Tata Chemicals Ltd (TATACHEM) Q2 FY23 Earnings Concall Transcript

Tata Chemicals Ltd (NSE:TATACHEM) Q2 FY23 Earnings Concall dated Oct. 28, 2022

Corporate Participants:

Gavin Desa — Senior Partner and Account Head.

R Mukundan — Managing Director and Chief Executive Officer

Nandakumar S. Tirumalai — Chief Financial Officer

Zarir Langrana — Executive Director

Analysts:

Sumant Kumar — Motilal Oswal — Analyst

Vivek Rajamani — Morgan Stanley — Analyst

Abhijit Akella — Kotak Securities — Analyst

S. Ramesh — Nirmal Bang — Analyst

Vishal Biraia — Max Life — Analyst

Rohit Nagraj — Centrum Broking — Analyst

Rajesh Aynor — ITI Limited — Analyst

Ranjit — IIFL Securities — Analyst

Resham Jain — DSP Investment Managers — Analyst

Saket Kapoor — Kapoor Company — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q2 FY ’23 Earnings Conference Call of Tata Chemicals Limited. [Operator Instructions]

I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you.

Gavin Desa — Senior Partner and Account Head.

Thank you, Yashasri. Good day, everyone and thank you for joining us on Tata Chemicals Q2 and H1 FY ’23 earnings conference call. We have with us today Mr. R Mukundan, Managing Director and CEO; Mr. Zarir Langrana, Executive Director; and Mr. Nandakumar Tirumalai, the Chief Financial Officer. Before we begin, I would like to mention that some of the statements made in today’s discussions may be forward-looking in nature and may involve risks and uncertainties.

I now invite Mr. Mukundan to begin proceedings of the call. Over to you, Mukundan.

R Mukundan — Managing Director and Chief Executive Officer

Thanks, Gavin. Good morning and welcome everyone to our quarterly earnings call.

First of all, let me wish everyone a very happy new year and a very happy festive season. Hope all of you are safe. On today’s call. I’m joined with my colleagues Zarir Langrana and Mr. Nandakumar Tirumalai. I will start with the question with key operational highlights across business and geographies, following which Nandu will walk you through our financial performance for the quarter.

To begin with, I’d like to say that this quarter, in terms of the volumes, especially of soda ash, was impacted by certain extended plant maintenance outages in India and U.S. Otherwise, we have continued our growth momentum during the quarter, and overall H1, we have ended on a strong note. Also, you would have noticed during the quarter, which Nandu will talk about, a dip in the EBITDA percentage, but if you go to Page Number 16 of the investor presentation, it shows historically Q2 and Q3, the percentages go down and it moves up again in Q1 and Q4. So it is keeping in trends of the past and we will leave it at that.

I wanted to address these two points because I’m sure these would be at the top of the mind of all the people who joined the call. Overall, we’ve seen a good improvement in revenues, profitability on the back of favorable demand/supply dynamics and better cost control. All our businesses, across geographies, have performed well in line with our plans.

Let me now move on to individual business. On soda ash, the overall market remains tight. There is no softening in majority of end use markets as of now. There is a talk of recession, slowdown, but this has not been seen by the customers with whom we are interacting and it continues to be in a very balanced situation to tight situation, from market to market. In India, the demand was really driven by glass. During monsoon, the detergent market that goes through a bit of softness, but on the ground, the demand continues to be strong and we are already seeing pickup during Q3 in terms of market demand go up higher level and move to stronger level by Q4.

Moving on to U.S. business, other than the issue related to the volumes which I addressed already in the beginning, we also had a specific issue of exiting from ANSAC during this quarter. This gives us a greater flexibility in terms of servicing our customers and addressing customers directly in several of the export market. This is part of the transition to build one unified marketing network around the world. [Technical Issues]

Operator

Sorry to interrupt. There is some disturbance coming from the line, sir. [Technical Issues] Please go ahead.

R Mukundan — Managing Director and Chief Executive Officer

U.K. and Kenya benefited from improved margins, and especially on the back of new contracts. U.K. in addition benefited from increased sales volume of higher margin products and salt. There has also been business restructuring benefits, which have flown into U.K. and also the stability of carbon markets, crystallization of historical, derivatives and hedged provisions, and one-off receivables from land transactions have given us one-time uptick in the numbers in U.K.

In terms of salt business, across the board, they remain stable and the bicarb sales have also remained healthy across India and U.K. The silica business continued to be at optimum level. We are going to be scaling the capacity as we explained in the previous calls. On nutraceutical, we continue to gain customer acceptance and this will gradually scale up going forward. On Rallis, despite external development and challenges, the business delivered good top line growth. International business [Technical Issues].

Operator

Sorry to interrupt. Hello, sir. Sir, we are getting feedback from the participants that the voice is not clear. I request you to disconnect. I’ll call you back. [Technical Issues] Go ahead.

R Mukundan — Managing Director and Chief Executive Officer

Sorry, do you want me to speak from the beginning or…

Operator

You can do that sir. Thank you.

R Mukundan — Managing Director and Chief Executive Officer

So let me start right at the beginning and go through quickly in terms of the point at which the disturbance started. This is on the U.S. business. I already mentioned that we have the issue related to the volume during the quarter. More importantly, this is a quarter where we’ve executed the ANSAC transition agreement, which allows us to address our customers directly and build one unified marketing network around the world to serve our customers.

U.K. and Kenya benefited from improved margins for new contracts, which came into effect during the quarter. U.K. also benefited from higher margin product as well as salt sales, the effect of business restructuring, and the stability of U.K. carbon markets. Now they have been more or less stable in a narrow band. There was also crystallization of historic hedges and derivative positions and one-off receivables from land transaction. In terms of salt and bicarb sales, they’ve remained steady.

A quick word on nutra and silica. The nutraceutical business is holding steady, continues to track positively, and we are going to be adding capacity of 50,000 in two tranches of 25,000 tonnes per annum. On nutraceutical business, we continue to gain traction from customer approvals.

Moving on to Rallis, despite challenging external development, the business delivered a strong top line growth, especially the international business delivered a strong 67% revenue growth. Domestic business also registered good growth and we believe that going forward, the Company will maintain its momentum. On capex, the current expansion in Mithapur is on track, and further expansion capacity planning are underway.

To conclude, I would like to reiterate the core business continues to be strong. Business outlook for all our products remains promising and our efforts towards completing capex on schedule and meeting customer requirements on time is well underway.

With this, let me hand over the floor to Nandakumar.

Nandakumar S. Tirumalai — Chief Financial Officer

Thank you, Mukundan, and good morning to everyone and Happy Diwali to you and your family.

First, let me quickly walk you through the financial performance, after which we can take the Q&A. Starting with financials, our revenue grew by 40% over Q2 of last year. The growth was broad-based with all the businesses and geographies performing well. EBITDA for the quarter was at INR920 crores, 84% higher than last year’s Q2, driven in part by operating leverage and strong demand during the quarter, offsetting the rising input prices.

Moving on to individual businesses with India, revenues for the quarter was 40% higher than last year’s Q2. Growth was mainly contributed by higher realizations. Current quarter volumes are reflective of the strong ongoing demand as existing segments like glass and newer segments like solar panels and lithium carbonate continue to grow. Salt and bicarb volumes as well were steady in the quarter. Margins were stable.

Coming to U.K., despite the challenging inflationary external environment, business reported profit of INR99 crores for the quarter. Soda ash volumes were stable. As far as Kenya is concerned, Q2 witnessed a good and stable performance with volumes and profits both improving. Kenya is our lowest cost manufacturing unit and benefits the most from any improvement in pricing.

Moving on to nutra and silica as Mukundan mentioned earlier, silica is operating at optimum levels, and with demand and client approvals in place, we are working towards scaling up capacities in both nutra and silica. As far as Rallis is concerned, Q2 saw a good revenue growth, largely driven by the strong performance of international business. Domestic businesses as well, which was impacted by uneven monsoons, registered decent double-digit growth rates. Margins for the quarter were impacted due to higher input cost. We are happy to inform that we repaid $92 million of our loans during the quarter. In total, we repaid $125 million in the last six months’ time.

Our cash position in India of cash, mutual funds and bank deposits has moved to INR1,365 crores in September. Capital spending was INR220 crores for the quarter as against INR115 crores for the previous quarter. On a consol basis, we had INR1,967 crores of cash at the end of September. Net debt stood at INR4,409 crores and consol capex was INR304 crores in this quarter as against INR246 crores [Phonetic] last year.

With that, I’ll close my comments and hand floor back to moderator, to open up for the questions. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Sumant Kumar from Motilal Oswal. Please go ahead.

Sumant Kumar — Motilal Oswal — Analyst

Yeah, sir. My first question is regarding the margin trajectory for U.K. and Kenya business. We have seen a strong margin expansion. So can you talk about how sustainable both region’s margin?

R Mukundan — Managing Director and Chief Executive Officer

Yeah. As I mentioned this quarter, they were — this quarter and the coming quarters, there will be some benefits, which will be coming off, certain one-time historical derivative and hedge provisions in U.K. especially. In Kenya also, I think the reflection is on the basis of the strong market price, which continues to be there. So while overall the way we do see the trajectory going forward during the current year, they will remain range-bound within a narrow-band and may be tapering down towards the later quarters as some of these hedges will unwind.

The other critical issue is that overall, the margin trajectory in the other businesses will move in the reverse direction, means they will continue to improve. So the U.K. and Kenya have had the benefit of certain levels of unwinding which has happened and they would moderate whereas the U.S. and India would probably accelerate.

Operator

Mr. Sumant Kumar?

Sumant Kumar — Motilal Oswal — Analyst

Yeah. Can you hear me now? So can you talk about U.S. business, the price negotiation and export realization? Any price increase in the coming quarter or is the price has already stabilized at this level?

R Mukundan — Managing Director and Chief Executive Officer

No. I think U.S. would certainly see by Q4 certain changes in the pricing level because the new contracts would come in. We’ve not got the benefit of new contracts because some of them were annuals. So they would transition in the Q4 of this year, this fiscal year. And on the export side, we continue to see uptick improvement in pricing. So every quarter, you’re going to see improvement with this — and let’s say, a marked movement in the quarter four.

Sumant Kumar — Motilal Oswal — Analyst

So when we see the improvement, sir, what range of price improvement we can expect in next two quarters? You are talking about the Q, till Q4 you will see a price increase because of contract prices?

R Mukundan — Managing Director and Chief Executive Officer

So let me again rephrase. The export volumes out of U.S. are moving every quarter and the domestic volumes and pricing will change in the Q4, which is the Q1 of the calendar year.

Sumant Kumar — Motilal Oswal — Analyst

Okay. And of all the contracts now…

Operator

Mr. Kumar, I request you to come back in the queue. Mr. Kumar?

Sumant Kumar — Motilal Oswal — Analyst

Okay. This is last question. So all the contract is on quarterly and half yearly basis for the U.S.?

R Mukundan — Managing Director and Chief Executive Officer

So export volumes to markets in Southeast Asia and also in Latin America, more or less are moved to quarterly, whereas the domestic market within U.S. has remained more or less annual.

Sumant Kumar — Motilal Oswal — Analyst

Okay. Sir, just a small request. Whenever there is a planned shutdown or maintenance planned shutdown, we should intimate to the exchanges, so we’ll get a clear picture for the earning performance of the quarter. Thank you so much, sir.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Vivek Rajamani from Morgan Stanley. Please go ahead.

Vivek Rajamani — Morgan Stanley — Analyst

Hi, sir. Thank you so much for the opportunity. One clarification and one question from my side. On the clarification side, the shutdown that you mentioned for India and the U.S., that was a planned shutdown or was that an unplanned shut down from you guys?

R Mukundan — Managing Director and Chief Executive Officer

No, it’s a planned shutdown and we had taken a rather longer outage than normal mainly because we wanted to have a very, very strong run by Q4 when new prices come in. So that was part of the approach. Rather than take two short shutdowns, we have taken one longer one in the U.S., and in India, of course, the shutdown has been longer than planned, mainly because of heavy monsoons. Nothing to do with our internal operations.

Vivek Rajamani — Morgan Stanley — Analyst

Just to clarify, the shutdown is over and now the plants are running as per normal. Is that fair?

R Mukundan — Managing Director and Chief Executive Officer

Yeah, yeah. They have already — these were somewhere in the middle of the quarter. So they are all back.

Vivek Rajamani — Morgan Stanley — Analyst

Got it, sir. Thank you. And coming to the question, sir, obviously we’ve seen a lot of volatility across the energy costs for the past many quarters and you’ve been highlighting that as well. I think what we’ve seen so far is a lot of these costs have corrected quite materially. Could you just give some color in terms of how you’re seeing your costs playing out by geography over the next couple of quarters and potentially if this fall in prices also has an impact on the pricing? Thank you so much.

R Mukundan — Managing Director and Chief Executive Officer

So let me just break it down geography wise. As far as the Indian coal is concerned, this is usually indexed. So as the index numbers on coal come down, the Indian energy would also fall, but there will be a bit of a time lag of at least a quarter before it starts, but it does move in that direction.

As far as U.S. gas is concerned, that market is more or less stable. I don’t think it — it went to a new level, but has been more or less stable. It has not spiked or it has not gone to the extent of the European gas. European gas is where I think the sharp increase has happened, but we were covered to our own understanding of certain risk provisions which we take — risk mitigation positions which we take and we are well protected in terms of ensuring that we can manage the increases, but there also, I think the prices are coming down and they are cooling off with higher visibility of the gas storage across the U.K. market.

And what we are working to is to work with customers in terms of certain margin number so that they have visibility on the gas, and on that basis, they are able to price the product and this is the understanding we are reaching on with our customers in that market.

As far as Kenya is concerned, it is on HFO, and again, this HFO also has stabilized and it will be met to crude oil. Crude oil did spike up, but I think it has now stabilized. So we are seeing all-round stability and a bit of tapering of the increase in volumes.

Operator

Mr. Rajamani, I request you to come back in the queue.

Vivek Rajamani — Morgan Stanley — Analyst

Got it sir. Thank you so much.

Operator

Thank you. We have our next question from the line of Abhijit Akella from Kotak Securities. Please go ahead.

Abhijit Akella — Kotak Securities — Analyst

Yeah. Good afternoon and thanks so much for taking my questions. One, first on the shutdowns that were taken. Just a few clarifications regarding that. If you could just share with us how much volumes were lost in both geographies, India and the U.S. because of this, and if you could also share, I mean, some estimate of the lost profit because of these shutdowns?

R Mukundan — Managing Director and Chief Executive Officer

Yeah. So let me put it like this that as far as the issue on the financials are concerned, I think they will all be clawed back as we move forward because the plants are coming back because this should have happened in certain quarters and at certain point of time. In terms of the volumes which we had planned to take out during the quarter, it was about broadly in the range of about 60,000 tonnes, between both geographies put together.

Abhijit Akella — Kotak Securities — Analyst

Just to clarify, that was 50,000 tonnes, is it, sir?

R Mukundan — Managing Director and Chief Executive Officer

60,000. Put together, India and U.S. put together, 60,000.

Abhijit Akella — Kotak Securities — Analyst

Yeah. The reason I was asking this is just to get a sense for what the normalized EBITDA per tonne would have been in both these geographies. So that was really the key question I was driving at. So I mean, excluding these…

R Mukundan — Managing Director and Chief Executive Officer

Also let me add, for example, in India, during this period because of monsoon, the consumptions and other parameters also come in the way. It is not just volume driven. Certainly, that’s not an issue in U.S. U.S. is mostly volume. If you go to historical numbers, you will get a trend which sort of follows every year, which is — it’s on Slide 16. So if you look at the Slide 16, it will give you a good picture of the way the trend plays out every year.

Abhijit Akella — Kotak Securities — Analyst

Okay. But just to conclude, is it fair to conclude that despite the spike in power and fuel costs that you’ve seen, I presume largely in the U.S. and U.K., the core EBITDA per tonne would have been at least in line with what we saw last quarter in the June quarter, if not higher than that given the…

R Mukundan — Managing Director and Chief Executive Officer

Yeah, yeah. So let me say this. I think the input cost is one parameter, but the market price is different parameter. So margins are very much continuing to hold. And secondly, as we said, as far as U.S. is concerned, the margin fully — the margin has not fully played out in that market because the contracts would move quarterly upward, and also, the domestic market reset has not yet happened. So that will happen only in Q1 of calendar year.

Abhijit Akella — Kotak Securities — Analyst

Fine. And one last thing from my side before I get back in the queue. In the U.K., you spoke about some one-time hedging benefits. If it’s possible to share how much that was. And number two, just the tax rate seems rather low this quarter. So what’s happening there and what should we estimate for the full year?

R Mukundan — Managing Director and Chief Executive Officer

On tax rate, Nandu will address it. We’ll come back to you on that hedging piece. Also, there is also one-time land sale transaction, which got concluded this quarter.

Nandakumar S. Tirumalai — Chief Financial Officer

Okay. So on tax rate, Abhijit, that was mostly in Kenya because they are making profit for the first time. We recognized deferred tax assets in the quarterly accounts. That’s what came as a one-off kind of a thing in the tax line in the accounts. See, they were making a loss every quarter, but now they made a profit and therefore we have to make a deferred tax asset considering the past losses which can be recovered going forward. That’s the reason for that credit in the tax line in the accounts.

Abhijit Akella — Kotak Securities — Analyst

Any guidance for the full year you can give, sir, for the tax rates?

Nandakumar S. Tirumalai — Chief Financial Officer

Full year, we can’t talk about that.

Abhijit Akella — Kotak Securities — Analyst

Okay, fine. I’ll look forward to sharing more about the one-time benefits in the U.K. Thank you so much and all the best.

Operator

Thank you. We have our next question from the line of S. Ramesh from Nirmal Bang. Please go ahead.

S. Ramesh — Nirmal Bang — Analyst

Good afternoon and thank you very much and wish you the best for the season. So if you’re looking at the operations in U.S. and India and U.K. and Kenya, in terms of the volume, there is a certain amount of downward pressure which you have explained as attributed to the shutdown. So going forward, in terms of growth, if you resolve the issues regarding cost and pricing, which geographies do you see delivering volume growth on a YoY basis, say, in the second half and say in FY ’24?

R Mukundan — Managing Director and Chief Executive Officer

So, in terms of volume, I think we should be clocking what we normally do in a quarter because I think our capacity expansion is coming on stream in India only and that too will be coming towards the beginning of next — first quarter next fiscal year. So, the volume will be whatever we can produce, we’ll sell. And every quarter, I think as we mentioned, this quarter probably — quarter two, broadly, if you say, the shutdown impact on the volume would have been about 60,000 odd. If you add that, you’ll get the volume, what we should clock every quarter.

S. Ramesh — Nirmal Bang — Analyst

So, the next thought is, if you’re looking at the European situation, there is report about lot of industries reducing operating rates and shutting down, especially in glass and there are reports of some pressure points in the area of automobiles. So while in the period we have done so far, we may not have seen any impact of a slowdown, what is the sense you are getting on the ground for the next, say, two quarters this fiscal and how do you see that shape up in terms of the end use segments, say, for FY ’24 and how are you planning your operations based on that?

R Mukundan — Managing Director and Chief Executive Officer

A far as U.K. is concerned, we have not seen any customer sort of moving away or not committing to volume. In fact, most customers are eager to consume next year volume. And U.K., as you will know, does not have flat glass supply from us and mostly it is containers.

S. Ramesh — Nirmal Bang — Analyst

Okay. In terms of the flexibility to pass on the cost increases, do you think you’ll continue to enjoy that which has been one of the key drivers for your growth in EBITDA margins and EBITDA. So because if the customers are under pressure in terms of the similar cost structure, wouldn’t there be some resistance? And isn’t that something which can potentially bring down margins?

R Mukundan — Managing Director and Chief Executive Officer

Yeah. So, I think the point which you mentioned is that we should be finally be very sensitive towards the customers’ demand for this product. I think that we are tracking very well, keeping a very close watch. So, I have only — I can only relay back what we are hearing from our customers. Our customers are continuing to be producing full and buying in full, and including wanting to contract for next year on that margin structure [Indecipherable].

S. Ramesh — Nirmal Bang — Analyst

Okay. Thank you very much. Wish you all the best. I’ll join the queue.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Vishal Biraia from Max Life. Please go ahead.

Vishal Biraia — Max Life — Analyst

Hello, sir. Good afternoon. Sir, my question pertains to the global demand supply. Could you touch upon the supply sources that you were expecting over the next few years? We’ve seen substantial delays in capacities in, say, China and some of the regions, but if we could touch upon as to what is the status now and what do you see over the next few years? Thank you.

R Mukundan — Managing Director and Chief Executive Officer

So, in terms of fresh capacities coming on stream, we have already — always highlighted that there is about 1 million to 1.5 million tonnes, which can come in Inner Mongolia, but I think that is probably going to serve the internal Chinese market because of distance from port and the other issues there. So I would — and that anticipated date is somewhere closer to ’26, ’27 or so, and there was also announcement of capacity expansion in U.S. of about 4 million to 5 million tonnes that initially the announcement was for somewhere around ’27, ’28, but I think the date has moved to 2030 now. So actually we are not going to see big capacities come on stream except some de-bottlenecking which people may do or certain capacities that have been added by players at the edges in terms of 200,000 or 300,000 tonnes. So overall, we don’t anticipate major fresh capacity coming, at least from the announcements which we are aware of, any time before ’26, ’27 that is in Inner Mongolia and closer to 2030 in U.S.

Vishal Biraia — Max Life — Analyst

Okay. And just touching back on demand related to the last question that you’ve answered, so you’re saying in Europe as well, you are not seeing demand curtailment as yet?

R Mukundan — Managing Director and Chief Executive Officer

Sorry. I’m not answering for Europe. I’m answering for U.K. only because we don’t spend much in Europe. So, there will be regional differences, which will play out. There are announcements by some manufacturers in continental Europe of large companies who are disclosing, but in U.K., and especially the customers we serve, are mostly container glass people. They continue to have continued operations and demand and I think we continue to serve them.

Vishal Biraia — Max Life — Analyst

Fair enough, sir. Sir, my last question pertains to the energy contracts in U.K. Could you touch upon as to what is the — what are the sort of energy contracts that we currently have and how are you planning to manage this in future?

Nandakumar S. Tirumalai — Chief Financial Officer

So we don’t disclose those information to outside world, how we hedge. That is privy to us. What I can say is we’ve got a hedging policy in place and we go as per the policy, which is approved by the Board.

R Mukundan — Managing Director and Chief Executive Officer

And as far as the customers are concerned, they have visibility on the market price and our contract with them is on the basis of market price.

Operator

Mr. Biraia?

Vishal Biraia — Max Life — Analyst

Yeah. What is the extent of increase in energy costs that you’ve seen in Europe operations? Could you give some perspective as to compare the first half of last year to the first half of this year? What will be the increase in energy costs for the U.K. plant?

Nandakumar S. Tirumalai — Chief Financial Officer

Again, difficult to say because we have a combination of our past hedge and the current market being there and what energy cost is a mix of what is open, what is covered, and therefore we really don’t share such information in terms of the outside world, but what I can reiterate is that we have a hedging policy in place and we hedge as per that.

R Mukundan — Managing Director and Chief Executive Officer

Yeah. So I think just to give a color to the question you asked, for example, this is in terms of — if you look at the index number of 100, the U.K. natural gas prices went as high as six times that number for a brief period in September, but today, they are settled at about 200. So on our index of 100, they are at 200 today, but they did briefly go up to six times that number. So that should give you the point that the market has actually cooled off. It is now twice the normal number of 100 what we have seen similar periods maybe prior to the — prior to conflict in Europe.

Operator

Mr. Biraia, does that answer your question?

Vishal Biraia — Max Life — Analyst

Yeah, it does. Thank you.

Operator

Thank you. We have our next question from the line of Rohit Nagraj from Centrum Broking. Please go ahead.

Rohit Nagraj — Centrum Broking — Analyst

Yeah. Thanks for the opportunity. Sir, first question is on India and soda ash pricing. So, I believe the last pricing that we had taken was on 1st of June. So, after that, have we taken any price increases? And given that the energy costs are coming down incrementally, is there a possibility of the pricing correcting to the extent of the energy costs coming down? Thank you.

R Mukundan — Managing Director and Chief Executive Officer

So, in terms of the Indian domestic pricing, I think it is not just that the dollar number is cooling off. Also, you see in terms of the finished product, it is indexed in USD. So, if you look at the rupee depreciation, that certainly also gives us cover in terms of protection of the rupee pricing urea. On the price increase, Zarir, you have…

Zarir Langrana — Executive Director

Yeah. July.

R Mukundan — Managing Director and Chief Executive Officer

July was the last increase we had taken.

Zarir Langrana — Executive Director

June.

R Mukundan — Managing Director and Chief Executive Officer

June, sorry.

Rohit Nagraj — Centrum Broking — Analyst

Yeah. And whether the benefit will be passed on given that the energy prices will come down in the next foreseeable months?

R Mukundan — Managing Director and Chief Executive Officer

It is not linked like that. So the market price is a function of demand and supply and the cost structures are cost structures. It is a very specific situation in U.K. where the energy costs had spiked up to a very sharp level that for visibility with the customer, we are fundamentally moving into a margin kind of a structure in U.K. But rest of the market, it is fundamentally delinked, coming — the costs are on one side and the pricing is on the other side.

Rohit Nagraj — Centrum Broking — Analyst

Right, sir. Got it. Sir, the second question is on China market. So there has been a real estate slowdown in China. So any demand-related challenges from the glass used in real estate and whether that soda ash volumes will come into the global market? Any broader trends from your side? Thank you.

R Mukundan — Managing Director and Chief Executive Officer

See, really the only big impact we’ve seen, and I think this is not about the volume number, but it is more related to as the freight costs have come down, the landed price in some markets have corrected by about $20 odd and that is related to freight. I mean, beyond that, we’ve not seen any major movement.

Rohit Nagraj — Centrum Broking — Analyst

Okay, sir. Got it. Thanks for the answer and best of luck, sir. Thank you.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Rajesh Aynor from ITI Limited. Please go ahead.

Rajesh Aynor — ITI Limited — Analyst

Hello?

Operator

Please go ahead, sir.

Rajesh Aynor — ITI Limited — Analyst

Yeah. Thanks for the opportunity. Sir, my question is on EBITDA margin or EBITDA per tonne across the geographies. Now, if I look at it, U.S., which is the largest contributor to our top line from soda ash side, there, our margins are now back to, let’s say, slightly under $50 per tonne, and the margin upside, which we had in this quarter was mainly from U.K. where our margins are almost at — in excess of $150 per tonne. Same is the case with Africa where the margins are as high as more than $225 per tonne. So my question was, what is, let’s say, a normalized level of margin that we can see?

And second is in U.S., although we have seen the prices or the realizations went up from $200 to $270, our margins are actually in the similar range, let’s say, $45 to $50 per tonne. So how exactly — what are the margin determinants across U.S. and India? U.K., I understood there are some hedging contracts, which would have benefited us and going forward it may or may not be there, like, I think there are some one-off factors. So similarly, U.S. and Africa, what are the margin determinants and what kind of outlook do we have on per tonne margin?

R Mukundan — Managing Director and Chief Executive Officer

So let me just say as far as the U.S. and India is concerned, the quarters in which we take maintenance shutdown, there also increases fixed cost because we are spending on the maintenance costs. So I think there is an element of, let’s say, $3 million, $4 million of expenditure, which is ahead of the normalized number. Then, the second element is that as far as U.S. is concerned, we did highlight that the blended number usually is going to track up in Q3 on the back of quarterly resets in export pricing and both domestic and export would reset even higher for the quarter four. So you would continue to see the margins move. As far as India is concerned, the prices are more or less stable as well as the costs are more or less stable. So save for the additional maintenance expenditures which would have happened in Q2, that would sort of give you the margin uptick as far as Q3 is concerned. So that is all I [Technical Issues].

Rajesh Aynor — ITI Limited — Analyst

And sir, in U.K. as well as in Africa, I mean, these are extraordinary margins, let’s say, $160 or even $200 plus. So what is, let’s say, a normalized level of margin and — because you have to really calculate it on the private level or the realizations have gone up very, very sharply in Africa. It comes to around $440 plus. Same is the case with U.K. Of course, U.K. is understandable because there are some specific some energy costs, which is across all the products, but in Africa, what is a sustainable price level and why have these prices almost doubled over a period of a year?

Operator

Ladies and gentlemen, we’ve lost the connection. I’ll reconnect the management team. Please stay connected. Please go ahead, sir.

Rajesh Aynor — ITI Limited — Analyst

Hello?

Operator

Mr. Aynor?

Rajesh Aynor — ITI Limited — Analyst

Yeah, yeah. Hello?

R Mukundan — Managing Director and Chief Executive Officer

Yes, please. Go ahead.

Rajesh Aynor — ITI Limited — Analyst

Okay. Sir, my question was about Africa and U.K. pricings or the realizations. In U.K., I was saying it’s understandable because of energy costs pushing through, but in Africa, what’s the reason that prices as well as margins are at almost super normal levels? I mean, say, EBITDA of around $235 per tonne. So what has been the specific factor here and what is the sustainability?

R Mukundan — Managing Director and Chief Executive Officer

So Kenya, more or less it is a function of the market prices alone, nothing else. Because it is a low-cost inventory, it does end up delivering high EBITDA as the prices move up. So that is clearly the outcome. And as far as U.K. is concerned, I have already highlighted the unwinding of hedges and one-time land sale income, and also, certain increased numbers in terms of product portfolio issues.

Rajesh Aynor — ITI Limited — Analyst

In EMEA, why have the prices gone up so fastly…

Operator

Mr. Aynor, I request you to come back in the queue.

Rajesh Aynor — ITI Limited — Analyst

I’ll fall back in the queue. Thanks a lot sir. Thanks.

Operator

Thank you. We have our next question from the line of Ranjit from IIFL Securities. Please go ahead.

Ranjit — IIFL Securities — Analyst

Yes. Thank you. Thanks for the opportunity. So in the opening remarks, you have mentioned that we are likely to expand the nutraceutical capacities by putting up of two phase, 25,000 each capacity. Can you provide a rough capex outlay for this particular thing and whether this would be sufficient to turn this particular segment back in green?

R Mukundan — Managing Director and Chief Executive Officer

This was a more comment about silica plant. Silica, we have a 10,000-tonne silica plant which is fully — more or less fully utilized and we have a very good traction from customers in terms of especially the rubber and tire customers for additional green tires where it’s partly added to replace carbon black and I think we are putting up 50,000 tonne in two streams of 25,000 tonne each.

And broadly this capex would be funded through internal accruals and our estimated number was about INR400 odd crores. And it would take about 30 months to execute and we will start the execution plan and it has a good return profile, including a return on capital. As far as Nellore is concerned, we are still not operating at full utilization of the 5,000-tonne plant, which we have. We are still sort of going through the process of customer approval and we should — probably closer to the exit of this year, we should probably be getting the plant in nutraceutical closer to full utilization.

Ranjit — IIFL Securities — Analyst

Okay. Thank you. That is helpful. And the second thing, the production figures are kind of missing in the presentation. So just wanted to check if you can provide that for standalone and the other operations, soda ash production volumes.

Nandakumar S. Tirumalai — Chief Financial Officer

Generally, production and sales, both are matching up all the quarters. So there is no real meaning in production numbers. Sales numbers are again more relevant because generally if you tracked any quarters, both are almost similar.

R Mukundan — Managing Director and Chief Executive Officer

They would be in the same range. I think if sales will — sales falls, production also — would have been caused by the production shortfall and they track pretty close to each other, because we don’t hold much of inventory in our books.

Nandakumar S. Tirumalai — Chief Financial Officer

We can’t talk too much to factoring of big commodities. So generally it is sold, what’s produced.

Ranjit — IIFL Securities — Analyst

Okay. So going forward, we won’t be sharing the production volumes. It would be only…

Nandakumar S. Tirumalai — Chief Financial Officer

[Indecipherable].

Ranjit — IIFL Securities — Analyst

Sure, sure. Thank you. And lastly, the one-time impact of the land sale and the hedges costs, sir. Just awaiting the details on that front. Thank you.

Nandakumar S. Tirumalai — Chief Financial Officer

What was that?

Ranjit — IIFL Securities — Analyst

The U.K. business.

Nandakumar S. Tirumalai — Chief Financial Officer

Yeah. Okay. What do you want in that?

R Mukundan — Managing Director and Chief Executive Officer

The amount.

Ranjit — IIFL Securities — Analyst

The amount.

Nandakumar S. Tirumalai — Chief Financial Officer

That we’ll come back to you.

Ranjit — IIFL Securities — Analyst

Yeah, sure. Thank you

Operator

Thank you. We have our next question from the line of S. Ramesh from Nirmal Bang. Please go ahead.

S. Ramesh — Nirmal Bang — Analyst

Yeah, thanks for the follow-up. Sir, if you look at your capital expenditure, what is the amount you expect for the second half and what is the capex plan for the next two years, FY ’24 and ’25?

Nandakumar S. Tirumalai — Chief Financial Officer

So Ramesh, I have given those numbers in my opening remarks. I think INR220 crores for the spend in India and INR304 crores for Q2. I will come back to you with the Q1 number which we gave last time and give combined number. It was there in our Q1 call. So we spent INR304 crores in Q2 of the current year in consol in capex.

S. Ramesh — Nirmal Bang — Analyst

No, no, I am asking about the future capex plan. So if you can confirm the capex number for the second half for this year and FY ’24 and ’25, we will be able to tie in the overall capex for the next two.

Nandakumar S. Tirumalai — Chief Financial Officer

So Slide 21, Ramesh, talks about the future spend on the capex. So INR1,050 crores is the amount we’ll spend between second half up to H1 ’24. So next one year’s time, INR1,000 crore spend across domestic.

S. Ramesh — Nirmal Bang — Analyst

Okay. And the full impact of that will come from FY ’25?

Nandakumar S. Tirumalai — Chief Financial Officer

Yeah. So see the chart on top, we talked about capacity going up starting from this year’s second half and next year’s first half. So the benefit of volumes will come to us next year perhaps in second half.

S. Ramesh — Nirmal Bang — Analyst

In terms of your working capital and the inventory days and receivable days, you see that declining given the softness in prices and these are going to release some working capital and how would you see your debt profile moving in terms of the gross and net debt in the next two years?

Nandakumar S. Tirumalai — Chief Financial Officer

Difficult to talk about next two years now, Ramesh, but broadly, if you look at working capital has been — amount base has been steady over the last couple of quarters, and as we generate more and more cash, idea is to pay down debt and so therefore we will use all the cash to deleverage.

S. Ramesh — Nirmal Bang — Analyst

Okay. Thank you very much.

Nandakumar S. Tirumalai — Chief Financial Officer

Thank you.

Operator

Thank you. We have our next question from the line of Abhijit Akella from Kotak Securities. Please go ahead.

Abhijit Akella — Kotak Securities — Analyst

Thanks a lot for taking the follow-ups. So just a couple of updates on the capex programs that have been underway. One is on the Phase 1 capex at Mithapur. When we announced it, there was a significant component towards energy saving investments, particularly steam turbines etc. So just wanted to check if that part of the capex has already been commissioned. And if so, has it already started to contribute to energy savings at the site?

R Mukundan — Managing Director and Chief Executive Officer

The turbine should get commissioned by somewhere in the month of Jan. That is our commissioning date. It is now going through quality test procedures and it should get commissioned towards middle of Jan.

Abhijit Akella — Kotak Securities — Analyst

And would we expect a meaningful decline in power and fuel costs, sir, after that’s up on stream?

R Mukundan — Managing Director and Chief Executive Officer

In fact what it does do is that we will turn down some of the inefficient turbines and inefficient — but more importantly, it allows us to produce more — immediately more vacuum salt because there is a headroom to push more salt volume in our factory.

Abhijit Akella — Kotak Securities — Analyst

Okay. And the other one I just had was on the U.K. Of all the projects that have been going on there, there have been three or four of them one after the other, including combined heat and power plant and waste to energy and then the salt and bicarb transition etc. So what’s the status on all of these? Are all of those done or are we still waiting for a few of these to…

R Mukundan — Managing Director and Chief Executive Officer

The combined heat and power in the salt plant is commissioned fully. The carbon capture has been commissioned fully. The pharmaceutical-grade salt project has started. The civil work has started and I think that should get commissioned in about 18 to 24 months. These are the announced ones in addition to the warehouse, which is — in-house warehouse stocking facility, which is also underway. So these are the big projects which are there, but the biggest one — the next big one is in the pharmaceutical-grade salt, which should get commissioned in the next 24 months, but the rest of them have been commissioned.

Abhijit Akella — Kotak Securities — Analyst

Okay. And the rental income that we are earning from leasing out the land, I believe, for the waste-to-energy project, that has already started to come in?

R Mukundan — Managing Director and Chief Executive Officer

What is that? [Indecipherable] That I think some income has already come. And the land thing which was stated by me in the opening remark was more to do with the warehouse, which the warehouse provider has bought land from us and then we will be centralizing all our warehouse in U.K. in one location.

Operator

Mr. Akella, I request you to come back in the queue. Thank you.

Abhijit Akella — Kotak Securities — Analyst

Thank you.

Operator

We have our next question from the line of Resham Jain from DSP Investment Managers. Please go ahead.

Resham Jain — DSP Investment Managers — Analyst

Yeah. Thank you. So I have just one question. In the annual report, you mentioned about co-creating high-purity silica for battery applications. So the capex which you highlighted a while back, is that also related to that or — because actually I couldn’t hear. I can actually hear a lot of other participants, but management…

R Mukundan — Managing Director and Chief Executive Officer

Yeah. So the silica currently the biggest end use is on rubber and tires, but the same silica — quality silica grade goes also for battery separators. So we’re already selling them and this unit will be able to service that market also.

Resham Jain — DSP Investment Managers — Analyst

Okay. So how much expectation is there from that particular segment in terms of application, when you look at overall silica, the incremental capacity which you are putting up?

R Mukundan — Managing Director and Chief Executive Officer

We will be able to sell out full 50,000. We’ve got enough market traction to say that in phases when it comes 25,000 and the 25,000, we have customers who have lined for this already.

Resham Jain — DSP Investment Managers — Analyst

Okay. Okay, got it, sir. Thanks.

Operator

Thank you. We have our next question from the line of Saket Kapoor from Kapoor Company. Please go ahead.

Saket Kapoor — Kapoor Company — Analyst

Yeah. Namaskar, sir, and thank you for this opportunity. Sir, firstly in terms of this freight and forwarding charges, with the significant reduction in the container freight and ocean freight charges, what should that translate into going ahead, sir? There have been a significant change. Does it materially affect us going ahead?

R Mukundan — Managing Director and Chief Executive Officer

The effect of that is mostly in terms of the market price in some of the markets. They may dip by $10 to $20 because these markets grew [Technical Issues] in terms of container freight movement, the maximum use of containers [Technical Issues] which is about — and they have annual volume about 300,000 tonnes, which is about 10% of our total sales volumes. So rest of the places, the delivery is by local inland freight which is in U.K. as well as in India where it goes by rail and road. And in US, again, it is mostly by rail and then they have got shipping lines which take the — they don’t move in containers. They have bulk cargoes.

Saket Kapoor — Kapoor Company — Analyst

So this line item of INR528 crores, which has gone up quarter-on-quarter, will remain in this vicinity only, the small point I was just trying to make, on the same…

R Mukundan — Managing Director and Chief Executive Officer

Except for steering [Phonetic] which Magadi may get, which is our Kenyan unit may get, so that is about — and that accounts for about 10% of our volume, so which is going to be at the edges.

Saket Kapoor — Kapoor Company — Analyst

Sir, about the change in prices, sir, in dollar terms, have we seen any correction in soda ash prices internationally? And I missed what Zarir sir has mentioned about any price division that we have taken post the month of July.

R Mukundan — Managing Director and Chief Executive Officer

No, we have not taken any further price changes after month of July, and as far as the prices are stable, and in some markets where freight has fallen, the landed prices sort of reduced to that extent, but the ex-factory realizations have remained constant.

Saket Kapoor — Kapoor Company — Analyst

Very small points, which you have mentioned…

Operator

Mr. Kapoor, may I request you to come back in the queue, sir.

Saket Kapoor — Kapoor Company — Analyst

Yeah, ma’am. Just I’ll just sum it up and — ma’am, if you could give 20 seconds to me again.

R Mukundan — Managing Director and Chief Executive Officer

Yeah, please go ahead.

Saket Kapoor — Kapoor Company — Analyst

Yeah, sir. Sir, as you have summed up that going ahead, U.S. contribution would start improving and for Kenya and U.K., the contribution would flatten out for the coming two quarters. This understanding is correct, sir?

R Mukundan — Managing Director and Chief Executive Officer

Yes, correct.

Saket Kapoor — Kapoor Company — Analyst

And how has the Indian performance been post our plant shutdown? How is India going to contribute going ahead quarter three onwards now?

R Mukundan — Managing Director and Chief Executive Officer

They’re going to go to normal run rate. That’s about it, and they won’t have that higher maintenance cost which they had this quarter.

Saket Kapoor — Kapoor Company — Analyst

Okay, but and higher prices will reflect for Indian operations also, higher realization?

R Mukundan — Managing Director and Chief Executive Officer

Indian prices are most flat. After July, they’ve not moved up. So they are going to be flat.

Saket Kapoor — Kapoor Company — Analyst

Okay, sir. Thank you, sir. And I’ll come in the queue. Thank you.

Operator

Thank you. I now hand the conference over to the management team for closing comments. Over to you, sir.

R Mukundan — Managing Director and Chief Executive Officer

Thank you. And just wanted to close by saying that, I think, overall, if you look at the market context, for all our products, the market remains balanced or tight and we do expect this condition to continue. We do believe that in certain pockets, especially in Europe and U.K., we need to stay extremely close to our customers, given the challenging market conditions there, but as of now, we have not seen any negative bias from any quarter. In fact we have seen continued offtake and continued interest to conclude the agreements for next year.

As far as our strategy is concerned, we remain focused on executing the expansion plan, which was announced in India and also further capacity expansions, all across our operations, which are competitive, which is India, U.S. and in the Kenya and — but for this, the work is being done and we’ll announce and come back to you shortly. Thank you.

Operator

[Operator Closing Remarks]

Nandakumar S. Tirumalai — Chief Financial Officer

Thank you.