Meghmani Finechem Limited (MFL) Q1 FY23 Earnings Concall Transcript

Meghmani Finechem Limited (NSE: MFL) Q1 FY23 Earnings Concall dated Jul. 21, 2022

Corporate Participants:

Milind Kotecha — Investor Relations Officer

Maulik Patel — Chairman and Managing Director.

Sanjay Jain — Chief Financial Officer

Analysts:

Monali Jain — Go India Advisors — Analyst

Deepak Poddar — Sapphire Capital — Analyst

Riya Mehta — Aequitas Investment — Analyst

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Rohit Nagraj — Centrum Broking — Analyst

Amit Vora — Dr. Amit Vora’s Homoeopathic Clinic — Analyst

Keshav — Roxanne investors — Analyst

Presentation:

Operator

Ladies and gentlemen good day and welcome to the Meghmani Fine Chem Limited Earnings Conference Call hosted by Go India Advisors. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [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, ma’am.

Monali Jain — Go India Advisors — Analyst

Thank you, Vivin. Good evening, everyone, and welcome to Q1, FY’23 earnings of Meghmani Finechem Limited. We have on the call Mr. Maulik Patel, Chairman and Managing Director. Mr. Kaushal Soparkar, Managing Director. Mr. Sanjay Jain, Chief Financial Officer. Mr. B Ravi, Strategy Consultant and Mr. Milind Kotecha, Investor Relations Officer.

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

Maulik Patel — , Chairman and Managing Director.

Thank you. Monali. Good evening, everyone. Welcome to the call to discuss MFLs quarter one FY’23 performance, I trust you had the opportunity to run through the earnings presentation which was shared earlier today. Quarter one FY’23 was a very good quarter for MFL both in financial terms as well as on operational date side. On operations side, we have achieved highest ever or highest capacity utilization for all our products. On financial side, we have achieved highest ever revenue, EBITDA and PAT for the quarter. We can attribute this to the robust demand for all the products, leading to high relations and the volume growth of 5% because of high efficiency and the capacity utilization. On the strategic side in quarter one FY’23 on 1 June at 2022, we have commissioned India’s first epichlorohydrin plant based on Glycerol process. We have commissioned ECH plant within the committed timelines and within the estimated capex limit. Credit for the same goes to the whole team. At Meghmani Finechem our team is focused on protecting the environment by using the best and latest technology. In line with that we have entered into JV to set up 18.4-megawatt wind-solar hybrid power plant to meet the energy requirement of our existing as well as future projects. Also as per the process to get the Responsible Care certificate we were as e-audited and as we met its entire rules and requirements we were awarded the Responsible Care certificate for three years. On 18 to July we have commissioned India’s largest CPVC resin plant with a production capacity of 30,000 tons per annum. This project was also completed within the committed guidelines and within capex limit. As of now the products are under approval process which various CPVC pipe makers as the products are approved by various customers, which should take around three months. So post that we expect a volume of CPVC to pickup quarter three FY’23 onwards. Considering capex that we have done in last two to three years, gives us confidence to meet our revenue guidance of 50% growth in FY 2023. Also to further growth, the capex on chlorotoluene and its value chain has started and also worked on setting up a R&D center is initiated. Hence we are moving in right direction for our long-term growth of achieving INR5,000 crore revenue by FY’27 with strong ROC. By FY 2027, almost 60% of the revenue would be coming from the value-added derivatives and the Specialty Chemicals segment.

Now I will hand over the call to Mr. Sanjay Jain, our CFO who will take you through the financials.

Sanjay Jain — Chief Financial Officer

Thank you, Maulik. As Maulik already mentioned that the company has achieved ever as turnover of INR533 crore that is a growth of 84% year-on-year basis. The higher capacity utilization across the division and better realization attributed to the growth of 84%. In [Inaudible] EBITDA has double at INR187 crore. The EBITDA margin has significantly improved from 35% quarter one FY’23 against 32% in quarter one FY’22. Thus this is increase of 333 based on quarter-to-quarter comparison. This is mainly on account of higher realizations and better capacity utilizations. While the margin in the quarter were higher on account of higher realization but over a period of time we believe that the margin should be for the year as a whole, should be around 28% plus minus to for the year as a whole. Our PAT grew 3x to INR108 crore with PAT better margins to led 20%. Overall plant utilization increased to 94% in Q1 FY’22, ’23 compared to 88% in FY’22. Subsidization of Caustic and Hydrogen Peroxide stood at 94% while, Chloromethanes stood at 105%. The utilization of Caustic soda and Caustic potash is by 104% and 130% respectively. The return of capital employe improved to 33% quarter one FY’23 19% in quarter one FY’22. The debt-to-EBITDA has improved to 1.6x Q1 FY ’23 from 2.1x in quarter one ’22. The ratio has improved due to absolute growth in the EBITDA even on the increase that due to capex. The return on equity improved to 48% in quarter one FY ’23 from 22% in quarter one ’22. Expansion project of Caustic sode is moving as per the schedule and we likely to commission by end of quarter two FY’23. For this quarter, we spent INR57 crore on capex again estimated budget of INR180 crore for the year as a whole.

With this we can now open the floor for Q&A. Thank you.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Deepak Poddar from B&K Securities. Kindly proceed.

Deepak Poddar — Sapphire Capital — Analyst

Yeah, good afternoon, sir. Congrats on the strong set of numbers.

Maulik Patel — , Chairman and Managing Director.

Thank you.

Deepak Poddar — Sapphire Capital — Analyst

Yeah, so I had two questions with respect to I think the current slight correction in caustic prices, so are we seeing this more as a function of this supply is coming from [inaudible] week environment that is…

Operator

Mr. Kotwal I’m sorry to interrupt, sir. But there seems to be some disturbance in your line if you can, if you’re using the handset could if you please.

Deepak Poddar — Sapphire Capital — Analyst

No, I’m is it clear now.

Operator

Yeah, this is better.

Deepak Poddar — Sapphire Capital — Analyst

Yeah. So, my question was that basically off late, I think we have seen a little bit of weakness with respect to caustic prices, is this more a function of there being sluggishness in demand or is it more a function of seasonal factors since I think most places have got disproportionate rain and my second question is that we keep hearing a lot about this European power crisis, so, has that resulted into some new opportunities emerging for the entire sector with respect to exports.

Maulik Patel — , Chairman and Managing Director.

Yeah. So I think both the answer I will give you in a different way because you are right, there is a slight correction in the caustic soda price, but if you see the other commodities and other products which are reduced that much price reduction is not there in the caustic soda. And that you have given the correct answer that the European are mostly the gas-based economy, they are not oil-based economy and there was no impact in terms of the Chinese lockdown in the European and the US economy, so their caustic soda prices remain high in both the continents. So because of that we feel that that the caustic soda price correction which will not happen as much as it is in the other products, which we can see right now due to the Chinese lockdown in the oil price reduction. And the caustic soda because of the two continent has a high demand and the power pressure definitely the entire energy cost in the worldwide has not any major change in terms of the cost. So this will continue to remain high that’s what we feel as of now.

Deepak Poddar — Sapphire Capital — Analyst

[inaudible] basically.

Maulik Patel — , Chairman and Managing Director.

Hello.

Operator

Mr. Kotwal are you online?

Deepak Poddar — Sapphire Capital — Analyst

Sorry there was some misconnection. So what I’m saying that are we seeing some kind of import opportunities to Europe which are surfacing because a we expected power crunch in the winter months that is anticipated to take place in the continent, so obviously increase inquiries.

Maulik Patel — , Chairman and Managing Director.

So normally when the prices are high globally, normally this is act as a global situation and it is not only depend on the one or two continent. So price definitely European prices is higher and the U.S. prices is higher, so definitely there is a supply chain, the supply chain will be changed immediately based on the pricing effect, based on the continent. So, yeah, that is a high demand and high opportunity will be possible in the coming times due to the high cost of European chemicals overall if you see.

Deepak Poddar — Sapphire Capital — Analyst

Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Riya Mehta from Aequitas Investment. Kindly proceed.

Riya Mehta — Aequitas Investment — Analyst

Hello, sir. Congratulations on the set of numbers, very [inaudible] results. So I actually want to start this caustic. So basically [inaudible] pressure globally as well as decline in textile demand so recently all mills were closed. However, because of lower cotton prices restarted but there is a tepid demand around textile which forms almost to it was in the caustic demand. So what is your view over there? Are we seeing demand pressure, as well as lower prices?

Maulik Patel — , Chairman and Managing Director.

Just to give you answer definitely in the textile sector is down currently, but if you see the globally the caustic demand, which was surged recently which is mainly because of the construction sector and the infrastructure sector. So the alumina, which is the sector, which is also the demand is continuing and definitely the agrochemicals like in India to be very precise. Textile sector is down but the agrochemical sectors which is there is a great demand right now and there was no impact in terms of the recent correction, which is happening in the chemical sector. So the demand in the agro chemical sector which is continuously that is also, so every sector has a different calculation based on the current end-user market. So every sector is not going down as we see like textile industry. So, definitely that’s why that is the only reason why the caustic has a least impact in terms of the compared to the other chemicals.

Riya Mehta — Aequitas Investment — Analyst

Okay, so overall as a total — across all the sectors included, how much decline in demand, do you see in domestic markets as such? Because capacities have also been added by a lot of your competitors and — is there a kind of overcapacity decrease in demand and if so, how much would you quantify the decrease in demand?

Maulik Patel — , Chairman and Managing Director.

Yeah. So yeah, caustic soda, definitely, the many people are in the pipeline and everybody is like we are also expanding because we are — the growth of caustic soda, it is happening based on the GDP of the country normally.

Riya Mehta — Aequitas Investment — Analyst

Right, right.

Maulik Patel — , Chairman and Managing Director.

So that much capacity should be added once every year in India, at least. And sometimes it is little higher capacity than required and sometimes it’s compensated over a period of next 3 years, in terms of the capacity per year requirement. Because demand of India is also growing because we are just starting infrastructure spending, the chemical sector, because of the PLI, agrochemical sector, pharmaceutical sector. So everybody is expanding in India. Definitely the current demand has a different sentiment right now. But overall, if you see the capex which are going on right now of the different industrial sector that will continue and I think the demand over period of time will absorb the whatever the capacity will expand in coming times.

Riya Mehta — Aequitas Investment — Analyst

What capacity utilization do we forecast for this year?

Sanjay Jain — Chief Financial Officer

Around 90% we expect that. For caustic soda we expect that about 90% is true capacity of our plant efficiency.

Riya Mehta — Aequitas Investment — Analyst

Okay. Okay. So we — even after the incremental plant which is going to get commissioned, that will be on a cooperation of 90%, right?

Sanjay Jain — Chief Financial Officer

On a pro rata basis, yes, 90%, even on the incremental capacity.

Riya Mehta — Aequitas Investment — Analyst

Okay. Second question will be I was just going through the financials. I see inventory building up, so change in inventory. So what was that? Is it because of coal? We had bought a lot of coal? Or what was it?

Maulik Patel — , Chairman and Managing Director.

Yeah. So that is mainly the reason because the two major plant which we have commission in quarter 1, which is epichlorohydrin and the CPVC, so definitely both the products’ input, which is PVC and the glycerin, we already having a stock. We have kept a stock because we need to keep a planning for at least for 2 months inventory looking at the future. So that’s how the inventory is building up in the balance sheet.

Milind Kotecha — Investor Relations Officer

And now as the cycle — and just to add to that. Now, as the cycle of — in terms of selling will start, that rollover will happen. So what you’re seeing you is an — as on FY22, when we just had inventory and the plant was not commissioned. So that will start rolling now.

Riya Mehta — Aequitas Investment — Analyst

Right. And as far as power cost, what is the current cost per unit? So I remember in Q4, you had told that because of the increase in coal prices, it had run up to INR9.15 per unit whereas the grid cost was around INR8.5. So currently what would be the cost per unit for us?

Sanjay Jain — Chief Financial Officer

For this quarter, the generation cost is roundabout INR9.5 for thermal power plant — for captive power plant. Yeah.

Riya Mehta — Aequitas Investment — Analyst

And for the coming, since the coal prices has reduced?

Sanjay Jain — Chief Financial Officer

Actually–

Maulik Patel — , Chairman and Managing Director.

Yeah, so yeah. There is a slight effect in the coal price in the coming quarter. But it will come in the quarter 2 and quarter 3 onwards. Yeah.

Riya Mehta — Aequitas Investment — Analyst

So currently, what would be the price per unit basis, if you could help me out with that?

Milind Kotecha — Investor Relations Officer

See, the current price is — as we also have seen the coal prices to cool down a bit, but again, how much it will be per cost rate, it’s too early to comment. We are just in the starting of our quarter. Yeah.

Maulik Patel — , Chairman and Managing Director.

Because coal you can’t procure for a longer period of time. Normally, we keep — the coal is keep coming. At least we don’t keep a more than 15, 20 days inventory of the coal. But definitely, the based on the price what will happen in the current — next three months, I think, it is very difficult to predict right now in the current situation. But yeah, we don’t see major change in terms of the energy costs worldwide because of there is a pressure from in the gas side, there is already pressure in the European countries.

Riya Mehta — Aequitas Investment — Analyst

Okay. Okay. And what are the exports in the current quarter as a percentage of sale? And how much do we see it going forward as?

Sanjay Jain — Chief Financial Officer

You are talking about export versus domestic?

Riya Mehta — Aequitas Investment — Analyst

Yes, yes, yes.

Sanjay Jain — Chief Financial Officer

We do have export through this quarter but actually, for — particularly for ECH, which we recently commission. But if you look at the company as a whole, there is hardly — not substantial. Maybe around 5% to 7% of total revenue.

Riya Mehta — Aequitas Investment — Analyst

Okay. And as a percentage of caustic? How much caustic would be exported?

Maulik Patel — , Chairman and Managing Director.

Yeah, it’s currently, we are doing only 5% to 7% of the caustic soda, which we are exporting right now. But in coming times, we expect — looking at the current situation, we find it that the ECH we are able to export in the different continent from quarter 3 onwards. So the export percentage will increase in coming times looking at the current scenario.

Riya Mehta — Aequitas Investment — Analyst

Okay. And what are the prices? For ECH have you seen any decline in that from when we had planned for commissioning CPVC as well as ECH?

Maulik Patel — , Chairman and Managing Director.

It’s much higher than that. Yeah, yeah. So I’ll just give you the brief that when we — when we do a project, when we conceive the project, that time it was INR120, INR110 kind of thing, but it went up after Corona. After Corona, this went up to INR225 level.

Riya Mehta — Aequitas Investment — Analyst

Right.

Maulik Patel — , Chairman and Managing Director.

INR250 level. Almost INR250 rupees level but currently the price of ECH is around INR215, INR220 level right now.

Riya Mehta — Aequitas Investment — Analyst

Is it coming down?

Maulik Patel — , Chairman and Managing Director.

Slowly. Yeah.

Riya Mehta — Aequitas Investment — Analyst

Okay. And what is the sustainable we would — we can just take it for our assumptions?

Maulik Patel — , Chairman and Managing Director.

Frankly speaking, it is — in the current situation, it is very difficult to say what is going to be–

Riya Mehta — Aequitas Investment — Analyst

I understand.

Maulik Patel — , Chairman and Managing Director.

Yeah.

Riya Mehta — Aequitas Investment — Analyst

And just one last question is cold capacity. Could you give the breakup of the revenue from each segment like caustic, ECH, etc.?

Maulik Patel — , Chairman and Managing Director.

See, again, as a company as a whole we just give in terms of breakup of revenue, Chlor-Alkali and the Derivatives and the Specialty segment. So we would like to keep it that way.

Riya Mehta — Aequitas Investment — Analyst

On a full capacity basis?

Maulik Patel — , Chairman and Managing Director.

On a full capacity basis in FY24 when we will be reaching to the optimum capacity utilization for all the products that we have commissioned recently, that is CPVC and the ECH and Chlor-Alkali additional capacity, at that time around 45%, 50% of the revenue will be contributed by the Derivatives and the Specialty segment.

Riya Mehta — Aequitas Investment — Analyst

Hello?

Maulik Patel — , Chairman and Managing Director.

Yeah. Were you able to hear the answer?

Riya Mehta — Aequitas Investment — Analyst

I missed it, I missed it. There was some cross-connection, sorry.

Maulik Patel — , Chairman and Managing Director.

So basically, once we will be reaching to optimum capacity utilizations for our — the new plants, which is ECH and CPVC by — in FY24, in FY24 once that happens, we expect our revenue contribution from Derivatives and Specialty to be around 45%, 50% of the total revenue.

Riya Mehta — Aequitas Investment — Analyst

Okay. Got it, got it. And my last question from on my end will be what is the current ECU of caustic and what is the chlorine realizations right now?

Maulik Patel — , Chairman and Managing Director.

The current ECU realization is INR50,000 for caustic as of now. It is a little bit on the higher side compared to last quarter 4.

Riya Mehta — Aequitas Investment — Analyst

Sorry, I — it’s still higher than last quarter 4?

Maulik Patel — , Chairman and Managing Director.

No, the current ECU is — the current ECU is around INR50,000.

Milind Kotecha — Investor Relations Officer

Slightly higher.

Riya Mehta — Aequitas Investment — Analyst

Yeah, I think Q4, we had done around INR49,000.

Maulik Patel — , Chairman and Managing Director.

Yes, yes.

Riya Mehta — Aequitas Investment — Analyst

Okay. Okay. Hello?

Maulik Patel — , Chairman and Managing Director.

Yeah. Yes, that’s right.

Riya Mehta — Aequitas Investment — Analyst

Okay. And chlorine?

Maulik Patel — , Chairman and Managing Director.

So chlorine, again, when you — when we calculate the ECU, chlorine is factored into that, so it comes into that.

Riya Mehta — Aequitas Investment — Analyst

Yeah.

Maulik Patel — , Chairman and Managing Director.

But considering the last quarter, it was a bit negative. But again, that is adjusted in the caustic soda prices, so that is taken care of. And also, we use our chlorine in the — are now, in the chloromethanes plant and further in the CPVC, so when it’s negative, we enjoy that benefit in our Derivative plants and when it is positive, we enjoy in the caustic soda plant. That’s the beauty because of having the integrated plant.

Riya Mehta — Aequitas Investment — Analyst

Yes, yes. But what would be the negative realization, if I can get the number?

Maulik Patel — , Chairman and Managing Director.

Around 4.5 per kg.

Riya Mehta — Aequitas Investment — Analyst

4.5 per kg. Okay. I think that’s it from my side. Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Amarnath Bhakat from Ministry of Finance of Oman. Kindly proceed.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Yeah, hi. If I look at your current performance–

Maulik Patel — , Chairman and Managing Director.

Hello, Mr. Bhakat.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Your ROCE is 33%.

Maulik Patel — , Chairman and Managing Director.

Yes.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Can you hear me?

Maulik Patel — , Chairman and Managing Director.

I guess we are not connected I guess with him, so we can shift to the next question.

Operator

The next question is from the line of Rohit Nagraj from Centrum Broking kindly proceed.

Rohit Nagraj — Centrum Broking — Analyst

So congrats on good set of numbers and commissioning the two projects. So first question is on epichlorohydrin in terms of glycerin availability and incremental usage for glycerin how are we connected with the vendors in terms of medium-term or long-term contracts. And second question on the same thing, whether the plant I think the plant is about one month operational, so is it stabilized and is it, giving us the normal spec products. Thank you.

Maulik Patel — , Chairman and Managing Director.

So Rohit, just to give you answer plant is little low capacity right now we have just started. So every quarter it will increase the capacity gradually and the current we have started selling to all the customers, which is in India within India, to European customers as well as the U.S. customers. So once they will receive it and probably, they will use it and probably, they will start placing the new orders from the quarter, so we believe that, looking at the current situation the other trial orders everywhere it is going, we feel that the quarter three onwards the actual volume will start reflecting and consuming actually we are able to increase the load, which we are running right now in quarter three onwards. And looking at, just to give you the answer for the glycerin, so glycerin globally the glycerin prices is a little bit coming down. The reason behind it, the palm oil export was banned in the Indonesia initially right now the government has released that exports that is one of the reason and another reason is the biodiesel percentage, which is going to add which is like in India ethanol we are using in the planning of petrol. The same thing there is that kind of palm oil-based biodiesel in Indonesia government has increased the percentage from 30% to 35%. So definitely when you produce more biodiesel it will come out as a byproduct glycerin more. So definitely it is a good sign for as a raw material user of glycerin that will get our glycerin and the more and more biodiesel will be produce and more and more glycerin will be available in the future.

Rohit Nagraj — Centrum Broking — Analyst

All right. Got it. My second question is on the CPVC, so given that the plant has started a few days ago. Once it stabilizes and starts producing the expected product what will be the time frame little bit we can reach probably 100% utilization given that currently it’s completely import substitute product and there is impending demand in the domestic market. Thank you.

Maulik Patel — , Chairman and Managing Director.

Just to give you answer this is not where we can reach 100% capacity. So definitely maximum we have considered that this kind of plant we can reach maximum up to 75% capacity, you cannot increase more than 75% definitely you need to do minor debottlenecking and then you are eventually reach it but initial we have consider the 75% in the max level, you can generate it because this is a lot of solid handling plan. Well, there is always a restriction in terms of the output, you cannot reach more than, like the 90% or something which we are getting it in all liquid product right now. And the CPVC this product we have started producing the same situation. We have given trial orders, trials to all the customers who are making pipes and fitting from it and once this is I think I would say it is almost about 62. I think 45 to 75 days running where people start from the small orders, eventually increasing size of the lot and I think after 60 days when they are comfortable I think they will increase the quantity as a regular from quarter three onwards that what we see from currently. So I think more or less, we have already contacted all the customers, and probably the initial trial orders are about to finish probably by end of this month and slightly bigger orders will start generating from the quarter two, but actual sales will actually start from quarter three onwards only.

Rohit Nagraj — Centrum Broking — Analyst

So effectively maybe by start off FY’24, we will be able to utilize the capacity optimally if the product is approved by our customers.

Maulik Patel — , Chairman and Managing Director.

See product will be definitely it will be approved by I think in next 45 to 60 days’ time maximum and start people ordering florian gradually from quarter three onwards they will increase their volume. We are expecting by quarter four end of quarter four we will reach to optimum level of capacity.

Rohit Nagraj — Centrum Broking — Analyst

Sure. That’s helpful, thanks a lot, and best of luck, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Amarnath Bhagat from [inaudible] kindly proceed.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Can you hear me?

Operator

We can hear you, sir.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Now, your current ROC is 33% and your current EBITDA margin is 35% and you’re guiding for 2023 EBITDA margin, I think the year wise EBITDA margin of 26%, which is around 10% lower and return on capital employed from 33% to 25%. Now of course, the sales growth projection is 50%. What would be the impact on the absolute EBITDA number then it will be growing because the EBITDA margin is coming down substantially and I believe probably you are estimating the current realization will result into draw down of this EBITDA margin from 35% to 26%. So can you please highlight what would be the impact on the absolute EBITDA level or an absolute profitability level.

Maulik Patel — , Chairman and Managing Director.

Yes, I’ll take this question. All the guidance which were given at the beginning of the year are all for the long term for the entire year as such. This particular quarter has been exceptionally good looking to the kind of price increases and the offtake which happened. We didn’t really expect that this would be the kind of an uptick from the first quarter. So when we give our guidance we normally look at averaging it out for the entire year. So we do believe that yes this particular quarter is good performance can increase the overall guidance little higher, but we still are looking at the next quarter or so before we can really see that this impact will be sustainable for the entire year. So that’s the reason why we would not change the guidance at this point in time, but we can always revisited in a quarter or two later. Moreover…

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Can we expect a little bit increase on the guidance at least for the next year considering what has happened in first quarter?

Maulik Patel — , Chairman and Managing Director.

Yes. So we will look at the second quarter and maybe the third, at least the second quarter end and see how the proportion will happen for the Q3 and Q4 and we can definitely do it when we have the next call and at this point in time, it’s too early to really say that it will have a permanent impact for the entire year. That’s the reason why the guidance hasn’t changed at this point in time. The absolute EBITDA, definitely we’ll be increasing margins as we always say are not really relevant 26%, 28%, 30%. These are not what is exactly the way to look at it, because the new products that will be added ECH and CPVC have a better asset turnover ratio and because of which the EBITDA margins may be low, but the absolute EBITDA will be increasing. So as far as the cash flows and those are concerned, I think we are still very much on course to achieving our guidance, maybe a little better, because of the Q1.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

And the follow-up relating to this guidance itself. You are saying 50% expected growth compared to to 2022 based which is anyway high. Now if you look at your capacity utilization you’re caustic soda 104%, caustic quota is 130%, this Chloromethanes and the new plan and the others are too little lower but when it this 50% will come from where. You are already running at a higher capacity utilization level and the two new plants which is coming it will take time to really contribute meaningfully at least for the current year. So this 50% growth and as we all know the commodity prices globally its shrinking, which will always have a negative impact in terms of the realization. So one side I have already working on the optimal capital utilization even more, my realization is expected to come down compared to what is there in the quarter one. The two new plants, which has been now commissioned, which will take time to really contribute meaningfully. So from where this 50% will come?

Maulik Patel — , Chairman and Managing Director.

Yeah, I think that’s right that all the price of the raw material is coming down of finished goods eventually will go down, but when we finalize this budget that time I think we have given a forecast based on the three projects, one is ECH because we expect that the ECH volume will pick up from quarter three onwards. Even CPVC which is also a new project that volume also will start picking up from the quarter three onwards. So quarter three and quarter four will generate the CPVC and the ECH revenue along with the caustic soda expansion, which we are starting by quarter as we mentioned in end of quarter two because that we already producing caustic sort of 294,000 tonnes per annum capacity and which will increase to 400,000 tons per annum. So that we don’t need a time to increase or to reach at optimum level because we already having a experience of so many years. So definitely and we have the approval plays in the customers and everywhere. So definitely the volume will start picking in terms of the caustic soda also, so all three projects put together, we have suggested that we will increase the 50% revenue.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Okay, very nice to hear because 50% on the top of the current sales growth is very optimistic appears to be but if it is actually it is nothing like that. The second question relating to the vision statements sir. Please, carry on sir.

Maulik Patel — , Chairman and Managing Director.

As you rightly said the prices of the raw material is down, but the current situation, we feel that in the China, there is a lockdown and there is a too much pressure right now. So we would like to wait one more quarter and then probably a comment about the entire year and energy prices has not come down, so the caustic price also that there is a high chance that will remain continue for the entire year.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Okay, sir my second question is relating to your vision statement, though, I realized that is finally the vision statement, but you were talking about achieving a revenue of INR5,000 crores by 2027. So by the end of 2022 it was INR1500 crore to 2027 five years down the line, you wanted to make it more than 3x. Now though we understand that you are going for the high value-added product like to CPVC and ECH and all but achieving more than 3x in next five years, where most of the items are commodity we don’t have real visibility of how the prices will pan out. There are so many underlying volatility either locally or globally. I’m just trying to gauge and kind of a thing, how this can be a achieved, I mean just an overall vision not to go to the details because in a commodity dominated market a company giving 3.5x kind of an increase in revenue in next five years is very uncommon. That’s why I’m asking this question?

Maulik Patel — , Chairman and Managing Director.

So, yeah, that’s a good question. So when we have given a timeline the INR5,000 crore target. So we have in the mind that currently we have a chloralkali complex and this is the last phase of expansion which we are doing it for the caustic soda from 294,000 to maximum around 400,000 right now. But after that all the focus, we are going to have in the downstream product which is value added product either from clorine, hydrogen or caustic soda. So definitely as a company, if you see our past three years, since then I think then we have changed the strategy we would like to focus more as a integrated player and we are continuously focusing and adding the molecule which is import substitute. So definitely as you rightly said that the recession, the global thing and everything is I completely agree. But in terms of India, we are still, there are many chemicals is completely import substitute and if you see the volume of all the chemicals which is growing, So definitely globally, when we add the product definitely our target is the export as well, like the chlorotoluene as we are expanding, but our primary focus is the import substitute molecule based on the domestic market and domestic demand. Definitely it get added advantage like the ECH we started with the domestic demand but we are exporting right now. The same thing definitely in the other products also, we will continue, but the domestic I think we believe that the India will be better off compared to whatever happens in the world, definitely the price pressure, the impact, the competition will come, but in terms of the volume of the chemicals, definitely we are continuously increasing since last three years any chemicals that you see it is more than double-digit growth. Definitely more than double-digit growth, it will not come in the future due to the global recession, but at least single digit will grow. So we are not in the place where the market and the demand will the diminished like we are not growing. So definitely the growth percentage there would be changes in the future if the recession will come in the future, but in terms of the volume, we will increase in terms of the chemical consumption in India. And so based on that we are saying that we are coming with the new projects, which is import substitute and as a derivative of the chloralkali and as we announced and we stabilize the CPVC and ECH definitely we will announce more projects in coming time.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Got it. And my last question. Thank you very much for the detailed answer and my last question is in respect of though you are now going to produce the CPVC which is a import substitute now how an investor get the confidence, the quality of the product, which you are going to produce will be either same or better than what is being imported because now here we are talking about a product we is never been manufactured in India, so manufacturing. Now, how much confidence you are getting from your customer like Astral or Hindware or whoever is the producing the pipe here, who use the CPVC that there is an optimum chance for you in terms of the quality and other factor that this product manufactured within India will be easily replaced the imports in terms of quality, in terms of cost, in terms of acceptability, because I’m sure even though the plant is commercially started now you guys might have already did the market research, you might have already touch with your customers to see how the product is coming, how they are acceptable or not what the feedback at the moment?

Maulik Patel — , Chairman and Managing Director.

Yeah, so, yeah, this is a good question. If you ask a three months back it is very difficult for us to answer this question, but now I can say that after commissioning of CPVC and different customer has started trialing of the CPVC resin in their machine we feel more confident now and I know and the actual quantity will increase from quarter three onwards. So now we are getting more positive about our product what we produce right now and we are more confident that the quarter three onwards, the volume will start increasing.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

So it will easily replace in terms of quality of what we are getting from the imported items.

Maulik Patel — , Chairman and Managing Director.

So you know if you analysis well of the CPVC market in India there is no replacement is required. Indian market is continuously increasing double-digit growth and worldwide there is no capacity expansion of the CPVC resin. So we are not going to replace anyone, the people who are growing they required additional resin, we will supply them.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Yeah. But this additional resin should be at part of the quality of what they are importing the quality as well as the price.

Maulik Patel — , Chairman and Managing Director.

The quality will not be at par with anything then definitely the customer will not be able to buy. So as I said when once we started commissioning and we started trial order with lot of customers, we are more confident that we can able to start actual generating sales from quarter three onwards, we actually have been seeing the accetability in the market already and as the months go by as we said 45 days and all we will see more and more people accepting this product and that’s the reason we are saying that the sales will start from Q3. Yes the product has been and continues to be accepted in the market in terms of quality.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

That’s very good and one bookkeeping small question, the fixed asset increased from ’21 to ’22. ’21 was 1,200 something in FY ’22, it was 1657 well your depreciation increased only from 74 to 86 so it’s not really making. I don’t know the depreciation increase is quite lower compared to the value of the fixed asset increased between ’21 and ’22 it’s little bookkeeping question just to understand the clarity on this.

Sanjay Jain — Chief Financial Officer

Okay, just to answer your question about the depreciation. And if you look at that we continuously making putting our plant commissioning the plant one by one like we have commissions [Inaudible] CMS in 2020 we commission the head of the growth costing. So the impact commission in the mid of the year, so the impact is not for the whole year its for the year. But yes, if you look at the numbers looking to the used to, based on the operation and maintenance and everything we have [Inaudible] of the asset is as well within the industry norms.

Maulik Patel — , Chairman and Managing Director.

Not all projects would have been commissioned at the beginning of the year. So obviously the depreciation only kicks in when the commissioning of the projects happen. So while the total block might look bigger but the depreciation will only happen in full strength once all the projects have been commissioned, which will be this year. Yeah so till that time you commissioning the interest and the interest part and then other part is not, you cannot see in the depreciation part yeah, after commissioning I think you can see the actual depreciation, so all the capex, which was on the pipeline.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Thank you very much for your detailed answer, thank you.

Operator

Thank you. The next question is from the line of Deepak Poddar from Sapphire Capital kindly proceed.

Deepak Poddar — Sapphire Capital — Analyst

Thank you very much sir for the opportunity. Sir, just wanted to check, now this 18.5-megawatt solar plant that we expect to commission by the third quarter. So, what sort of savings we are expecting from it?

Maulik Patel — , Chairman and Managing Director.

At least right now, we are getting a power from the grid and the captive power plant definitely that much amount of the units, which we are generating from the renewables, definitely it will save around of more than 30% of the power cost.

Deepak Poddar — Sapphire Capital — Analyst

Okay. So would it be possible for you to quantify in rupees crores annually what sort of savings, we can have that?

Maulik Patel — , Chairman and Managing Director.

See that can be measured in a way that out of 18.34 megawatt generally because it’s green energy and wind and solar power plant it works on a 50%. So we would be getting around 10-megawatt on a yearly basis so we’ll be saving our 30% and I’m sure you can calculate that in a better way.

Deepak Poddar — Sapphire Capital — Analyst

So okay, so 30% on. Sure I understood and my second question is new plant you mentioned will meaningfully contribute from maybe third quarter in terms of incremental volume and by fourth quarter you expect it to reach optimum capacity utilization by fourth quarter FY’23 that’s what you mentioned.

Maulik Patel — , Chairman and Managing Director.

Yeah, for epichlorohydrin plant we expect then by Q4 FY’23 will reach to optimum capacity utilization and for CPVC it will be end of Q4 or early Q1 FY’24 will reach the optimum capacity utilization.

Deepak Poddar — Sapphire Capital — Analyst

Okay. And so what sort of incremental revenue when one can expect from these two new plant ECH and CPVC now I think currently, we are doing around INR550 crores right so can it add under INR50 crores quarterly basis. some guidance on that would help?

Maulik Patel — , Chairman and Managing Director.

See once we reach optimum capacity utilization, which I said earlier will happen in Q4 and Q1, for this year and next year. So once we reach there all put together, it should be somewhere around INR1300 crores to INR1400 crores put together. INR1200 crores to INR1300 crores.

Deepak Poddar — Sapphire Capital — Analyst

INR1200 crores to INR1300 crores annually. Right. So quarterly we are talking about maybe INR300 crores of additional revenue from these two projects. Right.

Maulik Patel — , Chairman and Managing Director.

Let me, let me put it like this. See FY’22, we ended with a INR1500 crore square_of top line. So this year additional revenue of off in terms of volume will be growing by around 28% and 20% and that will be coming from ECH CPVC and the additional capacity of caustic soda. But again, this year we will be not running on a full capacity because we have just commissioned the plant, it takes time for it to capacity utilization. So once we reach optimum capacity utilization, which will be happening FY’24 onwards there ECH and CPVC put together, should be around INR1200 crore to INR1300 crore.

Deepak Poddar — Sapphire Capital — Analyst

Okay, so in FY’24 but just these two new plants can give additional revenue of INR1200 crores to INR1300 crores right.

Maulik Patel — , Chairman and Managing Director.

Yes. But this is based on the current raw material, which is in the current prices are going on. So if the future is major impact on the raw materials and the prices definitely the sales pace will adjust accordingly.

Deepak Poddar — Sapphire Capital — Analyst

Okay, fair enough. And regarding your margins outlook that you mentioned. So do we expect any kind of drag while these two new plant are sub optimally utilized maybe in third quarter or fourth quarter. So that may result in some kind of drag on your margins that’s the reason we are kind of looking at 26% plus, minus 2% as compared to 35% we reported this quarter.

Maulik Patel — , Chairman and Managing Director.

When we have given a guidance of 28% plus-minus to EBITDA margin that is for a longer period of time. It has nothing related to the current commissioning of the ECH and CPVC, so in this quarter of also the prices that were in Q1 if that kind of situation maintenance, we can make the margins of 31% to 32% but we know the current prices are elevated and it will be to go down through some level and that is why on a conservative side, we are seeing 28% plus, minus 2% but if Q1 kind of situation continues, then we can maintain margins will be above 30% also. So it has nothing to do with the commissioning of the ECH and CPVC in that matter.

Deepak Poddar — Sapphire Capital — Analyst

Okay. I got it. I understood. That’s it from my side, all the very best. Thank you.

Operator

Thank you. We request participants to kindly restrict your questions to three per participant. The next question is from the line of Amit Vora from Dr. Amit Vora’s Homoeopathic Clinic. Kindly proceed.

Amit Vora — Dr. Amit Vora’s Homoeopathic Clinic — Analyst

Good afternoon, everyone. Good afternoon Maulik Bhai. My question is regarding the new products ECH and CPVC, I heard you somewhere on CNBC that you told that ECH sales can go to around INR1000 crores annually. Did I hear it correctly, from there, is it right?

Maulik Patel — , Chairman and Managing Director.

So, ECH it can go there that level based on the current raw material prices on when we reach to optimum level of the plant.

Amit Vora — Dr. Amit Vora’s Homoeopathic Clinic — Analyst

Yeah. Can you give us something similar figure on CPVC also if possible.

Maulik Patel — , Chairman and Managing Director.

The CPVC along with the commissioning we have given a guidance when we reach to optimum level we can reach to around INR400 crore based on the current raw metal prices.

Amit Vora — Dr. Amit Vora’s Homoeopathic Clinic — Analyst

Per year CPVC.

Maulik Patel — , Chairman and Managing Director.

Per year on optimum level when we reach.

Amit Vora — Dr. Amit Vora’s Homoeopathic Clinic — Analyst

Yeah, okay. And currently our ECH capacity is 50KTPA and CPVC is 30 KTPA.

Maulik Patel — , Chairman and Managing Director.

That’s right.

Amit Vora — Dr. Amit Vora’s Homoeopathic Clinic — Analyst

Can we in future one or two years down the line, can we expand it further also, is it possible.

Maulik Patel — , Chairman and Managing Director.

Yes. So it depends on that point of time what is the situation, but yes, that is definitely that is always like the caustic soda what we have expanded based on our strength what we have, based on the demand, which you have. So definitely once we have definitely this two product have a very high in the future we might expand. But next time to look at the scenario and that time it depends on the return what we are generating, or do we have a better opportunity from some other products, so we might select that product as a priority in terms of capex.

Amit Vora — Dr. Amit Vora’s Homoeopathic Clinic — Analyst

I got that I understood that. Okay. And any, there are new people also there are people who are coming up with ECH and CPVC manufacturing new companies. So do you see that affecting our sales anywhere down the line.

Maulik Patel — , Chairman and Managing Director.

So normally, yeah, definitely because India is growing country and the many people can come in the future because the demand is growing. So if demand is growing and if you’re not able to fulfill the demand, then definitely somebody else will also look as an opportunity in the market, but, but looking at the current scenario the demand of all the products, which is growing in India and if the people are definitely still we are short, there are huge difference in terms of supply-demand right now. If you see in the CPVC so definitely and the ECH also looking at the future capacity which is expanded by the [Inaudible] manufactures. So there is a huge opportunity in terms of the capacity addition in both the products.

Amit Vora — Dr. Amit Vora’s Homoeopathic Clinic — Analyst

Okay. And my second question almost the last question, the debt by the end of this year, where do you see the debt by the end of this year FY’23 end.

Sanjay Jain — Chief Financial Officer

Long term debt maybe around the INR550 crore long-term debt.

Amit Vora — Dr. Amit Vora’s Homoeopathic Clinic — Analyst

Currently it is INR900 crores or something I think so.

Sanjay Jain — Chief Financial Officer

The long-term debt currently is INR690 crore which is going to reduce for the year as a whole that is on 31 March 2023 around to INR550 crore.

Amit Vora — Dr. Amit Vora’s Homoeopathic Clinic — Analyst

Any other foreseeable risk in any of our other products that you see currently CPVC, ECH or chlorotoluene or anything, any foreseeable risk that this could be risky for us, probably not sure.

Maulik Patel — , Chairman and Managing Director.

As of now, I don’t think so. But I think definitely in the world is looking after the what action is Russia is doing with Ukraine because of that the current energy cost and the current gas prices and current crude oil prices are so and the China lockdown such kind of scenario is very difficult to predict for a longer period of time. There is uncertainty in these kind of regions. It is going to be there and it will continue I think probably, at least in quarter two or quarter three, at least.

Amit Vora — Dr. Amit Vora’s Homoeopathic Clinic — Analyst

Thank you so much, sir. Thank you so much. That’s all from my end.

Operator

Thank you. The next question is from the line of Riya Mehta from Aequitas Investment. Kindly proceed.

Riya Mehta — Aequitas Investment — Analyst

Hello, thank you for giving me an opportunity again. So I would just like to ask one question. So what will be on depreciation on the annual basis considering or commissioning of CPVC, ECH as well as so incremental cost for FY’23 and ’24.

Sanjay Jain — Chief Financial Officer

The full year of operation and the commission of these plants depriciation annual basis will be around INR120 crores.

Riya Mehta — Aequitas Investment — Analyst

And is there any, what will be the impact for the rising interest rate currently.

Sanjay Jain — Chief Financial Officer

Yeah. Interest rate has literally gone up but for the company as a whole, which was the year till FY’22 it sub-7%. It is now in the range of 7.5% for this quarter on.

Riya Mehta — Aequitas Investment — Analyst

And could you repeat the debt numbers actually I missed it.

Sanjay Jain — Chief Financial Officer

Yeah. The total debt of the company long-term debt was INR690 crore for 30 June 2022 for the year as a whole that is March 23 that we was reduce to INR550 crore.

Riya Mehta — Aequitas Investment — Analyst

Okay, thank you.

Operator

Thank you. The next question is from the line of Keshav from Roxanne investors kindly proceed.

Keshav — Roxanne investors — Analyst

Hi, good evening, sir. Sir, what is the maintenance capex currently and going forward once we stabilize the ECS and CPVC as a percentage of gross block if you could tell.

Sanjay Jain — Chief Financial Officer

Looking to the size where the company is going the extra that 2% of our total gross block maintenance capex for on a yearly basis.

Keshav — Roxanne investors — Analyst

And currently what does it, sir. If you could get give the figures for the last year?

Maulik Patel — , Chairman and Managing Director.

Its around 1.5 sort of the year as of now.

Keshav — Roxanne investors — Analyst

Okay. Thank you, sir. That’s all from me.

Operator

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

Maulik Patel — , Chairman and Managing Director.

Good evening, everyone. In conclusion, with all this, we are moving in line with our commitment of long-term goals and with focus on the environment and sustainability. Once again, thank you, ladies and gentlemen for joining us today. If there are still unanswered question please feel free to reach out to our IR team. Thank you everyone for your participation. Have a great evening ahead, stay safe, stay well. Thank you.

Operator

[Operator Closing Remarks]