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

Good day, ladies and gentlemen, and a very warm welcome to the Sudarshan Chemical Industries Limited Q4 FY 2021 Earnings Conference Call hosted by HDFC Securities Limited. [Operator Instructions] I now hand the conference over to Mr. Nilesh Ghuge from HDFC Securities. Thank you. Over to you, Nilesh.

Yes. Thank you, Ali. Good evening all. On behalf of HDFC Security, I welcome everyone to this Sudarshan Chemical Conference Call to discuss the results for the quarter and full year ended March 2021. It is a pleasure of having with us the management team from Sudarshan Chemical represented by Mr. Rajesh Rathi, Managing Director; Mr. Nilkanth Natu, Chief Financial Officer; Mr. Vivek Thakur, General Manager, Finance; Mr. Amey Athalye, Deputy General Manager, Finance; and Mr. Mandar Velankar, Company Secretary. Without further ado, I will now hand over the floor to the management for making the opening comments. Over to you, sir.

Thanks. This is Rajesh Rathi. Thank you, Nilesh and HDFC Security for hosting our earnings call. Good evening, ladies and gentlemen, and welcome to Sudarshan's Q4 and Full Year Ended Financial Year '21 Earnings Conference Call. Our investor presentation has been uploaded under stock exchanges on our website for your ready reference. I would also like to highlight that, starting this quarter, we have enhanced our presentation with a set of disclosure to help our stakeholders have a better insight on our business. This is our first step towards setting standards in the investor communication. Going forward, once a year, we will do a video call or a live interaction and the other quarterly calls, we would continue on the audio format. So can I get the next slide, please. So just to give you a glimpse of the company, I think Sudarshan has become a leading world-class color solution provider with the emphasis where we want to create sustainable and exceptional results. We have -- from an infrastructure perspective, we have 2 world-class sites, one in Roha and Mahad, which are very much killable from both the effluence of all the infrastructure perspective. And we have a dedicated R&D site on the outskirts of Pune. In terms of our business, we have only 60 channel partners, more than 50 to 60 dedicated salespeople and more than 2,000-plus workforce. Our focus of our business is only colors and pigment, and we are not forward integrated where some -- like some of our competitors, we do not compete with our customers. We've also created a very good global reach, global reach with exports to more than 85-plus customers -- 85-plus countries. Next, please. In terms of our reach, we have created a direct sales office in all the important continents. So for example, wherever we have offices, we have a dedicated sales team, a dedicated technical service representative, and we carry our own stocks in that area, right? The latest addition of our subsidiaries is Sudarshan Japan. Next slide please. In terms of our journey, I think, in the last 10 years, has been fantastic. Our growth CAGR has been more than 10%. And we have now become from a -- we've now become a pure pigment play -- a focused pigment player company. We did have small businesses in agrochemicals, masterbatches, and some engineering businesses, some of which we've already divested. I would say, 10 to 12 years ago, it would have been difficult to globally look at where we stand. But today, we stand very tall and become -- being the third-largest pigment solution forward. Our domestic market share is more than 35% in India. We did -- in the last 10 years, there's been a big transformation in our R&D though we always were a technically-led company. I think we've made a great emphasis on both R&D and application labs and created word-class centers in both India and Germany. Having, in the last 10 years, transformed our product range from a commodity-based classical pigments into high-performance pigment range, cosmetic range, this entire range has been created within the -- created with our own know-how. If you look at in the last -- today, our renewable energy stands about 20%. 10 years ago, we had 0%. In terms of our CAGR, as I mentioned, 10% earnings per share. In the last 3 years itself, it's more than doubled. We continue to invest and that's how our gross block has increased. Yes, please. Next slide, yes. There's a huge market which we address, the direct addressable market, I would say is $8.6 billion. And the largest market for us is paints or coatings. Then would be, I would say, inks, plastics and then cosmetics. And we have a very niche range for each of these applications. Yes, please. So in the -- if you look at the pigment industry update, due to COVID-19, some of these segments have been doing better than the others. For example, plastics has seen -- the plastic industry has seen moderate to low impact, mainly because lot of it goes into food packaging, plastics, hygiene products or personal care products. Packaging inks has really seen a low impact, mainly because it's again food packaging and of course, food packaging has increased as all of us stay indoor, right? I would say paints and coatings, that's one of the last things where someone will want to get a house painted and has had some impact, right? In terms of the industry structure, the top 2 players have been wanting to divest. There is also -- we have great tailwinds from both these areas that the top 2 people want to invest. And China has have -- had several environment health-related issues, and that's where I think India and companies like Sudarshan have great potential for us to grow. So I think, potentially, long-term changes in supply chain kind of -- and there has been some disruption in raw materials. And that's where I think we've seen some raw material increases. Next, please. If you look at our CapEx plan, we had embarked some time ago on a INR 600 crore ambitious CapEx plan. Out of which, some of our CapEx did get delayed because of COVID, but I'm glad to inform you that none of our CapExes were canceled. right? We went ahead with all because they were all sound CapExes at growth. So out of which, I think only -- we invest CapEx, which has not been invested only about INR 38 crores out of which. And in terms of the CapEx which we have incurred, the put to use is about INR 293 crores and INR 269 crores is still balance, which -- there is already work in progress. So there is kind of -- but they have not been completed or put to use, right? Out of the INR 293 crores, INR 222 crores was put to use in FY '20 and INR 71 crores in FY '21, right? We estimate the balance INR 307 crores should get put to use in this financial year. The potential of this sales from this CapEx would be about INR 1,000 crores to INR 1,200 crores at full capacity. Natu sir, over to you.

Thank you. Hello?

Yes, sir. We can hear you.

Am I audible?

Yes.

Thank you, Mr. Rathi. Good evening, everyone. I will briefly update you on our financial performance for the fiscal year 2021 and for the quarter Q4 FY '21. Next slide. So I think with the full year performance, the total income from operations on consolidated basis was at INR 1,864 crores as compared to INR 1,708 crores for the previous year, a growth of 9%. In spite of the COVID disruption continuing in H2 of financial year '21, we were well pleased to mitigate the challenges to our business caused by the nationwide lockdown in H1. H1 revenue stood at INR 781 crores for the financial year, while H2 revenue was strong and stood at INR 1,083 crores. EBITDA for the year was at INR 280 crores with the margins of 15.4% as compared to INR 246 crores in the previous year, with the margin at 14.4%. Profit after tax excluding exceptional item is at INR 140 crores as compared to INR 109 crores. Next please. Sudarshan has invested for growth in the last 3 years, so ROCE has been -- return on capital employed has been steady and stands at 14.8% for FY '21, while earnings per share has increased by 81% to INR 20.2. Other key financial ratios remain healthy. Okay. That's it. Next slide. Yes. For FY '21, income from operation of pigment business stood at INR 1,753 crores as compared to INR 1,590 crores over the previous year, a growth of 10% year-on-year. EBITDA has improved from 14.7% in FY '20 to 16% in FY '21. Next, export sales is at INR 897 crores as compared to INR 783 crores in FY '20, a growth of 14% year-on-year. Domestic sales grew by 6% year-on-year and stood at INR 856 crores. Next, the sales from our specialty pigment business is at INR 1,203 crores, which is 69% of our revenue. Non-specialty sales contributed 31% of our revenue and stood at INR 550 crores. Next. Now coming to our quarterly financial performance. Our consolidated income from operations for the quarter stood at INR 577 crores as compared to INR 449 crores for the corresponding period of the previous year, recording a robust growth of 28% year-on-year. EBITDA for the quarter stood at INR 87 crores as compared to INR 64 crores in Q4 FY '20. EBITDA margin is at 15.2%, as compared to 12% for the same period last year. Profit after tax is at INR 48 crores as compared to INR 17 crores during the same period last year. PAT grew by 176% year-on-year. As highlighted on the previous call, we opted for the new tax regime from financial year '19/'20. Next. Now on the pigment business. The income from operations stood at INR 533 crores, a growth of 33% year-on-year. Company continues to see good [Technical Difficulty] also in all categories of product clients. Next. Gross margin for the quarter stood at 42.9% as compared to 43.9% during the same period of the previous year. With all of export incentive scheme, MEIS had an impact of 1% on margin year-on-year. Details of the rate under the new scheme, RoDTEP, are yet to be released and thus income for the same has not been active. We saw sharp price increases midway through the quarter in the several intermediate products. We are in the process of passing on this incremental cost to our customers. However, normally, there is a lag of a quarter in completing the entire process. Next. Domestic sales for the quarter were at INR 273 crores as compared to INR 206 crores, a growth of 33% year-on-year. Export sales stood at INR 260 crores as compared to INR 196 crores, growing at 32% year-on-year. The specialty sales stood at INR 363 crores as compared to INR 284 crores for the previous year, up by 28%. Specialty sales includes the revenue from azo, high performance pigment, cosmetics and dispersion. Non-specialty sales for the quarter stood at INR 170 crores as compared to INR 118 crores for the same period, up by 43% year-on-year. Non-specialty sales includes revenue from pearlescent, inorganic and effect pigment for use in plastic and textile industry. I want to highlight -- go back. Sorry, go back. I want to highlight that we have enhanced our disclosures from this quarter to share domestic and export splits along with the specialty and non-specialty segment sales. This being a transition quarter, we will share volume growth data as well. The specialty volume grew 27% compared to Q4 FY '20, while non-specialty grew by 42%. Going forward, we will disclose only values which is more representative of our business segment. Next, coming to the business outlook. CapEx projects under commissioning to drive our future growth and bring in EBITDA improvement. We will continue focus on expanding our product portfolio and deeper penetration in select international geographies, improvement in return of capital, ROCE will continue as a key initiative. Our manufacturing plant continues to operate in line with various directives of the government amid second wave. We at Sudarshan continue to deploy and practice necessary specific cautions regularly to ensure continuity and uninterrupted functioning of our plant. Safety and welfare of our employees continue to be of most important to us as we continue to deliver on our stated goals. We look forward to continuing our growth journey and delivering value to all our stakeholders. With this, I now open the floor for question-and-answer session. Thank you.

[Operator Instructions] The first question is from the line of Ankur Periwal from Axis Capital.

Congrats for a good set of number, and happy to see the enhanced disclosure in our presentation as well. So my first question on the gross margin front. While you did mention that pass-through -- the pass-through is taking -- it typically takes a one quarter or so, 3 or 4 months there. Trying to understand whether we have done any price -- we have taken any price hikes in the last quarter in Q4 or all the price hikes are to happen, let's say, starting this quarter, which is April onwards?

This is Rajesh here. And Natu ji, if you want to add. I think we've already started that price increase discussion, and we did pass on some increases in March too.

Okay. Fair enough.

Natu ji, you want to add? sorry.

No, sir, I think you have provided. So Ankur, we may have started doing the price increases. A couple of customers we have initiated. A couple of customers we will target in the price increases from this quarter.

Sure, sure. And second thing, just as a follow-up to this, now incrementally, if I go back to our earlier commentary as well, a large part of the CapEx is going into the premium, the Specialty segment here, right? So ideally speaking, the margin expansion should continue going ahead given a favorable growth on the specialty side wherein we are expanding capacity? Will that be a fair understanding?

Yes. I think it's a good mix. I think we do have good specialties coming up and good products which will be coming up. So it would definitely -- help definitely.

Sure. Sir, another question on Slide #9, wherein we had explained our CapEx plan. So INR 600-odd crores, and you had highlighted a revenue potential of INR 1,200 crores on that. So just one clarification. This INR 1,200 crore incremental revenue is on total INR 600 crores CapEx because that includes a number which was incurred in financial year '20 and '21 as well? Or this is incremental start taking '21 as a base?

No, this is total for the INR 600 crore investment.

Okay. And if I go back to your commentary, wherein we had sort of being, let's say, leading in selected products at a global level. With all this CapEx coming in, we believe last part of that investment is already done? Or there could be a second phase of this investment which maybe can happen 6 months out or 12 months out?

Sure. I think major part of the investment for new products would be done. However, we would require -- if you may recall, one of our areas we want to grow is a little bit on the cost leadership. And we would require investments in that area going forward.

Sure. So will that mean some bit of backward integration -- investments related to backward integration there? Will that be right?

Yes, yes. And also that CapEx, like I said, major part of the investment for new products is over, but we may need some -- depending on the responses, et cetera, some area for volume growth, we may have to invest in some areas for that.

Sure. And sir, lastly, if you can just provide some color on the response on the market on the new products which we have launched, given the COVID scenario? So how has been the response and both in the domestic as well as in the international markets?

So far the response has been good on the products which we've launched. But some of our major launches would have been in Q2 this year, right? So that's Q2 this year. So we are eagerly waiting for that. But whatever we've launched so far has been a good response.

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

I just wanted to get your -- get an update from you on the 2 players that are looking to sort of exit the market. And then like you also mentioned the turns from China are also favorable for the company. So are the -- have the 2 players already started sort of divesting some of the portfolio because of the M&A that will be happening? Or that's the figure will play out more in the future? Or has it already started happening?

Sure. I think the -- if you're asking me for -- there are 2 potential M&As. One is close to happen. And the second one is still in the process, right -- in the process for it to happen. Is that the question, sir?

Yes. Yes, that's right. That's right.

Yes. Yes.

And then the one which is close to happening, in that -- can we expect that for some of the specialty pigment portfolios, they will end up divesting it because of competition reasons and then that sort of helps us especially with the new CapEx that coming for Sudarshan?

So I think there are 2 parts to it. That is obviously given that 2 big players are merging and we are hoping that, that will give some sense that customers would want to divest their portfolio, right? So major potential one we are looking for to gain from.

Okay, sir. That's good. And the other question that I had was, right now, it seems like we are coming to the end of one phase of our growth CapEx, once the INR 600 crore CapEx comes in. Then you may for the next sort of 3 years thought we are covered with the CapEx that we've already done, and it will be more about spreading the assets and ramping up the revenues. So the next major leg of growth CapEx probably is more at 2023, 2024. Is that how we should be thinking right now?

So like I mentioned, our -- we will be definitely spreading these assets before we make the next phase of expansion. But like I mentioned, we do require certain CapExes for some backward integration, et cetera. And from a growth perspective, we'll wait first to see how we get the response on some of these products, and we may require some investments there.

Okay. Good. And just last question from my side. The next leg of CapEx that we do, will we need to start at a new greenfield site with like a new line partner or existing clients have more space?

No. So everything will be down figure.

Or we still have more -- down figure. Okay.

Yes. Yes, sir.

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

Sir, just continuing on the CapEx base. So needed more clarity, here in the presentation, you mentioned that the current CapEx plan is INR 600 crores whereas earlier, we have guided for INR 1,000 crores CapEx plan. So I think in part you did mention that some of it will be for backward integration. So is it right to understand that you will spend INR 400 crores for backward integration? Also, just a related question, I think some time back, you had come out with a press release stating that the Board has approved FY '22 CapEx plan at INR 135 crores. So this differential of INR 135 crores and INR 38 crores, can you help us understand that as well?

So firstly, I think the INR 1,000 crores was a mega investment plan, which we have signed with the Government of Maharashtra that over the phase in the next -- over some period, we would make that investment, right? So that wasn't -- the INR 600 crores CapEx plan was approved by the Board, which we are executing right now. So that's the other part. And INR 135 crores is being planned over and above this INR 600 crores, which the Board has sanctioned. Natu ji, you would want to add any clarifications?

No, sir. I think you have.

Okay. Yes.

So would it be fine to assume that FY '22 CapEx outflow will be INR 175 crores? That's INR 135 crores plus INR 38 crores which is yet to be?

Plus we've not put to use the balance, right? So it depends on what you're talking about -- which number you're referring to, we'll be putting -- I don't have the chart in front of me, but if you look at the put to -- Natu ji, can you clarify, I don't have the chart in front of me, but the put to use this year would be to -- how much INR 220 crores?

There are 2 parts to it. Am I audible, Viral?

Yes, sir.

So for FY '22, out of this INR 600 crores, we will put to us is around INR 307 crores, out of which already INR 269 crores will be referred as a CWIP. Balance INR 38 crores, we will be incurring. That is the first part. Second part, I think you are referring to 135 of FY '22 new CapEx, which has been approved. So we expect around 80% to 90% of the cash out need for the year.

Okay, okay. Sir, secondly, on the other expenses during the quarter, they -- on a quarter-on-quarter basis, they were higher by around INR 20 crores. So can you just explain if there was some one-off? Or is it largely operational in nature? What was the cause for this increase?

So Viral, I will split this into 2 parts. One thing is, there has also been a revenue growth and a production growth. I can see that out of that, 40% to 50% is getting attributable to that increase in the number. One is on the sales side, other thing is on the production side. Apart from that also, we have seen in quarter 4 couple of increases. One is, increases of -- because of the coal rate changes and coal rate has gone up. That's one. Second thing also, we are also seeing the trade cost going up in Q4 due unavailability of the container. As you are aware that this particular space has become so -- there has been so much of constraint that the cost on the shipment has also gone up. And there has been a ForEx movement around INR 2 crore. And also in the Q4, we had a higher share of our specialty production, which also increased the cost in our manufacturing, which is attributable to the hazardous split costs. These are the couple of elements which have contributed quarter-on-quarter increase and other external.

Sure. And just last question, sir, what will be our net debt at the end of the quarter?

Viral, currently we are at around INR 600-plus crores, correct? So I would not like to put a number at this. And currently our debt equity is around INR 0.8 crore. Rather than getting into a quarter because quarter is a short period, I would like to see what will be the hinderances, and I'm confident that they will improve the debt equity ratio.

Sorry. Let me just rephrase. My question was on the March 2021 year ending debt.

Yes. So Viral, March 2021 year-end debt, net debt is at INR 614 crores.

The next question is from the line of Dhruv from HDFC Fund.

Yes. So just a clarification on the previous -- sir, you mentioned that the CapEx for the year is -- for FY '22 will be around INR 135 crores. But in the slide, you have mentioned that the remaining CapEx is about INR 38 crores for FY '22. So the remaining is for?

Natu, you want to take -- that's the balance out of the INR 600 crores. Natu ji, why don't you take that?

So the slide, which you can see in our deck, that is Slide #9. It gives the overall plan against the INR 600 crore CapEx plan. So that balance INR 38 crores is out of our initial plan of INR 600 crores. The INR 135 crores, which the earlier participant has asked, this is a new CapEx which has been sanctioned in the last Board meeting.

Okay. Got it. And this CapEx is pertaining to a new set of products or backward integration?

No, this set of products is -- so this is more towards the infrastructure.

Okay. So I'm trying to understand, will this give a revenue boost? Or this should give just a margin boost? That is being...

The INR 135 crores -- the INR 35 crores majorly will be kind of looking at some of the infrastructure, et cetera, for the group for the future.

Okay. Got it. Got it. Sir, second question was, you mentioned that the share of specialty for you for the full year basis is upwards of 60%, almost 69%, if I'm not wrong, yes, in FY '21. And the future CapEx that -- the INR 600 crore CapEx, which is giving a revenue of INR 1,000 crores, I would believe that the share is probably similar, 60-40 or 70-30. Sir, but one of the arguments earlier was that the incremental CapEx has a higher share of specialty and that as a result it should give a margin boost overall. So from FY '20, FY '21 level, it should give a margin boost. But it seems the specialty share remains broadly the same. So just wanted to understand what am I missing? Is it that the new set of products are much more value accretive than the existing specialty share? Or what is it?

Natu ji, you want to take this question?

Yes. So as you have rightly said and what we have also presented is the specialty revenues stand at 69%. As also briefed earlier, the majority of the CapEx which we are doing right now, INR 600 crores, the major focus is on the specialty growth, correct, also. So going forward, I expect that the revenue from specialty to show incremental growth on this particular INR 1,000 crores to INR 1,200 crores revenue what we are projecting. So it will place the ratio slightly more on the specialty side. And that will also give us a benefit in terms of our margin.

So would the incremental INR 1,000 crores of revenue, INR 1,100 crores of revenue, have probably, what, 80-odd percent share of specialty or more? And the objective is, will it give us significant delta in margins?

So I would not like to put the number, but to give assurance that -- or rather to give the broad macro-level view that this is CapEx is predominantly -- majority is under specialty side.

All right. Okay. And just one last question quickly is, you mentioned in the slides that your capacity utilization is 86%. Would that in the quarter, I'm not sure about the full year numbers, if you can share that? And second, related to that is in FY '20, your have capitalized about INR 220 crores of the INR 600 crores plan. So given the utilization level is about 86-odd percent, would it be fair to say that large part of the FY '20 CapEx that we had done, I mean, of the INR 600 crore plan, is visible in the FY '21 numbers? Or I mean, the 86% number can go even higher significantly, I mean, probably 95%?

No, I think to add some of what we are looking, I think 86% is a good number, which we would want to target kind of going forward, maybe go towards the 90%, et cetera. I think most of the growth will come from the CapEx which we are putting in now.

So just for clarity, can you share what will be the utilization for the full year? I believe Q4 would be much higher because of the India run rate or because the first quarter was very weak. What could be fully utilization?

Natu ji, would you have the number or I think you want to?

No. So my suggestion here is rather than looking at the full year number, the reason why we have given the Q4 because this is more a normalized period, H1, we saw the disruption. And now going forward, we see that the normalcy will be there. So that's the reason we thought that we will only put the Q4 number.

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

Firstly, just wanted the breakup of INR 600 crores CapEx between the infra CapEx and the growth CapEx. Could you please give us a breakup?

Natu sir?

There is a whole point, the reason why we want to present this slide is, the entire INR 600 crores, it has a mix of the various elements. But finally, what we are looking at as a company is the potential. Rather than splitting that between growth and infrastructure, we see this as a holistic basis that this INR 600 crores is needed in various buckets for us to aspire to get this revenue of INR 1,000 to INR 1,200 crores.

Got it. Got it. I think that is very helpful. And secondly, I wanted to understand, I was just looking at the margins of our business. Presently, we are at almost -- I would say, at the present capacity of both the plants, we are operating at a full capacity. And we have a fairly good share of specialty business where I would believe these are higher EBIT -- higher products, which are having higher EBITDA margin. So when I look at the margin which we are earning at this level of utilization and when I compare it to other players in India, the listed ones, I mean, the [indiscernible] I would say, ultramarine, the margin is, I cannot understand the reason why they're running a 16% margin whereas the competitors were operating on, I would say -- despite the fact that we gave the organic high-performance segment also in our portfolio, and we have a lot of the much higher value-added products also whereas these competitors are focused on this blue and green pigments and the ultramarine pigment is a success compared to the lower -- low generation -- I mean, the older-generation products. So can you -- what I wanted to understand is what is the reason we cannot -- on this -- even on this level of existing plant replications and this level of demand, we cannot go to more than 17%, 18% margin. I mean, can we go to 20% margin even in this base business right now?

So we are building an organization for the future and preparing for the growth. So there is a lot more high cost which is involved in doing so. So for example, many of our Asian competitors will not have many international sales team on their Board. That's a huge cost which we incur. We have -- the cost on R&D which we explained. There are many -- there are several kind of, I would say, overheads, direct sales cost, which a company like us incurs because we believe that this -- in the short term, this may not give us benefits, but in the long term, it's a very big sustainable benefit for us.

Got it, sir. Got it. And so just one final question from -- so just wanted to understand this, when I look at the -- so the new CapEx of this INR 600 crore CapEx, I wanted to understand what -- if I look at it in tonnage terms, what portion of this CapEx is already dedicated to the products which we have right now in our product basket and where you already have the market reach and customer relationship ready for us to leverage those products? And what tonnage would you attribute to the products where we are now getting into and updating our color index -- coverage of the color index. How much time this was allocated to the products which we are manufacturing right now in terms of the total tonnage you're adding to this INR 600 crore CapEx?

So I think it's a little -- this information is a little kind of confidential to kind of talk about how we split this up, right?

Okay. No problem, sir. All do this for the future quarters.

The next question is from the line of Paras Nagda from Enam.

Yes. Sir, congratulations on a good set of numbers. I had 2 specific questions, the first one being, what is the kind of maintenance CapEx in your business? On a INR 932 crore gross block that we have created, what is the kind of maintenance CapEx that we can expect from this business?

Natu sir?

Yes. So normally, we see the maintenance CapEx, which is incurred over period is in the range of INR 30 crores to INR 35 crores per year.

Okay. And the same trajectory should continue going ahead?

They do increase in the same percentage.

Got it. Got it. And sir, my next question is on raw material inflation. We have seen lot of your input raw material prices going up sharply. What is the kind of raw material inflation as well as if you could give us some color on the procurement and sourcing strategy also with respect to China, how much is the current China mix and the whole raw material basket, how it is moving?

I think, basically, we've seen an all-around increase in raw materials in several of the categories, very steep increases and whether they're acetic acid-based or whether they're -- whether they were highly urea-based et cetera. So we've seen an all-around increase in our raw material cost. The split of our China and India has not moved -- changed much. It still remains -- it is still at the same area. We are hoping that looking at how the commodity prices, materials, everything has increased, we are hoping that things will settle down. And our endeavor has been to kind of clearly drive some of these -- kind of pass on these increases to our customers. Having said this, the increases are quite steep, and we remain concerned that if such a large -- it should not finally affect the ultimate demand, right, when the cost increase is so high.

The next question is from the line of Manish Poddar from Nippon India AIF.

Yes. Congrats on the good set of numbers. So just one question. Can you probably help me understand, let's say, in this incremental sales which you have had for the full year, roughly about INR 150 crores, INR 155 crores, now how much of that would be, let's say, from new customers versus the existing customer?

That's a little bit to -- narrower data point to kind of share.

Sir, what I'm trying to understand is that our strategy was at -- you want to increase share from the existing customers. And at the other side, if you look at it, a lot of -- #1, 2 player is getting consolidated, let's say, there's some sort of shareholder change which is happening up there. So just trying to understand, let's say, this utilization levels which you've got in Q4, is that a function of existing clients ramping up orders significantly? Or is that a function of new clients? Just a broader split, let's say, 70-30, 60-40. Any number on that will be helpful? I'm just trying to understand how are you using traction, let's say, of the new versus the old clients?

No. I think, in general, there has been a -- we've maintained a trend of -- so I can't give you a percentage, but we've maintained our same trend of saying that how we've kind of engaged with our existing customers and got a better wallet share on newer products approved, yes.

Okay. And would you be able to help me quantify, let's say, what sort of inflation would you have seen at the RM level? And blended, let's say, by, let's say, April or May, how much of that would you have be passed off?

Natu sir?

Right. So as sir has said earlier that there has been a sharp increases in several intermediates, that also we have said in our commentary. And it has been across the business are very -- but we see this inflation impact due to the raw material price increases will be somewhere in between 2% to 2.5%.

The next one is from the line of Sanjesh from ICICI Securities.

A couple of questions. First on the -- again, sorry to hop on the CapEx and the revenue potential. A small clarification, we said that we have a utilization of 86% in the Q4. If I analyze it, it's like a INR 2,000-odd crores of revenue we are looking at. And when we see INR 1,000 crores of incremental revenue from entire INR 600 crores of CapEx and we are looking at targeting close to 90% kind of an utilization level, so just want to get a number, what will be the revenue assuming no new CapEx is done, from the existing CapEx? What should be the peak revenue that we should be able to achieve? Hello?

Yes. Sir, can you please repeat your question? There was some lag here.

Okay. Okay. My question was that now that we are at a 86% utilization level in Q4 and if I annualize it, it's like INR 2,000 crores of annual revenue. And we have said that the incremental INR 600 crores of revenue will bring in INR 1,000 crores to INR 1,200 crores of revenue. So what would be the peak revenue assuming no new CapEx is incurred? From the existing gross block, what would be the peak revenue we can achieve assuming the gross block we are talking in FY '22?

A couple of points, like what we are stating here is the potential of INR 1,000 to INR 1,200 crores. And having said so, we have put couple of CapEx and -- that to put view. It will give -- this particular projects are in the initial ramp up sales. So going forward, we will see the utilization as well as the potential of this revenue going up further. What we are expecting that within next 3 to 4 years once all the CapExes are fully ramped up, we will get around INR 1,000 crores, INR 1,200 crores. So that is the number which we would like to get.

Sir, my question was here that what we are talking of this INR 1,000 crores, what is the base number we are looking at? It's an FY '19 base number or it's FY '21 base number, what is the base number we should hold on and then look at the INR 1,000, INR 1,200 crores of incremental revenue?

Yes. So -- sorry. Then for this particular base number, I think we can refer FY '20 because in FY '20, we have done the CapEx, which was in the Q4. So FY '20 can be taken as a base.

Okay. So basically, on FY '20, we are talking of an additional INR 1,000 crores to INR 1,200 crores of revenue, that's a fair understanding, right?

Yes.

Second question again is on the non-specialty part. The growth looks phenomenally strong. This is despite Chinese increasing the rebate and India cutting the rebate. So it looks like we have combated well. What has been the reason behind this? How will we be able to achieve this growth despite such a strong headwind?

I think it was a demand/supply gap on certain product lines. And that's how we could achieve this growth.

And this is sustainable, right?

The revenue number is sustainable, there is no one-off gain or...

No, it's not one-off, but the growth rates may not be sustainable, but of course we will maintain more.

Absolutely revenue, I'm talking about exit revenue, that is sustainable right?

Yes.

Okay. My last question, again, on gross profit margin with -- it should be said that we may look at the pressure of 200 to 250 basis points. So will we go back to, say, 40% before we jump back to 44%? Is that the right understanding? Or do you think this time it will be a much smoother transition than last time when the volatility in the raw material prices were there, went up to 37%? So what changes the scenario this time over the last time? Is the raw material more widespread and is easily possible? Or how should we see this entire gross profit margin trend, say, over next 4 quarters?

Yes. So a couple of points is on the inflation side, when we say that the raw material inflation is in between the range of 2% and 2.5%, it is more on the input side, correct? So there has also been a pricing action, which are in place. And as mentioned earlier, we are in the process of increasing the prices and passing on the raw material increases to our end customers. As also briefed by Rajesh sir earlier that we have to balance the act because couple of raw material prices have been very sharp. So we need to also see that how we will be able to pass it on to the market. So as a company, we don't see that gross margin will have -- we don't want to give a number, but it is not that the entire 2% and 2.5% will be the number which is getting down the gross margin. Our endeavor will be try to minimize the impact as far as possible so as to maintain the numbers in the narrowest range.

Got it, sir. Got it. That's it from my side. Just one last bookkeeping. Can you give up the breakup of specialty and non-specialty? Again, I missed couple of them, actually. Natu ji, I know you said it in the -- in your initial remarks, but I think I missed a couple of points.

Yes. So when we talk about the specialty, we talk about also high-performance pigment, cosmetic and dispersion. And non-specialty, we talk about [indiscernible] inorganic and the effect pigment. Thank you.

[Operator Instructions] Next question is from the line of Gagan Thareja from Kotak.

Am I audible?

Go ahead, sir. Yes.

Sir, the first question is pertaining to the fixed asset turn ratio on the CapEx. I think if I refer back to your previous call, last quarter's call, you've indicated the total CapEx of INR 575 crores, of which 70% is for capacity addition and on that we'll get a fixed asset turn of 2.5%. And if I go further back down to previous call transcripts, I think generally been indicating that asset turns could be -- fixed asset returns could be the order of 3 or even more on this CapEx. But now you're saying INR 600 crores of CapEx would give you INR 1,000 to INR 1,200 crores of revenue, which is 2x. So what changed and why is that fixed asset turn ratio not in line with what has been indicated in the past?

I think there are 2 points. When we were talking about the ratio at that time, I think -- and that's why we wanted to talk about the total, we were talking only the revenue generating kind of CapExes -- revenue-generating CapExes whereas now we are talking about in totality all the CapExes, including the infrastructure CapExes and the EBITDA CapEx.

So what you're saying is that there's actually INR 400 crores of CapEx which is revenue-generating because using 2.5% is the range point that will give INR 1,000 crore? And INR 200 crores infrastructural. Am I right in that understand?

I don't know which figure -- what we've already -- which figures that have not -- this is not clear to me.

No, what I'm trying to say is that at INR 600 crore you get a turnover of INR 1,200 crores which means an aggregate turn of 2, right, INR 1,200 crores divided by INR 600 crores. But you're saying that actually only on capacity addition portion out of that INR 600 crores, you can get an asset turn of 2.5%, which means only INR 400 crores out of INR 600 crores is capacity addition because INR 400 crores into 2.5% is INR 2,000 crores and the rest is infrastructure. Is that the correct way to look at it?

Yes.

Oky. And again, referring back to your previous quarter's conference call, you've indicated a CapEx INR 575 crores. And you said, 30%, if I understand -- if I understood transcript correctly, was related to cost or backward integration measures. Is that what the balance INR 200 crores out of the total INR 600 crores is about?

The INR 600 crores is a mix of infra -- revenue infrastructure and revenue -- just to clarify, it's a mix of infrastructure revenue and EBITDA generation. And in terms of -- if you take only the revenue generation, that's what I said, that's how the statement was made on 2.5x that time.

And how much if it is for EBITDA generation, which you could give some ballpark idea there?

No. No, we're not splitting it up completely on that perspective.

Okay. And the INR 135 crores that you've got the Board approval for is the entirely focused at backward integration? Or is it focused at substituting the China supply chain and getting...

It's not for -- as I mentioned earlier, the INR 135 crores is for some of the infrastructure and putting up some infrastructure and some -- getting on some trials for some of the new products, nothing -- not revenue-generating.

Okay. And lastly, from my side, as the revenue mix moves a little bit more towards specialty or maybe a little bit more towards exports, does that impact your receivables and inventory cycle in any way?

No.

The next question is from the line of Dhruvam from HDFC Fund.

Sir, the question is on the INR 135 crores CapEx. I just wanted to understand this better. This infra CapEx, is it for the future expansions that you will do and that is why you're putting probably the infra, the road and other things? Or is it -- is this to support the existing INR 600 crore CapEx that we are doing?

No, existing has already all the infrastructure there. This -- and the infrastructure is more in terms of the effluent treatment, et cetera, for future expansion.

Okay. Got it. So the future -- so whenever we expand the next set of capacity, it will be announced?

Yes, it takes longer for some of the infrastructure to come up, and that's how we are setting it up.

All right. So the next set of CapEx that you announced will have a numerically higher asset turn because some part of the CapEx has already been incurred in terms of the utilities?

I'll have to -- it's not utility, but it's more of this -- when we come to that set of numbers, we talked about -- we would definitely talk about those numbers.

Got it. But just to make it clear, this is not something to support the existing CapEx plans? This CapEx is not to support the existing CapEx -- to deliver the existing. Got it.

The next question is from the line of Rohit Nagraj from Sunidhi Securities.

And again, thanks for a good set of numbers as well as the presentation. So the first question is in the last couple of months, that is April and May, have we seen any kind of logistics and supply chain-related challenges both from our sourcing perspective as well as exports? And will that have an impact on the ensuing quarter results?

Natu sir?

Sir, can you please repeat your question? It's about the...

Yes.

Sir, we did find challenges in terms of logistics, et cetera. We've seen cost increases. However, we've not had any disruption in terms of some delays, et cetera. But not any disruption in terms of sales.

All right. That answers the question. So sir, second question is, once the current CapEx program is completely implemented, including the INR 135 crores that you have talked about, what is the peak debt that we are looking at?

Natu sir, you want to take this?

So sir, I would not like to put the number. But sir, going forward, I see that the debt-to-equity ratio, which we are targeting -- which we are looking at, would be better than the current year.

We will take the last question from the line of Madhav Marda from Fidelity Investments.

I just wanted to understand that if I look at our EBITDA that we've done in quarter 4, we are sort of at the -- recently the number at 15%, despite the MEIS impact of 1%, plus there's some cost inflation coming in because of container availability and higher coal prices, et cetera. And then, of course, like you said, we've invested in manpower R&D for future potential for the business. So of course, I'm not looking for a guidance on the number. But if I take all these numbers into account, it seems like our steady margin should be sort of closer to the 20% mark. Because there are so many numbers that are built into our current sort of margin profile. Is that like a fair understanding to have broadly directionally over the next 3 to 4 years as we look at the business?

Natu sir? So as a part of our overall initiative and our overall plan, we would like our EBITDA percentage of the growth track. Putting the number what you are saying at 20%, I would not like to put that. But yes, we would like to increase this percentage. But couple of factors which will also help us in the next 3 to 4 years, one, is the ramp-up of the current CapEx, which are getting put to us over the next 3 to 4 years, which will also give us a good kind of operating leverage and we will -- on the growth trajectory as far as EBITDA percentage is concerned, we'd not like to put the number at all.

And most of the investment or the -- around manpower in terms of the international sales force that we put in place, is the majority of it already in place? Or do we still need to hire more senior-level people in the international market? So that part of the investment is already in the number?

So as said earlier by our Managing Director that we have invested for growth and the organization set up -- the right organization setup has been also our priority. Majority of the hiring in terms of the overseas market and the setup has been completed. And we -- I don't see there will be further increase in terms of overseas manpower.

Thank you. I now hand the conference over to the management for their closing comments.

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

Thank you very much. Ladies and gentlemen, on behalf of HDFC Securities, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.