NGL FINE-CHEM LTD (NGLFINE) Q4 FY23 Earnings Concall Transcript

NGL FINE-CHEM LTD (NSE:NGLFINE) Q4 FY23 Earnings Concall dated May. 19, 2023.

Corporate Participants:

Rahul Nachane — Managing Director

Analysts:

Abhishek Mehra — TIL Advisors — Analyst

Rahul Jain — Credence Capital — Analyst

Vishal Prasad — VP Capital — Analyst

Darshil Pandya — Finterest Capital — Analyst

Ankit Gupta — Bamboo Capital — Analyst

Dwanil Desai — Turtle Capital — Analyst

Rajat Sethia — ithoughtpms — Analyst

S. Chatterjee — Astra Capital — Analyst

Tarun Sancheti — Sancheti Capital — Analyst

Rohit — ithoughtpms — Analyst

Rushabh — Equirus PMS — Analyst

Unidentified Participant — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the NGL Fine-Chem Limited Q4 FY’23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Abhishek Mehra from TIL Advisors. Thank you and over to you.

Abhishek Mehra — TIL Advisors — Analyst

Good morning, everyone, and thank you for joining this Q4 FY’23 earnings conference call of NGL Fine-Chem Limited. The results and investor update have been emailed to you and are also available on the stock exchanges. In case anyone does not have a copy of the same, please do write to us and we’ll be happy to send it over to you.

To take us through the results of this quarter and answer your questions, we have with us today Mr. Rahul Nachane, Managing Director, and Mr. Rajesh Lawande, Whole-Time Director and Chief Financial Officer. We’ll be starting the call with a brief overview of the financial performance, which will then be followed by a Q&A session. I wanted to remind you all that everything said on this call reflecting any outlook for the future which can be construed as a forward-looking statement must be view it in conjunction with uncertainties and risks that the company faces. These uncertainties and risks are included but not limited to what we mentioned in our annual reports, which you’ll find on the company website.

And that said, I’ll now hand over the call to Mr. Rahul. Over to you, sir.

Rahul Nachane — Managing Director

Thank you, Abhishek. Good morning and thank you for joining the call today. I’m delighted to provide you with an update on the performance of NGL Fine-Chem Limited for the fourth quarter of FY’23. I will spend a few minutes to share the highlights of our performance and address the challenges we have faced in recent months, before we open up for questions.

First and foremost, I am pleased to inform you that we have successfully maintained our trajectory towards the sequential recovery in our business, as we had anticipated and communicated earlier. Our operating margins for the quarter recorded a significant improvement primarily due to notable decrease in raw material prices. I’ll answer it this favorable factor, our diligent cost management practices have played a crucial role in enhancing our overall profitability. However, it is important to acknowledge that the demand for our product has remained relatively subdued.

The prevailing high level of uncertainty among our end customers caused by the ongoing crisis in Europe, an elevated inflation rates in several countries has led to cautious behavior and measures to rationalize inventory levels. As a result, we are experiencing muted demand for our products. Furthermore, we have also been impacted by currency crisis in certain regions, notably among countries such as Turkey, Bangladesh, Egypt, and Pakistan. The adverse economic conditions in these areas as further dampen the recovery of demand for our products.

Looking ahead, we anticipate that the operating environment will continue to present challenges for the next two quarters. However, I’m proud to announce that despite these difficult circumstances, we have managed to maintain our market share. We have also introduced new product offerings and expanded our core product portfolio to 24 products in veterinary API segment and two in the human health segment. Validation batches for these new products have been completed. And we have initiated the process for obtaining customer approvals.

In terms of capacity expansion plans, we have made the strategic decision to temporarily slow down the execution speed due to the availability of spare capacity at our existing site. This approach ensures optimal resource allocation and cost management. As the operating environment improves and visibility is restored, we will expedite the execution phase accordingly.

Importantly, I want to emphasize that until we see demand recovery, we are averse to funding this expansion to borrowings and we will strive to fund our capital expenditure using the internal accruals generated by our business.

Now let us turn our attention to the key headline numbers for the fourth quarter of FY’23. Our revenue from operations amounted to INR73.89 crores, representing a 2.72% increase compared to the previous quarter at a 12.1% decrease year-on-year. The EBITDA stood at INR12.97 crores, reflecting a robust growth of 32.2% quarter-on-quarter and 22.7% year-on-year. Our EBITDA margins improved to 17.55%, recording an increase of 391 basis points quarter-on-quarter and 498 basis points year-on-year. Finally, our profit-after-tax is INR9.32 crore, marking a growth of 43.6% quarter-on-quarter and 35.66% year-on-year.

Before I conclude, I want to express my deepest gratitude to each and every one of you for your unwavering trust and steadfast support. Rest assured we remain fully committed to delivering long-term value to all our stakeholders. I would just like to add that, going forward we plan to hold analyst calls on a half-yearly basis.

I am now happy to open the floor for any questions you may have.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Rahul Jain with Credence Capital. Please go ahead.

Rahul Jain — Credence Capital — Analyst

Thank you for the opportunity. Am I audible?

Rahul Nachane — Managing Director

Yes, you are.

Rahul Jain — Credence Capital — Analyst

Sure. Thank you. So first of all, congratulations, Rahul, in a tough environment. We have followed a prudent principles in terms of cost declaration and which has felt that our margin improvement as it free as promised by you two quarters back. So the first question itself is on margin, Rahul? So going forward, given the prices of products and raw material prices, do we expect the gross margins which we have reported in this quarter, March ’23 to sustain and further improve as we go forward?

Rahul Nachane — Managing Director

Right, any other question here or just one?

Rahul Jain — Credence Capital — Analyst

Okay. So my next question is about the capex, you have said that you are moving a bit slow. Earlier, our plan was to complete this by March ’24, so based on the current situation, when do we expect this greenfield capex to pickup? And lastly, with regards to our revenue, so typically with the prices being down and the top line, which we have done, so what kind of volume growth we have done and is the revenue growth, volumes are growing, but the prices are low, which is where the revenue growth is still some time away? Or how do we look at the revenue growth going forward, considering that we have launched four new products? That is it.

Rahul Nachane — Managing Director

Right. Thank you, Rahul. With regard to gross margins, things are still very fluid position right now. When demand is down, there is obviously oversupply in the market. And there is intense competition amongst sellers to meet whatever little demand that exists in the market. So until that equilibrium is reached, again, there will continue to be pressure on selling prices. Now we were aided by lower raw material costs in the last quarter, which has been coming on the back of a steady decrease in most chemical prices over the last three quarters. As we speak, I think probably around May of ’23 — sorry May of ’22 and since then have been coming down gradually over the last one year. And chemical prices more or less seem to have what would have bottomed out now. The decrease in prices and lower prices that has also been pressure on selling prices for us, so for the next two quarters, there is going to be a pressure on margins and the volumes may move a little bit sideways, plus, minus 2%, 3% from where we currently are. Once we see a demand recovery, we are confident that margins will go back to the earlier levels which we have attained over a five, seven year period.

With regard to the capex, we have deliberately slowed it down, because in a market which is where we see demand growth a little dampened now. We did not see the need to borrow and invest in new projects. So we are funding the project a little more slowly. So yes, earlier it was planned to go on-stream by March ’24. And we may see a further delay of anything from six months to a year on that. But again, it is more like a wait-and-watch thing. I would not like to put a date to on it. We are very sure that once we see demand recovery, within a period of one year, we can execute the entire project, because we fairly advanced with the civil construction. We have identified equipment started entering into discussions with the equipment supplier. So our equipments are only selected, final price negotiation and placing on equip — of orders will be done only when we see the demand recovery actually coming.

And your last point with regard to volume growth, yes, bidding — price realization has definitely decreased for us in a number of our products. Therefore, we’re doing the same sort of volume. We need to — actually it is, again the same sort of top line we need to sell much more quantity. Luckily, we have been sort of supported by the new products which we have launched. Quite a few have been in the $100 plus rates and therefore though the volume growth has been affected, top line has still been able to — we are still being able to hold on top line. I hope this answers your question.

Rahul Jain — Credence Capital — Analyst

Yeah, sure. And just on the product side, with regards to introducing new products. And you mentioned in your initial remarks, the validation part over or almost done. And in the previous call, you had mentioned about five new products coming in and the commercial supplies to start so. As we speak now with regards to this five new products, how many products are in the commercial supply stage and with regards to the balance. So what is the schedule of this new products commercial supplies have been started?

Rahul Nachane — Managing Director

So we have gone out from a total basket of 22 products to about 26 products now, which are company sellers that are being sold. We have got another six products, which are being worked into the laboratory and in the private plan at various levels. So we hope to take our total product line up to 35 products for the next two years now.

Rahul Jain — Credence Capital — Analyst

Sure. Thank you so much, Rahul. Wish you all the best. I’ll come back for further questions. Thank you.

Operator

Thank you. Our next question comes from Vishal Prasad with VP Capital. Please go ahead.

Vishal Prasad — VP Capital — Analyst

Hi, good morning. Sir, in the past, we have mentioned that market size for 22 products is INR1,500 crore. So is this the volume market, we are talking about rest of world market size?

Rahul Nachane — Managing Director

Right. Can you please put all your questions, so that we can go through all of them at one go?

Vishal Prasad — VP Capital — Analyst

Yeah. So if you could tell me the world market size for 22 products and probably not world but rest of world market size. And also if you can tell me the residential market size for top 10 products that will be helpful? Also in the past, we have talked about — you have mentioned that we are number one in six products and number two in other five. So if this holds. Is there some change that will be all?

Rahul Nachane — Managing Director

Right. So for market size for our top 22 products, when we said, it was INR1,500 crores that is up with the world market, not just the India market. And it is world market size in terms of the APEX sales, not in terms of the finished products sales. I unfortunately don’t have the market size for the top 10 products to give you across the table right now. Yes, and with regards to our market leadership size, we continue to be number one in our top three products and number two in five. So there has been no change in that and we have been able to hold on to our market share in these products.

Vishal Prasad — VP Capital — Analyst

So sir, this INR1,500 crore you say, this is the market size world over, but we do not supply — generally don’t supply in the developed markets. So if we remove EU and U.S. then roughly, what would be the market size for our 22 products?

Rahul Nachane — Managing Director

So the product which we are doing close to about 70%, 75% of these products are basically tropical disease products. There is very little demand in the U.S. and Europe for those. So there will be probably about 25%, 30% of the products which we do, which have got a demand in the U.S. and Europe, I think we can probably remove another INR250 crores, INR300 crores whatever, but I am just guessing. I really don’t have that sort of a number to tell you straightaway right now.

Vishal Prasad — VP Capital — Analyst

So even if it remove our INR500 crore out of that and we go with INR1,000 crore —

Rahul Nachane — Managing Director

I did see INR500 crores, it would be in the range probably of about INR250 crores, INR300 crores. And I am guessing it this please — and please don’t quote me on this again, because it’s a very offline question. And it’s just a guess right now.

Vishal Prasad — VP Capital — Analyst

I understand. So out of INR1,200 crores we are doing close to INR200 crores. So we have just having 15%, 18% market size in 22 product and then we said, we are number-one in three, and number two in five. So if I say for top eight products, we have close to 50% market share. The numbers I’m not matching somehow for 800 product if we see the market size is INR600 crore and we are doing INR150 crores, it’s just 25%, out of it.

Rahul Nachane — Managing Director

But that would also depend on the total market size of each product. So I cannot add more to that right now.

Vishal Prasad — VP Capital — Analyst

Sure, thank you sir.

Operator

Thank you. Our next question comes from the line of Darshil Pandya with Finterest Capital. Please go ahead.

Darshil Pandya — Finterest Capital — Analyst

Hello sir, good morning. Am I audible?

Rahul Nachane — Managing Director

Good morning.

Darshil Pandya — Finterest Capital — Analyst

Good morning, sir. So, basically majority of the questions were asked. So I have two or three few more questions, I’ll ask them one way.

Rahul Nachane — Managing Director

Can you speak louder please? You are not really coming out clearly.

Darshil Pandya — Finterest Capital — Analyst

Can you hear me now?

Rahul Nachane — Managing Director

Yeah, this is much better.

Darshil Pandya — Finterest Capital — Analyst

Okay, perfect. So as you said that the capacity expansion plan hasn’t slowed down. So that assumes that we have a lot of capacity in the existing plants. Can you just provide a number as to what capacity utilization we are running at currently?

Rahul Nachane — Managing Director

Yeah. Probably we had around 75% to 80%.

Darshil Pandya — Finterest Capital — Analyst

75% to 80%. Okay. And sir, you said that — we are — there are new products added to the total product count, so can you please provide or what is the — how much revenue that this new product can generate over the time?

Rahul Nachane — Managing Director

So we have 22 products which we were doing earlier, the total market size was about INR1,500 crores. And we are probably add just about 15%, 18% market share for the overall. So for the four new products, we have added, I really don’t have a number to share with you right now. But these are all basically products in the range of about INR30 crores to INR60 crores sort of market size for each of the products.

Darshil Pandya — Finterest Capital — Analyst

Okay. Okay. And one final question, sir. Have we added any new customers during the quarter, how is it like?

Rahul Nachane — Managing Director

Customer addition is a continuous process. So yes, we have added new customers during this quarter also.

Darshil Pandya — Finterest Capital — Analyst

Any numbers specifically?

Rahul Nachane — Managing Director

I will need to check up on that. So give me some time, somewhere during this conversation, I will come back and let you know.

Darshil Pandya — Finterest Capital — Analyst

Okay. Just one final question, sir. And many of the calls, we are hearing that China have been started up production and they are not — they are lagging and literally damping up. So we do have any views on this or is it affecting our business, something that helps us to understand more.

Rahul Nachane — Managing Director

So as I have said see, we are right now in a situation where the demand/supply has shifted. So demand has fallen drastically, supply has remained stable, it’s not just China dumping. It is also lot of Indian companies dumping. So let us not just point fingers at one country. But it is a worldwide phenomenon where lots of suppliers are chasing very few buyers. And this will continue until the demand stabilizes and equalizes. So yes, we are facing pressure and it is not just from Chinese companies, it is also from our Indian competitors.

Darshil Pandya — Finterest Capital — Analyst

Got it, sir. Thank you so much. And we expect that you will come up with a good numbers going forward. Thank you so much.

Operator

Thank you. Our next question comes from Ankit Gupta with Bamboo Capital. Please go ahead.

Ankit Gupta — Bamboo Capital — Analyst

Yeah. Sir, over the past five to — first of all, congratulations on a decent set of numbers in tough environment. So no, on the demand side, where are we in terms of inventory destocking, past five, six quarters we have seen severe inventory destocking across the geographies that we target? So in terms of inventory stocking, where are we. And when do you think that the demand, it will come back. That was my first question. The second question was on, we were under the impression that the newer products, which had been launched that will be launched from the new site that we — or the new greenfield capacity which was coming up? And now, it seems that we have also manufacturing them in existing facilities. So if you can give some thoughts on that and the next 10 set of products or the next 10 set of new product that we plan to commercialize over the next few years. So they will also be manufactured in our existing setup or not? And my third question was on the existing capacity or the existing capacity that we have. How much revenue can we generate from it now at optimal capacity utilization, given the price decline at GST? And if you can also share, we’ve also been increasing the proportion of outsourcing, which you were seeing in earlier calls that we had reduced. So if you can give us a ballpark number on how much revenue can we generate from our existing facility?

Rahul Nachane — Managing Director

Right. Thank you for the question. With regards to the inventory destocking, we are just taking place at across the world. Different countries are at different levels right now. So but probably we are looking at the tail end of that whole exercise. It seems to have been completed in most of the — of the countries or customers we’re speaking with. And the few that we estimate will probably end up consuming their stocks either in this quarter or later by the next quarter.

With regard to new products, which we are manufacturing, all our facilities are designed for multiproduct facilities. So it is very easy for us to move from one facility to the other and filling capacity. So the new products, which we were doing, all of them were not planned only for the — with the new facility in mind because that was still any which ways plan to come up with 2024. So whatever new products, which we are doing we are filling in existing capacity only. At the existing capacity, I have said this earlier also that we have a revenue potential in the range of about INR350 crores to INR380 crores with the capacity which we have got.

And finally with regard to outsourcing, we are more or less brought down the total amount of the total quantity of products, which we have outsourced. And our total outsourcing over the last 18 months has decreased substantially. So today I will not count whatever we do as Macrotech as outsourcing because that’s our 100% subsidiary. So ignoring Macrotech, we are — our outsourcing is probably just said about between 1% and 3% right now. And it was our objective to take it up to 15% years ago, when demand was going down. So we have brought down outsourcing with two intensions. Number one, why keep capacity ideal in our own factories. Number two, outsourcing is relatively more expensive. So why outsource and why not cut the cost when [Indecipherable]. But as and when demand rises, this is something which can go up again. I hope that answers your question.

Ankit Gupta — Bamboo Capital — Analyst

Sure, sir. So when the demand comes up, we can increase the outsourcing and this can also increase our revenue potential from our existing facilities?

Rahul Nachane — Managing Director

That is right. Yeah.

Ankit Gupta — Bamboo Capital — Analyst

Sure. And sir, if you can broadly on a ballpark number that you can give on how much has been the realization decline in our top three or top five or ten products across the board? How much has been declining prices over the past year or so?

Rahul Nachane — Managing Director

It varies from product-to-product. In some products, we have been lucky that decline is not more than 5% to 6%. There are some products where we have seen a 25% decline also. So on an average I would say that, the decline in price realization is in the range of 15% to 20%.

Ankit Gupta — Bamboo Capital — Analyst

Okay, okay. Perfect. Thank you and wish you all the best. Thanks.

Operator

Thank you. Our next question comes from Dwanil Desai with Turtle Capital. Please go ahead.

Dwanil Desai — Turtle Capital — Analyst

Hi, good morning, Rahul. So my first question is, you have mentioned that we will go slow on our new capex. Now you also mentioned that we are operating it around 70%, 75% capacity utilization. So just thinking a lot, but is it possible that since the demand has been dampened and inventory destocking has happened. If suddenly demand comes back and channels are empty then, isn’t it better to have capacity in hand, considering our balance sheet is in very good shape. So how do you think about that? That would be the first question. Second question, if I look at the customer concentration I think, this year, looks like that the large customers you have been doing more business and the long tail that we have had the business has declined. So any dynamics at play there?

Third question is, I think we had China is a very different market and that market was not available because of the lockdown, now China has opened up. So how the business is normalizing over there? And the last one is, so I think last year we de-grown from FY’22 base? So looking at FY’24 with thinks normalizing maybe three, six months down the line and new products. Do we expect any growth from FY’23 base? I think, we were looking at some 20% kind of a growth on FY’21 being, if I remember correctly? Yeah, these are the four questions.

Rahul Nachane — Managing Director

Yes. Thank you, Dwanil. With regarding your first question, if demand suddenly comes back then what do we do with this. So right now, as I said, we are fairly confident that as and when we see demand recovery, we can set this capacity up within a period of just one year. So what we have been doing is, we have not being sitting idle. Civil work [Indecipherable] especially is almost 90% completed the project as of now. Equipment selection and equipment identification process has been completed. What we have not done is, we have not entered into commercial discussions and place orders. So we are fairly confident that within the span of 12 months from the time we decide, we should be able to get this facility up and running.

The flipside of having capacity setup right now is. Number one, it’s a fairly large expansion for our company. We like to debt on the books. Interest rates are going up right now. So we will be faced with double — number one, we will have a higher interest and depreciation costs on our books. At the same time, the plant will have to be stopped, because you can’t have a plant and keep it empty. So it will be a drain on the books if there is no demand recovery coming up. So it’s a question of how to balance these two sites at any point of time. We feel that we have a adequate potential to accommodate up to 20%, 25% growth in our existing plants. And probably another 10% growth can be accommodated by outsourcing certain products. So we have a upper leeway of accommodating growth everything up to 30%, 35%. So with this kind of a leeway, we would prefer to not put ourselves in a situation where we are pleased with increasing cost, with no revenue earning potential on the horizon.

And second part with regard to the customer dynamics, so there has been definitely a change, we find that there are some customers who are buying more now. And at the same time, when we say, the top 10 customers or top 15 customers even the mix of those customers is changing right now for us. And that is because some major customers who bought more in earlier years are now holding onto inventory. So they are cutting down, there are some markets where customers are buying more. So it’s a very dynamic situation. And in this time, it’s — I would not like to say that this is a long-term shift, which has taken place. It’s more of a short-term and nature shift, probably it will pan out by the end of this year.

With regard to China, you are perfectly right. China has been a very good market for us. In fact, two-year COVID accounted for close to about 13%, 14% of our sales. And we have seen a major drop in our sales to China. And though China is coming back right now, so from February, they’ve started opening up. Chinese customers are still not entered the market yet. It’s still lot of saying that they are holding of the stocks. So their inactivity levels for the last so many months, means that they are the people who are still holding onto stock, and this business probably will not come back for at least another six months is what we think. So probably calendar year ’23 might just go, but demand potential is being very strong in China and hopefully for ’24, it will turnout be a better year.

With regard to the growth potential, meaning for this year, we still think that the first two quarters, we will see subdue demand. Part of it is because of countries, big country, market like China, which are still destocking. And a lot of it is also because of the currency crisis hitting a lot of economies across the countries in the world right now. So we talk about a little bit of Egypt and Pakistan and Bangladesh little earlier. But this currency crisis is actually now much more wider spread and we also see that in number of African countries, a few Latin American countries and not having currently means that customers are not able to get the currency to import goods. So there is some demand in these countries, we are still not able to book the order because they are not able to open LCs.

So hopefully, this situation will also normalized it’s something which is come off by spending too much money is what I guess, in the last three years during COVID. So we will see a recovery coming in back. But the basic demand requirement exist and probably just a blip of a year or two, which will see now.

Does that answer your question?

Dwanil Desai — Turtle Capital — Analyst

So do we expect the same level of revenue or we expecting growth or we are not taking any view right now?

Rahul Nachane — Managing Director

I’m unable to give any guidance on that for the current year.

Dwanil Desai — Turtle Capital — Analyst

Okay. Okay. Got it. And just to follow-up on this capex, I think, I mean, we had paid that even though capex may take time, we will do the pilot thing ready so that we can start taking validation batches and [Technical Issues] that process also been slowed down or that is continuing as it is.

Rahul Nachane — Managing Director

It is continuing, meaning that is not been stopped. But again, as I said, we are doing it at the little slower pace. So it might be in sort of the first quarter of ’24, probably might come up in the second quarter of ’24.

Dwanil Desai — Turtle Capital — Analyst

Right. But idea is still that we will have validation and everything completed by the time the plant is ready to commercialize?

Rahul Nachane — Managing Director

Yeah. That is the intension. Yes.

Dwanil Desai — Turtle Capital — Analyst

Okay. Okay. Got it. Thanks.

Operator

Thank you. [Operator Instructions] Our next question comes from Rajat Sethia with ithoughtpms. Please go ahead.

Rajat Sethia — ithoughtpms — Analyst

Thanks for the opportunity. Am I audible?

Rahul Nachane — Managing Director

Yes, you are.

Rajat Sethia — ithoughtpms — Analyst

Okay. Thanks. First of all, sir, big thanks to you and whole NGL team for brilliantly executing during these tough times. We are sailing back to the normal levels of margin although still some room to grow from there — here. However, the way we have kept our opex, operating expenditure in control this year despite the slowdown it’s been commendable. Thank you so much for that. Coming to the questions. The first question is about the new products that we have launched. One, if you can talk about the competitive scenario on these products? And secondly, I think sometime in the past, we had mentioned back some of the new products will be high volumes and low price products where probably the market size overall is very rigid. And for the first time, as the company, we would be entering such space. So if you — if that understanding is correct, if you can help us understand, how are we going to — what’s outstanding in terms of making the main cross in this kind of a market? And sir, second question is, how is the raw material price scenario compared to — I mean, how are the raw material prices compared to the pre-COVID levels? Are we back to those levels or are you still above that?

And similarly for power and fuel cost, where are we right now compared to pre-COVID and do you expect any breath from here onwards. But do you think now prices have stabilized and don’t expect any downward movement? Then sir, the next question is about top three products which contribute I think around 50% of our sales. So how is the competition in these three products right now in terms of any new player coming in or any — you talked about that there is pricing pressure for sure. Other than that anything different in the competitive scenario and do you see any risk from here onwards in the top three products and do these top three products also contribute in the same way to the margins as the — at the — you have said company level or are they lower or higher than company level? And just finally, how do you see NGL shaping up over the next five to six years? Thank you so much.

Rahul Nachane — Managing Director

Thank you, Rajat for your questions. With regard to the new projects we are doing, the competitive scenario is great. So I’ll just give you a little bit of industry background out here. The mechanic product industry — and I’m speaking only of the API industry out there. It’s extremely, extremely rare to have production being dominated by just one or two companies. For most of the products, there would be anything from five to 15 different manufacturers based, both here in India and in China. So it’s a fairly open market with quite a lot of competition. The new products which we are doing, we are not — the first ones to come to this — these products. These are all products which are out of patent. So we definitely don’t have the first of mover advantage in these. But that has been our strategy all along, we have always falling for products which have been out of updated and it has worked out till now for us.

So the competitive scenario exist, it will remain more competitive also going forward. And especially in the current times, where demand is low, it’s definitely become more competitive and got enough pressure on pricing of the finished product also. With regard to the products which we are doing, we had mentioned that we will also — we will also add a few of the high-volume products to our product basket, which may lead to lower margins for those products. Those have yet not been commercialized. So those are still in the pilot plant phase. And we hope to have that commercialized later — in the later part of the current year.

With regard to raw material scenario, prices are definitely not at pre-COVID level but just post-COVID and especially after the Russia, Ukraine crisis which took place, raw material prices at peak around May ’22. And from the pre-COVID level, they had bought up by almost varying from product-to-product, anything from a 200% increase up towards 350% increase. And they have come down now though not at the pre-COVID level, they are roughly in the range of about 50% to 75% higher prices than the pre-COVID levels. But prices have been coming down and especially in the last four months, especially in Q4 last year, they came down substantially, when China came back on stream.

Power and fuel cost. Power cost is stable. There is not much change in the power cost but fuel costs are up. We moved over to clean fuel about three years ago and because of the gas shortage going on. Gas prices have not come down though oil prices have come down now. So we continue to face pressure on the fuel cost upfront. On our top three products, we are not sole producers there are at least five to six competitors in almost all of them. They are new companies trying to enter the product also. In fact, there have been two new companies were strive to enter these products during the last year. So the cognitive continues, there is no — it’s cognitive risk always exist. It is our [Technical Issues]. It is our thought process and our effort to ensure that we keep and retain our market in these products and we have been successful sorted now.

With regard to NGL shaping up over the next five to six years, yes, we are. We have product plans for expansion. We hope to get our products registered in Europe and start approaching that market also, which we have not posted now, which will definitely due to the new facility. So there is ample opportunity for growth available in this market and we look forward to growing in these markets in the next five to six years.

Rajat Sethia — ithoughtpms — Analyst

Sure. Thank you so much for the detailed answer sir, preaching of the question. Then wanted to follow-up, so for the raw material prices, do you expect them to come back to pre-COVID levels and some of the lead our gross margin to come back to, what we were doing, say 55% plus?

Rahul Nachane — Managing Director

It’s really difficult to answer that question, because commodity chemical prices are actually over here. So the prices are still high. So I would like caustic also which used to be in the range of about 30, 35 still at 50 plus prices. But then they’re gone up to almost 85 plus. So in a way it’s come down substantially from that peak. But it is still high. So we have to see how it plays out. It’s not something, which it’s not easy for me to answer that question.

Rajat Sethia — ithoughtpms — Analyst

Sure. With regards to the European registration, so whenever we decide to do it within your initial — how long does it really take for the funds to find the registration, how long does it take for the approval? And secondly, what’s the cost of registration annually?

Rahul Nachane — Managing Director

So we have actually already filed for the European registrations for three of our products. We did this filing last year. Pre-COVID, it used to take anything from eight months to 12 months to get this approvals, but post-COVID, they are taking as long as 18 months to give approval. We hope to have registration approvals by the end of this year, calendar year for three products. We plan to file for another three products by the end of this year. So those approvals will come to it and hopefully in 2025. And this is being done from our existing plants right now.

Rajat Sethia — ithoughtpms — Analyst

Okay. I think these are plants specific, right? [Speech Overlap]

Operator

Sorry to interrupt you. Once again, could you please jump in the queue?

Rajat Sethia — ithoughtpms — Analyst

Yeah. Yeah, thank you so much.

Operator

[Operator Instructions] Our next question comes from S. Chatterjee with Astra Capital. Please go ahead.

S. Chatterjee — Astra Capital — Analyst

Hi, sir. Thank you for the opportunity. I have two questions. One of it is, if we look at the broader picture, say let’s see, yes, in FY’26, whenever [Technical Issues]

Rahul Nachane — Managing Director

Voice is not coming through very clearly.

S. Chatterjee — Astra Capital — Analyst

Hello. Is it better now?

Rahul Nachane — Managing Director

Yeah, this is better.

S. Chatterjee — Astra Capital — Analyst

Yeah. I’m saying, if we look at the broader picture three years in FY’26 by now our Tarapur facilities commissioned and we are also increasing our outsourcing. So and then we can get back to our earlier margins like 20% to 25% which used to be the guidance and our revenue can also go up INR650 crores, right, approximately?

Rahul Nachane — Managing Director

So we have always maintained that in this market 25% plus EBITDA margins are virtually difficult to meet. We have already given a guidance of from 17% to 23% is what we aim to achieve.

S. Chatterjee — Astra Capital — Analyst

Okay, sir. Okay. And my second question is, in recent times, we have seen — we are going for poultry and companion animals also, earlier it used to be only for farm animals. So say, over a period of five years, can we see significant revenue income this poultry and companion animals? Is for companion animals margins are better? That’s my last question, sir.

Rahul Nachane — Managing Director

Yes. So what happens is that most of the APIs which are used for farm animals also can be used for companion animals. And this is true with regard to our [Indecipherable] with regard to antipyretics. So the APIs are the same, it is only the end use with changes. So and there are very few which are exclusively for companion animals. Most of the — have various life fungibilities. Now most of the biggest market for companion animals lies in Europe and in the U.S. So when we start registering our products over there that those are — customers who are in the end selling for those markets, we will be able to approach them also.

Most of the year have at various life [Indecipherable]duties. Now most of the biggest market for companion animals, lies in Europe and in the US. So when we start registering our products over there that those are for those markets. We will be able to approach them also.

S. Chatterjee — Astra Capital — Analyst

Okay, sir. We shouldn’t see currently our formulation partners are mainly catering to farm animals, right? They are not very much into companion animal.

Rahul Nachane — Managing Director

That is right, yes.

S. Chatterjee — Astra Capital — Analyst

Okay, okay, sir. Thank you. Thank you and good luck for the year. Thank you, sir.

Operator

Thank you. Our next question comes from the line of Tarun [Indecipherable] with Finnish Capital. Please go ahead.

Tarun Sancheti — Sancheti Capital — Analyst

Hi, sir, am I audible?

Rahul Nachane — Managing Director

Yes, you are.

Tarun Sancheti — Sancheti Capital — Analyst

Well, congratulations for a great set of number. Just one clarification. My name is would be Tarun Sancheti, I am from Sancheti Capital. So coming to the question, I think in response to one of the previous participant question, you mentioned about pre-filing for European Union. I do understand that you have CP filing for three products. Wanted to check the status of that. Have we received approval for European region?

Rahul Nachane — Managing Director

Approvals are not received. No.

Tarun Sancheti — Sancheti Capital — Analyst

Okay. So can you tell timeline by which we can really see the approval for those products?

Rahul Nachane — Managing Director

We hope to see it by end of this calendar year.

Tarun Sancheti — Sancheti Capital — Analyst

Okay. And directionally from a market perspective, and I do understand that couple of products are very limited competition out of those, so how big that market opportunity on those particular products would be? If you can add some color on that.

Rahul Nachane — Managing Director

Yes. See the market opportunities large for these products, but there are already existing companies entrants in there. We are not the first to supply. So there are Chinese companies and Indian companies are already in it. Mainly, the competition comes from China in this, because they are over 90% of the market when it comes to supply to the Europe and U.S.

Tarun Sancheti — Sancheti Capital — Analyst

I was going through this EDQM database and looks like at least as of today, there would be one or two products, then there is a very limited competition. So are you seeing that few people have already registered and they’ll get approval before us? Is that the way to rate it?

Rahul Nachane — Managing Director

There are at least five, six companies who have already registered those products. They already have a CEP.

Tarun Sancheti — Sancheti Capital — Analyst

Okay, okay, fair enough. Thank you. That is all.

Operator

Thank you. Our next question comes from Rohit with ithoughtpms. Please go ahead.

Rohit — ithoughtpms — Analyst

Hello.

Rahul Nachane — Managing Director

Yes.

Rohit — ithoughtpms — Analyst

Hello. Yeah, hi Rahul. So Rahul, just — I mean, most of the questions have been answered, but just to understand this whole cycle better, so I mean, in the — if you look at the history of our company last 10, 12 years and even past in action you’ve always maintained and used to maintaining that — I mean, there is steady demand for our kind of products and one would also understand that given the kind of end user industry that we cater to. So just want to understand in the last two, three years, what exactly really happened, I mean, is it like the demand what pull forward and people want to do buy a lot and hence they — because of the uncertainty, I mean, if you can share a bit on that, that will really help and in your — you’ve been in this business for a very long time. And how does it unraveled usually. I mean, just related to that in terms of supply side. How are your competitors going through these tough times and if you can share a bit on that, that will really help us understand this scenario better? You already answered, but just a bit more detail.

Rahul Nachane — Managing Director

Yes. See, COVID was a game changer for many things out here, with lockdown and supply disruption which took place. So we saw for extended period of time, transportation came at — standstill, manufacturing was — had slowed down. And then just when we were recovering from COVID eight months, 10 months later, there was the second wave, which came out. And then there was a bit of worry across many countries. What happens if there is a third wave and second wave — sorry fourth wave? So during ’22, we saw — ’21 and ’22, we saw large growth in the demand from many countries and customers and since it was a medical emergency, there was a feeling that people should stock up on medicines as much as they can.

And probably most of the companies out here sort of miscalculated the whole thing. And third and fourth waves really did not materialize, did not meet to any logistical problems. Operations went down as they were the vaccine came out. And people will left with holding large amount of stocks that people actually bought so large part of our growth from ’20 to ’22, we went from INR150 crores to INR315 crores, lot of it was — not just by the normal growth of the market, but by requirement for people to have stock, so that they could even though if any logistical problems if at all, which come up, and they did not come at all.

So that last year, we have seeing that companies are more or less — all those companies which held up with large stocks have more or less registered providing and there are just now destocking their inventories. And wherever we see that destocking has taken place now, there is a new problem, with regard to currency issues, which customers are facing. So these are things which are affecting the demand right now. And again, it is more like a short-term trend. And by short-term, I don’t mean couple of months, but it’s something which is — which will take probably a couple of years to unravel. We are already good year plus into that cycle right now. And it should probably continue maximum till the end of this year is what our feeling is.

Rohit — ithoughtpms — Analyst

Right. And just I mean, do any — do you think that given the end nature of these products, which are sort of most necessity and in the normal pass course of ones’ life and given that we had a COVID disruption and now we have issues like currency crisis and macro recession in country. Do you see the sort of whenever things resolve back — again — the spring will again recoil and whatever excess — whatever demand which is being curtail sort of comeback very fast, is that understanding correct or and we have a similar situation what we saw maybe not to that extent, but something like this revert back to which we go back to the other side of the slide — other side of the chart, very fast. Is that understanding correct or?

Rahul Nachane — Managing Director

Yeah. As of when the cycle completed — then we should see the demand coming back.

Rohit — ithoughtpms — Analyst

Sure. And can you talk a bit on the supply side as well or there, how are other companies managing or are you seeing some companies sort of going out of business or going through a lot of stress given the last 1.5 years has been very challenging?

Rahul Nachane — Managing Director

So low prices doesn’t mean that companies, which are not very competitive and cannot — will definitely face pressures on their margin and profitability and once the product becomes unviable, we will definitely see a chain where people will go ahead. So it’s a sort of thing which keeps on repeating itself in this pharma industry and we’ve been seeing it almost 35 years now, where companies come in, stay with the product for a few years, go out, when they go out, somebody else starts coming in. It’s really not — it’s a cycle which keeps repeating itself over a period of time.

Rohit — ithoughtpms — Analyst

Got it. And just one last question, I mean, our top three products, top five products and top three clients and top five clients in this quarter has gone up quite a bit. Is there, I mean, is that more a quarterly aberration or how do we gain share in these products within our existing clients as well, so if you can just talk a bit about that?

Rahul Nachane — Managing Director

No. It is quarter-to-quarter really does not give comparison in this industry.

Rohit — ithoughtpms — Analyst

Sure. Thank you, Rahul. All the very best for the coming year.

Rahul Nachane — Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question comes from the line of Rushabh with Equirus PMS. Please go ahead.

Rushabh — Equirus PMS — Analyst

Yeah, hello. Am I audible?

Rahul Nachane — Managing Director

If you can be a little bit Louder.

Rushabh — Equirus PMS — Analyst

Just one minute. Yeah, am I audible now?

Rahul Nachane — Managing Director

Yes, this is better.

Rushabh — Equirus PMS — Analyst

Yeah. Just a small question on the Tarapur expansion. So for the year, you have planned a INR100 crore expansion and then due to inflation, it would be around INR140 crores to INR150 crores, it was expected to start in November of last year. So just wanted to know how much have we spent as of the date and have we taken any debt for that?

Rahul Nachane — Managing Director

Yeah. As of 31 March, our total expenditure on the Tarapur project was INR25 crores. And advance is given to the suppliers were another INR6 crores. So we had spend about INR31 crores and there was zero debt taken for that.

Rushabh — Equirus PMS — Analyst

Okay. Okay. Thanks. That’s all. Thanks.

Operator

Thank you. Our last question comes from the line of [Indecipherable] with Swan Investments. Please go ahead.

Unidentified Participant — — Analyst

Hi sir, thanks for the opportunity. I’m fairly new to the company, so pardon me, if my question seem a bit vague. So with Tarapur expansion, what is your capacity post the expansion and when is it expected to start as of now?

Rahul Nachane — Managing Director

So we haven’t put a date on where we would expect to start, as I said, we are just playing a wait-and-watch game right now. As and when we see demand coming back, that is the time will trigger the — and accelerate the entire expansion. Until then, we are going at a slower pace, so that we can fund the entire thing from internal accruals rather than from [Indecipherable].

Unidentified Participant — — Analyst

And sir, what would be a capacity post the expansion?

Rahul Nachane — Managing Director

So typically, this industry has a capital asset turnover ratio anything from two to three. Let’s say between 2 and 2.5 would be a good average if we think about. So INR150 crore investment, we should be able to generate probably in the range of INR350 crores to INR400 crores turnover.

Unidentified Participant — — Analyst

Thanks a lot, sir. Thank you.

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I now hand over the call to Mr. Rahul Nachane for the closing comments.

Rahul Nachane — Managing Director

I would like to thank everyone who is so much interest in our company and thank you for sparing your time to attend this call. As I said, we have now — we would like — we are moving to half yearly calls, because there’s not really much changes within a three months period. So I look forward to meeting with you again when we discuss the half yearly calls for FY’24. Thank you very much and have a good day.

Operator

[Operator Closing Remarks]