IG Petrochemicals Limited (IGPL) Q2 FY23 Earnings Concall Transcript

IG Petrochemicals Limited (NSE:IGPL) Q2 FY23 Earnings Concall dated Nov. 11, 2022

Corporate Participants:

Pramod Bhandari — Chief Financial Officer

Analysts:

Nirav Jimudia — Anvil Research — Analyst

Aditya Khetan — SMIFS Limited — Analyst

Rajesh Jain — NB Investments — Analyst

Pawan Nahar — Individual Investor — Analyst

Chirag Vakharia — — Analyst

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the I G Petrochemicals Limited Q2 FY ’23 Earnings Conference Call.

This conference call may contain forward-looking statements about the Company which are based on beliefs, opinions and expectations of the Company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.

[Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions].

I now hand the conference over to Mr. Pramod Bhandari, I G Petrochemicals Limited. Thank you, and over to you, sir.

Pramod Bhandari — Chief Financial Officer

Thank you. Good evening, friends. Good evening, everyone. On the behalf of I G Petrochemicals Limited, I extend a warm welcome for joining us on the call today. On this call, we are joined by the SGA, our Investor Relations adviser. I hope everyone had an opportunity to go through the financial results and investor presentation, which has been uploaded on Investor Relations [Phonetic] in our Company’s website.

To begin with, I will give you a quick overview of the recent development in the chemical industry, followed by the operational and financial performance of I G Petrochemical. Over the last few years, many global MNCs are pondering their thoughts and are deliberating looking for alternative suppliers. India manufactures more than 80,000 types of the chemical right from bulk to mix and hold a competitive edge in the world on the back of growing domestic demand, business-friendly industrial policy, demographic advantage. India has all the major raw material required for the manufacturing of various types of chemicals. Indian manufacturers are well equipped with the required technology, infrastructure, skilled workforce and logistic connectivity and now willing to invest more to tap the growth opportunity available. This further enhanced the good visibility for the Indian entire chemical sector. Industry has outperformed considerably in the — over the last two years and has a strong potential to grow further in the future.

Phthalic Anhydride, the Company’s main business revolve around the Phthalic Anhydride, a downstream product of the Orthoxylene, which in turn is converted into — Orthoxylene is converted into Phthalic, and it is also a third derivative of the crude. From crude, it goes into the light naphtha and naphtha to the xylene and xylene to the Orthoxylene and then Phthalic Anhydride.

It is a versatile intermediate in inorganic chemistry for the production of plasticizers, unsaturated polymer resin, alkyd resin, paint, CPC pigment, which are broadly serving 20-plus end industries. Consumption of paint and its derivatives are growing rapidly over the last few years. Earlier, the consumption of Phthalic Anhydride was highly concentrated to the paint, plasticizer and the CPC industry. It has changed significantly. Many more industries have increased the application of PAN. PAN is now being used in the production of specialty chemical, agrochemical, specialized polymer, electric — electronic products, insect repllents, UPR. It is also being indigenously used for the making of plastic currency, paper board, laser boards, sail of windmills. The industry is primarily served by very few players, not only in India, but also globally.

IGPL is the largest producer of phthalic in India and enjoy cost reduction, driven by the highly integrated and technology-driven state-of-art production facilities at Taloja. The company has fully-integrated manufacturing facility of Phthalic Anhydride, Maleic Anhydride, Benzoic Acid and DEP, which has been added recently at Taloja. We manufacture PAN product at a high scale with a capacity of 2,22,000 metric ton per year. This capacity is managed by highly skilled manpower and high-quality control check.

Maleic Anhydride and Benzoic Acid are the key products created by the wash water by producing the Phthalic Anhydride. The cost of producing these products are insignificant and the expansion of DEP in the downstream commenced in FY ’22 with a total capacity of 8,400 tons per annum. This vertical has also started to show the contribution meaningfully to our total business. It is worth to note that the non-phthalic business has been growing steadily and currently hold around 8% to 8.5% of the total revenue.

On the export front, our business has presence primarily in the Middle East market and currently contributing around 10% to 12%. In terms of the expansion, the IGPL has embarked a few growth plans, keeping in view the growth demand of the downstream derivatives. The expansion plan of DEP has been in excess of the company’s growth trajectory, and the same will manifest in coming years. And as stated earlier, the brownfield expansion of phthalic facility at a similar location at our existing location is on track and expected to complete before March 2024. In fact, we will start the commercial production before March 2024. Management team are also assessing a couple of projects. Most of them are downstream products. We will announce more detail whenever it is finalized and approved by the Board.

Our team has done an impeccable job with respect to the operational excellence at site. Eight out of 10 quarters, we are continuously generating the INR50 crore-plus profitability. In Q2 FY ’23, we have continued to maintain our growth momentum. For the quarter on the back of growing demand of the Phthalic Anhydride and its derivates. For the quarter ended Q2 FY ’23, total revenues stood INR575 crores [Technical Issues] growth of 21% year-to-year basis. EBITDA was around 91 crores with a margin of around 16%. The margin was slightly lower compared to the previous quarter, mainly because of the lower quantity of Phthalic and lower realization of the Maleic Anhydride which has actually gone down substantially compared to the last quarter.

On the half year ended, the total revenue for the first half was INR1,239 crores, a growth of 44% on a year-to-year basis on the higher volume and the good domestic and international demand. EBITDA for first half of ’23 stood at INR215 crores, a growth of 16% on year-to-year basis, operating margins stood at around 17%.

Profit-after-tax stood at INR137 crores, a growth of 16% and as on September, the company is net debt free — net debt zero company. Operating efficiency combined with the positive cash-flow from operations put us in a very comfortable position to explore the various downstream derivatives market in order to broaden our product portfolio, we are continuing to explore the opportunity in downstream and specialty products segment. Over mid to-long-term, Indian government continues to underscore the necessity of public investment in infrastructure. We believe the demand for our product portfolio will remain robust for coming period. Long-term vision is to have well-diversified chemical company with a leadership position in our phthalic business. We’ll diversify our product portfolio and expect it to achieve a 30% of total revenue by March 2025 of non-Phthalic products.

With this, we will open the floor for questions and answers. Thank you.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line Nirav Jimudia from Anvil Research. Please go ahead.

Nirav Jimudia — Anvil Research — Analyst

Yeah, good evening team. So, I have two, three questions to ask. Sir, first on the Phthalic situation in India. So, if you can give your thoughts in terms of how the demand has been in Q2 in terms of the imports because last when we interacted, you mentioned that Indian demand for Phthalic is around 4,30,000 tons and monthly imports were like around 6,000 tons to 7,000 tons, which were coming to India.

So, if you can just touch upon that aspect first and given the current macro situation what we have been facing in terms of the Europe problems, has the demand of Phthalic impacted in India or elsewhere globally?

Pramod Bhandari — Chief Financial Officer

So, in India, we continue to have a demand of around 430,000 tons to 450,000 tons, which continue to be there. In the last quarter also, we have seen the similar type of demand. India continues to import around 6,000 tons six to 8,000 tons per month which is continuing. I think in the last quarter also, we have imported around 25,000 tons, 26,000 tons.

However, we are seeing some pockets of the pain [Phonetic]. We are supplying to all the industries of chemical. There are some pockets like basically the pigment and all that where the end users are supplying it to Europe and other markets, where we are seeing some pain in terms of the demand because generally, they are not able to sell their product to the European market, which essentially use it and then refurbish it and convert it into other product and selling, because I think there is a challenge of the inflation, there is a challenge of the energy supply at Europe, the cost is very high.

In some pockets, I think we have seen some moderation in the demand which we believe now, generally it is happening in the Deepavali month also, because lot of guys are on leave. Then we expect that uptick to come in the second half of November to December. So slightly, there is a moderation in demand because of the geopolitical issue and generally the holidays in the domestic market.

Nirav Jimudia — Anvil Research — Analyst

Correct. And sir, you touched upon on Maleic also, like Maleic realizations have fallen sequentially in Q2. So when we last interacted in Q1 conference call, you mentioned that out of the INR48 crores of revenue what non-Phthalic business has done, Maleic was around INR27 crores. So, I think this quarter also, non-Phthalic revenue is INR45 crores to INR46 crores. So, if you can let us know what was the Maleic sales this quarter and individually, if you can break it down [Speech Overlap]

Pramod Bhandari — Chief Financial Officer

Yes. So, basically, the actual realization from Maleic, although quantity remains same, but the realization has gone down from INR27 crores to INR19 crores. So, basically the realization has gone down from INR150 crores to around INR92 crores to INR95 crores, because Maleic has gone. For us, the advantage is, whatever is the sales in the Maleic is directly converted to our EBITDA. But for other players who are actually doing it for [Indecipherable], it’s a loss-making proposition. So it has impacted. INR8 crores to INR9 crores of the revenue realization has lowered in the Maleic, which directly translated to EBITDA.

However, it has been covered by the DEP, which was around INR13 crores to INR14 crores has gone up to INR18 crores to INR19 crores. So overall, it’s around INR530 crores of the revenue from Phthalic. Maleic, Benzoic Acid and DEP is around INR40 crores, and INR7 crores is from the other income like interest and the dividends and all that.

Nirav Jimudia — Anvil Research — Analyst

So, now, are we operating our DEP plant fully at around 8,400 tons or [Speech Overlap]

Pramod Bhandari — Chief Financial Officer

No, we are operating right now at 60% — around 58% to 60%, and we expect to achieve in next six months, around 90% to 95%.

Nirav Jimudia — Anvil Research — Analyst

Correct. Sir, last question from my side is our Phthalic capacity is around 222,000 tons, but because we need to change catalyst every quarter which you have rightly explained last time, what could be the maximum capacity utilization we could achieve in a given year given that we need to change the catalyst every quarter which you have explained rightly last time?

Pramod Bhandari — Chief Financial Officer

We actually change the catalyst every year, not quarter, but having said that, the fourth plant is there. In a particular year, we need to change the catalyst thrice in any block of three years, in one year, we need to do it. So basically every year, it’s given we will change the catalyst once in a year, which is around 30 to 35 days. In a particular year, it may be twice. So, generally, after considering that, we are at a capacity utilization of around 90%. So, if we are able to do twice in a particular year on block of three, it may be 86%, 87% for that particular year.

Nirav Jimudia — Anvil Research — Analyst

Got it. And sir, have we done any catalyst change in second quarter because the other expenditures have gone up this quarter? So

Pramod Bhandari — Chief Financial Officer

Yeah. So, there is no change in the catalyst. It’s basically the energy cost of the fuel oil which we are using for the purpose of heating, and generally, it is high in the raining season because the last quarter was full of raining season. So, that has contributed and we also provided around INR2 crore to INR2.5 crore for the CSR expenditure which you need to provide as a part of overall expenditure because our liability for CSR is around INR4 crores per year. So as a prudent practice, we have decided to provide for in the six months, INR2 crores.

Nirav Jimudia — Anvil Research — Analyst

Got it. Sir, small clarification before I join back in the queue. So, have you done any catalyst change in the first half? Or are we planning to do any catalyst change in the [Speech Overlap]

Pramod Bhandari — Chief Financial Officer

We have done it in April, May, June for one plant, and for last quarter, we have not done any change in catalyst.

Nirav Jimudia — Anvil Research — Analyst

Okay. So, are we planning to do in second half — any of because you mentioned it

Pramod Bhandari — Chief Financial Officer

I think we may plan, but right now, it has not been decided. It may spill over to next year also and maybe the last quarter of this year.

Nirav Jimudia — Anvil Research — Analyst

Got it, sir. Thank you and all the best. I’ll join back in the queue, sir.

Pramod Bhandari — Chief Financial Officer

Thank you.

Operator

Thank you. We will move onto the next question that is from the line of Aditya Khetan from SMIFS Limited Institutional Equities. Please go ahead.

Aditya Khetan — SMIFS Limited — Analyst

Yeah, thank you, sir, for the opportunity. Sir, on quarter-on-quarter basis, there is a decline of 14% in top line. If you can quantify how much was it from the volumes and how much was it from the realization?

Pramod Bhandari — Chief Financial Officer

So, actually it’s 4% to 5% on account of volume, around 4% to 5% on account of low realization of the Maleic, and balance is the pricing of Phthalic.

Aditya Khetan — SMIFS Limited — Analyst

Sir, volumes was how much, sir, you said?

Pramod Bhandari — Chief Financial Officer

4% on account of the volume and around 4% to 4.5%, around INR9 crores is on account of the lower realization of Maleic and balance is the pricing of Phthalic.

Aditya Khetan — SMIFS Limited — Analyst

Okay, and sir, lower volumes is primarily because of decline in demand in some of the sectors? Or like, what was the reason particularly?

Pramod Bhandari — Chief Financial Officer

Not exactly. It’s demand — actually the order was booked, but because of some logistic issue, we were not able to supply at the end of September. So inventory, if you look at September, generally, our inventory is 1,000 tons or 2,000 tons. In September, it was around 6,000 tons or 6,500 tons.

Aditya Khetan — SMIFS Limited — Analyst

Okay. And sir, you mentioned about [Speech Overlap] Other expenses, you mentioned about the rise into the power cost, but it seems that the power cost is going down if we compare it on a [Technical Issues] basis.

Pramod Bhandari — Chief Financial Officer

No, you don’t compare power, you need to look at the energy cost. Power is only the power. We hardly use any power because power is used only when we take the shutdown. And it is on standby basis. We use the internal steam for the purpose of generating power, and we use the fuel oil for the purpose in the raining season. So if you look at energy cost, maybe we’ll be able to see that around INR4 crores higher.

Aditya Khetan — SMIFS Limited — Analyst

Around INR4 crores higher?

Pramod Bhandari — Chief Financial Officer

INR3 crores to INR4 crores, which is generally the case in the raining season. It’s always — all raining season has similar cost structure.

Aditya Khetan — SMIFS Limited — Analyst

Okay. So, we can take the last quarter run rate as the normal for the coming quarter? That INR40 crores?

Pramod Bhandari — Chief Financial Officer

Correct. Correct.

Aditya Khetan — SMIFS Limited — Analyst

Okay. Sir, onto the Orthoxylene prices, so you might be noticing that there is a sharp uptrend into the prices of Orthoxylene, which has actually squeezed down the spread of PAN and oil. I believe, sir, you had mentioned that so there is some temporary shutdown which has been taken by Reliance due to which there was a temporary crunch into the market of Orthoxylene. So, has the situation being normalized or what is the current situation?

Pramod Bhandari — Chief Financial Officer

It has been normalized now. Now, we are getting the regular supply, and of course, the margin compared to the last quarter 200, 250 has slightly moderated because of the issues — geopolitical issues in the Europe because end industries, there are pockets of the industry which are supplying it to China or the European side, that has impacted. From their side, maybe slightly moderation in demand.

Aditya Khetan — SMIFS Limited — Analyst

Okay, but the — so, but the spreads have come down as compared to the quarter-on-quarter

Pramod Bhandari — Chief Financial Officer

Yeah, compared to the previous quarter Q1, Q2 spread has slightly gone down.

Aditya Khetan — SMIFS Limited — Analyst

Okay. So, but they are [Indecipherable] normal range of $250 per ton as the — for guidance [Indecipherable].

Pramod Bhandari — Chief Financial Officer

Right now, range is around $150 to $200 compared to earlier, it was $200 to $240.

Aditya Khetan — SMIFS Limited — Analyst

So, $150 to $200 per ton is [Speech Overlap]

Pramod Bhandari — Chief Financial Officer

But it’s moving between $150 to $250 for last six months.

Aditya Khetan — SMIFS Limited — Analyst

Okay. And onto the DEP front, sir, can you provide the top-line figure as you have provided for the last quarter?

Pramod Bhandari — Chief Financial Officer

I think it’s given in the presentation. It’s INR17 crores to INR18 crores around — INR17 crores to INR18 crores per quarter — for the quarter. I think if you look at the presentation, we have already provided that.

Aditya Khetan — SMIFS Limited — Analyst

Sir, just one last question. Sir, by FY ’25, we are planning some sort of 30% of the non-Phthalic business, but considering now we are expanding into PAN only that would come by FY24, so do you think this — so the 30% target will be achieved — can be achievable? So considering as on date also, we are at around 8% to 9% only. So,

Pramod Bhandari — Chief Financial Officer

Yeah. It is easily achievable provided we are implementing the project what we are planning for. Right now, we can’t discuss it because it is still to be approved by the Board.

Aditya Khetan — SMIFS Limited — Analyst

Okay, but — so we are confident so we can take that to around [Speech Overlap]

Pramod Bhandari — Chief Financial Officer

Right. Right. That is the target we have set it for us. It may be higher than that, it may be slightly lower than that, but we are completely focused to take our revenue from other products around 20% to 25% of the total revenue. And long-term target is to achieve 50%.

Aditya Khetan — SMIFS Limited — Analyst

Long-term target is to take to 50%?

Pramod Bhandari — Chief Financial Officer

Yeah.

Aditya Khetan — SMIFS Limited — Analyst

Okay. Thank you, sir.

Pramod Bhandari — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Rajesh Jain from NB Investments. Please go ahead.

Rajesh Jain — NB Investments — Analyst

Good evening, sir. I have few questions. My first question is, is it possible to know how much top five and top 10 customers contribute to the sales?

Pramod Bhandari — Chief Financial Officer

I don’t have it readily available, but I can give you industry-wise. The paint, plasticizer contribute around 40% to 45%. Pigment, PVC, at around 10% to 15% and then 30% is the specialty chemical, agrochemical, UPR and others.

Rajesh Jain — NB Investments — Analyst

So, sir, that you are saying sector-wise. I was asking from the customer end, so that you don’t have off the hand [Speech Overlap].

No problem. Sir, my next question is regarding this sector contribution. Like, how was the contribution from paints, pigments, plasticizers, let’s say, five years back? And now that the other segments have also started taking our Phthalic Anhydride, how does it look five years down the line? Anything, you have an idea?

Pramod Bhandari — Chief Financial Officer

So today — basically, earlier historically, it is plain plasticizers were the main contributors. Now, it has moved to — the historical guys have moved to around 60% to 65%. Now the specialty chemicals, because lot of Indian companies are going into the downstream specialty chemicals, agrochemical, UPR, that is a new segment. In fact, there are — a couple of new segments are also entering into now — just entering into like specialty films or somebody is also producing some engineered plastic which is used for the Boeing. So, there are lot of new segments are coming up. Plus, now India is getting into full revamping the infrastructure with the trains and all that. You will see lot of demand in the polymer side also coming up for future.

Rajesh Jain — NB Investments — Analyst

Okay. No, sir, like you said, let’s say five years back, if paints and plasticizers were contributing 90% to the sales, now it has come down to

Pramod Bhandari — Chief Financial Officer

[Speech Overlap] 60%, but now it is 40%

Rajesh Jain — NB Investments — Analyst

Now 40%. So how will it look, let’s say, five years down, will it come to, let’s say, 30%?

Pramod Bhandari — Chief Financial Officer

Not exactly, because lot of guys in the paint are also setting up the big capacity. You heard that Asian Paints is also expanding and new players are also entering into — like, Indigo Paints, JSW Paints and Grasim, probably next one or two years. They are setting up the plant equivalent to Asian Paints. So, paint continues to grow because they are expanding, and India continues to have a good demand around 10% plus growth. New segments are added, it’s like similar way. We are seeing the growth in the electric vehicle vis-a-vis the petrol and diesel. Petrol and diesel have continued to grow. Electric vehicles keep on adding, but overall, percentage-wise, they will remain small.

Rajesh Jain — NB Investments — Analyst

So, you mean to say the contribution from the [Indecipherable] segments will continue to hover around 30% or 30% to 40%?

Pramod Bhandari — Chief Financial Officer

Correct. How — you need to see that how India shapes up in terms of the infrastructure. If India decided to change the entire infrastructure of underground, where we use the water-based pipeline which is [Indecipherable] around 40, 50 years old pipeline. If India decided to change to UPR, if India decided to change to FRC-based polymer for the purpose of all the new metros and all build-up, then you see a very good demand in that site. So, that is the way you can change it in a quantum jump rather in percentage.

Rajesh Jain — NB Investments — Analyst

Okay. Fair enough. Sir, this UPR, like I think you had mentioned for paints, only 2.5% is used, this Phthalic Anhydride. How much is used for UPR, sir? Any data you have?

Pramod Bhandari — Chief Financial Officer

UPR, it’s depend upon the various polymers between 30 — around 25% to 35%.

Rajesh Jain — NB Investments — Analyst

So, that means in a one kg this one, so this will be around 0.3 kg, that’s what you are saying?

Pramod Bhandari — Chief Financial Officer

0.2 to 0.3, will depend upon what type of polymer you are

Rajesh Jain — NB Investments — Analyst

I agree, I agree, but whereas in the paint, it is only 2.5%, correct, no?

Pramod Bhandari — Chief Financial Officer

Paint 2.5%, plasticizer 35% to 55% and polymer is around 20% to 40%, depends upon what type of you are making.

Rajesh Jain — NB Investments — Analyst

Polymer, how much you said, sir?

Pramod Bhandari — Chief Financial Officer

20% to 40%.

Rajesh Jain — NB Investments — Analyst

20% to 40%? Okay. Sir, my next question is, so we are supplying to so many different sectors. Is the margins are same across the sectors or it may be differs from one customer to another?

Pramod Bhandari — Chief Financial Officer

Not exactly. I said, segment wise, it’s almost same.

Rajesh Jain — NB Investments — Analyst

Segment wise, it’s — sector wise, it’s almost the same?

Pramod Bhandari — Chief Financial Officer

Yeah.

Rajesh Jain — NB Investments — Analyst

Okay. Sir my next question is about the capex, the PA-5. Sir, my first question is regarding the capex amount. Like, we are spending around INR350 crores to put up a 53,000 brownfield capacity. See, compared to PA4 where we have spent around INR320 crores to INR330 crores, so this looks okay because of the increase in the other materials, but our competitor is putting up this 90,000 metric ton capacity greenfield one at around INR650 crores to INR700 crores. So, see, you had mentioned earlier the technology, the reactors are all more or less the same. So why there is so much increase in cost of the capex for us compared to them?

Pramod Bhandari — Chief Financial Officer

So, I will not be able to comment what competitor is saying because if I G is setting up a new plant of Phthalic of, say, 53,000 ton and greenfield, it costs INR600 crores to INR650 crores. So we are setting up at INR350 crores, that means it is INR200 crores lower because we don’t need land or power as these utilities are already available. So, entire infrastructure is available. That’s why our cost is INR350 crores. If somebody else is able to set up, we have all equipments, technology, catalysts, everything is German [Phonetic].

Don’t compromise our cost, which we have mentioned INR350 crores is the best available cost with the same technology equipment you set up. Any other place, it costs INR600 crores plus.

Rajesh Jain — NB Investments — Analyst

Okay. Fair enough. Sir, another question about the capex only. See, this we had announced exactly in Q2 FY22, putting up this PA-5 project and we are taking more than 2.5 years to commission this brownfield. So, they’re saying a greenfield one, they will be putting up within three years. So, why we are taking more time to put up this plant?

Pramod Bhandari — Chief Financial Officer

It’s not we are taking 24 to 30 months and then we’re saying March ’24 which is end of 30 months, that is the last date. We will be able to start much before that, maybe one or two months or three months. And when we are talking about the setting up of the brownfield expansion, it’s not about the capacity to execute. You can set up that entire plant in six to nine months. It’s always about the long-lead item, how much time it will take to come from the day you order. So that is the reason. Our timeline when we have mentioned 24 to 30 months is the best period available.

Rajesh Jain — NB Investments — Analyst

Okay. Okay. Sir, my next question is about the EBITDA margins. See, if you see

Operator

Sorry to interrupt, Mr. Jain, may we request that you return to the question queue. There are a lot of participants waiting for their turn.

Rajesh Jain — NB Investments — Analyst

Sure. Yeah. Thank you.

Operator

Thank you. The next question is from the line of Pawan Nahar an Individual Investor. Please go ahead.

Pawan Nahar — Individual Investor — Analyst

Yes. Thank you. So my first question is, as we see things in November, I mean, 40 days have gone for this quarter. What do you think — what is your best guess for spreads compared to Q2?

Pramod Bhandari — Chief Financial Officer

I think the spread is still moving around $150 to $200. So it is not ideally comparable with the Q1 and Q2 because it’s all depend upon you can always talk about Phthalic, because the Maleic price has gone down actually, Phthalic almost in the industry level. And Maleic has gone down from INR150 to below INR100. So it’s a combination of all, we are making good margin in the DP, because DP is still at INR127, INR128, compared to Phthalic which is INR110, DP is INR127. So it’s a combination of all you need to see, not in absolute term we can decide only with the Phthalic margin, how much money they’re generating.

Pawan Nahar — Individual Investor — Analyst

So, sorry, if I’ve understood right, you’re saying that — you can correct me, Phthalic is broadly the same in terms of spreads? It’s Maleic, which has dropped? Is that understanding…

Pramod Bhandari — Chief Financial Officer

Yes, Maleic has dropped by 35% from INR150 to below INR100.

Pawan Nahar — Individual Investor — Analyst

Okay.

Pramod Bhandari — Chief Financial Officer

But for us the advantage of the Maleic is, there is no raw material which is involved. So whatever is the sale is directly translated to EBITDA. So compared to the last quarter which was INR27 crores, for the same quantity we have around INR18 crore to INR19 crores for this quarter.

Pawan Nahar — Individual Investor — Analyst

Second question, what I wanted to ask was, Maleic, can also be made by the alternate route which is [Speech Overlap], right?

Pramod Bhandari — Chief Financial Officer

N-butane, correct.

Pawan Nahar — Individual Investor — Analyst

Yeah. So of the global Maleic consumption or production, how much would be that route?

Pramod Bhandari — Chief Financial Officer

I think 96% to 97% is on N-butane route.

Pawan Nahar — Individual Investor — Analyst

Okay. I was thinking actually that you know gas prices have gone up so much. So logically there may have been some shutdown, some production impacted from the alternate route and you all would have gained.

Pramod Bhandari — Chief Financial Officer

Yeah.

Pawan Nahar — Individual Investor — Analyst

But somehow I see that the assumption was wrong. Can you please…

Pramod Bhandari — Chief Financial Officer

Actually what happened is, there was a scarcity of Maleic between ’21 to ’22, when Maleic price has gone from INR110 to INR300. Now again it has come back to INR110. So it has gone to 2x to 3x during the period when it was at scarcity of Maleic. There was shutdown of plant, there were logistic issue, now lot of plants have come back. So Maleic price has actually moderated. Generally, if you look at the history, Maleic is generally available at INR600 to INR800 over and above the N-butane price. So it has gone to $1,000, over and above N-butane price, again connected to now $600 to $650.

However, because you are using N-butane, then it is very difficult to make the money at the current prices. But for I G that is not an restriction. We are manufacturing Maleic, because it’s a opportunity available with us from the wash water of Phthalic. The correct way to manufacture the Maleic is the N-butane route.

Pawan Nahar — Individual Investor — Analyst

Okay. And would we consider setting up of a Maleic plant somewhere where gas is available for cheap?

Pramod Bhandari — Chief Financial Officer

We are evaluating the opportunity right now under discussion, so it will not be correct for me to comment at that juncture. I think once we finalize that, it will automatically be in public domain.

Pawan Nahar — Individual Investor — Analyst

So on that same line, I mean, not about you, generally what would be the cost of setting up a 40,000 ton Maleic Anhydride unit?

Pramod Bhandari — Chief Financial Officer

40,000 is not available, generally it’s a 50,000 or 60,000 tons.

Pawan Nahar — Individual Investor — Analyst

Okay. Let’s say, 50,000 or 60,000, what should be the cost?

Pramod Bhandari — Chief Financial Officer

It depend upon the location. It range between INR1,000 crore to INR2,000 crore depend on the location where we are setting up.

Pawan Nahar — Individual Investor — Analyst

INR1,000 crore to INR2,000 crore?

Pramod Bhandari — Chief Financial Officer

Yeah.

Pawan Nahar — Individual Investor — Analyst

So we have to assume it has to be in the USA because your gas costs there will be more competitive. So what would the cost…

Pramod Bhandari — Chief Financial Officer

Not exactly because U.S. gas is competitive, but then there is a big issue in terms of environment. And the logistics, so it’s all depend upon where you are setting up. In Middle East you can set-up for INR1,500, INR1,600 crore. In India, you can set-up at INR1,000 crores to INR1,200 crores, but gas is not available. In U.S. gas is available, but the environment and other operating cost is high. So you need to evaluate plus and minus from all the locations and then decide. And ultimately you need to be near to the raw-material source or customer.

Pawan Nahar — Individual Investor — Analyst

True. True. Okay the other question is, I’m looking at your 15 year-plus history, okay?

Pramod Bhandari — Chief Financial Officer

Yeah.

Pawan Nahar — Individual Investor — Analyst

And what I see is that, the business profile before, up to FY’16, so 2007 to 2016, was pretty, I would say, not good. And rightly so you’re struggling to expand or you did not expand? From FY’17 to till date, right, there is a significant improvement where like basically on an average, for every INR100 of capex, you’re are making INR25 of EBITDA, right?

Pramod Bhandari — Chief Financial Officer

Correct. Yes.

Pawan Nahar — Individual Investor — Analyst

So, has been one is that after FY’17, it is just not the COVID impact that I see in the business, something has happened from FY’17. And the second thing is that your competitor, which is on a standalone basis, so excluding the Maleic unit overseas, has always been, almost every year more capital-efficient than you. I understand that there is, even we’ve done a German machine, right, which may have a longer life. So my question is twofold. One, is that what is that change after FY’17, which has driven you know this kind of payback if I may use the word. And is this how sustainable you think it is? And you…

Pramod Bhandari — Chief Financial Officer

I understood your question, there are two things we changed after 2017. So when you’re operating at below 1 lakh capacity, you’re not able to get the operating efficiency and yield advantage. So once it crossed 1 lakh, which we have effectively done in ’16 and ’17. So that is the one. Once you cross, 1 lakh, 1.50 lakh, say 1.60 lakh or 2.20 lakh, the operating efficiency has gone up. Second is your fixed-cost which is now divided — earlier in two plants, now it’s a four plant. Second — third, Maleic unit was acquired by I G in 2017. So all — then typically when we were making Maleic around 1,500 ton, now it has to around 7,000, 8,000 ton. So that has contributed as a big way, because today if we are operating at INR100 crore of Maleic sale, that sale directly contributed to our EBITDA. There is no raw-material cost.

Now if we are doing the DP and Benzoic Acid, first, the operating efficiency of Phthalic plant, which is from two to four and from 50,000 capacity to 222,000, it scale has changed. Second, the product, Maleic Anhydride, Benzoic Acid and DP, which has contributed around INR170 crores to INR80 crores on annualized basis, that two parameters. And the reduction in the overall cost because once you operate at scale, your overall cost has gone down. So these three parameters have changed the history compared to last 15 years in last four years.

Pawan Nahar — Individual Investor — Analyst

Just please, I just want to make sure I’ve got it right. So what percentage, so let’s leave, Maleic, because you make it from wash water, right. What percentage of your own Phthalic is used for the other assets and the products that you mentioned?

Pramod Bhandari — Chief Financial Officer

It’s only for the DP which goes around 50%.

Pawan Nahar — Individual Investor — Analyst

Sorry, I’m sorry, I did not understand.

Pramod Bhandari — Chief Financial Officer

DP which we are producing, where we use 38% to 40% of the Phthalic, that’s all.

Pawan Nahar — Individual Investor — Analyst

So, 38% to 40% of your Phthalic production is consumed in-house?

Pramod Bhandari — Chief Financial Officer

No. No. Whatever DP we are manufacturing, in that, we need 40% of Phthalic.

Pawan Nahar — Individual Investor — Analyst

Okay. Okay. So that is then not a significant amount as of…

Pramod Bhandari — Chief Financial Officer

That is second point. Third point, the multi-industry user. Earlier Phthalic was limited to two to three industry, now it is being used in more than 50 to 20 industries. As the India get into the new chemistry, specialty chemicals, agrochemicals, UPR, and India go deeper into the infrastructure building drive, you will see more and more Phthalic usage will come. So the diversification in the industry also play a big role in terms of establishment of the good amount of market.

Pawan Nahar — Individual Investor — Analyst

Okay. The related question is we are seeing in India both the players expand capacity. Anywhere else in the world are you seeing capacity is being added?

Pramod Bhandari — Chief Financial Officer

I think, generally there are some addition we have seen but that is mainly from account of the debottlenecking. Otherwise, it’s India which is driving the growth because India get to build the infrastructure for next 20 to 30 years.

Pawan Nahar — Individual Investor — Analyst

Okay. So are you like — you know as we — are you kind of confident or what is the — sorry, confident is the a bad word to use. What is your sense in terms of the spreads you know, let’s say, going ahead versus the last five, six years?

Pramod Bhandari — Chief Financial Officer

So my sense is, India, in next seven to eight years, it’s my personal opinion, not the company opinion, they crossed the demand of 1 million ton. If India need to grow their infrastructure then the UPR when we are building the bridges, dams, building the metros. And everything India need to build every expansion in infrastructure need Phthalic. So I assume, that personally that India will continue to grow between 6% to 8%. And by 2030, the demand has to be near to around 1 million ton for Phthalic.

Pawan Nahar — Individual Investor — Analyst

One more question, what — how much time does it take to setup a Maleic unit? Let’s say, your Board…

Pramod Bhandari — Chief Financial Officer

It’s 24 to 30 months.

Pawan Nahar — Individual Investor — Analyst

So then how on — like I’m just not able to understand how you will get your 25% or 30% or 20% of revenue for…

Pramod Bhandari — Chief Financial Officer

That is — I never told you that is because of Maleic.

Pawan Nahar — Individual Investor — Analyst

No. No. Sorry. Yeah you did not. I’m just — I’m trying to understand where will that — is it…

Pramod Bhandari — Chief Financial Officer

You have to wait for sometime.

Pawan Nahar — Individual Investor — Analyst

We are already at FY’23 end.

Pramod Bhandari — Chief Financial Officer

Yeah.

Pawan Nahar — Individual Investor — Analyst

Right. So unless it is an acquisition…

Pramod Bhandari — Chief Financial Officer

Still we have 2, 2.5 years.

Pawan Nahar — Individual Investor — Analyst

Okay.

Pramod Bhandari — Chief Financial Officer

And that is the vision statement, we are trying to achieve this.

Pawan Nahar — Individual Investor — Analyst

And generally when you make — whatever investments that you plan, what is the hurdle rate or payback duration which you…

Pramod Bhandari — Chief Financial Officer

Typically, whenever we are investing, we need to have IRR of more than 15% and the payback period of less than 5%. That is given for any project. However, there are some project there you can see the long-term sustainable benefit for 40 or 50 years or you have a monopolistic practice. In that case, payback period may move to around six, seven or eight years also.

Pawan Nahar — Individual Investor — Analyst

Okay. Thank you so much.

Pramod Bhandari — Chief Financial Officer

But generally 15% and five years is the key.

Pawan Nahar — Individual Investor — Analyst

Thank you sir.

Pramod Bhandari — Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Chirag Vakharia from Budhrani [Phonetic] Group. Please go ahead.

Chirag your line is in the talk mode. Please go ahead.

Chirag Vakharia — — Analyst

Hi. Good morning.

Operator

Mr. Chirag, we are unable to hear you.

Chirag Vakharia — — Analyst

Hello? Am I audible now?

Operator

Yes.

Pramod Bhandari — Chief Financial Officer

Yeah.

Chirag Vakharia — — Analyst

Okay. Yeah. Sir just wanted to understand from quarterly perspective, you said that Q4 [Phonetic] is around INR17 crores to INR18 crores, right?

Pramod Bhandari — Chief Financial Officer

Sorry, can you repeat again?

Chirag Vakharia — — Analyst

Quarterly…

Pramod Bhandari — Chief Financial Officer

Again, we lost you.

Operator

Sorry to interrupt Mr. Vakharia, your audio is breaking up.

Chirag Vakharia — — Analyst

One second. Is it clear now? Hello? Is it clear?

Operator

Yes sir.

Pramod Bhandari — Chief Financial Officer

Yeah.

Chirag Vakharia — — Analyst

Sir, just wanted to get from DEP perspective, the turnover was INR17 crore to INR18 crore for the quarter?

Pramod Bhandari — Chief Financial Officer

Correct. INR18 crore.

Chirag Vakharia — — Analyst

Okay. Sir, what are the margins on this — in terms of EBITDA margins what are the margins here in DEP?

Pramod Bhandari — Chief Financial Officer

DEP is actually making around 12% to 13% on gross level and net level around 5% to 6%. But this is over and above Phthalic.

Chirag Vakharia — — Analyst

In terms of number for INR17 crore what would be the EBITDA sir? Roughly, if you can share it?

Pramod Bhandari — Chief Financial Officer

12% to 13% is the gross margin, because in DEP, the EBITDA is packed [Phonetic].

Chirag Vakharia — — Analyst

Okay. Okay.

Pramod Bhandari — Chief Financial Officer

So the gross margin at a product level is around 11% to 12% and net margin is around 5% to 6%.

Chirag Vakharia — — Analyst

5% to 6%. Okay. And sir your — if you can share some insight on the spread, I mean, is it up — till the geopolitical situation, you think spread will be under stress, how do you see it sir?

Pramod Bhandari — Chief Financial Officer

I think, geopolitical is one part, because it impacts the industries across the globe, which are the user of the chemical from domestic market. You will see the moderation in the overall margin which, I believe, will be running between what $150 to $250.

Chirag Vakharia — — Analyst

Okay. $150 to $250. Okay, and sir you said something about inventory issues, what was that sir at the beginning of the call?

Pramod Bhandari — Chief Financial Officer

No. No. I was just mentioning that the quantum of the sales which we have made for the last quarter was around 2,500 ton less. And we have some inventory lying over because of some logistic issue. Now it is sorted out and then there is a free flow of the sales.

Chirag Vakharia — — Analyst

Okay sir. Okay. Got it. Thank you, sir.

Pramod Bhandari — Chief Financial Officer

Yeah.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rajesh Jain from NB Investments. Please go ahead.

Rajesh Jain — NB Investments — Analyst

Sir, when we had commissioned PA-4, other than due to the operating leverage, for having used the latest technology for the PA-4 plant. So there was some 2% to 3% increase in the EBITDA margins. So the new commission PA-5, can we expect the same type of — I don’t know, maybe 2% or 3% increase in the margins?

Pramod Bhandari — Chief Financial Officer

So that EBITDA margin is combination of your margin in Phthalic plus the extra Maleic Anhydride and Benzoic Acid you are generated. And third, the fixed cost is divided among five plants compared to four plants.

Rajesh Jain — NB Investments — Analyst

Correct.

Pramod Bhandari — Chief Financial Officer

This is the reason of the incremental EBITDA margin.

Rajesh Jain — NB Investments — Analyst

Sir, but also since you are using the latest technology maybe the efficiency is better. Energy cost material relatively less…

Pramod Bhandari — Chief Financial Officer

Yeah. Fixed cost will be divided in the five plants compared to four plants.

Rajesh Jain — NB Investments — Analyst

Correct. Correct. So can we expect what is the minimum we can expect increase in the margins?

Pramod Bhandari — Chief Financial Officer

I think it’s too — it will be not correct for me to talk about the margin. I can simply say that the payback period we expect is less than four years.

Rajesh Jain — NB Investments — Analyst

Okay. Fair enough. Sir, in the last call you had mentioned you are going for the installation of solar panels at the Taloja plant…

Pramod Bhandari — Chief Financial Officer

Yes.

Rajesh Jain — NB Investments — Analyst

So just wanted to know what is the investment for this project and what are the savings for the company you have?

Pramod Bhandari — Chief Financial Officer

The project cost is around INR2 crore to INR3 crore and it has been installed. And since the government has changed the policy, so whatever electricity we consume in terms of total unit, the unit which you are generating to the solar plant are deducted and balance is build on I G. So there is a direct saving on the per unit of the electricity generated through solar at a commercial rate, which is being supplied to I G.

Rajesh Jain — NB Investments — Analyst

Okay. So what could be the savings if you have to look in on an annual basis?

Pramod Bhandari — Chief Financial Officer

It will be between INR50 lakh to INR1 crore per year.

Rajesh Jain — NB Investments — Analyst

INR50 lakh to INR1 crore?

Pramod Bhandari — Chief Financial Officer

Yeah, because we hardly use electricity, we generally use steam to power the plant.

Rajesh Jain — NB Investments — Analyst

I know, you had mentioned that in the earlier call.

Pramod Bhandari — Chief Financial Officer

But — it is a good, payback period is less than three year for that project.

Rajesh Jain — NB Investments — Analyst

Okay. Very good. Sir my next question is, if you could tell us what is the capacity utilization of PA in quarter two?

Pramod Bhandari — Chief Financial Officer

The capacity utilization may remain same, 89% to 91%, same.

Rajesh Jain — NB Investments — Analyst

So that means whatever the reduction in volume you had mentioned is purely because you could not dispatch. Other than that there is no other…

Pramod Bhandari — Chief Financial Officer

It’s only 2,000 tons. [Speech Overlap] Actually above 51,000. Sometimes you do 53,000, 54,000, sometimes 51,000, it’s keep on changing.

Rajesh Jain — NB Investments — Analyst

Okay. So from the regular 51,000, it has come down to 49,000?

Pramod Bhandari — Chief Financial Officer

No. No. It is above 50,000 only, last quarter was 50,000 to 54,000, now it is around 50,000 plus. Because our run rate typically is 16,000 to 17,000 per month. That is the rate.

Rajesh Jain — NB Investments — Analyst

So 16,000 to 17,000 means, so it will be around 48,000 to 51,000, right?

Pramod Bhandari — Chief Financial Officer

Correct.

Rajesh Jain — NB Investments — Analyst

So that means in the Q2 we had done around 48,000 to 49,000?

Pramod Bhandari — Chief Financial Officer

Yes.

Rajesh Jain — NB Investments — Analyst

Okay. Fair enough. Sir do we have any…

Pramod Bhandari — Chief Financial Officer

Let me correct. Sorry for this. Q2 we have 50,000 plus. In Q1 we have 53,000. So there are gap between the Q1 to Q2. That’s all. Around 2,000 ton. But having said that our run rate is 16,000, so 16,500. So above 50,000 we are in the same range.

Rajesh Jain — NB Investments — Analyst

Okay. Sir, for the coming this Q3 or Q4, so you expect the same demand and do you expect the same run rate to continue?

Pramod Bhandari — Chief Financial Officer

I think in terms of production, it will be around 16,000 per month. If we have decided to take any shutdown for change in catalyst, then we will see it will be around 45,000 to 47,000 [Phonetic].

Rajesh Jain — NB Investments — Analyst

Sir, I’ll put it out other, I’m not asking from the demand perspective — production perspective, I’m asking from the demand, you are seeing the demand has not moderated, it has…

Pramod Bhandari — Chief Financial Officer

Demand is generally there, because India still import 8,000 tons per month.

Rajesh Jain — NB Investments — Analyst

Correct. But sir compared to September, now we are in November, is there any reduction in price of Phthalic Anhydride?

Pramod Bhandari — Chief Financial Officer

So Phthalic price has gone down as low as INR100. Now, right now, prevailing between INR110 to INR115. So it’s in presentation [Phonetic]. When I am saying Phthalic price gone down off, it doesn’t make any difference. Ultimately, how it is as compared to the raw materials, that is making differece. So it has gone down in-line with that OX prices, now OX has gone up Phthalic has also gone up.

Rajesh Jain — NB Investments — Analyst

Okay. Fair enough. Sir did we have any inventory loss during Q2?

Pramod Bhandari — Chief Financial Officer

On the last quarter, yes there were small amount of inventory, I am not directly calculating but around INR3 crore to INR4 crore of the inventory, which has gone into the system.

Rajesh Jain — NB Investments — Analyst

Now that you are seeing in Q3, the OX has gone up and [Speech Overlap]

Pramod Bhandari — Chief Financial Officer

It’s not particularly about the pinpointing the inventory but when we’re buying assets, say, when buying, OX, I’d say INR90 and you plan to sell at INR105 and suddenly the INR90 inventory which you are carrying become INR85 and then you need to sell at INR100, so that INR5 adjustment you need to do it in your inventory value.

Rajesh Jain — NB Investments — Analyst

Correct sir. I agree. Sir, lastly, you had said there is reduction in the margin of Maleic Anhydride, any particular reason?

Pramod Bhandari — Chief Financial Officer

I think lot of plants were shutdown, they have come up in the market. Second is the logistic issues because of extraordinary unprecedented rise in the Maleic Anhydride prices from 110 to 250 to 300. That has corrected I think long back. Now it is moving between right now INR90 to INR110.

Rajesh Jain — NB Investments — Analyst

Right sir. Okay. Sir now, assuming that the Phthalic, there will not be much more any increase or decrease in price and Maleic price also moderated. Can we expect around a run-rate of INR550 crores of revenues for — till we commission the new project?

Pramod Bhandari — Chief Financial Officer

I think that is all depend upon the pricing. If the prices remain same, we expect INR500 crore plus revenue. If prices goes down, it will be lower. But I think, it all boil down to the final margin. Price doesn’t make any difference, even at 450 also you can make the EBITDA higher than INR100 crores. So ultimately margin is better. Sales is only the number in terms of the total value and volume.

Rajesh Jain — NB Investments — Analyst

Okay. Fair enough. Thank you very much and wish you all the best sir.

Pramod Bhandari — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Pawan Nahar, an Individual Investor. Please go ahead.

Pawan Nahar — Individual Investor — Analyst

Yeah. Thank you, again. See what I noticed is that your better days has been growing up consistently year after year. Right. This has led to lower conversion into operating cash flow of [Indecipherable]. So if you can explain what is the new normal or you know, it will…

Pramod Bhandari — Chief Financial Officer

So when we are exporting, we need to give 90 to 120 days credit. However, in domestic market, we are selling around 50% to 60% in cash or LC and balance 40% to 50% in open credit. So number of days debtors has gone up, we are aware of that because there are some recovery which is also pending from some of the player which has been achieved now. We have started some facilities in our bank through which we can discount the bills of a particular party directly. We use that facility as and when we need cash. We don’t need cash, we don’t discount it. So that’s why you look debtor high. But I can discount that INR30 crore in one day. But we don’t need to.

Pawan Nahar — Individual Investor — Analyst

No, I understand. Discount is as good as borrowing. I understood.

Pramod Bhandari — Chief Financial Officer

So discount is as good as cash, but we decided not to do.

Pawan Nahar — Individual Investor — Analyst

No, no, that’s fine, that’s good. So my question still is, use that you need to give 90 days of credit for exports, right?

Pramod Bhandari — Chief Financial Officer

60 to 90 days, yes. That is the standard practice.

Pawan Nahar — Individual Investor — Analyst

Sorry, and 60 in domestic or 50?

Pramod Bhandari — Chief Financial Officer

No, no, no. In domestic, we generally sell in cash, okay, some cases we give 30 to 60 days credit.

Pawan Nahar — Individual Investor — Analyst

And how much is exports as a percentage of total for you?

Pramod Bhandari — Chief Financial Officer

12% for last quarter.

Pawan Nahar — Individual Investor — Analyst

Then if half the domestic business is generally that, only 10%, 12% is sold on 90 days, your debtors are like 67 days, as I see…

Pramod Bhandari — Chief Financial Officer

No, no, no. I will repeat again. I will repeat again. 50% of debtor are sold on cash where we get the money in 7 to 15 days.

Pawan Nahar — Individual Investor — Analyst

[Speech Overlap] coming of sales, 50% of debtor…

Pramod Bhandari — Chief Financial Officer

Just 50% of debt is domestic sale. I’m talking about domestic sale. Balance 20% to 30% is on LC and bill discounting where whenever we need money we can get a discount and 20% is on open credit.

Pawan Nahar — Individual Investor — Analyst

So what I’m again trying to repeat is if you do that math, 67 days seems, very, very high.

Pramod Bhandari — Chief Financial Officer

So because we have not discounted, that is not my point is.

Pawan Nahar — Individual Investor — Analyst

What happens is for 50 days you are doing 0, right? No credit.

Pramod Bhandari — Chief Financial Officer

No. 10 to 15 days because generally seven days is the delivery period, and seven days is the recovery period.

Pawan Nahar — Individual Investor — Analyst

Okay. And this recovery that you mentioned, how much is the amount and has it come in Q2 which means [Speech Overlap]

Pramod Bhandari — Chief Financial Officer

Yeah. Yeah, All in time. The debtors which you have seen is on the September, it has been recovered because there are some pain in the pigment industry, so there was a delay, now it has been recovered.

Pawan Nahar — Individual Investor — Analyst

Okay.

Pramod Bhandari — Chief Financial Officer

Why we have not discounted because we have sufficient cash on the balance sheet as on September it is around INR330 crore cash in the balance sheet.

Pawan Nahar — Individual Investor — Analyst

That would be the net new gross number. How much is the net number?

Pramod Bhandari — Chief Financial Officer

Net of debt?

Pawan Nahar — Individual Investor — Analyst

Yeah.

Pramod Bhandari — Chief Financial Officer

Just remove INR116 crore from INR336 crore, around INR220 crores.

Pawan Nahar — Individual Investor — Analyst

INR220 crores is the debt. Okay. Thank you. And the 67 will not come down as for what is your understanding?

Pramod Bhandari — Chief Financial Officer

I think, ideally 60 to 62 day, 67 is on higher side, but I think from next quarter onwards you will see 60 to 61 days.

Pawan Nahar — Individual Investor — Analyst

Okay. And do you all get your raw materials on credit?

Pramod Bhandari — Chief Financial Officer

Yes.

Pawan Nahar — Individual Investor — Analyst

Okay. Thank you sir.

Pramod Bhandari — Chief Financial Officer

Okay.

Operator

Thank you. The next question is from the line of Yogesh Tiwari from Arihant Capital Markets Limited. Please go ahead.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Hello?

Pramod Bhandari — Chief Financial Officer

Yeah.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Yeah. Yes sir, I just had one question. So in the last conference call, there were some discussion about we were looking at some land acquisition for our new plant. So any update on that? You were planning some facility?

Pramod Bhandari — Chief Financial Officer

Nothing. Nothing. It’s under process right now.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

But we are moving in that direction, right? We are looking for a new facility out of the B facility?

Pramod Bhandari — Chief Financial Officer

Right now, we have four to five acre available adjourning to our existing facility, so that we will be utilizing first. And then for the all future projects we are looking for the land parcel. I think that is under evaluation. Once we finalize that, then we’ll be able to communicate.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

And sir, that four to five acres which we have will be mostly for plasticizers?

Pramod Bhandari — Chief Financial Officer

So I have not commented which project is. That land is available, that is what my point is.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Okay, sure sir. Yeah. Thank you very much.

Pramod Bhandari — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Aditya Khetan from SMIFS Institutional. Please go ahead.

Aditya Khetan — SMIFS Limited — Analyst

Sir, the PA-5 expansion, we have started commissioning on to our existing plant, right?

Pramod Bhandari — Chief Financial Officer

Correct.

Aditya Khetan — SMIFS Limited — Analyst

So this INR60 crore of CWIP which we are witnessing as on date on the balance sheet, so that shows…

Pramod Bhandari — Chief Financial Officer

It’s a PA-5.

Aditya Khetan — SMIFS Limited — Analyst

Have you capitalized some amount for that expansion?

Pramod Bhandari — Chief Financial Officer

No, no. WIP is reflecting the project in-progress which is for PA-5. INR60 crore is the money which has already been spent and then LCs and others are open which has not been reflected in financials. So INR60 crores is purely for PA-5 project.

Aditya Khetan — SMIFS Limited — Analyst

Sir this is for PA-5? Okay.

Pramod Bhandari — Chief Financial Officer

Correct.

Aditya Khetan — SMIFS Limited — Analyst

So apart from this you mentioned to the last participant, you are having four to five acres of land available which is excluding which we are doing expansion on to the PA-5 site?

Pramod Bhandari — Chief Financial Officer

Absolutely right.

Aditya Khetan — SMIFS Limited — Analyst

Okay. And sir on to the exports part, so considering if we move — more towards the downstream derivatives, so will that we focus more on the exports part and that would increase the export share in the total revenues?

Pramod Bhandari — Chief Financial Officer

So. I think, it all depends upon what type of products you are producing. If you are producing some say, plasticizers then domestic, if you are producing some polymers, then maybe 50-50, so it’s all depend upon the type of product. But generally we keep the option of export and domestic open, and that is the reason we will set-up the plant nearby the port.

Aditya Khetan — SMIFS Limited — Analyst

Okay. And demand for PAN, you have mentioned that, so that is quite healthy. But sir when you are talking to other chemical companies, so they are stating that even the agrochemical, the dyes and pigment, even to some extent pharmaceuticals are witnessing some sort of so demand setback. But you are saying that [Speech Overlap]

Pramod Bhandari — Chief Financial Officer

There are moderation in the demand because there are some challenges in the downstream industry because there are some challenges in the European and that side. Whoever is supplying, like pigment is generally supplying to the China and the Europe. So there are challenges in that site. We have seen the moderation of demand in Pigment segment, paint is doing well. Plasticizer is doing fine. So pigment there are some challenges. Anyhow, there are multiple industry you supply. All industries can’t perform well all the time.

Aditya Khetan — SMIFS Limited — Analyst

Okay. So sir, is there any some news of any players into the Europe has taken to permanent shutdown or closure of capacity?

Pramod Bhandari — Chief Financial Officer

I thought — the only thing we heard is that BSF [Phonetic] has decided to put 50% of their capacity from Germany to China, in view of the restriction in supply of gas. That’s all. But there are challenges in the Europe because the cost of the natural gas and electricity has gone seven to eight times. So it’s not easy for them to operate.

Aditya Khetan — SMIFS Limited — Analyst

So this can be an opportunity for us to supply more to for Europe and can capture the market share?

Pramod Bhandari — Chief Financial Officer

It is in two ways, because the opportunity is, if you can produce the product, which is manufactured by Europe, India can be — not only China plus one but Europe plus one, you can set-up the plant here and supply to the European counterpart. Having said that, if you are supplier to European industry, and if they are not operating then you will be in some slight trouble. So it’s a two-way. If you can set-up, you’re supplier of raw material to the European one, then you will face the challenge. If you are supplying something which is consumed by European, then you are in a better position.

Aditya Khetan — SMIFS Limited — Analyst

Okay. So we are supplying to Europe sir?

Pramod Bhandari — Chief Financial Officer

We don’t supply. We have our exposure to the Middle East, we are supplying 10% to 15%, all our exports in Middle East, not Europe. Because we produce in the flakes, it’s in powder, Europe consume Phthalic into the liquid.

Aditya Khetan — SMIFS Limited — Analyst

Okay. Sure. Okay sir. Got it. Thank you sir.

Pramod Bhandari — Chief Financial Officer

Thank you.

Operator

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

Pramod Bhandari — Chief Financial Officer

So with this, I would like to conclude the call. The only message I need to give is, just look at the Phthalic and the type of industry, it’s just beginning of the era of infrastructure build-up in India. It’s a long way to go to highway to bridge to dam to metros. A lot of infrastructure activity is expected to come up in next 20 years. We expect there may be a moderation, maybe for one or two quarters. We expect Phthalic demand to continue to grow next 15 to 20 years. Having seen the good polymers, as well as the UPR, as well as the pigment, specialty chemicals, they all will do well in the long-run. In short-term there may be some hiccups. But on long-run the sustainable growth of India is directly linked and Phthalic demand is directly linked with that.

With this, I thank you everyone else. And if you have any query, get in touch with SGA or directly send a mail to us, we are happy to respond to you. Thank you very much. Bye.

Operator

[Operator Closing Remarks]