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

Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Earnings Conference Call of Sudarshan Chemical Industries Limited hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Archit Joshi from Dolat Capital. Thank you, and over to you, sir.

Thanks, [ Adirek ]. Good afternoon, one and all. On behalf of Dolat Capital, I would like to welcome you all to this third quarter FY '21 earnings conference call for Sudarshan Chemical. We have with us today Mr. Rajesh Rathi, the Managing Director; and Mr. Nilkanth Natu, our -- the CFO; Mr. Vivek Thakur, GM Finance; and Mr. Amey Athalye, DGM Finance, and Mr. Mandar Velankar, our company secretary. Thanks a lot, gentlemen, for giving us the opportunity to host this call. Without further ado, I would now like to hand over the floor to Mr. Rajesh Rathi, the Managing Director of Sudarshan Chemical, for his opening remarks, then switch to have the floor open for a Q&A run. Thanks, and over to you, sir.

Thank you so much, and thank you for hosting us, Dolat Capital. Mr. Natu J. will be taking us through our quarterly results and year-to-date results so far, and he'll be also talking about our CapEx program. Glad to inform you that I think last quarter, the company did deliver good results, and I hope have fallen in line with your expectations. So over to Mr. Natu J., the CFO, to kind of take us through the quarter-end quarterly performance.

Thank you, sir. Good evening, ladies and gentlemen. Welcome to Sudarshan Chemical Industries Limited Q3 '21, FY '21 Earnings Conference Call, and thank you for your continued interest in our company. Our investor presentation has already been uploaded on the stock exchanges and the company's website for your ready reference. I hope you have been able to access it. Please note that anything said on this call that might reflect our outlook for the future or that could be construed as forward-looking statement must be viewed in conjunction with the risks that the company faces. Now I will start with an update of the Pigment business. Pigment business grew by 22% year-on-year, amid good traction in all the [ latest ] segments of coating, plastics and paint. We saw strong demand coming back in the domestic business that reflecting the fast-paced recovery of the Indian economy from the COVID-19 disruption. Export business continues to remain resilient. Moving to the split between specialty and non-specialty. The non-specialty segment has seen good growth as demand has picked up since the previous quarter. After remaining subdued during the early months of the COVID-19 pandemic. Demand on the specialty segment continues to remain buoyant, which is reflective of our strong technical capabilities built over the year. Year-on-year volume growth in specialty is at 21%, while Non-Specialty at 24%. Now looking at the consolidated financial performance for the quarter. The total income from operations for Q3 stood at INR 506 crores as compared to INR 424 crores for the corresponding period for the previous year, up 20% on a year-on-year basis. Growth in revenue is driven by strong growth in domestic sales as economic growth picked up the pace and continued demand from our export business. Consolidated gross margin is flat at 42.8% in Q3 FY '21 versus 43% in the same period previous year. Pigment business saw price increases due to the [indiscernible] in the midyear during Q3. We are already in the process of passing the incremental cost to our customers. However, there is usually a lag of quarter in passing the cost to the customer. These, coupled with lower export benefits due to building on unrealized income as per the government notification as impacted Pigment business gross margin compared to Q2 of FY '21. Please note that the export incentive from EMEA scheme were cut by the government from September 20, which has also impacted the gross margin. The government has introduced a new scheme cost, the remission of duties and taxes on export product ROA, and we await more clarity in terms of rate and eligibility for coverage of all exports. Our employee costs have gone up this quarter as the annual increment becomes effective from October 20. Other expenses have gone up, which are in line with the higher production and the sales number. EBITDA for the quarter was at INR 80 crores as compared to the INR 60 crores for the corresponding period in the previous year, up 27% year-on-year. EBITDA margin in Q3 is at 15.7%, which is higher by 0.9% year-on-year. Depreciation this quarter was at INR 21.7 crores, which is in line with the previous quarter. Year-on-year increase is on account of capitalization done during the financial year '20. Profit after tax for the quarter was at INR 43 crores as compared to INR 30 crores during the same period in the previous year and grew by 45% year-on-year. During the quarter while filing the income tax return for the financial year '19/'20 after '20 or 2021, the company has evaluated its option for the new tax regime and depiction, 115BAA in the context of its of other available tax benefits. And, of course, for the new tax regimes effective FY '19, '20 onwards. During the quarter, the company has also assessed its investment in its wholly-owned subsidiary, the Rieco Industries Limited. And consequently, reversed the impairment amounting to INR 10.7 crores based on the improved performance over the last 2 years. Coming to the consolidated financial performance for the 9 months. Total income is up 2% on a year-on-year basis to INR 1,288 crores against INR 1,259 crores, which shows that demand is normalizing, and the revenue trajectory is getting back to the pre-COVID levels. Gross margins have improved by 1.2% to 43.6% versus 42.4% of previous years. We continue to focus on our sizing actions and product mix improvement initiatives. EBITDA margins have improved by 0.3% to 15.6% versus 15.3% of the previous year. Profit after tax for the 9 months is INR 94 crores versus INR 96 crores in the same period previous year. To sum up the operational performance for the first 9 months of FY '21, Q1 was predominantly a supply side and logistic issue. Q2 saw us addressing these issues very well with the demand starting to come back to normalcy. And in Q3, we are seeing a strong demand environment coupled with efficient production, leading to better and improved growth. Now I will share a bit on our CapEx plan. We had around INR 585 crores of CapEx plan for FY '20 and '20 -- for FY '20 and '21. Out of this, we have already completed INR 225 crores during FY '20. We have progressed well on these CapEx projects. However, second wave in Europe and restricted travel continue to have bottleneck in movement of technician -- technical personnel from Europe and China. A few projects to get for the full year. As for the current education plan, our endeavor is to complete the project for INR 150 crores by end of this fiscal. Project cost INR 210 crores will get commissioned during FY '22. Coming to update on high-performance yellow pigment. We have made good progress in last few months on process and productive implement. We have taken product trials and now in the process of sampling with the key customers. We expect customer approval by Q1 FY '22 and thereafter sales. Now I would like to give you an update on how we are seeing the business evolve over the next few quarters. We expect the demand environment to remain robust in the coming quarters as the Indian as well as world economy returns to normalcy. Even though this quarter we did not have impact on our numbers due to the lockdown in various countries across Europe and America. We continue to monitor this situation very closely. At the moment, demand from both domestic and export looks healthy, and we are seeing a good level of inquiry from the clients across the segment and product portfolio. On the raw material front, we see price increases in some of the key inputs. However, expect to see that within the coming months. Our sales side actions are already under way to calibrating the pricing decision to pass upon the cost increases. Overall manufacturing level at the plant impact to pre-COVID levels, and we expect to continue on the growth path going forward. Our balance sheet remains strong and the business is well funded. We look forward to continuing to grow and deliver value to all our stakeholders. With this, we now open the floor for questions. Thank you.

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

First question is on the mix for export and domestic sales, if you can give that, that would be helpful. Within the pigment, how much of the export and how much is the domestic sales?

So Nilkanth here. So current composition between domestic and export business for pigment for the quarter, domestic sales is at 56%. Export is at 44%.

Got it. The second question on the future product pipeline. Now given that demand pickup is robust and strong, probably you don't have expected this kind of bounce back in 3Q, clearly a surprise on the volume side. Do we now plan to accelerate the new product launch? What is the plan for the new product launches in the segment [indiscernible]?

Yes, sir. I think from October, November onwards, we've accelerated -- this is Rajesh Rathi. We've accelerated our CapEx projects for the new product launches. And that's where, as Natu mentioned, which we are making our best hand ever to complete at least INR 150 crores of our projects. There are challenges where still Germans and Chinese engineers are not still allowed to travel for the commissioning of some of the equipment, which has quite taken a longer time to get things done. But we are making our best step forward to get that going. We expect -- even if there are some belows, the entire CapEx should get completed by the end of H1 next year, right?

So the product launch of plant for FY '22?

Yes. FY -- yes. You -- did you say which products? Sorry, what's your question?

I wanted to understand what are the plans for the new product launches for FY '22.

So like we said, we are looking at launching several large projects, one in -- okay, several 4 or 5 major, our high-performance pigments in the next year.

So could that we will have at least 4 to 5 new product launches in FY '22, and we are ready with the capacity for it?

Yes. So I'm saying, we'll have about 20, 25 new product launches, but out of which, 4 or 5 will be the major ones.

Got it. Just last bookkeeping question, particularly on the employee costs. I think that employee cost inflation has been -- are quite high for us in FY '18. We had an employee cost of INR 942 million. If I take this quarter and analyze it, it's like INR 1.7 billion. So we have a cost inflation in last year on the employee side close to 75%. So what experience is this?

Well, the consumer has been -- the revenues have not gone up to the extent.

So Nilkanth here. So a couple of reasons. If you see the employee cost for the quarter and moment also. So one of the reason is the increment, which we have given in this quarter. That is one. Second is, also, we have then some scaling up in terms of the new hire, consisting the growth CapEx, which we are planning and thus confirming also our projection as expected. And first thing here also we are expanding in the new market. So as you are aware from our annual report also, we had been clear that we have incorporated some streams in the past. So we have also hired a local that will have to reach out in the new market. So this is the combined effect of the stream.

So we mean to tell that we have taken the incremental retrospectively to protection. This INR 429 million, it now is the referral [indiscernible] annual? Is that the right understanding?

Sorry, could you repeat again?

So this INR 429 million is a sustainable number. The numbers should remain here. Is that right understanding? Or there is some one-off retrospective impact or a bonus impact in the [ can ]. We may see a taper off next quarter?

No, no, no. So this will remain at this level, subject to the new addition. And just to clarify, the increments and all that, which has been given, were not from retrospective effect.

Okay. We're not from that perspective. So these numbers are really sustainable. And do we expect the same kind of inflation in employee cost? Or do you expect the employee cost inflation to be much more moderate in the coming year?

Yes.

[Operator Instructions] The next question is from the line of Madhav Marda from Fidelity.

I actually just wanted to understand some thoughts from your side on the export speedup. So all the people that we are hiring and all the marketing and sales that you're sort of doing in the pigment market. And then obviously, there is expectation of market share gains for Sudarshan in the coming 5 or 10 years. So if you could just help us understand how the spot market dynamic is evolving for us.

Yes. I think -- to just kind of talk about a little bit the mass market where we needed to expand was in Japan. And in Japan, Japan has a rare market. It takes a long time to get there. But what's your aim? You say that for a long time and the margins are very good. And that's how we've made the last bit of investment in the Japanese market, which would -- which is -- which this change will take some time to generate, but there's a very good traction and the opportunity funnel is quite -- it's very interesting.

Any other geography that you're looking at apart from Japan or in the existing market business that you're seeing, like especially to have good traction in the coming year or coming couple of years?

Yes. I think -- I mean, we should be -- with our new product launches and the customer relationship. That's where most of our new product sales would come from, Europe, U.S., Southeast Asia, Japan. These are the key markets where we'll get more traction.

Got it, got it. And the second question was on the gross margins that we have. So obviously, I don't want a number, but given that you're launching this new HPP product and the new pigment, et cetera. So can we expect this, generally, the gross margins should keep improving for the next 2, 3 years for the company?

Yes. I think with a better product mix, we should be able to do a better job.

Okay, okay. Got it. All right. I'll come back in the queue.

Hello? Yes. Thanks. So as Rajesh was saying that we will see that, but only one point here is this will give gradual scale up, correct? So maybe in the next 2 to 3 years. So full impact will come after a couple of years, but maybe in between, we can see some expansion.

The next question is from the line of Ashwini Agarwal from Ashmore Investment Management.

Congratulations, good set of numbers. So one metric you would present very often in your quarterly reports used to be these 2 lines. The gross margin has one line and the EBITDA margin has another line and for the longest time, you can see the gross margin increasing, but EBITDA used to go down and this time around, it's a little bit of opposite. In the sense that gross margins have come down, but EBITDA has grown. And gross margin decrease is primarily on account of raw material costs, which you're trying to pass on and any benefit going away, which hopefully will be replaced by [ around ] that. If that would be the case, and you've got the yellow one pigment launch coming up and you've got a couple of other launches coming up, should we expect, A, the gross margin to go back to 44%, 45% in the next 12 to 24 months and EBITDA margins to increase by a couple of hundred basis points, from your considering all your investments are now in on headcount, et cetera?

So I think I -- look, I think there are 2 areas, sir. One area is that the new products should give us to 2 areas, right? So if you can -- if we replay our strategy, we have 4 pillars of growth, right? One is the go-to-market strategy. And we are looking at -- we've looked at the market, and we've said, what's the best way to retail for our customers, right? The number two area was looking at new products. How can we make up our portfolio, which is as good as the #1 and #2 player together, right? Which I think -- but this H1, our product portfolio will decline. The third area was looking at few adjacencies where we get into, like, not really adjacencies, but specialized business, I would say, like this link, et cetera, which taken our logbook, but I think it's kind of those high -- so those are the higher-margin businesses. And the fourth is our cost leadership, right, where we're looking at seeing that 4, 5 molecules, we really become cost leaders where we can substantially get larger market share, right? So I would say that a good amount of work has happened on the first 3 pillars already, and we should -- but we -- in some of the benefits we will see in years to come, of the first 3 pillars. The fourth pillar will now start playing and we've developed the technologies for some of these areas we are putting in this. And that execution will happen, and you'll see that maybe not getting executed next year, but the year after that. And that's how we are kind of industry that both the increase in volume increasing, better mix would help improve EBITDA margins.

And in your opening remarks, you spoke about this new product where trials are on and commercial supply should start in April. I assume you're referring to yellow 129. Would that assumption be right?

Yes. Sir, I think, yes. The yellow 128, so [indiscernible] Yellow 128, where due to COVID, we had stopped our growth it. We started growth on it, and we are saying that we should hope that we start generating the quality -- as quality. Our internal action seems that the -- what the customer requires. I think we've made that. Those parameters have come out. And now, we are inserting a full-blown launch. We are kind of getting customer feedback from a few customers. So we expect that in next Q1, Q2 in the next H1, we should start seeing some sales and also start building that opportunity for us.

Okay. And last question, sir, is you've spoken about 2 launches, 1 in March, which was an inorganic compound and another one in September of calendar '21. Are those launches on track? Or they also got pushed out by a couple of months?

No. Our endeavor for the end of month. We're still trying to meet the March deadline. So it's a tough one, but we are still trying to go for it. And the September 1 may get pushed by 1 or 2 months, but not a major delays. Nothing major there.

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

Congratulations on your detailed numbers. My question on this, sir, can you give -- shed some light as to what are the current market share and effectiveness in the domestic? And both these expansions, we see that going ahead in the next couple of years.

Sorry. Could you repeat again?

Yes. If you could share, too, what is our current market share in the [ Pigments ] business in the domestic market? And probably post commercialization of our capacities in the next couple of years, where do we see our market share and the effectiveness in the domestic market?

That will be a little too competitively sensitive information, a breakup of that. However, I would say that in general trend today, the -- a few years ago, we did have a good percentage of market share, which has dropped substantially now, and we hope to get back a substantial one.

In the double digits, for sure, right?

Sir, I won't...

[indiscernible] you wouldn't. So and another question would be like we have a subsidiary like -- well, which have already been answered. What is our plan on either divesting it or keeping it or dividing it so that it would contribute better to my EBITDA in the future? Could you shed some light as to what are you thinking about it right now?

So we're looking at -- I think the team has done a good job in kind of getting the turnaround, managing the working capital and generating cash, right? And that's where the Board has also taken a view to correct, yes. The Board has taken a view of reversal of impairment provision, which we have, right? So sir, the company right now has been turned around. And the Rieco Board and the restoration board would like to work to this going forward. As of now, there is no plan, which has been -- which has canceled the cancellation of the Board. One clarification. The language -- or plan for this government reversal has been done from the independent [ value ], and it has all the different [ plan ].

Our next question is from the line of Viral Shah from Enam Holdings. [Operator Instructions] The next question is from the line of Viral Shah from Enam Holdings.

Congratulations for a good quarter. I have two questions. Firstly, if you just take us through how the demand in each of the end user industries for things plastic and ink, how is it panning out?

So I think the -- I think I would answer this geography-wise. I think Asia, we are looking at Asia bookings, especially India bookings is looking good. It has very [indiscernible] aspects in plastics and printing ink which are seeing a good uptick, too. However, in Europe and North America, we are seeing right now due to the secondary wave there, a little bit of the subdued demand. Subdued demand especially in plastics. Hello? Hello? Can you hear me?

Yes. Yes, I can hear you. So just one on the outlook for the domestic paint side with so many new players are trying to enter the market and a possible shift that you may see from the unorganized to organized segment. How are you looking at targeting the domestic paint industry? And over the next 3 to 5 years, how are you looking at this segment of the market?

So for us, sir, the coating market has always been a very important market. And we continue engaging very closely with the key customers and the new large entrants. And we do have a good peer count demand for [indiscernible] for these customers as well.

Sure, sure. Just a follow up, would be interesting. How big was coating do we have as percentage of revenues for that?

Across -- no. I think it's a lot. It's spanning out other shares.

The next question is from the line of Kunal Mehta from Vallum Capital.

Sir, I will just -- I think you have mentioned this in your opening remarks, but I would just -- I think it was not clear to me, and I would request you to repeat. So I just wanted to understand, sir, as on -- so on H2 balance sheet, we had capital working crores of INR 125 crores. And I'm sure you would have done some CapEx in this quarter also. So as I'm looking commission, should be the amount of uncommissioned CapEx on the books as on date of March '21, this you would be having? And yes, that is my first question.

Just one second here. So we are expecting the commissioning and the capital project distribution during FY '22 was a value INR 150 crores during -- FY '21, sorry, FY '21 INR 150 crores. So this is a number which we are expecting for this year. And then next year, we are expecting around INR 210 crores in FY '22.

Okay, sir. So one gives you -- okay. So this is INR 150 crores [indiscernible]. So as of March '22, we are saying that there would not be any major uncommissioned CapEx. So it would technically lower interest asset. It should break it down most of the CapEx for this round, we'll get it by March '22 of roughly around INR 150 crores, INR 210 crores, INR 360 crore. That is the number we have to work with on the gross addition side for the next -- till March '22?

Yes, Kunal. You're absolutely right.

Okay. And sir, this last question from me. Just want to understand, regarding the 4, 5 high performance pigments which we are launching in the next maybe 12 to 18 months. Could you please also light on the financial potential of these products? I mean each product, what could be the contribution towards the top line? I mean anything on an average basis of maybe 4 or 5 basis of revenue product over -- of course at a fully scaled up level, I'm sure, which will I think you will develop more than that, I'm sure. Anything would be very helpful.

So it's a very valid question. And I think from a full disclosure perspective, the team is looking at what we can share with everyone so that without having any competitive issues. So we will come with that. But in general, so I won't be able to give you a specific answers. But our NPD potential of growth was a very high potential for growth for us to get there. And we are looking at a full -- the full utilization perspective. We would be looking at an asset turnover of 2.5 for that.

Okay. 2.5x. On a full scale, on this [ new period, INR 15 crores could be somewhat CapEx ]. Would that be an issue?

So Kunal, we need to break this between two. So there is a CapEx for growth and there are a couple of CapEx for EBITDA and [ incentives of EBITDA ] for the group.

The next question is from the line of Abhijit Akella from IIFL.

Sir, just wanted to check regarding the CapEx that's already been commissioned and also that is in the work. So we've already done some in the last couple of years. Has that already started contributing to the revenues? Or is that, I mean, still expected to come? And if so, by when would we expect to start seeing the revenue from that coming? And second, the CapEx that is now underway, INR 150 crores this year, INR 210 crores next year. By when would you expect it to sort of fully start commissioning -- contributing at full capacity utilization to the revenues?

Nilkanth here. So coming to answer your question, so yes, the CapEx which we have, we have completed in FY '20. We are on track as far as the utilization is concerned. But as you are aware, that normally the capitalization and the process, both capitalization and getting the full benefit will take around 2 to 3 years' time. And I would like to assure you that we are on target, and the full-scale benefit will come up in the next 2 to 3 years.

Okay. Got it. That's helpful, sir. And the second thing I just wanted to ask is do we sort of track the opportunity of revenues from new products, products launched in the last, say, 3 years or 5 years however we define NPD? Do we sort of track that percentage for Sudarshan? Where does it stand right now? And -- yes. So that was the question.

That's a good question. I think -- so as you may have seen in the last 2, 3 years, we track -- we define NPD as 3 years, right? However, we've not had major launches, right? All our launches have got delayed. Hence, the percentage -- our business is that this should be at least 15% to 20% of our sales, right, going forward.

Okay. But where it currently stands right now?

It will be quite small because it will be very -- it will be quite small right now because we have not made major launches.

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

Congratulations for a good set of numbers. So one clarification first. You mentioned there are around 4 to 5 major high-performance products that we are planning to launch. Will this be including the 2 products that you are launching in March and September?

Yes, sir. Yes, absolutely. This is the whole plan, yes.

Sure, sure. And from a capacity availability perspective, the CapEx numbers that you mentioned, INR 210 crores incremental over FY '22 will be suffice for all these HPP products?

Yes, sir, absolutely.

Great. Sir, another question on the CapEx side. Mr. Natu did mention that almost 70% of the CapEx that you are doing is in more productive CapEx while the rest is going into back end infra or integration. But does that mean that the margin profile of the incremental revenue will also be superior, given most of the CapEx that we are spending on is on the high-performance side, which in any case will be margin accretive?

Yes, so you're absolutely right. We are spending some money though on [indiscernible] also amongst that. So yes. But you are right, sir.

Okay. Fair enough. And on the operating margin. So this expansion will be more on the gross margin front, right? The operating leverage further panning out since you mentioned that most of the overheads on manpower addition is largely done, considering this quarter as a base. So the operating leverage will be a top-up to that.

Yes. As I mentioned earlier, there's been -- there's a product on exchange and there'll be also volume, which will help leverage the fixed cost.

Correct, correct. Fair enough. And lastly, if you can put some comment on the global competitive scenario, given BASF is already there with DIC. But any changes which have happened or post-COVID, pre-COVID, any changes in the global scenario there? Your comment there, please?

Sure. I think currently, the only -- currently, as you're aware, I mean the BASF and Sun integration is happening. And we are told that they'll announce something by April. But Clariant still in the market, which is still not completed. Also some of the assets as a fallout of the BASF Sun in the U.S. market may come and do the market to be sold.

The next question is from the line of Madhav Marda from Fidelity.

Yes. Actually, what I wanted to ask you was, given this integration, which is underway between BASF and Sun Chemical, we -- I think the expectation is that there will be some of the production portfolios because of the competition issues, they will be let go. So are we seeing any increase inquiry flow for Sudarshan's product so because of this integration, which is underway right now?

No. I think there is a -- there are the inquiries. But currently, given the COVID rates, there's -- that's kind of a negative sentiment in some of the markets, especially in Europe and U.S. in the market. So it's kind of -- there are 4 areas of things which we are looking at.

Okay. Okay. And the other question was on the employee cost side. I just wanted to reconfirm that -- have we sort of hired the senior and mid-level people that you require for the business sort of scaling up going ahead? Or is there more hiring spending, considering the CapEx that you're doing in the markets you're getting into?

Could you repeat your question? Sorry.

No. Sir, I just want to check that given that the business is expected to scale up in the coming few years, are we done with the hiring of the senior sort of manpower that you require in different geographies? Or there will be some more hiring, which you get to come? Like is it already in the fixed cost base for that? Or is there going to be sort of more additional in the coming couple of years?

Most of the hiring is done. There could be some incremental hirings in some of the regions, sir. But most of it is completed.

The next question is from the line of [indiscernible] from [indiscernible].

So sir, our [indiscernible] will reach INR 1,300 crores, INR 1,400 crores in 2 years. How much top line is this gross level will be able to create? Obviously, I understand it can take 2, 3 years from FY '22. But what would be the top line revenue [indiscernible]?

Hi, [indiscernible], Nilkanth here. So I would not like to comment specific numbers. But as we said that we are putting up this CapEx project, which have certain turns of around 70% of the growth. And we would like to see the asset turn up -- turnaround 2 to 2.5. This is various CapEx projects. So you will be able to note it.

Got it. Perfect. And sir, my second question is, if the DBT comes through in urea, does that significantly change our positioning in the growing region? Because you know how some parts of the industry are not well aligned.

Sir, are you talking about the [indiscernible]?

No, no. I'm thinking ahead in the future that if, for example, DBT comes through in urea, right, and there are some aspects of the blue and green pigment that gets -- or some issue that happen. So does that significantly increase Sudarshan's competitive advantage?

So one thing is, sir, we don't consume urea. Because we don't make...

Yes, I know, I know. I know that.

But of course, if urea prices do increase, the prices will increase. But I think 60% to 70% of the global blue and green is produced in India. And if everyone is ahead, I guess, the whole market price would increase.

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

Sir, on the CapEx front. So we had a total CapEx plan of INR 1,000 crores of which [indiscernible]. And given that INR 1,000 crore CapEx plan will have an asset turnaround of 2 to 2.5, so we're talking about INR 2,000 crores, INR 2,500 crores of revenue. However, this is the -- on the base of FY '15 or '16. So the base year after which the INR 1,000 crores CapEx has been planned is -- what should we take as a base year so that the revenue during this year will be the base year and then additional INR 2,000 crores, INR 2,500 crores will come from this incremental CapEx? So the base revenue is INR 1,400 crores, INR 1,500 crores for all which the traditional CapEx will generate incremental revenue. Is that assumption right?

So currently, what we are referring to in terms of CapEx is by INR 585 crores, okay? And as I mentioned, the composition, 70%, is for growth. So this is that 2 to 2.5 is asset turn. And as I mentioned earlier, that it will also depend on the scaling of process, which normally will take around 2 to 3 years for any project post-commissioning. And that can be taken as a business.

Right. I understand this part. I was just referring to our earlier gross block before putting up this INR 585 crores. So that revenue base was, INR 1,200 crores, INR 1,300 crores and over and about this INR 585 crores will add to the revenues that you have mentioned in terms of 70% growth CapEx?

Sir, I understood. So for this particular working, we can consider FY '19 as a base.

Okay. Fair enough, sir. That's really helpful. Second question, again, on similar aspects. So what will be our aspirational EBITDA margin post the CapEx is completed within the next 1.5, 2 years, and the plants are stabilized and operating at optimal capacity utilization?

So we don't give the forward-looking statement, but we expect the EBITDA margin to increase from the current level.

The next question is from the line of Ashwini Agarwal from Ashmore Investment Management.

My questions has been answered.

The next question is from the line of Mitesh Shah from ICICIdirect.

Congratulations on the good set of numbers. I have a couple of questions. The last time you have said that you see the increase in the Chinese competition because of the incentive payout. So what is the current situation now?

It currently stays the same. I mean we are still looking at our MEIS -- to MEIS, the new tax thing to come up for us. And hopefully, we should get that -- if we get back to 2%, it will be helpful.

And about the second question. You have one of the highest quarterly run rate this quarter. So is that any one-off like a pent-up demand, have you seen this quarter? Or would be expecting a sustainable numbers of Q3?

So I think it's a good point, sir. I think the demand, we've seen a good -- fairly good demand in September to -- I think it's a portion of our ability to supply. And this quarter, we've been able to supply properly having managed the COVID situation now. We hope that next quarter also, we see a fairly good demand. The picture looks good currently, and we hope that we're able to demonstrate a good result.

Next question is from the line of Madhav Marda from Fidelity.

This is my third question. Just one last one. The MEIS impact which was there this quarter, how much was the impact in absolute terms in? If you could quantify, that would be really helpful.

Hi, Madhav, Nilkanth here. So for the MEIS impact for the quarter is around INR 2.4 crore -- INR 24 million.

Got it. And this is like expected to be largely the -- like a similar impact can be expected even in the next couple of quarters, right, until the [indiscernible] and some clarity comes through?

Madhav, currently, you see we had the result for December quarter, correct? Because that was the last test for MEIS. The road test, the new scheme, which was introduced from 1st January. The challenge there is, as I mentioned in my opening remarks, the rates have not been yet notified. The government is in the process of notifying the rate for key sectors like textile, auto and steel. The rate for chemical industry is not at all -- rate for any industry is not yet notified. So we can't comment on this because we are also...

Ladies and gentlemen, we lost the line of the management. May we request you to please stay connected while we join them back on the call. Ladies and gentlemen, thank you for patiently waiting. We have the management back in the call. You may go ahead, sir.

Yes. So Madhav, Nilkanth here. So I think I answered you earlier. So we are not also knowing the rate yet. So once the rate gets notified, maybe next quarter, we will be able to give better information.

Ladies and gentlemen, due to time constraint, that was the last question for today. I now hand the conference over to the management for closing comments.

So thank you all for your time and interest in Sudarshan Chemical. We remain confident on our long-term prospects of our business. And we look forward to engaging with you again. Thank you.

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