SHAILY ENGINEERING PLASTICS LTD (SHAILY) Q3 FY23 Earnings Concall Transcript

SHAILY ENGINEERING PLASTICS LTD (NSE:SHAILY) Q3 FY23 Earnings Concall dated Feb. 09, 2023.

Corporate Participants:

Amit Sanghvi — Managing Director

Sanjay Shah — Vice President and Chief Strategy Officer

Unidentified Speaker —

Analysts:

Nirali — Munich PMS — Analyst

Manish Gupta — solidarity — Analyst

Pratish Sheyda — Lucky Investment managers — Analyst

Amand Wedge — Astotin Investment — Analyst

Ritesh Shah — Investec India — Analyst

Adira Sing — America’s Capital — Analyst

Manjeet Buaria — Solidarity Investment Managers — Analyst

Radish Shah — Investec India — Analyst

Presentation:

Operator

Good morning ladies and gentlemen. Welcome to Shaylee engineering plastics limited, Q three and 9 am Fiscal Year 2023 on conference call. This conference call me contain forward looking statements about the company which are based on belief, opinions and expectations of the company as of the date of this call. P statements are not guarantees of future performance and involves risks and uncertainties that are difficult to predict. [Operator Instructions]

I now have the conference over to Mr. Amit Sanghvi, Managing Director Shaly Engineering Plastics Limited. Thank you, and over to you sir.

Amit Sanghvi — Managing Director

Thank you very much. Good morning and a very warm welcome to all the participants, of course results earnings call up Shaly Engineering classes. I have with me Mr. Sanjay Shah, our chief strategy officer, and next year investor relations advisors. I hope you’ve had a look at our investor presentation that is uploaded on our website as well as the stock exchange. Despite a challenging environment, we have registered sales of 446 crores in the nine months of Fiscal Year 2023. As you’re all aware, we are an export-oriented company with customer base primarily in Europe and North America.

And given the current economic conditions, high inflation and the customer sentiments in these markets, we have seen substantial reduction and uptake over the last two quarters. We also expect this volatility to continue for the next two quarters. On the better front, margin was impacted due to slower offtake, which has impacted in lower utilization levels, leading to lower absorption of fixed costs. As you’d like raising levels improve and raw material prices have stabilized. We expect improvement in margins. We are working very closely with our customers to ensure optimal production, increase the NOC taken and ensuring optimal inventory levels. We continue to watch the situation very closely.

Our focus is purely on adding customers and markets in segments where we are present in order to increase the utilization levels and sweat the acid base that we have invested in created over the last three to four years. Shally is known for precision, quality, compliance and our engineering capabilities. We want to focus on business segments, both testing and new, where this is a must have. We see good opportunities in consumer electronics, telecom and other healthcare segments apart from drug delivery. We will use the existing infrastructure to a large extent and only invest in critical capabilities that these segments need and work towards building a business model where we are married to the customer. I will certainly provide more updates as this evolves and we see traction. As a last note, I would again like to emphasize that we will be very careful and prudent with any future investments and only do so when there’s an absolutely that is all from my side.

I shall now hand over the call to Sanjay Shah, Chief Strategy Officer to give you the operating and financial highlights. Thank you very much.

Sanjay Shah — Vice President and Chief Strategy Officer

Thank you. Good morning, everyone. I shall share with you the highlights of our operational and financial performance of Q3. The language we will be happy to respond to your question. During the quarter we process both 1121 tons of polymer is against 5321 ton in Q3 FY 22. One might not be processed 16,036 tons of polygons for the normal natural in nine months. An increase of 14% year on year machine utilization rate was 40% in Fiscal Year 2023 45% for nine months of Fiscal Year 2023.

Exports during nine months Fiscal Year 2023 to 37% of total revenue as compared to 78.7% in nine months FY 22. Exports during Q3 Fiscal Year 2023 who got 79% of total revenue as compared to 30.7% in Q3 FY 22. I shall now brief you on the standalone result highlights revenues to get 130 4.2 crores during Q three Fiscal Year 2023 as compared to one point 8.3 crores during FY 22 Because to that 18.2 crores during Q3 Fiscal Year 2023 as compared to 24 country code during Q3 22 EBITDA margins so the 13.6 version for Q3 Fiscal Year 2023. That’s correct 4.5 growth during Q3 Fiscal Year 2023 as compared to 9.3 Gross during Q3 FY 22. But problems is to read frequently person to see if anything was reported that 12.4 gross as compared to 16.5 growth during Q3 FY 22.

Now, coming to nine months, the Fiscal Year 2023 highlights revenue stood at 460.2 crores in nine months, Fiscal Year 2023 as compared to one 14.2 crores during nine months of FY 20 18%. as compared to 68.3 grows during FY 22, so that 14%. 5.3 grows and Fiscal Year 2023 as compared to 37.8 growth during my younger FY 22 budget stood at 4.6%. For editing was reported at 44.6 compared to 47.4 Gross during FY 20. What ROC and ROA is 2.1% internal quantum theory as of today is going to work in business as achieved with discipline use of capital or debt we are pretty standard on a project and our long-term debt we pretty standard point I’m on a consolidated basis in revenues to 2.6 gross return 16.9 gross and private 25.2 crores for multiculturalism.

This is all from our side. And now we can open the floor for Q&A.

Questions and Answers:

Operator

First question is from the line of Nirali from Munich PMS. Please go ahead.

Nirali — Munich PMS — Analyst

Yeah, thank you for the opportunity. very clearly mentioned in the last call that we are facing demand issues in Europe and North America. But if you can qualitatively help us understand you know that how are the three group segments individually looking at so, home furnishing, or pharma and toys. So if he says carry on, as we had expected it to we are facing issues there too.

Sanjay Shah — Vice President and Chief Strategy Officer

Nurali, when you look at home furnishing, or you look at Toys, both of these are basically heavily focused on North America and European markets, where we have seen demand slowdown with our customers. And it is impacting over volumes as we speak. You see, based on whatever discussions we’ve been having with customers, we see this continuing for the next two quarters and some improvements happening post that as we move forward, we will keep you posted on what’s happening. At the same time what we are doing is we are talking to multiple customers across the segments to see how we can add new customers and new geographies to it. We should have some feedback on that also the next two quarters in terms of the discussion which we have been having for weeks on different numbers, you want to answer them on the healthcare on the health care front we have not seen a slowdown. To be honest, we have been more or less in line with with new projects. Obviously there is a there’s always a plus or minus three four months of time period where projects can sometimes get delayed on on account of either Shaily or the customer, again to do with development, but otherwise in terms of supplies, we have not seen any, any drop in demand for our existing healthcare portfolio

Nirali — Munich PMS — Analyst

Will be 22 on the toy side, we had done it seven years about $78 million. So what will be that number for Fiscal Year 2023?

Sanjay Shah — Vice President and Chief Strategy Officer

So you’d probably be around 60 equal to the number which you talked about?

Nirali — Munich PMS — Analyst

Well, okay, so I’m on the same side to be the guiding that in our own IP pins, we’ll be doing volume of about three million in Fiscal Year 2023. And that reaching to 20 million over the next three, four years. So any update on that? I do confident of going three million and this year.

Sanjay Shah — Vice President and Chief Strategy Officer

Yes, we’ve done. We’ve already done 65% of that. And some orders we’ll get, we’ll move on to the next year. But because there isn’t like an alternate source of this order doesn’t change from shyly.

Nirali — Munich PMS — Analyst

Okay, that’s great to know. We were also hoping to get some clarity in this month, or, you know, you had mentioned on the last call about overall demand or any increase that our customer wants. So did we get any clarity? So we are ready to receive further clarity on that.

Sanjay Shah — Vice President and Chief Strategy Officer

Further clarity is, is that we don’t see improvement for the next two quarters, unfortunately. Okay.

Nirali — Munich PMS — Analyst

So we’ll still wait for two quarters to give further clarity on the other newer segments also that you mentioned.

Sanjay Shah — Vice President and Chief Strategy Officer

That’s right. We will basically update I think, on a quarterly basis in terms of what’s happening on the business. While we are actively pursuing multiple fronts and everything work, should you in the quarter code and quarter one.

Nirali — Munich PMS — Analyst

Like this on my site, thank you.

Sanjay Shah — Vice President and Chief Strategy Officer

Thank you.

Operator

The next question is from the line of Manish Gupta from solidarity, please go ahead.

Manish Gupta — solidarity — Analyst

Thanks for the opportunity. Are you at liberty to share nine months the numbers for healthcare for FY 22? Visibly Fiscal Year 2023. So one can understand what’s the extent of impact to the other business line.

Sanjay Shah — Vice President and Chief Strategy Officer

Managers typically don’t share individual numbers. But what we can say is when you look at nine months, FY 22, or nine months, Fiscal Year 2023, healthcare, you will see a growth on the overall numbers.

Manish Gupta — solidarity — Analyst

So there was this, I’m just curious that, you know, why do you not share the segmental breakup? Because, you know, I’m just, I just want to understand what the concern is, but because clearly, the healthcare part of the business is a far more attractive part of the franchise, right?

So even if you just want to split the numbers with healthcare and others, from our perspective, it gives a better sense of how the more attractive part of the franchise is evolving. So I’m just curious to understand why you would not split that number every quarter or every half year. You know, clearly, there’s no competitive concern, right? Because you’re not disclosing names of customers or moleculesor all that.

Sanjay Shah — Vice President and Chief Strategy Officer

Manish, I think, points noted, there is what we will do is we will, we will have a think about this, and certainly try to see if we can we can share this in the public domain from, you know, from the next quarter, next quarter, and a few more Next, we’ll certainly report into competence.

Manish Gupta — solidarity — Analyst

Yes. Okay. Great. Next question is, you know, this entire macro theme that everyone is talking about? The China plus one thing? I mean, can you talk a little bit qualitatively about now that, you know, there’s been some time evolved, and you would have had big discussions with customers? What part of this team do you think actively would increase Shaily? My senses, I could be totally wrong here. But my sense is the toys part of the business might actually be a lower margin, and I see you guys is a very margin focused. So for example, do you really think the toys opportunity, which is a big opportunity in numbers is something that would interest me strategically?

Sanjay Shah — Vice President and Chief Strategy Officer

It’s a it’s a bit of a tough question. I’m going to try to answer it as it has evolved with Shaily and in terms of my thoughts. You know, when we when we got into toys, we certainly evaluated the margin profile lease, we certainly looked at how it fits in with our existing capabilities. And there was the There is a good fit existing capabilities, compliance in terms of safety, chemical compliance, sustainability, engineering, and then the sheer size of the opportunity and how quickly you can scale up the choice business.

But you’re absolutely right, I think the choice business is one where there is a lot of pressure on margin. So, the first few products that we took on we took on on the higher end of the spectrum of toys, we did not do very simple products, but we are seeing increasing pressure on cost. And even though China is supposed to be technically more expensive on manufacturing costs, they they have a lot of support when it comes to capturing raw material prices.

They’ve also set up alternate infrastructures in countries like Vietnam or even in in India for that matter. So, we are seeing increasing pricing pressure on toys we will not be we are not we will not be making any further investment in Toys until we see a portfolio of products that customer consistently buys from trading wonders, just to add to what Ahmed said, when you look at the current situation.

In a lot of cases, what we are seeing is the raw material prices or the input prices, which China vendors have is controlled by the government did their advantage to Chinese suppliers as compared to suppliers. In India, when example Foley polypropylene is control that I think $970 a ton in China, whereas what we would source it at somewhere somewhere between 11 and $1,200. or so, you know, there is a significant disadvantage in in the input costs.

Manish Gupta — solidarity — Analyst

Right. So, now that, you know, we’ve had a chance to study this a little bit more, which aspects of China plus one Do you really think, are an opportunity for sharing, and what is just you know, big picture stuff, but won’t really translate into an opportunity for you?

Sanjay Shah — Vice President and Chief Strategy Officer

Broadly speaking, Manish we’ve seen very good opportunity in consumer electronics, telecom, industrial applications, potentially appliances as well, again, you know, too soon to talk about anything concrete right now. And we’re under confidentiality with any one of these guys that we’d be having discussions with what we see very good opportunity, and probably a much better fit in terms of our engineering capabilities.

Manish Gupta — solidarity — Analyst

Okay, next question is I mean, you know, there’s been a lot of capex done in the last 15 to 18 months. And how much of how do you think about that capex? That you’ve done this the, the macro environment that we have seen? And how do you think about capex going forward? i How are you going to link it to specific opportunity? Or is this that we’ve got to build it first, and then go and get the business? So and a related question is, can you talk a little bit about new logos that you’ve added in the last few quarters?

And what exactly are we doing on business development? You know, in some of these areas that we just talked about consumer electronics telecom? Are we adding to our team to pursue these opportunities? Or is this a business where really our technical competency selves, we don’t need to worry, we just need these customers to visit our plan? Sorry, two or three questions rolled into one, one big question.

Sanjay Shah — Vice President and Chief Strategy Officer

Okay. So our investments, very, very clear, you know, going forward capex spend on the the criteria, the objective is that we’re going to utilize our existing infrastructure. We have, we have very, very good infrastructure to service, even the new segments that we’re getting into, we might have to do some specific capex, in terms of, you know, very, very specific equipment, but I’m not, you know, we’re not talking about any, any substantial capex in molding in injection molding were forced either servicing the existing segments or the new customers that we’re targeting, on business development, with any new logos in the last quarter.

To be honest, we are we are in discussions with several large multinationals including Big Four as retailers, electronic companies, we, we are confident that we will be adding new logos in the over the next two to three quarters. Very, very confident. And from a was the last question raised again?

Manish Gupta — solidarity — Analyst

I mean, what do you the last question was that in order to add logos, do you need to add more BD people? Or is it that, you know, we have enough of credibility in the marketplace and there’s no point adding BD people, we just need to show customers our technical competency in the factory. Because I don’t see any I mean, I don’t know if you’ve added BD people to go and knock on doors and showcase shell. I mean, other than the suite, Swedish major, I don’t know whether we’ve added any big box retailer over the last couple of years. So, the question is, we put this capacity out we have technical competency, but are we investing enough in a sales team to go in take our message to the world?

Sanjay Shah — Vice President and Chief Strategy Officer

We have added to our BD team with a specific focus on also increasing in addition to the other big box retailers also increasing business in the domestic market. So, they are you know, there are certain segments in which can play even in the domestic market, we see a lot of emphasis and investments happening in power infrastructure especially. So you know, we are we have added specific business development folks with a focus on these segments., a lot of you know a lot of our business development really happens if we can get a customer to visit us. 60-70% of our BD is done the day they visit. So, the whether they should move forward with the or that it really comes down to whether you can come to a commercial agreement or not. But most of our job is done when they visit us and that we are actively pursuing.

Manish Gupta — solidarity — Analyst

Okay, last question from my side is that basis you’re coming gross block and whatever capital work in process you have and whatever little investments you have to make, what do you think is the peak revenue capacity of the company basis current investment?

Sanjay Shah — Vice President and Chief Strategy Officer

If you want to look at my March 23 effects including the, which the company is capable of, will be somewhere between 2.25 to 2.5x of the total gross growth.

Manish Gupta — solidarity — Analyst

Two to 2.6 or two to 2.5 times March 23 gross growth.

Sanjay Shah — Vice President and Chief Strategy Officer

Right, Manish.

Manish Gupta — solidarity — Analyst

Okay.

Sanjay Shah — Vice President and Chief Strategy Officer

Just to go back a few questions, I think you are on the investment. So, while I said that we will not you know, we will be very careful about where we invest in use the existing infrastructure. The only area where we make investments and look for business in the future is, is healthcare as pharma. That is one area where we will need to gear up in advance so that the scale of happens in the future.

Manish Gupta — solidarity — Analyst

Yeah, so, just a related question on this Amit, the steel furniture investment, what percentage of the utilization are we on right now?

Amit Sanghvi — Managing Director

Utilizations. But what we’re doing is we’re in discussions with the home furnishing customer and also to,

Manish Gupta — solidarity — Analyst

I think the question was specific to homeowners.

Amit Sanghvi — Managing Director

So, and looking at, I think recessions about other guys and hope to add one or two of these names in the next two or three quarters going forward.

Manish Gupta — solidarity — Analyst

Okay, thank you.

Amit Sanghvi — Managing Director

Thank you.

Operator

The next question is from the line for the Pratish Sheyda from Lucky Investment managers. Please go ahead.

Pratish Sheyda — Lucky Investment managers — Analyst

Yeah, So my first question is if healthcare has grown, and we were you know, supposed to get the you know, pricing adjustment if you recall. I’m surprised why has the gross margin continue to remain under pressure? Because healthcare is supposed to be a fairly high gross margin business right? And where are we on the pricing increases, then the other portfolio business.

Sanjay Shah — Vice President and Chief Strategy Officer

Most of our pricing adjustments have happened during the middle of the current quarter, the last quarter. So they have been factored in here. What you’re seeing is basically a higher fixed cost. Because the lower utilization level.

Unidentified Speaker —

Right, adjustments when you don’t sell anything, you sell less is what’s causing this?

Pratish Sheyda — Lucky Investment managers — Analyst

No, I don’t see any gross margin expansion, right. So, it is flagged, it is down 300 basis points, I don’t understand what you are comprehending and what am I comprehending. So, keep, the keep the utilization part aside. So, I can understand that

Sanjay Shah — Vice President and Chief Strategy Officer

One difference, which you need to look at, when you look at gross margin, please look at consolidated gross margin because last year, we were doing development in India on the healthcare front, we now doing development in the UK. So, that revenue comes directly to UK. So, when you look at this, you basically need to look at it on a consolidated basis.

Pratish Sheyda — Lucky Investment managers — Analyst

So, even if I looked at consolidated your RM two sales is 62% in product pre FY22. Your RM to sell this 64% in quarter FY23 And you RM two sales is 64% in quarter 2023. So there is no expansion between the two quarters. And why there is a decline, despite the fact that there isn’t growth in healthcare. And you say that you have taken price increases between quarter two and quarter three. So ideally between quarter two and quarter three there has to be a margin expansion right? the gross margin?

Sanjay Shah — Vice President and Chief Strategy Officer

But there is just. When you look at the work you need to do if you were to compare Q1 to Q3, you would have seen improvements happening on.

Pratish Sheyda — Lucky Investment managers — Analyst

So you will see the price increases between Q2 to Q3, that I will see from Q1 to Q2 and then from Q2 to Q3, I cannot see from Q1 to Q3.

Sanjay Shah — Vice President and Chief Strategy Officer

I agree. So there is a big changes, which is happening.

Pratish Sheyda — Lucky Investment managers — Analyst

But healthcare has grown and everything else has not grown. So business make sure that we improve.

Sanjay Shah — Vice President and Chief Strategy Officer

Also one thing Okay, let’s get started.

Pratish Sheyda — Lucky Investment managers — Analyst

So then the gross margin should improve.

Sanjay Shah — Vice President and Chief Strategy Officer

The gross margin is more or less at the same level is what I bring with you. And that’s basically because of a lower utilization level. Because when you’re lower utilization level, you basically end up having a little higher rejection of data

Pratish Sheyda — Lucky Investment managers — Analyst

Okay, I’ll take this separately I still cannot complain. So, now where are we see a lot of our traction depends on the progress in pharma. A lot of traction VM also depends on the progress in pharma. Right? where are we now? And is there any changes for our outlook for FY 24 in pharma? By any chance?

Sanjay Shah — Vice President and Chief Strategy Officer

Can you repeat the question please? Is there a change in the look outlook for Fiscal Year 2023-24 in Pharma?

Pratish Sheyda — Lucky Investment managers — Analyst

So will we see the margin extension for sure happening? Because this year you had first three quarters of which is not specific to you, specific to a lot of companies and you should be getting your price increases to flow into your P&L. There is a straight, I can see about 200 to 300 basis point at least, because you were at 60% RM to say, today you heard about 63 to 54%. So there is a p 4% there plus there is a farmer movement to happen. Will we see gross margin expansion or there will be something else to play in and we need to understand that.

Sanjay Shah — Vice President and Chief Strategy Officer

You will see gross margin expansion as we go forward. In revenue, you will also see.

Pratish Sheyda — Lucky Investment managers — Analyst

So that we understand. I see. We understand operating leverage part because if you’re operating at 50% capacity utilization, I understand your operating leverage part, where I am unable to stay completely under GM part.

Sanjay Shah — Vice President and Chief Strategy Officer

So in the GM part would also need to be factored in is when volumes are down. fixed costs on my raw material everything which is getting faster or to my overall raw material costs.

Pratish Sheyda — Lucky Investment managers — Analyst

Okay. Okay, we started the year with a standard programming. What do you think you will enter your And where are the? So we saw quarter one was 175. I think when we were in quarter one, we did 175 two fourths quarter one we got 160 on quarter three becomes 136. So if you could give the bridge between quarter one and quarter three for this particular reduction in business, where are the slippages and how do we see it ending this year?

Sanjay Shah — Vice President and Chief Strategy Officer

Basically on home furnishings, exports, toys, mainly on that account.

Pratish Sheyda — Lucky Investment managers — Analyst

Okay.

Sanjay Shah — Vice President and Chief Strategy Officer

And So if you were to look at it, these are four major drops when there have been drops. I would say quarter four will be similar to quarter three. Somewhere in that region.

Pratish Sheyda — Lucky Investment managers — Analyst

But sir, your quarter to quarter also did not tend to stay that. Suddenly in quarter three you’re saying.

Sanjay Shah — Vice President and Chief Strategy Officer

I believe I did say on the quarter two call that we will come back with an update but we’re not seeing a very good picture on demand. We did not expect a very large drop but that is what’s happened.

Pratish Sheyda — Lucky Investment managers — Analyst

Okay. So now and how do we see now the FY 24 especially on the pharma side of the business? What kind of growth do we see?

Sanjay Shah — Vice President and Chief Strategy Officer

On the pharma side?

Pratish Sheyda — Lucky Investment managers — Analyst

Yeah

Sanjay Shah — Vice President and Chief Strategy Officer

On the on the pharma side, we are looking at somewhere between 25 and 35% growth. And with that growth, you will obviously see margin expansion.

Pratish Sheyda — Lucky Investment managers — Analyst

And where are we on the capex now? So the last capex that we announced was for Pharma. And I’m hoping that, yes, that was for Pharma. So I think about INR100 crores, right?

Sanjay Shah — Vice President and Chief Strategy Officer

Yes.

Pratish Sheyda — Lucky Investment managers — Analyst

And that’s the only the only capex which is ongoing, right?

Sanjay Shah — Vice President and Chief Strategy Officer

Yes.

Pratish Sheyda — Lucky Investment managers — Analyst

Where are we, how much have we spent and what is it commercializes?

Sanjay Shah — Vice President and Chief Strategy Officer

For the final capex would be completed by quarter one FY 24.

Pratish Sheyda — Lucky Investment managers — Analyst

And how much have you spent so far?

Sanjay Shah — Vice President and Chief Strategy Officer

We will spent about INR60 crores till date.

Pratish Sheyda — Lucky Investment managers — Analyst

And because we don’t have enough capacity elsewhere, because we are running at 50, 60% capacity utilization.

Sanjay Shah — Vice President and Chief Strategy Officer

Right.

Pratish Sheyda — Lucky Investment managers — Analyst

We won’t get into a capex unless we, you know, I added a logo which means you come specific to capex.

Sanjay Shah — Vice President and Chief Strategy Officer

We will be looking at sweating over our access to Pharma capex to the specific capex, which was required to be done because that will claim room and you need that capex.

Pratish Sheyda — Lucky Investment managers — Analyst

Yes, I understand that.

Sanjay Shah — Vice President and Chief Strategy Officer

Just to add to has said, when we’re talking to the other big box retailers, their business models are different than the home furnishing major that we work with. A lot of these will buy off the shelf kind of product or something that is specifically designed. So there will be some investment required, but we will not make any investment in infrastructure. We’ll be cooling which will be the case

Pratish Sheyda — Lucky Investment managers — Analyst

Not in machine. Not in machine. Not in physical infra.

Sanjay Shah — Vice President and Chief Strategy Officer

No, right. That’s correct.

Pratish Sheyda — Lucky Investment managers — Analyst

Okay. So basically for the next four quarters, one to six quarters because you’re at 50% capacity utilization, we might not hear any capex announcement from your side.

Sanjay Shah — Vice President and Chief Strategy Officer

There is, there is, there is what we foresee right now the only way they can be here, if we were to even think about it would be there’s a substantial sizable opportunity, which requires a greenfield but otherwise, when for the next four to six quarters, we’re not looking at any, any investments.

Pratish Sheyda — Lucky Investment managers — Analyst

And what will be your maintenance capex?

Sanjay Shah — Vice President and Chief Strategy Officer

Because that’ll be nominal, I would say around two to three crores. One of our assets are new, so we do not need maintenance capex there. Some of the old capex which we have will not be substantial. We were two to three crores.

Pratish Sheyda — Lucky Investment managers — Analyst

Okay. Lastly sir, when you said So has the utilization come down by any chance?

Sanjay Shah — Vice President and Chief Strategy Officer

Yes.

Pratish Sheyda — Lucky Investment managers — Analyst

And can you highlight the reason?

Sanjay Shah — Vice President and Chief Strategy Officer

Demand drop. There’s steel furniture. if the customer has seen a much higher demand drop than the plastic articles.

Pratish Sheyda — Lucky Investment managers — Analyst

Okay. And how does that acid stabilized with respect to the coating line and all where you had some challenges

Sanjay Shah — Vice President and Chief Strategy Officer

That’s stabilized. And post that we have already. As I mentioned earlier, we have started discussions with three four other big box retailers to see how we can expand the customer base.

Pratish Sheyda — Lucky Investment managers — Analyst

So the production guy is removed from the auto industry to your company. Is he’s able to manage the asset well for you know, at least from the from the operations part.

Sanjay Shah — Vice President and Chief Strategy Officer

Production is actually x Goldridge. Yeah, he’s doing a very good job.

Pratish Sheyda — Lucky Investment managers — Analyst

Okay. Okay. Thank you very much and all the best to you, sir.

Sanjay Shah — Vice President and Chief Strategy Officer

Thank you.

Operator

Thank you. The next question is from the line of Amand Wedge from Astotin Investment Management, Please go ahead.

Amand Wedge — Astotin Investment — Analyst

Yes, good morning. My first question is on the pen side. We had talked about there was a launch client in January. So is that launched happen are a bit delayed and when is it expected now?

Amit Sanghvi — Managing Director

We have, you know, because it’s a commercial order, we have gone ahead with the production and our dispatching it to our customer. The customers awaiting approval, any any data. Don’t have no further updates.

Amand Wedge — Astotin Investment — Analyst

Sure, sir. And on the pen side. So we have a target of 3 million and plus minus something will achieve that for this year. And what is the target for FY 24, sir?

Amit Sanghvi — Managing Director

Can you repeat that question please? Maybe a little louder? I’m finding it difficult to hear you.

Amand Wedge — Astotin Investment — Analyst

Yeah. On the pen side, we had a target of 3 million for this year and we’ll achieve close to that. What is our target for FY 24?

Amit Sanghvi — Managing Director

It’s going to be roughly 30%, 35% higher.

Amand Wedge — Astotin Investment — Analyst

Sure. So you are talking about most of the growth that you are seeing in pharma, you’ve guided similar growth will come from this pens only.

Amit Sanghvi — Managing Director

Yeah, see there, there are pens and in addition to pay, there’s also auto injectors that we have developed. And the we are making the first supplies in June of 23. So we will see, we will see some additional orders for both products in in FY 24.

Amand Wedge — Astotin Investment — Analyst

Sure, sir. Then coming on to the home furnishing site. So we were expecting to reach and become the third largest supplier to our one of the main customers. So given the slowdown and all those things, when do we expect to achieve that target of becoming the third largest supplier to them?

Amit Sanghvi — Managing Director

The slowdown has happened for the entire suppliers. We dont know where ranking stands today. It will probably be third or fourth anyways. But if it’s not, we will certainly, I’m not as, you know, in terms of our own business, whether we become three or four is not so important because how much growth we see in the upcoming year. So we’ve already said that the first two quarters we’re not, you know, we expect the current scenario to continue. And hopefully we see improvement post that.

We tracked it. We have this discussion with the customer on almost a daily or every other day kind of basis. So it’s something that we’re tracking very closely.

Amand Wedge — Astotin Investment — Analyst

In terms of utilization, where are we currently in this home Foundation, and for next year, do you see a gradual improvement or

Sanjay Shah — Vice President and Chief Strategy Officer

When we do not report individual utilization levels, that will not be able to talk about it. We have talked about over utilization levels we had about him versus as we speak, we would basically update you guys on how utilization levels will improve over the next two quarters, reportedly called

Amand Wedge — Astotin Investment — Analyst

Sanjay sir so just wanted to understand the impact on the slowdown. So is it like M 20%? As much more? I’m not interested in exact numbers of utilization, but just to gauge the impact of slowdown on the home furnishing side.

Sanjay Shah — Vice President and Chief Strategy Officer

So home foundation will have major markets in North America and Europe, where there has been fairly recent contraction of demand, which is common, which is why it’s around which we’re talking about is happening. As we speak, I think whatever stocks are there in the system, everything should get liquidated over amount of time. And over the next two quarters, we should basically get back to normal demand. But I think a lot of it will depend on how things pan out in these two geographies.

Amand Wedge — Astotin Investment — Analyst

So Russia had a lot of issues, they closed their center in Russia, so we didn’t get any benefit of that, did we lose any business because of that issue?

Sanjay Shah — Vice President and Chief Strategy Officer

Yeah, we were making some shipments to Russia. So two shipments that came down but the opposite customer Russia was a pretty large market and are pretty fast growing markets with me and made impact on their operation.

Amand Wedge — Astotin Investment — Analyst

Sure, sir, in the initial part of the commentary talked about talked about that we might enter into near areas like consumer electronics and telecom. So, if you can talk a little bit more about it will it be plastics only will we try to merge our capabilities in plastics and steel or any other new material, if you can talk briefly about these new things, which we might try.

Sanjay Shah — Vice President and Chief Strategy Officer

So, we will not be able to talk a lot about it in terms of names, logos, things like that, but it will mean we need to do something around plastic because as I was mentioned earlier, we will be looking at utilizing our the capacities which we have created and the capacities which we have created

Amand Wedge — Astotin Investment — Analyst

Okay, but these will be totally new customers and new segments?

Sanjay Shah — Vice President and Chief Strategy Officer

I’m sorry?

Amand Wedge — Astotin Investment — Analyst

These will be new customers and new segments are the current ones only in these two sectors

Sanjay Shah — Vice President and Chief Strategy Officer

They are newer segments, both. And new geographies also.

Amand Wedge — Astotin Investment — Analyst

Sure, sir on the tight side, you have talked about the stock slowdown almost I think 30 to 40% Fall in our field. So has it been all across? We have two three clients are specific to one client. Are we doing any–are we taking any steps too because we have very good SKU’s and we were trying to increase our business over a period of time, but I understand slowdown is happening but what are the steps as a company we are taking and if you can also talk about it all our customer or is it one particular customer that we are seeing this big drop

Sanjay Shah — Vice President and Chief Strategy Officer

So, Aman we have two customers on board. We are in discussions with both these customers to see how we can scale up and add more products and everything currently the way the business is and with over a drop in volumes typically the customers would be looking at utilizing existing infrastructure with suppliers in China and which is where we’re seeing the market because we drop with some of the Chinese vendors have been very very large. But at the same time we continue to engage with them to see how we can add new products and newer ranges which we can supply to them. We would have I think we should be able to see some momentum that as we speak over the next two quarters and–.

Amand Wedge — Astotin Investment — Analyst

Sure, sir. Final question is on the utilization side. So What kind of utilization are we targeting for next year? And when do we expect the full utilization of whatever we capex we are doing till say March 2023?

Sanjay Shah — Vice President and Chief Strategy Officer

We would probably refrain from answering that question right now till we get further clarity. So let’s wait over the next two quarters, they will be able to give that number

Amit Sanghvi — Managing Director

And we’ll give you an update every quarter on what we see.

Amand Wedge — Astotin Investment — Analyst

Sure, sir. Have we lost any kind of market share in any of our businesses like home furnishing?

Sanjay Shah — Vice President and Chief Strategy Officer

No.

Amand Wedge — Astotin Investment — Analyst

Okay, sure. Thank you.

Operator

Thank you. The next question is from the line of Ritesh Shah from Investec India. Please go ahead.

Ritesh Shah — Investec India — Analyst

Hi, sir, thanks for the opportunity. The first question you did indicate a nice example of for the proper $900 versus $700 For us nearly 60% of sales that Rama just wanted to understand for any other elements, commodities, when you see a differential India procured the cost versus what is that in China.

Sanjay Shah — Vice President and Chief Strategy Officer

This is one where we are very much aware of what I think there have been multiple countries where the sort of input price control has been there with suppliers in China. So that’s where we have been seeing this across multiple categories. Now, we do not know what’s the extent of the difference between a lot of these, but in some cases, we know that almost mentioned one of them.

Ritesh Shah — Investec India — Analyst

I’m just trying to understand from the management or process standpoint, if it is a risk, which we have just picked up, what is the risk mitigation strategy for the company going forward. So on the overall basket that we are looking at 50% is a sizable number. So, just just trying to get a risk mitigation strategy in place when it comes to commodity sourcing and whether it is an input piety business in India, also Chinese Chinese competition.

Sanjay Shah — Vice President and Chief Strategy Officer

I don’t think this is going to be long term sustainable pricing strategy which will be there. So, this is probably did just for a short term purpose and expect that this will get corrected over the next two or one or two quarters or something like that.

Amit Sanghvi — Managing Director

You know, we need to There are obviously certain advantages that India has, whether it is logistics cost or our manufacturing costs. So, we need to we need to take advantage of that on an overall landed costs to any country, typically North America we fare better in Europe, with the additional advantage that they currently have on raw material, it’s very, very close were higher in some cases and lower in in a few we need to we need to treat to see how we can optimize this and still still move forward that one of the key things here is that where there is a true partnership with the customer, that there is an impact but a less of an impact because you know you work on a sustainable long term pricing business model where relationships are new or the product is very very price sensitive and the customer is under tremendous margin pressure themselves it becomes difficult to sustain. So if there is a short term advantage, will they take it? Certainly they certainly will.

Ritesh Shah — Investec India — Analyst

Sure, second ones you were looking to appoint a CEO, has there been any focus on that

Amit Sanghvi — Managing Director

You know, I think given given where the margin stands right now in the utilization we were actively pursuing it until the end of q3 but we have put a we put a hold on it for now. So we will we will reevaluate this at the end of quarter one FY 24.

Ritesh Shah — Investec India — Analyst

Sure I think what we have seen a slippage on both revenue loss and the margin because I think it was really good at the end of the call what is it that they’re doing about it I understand appreciate it as a non because of external variables. But chasing new segments is not the right thing to do. Our be revisiting the the pharma side you didn’t very confident but when it comes to specifically home furnishing garments,

Sanjay Shah — Vice President and Chief Strategy Officer

Ritesh, your voice is breaking in between I think if you’re on a handsfree or — something probably.

Ritesh Shah — Investec India — Analyst

Am I audible?

Sanjay Shah — Vice President and Chief Strategy Officer

It’s a little bit audible.

Ritesh Shah — Investec India — Analyst

So, my question was, basically if you look at the last record on both revenue growth and gross margins.

Operator

Mr. Ratish, there’s a lot of background disturbance from your line.

Ritesh Shah — Investec India — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Adira Sing from America’s Capital Partners, please go ahead.

Adira Sing — America’s Capital — Analyst

Hello. Am I audible? I just wanted to check what’s the outlook for the toys. This is in FY 24 that we have.

Sanjay Shah — Vice President and Chief Strategy Officer

Your purchasing opportunity- we will let you buy in quarter four, early quarter one in terms of how we are going to have.

Adira Sing — America’s Capital — Analyst

Okay. So, I think right now, we have two clients and it will largely be exports- are solid even looking at domestic clients per se.

Sanjay Shah — Vice President and Chief Strategy Officer

Yes, we will be looking at domestic clients also.

Adira Sing — America’s Capital — Analyst

Okay, and just last one thing, how much capex has been done in the toys business and how much asset turnover do we expect?

Sanjay Shah — Vice President and Chief Strategy Officer

The total capex which we have done is about somewhere between 20 to 25 crores in terms of specific capex, which has been done. But that capex is fungible across our business segments.

Adira Sing — America’s Capital — Analyst

Okay, and roughly what’s the asset turnover do we look at in this business?

Sanjay Shah — Vice President and Chief Strategy Officer

Typically, again, given individual ethical work, probably higher.

Adira Sing — America’s Capital — Analyst

Okay, okay. From my side, thank you so much.

Operator

Thank you. The next question is from the line of Manjeet Buaria from Solidarity Investment Managers, please go ahead.

Manjeet Buaria — Solidarity Investment Managers — Analyst

Thanks for taking my questions. Am I audible?

Sanjay Shah — Vice President and Chief Strategy Officer

Yeah.

Manjeet Buaria — Solidarity Investment Managers — Analyst

I have three questions for Amit. Amit, the first question was– you know, a few years back, we had discussed that our largest customer is looking to consolidate their supplier base globally. And you know, their preference of Nashville is gaining market share, or market share within their ecosystem. So, has this hypothesis played out over the last four or five years, or that’s not really played out as expected?

Amit Sanghvi — Managing Director

I mean, we saw good growth last year from that customer? We put up a new facility for them. You know- we’ve talked about this in the past. So, from whether the hypothesis has played out, they’ve consolidated hypothesis has played out, but there is no- there isn’t demand right now. So overall, have we seen- have we seen the growth that we were anticipating? Absolutely not.

Manjeet Buaria — Solidarity Investment Managers — Analyst

Got it, and my second question is in the products which were supplying to a largest customer today. Just the products we already supplied? What would our share the entire global, you know, share with the hub?

Amit Sanghvi — Managing Director

It will vary from, from product category to product category, but I can give you a broad range, it would be everything from 30% to as high as 90%, 100%.

Manjeet Buaria — Solidarity Investment Managers — Analyst

Got it? And four categories, where let’s say you’re below 50% share, if you want to increase our share, is this business bid out? Or do we get to bid for all these opportunities, or it’s more of a one on one negotiation where we need to go and convince them to give us their business, but it’s a tender or a bid with the demo and then you can just participate in it.

Amit Sanghvi — Managing Director

I think two things happen. One is that when- when the customer makes a decision to have more than two or three sources for a particular product category, that product category as a very high service level requirements. We probably- when they create four or five capacities globally, you know, they want to ensure that they never run dry.

Then the allocation of regions, or percentage of volume depends on how competitive one is on landed price. So it’s not just participate, but how competitive one is landed in any of the markets that they serve.

Once a market has been allocated, it doesn’t really go away unless you fail to supply, unless you’re seeking of enormous price increase, which is outside of what the raw material market is, movement is. So, markets don’t typically go away.

The problem right now is that each of the suppliers, each of their suppliers would, would, would be suffering like us, like us. So, it’s not that they’ve taken business away from us and given it to someone else. It’s that they’ve tried to balance out as much as possible, but there’s just an overall significant drop in demand overall.

Manjeet Buaria — Solidarity Investment Managers — Analyst

This was very helpful. One last question on it, you know, in terms of adding more logos, you know, on your site of our largest customer rate, is, I’m sure we would have tried some of that. But you know, we have not really seen massive scale up anywhere overhead. And, you know, given our relationship with this largest customer, you know, our technical capabilities, is the surprising why we have not been, you know, been able to scale up more aggressively with some other peers. So, some thoughts over that will be very helpful.

Amit Sanghvi — Managing Director

Maybe I’ll give you a few examples. You know, in the past, if you, I don’t remember the exact year now, but I think maybe eight, eight quarters ago or nine or 12 quarters ago, we talked, we did add a customer. It was a large German supermarket. We’ve given the name, right? We had added Lidl and we had certainly made some supplies, but the business model is very different from that of our current home furnishings major.

See, they have by cycles, so you make the investment in capacity or in tooling. A, you’re not given any guarantees on whether they will buy or not. B, they have cycles, so they will buy twice or twice a year. You will need to produce in advance and stocking and then ship everything in a in a matter of two weeks.

So as a business, it becomes very difficult to manage, manage the supply chain, manage the manufacturing. Unless you get into a constant cycle of doing this over and over again. And we’ve not been able to practice like that, because we- excuse me, we also don’t have off the shelf products to offer.

We are a– OE. So, we do contract manufacturing for our customers. Having said that, given the current pressure we’re under– we did, we did decide to look, let’s look at a sizable opportunity. And if we need to then make– then have their offering off the shelf we’ll develop it. So, we’re that’s what we’re trying to do right now. But we need some we need business or a model where there is some consistency in ordering and supply.

If you give us too large orders a year, it becomes very difficult to manage. And then these– you know, they give you a production schedule, not so much an order. So if that is correct, you know, is it fair to assume that loss of our growth, because of all this, you know, China plus one or global players, you know, shifting to other countries, you know, it’s not actually a target addressable market for us because we don’t really want to work with low quality business partnerships.

And which means we’ll have to start building something more like a healthcare protocol, is that a fair assumption that the set of competency we have in our largest customer is not so fungible across many of these large other customers globally, just product quality of business perspective.

Sanjay Shah — Vice President and Chief Strategy Officer

I think I think that’s going to one end of the spectrum, not there are many big box retailers, everybody has worked on a slightly different model, I gave you an example of one of the largest in the world. But having said that there are many out there who have white label products where you can have consistency in supply.

And you know, we’re talking to most of them today trying to explore a business model that suits us or is very close to what we’re already doing.

Manjeet Buaria — Solidarity Investment Managers — Analyst

Okay, this was helpful. Thank you.

Sanjay Shah — Vice President and Chief Strategy Officer

Thank you.

Operator

Thank you. The next question is from the line of Radish Shah from Investec India, please go ahead.

Radish Shah — Investec India — Analyst

Yeah. Hi, I’m, I’m audible. I had one basic question, the sort of commercial contracts that we get them when we have in past incurred tooling capex. To my understanding, it did have certain volume commitments. Given the scenario we are in because of external factors, volumes are actually slow. So are we getting basically do we does something accrue to us on backup for the commercial contract that we had in place?

Sanjay Shah — Vice President and Chief Strategy Officer

Yes, so They don’t happen in the timeframe, the timeframe does get extended.

Radish Shah — Investec India — Analyst

Okay, but Sir, then the NPV will change, right? If it’s the same quantum over a longer duration, then it doesn’t make economic sense from the company standpoint. So how does…

Sanjay Shah — Vice President and Chief Strategy Officer

That also gets adjusted, that also gets adjusted in most of these cases, the investment is made by getting an advance from the customer. So technically the NPV will not change.

Radish Shah — Investec India — Analyst

Okay. So so can you highlight given the volume slippage is which are there because of the external variables? When do we see this, in fact, to come in for any large contracts that you have sent this we expected in first half of next year based on the duration of contracts that you have? So, like, Centrify, you indicated, like this are fixed duration contracts, right? So the volume update should have happened over two years or 18 months?

No, I don’t know the start date and the end date for this for the current contracts, given the reporting that we have a lot is attributable to the external slowdown. But I think the company has this volume of take arrangement in place, I just wanted to understand when do we see this benefit on the margins? Given you might have different contracts for different SK use, but is there a number that we have, and we can actually expect a benefit to better light, even if the volumes do not come through, say, in a bad case scenario, say two quarters out or three quarters out?

Sanjay Shah — Vice President and Chief Strategy Officer

So So research, margin. Improvement can happen if volumes pick up. Right? So there are two things here. When you talk about margins, one is the raw material pass through and second, is working to pick up a business, which we’re doing right now, at an overall utilization level. So for people, you will not get that sort of process because businesses are structured in a way where you basically run at very high capacity.

And that’s where you basically generate margins, which you’re able to do when I meant the two year contract. And if we don’t get those volumes, in two years, that contract gets extended for the next six months, one year, that recovery does not happen. Or there could be an upfront payment, which is made by the customer extraordinary costs. interested in wanting to come back to surgery.

Radish Shah — Investec India — Analyst

My question is specifically you gave an example of two years, given we have a significant revenue, which is concentrated with publishing major. Last three quarters have been slow for some reason. And hence, I’m just trying to gauge when does the two year tenure head wherein we will see some additional statements because of this particular variable helping us

Sanjay Shah — Vice President and Chief Strategy Officer

Repeat this thing you will not be asking whether we important the demand for money.

Radish Shah — Investec India — Analyst

Right? I’m saying if the volumes don’t come through, and the money has to still come in. So when when should we look at that scenario? Or has it not got triggered? When do you expect that to trigger? Assuming internally? If I was in your case, I will do bad case forecasting, and then allow to bake those numbers into my p&l?

Sanjay Shah — Vice President and Chief Strategy Officer

So if I’m understanding your question, right, even if it’s better to do something, it will not make an impact on the margin is the way I would put it out. Okay,

Ritesh Shah — Investec India — Analyst

But then what’s the essence of a commodity?

Sanjay Shah — Vice President and Chief Strategy Officer

Specific tooling? Yes.

Radish Shah — Investec India — Analyst

Okay, September, I’ll call you separately for this to understand it better. Thank you so much.

Operator

Thank you. Ladies and gentlemen, that was a last question. I now have the conference over the Mr. Amit Sanghvi for the closing comments.

Amit Sanghvi — Managing Director

Thank you, everyone for joining the call. We hope that we’ve been able to answer your questions adequately. For any further information, I request that you get in touch with SGA or investor relations advisors. Thank you very much and have a nice day.

Operator

[Operator Closing Remarks]