Oriental Aromatics Ltd (OAL) Q3 FY23 Earnings Concall Transcript

Oriental Aromatics Ltd (NSE:OAL) Q3 FY23 Earnings Concall dated Feb. 14, 2023.

Corporate Participants:

Anuj Sonpal — Investor Relations

Dharmil Bodani — Chairman and Managing Director

Parag Satoskar — Chief Executive Officer

Girish Khandelwal — Chief Financial Officer

Analysts:

Ankit Gupta — Ankit Gupta — Analyst

Rajat Setiya — ithoughtpms — Analyst

Dhwanil Desai — Turtle Capital — Analyst

Nikhil — Perpetual Investments — Analyst

Ritesh — Girik Capital — Analyst

Saket Saurabh — Individual Investor — Analyst

Vijay Karpe — Shriram Life — Analyst

Ananth Shenoy — AS Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Oriental Aromatics Limited Q3 FY23 Earnings Conference Call. [Operator Instructions]. I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you and over to you.

Anuj Sonpal — Investor Relations

Thank you. Good afternoon, everyone. Very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Oriental Aromatics Limited. On behalf of the company, I’d like to thank you all for participating in the company’s earnings call for the third quarter and nine months ended of financial year 2023.

Before we begin, let me mention a short cautionary statement. Some of the statements made in today’s earnings call maybe forward looking in nature. Such forward looking statements are subject to risks and uncertainties which could cause actual results to differ from those anticipated. Such statements are based on management’s belief as well as assumptions made by an information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today’s earnings

Call is purely to educate and bring awareness about the company’s fundamental business and financial quarter under review.

Now let me introduce you to the management participating with us in today’s earnings call and hand it over to them for opening remarks. We have with us Mr. Dharmil Bodani, Chairman and Managing Director; Mr. Shyamal Bodani, Executive Director; Mr. Parag Satoskar, Chief Executive Officer; and Mr. Girish Khandelwal, Chief Financial Officer.

Without any further delay, I request Parag Satoskar to start with his opening remarks — sorry — I request Mr. Dharmil Bodani to start with his opening remarks.

Dharmil Bodani — Chairman and Managing Director

Thank you, Anju and good afternoon everybody. It is our pleasure to welcome you all to the Earnings Conference Call to discuss the results of the quarter and nine months ended 31st December 2022. Thank you for joining us today. I now would request Mr. Parag Satoskar, our Chief Executive Officer, to give the operational highlights and Mr. Girish Khandelwal, our Chief Financial Officer, to give the financial highlights of the quarter and nine months ended 31st December 2022. Thank you. Over to you, Parag.

Parag Satoskar — Chief Executive Officer

Good afternoon, ladies and gentlemen. During the quarter that has gone by, we are glad to inform you that the trend of reducing input costs, which began in the mid of Q2 2022-2023 has not reversed. Prices of almost all inputs continue to stay stable and the raw-material availability has improved across-the-board. Obviously, this has helped our fragrance and flavor division the most and we have taken full advantage of the situation. We have not only acquired new customers across geographies during this quarter in our Fragrance division, but have also increased our business with our existing customers.

We are glad to inform you that the demand in the fragrance and flavor space locally and in the geographies that we operate stays strong. We have also achieved an important milestone in the specialty aroma ingredients division during this quarter. The single-product plant that was commissioned by us in November 2021 in Baroda has now completed one year of operations and we are glad to inform you that we have achieved close to 70% of the planned production from this plant in the calendar year 2022 and 80% of this production has successfully been commercially sold to our customers locally. We are pretty confident that the valuation of the plant is complete and now we are going to look, look at expanding capacities and increasing volumes.

Production and sales volumes for the quarter improved by 18% and 7% respectively on an year-to-year basis. We have witnessed a healthy demand in our fragrance and flavor, as well as the Camphor division where the sales volume growth has been 10% and 22% respectively on a year-on-year basis. However, in the Specialty Ingredients division, there has been a reduction in sales volume on a year-on-year basis.

The Camphor and the terpene chemicals, in terms of pricing, continues to stay under pressure. This is due to the fact that although there has been reduction in the input cost of the key raw-material, but this positive impact gets neutralized by the impact of the weakening of the Indian rupee, because this raw-material is imported. The weakening of the Chinese currency has also given an opportunity to our Chinese competitors to be aggressive in pricing of camphor and terpene chemicals locally.

Honestly, there should have been an increase in the the prices of camphor and free chemicals in the local market, as well as export. But the competitive pressures have ensured that we have unable — we have been unable to pass on this price hike to the customers. This has created some [Indecipherable].However, we are working on derisking our Camphor sales by exploring newer markets in our Pharma segment and newer value-added products.

We have been successful. We are also glad to inform you that we’ve been successful in selling all the additional quantities of terpineol that has been produced in our Bareilly plan after the brownfield expansion that was completed in 2021. Demand in the specialty aroma ingredient division stays stable. There was an impact on sales in this division in the Q3 quarter as some of our customers, mainly in U.S. and Europe, have postponed their purchases that were scheduled for Q3 dispatch to beyond December 2022. The impact of this decision by our customers can be clearly seen in our inventory levels at the end of this quarter or this division, which were 17% more than the end-of-the previous quarter. However, we are glad to inform you that offtake of this inventory’s material has begun from January 2023 and we are confident of liquidating the stocked inventories.

We had a scheduled annual shutdown of A phase in our Baroda site in November 2022. And that impacted production in the Baroda site. Apart from this shutdown, all plants across the Group, are successfully running at full capacity. The RFQ allocations received from our global customers are either in line with the quantities allocated it to us in the last semester or more than the last semester. I would now like to move ahead and speak a little bit about the numbers.

There has been a reduction in the sales, the group level, from INR220 crores to INR199 crores quarter-to-quarter. This is primarily attributed to customers of the specialty aroma ingredients division asking for deferred shipments of their orders in December 2022 and shutdown at the Baroda site. The sales performance of the Camphor and the terpene chemicals division, as well as the F&F division has been better than the previous quarter as I mentioned earlier.

There has also been healthy growth in production volumes across the group. There has been increase in the EBITDA at the Group level. The EBITDA margin achieved at the end of this quarter is 7.07% whereas it was 6.6% in the last quarter.

Gross margins have improved to 33.8% from 31.7% in the last quarter.

Moving on to capex, the capex plan for the hydrogenation facility in Baroda stay on track and we stick to the guidance that we have given in our earlier comments. The hdrogenation plant commissioning dates still on track by end of H1 2023. We are facing moderate delays in certain electrical and instrumentation equipment due to the global shortage of computer chips. If we foresee any moderate delay, we will inform you all in the subsequent investor calls. We are also glad to inform you that the plant development activities at the Mahad site, which were mentioned in the last investor call, are well underway. We will be breaking ground for Phase one of our Mahad facility on 8th of March, which is the day after Holi. We will continue to give updates on the Mahad site and other capex projects in our subsequent calls. The total debt of the company stands at INR229 crores. The increase is primarily due to increase in working capital resulting out of inventories and mobilization of debt for capex.

With this. I would now like to request Mr. Girish Khandelwal, to give the financial highlights. Thank you very much.

Girish Khandelwal — Chief Financial Officer

Thank you very much, Parag. Good afternoon, everyone. I would like to say that Parag has as always — as always, Parag has taken you through the business performance of the Company, and, as well as on the market and regional developments.

I would like to focus on the financial performance. Let me first take you through our consolidated performance for the quarter. The operating revenue for the quarter was INR199 crores, which was a decrease of approximately 3% on a year-on-year basis and 10% on a quarter-on-quarter basis. Operating EBITDA reported was INR14.1 crore, decreased as compared to rupees INR14.6 crore in the previous quarter and INR16.2 crore in the corresponding quarter.

Operating EBITDA margins stood at 7.07% as compared to 6.601% in the previous quarter. Net profit-after-tax reported was INR3.8 crores, decreased as compared to INR6.30 crores in the previous quarter and INR8 crores in the corresponding quarter while PAT margins were 1.9%, which was a decrease of 94 basis-points on a quarter-on-quarter basis.

Coming to the nine months performance on a consolidated basis, the operating revenue was INR653 crores, which was a decrease of approximately 2% on a year-on-year basis. Operating EBITA reported was INR45 crores, decreased as compared to INR70 crore in the corresponding nine-month FY22. Operating EBITDA margin stood at 6.90%. Net profit-after-tax reported was INR18.6 crores, decreased as compared to INR42.8 crore in the corresponding nine months while PAT margins were 2.85%, which was a decrease of 358 basis-points on a year-on-year basis.

Now I want to say that other income includes 59 lakhs related to the Forex exchange gain as compared to the INR1.5 crore in the previous quarter. Finance cost has been increased during the quarter due to the increase in the interest rates, as well as the higher borrowing availed during the quarter. Finance cost includes the Forex loss of 83 lakhs is against the 75 lakhs in the previous quarter. Debt to equity ratio stood at 0.36 as compared to the previous quarter, which was 0.26. Thank you. With this, we can now open the floor to the question-and-answer session.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions]. We have our first question from the line of Ankit Gupta from Bamboo Capital, please go-ahead.

Girish Khandelwal — Chief Financial Officer

Yeah, thanks for the opportunity. On the specialty aroma chemicals, you know we saw volume decline of 21%. So Parag as you were stating, this was primarily because of delay in shipments or that there was like some impact on the demand itself?

Parag Satoskar — Chief Executive Officer

So, can you just repeat the first part because you were little unclear. You said that.

Ankit Gupta — Ankit Gupta — Analyst

I was asking about the reason for decline in the specialty aroma ingredients by 21% in this quarter, yeah.

Parag Satoskar — Chief Executive Officer

Right. So, primarily, like I had mentioned in the opening remarks that there have been a few customers, especially in Europe and America who, for the obvious reasons of the calendar year close, decided to defer their shipments. So they have not canceled the orders. So there is no reduction in demand. They have just kind of pushed over the shipment dates, which was scheduled for December to Jan and Feb. And that’s the reason why, you know, we had a reduction in the sales for this quarter.

Having said that, those shipments are now started moving and assuming that there might be a little bit of a slowdown, we either can see that the offtake is regularizing in Jan and Feb and hopefully, we will recover in terms of the numbers.

Ankit Gupta — Ankit Gupta — Analyst

So, overall, how is the industry doing on specialty aroma ingredient across the chemical industry. We are seeing that there has been now a huge inventory buildup in the system, which is leading to lower demand across chemicals. So how is the situation in our industry, especially aroma ingredients and Camphor.

Parag Satoskar — Chief Executive Officer

So I think. you know, 2022 was a very unique year where because of multiple triggers, the buying community went into a buying spree and which resulted in over inventerization, okay. However. I think since our end user industry is our fragrance industry, which applies to the FMCG space, you know, and primarily a lot of the specialty ingredients go in functional perfumes. I don’t see a destruction in demand. I probably see that once this over inventerization phenomena gets cleaned up, we will again get back to the routine shipments and routine CAGR growth, which in the last two years, was surprising very-very high.

Ankit Gupta — Ankit Gupta — Analyst

So when do you expect this over-inventorization can, which has been hampering the industry’s growth, to get over.

Parag Satoskar — Chief Executive Officer

According to our estimates, you know, we feel that the next one or two quarters max should be when when this whole phenomenon kind of starts — assuming that there are no more shocks, external shocks coming from anywhere — we feel that we should get into a very routine growth and cycle in development. Having said that, the RFQs that we got in terms of quantities for H1 2023 did not show any significant drop in quantities, which itself signifies that our customers are pretty confident that demand [Technical Issues].

Ankit Gupta — Ankit Gupta — Analyst

So you’re talking about when FY24 next year?

Parag Satoskar — Chief Executive Officer

No. It’s H1 FY23.

Ankit Gupta — Ankit Gupta — Analyst

Okay, okay, I’ll come back in the queue. Thank you.

Operator

Thank you sir. [Operator Instructions]. We have a next question from the line of Rajat Setiya from ithoughtpms. Please go ahead.

Rajat Setiya — ithoughtpms — Analyst

Hi, thanks for the opportunity. Sir, my question is. If you look at the history of our company over the last 10 years specifically, we have never faced such tough times when it comes to our operating margin numbers that we’re reporting. And over the last 10 years, I think, but the early part of the last 10 years, we were more dependent on Camphor than the specialty chemical that we are doing right now, aroma chemicals. So despite being dependent on Camphor, we were able to report good numbers. So what exactly is different this time, what is really happening and why is specialty chemicals side, aroma and F&F behaving like commodity?

Parag Satoskar — Chief Executive Officer

So, I think, to answer your question, in fact, like you said, the Camphor has been relatively stable, although not an extraordinary profit-making product. But it has always been relatively stable product in terms of demand, in terms of pricing, and in terms of profitability. And like I mentioned in my opening remarks. I think that’s the area that probably is getting hit the most this time because of the competitive pressures operating out of India as well as globally, so if you look at the aroma ingredients or fine three [Phonetic] or the fragrance side of the business, we are seeing a healthy demand in sales, We are seeing a decent increase in profitability as the raw-material prices are coming down. But Camphor for us is the one which is kind of driving in terms of a group level EBITDA performance and that’s the reason why we are attempting to move to near markets and value-added products.

Rajat Setiya — ithoughtpms — Analyst

So this time around, campus volatility is very-high you were saying.

Parag Satoskar — Chief Executive Officer

The realization in terms of pricing for Camphor and terpene chemicals is the challenge, which has not been the challenge all these years. It never was an extraordinary profit-making product, but was decently profit making.

Rajat Setiya — ithoughtpms — Analyst

And that particular [Speech Overlap] challenged. Any particular reason why that’s happening, whatever the phenomenal price that is happening?

Parag Satoskar — Chief Executive Officer

Yeah, I mentioned in my opening remarks, that it’s primarily because of the competitive pressures. We — I think even the Chinese competitors were there in the terpene chemical space. Because of the devaluation of their currency and they having local feedstock for the raw materials, are able to compete harder. And that’s the reason why we are not able to pass on the price hike that would have been in the Camphor and terpene.

Rajat Setiya — ithoughtpms — Analyst

Sure and sir. Moving on, what has been the total?

Parag Satoskar — Chief Executive Officer

Let’s move to the next question because you’ve already asked two. so then we get the opportunity.

Rajat Setiya — ithoughtpms — Analyst

Sure sir. No problems.

Operator

Thank you. We have a question from the line of Ankit Gupta from Bamboo Capital. Please go ahead.

Ankit Gupta — Ankit Gupta — Analyst

Yeah. Thanks for the opportunity again. Parag, when do you see the whole thing normalizing on the EBITDA front, you know, we coming back to our mid-teens kind of EBITDA margin, the guidance that we have been giving, that we’ll be able to achieve on the long-term basis. So when do we expect that will be coming back to our normalized margins?

Parag Satoskar — Chief Executive Officer

So like I said that probably be assuming that we do not have any further shocks, which are external in terms of raw-material shocks or demand shocks, we should probably see EBITDA margins improving from the fragrance and the specialty aroma ingredients. I think the Camphor and the terpene chemicals piece will need probably a bit longer in terms of the time to play-out to really get back to the previous EBITDA margin. So we have a calibrated response, the fragrance [Technical Issues] specialty aroma ingredients [Technical Issues] should stabilize much faster than the camphor and the terpene chemicals.

Ankit Gupta — Ankit Gupta — Analyst

Sure, sir, so can we expect somewhere at least in the second-half of FY24, things getting back to normalcy.

Parag Satoskar — Chief Executive Officer

Yeah I think so like I said, the next one or two quarters should be good for the remaining two divisions. I think for the Camphor and the terpene chemicals will need a little longer, particularly looking at H2 FY24, I think we should have probably some — we should have — we should have reached some level of stability in terms of the EBITDA margin. How much that would be in place of [Technical Issues], that we need to wait and watch. It will still be driven by some competitive pressure. But we should — we are already taking a lot of steps to derisk the whole sales strategy on camphor and chermicals.

Ankit Gupta — Ankit Gupta — Analyst

And on the camphor side, we have seen one of the large payers in aroma chemicals space entering now commencing their supplier for the Camphor. So is it because of their competitive pressure also we are seeing some pressure on the pricing — prices.

Parag Satoskar — Chief Executive Officer

I’m not very sure if in terms of any new player is creating that kind of pressure. If you look at probably the current quarter, it normally is off-season if you look at the local Camphor season, Jan to March, because there are no festivals. So. I don’t think there is a significant impact because of a new player coming in. And the market has its own ways of reacting. I think a more significant impact is the inability of the current players to increase the Camphor price when there is an opportunity to increase because the price of the formulated product hasn’t increased. So there is no reason why we should not increase the price.

Ankit Gupta — Ankit Gupta — Analyst

Sir, again, some more competitive pressure can come in that a big clear getting entry into Camphor now.

Parag Satoskar — Chief Executive Officer

So, I think there are much larger players who are entrenched in the Camphor space for a long, long, long period of time. So I don’t see. I mean I question the whole concept of a big player and a small player. All players are welcome, but, you know, I doubt the size or the complexity of [Technical Issues]. Thank you, and wish you all the best.

Operator

Thank you. We have our next question from the line of Dhwanil Desai from Turtle Capital. Please go ahead.

Dhwanil Desai — Turtle Capital — Analyst

Hi, good afternoon. So the first question is regarding this Camphor pipe. And sorry to harp on this, but slightly wanted to understand more on this. So any interventions that we think we can do to kind of to better in this situation or is it that we are at the mercy of this commodity market and we’ll have to wait till this entire thing [Technical Issues].

Parag Satoskar — Chief Executive Officer

So, Dhwanil, we have to look at — we have to look at the whole Camphor and the terpene chemicals space as a block. And like I mentioned earlier to Ankit, we are already taking substantial number of steps to derisk our old strategy. And that involves the whole block of terpene chemicals along with Camphor because Oriental is very uniquely placed where we have a whole basket of the terpene chemicals. And so, we are exploring newer markets. We are exploring newer value-added products and all that is just a matter of time when we will get and achieve success.

Apart from that, the second piece of the strategy is like we mentioned in our last investor call of our our strategy of entering into the CST space, you know, because that will give us derisking on the raw-material trend and access to gum turpentine from both non-CST, as well as CST. So we are taking multiple steps to derisk our strategy on the sales side and to derisk our strategy on the raw-material procurement side. Needless to say that we have a very active CPR program, which is process re-engineering where we are continuously exploring ways of improving the current process. You know, if you put all these three together, I think although we are facing challenges today, but we will be in a position to probably in the coming quarters find one solution after the other.

Dhwanil Desai — Turtle Capital — Analyst

Okay, okay, that was helpful. And second question is, Parag, on capex. So, capex I think two parts to it. One is that. I think we have indicated that even post expansion, both the expansions brownfield and greenfield, the proportion of aroma F&F blend and Camphor will remain almost the same as it is today. But do you see any need to relook at it and focus more on the F&F blend and specialty aroma chemicals in the medium-term perspective, given nature of the business. That is one. And second is, any timeline that you can give from which commercial sales from our hydrogenation plant will start.

Parag Satoskar — Chief Executive Officer

So I think to answer your first part of the question, you know, after the hydrogenation facilities comes to an after the phase one of Mahad becomes functional,. I think probably and also the benefits of all these internal materials going to the fragrance and flavor division, we are of the opinion that in the medium-term, we will probably see a shift happening towards the specialty ingredients business and fragrance and flavors is automatic. Because we are put — we are putting a lot of resources in these two divisions, primarily in the specialty aroma ingredients division, which indirectly acts as a very competitive strategy advantage to the F&F. So we already have auctioned the plan where we are — in future, we will probably be a little more tilted towards specialty ingredients and the F&F.

Dhwanil Desai — Turtle Capital — Analyst

Thank you.

Dharmil Bodani — Chairman and Managing Director

And Parag, just to add to that, if they can listen in, I think that all the capex is non-Camphor base. So the capex that we are doing, you can elaborate maybe a little bit on that, that will eventually add value in terms and in revenue in terms from non-Camphor based products. So eventually at the end of ’24, ’25, I think that the ratios would substantially change in — not in favor of a larger piece or an equal piece of the Camphor —

Operator

Thank you. [Operator Instructions] We have our next question from the line of Rajat Setiya from ithoughtpms. Please go ahead.

Rajat Setiya — ithoughtpms — Analyst

All right. Thanks for the opportunity once again. Just to clarify what is the total capex outlay for our Baroda hydrogenation plant and the Mahad Greenfield project?

Parag Satoskar — Chief Executive Officer

Yeah. Girish, can you answer this question specific?

Girish Khandelwal — Chief Financial Officer

Yeah. So for hydrogenation, our total outlay would be including all roads and everything would be INR150 crore and for Mahad, actually we are in the process of finalizing the project report in the detailed engineering. So after that, only we can give, but yes, in the first phase, it would be, we are expecting around, around — somewhere around INR80 crore, excluding the land development and land acquisition cost.

Rajat Setiya — ithoughtpms — Analyst

And overall it’ll be, historically, did we mention somewhere INR200 crore to INR240 crore? Is that the total —

Dharmil Bodani — Chairman and Managing Director

Correct. Correct.

Parag Satoskar — Chief Executive Officer

Historically, we have been looking at INR250 crore cap for doing all these projects, plus the installation of the boiler system in Gujarat for in Baroda for the enhanced production.

Dharmil Bodani — Chairman and Managing Director

Right.

Rajat Setiya — ithoughtpms — Analyst

Okay. INR250 crores for like Mahad and Baroda or just Mahad?

Dharmil Bodani — Chairman and Managing Director

No, Mahad and Vadodara and the extra utilities that will be needed for Baroda.

Rajat Setiya — ithoughtpms — Analyst

Right.

Parag Satoskar — Chief Executive Officer

Okay. And how much of the total capex is left now — left to — whatever is left to be done now in the next few quarters? What is left?

Girish Khandelwal — Chief Financial Officer

So I think in terms of in terms of Baroda, we probably would be investing close to around INR80 crores, INR85 crores for finishing the hydrogenation project.

Rajat Setiya — ithoughtpms — Analyst

Right.

Dharmil Bodani — Chairman and Managing Director

And when it comes to Mahad, I think right now we are in plot development state, and probably it would not be completely accurate to give you a kind of a number, but budgeted, like Girish said, it should be between INR70 crore to INR80 crore that we will try to employ in Mahad.

Rajat Setiya — ithoughtpms — Analyst

And this will be for the first phase, correct?

Parag Satoskar — Chief Executive Officer

Yes.

Rajat Setiya — ithoughtpms — Analyst

Okay. Sorry, of this INR150 crore hydrogenation, how much is done?

Parag Satoskar — Chief Executive Officer

Let say it around INR60 crore is done. So INR80 crore is remaining.

Operator

Thank you. We have our next question from the line of Nikhil from Perpetual Investments. Please go ahead.

Nikhil — Perpetual Investments — Analyst

Yeah. Hi. My first question is, is it possible to know what is the volume growth versus pre-COVID individually for aroma, chemicals and camphor division and flavor and fragrances?

Dharmil Bodani — Chairman and Managing Director

So I think broadly, I don’t have the exact number. So you probably — you still can reach out to Anuj and we’ll be more than happy to share the numbers with you. But when we checked last, I think, and we did this analysis probably in the month of April, and we had already crossed pre-COVID levels of production in 2022-’23, if I’m not mistake. Sorry, 2021-’22. So we are already crossed the pre-COVID levels in terms of production and sales.

Nikhil — Perpetual Investments — Analyst

Yeah. And Parag I want to [Indecipherable] that in the nine months corresponding period, we have increased our production volume by 18%.

Parag Satoskar — Chief Executive Officer

Year-on-year, right? He’s asking pre-COVID. Yeah, he’s asking pre-COVIDs. So we’ll share the numbers we can drop in the line to Anuj or [Technical Issues]

Dharmil Bodani — Chairman and Managing Director

Yeah. Sure. Sure. Sure. I’ll do that. So now like you said, for the camphor division, you have plans to look at other markets and other segments like pharma. So is the margin profile better in pharma versus a normalized industrial supply?

Parag Satoskar — Chief Executive Officer

Yes.

Nikhil — Perpetual Investments — Analyst

And I mean, is there in terms of validation and all, how long does this take?

Parag Satoskar — Chief Executive Officer

So I think we are fortunate that we are already validated in a lot of drug master files for a lot of chemical consumers in Europe as well as in Central America. So and some very key clients in the United States, that’s something which is already been done. Now there are — if they want to make a change in their supplier profile in the drug master file, they need to do some additional steps, which do not take as much as the time edit needs for validation in corporation in the drug master.

Operator

Thank you. We have our next question from the line of Ritesh from Girik Capital. Please go ahead.

Ritesh — Girik Capital — Analyst

Yeah. Hi thanks for your opportunity. Just one question, I believe there was a — consistent margin guidance of 15%, 17%. So by when that can be achieved?

Parag Satoskar — Chief Executive Officer

So Ritesh —

Dharmil Bodani — Chairman and Managing Director

We had revised this in the last call. So you can mention that.

Ritesh — Girik Capital — Analyst

Yeah. So we had revised the guidance, and if I am not mistaken, the guidance was revised to between 8% to 10% in the last call, which we can reconfirm, and revert back to you, but we had revised that guidance to lower levels because of the uncertainty that is currently pertaining in the market.

Parag Satoskar — Chief Executive Officer

So for short-term the management — the guidance would be 8%, 10% for at least for few quarters,

Yes.

Ritesh — Girik Capital — Analyst

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

Operator

Thank you. We have a next question from the line of Saket Saurabh, an Individual Investor. Please go ahead.

Saket Saurabh — Individual Investor — Analyst

Hi, thanks for the opportunity. So first question is say, at last quarter also there was delay in shipment because some of our clients had requested, so have they further that the same clients who have requested for further delay or new set of clients who are also requesting us to delay those shipment. So this was some same issue Q2 as well, right? It is getting in Q3 as well.

Dharmil Bodani — Chairman and Managing Director

Yeah. So Saket, if you look at what has happened in the world, I mean, the world across the board has over inventoried since we have a basket of products that we offer to the customer. It probably is — is happens that customer A has certain contracts which he is done with us, and he has that material line with him. So he delays it, and then after a few days, his customer view is buying a different product. So it’s not the same customers, it’s not the repeat of vendors, it’s newer set of customers who are kind of telling us to delay shipments for newer products. And in some cases there are the customers who kind of now have moved to a level where looking at the recessionary trends, they’re looking at cash flows, and they’re looking at keeping the inventories low. So they are delaying the shipments. Having said that, like I mentioned in the opening, we do not see any demand destruction happening, because we see a similar situation happening in our fragrance division as well in Q1 and Q2. We had customers who placed the orders and product [Technical Issues] and now they started picking up again. So I don’t see any demand destruction that has happened [Technical Issues] customers or our specialty ingredients customer.

Saket Saurabh — Individual Investor — Analyst

Got it. Got it. Have you talked about that for the upcoming say next year, the plan we are getting the volumes payment impact, but if I go through, say I have recent guidance, they have lowered guidance of growth for the next year. So are orders coming at say, much lower price realization? So if any color on that, like volumes driven intact, but on the prices of coming down from that standpoint?

Dharmil Bodani — Chairman and Managing Director

So as you get into a more steady state of business, where our input costs have also come down, like I mentioned in my opening remarks, I mean, there will be an expectation of a price reduction. So I think we are well prepared to ensure that whatever is the right price at the right time for the customer and for us, we are able to give them. So the prices have come down because we are reaching a steady state and because the customers are aware that the raw material input costs have come down. So they are asking for a better.

Operator

Thank you. [Operator Instructions] We have a question from the line of Dhwanil Desai from Total Capital. Please go ahead.

Dhwanil Desai — Turtle Capital — Analyst

I think, Parag, one question, I think from the last time remain unanswered, when do we expect the commercial fails to start from hydrogenation? And then I have a couple of more questions.

Parag Satoskar — Chief Executive Officer

Okay. So yeah, correct. So we intend to commission the plan by end of H1 2023, which is June 2023. Assuming that we do not have some delays because of the install, this is a fully automated plant. So we facing some issues in terms of deliverables of the instrumentation part, but otherwise, we should — and we are going to use H2 2023 for sampling validation and for the RFQ customers, our targets is for H1 2024, we’ll start filling out the RFQs and hopefully get some volume allocation for these products in H1 2024 calendar.

Dhwanil Desai — Turtle Capital — Analyst

These are our calendar, right?

Parag Satoskar — Chief Executive Officer

Yeah.

Dhwanil Desai — Turtle Capital — Analyst

Okay. And second question is, I do understand you guys have given a guidance of 8% to 10%. My understanding was that that was for FY’23 and beyond that you did not have any visibility. But now I think what you — from what you’re saying, the aroma chemicals, and flavor part is getting better. So I understand that going back to 15%, 17% it will not happen in a quarter, but will there be a gradual improvement? Do you see or you think that that also is still far up?

Parag Satoskar — Chief Executive Officer

No. I think aspirationally we would love to really reach that level of 15% to 17%, point number one. Point number two, as the raw material prices or aroma — specialty aroma ingredient prices stabilized, there’s a natural hedge or there’s a natural tendency for the margins to become better on the fragrance and flavor side, which is good news, because you then get your input at a lower cost. And a steady state in the specialty aroma ingredient space will ensure that we come back to those, 10%, 12% margins for the specialty aroma ingredients that are expected at sustainable and consistent volumes. So if that happens, which we feel is a few quarters away, I don’t see why we should be in a position to kind of look at better numbers. Having said that, it’s still work in progress, we don’t want to stick our next out and give a guidance, which we are not very sure of attain.

Operator

Thank you. We have a next question from the line of Rajat Setiya from ithoughtpms. Please go ahead.

Rajat Setiya — ithoughtpms — Analyst

Hi, my questions have been answered. Thank you so much.

Operator

Thank you. We have a next question from the line of Nikhil from Perpetual Investments. Please go ahead.

Nikhil — Perpetual Investments — Analyst

Yeah. Yeah. Hi again. So like you said, your future will be focused on aroma chemicals and flavors and fragrances now, if you have a few segments within aroma chemicals, we have petrochem, musk and sandalwood derivatives. So where would the focus be going forward? And if you can comment from the current situation in this individual segments and a qualitative assessment or your idea on the margin profiles of these segments, and how do we look at the future of flavors and fragrances division?

Parag Satoskar — Chief Executive Officer

So Nikhil, to answer your question, I think our whole specialty aroma ingredients philosophy is not really based on certain block of raw material capability or neither is it based on certain one or two chemistries. I think we have a very unique model of aroma ingredient strategy where our strategy is based on inputs that we get from our F&F division, and that’s the reason why we manufacture product across 28 different chemistries and using raw material sources, which are completely agnostic to only — or any of these blocks.

So to answer your question, I think our strategy is going to be based on, a, what do we see is going to be the demand for the product going forward? B, our ability to have absolute control on the processes internally, so that we are the most efficient converter of these materials, and then offer value to our customer by building infrastructure, which is world class set and completely automated to give them products, which are quality and at a sustainable and at a competitive price. So I think our philosophies a little different than just probably focusing on these four blocks.

Nikhil — Perpetual Investments — Analyst

Sure. And how do we look at the flavor and fragrances business? I mean, how to understand this space and how to look at it going forward? Can you make it a bit easier for investors? I’m a bit new to the company, so pardon my ignorance.

Dharmil Bodani — Chairman and Managing Director

No. No problem. So I think, I mean, just to probably keep it in the most simplistic language, functional perfumery is here to stay, as long as you’re going to take a bath every day, you’re going to wash your clothes and you’re going to brush your teeth. So just to put it very simply functional perfumery is here to stay because of the pressures of cost, synthetic aroma ingredients and specialty aroma ingredients are going to be a key element of this functional perfume. Our endeavor of really kind of, not exactly commoditizing, but right pricing these specialty aroma ingredients so that their volumes balloon up because the perfumers believe in adding them at a higher percentage, it’s something, which we see is going to be our way forward. And so I think the perfumery industry seems to have a very healthy CAGR going forward. Going piggyback on the FMCG — growth in FMCG space.

Operator

Thank you. [Operator Instructions] We have a question from the line of Saket Saurabh, an Individual Investor. Please go ahead.

Saket Saurabh — Individual Investor — Analyst

Yeah, thanks for the follow-up. So regarding camphor, so given the current realization and the raw material pressure that we are witnessing, so is it margin positive right now in the current state of affair?

Dharmil Bodani — Chairman and Managing Director

Yes.

Saket Saurabh — Individual Investor — Analyst

Okay. And second question was that GT versus CST thing that we talked about, because even our competitor — someone was referring to, have they — they are saying that they have that flexibility to use both the technology, which will give them the flexibility with raw material and help address some of the volatility around that?

Now, we — I think Parag or Dharmil also mentioned last time around that [Technical Issues] trying to address that aspect also. So is there some capex that you are trying to do to have the flexibility of both technologies in place? And if yes, then is there a timeline around that?

Dharmil Bodani — Chairman and Managing Director

So we definitely have a strategy around de-risking our raw material procurement strategy on Alpha Pioneer. That does not mean that our strategy is flawed. I think there’s extremely limited advantage to probably having that flexibility. Having said that, if we have the resources and if we have the technology, we want to take the advantage of the situation. That is the only reason why we are doing it. We are exploring all options that are available on the table today to look at a CST strategy. And as and when it is ready, we will definitely be informing the investor community.

Saket Saurabh — Individual Investor — Analyst

Okay. Yeah, thanks. No, sorry. Regarding this I think the updated guidance that you had shared around 9% to 10%, sorry, calling. So the point is now we have still think more around the 7% part. So is it primarily due to say camphor nearly going out of track or out? Or do you think that once this shipment delays take care of the net — they can move the needle to the upper side of the bracket rather than the lower side of the range that we have been witnessing for the last couple of quarters.

Parag Satoskar — Chief Executive Officer

So we have to understand that, like I said, that camphor has created a drag, but that does not mean that that is the only factor. I think we also had a eight day shutdown in the Baroda site and for one of the other plants in the Baroda side. In fact, the shutdown was 14 days. So if we would’ve had that production coupled with the customers taking all the inventoried materials, I’m sure the needle would’ve been at a different point it would — it would go to a substantially different point, if we are also able to successfully implement our camphor strategy on your markets and your products.

Operator

Thank you. We have a next question from the line of Vijay Karpe from Shriram Life. Please go ahead.

Vijay Karpe — Shriram Life — Analyst

Yeah. Thank you for giving this opportunity. My question pertains to the camphor division. So why is this Chinese competition coming now? So is it because of the logistics of course coming down or is it anything else as you mentioned because of the forex movements and when is this competition expected to settle down?

Dharmil Bodani — Chairman and Managing Director

So Vijay, honestly speaking, I can probably give you facts and numbers about Oriental Aromatics. I probably will not be in a position to comment on what our competition is doing. You will probably have to ask those questions to them. What I can only say is that the current challenges that we face in the camphor space are not because of any competition or because of the current existing players. And any new competition is going to find it even more difficult with the brand new plant when well entrenched players are not in a position to make money.

Vijay Karpe — Shriram Life — Analyst

And so what would’ve been the capex utilization for us in Q3 for the camphor division?

Dharmil Bodani — Chairman and Managing Director

So we have run all the plants at full capacity. We’ve not throttled any capacity. In fact, we are like to inform you that the Brownfield expansion that we did in our Terpineol plant, where we increased our Terpineol production from 1000 to 1,800, we’ve been successfully able to sell all the new capacity that has come up in Baroda.

Operator

Thank you. We have a next question from the line of Ananth Shenoy from AS Capital. Please go ahead.

Ananth Shenoy — AS Capital — Analyst

Good afternoon. Am I audible?

Dharmil Bodani — Chairman and Managing Director

Yes.

Ananth Shenoy — AS Capital — Analyst

Sir, my first question again about camphor. So you mentioned that in the camphor segment, we’ll be looking for changing the product needs and doing pharma-grade camphor. So just wanted to understand one, whether we are already doing it, how much sales are coming, or roughly how much profitable is coming from pharma grade. And second part to that is now while with existing API pairs, intermediate pairs will change the source. So like, what is incentive for them? So how difficult to change the source for them?

Parag Satoskar — Chief Executive Officer

Okay. So Ananth, to answer your question, we have been historically making substantial quantities of pharma-grade camphor, and Girish correct me if I’m wrong, but I think we are probably 20% of our current sales are from pharma camphor plus minus 4%, 5%.

Ananth Shenoy — AS Capital — Analyst

Yes. Yes. Yes, sir.

Dharmil Bodani — Chairman and Managing Director

Yeah. And to answer your second question, I’ve already probably mentioned during this call that a large part of the regulatory frame has already been — has already been done by our regulatory teams for a long time. And so we are already there in the drug master files for a lot of our customers globally. And one reason why they should shift is probably this whole movement about de-risking China because a lot of the pharma-grade guys used to get their materials from China. And so everybody’s looking at strategic de-risking, which is an opportunity for somebody like us who’s been historically doing pharma-grade camphor for a long time.

Ananth Shenoy — AS Capital — Analyst

Okay. And do we expect that the pharma-grade percentage will change in the near-term, like another one year or so? Do you expect any significant change in the proportion?

Dharmil Bodani — Chairman and Managing Director

So, like I said, Ananth, without going into very specific information, I think we are exploring all options or all avenues available, which — in which pharma probably is one of the — one of the many strategies that we are exploring. So to improve profitability for the camphor and Terpineols.

Operator

Thank you. Ladies and gentlemen, that was the last call for today. I now hand the conference over to Mr. Dharmil Bodani from Oriental Aromatics Limited for closing comments. Over to you, sir.

Dharmil Bodani — Chairman and Managing Director

Thank you so much. Thank you all for participating in this earnings conference call. I hope we’ve been able to answer your question satisfactorily. If you have any further questions or would like to know more about the company, we would be happy to address the same. We are very thankful to all our investors who continue to stand by us and also have shown confidence in the company’s future growth plans. And with this, I wish everyone a great evening. Thank you.

Operator

[Operator Closing Remarks]