to restart our operations in April, one of the first pigment companies to start its operation. The teams have worked tirelessly to give us an early start. However, the quarter has been relatively unusual and challenging for us. We had to deal with a country-wide lockdown in the month of April, which was slowly lifted through the quarter. In addition to this, in early June, our Roha plant was impacted by Cyclone Nisarga and made it -- Nisarga had -- during this -- the cyclone Nisarga was one of the strongest cyclones to hit Maharashtra, and we had to take precautionary steps, which affected the productive at the plant [Technical Difficulty] last week of June.

Sir, sorry to interrupt, but your voice is breaking up. Hello? Members of the management, can you hear me? Participants seems like we lose the line for the management. Please stay connected while we reconnect them back. Ladies and gentlemen, the line for the management is reconnected. Thank you, and over to you, sir.

Do you know when we got lost?

Sir, just like 30 seconds back.

Sir, you started on the Nisarga -- the cyclone impact on the Roha plant.

Okay. So I think the cyclone also kind of damaged some of our properties, which we had to restore. And finally, in the last week of June, we were hit also with -- we had to shut down our plant at Roha for health and safety reasons as some of our employees were detected with COVID-19 cases. These factors resulted in slow ramp-up of production through the quarters. In addition to this, during the quarter, we were also faced with some challenge of trained manpower. Some of the migrant workers, which were working, have returned back to their own states. This start-up -- some of the start and stop nature of operation had resulted in loss of economies of scale and some efficiencies, which have had some impact on our financial quarter. Demand during the -- demand during the quarter for international markets was strong. In our view, Q1 was more impacted by supply and logistics challenge and was not a demand issue, though demand in India, the demand -- the lack of demand from India was more than made up from exports. Looking at the financial performance for the quarter. On a consolidated basis, the total income from operations is at INR 352 crores as compared to INR 411 crores for the corresponding period for the previous year, down 14% on a year-on-year basis. Pigments accounted for 97% of the revenue, which was at INR 341 crores. The drop in revenue is primarily due to -- due to the -- due to lower supply from the low production and hence, lower supply. If we could -- if the last -- even if we consider, even if the last 1 week of June we were running, we would have -- we -- our sales would have been -- our pigment sales would have been at INR 386 crores. Our gross margin has also seen a significant growth and was at 44% for the quarter versus 41.1% of Q1. The improvement in gross margin is because of a continuous improvement in product mix and prudent pricing strategies. Margins have also benefited from a relatively stable raw material environment during the quarter. EBITDA for the quarter was at INR 53 crores at a -- and a margin of 15%. Both these are marginally down as compared to Q1 FY '20 as we have not been able to absorb the full cost base, given the lower levels of operations. If we were to exclude the impact of only the June month -- the June last week shutdown, our EBITDA would have been at INR 65 crores, reflecting a margin of 16.4%. Finally, profit from our continuing operations, excluding tax was at INR 18.2 crores versus INR 28.2 crores in Q1 FY '20. Depreciation this quarter was higher by INR 4.5 crores as compared to Q1 FY '20, given the CapEx over the last 12 months. ROCE for the quarter was at 11%. However, one needs to adjust, if the ROCE is adjusted for 3 items. Firstly, we lost -- the production loss for some many -- during the quarter, which, of course, didn't provide the economies of scale and, of course lower volumes. Also, the asset utilization of newly commissioned CapEx is still to be ramped up at certain product standardization. And we did have some higher inventory. So if we are adjusted for some of these areas, our ROC for the quarter could have been at -- today have been at 15.8%. I would also like to give you an update on how we are seeing the business evolve over the next few quarters. While we've lost around 15 days of production in July, as the plant was closed due to COVID-19 cases, we expect to make up some of this loss in Q2 itself. Our export demand has been strong the last few months, and we are also now seeing early signs of demand pick up from domestic customers as well, and we are hoping that this is sustained. On the raw material front, we are well positioned. Our business just depends on certain raw materials from China, and we believe that there will be certain dependency on China, but we've taken strategic steps to ensure -- to either backward integrate into some of the raw materials, create domestic suppliers -- suppliers. In the meanwhile, we don't see any major issue in raw material supplies, currently. We are well stocked-up also, and there have been -- there are no supply challenges. Moving to CapEx. There is no change in our strategy or long-term plans. We're assessing the pace of execution of the existing projects, as these have been impacted for nonavailability of labor and also some of the commissioning of equipment for which we need people to travel from abroad. So we have -- in addition, currently, we are prioritizing our existing manufacturing, so that we are able to serve the orders. So we are restricting some of our CapEx items. We'll continue to -- we will -- but we are very confident -- we are very confident of our strategy and our CapEx plans. And though -- so nothing changes in our CapEx, accepting there will be a delay, our current estimate is that the CapEx will be delayed by 6 months -- 6 months. Finally, I would like to reiterate again that we are seeing increased orders and queries from our clients. Our supply chain -- our supply situation is also improving as our plants begin to see more normalized levels of productions. And as a result, we feel -- see the next quarter to have improved financial performance. Our balance sheet remains strong, and the business is well funded to be able to deliver a resilient performance in these challenging times. We look forward to grow and deliver value to all our stakeholders. With this now, I open the floor for questions.

[Operator Instructions] First question is from the line of Sameer Dosani from Carnelian Asset Management.

This is Manoj here from Carnelian. So my first question is on -- like in the last couple of months, we were seeing like lot of noise around shift from China, like, mainly all European countries, U.S., they want to have like -- means, they want to reduce their dependence over China. So in this backdrop, are you seeing some signs of higher order flow or higher opportunity from that part of the world? And also, if you can give some color like, in terms of competitive scenario in terms of costing or in terms of chemistry capability, how do you see India versus China, basically on the pigment side of the business?

So I think the first question, so there's definitely favorable tailwinds, where most of the key accounts and customers would be looking at an alternate source to China. And India does become a natural supply source. So that's a big positive. Now we have to see in the long run, how does this turn into real opportunities. We are seeing already much better demand from the export market -- export market currently. Right now whether this is only short-lived or is kept sustained is one of the areas we need to look at. This is for that extra, of course, whatever our strategy and that goal was to kind of drive our -- drive the program through new products, better reach that we have continuing, right? In terms of China, I think -- and I think you have to segregate players. But I think, in general, if you want to talk about, I think, we lack reach, we lack technical market for application lab capabilities, which -- so that's the -- that's one of the major gaps, which the China industry has. And of course, the sustainability part looking at their -- effluent treatment capability. These are 3 areas I would definitely kind of say that some of the other players on…

Sorry sir, you mentioned one is the technical capability. Third one is the effluent treatment job, right?

Sorry, I said -- I said technical marketing and application lab capability, right? So that was one I have said. And the next one would be sales reach. And the third is their entire sustainability part on looking at the entire environment and treating the effluents. Okay?

My second question is like, looking at the early signs, the way the business is likely to shift from China to India, especially chemical industry is likely to benefit a lot. So in this background, how you are preparing Sudarshan in terms of, like, incremental CapEx or putting up incremental capacities to capture this kind of opportunity? And lastly, if you can also cover like what kind of in terms of absolute value CapEx you are planning for the current as well as in the following year?

So I think our growth story, our vision is to become global, bigger in the pigments among the top 3 players in the industry. And as such, our transformation involves introduction of much better product portfolio looking at some areas where we gain cost leadership. And that's -- and we've already worked on a better reach to customers. So -- and we've had a full-fledged CapEx program, which is under execution right now.

And what is your quantum of that CapEx program, sir, if you can -- like, you mentioned that you are going to reduce that or it will get shifted -- delayed by 6 months?

No, I didn't say we are reducing. In fact, I said, we are not going to reduce that. So we're going to say that we are very bullish on our CapEx program. But however, due to the -- the execution will get delayed by 6 months.

The next question is from the line of Viral Shah from ENAM Holding.

Sir, I had 2 questions. First was, in the previous conferences call you had mentioned about launch of some blockbuster products. So where are we on that? And when should we start expecting revenue traction from those products?

Some of our…

[Operator Instructions]

Sure.

So our -- like I mentioned, some of our CapEx programs have been delayed by at least 6 months. And currently, we are reestimating based on kind of looking at when we can start projects, how it can kind of -- I think we need to -- so I would say, at least 6 months delay in some of these projects.

Sir, would it be fair to say that the revenues from most of these blockbuster products in all likelihood will come in the next year and not in the current financial year?

Yes, yes, some of them, yes. Because some of the projects would not get completed itself.

So sir, just -- to the previous question, what would be our CapEx outflow for FY '21?

So '21, we had a outflow of about…

INR 250 crores towards the cash.

So about INR 250 crores, right? INR 250 crores. How much we are able to execute? We are estimating that.

Okay. Okay. And just last question on the net debt number. What will be our net debt number as on the end of the quarter?

Sorry?

Sir, what would be our net debt number?

So net debt is INR 500 CR.

[Operator Instructions] The next question is from the line of Sanjesh Jain from ICICI Securities.

Couple of questions. First, on the demand side. When we say that international demand has been strong, but India demand is recovering. To just understand, where is India demand versus pre-COVID? We are at 60% level, 70% level? That's one. And number two. One interesting point you made that, demand was not so much of a challenge, but supply was a challenge. And July, particularly, we had a 15 days kind of a shutdown. Now we are on the almost mid of August. How much has the production recovered versus pre-COVID level? So that's the first 2 questions. I will come up with a few more questions after this.

Sure. So I'll answer the second question. The second question, I think our production in Roha plant was shut for 21 days, partly in June and partly in July. And we are -- the production is getting ramped up. And soon we should -- soon we should reach the pre-COVID levels. We've still not reach there, but we will reach the pre-COVID levels of production. Yes. In terms of -- sorry, I -- first question was?

Same on the demand side. How are we in terms of domestic demand versus pre-COVID?

July, we saw domestic demand recover to about 70% to 80% levels. August, the indications looks like at least we should reach 90% to 100%, almost the same level as last year as a overall demand for that.

That's fair. One on the RM side, we had, sir it is volatile crude prices, and it still continues to remain lower than what it was last year. Should that benefit us in terms of lower raw material prices?

So I think from a raw material perspective, things have got more stable. There's probably 1 or 2 raw materials which are slightly disrupted. But other than that, everything looks stable, and we are expecting -- we're expecting that this year, there should be good stability in terms of raw material.

I was more thinking of decline in the raw material prices?

Yes. So we have seen a decline, and that's where it had come, margins also. And -- so I think we're -- we should be able to maintain the current levels.

Sir, these margins are more sustainable, given where the raw material price are?

Yes.

Next question is from the line of Abhijit Akella from IIFL.

So the first one was just with regard to the demand kind of scenario that you're seeing in each of your 4 key end-use industries, coatings, plastic things and cosmetics. So if you could just talk about which of these segments have been impacted more? Which of these less? And also in the presentation, you've spoken about some early signs of demand pickup. If you could please just talk about which of these segments you're seeing those kind of pick up?

I think our business is impacted by -- the automotive is probably -- if you look at the impact and the amount of recovery, I would say, automotive would be the largest and the least would be probably packaging in which food packaging has seen a increase in demand. And in terms of plastics, I would say is somewhere in between. So that's been the -- on the demand scenario -- that's been the demand scenario. And in terms of recovery, we spoke about -- I think I've just answered the question. I think we were talking more on the domestic side, domestic or India subcontinent demand recovery.

Understood, sir. That's helpful. And second, just on the previous CapEx that you've already executed, like, for example, the yellow pigment plant that had come in last year. Should we expect that the product approval by the customer for those new products also is getting delayed, and therefore, the revenue realization from those projects will also take a little bit longer? And if so, by when should we sort of start to expect those to start contributing to the financials?

There were 2 kind of -- there are 2 areas, sir. There I think most -- some of our customers have not had enough bandwidth in the labs to test. As we are focusing on manufacturing first, everyone is doing the same. The second area is that we needed to make some more tweaks on the products. And those tweaks and the relaunch, we have also held that up, saying that manufacturing and supply first and then we relook at it. My expectation is that the delay would take at least, I would say, 4 to 6 months. Hello?

Yes, yes. Okay. So I mean, if our previous expectation was that, maybe, some of these new products might have started contributing later in FY '21, then maybe that expectation now gets shifted to somewhere in the middle of FY '22, is that fair?

Yes.

The next question is from the line of Nav Bhardwaj from Anand Rathi.

Sir, a short question I had on the new capacities that we have planned for the coming 2 years. The products that we're going to generate out of them, how much of that is going to be an import substitution? And how much is that going to be a new product altogether? If you could quantify in terms of some numeric value?

Currently, there is a very small amount, which is towards import substitution. Everything is towards -- either towards new products or revenue generation. There is some CapEx in that for EBITDA improvements. So better utilities, better -- more efficient utilities, et cetera. That's the -- that's it. Our major focus on driving the backward integration of cost leadership start -- the focus has come on this year more, where we have now a dedicated team in our R&D, et cetera, driving this.

And of the total investment, what could be appropriated towards EBITDA improvement? And how much would be for revenue generation? Do we have a split on that?

I really don't have, but I'm requesting Vivek and Amey to -- maybe we can answer this towards the end or put it up on the website here.

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

Sir, in terms of price hike across our products, is there any price hikes, which has been initiated? And do you expect any price hikes in the coming quarters? Because as far as the RM's scenario is concerned, you said that most of the prices have come down and probably remains stable. So what is the scenario on the product pricing front?

So you're very right. I think so product pricing other than 1 or 2 products nothing much has -- needs to be increased. We are working on those couple of products. Other than that, it's a pretty stable scenario.

Okay. And sir, last quarter, we had indicated a revenue impact of about INR 125 crores due to COVID. This quarter, it is about INR 45 crores. So in total, about INR 175 crores impact due to COVID. How much of that would we be able to recover?

Just to clarify, the INR 45 crores which we have reported is only for the last week of June.

So I mean, totally for Q1, I would say?

For -- it's not for the Q1 because Q1 is a much larger loss. If you look at -- if you combine everything together, because we started late in April, there was Nisarga. We just want -- this quantification was for the only the last 1 week of June, where our plant was completely shut. And as such, sir, demand, like I said, has not been an issue. Obviously, we have not been able to supply -- supply has been an issue. We don't -- so the question is, how do we ramp up supplies from here? But I don't think we would be able to make up some of those losses. But I think we are -- in terms of Q2, we are quite bullish that though, we have lost 15 days, we will be able to -- August and September, hoping that we are able to ramp up our production, we should be able to make up some losses. But we will not be able to make up the entire losses of what has happened.

Okay. That's really helpful. Sir, in terms of our availability on the plant front. So if the demand again comes back to pre-COVID level and probably this demand, which has gone due to COVID, if it comes back, are we sufficient in terms of capacities to execute the demand in subsequent quarters?

Yes. Yes, absolutely. I think capacity-wise, we are okay.

All right. And just one last clarification. In last con call, we had mentioned about the CapEx that about INR 345 crores of CapEx was under execution. And if I'm right, currently, we said that for FY '21 the CapEx is INR 250 crores. So this is primarily because the 6 months delay due to COVID issue?

So I think -- no, good point, sir. I think there was slight mix-up. We said that -- mix-up on my part. I think INR 255 crores was what we completed last year. This year, you're right. The execution what we are doing is INR 345 crores. However, we have not exactly determined how much of that CapEx will get pushed into the next year. As we start -- because, there are several uncertainties. One is, when are we able to start those projects, again, given the manpower, this -- and we don't want -- and whether we are able to ensure complete social distancing, where this CapEx, labor or team does not get mixed up with our regular manufacturing. We are -- our whole endeavor is going to be that throughout this year, we don't want any more disruptions due to COVID on our manufacturing. So that's our first priority, and that's how we will then prioritize the projects. So first priority is manufacturing.

All right. Just one last bit of question in terms of industry. Could you give us the top 5 players globally on the pigment side? And what is the kind of revenue profile each of these have? Because you have mentioned that we want to move up probably to third position. Just to understand what is the gap between maybe fourth and third player and how the first 2 players are stacked up?

So there is a -- of course, between the fourth and third player, there's a large gap. And so there's a large gap -- and very large gap. And given the time scenario, we want to get there. And for the gap, I would say that, if you look at the third player currently, the sales would be close to about $500 million.

The next question is from the line of from Ankur Periwal Axis Capital.

Two small bits from my side. So first, you did mentioned better outlook or better sort of demand visibility in the international markets. If you can slightly highlight from which geography are we seeing traction? Is it the existing ones, which we are here in, U.S., Europe or there are such a new territories, new geographies here are targeting within U.S. Europe or even Japan?

So Japan, of course, takes much longer to get any traction. So Japan, there is nothing -- right now, no, nothing happening. It's mainly -- it's mainly U.S., Europe -- it's mainly U.S., Europe regions and some of the regions in Southeast Asia and South pole, where we are seeing more demand.

Okay. And a question related to that, that is -- so given the international consolidation that we have been seeing while one, that is finalized, the other is still a work in progress, is there any incremental -- you did mention of the incremental inquiries there. But from a -- our preparedness to target that market, we have seen slightly higher CapEx last year, FY '20. This year also looks likely elevated depending upon how we are able to scale up. And maybe even next year, probably the numbers will look slightly on the higher side. So taking cue from the first -- the earlier question that you mentioned, if #3 there is USD 500 million, what sort of your growth or vision plans from a 3-, 4-year perspective, what can one look forward to?

Sir as a process, obviously, we are not -- we're not giving -- I can't answer this question on time-bound basis, but our whole legs of the 4 areas which we want to drive towards that vision is, one is the go-to-market experience and how do we improve our reach. The second is, getting our product portfolio in line or better than the leaders. And I think by next year, our portfolio will be very comprehensive right, as we do -- for example, Clariant wouldn't have effect pigments. We also -- we already have effect pigments. We'll improve some of our effect pigments. We have several high-performance pigments, which we are adding on. So from that perspective, it's -- so that's the -- and the third area I would say is, looking at cost leadership, right, and certain areas where we can backward integrate and maybe 6 or 7 molecules you get a very good market share. So given these areas, we are driving each stream. There may be, given -- so the fundamentals of what we are driving remain the same and they are very strong, right? Given the COVID scenario, there could be a delay, but I think the direction-wise is similar.

The next question is from the line of Ankit Gor from Systematix.

Sir, my question with regards to backward integration. If you can give us some details, obviously, we have been trying to do this and not depending much on China via back integration of setting up JVs and start few quarters. Where are we now? And if you have any firm plans sir, can you just talk a bit about it? That's my first question.

So there are 2 parts. We are already working on the JV parts. But here, we've expedited our area where we are looking at a few molecules where we want to backward integrate. So we set up a special cell in R&D to develop some of these technologies, right? There are minor 2, 3 products which we've already executed, and we did get some benefit out of it, when there was a crisis, right? However, we need to kind of scale this up and ensure that we are able to kind of carry -- carry this out. These are -- in terms of -- this becomes a sharper focus, given the current some of the issues which we are having in the industry.

By when, we can see some impact in P&L sir, in terms of cost…

So it's very elusive to do it because all this will require CapEx. So our CapEx program is delayed. So it's a little very difficult to kind of talk about it, but definitely not this year. I would say the second half of next year, maybe. Second half of next year. But right now, it's very -- I won't be able to give you kind of a time line on that.

And with the deferment of Q CapEx

Sorry?

What we -- with deferment of Q CapEx, what are the deferment in revenue and probably a deferment in cost sales? Can you just quantify that, that will be helpful?

Sir, we are not deferring anything. It's -- from a perspective of the business, we want to do all CapExs. It all really depends on how we are able to get -- how much labor, how we are able to get some of the commercialization, teams -- sorry, equipment installation teams, that's what determines how the CapEx would kind of get through, and we are working through these. These are very uncertain things. So I can't tell you exact number [Foreign Language] what is happening because we still don't have -- I don't know when will people be given visas to travel, when can they visit here, what will be the protocol, et cetera.

Lastly, from my side, sir, can you -- if you can just remind us how much CapEx is done out of INR 1,000 crore what we have announced few years back by -- at the end of FY '20? And how much should we get?

So we have completed -- I'm giving you approximate numbers. I'm sure the team will give you. We probably would have completed out of the INR 1,400 crores, INR 450 crores would have been completed. And right now, the execution is on INR 340 crores, which will get -- as we get -- that will get completed.

The next question is from the line of Mithun Soni from GeeCee Investment.

Yes. Just one couple of clarifications. You said whatever INR 45 crores of revenue what you have lost in this quarter that was only for the June and there would be -- would have been some lost because of -- at the Roha plant because of COVID, which you will recoup. Is my reading correct?

No, no. What I said is, for the quarter we've had much larger loss than INR 45 crores. Where April was a slow -- April was a lockdown. We started operations. We slowly started ramping up. Then there was the Nisarga cyclone. And to someone's question, I answered saying that, INR 45 crores was only the impact of that full 1 week where we had COVID cases in June, right? In July, that shutdown continued. So July also, we were shut till 15th July. But what we are saying is that -- so we've already lost 15, 16 days of production, and we are slowly ramping up. We've not still reached pre-COVID times on manufacturing. So -- but what my point was that we will try and make up some of this loss of July, 15 days through this August and September.

So logically, like through this August-September, so basically -- how many days you were off in the month of April because of this COVID lockdowns?

So the -- there was a slow ramp up, right, in April. So though we started our manufacturing, there was a slow ramp up, then there was a shutdown for a week for Nisarga and 1 week in June. So generally, I would say, I don't have the right number, but just back of the envelope, it would be right almost a month.

So then basically, we can go back to March 20 quarterly run rate from Q2, because adjusted everything, INR 440 crores, INR 450 crores what we did in March, that should be the normal run rate? Is that the right way to look at it?

So I think the…

So it’s now, this time you will only have 15 days of lost sales. There is no initial April [Foreign Language] loss sales?

Right, sir, absolutely. In the Q2, right? Yes.

Yes, in the Q2. And in Q3, you will get further benefit because you will not even have that 15 days of loss sales?

Well, I hope that is…

Yes. So and -- so what would be our utilizations across the plants? And on a normalized, let's say, now today, what is our current utilization? Let's say, in September, if you were able to flow through without any problems, then what will be our utilizations?

Currently, we have a lot of back orders. So we are trying to complete all our areas of this -- so current scenario would not determine a proper scenario to talk about capacity utilization because of so much production loss.

Sir, if I were to put it in a different way, let's say, if I were to do INR 440 crore, INR 450 crore of top line, let's say, random, I'm just giving a number. So that would translate to how much? 70% utilization, 80% utilization?

So we won't have those figures right now. We will try and share those later.

And the CapEx, what we have done last year, has that started giving us revenue? Or there is still only -- or not yet?

No, not yet.

So no revenue has come from the INR 450 crores of CapEx, which has already been done so far?

No. Last year, we didn't do INR 450 crores.

Last year, we did INR 250 crores, correct.

Yes. So before that, of course, that has started giving in. That was partly revenue, that was partly to do with utilities and infrastructure, et cetera. So I think -- so from that perspective, last year's entire INR 250 crores has not started generating revenue. That's what we are saying.

So when does that start contributing to revenue?

So some of the new -- the newer products in that would take 6 months, at least.

Okay. It -- that INR 250 crores of CapEx is dedicated for new products?

Not everything. I don't have the breakup right now. We can -- right now, we don't have that breakup.

Okay. And sir, if you can just give a little bit like, a broad outlook on the type of the products in terms of the value-added or routine commodity products, how -- what will be the mix today? And how -- once these new products come in, say, in 6 months, where do you see it in, say, FY '20 next year, let's say, in FY '22? How do you see the mix of the products in value-added terms in terms of the more specialized products? And if you can just give some flavor, then it would be helpful.

All our CapExs are towards specialized products. And the mix would turn up, turn towards more specialties. Now there's a complex scenario right now saying that how -- when are we able to commercialize some of these new products, new projects and kind of get this going so, right? So I think once there is a little bit clarity when we have on how we are going to be able to execute the projects, et cetera, we kind of give that better outlook.

Okay. But currently, the existing plants, other than the INR 250 crores, the rest of the plants would be running at full utilization?

Sir, I think I already answered that question.

With the backlog? With the backlog, I'm talking?

Yes, with the backlog, but we are not able to run full production yet. We don't…

Okay. And one more last question is our OpEx was lower this quarter. Is this like -- should we take this as a normalized run rate? Or was this like any particular savings which you got?

I think there are 2, 3 factors, and I'm going to request Mr. Natu to talk about it. There was a ForEx -- there was a ForEx issue and fees, various fees contributed.

So if you compare with the immediately preceding quarter, we had a reduction of about INR 38 crores in this March compared to June. Of that INR 10 crore pertains to ForEx loss, which has reduced. So this quarter, there is a income. Whereas in the last quarter we had a ForEx loss. So that variance itself is INR 10 crore. And above that, we had 1 customer, where we had done a provision for expected credit loss. This was done in the March quarter. And in the quarter pertaining to June, we have emphasized a lot of effort on our AR collection. So the ECL provisions have actually come down. So that variance itself is INR 6 crores.

How much was that provision?

So the variance from March to June is about INR 6 crores and…

But so how much provision you did in the fourth -- in the March quarter?

INR 3.5 crores was the amount we provided. And this quarter, we had -- we have a reversal because we are able -- we have been able to collect a lot of money from our AR efforts. So these 2 are the major amount. And then on top of that, a lot of travel expenses has been avoided during the quarter. Plants, we have not been -- we had already done a lot of maintenance and repair work in the market. So that is not there. So overall, out of INR 37 crores, INR 26 crores, INR 27 crores…

Okay. So should we take that about whatever we were doing in last, say, second and third quarter, like about INR 80 crores, INR 81 crores, is that a normalized run rate? Can we take that as a normalized rate?

Yes, I think June of '19 was INR 71 crores.

Which are expense. And then it was about INR 82 crores and INR 84 crores?

So INR 75-odd crores can be taken as a good benchmark.

INR 75-odd crores, no?

Yes.

The next question is from the line of Sameer Dosani from Carnelian Asset Management.

Sir, just one follow-up question. What's our total CapEx plan? You mentioned its INR 1,400-odd crores, right?

Sorry?

What's our total CapEx plan, sir, including the CapEx, which we have done last year, this year and in coming couple of years?

We had a total outlay of INR 1,000 crores, out of -- INR 1,000 crores, sir.

Okay. Okay. And out of which INR 450 crores we have already done, right?

Yes.

And any plan how we are going to fund remaining INR 550 crores of CapEx, it will be like, mainly internal accrual plus debt?

Yes, sir.

And sir, how much -- like once we do the entire CapEx, what kind of debt you are targeting in the balance sheet?

Today's debt as I explained on a consol basis, it's about INR 500 CR. And we have further -- for this year CapEx, we are going to throw another INR 200-odd crores.

Okay. Okay. So that will take INR 700 crores. But thereafter, we have remaining INR 550 crores of upcoming CapEx in the coming years also, sir. So the debt will go up further from here? And what will be the peak debt, once we are done with our CapEx?

So this INR 1,000 crores CapEx, which we spoke about, of that, a large part is getting completed by end of this year and some part of that will overshoot to next year. We are talking about this year debt level. And thereafter, depending upon how we are seeing the scale-up happening, we -- accordingly, we will recalibrate our CapEx plan.

Okay. Okay. INR 1,000 crores CapEx will be getting over by this. So you are saying INR 550 crores to INR 600 crores will be a peak debt, right?

About INR 700 crores would be the peak debt.

INR 700 crores. Okay. Okay

Ladies and gentlemen, due to time constraint, we take the last question from the line of Dhiral Shah from PhillipCapital.

So out of the overall INR 1,000 crore of CapEx, what would be the fixed assets turnover for the incremental CapEx?

Approximately 1:3.

1:3. Okay. And sir, out of the INR 1,000 crores, how much amount of the CapEx we would be spending on capacity enhancement?

About 70%. 60% to 70%

Okay. And sir, what would be the payback figure for incremental CapEx, sir?

Sorry?

Payback period for the incremental CapEx?

Generally our payback is about 4 years.

Okay. 4 years. And sir, lastly, for our raw model, are you dependent on China?

On what, sir?

For our raw materials, are we dependent on China?

We have about 25% of our raw materials coming from China.

Is it -- are you looking for any other sources? Or you feel this source is sustainable maybe in coming years?

So I think short term, we can't do much. But long term, we do have a plan as to how we can look at different sources and what we can do, sir.

Thank you. I now hand the conference over to Mr. Rathi for closing comments.

Thank you all for your time and interest in Sudarshan. We remain confident on the long-term perspective of our business and look forward to engaging with you again. Thank you so much.

Thank you.