Anupam Rasayan India Ltd (NSE: ANURAS) Q2 2025 Earnings Call dated Nov. 15, 2024
Corporate Participants:
Anand Desai — Managing Director
Gopal Agrawal — Chief Executive Officer
Amit Khurana — Chief Financial Officer
Vishal Thakkar — Deputy Chief Financial Officer
Analysts:
Kanav Khanna — Analyst
Tushar Raghatate — Analyst
S. Ramesh — Analyst
Pradeep Rawat — Analyst
Krishan Parwani — Analyst
Rohit Nagraj — Analyst
Siddharth Gadekar — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Anupam Rasayan India Limited Q2 and H1 FY ’25 Earnings Conference Call. As a reminder, all participant line will be in 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. Kanav Khanna from EY. Thank you and over to you, sir.
Kanav Khanna — Analyst
Thank you and good afternoon, everyone. Welcome to Anupam Rasayan India Limited Q2 and H1 FY ’25 Earnings Call. Please note that a copy of the disclosure is available on the investor section of the website as well as on the Stock Exchange. Anything said on this call which reflects the outlook towards the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risk that the company faces. Please note that the audio of the earnings call is the copyright material of Anupam Rasayan and cannot be copied or rebroadcasted, attributed in press or media without specific or written consent of the company. Today from the management side: we have with us Mr. Anand Desai, Managing Director; Mr. Gopal Agrawal, Chief Executive Officer; Mr. Amit Khurana, the Financial — Chief Financial Officer; and Mr. Vishal Thakkar, the Deputy Chief Financial Officer.
With this, I would like to hand over the call to Mr. Anand Desai for his opening comments. Thank you and over to you, sir.
Anand Desai — Managing Director
Good afternoon, everyone, and a warm welcome to the Q2 FY ’25 earnings call of Anupam Rasayan. I would also like to take a moment to wish you all a very Happy Diwali and Happy New Year. As we had indicated in our earlier calls, the demand in agrochemical business has continued to be subdued in Q2 as well. October onwards, we are seeing a good recovery in this segment especially from Europe. Our pharma segment and polymer segment that are our new growth drivers have continued to increase its share in our revenue. For the full year, we expect both segments to contribute over 15% each to the total revenue. This trend is expected to continue through FY ’26. This move towards a more balanced portfolio with increased contributions from the pharma and polymer sectors is expected to provide stability from sectoral impacts.
Now let me highlight our financial performance for the quarter and half year under review. Our consolidated operating revenue for the quarter stood at INR294 crores, which was 16% higher than Q1 FY ’25 and around 20% lower than Q2 FY ’24. This year-on-year degrowth, as you know, is on the back of the challenging demand conditions in agrochemicals. The EBITDA margin continued to be at around 28% in Q2 FY ’25. And on a yearly basis, we recorded a revenue of INR548 crores, which translated to around 37% degrowth vis-a-vis same period last financial year. On the margin front in H1 FY ’25, consolidated EBITDA margin stood at 25.5%. As we have witnessed recovery from October onwards, we expect our numbers to be better from Q3 FY ’25 with increased contribution from polymer and pharma business this year.
Alongside new letters of intents and contacts, we anticipate similar revenue in FY ’25 compared to FY ’24. On the back of the momentum we are seeing on the demand pickup and forecasted offtake from our customers, we believe that in FY ’26 we should be back to our growth journey that we have seen in past barring last year and this year. At Anupam Rasayan, we are committed to building a sustainable business and over the years we have invested in various initiatives including our recent INR51 crores investment in a 9.2 megawatt hybrid power plant that combines solar and green energy. This project has been commercialized in October 2024. With the agro demand picking up coupled with higher conversion from pharma and polymer, we at Anupam Rasayan are confident to get back to our growth journey.
With this, I would like to hand over the call to Mr. Gopal Agarwal, the Chief Executive Officer of our company, to discuss key business updates. Over to you, Gopal bhai.
Gopal Agrawal — Chief Executive Officer
Thank you, Anand bhai. Hello. Good afternoon and wish you a very Happy and Prosperous Diwali to all of you. I will begin by briefly discussing the business highlights, which will be followed by financial highlights by Amit bhai. As Anand bhai mentioned, we are nearing the end of challenges we faced in the agro segment while pharma and polymer segments have been experiencing strong growth driven by the recent launch of over 17 molecules in FY ’24 and three molecules in H1 FY ’25. We anticipate increased contribution from this segment as their molecule gain traction. Additionally, a launch of three plus new molecules that are planned in coming months shall further accelerate the growth in this segment. As you know, we are seeing strong momentum in Japan particularly in our fluoropolymer segment.
Thanks to our dedicated business development team, we are effectively capitalizing on these opportunities and expanding rapidly. Also we have already stated in our previous call that within next two to three years, around one-third of Anupam sales will come from Japan with majority of the business secured through long-term contracts. Further, we have multiple new polymer products in R&D and pilot aimed for the U.S. market as well. Our vertical integration with TANFAC for hydrogen chloride, which is HF, has been a key in securing this contract. Keeping this strong demand in mind, we are also glad to inform you that we have recently expanded our TANFAC plant capacity from 14,850 metric ton to 29,700 metric ton and the plant has been commissioned from October 24. As mentioned by Anand bhai in this call, keeping all these activities in mind, we believe that we should start seeing strong performance going forward.
With this, to take you through the financial highlights, I would like to hand over the call to our CFO. Over to you, Amit bhai.
Amit Khurana — Chief Financial Officer
Thank you, Gopal bhai, and good evening, everyone. I’ll begin by outlining the financial highlights for the quarter. After which, I’ll hand over the call to Vishal Bhai for a more detailed discussion. Starting with our capex update. As of September 30, 2024 we have completed capex of INR601 crores. The remaining capex will be completed over the next two quarters in FY ’25. Our working capital has risen slightly on account of launch of new molecules as well as anticipated growth in the revenue from Q3 FY ’25. Further, we anticipate the working capital would stabilize by the year-end and will have significant improvement in FY ’26 and going forward.
As mentioned by Anand bhai in his opening remarks, the new hybrid project of 9.2 megawatt has been commercialized in October 2024. This initiative is projected to save approximately INR15 crores annually in energy cost. This combined with our previous investment of INR65 crores in 17.9 megawatt would contribute to aggregate savings of INR28 crores. Together with our earlier efforts, this will enable 65% of the company’s electricity needs to be met by green energy in the future. We remain focused on cost optimization and operational efficiency. This strategic focus along with our expansion plans positions us well for sustained growth.
With that, I’ll turn it over to our Deputy CFO, Vishal bhai, to provide further insights into the financials.
Vishal Thakkar — Deputy Chief Financial Officer
Thank you, Amit bhai. Good afternoon, everyone, and wish you a very Happy and Prosperous Diwali and New Year. Thank you for being with us today and thank you especially on a holiday. So again, we appreciate your participation here. I would like to share some key performance highlights for the quarter and half year end September 30, 2024 before we open the floor for Q&A session. I hope you have had the opportunity to review the detailed presentation and the results that were submitted to the exchanges and posted on our website. Kindly note our numbers for the quarter and half year are on a consolidated basis and they also include TANPAC numbers.
Let me first discuss the consolidated financial highlights for the quarter ended September 30, 2024. Operating revenue for Q2 FY ’25 was at INR294 crores as compared to INR392 crores in Q2 FY ’24, down 25% YoY. EBITDA for the — EBITDA including other income was at INR82 crores in Q2 FY ’25 as compared to INR111 crores in Q2 FY ’24, down 26% YoY. This would translate to an EBITDA margin of 28% in the quarter. Profit after tax was at INR31 crores compared to INR49 crores, a degrowth of 37% and would contribute to around about 10% of the topline. Our Top 10 customers contributed 91% of our revenue in Q2 FY ’25. Talking about the half yearly financials. Our operating revenue was at INR548 crores compared to INR779 crores. EBITDA was at INR142 crores as compared to INR225 crores, which would translate to an EBITDA margin of 25% for the period. Profit after tax was at INR43 crores compared to INR101 crores and a degrowth of 58%.
With that, we will open the floor for Q&A. Thank you.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have a question from Mr. Tushar from Kamayakya Wealth Management. Go ahead, please.
Tushar Raghatate
Yeah. Good afternoon, sir, and thank you for the opportunity. Sir, I’m just new to the company, recently started tracking. I could see that you got some good orders and seeing good growth going forward. So just wanted to know the inventory levels considering the revenue. If I consider the inventory as a percentage of sales, which was in the range of 50%s if you consider the history, in middle it peaked out; but currently it’s near to 70% of your entire revenue. So just wanted to understand the business prospect, why that is so and what are the measures that we are taking in order to keep a check on the working capital?
Vishal Thakkar
Thank you, Tushar. I’ll try and answer this question for you. So Tushar, you’re right that my inventory levels and the working capital intensity has increased and that has been primarily due to two major reasons that I would say. One is that the revenue that we had anticipated, which were to — which we had expected to happen in this half, has not materialized in this half and has been pushed out to the next half, which has led to lower liquidation of the inventory. Along with that there have been new molecules which have been launched, which has also added to the inventory, which would be further recovered back or reduced back once we start the ramp up of those products. So, these two has led to the higher level of inventory.
And with a lower revenue, this number has been accentuated further because if you look at it at a degrowth of 25%, you would see that for the same inventory also, my turn days would go up by 25% to 30%. So, that is the two reasons. What we are looking at is that if you look at the — once we start the revenue pickup happens, these numbers will start getting more in the normalization phase. And if you look at over the next two years that we have been seeing like in 18 to 24 months’ time, you would see that those numbers are more similar to what we have been seeing in the historical ones around ’21, ’23 kind of a time frame — FY ’21-’23 kind of a time frame. So, we are actively working to optimize on this and I appreciate your observation on this.
Tushar Raghatate
Fair enough, sir. Sir, just wanted to know like you acquired — I think you invested 24%, 25% in the TANPAC. Sir, how do you see the growth prospect going forward in terms of your product in the fluorine chemistry going forward? Like there are players in the market who are into fluorine chemistry so our product is different from those or like how do you see the competition in India?
Vishal Thakkar
Sure. Thank you for that. And if you look at fluorination — see, fluorination based products have a vast majority. If you look at the last 20 years, the number of new molecules that have been launched across polymer, pharma, and agrochem; all three sectors; have — 40% of those new molecules have fluorine as a molarity. Okay. And that means that it is — so there is a market which is a very, very large growing market of fluorination based products, one. Two, when we say fluorination, we don’t mean to say I am only going to do only fluorination process. I have some multiple chemistries that I am doing and I have my value chain. In that value chain if I add fluorination as one of the processes, my target market expands significantly. I’ll just give you an example.
Like fluoropolymer market today would be around about $8 billion is the fluoropolymer market. Of which, if I were to look at what my peers are doing, they’re largely into the segments which are into PTFE, PVC, and other kind of applications. If I take that off, I would be ending up with around about $3 billion market, which is the fluoroelastomer, fluorosurfactants, and other kind of things. I’m just talking right now polymer. And there if you see, if I convert it into the intermediates that we play in like we are not into polymerization. We don’t do polymerization, we do only monomers. In that also if I look at it, I am talking about $600 million worth of market. Now that is a large market for me to address where I am not having any competition because I’m not trying to compete with my peers here.
And the products that we are trying to focus are these products where we have our own niche, where I am working on my own value chain. So there are products that have my value chain in which if I add this chemistry, I get into product application which goes into this application. Similarly, if you look at the same approach happens in pharma side and same approach happens in the agro side where I am leveraging on my current supply chain, current value chain, and adding this offering to give this newer product application to my customers. So, we do not see any major competitive intensity on this side. Two, fluorination is something that we have been doing for last five, seven years. It’s not that we’re doing fluorination now. Even before acquisition of TANPAC, around 10% odd of my revenue used to be or had been fluorinated products.
Now with TANFAC coming in, what happens is that I’m able to demonstrate to my customers that I have a supply chain assurance and that supply chain has been very well taken care of especially when we come to the HF, which even Gopal Bhai had mentioned in his opening remark. That HF availability is very essential because in the country there are only four manufacturers of HF and TANPAC is one of them. So having access to that ensures that I am able to capitalize on that supply chain and which is the reason you are seeing lot of traction that we have been able to demonstrate in terms of my product inquiries and product conversions in terms of LOIs and all. If you look at the last five LOIs, four LOIs have fluorination as one of the process in this offering.
Tushar Raghatate
Yes. So I just wanted to know like apart from the contracts, what would be the revenue? Like you have mentioned in your IP the number of contracts. So if we consider for next three years, how much would be the contracts and how much would be the other revenues?
Vishal Thakkar
So are we only talking about LOIs or are we talk about contracted revenues?
Tushar Raghatate
LOIs, sir?
Vishal Thakkar
Alright. So LOIs, if you look at it — if you look at my LOIs, the total LOIs that I signed is around about INR9,000 crores worth of — approximately INR9,000 crores of LOIs. If you look at if I were to divide it by five or six years on an average, which is the average time of the contract period, we’re talking about INR1,400 crores to INR1,500 crores of revenue from there. What we anticipate is that typically it takes you around two odd years to really commercialize. From LOI to commercialization is two years on an average plus or minus six months and then there are another two to two-and-a-half — two to three years for a ramp up. So we believe that over next medium term, we should be able to get INR1,200 crores to INR1,400 crores of revenue on an annualized basis from these products.
Tushar Raghatate
Got it, sir. Sir, I just wanted to know like for the midterm, what are our EBITDA margin target and what are our ROCE target — internal target? Just wanted to know your take on that.
Vishal Thakkar
So see historically if you see, we have been always been in the range of 26% to 28% EBITDA margin and we believe that we should be in the range of that numbers, maybe 1 percentage point plus or minus maybe the case. But that’s the reason that we believe that EBITDA we should be able to. So let’s say today in this market, I would say 25% to 27% is the EBITDA margin that I would be comfortable with guiding though we have delivered little better. But on a consol basis, that’s kind of the number I would go by. In terms of ROCE, historically if you look at it, we have been able to do a high teens to 20s ROCE. It’s been that two major events has led to a lower number; a, higher capex and lower asset utilization, which is now ramping up; and two is also my working capital intensity which has expanded which we expect to get more into my normalcy. These two will ensure that with the kind of EBITDA margins that we have and an asset turn of let’s say more than 1.5 times, we should be coming back to the kind of ROCE that are more meaningful to us.
Tushar Raghatate
Sir, post this fluorination contract, do you see that adding to your ROCE going forward?
Vishal Thakkar
Absolutely, absolutely. If you look at it, I have — we have done capex where fluorination process will also be included and then the new molecules of fluorination will also be processed and just that this structure — this will always add to the performance of the company in terms of revenue and in terms of margins and translating into the return ratios.
Tushar Raghatate
Okay. Sir, you have guided for good H2 earlier. Just wanted to know your view in terms of volumes going forward?
Vishal Thakkar
So yes. See, so if you look at it the last half, the volume — lower volume has been the reason for the lower revenue and we believe that what our understanding with that customer has been and the communication from them has been also is that the volumes are going to pick up from the next — for the next half and hence you would see a decent volume uptick in this next half.
Tushar Raghatate
Fair enough, sir. That was really helpful. Thank you and all the best.
Operator
Thank you very much. We have a question from S. Ramesh from Nirmal Bang Equities. Please go ahead.
S. Ramesh
Thank you and good afternoon and the best of seasons greetings. So if you were to look at the second quarter numbers and how to read the prospects for the second half, how much was the decline in volume in second quarter? And secondly, was there again additional sales to domestic customers where you had to give them the credit like in one of the earlier quarters?
Vishal Thakkar
So one, thank you for the wishes and same to you, Rameshji. And if you were to ask in terms of volume so Q1 to Q2 if you see, there has been a growth. So, we are seeing that there is an uptick happening. Yes, on a YoY basis the numbers have been lower on account of the lower volumes compared to the last year so that is there. Yes, there has been some bit of a compensation coming from the domestic market especially from the pharmaceutical industry, which has typically a longer working capital cycle both in terms of geography and as an industry, both is the case. So, there has been an expansion that is happening. However, what we are now seeing is that the agrochem and my international business is expected to pick up in the second half, which will have a better impact in terms of volume, revenue, and working capital.
S. Ramesh
Okay. So to put things in perspective, if you look at the statement Anand bhai made about you achieving FY ’25 revenue close to FY ’24, that means you are talking about a run rate of around INR750 crores in the second half; it’s about INR350 crores, INR375 crores. That’s a very, very high growth compared to the base of FY — the second half of FY ’24. So what are the levers that will drive this sort of growth in the second half? Is it just the existing business increasing volumes or are you also seeing some of the new LOIs and new molecules kicking in in terms of growth with higher realizations? How do you — can you explain how you expect the second half growth?
Vishal Thakkar
So Rameshji, one, I will not comment on the deduction that you have made in terms of the number for the H2. But directionally — let me answer the question on the directional point and that is where that’s a fair ask. So, I will put it in three or four buckets that where we see the traction coming from. If you look at my H2 ’23 — if you looked at my H2 ’23 and if you look at the run rate of the H2 ’23, I would have done a similar kind of a number as what would be there. But let’s forget about that and let’s talk about the trends from now on. Where are the three or four big trends that are coming from? One, that my lower demand from the agrochem cycle is now looking better for us. So we are seeing now the offtake request coming from my existing customers and my volumes are going to pick from that side.
Second, what you rightly identified that my molecules that we had launched last year are now picking up and it is gaining momentum. So, that is the second part of the demand that we feel that will be there. And along with that if you look at it, price, I don’t see too much of a price movement coming in here. I think price is — we feel that it will be in the stable range. This is our estimate and as per my understanding, that numbers will be in the similar range. But volume offtake is where the revenue is going to be coming from. That’s my understanding on the projections.
S. Ramesh
So, just a couple of thoughts more. One is when you talk about this agrochem customers giving you confidence in terms of buying more volumes from your company in the second half. This is something which is totally different from what international companies are saying and other domestic peers are saying in terms of customers actually deferring orders both in agrochem and pharma and they are also laden with excess inventory. So, what is exceptional in terms of your set of customers? Are they not having this inventory situation? Are they building up for new launches? So what gives you the kind of confidence that they will actually give you the kind of volume growth you are talking about? Because this is totally contrary to what we are hearing from the market, from other companies.
Vishal Thakkar
So Rameshji, to backdrop it. If you look at my last two — last four quarters, my last four quarters has been where I have had a very, I would say that one of the lowest demand from the agrochemical sector if you look at in the recent time. So when we look at that and when I contrast it from there, there is volume uptake that we can see from our customers. Okay. Now also please appreciate that on an annual basis, my demand is there of the total volume, right? That let’s say it was 100, it has dropped by some number. But this two quarters if you see, that number has been even lower than that. So on an average if you look at it, we see that the customers are looking at picking up.
At least there is demand. That’s exactly what we think. The demand is picking up. Are we coming back to the normal growth rate? That’s what we are saying it is 26%, right, and this is where the MGO also will kick in. Right? So the H2 is where the MGO kicks in and also please appreciate that H2 is a very classic year quarter — sorry, half because Q3 of mine is Q2 of my customer, but Q4 of mine is Q1 of theirs which where the year changes and the budget changes as well for them. So, they have a very comfortable situation in that sense to accommodate a level of volumes that are meaningful to both of us and that’s where we are coming and seeing that numbers. Are we saying that are we out of the woods fully? Answer is no. That I think will be in ’26, but ’24 or ’25 ending I think should give us a bit of a reason to feel confident about the same is what I’m saying.
Amit Khurana
So just to — if I was to just add to what Vishal bhai said, Ramesh. I think as he’s narrated, our H2 growth or let’s say the higher growth is basically based on two, let’s say, kind of segment. One is that we are seeing a decent amount of growth in pharma and polymer, which roughly would be really like 15% plus each of my revenue. So that segment is contributing and is growing at a higher pace. So that’s one leg. The second leg, as Vishal bhai said, is that on the agrochem side. And I may not be necessarily able to comment on some of my peers in terms of what they are seeing. But as he said, we are getting enough and more I would say comfort, some of them even in terms of future purchase orders, to say that the customer is basically asking for higher volume than what they asked me in let’s say last two or three quarters. So our, I would say, what we call H2 assumptions are basically based on these two leg wherein we are seeing some bit of a recovery from agrochem customers who are basically placing higher volumes and orders with me. And second is the increased growth on polymer and pharma side.
S. Ramesh
That’s useful. So just to get a perspective on ’26 and ’27 growth. So if you see your order book, some of them have been commercialized and then there are some which are being commercialized in ’26. So if you take these two buckets in the LOIs already commercialized, how do you see that ramp up in percentage terms on the value of the order book? Even if you divide it by say five or six years, it’s about INR4,800 crores if you see the value of the LOIs already commercialized. If you take it over six years, about INR800 crores. How much of that would you expect to book in say over FY ’26-’27 in terms of actual deliverable and similarly, whatever you are talking about commercializing in ’26, it will take a value about another INR2,000 crores. So on that, when it starts picking up, how much of that would you be able to actually monetize say from FY ’27 and over ’28, just a ballpark number you can give that will be useful for us to recheck our assumptions on this LOI monetization?
Vishal Thakkar
Rameshji, sure. I think on the LOIs, I would put it very simply. I mean that’s where I would put it for now and that you’re right. The large commercialization that has happened is on the FY ’22 LOIs that we had signed which were around about INR2,600 crores worth of LOIs. Right. Those INR2,600 crores would mean that INR450 crores to INR500 crores is the revenue coming from that. We believe that of that, we are doing around about INR200 crores, INR250 crores kind of a number and that should ramp up and should be peaking out by ’26, ’27. So that’s the number that we can see. So, you have to look at it in three different buckets. The second bucket is the ones that we have signed in ’23 principally, which would be in the range of total — if I were to add the total, it is another INR1,000 odd crores more.
So INR1,000 crores if I divide it by six, you would be doing around about INR1,500 crore — INR150 crores a month which should ramp up by — which will start in ’26 and ramp up by ’27, ’28 and that’s how you should look at it and that’s where I would put it. And then the balance, we should be starting to see the commercialization in ’26 and ’27 and then you see a two years of ramp up from then on. So I would put it very simply 2 plus 2 plus 2; two years for getting into LOI, two years from LOI to commercialization, another two years from LOI to — commercialization to ramp up. Now give an allowance of the six months on either side, which happens because of either about the validation, about the environment, all that plays out and maybe six months of average you can give or take on that.
S. Ramesh
Okay. Thank you very much and wish you all the best.
Operator
Thank you. [Operator Instructions] We have a question from Pradeep Rawat [Phonetic] from [Indecipherable]. Please go ahead.
Pradeep Rawat
Yeah. Good afternoon and thank you for the opportunity. So sir, we are doing capex of close to INR600 crore. So I just wanted to know when this capex is going to complete and can you also highlight on the ramp up of this particular facility?
Vishal Thakkar
So see, we have done a large part of the capex and the balance, whatever is left out, we should be able to do it in next two quarters. So this year we should be able to finish the capex on it and of that, couple of the plants we have started doing the trial runs. So typically once the plant is plant is constructed, you have your trial run, then you have a customer validation, and then your commercialization happens. So typically it is around — it is anything six to nine months that you will see that kind of time frame on this and that’s what I would put it at.
Pradeep Rawat
Six to nine months from the commercial commercialization of the plant.
Vishal Thakkar
From completion to commercialization because you have your trial runs, you will have your validation, and then the plant starts for the large operations.
Pradeep Rawat
Okay. And what kind of peak revenue can we expect from this facility?
Vishal Thakkar
So total — if you look at my total capex that I have done till date and if I look at the asset turn, I think I should be able to do 1.5 times to 1.7 times the asset block which will be around about INR3,000 odd crores kind of a number is what I can say based on the current product portfolio. As I evolve the product portfolio, the number changes because the plant volume remains the same, but the revenue changes on the per ton basis as well. So that value engineering and the revenue optimization can happen. But today when you look at the portfolio and the plant portfolio, we can go up to that level is what I would suggest.
Pradeep Rawat
Yes. And what is the peak revenue of our current facility?
Vishal Thakkar
That’s what if you look at it today it is about 12 to 14 — INR1,200 crores to INR1,300 crores of my block and you can add 1.5 times to that because this is where I have a lot of other capex also like extra land and my R&D facility and my other utilities. So the asset turn I would put it at 1.5 and not higher, but for the new ones the asset turn will be higher.
Pradeep Rawat
Okay. That was helpful. And how much revenue are we envisaging from pharma and polymer segment going forward given our existing commitments?
Vishal Thakkar
So pharma and — mostly pharma and polymers as today also if you’re seeing, they are contributing meaningful in double digit for me in terms of teams. I think pharma should and polymer should contribute more than quarter to one-third of my revenue at least going forward. Probably pharma will be first, which will contribute in 20%s in medium term and polymer should follow on that.
Pradeep Rawat
Okay. Understood. That’s all from my side. Thank you.
Operator
Thank you very much. Next question we have is from Krishan Parwani from JM Financial. Go ahead, please.
Krishan Parwani
Yeah. Hi sir. Season’s greeting and thanks for taking my question. Sir, if I just look at the standalone numbers, your inventory — absolute inventory is somewhere about INR1,185 crores and if I calculate the inventory days in the standalone business has jumped to more than 550, 600 days. Can you elaborate please what is going there?
Vishal Thakkar
So first thank you, Krishan and wish you also Happy Diwali. In terms of simple, I would say you are right, my inventory has expanded. I’m not saying that it has not expanded. Now what we are seeing is only from the — you would have done it from a TTM basis. And TTM is if you look, at these are the four quarters which are my linked quarters and if you use that as a base, yes, this number will be in that range. Now we can look at this, but to my mind two things will happen from here on. There is an additional inventory which you are seeing which will get liquidated over next two to four quarters, which is the volume that I have manufactured but not sold. So, that will happen.
And two is when the — and two is the same when I sell it out, that converts into revenue and gets into my denominator. So when you do numerator reduction and denominator addition, you will see that the numbers will start getting more representative in terms of what we have seen in FY ’24, at the end of FY ’25 and at FY ’26 is where you will start seeing the reduction from the FY ’24 numbers further significantly because I am expecting a decent growth in FY ’26, which will further allow me to liquidate the inventory and also become the base for my days calculation. So, both will happen. But today you’re right, it has expanded and there is a very sharp focus from the management side to ensure that that gets liquidated sooner.
Krishan Parwani
Understood. But if I just look at second half of last year to second half of let’s say FY ’25, do you expect a growth in topline?
Vishal Thakkar
Second half to second half? Just a minute. It would be — it would have a growth. The second half of last year was a weak half and from that perspective, yes, it should — I would expect a growth from there. Yes.
Krishan Parwani
Okay. So even if, let’s say even if you assume a growth of 20% over the second half of FY ’24, then also your topline — just the standalone topline could be in the range of — anywhere in the range of INR950 crores, INR960 odd crores. Even then so let’s say you have — you liquidate more like INR100 crores, INR120 odd crores of inventory. Even then it’s the standalone inventory days, it’s going to be much higher than 360 days. So how do you kind of propose to reduce the net debt which has kind of ballooned to almost like INR1,200 odd crores in September ’24?
Vishal Thakkar
Sure. So Krishan, let’s answer it in two parts. Okay. One is the inventory you rightly added. So when I do that, what we are doing is we are approximating the lower revenue that I have in Q1, Q2, H1 also into this calculation. But when I’m running the business and if I’m doing let’s say INR350 crores is the revenue on a quarter because if — with the number that you are speaking if I add that as in my exit year, I’m not guiding for that, but just for the reason of mathematics I’m saying. That number if you look at it from that perspective itself, that’s a kind of an annualized revenue that I’m seeing going forward, right? When I’m seeing that, then that inventory has to be — because see, unfortunately we take the historicals of the financial and we take the cross section of the balance sheet to do it and that’s how we all have been doing and that’s all the most scientific way of doing it.
But when you look at it from a business point of view, there is this distortion. Like I would look at the going forward revenue and accordingly I will have my balance sheet. But let’s take that part. So that’s one part I would want to say. Second, when you come back to the let’s say the net debt part of it, I believe the net debt I would be far more comfortable as we go because see the second half, if I were to move whatever number you are saying and if I make a 25% EBITDA margin, let’s not even talk about 30% or 28% that — or 28% or 29% that I’m doing on a standalone basis also. We are talking about a sizable contribution that is coming from there, right? Okay. That itself is enough and more to take care of it and if I am saying that I’m going to reduce the working capital intensity and not increase, then there is no absorption of working capital, right, absorption of cash in the working capital, one.
Two, my capex is done and capex is perfectly okay. So that’s the second part of it, right? So, there is no cash usage that is there over and above servicing of the debt, which is largely and largely working capital and not the capex growth. So to that extent, I have enough and more comfort there. And then Q1 FY ’25-’26 is when my preference of preferential shares of 270 also comes in and that will further ensure that I have — I am reducing the loan. But let’s — if I will take that off, I am very comfortable from the quarter performance itself — sorry, half performance itself. That’s how I’ve seen it and that’s how the management’s — internal management plan is that we don’t need any further external debt to really finance my growth for at least the near term.
Krishan Parwani
Okay. Got it. And just the last bit from me. Like on your guidance that you mentioned like the long-term guidance of INR3,000 crores with whatever capacity that you have with your current product profile. So, does that include the TANFAC revenues or it does not?
Vishal Thakkar
No, I’m talking standalone. That’s the reason I was saying 1.5 times, 1.7 times turns is what I was saying. So you’re right. No, this is not including TANPAC. If you add TANPAC, whatever their revenue will be over that period will be added on top of it.
Krishan Parwani
Okay. So and this is the guidance you’re giving like in — right. I mean or is it FY ’28, ’29?
Vishal Thakkar
Krishan. Sorry, I couldn’t hear you well. So if you can just repeat those questions?
Krishan Parwani
This guide for FY ’28-’29 or how is it?
Vishal Thakkar
I would put it in the medium term, which is three to four years and I will leave it there. Krishan. As we get near, I can really comment better on this.
Krishan Parwani
Okay. But sorry, just a clarification there. So your current asset base on the standalone business is about INR17 crores, right? And then 1.5 times it’s INR2,500 crores odd. So is there incremental capex that you are envisaging in the standalone business?
Vishal Thakkar
It is INR1,900 crores is — my block will be once I commercialize everything. So there will be some data [Indecipherable] that’s the reason you might not be seeing it.
Krishan Parwani
So INR183 crores.
Vishal Thakkar
So INR190 crores into whatever that multiple you will take it at, we will be in the range of INR3,000 crores. That’s what I was saying.
Krishan Parwani
Okay. Fair enough, sir. Thank you for patiently answering my question. Wish you all the best.
Operator
Thank you very much. [Operator Instructions] We have a question from Rohit Nagraj from Centrum Broking. Please go ahead.
Rohit Nagraj
Yeah. Thanks for the opportunity. Sir, in our Slide Number 12, we have given the business vertical wise split up; pharma 20% and other specialty 10% during the first half of FY ’25. So other specialty is only polymers or excluding polymers? And allied question to that is from the total LOIs that we have, how many of them or if you can just quantify how much of that is from agro, how much of that is from pharma, and how much of that is from polymers I mean out of that INR9,000 odd crores?
Vishal Thakkar
So, let’s go with the first question that you asked. Others is practically polymers. So you can — for practical purposes, you can use polymer as a reference on the other products. So, that’s one clarification. Second, if you look at the first one, two, three, four, five and six; the six LOIs that I signed in 2022, they all are agro based product and then the 2023 LOI, that is also a agro one. Then the balance if you look at it; the one, two, three, four; the four next are polymers and engineering fluids kind of application and one of them is also pharma applications also. And then the last but one is agro and the last one is a polymer again.
Rohit Nagraj
Sure. Maybe I believe that next time whenever you we are putting up the slide, if you add it, it will be really more comfortable for us to understand.
Vishal Thakkar
Thank you Rohit, Definitely we’ll do that. No problem. We’ll do that.
Rohit Nagraj
So just one question on the other?
Vishal Thakkar
Okay. I think we — see the problem, we will do that because today see, we report into two segments only, life sciences and other specialty and hence you’re not seeing it. So other specialty whatever are you seeing are all polymers. For example we wouldn’t be able to answer it simply. And the life sciences practically are all agro because pharma very limited have a LOI — a long-term LOI kind of a contract. They are more domestic market where typically you have a long-term relationship, but not a contractual relationship to a large extent.
Rohit Nagraj
Perfect. So now other question which comes into mind is that so during the first half, whatever growth we have seen in pharma and other specialty, which is nothing but polymers, this is predominantly from the legacy products and non-LOI products. Is that assumption right?
Vishal Thakkar
Polymer — so I will say there is some bit on the polymer side you would have seen, but legacy — it’s not legacy. There are new products which have been launched in pharma, which is really. So last year I launched 17 new products, right. That revenue — that 17 products is giving me the revenue as well. So, it’s a combination of two.
Rohit Nagraj
Right. Sorry, my mistake in that. Legacy in the sense I just wanted to bifurcate between the products launched and on LOI and non-LOI.
Vishal Thakkar
So see, I’m saying that this year also my LOI revenue should be in the range of 20% of my — 20%, 20% plus of my revenue. Are you speaking annualized because quarter to quarter when you when we see, there is always a scheduling, there is always lot of other parts to it. But if you look at on an annual business, that should be there.
Rohit Nagraj
So FY ’25 will be about 20% plus/minus from the LOI?
Vishal Thakkar
20% plus from LOI.
Rohit Nagraj
And another question in terms of the outlook or probably visibility from the MMC customers given that most of the scheduling for 2025 calendar year is already done. So what is the visibility that currently we have from the legacy portfolio and the ramp up of the new products which have been launched for the LOI purpose. Thank you.
Vishal Thakkar
So what has happened if you look at my legacy products in the last four quarters have been pretty low compared to what our average should have been even in a tepid environment. However so that — so combination of the one is we’re seeing a little bit of buoyancy coming up. Now that buoyancy is Q3, Q4, or Q1 that we can debate about. And second is there is there is a bit of a pendency on the demand which is also looking to pick up. So from that side, we see that Q3, Q4 especially so the H2; we have a reasonable confidence in terms of the volume uptake, right? And when I’m saying quarter, you have to also appreciate that for us the business is in continuum. We review ourselves on a cross section of a time, but on a continuum basis when I see, I can see that there is a buoyancy in the conversation, buoyancy in terms of forecast given by the customer, and there is a buoyancy in terms of now the offtake that they are doing.
Rohit Nagraj
Sure. That is helpful. Just one last clarification. When we are talking about the LOIs in terms of working contract. However, given that there has been pricing pressure in most of the products currently, next year when we are talking about, is there compensation on the pricing part or in terms of volumes to attain that particular contract value over a period of time?
Vishal Thakkar
So see, you please appreciate that as we have said in the past, the input raw material cost is the pass through. You’re right that pricing vary across various countries that have been up and down. So you have to also precede in ’22 the number — the pricing of ’22 which will be the pricing reference of ’21 which would have fell in ’22 and there are contracts which are signed in ’24, which will be pricing reference of ’23 or early part of ’24. So there is a whole cycle in it and also please appreciate this is a five year contract or a seven year contract. So today prices may be lower, tomorrow there are — there will be higher price. So we believe that there is an averaging that happens across the time frame in terms of revenue per ton. Now is that how we do it? Answer is no. The way we do it is very simple that the costs are passed through. But when I say that in seven years or eight years I will do so much of a revenue from these contracts, it is an assumption of an average price that I would have seen over a period of time. And hence we are not trying to say that if I would — so I am not doing mark to market if I were to use the word. Mark to market it will be there, but every quarter the mark to market number will change then and it doesn’t help in terms of understanding how the business is going then. Sure. This is helpful. Thanks a lot for answering all the questions and all the best.
Operator
Thank you very much. We have a follow-up question from Mr. Ramesh from Nirmal Bang. Go ahead, please.
S. Ramesh
Thank you for the follow-up. So when you discuss the growth for the existing molecules and the new molecules in the LOIs, incrementally what are the working capital terms in terms of inventory days and receivable days for the new LOIs and the new molecules and to what extent will that help you reduce your working capital cycle?
Vishal Thakkar
So see, if you look at it, my current working capital is out of ordinary than my normal business working capital should be. So, the new LOIs are also the LOIs where I tend to have a control on the working capital side. On the new demand from the pharma side, if you look at pharma side, Indian pharma side tends to have a little higher working capital especially on the debtor side, but maybe on the inventory side I would have a lower number because I don’t need to stock because the pricing is more life in that condition. So to my mind, the new contracts should be in the range of historical — not the recent one, but the historical working capital cycles of 2020-2021 kind of a time frame. So that on a blended basis also will be helping and also when I start liquidating my working capital, I would have a double effect on this.
S. Ramesh
So, how much of debt can you expect to repay say over the next two years on the current debt level?
Vishal Thakkar
So first, anyways I will be repaying around INR200 crores plus of debt in in the H1 of ’26 because I will have my QIP — my pref and warrants money coming in when I have announced to repay that. So, that anyways I will do. So, largely my term debt will be largely done except for a little bit if that is left out. But then on a net cash basis, it will be practically the zero scenario which I had mentioned earlier also. And on the working capital side, basically I don’t have a capex going forward — any significant capex except maintenance capex and I do not have more absorption of working capital because there is enough and more working capital which will ensure that the current working capital is sufficient to take care of the growth, which if you look at it, has happened in 2022 versus 2023. If you look at it, my working capital — even after growth of 25%, my working capital was same and hence my whole growth was funded by the same working capital. And I believe that that kind of a similar effect will happen going forward as well. So one, that is there and there will be free cash flow which comes in like that will help me lower my debt. But from INR1,200 crores, the debt would be in the three digits by the next — middle of the next year.
S. Ramesh
That’s useful. And then one last thought. On the HF expansion done by TANPAC, would it be your average sourcing of HF from them say per annum in the next two to three years based on the expanded capacity?
Vishal Thakkar
So see, even if you look at it, I’m not the largest consumer of them because my input into them is — my absorption of them is limited. But if you really ask me, I’ll be in the Top 5 to 6; but there’ll be many other players also who will be consuming this product. So today, whatever is the demand — whatever they’re supplying to their customers, they will continue to. From the additional volume, I will be able to absorb it, but that’s okay.
S. Ramesh
Okay. Thanks a lot. I appreciate that. Thank you very much and wish you all the best.
Operator
Thank you very much. We have a question from Siddharth Gadekar from Equirus. Go ahead, please.
Siddharth Gadekar
Hi, good afternoon. So in one of our slides, Slide Number 14, we have highlighted new chemistries where we highlighted pyridine chemistry. What are we exactly doing in that chemistry?
Vishal Thakkar
Just a minute, I’ll go to that slide and then we can talk about it. So we are saying we have highlighted pyridine chemistry. So we are using this pyridine chemistry for manufacturing of couple of our product which will be going into the pharma application.
Siddharth Gadekar
So, we will be manufacturing the pyridine or we will be sourcing pyridine from outside?
Vishal Thakkar
No, we are not manufacturing pyridine, right? We’ll be doing further process on pyridine.
Siddharth Gadekar
Okay. Got it. Secondly, in terms of the photo chemistry, how many molecules are we doing in that technology as of now?
Vishal Thakkar
So, there are three to four molecules which are in with that in the pipeline where we are doing it in the photo chemistry line.
Siddharth Gadekar
Okay. So lastly, just from the working capital if I want to look at it from FY ’26 perspective, where should we look at the working capital days given that we have been guiding to lower working capital for the last 2.5 to 3 years, but we haven’t seen that playing out?
Vishal Thakkar
So on the working capital side, again I’m saying that I would say this year will be similar to last year. ’26 will be a significant improvement. I am not wanting to hazard a guess right now, but I would try and recommend to guide that probably in the next coming two quarters because I want to look at the volume offtake and the revenue offtake ramp-up before I guide on that.
Siddharth Gadekar
Okay. Thank you so much.
Operator
Thank you very much. That was the last question for the day. I now hand the conference over to management for closing comments.
Vishal Thakkar
Thank you, everyone, for your active participation and for your questions. We hope we have been able to answer most of your queries. In case we have missed any questions or we have not addressed it sufficiently, please reach out to our IR partners E&Y and we will be happy to get them answered to you. Once again thank you very much for participating. Thank you for coming on a holiday and wish you a Happy Diwali. Thank you.
Operator
[Operator Closing Remarks]