Good morning, ladies and gentlemen. Welcome to Shaily Engineering Plastics Limited Q3 and 9M FY 2023 earnings conference call. This conference call may contain forward-looking statements about the company, expectations, beliefs, opinions, and expectations of the company as on the date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing * then 0 on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Sanghvi, Managing Director, Shaily Engineering Plastics Limited. Thank you, and over to you, sir. Thank you very much. Good morning, and a very warm welcome to all the participants to the post-results earnings call of Shaily Engineering Plastics. I have with me Mr. Sanjay Shah, our Chief Strategy Officer, and SGA, our investor relations advisors. I hope you've had a look at our investor presentation that is uploaded on our website as well as the stock exchange. Despite the challenging environment, we have registered sales of INR 446 crore in the nine months of FY 2023. As you're all aware, we are an export-oriented company with customers based primarily in Europe and North America. Given the current economic conditions, high inflation, and the customer sentiments in these markets, we have seen substantial reduction in offtake over the last two quarters. We also expect this volatility to continue for the next two quarters. On the EBITDA front, margin was impacted due to slower offtake, which has impacted in lower utilization levels, leading to lower absorption of fixed costs. As utilization levels improve and raw material prices stabilize, we expect improvement in margins. We are working very closely with our customers to ensure optimal production, increase in offtake, and ensuring optimal inventory levels. We continue to watch the situation very closely. Our focus is purely on adding customers and markets in segments where we are present in order to increase our utilization levels and sweat the asset base that we have invested and created over the last three to four years. Shaily is known for precision, quality, compliance, and our engineering capabilities. We want to focus on business segments, both existing and new, where this is a must-have. We see good opportunities in consumer electronics, telecom, and other healthcare segments apart from drug delivery. We will use the existing infrastructure to a large extent and only invest in critical capabilities that these segments need and work towards building a business model where we are married to the customer. I will certainly provide more updates as this evolves and we see traction. As a last note, I would again like to emphasize that we will be very careful and prudent with any future investments and only do so when there is an absolute need. That is all from my side. I shall now hand over the call to Sanjay Shah, Chief Strategy Officer, to give you the operating and financial highlights. Thank you very much. Thank you, Amit. Good morning, everyone. I shall share with you the highlights of the operational and financial performance of Q3 and nine months FY 2023, following which we will be happy to respond to your queries. During the quarter, we processed 4,121 tons of polymers as against 5,321 tons in Q3 FY 2022. For nine months, we processed 16,026 tons of polymers as against 19,912 tons in nine months FY 2022, an increase of 13% year-on-year. Machine utilization rate was 38% in Q3 FY 2023 and 45% for nine months FY 2023. Exports during nine months FY 2023 stood at 77% of total revenue as compared to 78.7% in nine months FY 2022. Exports during Q3 FY 2023 stood at 79% of total revenue as compared to 78.7% in Q3 FY 2022. I shall now brief you on the standalone result highlights. Revenues stood at INR 134.2 crores during Q3 FY 2023 as compared to INR 148.3 crores during Q3 FY 2022. Results stood at INR 18.2 crores during Q3 FY 2023 as compared to INR 24.3 crores during Q3 FY 2022. EBITDA margins stood at 13.6% for Q3 FY 2023. Tax stood at INR 4.5 crores during Q3 FY 2023 as compared to INR 8.3 crores during Q3 FY 2022. Tax margins stood at 3.3%. Profit before Q3 FY 2023 was reported at INR 12.4 crores as compared to INR 16.5 crores during Q3 FY 2022. Coming to nine months FY 2023 highlights. Revenues stood at INR 467.2 crores in nine months FY 2023 as compared to INR 431.2 crores during nine months FY 2022, a growth of 18%. EBITDA stood at INR 50 crores in nine months FY 2023 as compared to INR 68.3 crores during nine months FY 2022. EBITDA margins stood at 14%. Stood at INR 21.3 crores in nine months FY 2023 as compared to INR 27.8 crores during nine months FY 2022. Gross margins stood at 4.6%. Cash flow for nine months FY 2023 was reported at INR 44.6 crores as compared to INR 42.4 crores during nine months FY 2022. Our ROC and ROE stood at 12.1% and 7.7% respectively as of 31st December 2022. The working business has been achieved with different use of capital. Our debt stood at INR 1.6 lakhs and our long-term debt stood at INR 19 lakhs. On a consolidated basis, revenue stood at INR 472.6 crores, EBITDA at INR 16.9 crores and EBITDA at INR 25.2 crores for nine months FY 2023. 69.9. 69.9. This is all from our side, now we can open the floor for Q&A. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone wishing to ask a question, please press star then one on your telephone. If you wish to remove yourself from the question queue, you may press star then two. Please unmute yourself while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Nirali from Unifi Capital. Please go ahead. Thank you for the opportunity. Basically, healthcare, we are facing issues there too. Nirali, when you look at home furnishing or you look at toys, both of these are basically heavily focused on North America and European markets, where we have seen demand slow down with our customers and which is impacting our volumes as we speak. Based on whatever discussions we've been having with customers, we see this continuing for the next two quarters and some improvement happening post that. As we move forward, we will keep you posted on what's happening. At the same time, what we are doing is we are talking to multiple customers across each segment to see how we can add newer customers and newer geographies to it. We should have some feedback on that also over the next two quarters in terms of the discussions we have been having forward. On the healthcare front, Amit, do you want to answer that? On the healthcare front, we have not seen a slowdown, to be honest. We have been more or less in line with new projects. Obviously, there's always a plus or minus three, four months of time period where projects can sometimes get delayed on account of either Shaily or the customer. Again, to do with development, but otherwise in terms of supplies, we have not seen any drop in demand for our existing healthcare portfolio. Okay, sir. In FY22, on the toy side, we had done, I guess, revenue of about INR 58 million. What should be the number for FY23? It'll probably be around 60% of the number which you talked about. Oh, okay. On the end side, I read that our own IP team will be doing a volume of about 3 million in FY23, and that reaches to 20 million over the next 3, 4 years. Any update on that? Are we still confident of doing 3 million this year? Yes. We have already, I'd say, done 65% of that, some orders will move on to the next year, because there isn't an alternate source of this order, it doesn't change from Shaily. Oh, okay. That's great to know. We were also hoping to get some clarity in this month. You had mentioned on the last call about the overall demand or any increase that the customer wants. Just getting clarity on that to receive further clarity on that. The clarity is that we won't see improvement for the next two quarters, unfortunately. Okay, fine. We will still wait for two quarters to get further clarity on what the newer segments also had to say. That's right. We will basically update, I think on a quarterly basis in terms of what's happening on the business front. We are actively pursuing multiple fronts and everything, so should have a much better update to you end of quarter four and quarter one. Okay, sir. That's great. Thanks. That is from my side. Thank you. Thank you. The next question is on the line of Manish Gupta from Solidarity. Please go ahead. Thanks for the opportunity. Are you at liberty to share nine months numbers for healthcare for FY22 vis-a-vis FY23 so one can understand what is the extent of impact on the other business lines? Manish, we typically don't share individual numbers. What we can say is when you look at nine months FY 2022 and nine months FY 2023, healthcare, you would see a growth on the overall numbers. Sanjay, I was just curious, why do you not share the segmental break-up? I just want to understand what the concern is. Clearly the healthcare part of the business is a far more attractive part of the franchise. Even if you just were to split the numbers as healthcare and others, from our perspective, it gives a better sense of how the more attractive part of the franchise is evolving. I'm just curious to understand why you would not split that number every quarter or every half year. Surely there's no competitive concern, right? You're not disclosing names of customers or molecules or all that. Manish, I think point's noted. What we will do is we will have a think about this and certainly try to see if we can share this in the public domain from the next quarter. Next quarter or next year. Next year. We'll certainly We'll make the board into confidence about it. Yes. Great. Next question is, this entire macro theme that everyone is talking about, the China Plus One thing. Can you talk a little bit qualitatively about now that there's been some time evolved and you would have had DD discussions with customers, what part of this theme do you think actively would interest Shaily? I could be totally wrong here, but my sense is the toys part of the business might actually be a lower margin, and I see you guys as a very margin-focused company. For example, do you really think the toys opportunity, which is a big opportunity in numbers, is something that would interest Shaily strategically? It's a bit of a tough question. I'm going to try to answer it as it has evolved with Shaily and in terms of my thoughts. When we got into toys, we certainly evaluated the margin profile. We certainly looked at how it fit in with our existing capabilities, and there is a good fit. Existing capabilities, compliance in terms of safety, chemical compliance, sustainability, engineering, and then the sheer size of the opportunity and how quickly you can scale up the toys business. You're absolutely right. I think the toys business is one where there is a lot of pressure on margin. The first few products that we took on, we took on the higher end of the spectrum of toys. We did not do very simple products, but we are seeing increasing pressure on costs. Even though China is supposed to be technically more expensive on manufacturing costs, they have a lot of support when it comes to capping raw material prices. They've also set up alternate infrastructures in countries like Vietnam or even in India, for that matter. We are seeing increasing pricing pressure on toys. We will not be making any further investments in toys until we see a portfolio of products that customer consistently buys from Shaily. Manish, just to add to what Amit said. When you look at the current situation, in a lot of cases, what we are seeing is raw material prices or the input prices, which in China is controlled by the government there, where there is an advantage to Chinese suppliers as compared to suppliers in India. An example, polypropylene is controlled at, I think, $970 a ton in China, whereas we would source it at somewhere between $1,100 and $1,200 a ton. There is a significant disadvantage in the input costs. Great. Now that you've had a chance to study this a little bit more, which aspects of China Plus One do you really think are an opportunity for Shaily, and what is just big picture stuff that won't really translate into an opportunity for you? Broadly speaking, Manish, we see very good opportunity in consumer electronics, telecom, in industrial applications, potentially appliances as well. Too soon to talk about anything concrete right now, and we are under confidentiality with any one of these guys that we've been having discussions with. We see very good opportunity and probably a much better fit in terms of our engineering capabilities. Okay. Next question is, Amit, there has been a lot of CapEx done in the last 15-18 months. How do you think about the CapEx that you've done vis-a-vis the macro environment that we are seeing? How do you think about CapEx going forward? Are you going to link it to specific opportunity or is this that you've got to build it first and then go and get the business? The related question is, can you talk a little bit about new logos that you have added in the last few quarters, and what exactly are we doing on business development? Some of these areas that we just talked about, consumer electronics, telecom, are we adding to our team to pursue these opportunities, or is this a business where really our technical competencies help? We don't need BD, we just need these customers to visit our plant. Sorry, two or three questions rolled into one big question. Okay. On investments, I'm very, very clear. Going forward, CapEx spend on the objective is that we're going to utilize our existing infrastructure. We have very, very good infrastructure to service even the new segments that we're getting into. We might have to do some specific CapEx, in terms of very, very specific equipment. We're not talking about any substantial CapEx in molding, in injection molding for either servicing the existing business or the new customers that we are targeting. On business development, we have not added any new logos in the last quarter, to be honest. We are in discussions with several large multinationals, including big box retailers, electronic companies. We are confident that we will be adding new logos over the next two to three quarters. Very, very confident. From a What was the last question, Manish, again? The last question was that in order to add logos, do you need to add more BD people, or is it that we have enough of credibility in the marketplace and there's no point adding BD people, we just need to show customers our technical competency in the factory? Because I don't know if you've added BD people to go and knock on doors and showcase Shaily. Other than the Swedish major, I don't know whether we've added any big box retailer over the last couple of years. The question is, can we capacity out? We have technical competency, are we investing enough in a sales team to go and take our message to the world? We have added to our BD team with a specific focus on also increasing, in addition to the other big box retailers, also increasing business in the domestic market. There are certain segments in which Shaily can play, even in the domestic market. We see a lot of emphasis and investments happening in power infrastructure, especially. We have added specific business development folks with a focus on these segments. You're right. A lot of our business development really happens if we can get a customer to visit us. 60% to 70% of our BD is done the day they visit us. Whether they should move forward with the Shaily or not, then it really comes down to whether you can come to a commercial agreement or not. Most of our job is done when they visit us, and that we are actively pursuing. Last question from my side is that this is your current gross block and whatever capital work in progress you have and whatever little investments you have to make, what do you think is the peak revenue capacity of the company basis current investment? Manish, if you were to look at March 2023 effects, including the CWIP, the revenue which the company is capable of doing would be somewhere between 2.25 to 2.5x of the total gross block. 2 to 2.5 times March 2023 gross block. Right, Manish. Okay. Manish, just to go back a few questions. I think you had on the investments. While I said that we will be very careful about where we invest and use the existing infrastructure, the only area where we make investments and look for business in the future is healthcare, is pharma. That is one area where we will need to gear up in advance so that the scale-up happens in the future. Just a related question on this, Amit. The steel furniture investment, what% of the utilization are we on right now? Manish, we are in low 30 utilizations. We are in discussions with home furnishing customer and also two or three other- I think the question was specific to home. No, home furnishing. He's talking about CS. Manish's question was on the steel furniture. We are looking at having discussions towards the other guys. As Amit said, we hope to add one or two of these names in the next two, three quarters going forward. Okay. Thank you. Anyone wishing to ask a question, please press star and one. The next question is the line of Pritesh Chheda from the Lucky Investment Managers. Please go ahead. Yeah, hi. My first question is, if healthcare has grown, we were supposed to get pricing adjustments, if you recall your quarter three call. I'm surprised why has the gross margin continued to remain under pressure? Because healthcare is supposed to be a fairly high gross margin business, right? Where are we on the pricing increases than with the other portfolio business? Pritesh, most of our pricing adjustments have happened during middle of the current quarter, the last quarter, so they have been factored in here. What you're seeing is basically a higher fixed cost because of the lower utilization level. Price adjustments when you don't sell anything or you sell less Yes is what's causing this. I don't see any gross margin expansion, right? For QOQ, it is flat. YoY, it is down 300 basis points. I don't understand what you are comprehending and what am I comprehending. Keep the utilization part aside, so I can understand that. Pritesh, one difference which you need to look at is when you look at gross margin, please look at the consolidated gross margin because till last year, we're doing development in India on the healthcare front. We're now doing development in the U.K. That revenue comes directly to U.K. When you look at this, you basically need to look at it on a consolidated basis. Even if I look at consolidated, your RM to sales is 62% in quarter three FY 2022. Your RM to sales is 64% in quarter three FY 2023. Your RM to sales is 64% in quarter two 2023. There is no expansion between the two quarters. YoY, there is a decline despite the fact that there is a growth in healthcare. You say that you have taken price increases between quarter two and quarter three. Ideally, between quarter two and quarter three, there has to be a margin expansion, right? The gross margin. Just one second, Pritesh. When you look at this, if you were to compare Q1 to Q3, you would have seen improvements happening. Yeah, you have Q1. You say if the price increase is between Q2 to Q3, I will see from Q1 to Q2 and from Q2 to Q3. I cannot see from Q1 straight to Q3. No, sir. I agree. There is a business mix change also which is happening at all. Sir, healthcare has grown and everything else is not grown, business mix should have improved. Also. Healthcare is growing. Okay. Healthcare is growing. It's not that healthcare has not grown. The gross margin should improve. Gross margin is more or less at the same level is what I agree with you, and that's basically because of a lower utilization level. When you're at lower utilization level, you basically end up having a little higher rejection of scrap or something. I'll take this separately. I still cannot comprehend. Now, a lot of our traction depends on the progress in pharma. A lot of the traction in GM also depends on the progress in pharma. Where are we now, and is there any changes for our outlook for FY 2024 in pharma by any chance? Pritesh, can you repeat the question, please? Is there a change in the outlook for FY 2024 in pharma? No. No. Okay. Will we see the margin expansion for sure happening next year? Because this year you had first three quarters of higher RM, which is not expected. We were expecting it to a lot of companies. You should be getting your price increases to flow into your P&L. There is a straight, I can see about 200 to 300 basis points at least because you are at 60% RM to sales. Today you are at about 63%, 64%. There is a 3%, 4% there, plus there is a pharma movement to happen. Will we see gross margin expansion or there will be something else to play in and we need to understand that? You will see gross margin expansion as we go forward. As revenue improves, you would also see. Sir, that I understand. I understand operating leverage part. Because if you are operating at 50% capacity utilization, I understand the operating leverage part. Where I am unable to still comprehend is the GM part. On the GM part, what also needs to be factored in is the volume cut down. My logistics cost, my raw material, everything go up, which gets factored onto my overall raw material cost. Okay. We started the year with a INR 700 crore revenue. What do you think it will end the year now at? Where are the slippages? Quarter One was 175. I think when we were at Quarter One, we did 125 into 4, so we were at 700. Quarter Two became 161. Quarter Three became 136. If you could give the bridge between Quarter One and Quarter Three, there is INR 30 crore reduction in business. Where are the slippages, and how do we see it ending this year? The slippages are basically on home furnishings, exports, toys, mainly on that account. Okay. Carpentry. If you were to look at it, these are. Major drops major drops. Significant drops. I would say Quarter Four will be similar to Quarter Three. Somewhere in that region. Sir, your Quarter Two call also did not tend to say that. Suddenly, in Quarter Three, you are saying. Satish, I did say on the Quarter Two. I believe I did say on the Quarter Two call that we will come back with an update, but we're not seeing a very good picture on demand. We did not expect a very large drop. That is what's happened. Now, how do we see now the FY 2024, especially on the pharma side of the business? What kind of growth do we see? On the pharma side? Yeah. On the pharma side, we are looking at somewhere between 25% and 35% growth. With that growth, you will obviously see margin expansion. Where are we on the CapEx now? The last CapEx that we announced was for pharma. Yes. That's the only CapEx which is ongoing, right? Yes. Where are we? How much have we spent, and when it commercializes? The pharma CapEx would be completed by Quarter One, FY 2024. How much have we spent so far? We would have spent about INR 60 crores till date. Because we have enough capacity elsewhere, because we are running at 50%, 60% capacity utilization. Right we won't get into a CapEx unless we add a logo which needs some specific CapEx. Satish, previously looking at sweating our assets, the pharma CapEx is a specific CapEx which was required to be done. That's a clean room, and you need that CapEx. I understand that. Satish, just to add to what Sourav has said, when we are talking to the other big box retailers, their business models are different than the home furnishing major that we work with. A lot of these will buy off-the-shelf kind of product or something that you specifically make. There will be some investment required, but we will not make any investment in infrastructure. It will be tooling, which will be the Yes. Not in machine. Not in machine, not in physical infra. No. Right. That's correct. Basically for the next four quarters to six quarters, because you're at 50% capacity utilization, we might not hear any CapEx announcements from your side. That is what we foresee right now. The only way they can be here, if we were to even think about it, would be if there is a substantial sizable opportunity, which requires a greenfield. Otherwise, for the next four to six quarters, we're not looking at any investments. What will be your maintenance CapEx? That will be nominal, somewhere around two to three crores. Some of our assets are new, we do not need maintenance CapEx there. Some of the old CapEx which we have, it will not be substantial. It will be about two to three crores. Okay. Lastly, sir, when you said 30% utilization in metal furniture. Has the utilization come down by any chance? Yes. Can you highlight the reason? Demand drop. Steel furniture, metal customer has seen a much higher demand drop than the plastic articles. Okay. Has the asset stabilized with respect to the scoping line and all where you had some challenges? Yes, that has stabilized. Post that, as I mentioned earlier, we have started discussions with three, four other big box retailers to see how we can expand the customer base. The production guy who has moved from the auto industry to your company, he is able to manage the asset well for you now. He is from the operations part. This is the production that is actually ex Godrej. Yeah, he is doing a very good job. Okay. Thank you very much, all the best. Thank you. Thank you. Next question is on the line of Aman Vij from Astute Investment Management. Please go ahead. Yeah. Good morning, sir. My first question is on the pen side. We had talked about there was a launch planned in January. Has that launch happened or is it delayed? When is it set to come now? Because it's a commercial order, we have gone ahead with the production and are dispatching it to our customer. The customer is awaiting approval, any data. We don't have a further update. Sure, sir. On the pen side, so we have a target of 3 million and plus minus something, we'll achieve that for this year. What is our target for FY 2024, sir? Can you repeat that question, please? Maybe a little louder. I'm finding it difficult to hear you. Yeah. On the pen side, we had a target of 3 million for this year, and we'll achieve close to that. What is our target for FY 2024? It's going to be roughly 30-35% higher. Sure. You are talking about most of the growth that you are seeing in pharma, you have guided similar growth will come from these pens only. Yeah. See, there are pens, and in addition to pens, there's also auto-injectors that we have developed, and we are making the first supplies in June of 2023. We will see some additional orders for both products in FY 2024. Sure, sir. Coming on to the home furnishing side, so we were expecting to reach, and become the third-largest supplier to one of the main customers. Given the slowdown and all those things, when do we expect to achieve that target of becoming the third-largest supplier to them? The slowdown has happened for the entire supply base. I actually don't know where our ranking stands today. It would probably be third or fourth anyways. If it's not, in terms of our own business, whether we become three or four is not so important as how much growth we see in the upcoming year. We've already said that the first two quarters were not. We expect the current scenario to continue, and hopefully we see improvement post that. We have this discussion with the customer on almost a daily or every other day kind of basis. It's something that we are tracking very closely. In terms of utilization, where are we currently in this home furnishings? For next year, do you see a gradual improvement or Aman, we do not report individual utilization levels. I would not be able to talk about it. We have talked about overall utilization levels being about 40%. If we speak, we would basically update you guys on how the utilization levels will improve over the next two quarters, whenever we have the quarterly calls. I just wanted to understand the impact on the slowdown. Is it like 10%, 20%? Is it much more? I am not interested in exact numbers of utilization, but just to gauge the impact of slowdown on the home furnishings side. Home furnishings, two of our major markets have been North America and Europe. There has been fairly decent contraction of demand which has come in, which is why the slowdown which we're talking about is happening. As we speak, I think whatever stocks are there in the system and everything should get liquidated over some point of time. Over the next two quarters, we should actually get back to normal demand. I think a lot of it will depend on how things pan out in these two geographies. Russia had lot of issues. They closed their factory in Russia. You didn't get any benefit of that. Did we lose any business because of that issue? Yeah. We were making some shipments to Russia, those shipments came down. Yeah, for the customer, Russia was a pretty large market and a pretty fast-growing market. Yeah, it did happen with their operations. Sure, sir. In the initial part of the commentary, Amit talked about that they might enter into new areas like consumer electronics and telecom. If you can talk little bit more about it. Will it be plastics only? Will we try to merge our capabilities in plastics and steel or any other new material? If you can talk briefly about these new things which we might try. We will not be able to talk a lot about it in terms of Names, logos, things like that. Yeah, it will basically do something around plastics because as Amit mentioned earlier, we will be looking at utilizing our capacities which we have created, and the capacities which we have created are in plastic. Okay, these will be totally new customers and new segments? Sorry, I These will be new customers and new segments or the current ones only in these two segments? New segments, both. In new geographies also. Sure, sir. On the price side, you have talked about a sharp slowdown, almost like a 30% YoY fall in our sales. Has it been all across we have two, three clients or is it specific to one client? Are we taking any steps too, because we have very good SKUs and we were trying to increase our business over a period of time. I understand slowdown is happening, but what are the steps as a company we are taking? If you can also talk about is it all our customers or is it one particular customer that we are seeing this big drop? Aman, we have two customers on board. We are in discussions with both these customers to see how we can develop and add more products and everything. Currently, the pace of business is with overall drop in volumes. Basically, customers would be looking at utilizing existing infrastructure with suppliers in China and everything, which is where we are seeing demand could possibly drop. Drop with Chinese vendors have been very large. At the same time, we continue to engage with them to see how we can add newer products and newer ranges which we can supply to them. We should be able to see some momentum that at least take over the next two quarters. Sure, sir. My question is on the utilization side. What kind of utilization are we to expect for next year? When do we expect the full utilization of whatever capacity that being built in March 2023? Aman, we would probably refrain from answering that question right now till we get further clarity. Let's wait over the next two quarters and we would be able to give that. We will give you an update every quarter on what we see happening. Sure, sir. One thing, sorry, have we lost any kind of market share in any of our businesses like home furnishing? No. Okay, sure. Thank you. These are the questions from my side. Thank you. The next question is on the line for Ritesh Shah from Investec India. Please go ahead. Hi, good afternoon. First question, you did illustrate a nice example of polyprop from $900 versus $700. For us, nearly 60% of sales stand at normal. Just to understand, is there any other elements, commodities where you see such stark differential India versus cost versus what's there in China? Ritesh, this is one where we are very much aware of. I think there have been multiple categories where this sort of input price pressure has been there with suppliers in China. That's where we have been seeing this across multiple categories. We do not know what the extent of difference between a lot of these, but in some cases we know that, Amit mentioned one of them. Right. I'm just trying to understand from the management's thought process standpoint, if this is a risk which you have just picked up, what is the risk mitigation strategy for the company going forward? On the overall basket that we are looking at, 6% is a sizable number. Just trying to get a sense if there is a risk mitigation strategy in place when it comes to commodity sourcing and whether it is on import parity basis in India versus Chinese competition. I don't think this is going to be long-term sustainable pricing strategy which will be there. This is probably there to just for a short-term purpose, and we expect that this will get corrected over the next one or two quarters or something. Yeah. See, Ritesh, just to add to that is, there are obviously certain advantages that India has, whether it is logistics cost or our manufacturing cost. We need to take advantage of that on an overall landed cost to any country. Typically North America we fare better. In Europe we see the same advantage that we currently have on raw material. It's very close. We're higher in some cases and lower in a few. We need to see how we can optimize this and still move forward. One of the key things here is that where there is a true partnership with the customer, there is impact but a lesser impact because you work on a sustainable long-term pricing business model. Where relationships are new or the product is very price sensitive and the customer is under tremendous margin pressure themselves, it becomes difficult to sustain. If there is a short-term advantage, will they take it? Certainly. They certainly will. Sure. Second was on has there been any progress on? No. I think given where the margin stands right now and the utilization speed, we were actively pursuing it until the end of Q3, but we have put a hold on it for now. We will reevaluate this at the end of quarter one FY 2024. Sure. First question is basically, actually what you have seen as slippage on both revenues as well as gross margin from the last quarter. I think it was well laid out in the plan out of the call. What is it that you're doing about it? I understand, appreciate it as a non-disclosed external variable. Chasing new segments, is that the right thing to do? How are we revisiting the strategy? I think that's you're very confident. When it comes to specifically home furnishing and home space- Ritesh, your voice is breaking in between. I think if you're on a hands-free or something, probably. Am I audible, Sanjay bhai? Just a little better, Ritesh. Yeah. My question was basically, if you look at the margin some slippage on both revenue across EBITDA level margin. Mr. Ritesh, sir, there's a lot of disturbance from your line. I'll join back with you. Thank you. Yeah. The next question is from the line of Kaviraj Singh from Marcellus Capital Partners. Please go ahead. Hello. Am I audible? Yeah. Yes, you're audible. Just wanted to check, what's the outlook for the toys business in FY 2024 that we have? We are pursuing opportunities there, and we will let you guys know in the end of quarter four and early quarter one in terms of how we are going ahead with that. Okay. I think right now we have two plants and it will largely be exports. Are we even looking at domestic clients per se? Yes. We will be looking at domestic clients also. Okay. Just last one thing, how much CapEx has been done in that toys business and how much assets turnover do we expect there? The total CapEx which we have done is about somewhere between $20-$25 gross. Okay. Specifically CapEx, which is because CapEx is multiple across our business sectors. Okay. Roughly what asset turnovers do we look at in this business? We don't again give out individual asset turns, but it's only the entire business unit one. Okay, good. That's from my side. Thank you so much. Manjeet. Thank you. The next question is from the line of Manjeet Buaria from Solidarity Investment Managers. Please go ahead. Thanks for taking my question. Am I audible? Yeah, Manjeet. Go ahead. I had three questions for Amit. Amit, the first question was, two years back, we had discussed that your largest customer is looking to consolidate their supplier base globally, and their preferred suppliers will keep gaining market share or wallet share within their ecosystem. Has this hypothesis played out through the last four, five years, or that's not really played out as expected? We saw good growth last year from that customer. We put up a new facility for them. We've talked about this in the past. Whether the hypothesis has played out, they have consolidated, hypothesis has played out, but there isn't demand right now. Overall, have we seen the growth that we were anticipating? Absolutely not. Got it. Amit, the second question was in the products which we are supplying to our largest customer today, just the products we are already supplying, what would our share be in their global share which they have? It would vary from category to category. I can give you a broad range. It would be everything from 30% to as high as 90%, 100%. Got it. For categories where, let's say we are below 50% share, if you want to increase our share, did this business bid out and do we get to bid for all these opportunities or it's more of a one-on-one negotiation where we need to go and convince them to give us that business? It's a tender or a bid which they remove and we can just participate in it. I think two things happen, Manjeet. One is that when the customer makes a decision to have more than two or three sources for a particular product category, A, that product category has a very high service level requirement. B, probably when they create four or five capacities globally, they want to ensure that they never run dry. Allocation of regions or percentage of volume depends on how competitive one is on landed price. It's not just purchase price, but how competitive one is landed in any of the markets that they serve. Once a market has been allocated, it doesn't really go away unless you fail to supply, unless you're seeking an enormous price increase which is outside of what the raw material market movement is. Markets don't typically go away. The problem right now is that each of the suppliers, each of their suppliers would be covering like us. It is not that they have taken business away from us and given it to someone else. It is just that they have tried to balance out as much as possible, but there is just a significant drop in demand overall. This was very helpful. One last question, Amit. In terms of adding more logos on peer set of our largest customer, right? I am sure we would have tried some of that, but we have not really seen massive scale-up anywhere over there. Given our relationship with this largest customer, our technical capabilities, is it surprising why we have not been able to scale up more aggressively with some other peers. Some thoughts over that would be very helpful. Let me give you a few examples. In the past, I don't remember the exact year now, but I think maybe 8 quarters ago or 12 quarters ago, we did add a customer. It was a large German supermarket. We had given the name, right? Yes. We had added Lidl, and we had certainly made some supply. The business model is very different from that of our current home furnishings major. They have buy cycles. You make the investment in capacity or in tooling. A, you are not given any guarantees on whether they will buy or not. B, they have cycles, they will buy twice a year. You will need to produce in advance and stock it, and then ship everything in a matter of 2 weeks. As a business, it becomes very difficult to manage the supply chain, manage the manufacturing, unless you get into a constant cycle of doing this over and over again. We have not been able to crack that cycle because we also don't have off-the-shelf products to offer. We are an OEM, we do contract manufacturing for our customers. Having said that, given the current pressure we're under, we just decided, look, let's look at a sizable opportunity, and if we need to then have that offering off the shelf, we'll develop it. That's what we're trying to do right now. We need business or a model where there is some consistency in ordering and supply. If you give us two large orders a year, it becomes very difficult to manage. Then they give you a production schedule, not so much an order. If that production schedule changes, drops, and you already produced the parts, then you're stuck with inventory. Amit, I hear you. Sorry, Amit, I hear you. What you're trying to say is with the largest customer, it's more of a partnership business. Here, it's more opportunistic profit from these customers. That's right. If that understanding is correct, is it fair to assume that a lot of our growth, because of all this, China Plus One or global players shifting to other countries, is not actually a target addressable market for us? Because we don't really want to work with low-quality business partnerships, which means we'll have to start selling something more like a healthcare product. Is that a fair assumption, that the state of competency we have in our largest customer is not so tangible across many of these large other customers globally, just from a quality of business perspective? I think that's going to one end of the spectrum. There are many big-box retailers. Everybody work on a slightly different model. I gave you example of one of the largest in the world. Having said that, there are many out there who have white-labeled products where you can have consistency in supply. We're talking to most of them today and trying to explore a business model that suits us or is very close to what we're already doing. Okay, Amit. That's so helpful. Thank you so much. Thank you. Thank you. The next question is from the line of Ritesh Shah from Investec India. Please go ahead. Yeah. Hi, Sanjay. Am I audible? Yeah, Ritesh. Yeah. Hi. I had one basic question. The kind of commercial contract that we get in when we have in past inserted tooling CapEx, to my understanding, it did have certain volume commitments. Given the scenario we are in, because of the external factors, volumes are actually slow. Basically, does it impact to us on behalf of the commercial contract that we have today? Yes. If those volumes don't happen in the time frame, the time frame will get extended. Okay. The NPV will change, right? If it's the same customer over a longer duration, that doesn't make economic sense from a company standpoint. How does this risk get captured? That also gets adjusted. In most of these cases, the investment is made by getting an advance from the customer. Technically, the NPV will not change. Okay. Sir, can you highlight, given the volume slippages which are there because of the external variables, when do we see the risk to come in for any large contracts that you have? Say this we expected in first half of next year based on the duration of contracts that you have. Sorry, Ritesh, I did not scope. Right. Sanjay, you indicated these are fixed duration contracts, right? The volume of it should have happened over two years or say 18 months. I don't know the start date and the end date for this particular contract. Given the reporting that we have, a lot is attributable to the external slow now. I think the company has this volume of this arrangement in place. I just wanted to understand when do we see the benefit on the margins, given you might have different contracts for different SKUs. Is there a number that we have wherein we can actually expect a bit of physical lag, even if the volumes do not come through, say, in a bare-case scenario, say, two quarters out or three quarters out? Ritesh, margin improvement can happen because volumes pick up. There are two things here. When you talk about margins, one is the raw material pass-through, and second is volumes pick up. For a business which we are doing right now, at an overall utilization levels of 40%, you will not get that sort of margin, because these businesses are structured in a way where you basically run at very high capacity. That's where you basically generate margin, which you are able to do. When I meant, it was a two-year contract, and if we don't get those volumes in two years, unless the contract gets extended for the next six months, one year, still that recovery does not happen. There could be an upfront payment which is made to the customer. Extraordinary cost, yes. In case those volumes are not going to come back. Correct. Sanjay, my question is specifically, you gave an example of two years. Given we have a significant revenue which is concentrated with furnishing major, last three quarters have been slow for some reason. Hence, I'm just trying to gauge when does this two-year tenure hit, wherein we will see some additional payments because of this particular variance helping us. Ritesh, that's what I'm saying. Are you asking whether we enforce the contract as in demand that the money be paid? I'm saying if the volumes don't come through, the money has to still come in. When should we look at that scenario or has it not got triggered or when do you expect that to trigger? Assuming, hypothetically, if I was in your position, I'll do some back-to-this forecasting, and then I'll have to update those numbers into my P&L. Ritesh, if I'm understanding your question right, even if it gets extended or something, it will not make an impact on our margin, is the way I would put it out. Okay. What's- You're being very specific on tooling, but yes. Yeah. Okay, no problem. Sanjay, I will call you separately for this one. Send it directly. No, please do. Yeah, that is okay. No problem. Thank you so much. Thank you. Ladies and gentlemen, that was our last question. I now hand the conference over to Mr. Amit Sanghvi for the closing comment. Thank you everyone for joining the call. We hope we've been able to answer your question adequately. For any further information, I request that you get in touch with SGA, our investor relations advisors. Thank you very much and have a nice day. Thank you. Ladies and gentlemen, on behalf of Shaily Engineering Plastics Limited, this concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.