Fairchem Organics Ltd (FAIRCHEMOR) Q1 FY23 Earnings Concall Transcript

Fairchem Organics Ltd (NSE:FAIRCHEMOR) Q1 FY23 Earnings Concall dated Aug. 22, 2022

Corporate Participants:

Anuj Sonpal — Investor Relations

Nahoosh Jariwala — Chairman and Managing Director

Rajen Jhaveri — Chief Financial Officer

Analysts:

Raj Shah — Statheros LLP — Analyst

Trilok Agarwal — Dymon Asia — Analyst

Sunil Jain — Nirmal Bang Securities — Analyst

Dhaval Shah — ICICI Securities — Analyst

Nirag Shah — Exemplar Investment — Analyst

Krunal Shah — Enam Investment — Analyst

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Ritesh Poladia — Girik Capital — Analyst

Prit Nagersheth — Wealth Finvisor — Analyst

Vipul Shah — RW Equity — Analyst

Sanjit Agarwal — — Analyst

Jagvir Singh — Shade Capital — Analyst

Sagar — — Analyst

Presentation:

Operator

Good day, ladies and gentlemen, and welcome to the Q1 FY ’23 Earnings Conference Call of Fairchem Organics Limited hosted by Valorem Advisors. [Operator Instructions]

I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you Mr. Sonpal.

Anuj Sonpal — Investor Relations

Thank you. Good afternoon, everyone, and a warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Fairchem Organics Limited. On behalf of the Company, I would like to thank you all for participating in the Company’s earnings call for the first quarter of financial year 2023.

Before we begin, let me mention a short cautionary statement. Some of the statements made in today’s con call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ from those anticipated. Such statements are based on management’s beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decision. The purpose of today’s earnings call is purely to educate and bring awareness about the Company’s fundamental business and financial quarter and review.

Now let me introduce you to the management participating with us on today’s earnings call and hand it over to them for opening remarks. We firstly have with us, Mr. Nahoosh Jariwala, Chairman and Managing Director; and Mr, Rajen Jhaveri, Chief Financial Officer and Company Secretary.

Without any further delay, I request Mr. Jariwala to start with his opening remarks. Thank you, sir.

Nahoosh Jariwala — Chairman and Managing Director

Thank you, Anuj. Good afternoon, everybody. It’s a pleasure to welcome you to the earning conference call for the first quarter of financial year 2023. I hope that everyone is keeping safe and well. This is our first earning conference call in a very long time, and the interest of some of the people who are probably new to the Company, in first phase, I’ll give you a brief overview of the Company, after which Rajen Jhaveri, our CFO will brief you on the financial and operational performance of the quarter.

Fairchem Organics is engaged in business of manufacturing of oleo chemicals and nutraceuticals since last 25 years. Oleo chemicals means the chemicals derived from vegetable oil. The Company’s key oleo chemical products include dimer fatty acid, linoleic fatty acid, monomer fatty acid, and nutraceutical products include mixed tocopherols and sterols. And nutraceutical falls in broad guideline, which are part of vitamins. Mixed tocopherol is an antioxidant which is used in 00 actual consumption it can be used as an antioxidant or it is used as a raw material to manufacture natural vitamin E.

Wwe have a state-of-art manufacturing unit in Sanand, Gujarat, and which was set up in the year 1995, and over the years, it has gone through various stages of expansion, backward integration, debottlenecking, technological advancements, energy savings, and in the process, we have created a world-class facility. Over the last year or so, we have expanded our capacity from 45,000 tons to 120,000 tons currently. Our expansion has got a little bit buzz between 72,000 to 120,000 tons because of COVID and due to which reason certain critical equipments were not able to reach us on time, but now all the expansion is over.

Please note that in our case, the capacity is measured in terms of input of raw materials and not based on the output of final products. This is something similar to a Reliance’s refinery, [Phonetic] which is always measured in terms of input of crude oil. Same way, our things are also measured in terms of input of raw materials.

We have done the capacity expansion utilizing minimum capex and which also was funded through all — I mean which was funded 100% through internal accruals. Fairchem today is manufacturing in India of linoleic acid dimer fatty acid, which comprises a major part of our revenues, and in fact, in dimer fatty acid, we are the only manufacturer in India, balance is being imported, and as regard linoleic acid, we are also the only manufacturer in India. [Indecipherable] linoleic acid is being manufactured by a couple of other players.

The products what we manufacture and find application in paints, ink, [Indecipherable] cosmetics, lubricants, et cetera, whereby our product portfolio — I mean, main product has application in different — a large number of industries. The mix of overall concentrate and sterol concentrate of nutraceutical stream is being used by the FMCG companies, which we are currently exporting to U.S.-based companies since last more than 20 years.

Company has embarked as also finished plan for forward integration whereby we’ll be further upgrading our mixed tocopherol streams to manufacture tocopherol 50% and a product called sterol 90%, which was in making of corticosteroids. At the same time, as an offshoot or as an by-product, a product called methyl ester will also be getting generated in a generic name on a common term, it is called biodiesel. And another core product which is coming out of our dimer fatty acid product stream called monomer fattty acid is also going to get upgraded for manufacturing of stearic acid and isostearic acid. Isostearic acid will be manufactured for the first time again in India.

This is the story about the Company increase. Now, I’ll hand over to our CFO to brief you on the financial performance, after which I’ll give you, I mean, the operational highlights of the quarter and then we can have question-and-answer whatever questions you have in mind.

Rajen Jhaveri — Chief Financial Officer

Yeah. Thank you, sir, and good afternoon, everyone. Let me brief you firstly on the financial performance of the first quarter of financial year 2023. The operational revenue for the first quarter was about INR225 crores, which grew by about 62% year-on-year. EBITDA reported was around INR40 crores, a growth of approximately 22% year-on-year, and the EBITDA margin stood at 17.77%.

Net profit after tax reported was around INR27 crores, a growth of approximately 21% year-on-year, while the PAT margin was 12%. On the operational front, EBITDA margins improved during the quarter due to Company’s effort of containing raw materials costs and also to a certain extent due to economies of scale kicking in due to the higher volumes on behalf of fire capacity utilization of the new plant capacity. The Company has completed its capacity expansion and the increased capacity in terms of throughput of raw material of 120,000 metric tons per annum was operational now as at end of June 2022.

With this, we can now [Indecipherable] we can now open the floor for the question-and-answer session.

Questions and Answers:

 

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Raj Shah from Statheros LLP. Please go ahead.

Raj Shah — Statheros LLP — Analyst

Yeah. Hi. Good afternoon, gentlemen. My first question is that [Indecipherable] 36% to 38% of gross margin in Q1. So I want to understand that. Is it sustainable and can we just grow forward from those tank levels?

Nahoosh Jariwala — Chairman and Managing Director

Can you repeat it, please? Your voice is getting distorted. If you can repeat the question again.

Rajen Jhaveri — Chief Financial Officer

What did you ask? What is sustainable?

Raj Shah — Statheros LLP — Analyst

Yeah. Am I audible now?

Nahoosh Jariwala — Chairman and Managing Director

Yeah. Yeah, now you’re properly audible.

Raj Shah — Statheros LLP — Analyst

Yeah. Great. So my first question is that we have done gross margins in the holding around 36% to 38% and EBITDA at around 17%, 18%. So my question is, is it sustainable and can you just grow from the current levels from in the coming quarters?

Nahoosh Jariwala — Chairman and Managing Director

Yes. This margin we feel will be sustainable because of two reasons. One is the economy of scale, which will be kicking in and second thing is because of the forward integration of the two product streams. So overall we feel fairly confident that this margin would be sustainable in long run.

Raj Shah — Statheros LLP — Analyst

Okay. And you know what proportion of our raw material is the derived from soybean and sunflower oil as they are our major raw material source?

Nahoosh Jariwala — Chairman and Managing Director

To be frank, we can process multiple raw materials coming out of soft oils. Typically soft oils are oils like soya, sun, corn, [Indecipherable] canola rice, groundnut. So — I mean soya and sun being the major raw material, we are all waiting soya and sun that we can also utilize other raw materials and which we are using.

Raj Shah — Statheros LLP — Analyst

Okay. But if you could just give a sense on, let’s say 60%, 50%, 40%, that will be really helpful. [Speech Overlap]

Nahoosh Jariwala — Chairman and Managing Director

Yeah, yeah, you can say around 50%.

Raj Shah — Statheros LLP — Analyst

Sorry. About?

Nahoosh Jariwala — Chairman and Managing Director

About 50%.

Raj Shah — Statheros LLP — Analyst

About 50%. And other we have completed majority of our capex, can we expect the capacity utilization to, let’s say, by 70%, 80% by let’s say FY ’25? Is that a fair assumption?

Nahoosh Jariwala — Chairman and Managing Director

Let me tell you one thing. I’ll explain you one thing. Typically in the specialty chemical industry, the time and visual tinkoff capacity expansion and the actual capacity comes in place is minimum three years. And as a company, we prefer a minimum 25% latent capacity. We always prefer to keep 25% latent capacity because of that reason.

So currently our utilization is around 65% to 70%, and every year we intend to increase by 10% to 15% because the paint industry, which is our basic market, paint and inc is expected to grow in the range of 10% to 15%. And the top floor players in that segment are expected to grow anything about 20%. So overall what we see is in next three years, we’ll be able to reach our full capacity utilization.

Raj Shah — Statheros LLP — Analyst

So is it fair to infer that you have given a guidance of let’s say 10% to 15% of volume growth over FY ’23, ’24, ’25? Is it fair to assume that?

Nahoosh Jariwala — Chairman and Managing Director

I mean we’ll obviously, that’s what I’m saying, we’ll strive our best. It depends — everything depends on how the economy performs at the same time.

Raj Shah — Statheros LLP — Analyst

Sure. Because [Indecipherable] at the company that’s in a combined double job, especially in Q1 with getting margins back to 18%, that’s fantastic.

My other question is what sort of revenue and margin profile can we expect from the biodiesel project?

Nahoosh Jariwala — Chairman and Managing Director

Actually, biodiesel product will be going in operation by end of this year, and so this year, you won’t see any major [Indecipherable] of that. Next year onwards you will see the advantage coming out of it.

Raj Shah — Statheros LLP — Analyst

Okay. But what sort of revenue margin profile can we expect?

Nahoosh Jariwala — Chairman and Managing Director

It will be certain things that’s basically what we have done is we have a state-of-art plant — here we directed a state-of-art plant, which none of the companies in India is having. So based on this, our manufacturing cost is going to be pretty low. But we have to keeping in mind the competitive scenario, certain things, it won’t be fair for me to divulge at this stage.

Raj Shah — Statheros LLP — Analyst

Okay, I understand. And then knowledge by I can see that our nutraceutical business has been scaling down from FY ’18 in the fact that we have shared on the BSE. What are the challenges that has resulted in such a result for the nutraceutical business?

Nahoosh Jariwala — Chairman and Managing Director

See, two things were there. One was that we were concentrating more on our fatty acid stream, that is one thing; second thing was because of COVID, whatever expansion forward integration project we — when we are in the process of implementing for our nutraceutical division got a little bit stalled because I mean the critical equipments were going to come from abroad. So that was two things. Andthird thing was there were one or two small players who came in market and started buying material and which created a little bit of a situation whereby it was on [Indecipherable] do the business at that stage. But as our tocopherol forward integration plant is in placed, we’ll bounce back in the same scenario because our — we have been supplying this material to three U.S.-based giants who control among themselves around 80% of world’s market. And again once our products have also got approved with them, the new products streams also, so we expect to bounce back again.

Raj Shah — Statheros LLP — Analyst

Okay. [Speech Overlap] What sort of volume?

Nahoosh Jariwala — Chairman and Managing Director

Volumes would go up — volumes in Goa.

Raj Shah — Statheros LLP — Analyst

Okay, okay. So there is a rock bottom that we have hit.

Nahoosh Jariwala — Chairman and Managing Director

Yes, exactly. Exactly, exactly.

Raj Shah — Statheros LLP — Analyst

Okay. And my last question…

Operator

Excuse me, Mr. Shah. Mr. Shah, I would request you to please rejoin the queue.

Raj Shah — Statheros LLP — Analyst

Sure. I’ll do that. I’ll just come back in the queue.

Operator

Thank you very much. Okay. [Operator Instructions] The next question is from the line of Trilok Agarwal from Dymon Asia. Please go ahead.

Trilok Agarwal — Dymon Asia — Analyst

Sir, this is on the expanded capacity that we have seen frequently, is it fair to assume that historically asset turnover ratio will continue? Or do you think because of the recent increase [Indecipherable] particularly raw material, that has — that is bound to go up meaningfully versus [Indecipherable]

Nahoosh Jariwala — Chairman and Managing Director

Aseet to turnover ratio is expected to go up because whatever the expansion we have done, we have done — doing minimum capex. So obviously, asset turnover ratio is expected to improve every year.

Trilok Agarwal — Dymon Asia — Analyst

So basis on the capex that we did last about from 90,000 to 120,000, what sort of peak revenue potential that can we generate on that project?

Nahoosh Jariwala — Chairman and Managing Director

What kind of [Speech Overlap] Peak revenue has now been there in the answer to the previous question. We are likely to achieve the full capacity utilization in next three years. So in the terminal year of the third year, we will be achieving the peak revenue. And at current pricing, if we assume that whatever is the current prices, we are presently at 65% capacity utilization, and the revenue is INR2.5 crores for this quarter, and the utilization was 65%. And — because we are processing [Indecipherable] achieving approximately 92% of the capacity utilization of the installed capacity can be considered to [Indecipherable] utilization. So accordingly, we can work out that at 65% if the revenue is INR225 crores and if the present prices sustain over a period of next two, three years at 92% capacity utilization, we will achieve that kind of a turnover.

Trilok Agarwal — Dymon Asia — Analyst

Understood. And sir, with regards to the incremental product that we offer to our clients. So what are we — so is the growth rates of 10%, 15% that you highlighted initially every year, two questions. One is, new product introduction. How much does it play the role? And second is, what sort of market share are we gaining with the products? Could you just talk about it?

Nahoosh Jariwala — Chairman and Managing Director

See, as I explained earlier, dimer fatty acid, we are the only player in India.

Trilok Agarwal — Dymon Asia — Analyst

Correct, correct.

Nahoosh Jariwala — Chairman and Managing Director

So in that case, both these products, what we are manufacturing are part of the high [Indecipherable] of the society overall. And if typically, India is expected to grow at 7%, the top [Indecipherable] of the society is expected to grow at much more than that 7%. So based on that, our assumption is that, that we’ll grow by around 10% to 15% every year. I mean that’s the simple logic, and based on that logic only we have created new capacities.

Trilok Agarwal — Dymon Asia — Analyst

Sure. And sir, what is the export sort of growth rates in expectation first in the next couple of years?

Nahoosh Jariwala — Chairman and Managing Director

We have — nutraceutical product is the only thing which is getting exported, and then I explained earlier, we intend to increase our overall share of nutraceutical products in our total sales, so we expect improvement in export earnings.

Trilok Agarwal — Dymon Asia — Analyst

Are we looking at any further targets in the next three years and [Speech Overlap]

Nahoosh Jariwala — Chairman and Managing Director

Already, we have been exporting the nutraceutical products too three U.S.-based companies since last more than 20 years. So I mean that’s for new market development or anything to be done. No new customer development. Both the things are not there. Already they are there. I mean once our plant goes on stream, it will be a smooth saving for us.

Trilok Agarwal — Dymon Asia — Analyst

Sure. Thank you. I’ll come back in the queue.

Operator

Thank you. The next question is from the line Sunil Jain from Nirmal Bang Securities Private Limited. Please go ahead.

Sunil Jain — Nirmal Bang Securities — Analyst

Yeah. Am I audible, sir?

Nahoosh Jariwala — Chairman and Managing Director

Yes.

Sunil Jain — Nirmal Bang Securities — Analyst

Sir, since you are the only producer of dimer and linoleic, is that you complete with import? Or is there any competing product is there with that? Or you are the only supplier for this productivity in India?

Nahoosh Jariwala — Chairman and Managing Director

No, we only — in dimer fatty acid, we only compete — our competition is from imports and which is majority coming from China. And we are increasing our market share continuously based on — I mean we are competing the Chinese, absolutely efficiently and are in position to increase our market share which in itself shows that our process or our quality and everything is on fire. And we are — based on that, we can say that we are a competitively priced manufacturer of safe products. And as regards linoleic fatty acid, we are again the only manufacturer. [Indecipherable] acid is being manufactured by one or two players, which goes — I mean which is sold more to the unorganized sector which is present in paint industry.

Sunil Jain — Nirmal Bang Securities — Analyst

So how much market share do you have in this product? And what is this group whole?

Nahoosh Jariwala — Chairman and Managing Director

I mean it’s — as linoleic acid, there is none of the big paint companies ever share how much quantity of particular type of decorative paints they have manufactured or their marketing. It is very tough for us to really get the feeling about the — I mean actually, what is the market size. But currently, we’re at 65%, whatever we are making, we are able to sell, and the paint industry is expected to grow in the range of 10% to 15%. So we are also expecting that our sales would be there — I mean, we’ll be able to get — sale more than 10% to 15% every year.

Sunil Jain — Nirmal Bang Securities — Analyst

So since you had expanded the capacity very fast like from 45,000 to 90,000 and then now to 120,000 so that indicates that you must have captured a large market share from the competition. So is it fair to assume that or no?

Nahoosh Jariwala — Chairman and Managing Director

No. That is — I mean, as I said that we have captured market share from the Chinese players in dimer, and linoleic acid, what has happened is once the GST came in, the unorganized sector started using the market to the organized sector. And you can look at the growth what Asian Paint or Goodlass or Nerolac or Burger are showing, that itself give an answer. And our product goes to them only. So I mean that’s the truth of the today.

Sunil Jain — Nirmal Bang Securities — Analyst

And sir, second question relate to earlier your raw material was somewhere you were talking like the waste of OE mill is your raw material. Is it that the same situation, or now the raw material [Indecipherable]

Nahoosh Jariwala — Chairman and Managing Director

No, Well have waste products of the vegetable oil refineries are raw materials, and we intend to remain in that space only because over the period, we have created our capacities to process raw material, which doesn’t have any product specifications, and we are able to manufacture products which [Indecipherable] So we don’t intend to change our raw material from by-products to prime products.

Sunil Jain — Nirmal Bang Securities — Analyst

Okay. And…

Rajen Jhaveri — Chief Financial Officer

[Speech Overlap]

Sunil Jain — Nirmal Bang Securities — Analyst

…yeah. I agree with you, but availability of raw material is not an issue.

Nahoosh Jariwala — Chairman and Managing Director

No. Currently, it’s not an issue. As I explained that we have the capability — capability to process any and every soft oil waste products. I mean — and India is one of the largest market for vegetable oil. So I mean we don’t foresee any major raw material constraints.

Sunil Jain — Nirmal Bang Securities — Analyst

And sir, last question, if you can allow me. FY ’20 and ’21…

Operator

I’m so sorry, Mr. Jain. I would request you to rejoin the queue [Speech Overlap] Thank you.

Sunil Jain — Nirmal Bang Securities — Analyst

Yeah. I’ll come back in the queue.

Operator

Thank you so much. The next question is from the line of Dhaval Shah from ICICI Securities Limited. Please go ahead.

Dhaval Shah — ICICI Securities — Analyst

Yeah. Thanks for the opportunity, sir. So I have a question on the volumes processed. So can you share the data for this quarter Q1 ’23, what was the volume processed? And as I can see Q4 ’22 and…

Rajen Jhaveri — Chief Financial Officer

Mr. Dhaval, annually so we have been sharing the data — always we have been sharing the data. As far as this particular quarter is concerned, what the process was to in the range of between 14,000 and 15,000 tons.

Dhaval Shah — ICICI Securities — Analyst

And what was the volume?

Rajen Jhaveri — Chief Financial Officer

Volume only — last year’s volume was 59,000 and this year, during the past quarter, we have produced — we have processed one-fourth of that last year’s quantity between 14,000 and 15,000 metric tons.

Dhaval Shah — ICICI Securities — Analyst

Yeah. I was asking about the quarterly numbers. So in Q4 ’22 and Q1 ’22, what was the numbers against this 14,000, 15,000?

Rajen Jhaveri — Chief Financial Officer

I’m telling you the Q1 ’22-’23 only.

Dhaval Shah — ICICI Securities — Analyst

No, no. I’m asking against this Q1 ’23, what was the volume in Q4 ’22 and Q1 ’22, if you can help us so we can get to know about the quarter-on-quarter and Y-o-Y?

Rajen Jhaveri — Chief Financial Officer

Q4 ’21-’22 was the same quantity as Q1 ’21-’22.

Dhaval Shah — ICICI Securities — Analyst

Okay. And Q1 ’22?

Rajen Jhaveri — Chief Financial Officer

Q1 ’22 was much lesser at around 13,000 tons.

Dhaval Shah — ICICI Securities — Analyst

Okay. Okay, fine. And given that the edible oil prices were higher during the last quarter, so was there any inventory gains which lifted the overall gross margin for the quarter?

Rajen Jhaveri — Chief Financial Officer

No, no. See, basically as a company I mean we have a philosophy in mind that we are a manufacturing company and we don’t play around anyway in commodity pricing. So whatever we purchase, we sell. So I mean there is no gain or loss. We see that no gain or loss happens anywhere from inventory or finished product. We try our best and marginal a few plus-minus can happen

Dhaval Shah — ICICI Securities — Analyst

Okay, okay. And at the end of Q1, I mean, what was the realization? I think — because I think oleochemical was converting roughly 99%. Contribution is the same in the last quarter also, correct?

Rajen Jhaveri — Chief Financial Officer

Yeah.

Dhaval Shah — ICICI Securities — Analyst

Okay. Okay, fine. And this includes oleo plus nutraceutical, this 14,000, 15,000 tonnage volume.

Nahoosh Jariwala — Chairman and Managing Director

Yeah, yeah.

Rajen Jhaveri — Chief Financial Officer

Yeah. It includes both.

Dhaval Shah — ICICI Securities — Analyst

Okay. Okay. And sir, given that the annual oil prices are coming down, do you still foresee that maybe this FY ’23, we can end up with the higher Y-o-Y growth? But on that base, do you foresee the growth can continue because I think the volumes are growing at roughly 10%, 15%, but if the realization fell to around 30%, 40% then do you foresee this kind of growth continues? Maybe 10%, 15% on Y-o-Y basis also continue over this year in the next year?

Rajen Jhaveri — Chief Financial Officer

See, basically, you’ll have to look at it — please don’t look at quarter-to-quarter. Yes, end of the year you will see the growth not only because of volume, because of this value also because during the current financial year, maybe by end of third quarter or fourth quarter, we will be through with these our value-added products streams also. So that will give us additional contribution in top line as well as bottom line also in last quarter of the current financial year. So we are quite hopeful that on an annual basis, they will certainly be better off in terms of top line as well as bottom line.

Dhaval Shah — ICICI Securities — Analyst

Okay, sir. That’s all from my side. Thank you.

Operator

Thank you. The next question is from the line of Nirag Shah from Exemplar Investment. Please go ahead.

Nirag Shah — Exemplar Investment — Analyst

Yeah. Thanks for the opportunity. First of all, I would like to applaud the management team led by Mr. Nahoosh Jariwala for setting an exceptional example for last decade of how well a capable management can grow a company from just INR57 crore revenue to current INR643 crore revenue from just 10,000 metric ton volume to current almost 60,000 metric ton per annum volume without burdening balance sheet or profit margin. It’s really commendable.

Nahoosh Jariwala — Chairman and Managing Director

Thanks, sir.

Nirag Shah — Exemplar Investment — Analyst

Now, regarding my quary, out of our 120,000 metric ton per annum capacity, how much is dedicated specifically for process in DoD?

Nahoosh Jariwala — Chairman and Managing Director

See, basically, the capacity creation what we have done has a swinging ability. So — I mean it’s — we can swing our equipments from one raw material to second. I mean we can process much higher quantities of DoD if it is viable. So based on whichever the business, gives us more money is something what we do, and that is the beauty what we have created in the last expansion.

Nirag Shah — Exemplar Investment — Analyst

Yeah. So you mean to say that capacities are fungible. But as per your own estimates because you must be having commitments for your oleochemical business clients also. So in this year and coming two years, how much DoD do you plan to dedicate specifically to [Indecipherable]

Nahoosh Jariwala — Chairman and Managing Director

See, currently, it is — I mean currently you can see around 3% to 4%, which we intend to double up.

Nirag Shah — Exemplar Investment — Analyst

Double, okay. So around 10% maximum DoD you will be able to [Speech Overlap]

Nahoosh Jariwala — Chairman and Managing Director

Yeah. But at the same time, what I explained is my fatty acid business is giving me more money, I might not do that much in DoD then.

Nirag Shah — Exemplar Investment — Analyst

Got it.

Nahoosh Jariwala — Chairman and Managing Director

I mean it depends what is giving us money. I mean, it makes more sense rather than allowing — we won’t take exact 100% from any product stream, that’s all. We will keep our foot there. [Phonetic]

Nirag Shah — Exemplar Investment — Analyst

Got it. And with respect to over 50% of our overall product, by when exactly we will be able to produce the seed product in meaningful commercial quantities concurrently or FY ’22?

Nahoosh Jariwala — Chairman and Managing Director

We intend to start the plant by December.

Nirag Shah — Exemplar Investment — Analyst

By December. And trial runs, you want to — you mean to finish by December or after that trial runs will go on after December?

Nahoosh Jariwala — Chairman and Managing Director

No, I mean it won’t take for much for us to I mean go in full production much time, less than a month.

Nirag Shah — Exemplar Investment — Analyst

Okay. And my last query was regarding our forward [Speech Overlap]

Operator

Mr. Shah, I’m sorry to interrupt.

Nirag Shah — Exemplar Investment — Analyst

Just last question, madam.

Operator

Okay. Okay, proceed.

Nirag Shah — Exemplar Investment — Analyst

My last query was regarding our forward integration projects. So what is the approximate market opportunity size in each of the value-added products we plan to manufacture apart from 50% tocopherol?

Nahoosh Jariwala — Chairman and Managing Director

And the other is forward integration what we are doing is a product called monomer fattty acid which is a co-product coming out of our dimer manufacturing process. And we intend to — I mean forward integration we’ll be doing and making two products out of it, stearic acid and isostearic acid. Stearic acid has a huge application of more than 2 lakh tons, and isostearic acid is a tailor-made product which we intend to export to U.S. and Europe. Already, we have started I mean pilot plant product, approvals are already in place, and we won’t see any issue as regards to exporting full quantity whatever we’ll will be manufacturing because it will be a very small part of global demand.

Nirag Shah — Exemplar Investment — Analyst

Okay. Okay, thank you, and all the best. I will join back in the queue.

Nahoosh Jariwala — Chairman and Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Krunal Shah from Enam Investment. Please go ahead. Mr. Shah, I have unmuted your line. Please proceed with your question.

Krunal Shah — Enam Investment — Analyst

Hello?

Nahoosh Jariwala — Chairman and Managing Director

Yeah.

Krunal Shah — Enam Investment — Analyst

Able to hear me?

Nahoosh Jariwala — Chairman and Managing Director

Yeah.

Krunal Shah — Enam Investment — Analyst

Yeah. Hi. Thank you for the opportunity. My question — in previous participant’s question. Within isostearic acid, what are the end application for that?

Nahoosh Jariwala — Chairman and Managing Director

It finds application in cosmetics, aviation fuel, sunscreen lotion, I mean it’s a product which is going — being consumed in a big way and the market is also expanding in a big way because it’s a green product. Basically, this has been — it’s not — it’s being produced from vegetable oil sourcing sources, so that’s the beauty of the product.

Krunal Shah — Enam Investment — Analyst

Okay, okay. And the second question is in line with tocopherol 50% and sterol90%. How are these two products different from what we actually manufacturing nutraceuticals right now because you also do tocopherol [Speech Overlap]

Nahoosh Jariwala — Chairman and Managing Director

Currently, we are manufacturing — exporting product stream which is mix of both products. And in future, once our expansion — I mean product integration plant goes operational, we will be separating both the product streams and making it in two separate streams whereby both of them would find application separately like sterol 90% for corticosteroids and tocopherol 50% for animal feed and or for manufacturing natural vitamins.

Krunal Shah — Enam Investment — Analyst

Okay. So you’re saying that basically separating the included product increases the market opportunity for you in that sense.

Nahoosh Jariwala — Chairman and Managing Director

Yeah, yeah. We will be selling to the three U.S.-based players only to whom we have been selling since years.

Krunal Shah — Enam Investment — Analyst

Okay. And you said that we already have some contracts with the U.S. guys for these products, so are we — have the sample has been approved already?

Nahoosh Jariwala — Chairman and Managing Director

Already, already.

Krunal Shah — Enam Investment — Analyst

Okay. Okay, got it.

Nahoosh Jariwala — Chairman and Managing Director

See, basically, we started this Company with the tocopherol business, hand we have excellent relation and all the three are Fortune 500 companies.

Krunal Shah — Enam Investment — Analyst

Okay, okay. And the last question is on the RM side. So we are now like processing — we have the capacity to process 1.2 lakh tons. What is the total RM available in India, you know, ecause as per my knowledge, there is a limited capacity for the RM to produce because only 1.5% of the total output from the oil refineries that we can use. So if you can help me understand what is the total RM opportunity India?

Nahoosh Jariwala — Chairman and Managing Director

I mean currently for whatever we want to sell, we are able to procure the raw materials. And the way finished product market is growing, same with the raw — I mean vegetable oil market is also growing. So we don’t foresee any issue regards the availability of the raw material per se. And we can use a huge basket of different vegetable — by-products of different vegetable oils. So I mean I don’t see any issues regarding that.

Krunal Shah — Enam Investment — Analyst

Okay, got it. Thank you so much.

Operator

Thank you. The next question is from the line of Aashish Upganlawar from InvesQ Investment Advisors. Please go ahead.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Yes. Thank you for the opportunity. Sir, just wanted to understand that there are a few things happening in our Company, one is the expansion that is going on; secondly, the inflation that we’ve seen in the raw material side; and third is the value-added products basket that will be coming in as we go along.

So in all this, I wanted to break it out into what if the RMs come off, do we — because last time when we interacted, you said that percentage margins is what we typically tend to look at, not be EBITDA rupees per ton achieved kind of numbers. So would it mean that we will be having a lower EBITDA margin — I mean a lower EBITDA per ton because I mean if percentage margins of the criteria for us? Or this 17%, 18% EBITDA margin figure that one should look at on a sustainable basis for us?

Nahoosh Jariwala — Chairman and Managing Director

See, as I explained earlier because of economy of scale kicking in and forward integration of the product stream, we feel this margin will be sustainable in long term.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Okay. So 18% odd is the band for us because historically, we have done 20% plus some time.

Nahoosh Jariwala — Chairman and Managing Director

I mean, obviously, we will try — I mean we’ll be — because see, two things, economy of scale and forward integration is obviously help for us increase these margins to — I mean anything above 18%

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Okay, got it. And these value-added products, does it give us better profitability in that sense, that’s what you’re trying to say? Or it also expands the opportunity for the Company to basically have a [Indecipherable] 25% kind of growth on the sales front probably in the next four, five years?

Nahoosh Jariwala — Chairman and Managing Director

See, obviously, forward integration is going to give us proper price realization because whatever expansion, I mean, what forward integration we have done is we have done in the same plant. We haven’t created any new greenfield facility for that. So that is one thing. And second thing is forward integration would keep us ahead of our, I mean, future any competition. Currently there is no competition, but in future also if any competition comes, here we are ahead of anyone else. So I mean, overall it’s going to give us a good advantage.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Okay. So that 20% plus kind of a number, is it a fair assumption on the top line growth fund for the Company that is? I mean — and because — even after the current expansion is exhausted

Rajen Jhaveri — Chief Financial Officer

We will certainly strive to achieve that number.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Okay. After the current expansion is exhausted, maybe — I mean I’m trying to understand after three years what happens after this phase of growth and capacity that has come?

Rajen Jhaveri — Chief Financial Officer

See, the EBITDA — Mr. Aashish you would be better aware because you are in this line, this EBITDA as a percentage would depend on many things. Theoretically if these raw material prices increase to 2X and correspondingly we have finished good prices also increase on a pro rata basis, then on a percentage term, one cannot expect that the same 17.77% would be there after both these are increased to 2X. But what we are trying to say is that on an annual basis, we will continuously improve on our top-line and bottom-line numbers.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Sir, my question was on the top-line growth since our capacity is now moving to 1.2 lakh tons, so clearly, we have a visible path for the next three years. Beyond that, do you think that the growth of that can be sustainable? Maybe on the volume front, we might slow and but it’s [Speech Overlap]

Rajen Jhaveri — Chief Financial Officer

As you can see in the last 10 years, we have increased our capacity from 8,000 tons to 120,000 tons. As a management, we are continuously working on different products. We have a full-fledged R&D lab whereby — which is made by around 15 people. And we are working on different products. We are a debt-free company. So obviously, I mean, whatever the cash flow we will be getting generated, we are going to utilize this in some way for growth.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Sure, sure. Got your point. Fine, sir. I’ll come back in the queue. Thank you.

Operator

Thank you. The next question is from the line of Ritesh from Girik Capital. Please go ahead.

Ritesh Poladia — Girik Capital — Analyst

Yeah. Sir, thanks for the opportunity. Sir, just wanted to know your input-output ratio, is there any yield loss, or you get nearly 95% output?

Rajen Jhaveri — Chief Financial Officer

From about [Indecipherable] only you can work out there so what is the raw material costs as a percentage to sale.

Ritesh Poladia — Girik Capital — Analyst

No, no. I’m not talking about raw material due as a percentage to sales. If you process say 100 tons of raw material, do you get the output of 95 tons or [Speech Overlap]

Rajen Jhaveri — Chief Financial Officer

In terms of quantity, it will be approximately 94% to 96% in terms of [Speech Overlap]

Ritesh Poladia — Girik Capital — Analyst

Yeah. Okay. And another question. You use the waste of the edible oil, so what is the price differential between waste of edible oil to say edible oil, it would be 10%?

Rajen Jhaveri — Chief Financial Officer

No, no, no, much higher.

Ritesh Poladia — Girik Capital — Analyst

Okay. So say edible oil is say INR100 a liter, so it would be something INR50, INR60 for you?

Rajen Jhaveri — Chief Financial Officer

INR60, INR65 [Indecipherable] depending on which raw material we are using.

Ritesh Poladia — Girik Capital — Analyst

Yes, sir. I just want to know the range of let’s say [Speech Overlap]

Rajen Jhaveri — Chief Financial Officer

Yeah, yeah. It’s much, much cheaper, that’s the advantage and that’s the reason we are riding this type of EBITDA margins.

Ritesh Poladia — Girik Capital — Analyst

Sure, sir.

Nahoosh Jariwala — Chairman and Managing Director

That is the reason no one else is in this business.

Rajen Jhaveri — Chief Financial Officer

And it’s a very — because the raw material waste having more product specification, and from there to make a particular — I mean our products of acceptable quality by big players, that’s the challenge and that’s the type of plant what we have created and the process what we have created and the people who have — who are with us since last more than 20 years have learned and mastered the art. That’s the [Indecipherable]

Ritesh Poladia — Girik Capital — Analyst

Absolute, sir, you do the magic. That’s all from my side. Thank you very much, sir.

Operator

Thank you. The next question is from the line of Prit Nagersheth from Wealth Finvisor. Please go ahead.

Prit Nagersheth — Wealth Finvisor — Analyst

Yeah. I think most of the questions have been answered, but just one remaining question was that sir, we were hearing about some kind of sluggishness in demand say for the month of July and even for August. So how you guys [Indecipherable] Are you seeing any slowdown in volumes by some of the players?

Nahoosh Jariwala — Chairman and Managing Director

No. Maybe see, this might be a cyclical so that’s why I said earlier also, I mean maybe a particular month might be up and down which might affect a particular quarter. And I mean what we need to look at is year-to-year performance. I mean that we don’t see any drop anyway.

Prit Nagersheth — Wealth Finvisor — Analyst

That’s great. Thank you. That was the only question.

Operator

Thank you. The next question is from the line of Vipul Shah from RW Equity. Please go ahead.

Vipul Shah — RW Equity — Analyst

Thank you, sir, for the question. Most of the questions have been answered. Just one question which I had sir is in terms of our sales revenue, how much of the revenue comes? So could you give a high level sort of understanding of the industry segment from which our revenue flows, sir?

Nahoosh Jariwala — Chairman and Managing Director

Vipul Bhai, these three prime products, our linoleic acid goes in paint; dimer acid goes in printing ink and epoxy, et cetera, and our this nutraceutical. In terms of value during this quarter one of FY ’23, in terms of value, their share was nearly 77% for these three prime products.

Vipul Shah — RW Equity — Analyst

Got it. And sir another question was earlier in the call, we mentioned that basically our volumes were more or less similar in the last quarter of the previous financial year and the first quarter of this financial year. So the jump in the revenue quarter-on-quarter, could it be ascribed to the price?

Nahoosh Jariwala — Chairman and Managing Director

No, there are two [Speech Overlap]

Vipul Shah — RW Equity — Analyst

Yeah.

Nahoosh Jariwala — Chairman and Managing Director

Yeah. There are two factors in that Vipul Bhai. Over the point [Phonetic] because what we say it is at the quantity process was same, but there is a composition of any product derived from that quantity process. So though the quantity process was same, the volume of two prime products, linoleic acid and dimer acid, both the volumes scored jump during this quarter vis-a-vis with the previous quarter. So the additional sales value achieved during this quarter vis-a-vis immediately preceding quarter is partly because of these higher volumes of these two prime products also apart from the higher per unit realization.

So it is not only per unit realization increase, which has resulted in this rise. It is because of the higher quantity of sale of two prime products also during this quarter vis-a-vis immediate preceding quarter.

Vipul Shah — RW Equity — Analyst

So basically, sir, it’s a mix issue. What I understand from you, sir is that the mix was favorable in this quarter, and hence — sir, last question is that we’ve been operating at a pretty solid steady-state range of margins. Barring sir, the half — the second half of last financial year, so could that we also ascribe to a mix issue? Or is there any specific reason you want to call out, sir? Although I understand this is the first quarter call, but pardon me for this question, sir.

Rajen Jhaveri — Chief Financial Officer

Yeah. I will tell you. During that October-March period, if you remember, there was a lot of volatility because of this change in policy during the six-month period at different points of time. There was change in policy by Indonesia and Malaysia as far as their palm oil export is concerned. There was thia Russia-Ukraine war announcement or what between Russia and Ukraine with the separate supply of sunflower oil, et cetera, et cetera.

So Indian oil demand whicg comprises of many things, domestic production plus import of sunflower oil from Ukraine-Russia, import of palm oil from Indonesia, Malaysia, et cetera, where there is a perception that this important will not take place, the prices would be jumping. And when the prices jump, everything then is in a turmoil. And the end users of our products is paint companies, et cetera, then they would take their decision whether to use a fair inventory or to create or maintain that level of inventory by buying fresh.

So those kinds of things happen during that particular six months and that is how it was impacted. See, after these things stabilized during the first quarter, we have again bounced back to our original level.

Vipul Shah — RW Equity — Analyst

Thank you so much, Rajen Bhai. I appreciate your candor.

Rajen Jhaveri — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Sanjit Agarwal from Little More Investment. [Phonetic] Please go ahead.

Sanjit Agarwal — — Analyst

Yeah. Thank you for the opportunity, and congratulation to the management for the excellent quarter-one numbers. My question is like your top customer accounts for like 40% of your revenue, so what has been the past track record like of three years — three to five years? What’s the growth in that customer?

Rajen Jhaveri — Chief Financial Officer

Yeah. This 40% revenue during the financial year 2021 and ’21 and ’22. Before that, this top customer did not contribute 40%, so this 40% is for last two financial years only, and foreign exchange, it will be there during quarter current financial year. Though it’s not the 40%. It will be lesser than that, but once we are through with these our value-added products streams, et ctera and capacity expansion and with our focus on these other products also, this contribution of top customer from 40% is bound to reduce substantially.

Sanjit Agarwal — — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Jagvir Singh from Shade Capital. Please go ahead.

Jagvir Singh — Shade Capital — Analyst

Yeah. Good afternoon, sir. I have only one question. Earlier in the presentations, you were talking about sustainable margins of 16% to 17%. So now you are talking to the margins 18% plus, so what changes in between?

Rajen Jhaveri — Chief Financial Officer

Two things, capacity expansion which has kicked in the economy of scale and forward integration of products. Two, things, based on that we feel that we’ll be able to improve that.

Jagvir Singh — Shade Capital — Analyst

Okay. And one person in the Q4, we have hit the lowest margin — around 10% margin in the Q4 last year. So what has changed in these two-three months 10% to 17.7%?

Rajen Jhaveri — Chief Financial Officer

No, last year COVID thing was also there, so I mean [Speech Overlap]

Nahoosh Jariwala — Chairman and Managing Director

Q4 last year.

Rajen Jhaveri — Chief Financial Officer

That affected our Omicron and delta variant thing that’s why things were toxic or weak. So I mean that also affected our thing, whereby we have to keep plant shortfall longer period and lots of things were kicked in. So I mean that’s not in — I mean I won’t put it as I mean quarter we should be really looked at [Speech Overlap]

Jagvir Singh — Shade Capital — Analyst

Thank you, sir.

Operator

Thank you. The next question is from the line of Sagar from Dr. Sagar Avali. [Phonetic] Please go ahead.

Sagar — — Analyst

Hi. Am I audible?

Nahoosh Jariwala — Chairman and Managing Director

Yeah.

Sagar — — Analyst

Okay, great. First of all, I just want to congratulate the management because we can see several costs like power cost [Indecipherable] extremely high, but the management did everything perfectly. So really thank you for that.

I had just two questions. The first one was regarding suppliers and customers. Can you just explain how do these contracts work because we’ve seen in many chemical companies, they can’t pass these increased costs to their customers. So can you explain how do we buy these raw materials first and then sell it to the customers? How do these contracts work? And can we pass the price hike easily in one or two quarters?

Nahoosh Jariwala — Chairman and Managing Director

As I explained earlier that we don’t play in commodity. We are a manufacturing company. That’s what our belief is. So we typically enter in contracts for raw materials purchase which are not beyond one month and same way, we don’t enter in any contract for sales beyond one month.

Yes, there — as our raw materials commodities and our finished products are sold on B2B basis, there can be some lag of transferring increase of raw materials. Beyond that, beyond a month or month and a half, beyond that nothing is there. So I mean we’ll be easily able to transfer the — we are in position to transfer the price hikes. But if for whatever reason is there, certain price hike of 20% or 25%, then because of keeping our long-term relation with our suppliers, there might be questions to stagger the hike and spread it over two months. Beyond that, nothing.

Sagar — — Analyst

Okay. So two months would be the max. And that’s really helpful. And my second question was actually a bit more about the future because right now, we are operating this one plant. Let’s imagine because now we have more products coming in and let’s imagine we come with the new plant, what would become the hurdle rate for you? So when you launch a new products, your focus is on margins, what’s the payback period. Which is the metric you’d like to focus on just to understand how the Company grows from there?

Nahoosh Jariwala — Chairman and Managing Director

See, as regards the forward integration of the two products streams, one is in the [Indecipherable] field, which product we are going to — I mean manufacture and are going to sell to the same customers. And which has already been approved so we don’t see any hurdle in that. And as regards the new product called isostearic acid, [Indecipherable] I mean it might take — already the pilot plant samples on the approvals and the results are quite encouraging. And in that case, we also don’t see any big hurdle because it’s a green chemical and world is going green. And the market is also — isostearic market is also growing let’s say, I mean, growing at a fast pace.

So we don’t foresee any major order in that area also. And over the period, we have created our name as we got the quality soft oil manufacturer, and companies know about us. And so — I mean, we don’t see any major Issues regarding that.

Sagar — — Analyst

If I can just clarify one thing. What I meant by hurdle rate was let’s imagine we come out with a new plant, for example, you’d be focusing on the higher margins compared to existing products like that concentrated [Speech Overlap] you were mentioning. Yeah.

Rajen Jhaveri — Chief Financial Officer

Obviously, obviously. Yeah, the forward integration logic was that already to have better price realization.

Sagar — — Analyst

Perfect, perfect. Thank you so much. That’s really helpful. An amazing job.

Operator

There is a follow-up question from the line of Raj Shah from Statheros LLP. Please go ahead.

Raj Shah — Statheros LLP — Analyst

Yeah. I don’t really have any questions, but I’d like to wish you all the luck to Rajen Bhai and Nahoosh Bhai. Thanks a lot.

Nahoosh Jariwala — Chairman and Managing Director

What was that?

Operator

Mr. Shah, can you please repeat your question, please?

Raj Shah — Statheros LLP — Analyst

Hello? Am I audible?

Nahoosh Jariwala — Chairman and Managing Director

Yeah.

Rajen Jhaveri — Chief Financial Officer

Yeah.

Raj Shah — Statheros LLP — Analyst

Yeah. I don’t [Speech Overlap] The other question that I have taken up by the previous participants, but I’d like to congratulate and wish luck to Nahoosh Bhai and Rajen Bhai. Thank you so much for the call.

Nahoosh Jariwala — Chairman and Managing Director

Thank you.

Operator

Thank you. There is a follow-up question from the line of Nirag Shah of Exemplar Investment. Please go ahead.

Nirag Shah — Exemplar Investment — Analyst

Yeah. Thanks. Just one follow-up. What has been the contribution of dimer acid for FY ’22 revenues?

Rajen Jhaveri — Chief Financial Officer

Dimer acid, all these time costs put together were approximately for the financial year ’21-’22, that contribution was around 73%, all the three prime products put together.

Nirag Shah — Exemplar Investment — Analyst

All the three products. And particular dimer acid, if you can share?

Rajen Jhaveri — Chief Financial Officer

I think it would be approximately 30%, 35%.

Nirag Shah — Exemplar Investment — Analyst

30%, 35%. Okay. Thank you very much.

Rajen Jhaveri — Chief Financial Officer

[Speech Overlap]

Nirag Shah — Exemplar Investment — Analyst

They are a rough estimate, you know?

Rajen Jhaveri — Chief Financial Officer

Yeah, yeah.

Nirag Shah — Exemplar Investment — Analyst

Okay. Thank you very much.

Operator

Thank you. There is a follow-up question from the line of Sunil Jain from Nirmal Bang Securities. Please go ahead.

Sunil Jain — Nirmal Bang Securities — Analyst

Yeah. Sir, you said that Q1 production was around 14,000 to 15,000, and you said that the capital utilization was 65% to 70%. So that doesn’t match because now coming to [Speech Overlap]

Nahoosh Jariwala — Chairman and Managing Director

Because additional capacity was creted by end of June 2022. During the quarter of April to June, the capacity was 90,000 tons only.

Sunil Jain — Nirmal Bang Securities — Analyst

Okay. So this additional capacity can be utilized in the current year.

Nahoosh Jariwala — Chairman and Managing Director

The additional capacity was in place in the end June 2022 — 30th of June 2022 only.

Sunil Jain — Nirmal Bang Securities — Analyst

Okay. [Speech Overlap]

Nahoosh Jariwala — Chairman and Managing Director

So [Speech Overlap] June, we have [Indecipherable] percentage of 64% on 90,000 tons capacity because that was in place at that time.

Sunil Jain — Nirmal Bang Securities — Analyst

Okay. Thank you, sir. Thank you.

Operator

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

Nahoosh Jariwala — Chairman and Managing Director

Thank you all for participating in this earning con call. I hope we were able to answer your questions satisfactorily, at the same time offers I mean insight in our business. If you have any further questions or would like to know about the Company, please reach out to our Investor Relation Manager at Valorem Advisors. Thank you. Stay safe. Stay healthy.

Rajen Jhaveri — Chief Financial Officer

Thank you, everybody.

Operator

[Operator Closing Remarks]