Alkyl Amines Chemicals Ltd (ALKYLAMINE) Q4 FY23 Earnings Concall Transcript

Alkyl Amines Chemicals Ltd (NSE:ALKYLAMINE) Q4 FY23 Earnings Concall dated May. 12, 2023.

Corporate Participants:

Kirat M. Patel — Executive Director

Kanchan Shinde — Chief Financial Officer

Analysts:

Nilesh Ghuge — Analyst

Nirav Jimudia — Anvil Research — Analyst

Pujan Shah — Congruence Advisers — Analyst

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Archit Joshi — B&K Securities — Analyst

Noel Vaz — Union Asset Management — Analyst

Chandrakhant Dhanuk — CD EquiSearch — Analyst

Jaiveer Shekhawat — Ambit Capital — Analyst

Chetan Thacker — ASK Investment Managers — Analyst

Rohit Nagraj — Centrum Broking — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Alkyl Amines Chemicals Limited Q4 FY ’23 earnings conference call hosted by HDFC 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. Nilesh Ghuge from HDFC Securities. Thank you and over to you Mr. Ghuge.

Nilesh Ghuge — Analyst

Thank you, Tanvi. Good afternoon, all. On behalf of HDFC Securities, I welcome everyone to this Alkyl Amines conference call to discuss the results for the quarter ended March 2023 and full year FY ’23. It is pleasure of having with us top management team from Alkyl Amines represented by Mr. Kirat Patel, Executive Director; Mr. Chintamani Thatte, General Manager, Legal and Company Secretary; and Ms. Kanchan Shinde, Chief Financial Officer, Alkyl Amines.

Without further ado, I will now hand over the floor to the management for making opening comments. Over to you, sir.

Kirat M. Patel — Executive Director

Thank you, Nilesh. This is Kirat Patel. Thank you everybody for joining us on this annual call after our annual results. I’ll take a few minutes to just give you a brief outline of how the year has been and then we can throw the floor open for questions.

The year has been, as we all know, a little peculiar because of the Ukraine war which affected all the commodity prices and there’s been a lot of volatility in prices. Fortunately, over the period of the year, we have been able to maintain market share, increase our volume sales and manage to at least stay on track as profitability is concerned.

There have been of course in the marketplace between our main customer industries some degree of volatility with pharma having some stress. The pricing on our inputs have been under stress. Fuel, for example, coal has gone up considerably in the last year.

Fortunately, it looks as if all that has now settled and we look forward to a much stabler time in the next — in the coming year, which is ’23-’24. As far as our projects are concerned, the big project of ethylamine’s expansion where we are planning to spend well close to INR400 crores is almost ready for commissioning. It will probably be commissioned in the second quarter of this financial year that is July to September sometime and we will be on track. In the meantime, we have already commissioned one new product in the last year, diethyl ketone, which plant has stabilized now in production.

With that, I will leave the floor open for questions and we’ll try and answer to the best of our ability. Thank you.

Nilesh, if you could open the floor for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Nirav Jimudia from Anvil Research. Please go ahead.

Nirav Jimudia — Anvil Research — Analyst

Yeah. Good afternoon, team. Sir, I have two, three questions. Sir, if we see the amines chain like from C1 to C6, like methyl, ethyl, propyl, and hexyl amine up to, I think we are fairly stronger in the first three, like, methyl, ethyl, and the isopropylamines. So if you can take us through how we are placed in the other three amines. Because I think we are the only player in India who is into this higher chain of amines. I was just checking our website where one of the key products in hexylamine is two ethylhexylamine.

So if you can just walk us through like how much of our current turnover is coming from this higher amines and what is the size of these higher amines into India? So are they totally imported into India or how is the situation be?

Kirat M. Patel — Executive Director

Yes. Nirav, we are in the business of aliphatic amines. And as it happens, the market for the amines — the largest market is for the C1 which is methylamines by far the largest market. The second largest market is for ethylamine, and the third largest — which is C2 — and the third largest market is for isopropylamine. The C4, 5, 6, ethylhexyl is mix of C6. And the butylamines are relatively smaller markets. In fact, in terms of turnover, I mean, part of our revenue, they would comprise less than 5% of our total revenue. So, those are much smaller markets in India.

Yes, we are the only manufacturer and our competition is in imports from both China and Europe. And we do command depending on the product reasonably good market share because — since we happened to be the only manufacturer of these products.

Nirav Jimudia — Anvil Research — Analyst

Correct. Sir, you mentioned C4 to C6, total our revenue share is close to 5%, right? Or only C4 butylamines is 5%?

Kirat M. Patel — Executive Director

No, no. All put together. There are three products in that.

Nirav Jimudia — Anvil Research — Analyst

Correct. So the new products what we alluded last time like five to six products what we are going to launch over next 10 to 15 months, one you recently mentioned DEK which we have launched. So apart from this one product, the remaining products — does it qualify into these higher amines where probably we are the only producer in India and we can get some immediate input substitute volumes once we commission those capacities?

Kirat M. Patel — Executive Director

No, the products which we mentioned in our last meeting that we are going to launch about five products over the next, well, 24 months of which some moths have — six months have already gone. One product was diethylketone and that’s not part of the amine family and neither are the others a part of the amine family. One or two are derivatives and the others are specialties.

Nirav Jimudia — Anvil Research — Analyst

Got it. Got it. Sir, the second question is what we have seen recently is like one of the key raw material ammonia, the prices have corrected from close to $900 in December to $300 now. So my question is, what sort of volume growth we are expecting for FY ’24, coupled with the fact that some of the raw material benefits could be passed on to the consumers because of the — some commodity nature of the business, but some we could retain on and which could help us to improve our per kg margin.

So like, if you can guide us in term of how much out of this INR1,700 crores of our business can have a scope of improvement in the per kg margins. And like, FY ’21 was a year when acetonitrile was doing very well and we reported very good numbers. But now with new products, ethylamines plant also getting commissioned, probably the contribution of acetonitrile would be coming down in the overall buy of our revenue.

So if you can help us explain in terms of the situation for FY ’24 and FY ’25, that could be helpful, sir.

Kirat M. Patel — Executive Director

Yeah. So in terms of volumes, in the last year we have done — we had always — we had predicted we will do between 10% and 15%. Unfortunately, it’s been at lower level at around 10% the volume growth. We are expecting next year to be a little better because things have stabilized and our customers are being a little more optimistic. And we hope to be able to do at the higher end of this 10% and 15% in volume growths.

You are mentioning ammonia as a particular input. Yes, ammonia prices have come down and it is one of our key — the top five inputs into our products and it will help us. But you must understand where margins are concerned, it’s not just the raw material prices going down, but it’s also how the competition changes the finished goods prices because prices are set by competition.

So margins are always following a sequence where raw material prices come down then the finished goods prices come down. When the raw material prices went up the finished prices — finished goods prices went up because we and our competitors are all in the same boat. So, sooner or later, we have to come to reasonable margins.

Yes, it is a good thing that not just ammonia, but even coal seems to have come down a bit. And we are hoping that raw material prices have seen their highest — have seen their peaks and will settle down.

Nirav Jimudia — Anvil Research — Analyst

Correct. Because, sir, if we see probably some of the products are difficult to even import, case in point is, methylamine. So there we could retain some portion of the raw material cost benefits and coupled with the fact that in the higher set of amines where probably the competition is limited, we can retain the benefits of this raw material cost, correct? Is it safe to assume that?

Kirat M. Patel — Executive Director

No, the point remains that even in methylamines domestic, there is competition. So what affects us affects our competitor and he gets also equal benefit. So the market share struggle will remain. So it’s not a one-way street where the prices come down and we can retain up. Okay. It happens in some peculiar circumstances, but it’s not a general rule.

Nirav Jimudia — Anvil Research — Analyst

Just a small follow-up to this, like you mentioned on the coal cost. But I think we use lot of steam also. So if you can just help us explain like what has been the cost initiatives on the operating profit. Because on a quarterly basis, if we see the difference between our gross margins and operating profit it is close to INR114 crores in terms of the operating costs. So I think this has come down sequentially by INR6 crores on a higher top line. So probably some steam cost savings would have come or some benefits on the freight cost would have be sitting in this Q4 reduction in the operating costs.

So if you can just help us what are the cost initiatives which we have taken in FY ’22 or FY ’23 in terms of the capex is which could help us to reduce the cost from FY ’24 on a permanent basis, be it steam or any other initiatives. If you can just highlight, sir.

Kirat M. Patel — Executive Director

Yeah, so what you are referring to is the item called other expenses in our results. They have gone down — well, they have gone up in the last year compared to the year before and largely on account of coal. This coal which used to be the year before, I mean, the year before that was about INR5,000, INR6,000 a tonne, went to about INR10,000 a tonne and last year it peaked at some INR14,000, INR15,000 a tonne. Now it is coming down to about INR11,000 a tonne. So obviously, there is a very large role in the element called other expenses.

The other [Indecipherable] electricity. Electricity, for us the rates at least have been stable, part of the reason being that we have commissioned solar plants in — which supplies to Kurkumbh and Patalganga, which have started somewhere around about half the year somewhere in August, September of last year and that has helped us reduce our electricity costs.

Of course, the ongoing process of doing little projects to increase — improve our energy utilization also helps. So the per unit consumption also has come down and all this has played a role in helping us save some costs in terms of fuel, power, and water.

And I hope that the prices of coal come down then obviously the utility costs will come down. And we do plan another solar plant in Gujarat for our Dahej plant. So, some portion of electricity cost will also get reduced there.

Nirav Jimudia — Anvil Research — Analyst

So sir, just to conclude, like, what we have seen the other expenditure in Q4 and based on the cost initiatives what you just highlighted upon, based on 10% to 15% of volume growth what we will achieve for FY ’24, this absolute amount of other expenditure could remain at these levels of Q4 only and won’t go up substantially from here. Could be the right assumption, sir?

Kirat M. Patel — Executive Director

I wouldn’t — well, because the volumes will go up, so obviously the absolute amount will go up. We do need more electricity, more steam when we produce more tonnage. If the prices come down by the same amount, then obviously it will flatten out.

Nirav Jimudia — Anvil Research — Analyst

Got it, sir. Got it.

Kirat M. Patel — Executive Director

It depends on where the prices come.

Nirav Jimudia — Anvil Research — Analyst

Got it, sir. Thank you so much, sir, for answering the questions in detail and all the best.

Kirat M. Patel — Executive Director

Thank you.

Operator

Thank you. The next question is from the line of Pujan Shah from Congruence Advisers. Please go ahead.

Pujan Shah — Congruence Advisers — Analyst

Hi, sir. One bookkeeping question. In capital work in progress, we are seeing INR190 crores of appreciation from FY ’22. So, is it about the ethylamines or we are planning something else also because fixed assets have also been increasing?

Kirat M. Patel — Executive Director

Can you just repeat the question?

Pujan Shah — Congruence Advisers — Analyst

Yeah, sure. So in our balance sheet, we can see the capital work in progress has increased by about INR190 crores. And we are also seeing fixed assets increase somewhere or the other way. So, is it about the only ethylamines or we have been proposed to some other expansion as well?

Kanchan Shinde — Chief Financial Officer

There are other projects also apart from ethylamine. But capital work in progress of INR352 crores, out of that around 80% of ethylamine. And also we have capitalized around INR140 crores of project during the year. You will see that in movement also.

Pujan Shah — Congruence Advisers — Analyst

Okay. So could you just spell out up 20% which are the products we have been using like developing to.

Kirat M. Patel — Executive Director

See out of that INR140 crores, the two bigger items is one is the solar facility and the second was the diethylketone plant.

Kanchan Shinde — Chief Financial Officer

And one hydrogen plant.

Kirat M. Patel — Executive Director

And one new hydrogen plant will be commissioned in June, July. So these are the items on the —

Kanchan Shinde — Chief Financial Officer

Rest are for capacity improvements and all.

Kirat M. Patel — Executive Director

The others were small, small items.

Pujan Shah — Congruence Advisers — Analyst

Okay. And, sir on overall basis, as previous questioner has been asked, so overall if we say, how much on the raw material basis from the peak has been corrected. So let’s suppose it was 100 on the raw material, which was peak around. So how much percentage has been corrected till date? And what are the estimationgs still about to get corrected in coming quarters for the raw material side?

Kirat M. Patel — Executive Director

Okay. I think predicting the coming quarter is not a good idea because these prices are a little volatile. But they have peaked and I think I would say about 10% overall. There are a couple like ethyl alcohol has become a little more expensive while coal has come down. So as a mix, I would say about 10% to maybe 15% drop from its highest peak.

Pujan Shah — Congruence Advisers — Analyst

Okay, sir, still a lot to go. And sir, I just wanted to understand the C4 and C6 chain which we are talking about, so is that the thing that the market size is small or is that the thing that it’s a very niche product or all these — the demand is being substituted by import. So could you —

Kirat M. Patel — Executive Director

No, market size is small. These are butyl, ethylhexyl, hydroxyls, all these are very niche products, in the sense the market sizes are small. Yes, imports are coming in and we are making. So it’s not a very large market in India. They go into niche products. I mean worldwide they are not very large products.

Pujan Shah — Congruence Advisers — Analyst

Okay. Can you just spell out which industry is being used for all these products for the import?

Kirat M. Patel — Executive Director

Methyl, ethylamine goes into rubber chemicals.

Pujan Shah — Congruence Advisers — Analyst

Rubber chemicals. Okay.

Kirat M. Patel — Executive Director

So there are niche uses for all this.

Pujan Shah — Congruence Advisers — Analyst

Okay, okay. Got it. Thank you so much, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund. Please go ahead.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Yeah. Good afternoon, team and thank you for the opportunity. Sir, in the opening remarks, you alluded to the pharma industry sort of not doing that well last year. But if you look at data points in the last two months, we are seeing some signs of double-digit growth sort of coming back.

So if you look at a few portfolios like respiratory, anti-infectives, vaccines, chronic, acute etc., etc., we are seeing almost 10% to 12% growth being reported. So is it fair to say that in turn given you are a supplier, you are also seeing some sort of pickup in demand from the pharma sector?

Kirat M. Patel — Executive Director

Yes, what I was alluding to was the last year, up to March. We were referring to the years ’22, ’23. But yes, going forward, as I mentioned, the pharma industry seems to be a little more optimistic that they have passed the stage of — they had I think produced — overproduced during the COVID era. And then when normalcy came back and then they had to destock.

So obviously production sales were about 2% or 3% probably higher. But they had to destock. So, in actual terms, their purchases of raw materials were less than the previous year. So now they are back to what we might call the normal curve pre-COVID.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Okay.

Kirat M. Patel — Executive Director

It will not be another booming years of COVID. But I think it’s better than the pre-COVID years. So, I think, yes, you are right that the current numbers from the pharma industry look a little more optimistic. And therefore we are hoping that our growth rate will be on the higher end of the 10% to 15%.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Okay. Secondly, sir, the — in the environment where the raw material prices have been coming off so we saw a sharp correction in ammonia happening in the last two, three months. But even acetic acid etc. the raw materials have been coming off. So in that scenario, why would have gross margins declined sequentially? I’m referring to fourth quarter versus the third quarter.

Kirat M. Patel — Executive Director

No, I don’t think the gross margins in the fourth quarter declined against the third quarter. In fact, it was about a couple of percentage points higher. But there is — it’s not just the raw materials, it’s also the finished good prices. For example, in the fourth quarter, we did face a little more competition from imports, mainly Chinese.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Okay.

Kirat M. Patel — Executive Director

So it isn’t a one-way street. It’s just not the raw material prices. But it’s also the finished goods prices you have to watch. So that’s the differential which makes the margins.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Okay, okay. And lastly, sir, is it possible to share what has been the realization in acetonitrile now?

Kirat M. Patel — Executive Director

You mean what is the current prices?

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Yes, yes, yes.

Kirat M. Patel — Executive Director

Yeah. I think they are floating around INR150 a kg. In terms of dollar prices, they are among the lowest we have seen for a long time.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Okay, okay and is this primarily because of increase in supply or is demand an issue over here?

Kirat M. Patel — Executive Director

I think it’s the increase in supply. Mainly — last year, the Chinese had a lot of issues, but now they have straightened it all out and they are coming back into the global market.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Okay. So unlikely that prices may significantly improve from here on in the near term, fair to say that?

Kirat M. Patel — Executive Director

I don’t know. It’s very difficult to say whether the prices will — but I don’t — I think, it may not go down too much because there is not — as I said, it’s the lowest it has been in terms of dollar terms.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

But we don’t need to worry about our domestic competitors adding capacity, right? We may not be servicing the same set of customers.

Kirat M. Patel — Executive Director

In acetonitrile?

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Yes, yes.

Kirat M. Patel — Executive Director

We don’t have significant competition domestically. As of now — I mean there are people talking about it. But as of now, we don’t have any significant competitor. Our main challenge is imports.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Sure, sure. Great, sir. Thank you for your answers and all the very best.

Kirat M. Patel — Executive Director

Thank you.

Operator

Thank you. The next question is from the line of Archit Joshi from B&K Securities. Please go ahead.

Archit Joshi — B&K Securities — Analyst

Hi, sir. Good afternoon and thanks for the opportunity. Sir, just alluding to the same question asked by the previous participant, this is with respect to the product mix sir, so if I see — if I track the EBITDA margins of our company maybe for the last 12, 16 quarters, we have been maintaining a very healthy EBITDA margin compared to our competitor. It was — it seems to be up by a healthy 400, 500 basis points until September ’21.

Post which, if I just see, our EBITDA margins have been contracting. And our competitors have become — they have been improving or relatively have been kind of better off than us. So just taking the acetonitrile point, sir, will it be safe to assume that earlier because acetonitrile used to be a bigger contributor to our EBITDA and now with the falling prices the inferior product mix has caused this fall in EBITDA margin or is there any other element as to why we are able to see this fall in our EBITDA margins?

Kirat M. Patel — Executive Director

Yeah. So acetonitrile, you are right, the margins have narrowed, mainly because the finished good prices have narrowed. Of course, the acetic acid is now coming down. So we are hoping that the acetonitrile margins will widen again. And it is a important product for us. The other big product is ethylamine where again the alcohol prices have risen. However, the finished good prices have not risen because of competition. So those margins have dropped. And these two are the main reasons why our margins have dropped a few basis points compared — well, I don’t know about the product mix of Balaji. But this is the reason why our margins have dropped.

Archit Joshi — B&K Securities — Analyst

Sure, sir.

Kirat M. Patel — Executive Director

[Indecipherable] overlapping about 40% of our businesses that other businesses don’t overlap. So we are not exactly like-to-like.

Archit Joshi — B&K Securities — Analyst

Yes, yes. I do appreciate that, sir. But when it comes to ethylamine, sir, other than acetonitrile, we have a far larger capacity than our competitor. So along with acetonitrile, ethylamines also has been kind of disappointing which has weighed heavy on our EBITDA margin. So is that what you’re saying, sir?

Kirat M. Patel — Executive Director

Yes, we have some — these are the main two. There have been others which have — some of them, I mean a couple of products have done well and some have not done so well. And these are one of the two concerns. Both are — both the products seem to be doing a little better now but looking forward to better times.

Archit Joshi — B&K Securities — Analyst

Understood, sir. I wish you all the best for that. Thank you.

Operator

Thank you. The next question is from the line of Noel Vaz from Union Asset Management. Please go ahead.

Noel Vaz — Union Asset Management — Analyst

Yes. Can I be heard?

Kirat M. Patel — Executive Director

Yes, please.

Noel Vaz — Union Asset Management — Analyst

Sir, thank you for the opportunity. I just had one question. So regarding the import substitution, so is the company looking at import substitution into some other products as well in replacing our products with — replacing imports with our products? And if so, what exactly is the opportunity size that we’re looking at?

Kirat M. Patel — Executive Director

I’m sorry. I don’t quite understand the question. You are asking whether our products are replacing import into the country?

Noel Vaz — Union Asset Management — Analyst

Yes, yes, yes, exactly.

Kirat M. Patel — Executive Director

Yes. So that is across the board, I would say yes. Most of our products are replacing imports coming into the country, because now competition is global. If we don’t make the products, people will import it. And even if we make the products, people will still import it if it is cheaper. So you have imports as a benchmark.

I mean, whether Europe, America or China, they will be tough competitors for all products whatever you make. So whenever we — even launch a new product in the country, we obviously check if there is a market. And if there is a market in India, which means somebody is importing the product if we are going to be making it for the first time.

Noel Vaz — Union Asset Management — Analyst

Okay.

Kirat M. Patel — Executive Director

So that’s going to happen that it’s an import substituted market by and large. Yes, sometimes we have a situation where we have launched a product where we’re eating into domestic players. That can also happen.

Noel Vaz — Union Asset Management — Analyst

Okay, understood. But generally, if you were to look at the imports as our market size, what exactly could be the size roughly speaking?

Kirat M. Patel — Executive Director

The first product to product. But I would say that in the products where, for example, methylamine has hardly any import, 2% to 5% maybe, not even that of the market share. In acetonitrile, it would be the other extreme where it would be almost 30%, 40%.

So product by product it does vary. But I would say that an average of 10% to 15% imports is probably there. You must understand that their customers also export. So when they export, they have what we call the advantage of duty-free imports. And sometimes we can match it by giving them prices which are equal and same quality in exports. But sometimes we cannot match those prices. So there is always going to be some amount of imports coming into the country to the extent that our customers are exporting their products.

Noel Vaz — Union Asset Management — Analyst

Okay. Thank you. That is all from my side.

Operator

Thank you. The next question is from the line of Chandrakhant Dhanuk [Phonetic] from CD EquiSearch. Please go ahead.

Chandrakhant Dhanuk — CD EquiSearch — Analyst

Hello. Good afternoon, sir, and thank you for taking my question. Sir, I wanted to know what do you think — why do you think like the improvement in pharma industry will sustain. And second, can you give — what is your margin outlook for fiscal year ’24?

Kirat M. Patel — Executive Director

Okay. One, I’ll answer the second question first. The margin outlook, we normally do not speculate on our future margins because it’s very difficult. We only give a broad indication of volumes which we expect, because margins as you know, we have all have varied quite widely and unexpectedly we do well and expectedly, we don’t do so well. So, I wouldn’t speculate on the margin at all. But we are always hopeful that given that the raw material prices seem to be coming down, we would get some advantage in that.

What was the second part of the question, sorry?

Chandrakhant Dhanuk — CD EquiSearch — Analyst

Sir, what do you think about — why do you think improvement in pharma industry will sustain?

Kirat M. Patel — Executive Director

Well, the pharma industry has gone through a bit of a rough time. I mean it did — during the COVID period they did produce a lot and exported. And then they had the normal times where they had to destock. So compared to that time, yes, it will be better than last year.

And pharma, if you notice the penetration in our country is fairly low the — of drugs. As a country — given the population, pharma is going to be a big provider of our medicines for a long time to come. So they are still at a very nascent stage. I mean I think only 15% of our population actually uses allopathic medicines.

So, they are going to be there for some time to come. And maybe they will have some quarters not so good. But by and large, they are very essential commodity.

So volumes — in terms of volumes, they will be there, okay. They have their own kind of constraints of pricing and other things and supply chain difficulties and other things. But by and large, the demand will always be there in India and growing.

Chandrakhant Dhanuk — CD EquiSearch — Analyst

Okay, sir. Okay. Thank you, sir.

Operator

Thank you. The next question is from the line of Jaiveer Shekhawat from Ambit Capital. Please go ahead.

Jaiveer Shekhawat — Ambit Capital — Analyst

Sure. Thanks a lot. Good afternoon, Mr. Patel.

Kirat M. Patel — Executive Director

Good afternoon.

Jaiveer Shekhawat — Ambit Capital — Analyst

Sir, first question is terms of the acetonitrile capacity addition itself. Now, we understand that even your domestic competitor will add about 15,000 tonnes per annum and the combined capacity post that will be about over 50,000 tonnes per annum as against the demand which is around 30,000 tonnes.

So how do we understand your strategy about trying to deal with that possible oversupply? And we’ve already seen the prices already having crashed down to about $2 per kg versus, say, $3 and $3.5. So what will be your strategy there?

Kirat M. Patel — Executive Director

Look it’s something like this. When we have competition coming up and there is always — I mean, we have seen enough announcements over the last 10 years of people coming into the acetonitrile market. As and when it comes up, we will face it. This has been among the lowest prices we have seen and if we are able to sustain this margin we will always have an edge over the newcomer because our experience in making this product mix is far more efficient than the newcomer. He has to absolve his capital costs. Our capital costs have got absorbed by and large. And I’m sure we will be able to compete with the best in the world. We have done it over the last 10 years and I don’t see any reason that we won’t be able to do it in the next 10.

Jaiveer Shekhawat — Ambit Capital — Analyst

Sir, during FY ’22, we had commissioned that extra 18,000 tonnes per annum capacity. So as of now, what will be the overall capacity utilization for acetonitrile capacity and what is the share of export?

Kirat M. Patel — Executive Director

We have two plants. The old plant and new plant and the total capacity was between 28,000 to 30,000 tonnes per annum. And we are at about 60%, 65% utilization of the two plants.

Jaiveer Shekhawat — Ambit Capital — Analyst

And now you are also exporting anything? What would be the share of exports?

Kirat M. Patel — Executive Director

Yeah, we are. In fact, about — in fact this particular year, one of the things that has happened is that our exports have increased quite a bit. So we are now almost about 22%, 23% of our sales is exports.

Jaiveer Shekhawat — Ambit Capital — Analyst

Understood. Sir, on the new product that you mentioned, diethylketone, could you help us understand the overall market size there is and also your right to win over there and the margin profile as well for these products?

Kirat M. Patel — Executive Director

Okay. So the market size is growing, but it’s not very large. We would be, I think, aiming at about 50% to 60% market share over the next 18 months or so. Our capacity, we are trying to establish and debottleneck over the next 18 months to make sure that we — but it’s just a couple of months since we have been in the market. So it’s a bit early to say about the margins and all and how the market will react to it.

At the moment it is following the trend which we had predicted. But it’s early days. So it’s difficult to project that. But it’s not a very large market in terms of tonnage or in terms of value. It should be a kind of 5% or 3% to 5% of our turnover at best as you go along.

Jaiveer Shekhawat — Ambit Capital — Analyst

Understood. And, sir, last question is that given that you largely have pass-through arrangement with your customers, so what does ammonia pricing crashing by about 60% to 70% mean for your realizations? How should we think about that?

Kirat M. Patel — Executive Director

We don’t have any pass-through arrangements with our customers. It’s just that because the competitor and us have the same kind of exposure to the raw materials because our technologies are similar, that we have to keep in line with the market, otherwise, the competitor will eat your market share.

So it’s not that we have an agreement with the customer, though the customer is sharp enough to realize what is going on in the market and how. But it’s not necessary that we have an arrangement with the customer. It’s just the market dynamics that play a role in determining the [Indecipherable].

Jaiveer Shekhawat — Ambit Capital — Analyst

Sir, if I just want to understand, if the competitor wants to reset prices now, how much should ammonia coming down by 60%, 70% mean for your realization? What kind of impact, because you also have other raw materials that you use that have largely been stable.

Kirat M. Patel — Executive Director

Yeah, so, I would say we use — ammonia would be about maybe of all our raw materials maybe about 20% cost vice and if it comes down by this thing, we may save about 4% or 5% compared to last year. But of course the finished goods prices also impact us. So, it’s not a one-way street.

Jaiveer Shekhawat — Ambit Capital — Analyst

Understood.

Kirat M. Patel — Executive Director

I mean methanol, ethanol, ammonia, coal, and acetic acid are probably the biggest. So ammonia would be maybe 15%, 20% of our raw material costs.

Jaiveer Shekhawat — Ambit Capital — Analyst

Understood. Sir. lastly, any expansion plan beyond what you have already announced? Are you starting for land for, say, methylamine capacity expansion as well?

Kirat M. Patel — Executive Director

We are — we have already said this earlier that we are looking forward to — because we have — all the land in Dahej and Kurkumbh has now been allocated to these new products which we mentioned and the expansion plans which we have over the next 18 months to 24 months. We will need more land after that. And we have applied to GIDC in Gujarat for new land. The process is on and hopefully, we understand that by the middle of this year some progress will made in allocating some land to us. And we may have to then start making down payments. But it’s at least 12 months in the future.

But definitely, yes. You’re right. We need more land for expansion, whether it is methylamines or any other expansion of our business. We will be using up all the land which we have in Kurkumbh, Dahej and Patalganga with projects which we already have in mind.

Jaiveer Shekhawat — Ambit Capital — Analyst

Right. Sure. Thanks a lot, sir and all the best.

Kirat M. Patel — Executive Director

Thank you.

Operator

Thank you. The next question is from the line of Chetan Thacker from ASK Investment Managers. Please go ahead.

Chetan Thacker — ASK Investment Managers — Analyst

Good afternoon, sir.

Kirat M. Patel — Executive Director

Good afternoon.

Chetan Thacker — ASK Investment Managers — Analyst

Sir, just wanted to understand capex for ’24 and ’25 and the timelines of those coming on stream as the capacity increases over the next two years.

Kirat M. Patel — Executive Director

Okay. So, the ’23, ’24 would be around INR200 crores. This does not, of course, include the land which we just mentioned earlier, which is a little bit of a floating amount. We don’t know when GIDC will allocate the land and all that. But the projects which we require in ’23 — ’24 and ’25 between the two, it would be about INR300 crores, INR200 crores and INR100 crores or whatever INR180 crores and INR170 crores or something like that.

Chetan Thacker — ASK Investment Managers — Analyst

Got it. And this will essentially, sir, add how much capacity in terms of volumes?

Kirat M. Patel — Executive Director

This — in terms of — because these are — some of these products for specialty products. So it will not be a volume driven but it may be value driven. And as we mentioned earlier, given all these four, five products which we will be adding including the diethylketone, which we have already commissioned, over a three to four-year period they may comprise almost 15% to 20% of our top line and perhaps hopefully a larger portion of the bottom line.

Chetan Thacker — ASK Investment Managers — Analyst

Got it. So essentially, given what we’ve seen historically in terms of payback for us, this will be a shorter payback period, because these are higher-value added and higher-margin products.

Kirat M. Patel — Executive Director

Yes. But, capital wise also they are — two of them are fairly intensive, one or two are not that capital-intensive. So in terms of capital employed, yes, we hope to maintain our good record and improve it.

Chetan Thacker — ASK Investment Managers — Analyst

Got it. Sure, sir. And in terms of the acetonitrile, is it fair to assume that the exit that we are seeing at Q4 is probably where it is in terms of pricing and it shouldn’t get worse from here?

Kirat M. Patel — Executive Director

I hope so because [Indecipherable] for some time, $2, as somebody has mentioned [Indecipherable]

Chetan Thacker — ASK Investment Managers — Analyst

Sure, sir. Thank you so much for this. All the best.

Kirat M. Patel — Executive Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Pujan Shah from Congruence Advisers. Please go ahead.

Pujan Shah — Congruence Advisers — Analyst

Yeah, so thanks for the follow-up. My question was on our finished products are we seeing — as China has been reopening up. So is there any overhang inventorization which has been dumping out all over the world, that’s why, some of the finished good prices have been connected or it’s been not like that [Indecipherable].

Kirat M. Patel — Executive Director

I think what you mentioned is what the market is saying that there is a little bit of overhang of stocks which they are cleaning up. And perhaps, once that is done, some kind of sense or normalcy is returned.

Pujan Shah — Congruence Advisers — Analyst

Yes. Because, as we have listened to the pharma con calls, we have been getting that pharma has been very bullish on getting a volume of double-digit growth. And at the same point, we are also getting expectation of touching a 15% growth.

So are we being conservative or we are being like because of this issue, we have been still a bit conservative on that part due to some of the — pushing off some key products at lower cost?

Kirat M. Patel — Executive Director

Well, I think we are traditionally a conservative company. So predictions of the future are always a question mark. But yes, the pharma industry seems to be very optimistic. But if they deliver, we will be more than happy to match their requirements to keep up.

Pujan Shah — Congruence Advisers — Analyst

Okay, sir. Okay, got it. Thank you so much.

Operator

Thank you. The next question is from the line of Nirav Jimudia from Anvil Research. Please go ahead.

Nirav Jimudia — Anvil Research — Analyst

Thanks for the follow-up, sir. So, sir, you mentioned that these new products could contribute 15% to 20% of our overall sales. But in terms of absolute amount, if you can help us because the capex what you mentioned is close to INR250 crores for all these products put together. So over next three, four years, how much could be the turnover which these products could achieve in terms of the absolute amount if you can?

Kirat M. Patel — Executive Director

Okay. This is off the cuff kind of numbers. But it will be between INR500 crores, INR600 crores once these products stabilize in the market. Of course, they will also grow as we grow. And — so it would be at least that much turnover once they all come in line.

Nirav Jimudia — Anvil Research — Analyst

Correct.

Kirat M. Patel — Executive Director

Which would be about 15%, 20% of our turnover because the amines and derivatives business will also grow.

Nirav Jimudia — Anvil Research — Analyst

Correct. And sir these products would be predominantly catering to which of the user industries?

Kirat M. Patel — Executive Director

Most of the same user industries which we have been supplying to. Life sciences largely.

Nirav Jimudia — Anvil Research — Analyst

Correct. Sir, in terms of our overall turnover for FY ’23. So if you can just break it down between the aliphatic amines, derivatives, and the specialty in terms of the revenue contribution.

Kirat M. Patel — Executive Director

I don’t think that has changed much from the past. It’s about 50% amines and 20%, 25% derivatives and about 20%, 25% specialties.

Nirav Jimudia — Anvil Research — Analyst

Got it, sir. And sir, just as —

Kirat M. Patel — Executive Director

The only thing that has slightly changed in percentage terms, the percentage of exports is higher than it was earlier compared to domestic.

Nirav Jimudia — Anvil Research — Analyst

Got it, sir. And, sir, like FY ’21 was the best year for us in terms of the operating performances from last so many years. So like, let’s hypothetically presume that if we want to achieve that sort of numbers, what sort of volume growth we need to do from the base level of FY ’23 keeping the rest of the things constant, sir?

Kirat M. Patel — Executive Director

So what you’re saying is that if we had to match the profitability numbers of the year ’22 — FY ’22, which is about INR300 crores PAT, right?

Nirav Jimudia — Anvil Research — Analyst

Yeah, correct, correct.

Kirat M. Patel — Executive Director

A little less than INR300 crores PAT.

Nirav Jimudia — Anvil Research — Analyst

That was in FY ’21, sir.

Kirat M. Patel — Executive Director

We have to do about 20%, 25% volume growth given the margins which are there now to meet that.

Nirav Jimudia — Anvil Research — Analyst

Correct. And it’s the same cost benefits do accrue to us in terms of the falling raw material prices?

Kirat M. Patel — Executive Director

Will require much volumes.

Nirav Jimudia — Anvil Research — Analyst

Absolutely, absolutely. So keeping things constant as it is, we need to do a volume growth of 20%, 25% to achieve this right?

Kirat M. Patel — Executive Director

Yeah, but if — suppose if the margin widens a bit, then we need to do only 15% to catch up.

Nirav Jimudia — Anvil Research — Analyst

Got it, sir. Got it. Thanks a lot sir and all the best.

Kirat M. Patel — Executive Director

Thank you.

Operator

Thank you. The next question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead.

Rohit Nagraj — Centrum Broking — Analyst

Yeah. Thanks for the opportunity. Sorry, I joined a bit late. So not sure that my question is answered. What was the domestic and exports mix during FY ’23 and whether we faced any particular challenges for exports?

Kirat M. Patel — Executive Director

Yeah, okay. So as I mentioned earlier that the export has been between 22% to 23% of the turnover which was earlier a little under 20%. So we have grown. And at the beginning of the year, there were some challenges in freight costs, but now they have all settled down and availability of containers everything all got sorted out. So now the challenges are more related to the growth of the economies abroad, Europe and America, which is mainly our market.

Rohit Nagraj — Centrum Broking — Analyst

All right. Thanks. Thanks, sir. Now, sir, second question is in terms of competition outside of India. So are we hearing any other players who are putting up capacities in any other geographies in Asia?

Kirat M. Patel — Executive Director

In the amines business?

Rohit Nagraj — Centrum Broking — Analyst

Right, right, sir.

Kirat M. Patel — Executive Director

No, I don’t think in our core business. There has been a lot of consolidation over the years. And the existing, — of course, we don’t know much about China, because that’s a bit of — and China is a very big player. So, it could be happening in China. But I don’t think in Europe or America, there is any movement to expand much more. They will be doing the debottlenecking and all that, our competitors, whether it’s BASF or Taminco or whatever. They will certainly be looking at going a little — marginal increases in their productions. As you know BASF had a little concern about production because of the gas issues with Russia. But that seems to — they have seem to overcome all of that now.

Rohit Nagraj — Centrum Broking — Analyst

Great. But I think they would not be a direct competition for us because they are more into proprietary and further downstream in terms of specialty amines.

Kirat M. Patel — Executive Director

No, no. BASF is the largest player in this field.

Rohit Nagraj — Centrum Broking — Analyst

Okay, so in our products as well and in the proprietary products?

Kirat M. Patel — Executive Director

Yes, Taminco and — sorry, Eastman, not Taminco — Eastman and BASF are the biggest players in this field. And there of course the Chinese, there a number of them.

Rohit Nagraj — Centrum Broking — Analyst

Okay, great. Thank you so much sir and best of luck.

Operator

Thank you. As there are no further questions, I would now like to hand the conference over to management for closing comments.

Kirat M. Patel — Executive Director

Okay. Thank you, everybody. And I hope we have been able to answer most of your questions. As a concluding remark, I would say that we hope that we have got over the worst volatile period and we are looking forward to now growth especially because our customers, mainly in the pharma industry seem to be so optimistic and our raw material prices are stabilizing. And hopefully, when we meet again, we will have good news to share. Thank you very much.

Operator

[Operator Closing Remarks]