Valiant Organics Ltd (VALIANTORG) Q2 FY23 Earnings Concall Transcript

Valiant Organics Ltd (NSE:VALIANTORG) Q2 FY23 earnings concall dated Nov. 10, 2022

Corporate Participants:

Nikesh Shetty — Investor Relations

Arvind Kanji Chheda — Managing Director and Executive Director

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Analysts:

Varun — Kenia Capital — Analyst

Adit Ketan — Smith Limited — Analyst

Manish Jain — Money Life Advisory Service — Analyst

Garo Shah — Harshad Gandhi Securities — Analyst

Sachin Kasera — Swan Investments — Analyst

Ashutosh Shirvaikar — Navi EMC — Analyst

Unidentified Participant — — Analyst

Ankur Shah — Quasar Capital — Analyst

Dish PAPak — Vito Capital — Analyst

Yugesh Tiwari — Arian Capital Markets Limited — Analyst

Nikos Shape — — Analyst

Presentation:

Operator

Good day, ladies and gentlemen, and welcome to the Q2 FY ’23 Earnings Conference Call of Welin Organics Limited, hosted by Edelweiss Broking Limited.[Operator Instructions]

I now hand the conference over to Mr. Nikesh Shetty from Edelweiss Broking Limited. Thank you, and over to you, Mr. Sati.

Nikesh Shetty — Investor Relations

Thank you, Michelle. Good afternoon, everyone. On behalf of deli — we welcome you all to the Q2 and H1 FY ’21 Earnings Conference Call of Trilliant Organics Limited. We have with us today Mr. Arvind Kanji Chheda, Managing Director; Mahek Manoj Chheda, CFO and Executive Director; and Mr. Mihir Shah, Senior Finance Manager of the company. I would request the management for the opening remarks, post which we will open the floor for Q&A.

So thank you, and over to you, sir.

Arvind Kanji Chheda — Managing Director and Executive Director

Thank you. Good afternoon, everyone. It is a pleasure to welcome you all at our earnings conference call for the second quarter of the finance Welcome, everyone, to this earnings call, and I would like to request our CFO, Mr. Mark Sara, to take you through the financial and operational highlights of the quarter. Thank you.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Thank you, and good afternoon, everyone, and welcome to this earnings call. I hope you had a chance to study our financial and earnings presentation, which have been uploaded on our website and exchanges. Let me start by briefing you on the company’s financial performance on a consolidated basis for the second quarter of the financial year ’22/’23. The revenues from operations we grew by about 1% on a quarter-on-quarter basis and around 3% on a year-on-year basis to around INR264 crores. The EBITDA was reported at around which grew by around 31% quarter-on-quarter and degrew by around 11% on a year-on-year basis.

Our EBITDA margin for the quarter was 15.87%. The net profit reported was around INR256 crores, which grew by about 52% quarter-on-quarter and decreased by 15% year-on-year. Our PAP margins for the quarter were 9.9%. For the half year ended, the revenue from operations stood at around INR530 crores, which grew by around 2.5% year-on-year with EBITDA declining by around 25% year-on-year to INR74 crores and EBITDA margin of 13.91%. The net profit stood at around crores, declining by 27% year-on-year and PAP margins for half yearly financial year ’23 stood at 8.02%. Coming to the operational highlights for the quarter under review.

Despite several challenges, quarter two financial year ’23 closed on a positive note compared to the previous quarter. although the revenue declined marginally, profitability improved over the previous quarter. revenue degrowth was primarily due to the decline in chlorination revenues because of the fire incident at Sarigam in quarter one financial year ’20 EBITDA margin improved on a quarter-on-quarter basis due to raw material prices stabilizing.

With regards to the PAP plant, production output on an average was about 365 metric ton in quarter two financial year ’23. And currently have crossed the 400 metric ton mark, and we are on track to achieve the target of 500 metric ton per month in the batch process by year-end. Pharma intermediaries project is completed with trial runs also done. The project is awaiting the approvals from the government authorities, and we expect to close by the end of quarter three financial year ’23.

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

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] We have the first question from the line of Varun [Phonetic] from Kania Capital. Please go ahead.

Varun — Kenia Capital — Analyst

Good afternoon, thank you for the opportunity. I just wanted to know the asset turns that we can expect from the recently commissioned AP as well as the pharma intermediates plant?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Good afternoon. So the — we’ve not commissioned it yet, both the…

Operator

Operator

Sorry to interrupt your sounding distant, sir.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Sorry, is this better?

Operator

Yes, sir, please proceed.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Yes. So I was saying that we haven’t commissioned it yet, but once we commission the asset turns would be somewhere around 1x, and that is what we are assuming as of now, but we’ll know better once the operations start.

Adit Ketan — Smith Limited — Analyst

Okay. Thank you. And my second question is, like, historically, we like to we’ve aspired to grow 20% to 25%. So beyond the OEP and pharma intermediates or like in a two- to three-year horizon, what are the revenues that we are looking to get into or grow — so I just want a three-year perspective on here.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So I don’t have a three-year perspective, but giving immediate one-year perspective, we expect that will — so we had an incident in Sarigam because of which our top line also has been affected. So we believe that by year end, we would somewhere grow by 5% to 10%, somewhere in the INR1,000 crores to INR1,100 crores stand-alone basis. And the year after that, somewhere around 30% is what we expect to grow once PAP fully comes online as well as OAP and pharma intermediaries.

Adit Ketan — Smith Limited — Analyst

Okay. So next year, you’ll be able to do a better view.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Correct.

Varun — Kenia Capital — Analyst

Thank you. That’s all for me.

Operator

Thank you. [Operator Instructions] we have the next question from the line of Adit Ketan from Smith Limited. Please go ahead.

Adit Ketan — Smith Limited — Analyst

Yes. Thank you. Sir, my first question is on to the margin trend. So on a quarter-on-quarter basis, there is an improvement in the margin. So for the current quarter, they are at 17%. However, our half yearly margins are or are around 14%. So with the raw material prices now stabilizing, so can we expect the full year margins to be around like 18% to 19%?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Yes. So the — we are definitely expecting an improvement in the margins. Unlike Q1, the Q2 was better, and we believe Q3, Q4 will also be better. Having said that, on a full year basis, we may be dragged down by the Q1 margin overall on the average, but we are expecting to be somewhere around 17%, 18%.

Adit Ketan — Smith Limited — Analyst

Okay. Okay. And how is the trend of the raw material prices like the final and the PMC — so considering — so they have stabilized now or they are still in declining more

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

They’ve softened by now. They have also been stabilizing. So we don’t expect it to reduce further. We are probably at that close to the bottom pricing.

Adit Ketan — Smith Limited — Analyst

Okay. And on to the hydrogenation business, so we were planning some sort of INR150 crores of capex into OP and expanding some of the down — so backward integrated capacity. So that has been completed or still we are

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So for OA, it’s still — we are still doing trial runs and there is some bit of capex that will still further get into it. So that is still ongoing. Pharma intermediaries, which is again in the hydrogenation plant itself, that capex is done.

Adit Ketan — Smith Limited — Analyst

And apart from we were also planning some sort of other like of peers, some sort of…

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

No. I think you’re referring to OA and PA, that was already done and commissioned a year and half back.

Adit Ketan — Smith Limited — Analyst

There has been already commissioned.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Yes, yes. Okay.

Adit Ketan — Smith Limited — Analyst

And on to this pharma intermediates business, so this would be completely — so given as a captive to RP Parmalen?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Yes, that’s correct.

Adit Ketan — Smith Limited — Analyst

And on to the PAP front, so is there any update? So like is there any plan to now shift from batch process to continuous process? Anything has been like so we have achieved some success over the there?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

No. So the trials are going on for that. But currently, we are focusing on getting to the full capacity of batch which we almost close to achieving that 500 target we crossed 400 in the current month. And going forward, by the end of the year, we’ll reach 500 also. Simultaneously, there will be trials to increase that capacity and make it continuous. But as of now, we are more focused on getting to the maximum capacity in the batch process.

Adit Ketan — Smith Limited — Analyst

So this 500 metric tons per month, so this would be achieved by the year-end. — thereafter, we can shift to continuous process

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

We are trying to achieve that. We — I will not make a definitive statement on that, but that is what we are trying to achieve.

Adit Ketan — Smith Limited — Analyst

Okay. Okay. And for the Sarigam incident we-

Operator

[Operator Instructions] We have the next question from the line of Manish Jain from Money Life Advisory Services. Please go ahead.

Manish Jain — Money Life Advisory Service — Analyst

Thank you for the opportunity. My first question is, what has been the capacity utilization across our plant this quarter?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Okay. And the next question.

Manish Jain — Money Life Advisory Service — Analyst

Next year, sir, what has been the hindrance in shifting to continuous process from that process for the PAP plant?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Sorry, can you repeat the second question?

Manish Jain — Money Life Advisory Service — Analyst

Yes. My question is, what has been the problem in shifting to continuous process from batch process in the PAP plant?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Okay. So on the question one, we were at a utilization of around but that is given that we considered Unit two as 1,000 tons capacity and — if I change that, then our overall utilization for the company is somewhere around 68% to 70%.

Manish Jain — Money Life Advisory Service — Analyst

Okay. The second question

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

And on the second one on the second one, we are facing the same problem that we faced initially, the product stabilization and the quality that we require is not coming through in the continuous one. So we are trying to resolve that that is the issue.

Manish Jain — Money Life Advisory Service — Analyst

Okay. And lastly, I wanted to understand the rising other expenses this quarter?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So other expenses this quarter, the raw material — sorry, the other expenses, it has decreased to — it has increased to a certain extent. I think, about 5% to 6% increase out of which major increase was in consumption in power, there was some bit of increase in labor cost. And and some freight and freight and forwarding charges. So these were the major increases in the other income and EPP.

Manish Jain — Money Life Advisory Service — Analyst

Okay. Thank you.

Operator

Thank you. We have the next question from the line of Garo Shah from Harshad Gandhi Securities. Please go ahead.

Garo Shah — Harshad Gandhi Securities — Analyst

Hi. Thanks a lot for the opportunity. So Mike, I have a couple of questions. Both are on PAP. So just wanted to understand the pricing environment for our pay product, — and second one, I think if you consider last two quarters, we are hearing the same like comments from you guys on the technical difficulty you are getting into PAP. So can you provide some like honest flat’s the exit thing? And do you think by quarter four, we should be able to like solve all our problems as far as PAP is concerned? Thanks.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So on the pricing front, PAP prices have also reduced from quarter-on-quarter. It has almost reduced by 100 on an average. So there is a reduction. — simultaneously, there’s a reduction in our raw material costs also. So that’s on the PAP pricing bit. On the second question of yours, I think I understand that we do have that same problem and we are repeating because that is the actual scenario. We are trying our level best to achieve the quality, but we are not being able to so far. So the statement satisfy remains the same. — we are trying. So like I said, I can’t definitively say that we’ll start the continuous in April, but we still have six or five months to go, we are trying our level best to work things out and get that stability. We achieved it in batch. We are trying to do the same in continuous.

Garo Shah — Harshad Gandhi Securities — Analyst

Okay. Thanks.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Sachin Kasera from Swan Investments. Please go ahead.

Sachin Kasera — Swan Investments — Analyst

Thanks giving the opportunity. So in terms of the cost of manufacturing and the margins, what are the key differentiating factors between the batch versus the continuous process as far as PEP is concerned?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So it’s the economies of scale that improves the quantity increases, and that’s the only difference that we can achieve from continuous — batch to continue. And the time of the real. So there is more time that go into batch than putting the other batch loading and loading, which in continuous gives that time efficiency.

Sachin Kasera — Swan Investments — Analyst

So in the presentation, you mentioned that you’re targeting 500 tons per month in the batch process. What are the type of in case we are commercially successful? What is the type of volume we can do as we move to a continuous process per

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Around 1,000 metric tons.

Sachin Kasera — Swan Investments — Analyst

Okay. So — and the yield and the quality is the more or the same? Or there’s some difference also in unit continues

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

No, no. So once we move to continuous, there’s no difference between the yield of final product, but the difference right now that we are facing is that we’re not getting the yield and continuous. So we are not moving it. But once — so I think your question is whether we make it by batch or by continuous — does the product remain the same, then yes, the product and the yield remains the same.

Sachin Kasera — Swan Investments — Analyst

Okay. Okay. Second question was on this — I think you mentioned briefly, but if you could tell us what type of utilization we can see in this pharma intervened in the next financial year? Because I think this year, we are just starting FY ’24 and FY ’25, what type of utilization you are visualizing for the farm in termites? And do we foresee any challenges on the technical front, the way we face in PAP, arena?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So I think we’ll probably be at around 45%, 50% in the initial quarters. And then by the end of next year, we could aim at full utilization?

Sachin Kasera — Swan Investments — Analyst

And what is the revenue at full utilization you can expect from this plant?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

We are expecting it to be somewhere around INR50 crores.

Sachin Kasera — Swan Investments — Analyst

Close. Okay. And any sense you can give us in terms of your overall capex for the current financial year and the next financial year?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So for the current financial year, we are expecting to do a total capex of somewhere around INR100 crores out of which we are through by about 50% in this quarter. And — for the year after, we are still analyzing. We are waiting for PAP to stabilize and pharma and OEP if they start then we’ll look at other opportunities of where we can put the capex. Otherwise, for now, the focus is there. So we’ve not gone into the analyzing of where it will go. But we are looking at some new products that are on the drawing table as of now. that may not have a significant capex but could be somewhere around INR40 or INR45 crores odd, if at all, it does get successful.

Sachin Kasera — Swan Investments — Analyst

Sure. If I look at our track record, we always reported return on capital in excess of 40%, closer to 60. It’s only 21 and 22 that we saw some relation because of these new investments and some challenges on BP. How do you see — do you see that the things are shaping up in FY ’24 and ’25 you can again start inching up to the 40% type of ROC level? And secondly, when you are evaluating some of these projects, what type of IRRs or ROCs you look at before you go ahead into the project?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So we definitely expect to improve our ROCs. — not — honestly, I don’t know whether we get back to the earlier historic ROCs because we still have to analyze that because we are right now in the middle of many other capex — many other projects that are trying to complete. But we aim to reach them. And what was your second question, I’m sorry?

Sachin Kasera — Swan Investments — Analyst

What is the type of IRS we look at before we go ahead with any large project.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So we don’t really have a threshold IRR. We generally look at two things. One is if the product is high in demand and there is an input substitution opportunity, — so if there’s an import substitute that we can replace by domestic production. That is one thing. And secondly, if there can be any backward forward integration within the company. So those are the actual two main criteria that we look at and then we build around it. But in terms of a threshold IRR, we don’t generally keep that threshold or we are flexible on that as far as we think that the opportunity is good.

Sachin Kasera — Swan Investments — Analyst

Sure. Great. Thank you.

Operator

Thank you. We have the next question from the line of Adit Ketan from Smith Limited. Please go ahead.

Adit Ketan — Smith Limited — Analyst

Yes. thank you for the opportunity. My question was on to the Sarigam incident. So for the last two quarters, we are witnessing that the volumes have been impacted. So this incident was for a period of six months?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

No, no. So there are two things. One is that it got impacted because of the gas. Second is when you — when the plant is not operational and then when you start, it doesn’t really start, it starts also in a phased manner. So it takes a couple of weeks to really stabilize. And third is the order book also that there are certain orders that need to be fulfilled. So the the customers and also there’s a bit of lag. And overall, the market demand has been affected in Europe, which is — so Sarigam is mainly our exports. So that global demand has also reduced. So we’ve not been able to do a full utilization in past — in the previous quarter.

Adit Ketan — Smith Limited — Analyst

So what is the current status? So have we like improved the utilization as compared to Q2? Or is it at the similar level

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

We have we have improved all the previous, but we are also looking at the demand to work up. So once that increases, we’ll again scale up our capacity. — as far as capability to scale up is concerned, that is fine. So that is behind us.

Adit Ketan — Smith Limited — Analyst

Okay. Focus on flotation actually, so that is majorly used for the agro chemicals, pharmaceuticals, cosmetics and veterinary industries — so which set of industries are feeling the pain in terms of demand, as you mentioned.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Agro. Mainly agro. Yes, mainly. Okay. Okay.

Adit Ketan — Smith Limited — Analyst

And for the last two quarters, so this segment is actually contributing 17% of revenue. So previously, so when there was a normalized situation, it used to also contribute around 3% to 4% — so when the volumes would — so would kick in. So can we expect it to again go to around 4%

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So it will not go beyond because even PAP is getting scaled up. So that will also come into the mix, OEP will also come into the mix. So it means also hydrogenation as a chemistry will be on the top in terms of contribution of revenue. But yes, from current ’17, it will definitely be — it will go up.

Adit Ketan — Smith Limited — Analyst

Okay, okay. And just one last question. So now I believe onto the OAP front and the pharma intermediates also. So by next quarter, I believe, so we would be in a position to start the production from these plants — so now what is the next leg of capex, which the company is focusing on?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So like I said earlier, we are focusing on this — these three projects to really start and build up. Once that comes in, our next leg of capex will come. So probably another quarter or two, and I probably will be able to give you a better comment on this.

Adit Ketan — Smith Limited — Analyst

Okay. But but just to add up–

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

On a generalized basis, we do — we do a capex of 80 to 100 on an annual basis.

Adit Ketan — Smith Limited — Analyst

INR100 crores.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Yes.

Adit Ketan — Smith Limited — Analyst

Okay. Thank you.

Operator

Thank you. We have the next question from the line of Ashutosh Shirvaikar from Navi EMC. Please go ahead.

Ashutosh Shirvaikar — Navi EMC — Analyst

Hi. Thanks for the opportunity. The question is the similar to the last question

Operator

What a lot of disturbance from your line. May I request you to please use your hand set.

Ashutosh Shirvaikar — Navi EMC — Analyst

Yes, just hold on a second.

Operator

Ladies and gentlemen, the line of Mr. Service is disconnected. We move on to the next participant. And the question is from the line of a from [Indecipherable] Mount Intra Finance Private Limited. Please go ahead.

Unidentified Participant — — Analyst

Hello. Yes. Sir, can you share some light on the particular EBITDA margin of your three segments in terms of chemistry, like tornation, hydrogenation and mines. So any like how to understand that, like is there a significant difference in the chemical process in terms of margin? This is the first question.

Arvind Kanji Chheda — Managing Director and Executive Director

On the

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Your voice vent

Operator

Mr. Sarkar, your audio is audible. Can you please use your handset

Arvind Kanji Chheda — Managing Director and Executive Director

Yes, yes.

Unidentified Participant — — Analyst

Yes,

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So I heard your first question, if you could give you a second question.

Unidentified Participant — — Analyst

Yes. So am I audible now?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Yes.

Unidentified Participant — — Analyst

Yes. So what I was asking, like, if you can guide us regarding the difference in EBITDA margin, in terms of profitability in our three main chemistry basically, like chlorination, hydrogenation and on leases, like what is the difference in terms of margin in these three kind of processes?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Sure. So we don’t give out the margin for the each chemistry. But just on the guidance side, chlorination is on a higher side as a margin and then hydrogenation amorts are at a similar level.

Unidentified Participant — — Analyst

Okay. So chlorination is essentially a higher-margin business?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Yes.

Unidentified Participant — — Analyst

Okay. So like, sir, in that case, like if you see — if I track your volume, which you have shared, like on a year-on-year basis, like codination volume is down to from INR4,200 to almost INR196. So is that like one of the major reasons for our drop in margin? And once this recovered, particularly after your planned opening, like we can improve some improvement in blended margin from that respect.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Yes. So my Q1 margins were definitely impacted because of the incident at Sarigam and because of which the margins were impacted. But at the same time, raw material pricing were also volatile at that time. now the raw material rising is stabilizing, so that will have an impact, which will have a positive impact now on the margin. So multiple factors that played a role, it was not only the volumes of chlorination going down.

Unidentified Participant — — Analyst

Perfect. Sir, can you, like, one, year-on-year basis, our menus margin like volume is also stagnant or margin, it has come down. So can you help on that respect like when we can expect a pickup with that? Or like which are the products like when we will add so that our [Indecipherable] volume will go up

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Dyes and pigments as an industry is also facing low demand. So because of that, volumes have seemed to stagnated or going down. But as and when textile industry improves, dyes and pigments will also improve and that is when we’ll see some improvement there. But it’s market driven. I do I cannot comment exactly when that will happen.

Unidentified Participant — — Analyst

Okay. So in that case, like M&A is, is it basically — this is a function of our picking out of the textile industry and particularly dyes and pigments.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Correct.

Unidentified Participant — — Analyst

Perfect. Okay. That’s all.

Operator

Thank you. We have the next question from the line of Ankur Shah from Quasar Capital. Please go ahead.

Ankur Shah — Quasar Capital — Analyst

Congrats on the margin rebound. Just actually extending on the previous questions, like it seems like a demand problem — because if I just think about the chlorination volumes, they have seen a significant — obviously, there is, I think, a 2025 day hit, which was there because of the plant closure. But for me, can you give us some volume guidance or a volume sort of a scenario? Because from four to five to six to 962, is it possible for us to sell back?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Yes. So by fourth quarter, we’ll be back to the original volumes for Sarigam.

Ankur Shah — Quasar Capital — Analyst

Okay. So around INR4,000 crores, INR4,500 or for a quarter. Okay. And like, can you give us some idea because what I understand from a manufacturing of a chemical plant perspective is that the last 20% capacity utilization becomes a major turn of your profit because of the operational leverage which the plant gives. So is it the fact that the utilization levels are so low because obviously, chloropene is very profitable and the main product as of now. So is it that the margins are severely distressed like or, let’s say, not severely but you are distressed. In comparison, if suppose we run the plant at a INR4,000 crore

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So let me tell you, yes, that is true to reach the last leg on the capacity. It is difficult, and it is — that is where the profitability lies. So just to give you some understanding, if you look at our previous years, chlorination has been — FY ’22 was 90-plus utilization even even monies were somewhere around 85%, 90% utilization. So we have achieved those utilizations. But currently, because of lower demand, we are not able to achieve that utilization. So that is the reason. But once the demand stabilize once the demand picks up, we’ll be able to again move from 60%, 65% utilization back to around 80, 85 type of utilization?

Ankur Shah — Quasar Capital — Analyst

Okay. Okay. So in this particular product, because even if I see the volume at the, obviously, the revenue is slightly insignificant, but loreationmonolis is, other — like is there a good — like decent visibility that, let’s say in two quarters’ time, we will be able to scale back to decent utilization levels? Because that will solve a lot of problems for us.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Correct. So as far as chlorination is concerned, a lot of it is dependent on the export markets and given the situation in Europe and the the geopolitical issue. That is why the demand is not picking up now. I really cannot give any kind of comment on when that will improve. But it is mainly based on that. once that demand picks up, we will be — we will scale up and meet those demands. And then it will be back to normal, but I really cannot give a definitive time period as to when that’s going to improve.

Ankur Shah — Quasar Capital — Analyst

So it’s not particularly because of competitive intensity, right? It is just that the end demand has fallen and it’s not that we are losing wallet share or anything of that sort, right?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

No, no. You are right.

Ankur Shah — Quasar Capital — Analyst

Okay. Okay. Then like coming to the financials, what I understand is because a large part of our volume is export related, at least in the plurination PAPh what I understand is the freight cost and the container cost and everything has been coming down incrementally. So do we see any tailwinds over there, again, from a cost-saving perspective

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Yes. So they are improving, you’re right. So that will be a tailwind going forward, while it will improve. So that is why our margins have also improved because all these costs have gone down.

Ankur Shah — Quasar Capital — Analyst

Okay. So that is already into the price for this quarter?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Yes.

Ankur Shah — Quasar Capital — Analyst

Okay. Okay. And lastly, on the debt front, I understand that we have come down slightly come down on the debt front from March level. But like — still from a working capital annual and it seems slightly uncomfortable or stretched — so what are your thoughts on that? Because it’s not great to have this stretch for — because again, with the volume increasing, this is going to go up again.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So yes, but we have improved from March to date. So we have come down on our short-term borrowing, but working capital was a problem because the incident happened at align Sarigam is also the good cash flow business. So that was an impact that we had and also the raw material costs were high at that time. So we face the issue with working capital. But with all that stabilizing, we believe going forward, next two quarters will be an improvement.

Ankur Shah — Quasar Capital — Analyst

Okay. Okay. And like just suggest, and I don’t know.

Operator

[Operator Instructions] We have the next question from the line of Dish PAPak from Vito Capital. Please go ahead.

Dish PAPak — Vito Capital — Analyst

Yes. Thank you for the opportunity. On the slide, I’m seeing the ongoing capex, which is yet to commission of this OEP and pharma intermediates. — where the capex is being mentioned as INR156 crores, INR75 crores. And then if I’m reading this side and on the consol balance sheet, there is a CWIP of INR135 crores. And other projects as per the slide have already commissioned. So maybe I’m not able to understand promo, but can you just help me understand this CDP on the balance sheet is related to that

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So CWIP on this — so pharma intermediates is approximately 60%. It may be somewhere so there that there could be a little bit of an overrun there, not anything significant. So that is a project which has the maximum part in the CWIP. So out of the INR132 crores, I’m talking on a stand-alone basis, out of the INR132 crores about about 65 was closed would be pharma intermediates. — and there are others. So there are other ETP and some other small small works that has been taken up. That is also playing a part in this. So

Dish PAPak — Vito Capital — Analyst

Pharma intermediates total project mentioned on the side is INR60 crores, which is already INR65 crores is already spent. So almost you’ve spent the entire capex on pharma and committed to spend, right? — so the OP will be 15. So this is..

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So — so just plant and machinery is actually 15%. There is a building and other things also which come into? And if not simply OAP. So that is the CWIP that is there.

Dish PAPak — Vito Capital — Analyst

So maybe the numbers mentioned in the presentation are not. Maybe when you presented you can present it in.

Arvind Kanji Chheda — Managing Director and Executive Director

Correct.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So minutes will have some change and OP will also have some change.

Dish PAPak — Vito Capital — Analyst

Okay. And because there’s almost 2x difference between what is in the presentation and what is the CIB. Coming back to the other question, sir, this — so fluorination products are lesser demand. Just on this — just for my benefit, if you can just help me understand on the slide five, we have given key products and enduser industries of pharma and cosmetic impact — so on the face of it, don’t seem to be like too much in distress, but individual products might have some lands in terms of its specific application. So within culination, what are the larger products — and what it exactly is the end user industry having issues from a demand point of view, you can give more granular Understand in main issues are with agro and textile. So chlorination is agrochemical, but export-driven, so that is because of the global demand where the issue is. ith the chlorination. So which product within cchlorinationis agri and export driven. There are four or five products you mentioned, PCP or CP to 4D

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Yes. So no, unfortunately, I won’t be able to disclose that information as to which product goes where but I can just give you a broad level that agro, which forms the most biggest part of our chlorination is where the demand issue is.

Dish PAPak — Vito Capital — Analyst

But there will be some specific molecule issue within ad, but Agrate doing quite okay globally.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

And it’s — like I said, the export market is the issue.

Dish PAPak — Vito Capital — Analyst

There’ll be some molecule specific or

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

It’s proprietary, so I cannot tell you the specific.

Dish PAPak — Vito Capital — Analyst

But is that a structural issue with the product that molecule has got market share

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

No, this product — these products have been in the business surveillance. We’ve been doing this since 2000. So it’s almost two decades back, and these are the same molecules and products that have been there so far. So it’s not the molecules which are of the issue. Is that market demand that is of the issue.

Dish PAPak — Vito Capital — Analyst

And which geography is the geometry specific issue?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Mainly Europe.

Dish PAPak — Vito Capital — Analyst

Sure. Okay Europe. So that is agro. What is the issue with the local issue?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

The local issue is the textile, which is monolesis and hydrogenation, both the products. So with textile, it’s the Dyson pigment. So our only products if you see for go into Dyson pigments and our hydrogenation also goes into Dyson pigments mainly. So both these two chemistries are affected because of the domestic textile — so our Dyson pigments is the textile dyes. So it’s linked to the textile business — textile industry.

Dish PAPak — Vito Capital — Analyst

Okay. Thank you, sir.

Operator

[Operator Instructions] We have the next question from the line of Yugesh Tiwari from Arian Capital Markets Limited. Please go ahead.

Yugesh Tiwari — Arian Capital Markets Limited — Analyst

Thanks and good afternoon. My first question is basically on the raw material front. So just wanted to –

Operator

Mr. Tiwari, I would request you to keep your mic a little bit far from your mouth because there is an Aerie disturbance, which we can hear.

Yugesh Tiwari — Arian Capital Markets Limited — Analyst

Is it better now?

Operator

Yes, please proceed.

Yugesh Tiwari — Arian Capital Markets Limited — Analyst

Yes. So sir, my first question was on the raw material front. So just wanted to understand what would be our dependency on China in terms of raw materials?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Not at all. We are — most of our key raw materials are sourced within the group. And then there is a final, which is a commodity product, which is standard globally.

Yugesh Tiwari — Arian Capital Markets Limited — Analyst

And like we import final?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

The import final, yes.

Yugesh Tiwari — Arian Capital Markets Limited — Analyst

Which region basically?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Across countries. So it’s a very standardized product. So wherever we get the best price, we do it. So it’s not really an issue from which country it comes.

Yugesh Tiwari — Arian Capital Markets Limited — Analyst

Sure. And in terms of the earlier question on the continuous process on — so when we tell that we’ll get the benefit of economy of scale, do we mean that the capacity utilization of the plant will increase because of that?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

No. So in batch process, at 500, we are 550, we’ll be able to achieve 500 and continuous, which is 1,000 we’ll be able to achieve close to 2,000. So — as far as utilization is concerned, that will not be an issue. It’s just that our volumes will increase and time will decrease. So from that aspect, we’ll get benefit of more production.

Yugesh Tiwari — Arian Capital Markets Limited — Analyst

Yes. But that will only come in the next financial year, right? This financially, we are targeting only for batch process

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

On batch. Correct.

Yugesh Tiwari — Arian Capital Markets Limited — Analyst

And one more follow-up on the PAP. So it’s like both PAP prices and the raw material prices are declining. So just wanted to know about what is the cherry where any pricing? Do we have a fixed spread between raw material and a PAP when we price the product. Is there a specific spread between the raw material and the PAP prices?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

So we are in that range. We try to meet our pricing for PAP at China level. And with that, we get to have that incremental a little bit of benefit. Apart from that, with both the raw material pricing going down, the margins more or less remained similar.

Yugesh Tiwari — Arian Capital Markets Limited — Analyst

And sir, lastly, on the agrochemical and demand decline in Europe. So just wanted to understand, is it because of some agrochemical molecules being banned in Europe? Or is it more like

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

No, it’s a geopolitical issue. Is the war the energy crisis and Europe getting affected overall because of that, and that is why the demand is down.

Yugesh Tiwari — Arian Capital Markets Limited — Analyst

Sure. And sir, lastly, on the pharma intermediates, which we are coming up the margins of these intermediates would be in the range of the consolidated margins for the company? Or it will be margin accretive better?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

It will be standard. It will be at the company level

Yugesh Tiwari — Arian Capital Markets Limited — Analyst

Sure. Thank you sir. That is all for my queue.

Operator

Thank you. [Operator Instructions] We have the next follow-up question from the line of Sachin Kasera from Sun Investments. Please go ahead.

Sachin Kasera — Swan Investments — Analyst

Yes. Just two questions. What is the type of revenue loss we had because of Sarigam — or if you could quantify like from September to March quarter when you expect to come back to full production, what is the incremental revenue we can expect from Sarigam.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

I think — so on the loss side, quarterly, we’ll probably be somewhere around 15% to 20% of impact.

Sachin Kasera — Swan Investments — Analyst

On the EBITDA or the top line?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

No, on the top line. For the EBITDA we are not allowed to disclose. Sorry.

Sachin Kasera — Swan Investments — Analyst

Sure, sure. That’s fine. And you mentioned about some 17% margin that was for the second half of the financial year? That was the indication for the full financial

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

We are hoping that it will be for the entire year. We are assuming that Q3 and Q4 will be better than Q2. And — but overall, on an average, we may stand somewhere around 17%.

Sachin Kasera — Swan Investments — Analyst

Because we have done close to 12.5%, 13% in the first half, approximately

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

The Q1 will probably bring us down, but we are hoping Q3 and four would be much better margins than our current margin level.

Sachin Kasera — Swan Investments — Analyst

And you think what wherever improvement we will see in Q3, Q4 that should sustain going ahead, there will be more like a sustainable margins? Or are you seeing some one-off benefits coming to in the second half?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

No, no, that will be the sustained margin. So we’ll be seeing improvement because of raw material costs that has stabilized and then that will continue.

Sachin Kasera — Swan Investments — Analyst

Sure. Sure. Thank you

Operator

Thank you Sir, we do not have anybody in the queue right now. As there are no participants in the queue right now. I would now like to hand the conference over to the management for closing comments.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Thank you all for participating in this earnings call. I hope we were able to answer your questions satisfactorily. — and at the same time, offer insights into our business. If you have any further questions, I would like to know more about the company, please reach out to our Investor Relations managers at Valorem Advisors. Thank you. Stay safe, stay healthy.

Operator

Sir, before we could disconnect, we have — Mr. Nikos Shetty, who is in the Q&A, wants to ask a question to you.

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Please take.

Operator

I’m unmuting your line, Mr. Nikos Shape. Please proceed.

Nikos Shape — — Analyst

Yes. Just wanted to get some clarity on pharma intermediate. So pharma intermediates, we are doing capex of INR60 crores. And you mentioned that INR50 crores revenue at a peak, which translated into asset turnover less than one times. So am I missing anything here? Or is it because of the arrangement with the group companies? And what will be the margin in this?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

No, no, no arrangement. We’re just being conservative on the revenue side. Even though I said 50, we see an upside having some benefit there. And as far as capex is concerned, it’s somewhere around 60%, probably a little more. So all in all, on one is what would be — we believe that we will be able to have that turnover.

Nikos Shape — — Analyst

And how much margin we are expecting from this product?

Mahek Manoj Chheda — Chief Financial Officer and Executive Director

Margins — sorry, we’re not disclosing any margin level, only company level margin is what we will be able to disclose.

Nikos Shape — — Analyst

Okay. The — that’s it.Thank you.

Operator

[Operator Closing Remarks]