Camlin Fine Sciences Limited (CAMLINFINE) Q3 FY23 Earnings Concall Transcript

Camlin Fine Sciences Limited (NSE:CAMLINFINE) Q3 FY23 Earnings Concall dated Feb. 14, 2023.

Corporate Participants:

Santosh Parab — Chief Financial Officer

Nirmal Momaya — Executive Director and Managing Director

Ashish Dandekar — Chairman and Managing Director

Analysts:

Rohit Sinha — Sunidhi Securities & Finance Limited — Analyst

Prathamesh Sawant — Axis Securities Limited — Analyst

Unidentified Participant — — Analyst

Ravi Mehta — Deep Financial Consultants Pvt ltd. — Analyst

Anurag Roonwal — Moneybee Investment Advisors — Analyst

Abbas Punjani — InCred Capital — Analyst

Harsh Jhanwar — Centrum PMS — Analyst

Abhishek Navalgund — Nirmal Bang — Analyst

Surya Patra — PhillipCapital (India) Pvt Ltd — Analyst

Jayesh Mestry — Asit C. Mehta Investment Interrmediates — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Camlin Fine Sciences Limited Q3 and Nine Months FY ’23 Earnings Call, hosted by Sunidhi Securities & Finance Limited. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]

I now hand the conference over to Mr. Rohit Sinha from Sunidhi Securities & Finance Limited. Thank you, and over to you, sir.

Rohit Sinha — Sunidhi Securities & Finance Limited — Analyst

Thank you. Good afternoon, everyone. Thank you for joining us for Q3 and nine-month FY ’23 earnings call of Camlin Fine Sciences Limited. I would like to thank the management for giving us this opportunity to host the call. I would like to congratulate them for a successful commissioning of Vanillin plant and expanding capacity at Dahej also. From Camlin Fine Sciences management, today we have with us Mr. Ashish Dandekar, Chairman and Managing Director; Mr. Nirmal Momaya, Executive Director and Managing Director; and Mr. Santosh Parab, CFO of Camlin Fine Sciences Limited.

I now hand over the call to the management for their opening remarks. Thank you, and over to you, sir. Thank you. Thank you. Rohit. A warm welcome to you, ladies and gentlemen, to the quarterly earnings call. As we have been doing each time, we will start by our CFO, Mr. Santosh Parab, giving you a brief synopsis and running you through the quarter’s performance, after which, all your questions will be answered by Mr. Nirmal Momaya, MD. Thank you. Over to you, Santosh.

Santosh Parab — Chief Financial Officer

Thanks, Ashish. Good day, and thank you for joining us on Camlin Fine Sciences Q3 FY ’23 earnings conference call. Before I begin, I would like to clarify that some of the statements made in today’s discussion will be forward-looking in nature and may involve risks and uncertainties. Your attention is drawn to the safe harbor statement made in our Investor’s presentation [Indecipherable] (2:23) on the stock exchanges and hosted on our website along with the unaudited financial statements for Q3 FY ’23. I hope you were able to have a look at them.

As you are aware, high macroeconomic uncertainty prevailed globally in Q3, especially the situation in Europe and COVID surge in China. After unprecedented growth observed in Q2 FY ’23, we had to battle with the destocking across distribution channels and general market slowdown in Q4. Despite this ongoing deterioration in economic — macroeconomic environment, CFS Group has been able to not only increase its gross margins, but also increase its EBITDA margin. The percentage level operational EBITDA improved by 140 basis points to 12.8% quarter-on-quarter, despite the demand trends impacting the operating revenue by 19.7% quarter-on-quarter. The revenues were also impacted by three weeks of maintenance shutdown in our Diphenol unit in Europe as well as due to softening of Diphenol prices in European markets. The trend has arrested to an extent by around 2%, owing to favorable foreign exchange across the globe. Our resilient business model, which proactively address the current challenges, helped in improving gross margins, which was mainly fueled by increased yields at Diphenol unit in Dahej.

Coming to the operating expenses, the surge in energy cost in European subsidiary observed in the last few quarters ease to an extent in this quarter. Subsidy to compensate high energy cost of around INR15 crore was received from Government of Italy, which also helped to sustain margins. As compared to Q3 FY ’22, that is last corresponding quarter, the energy costs in Europe still remain high. The unfavorable trend seems to be reversing, but it all depends on how the Russia, Ukraine crisis pans out in the near future.

Now, coming to our operations of subsidiaries. CFS Europe recorded an operating revenue of INR99.3 crore in Q3 FY ’23, despite all the issues I just discussed earlier. CFS Mexico and its subsidiaries in the Latin American markets were able to post an operating revenue of INR88 crores, and was effectively — and has effectively [Indecipherable] (4:54) the negative macroeconomic headwinds in that part of the world. In year-on year, nine months period, the operating revenues of Mexico and its subsidiaries have grown by 10.74% and are expected to grow at similar level for remaining financial year. CFS Brazil posted an operating revenue of INR29 crores and has been near to EBITDA breakeven. We have embarked upon restructuring its organizing to optimize the business and also introduced a cost mitigation program to reduce at least 20% of fixed operating costs, which will certainly improve the EBITDA in the year to come. CFS North America posted revenue of INR24.6 crores in quarter three. As compared to last year’s nine months period, revenue has grown by 35% year-on year. That’s a good situation looking at the way it has been performing during the COVID period. We are pursuing some of — some exciting business opportunity in the US with some big business houses in the region, which should improve the profitability of the units substantially in FY ’24, and certainly come back to you when the efforts fructified.

CFS Wanglong, our Chinese subsidiary, remain closed due to the Supreme Court action in that — against our partner. However, we have substantially progressed in the approval procedure for change of use of the plant through a new aromatic product, which is a Catechol downstream. We are contemplating a restart of the plant after refurbishing the part of it in the second half of next financial year. You are aware that our methyl vanillin manufacturing composite plant commenced its commercial production on January 22, 2023. We are currently operating the plant above 50% capacity with a plan to ramp it up to 100% by the end of FY ’23. We have started the process of sampling of the product with large customers across the world and the initial response about the product is more than satisfactory. We expect to start the supply post completion of approval process before the end of this year. The prices remain high in developed markets, which in fact is our target market. With the quality of our supply, this will certainly help to recapture our market share in aroma market. As you are aware, this development will have to override the current negative margins in Catechol.

Now, coming to some of the balance sheet items, debt of the Company, especially. Despite destocking in end market and that had an impact on working capital, but the stress has been managed with effective financial management. The overall net debt stood at INR667 crore as compared to INR637 crore in September 2022. The increase was mainly on account of drawing of INR47 crores from Axis[Phonetic] Bank, which was part funding the capex of Vanillin plant at Dahej. Now, coming to the scenario going forward, especially Q4 and thereafter, stabilization of Cat downstreams of Vanillin has led the Company to concentrate more on high-priced[Phonetic] HQ downstream products now. The products like MEHQ, HQEE, Chloranil, PBQ, Naphthol AS-IRG will be concentrated more for increasing their production, where we have available and identified capacities in the Company. We feel that the macroeconomic uncertainty is likely to prevail in Q4, but the opening of China and general improvement in demand should bring back the customer confidence. The real picture hour should emerge only after Q1 FY 24. Needless to say, the management of your Company having — is confident of facing these challenges.

Thank you very much. We will now open the floor for questions.

Questions and Answers:

Operator

Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Prathamesh Sawant from Axis Securities Limited. Please go ahead.

Prathamesh Sawant — Axis Securities Limited — Analyst

Yeah, hi, good morning — good afternoon, sir. Sir, my question is, with respect to the Vanillin facilities, so just to make it clear, you are saying that it would take one more year for us to keep on with the sampling process and the commercial realization to the Company’s top line would start post-FY ’24 is what you are trying to said.

Nirmal Momaya — Executive Director and Managing Director

Post-FY ’23 is what Santosh said.

Prathamesh Sawant — Axis Securities Limited — Analyst

Okay. So Q1 — from Q1, we can start seeing the commercial adding to the top line.

Nirmal Momaya — Executive Director and Managing Director

Yes.

Prathamesh Sawant — Axis Securities Limited — Analyst

Okay. And what’s the volume — at 50% utilization levels, are we seeing at 6,500 metric tons of production of Vanillin?

Nirmal Momaya — Executive Director and Managing Director

Yes, 6,000 tons is the capacity.

Prathamesh Sawant — Axis Securities Limited — Analyst

Okay, okay. Okay, sir. Thank you. And sir, on the other end, the North America vertical of the business. Some serious de-growth in the current quarter, so I just wanted to get some clarity on that.

Nirmal Momaya — Executive Director and Managing Director

De-growth in the current quarter?

Santosh Parab — Chief Financial Officer

No, we have posted INR24 crores of turnover, which is not a de-growth. The turnover last quarter was INR16 crores. In fact, we have grown 35% year-on year in last nine — in the nine months period.

Prathamesh Sawant — Axis Securities Limited — Analyst

Okay, okay. Okay, that’s it from my end, sir. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Raj from Arjav Partners. Please go ahead.

Unidentified Participant — — Analyst

I wanted to know how your FY ’24 is going to look like, yeah? Am I audible?

Santosh Parab — Chief Financial Officer

Yeah. So FY [Indecipherable] but as — in the past, as we are saying that this — from next year, we will be getting the full benefit of the Vanillin production coming, and we are looking at a growth of — as compared to this year, growth in revenue of around 30% to 35%.

Unidentified Participant — — Analyst

30% to 35% growth. Okay.

Santosh Parab — Chief Financial Officer

Yeah.

Unidentified Participant — — Analyst

Yeah. And how much — how are your expansion plans looking at three to four years from now, what do you think the Company should be —

Nirmal Momaya — Executive Director and Managing Director

So basically, our focus is on two or three lines of businesses that we are in. One is, of course, our Diphenol chain, so of the downstream products that Santosh mentioned earlier on Hydroquinone stream will be expanded and be built on. Aroma business will be expanded, so that Vanillins and some Heliotropin and some other products that we have in the pipeline, and then we have, of course, our Blends business, which is growing at about 30% a year and will continue to grow at 30% a year. We also have some — within the Blends business, we also have good opportunities for expanding our portfolio of natural products, which is what will be the focus in the next few years to address the market for specialty natural products. We also have our omega-3 fatty acid business, which will get scaled up in the next three to four years. So there is a lot of activity planned out for the next few years.

Unidentified Participant — — Analyst

All right, yeah. Thanks. Good luck.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ravi Mehta from Deep Financial. Please go ahead.

Ravi Mehta — Deep Financial Consultants Pvt ltd. — Analyst

Yeah, hi. Thanks for the opportunity. Just wanted to check on the HQ realizations. How has it been in Q3? And where are it currently?

Nirmal Momaya — Executive Director and Managing Director

Yeah, so basically in Q3, HQ, what we sold in Europe, the realization has come down because of the gas prices coming down, so we are at about $9 — around $9 or so.

Ravi Mehta — Deep Financial Consultants Pvt ltd. — Analyst

And ex of Europe, it’s even further down?

Nirmal Momaya — Executive Director and Managing Director

Sorry, EUR9, I’m sorry, not dollars. It’s EUR9.8 was the average.

Ravi Mehta — Deep Financial Consultants Pvt ltd. — Analyst

And ex of Europe?

Nirmal Momaya — Executive Director and Managing Director

Currently, we are selling only from Europe. So really that’s where we are selling within Europe from Europe.

Ravi Mehta — Deep Financial Consultants Pvt ltd. — Analyst

Okay. No, no, probably there is a commentary that probably you will now be focusing on HQ downstream because now that you’ve done with Vanillin. I was just probing from that angle that as the HQ prices come off, which makes sense for you to now go downstream or–

Nirmal Momaya — Executive Director and Managing Director

No, our focus is only on our Dahej hydroquinone. So with the expanded capacity of Dahej hydroquinone now, we have hydroquinone available to us for value-added downstream products. It’s from that perspective, Europe will continue to sell hydroquinone in the European market, that does not change.

Ravi Mehta — Deep Financial Consultants Pvt ltd. — Analyst

Okay, okay. Yeah. And the steep drop in the power cost, the energy cost in Italy, probably that has helped you to report a good number. So is the price further coming down looking at the stress in the energy coming out?

Nirmal Momaya — Executive Director and Managing Director

So what is happening there is — you can see the Hydrocodone pricing is dependent on the energy price, right, because that’s where it gets passed on to. So what was EUR11 plus in the quarter before, came down to EUR9 plus purely because energy costs came down. Very difficult to answer. It is stabilizing around this, but you don’t — you never know when things will change, yeah.

Ravi Mehta — Deep Financial Consultants Pvt ltd. — Analyst

Sure, sure. And on the Blends, the quarterly run rate is really appreciable. Like, you’ve been holding on to those levels. What I see is that the non-Mexican piece is growing faster, maybe on a lower base, but Mexico has been like now at a steady-state for like few quarters. So is that the market saturating for Mexico or [Speech Overlap]

Nirmal Momaya — Executive Director and Managing Director

No, so what we have — so in some of the products, yes, we have very large market share. So we have a whole host of new products that we are in the process of launching — launched or in the process of launching in those markets, which will give us the growth that we’re looking at. We continue to — in the next year, we should be able to grow the Mexico market by at least 20%, yeah, with those new products also coming in.

Ravi Mehta — Deep Financial Consultants Pvt ltd. — Analyst

Sure. And Brazil seems to be at an inflection point. Looking at the quarterly run rate of close to INR30 crores that you’re doing.

Nirmal Momaya — Executive Director and Managing Director

Yes.

Ravi Mehta — Deep Financial Consultants Pvt ltd. — Analyst

So probably the growth here can be even faster. So any color here in the Brazil.

Nirmal Momaya — Executive Director and Managing Director

Yes, so I mean, growth in Brazil will — surely will be good, but I think we have even a better opportunity right now in the US where we are in the process of now negotiating and actually getting some large volume customers in the pet food industry, which, we hope from April onwards, the business will come on stream, and this can be substantially higher than what we’ve done in the past.

Ravi Mehta — Deep Financial Consultants Pvt ltd. — Analyst

So nothing of that is reflecting in Q3 numbers. Like you already done INR24 crores, so nothing of that–

Nirmal Momaya — Executive Director and Managing Director

Yeah, nothing of that, no.

Ravi Mehta — Deep Financial Consultants Pvt ltd. — Analyst

Okay, so this can stay at a steady-state, and further, the new client addition can happen from next year?

Nirmal Momaya — Executive Director and Managing Director

Right.

Ravi Mehta — Deep Financial Consultants Pvt ltd. — Analyst

Okay, okay. Thank you. Thank you. Good luck.

Operator

Thank you. [Operator Instructions] The next question is from the line of Tamay from Banyan Capital. Please go ahead.

Unidentified Participant — — Analyst

Yeah, thanks for the opportunity. Sir, I missed your comment on Vanillin. You told that revenues will come from next year. Why was — why is that the case, sir?

Santosh Parab — Chief Financial Officer

We didn’t say that, right? So Vanillin, we didn’t say that next year. We have been — see, we started the plant only in January 22nd[Phonetic]. So we are ramping-up the production. We have sent for sampling, because once the plant starts, you have to qualify your plant and sent for the sampling. So we have sent for sampling. We are certain that there are already samples, I mean, passed in many customers. We will certain that we’ll start supply to these customers before the end of the year. And in the meantime, we are also ramping-up our production, which is at 50% at this moment of time to — near to 100% by the end of this quarter. So sales will start in this quarter to some extent, but the real fun will start from quarter 1, ’24.

Unidentified Participant — — Analyst

So what are the revenues that you are expecting in this quarter from Vanillin?

Santosh Parab — Chief Financial Officer

So it’s difficult to say, but we feel that we will be doing a fair bit of revenue.

Unidentified Participant — — Analyst

Okay. Any guidance for the next year, sir, assuming maybe — what is the current price of Vanillin, sir?

Santosh Parab — Chief Financial Officer

So in the international market, it is — in the developed markets like US and Europe, on which we are looking at that market, the prices are $14 and $15 plus, and we feel that it will remain at that level, because this — as you know, a lot of Vanillin comes from China and there are anti-dumping duties levied on Chinese Vanillin in US. So regarding any Chinese Vanillin going to US, the prices remain high. In India, there have been at $12, $13, but that’s because of — $13, $13.5, that’s what’s it’s always been selling. But the customer in India has to also pay to 8% custom duty on that product. So handed price in India also is $14, $14.5. So the prices are at $14, $14.5 in the developed markets are much higher. But we are looking more on the developed markets.

Unidentified Participant — — Analyst

Okay. So any — so you have to run your plant at minimum 50% capacity. So at least 350-odd-crores or 3,000 tons you’ll be selling next year, right, for Vanillin?

Nirmal Momaya — Executive Director and Managing Director

Yes, that is the expectation, about INR300 crores or so.

Unidentified Participant — — Analyst

Okay, understood. And sir, what would be your gross debt? You told the number for net debt.

Santosh Parab — Chief Financial Officer

So gross debt will be — gross debt is INR778 crore and we are sitting on INR110 crores of cash, and this is cash from the business. There is no cash line from borrowings.

Unidentified Participant — — Analyst

Okay. Sir, just two questions more. So sir, can you give a number of profit before tax subsidiaries for this quarter.

Santosh Parab — Chief Financial Officer

No, we don’t give those numbers, it’s too granular. You can go and see no website because we hold those numbers on the website, all the balance sheet of subsidiaries they are on the website.

Unidentified Participant — — Analyst

Okay, that will be for the first half. Anyway. Sir, any update on Lockheed?

Nirmal Momaya — Executive Director and Managing Director

So Lockheed, the same as the last call that we have an order for their first commercial battery, which we have to supply by Q2 of FY ’24 — actually Q1 — end of Q1. And it’s on track for that and further orders are all in discussion. So once they have commercialized and sold commercial batteries in locations, the next step will be discussed.

Unidentified Participant — — Analyst

Sir, trial piece that we are sending for them, right?

Nirmal Momaya — Executive Director and Managing Director

It’s their first commercial order. It’s their first commercial order.

Unidentified Participant — — Analyst

Okay, okay. Okay, so that’s it from my side. Thank you.

Nirmal Momaya — Executive Director and Managing Director

Yeah.

Operator

Thank you. [Operator Instructions] The next question is from the line of Manan Shah from Moneybee Investment Advisors. Please go ahead.

Anurag Roonwal — Moneybee Investment Advisors — Analyst

Hi, this is Anurag Roonwal here from Moneybee. My question is regarding Vanillin. So the prices, they used to be around $24, $25, and they have come down significantly to $13, $14 like you mentioned sometime back. So what I would like to understand is that, I mean, in terms of capacity, is it because of new capacity, which has come up in Vanillin or is it more related to demand perspective that the prices have come down? Because my understanding was that, I mean, that we would be coming up with significant capacities, no other player is sort of adding capacity, so the prices would sort of — there won’t be a significant fall in prices, but this fall seems to be quite significant.

Nirmal Momaya — Executive Director and Managing Director

So basically, if you see all raw material prices have also come down considerably. Generally, across-the-board, we are seeing prices cooling off, logistics costs have come back to pre-COVID levels, which had gone up by five times. So general cost drop have happened and are happening, as we speak. So a lot of the Vanillin pricing coming off is also because all raw-materials pricing, which goes into the raw — Vanillin have come down by more than 30% and 40%. As far as capacity addition goes, we are playing in a market where our principal competitor is Solvay, which is a European company, and our target market is really in the US and Europe where high quality Vanillin is preferred, and we are — and we and Solvay are the only two companies which are fully integrated starting from Catechol — making Catechol to Vanillin, and which is the reason why they’ve always been preferred suppliers by — in the developed markets, and we are pushing ourselves into that position as an alternative to them.

Anurag Roonwal — Moneybee Investment Advisors — Analyst

Okay. But our capacity being around 20% of the global capacity, you think we will also add-on to the pressure?

Nirmal Momaya — Executive Director and Managing Director

It’s possible, it’s possible that there would be some price pressure may come, but that’s okay. I mean, we’ve factored that in.

Anurag Roonwal — Moneybee Investment Advisors — Analyst

Okay. Sir, because the — earlier, I mean, when the — we used to sort of discuss on Vanillin, my understanding was that we used to — in our projections, we used to take around $15 per kg kind of rates, I mean, now it’s come to $14, and with our capacities coming, I think the projections would be lower even further.

Nirmal Momaya — Executive Director and Managing Director

[Speech Overlap] I’m not an astrologer, so it’s very difficult to answer your question. But our internal target is that we — the pricing should stabilize around $15.

Anurag Roonwal — Moneybee Investment Advisors — Analyst

Around $15. Okay, okay. And our cost of manufacturing is around $11, right, or?

Nirmal Momaya — Executive Director and Managing Director

No, it’s lower than that. All raw material prices have come down, so it’s much lower than that now.

Anurag Roonwal — Moneybee Investment Advisors — Analyst

Okay. So in terms of EBITDA, you think we will — it will be around — we should make good margins in this, 20% of kind of margins?

Nirmal Momaya — Executive Director and Managing Director

Yes.

Anurag Roonwal — Moneybee Investment Advisors — Analyst

Okay. And in terms of Catechol, we were making losses in Catechol. What’s the scenario right now?

Nirmal Momaya — Executive Director and Managing Director

It’s the same. It continues to be the same.

Anurag Roonwal — Moneybee Investment Advisors — Analyst

So we were sort of losing around $1.5 in Catechol, that remains the same?

Nirmal Momaya — Executive Director and Managing Director

No, in Europe, we were losing close to $4, $4.5. In India, we were losing close to $1.5, and it continues to be the same.

Anurag Roonwal — Moneybee Investment Advisors — Analyst

Okay, okay.

Nirmal Momaya — Executive Director and Managing Director

In Europe, it has come down slightly because raw material prices have come down, so the losses have come down. Even here in India, it’s about $1 now the loss from $1.5 because costs have come down.

Anurag Roonwal — Moneybee Investment Advisors — Analyst

Okay. But the Indian losses sort of get absorbed to Vanillin, right?

Nirmal Momaya — Executive Director and Managing Director

Yes.

Anurag Roonwal — Moneybee Investment Advisors — Analyst

Okay. But in Europe, the Hydroquinone price was sort of — Hydroquinone was sort of compensating for Catechol, whereas that again remain the same.

Nirmal Momaya — Executive Director and Managing Director

That is — that continued in this quarter, yes.

Anurag Roonwal — Moneybee Investment Advisors — Analyst

Okay, okay. Okay, sir. Thank you. I’ll get back in the queue. Thank you.

Operator

Thank you. The next question is from the line of Abbas Punjani from InCred Capital. Please go ahead.

Abbas Punjani — InCred Capital — Analyst

Hi. So my question was regarding the Vanillin. So just wanted to know the tonnage of the Vanillin for this quarter and that’s it.

Santosh Parab — Chief Financial Officer

I — we didn’t get the question. Can you just repeat the question, please.

Abbas Punjani — InCred Capital — Analyst

How many ton of the Vanillin we have done.

Santosh Parab — Chief Financial Officer

We have been running the plant at 50% capacity. Our annual capacity is 6,000 metric tons. Our plant has been continuously running from 22nd of Jan. We have been running at 50% capacity.

Abbas Punjani — InCred Capital — Analyst

50% capacity, okay. Okay, thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Harsh Jhanwar from Centrum PMS. Please go ahead.

Harsh Jhanwar — Centrum PMS — Analyst

Yeah, hi, sir, thanks for the opportunity. Sir, I wanted to further known on the Vanillin. Sir, what will be our current cost of manufacturing for Vanillin? You said that’s below $11, but what would be —

Santosh Parab — Chief Financial Officer

We just answered that question, please.

Harsh Jhanwar — Centrum PMS — Analyst

Sir, [Foreign Speech] exactly we have said that our cost of manufacturing has come down. So six months prior from here, you said that it’s $10.5. Just trying to get the more accurate number on cost of manufacturing.

Santosh Parab — Chief Financial Officer

So it is sub-$10. The question which came earlier was whether our cost is $11, we said that it has come down, which is sub-$10 now.

Harsh Jhanwar — Centrum PMS — Analyst

Okay, I understood, sir. And, sir, on Lockheed deal, sir, once we supply the commercial order, can you help us understand the timeline when we can expect a bigger order six months or what should we expect in terms of next order?

Santosh Parab — Chief Financial Officer

See, one second, you’re asking question that Lockheed Martin, when will the scale-up happen on the subsequent orders.

Nirmal Momaya — Executive Director and Managing Director

Subsequent orders will be probably towards the end of FY ’24.

Harsh Jhanwar — Centrum PMS — Analyst

Towards the end of FY ’24.

Nirmal Momaya — Executive Director and Managing Director

Yeah.

Harsh Jhanwar — Centrum PMS — Analyst

And next was regarding — now that Vanillin plant is commissioned, sir, what will be growth drivers after — from FY ’24, so we have not announced any major capex, as such, so just wanted to get an update on that.

Nirmal Momaya — Executive Director and Managing Director

So we have surplus capacities, which we are filling up on some of the downstreams, and Vanillin itself will take two years to scale-up to 100% from a market perspective. So — and as we go along, there are several products in our HQ downsteams, which we are scaling up, like MEHQ, Para-Benzoquinone, HQEE, Chloranil, Naphthol, there are whole host of products, which are in the process of being scaled-up, and we’ll add capacities as we go along.

Harsh Jhanwar — Centrum PMS — Analyst

Sir, just to understand, you said that, by end of this year, we are looking to reach 100% capacity utilization, and then now you said, from a market perspective, it will take two years.

Nirmal Momaya — Executive Director and Managing Director

Yeah.

Harsh Jhanwar — Centrum PMS — Analyst

I did not get that.

Nirmal Momaya — Executive Director and Managing Director

No, no, I said, we are looking at — we can produce at 100% capacity, but the market will define how much we will produce. That is what it means.

Harsh Jhanwar — Centrum PMS — Analyst

Okay. So first here we are looking at operating at a lower capacity utilization —

Nirmal Momaya — Executive Director and Managing Director

That’s right.

Harsh Jhanwar — Centrum PMS — Analyst

— and later on slowly moving to 100%. Is that right?

Nirmal Momaya — Executive Director and Managing Director

Correct, correct. That is right, that is right.

Harsh Jhanwar — Centrum PMS — Analyst

Okay, sir, understood. Thank you so much.

Nirmal Momaya — Executive Director and Managing Director

Yeah, thank you.

Operator

Thank you. The next question is from the line of Shivaji Mehta, an individual investor. Please go ahead.

Unidentified Participant — — Analyst

Hi, thank you for this opportunity. Sir, I had a question on Vanillin. If you can provide some color on the demand-supply situation. What is the demand expected to grow by? And also, is there some new supply that is coming up?

Nirmal Momaya — Executive Director and Managing Director

There is no new supply. We have — we’ve just build the capacity, and the market is growing at about 4%.

Unidentified Participant — — Analyst

Right. Sir, also this top line that we had guided for of about INR2,500 crores by FY ’25. Now with the Vanillin prices expected to sustain at these levels, would you — could you — or would you like to kind of keep the guidance at the same levels or can this move upwards from here?

Nirmal Momaya — Executive Director and Managing Director

So there is a possibility of moving upwards, but at this point of time, it’s too early in the day to say what the pricing will look like for all the products.

Unidentified Participant — — Analyst

Right, right. Also on Lockheed Martin, post-FY ’24, once you’re able to deliver on this order, just trying to understand, can this be a significant contributor to our top line, say, 10%, 20%, is that something that Lockheed Martin can do post-FY ’24?

Nirmal Momaya — Executive Director and Managing Director

Yeah, it depends on how successful their — ultimately their product is in the market. So it’s contingent on that. And we think — and we believe that they are on a very strong position in the technology and in the development. So there’s no reason why it will not be successful. If it is, yeah, I think there is a possibility of being more than 10%, 15% of our business.

Unidentified Participant — — Analyst

Well, sir, thank you so much, and wishing you all the very best.

Nirmal Momaya — Executive Director and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Abhishek Navalgund from Nirmal Bang. Please go ahead.

Abhishek Navalgund — Nirmal Bang — Analyst

Yeah, thanks for the opportunity, sir. So my question is also on Vanillin. So basically Solvay has recently launched their first ISCC PLUS certified mass balance Vanillin by end of January, wherein they are saying that this certification is mainly related to the better sustainability and also traceability of the feedstocks, green feedstocks. So just trying to understand whether it will change the demand dynamics wherein at least the bigger companies would prefer those kind of products. And also, second question is, whether we are also planning to have this kind of certification in place, because like you mentioned, this is mainly for the developed markets wherein we are also present. So just wanted some clarity on that, sir.

Nirmal Momaya — Executive Director and Managing Director

Yeah, so it’s a process that we have embarked on purely because, I mean, ESG is in itself a topic for conversations which will take hours, but the question really is in the developed markets, every large consumer is looking for a net-zero or carbon-neutral products, and it’s an endeavor, which all companies are setting off target in the next five, seven, 10 years to reach that. So as long as we have a process and procedure in place to go up the chain and achieve those targets, I think companies are happy to deal with you.

Abhishek Navalgund — Nirmal Bang — Analyst

Sure, sir. Thank you.

Operator

Thank you. The next question is from the line of Ankit Shah from Envision Capital. Please go ahead.

Unidentified Participant — — Analyst

Yes, am I audible?

Operator

Sir, the volume on your line is very low. If you could speak closer to the mic.

Unidentified Participant — — Analyst

Yeah, am I audible?

Operator

It’s a little better, sir.

Unidentified Participant — — Analyst

Yeah, is this better?

Operator

Yes, go ahead.

Unidentified Participant — — Analyst

Yes, sir, thank you so much for taking my question. So will we be — for the past few years, we’ve had acquisitions and raising of debt. This year, will we be — in FY ’24, will we be operationally cash flow positive and hence we’re looking to reduce debt?

Santosh Parab — Chief Financial Officer

So we will be increasing our turnover. Also, the endeavor is to not go for a huge capex in this year. We feel that internal accruals will take care of our maintenance capex, which is around INR20 crores to INR30 crores per annum. As far as working capital goes for the initial six months, we may require INR20 crores to INR30 crores working capital requirement, but this will be tapering down by the end of the year, next financial year. Secondly, we are also sitting on the FCCB $15[Phonetic] million, which is at option of IFC, and is likely to get converted at 105, which brings down around INR115 crores, INR120 crores of my debt.

Unidentified Participant — — Analyst

All right, thanks for taking my question.

Operator

Thank you. [Operator Instructions] The next question is from the line of Surya from PhillipCapital. Please go ahead.

Surya Patra — PhillipCapital (India) Pvt Ltd — Analyst

Yeah, thank you for this opportunity. Sir, in fact I joined a little late, so possibly there could be some couple of repeat of questions, sir. First question is on the, let’s say, the standalone performance what we are seeing in terms of revenues, there is a sequential sharp decline. It is entirely due to the price correction or something else is driving down the revenue this quarter, sir?

Nirmal Momaya — Executive Director and Managing Director

This quarter, it’s volume and price both, more volume than price because we did see some destocking that happened in large customers globally, people had built-up stocks in the last year, in the first few quarters, and the slowdown started from October. And what we saw was that there was a substantial destocking in — ongoing through that quarter till December. From January onwards, again, there has been a pick-up, and we expect that by April, I think it should be back to normal.

Surya Patra — PhillipCapital (India) Pvt Ltd — Analyst

Okay, sure. So now, just an extended question, sir, to this. To understand the growth trajectory for, let’s say, FY ’24 and ’25 better. So we have talked about product like MEHQ to be kind of meaningful one going ahead. But so far, possibly it’s not been the case. And now we are having the vanilla also that would be contributing. So if you can talk something about your key contributing products going ahead to the growth.

Nirmal Momaya — Executive Director and Managing Director

Sure. So vanilla, as we know, in the next two years, we should be able to fill up the capacity. And that is almost a INR700 crores, INR800 crore kind of opportunity in the next two years. MEHQ, again, is a key product for us now since we have our own Hydroquinone made in Dahej to be value-added and sold. So we see ourselves playing a very strong role in the MEHQ market because we package our HQ and MEHQ to the customer, the acrylic acid and acrylates producers require both as a product, and that’s the package that we are offering in the market. And since January of this quarter — this year, we started now entering the MEHQ market. You will see traction in the next two years where we expect that we should at least take 50% market share in the MEHQ market on a global level.

Surya Patra — PhillipCapital (India) Pvt Ltd — Analyst

Okay, okay. So that means FY ’24, from that angle, is a kind of more important year, at least from the perspective for these two products, right, so vanilla as well as [Indecipherable]?

Nirmal Momaya — Executive Director and Managing Director

Yes. And also, our focus also will be on two or three other HQ downstreams. So there is HQEE, which is gaining traction again. HQEE, we’ve been seeding the market for the last one year, and now we’ve kind of got established in Europe and establishing ourselves in US. So next year, I expect some growth to come from HQEE. Then there is Para-Benzoquinone, where we are launching that product also in this quarter and we expect traction to come from the second half of FY ’24. There is Naphthol IRG, which is a yellow pigment — precursor to yellow pigment, which also we will be launching now by the end of this quarter. So next year, you will see a lot of action coming from there, because none of the producers of any of these products are fully integrated like us where we start from basic raw material to the finished product. So there are opportunities in these products, which I think FY ’24, ’25, we will exploit as much as we can based on capacities available with ourselves as well as the third-party tollers and contract manufacturers.

Surya Patra — PhillipCapital (India) Pvt Ltd — Analyst

Okay, so in fact, again, on that growth aspect, sir, so basically we have seen with the crudes normalizing, crude price correcting, the energy costs normalizing across various part of the world. So the chemical product prices also witnessed some kind of a repricing, which was to the tune of 10% to 20% kind of correction in the prices. So despite that, the growth for FY ’24 would be indefinitely should not be compromised for us. Is that understanding or–?

Nirmal Momaya — Executive Director and Managing Director

Yeah, that is the understanding. In fact, on a volume basis, we expect to grow considerably as compared to FY ’23. Pricing really not so much in our hands, but even with the corrected prices, I think, also, it has had an impact on our raw material pricing as well, those have also soften. So overall, on a profitability basis, also, I think the pressure, of course, will always be there when prices come down, but I think the volume growth we’ll be able to counter that. Not only that, but also, like Santosh mentioned in his speech that improving yields and improving our processes and technologies is something that we’re looking on very seriously through our R&D team. And we expect a few percentage points of margin to improve purely based on all that work we are doing.

Surya Patra — PhillipCapital (India) Pvt Ltd — Analyst

Okay.

Nirmal Momaya — Executive Director and Managing Director

That’s how we are trying to negate everything. I mean, we know that prices are coming off, we understand that there will be pressure and that is going to happen in the next 12 months, so we’re trying to mitigate it by improving all our processes.

Surya Patra — PhillipCapital (India) Pvt Ltd — Analyst

Okay. Sir, just two points that I’ll touch upon, if you can talk on that. So — see, this conversion of China plant to Heliotropin, where is that currently, and when could that really start contributing to the numbers, if we can discuss on that if you can share that. And secondly, even on the LM, so now onwards, from the modeling perspective, everybody will start building FY ’25 also. So if you can give some sense about that.

Nirmal Momaya — Executive Director and Managing Director

Right. So on Heliotropin, we have moved further on our approval process. So we expect the approvals to come by end of Q1 FY ’24 and we’ll start work on the plant thereafter. And we should be hopefully by end of FY ’24 ready with the product. So FY ’25, you will see some traction for Heliotropin. Then on LM FY ’24, of course, we’ve already locked-in one supply that we need to do. FY ’25, there is some negotiations going on, but then we have very limited capacities available right now. So our capacities are roughly about 800 tons a year, which I think FY ’25 will get filled up because they already had some orders in the pipeline, which will fill that up. But the real question then will come during FY ’24 — during next year is, when will another plant have to be built in on what basis and all of that. So that’s a discussion that will happen I think during this year.

Surya Patra — PhillipCapital (India) Pvt Ltd — Analyst

Sure, sir. Thank you. Thanks for all the — answering all the questions, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Jayesh Mestry from Asit C. Mehta Investment Interrmediates. Please go ahead.

Jayesh Mestry — Asit C. Mehta Investment Interrmediates — Analyst

Good afternoon, everyone. Am I audible? Hello?

Operator

Yes, sir, you are audible. Please go ahead.

Jayesh Mestry — Asit C. Mehta Investment Interrmediates — Analyst

Yeah, yeah, thanks for the opportunity. So I do have a couple of questions on margin expansion and another on growing — like growth going ahead. So my first question is like, as we aware about like recently the — on our — like we can say, keeping in mind as India’s specialty chemical market size and growth momentum is like almost good and this segment is growing fast in our country and is further expected to reach around — please, make me correct if I’m wrong, INR60 billion to INR70 billion by 2025. So what’s your views in terms of growth prospects and other expansion opportunities coming here?

Nirmal Momaya — Executive Director and Managing Director

So we expect to grow at 25% a year — roughly 25% a year going forward for the next few years, that’s our expectation.

Jayesh Mestry — Asit C. Mehta Investment Interrmediates — Analyst

Okay, okay. And as we already know that this sector is highly capital-intensive with a long payback period, as you might be aware. And in recent budget also, the measures have been shared by our Finance Minister, Shri Nirmala Sitharaman on — in order to encourage the large capacity expansion and capital subsidy for investments. So what’s your take on this move by this year budget and Company’s future growth opportunities in this area.

Nirmal Momaya — Executive Director and Managing Director

I don’t think they have given anything much for subsidies for chemical companies. So we have to continue to do what we have to do. I don’t think there are any big shocks or benefits, which have been offered to us.

Jayesh Mestry — Asit C. Mehta Investment Interrmediates — Analyst

Okay. So sir, any kind of margin expansion we should expect from like Vanillin plant and — commissioned and the Dahej running at almost full with expanded capacity.

Nirmal Momaya — Executive Director and Managing Director

Yes, I mean, that is the expectation that from a loss-making product Catechol, we convert Catechol to Vanillin, it will be margin-accretive and there should be a nice margin expansion once we have [Indecipherable] in the Vanillin market.

Jayesh Mestry — Asit C. Mehta Investment Interrmediates — Analyst

So sir, my last question is like what should be the growth for 2024 and ’25 on the revenue front and EBITDA front, like [Speech Overlap]

Nirmal Momaya — Executive Director and Managing Director

The revenues will grow at about 25%, like I mentioned.

Jayesh Mestry — Asit C. Mehta Investment Interrmediates — Analyst

Okay, it is fine, fine.

Nirmal Momaya — Executive Director and Managing Director

And EBITDA margins will expand as a consequence of that.

Jayesh Mestry — Asit C. Mehta Investment Interrmediates — Analyst

Okay, okay. Thank you, sir.

Nirmal Momaya — Executive Director and Managing Director

And as a consequence of Vanillin, yeah.

Jayesh Mestry — Asit C. Mehta Investment Interrmediates — Analyst

Fine, fine, no problem. Thanks. Thanks from my side.

Operator

Thank you. The next question is from the line of Abbas Punjani from InCred Capital. Please go ahead.

Abbas Punjani — InCred Capital — Analyst

Hi, so again, one question on Vanillin. So have we started supplying Vanillin to the clients?

Nirmal Momaya — Executive Director and Managing Director

No, we are yet sampling. I think Santosh answered that question.

Abbas Punjani — InCred Capital — Analyst

Okay, okay.

Operator

Thank you. The next question is from the line of from Prathamesh Sawant from Axis Securities Limited. Please go ahead.

Prathamesh Sawant — Axis Securities Limited — Analyst

Yesh, sir, just to clarify on my earlier question. So when I mentioned that North America revenues were down 80%, so it was year-on year. So I saw that we were doing 100-plus-crores[Phonetic] revenue last Q3. So I just wanted to understand what has happened there, and can we move back to that levels in the coming quarters? As you said, you have new orders lining up from Q2 onwards.

Santosh Parab — Chief Financial Officer

Prathamesh, I think you are confusing CFS Mexico with CFS North America. Our Mexico was doing around INR90 crores, INR91 crores. North America always did INR15 crores, INR20 crores.

Prathamesh Sawant — Axis Securities Limited — Analyst

Okay.

Santosh Parab — Chief Financial Officer

Are you asking the question on Mexico?

Prathamesh Sawant — Axis Securities Limited — Analyst

Sir, on the North America. So a year back, it was you’re saying INR10 crores.

Santosh Parab — Chief Financial Officer

So last year, in nine months, it was INR42 crores. This nine months, it is INR58 crores.

Prathamesh Sawant — Axis Securities Limited — Analyst

Okay, okay, sir. And sir, another question is on the further derivatives of HQ. We are also seeing certain price pressure on MEHQ prices. So going forward, do you expect these products to be having lesser margins compared to the HQ margins?

Nirmal Momaya — Executive Director and Managing Director

No, it’s a value-added to HQ.

Prathamesh Sawant — Axis Securities Limited — Analyst

But from our channel checks, we were seeing certain prices for certain — further integrations slightly lower. So can you just give an idea on — do you see these prices higher than earlier or–?

Nirmal Momaya — Executive Director and Managing Director

No, MEHQ prices also will come — all chemical prices are softening, as we mentioned earlier. So even MEHQ prices will come down as a consequence of all raw material prices coming down, consequentially, the selling prices are coming down.

Prathamesh Sawant — Axis Securities Limited — Analyst

Okay, okay, sir.

Nirmal Momaya — Executive Director and Managing Director

Yeah.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Ashish Dandekar — Chairman and Managing Director

Thank you. Thank you. Thank you for being with us ladies and gentlemen. We value your time and we look forward to interacting with you at the next conference call. Thank you.

Operator

Thank you. [Operator Closing Remarks]