Tarsons Products Limited (TARSONS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Tarsons Products hosted by Investec Capital Services. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anshuman Gupta. Thank you, and over to you, sir.

Hi. Hello, everybody, moderator, and good morning, everyone. On behalf of Investec Capital Services, I welcome you all for Tarsons Products first ever earnings call [indiscernible]. Tarsons Products has already announced 9-months FY '22 and 3Q FY '22 financial results yesterday. Today, from the senior management, we have Mr. Sanjive Sehgal, Chairman and Managing Director; Mr. Rohan Sehgal, Whole Time Director; Mr. Santosh Agarwal, Chief Financial Officer. Congrats to all of you for a very good IPO. I'll hand over to Rohan. Thanks.

Good morning, and a very warm welcome to everyone present on the call. First and foremost, I hope that you and your family members are safe during these unprecedented times. Along with me, I have Mr. Sanjive Sehgal, the Chairman, Managing Director; and Mr. Santosh Agarwal, the Chief Financial Officer for Tarsons Products Private Limited -- Tarsons Products Limited and SGA, our Investor Relations advisers. To begin with, I would like to thank and congratulate all our stakeholders, investment bankers and business partners for helping us achieve a milestone of getting listed on the Indian stock exchanges. We are delighted to see such a strong response for our IPO. Since this is our maiden earnings call, I would like to take you through Tarsons Products Limited, its journey so far, broad industry update on plastic labware and strategies going forward, followed by operational and financial highlights of the quarter and 9-months ended FY '22. Post that, we will be open -- we will open the floor for questions and answers. We have also uploaded our latest investor presentation on the stock exchanges, and I hope everybody had a chance to go through the same. Tarsons Products was incorporated in the year 1983 and now is one of the leading Indian supplier of labware products engaged in the designing, development, manufacturing and marketing of consumables, reusables and other labware products with more than 3.5 decades of experience in manufacturing of trusted high-quality plastic labware products, we supply our products to industries across research organizations, academia institutes, pharmaceutical companies, CROs, diagnostic companies and hospitals. Today, we are one of the leading Indian supplier of life science sector with a strong brand recognition and high-quality diversified products across varied customer segments and end user industry. We have a diversified product portfolio with more than 1,700 SKUs across 300 categories including consumables, renewables and benchtop equipment. Our consumable categories include major product lines such as centrifuge ware, cryogenic ware, liquid handling, PCR consumables and so on. Our reusable categories include bottles, carboys, beakers, measuring cylinders and various kinds of benchtop racks. We also make a benchtop instrumentation such as vortex shakers, centrifuges, pipettes and so on. We currently operate through 5 manufacturing facilities located in West Bengal. Wide array of products are manufactured across these facilities, giving us a competitive advantage in terms of technology, which we have accomplished through our years of experience in the field of manufacturing classic laboratory products. We believe that by focusing on stringent quality standards across all manufacturing processes, we have been able to provide a reliable, efficient and cost-efficient product line to our diversified end user industry. At our facilities, we continue to invest in automation to reduce human error and improve throughput. We are working on expanding our manufacturing capacities for both existing and new products in a phased manner through construction of a new manufacturing facility in Panchla, West Bengal. The project is on track, and we target to commission the new facility by the middle of 2023. We are also planning to develop a new fulfillment center in Amta, West Bengal to coordinate and expand our warehouse operations. At the same location, we also aim to do backward integration in the manufacturing process by building an in-house sterilization center for captive consumption. We have recently completed the land acquisition, measuring approximately 6 acres for the facility in Amta and the target to complete this project will also be the middle of 2023. Our products are distributed to end users on a pan-India basis by our authorized distributors. We have long-standing relationships with our end customers and distributors which we have accomplished by an on-the-ground sales and marketing team. As on 31st December 2021, we have 150 active distributors spread across the country supplying to various end user industries. High-grade quality products, diversified product offerings alongside the trust and the brand name developed over the years for Tarsons has helped us create a strong portfolio in the exports and the international market as well. Our share of revenues from exports stood at 41% in Q3 FY '22 and in 32% the 9-month FY '22. We cater the demand of export market through branded as well as OEM sales, which we supply our products to more than 40 countries through a network of distributors and are very optimistic of huge opportunity lying ahead us -- ahead of us in this segment. As an organization, we are constantly striving to improve our environmental, social and governance parameters. Our products are manufactured using medical-grade plastic that's designed to withstand critical use. We work under clean room conditions, which eliminates all chances of contamination. Productivity optimization will be done through higher use of automatization. The company directly donates to various hospitals as a part of its CSR initiatives. We regularly review and update our policies for change requirements and have whistleblower policies in place. Our key strategies going forward will be to expand our product portfolio, focus on branding and promotion, manufacture new products in the cell culture and the robotic-handled consumables, leverage the advantage of Make in India and grow our domestic sales as well as our international business through exports, enhancing our manufacturing capacities to leverage growth. We will be expanding our manufacturing capacities in various popular product categories. We recently acquired 5 acres of land to develop a new manufacturing facility in Panchla, West Bengal and to expand and enter into new product segments comprising of cell culture, serological pipettes and others. Increasing presence in overseas markets, we plan to grow our international business to more than 120 countries in the next 7 to 10 years by a two-fold approach of both branded products as well as OEM products. Also, we plan to enhance our operational efficiencies by using higher automation and higher throughput leading to operating leverage play. Going forward, I would also like to reiterate that with multiple growth avenues for the future, like large addressable domestic market with continuous addition in product categories and addition of wallet share of the customers, huge opportunity in the export market with OEM as well as branded products, increasing scale and capabilities with in-house manufacturing and R&D, trust and reliability for our products with leading acceptability across the domestic and international markets. We believe there is a huge runway for growth for our company, and we are prepared to leverage this opportunity and expertise and experience we have developed over the years. Let me hand over the call to Mr. Santosh Agarwal, our CFO, for operational and financial highlights for the quarter and 9-months ended FY '22.

Good morning, everyone, and a very warm welcome to all our maiden call. We have uploaded our latest investment presentation on the stock exchange for our Q3 and 9-month FY '22. I hope everybody had an opportunity to go through the same. We are delighted to say that we have surpassed our FY '21 profit in just 9-months FY '22 numbers. On the revenue front, we would like to discuss really from operations. For Q3 FY '22, stood at INR 71 crore as compared to INR 60 crores in Q3 FY '21, a good growth of 17.3% on a Y-o-Y basis. The sales growth was driven by higher demand across end user industry and exports. Revenue from operations for 9-months FY '22 stood at INR 216 crores as compared to INR 161 crores in 9-month FY '21, a growth of 34%. Revenue split between domestic and export stood at 59% is to 41% in Q3 FY '22 and 67% is to 33% for 9-month FY '22. Our export revenue for 9-months FY '22 grew by 42% across to INR 71.4 crore in 9-months '22 and 54% in Q3 FY '22. At gross profit level, gross profit margin for 9-months FY '22 stood at 79.7% as compared to 71.7%, a jump of 800 basis points on Y-o-Y basis. GP margin for Q3 FY '22 stood at 77.9% compared to 76.5% in Q3 FY '21, an decrease of approx 150 basis points and down by 120 basis points on Q-o-Q basis. Deep in gross margin on quarter-to-quarter basis is measured due to change in product mix. These new manufacture more than 1,700 SKUs actually across 300 product category. However, GP margin on quarter-to-quarter basis might vary and [indiscernible] to be looked at each on analyzed base. At the EBITDA level, EBITDA for Q3 FY '22 stood at INR 33 crores as against INR 31 crores, a Y-o-Y growth of 8%. EBITDA margin for Q3 FY '22 was down by 400 basis points on account of increasing employee expenses, IT expenses and more consumption of packing materials due to change in product mix as highlighted above, which might taper off in the coming quarters. For 9-months FY '22, EBITDA was INR 108 crores as compared to INR 69 crores in 9 months FY '21, a significant growth of 58%. EBITDA margin for 9-months FY '22 stood at 50% as compared to 42.5% in 9-months FY '21, representing a growth of 770 approx basis points on a Y-o-Y basis. At the PAT level, PAT for Q3 FY '22 stood at INR 21.5 crores as compared to INR 21 crore base since Q3 FY '21, a growth of 2%. PAT for 9-months FY '22 stood at INR 71 crores as compared to INR 45 crores in 9-months FY '21, a significant jump of 57%. PAT margin for 9-months FY '22 stood at 33%, a growth of 500 approx basis points as compared to same period last year. On utilization of proceeds from IPO, we have repaid the debt to the tune of INR 78.5 crores. And currently, we are a net debt free company, which will enhance our profitability. Also the construction of new manufacturing entity in Panchla, West Bengal, is on track and we target to commission the same by middle of 2023. Lastly, the demand scenario going forward looks robust, and we are optimistic of sustaining the growth trajectory with higher profitability on the back of operational efficiency and scale. With this, I would like to open the floor for Q&A.

[Operator Instructions] The first question is from the line of Praveen Sahai from Edelweiss Financial. As there is no response from the participant, we'll move to the next question, which is from the line of Rishabh Parekh from Sunidhi Securities.

Congratulations on a very robust set of 9-months financials. I had a few questions. Firstly, regarding the '22 performance, what we observe is there is no growth in the domestic market in Q3 versus the corresponding quarter last year. So just wanted to understand if what was going on there? Secondly, you all mentioned that there was a one-off in the margin. So if you can elaborate on what the quantum was? And yes, I'll ask my other questions after this.

Sure, thank you. So if you see our numbers on Q3 FY '22, 41% of our revenue has come from the international business. But if you see our 9-month revenue in FY '22, it is in the 33% level which is indicative of our company, which is at about 2/3 of -- 2/3 of domestic revenue and 1/3 of international revenue. Now since our capacities are constrained and we are expanding on newer capacities, the international business revenue is not linear this year, and it is clumped in parts and portions because we are unable to get the container availability and the vessel availability, which is an issue with all across the country and all over the world. So you will see a higher proportion of revenue, which is coming out of international business because of better availability of containers in this period as compared to quarter 1 and quarter 2. So if you see our proportion of revenue changing, it changes from 75-25 in Q1 to about 63, 64-36 in Q2 to about 59-41. But on an overall 9-month basis, if you see, it stays at about 67-33, which is indicative of our company over the last 2 or 3 years. And since we can only -- because of restricted capacities, we cannot -- we have back orders in both international and domestic markets, we can only cater a certain market at a certain point, and we cannot cater everybody, hence, we would have not had any back orders at this point of time. And hence, you see a little dip in the domestic revenues and a little increase in the international revenues.

So this is purely on account of capacity constraints, that this was the case, right?

It's already on account of capacity constraint as well as more importantly on container and vessel availability constraint. We are unable to ship out containers on the right time. And if you see that there are clumped sales in international business, international sales are not moving more linearly or more -- every month, there could be some really high peak month and some low months, it is all reliant on the container availability and not on the actual international customer demand.

Understood. Understood. And on the expenses front, you all mentioned some one-off items, if you can just quantify?

Sure. So we have employee expenses, which have increased slightly. The reason for that is we are investing a few quarters earlier which we need to do as we are growing into our next phase of growth, which is a pretty aggressive capacity expansion as well as new product lines. We need to build people and teams for projects, as well as build R&D capabilities. So these employee costs will start wearing off over the next few quarters as the revenues start coming in. We need to invest a little bit ahead of time in employee costs and packaging. We see a certain increase in the packaging cost because of increased -- dramatic increase in the cost of paper, which is again, a very known common thing all across the country. We believe that in the next financial year, we would have certain price adjustment if you take care of these price increases as well as there is about INR 1 crore to INR 1.1 crore one-time expense of IPO, which was our IPO marketing expenses, that would be Q3, yes.

Okay. Okay. So a steady state other expenses run rate would be about INR 13 crores going forward as well?

Approximately yes, similar to what we have seen in the other quarters, yes.

And my second question, right, was on our new product basket that we propose to introduce once our new manufacturing capacity is on stream. So going through your presentation, the Indian plastic labware market is about INR 1,220 crores, out of which about INR 500-odd crores is PCR and cell culture. So is my understanding correct that we're not participating in about 45% of the market right now?

Yes. I believe that we are not participating in about 35% to 40% of the market. As over the last 5- to 6-months, we have launched various lines of PCR products, and we continue to do so towards the end of this financial year. We believe with the launch of the complete range of cell culture and further product categories, which are ancillary categories and cell culture, we would be catering to the entire market segment.

And what could be the competitive intensity in the new products that we would launch and who would be our main competitors? And would we be competing mainly on price or faster delivery or better quality?

We would -- our competitive advantages would remain similar to what it is currently on current product lines, offering high-quality, reliable products to the very, very strong and trusted brand, bring quick deliveries to our customers India and across the globe. And a brand and a product range they can trust. So the value proposition would be similar for the new product lines as compared to what our current product line are. So I do not see -- in the competitive landscape, I do not see much of a change.

And who would be our main competitors in these PCR?

Total multinational peers. Because we would be the first manufacturer from India to enter into these product categories, the first homegrown Made in India manufacturer, so mainly multinational companies from across the world.

And would we be cheaper than them? And would they be manufacturing in these products in India? Or would they mainly be importing?

These products are imported as of today. And yes, we would have cost advantages being producing the same in India, and we would be passing on these benefits to the final customer.

Understood. And my last question, right, was on our sterilization facility. What kind of -- what was the thought process of making it in-house? And what kind of -- since the backward integrating, what kind of margin improvement can we expect once this comes on stream?

Approximately, the cost of sterilization today for us is about INR 3 crore per annum. And moving forward, I think, over the next 5, 7 years, that could grow by about 5 to 6x the cost of sterilization. Having sterilization in-house could probably give us an advantage of about 100 to 120 basis points on our EBITDA margin. But we are looking at sterilization not so much on a margin perspective, although it would improve our margins. But we are looking at it more as a developing a capability in-house because 100% of the future CapEx what we have planned and what is ongoing today is reliant on sterilization. So we need to create a world-class sterilization center with world-class laboratories to cater to our growing needs of sterile products.

Understood. Sorry, my last question was on exports, right? Would the export margins be similar to our domestic margins, especially in the export ODM business?

So our export margins are similar in the ODM and branded business. On a gross level, export margins are slightly lower to the tune of 5% to 7% to domestic margins. That is because it does not take into account importer margins in other countries as well as cost of -- larger cost of trade as well as custom duties and clearances in respective countries. But on a net level, it is pretty much similar or identical to domestic margins because the overhead costs are very, very negligible as compared to overhead costs in domestic business.

The next question is from the line of Pankaj Shah from [ Dinoro Wealth. ]

So the first question is on the revenue. I want to understand how much revenue is contributed by COVID-related product. And as you said that we have some capacity constraint as of now. So how does FY '23 look like? So as COVID [indiscernible], the revenue will go away and we don't have capacity in place. So how do we see FY '23 till the new facility or the new CapEx come in place, say, by quarter 1 of FY '24?

So I feel that our revenues today at peak or during peak COVID, we estimated that about 1/3 or probably 30% of our revenue came from COVID. The current wave and the current signals over the last 5 to 6 months, COVID revenues have been wearing out. Although the cases have been high, but it is not the same as the first and second lockdowns. So today, we estimate that our current COVID revenues already are in the mid- to high-single digits and continuously wearing out and more and more regular product sales taking over. So we are in a constant process of increasing capacities in both, currently in this financial year as well as next financial year. So it is a continuous process and not a onetime process, which will show at the beginning of FY -- or the middle of FY '24. So we are very confident of a strong and robust growth from our existing as well as new product lines without COVID revenue. In this quarter 4 of this year FY '22 as well as the entire FY '23.

Okay. And can you brief us on the entire CapEx program, which you are talking about during the IPO? Say, I think the program was about INR 350 crores to INR 400 crores, including Panchla, the fulfillment center and the existing facilities, the time line, the capacity. And how quickly can we ramp up this new capacity coming in place?

Sure. So yes, as you're right, it is about INR 400 crores of CapEx planned. We are -- INR 190 crores has already been paid. And a lot of CapEx, we have started receiving a lot of our -- increased capacities as we have made a payment of INR 190 crores already. We have INR 60-odd crores year-marked from our IPO proceeds, which will be paid in a phased out manner for the construction of our facility in Panchla. And the remainder of about INR 150 crores to INR 160 crores would be paid by our internal cash approvals over the next 18-month period.

Okay. And how quickly can we ramp up this capacity? As and when do we have the -- as you said, the orders are there. So once the facility comes up, we can quickly utilize it, right?

Absolutely. At least for the portion of our existing capacity expansions, the ramp-up will be much quicker in terms of the newer products. There would, of course, be a feed-in period in which we launch the products and get product acceptability and slowly ramp our products to reach full capacities.

Okay, okay. And what was your gross and net asset turnover?

I believe that the gross and the net asset turnover should be identical or maybe slightly better to our current net asset turnovers. And the gross asset turnover, maybe we might expect a slight dip from our current gross asset terms. That is because of the higher cost of infrastructure and construction, what we faced in 2022, '23 and '21 as compared to 2 years ago.

So if I'm not wrong our current gross CPEs at, say, 1.7% for FY '21, do you expect that to risen because -- that's the [indiscernible]

That's the net.

Okay, that's the net.

Net asset turnover, gross would be lower.

So gross as per the old accounting standard comes at a INR 0.7 crores, INR 0.75 crores?

Right. So we believe that for our equipment, plant and machinery, the asset terms would be equivalent or better because we're getting into better value-added products, but things which are out of our control, which is construction, land, infrastructure, the cost, as you know, of steel, TMT, cement are at an all-time high. So that play into certain more expensive investments. And hence, the asset turn on the infrastructure part might be a little lower.

Okay. And the last question, actually, more of clarification. So in the IPO in the DRSP, you have mentioned that there was a serological pipettes manufacturing facility which was temporarily suspended. So what is the status there? And again, the status on the petri dish automated system, that project was also suspended due to COVID.

Right. So the first line was the serological pipette line it was not suspended, but it was more of work-in-progress because there were certain technologies which we are trying to develop in-house in order to perfect the product, and hence, it was a capital work-in-progress. The petri dish line is a COVID tried and tested line. It had reached us, but due to COVID restrictions, we need the assistance of certain engineers -- automation engineers from Europe to fly down to India to help [indiscernible] that facility. This is a starting facility when we started a new line of automation, we always need this. And because of travel restrictions and COVID travel restrictions, we were a little delayed in starting up the same. However, the engineers have been visiting us and the facility is on the verge of getting started, the petri dish facility.

Okay. Okay. Great. And the petri dish?

This is about the petri dish, which I just told you. But the serological pipette, as I said, that we are in the midst of acquiring certain technologies to perfect our product, and we are very, very confident of starting serological pipettes in Q1 of FY '23.

The next question is from the line of Saket Mehrotra from Tusk Investments.

Yes, am I audible?

Yes.

So one quick question on your numbers. What I can see is for the last 3 quarters, our EBITDA margins have actually been coming down. In the H1 business update that you guys had disclosed, we -- you guys have talked about the fact that this margin has gone from 46% to 52%. Whereas what I'm seeing is, for the last 3 quarters, our EBITDA margins have been consistently declining. So any reason for this? Is this -- is there some one-offs? Or how do we see this going forward on a sustainable basis?

Sure. I think, firstly, on a sustainable basis, we expect expanded EBITDA margins from what we achieved in FY '21. So to be on a higher level to FY '21 EBITDA margins there, there have been costs and inflationary pressures in terms of packaging materials, in terms of transportation and other things. Being a very, very strong brand with delivering trust is what our slogan says, we currently do not change prices mid-year unless there is an absolute necessity or need or if margins have gone completely haywire. So we generally change or reflect into newer prices on an annualized basis on contracts signed to customers domestically as well as internationally. So we will look into what our pricing is and where we can recover some of these margins on the new financial year, which is in FY '23. But I believe that the lowering of the EBITDA margin is passed down from -- it's more or less a fixed cost business. So the more we sell, the more margins we make. It's -- the costs are almost fixed. We do not hire more people when I say more reduced people in our sales are less. On the gross margin area, you would see certain fluctuation. That is only because, as I explained earlier, we came from 75%-25% in Q1 F1, to 67%-33% in Q2 F2 -- Q2 FY '22 to 59%-41%. So most of our international business has been clumped into Q3, which is ideally divided between Q1, Q2 would have shown more reasonable margin and not so much of a spike.

Okay. So which brings me to my second question, right? So is there -- what sort of -- is there some sort of saliency when it comes to, let's say, the sales that are coming because if I see the last 3 quarters and between September and December, we've seen a 7% decline in sales. So is a bulk of our revenues recognized towards Q4 in a financial year because we don't have the data for March '21. So just wanted to get a sense with respect to how, let's say, the saliency of our sales are when we compare it across 4 quarters.

March '21 data is basically the 9 year -- 9-months ended FY '21 minus the whole year revenue. But I believe that quarter 4 is always the strongest quarter for the company. And quarter 1 is always the slowest quarter because we are ending the year, and we are beginning the year at Q1. So all budgets and everything are being consumed in Q4. And Q1 is when new business strategy is formed. But I believe that we don't look at business from a quarter-by-quarter basis on Q2 and Q3. We'll look at more between Q3 of this year and Q3 of the previous year. Because Q3 in -- especially in West Bengal is a large festival, we have our internal festivals, which carry on for 10, 12 days. And by the time that ends, we have another festival which is Diwali. So a lot of -- there is not continuity of business and we lose about 2.5, 3 weeks of business out of the 12 weeks of Q3. So historically, we have seen Q2 and Q3 to be very, very similar to each other. And we do not see Q2 being a stronger quarter than Q3 because of the presence of the festival period in Q3. So we are not too worried about the de-growth that you see from Q2 to Q3. We are looking at more from a Q3 '22 to Q3 '21 perspective.

And just to add, if you see the Q4 number of last year, that was INR 67 crores. That was much higher in compared to Q3. So whatever we reported in Q3 this year, if you see the -- if you follow the same thing, then Q4 numbers would be better.

And probably the last year Q3 numbers were looking stronger because it came from a very muted 2 quarters because the country was almost under full lock down. But this year, we came into Q3 with a very strong Q1 and Q2. So it was not really an apple-to-apple or a like-for-like comparison.

Okay. Final question. Can you throw any color on, let's say, what sort of capacity utilization you are operating at now? Because I heard you say that there were constraints with respect to supply, your orders were not being able to be met because of, let's say, supply side issues. So that's one. And two, while I understand you mentioned you typically take price hikes towards the starting of a new financial year. So did we see volume uptick in our international business compared to, let's say, last year? And how do you see that panning out in the future?

So I feel like it's very difficult to actually pinpoint, as I said earlier, on our capacity utilization because we are running 1,700-odd SKUs across 55, 60-odd machines. So although 20% to 25% of the lines are dedicated, the remainder, 65%, 70% are mixed lines, which can cater to various kinds of products and various kinds of molds. So we could be back ordered in 15% to 20% of our machineries, and we could have spare capacities in the remainder part of our machineries. But the need of the hour is on area where we are back ordered. So giving an accurate capacity utilization would not be possible because of the complexity of the same. And yes, we do change prices on an annual basis. And internationally, we see a good volume growth from our existing customers as well as constantly, we are looking into newer geographies and newer territories and adding on to newer customers as well as launching newer products in the international markets. So we see a very positive trend moving in the international markets. We believe that the domestic market has such a strong runway for growth that will be tough to break this 65:35, 67:33 ratio in the near- to medium-term future.

[Operator Instructions] The next question is from the line of Hardick Bora from Union Mutual Fund.

Congratulations on a good 9-month performance. So first question is actually on the gross margins. I know we've already discussed on the EBITDA level discussion. I just wanted to understand one thing, if you look at the gross margin for 3 months -- 3 quarters in financial year '22, it's much higher than what you reported for the previous financial year. So just what is the reason for this improvement? And why would it [indiscernible]

So we believe that the reason for this improvement is, is only the scale as well as more value-added products, products which are newer products which have slightly better margins than our existing product portfolio as they take over and as they increase their share in our overall basket, as well as increase in revenue of sterilized products. So as we see today, about 25% of our revenues comes from sterile products. We are going backward integrating, building a sterilization facility, and we believe most of our new CapEx expansion would be sterilized products. We believe this number could go to about half of our revenue. So I think a mix of these factors have led to better gross margins from the 70%, 73% level close to the higher 70s, touching 80% level.

Does that answer your question, Mr. Hardick? As there is no response from the line, we'll move to the next question, which is from the line of Jaiveer Shekhawat from AMBIT Capital.

Firstly, on your revenue growth. Would you have data on the split between the volume growth as well as the pricing growth on a Y-o-Y basis?

No, we do not have that data off hand, but we would assume that most of the revenue growth is from the volume growth with certain price changes which were made in FY '20, but not so much in FY '21.

And we have a 1,700 SKU splitting over 300 product segment. So -- and the price of the product is sometimes it is 10 paisas , sometimes it is INR 10,000. So we are not tracking our revenue on a volume basis, but if we not give the right picture, we are more tracking on a revenue basis.

Understood. Okay. So going ahead with the CapEx. I mean, could you specify how much you incurred on land for your facility in Amta? And what could be the incremental cost for setting up the sterilization facility there?

I think we have -- we purchased a 6-acre land in Amta. I think approximately the cost was INR 20 crores or INR 200,000,000 for the purchase of the land. There would be incremental costs to set up infrastructure, which is building and other utilities.

And what would be the quantum?

The quantum would be on our entire land and on our entire infrastructure in both Panchla plus Amta would be close to about INR 150 crores to INR 160 crores.

Understood. And if I can squeeze one more question. I wanted to understand about the OpEx especially that they have been on an elevated level over the last 2 quarters. I mean, what's the reason behind it? I think you alluded to it, but wanted some of granularity on that.

Could you just repeat your question, please?

So we see that the OpEx have remained -- the other expenses have remained at an elevated level over the last 2 quarters. So what was the exact reason behind those, so roughly passing almost about INR 14 crores in 2Q as well as in 3Q.

So I think I explained earlier as well that there has been an increase in packaging costs and paper has drastically increased in price. And we are package [indiscernible]. So we require a lot of packing to our products, especially high-quality packaging, which adheres to international standards for our domestic and international customers. So that is -- there's been a cost pressure on the packaging side as well as there is a cost pressure on the employee salaries side because, as you see, we have a very elaborate expansion and CapEx plan for the next 18-months. So we are trying to build teams ahead of time which will be able to execute these CapEx plans in the right manner, as well as build in-house R&D facilities, which we started with -- which we started for the first time in FY '20 and have been building up our R&D and research and development facilities. So I believe that over the next few quarters, these costs will start drying up and will be absorbed as our revenues and scale grows up. So whenever we start, when we go spending and start Amta, when we start Panchla, the cost ratio of the people to the [indiscernible] that place will take a few quarters to absorb because it is a new facility, which we are starting up and would not have the efficiencies what our current facilities will have. So since we are going planning such a large CapEx plan, we would need to invest a little ahead in time, and that is why we see pressure in the salary side and the reason we see pressures in the packaging side is because the packaging cost take off and the reason we see pressures in the transportation side is it is known that transportation and freight is at an all-time high. These are all factors which are industry-related factors not related to our company. We would look to address the same when we come to our next price revision, which is on the financial year FY '23.

And just to add, whenever we are talking about OpEx tracking, we always recommend to do the OpEx tracking and gross margin tracking on a annual basis. Because when you do that analysis a longer horizon, it gives the right picture. For example in Q3, our gross margin is 77.9%. In -- If you see the 9-month number, it's 79.7%. And 79.7% is phenomenal, right? So the objective is to see the picture, because quarter-to-quarter has a different [indiscernible], exports sales is there, [indiscernible] sales is there different product require different packaging. So the longer the period you take, the better will be the analysis.

And there are various factors then it gets complicated. So we are at 59%-41% this quarter. We were at 65%-35% or 67%-33%. The picture would be much different because the realization from domestic sales is higher than the realization from international sales. So at the same cost level, revenue could be higher and the margins would have looked a little better than what they will look today.

The next question is from the line of Sonal Gupta from L&T Mutual Fund.

Just on realization on exports is lower like you just mentioned. So that's because that's a net realization or after taking into account the freight costs and everything? Or is that the gross?

It's also on the gross level. On the EBITDA net level, the realization on exports is identical to domestic, if not slightly because our company has grown from about 5% domestic -- 5% international business to about 30%, 32% international business with expanded margins over the last 7- to 8-years. So it is on a gross level because the overhead cost of doing business internationally is a fraction of the overhead cost of doing business in India. In India, we are -- we work on a customer level. On the international business, we work on the importer level. And that is the major difference.

Right. No, and I'm just trying to understand the freight cost. And so all those costs are reflected on your P&L, right? The shipping cost...

Trade costs are borne by the customers. Trade costs are borne by the customers. The duties and custom duties and clearances are paid by the customers. But the products are priced in accordance with the comparative landscape taking into account the freight, the customs, the clearances as well as the importer margins.

So basically, it's a pass-through, but it will reflect on your P&L?

Absolutely, yes. It is basically priced to market. Like how we are priced to the market in India, we are priced to market internationally. The differences we produce in India, we sell in India, we work on the customer level. Internationally, we produce in India. We sell to an international country and we rely completely on the importer who is importing who is then passing it on to various channels to other distributors, sub-distributors before it reaches the customer. We do not have -- we have not set up shop internationally. We do not have subsidiaries and our own people on the ground like the way we have in India. So that -- this difference in cost leads to the difference in realization.

And in our financial statement, whatever revenue we are showing that including freight it has been netted off with the freight cost.

Okay. But then you were saying that the other expenses are higher because of higher freight expenses?

That is domestic freight. Not the international freight. We are talking about the international part at this moment.

Right, okay. So the international freight is not reflected in your...

It is net of the number on the invoice, which is our price to the product. Our price to the customer is either in euro or U.S. dollars.

Got it. So the freight and taxes will not be reflected, right, for international?

Because we are not -- the freight and taxes will be reflected when is, for example, we have a company in Germany for Tarsons GmBh. When Tarsons is the importer in that country, then you will have to account for the freight, the clearances and duties in that country. But today, we -- are our responsibility ceases once we ship the product out of our factory. So it's the responsibility of the importer and the importer is a separate entity [indiscernible] in our company. Hence, he looks into the account of freight of customs and duties but we must account for that in our pricing so that we are competitive in those markets and we can increase our market in those countries.

Got you. Got you. And just on an overall basis, I mean, just because there's clearly a lot of expansion plans, et cetera. But could you sort of indicate like what level of capacity -- because you're currently running an extremely tight capacity utilization or high utilization. So for FY '23 or FY '22, what sort of growth can you expect with the capacity expansion?

So I think we are looking to expand capacities in certain critical products in consumables as well as reusables via short-run capacity, we aspire to be close to a INR 500 crore company over calendar year FY '24, that is the aspiration we are working towards it as a company to achieve the same. And I believe that we will achieve a pretty strong growth over the next 2, 3 years to reach that number. And capacity, capacities will come into place in a phased out manner, so we should not believe that we will be out of capacities all through FY '22 only [indiscernible] commision of plant in FY '24 in the middle of FY '22 when the capacity has come into place. Capacities are coming in a phased manner. And as we have already pulled in INR 190 crores out of the planned INR 400 crore expansion, a lot of capacities have already started coming in place. So things will continuously improve till 18 months, and it will not be a onetime improvement at the end of 18 months.

Got it. So I mean like so roughly like you currently this y;ear would be INR 280 crores to INR 300 crores, that will go to INR 500 crores in the next 2 years, right?

That is what our estimation is by calendar year '24, yes.

Calendar year '24?

Yes.

Okay. And just lastly, what is the CapEx expected for this year and next year?

I think we -- it would depend on the product lines and how quickly the product lines and how quickly our automation partners and tool partners and mobile partners are be able to prepare our products and ship it to us because the CapEx plan is INR 400 crores to INR 410 crores, which you've already explained. But globally, just like there are issues in supply chain, there are issues in various parameters such as automation, a lot of parts which are required for automation. So it moves -- if you pay a certain advanced portion and then you pay the remainder on FAT Testing, so the entire CapEx will be consumed in the next 18 months, what we have planned. But to give you identical numbers and to give you identical time lines as to how the move -- will depend a lot on how our on how our molds, machines and other various instruments are produced and prepared and sent by our vendors from across the world. In terms of the infrastructure, the land has already been purchased and the infrastructure would move more on a monthly installment basis till the end. So it would be about another 16- to 18-months of equal installments of the amount of money which is led to build up the infrastructure for both our facilities.

So I mean, like because where I'm coming from is like you said INR 190 crores is already being paid. Out of this INR 190 crores being paid, how much is paid until FY '21 itself?

FY '21, we paid INR 160 crores.

So, okay. So basically, then you are left with INR 240 crores to be spent this year and next year?

Yes. Out of that, we already have a INR 50 crore earmarked in the -- for the Panchla. So remaining, we will fund from our internal.

The next question is from the line of [ Rushil ] from Pioneer Wealth Management.

Sir, my question was that since CRO and CMO and Diagnostics segment, which are more of quality conscious and there's a stickiness of the customers are not much of price sensitive in nature. So since we have a global competitors who might have upper hand. So like what is our strategy to increase share in that segment and how we compare against those strong global brands?

I think our numbers, based on our numbers, we are one of the leading players in India, and we have done this exercise over the last 10 to 15 years to build a very, very strong and reliable brand, which is probably the -- one of the most accepted brands in the country. And we believe now is the opportunity for us to add to our product basket by adding new products and increasing our wallet share with customers.

So can you guide like how much revenue comes from the CRO and CMO segment and Diagnostic segment? Do we track that?

We cannot track that because we work through distribution partners and our point of sale is distributors, but we assume that Diagnostics should account for about 22%, 23% of our total revenue.

And sir, since this, these are like more of customer stickiness and quality is like utmost priority, so how much time it takes to convert the customer since because the process will be like once we do it on [indiscernible] basis, then there will be approval, quality department approval and all. So how much time it takes? What is the lead time basically for those products to convert the customer?

I think for newer companies, it is a very, very long lead time because most of these companies are resistant to change. As you've said, they have a very high precedence on quality, but we are an established brand into most of the large customers available in the country. And hence, as I said earlier, we are just looking to add to our wallet share with these customers. We are already an approved and reliable brand for most of these customers in Diagnostics and CROs.

And sir, just on some products, like -- the -- like where price some product might be price sensitive and some might be not price sensitive. So like how do we balance that? Like are there any products where the volume growth plays out, but there is no pricing power, but there are something like where pricing power is there, but not much volume growth?

I think it's a mix. And we approach the market based on the product, based on the competitive pressures of the product. And we approach on a product-by-product basis. There could be certain products where the competitive pressures are very, very high and -- but the volumes are there, and we act accordingly. So it's a mix of everything. And what we see as -- on our numbers is a culmination of high margin, middle-margin low-margin products, everything put together.

And sir, can you name those products, which are of low margin or like where volume growth plays a lot?

I think standard products like beakers and measuring cylinders, which are a little less critical as compared to products like PCR, liquid handling, centrifuge ware. So I think the standard laboratory products and having standard applications would have a slightly lower margin as compared to a little more critical products such as PCR, liquid handling, centrifuge wage, cryogenics.

[Operator Instructions] The next question is from the line of Anuj Jain from ValueQuest.

I had couple of queries. First, out of INR 216 crores of revenues, which we have done in first 9-months, what is -- what are the COVID-related revenues?

I believe it is towards the late single digits as we have not experienced a lot of COVID revenue in this financial year. Most of the COVID revenue came on the last financial year and towards the beginning or the first 2- to 3-months or the first quarter of this financial year. In the last 2 quarters, we have seen COVID revenue weaning off very, very strongly, and it is more of regular revenues to regular customers.

Understood. And for these like late single-digit revenues, what kind of margins were there? Like versus -- like abnormally high or low? Or what kind of margins which you can share?

See, we don't have a very large spike. I don't believe we have a very large spike where there is a big difference between margins. But we could expect certain products in the PCR categories having most [indiscernible] margins to standard products. But on an overall basis, I do not see much of a margin difference between COVID and non-COVID sales.

Understood. And sir, second -- my second question is more from the long-term strategy. As you have touched upon that, we have the aspiration to reach around INR 500 crores by calendar year FY '24 -- or calendar year '23.

That's right.

Like in the next 2 to 3 years, what kind of margins we can expect at EBITDA and PAT level?

So if we look at -- on a gross level, see, as we said we have fixed cost company, and everything flows down from the gross margin level. I think we've always remained in the area of 70% to 73% gross margin. But we believe that with new product lines, new value-added products as well as capacity expansions and increase in our ratio of sterilized products, we believe in fact, we can have sustainable gross level margins of mid- to high 70%.

And at an EBITDA level?

I think we would -- as you can see, our current EBITDA levels of about closer to the 50% mark on the late 40s is what we aspire to be, towards the late 40s touching 50%.

Understood. Understood. So basically, like around similar margins, which we are doing and earlier expecting to clock around INR 500 crores in next 3 years, right?

Absolutely because we agree that there are a lot of cost inputs that we are putting today into the company would actually ion out as our company grows in scale and size, and we are very confident about this.

The next question is from the line of Vivek Gautam from GS Investment.

Sir, is that our business a commodity business or a branded business because -- are we able to pass on the prices because of our margins, EBITDA margins, net profit margins are coming down?

Sorry to interrupt you. Mr. Vivek Gautam, your voice is not audible.

Yes, is this better?

Yes.

Yes. So our business, is it a branded business? Or is it a commodity business because -- and are we able to pass on the price? We have the pricing power because our EBITDA margin or our net profit margins are all coming down.

I believe -- I don't know whether -- I'm not really sure about the question about branded or commodity business. But what I can tell you is that we are priced to the market. And we price ourselves against the very best in the market from multinational corporations to very stable competition from within the country. And it's a common practice in our industry to change prices or review prices on an annualized basis and not from a month-to-month or a day-to-day or a week-to-week basis because that is not what the industry trend is. So unless something drastic goes on where margins go upside down with a 50%, 60%, 70% change in margin where you cannot sustain, we generally do not adhere to moving into midyear price changes. That has not been a norm for the company or for the industry.

Second thing is about the geographical risk our company has because you started out from Kolkata. Agreed, but it is in one corner of India, and the transportation cost, I believe, are quite high versus a bulky item. So no -- again we are bringing to West Bengal only, doesn't that put us at a certain disadvantages plus also the work culture with too many holidays, as you just mentioned in the third quarter? So any class of diversification geographically?

We actually work through the standard culture all across India, which is the fixed number of holidays, which is also observed in West Bengal. We believe that our know-how and technology lies in West Bengal and we would not like to spread that out across the country. We would like to keep that know-how in technology among our key people in West Bengal. And I don't see any reduction in margins. I think we are probably the most profitable labware company in the country.

And just to add to...

Actually I'm talking about transportation-- that is also...

Yes. But I think the transportation cost is faced by other companies as well. And in terms of margins, after paying such transportation costs from Kolkata, we turn out to be one of the most profitable companies in the country in term in the plastic labware segment.

And we follow a centralized effort. We have all the factory, all the warehouse in one place, so we are getting the leverage of that. And secondly, our [indiscernible] cost is not more than 5% of our top line. So it will not make much difference. Because and second thing is that, we are also building a sterilization plant. So you cannot have this sterilization plant in different parts of the country. right? So is this business model is [indiscernible] a centralized.

What a little bit think about the opportunity side, CAGR and ROE you expect in the future, sir?

So I think the opportunity size is -- we've already given you what we aspire to become over the next 2, 2.5 years by 2024, a INR 500 crore company. I think the margins have also been told in the last question where we and where we will work towards the margins. And we expect the ROE levels to be at similar levels to what it is currently today.

The next question is from the line of Nikhil Choudhary from Quest BMS.

Am I audible?

Yes, sir. Right now, now you are. Yes.

Congrats on good 9-month and 9 month numbers. So just one question, I wanted to understand since the proportion of our [indiscernible] cost, the value addition in the end product of our [indiscernible] is quite small. So costs cannot be the factor for the customers switching to us from [indiscernible] . And so I wanted to understand what actually triggers our entry into the customer base of the global [indiscernible], is it a new product? Or is it something else that's factors into the new customer addition? Just wanted to understand that.

So as you rightly said, the cost component is smaller, so customers are very, very sticky. So actually, we've done the hard part over the last 1.5, 2 decades. We spent a lot of time, effort, resources on branding, marketing ourselves and actually building a very, very high-quality, robust and reliable product, which customers have trusted as their choice of supply for their research, testing and production needs. So being a preferred supplier for these product lines, we are in a very, very strong position to leverage our other strength and add new products and increase our product portfolio or wallet share with these customers.

Understand, sir, but I was just trying to understand both from the point of view of inertia where the customer has already business from the thermofisher that is already providing what actually preserved our entry into the customer like -- new customer addition. I understand a little on the price point...

I think you -- what I'm trying to explain to you is the customers are same, we are not trying to enter into new customers. We have the existing customers. We have to enter and get a larger wallet share with those customers. And we have launched various products over the last 10 years. And since we do not see much of a struggle to enter with newer products when we already have strong established relationships with these customers as long as our product is delivering the quality and the reliability and the consistency what we are promising. Since we have a brand which is well accepted, we have to just deliver the quality what we are promising. As long as we do that, we get the entry.

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Rohan Sehgal for closing comments.

I would like to take this opportunity to thank everyone for joining the call. We will keep updating the investor community on a regular basis of incremental updates on your company. I hope we have been able to address all your queries. For any further information, kindly get in touch with me or Strategic Growth Advisers, our Investor Relation advisers. Thank you once again, and stay safe.

Thank you. On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us, and you may now disconnect.