Privi Speciality Chemicals Ltd (PRIVISCL) Q3 FY23 Earnings Concall Transcript

Privi Speciality Chemicals Ltd (NSE:PRIVISCL) Q3 FY23 Earnings Concall dated Feb. 03, 2023.

Corporate Participants:

R.S. Rajan — President

Narayan Iyer — Chief Financial Officer

Nilesh —

Analysts:

Deepan Shankar — Trustline PMS — Analyst

Pratik Singhania — SageOne Investment Managers — Analyst

Sagar Arvi — — Analyst

Chintan Modi — Haitong Securities — Analyst

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Manish Gupta — Solidarity — Analyst

Rajesh Singla — — Analyst

Vishal Saraf — — Analyst

Presentation:

Operator

Good evening, everyone. We welcome you all to the 3Q and FY ’23 Earnings Conference Webinar of Privi Specialty Chemicals Limited. We have pleasure in inviting the senior management team, representing the Company, Mr. R.S. Rajan, President Business; Mr. Narayan Iyer, CFO; Ms. Ashwini Shah, Compliance Officer and Company Secretary. I would request Mr. R.S. Rajan to take us through an opening remarks of the quarter gone by and the business, followed by financial analysis by Mr. Narayan Iyer, and then we will begin the Q&A session.

Over to you, sir, Mr. Rajan. Thank you.

R.S. Rajan — President

Thank you, Kamlesh-bhai, and a very warm welcome to all our revered investors. I wish all of you a very happy and a resounding new year ahead. One swallow does not make summer and one quarter does not amplify what we stand for as Privi. Privi Specialty Chemicals is committed, and the outlook for our Company as the Number 1 company in the aroma chemical business continues to be positive. We are committed to sustainability as one of our key factors that lead us onto our Chairman’s vision.

Out of the SDG 17 goals, we are already in compliance with eight of them and we continue to serve the Fortune 500 companies as a preferred and valuable supplier. The good news is that some of our projects, which got delayed in the past, have now started production. Commercial production has started in Galaxmusk as well as in Camphor. So we are surging ahead. And the outlook, as I said, is going to get better in the coming quarters.

So with those introductory words, I hand over the baton to my colleague for the financials and other numbers, which is a primary interest to our revered investors.

Over to you, Narayan.

Narayan Iyer — Chief Financial Officer

Thank you, Rajan, and a warm welcome to all my revered investors with whom I missed sharing and talking to you for the last couple of quarters for some reasons that is known to many of you all. We were in the pursuit of business. So warm welcome. Good evening in this 2023 session for the quarter ended December numbers.

The numbers may not look good, but an outlook from the perspective of comparables is that we have done a sale of about, in this quarter between October to December, about close to INR420 crores on console number. This is the revenue number that we are talking about, which is up by about 6.41% as compared to the INR394 crores that it did as on December ’21. And prima facie, if we compare the September quarter, we are up by about 4.84% on the revenue front.

So where did we go wrong, if you all will say. The nine-month comparison is still very better, INR1,209 crores vis-a-via INR1,027 crores, which means that sales revenue is up by about 17.75%. So it’s a good growth. We have been able to get the share. We have been able to get the volumes from the market and the business is good. So this signifies that the business that Privi is in. And as a leader in that market, because we are very much on target and online. How were the PAT numbers where a few of them, specifically for this quarter of October to December, the PAT stands at about INR575.71 crores or INR571 lakhs as reported as against the earlier year’s close to about INR25 crores of PAT, which was reported in December ’21. So there has been a fall. And I want to attribute the specific reasons that has come about in this quarter. And I’m just talking about for this particular quarter, what are the specific reasons why PAT has fallen down in fact.

So in this quarter, as an apple to apple comparison, the RM consumption, prima facie has gone up by about close to 2%. It’s gone up to 60.78% from 58.7%, which was there in the earlier quarter. This is mainly on account of higher input costs, product mix change and an input mix change, very specific in this particular quarter. And of course, the most important factor, which actually has pulled in our costs, like I’d like to highlight gross margins are not so bad, if you compare nine to nine months, we are almost likewise, the gross margin is steady.

But the depreciation and interest costs, which had to be accounted for in the revenue expenditure for this quarter on account of capitalizing Galaxmusk and Camphor projects which is almost as high as about INR350 crores of capitalization, which was done. So this additional expenditure of — amounting close to about INR9 odd crores has shrunken my expenditure, for which there was no corresponding revenue in this quarter. As Mr. Rajan rightly stated that the commercial production for these and which was announced last week by our Company Secretary and Compliance Officer, that the commercial production just started last week.

So this is an additional expenditure, which we feel is going to be only for this particular — specific for this quarter when expenses has come in, but no corresponding revenue or corresponding gross margins emanating from sale of these two products have not come about, which you will not see going forward in the coming quarters that is there.

Now, this higher cost definitely will get offset in the coming quarters when revenue is generated and gross margins for both these two products will come about. And we are very confident as a company prima facie that we will recuperate from the so-called not-so-good results that has been posted for the December quarter and you will see that results will look to be positive and it will get better and better.

Overall for the nine-month period, if I have to compare, on a broad analysis, there have been two factors basically, which has led to the downfall in the margins per se, overall margins or the PAT margins that I’m talking about. And these two are prima facie, one, on account of the coal costs or the energy cost. As you know, we are aroma chemical manufacturing company where coal becomes one of the most important inputs and we consume huge amount of coal. And coal costs have shot over the roof, especially with the war that was declared by Russia and Ukraine and also with the non-availability of coal coming because of some ban that was imposed by the Indonesian government somewhere around November 2021.

So, likewise on an apple-to-apple coal or the energy costs on a nine-month period has been high, if we compare the earlier nine-month period. And freight cost continues to be higher, which we have been informing all my investors. And though we see a slight dip in this quarter, the quarter gone by, that is the October to December, but the first six or seven months, we still continue to have higher freight costs, especially in the areas that we were operating upon, freight costs did not see a breakthrough or a headway, but we now feel that it is coming down and we have witnessed this in the month of December and more so now coming from January onwards, we see that it is actually coming down much on a rapid scheme in fact.

So this is broad framework when we talk about the nine-month and six-month and all. What is in store going forward? The Company is very confident that we will be pulling back and putting back our operating profits to normalcy and which we have been talking about in the coming quarters, you will definitely see that. And why this confidence that the profits will come back? The profits will come back because we are expecting sales to start for both our ambitious projects of Galax-musk and Camphor. Commercial production has been started from January, and we have been able to sell on both the products starting from January itself. And we expect better revenues also to emanate in this quarter, that is the quarter of January to March.

And once the run rate is achieved for this particular quarter going around, we expect that our performance going forward in the next financial year should definitely improve because not only the sales from these two new products, but also all our existing products, when we talk about pine-based products which is contributing almost 70% of our revenue and there we are the market leaders, the global leaders around three products, which is basically dihydromyrcenol, amber fleur, and pine oil or the terpineol range of products. So we feel most of our customers are showing good interest in buying from us and we should be able to get back and get back those volumes and those numbers.

And as you know that if our volumes increase, definitely the breakeven is made and then the EBITDA margins come back into place. So this is the confidence that comes about that definitely with considering companies diversified product range, diversified in the sense, we have pine, we have citral, we have phenol, we have the new product Galaxmusk, and of course, we also have the specialty and sandal range products, which we expect that that should also one point or the other, sales from the specialty products, which have been low and which contributes high margins to us that we feel going forward, we should see some improvement happening around once globally, economically global markets open up. We can see good start off with demand increasing of these products and margins to set about in fact. We expect overall improvements in all the products, both in terms of volume. Basically, in volume increases, the growth is there. And if growth is there, then the margins will start coming about.

And lastly, before I hand it over the baton to Kamlesh and to all of you, my revered investors, Privi is committed that we are on our growth path. What we have said about that we’d like to grow, we will be growing. And the year ’23-’24 will be a year, basically, that we will be looking forward for stability and consolidation of our financials.

On that account, my opening remarks are open [Phonetic]. Kamlesh-bhai it is back to you and open to any questions that you will have the order for.

Questions and Answers:

Operator

Sure. Thank you. So now I’ll ask Nilesh, my colleague, to take over the Q&A session. Nilesh, please moderate the scene.

Nilesh —

Sure. So we will be taking questions via two things. Participants can either raise their hands, or put their questions into the Q&A section available to them. We’ll simultaneously keep moving in between the questions. So I’m moving the first participant to ask the question.

Deepan Shankar — Trustline PMS — Analyst

Hello.

Nilesh —

Yeah. You may go ahead, please.

Deepan Shankar — Trustline PMS — Analyst

Yeah, thanks a lot. Good evening, everyone. This is Deepan here from Trustline PMS. Sir, first of all, I would like to know more on the demand scenario. So some of our peers in the aroma chemicals space over the last two quarters are saying that they are seeing demand slowdown due to economic growth concerns and also increased China’s competition as they are getting more aggressive in terms of pricing. So how do we see Privi for our products with our customers? How do we see the same scenario?

Narayan Iyer — Chief Financial Officer

Okay. Deepan, good evening to you. A very pertinent person. In fact, yes, there has been global recession as all of you are aware that most of the Latin-American countries are not doing so well and European countries were also in sort of a flat trajectory or maybe a little bit of de-growth there also happening around. But we also have witnessed this slowdown in the second and third quarter that growth that Privi thought that we will be achieving, we have not been able to achieve those kind of numbers. However, having said that, we — our prima facie sales happens to be in the field, which is of day-to-day consumption on everyday applications of a human being consumption, which is the soaps, detergents, hand sanitizers and these, as you know till the demand is going to be there, it’s going to be more stable. It may not increase very drastically, but this demand is going to be there till such time that mankind would like to feel and keep himself clean, wash his clothes and also keep hand sanitizing himself having various illnesses that comes about.

The product range that we offer on these segments we are very, very, very strong. And yes, the competition from China and from some of our peers is very high, and this continues to be so. But having said that, Mr. Rajan happened to say in his opening remarks that we, Privi, as a company, our policy is to sell quality products and on a sustainable manner. And as you are aware that sustainability is forming the crux off most of the western countries demand that they would like to buy from companies who are sustainable, who follows holistic practices, are environment-friendly and ensure that the final product is carcinogenic-free. And that is what Privi is all about and that’s why you will see that Privi is today having wide diversified range of customers.

We have almost about close to 25 to 30 top customers accounting for about 65% to 70% of our sales as compared to the past maybe five or six customers used to contribute about 60% of sales. So that’s something which keeps us abreast as compared to our peers. And we would continue to follow the same, following our holistic and sustainable practices, delivering quality products and ensuring that we are human-friendly in our final delivered products in fact.

Deepan Shankar — Trustline PMS — Analyst

Thank you, sir. And sir, in terms of growth outlook even for medium term, like three to five years, so earlier we used to do 20% to 25% kind of growth. So are we seeing even 15%, 20% kind of growth achievable in the medium term?

Narayan Iyer — Chief Financial Officer

We are in a VUCA world, Deepan, you are aware. We would definitely love to grow at 20%, 25%, which has been our track record for almost about 20 years. But the economic scenario post-COVID in quite a few of the countries which were basically tourist dependent. And second, with the war coming in and a lot of turmoil happening amongst the western world for some part of the — good part of ’22, the European countries are all looking at safeguarding their gas requirements, which was something on the hit list for them or almost on the top priority.

So they are also coming out of it slowly. They are finding alternate avenues to get into that. So if the countries try to come back into normalcy, I don’t really foresee any difficulty that Privi what has got a good track record of achieving almost about 22% CAGR for non-stop for about close to 18 years. We should be able to get back to those growth trajectory.

Having said that, I’ll say, on a very conservative basis, we can still grow between about 12%, 13% to 17% with new products that we have launched with sustainable practices that we are adopting and with the kind of customer base that we are having and they’re putting in a lot of reliance on the good practices that we are following. Definitely, they will come back to us. Of course, we also have to be price effective, because at the end of the day, it is all coming to the price as a factor.

But with good practices, I still feel maybe a such a good elate customers of ours, the top FMCG companies, the top global blenders, names are [Indecipherable]

You name all the top global players. Every one of them are going to be there. They will definitely look at Privi to ensure that we will be one of their most revered and preferred customers and suppliers to them.

Deepan Shankar — Trustline PMS — Analyst

Thanks. That’s really good to hear, sir. So lastly from my side, so is Privi in an advantageous position in terms of CST as compared with GTO of other players? Why I’m asking this is most of them have been struggling to maintain their gross margins, but Privi is able to still achieve that over past two, three quarters. So where this advantage is coming from for Privi?

Narayan Iyer — Chief Financial Officer

Deepan, CST and GTO are two variants of the raw material to manufacture alpha pinene and beta pinene, which is basically used in the pine-based space. It’s taken Privi almost about eight to ten years after launching the CST plant. And to inform you Deepen that no Chinese or Indian manufacturers today have a CST refining processing facility. So the only other players apart from Privi which is in Asia are by global competition, which comes from U.S. and the European players, which is basically Symrise, then you have Farmonic [Phonetic] and you also have IFF apart from Arizona, who also process CST in fact. So they are the global players who are having the CST capability, so my CST, as you know are prima facie procured from the paper pulp industries, where the contracts that we enter into are on long-term basis, anywhere between six months to a couple of years depending on the tenders that are floated by these paper pulp industries.

And we have had — it’s taken some time to build good rapport with most of the mills. Our commercial head and our MD who is associated in ensuring that such rapport is built up with all the paper pulp industries. It’s taken time for us to also get in and get these CST orders. So the advantage we have today is that, we can rely on CST suppliers because these are long-term contracts. So basically prima facie based on that we are in a position to also have a back to back arrangements when we go for annual contracts with most of my customers also. So that’s the advantage that I can say that I have as compared to some of my Indian competition.

GTO are more spot-based and basically the GTO players come from China and GTO assets comes from China, Southeast Asia and also the Latin American countries. And my refining capacity is both CST as well as GTO. So that’s the advantage that I have. I can possibly switch on. I can use CST when the CST prices are low or the markets are good and conducive to us. In between CST prices have gone up across the globe in fact, and also we did have some of those contingencies that came about, then we had to rely on GTO.

So one of the reason in this quarter is also that we had to use a little bit of additional GTO, because once the war started, the entire Scandinavian countries sports were not available for industrial use. And as you are aware, CST is one of our important raw material imports in Scandinavia per se. The entire Scandinavian countries owns the major bulk of CST that we import from. So we actually look for alternative sources and that’s why we had ordered for more GTO and we had to consume the GTO and get into parity.

So it’s a combination, it’s a business thing and this is the advantage that I can have as compared to some of my competition when you talk about from in China and in India. And also some of our global competition where they only rely on CST, maybe they do not have the GTO capability whereas we have both these capabilities in fact.

Deepan Shankar — Trustline PMS — Analyst

Thanks a lot, sir. All the best for the future.

Narayan Iyer — Chief Financial Officer

Thank you, Deepan. Thank you.

Nilesh —

Next question we have is from the line of Mr. Pratik Singhania. Pratik, you may go ahead with your question.

Pratik Singhania — SageOne Investment Managers — Analyst

Yeah. Hi, sir. Good evening. Good evening. So my first question is with respect to the base business, wherein you do annual contract renegotiation with the customers in the month of November and December, which gets implemented from January. So as compared to last year, wherein you could not pass on the prices of the raw material increase as well as the logistics cost as compared to that, how has been the renegotiation for this current calendar year and how much of the cost or whatever increase was there you were able to pass on the customer?

Narayan Iyer — Chief Financial Officer

Okay. Well, this year, the negotiation we had a fair idea as to what is going to be the coal and freight costs. We have also seen that there is a slight reduction happening around in the freight costs in most of the areas. So we have factored all of that. And of course, we have also factored some of the raw material input costs, which are basically coming down or going up. We have done more practical and pragmatic view before we have gone ahead with the contracts for the calendar year ’23. And I could say that, fairly decently we have been able to market ourselves and price ourselves in such a way that quite a few of these costs we should be in a position to collect it and factor it in the negotiations that we had done with all our customers.

Pratik Singhania — SageOne Investment Managers — Analyst

So can you give a major raw material assumptions that you would have taken for us to track the margins?

Narayan Iyer — Chief Financial Officer

We’d not be able to give you exact and actual numbers because we are in the final stages of our own internal budget preparations and all that. But broadly, I could say that you can expect, which is what I stated in my closing remarks before I took the Q&A that you can expect normalcy in our profits and you can see that Privi to bounce back and get back into the EBITDA levels of 16% to 18%, which we always talk about, Pratik.

Pratik Singhania — SageOne Investment Managers — Analyst

This 16% to 18% we are speaking by when we will be able to achieve?

Narayan Iyer — Chief Financial Officer

You will be able to see that in my numbers for the year ’23-’24. And you could also see possibly some improvement happening in Q4 also.

Pratik Singhania — SageOne Investment Managers — Analyst

So if I assume that there is no volume growth, say suppose hypothetically, there is no volume growth in calendar year ’23 versus calendar year ’22, then in that case, like-for-like basis, how do you see the EBITDA margin being in calendar year ’23?

Narayan Iyer — Chief Financial Officer

Pratik, I did mention that there is going to be a close to 13% to 17% of growth in our calendar year ’23-’24. This I had also mentioned in my opening remarks. So, this growth is going to come about from the new products that we have launched and where we find market acceptability to both the products also to be good enough. And also some of our strength on the pine space we got good confirmations from most of our customers. So there is going to be a growth and growth will come from all this new products and also our existing products. We will have our base to be there. So there is going to be a thrust on both volume as well as overall revenue terms, also you can see the growth happening.

Pratik Singhania — SageOne Investment Managers — Analyst

And is the understanding or the terms and conditions of the agreement changed because of what happened last year in terms of how do we like design our contracts with the customer, given the volatility in the prices either up and down? Any pass-through mechanism getting inculcated or any terms which have got changed how we enter into the contracts?

Narayan Iyer — Chief Financial Officer

Well, prima facie on the RM front, it is — for those customers which are annual contracts, we cannot change the basic exports prices. For those customers which are quarterly or half yearly, definitely we revisit them on a quarterly or half yearly basis. But as far as the freight costs are concerned, yes, we have try to put in a rider stating that freight cost will be ascertain on a quarterly basis. So that if it grows — if it increases, the customers will pass it on to us. If it comes down, maybe we give that benefit to our customers in fact. So that sort of a thing we have been able to — our marketing department and business development head have been trying to talk to quite a few customers and some of the customers have been receptive to this idea also.

Pratik Singhania — SageOne Investment Managers — Analyst

And coming to the new business Galaxmusk and Camphor. So given the current prices of both Galaxmusk and Camphor, how do you see the margins for this business and what kind of ramp-up do you expect in FY ’24 and thereafter, not FY ’25, I’d say FY ’24 only if we can see the kind of ramp up you’re seeing based on your discussions with the customer and given the current prices, what kind of a profitability at current prices do we see at that level of ramp-up?

Narayan Iyer — Chief Financial Officer

Well, I may not be able to exactly answer how it will ramp-up going forward. But for this year, we are happy with the way that the customers have accepted our product. We are pretty happy with the way Galaxmusk has been accepted by most of the global customers. And Camphor, as you know, is more localized product. The season for Camphor will start somewhere from April-May onwards. And what we are selling in the spot market also people are happy with the quality of Camphor that we have been able to give it in the market.

So we do expect we will be in for some severe competition with all the local manufacturers of Camphor in India. But Privi being a brand and Privi being known for quality products with the best of global practices, we expect our marketing team to really get some good order booking positions. If I had to give you some ballpark numbers, Galaxmusk I expect somewhere around 60-odd-percent of my overall capacity that we will be in a position to sell in right in the first year, which is something which we are now more than confident that we will be able to do so. And Camphor per se, yes, we have to take the share from some of our competition. Time will only tell how much we are able to do so. But our internal target is that we are able to at least do a number which will be close to about 40% of my capacity that we have installed for Camphor right in the first year.

Pratik Singhania — SageOne Investment Managers — Analyst

And what should be the margin full-year, given the current prices?

Narayan Iyer — Chief Financial Officer

Ballpark it will be — when you’re talking about margins, are they gross margin level that you’re talking about or…

Pratik Singhania — SageOne Investment Managers — Analyst

EBITDA.

Narayan Iyer — Chief Financial Officer

See, EBITDA margins prima facie will be almost in the same space as pine. You can expect in that same 16% to 18% range here.

Pratik Singhania — SageOne Investment Managers — Analyst

Okay. But overall, given the current price and the current situation, do you anticipate that the overall payback period of this capex would have increased by a year or two?

Narayan Iyer — Chief Financial Officer

It has, definitely it has, because there has been a delay. And the delay is beyond our control that you know about with COVID and the war and increase in the prices and permissions and all that sort of stuff. So there has been definitely a delay in overall execution of commercial production starting with these two products.

So prima facie on the IRR front, that delay of one year will get delayed in the overall margin. And yes, as far as Camphor and Galaxmusk, the prices have also come down. You have done your homework very well. But you should also remember that maybe the input costs also comes down to some extent in Galaxmusk as a product, because it is more of a crude-based thing. So there also, the input cost will come down. So the margins for Galaxmusk will remain more or less intact even though the prices — the revenue or the selling price comes down in fact.

So we are confident. Yes, there could be a delay of about one year in the IRR only pertaining to these two capex projects that we talk about. But we feel if we are able to ramp up the entire volumes, I may be able to catch-up with regard to my original projections of recovering the entire cost.

Pratik Singhania — SageOne Investment Managers — Analyst

So lastly, just a small feedback sir. If you can improve the entire investor communication because last time we spoke was in April 2022 and after almost 10 months, we are speaking now. So, I think this is unfair to the shareholders that during the bad times, obviously, we understand there is a cycle, but the communication should be on even during the bad times. So that is a feedback for you, sir.

Narayan Iyer — Chief Financial Officer

Thank you, Pratik. And I’m so sorry that I was not able to come in either in the month of July or in the of month of November. I had certain personal issues and problems and you know that I’m the face of Privi as well as the investor call is concerned. That’s why I said a few of the investors do know why I was not able to come in front of you. And that’s the reason that I wanted to show my face to all of you. I requested Kamlesh-bhai that let’s have a webinar rather than only having a talk show. My personal apologies to you and maybe to all the investors that Privi per se were not able to come and talk to you. I love speaking to all my investors. In fact, I had the opportunity of meeting almost about 40-odd investors who had joined me in our visit to our factory at Mahad. So, I would love to come back to you and you will be rest assured. That’s why we have Rajan. We have Ashwini also from our management. They are all there and we understand investor agreements. And we would only say that going forward, this will not happen once again in fact.

Pratik Singhania — SageOne Investment Managers — Analyst

Sure. Thank you so much, and all the best.

Narayan Iyer — Chief Financial Officer

Thanks, Pratik.

Nilesh —

Yeah. Next question we have is from the line of Mr. Sagar Arvi. Sagar, you may go ahead.

Sagar Arvi — — Analyst

Good evening. Am I audible?

Narayan Iyer — Chief Financial Officer

Yes, Sagar. Good evening.

Sagar Arvi — — Analyst

Okay, good evening. I hope your personal issues are resolved by the way, Mr. Narayan. And I would like to just echo what my colleague Pratik said, just in a moment like for investors it was a bit disappointing, because we could see the numbers were definitely not on a healthy trend, and we couldn’t even get any clarification from your side. So just understand that from our perspective as well. Not complaining here in any sense. I had certain questions. Would you like me to list all of them for us, or we go one and one?

Narayan Iyer — Chief Financial Officer

Whatever you are comfortable. If you want a question-and-answer session, so first question then I answer. That’s what I’ve been doing it. I can….

Sagar Arvi — — Analyst

Okay. Perfect. So let’s go with the finance and depreciation cost.

Operator

Sagar, just a moment. In the interest of time, I would request you to please restrict your questions to two per participant. You can come back in the queue, if you have more questions.

Sagar Arvi — — Analyst

I’d just like to mention that I’m just getting this opportunity after several months. So, I hope you understand. If I take three or four, I never had the opportunity to ask that before. I also send us through email and I got no response. So I’m sorry, but I just need to ask it, just to get some clarification. But I won’t waste your time.

So let’s go with the finance and depreciation cost for us. In this quarter, it has surged. My question is, has this peaked, or in the next quarters, you improve this to increase even more, or will this normalize?

Narayan Iyer — Chief Financial Officer

Okay. Sagar, this will be a little bit — this can go and increase a little bit in maybe in the quarter of January to March or more so it will happen in the month of April to June. Because I have close to about INR120 odd crores of capex that will be capitalized most likely before March. So you can expect that interest — that depreciation cost to come about in fact. And for this quarter, why it peaked? I’ve already stated because of capitalizing the Galaxmusk and Camphor plants, and the revenue not coming apart in fact.

Sagar Arvi — — Analyst

Sure. Okay. My question is, because right now, we are basically facing operating deleverage as your new plants still haven’t kicked in. So when do you expect this trend to actually reverse because I’m guessing in one quarter the volume won’t be so high. So do you think, let’s say, in two or three quarters eventually when the plants kick in with higher volumes, you should actually see some operating leverage?

Narayan Iyer — Chief Financial Officer

Absolutely. You will see that improvement — the vast improvement in the quarter of April to June. Partially negative in this quarter itself of January to March, because Galaxmusk, Camphor sales have started, so that’s good news, as Mr. Rajan has stated and I have been also talking about. So that’s –and Ashwini has already posted it to the SEBI and to all the investors. So that’s a good news that we wanted to share with all of you.

And sales will definitely start in. We can — and as I said, Camphor the peak sales or the main seasonal sales in India is the festivities. And so, the demand will start picking in from somewhere around April and May onwards. It will go right up to November, December in India in fact. And today, we have more of an industrial grade camphor manufacture, so this is going to be the peak season. So I’m very confident that depreciation and interest per se, you will see that though it may increase a little bit, but it will be offset by the operating margins coming from all the new products.

Sagar Arvi — — Analyst

Okay. My two last questions. The first one was regarding the annual contracts you’re getting right now. So they should come at a higher pricing like you just mentioned freight cost should also help you. My question is, if these are annual contracts and they start from let’s say this quarter or the next one, should I just expect a gradual improvement in this quarter itself on the EBITDA front at least or in the next one already, because new contracts come with higher pricing?

Narayan Iyer — Chief Financial Officer

No. I can’t say that new contracts have come in with high prices. This year, we see it’s more on a steady state. I can’t say that there has been an increase in overall across the board increase in all the prices. I will say that it is more steady on most of the products. And of course, globally, the prices of Galaxmusk and Camphor have actually come down. But the EBITDA margins, you will see an improvement happening in this quarter between January to March and you will see some more improvement coming in and settling in starting year of ’23-’24.

Sagar Arvi — — Analyst

Okay. So, if I wanted to understand the pricing you’re doing compared to international peers, I do know that our products, they are selling at a discount. I’m not talking about Galaxmusk and Camphor, regarding our core products. I do know because you mentioned this in the previous conference calls, like our pricing is a bit lower. Can you explain why that happens and why we can’t price the products at a higher price?

Narayan Iyer — Chief Financial Officer

Sagar, I’m competing with some of the European and the U.S. manufacturers, prima facie. And most of my sales also go to the so-called developed nations. And Europe is my main market, almost about 30%, 35% of my revenue coming from there. And U.S. also contributes about 16%, 17% of my revenue. So having said that, even today, since I shouldn’t be so openly telling about the price that is offered to an Indian company continues to be a little lower as compared to some of the European and U.S. companies are. However, we do fetch a little higher prices, when we compare to the Chinese and maybe some of my Indian competition.

Sagar Arvi — — Analyst

Okay. And the last one is regarding the power costs. Like, it keep surging literally every quarter. Now, I do know you have some solar contribution coming in, it’s around 15%, I think you mentioned in the AGM. So what’s actually stopping us from reaching, let’s say 40% to 50%? Why haven’t you done that because it’s affecting literally every quarter or what plans would do you have, let’s say, if this power cost just doesn’t come down for let’s say six quarters, just an imagination, what would you do then?

Narayan Iyer — Chief Financial Officer

Okay. Sagar, let me correct you that it is not just power, but it is prima facie the coal costs which also comes and contributes in that particular segment. It is coal, power and water, so that’s what is contributing. And prima facie, the increase this year has not been due to electricity charges, it’s been more with regard to the coal cost which has gone up. And I told you the reasons why coal cost has gone up. One, it started somewhere around November ’21 [Phonetic] with Indonesian government actually banning their exports of the coking coal coming from Indonesia worldwide. And then we have to search and look for alternatives and that’s when the coal prices started going up.

Then 24th of February, the war was declared and slowly coal became more scarce. And starting from June, July when little bit of sanctions were imposed with regard to the gas availability from Russia to the European countries. Most of the European countries started going in and trying to get coal to start some of their thermal plants in order that they have an alternative to the gas supply, so that they can withstand the onslaught of winter season in those countries which can be severe.

So, now that things are looking to be more better, Indonesian government has released the sanctions, alternative gas supplies have been arranged by the European countries, we find and we feel that coal cost will slowly start coming down. And we are already witnessing about INR1 reduction in the coal cost when I’m talking to you in this month itself. So, we can see some sort of a reduction.

Second, you talked about the solar power. And our Company has also gone for an SPV and we are — we have signed the deal. It will take about six months for us to finally get some results because somewhere around July also the so-called solar SPV will be in place and that will be to the extent of 15% of our requirement for our Mahad unit, that’s a solar power that we can get in.

There are certain restrictions. I just cannot go 100% into solar. The Government of India, as of today, has stated that we cannot have the natural source of power beyond 25%. We will see its feasibility as we start around on the solar. And as we feel that it is in the benefit and we are having benefits out of it, we may try to fill in the balance requirement also whatever is available to go up to 25% from natural source of power.

Sagar Arvi — — Analyst

Okay. Thank you so much. And I hope we can have these conference calls on a regular basis. Thank you, and all the best.

Narayan Iyer — Chief Financial Officer

Thank you.

Operator

The next question we have is from the line of Mr. Chintan Modi. Chintan, you may go ahead.

Chintan Modi — Haitong Securities — Analyst

Hi, sir. So thanks for the opportunity.

Narayan Iyer — Chief Financial Officer

Thanks. Good evening, Chintan.

Chintan Modi — Haitong Securities — Analyst

Good evening, sir. So my first question is with respect to, if you can share, what was your realization for nine months and how much was your volume growth?

Narayan Iyer — Chief Financial Officer

Okay. Basically, the volume that we did was — I have that number. We’ve done overall volume of about close to 20,000 tons for the nine-month period for achieving the turnover of INR1,206 odd crores. And this on volume terms is about 7% growth as compared to previous year.

Chintan Modi — Haitong Securities — Analyst

Okay. And if I understood your previous conversations right, what you were essentially saying is that based on the new contracts that you have signed, there is not a meaningful price hike that you would have got on the realizations that we would have seen for nine-month period.

Narayan Iyer — Chief Financial Officer

That’s right.

Chintan Modi — Haitong Securities — Analyst

Is that right? Okay. Now on this basis, I would like to understand, like, if I were to look at your employee cost, which has been about INR20 odd crores on quarterly run rate types. This quarter, it was a little lower for 3Q. Do you expect this to move up, considering you have new plants completion and similar would be for your other expenses, excluding the power and fuel, if you could throw some light on that?

Narayan Iyer — Chief Financial Officer

Chintan, the employee costs, I don’t think it’s going to really go up because most of the new plants which were in the process of getting commission, soon people will be continuing to operate the plant. So these people, it’s not that plants has just come about the surface in three months time or so. It’s taken a good two years for the plants to be set up.

So I really don’t expect too much of an increase in the employee cost per se. It may remain at the same level. And we as employees also would like to have some sort of an acquisition. So there could be the general market trend that every employee may be given some increments or promotions, which is due for all the hard work that may come upon.

So as in percentage terms, you may not see increase on the turnover, I’m talking about in fact. It may have been more or less status quo. When we say that if 100 [Phonetic] is the revenue for Privi, and if employee cost is let’s say 5% or so, it may continue to remain at 5% or it maybe even 4.95%, because we expect much higher growth of close to about 13% to 17% in the coming year.

Second thing, you talked about the administration expenses. I feel that you are aware our administration expenses happened to go up, especially post the fire that we had at Mahad, wherein the insurance cost then ran skyrocketing in fact. So, to inform all my investors and which you could also see in slowly the administration cost coming in, insurance per se, the cost will keep coming down, because we have been able to put in a lot of measures to ensure that there is minimal risk at our factories at all locations.

I do believe that you were also a part of the investor fraternity who have — actually have seen our factories in Mahad. And you would have — you’ll appreciate the fact that we have given so much of thrust on safety measures, so that we can avoid all such unforeseen circumstances that may come about in any sort of chemical franchises. So this is why you’ve been seeing actually the administration expenses coming down.

Thirdly, various travel expenditure, which was also a major important thrust on the administration expenses, which was there. We are — Mr. Rajan has very instrumental in ensuring that we have severe budgets and cutting down on various travel thing. Because most of our travel, not just in India, but overseas also. So there, we have actually kept in some sort of caps. How we’re ensuring that this will not hamper our growth and it does not hampers the sales. So we are confident of managing these expenses within the set parameters and you will see that, we curtail and we manage these expenses very well.

Chintan Modi — Haitong Securities — Analyst

So basically, through savings in this cost, you should be able to achieve your targeted EBITDA that you guided for about 16% to 18% in FY24.

Narayan Iyer — Chief Financial Officer

That’s right.

Chintan Modi — Haitong Securities — Analyst

Okay. And probably in FY ’25, I mean, that’s quite long to get a visibility. But if you are able to get some price hikes in the following year, we should probably be able to — should be able to expand your margins further.

Narayan Iyer — Chief Financial Officer

Absolutely. And also look forward to capture the balanced market for both the new plants. So there’ll be more additional capacities that we will now and try to go full on to sell the full 5,000 tons each of both the products.

Chintan Modi — Haitong Securities — Analyst

Sure. And just one last question. What would be your current levels of debt and how much of that is working capital?

Narayan Iyer — Chief Financial Officer

Current levels of debt is close to about INR1,080 odd crores. And out of that, my working capital is about — INR600 crores is my working capital today as we talk about in.

Chintan Modi — Haitong Securities — Analyst

Okay. Are you expecting a reversal happening in the next year or at least in terms of working capital. I mean, is it largely inventory-related working capital?

Narayan Iyer — Chief Financial Officer

Absolutely. Chintan, you will definitely see that we will — for higher turnover, we will try to manage within the overall INR1,100 crores of borrowings or so. There will be reduction in the inventory. Definitely we had — and there has been a drop in the inventory even in my December results also. It may not have been too big, but we have seen a INR40 crore dip in the inventory from September month and the December month.

And now with sales of Galaxmusk and Camphor happening around, you will see further improvement in inventory happening with March results. There will be definitely a change happening. And we are also resorted to just in time sort of a buying for most of our production and Mr. Rajan and Mr. Mahesh Bhavnani have been very instrumental. We have a huge internal onus in ensuring that inventory levels come down.

And you will see a change in the overall inventory every quarter coming from now onwards. We’ll see some improvement in March then June, followed by September, December and March subsequently. So this is a thrust that we are doing in. Unfortunately, that inventory build up happened because of two such plants and also a little bit of additional inventory got build up as I had stated in by address to all the investors somewhere around May month that the war actually made us buy an additional quantity of GTO and then subsequently CST also. Supply started from May onwards when the ports were open in Scandinavian countries.

So it was a Catch-22 position that we have to ensure that our plants does not starve for inputs and both the inputs came in almost at the same time and the projects did not kick in. All this led to a building up of inventory, you will see a reversal trend happening very much so in the next two quarters.

Chintan Modi — Haitong Securities — Analyst

And what’s your average cost of debt?

Narayan Iyer — Chief Financial Officer

I’ll have to work upon, Chintan. But you know that there has been rate hike in the last six months all because we’ve had three to four rate hikes and dollar borrowing has also increased around. I think it should be, if I have to average out all of that, this is not exact numbers that I can talk about in fact. But it should be somewhere in the range of — ballpark numbers should be about 8% or so, if I am averaging everything.

Chintan Modi — Haitong Securities — Analyst

Got it. Thanks a lot, sir. That’s really helpful.

Narayan Iyer — Chief Financial Officer

Thanks, Chintan.

Nilesh —

Next question we’ll take it from the line of Aashish. Aashish, you may go ahead.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Yeah. Thank you for this call. So first of all, I mean most of the people who are asking questions mostly we’ve have invested crores of rupees in your company. So the concern has been valid that we should be having a chance to communicate to you. And for that, if you could give us some person or who is assess you or you directly to basically take your appointment and talk to you, because, I mean, it’s concerning the we couldn’t reach you for so long having positions in your company. So I don’t know how you does this, any email ID or phone numbers from your side would help, so that it’s a smooth flow.

Narayan Iyer — Chief Financial Officer

Surely. So, the email ID is already there that is investor@privi.co.in. And I am now well assisted by Ashwini whom we all can see on the screen. And I also have Mr. Virendra Mishra, who is handling it. And of course, Rajan is the prima facie important person in my investor committee in fact. We all are here, and that’s the reason of all three of us being together in-person, visible to you all. And as I said, we are sorry that we were not available for about a couple of quarters.

Prima facie as I said, I had certain exigencies in my personal screens. We’ve come about that and we will ensure that will be more visible. And most of the investors who are separately written to me on investors@privi.co.in. I’ve tried to ensure reply to most of them, if I have skipped a few of your questions and once again I apologize for that. And we will ensure that we’ll be more robust in answering such queries of yours.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Okay. So moving on to the real questions on the business. Sir, the debt and working capital part of the business, I mean, that keeps the hopes on bringing debt down. Basically, the working capital kills your cash flows. And if I have to analyze your business, if you don’t make 18%, 20% kind of EBITDA margins, then the ROIs and everything else on the balance sheet goes for a toss. So growth is fine, but these things have to be kept very tight. I think, you would realize that and given the world that we’re living in. So your comments on this would help.

This INR1,000 crores of debt, we had plans to go to say, INR3,000 crores of topline and all, but given the current metrices of your business, it seems that it will come with additional debt or equity outside funding will be required additionally. So what would your comments on that and we would like to hear that, how would you control and bring the cash flows in line to basically keep that under check overall? And ensure that the capex happens to grow.

Narayan Iyer — Chief Financial Officer

Yeah. I happen to inform in my opening remarks that the year ’23-’24 for Privi is going to be a year of stability and consolidation. So when we talk about that, definitely we will, it’s not that we will be shying away from our growth path. But it is more to do with regard to ensuring that we liquidate all the resources that we have at our end, whether it is increasing the inventory or start the commercial production for both or main capex, which started giving us the revenues. So this stems and once this happens, the inventory level will come down. The sales will increase. You will automatically see that the working capital will get generated internally from the business to ensure that we will definitely be able to manage and within the so-called borrowing limits that we have for most of our bankers. And it’s not that it can’t happen overnight.

As I stated that you’ll see such improvements. Drastically, it will be very, very clearly visible, somewhere from the June quarter and more so in the September quarter because it gives us a good six-month sale period of both the products Camphor, which is going to be the season of May to November is something which is there and Galaxmusk also slowly we start selling and Galaxmusk is something that we got good contracts. The sales have started happening around. So all this will help and the inventory that we built up on these two products will start getting liquidated.

We’re not buying new inventory till existing [Phonetic] inventory is liquidated. And as I said, the management led by Mahesh Bhavnani, Mr. Rajan, myself, our Business Development Head, Mr. Harish Raheja, Commercial Heard, Mr. Gopal Mittal, all of us put together are putting in a lot of efforts to ensure that we actually keep this in check. And in fact, Mr. Rajan is just signaling me that he’d like to add a few things on the inventory control and working capital.

Mr. Rajan, you could add something on this.

R.S. Rajan — President

Yeah. Sure. Before I get specifically to the inventory control, I must say that we have a very well informed set of investors who have very well invested into the Company and they are combing our results as well as our financials. And I’m really thankful to them, because with this kind of community, it can form a big strength for us to be on our toes. Your critique and feedback always helps us. And the definitely that point is well taken that we would try to make these investor huddles happen on a regular frequency and not have those gaps.

Now as far as the inventory control is concerned. When you are planning your supply chain, reliability and ensuring continuity of supply becomes very important, because many of our ingredients which go into some of Fortune 500 customers ensure that the production continues continuously and there is no breakage. In order to do that, we have to assess the world situation and sometimes when the world is VUCA, a war on the horizon, we have to ensure that we have to do the buying, sometimes a little more than what is required because we rather err on the side of caution than have any disruptions of supply. Because Privi, as you are aware, has a 25-year old track record of performance. So our customers give us value. It is not only the pricing on which we compete, they give us value because we bring so much more to the table.

And that is why we continue to be a preferred suppliers to almost all the Fortune 500 companies in the business of aroma chemicals and fragrances. So in a nutshell, we have realized that we can today sharpen the inventory control. We have going to make some part of the inventory and ensure that the efficiencies in managing the inventory in today’s VUCA world to be found ways and means to do that. And you will see steady improvement in the ratios of the inventory on the metrics that you apply.

Narayan Iyer — Chief Financial Officer

Thank you, Rajan.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Can we toggle some numbers here as in, can we take the 16% to 18% margin as a sacrosanct margin that we will see next year. Secondly, the INR600 crores of working capital that you just told us on a run rate of around INR1,600 odd crores of topline that would mean around 140 odd days, I think. So if we talk about these numbers, how is the improvement coming?

This clearly translates into the numbers. Can we see 120 days of working capital? Can we see the net — I mean, the 17%, 18% should we take it as a real number that we’ll see on the EBITDA margins. I mean, some help on this will be helpful because we’ve been interacting with you for past three years, and these numbers have been all haywire, that’s the problem.

Narayan Iyer — Chief Financial Officer

Aashish, we have been able to deliver the 16% to 18% of EBITDA margins were almost of a couple of years. And we were — it’s one that in the current year because of the coal costs that data will be not able to get those 17-18% EBITDA margins. It’s not that it’s been haywired. The haywireness started post the VUCA world, coal problem, the coal issue, freight issue and prima facie then subsequently the war starting around. So, it’s been the last three quarters where we’ve not been able to get those numbers.

Second, as I’ve always keep telling all my investor fraternity and many of them have realized that by other operating income, if you are seeing it then you would have also have the detailed balance sheet with you. The forex income that we talk about basically or the Forex gain is nothing but the gain on account of my exports being more than the imports.

So this is basically on working capital space around my realization front that I have an additional forex income. It’s not that it is from some derivative instrument or that I’m making money. So — consider and when we say that EBITDA margins are 16% to 18% that I am watching for and we’ve getting it. I still account this forex gain as a part of my 16% to 18% EBITDA and I very pretty confident and you say, can we take this as word, yes, I am confident and you will see that we’ll be in a position to deliver the 16% to 18% of EBITDA level in the year ’23-’24.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Sure. Thank you so much, sir.

Narayan Iyer — Chief Financial Officer

As far as inventory numbers are concerned, we’ve seen about INR40 crore reduction happening between September and December. As far as number of days when you accounted about 148, 150 days of working capital cycle, you may prima facie see something that is coming down from 150 to about 130 in the year ’23-’24 in fact. Please do remember that we have a wide range of products, so inventory holding automatically increases. Because I have adopting lnd AS as a accounting standard and most of my CST purchasers that I do are ex works basis. The moment you term and classify my purchasers as ex-works, as you know from insurance parlance and from India’s parlance, this needs to be treated as my raw material and hence you’ll see GIT of raw material going up and this forms a part of my inventory and my creditors also go up.

So I cannot say that, 120 days, what you’re looking at as working capital may not be feasible immediately, but you will definitely see a reduction from the 155 days, 160 days, what you have been witnessing in September and maybe in December. That to come down to the original level where we were operating prior to — till about ’21-’22, you will see those working capital cycle coming in the range of about 130 and 135 [Phonetic] by ’23-’24.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Okay, sir. Thank you. So, if the numbers coming to picture and what we are talking gets delivered, I think we will not have many questions to ask next time. So, all the best to you and probably we have a great discussion next time on good numbers, actually.

Narayan Iyer — Chief Financial Officer

Thank you, Aashish. One very wise gentle lady has actually told this as a mantra, she happened to say and she is a very well-known personality in fact. I don’t want to name it. She happen to say that when the numbers are good, no need of any answers, and when the numbers are bad, all answers are of no good.

Aashish Upganlawar — InvesQ Investment Advisors — Analyst

Yeah. That’s true. Thank you.

Operator

So the next question we have is from the line of Mr. Manish. Manish, you may go ahead.

Manish Gupta — Solidarity — Analyst

Yes. Can you hear me?

Narayan Iyer — Chief Financial Officer

Yes, Manish. Good evening.

Manish Gupta — Solidarity — Analyst

Good evening, sir. Thank you for the opportunity. So, basis what about business plan, you think is feasible? What is your expected capex over the next few years? So in the next three years, how much capex are you expecting to do?

Narayan Iyer — Chief Financial Officer

Manish, in fact, it’s good that my Chairman and MD is not hearing you. I just talked about to you that this year, Privi is going to be on a path of consolidating it. So we will be finishing off the so-called balanced capex and try to get the money back into the [Indecipherable] of getting better revenues and better margins before we really embark upon some more new growth or new capex plans that we have. So broadly for the year ’23-’24 if you have to talk about capex, it may not be more than about INR80 odd crores of total capex, which includes maintenance capex and also the capex that — money required to complete some of the other capex that we have done or we have begun on a couple of products on hydrogenation on the boiler that we are going about some infrastructure activities, which are going around which is all sitting in the INR120 crores of CWIP as on December. We would want to first complete all this and get back our ratios, get back the ROE, ROCE, so that all of it looks attractive before we really go for something big on the capex front in fact.

Manish Gupta — Solidarity — Analyst

So, sir, assuming you got to do another INR100 crore of capex next year, that is ’23-’24, so with this gross block, most of your existing products I guess you can take to full potential, right?

Narayan Iyer — Chief Financial Officer

Correct.

Manish Gupta — Solidarity — Analyst

And what would that revenue potential be basis, another INR100 crores of capex this year ’23-’24?

Narayan Iyer — Chief Financial Officer

It should be good enough for us to move closer to the INR2,700 crore to INR3,300 crore mark depending on the prices of most of the finished goods. So that is the broad range that I’ll give, because some of the prices have come down as far as Galaxmusk and Camphor could be, one of you have done the research and which is true that these prices have come down a little bit in the last eight months or so when we initially thought about the prices were a little higher, but this is not something that it will remain at those prices. There will always be inflation and price rise could keep coming about in future. So that’s [Indecipherable]

Giving about that once all these under clauses put about, you could see that we will be in a position to go closer to INR3,000 crore mark.

Manish Gupta — Solidarity — Analyst

So if one is just conservative, can one say that with another INR100 crore of gross block addition, your EBITDA could be anything between INR450 crores to INR500 crores without any capex?

Narayan Iyer — Chief Financial Officer

If we are able to send the entire volumes he’s talking about.

Manish Gupta — Solidarity — Analyst

Yeah. So three years, four years, whatever, with another INR100 crore of capex, you could get to INR450 crores to INR500 crore EBITDA.

Narayan Iyer — Chief Financial Officer

Absolutely, Manish.

Manish Gupta — Solidarity — Analyst

Okay. My next question sir is I just wanted to understand what is the management team’s thought process on leverage. Your current, by my rough math, I think next year, you will generate about INR100 crore of free cash flow, give or take. So your debt next year will be about INR1,000 crores on about INR300 crore of EBITDA. So your debt-to-EBITDA would still be north of three. I mean, what’s the number that you’re comfortable with?

Narayan Iyer — Chief Financial Officer

Ideally, in a year where there is no capex and no borrowing, the management would like to keep its debt-EBITDA levels to less than three. We have done in the past. of even being at 1.8 and 2 and 2.2 and all. You can see those numbers coming in more from our ’24, ’25 onwards where we will be in a better position to sell all our volumes with regard to the new products also. So this is the level that we are looking at to get into at the earliest. And our preferred level will be less than 2.5 [Phonetic].

Manish Gupta — Solidarity — Analyst

And so when you guys do additional capex, what is the payback typically you look for? How many years?

Narayan Iyer — Chief Financial Officer

It’s one plus four. So, one year for installation, our installation is somewhere between 12 months to 15 months and then maybe in about 3.5 years or so. So, overall, I’ll say, one plus four.

Manish Gupta — Solidarity — Analyst

And you define payback at what level, sir? Is it EBITDA, or is it PAT on the project? What financial metric do you use?

Narayan Iyer — Chief Financial Officer

IRR.

Manish Gupta — Solidarity — Analyst

When you say IRR, in four years, whatever money you’ve put in, you should get back.

Narayan Iyer — Chief Financial Officer

Absolutely.

Manish Gupta — Solidarity — Analyst

So in terms of that is cash flow, post working capital investment.

Narayan Iyer — Chief Financial Officer

That’s correct.

Manish Gupta — Solidarity — Analyst

Okay. Thank you. Last two questions, sir. My first one — the second last question is that there’s so many advantages we have. There is the sustainability pitch. There is the partnership model. But when one looks at your margins, this entire element of partnership or the X factor of sustainability is missing. So how does one get the confidence that 16% to 18% will be maintained? Because if this was a true partnership model, if coal costs have increased, if freight prices have increased, if our customers really care about supply security, that should be reflected in pricing increases, right? Otherwise, it’s a bit of a one-way partnership that when our cost go up, we take the hit. But when costs move in our favor, the margins will be capped at 16% to 18%. So when you say that you’re confident that margins will be maintained at 16% to 18%, I don’t understand why that would be so?

Narayan Iyer — Chief Financial Officer

Okay. We were also taken aback with the increase in the prices in the last 1.5 years, 2 years. And that’s the reason that now with fresh negotiations that you which Rajan, myself, my Business Development Head, our Chairman and all of us were part of the so-called negotiations and contracts and all. And we will ensure that as far as possible, we have a back-to-back arrangement with regard to the RM and [Indecipherable].

And secondly, now we have realized and our customers have also realized that it is actually building us and we are not able to really pass it on to that. So we try to put it across that the so-called increase, whether it’s regard to coal or whether it’s regard to the freight expenses will also be looked into on a quarterly or a half yearly basis.

So there has been a shift in the thought process of most of our valued customers. And as I said, quite a few of them have agreed to this sort of a model. Wherein Europe [Phonetic], they also will look into such a steep increases or drastic increases which comes in because of certain uncertainties happening around the world and beyond our control, we will talk about it.

So, Manish, basically, we’ve been involved into these contracts or in these meetings with many of our customers. We as a company, when I am talking about I talk as Privi as a company and for Privi as a company. The confidence level is there that we should be in a position to get back to the 16% to 18% margins, which you’d know that we have been delivering for almost a couple of years prior to the so-called [Indecipherable] in the last three, four quarters that you’re seeing in it.

Manish Gupta — Solidarity — Analyst

And my last question, sir is that could you provide any update on our biotech initiatives? Are we anywhere close to where we can start thinking about commercializing this?

Narayan Iyer — Chief Financial Officer

Still some way, some more research. In fact, it’s in the development level. Certain developments are happening at the biomass, biorefinery thing at the biotechnology front. And it’s not that the biotechnology companies only looking at biomass, biorefinery initiatives. It is also helping us in some of our products that we’re manufacturing currently, which is whether it’s Camphor or Prionyl or we are looking at maybe look at Bentall, that whether we are in a position to develop niche like our products on the — so that this has a different value, different pitch. So the biotechnology is also working on such brands. And as and when certain breakthrough is there, definitely my colleague Ashwini and we at the management will be putting in forth to the investors the highlight of the [Indecipherable].

Manish Gupta — Solidarity — Analyst

Okay, sir. Thank you very much.

Narayan Iyer — Chief Financial Officer

Thanks, Manish.

Operator

Next, we have a question from the line of Mr. Rajesh Singla.

Rajesh Singla — — Analyst

Yeah. Hi, sir. Can you hear me?

Narayan Iyer — Chief Financial Officer

Yes, Rajesh. Good evening.

Rajesh Singla — — Analyst

Yeah, good evening, sir. Thank you, sir. Thank you for the opportunity. So if I heard you correctly, maybe you can change if that is not right. So your current fixed asset base enables you to generate revenue of INR2,700 crores or INR3,000 crore kind of level, right?

And for the next year, you are saying that you should be able to achieve 60% utilization for your new capacity and you’re already operating at full capacity for your existing plant. So how should we think about like just the 13% to 17% growth in 2024. Can we say that there will be kind of a significant increase in revenue in FY25, assuming things remain stable. So that is the first question.

And the second would be when we look at the coal prices in the freight prices, these coal prices have also fallen substantially in the last few months and freight prices are now pre-COVID level. So shouldn’t we benefit significantly from these two factors itself in FY24 and FY25?

Narayan Iyer — Chief Financial Officer

Yeah. So, Rajesh both your questions are very pertinent. In fact, post capitalizing the so-called new INR100 crores of gross block and all my existing current gross block, it will definitely lead to a INR2,700 crore to INR3,000 crore of revenue, which may come about in the next, say, two, three years or so. When we talk about I did mention that today in the specialty chemicals per se, the offtake is not there. So that continues to be low. So it is not that I am operating at 100% capacity of the specialty chemicals.

Second, with regard to the pine-based products, one of the investor happen to do mention that it’s been [Indecipherable] world across. So that we also finding it difficult to possibly sell and compete globally, especially in the smart buckets. So I’m not exactly saying that my existing product range is selling at 100% capacity. So we also did witness a slowdown in the period between June to December. And so, it’s not that I’m selling at 100% of the capacity of the so-called pine or citral based or phenol-based products.

But confidence comes in that. We see that there is going to be a growth of about 13% to 17% in the current year. And overall, as we keep growing and with entire utilization of my capacities once in flow and we are able to sell everything, including the specialty chemicals. We definitely can achieve the so-called INR2,700 crores to INR3,000 crores of revenue with another INR150 crores of gross loans getting added to the current levels.

Rajesh Singla — — Analyst

Okay. Maybe just to refresh my memory about the competition from China, like other chemical companies are facing margin pressure as well as high inventory destocking. So it seems like your EBITDA margin did improve in the December quarter and you are probably a bit more better placed than the other chemical players, given your unique positioning in the sector. So can you please confirm whether the China is not as major risk as it is for the other companies?

Narayan Iyer — Chief Financial Officer

China is definitely a risk for me in the spot markets. I can’t discount China not being my competition. But as I said, we basically depend on a lot of this global MNCs for our volumes with whom we have a very good relationship which we have nurtured and we have built up over the last 20, 25 years or so. And they definitely would like to have relationships with us with companies who follow ethical practices and environment-friendly norms have holistic and sustainable measures will follow the UN guidelines with regard to eliminating more of the carcinogenic chemicals in the finished products. So this is the advantage that, I have as compared to China.

And secondly, as I said, we also have the CST refinery capacity, which is not there with the Chinese competitors or which are of Indian peers here and that gives me an advantage when it comes to giving the so-called volumes.

Rajesh Singla — — Analyst

Okay. Maybe one question on in terms of the debt reduction part, so I did hear your comments here earlier. So any timeline which you can suggest that we will be able to reach — we will able to reduce our debt substantially going forward.

Narayan Iyer — Chief Financial Officer

So in the next two years, you will see debt to be significantly lower than what it is today because quite a few of my term loan repayment will also happen. My working capital cycle will improve from the so-called 155, 160 days that you’re seeing currently. It will go back to the normalcy of around 125 days to 135 days with higher revenue coming in and setting around. Definitely you will see better realization happening around cash getting generated internally.

No new fresh capex that we are planning, at least from our borrowing transactions in the near future of one to two years. So this will enable the Company to become much better as far as the debt to EBITDA or debt-to-equity ratios are concerned. And we will keep improving and you will see that our debt-EBITDA level maybe about 15, 18 months time comes to less than 2.5 the ratio, which is considered to be good enough.

Rajesh Singla — — Analyst

So maybe just last question from my side would be, so how much is the spot and contract mix currently and where should we see it going forward? Because I believe last year in your conference call, you mentioned that in the beginning, you will explore the spot market for the new products, new plants, but as you gets settled with the new plant and you will enter into the contract market with those plants. So what is the spot versus contract mix as of now and where we should see it in the future?

Narayan Iyer — Chief Financial Officer

Broadly speaking, with all our products that we have barring Camphor, because Camphor still is more a spot market business, because India does not believe in long-term contracts. So this all my Indian players or the Indian manufactures of aroma chemicals and Camphor customers in fact, they all believe on spot markets. It’s a global MNC players who give the volumes and the contracts, where the contracts are prima facie fixed for a period of one year and some other global players also fix it up for the six-month period.

If I had to talk about exact numbers on a steady state, you will see that it will be a ratio of about 65% to 68% of contractual business and about 30%, 32% on the swap markets, and that’s been our trend. Sometimes it is 55%, sometimes it goes to 60%, but ideally most of the years, we have always ensured that we get 65% of our sales that we do on an annual basis to be contracted.

Rajesh Singla — — Analyst

Thank you, sir, and best of luck. And I believe the exceptional circumstances which we faced in last one and half year are over. Hopefully, we’ll see better days ahead for Privi. Thank you very much.

Narayan Iyer — Chief Financial Officer

Absolutely. I did use the word that this quarter there is a one-off quarter for Privi. And please do not judge me from only this particular quarter numbers. So Rajan happened to say that Ashwini has told it and I’m also saying the same thing that you know don’t judge Privi with just one-off quarter. And you have seen historically, we have been growing. You’ve seen those numbers happening around. You’ve interacted with our MD. You’ve interacted with quite a few of us. Many investors who have come to our factory have interacted with all our seniors also there.

So we are a long-term player, committed player, one of the largest aroma chemical manufacturing companies of the world, and we have put actually aroma chemicals on the global map also. So that’s Privi that we talk about. And our Chairman and MD, Mr. Mahesh Bhavnani, he is so passionate about aroma chemicals that he only sleeps, eats and dreams about aroma chemicals. So based on that, I’ll just say that not to worry too much, and we will be back and we’ll be back in good time.

Rajesh Singla — — Analyst

Thank you very much, sir.

Narayan Iyer — Chief Financial Officer

Kamlesh, do we have time for more or…

Operator

Sir, we have couple of questions. Just we’ll wrap-up in another…

Narayan Iyer — Chief Financial Officer

I’m open for that.

Operator

Sir, the next question is from the line of Mr. Vishal Saraf. Vishal, you may go ahead.

Vishal Saraf — — Analyst

Hi, sir. If you can just give some update on the Givaudan JV. How was that shippable [Phonetic]?

Narayan Iyer — Chief Financial Officer

Yeah, we have already filed for an application for the environment clearance to inform the investors we have got a consent to establish from the government agencies. So the next step is to get the EC permission, which is very important for any greenfield company which is manufacturing chemicals. And I will ask Mr. Rajan to give more updates in fact though I have the complete update, but he is very passionate about [Indecipherable] because he is an important person at that.

So, Rajan, all yours in fact.

R.S. Rajan — President

Yeah, thank you. On the [Indecipherable], we are on course as my colleague said on the permissions the process is on. But behind the scene work for the technology transfer and for the alignment between the two technical teams and also to look at the process of commercialization, all those processes are going as per the schedule. So at this point in time, we intend to manufacture 40 of the products. And out of that, we have already completed the technical transfers, we are almost 50% of that and it continues. So their teams are visiting here, and our team has also visited them there. So we have some intense reviews almost on a bi-weekly basis, and it is very measured and granulated. So it’s good news and everything is on course as far as the JV is concerned.

Narayan Iyer — Chief Financial Officer

Should we expect, once we get the EC permission, Vishal, which it’s a government thing where our team is working day and night. So once the committee sits in and the proposal is formulated, we can then start the actual build-up of the factory which should take about a year’s time or so, post getting the EC permission to build up the factory and then you can see some sales starting from ’24-’25 onwards, if that’s the question that you had in your mind.

Vishal Saraf — — Analyst

Yes, sir, absolutely. So that is what I’m saying to understand. So when can we start — so next year, we can we start construction and year after that, which is ’25 you’re saying we should see revenues start coming in, is it?

Narayan Iyer — Chief Financial Officer

That’s, right.

Vishal Saraf — — Analyst

And by the time we would be — so when should we start? We’ll start with a large number of products out of this 40, or you will start with just one, two of them and the ramp-up is likely to be slower. How does it work?

Narayan Iyer — Chief Financial Officer

The way it work is that we will start with about 20 odd products and then it will ramp up. And obviously, it is dependent on the patterns of consumption also. But we will have to go through the first year of production to see how the year next will follow. Because this is a JV which is churning out for the first time, though the products are very well-known to our collaborator and our JV partner. But we have to do it for the first year and we are very confident because so far, they have been very, very happy with the results that they have been getting from our technical team in terms of adaptation, understanding and also value-add for the technology.

Vishal Saraf — — Analyst

Okay. And any numbers you can see, any change in the capex numbers or any update on capex numbers for this as well as any revenue potential you are looking at initially?

Narayan Iyer — Chief Financial Officer

Well, revenue potential, it is largely going to be more of an internal consumption between us and our JV partners. So as far as the revenue consumption is concerned at this point of time, I would not like to speculate, but I can give you visibility closer to the time when the factory starts churning out because the price of the denominator of the situation prevailing at that point in time. But I can only tell you that since there is a confirmed order, we will be able to get the best margins possible in those specialty products. And as far as the capex is concerned, yes, it has had marginal inflationary increase with some of these steel and cement prices and all going up and that we had already factored in. So we had a contingency, which was already provided for anticipating some of these increases and we are well within that. So we are running a tight ship.

Vishal Saraf — — Analyst

Okay. Thanks a lot.

Narayan Iyer — Chief Financial Officer

Thank you, Vishal.

Nilesh —

In the interest of time, we’ll bring this webinar to an end. And I would like Mr. Narayan to have us closing remarks forward by vote of thanks by Mr. Kamlesh.

Narayan Iyer — Chief Financial Officer

Okay, thank you and thank you all my investors who have joined in this call. And I have been told by Kamlesh that there has been good response from all of you joining in. And I can only say that, Privi is committed to delivering what we strive to achieve aboard and what we informed our investors. And we have always believed in growth and we will continue on the part of growth. We will also ensure that’s about the hiccups that we had in the last 9-12 months or so, we overcome such hiccups. There will be no such inventory build-ups or no longer working capital cycles, be prudent on the borrowings. These were beyond our control, such as happened about because we never anticipated COVID to set about when we actually started embarking about now INR600 plus crores of capex about three years ago. And all the details much has been said about there have been reasons.

Most of the investor calls have been very transparent enough in bringing out such reasons. And that is the reason that we also took quite a few of the investors to our factories to see what we’re talking about is actually shaping up. And it’s all there, it’s a matter of time that such huge investments will start generating a renewal and generating margins and you will see us to be and yourself to be in better light and in better times. And you’ll see that Privi is — it is back and the commitment that we keep talking about growth in the sales, growth in the so-called EBITDA margins will always be then.

Thank you, everyone. And Kamlesh-bhai, all yours. And I thank Kamlesh-bhai and [Indecipherable], really helping us around in setting up this webinar with all my investors and we will do that so more often once again. Kamlesh-bhai, yours.

Operator

[Operator Closing Remarks]