Laxmi Organic Industries Ltd (LXCHEM) Q2 FY23 Earnings Concall Transcript

Laxmi Organic Industries Ltd (NSE:LXCHEM) Q2 FY23 Earnings Concall dated Nov. 09, 2022

Corporate Participants:

Ravi Goenka — Chairman and Managing Director

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Tanushree Bagrodia — Chief Financial Officer

Analysts:

Monali Jain — Go India Advisors — Analyst

Gautam Gosar — Perpetuity Ventures — Analyst

Ankur Periwal — Axis Capital Limited — Analyst

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Chetan Thacker — ASK Investment — Analyst

Anurag Patil — Roha Asset Managers — Analyst

Rohit Sinha — Sunidhi Securities — Analyst

Neeraj Thakker — — Analyst

Anand Sharma — AB Capital — Analyst

Unidentified Participant — — Analyst

Meet Vora — Axis Capital Ltd. — Analyst

Chintan Patel — Satco Capital Markets — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Laxmi Organic Industries Limited Q2 FY23 Conference Call hosted by Go India Advisors. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Monali Jain from Go India Advisors. Thank you, and over to you.

Monali Jain — Go India Advisors — Analyst

Thank you, Nayak. Good afternoon, everyone, and welcome to the Q2 and H1 FY23 earnings call of Laxmi Organic Industries Limited. We have on the call, Mr. Ravi Goenka, Chairman and Managing Director; Mr. Satej Nabar, Chief Executive Officer; Mr. Harshvardhan Goenka, Executive Director, Business Development; and Ms. Tanushree Bagrodia, Chief Financial Officer.

We must remind you that a discussion on today’s call may include certain forward-looking statements and must be therefore viewed in conjunction with the risk that company faces. May I now request Mr. Ravi Goenka to take us through the business financials and the business outlook subsequent to which we will open the floor for Q&A. Thank you and over to you sir.

Ravi Goenka — Chairman and Managing Director

Thanks, Monali. And very good afternoon, everybody, ladies and gentlemen and welcome to this earnings call for the first half of the fiscal year. At the end of September, our company entered into an MOU with Welspun Corporation to purchase a 90-acre land parcel along with constructed civil structures in the hedge for a consideration of INR130 crore. We hope to complete this entire transaction hopefully in this quarter itself and this acquisition will enable future expansion of our business while simultaneously de-risking our operational footprint. And both of these steps are key to our 5-year vision of growth and consolidation of the Specialty Chemicals business.

Towards the end of the first half of FY23, we received a court order approving the merger of our subsidiary Yellowstone Chemicals Private Limited into Laxmi Organic Industries. As per the order, the merger is effective 2nd of October, 2021. This has resulted in recasting the past results to reflect the merger, thus enabling a fair comparison.

The last quarter of this financial year, the company undertook a 21-day planned shutdown for maintenance at both our units at Maharashtra. Since the floods had impacted us last year, we were unable to take the annual maintenance work given the paramount importance. And given the paramount importance to health and safety, we decided to take the same in the last quarter.

Inventory to the extent possible for this was stopped. I’m very pleased to report that not only was the maintenance was completed successfully, but we were also able to integrate two new manufacturing facilities that we have capitalized in the first half of this fiscal. Today, both the units are running smoothly.

Let me give you a brief overview on the business before we discuss the results. Starting with our Acetyl business, in Q2 of financial year ’23, this segment saw both demand and price pressures. While the price impact was very well anticipated and factored, the global recessionary environment, coupled with the euro currency movement, impacted our customers leading to a far lower demand than we had thought of.

In the last quarter of this financial year, the transportation and the energy costs, including coal, significantly increased year-on-year impacting both our business segments. As we have entered the second month of Q3 ’23, we see some green shoots in the segment and some relief coming in from European prices, reduction in freight, and the stability in the currency rates.

During the quarter and the first half, the AI segment contributed approximately 65% to the top line. The contribution of this segment to the margins reduced considerably in Q2 while for the half year FY23, it was about 35%. We continue to maintain our strategy of maintaining our market position in this segment and only investing to the extent of debottlenecking.

Coming to the SI or the Specialty Intermediates segment, while the AI business has faced significant headwinds, our SI business robustness can be seen. We entered this business in 2010 and over the last 2 years, we have scaled it up through capacity addition and by introducing new products through focused R&D. Our technology can cater to a complete range of derivatives with applications across multiple sectors and today our basket of 40 to 45 products is much deeper than the 6 to 8 products that came with the acquisition.

The last quarter and the half year, this segment contributed to 35% of the revenue, albeit its contribution to the margin for the first half was 65%. The maintenance shutdown altered the product mix, leading to a lower contribution margin this quarter versus the previous quarter. Phase 1 of our second large SI plant was capitalized in Q2 and we are keenly looking forward to the production commencing in Q3 ’24. Along with plant commission in Q1, the 2 plants should start showing the performance in full force by Q4 of this fiscal.

Our strategy in this segment has been to provide for import substitution domestically and that has given us the market leadership in India. Globally, we have been able to make significant inroads with varied customers, gain market share. And with the strong and sticky customer relationships, we are now honored to be long-term suppliers to some of the world’s leading brands across industries. These customer associations are also helping lay the foundation for our upcoming FI segment as global sourcing strategies for large companies are changing. We remain focused on investing to strengthen this trajectory of the SI business journey.

I will now give an update on the FI segment. As you are aware, we entered the flooring segment through the acquisition of Miteni’s assets in Italy. These assets are being relocated to their new home in Lote Parshuram in Maharashtra. The works on the site are in full swing and in line with our discussions. We are confident of commissioning the plant in this fiscal and to that extent are ensuring that the customer and supply contracts are secured in the cases where discussions were ongoing and not closed.

This acquisition catapults Laxmi into a highly specialized area and gives us access to technology equipment and a library of more than 100 products, including products in R&D, 14 patents, REACH registrations and many formulations. Miteni generated revenues of over EUR25 million with contributions in the early phases.

Our strategy in this segment is to work with our existing customers and fulfill the requirements of FI products, thereby ensuring that we establish ourselves as a reliable supplier of AI, SI, and FI products. It will also enable us to start working with customers on fulfilling their requirement, which requires technological expertise of both the segments or platforms. Simultaneously, we aim to reestablish market share with the earlier customers of Miteni as much as possible.

Let me briefly discuss the financial performance for the last period. In Q2, the consolidated income for the company was INR655 crore, which was down 14% quarter on quarter, largely driven by the lower volumes. In the same period, the inventory of the company decreased by INR48 crore, which while having an adverse impact on the P&L, has had a positive impact on the cash flow. The cost control efforts have led to a reduction in other expenses. The profits for this quarter stood at about INR9 crore.

For the first half of the fiscal, the revenue grew by 4%, which is largely because this fiscal, the factories operated for a longer period than last year, which witnessed the floods for more than 65, 70 days in July 2021. In the first half, cash generated from operations stood at approximately INR75 crore, which is a 4.5 times increase from INR16 crore figures in the same period last fiscal. This is also an improvement over the full year number of FY22, which was INR102 crore. This instills confidence that we are on the right track, maintaining strict vigil on inventory and receivables, while continuing to buy locally. We believe our company is on the right track and is in the right strategy.

Before I open the floor for questions, I would like to discuss the chemical sector outlook. I believe the Indian chemical sector is poised for a capex super cycle and is already benefiting from the global turmoil caused by the energy crisis in Europe. EU for the first time ever has turned a net importer for chemicals and is struggling to compete in the global markets where chemical businesses are more favorable. All this gives India an opportunity and a company like ours to scale up and increase our footprint to become a respectable and a sustainable specialty chemical company in the coming years. And it is to this end that we acquired a large land parcel at the hedge to set up our new capex’s for new businesses.

Thank you very much. And with this, I would like to open the floor for questions. Thank you.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Gautam Gosar from Perpetuity Ventures. Please go ahead.

Gautam Gosar — Perpetuity Ventures — Analyst

Hi. Thank you for the opportunity. I have two questions. Firstly, on the acetic acid prices. So there has been a declining trend in the acetic acid prices. So, is there any lag in the pass-through? And secondly can you highlight about the new products in pipeline in AI? And have we seen any new customer addition during the quarter? Also, if you could speak on the competitive landscape for us and do we have any plans to launch and initiate new chemistries within AI to compete with the peers? Thank you. These are my two questions.

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Sure. Hi, Gautam. Happy to take that. Harsh here. Regarding acetic acid, yes, it has been — it has been showing a declining trend and you will see that acetic acid and ethyl acetate overtime move in tandem. We have shared some details on our investor deck as well that will show you the trend lines. The way we purchase acetic acid is over about a 45- to 60-day period of inventory. So indeed, there is a lag in the pass-through and this reverses when the trend line reverses as well.

Regarding new customers for — and new products in the AI segment, our strategy as Laxmi is to actually debottleneck and maintain market share in our Acetyl Intermediates space. And most of –90% of our capex’s is going towards our SI and FI segment. That is something that we are focusing and targeting on. We have a fairly robust pipeline of products in SI and FI and we’ll deploy these capex’s with time, which is why we have bought and invested here in the large piece of land as we are seeing big demand for these new products and some of the existing products as well.

Gautam Gosar — Perpetuity Ventures — Analyst

Got it. And on the peers like what do you see on the competition side?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

So, I’m not sure what you’re alluding to. Could you be little bit more specific?

Gautam Gosar — Perpetuity Ventures — Analyst

Like the peers that you see in this space.

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Yes. So, there are peers in this space in the segments that we operate. We have leadership position in the segments that we operate. But, of course, there are peers who we play along with.

Gautam Gosar — Perpetuity Ventures — Analyst

No, I was majorly coming from the Fluoro space, so on that side. Anyways, thank you for the response.

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Thank you. Thank you, Gautam.

Operator

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

Ankur Periwal — Axis Capital Limited — Analyst

Yes, hi, good evening, and thanks for taking my question. First bit on the SI side. So, while on a year-on-year basis, the numbers have been pretty good because of the low base as well. There is a dip on a Q-on-Q basis. Is there any seasonality which impacts here or how should one look at it?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

So, no real seasonality, Ankur. SI, while some segments were impacted more than others, we — because of our large basket, we’ve been able to switch the product mix a bit. And that’s what resulted in a slight difference in the overall contribution margin of ESI, but nothing significant with regards to that. Primary impact on SI is because of volumes, which is fairly planned because of the annual shutdown.

Ankur Periwal — Axis Capital Limited — Analyst

Okay. Fair enough. And when you said some segments, were seeing probably some demand issue. Is this more in the international market versus domestic because of some demand destruction, et cetera?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

So, Ankur, and the thing we chatted about this earlier, we are seeing markets of international and domestic merge and it’s more what to do with which industry you’re serving, primarily because either our customers are also exporting or there are shares going — everyone’s interrelated in some way. So, the pigment industry, in particular, and the pharma industry, in particular, started to experience some slowdown, but you’re able to manage by going slightly more aggressive on the other segments.

Ankur Periwal — Axis Capital Limited — Analyst

Sure. Fair enough. And your thoughts in terms of medium-term growth — you did mentioned that AI is seeing some bit of green shoots starting Q3. In SI also, is there a similar outlook there? And because there will be an incremental contribution from the new projects as well, which will be coming in the second half. So put all together, how is your growth outlook on the SI side? Not from a near-term perspective, but more from a 2, 3-year perspective?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

No, I think, Ankur, our SI business, we are continue to — we continue to remain very bullish and strong on. There are — Europe has thrown up more opportunities as well. We are seeing ourselves becoming more and more active in various markets in various segments and which is why they need to grow this and a clear path to grow this business. And that’s what we’re doing, that’s what we’re investing in and we keep on churning new products and new business from this segment and you will see those investments coming up as time goes on.

Ankur Periwal — Axis Capital Limited — Analyst

Sure. And Harsh, just if you could remind what sort of product approval cycle is — the time required here, let’s say if we were entering a newer geography or maybe a new customer?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

I can’t generalize it, Ankur, but it can be as long as a year to as short as 6 months. And depending on the complexity, some molecules take even longer. How close they are to be active, plays an important role.

Ankur Periwal — Axis Capital Limited — Analyst

Sure. Fair enough. And the new land parcel, which you also highlighted in the opening remarks. Any immediate plans to build capacities over there, whether it is for FI or SI? Or it is more on need basis and maybe we’ll take a call over a medium term?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

No, we have crystallized our plans for the new land. We will be — we will be informing everyone, I think maybe in the next quarter as once we are — once we have it approved with the Board. So, our plans are fairly crystallized and soon you will hear about that. Yes, so power and transportation have played the largest impact in the — in that line item that you see. So, coal costs, as you’ve seen, and tracked all industries as well as transportation is what has impacted us and time will go on. I think Q3 you’re still experiencing some part of that, but it is normalizing in this quarter. It’s starting to normalize in this quarter.

Ankur Periwal — Axis Capital Limited — Analyst

Sure. And no one-time, right, because of the maintenance shutdown, et cetera, there is no one-time cost in this one?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

No.

Ankur Periwal — Axis Capital Limited — Analyst

Okay. Thanks for the clarification and all the best. Thank you.

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Thank you, Ankur.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Amar Mourya from AlfAccurate Advisors. Please go ahead.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Sir, thanks a lot for the opportunity, sir. Couple of questions from my side. Number one is in Specialty business, I believe your export has done well but domestic business was either flat or kind of interim growth or a zero-growth kind of thing. So, any specific reason for that?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Yes, very much, Amar. As mentioned to you, the pigment industry, not just in India but globally, is facing some headwinds in pigment and pharma. Both of these, you will see them in the pharma results as well for the entire industry and we are impacted by that.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Okay. So, because that is the big chunk of our business, so how do we see is going to shape up going forward?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

So, Amar, we — because of our portfolio size, we’ve been able to shift the product mix and still be able to service other industries and other customers. So, while some industries might face issues, I think the other industries, it helps us balance out this volatility in the SI business.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Okay. And sir, the contribution from the new plant, if you can give us, what would be the — what would be the utilization in this particular quarter of the new plant?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

So, think of it this way, we had about a 21-day shutdown over the entire period. So that’s the rough utilization that you can take to make your assumptions.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Or let me ask a little bit differently. Sir, basically this piece of new plant, which had come up, I think we had invested something around INR100 crore, right, INR150 crore overall for the Phase 1 and Phase 2. So basically, I wanted to understand at a peak, is it like two times kind of — if there is a turnover ratio for the overall capex?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Okay. I see where you’re coming from. I think the new plants that we’ve invested in are going to be more margin accretive than revenue accretive because they are derivatives of our existing products. So, you will see the impact more on margin than revenue. Therefore, the terms may not be as high, but the profitability will be.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Okay. So, in terms of the payback, like normally is this like 3 years kind of a payback period in that case?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Yes, most investments that we look at, especially on a brownfield basis should be at that limit or better.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Okay. And secondly, sir, in the FI business, like as you indicated that things are on the track. Sir, just to understand little bit more in detail, like I mean this plant which we are importing from Miteni or imported from Italy is basically a 4-year one. And then, the plant was basically closed there as well for the 4 years. And obviously the customer base were — who were buying from the Miteni, they either found their alternative sources. And now we are importing that plant, stabilizing it and then getting those inquiries, so I’m just trying to understand if you can give us some more color on this that how we are basically building this whole pipeline and stabilization of the plant? And I mean how fast we can basically we start getting visibility?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

I understand. I think I get where you’re coming from Amar. So, you’re fully right. The plant was shut for a prolonged period, COVID didn’t help us, but the supply chains obviously shift. And we expected that, when we went in with this acquisition, we expected the supply chains to shift and no customer will wait up Miteni to restart. So, — but what we saw is that Miteni has about a 100 product basket that they had produced in their life. So among the 100 products, after customer conversations we have boiled it down to 10 to 12 products that we are going to be starting off with, all of these products have been either produced at our kilo lab scale and are at various stages of qualification with the customers. So, we’re fairly confident that while all the products may not come back, we are able to churn the product mix and able to still recover the overall business that Miteni was getting.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Okay. So, I think sir, at a peak we used to be $250 million kind of revenue, right?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

No, not $250 million, $25 million.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Okay. $25 million.

Harshvardhan Goenka — Executive Director, Strategy & Business Development

$25 million to $30 million.

Ravi Goenka — Chairman and Managing Director

That’s definitely the aspiration.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

But then, in year one, at least we can be the half of what they were doing?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

I won’t comment on that, but I think we are principally the way we are looking at it is, you have a strong base that is being built up with the small size of business which will be more like building blocks and forming the core. Thereby, what we have done with — what we have managed to do with the SI business is what we will look to do with the FI business as well as we see adequate opportunity to grow in various intermediates in the FI space.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Okay. And whatever products we are making, sir, today we don’t have any domestic competition today?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

That’s right.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Okay. Perfect, sir. Thanks, sir. I’ll come back in queue.

Ravi Goenka — Chairman and Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Chetan Thacker from ASK Investment. Please go ahead.

Chetan Thacker — ASK Investment — Analyst

Good afternoon. Thank you so much. Am I audible?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Yes. Hi, Chetan. Hi, Harsh. I have just two questions, one was on the AI bit. Is there any one-time the impact there in terms of profitability? Yes, exactly. Chetan. So, it’s more to do with your carrying a higher stock raw materials and then you got a falling price, which impacts the quarter.

Chetan Thacker — ASK Investment — Analyst

And this will normalize by Q4?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

That’s right.

Chetan Thacker — ASK Investment — Analyst

And on the SI bit, just wanted to understand, is just this maintenance shutdown an inferior mix which is impacting profitability in Q3 should again normalize or that will also get pushed out to Q4?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

No. So, you’re seeing — we are seeing signs of that normalize little bit sooner than the AI business. Pharma segment, I think is still experiencing some difficulty, but there are signs of recovery. The Pigment segment might take a little bit longer, but we do expect within the next 3 to 4 months both of these segments have showed sign — the first signs of recovering again.

Chetan Thacker — ASK Investment — Analyst

So, Q4 technically should be in-line with what has been more medium-term kind of trajectory, in terms of profitability?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Correct.

Chetan Thacker — ASK Investment — Analyst

Okay, Harsh. Thank you so much for this. All the best.

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Thank you, Chetan.

Operator

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

Anurag Patil — Roha Asset Managers — Analyst

Thank you for the opportunity. Sir, in terms of Fluoro specialty capex as you suggested around EUR25 million to EUR30 million, if driven is possible and around INR400 crore for capex as announced. If we consider a comparable margins to other Fluoro companies, our IRRs are coming barely single-digit or low-double-digit. So, just wanted to understand, am I missing something here?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

No, you are not missing something. Very true that our IRRs for the initial phase will be lower because we had to invest heavily in the basic infrastructure to establish this plant. And we had some additional costs associated with COVID of maintaining a plant in Europe, which was not producing or could not move. So that was the issue, which this asset faced. However, all other capex, which will come up on this, will attract industry parity margins and IRRs that you are usually used to.

Anurag Patil — Roha Asset Managers — Analyst

Okay, sir. Okay. And for this land parcel, how much we have spent?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

So, we’ve bought about a 90-acre land and we’ve spent INR130 crore. That’s the agreement that we have come into Welspun with. And this comes with some basic infrastructure as it was an existing operating plant with different industry.

Anurag Patil — Roha Asset Managers — Analyst

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

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Rohit Sinha from Sunidhi Securities. Please go ahead.

Rohit Sinha — Sunidhi Securities — Analyst

Hello, am I audible?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Yes. Hi, Rohit.

Rohit Sinha — Sunidhi Securities — Analyst

Yes. Hi, sir. Thank you for taking my questions. My question is basically on the AI side. How we are seeing this acetic acid prices currently? And the lower prices is predominantly because of oversupply situation or lower demand side. And going forward, I mean, which would be the — what would be the dynamics where we can see some uptick in that side? And secondly, if you could update on the Diketene business, how currently we are performing their post the smart thing? And given the — as you are mentioning a slowdown in the pharma side, so how we should look this business to shape up in next 2, 3 quarters?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Sure. So, the first part acetic acid, I think it’s a very large market globally. And it’s difficult for several people to predict and we don’t even try to predict it. We base our business model agnostic of where the prices of acetic acid move. And we have to move along with that and we buy and sell at all points. So, I hope that’s able to give you a perspective there.

On the Diketene business, I think the Pigment business and the Pharma business continue to remain slightly soft. We are seeing green shoots of them coming out of their own troubles and increasing capacity utilizations of our customers. We think that will be fully up by the end of this quarter and that’s when you’ll see back to the realization that was earlier, but even then the business continues to remain robust and strong because we have been able to shift the product mix and leverage on the portfolio offerings that we have for various industries.

Rohit Sinha — Sunidhi Securities — Analyst

Okay. Okay. That’s it from my side.

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Thank you, Rohit.

Operator

Thank you. We have the next question from the line of Neeraj Thakker. Please go ahead.

Neeraj Thakker — — Analyst

Yes. Thank you for taking my question. Am I audible?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Yes. Yes, Neeraj.

Operator

Mr. Neeraj, you’re requested to kindly come closer to the microphone, your voice is a bit low on the call.

Neeraj Thakker — — Analyst

Yes. Can you hear me now?

Operator

It’s still a bit low. Please go off the speaker phone.

Neeraj Thakker — — Analyst

Yes. One second. Am I audible now?

Operator

Yes, you are.

Neeraj Thakker — — Analyst

Sir, I have two questions. One is regarding this — since we are doing so in an expansion mode, so how much cash we are generating and are we expecting to take some debt in future for our future expansion?

Tanushree Bagrodia — Chief Financial Officer

Hi, Neeraj, Tanushree here. So, Neeraj, the company today is completely unleveraged. If you see our balance sheet, the debt-equity is about 0.18. We did take about INR25 crore of long-term — long-term debt at the end of Q1. And the 0.18 debt-to-equity comes in after having taken that INR25 crore of long-term debt. There is enough room for us to take debt. Having said that, you will also see that our cash flow from operations in this half has improved. It’s at about close to INR75 crore, about 4.5 times of what it was in the previous year same period, right.

So, the company continues to generate cash and the capex is not going to be a one-time expense. So, we will keep using internal accruals as we get. And we will take some debt, but we will be prudent in our borrowings. And at this point in time, we don’t envisage our debt-equity of going above 0.5 times.

Neeraj Thakker — — Analyst

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

Operator

Thank you. [Operator Instructions] We have the next question from the line of Anand Sharma from AB Capital. Please go ahead.

Anand Sharma — AB Capital — Analyst

Yes. Hi. Thanks for the opportunity. Just wanted to understand about the new product pipeline in SI. Given that we already have around 50% of market share there, so I just wanted to understand what is the next step, what is the next direction that we’re going in terms of expanding this? Just wanted to understand any major scope for further increase in market share over there?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

So, I think Anand, you got adequate opportunity in domestic and international markets in some of the areas you’re already serving. So that remains the strategy, but there are various areas that we are not yet part of and there is space to grow and there are new areas upcoming too. The SI segment as we continue to see it, has a basket of more than 10 to 12 chemistries. So, the addressable market is fairly large and that gives us adequate opportunity to have new products in this basket continuously.

Anand Sharma — AB Capital — Analyst

Okay. Thanks for this. Secondly, I wanted to understand about that capex that we’re doing in FI. So, what is the expected outcome that you are planning over there in terms of what are the sales and margins expected over there in the near to medium term?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

So you’re talking about the capex in SI, right, if I heard you?

Anand Sharma — AB Capital — Analyst

FI, not SI, FI, yes. Not specialty.

Harshvardhan Goenka — Executive Director, Strategy & Business Development

FI, FI. So, FI business, we stated it in our opening remarks as well, Miteni would do about $25 million — EUR25 million business in Europe and they had fairly healthy contribution margins. You could call this contribution margin similar to what you would see with many other peers set companies in the Fluoro space. We will have a slightly — we will start with the basket of products that I would call them building blocks. In a way, they’re not basic building blocks, but little bit more advanced than that, but yet not where we want to take the business to eventually. And those will be at a slightly lower margin, but then eventually catch up with new capex’s that we will be doing in the business.

Anand Sharma — AB Capital — Analyst

Okay, okay. Thanks for this. Thanks for this. I’ll get back in the queue for any further questions. Thanks. All the best.

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Thanks, Anand.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Amar Mourya from AlfAccurate Advisors. Please go ahead.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Yes. Sir, thanks a lot for the opportunity again. In terms of the SI business, I mean we were the only player in the country, I mean, for some last, let’s say, before one-year back. So, like sir, do you — do you feel that we were less aggressive that is why we have given entry to one more competitor into that?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Well, the two-way — there are two ways to look at it. I think our strategy on SI was to — as we stated when we went public, Amar, was to get into certain large contract molecules go international and consolidate on local. We’ve done all three of that. Industry attractiveness I think speaks for itself when you’re attracting new entrants. We are new entrants in the FI business as we are seeing that as an attractive investment opportunity as well. So yes, it can be viewed that we could have been more aggressive, but I think our strategy has been to do a little bit more lateral work when you go into an alternate segment, will also focus on certain things only in the SI segment.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Okay. And secondly, sir, like the new land which we had acquired, obviously you want to disclose the detailed plan probably in the coming quarters. But is that idea is to do the extension of the current line of business, this would be a very different set of business from what you are doing currently?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

So I think, Amar — we our strategy’s stated out where we will invest in businesses which are SI and FI like, 90% of our capex’s will go in that. Now, which molecule or which product, I’m not able to give clarity on that. But those are the kinds of businesses which we will be putting up at our new Dahej site.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Okay. Perfect. Perfect, sir. Thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Jinesh Dilip Gaurav from Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Hello, thank you for the opportunity. The current quarter margins were around 4%, 4.5% as management highlighted that the new plant will be more margin accretive. So, what is the management guidance for margin in near future? And during last year, we had a flood in our plants. So have we received insurance claim for the same since in last call also, it highlighted — was highlighted that the CME spending. And will it have P&L effect or balance sheet effect?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Sure. So, Jinesh, we don’t give any guidance as of now. But I think we’ve alluded, if you can see in the call to several things and I’m sure you can figure out where we are trying to head out. Regarding insurance, we have not yet received the claim. We are working actively with the insurance company to get this and unlock the cash that has been blocked for some of the insurance repair that we had conducted. And that is there in our accounts as well.

Unidentified Participant — — Analyst

Okay. And the new land parcel that we have purchased, so it will be financed through equity or debt, how much — how will it be financed, what will be the ratio?

Tanushree Bagrodia — Chief Financial Officer

So Jinesh, as I said, the company has been producing cash, our cash flow from operations is improving. So, for the purchase of the land parcel, we will be utilizing internal accruals.

Unidentified Participant — — Analyst

Okay. Thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Meet Vora from Axis Capital. Please go ahead.

Meet Vora — Axis Capital Ltd. — Analyst

Yes. Hi, thanks for the opportunity. Just wanted to reconcile on the revenue contribution from AI and SI for H1? So is it 65:35 or is it 70:30?

Tanushree Bagrodia — Chief Financial Officer

Revenue contribution for the first half is 65:35, for the quarter it is 70:30.

Meet Vora — Axis Capital Ltd. — Analyst

For the quarter it is 70:30. So in our presentation on Slide 8, we have written 70:30 for H1?

Tanushree Bagrodia — Chief Financial Officer

That’s a typo, thanks for pointing that out, Meet. We will correct that.

Meet Vora — Axis Capital Ltd. — Analyst

Sure. And regarding the EBITDA contribution, so we have written 75% of the margin has come from SI segment. So, is it absolute as in 75% of EBITDA has come from SI?

Tanushree Bagrodia — Chief Financial Officer

No, so I think the weight. So, okay, what this slide is actually trying to say Meet is, while we were talking about the EBITDA CAGR, right, what we’re trying to show is that how the — as the SI revenue contribution has been going up from 23% to 40%, your EBITDA CAGR has gone from 4% to 31%. Now obviously for one half, I don’t have a CAGR. So here I think what we are trying to say is and we will revert it, thanks for pointing this out. What we are saying is that this time the actual margin contribution from SI has been higher than it has been on the AI side and it’s on the contribution margin versus the EBITDA margin.

Meet Vora — Axis Capital Ltd. — Analyst

Okay. Sure. And what is the EBITDA breakup for Q2 or H1 between AI and SI?

Tanushree Bagrodia — Chief Financial Officer

So Meet, why don’t we reconnect on the call and I’ll help you reconcile all the numbers.

Meet Vora — Axis Capital Ltd. — Analyst

Sure. No worries. Okay, thanks. That’s all from my side.

Chintan Patel — Satco Capital Markets — Analyst

Sir, can you quantify the spread for the ethyl acetate? How much it is down or up sequentially and year-over-year?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

We are not sharing that data exactly on every quarter. But to give you an idea, the AI business operates in high single-digit to low double-digit EBITDA spread over a prolonged period of time. Of course, you’ve got some quarters that are higher and some quarters that are lower.

Operator

This is the operator. Mr. Chintan, we can’t hear you very well. If you could go off the speaker phone and be on handset, it will be better. Sorry, Chintan, we still can’t hear you. Are you on your handset mode?

Chintan Patel — Satco Capital Markets — Analyst

Yes, I’m in handset mode. Hello, am I audible?

Operator

Yes. Now we can hear you.

Chintan Patel — Satco Capital Markets — Analyst

So, in the first half, how is the spread? Is it higher as compared to the last year or it is lower?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

No. It’s been lower and that’s reflected in the results, Chintan.

Chintan Patel — Satco Capital Markets — Analyst

Okay. And sir, can you quantify the payback period for the Miteni acquisition?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

So, the Miteni acquisition, while the initial phase will have a longer payback, because as I had already mentioned earlier, we’re looking at this as a platform play. So, as we get into more and more derivatives, which will have the standardized IRR that we expect from all businesses, you will see that catch-up in its payback.

Chintan Patel — Satco Capital Markets — Analyst

Okay. Okay, sir. Thanks. That’s all from me.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Mahesh Shah an Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Hello?

Operator

Yes, Mahesh, we can hear you, but there’s a lot of disturbance in the background. You’re requested kindly go off the speaker phone.

Unidentified Participant — — Analyst

Yes, just, I am coming. Are you — am I audible?

Operator

There’s a lot of disturbance Mahesh. Could you please come on the handset mode.

Unidentified Participant — — Analyst

Yes, sir. Now, sir. Hello?

Operator

Yes, Mahesh, it’s still pretty low.

Unidentified Participant — — Analyst

Yes, sir. I have only have one question. Hello?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Yes, Mahesh, we can hear you.

Unidentified Participant — — Analyst

Sir, I have only one question. I have examined last 3 or 4 year of annual report and balance sheet. Then I have found that there is some flood — heavy flood issue at Mahad plant. And because of heavy rain or flooding, all-time there is some problem and waiting for 20, 21 days, sometimes 45 days to stop the work for due to flood.

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Yes, Mahesh, that is true. Was there a question around that?

Unidentified Participant — — Analyst

Sir, I have only one doubt. If every year or after one year, 2-year, flood is issue, then it is a risk of the — for business that — and it caused the revenue and effect the profits of the company. So, I just want to — any solution for that as shift or — shift of plant or any other that we can avoid that issue of flood and heavy rain?

Harshvardhan Goenka — Executive Director, Strategy & Business Development

I think — so very valid point, Mahesh. I think we don’t — again, we can’t control rain, so there are 3 controllables that we have. The first is that we moved stocks to warehouse outside of the Mahad region. So, we are not stocking our products there, so to — in least ensure short term continuity to our customers. The second point we’ve spent significant money to flood proof our sites to the extent possible. This does not mean that we will be able to operate in a flood, but this means that we can restart a lot faster if a flood were to affect us and in a safe manner. And the third is getting third site outside of the region, which we have also done in this current quarter and we have announced that we will be having another site at the location at Dahej.

Unidentified Participant — — Analyst

Okay. Thank you, sir.

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Thank you, Mahesh.

Operator

Thank you. [Operator Instructions] We’ve the next question from the line of Amar Mourya from AlfAccurate Advisors. Please go ahead.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Hello, gentlemen.

Harshvardhan Goenka — Executive Director, Strategy & Business Development

Yes. Hi, Amar.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Hi, sir. Sir just Slide number 18, the contribution to profit, basically contribution to the topline and contribution to profit, is this a contribution or is this a growth?

Tanushree Bagrodia — Chief Financial Officer

The split — so when we say — when we are talking about 70:30 on Slide 18 for top line, this is what we are saying. INR100 was my topline, INR70 come from AI and INR30 comes from the SI business.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Correct. Correct. What about the contribution to profit?

Tanushree Bagrodia — Chief Financial Officer

Same thing.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Same thing, right?

Tanushree Bagrodia — Chief Financial Officer

Same thing.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Say INR100 EBITDA, INR67 from the SI and INR33 from the AI, correct?

Tanushree Bagrodia — Chief Financial Officer

AI, yes.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Okay. Perfect. Thank you. This is for the first half. And this is for the first half, right?

Tanushree Bagrodia — Chief Financial Officer

70:30 is for the quarter, half is 65:35.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

65:35, where is that number?

Tanushree Bagrodia — Chief Financial Officer

That number is not there. That number was in MDs opening remarks and that’s what I am reconciling for you. The numbers on Slide 18 are for Q2 FY23.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Okay.

Tanushree Bagrodia — Chief Financial Officer

Not for first half FY23.

Amar Mourya — AlfAccurate Advisors Pvt. — Analyst

Okay. So, this is for Q2 itself, that’s it. Okay. Thank you, ma’am. Thank you.

Operator

Thank you. That was the last question. I would now like to hand it over to the management for closing comments.

Ravi Goenka — Chairman and Managing Director

Thank you very much and thanks everyone for your patience and for being on this call. And it will be a pleasure to answer to any of your queries offline. Feel free to touch base with us by a mail or phone and happy to clarify all your questions. We are looking forward to a sustainable long-term respected company in specialty chemicals. Thank you for everything. Bye.

Operator

[Operator Closing Remarks]