Tarsons Products Limited (TARSONS) Q3 FY23 Earnings Concall Transcript

Tarsons Products Limited (NSE:TARSONS) Q3 FY23 Earnings Concall dated Feb. 13, 2023.

Corporate Participants:

Rohan Sehgal — Whole-Time Director

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

Rohan Sehgal — Chairman and Managing Director

Analysts:

Mitesh Shah — Nirmal Bang Institutional Equities — Analyst

Karan Khanna — Ambit Capital — Analyst

Garvit Goyal — Invest Research — Analyst

Unidentified Participant — — Analyst

Harsh Mulchandani — Kriis Portfolio — Analyst

Mitul Rajanikant Shah — Nirmal Bang — Analyst

Harsh — Marcellus Investment Managers — Analyst

Dheeresh Pathak — White Oak Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Tarsons Products Limited Q3 FY’23 Earnings Conference Call hosted by Nirmal Bang Equities Private Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Mitesh Shah from Nirmal Bang Equities. Thank you and over to you, Mr. Shah.

Mitesh Shah — Nirmal Bang Institutional Equities — Analyst

Thank you. Nirav. Good afternoon, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome you all to Tarsons Products 3Q FY’23 earnings conference. From the senior management team, we have today with us Mr. Rohan Sehgal, Whole Time Director; Mr. Santosh Agarwal, CFO. I will now hand over this call to the management of Tarsons Products for the opening remarks, post which we can start Q&A sessions. Thank you and over to sir.

Rohan Sehgal — Whole-Time Director

Good afternoon and a very warm welcome to everyone present on the Q3 FY’23 earnings conference call for Tarsons Products Limited. Along with me today, I’m joined by Mr. Santosh Agarwal, the Chief Financial Officer and the Company Secretary for Tarsons Products Limited and SGA, our Investor Relations Advisors. We have uploaded our quarterly investor presentation in the stock exchanges and the company’s website. I hope all of you had an opportunity to go through the same.

Let me begin with the industry insights, followed by our financial and operational performance for Q3, as well as the nine months FY’23. First, I would like to provide some background of the Life Science industry. The overall industry is slowing down on the back of current recessionary trends and after effects of the COVID pandemic. We have also seen slowdown across our end-markets including diagnostics, academia, as well as research institutes. Pharma, however, has been pulling up, but not at the same levels compared to pre-pandemic days.

Diagnostics industry is seen declines volumes and the entry of new players in the industry has distributed the existing volumes and in terms of demand for our products. Academia and research is yet to gain momentum and post recently announced financial budget, we envisage uptick in volumes for our coming quarters. We believe that problems are temporary in nature and the industry will revive soon on the back of growing demand for labware products across customer segments. We are seeing new investments made in the industry and the new players are entering the pharmaceutical and diagnostic industries, which will be beneficial for the overall life science industry, as well as plastic labware suppliers.

Speaking of the financial performance, our revenues in Q3 FY’23 stood at INR61 crores, which is lower by 13% from Q3 FY’22. The decrease in revenue is majorly attributable to two reasons. Firstly, there has been a slowdown in the industry, which in turn has reduced the demand for our products. But as you speak of our performance in comparison to industry, we have outgrown the industry growth hence it’s fair to say that Tarsons has been able to increase our market share.

Secondly, as mentioned in our previous communications, there was a sudden surge for COVID related products in FY’22, which has normalized now. Hence, if you see on a like-to-like basis for our conventional business revenues are holding up and has shown resilience on the back of strong brand equity for Tarsons. We believe that the industry slowdown is temporary phenomenon and the demand should bounce back as we’re entering the post pandemic era.

When it comes to the exports opportunity, we believe we have huge opportunities in the export markets. We have been attending multiple shows and exhibitions in the last nine months to demonstrate our ability to deliver quality products of global standards on a larger platform. We have been receiving positive feedback and inquiries for our products and each might get converted into sales as member demand comes back.

Along with the full array of products manufacture, post the commissioning of our new facilities, this would include capacity expansions as well as new product lines. We will be able to capture higher market share in export markets growth on the OEM as well as the branded business. The global plastic labware market is massive and we are capability being best-in-class products. Our focus is on developing a trusted global brand, in order to increase our revenue share from exports, which should be an important growth driver in the future.

On the EBITDA front, our EBITDA stood at INR27 crores in the current quarter, with an EBITDA margin of 43.5%. Our margins were lower as compared to previous year on account of change in product mix, as well as the gross operating leverage playing out on account of dip in revenues for the current quarter. Our margins were also impacted on account of higher sales, promotional marketing and traveling expenses for our participation in regular shows and exhibitions. However, we believe this as an investment to fuel our future growth.

We are on-track with our ongoing capex plans, which will fuel our next phase of growth. Our new Panchla facilities in enabled us to serve a completely new segment of the plastic labware industry. Our other capital expenditure project is an norm for West Bengal, which we are expanding in some key products as well as building a fulfillment center to consolidate our warehouse operations into a single centralized unit to better manage our inventories and achieve cost synergies.

At the same location, we also aim to do backward integration in the manufacturing process that building an in-house sterilization center for captive consumption. The robust outlook for the industry for the medium, long-term, gives us the confidence to continue our investments in capacity expansion, as well as new product lines. And we are not too worried about the short-term phenomenon.

Before handing over the call to Santosh, I’d like to emphasize that our primary strategy will be to improve existing products and inspire into new product portfolios, focus on branding and promotion activities. We believe that the Indian Plastic Labware market is at a very nascent stage and with huge potential in the export markets. We are all geared to outperform the industry growth.

With this, I would like to hand over the call to Mr. Santosh Agarwal, CFO for Tarsons, for his comments on the operational and financial highlights.

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

Good afternoon, everyone, and a very warm welcome to our Q3 FY’23 earning call. On the revenue front, revenue from operation for Q3 FY’23 stood at INR61.3 crores as compared to INR70.7 crores in Q3 FY’22, lower by 13% on Y-o-Y basis. For nine month FY’23, revenue from operations for nine month FY’23 stood at INR201 crores as compared to INR216 crores in nine month FY’22. Just to reiterate, what Rohan said, we had higher rates of COVID related earnings in FY’22, which are negligible in the current year and hence the revenue seems to be lower. On a like-to-like basis, the revenues will be marginal lower to flattish nine month FY’23.

Revenue from exports stood at INR21 crores and domestic at INR41 crores on a quarterly basis. For nine month FY’23, exports stood at INR68 crores and domestic was INR133 crores. For quarter three and nine month FY’23, exports sales contributed around 34% and domestic sales contributed around 66%. At a gross level, our gross profit for Q3 FY’23 stood at INR48 crores has compared to INR55 crores in Q3 FY’22. For nine month FY’23, GP stood at INR157 crores as compared to INR172 crores in nine month FY’22. Our GP margin for Q3 FY’23 stood at 77.5% and for nine month FY’23, GP margin stood at 78% — 77.8%.

At a EBITDA level, EBITDA for Q3 FY’23 stood at INR27 crore as against INR33 crores in Q3 FY’22 — 22% — 20% lower Y-o-Y. EBITDA for nine month FY’23 stood at INR91 crores as against INR108 in nine months FY’22. EBITDA margin for Q3 FY’23 stood at 43.5% and for nine month FY’23, EBITDA margin stood at 45%. At the PAT level, profit after tax for Q3 FY’23 was INR16 crores with PAT margin of 26.3% and profit after tax for nine months FY’23 was at INR58 crores with PAT margin of 28.8%. PAT was also impacted on account of higher depreciation.

With this, I would like to open the floor for Q&A.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Karan Khanna from Ambit Capital. Please go ahead.

Karan Khanna — Ambit Capital — Analyst

Yeah. Hi, thanks for the opportunity. So firstly is, on coming on to exports business, you alluded to political uncertainty and recessionary trends to explain the decline in exports revenue during the quarter. But last quarter when you have done well on exports front, there’s no mention about possible slowdown in the exports front. So if you could elaborate on that. And second, given industry demand continues to remain sluggish, what’s your plan of action to ensure that your upcoming facility at Panchla does not go underutilized?

Rohan Sehgal — Chairman and Managing Director

So as — from the last earnings call to the current earnings call, what we see is that, we see more and more slowing down in major economies. So we’re pretty unaffected by problems, which are happening in Russia and Ukraine. But if you look at the U.S., you look at Europe, you look at major geographies, South Korea, Japan, the spending on our kind of products is coming down and the reason for that coming down is — there’s inflation rates are high and there are. So the economic conditions globally is not very positive and once that’s not positive, it effects everything and research budgets and other spending habits are also affected.

And we see the output and our ticket slightly slow at this point of time. Regarding our new facilities, I think we would have to watch very closely all the capacity expansions what we are doing, because the demand seem to be lower at this point of time. However, we think it’s very temporary. But for the new product groups, I think we are not too worried, because we start with a base of zero, it’s a new product, which we are launching and we would move in the same way, which we have planned a gradually increasing our market shares both domestically, as well as well as internationally. So I think majority of our expansion moving forward is for products, which we never made as against products in which we are expanding capacities.

Karan Khanna — Ambit Capital — Analyst

So just continuing on that and the sluggish demand environment that you are talking about, so how confident are you — to may be stated that guidance of INR500 crores revenue by FY’23 against the backdrop of a slowing global economy?

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

So I still feel that the next year is a very critical year, which starts from 1 of April. So we will take a call and review our guidance depending on how the move we see the momentum in the first few quarters of next year. But I still believe that, this is on the back of a huge artificial demand, which created during COVID and although the economic factors are there to play, but I think that the industry is saturated at this point with a lot of pent up stock through the COVID period and it’s a very temporary phenomenon and things should bounce back pretty strong very soon. So still we would stick to our guidance, which we have given for the FY’25 and probably look to reevaluate it towards the middle of the next financial year, in case things are not looking out.

Karan Khanna — Ambit Capital — Analyst

So on domestic conventional business, you had indicated there were substantial growth, during first half. But if I’m, Rohan, remove the COVID revenue from the base your domestic revenues are largely flat. So I think in the last call you mentioned you were expecting growth in the domestic revenue on the back of new product launches such as PP bottles and keeping high inventory in anticipation of that. So if you could just comment on revenue off take in new products during the quarter, what’s been the contribution from that?

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

So the contribution at this, we do not have any revenue from new product contribution at this point in this quarter, because these the new bottle product lines, which you’re looking at require a lot of approvals, which are internal approvals not customer approvals, which are raw material approvals, lot of quality approvals and it’s a large range of products. So you cannot have four or five sizes and sell, you need to have a complete range, which is there — as per Google comparator base. So we are in the process of launching the final stage of products and I think towards the end of Q4, which is around the month of March, we’ll start seeing the first sales of these bottles getting in.

Karan Khanna — Ambit Capital — Analyst

Sure. On Panchla, you have highlighted that you starting to build export revenue during fourth quarter. Has that already started and was the remaining capacity expansion that for the facility how much of the overall capex have you incurred?

Rohan Sehgal — Chairman and Managing Director

So Panchla slated to be operational and complete facility ready around the month of the end of May 2023. So until the facility does not start, you don’t have even INR1 of revenue from the facility. So Panchla is under construction. The construction is 99% complete we are just going through the clean room production, as well as the electrical lines and the final finishing touches. So we believe we have about 10 to 12 weeks away from being able to build post revenues from that respect.

Karan Khanna — Ambit Capital — Analyst

Sure. And lastly given we’re already halfway through fourth quarter. Are there anymore factor that you foresee that will lead to further disappointment?

Rohan Sehgal — Chairman and Managing Director

No. I think, the factors are — it’s the industry sluggish at this point of time and the global environment has not helped our international business. I think that there’s is a lot of uncertainty, which is playing out and hence people are conservative, there are certain — countrywide risks as well, which we have started in, for example in South America, there is certain currency issues with — these three countries, which we’ve been operating in. Egypt has been going through a very tough phase, in terms of currency as well. So but these countries are not the major countries for us, but they still account for a good size of over international business. But moreover, I think the U.S. and Europe has been very, very sluggish, which is the major part of our business. And this is not aided and overall sluggish industry. So sluggish industry along with the sluggish economy in these countries is not playing in our favor. But we still feel that the line of product lines, which are coming out with the industry looks to be in a very, very strong position moving forward. It is going through a temporary blip and this industry will bounce back very soon.

Karan Khanna — Ambit Capital — Analyst

Great, that’s it from my side. Thank you and all the best.

Rohan Sehgal — Chairman and Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] Next question is from the line of Garvit Goyal from Invest Research. Please go ahead.

Garvit Goyal — Invest Research — Analyst

Hello. Am I audible sir?

Operator

Yes, you are.

Rohan Sehgal — Chairman and Managing Director

You’re audible.

Garvit Goyal — Invest Research — Analyst

Sir, you have announced your capex plan of almost INR500 crores an year ago from now. And we are expecting both Panchla and Amta to be operationalized in Q2 FY’24. So basically, my questions are, when the capex you have incurred till now on this facilities shall start contributing to the topline and as you mentioned, margin improvement? And second is, as far as our existing facilities are concerned, these are not at cooler utilizations, as they were in FY’22, due to temporary slowdown you mentioned in the industry. So does that mean the newer facility, which is coming in, shall cater to the new customers and if yes, have you received some orders from these new customers or any kind of discussions they are going on with them with regards to upcoming order flow?

Rohan Sehgal — Chairman and Managing Director

So regarding our facilities, facilities are designed in such way that most of the machines are unique to the various product lines. So having — our current facility is not fully utilized place no roll — the new facility is coming up because we cannot interchange capacities with the old and new facilities, they’re all unique to each other. And we generally are not — we generally don’t receive orders in advance, you build a new product line, you market the new product line is that the post level the feedback from key customers and that’s how we build on from there and grow revenues. And capex will come into place once the facilities are fully operational. At this point of time, we have a large amount of work in progress, capex, both in the manufacturing and infrastructure base, as well as in terms of equipment, molds, machinery, ancillary and so on.

Garvit Goyal — Invest Research — Analyst

Okay, let’s take it from different angle. I was just asking how much time you will take to ramp up this new facility in the terms of revenue that was basically I was trying to ask?

Rohan Sehgal — Chairman and Managing Director

So it all depends, I think the capacity expansion should be ramped up because these existing product lines and Tarsons has an established brand image as well as very, very strong market segments for these kind of products, but it will all depend on how the industry is looking at that point of time. And for the newer products, as I’ve said in earlier calls, it’s a period of three to five years to completely ramp up and have significant market share in the domestic market for such product lines.

Garvit Goyal — Invest Research — Analyst

As far as I remember, the new facility that is coming in, that is entirely towards the new product, right?

Rohan Sehgal — Chairman and Managing Director

No. It has capacity expansion as well, which are existing product lines as well as new product lines, but majorly, new products, but there are capacity expansion plan.

Garvit Goyal — Invest Research — Analyst

Okay, understood. And sir, what is your target topline for FY’24 for considering the current demand environment that is going on and in the future? So at this point of time, we would not like to give any guidance, because things are very fluid, very volatile and we would see how things go in quarter one and quarter two of next year. And the current environment that is for your existing products is equally for the new product as well, it means demand is low in this existing products, so we can assume the demand will be low for those new products, because and industry same or is it different?

Rohan Sehgal — Chairman and Managing Director

Absolutely. Absolutely. The demand it’s an industry-wise demands, it’s not a demand, which is only catering to our segment or Plastic Labware. It is a demand, which is for chemicals, reagents, equipments, glassware, plasticware, everything put together the industry, the buyers are facing this kind of an issue. And that’s how it is. And we will wait and see how it works out, but for the new product lines, the advantage we start from level zeros, so everything is implemented revenue, it’s very difficult to showcase growth in such tough conditions, especially when we had such a strong base of being a market leader in India.

Garvit Goyal — Invest Research — Analyst

Okay. And you were mentioning in this quarter your market share has increased. So what is the current market share, sir?

Rohan Sehgal — Chairman and Managing Director

We believe that. Our market share is slightly higher than what we’ve showcased in the earlier periods, because considering the industry trends and looking at industry peers very difficult to get identical numbers because except us the entire industry is private. It is only our numbers which out in the public, but we see large amounts of de-growth and when we speak to distributors and customers, we see — when we — high levels of inventories and unsold inventories for other competitors. So things are not looking good for a lot of competitors in the industry and we think that we are now better position as compared to competition in India.

Garvit Goyal — Invest Research — Analyst

And sir, you are mentioning diagnostic industry is not doing well, number of player is increasing. But number of players are increasing and you are saying your unlisted players are not able to tell them. Then I think it should be for you, right, that I’m not understanding the —

Rohan Sehgal — Chairman and Managing Director

The diagnostic industry is going through a transformation. So there is lot of panic at this point of time, the new players coming in, prices dropping, prices are increasing slight there has been great shift in pricing. So we maintain our brand quality and need not have different levels of quality. So we would not be in a position to participate in large or deep discounts for our products. So at this point of time, it’s going through a little bit of prices and a transformation, where the existing established legacy players are being challenged by some of the new players coming in. So it’s not a good time as a supplier as well as for many of these diagnostic players as well. So we settled down, we will be able to understand the real impact for us positively or negatively for the diagnostic industry.

Garvit Goyal — Invest Research — Analyst

Sir, your CFY EBITDA is getting reduced. It was 93% in FY’20 and in first half FY’23 it is 55%. So why this shift is happening, is there anything within the economics of the business? Apart from increasing the proportion of your exports, which basically increased from 26% at that time to 24% in cost reduction?

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

Our cash come operation is still intact. If you see our percentage of margin EBITDA is, we are still maintaining above 45% of EBITDA.

Garvit Goyal — Invest Research — Analyst

No, sir.

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

Our cash profit if you see, cash profit is still at a 40% level for 38% to 40% level. So we are considering that our operation is generating enough cash accruals and we look forward to grow that.

Unidentified Participant — — Analyst

Sir, I was asking for this particular percentage, you referred to EBITDA ratio in this year, working capital efficiency is seems to be lacked over a period of time. That’s what I was trying to ask?

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

Sir, we need to keep some working capital, considering our 700 SKUs, so considering this, that currently we have inventory of INR112 crores and the data is about to be INR50 crores and CAGR is about to be INR10 crore to INR20 crore. So these kind of working capital is required. And if you multiply and if you — the proportion with the CASM of business, this is going really well. And going forward, once the sales will pickup, it will go better.

Garvit Goyal — Invest Research — Analyst

Okay, sir. Thanks for the opportunity, sir and all the best for future.

Operator

Thank you. The next question is from the line of Harsh Mulchandani from Kriis Portfolio. Please go ahead.

Harsh Mulchandani — Kriis Portfolio — Analyst

Hello, thank you for the opportunity. Am I audible?

Operator

Yes, you are.

Rohan Sehgal — Chairman and Managing Director

Yes, you are audible.

Harsh Mulchandani — Kriis Portfolio — Analyst

Thank you. So Rohan, I have a question — a couple of questions. One is this cost which you mentioned that you spent on promotions, marketing. So just wanted to understand that what has been the exact nature of these costs spend in the quarter. And how do you see this cost increasing versus the previous years? And typically, how much time does it take to onboard a customer once you go for these events, so some color if you could help us understand?

Rohan Sehgal — Whole-Time Director

So what we do is, we go to international shows and exhibitions and we also do domestic exhibitions and road shows. The purpose of domestic exhibitions and road shows is to reiterate our brand image as well as a launch some new products. And the process of the promotion is fairly easier since we have — since we are in a very strong position in the domestic markets. International shows and exhibitions has no direct correlation, because you keep participating in some key exhibitions and key shows internationally and then business starts coming in. You cannot correlate, which business is come from which exhibition that is very difficult because of the new — the same people over and over again in multiple shows. But these costs were pretty much muted during the COVID period because of travel restrictions. And moving forward, I think these parts will not play a big role once the revenue start [Indecipherable]. At this point of time, there is a fair amount of fixed cost, which is associated with the company at these revenues. For example, we are at INR61 crores this quarter, had we done INR75 crores or INR77 crores, it would have been a minimal increase in fixed cost if at all. So the EBITDA margins would have shown very, very differently has the revenue being up. Of course, the variable costs would have increase in proportion, but at this company structure and size we could have grown maybe 25%, 30% more without having increase in any of the fixed cost.

Harsh Mulchandani — Kriis Portfolio — Analyst

Got it. Got it, fair. And second question was around last two, three quarters, every quarter we’re getting surprises either from higher base due to COVID and now I mean, industry slowdown. So just wanted to get a sense that, is there something that we are lacking a grip on how the markets are moving post-COVID? Or there is some fundamental change we are not able to understand, because last two to three quarters, we’re getting surprises? So just want — because obviously, you are on ground, so there must be something on your mind, going in and now we’re not getting any short-term guidance. So is there some change which is happening which you are seeing on ground route level. I just wanted to get some sense on that.

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

So earlier as well, we have provide short-term guidance, we had given our longer-term guidance of about three years earlier. And I think our — the relative has remained constant in quarter one and quarter two as well, that although COVID has completely gone the industry has not come back to normal levels. The industry is still the — is quite sluggish and we have to maintain that in Q1 and Q2 as well. Although Q1 and Q2 saw good levels of non-COVID revenue growth, we continue to maintain similar levels in Q3, but the industry is slowing down, but this is not a new thing which we have proposed in Q3. The industry has been slow all across the year, with diagnostics, pharma, research continue to remain slow, with biotech and CROs maintaining good growth and good progress. We believe that, this is not here to stay and this would quickly change. But we are unable to point the finger as to an exact time when it will change and hence we are not giving any short-term guidance.

Harsh Mulchandani — Kriis Portfolio — Analyst

Okay. Got it, fair. So is it fair to understand that market has de-grown by more than 20% as a ballpark number, because we’ve dipped by almost 15% and assuming that you gained market share. So is it fair to assume that market is slowing down considerably, because 20% slowdown is a huge number for annual market?

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

At this point of time, we don’t have any data available for the market. So for me to put a number would not be right. There is no official data, but all the information what we have provided is from our understanding of the industry, this thing, the end customers and between the distributors, I’m feeling the pulse of the market, but we don’t have any official data, to put a number.

Harsh Mulchandani — Kriis Portfolio — Analyst

Okay, fair. Thank you so much.

Operator

Thank you. [Operator Instructions] Next question is from the line of Mitesh Shah from Nirmal Bang. Please go ahead.

Mitesh Shah — Nirmal Bang Institutional Equities — Analyst

Thanks for taking my questions. Just a couple of questions about exports, we talking always about the INR50,000 crore export market and we just have not reached to this INR100 crores sales. Is that the recession and the such kind of slowdown has that much has impacted that even smaller players are impacting so much. I’m not — trying to understand because we keep marketing, we keep participating in the exhibitions on the — we’re talking about the China plus one opportunity as well, but it’s not showing in the numbers at all.

Rohan Sehgal — Whole-Time Director

Absolutely. I think the INR50,000 crore market I mean, we’ve been promoting and competing in the international markets and doing the same strategy for sales and marketing over the last 10 years since we’ve been in the market last 12 years. But I don’t see us having even if when the market rebounds back, I don’t see us coming anywhere close to having sizable market share. So the expectations are that we are going to have a sizable market share on the INR50,000 crore market, I don’t believe that is going to be there. Even though the China plus one strategy comes into play, it would not be there. In terms of slowing down, I think all the companies which are purely into Labware space has seen considerable slowdown companies smaller than us, companies larger than us globally, I think there are few listed global peers, which are available online, they are listed in the respective countries in China and invest in Europe. And there full-year numbers have been published, because they are January to December, you can clearly see the level of slowdown is far exceeds our slowdown levels.

Mitesh Shah — Nirmal Bang Institutional Equities — Analyst

Got it, Rohan. But this size is small as compared to those players, so that’s why I’m bit worrying about that, despite this size we are not able to gain the opportunity over a period of time. So that’s —

Rohan Sehgal — Whole-Time Director

The problem is that a player, who’s got a $1billion or $1.5 billion market has made, the kind of investments organically and inorganically over six to seven decades is present in all these countries directly with the large — direct and indirect sales, who has made considerable amount of investments in those countries. The way we are planning our international business is to find correct representatives and agents for our business and conduct business from Calcutta, India to these international countries. So it’s a very different approach, which is taken to international business, it’s a very profitable and very sustainable approach and we are not in a position at this point of time organically to conduct business like the way the large MNC are — have been conducting, it’s a very different approach.

Mitesh Shah — Nirmal Bang Institutional Equities — Analyst

Got it. And also you’re talking about the slowdown in the growth in the R&D spending, but and any of the management in the last conferences, I have never heard about this, the company most of are slowing down their research investments. So is that visible right now in the market as for your —

Rohan Sehgal — Whole-Time Director

At this point of time, if we look at the buying in pharma, it’s not the same as it’s would be — it was drastically lower in during COVID periods because our understand — because a lot of the units were not functional, but it’s still lower than pre-COVID levels, diagnostic is drastically lower and research and institutional business is also very, very low. At this point of time compared to people pre-COVID levels, so when we look at it, from our industry level, we are a bio-supplier, we’re a supplier of plastic labware to these new customers in key industries. We see a considerable slowdown and we don’t see any competition in both domestic as well as international taking market share away from us. It’s just an industry slowdown, what we see and it’s also resonated internationally as well when we speak to distribution partners and we speak to OEM partners, inventory levels are high and business levels are lower at this point of time.

Mitesh Shah — Nirmal Bang Institutional Equities — Analyst

Got it. And above the diagnostic, you talking about competition, but I think volume-wise industries are still growing and the new players are increasing the awareness in the industry, definitely the price would be under pressure. I believe it will be continue for next three, four years. So it is like some smaller players are eating the market share of us, because of the better pricing and they are offering a better pricing than us?

Rohan Sehgal — Whole-Time Director

So we have not seen that till now, of course, the market is stagnated. And there are segments which we cannot cater to which are at — very low price compared to us, which was always the case, even in the past, since inception, since the last 15, 20 years. And then there are — there could be a very small segment of customers which do not buy from us, and also have preference for the brands. And hence, the availability of various players in the market, but we don’t see any shift or movement of our market share. And there is no alarming situation where people are taking share away from us. We just see slowness and sluggishness and hence we’re waiting to see how the industry pans out over the next few quarters. But there is no alarming situation, where we are losing out to competition for any reason, quality, price, brand anything.

Mitul Rajanikant Shah — Nirmal Bang — Analyst

Got it, thanks. That’s it from my end.

Rohan Sehgal — Whole-Time Director

Thank you.

Operator

Thank you. The next question is from the line of Harsh from Marcellus Investment Managers. Please go, ahead.

Harsh — Marcellus Investment Managers — Analyst

Yeah. Hi Rohan, Hi Sanjay. So to begin with, you alluded in your initial comments that you saw the budget and in that budget, research budget — allocate funds for the research budget has been increased, but could you just quantify that, how much was it this year, how much it will be next year?

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

So we don’t know that because they don’t put in — they don’t give a breakup of research, which is bio-supplier research, this is a way broad research term and a number on that against Plastic Labware is not the right signal. But the government has spoken very favorably on our research as well as medical devices and we hope that our industry stands to gain from that. We are yet to see that because the market was just waving the reason. But the government and the research market has not been able to rebound itself, which was the pre-COVID levels and at this point of time, the off-take from the research organization is very low.

Harsh — Marcellus Investment Managers — Analyst

Okay, but there would be some number, which is comparable on a year-on-year basis. I agree that Plastic Labware consumables it might be not get the number. But as a whole you’re saying that the research budget has increased, so I’m just access it, how has it increased?

Rohan Sehgal — Whole-Time Director

So they’re not put in a number there, but they’ve put in a statement where these numbers were slated to increase in that we renewed focus on that. So it’s yet to be seen, what would be allocated. But again these budgets are extremely large and if you look at the budget, which is spent on Plastic Labware, it is only in a fraction of the entire budget on research.

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

And Plastic Labware market is a very small part of research, right. So to give the exact figure of Plastic Labware market at this point of time is difficult.

Harsh — Marcellus Investment Managers — Analyst

Okay. Okay. And secondly from your commentary, I agree — that the exports have gone down on a Q-o-Q basis, but — what expertise the domestic revenue going down on Q-o-Q basis because they said, the slowdown was already there last quarter and it is non-COVID, so why –what explains the slowdown 8% for slowdown in domestic Q-o-Q revenues?

Rohan Sehgal — Chairman and Managing Director

So we see, there is a slight slowdown on the domestic revenues. I would still feel like it’s not a very, very major slowdown compared to how the industry is moving at this point of time. It’s on the basis of — if you look at our customer base segmented into pharma, into research, into diagnostics and then into biotech, biopharma CROs, I think with the exception of the last products group, which is biotech and CROs, because biopharma we don’t have the product line to approach them in a very, very large scale. The other customer segments are pretty slow, some being drastically slow, like research, diagnostics and some partially store like pharma. Pharma is still picking up, but not as much as what it used to be pre-COVID levels. The entire — in terms of delivery of products, in terms of quality of our products, in terms of price competitiveness of our products, we are not facing any issues, where the issues are on the demand of the customers and as this starts picking up, we should start seeing numbers increasing in a good pace.

Harsh — Marcellus Investment Managers — Analyst

Okay. And will it be possible to give segment-wise breakup of how much segment has slowed down on a Q-o-Q or a year-on-year basis?

Rohan Sehgal — Chairman and Managing Director

So we can prepare that and get back separately, but again, that would be assumptions the best of our ability. As we are getting all this information based from our sales teams and our marketing teams as well as our distribution base, all these customer groups are service through our distribution channel and we don’t have direct invoicing the customers.

Harsh — Marcellus Investment Managers — Analyst

Okay. Okay. And one last question, are you seeing a change in the competitive landscape in the post-COVID world?

Rohan Sehgal — Chairman and Managing Director

See, temporarily there would always be a little bit of panic as the condition is going through, there are lot of distributors, which are filled with inventory levels for products, which we don’t need and products which we are unable to sell as well as the manufacturers, which — when COVID was relaxed, this lot of smaller players, again over and increased capacity to levels which they cannot cater to today. So we don’t believe that this is a major problem in the medium-to-long term, because we are well-established with our customer-base, as well as our distribution base in India. And we have a very unique value proposition for our OEM customers as well as our growing branded sales distributor base internationally.

So overall, the industry is not looking very good at this point of time, but we believe that the rebound is just around the corner, and we will be in good position to capitalize on the rebound. And even in today’s current levels, I think of — as I explained in my — one of my earlier answers, we’re doing amongst all the players, we would be in the better end of the performance compared to peers as in India, as well as internationally, smaller in size as well as larger in size.

Harsh — Marcellus Investment Managers — Analyst

Okay. Okay, yeah.

Rohan Sehgal — Chairman and Managing Director

Thank you.

Operator

Thank you. Next question is from the line of Dheeresh Pathak from White Oak Capital. Please go ahead.

Dheeresh Pathak — White Oak Capital — Analyst

Yeah. Thank you. Just INR50,000 crores, somebody mentioned and you also sort of said about it, so this is our target market or this is like a very big market and our target market is smaller than this?

Rohan Sehgal — Chairman and Managing Director

This is a market of Plastic Labware consumables sold globally. And we also manufacture Plastic Labware consumable. So it’s like-for-like products, which are these sold, which we manufacture and which we don’t manufacture, which we will be entering into globally.

Dheeresh Pathak — White Oak Capital — Analyst

So currently, that we manufacture the categories of products, we are covering what percentage of that INR50,000 crore of the current product portfolio?

Rohan Sehgal — Chairman and Managing Director

Approximately, around 60% odd, maybe INR30,000 crores approximately, that would be my best guess, because these are reports across — since I don’t have product-wise breakup of these market changes.

Dheeresh Pathak — White Oak Capital — Analyst

Okay. And the new capacity that you’re putting up, you’re seeing the coverage will go from 60% currently to a higher number?

Rohan Sehgal — Chairman and Managing Director

It’s actually new products plus new capacity it’s not only new capacity. New capacity means existing products and new products means new products. So —

Dheeresh Pathak — White Oak Capital — Analyst

Sir, right now you’re covering 60% of INR50,000 crore market, but you will expand your product portfolio basket right, with the new capacity that you’re putting up?

Rohan Sehgal — Chairman and Managing Director

We should be in a position pretty much takeaways this entire INR50,000 crores market in the next few quarters.

Dheeresh Pathak — White Oak Capital — Analyst

Okay. Of that India market is INR600 odd crores and you have one-third of the market?

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

No. It’s about INR1,200 odd crores.

Dheeresh Pathak — White Oak Capital — Analyst

Indian market is INR1,200 odd crores, okay?

Rohan Sehgal — Chairman and Managing Director

Yeah. Yeah.

Dheeresh Pathak — White Oak Capital — Analyst

Sir, you mentioned that — sorry — my other question is that how many new accounts would have been added in the last 12 months?

Rohan Sehgal — Chairman and Managing Director

So we have added a few distribution accounts in international markets basis outside India. But in India, as I’ve said, that distribution remains constant and we keep adding more in the customer level and not in the distribution level. So the change in India and the distribution level only if certain regions are not being catered well always certain product lines are not being represented well. So far we have a pretty established and well setup distribution network in India and don’t make too many changes.

Dheeresh Pathak — White Oak Capital — Analyst

Yeah. How many new clients would have been added — distribution count seen, but new clients in the last 12 months and ballpark number?

Rohan Sehgal — Chairman and Managing Director

Very limited. Because again our niches in most of the clients, but we would we see — as and when we would be seeing wallet share increases, but new products coming in with these customer clients in India.

Dheeresh Pathak — White Oak Capital — Analyst

Okay. In the international market, how many new distributors have been added?

Rohan Sehgal — Chairman and Managing Director

Approximately, about three to four, but these are branded distributors, not large OEMs and we have in the process of now building up our revenues and starting to market our products — in these markets, with these distributors.

Dheeresh Pathak — White Oak Capital — Analyst

Okay. And the domestic diagnostic market, the incumbents might be having a tough time, but the people who were challenging them to in aggregate, the industry volume growth would you have an estimate of how the industry is growing in volume terms in aggregate?

Rohan Sehgal — Chairman and Managing Director

In diagnostics?

Dheeresh Pathak — White Oak Capital — Analyst

Yeah in India?

Rohan Sehgal — Chairman and Managing Director

I haven’t the number for the diagnostics industry growth. And I don’t have any data behind me to position a number. But what I understand from the — from my people, from my business development teams, from the distributors, is that it’s the end customer is going through a little difficult time, it also gets passed over suppliers like us. So even though the industry is expanding in terms of number of players, I don’t see — it benefiting any of these players or even the suppliers like us.

Dheeresh Pathak — White Oak Capital — Analyst

No, but the newer players were challenging them like let’s say TATA 1mg, Redcare, Selthion they also need the consumables, right?

Rohan Sehgal — Chairman and Managing Director

Exactly.

Dheeresh Pathak — White Oak Capital — Analyst

[Speech Overlap] the metropolis that grows or the others grow new benefit, right?

Rohan Sehgal — Chairman and Managing Director

Right. Absolutely, but the demand is being passed over from certain players to other players. And it’s not that new markets are being created or new areas have been generated, it’s all circular.

Dheeresh Pathak — White Oak Capital — Analyst

Okay. And is there a client concentration in the export revenue, like what could be the top three distributor of clients export revenue?

Rohan Sehgal — Chairman and Managing Director

I think the top three should be approximately around 40% if not in and around that number.

Dheeresh Pathak — White Oak Capital — Analyst

In the export revenue?

Rohan Sehgal — Chairman and Managing Director

40% of the export revenues, yeah.

Dheeresh Pathak — White Oak Capital — Analyst

Okay. Okay, sir, thank you.

Rohan Sehgal — Chairman and Managing Director

Thank you.

Operator

Thank you. Next question is from the line of Jain [Phonetic] from Dolat Capital. Please go ahead.

Unidentified Participant — — Analyst

Hello.

Operator

Go ahead, sir, you’re audible.

Unidentified Participant — — Analyst

Okay. Thank you for the opportunity. I just want to be — want some clarity on facilities like Panchla. In earlier call, you said it is completed by 80%, 85%, so just want to know that how much it is a completed now. And also, if I’m not wrong, you said you are getting for some equipment to come in?

Rohan Sehgal — Chairman and Managing Director

Absolutely.

Unidentified Participant — — Analyst

So is it completed now and been commissioning from —

Rohan Sehgal — Chairman and Managing Director

So our entire building is complete. We just have the front facial, which is going on at this point of time. So from civil construction point of view, the entire building is complete. But the interior of the building are going on, the offices are being made, the clean rooms are being made. And the wiring and the various transformers, the BG electrical sets and the other electrical and plumbing works has been process. Infrastructure and the civil, which I said, was 85% is complete, the roads are being built, the boundary walls, everything the whole building is complete and done. In terms of equipment, we have some levels of equipment, which are getting dispatched towards the end of this quarter. This should all be large voluminous equipment coming from different parts of the world. So it will be dispatched by [Indecipherable] and let us consider four to six weeks not four week but about six, seven weeks for deliveries here in India, by sea then engineers from various companies should be coming for SAP, the SAP is [Indecipherable] test. And over a phased manner in throughout this year, orders should be coming in, in the same process with then engineers coming and doing their SAPs and revenues will start being ramped up then.

Unidentified Participant — — Analyst

Okay. So when can we expect the first revenue to start generating from, I think in that —

Rohan Sehgal — Chairman and Managing Director

As I’ve said — between 10 to 12 weeks as I believe that we can start generating the first revenues. So around the month of May, it’s — when I believe that the first machines would start running in Panchla. But in terms of facility readiness, we would be ready, it reached maximum with these clean room constructions and all the electrical plumbing works as well in terms of civil and infrastructure everything is ready.

Unidentified Participant — — Analyst

And what about Anta facility?

Rohan Sehgal — Chairman and Managing Director

Anta facility is currently under construction and that should move towards the months of July and August.

Unidentified Participant — — Analyst

Okay. And sir, in this call, you said the current COVID revenue contribution is negligible. So can you give me the number of nine month FY’23 number of COVID revenue and compared to FY’22?

Rohan Sehgal — Chairman and Managing Director

So I feel that in the nine month revenue there would be hardly anything, there would be zero revenues obviously in Q2 and Q3, there could be some spillover revenue in Q1 from Q4, because Q4 had generated a good amount of revenue because COVID was still active in Q4 FY’22. So in certain grants and other things spilling over to Q1 we could have seen a little bit of revenue. But — at this point of time, we don’t see any movement of COVID related products through inquiries and purchase orders of our distributors.

Unidentified Participant — — Analyst

And how much it was in FY’22, if you can give the number?

Rohan Sehgal — Chairman and Managing Director

Approximately about 15%, 17% of the revenue, which I wouldn’t translate to somewhere around INR50 odd crores would be approximately COVID-related.

Unidentified Participant — — Analyst

Okay. As can you please give the guidance of a conventional business for FY’24?

Rohan Sehgal — Chairman and Managing Director

As I said earlier as well, in one of the questions that at this point of time, we will not be in a position to give any short-term guidance. The market is pretty fluid, industry is going through a little bit of transition post the pandemic and looking to regain its momentum. So we’ll take a call in the next couple of quarters as to how things go.

Unidentified Participant — — Analyst

Okay. And sir, can you please tell the — the OEM quantitative have gone earlier in last quarter. Can you give a number for that if how much revenue you have generated from that contract?

Rohan Sehgal — Chairman and Managing Director

Which contracts, could you just repeat that this?

Unidentified Participant — — Analyst

OEM contracts, which have won in the last quarter?

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

So we are not able to understand which contract you are talking about.

Rohan Sehgal — Chairman and Managing Director

Yeah. We have not discussed about any contract in the last quarter, if you could just highlight back please.

Unidentified Participant — — Analyst

Okay. I’ll take you offline.

Rohan Sehgal — Chairman and Managing Director

Sure. Sure. No worries.

Unidentified Participant — — Analyst

Thank you, sir.

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

Thank you.

Operator

Thank you. [Operator Instructions] Next question is from the line of Mitesh Shah from Nirmal Bang. Please go ahead.

Mitesh Shah — Nirmal Bang Institutional Equities — Analyst

Thanks for taking my follow-up questions. Just want this industry slowdown you just said about and also last year, I think the Omicron was on January. So could we expect that the Q4 would be again, surpass?

Rohan Sehgal — Whole-Time Director

So we are not sure, but there would definitely — there was definitely all a portion of COVID revenue in Q4 of FY’22, the industry continues to remain the way it is minus in the COVID revenue that would be a — or there would be a gross declining,. But we don’t know where the final number will be, how the industry will pan out over the next 45 days. So it’s yet to be seen how Q4 FY’23 will look.

Mitesh Shah — Nirmal Bang Institutional Equities — Analyst

Got it. And next year, I think the there won’t be any COVID base and I believe that you might be having some indication that the — when things would be normalizing and what would be the scenario in the next couple of quarters. Could we expect that the — it would be like at least a double-digit growth we can expect for next year?

Rohan Sehgal — Whole-Time Director

No. So again, as I said, I am not in position to giving guidance at this point of time, even a broad level guidance would not be possible. But yeah, we expect the industry to rebound back in the next couple of quarters. Even if not and if they stay longer, we would like to take some of our new product lines, which are coming out and pushed them really hard in order to ensure that we can generate growth from our existing base.

Mitesh Shah — Nirmal Bang Institutional Equities — Analyst

Got it. And the new capacity, as you said that the — because of the new products are contributing more it taking them time to be ramp up. So could it be right to assume that the initially the operational cost would be impacting our EBITDA margins for at least next couple of years, unless the new products ramp up will be start coming?

Rohan Sehgal — Whole-Time Director

Couple of years, I think could be a very long statement, but yeah, maybe a few quarters would be more accurate. But yes, even today, we are investing for new facilities and the investments have started in terms of processes, as well as people. And whenever, we build facilities in the magnitude of what we are building, Panchla, still we don’t ran them up, there would be costs associated with those facilities, but once ramped up, I think it came bring in the — we have more efficiencies than what we currently see in setup.

Mitesh Shah — Nirmal Bang Institutional Equities — Analyst

So entire facilities will be start on a one shot or not — pace manner we will be starting the facility and getting to enter into —

Rohan Sehgal — Whole-Time Director

So entire infrastructure build one-shot, but of course, the facilities will move in a phased manner, we would have a fair amount of space available in Panchla, as well as Amta for future capex expansions. So I believe that the amount of capex what we are doing today, you could do similar amounts of capex in the future without having to invest in real estate as well as infrastructure.

Mitesh Shah — Nirmal Bang Institutional Equities — Analyst

Right. Right. I’m more talking about the P&L point of view, so how much the operational cost or the depreciation will be hitting on the next year from the new facilities basically?

Rohan Sehgal — Chairman and Managing Director

So we would have Head of Operations, we would have Head of Manufacturing, we would have a lot of fixed costs in every facility, which should be there, whether the facility is half full or completely full. So you would have quality engineers. You would have Heads of Quality. So there would be fixed amount of people, which should there and then the incremental increase will be marginal compared to fully ramping up the facility. Of course, [Indecipherable] workers would move exactly as per the number of machines. But the 40 to 50 people in the facility outside then that could be slightly heavy till the facilities don’t completely ramp up. And once it ramps up, it would be way more efficient than, I mean, our setup.

Mitesh Shah — Nirmal Bang Institutional Equities — Analyst

Got it. But, sir, can you give more on besides that how much the approximate cost would be hitting on the P&L operational front indeed depreciation front from this Panchla facilities next quarter?

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

See I can give you the historical numbers, for example, in last nine months, we added INR34 crore figure, right and INR73 crore of [Indecipherable] and because of addition of this — instead of INR34 crore our deprecation that may increase, right. So in the same way we’re running a capex of INR500 crore. So going forward Crores base. So going forward, as soon as the [Indecipherable] will come into our balance sheet, and once it will — these will be marked as put you then depreciation will keep on increasing. But it will be on a good note, if the revenue will also come into the picture, then the PAT will be bit.

Mitesh Shah — Nirmal Bang Institutional Equities — Analyst

Right. Right. So is the INR500 crore operational expenditure and the capex would be hitting from the next year onwards, once the facility starts operational, right?

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

We will not — regarding the operational expenditure, we’re the capex and this will go to the balance sheet then to the P&L.

Mitesh Shah — Nirmal Bang Institutional Equities — Analyst

Got it. Got it. Thanks. That’s it from mine.

Operator

Thank you. [Operator Instructions] Next follow-up is from the line of Garvit Goyal from Invest Research. Please go ahead.

Garvit Goyal — Invest Research — Analyst

Hello, thanks for the opportunity again. So you were mentioning your target market, which we see from the export side, that is around INR30,000 crore, but you also mentioned that you people are trying to get since last 12 years. So why we have not been able to get a significant portion or what is — what is that — which is preventing us to set a footprint in the export market over this long period of time, sir?

Rohan Sehgal — Chairman and Managing Director

So the major reason is that we are an Indian-based company with our facilities and offices and our entire brand image and history is from India. And India is INR1,200 crore market. And there have been various companies in Germany, in France and the U.K., in the United States, in Canada, which have been present for more than a century, 100 and 115 year old companies in these countries which enjoy a very, very strong brand loyalty, brand image, brand history, in these — which are almost 80%, 70% of the world market. And they enjoy complete dominance in these countries and it’s not one company maybe a group of about 10 to 12 different large brands. And it’s not so easy to break into these brands, we’re new and almost unknown player from India, so just time period of three to four years or five years of marketing activities and efforts never change this.

We would have to look at the mix of different strategies of having our offices directly in many of these countries on a sustainable basis, where we are not losing money as the company grows larger in size as well as inorganic play in the future if at all. If any other strategies — such a simple plain strategy of just attending shows and exhibitions in appointing a channels and regions. If we continue in this phenomenon, you will continue to grow the company very strongly, but that whole number of INR30,000 crore, INR50,000 crore will look very large and our number will look very, very insignificant compared to the INR30,000 crore or INR50,000 crore number.

Garvit Goyal — Invest Research — Analyst

So put an — out of these lending efforts network in industry making, how much do you expect from this export market, let’s say, two to three years?

Rohan Sehgal — Chairman and Managing Director

So we expect to grow, but as I said, we are not — I’m not in a position to give any guidance. We hope that we will continue to grow like the way we have grown over the last 12 years. In 12 years, we’ve grown our export business more than 30 times over. We were about INR3 crores to INR4 crores maybe 12 years back and now we are close to a INR100 crores.

Garvit Goyal — Invest Research — Analyst

Okay, that’s it from my side.

Santosh Agarwal — Chief Financial Officer, Company Secretary & Compliance Officer

Thank you.

Operator

Thank you very much. I now hand the conference over to Mr. Rohan Sehgal for closing comments.

Rohan Sehgal — Whole-Time Director

I take this opportunity to thank everyone for joining the call. We will keep updating the investor community on a regular basis for incremental updates on our company. I hope we have been able to address all your queries. For any further information, kindly get in touch with us or Strategic Growth Advisors, our Investor Relations Advisors. Thank you once again.

Operator

[Operator Closing Remarks]