Meghmani Organics Limited (MOL) Q4 FY23 Earnings Concall Transcript

Meghmani Organics Limited (NSE:MOL) Q4 FY23 Earnings Concall dated May. 02, 2023.

Corporate Participants:

Ankit Patel — Chief Executive Officer

Gurjant Singh Chahal — Chief Financial Officer

Analysts:

Rahul Veera — Abakkus — Analyst

Ayush Agarwal — Mittal Analytics — Analyst

Bajrang Bafna — Sunidhi Securities — Analyst

Naveen Gadia — Greenwood International Private Limited — Analyst

Manikantha Garre — Franklin Templeton India — Analyst

Dixit Doshi — Whitestone Financial Advisors — Analyst

Karan Asli — Maximal Capital — Analyst

Pradeep Agarwal — Individual Investor — Analyst

Harsh Beria — Individual Investor — Analyst

P Srihari — PCS Securities — Analyst

Dipesh Sancheti — Manya Finance — Analyst

Presentation:

Operator

Good afternoon, everyone. I welcome you all to the Earnings Call of Meghmani Organics Limited for Q4 FY ’23. Today, we have with us the management represented by Mr. Ankit Patel, Chief Executive Officer; Mr. Gurjant Singh Chahal, Chief Financial Officer.

Before we get started, I would like to remind you that the remarks today might include forward-looking statements and actual results may differ materially from those contemplated by forward-looking statements. Any statements we make on this call today is based on our assumptions as on-date and we have no obligation to update these statements as a result of new information or future events.

I would now like to invite Mr. Ankit Patel, CEO of Meghmani Organics to make his opening remarks. Over to you, sir.

Ankit Patel — Chief Executive Officer

Thank you, Vikram. Good afternoon, everyone. A warm welcome to each one of you, and thank you for joining us on our Q4 FY ’23 earnings conference call. I trust everyone is doing well. I believe you have got a chance to go through the financial results and investor presentation.

Firstly, I would like to highlight certain development during the quarter four. Meghmani Organics was ranked number one, Fortune 500 — Fortune next 500 company by Fortune India during Q4 FY’23. We are grateful to all our stakeholders for their continued support in our capabilities and our vision for over three decades.

I’m happy to share that our agrochemicals vertical has bagged the prestigious responsible care certificate in FY’23, reflecting the company’s continued improvement in the safe chemical management. It propels us to achieve excellence in environment, health and safety performance in the coming years. During FY’23, we have commenced commercial production on the backward integrated multipurpose plant at Dahej, of our new-age high-value products such as Lambda-Cyhalothrin, technical Flubendiamide, Cyfluthrin, Beta-cyfluthrin, Spiromesifen, catering, both domestic and export markets. The plant is getting stabilized now. It will add meaningful contribution in the coming years.

In the fourth quarter, the company has commenced the Phase 1 of titanium dioxide plant with an annual capacity of 16,500 ton. And the plant is under trial run and is expected to be stabilized in the next quarter.

The Board has recommended the final dividend of 140% for the FY’23. FY 23 has been a tough year for the Indian chemical industry that has been impacted by global macroeconomic factors, geopolitical concern, inflationary pressures, volatile raw material prices that has led to contraction in demand. We expect the spillover effect of the subdued environment expected to stay for the upcoming quarter. At present, there has been decline in raw material prices and logistic costs, but it will have it for the positive impact in production and operation going forward in the coming quarters. The revenue as well as margin across chemical companies remain under pressure due to pile up of high-cost inventory, over supply situation in the marketplace. However, we expect the situation to improve going forward.

Now, let us discuss the segment wise performance. Agrochemical constitute 76% of the company’s revenue during the last year. Despite headwinds, the segment’s EBITDA margin stood at nearly 19.6% for the FY’23 versus 20.2% last year. The company is well-positioned to benefit from China Plus One strategy of global players, coupled with the enhanced capacity eyeing on new molecules in agrochemicals. Segment constitute 26% of the overall revenue of the company’s revenue.

Currently, pigment industry is going through a challenging phase, resulting slow export demand and contraction in prices. As discussed before, during FY’23, the Pigment division performance was impacted due to the liquidation of high cost inventory. The recovery is expected from the coming quarters.

Now, let me take you through the financial performance of the year. During FY’23 company’s revenue surged by 2.5% to INR2,557 crores, EBITDA stood at nearly INR364 crores during the year, while the EBITDA margin was 14.2% of FY’23. It was impacted by the Pigment segment, which was partially offset by the Agrochemicals division. Net profit during the year stood at INR250 crores.

On the balance sheet front, the company’s cash and cash equivalents stood at INR59 crores as on 31st March 2023. The debt-to-equity ratio is at 0.42. Despite ongoing capex, we are happy to share that Meghmani Organics consistently maintain the debt-to-equity below 0.5. The return ratio like ROCE and ROE stood at nearly 14% and 16% respectively for the year.

The finance cost for the company — the company continues to maintain prudent risk management policy. During FY’23, there was a huge volatility in the currency movement, which has led to mark-to-market gains on receivables and mark-to-market loss on the foreign currency borrowings. As per the accounting standard requirements, mark-to-market gain was INR76 crore on receivable and has been shown as other income. While the mark-to-market loss on foreign currency borrowing stood at INR46 crores and has been accounted as a finance cost.

To conclude, Meghmani Organics continues to retain and attract new clients with our diversified product portfolio and quality products. The long-term goals are robust and our competent human capital is swiftly moving towards to materialize the company’s long-term goals.

With this, we would be happy to address the questions of the investors and analysts fraternity. Thank you.

Questions and Answers:

Operator

Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] We’ll take our first question from the line of Rahul Veera from Abacus. Please go ahead.

Rahul Veera — Abakkus — Analyst

Hi, Ankit Bhai.

Ankit Patel — Chief Executive Officer

Yes, Rahu Bhai. Good afternoon.

Rahul Veera — Abakkus — Analyst

Good afternoon. Just a quick question. Recently the prices of 2,4-D specifically have sharply come off. I mean, and even recently on his public platform Atul has mentioned that it’s going to be very challenging year for 2,4-D. So other than the MPP plant that we have started recently, do you think the base can still grow in the Agrochemical division for us?

Ankit Patel — Chief Executive Officer

Rahul Bhai, not only 2,4-D, I think across the chemical sector and across the agrochemical sector, for majority of the product prices have dropped significantly. It varies from 30% to 45%, 50% depending on product-to-product, and it applies to 2,4-D as well. But at the same, the positive thing has also happened. The raw material prices were significantly high. Now, it has also come down very well. And the logistic cost also, because we being in the exports — more into export, logistic cost went up drastically in last two years. Now it has come back to the pre COVID level. So the two things have been positive. At the same time, the realization have also come down.

Rahul Veera — Abakkus — Analyst

Sure. So FY’24, it will be difficult to grow on that base ex of the new multipurpose plant. Is that a correct statement to make on the topline basis?

Ankit Patel — Chief Executive Officer

Yes, you can say that the volume growth will be there from the existing, but at the same time because of the prices have come down there will be some pressure. But we hope that, you know — this is the kind of a situation where. It’s a temporary situation. We hope that the things should start improving from the second quarter onwards.

Rahul Veera — Abakkus — Analyst

Sure, sure. Fair point. And Ankit I just wanted to understand is Lambda and everything that we have recently planning to start, right, will registrations and everything will be required or there directly technical also can — that could be exported? How will that work? Product approval cycle or anything if you can highlight?

Ankit Patel — Chief Executive Officer

Definitely. The agrochemical products, all of them are regulated products. So you need to have a registration depending on product, be it technical or formulation in different, different markets. So in the past also we have been mentioning that the way we plan for the new products as well as putting up a plant for the new products, at the same time we start doing the data generation and doing the registration in different, different markets. So for this new products also we have got registration in couple of markets. So as we mentioned, the new multipurpose plant will ramp up slowly, gradually. In the first year we hope it will generate 50% revenue in terms of the operation basis, second year about 65% and third year onwards 75% plus.

Rahul Veera — Abakkus — Analyst

Sure. So this utilization we are considering, right?

Ankit Patel — Chief Executive Officer

So based on the regulatory point approval only we will be able to sell the product. Sure, sure. Fair point. And if I may ask a question to Chahal sir from the balance sheet perspective. Chahal, sir.

Gurjant Singh Chahal — Chief Financial Officer

Yeah.

Rahul Veera — Abakkus — Analyst

Sir, there is on exceptional item that has been provided for of INR18 crores on the consolidated P&L, item number 6 notes to accounts. What exactly is that sir? If you may highlight.

Gurjant Singh Chahal — Chief Financial Officer

Some reversal of, yeah — due to industrial activity — industrial authority, there is some reversal of…

Ankit Patel — Chief Executive Officer

Actually, this is pertaining to pigment chemicals, where when we have taken over at that time we assess certain assets and liabilities based on the fair valuation we did, and there were certain liabilities which at that point of time, that was not crystallized. And later on whenever we have paid these amounts. So with the final amount paid, so balance has been written back as an exceptional item.

Rahul Veera — Abakkus — Analyst

Okay, okay, fair point. And sir there is a gap between the consolidated CWIP and the standalone CWIP, like channel CWIP is at INR185 crores. May I know what is that?

Gurjant Singh Chahal — Chief Financial Officer

CWIP?

Rahul Veera — Abakkus — Analyst

Yeah, standalone CWIP.

Gurjant Singh Chahal — Chief Financial Officer

Yeah, yeah, that is all the ongoing capex actually, which is yet to be capitalized.

Rahul Veera — Abakkus — Analyst

Okay. So this for the MPP plant?

Gurjant Singh Chahal — Chief Financial Officer

Partly, MPP plant.

Rahul Veera — Abakkus — Analyst

Partly. okay, okay. And again, in the console or 341 is 135, so around INR200 crores is yet to be capitalized for the [Indecipherable] plant. is that correct?

Gurjant Singh Chahal — Chief Financial Officer

Yes, that — yes.

Rahul Veera — Abakkus — Analyst

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

Gurjant Singh Chahal — Chief Financial Officer

Thank you.

Operator

Thank you. We’ll take our next question from the line of Ayush Agarwal from Mittal Analytics. Please go ahead.

Ayush Agarwal — Mittal Analytics — Analyst

Hi, good afternoon, Ankit sir. I hope I’m audible.

Ankit Patel — Chief Executive Officer

Yes, Ayush Ji.

Ayush Agarwal — Mittal Analytics — Analyst

Sir, my first question is pertaining to TiO2, whereas global prices have fallen lot and so has raw material prices, but if you can help us understand the cost structure in our TiO2, what part will be [Indecipherable] how much will be power?. And if you can just break up the entire cost structure that will be very helpful.

Ankit Patel — Chief Executive Officer

Ayush Ji, I’m really sorry. These are all the technical details. Normally, we don’t share all these things. But I can only share with you the prices of the titanium dioxide which went drastically low, it has started improving now. Now it went as low as INR160, now it has reached to nearly IBR190 plus, moving towards INR200 rupees. And at the same time, the raw material price which is main raw material is the ilmenite which one very-high, it has come to very reasonable level.

Ayush Agarwal — Mittal Analytics — Analyst

Now if you can put a number to that?

Ankit Patel — Chief Executive Officer

So the ilmenite price which was almost INR44, INR45, it has come to nearly INR28 now.

Ayush Agarwal — Mittal Analytics — Analyst

Sir, just one. What is the — how much ilmenite is required for one kg of TiO2 in our operations, if you can tell us that?

Ankit Patel — Chief Executive Officer

Ayusy Ji, these are technical details, So, I’m sorry I won’t be able to share all those details.

Ayush Agarwal — Mittal Analytics — Analyst

Understood, understood. Any piece of — given you know, we have done a large capex here and TiO2 prices are now down. So accordingly our asset turns will be lower. So how do we plan to make that facility percent IRR here. Doe we see our EBITDA per ton going up or are we confident of making enough EBITDA per ton so it maintains our IRR on this project?

Ankit Patel — Chief Executive Officer

So while going ahead with the project we were knowing that — we analyze the number of titanium dioxide over a period of last eight to 10 years time. So we did not select the high-price time. And as I mentioned, typically the delta. Sometimes when the raw material goes up, at the same time the sales price also goes up. And if the sales price come down, the raw material price also comes down. So the delta more or less which is there, we have considered based on that delta and we are very optimistic that there will not be any problem as well as the return from this plant is concerned.

Ayush Agarwal — Mittal Analytics — Analyst

All right. One last question on Tio2, which is, since we are starting the trial and if you can throw some light on how the trial run is progressing is because, I mean, we really have not seen the plant and there were some issues with stabilizing and since this is a old plants, so some comments on the trial runs runs and how is that progressing?

Ankit Patel — Chief Executive Officer

Sure. I was just explain you for, in general any chemical plant, there are three phases of chemical plant. First, the process has to stabilize. It has to go through thoroughly. Second phase is o get the right quality of the product and the third stage is to optimize the capacity and the consumption norms. This is pertaining to, in general, all the chemical products. The first phase we are very optimistic that in the — by May end we will be able to go through — we will be clearing the first phase, which is the process parameter set. And the second and third phase about the quality and the consumption norms, we hope that it should get stabilized by June end.

Ayush Agarwal — Mittal Analytics — Analyst

Okay, after which the sample products will be sent to the customers. Is that correct?

Ankit Patel — Chief Executive Officer

No-no, the sample and everything is going on. In fact, the sales have also started. Because the continuous production is also going on, so the sampling is also happening to the different customers, the sales is also happening to the different customer. So depending on the grade — the quality, here you can’t sell any kind of quality of titanium dioxide, but ultimate aim is to sell the highest quality of the product, but that doesn’t mean you cannot sell the lower-quality product. There is a market for every product.

Ayush Agarwal — Mittal Analytics — Analyst

Understood. One question in agrochemicals, like you rightly mentioned across all the products, including Pyrethroids, 2-4-D everything is down. In such a scenario where there’s a lot of inventory piling at the customer end, how do we plan to navigate the next year? Or what are the challenges we see and then how do we plan to do some incremental cases that for?

Ankit Patel — Chief Executive Officer

Definitely. So, Ayush Ji, we knowing that this kind of situation has to come anywhere because it is not for the first time. If I give you the example, somewhere in the year of 2008-’09 during the [Indecipherable] in China, similar situation happened where the prices went up drastically and after a few months it dropped like anything and the whole industry was passing through the tough times. So it is nothing new to the industry. Everyone is well aware of it. So in the good time everyone makes good profit, in the bad time you have to handle all these challenges. So as Meghmani we have — the good thing is we are confronted with a lot of new products. So in the tough time when the situation is there, we are ready to offer various product to our customer. We are not fighting with all old generic products in the market. And at the same time, we are optimizing our operations, improvising into the yield, into the manufacturing cost and when this tough times come only at this time only, you improve upon your operations. Otherwise in the good time you don’t care for all improvisation.

So we considered this as improvisation year and the cleaning year. So, it’s a good thing that the industry whomsoever will be capable enough will survive and will improve upon. If you are not capable enough, then you will always keep on crying and — s it’s going to be tough for few companies I’m sure, but we are very optimistic for this period.

Ayush Agarwal — Mittal Analytics — Analyst

That’s great to know. One final question on Agrochemicals and then I will go back in the queue. So given we have been manufacturing a lot of intermediates, in our view NTP, there what I want to understand is, you know, there’s a lot of dumping happening from China and there is a lot of prices are falling in the intermediate as well. So do you think at these levels also we will be profitable or it will make sense to manufacture them in-house and not get them from outside?

Ankit Patel — Chief Executive Officer

So Ayush Ji, we don’t see one period as deciding factor. We are into export. Our customers always look Meghmani from the sustainable supplier point of view. So. We cannot be opportunistic where in the tough time we stop the backward integration and buy the intermediate from outside. When the time is good you don’t — you start again manufacturing. These are all chemical plants. You need to continuously run those plants no matter what the situation.

As I mentioned, you keep on improving your operation and that’s how you keep yourself sustainable. And certain things you need to keep on checking whether the market is there for the product. If the market is not, then only we go out of those products. If there is a market in future, then we continue to be there as the backward integrated player.

Ayush Agarwal — Mittal Analytics — Analyst

Understood. Thanks for answering my questions, Ankit sir. I’ll come back into queue.

Ankit Patel — Chief Executive Officer

Thank you.

Operator

Thank you. We’ll take our next question from the line of Bajrang Bafna from Sunidhi Securities. Please go ahead.

Bajrang Bafna — Sunidhi Securities — Analyst

Congratulations for improved set of numbers on a sequential basis. So my 1question pertains to purely the new molecules that we are working currently on the Agrochemicals side. So if could highlight whether any [Technical Issues]

Operator

Sorry to interrupt Mr. Bafna, your line is not very clear. Sir, yeah. Sir, please come to an area where you have a proper network and then use the handset to ask your question. Please repeat your question again.

Bajrang Bafna — Sunidhi Securities — Analyst

Am I audible now?

Ankit Patel — Chief Executive Officer

Presently your line is cracking somewhere. We are not able to hear you properly.

Bajrang Bafna — Sunidhi Securities — Analyst

Is it audible?

Ankit Patel — Chief Executive Officer

Yeah, it’s audible now.

Operator

Please go ahead.

Bajrang Bafna — Sunidhi Securities — Analyst

Yeah, so the first question pertains to the new molecules that we are working on the agrochemical side. So as far as my understanding goes, these molecules are unique and there is no domestic competition such as of now. So what sort of the sales that we are forecasting from this new seven, eight molecules that we are either launched or in the process of launching or maybe in the registration process? So if you could get some sense on that would be really helpful.

Ankit Patel — Chief Executive Officer

Sure. So Bajrang Ji, we expect to generate revenue close to INR650 crore to INR700 crore from this multipurpose plant. It includes all all the products — all the new products which we have come up with, which is expansion of capacity of Lambda, Cyfluthrin, Beta-cyfluthrin, Spiromesifen, Flubendiamide, Ethiprole. So lot of new products. So this all products put together it will generate revenue of close to INR700 crore.

Bajrang Bafna — Sunidhi Securities — Analyst

Okay. And by when we can expect that to happen? And any incremental capex which will be required to achieve that number?

Ankit Patel — Chief Executive Officer

No new incremental capex will be required to achieve this number. In fact, we will be doing — we have generated a new campus with good amount of infrastructure. So now with very little capex we should be able to generate quite a good amount of incremental revenue. So that is going to be the future target in the coming years. So by doing small, small capex we should be able to multiply the revenue very fast. At the same time as you mentioned, by when we should be able to generate this. So as mentioned earlier, we hope that this plant should generate about — should run at about 50% capacity in the first year, second year about 65% and from third year onwards about 75% to 80% plus.

Bajrang Bafna — Sunidhi Securities — Analyst

Okay, okay. And these products considering the prices that are rolling in the domestic as well as international market, are we hopefully to maintain the kind of EBIT margins that we are maintaining now close to 20%?

Ankit Patel — Chief Executive Officer

So in the tough time also we have been able to maintain this kind of margin. So currently industry is passing-through very-very tough time as I mentioned. But in the long run we are very hopeful we should be able to generate this kind of. EBITDA margin.

Bajrang Bafna — Sunidhi Securities — Analyst

So Ankit Ji if we just try to understand the kind of inventory pile up that is there in the system right now. By when do you expect this to completely go out and hopefully we’ll again see the restocking?

Ankit Patel — Chief Executive Officer

My analysis, say, as an industry as a whole, by middle of next quarter the inventory should be clear.

Bajrang Bafna — Sunidhi Securities — Analyst

Okay, got it. And on the pigment side, you know, we have improved quarter-on-quarter, but now again the major raw-material, which is a urea has also come down drastically over the last couple of months. So how do you see that segment to play out maybe in FY’24, considering the current pricing and the raw material prices, what sort of margins that we can expect in today’s scenario?

Ankit Patel — Chief Executive Officer

So even the even the first-quarter is critical, its a tough quarter, no doubt about it. But we have learnt lot many things in the last year as a whole. So we have — we have been taking lot of corrective actions and we hope that the year as a whole, FY’24 should be better for the Pigment business than the last year.

Bajrang Bafna — Sunidhi Securities — Analyst

Okay, so we are expecting to be, hopefully back maybe 5%, 7% kind of margins. Is it possible?

Ankit Patel — Chief Executive Officer

We can’t say that. We can’t say that.

Bajrang Bafna — Sunidhi Securities — Analyst

Okay. And just if you could throw some light on the future of this nano urea or maybe we recently heard that IFCO has already launched nano DAP also. So I think we are also working on the nano urea side where we have entered into some sort of management with IFCO. So what sort of timelines that we are expecting the first plant to come up for us and with what sort of capex? If you could guide us it will be really helpful.

Ankit Patel — Chief Executive Officer

So, Bajrang Ji, the nano urea project we are very bullish on that. In fact, not just us, the Government of India is very much bullish on the nano urea, which is going to be the disrupting technology in the fertilizer market. In the last week, our Home Minister Mr. Amit Shah has inaugurated nano DAP project at the IFCO campus. So as I mentioned, government is very bullish on this kind of thing because in India the subsidy what is being paid by government is close to INR250,000 crore, just significantly high. And government has got a very big plan to reduce the subsidy by introducing this kind of new technology, nano urea, nano DAP.

India imports close to 9 million tons of urea and government has taken the target that in next three years they want to make it completely zero import of the urea. Now you can understand the 9 million tons of urea will be replaced by nano urea So we will be one of the companies along with IFCO helping the nation and growing together. So we hope to commission the plant of nano urea by the fourth quarter in the FY’24. And initially we announced the capex of approximately INR150 crores for this plant.

Bajrang Bafna — Sunidhi Securities — Analyst

Any clarity on the pricing and what sort of revenue that it can generate? And some guidance on the margin if it is possible. I think it is premature, but if you could get some sense from the management — from the government that will be helpful for us.

Ankit Patel — Chief Executive Officer

Sure. So it is being sold-in the range of INR210 to INR225 in the market by IFFCO. There is no subsidy on nano urea. So we will not be seeking any subsidy from the government. It will be very transparent. The capacity of the plant is going to be the 5 crore bottles per year. So if we multiply, then it can generate INR1,000 crore revenue.

Bajrang Bafna — Sunidhi Securities — Analyst

Okay, with one INR150 crores kind of capex we can generate INR1,000 crores kinds of revenue. So it is very high as a return.

Ankit Patel — Chief Executive Officer

Asset to turnover ratio is very high, yes.

Bajrang Bafna — Sunidhi Securities — Analyst

Okay. And can it generate that INR210 crores and INR225 crores, considering that the current raw material prices which are there in the system.

Ankit Patel — Chief Executive Officer

It is little early, Bajrangi. Our details and technicalities discussion with the IFFCO is going on. So I think once we’ll commence the plant production, at that time we should be able to give you some idea.

Bajrang Bafna — Sunidhi Securities — Analyst

It looks like the return ratios are going to be far higher, even if we generate 40% margin even then payback is very shorter.

Ankit Patel — Chief Executive Officer

I will have a much better margin than 5% for sure. No doubt about it. But the clarity to the investor will be given, I think once we will start the commercial production.

Bajrang Bafna — Sunidhi Securities — Analyst

Got it, got it. And hope and wishing you all the best for this plan. And my last question is just considering the trail, if we see of last FY’23, especially last two quarters which were very challenging for us and now we are at a stage where most of the energy prices have also come down, supply chain issues have been continuously easing and a lot of raw material prices has also come down. I know that there is a inventory pile up situation in the system which is expected to be cooler so. So you know, then we guide that — the Q1 is going to be better than Q4 because we have some early trends which are available for last one month, so where — we have the high cost inventory for us also for raw material been benign. So can we see the trend of sequential improvement in numbers will continue into Q1 and going into Q2?

Ankit Patel — Chief Executive Officer

So it is too early to give you the idea about the Q1 for FY’24, but it is going to be challenging for sure, no doubt about it. As I mentioned, my prediction says that the inventory — high-price inventory should be cleared by somewhere in the middle of second quarter. So things should start in start improving from the second quarter onwards. And third and fourth quarter should be much better.

Bajrang Bafna — Sunidhi Securities — Analyst

Got it. Thank you and all the very best.

Ankit Patel — Chief Executive Officer

Thank you very much.

Operator

Thank you. In the interest of time and fairness to all participants, kindly restrict questions to three per participants. If you have more questions, please join the queue afresh. We take the next question from the line of Naveen Gadia from Greenwood International Private Limited. Please go ahead.

Naveen Gadia — Greenwood International Private Limited — Analyst

Hello. Am I audible?

Ankit Patel — Chief Executive Officer

Yes, Naveen Bhai.

Naveen Gadia — Greenwood International Private Limited — Analyst

Yeah, yeah. Yeah, Ankit Bhai So my question is for these titanium dioxide plant. So may I know are we producing from the sulfate process or is it this chloride process?

Ankit Patel — Chief Executive Officer

It is the sulfate process.

Naveen Gadia — Greenwood International Private Limited — Analyst

Sulfate process. Okay and because as per this common understanding because we are not a technical person. what I understood is these plants are highly energy intensive since until now the energy prices were very high and now the market is getting softer, so will it be adding to our bottom line?

Ankit Patel — Chief Executive Officer

It will definitely help Naveen Bhai, because in last one year the utility costs was very-very high and that was impacting a lot, but the way things are improving it will help for sure. And just to give you the idea, because it’s a highly energy-intensive project we are putting our own captive power plant, so that is our power cost and the team cost is going to be drastically low.

Naveen Gadia — Greenwood International Private Limited — Analyst

Okay. Very good. Very good. And sir, are we having any advance orders for this or just we are booking the orders when this production is out?

Ankit Patel — Chief Executive Officer

Naveen Bhai, this is a very new plant as of now [Speech Overlap] Yeah, so it is a very new plant as of now. So as of now we are not having any big contracts or big orders. So we are giving to all the customers so that our our product gets approved at different customer level that is what our priority. Once we get approval from different, different customers, then once the market improves, we will be entering into the contract with lot of other companies because India imports close to more 2,000 tons of titanium dioxide, and the major application is into the Paint segment. And all of us know that the Paint segment in India is growing in double-digit. That is the reason the big corporates like JSW, MRF family, Grasim, everyone is coming into the paints business. So they are all going to be our customer. Even Pidilite, which is very strong in adhesive segment, Pidilite is also entering in the paints business in a big way.

Naveen Gadia — Greenwood International Private Limited — Analyst

Okay. So thank you. And my last question is that do we have any plan to go in this medical-grade titanium dioxide also?

Ankit Patel — Chief Executive Officer

Initially, no. So because we are targeting the volume. So that will be catering to the paint industry first, and paint and plastic and other industry. So the medical-grade titanium dioxide is something very niche. So we are not targeting that initially.

Naveen Gadia — Greenwood International Private Limited — Analyst

Okay, okay. Thank you very much, sir. Thanks a lot. Have a good day.

Operator

Thank you. We’ll take our next question from the line of Manikantha Garre from Franklin Templeton India. Please go ahead.

Manikantha Garre — Franklin Templeton India — Analyst

Yeah, good evening, team. I hope I’m audible. Thanks for taking my questions. In contribution to one of line — the set of questions from one of the previous participants, wanted to check sir your thoughts on nano urea acceptance on-ground by the farmers given it’s been close to two years it got introduced and if you are as bullish as as earlier on this. I’m asking this because traditional urea sales doesn’t seem to be slowing down. In FY’23 also I have noticed that traditional urea sales has increased by 4 million ton year-on year to a new record level. So I thought I’ll check with you your thoughts on what you are hearing on the farmers acceptance on ground?

Ankit Patel — Chief Executive Officer

Sure. So Manikantha Ji, you are absolutely correct. It’s not going to be that easy to market this product, because farmer is being using this product, which is the conventional urea since so many years and changing the mentality at the farmer level is not going to be that easy. So how do you market your product to the customer because the price difference is close to 15%. As far as the conventional urea is concerned it cost about INR267 to the farmer, whereas nano urea cost about INR225. But why it is — that is not big difference, but when it comes to the government level because of the subsidy, it is costing a lot to the government.

Now what we are doing and what IFFCO is also doing, there has been significant trials and demonstration going on at the field level demonstrating to the farmer the kind of the benefit, how their costs can be minimized and the benefit can be increased. So this thoughts of explanation and demonstrations are going on. So we hope that in over a period of next two to three years farmers will understand and will shift in a big way towards nano urea.

Manikantha Garre — Franklin Templeton India — Analyst

Sure, sir. Just a follow-up to that question. It seems there are additional cost to tune of INR800 to INR1,000 for the spraying that is required because nano urea is in liquid form and it has to be sprayed. So if you have to include that, then the cost will be even higher for farmer, right? So how that issue is being tackled?

Ankit Patel — Chief Executive Officer

So, Manikantha Ji, over there only your specialty enters. How do you market your product. Now, as the agrochemical, what we are doing, we are already selling our agrochemical to the dealer distributors and through them to the farmer. They are using this agrochemical, they are spraying them by full-year application. Now, there is already a cost involved for spraying agrochemical. Now how we are marketing — we are going to market. We are already taking the trial — compatibility trials of all our agrochemicals along with nano urea. So by mixing them in one single spray, farmer can save the cost of spraying nano urea. And we have already taken the trial and compatibility. It is very much comfortable. So that’s how we are going to market, that the cost to the farmer is not going to increase. In fact, they can spray two products together in a single spray.

Manikantha Garre — Franklin Templeton India — Analyst

Understand, sir. So like you were saying earlier, it’s more of a mental roadblock that is there with the farmers rather than the efficacy issue that they may be facing. So no such efficacy issues are there is what you are saying?

Ankit Patel — Chief Executive Officer

Absolutely, there is no efficacy issue. In fact, the results are better. So it is just a mental mind block where different, different things come up that my labor cost is going to be high, freight cost is going to be high. How such a small 500 ml bottle can give the same result as a 45 kg bag. So definitely it’s not going to be that easy to convince the farmer. So it will happen over a period of next two to three years.

Manikantha Garre — Franklin Templeton India — Analyst

Understood. Just one last question on this. Given the government’s ambition and given the opportunity size, would you be also looking or would you be open to looking at other nano fertilizer opportunities like, DAP which got just recently inaugurated — launched by the Home Minister and probably nano NPKs. If such opportunities arise, would you be open to them as well?

Ankit Patel — Chief Executive Officer

So Manikantha Ji, as we have already mentioned in the past, we have formed a new company Meghmani Crop Nutrition Limited. So it’s going to be the very big verticals. Now in this vertical we cannot have just one product nano urea. We will be introducing many more products in this segment. So it will be in the coming years time as it will be very significant business. So there will be lot of products, not just one brand.

Manikantha Garre — Franklin Templeton India — Analyst

Right, sir. Sorry, I missed out on one question actually on the efficacy side. I’m trying to come to terms with this actual mass difference of 4% nitrogen content in 500ml bottle versus 46% nitrogen content in the urea bag. Now how do we correlate these two? How do I think about this actual mass difference? I mean, end of day if you think about this it looks like there is — in reality there is a difference in nitrogen available.

Ankit Patel — Chief Executive Officer

So there has been lot of scientific discussion which has already taken place in past. When the farmer uses this urea, when it is hand broadcasted, which touches the soil and then only part of the urea nitrogen goes into the soil, balance goes into the air. From the soil, again only part of the nitrogen will be absorbed through roots by the plant. Again, majority of nitrogen will go into the water or into the soil as a leaching. So this nano urea is directly sprayed as the full-year application on the plant where the nitrogen is getting absorbed by the leaves. So the absorption will be much faster, results will be much faster. And only whatever amount of nitrogen is required will be absorbed by the plant. So in a way not just you are helping the crop, but in a way you are helping the environment.

Unnecessary, there is indirect pollution when you use a lot of urea. Again, the soil get deplumated because the PH level becomes worse, soil becomes hard and with the nano urea all these problems are being taken care. So it’s going to be fantastic. Again, the way the government is marketing. Initially, there was wrong marketing campaign that it is going to replace 100% urea. Now government has already started corrective action, it will never replace 100% urea. It will replace 50% urea. While doing the plantation, you will be using the conventional urea once the plantation is done. After the plantation, whatever urea is being used, that will not be used as a conventional area. That will be used as a nano urea. So as you can see that can be by 50% reduction of the urea, you can have a fantastic result.

Manikantha Garre — Franklin Templeton India — Analyst

Right, sir. Yeah, I think that gives clear detailed answers to my queries. Thank you so much.

Operator

Thank you. We’ll take our next question from the line of Dixit Doshi from Whitestone Financial Advisors. Please go ahead.

Dixit Doshi — Whitestone Financial Advisors — Analyst

Yeah. Thanks for the opportunity. Most of the questions are answered. Just couple of things. What is the current cost of the debt?

Gurjant Singh Chahal — Chief Financial Officer

Our current cost of debt after increase because we are taking on foreign currency and all our earlier term loans are on the fixed rate of interest. And average is coming around the 3.5%.

Dixit Doshi — Whitestone Financial Advisors — Analyst

Okay and one last thing, just wanted to understand like what management doing in terms of — to my understanding over last three years there has been the third incidence of the fire. So what are we doing in terms of investments or any change in the process or anything where we can avoid such incidents in future?

Ankit Patel — Chief Executive Officer

Dixit JI, you’re absolutely correct. There has been some concern as far as we are concerned So there are two areas where the company is having the business. One is Agrochemical, the other is pigment. We have done lot work to improve on safety in our agrochemicals area and over there we have been given, responsible care certificate recently. In the Pigment area also we have started working significantly, analyzing where the things are going wrong. We are hiring experts. And as and when we are very serious to improve upon EHS when it comes to the business. And we assure our investors that in future we’ll take care all our safety-related issues.

Dixit Doshi — Whitestone Financial Advisors — Analyst

Okay, that’s it from my side. Thanks.

Operator

Thank you. We’ll take the next question from the line of Karan Asli from Maximal Capital. Please go ahead.

Karan Asli — Maximal Capital — Analyst

Yeah, hi. Thanks for the opportunity. Couple of questions regarding the Agrochemical segment. So if I just see, the Q4 production is down around 10%, 11% year-on year despite the new MPP plant coming online. So is there any specific reason for this one-off or is this in response to the market condition?

Ankit Patel — Chief Executive Officer

Karan JI, it is mainly related to the market because currently the demand is very — very much sluggish and it doesn’t make sense in doing the continuous operation and building the high-cost inventory. So, every company currently is going through the low phase of operation and clearing the high price inventory.

Karan Asli — Maximal Capital — Analyst

Sure. And in terms of FY’24, what sort of utilizations to be expect, maybe [Technical Issues] for the full-year. Maybe in H1, what sort of utilization do we expect in Agrochemicals as well as in the Pigment division, if you can help with that.

Ankit Patel — Chief Executive Officer

So we are being, we are being very optimistic though the market in current situation is very difficult. We hope that from second quarter onwards things should start improving and we should have a better numbers in the second half. But year as a whole, there will be some challenge as for the utilization is concerned, but still we feel that we should be able to utilize that more than 70%.

Karan Asli — Maximal Capital — Analyst

And this is across both segments?

Ankit Patel — Chief Executive Officer

Yes, across both segments.

Karan Asli — Maximal Capital — Analyst

Sure. That was helpful. Thanks a lot and good luck.

Ankit Patel — Chief Executive Officer

Thank you.

Operator

Thank you. We take the next question of Pradeep Agarwal, an investor. Please go ahead.

Pradeep Agarwal — Individual Investor — Analyst

Good afternoon, sir. Yes, Pradeep Bhai, good afternoon. My query was regarding the fire incident. I think that has been answered. The another query is regarding the MPP plant. So what is the utilization currently and what will be the utilization in the first given that we have got MNC order, which I think will be from the MPP plant.

Ankit Patel — Chief Executive Officer

So Pradeep Ji our analysis say that as per our planning, rather than looking at the quarter we have annualized based on the year, that year as a whole, utilization should be at about 50%.

Pradeep Agarwal — Individual Investor — Analyst

Okay. Thanks, Ankit Ji.

Ankit Patel — Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] We take the next question from the line of Harsh Beria, an investor. Please go ahead.

Harsh Beria — Individual Investor — Analyst

Hi. Thanks for this opportunity. I have a questions regarding the $100 million MNC contract. When will you be commencing production for this?

Ankit Patel — Chief Executive Officer

It has already commenced. In fact, the business has already started.

Harsh Beria — Individual Investor — Analyst

And is it equally distributed in the five years?

Ankit Patel — Chief Executive Officer

Yes, it is kind of equally distributed. There can be because it’s agriculture related model. So there can be plus or minus 10%, but you can see it is equally distributed.

Harsh Beria — Individual Investor — Analyst

And we have all the required registration to operate at full utilization for this contract?

Ankit Patel — Chief Executive Officer

Definitely. Then after only we have signed that agreement.

Harsh Beria — Individual Investor — Analyst

Thanks for that. My next question was about TiO2. In this call there was a lot of discussion on TiO2. I think that means had initially planned our capex, we were guiding for margin is around 23%, 24%. I think in the last call it was maintained at 15%, 20%. Given the current realizations of TiO2 and raw material costs, what is the current margin sort of that either will be making?

Ankit Patel — Chief Executive Officer

So our analysis, you know in the good time, we have given the idea that in the good times the margins are more than 20%, but on an average it is in the range of about 15% to 18%.

Harsh Beria — Individual Investor — Analyst

And just as a thought process even during a bad thing our numbers are not at all bad in terms margins, we’re still able to be 16% to 18% margins in nanos, whereas if we see that in our Pigment division, that’s not the case. What’s the management’s thought process of separating these two businesses because the financial characteristics for both are very different.

Ankit Patel — Chief Executive Officer

So, Harsh ji, definitely the new this situations before two-three years only and that is why we have taken a conscious call that we will not be doing high kit packs in the conventional Pigment business. But as far as the growth of the Pigment segment is concerned, we have selected titanium dioxide, which is a high capex high-technology oriented business where small unorganized player cannot enter. Because in the conventional pigment green and blue business, we have a high competition from the small, small unorganized player, which creates the problem in terms of margin and there has been some will supply also as well as the demand, because the major application is into the ink and other segment, where the printing ink segment is going down. So we have selected titanium dioxide where the major application into the Paint segment and the Paint segment in India is growing in double-digit. So over there the demand is increasing at the same time there is an entry barrier because of the [Indecipherable] technology. So that’s how we have taken the strategy.

Harsh Beria — Individual Investor — Analyst

But is the time — do we see this year — could we see a [Indecipherable] pigment business once the pigment business becomes [Indecipherable]

Ankit Patel — Chief Executive Officer

So definitely over a period of next two to three years when we see both the business are significantly big and it makes sense to unlock the value for the investors, we will definitely demerge it.

Harsh Beria — Individual Investor — Analyst

And my last question is it’s in MPP plant. So you mentioned INR650 crores to INR700 crores. So this is sales and not production figures for the company, right?

Rahul Veera — Abakkus — Analyst

That’s correct. For the multipurpose plant division.

Harsh Beria — Individual Investor — Analyst

Okay, if I may just squeeze in a last one. You talked in length about the EHS things that we’re doing in the company. Can you talk a bit more about what we are doing in our company to reduce such fire incidents in the future?

Ankit Patel — Chief Executive Officer

See, Harsh JI, when it comes to the chemical plant, the major risk hazard is at the process level in the operation. So majority of our critical operations we have converted into automation where the human error can be avoided and can be taken care by the system itself. Now, in the last two fire I’m not excusing but it has happened in the warehouse. Again, we have got all sorts of system at the warehouse, but still there has been some fire incident. And for that we have taken lot of measures when it comes to inventory, when it comes to the safety, electrification and everything. So we give assurance to all our investors that the management is very serious, having a very serious concern as far the safety is concerned and we are going to take all the actions to improve upon.

Harsh Beria — Individual Investor — Analyst

Perfect. Thanks for answering my questions and good luck with the business going forward.

Ankit Patel — Chief Executive Officer

Thank you very much.

Operator

Thank you. We’ll take the next question from the line of P Srihari from PCS Securities. Please go ahead.

P Srihari — PCS Securities — Analyst

Yeah. Thanks for the opportunity. Am I audible?

Operator

Yes. Please use the handset. Thank you.

P Srihari — PCS Securities — Analyst

Firstly on the titanium dioxide side, there are some reports indicating that barium sulfate can be a substitute. So that is question number one. Question two is the share of formulation in our agrochemicals on that side and what is the contribution currently? Thank you.

Ankit Patel — Chief Executive Officer

So as far as the titanium dioxide replacement with the barium sulfate is concerned, depending ng on the grades there can be a different, different application. But the titanium dioxide has been widely used globally as one of the paint additives. And we don’t see that getting replaced by some other product in couple of years.

Regarding your other question in terms of the percentage of the revenue from the formulation business. So currently it is about 25% to 30%.

P Srihari — PCS Securities — Analyst

And how is the the spread on the returns of growth?

Ankit Patel — Chief Executive Officer

Definitely, we are targeting good growth in the formulation. But at the same time, our technical business is also growing. So both the segments are growing annually. So we hope that the percentage for the formulation will remain in this range for sure. It will never go down.

P Srihari — PCS Securities — Analyst

Yeah I think [Indecipherable] how much part of the segment if at all?

Ankit Patel — Chief Executive Officer

I’m sorry, can you repeat your question.

P Srihari — PCS Securities — Analyst

Barium sulfate [Indecipherable] and how much is substitution in the worst case scenario?

Ankit Patel — Chief Executive Officer

Even I need to check that. I have done any analysis for that.

P Srihari — PCS Securities — Analyst

Okay, thank you.

Operator

Thank you. We’ll take our next question from the line of Dipesh Sancheti from Manya Finance. Please go ahead.

Dipesh Sancheti — Manya Finance — Analyst

Yeah, Am I audible?

Ankit Patel — Chief Executive Officer

Yes, Dipesh Ji.

Dipesh Sancheti — Manya Finance — Analyst

I just wanted to understand in the extraordinary in this quarter, how much has been the rejection from the insurance company? Or is there any rejection from the insurance company of our previous incidents of fire?

Gurjant Singh Chahal — Chief Financial Officer

See, there is no exceptional item. This is only the — in the previous years is a claim which was the balance amount, which we have received.

Dipesh Sancheti — Manya Finance — Analyst

Okay, so we have received all the claims which are till now? There has been no rejections on any of the…

Gurjant Singh Chahal — Chief Financial Officer

All previous claims has been settled.

Dipesh Sancheti — Manya Finance — Analyst

And this quarter the incident which happened and how have you accounted it for?

Gurjant Singh Chahal — Chief Financial Officer

So this happened on 16th April, so for that assessment is going on, so adjustment has been done in the financials. So right now we don’t know that the the extent of loss? [Speech Overlap]

Dipesh Sancheti — Manya Finance — Analyst

Hello. Can you repeat your question? Do we know the extent of loss.

Gurjant Singh Chahal — Chief Financial Officer

Extent of loss it is under assessment, but it is between INR7 cores, INR8 crores.

Dipesh Sancheti — Manya Finance — Analyst

Okay, that is okay. Yeah, most of my other questions are answered. Thank you so much. All the best.

Ankit Patel — Chief Executive Officer

Thank you.

Operator

Thank you. We’ll take the last question from the line of Pradeep Agarwal, an investor. Please go ahead.

Pradeep Agarwal — Individual Investor — Analyst

Thank you you sir for giving the opportunity again. I just want to ask that how much is the risk in terms of percentage in the TiO2 plant, which we see now? Is it 100% success chance or do we see any risk as of now?

Ankit Patel — Chief Executive Officer

Pradeep Ji, we are technocratic people. We don’t consider any kind of failure. So no matter what kind of challenges are going to be there, we will make it 100% successful.

Pradeep Agarwal — Individual Investor — Analyst

Okay. And sir another queries that right now the share holding of Tata Motors are little below 50%, so is there any plan to get it over 50%. So is there any plan to get it over 50%?

Ankit Patel — Chief Executive Officer

There is no such big plan, but promoters on individual basis they keep on purchasing some amount of shares. So there is no such plan.

Pradeep Agarwal — Individual Investor — Analyst

Okay. Thank you sir.

Ankit Patel — Chief Executive Officer

Thank you.

Operator

Thank you. La0dies and gentlemen, we have reached the end of the question-and-answer session. I’d now like to hand the conference back over to Mr. Ankit Patel from Meghmani Organics Limited for closing comments. Over to you, sir.

Ankit Patel — Chief Executive Officer

On behalf of the management, once again thank you everyone for joining us today. We appreciate your support. And thank you to the moderator for this call as well. Thank you, everyone. Bye-bye.

Operator

[Operator Closing Remarks]