Oriental Aromatics Ltd (OAL) Q4 FY23 Earnings Concall Transcript

Oriental Aromatics Ltd (NSE:OAL) Q4 FY23 Earnings Concall dated May. 31, 2023

Corporate Participants:

Anuj Sonpal — Chief Executive Officer

Dharmil A. Bodani — Chairman and Managing Director

Girish Khandelwal — Chief Financial Officer

Parag Satoskar — Chief Executive Officer

Analysts:

Ankit Gupta — Bamboo Capital Partners — Analyst

Dhwanil Desai — Turtle Capital — Analyst

Rajat Setiya — ithoughtpms — Analyst

Kiran Chheda — Chheda Investment Consultants — Analyst

Unidentified Participant — — Analyst

Rohit Nagraj — Centrum Broking Limited — Analyst

Rohit Ohri — Progressive Share Brokers Pvt. Ltd. — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Oriental Aromatics Limited Q4 FY ’23 Earnings Conference Call. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]

I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.

Anuj Sonpal — Chief Executive Officer

Thank you. Good afternoon, everyone, and a 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 fourth quarter and financial year ending 2023.

Before we begin, let me mention a short cautionary statement. Some of the statements made in today’s earnings call may be 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 beliefs as well as assumptions made by and 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.

Let me now introduce you to the management participating with us in today’s earnings call and hand it over to them for opening remarks. We firstly have with us Mr. Dharmil Bodani, Chairman and Managing Director; Mr. Parag Satoskar, Chief Executive Officer; Mr. Girish Khandelwal, Chief Financial Officer; and Ms. Kiranpreet Gill, Company Secretary.

Without any further delay, I request Mr. Dharmil A. Bodani to start with his opening remarks. Thank you, and over to you, Dharmil.

Dharmil A. Bodani — Chairman and Managing Director

Thank you so much, Anuj, and good afternoon, ladies and gentlemen. It is our pleasure to welcome you all to the earnings conference call to discuss the results of the quarter and the financial year ended 31st March, 2023. Thank you for joining us today, once again. I would like to now introduce — request Mr. Girish Khandelwal, our CFO, to give the financial highlights for the quarter and the financial year ended 31st March, 2023. Thank you. Girish, over to you.

Girish Khandelwal — Chief Financial Officer

Yeah, thank you very much, Dharmil. Good afternoon, everyone. I would like to welcome you all for the conference call. I would like to focus on the operating performance of the Company. Let me first take you through our consolidated performance for the quarter. The operating revenue for the quarter was INR195.3 crore, which was a decrease of approximately 3.7% on a year-on year basis and 2.1% on a quarter-on-quarter basis. Operating EBITDA reported was INR9.8 crore, decreased as compared to INR14.10 crore in the previous quarter and INR22.10 crore in the corresponding quarter. Operating EBITDA margin stood at 4.76% as compared to 7.07% in the previous quarter. Net profit-after-tax reported was INR1.2 crore, decreased as compared to INR3.8 crore in the previous quarter, and INR10.5 crore in the corresponding quarter, while PAT margins were 0.61%, which was a decrease of about 130 basis points on a quarter-on-quarter basis.

Coming to the FY 2023 performance. On a consolidated basis, the operating revenue was INR849.1 crore, which was a decrease of approximately 2.30% on a year-on-year basis. Operating EBITDA reported was INR54.20 crore, decreased as compared to INR92.5 crore in the corresponding FY ’22. Operating EBITDA margins stood at 6.38%. Net profit-after-tax reported was INR19.70 crore, decreased as compared to INR53.3 crore in the corresponding FY ’22, while PAT margins were 2.32%, which was a decrease of 381 basis points on a year-on-year basis.

During the year, manufacturing and operating cost has gone up by INR6.82 crore. This is mainly due to increase in the power cost by INR5.46 crore. And if we see — look at the finance cost, so the finance cost has increased by INR8.98 crore due to the higher utilization of working capital borrowings and increase in interest rates as compared to the previous year. Finance cost also includes the forex loss of INR2.09 crore as against the INR0.86 crore in the previous year.

Now, come on the cash flow performance. So the — during the year, cash profit stood at INR39.17 crore, as compared to INR7.31 crore in the previous year. The net operating cash flow was minus INR22.30 crore as [Technical Issues] minus INR0.81 crore in the FY ’22. The decrease in the operating cash flow is mainly driven by the higher cash investment in the working capital requirement. Net debt to equity ratio stood at 0.34 from 0.21 as compared to the previous year FY ’22. RoCE for the FY ’23 stood at 5.32% as compared to 12.5% in the year FY ’22.

Thank you. With this, we can now open the floor for the questions-and-answers session. Over to you, Anuj.

Questions and Answers:

Operator

Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Ankit Gupta from Bamboo Capital. Please go ahead.

Ankit Gupta — Bamboo Capital Partners — Analyst

Yeah, thanks for the opportunity. Sir, can you please talk about how is the demand scenario in aroma chemicals and camphor currently and when do you expect the demand to pick up for these products?

Parag Satoskar — Chief Executive Officer

Okay. So Ankit, in terms of — I’ll talk about the camphor. When it comes to camphor in the local market, primarily the fourth quarter is always a bit of a off-season. So we will have to see how the demand picks up in Q1 and Q2 because that’s when the season starts, and I think that’s when the efficiencies of the capacities that have come online will really be tested. So with related to camphor, locally, I think this is a situation where we need to wait and watch. When it comes to the terpene chemicals as well as the specialty aroma ingredients, I think demand in India is stable, but if you look at global demand, the global demand is extremely subdued, primarily driven by the factors like overstocking in supply chains all across the world as well as certain recessionary trends that we are seeing in the European and the American markets. So at least for the next two to three quarters, going forward, I think we feel that the demand will stay a bit soft till we reach some levels of stabilization, because I don’t see a substantial destruction in demand, but I only see a lag that is being created because of the excess stocking in the supply chains.

Ankit Gupta — Bamboo Capital Partners — Analyst

Sure. So the kind of destruction in margins that we’ve seen in last year, so can that also be attributed to the dumping from China or it was largely to do with demand actually was down?

Parag Satoskar — Chief Executive Officer

So I think, again, the reason for — I mean, if you look at the three divisions that we have, our fragrance and flavor division seems to be doing extremely well. I mean, we’ve had close to 50% quarter-on-quarter growth in terms of our production volumes and almost 30% increase in our sales volume. But when it comes to camphor, locally, like I said, that there are a variety of negative factors. The competitive landscape has changed with a lot of new players coming with additional — with new capacity and old players increasing capacity, and all of them primarily coming online in Q3 and Q4, which is relatively softer part of the demand in terms of the year. So going forward, we will have to see what happens, but there is a tremendous pressure on the selling price because of this oversupply of camphor in the market. And globally, be it camphor, be it terpene chemicals or be it specialty aroma ingredients, like I said, that there is a softness in demand. Our customers have — the RFQs that we were allocated for H1, I think they’ve been kind of honored to the extent of between 60% to 70% and the balance have either been postponed or they have been canceled. So I think that kind of puts a pressure because we have a lot of inventory build-up, which is relatively high cost. And so I think, if you put all these factors together, there seems to be a kind of a mixture of a lot of negative factors is they’re putting pressure on the demand, is they’re putting pressure on the sale price and that is impacting profitability as well as top line.

Ankit Gupta — Bamboo Capital Partners — Analyst

Sure, sure. So my last question was on the capex. For the capex, all the three — the brownfield as well as the greenfield capex written in the presentation that will get completed by end of FY ’24. So post all the capex being completed and the kind of all-in realization that we have seen in aroma chemicals and camphor, what kind of top line can we expect at optimal capacity utilization whenever we reach it, let’s say, in two, three years, what kind of revenue can we generate with all the capacities put together?

Parag Satoskar — Chief Executive Officer

We have always maintained that whatever capex we [Speech Overlap]

Dharmil A. Bodani — Chairman and Managing Director

Parag, I’m sorry to interrupt you. I think this question has been covered in previous call. So if Anuj can intervene, maybe we can — we provided the transcripts. I think we’ve already given an answer to this.

Ankit Gupta — Bamboo Capital Partners — Analyst

Yeah. Okay, thank you.

Dharmil A. Bodani — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Dhwanil Desai from Turtle Capital. Please go ahead.

Dhwanil Desai — Turtle Capital — Analyst

Hi, good afternoon, everyone. Sir, my first question, Parag, is that we are seeing very subdued demand in aroma chemical, but we have a very large [indecipherable] basket. So are we experiencing this kind of a slowdown across all products. And if so, is it only the inventory part which is playing the role or even the supply side from China has come back strongly and that is what is hurting? Can you throw some light on that?

Dharmil A. Bodani — Chairman and Managing Director

So Parag, I’ll take the first part of the question and you can take the second part.

Parag Satoskar — Chief Executive Officer

Sure.

Dharmil A. Bodani — Chairman and Managing Director

On the first part of the question, yes, we have a large range of specialty chemicals and generic bulk aroma chemicals. Fragrance or flavor, like, we may not have explained in the past, is a recipe or a formulation. So formulations and recipes use almost — not almost, they use all the ingredients that we manufacture. So the slowdown, if it comes, it comes across the board. So it’s not chemical-specific. It’s the demand of fragrances does slow down, the use of aroma chemicals both bulk and generic do slow down, and therefore, this — the impact is felt across the board. Parag, you can take the second part.

Parag Satoskar — Chief Executive Officer

Yeah, so I think Dharmil has rightly answered that when you look at a fragrance, a fragrance gets created with all these materials, which are the generic specialties as well as the bulk commodities. And definitely, I think the Chinese capacity coming online and the Chinese manufacturers be active after a while plays a role in terms of the ability of the customer to negotiate a little more harder than what they were doing in the past two years. So yes, it makes an impact. Having said that, I think our product development philosophy has always factored the Chinese being very active in a very steady-state of market, and we still able to compete and [indecipherable]. So I think when the demand comes back [Technical Issues].

Operator

Sir, sorry to interrupt, but the line for you was a little bad in between. If you could please use the handset or repeat the last line, sir.

Parag Satoskar — Chief Executive Officer

Sure. Is it okay now?

Operator

Yes, this is much better, sir.

Parag Satoskar — Chief Executive Officer

Okay. So I’m saying that, when it comes to the Chinese, I think in a steady-state of business, our product development philosophy and our product development plan has factored the presence of Chinese competitors and we’ll still be able to co-exist.

Dhwanil Desai — Turtle Capital — Analyst

Second question is, I think for FY ’23, we have guided for around 8% — 8% to 9% kind of a margin, but we ended Q4 with much lower margin. So going forward, given that the demand environment is challenging. Do we expect to have a 10% margin or lower or higher, any guidance on that?

Parag Satoskar — Chief Executive Officer

So I think, Dhwanil, to be very honest, in the 25-odd-years that I’ve been in this space, I think we find ourselves in a very unique position where everything is down, where the raw material prices are down, where the demand is down, where the forecasts are down, and the cost of borrowing money is up, so there is a lot of pressure for releasing — generating cash by reducing inventories. So I think it will probably be very challenging to really give you a very definitive answer. I’m sure we are taking all the steps that are possible internally to ensure that. We stay at the maximum profitable level, even in these current situations. And when situation stabilizes, which I’m sure it will over the next two quarters, and when it does, we will be in a position to kind of get at some — at better margins.

Dhwanil Desai — Turtle Capital — Analyst

Okay. One more question, can I ask or?

Operator

Sir, sorry to interrupt. We request you to please rejoin the queue.

Dhwanil Desai — Turtle Capital — Analyst

Sure.

Operator

Yes, thank you. The next question is from the line of Rajat Setiya from ithoughtpms. Please go ahead.

Rajat Setiya — ithoughtpms — Analyst

Hi. Am I audible?

Operator

Yes.

Parag Satoskar — Chief Executive Officer

Yes, Rajat.

Rajat Setiya — ithoughtpms — Analyst

Okay, thanks. So with regards to camphor, you mentioned that there is oversupply that happened. So is it possible to quantify at the industry level, what is this oversupply, how much is this oversupply?

Parag Satoskar — Chief Executive Officer

So it’s a bit challenging in terms of quantifying the exact camphor supply and demand because a lot of the new capacities that have added up are not publishing their capacities in the public domain. Having said that, if you look at camphor as a product, it’s not something which is having a phenomenal CAGR growth. So we will — we need to see at the end of this season as to what are these capacities that have come up are really eligible and capable of supplying to the market and the prices at which it is being supplied today, which, according to us, is completely unsustainable and is probably kind of not feasible, so how long can these unsustainable prices be maintain. So I think it’s something which we will probably be in a much better position to evaluate an answer two, three quarters down the line.

Rajat Setiya — ithoughtpms — Analyst

Sure. So is this something that you would say that happens every few years, I mean, every few years industry players come up with huge supply because last few quarters were very rewarding? Is this how it is in camphor industry?

Parag Satoskar — Chief Executive Officer

So Rajat, I mean, what I feel is I think camphor probably had a good run for the past three to four years. And starting with 2018 when the raw material prices shot up and all the camphor manufacturers in India found themselves in a very sweet spot where we had a lot of low-cost inventory and we were able to pass the price increases to the customers, eventually then led to the steep price of camphor on the street increasing. So I think — and post that, I think camphor was looked upon as a remedy for COVID. So I think the industry had a good run for three to four years. And I think the money or the cash that was accumulated, according to our estimates, has gotten invested in building brand-new capacity of camphor without really having a look at whether it’s sustainable or not from a CAGR perspective. So I think that’s the reason why this is a little different than what it has been in the past. And I think this combined with a global situation where the requirement for pinene is historically down because the aroma ingredients requirement has also come down. So I think there are a lot of factors which are kind of favorable for a price reduction, which have happened altogether. Having said that, I think the current prices that are being offered are absolutely unsustainable, because although there is reduction in the price of alpha pinene. But what has been currently offered in the market is the alpha pinene that probably will be reaching our plants not before September.

Rajat Setiya — ithoughtpms — Analyst

Sure, sure. Understood. And like you mentioned, you are saying [Speech Overlap]

Operator

Sir, sorry to interrupt. We would request you to please rejoin the question queue if you have further questions.

Rajat Setiya — ithoughtpms — Analyst

Sure, thank you.

Operator

Thank you.

Parag Satoskar — Chief Executive Officer

Thanks. Thanks, Rajat.

Operator

The next question is from the line of Kiran Chheda from Chheda Investment Consultancy. Please go ahead.

Kiran Chheda — Chheda Investment Consultants — Analyst

Hello? Hello?

Parag Satoskar — Chief Executive Officer

Yeah, Kiran.

Kiran Chheda — Chheda Investment Consultants — Analyst

First of all, I was a little surprised that there were no opening comments from Mr. Dharmil this time around. Nevertheless. Sir, [Indecipherable] inventories. The inventories have shot up substantially almost by 30% from the previous year, [indecipherable]. What exactly is the breakup of raw material, work-in process, and finished goods, please?

Parag Satoskar — Chief Executive Officer

So I think across the board, be it the raw materials, be it the semi-finished goods, as well as the finished goods, I think we have seen a ramp-up in the inventories, because normally, if you want to run these gigantic plants, you kind of go with a three or four month inventory procurement plan. And hence, I think a lot of your raw materials for four to five months are either they have reached your plant or they are in the shift or they are at the supplier’s side ready to be dispatched. So any course correction in inventory probably will come with a lag of four to five months, and all our inventory procurement happened in October and November 2022 when we received our RFQs for H1 2023. Now, the inventory pile-up has primarily happened because of a lot of our global customers postponing their procurements or procure postponing their allocation, which they have given to us, which has resulted in the inventory piling-up which was planned for them. And apart from that, because of the slowdown in in Europe and America, because of the pile-up of inventories at their end, we are seeing that the spot procurement also has kind of diminished substantially in the quarter that has gone by. So all these factors put together, the outcome is that we are — we have ended up with higher inventories, and I think that kind of is very common currently across the board in our industry.

Kiran Chheda — Chheda Investment Consultants — Analyst

Sir, it’s almost 5.5 months of annual turnover, that’s really substantial. And when do you think situation could become more like normal?

Parag Satoskar — Chief Executive Officer

So I think when it comes to the — like I said, that when it comes to the camphor and terpene chemicals space, we probably will have to kind of wait out at least for the next two to three quarters before we come to know what is exactly going to be the picture. And I think from the feedback that we are getting on our customers and the kind of quantities that we are receiving for the H2 RFQs, we feel that we are another two to three quarters away from some level of stabilization in the aroma — specialty aroma ingredient space as well, whereas I think on the fragrance side, we are seeing a much different story where there’s very strong demand, especially in the markets that we operate and a good support for our products.

Dharmil A. Bodani — Chairman and Managing Director

I think, Parag, I would like to intervene here. I think more than strong demand, I want to reiterate that. I think the wins that Oriental Aromatics is getting in the fragrance and flavor area is a lot more. And if you go back to our earlier calls, we would have mentioned to you that we are participating in a lot more projects and this is actually the reason why the fragrance division is growing. I’m not sure whether the industry overall is growing. I think there’s a lot of musical chairs in the business, which is changing from A to B. So our gain in volume and value in the fragrance and flavor division does not necessarily mean that the industry is growing.

Kiran Chheda — Chheda Investment Consultants — Analyst

All right. Any guidance for the current year, Mr. Dharmil, please?

Dharmil A. Bodani — Chairman and Managing Director

In guidance, what guidance?

Kiran Chheda — Chheda Investment Consultants — Analyst

In terms of turnover and the financials.

Dharmil A. Bodani — Chairman and Managing Director

I don’t want to, at this point, give a guidance because as Parag has mentioned, we are seeing an unusual drop in prices of raw materials on the chemical side. And the guidance I would like to give you is that it is going to be a challenging next two or three quarters till we see a stabilization.

Kiran Chheda — Chheda Investment Consultants — Analyst

Okay, sir. Thank you so much.

Operator

Thank you. The next question is from the line of Vijay Karpe from Shriram Life Insurance. Please go ahead.

Unidentified Participant — — Analyst

Yeah, thank you for giving me the opportunity. My question pertains to the camphor industry. So we talked about the oversupply, which is there. So when do we expect this new capacities to be fully absorbed?

Parag Satoskar — Chief Executive Officer

To be very honest, I think these capacities probably have kind of surfaced in the last six months or so. So we will have to first look at their quality and a lot of the other aspects going into the — going forward. I think the kind of numbers that are floating around, because we do not have the exact numbers of the others [indecipherable]. I think there is a significant overcapacity, which will take a while to be absorbed if all of them come online and all of them have to be sold in the market.

Unidentified Participant — — Analyst

Any number that you can put to it, like one year, two years?

Parag Satoskar — Chief Executive Officer

Well, I’m not so sure. So that’s the reason why — I mean, I’m sure about my capacity, but I’m not very sure about the capacities of the others, because those are numbers which are flying in the air. So I do not want to make any judgments based on the numbers that I don’t have. But assuming that those numbers are true, it’s much longer than one or two years.

Unidentified Participant — — Analyst

Okay, great. And the second question is, we supply camphor as a solvent to our end to our clients. So just wanted to understand the percentage of camphor that goes into the end products like your paints, adhesives, toothpaste in terms of volume and value, a rough estimate, if possible?

Parag Satoskar — Chief Executive Officer

So Vijay, primarily, I think the camphor application — the biggest application at least in India is in the religious and the praying space. So where it is used directly in the form of a formulated product, like a tablet or a slab. I think the other two applications are in pain management, which is where it is used in certain medicinal products or OTC products where it depends on the formulation, and I’m not privy to that information. And the third application is primarily in cold and flu management where it is used as part of inhalers or — so again, there — I think in terms of the composition that goes there, I’m not very privy to that information. But these are primarily the three applications where camphor is used.

Unidentified Participant — — Analyst

And what about paints?

Parag Satoskar — Chief Executive Officer

It’s — to the best of my knowledge, it is not used in paints.

Unidentified Participant — — Analyst

Okay, okay, yeah. Thank you for answering my questions.

Parag Satoskar — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Rohit Nagraj from Centrum Broking Limited. Please go ahead.

Rohit Nagraj — Centrum Broking Limited — Analyst

Yeah, thanks for the opportunity. Again, delving a little bit on camphor. Just wanted to have an understanding in terms of the growth avenues incrementally from different segments, so including the devotional segment and the traditional as well as the three segments that you talked about. What is the kind of domestic growth rate or global growth rate we are talking about? And an allied question to that, I understand the alpha pinene, beta pinene availability is relatively scarce. So what has changed in terms of availability of the raw material dynamics from a particular geography because of which those newer capacities have come in? Thank you.

Parag Satoskar — Chief Executive Officer

Yeah. So primarily to answer your question, because there are no formal studies that are done for the increase in the CAGR growth for camphor in the devotional space, again, based on the hearsay that we hear from certain smaller consumer insight study, it’s at a low-digit — low-single-digit CAGR growth. So it’s not a product where there is a substantial growth rate. Having said that, I think there is a healthy double-digit CAGR growth in the pain management and the flu management space, primarily driven by the ability of the world — I mean, the world getting either old or getting more — trying to become more fit by doing more exercise, so more prone to kind of having bruises or kind of pain in the joints. So these are the kind of broadly the numbers that we have when we are doing our internal calculations. I think when it comes to the alpha pinene availability, it’s a very unique commodity where you have a lot of pine trees in the world and they get tapped based on the demand and the supply. And primarily from a demand perspective, alpha pinene gets used primarily in aroma ingredients or in camphor and certain terpene chemicals. And the supply side is normally depending on what is the demand. And since the offtake in — like I mentioned earlier, in aroma ingredients, as well as camphor as well as terpene chemicals is showing a substantial drop. Although the commodity can be considered as scarce when the price goes up. I mean, right now, the commodities available in abundance and so the prices have crashed. It’s more like oil to give you a very loose comparison. It’s a commodity, which is a natural commodity. It can be taken out depending on the demand and that the price of taking out is fixed. So if the demand is there, then it will be taken, otherwise the pine trees are not.

Rohit Nagraj — Centrum Broking Limited — Analyst

Right. That’s good to know. And my second question is in terms of camphor pricing. So just a perspective from maybe past decade or 15 years, how the prices have moved up in terms of the peak prices, trough prices and more stable prices? Thank you.

Parag Satoskar — Chief Executive Officer

Yeah, so I think if the camphor industry, per se, if you look at pre-2021 was a pretty balanced industry where there was no substantial capacity addition and there was no substantial capacity deletion. I think one major change that happened was still around 2018, you had around 4,000 — 3,000 tons of camphor, which used to be imported from China that when the capacities in India increased by just process reengineering or smaller expansions, I think the Indian manufacturers were able to gobble up that particular and so the Chinese imports stopped. But apart from that, I think it was a pretty stable pricing and the main factor for the price increase or drop was the global alpha pinene prices, which were not driven by camphor but which were driven by some other factors like the gum resin prices globally or the demand of alpha pinene in the aroma ingredients space. So if you look at the last 10 to 15 years situation, camphor prices always used to stay stable when the pinene prices were stable, and there was rarely a situation where there was extreme oversupply in the market. I think that’s changed post-2021 when people have really gone ahead and build these capacities. And so the situation is a little different than what it has ever been in the last 10, 15 years.

Rohit Nagraj — Centrum Broking Limited — Analyst

Right. Thanks a lot for answering the questions, and best of luck, sir.

Parag Satoskar — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Ankit Gupta from Bamboo Capital. Please go ahead.

Ankit Gupta — Bamboo Capital Partners — Analyst

Thanks for the follow-up. Just wanted to check on the capex. How much capex is left in Baroda, Bareilly and Mahad? And how are we planning to, like, fund that?

Parag Satoskar — Chief Executive Officer

So Girish, correct me if I’m wrong.

Dharmil A. Bodani — Chairman and Managing Director

Parag, Girish can take this question.

Parag Satoskar — Chief Executive Officer

Correct.

Dharmil A. Bodani — Chairman and Managing Director

Girish?

Parag Satoskar — Chief Executive Officer

Girish?

Girish Khandelwal — Chief Financial Officer

Yes, yes, yes. In Baroda, our balance of capex is around, say, INR100 crore, and for that, we are going to take the debt of around INR70 crore, INR75 crores. And for Mahad, our expected project cost is around INR90 crore to INR100 crores, and for that also, we are going to take the debt of 75% of the total project cost.

Ankit Gupta — Bamboo Capital Partners — Analyst

Okay, sir. And Bareilly, anything [Speech Overlap]?

Girish Khandelwal — Chief Financial Officer

Yeah, Bareilly is very small along, so INR6 crore to INR7 crore capex is remained [Technical Issues]. Yeah. So altogether, we are going to take 70% to 75% debt.

Ankit Gupta — Bamboo Capital Partners — Analyst

Okay, okay. So almost INR200 crore, INR205 crore kind of capex we are planning to do in FY ’24. I think as you’ve mentioned in the presentation, the entire capex will come in this year only, FY ’24?

Girish Khandelwal — Chief Financial Officer

Yeah, yeah.

Ankit Gupta — Bamboo Capital Partners — Analyst

Okay, okay, okay. And Parag, given the kind of subdued demand that we are seeing currently, how do you think that can impact offtake for our capex when we complete it by end of next year — by end of FY ’24?

Parag Satoskar — Chief Executive Officer

So I think like I said that, in terms of the sustainability of these materials going forward, because we do not see a substantial destruction in demand by the virtue that none of us are actually stopped taking a bath or none of us has actually stopped using a detergent in the washing machine, except some legislations which we are hearing which are coming in America where, to prevent drought, they are reducing the detergent cycles. So it might have an impact on the detergent because of which it might have an impact on the [indecipherable]. But apart from that, I don’t see a very substantial and a permanent destruction in demand. I think what we are seeing is kind of a recalibration because the industry is very raw material dependent for performance. And so when there were supply chain hiccups in 2021 and 2020, the industry went ahead and over-bought. And then that was followed by a recessionary trend in the major consumer markets. And so the industry will need two to three quarters of stabilization. I think we probably would be ready with our plants by then.

Ankit Gupta — Bamboo Capital Partners — Analyst

Sure.

Parag Satoskar — Chief Executive Officer

And hopefully, with no further shocks happening, we should see a steady demand situation, where which is what we have forecasted when we did our financial and production planning for the new plants.

Ankit Gupta — Bamboo Capital Partners — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Rohit Ohri from Progressive Shares. Please go ahead.

Rohit Ohri — Progressive Share Brokers Pvt. Ltd. — Analyst

Hi, sir. I understand that we still in the [indecipherable] world and there are quite a lot of negatives, which are there in the market. What I wanted to understand was this strategy that we will be going forward with the upcoming year, whether this will be a volume-based or will it be a profitable volume-based?

Parag Satoskar — Chief Executive Officer

Can you ask the question, again? I mean, if I have understood your question correctly, you are saying that, as a company, will our focus be on volumes or will our focus be on profitable volumes?

Rohit Ohri — Progressive Share Brokers Pvt. Ltd. — Analyst

Correct, sir. Yes, sir.

Parag Satoskar — Chief Executive Officer

Okay. So yeah, I mean, as an internal philosophy, Oriental Aromatics always believes in the philosophy of profitable growth. So we will continue and strive to ensure that, by whatever means possible in terms of efficient raw material procurement, reduction in our conversion costs or process reengineering, we will try to ensure that we will — we continue to stay as profitable as possible in the context of the market and continue to sell.

Rohit Ohri — Progressive Share Brokers Pvt. Ltd. — Analyst

And we will be at par with FY ’22, ’23 kind of a revenue. Is it fair to assume that or could we see a slight decline in that?

Parag Satoskar — Chief Executive Officer

So I think like I — like Dharmil has also mentioned that it’s like too much of looking into a crystal ball, because we are seeing a substantial attack on our sales price, which will impact the top line and the slowness will impact our volumes. And although there is reduction in the raw material costs, but the — because of the excess supply, if the selling price starts reducing even further, we might have. So I think putting all these together, we probably will be in a more clear position to answer that two to three quarters. Having said that, I think one thing is for sure that it’s going to be a tough year and we have to be resilient and we have to be watchful and we are taking all the precautionary steps that are to be taken.

Rohit Ohri — Progressive Share Brokers Pvt. Ltd. — Analyst

Okay. My second question is related to the declining ratios and the RoEs and RoCE, and we currently are in the trough phase. So by when do you think that we start inching towards the recovery mode or maybe towards the expansion maybe like six quarters or maybe eight quarters, so that the trajectory start moving towards [indecipherable]?

Parag Satoskar — Chief Executive Officer

So I mean, to answer your question, I probably will divide it into two parts. I’ll probably divide it into the first phase, which will be the next three to four quarters, where we probably know directionally where is our fragrance division, our specialty aroma ingredients and camphor and terpene chemicals division getting. And I think because in those three to four quarters, we’ll also have substantial new product lines as well as capacities added up. And I think once we are at that phase, then we’ll be in a position to look at the next four quarters and see there is a stable business environment then we should be in a position to kind of achieve the stable EBITDA that we always been talking about.

Operator

If I’m allowed to ask one last question?

Rohit Ohri — Progressive Share Brokers Pvt. Ltd. — Analyst

Sir, sorry to interrupt you. Yeah, I’ll fall back in the queue.

Operator

Yes.

Rohit Ohri — Progressive Share Brokers Pvt. Ltd. — Analyst

Yesh, I’ll do that. Thanks.

Operator

Thank you. The next question is from the line of Saket Saurabh, an individual investor. Please go ahead.

Unidentified Participant — — Analyst

Hi, thanks for the opportunity. So first question, the two divisions there that I am currently struggling, so like camphor and specialty. So are we breaking even on operating level at least or we are making loss there?

Parag Satoskar — Chief Executive Officer

So I think if you look at the specialty aroma ingredients division, we are in fact breaking even on both the sides as well, but I think there is a lot of pressure in terms of margins, more on the camphor and the terpene chemicals is for now than probably it is on the specialty aroma ingredients space, but we are kind of breaking even as of now.

Unidentified Participant — — Analyst

Okay. And when you are saying breaking even, it is at EBITDA level or gross margin level?

Parag Satoskar — Chief Executive Officer

Girish, do you want to answer that question?

Girish Khandelwal — Chief Financial Officer

Yeah, it’s at EBITDA.

Unidentified Participant — — Analyst

Okay, okay. Yeah, thank you. So now second, the question is to Dharmil bhai and in the last calls also we discussed that it seems to have slowed down that we are into might also have some structural aspect, given that increased competition. But what are the strategic initiatives or the big things that we are trying to do, say, at a company level to navigate to these things? Because right now it feels as if we are waiting for things to sort out, and I understand that this is a complex scenario. But [indecipherable] some of the peers, when I see, they have either gotten into long-term contracts or some are trying to talking about long-term RFPs with some major customers. So just wanted to explore, what are we, say, exploring to really see if in case this becomes a structural, do we have some bigger ideas or bigger plan to negate this? Because what I see — and I’ve been an investor in this company since camphor days or Camphor & Allied days, our free cash flow sooner or later starts — it’s very volatile. In fact, last three years, it has been negative. And so any ideas or thoughts that you can share with our investors — with investors just to get a sense of — to get some comfort of things that we are doing to — just one of these concerns, meaning when it’s, say, for the near or the long-term beyond, of course, just outlining capex plans and all those things.

Parag Satoskar — Chief Executive Officer

So I think to probably answer your question, Saket bhai, I think we are looking at these challenges as a very big opportunity for our fragrance and flavor division. Dharmil has just said that the team there has done extremely well and we have kind of managed some very interesting strategic wins in that segment and these wins are with extremely large FMCG companies in India and abroad. So I think that is something where we are kind of in fact looking at this challenging as an opportunity and also the ability of being probably with the very few companies in the world who are backward-integrated, using all our strengths of the ingredients division to get more and more wins in the fragrance business is something which is a very, very important strategic move, which was for many years in play in building and now it’s in play. I think apart from that, about the RFQs, I think when the customers have kind of picked up only 60% to 65% of their committed allocation to really go and ask them for longer allocations, probably it’s something which is — at least in the current situation is not going to happen. When the stabilization comes, we will definitely try to use that. But till the time that the external factors are looking a little challenging on the ingredient side, however, they are very, very positive on the fragrance side. On the ingredients side, we are looking a lot of things that we can do structurally internally. So we, as management, are spending a lot of time internally in our clients. We are looking at our processes. We are looking at our costs. We are looking at productivity at each level. And that’s why we are trying to differentiate ourselves, because as we say that there is no destruction in demand. So when the demand comes back, we want to be a very leaner, meaner machine to go and fight in the market. So these are the two strategic moves. We are not very keen on having impact on the external side.

Dharmil A. Bodani — Chairman and Managing Director

And Parag, I would like to add is that, these long-term contracts, which you are referring to, I don’t think buyers market today there are many companies that are getting into these long-term contracts and what we are looking at is continuing to stay non-aligned, so that we can offer our products both bulk and specialty across the industry.

Unidentified Participant — — Analyst

Correct, sir.

Dharmil A. Bodani — Chairman and Managing Director

So it doesn’t [Speech Overlap] take a new plant where we are making a product and selling it out to just one customer and having them do a cost-plus or taking majority of the margin. So to answer you, we will continue to stay non-aligned. We will continue to focus on our strategy of both bulk and specialty aroma chemicals. We have a large expansion going to be going online. I believe ’23, ’24 financial year, we would have completed all our expansions, except for our CST expansion, unless we are able to even finish that in this financial year. So I think there is going to be an addition of many more products in our repertoire to offer to the industry. And the long-term contracts, I don’t believe exist beyond the current RFQs, unless you’re in a complete buyback situation, which we don’t want to do.

Unidentified Participant — — Analyst

Got it. Just one small request. It would be great if we keep the sequence of having a — Dharmil bhai give an opening remark, it gives a lot confidence to the investors.

Dharmil A. Bodani — Chairman and Managing Director

I’ve made a note of this comment, and I will do it next quarter and the following quarters.

Unidentified Participant — — Analyst

Yeah, thanks. I appreciate the support, and best of luck. I’m sure we’ll navigate these tough times.

Dharmil A. Bodani — Chairman and Managing Director

Right. And our idea is primarily for not giving the opening remark was to give more time to the questions.

Unidentified Participant — — Analyst

Exactly, Q&A. No, I appreciate that. Yeah, but just a couple of opening remarks and all, they make sense — just a couple of lines you are able to articulate on some of the big ideas, so that helps.

Dharmil A. Bodani — Chairman and Managing Director

Sure. Well noted, and we will take care of it in the future.

Unidentified Participant — — Analyst

Sure, sir. Thanks.

Operator

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

Rajat Setiya — ithoughtpms — Analyst

Yeah, hi. One clarification on Mahad capex. So you are saying INR100 crore is left. So how much is already done?

Parag Satoskar — Chief Executive Officer

So INR100 crores is going to be the planned investment in the whole Mahad project because it’s a greenfield project, we’ll also have to do some support structure. Yeah, Girish, sorry?

Girish Khandelwal — Chief Financial Officer

Yes, yes. I just wanted to add actually we have already infused INR32 crore into the Mahad subsidiary, and as on March, we have already invested, whether you say the pre-operative cost for this with some revenue first as well as the lend cost and lend development, total altogether is INR25 crore, INR26 crore we have already invested.

Rajat Setiya — ithoughtpms — Analyst

Okay. Actually, in the context is I think sometime in the previous call, you had mentioned that Mahad will probably take INR200 crores to INR250 crores. So right now, we are going to spend this much and then probably later on we’ll spend more money? Is that how it is?

Parag Satoskar — Chief Executive Officer

Yeah. Rajat, primarily it’s a phased investment where, like Dharmil said, that we are still in the process of piloting the whole CST piece. And once we are ready with that, we will probably be doing the next phase of investment in Mahad.

Rajat Setiya — ithoughtpms — Analyst

Understood. And so we can say that peak debt, I mean, at the end of this year, probably our debt levels will probably be INR400 crores to INR450 crores? Girish, you want to kind of [Speech Overlap].

Girish Khandelwal — Chief Financial Officer

Yeah. We are expecting around INR370 crore, INR380 crore.

Rajat Setiya — ithoughtpms — Analyst

Okay, understood. And how long will it take — once all the capex is done, how much time does it take before plant stabilization and to be sure that we are in the mass production?

Parag Satoskar — Chief Executive Officer

So since, Rajat, we are in the generic specialty aroma ingredient space, in fact, I think we’ve already kind of had some initial checks with our customers and they are very keen. So we normally give ourselves between, say, three months to six months for validation, followed by another three months for getting the sample approvals. So we should be looking at, at least capturing 40% to 50% of the available market in the first two, two-and-a-half years.

Rajat Setiya — ithoughtpms — Analyst

Sure. And do you fear a scenario wherein — because current demand is anyways low and capex is going to come in a year when the demand is low or there is pricing pressure. Do you imagine a scenario that next one year when our plant is ready to fire, but we do not have enough demand?

Parag Satoskar — Chief Executive Officer

So I think these are generic materials. I think having a fragrance division as the front-end of the Group always helps, because we know which are the kind of fragrances in which it is used. We already have built solid relationships with most of the top consumers of this material globally. So demand or no demand, there will be consumption of this material, A. B, so as a strategic derisking and China Plus One, it still stays in play, albeit at a more challenging sale price. I’m sure we will be well-accepted globally in terms of the product and sale at least. And as the demand becomes more and more stable, because our simulations had been done at various cost price from very good to adverse situation.

Rajat Setiya — ithoughtpms — Analyst

Sure. Thank you so much.

Parag Satoskar — Chief Executive Officer

Thanks.

Rajat Setiya — ithoughtpms — Analyst

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

Dharmil A. 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 questions satisfactorily. If you have any questions or would like to know more about the Company, we would be happy to address the same. We are 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 so much.

Operator

[Operator Closing Remarks]