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Sudarshan Chemical Industries Limited (SUDARSCHEM) Q2 FY23 Earnings Concall Transcript

SUDARSCHEM Earnings Concall - Final Transcript

Sudarshan Chemical Industries Limited (NSE:SUDARSCHEM) Q2 FY23 Earnings Concall dated Nov. 10, 2022

Corporate Participants:

Nilkanth Natu — Chief Financial Officer

Unidentified Speaker —

Rajesh Rathi — Sudarshan Chemical Industries Limited

Analysts:

Ankur Periwal — Axis Cap Limited — Analyst

Sharan Nandipur — Individual Investor — Analyst

Meet Vora — Axis Capital. — Analyst

Unidentified Participant — — Analyst

Viral Shah — Enam Holdings — Analyst

Amar Mourya — Alpha Accurate Advisors — Analyst

Jinal Shah — Orica Capital Advisors — Analyst

Arthur Shah — ISS Prudential AMC — Analyst

Deep Paul — Individual investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Sudarshan Chemical Industries Q2 FY ’23 Earnings Conference Call. hosted by Axis Cap Limited. [Operator Instructions].

I now hand the conference over to Mr. Ankur Periwal of Axis Capital. Thank you, and over to you, sir.

Ankur Periwal — Axis Cap Limited — Analyst

Thank you, Inba. Good morning, friends, and welcome to Sudarshan Chemical Industries Limited Q2 FY ’23 post results earnings call. The call will be initiated with a brief management discussion on the quarterly and first half performance, followed by an interactive Q&A session. Management team will be represented by Mr. Rajesh Rathi, Managing Director; and Mr. Nilkanth Natu, Chief Financial Officer. Over to you, Rates for the initial comments.

Nilkanth Natu — Chief Financial Officer

Thank you, Axis Capital and uncover well for hosting our earnings call. Masland Natu, I will be giving the opening remark. Good morning, ladies and gentlemen. Welcome to Sudarshan Q2 FY ’23 Earnings Conference Call. Our investor presentation has been uploaded on the stock exchanges for the. I would like to take your financial highlights for this quarter. It was indeed again, a very challenging quarter, both on the sales as well as margin trend. On a consolidated basis, total income from operations stood at INR528 crores as compared to INR498 crores for the same period last year, reporting a growth of 6% year-on-year.

Treater stood at INR43 crores compared to INR53 crores in Q2 FY ’22. EBITDA margin stood at 8.1% as compared to 10.6% over the same period last year. Profit after tax is at INR5 crores compared to INR23 crores for the same period last year. On a half yearly basis, Total income from operations stood at INR1,083 crores versus INR972 crores in the same period last year, a growth of 11%. EBITDA for H1 is at INR84 crores versus INR15 crores last year. And EBITDA margin is at 7.8% versus 11.3% over the same period last year. is at INR12 crores compared to INR49 crores for the same period in the last year. Now going into the details of our pigment business. For the quarter, income from operations stood at INR476 crores as compared to INR448 crores for the same period last year, a growth of 6% year-on-year. However, most of this increase is due to price correction, and there has been volume degrowth both in India as well as export markets.

India bill for the quarter is at INR235 crores as compared to INR239 crores in the same period last year. We have continued seeing buying decisions determined by the customer due to volatility in overall prices, which has resulted in lower inventory levels at the customer range, especially in the plastic segment, it has impacted due to the volatility in polymer prices, which remained throughout the quarter. In the Coatings segment, all the coating companies were a bit in Q1 about the season and generated healthy demand and increase the inventory level. Unfortunately, due to the extended monsoon, demand for spend did not pick up as anticipated. Growth was seen in growth has been more in economy and commodity product segment of the coating industry, which is economy, immersion undercoats, etc, where we have a lesser presence.

Overall, this has led to the lower demand generation for our product as majority of the coating companies optimize its requirement from the inventory buildup in the quarter 1. However, our market share in coating and plastic has been well maintained. Export for the quarter is at INR242 crores compared to INR29 crores, a growth of 15% year-on-year. However, geopolitical situation due to Russia, Ukraine was supply chain constraint, tightening of the monetary policy by majority of the central bank to control inflation Rising interest rates are leading to subdued demand across majority of the region.

Europe has witnessed major demand disruption and China’s Zoover policy has also led to overall demand contracts. Specialty segment sales stood at INR331 crores as compared to INR302 crores for the previous year. same quarter, up by 9%. Nonspecialty sales for the quarter is at INR145 crores as compared to INR146 crores for the same period last year. Gross margin for the quarter is at 39% as compared to 44% for the same period. Raw material prices during the quarter were at relatively stable level. driven mainly due to lower demand and subsequent price corrections of majority price drivers such as brain crude, benzine and tolling prices However, due to higher inventory level, we could not offer taco this benefit immediately. Apart from the raw material costs, we continue to see energy cost at an elevated level. Coal prices have gone up further, and it is pushing up the manufacturing cost.

EBITDA for the quarter stood at INR39 crores as compared to INR50 crores in Q2 FY ’22. And the margin, EBITDA margin is at 8.2% compared to 11.2% over the same period last year. As mentioned earlier, overall geopolitical scenario and tighter monitory policy resulting in subdued demand, leading to volume degrowth in certain segments and geographies. This has also resulted in pricing pressures leading to short pass-through of the cost increases. Most of these factors have impacted margins, both in absolute as well as in percentage terms. Given the difficult external environment, management is aggressively focusing on structural cost reduction initiatives, which was reflected in the EBITDA margin percentage for the quarter. with direct as well as indirect cost, material cost pressure lingering.

We will have to continue with our pricing decisions with calibrated approach to balance on volume growth. Now coming to capex projects, which is our first for future growth. We are in a growth phase to implement overall capex of INR750 crores, out of which we have put to use assets for INR20 crores in now. balance INR110 crores projects are in CWIP. All these projects are at advanced stage of completion, and we expect commercialization soon. About 85% of our capex has been put to use and started the new demand for the new product capex, we are getting the good responses from the customers, and these products are at advanced stage of customer evaluation. However, due to demand contraction, the revenue ramp-up is slightly getting delayed. In the midterm, the management remains confident to accrue the benefits as these are a specialty product and should generate good demand and product line remains very attractive. I will just hand it over to Mr. Sagati for his view on the midterm.

Thank you so much, Mr. N. I think the current results should be seen in view of the global situation. But however, the midterm to long term, the company sees a very bright perspective given that we have built the broadest portfolio in the industry, and we’ve also built good techno-commercial capabilities. So we do expect midterm and long term to kind of look at improved margins, improved margins. The matter is, it’s a little difficult to predict when this turnaround would happen given the current geopolitical situation. But as soon as I think the demand is back, all our capex is stockpiling. We should be able to see a far better situation. Yes, over not Yes. Thank you, Jo. So thank you for our participants. We look forward to our continuing our growth journey and delivering value to all our stakeholders.

With this, we now open the floor for question and session. Thank you.

Questions and Answers:

Operator

Thank you very much. sir. [Operator Instruction] We take the first question from the line of Sharan Nandipur an Individual investor.

Sharan Nandipur — Individual Investor — Analyst

Yes. My first question is, as you mentioned, the energy costs are high, which is impacting the margin and profit. How long is this going to be there as per your view? And also, like from when you’ll be able to pass on the price to the your customers, hello

Rajesh Rathi — Sudarshan Chemical Industries Limited

Yes. So this is Rajesh. I think given the, given, like I mentioned, given the current situation, we do see the India demand to be improving. However, the global context, the geopolitical situation kind of continues to be intense and we do see a contraction of demand, especially in Europe and China. Given this context, I think probably Q3, we expect some improvements in the research. We are taking a very cautious stance where we increase prices but don’t lose volumes, right? So we are maintaining a very diluted balance there.

Sharan Nandipur — Individual Investor — Analyst

Okay. And second question is on the two of your competitors who are exiting this domain. So from when exactly we are going to get a benefit from them and you will see the profit and additional volume coming to you because of the existing business?

Rajesh Rathi — Sudarshan Chemical Industries Limited

So there’s a balance of headwinds and tailwinds, so there are several headwinds because of demand contraction, etc., but there are certain tailwinds like some competitors exiting the business and also the high energy cost in Europe, right? So this should give us some tailwinds in the coming quarters that our competitors will not be competitive, but there’s a balance between the headwinds and tailwinds, so we do expect certain benefits to start coming especially from Q4.

Sharan Nandipur — Individual Investor — Analyst

Okay. And last question on the new product launch last, I think a couple of quarters, we have launched a new product, right? Can you throw some light on those like new products from when they are going to give a benefit and the capacity utilization will be from when it will be almost full for the new product?

Rajesh Rathi — Sudarshan Chemical Industries Limited

Yes sir. So I think several of the, let me share in our commentary, several of our new products are just being put to use. There are two product lines being still we have to put to use. So there is a good attraction of demand for these products. However, given the slowdown, there is a certain, the sales activation is a bit slow. The one product, yellow product, which we had launched some time ago that we are able to hit our targeted volumes and we are able to get good response for that.

Sharan Nandipur — Individual Investor — Analyst

Okay. [Indecipherable]

Operator

Thank you. Our next question is from the line of Ankur Periwal of Axis Capital.

Ankur Periwal — Axis Cap Limited — Analyst

So first, if I look on the revenue side, on the domestic side, we were seeing decent volume or revenue growth until Q1. But there is some slowdown now. Is it largely led by the demand pushback that you talked about earlier? Or if you can probably share your thoughts on segments, the key segments in domestic market?

Rajesh Rathi — Sudarshan Chemical Industries Limited

So basically, in the India market, I think what we have seen is that basically in the plastic segment, we have seen a big, either differing our decision because polymer prices were dropping. So inventory in the supply chain was very low. Or the second thing is there was polymer ability issues in Q1, right? So the plastic demand there has been very, very shortage there. In terms of coatings the economic coating segments have been, have increased more than the premium where our products play, right? So that’s where we see a little bit of demand contraction. However, I would like to a short and restate plan, we have not lost our market share or we’ve not lost any of our wallet share. So we are keeping a very close eye on that. And it’s just given the current situation. And a mentioned, we’re already seeing some improvement in demand in the India market.

Ankur Periwal — Axis Cap Limited — Analyst

Sure. And similarly, on the international side, the numbers are broadly, we have been able to manage the quarterly run rate there. But as you mentioned, there is a volumetric decline and pricing-wise, there is an improvement, which is where the growth is coming from. Any thoughts with respect to specific geographies? Maybe Europe is it more? Or if you can provide some color Sure, sir.

Rajesh Rathi — Sudarshan Chemical Industries Limited

I think Europe and China as Europe and China has been hit Europe because of the energy crisis and the demand contraction in Europe in China, given the 0 cold policy, I think demand has been very, very subdued. Also, there is an antidumping duty proposed on Torosa pigments for China is levered by China on all the Indian producers. So these have, these have hit us and the industry quite badly. Navin, you would like to add something. Okay. So Ambu, as we have mentioned that the export demand remains subdued and with this overall tightening monetary policy, the inflation rate is higher, interest rates are going higher. We see that the demand will remain in the same range. The regions which we mentioned, in fact, sale was Europe wherein we saw the demand contraction. China, as Mr. Rajesh Rathi has mentioned, has been due to the cover policy has been the demand disrupted. The new one, which is the antidumping, which we have mentioned on the sale for the India exporter to China. This is something we have to watch out for

Ankur Periwal — Axis Cap Limited — Analyst

Sure. And sir, if you can share the broad revenue breakup as in revenue contribution coming from Europe and China put together?

Unidentified Speaker —

So Anko, Nelson here. So we don’t give the plate region wide, but Europe being our major subs, it is a material subsidiary. So that portion is available in the public domain, but we don’t give it right now here Sure.

Ankur Periwal — Axis Cap Limited — Analyst

And sir, lastly, on the capex that is coming for a completion. So CWIP of around INR190-odd crores A large part of it or maybe the entire sales will be put to use by the end of the financial year? And secondly, on the new product side, if you can share your thoughts in terms of product approvals and how the trends have been taking both domestic and international.

Rajesh Rathi — Sudarshan Chemical Industries Limited

Yes, I think most of the capex should be put to you by December end. In terms of, if you look at our capex, our capex is, most of the new product capex are getting put to use now. So we expect that there is a good product, the product like Navid mentioned, the product approval cycle is working well. However, due to the sluggish demand, we are seeing a little bit of a slow demand. That’s one area. The yellow pigment, which we had launched earlier, we are seeing a very good demand and very good demand and as per expectation, we are kind of looking at that. The, some of the cogen investments, which we have done for improving our EBITDA. Those are not playing out well because of the coal price increases. So all those benefits which we have approved for that, that’s not bring out that on those.

Ankur Periwal — Axis Cap Limited — Analyst

Okay. Thank you and all the best.

Operator

Thank you. [Operator Instructions] Our next question is from the line of Meet Vora from Axis Capital.

Meet Vora — Axis Capital. — Analyst

Hi guys. So, thanks for the opportunity. The first question was on the gross margin side. So Q-o-Q over, we are seeing around 300 basis points then our gross mark business, primarily because of high cost inventory that we have maintained because in our deflationary environment are crude oil and vending prices have been falling. So your view on that? And secondly, on cost control measures, what specific we are doing so that how are we going to look at overhead going forward?

Nilkanth Natu — Chief Financial Officer

Hi, Nilkanth here. So on the gross margin, the year-on-year gross margin percentage, what you have seen is 3% to 4%, this is down. But last year, H1, it was a period where the inflation has just started in terms of the cost inflation and where pricing pass-through was happening. And we were able to pull the prices early in the market. So that was a trend. But if you really see the Q3, Q4, the gross margin has settled in the last year in the range of around 4% to 5%. If I see the quarter-on-quarter gross margin reduction, it has been around 10% plus. This has been majorly because we have seen the raw material prices getting stabilized. We had some raw material inventories. At the same time, considering the subdued and lower demand in the market, we have to take those costs to have our market share and volume protected.

So there has been a short pass-through in terms of maintaining that volume, which has been a function call. We see that this should get revised over a period once we started demand getting picking up. And we see the raw material prices to be stable at a given point of time, we really don’t know how in the geopolitical situation will play out. but which is we should see some bit of traction and gaining the momentum in the coming quarters. In terms of the cost reduction, considering this difficult external environment, we as the management has taken a various structural cost initiatives, and we are looking at all the costs which are picked in nature or which can be controlled with respect, whether it’s manufacturing or whether it is an employee or whether it is in the other, so those cost initiatives are put in place, and we are rigorously monitoring that. We expect some benefits also this benefit should come in place. If you really see our EBITDA percentage, while the sales has been lower compared to Q1, the EBITDA margin is at around 70%. So it shows that cost has been tightly penta, and we will continue to monitor that.

Meet Vora — Axis Capital. — Analyst

Thank you. Thank you.

Operator

Our next question is from the line of [Indecipherable]. Please go ahead.

Unidentified Participant — — Analyst

Sir, the question was in some of the products with China is dominant. We are seeing that because of their local weakness, they have become more aggressive in exports. Is there a similar trend that you see in, even in pigments for your domestic market and probably even in Europe? And if you can, if that is true, what is the level of intensity, if you can give some thoughts there. I mean I mean the low on pricing already achieved or still the aggressiveness continues? Or where are we in that phase effects there.

Rajesh Rathi — Sudarshan Chemical Industries Limited

So we do see some pricing in, within India and in the Middle East region. But I think the other regions other regions, we don’t see that so much happening from India Right?

Unidentified Participant — — Analyst

Okay. So China is not very intensive. I was trying to understand — I mean, the China intensity is not

Rajesh Rathi — Sudarshan Chemical Industries Limited

China intensity. So sorry, I didn’t understand your question then

Unidentified Participant — — Analyst

I was trying to understand, I mean, some of the other communities, we see that China is, because of the local weakness exporting a lot in other countries.

Rajesh Rathi — Sudarshan Chemical Industries Limited

Absolutely. Given the very weak demand in China, China has especially been very aggressive in Southeast Asia, right? In U.S., there is an antidumping duty. So that doesn’t work out much for them. But in Southeast Asia, we’ve seen a lot of aggressive pricing from in especially the ink area from China.

Unidentified Participant — — Analyst

And Europe and some comments on the intensity of this. I mean, where are we in this phase of the aggression margin.

Rajesh Rathi — Sudarshan Chemical Industries Limited

So I think even in terms of I think China has already hit the bottom. I don’t see this happening more. And that’s where we have been trying to maintain our volumes in some of these countries, we are still sticking to the rigid and even if we have to manage with a lower margin there, right. This, we are looking at, we are hoping that some of the China demand revives the core policy is looked into, etc. The demand normalizes there. And then I think China should become a little more less aggressive.

Unidentified Participant — — Analyst

Sure, sir. And related to this is, so there was also an issue at least for last three, four quarters that the RM prices are very high and increasing consistently. So given the demand weakness, do you see a release in RM prices? I understand the demand can be, volumes can be weak, but can there be some offset from RM price decline? Or are the RM products something which goes into many products, so there’s not pigments which influences the ARM pricing and hence you will not see a significant increase

Rajesh Rathi — Sudarshan Chemical Industries Limited

So we are seeing a shortening of our RM prices and some of the customers do expect to pass that on pass that on given that we had increased some of these prices. So on a selective basis, we are looking at weather opportunities and we do pass pass those on right. But we are seeing a considerable softening in raw material prices.

Unidentified Participant — — Analyst

Okay. But that will not lead to meaningful given the situation in your view, given the demand situation. give us improvement in the gross margins, given the

Rajesh Rathi — Sudarshan Chemical Industries Limited

So I think the question really comes in is how does volume a little bit pick up, and that’s where we will be able to kind of, for the industry, everyone sees the volume, and that’s how we would be able to improved the gross margin gross margin going forward.

Unidentified Participant — — Analyst

The last two questions is, earlier, we were also impacted significantly because of the high Seafreight rates in Europe and U.S. and which have been our major markets. for exports. Now we have seen to have come down very significantly, although probably a bit still higher than the covered levels. But do you see any benefit from that in terms of your competitiveness to the markets now?

Rajesh Rathi — Sudarshan Chemical Industries Limited

Surely, sir. You actually said they’ve softened, but not to the original levels. And we should be, we should see a favorable, we should see that favorable for us going forward.

Unidentified Participant — — Analyst

Can you give some quantitative sense, less for us to understand how, what was the impact ecoat was the cost? How did it change go forward? I mean, the peak of the seafreight and what it would be now. Just to trying to understand how what was the impact for us? And how can that change?

Rajesh Rathi — Sudarshan Chemical Industries Limited

Just one second.

Unidentified Participant — — Analyst

Some relative sense. I mean I understand we get the numbers for the sea freight, the index numbers, but how does it impact us in terms of probably per kg of our product or percentage of our product that way?

Rajesh Rathi — Sudarshan Chemical Industries Limited

Here. So like we will not be able to share the specific on the call. But if I see the freight prices and at too in terms of the export market. The issues were to hold. One was the container availability that is a logistics challenge and second was the type of taking rate. We have seen for particular segments to Europe and the U.S. rate has been going up as high as 300%, 3x the cost, which we have seen during the peak over. While we are seeing the softening of this particular freight rate on the select routes. It is still above the proved level, but it is not what we have seen as a peak, which is three times, it is now coming in an average range of 150% to 200% in between that range. But we see the softening. And majority of the softening of this rate has happened during Q2. That is a late part of Q2 from August onwards. We will see the benefit to come in the coming quarters.

Unidentified Participant — — Analyst

Because even in your annual report, I don’t get the split of expenses of freight and forwarding, so I’m just trying to understand what was the breakover levels as a percentage of sales? What did it change to and what can it be in the future? Just to get some quantitative sense in terms of what the implication could be?

Rajesh Rathi — Sudarshan Chemical Industries Limited

But one part here, as a percentage to the sale, we were able to maintain the percentage to the summit anything it should be going forward. we’ll look at it what can be shared and then we put it on we’ll look at this, what can we channel do that

Unidentified Participant — — Analyst

Yes. Sure. And sir, one last question just to squeeze is your new products, say, I understand some products are still ramping up. But in your yellow pigment, the newly launched allow segment, do you see the margin profile similar to what you were expecting or you were targeting? Any comments there?

Rajesh Rathi — Sudarshan Chemical Industries Limited

Sure. I think basically, the pricing which we expected, we’re getting that. Some of our initial costs were a little higher because of the teasing issues, etc, in yields in terms of conversion costs. which the team is working on it, and we see going forward to attain those margins, right? And it should be in a very short term that we should be able to retain those margins

Unidentified Participant — — Analyst

Thank you so much, and all the best

Rajesh Rathi — Sudarshan Chemical Industries Limited

Thanks, thank you.

Operator

We’ll take our next question from the line of Viral Shah from Enam Holdings.

Viral Shah — Enam Holdings — Analyst

Is it better? Hello. A few questions from my end. First is, sir, on the volumes, while I appreciate that you do not share the volume numbers, but can you just help us understand from the peak volumes now, how much our volumes would be down?

Rajesh Rathi — Sudarshan Chemical Industries Limited

From a quarter-to-quarter basis, our volume is down by 9%.

Viral Shah — Enam Holdings — Analyst

Okay. Okay. But from the peak, would we have seen a 20%, 25% drop in volumes or that would not be the case?

Rajesh Rathi — Sudarshan Chemical Industries Limited

I think we look at it, we’re going to have an answer of that.

Viral Shah — Enam Holdings — Analyst

Sure. Sure. Sir, secondly, just on, on the raw material side, we believe that we’ve seen possibly the raw material prices. So would it be possible to share as a basket? What is the kind of price decline that we’ve seen on our raw material side?

Rajesh Rathi — Sudarshan Chemical Industries Limited

Can you please repeat your question thermistor.

Viral Shah — Enam Holdings — Analyst

Sure. Sir, just on the raw material side, I wanted to understand as a basket of raw materials, how would our raw material basket have behaved, so let’s say, if it was 100 in August or September, what would it currently be.

Rajesh Rathi — Sudarshan Chemical Industries Limited

So we have a wide, so Viraj’s a difficult question to answer on a call we study how we can kind of publish this information

Viral Shah — Enam Holdings — Analyst

Okay. But at least on the key raw materials, would we have seen a single-digit decline in pricing or a double-digit decline in pricing just in directionally, if you could buy

Rajesh Rathi — Sudarshan Chemical Industries Limited

In a couple of commodities, we have seen a single-digit decline. It has been the early sign of the raw material getting open. We are not seeing the correction to the extent of double digit. It has been this early time, and it has been in the single digits.

Viral Shah — Enam Holdings — Analyst

Sure, sure, sure. Sir, to one of the earlier questions, you said that there is some softening in which we may look to pass on. So just to understand, sir, our EBITDA margins have actually dropped from 15% or 16% to around 8%. And in an inflationary scenario, we were not able to fully pass on the price rise. So One is the deflationary scenario is starting, why are we looking to pass on prices? Is it that competitive intensity remains high? Or is there something else that we should be looking at?

Rajesh Rathi — Sudarshan Chemical Industries Limited

So two things, sir. One is, given the demand contraction in the market, we want to ensure that we are not losing our market share, right? That’s one. The second is the EBITDA margins have dropped also due to lower volumes, right? So as we gain back our volumes, our EBITDA the EBITDA should improve, right, with the better from the operating cost, so we are taking very calculated decisions. We are not saying that on month we are going to reduce prices to the full extent. We are looking very calculative where, what we need to do, etc. And as I said, there are certain regimens because the energy costs in Europe are high. So our competition competes from Europe are significantly looking at a higher cost compared to us

Viral Shah — Enam Holdings — Analyst

Sure. But just on the demand with, as you said, the volumes continue to remain low. So is it possible to throw some light how the exports are behaving in October and November, while domestic you did guide that you are seeing improvement, but can you just add how is export?

Rajesh Rathi — Sudarshan Chemical Industries Limited

So exports remain currently are at the same level. So we’ve not seen any improvement in exposure basically in Europe and China.

Viral Shah — Enam Holdings — Analyst

Okay. Just last bit on a clarification, you said China has imposed ADD on Indian imports. So have you already imposed do are they still evaluating.

Rajesh Rathi — Sudarshan Chemical Industries Limited

So it is, so it’s a provisional duty right now. And for all Hachinan Imports, the provisional duty is the confirmation will come later, but right now, the provision.

Viral Shah — Enam Holdings — Analyst

And what would the rate be in? Would it be different for different instant only for allowance. So what would that number be, sir?

Rajesh Rathi — Sudarshan Chemical Industries Limited

So it ranges between 14%.

Viral Shah — Enam Holdings — Analyst

Okay. And just one last thing. Sir, the other expenses during the quarter has seen a drop from INR135-odd crores that was there in the last quarter, INR118 crores. Would it be possible to highlight the reason for this?

Nilkanth Natu — Chief Financial Officer

Nilkanth here. So as we mentioned earlier in the call, we have taken the structural cost reduction initiative. So that is also helping us during the quarter. And as well as, as we mentioned, the volume has been growth. There has been some variable costs with a lead to the production that has also been on the growth.

Viral Shah — Enam Holdings — Analyst

Sure. Thank you so much.

Operator

Our next question is from the line of Amar Mourya from Alpha Accurate Advisors. Please go ahead.

Amar Mourya — Alpha Accurate Advisors — Analyst

Hi sir. Thanks for the opportunity. A couple of questions from my side. Like Firstly, sir, I mean I know the results are bad. the scenario is not that great. But if we see the green shoots which are available to you, First is that you are talking about domestic business recovery. Second, you are saying that new product launches are seeing good traction, specifically the looking. I believe where the bulk of the capex was there. around INR350 crores to INR370 crores. Second, and then you are saying international freight because you have the contract in Q2. So from Q3, the international freight prices are also going to decline for us. So don’t you see that these all 3 things will bring some improvement in your profitability?

Rajesh Rathi — Sudarshan Chemical Industries Limited

So sir, like we said, Forsys, think the figure is not correct, and we’ve not declared ever that the Yellow 138 figure, so the figure is not correct. It’s not that high, right? So there are several projects, several products which we’ve gone into the capexes and several of the capexs have just got completed, right? So that is one. Of course, there are several tailwinds and most importantly, a management focus on controlling costs, right? So these are working very well for us. However, there are several headwinds too, right? So with a balance between the headwinds and payments, and that’s where we are not coming out chain, and we don’t know how this is going to pan out, right? So it’s a little difficult to say how your of this fun to come out, we are talking about U.S., we’ve been doing well, but we are still seeing no contraction of demand there, right? So from that perspective, we are kind of, we have a neutral view right now. That’s where we come through that.

Amar Mourya — Alpha Accurate Advisors — Analyst

And secondly, like, so what is the big problem you are seeing? Are you seeing that the volume degrowth, which you are seeing in the international market is the big problem for you?

Rajesh Rathi — Sudarshan Chemical Industries Limited

Yes. absolutely yes.

Amar Mourya — Alpha Accurate Advisors — Analyst

Okay. And are you also seeing the volume degrowth in the domestic market as well?

Rajesh Rathi — Sudarshan Chemical Industries Limited

Well, last quarter was. And like I said, we are seeing some recovery.

Amar Mourya — Alpha Accurate Advisors — Analyst

So basically, let’s say, going into the Q3, do we see the domestic volume growth or volume growth?

Rajesh Rathi — Sudarshan Chemical Industries Limited

I think we should recover the volumes, whatever was deco.

Amar Mourya — Alpha Accurate Advisors — Analyst

Okay. And then, sir, then in the international side, basically, don’t you see that, as you said, that euro prices Europe players. I mean, majority of your competitors are European, and they would be having their facilities in Europe. And as you said that their costs have increased dramatically. So don’t you see that some of the volume because their prices would have gone up significantly high, some of the volumes, which you can attract from that business also?

Rajesh Rathi — Sudarshan Chemical Industries Limited

So sir, like I said, these are the tailwinds, right? And there’s a balance between the tailwinds and the headwinds, right? And how it plays out is a question because as in the earlier question, we also mentioned that in China, there is a lot of pre-capacity because of the lower demand within China, right? And they are also very aggressive. So there is a balance of that, and that’s where we are saying that that’s why we’re saying there’s a balanced view on that.

Amar Mourya — Alpha Accurate Advisors — Analyst

Okay. So basically, you are not seeing that any early indication of this Europe cost prices going up. So you are not likely to get some benefit out of that? Because I believe European is the major competition, right, for you in terms of your all players, whether and,

Rajesh Rathi — Sudarshan Chemical Industries Limited

Yes, yes. So Europe is a competition. I’m saying like we are saying, yes, we should get some tailwinds there, yes, sir.

Amar Mourya — Alpha Accurate Advisors — Analyst

So because why I’m saying, sir, when the, I mean, when the scenarios may give you, everybody is going to see that only. But I mean, I’m just trying to understand that a lot of greens don’t you think that is visible for you at this point of time, which may not, I mean, which may not culminate immediately, but at least going into two quarters, don’t you see that these all tailwinds will basically benefit you.

Rajesh Rathi — Sudarshan Chemical Industries Limited

Like I mentioned in our opening remarks that midterm, long term, we are very bullish on both, we have some dates portfolio. We are in a low-cost region. We have immense technical capabilities, including technical marketing, we have the commercial reach. So I think we were not going for us. It’s a matter of, the current scenario is just the current scenario on geopolitical situation, what’s happening, right? That’s where we are.

Amar Mourya — Alpha Accurate Advisors — Analyst

So let’s say that going back in Q4 until Q4, don’t you, I mean do you see that something will normalize for us it’s just a 1 quarter kind of a pain which is just left?

Rajesh Rathi — Sudarshan Chemical Industries Limited

It’s very difficult to predict accurately, right? That’s why I’m saying that, so we would not like to make forward-looking predictions exactly. I can tell you directionally what it is, right? Directionally, the fundamentals of the company are very strong, right? So that’s where we are coming.

Amar Mourya — Alpha Accurate Advisors — Analyst

And sir, lastly, sir, the new products, like no pigment took a lot of time to basically give the approval and pick up. So all the other new capex’s, which we had done are we going to take same time for that? Or this would be faster than the earlier one.

Rajesh Rathi — Sudarshan Chemical Industries Limited

I think it should be faster because the other products goes into various industries, not just pain, right? And also, we are not, we did have not sealing issues with 130, which we are not seeing so much with the other products.

Amar Mourya — Alpha Accurate Advisors — Analyst

Okay.

Operator

Mr. Amar, I’m sorry to interrupt me return to the queue. Thank you. We’ll take a next question from the line of Jinal Shah from Orica Capital Advisors.

Jinal Shah — Orica Capital Advisors — Analyst

Yes. Good morning. I’m new to the company. I just wanted to understand a couple of things. The pigment that you spoke about the new product, can you just talk about it in terms of the differentiating factor there?

Rajesh Rathi — Sudarshan Chemical Industries Limited

Sir, can you repeat your question, please?

Jinal Shah — Orica Capital Advisors — Analyst

Yes, sorry. Am I audible now?

Rajesh Rathi — Sudarshan Chemical Industries Limited

Yes, you are.

Jinal Shah — Orica Capital Advisors — Analyst

Yes. Okay. So I just wanted to, I’m new to the company. So I just wanted to get a basic understanding of the new product, the yellow pigment, and it’s basically characteristics versus the other products?

Rajesh Rathi — Sudarshan Chemical Industries Limited

Sure, sure. So this is a very unique high-performance segment for mainly the paint application, which has very good weather fastness, there are only one or two other producers in the world and probably Coversin is the third producer in the world. And this was one of our flagship product, and the first one, which was introduced in our capex program. Okay.

Jinal Shah — Orica Capital Advisors — Analyst

And lastly, what I wanted to understand was that in a normal environment, all the capex that has been spent, how many years would you take for it to get fully utilized?

Rajesh Rathi — Sudarshan Chemical Industries Limited

Our normal would be three to four years so,

Amar Mourya — Alpha Accurate Advisors — Analyst

Normal would be three to four years. Okay. Thank you so much.

Operator

Thank you. Our next question is from the line of Arthur Shah from ISS Prudential AMC. Please go ahead.

Arthur Shah — ISS Prudential AMC — Analyst

Yes. Hi, thank you for the opportunity. So basically, sir, I just wanted a view on in terms of margins if you have to take a call. Do you think we have a bottom and there’s a possibility directionally, we will move upcome here? I know the quantum will be difficult. But if you have to take a call in terms of probability, how much probability will you assign that margins would directionally go up from here?

Nilkanth Natu — Chief Financial Officer

This is Nilkanth. So yes, given the current scenario and what margin we have reported now, with the outlook on the India market, which should get revived considering that export remains at the same level, raw material prices getting softer and we are able to calibrate our pricing pass-through. We expect that margin should improve. Maybe the immediate recovery may not be in the quarter, but over a period, in a quarter or two, we will start looking at the upward trajectory in terms of our margin.

Operator

Our next question is from the line of Deep Paul an Individual investor.

Deep Paul — Individual investor — Analyst

So my question is regarding the competitive landscape. So, can you please comment on some Indian origin competitors and Chinese origin competitors, how they are sharing compared to our product portfolio.

Rajesh Rathi — Sudarshan Chemical Industries Limited

So on overall basis, I think we have the broadest product portfolio in terms of high-performance pigment classical pigments, classical palosanines, solvent ice CICPs effect segments, right? In fact, if you look at our product portfolio, you combine the number one and number two, that will be up for our portfolio. Most of the Asian competitors have a very limited to our portfolio and also limited capabilities on gocomarket and technical marketing, coming to the short-term scenario, I think probably amongst the amongst the industry. So I think the industry has been facing some currency on both margins and volumes.

Deep Paul — Individual investor — Analyst

Okay. That’s all from my side.

Operator

As there are no further questions from the participants, I would now hand the floor back to the management for closing comments. Over to you, sir.

Nilkanth Natu — Chief Financial Officer

Thank you. Thank you, Ankur and Ares Capital, and thank you participating for your time and interest in Sudarshan Chemical. As we mentioned in the opening Para, this has been indeed the difficult quarter, and we had seen the H1 being in a difficult However, we remain confident in our longer-term prospects of our business. And we look forward to engaging with you again in the future. Thank you.

Operator

[Operator Closing Remarks]

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