Meghmani Finechem Limited (MFL) Q3 FY23 Earnings Concall Transcript

Meghmani Finechem Limited (NSE: MFL) Q3 FY23 earnings concall dated Jan. 19, 2023

Corporate Participants:

Maulik J. Patel — Chairman and Managing Director

Sanjay Jain — Chief Financial Officer

Milind Kotecha — Head of Investor Relations

Analysts:

Rohan Ohri — Emkay Global Financial Services Ltd — Analyst

Riya Mehta — Aequitas Investment Consultancy — Analyst

Manish Jain — Moneylife Advisory Services — Analyst

Dipesh Sancheti — Manya Finance — Analyst

Niraj Mansingka — White Pine Investment — Analyst

Vibha Batra — FairConnect Business Advisors Private Limited — Analyst

Harshil Pandya — SunTrust Capital — Analyst

Aman Agrawal — Equirus Securities — Analyst

Bobby Jayaram — Falcon Partners — Analyst

Chintan Mehta — Prudent Corporate Advisory Services Ltd — Analyst

Amit Vora — The Homoeopathic Clinic — Analyst

Kashish Gandotra — Individual Investor — Analyst

Prateek Kapoor — Individual Investor — Analyst

Puneet Agarwal — Retail Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q3 FY ’23 Results Conference Call of Meghmani Finechem Limited hosted by Emkay Global Financial Services. We have with us today, Mr. Maulik Patel, Chairman and Managing Director; Mr. Kaushal Soparkar, Managing Director; Mr. Sanjay Jain, Chief Financial Officer; and Mr. Milind Kotecha, Investor Relations. [Operator Instructions]

I now hand the conference over to, Mr. Rohan Ohri from Emkay Global Financial Services. Thank you, and over to you.

Rohan Ohri — Emkay Global Financial Services Ltd — Analyst

Yeah. Thank you so much, Michelle. Good evening, everyone. I would like to welcome the management and thank them for this opportunity. I shall now hand over the call to the management for the opening remarks.

Over to you, gentlemen.

Maulik J. Patel — Chairman and Managing Director

Thank you, Rohan. Good afternoon, everyone. Welcome to the call to discuss MFLs quarter three FY ’23 performance. I believe you had an opportunity to view the earnings presentation that was released earlier today. Quarter three FY ’23 has been an exciting yet crucial quarter for us. We have achieved an 18% volume growth in quarter three FY ’23. In line with our target, Derivative & Specialty segment contributed 31% to the revenue compared to 25% in quarter three FY ’22. Our new products which were commissioned during nine month FY ’23 has started contributing marginally to our P&L, and we expect this contribution to expand from quarter four FY ’23. However, the full impact of this would have seen in FY ’24.

CPVC product has been accepted by all the pipe makers and because of that, we have reached to 70% capacity utilization in the month of December itself. We expect to reach optimum capacity utilization one quarter earlier than projected quarter one FY ’23. Now we have good hold on this product chemistry and considering the growth potential. We are increasing our capacity of CPVC to 75,000 ton per annum by adding new 45,000 ton per annum capacity. As we have basic infra required with CPVC expansion, we will be able to commission this project at lower capex and much faster compared to the first project. This will also increase our internal chlorine consumption, which will strengthen our integrated complex further.

ECH product is also well approved by all the customers in India and in global market. But currently demand for ECH is bit subdue as market for the infra chemicals is cooled off as government’s focus on inflation controlling. However, from the end of quarter four FY ’23, we will start exporting ECH. We expect it will reach to optimum capacity utilization in quarter one FY ’24, slightly later than what was conveyed at the time of commissioning of ECH plan. However, in the long-term, we expect this market to grow in double digit percentage.

We are happy to announce MFLs first interim dividend of 25% on face value of INR10, which is 2.5 per equity share. And expansion projects of chlorotoluene and its value chain and R&D Centre near Ahmedabad is moving as per schedule. Our additional capacity of CPVC resin will also get commissioned by quarter four FY ’24, along with the chlorotoluene and its value chain, and will start contributing to P&L from FY ’25 onwards. With our expansion plans, we are moving in line with our long-term vision to become fully integrated complex catering to diversify industries and grow consistently.

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

Sanjay Jain — Chief Financial Officer

Thank you, Maulik. We are pleased to inform that we have surpassed all FY ’22 full year numbers within a period of nine months of this year. On year-on year basis, our sales grew by 27% to INR538 crores in quarter three FY ’23. This is backed by higher volume growth of 18%. Chlor-Alkali revenue grew by 16% and Derivatives & Specialty grew by 62% year-on-year basis. Our absolute EBITDA grew by 18% to rupees 167% [Phonetic] with a margin at 31% in Q3 FY ’23. Our absolute PAT grew by 11% year-on-year to 77% [Phonetic]. However, increase in interest and depreciation with commissioning of new capacities, the PAT margin decreased to 14% against 17% quarter three FY ’22.

For Chlor-Alkali, we have achieved a capacity utilization of 68% on extended capacities as company has recently commissioned the additional capacity of 1,06,000 tons per annum in September ’22. We expect the optimized utilization by the end of quarter four FY ’23. Caustic soda ECU realization on year-on-year basis is up by 2%, while potassium up by 40%. For Chloromethane, the capacity utilization stood at 104%, and for Hydrogen Peroxide it is 82% in quarter three FY ’23. Sales realization for Hydrogen Peroxide decreased by 9%, but with the decrease in raw material prices in-line, sales realization for Chloromethane dropped by 33% year-on-year basis.

For nine month FY ’23 periods, sales grew by 55% to INR1,626 crores backed by increase in sales realizations and additional volume of CPVC and ECH. Absolute EBITDA grew by 60% to INR534 crores with margin increased by 107 bps to 22.9% [Phonetic] and PAT grew by 80% to INR277 crore. The return on capital employed of the company stood at impressive 35% and return on equity improved to 46% from 36% in FY ’22. Net debt to EBITDA has improved to 1.3 times in quarter three FY ’23 from 2.4 times in quarter three FY ’22.

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

Questions and Answers:

Operator

Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Riya Mehta from Aequitas Investment Consultancy. Please go ahead.

Riya Mehta — Aequitas Investment Consultancy — Analyst

Hi, thank you for giving me this opportunity. Sir, my first question would be in regards to caustic. So what kind of demand supply scenario are we foresee, since a lot of companies coming up with their supplies and capacity addition. How is the scenario right now?

Maulik J. Patel — Chairman and Managing Director

Hi, Riya. Currently, the caustic soda capacity, I think everybody is running on good amount of capacity, around 80% capacity people are running right now. In terms of the market, the export market which was there in last six months it was little low right now, but it is going to increase probably from the February onwards, because everybody was expecting that after February month the Chinese market will start — restart again. With again, the export opportunity will arise globally because of the domestic Chinese consumption increased after Chinese New Year. So that was the expectation. And the chlorine market has improved a lot in last six months because when the caustic price was very high, that time the chlorine was very low. So, yeah. So in terms of the ECU, we are almost plus or minus 5,000 level right now compared to past six months.

Riya Mehta — Aequitas Investment Consultancy — Analyst

Right. And in terms of chlorine, so basically what — what are the chlorine prices right now? And how would we see this panning out, once China reopen?

Maulik J. Patel — Chairman and Managing Director

So chlorine right now is slightly on the positive side from zero level. It was negative couple of months before, but now we are moving towards the positive side. And all the chlorine derivatives we are expecting it is now going to pick up again after the — in — from 15th of February onwards, yeah.

Riya Mehta — Aequitas Investment Consultancy — Analyst

Okay. And my second question would be in terms of CPVC. So since you’re going with the new capacity addition, so what gives us the confidence for this new capacity addition, like what kind of demand have we seen? And what — how will this impact the debt level?

Maulik J. Patel — Chairman and Managing Director

Yeah. So, CPVC, it is — we have commissioned the plant four — five months ago, and in five months, we have taken all the approval from the different users, because it is not the product like a caustic soda which can sell starting, we can do it overnight to the customers. So we have a lot of approval which took four months time. And in the month of December, we got a — we have reached to a 70% of production, along with the sales also more than 70%. So whatever we have produced in last four months I think we have almost sold-off. And we have ordered book of till March next financial year as well. So we are very confident in terms of the chemistry and the confidence in the team, and it is — we are increasing based on the demand in India right now. India needs more CPVC and we have a experience of last six months and looking at the future of demand of CPVC. We feel that it is right time to expand. And most of the expansion, most of the infrastructure which we have done in the Phase 1 itself. So I think we can do very speed way we can expand the CPVC in a faster way. So we have put all the energy in the CPVC expansion right now and we are planning to commission by quarter four FY ’24.

Riya Mehta — Aequitas Investment Consultancy — Analyst

Right. And what will — how will this impact our debt levels?

Maulik J. Patel — Chairman and Managing Director

See, in terms of debt level, currently, the debt that we have which is somewhere around INR850 Cr in terms of long-term debt. So considering the CPVC also, the debt we might borrow few funds, but as we have conveyed earlier, we have a repayment schedule of at least INR150 Cr on our yearly basis. So on a long-term basis, our debt would be around these levels only. It won’t increase drastically from year-on. And even if that does as the capex will start contributing to P&L. Our debt-to-EBITDA ratio as you would have seen has come to 1.3x. So it should hover around that range only.

Riya Mehta — Aequitas Investment Consultancy — Analyst

Okay. I think that’s it from my side. I’ll join the queue for further questions.

Operator

Thank you. We have the next question from the line of Manish Jain from Moneylife Advisory Services. Please go ahead.

Manish Jain — Moneylife Advisory Services — Analyst

Thank you for the opportunity. My question is regarding the capacity utilization of the newly commissioned projects, ECH and CPVC. And when do we expect the capacity utilization to reach by the end of FY ’23?

Maulik J. Patel — Chairman and Managing Director

Yes. So as I mentioned in my speech, that — the CPVC capacity we have crossed 70%, and the optimized level we have reached in the month of December itself, which is one quarter earlier than what we have discussed in the past. And in the same time, in the ECH, ECH normally it is because of the current market scenario, we are going to delay one quarter to reach our optimized capacity by quarter one next financial year. And we are going to start export the Epichlorohydrin from quarter one — end of quarter one itself, yeah.

Manish Jain — Moneylife Advisory Services — Analyst

Can you quantify those capacity utilization for EPH?

Maulik J. Patel — Chairman and Managing Director

It’s a very miniscule in the last quarter, because most of the people in India, they have a annual contract from January to December. So anyway, this year — beginning of this year onwards people started talking with us. Even global players also started talking with us beginning of January itself. So, yeah, last quarter its hardly we have produced — only we have reach — we obtained all those samples and have all the trial orders we have taken from the all the customers and we have approved right now in majority of the all the global customers as well as the domestic customers. And our domestic pharmaceutical customers that we are started getting approval, because pharmaceutical takes little more time to get approve. So now the — at least, we started with a small customers in India, which consumes Epichlorohydrin for the pharmaceutical application, yeah.

Manish Jain — Moneylife Advisory Services — Analyst

Okay. Secondly, we expect the downtrend to continue in pricing for the Chlor-Alkali segment?

Maulik J. Patel — Chairman and Managing Director

Yes. In terms of ECU, yeah, it is — if you say compared to the last quarter it is plus or minus 5,000 kind of level right now it is there. It is hardly 2% on quarter-on-quarter basis right now lower. In terms of caustic prices, it is down, but in the — when the caustic price was very high, as I mentioned, our chlorine price was very low. So in terms of ECU, it was not a big difference right now. Yeah, but it is on the downtrend little bit due to the lack of export orders recently. But we expect that it will improve after 15th of February, we started getting the export order as well compared to the past year in last three months, yeah.

Manish Jain — Moneylife Advisory Services — Analyst

Okay. Lastly, what are the downstream products you’re planning to enter in the next three years?

Maulik J. Patel — Chairman and Managing Director

So like in terms of volume growth, we are expecting this financial year will — we will get from Epichlorohydrin, CPVC phosphate, and the caustic expansion, which we have commissioned in last six months. All the volume growth in current financial will achieve from this. And in FY ’25, because quarter four, we are going to commission a chlorotoluene and its value chain, which is also first time in India, along with a CPVC second phase, which is 1.5 times capacity of existing Phase 1 CPVC capacity, which will also commissioned by quarter four FY ’24. So in FY ’25, we will get a volume advantage from expansion of CPVC volume as well as chlorotoluene.

Sanjay Jain — Chief Financial Officer

So just to add to that what Maulik said, in terms of the volume growth, we will witness in FY ’24 also — in FY ’24 also, because the capex that we have planned, plus one thing one should notice over here is the, the new products that we are entering our high-value products compared to what we were earlier. So that way even the small volume will give a good amount of value growth that will come along with the volume.

Maulik J. Patel — Chairman and Managing Director

So these are the next two years capex, which as you asked the question about other downstream. So our — yeah, our priority right now is CPVC and the Chlorotoluene and its derivatives. In Chlorotoluene, its derivatives got targeting roughly around 10 to 15 different products in the first phase itself. And for the second phase, we have started doing the R&D, and we are also creating a R&D Centre next to Ahmedabad for the second phase of Chlorotoluene, we have started working in the R&D level right now, yeah.

Manish Jain — Moneylife Advisory Services — Analyst

Okay. Got it. Thank you.

Operator

Thank you. We have the next question from the line of Dipesh Sancheti from Manya Finance. Please go ahead.

Dipesh Sancheti — Manya Finance — Analyst

Hello, am I audible?

Maulik J. Patel — Chairman and Managing Director

Yes.

Operator

Yes. Please proceed.

Dipesh Sancheti — Manya Finance — Analyst

Yeah. One, I wanted to ask about, what is the sales of CPVC in this quarter?

Milind Kotecha — Head of Investor Relations

Sir, sales for CPVC, you can estimate, it would be — the December, we have ended with a 70% capacity utilization and on quarterly basis, it would be somewhere around 40% capacity utilization.

Dipesh Sancheti — Manya Finance — Analyst

For this quarter, you have done only 40% utilization? Is that what you’re trying to say?

Maulik J. Patel — Chairman and Managing Director

See, the thing is, we commissioned in July. So this product is something which takes time because we send to the customers, they trial and they test, then the pipe comes out, then they again test on that. So it takes time. So that’s where in just a matter of five months our product has been approved. And in Q3 FY ’23, the capacity utilization is around 40%, and December, we ended with 70% capacity utilization, and for the next quarter, we are fully booked for the production that we have.

Dipesh Sancheti — Manya Finance — Analyst

So what calculation I was trying to do is, what do you expect that how much sales do we generate? Would we generate with the existing capacity? And when we add the new capacity, what is the sales usually, which we are able to generate?

Milind Kotecha — Head of Investor Relations

Sir, roughly you can expect, in a full-year basis, we can get a INR350 Cr in the first phase and INR750 Cr in the — including — INR800 Cr including the second phase, yeah.

Dipesh Sancheti — Manya Finance — Analyst

So with 75,000 capacity, we’ll achieve something like around INR800 crores?

Milind Kotecha — Head of Investor Relations

Yeah.

Maulik J. Patel — Chairman and Managing Director

Yes. Yeah, you can [Speech Overlap]

Dipesh Sancheti — Manya Finance — Analyst

What are the margins — what are the — roughly?

Milind Kotecha — Head of Investor Relations

So margins again are in-line with the broad management that we have for the company, which is 26% to 30%. So considering for that matter, all products that we selected in this range. And even the top line that we have specified of around say, INR800 Cr, that is considering the current prices, which is a kind of a bottom out situation. So if the prices move up, we get a benefit of that.

Dipesh Sancheti — Manya Finance — Analyst

Okay. And going ahead, where do we see our growth coming from? Do we see it coming from caustic soda, caustic potash, chloromethanes, hydrogen peroxide or do we see CPVC doing excellently, I mean, going ahead as in, I’m talking about FY ’24.

Maulik J. Patel — Chairman and Managing Director

The FY ’24 growth will come in terms of the volume increase for Epichlorohydrin and the CPVC phosphate and additional capacity of caustic soda. These three will bring a volume growth in FY ’24, and in FY ’25 from the CPVC second phase and the Chlorotoluene value chain phosphate. So just, two — next two years our volume growth is coming from these kind of derivatives, yeah.

Dipesh Sancheti — Manya Finance — Analyst

Yeah. And do we have a volume target? I mean, generally, we always have a sales target in the next three years we want to do this much. Do we — are we revising that?

Maulik J. Patel — Chairman and Managing Director

See, in terms of volume growth, generally, one can expect considering the capex that we have done from Meghmani Finechem, one can expect the volume growth of around 15% to 20%.

Dipesh Sancheti — Manya Finance — Analyst

Hello?

Maulik J. Patel — Chairman and Managing Director

Yeah.

Dipesh Sancheti — Manya Finance — Analyst

Yeah. Sorry, I missed the last line. I’m sorry.

Milind Kotecha — Head of Investor Relations

So volume growth is coming from this, but the sales price is depend on the price, which is not in our hand. But you can expect, we will grow in terms of revenue by 25% to 30% in year-on-year.

Dipesh Sancheti — Manya Finance — Analyst

Okay. I mean, do we have a sales target of about 4,000 — going to INR4,000 crores in the next three years? Is something like that?

Maulik J. Patel — Chairman and Managing Director

Yes. Yes, you can calculate based on today’s situation, yeah.

Dipesh Sancheti — Manya Finance — Analyst

Okay. That’s great. Also with the new hydrogen policy which has been announced, are we planning — are we have — do we have any plans to get into this? Because I see that hydrogen peroxide we’re already making. So, I mean, it’s maybe a stupid question, but I just want to ask.

Maulik J. Patel — Chairman and Managing Director

No, we make hydrogen from Chlor-Alkali, which is coming as a co-product like a chlorine. And we are consuming for hydrogen peroxide. We are selling to the pipeline customers and we are selling also to the consumers right now. But there is no plan to add doing — going forward for the hydrolysis, which is coming as a new policy, coming from water electrolysis, no. We do not have any plan for going for that. You know, [Speech Overlap]

Dipesh Sancheti — Manya Finance — Analyst

[Indecipherable] generating hydrogen already. I mean —

Maulik J. Patel — Chairman and Managing Director

Yeah. It’s a different — it’s a different. It is not coming from Chlor-Alkali, it is coming from water electrolysis. So that hydrogen policy is something different than what we are doing right now. And our focus is very clear that we would like to grow in next three years and the derivatives write-off [Phonetic] Chlor-Alkali and where we expect — currently the revenue, which is at 25, 30 — 25, 75 in the last financial year. We are expecting in current financial year, it will be reached to around of 68%, 32% and from next two years, we are planning to expand in capex what we have announced. Based on that we are planning 50% revenue will come from Chlor-Alkali, and 50% will come from value addition and downstream industry. So that is the focus which we have. And the chlorine consumes on which we are doing right now around 65% as a complex, which we are targeting after Chlorotoluene and the CPVC expansion, which will be around 75% in next two years time. So that is the focus which we are very clear for next three years.

Dipesh Sancheti — Manya Finance — Analyst

Okay. Now from last quarter to this quarter in all our products, has there been any major price fluctuations in raw material or in our end product?

Maulik J. Patel — Chairman and Managing Director

I would say in majority of the chemical and all the products which we are into, there is a price fluctuation as well as the raw material change. Like in the CPVC also, there is a CPVC end product price change along with the PVC has also price correction. EPH also there is a correction in the glycerine price as well as the ECH product as well. Same caustic soda price only — the raw material side is power [Phonetic], because the energy situation has not improved yet in the world globally. So there is not big fluctuation in terms of the caustic soda. But in other products, you can see the major fluctuation in terms of the raw material side, as well as on the finished goods side, yeah, looking at the current situation in the global, yeah. But we feel that at the same time, this is a bottoms out, and I think the market will start picking up from February 15th onwards on the upward side again.

Dipesh Sancheti — Manya Finance — Analyst

Again, that’s great. And just last question about the power. Apart from — how much is our captive power? And what is our needs? And is there any major changes in the power cost?

Maulik J. Patel — Chairman and Managing Director

No. So power cost has not been changed much drastically. Yeah, slightly lower compared to the last quarter, but it is not a big change. And we don’t expect when it is going to change, because it is totally depend on the global scenario, which is Ukraine situation and Russia situation. Nobody knows when it is going to improve. But yeah, — but there is not a big major change. Only the change is, the project which we are targeting, we have invested green renewable, green energy like solar and wind, which is going to commission by end of February, and we are going to start getting advantage of lower cost of energy from — from end of March onwards. So I think you can consider at the beginning of next financial year, we’ll start getting the advantage of the lower energy cost from the renewable energy, which we have invested.

Dipesh Sancheti — Manya Finance — Analyst

Okay. That’s great. So we don’t see any major changes in the operating — in our margins — in our gross margins and there won’t be any major fluctuations, because of price or because of any external thing also.

Maulik J. Patel — Chairman and Managing Director

From this — no, we don’t see the major change is going to happen, yeah, from this level onwards.

Milind Kotecha — Head of Investor Relations

We will maintain the thing that we have specified in terms of our margin.

Dipesh Sancheti — Manya Finance — Analyst

Perfect. And if situations improve in Feb, then we will definitely — I mean, there is a chance of only improvement, right?

Milind Kotecha — Head of Investor Relations

Margins will not improve drastically from year-on what we have achieved in last nine months. It will be in the range of what we have communicated in terms of guidance, which is around 28%.

Dipesh Sancheti — Manya Finance — Analyst

Great. Fine. I’ll get into the queue if there are any other further questions. Thank you.

Operator

Thank you. We have the next question from the line of Niraj Mansingka from White Pine Investment. Please go ahead.

Niraj Mansingka — White Pine Investment — Analyst

Well, thank you. Maulik bhai, a few questions. First, on the caustic soda. Do you see the utilization of the industry at 80%, because Gujarat Alkalies also started its plant and its large capacity. So Maulik, what I was thinking, would it not be impacting your margins even in the next one year, because of the [Indecipherable] of the capacity that’s come on.

Maulik J. Patel — Chairman and Managing Director

Yeah. So, Mr. Niraj, the caustic soda and everyone knows when the somebody’s announced the capacity or somebody is commissioning a plant. But the user of caustic soda is like a potato of the industry. It consumes in every industry, even — even in — so there are so many end-users, every industries, every chemical, every agrochemical, pharmaceutical, raw material manufacturing it consumes. So our consumption is also growing in the line of the GDP of the country. So as I mentioned, we need every year a one sizable caustic soda plant as of our country is growing in terms of demand is growing. So the application of caustic soda is very scattered.

But yes, — yeah, in the meantime, when there is a suddenly the capacity will come up, and it will start uprunning, because when the commission the plant is a different story and when you optimize and reach a desired level is a different story. So every company reach towards desired level and optimized level at a different, different timings. So based on that, yeah, the situation we need to discuss and we need to — situation we need to see and based on that there is a supply demand gap, yeah, there is a impact in terms of the over capacity. But normally over a period of time, country like India, it is absorbed over a period of time, the caustic capacity whatever people are done in the past.

Niraj Mansingka — White Pine Investment — Analyst

But what was their capacity utilization now? Any thought on that like –?

Maulik J. Patel — Chairman and Managing Director

So right now, our capacity is around 1,100 TPD. And I think, we are running around 900 TPD kind of level, yeah.

Niraj Mansingka — White Pine Investment — Analyst

And I was asking on GACL, because that is the large capacity which came up know?

Maulik J. Patel — Chairman and Managing Director

Sorry.

Niraj Mansingka — White Pine Investment — Analyst

I was asking on Gujarat Alkalies.

Maulik J. Patel — Chairman and Managing Director

That we don’t have any idea.

Niraj Mansingka — White Pine Investment — Analyst

Don’t have. Okay. The second question is on Epichlorohydrin. When you had started this plant, you were targeting mostly the import substitution and — but you are talking of exporting this product and what are we noticed that, there is a significant large input that comes in. So why are you targeting the exposed market and where the domestic market is there [Phonetic]? And is there some — does — how much time more will it take for the customers to approve your production in India?

Maulik J. Patel — Chairman and Managing Director

Yeah. So, yeah, that’s a good question. Just wanted to know that, we have a capacity where every user also would like to keep two vendors. So they also don’t want to depend 100% on us, that’s why they are keeping two vendors. And we also would like to keep a balanced approach and we are getting little more margin in the export right now. So we are focusing export as also a priority compared to domestic vendors. So we are going to be balanced. In the long-run, yeah, our target is to be like 50% domestic and the 50% export that we are targeting in a longer period of time, yeah.

Niraj Mansingka — White Pine Investment — Analyst

So but, there is no supplier in domestic market, right for each year?

Maulik J. Patel — Chairman and Managing Director

Yes, yes, yes. So any — anyone, any supplies, new supplies, there is no supplier, but people would like to keep the balance to supplier at least minimum. So they will continue the import and as well as the domestic vendor. And we’ll also keep it in our spread in the export market also where we are getting little higher-margin compared to the domestic.

Niraj Mansingka — White Pine Investment — Analyst

Okay. So, I think we didn’t asked this question, because I thought if the country imports product, the export margins will be lower than the domestic margin. So where is such space here?

Maulik J. Patel — Chairman and Managing Director

So it depends on the situation. Right now in US, we are expecting, because there are a single manufacturer in US. So we are expecting where we can get little more margin than the domestic. So that’s why we are targeting. So initially when we set-up a plan that we were not having any plan about the export, but after analysis of the export also there is a good opportunity in the US market. So we are exploring that also.

Milind Kotecha — Head of Investor Relations

So add to that what Maulik just said, even we are also adding in terms of selling to the domestic customers also, but one has to understand in current situation, the demand of EPH has been impacted, because ultimately the Epichlorohydrin [Phonetic] that is made in India, it is also exported. So in that level if the demand is bit impacted and that’s where there is a slow growth. So we are focused on India market also as well as the export market considering the diversification we want to bring in our sales.

Niraj Mansingka — White Pine Investment — Analyst

Got it. Got it. Thank you for that. Another question on the capex. So on your hand you do only have two capex left, right, on the CPVC expansion and the Chlorotoluene?

Maulik J. Patel — Chairman and Managing Director

Sorry, capex for Chlorotoluene and CPVC, what?

Niraj Mansingka — White Pine Investment — Analyst

There are only two capex that is left in your hand, right? One is the CPVC expansion that you just announced and the Chlorotoluene.

Maulik J. Patel — Chairman and Managing Director

Yes, yes. Right now, we have these two and small R&D Centre, which we are coming up in near Ahmedabad, our head office.

Niraj Mansingka — White Pine Investment — Analyst

So how much is the CPVC expansion cost today in crores?

Maulik J. Patel — Chairman and Managing Director

So, INR250 crores for CPVC and INR118 crores is for the chlorotoluene. So put together, it comes to around INR430 crores kind of capex that we are into, that we have announced. But definitely, we have a roadmap ready that what we are going to do next. But as and when the management and the Board approves that, we will announce the future capex plan also.

Niraj Mansingka — White Pine Investment — Analyst

Okay. Actually you answered my next question only, that capex is not large compared to the EBITDA that you are producing right now, and we’re also going to see a scale-up of the EBITDA. So I was wondering when you are going to spend incremental or you want to repay the debt going forward, so what is your thought on that?

Maulik J. Patel — Chairman and Managing Director

So considering the current situation, if you see, this year also we are going to do a capex of around INR367 Cr around INR370 Cr, that includes all the capex that we have specified, which includes the capex for the CPVC, ECH in this year and the new project, and also we have acquired a land of around INR160 Cr. And from the next year onwards also the capex will be around INR350 Cr. So that is there. And what you said is right. As the new capex will start contributing to the P&L, the cash probably starts coming up. So we will start repaying our debts. So in this year, like we started repaying our preference shares. So we have paid that almost INR12 Cr and even if the time — even if the cash flow supports, we will further reduce debt, but considering the capex plan that we have, I guess the internal approval will be used for the future capex plan. And even considering that, we have also declared the dividend of almost INR2.5 [Phonetic] this year. So as cash flow supports, we will be doing all the — we really focus on everything, but the focus would be not to compromise on growth, that will be the first major priority in line with that reducing debt and paying dividend to the — our shareholders.

Niraj Mansingka — White Pine Investment — Analyst

Got it. Last question on the Chlorotoluene. Can you give some color on the products that you’re going to bring down and how much revenue potential can it have et cetera?

Milind Kotecha — Head of Investor Relations

So as I mentioned, we are targeting in the first phase, 10 to 15 different products of Chlorotoluene and its derivatives. And in the first phase, we are targeting approximately close to INR300 Cr to INR350 Cr kind of revenue from the first phase, yeah.

Niraj Mansingka — White Pine Investment — Analyst

And the margin profile would be similar or higher or lower?

Milind Kotecha — Head of Investor Relations

Yeah. So normally, whenever we calculate any project, you know, our target is to reach a minimum 25% ROC.

Niraj Mansingka — White Pine Investment — Analyst

Okay. Got it. Great answer. Thank you very much.

Maulik J. Patel — Chairman and Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Vibha Batra from FairConnect Business Advisors Private Limited. Please go ahead.

Vibha Batra — FairConnect Business Advisors Private Limited — Analyst

Yeah. Thank you for taking my questions. My question is on the other non-current liabilities and current liabilities. Both of these have gone up significantly. Can you please give the breakup of these? This is Page 18 of your — Page 17 as per the printed one.

Milind Kotecha — Head of Investor Relations

So that is as on half yearly basis, and for nine months, we’ll generally don’t — I mean, it’s not required. So we have not given the balance sheet. But Sanjay sir, I think you can —

Vibha Batra — FairConnect Business Advisors Private Limited — Analyst

But what is the nature of these liabilities, broadly they add up to INR500 crore. Are they interfering –?

Sanjay Jain — Chief Financial Officer

Other financial liability immediately comprises of the approved interest as well as unpaid expenses and majorly is our capital cadence [Phonetic] because our project is ongoing in the company as they are back to us in expansion. So major component includes is the capital cadence [Phonetic] other expenses and the interest which has been approved but not been paid. So that is a major component of other current liabilities — other current financial liabilities.

Vibha Batra — FairConnect Business Advisors Private Limited — Analyst

Okay. So they have gone up by INR100 crores in six months.

Maulik J. Patel — Chairman and Managing Director

See, that you see that the inventory level which has gone up that is purely because the capex that we have done, that is ECH and the CPVC. The raw material we have accumulated for that as you were planning to commission the plant. So that’s where — that is why you can see the inventory, which shows us INR154 Cr in FY ’22 have moved to 26 — INR266 Cr in H1 FY ’23.

Vibha Batra — FairConnect Business Advisors Private Limited — Analyst

Okay. That is funded through, okay.

Maulik J. Patel — Chairman and Managing Director

But now as we have started, the outlook of the finished good has started, the inventory level will be coming in soon in line with the normal levels.

Vibha Batra — FairConnect Business Advisors Private Limited — Analyst

Okay. Okay. And in terms of number of — because you are in commodity, so there will be fluctuation in the prices. And therefore even if you compute inventory days and receivable days, they may vary. So would it be possible for you to give these days in your presentation and in terms of tonnage? That would possibly give a better representation of, you know, efficiency the way you’re managing your working capital. Would that be possible for you to [Indecipherable].

Maulik J. Patel — Chairman and Managing Director

We will think over it, and maybe from the next time we can give that data also in the presentation. Considering over longer [Phonetic] period of times, the working capital days that we have, it is maintained irrespective of the prices moving up and down, because the price moves in line with the raw material prices. So that is taken care off.

Vibha Batra — FairConnect Business Advisors Private Limited — Analyst

Okay. And the inventory days also, do you vary according to your outlook on prices for raw materials? Or how do you kind of maintain that?

Maulik J. Patel — Chairman and Managing Director

No. So there is no change in the — in terms of the prices. Anything is changing. But in terms of our policy, in terms of the pricing to the customer or in terms of the credit to the customers or the raw material buying policy, there is no change. We keep it the same as it is. We don’t fluctuate that much in terms of buying as well as in terms of selling policy.

Sanjay Jain — Chief Financial Officer

And there won’t be a much in the overall [Indecipherable] cycle.

Maulik J. Patel — Chairman and Managing Director

Yeah.

Vibha Batra — FairConnect Business Advisors Private Limited — Analyst

Yeah, okay. And your operating margins, they have been declining. So is there something you can do to kind of reduce the volatility in operating margins? Or you think it’s part of — part of the business, you know, that’s how —

Maulik J. Patel — Chairman and Managing Director

See, the operating margins, which were actually high, I mean, you’re looking at the past numbers in the last six months. So that’s were on the elevated side, because there was a run in the Chlor-Alkali phase, where we have enjoyed the high prices compared to the moving in the raw material prices. So that’s where the margins have moved up. And that is where from the beginning, we have always given a guidance that our EBITDA margin will revolve around 28% or a longer period of time, even when we had enjoyed a margin of 32% in the previous quarters. But if that kind of situation continues, we would enjoy that margin, but being on realistic side and a long-term basis, 28% is what we expect that to maintain over a longer period of time.

Vibha Batra — FairConnect Business Advisors Private Limited — Analyst

So the margins could drop from December levels. Is that the guidance?

Maulik J. Patel — Chairman and Managing Director

Yeah. You can say, it will come to the actual levels, which were high in previous quarters. But absolute EBITDA in terms of that will go up because of the new products that we are entering, which are in terms of — in terms of volume will increase, which will ultimately boost our absolute EBITDA. So that will put the ROC on a higher side compared to what it generally used to be like in FY ’22 levels.

Vibha Batra — FairConnect Business Advisors Private Limited — Analyst

Okay. Okay. Thank you.

Operator

Thank you. We have the next question from the line of Harshil Pandya from SunTrust Capital. Please go ahead.

Harshil Pandya — SunTrust Capital — Analyst

Hello. Sir, actually my answer is already done. So I already requested that my question to be removed. Thank you so much.

Operator

Thank you. We have the next question from the line of Aman Agrawal from Equirus Securities. Please go ahead.

Aman Agrawal — Equirus Securities — Analyst

Yeah. Thank you for the opportunity. Sir, just wanted to gauge some sense on the kind of realizations we are able to get for our CPVC resin sales versus what would be the landed price for CPVC resin imports currently?

Maulik J. Patel — Chairman and Managing Director

So, yeah, you can consider the CPVC price is close to around 150 to 170 kind of range.

Aman Agrawal — Equirus Securities — Analyst

Okay. This is for our sales or the landed price in India that for the import — players would be importing?

Maulik J. Patel — Chairman and Managing Director

Yeah. This is for the — this is which at par with standard price, yeah, to the customer.

Aman Agrawal — Equirus Securities — Analyst

Okay. And the CPVC price trend, if you see have been moved in tandem with when CPVC prices — PVC prices started to rise, the CPVC price didn’t rise in the same manner as PVC. So for last six months if we see other prices, CPVC prices moving in tandem with the UPVC or PVC prices?

Maulik J. Patel — Chairman and Managing Director

Yes, it is moving along with the PVC pricing, but there is a protection — price protection on the lower side for the — when it goes below certain thing. Yeah, there is a protection in terms of the anti-dumping duty in India, yeah.

Aman Agrawal — Equirus Securities — Analyst

Okay. Sure, sir. Thank you, sir.

Operator

Thank you. We have a follow up question from the line of Riya Mehta from Aequitas Investment Consultancy. Please go ahead.

Riya Mehta — Aequitas Investment Consultancy — Analyst

Hi, thank you for giving me the second opportunity. So my first question would be in regards with ECH. So when we had earlier estimated that we would have a good domestic market. So what planning has gone wrong or what changes in the environment has happened that we are seeing lack of demand? And follow-up for that would be when do we see proper utilization or optimum utilization in this, and from where?

Maulik J. Patel — Chairman and Managing Director

Yes. So this is because of the overall global situation. The infrastructure related demand which is epoxy resin majorly in US and Europe is down. In the global market, in the domestic China is also very low. That spending is low, because of their COVID policy. But we believe that now the things are going to change. This is our lowest possible level we have reached. And now the things are going to change from after the New Year of Chinese and they have changed the policy for the COVID also that the global situation will change from there onwards. And we believe that the market of ECH will be — and we will also optimize level we will reach by quarter one this financial year. So the demand had subdued because of this kind of global situation. And mostly the most of the people they are doing a contract on a yearly basis from financial year from January to December. So yeah, we are talking with all the big players right now and we are expecting — I think we are getting a contract and we are going to start export as well as the domestic contract also going to start apply from February or March onwards.

Riya Mehta — Aequitas Investment Consultancy — Analyst

Okay. And in terms of hydrogen peroxide, we’ve seen lower volumes this quarter. What kind of changes in the industry dynamic have we seen?

Maulik J. Patel — Chairman and Managing Director

In terms of demand, there is no change. In fact, there is a higher demand. But yeah, there is — we have taken a slight [Technical Issues] in the plant, in the last quarter, that is the impact of the lower volume. Otherwise there is no change in terms of demand. And in fact, we are getting higher demand in terms of the export opportunity from the paper customers they are getting it, because of the Europe is down. So all our paper companies are running well. Right now, when I think we are expecting it will continue further till the Europe situation will be improved further, yeah.

Riya Mehta — Aequitas Investment Consultancy — Analyst

Right. I remember Chloromethane surprises have fallen back because of lower raw materials. I think that would be in-line. So our margins over there would be intact, despite decrease in realizations? Are we seeing detrimental margin?

Maulik J. Patel — Chairman and Managing Director

So Chloromethane, you know, yeah, price of raw material are moving in the tandem with finished goods. So as the raw material is decreasing, yeah, the ECU is also decreasing in terms of the Chloromethane. But yeah, in terms of overall demand, I think we are expecting from this quarter also the demand of Chloromethane product has good enough.

Riya Mehta — Aequitas Investment Consultancy — Analyst

Okay. And what will be our race of cost of borrowing for us?

Milind Kotecha — Head of Investor Relations

The rate of volume here is — as of now its around 8% as of now.

Maulik J. Patel — Chairman and Managing Director

Yeah. It is close to 8%, around 7.8% to 8%, 7.9%, average.

Riya Mehta — Aequitas Investment Consultancy — Analyst

In terms of — we’re seeing a decline in the international coal prices. So do we see a decline in our input costs going forward?

Maulik J. Patel — Chairman and Managing Director

Yeah, it is, it is. So it’s a standard thing. And I think the international coal price when it is reduced, yeah, it is definitely our import price reduced, but it is not in a big range. It is moving down and up slightly, it keep changing on a weekly basis. So we are not expecting it will keep big change like earlier or the energy will reach to earlier level. We are not seeing in near future, yeah, till the situation will improve in Russia and Ukraine, yeah.

Riya Mehta — Aequitas Investment Consultancy — Analyst

Okay. Thank you so much. I think my questions are answered.

Operator

Thank you. We have the next question from the line of Bobby Jay from Falcon Partners. Please go ahead.

Bobby Jayaram — Falcon Partners — Analyst

Yeah, hello. In general, when your prices for your products decreased, for example, Chloromethane or ECH —

Operator

Sir, your voice is too low. I would request you to use your handset to ask a question at this time.

Bobby Jayaram — Falcon Partners — Analyst

Yeah. I am actually.

Operator

Thank you, sir.

Bobby Jayaram — Falcon Partners — Analyst

Is it better now?

Operator

Okay, sir. You can proceed.

Bobby Jayaram — Falcon Partners — Analyst

Yeah. So my question is, when the prices for your products fall like, ECH or Chloromethane, because the input prices fall, are you able to preserve your margins?

Milind Kotecha — Head of Investor Relations

Yes.

Maulik J. Patel — Chairman and Managing Director

Yeah. When price goes down, for the couple of quarter, yeah, you have an inventory of the raw material, till that time, yeah, you will be increasing, otherwise, you will back to normal in the normal margin, after — in a couple of quarter. When the price moving up, you are getting extra advantage of lower inventory costs. So, yeah. Normally in a three months to four months’ time, we are back to a normal level of margin.

Bobby Jayaram — Falcon Partners — Analyst

So your inventory holding period is three months to four months for these products?

Maulik J. Patel — Chairman and Managing Director

Yes. Yes, in the normal, yes, in average you can consider, yeah.

Bobby Jayaram — Falcon Partners — Analyst

So that’s quite a bit of lag before you get to the new levels, right?

Milind Kotecha — Head of Investor Relations

So that’s generally lag of a one quarter, because also when we sell the price for at least a month is or a quarter is booked for few products. So that’s where it comes to three months. So the inventory might be low, but in terms of blocking the price, that will be there.

Bobby Jayaram — Falcon Partners — Analyst

Okay. I understand. And the other question was regarding Europe, you said last time the caustic prices were sustaining, because there was low chlorine production, right? Because the — because of the gas situation, but now, that’s pretty much back to normal. So is there more chlorine production in Europe?

Maulik J. Patel — Chairman and Managing Director

So chlorine in Europe situation, we don’t know. But in India, I would say, the chlorine situation is improving and the demand of PVC, which is a major driving factor for the worldwide for the chlorine. It is also in the upward cycle now, because PVC price was already bottoms out in the last month. And you see this month onwards it has started moving upwards. So we see that majority of the other chemicals also will start moving upwards once the China will open. Yeah, like the PVC has started moving up.

Bobby Jayaram — Falcon Partners — Analyst

Yeah, I understand. My question was specific to Europe, because you are exporting to Europe, correct?

Maulik J. Patel — Chairman and Managing Director

No, we are exporting — we are talking about which product?

Bobby Jayaram — Falcon Partners — Analyst

Even caustic — caustic soda?

Maulik J. Patel — Chairman and Managing Director

No, caustic soda, India is exporting, not only to Europe, but also to Africa and — yeah, to different parts also.

Bobby Jayaram — Falcon Partners — Analyst

No. But your last call, you specifically said that you are getting better prices in Europe.

Maulik J. Patel — Chairman and Managing Director

Yes. So that point of time, yeah, it was right. Yeah, because that was opportunity in Europe that point of time. Because of the —

Bobby Jayaram — Falcon Partners — Analyst

Yeah. My question is — my question is exactly that. Is that still the way it was last quarter or the prices dropped in Europe?

Maulik J. Patel — Chairman and Managing Director

Yeah, prices dropped in Europe, but I don’t know whether it depends on the — they are running their plants back to normal levels or actual demand has dropped. So lot of feedback we are getting it is lot of European demand itself has gone down itself compared to last two quarters. So what is exact situation, I think we are not able to tell right now, yeah.

Bobby Jayaram — Falcon Partners — Analyst

So you are not exporting there anymore?

Maulik J. Patel — Chairman and Managing Director

So in last three months, yeah, we have not exported, yeah. And not we, but as India is not exported much — much volume.

Bobby Jayaram — Falcon Partners — Analyst

All right. Got it. And your results, right, quarter-on-quarter, your revenues are down 4%, but your profits are down 16%, what’s the reason?

Milind Kotecha — Head of Investor Relations

So quarter-on-quarter, the revenue was down 4%, that was because our volume were almost flat. The 4% down was purely because of the realizations on [Indecipherable] marginally cooled down. And in terms of the EBITDA and the PAT has gone — EBITDA has gone down, that is because of the high cost inventory — raw material compared to the realization. As I said realization has moved down and we have a inventory of bit higher price compared to the realization drop. And the PAT has cooled down, that is purely because of the new plant that we commissioned and that has contributed to depreciation in the interest cost.

Bobby Jayaram — Falcon Partners — Analyst

You mean the caustic soda plant, right, one in September.

Milind Kotecha — Head of Investor Relations

Caustic soda, Epichlorohydrin, CPVC, because Epichlorohydrin, we commissioned in June, CPVC commissioned in July and caustic soda we commissioned again in Q2. So that all brings to the depreciation interest increase, which had impact in the Q3.

Bobby Jayaram — Falcon Partners — Analyst

I see. Okay. Got it. And final question on the ECH. While it is true that globally the construction industry is weak, but we are talking about India here, right? And there the building and construction industry is pretty robust as is the paint industry. So why are your ECH sales demand not up to par [Phonetic]?

Maulik J. Patel — Chairman and Managing Director

Yeah. So I think, majority of the domestic players in India is also doing export. The capacity of India is not only based on the Indian demand. So they are also exporting a lot. So their volume has also decreased, epoxy manufacturing.

Bobby Jayaram — Falcon Partners — Analyst

But sir, the epoxies are also used in coatings and paints and general building, right? That’s all for domestic use. That’s not exports. When you’re building a house, you need epoxy, right?

Milind Kotecha — Head of Investor Relations

No. Quoting epoxies also used in automotive and the windmill sector, yeah. That is the major in India. You can say that, yeah. And adhesive will be the third sector, yeah.

Bobby Jayaram — Falcon Partners — Analyst

Right. But all that is used also in building and construction.

Maulik J. Patel — Chairman and Managing Director

Yeah. The thing is that the ECH that we manufacture majorly in India goes to into epoxy resin. And the Indian epoxy resin manufacturers, they do also exports also. So the Indian consumption is still intact. But in terms of export, it has gone down. So there is no incremental demand as such. And they already have a contract with their existing suppliers. So which now from January onwards, they might get a portion of it. So that’s why it is bit delayed compared to what it should be have been, if the demand would have on a higher side, if the — it would have grown. But the global demand has gone down, which is why the Indian epoxy manufacturer supply to the export has gone down and that is impacting the ECH demand in the India [Technical Issues]. But again, as I said, contracts from January will start. So slow — the portion of that will also start contributing maybe from the starting of Q1 FY ’24.

Bobby Jayaram — Falcon Partners — Analyst

Yeah. All right. This is a bit of a surprise. So you should be tracking your ECH demand based on Indian building and construction industry, that’s not the driver for your product. Is that correct?

Maulik J. Patel — Chairman and Managing Director

See, if we — see, the thing is currently the situation is such that the global the demand is low. Otherwise, considering the epoxy manufacturers are increasing their capacity. There are also other players coming in India with increasing their capacity. So we expect this demand to grow substantially. But again, considering the current situation, it is been subdued. But if we ignore this portion in a longer period of time that is in a two years to three years time as the demand picks up, this demand for the ECH is going to grow in a double-digit percentage.

Bobby Jayaram — Falcon Partners — Analyst

Yeah, understand. But it will be export driven, not domestic driven?

Maulik J. Patel — Chairman and Managing Director

No, it will be export — import — sorry, domestic driven also. When I’m saying, the new capacities are coming for the epoxy, that is in India. But again, because the current situation, the demand is low, it has been delayed by maybe six months or a year’s time till the time demand again pickups.

Bobby Jayaram — Falcon Partners — Analyst

So the demand is low because — so the demand is low because they are not able to export out. It’s not low, because the Indian construction industry is low. Is my understanding correct?

Maulik J. Patel — Chairman and Managing Director

Yeah, that is right. [Speech Overlap] But as we said earlier, in terms of the ECH demand on the China side also, they are consuming less. So that’s where the demand, I mean, the demand is consumption is lower in China. But once that picks up from the 15th of — and in the post the festival season, the demand for ECH will globally go up and that will again have a good demand, global level and in the India level also.

Bobby Jayaram — Falcon Partners — Analyst

Understand. So is your CPVC also dependent on global growth drivers, or is it purely domestic?

Maulik J. Patel — Chairman and Managing Director

CPVC is 100% domestic phase, because this is very unique molecule where world 50% demand is coming is only in India. But this is very unique CPVC chemicals where, yeah, India is 50% — world’s 50% demand is coming from India. So, yeah, it is more 99% it is India driven, 1% we can do export to here and there, but it is hardly anything, yeah.

Bobby Jayaram — Falcon Partners — Analyst

And same as caustic soda, right? You are just the plants are to cater to Indian demand, not for exports.

Maulik J. Patel — Chairman and Managing Director

Yes. Because, yeah, so the primary focus is domestic only. And if there is opportunity in the export, then we do it to Africa and other regions, yeah. But, yeah, primary focus is always India.

Bobby Jayaram — Falcon Partners — Analyst

Okay. Thank you very much.

Operator

Thank you. We have the next question from the line of Chintan Mehta from Prudent Corporate.

Chintan Mehta — Prudent Corporate Advisory Services Ltd — Analyst

Sir, my majority of question get answered. I have just one question. On the longer-term, is it possible to sustain the margin front if we increase the proportion of renewable energy on caustic side?

Maulik J. Patel — Chairman and Managing Director

Renewable energy you’re talking about?

Chintan Mehta — Prudent Corporate Advisory Services Ltd — Analyst

The power cost or anything, if we increase the solar and everything, then it’s sustainable margin can be possible in future for longer-term?

Maulik J. Patel — Chairman and Managing Director

See, for the caustic soda, we put — we have our 132 megawatt power plant, which is good enough for meeting the requirement of electricity of caustic soda. The additional that we are entering into wind and solar hybrid power plant that is for the additional requirement for all our derivatives plant. So in terms of margin, that is generally the price of coal moves in line with the price of the realization, that should be in range of what we have right now.

Milind Kotecha — Head of Investor Relations

But if you, as a company level, yeah, it will impact the — it will sustainable the margin will be remained as a company level, because it will contribute to other derivatives as a power requirement, not in the caustic soda only.

Maulik J. Patel — Chairman and Managing Director

Yeah. So currently, we would be taking the power from the grid. That will be replaced by the power we will be getting from these wind and solar hybrid power plant. So we’ll be saving at that cost, which will ultimately have a impact on our — I mean, positive impact on our margins.

Chintan Mehta — Prudent Corporate Advisory Services Ltd — Analyst

Okay. Do we have any other plan to increase this renewable proportion?

Maulik J. Patel — Chairman and Managing Director

So, Mr. Chintan, and I just wanted to explain that the power is a common factor in the entire — entire our company. So it will reduce the average power cost of the company. It is not particular this product will use this power or other products will be using other power, you understand?

Chintan Mehta — Prudent Corporate Advisory Services Ltd — Analyst

Yes. I can.

Maulik J. Patel — Chairman and Managing Director

So it is not only the renewable energy, which we are doing it, not only for caustic soda, it is along with the entire campus, but our average cost of power will reduce.

Chintan Mehta — Prudent Corporate Advisory Services Ltd — Analyst

Okay. Okay. And sir, lastly, and have you see the China demand once its open, it will affect the caustic prices, I mean, on — or our demand side, it will improve?

Maulik J. Patel — Chairman and Managing Director

See, currently the caustic is not only depend on the Chinese thing, but it is also on the global thing, which is happening in Europe, in terms of the energy. So, yeah, China and Europe, yeah, we need to see the — how it is moving in coming time. But definitely, if China internal demand improve the global, any industry will change the supply demand scenario overnight. And I think the situation change in terms of the pricing into globally, in terms of demand also. So yeah, there is a impact. If there is something improved in China, yeah, we can see the improvement in the global situation in terms of any kind of chemical, yeah.

Chintan Mehta — Prudent Corporate Advisory Services Ltd — Analyst

Okay. I understand, sir. That’s all from my side. Thank you so much, sir. All the best.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Dr. Amit Vora from The Homoeopathic Clinic. Please go ahead.

Amit Vora — The Homoeopathic Clinic — Analyst

Yeah. Good evening, everyone.

Milind Kotecha — Head of Investor Relations

Good evening.

Maulik J. Patel — Chairman and Managing Director

Good evening.

Amit Vora — The Homoeopathic Clinic — Analyst

Yeah. Mr. Maulik, I want to ask you that the — last time also I had spoken to you, you told that for the full year basis you expect ECH to give a revenue of around INR1,000 crores. So do you still stay with that for the next financial year?

Maulik J. Patel — Chairman and Managing Director

ECH and CPVC together, yeah.

Amit Vora — The Homoeopathic Clinic — Analyst

I think you had told ECH 1,000 — inside on the CNBC interview also you have told ECH INR1,000 crores per year.

Maulik J. Patel — Chairman and Managing Director

Yeah, that point of time, we said ECH and CPVC together, but yeah, looking at the current pricing, there is a change again. Yeah, so it can contribute around — close to around INR800 Cr. Yeah, on a full year basis, when it runs full year.

Amit Vora — The Homoeopathic Clinic — Analyst

Yeah. And do you still go with the guidance of 2027 with INR5,000 crores of sales?

Maulik J. Patel — Chairman and Managing Director

Yes, yes. That is our long-term vision and long-term aspiration, yeah.

Amit Vora — The Homoeopathic Clinic — Analyst

Okay. And any — my last question. Any contribution to the sales in this quarter from CPVC? Or it will be reflected in the next one?

Maulik J. Patel — Chairman and Managing Director

Yes. See, that is the reason we have announced our expansion, yeah. So —

Amit Vora — The Homoeopathic Clinic — Analyst

No. Are the figures reflecting in this quarter or it will be reflected in next quarter, the sales figures?

Maulik J. Patel — Chairman and Managing Director

As I mentioned, it is October, November, there was not much of sales in terms of the CPVC. December itself we have got the major approval from all the customers and we started selling. And 70% sales happened only in December. So definitely in the next quarter, we will get full three months, yeah.

Amit Vora — The Homoeopathic Clinic — Analyst

Okay. And even ECH will be better as you say in next quarter [Speech Overlap]?

Maulik J. Patel — Chairman and Managing Director

Yeah. We are expecting end of next quarter. We are expecting the sales in ECH as well. But ECH will take quarter one to optimize — to reach at optimize level, yeah.

Amit Vora — The Homoeopathic Clinic — Analyst

Okay. Thank you so much.

Operator

Thank you. We have the next question from the line of Kashish Gandotra an Individual Investor. Please go ahead.

Kashish Gandotra — Individual Investor — Analyst

Hi, Maulik. Kashish this side. Just wanted to ask one thing. So the new plant, which we have introduced this time on the caustic soda one and the CPVC resin. Can you just give me an idea at what much capacity level these will be offsetting at for this year — for this quarter, either?

Maulik J. Patel — Chairman and Managing Director

For the additional capacity of caustic soda, you are asking?

Kashish Gandotra — Individual Investor — Analyst

Right, right. For the caustic soda and the CPVC one, the plants which we kept [Indecipherable].

Milind Kotecha — Head of Investor Relations

So additional capacity of caustic soda would be running at a lower capacity relation as we had conveyed earlier. It will reach optimum by Q4 FY ’23. So it would be difficult to give a number, but I guess in Q4, it will be clear, once we have the contribution. And CPVC as Maulik earlier said, in October and November, it was bit low, but in December month, the capacity utilization from CPVC reached to around 70%.

Kashish Gandotra — Individual Investor — Analyst

Okay. And then in this [Phonetic] optimum level, we are targeting somewhere around 60%, 70%. Is that the correct understanding?

Maulik J. Patel — Chairman and Managing Director

Yeah, in the phosphate.

Kashish Gandotra — Individual Investor — Analyst

Okay. Got it. And I think for caustic soda, it will be finally more easier for resin [Phonetic] that product was already into the market. So the customer acceptance would be there for that product. Is that understanding correct? I just wanted to know.

Maulik J. Patel — Chairman and Managing Director

For caustic soda, yeah, the — see, on an average capacity utilization from caustic soda is around 80%, 85%. So that will be achievable in the Q4 — end of Q4.

Kashish Gandotra — Individual Investor — Analyst

Okay. Just one last question. And on the EBITDA margin side for long-term we are somewhere ended in 28% to 30%, right, long-term?

Maulik J. Patel — Chairman and Managing Director

Yeah, 28 plus or minus two, yeah. That is our [Speech Overlap]

Kashish Gandotra — Individual Investor — Analyst

Okay. Thank you so much.

Operator

Thank you. We have the next question from the line of Prateek Kapoor, an Individual Investor. Please go ahead.

Prateek Kapoor — Individual Investor — Analyst

Hi. Thanks for the opportunity. Just wanted to know about these price changes of ECH? Or what is the current price right now? And you can give an approximate range like in the last five years, how it has been in the year like, what was the [Indecipherable] for ECH?

Maulik J. Patel — Chairman and Managing Director

Hello?

Prateek Kapoor — Individual Investor — Analyst

Hello.

Maulik J. Patel — Chairman and Managing Director

Yeah, we are expecting — I think we are at almost bottoms out in terms of the ECH pricing. So I think you can consider around of INR120 to INR125, yeah.

Prateek Kapoor — Individual Investor — Analyst

So what was the peak prices for ECH, maybe in last five years or so?

Maulik J. Patel — Chairman and Managing Director

Yeah, it is close to — you can consider it is close to INR200.

Prateek Kapoor — Individual Investor — Analyst

200. So currently its like INR120 per kg [Phonetic], right?

Maulik J. Patel — Chairman and Managing Director

Yeah.

Prateek Kapoor — Individual Investor — Analyst

Okay. That’s it from my side.

Operator

Thank you. We have the next question from the line of Puneet Agarwal, a Retail Investor. Please go ahead.

Puneet Agarwal — Retail Investor — Analyst

Yeah. Thank you very much. Am I audible?

Maulik J. Patel — Chairman and Managing Director

Yeah.

Puneet Agarwal — Retail Investor — Analyst

Yeah. So, sir thank you. So my first question is, what is the cost of setting up this solar and wind power?

Maulik J. Patel — Chairman and Managing Director

So this is not we are investing, we are just a partner. So we are just taking a 26% equity in the company and that company we are doing a contract for 15 years to 20 years, and they will supply contracts. So investment — in terms of investment, we just need to invest as a equity only, i.e., 26% equity portion only, the remaining equity as well as the debt and the loan will be taken over by that particular company. So there is nothing to do with us.

Puneet Agarwal — Retail Investor — Analyst

All right. So like for 26% equity, what investments have we done so far?

Maulik J. Patel — Chairman and Managing Director

26% we have done almost INR22 crore, yeah.

Puneet Agarwal — Retail Investor — Analyst

Okay, sir. And what will be the average cost of production? Or like for this solar, like they will be like supplying us the power at what cost?

Maulik J. Patel — Chairman and Managing Director

We are not concerned about — we just have a contract over particular price, they will subtype of 15 years to 20 years. So we are not concerned about that cost and there’s anything. We have just one price, we have a contract and that is suppliers. That’s it.

Puneet Agarwal — Retail Investor — Analyst

Thank you. One more thing. Last year, the caustic prices were around INR27,000. So let’s say, this year also like, if the caustic — goes down to INR27,000, will we be like able to manage that same targets that we had this year?

Sanjay Jain — Chief Financial Officer

So the caustic soda prices like 27,000 that was in the Q2 FY ’22 levels, but considering the current situation and the things that we have and the way prices have moved up, we don’t expect it to go to the levels of what it was in Q2 FY ’22 also. So even it won’t remain in the current elevated prices, but it won’t go to the levels of that also.

Puneet Agarwal — Retail Investor — Analyst

Okay. Okay. And one more thing, this Meghmani Organics is coming up with the titanium dioxide. So will that be required in chlorine?

Maulik J. Patel — Chairman and Managing Director

That is something, I guess, we would not be able to answer. We can answer related to the Meghmani Finechem as such. But yes, we do supply chlorine who the companies are close to us.

Puneet Agarwal — Retail Investor — Analyst

Okay. Thank you. And then just [Indecipherable] the percentage of revenue which comes from MOL?

Maulik J. Patel — Chairman and Managing Director

A revenue from?

Puneet Agarwal — Retail Investor — Analyst

Meghmani Organics, like we may be selling some products for them.

Maulik J. Patel — Chairman and Managing Director

So in terms of — see, we sell basic raw materials like caustic soda to our customer — to our company’s who are close by. So Meghmani Organics is one of it. So that is the portion it gets. But I cannot share in terms of revenue pick up to the customers to whom I sell. So, I won’t be able to share that data.

Puneet Agarwal — Retail Investor — Analyst

Understood, sir. Understood. Just one last question, sir. This caustic potash is your realizations are increasing like year-by-year, like 40% is given in the presentation. So I’m very new to this thing. So like is caustic potash a minor product and caustic soda the major?

Maulik J. Patel — Chairman and Managing Director

Yes, yes. Caustic potash is little special, and the consumption in demand is not in-line with caustic soda, yeah.

Puneet Agarwal — Retail Investor — Analyst

So when we do capex for caustic soda, does automatically our — this caustic potash also gets increase like our — this thing, like capacity?

Maulik J. Patel — Chairman and Managing Director

See, we are focusing only on when we announced caustic soda is only caustic soda capacity. Caustic potash — yeah, demand — demand is not that big and that huge, so we can’t go in-line with caustic soda.

Sanjay Jain — Chief Financial Officer

So caustic soda, we have a capacity of INR4 lakh, where else in caustic potash, we have capacity of INR21,000. As Maulik earlier said, it’s a very niche product and a small market that is there. It’s a different —

Puneet Agarwal — Retail Investor — Analyst

That’s why — yeah, we are not increasing our capacity in caustic potash.

Maulik J. Patel — Chairman and Managing Director

Right, right.

Puneet Agarwal — Retail Investor — Analyst

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

Operator

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

Maulik J. Patel — Chairman and Managing Director

In conclusion, we are making progress toward our long-term objectives, as well as our commitment to the environment and sustainability. I would like to thank you all of you for joining our call today. Please feel free to reach out to our IR team, if there are still any unanswered questions. Thank you everyone for your participation and have a great evening ahead. Stay healthy, stay safe. Thank you.

Operator

[Operator Closing Remarks]