Clean Science and Technology Limited (CLEAN) Q2 FY23 Earnings Concall Transcript

Clean Science and Technology Limited (NSE:CLEAN) Q2 FY23 Earnings Concall dated Oct. 20, 2022

Corporate Participants:

Pratik Abhaykumar Bora — Chief Financial Officer

Siddharth Sikchi — Promoter and Executive Director

Analysts:

Sanjesh Jain — ICICI Securities — Analyst

Jay Shah — Capital PMS — Analyst

Sameer Gilani — Private Investor — Analyst

Anurag Patil — Roha Asset Managers — Analyst

Sujit Lodha — Birla Sun Life Insurance — Analyst

Mukul Jain — Private Investor — Analyst

Rohit Nagraj — Centrum Broking — Analyst

Krishan Parwani — JM Financial — Analyst

Ankur Periwal — Axis Capital Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Clean Science and Technology Limited Q2 FY’23 Results Conference Call hosted by Axis Capital Limited. [Operator Instructions]

I now hand the conference over to Mr. Ankur Periwal from Axis Capital. Thank you, and over to you Mr. Periwal.

Ankur Periwal — Axis Capital Limited — Analyst

Yes, thank you, Tanvi. Good evening, everyone, and welcome to Clean Science and Technology Limited Q2 and H1 FY’23 post-results earnings call. The call will be initiated with a brief management discussion on the quarterly performance, followed by an interactive Q&A session. Management team will be represented by Mr. Siddharth Sikchi, Promoter and Executive Director and Mr. Pratik Bora, Chief Financial Officer.

Over to you Siddharth for your initial comments.

Siddharth Sikchi — Promoter and Executive Director

Thanks Ankur, thanks a lot. So good evening everyone, and thank you for taking time out to understand our results. I am very happy to inform you all that on September 26th, we have conducted Bhoomi Pujan for our new 34-acre land parcel, which will be housed in our subsidiary Clean Fino-Chem Limited with around 300 people already working at the site. The construction activity has started fully and hopefully we will commercialize the first phase of plans by December ’23. For the first phase, we are anticipating an investment of about INR300-odd-crores which will be all made through our internal accruals. Also, we had earlier communicated that our facilities for HALS 701 and 770 in Unit 3 will begin in half H2 FY’23 and I’m happy to share that all facilities are near to completion and we expect to start commercial production by November end, so about a month’s time from now.

Let me give you a little financial highlight. Our revenue growth has continued as all our geographies and segments reported healthy growth. Revenues from Q2 FY’23 was INR248 crores, which is an increase of 62% as compared to Q2 FY’22. Exports revenue grew 63% and domestic revenues grew 57% on Y-o-Y basis. Revenues mix was 75% export and 25% domestic as it always has been. The key raw materials, energy and fuel costs continue to remain volatile and a mixed bag because of prices of some of the raw materials are still marginally reduced, while prices of some are still at peak.

Input prices are still higher compared to last year. Despite of that, our EBITDA increased to INR98 crores as against INR69 crores as an increase of 42% on Y-o-Y basis. Our margins were impacted due to — largely due to continued inflationary pressures across raw material, power and fuel costs. The profit before tax is that INR92 crores and PAT at INR68 crores, which grew by 29% and 28% respectively as compared to quarter two FY’22.

Balance sheet, of course, continues to be debt-free with a cash balance of about INR235 odd crores. Our capacity utilization has improved due to which our net fixed asset turnover reached approximately 3 times compared to 2.3 in March ’22. So this has resulted in improved return ratios, particularly ROCEs. For H1 FY’23 versus H1 FY’22 sales improvement was led by combination of good volume growth and improved realizations across all segments. For H1 FY’23, Performance Chemicals, Pharma Agro and FMCG Chemicals contributed 67%, 20% and 11% respectively to revenues.

On capex, we have incurred a capex of INR62 crores during H1 FY’23 with majority of this going towards the new plants for HALS in Unit 3. We have made further investment in our subsidiary Clean Fino-Chem of about INR65 crores during H1 FY’23.

ESG has been one of the most prominent factors of this company, and we as a company are fully committed to sustainability and continuously implement several initiatives across the organization. In line with our commitment, we have purchased additional land for setting up an open-access solar plant of 5 megawatt capacity. It is expected to be operational by end of this fiscal. Currently, approximately 55% of our electrical energy transition is from renewable sources.

We used to only follow the 3R process; reduce, recycle, reuse. We are continuously upgrading our facilities and investing in various technologies across our manufacturing units that are energy-efficient and helping resource recycling. Our initiatives on constantly optimizing plant processes has helped us significantly reduce water consumption and emissions. Under CSR, our core focus areas still remain as education, environment sustainability and healthcare. Our initiatives have significantly benefited and uplifted the surrounding communities.

Our basic outlook macro concerns like geopolitical tensions, elevated power and fuel price still remain to — continue to remain on a short-term — as a short-term challenge. But with our new site, new series of products, strong R&D pipeline, we will continue to focus on diversifying our product portfolio and geographical presence, while simultaneously improving yields and operational efficiencies.

Thank you so much from my side, and we can open now for question-and-answers.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.

Sanjesh Jain — ICICI Securities — Analyst

Yeah, hi good evening Siddharth. Thank you. Thanks for taking this question. A couple from my side, plus one. First, on the HALS Series, now that we are very close to start the commercial production. Can you help us understand what is the competitive advantage that we have build in this business, like we have been in MEHQ in terms of innovative production process, we are fully backward integrated. Similarly, can you help us understand what is the winning mantra for the HALS Series?

Siddharth Sikchi — Promoter and Executive Director

Absolutely. So Sanjesh thank you so much for your question. The first is, so we are like MEHQ and Guaiacol, we are fully backward integrated in the manufacturing of HALS. We will be one of the very few companies which will be starting from the basic raw materials which is acetone and ammonia. All the catalysts which is needed for these processes will be developed totally in-house. And Unit 3 will be the first time when Series will be introduced in India. One of the very big advantages of course with dollar inching towards INR83 types, this HALS 770 is majorly imported into India, majorly the players are BASF, Suqian in China, SI Group in Europe. And the dollar becoming INR83, it will be more attractive for buyers within India to buy from us. And, of course, for buyers also who are importing these products have to pay an additional 8% custom duty which in our case will also be an additional advantage to us.

Sanjesh Jain — ICICI Securities — Analyst

Siddharth, I got the process point, but I don’t think I agree with you on currency, because if it is coming from China, China has depreciated, yuan has depreciated more than India.

Siddharth Sikchi — Promoter and Executive Director

Right.

Sanjesh Jain — ICICI Securities — Analyst

That way, I don’t think we have that advantage. this is entire, but that’s my limited point on that. But I got your point that we are fully backward integrated plus we are having a unique — is this process unique for us, like what we do in MEHQ and Guaiacol?

Siddharth Sikchi — Promoter and Executive Director

No. So, see typically the HALS Series is derived out of two main raw materials, which are called triacetonamine and tetramethylpiperidinol. These two raw materials have to be made from acetone and ammonia. However, so basically this is a triphasic reaction where we have developed a very unique process and a catalyst which is very unique, our yields and efficiencies are. I think, are quite competent. But of course, I would not understand what Chinese or BASF has at the moment, but looking at the prices, I think our process and yields our quite unique and of course as and when the plant commercializes and as and when we move on, there will be further optimization of our process like we have done with MEHQ and Guaiacol.

Sanjesh, as you already know that MEHQ and Guaiacol also was not a day one highly profitable product. You cannot start with a 50% margin product at any given point of time. These margins build-up happened over the period of time. However, in MEHQ and Guaiacol we were late because we started the production of raw material like Anisole later on and then we started getting into forward and backward integration, but it has because of our understanding we are starting with the key raw materials, I mean with acetone and ammonia day one. And you should also understand that nobody in India has been able to ever been successful in this chemistry and we were the first ones to get into this zone.

Sanjesh Jain — ICICI Securities — Analyst

Okay. That’s helpful. I think I’m more than clear on this. Great, Siddharth. Second on the margin side, I thought phenol prices have corrected quite a bit. And that is still not reflecting in our margin, in fact we were carrying inventory, there were some inventory losses, is there anything unusual here that we should see in the margin because we are still at 39% margin and when you started it was upwards of 50%, one, I understand that there is a increase in the top-line because of the inflation, so that optically reduces the margin. Can you help us understand the like-to-like basis, how far are we from the previous high margins?

Siddharth Sikchi — Promoter and Executive Director

See now what happens is Sanjesh and is that of course if you compare the COVID actually that was one of the very unique years which should we not really into consideration because those were the times when phenol was 1/4 of or 1/3 of what it is today. Phenol is still at about INR100, INR110 rupees which otherwise phenol on a regular basis is about INR70 to INR80 kilo product. However, during COVID times, phenol has fallen to as low as INR40. As my contracts continuing even in COVID years, so that COVID year is a very unusual year which we should not really take into consideration. However, what is also happening is as we are growing our new lines, as we are expanding our — foraying into newer products, so there is not super-margins to begin within these products like TBHQ, parabenzoquinone, so in this case, or in these new products like DCC also we have to be aligned to our customers giving them service and giving them the most competitive price for us to first enter into these businesses. And that is why if you see our asset turn has now started improving because all these facilities are now started production and now we are reaching these skills and, I mean, still we are at a very low-level but I think in the next 2 years we are really hoping that these numbers should also improve.

Sanjesh Jain — ICICI Securities — Analyst

So for now because we’re starting new facility and there is new product launches, the margins should stabilize at these level or you expect some more correction before you start moving up again?

Siddharth Sikchi — Promoter and Executive Director

So see the margins, when we start healthy, we are now a growing company. If you really look at our ROCEs you know what we are now assuring is that our ROCEs will be an upward of 50%, if you see at these current H2 numbers our ROCE is at about 54% odd, so we will continue, new plants will come up which will be lower margins, there will be old plants which will start being at optimal capacities, so there is a mix. And in a growing organization this will always happen, because we want to keep growing. Now if we we grew at over 43%, 62% on year-on year basis. So if you want, I mean, we are going to come up the new facilities if we are — see there will be new complexities. I’m not saying that Chinese are going to — are going to just be there. I’m sure they would also play around, they might want to reduce prices and we have to deal with it, and that is what the competition is going to play around. Nobody is going just give me very easily. But we are to compete only on technology which we are very — from a longer term perspective.

Sanjesh Jain — ICICI Securities — Analyst

Got it. Got it. I’ve for 2 more questions if you allow me.

Siddharth Sikchi — Promoter and Executive Director

Please, always.

Sanjesh Jain — ICICI Securities — Analyst

Yeah, on phenol, last quarter it was one of those of lockdown, I think that 80% is still around, is it cautious choice or diversifying more and limiting the sales there or you can see — but bottleneck has completely gone off, we’re still linked to completely, not like the situation in China?

Siddharth Sikchi — Promoter and Executive Director

I have not understood your question. Can you just repeat Sanjesh.

Sanjesh Jain — ICICI Securities — Analyst

Sir, in our segment, we used 40%, or 40% of our exports is to the China.

Siddharth Sikchi — Promoter and Executive Director

Absolutely.

Sanjesh Jain — ICICI Securities — Analyst

Now we’re just 32% right? And last quarter you made a comment it came to 32% because of the lockdown and the various other impacts?

Siddharth Sikchi — Promoter and Executive Director

Right.

Sanjesh Jain — ICICI Securities — Analyst

Even in this quarter I think we are at the same level right, 32% it has not shown improvement, while China has come out-of-the lockdown, my question is, it is a cautious choice by the company to see that we diversify more into a non-Chinese market or China market has still not normalized, so what is what’s happening on the China side?

Siddharth Sikchi — Promoter and Executive Director

Two things. I mean what is happening is the newer products which are coming, which are not currently being exported to China. Now it has come up, it will be predominantly Indian business to begin with. So this 32% maybe in the next two-three quarters will further reduce.

Sanjesh Jain — ICICI Securities — Analyst

Got it. Got it. Got it. So it’s a mix change which is impacting the geographical mix and this will only be in favor of more India now going onwards?

Siddharth Sikchi — Promoter and Executive Director

I mean, this has, 770 is very Indian-focused, but when our subsidiary starts, again we will have a very big export opportunity. So this switch will keep happening, but yes now the concentration, see what is used to happen is people used to look at a very a two product or three-product company with this HALS coming in. It is going to open up a variety of chemistries, variety or markets, variety of segments which we will be entering. On kind of delisting ourselves from our, what is flagship products.

Sanjesh Jain — ICICI Securities — Analyst

Okay. Okay. One last question, now taking from what you said in the previous answers, what is this INR300 crores aligned to and what are the products are we planning up in the subsidiaries? Will it have MEHQ and Guaiacol or it will be a completely new set of products?

Siddharth Sikchi — Promoter and Executive Director

All, all, see because it’s a new facility, it’s a 34-acre facility. First, INR100 odd crores is only going into building common facilities like utility block, an admin block and QC block and R&D block and an ETP facility, overall landscaping. all these come out and is all going into building these HALS facilities. Now what happens is after these HALS when we are coming up with a new product that’s the expense or the capex is only going into building that particular plant which will be far lower than doing the entire facility again.

Sanjesh Jain — ICICI Securities — Analyst

Okay. But that entire INR200 crores will be HALS?

Siddharth Sikchi — Promoter and Executive Director

HALS. so the numbers are for 770 will further expand, 770, 622, 944, 119, 2020. So this business have the entire series of the product.

Sanjesh Jain — ICICI Securities — Analyst

No because we haven’t launched the product while we are already planning a very big expansion, are we very confident of having HALS very successful portfolio for us? Will that be a right assumption?

Siddharth Sikchi — Promoter and Executive Director

In business I have to take chances, right?

Sanjesh Jain — ICICI Securities — Analyst

No, no, I completely agree, it’s a calculated risk, right. I know you would know, you would have talked to certain customers who would have send samples, who would have done checks before taking such a big decision, right? So just wanted to understand what is giving you this confidence, I’m not doubting it, I’m not doubting it, I completely agree the entrepreneur has to take the risk. And so you have taken a calculated risk what is giving you that confidence?

Siddharth Sikchi — Promoter and Executive Director

See, number one is, 770, that these two products will start in November, our next facilities are only going to start after a year. So this one year are going to learn a lot about this business. So now we have to understand the normal nuances of this business, if we can incorporate going forward. And you know the advantage in this is if you just made one-product like 770, but overall a big distributor or a big customer is not really keen to look at it because he is buying 7 products more from BASF, or Chinese or whoever. If you have the entire basket, you become more interesting as a strategic player. So the Series is the best thing to do and also these chemistries are very complicated, so because we have mastered with chemistry it’s good to get into this and we can get the first-mover advantage being located in India, people are all talking about China plus one, and if these Europe energy prices continue we are in a very beautiful sweet-spot. So I don’t want to lose out on waiting for 2 years and see how the market pans out, and the best part is it is all from internal accruals we can take a little bit more risk compared to leveraging our balance sheet.

Sanjesh Jain — ICICI Securities — Analyst

Fair enough. Fair enough. Thanks Siddharth for patiently answering all the question and, best of luck for the future quarters.

Siddharth Sikchi — Promoter and Executive Director

Thank you.

Operator

Thank you. We have the next question from the line of Ankur Periwal from Axis Capital. Please go-ahead.

Ankur Periwal — Axis Capital Limited — Analyst

Yeah, hi Siddharth. So continuing with HALS, how power intensive are these products or does it vary from different product has reached?

Siddharth Sikchi — Promoter and Executive Director

See, already there are products which are two-step, there are some which are 7 steps. The more the number of steps, the more is the power and energy utilized in each step. So a product like 944 or 200 will be far more power density compared to a 770.

Ankur Periwal — Axis Capital Limited — Analyst

Fair enough. And will it be fair to presume that higher the number of steps, higher the complexity and higher the margins on that would be?

Siddharth Sikchi — Promoter and Executive Director

And higher the margins, of course, of course. So like it was smaller 770 is about $7, 2020 is a $20 to $22 product.

Ankur Periwal — Axis Capital Limited — Analyst

Okay. Now the relevant question and where I was coming from now given the energy crisis in Europe and there BASF is not just, but most of the manufacturing is also being done there? Does it also open up a big market for you even from a price competitiveness perspective?

Siddharth Sikchi — Promoter and Executive Director

Absolutely. I mean, secondly, as I mentioned the dollar also turning INR83, INR84 plus the biggest thing what happened is even, see these master budgets for instance these customers are also, some are small, some are large, with us being in India, people can now just in time, whereas well in compared to a Europe or China where we have to maintain stocks beforehand because of the complexity of these geopolitical tension and these sea-freight which was also a very big issue. So this will, give us a very big advantage because we are very strategically located.

Ankur Periwal — Axis Capital Limited — Analyst

Sure. But the initial ramp-up of 770 and other products will be India focused, and then probably with the new capacity coming in, let’s say, 12 months out, the focus will be probably equally in India as well as abroad, is that yes?

Siddharth Sikchi — Promoter and Executive Director

Yeah, absolutely. Some of the products are very big in Europe and North America.

Ankur Periwal — Axis Capital Limited — Analyst

Sure. And the distribution network to reach all these clients will be similar to what we are or what is already been progressed for those?

Siddharth Sikchi — Promoter and Executive Director

Work is already in-progress. Some would be now, some would be old. So it all depends on how interested they are, and once we launch this, then it will give a lot of confidence also to distributors to — because see, when we’re only talking [Foreign Speech] types, when that the product will come after 2 years, the interest is very low, when you tender, okay, one has come, few are coming away, along the lines, that gives them a lot of interest.

Ankur Periwal — Axis Capital Limited — Analyst

Fair enough. Cool. On the on the demand outlook side, given the slowdown that we’re seeing in Europe and probably even China, how are things on the ground across our existing as well as maybe HALS other product range?

Siddharth Sikchi — Promoter and Executive Director

See, Q3 will be a little small, little. soft.

Operator

Sorry sir, you’ll have to repeat the answer, because we lost your audio in between.

Siddharth Sikchi — Promoter and Executive Director

Okay. See Q3 is always a little softer because everybody in U.S., Europe, China, they are managing their inventory. So all the orders become slow plus the holiday season in these country. So the demand again rises up in Q4, so this is a very general trend we have seen over the past several years.

Ankur Periwal — Axis Capital Limited — Analyst

Okay. Fair enough. Another question on the competitive intensity, I recollect you are mentioning that you have not been as aggressive in terms of passing-through the RM inflation and try to focus more on the market share gains. How will be the pricing gap now and have we taken any pricing increase even now?

Siddharth Sikchi — Promoter and Executive Director

Now, see now the new contracts will start happening now in the month of November, a little bit in October, some in November, and now what is happening is people are also getting cautious because the prices of raw material everybody feels will come down. Freight prices have come down already. So everybody is little cautious of booking the next year, so we are also trying to see how all this is going to happen plus the currency movement has happened dramatically over the past four to six-weeks time.

Ankur Periwal — Axis Capital Limited — Analyst

So when the industry will be moving more towards shorter-term contracts rather than longer-term?

Siddharth Sikchi — Promoter and Executive Director

I don’t know that. Some will be still a longer term contract, but today what I I’ve seen the flavor is, people are looking at a half yearly contract and what has happened over the past 2 years, people feel that it is better to do half yearly or quarterly rather than the complete annual contracts, some are still doing contracts on annual, but there is still a discussion going around it.

Ankur Periwal — Axis Capital Limited — Analyst

Okay. Fair enough. And just last one if I may on the margins front here. So the Q-on-Q improvement that we’re seeing in the gross margin is that largely a function of revenue mix here or some bit of pricing benefit?

Siddharth Sikchi — Promoter and Executive Director

So it is a mix of both. I will let Pratik answer this on minor detail.

Pratik Abhaykumar Bora — Chief Financial Officer

Yeah, so Ankur, there are 3 factors playing here. First is the product mix, second also the realizations have improved across all flagship products which is MEHQ, Guaiacol, BHA and all that. And there is of course there we also got benefited from the softer raw material prices.

Ankur Periwal — Axis Capital Limited — Analyst

Okay. Sure enough. And given the pricing trend being downwards probably this number should be a base-case going, right?

Pratik Abhaykumar Bora — Chief Financial Officer

Yes, it depends on the product mix also. I think we mentioned that Q3 we are also launching a couple of new products. So what percentage of revenue they form that will also have a bearing on the margin.

Ankur Periwal — Axis Capital Limited — Analyst

Sure. Sure. That’s it from my side. Thank you and all the best.

Operator

Thank you. [Operator Instructions] The next question is from the line of Jay Shah from Capital PMS. Please go ahead.

Jay Shah — Capital PMS — Analyst

Hello, can you hear me.

Siddharth Sikchi — Promoter and Executive Director

Yes, sir.

Jay Shah — Capital PMS — Analyst

Hi, congratulations for a very good set of numbers. I just want to know that how do we — when we are looking for a product or a new chemistry what is the process that the team generally follows, do we look at the industry and maybe the export-import data and the customer requirement like what are the factors that help you decide on a particular chemistry or a particular product?

Siddharth Sikchi — Promoter and Executive Director

It is a very general question, and the answer is it really depends on chemistry, it depends on market situation, it depends on import statistics and a variety of factors where we decide what products we have to work on.

Jay Shah — Capital PMS — Analyst

Okay. And so that then apart from any data, what are the some other chemistries or not obviously products but what other chemistries that we are looking at or maybe the A&D…

Siddharth Sikchi — Promoter and Executive Director

We are looking at interesting agro intermediates and also expanding our Performance Chemical business.

Jay Shah — Capital PMS — Analyst

Okay. So when you say agro intermediates, is it because there is a lot of client uplift, and Europe uplift one playing out that if helping us to gain some traction, is that way one of the reasons that we are focusing on that particular segment or is this that we see good void that we can fill up with both of our chemistry?

Siddharth Sikchi — Promoter and Executive Director

Looking at any Europe plus one strategy, I don’t understand Europe plus one strategy. But what I’m looking at it these are some of the molecules which would be on a longer-term sustainable basis.

Jay Shah — Capital PMS — Analyst

Okay. Okay. And this is basically because most of our capacities are fungible, in way what has again the sustainability in these molecules?

Siddharth Sikchi — Promoter and Executive Director

No, we don’t have any fungible capacity. We are generally — we like to have dedicated plants for dedicated products. And that is how the phenomena will be going-forward as well.

Jay Shah — Capital PMS — Analyst

Okay. Okay. Thank you. That all from my side. All the best and Happy Diwali to you and the team.

Operator

Thank you. [Operator Instructions] The next question is from the line of Sameer Gilani, Individual Investor. Please go ahead.

Sameer Gilani — Private Investor — Analyst

All right. Thank you. Can you hear me?

Siddharth Sikchi — Promoter and Executive Director

Absolutely.

Sameer Gilani — Private Investor — Analyst

Hi, Siddharth. Siddharth my question is more to do on your your comment last time you made on PBQ, you had mentioned we were at 30, 40 tons a month, where are we on that product if you could maybe give us some indication there? And is it fair to assume that over the course of time we would probably be able to meet the entire import of this product for India?

Siddharth Sikchi — Promoter and Executive Director

So we’ve expanded the capacity, we’ve doubled the capacity, so about 70 to 80 tons a month. And I think Indian demand is closer to 70 to 80 tons a month, but of course the switch does not happened easily, people still want to keep Chinese as a second source. So that switch and that confidence for these customers will take over the period of time. So as and when the confidence start building as and when the customer gets more and more confident about our supply position that is the time when we will see 70% of the switch happening to us. It will never be a 100% switch because no purchaser likes to depend on any company on a 100% basis.

Sameer Gilani — Private Investor — Analyst

Yeah. Fair enough, but is it fair to assume that we will be able to charge close to $30 on that product even as we scale-up or we are going to get a lower product price for that?

Siddharth Sikchi — Promoter and Executive Director

See PBQ is the product which is dependent on raw material prices. Now these raw material prices have come down, so the PBQ prices will also come down. So the prices which were at about $30, today is about $16. And we are following the market trend.

Sameer Gilani — Private Investor — Analyst

Okay. Is it fair to assume Siddharth that once PBQ scales up, I mean, now let’s say when the customers take the offtake, we should probably clock INR100 crores, INR150 crores from this product?

Siddharth Sikchi — Promoter and Executive Director

Not INR150 crores, but proxy now it is not a $30 product, if you assume say at least $15 into 70 ton whatever that number is would be the safe assumption on that product.

Sameer Gilani — Private Investor — Analyst

Okay. That’s all. Thank you so much.

Siddharth Sikchi — Promoter and Executive Director

Thank you, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Anurag Patil from Roha Asset Managers. Please go ahead.

Anurag Patil — Roha Asset Managers — Analyst

Thank you for the opportunity. Sir, for this INR300 crore capex, what can be the typical asset terms?

Siddharth Sikchi — Promoter and Executive Director

Typically, we are 2.7 to 3 the asset terms.

Anurag Patil — Roha Asset Managers — Analyst

Okay sir. That’s it from my side. Thank you very much.

Operator

Thank you very much. We have the next question from the line of Sujit Lodha from Birla Sun Life Insurance. Please go ahead.

Sujit Lodha — Birla Sun Life Insurance — Analyst

Hello, am I audible?

Siddharth Sikchi — Promoter and Executive Director

Yes.

Sujit Lodha — Birla Sun Life Insurance — Analyst

Yeah, sir, just one question regarding this new facility that you’re done Bhoomi Pujan and which has been recently commissioned — recently started work, what proportion of the land will be used for this capacity, the capex you’re spending about INR300 crores, what percentage of the land will be used for that?

Siddharth Sikchi — Promoter and Executive Director

Yeah. I think the overall facility can have about 11, 12 plants, HALS would be about less than four, five plants, so we still have a lot of space for growth.

Sujit Lodha — Birla Sun Life Insurance — Analyst

So roughly about 1/3 of the land would be used for this?

Siddharth Sikchi — Promoter and Executive Director

Yeah, easily in that. But only the advantage now is after we have done the initial groundwork, the next plants will come in less than 9 months or 10 numbers timeframe, so the ramp-up will be far quicker for the new facilities for the new products.

Sujit Lodha — Birla Sun Life Insurance — Analyst

Hello? Is there any problem from my side, I’m not able to hear.

Operator

Yes probably, you can call back from an alternate number, obviously we’re able to hear the management. Sure. In the meanwhile, we’ll move to the next question from the line of Mukul Jain, Individual Investor. Please go ahead.

Mukul Jain — Private Investor — Analyst

Thank you so much and sorry if my question is very basic. The company has catalytic technology and is ensure the company would also be worried, what if this technology is leaked outside? So basically what precaution the management have taken to protect this technology? Who have access to this technology, are these the scientists or the management or something insight if you would to give on this?

Siddharth Sikchi — Promoter and Executive Director

See, basically these are very, very complicated technologies, building catalysts, we are fully backward integrated, forward integrated, the chemical, some of the chemicals still come in coated four and it is customer acquisition, the validation of each product sometimes take close to, 3 years, 4 years. This is a very long-drawn process and we have been able to reach here in 17 years. So it’s not very easy for somebody to just copy these technologies.

Mukul Jain — Private Investor — Analyst

Yeah, right sir. But maybe others won’t be able to copy, but somebody from inside might leak them, is it possible something like this?

Siddharth Sikchi — Promoter and Executive Director

See, there is anything possible, but the chances are quite remote because not one person is aware of entire portfolio of products, like a person who is working in catalyst division would not know what is happening on plant scale, for personnel using the catalyst does not know what is happening with the regeneration of catalysts. The person who is working on one of the line is not aware how the raw material is being produced. So there is variety of things happening. So it is not easy for a set of people to just pass on these technologies.

Mukul Jain — Private Investor — Analyst

Okay. So that is very clear. Thank you so much.

Operator

Thank you. [Operator Instructions] As there are no further questions, I would now like to hand the conference — sorry, we do have two questions in the queue now. We have Rohit Nagraj from Centrum Broking. Please go ahead.

Rohit Nagraj — Centrum Broking — Analyst

Yeah, thanks for the opportunity. Sir, first question is, as you mentioned that we have optimized the process for our flagship products over a period of time, so how much time do we expect to optimize our HALS Series in terms of being at optimal level of margins over a 2-year period, 3-year period? Thank you.

Siddharth Sikchi — Promoter and Executive Director

So typically, how it happens is year-one we are typically validation had done, customer has to understand and understand our product, so the first year is typically a little slower compared to the balance. The first year would be a 20% to 30% capacity utilization. I mean, in in case of HALS we are expecting a little bit more higher and then the ramp-up happens over that period of time.

Rohit Nagraj — Centrum Broking — Analyst

Right. Correct. So maybe by second year end or the third year we’ll be able to have optimum utilization, and that time the margins will reflect the correct picture?

Siddharth Sikchi — Promoter and Executive Director

Absolutely, absolutely, absolutely.

Rohit Nagraj — Centrum Broking — Analyst

Right. And second thing is for the new set of products, normally what is the benchmark that we’re using, so is it like import substitute, some kind of a return profile or a margin profile that we’re looking at?

Siddharth Sikchi — Promoter and Executive Director

See, we first look at very interesting chemistries. We want to be in segments where there are not too many people, so we like that space, and of course, we are in particular segments like Performance Chemical or an Intermediates for Pharma Agro, so we like to stick to this space, and stick to chemistries where we can make some impact and make some better margins than our competitors.

Rohit Nagraj — Centrum Broking — Analyst

Got it. Thank you so much and best of luck sir, and Diwali wishes.

Siddharth Sikchi — Promoter and Executive Director

Thank you.

Operator

Thank you. The next question is from the line of Krishan Parwani from JM Financial. Please go ahead.

Krishan Parwani — JM Financial — Analyst

Yeah hi, Siddharth ji, Pratik ji, thank you for taking my question. I have just one question about the HALS global tonnage. So I remember I think you told I think in the last call that 770 is about a 2,000 ton import in India. So could you please help us with tonnages, global tonnages of 701 and 770, if you have it handy?

Siddharth Sikchi — Promoter and Executive Director

See typically, I think the import of 770 is close to 3,000 ton in India. That installed capacity is 2,000 tons, so that is a big headroom for us to supply only retail bucket.

Krishan Parwani — JM Financial — Analyst

Okay. I mean, and the global tonnages, do you have it handy for that?

Siddharth Sikchi — Promoter and Executive Director

Globally, I think, I mean, I don’t have handy but I can tell you that these products are upwards of 12,000 to 13,000 ton capacity. Overall, HALS as a segment is a $1.2 billion market and growing at about 7% to 8% each year.

Krishan Parwani — JM Financial — Analyst

Yeah. Understood, Understood. And I think one last follow-up if I may. So on this 770, 701, who would be our customers domestically? I mean just to understand the usage would be like, let’s say…

Siddharth Sikchi — Promoter and Executive Director

So 770 would be companies like Plastiblends, Alok Industries, who are into master-batches. And for 701, it would be customers who will be using it for say water treatment chemicals like a GE or a Swift Chemicals, so these are some of the customers we would have. And also 701 has some pharma usage.

Krishan Parwani — JM Financial — Analyst

Understood, understood. Siddharth ji, thank you so much for answering my questions. And wish you a very Happy Diwali.

Siddharth Sikchi — Promoter and Executive Director

Wish you the same sir.

Operator

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

Siddharth Sikchi — Promoter and Executive Director

Thank you so much for taking time out and I would want to wish all our listeners a very, very Happy Diwali, and a safe Diwali, and thank you so much from my side.

Operator

[Operator Closing Remarks]