Vishnu Chemicals Limited (516072) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Q2 FY '24 Results Conference Call of Vishnu Chemicals Limited, hosted by Emkay Global Financial Service. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Meet Vora from Emkay Global Financial Services. Thank you, and over to you, sir.

Thank you. Good morning, everyone. I would like to welcome the management and thank them for giving us this opportunity to host it. We have with us today, Mr. Siddartha Cherukuri, Joint Managing Director; Mr. Hanumant Bhansali, Vice President, Finance and Strategy. I shall now hand over the call to the management for their opening remarks. Thank you, and over to you, sir.

Thank you, Meet. Good morning, everyone. We welcome you all to this earnings call update. I will start with the financial performance achieved during the second quarter of this financial year. The consolidated total income increased by 3% sequentially from INR 303 crores in Q1 FY '24 to INR 311 crores in Q2 FY '24. On a consolidated level, the gross margins in Q2 FY '24 was consistent at 45.1% compared to 46.3% in Q1 FY '24. The gross profit at a consolidated level remained unchanged at INR 139 crores in Q2 FY '24. The stable margin trend on the gross profit level remains in line with our historical range of 45%. The consolidated EBITDA in Q2 FY '24 was INR 49 crores compared to INR 53 crores in the previous quarter. The lower EBITDA, as you can see, was due to increase in fixed costs and conversion costs by nearly INR 5 crores, which was particularly related to postoperative expenses in the newly commissioned Barium project. The PAT for this quarter was INR 24 crores compared to INR 29 crores in the previous quarter, a reduction of 16% on a sequential basis. With an ongoing focus on maintaining our financial health and stronger balance sheet, the company reduced its absolute debt by INR 63 crores during the first 6 months on a consol level. We are happy to share that we have achieved a debt-to-equity level of 0.5x as on 30th September 2023 compared to 0.9x as on 31st March 2023. The company expects to reduce its finance costs from Q3 FY '24 onwards. On the working capital, the company achieved a current ratio of 1.6x at a consolidated level. This is well above the industry average. The receivable days of the company stood at 49 days during the quarter gone by. Now I will request the Joint Managing Director of our company, Mr. Siddartha Cherukuri, to comment on the highlights of the Chromium chemistry as well as Barium. Over to you.

Thank you, Hanumant. Good morning, everyone. Wishing you a very happy Diwali and season greeting. I'd like to highlight on the chromium chemical industry. The demand for chromium chemical remains robust with encouraging volume uptake during the quarter. Stand-alone domestic and export sales grew by 6% and 7% on a quarter-on-quarter basis. On the raw material front, chrome ore prices remain at elevated levels and reached their highest level in Q2 FY '24. This leads to moderate increase in cost of goods sold at a stand-alone level during the quarter. Company uses chrome ore for its chemical manufacturing, a stable and consistent supply of raw material is critical for our operations as it minimizes the risk of supply disruptions or price fluctuations in the open market. In the recent years, the company has taken steps to reduce its reliance on external procurement of raw material. In this direction and spirit, the Board of Vishnu Chemicals has approved to acquire chrome ore reserve and a processing plant as a long-term strategy. Also like to throw some light on our Barium vertical. We have achieved breakeven in newly acquired barite beneficiation plant in the very first quarter of the operation. Quarter 2 FY '24 had higher fixed costs due to integration of newly commissioned plants and stabilization of barite beneficiation facility acquired in FY '24. The newly commissioned plant of precipitated barium sulphate has an installed capacity of 30,000 tonnes per annum and is expected to reach over 50% utilization by second half of FY '24. The output has received incredible reception from the organized customers in India and overseas market, largely in the powder coating and automotive paint industry and battery applications. Our plant and process is built to meet stringent quality requirement of multinational paint companies globally, and it's a clear import replacement. Now I request to start the floor open.

[Operator Instruction] First question is from the line of Rohit Sinha from Sunidhi Securities.

So first of all, on this mine acquisition. So basically, I just wanted to understand what would be the time line when -- I mean, we should expect the acquisition of mine to be completed? And when should we see the actual benefit to reflect on numbers?

Mr. Rohit, thank you for your question. Right now, the Board has only proposed to -- has approved this proposal to acquire the mine as well as the processing plant. The company is evaluating this, and it's pretty early right now to give a comment on the time line. We are still busy with our CapEx plans in the chromium chemicals, and this would take nearly a year from now to fully get completed.

Okay. Okay. So what would be the rough capital outflow for this?

So we have just taken a Board approval. We have not evaluated the assets or not engaged with any parties as of now. So it will be very early. But from where we see, this won't be a major capital outflow because chrome ore mines globally are very explosive and not in line with the other mines that are acquired. So it's more to do with how the processing plant works and how we can take the mine from the ground -- take the chrome from the ground and process it and get it to a level where we can use it for our own facility. So it's very little to do with the cost of mine because it's more to do with the cost of replacement of setting up a processing plant on our own versus getting it started through an inorganic expansion.

Okay. Okay. So just to take it further, I mean, we recently did a QIP and money was majorly for the use of expansion of our existing capacities. So with this admission online. So would there be any -- I mean, how we should be basically funding going to fund this CapEx or it would be from the internal accrual? And if you could also briefly highlight if at all possible that what kind of benefit on raw material prices we should expect, especially when we are seeing that raw material prices are reaching the highest level?

I'll first answer the second part that on the raw material front, there are two parts to it. We have done a lot of work with respect to reducing the cost on the raw material side and also decreasing our reliance on external procurement of certain raw materials, both in chromium chemicals as well as barium chemistry. But we have not done any work on the chrome ore front. So this will be the first step towards taking control of the supply side of the chrome ore. And this would also help us in the longer run as we keep increasing the capacities of sodium dichromate and its derivatives. Second aspect is like you asked about the capital outflow and the use of QIP funds. The capital outflow in the QIP is majorly for the -- as specified in the QIP placement document was for reduction of working capital and debt, which we have done already in the first 6 months. Our overall debt has come down -- our overall long-term borrowings has come down by nearly INR 63 crores, and we have also reduced our working capital requirement during this period. So any further capital that we would require for inorganic expansion would be generated over a period of time for our internal accruals. And we also have access to some portion of general corporate funds from the QIP portion.

The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

Just wanted to check on the chrome side of the business. Between the last 3, 4 quarters now, is it a lot to do with the chrome ore RM which is shrinking the GM? Or do you want to call out something else? And between the last 3, 4 quarters now, what will be the utilization of the chrome asset of, I think, 70,000 capacity, right? Are the volumes stable or there is any changes in the volume that we see in the last 3, 4 quarters? Because your peak was at about INR 300 crores, INR 320 crores and now you are at about INR 260 crores.

Pritesh, this is Siddartha Cherukuri. Well, on a quarter-on-quarter basis, we have seen a volume increase in Chromium in terms of SDC output produced. However, there has been a decrease in gross margin, down about 4%, mainly on account of chrome ore price increase, followed by that, our absolute EBITDA has also come down from -- on a Y-on-Y basis. But what we are seeing is mainly on account of value correction across the derivatives versus what we have seen on a Y-on-Y basis in...

Value correction on Y-o-Y means a drop in the chrome ore product realizations?

Yes.

For the same volume.

Correct.

Or a lower volume?

For the same volume.

For the same volume. Okay. So then for the same volume, it means that the price correction in the chrome product line is about 14%, 15%.

Correct, correct. And I'm sure we all are witnessing across the industry in general. Well, moving forward, what we are seeing is, I mean, we're very happy to share that the CO2 esterification what we have done is progressing well. We are currently operating at 75%. And moving forward by end of this year or by Q4 of FY '24, we are expecting it to operate at 90%, and it's been very steady. We're very happy with the output overall, and it's definitely going to support our EBITDA margins as we move towards end of this financial year. And like you say, we -- coming back to the chrome ore, we have seen this cycle even into 2016. And this time, it has been relatively longer than what we have anticipated. And there were some challenges to pass on the price increase during the quarter 2. But what we are seeing is, again, there has been better inquiries, I mean, instead of when customers were looking at a monthly or bimonthly basis, what -- I think there has been more clarity that given the prices have come down to the levels where they will stay or they will eventually go up. So people are talking about fixing up for a quarterly or half yearly basis. So we are seeing a lot more inquiries, and we are going back to them with an increased pricing. And we have already made some adjustment -- upward adjustment in some accounts for quarter 4. So we are hoping better realizations during quarter 4 of this financial year. And also, we are seeing some cooling down in chrome ore prices. I mean, this is based on the index what we have in our hand. And I think the outlook is it's going to soften a little bit more towards early next year.

Can you comment on the movement in chrome ore prices in the last 3 quarters? What is the movement and what it is today now?

The chrome ore prices have -- I can give you a percentage, I cannot give it. The prices have increased approximately by about 25%...

In the last few quarters.

Correct.

In the last quarter or last...

2,3 quarters. Yes.

Okay. I just have a couple of more questions. One on the barium side. Between stand-alone and consolidated, what we see is still the 30,000 tonne capacity of the barium sulfate flowing through the numbers, right? Barium precipitate capacity, when it is getting operational?

Well, it is already operational. And as we speak, we are producing, we are operating at about 40%. I mean we already received a few approvals and vendor quotes from some of the -- a few of the big paint manufacturers. And as we go towards quarter 4, we are expecting the operating levels to be at the level of 60%. And even the exports have started, things are moving on that front as well. In terms of -- I'd like to throw some light on the volumes as well. I mean if I compare Q1 to Q2, our volumes on a combination of carbonate and barium sulfate have actually increased by 10%. Also, the gross margins have gone up by about 10%. But given the fact that this asset has been capitalized, so there is an impact of interest costs and higher depreciation, which will continue for the next 2 years.

So just clarify here, 40% capacity utilization for barium precipitate and 100% capacity utilization for barium sulfate, 30,000 tonnes, right? That is a part of this quarter 2 numbers.

I'd like to correct that. It's about 80% utilization of barium carbonate and 35% utilization of barium sulfate.

Okay. Okay. And my last question is on the QIP money raised. I could see from the balance sheet, the pref capital being repaid of about -- is it of about INR 77 crores, right? Other than that, how much cash is now in the balance sheet and some cash seems to be in the -- I don't know, how much is the cash in the balance sheet? What was the -- how was the QIP money utilized?

Pritesh, this is Hanumant with you. The total debt, including the long-term borrowings and the short-term borrowings and the CRPS and unsecured loans from promoters entities as of 31st March was INR 379 crores, which has come down to INR 315 crores now. There is no repayment in the preferential capital of the share in the form of CRPS, so which is still standing at INR 6.7 crores as of 30th September. There is a repayment of unsecured loans of promoters, which was INR 26 crores as of 31st March, and that has been repaid, but there is no reduction of CRPS. It still stands as it is.

Sorry, the total liability was INR 356 crores is now...

It was INR 379 crores as of 31st March, and now it is INR 315 crores.

Okay. So let's say, you repaid about INR 65 crores there?

Yes.

And balance money, where I can see the balance sheet?

We have utilized those funds in working capital and some portion of it is staying in our cash and cash equivalents. So we had INR 21 crores of cash and cash equivalents as of 31st March, which is now at INR 77 crores in the balance sheet.

Okay. And there is some other liability item also which is repaid at about INR 100 crores from INR 15 crores to INR...

Yes. The total amount that's repaid is INR 150 crores. So that includes my long-term borrowings as well as my short-term borrowings. Overall, it looks at INR 63 crores because there is infusion of capital towards the newly acquired barite beneficiation plant. So effectively, it looks at INR 63 crores, but long-term borrowings have come down by nearly about INR 75 crores. So our term loan from banks specifically was INR 140 crores as of 31st March, which has now come down to INR 98 crores at a consolidated level.

Next question is from the line of Sudhir Bedha from Bedha Family Office.

Season's greetings, sir, and happy Dhanteras to you all. Sir, my questions are like you have stated in your press note that there is an increase in the fixed and conversion cost by INR 5 crores during the year. This is the integration of newly commissioned barium sulfide plant or precipitated barium, right? So this is a onetime cost or it will recur in the future as well is INR 5 crores. Hello?

Sudhir Ji, wishing you happy Dhanteras and happy Diwali. Regarding your query, given the operating levels of the plant for especially barium sulfate, the yields are not to the level what we have envisaged given the lower operating level where the consumption of raw materials as well as electricity and energy are not to the optimum level yet. So you ask me, will this continue moving forward? As we progress in terms of going up to 60%, 70% level, we will achieve that yield as per the [indiscernible] and the EnergyNow. So I would say even during the next quarter, there won't be an impact to the level what we have seen in quarter 2, but it will be much lesser than that. As the operating model it to be 55% to 60% level...

Yes. So as the volume goes up, this cost will be spread over higher volume, right?

Yes.

So what's the outlook on the newly commissioned plant for next 2, 3 quarters? As I understand that there is a great demand because of the Chinese [indiscernible] are not great and the supply. So if you can throw light on the lithium sulfate soda, which you have commenced, demand outlook and pricing for next 2, 3 quarters?

Demand outlook continues to remain strong as we are seeing increase in imports on a Y-on-Y basis. The total imports already for the first 9 months stands at 25,000, 26,000 [indiscernible] versus same year last year, it was at 20,000 tonnes. So we could witness a significant growth, especially in the power coating industry as well as the battery application as it acts as a cathode extender. Right now, our focus will be to work with the big multinationals where we are going through the approval because 70% of the market is in the hands of organized players. So there is an approval process which we are going through. We already received approval and vendor from two major end users, and they have -- we are in discussion with them to start supplying from January 2024. And we are hoping to have 70% of the demand in the first year. And also to the mid to the lower end of the end users, we are already supplying them on a regular basis.

In chromium vertical also, as you have stated in earlier that you are able to now increase the -- pass on the increased cost of raw material to some accounts. So we believe that this will led to a margin expansion in coming quarters or how it will pan out.

I'd like to reiterate that we continue to have the position -- the leadership position in India. So that is continuing. It's not impacting our volume in any way. And as you see, we see Indian market still remains very resilient in spite of some headwinds in the export market. Definitely, we are not an exception at least in the space where we are operating. Exports, we are seeing some sort of headwinds in terms of demand, relatively more supply than last year. So there has been an impact, especially on the pricing and partially some volume. But in India, we've actually consciously decided to increase our presence. So we would also see in terms of our mix, you will see more sales in the domestic versus exports this year. But -- and that was a conscious decision made keeping also the margin assertiveness in that...

The next question is from the line of Sunil Jain from Nirmal Bang.

Sir, my question relates to chrome ore, which form of chrome ore do you use? You use chrome ore or ferrochrome?

Sunil, this is Siddartha with you. So we are using chemical grade chrome ore. We are not using any ferrochrome.

Okay. And how much is the total requirement in a year at current capacity?

It's quite sizable. We are talking about more than 1 lakh tonnes -- more than 1 lakh tonnes a year.

Okay. Fine. And about the barium, how is the outlook for now demand from tiles industry, whether it is improving or how is the outlook?

The tile industry in India is still the demand remains quite resilient in general, especially in the domestic market, and we have a sizable market share in that given our quality. Well, outside India, we are seeing some slowdown in general. I mean we are seeing an impact of 10% to 20% in terms of demand, especially in this application. But in the other end use, when it comes to water purification and bricks, it remains quite steady in general.

Next question is from the line of Bajrang Bafna from Sunidhi Securities.

Congratulations for a decent set of numbers despite the chemical -- entire chemical industry is going through a lot of disturbances and turmoil right now. So just to -- my first question pertains to the barium carbonate side. Why there is a sluggishness or the kind of weakness that we are seeing in that segment? If you could guide us through some deeper understanding that why that segment is not doing that great. So that will be really helpful, sir.

It's mainly to do with globally how the construction industry and infra is doing. We are witnessing a slowdown, especially in China where the real estate market is not doing quite well. So what we are seeing is some additional capacity available for carbonate in China, which is actually putting some price pressure globally in general. Parallelly also Europe, even the real estate industry is relatively sluggish compared to last year. That's what -- that's the reason why we believe the demand is kind of subdued at the moment.

Okay. So till the time we don't see the recovery in those real estate market, either in China or maybe in Europe, probably this segment is going to be subdued. That is what the checking point here?

Is to some extent, but what we are witnessing is Indian real estate market still continues to be quite robust and relatively resilient in spite of the headwinds. So our domestic tile industry, especially in the Morbi area is still going strong and becoming a net exporter moving forward. So we are seeing more volumes coming out of India. So that will, to some extent, balance overall volumes of...

Got it, sir. And sir, what about getting the opportunity of the largest chromium plant getting shut down in Europe? Have we started seeing some sort of order flows or inquiries for our company? And how do we see this opportunity to play out maybe over the next couple of quarters?

It's a very good observation. So we -- so this particular factory in Europe, they make a very specialty grade oxide. So we are in touch with those customers constantly, and we are working on their specifications agenda. So it's -- I would say it's on R&D phase and in an approval process at the moment. So we are hoping definitely to see some good order flow for this particular product, derivative of chromium from Q1 of next year.

Okay. Got it, sir. And just sir, finally, the first half was a little bit, we could say, muted for our company. Can we expect second half to be better than the first half? And maybe going into next financial year, the kind of capacities that we have built up, it is fair to assume a 15%, 20% kind of growth in maybe in volume is something which is doable for us. If you could just guide on that front, it would be really helpful.

Well, we are working in the direction, and we are quite hopeful, but we should be also mindful about how the export market is doing. And we are definitely keeping our fingers crossed to -- in terms of revenues, in terms of EBITDA margins for the company as well as the investor has to be much better than H1.

Next question is from the line of Anil Sarin from Centrum.

I wanted to know some details about this backward integration that you have done in chrome ore and beneficiation. What is the price difference that you will be able to achieve? Like how much has been spent on this? And how much of saving on an annual basis do you expect from this chrome beneficiation plant?

Anil, thank you for your question. It's very early to right now talk about the cost savings that we will achieve. The main intent behind this procurement or this acquisition would be to look at a long-term supply of chrome ore. So then there is no correlation between the changes in the chrome ore prices and the end-use market. So we would have a consistent supply of chrome ore without any volatilities on the pricing side. Because today, if you observe the chrome ore pricing globally is correlated more to the stainless steel industry. And that is one industry that we do not cater to. So our end-use market is more determined basis on the 12 applications that we sell into. But the raw material side is more correlated to the stainless steel industry. With this acquisition, it clearly demarkets the thin line. And then we would have control on the prices of chrome we, consistent supply. And from today's consumption of nearly 100,000 tonnes on an annual basis, as we go forward, we are looking at nearly 200,000 tonnes in 3 to 4 years from now. So this consistent supply will help us meet our expectations -- meet our manufacturing requirements seamlessly. It's a similar benefit that we got when we earlier envisaged the soda ash plant nearly 4 to 5 years ago. At that point of time, soda ash prices were just about INR 20 a kg. And there's not a huge incentive in the short term. But in the longer term, we can see today that soda ash prices have gone from INR 20 -- from a historical average of INR 20 a kg to a current pricing of nearly INR 32, INR 33 a kg. And the same backward integration plan that we have set up is now giving us much more higher profits and improved our overall gross profit. So that's how we are modeling it, looking at it from a long-term perspective. And as we move forward and as we do some more work, we'll have more idea about the clear cost advantage that we will have from this acquisition.

Okay. That helps. I have a follow-on question. Talking about the quarter gone by, I couldn't fully understand in some of your earlier answers. What I thought -- what I think I heard was that volume has been up 14%, but the profits are down by a certain percentage on a Y-o-Y basis. Part of the reason is you're saying that the prices have come off of the derivatives of the end product, whereas the raw material prices have gone up. So that should have reflected itself in the gross margin contraction, but even that is not there. So it would help all of us if you could elaborate a little bit on the overall volume, raw material price as well as the end product prices across both barium as well as chromium derivatives of yours?

Thank you for your question. So let us talk about one vertical first, that is chromium chemicals. So last quarter, we had seen a maintenance shutdown due to which our overall operating levels were nearly about 70% on a base of 80,000 tonnes of sodium dichromate. There is no maintenance now, and there's no maintenance likely to be in the second half of this financial year. So we have operated the capacities at nearly about 80% plus levels in the second quarter of Chromium chemicals, due to which we have seen higher volume and production in the Chromium segment. On the blended realization side, we have seen a decline of nearly about 15% compared to last quarter. And that is where you see that there is not the entire gain that we could see from the volume increase. But overall, the spreads are intact, and that's how it's visible on the gross profit at an absolute level. So at a stand-alone level, we made a gross profit of INR 112 crores this quarter compared to INR 116 crores in the last quarter. In the barium side, overall, the volumes are slightly better than last quarter since we had production coming...

Sorry, Hanumant, just one thing. Last quarter, when you say it means the June quarter or the previous year September quarter?

No. When I said last quarter, it's the June quarter.

Okay. Okay. Thank you. Please, carry on. Please.

On the barium side, we have seen slightly better volumes because of production coming from precipitated barium sulfate. And that has led to marginal increase in overall gross profitability because precipitated barium sulfate is a slightly better product in terms of profitability for us. But on an overall level, we have seen a bit of softness on the barium carbonate side. So at a gross profit -- at the absolute gross profit level, we saw that in Q1 FY '24, we delivered nearly about INR 22 crores of gross profit in Vishnu Barium, which was about INR 23 crores in Q2 FY '24. So the difference is not much. And that's how on a consol level, our gross profit remains at INR 139 crores in Q2 FY '24, like I said, which is in line with INR 139.2 crores achieved in Q1 FY '24. On your second question about the profit, the net profit of the company at INR 24 crores in Q2 FY '24 compared to INR 29 crores in Q1 FY '24. The 16% decline is because of two factors. One is our higher depreciation cost, which has gone up from INR 7.1 crores in Q1 FY '24 to INR 8.9 crores in Q2 FY '24. And our fixed and conversion cost, which has gone up from INR 88 crores in Q1 FY '24 to INR 93 crores in Q2 FY '24. So that's near about INR 7 crores difference that we saw at the PBT level. And hence, it translated into a 16% decline at the PAT level.

Okay. Okay. That's a very good explanation. Last, if I may. Going forward, I mean, whatever I'm hearing from the commentary, there is -- I mean, we do sell -- I mean, our international revenue is more than 50% of our total, and international conditions are not that great. Specifically, construction is doing badly, and it is expected to do very badly, whether it's in China or it's in U.S. or in Europe. So I guess the domestic business will have to sort of step up and take up some of the load. So given the international situation being what it is, what is the overall outlook? We'll get -- we'll clearly get a benefit from this value-added barium plant that we have got for sure. That will be a benefit. We will get some benefit from raw materials on both sides now, whether chrome or [ derite ] having under our control, that is a benefit. But demand could be soft internationally as we look -- as we go forward. So if you can give a general commentary about the second half as well as the year going ahead, that would be very helpful.

Mr. Anil, Siddartha with you. That's a very good observation in general. But again, I'd like to bring to your notice that the idea of the company, even in our subsidiaries to work on a flexible product mix, which we are doing in general. So let's say, the key starting raw material for barium carbonate or barium sulfate, I mean, on an N plus 1 basis remain the same. So given how the -- since we have enough capacity even on the barium sulfate, as we would see, let's say, the paint and coatings industry since we are witnessing good demand, overall growth remains quite stable and resilient. We will focus more on barium sulfate and barium hydroxide. And also, we are parallelly working on another derivative called strontium carbonate as we move forward. So I think we are working very closely with our team to develop more flexible product mix within the assets that we have created in order to handle this kind of headwinds. Without impacting the volumes.

Happy Diwali to you.

Happy Diwali. Happy Diwali to you too.

Next question is from the line of Darshan from Crown Capital.

Just wanted to know, sir, how do we take FY '24 as a year maybe it's a year of consolidation where afterwards in FY '25, we can compensate for FY '24 growth. Would that be a fair way to look at it because we can expect international markets to maybe help us with the new plant also coming in. My point is how do we look at FY '25 and maybe beyond like can we -- because we had some margin decline right now in Q2, which the new plant will have some kind of stabilization. So FY '25, can we get back to our aim of maybe 19% EBITDA, and what kind of revenue do we see in FY '25? That's the main thing. For FY '24, I don't know. Will we be able to do what we've done in revenue in FY '23? How do we take this year as of such? Because there are a lot of macro factors also. So just wanted to get your sense on it.

Thank you for your question. Yes, the next 6 months are going to be a derivative of macro factors. But as we see that as we enter into the new calendar year and subsequently the new financial year, there will be certain areas which will work in our favor, predominantly the commissioning of precipitated barium sulfate plant. I mean that would operate at nearly about 60% in Q4. And as we enter into the new financial year, it will operate at nearly about 70% to 80%. And also the barium carbonate plant is expected to generate higher volumes as we see the construction activity improve at least after the next couple of quarters. So both of them will lead to better profitability for our subsidiary company, and that will reflect in our consolidated financials. That's what we are estimating. On the Chromium chemicals side, there are a few things that we are already working on. We are working on further reducing the cost of power through adoption of solar power. And that over a period of time, will help us reduce our fixed costs that we are incurring right now. And the backward integration plant of soda ash that started in January 2022 on a -- we'll complete 2 years of that plant in December. And next year, we are hoping to operate the plant at nearly at 80% to 85% utilization in Q4 onwards and 90% from Q1 of next financial year onwards. So that will further improve our cost savings and subsequently gross profits. So these are the areas that clearly indicate that, yes, the next calendar year as well as the next financial year looks better. And give and take, if the macro factors support us, it will be much better, but the micro factors at a company level that we are doing will further improve our profitability next year.

Sir, so just to summarize maybe in FY '24, we'll maintain the run rate that we are currently at H1. And then the growth may come more in FY first quarter that or maybe at quarter 4, we'll come to a better picture for it because for any guidance you would like to give for FY '25?

Right now, it will be too early for us to give a guidance for FY '25, but we take your observations and we'll keep the investors posted.

Next question is from the line of Kaushik Dani from Abans Investment Managers.

Am I audible?

Sir, some echo is coming from your line.

Is it better.

Yes, this is better. Please go ahead.

Okay. So what we have been seeing in the press release is that gross margins over the last couple of years, almost 4 to 5 years have been steady at around 45%, 46%. So what sort of scope do we have in terms of increasing the margins, a? And b, basically, if at all -- and let's say, in next 1 year, if we buy a reserve mine, would that lead to what sort of margin expansion due to that?

Mr. Dani, this is Siddartha with you. Well, our -- our intent and really like to focus on improving the gross margin mainly by focusing on flexible product mix as we move forward. We're definitely going to leverage that. And also what also have shared in the commentary that we are seeing the chrome ore prices cooling down a little bit. We've already seen some few drops in the last few weeks, and we're expecting a few more to come by end of this quarter. So that will definitely help to improve the gross margins, hopefully get back to the levels where we were at 46% during the Q1. And -- and also parallelly, with this chrome ore mine acquisition, it will definitely keep our gross margins over 50%, which would be our ideal target in the years to come.

Okay. Okay. Fair. So basically, let's say, till the time, if there is no mine acquisition, then do you think this 46% margin percent is like your peak margin?

Well, it depends on how the other value-add derivatives will help to improve the gross margin. But otherwise, yes, pretty much we'll be looking at 46%, 47%. It will definitely improve in the quarter 4, given the fact that chrome ore prices are coming down and whereas the finished product prices have kind of flattened or going up marginally.

Okay. And a little bit bookkeeping, but I just wanted to understand on an annual basis, how will our capacity increase shape up, let's say, '24 over '23 and '25 or '24 for Chromium?

Well, I mean, right now, it's very difficult for us to give a time line. But as we progress, I'll be able to throw more light towards end of this financial year on when this new capacity will come online. But let me tell you that the CapEx is in progress at the moment.

So this FY '24, let's say, assuming the expansion is going on, it will lead to what sort of capacity?

We are looking at about a 15% to 20% increase in capacity.

15% to 20% on 70,000 or 80,000.

On 80,000 tonnes.

Yes. And what about barium?

Barium, I think, I mean, the capacity is already there. We are working on ramping it up and getting it to an 80% operating level.

Which is 35% currently.

Which is at 45% currently. With a combination of barium carbonate and barium sulfate.

Yes, 30-30 right? Precipitated is 30 and is this one is 30.

No, it's 50-30.

50 and 30. Okay. The PBS will be 30. Okay.

Yes.

And once the fully operational or, let's say, at an optimal capacity utilization, precipitated barium sulfate should add to what percentage of your barium revenues on a full year basis?

To about 50%.

50% on the current growth -- on the current number.

Correct.

Okay. Okay. And finally, any CapEx declared for next year?

No, not yet.

Wishing you happy Dhanteras.

Thank you. Wishing you happy Diwali.

Next question is from the line of [ Rikin Shah ] from Omkara Capital.

So I just wanted to understand how is supply side reacting in barium carbonate. So we are seeing some sort of softness in this vertical. You alluded to demand side construction activity slowdown globally. But is there any sort of supply side coming up, which is adding more to it?

No, we are not seeing that or at least we are not hearing that in general. I don't think there's any additional capacity which has come up and put a lot of supply or availability in the market. It's just in general demand slowdown outside India, what we are witnessing.

Okay. And secondly, I think in the last 18 months, we are used to seeing the sodium dichromate prices moving in tandem with the chrome ore prices. But I think in the last 6 months, we have sort of seen a break in the correlation. So would you help us explain why that is happening?

Well, it was kind of what -- I mean, in general, chemical prices cooling down. Like we said, chrome ore, the major end-use industry, 90% is into ferrochrome, which thereby goes in stainless steel. So it has very little to do with the chemical industry, how the chemical industry is doing. And so the impact on the chemical industry or the pricing methodology doesn't play a very big role for the producers, okay? Whereas in general, given the fact that there has been a slowdown, especially in the construction and leather industry, it's a combination of lower demand and the raw material price increase. So there has been an impact.

So we expect like some sort of reversal in H2 maybe?

Sorry, please repeat that?

So I'm saying the chromium vertical, you're expecting some sort of reversal in what has happened?

Yes. I mean, like I've shared with everyone that we are already seeing the chrome ore prices cooling down on account of stainless steel industry in China and especially the stainless steel is also going to construction industry, they are already witnessing a slowdown as we speak. So we are seeing a good amount of cooling off going to happen in terms of pricing in the next few months. So it doesn't mean that the prices of raw material come down and we have to again readjust our finished product pricing because that has already been done. So either it will remain subdued or we will definitely make an effort to increase the finished product price and focus on the product mix where we are -- we will see a better gross margin...

Next question is from the line of Rohit Sinha from Sunidhi Securities.

Just one on the export and domestic mix. So how was the mix in this quarter versus last quarter?

Domestic sales were 55% of consolidated sales and export sales were 45%.

[indiscernible]

This is in Q2 FY '24. In Q1 FY '24, domestic was 53% of total sales and exports was 47% of total sales.

Okay. And secondly, would it be possible just to give a brief breakup in terms of industry exposure we have like construction and paint and especially in paint possible to give outline on the automobile exposure?

Yes, can you repeat your question?

So in terms of industry exposure, would it be possible just to give a breakup like which industry is contributing to our revenue, how much and especially like in construction, paint industry and paint also, it was possible for the automobile exposure?

On a stand-alone level, pharmaceuticals is nearly about 18% of our turnover with electroplating and which comprises of decorative and hard plating is nearly about 8%. Pigment and tiles is about 13% wood preservative chemicals is nearly 9%. refractory, refractory bricks, which goes into furnaces and plants in general is about 9% of our total business. Leather and allied chemicals is nearly about 20%. The remaining 10% goes into industries like soaps and detergents, textiles, glass, automobiles and battery chemicals. And on the barium front, it's nearly 50% comes from ceramics and tiles that is in barium carbonate. And then we have the caustic soda, grind purification industry that comprises of nearly 15% of our turnover. We have the construction chemicals, paints and dyes, which is nearly 40% of our turnover.

40% of our barium revenues, right?

Yes. [indiscernible] At a consol level, it would be overall about less than 10%.

Ladies and gentlemen, we will take this as the last question for the day. I now hand the conference over to the management for the closing comments.

I'd like to thank everyone for joining us and asking the right questions and giving us a chance to share our observations with you in general. Wish you all a very, very happy Diwali and a prosperous new year ahead from the entire Vishnu Chemicals family. If you have any questions or queries, please write to us on [email protected]. We will come back to you as soon as possible. Thank you, everyone.

Thank you. On behalf of Emkay Global Financial Service, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.