Vishnu Chemicals Limited (516072) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Vishnu Chemicals Limited Q2 FY '23 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nikunj Jain from Orient Capital. Thank you, and over to you, sir.

Thank you, Mike. Good morning, ladies and gentlemen. I welcome you for the Q2 H1 FY '23 Conference Call of Vishnu Chemicals Limited to discuss this quarter and first half business performance, we have from the management, Mr. Ch. Siddartha, Joint Managing Director; and Mr. Hanumant Bhansali, VP of Finance. Before we proceed with this call, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For more details, kindly refer to the investor presentation and other filings that can be found on company's website. Without further ado, I would like to hand over the call to Mr. Siddartha, for his opening comments, and then we will open the floor for Q&A. Thank you, and over to you, sir.

Thank you very much, Nikunj. Good morning to everyone. Continuing our financial year '22. Vishnu Chemicals delivered its best ever quarterly performance since the inception. The momentum we have is clearly evident with our improved return and leverage ratios and efficient working capital management. The efforts we have made so far has made us the most efficient producer in our chemistry growth. We will continue to focus on our priorities, which is and which are margin expansion, prudent capital allocation, debt reduction, gaining market share in India and Americas with timely pivot in newer products and applications. One more area where we have focused on human capital is human capital development. Gentlemen, we have set up an initiative training system for our 1,000-plus employees working across India. We believe positive enforcement like these will be key to motivating our workforce and improve their technical and soft skills to deliver peak performance. Now I will hand over this call to Hanumant for our financial items.

Thank you, Mr. Siddartha and good morning, everyone. We welcome you all to the conference call of Vishnu Chemicals Limited. The company has continued to meet all-round progress quite consistently over the last 6 quarters. Let me now speak about the financial performance achieved during the first 6 months of the current financial year. Our consolidated domestic and export sales continued its growth trends, growing by 78% and 58% year-on-year. The consolidated revenues for H1 FY '23, was INR 736 crores as compared to INR 440 crores in H1 FY '22, registering a growth of 67%. The consolidated EBITDA margin for H1 FY '23 was 16.7% compared to 14.1% in H1 FY '22, an increase of 258 basis points year-on-year due to our overall improved operating mix, integrated operations, our focus on customer satisfaction and a balanced geographic mix. In H1 FY '23, we have achieved INR 69 crores of PAT compared to INR 28 crores of PAT in H1 FY '22, an increase of 145% year-on-year. Our PAT margins have increased by 2.9% in the last 6 months year-on-year. Coming to the quarterly performance. The consolidated revenues were INR 375 crores in the quarter ended September 30, as compared to INR 242 crores in Q1 FY '23, up by 55% on a Y-on-Y basis and 4% on a Q-on-Q basis. The consolidated EBITDA for our Q2 FY '23 was INR 63 crores compared to INR 35 crores for the corresponding quarter previous year up by 82% on a Y-on-Y basis and 3% on a Q-on-Q basis. Our consolidated EBITDA margins were 16% in this quarter compared to 14.2% in the same quarter last year. The consolidated PAT for Q2 FY '23 was INR 35 crores compared to INR 17 crores for the corresponding quarter last year, up by 111% Y-on-Y and 3% increase Q-on-Q. The net profit margin of the company in Q2 FY '23 was 9.3% compared to 6.8% in Q2 FY '22. Like I just highlighted, our performance has been quite broad-based, and we can see that in quite a few metrics that we have shared with all of you. Our consolidated debt-to-equity is now at 1.05x compared to 1.3x at the starting of the financial year. Our interest leverage ratio has increased to 7x now compared to 5x in FY '22. Our annualized ROCE is over 35% compared to 28% in FY '22 and 14% in FY '21. Some of the other metrics are there in front of you, like inventory days, which is how we calculate on RM cost has come down to 87 days now compared to 112 days as on 31st March 2022. With this, I conclude my remarks. We can now commence the Q&A session. Thank you.

[Operator Instructions] We have the first question from the line of Pritesh Chheda from Lucky Investment Managers.

Yes, sir, just wanted to check why is the debt actually gone up versus what you usually had in your balance sheet?

Good morning, Mr. Pritesh, thank you for your questions. Our overall debt as of 31st March 2022 was about INR 303 crores which is now standing at INR 359 crores. So in fact, the debt has reduced in our stand-alone balance sheet, bringing down our debt-to-equity ratio in stand-alone balance sheet to 0.99. However, our brownfield expansion is currently going on in Barium subsidiary, VBPL. So we have a loan inflow over there. We have taken borrowings over there to complete our project. But on a consol basis, the debt is almost the same on an absolute level.

Whatever numbers we are seeing, I don't know where is the confusion, the debt was about INR 240 crores in March '22 on consol, which is now about INR 273 crores. Is there any way grouping or anything? Or if you could just share the absolute debt which was there in quarter 4 and which was there in quarter 1 -- FY '22 end and which is now at H1 end, the debt and the cash figure on consol basis, please.

Yes. On a consol basis, our total debt as of 31st March 2022 was INR 360 crores. In this, the breakup is as follows: are...

INR 360 crores.

INR 363 crores. Out of that, we have a long-term borrowings of INR 244 crores and short-term borrowings that's a working capital loan of INR 120 crores. As of 30th September 2022, the INR 244 crores of long-term borrowings has become INR 247 crores and the short-term borrowings that the working capital has come down from INR 120 crores to INR 112 crores.

So it is INR 247 crores plus INR 112 crores, that is INR 359 crores.

That's right.

So you had INR 364 crores, which is 359 crores, rather.

Yes.

And what is the corresponding cash figures in the same time period?

Our cash and cash equivalents as of 31st March was INR 15 crores, which now stands at INR 18 crores.

And this debt figure does the pref capital is included in this or pref capital is outside this?

No. We have included the pref capital in this.

Okay. So this includes the pref capital of INR 40 crores, right?

The overall pref capital is not INR 40 crores. That's INR 77 crores.

Yes. The other question is, where are we on the caustic soda utilization side? And what is the progress there in the quarter 2 versus quarter 4 when we had started the project.

Good afternoon, Mr. Pritesh. This is Siddartha with you. I'd like to give you an update on the progress on backward integration. Just to correct that word it is sodium carbonate not caustic soda.

Sorry, soda. My mistake.

So currently, the operating levels are at 70%, and we expect to cross 70% as on quarter 2 ended and we expect to cross 80% by quarter 4 this year. However, we target to achieve 90%, which is very ideal in the kind of operations we do. But we are content to achieve 80% which itself will give us about 45% of reduction in our general utilization of soda ash.

Sorry, you are 70% in quarter 2, you will go to 80% in quarter 1 by quarter 4. And this will make you self-reliant by?

It is, like I said, let me again correct that it's self-reliant in the sense that we still have to use sodium carbonate, but we're using 50% less. Because we still need the virgin soda ash as you understand that it's a recycled method, one of its process. So we'll be using half of what we usually use. And when we will get there is -- I mean, confidently, we're saying by early next year, we'll be able to generate that kind of volumes on a consistent basis. So now the question is our research and development activities on to further improve it. I mean, because this is more on an operational level, but on a theory, we can actually reduce it further and bring down the virgin soda ash consumption further. But again, that R&D activity is on. But yes, basically on how we can reduce the virgin soda ash consumption further. Likewise, our sulfuric acid consumption will be completely negative in that.

So sir, then between quarter 4 of last year and quarter 2 of this year, where the 0% would have moved up to 70% capacity utilization. And we would be, let's say, whatever self-reliant on soda ash to a certain extent. The margin change that I see is just 1% and the incremental EBITDA is what I see some INR 7 crores, INR 8 crores. So is there any other cost element which is unfavorable for us or why is it that the movement from 0% to 70% is not completely visible in the operating profit number or the operating margin number, whichever you want to analyze it.

Let's talk about the gross profit here, okay? The gross profit year before same period was INR 88 crores, whereas if you see in quarter 2 of FY '22, the gross profit is INR 120 crores. So this is already visible in the form of a significant increase on the gross profit margin. Yes.

Yes, I'm trying to just understand what you are mentioning just to make sure. You're mentioning that the gross profit in quarter 4 was INR 88 crores which is?

Quarter 2 last year, Y-on-Y basis, if you see...

No, sir. My analysis, sir. I would like to understand the analysis versus quarter 4 only because quarter 4 is where we started the backward integration. So whatever comments you give, it would be nice if you could give versus quarter 4.

So even if you compare that, it's INR 127 crores versus INR 140 crores now. So you can see almost a 10% improvement in the gross profit on a quarter-on-quarter basis also.

So where the material substitution for soda ash is so large, is there anything that -- anything other than this that we need to understand for not -- for whatever analysis we had done earlier for a lower caustic soda ash benefit flowing through?

Mr. Pritesh, this is Hanumant here. Where you're looking at is, you were looking at quarter 4 numbers, whereas we had started the production of soda ash from quarter 4. So the comparison should be either with quarter 2 of last year or the quarter 3 of last year. So that will be a better comparison metric, right?

Okay. I'll take this offline. And the other comment that you have specifically mentioned about Barium in your press release, about some demand-related challenge. And I saw some drop in the Barium margin. So if you could comment on that part of the business?

See, we are working towards reducing our dependency on export by focusing towards the domestic market. That's where we are seeing incrementally 20,000 tonnes of barium carbonate comes in. Of late, there has been some deferment in the orders on account of sea freight coming down sharply. And also on energy prices in Europe have made our clients be more watchful about how the situation will pan out. So they've asked us to defer the orders for a quarter. However, this doesn't mean that there's a dip in demand. And basically, and also, there is no actual substitute for this product. In fact, what we are witnessing is they are asking us to move this barium carbonate to the other facilities in North Africa and Far East Asia, which we are actively working on. That's why there has been a temporary headwind in terms of volume reduction in exports, which we will be -- which will be partially or mostly offsetted by increase in our domestic sales.

Okay. We had got extra realization and margins on barium specifically beginning last year, so that part, will there be now a reversal there? Or do you think those things will hold on?

Those things should come back. I think we made this investment with certain targets in place and that's going to be mixed. I think they will come back definitely, and we are already witnessing that demand to come, especially the gas prices now reversing in Europe. If you see the spot market has gone back to the old level and also as and when this destocking happens during this Christmas period, so customers are already in discussions for quarter 1 arrivals. And quarter 1 is for them on a calendar year basis. So we don't see -- because this barium carbonate is an irreplaceable product. And it's very much linked to the building materials industry. So we don't see any risk as such.

And lastly, from your perspective.

Kindly come back in the queue for follow-up. We have the next question from the line of Jainam Ghelani from Moneybee.

This is Mannan here. Firstly, are we seeing any slowdown in the chromium segment as well? You've highlighted on the barium side. If you can just throw some light on the chromium side if we are seeing any demand-related issues over there?

It's quite steady. We don't see any demand related slowdown or there is no significant price correction. However, on account, especially on the export side, there might be some correction on account of sea freight going down. That's the only difference we are witnessing at the moment.

And on the supply side, because you had mentioned in the interview, some players from Turkey were facing issues. So is there any issue on the supply side than for the chromium segment?

No. I mean I think, like I said, especially you see more demand for chromium chemicals coming out of North America. Our marketing team is working very aggressively to capitalize on that opportunity. Yes, that's what I can say. But demand remains resilient in fact that could -- is looking better for early next year, given what is happening, what we are sensing on the North American client.

Okay. So we are very confident of selling out our additional capacity without any contraction in the realizations.

That's right.

Okay. Secondly, on the freight expenses in this quarter, there was a huge jump on a quarter-on-quarter basis as well as on a Y-o-Y basis on our selling and administrative expenses. So if you can just highlight why is there such a huge jump on a sequential basis?

Good morning, Mr. Mannan, thank you for this question. Yes, our shipping and forwarding charges have increased, which is a major component of our sales and administrative expenses. On a Y-on-Y basis, actually it has come down as a percentage of sales. But overall, what we are seeing is that the freight costs have come down substantially from the highs, especially from July and August. And what we have seen is the orders were booked till September. So going forward, we will see a correction in the freight costs for us and for our customers. That will reflect in our sales and administrative expenses going forward.

Okay. So what you're saying is that we had already booked the containers at a higher rate, which is why we had this higher expenses?

That's right.

So can you just highlight what was the average container cost in Q1, Q2 and currently?

Average container cost now that's subject to the route on which it is, but I'll just share one example with you. Like said, if I just talked about the freight rate. Instead of freight rates from India to Europe which was about $5,000 for a 20 equivalent unit, just a few months back, has come down to $3500 right? And as we -- it was $3,500 as of 30th September. And as I'm speaking to you, it's down to about $2,000 for a 20 equivalent unit. So this is quite -- it's on a downward trend, but still the rates are nearly 100% higher compared to what it used to be pre-pandemic.

Yes, what would be the trend for North America as well, if you can just highlight because most of our sales are towards that region?

The freights are down on almost all routes. So that includes North America as well as Europe, Africa, Asia across all the routes. Because what I'm seeing is that certain routes there...

The gross margins that we've had because of our backward integration has been entirely eaten up by this increase in our freight cost. And we are not able to see the impact at the EBITDA level. So hopefully, we should see that from next quarter onwards.

There are -- that's a very good metric at the same time, what I'd like to say is the EBITDA margins would have been much higher if the realizations would have been the same because where our focus has been to maintain our spreads irrespective of the fact that we are getting a higher realization for our products. So whether the realization goes up from here or the realizations goes down from here, the spreads are key to us, but that leaves a very different impression on the EBITDA margin because if the spreads are same and the realizations go up, your EBITDA margins will not expand at the same rate, right? And if the spreads are same and your realizations come down, I'm earning more dollars on every sale I make. So then the EBITDA margin shoot up. But the key over here is the customers are -- have worked with us consistently for almost 2 years since the pandemic. And one thing that's been witnessed is that we have been able to pass through the rise in raw material costs and the freight costs. At the same time, leverage our abilities to command the premium and set the price in certain products that we manufacture.

Any further questions? Mr. Jainam?

No, I'll come back in the queue.

[Operator Instructions] We have a next question from the line of Ranvir Singh, from Edelweiss Wealth.

So just on the freight discussion, we did, just wanted to understand because we are operating in a globalized conditions. So freight rate would have come down from international other suppliers also. Especially when the gas supplies is now getting normalized from Russia or Turkey. So just wanted to understand our competitive position. So realization-wise, reduction in freight cost is advantageous for us or disadvantageous for us?

Mr. Ranvir, it's a very good question. Let me give you some information on what has happened during the pandemic time. The freight outbound Asia, which is from China, Malaysia, all the Far East and Southeast outbound to Europe and Americas have increased substantially, whereas price out of the United States towards Asia or from Europe or Turkey has increased but very marginal. So there has been a huge impact on the shipping out of Asia. So how we look at it, it's a big advantage for Vishnu basically being the major Asian exporter of chromium chemicals. Whereas the freight in those -- I mean, freight out of Americas and Turkey they have not changed very significantly. In fact, our competitive advantage has increased.

Okay. Okay. And the slowdown in Europe, is the reason being that probably the supplies from Turkey or some other destination has started resuming. So just wanted to understand, is this temporary or going to sustain because you are saying this is temporary so I wanted to understand that -- why we believe this is a temporary?

Could you repeat your question?

I wanted to understand, like in this quarter, we mentioned that in Europe, there was this demand softer -- there was softer demand from European side. And so demand for us, it was softer or globally, I think demand would have been same. I think other suppliers might have started supplying more quantity there. So is this a scenario or overall -- this was the overall slowdown for everybody? And why we believe this is temporary?

Let me answer why we believe this is a temporary because with respect to natural gas supply, the most affected country is Germany, because 80% of the gas supplies is coming from Russia. However, Italy, Spain and all these countries where bulk of our carbonate is going. Their natural gas mix is not completely Russian dependent. So what we have seen is since Spain had some kind of dispute with Algeria, which is one of their major gas suppliers. So now they have settled and things have gotten back to normal now. So that's what is giving us more confidence and we are already in active discussions with the client and to resume the regular volumes to them. This is giving us more confidence. That's why we feel this as a temporary headwind. In fact, we also see that once this destocking is happening, definitely, our clients want to increase the finished raw material and improve their output, which they have lost during the last 2 or 3 month basis.

Okay. Okay. And what is the difference in realization in India versus export market in barium comp?

It's very marginal, I would say. So very marginally, it could be a 200, 300 basis points depending on because even in Beijing, we have 3 to 4 different products, basically, depending on the particle size and everything, applications and everything. So it's very dependent on the industry but to give you some idea, it would be 200, 300 basis points, perhaps higher in the exports, given the exchange rate how it is.

Can you quantify the number in India, what you're realization currently?

We won't be able to do.

Okay. We are not giving a realization number for chromium on barium separately?

I'm afraid not.

We have the next question from the line of Ravi Mehta from Deep Financial.

Just wanted to know the capacity utilization levels where we are operating.

Good morning, Mr. Ravi. Currently, we are operating at 80% plus utilization levels in both the verticals. And this is a trend that we have seen from last year, and we are continuing this trend in the first half of this fiscal also.

So when you say 80% plus, this will be on the expanded barium capacity of 60,000?

That's right.

And the expanded capacity...

In the first quarter was lower. The first quarter was lower because that was the first quarter of operations for barium but the second quarter, we have started utilizing the expanded capacity, and we operated at about -- the second quarter, the expanded capacity operated at close to about 65%. But that's -- overall, the barium capacity was close to about 80% which will continue in the second half also.

Okay. You're saying 65% of the expanded capacity in Q2?

Yes, 65% of 20,000 tonnes and 80% plus, close to 83%, 84% of the 40,000 tonnes. So on an average, it comes to about 80%?

Sorry, I just got confused barium would be 50,000 tonnes, 60,000...

60,000 tonnes is our total plate capacity in barium. Yes. So 80% was our utilization in the first half of this year.

Okay, of the plate capacity.

Yes.

And 65% in Q2.

And I request you to consider this 80% on a total 60,000 tonnes, that will remove all very simple.

Yes. And on the chromium side, if you can highlight because they are also, I think, we've added capacity by 10,000 tonnes.

Like I said, we don't disclose the exact volumes. It's more from a business confidentiality reason.

Yes, sure. So, I'm asking that the utilization levels what you're talking is on the expanded capacity, right, including the 10,000 tonnes that you added from...

Our 10,000 tonnes that has added -- has not added to significant volumes in Q2 because that is the first quarter of operations. Having said that, on an overall basis we have operated at 80% plus level on our plate capacity of 70 plus 10, that is 80,000 tonnes. Going forward, we are likely to go up by 5% in this financial year in chromium chemicals volumes that is production volumes compared to last financial year. But next year, it will be a full impact of expanded capacity of 10,000 tonnes, which means we'll be operating with 80, 000 tonnes from day 1 of the next financial year, that's 14% more capacity compared to 70,000 tonnes.

Okay, okay. So optimally, you can use the entire 100%.

Optimally, we can use close to about 85%, and we have been achieving that metric.

Just like to add on one thing. Given the nature of our business and the amount of maintenance that goes into it, if the asset created is operating at the level of 85%, 90% is a very good operating level.

Okay. Understood.

We have the next from the line of Rushil Selarka from Pioneer Wealth Management.

Yes. Am I audible?

Yes, we can hear you loud and clear.

Congratulations for good set of numbers. I just wanted to ask you one thing, like in the TV interview yesterday you have guided for the margins to go to 20% by end of third quarter. Did I hear it right? Or will it take at least 3, 4 quarters for us to go there?

Yes. Thank you for your question. On the margin profile, as you can see, we have delivered on the targets that we set out at the starting of the year. But there's still some work to be done to achieve an overall targeted EBITDA margin of 20% compared to FY '22 numbers of 15%.

Okay. Yes, yes. Got it. Got it. Correct. Yes. When can we go to the 20% band?

Yes, it is -- if you see -- if you see our performance in this quarter, it's like 8 products that we have broadly. And the one product that we have in our subsidiary, that faced a little bit of a challenge, so to say. But it's hard to put a timeline to how the markets will come back because it's not related to how competition is behaving but how customer is behaving. So if the customer and the consumption comes back quickly, then we'll be able to achieve that faster because we are not seeing any challenges on the chromium chemicals front. So it's about how barium chemicals is going to shape up. Like I said, it's very difficult to put a timeline to it, as we can see and as the data is available to us, the data -- the natural gas prices are quite dynamic. But going forward, that's our target of 20%.

Just to add to it, during the call, I did mention about the new product launch barium sulfate which is going to be launched in the first quarter of next financial year. And we strongly believe this will augur well with the barium family. And it's part of our strategy to build a product mix like what we have done in the chromium. This will bring a lot of resilience for this business and help us to work on the product mix basically. And this going into the paint industry, and we are very excited and looking forward for this product to be launched and our focus will remain to be domestic market. It's a clear import replacement. This will definitely add to the EBITDA margins in the coming years. But like I said, our targeted EBITDA -- to reiterate what we have said is our targeted EBITDA is 20%. And this is very likely to be achieved in a few quarters to come.

Okay. Yes. And one more question is like our debt-to-equity ratio has reached 1x from as high as 3.4x, 3 years back. So how much can it be for FY '23? And what's your guidance for FY '24? How much can it reduce more or will it stay closer to the same level since we are having one more CapEx in barium for INR 90 crores, for which we have debt also?

Thank you. Thanks for this add-on questions. The current reduction in debt is also including part of the debt that we have taken for the new product in barium. So overall, the debt outlook is that our focus in the next 6 months will be to continuously bring down our overall debt-to-equity levels. But just to highlight one important metric, which is I'm sharing with you. Though the revenues of the company, if you see the stand-alone company, we have grown from close to about in the last financial year, from about INR 577 crores in FY '21 of revenues to about INR 900 crores in FY '22 and in the first 6 months, about INR 630 crores. Though the revenues have increased by more than 100% in the last 18 months, we have not increased our working capital limit. And like there was a question by Mr. Pritesh. I wanted to highlight it at that point of time also. But if you had noticed, I'd given a breakup of my short-term borrowings or my working capital, which was INR 120 crores at the starting of this financial year, and which has come down to INR 112 crores. So we have not enhanced our limit and we are consistently putting pressure on our overall working capital so that we can bring it down, bring down the inventory days as well as receivable days on an ongoing basis. So that's been our focus and we'll continue with that metric.

Okay. And last question from my side is the volume growth that we witnessed in Q2 is 16%, right? And is the guidance of 30% volume growth for FY '23 intact despite having some softening of pressure from barium side?

Let me answer that question. The volume growth that we have seen in installed capacity of chromium chemicals is 14%. And in barium chemicals, installed capacity has grown up by 50% from 40,000 tonnes to 60,000 tonnes. That happened in March 2022, but we are seeing the full impact of that from Q1 of this financial year onwards. Like I said, the chromium chemicals debottlenecking has just completed, and it's still progressing well from the operational point of view. So we'll see the full impact of those volumes next year. But even on a year-on-year growth of volumes in chromium chemicals, while the number will be single digits of 5% to 6%, but next year, we'll see a far better improvement of nearly 10% in our volumes in chromium chemicals. But in barium chemicals, it will be about going from 60,000 tonnes to nearly 1 lakh tonnes, that is 30,000 tonnes of our new product. So that's our total trajectory of volumes that we have shared with the market.

Thank you. We have the next question from the line of Hiral from 4R Investments.

Congratulations for the good set of numbers. I have 2 questions, and pardon me if I have missed clarifications. I want to understand...

Hiral, your audio is not very clear. I'm sorry. If you could go off the speaker phone, that will be much better because it's...

Yes, is it better? Is it better?

Yes, now it's much better.

So my first question is why the barium pricing is under pressure. And what I understand due to some headwind from the Europe. So when do we expect it to get normalized? And the second question is, we are seeing that the pledge percentage is still currently high, which is 36%. It has reduced from 40%. But when do we expect it to get further down from this level?

Yes. We are expecting the volumes to come back during the quarter 4 of this financial year. We're expecting all the destocking to happen at our customers. And the price now have almost come back to pre-COVID level. So we are expecting demand to come back and we're getting back into those volumes during the quarter 4 of this year, which is first quarter for our client. Perhaps it could be earlier also because they expect a quarter 1 delivery. So it could be in November, December shipments from our side. So that's where we see. And although -- and we don't see any impact of construction in Europe per se in spite of whatever you'll be hearing about recession because ongoing projects are still continuing and we are not hearing anything, I think about dip in the demand or that kind of issues. And most importantly, the product which we are supplying is non-substitutable. And the quality which we are able to supply on a consistent basis is also something far better than what our Chinese peers are supplying. So that gives us immense confidence of getting back to the volumes sooner than later. Regarding pledge, I'll ask Hanumant to throw some light.

Good morning, Mr. Hiral. Thank you for your question. Let me reiterate that the promoters of the company pledged their shares to our consortium of banks for funding to be utilized by Vishnu Chemicals Limited for its CapEx. This started in 2007. And at that point of time, the company did not have enough security to be provided as collaterals because the funding was required to expand our capacity from nearly 5,000 tonnes per annum in chromium chemicals to 50,000 tonnes. So that's where the promoters stepped in, and they infused -- they just gave their shares as pledge to the banks to meet the margin requirements. Having said that, the entire pledge is with the 3 consortium -- 3 banks that we have in our consortium. All of them are PSUs, and they have been associated with us for a very, very long time. Just to give you an update, this pledge was as high as 65% of promoters holding in FY '15, which has now gradually come down to 36%. We acknowledge that it is still very high, and we are working on it. And organically, it will be completely out of the system over the next 3 quarters.

Okay. So in the next 3 quarters, you mean to say the pledge will get removed organically?

Yes. Yes.

We have the next question from the line of Kaushik Dani from Satco Capital.

Congratulations on a great set of numbers. Sir, what is the reason behind the barium segment degrowth. We took the price hike in April 2022. So what is the volume growth in the barium segment?

Good morning. The volume growth cannot be shared. Like I said, we don't share the absolute volume growth. But if you see last year, we operated at close to 80%, 85% on our installed capacity of 40,000 tonnes. And this year, we are operating at 80% on an installed capacity of about 63,000 tonnes. So overall, in the first 6 months, our volumes have grown by close to about 10% on a year-on-year basis. And this is further likely to improve as we move forward. There is no degrowth in our volumes in barium chemicals.

So sir, how much price hike we took in April 2022?

Initially, the price hike was close to about -- I mean, if you compare the last 6 months compared to FY '22, the prices in barium vertical went up by close to 25%, the value hike, the realization per kg. Right Okay.

Yes. So can you quantify the margins for the chromium and barium segment? I think in Q4 FY '22, we have a margin in the barium segment was around 9.5%?

Correct Yes. In barium segment the EBITDA margins in Q2 FY '22 is 11% compared to 9% in Q4 FY '22.

Yes. And for this quarter, 11% for the current quarter. Q2 FY '23. And for the chromium, sir?

In Chromium business, we reported an EBITDA margin of 17.4% in the current quarter.

Okay. And when can we achieve our sustainable margins for barium segment is around 16% to 20%?

Like we mentioned during the call before, we are working on this, and that's the reason why we have also launched a product, which is an import substitute. I mean we are working on a product in barium chemicals, which is an import substitute, not manufactured by anybody else in India. And it will diversify our end user industry. Just like the things that we have learned from our stand-alone business is to diversify our product profile. And that automatically derisk ourselves from geographies as well as end customers because there will be times when one market does well. There will be times when one sector does well. Today, we are, of course, dependent, at least in barium. But going forward, this launch of a new product will help us mitigate these risks of product concentration.

Hanumant, Kaushik here. Okay. Considering the challenging times, definitely, the results seem very decent. Okay. Now the thing is, first of all, roughly 46% of your sales come from LatAm, right?

40% -- can you repeat 46%...

46% of the revenues are coming from the LatAm, right?

No, I think on a -- if you take our overall sales, no, it is much lower. Even if you consider our export is about 28% on a consolidated basis.

28%.

Yes. So if we give LatAm, it includes even Mexico as well basically.

Okay. So especially when you consider LatAm and Mexico, we all know how the currencies have functioned against USD as well as against the Indian currency. So can you just give some thought actually what sort of constant currency growth that you guys would be capturing?

What I can share with you is what we are hearing from our customers in terms of currency devaluation in these countries on account of dollar being strengthened especially in the LatAm where the main markets are Mexico and Brazil, the devaluation of this currency is marginal, even marginal compared to Indian currency devaluation. In fact, these are very much agriculture and automobile export-related economy and the impact has been not felt or not heard of in terms of...

Do we not have any sales in Argentina, where there has been a constant depreciation?

No, we are not operating that strongly in Argentina. And given the risk involved in that country, so we are not concentrating much in Argentina. Yes, because of the way the currency devaluation.

Right. And I think previously, we had mentioned that apart from precipitated barium sulfate, there would be another product called barium hydroxide. So this INR 90 crores CapEx includes both these products?

Yes, it includes both products.

So do we have a breakup, so let's say, from 60,000 tonnes to around 1 lakh tonnes to what we are doing. Incremental 30,000 to 40,000 tonnes, everything would be for new product or it would be something for the existing...

Product mix, like I said, we are having the pain of chromium chemicals in our let's say, where we use sodium dichromate is very relevant to the market and the kind of gross margins we target. So similar value chain will be developed in barium. So how the end user market is performing and the targeted gross margin will motivate us to focus on the product mix. That's what I can say. It's hard to give the volumes on which we will be working on. It will be really very relevant to the end user market.

So what sort of asset turnover are you expecting on this INR 90 crores CapEx?

The targeted asset turnover is 2 -- but that may not be achieved within a year or 2. It will be FY '25 when we could achieve that kind of asset turnover in barium.

Okay. And are the gross margins for these 2 new products better or in line with the existing barium?

They are slightly better especially on the barium sulfate, which is a paint pillar being a specialty product. So they will be definitely slightly better than the existing products.

Okay. So you expect -- because this is a fully import substitute. So the expectation is that we have got enough distributed tie-ups or company tie-ups that the entire 15,000 to 18,000 tonnes, what you expect as the production should get absorbed domestically?

It's a good question. I think we are in discussions with possible distributor as well as the idea is seeing more B2B than B2C. So our marketing team is actively working on that. And obviously, there is more interest because even the way the currency is devaluing in India, people are looking for domestic substitute sooner than later. So with that being said, the approvals might be faster than what we have anticipated -- what we may anticipate, yes.

Okay. And finally, any changes which is material on the chromium ore price trend?

Sorry, please repeat your question. There were some...

How has the chromium ore prices behaved in the last few months?

Not very volatile. They remain steady.

Okay. Okay, fine. And finally, when was the latest price I've taken for chromium as well as barium?

No. We don't share that information.

We have the next question from the line of Sabyasachi Mukerji from Centrum PMS.

Am I audible?

Yes, you are.

Okay. So Siddartha, there is some confusion on the volume growth and the outlook. I believe the chromium sales volume growth is 16% for H1 FY '23 year-on-year, right?

On a plate capacity 14%.

No, no. I'm not talking about your installed capacity going from 70,000 to 80,000 tonnes thereby translating to 14% growth. I'm not talking about that. I'm talking about the sales volumes, whatever volume you have sold in H1 FY '23 versus H1 FY '22, what is the growth over there?

It is flat. It's more on a value increase.

Okay. It is flat. Okay. Okay. And what is the outlook for H2 of this financial year?

Since I've mentioned the debottleneck capacity in chromium of 10,000 tonnes have come online. So that's where we'll be working on especially on our chromic acid production, which we are seeing more demand from the wood preservative and electroplating industry. We'll be working on putting that volumes in this application segment.

So this incremental 10,000 tonnes, what is the expected capacity utilization you foresee for H2? Will it 50% or more than that or less than that? Any ballpark number, any estimates?

In between 80% to 82% will be the operating plan.

Okay. you'll achieve a ramp up very -- in a very short period, I mean you will be able to operate at 80%, 85% of the incremental capacity as well.

Yes, because it's more of a debottlenecking and so that gives us more confidence to operate at that level. And also the product mix, where this additional capacity is going to turn into another value-added product. We see a lot of visibility in terms of orders as well.

I thought this new capacity is at a separate plant than your existing plant. So ramping up, I thought it will take time to ramp up. That was the thought process I guess this 10,000 tonnes is in July, right?

Yes. Yes.

So you are saying it will not take time to ramp up the capacity.

Could be a month, could be 45 days. We don't see any complexity in ramping this -- if we are talking about the new product launch like barium sulfate, that I would take more of a cautious call on stabilizing that product. Since we are operating and it's a similar process, I would say about 30 to 45 days is what we would take.

Got it. That's very much clear on the chromium side. On the barium side, you mentioned that last year, we operated FY '22 operated around 80%, 85% on the plate capacity of 40,000 tonnes. You are tracking the same levels, almost same levels since Q2. Q1 was a little lower on -- since Q2, you are tracking the same utilization levels on the expanded capacity of 60,000 tonnes. Is the understanding correct?

That's right. That's right. Like I said, we faced a temporary headwind because of this freight coming down and some uncertainty in Europe. But we don't see any volume degrowth compared to Y-o-Y basis and we are confident to pick up the volumes during quarter 4 of this financial year itself.

So just to understand this thing a bit deeper you faced headwinds from the export side. And since barium is high on exports, you tried to compensate those volumes with domestic sales? Is the understanding correct? And due to higher domestic sales, your realizations, which is lower in domestic and higher in exports, your overall realization since barium came down. Is that understanding correct on my part?

Not really. That's -- I mean like I mentioned to you, we are focusing more on the domestic market moving forward because the way the ceramic industry is growing in India. And the product specifications what we offer is not available. So our intent is to grow in the domestic market. So we have not done an increase in the volume in the domestic market yet. That's what I've given a guidance.

Okay. And what would be our market share in domestic?

Our market share currently is at 45%. Our intent is to go to 65% to 70% in 1 year.

Okay. So basically, 45% of the total demand is satisfied by us in terms of barium carbonate. The rest 55% is supplied by any other players? Or is it imported?

There are few other players who are supplying. We have a different specification which we offer whereby our end user has a quality advantage. And with this capacity expansion, we are aggressively working to turn that into a regular business.

Okay. Okay. Sir, last question from my side. So what is the outlook? So H2, I understood. What is the outlook for switching back to chromium? What is the outlook for FY '24 because we don't have much capacity in place, right? We just expanded 10,000 tonnes. What is the outlook for the next round of CapEx? Or where do you see yourself in the chromium segment, barium I understand you are expanding a lot, but the chromium your main business chromium. What is our outlook for the next 2, 3 years?

We all -- we are already sharing the levers of growth and margin expansion, but we don't want to give a guidance on a quarterly basis to be very honest. We've already shown significant improvement in ROCE. Last time, we had mentioned that our targeted ROCE is upward of 30%, and we have crossed this. In terms of volumes, like I would like to add, and I did mention that we are seeing some consolidation happening in North America. And management is very seriously, not contemplating, but seriously considering an increase in our chromic acid capacity in our [indiscernible] whereby we would need additional sodium dichromate. And at the same time, we are working on another value-added product called chromium metal which also requires additional sodium dichromate. So for the next 2 years, we may not be able to add additional volumes on the chromium front but we could work on the product mix. since the demand is strong. But thereafter in order to add to the value adds like chromic acid and chromium metal, additional sodium dichromate, additional feedstock in the form of sodium dichromate is required. If you ask me how much could be somewhere in between another 20,000 to 30,000 tonnes of sodium dichromate is required. The reason being these products require more unit consumption of sodium dichromate in those products.

No. Okay. Okay. So we are working on the product mix side. We want to move on the value chain, move a little higher and optimize the product mix in the near-term, so that is the thought process, right?

Just to put it into perspective, we want to increase one value add, it's already there given the order book and given the kind of traction we are seeing in the West. And at the same time, an interesting super alloy, which we are working on, which is chromium metal. This we are planning -- we are working on it, but it will take 2 years' time to launch this with additional dichromate feedstock in the form of dichromate is required, which calls for additional capacity of another 20,000 to 25,000 tonnes in 2 years from now.

That's great. Very helpful, Siddartha.

We have the next question from the line of Rikin Shah from Omkara Capital.

So I think Siddartha mentioned that barium volume could come back in Q4. And regarding margin expansion, which the earlier participant asked in the barium segment, Hanumant mentioned that barium sulfate should add to this. But I think that is coming in FY '23. So are we expecting H2 to be weak in terms of margins?

Good morning, Mr. Rikin. We don't expect H2 to be weak. That's not how we look at it. But overall, with the easing supply chain, the weaker rupee and the reduction in energy prices in Europe, that will help barium come back quicker, but nobody can put a timeline to it. That's how I'd like to say. At the same time, we'd like to reiterate that barium carbonate, which is the product that we manufacture in Vishnu Barium Private Limited. It goes into ceramic tiles, bricks, caustic soda, brine purification industry. And these areas need consumption of barium carbonate on a mandatory basis there won't be any impact on consumption. It's not an industry that is disappearing. It's only a headwind that one of our key markets is facing and due to which the Q2 saw impact in barium chemicals. At the same time, overall, I would like to highlight that on chromium chemicals, we have achieved significant improvement in overall profits. And on a consolidated basis, we have withstood these changes. That's the benefit of having a diversified portfolio. Be it barium or chromium chemicals, they are under the same umbrella of inorganic chemistry for us. That is converting minerals from the planet, minerals from the earth into chemicals. That's where we specialize in and with backward integration improving from where it is today to about 85% plus levels, we will see further margin expansion and sustenance of profitability.

Okay. So in barium, has the raw material price also corrected?

No, we are not seeing any correction in raw material prices in barium.

Okay. So in Chromium, I think there is an increase in sales until there is a gross margin expansion. But how much would you attribute that to rupee depreciation perhaps?

Marginally because if you see the rupee started depreciating quite from last financial year onwards. But we have witnessed our overall net ForEx gain in the first 6 months of this financial year to be around INR 5 crores. So that's the benefit that we have brought from the rupee depreciation so far. I'd just like to highlight that we don't like to keep any open exposures and keep our unhedged portions open. So that mitigates our risk from a point that we are already net exporters where 50% of our turnover comes from exports. So that benefit is always included into our profitability.

All right. So I think just at the cost of repeating someone who had asked earlier. Should the sales and administration expense come down or not? Would you say Q-on-Q level?

Yes.

All right. All right. I think that's it from my side.

Because the major cost over there is shipping and forwarding expense.

Right, right. Because I think container freight rates have come down substantially and with that logic. Yes, it should come down.

Yes, absolutely. Absolutely.

[Operator Instructions] We have the next question from the line of Sudhir Bheda from Right Time Consultancy.

Yes. Siddartha-ji and Hanumant-ji, congratulations for a super set of numbers given the volatile global situation.

There is some disturbance Mr. Sudhir. Mr. Sudhir, if you can go on the handset mode, we will get your audio more clear.

Sir, now am I audible clearly?

Yes.

So sir, congratulations Siddartha-ji and Hanumant-ji for a super set of numbers given the volatile global situation? Sir, my question would be like considering the rupee depreciation and also effect of container freight rates and also volume growth would be coming in H2 and also backward integration would be operating at higher capacity. So what kind of margin expansion do you see in H2 as compared to H1 for the current year?

We reiterate what we said that it's hard to give a number. Our target is to achieve 20% EBITDA in a few quarters from now, I think -- and we are in line. And given the way the backward integration is progressing or will progress in a few quarters from now. That's the target we have -- we can't give you an absolute number on the EBITDA for the next 6 months. But what I can say is the margins will remain intact or improve. That's where we are seeing in spite of this [indiscernible].

Yes. And now our solar capacity will be operational in H2. So what kind of power savings do you foresee in FY '24?

Good morning, Mr. Sudhir, this is Hanumant with you. The solar power is going to help us meet about 25% to 30% of our energy requirements in Srikalahasti which is a unit that manufactures barium chemicals. It will help us reduce our power costs by close to about 10% to 15% because we have entered this contract with one of the leading solar power companies in India for a 20-year contract period at a fixed cost that will give us the benefits from the Q4 and more effectively from Q1 of next financial year in Vishnu Barium.

Great. That's all from my side, and all the best.

We have the next question from the line of Jainam Ghelani from Moneybee.

Yes, Mannan here. So you mentioned that the freight rates are coming down, and we are trying to capture the domestic market in the barium segment. So then wouldn't more imports also be flowing into India as the freight rates are coming down and thereby, prices could further fall down? Or do you see the prices have stabilized now in the barium segment?

Good question. Let me clarify that there is no import of barium carbonate into India. So there -- it's not margin, there will be no impact on freight coming down other parts of the world because it's mostly ours and the domestic payer. There is no imports into India of barium carbonate.

As of now, there's no import. So then with freight rates coming down, there is a possibility of imports coming in then?

We don't see that -- even before the pandemic also, even when the prices were at lower, if you see the 10 years or even more, there has been no imports of barium carbonate.

Okay. And again, in the chromium, so just to get my understanding correct, so you mentioned that the prices have been stable. So there's no price hike that we've taken. Also, our volumes are flattish on a sequential basis, but our sales have gone up by almost 5%. So with volumes and prices being stable, so this incremental 5% sales that we are seeing is primarily due to rupee depreciation, right? Or am I not getting something?

Thank you, Mr. Mannan, for this question. Like we said, we have already started the 10,000 tonnes of debottlenecking plant that gave us incremental volumes on a quarter-on-quarter basis. But when we say flattish, it is plus or minus 5%. So that's a marginal change in volume. It's not a meaningful change. So if you ask me on a quarter-on-quarter basis, our volumes have gone up by nearly 5% in chromium chemicals, but that's very marginal whereas the prices have not changed on a quarter-on-quarter basis.

So the entire increase that we have seen in the chromium segment over H1 to H1 is primarily price-driven?

It is yes. Yes. That's right.

And also on account of product mix.

Yes.

In the interest of time, that was the last question. I would now like to hand it over to Nikunj Jain for closing comments.

Thank you, Mike. Thank you participants for joining us today. It's been a pleasure. If there are any further questions or queries that we have not been able to answer, please feel free to reach out to me or Orient Capital team. Thank you, and have a good day.

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