Bodal Chemicals Ltd (BODALCHEM) Q1 FY23 Earnings Concall Transcript

Bodal Chemicals Ltd (NSE:BODALCHEM) Q1 FY23 Earnings Concall dated Aug. 10, 2022

Corporate Participants:

Ankit Patel — Executive Director

Mayur Padhya — Chief Financial Officer

Analysts:

Yogesh Tiwari — Arihant Capital — Analyst

Saket Kapoor — Kapoor Company — Analyst

Ayushi Shah — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, welcome to the Q1 FY ’23 earnings call for Bodal Chemicals Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risk and uncertainties that are difficult to predict. 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] And I’ll hand the conference over to Mr. Ankit Patel, Executive Director of Bodal Chemicals Limited. Thank you, and over to you, sir.

Ankit Patel — Executive Director

Thank you, very much. Good evening, everybody. On behalf of Bodal Chemicals Limited, I extend a very warm welcome to everyone for joining us on our call today. On this call, we are joined by our CFO Mr. Mayur Padhya and SGA, our Investor Relations Advisors. I hope everyone had an opportunity to go through the financial results and investor presentations, which have been uploaded on the stock exchanges and our company’s website. Let me give you a quick snapshot of the recent developments of our company. And then I will hand over the call to Mr. Mayur Padhya to talk about the financial performance.

Our company Bodal Chemicals is India’s largest integrated dyestuffs and dye intermediates manufacturer. In an environment where Indian suppliers are preferred as reliable partners globally, we have been able to leverage our leadership position. In domestic market, our dyestuff and dye intermediate market shares are around [30%, 20%] respectively. Globally, our dyestuff and dye intermediate market share are around 3% and 6% respectively. I’m excited to share that over the last one year, we have successfully implanted the Chlor Alkali products in our product portfolio. We are expanding our product basket and entering benzene chemistry products and we are confident that we will be able to replicate a similar success in this new product as well. Coming to the performance overview during Q1 FY ’23. Total revenue for the Q1 FY ’23 stood at INR463 crores, a growth of 8% on a year-on-year basis.

Consumption of end user industries has been on edge headed by many uncertain global events. Although the rising raw material price has been positively reflected in our basic chemicals and Chlor Alkali business, which has partly negated the adverse performance of the dye intermediate business. We will now touch upon each business vertical and its recent developments. Dyestuffs and application industries of dyestuff like textile, leather, paper have shown some moderation during the last quarter. The dyestuff business for Q1 FY ’23 stood at INR150 crores compared to INR131 crores in Q1 FY ’22, a growth of 15% on year-on-year basis. Coming to dye intermediates, this segment has seen some pressure (Technical Issues) unprecedented volatility in key products like [Indecipherable] and sulphur prices. This quarter, revenue contribution from dye intermediate chemicals stood at INR122 crores. The lukewarm demand from textile manufacturers due to the steep price hike in cotton has impacted the overall demand for dye intermediates to a certain extent. Average prices of key products H Acid and Vinyl Sulphone have been moderated in Q1 FY ’23 to INR473 per kg for and H Acid and INR290 per kg for Vinyl Sulphone. More than 40%, 45% of these intermediate capacity is captively consumed resulting in a significant cost advantage for our dyestuffs products.

Given the healthy prospects for dyestuff, we strategically intend to move up the value chain and increase our captive consumption of dye intermediates. Turning to basic chemicals. Although our basic chemical division also reported healthy performance led by higher raw material prices, close to half of the basic chemical capacities [actively] consumed for dye intermediates production. Our overall basic mix segment contributed around 50% of our total revenue, Q1 FY ’23 with a revenue contribution of INR64 crores. Chlor Alkali business. This segment has come off well for us and has contributed meaningful — meaningfully to our overall business. Since March, there has been a disparity in the price reported in India and China.

The overall cost of production and the demand-supply gap has been uncertain on the back of various geopolitical events. In India, the demand for key products like caustic soda has been healthy in FMCG, textiles and paper industries. The Chlor Alkali business delivered a strong performance with revenue of INR86 crores in Q1 FY ’23. The upgradation of the Rajpura caustic unit is on track and is expected to be completed by October ’22. Post completion our total Chlor Alkali business will contribute a significant pie of total revenue. A benzene derivative of sulfuric acid, the Saykha Greenfield project is progressing well and is expected to start a trial run in Q1 FY ’24. Indian manufacturers import a lot of benzene derivatives, our main goal is to replace imports and capture business in the pharma and agrochemical markets where such benzene derivatives are used. Subsidiary performances, our subsidiary, Sener Boya has reported a notable performance, whereas the other subsidiaries have reported weak performance especially the SPS unit due to the lower demand of dye intermediate products. In a medium to long term view, we foresee these subsidiaries will improve in the respective region and will bring meaningful business to our company. In the last few weeks, we are seeing some green shoot events and we anticipated a steady performance in the upcoming quarters.

We aim to create a sustainable business model without losing the leadership position in our legacy business. In the coming years, we expect our business will be less volatile and more diversified, as we will be serving a wide spectrum of end user industries. Thank you. And now, I hand over the call to Mr Mayur Padhya to walk you through the financial performance.

Mayur Padhya — Chief Financial Officer

Good evening, everyone. Overall performance of the company has been steady for Q1 FY ’23. Our consolidated performance for Q1 FY ’23 is as follows. Total revenue stood at INR463 crores for Q1 FY ’23, a growth of 8% year-on-year basis. EBITDA stood at INR54 crores for Q1 FY ’23, a de-growth of 3% on year-on-year basis. EBITDA margin stood at 11.6% for Q1 FY ’23. Net profit for the quarter stood at INR23 crores for Q1 FY ’23 a de-growth of 18% on a year-on-year basis. As highlighted earlier by Mr. Ankit, the sluggish response from end users has affected our primary business of dyestuff and dye intermediates. Performance of the key subsidiary was healthy. Subsidiary particularly SPS posted revenue of INR23 crores.

Sener Boya has reported a total income of INR26 crores. Total income from the China subsidiary was nearly INR3 crore. Segment wise performance on a consolidated basis for the Q1 FY ’23 are as follows. Dyestuff revenue stood at INR150 crores, dye intermediate revenue stood at INR122 crores, basic chemical revenue stood at INR64 crores, Chlor Alkali division revenue stood at INR86 crore. TCCA revenue stood at INR10 crores for the quarter. Total production volume on a standalone basis for the Q1 FY ’23 are as follows. Dyestuff stood at 3,993 metric ton, dye intermediate stood at 3,442 metric ton, basic chemical stood at 51,594 metric ton, Chlor Alkali stood at 21,299 metric ton of which caustic soda stood at 15,134 metric ton. TCCA stood at 299 metric ton. With this, I conclude the presentation and open the floor for question and answer. Anybody has a question and answer, can now start asking question.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Yogesh Tiwari from Arihant Capital. Kindly proceed

Yogesh Tiwari — Arihant Capital — Analyst

Good evening, sir. Thank you for taking my question. My first question is basically regarding

Operator

Mr. Tiwari. Sorry to interrupt, sir, your volume is low. Could you speak a bit louder.

Yogesh Tiwari — Arihant Capital — Analyst

Am I clear now. Hello?

Operator

This is better, thank you.

Yogesh Tiwari — Arihant Capital — Analyst

Yeah. So my first question is regarding the Rajpura unit. So like Chlor Alkali is about INR85 crores, so once this get commissioned in Q2, what would be the revenue contribution of [these two] in FY ’23?

Ankit Patel — Executive Director

See currently the rates of especially caustic rate is much higher than the average 5 or 10-year price. So if I — if you take it at the current rate, then it will be more than INR400 crores, but if I calculate it with a 5 or 10-year average prices of finished good caustic soda, then it will be in the range of INR300 crores to INR350 crores annually.

Yogesh Tiwari — Arihant Capital — Analyst

For example if like INR300 additional crores revenue will come from only this Rajpura unit [speech overlap]

Ankit Patel — Executive Director

It is not additional, it is going at that same rate. At a normal price, at an average price, it will be around INR325 crores, so around INR80 crores a quarter which is going right now also because of the extra higher price.

Mayur Padhya — Chief Financial Officer

For your clarification, last — this division has contributed INR254 crore. So if we achieve INR400 crores from this unit then INR150 crores is additional revenue from this division

Yogesh Tiwari — Arihant Capital — Analyst

Thank you, sir. That is helpful. And if you can share what was the realization of caustic soda average realization for Q1 FY ’23? And what is the current price of caustic soda in the market?

Ankit Patel — Executive Director

The current price is around INR55 delivered, so on an average, I think the manufacturers get around 53. That is today’s market. For most of the August, it has been around that and we expect the price to be around that such for the month of August because there are lot of exports happening from Gujarat, so August is going to be strong. September also they are trying to take more export orders. So we can maintain the higher prices and for this quarter, the average price was around INR50 ex plant.

Yogesh Tiwari — Arihant Capital — Analyst

And sir, in terms of, I just wanted to understand both dyestuff and dye intermediates. So it’s like there has been a slowdown in textile industry and that was one of the reasons why dye intermediates revenues are down. But on the contrary, dyestuff is on the higher side. So if you can help me understand if both are related to the textile industry, why dye intermediate underperforming so much compared to dyestuff?

Ankit Patel — Executive Director

So dye intermediates applications or customers are mainly in India. We have only few countries where we can export the dye intermediates like Taiwan, South Korea and etc, whereas. So basically, our dye intermediates sales happen mainly to the local dyestuff customers here in India.

But in dyestuff, we have Sener Boya, which is our subsidiary in Turkey. So there, they sell our dyestuff, we sell in Turkey and surrounding country’s market, which is one of the biggest markets in the world. Again Bangladesh is a big market and India, again across India, there are many textile industry and paper industry. So that also — so what I mean to say is it’s a bigger international market for us. So the sentiment is different when it comes to Dyestuffs. So it didn’t affect us too much. And usually in the past also, whenever intermediates is slower. I think the same effect is not there in the dyestuff because of customers available across the world even South America there is a big market, Vietnam and many other countries.

Yogesh Tiwari — Arihant Capital — Analyst

And sir, what would be your exposure to Bangladesh because — and do you think that current crisis in Bangladesh can affect the demand for the products going forward.

Ankit Patel — Executive Director

No. Our overall exposure to Bangladesh is very in terms of percentage, and there has been some issues about payments, etc, but we are not facing any. So we have a strong supply chain. I think we — where we are not affected and also exposure is small because Dyestuffsis is only bout INR500 crores. It’s about 25%, 30% revenue for the company, where hardly maybe 10%, 15% of that business. So at company level, our exposure to Bangladesh is probably not even 5%.

Yogesh Tiwari — Arihant Capital — Analyst

Sure sir. And coming back to dye intermediates. So the wall, there has been a very big decline in volume, production volume. So is it — is there a demand destruction, destruction or means what would be the drivers for such a large decline.

Ankit Patel — Executive Director

There were multiple reasons why intermediate productions were affected, intermediate margins were affected because of this higher crude prices because of this war like situation. Energy prices mainly coal. It is still INR10 rupees plus, which on an average is available around INR5 rupees, so intermediate is a very, very high energy intensive industry.

So that cost has really gone high. Comparatively in China, I think it is available little cheaper. I’m talking about coal and the raw materials, which there are many raw materials that we buy from refineries. So most of the raw material prices were at a maybe five year high or a 10 year high etc. So the input cost was — we had also risen so much in a very short time, which we were not able to pass on immediately. Also at the same time, there were some disruptions in China has had in different pockets COVID issues.

So the Chinese productions are also affected of dyestuff. So there were some extra intermediate export availability, which now, which was dumped to India just temporarily. So because of all these reasons together also there has been some, not in the HSN vinyl sulphone but in other intermediates, there has been. Couple of new units that has started so with some extra capacities have come up in some of the smaller products. So all these reasons put together a couple of months where there were lot of pressure, margins were definitely impacted big time.

But now. So, in fact, there are many plants, many facilities were shut even we had shut some of our facilities for time being, we had taken some maintenance work etc because it was not viable to produce. But we have recently started — restarted our plants. The main plants so and going ahead a lot of the correction has happened in the raw materials, also. So I think and because of that because of many plants were shut for a month or so, all these inventory that was there in the pipeline, most of, most of it is dry now So what we are expecting is, we are definitely expecting a better time going ahead. I think we expect the intermediate business to normalize going ahead now.

Yogesh Tiwari — Arihant Capital — Analyst

Thanks sir. And coming to the benzene derivatives, which will be commissioned in about FY ’24, just want to understand, if the margins on these products are more than the current margins which the company is making? And what would be the revenue potential in FY ’24?

Ankit Patel — Executive Director

Sir FY, first quarter of FY ’24 is the target to start the trial production. There’s a lot of integration, and we are working with three international technology. So I think commissioning this entire project will not be a very, very short job for us, it will take us a couple of months or more. And with such kind of processes and plants, it takes time to ramp up the utilization of the plants. So what I’m expecting is the first couple of quarters of FY ’24 could be around could get 50% utilization and the remaining — the last two quarters of FY’24 can be around 80%, 90%. So at that at that rate. I think we should do around 250 to 300 crores of turnover. At full pace in FY ’25 when we utilize around 80% plus utilization of around 90%, I think we can do around INR350 crores to INR400 crores.

Yogesh Tiwari — Arihant Capital — Analyst

Okay. So in terms of…

Operator

Mr. Tiwari, I’m sorry to interrupt, sir. (Technical Issues) question queue for further questions.

Yogesh Tiwari — Arihant Capital — Analyst

Sure, sure.

Operator

Thank you. [Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor Company, kindly proceed.

Saket Kapoor — Kapoor Company — Analyst

(Technical Issues) and thank you for this opportunity. Sir, firstly, if you could give us some more color for this caustic soda partner. You were explaining that different geographies are behaving in terms differently, what the China market is and ex-China. So if you could explain to us how is this playing out in terms of prices and also the capacity utilization levels globally? And for us as a country, I think INR1 million is the addition that we will have in phases for our country caustic soda. So how is this addition is going to play out in terms of margins behaving going ahead? If you could give some more color sir?

Ankit Patel — Executive Director

I think caustic soda going ahead in the local Indian market is always going to maintain a very strong demand. It is not a recent development where new capacities are coming up. If you notice, the last 5 years, 6 years, there have been many new plants and many capacities have come up. So for example, DCM Shriram has gone from 500 tons, 600 tons to 1,500 tons per day plant. This happened in the last 6 years.

Meghmani went from around 400 tons per day to around 900 tons per day. Nirma also expanded. GACL and NALCO has the joint venture, which is called GNAL, that also recently started, a brand-new plant. Also in north, there’s a company called Punjab Alkalies, they have also recently in last 2, 3 years expanded. At the same time, in South Rayal Seema has expanded. So many companies have expanded. I think Atul Ltd has expanded recently about 2 years back. So many companies have been expanding in the last 4 years to 5 years to 6 years. And I think still we are going through this patch. It’s already been about 8 months to 9 months.

So overall, I think the main application for caustic, which is aluminum, which is which [Indecipherable] aluminum where the demand of aluminum in India and even across the world is very, very high. Especially after bouncing back from this pandemic, now all the infrastructure jobs, the pending jobs or the plans to develop infrastructure, etc, across the world is really going full swing. So because of these reasons, I think I don’t see demand of aluminum or even the other applications is like detergents or textiles or paper and etc, for caustic. I think going ahead, textile may be a little volatile. But other than that, I think all these other areas, the demand is going to remain very, very solid. China, which is about 50% of the world’s capacity is not able to set up new plants or increase capacities because there are many environmental challenges. There are reasons that they are not allowing thermal-based power plants, which is mandatory to bring down your cost because power is the most — the main cost where you have to produce at with cheap energy, then only you can complete. So that’s the problem in China.

Many areas are getting banned to develop chemical industries etc. So because of all these reasons, there has been hardly any growth that has happened in Chlor Alkali.

Capacities in China, which is the largest market, which is the largest producer. So because of these reasons, India wanted around 4% global capacity. It has already gone, I think more than 6%. This has happened in a very, very short time. So India is placed, it still has a very, very small share. But at the same time there is a lot of consumption that is coming up in India because of all this good overall time that has gone. That has been going on since last five six seven years in agrochemical space in chemicals, overall chemical space. So there has been lot of growth is happening everywhere, especially in the western part of the country. So I think going ahead, I see this growth happening continuously for at least another 10 years because I think right now, India is placed very, very well to grow or establish new products or do some R&D, develop some new product.

So there has been lot of transition of the products also that is coming from the MNC. There is a lot of opportunity already there and being grabbed by all these manufacturers like us to multiply our production, the China Plus One policy, like that trend is also helping us where MNCs and global larger companies are really now taking Indian supply seriously and they are preferring to have a — India as a supplying partner.

So all these I think reasons put together, I think the demand of caustic soda is going to remain strong. India and China, don’t directly compete about caustic soda because caustic soda being a lower value product, countries or regions work in pockets. So for example, North America exports to South America or Europe or Western Africa. At the same time, India, because most of the capacities are in the Western India. So we work around Middle East and East Africa and etc, those markets. At the same time, China takes care of the Far East market or the Western U.S. part. So that is how the business works and so I think going ahead something like a pandemic can disturb because of pandemic, the same caustic soda price was around INR20 not too long ago. So if something extraordinary happens, then yes, it can go through a bad time. Otherwise, I think it’s going to be a good demand overall.

Saket Kapoor — Kapoor Company — Analyst

Sir, just to conclude. In terms of this increase of 1 million tons, this is going to be on stream for the country and we are currently seeing that in the West due to the higher energy prices and because of this conflict of Russia and Ukraine. The cost of production has gone up significantly. So is this a good understanding that a good portion of this incremental capacity will be shipped out as you have already mentioned that the western part has good export order for the month of August also.

Is this a good understanding that in earlier cases, when the capacity used to come on stream, there has to be — there used to be pressure on margins because at one time, your consumption and your industries are — the suppliers are limited only. And if you increase your production in incremental way, where would you sell because earlier there was jumping also from purchase order. So has that scenario completely changed? And that is adding to the advantage currently?

Ankit Patel — Executive Director

I think, currently this energy crisis in Europe is definitely helping because whatever markets Europe was catering, I think such markets are probably not getting enough materials. That is why those areas, those pockets have to buy from India or other market. So that is why these extraordinary prices are there.

I don’t see these prices remain for a very, very long time. I think, once the energy equation settles down in Germany and other countries in Europe, then I think things will normalize. But still, at the same time, there’s not going to be any growth. It’s already been so many months of this war situation. So going ahead also, there is no clarity. So one year of that growth that can come up from Europe is not going to happen.

This is going to give us ideas. This is going to give Indian manufacturers to establish a good market. I think — so it can definitely come down to those 32, 35, 40 levels. But again, that is again a very good market. I mean, so I think, it’s better to have a INR35 price throughout the year than have a INR50 or no certainty about price — any price being maintained. So what I mean to say is I feel that it is going to remain in strong margin levels, but not too much in this range of INR50 and all. So even the September is no — there is no clarity about September at the moment because there’s literally a lot of exports being happened right now in this month and literally, the Gujarat manufacturers who are exporting, they are short.

They are so short that they are not offering — some of them not offering material in the local market. So August looks good. I think September also, I think that because the things are not really changing in Europe and all, I think September also there should be some exports, which would again support the local prices here.

Saket Kapoor — Kapoor Company — Analyst

Right sir, and the price. Sir, average pricing is above INR50?

Ankit Patel — Executive Director

For this Q1, yes.. (speech overlap) The current price is around INR53.

Saket Kapoor — Kapoor Company — Analyst

And sir, sir in your opening remarks, you did mention that with the commissioning of the new projects and with the derivatives production coming into play, we will have — we will be reporting sustainable set of numbers. So sir on that aspect, if you could throw some more light, what are you trying to explain as a — in terms of that?

And also, sir, I have seen that the finance cost on a Q-on-Q basis as well as on an year-on-year basis have gone up significantly, not — because the absolute number is still lower. So if you could explain the reason for the same? And how are the utilization levels currently for the different verticals for us?

Ankit Patel — Executive Director

So to answer the utilization levels, currently in Chlor Alkali, we have less capacity available because we are upgrading the technologies. We are going to completely phase out the older one and so we are not investing too much in the older technology. So from the available capacity, we are definitely running at 90% plus.

In our basic chemicals, like sulfuric acid and specialty chemicals like thionyl chloride, these plants are now at the moment, they’re running at 90% plus. Intermediates, like I said, most of our plants were shut for some time. We have just recently, just few days back restarted the plant. We expect Intermediates to currently for the month of August, I think, expected to go at around 50%. And Dyestuff, again, I think it’s pretty routine and doing around 60%, 70% utilization.

And I didn’t understand your question about the derivatives (speech overlap).

Saket Kapoor — Kapoor Company — Analyst

Yes sir, you mentioned that we will be able to have more sustainable set of numbers once our projects get commissioned wherein lot of raw materials, we would be having — we would be vertically integrated and the end product prices are not subjected to market vagaries as has been the case earlier today. So if I’ve got it right, sir, you were explaining that we are moving to a scenario where we will not be having the variations in our reporting numbers. So if I’ve got it (speech overlap).

Ankit Patel — Executive Director

So we are quickly transforming. If you look at our numbers, let’s say, 5 years back. Our dyestuff business or Intermediates going into the Dyestuff. So basically Dyestuff sector numbers are 80%, 90%. Only about 10% were coming from basic chemicals. We didn’t have other specialty chemical like thionyl chloride, we didn’t have the Chlor Alkali business. So when this thionyl chloride comes in the picture, it again generates new revenues for us. At the same time, a more steady business and the application is again not into textile. So what I mean to say is that we were depending a lot on a single sector by having revenues of around 80%, 90% from Dyestuff sector only. And again, from Dyestuff, there are other applications also but the majority goes into the textiles.

So I think because of that, with the volatility of the demand coming from textiles, I think it was affecting a lot. So and we were not diversified too much. So because of these reasons, now, like today, if I talk about then a big chunk of revenue comes from Chlor Alkali, which has a entire wide application, new applications where we completely didn’t cater before.

Thionyl chloride now there again it goes big time into pharma, agrochemicals, which are growing sectors, very solid sectors. Again benzene derivatives, which we are going to do, there are also caters to agrochemicals, pharmaceuticals, some of the new sectors. So in — we are already I think in a good position. I think, with the benzene introduction, again I think our overall product portfolio will be much stronger. I think, we will — our exposure to the different applications or sectors, I think, will be even stronger. We will have even wider exposure. So this will change that dependability on our textile sector. So I think, that’s one thing that’s changing quickly. One last thing remains, which is benzene, which will be done in about 1 year. So it will add more strength. And what was the other part of your question?

Saket Kapoor — Kapoor Company — Analyst

Sir this was — and other was the finance part sir, I think so.

Ankit Patel — Executive Director

So also about how — why we feel a more sustainable business model overall is that our subsidiaries have definitely been underperforming. So our subsidiaries also, I think most of them, like all three of them, Trion which is a water treatment chemical business, which has now already been amalgamated. But that business is also somewhere now doing decent. It is — the plant is running every single month, where we are able to export to U.S., which is our main market. So it is somewhere settling down.

SPS also, we acquired it but then there were some issues there. There were always revenues there, but no profit. So we have added vinyl sulphone plant there. So we are also hoping that that integration will help us and will definitely do better than it did in last 5 years for us. Also the Sener Boya, Turkey, which was acquired in 2019, so pandemic created a very key role there. There was a lot of disturbances there for us.

But I think now going ahead, I think we don’t see a big threat of COVID or a pandemic. So I think going ahead, that should also somewhere have a better

Performance than it did in last 3 years. So we see these improvements coming in from our subsidiaries and also addition of this benzene. So overall, we’ll definitely be placed better next year than let’s say FY’22 or FY’23. And that is — that’s what I mean — I meant to say.

Saket Kapoor — Kapoor Company — Analyst

Yes, I got your point. And lastly, sir, if you could give me some color on how are we going to utilize the extra amount of chlorine that is being sold at end market or nearby industry or how is that —

Ankit Patel — Executive Director

So we have a new consumer. We already have four consumers next to our plant, where we sell them chlorine by pipeline.

We have one more consumer who is — who has just started, who is about to start setting up the plant. So in about 8 months to 10 months, they should be on stream. So we’ll have a new large customer. Also, we are in talks with couple of other customers — pipeline customers, who are planning some expansion. So I think at the same time, we have captive — couple of captive products where we use the chlorine, one is SBP, stable bleaching powder, another is hydrochloric acid. So in hydrochloric acid, we have a 200 tons per day capacity where we can use about 60, 70 tons of chlorine where we are only utilizing about 45% to 50%. So we can increase the HCL production.

We have recently already increased stable bleaching powder plant capacity. So we — some of the new chlorine that is going to be produced will be used captively and again it will be sold to the pipeline buyers. And also, again, we have to sell by turnout also to the North region players. But I don’t see that as a challenge. I know chlorine is a challenge for a Chlor Alkali industry. I think with our — this recent addition numbers, which will come in next 2 months, 3 months, I think that is not a problem. If you want to expand in future, then I think we have to plan something different, something bigger and different in future if you want to further expand in a large way. But I think, for this expansion we are covered.

Saket Kapoor — Kapoor Company — Analyst

Okay. Because large players, sir, I think so are selling chlorine at negative realization only. If you take the example of Grasim and others, for them, their [ACU] realization goes down because of chlorine only. So we are hereby making money also by selling chlorine.

Ankit Patel — Executive Director

Yes. So one thing is good that chlorine — Gujarat definitely has more and more pressure also on chlorine because we have to even buy a lot chlorine here from Gujarat

Manufacturers. So Punjab definitely or North India definitely have less pressure of chlorine. So our realization — so my buying here in Gujarat versus my realization in North India, there is definitely a positive difference for me — for the company. So that is a good thing. I think here sometimes, because of the stock levels and all, some companies get under a lot of pressure, and they start selling it a very — in a big mega — minus prices.

Saket Kapoor — Kapoor Company — Analyst

Correct. What have been our realization for chlorine sir [Indecipherable]

Ankit Patel — Executive Director

Currently last month, I think, it was minus INR4500.

Saket Kapoor — Kapoor Company — Analyst

And we are selling at what price, sir? This is what you are sourcing, I think sir from the Gujarat.

Ankit Patel — Executive Director

No. No. INR4,500 is our North India plant’s ex-plant realization, negative. And our buying for the last month is around that price only in Gujarat. But today, I bought chlorine at a negative INR7,100 here in Gujarat, whereas we are not selling less than INR6,000 in North India or even INR5,500. So there’s a gap of 1,500, 2,000 for the — currently.

Saket Kapoor — Kapoor Company — Analyst

Okay. Sir, when we say negative, (speech overlap) if you could explain what is negative in that way. We are — our realization, how do you define that negative part?

Ankit Patel — Executive Director

It is negative pricing. So if you buy chlorine from me, if you buy chlorine today, if you are a consumer of chlorine in Gujarat today, the company will pay you INR7,100 per ton. Wherein Punjab, in North India’s my plant, today, we are paying our buyers on an average INR5,500.

Saket Kapoor — Kapoor Company — Analyst

INR5,500 Gujarat…

Ankit Patel — Executive Director

Yes. So there is a difference of INR1,600 per ton. And the production is around 190 tons per day. So these numbers are pretty big.

Saket Kapoor — Kapoor Company — Analyst

Okay, thank you sir.

Operator

Thank you. The next question is from the line of Priyanka Gandhi from ACE Capital. Kindly proceed

Ayushi Shah — Individual Investor — Analyst

Hello, sir. I just have a couple of questions. Firstly being, do we pass on the inflationary pressure to customers immediately or with a lag effect? Can you provide some light on the pricing strategy of our products?

Ankit Patel — Executive Director

So we are — so naturally, we are not I think able to pass on the every increase immediately because our model is B2B mainly. So when we make a Basic Chemicals then people make intermediates and then from that the forward integration into Dyestuff or some other applications like agrochemicals. So then it is sold to a consumer. So most of it — most of our business is B2B, where the realization or the passing on the price all the way to the consumer doesn’t happen immediately. So if the crude prices go higher or lower, I mean we cannot do it in 1 days or 2 days or 1 week that we pass on the entire increase or decrease. It does happen for most of the products, it goes higher or lower with the raw material pricing for sure, but not completely.

And our pricing model, obviously, we try to have a certain targeted margins with the given time the raw material prices plus expenses, plus the margin. We try to — we try doing that. But then supply demand factor also plays a big role all the time. But majoritarily, I can say that our target, let’s say, is like 15%, 17% EBITDA, so there is not a — there is not a too much of a difference or a variance. So that is how usually it works for us.

Ayushi Shah — Individual Investor — Analyst

All right. Got it. My second question is, how has TCCA and thionyl chloride performed during this quarter? Can you throw some color on its demand scenario and expected annual revenue in the next 2 years?

Ankit Patel — Executive Director

So thionyl chloride production was 8,200 tons for this quarter, Q1 FY ’23 which was a utilization of 91% and TCCA production for this quarter was 300 tons for this quarter. Now, thionyl chloride in terms of production and in terms of sales or the market demand, I think it’s quite normal. It’s a good positive demand and there are no problems with the production. So I think going ahead for next few quarters or 2 years, you asked, I think, we will be doing in the same range. So we will be producing around 68,000 tons of thionyl chloride. And so I think, our turnover coming from thionyl chloride will be around INR130 crore. But after that, I think there will be some captive. So just, you need to give me a second.

Ayushi Shah — Individual Investor — Analyst

Sure sir.

Ankit Patel — Executive Director

It will be at INR105 crore, INR110 crore. That is — that will be our revenue for the 2 years from thionyl chloride. And TCCA was only 300 tons for this quarter, the reason being that because of the

Freight, very very high freights and there was an extraordinary demand that happened in that quarter for the global shipments going around, not only from India. So there was a lot of shortfall, there was a lot of demand, shortfall of the supply or the ships. So this product being in a hazardous category, most of the, in fact, or not most. All the shipping lines were not ready to take the material to the U.S., so but that scenario has now eased, that now has changed.

So our current rate is very encouraging. The 300 tons of production that we did in Q1, I think, we are already going at 300 tons per month at the moment. So going into next 2 years, we don’t have an immediate plan to expand, though there is a brownfield expansion possibility. So going ahead, I think we should do about in the next 2 years 7,200 tons of production and around — for next 2 years it will be around INR120 crore, INR140 crore of turnover coming from that.

Ayushi Shah — Individual Investor — Analyst

Okay, thank you so much, sir. That’s all from my end.

Operator

Thank you [Operator Instructions] The next question is from the line of Ayushi Shah, an Individual Analyst, kindly proceed

Ayushi Shah — Individual Investor — Analyst

Hi sir. So my first question is regarding the cost of production and the cost of basically the selling price disparity between India and China today and like how has that impacted demand for you all? And sir, like what led to the significant fall in profitability of SPS subsidiaries? You mentioned that like there was a fall in demand, but are there any other factors that are contributing to this loss?

Ankit Patel — Executive Director

So we are into basic chemicals, specialty chemicals, chlor alkali, dye intermediates and dyestuffs. These are our sectors, where the only business or sector where we compete with China is Dye Intermediates. Earlier the company — our company started with Dye Intermediate industry then it went forward and backward integrated — integration in last 15 years. And today, now, we have added some other wide chemical products also. But — so the only area is intermediates and it is around 30% of our revenues.

We have intermediate plans, multiple plants of intermediates and the main plant being in Baroda, which is our integrated complex, which covers all this — all the product ranges around Dyestuff. The SPS Processors, subsidiary which you asked about, that is in Uttar Pradesh. It is 2 hours from Delhi. The problem that happened because of the higher input costs, some extra shipments coming from China and the higher energy cost. So because of all these reasons, there was a lower demand of the product. And again, the cotton prices where the dye demand was lower, so intermediate demand was lower.

So because of all these reasons, at a company level, where you have multiple plants, all of them in Gujarat and only one in subsidiary company, SPS in UP. So the UP plant being a little higher in terms of the cost compared to the Gujarat plants, I think because of — because we didn’t have enough market, we didn’t have enough orders. So we stopped the plant for some time. So when we stop the plant, there are definitely some fixed expenses, fixed overheads. I think, that is the main reason why we have that loss. Also, the production that we did in that period was also done with a very, very high input cost and high energy cost. So that production cost was very high. And at the same time, the markets — finished good prices crashed in a very short time. So when we sold those products, we realize — we didn’t realize much or we didn’t make any margins. So that’s why there were some loss there also.

So it was addition of some fixed expenses when the plants were shut and also product being sold at a negative margin.

Ayushi Shah — Individual Investor — Analyst

All right, sir. That does give me quite some clarity. And sir, my second question is more on the macro level. Sir, what event in the near future do you expect to add as a catalyst in turning around the tides for the industry we operate in especially with the increase in raw material prices and everything? And you mentioned in your presentation that you saw a few green shoot events in the past few weeks. Like it would be greater if you could throw some light on what exactly were those events and how do you expect it to go ahead going forward?

Ankit Patel — Executive Director

So for example because — mainly because of this Russia-Ukraine war, the crude prices shot up and they went up to $125, now they are in the range of around $90, $95. So that is a big decrease that has happened in the crude prices. Also, the stability of the crude price is also important, so at the same time, there was a lot of mismatch of products being supplied across the globe. There was also this extraordinary demand coming from many sectors because of many — most of the countries had revived or were reviving from the post-COVID kind of a scenario. So many products were short fall — was going through a shortfall phase in the world and then many were — where many products, there was no demand. So there was a lot of mismatch about if you look at all kind of products or categories, there was a lot of mismatch. It was not normal times. So because of our raw materials, most of them are linked to crude.

For example, sulfur is one of our main raw materials, benzene products being made from benzene are some of our main raw materials, aniline oil again being made from benzene. So such products are directly linked with crude. So for example, sulfur average, I think last 10 years price is not more than INR10, where the price went up to INR45, where our monthly consumption is 6,000 tons. So my buying went from — if I look at compare it from average to the peak price, it went from INR6 crore to about INR25 crore. So such things happened to many raw materials. So but now, sulfur today is around INR12. It is. So I can say it’s a very normal price. So we are able to pass on the — we can still make a decent margins when we sell to the market. And also to make intermediates from the Basic Chemicals that we make from sulfur, those are also now in a very normal reach. So that way, benzene has also come down over 20% in last month or so. So many of the products have really come down. So that has effected in our — most of the raw materials coming to normal range.

So I think now, now when you — when we produce, with these normalized raw materials, I think that will give us an opportunity to make some margins. If not very high, but at least we can run our plants and we can make some decent margins. So that is our first target. I think the demand scenario is not that excelled definitely has some volatility but then we also cater to leather industries and paper industry. So overall, our textile, our dye business is not facing any — not to any difficulties to maintain the monthly numbers etc of sales.

So I think, just the intermediate part, I think it may have little bit of pressure, I think, maybe another 1 months or 2 months, but I think then it can come back to normal, which is only 30% of our business.

Ayushi Shah — Individual Investor — Analyst

All right. Sir, just a follow-up question on that. You mentioned that basically because of crude oil prices normalizing now, we are looking at like a better foray for our company. So when looking at energy crisis and like the Russia situation, if crude oil volatility begins again, like what have we done at the company level, like what efforts have we taken to address that? Or are we let the expansion projects that are already in, we just have to wait for them to unfold in order to like deal with this volatility?

Ankit Patel — Executive Director

I think we just have to wait because again crude prices are not very low. They are somewhere stabled. They are lower than the peak. But they are still, I think, I feel very high. So I think, there is no point of stocking any raw materials or any crude based products unless if cost of sulfur is INR10 average, if it comes down to INR9, then I’m interested in stocking those products. So not all the crude — all the products made from crude are linked directly with the crude plus and minuses. So I think, we just have to wait. I mean, we have to defend. But again, like I said, it is only for Intermediates business.

So only 30% of our business and out of that above 60% of the raw materials and not all are linked to crude. So at a total purchase level, total raw material level, this would be not more than 10%, 15% of our dependency on such products. So it cannot affect us in a big, big way.

Ayushi Shah — Individual Investor — Analyst

All right, thank you so much for your comprehensive answer.

Operator

Thank you. Ladies and gentlemen due to time constraints, that was the last question. I now hand the conference over to the management for closing comments..

Ankit Patel — Executive Director

Well, thank you very much everybody for your time, because of the time constraints, we cannot — we couldn’t do it any longer, but we are definitely available, you can reach out to SGA if you have any more questions or any clarifications, we would love to answer them. Thank you very much and have a good evening.

Mayur Padhya — Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]