Ladies and gentlemen, good day and welcome to the Q2 H1 earnings conference call of Camlin Fine Sciences Limited. As a reminder, all participant lines will be in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjesh Jain from ICICI Securities. Thank you, and over to you, Mr. Jain. Thanks, Rosha. Good afternoon, everyone. Thank you for joining with us on Camlin Fine Sciences Limited Q2 H1 FY 2022 results conference call. We have Camlin Fine Sciences management, Mr. Ashish Tandon, Chairman, Mr. Nirmal Momaya, Managing Director, and Mr. Santosh Parab, CFO. I would like to invite Mr. Ashish to initiate the proceeding with his opening remark, post which we will have a Q&A session. Over to you, Ashish, sir. Thank you. Welcome, ladies and gentlemen, to our second quarter earnings con call. At the outset, let me apologize for the delay in the posting of the results. Our board meeting was extended beyond what we thought it would take, and then there were some technical issues in uploading. Once again, my apologies. We will try to be as clear in our explanations of the quarter, and we will of course answer all your questions to the best of your satisfaction. I now, as our usual convention is, hand over for the brief to Santosh Parab, our CFO. Later on, questions and answers will be answered by Nirmal Momaya, Managing Director, as is our convention. Over to you, Santosh. Thanks, Ashish. Good evening and welcome. Yes, I would also like to apologize because there is some delay in closing of the board meeting and then some technical issues. For the benefit of the participants, I'll just take you through the results in a concise manner. Our consolidated turnover was INR 311 crore in Q2, which is around 5.9% lesser than it was in the earlier quarter. It was INR 330 crore. Our operationally EBITDA after adjusting for our net change has reduced from INR 45 crore to INR 27 crore, which is a 486 basis point reduction. Obviously the profit shares, profit before tax and profit after tax has also got impacted because of lower EBITDA margins. As far as the half year consolidated results are concerned, we had a 13.6% year-on-year increase in the revenue from INR 562 crores last year to INR 642 crores this year. Our Adjusted EBITDA margins were INR 96.8 crores in the last half year, which are INR 73.3 crores in the current year. The EBITDA percentage is 11.42% in this current half year. As far as standalone is concerned, our revenues reduced by 5.2%. They were INR 138 crores in this quarter as against INR 145 crores in the last quarter. Corresponding EBITDA was INR 3.9 crores compared to INR 19.2 crores in the last quarter. As far as half year is concerned, standalone, the revenues have increased by 6% from INR 267 crores- INR 283 crores. The foreign exchange adjusted operational EBITDA was 30 crores last year, which was 23 crores this year, a 314 basis point reduction in the percentage EBITDA. As it can be seen from the numbers, the quarterly and half-yearly results are not up to the mark. The current situation highlights our consistent stand that our business must be watched year-on-year basis rather than quarter-on-quarter. Obviously, the question will be asked whether this negative quarterly trend will continue into the future. I'll come to that a bit later. First, let me discuss the operational highlights of the quarter. Overall demand in all the segments of the company remain very strong as the COVID restrictions were progressively eased, which indeed is a good sign of the business of the company in the future. However, that year there was a drop of around 5.9%, as I said, in the consolidated turnover. The results were impacted by some one-time non-recurring events and also the current structural and economic situation globally. Turnover was generally impacted due to the following reasons. As you know, economies are battling with disruptions in the logistics and supply chain, where not only the throughputs which are impacted, but the availability of raw material is also impacted. Further, technically, we faced certain technical issues in our diphenol plant during the months of July and August when we were in the process of scaling up the production to 100% utilization. This put pressure on our internal availability of throughput, that is, hydroquinone and catechol. This reduced throughput consequently impacted the production of our high volume, high margin products such as TBHQ, BHA, MEHQ, PDMB as compared to quarter one. This led to reduction in sales of around INR 25 crores. Obviously, a gross margin also got impacted by around INR 12.5 crores. Of course, the reduction of these products effectively change the overall product mix also, which put further pressure on the margin. Of course, there was a silver lining to this, as the ethanol unit, as you are aware, has achieved 100% capacity utilization in the month of September 2021, and is likely to continue with this trend of high capacity utilization in the future. Further, this quarter also saw one-time expenditure of around INR 3.50 crore on some consortium bank consortium charges in India, a one-time supplier settlement in Europe, and some trademark registration of some new blends, during the year, during the quarter, among others. Now we come to the impacts on account of structural and economic situation prevailing in India as well as globally. As you are aware, world is staring at an unprecedented increase in logistics costs. Company, as you know, is not able to pass on to these costs immediately, as there is a lag of a quarter for the passing it on. Our company is working on a mitigation strategy here of changing the terms to FOB from October 2021. The impact of which will be visible in the subsequent quarter. Further, as you are aware, the inflationary trend continues in crude, and that is impacting the raw material cost even in the current quarter. As you would have seen, there is also an increase in employee cost quarter on quarter. The main component of INR 101.8 crores was on account of yearly increment and induction of managing director, as well as new sales personnel and new business heads in the current quarter. Of course, the benefits of new inductees will start fructifying in the subsequent quarter. Lastly, even though the gross margins remain stable quarter-on-quarter, it remained shy of expected 50%+ margin, mainly due to the increase in selling prices, which we did as compared to last quarter, were entirely undone by the inflationary conditions, and a lag of a quarter to pass on to the customer the continuous increase of prices in the current quarter. Of course, there are some advantages also there, of opening of the countries corridor post-COVID relaxations. That has also brought in some costs, as physical travel and sales promotion have now restarted. Further, the volatility in foreign currencies, especially in Brazil, resulted in a foreign exchange loss of around INR 5 crore during the quarter. Consequently, the EBITDA was severely impacted and a reduction of 490 basis points happened. Now coming back to the question whether this negative adverse trend will continue. Now looking at the strengthening of global demand, our completion of stabilization of diphenol unit and it's reaching its maximum capacity, result of unwinding of diphenol cost advantage, then we are seeing robust growth also in segments of Blends to continue, and further increase in productivity. We are quite confident of achieving the yearly guidance on turnover. We are also confident of recouping the lost EBITDA margins. However, we will have to overcome the structural hurdles which are in the global markets, like the continuing inflationary trend in raw material prices. Of course, you would have also heard about the impending power crisis around the globe and still prevailing supply chain bottlenecks. However, in a nutshell, this aberration in margin is unlikely to continue in the future. Now, I come to quickly to the foreign operations of the group. Our Chinese vanillin subsidiary continues to be shut down owing to the Supreme Court order, which you are already aware of. The retrial application filed by our partner was heard in October 2021. The verdict thereof is expected any time this month. We will be knowing the verdict and then, based on that verdict, we will be taking the further course of action. Our European Italy, which produces basically diphenols, continues to operate at full capacity and has posted a quarterly revenue of INR 111 crores. We have sold hydroquinone and some part of catechol in the open market from Europe. CFS Mexico also clocked healthy operating revenue of INR 76 crore, and both these subsidiaries will continue to grow in the future. South American markets were stable as our subsidiary, CFS Brazil, posted a revenue of around INR 20 crore during this quarter. CFS North America, our U.S. subsidiary, is also slowly but certainly emerging out of the severe COVID impact in U.S. It clocked a turnover of INR 12 crore in this quarter. I come to the CapEx program, which has been undertaken and is under construction. Our construction of ethyl vanillin plant at Dahej is progressing satisfactorily and would meet the expected target of commercial production in quarter one, FY 2023. As you are aware, the company has completed the acquisition process of AlgalR NutraPharms by acquiring 80% stake yesterday, that is November 10th, 2021. This foray in nutraceutical segment with exciting products such as omega-three fatty acids, et cetera, will not only add to operational revenue, with scale-up in next two years, but also contribute in improving the margins. All in all, the performance in the quarter is not a trend. We are more than likely to bounce back and achieve our target goals. Thank you very much, and now we will take your calls. Thank you very much, sir. Ladies and gentlemen, we will now begin the question- and answer- session. To ask a question, please enter star then one on your touchtone telephone. If your questions are answered, you may withdraw your question from the queue by pressing star then two. We will wait for a moment while the question queue assembles. Our first question is from the line of Rohit Sinha of Sunidhi Securities. Please go ahead. Yeah. Thank you for taking my question, sir. Am I audible? Yes. Thank you. I think everyone was expecting some margin impact because of the rising input cost for almost all companies that we are seeing in the last some time. That is where I was looking at how our volumes have been there for this quarter. I mean, what kind of growth was there? Because 20% on the control side, if you look at the top-end growth, I think that kind of pricing environment is already there and most of the prices are higher. How much we have passed on the pricing increase and what kind of volume growth was there? Because for last three quarter, I think we are in a similar trajectory of INR [audio distortion]. How should we see that thing going ahead? Yeah. Rohit, to answer your question, as Santosh had explained earlier that we lost some volume because of supply chain and with our own scale up. Basically raw material hydroquinone was short for us in this quarter as compared to quarter one, and that led to erosion of sales. What we would have achieved if we had achieved the same volume as quarter one, our sales would have been higher by almost about INR 25-INR 30 crores. But the price increase that we did affect brought this difference down by, you know, to about INR 10 crores or so. We've been able to pass on the price increases, the cost increases of the previous quarter. However, certain raw materials have also gone up during this quarter, which the passing on of that cost increases will happen in the current quarter, which is the ongoing quarter. Okay. Just to you know think about this, the hedge impact, could you just you know help us understand what was the issue or why this kind of impact was there? I mean, because that is the main thing which everyone is talking about for some time, and this has mainly impacted our standalone business in this quarter. Margins have completely shrunk to a single-digit percent. How we have overcome it, I mean, completely or it's still there is No, no. We've completely overcome that. We've are running at 100% capacity from September. It was only in July, August. To scale it up to 100%, we had to you know, make some technical changes and some equipment had to be modified, which got done, and that is the reason why the production had slowed down during those two months. Now we are running at 100% in September as well as in October, we ran at 100% and we continue to run in November at 100%. Okay. That's it. Just, I mean, the hedge was some issue, I mean, wasn't it possible for us to source it from our Italy plant and sort out that raw material availability here? No. Raw material basically from Italy, which we normally would, in the past we were importing, we were selling and we're already pre-contracted to sell it in the European market. There was no way to bring material. This issue was not an anticipated issue. This was an ongoing modification that we had to do and which there were certain, you know, problems that happened during that time, which we needed to fix to get to the 100%. That is the reason why, keeping the supply chain in mind, this was a problem. Okay. That is from my side. I'll come back in queue. Thank you. Thank you very much. Before we take the next question, we'd like to remind participants that you may enter star one to ask a question. Our next question is from the line of Surya Patra from PhillipCapital. Please go ahead. Hello. Yeah, thank you for this opportunity. Sir, just couple of question. First question is on the margin itself. Obviously you have mentioned about few reasons that has impacted our overall margin as well as the gross margin. Before coming to that point, if you can just give a indication about the product mix in terms of like the Blends and all that, Performance Chemicals. That will be the kind of indicator. Subsequently, I'll have questions on the- Okay. The breakup is our Straights business, which is the antioxidant Straits business in the Q1 was INR 79.7 crores, which has come down to INR 73.47 crores. Performance Chemicals from INR 145 crores came down to INR 131 crores. Blends increased from INR 81 crores to INR 84 crores. Aroma is, you know, whatever residual stock we had. Mm-hmm. Was disposed of. Nutraceuticals remain constant, and others remain constant at about INR 17 crores. That was the breakup of INR 329 crore of last quarter versus this quarter of INR 310 crore. The ones which were impacted were high value, and high margin businesses, which is our TBHQ, BHA, MEHQ and PDMB. Okay. That was because of the stocking of the last year that you mentioned, or what was the reason, sir? No, the reason was that we did not have enough hydroquinone. Yeah. As compared to the Q1. The reason for that, shortage of hydroquinone, basic raw material to make these four products Mm-hmm. Which are really the high margin products for us. Yeah. Was that the supply of hydroquinone was coming from Dahej? Mm-hmm. For our Tarapur unit and Dahej, in the months of July and more in August, like we said, we were making some modifications to scale up, which of course we have demonstrated in September. There was a shortage of hydroquinone during this period. Okay. Which led to an erosion. I mean, what we would have added at least INR 25-INR 30 crores if we had followed even Q1, not even at 100%, but even, you know, at a lower capacity. That means considering the kind of trade issues in the trade war that was witnessed. Yes. About availability, container and all that. Mm-hmm. Whether that was a conscious plan that we had to focus more on or depend more on the Dahej plant so that- Yes. Reduced. Yeah. Absolutely. Because, looking at the way, supply chain issues, one is facing in, all raw materials which we have been importing, we are trying to localize as much as possible what we can do. Of course Dahej was one of the reasons why we set up Dahej was also to have a captive and, you know, a material available in India. Essentially our strategy has been that, the product that we make in Italy, we are now selling in the market in Europe and, what we make in Dahej we are consuming ourselves. Still of course, as we require more and more hydroquinone, as we go along, as new products get scaled up, of course we will bring in material from even Italy to India. Okay. What was the average utilization, sir? Although in the last month, for the quarter we have said 100% utilization. At 100% utilization, that would have met our entire hydroquinone requirement. Obviously, the average utilization would be much lower. Yeah. Can you tell that? Yes. The average capacity utilization was close to about 70 odd percent. Okay. At 100% we get, actually, we've all our current requirements are taken care of. That means at least this availability of hydroquinone and or the what has impacted the performance that would not be there at least next quarter or the planning quarter that I would say. That's right. In the current quarter, we have adequate hydroquinone available to us from Dahej for all our downstream products. Whether that is because of the kind of impact on the margins or trade challenges, whatever that we have witnessed in the current quarter or current time frame that we are witnessing, will that impact the new businesses what we had indicated that was supposed to start from the Q3, like this AlgalR or Algolar or the MEHQ or even the Calcium propionate? No. Basically all the new businesses that we are starting now will not get impacted because of raw material. Even the AlgalR acquisition that we completed now, we are in charge from today. You know, and we are working on trying to scale that up as well. MEHQ as well, we've started scaling up our MEHQ production with adequate hydroquinone available from Dahej. We see a growth in our Performance Chemicals business as well. Just one last question, sir. In terms of the China plant, you mentioned obviously that there is a kind of update likely from the regulatory or the litigation that is going on. Whether we have decided about the new product that we are thinking of introducing there or we want to continue with the kind of vanillin business there itself? Yeah. We are more inclined to start the new product because our vanillin facility is now almost getting finished in Dahej. What we are trying to see is if we can make the new product there for which we're making some environmental applications in the next month. We hope to get the response and get the approvals in the next maybe three to four months, and then start that other product. Sure, sir. I'll have a couple more questions. I'll join in the queue. Sure. Thank you very much. Our next question is from the line of Ankur Periwal from Axis Capital. Please go ahead. Yeah. Hi, sir. Thank you for the opportunity. My first question is on the margin front again. If I look at the standalone side and, you know, given the reasons which you highlighted in terms of pressure from raw material, coal cost, logistics, et cetera, you know, visible in terms of margins declining on a quarter-on-quarter basis. On a year-on-year basis, I think that was a low base effect which was impacting standalone. On the consolidated side, the margins are still sort of, you know, holding on. I'm guessing more on the gross margin front on a quarter-on-quarter basis. Anything specific happening in the international market, wherein, you know, the margins are better on consolidated? The margins are better on consolidated purely because hydroquinone, which was manufactured in Italy and sold in Europe, the prices of hydroquinone were high and you know that's the reason why we got you know better margins in Europe. That is the major contributing factor. Okay. Sure. These, you know, the selling of this HQ in the international and European market, is this on a? You know, what sort of duration is this? Is this a short-term contract, spot contract, or these are longer-term contractual things that you enter? Currently, nobody is signing any long-term contracts because Yeah. The volatility which is there in raw material prices and supply, especially in Europe now with the gas prices in Italy and the electricity cost going up considerably. It's very difficult to sign any long-term contract. Essentially what we are doing is we are selling. Of course, it's customers who we built relationships with, but we're not signing any long-term contracts because A, raw material availability prices, you know, it's too much of a risk at this point of time. Sure. These will be largely spot contracts or probably a two-month, three-month or a six-month contract here. Typically we pre-book for, you know, three-six months. We are booked till now, right now currently we are booked till February. Okay. You know, every three months, you know, we keep rolling that for a quarterly booking. Just for my understanding, the pricing here, the contracts which we have till February, the pricing will be, what will happen as of, let's say, next month or these prices are also frozen? No. The prices are frozen. That's why we take only quarterly. We don't take more than three months out. Sure. The benefit of these prices, international prices being higher, will continue in next quarter as well, and maybe- Yes. Partly in Q4 also. Yes. Right now it looks like that. Sure. That's helpful. Second question on the Dahej operation. You mentioned now we are operating at 100% and given that the capacity at the Dahej and Italy is largely similar. Going ahead, this should incrementally add to our overall profitability even on the standalone side. Will that be a fair assumption? That is right. Absolutely correct. Great. Sir, related question to that. Now, you know, you did mention the initiatives that we are taking in terms of price hike. If you can share what price hike have we taken, you know, across the product, broad range probably will be useful, in the month in Q2, if at all, or otherwise starting Q3. In Q2 we've taken about close to 10% price rise. Now in the current quarter also we've further increased the prices because some of the raw material prices went up in Q2. Again, the price rise and pass-through is for hydroquinone and its derivatives. Catechol we, you know, that it's not so easy to pass on all the price hikes there we've not been able to get those kind of price hikes. We've probably got 2%-3%. Okay. HQ and derivatives, 10% hike in Q2 and further maybe 5%-10%. Further 10% right in. Further 10% this quarter. Yeah. Great. Sir, lastly, if I may, your comments on the CapEx plans as well as on the debt reduction side. In this quarter, I am seeing there is an increase in net debt. You know, if you can share some thoughts there, both on CapEx as well as debt side. Thanks. Yeah. On the CapEx, we have our ethyl vanillin plant which is progressing and under construction, progressing well. It's about INR 150 crore investment which is planned there. We have completed about 65% of the project till date, and it's on track for completion by April. Okay. Any other CapEx apart from this? Currently, no major CapEx at this point of time. This is a major one. There we have some small CapExes, but those are not really significant. Sure. Sir, lastly, on the debt side, if you can comment, Yeah. How are we looking at that side? Yeah. Our gross debt has actually come down in the last six months from March from INR 537 crores- INR 512 crores. Net debt, of course, has gone up slightly because we've started the CapEx cycle and, you know, we've invested almost INR 80 crores-INR 90 crores in the vanillin facility in the last six months. My question more was like, you know, probably by the end of this year or maybe by FY 2023, any targets there in terms of net debt reduction and where this INR 4.2 billion-odd net can go? Basically, I mean, we are reducing our debt as it comes due on the long-term borrowings. As far as total debt, we have a FCCB which will probably get converted very soon from IFC, which will of course reduce the debt by approximately INR 110 crore. We'd probably be at about INR 500 crore debt after even our vanillin investment. Okay. That's helpful, sir. Thank you and all the best. Thank you very much. Our next question is from the line. A follow-up from the line of Rohit Sinha from Sunidhi Securities. Please go ahead. Mr. Sinha? Can you unmute your line, please? As there is no response, we will move. Yeah. Sorry. Sir, just if you could overall tell us what was the overall other exceptional item for this quarter which has basically impacted our numbers at the EBITDA level. I mean the exceptional item for this quarter on the total basis. Sorry, I didn't follow your question. Rohit, can you speak a bit louder because we are not able to hear you. Sorry. Your voice was distorted. Hello. Am I audible now? Yeah. Yeah. Just wanted to know in overall what was the amount for this quarter, which is basically one-time item for us. What is non-recurring, and that's what Santhosh said in his opening statement was. Yeah. Yeah. That's 12.5, roughly 12.5 crores was on the loss of margin because of no availability of raw material. There was some non-recurring one-time expenses of INR 3.5 crores. Of course, the foreign exchange loss, which is again non-recurring of INR 5 crores. Okay. Overall, I mean, in INR 22 crore kind of figure is there, which has. Yeah. Okay. That's it from my side. Thank you. Thank you very much. Our next question is from the line of Anish Jobalia of Banyan Capital Advisors. Please go ahead. Yeah. Hi. Good evening to the team, and thank you for the opportunity. I just want to check in terms of our guidance of achieving more than INR 40-INR 50 crores of sales. How is this looking like given, you know, some subdued quarter? Is there any change around that? Would be helpful to know. Also in terms of the margins, we were expecting to probably not recoup the entire gross margins which we did in FY 2021. But we were still looking at expanding the gross margins and also an operating leverage on our other expenses. Now, given the situation explained by Santhosh, how do we think about the margin expansion possibilities in this year? Would be helpful to know, sir. Thank you. Yeah. Basically, sorry, can you start your question, sir? The first part of your question I lost. Yeah. My first part of the question is, you were looking at minimum INR 40-INR 50 crores of sales in the last quarter, in Q1 itself, for the full year. Now, you know, is there any change in the thinking about being able to achieve that numbers? Would be helpful to know what are your, you know, penciled out thoughts around this. Yeah. We are achieving the turnover we are on target for. Question on margins, you know, what the margins evolution will be. Well, while gross margins have remained constant between the first two and the second and third, we are obviously working towards improving the gross margins. With a higher turnover, also leveraging on overheads being spread over a larger turnover. Improving the margins is what is expected in the next two quarters. What would be the extent of that improvement given that, you know, you were, I mean, last year it was at 15% and because of that you are going to reach close to 18% or so, because of, you know, the operating leverage and It's very difficult to answer that question at this point of time because, you know, as you understand, the raw material prices are not under our control at this point of time. There's a lot of volatility. You see it across the board for, I would say at least 90% of the chemicals that we deal in. There's tremendous amount of volatility. Really difficult to give you a number on what that margin will be, but it will surely improve from where we were in the first two quarters. Okay, fine. Thank you very much for the subsequent call. Okay. Thanks. Thank you. Our next question is from the line of Prajal from ICICI. Please go ahead. Yeah, thanks for giving me an opportunity. I just wanted to ask all this, if we quantify the Q1, Q2 loss, then what is due to the delay in the price implementation and what is due to the, you know, other factors? Is this loss are one-off in nature or we will see some margin pressure in the next coming quarters? This is one time. We've been able to pass on the price increase for what we had in Q1, the raw material prices that went up in Q1. We were able to pass it on in Q2. Again, raw material prices have gone up in Q2, which we are passing on in Q3. We don't expect that as an impact that continues to be a problem. As far as what impacted Q2 was more a one-time incident than really something which is gonna be ongoing because with raw material availability and our plant running at 100% capacity, you know. Mm-hmm. It evens out all the supply chain issues that we had in this quarter. Okay. This will be the one-off impact only. Next, from next quarter onward we will be passing the full price increase also, and there will be no such kind of nor, you know, continuous incurring any kind of cost and all, right? Yes. Yes. That's the expectation. Yeah. Okay. Thanks a lot. Thank you. Our next question is from the line of Ravi Mehta of Deep Financial. Please go ahead. Yeah, hi. Thanks for the opportunity. When we just adjust the one-offs, also the Dahej impact, if we adjust that, then probably your top line could be similar on a quarter-on-quarter basis, but your margins could be hitting those 20% mark. Just a fair understanding. Is that the track on which we would be going ahead? I'm not asking for an explicit guidance, but is that the way coming quarters can be? Yes. That's true. The expectation is that we will utilize 100% of the capacity, and we will utilize all that hydroquinone that comes from Dahej for expanding our value-added product and volumes. The market demand is very strong. Question is how much can we produce and, you know, supply to the market. Sure. Also, this quarter is also, you know, halfway. How are the raw material prices? Because, we saw that, you know, the pass on is happening with a lag. Yeah. Are you seeing still pressure in this, you know, half of the quarter that has gone by and can there be, you know, further snowballing of passing on in the next quarter and similar pressure going ahead? What we've done is, yes, we saw that raw material prices were going up in the end of September and October. Some of the basic materials like caustic and dimethyl sulfate and, you know, methanol and everywhere you see there's been substantial increase in raw material cost. Phenol also has gone up slightly. In anticipation, we did do some correction at the beginning of this quarter. However, there will be some lag again, but you know. The idea was that we should get to a 50% gross margin. I'm hoping that we'll be in between where we are and 50% in this quarter, and then hopefully in the next quarter we, you know, try and reach that 50% mark. Sure. Sure. Good luck. Yeah. Thanks. Thanks. Thank you. Our next question is a follow-up from the line of Surya Patra from PhillipCapital. Please go ahead. Yeah. One question on the freight cost, sir. See, we have this quarter. For that, okay, we should be avoiding import of things from Italy because freight was one of the key cost component, concerning cost component. In the subsequent quarter, if things will resume, then what is the share of this freight cost in the overall RM cost, sir, whether it is influential one? RM and sales, you know, it's both. Freight costs, I mean, RM, we typically buy CIF, so of course, our suppliers increase. Some of the price increase is due to freight, but we don't get a breakdown as to how much is, as you know, really due to freight. But certainly freight costs have increased considerably in some geographies by four and 5 x. As far as our sales go, we are trying to move our business to as much as we can on FOB because it's very difficult to, you know, if you've got a booking today for supply in January. Mm-hmm. If it's CIF and if the prices go up, there's nothing you can do. We're trying you know, to move very quickly to an FOB kind of situation so that at least whatever the freight is borne by the customer. Okay. That is a system that has been implemented and it is accepted generally? Yeah, it is being accepted. Yeah. I mean, I would say most customers will move to that. Of course, some may not. Our expectation is at least 70%-80% of our business should move to FOB. Of course, we also have a lot of intercompany transfers and we move material around. I mean, that of course is a cost that we have to bear in that sense. Yeah. Ultimately in the final product which is then a blend which is sold, we need to pass that on to the ultimate consumer. Okay. Another question on the cost again, sir. See in fact, whether we are facing any of the challenge, cost challenge because of the kind of catechol that we would be producing larger than our requirement at this current juncture. Yes. That's true. We will have some stockpile up that we are planning purely because of our vanillin facility coming on stream in April. We will require catechol. What we are trying to do is you know balance out to have some security and some stock of catechol you know ready for our vanillin plant. That would be sufficient from our Dahej plant? From Italy, we have pre-sold all the catechol. Okay. See, compared to last quarter, the swing cost factors if we consider going ahead for let's say Q3 and Q4, this phenol is not a kind of driving or is not seeing any kind of variation I think or it should be. No, it has gone up slightly. Phenol has gone up slightly, in this quarter as compared to last. Okay. Yeah. Slightly. Not much, but I don't think it's. See, because in Europe, we are seeing that the prices are stabilizing and they're on their way down for phenol. I mean, my expectation is by maybe end of this quarter it should again ease off. Okay. Just as of now, whether the TBHQ, BHA, these are the products are still an important contributor to our margin, overall consolidated margin. Because the blend side, it has not deviated from the trend. It is just that, okay, TBHQ, BHA, that sub-category. TBHQ, BHA, MEHQ and PDMB. These are four hydroquinone-based products. Yes. Which are the real margin drivers. Okay. We should see a kind of meaningful kind of incremental business from MEHQ next quarter, sir. Is that so? The idea is that we will certainly scale up the MEHQ in this quarter, in the next quarter as hydroquinone. First priority we give is to TBHQ, BHA are- Of course. Yeah. You know, we've expanded some capacity there also so that you know, we can service the market effectively from there. The next is MEHQ. PDMB, of course, is a joint product along with MEHQ. Both those is next in queue. The focus is gonna be really to scale up all of these. Yeah. Okay. Just last question, sir. About this vanillin new project. Whether that is all on track to commission before March, sir? Yes. We are expecting it to be ready for commercial production in the Q1. Yeah. Okay. Sure, sir. Okay. Of course right now, of course the prices of vanillin have gone through the roof. I mean, if you look at stats, it's like $30. I mean, it's absolutely unheard of kind of prices. Mm. In that sense, it's a good, you know, point of entry for us, because a new supplier in this environment is more than welcome because, you know, prices then start easing off with a new supplier. That means the biggest margin swinging factor for next year if you consider then it seems the vanillin followed by the HQ utilization. Yes. That's right. Hopefully something can come from the China side of- Yeah. Given some positivism Yeah. in H2. Right. That's right. Okay, sir. Thank you though. Thank you. Our next question is from the line of Dhimant Shah from One-Up Financial. Please go ahead. Yeah, thank you for the opportunity. Two or three quick questions. Any raw material headwinds in the overseas facility in particular? Not really. I mean, phenol prices have remained pretty stable. Actually, they are on the way down in Europe, which is one of our main raw materials. The headwind in Europe has been the gas prices. Because gas prices went up considerably in the last two months. Now we are seeing that the Russian gas has started flowing into Europe now and the prices are easing off. Our expectation is that by January, February, it should, you know, kind of go back to the levels where they were. I mean, of course it'll never be the same, but you know, more at more reasonable levels. Secondly, most of our contracts predominantly do they have a pass-through mechanism, with a lag of a quarter or how does it work? No, we don't have any long-term contracts. Very limited small business is long-term contract business. The others are all quarterly contracts or maybe 6 months. If it's a quarterly contract, it typically means that the next quarter there's a lag of a quarter. Sorry, I couldn't quite catch that. So- Out of every INR 100 that you sell. Yeah. How much is, you know, three monthly? How much is six monthly and how much is I would say 90% is three monthly and 10% would be either six monthly or annual. Does it connote that 90% of the gross margin capture would happen in the next quarter? Yes. For all the products there, where, like I mentioned earlier in the call, for hydroquinone and hydroquinone-based products the pass-through happens with a lag of one quarter. With catechol, we can't pass-through the entire cost increase because of it being in an oversupply situation. There, of course, the pass-through is slightly lower. Yes, whatever happens does happen in the next quarter. Which chain of catechol is in oversupply? Is it the guaiacol or where? No, no, catechol. Catechol itself is in oversupply. Everything below that starts becoming, you know, in a not oversupply situation but, you know, your competitors also get a cheap source of catechol from our competitors. You know, for catechol. Because Solvay makes catechol, but Solvay doesn't increase the price, you know, we can pass on. If they increase it, we can pass on. It's really a game of, you know, market share versus price, you know, passing on prices. Lastly, which is the chain where you can have tremendous pricing power and which is the chain where you have zero pricing power? That's what. In hydroquinone and its derivatives, we have a pricing power where we can pass on the kind of increases. In catechol it is limited. Of course now with vanillin coming up in vanillin, that remains that we can pass on. In the catechol category right now we are bereft of vanillin. We are doing guaiacol and Veratrole, catechol and TBC, yeah. Three products. I see. Okay. Lastly, you alluded to, you know, you reaching a certain amount of turnover. With this kind of pass-through, can you be upping that target or would you still want to maintain that target or how does it work? Yes. I think this target is what I think is achievable. Of course, if the prices go up, you know, 5%, 7%, 10% in the next quarter, maybe, I mean, we'll beat the target. At this point of time, I'd say yes, this target is very achievable. Given a 4%-5% drop in gross margins, would you want to kind of revise that 1400-1500, based on same percentages, given the pass-through pending? No, I would say that since we lost about INR 30 crore-INR 40 crore, you know, here in this quarter, we make up that and of course, we will do more than make up that. I would yet say it will be in the range of INR 1,400 crore-INR 1,500 crore. Great. Sorry for you know, insisting on one more question. With you know, the logistics kind of slowly easing out, would you say you know, a fair bit would be coming back in terms of you know, overall cost and margins? You just alluded to that you know, this corresponding sale would have a certain kind of gross margin trajectory and the corresponding EBITDA margin. How would you want to you know, kind of, take it for the next year, given a slight ease in most of the, be it raw material and be it logistics, which have been the pain point? Logistics, I don't know whether in the next year there will be any. There's no sign of relief. In raw materials also, what we see is that at least in this quarter also we see many raw materials where prices have gone up. Very difficult to predict that. It's really beyond us to be able to give any guidance on that. No, no. Meaning at some stage you have to, you know, kind of at least have a proper pass-through mechanism, if nothing else. We have a pass-through mechanism for, like I mentioned earlier, for hydroquinone and its derivatives. For catechol we don't have. Sure. In catechol for vanillin we will have. That's, I mean, I can't answer any further than that now. Yeah. Right. Yeah. Great. Would you want to also comment on, lastly, the working capital cycle, how would you see that on a consolidated? We have been able, even with reduced cash flow in this quarter, to control the credit working capital cycle and the working capital itself. Looking at the logistics problems, I think the working capital cycle is going to remain in the range of around 100 days or till the logistics and every bottlenecks are relieved. We don't foresee much working capital cycle reduction by the end of this year. It is going to remain at 100 days. Yeah. Many thanks for answering all the questions. Thank you. Thank you. Our last question is from the line of Dhruv Shah from Ambika Fincap. Please go ahead. Yeah. Hi. Thank you for the opportunity. Firstly, I want to ask on the Mexico subsidiary, when are we due to close the deal? Next week. Okay, next week. Yeah. Monday. My next question is on Lockheed Martin. Have we made any progress? Because what I understand is, we were due to send at least samples by next year. Have we made any progress on that part? Yeah. Basically, it's an ongoing work in progress, project in progress. In fact, after the pandemic, it's the first time that, you know, we've got a whole team of their people down here, the technical team, for taking some, you know, production lots because they're changing some raw materials and some processes to reduce costs. It's progressing well and, you know, we have to supply them 600 tons of material in 2023, by December of 2023. We are on track for that, yeah. They have not given any indications, so we haven't received anything, any feedback. It's still a work in progress. Yeah, it's in work in progress. I mean, the first commercial order we've got for 600 tons, which we have to supply, which of course is two years out. You know, we have to produce that within the facilities that we have. By end of 2023, we will have to set up the next, what we call the pilot plant or the small plant, by December of 2023, for which the design engineering work is going on. Okay. Okay, great. All the best for future quarters. Thank you. Thank you. Thank you. We have one more question from Shivaji Mehta from an individual investor. Please go ahead. Hello, am I audible? Yes, you are. Thank you for this opportunity. I just had a question on the catechol bit, wherein you mentioned there is the supply issue. Just trying to understand, you know, by when can this situation ease out? Do we have any clarity on that? Sorry, I didn't follow your question. You had mentioned there's an oversupply in the catechol market. Yeah. The catechol industry. Yeah. Yeah. Right. I'm just trying to understand, is this situation gonna last for a long time or do you feel that at some point, this oversupply could ease out with the demand really, you know, catching up? Yes. There are many. It's a good question. Of course, value-added product vanillin is what, for us at least, the oversupply situation which we are facing will ease off considerably because we're setting up you know vanillin facility which will consume you know almost everything that we make in Behror. We of course have other downstream products where we consume also some substantial amount of catechol. Even from Italy, what we produce, we'll be able to consume all of it with value-added products. Yeah, it's in the next financial year this oversupply position will get corrected and you know the margins will improve from the catechol chain. Sure. Thanks. Also I think so on the CapEx bit, so the last CapEx will come up, as you said, in next year by April. Are we gonna embark on another phase of CapEx? Any sort of clarity you could give on that? Right now, we have some small projects in hand which we'll be taking up. There's nothing as of now, as we speak, there is nothing of a very material or substantial investment. Is it fair to say next year you would just probably try to stabilize the existing CapEx before we really embark on, you know, the next phase of growth? Yes, that's right. We, like I said, we do have some small projects, but those are not very, you know, they're not substantially large. Right. Lastly, on the Lockheed Martin, you had mentioned that, you know, there's a 600-ton that you need to supply by FY 2023. In value terms, what would that be? It's not FY 2023, it's in FY 2024, December 2023. In value terms, I mean, it's competitive. We can't, you know, I don't want to disclose that because I have a NDA with them. Sure. I can't really, you know, without their approval, I can't disclose pricing. Sure. Thanks a lot, sir, and wishing you all the best. Thank you very much. Thank you very much. As there are no further questions, I would like to thank the management team for the presentation and the Q&A. Ladies and gentlemen, on behalf of the management of Camlin Fine Sciences and ICICI Securities, that concludes this conference call. Thank you for joining us and you may now disconnect your lines. Thank you very much. Thank you. Thank you. Thank you.