Punjab Chemicals and Crop Protection Limited (PUNJABCHEM) Q2 FY23 Earnings Concall Transcript

Punjab Chemicals and Crop Protection Limited (NSE:PUNJABCHEM) Q2 FY23 Earnings Concall dated Nov. 07, 2022

Corporate Participants:

Shalil Shashikumar Shroff — Managing Director

Vinod Gupta — Chief Executive Officer

Sriram Swaminathan — Chief Financial Officer

Analysts:

Manish Mahawar — Antique Stock Broking Limited — Analyst

Hemant — ITI Mutual Fund — Analyst

Amar Mourya — AlfAccurate Advisors — Analyst

Pritesh Chheda — Lucky Investments — Analyst

Anurag Patil — Roha Asset Managers — Analyst

Bhavesh Chauhan — IDBI Capital — Analyst

Ayush Agarwal — Mittal Analytics — Analyst

Keshav — Veraxon Investors — Analyst

Deepak Poddar — Sapphire Capital — Analyst

Ankit Gupta — Bamboo Capital — Analyst

Harsh Bahria — Private Investor — Analyst

Rajesh Jain — NB Investments — Analyst

Nachiket Kale — Orient Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Punjab Chemicals and Crop Protection Q2 FY’23 Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar. Thank you, and over to you.

Manish Mahawar — Antique Stock Broking Limited — Analyst

Thank you, Mike. On behalf of Antique Stock Broking. I would like to welcome all the participants on the call of Punjab Chemical and Crop Protection. From the management, we have Mr. Shalil Shroff, Managing Director; Mr. Vinod Gupta, CEO; and Dr. S. Sriram, CFO on the call. Without further ado. I would like to hand over the call to Mr. Shroff for opening remarks, post which we will open the floor for Q&A. Thank you, and over to you, Mr. Shroff.

Shalil Shashikumar Shroff — Managing Director

First of all, thank you so much for all of you getting your time to attend to our Q2 call and I hope the Diwali was very good. I’ll hand over to Vinod, he will just give you a brief run through on the Q2 results and the business of Punjab Chemicals.

Vinod Gupta — Chief Executive Officer

Good morning, everybody. This is Vinod Gupta, CEO of Punjab Chemicals. First of all, welcome all of you to this Q2 earning call, and hope all of you had a good festival time and wish you all a very happy New Year as we call in Gujarati. Q2, basically if you see, we have had a monsoon, which was slightly erratic, which basically has had a challenge on domestic agricultural market. Obviously, there has been — this is combined with the global macro issues like high energy prices, inflation challenges in major economies, and also in some economies, there is a slowdown, which has resulted into a very challenging business environment. Despite all the challenges, I am very happy to report that we have grown our top line by about 33.4% as compared to Q2 of FY’22. And our export sales that is international sales have grown by about 65% over Q2 of FY’22. So we have shown a robust growth despite all the challenges.

The business environment, we have lot of headwinds right now. In order to meet these headwinds, we have adopted a very flexible approach to business to make sure that we sustain and increase our market share working very closely with our customers. Now this has been achieved mainly by adopting a very flexible approach and accommodative approach on pricing. Also, we have accelerated efforts towards improving our efficiencies, technology improvement and we have worked aggressively to tap new markets also, mainly South America.

We also continue to build our organization capabilities in terms of bringing in new talent, bringing in new technologies and also we are increasing our capabilities in operations and product development. These are all long-term initiatives, basically to create robust and growth-oriented organization. While our business continues to remain resilient despite all the challenges and external shocks, our margins have been affected as you must have seen in the results. This is mainly because of inflationary pressure on raw material cost, pricing pressure in certain markets and overall product mix. At the same time, there was an impact of carryover of high cost inventory from earlier period and this is basically getting translated to market and this has exerted pressure on gross margins. Consequently, our EBITDA margin also is subdued mainly because other expenses like energy cost, fuel cost, freight cost and also business expenses as things have opened up, we have started traveling to various markets to grab more market and more products.

We will continue to invest to — sorry, we have continued to invest in — to increase our capacity of some of the products and also we are aggressively investing in renewing our assets, because some of our assets are 30, 40 year-old so that we basically make sure that business is sustainable and this is all funded by internal accruals. We are maintaining a clear two-way communication with our teams and channel partners and joint effort is made to improve our margins. We have immense confidence in the strong trusted relationship we have developed with our customers and channel partners.

So that’s a broad outlook of business and business scenario for the Q2. I hand over now Dr. Sriram to proceed to walk you through more financial numbers.

Sriram Swaminathan — Chief Financial Officer

Hello, everyone. Good morning. Thanks for connecting with us on this call today. I’m Sriram, CFO for Punjab Chemicals. I will just briefly summarize our financial performance for the quarter. As we know that — we continue to show robust growth in revenue as our Q2 FY’23 revenue increased almost 33.4% year-on year to actually to INR278.6 crores. The trend has been very positive for the year so-far. Our H1 for the current year revenue is close to INR550 crores, which is 31.2% higher than last year H1 FY’22. Our international business has, as Mr. Vinod said, also is growing or increasing tremendously, we achieved close to 65.7% as compared to last year the same period.

One of the main concern as we face the challenge of various global dynamics, our gross margins are under some pressure on the raw material front leading to drop in the gross margin, which stands at around deliver 35.5% in the current quarter as compared to last year’s quarter. EBITDA has been slightly or relatively flat in the current year while the margins are lower. We have registered an EBITDA of INR31.1 crores with 11.2% of EBITDA margin in Q2 FY’23. For H1, our EBITDA stands at INR66.5 crores, which is around 12.1% of the EBITDA margin. PAT for Q2 is around INR17.6 crores. And in the half year, we have touched around INR37.8 crores.

While our profitability is down in the first half, we continue to follow prudent financial practices to achieve our strategic growth and objectives and to meet the customers’ expectations. With this, I will end my review. We will look forward to an improved outlook in the second half. We can now open for our Q&A. Thank you.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Hemant [Phonetic] from ITI Mutual Fund. Please go ahead.

Hemant — ITI Mutual Fund — Analyst

Hello. Hello.

Shalil Shashikumar Shroff — Managing Director

Yes we can hear you.

Hemant — ITI Mutual Fund — Analyst

Yeah, thank you. Just one question. Again on the gross margin and if you can enumerate because in the last conference call you had mentioned that we are already in discussion with our customers to ensure that we can pass on either energy cost or the raw material cost. But this quarter seems to be another kind of sort of watershed in terms of non-ability to pass on margins or any cost pressure or costs whatsoever. So, if you can comment how are we kind of communicating with because here it appears that we have not been able to pass any margins whatsoever. That’s question number-one.

And question number two on capex, you mentioned that you would be undertaking to replace some of the old machinery. So, how much of the — how much of the amount are we likely to kind of expend to kind of replace our machinery? If you can just comment on both these.

Shalil Shashikumar Shroff — Managing Director

Yeah. So, hi, Hemant. This is Shalil. Thanks for your question. And yes we did mention in our Q1 call that we are in discussions with the customers but please understand the market scenario over the war situation over the cost of fuel have little bit changed. So I would comment that we are still discussing with the customers, the customers, for Q2, partly few customers have agreed to absorb that cost, few of the customers have not, but we are in constant discussion with them and we are very hopeful that by Q3, Q4 we will be able to understand and they will also respect to see that the costs are high, also please understand that we have also tried to ensure that we don’t lose our market share, so in certain things between the customer and as we have worked out a win-win situation to where we reduced some of our costs, they reduced some of our costs so that we at least come to reasonable market and at least we fill the market where the gap is not there.

As regard to the capex, which as Vinod did mention that yeah we have certain equipments, we have certain of our utilities where we need to put in some money so that we are already working on, we have tried to ensure that all these come from internal accruals as we have been very robust in our cash flows, so at the moment we don’t have a figure but eventually we will definitely get back to you, but it would be in the range of between INR30 crores to INR40 crores.

Hemant — ITI Mutual Fund — Analyst

This would be for this year or for next couple of years?

Vinod Gupta — Chief Executive Officer

INR30 crores to INR40 crores is over two years, so from now till FY’24.

Hemant — ITI Mutual Fund — Analyst

Correct and just going back to the first part, can you just break it down how much high-cost inventory are we still kind of carrying? Number one. Number two. In any of our negotiations or contracts, is it only a volume contract and there is no price pass-through whatsoever? And number three, also if you can help us understand, do the contracts also carry plus-minus variation for forex, so beyond a certain range, does it carry forex variation also?

Shalil Shashikumar Shroff — Managing Director

So as regards to forex, as you know that our import-export is quite equally balanced because our export is anyway higher. As far as the customer goes, yes, we do have every quarter we look at the numbers on forex, so by and large, if you have seen in Q1 or Q2, it’s not that the company has lost so much money on — just because of forex. As regards to higher inventory, at the moment, between Q1 and Q2, we have almost liquidated our high-cost raw material which we had got. Having said that, we are also discussing with the customers that how do we see that the certain cost of energy — especially energy, how we can pass on. So as I mentioned earlier, that we are already in discussion with them and we are hopeful that we’ll be able to once again sit on the table and take this forward with the customers. So we are pretty confident that they also understand because please understand that the customer also would like supply chains to be strong and that’s why we’re trying to demonstrate to them that yes we are very strong, we are ready to work with you, we are ready to take certain haircuts, but on a more on a longer-term we need to come back to where reality comes in.

Hemant — ITI Mutual Fund — Analyst

So, what would be — in light of that, what would be the more sustainable EBITDA margin that you can guide for at this point in time?

Shalil Shashikumar Shroff — Managing Director

So right now, we are trending which we believe we would be between 14% to 15% but we are right now between around between, 13% to 14%, so I think going-forward towards this financial year, we should be within this range.

Hemant — ITI Mutual Fund — Analyst

Eventually, you are saying that we will recoup and 14%, 15% would be the exit EBITDA multiple that you can hope to regain?

Shalil Shashikumar Shroff — Managing Director

Absolutely and then of course as I have always mentioned that we are also looking at more business opportunity, there are more contracts. So when the product mix comes in, that’s why we believe that we will go beyond that to maybe between 15% to 16% by 2024-’25 and then thereafter we have certain projects, because please understand in agri every contract, every product we do there is a gestation period for registration, that can be between 90 days to close to one to two years out, so that’s where we are working. In important markets especially as the statement said that we are looking at South America very aggressively, especially Brazil where the registration takes time and we are already — our papers — our files have already gone in and we are hopeful that by ’23 we should maybe — late part of ’23 we should have that registration.

Hemant — ITI Mutual Fund — Analyst

And lastly if you can allow me just one more interjection —

Operator

Hemant, would you kindly come in queue —

Hemant — ITI Mutual Fund — Analyst

No, this is a continuation of the same question only. In the power cost, we are dependent on a particular kind of fuel, so this capex would go towards making it more multi-fuel, is that understanding correct?

Shalil Shashikumar Shroff — Managing Director

No, I think we will continue to use the same fuel, it’s — we are using rice husk as a fuel which is a sustainable renewable fuel for us and that gives us an advantage with customers also over a period of time —

Hemant — ITI Mutual Fund — Analyst

[Indecipherable] have gone up, that is what has kind of hurt us in this quarter or maybe last two quarters, it has been hurting us, so would we change to multi-fuel so as to enable more —

Shalil Shashikumar Shroff — Managing Director

Listen, Mr. Hemant, I think if you look at the complete fuel basket, market has turned very smart because of the information which is getting disseminated easily, so husk prices are linked to coal prices, so I mean all other fuels are also in the similar range, as and when suppose — suppose in future, CNG becomes available in that range in that area, we will definitely consider, but right now that is not available. So at the moment, I think we are at that particular — we will — we are at with husk only, also as the government policy to procure rice changes, we believe that gradually husk availability will again improve. As that improves, prices should soften. We are watching the market closely is what we can — what I can say.

Hemant — ITI Mutual Fund — Analyst

Great. Thank you so much. Thank you. I’ll come back in the queue.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Amar Mourya from AlfAccurate Advisors. Please go ahead.

Amar Mourya — AlfAccurate Advisors — Analyst

Thanks a lot for the opportunity. Couple of questions. Number one, sir, even in this quarter, the Lalru’s utilization is round about 52%, 53% only, so last quarter you indicated that there was some RN nonavailability issue. So that is number one. I mean why the utilization is low even in this quarter? Should I go for the second question or you want to answer it?

Shalil Shashikumar Shroff — Managing Director

No. I think let’s take one-by-one, so as far as Lalru, yes, the raw material is it still a question mark and please also understand that because of seasonal, there has been a delay, so the product which could have fulfilled that part of the sales has been deferred, that doesn’t mean that the order book is canceled, the order book is just deferred to Q3, Q4.

Amar Mourya — AlfAccurate Advisors — Analyst

So basically. So Lalru’s utilization will come back to, let’s say, 74%, 75% level in, Q3, Q4?

Shalil Shashikumar Shroff — Managing Director

That’s, right.

Amar Mourya — AlfAccurate Advisors — Analyst

Okay, secondly, sir. In terms of the revenue visibility like we normally give the number of INR1,500 crores kind of order book in terms of the revenue visibility and I believe you know in last two, three quarters, we had been in discussion with many new clients, new products and all those things, so is that INR1,500 crore order book number have improved materially or it is still the INR1500 crore number?

Shalil Shashikumar Shroff — Managing Director

No the INR1,500 crore order book was for the three years, so beyond that of course we have already signed few more contracts and I did mention that during Q2 call, we’ll come back with some numbers but as there has been certain delays, there has been certain market rectification, so we are working back on our books, but as far as moving forward, yes, the INR1,500 crores has increased to INR2,500 crores in which we will definitely come back to you in terms of what are the projects which are coming in and how they will flow in between the next two to three years.

Amar Mourya — AlfAccurate Advisors — Analyst

And, sir. In terms of the plant level. I mean. Is there any technical issue why the utilization is not coming or is this just RM issue. I mean.

Shalil Shashikumar Shroff — Managing Director

No as I said that as regard to the Lalru part that it was the RM issue, number one. There was also a delay in registration and by the time we got the registration, the market for that particular country was delayed in terms of usage, so as I said that the order book is there, it’s only that it will flow in Q3, Q4.

Amar Mourya — AlfAccurate Advisors — Analyst

Okay okay and sir, lastly like, you know. I have requested couple of times the management that why don’t we plan client visit for both of our facilities. And then for all the investors not only for us.

Vinod Gupta — Chief Executive Officer

Well yeah as it is the question you have been talking on this for quite some time, we will work something out of how to go over that because as you know that we are in a very hazardous kind of a manufacturing setting so that’s the reason management wants to have a very safe environment there, so that’s the reason we are kind of reluctant to take your advice but your point taken we will look into it.

Shalil Shashikumar Shroff — Managing Director

We will definitely work out, in fact, we had — because COVID has opened up, so we have had a lot of visitors coming to us auditing because from Japanese to European to an American, they have not come, so in fact, me and Vinod have been juggling around how to get then properly balanced even this week we had three Japanese companies visiting, next week we have Israel visiting — visit us, with so we will definitely look into it and we will definitely plan it during December, because December the weather is also nice in Chandigarh and we will organize it probably to have this, so we will come back to you shortly soon with this reply.

Amar Mourya — AlfAccurate Advisors — Analyst

Sure sir. Thank you.

Operator

Thank you. We have the next question from the line of Pritesh Chheda from Lucky Investments. Please go ahead.

Pritesh Chheda — Lucky Investments — Analyst

Yeah sir, am I audible?

Shalil Shashikumar Shroff — Managing Director

Yeah.

Pritesh Chheda — Lucky Investments — Analyst

Sir. I wanted to check on two things. The revenue — absolute revenue number is doing very well, just wanted to understand what is the progress on CRAMS within the — that in the half yearly basis because that’s the biggest growth driver for us. And when. I have to understand the gross margin which of the business area is the gross margin pressure coming from, because. if our growth driver was CRAMS and CRAMS is where we — was a higher-margin business and more back-to-back, so in order for our better understanding if you could give slightly more detailed assessment on which part of the business is seeing gross margin pressure?

Shalil Shashikumar Shroff — Managing Director

Yes, as far as the CRAMS business goes, as you know, Punjab Chemicals, we are the leading supplier and we want to be one of the leading supplier to many multinational companies and this robust growth is there, every day there is inquiry, every day we discuss with various customers with the existing as well as new, so that business will be definitely the driver towards — moving forward. Also what we have done is that there are — in the next couple of years, there are lots of products which are getting off-patent, so our. R&D is now pretty strong, so we are also looking at innovation within ourselves that what our R&D can bring in products where we don’t only rely on the CRAMS which of course is the driver but also within ourselves what we can do for both international and domestic markets, so that’s where the second driver will come in.

As far as the margins are concerned, as we have already said that there is a pressure from both market as well as between us and the customers, so that’s where we have discussed and sat with them that we don’t want to lose the market, but let’s try and rectify in both areas where we as a supplier and they as customers how we can work as a win-win situation and that’s where you have seen there is some pressure on the margin because certain raw material prices if you see over the years have gone very, very high and gradually that dip is coming in, so we are very hopeful moving forward things should fall in place.

Pritesh Chheda — Lucky Investments — Analyst

Sir, my question was which part of the business, any specific part of the business seeing margin pressure, because see we are — we have domestic ag chem supply, then we have the export within which we have CRAMS and then we have the cola company supply, any part of the business seeing gross margin issue or it’s across the board?

Shalil Shashikumar Shroff — Managing Director

I would say if you see our phosphorous or the phosphorous derivatives which we supply within Coca-Cola Pepsi and others so that’s where we have had a little bit of pressure because at that time China was not very aggressive but again having said that the policy which many companies have adopted that they also would like to have a second source and we are part of it, so that’s where we have seen a good margin drop and we believe over the next quarter or maybe beginning by next year we should not go back to where we were but we should come between that 16% to 18%. As far as agri, in the domestic market, there has been a little slowdown, so that’s where the margins have also been in pressure, but by and large, internationally with our CRAMS customers within Japanese, European, it’s quite fair only where on a product-by-product depending on the market, depending on that situation to grab that market we have put it down, so on the CRAMS. I would say, close to 20% where we have taken a little bit haircut on the margin but we are pretty sure that we’ll go back to the numbers which we have been talking about.

Pritesh Chheda — Lucky Investments — Analyst

This was helpful, sir. The 14% margin that you mentioned to one of the participant for FY’23, 14% to 15%, so you recover a bulk of your margin in H2, that’s what you want to point out?

Shalil Shashikumar Shroff — Managing Director

No, so today, what I’m trying to say that that’s where was our plan but because of the cost high and the raw material situation, we believe we should achieve that but. I would put it will be between, 13% to 14%.

Vinod Gupta — Chief Executive Officer

Sorry. I will add one more point. I think what we’re saying is that as a sustainable effort, but your efforts towards get going through sustainable of 14% to 15% and maybe slightly higher. Now, yes, in the interim period, if there are some adjustments required, that will continue.

Pritesh Chheda — Lucky Investments — Analyst

And sir last, if I have to track the CRAMS progress, I have to track the Lalru capacity utilization, is it correct or am I wrong here?

Shalil Shashikumar Shroff — Managing Director

Yeah. I mean you can because we have also space in Derabassi as well as Lalru, so yeah, eventually, it would be — the larger part would be from Lalru.

Pritesh Chheda — Lucky Investments — Analyst

Thank you very much. All the best.

Shalil Shashikumar Shroff — Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Anurag Patil from Roha Asset Managers. Please go ahead.

Anurag Patil — Roha Asset Managers — Analyst

Thank you for the opportunity. Sir, over the medium term, earlier we have guided 16% to 18% EBITDA range, so are we still holding on to that or is there any downward revision?

Shalil Shashikumar Shroff — Managing Director

No,, I mean as I said that, that is where we will eventually be there with the new products and the new business coming in. As I said that in the registration process has been a little bit delayed, so we believe our approach is to go back to that — I mean, to target at that 16% to 18%. Only thing is ride is a little bumpy, that’s all I can say, so we may see some bumps in between but we are working in that direction.

Anurag Patil — Roha Asset Managers — Analyst

But the target is still FY’25 or it is beyond ’25 you’re saying, sir?

Shalil Shashikumar Shroff — Managing Director

I’d say FY’25,

Sriram Swaminathan — Chief Financial Officer

’25, ’25.

Anurag Patil — Roha Asset Managers — Analyst

Okay sir, that’s it from my side, thank you very much.

Operator

Thank you. We have the next question from the line of Bhavesh Chauhan from IDBI Capital. Please go ahead.

Bhavesh Chauhan — IDBI Capital — Analyst

Sir, can you give us the volume growth that has happened in Q2?

Shalil Shashikumar Shroff — Managing Director

In volume in terms of product?

Bhavesh Chauhan — IDBI Capital — Analyst

Yeah, yeah, sir, absolutely.

Shalil Shashikumar Shroff — Managing Director

Yeah so on the agri sector especially in the herbicide and fungicide sector, we have grown as, I said to get newer markets where especially in Latin-American Block, South America.

Bhavesh Chauhan — IDBI Capital — Analyst

So but is it possible to quantify how much — the sales growth was very strong but between volumes and price if you could —

Shalil Shashikumar Shroff — Managing Director

If you have to compare like-to-like we are about 15% growth.

Bhavesh Chauhan — IDBI Capital — Analyst

Okay and sir do we still maintain iNR1500 crores of sales guidance for FY’24 that you’ve been talking about?

Shalil Shashikumar Shroff — Managing Director

Yes, yes, very much, maybe beyond that also.

Bhavesh Chauhan — IDBI Capital — Analyst

Okay and sir, beyond that, you were actually in the previous quarters you’ve been saying that we’ll come out with a plan to talk about the sales growth beyond FY’24. So when can we expect that?

Shalil Shashikumar Shroff — Managing Director

Yeah so as I said that we were planning to, I mean, roll it out in Q2 but we should be anywhere between before Q3 or Q4, we’ll do that.

Bhavesh Chauhan — IDBI Capital — Analyst

Okay and sir lastly, we had said the margin was impacted because of high-cost inventory and I think I believe that the commodity prices have more or less come off in the last three, six months, so we are likely to see significant margin improvement in Q3, right?

Shalil Shashikumar Shroff — Managing Director

Yes.

Vinod Gupta — Chief Executive Officer

I mean I think the statement that commodity prices have come off, it’s not actually 100% correct because each commodity is behaving differently depending on international market. So. I think that’s where we see changes from time-to-time but overall I think this we will see advantage of any price correction in our margins.

Bhavesh Chauhan — IDBI Capital — Analyst

Okay, great, thanks a lot and all the best.

Operator

Thank you. We have the next question from the line of Ayush Agarwal from Mittal Analytics. Please go ahead.

Ayush Agarwal — Mittal Analytics — Analyst

I hope I’m audible.

Shalil Shashikumar Shroff — Managing Director

Yes, we can hear you.

Ayush Agarwal — Mittal Analytics — Analyst

Thanks for the opportunity sir. Sir, couple of questions from my end. One is, if you can talk about our [Indecipherable] has been very bullish about like the Singapore customer [Indecipherable] to products like [Indecipherable] and [Indecipherable]. How are they scaling up?

Shalil Shashikumar Shroff — Managing Director

Sorry, yeah, so the product which we do for MK, that product as you know that the gravity of the business is much higher but registration is as and when the registration are falling in place, so we believe the potential of this product which we believe would have come this year, unfortunately because of the COVID and certain delays in few markets the registration has been delayed, so we believe the full potential should come in between ’23, ’24.

Ayush Agarwal — Mittal Analytics — Analyst

And the other product sir, for Singapore customer?

Shalil Shashikumar Shroff — Managing Director

With that also, as we said, the registration came in late by the time the season was deferred and there also would fall in during ’23, ’24.

Ayush Agarwal — Mittal Analytics — Analyst

Understood. And sir, my second question is on our expansion, so I think at Derabassi, we are already running at 85% plus capacity and you’re talking about a huge order book jump. So what kind of capacity are we creating apart from doing the replacement of our current assets, so if you can clearly explain to us in metric terms how are we expanding our capacity over the next two years and what capacity expansion are we envisioning?

Vinod Gupta — Chief Executive Officer

I think overall what approach we are taking is that for Derabassi, because a lot of products are matured products, so we see year-on year rate of growth of, say, 5% to 7%, so that capacity we are simply increasing by debottlenecking, so maybe changing some equipment, improving some processes and all, so that’s where Derabassi will continue to add capacities depending on the market requirements. Majority of capacity addition will come from Lalru, that’s where we have a space also for expansion and that’s where we have actually invested in last quarter also in one of our products, that particular product has a very bright future going forward and that’s where our capacity additions will come. I won’t like to quantify in terms of metric ton because that’s something where we don’t want to sort of — mainly because of the confidential reason, we don’t want to just to comment on that.

Shalil Shashikumar Shroff — Managing Director

And also please understand that, moving forward, today, at the end, our aim is to cross INR3,000-plus crores in terms of sales in the next two to three years. So that’s where we are also looking at a site within Maharashtra or Gujarat so that’s also been happening. Fortunately, we had looked at one place which we were ready to sign off but unfortunately there were certain issues where our legal department did not allow us to go ahead with it. But we are hopeful that within this financial year, we should be able to identify and that would definitely bring in more, because the way we are getting inquiries, the way we are discussing with our ongoing and new customers every day, we believe this could be a opportunity where we need to take it fast and then commercialize into production.

Ayush Agarwal — Mittal Analytics — Analyst

So, fair to assume that we would be spending more — close to INR120 crores in the next two, three years on expansion in Lalru and the new facility?

Shalil Shashikumar Shroff — Managing Director

Maybe little more. It depends on the product, depends on the product nature. I means I say nature means whether it is hazardous. Obviously chemical means, whether it’s acid or hits, whatever, so yeah. I mean, it would be a little bit beyond INR100 crores, so maybe between INR120 crores to INR150 crores, yeah.

Ayush Agarwal — Mittal Analytics — Analyst

Understood. Final question is on our — if you can help us understand what are the key raw materials where we are seeing a huge price increase, which is leading to lower gross margins? Because from what I can see, hydrazine hydrate is already going down. I mean, in current terms, of course, we will start buying now, but if you can chart out the key raw material for us and where we are seeing price pressure from?

Shalil Shashikumar Shroff — Managing Director

See, overally, as you rightly said, hydrazine hydrate had gone to an unbelievable pricing which really affected not us but affected worldwide. And yes there is taperness coming back. But I mean, overally, cost in terms of — as you know that we try and develop more and more vendors in India but even the cost in India with the electric and the power is going up and also we have decided — I mean we have already been working with Europeans and U.S., so we see a drop but we don’t see a bigger drop. But over the years, we have been discussing with the customers and we believe that where we would be would be going back to where the prices were, maybe around a year, year and a half back, should fall in place, Q1, Q2 of next year, yeah.

Ayush Agarwal — Mittal Analytics — Analyst

Understood. Thank you, sir, I’ll come back in the queue.

Operator

Thank you. We have the next question from the line of Keshav from Veraxon [Phonetic] Investors. Please go ahead.

Keshav — Veraxon Investors — Analyst

Hi. Sir, in the CRAMS basket, can you talk about what percentage of revenues are coming from the molecules that have become generic in last three to four years and what kind of generic pressure or participation are we seeing in those molecules?

Shalil Shashikumar Shroff — Managing Director

So in CRAM, we have two. One is our generic, which is close to around 40% and around 65% is CRAM, so the balance is innovative products where we have a technology transfer with two Japanese companies and one more which is happening.

Keshav — Veraxon Investors — Analyst

Okay. And sir, I was reading that even for post-patent and expiry, it’s very difficult for generic players to take market share of the innovators, that is even after the [Indecipherable] expire. So what’s your opinion about that, firstly? And why I asked that is because to basically understand, when we forecast for the kind of growth we expect in the medium-term, is it this assurance of the innovative business being difficult to take market share from that helps us forecast the kind of scale?

Shalil Shashikumar Shroff — Managing Director

So there are two aspects. An innovator product is people who are already making by themselves in their own country or they’re buying it from China. So we — as Punjab Chemicals, we have always said that we like to work on this CRAM business, so we are already in discussion, it is very preliminary with one or two companies where we are looking at these off-patent products which we can — we believe we have the expertise, we believe we have the knowledge and they themselves will be visiting the site to get further notice, because one is now that with COVID everything opening, people are freely to really to travel. So we are looking into three aspects. One is that we do with our own R&D generic where we believe we can get the market share. Two is we work with innovators where we can look at expanding our business. And three is where we look at China. So if people are — and there are some customers who are already in touch with us who have some questions related to supply chain and that’s why we will fill that gap in, yeah. So that’s where our [Technical Issues] would come towards product which are going off-patent.

Keshav — Veraxon Investors — Analyst

So sir, for example, if we onboard an innovator customer and the product is still early stage product and it goes off-patent, taking them, say, another couple of years, so post that, we will survey that product only in the CRAMS capacity to the innovator or would we also go for the generic market? That is basically what I’m trying to understand.

Shalil Shashikumar Shroff — Managing Director

Yeah, so if the product is a technology transfer and in generally, by and large, we work with that customer itself because that’s the loyalty, number one. Number two is when we have started to work, when it was a patented or off-patented, we would like to work with them, continue with them because then we don’t only look at that product, we look at multiple opportunities with them. As I said, today with the customer, I’m not looking at doing a $1 or $2 business. I want to look at, in the next three to five years, how can I bring to $3 to $8 to $10 business, yeah.

Keshav — Veraxon Investors — Analyst

Exactly. And sir, I mean, that is where the generic question also sort of comes in that how difficult is it for, say, a product that is going generic right now for some third-party to take market share from? Because from what I have preliminary — my understanding on this basis that it is not that easy. So even post-expiry, the market share is fairly — it stays with the innovator product for at least a few years. Is that correct?

Shalil Shashikumar Shroff — Managing Director

Yeah, so it depends. I mean, if a product goes out of the patent, then obviously the customer or the patent holder goes back to the EU or go back to U.S. or go back to Australia, whichever world the market is, you go back and ask for more data for whoever like, for example, Punjab Chemical is entering. So what we do is that we do a proper backup homework. So today if you are going to launch a product which we are going to compete with the generic, we always work back in terms of what money we need to spend. And I agree with you, it is not that easy that once it goes off-patent that tomorrow morning I can start selling. But within the next — between one and three years, depending on the market, whether it’s Europe, U.S., Latin, or rest of the world, so it depends geographically that’s where we try and fulfill where we can easily get an access once it goes off-patent that we can launch it within the first two years, yeah.

Keshav — Veraxon Investors — Analyst

Sure. Sir and lastly, are we working on the…

Operator

Mr. Keshav, I request you to kindly come back in queue for follow-up questions.

Keshav — Veraxon Investors — Analyst

Sure, thanks.

Operator

[Operator Instructions] We have the next question from the line of Deepak Poddar from Sapphire Capital. Please go ahead.

Deepak Poddar — Sapphire Capital — Analyst

Hello?

Shalil Shashikumar Shroff — Managing Director

Yeah, please go ahead.

Deepak Poddar — Sapphire Capital — Analyst

Yeah, thank you very much, sir, for the opportunity. Sir, I just have one question. Now in the first half if you see our revenue growth has been quite strong, right, over 30%. How sustainable is that 30% growth specifically, given that the second half might have a higher base?

Shalil Shashikumar Shroff — Managing Director

So as we already have said that we are driving towards the existing products to get market share and also with the newer products to be launched, so we believe where we have grown our plan of a INR50 crore order book position, so last year we were at around close to around INR700 crores, this year we believe we should be anywhere between INR1,100 crores to INR1,150 crores and the other would be — going forward would be INR1,500 crores, yeah.

Deepak Poddar — Sapphire Capital — Analyst

So, INR1,100 crores to INR1,150 crores of revenue in FY ’23, and FY ’25 we might be looking at INR1,500 crores plus kind of a revenue.

Shalil Shashikumar Shroff — Managing Director

That’s right.

Deepak Poddar — Sapphire Capital — Analyst

And FY ’24 might be somewhere in between, right?

Shalil Shashikumar Shroff — Managing Director

Yeah, because by the time we have certain product registration and all so we believe we should be higher than that, yeah.

Deepak Poddar — Sapphire Capital — Analyst

Fair enough. All the very best, sir. Thank you.

Operator

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

Ankit Gupta — Bamboo Capital — Analyst

Yeah, thanks for the opportunity. Sir, in our total sale, if you can give us the breakup of sales within CRAMS and [Indecipherable] and how do you see this ratio going forward over the next two, three years?

Shalil Shashikumar Shroff — Managing Director

See, I’ve already told you that 60% to 65% of our business is CRAMS sale. The other is industrial as well as, we call them, performance chemicals. So the performance chemical falls in industrial, into intermediate and specialty chemicals. So even to give that breakup we would be close to 15% in terms of specialty and industrial chemicals and the balance 15% or maybe a little bit more, 20% would be into the intermediates and fine chemicals, yeah.

Ankit Gupta — Bamboo Capital — Analyst

So the remaining 35%, 40% that you had talked about, that will be on spot basis. It’s not a long-term contract that we will be having for specialty chemicals apart from the 60%, 65% CRAMS portion that we have.

Shalil Shashikumar Shroff — Managing Director

So it’s basically not spot business, it’s the product which we are already selling. It’s like phosphoric acid, which was to Coca-Cola, Pepsi. Now If Coca-Cola, Pepsi decides to shut their shop, then it’s a different thing, then it becomes difficult. But we have ongoing contract on a year-to-year basis but there are certain products like commodities in terms of like sodium nitrite, we look at the phosphoric acid, not the higher-grade but the local grade, that’s more on — or oxalic acid, we said that’s more on a quarterly basis we have orders, we don’t have anything on spot, which we look at. So we always have between one to three. So every quarter, we exactly know that whether the remaining of the business which is — how much is the order position, what is — where we need to be flexible and take it forward. So maybe 5% or maybe under 5% would be spot like — products like sodium nitrite or something like that, which is very — comparatively very less and today’s planning, I think after COVID, everybody has realized that we need to have a proper understanding with the customer to ensure a smooth supply chain yeah.

Ankit Gupta — Bamboo Capital — Analyst

Sure, and how do you see the ratio of CRAMS in our business in FY ’24 when we are planning to do this INR300 crores of top line?

Shalil Shashikumar Shroff — Managing Director

As I said, every day we have more and more inquiry and more and more new customers, more and more even all customers want to do, as I said, with the customer, we don’t look at $1, $2 but we say how we can make it $4, make it $5 and beyond that, yeah. So moving forward, CRAMS will be our driver and that’s where we are focused on to ensure a good supply and so far, all our customers, even after COVID, whoever has been visiting in the last six to eight months have been very, very happy the way we have maintained and tried to ensure a good health safety environment because that is very, very important. I mean we are a good manufacturing company but looking after health safety environment is a priority, yeah.

Ankit Gupta — Bamboo Capital — Analyst

Sure. And sir if you can talk about our pipeline for…

Operator

Mr. Ankit, I would request you to kindly come back in queue for follow-up questions.

Ankit Gupta — Bamboo Capital — Analyst

I’ve only asked one question, if you can allow me to ask the second one?

Shalil Shashikumar Shroff — Managing Director

Yeah. I think let’s finish that because we have another eight, nine minutes, yeah.

Ankit Gupta — Bamboo Capital — Analyst

Sir, I’ll just wrap it up. So can you talk about our product pipeline for the second half of this year, FY ’24 and FY ’25? How many products are we launching, the size of them, and how many of these products will be patented or off-patented?

Shalil Shashikumar Shroff — Managing Director

Yeah, so, as we have always said, because of the confidentiality, we cannot give you product name but, yes, I mean the driver would be on the agri –agrochemicals, technicals which we will be making which will be the growth. Product, which today we are looking at which would come in between ’23 and ’24 would be two in the Agro and one in the specialty chemical yeah. I will not comment on the patented product because it’s all under confidential agreement so please excuse us or forgive us. We will not be able, but once obviously [Technical Issues] pipeline we have had an okay from the customer, then we’ll definitely inform very loudly because that helps the visibility for you to know how the company is moving forward, yeah.

Ankit Gupta — Bamboo Capital — Analyst

And potential of these products, sales on these?

Shalil Shashikumar Shroff — Managing Director

I mean, as I said, we are looking at products anywhere ranging between 25 million to 50 million, going up between 50 million to 100 million, yeah.

Ankit Gupta — Bamboo Capital — Analyst

Yeah, thank you, wish you all the best.

Operator

Thank you. We have the next question from the line of Harsh Bahria [Phonetic], a professional investor. Please go ahead.

Harsh Bahria — Private Investor — Analyst

Hi, thanks for the opportunity. I have a question about Punjab’s power costs. If I look at it on an absolute basis I think in FY ’22 we spent about INR60 crores in power. Similar-sized peers who make similar top line as us who generally spend INR32 crores to INR33 crores. So why do we have higher power costs despite us using the rice husk, which is an agri residue?

Vinod Gupta — Chief Executive Officer

No, I think, see, what has happened in last two years after this farm bills, there has been lot of restriction from the government on rice husk selling and procurement. Now that has definitely put rice husk availability itself under challenge. In fact, we have been very actively managing buying of rice husk because some units in Punjab have actually either run out of the fuel itself, whereas we have ensured that the pipeline continues, that is the first thing. Second thing, some of our products are highly energy-intensive. So it’s not a fair comparison of top line versus the energy costs. Our products are energy-intensive and that’s where more energy goes. So combination of these two factors, actually is sort of — that’s where our energy cost is high.

Harsh Bahria — Private Investor — Analyst

Okay, thanks for that clarification. My second question is about — I think you talked about an Israeli customer visiting you this quarter and we can see that you also have an Israeli customer which is very big in the fermentation space. So is it the same customer and do you have fermentation capabilities in your plants?

Vinod Gupta — Chief Executive Officer

We don’t have a fermentation capability but we do certain steps within that process for some of our customers. So we don’t do fermentation per se but one or two steps which are very critical where very high level of controls are required and technical steps are required, we do certain processes in that value chain.

Harsh Bahria — Private Investor — Analyst

And would this be like higher margin than your base business?

Vinod Gupta — Chief Executive Officer

That’s a higher margin than the base business but it’s a very — that’s — the segment is not very big. So and it takes time to grow that business but, yeah, it’s substantially higher margin than our base business.

Harsh Bahria — Private Investor — Analyst

Okay. And my last question is about your CRAMS relationship. So in the newer CRAMS relationships which we are establishing, are we the first source or like an alternate source?

Shalil Shashikumar Shroff — Managing Director

So it depends on the customer. So in many cases we have been the first source. Moving forward also there would be a mix of both, yeah. I wouldn’t like to quantify the numbers because the customer also, as many of, you know, many of our customers because — so I would — that’s why I would not like to quantify. But to answer, yes, in many cases we have been the first source and then we become — and in certain numbers where we — they look at a different supply chain as a second source yeah.

Harsh Bahria — Private Investor — Analyst

Okay, thanks for answering my questions.

Operator

Thank you.

Shalil Shashikumar Shroff — Managing Director

I think we can take one or two and then — because again at 12:15 we have another call so…

Operator

Yes, sir. We have the last question from the line of Rajesh Jain from NB Investments. Please go ahead.

Rajesh Jain — NB Investments — Analyst

Can you hear me?

Shalil Shashikumar Shroff — Managing Director

Yes, please, go ahead.

Rajesh Jain — NB Investments — Analyst

Okay. Good afternoon to the team. Sir, my first question is, we are hearing two contradictory things. One is there is a recession in U.S. and Europe and we are hearing there is lot of demand issues. On the other hand, over the previous con calls and even in the current con call, you have been saying you’re receiving more and more inquiries from the existing as well as the new customers. So just wanted to join this and find out what is happening. Is there any delay in getting orders or deferment of the existing orders from these regions?

Shalil Shashikumar Shroff — Managing Director

I think, Rajesh, recession, I think what people are talking and which I also see in CNN or BBC or which I’ve seen is generally more from a perspective of people traveling, spending money. But as far as we — business, we are into agri, I mean, food is a problem worldwide and people do want to eat, I mean if there is cost comparison. So I believe, in our sector, there has been delay in registration processes. But, by and large, could come in more robust with the demand because population is increasing, food is a must. Maybe as far as — delay would be just for the adjustment of certain stocks which maybe during the COVID time people have bought more.

By and large, we don’t see such things with our customers but we are always discussing with them on a quarter-to-quarter basis, sometimes on a monthly basis to ensure, whether it’s Latin America, U.S., Europe, Japan, Australia and that’s where we strongly believe that towards the business potential, we don’t foresee but maybe a recession which they are talking about is more from a spending point of view and which today I could also say in the last — during Diwali and all, I mean, the traffic in Mumbai has been so light. Even I’ve been to restaurants where the people with who you go to regular customers have said that people have been dropped. So I think spending power towards entertainment, towards traveling, towards this may have a slight delay. But we believe as far as the agri sector, I mean, food is something which is very, very important and that will definitely continue. And especially here again, Rajesh, why I am surprised is China because China is becoming very difficult for the world and that’s where I think India has a good opportunity and we are thankful for the team we have created and the plants we have created that we’re getting such inquiries on a daily basis yeah.

Vinod Gupta — Chief Executive Officer

So I think I’ll just put [Speech Overlap] I wouldn’t see this as a contradiction because the interest from new customers is around obviously creating an alternate source for China or capability which India as a country has developed and Punjab Chemical has developed. So that’s where we see lot of inquiries. So we don’t see a contradiction between the pressure that is coming from the market versus the business opportunities that we are able to generate. So there is no contradiction if you see.

Rajesh Jain — NB Investments — Analyst

Okay. So is it fair to assume that our top line target of INR1,200 crores during the current year and INR1,500 crores for the next year, so that should not be a challenge, only the margins may vary plus or minus 1% based on various other factors. Is it a fair assessment?

Shalil Shashikumar Shroff — Managing Director

I think it’s a very fair assessment and as I said that maybe certain stock position may differ maybe anywhere between 10% to 15% but otherwise we are very much at target. Order book is strong, maybe it gets delayed, maybe it doesn’t fall in Q3 or Q4, maybe it gets delayed over the next year. But right now, the way we look at our trend, we are already at INR550 crores, INR560 crores. Moving forward, the quarter three looks perfectly fine and we believe quarter four also should be perfectly fine yeah.

Rajesh Jain — NB Investments — Analyst

That is — very happy to know that, sir. My second question is regarding your capex program. Sir, I have only — another second question is this.

Shalil Shashikumar Shroff — Managing Director

I think, let’s take the last question and then close it yeah.

Rajesh Jain — NB Investments — Analyst

Sir, it’s regarding your capex at Lalru unit. So the first plant basis, have we got the EC approval for that? One is that. Second, based on whatever the capex schedule you have already planned out, is it enough to take care of this INR1,200 crores in the current year and INR1,500 crores of top line growth, whatever the capex you have planned, is it sufficient to take care of it?

Shalil Shashikumar Shroff — Managing Director

Environment clearance, we have everything in place, so no issue at all. And your third question — your second question was, yes, the plant is capable more than INR1,500 crores, I would just add to that yeah.

Rajesh Jain — NB Investments — Analyst

Thank you very much, sir, and wish you all the best.

Vinod Gupta — Chief Executive Officer

Thank you.

Operator

Thank you. That was the last question. I will hand over to Mr. Nachiket Kale from Orient Capital for closing remarks.

Nachiket Kale — Orient Capital — Analyst

Yeah. Hi, thanks everyone for participating on this call. I would also like to thank the management for sparing their time today. And for any queries you can get in touch with us. Orient Capital is the Investor Relations advisor to Punjab Chemicals. Thanks to the team Antique as well. Thank you very much.

Vinod Gupta — Chief Executive Officer

Thank you Nachiket.

Operator

[Operator Closing Remarks]