Natural Capsules Ltd (BSE: 524654) Q2 2025 Earnings Call dated Nov. 18, 2024
Corporate Participants:
Sunil L Mundra — Managing Director
Analysts:
Abhishek Mehra — Analyst
Yug Jhaveri — Analyst
Ankit Gupta — Analyst
Madhur Rathi — Analyst
Chirag Fialoke — Analyst
Unidentified Participant
Devarsh Shah — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Q2 and H1 FY25 Earnings Conference Call of Natural Capsules Limited. As a reminder, all participant lines will be in a listen only mode and there will be an opportunity for you to ask questions after the opening remarks conclude. [Operator Instructions]. Please note that this conference is being recorded.
I now hand the conference over to Mr. Abhishek Mehra from TIL Advisors. Please go ahead.
Abhishek Mehra — Analyst
Thank you, Ryan. Welcome, everyone, and good evening. Thanks a lot for joining us in this Q2 and H1 FY25 earnings conference call of Natural Capsules Limited. The results and investor presentation have been emailed to you and are also available on the stock exchange. In case anyone does not have a copy of the same, please do write to us and we’d be happy to send it over to you.
To take us through today’s results and the results for the quarter and the financial year and answer your questions, we have with us today Mr. Sunil Mundra, Managing Director; Mr. Raj Kishore Prasad, Chief Financial Officer. We’ll be starting with a brief overview of the quarter from Mr. Mundra which will be followed by the Q&A session.
I would like to remind you all that everything said in this call that reflects any outlook for the future which can be construed as a forward looking statement, must be viewed in conjunction with the uncertainties and risks that the company faces. These uncertainties and risks have been included but are not limited to what has been mentioned in our annual report.
With that said, I would now like to hand over the call to Mr. Mundra. Over to you, sir.
Sunil L Mundra — Managing Director
Yeah. Good afternoon, everyone. Thank you for joining us today for Natural Capsules Limited’s earning call for the second quarter of FY25. I am Sunil Mundra, Managing Director of Natural Capsules and I am delighted to present our financial results and insight into our performance during this quarter.
As we previously communicated, we have been focusing on enhancing our performance in the capsule segment and I am pleased to report that our efforts are indeed yielding positive results as evidenced by the improvement in our gross margins. For Q2 FY25, we have achieved revenue from operation of INR41.22 crores reflecting a year-on-year increase of 5.21%.
Our gross margins have expanded due to a favorable product mix and increased demand for our vegetarian capsules. However, it is important to note that while our gross margins have improved, this has not yet translated into profitability due to a rise in other expenses. We are currently facing increased freight costs on our export shipments and higher power charges at our Pondicherry plant that have impacted our bottom line.
Specifically, our profit after tax for this quarter stands at a loss of INR0.6 crore which is mainly due to additional provision of deferred tax which reflects a decline compared to the previous year. We expect the additional freight charges to normalize in the current quarter and going forward and we hope to further streamline our operations and enhance efficiencies moving forward.
Despite these challenges, our EBITDA for the quarter was INR4.5 crores with an EBITDA margin of 10.93%. We remain optimistic about stabilizing profitability in the coming quarters as we implement measures to mitigate these expenses.
Looking ahead, we are excited about the new HPMC production line that we had ordered earlier, which is expected to be operational by February next year. This new capacity will enable us to meet the growing demand for HPMC Capsule particularly as we see lead times extending up to 90 days among leading players in the industry. Additionally, we anticipate price increase of about 2% to 3% in the current quarter which should further support our bottom line.
In our API segment, we are nearing our final approval from the Pollution Control Board for our production facility in Bangalore. Although there have been delays in this process, we expect to secure the final clearances within this quarter. We have submitted samples to 23 pharmaceutical companies and supplied trial batches to several firms laying the groundwork for larger orders once operations commence.
In summary, while we are currently facing some short-term challenges with expenses impacting our profitability, the underlying strength of our capsules business is clear, through improved gross margins and strategic investments aimed at future growth. We remain committed to stabilizing profitability while capitalizing on the strong demand within the industry.
Thank you for your attention today. I look forward to addressing your questions during the Q&A session following this presentation.
Abhishek Mehra — Analyst
Thank you. Ladies and gentlemen — go ahead sir.
Sunil L Mundra — Managing Director
Yeah, I’m done.
Questions and Answers:
Abhishek Mehra
All right. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. The first question comes from the line of Yug Jhaveri from Molecule Ventures. Please go ahead.
Yug Jhaveri
Hello. Hi sir. Am I audible?
Sunil L Mundra
Yes.
Yug Jhaveri
Yeah. Very good afternoon sir. Thank you for the opportunity. So my first question is on the capsule segment. Sir, it’s been a few quarters that we have installed our first HPMC line. However, we haven’t seen any significant contribution or growth in the top line. So can you please let us know how the HPMC lines are performing and what sort of additional growth can we anticipate once the additional two lines will be installed? Also please let me know the planned timeline for the installation of the additional two lines. Thank you.
Sunil L Mundra
Yeah, so to answer your first question, that no significant growth was seen after addition of the first line. Yes, you are right to an extent that initial first quarter it took some time for getting the samples approved from various customers. Our major customers are in foreign countries in say in Brazil, in Canada, US. So we have sent samples and those samples are cleared. And in Q2, we saw some movement. But now in Q3, we are seeing some improvement in the volume business. Though the production has stabilized. The dispatches were delayed because of these approval process.
Now once these — each of the individual HPMC line is carrying certain particular specific size. So currently we have established our size zero line. Now next size double zero line is under the process of getting implemented. We expect it to come online by February next year. We are trying to get an optimum design of the capsule which runs on all types of machines in international market. So we expect that once all the three lines which we have now planned are full on board, on an annualized basis they should contribute about roughly around INR35 crores to INR40 crores of top line.
Yug Jhaveri
Okay, so my second question is on the recent fundraiser. So can you help us understand the need of the recent fundraise or the planned utilization of those funds? And can we use those funds to fast track the ordering of the new HPMC lines to accelerate the growth or we have been very behind. So, initial plan timeline for the HPMC capex right now, that’s one.
Sunil L Mundra
The recent fundraise was as informed to the stock exchange was mainly for two purposes. One was to contribute to the subsidiary company. Because of the increase in the project outlay there and delay in implementation, there was some cost implications which the company has taken care of. Second is of course to beef up our working capital requirement and that would help us to meet the higher top line revenue because the working capital requirement is also there.
Your another question was whether this funding would help us to expedite the implementation of HPMC line?
Yug Jhaveri
Yeah.
Sunil L Mundra
To an extent, yes. But the funding for the HPMC line was never a concern area. It was basically from the point of view of getting the clarity of the customer approval for our capsules, from the machine trial point of view and also now the design optimization for the next two machines that what capsules we manufacture should be suitable for all types of machines across all the current continents. So that those are the reasons that we’re going little slow on the HPMC line or else there’s no constraint about the funds on that account.
Yug Jhaveri
Okay, in the last conference call you had mentioned about INR180 crores to INR190 crores of top line in the capsule business this fiscal year. So just because of the increasing realization and then incremental revenues coming from HPMC line, do you think that we are on the track to meet those guidance this year?
Sunil L Mundra
Of course there is an incremental revenue coming from increase in our selling price to an extent of about 2% to 3%, so that would add up, the HPMC line, implementation of line number two and three has been delayed because of some delay in getting the customer approval. So we still anticipate that we should touch about INR175 crores to INR180 crores, if not INR180 crores to INR190 crores, INR175 crores to INR180 crores is achievable.
Yug Jhaveri
This year. Okay.
Sunil L Mundra
Yeah.
Yug Jhaveri
For the capsule business. So what would be your guidance for FY26 both in terms of top line as well as the margin profile. And how do you plan to achieve it?
Sunil L Mundra
As already mentioned that top line revenue could be in the range of INR175 crores to INR180 crores.
Yug Jhaveri
For this fiscal year, right? I’m asking about FY26.
Sunil L Mundra
FY26, yes, probably we expect it to be in the range of INR210 plus crore to INR220 crores, INR210 crores to INR220 crores. With the full operation of HPMC-3 lines and improvement in the margins, we expect it to go to about INR210 crore to INR220 crore. Now how do we hope to get there? One of course in this year the contribution of HPMC could be maybe not more than INR10 crores to INR15 crores. But we expect another INR20 crores or INR30 crores coming from the HPMC line in full year of operation next year financial year.
Yug Jhaveri
Okay.
Sunil L Mundra
The bottom line projections for the current year could be in the range of 14% to 15%. This is likely on an higher side as compared to what we have achieved in the first half, we are hopeful of this on the basis of improvement in our realization rates as well as some better contribution from HPMC, HPMC capsules definitely give better EBITDA margins. So in FY26, we hope to get this to a higher level back to around 17% to 18%. By which time our HPMC contribution in the overall revenue would be much higher than compared to the current year.
Yug Jhaveri
Okay. So for FY26 you are guiding about INR210 crores to INR220 crores of revenue or HPMC would contribute nearly INR30 crores to INR40 odd crores with EBITDA margin between 17% to 18%, right?
Sunil L Mundra
Right.
Yug Jhaveri
Okay. Now the next two questions are on the API side of the business. So it is extremely disheartening to see that we are not yet started commercial production in our plant. For the last three quarters we have just been saying that for sure the plant will start in this quarter. But somehow it just doesn’t happen. So can you please explain the length which has caused the delays from the start where we are today and in the most conservative estimate by when will this plant actually start?
Sunil L Mundra
Actually, I agree with you, that it is bit disheartening to note that there was a delay which was — some of the reasons were beyond our control like the statutory approval from the Pollution Control Board. In fact, we got approval for our small volume lab sometime in month of March. But unfortunately the larger facility was still not approved because of frequent changes in the Pollution Control Board level, the top management, the chairman got removed by the government, went to court, he got reinstated.
Now finally he is being retired. This happened twice in last 9 months to 10 months. And this gentleman was appointed by the previous government, and due to this political tussle, he kept on all the projects on hold. More than 1,600 files were kept on hold by this gentleman who has retired in last week.
Now we are hoping that the new — in fact in last six months, we could get two steps out of the three steps that were required to be done by us to achieve this final approval for the total plant consent for the operation. One was the changes in the dimension size and the scope of the project. Second one was of course our ZLD inspection which were done in last three months. And now the file is with the Pollution Control Board and we expect the committee to take it up very soon. In next few weeks, we are expecting it to happen.
In the meanwhile, a plant has been made ready and we have been operating the plant with the sterility batches in fermentation and trial batches or dummy batches on our synthesis plant just to make sure that the plant is ready. The moment we get the license, we are able to start. So, in the anticipation that our pollution license is expected in the next few weeks, we have already started the procurement of our all-main raw material, key raw material and we hope that probably sometime in December, we should be able to start both the segments in large scale facility.
Yug Jhaveri
So you are saying that by December or by max January you will start commercial production after receiving approvals?
Sunil L Mundra
Yes.
Yug Jhaveri
Okay. If the plant start contributing to revenue from next year or from this quarter. So what is the sort of incremental top line that can be expected for last quarter also and from full next year, next fiscal year?
Sunil L Mundra
For the Q4 of the current year, probably we are going to do not more than INR10 crores to INR15 crores, INR20 crores. Maybe because right now, we are targeting only the customers in the domestic market with a generic product line. Because right now, the plant is approved under Schedule M GMP by the Government of India.
Whereas now, the WHO GMP is the next stage that we have to achieve for getting entry into some of the bigger companies, which is already in — the process is on that we have to put our three products on stability and once the stability batches achieve six months of stability, we need to call the drug controller team for inspection and we get the WHO GMP. So, till that stage is achieved, we will not be able to get entry into some of the larger companies.
Yug Jhaveri
Okay,
Sunil L Mundra
But keeping in mind that we are catering to the generic companies, we should be able to achieve about INR10 crores to INR15 crores of top line revenue in Q4.
Yug Jhaveri
And for FY26?
Sunil L Mundra
FY26, we are keeping say I have a conservative base of about INR80 crores. INR80 crores to INR90 crores.
Yug Jhaveri
INR80 crores to INR90 crores of top line?
Sunil L Mundra
Yeah. We do expect some export business also to materialize. We are in advanced discussion with some of the regulated market player but they cannot take directly. So they are buying it through some other country operation where they have their own factory. So that — those discussions are also on and there are online evaluation of the facilities going on. So we are hoping that, that may also materialize.
Yug Jhaveri
So in FY26, so you’re guiding INR80 crores, INR90 crores. So this will be from generic companies only or you will try to get approval from those companies also?
Sunil L Mundra
So at the moment what we have forecasted is that even the — even if you get this Schedule M GMP license by middle of next year, say July or so, it might still take another three months for us to get approval from some of these Schedule M requirement companies like the bigger Indian corporates and all. So we have anticipated 50% of the revenue coming from exports to some countries where we are hopeful that after this current evaluation, the audit process, online audit process which is going on, that will materialize and balance will come from the domestic market.
Yug Jhaveri
Okay. And so this year, almost this year we will spend our time to get approvals from the government bodies?
Sunil L Mundra
Yeah,
Yug Jhaveri
So, are they putting in a case forward to extend our PLI benefit by one additional year, as this year has been almost delayed at the government’s end.
Sunil L Mundra
We have taken up this issue with the Department of Pharmaceuticals and in fact with the Commerce Minister’s open session which was there in the last week of September in Delhi, I had attended that and there we have taken up this issue. But government is non committed at this point of time. But we can expect a positive reply in coming year or so.
Yug Jhaveri
Okay. Last quarter you spoke about increasing price of APIs. But I think in this quarter again the prices have started inching down. So what is the actual situation? Can you please help us to understand that?
Sunil L Mundra
Yeah. In fact the API prices across the Board have been facing reduction and this is mainly due to dumping or probably selling at cheaper rates from China. So this is bothering across the API industry and pharma industry at large. The matter is before government. Government is seriously considering putting anti dumping duty in few cases wherever possible and also imposing minimum import price in several cases where the data is made available to the government.
So in our case also, we have represented the government along with our cost statement. Government has said that we must start production first and again approach them. They will help us in imposing a minimum import price. So that would help us to get our reasonable recovery of our costs and reasonable margin.
Yug Jhaveri
And the realizations?
Sunil L Mundra
Yes.
Yug Jhaveri
Okay. And last question is on the — finally on the consolidated level. So where do you see Natural Capsules as a company five years down the line, both in terms of Capsule top line and margins as well as API top line and margins down the line five years?
Sunil L Mundra
Five years. Yes, our vision on Capsules and API is clear. Capsules at this moment of time we are on a consolidation mode. What are the capacities that we are putting for HPMC? We want to consolidate that and start, our vision is to increase our exports and reach out to better quality of customers so that our sales to the generic players goes down and margin improvement.
Five year down the line without any addition of capacity, with this current capacity, whatever has been planned, we see at least the top line revenue going to INR250 crore to INR270 crore with EBITDA margin of upwards of 20%. Around 20%. Whereas in API business definitely there will be a significant changes. Our aim is to get the facility approved by US FDA, EU GMP and maybe by fourth year by the PMDA Japan.
Our aim is to get 75% of the revenue coming out of these regulated markets with EBITDA margins of not less than 25% on a weighted average basis. And I expect top line revenue in the range of INR250 crores to INR270 crores in the [Speech Overlap].
Yug Jhaveri
From API division, next five years?
Sunil L Mundra
Yes.
Yug Jhaveri
Okay, that’s all. Thank you so much.
Sunil L Mundra
Thank you.
Operator
Thank you. The next question comes from the line of Ankit Gupta from Bamboo Capital. Please go ahead.
Ankit Gupta
Thanks for the opportunity. So my question was on the API division. So, like you have already started supplying samples to the big pharma companies in the domestic market. So any indications from them, how is the product because in this the quality and all becomes very important since it’s a fermentation product. So if you can talk about that how has been the — what has been their response towards our product?
Sunil L Mundra
The response has been good and we have so far submitted samples to about 23 customers out of which 9 to 10 companies we have made commercial sales also. So response has been good so far.
Ankit Gupta
Okay.
Sunil L Mundra
The general companies do put these samples on stability studies in within their company. They convert into their finished product and then put into stability for seeing those products. So the results would be generally known by accelerated stability in three months, six months, a few companies have achieved that and they have started buying from us and few are in the process of getting that accelerated stability study reports. Once they get that, probably we’ll be able to start supplying to that.
Ankit Gupta
Sure, and then once we start commercial operations, what we — from my limited understanding of the fermentation business from lab scale to commercial stage is something which is very difficult to achieve in a fermentation product. So like, how confident are we of achieving that?
Sunil L Mundra
So in our case we are having a team of scientists who have worked on these products at the similar size at which we proposed to do. Right now, though we did all our R&D batches at very small level of 300 liter fermenter, pilot fermenter. But we are scaling up to 60 KL fermenter where our batch size would be — our working volume would be about 42 KL, 70% of the vessel volume. So we are confident that we will be able to scale it up quickly. Because the persons who are in charge and running this fermentation facility are guys who have worked for about seven to eight years on this 60 KL fermenter.
Ankit Gupta
Sir, once this let’s assume by end of Q3 we get approval from the Pollution Control Board, like we start commercial operations from Q4. So what will be our depreciation interest cost per quarter for the new — for the API plant?
Sunil L Mundra
I think we anticipating a total annual basis depreciation of about INR7 crores, INR7.5 crores. So on a quarterly basis it will be about INR1.85 crores.
Ankit Gupta
And interest cost?
Sunil L Mundra
Interest cost is about roughly INR80 lakhs per quarter.
Ankit Gupta
Sure, sir. So not much like interest cost is much — is not that increased compared to what we have currently?
Sunil L Mundra
Yeah.
Ankit Gupta
Sure.
Sunil L Mundra
So we have not considered working capital costs on this. So this INR80 lakhs is towards the loans…
Ankit Gupta
Capex only?
Sunil L Mundra
Yeah, term loans and all.
Ankit Gupta
Yeah, okay. And then on the we — our plant has been delayed quite a bit. So we have seen CWIP increasing even for the past — for the first half of this year as well. So how much has been the preoperative expenses which have been capitalized in let’s say in our CWIP till date?
Sunil L Mundra
So right now, since our only small volume kilo-lab was ready and we have calculated that the capacity in proportion was not more than 10% of the overall capacity. We have capitalized only preoperative expense up to — so about INR25 lakhs has been capitalized. And I think the rest of the preoperative expenses are still under the work CWIP. So once the final operations start, we’ll be capitalizing the total pre-operated expenses.
Ankit Gupta
Okay. Any amount that you can give if you have that handy?
Sunil L Mundra
Yeah, originally preoperative expense was anticipated about INR8 crores to INR9 crores. This is going to be somewhere around INR18 crores to INR20 crores.
Ankit Gupta
Okay. And sir, let’s assume if we start our operations from Q4 like when do you expect to break even on EBITDA level? And how much will be our fixed cost per quarter for plant operations?
Sunil L Mundra
See, as I mentioned, it is depending on the kind of margins that we are able to derive next year. We are — next year, first year of full operation. Little bit of uncertainty in terms of kind of customers that we will cater to in case we are able to get some of the good export orders that which we hope to get. In that case our blended margin could be about 10% EBITDA. If we get that, then we will be able to break even in the next year itself.
Ankit Gupta
Okay. And I think once you start operation at least few quarters it will take to stabilize also the plant.
Sunil L Mundra
Yeah. Yes. I think about one quarter should be enough to stabilize the operation.
Ankit Gupta
Sure. Okay. And let’s say once like in FY27 onwards is what we can see a significant improvement in our profitability in our API plant?
Sunil L Mundra
That’s exactly right. FY27 is a year in which we anticipate approvals from EU GMP and maybe going forward US FDA and we see a much better quality of customer and our exports going up significantly. And that’s where we see the significant improvement in EBITDA.
Ankit Gupta
Sure. Okay. Thank you and wish you all the best, sir. Thank you.
Sunil L Mundra
Thank you, Mr. Ankit.
Operator
Thank you. The next question comes from the line of Madhur Rathi from Counter Cyclical Investments. Please go ahead.
Madhur Rathi
Sir. I’m trying to understand whether in the fourth quarter we can expect losses from the API plant?
Sunil L Mundra
Yes, I think API plant first quarter will be the fourth quarter of the current financial year, obviously there will be losses and on console basis there will be — losses will be there. Yes, you’re right.
Madhur Rathi
Sure, sir. In the answer to the previous question about capitalizing the pre operative expenses. Sir, did I hear you correctly that INR18 crores to INR20 crore of pre operating expenses will be capitalized under fixed assets?
Sunil L Mundra
Yes.
Madhur Rathi
Sir, so, ideally sir, is it not better to book them to the P&L and take advantage of the losses to set off the taxes?
Sunil L Mundra
See, these are preoperative expenses before starting productions. So, obviously we would like to capitalize them those which are directly identifiable with the current running production capacity. We are directly debating to P&L.
Madhur Rathi
And sir, since our new API plant is quite small, I understand from the investor presentation. So how does our cost of production compare with the landed cost of imports? And sir, because I’m assuming the Chinese and other location the plants might be really big so they must be enjoying economies of scale. So in that, — so what’s your thought about our cost of production versus the competition?
Sunil L Mundra
So, our production size of the fermenter at 60 KL is more or less comparable with the Chinese major players of steroids. Even though lately there are few people who have entered at a little higher capacity of the fermenter 80 KL to 100 KL. But cost of production is more or less that what we are currently seeing, the information that we have, that we are at par with the Chinese yield levels.
But the challenge that we currently face is the significant amount of dumping that is happening from China, not only in our steroidal API segment, but all segments. That is because I think the government there is probably offering them some sort of incentive to export, or there is overcapacity there, or the players there are also facing some significant losses.
So, I would say that if the Chinese prices come back to normal, or our government imposes from MIP, minimum import price, which is basically based on a fair costing, we should be at par with Chinese, and we will not be at any disadvantage in terms of cost competition. Having said that, probably PLI benefit will help us to meet that competition much better.
Madhur Rathi
Sir, as per the current landed price of Chinese imports, are we — I mean how does our cost of production compare with the current import parity price?
Sunil L Mundra
So at this moment there are I think difference is there to the extent of about 30%, 35% the cost of production that we have and what is the current landed cost from China? There is that gap of about 30% to 35% and this is what we have brought to the notice of the government and this drop is also noticed in last six quarters.
We have given the import data of last six years to government and we have proven that the prices even pre-COVID at least three years, Pre-COVID, during COVID evolved around at a particular level with the plus, minus band of 15%, 20%. But these are the historically lowest prices at the current moment and the prices are much lower as compared to the last six years average trend. So the government is also aware of the matter and hopefully they’ll take some action.
Madhur Rathi
Sir, do we have some kind of timeline before which we can see some kind of anti dumping or tariffs on these Chinese imports?
Sunil L Mundra
So, in this regard we had several rounds of discussion with the Department of Pharmaceuticals, Ministry of Commerce. The government has given assurance that they will take it up. But the only thing is, in my last meeting with the Deputy Secretary of the Department of Pharmaceutical they made it that once you start production of all the three PLI products and they will come and inspect and probably they will announce the PLI or they will consider our case. I would [Technical Issues]
Madhur Rathi
So in that case if we start next year I would expect because in Q4 I would expect it would be the operational aspect of it. But full fledged production if we start in FY25, FY26. So sir, I would expect another year — so sir, can we expect that there would be losses if there is no anti-dumping duty by the government which takes around six months to nine months to get into the final order. Till that time there could be some kind of losses in the API segment.
Sunil L Mundra
So we don’t oversee losses because we are also trying to push ourselves on the export front. With the technical grade API we are able to find nearly 50% market for exposure where there the margins are better and they will see that we will be — whatever the kind of negative margin that we have in the domestic sales probably will be compensated.
Madhur Rathi
Sir, API prices are down everywhere. So is that not the case with the technical API exports that we are speaking about?
Sunil L Mundra
Yeah, this is a technical grade API being exported to some regulated market player. So there the price levels are altogether different. So their price levels are not impacted this much.
Madhur Rathi
Okay, so that was from my side. Sir, thank you so much and all the best.
Sunil L Mundra
Thank you. Thank you, Mr. Rathi.
Operator
Thank you. The next question comes from the line of Chirag Fialoke from RatnaTraya Capital. Please go ahead.
Chirag Fialoke
Hi. Thank you for the opportunity. Am I audible?
Sunil L Mundra
Yeah. Yes sir.
Chirag Fialoke
Hi sir. Thank you so much. Could you share the volumes for this quarter and last quarter on the capsule side?
Sunil L Mundra
Volume for the current quarter are — on the terms of sales are slightly — one minute. Yeah, the sales what we did in Q2 of FY25 as well as compared to this not significant change, we did about 4.04 billion in Q2 of FY23, ’24 and we in the current quarter last quarter we did about 4.17 billion for the Q2 of FY25. More or less same
Chirag Fialoke
Got it. And in Q1?
Sunil L Mundra
Q1 we did almost again 4.1 billion. Our quantities have been more or less stagnant and they are almost as we are running our plants at 96%, 97% of the capacity. The volume quantities are more or less being achieved in a — I’m in the same level.
Chirag Fialoke
Understood. So — that’s clear. In the current P&L are there any costs that are fitting for the API plant as well?
Sunil L Mundra
Yes, a part of it because as we have said already we announced small volume — production in small volume kilo lab before March this year. So a small part of our API P&L is being debited — charged to P&L. The expenses are being debited to revenue. Rest are getting capitalized. That’s roughly around 10% or so.
Chirag Fialoke
10% of cost. You are saying of the INR16.9 crore, INR17 crore [Technical Issues] another INR0.5 crores to do [Technical Issues] API.
Sunil L Mundra
That’s right. Yeah. In the last quarter we have how much is the large for NBPL here? 40. Last quarter is how much in terms of the cost NBPL? INR52 lakhs. INR52 lakh is the expenses charged to consolidated P&L.
Chirag Fialoke
INR52 lakh. Okay. Understood. So this quarter’s EBITDA would have been higher by INR52 lakhs had it not been for the API, is that correct?
Sunil L Mundra
Yeah. So in standalone basis our EBITDA will be in range of about 12% as compared to 10.95%, what has been driven?
Chirag Fialoke
Standalone differences is the entirety of that difference. Is that correct?
Sunil L Mundra
Yeah, that’s the difference. Yes.
Chirag Fialoke
The standalone will be a very accurate representation of just the….
Sunil L Mundra
Capsule business.
Chirag Fialoke
Okay, perfect. On the gross margin side, it was obviously the [Technical Issues]. If I look at a more long term average, gross margins are more in the 54%, 55% range. I know you’re talking about a potential price increase in November, December of 2%. I guess that will get you into the 54%, 55% gross margin range for the capsule only business. Is that how you see it?
Sunil L Mundra
Yeah, see actually the gross margins had dropped last year to about 48%, 49%. Fortunately in last two or three quarters we are seeing very small but baby steps kind of a growth 4%, 3% gradually we have seen last three quarters. So we are back to around say 51% kind of a gross margin at the moment. But we hope to achieve 53%, 54% maybe in next three quarters or so when our HPMC line is back because that has got a little better gross margin.
Chirag Fialoke
Understood. My next question was on exports. One, could you share what percentage of revenue was from exports in the first half? And second, obviously, a lot of this pricing we have talked about in the previous call, you can offset a lot of the pricing pressure by having larger, more regulated clients. Where are we in that process? What proportion of sales do you think now come from clients where market movement of capsule prices will not impact us?
Sunil L Mundra
Okay, to answer your first question, what percentage are sales are from exports? I would say roughly one-third. So we out of INR40 crores of top line revenue, INR40 crores, INR41 crores. We have done INR13.5 crores of exports. Now you’re talking about the second question. The sales to those kind of clients where the prices will not get impacted by the market fluctuations? Yes, our efforts are on to increase the share of those kind of clients.
And at this moment we sell roughly apart from the export out of the domestic business, roughly around 20%, 25% business comes from such clients. The rest of the clients are either Indian mid corporates or MSME industry. So therefore our aim is to increase the sales to these kind of clients or the kind of clients who would use them for the ultimate finished product which goes to their regulated market supply. So there those kind of challenges are not seen. So probably in next two years we will see that this percentage of sales to such clients will be going up.
Chirag Fialoke
Got it. And is it fair to assume that almost all exports are to such clients? So almost 50% of sales are now to more clients where the requirement is such that the pricing is more fixed than anything else?
Sunil L Mundra
No, even export price also are sensitive to market conditions. There are different areas we export to US now we export to Canada. We are exporting to in Southern America to Brazil, in various countries in Far East and Russia also we have started again. So the client depends on some of the African countries like Kenya, Uganda there some of them are price sensitive but some of those in Latin America, in Central America they are not that sensitive. So we can’t say that 100% of the exports are I mean non sensitive to price variation but those two African markets, yeah they are little bit price sensitive.
Chirag Fialoke
Understood. Just last question on the capex side the first one, receivable days are sort of seen a significant uptick and have finally have further increased this quarter to more or less 140 odd days. Could you just talk about that and what is your capex estimate for the year for the console company? Thank you. Actually, this is the area of concern for us as well because actually what is happening in pharma industry, there is a government deadline for 31st December to upgrade their plants. So, many of our clients are holding payments, diverting all their funds towards facility improvement. There are many such cases. Secondly, another reason I told is that the preference to MSME industry which the government has pushed all the industry players to give, so that has caused a stretch in the payment to non-MSME companies. So this quarter also we have seen there is an increase in the number of days effectively. But if you look at the gross sales, which would mean that from the revenue number you have to add GST part of it, probably this would go down to about 112 days or so, which is around 120 days, right. Around 120 days, sir. So, still we would consider that is high because as compared to FY23 when we have touched this is about 70, 75 days. So, our aim will be to bring it down. We are working on it. We hope that next year it will improve. Understood. One follow-up here and then just your capex estimate for the year. Last couple of years there have been a few provisions for credit losses. What is the quantum of that in H1? Is that also a concern now with days going up is there also a possibility of some of them turning bad? And your capex estimate for the year?
Sunil L Mundra
I think on the credit loss side we are fully covered, we have provided for that and we have a certain policy under which we are covering all those losses and we don’t foresee any major amount of P&L getting impacted out of that. And in this first half also I think we have provided additional provision about INR35 lakhs odd as additional provision.
On the capex side, your question was on the capex, right?
Chirag Fialoke
Yes, for the year, for the console what will be the capex?
Sunil L Mundra
Capex for the console, of course, we have already done with the capex in our API plant on the subsidiary side. On the capsule side, we have already incurred cost for the project which is ongoing. The amount is sitting in working progress accounts. So probably we will end up the year where we will be capitalizing about something around INR8 crores to INR10 crores of assets in the parent company and in subsidiary company, probably we will be, once the total production starts, we will be capitalizing the whole CWIPs.
Chirag Fialoke
In H2, there is no real capex outflow? And for the year probably the estimate is closer to INR20 odd crores. That’s my estimate. Is that correct?
Sunil L Mundra
In H2 in capsule division, we have done very minor this thing. But we expect this HPMC line to come. So there will be about INR7 crores to INR8 crores of additional investment related to that line.
Chirag Fialoke
Okay. So on a cash flow basis probably INR35 odd crores of capex, is that right? INR35 crores?
Sunil L Mundra
That’s right. You are right.
Chirag Fialoke
Okay. Thank you sir. Thank you. Those are all my questions.
Sunil L Mundra
Thank you, Mr. Chirag.
Operator
Thank you. The next question comes from the line of A.S. Basra an Investor. Please go ahead.
Unidentified Participant
Good evening, Mr. Mundra.
Sunil L Mundra
Good evening.
Unidentified Participant
My next question is related to the API segment. So we have four patents already granted and some of them are under approval and under filing. I just wanted to understand. So these patents are into which geography are these patent specific to India or what geography? That’s what I want to ask [Speech Overlap].
Sunil L Mundra
Yeah, these are purely Indian patents as of now.
Unidentified Participant
So these are Indian patents, all right. And though these patents are on the chemistry side, I mean fermentation.
Sunil L Mundra
So we have so far filed four and fifth one is in pipeline. So we have two on fermentation and three on chemistry.
Unidentified Participant
Two on fermentation and three in chemistry. All right. I just wanted to understand. So, our Chinese counterparts, so more or less are they also using the fermentation for specifically the kind of APIs we are going to produce?
Sunil L Mundra
Absolutely yes. They also use the same fermentation. Most of the root of synthesis is common. Because we have also been doing R&D after five, six years. We also realize that and fermentation is the basis. I mean we have people who worked in Chinese industries and have good connects there. So we know what is the root of synthesis there. So it is fermentation and synthesis combined. It is a sandwich process.
Unidentified Participant
Okay, I just wanted to understand. So this for example, this fermentation route is as per my knowledge, it’s difficult to synthesize. And now we are doing that. So does this give us some pricing power to the customers that they’ll prefer the product which has been produced through fermentation route?
Sunil L Mundra
So worldwide, the idea is that these steroidal APIs are now concentrated only in China, no other country manufacturers this. Though the original innovator of this product was Pfizer in US, the Pfizer had facility in Europe as well, they were doing there. They stopped long years back. They transferred technology to China. Chinese companies have been doing it. India also never did. It’s the first time that we are trying to do it here.
Now for last 15 years, since 2010 onwards, most of the steroidal API manufacturing has shifted to fermentation. Prior to 2010, a large amount of it was being done through chemical synthesis route or plant extraction route. But since 2010 maybe one or two companies in China which moved around 2014. Otherwise rest of the industry moved in 2010 towards fermentation.
Unidentified Participant
All right, very beautifully explained. I just wanted to know one more information. So, as we can see that the people in R&D for our company has increased to 52. I just wanted to know the approximate amount per quarter we are spending on R&D?
Sunil L Mundra
I think in terms of subsidiary company alone, these numbers are subsidiary company where the API is getting manufactured. The amount of revenue expenses that we spend on R&D per quarter could be about INR120 lakhs.
Unidentified Participant
All right, one more question on the capsule side. Sir, I just wanted to know, maybe just a gross picture of this scenario. What are the actual margin differences, what we earn and what our largest competitor in India, the largest manufacturer in India earns? So what’s the gross margin difference approximately between us and them?
Sunil L Mundra
Yeah, so the largest competitor for us is a company called ACG in Mumbai. And to answer your question, I would say that the cost of the production is more or less same. But it is a difference in the revenue, the sales realization per unit of production that brings out the difference. So the gross margin, what we claim around 40%, 50%, 52% at this moment, probably in case of ACG it could be another 8% to 10% higher, maybe 60% because a significant part of their business comes from clients which are supplying to regulated markets. And they have almost about 40% of their revenue coming from exports.
Unidentified Participant
All right. And in the future, when all these three HPMC lines are commercialized, so do we envisage to gradually shift all our lines, I mean to HPMC and get done with the previously manufactured capsules, the old ones, which doesn’t fetch us much margin?
Sunil L Mundra
Yes, our focus is on that because gelatin capsules have been the major manufacturing volume at the moment. HPMC product which is getting more attention in almost all the other regulated markets, especially in North America and Europe. So we feel that HPMC will have much better significant advantage over gelatin in terms of — in future. So our aim also would be to replace the gelatin machines with HPMC machine over a period of time, maybe annually, we take a target and replace two to three machines. That kind of plan we may take up in future.
Unidentified Participant
All right, sir one last question on the API front. In your previous one of the interviews a long time back, probably a year and a half back. So you discussed regarding that the initially we’ll be producing with one API which is just let me maybe hydrocortisone. You, I guess you told that [Speech Overlap]
Sunil L Mundra
That’s right, yes, hydrocortisone. Yeah.
Unidentified Participant
We will be producing that and subsequently you’ll be coming on to prednisolone, beta and I just wanted to know– and in that interview you mentioned that initially we will not be self sufficient in all the raw materials. One of the key materials we’ll be importing from China. So since we are behind the schedule by probably seven months or eight odd months and we have got that time with ourselves, have we worked on that chemistry so that we can backward integrate and start — have you utilized that seven months, eight months or the whole process is behind schedule now?
Sunil L Mundra
No. So, I’m happy to inform that we have utilized these last seven months, eight months to overcome the challenges especially in these hydrocortisone prednisone online. Now we are confident that as soon as we start our fermentation plant, probably in about six weeks to eight weeks or maybe 10 weeks, we should be able to produce our completely internally produced prednisone. So that will be our first aim.
There are two more products, dexamethasone and betamethasone. There we are working on some of the steps where we probably are confident that once we are done with prednisone manufacturing, dexa and beta also will be coming online.
At this moment, we — to meet the requirement of the customers and all that we had imported some intermediates from China, which is say maybe n minus 4, n minus 5 kind of thing for dexamethasone, betamethasone and those products, we were — we manufactured and supplied the samples and put into our stability which was for getting the licenses and regulatory approvals. So I think going forward our aim would be to completely integrate it domestically.
Unidentified Participant
All right. And since you have been in the industry for more than 20 years and so, sir, | just wanted to know with your experience, what is the current scenario? For example, as per me, since last five, six years, US FDA was very critical in their inspections and giving a lot of objections, coming out to inspect the specific plants in India and has the scenario changed with the view as to they want to have one more option rather than China? Basically, my question is on China plus one. On ground, is it happening? Is it US FDA and maybe EU GMP a bit relaxed on giving on during the inspections to Indian companies or more or less the environment is the same, they are heavily critical?
Sunil L Mundra
So my understanding is, regulatory requirements will not be relaxed just because the government there wants to give preference to China plus one story. But what might happen is the companies there in those countries like North America or Europe probably will give preference to Indian companies to — and will consider them as alternative supply chain in addition to China. So that is the kind of understanding I have.
Unidentified Participant
All right. Thank you sir. Thank you for the answers.
Sunil L Mundra
Thank you, Mr. Basra. Thank you.
Operator
Thank you. The next question is from the line of Devarsh Shah from SPL Investment. Please go ahead.
Devarsh Shah
Hello, am I audible?
Sunil L Mundra
Yes sir, you are audible.
Devarsh Shah
So most of my questions were asked by the earlier participant. Now I just have two questions. Sir you mentioned, you have a higher gross profit margin, but due to higher freight cost and power cost, the profitability of this quarter is impacted. So can you share what is the usual percentage of revenue of these plan items?
Sunil L Mundra
Sir, your question was not — I could not understand. Can you please repeat it again?
Devarsh Shah
Hello. So higher freight cost and power cost impacted profitability of this quarter, right?
Sunil L Mundra
Higher power cost and?
Devarsh Shah
Freight cost and power cost.
Sunil L Mundra
Freight and power cost. Yeah.
Devarsh Shah
Yes, right. So what is the usual percentage of revenue — sales?
Sunil L Mundra
Okay, so generally power cost, what has happened is in this quarter we suddenly got a rising power increase in our Pondicherry plant where the power went up by — power was on hold, power increases were on hold for last three years. Suddenly they took not only power revision, but also trying to recover the old gap. Whatever they — the last two, three years they’re not raised.
So there I think our incremental hit is on an annualized basis roughly around — so annually it will be roughly around INR1 crore kind of additional hit to the bottom line for the additional power cost that we are having, so that is one. The percentage wise, if you say earlier we used to spend something like about 10% of the 9% to 10%, probably it will go up by another 1% notch. That’s what I think.
Now coming to the freight cost. When we meant freight cost, I meant was export freight cost. So as you are aware, the recent significant changes in the geopolitical situation as well as in some months prior to the September ending, suddenly the export freight container cost suddenly went up. And this has come down to a bit to some extent. But it has not yet fully come back to the original position. For our export shipments, we used to have export freight of almost around 16% — 14% to 16%. Now in this last quarter it went up to 18% to 20%.
Devarsh Shah
Okay, so since — sort of what you are seeing for the next quarter as well or we see some improvement over this area?
Sunil L Mundra
We will see improvement in terms of freight in the current quarter. It may not go back to the same 16% but maybe a couple of notches going down and next quarter it should normalize.
Devarsh Shah
Okay, fantastic. And I have just second question. So in your investor presentation you said about you will get financial incentive around INR67 crore from PLI. Can you shed some light on that?
Sunil L Mundra
So the INR67 crore is calculation based on our total six years of revenue that we generate against these three products. 20% incentive on all our sales. Once we achieve the conditions that has been prescribed under PLI. One is to achieve the committed capacity 90% domestic value addition. And of course the incentives to be given on the agreed amount which we had quoted at that point of time. So based on these three conditions on the prices that we had committed, those prices still lower than the market prices or more or less. Now they have become almost coming to the level of market prices. Earlier those market prices were higher and we expected less. So based on these INR67 crores, the incentive that we hope to get over the six year period.
Devarsh Shah
Okay, thank you. That’s all from my side.
Sunil L Mundra
Thank you, Mr. Shah. Thank you.
Operator
Thank you. The next question comes from the line of Chirag Fialoke from RatnaTraya Capital. Please go ahead.
Chirag Fialoke
Hi sir, I just had one follow up to the question [Technical Issues].
Sunil L Mundra
Mr. Chirag, you are not audible.
Chirag Fialoke
Can you hear me sir? Sorry.
Sunil L Mundra
Yeah, now I can hear you. Yeah.
Chirag Fialoke
Sorry sir, just a follow up on one of the questions from one of the participants, the one previous to previous of me. You said on a cost basis we are similar to the Indian largest competitor as well as Chinese competitor, is that right? I thought, my understanding was that especially for our 4 million plus capsule per day line and even our 2.5 million capsule per day lines, we will probably be the lowest in the world and probably lower by 10%, 15% to the competition. Is that not correct? Or is that….
Sunil L Mundra
Yeah, Mr. Chirag, you’re right to an extent that our capsules produced on those 4.8 million capsule capacity machines, the cost is less at this point of time, our 50% capacity still comes out of the older generation machines. On a weighted average basis our cost will be more or less similar to what ACG produces. So if I take standalone basis, the high speed machine might cost Apple to Apple comparison they are cheaper than what ACG produces.
Chirag Fialoke
Got it. And the older machines would be similar, right? Will not be — because our older machines are also 2.5 million. If I’m not wrong.
Sunil L Mundra
No, not all older machines are 2.5 million. There are only two lines of 2.5 million, rest we have 10 lines of 1 — 4 lines of 1.5 million and 6 lines of 1 million capsules. So the older lines produce, I mean there the efficiency levels are low. Cost of production is higher because mainly because of the lower output and higher power consumption.
Chirag Fialoke
And on a global average, not just the Indian competitor, but on a global average, if I take the top three, four global suppliers, their lines are more in the 1.5 million range or the 2 million, 2.5 million?
Sunil L Mundra
So it is across. I mean in China most of the companies have about 2.5 million kind of a thing, only the company like Capsugel, which is the world’s largest producer, they have capacity about 4 million. ACG has about 4.2 million. Rest I think, in China, across China, the companies have between 2 million to 2.5 million.
Chirag Fialoke
Sorry. So ACG also would be a 4 million capsules per day?
Sunil L Mundra
ACG also has about 4 million, 4.2 million per day capacity machine.
Chirag Fialoke
Machine lines, not the overall capacity, but you have individual lines?
Sunil L Mundra
Yeah, I’m talking about the capacity per day.
Chirag Fialoke
Not the overall but per line? You’re saying the 4 million faster line…
Sunil L Mundra
4,2 million capsules per day capacity of the machine.
Chirag Fialoke
Correct. Those lines are available with ACG as well as sort of some of the Chinese players?
Sunil L Mundra
Capsugel. The Capsugel, which is now part of Lonza, assist company called Lonza. Yeah.
Chirag Fialoke
Thank you. Thank you so much.
Sunil L Mundra
Thank you.
Operator
Thank you. As there are no further questions, I would now hand the conference over to Mr. Sunil Mundra for his closing comments.
Sunil L Mundra
Thank you. Thank you all for joining us today for our earnings call. We appreciate your time and interest in Natural Capsules Limited. Should you have any further questions or require additional information, please do not hesitate to reach out to our investor relations advisors. TIL Advisors. We look forward to continuing our conversation and updating you on our progress in the future. Thank you once again and have a great day ahead. Thank you all.
Operator
[Operator Closing Remarks]