Chemplast Sanmar Limited (CHEMPLASTS) Q3 FY23 Earnings Concall Transcript

Chemplast Sanmar Limited (NSE:CHEMPLASTS) Q3 FY23 Earnings Concall dated Feb. 13, 2023.

Corporate Participants:

Ramkumar Shankar — Managing Director

N. Muralidharan — Chief Financial Officer

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

Analysts:

Sanjesh Jain — ICICI Securities — Analyst

Ankur Periwal — Axis Capital — Analyst

Niteen Dharmawat — Aurum Capital — Analyst

Unidentified Participant — — Analyst

Nitin Tiwari — Yes Securities — Analyst

Rohit Nagraj — Centrum Broking Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Chemplast Sanmar Limited Q3 FY 2023 Earnings Conference Call. 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 risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ramkumar Shankar, Managing Director. Thank you and over to you sir.

Ramkumar Shankar — Managing Director

Thank you very much, Michelle and good morning, everybody. On behalf of Chemplast Sanmar Limited, I extend a very warm welcome to everyone joining us on our call today. On this call, I’m joined by our CFO, N. Murali; Dr. Krishna Kumar Rangachari, Deputy Managing Director in-charge of the Custom Manufactured Chemicals Division and SGA, our Investor Relations advisor. I hope everyone had an opportunity to go through the financial results and investor presentation, which have been uploaded on the stock exchange and on our company’s website.

In an evolving macro environment and as expected, the quarter gone by has turned out to be another subdued one for us, as well as the industry. Our business continued to face headwinds for most part of Q3 with the revival in PVC prices only from December onwards. For the nine months in FY 2023, revenues were lower by 7% as compared to the corresponding period last year. However, sales volumes of all products were higher on a year-on-year basis. Falling prices of finished goods, coupled with increase in energy cost have resulted in a reduction of EBITDA margin, which stood at around 10% for the nine month period.

Taking a closer look at the performance and trends across product categories and segments. During the quarter, our Specialty Chemicals segment saw a 5% de-growth in the top line on a year-on-year basis. This was largely due to the fall in Paste PVC prices. However, it is relevant to note that volumes grew by 38%, which partially offset the impact of the fall in prices.

The Suspension PVC segment delivered revenues of INR673 crores in the third quarter, witnessing a de-growth of 28% on a year-on-year basis. This was also on account of price decline and was partially offset by a 35% growth in volumes. After a continuous fall from April 2022, the prices for both Paste PVC and Suspension PVC bottomed out by end November. Multiple price increases were seen for both the products in December and January. The situation for the PVC segment is turning favorable again, driven by robust domestic demand and the reopening of China.

PVC prices have started moving upwards after nine months of fall. Restocking of channel inventory, which had dried up during this period has recommenced and volume offtake is back to normal. We expect the demand in FY 2023 for Suspension PVC in India to touch the pre pandemic levels of 3.3 million tons, which would mean a 17% growth over FY 2022. The custom manufacturing segment continued to achieve strong growth. During the previous call, we had mentioned, our plans to increase the capacity in phase one and fast-tracked the expansion by setting up the civil infrastructure for the next year as part of phase one itself.

We recently received confirmation from one of our customers that we have been selected to supply an advanced intermediate for an already established generic AI. This was based on successful qualification of lab and pilot plant samples at the customer end. Based on this development, along with the announcement in the previous quarter of the signing of an LOI for another intermediate and a healthy pipeline of products. We plan to kick-start the next phase expansion of the multipurpose facility with immediate effect.

The total capex outlay, including the next phase of expansion will be around INR680 crores to be spent over the next 15 months. While phase one is expected to come on-stream by the second quarter of FY 2024 as originally scheduled, we are targeting to commission the next phase by end of FY 2024. In Q3 of this year, the other chemicals business comprising of caustic soda, chloromethanes, refrigerant gases and hydrogen peroxide delivered revenues of INR232 crores, a 4% growth on year-on-year basis. This growth was largely due to the increase in volumes of all products and strong caustic prices during the quarter compared to Q3 last year.

The outlook for this segment remained stable over the medium-term, though there are some short-term challenges. High-energy costs continue to remain a concern. Those — there are some encouraging signs with the reduction seen in coal prices. Overall, with recovery in PVC prices and healthy demand trends, we expect our Q4 FY 2023 performance to register a good improvement. We expect a better performance in FY 2024, driven by a combination of a rebound in PVC demand and prices along with new capacities in base PVC and custom manufacturing coming on stream during the year. An update on our capex projects, both our capex projects, which pertain to the Specialty Chemicals segment are on-track and slated to meet expected timeline.

Now I would request our CFO, Muralidharan to share the quarterly financial highlights. Murali?

N. Muralidharan — Chief Financial Officer

Thank you, Ram and very good morning to all the participants on the call. Chemplast Sanmar on a consolidated basis registered a drop in its revenues and then operating profits for 3Q FY 2023 as compared to the corresponding period last year. The revenue from operations for 3Q FY 2023 stood at INR1,189 crores, registering a drop of 18% on year-on-year basis. This was largely on account of lower realizations per ton for our PVC products, however volumes across all product segments registered a growth on year-on-year basis, it’s an overall volume growth of 27%.

On the expenses side, our employee costs during the quarter was INR34 crores. This was marginally higher on a year-on-year basis and lower on a sequential basis. Other expenses increased on a year-on-year basis, largely due to higher energy costs. EBITDA for the quarter stood at INR78 crores as compared to INR353 crores in the corresponding quarter last year.

EBITDA margin for the quarter was at 7%, this is more or less in line with the EBITDA margin for the previous quarter. Our finance cost for the quarter stood at INR39 crores, this was marginally lower than the previous quarter and our PAT for the quarter stood at INR27 crores as compared to INR237 crores in the corresponding quarter last year.

Looking at the nine month numbers, revenue from operations clocked INR3,794 crores or 7% lower as compared to the corresponding period last year and EBITDA for nine months FY 2023 stood at INR371 crores, with a margin of 10%. Finance costs dropped sharply from INR287 crores in nine month FY 2022 to INR116 crores in nine-month FY 2023, mainly due to reduction in borrowings since the IPO proceeds and renegotiation of better terms for the existing loans in FY 2022.

Net profit for nine months FY 2023 was at INR106 crores as compared to INR417 crores in the corresponding period the previous year. Given the reversal in the PVC pricing trend, as also the expected commissioning of the expansion projects in our Specialty Chemicals segment, the outlook for the business looks positive and we expect a gradual uptick in operational performance in the coming quarters, with a healthy cash balance of INR167 crores, the company continues to be net cash-positive on a consolidated basis.

As mentioned earlier, we have kick-starting the next phase of capex of our custom manufacturing business and are actively exploring other expansion opportunities as well. This coupled with our strong balance sheet, puts us in a comfortable position with a high degree of flexibility in a dynamic macro environment.

With this, I conclude the presentation and open the floor for further discussions. Thank you.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] We have the first question from the line of Sanjesh Jain from ICICI Securities. Please go ahead.

Sanjesh Jain — ICICI Securities — Analyst

Good morning, sir. Thanks for taking my questions. I got few of them. First on the Specialty Chemical business from the INR680 crores of capex what we have announced, which is an expanded from some INR300 odd crores, which you were talking earlier. Can you help us understand what will be the asset turn on this entire capex of INR680 crores? And what will be the timeframe in which, we anticipate this entire capacity to run at a peak utilization? That’s one. Number two, I know we don’t segregate the EBITDA margin, but from the profitability or an ROIC or an IRR basis, can help us understand what does this INR680 crores means in terms of financial implication on the P&L side, so that’s my first question. Thank you.

N. Muralidharan — Chief Financial Officer

Good morning, Sanjesh. This is Murali. The asset turn on this investment to start with, maybe would be around 1 and at a peak, it will go to 1.3, 1.4 times and over a period of two to three years, it may evolve over a period of two to three years time. And as far as the return, these are specialty chemicals, custom manufacturing business. So, the returns are quite healthy and they will definitely be significantly accretive to the financials of the company. Their returns will be way about 25% IRR return. So they will be definitely financially accretive to the financials of the company.

Sanjesh Jain — ICICI Securities — Analyst

So the payback period will be less than four years at a peak utilization?

N. Muralidharan — Chief Financial Officer

Yes.

Sanjesh Jain — ICICI Securities — Analyst

Okay, okay, got it. Thank you. Second, on the product pipeline, the specialty, we did mention in our opening remark that we have a very strong pipeline of the products in the specialty chemicals. Can you help us understand in terms of the areas where we are seeing traction, it’s largely agrochemical or it’s a mix of agrochemical pharmaceutical and the performance chemical that would be useful? Thank you. And number of products and on those parameters as well?

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

Sanjesh, this is Krishna Kumar.

Sanjesh Jain — ICICI Securities — Analyst

Hi, Krishna.

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

The pipeline is very healthy and strong. Most of it is — majority of what we have in the pipeline is agrochemical. But we do have some pharmaceutical, as well other fine chemical applications in the pipeline and it’s moving quite rapidly. But by rapid I’m saying that it’s on-track, in prior calls I had elaborated that it takes anywhere from 12 months to 18 months from an inquiry point to get to an initial validation campaign and it goes through multiple stages during that timeline. And so the products that we have in the pipeline, they’re all moving on-track as per our expectations.

Sanjesh Jain — ICICI Securities — Analyst

Krishna, how many products are we working here and this particular product what we have announced and a previous one, how many years did it take from say when we started the discussion with the customer to signing of these contracts?

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

So the one that we just now we announced, I would say around 12 months from inquiry to get to this point. And we will wait for the commissioning of the new plant to make the validation quantity. So, theoretically, we could be making it now, but the customer is very clear that they would like to have the first trial from the new asset. So again 12 months to 18 months is what it looks like.

Sanjesh Jain — ICICI Securities — Analyst

And we will be backward integrated fairly or we are doing only couple of steps, how should we see this chemistry?

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

No, so — the chemistry, I don’t know what you mean by backward integration. In — this is — this particular product for example is part of it is based on technology package given by the customer, part of synthesis is based on what we have developed in-house. And so there is no backward integration play per se on this particular one.

Sanjesh Jain — ICICI Securities — Analyst

Got it, got it. Thanks, Krishna.

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

And I think you had a question on number of products. Our pipeline is healthy, I mean we have I would say over seven to 10 products that we are actively working on right now.

Sanjesh Jain — ICICI Securities — Analyst

Okay.

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

Apart from what we already commercialize a strategy.

Sanjesh Jain — ICICI Securities — Analyst

And these will largely be again Pharma or it’s decent mix of pharma sorry agro pharma and performance?

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

So it’s mostly agro. There are some pharma as well, but [Indecipherable].

Sanjesh Jain — ICICI Securities — Analyst

Got it, got it. Thanks, Krishna. Coming back to the PVC business, Murali, can you help us what was the inventory loss in this quarter. And now that the prices have gone up very sharply, do we expect any kind of inventory gain in Q4 from this phenomenon. I wouldn’t call it inventory gain some of the write-off. So we have taken certain exceptional of inventory losses in the previous quarter. Do we expect some reversal of that in Q4?

N. Muralidharan — Chief Financial Officer

On the inventory loss, Sanjesh, actually we did make positive contribution from such merchant PVC this quarter. So effectively, there were no specific inventory loss for this quarter. And as far as the possible gain going forward, as you would know, the write-off that we did was in the first quarter, April-June quarter. And the stock we had carried at the time has been entirely sold by this time. And the stock we are carrying by this quarter-end, December end was very limited. Actually, it was only for three or four days stock instead of around 2700 tons of Suspension PVC and around 500 tons of Paste PVC.

So effectively, even though there is a increase in price, we may not be able to gain on the inventory, we will realize the higher-margin from the future sales.

Sanjesh Jain — ICICI Securities — Analyst

Fair enough, fair enough. Ram, what is the spread right now and what is the spread expected in FY 2024 to remain at? And this year has been a very strong volume growth for the industry. What is the expectation for FY 2024 and what is the import situation from China and the US?

Ramkumar Shankar — Managing Director

See, the — as far as the market is concerned, we expect the market in FY 2023 to be around 3.3 million tons, which effectively this is for Suspension PVC which effectively takes us back to the pre pandemic level of around three point which was 3.2 million tons. In fact, up to December it fell total demand in India has registered a growth of around 20%, we are at 2.5 million tons as against 2.1 million tons year-on-year. So this is definitely, likely to continue given that this is a strong demand quarter.

Next year, we expect that the traditional growth of around anywhere around 8% to 10% should be restored, given that there is a lot of pent-up demand that is there and very little stocks that are there in the trade channel. So this is something that we expect as far as Suspension PVC is concerned.

In terms of imports from different countries, the Chinese imports in the nine month so-far were around 440,000 tons as compared to a full-year import of around 250,000 tons in 2021 and 2022. So that was really the extent of the issue that we faced in these nine months. We expect this to go back to earlier levels given that China has now reopened and Zero COVID policy has been reversed.

Sanjesh Jain — ICICI Securities — Analyst

Fair enough. And on the spreads?

Operator

Mr. Jain, I’m sorry to interrupt, sir. I would request you to kindly rejoin the queue sir. There are…

Sanjesh Jain — ICICI Securities — Analyst

No this is just, I have already asked the question, just seeking the answer for…

Ramkumar Shankar — Managing Director

All right. The PVC VCM spread is anywhere around, pre duty it is anywhere around $200, $225 and if you include the duty as well, it will be anywhere around $275, $300.

Sanjesh Jain — ICICI Securities — Analyst

And this is expected to sustain, right?

Ramkumar Shankar — Managing Director

This is expected to sustain.

Sanjesh Jain — ICICI Securities — Analyst

Thank you, sir. Thank you very much for all those answers and best of luck for the coming quarter.

Ramkumar Shankar — Managing Director

Thank you very much, sir.

Operator

[Operator Instructions] We have the next question from the line of Ankur Periwal from Axis Capital. Please go ahead.

Ankur Periwal — Axis Capital — Analyst

Yeah, hi sir. Good morning. Thanks for the opportunity. Just continuing with on the PVC side, globally any comments there from a China revival perspective, is there a significant demand which has come in or probably it’s still slow and steady and maybe the dumping that we’re seeing in India reversal will see an immediate reversal or probably it will take some time?

Ramkumar Shankar — Managing Director

Thanks, Ankur. Good morning. We are seeing revival definitely in China, domestic prices in China have gone up. There was, as you know an extended holiday in China, in January, towards the end of January for their New Year. So, all activity has been pretty much muted over that period, but we are seeing that their domestic prices have been pretty much going up and we believe that given the fact that the Chinese government has also announced an incentive for their real-estate sector, which is very important to their economic growth, given that it accounts for, I believe, around a quarter of their overall GDP. We believe that the demand for PVC should be healthy in the months ahead.

Ankur Periwal — Axis Capital — Analyst

Okay, sure. And, sir, on the margins front for SPVC side, we were seeing some softness there. And especially if I look at the subsidiary P&L, the other operating cost is significantly higher. Is this largely because of the power cost which you highlighted earlier? And when do we see a reversal there in margins?

Ramkumar Shankar — Managing Director

The power cost is largely affect — will affect the parent company a little bit more than the subsidiary company because parent companies where we consume most of the power, given the fact that caustic soda, which is the highly power intensive product is there in Chemplast, the coal prices have come down significantly and that is what is encouraging. In the first quarter of the year, coal prices were around $160 and that kept fluctuating in the first-nine months, it dropped to $125 and then was around $140. It is now back to the $115 levels and that is quite significant. We believe that this could have a good impact on our other operating cost going-forward.

There is also — there was also an increase in natural gas prices and as you would possibly be aware the government had commissioned study by the credit for a committee on natural gas prices and they’ve come back with their recommendation, which suggest floor and a cap on gas prices. These recommendations have not yet been accepted, but if they are accepted that could also result in quite a substantial reduction in gas prices and the impact on customers like us.

Ankur Periwal — Axis Capital — Analyst

Sure, sir. And just last question on the CSM side, you did mention that initially we are expecting an asset turn of 1x for the 6.8 billion capex, which will gradually increase to 1.3, 1.4. Correct me if I’m not wrong, in the first phase of capex, we were expecting an SA turn which was slightly higher than this number, maybe more like 1.5, 1.7. So if you can highlight on the chemistry a bit, is it a slightly more complex project? Or how many steps does it have and maybe some details on that side?

Ramkumar Shankar — Managing Director

Ankur, the asset turn or the evolve — as the business matures also, so on an overall basis between the phases, I think it’s not that the chemistry is too different, but gradually as we evolve, I think we believe that the asset turn on a incremental basis would call somewhere between 1.3 to 1.4 instead of somewhere around 1.7 or so. That is being slightly being on the conservative side as well, if you look at the asset turnover, our existing business is way above 2. So obviously, as you mature and we move in the coming years, maybe few years down the road I think could even be much higher, but we wanted to sort of present a reasonably conservative picture.

Ankur Periwal — Axis Capital — Analyst

Sure, sir. And since it’s a running product, an established generic AI, the ramp-up should be faster here?

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

Yes, ramp-up would be faster and because the demand is — there is an existing demand. It would depend on how the customer moves from their current supplier to us, but the demand is fairly established.

Ankur Periwal — Axis Capital — Analyst

Sure, sir. Fair enough. Thank you and all the best. Thanks

Ramkumar Shankar — Managing Director

Thank you.

Operator

[Operator Instructions] We have the next question from the line of Niteen Dharmawat from Aurum Capital. Please go ahead.

Niteen Dharmawat — Aurum Capital — Analyst

Yeah, thank you for the opportunity. Am I audible?

Operator

Sir, your voice is too low.

Niteen Dharmawat — Aurum Capital — Analyst

Okay. Is it better now?

Operator

Please proceed, sir.

Niteen Dharmawat — Aurum Capital — Analyst

Yeah. Okay. So first question is that we are making some capex now. So what was the capex amount we spent last year?

Ramkumar Shankar — Managing Director

These projects were announced post IPO, one is the Paste PVC project. The second one we announced is the debottlecking of Suspension PVC. Third is the custom manufacturing project. Originally, we announced a project capex up INR260 crores and it has gone over time to INR680 crores, now based on the traction that we have got on the business. So in terms of capex trend, the INR23.5 crores we had announced on the debottlenecking of Suspension PVC that has been fully completed.

And the next capex, which is on the Paste PVC, which is around INR360 crores, which is currently under progress, it will get commissioned in the third quarter of this year. And the other projects, which is the custom manufacturing business, Phase 1 is progressing, it will get commissioned by the second quarter of this year. And the recent one that we announced, it will get commissioned by the year-end. As far as actual capital out go, if you’re looking at actual cash out go, it is around INR225 crores till now.

Niteen Dharmawat — Aurum Capital — Analyst

And this next round of capex that you are announcing today, is it through internal accruals or through debt, how much debt we are taking for this additional debt we are taking?

Ramkumar Shankar — Managing Director

As we had mentioned in the earlier calls as well, we believe that the debt is an integral part of capital structure. So even for these projects, we would fund it using a mix of debt and equity. It will range between — debt would range between 60% to 70% depending on the project.

Niteen Dharmawat — Aurum Capital — Analyst

Got it, got it. And my final question is since you mentioned that you see some price improvement in the product, so what is the guidance that we have for the next year for top line, as well as for EBITDA margin?

Ramkumar Shankar — Managing Director

We have — we don’t — Niteen, we generally don’t provide any specific guidance. But what we do is provide directional guidance, so as we have said both in our release, as well in the opening remarks today, we believe that Q2 will definitely be better than what we have registered in Q2 or Q3. And FY 2024 should also register a better performance, the usual carry and supply of course.

Niteen Dharmawat — Aurum Capital — Analyst

Got it. Thank you so much, all the best.

Ramkumar Shankar — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Pritesh Chheda from Lucky Investment Managers. Please go ahead.

Unidentified Participant — — Analyst

So, just one — two clarification. Now the capacity which is supposed to come up is the Paste PVC capacity of 460 looks like number. Can you just tell what exact, yeah, yeah.

Ramkumar Shankar — Managing Director

Base PVC capacity is 41,000 tons expected to be commissioned by end of September, early October.

Unidentified Participant — — Analyst

Okay. And so in the presentation, the capacities that you are mentioning, we just have to add this Paste PVC 41,000, which is supposed to come out next year, right?

Ramkumar Shankar — Managing Director

Yeah, but 41,000 the entire thing will not be available for the entire, obviously, since we are coming up in October. So there will only be a limited quantity that will be there for the financial year FY 2023, 2024. The full impact would be seen from the next year.

Unidentified Participant — — Analyst

Okay. And one other question, if could give us the capex cost, the usual capex cost that is incurred or replacement cost if any, for specialty Paste PVC and the Suspension PVC capacity, so either expressed as per ton or your complex?

Ramkumar Shankar — Managing Director

As per you’re referring to the regular normal capex that we incur year-on-year basis…

Unidentified Participant — — Analyst

No, no, no. I’m referring to — had you put up a Greenfield like this, someone put, so what is the per ton capex cost for specialty Paste PVC and what is the per ton capex for Suspension PVC?

Ramkumar Shankar — Managing Director

Say I would not say per ton capital cost, but if you look at for instance, we did 300 — if you do a 300,000 ton Suspension PVC or 350,000 ton Suspension PVC project, it depends on whether we — I have already said it’s brownfield, it’s a greenfield. It’s — all of that comes into the picture and where you do it, but if you for instance if you were to do it in India for a PVC plant that size maybe it would cost you around — just the PVC polymerization alone would be around $125 million to $150 million, if I do it in the Middle East, it would be maybe $200 million, $225 million, if you do it in the west, it would be far more…

Unidentified Participant — — Analyst

Sir in India, if you were to put up a greenfield project like you just take that example and give me the number, so it will be $150 million for a 3 lakh ton?

Ramkumar Shankar — Managing Director

Yeah, it would be around $125 million to $150 million. Again, it would depend on whether you would need your own captive terminal, whether you invest in that or you have an existing capital terminal or a public terminal close by for the import of VCM etc. So there is lot of configurations. It’s very difficult to just give you a number without knowing what configuration you have in mind…

Unidentified Participant — — Analyst

That’s why I assumed your capacity if someone has to replicate how much import, just roughly…

Ramkumar Shankar — Managing Director

RA capacity, where is the captive terminal, somebody has to replicate, it would possibly be closer to $175 million.

Unidentified Participant — — Analyst

And the specialty Paste PVC fixed capacity, what will be the replacement cost there?

Ramkumar Shankar — Managing Director

Specialty Paste PVC, at the end of our expansion, we will be at 100,000 tons. And there it is a little bit more complex because we are also integrated on 60% of our capacity all the way down to EDC and 40% is based on imported VCM. So that would be a bit more evolved. I don’t think I can tell you off hand, we would move to — maybe I can take a call from you later and we can go over this.

Unidentified Participant — — Analyst

So this 41,000 ton capacity that you are putting incremental is at INR680 crores?

N. Muralidharan — Chief Financial Officer

No, no, no. INR360 crores…

Ramkumar Shankar — Managing Director

Yeah, the INR680 crores, it’s custom manufactured chemicals business.

Unidentified Participant — — Analyst

Okay. So this is INR380 crores, 41,000 ton for a brownfield…

Ramkumar Shankar — Managing Director

INR360 crores for 41.

Unidentified Participant — — Analyst

Okay. INR360 crores for 41,000 ton, it’s a brownfield and it has its own VCM or it will be on imported?

Ramkumar Shankar — Managing Director

Imported VCM.

Unidentified Participant — — Analyst

Okay. It will be import, okay. Thank you very much.

Ramkumar Shankar — Managing Director

And here we share the VCM import infrastructure. So we do not need to invest really in terminal and stuff. Whereas somebody wee to set this up by themselves greenfield, then the costs goes up significantly.

Operator

Thank you, sir. [Operator Instructions] The next question is from the line of Nitin Tiwari from Yes Securities. Please go ahead.

Nitin Tiwari — Yes Securities — Analyst

Good morning, sir. Thank you for the opportunity. I hope I’m audible? Sir, my question is related to the CSM business. So what — how many products are actually contributing to the revenue as of now? And what’s the revenue contribution, if you can help me with that and a broader margin ideal there?

Ramkumar Shankar — Managing Director

Currently, like we had mentioned earlier, we have nine commercialized products, which are contributing to the revenue this year. And as far as the revenue number, we have indicated to you that we are looking at a 30% growth this year and we still maintain that. We will definitely achieve that 30% growth this year. And as far as the margins for confidentiality reasons, we would like to refrain from we know the exact margin levels, but as you know this is a specialty business and we do make the margins in line with what the industry mix.

Nitin Tiwari — Yes Securities — Analyst

Sir, actually, I wanted to understand the revenue contribution, I mean, what is the revenue contribution in the nine month that we are getting from the CSM business either in percentage terms or if the absolute number if you can provide? And a broader understanding of the margins, I’m just fine with that, you don’t have to give the specific number.

Ramkumar Shankar — Managing Director

If you look at the overall revenue of Chemplast Sanmar, it will be slightly lower than 10% currently, to be around 8% to 9% level as of now and overall revenue — consolidated revenue of Chemplast Sanmar. On a standalone basis, the revenue of Chemplast Sanmar, it will be close to 15%, 16%.

Nitin Tiwari — Yes Securities — Analyst

Okay. And on the margin side, sir, a broad standing?

Ramkumar Shankar — Managing Director

Margin, obviously, this is a specialty business, obviously, this will contribute more to the margin than the Suspension PVC business. So obviously, the 8% obviously the margin contribution will be even higher. I would like to refrain from going into the exact details of the margin if it’s…find out.

Nitin Tiwari — Yes Securities — Analyst

Understood, sir. Sir, and moving ahead, once our CSM expansion comes into picture over FY 2024, so what is the sort of revenue growth we are looking at in FY 2024 and 2025 from this business?

Ramkumar Shankar — Managing Director

Like we had said, we are investing close to INR700 crores now, almost INR680 crores. And we are looking at a asset turn of one to start with and gradually increase to 1.3, 1.4. So that will give you an indication of, so we are definitely looking at on a — once we reach a steady state well above INR1,000 crores in terms of revenue. And that is broadly the outlook based on the current investment.

Nitin Tiwari — Yes Securities — Analyst

Right sir, no sir, that part I understood, asset turn in about is 1.3, 1.4, on the…

N. Muralidharan — Chief Financial Officer

On the relevant year, actually, we refrain from giving guidance for the relevant year like Ram also mentioned earlier. So I would like to refrain from giving any specific number guidance for finance FY 2024, FY 2025.

Nitin Tiwari — Yes Securities — Analyst

Sir, in that case, what is the time frame in which we are looking to achieve the asset turn of 1.4x?

N. Muralidharan — Chief Financial Officer

The INR680 crores is what we’re investing, on a asset turn of 1.3, 1.4, that itself will give you INR950 crores on a steady-state basis, like I had indicated this will happen over a period of two to three years, to start with, it will be at roughly around 1x. So that will be the starting point. So we are commissioning the project this year in 2023, 2024. So obviously, we’ll start seeing the results from 2024, 2025. So we’ll — may we gradually move — we ramp it up to 1.4x over a period of time. And we also have the current turnover, which we have discussed earlier as well and about INR300-odd crores. So that will give you a feel of the overall turnover that we will be able to touch.

Nitin Tiwari — Yes Securities — Analyst

Understood, sir. And sir, my second question is, with respect to the SPVC expansion that you had earlier indicated that with the plans are right now on the drawing board. So any updates on that front?

N. Muralidharan — Chief Financial Officer

Could you repeat that please, we lost you a bit there.

Nitin Tiwari — Yes Securities — Analyst

Sorry, sir. So I was asking about the SPVC expansion which was on the drawing board, which you were considering. So any updates on that front where you were looking to double the capacity in the business?

N. Muralidharan — Chief Financial Officer

We had mentioned that we did have the environmental clearance to go up to 600,000 tons from the current 300,000 tons, but we have not announced any plans to actualize that. We have — in the interim, there’s a debottlenecking at very minimal capex around INR23 crores and taken up our capacity to around 330,000 tons, which would have a payback of around six months and that has already been actualized. Any further expansion is dependent on feedstock tie-up, which is a little bit more involved. And unless we do that, we will not be able to announce further expansion.

Nitin Tiwari — Yes Securities — Analyst

Understood, sir. Thank you so much. Those were all my questions.

N. Muralidharan — Chief Financial Officer

Yeah, thank you, Nitin.

Operator

The next question is from the line of Chintan Chheda from Quest Investment Advisors. Please go ahead.

Unidentified Participant — — Analyst

Yeah, hi. Good morning and thanks for taking the question. My first question is on the Paste PVC business. So this 41,000 ton additional capacity that we are bringing in FY 2024, so where do we see full utilization of this plant going?

Ramkumar Shankar — Managing Director

We would be at maybe around 25% of that coming in this year, that is meaning FY 2024. And then the very next year onwards, we will be at 100%.

Unidentified Participant — — Analyst

Okay. And sir, what is the demand supply currently in the Paste PVC versus items in India and we were facing some headwinds from dumping some certain asset, has that lease out specifically in the Paste PVC segment?

Ramkumar Shankar — Managing Director

Yeah, the total demand from Paste PVC in India is expected to be around 150,000 tons in FY 2023. This is actually more than the pre-pandemic levels, paste PVC recovered a little faster than Suspension PVC is as far as the recovery during the pandemic itself. And here if you look at the total inputs, China doesn’t play that bigger role as far as Paste PVC import is concerned. This is a little bit more spread out over Europe, Thailand, Korea, Malaysia, Taiwan and China. And the total imports roughly — the domestic production is roughly around 65,000 from us and maybe another 13,000, 14,000 from the other player. So around 80,000 tons and the balance 60,000, 70,000 tons is being imported and this is spread over these six countries.

Unidentified Participant — — Analyst

So how do we see the margin getting recovered in this segment? Because we always felt that this is a basically a specialty product for us. But over the last couple of quarters the hit over here in the margin was much too severe. So now where do we see the spreads or you can say per ton kind of EBITDA over you’re moving?

Ramkumar Shankar — Managing Director

It is — directionally it is moving up, you are right, in the last three quarters, we did have a hit here. In fact, the previous two years, we had excellent performance in the segment. And in this last three quarters, the hit has been largely because of the Zero COVID policy in China to some extent. But also equally because of the increase in energy cost. Like I mentioned, this is a segment where you have significant energy because we are backward integrated all the way to caustic soda. And therefore, the energy cost increase affects the cost of production in this product. And that is what is really affected, but we are seeing with the recovery in Paste PVC prices, we are seeing the margins going up as expected.

Unidentified Participant — — Analyst

So we are higher than Suspension PVC or still lower than that?

Ramkumar Shankar — Managing Director

Suspension PVC was lower than that, but Suspension PVC again has picked up very smartly in December and even more in January.

Unidentified Participant — — Analyst

No, no, my question is the spreads in Paste PVC, are they higher than the levels we are seeing in Suspension PVC or still below that?

Ramkumar Shankar — Managing Director

It will be higher, it will be higher, because one is, of course, the fact this is a product itself commands the premium over the price of Suspension. Secondly, we also have a greater level of integration on Paste PVC as compared to Suspension, Suspension we just import VCM and polymerize and make PVC — Suspension PVC. Whereas in Paste, for our existing capacity, we are fully integrated on VCM and we have a significant integration back into EDC as well.

Unidentified Participant — — Analyst

Okay. And sir, last question is, what is the current cash and bank balance on books as on of December 2022?

N. Muralidharan — Chief Financial Officer

We have INR1,167 crores on a consolidated basis.

Unidentified Participant — — Analyst

Okay. And we are still going for, say, earlier you highlighted that 60% to 70% of debt component in this custom manufacturing expansion. So any rationale behind that?

N. Muralidharan — Chief Financial Officer

If you look at the cash, INR1,167 crores, roughly around INR500 crores is at the holding company, the rest is at the subsidiary level. So in the holding company, as you would see, we’ve announced capex to the extent of almost INR1,000 odd crores, primarily on the specialty side. And that would need investment from internal accrual side. So obviously, we believe debt is an important part of the capital structure to fund the INR1,000 crores of project. So out of INR500 crores, we would always like retain some liquidity with us to sort of take up any volatility. So that means some of the cash to be used for equity purposes, the rest being managed through the debt.

Unidentified Participant — — Analyst

Okay. Thanks a lot.

Operator

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

Rohit Nagraj — Centrum Broking Limited — Analyst

Yeah, thanks for the opportunity. Sir, my question is on CSM part. So currently, what would be the domestic and exports mix and once we through with this INR680 crore capex and achieve a peak turnover of, say, INR950,000 crores, what is the mix that we are looking at?

N. Muralidharan — Chief Financial Officer

It’s 100% exports.

Rohit Nagraj — Centrum Broking Limited — Analyst

Okay. So all the time, I mean, incrementally also it will be 100% exports?

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

It will be for exports, I mean, some of the sales could be made domestically, but the intent of all of this could be for the export market.

Rohit Nagraj — Centrum Broking Limited — Analyst

Right. And say last quarter, we had mentioned that Phase two will start sometime later and this quarter we have received this customer approval. So is it that a significant part of this INR680 crores capex capacity will be occupied by the two products where we have received these lows? And would it be a dedicated facility for any of these products?

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

So, if you want to be a dedicated facility, it will still be a multipurpose facility where we can make different products. Our — these two that we have the LOI we signed last quarter and then this new development between both of them, steady state, we believe majority of the placement capacity would be occupied. And our approach is that to trigger additional capacity as and when we have clear visibility on such a high level of occupancy, let’s say and that’s the reason we are triggering the Phase two as well. And we have a high level of visibility of some of the other products moving through the pipeline which would require additional capacity. And so that’s the rationale for moving forward integrating the Phase two.

Rohit Nagraj — Centrum Broking Limited — Analyst

Right. Just one clarification. So at peak utilization level, what is kind of product rollout that we are targeting from this multipurpose facility?

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

So I don’t — I’m not clear.

Rohit Nagraj — Centrum Broking Limited — Analyst

Sir, so currently, we are having say nine products from our existing facility and this new facility, INR680 crores. So do we expect a similar set of products or there will be limited products but with better revenues or higher revenues?

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

So I think — I think the way I would look at is when the investment is complete in both these spaces, probably I would expect maybe five to six products, occupying the new capacity coming out straight.

Rohit Nagraj — Centrum Broking Limited — Analyst

Sure. That’s helpful, sir. Thank you and best of luck, sir.

Operator

Thank you. The next question is from the line of Raj [Phonetic] from Arjav Partners. Please go ahead. Mr. Raj, I have unmuted your line, kindly proceed with your question.

Unidentified Participant — — Analyst

How do you think your Q4 is going?

Operator

Sir, your audio is not clear, may we request you to use your handset to ask a question.

Unidentified Participant — — Analyst

Is it good now?

Operator

Yes, please proceed.

Unidentified Participant — — Analyst

Okay. I wanted to ask regarding your Q4, given the expansion you have done. So how do you think your Q4 is going?

Ramkumar Shankar — Managing Director

Q4, okay, the expansions are going to come up only in the next year, by September of 2023. So essentially in 2023, 2024 is when the expansions will have their impact. But Q4 is like we had mentioned in the opening remarks, as also in our earnings release that it is definitely looking better than either Q2 or Q3.

Unidentified Participant — — Analyst

All right. Thanks, have a good day. Bye.

Ramkumar Shankar — Managing Director

Thank you, sir.

Operator

The next question is from the line of S. Ramesh [Phonetic] from Nirmal Bang Equity. Please go ahead.

Unidentified Participant — — Analyst

Good morning and thank you very much. So on the CSM business, obviously, just taking the chunk of your capital allocation. So if you look at the companies over the next five years, would this be the order of magnitude in terms of capital allocation for CSM in terms of expanding this business further? And in terms of your tonnage — from the tonnage you have disclosed the presentation, what would be the additional tonnage you will add in the CSM business on NPP based on this INR680 crores capex?

N. Muralidharan — Chief Financial Officer

Okay. As far as the capital allocation is concerned, CSM business will be our number one priority in terms of capital allocation. And we will keep investing in this business, once we have clarity like we had indicated that once we have clarity on filling up phase one, we will immediately kick start the next phase, which we have announced now and similarly once we have sort of reasonable visibility at 60% visibility on the next phase in terms of occupancy, we’ll definitely kick start the next phase of expansion. So there is — this is going to be a #1 focus area for growth. And as far as the tonnage, I would request Krishna to cover that.

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

So, okay, tonnage would depend on the product, but just to give you an order of magnitude, the two products that we are commercializing or that we’ve talked about over last quarter and this quarter, each one of them order of magnitude at steady state would be 600, 700 tons. So that is the kind of volume that we are talking about.

Unidentified Participant — — Analyst

Yeah, that’s useful. So in terms of synthesis, can you share whether there is any additional synthesis capabilities or adding in this capex? Or is it in the existing domain?

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

Okay. That’s a good question. So this business is all about the chemists and chemical engineers. It’s about leveraging the chemistry and the process capabilities. So some of the investments that we are doing is also in augmenting our R&D lab, our pilot facility and other infrastructure related to enhancing the best of capabilities we have. So — and the inquiries that we are working on more and more are also larger molecules or number of steps are more complex chemistries. And so we are sort of resourcing both on the people side as well as on the asset side.

Unidentified Participant — — Analyst

That was very useful, wish you all the best. I’ll come back in the queue.

Krishna Kumar Rangachari — Deputy Managing Director Custom Manufactured Chemicals Division

Thank you.

Operator

Thank you. The next question is from the line of Saket Kapoor [Phonetic] from Kapoor & Co. Please go ahead.

Unidentified Participant — — Analyst

[Foreign Speech] and thank you for this opportunity. Sir, firstly, when we look at our standalone number, that mainly represent our caustic soda revenue or what constitutes the revenue from operation?

Ramkumar Shankar — Managing Director

If you look at Chemplast ton low numbers, largely, you would have Paste PVC and caustic soda and custom manufactured chemicals being the bulk of the numbers.

Unidentified Participant — — Analyst

Okay. And in the mix, sir, can you provide the splitter for what — how much is caustic soda contribution out of this INR638 crore revenue?

Ramkumar Shankar — Managing Director

Caustic soda would be around I think 25% around that.

Unidentified Participant — — Analyst

25%. Sir, you did spoke about — alluded about the fact that there is some near-term pressure. So if you could elaborate more on the same, I think so more than 1 million ton capacity has been added domestically. And also, sir, as you mentioned about coal prices and then gas prices globally softening and coming to level, I think your gas prices in Europe have come to levels even pre-COVID level. So how do you see the caustic market particularly shipping up globally? And some more color on the same and how the ECU behaved currently, sir, how about ECU price is?

Ramkumar Shankar — Managing Director

Caustic really is — has softened a bit as far as prices are concerned. Caustic prices in fact had been moving in a contra direction to PVC, which is pretty much normal. So when PVC was down, caustic was up and this was further accentuated by the situation in Europe because of the Russia, Ukraine war and the run-up in energy costs in Europe. Therefore, the caustic prices in Europe went up as high especially in the Mediterranean region of around $1,200, $1,300 a day MT. And that presented very good arbitrage window for Asian sellers of caustic soda. That window is now closed because the energy costs in Europe has come down. So caustic prices have fallen off. And in Asia, the prices are right now around $550 or so. And India self is around 5 million tons of capacity with the 4 million tons of demand, but most of the capacity is largely concentrated in the western part of the country and caustic being a very regional product, given the fact that it is transported 50% is water. It is a problem that is very regional in part.

As far as the southern part is concerned, it’s not reflected so much. And for us, we are not really a caustic company, we are more a PVC company where we consume 100% of the chlorine that we produce and caustic is for us treated like a by product.

Operator

Thank you, sir. Ladies and gentlemen, due to time constraint, that was the last question for today. I would now like to hand the conference over to Mr. Ramkumar Shankar, Managing Director for closing comments. Over to you, sir.

Ramkumar Shankar — Managing Director

Thank you very much and thank you everyone for joining us today on this earnings call. We appreciate your interest in our company. And if you have any further queries, please contact SGA, our Investor Relations adviser. Thank you and have a good day.

N. Muralidharan — Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]