Tatva Chintan Pharma Chem Limited (TATVA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Tatva Chintan Pharma Chem Limited Q3 FY '25 Results Conference Call hosted by ICICI Securities. [Operator Instructions] I now hand the conference over to Mr. Sanjesh from ICICI Securities. Thank you, and over to you.

Thanks, Sima. Good evening, everyone. Thank you for joining on for Tatva Chintan Pharma Chem Limited Q3 FY '25 Results Conference Call. We have Tatva Chintan management on the call represented by Mr. Chintan Shah, Managing Director; Mr. Ashok Bothra, Chief Financial Officer; Mr. Ajesh Pillai, Investor Relations. I would like to invite Mr. Dinesh Sodani, AGM Finance, to initiate with the opening remarks, post which we will have a Q&A session. Over to you, Dinesh Ji.

Thank you, Sanjeshji. Good evening, everyone. On behalf of the management, I am pleased to welcome all of you to Tatva Chintan's results conference call to discuss financial results of the quarter and 9 months ended December 2024. Please note that a copy of all the earnings calls-related disclosure is available on both the stock exchanges, that is NSE and BSE. Any statement made or discussed during this call, which reflects our outlook for the future or which could be construed as a forward-looking statement, must be reviewed in conjunction with the risk that the company faces. A detailed disclaimer in this regard has been included in the investor presentation that has been shared on both the stock exchanges, that is NSE and BSE. Now I will hand over the call to our Investor Relations Officer, Mr. Ajesh Pillai, for his opening remarks. Over to you, Ajeshji.

Thank you, Dinesh Ji. Good evening, everyone. It is a pleasure to welcome all of you to quarter 3 earnings call of the Tatva Chintan Pharma Chem Limited. Today, I'm honored to share the company's financial results, which have been made available on the stock exchanges and our company's website. I'll walk you through the key performance in the metrics and highlights for this quarter. In quarter 3 financial year 2025, Tatva Chintan achieved revenue from operations of INR 859 million, reflecting a 2% year-on-year growth and a 3% growth quarter-on-quarter. The EBITDA for the quarter stood at INR 71 million, which represents 36% decline year-on-year but a 26% increase compared to the previous quarter. Now breaking down our performance across product segments, starting with Phase Transfer Catalyst. This segment delivered a quarterly revenue of INR 295 million, achieving a 7% growth quarter-on-quarter, an impressive 19% growth year-on-year. Electrolyte Salts. This segment reported a quarterly revenue of INR 25 million, showcasing a 101% quarter-on-quarter increase and an outstanding 113% year-on-year growth. Coming to Pharma & Agrochemical Intermediates and Specialty Chemicals. This segment continues its positive trajectory with a quarterly revenue of INR 298 million, marking a 10% increase quarter-on-quarter and then 18% growth year-on-year. Coming to Structure Directing Agents. The segment recorded a quarterly revenue of INR 230 million, reflecting 15% quarter-on-quarter degrowth and 29% year-on-year decline. I'll now hand over the call to our respective Managing Director, who will provide you further insights into the company's strategic direction and business outlook. Thank you. Over to you, sir.

Thank you, Ajesh. Good evening, everyone. This is Chintan Shah. It is an absolute pleasure to welcome you to our first earnings call of the calendar year 2025. As we step into this promising new year, I'm confident that we will finally reap the rewards of the hard work, persistence and resilience that have defined our efforts over the past few quarters. Overall, the market situation continues to remain subdued in terms of demand but we are beginning to see a faint sense of improvement in the market. Talking to various customers, the general feeling is that the industry as a whole seems to have begun the path to recovery. While we may not have completely left the challenges of the past behind, there are encouraging signs pointing towards better business prospects over the coming quarters. Raw material prices have shown relative stability and sea freights also have moderated. What is particularly encouraging about Tatva Chintan is the strong position and deep inroads we have made in various segments where we are present. We are poised to commercialize a few products this year, with the necessary infrastructure already in place to support these efforts. Now let me give you a development in various segments that has taken place. Phase Transfer Catalyst, PTCs. We have successfully onboarded 2 new MNC customers. The commercial business with both these customers have begun as on date. The business will ramp up with both these customers over the coming quarters. Both these customers have potential to give us a decent volume for business on PTCs. Overall, we continue to maintain a steady level of business in this segment, ensuring both growth and stability. Structure Directing Agents, SDAs. Owing to the continued weak demand in the Chinese market for heavy-duty commercial vehicles, the demand for SDAs continued to remain subdued during the quarter. Recently, our customers have started indicating about the early signs of improving demand. The first 2 customers with whom we got approval in 2024 have started uptake of the products on a regular basis. And now we are seeing a gradual increase in the volumes from Tatva Chintan as we continue to build the level of confidence with that. The other 2 large customers with whom we got approval in 2024 for various applications are now ready to begin actual commercial supplies from us from April 2025. Currently, we are discussing the modus operandi in terms of logistics and warehousing of our products to ensure smooth and continued supply at their multiple global locations. The implementation of Euro 7 norms, which is very much on track, and we are very sure of improving demand for SDAs to begin within a couple of quarters. Electrolyte Salts. The demand from customers for electrolytes used in energy storage devices is beginning to gain momentum. This upward trend is expected to continue in the coming quarters, further solidifying our position in this growing market. Additionally, the qualification process with a key customer involved in manufacturing batteries for hybrid cars is also progressing very well, marking a significant milestone in this segment. With encouraging results of our electrolyte formulation, from lab scale, the customer has now requested to scale up the formulation to pilot scale. We expect to run the scale-up at pilot level by the month of April. This is a very exciting development for us, which can lead us to a very unique position wherein we make the salt ourselves and also able to formulate the electrolyte ourselves. This will give us a unique competitive advantage and a potential to significantly increase our presence in the segment of energy storage. PASC. The approval process of the planned scale material for 2 large agro intermediates is progressing smoothly. We expect to get final clearance within the current quarter. Post-approval, the commercialization should begin immediately. We meet the forecasted demand of these new agro products, we are constructing the new plant on the existing Dahej site. We expect the plant to be ready for production in Q4 of FY '26. These products hold good potential and are poised to make a noticeable impact on the company's revenue. Finally, all the 4 agro intermediates, which we were under approval basis, will see commercialization happening during the current year. We have concluded R&D and optimization of a new agro intermediate having good potential in the domestic market. This will be slowly commercialized within this financial year but the full-scale commercialization will be possible from our future upcoming greenfield project at Jolva. We have also concluded R&D activities on a very large potential agro intermediate. We are now working on backward, integrating the key raw materials to make it competitive globally. This product is involving electrolysis, continuous flow chemistries and conventional chemistry. The R&D samples have already been approved by one large Indian agrochemical customer, which has given us validation about achieving the quality, matching at par with global suppliers. In this case as well, the commercialization will be possible from our future greenfield project at Jolva site. In respect to pharma intermediates, 3 products have been formally approved and we expect gradual commercialization to begin from end of '25 or early '26. The fourth product has taken up in the approval process. Commercialization is expected to happen by end of next calendar year. The trials of monoglyme will begin at a 100 kg catalyst level as we have received the necessary cooling systems for this machinery. We are also expecting the final equipment to be -- to handle 1,000 kgs of catalysts to be delivered by the end of March. Installation and commercialization are projected to be completed by June '25, marking a key milestone in our operational expansion. Flame retardants. We are set to begin the first commercial supply to the customer in current quarter. The situation in terms of pricing continues to remain a big challenge. We are keeping a very close look on the market condition. So besides this first customer with whom we have certain pricing mechanisms, we will fully commercialize this product only at the right time. Only then -- until then, we continue to deploy our R&D resources in building a product portfolio of flame retardants. In addition to these developments, we are pleased to inform you that after completing the necessary checks, we successfully started our distillation plant in January. This new facility will significantly ease production capacities to manufacture some of our major products. Our focus is on development of products for use in semiconductor and electronics industry, which will become our growth engine after 3 years. We have made significant headway in coming close to the ultra-high purity quality requirements. We continue to work hard in this direction. In these turbulent times, the strength that has kept us resilient and afloat has been our unwavering R&D capabilities. Our consistent investment in R&D has not only borne fruitful results but has also enabled us to navigate challenges with confidence throughout our journey. Our vision for the future, which is deeply embedded in the projects we undertake in R&D, which boasts a robust pipeline of high-value products with immense business potential. The innovative approach we apply to every product we develop underscores our commitment to growth and sustainability. As a team, we strive to remain future-ready, tackling obstacles with meticulous preparations and determination. The resilience demonstrated by our team, investors and other stakeholders is a true measure of our company's strength, and it continues to propel us towards a brighter future. Thank you. I will now hand over the proceedings to our CFO, Mr. Ashok Bothra.

Thank you, sir, and good evening to everyone present on our call today. The financial highlights for the current quarter Q3 FY '25 versus Q3 FY '24 are as below. Revenue from operations is INR 859 million versus INR 842 million in Q3 FY '24. EBITDA is at INR 71 million versus INR 110 million in Q3 FY '24. EBITDA margins are at 8.2% in Q3 FY '25. Lower margin is due to the increase in COGS and other expenses by 4% and 1%, respectively, y-o-Y basis. PAT is at INR 1.4 million versus INR 35 million in Q3 FY '24. PAT margins are at 0.2% versus 4.1% in the same period previous year. During Q3 FY '24 -- '25, exports stood at INR 528 million, that is 61% of the revenue. The financial highlights for 9 months FY '25 versus 9 months FY '24 are as below. Revenue from operations are at INR 2,749 million versus INR 2,952 million in 9 months FY '24. EBITDA is at INR 256 million versus INR 526 million in 9 months FY '24. EBITDA margins are at 9.3% in 9 months FY '25. Lower margin is due to increase in COGS and other expenses by 6.4% and 1.6%, respectively. PAT is at INR 47 million versus INR 207 million. PAT margins are at 1.7% versus 7% in the same period previous year. That concludes an update on the financial highlights of the company. I shall request the -- I shall now request the moderator to open the floor for question and answer.

[Operator Instructions] The first question is from the line of Nirali Gopani from Unique PMS.

Sir Chintan, you have given a fair picture on the demand side of our products. But how has been the pricing over the last quarter? Have we seen further negative impact on the pricing also? Or they have fairly stabilized for our finished goods?

On the pricing, not fairly but I would say almost stabilized. So now we are not seeing any kind of downward revision to pricing. In fact, certain key raw materials, we are also seeing a bit of uptick in the pricing happening. So price stability is now very much there. We don't see any further erosion in terms of pricing.

All right. And particularly on the SDA side, do we see any change in the competitive intensity also among the competitors because of the low demand? Or once there is -- the demand bounces back, we should see the older realization when it comes to SDA?

So -- no. So there is no internal competition between us to competitors. So the division of business is quite practical that has happened depending on what volumes we share between us. So we are not trying to undercut prices to get more business. It is -- as soon as the demand starts kicking in, and there are very clear indications from customers that they are seeing some early signs of demand recovery happening. And they have also asked us to remain ready if there is a sudden surge in volume requirements and we should be a little bit ready to cater to those kinds of demand. So the positive signs are very much there in place since January. Beginning of January, we are seeing that indications coming in from the customers. So as soon as the volume and the demand kicks in, we will definitely see a systematic uptick in the numbers from SDAs.

Right. So if I understand correctly, the raw material prices have stabilized to some extent. And we have also consumed our high-cost inventory. So now the only thing that we are waiting for is some -- the growth on the demand side, right? So as soon as we see that we should see improvement in our numbers, and there will be no other negative surprise, except for the demand?

Absolutely. See -- even if you see these numbers, then our raw material consumption, if I'm not wrong, has been in the range of 44%, 45%, vis-a-vis the sales. So the numbers in terms of -- actually speaking, the COGS numbers are very healthy. So now the question is the cost -- the overall operational cost, which is being distributed over lower numbers. So as soon as the volumes start picking up, the margins automatically will show a very healthy growth.

Perfect. And just last question. So given the prices that are there today, what is the peak revenue that we can do from our total capacity, the older plant and the new plant?

These numbers are drastically changing. So we are also building up a new plant, as I said, which will become -- we expect it to become operational by January of 2026. So we expect our plant to be almost fully occupied by somewhere around June or July of this year, the existing plant. And then we'll definitely need this new plant for future growth. The only issue is the reactor side of the plant becomes fully operational and fully occupied. The problem is still we have the electrolysis part -- the assembly part of the plant where we make the SDAs. That still has very low occupancy. So as soon as this occupancy is fulfilled, then we definitely have the chances to make a revenue -- cross our revenue of more than INR 900 crores with the existing and upcoming capacities. And we are looking at the lowest numbers in terms of raw material cost and the product cost. So right now, we are at the bottom of the cycle in terms of pricing also. So all the finished product prices or even the raw material prices are nearly at their -- at least historic bottom is what I can use the word over the last decade. That is the situation.

Right. And lastly, on the flame retardant, if I'm not wrong, we were supposed to ship the product in Q3. And you mentioned now that has shifted to Q4. So any particular reason for this delay? And how confident are we that this shipment will happen in Q4?

No, that is right. The delay has happened because of a special packaging material requirement that the customer came up with. So they have a very specific design of the big bags under which they want this product to be shipped. Typically, what we get in India is completely different than what demand they had eventually made after placing the order. So we had to import this special packaging from Germany. And that is what has caused this delay of about 4 weeks in terms of shipment. We are ready with the product. The jumbo bags, the big bags have just arrived. So now we are making arrangements to get dispatching the product.

[Operator Instructions] We take the next question from the line of Sanjesh from ICICI Securities.

I got three of them. First, on the PTC side, you said we have added 2 new customers. Are they the same product what we are selling? And these are new customers or these new products and new customers?

No, both are the existing products, which we are selling. But these are for the new applications, which they have now started using Phase Transfer Catalyst. So customer is -- are -- both the customers are a very well-known global companies, and this is a new application of Phase Transfer Catalyst that has come in. And that is where we got this approval for our product. And we have actually started shipping out the product in current quarter, the dispatches have been made. And now again, the challenge is these are all multi-locational -- global multi-location is where we have to deliver the product for them. So we are figuring out which would be the best warehousing location where we can store the bulk cargo, how to manage this logistic cost. So we are working very closely with the customer at this stage. This is a very exciting and large volume business that we are looking at. So probably the largest Phase Transfer Catalyst business that we have added in the last 3 years, I can say.

Got it. When you say new application, it is non-agro, non-pharma? Or is it in agro, pharma...

Yes. No, no, it's not agro, pharma, no. Yes, correct.

So what is the application we are looking here?

This is basically getting into some kind of specialty polymer. And this is -- theoretically speaking, if I can just largely say it is kind of a recyclable plastic application where they are using.

Okay. And this should add a material revenue going into FY '26?

Yes. Definitely, yes, because this is definitely a very large-volume business. Of course, it will take at least 6, 7, 8 months to stabilize the business with them, taking care of all these logistic arrangements, making the contracts with them, suitability of the product at their multi-locations globally. So all those things will take at least 6, 7 months to stabilize. But after that, this is definitely a quite significant jump in the Phase Transfer Catalyst business.

And where were they buying this earlier then?

It's a new application. So this is what -- now it is kicked in.

Okay. Okay. So you're not replacing anybody?

We are also stabilizing with the product -- no, no. So we are not replacing anybody. This is just a generation of new business.

Okay. Got it. On the SDA side, you did mention that there is an early sign of revival. It is more restocking or you're seeing that end market itself reviving. In China, we also had an issue towards -- going towards the engine. How do you see SDA from here?

SDA, see, I talked to both my very large 2 customers, and both have indicated that we prepare for the uptick. We are seeing very encouraging signs coming in from the end-use customers, seeing demand uptick in terms of IC engines and hybrid engines. So this is where they feel that the demand has started to pick up. And also China is also gradually -- very slowly, it has started to ramp up in terms of demand. So this is the reason why they have already indicated that they will be ready if there are any surprise shipments to be made. So we are also geared up. We already are sitting on inventory. That's not an issue. But this is an indication that is coming from both the large customers.

Got it. Got it. And on the Electrolyte Salt, this quarter, we did see a material jump. Is it a lumpy product? Or do you see this number scaling up now that the client has commercialized their product?

It will smoothen out from April. So dispatch is beginning from April, it will definitely smoothen out in terms of consistent sales that is happening. So this is what is the customer indicated that now their production lines have stabilized. They are now able to ramp up their production the way they wanted to see it. So they are coming to a point where they will now see a very regular consistent demand for the products.

And now that there is a new administration in the U.S. and all, do you see risk to your electronic salt business?

No. So this is -- probably the announcements that have been recently made in terms of their drastic shift in terms of policy, moving slightly away from the EV thing. It might indirectly benefit us in some way but still time will tell what will happen. So it's not going to be a negative impact for the business. In theory, it's going to be a positive impact on our business.

So why a positive impact?

They are discouraging the use of EV, and this will have a positive impact on the business of SDAs.

Okay. Put it that way. Got it. Got it. And on the PASC, it's been 2 years, we are talking about the product development approval and all. Are we confident that in CY '25, we should be launching products? And how many products do you see starting up in first half of CY '25?

All 4 products are being commercialized. So 2 are already seeing the commercialization. We are working on their [ POs, ] production is happening. And the 2 -- which are the 2 -- the largest products that we have, we'll definitely see shipments, regular shipments rolling out from April or May of this year. So all 4 agro products definitely getting into full-scale commercialization from this year.

And we were also...

This year, 2025.

Yes. We were also working on the photochlorination. Where we are in terms of photochlorination approval cycle?

So that also we are through. So that is -- now we will see consistent shipments rolling out again from April or May of this year.

Commercial?

That application -- yes, yes. Now it is getting into the commercial mode. So approvals are in place now. So we have to start execution. So we are actually having the customer visit us in end of February for the discussions in terms of contract beginning from April of this year.

So supplies will start from April '25?

Yes. We'll have to start shipments from April of this year. Yes.

And any update on the polymer business?

So this will be recorded in sales because this will be abroad. So this is getting into exports. Of course, it will be recorded in sales of our subsidiary. So in terms of numbers, it will reflect after 2 months.

Got it. Got it. And on the polymer side, you didn't comment to it. Where are we in the polymer side? We were trying to do there also.

Plant trial is -- plant trial has went well. So it's just getting into final quality checks and packaging. So we'll make the first shipment probably by mid of February. So that will be the first rollout. And then we have to wait with the kind of feedback we get from the customer in terms of approvals. As soon as approvals are there, which should not take very long time. These are not very tedious on [indiscernible] approvals. So it should not take more than a few weeks for them to approve the product. And once the approval is in place, then we have to start commercializing the process.

Got it. And last on the...

In terms of development, in terms of piloting and scaling up to plug, now everything is through. So we are executing our first [indiscernible] system pilot for validation of the product.

Got it. Got it. And you said that the distillation column or the distillation plant is ready. So how much capacity should...

It is now operational.

So how much capacity should it free up in the actual plant or reactor capacity? How much reactor capacity should be free up?

I would not have the exact number, but I think it should give us at least 12% to 15% of free space in the plant.

12% to 15% more space.

At least. Yes.

Okay. Got it. Got it. And you said that we will...

And besides distillation of recovery of solvents, this plant -- so the new agro products that we are launching. So one is on the photochlorination side, one is the other large agro product. So both of these products eventually also -- the product also needs a distillation, high-column distillation. So this old plant is not only about solvent recovery. So part of it is solvent recovery and reuse and part is also product distillation.

And you said that by June, July, you may run the plant at full utilization. Any plan in terms of optimizing...

Both these -- sorry, in terms of optimizing?

Do we have any mechanism to optimize and increase the revenue despite plant running fully?

So we are working on -- so basically, we have created a team, which we call it as process excellence. And this team identifies which could be the potential bottlenecks, which is removed. With some minor investments, it can boost up the productivity. Also, if they find anything which needs to be done in terms of process, where we can optimize the time of reactions. So these are the aspects on which now we have a dedicated team, which works on these aspects to bring about. So that is our -- we know the plant is going to be almost 100% occupied. So what are the means and ways how we can optimize the process. So we are working on that.

One last question...

It has been always a very continuous activity at Tatva Chintan all the time, all the years in terms of optimization of processes. So there may not be a very large scope, that is what I believe. But whatever best we can do, we can -- we are trying to optimize that.

Got it. One last question, Chintan bhai, from my side. On the gross profit side, now that SDA contribution will structurally decline with PASC, all the products kicking in and polymer and all other flame retardant and all, where do you think your gross profit margin or material margin stabilizing? We are at 52% now, where majority is coming from PTC, 35% is PTC. PTC will also fall. SDA will also fall. Where should we see gross profit margin stabilizing for us? What do you term as gross profit margin?

Sales minus...

Sales minus COGS.

Fairly between 45 -- roughly in the range of 45%, I would say.

Okay. Because we are doing 52 now. Do you think it will be dilutive for us, all these new products?

Yes. Because these new launches, what the agro products we have is more so in terms of technology and lengthy processes. So in terms of raw material consumption, these are a better contributor. They require larger CapEx. So your -- so basically, in Phase Transfer Catalyst, let us say, we can make about 3x in terms of what I invest and what I can generate in revenue, whereas in these large products, your CapEx is almost 1, 1.2 kind of a thing. So again...

So you're actually telling me what? You're telling that the raw material costs will be lower?

Will be lower.

Okay. Okay. The margins will be higher is what you are telling me?

The gross margins, as you term it, it is higher. Yes.

[Operator Instructions] We take the next question from the line of Jay Vagasia, an Individual Investor.

So my first question is regarding -- you mentioned in the investor presentation regarding materials for semiconductor. So one of our SDA, that is tetramethylammonium hydroxide, TMAH, which is used in photolithographic process. So are we now -- is it the same substrate that you mentioned in the investor presentation? Are we going for high purity levels of free substance or...

Theoretically speaking, one of the product is the same product, what you are talking of. But the quality, what we are talking in terms of SDAs and what terms in the semiconductor applications are starkly different. So what we offer in SDAs is with a limiting factor of trace metals below 5 PPM, parts per million levels. And now when we talk of offering this same product into a semiconductor-grade product, it has to qualify with all trace metals below 1 part per billion, 1 PPB level. So this way away. So today -- as of today, if you ask me, honestly, we are still in the range of about 38 to 60 PPB when it comes to the final product. So probably it is still 4 months, 6 months away. So we have gradually brought this down from 5 PPM levels to 50, 60 PPB levels. Sometimes we have also recorded numbers like 30 PPB but we have to bring it down to 1 PPB. So every direction, each and everything has to be controlled in such a way, so you are basically working in a dusty environment. The air quality, what we are looking at and generally speaking, in India is not so good. So first is purification of the ambient air where you want to make this product. Your water quality has to be -- because a lot of these things are solutions in water. So your water has to be purer than less than 1 PPB level, then only you can use it for the process. So all those things have been gradually, slowly, steadily have been achieved. So now we have a water, which is super-high purity water, which is sufficiently pure to be used for the processes and for the cleaning. And we have also overcome the biggest challenge in terms of establishing analytics to test something below 1 PPB level. So we are talking of anything below 1 PPB, you are talking of PPT levels, parts per trillion levels. Citigroup Inc. things are now in place. So cross fingers, I hope we should be able to crack it within the next 4 to 6 months' time. We have identified 3 or 4 places of correction where we feel that these are the potential points of contamination, which are leading to the slightly higher numbers than what we have actually wanting. So we are gradually one after another attacking at those points, rectifying them and we are gradually improving on our numbers. So if this works through, probably we will be the first company in India to have qualified for these grades of high-purity semiconductor material.

Right. And if we are able to achieve these levels of below 1 PPB, I think the demand side of this would be much more than [ HP ], right, and with pretty good margins?

Very large. It's a very large demand. Yes, you are right.

Okay. And we have guided for -- regarding PASC segment, we have guided for next year's revenue of at least INR 80 crores to INR 100 crores. So what would be the EBITDA margin that we can aim for that?

EBITDA margin is -- as such, if you realistically see the EBITDA margins, if you cover the plant as a fully occupational plant, the EBITDA margins are already healthy. So basically, your raw material consumption factor is already very good. So what you need is the volumes to hit in, and which now we are very confident we'll start hitting those numbers from May of this year. So EBITDA margin definitely will start becoming much healthier.

Okay. And Chintan, my last question is, in last quarter, we had a pretty fair amount of around INR 10 crores of goods in transit. So you said there will be around INR 5 crores of EBITDA that would be added in this quarter but still we are flat on Q-o-Q basis. So are the lead times still high? You have much more goods in transit? Or have you...

So end of last quarter was about INR 10 crores, INR 11 crores in transit. Even in this quarter, the transit amount is roughly the same, about INR 11 crores. And this -- basically, the transit amount has start -- has kept at this level, potentially because of the very long transit times that we are seeing. So bringing something into U.S. warehouse is now typically taking 8 to 9 weeks. And even Europe, which is only half the distance, now it is taking about 7 to 8 weeks to bring the product into the European warehouse. And this is what is keeping a lot of material in transit on water. So just today, I have been informed that there has been some respite in terms of the Red Sea route being opened up. So we expect probably within next 2, 3 weeks, see that potentially the European route will, again, start operating from the Red Sea channel. So let's hope if it works out, then again, we are down with the inventory levels that will carry on water.

Okay. And Chintan bhai, just a broader question. If all -- if we consider the last 2 to 3 years, what has hit us is actually cyclicality in auto segment as well as some volatility in raw material prices. But if you look, auto segment is always cyclical. And more so, the heavy commercial vehicles are even more cyclical. So going forward, should we expect this cyclicality of business in SDA to continue? Or do you think we can have some other applications like we are discussing the semiconductors would eventually, we would be able to nullify the effect of cyclicality? Your thoughts about it?

On SDAs, you are -- so we introduced -- we actually started understanding and knowing the auto industry part probably from 2018, 2019, when we actually started commercially selling the SDAs. So that's when we actually had this first look into how the auto industry functions. And since then, when we are talking to various customers about the cyclical aspect, I am made to understand that since 1999, until today, they have seen 3 cycles of downturn where the demand subdues, and then again, it picks up and goes to the peak. I'm not the master on that, but this is what I have been made to understand by my customers. So yes, it's a cyclical thing. There are -- as of today, one is the petrochemical application, which is large in terms of volume. But the FDA required there are -- in terms of price, are much cheaper. Recently, we have come across our customers beginning to commercialize the product where we got approved is in terms of desulfurization of fuel. So this is where now this is a new technology being deployed where they are desulfurizing the fuel using some kind of a catalytic technology. And to make such catalyst, they require SDAs, where we are approved and we have started commercially selling to the customer. So this is something new, which we expect would become big but nothing that can replace the automotive segment. And thirdly, where we recently got approved last year, in 2024, is for a customer where they are using the catalyst for -- in terms of plastic recycling. So this is -- and this is still a kind of a new application where a lot of R&D is going on. They are piloting certain things. So the future is still not absolutely sure where and how this will progress. But if this thing really goes in the right direction, then the plastic recycling application has the potential to become kind of a natural hedge. If the auto industry demand goes down, then your plastic recycling will continue to remain and bolster up your demands.

We'll take the next question from the line of Arnab [indiscernible].

Chintan, sir, am I audible to you?

Yes, loud and clear.

Sir, I had 2 questions related to whatever you are doing with your R&D, mostly related to understanding your business better. So at the previous guy who asked the question, I just wanted an extension for the same question. I wanted to know when you say that you are building this high-purity elements for semiconductor manufacturing, like high-purity water, you're manufacturing chemicals for it, right? Am I -- is my understanding correct? Is that the thing or you're supplying the water only?

No, no, water is used as a part of our process in terms of -- because we will not have access to such high-purity water, we cannot transport it from somewhere and get it. So we have to learn the art of how to make the water so pure. So that is what has been mastered and now we have commercially set up a plant where we can produce a very large volume of such high-purity water. So that obstacle has been -- it has taken us 3 years to actually overcome this obstacle of reaching the water of required quality. And we are talking of...

Or in fact, for -- my question was is that water for inward use? Okay. And will you be open to supplying this high-purity water?

We have not given any thought on that so far, honestly speaking. So that was never the purpose of getting into the R&D of that water for selling purpose. But primarily, it is for our own self-consumption. And what we synthesize is chemicals, what we intend to sell.

Got it. The second question will be, has there been any development regarding the supercapacitor chemicals, which you are working on? I think last quarter, you said that there were only 3 suppliers globally. And has there any newer developments you're seeing in that field? Because from what I have heard is that BSS segment, like the supercapacitors are supposed to show a huge promise that at least in the paperwork and theory. I'm not sure how much it has played out yet in the current scenario but have you heard anything from your customers? Any new queries regarding that?

Actually -- this is actually playing out in terms of the hybrid vehicles. So this is where they know that this is one large application for supercapacitors that is now kicking in. So the shift to hybrid vehicles is what is going to push the need for supercapacitors drastically high. So this is what...

And anything around BSS so far? Because my belief was that -- yes, sir, please go ahead. I'll come back.

Which is very high in Europe for the hybrid vehicles.

Yes. So the way I saw the scenario was more like -- I thought it was a better fit for BSS because my understanding was supercapacitors were higher in weight compared to. So my belief was that it would be more useful for the BSS storage in order to have a high -- because they have generally high throughput. But yes, like I don't know whether that has played out but I definitely believe that even the BSS story on supercapacitor is also going to play out in the future. That -- those were the 2 of my questions. I wish you all the very best, sir. And I hope you guys are having -- like you guys have gone through tough time, and now it's probably the next 2 years, 3 years, it will be good time for both us and you and your team.

Thank you so much. Thank you. Really need that.

Thank you, sir. Ladies and gentlemen, we take that as the last question for today. I would now like to hand the conference over to Mr. Ashok Bothra, CFO, for closing comments.

Thank you. On behalf of the management of Tatva Chintan, we thank you for joining us on our earnings call today. We hope we have been able to address majority of your queries. You may reach out to Mr. Ajesh Pillai or our Investor Relations partner, E&Y, for any further queries that you may have, and they would connect with you offline. Thank you, Sanjeshji, for hosting our call. Thank you, all.

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