Oriental Carbon & Chemicals Limited (OCCL) Q1 FY23 Earnings Concall Transcript

Oriental Carbon & Chemicals Limited (NSE:OCCL) Q1 FY23 Earnings Concall dated Aug. 03, 2022

Corporate Participants:

Akshat Goenka — Joint Managing Director

Anurag Jain — Chief Financial Officer

Analysts:

Aditya Khetan — SMIFS Limited — Analyst

Suresh Jain — NB Investments — Analyst

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Anurag Patil — Roha Asset Managers — Analyst

Anjana Shah — Shah Investments — Analyst

Raj Vaswani — Athena Investment Advisors — Analyst

Vignesh Iyer — Sequent Investments — Analyst

Atul Kothari — Progwell Innovations Private Limited — Analyst

Unidentified Participant — — Analyst

Unidentified Speaker —

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Q1 FY ’23 Earnings Conference Call of Oriental Carbon & Chemicals Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Akshat Goenka Promoter and Joint Managing Director of Oriental Carbon & Chemicals Limited. Thank you, and over to you Mr. Goenka.

Akshat Goenka — Joint Managing Director

Good afternoon and a very warm welcome to everyone. Along with me I have Mr. Anurag Jain, our CFO and SGA, our Investor Relation Advisors. Before we begin, I hope you and your loved ones are are keeping safe and healthy. We have uploaded our results and investor presentation for the quarter ended June 30, 2022 on the stock exchanges and company website. Hope each one of you had a chance to go through the same.

The global economy is witnessing high inflation and supply chain disruptions on account of geopolitical tensions. High energy prices have impacted industries across sectors. Despite the macroeconomic situation, Q1, FY ’23 was a fairly stable quarter for our company. Our company has delivered total income growth of 24% on a quarter-on-quarter basis to INR137 crores in Q1. We have witnessed moderately stable demand from both domestic and international markets. Growth in our total income was aided by higher volumes and increased sales realizations. We expect this growth momentum to continue with better demand.

We have witnessed some correction in the freight costs in the current quarter, which is Q2. Raw material prices were an increasing trend in Q1, FY ’23. But we took price hikes during the quarter, which led to some margin correction. Now we are seeing downward correction in sulphur prices happening July onwards and we expect stabilization in the raw material prices moving ahead. Our team is continuously keeping a watch on costs and taking steps towards controlling it. The ramping up of the new line of IS that we commissioned last year should happen gradually over the next few quarters. We had also commissioned our additional sulphuric acid capacity of 42,000 metric tonnes per annum, which is also ramping up gradually. The decision on Phase 2 of Insoluble Sulphur expansion shall be taken in the next few months depending on the offtake growth, demand visibility and overall market scenario.

As mentioned in the last quarter, the operations of the company, which include the chemical business of Insoluble Sulphur, Sulphuric Acid acid and Oleum would be demerged to another company OCCL Limited. The demerger process is going smoothly as expected as per timeline. This demerger shall enable the management to focus on pursuing revenue growth, growth expansion opportunities and for value unlocking in the respective business verticals in future. Outlook for tyre industry remains positive with revival in CapEx spend for capacity additions. Demand from replacement market, especially commercial vehicles look strong. Higher government spending for infrastructure including plans to expand the national highway network by 25,000 kilometers and improved fleet utilization shall further increase the demand for commercial vehicles. This indicates improved market sentiment.

There has been gradual demand recovery in medium and heavy commercial vehicles with transporters reporting high fleet utilization levels on account of road construction projects and also higher consumption of cement for infrastructure projects. There has been a surge in demand for tippers and tractor trailers. Automotive and tyre demand shall improve with the expected moderation in inflationary pressures and improve geopolitical sentiments. The performance of our subsidiary business, Duncan Engineering has also been improving. Duncan reported top line growth of 51% year-on-year to INR16.7 crores in Q1, FY ’23. Our operations are running well and profitability has improved to INR2.2 crores in quarter one, FY ’23.

Our company believes sustainability is the cornerstone of our business. We have taken initiatives towards waste recycling, water conservation and steps towards energy saving and reducing our carbon footprint. Our efforts have benefited the company and we have been recognized by global accreditations. We are proud to have been awarded EcoVadis’ Gold Sustainability Rating again in 2022 and also got recognized as a RESPONSIBLE CARE logo by the Indian Chemical Council. We will continue with our efforts towards our planet, our customers and community at large.

Now, I would like to hand over the line to Mr. Anurag Jain to update you on the financial performance of the company. Thanks.

Anurag Jain — Chief Financial Officer

Thank you, Akshat. I will now take you all through the standalone financials of the company. The total income for Q1, FY ’23 stood at INR137.2 crores as compared to INR110.8 crores in Q4, FY ’22, a quarter-on-quarter growth of 24% and stood at — and a quarter-on-quarter growth of, sorry and stood at INR86.5 crores in Q1 FY ’22, a year-on-year growth of 59%. Growth was on account of high volumes and better realization. EBITDA for Q1, FY ’23 stood at INR27.7 crores as compared to INR16.7 crores in Q4, FY ’22, a growth of 66% and against Q1, FY ’22, which was INR52.8 crores, a growth of 21%.

Margins improved by 510 bps at 20.2% in Q1, FY ’23. Raw material prices were on increasing trend in April-June 2022 quarter. However, price increases, which the company got from their customers has led to improvement in margins. Profit after tax for Q1, FY ’23 stood at INR14 crores as compared to INR4.3 crores in Q4, FY 2022, a QonQ growth of 223% and year-on-year growth of 12% against INR12.5 crores for Q1, FY 2022. PAT margins were up by 630 bps at 10.2% in Q1, FY ’23.

With this, I would like to open the floor for questions and answers.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Aditya Khetan from SMIFS Limited. Please go ahead.

Aditya Khetan — SMIFS Limited — Analyst

Yeah, thank you for the opportunity. Sir, just a couple of questions from my side. Sir, first, if you can share the industry degrowth figure in FY ’21. Like in FY ’20 the industry has degrown by roughly 4%, so similar kind of figures in FY ’21 and what was the growth in FY ’22?

Anurag Jain — Chief Financial Officer

Which industry are you talking about? When you say industry degrowth, which industry are you talking about?

Aditya Khetan — SMIFS Limited — Analyst

Insoluble Sulphur.

Anurag Jain — Chief Financial Officer

Well, in India there has not been an degrowth in terms of quantity that we have sold. So, I cannot say that in India there has been any degrowth. The global [Speech Overlap] and then some improvement. Hello?

Aditya Khetan — SMIFS Limited — Analyst

Yes, sir.

Anurag Jain — Chief Financial Officer

If you look at the global figures, there has been improvement in certain geographies, in some geographies, there has been a little down trend. So, it is very difficult to get the actual figures for last year as to how much Insoluble Sulphur has grown or degrown in last year.

Aditya Khetan — SMIFS Limited — Analyst

Okay. But, sir also, so just adding to this, have we lost some market share over the last two years considering the decline in the global demand? Like ideally, sir our market share was [Speech Overlap].

Anurag Jain — Chief Financial Officer

In our reckoning we have not lost market share.

Aditya Khetan — SMIFS Limited — Analyst

Okay, sir. Our market share is constant, so that is around INR10 crores.

Anurag Jain — Chief Financial Officer

Yeah, yeah, it is in the same range.

Aditya Khetan — SMIFS Limited — Analyst

Okay. Sir, on to the competitors adding capacity, China Sunshine has recently added around 30,000 tonnes and we had added around 5,500 tonnes. So, as per the demand supply dynamics, so now supply is bit of a surplus as compared to demand. So, suppose if we increase the utilization and try to penetrate into the global geographies, so do we have to take — would you take a cut in the realizations considering…

Operator

Mr. Khetan, your voice is breaking. I would request you to use your handset to ask a question.

Aditya Khetan — SMIFS Limited — Analyst

Hello?

Operator

Please proceed.

Aditya Khetan — SMIFS Limited — Analyst

Yes, sir. Sir, my question was on the China Sunshine, so they added capacity of 30,000 tonnes and we had added around 5,500 tonnes. So, now supply is bit more of a surplus as compared to demand. So, now if we increase the utilization and try to penetrate into the global geographies, so do we have to take a cut in the realizations going ahead?

Anurag Jain — Chief Financial Officer

No, I don’t think that our penetration into global geographies is strategized on cutting prices.

Aditya Khetan — SMIFS Limited — Analyst

Okay. So, how would be the demand supply dynamics would change sir for the next two years?

Anurag Jain — Chief Financial Officer

So, we do expect, we do expect that there should be growth in the global market and it should be more than normal to make up for the degrowth that happened or the zero growth that happened in the last two years, so that should be there. Secondly, obviously, we are planning to mark our presence in those geographies where our presence is less than what it should be.

Aditya Khetan — SMIFS Limited — Analyst

Okay. So, focused geographies would…

Anurag Jain — Chief Financial Officer

Hello?

Operator

Mr. Khetan, your voice is breaking. We cannot hear you.

Anurag Jain — Chief Financial Officer

I think let’s move to the next question.

Operator

I would request you to please rejoin the queue. [Operator Instructions] The next question is from the line of Suresh Jain from NB Investments. Please, go ahead.

Suresh Jain — NB Investments — Analyst

Good morning and congratulations on good set of numbers. Sir, I have these two questions. So, one is, my understanding of Insoluble Sulphur industry were based on the prevailing prices, a greenfield expansion, a greenfield commitment or starting a new plant is economically not viable. Is that understanding is correct even under the current prevailing conditions?

Anurag Jain — Chief Financial Officer

Yes, that is, I mean that is our understanding that in the current scenario starting a greenfield project is not something, which should be economically viable.

Suresh Jain — NB Investments — Analyst

Okay. I do not know whether you have this information, the competitor who has come up with 30,000 capacity. Is it a greenfield or a brownfield?

Anurag Jain — Chief Financial Officer

It’s a brownfield expansion and even there, it’s a multi-product site. So, even if it was a greenfield, Insoluble Sulphur is just a part of it. It’s expansion where they are doing many products, of which one happens to be Insoluble Sulphur.

Akshat Goenka — Joint Managing Director

Also they started construction on this when the industry dynamics were much better. It simply got commissioned now.

Anurag Jain — Chief Financial Officer

Yes.

Suresh Jain — NB Investments — Analyst

Okay. So, you mean to say if someone has to expand their capacity, so they’ll have to look for additional products to commission a greenfield project?

Anurag Jain — Chief Financial Officer

No, I’m not saying that. We are just saying that today, it is not viable for a greenfield plant. Brownfield expansion is something which one may look at. Greenfield is not viable.

Suresh Jain — NB Investments — Analyst

Okay. Sir, but at the same time from the investor presentation, we are getting information that more and more vehicles are going for radial tyres and radial tyres require more of Insoluble Sulphur and the demand of Insoluble Sulphur is expected to maybe 4% or so growth over next few years. So, how is this additional demand is going to be met if no one is going for additional…

Anurag Jain — Chief Financial Officer

When we talk about radialization, it is more in the context of the Indian market because that is where it is happening in commercial vehicles.

Suresh Jain — NB Investments — Analyst

Okay.

Anurag Jain — Chief Financial Officer

Second part is when we are even looking at a growth rate, today there is a surplus capacity in the market, right?

Suresh Jain — NB Investments — Analyst

Okay.

Anurag Jain — Chief Financial Officer

So, that should be utilized. Third is that if the situation improves, if the margins improve, only then we can look at or somebody who can look at greenfield expansions. At current scenario when we say that greenfield expansion is not viable, it is always at the current scenario.

Suresh Jain — NB Investments — Analyst

I agree. So, based on…

Anurag Jain — Chief Financial Officer

[Speech Overlap] changing it around, right?

Suresh Jain — NB Investments — Analyst

Correct. So, based on your experience, how much time would it take for this current excess demand to get utilized, so that it becomes viable to put up a greenfield?

Akshat Goenka — Joint Managing Director

I’m sorry, we cannot predict this. It is difficult to say.

Suresh Jain — NB Investments — Analyst

Difficult to say. Okay, thank you very much, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Dhruv Muchhal from HDFC Mutual Fund. Please, go ahead.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Yes, sir. Thank you so much. Sir, the first question is if you can provide some sense on the capacity utilization for 1Q and some guidance if you can give for the full year, broadly either volumes or capacity utilization?

Anurag Jain — Chief Financial Officer

So we, in the current year, we are expecting a growth over last year, right, of over 10% in terms of volumes. So, we are looking at at a capacity utilization of about 75% to 80% this year.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

For the full year?

Anurag Jain — Chief Financial Officer

Yes.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

And sir, is it fair to say, I mean, this improvement in profitability given the market conditions, as you mentioned, but on a per kg basis, our per tonne basis, what I believe is the, how the industry works largely, the profitability still would be lower and there is still scope of improvement depending upon how the situation evolves. Right, sir?

Anurag Jain — Chief Financial Officer

Yeah, that is true.

Akshat Goenka — Joint Managing Director

Yeah. The per metric tonne is far lower than [Speech Overlap] yeah, even in quarter one, it is far lower than what it has been. Even if we don’t look at margin and all that, but as you rightly said, we look at the absolute number. It is far lower than what is.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

And sir, one question was on sulphur, although relatively small for us, but just from an understanding perspective, so I was looking at prices of sulphur from China, this is sulphur prices from China and US, so there is a wide divergence. I mean China prices are significantly higher than probably the US prices and the opposite is true for sulphuric acid. So, US is significantly higher than China prices. So, how does the dynamics for us work? What is the right benchmark for us? Just trying to understand how the RM and probably some selling price for us fluctuates?

Anurag Jain — Chief Financial Officer

See the reason that the American prices are lower than China is because China is a net exporter of sulphur. America is, sorry, China is net importer of sulphur and US is net exporter of sulphur. So, for them there is no freight incidence, but for China, there is a freight incidence, which is added to the price. That is the reason why there is a significant difference between sulphur prices in US and China. Same holds for true in the reverse manner for sulphuric acid, there is a whole lot more production of sulphuric acid in China than it is in US. So, that is part one of your question. And as far as we are concerned, most of the pricing in Asia, which includes China as well as India is roughly based on or gets inspiration from the Middle East prices. So, what is the FOB Middle East of sulphur, that is the rough benchmark of how the prices prevail over most of Asia and the Mediterranean.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Okay. And the ME prices will be very different than what US and China is or is it, what, where do they align broadly? I mean what benchmark would be right for Middle East?

Anurag Jain — Chief Financial Officer

They can be different. Though the general trend would be more or less same in the sense when they’re increasing, both will be increasing, when they are decreasing, both can be decreasing but it will be different. So, is the geographical this thing. You have Canada sitting over US which is surplus in sulphur, then there is America and the major consumption of sulphur happens in Asia and the freight from there is high, so that anomaly will always be there.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Okay, got it. Sure, sir. And the last question is, you mentioned about the freight cost declining. And if I understand correctly, this has been one worry earlier because of the higher freight costs, the exports getting a bit impacted. So, do you see that improving and probably also leading to margins going forward? And probably, if you can help us what was the freight cost say in some benchmark numbers? What was it earlier, how much has it declined to? And how higher they versus say for example, the historical averages for now?

Anurag Jain — Chief Financial Officer

So the freight cost was increasing and the freight cost in Q1 was in Q1 ’23 was marginally higher than Q4 ’22, but now July onwards, we are seeing a declining trend. Now to quantify it is very difficult because in different geographies, the trend is different. Right? And the impact is only on — is mostly on exports. So, I would — it would be very difficult for me to predict how much it will impact us overall, but yes, we are seeing correction and it will help us because that is one cost, which we have to absorb when we have to compete in markets outside India.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

All right. All right. And sir, last quick question is, are there significant IS capacities in Europe? And I’m just wondering does this gas situation has an influence on these capacities? And do you see that in some sense helping us?

Akshat Goenka — Joint Managing Director

There is one large plant of our competitor in Europe but yeah, I would not call it — would not call it European Insoluble Sulphur capacity a significant player for the rest of the world. It is significant for within Europe.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Okay. So, they are mainly for local market? And sir, is it possible to quantify what size that would be?

Anurag Jain — Chief Financial Officer

There is no formal data. I think it would be, how much around 20,000 tonnes, 25,000 tonnes. I think maybe total Insoluble Sulphur capacity in Europe could be as much as 30,000.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Okay, got it. Sure, sir. Thank you so much. And all the best. Thanks.

Operator

Thank you. [Operator Instructions] The next question is from the line of Anurag Patil from Roha Asset Managers. Please, go ahead.

Anurag Patil — Roha Asset Managers — Analyst

Thank you for the opportunity. So, sir sulphur prices in last one month have corrected significantly compared to other chemicals. So, do you think this much correction is sustainable in the next couple of quarters or you expect the sulphur prices to bounce back relatively?

Anurag Jain — Chief Financial Officer

So, you are asking something which is your opinion, but the kind of fall we have taken, of course, we have seen in sulphur prices is something, which after this fall, I think this is a level which could be sustained for some time at least. That would be my reading.

Anurag Patil — Roha Asset Managers — Analyst

Okay. And sir, on the demand side, particularly on the export geographies, how do you see the next couple of quarters panning out?

Anurag Jain — Chief Financial Officer

So, we have got a sustainable demand for couple of quarters. In fact, our sales in the last quarter was better than the previous quarter. And — but however, we should see increasing demand from Q3 onwards or in supply and export, we are expecting that we should see a bump up from Q3 onwards.

Anurag Patil — Roha Asset Managers — Analyst

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

Operator

Thank you. [Operator Instructions] The next question is from the line of Anjana Shah from Shah Investments. Please, go ahead. Ms. Shah, I have unmuted your time, please proceed with your question.

Anjana Shah — Shah Investments — Analyst

Yes, ma’am. Thank you for this opportunity, sir. A couple of questions from my end. Firstly, sir I would want to know how the raw material prices have been like? They’ve been on an increasing trend over last few months. So, what is the current price of sulphur and coating oil? Also, how do you think this trend would be going ahead?

Anurag Jain — Chief Financial Officer

So, if you look at the June quarter, that was the highest price and in the month of July, the price — the raw material price were equal to what was there in June. But August onwards, they should come roughly to the level of Q4, FY ’22. And I’m talking about raw material prices as a whole. Right?

Anjana Shah — Shah Investments — Analyst

Yes, sir.

Anurag Jain — Chief Financial Officer

So, we are expecting them to be marginally higher than Q4, ’22 currently if you look at August.

Anjana Shah — Shah Investments — Analyst

Sure, sir. That helps. Also, sir if you could tell me what are the freight of the company for the current quarter?

Anurag Jain — Chief Financial Officer

No, for the current quarter, it will be, it is dynamic. It will be very difficult for me to…

Anjana Shah — Shah Investments — Analyst

So, have we seen any moderation in the costs, sir?

Anurag Jain — Chief Financial Officer

Yes, we have seen moderation in the current quarter in the costs.

Anjana Shah — Shah Investments — Analyst

All right. All right. Sir, if you could provide some percentage breakup of regular trade, high stability grade and special grade of Insoluble Sulphur sold?

Anurag Jain — Chief Financial Officer

How many grades, it’s not, it’s not possible to give you that breakup of regular grade versus…

Anjana Shah — Shah Investments — Analyst

Okay. Okay. Sir, then can you just tell us which grade type do we usually have a higher demand?

Anurag Jain — Chief Financial Officer

All grades depending on the geographies have their own demand. So, in certain geographies certain grades have demand and others have demand.

Anjana Shah — Shah Investments — Analyst

All right. Sure, sir. Thank you. That was really helpful.

Operator

Thank you. [Operator Instructions] The next question is from the line of Aditya Khetan from SMIFS Limited. Please go, ahead.

Aditya Khetan — SMIFS Limited — Analyst

Ma’am, is my voice audible now?

Operator

Yes, please, proceed.

Aditya Khetan — SMIFS Limited — Analyst

Yes. Sir, my question is on the recently expanded 5,500 tonnes per annum capacity. So, can we expect you to reach the peak utilization by this fiscal end or will it take roughly H1 FY ’24 also, considering that demand is bit less as compared to subsequent…

Anurag Jain — Chief Financial Officer

So, what currently, we are looking at is that we should achieve optimum capacity utilization next year.

Aditya Khetan — SMIFS Limited — Analyst

So, you’re saying sir by this fiscal end, FY ’23 we can reach that?

Anurag Jain — Chief Financial Officer

FY ’23-’24.

Aditya Khetan — SMIFS Limited — Analyst

Okay. ’24 you’re talking. Okay.

Anurag Jain — Chief Financial Officer

FY ’23-’24.

Aditya Khetan — SMIFS Limited — Analyst

Okay. Sir, on to this — on to the situation into the Europe front, so now we are seeing that the gas supply cut, so from Russia in Europe has been intensified. So, are you getting any increased order, inquiries from Europe considering if there is a significant gas cut, is there an opportunity to increase export to Europe market?

Anurag Jain — Chief Financial Officer

That is no connection, so gas cut has no connection to supply of Insoluble Sulphur. The good thing is that we have not yet seen any de-acceleration in demand there.

Aditya Khetan — SMIFS Limited — Analyst

Okay. But the supply has been impacted. Is there any news on that front, like you have witnessed over the past month?

Anurag Jain — Chief Financial Officer

That we have not seen any de-acceleration in demand yet for sulphur.

Aditya Khetan — SMIFS Limited — Analyst

Okay. On to the supply side also, so there wouldn’t be anything?

Anurag Jain — Chief Financial Officer

Supply side means?

Anjana Shah — Shah Investments — Analyst

Means, for the local manufacturers, so they are not cutting down on supply.

Akshat Goenka — Joint Managing Director

It’s very difficult to predict how this gas and oil will affect our competitors. I don’t want to comment on it.

Aditya Khetan — SMIFS Limited — Analyst

Okay. Okay. Sir, what would be our assumption on the margins and growth roughly for the next three years, if we can quantify something?

Akshat Goenka — Joint Managing Director

No, we cannot quantify.

Aditya Khetan — SMIFS Limited — Analyst

Okay. Sure, sir. Thank you, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Raj Vaswani from Athena Investment Advisors. Please, go ahead.

Raj Vaswani — Athena Investment Advisors — Analyst

Hello. Yeah, thank you for the opportunity. So, couple of questions from my end. Firstly, I would like to know you mentioned that we have taken a hike in realizations. So, could you kindly quantify like a ballpark figure what is the percentage hike on a QonQ basis?

Anurag Jain — Chief Financial Officer

No, no, we do not disclose our selling prices, but I can say that in spite of increased prices from Q1, sorry, Q4 of last year to Q1 of this year, increase in raw material costs, our margins have improved over the absolute minimum margins that we got in Q4, FY ’22. So, we have been able to increase our margins albeit they are still very short of the optimum margins that we had earlier and that is reflected in the results.

Raj Vaswani — Athena Investment Advisors — Analyst

Fair enough.

Anurag Jain — Chief Financial Officer

So, when we talk with our customers, we have told them look these are the raw material increases, they have listened to us sympathetically and given us price increases in Q1 of this year and Q2 of this year as well.

Raj Vaswani — Athena Investment Advisors — Analyst

Okay. And on the volume front, what would be the percentage increase roughly?

Anurag Jain — Chief Financial Officer

From which quarter?

Raj Vaswani — Athena Investment Advisors — Analyst

Quarter-on-quarter basis. June quarter. Ballpark figure would also do roughly.

Anurag Jain — Chief Financial Officer

So, between 20% to 25%.

Raj Vaswani — Athena Investment Advisors — Analyst

Okay. And what would be our current capacity utilization number roughly speaking?

Anurag Jain — Chief Financial Officer

I’m sorry, I’m sorry I need to correct myself.

Raj Vaswani — Athena Investment Advisors — Analyst

Sure.

Anurag Jain — Chief Financial Officer

I got it from the previous quarter, you are talking about the trailing quarter, right?

Raj Vaswani — Athena Investment Advisors — Analyst

Yeah, correct.

Anurag Jain — Chief Financial Officer

So, I got it from previous quarter. So, that would be around 12%.

Raj Vaswani — Athena Investment Advisors — Analyst

Okay. And what would be our capacity utilization roughly speaking?

Anurag Jain — Chief Financial Officer

No, I mean you want to increase your capacity, the quantities, we do not disclose that.

Raj Vaswani — Athena Investment Advisors — Analyst

Okay, fair enough. And roughly speaking, what would be our current cash position?

Anurag Jain — Chief Financial Officer

As on — so when you want — what do you mean by cash position?

Raj Vaswani — Athena Investment Advisors — Analyst

Cash on books, balance sheet as on June ’22.

Anurag Jain — Chief Financial Officer

So, it’s a comfortable position. As on March 31, I had INR80 crore in debt and liquid funds and another INR32 crore in corporate deposits. So, that was the position as on March 31. About INR112 crores.

Raj Vaswani — Athena Investment Advisors — Analyst

Okay. And has there been any increase in debt also? Like any significant increase?

Anurag Jain — Chief Financial Officer

No, no. There has been no increase in debt. It is at the same level as it was March 31, in spite of increase in working capital loans, because of the repayment of long-term loans, the overall debt position remains resilient.

Raj Vaswani — Athena Investment Advisors — Analyst

Okay. And if you could please quantify like roughly speaking, what percentage of the increase in top line has come from credit sales and what is cash? Like what I’m trying to get to is how much has our accounts receivable gone up roughly?

Anurag Jain — Chief Financial Officer

So, my — most of my Insoluble Sulphur, say most, not most, all of my Insoluble Sulphur is credit sales, 95% — 97%, 98%.

Raj Vaswani — Athena Investment Advisors — Analyst

Okay, got it. My last question would be like from a three- to five-year perspective, what’s the game plan of the company? Like where do you see the majority of the growth coming from? And what would be our mainly, I mean decisions taken on the capital allocation front? Like would there be any sorts of buyback coming forward because given that now only Phase 2 CapEx is remaining, so I believe the company would be flushed with cash?

Anurag Jain — Chief Financial Officer

So, let me answer it in two. The first one is that we are going to, we are looking at a very good growth in the domestic market. So, that is there and international market also we are looking at new geographies. So, we are looking at growth from both domestic as well as international market. To your second point, I think you know that we have already gone for demerger.

Raj Vaswani — Athena Investment Advisors — Analyst

Correct?

Anurag Jain — Chief Financial Officer

So, our investments, et cetera, will be there in [Indecipherable].

Raj Vaswani — Athena Investment Advisors — Analyst

Okay. So, any buyback on the cards so far?

Anurag Jain — Chief Financial Officer

So, that is something we will look after once demerger happens and of course, you know that in demerger, we are also splitting the shares from INR10 to INR2.

Raj Vaswani — Athena Investment Advisors — Analyst

Correct. Yeah. And you mentioned we will be expanding in new geographies. So, will this be in the existing products or do we plan to like just to get into any new product line like?

Anurag Jain — Chief Financial Officer

You are talking about Insoluble Sulphur, existing products.

Raj Vaswani — Athena Investment Advisors — Analyst

Okay, fair enough. That’s all from my side. Thanks a lot.

Operator

Thank you. [Operator Instructions] The next question is from the line of Vignesh Iyer from Sequent Investments. Please, go ahead.

Raj Vaswani — Athena Investment Advisors — Analyst

Congratulations sir, for a good set of number in challenging circumstances. I would like to know that the other expenses part if I’m not wrong includes the power and fuel expenses.

Anurag Jain — Chief Financial Officer

You can put power and fuel, freight and packing. So, these are the three major adds, which are included in other expenses.

Vignesh Iyer — Sequent Investments — Analyst

So, that other expenses saw some increase when compared with Q3, FY ’22 to Q4, FY ’22 and how come from Q4 FY ’22, which was INR40 crores, it is now around INR45 crores. So, if you could, so if the freight part of it has seen some relaxation in terms of pricing, can you tell me how much of an energy cost escalation have we seen on quarter-on-quarter?

Anurag Jain — Chief Financial Officer

So, let me correct you. The freight relaxation that we are seeing is in the current quarter. That is from July onwards.

Vignesh Iyer — Sequent Investments — Analyst

Oh, okay.

Anurag Jain — Chief Financial Officer

In the last quarter there was a marginal increase in freight, not decrease. So, there was a increase in freight in last quarter versus the trailing quarter and the overall increase that you see in other expenses over the trailing quarter is because of increase in these cost of energy and freight and packing.

Vignesh Iyer — Sequent Investments — Analyst

So, energy cost also saw some increase from quarter four to quarter one. Right?

Anurag Jain — Chief Financial Officer

Yes. They also saw an increase on a per tonne basis. Overall, of course, there was an increase because there was a production was on.

Vignesh Iyer — Sequent Investments — Analyst

That is the there, increase in volume and that I missed. And what is the state of energy cost as in July as the month has already passed by? So, per tonne, is there still an increase in energy cost, or is it stable?

Anurag Jain — Chief Financial Officer

From June to July, there has not been any significant increase. It has been more or less stable.

Vignesh Iyer — Sequent Investments — Analyst

Okay. Marginal or stable, marginal increase or stable per tonne. Right?

Anurag Jain — Chief Financial Officer

Yes.

Vignesh Iyer — Sequent Investments — Analyst

Okay. And sir, in the price — so if I’m not wrong, in Q4 you had told there was no price hike taken or it was dependent on more on international markets. So, the price hike that have been taken in Q1, if I’m not wrong, I actually was late for the call, so I’m assuming there was some price hike taken in Q1. Right?

Anurag Jain — Chief Financial Officer

Yes, we did take a price increase in Q1 and that is why in spite of increase in our input costs, our margins improved from Q4, FY ’22.

Vignesh Iyer — Sequent Investments — Analyst

Right. And any hike taken in the month of July as such?

Anurag Jain — Chief Financial Officer

Yes. We have…

Vignesh Iyer — Sequent Investments — Analyst

Another round of hike has been taken? Right?

Anurag Jain — Chief Financial Officer

Yes.

Vignesh Iyer — Sequent Investments — Analyst

Okay. That’s all from my side.

Akshat Goenka — Joint Managing Director

I would like to clarify one thing on this price hike. We should not take Q4 as a base for any kind of performance analysis of the company. So, from historic standards, our margins are still much lower on absolute terms as I outlined before. So, we should not look at this on a quarter-on-quarter basis and start comparing with Q4.

Vignesh Iyer — Sequent Investments — Analyst

No, it was just sir only on the cost part, I wanted to understand if the per tonne cost has increased. Performance, we…

Akshat Goenka — Joint Managing Director

I am referring, making a general comment, I’m just taking the opportunity to make a general comment, that Q4 performance actually, we should not factor in while analyzing our company and it should be treated as an anomaly quarter. So, overall performance, we are still far behind where we should be.

Vignesh Iyer — Sequent Investments — Analyst

Right. Right, sir. Yes, thank you. That’s all from my side.

Akshat Goenka — Joint Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Atul Kothari from Progwell Innovations Private Limited. Please, go ahead.

Atul Kothari — Progwell Innovations Private Limited — Analyst

Thank you, sir for the opportunity. Sir, I have a couple of questions. Sir first of all, what is the scenario on the supply side for Insoluble Sulphur? Scenario on the supply side for Insoluble Sulphur? Are there any new capacities coming up globally?

Anurag Jain — Chief Financial Officer

So, there are some capacities, which have been added and the capacities are more than demand. We are not aware currently of any further addition of capacities which are in pipeline.

Atul Kothari — Progwell Innovations Private Limited — Analyst

And sir, has our competition taken any price increase?

Anurag Jain — Chief Financial Officer

So, I mean I think we have mentioned this earlier also, because of unprecedented increase in raw materials, everybody had to go and take a price increase. Right?

Atul Kothari — Progwell Innovations Private Limited — Analyst

Okay. Okay. And sir, by approximate how much percentage?

Anurag Jain — Chief Financial Officer

No, that is — that varies from geographies to geographies. So, I will not be at liberty to disclose that.

Atul Kothari — Progwell Innovations Private Limited — Analyst

Not an issue, sir. Sir, with North America being our target market, so how is the demand traction from North America has been? And secondly, have you entered any new customers?

Anurag Jain — Chief Financial Officer

We are on track to achieve our targeted sales by the year-end from North America.

Atul Kothari — Progwell Innovations Private Limited — Analyst

Have you added any new customers sir?

Anurag Jain — Chief Financial Officer

So basically, it’s basically new plants. So, there are global tyre companies and they have plants in America as well. So, most of the sales comes from approval from their plants in the US, so customers remain the same, but they have plants in the US as well. Right?

Atul Kothari — Progwell Innovations Private Limited — Analyst

Right. And sir, lastly, sir, the capacity expansion of sulphuric acid for 42,000 tonnes have been completed and the commissioning of the capacity has started from April 18 onwards, if I’m not wrong. So can we expect this line to fully ramp up by FY ’23?

Anurag Jain — Chief Financial Officer

Yes, we should expect it to be fully ramped up by FY ’22.

Atul Kothari — Progwell Innovations Private Limited — Analyst

And sir, what would be the revenue potential from this line for FY ’23?

Anurag Jain — Chief Financial Officer

What should be…

Atul Kothari — Progwell Innovations Private Limited — Analyst

What should be the revenue potential for FY ’23?

Anurag Jain — Chief Financial Officer

The revenue potential is very, very misleading in case of sulphuric acid, because it works on raw material plus basis. For example, if sulphur prices were say INR40,000, the revenue could be INR15,000 per metric tonne. Now if sulphur prices come to INR10,000, the revenue could come down to INR6,000 per metric tonne.

Atul Kothari — Progwell Innovations Private Limited — Analyst

Okay. But at current prices how much revenue can we expect in FY ’23?

Anurag Jain — Chief Financial Officer

There is no correct way to give the revenue potential.

Atul Kothari — Progwell Innovations Private Limited — Analyst

Okay, sir. And sir, the products, which will be manufactured from this line, they would basically cater to which regions domestically?

Anurag Jain — Chief Financial Officer

Which line…

Atul Kothari — Progwell Innovations Private Limited — Analyst

The products which are manufactured from this line of sulphuric acid of 42,000 tonnes.

Anurag Jain — Chief Financial Officer

Yes.

Atul Kothari — Progwell Innovations Private Limited — Analyst

It would cater to which regions domestically?

Anurag Jain — Chief Financial Officer

The region is going to remain the same as earlier. So, that’s North India.

Atul Kothari — Progwell Innovations Private Limited — Analyst

Okay, sir.

Anurag Jain — Chief Financial Officer

Yeah. The region is North India.

Atul Kothari — Progwell Innovations Private Limited — Analyst

Okay, sir. Thanks. Thank you very much, sir. That’s all from mine.

Operator

Thank you. Ladies and gentlemen, this would be the last question for today, which is from the line of Sarang Doshi [ Phonetic] from Interest Capital [Phonetic]. Please, go ahead.

Unidentified Participant — — Analyst

Firstly, thank you so much for the opportunity. So, I have two questions.

Operator

Mr. Doshi, there is a lot of disturbance from your background. I would request you to go to a quieter place and talk please. Mr. Doshi there is a disturbance from your line.

Unidentified Participant — — Analyst

Hello, is it better now?

Operator

Yes. please proceed.

Unidentified Participant — — Analyst

Yeah. Firstly, thank you so much for the opportunity. I have three questions. One is, currently the industry is going through a very difficult times. I mean there is supply surplus, freight cost, raw material costs are on the higher side. So, I just want your view? You said from Q3 onwards there will be a robust demand on the export and domestic front. So, how do you see dynamics shifting? You see dynamic shifting in terms of demand from FY ’24 onwards?

Anurag Jain — Chief Financial Officer

So, what I said was that Q3 onwards, our export sales should increase and that is because we should be starting exports to newer customers Q3 onwards. The demand scenario is something, which is going to unfold as it is going to unfold at the percentage it’s going to unfold. So, these are two not entirely related to increase in demand.

Unidentified Participant — — Analyst

Understood, understood. Thank you. Thank you. My second question is, our normalized gross margin historically if I check is around 70% to 72% and currently it is around 60%, 62%. So, you see with moderation in commodity prices in FY ’24 we can attain those levels of gross margins?

Anurag Jain — Chief Financial Officer

I don’t think, I don’t think we will be able to attain fully our historical margin in this year though we might see a little improvement if the commodity prices help us. But achieving them fully is something, which looks difficult at this point.

Unidentified Speaker —

Okay. Okay, understood, understood. And thirdly, sir regarding — this is regarding the demerger process, sir, I’m not able to fully understand, just I want some clarity on regarding the cash and cash equivalents. So, you said in the coming months, we will get some more clarity but if you can throw some light on how much portion — how much cash will be reflected in the chemical division?

Anurag Jain — Chief Financial Officer

Now, that is something we cannot predict as of today. That is — it will be decided at the time of demerger, what is the requirement of each business accordingly it will be decided.

Unidentified Participant — — Analyst

Okay. Okay. And how much would be our target dividend payout if you have anything in mind you can share?

Akshat Goenka — Joint Managing Director

We have a dividend policy that says that 60% of our PAT subject to a ceiling of our free cash flow for the year. So, we are committed to that.

Unidentified Participant — — Analyst

Great. Great. Okay. That’s it from my side. Thank you so much, sir.

Akshat Goenka — Joint Managing Director

The policy is on the website. So, you can read it over there. We’ll be following that policy.

Unidentified Participant — — Analyst

Okay. Okay. Thank you so much. Thank you.

Operator

Thank you. As that was the last question for today, I would now like to hand the conference over to Mr. Akshat Goenka for closing comments.

Akshat Goenka — Joint Managing Director

I take this opportunity to thank everyone for joining on the call. I hope we have been able to address all your queries. For any further information kindly reach out to us or Strategic Growth Advisor, our Investor Relation advisors. Thank you once again.

Anurag Jain — Chief Financial Officer

Thank you.

Operator

Thank you. On behalf of Oriental Carbon & Chemicals Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.