Tatva Chintan Pharma Chem Limited (TATVA) Q4 FY23 Earnings Concall Transcript

Tatva Chintan Pharma Chem Limited (NSE:TATVA) Q4 FY23 Earnings Concall dated May. 05, 2023.

Corporate Participants:

Dinesh Sodani — GM Finance

Chintan Shah — Managing Director

Ashok Bothra — Chief Financial Officer

Analysts:

Sanjesh Jain — ICICI Securities — Analyst

Nirali Gopani — Unique BMS — Analyst

Sudarshan Padmanabhan — JM Financial BMS — Analyst

Padma Raju Mathi — SBI LifeInsurance — Analyst

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Yash Shah — Investec — Analyst

Krishan Parwani — JM Financial — Analyst

Unidentified Participant — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Tatva Chintan Pharma Chem Limited Q4 and FY23 Earnings Conference Call hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Mr. Sanjesh Jain. From ICICI Securities. Thank you and over to you sir.

Sanjesh Jain — ICICI Securities — Analyst

Thanks, Susan. Good evening, everyone. Thank you for joining on for Tatva Chintan Pharma Chem Limited Q4 and FY23 results conference call. We have Tatva Chintan management on the call represented by Mr. Chintan Shah, Managing Director, and Mr. Ashok Bothra, Chief Financial Officer. I would like to invite Mr. Dinesh Sodani, GM Finance to initiate with the opening remarks, post which we will have a Q&A session. Over to you Dinesh ji.

Dinesh Sodani — GM Finance

Thank you Sanjay ji. Good evening, everyone. On behalf of the management, I’m pleased to welcome you all to Tatva Chintan’s earning call to discuss results for quarter ended March 2023 and financial year ended 2023 results. Please note a copy of our disclosures are available in the Investor section of our website as well as on the stock exchanges. Anything said on this call, which reflects our outlook for the future or which could be construed as forward-looking statements must be reviewed in conjunction with the risks that the company faces.

Today from the management side, we have with us Mr. Chintan Shah, Managing Director, and Mr. Ashok Bothra, Chief Financial Officer. Now I shall hand over the call to Chintan Sir for his opening remarks, over to you sir.

Chintan Shah — Managing Director

Thank you. Dineshji. Good evening, everyone. And a warm welcome to the Quarter Four and Full Year Earnings Call of Tatva Chintan Pharma Chem Limited. We declared the audited results today. And we believe you have got a chance to go through the results and investor presentation uploaded on the stock exchanges as well as the company’s website.

During this quarter, the Company reported the revenue from operations of INR1,245 million, a growth of 26% year-on-year basis, whereas the full-year revenue stood at INR4,236 million, a decline of 2% year-on-year. Despite the challenging year, we are satisfied to have achieved the scale in terms of revenue due to sustained offtake in PTC, PASC segments and revival in SDA segment during the second half, which is reflected in numbers of this quarter.

EBITDA during this quarter was at INR163 million, a decline of 26% year-on-year whereas the full year EBIDTA was at INR606 million, a decline of 44% year-on-year. The decline in profitability is largely on account of change in the product mix across business segments.

During the quarter, the inventory other than space and packing materials at consolidated levels, has come down from INR1,887 million, as on September 22. to INR1,325 million as on March ’23. With the orders in hand for Q1 FY24, we will consume all the excess inventory of SDAs. In addition, the increase in finance cost during the year is largely on account of higher average cost of debt by 400 basis points and therefore increasing benchmark grades. The annual repayments of the tune of INR98 million.

Now, let me take you through our segmental performance during the quarter. PTCs have registered a revenue of INR378 million in this quarter and the full-year revenue of INR1,432 million contributing 34% of the revenue and a growth of 46% year-on year basis within the FY23. The offtake in PTC continues to grow with major suppliers in overseas market.

Electrolyte salts have registered a revenue of INR9 million in this quarter and full-year revenue of INR165 million, contributing about 4% of the revenue and a growth of 191% year-on-year basis. Moving to FY23. The offtakes [Phonetic] from one of our large customers, which was on hold, the customer has instructed us to resume supplies from June ’23. The pilot-scale sample with another customer has now been formally approved and we shall execute the plant scale trial order by October 23. After receiving successful approval of over electrolyte solutions with another customer from R&D scale. We are now working towards supplying material from the pilot-scale. All the necessary setup has been created and we shall begin the trials from the coming week.

We also have an opportunity with two more customers on electrolyte solutions and we are in final stages of submitting the R&D sample. FY24 will be the year where couple of new customer shall go to a plant scale and FY25 is bound to witness robust growth in electrolyte space with these products getting into commercialization.

Pharma and Agro Intermediates and Specialty Chemicals have registered a revenue of INR299 million during the quarter and our full-year revenue of INR1,335 contributing 32% of the revenue and a growth of 31% year-on year basis. during FY23. I am happy to inform that for the new product in application area of metal extraction, the commercial supplies have been formally approved and we are now negotiating the contract for commercial supplies. In MonoGlyme, we could finally start the pilot trials with continuous flow chemistry. The initial results are encouraging, but we are also facing initial tipping troubles, as this is our first hand experience in continuous flow chemistry. The issues have been identified and necessary modifications are underway. We expect to start a smooth pilot trial by the end of May 2023.

As far as our second product on continuous flow basis is compiled. We have formally received a quality approval and now have begun production for a full-scale plant trial material. We plan to supply the plants trial material by end of August ’23, and we expect to begin commercial supplies from January ’24. Now regarding our third product on continuous flow chemistry, which is the key base raw-material for multiple agro-chemical intermediates, we are steadily progressing on the development of downstream agrochemical intermediates. We plan to aggregate pilot trials on this new intermediates from December of ’23 and commercialize these products by July of ’24. We have received formal approval for yet another intermediate and are now executing the plant scale trial order for which the production has begun. We expect commercialization of these product from December ’23.

The above mentioned three products are getting into commercialization, by the end of this financial year about Q4 of FY24, which will provide opportunity of steep increase in revenue in the PASC segment. SDAs have registered a revenue of INR549 million during this quarter and a full-year revenue of INR1,277 million, contributing 30% of the revenue and a decline of 43% year-on year basis during FY23. The demand for SDA is steadily coming back, we expect almost all the customers to come to a decent level by second half of FY24.

During the quarter, we supplied commercial trial orders for four different applications to one of the largest customers. The initial feedback is promising, and we expect a formal approval for two products by September ’23 and for the other two products by December ’23. The commercial supplies are expect that to begin from January of 2024.

Regarding the Flame Retardants, now we have formal approvals from three large customers. Due to low demand and drastically reducing raw-material prices, most of the customers are adopting a cautious approach. So we expect this segment to be slow in the coming two quarters. Development of two new advanced flame retardants are progressing well and we expect to pilot these products in Q1 FY24.

In April ’23, the Company has successfully commenced its production — commercial production from the new expanded facility at Dahej SEZ. Over the past decade, the Indian chemical sector has been growing rapidly, FY23 had been a roller-coaster year for most of the companies. Despite of all geopolitical uncertainties, the Indian chemical industry showed good resilience. Many of the challenges are said to persist in 2023 as well. Against a backdrop of fear of global recession and expectation of muted demand still half one of FY24.

Tatva Chintan, continues to remain fairly optimistic on achieving reasonable growth. Most of the key raw-material prices have dropped by 15% to 25%, which is also translating into reduced prices of the finished product. So this becomes a big challenge for us to achieve revenue growth. Also due to muted global demand across most of the sectors, we are seeing continuous cost pressures coming from the customers, which would translate into slightly lower spreads on margins. I feel, Tatva Chintan is fortunate with the timing of launch of new products on commercials during this fiscal and also a good timing for a gradual rebound of the SDA demand. Despite of the challenging year ahead, and even with the reduced product pricing, we anticipate to grow by 20% to 30% in FY24. Also we anticipate to slightly improve on the EBITDA margins with the forecasted change in the product mix.

To conclude. I would like to mention that our entire team at Tatva Chintan are working rigorously with the commitment to scale-up the already developed approved products at the fast pace to turn them into profitable ventures. We shall strive to develop newer products using technology to ensure that we continuously provide PTC products, and innovative solutions to our customers.

With this. I hand over the call to Mr. Ashok Bothra, our CFO for financial highlights.

Ashok Bothra — Chief Financial Officer

Thank you sir. And good evening everyone. I discuss — I now will discuss the financial updates for the quarter. Revenue from operation was INR1245million versus INR985 million in Q4 2022 as you will see a 26% on y-o-y basis. other income within during the quarter was add INR280 million, increased by 1.7 times versus Q4 FY22. During the corresponding previous quarter Q4 FY22 [Indecipherable] forex loss was around INR15 million, which was a set-off against the other income, that was around INR80 million. EBITDA was at INR163 million versus INR220 million in Q4 Fy22 that is decline of 26% on y-o-y basis.

EBITDA margin was at at 135% the same versus 22% in Q4 FY22. That probably has had an impact during the quarter and this year as a whole, largely due to higher raw-material costs as a percentage of sale, employee cost, but that was partly offset due to reduction in logistic cost and to some extent fuel cost. PAT was INR170 million versus INR175 million in Q4 FY22, decline of 3% on y-o-y basis. PAT margin was at 14% versus 18% in Q4 FY22. The impact is on account of higher finance cost due to higher working capital requirement and increasing benchmark rates during the year.

[Indecipherable] our total EBITDA and working capital limits are INR220 crores and we utilized to the tune around 70%. During FY23 exports stood at INR3042 million contributing around 72% of the revenue. Tatva has the customer-base, spanning over 25 Countries including USA, U.K., China, Germany, Japan and South Africa. During FY23 the R&D expenditure was higher by 2.65 times due to capital expenditure on account of recent legal completed R&D facility. Although the net IPO proceeds look good, on INR2,072.81 million, INR1,953 million have been utilized so-far that is 94% of the total fund has been utilized as on 31st March 2023.

During the quarter, INR26 million was utilized. That concludes an update on the financial highlights of the Tatva Chintan, we now open the floor for question and answer.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions]. Ladies and gentlemen we will wait for a moment while the question queue assembles. The first question is from the line of Nirali Gopani from Unique BMS. Please go ahead.

Nirali Gopani — Unique BMS — Analyst

Yeah. Hi, thanks for opportunities. Chintan, when I look at the company, I do understand that we are in a very dynamic industry. And we have seen great leaders managing the company at the top of it. What — recently what has happened in the event, every quarter we feel that this is the bottom-end from here on, it will only improve. But we always get negative surprises. If you can share some thoughts on this?

Chintan Shah — Managing Director

Sure. Thank you. Yes, you are absolutely correct that we have given few negative surprises, quarter-on-quarter basis and I can assure you, probably this is — this was our last surprise. So we are seeing a nice, robust demand coming back for the SDA. So if you understand, we are nearly about 50% revenue coming from SDAs in the previous financial year, which in this year, has dropped to 30%, so that was a significant drop in that particular segment and which was the highest profitable segment for — even as of today, it is the most significant in terms of profitability. So, with the drop-in sales in SDA demand, which is the known factors. So that is why all these surprises are coming on and on for last few quarters.

But now I can assure you that the demand has come back quite steadily and we will see a robust Q1, and going-forward, we expect, and this is also coming only from two customers and we expect all the four customers to resume buying at a decent level from the second half of this financial year. So. I hope this is — probably this is the last surprise and we will give you better surprises prices in coming quarters.

Nirali Gopani — Unique BMS — Analyst

Right. Sir, even in the last quarter, you had explained that we had some inventory, maybe intermediates and that was the reason that we were seeing a bit pressure on the margin. So is there inventory entirely consumed in Q4 or a part of it will be also will be continuing in Q1?

Chintan Shah — Managing Director

Entirely we will consume within this month. So whatever we produced from end of May, will be coming in from the newly proctored raw materials. So we are consuming all the piled up inventory on SDA in this month. So, probably the last dispatch we expect this to happen in last week of May from that inventory.

Nirali Gopani — Unique BMS — Analyst

Okay. And obviously, your commentary on FY24 revenue growth is very, very encouraging. But what you mentioned is that, slight improvement in EBITDA margin. So can you give a range like what will be the EBITDA margin?

Chintan Shah — Managing Director

It should be in the range of between 18% to 20%.

Nirali Gopani — Unique BMS — Analyst

Okay. Because last quarter you had guided about 22%, so you’ll see a risk to that number. Not necessarily, because now the prices are getting adjusted on quarter-on-quarter basis instead of a year-on-year basis so we need to — even for the SDA, so we can driven dynamics. See, what has happened actually in this last one-and-half months, the price of I’m talking of two specific SDAs which have prominent sales amount all the product category. The raw-material prices — the key raw-material prices come down from $19, today it is being quoted at $17.5. So of course, the customer will also expect it to reduce the price, because based on the pricing formula that you have. So when you are sitting on an old inventory that are very less things that you can do about it, but to accept the new prices and because it is based on a latest pricing of key raw materials, where you have linked your prices. So this is something which is beyond our control, but once we are through with this inventory, then we are coming back with higher margins on this. In terms of profitability on the EBITDA, the range remains the same and the pricing model that we adopt also continuous to remain the same. Right. Thanks. And you’re also talking about and the new capex that we need in a quarter or two, you will start investing, so when will you start looking on that line?

Chintan Shah — Managing Director

We should begin by end of this 2023. So that is once — so we have actually already started planning and designing for the new facility, but we have time until the end of the year and then we should start thinking about the execution of that project. Again, this plants got little wavy because of the current situation that the industry is in since last few months. And again, most of the customers have been traveling a lot since last two and half months and meeting most of the customers in person. And what I feel is, the market is set to rebound from the July or August of this year. Until then people expect this downward trend in pricing to continue, so demand is not stable as of now, but we are fortunate that at this juncture the SDA demand is coming back. So it will kind of set us — set us up with this abnormal circumstances that are in the market right now.

Nirali Gopani — Unique BMS — Analyst

Right. And Flame Retardants have also start contributing to the revenue meaningfully from this year?

Chintan Shah — Managing Director

Yes. From second-quarter, yes. That is what most of the customers are expecting. So we already have certain orders in-hand, which have been put on hold, because if you follow the pricing of certain raw materials, the prices have dropped by nearly 35%. So the customers are also getting into a wait and watch mode that like this prices stabilize until then, we are consuming the inventory pipeline. So they are also watchful about like getting new product and it’s the polymer industries is suffering with lower demands. So I think, they have already good pile up of inventory pipeline, so they are just in a wait-and-watch mode that once this raw-material prices stabilize at some point in time, then they want to start procuring. So hopefully, this quarter we may have very less demand in the particular category, but we expect to Q2 to begin actual commercials is on this. We are said to go, we have three customers who have formally approved — three large customers. So we have been approved by six or seven different customers, but three of them are notable customers. So we are set to go as soon as the demand device we will start commercial production of this SDAs — sorry the flame retardants.

Nirali Gopani — Unique BMS — Analyst

And my last question. Sir, I got disconnected in-between, but did you comment on the tax-rate, like what happened, what was the adjustment in the quarter that we did?

Ashok Bothra — Chief Financial Officer

Because — lower tax was due to the completion of our R&D facility. Resulting in lower tax rate for us.

Chintan Shah — Managing Director

So we have started operating from our new R&D facility in Baroda commissioning of admin building at our basis[Phonetics] before March.

Nirali Gopani — Unique BMS — Analyst

Okay, so sir, that was the tax benefit that we had in the quarter.

Chintan Shah — Managing Director

Yes.

Nirali Gopani — Unique BMS — Analyst

Okay, I’m for FY24, what will be the tax-rate for us.

Chintan Shah — Managing Director

Return working needs to be worked out, Ignoring this capital expenditure effective tax-rate will be around 17% to 18% assuming profit from Dahej and SEZ Plant we will be in the ratios of 2:1, but, physically Ankleshwar plant, we have — we are under full tax whereas Dahej plant, we continue to enjoy 50% tax benefit for the next five years. And all the growth that we pursue over coming years is only going to come from the Dahej plant because Ankleshwar facilities already supersaturated. So the Ankleshwar revenue will remain constant, where it is, whereas the incremental revenues will only come from the Dahej facility. So on that incremental profits coming from Dahej we will continue to enjoy 50% tax benefits for next five years.

Nirali Gopani — Unique BMS — Analyst

Okay. Thank you. Thank you gentlemen for answering all the questions. Thank you.

Chintan Shah — Managing Director

Thank you.

Operator

Thank you. [Operator Instructions]. The next question is from the line of Sudarshan Padmanabhan from JM Financial BMS. Please go ahead.

Sudarshan Padmanabhan — JM Financial BMS — Analyst

Yeah. Thank you for taking my question. Hello sir, my question is to understand a bit more granular on the guidance. See, if. I look at the first-half, you have lost you have still got INR100 odd crores on the USDAs side in which you regained [Indecipherable] in past, and even if I assume that you have a customers continue at the same number in, I mean, that should give us additionally about 20% to 25% growth [Indecipherable] So are we being conservative in terms of our guidance, because when we are talking about the few continuous flow chemistry and you are not achieving your business hiring. I mean, it looks like even you’re basically baking in a very muted growth on the rest of the [Indecipherable] small business deal.

Chintan Shah — Managing Director

So honestly speaking, as of today, this is the correct guidance because if you think in a correct perspective. I would say most of the prices with the reduction in raw-material prices, you’re have product prices also going down, right. You cannot remain at the same levels. So your product pricing is also going down. So even within the month of April, we are seeing that, typically there is a reduction of 15% to 20% in most of the products that is happening. That doesn’t mean that there is reduction in your margins. So It is just because your raw-material prices are going down, you are also parallel with reduced or forced to reduce your product pricing as well. So when I say, this year we did a revenue of let us say INR400 crores for next year to do that considering today’s pricing, we potentially have to have 20% hire sales to achieve the same revenue, so that is the bigger challenge and despite of that, I am saying that we will grow by 20% to 30%. So on pharma –on a realistic basis, it’s — considering that we are selling the products at the same prices, what you did in March of ’23 and typically, we are forecasting about — roughly about 50% growth. [Indecipherable].

Sudarshan Padmanabhan — JM Financial BMS — Analyst

And in margins. I mean even [Indecipherable]. I mean, I understand that you will be having high-cost inventory in at least in the immediate past. But I’m just trying to understand the 18% of 20% is the run-rate that you’re talking about for the full-year, your current — your exit run-rate, much higher than the 18% to 20% sales in this quarter or the second half. Because you would have depleted all the [Indecipherable].

Chintan Shah — Managing Director

There are four large things that are happening typically from November onwards. So we will have four SDAs with a new customer going into commercialization, which is a large-volume. Secondly, we have probably one of our largest products in terms of intermediates going into commercialization from January of ’24, which is again, considering that our plant scale trial material of one container gets approved, which we are expected to dispatch by July or August of this year. So assuming that the product gets approved, I suppose the pilot material has been approved. So we don’t see much challenges. But considering that, then we are getting into commercialization of one of our largest intermediate based products, which will get into commercialization from January. So that is what we are negotiating with the customer for contract for ’24. So from January ’24 to December of ’24. Again, we have — we are currently producing one of the newly approved product, we are producing one full container load of material. And this will again go into a — plant scale approval basis and this also, we expect to have commercial production. I mean, commercial order begining from November or December of this year. So most of these events are happening near the end of the financial year. So, probably next seven months to eight months, we are just seeing incremental growth that would happen from the increase in sales in SDAs that we are anticipating. But the real sales that we will expect — that we are forecasting to really grow in terms of real new business will happen, Everything is happening post November of 2023.

Sudarshan Padmanabhan — JM Financial BMS — Analyst

Thanks a lot, sir. I’m done with it.

Operator

Thank you. The next question is from the line of Padma Raju Mathii from SBI Life Insurance. Please go ahead.

Padma Raju Mathi — SBI LifeInsurance — Analyst

Yeah, thank you. Hope I’m audible.

Chintan Shah — Managing Director

Yes, sir.

Padma Raju Mathi — SBI LifeInsurance — Analyst

Yes, sir. Chintan Joshi, just a few questions on the margins front. Now if I see gross margins sequentially, they have dropped by 400 bps. So just wanted to get some sense, how much of this would you attribute it to the inventory loss, that is one. And with respect to this initial tipping problems that we are talking in this continuous flow chemistry has there been any cost associated with that, in this particular quarter?

Chintan Shah — Managing Director

I would not have a very precise number about the impact on margin because of the older inventory, but to give you a ballpark figure. I would say to a tune of about INR7 crores to INR9 crores is what would be a rough estimate. So this doesn’t necessarily include the products and inventory, of course, the products in inventory, but certain stages at the intermediate stages. And this you have to reprocess the product. I mean to do that, further stages of domestic with the increased raw-material solvent prices that was happening. And now we have a different dimension beginning from end of March, where suddenly the raw-material prices have dropped [Indecipherable] prices still remain to continue almost at the same level with 5% – 7% decline, but the raw material prices have declined sharply. So again in this quarter, we have a number, which is about INR6 crores to INR7 crores of Impact on the profitability because of this inventory, which we will sell-off at a new prices.

Padma Raju Mathi — SBI LifeInsurance — Analyst

Okay.

Chintan Shah — Managing Director

In the current quarter. [Speech Overlap] continuous flow chemistry, no, So, these are minor — see these are operational issues that we — it’s our first time experience running certain chemistry at very-high temperatures in continuous flow basis, so certain pumping solutions had to be altered, certain heaters had to be replaced because of not giving you the constant high-temperature requirement and stuff like that. So, these are minor cost involved in that. The major cost involved in that is your time, and opportunity [Phonetic].

Padma Raju Mathi — SBI LifeInsurance — Analyst

Okay, okay. And my next question is related to actually, you talked about customers being in wait-and-watch mode in both SDAs as well as Flame retardant

Chintan Shah — Managing Director

Not in SDA only in flame retardants.

Padma Raju Mathi — SBI LifeInsurance — Analyst

Yeah [Speech Overlap], I think, following raw-material prices. So, how. I mean, how is the demand outlook in the other two segments in the PTCs and PASC.

Chintan Shah — Managing Director

PTC, PASC and SDAs, we see a very good demand and most of the businesses for up to December ’23 have been [Indecipherable]. Most of them with the large customers. So. I don’t see much challenges on that part. The only challenging part remains is the Brominated flame retardants product. And that also, most of the customers we have been talking to actively and they expect this to be in an quite decent more from second hand in this financial year. So probably by our investors. September is when we anticipate this to come back to a normalcy levels.

Padma Raju Mathi — SBI LifeInsurance — Analyst

Okay, yeah, last question from my side, like, from a capex point-of-view, how we should see this particular year. I mean, what would be the kind of capex spend?

Chintan Shah — Managing Director

Yeah, so for the new product that for the new intermediates product, I talked to you about goes in commercialization [Technical Issues] new year. So currently we have infrastructure in-place which cannot handle this volume. So we have certain missing parts on that. Then, as you are aware that this product also forms part of our second product, which is on a continuous flow basis. So this product involves a part of the chemistry on a continuous flow basis. So we have to invest in two columns and maybe a couple of the reactors, we are looking at about INR16 crores to INR17 crores of capex. That — and probably your running capex that keeps on happening — certain old equipment being replaced or some things being discarded because of age and those factors. So potentially, we are looking at about, INR30 crores to INR35 crores of capex during this financial year.

Padma Raju Mathi — SBI LifeInsurance — Analyst

Okay. Okay. Thank you.

Operator

Thank you. The next question is from the line of Dhruv Muchhal from HDFC Mutual Fund. Please go ahead.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Hi, sir. Sir, it seems you are seeing some good development in the second and third product in the Pharma and the free Pharma segment. And most of the commercialization seems to be happening from November and December probably. So sir, how can we look at FY25, probably that would be a good year to look at for that segment. So probably, if you can give some sense of what can be the revenue run-rate there, because it seems you have decent visibility on some of the products. So, what can be the revenue run-rate in the free Pharma segments.

Chintan Shah — Managing Director

With current pricing levels, probably this question last couple of months back, if you had asked. I would have said 100% growth, is what we anticipate. But today I will post it around 75% to 80% growth. From the recently-completed financial year basis yeah.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

[Technical Issues] And then it should gradually ramp-up in FY25 FY26 for [Indecipherable] 26 only.

Chintan Shah — Managing Director

So by the time we should be pretty much close to consuming a lot of new capacity as well. Very close to that, we’ll be running at about 85% of occupancy levels. by that time. That is a reason why I’m saying we will have to think about starting that Apex, at least by the end of 2023 or early 2024.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Got it. And sir, the second thing is, you mentioned about margins that are at about 18% – 20%, and underlying revenue growth adjusting for the pricing of about 40% odd. So revenue growth of about 40%, adjusting for the pricing impact. This does not impact your EBITDA, but of course impacts your revenue. So sir, because the next year in FY24 probably a mixed for SDAs will also improve versus what it was in FY23. So shouldn’t — so basically your guidance should change the revenue growth and EBITDA growth is already some where around 40% – 40%. Shouldn’t the EBITDA growth be much better given?

Chintan Shah — Managing Director

This is a very logical question that you have asked. And the real answer to that is, some of this EBITDA margins will be consumed by the BFR product. Because these are not very-high margin product. what we are using — what we have launched recently. So this is the starting kind of a base product in terms of the BFR. So when we go to the next-stage is when the EBITDA margins becomes decent. So these products will consume some of the EBITDA margins of our other product categories.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Got it. And, sir, quickly. On BFR [Indecipherable], what kind of utilization are you expecting in ’24 and ’25, probably ’24, ’25 seems early. ’24?

Chintan Shah — Managing Director

Sorry. Please repeat the question.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

For FY24, what kind of utilization are we expecting in the Flame Retardants, I think the capacity is 5,000 odd tons?

Chintan Shah — Managing Director

We expect about 40% of that consumption,

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Okay. Great sir, thank you so much and [Indecipherable].

Chintan Shah — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Yash Shah from Investec. Please go ahead.

Yash Shah — Investec — Analyst

Hello. Hi, sir. Thank you for the opportunity. Sir, my first question was regarding the new products which we are launching in the current financial year in FY24. We have about five to six products which we are launching, which will basically contribute to majority of our incremental revenue. So, sir. I just wanted to understand our thinking. Whenever we basically develop a new product or are commercializing it, what is the market size that we target or what are the internal parameters we have before we start developing a new product for the customer? So wanted to understand that since majority of our value unlocking is going to come from the — from about to be unlocked products? Thank you.

Chintan Shah — Managing Director

So. What they were till now undertake as a project has to have. For us some market of at least INR40 crores to begin with, in terms of — so we are picking basically something which can give us a 10% growth. And the product should have a good long-life and also growth opportunity down the line. So, of course, when you say the customer only gives you 20% or 30% of its overall demand as a new supplier and then you have an opportunity to ramp it up to maybe 50% or 60% to that overall business requirements. So that is how we identify our products.

Yash Shah — Investec — Analyst

Okay,

Chintan Shah — Managing Director

So typically when we talk of a new product we intend to reap in minimum revenue of INR40 crores, and of course, there is no limit on the upper side. But now, whatever we are taking is with a far more higher revenue potentials. So this is what we are going to commercialize now is not a work of today, it is — the work has been going on since probably last two-and-half or three years and which is now getting into a mode of commercialization.

Yash Shah — Investec — Analyst

Understood, understood, sir. So basically, our understanding is that, earlier it used to be — to reduce the concentration we had more products, but now since we have been developing a higher, bigger market products. Now — so going-forward as will be reduced the amount of launching of new products and focus on the bigger total addressable market products, the understanding is right, right?

Chintan Shah — Managing Director

Absolutely. Then there are certain different ideologies as well that we are working on. It is you develop, one chemistry and based on that chemistry you develop a portfolio of products. So that basically your — let us say we picked-up one, the third product on continuous flow basis becomes a key raw-material for multiple different products. So you invest for few years in developing that particular key raw-material that becomes for use and then you develop a familiar products around that product. So that is another way, where we are also working on. So that necessarily, doesn’t mean that key product will bring INR40 crores in revenue but probably your main precursor of that which we have developed, internally, this can have a potential of at least INR80 crores to INR100 crores in terms of revenue, but it may come from three or four different products.

Yash Shah — Investec — Analyst

Got it, got it, sir. And sir you earlier clarified that the margins will be only 17 — 18% to 20% for the whole year, because of the Brominated flame retardants consume some of your margins. So is it safe to assume by FY25, we will go back to our peak margins of 23%,- 24%. Since the inventory — lower-cost inventory will also be out — sorry the higher-cost inventory will also be out. And the ramp-up of flame retardants will also have increased. So is it safe to assume to go back to 23% to 24% by FY25?

Chintan Shah — Managing Director

I would say a safer number would be 20% to 22%.

Yash Shah — Investec — Analyst

Got it. Okay sir, that’s all from my side. Thank you very much.

Chintan Shah — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.

Sanjesh Jain — ICICI Securities — Analyst

Yeah, good afternoon and thanks for taking my question. Continuing with the margin again. This year margins of 18% to 20%, is also because that we have commercialized this new plant and there will be cost-related to that.

Chintan Shah — Managing Director

[Speech Overlap] Cost related — yes, so that is one of the key factors, because we will operate the plant, but it will be operated at a much lesser capacity. So, but the cost eventually associated with them, most of the cost associated remains fixed. So and that was one of the key reasons why we also saw a lesser. EBITDA margins during the current financial year, because of lower operation of the SDA plant which was barely. I mean, for the first six months, we never operated that facility may be 5% -10%, and even in the post second-half, where we are seeing most of this larger revenue numbers, but operating that facility is still far below compared to what you would normally have to if you want to operate at this revenue level. So most of — probably 60% – 70% of the products being sold during the half second half of this financial year was coming, most of this was coming from the pile up inventory [Indecipherable].

Second, again the problem with margins, when we say that we are taking a 20% cut in the realization while we maintain the spread effectively mathematically, the margin goes up. Because we are dropping the revenues from 100% to 80%, but assuming a spreads, which remains at 20%, we go from a margin of 20% to 25%. What we are doing [Speech Overlap], not exactly, so I’d just like to correct you there. So when you are dropping the prices, because of raw-material consumption, so customer has certain base formula as you know that this is a product, this is the conversion cost, and this is your margins and the moment, you said that raw-material cost is reducing, they want to also put that reduction in those fixed numbers. So that is where potentially you may increase by one percent or so, but you’re spread also starts coming down proportionately.

Sanjesh Jain — ICICI Securities — Analyst

Okay, that’s means lower raw-material — [Speech Overlap]

Chintan Shah — Managing Director

So we are not having a pricing formula on a per kg basis it is all linked on a percentage basis. So more or less your spread remains constant in terms of percentages.

Sanjesh Jain — ICICI Securities — Analyst

That means sir, [Speech Overlap]

Chintan Shah — Managing Director

So we worked on two large customers, pricing models where we are seeing that the spread will increase by about 2%. Because of reduction in overall price, but it’s not like the prices dropped by 20% and spread will increase by 5%, it doesn’t happen.

Sanjesh Jain — ICICI Securities — Analyst

Got it, got it. That means the falling raw-material prices will impact [Indecipherable] rising raw-material prices is in fact on much better situation for us.

Chintan Shah — Managing Director

Both the situations are not good for manufacturer, I can tell you that. We have pass-through both the cycles, when it’s an increasing pricing cycle customer wants you to hold the prices still you have executed all their pending orders and when it’s falling pricing market than customer wants the price change to happen from tomorrow. So you are always in trouble in both the scenarios.

Sanjesh Jain — ICICI Securities — Analyst

Got it. Now taking this to FY25, you have a negative impact of bromine netted Flame retardant in FY24, which will partly at least [Indecipherable] — operating leverage will go up because we will be operating the new plants probably [Indecipherable], and number three we will be starting a lot of product from the continuous look at this disease, we anticipate customized instance is better than what they do on a company average? This 20% to 22%, then it looks like a significantly a conservative number in that scenario. Are we being too conservative, cautious, What is happening on a very near them? Is that a phenomena?

Chintan Shah — Managing Director

I don’t have — honestly. I don’t have anticipation for ’25, but. See, basically what will happen is, when we launch commercialize this product in end of, I mean by December or January of this year. That is — we are utilizing only one quarter for that plant. And I’m sure when it begins, it is not going to be at a full-scale, but three months or six months down the line when you really hit the volumes that is required by the customer is when your plant actually start getting occupied at a very-high level and that will have an impact on your EBITDA margins because technically your operational cost on per kg basis starts coming down. So. I would say, by June of 2024, yeah, so July of 2024 is when your plant is pretty much occupied beginning to get almost fully occupied at a level up 75% – 80% plus that is when you will start kicking-in the real EBITDA margins that you forecast. And sir, just correct me if I’m wrong, I thought continuous flow chemistry, you’re running on a very small quantity on a very high temperatures. While, the conventional is you’re using larger drum and if utilization is lower, your power cost, really doesn’t come so. That’s really true result in the conventional manufacturing, in the continuous flow manufacturing, if they’re not manufacturing prevent this plant check you cannot operate at a lower level, right. So that’s thing really doesn’t work-in a continuous flow, what you’re telling us [Indecipherable] let us say my plant has the capacity to produce 3,000 [Indecipherable] for example. And. I have a demand of 1,500 metric [Indecipherable], then you will update that continuous flow plant also on kind of a campaign basis, you operate for four months and take a break and you again regenerate you catalyst and offer for another four months kind of [Indecipherable]. The ideal situation is when you can actually run it 365 days for 3,000 metric tons. It can take you a couple of years to build-up the market, to that extent.

Sanjesh Jain — ICICI Securities — Analyst

Got it, now coming to the revenue growth guidance [Indecipherable] say 20% to 30% for FY23. If I could [Technical Issues] itself for FY22. We did some 260 crores of revenue. If I knock-off say 10% -15% of pricing, which is the ready, is now that part will come down to say INR200 crores level and what we are talking is growth, from the exit we are already at INR200 crores and we have only 200 customers. And we are only two customers. so I have four customer and we have signed the fifth customer, again. and we will be preparing for Euro 7 sooner. And then we have a host of new products coming in, the electrolyte chemical and PASC and Flame retardant, then the product itself will take a significant amount of revenue growth because the kind of margin contraction, we’re taking. I don’t — I don’t know-how are we contemplating that from the revenue. I don’t know, are we really been realistic on the revenue or where become too conservative considering what has happened in the last [Indecipherable]. Mathematically, it’s not adding up?

Chintan Shah — Managing Director

See basically, This is definitely a conservative forecast, but. wherein my customer is saying that we will start buying from July or August and this makes me alert that I’m making conservative statements. Then for the two customers, who have already started buying, then. I have a very clear picture of what is happening with these two customer — large customer, where we are — we have also indicated volume towards that if your containers get approved, then this is the volume that we’re looking from you and it’s an ongoing business. So when someone is on-hold and they say, I’m going to start buying from July or August, then I start considering this. We take it in conservative and this July and August can become September or October. So we take that conservative stance, so that we don’t want to mess with you.

Sanjesh Jain — ICICI Securities — Analyst

Fair enough, fair enough. Great, thanks for answering all my questions and [Technical Issues] for the coming quarters.

Chintan Shah — Managing Director

Thank you.

Operator

Thank you. We’ll move on to the next question that is from the line of Krishan Parwani from JM Financial. Please go head.

Krishan Parwani — JM Financial — Analyst

Yeah, hi Chintan bhai. Thank you for taking my question. Couple of questions from my side. So the first is you said. I think PASC revenues will increase in 4Q of FY24, given you have a couple of products coming in. One of the largest intermediate in the January ’24 – December ’24 going-forward contract. So this is will be on account of — you said two new Agro Intermediates, is that correct or did I hear something wrong?

Chintan Shah — Managing Director

No, you heard it perfectly.

Krishan Parwani — JM Financial — Analyst

Okay and we received the peers for this already or the peers are awaited.

Chintan Shah — Managing Director

So both these, we are executing, we have PO only for the plant scale approval material one container each. So that is what we are executing in one-product in July and one-product in August.

Krishan Parwani — JM Financial — Analyst

Okay. Yeah, [Speech Overlap]

Chintan Shah — Managing Director

So this has been going on, probably since last one year, when the lab scale samples got approved and a pilot-scale sample got approved than, mini plant scale sample got uploaded [Indecipherable] for domestic tons kind of a thing. And now we are at a full-scale plant [Indecipherable]. I don’t expect anything to go-around the product has been performing very nicely. So based on this full-scale commercial — so when you say full-scale plant trial means the customer is going to actually use it for their mainstream production going to [Indecipherable] Along with maybe of our competitor’s product and then he will utilize at the same time on seeing the performance.

Krishan Parwani — JM Financial — Analyst

Understood. So probably you will get the POs probably towards the September month. I guess. So then you have [Indecipherable] Yeah, two, three months for reaching that. Yeah. Okay, thanks. Got it. So on the utilization level for this the new [Indecipherable] facility that you have commercialize — commercialized last month. So what kind of utilization level you are expecting in FY24 from this new facility that you’re commercialized?

Chintan Shah — Managing Director

Close to about 30% – 35%.

Krishan Parwani — JM Financial — Analyst

30% – 35%. So is that the a reason why you have given, kind of 40% sales growth, because you are almost at your peak utilization level, current facilities. I think you had mentioned in one of the calls that peak utilization or peak revenue from current capabilities around INR130 crores to INR140 crores [Indecipherable]

Chintan Shah — Managing Director

Yeah, so we are very close to that. So our existing whatever facilities, so we have already actually started using facilities from the new plant as well. And with all these new products that are being launched that will start occupying the facility almost kind of 75% – 80% percent from January of this financial year.

Krishan Parwani — JM Financial — Analyst

[Indecipherable].

Chintan Shah — Managing Director

Then probably it will be 30% – 35% [Indecipherable].

Krishan Parwani — JM Financial — Analyst

Got it, sir. Sir, two small clarification. So on the sales growth that you’ve mentioned like 30% – 40% sales growth in FY24, could you like break it up in terms of category-wise as in a ballpark number should do, doesn’t necessarily have to be the exact one, but what kind of growth in SDA and what kind of growth in the other categories, in terms of sales?

Chintan Shah — Managing Director

We expect to potentially hit the same number as ’22, that is what we are expecting and electrolyte salts is where we may see probably about 60% to 100% growth in that segment and close to a 100% is what I anticipate. So it sounds like atleast that it is pretty much stable, so this year will be expect at least 10% growth [Indecipherable]. So we are in an approval phase for a new application of Phase Transfer Catalysts, but the project is not going as, we believe for the customer as they would have anticipated. And these are very innovative applications where we are — our product is being utilized as a Phase Transfer Catalyst. So one of the application is in — in manufacturing of recyclable plastic. So it’s a synthetic, not like the plastic what we see, it’s kind of Green plastic. Means synthetically or chemical and another application is in the area of wood preservation. So when you have these large logs of woods, and this is a new application where they expect, let’s say large volume demand for this particular application. Our product has been approved, we have already supplied a couple of metric tons of product for that. But the project is not going on smoothly with the customers, so they anticipate probably six months to a year of a lag. So if it happens in this year, we may have a good growth in PTC there as well, but right now it is not a part of my forecast. It’s doubtful.

Krishan Parwani — JM Financial — Analyst

Okay, sir. Last point. I think mentioned you expect SDAs sales at similar level too [Indecipherable] FY22, that was around INR226 crores. If we look at the exit run-rate of your 4Q. Almost like INR55 crores, so that means you are expecting this to continue, but. I guess, you mentioned that one of the large customer would start taking from June ’23. So are you not expecting any growth from this quarter in terms of SDA sales?

Chintan Shah — Managing Director

There is a growth in terms of volume, but the prices will be down by — about roughly about 20% – 22%. [Technical Issues] So when you see in only in terms of revenue numbers. it is what the answer is. So it’s a good growth, but the growth in terms of revenue will not reflect because of reduced pricing.

Krishan Parwani — JM Financial — Analyst

Got it, sir. Got it sir. That is very helpful and wish you all the best, sir. Thank you again.

Chintan Shah — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Piyush, an Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Thank you sir. Chintan. I really Just wanted to understand. I’m wondering, SDA sales we are dropped 30% and still SDA sales whatever margin has gone down to around 10% -12%, something in that compared to last year, which is around 22% margin. And what you are saying is maybe June July, you will start supplying to the another two customers also. So if assuming H2 it will be complete the group of SDA sales, So what type of margin we can generate on SDA sales.

Chintan Shah — Managing Director

I’m sorry, I’m not clear about the question.

Unidentified Participant — — Analyst

What I’m trying to understand what we you said earlier also, SDAs is our high-margin products. And last week, we have — we have done a margin of 22% to 25% trajectory. Correct,

Chintan Shah — Managing Director

Correct.

Unidentified Participant — — Analyst

This year, that even down because we are down 30% y-o-y sales down in SDA, assuming we inclusive SDA in ’24 and assuming the same level of ’22 or something like that then still the margin guidance of SDA looks on the lower side. So are we saying we will not achieve the past trend of SDA margin ’24?

Chintan Shah — Managing Director

The margin guidance is not only for the SDA it is overall margin. So in terms of spread, the margin remains the same with the SDAs which was in ’22, it will continue to remain the same, it’s only because you’re operating your plants at a lower occupancy levels, that is what is pushing down your EBITDA margins, because most of your cost associated with plants are fixed. Lot of them. So whether you operate the planet at 30% or you operate at 80%, most of the cost remains the same. That is what is causing the EBITDA to look at a lower number, but in terms of an individual spread when you consider, let us say, for example, raw-material cost vis-a-vis is the selling price, then the spread remains the same in terms of [Indecipherable].

Unidentified Participant — — Analyst

[Indecipherable] 20% type of margin in ’24 H2 or ’25, or we are keeping the guidance at 18%.

Chintan Shah — Managing Director

I say, 18% to 20%.

Unidentified Participant — — Analyst

Okay and second question on sir, electrolyte sales which Q4 I think we didn’t have any significant number of [Indecipherable] sales, Any specific reason [Speech Overlap].

Chintan Shah — Managing Director

There is — I think [Speech Overlap] 15 or 16. We have two commercial customers right now for this and we are in queue with four other customers at multiple stages, somewhere we have supply the large scale sample, somewhere we have got large scale approval and we have supplied pilot scale samples. We are also into approval mode with two more product right now. Out of this two already commercialized customers. So one customer was on-hold since probably last four months, and now we even got a confirmation to start supplies from June. So they were basically debottlenecking in expanding their manufacturing capacities. So now we have got a go-ahead to start supplies from June of ’23 and the other customer probably, it’s sitting on an inventory, we procured in last quarter. So we then try on orders from that particular customer. Again, we have orders from there for this quarter.

Unidentified Participant — — Analyst

What is the growth we are expecting in electrolyte because it is already small-size [Indecipherable].

Chintan Shah — Managing Director

We expect a 100% growth. Nearly about 100% growth in that segment in this — We have compared to the previous year.

Unidentified Participant — — Analyst

Okay. And that’s also [Indecipherable]

Chintan Shah — Managing Director

Whatever new products we have it is — most of them will hit a stage of commercial supply by the end of the financial year. So early 2025 should see the real sales in the electrolyte is coming back. I mean, actually start, grow and become a part of — decent part of our overall revenue.[Speech Overlap].

Unidentified Participant — — Analyst

Okay, thank you sir. And this electrolyte salt will also — a similar margin profile product around 20% something or it’s a high-margin already?

Chintan Shah — Managing Director

Any more or less like more or less like in SDA [Indecipherable].

Unidentified Participant — — Analyst

Okay, the next question is on fire retardant. I think when we first time announced fire retardant, I think you said — made some comments that it can be similar-size of like what [Indecipherable] right now. So maybe a INR300 crore to INR400 crores opportunity. I think given a lighter side. So what can you give the number [Technical Issues] about 2025 specifically on fire retardant. Let’s say 2025, how much can it contribute in the overall revenue.

Chintan Shah — Managing Director

So this year we expect somewhere between INR40 crore to INR50 crores in terms of revenue and exponentially, we expected to hit about $200 crores in terms of average.

Unidentified Participant — — Analyst

INR200 crores in 2025,

Chintan Shah — Managing Director

25

Unidentified Participant — — Analyst

Maybe $400 crore — $300 crore that the number can be [Indecipherable].

Chintan Shah — Managing Director

This same brominated flame retardant six months back, the selling price was about $8 with a reducing raw-material prices. Now the product cost has come down to $4.5. So nearly a 50% drop. in the product cost. So this is quite a dynamic thing to forecast, as of today, because of such a huge volatility in that particular segment. The raw-material prices are fluctuating wildly. So it’s very difficult to project an exact revenue number. So we typically project in terms of internally we project in terms of volumes and revenue numbers can change and it has swing like this almost 50% swing in last six months timeframe.

Unidentified Participant — — Analyst

Okay, thank you. Thank you, sir.

Chintan Shah — Managing Director

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Chintan Shah for his closing comments.

Chintan Shah — Managing Director

On behalf of the Tatva Chintan’s management, I thank you all for joining us today for our earnings call. We appreciate your support and trust in our company. We commit to deliver and see the market for our products improve going forward. We hope that we have been able to address most of your queries, you may reach out to Mr. Ashok Bothra, our CFO or our Investor Relation partner E&Y for any further queries that you may have. And they will connect with you offline.

Thank you, Sanjesh for hosting our call and thank you everyone and have a great evening.

Operator

Thank you members of the management team. [Operator Closing Remarks]