Tatva Chintan Pharma Chem Limited (TATVA) Q2 FY23 Earnings Concall Transcript

Tatva Chintan Pharma Chem Limited (NSE:TATVA) Q2 FY23 Earnings Concall dated Nov. 04, 2022

Corporate Participants:

Dinesh Shodani — General Manager Finance

Chintan Nitinkumar Shah — Managing Director

Ashok Bothra — Chief Financial Officer

Analysts:

Sudarshan Pamana — JM Financial — Analyst

Gaurav Chopra — Union AMC — Analyst

Nirali Gopani — Unique Asset Management — Analyst

Christian Barwani — JM Financial — Analyst

Raju Mathi — SBI Life Insurance — Analyst

Unidentified Participant — — Analyst

Asha — VT Capital — Analyst

Drew Muchal — HDFC — Analyst

Sanjay Jain — ICICI Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, Good day, and welcome to the Tatva Centan Pharmachem Limited Q2 FY ’23 Earnings Conference Call, hosted by ICICI Securities. [Operator Instructions] [Operator Instructions]

I now hand the conference over to Mr. Sanjay Jain. Thank you, and over to you, sir.

Sanjay Jain — ICICI Securities — Analyst

Thanks, Emma. Good evening, everyone. Thank you for joining us on Tatva intenfarmer and Q2 and H1 FY ’23 results conference call. We have Datacenter management on this call represented by Mr. Chintan Shah MD and Mr. Ashok Gotha, CFO. I would like to invite Mr. Dinesh Shodani, GM Finance, to initiate with his opening remarks — post which we will have a Q&A session.

Over to you, Dinesh.

Dinesh Shodani — General Manager Finance

Thank you, Sanjayji. Good evening, everyone. We are pleased to welcome you all to our Q2 FY ’23 earnings call. Today on the call, we have with us Mr. Chintan Shah, Managing Director, Tatu Centa; and Mr. Ashok Bothra, Chief Financial Officer, to discuss performance of the company during the quarter gone by followed by a question and answer. Please note that a copy of our disclosure is available on the Investors section of our website as well as the stock exchanges. Please do note that anything said on this call, which reflects our outlook toward the future or which could be construed as forward-looking statement must be reviewed in conjunction with the risks that the company faces in terms of uncertainty.

With that, I would like to hand over the floor to our MD, Mr. Chintan Shah for his opening step.

Chintan Nitinkumar Shah — Managing Director

Thank you, Dinesh. Good evening, and Salmubarak to all the participants. We wish you all a happy and a prosperous year. Thank you for joining us on our Q2 and H1 FY ’23 earnings call. I trust everyone is back to work more energized after a good break. I believe you have got a chance to go through the investor presentation uploaded on the stock exchanges as well as the company’s website. To begin, let me brief you with the financial numbers on a year-on-year and quarter-on-quarter basis.

During this quarter, the revenue from operations was at $901 million, a decline of 27% year-on-year and a growth of 2% quarter-on-quarter, respectively. Please note that Q2 FY ’22 was an outstanding quarter in terms of business performance and product mix is being the last quarter before the onset of effects of semiconductor chip shortages across the world. Hence, on a year-on-year basis, the numbers are showing a considerable decline. EBITDA during this quarter was at $112 million, a decline of 68% year-on-year and 27% Q-on-Q basis.

EBITDA includes ForEx loss of $32.1 million, so the actual operational EBITDA during the current quarter is at $143.98 million, which translates into an EBITDA margin of 16%. ForEx loss is mainly arising because of MTM a forward contract due to continuously depreciating rupee. Net profit after tax was at $71 million, a decline of 78% year-on-year and 27% Q-on-Q basis. Comparing on a quarter-on-quarter basis, the profitability has dropped due to increase in costs, such as power and fuel by nearly 32%, packing cost by nearly 36% and employee costs by slightly higher by 7% during this quarter.

In addition, changes in the product mix has also some impact on profitability. Now, let me explain each of the product categories and take you through the developments that took place in each of them during this quarter. TCs have registered quarterly revenue of $326 million in this quarter and half yearly revenue of $729 million, contributing 41% of the revenue and a growth of 69% year-on-year basis. Demand from PTCs from various user industries continue to remain robust.

Electrolyte sales registered a revenue of $45 million in this quarter and half yearly revenue of $115 million, contributing 6% of the revenue and a growth of 846% year-on-year basis. During the quarter, we have been formally approved by one more customer and are awaiting an approval from yet another customer. Over the next two quarters, we anticipate a slight dip in offtake by one of our existing customers as they are working on debottlenecking their plant productivity to become ready for their upcoming large demands.

With the strong increase in demand for entry storage systems globally over the next few years, we anticipate exponential growth in this segment. Pharma and agro intermediates and Specialty Chemicals registered a revenue of INR427 million and a half yearly revenue of $772 million. contributing 43% of the revenue and a growth of 45% year-on-year basis. In monoline, the delivery of pilot stage equipment for continuous locastry has been delayed by the supplier and is residue to arrive at our facility in mid-December 22. Post receipt of this equipment, the trials will commence.

As discussed earlier for under product on a continuous flow basis, the trial runs have been successfully completed. We are now awaiting to receive quality approval from the customer. Commercial supplies should take about 15 to 18 months’ time to materialize. Regarding the new product in application area of fatal extraction, commercial supplies are all set to begin from Q4 FY ’23. We are pleased to inform that we have successfully completed the led development of one new product based on continuous growth chemistry, which is the key base raw material for multiple agrochemical intermediates.

We are progressing steadily with the development of a few other products using continuous applications. Demand in this sector continue to remain robust, and we see a strong growth under this product category over the coming years. Registered a revenue of $98 million and a half yearly revenue of $157 million, contributing 9% of the revenue in H1 FY ’23 and a decline of 88% year-on-year basis. The sale of SBA is gradually picking up. We will see a better number on SDA revenues in Q3 and strong numbers in Q4 ’23.

Some of the customers are coming back on track with good demand but still, the overall demand is not back to normal levels. The key reason behind this being about a 50% drop in heavy-duty diesel add commercial vehicle sales in China due to the ongoing lockdown situations in the country since a long time. Industry is expecting the Chinese demand to revive from late Q4 FY ’23. Now, we have been given — now we have been formally given opportunity to cater plant size trial material by a new customer.

The trial material will be supplied in the end of Q3 FY ’23. This may take six to nine months to convert into commercial business for successful trials. We continue to remain optimistic on this product category and anticipate larger volume over the coming years. Regarding another product category of flame retardants, we are pleased to inform that we have successfully established the product on plan scale quite recently. I will be honest that we have struggled a lot over the last couple of months to achieve the desired quality and yields on plant scale.

But now, we can confidently announce that the product quality can make global standards. The key factors we required to monitor is how the European energy prices is going up over the next few months and also about the Chinese and European demand revival for heavy-duty commercial vehicles, how it pans out. Despite of all possible adverse cities, we have faced during the current financial year. We expect to close the current financial year with a top line in excess of INR400 crores with subdued profitability as compared to previous year due to change in product mix and underutilization of SDA facility.

The ongoing capacity expansion of setting up additional facility at our the SEZ plant is underway, and we target to commission the facility by end of the expansion of R&D facility at Warora is also underway, and the same is expected to be completed by the end of FY 23. During this quarter, we have successfully completed various projects which will have good positive impact in our performance going forward. Just to list a few, we began reusing a large volume solvent at the his facility by developing — by using the latest technology.

This will ensure competitiveness and cost savings in a few of our products. We have formulated plans to set up a similar technology at our angles facility. We have successfully completed plant price of flame retardants. We have also successfully supplied from plant scale, a new pharma intermediate to a new customer for validation. The product is expected to commercialize in 2024. We successfully completed plant sale trial runs of a new product using continuous low chemistry.

This, as I have explained earlier, and this product is expected to commercialize again in 12 to 15 months’ time to about 2024. We successfully completed net scale development of a very important starting raw material for various agrochemical intermediates. We assure you that we shall focus and work hard in developing new products using latest technology to ensure that we can continuously provide good products and solutions for our customers.

With this, I conclude my remarks and hand the call to Mr. Basso Botta, our CFO.

Ashok Bothra — Chief Financial Officer

Thank you, sir, and good evening, everyone. I shall summarize our financial highlights for the quarter. revenue from operation was at EUR901 million versus 36 million in Q2 FY ’22 that is decline of 27% on Y-on-Y basis due to lower uptake in demand of SBA and also as Bashar was the best performing in our history. EBITDA was at EUR112 million versus $355 million in Q2 FY ’22. That is a decline of 68% on buy on due to foreseen change in product base. EBITDA margin was at 12% versus 29% in Q2 FY ’22. The EBITDA number includes for a close of $32 million.

So the actual operational EBITDA during the current quarter comes to INR144 million which translates into EBITDA margin of 16%. In addition, the margins have got impacted due to change in product mix by drop and demand of STS, which is our high-margin accretive product category. That was at EUR71 million versus $324 million in Q2 FY ’22, a decline of 78% on Y-on-Y basis. PAT margin was at 8% versus in FY ’22. The impact is also on account of higher tax. Earlier, our day subsidiary was enjoyed tax holiday of 100%.

Now, we are enjoying 50% taxation for next five years. During Q2 FY ’22, 23, exports stood at INR594 million, contributing 66% of the revenue. The export declined during the quarter by 41% Y-o-Y due to drop in sale of ST, which is our major export contributor. Total debt as on 30th September 2022 stood at INR1,397 million with debt equity ratio, 0.29x, our debt of 85% is on account of working capital debt. Out of our net IPO proceeds of INR272 million, 1,328 million have been utilized as of 30th September 2022. That concludes my update on financial performance in [Indecipherable].

Now, we can be a moderate — now we can open the floor for a question-and-answer session.

Questions and Answers:

 

Operator

Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions] Thank you. We take the first question from the line of Mr. Sudarshan Pamana from JM Financial. Please go ahead, Sir.

Sudarshan Pamana — JM Financial — Analyst

Thanks for taking my question. Sir, my question is, number one, if I you correctly, you had talked about INR400 crores of this year of sales. — can the guidance — can you do me now?

Ashok Bothra — Chief Financial Officer

Yes, slightly better.

Sudarshan Pamana — JM Financial — Analyst

Yes, sir. So just wanted to understand, I mean, you had talked about INR400 crores for this year. I mean, as the guidance on sales for the full year, FY ’23?

Ashok Bothra — Chief Financial Officer

Yes.

Sudarshan Pamana — JM Financial — Analyst

Yes. Just to understand, I mean, if you are a

Ashok Bothra — Chief Financial Officer

We are expecting the Chinese demand revival by February. So if that happens, we may exceed that forecast. But as a precaution, I would prefer to remain as a guidance excess of 400 crores.

Sudarshan Pamana — JM Financial — Analyst

Sure, sir. Sir, I mean, just to understand the kind of the talks. One is we are getting the new capacity coming in, in the second half of this year. And we basically used to run at around INR55 crores to INR60 crores on a quarterly run rate last year. So just to understand, I mean, with that capacity coming in? And I mean, what should be the kind of FDA that one should look at as far as ever is concerned? And from an ongoing basis, the kind of demand that you can see beyond [Indecipherable].

Ashok Bothra — Chief Financial Officer

So see, basically, the SBA demand is now reviving back. So one of our customers has gone back to almost full scale demand skills and another customer is yet to revive. The third customer is now slowly starting and they have started putting in demand. So I believe by end of this financial year, the demand should be back to normal. In that scenario, we should see a strong growth coming in the next financial year.

Sudarshan Pamana — JM Financial — Analyst

Sure. And so with respect —

Ashok Bothra — Chief Financial Officer

Also with these new capacities, we will commercialize the flame retardant products. So that will also have an enhanced impact on the revenues of next financial year.

Sudarshan Pamana — JM Financial — Analyst

Sure, sir. But the newer capacities, I mean, we should be able to utilize the newer capacities as well. So the number should be better than what we had done in the last year. given that it’s, number one, there would be some kind of pent-up demand of this year, and probably that should kind of move ahead. And sir, on the flame retardant side, now that you were able to get the product characterization more or less in line with the quality I mean, should we expect some kind of revenues to tickle down by this year? And what is the kind of utilization that one can expect?

Ashok Bothra — Chief Financial Officer

We should expect revenue trickling from December and really actually picking up from January when the new facility will start operating. So we should see a decent demand for this in Q4 from the flame retardant category. We are about to execute the first full-scale order from two customers. So this should be in a range of a couple of hundred tons of this product. So that would be a good beginning to start and then approaching other customers as well. So we are in terms of approving our product.

Sudarshan Pamana — JM Financial — Analyst

Sure, sir. And sir, with respect to the lingering getting the purity levels. I mean, where are we in terms of the electrodes the client?

Ashok Bothra — Chief Financial Officer

Yes. So that is also one good development I forgot to mention that we did is we actually now achieved the low PPM motion levels in the lines. So we are submitting the samples to the customer, and so we also had to work on a lot of packaging issues so as to be able to transport this product in such a high condition to the customer. So all those issues we could resolve during this quarter. And now we are actually about to just send the sample out to the two customers for approving the monocline for battery applications with very low motor levels and high parities. So we are protein of that.

Sudarshan Pamana — JM Financial — Analyst

And I mean, should we expect the J-curve over here because given that this product can be quite exciting in terms of our scale and size?

Ashok Bothra — Chief Financial Officer

So ideally speaking, we should take about five to six months to get a formal approval. And then, of course, the start should be slow because they would not want to transfer a lot of their demands to us. So beginning probably a year should be a slow gradually picking up. And then we should see about 1.5 years to go to a full-scale demand in the battery application area.

Sudarshan Pamana — JM Financial — Analyst

Okay, thank you.

Ashok Bothra — Chief Financial Officer

Thank you.

Operator

Thank you very much. We take the next question from the line of Mr. Sanjay Jain from ICICI Securities. Please go ahead, Sir.

Sanjay Jain — ICICI Securities — Analyst

Good afternoon. Thanks for taking my question. Few from my side, first again, starting with the FDA, the real revival will happen only once Chinese heavy-duty truck sales start. Is that the right assumption?

Ashok Bothra — Chief Financial Officer

That is absolutely the right assumption. When it will actually start growing up the demand. So right now, when I’m saying that the customer has revived two of these customers, and one is still not reviving that the one which is not reviving is particularly because of lack of demand in the Chinese market.

Sanjay Jain — ICICI Securities — Analyst

Okay. And this is despite readding one customer last year and we are in a process to add another customer, right? In the STS?

Ashok Bothra — Chief Financial Officer

Yes, yes. So basically, this the new customer, which we are adding up is going to consume this product into multiple application areas. So we are submitting two different SDAs to this customer.

Chintan Nitinkumar Shah — Managing Director

So, we are submitting two different SDAs to this customer. So, we are about to execute that order actually by end of November, we are expected to dispatch for these products. And these are into automotive application area and plastic refining area.

Unidentified Speaker —

Okay. Just on the guidance of INR400 crores in this context, because in first half, we have done close to INR175 crores and we are talking INR400 crores which really doesn’t suggest that we are looking at a significant jump from all this. So basically, most of the benefit will come starting, yes, sales only in FY ’24, right?

Dinesh Shodani — General Manager Finance

No, no. So, we will see a significant rise in SDA sales beginning from Q4. So of course, Q3 will also not be that bad as what we have seen in Q1 and Q2. the significant growth we will see in SDA demand coming back in Q4.

Chintan Nitinkumar Shah — Managing Director

Margins have been set for a few firm orders have been set for Q4, so we believe, I mean, there is no reason not to believe that we will not achieve this number.

Sudarshan Pamana — JM Financial — Analyst

Got it. Got it. from the inventory perspective, I also see that we are carrying close to INR200 crores of inventory, and most of it should be SDA, right?

Chintan Nitinkumar Shah — Managing Director

Right. So 60, I am estimating about INR60 crores to INR65 crores reduction in inventory by end of this financial year because we will be able to sell the filed-up inventory with all these existing orders that we have on hand.

Sudarshan Pamana — JM Financial — Analyst

Okay. There is no risk of write-off in this inventory, right? You can flow it on the production.

Chintan Nitinkumar Shah — Managing Director

Yes, these have been tested to be stable for more than five years.

Sudarshan Pamana — JM Financial — Analyst

More than five years. Got it. Got it. That’s on the FDA. Second, on the opportunities that we have disclosed a lot more on the product validation, new product, your pharma intermediate your agrochemical intermediate new agrochemical product in the continuous growth. Can you help us understand what is the total addressable market? Or what is the revenue size? All these products put together can be achieved at the peak. I’m not talking in the year one or year two. What is the potential of this product to add to our revenues over the next three years or four years’ time period?

Chintan Nitinkumar Shah — Managing Director

I would say on a four year, because this will take about 1.5 years for these products to actually get approved and go to a commercial scale. And of course, the stat first year would be a slow because they would be trying us and then it would go to a full scale. On a four year horizon, this product opportunities, the four products, what I have been talking about can lead to a revenue in the range of INR18-2,000 crores.

Sanjay Jain — ICICI Securities — Analyst

This also includes the BFR, right?

Chintan Nitinkumar Shah — Managing Director

No, no. I’m not talking on the BFR side. And those [Indecipherable]

Sanjay Jain — ICICI Securities — Analyst

On that continuous flow chemistry opportunity.

Chintan Nitinkumar Shah — Managing Director

Yeah.

Sanjay Jain — ICICI Securities — Analyst

Okay. And a significant portion of it will come from monocline or it will be equal in all these products?

Chintan Nitinkumar Shah — Managing Director

No, no. So the new products that we have launched, I mean, the ones which we have completed successfully, and there is one more product which we are now just about to hear the catalyst has worked very successfully. The only issue we are currently facing is separation of the product, which probably we are very close to the solution as well. So, these four products put together is what I’m saying that this has very large potential opportunities.

Sanjay Jain — ICICI Securities — Analyst

So just to clarify, the four products, are the 2-agrochemical intermediate and to pharma intermediate and the one agrochemical implement. These are the products are we talking, this doesn’t include the DFR right?

Chintan Nitinkumar Shah — Managing Director

Out of these two products, we have already submitted for appeal basis, and now we are working on the three products. So, this intermediate what we have developed on a continuous flow basis becomes my own key raw material, and then I have to synthesize the forward integration into an agrochemical intermediate

Sanjay Jain — ICICI Securities — Analyst

So, we are doing intermediate as well as AI in this entire value chain.

Chintan Nitinkumar Shah — Managing Director

Not AI. No, no. Not AI, but advanced stage.

Sanjay Jain — ICICI Securities — Analyst

Okay. Advanced stage intermediate. Got it. Got it. And what is the potential opportunity in Monogline?

Chintan Nitinkumar Shah — Managing Director

Monogline, we believe that we can hit about 2,500 to 3,000 tonnes of at over next three, four years’ time. And that is what is the capacity we are looking to set up once these pilot trials are done.

Sanjay Jain — ICICI Securities — Analyst

So, we will go with that kind of a scale from day 1, 2,500 to 300,000 metric tons.

Chintan Nitinkumar Shah — Managing Director

So, in continuous flow chemistry you don’t have option to build up capacity gradually. So, it has to happen at one go.

Sanjay Jain — ICICI Securities — Analyst

Okay, okay. And then we will start selling. But any initial test that we have done on the product now that we said that we have achieved the low cost?

Chintan Nitinkumar Shah — Managing Director

We are running this continuously in our R&D since probably now almost nine months continuously, day and night operation running since last nine months. This is unfortunate that this pilot equipment is getting delayed. So, the supply is actually struggling with some heating elements, which has to import from Germany, which is causing this deal. So once this is in place, we will continuously again done for three to four months on a pilot basis and then go for commercialization.

Sanjay Jain — ICICI Securities — Analyst

Got it. And you said that in the BFR, we face certain challenges. What were those challenges which we faced and now that we have sedately been resolved, and our plant is also coming in end of Q3. So, what is the potential volume we are looking in for FY ’24 in BFR?

Chintan Nitinkumar Shah — Managing Director

So FY ’24, we are looking anywhere between 1,400 to 1,800 metric tons a year.

Sanjay Jain — ICICI Securities — Analyst

Okay. And what was the challenge?

Chintan Nitinkumar Shah — Managing Director

Challenge is what we were facing is basically the first set of challenges we faced when we went from R&D scale to pilot scale. So, where you, there is a mismatch in terms of the yields or in terms of certain quality. So, it took us a while to resolve those issues. Then when we went from pilot to plant scale. So that was the final scale of that we did. So again, we had a lot of challenges that we face in terms of operating at a different volume scale, which led to certain increase profile changes for certain yield losses. So again, we had to do a lot of, probably, we have taken 16 17-odd batches to overcome all these issues. And now we are very confident that we are true with launching this product on a commercial scale.

Sanjay Jain — ICICI Securities — Analyst

And that commercial product has been approved by the customer, right?

Chintan Nitinkumar Shah — Managing Director

Yes. Yes. Yes.

Sanjay Jain — ICICI Securities — Analyst

So with [Indecipherable]

Chintan Nitinkumar Shah — Managing Director

We have received two formal approvals from the sample, and now we are set producing commercial supply orders as a first plant scale trial approval basis, kind of thing. So, what we have said is kind of a five to 10 scale of samples from the plant, and now we will execute a few container loads of product, which will go actually from a production scale and basically, that will be intended for their full plant-scale time.

Sanjay Jain — ICICI Securities — Analyst

Got it. Just one last question from my side. On this PTC side, this year has been a phenomenal, what should be the steady run rate? I know that we were not having capacity previously and that was deeper. But what should be a steady run rate from FY ’24 onwards in the PTC?

Chintan Nitinkumar Shah — Managing Director

So on a fair, so we are steadily also adding a few customers in PTC segment also, some new application areas into which we were we were able to identify new customers. So, this has been growing. And this is what is happening that year-on-year basis, we have been growing at 15%, 20% rate, and that is what I expect. So, this we can consider as a benchmark can grow from here at that rate.

Sanjay Jain — ICICI Securities — Analyst

Thanks for answering all my question. I will get back into the four more questions and best of luck for the quarters.

Operator

Thank you very much. We have a next question from the line of Mr. Gaurav Chopra from Union AMC.

Gaurav Chopra — Union AMC — Analyst

So firstly, on the FDA. So, in one of the previous con call, you had mentioned that the contribution from the nonautomotive segment is roughly in 20%, 25% right. So, if you look at the first half number of SDAs, I think you’ve done about like INR16 crores. So is the decline also coming in the nonautomotive segment because based on the revenues of INR225 crores in ’22, you probably would have contribution of INR50 crores, INR60 crores from non-automotive segment?

Chintan Nitinkumar Shah — Managing Director

The revenue mix is kind of 80-20 between automotive and the other segment. And automotive segment is such that there is a continuous demand. Whereas in the other segments, it is always kind of a campaign run basis. So, demands will continue to fluctuate. So, most of this, whatever we have catered during this Q1 and Q2. Most of this is going for the other application, nonautomotive applications.

Gaurav Chopra — Union AMC — Analyst

So ultimately, it would be zero.

Chintan Nitinkumar Shah — Managing Director

Almost. Almost Fair to say that, yes, it is almost 0 in the last two quarters. And that is what is now reviving.

Gaurav Chopra — Union AMC — Analyst

Got it. Got it. So in the last conference call, you had, of course, mentioned that the SDA sales could be similar to a that, of course, is not.

Chintan Nitinkumar Shah — Managing Director

What we were expecting, but because of this drop in demand from the Chinese market, which has led to revise my forecast on that. But this would again be once the Chinese situation is back to normal. So, there is no, what I would say is there is no lack of confidence in terms of whether this demand will ever happen or not. So, the demand backdrop, the demand continues to remain strong. Customer keeps on talking to us now quite very frequently as well. but everyone is just waiting for that cycle to restart. So, it’s just a matter of time and patience.

Gaurav Chopra — Union AMC — Analyst

Got it. Got it. So with [Indecipherable].

Chintan Nitinkumar Shah — Managing Director

Customers. So out of three old customers, two of them have already revived and started putting in orders and Q1 customer is yet to revise. So still, they are not budging at all, and they expect to have some demand beginning end of Q4.

Gaurav Chopra — Union AMC — Analyst

Right, right. But we have firm visibility for the fourth quarter of fiscal year.

Chintan Nitinkumar Shah — Managing Director

Yes, absolutely.

Gaurav Chopra — Union AMC — Analyst

Got it. So with the expanded capacity also coming online, is it fair to assume that fiscal ’24, we can touch base the revenue base of STAs of INR225 crores in ’22? Or is it still?

Chintan Nitinkumar Shah — Managing Director

That is what I am expecting to happen.

Gaurav Chopra — Union AMC — Analyst

Got it. Got it. Sir, secondly, on the PTC side, first quarter, I think what we have seen is the revenue from the PDC picked up sharply. And I think the understanding was that the SB facilities kind of fungible. So we can cater to the additional amount of PTC. But in the second quarter, we have seen sequential drop from, I think, INR41 crores to close to INR33 crores in the PTC. Is it due to seasonality or anything?

Chintan Nitinkumar Shah — Managing Director

Some of these customers, for example, let us say, an agro customer. they would run their products on a campaign basis. So, when they put in orders, it’s a continuous order for six months and then virtually in orders for maybe next three months. So, it depends on how they are running them. But the demand, overall demand continues to remain very strong, and we are also seeing a very good next financial year, demand for PTC as well.

Gaurav Chopra — Union AMC — Analyst

Got it. Got it. So lastly, sir, on the electrolyte salts there also we’ve seen a sequential drop in the revenues. Anything on that? How does the rest of the year looks like for electrolyte salts

Chintan Nitinkumar Shah — Managing Director

Yes. So, we may see, so that is what I already told that we may see a certain drop because one of our customers, one of our large customers is struggling to meet the overall demand from their existing plant. So, they are kind of trying to debottleneck their plant and they are going into a shutdown. So just from this month, so mid of November, we have been asked to stop supplies until early or early February or late January. So maybe we’ll lose some sales in next two months, next 2.5 months’ time frame. And then we expect this demand to come back much more strongly than what we have been doing in past quarters.

Gaurav Chopra — Union AMC — Analyst

Got it. Got it.

Chintan Nitinkumar Shah — Managing Director

And overall, if you look, the demand for energy potage systems is now increasing very rapidly. So our customers have been discussing about certain projects which they are in tune to get approvals for supplies for their battery for systems. I would say 2025 is the year when we may see a huge, so gradually from ’23, ’24, ’25, we may see an exponential growth happening over the next three years in this particular sector.

Gaurav Chopra — Union AMC — Analyst

Got it. Got it. Thanks for the clarification and best of luck.

Chintan Nitinkumar Shah — Managing Director

Thank you.

Operator

Thank you very much. We take the next question from the line of Nirali Gopani from Unique Asset Management.

Nirali Gopani — Unique Asset Management — Analyst

Yeah, hi. Thank you for the opportunity. Sir, my question is on the EBITDA another. So if we see quite EBITDA marination 17% to roughly 12%. Now when you see the last quarter that Q1 also had a ForEx loss of INR five crores. And other expense is not that significantly high. So, my understanding is largely because of raw materials. If you can elaborate on this scale?

Chintan Nitinkumar Shah — Managing Director

Not really raw material because if you see the raw material consumption might have increased by probably a 1% number in terms of consumption of raw materials. So that is not the factor. The key factor that has arise is a significant rise in energies. So, our electricity cost as well as our fuel cost. That has gone up significantly. And that is probably not only for me as a UniCare, but probably across the industry, everyone is facing that challenge.

Second challenge we really faced was in terms of packaging material because with some of our very sensitive products, we are compared to use imported packing materials. And with very high freight rate cost, the suppliers had to adjust their prices for packing materials according the worse to absorb these increased costs. So, we had been paying very significantly higher price on packaging products, which also led to a severe rise in terms of packing material costs.

So, these two, I would say, are the key elements, which has given rise to this kind of top. Secondly, a good part of this is that particularly from month of November, this very month, compared to October and now coming into November, there is a very significant drop in terms of ocean freight. So typically, just to put a number, last month for a 40-feet container typically, we were paying for the European sector somewhere close to $8,000, which has now dropped to below $3,000.

And again, in the U.S. sector, where we were paying close to $9,000 to $10,000 has come down to about $6,000, $7,000. So now we will see a consistent drop in freight cost as well as in terms of packing material costs because we will have to readdress the price to lower levels considering lower trade cost. But energy and fuel and energy prices, we don’t expect to drop in a short term or a medium term.

So that will continue to end, because for these kind of factors, we also honestly cannot approach customers asking for a price rise because these are not actually significant part of the overall costing model, which we normally discuss with customers. So, unless and until there is a significant movement in prices of raw material, it really is not making any sense to approach our this set customers. So, we continue to absorb that pass for the next few months.

But probably now from November, we feel that we are coming into a comfort zone. And also, if you consider we have virtually not been operating our SDA facility since last few months. So that is also an one-off cost that is piling up. So that is also leading to stress on your profitability. So now since the SDA demand is coming up, the plant utilization starts picking up, that will also reflect in our profitability numbers again coming back to normal levels.

Nirali Gopani — Unique Asset Management — Analyst

Okay. So sir, this INR400 crore revenue that you are guiding, what kind of margin can we expect?

Chintan Nitinkumar Shah — Managing Director

So, I would say slightly better margin than half one because we will have a decent size of SDA sales in the Q3 and Q4 put together. But not the kind of margins that we have seen in the last financial year, of course. So, we should, this H1, we should be in the range of 20% of EBITDA, 20% to 22% of EBITDA is what I’m expecting.

Nirali Gopani — Unique Asset Management — Analyst

Okay. Okay. And sir if you can, just talk about what will be the growth drivers for our PA business over the next say, three, four years. Obviously, given the capacity by roughly 3%. So, we do expect a strong growth. So, what to be the listed growth drivers for the same?

Chintan Nitinkumar Shah — Managing Director

So I’ve already talked about this in the past because now we are gradually moving from BS VI to BS VI, EUR6 to EUR7. So, we are currently see the major impact of SDA sales, which is currently happening to us is because we are also locked into technical year geography of India and China. And with China suffering in terms of demand, we are also suffering simultaneously. When going from BS VI to BS VI, our geographical barrier is bound to go away because we are already in queue for approvals for all the applications for BS VII. So, this geographical barrier once it is gone.

So, this will have a good impact in terms of our getting larger market share. So, that will automatically become a driver to push demand for the presenter. And secondly, with the new applications for the SBA products coming in, in the newer application areas like plastic refining. So, this is again going to become a large growth driver for this particular segment.

Nirali Gopani — Unique Asset Management — Analyst

Thanks. Thanks for that. And sir, just lastly, that with a lot of new initiatives that we have undertaken. So, over the next three, four years, as the company and what kind of growth can we expect or any revenue guidance [Indecipherable].

Chintan Nitinkumar Shah — Managing Director

Can you repeat the question?

Nirali Gopani — Unique Asset Management — Analyst

No. So I was just saying that we are in a number of new initiatives products. So what kind of growth at the company can we expect over the next two, three years? Or any revenue guidance that you would give for FY ’26?

Ashok Bothra — Chief Financial Officer

I would not go that long. But I can tell you very confidently that the products that have been successfully developed and which are about to be developed in a very short span of time. All these products have a large potential downside application area, very large in both application areas in agrochemical as well as one in pharmaceutical area. So these are all large potential products which we are getting into. And some of these molecules have applications into multiple, so this becomes a key raw material for three to four different intermediate products. So that is what we are focusing on.

Nirali Gopani — Unique Asset Management — Analyst

Okay. Okay. That’s it from my side. Thank you.

Ashok Bothra — Chief Financial Officer

Thank you.

Operator

Thank you very much. We take the next question from the line of Mr. Christian Barwani from JM Financial. Please go ahead.

Christian Barwani — JM Financial — Analyst

Greeting by Happy New Year, and thanks for taking my question.

Ashok Bothra — Chief Financial Officer

Happy New Yer, too.

Christian Barwani — JM Financial — Analyst

Yeah. Sir, just three clarifications from my side. So the first is that you have lowered sales guidance from around INR520 crores to INR530 crores to almost like INR400 crores now. So this entire drop is solely on account of SDAs, is that understanding?

Ashok Bothra — Chief Financial Officer

If you see all the other three sectors have grown very handsomely, and that continues to grow. But the whole of this guidance is coming in because we were expecting only Q1, Q2 to be subdued. But now coming to Q3, Q4, of course, we are seeing — going to see very good numbers on SDAs, but not what we were anticipating because one of the key customers is still not reviving. So that is what is bringing in this kind of a forecast in terms of SDA. But we should see very handsome numbers of SDs going into the next financial year. That is for sure.

Christian Barwani — JM Financial — Analyst

Understood, understood. So just to kind of elaborate on that. So we are also going to have some newer capacities, right, which are coming on stream from this month. So are we on track on that, on those capacities?

Ashok Bothra — Chief Financial Officer

Yes. So we expect to start water trade from between seven to 15th of December.

Christian Barwani — JM Financial — Analyst

So are we expecting any kind of growth from those numbers? Because I think we are all [Indecipherable]?

Ashok Bothra — Chief Financial Officer

So technically, commercially, this facility will start to generate revenues.

Christian Barwani — JM Financial — Analyst

Understood. And would we have, let’s say, in the beginning months, we ideally — I mean, we normally see the utilization rates at lower, I mean —

Ashok Bothra — Chief Financial Officer

Of course, it will gradually pick up. But we expect a certain portion of the plant to be fully occupied with flame retardant products. So that is one part which has been locked in. So a lot of capacities will start getting consumed from FY ’22, beginning of [Indecipherable]

Christian Barwani — JM Financial — Analyst

Yes. So the question that I had was that for — because of the lower utilization, would our margins be impacted in the next two quarters as well? So — or because I think you alerted?

Ashok Bothra — Chief Financial Officer

I’m pretty sure that we will almost consume the capacity, existing capacities in Q4, that is for sure. Q3 also are getting pretty much busy. So Q3 is — in terms of capacity utilization is better and Q4 will be operating the existing capacities at full scale. And as the new capacities will start getting these with the flame retardant products. And that again depends on if the Chinese demand revival comes up as we are anticipating by February of 23. So if that happens, then the new plant also starts becoming occupied.

Christian Barwani — JM Financial — Analyst

Understood. And I think a small clarification here. Did you guide for 20% to 22% EBITDA for the full year? EBITDA margin?

Ashok Bothra — Chief Financial Officer

Not for the full year, I’m saying for the half year, coming half year.

Christian Barwani — JM Financial — Analyst

For the coming half year. Understood. And for the other expenses, I think you mentioned that there was an increase, but I think it’s almost the same as the last quarter, INR25 crores last quarter, INR26 crores this quarter. So I think there anything that we are missing growth. No, no.

Ashok Bothra — Chief Financial Officer

So what I’m saying is this consistent increase. Now basically, when your plant is less occupied, doesn’t mean that your power cost is going down because most of your boilers, you have cooling towers, your Chilean plant. They’re all continuously under often, right? So with percentage of the power cost to the product — individual product or this is the kind of impact you start taking ahead. So the more your plant gets occupied all this numbers start getting coming back to a realistic level. And if you see the power cost in the hedge as it. So since we are in an Swe have lesser electricity duty. So earlier, our power cost was INR4.4 per unit. And today, it is at INR6.6 a unit.

So nearly a 50% rise in power cost that has slowly and steadily it has built up over last six months’ time frame. Also, the fuel cost, the LDO probably, let us take a scenario of December or January. Maybe it’s on a was in the range of INR four to INR five a liter. And today, it is in a range of INR82 a lead-up. That is also a very significant rise in it that we are taking now.

Christian Barwani — JM Financial — Analyst

Understood, sir. Thank you so much for all the clarification and answering patiently, and I wish you all the best for the coming quarters. Thak you so much.

Ashok Bothra — Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions]We’ll take the next question from the line of Padma Raju Mathi from SBI Life Insurance. Plese go ahead.

Raju Mathi — SBI Life Insurance — Analyst

Yes. I hope I’m audible.

Ashok Bothra — Chief Financial Officer

Yes.

Raju Mathi — SBI Life Insurance — Analyst

So on the call play.

Ashok Bothra — Chief Financial Officer

No, sorry. Sorry to insane. Can you speak little loudly, please?

Raju Mathi — SBI Life Insurance — Analyst

Yes. So I just wanted to check on this gross margin level. So this quarter, SPS and PAC contribution has gone up sequentially. Despite that, our gross margins and gross profit has come down sequentially. So I just wanted to check whether there’s any element of inventory loss in this particular quarter? Or am I missing something?

Ashok Bothra — Chief Financial Officer

I would not say an inventory loss. But realistically, we have kind of — I already mentioned, we took about 16 17-odd batches for the same retardant at the plant scale where we were struggling with the quality. And so we had to do a lot of rework to bring it back to the desired quality levels to make it sellable products. So all those kind of added cost was definitely involved during this quarter. Also, we did a very good product in terms of piloting that product.

That also involved a lot of modifications at the pilot scale level and new raw materials coming in. So when you are bringing in lesser volumes less than although we are paying significantly higher prices cost but this I would not say are very significant, so probably it may lead to 1% or 2% of the raw material costs going up, but not more than that, considering the overall 90 days’ for the time frame.

Raju Mathi — SBI Life Insurance — Analyst

Okay. And most of this, whatever the modifications that you have been it has been normalized?

Ashok Bothra — Chief Financial Officer

Sorry, please again.

Raju Mathi — SBI Life Insurance — Analyst

So most of the modifications with respect to this loan retargeting getting stabilized on all [Indecipherable]?

Ashok Bothra — Chief Financial Officer

Yes. So gradually, we had to do modifications to adopt to this process, and that is the reason why we had to take so many batches to stabilize the product because that modification at Bansal also had to be done simultaneously. So we were losing a lot of ours in terms of productivity as well. So one of our plants remain occupied with these kind of trials for almost, I believe, 60, 65 days. And now everything is in place and the last three validation batches we went through with what we were expecting similar to the industry levels

Raju Mathi — SBI Life Insurance — Analyst

Okay. That’s it. Thank you.

Ashok Bothra — Chief Financial Officer

Thank you.

Operator

Thank you very much, Sir. We take the next question from the line of Mr. Rohit from [Indecipherable]. Please go ahead.

Unidentified Participant — — Analyst

A few queries. You did touch up on energy storage and devices at applications. And if I see, do a market research, some of these have been picking up already I think some letters and more of GLC with Turbo hydro tech models, your thoughts on that? But when do you think that it can start rolling out for TCPL?

Ashok Bothra — Chief Financial Officer

So this has already started rolling. So one of our large customers see presently, we are now commercially selling this product to two different customers. We have been recently approved with a third customer, and the fourth customer, we are in queue of approval. So we have submitted our now when I say one customer is from a super capacity of the application, one customer is coming from our energy storage application. So, this energy to be the application customers.

So, the next two customers are also coming in from the energy storage sector. And these people are talking of very exponential growth over the next three years. So basically, what is happening is now various governments across the world are setting up these energy storage devices, systems. And this, they are talking of kind of better say, 100-megawatt kind of energy storage systems per park. So now depending on what kind of order scales my customer would get and that would translate directly into demand for our electrolyte short. So, we expect very significant, not significant, is probably not the right word. We expect exponential growth in this area in the next three years. So, can this contribute around INR100 crores or INR150 crores run rate over the next year and plus the exponential factor that you’re saying?

Chintan Nitinkumar Shah — Managing Director

So up to 2025, I would say even the number would be much larger than that.

Ashok Bothra — Chief Financial Officer

Okay. Okay. My second question is related to these projects. And if you think that these have been explored or any other opportunity which is related to glycaethos, any thoughts on working on these

Chintan Nitinkumar Shah — Managing Director

Can you please repeat, sorry?

Ashok Bothra — Chief Financial Officer

The metal acetal acetate or glycidal ethers, if is thinking of working on those lines?

Chintan Nitinkumar Shah — Managing Director

No. Not as of now, no.

Ashok Bothra — Chief Financial Officer

You did mention about electrolyte sales. So currently, how many customers are there in pipeline?

Chintan Nitinkumar Shah — Managing Director

So totally, we are commercially already working with two. The third customer has just placed their plant scale trial order, which we are about to start production and execute. And the fourth customer, we are in queue for approval. So, we have submitted the samples and awaiting approval decisions. So, we are in all working with, currently with four customers and in practicality. And we are discussing with two to three other customers. So, it is still in a very permitted stage. But the kind of spectrum that is now getting in terms of application area for this geographically. So that geographic spectrum is growing very rapidly in terms of energy storage device applications.

Ashok Bothra — Chief Financial Officer

Okay. And by when do you think that this will start, I think the P&L, just an assumption or some industry analysis if you can share that?

Chintan Nitinkumar Shah — Managing Director

No, no. So, I would say from next financial year, you will see this as a quite decent number in terms of percentage of revenue. And 24-25 it may become a significant number in terms of revenue, overall revenue percentage.

Raju Mathi — SBI Life Insurance — Analyst

Okay. My last question is related to monoline and the related products. So by when do you think that these will be commercially sold in the market to the customers by us.

Chintan Nitinkumar Shah — Managing Director

So, we are now about to send samples for this battery application area of monoline applications. So, we expect probably in nine to 12 months’ time frame when we should actually start commercial. I mean, approval would typically take five to six months from this type of customers then probably another for commercialization.

Ashok Bothra — Chief Financial Officer

And this can also add around INR100 crores, INR150 crores for us.

Chintan Nitinkumar Shah — Managing Director

That would take time, probably, it should take about two to three years to scale up to that level, yes.

Ashok Bothra — Chief Financial Officer

But the assumption is INR100 crores, INR150 crores after two years or so from monoline.

Chintan Nitinkumar Shah — Managing Director

INR100 crores, definitely. Yes. Okay.

Ashok Bothra — Chief Financial Officer

Okay. Thank you. Thanks a lot, all the very best. Thank you, sir.

Operator

Thank you very much. We take the next question from the line of Ms. Asha [Phonetic] from VT Capital.

Asha — VT Capital — Analyst

Thank you for the opportunity. Sir, my question is regarding continuous ForEx loss that you are witnessing. So, is that any strategy that the company would take in to hedge the contracts going forward? Or if we have any hedging strategy?

Chintan Nitinkumar Shah — Managing Director

So, this this loss is happening because of the hedging strategy. So typically, once you have certain committed orders from customers, let’s say, over a span of next six months? Or do you have certain sales estimates, exposure estimates for us for the next six months. So we typically have our incoming foreign currency over a span of coming six months. So that is what is translated. Theoretically, I would say, I mean, of course, in terms of accounts, I agree that this reflects a loss. But if you see from an entrepreneur’s point of view, I have sold my dollars at a point in time when I have negotiated a certain price with my customers.

So, for me, basically, I’m securing my sale price at the point when I’m about to get the order, right? So, this, in a depreciating rupee arena, this translates into a loss because even as of today, as we have hedging done up to March, right? So, if the rupee continues to depreciate, we continue to have these MTM losses. But in case of, let us say, the rupee starts appreciating and if you are not covered, then you actually have a hit on your margins because your sales realization will start dropping directly. So at least we have, as a strategy, we are securing our next six months of sales in forward contracts. That is what the strategy typically 80% of the expected revenue is always sorry.

Asha — VT Capital — Analyst

Sir, my next question is since the company is export oriented. So globally, the per of recession that is coming up. So, are we seeing any impact on the demand — like on the FDA front, it is visible, but on the rest of the segment, is our visibility positive or we do see any curtailment in the order book going ahead?

Chintan Nitinkumar Shah — Managing Director

So typically, from European sector, we are seeing that kind of a phenomena happening where we see certain order postponements happening for a few months to altogether directly for a few months. So let us say, a delivery schedule for December now the customer is asking to deliver in March. So those kind of scenarios are happening with European customers. But I would say we are a little fortunate because at a good time, the SDA demand is now reviving back.

And also very good unfortunate part for us is typically, the agrochemical demand is quite holding up very nicely. So that particular sector is not seeing kind of any recessionary mode as of now. So these two are very good signs or kind of migration of got we shall remain protected even during this time of crisis. So of course, from the pharmaceutical and let us say, the resin or the epoxies in kind of industries, polymer industries, we are seeing this kind of a sequent phenomena happening as of now. where particularly the European sector customers are postponing the orders very frequently.

Asha — VT Capital — Analyst

Thank you very much. So that is for me.

Operator

We take the next question from the line of Mr. Drew Muchal from HDFC.

Drew Muchal — HDFC — Analyst

Thank you so much. Just a bit of clarification on the previous point. The FX impact is because you had already hedged and now that you’re selling. So, your sales are also higher, and there is an offsetting impact on an EBITDA basis, it does not impact the FX item is not impacting you?

Chintan Nitinkumar Shah — Managing Director

Impacted no, because we are showing loss of a forex loss of around INR3.2 crores. Otherwise, our profit would have been higher EBITDA.

Drew Muchal — HDFC — Analyst

The hedging is a normal practice. I am trying to understand

Chintan Nitinkumar Shah — Managing Director

Trying to hedge any time, whether it is appreciating, depreciating, we don’t look at that. As a policy, we continue to hedge our future sales.

Drew Muchal — HDFC — Analyst

Yes. Okay. I understand the point, but yes, I got it, sir. Sure, sir. And the second point was, sir, the monoline that we are developing. If I’m not wrong, this also had some pharma application, and we were working with a pharma customer.

Chintan Nitinkumar Shah — Managing Director

That is an ongoing, that is already in ongoing.

Drew Muchal — HDFC — Analyst

So, I think that was also yet to approve because I think the grade and because this was a different route. So any development there? What is at? I mean any progress there, sir?

Chintan Nitinkumar Shah — Managing Director

Yes. So in terms of development part on a different look, the development work has been done since quite a few months now. We are just expecting the delivery of that equipment, which is being steadily delayed by the supplier. So equipment supplier is struggling with some electrical part, which is importing from Germany. So this equipment is getting delayed. Now he has promised to deliver this equipment before 15th of December. So once this is in place, we will start piloting of that product on a larger scale.

Drew Muchal — HDFC — Analyst

Okay. So I might have missed this. The battery application for monoline is different than the pharma application?

Chintan Nitinkumar Shah — Managing Director

There are two different things. Basically, pharma, so in terms of parity levels, they are more or less the same. But when you talk about battery applications, there are certain impurity profiles which change. And also, you have a very specific requirement of very low moisture product. So that is one part of the challenge, which we — I’m happy to tell you that we overcome during this quarter. So there was a lot of work involved in doing that multiple trials not multiple, I would say, a lot of trials to ultimately arrive at a much a level of below five PPM levels. So that was a big task, a big challenge, which I’m happy that we could do this. And now we are submitting our samples for the application with the specific quality requirements.

Drew Muchal — HDFC — Analyst

Okay. So the — got it. Got it. This is clear. And sir, in brief, if you can help, where does this monocline go in the battery and or probably we can take it later in a separate call, but whatever is comfortable?

Ashok Bothra — Chief Financial Officer

So basically, monoline becomes a solvent for dissolving the electrolyte shots. So it goes into the — like how in our conventional car batteries, you have assets into your battery. So let us say, in lithium battery, you have electrolyte ones, but this you cannot fill up with solid electrolyte all so you have to dissolve them into something. There are certain solvents like metal carbon at poplin carbonate. So one of a similar solvent is one of them, which is being used in this application.

Drew Muchal — HDFC — Analyst

Okay. And this is a product which is already — I mean, if this is for electric all resolution, this has already been used, but we are developing a product in a separate route? Or is this — I mean, just trying to understand what is the difference —

Ashok Bothra — Chief Financial Officer

So so far, we were not meeting that specific quality requirement of the main. Now, we have successfully completed the development.

Drew Muchal — HDFC — Analyst

Got it. And in terms of the production costs and the other things that is comparable or probably better than the conventional monoline that is available in the market for that product quality?

Ashok Bothra — Chief Financial Officer

Yes. So with this continuous flow application that we have developed all that, we will have a better saving in terms of raw material costs in operating this product.

Drew Muchal — HDFC — Analyst

Okay. So this would be a very different route than what it is conventionally currently? I mean what is there in the market?

Ashok Bothra — Chief Financial Officer

Yes, completely different than what we are doing for. Yeah.

Drew Muchal — HDFC — Analyst

Okay. Thank you so much, and all the best.

Ashok Bothra — Chief Financial Officer

Okay, thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to Mr. Chintan Shah MD for closing comments.

Chintan Nitinkumar Shah — Managing Director

Once again, thank you everyone, for joining us and for your continued support and trust on Tatva. We hope to deliver and see the SDA product category see improvement. We hope that we have been able to address most of your queries, you may reach out by writing to Mr. Ashok Bora, or our Investor Relation adviser, E&Y, for any further queries that you may have, and they will connect with you offline. Thank you, Mr. Sanjay Jain for hosting our call today. Everyone, please have a great evening. Thank you. [Operator Closing Remarks]