Good day, ladies and gentlemen, and welcome to the Q1 FY23 earnings conference call of Camlin Fine Sciences Limited, hosted by Sunidhi Securities and Finance Limited. 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 star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Dandekar, Chairman and Managing Director. Thank you, and over to you, sir. Thank you. Ladies and gentlemen, welcome to the quarterly earnings conference call of our company. As we've always done, our CFO, Mr. Santosh Parab, will first give you a brief on the quarter's performance and details. After which we will be answering your questions with Mr. Nirmal Momaya, our Executive Director and Managing Director. Without further ado, over to you, Santosh. Thanks, Ashish. Once again, welcome, and thank you for joining us for the earnings call for our financial results for the quarter ended 30 June 2023. We appreciate your presence, especially at the cusp of a long weekend. Just as a reminder, today's discussion might include certain forward-looking statements which must be viewed in connection with the various risks involved in our businesses. As usual, for ease of understanding, let us have a look at consolidated financial results. Despite the challenges in global markets emanating from the inflationary trends were further aggravated by significant volatility in the currency across the world. CFS has been able to start the fiscal with an encouraging note, which can be seen from the results. This performance in the quarter is more than heartening, especially in the backdrop of shutdown for maintenance and upgradation of more than four weeks of our diacetyl plant at Dahej. The consolidated revenue remains quite stable at INR 384 crores as compared to Q4, where it was at INR 389 crores. The operating EBITDA for the quarter has improved to 13% and stood at INR 48 crores as against INR 6.24 crores in the last quarter. The exceptional increase in power costs in Europe due to Russia-Ukraine crisis, which started last quarter, remained at the similar levels. With favorable currency movement and increase in selling prices, it did help us to recoup some of these higher costs. Apart from the impact on diacetyl production due to shutdown and upgradation during this quarter, all other product lines have fired on all cylinders. Since foreign exchange gain in standalone operations was negated by exceptional losses in the subsidiaries, the other income on consolidated stood at around INR 1 crore. Consolidated profit before tax stood at around INR 15 crores as compared to last quarter of INR 20 crores. The tax provision was high, as the inter-segment setoff of tax losses are not allowed. In the last quarter, if you remember, we had informed you that the debottlenecking and upgradation of diacetyl plant was completed mid-May 2022, whereby the capacity was enhanced to 15,000 metric tons per annum from the existing 10,000 metric tons per annum. We expect to gradually ramp this up to have the production to an optimal capacity in the next two quarters. We are looking at this year for sustainable growth based on emphasis on integration and innovation. As you know, we are forward integrating our diphenol catechol line by manufacturing vanillin. As a part of that effort, we are confident of commercializing vanillin production at this newly constructed plant at Dahej very soon. With aroma products back and with enhanced capacity of diphenol, this augurs well to achieve a sustainable growth. Coming down to a brief on the businesses of the subsidiaries. CFS Europe recorded a turnover of INR 132 crores in the current quarter. CFS Europe, as you know, has incurred higher energy costs due to the increasing gas prices in Europe. It was able to recover some of these escalated energy costs by increasing the selling prices in this quarter. As I said earlier, there has been no respite on the increased energy costs. However, there was some relief as the prices are increased at much lower pace than in earlier quarter of these gas prices. CFS Mexico has again broke its record of highest turnover in this quarter by posting a total revenue of around INR 90 crores. It had clocked turnover of INR 77 crores in last quarter. CFS Mexico is expected to continue its stellar performance. CFS Brazil and CFS North America, with turnover of INR 27 crores and INR 17 crores respectively in the current quarter, are expected to keep improving their performance in the subsequent quarters. Our Chinese subsidiary, which used to manufacture vanillin, remains closed awaiting the order from Supreme People's Court. With the timelines yet cannot be determined, we are envisaging the receipt of order sometime this financial year. The Chinese plant will remain closed, and then. Coming to our France project, which is with Lockheed Martin. The discussions with them are still in progress of supplying a proprietary chemical for battery solar system. We are definitely looking at achieving commercial product supply to them in sometime 2024. We'll be sharing more information on it in the coming quarters. With this, I'll request to open the floor. Mr. Nirmal Momaya or Ashish Dandekar, CMD, and myself are there to answer the questions. Thank you. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Anyone who wishes to ask a question may press star and one now. The first question is from the line of Surya Narayan Patra from PhillipCapital. Please go ahead. Yeah. Congrats with a great set of numbers in the difficult times, sir. The first question is on the impact of plant shutdown. Since we have not been importing any hydroquinone from European operations, so during this one month kind of shutdown of the Dahej facility, whether the Tarapur also got impacted? Could you please quantify what business that we would have lost in the standalone operation for the quarter, sir? In the standalone, we did import some hydroquinone from Italy, which was consumed in this quarter. It's not that there was no import, but it was a very limited quantity. We do see that in terms of volumes for the downstream products on a standalone basis, there's an impact of course on the upstream of hydroquinone catechol, where the production was half of what it should have been on capacity. In the downstream products, I would say that they were impacted by about 20% or so in terms of volume. Though in value, because prices had gone up, it kind of got us, you know, a bit of a catch-up. Okay. Yeah, if you were to look at it overall, diphenol was at 50% and the other downstreams were about 20% lower than previous quarter. For the standalone business, that is how we should look at it. Yeah. Okay. Yes, yes. Okay. Sir, regards to the European operation. Could you share what is the EBIT for this quarter and versus last quarter, what is the kind of change, even YOY change? In this quarter, the EBITDA was INR 17 crore and last quarter was INR 7 crore. For Europe, sir? For Europe, yes. Sequentially, although there is INR 5 crore kind of incremental energy cost that we have witnessed, still there is a kind of increment of INR 10 crore. Yes. We could pass on the price increases on Hydroquinone in the European market. Okay. Is it fair to believe that the EBITDA swing also what we are witnessing for the consolidated operation, so it is reflecting that only? Means the saving in the SG&A cost. Around INR 10 crore kind of SG&A cost saving that we are witnessing, despite of a INR 5 crore kind of incremental rise in the energy cost. It is just to that reflects that. Is that correct, sir? Yeah, it is partly. I mean, it's one of the things that has improved the margin. It's not the only thing. What is the saving that is, that we are witnessing, sir? Sequentially, the SG&A cost for the quarter, if we see from the INR 125 crore to INR 115 crore it has become. While there is a increase in the, 5 crore of, energy cost. That means almost like 15 crore kind of saving at the, other expense end. Surya. Sorry, Santosh Parab. Just correct me if I'm wrong. The last year's cost, the incremental INR 4 crore is based on Q4 costs. Yes. One thing is that we have recovered some part of that INR 27 crore and some part of this INR 4 crore. Okay. I was comparing exactly the sequential basis. In the previous quarter, consolidated other expenditure was INR 124 crore. In this quarter, it is INR 115 crore. Kind of a INR 10 crore saving despite of INR 5.4 crore kind of incremental energy cost. Yeah. One saving is that. Apart from that, what has happened in India, the operations were lesser, right? That infrastructure operating cost includes power costs in India, other operating cost includes labor charges in India. The throughput in India was lesser. The output is lesser. As Nirmal Momaya said, we were lesser by 50% on the diphenol line and 20% on other products. The output in India was lesser. Comparatively, because of the lower volumes, our operating costs in India are less, lesser. That's why there is a reduction in operating costs on an overall basis, even though INR 4 crore of power costs increased outside Europe. I think this is a strong margin scenario that we are witnessing for this quarter, sir. Given that, as we are saying our vanilla plant is on track for commissioning in this quarter fully. From the base of this 13% kind of margin scenario in the first quarter, which generally is believed to be a lean quarter and that too impacted by the shutdown. Are you giving an indication of a very strong improvement in the margin profile with vanilla coming up in the Q2? Yes, I mean, the margin profile should improve as compared to the last quarter as compared to Q1. Also, you know, the rest of the year we don't know what the pricing situation and raw material prices as well as selling prices situation will be. Difficult to predict you know beyond Q2, Q3, Q4. Looking strong, but I mean, it's, there's so much volatility going on everywhere that you know very difficult to give a clear cut guidance. Okay. Sure. If you can talk something more on the vanilla plant. When are you thinking that it is commissioning and how staggered manner that your utilization be progressing? Pricing scenario, what's that mean, the way that you're trying to play out this opportunity? Yeah. We are expecting the commercial production to start by end of this quarter. Which means from Q3 we will start producing. Initially the production will be at about 40-50% of capacity, which will get ramped up after starting up in the next 3-4 months based on the market. The market scenario yet remains short. Vanilla short prices are yet over $20. In that sense, the pricing scenario seems to be holding. Okay. Even the cost, the elevated cost scenario, which is visible, possibly will be helping the prices to remain elevated only for vanilla. Is that right too? It seems to be, but of course it's demand, supply both also play a role. It's not only cost. Mm-hmm. I mean, what indications we are getting is that it should for in the short term be, you know, it will be short. Okay. Just last question on the blend side, sir. It seems that, okay, there is a kind of a strong recovery in that blend. I would say strong performance, best ever performance it seems like on the blend side. Whether what we have been anticipating ramp up in the blends and which could not happen during the COVID period in the last three quarters. Are you seeing a kind of a real ramp up now, starting from the Q4 itself, and this is a kind of a progressive trend that we should see from here on? In the Q4 2022 it was about INR 110 crores, and this Q1 it's about INR 125 crores. Mm-hmm. Yes, there has been an improvement in this quarter. I think the trend is showing that there'll be further improvement. Sure. Any specific thing that is driving this, sir? No, I think it's just that, you know, customers have opened up, various, you know, the interactions which were restricted during COVID. I think all of that has now, you know, kind of in the last, 3, 4 months, has eased up. I think it's just the interaction and, you know, approaches are now much easier. Sure. Okay. I have couple more question. I'll be there in the queue, sir. Yes. Thank you. Thank you. Anyone who wishes to ask a question may press star and one now. The next question is from the line of Amit Shah from ACE Securities. Please go ahead. Thank you for taking my question. Sir, I have couple of questions. Sir, firstly, I would like to understand a bit more on our businesses in, Brazil and Mexico. Which are the key products, which we manufacture in Brazil and Mexico, and how is this region performing for us? What kind of opportunities are we seeing in Latin America? Basically we, our focus really are Shelf Life Solutions. The products that we make there are essentially for, I would say 60% of the business is for extending shelf life of food, animal feed, Biodiesel, pet food, and some of the other nutritional products for the animal feed markets, some bactericides, some mold inhibitors. It's a whole basket of products that we have there. The market opportunity is significant. Performance in Mexico has been very strong. Brazil is picking up post-COVID. Now we are again back to you know, visiting customers and starting to make approaches in the market. Okay. Sir, how is the competition over there? Competition is very strong. Competition is very strong there. sir, a follow-up question, sir. How do we, you know, source our raw materials for Latin America facilities? Are we facing any challenges in sourcing them? Yeah, I mean, there are challenges. I think we've kind of mitigated the risk by making interventions to see to it that we don't get stocked out. In, I mean, I would say generally we are okay on the sourcing. Okay. Understood, sir. Thank you. Thank you. Anyone who wishes to ask a question may press star and one on their touchtone phone. The next question is from the line of Nirali Gopani from Unique Asset Management LLP. Please go ahead. Yeah. Thank you for the opportunity. Sir, we are seeing a significant improvement in our gross margin, which is the highest margin we have seen in the last five quarters. Is it likely because if you have passed on this, the fuel price hike through the pricing and hence we are seeing this hike and it is a short-term number that we are seeing? Yes, we've been able to pass on the cost increases. Of course, there's a lag between the time we can pass on the price increases. Generally, it's a quarter's lag. I think in the last quarter raw material prices were quite stable. Therefore, you know, we did the catch-up and the margins have come back to where they were. Okay. Because normally we guide for a gross margin of roughly about 47%-50%. Is this number sustainable or we go back to 50%? She's saying that gross margin is 53%. We'll go back to 50%. No. You know, doesn't seem to be. I mean, I think we should be able to sustain it at least for one quarter. The next quarter, again, will depend on what the raw material prices are like. Okay. Sir, our vanillin plant was supposed to commence in June, right? Is there any reason for this delay? No real reason for the delay. We were. The mechanical completion is done. Now we're doing a trial production and we should be, hopefully now coming to commercialization soon. Can you just mention that, currently the vanillin price is about roughly $20, and in Q4 you mentioned it was roughly about $30, and even after we come in, the prices were sustained at about $20. Any change in that view? No. No change in the view. It's the same. You see that even after we come into the market, the prices should sustain at about $20. $20. That's what our expectation is, at least for, in the initial phase. I guess the vanillin plant has been, you know, the shutdown is complete and everything is on board. Can we see a Q1, Q2 improvement in our top line? Because vanillin is also coming on stream from Q3. Mm-hmm. What kind of top line can we see this full year of FY 2023? The top line on a consolidated basis, you know, we are what we are projecting is around between INR 1,800-INR 2,000 crore. We continue to look at that kind of number. Can we achieve an EBITDA margin of roughly about 15% on a consolidated basis for the full year? I mean, difficult to say, you know, this margin based on this raw material prices, the way they are fluctuating and also sales price realization, we don't know. I mean, it should improve from where we are because of our capacity enhancement and vanillin plant coming in. It should improve from where we are. Okay. Mr. Santosh, just touch upon the tax rate. Can you elaborate a bit on that part? We have been telling the past also because in some subsidiaries we have losses. We cannot set off the inter-country losses. Couple of subsidiaries with subsidiaries because of the foreign exchange volatility had certain losses. Those kind of losses cannot be adjusted with the profits of the other country's tax profits. Like Europe, Mexico and to some extent India has done taxable profits, but subsidiaries like Brazil and U.S. and as well as Bangladesh, we have some maintenance costs are making losses. The losses there cannot be set off with the profits of the other countries. That's why this tax rate, tax rates are high. As the year goes, we are looking at a overall tax rate after adjusting all the losses in the range of 30%-31%. For FY 2023. For FY 2023. Okay. That's it from my side. Thanks a lot. Okay. Thank you. Before we take the next question, a reminder to all the participants to press star and one to ask a question. The next question is from the line of Aniket Inamdar, an individual investor. Please go ahead. Yeah. Good evening. My question is on the $20 price of vanillin you mentioned. Considering that we are using our own low-cost catechol, as said in the presentation, wouldn't the gross margins for what have been produced during this year is much higher than our current gross margins overall? It will be slightly higher, of course, because Catechol, when we sell Catechol, we sell it at a loss, and vanillin is at. There will be an improvement in the gross margin for that piece of the business. In a sense, for that much amount of Catechol that is consumed in vanillin. For sure. Okay. Basically considering we're starting from the second half, we will be looking at what? 2,000 tons this year? Yeah. I mean, yeah. That's right. In that region, yes. Okay. Thank you. Yeah. Thank you. A reminder to all the participants to press star and one to ask a question. The next question is from the line of Anurag Patil from Roha Asset Managers. Please go ahead. Thank you for the opportunity. Sir, in Europe, how are you seeing the demand environment currently? We sell from Europe. Into Europe, we sell Hydroquinone, which its demand is yet strong. From India, we do sell some products into Europe, which continue to remain on the same levels as they were last year. Okay. Going the next couple of quarters, do you see that sales from India to sustain, or there is a possibility that it can be impacted? The European market? Yeah. I think, you know, most of our business is in the food and food chain, which doesn't really get very badly impacted, or there are no big swings in that. In terms of volume, we don't expect it to be impacted in the next few months. Okay, okay. Sir, from a medium-term perspective, 2, 3 years down the line, which of our segments like Shelf Life, Performance Chemicals, which segment do you see growing at the fastest rate? Aroma would be the fastest rate right now in the first couple of years because it's a brand-new facility, and the capacity is 6,000 tons. Which will add, in terms of percentage, it'll add the highest number. Sir, for shelf life and performance chemical, what kind of a growth rate we can expect? Any ballpark idea would be fine. Shelf Life Solutions, our blend business is growing at about 30% a year. Our TBHQ, BHA business will grow at about 15%-20% a year. 25, 20, 25% a year. In Performance Chemicals, with the added capacity, I think in the next two years we should be able to grow by about 20% a year on a volume basis, yeah. I'm talking all, everything on volume basis. Okay, sir. That's it from my side. Thank you very much. Thank you. The next question is from the line of Harsh Chawla from Centrum Broking. Please go ahead. Yeah. Hi, sir. Thank you for the opportunity. My question was regarding vanillin prices. Vanillin prices have come off from $30 to $20. As I understand, currently there is a demand-supply gap, and supply is lesser than demand. If you could help us understand why, any reason for this price, significant decline in prices, even though we have not commissioned our plant yet. How do you see this pricing going ahead? The pricing is even today in excess of $25. What we are saying is once we come into the market, we expect the price to come down to about $20. Okay. Thank you. That's it then. Thank you. The next question is from the line of Rohit Sinha from Sunidhi Securities. Please go ahead. Yeah. Thank you for taking my question, sir. Just one question on this capacity expansion at the HQ facility. Post this commissioning and surplus capacity of hydroquinone, just wanted to know our further expansion or scope in this TBHQ, BHA and MEHQ segment and the near-term outlook in the MEHQ segment. TBHQ, BHA, we are, I think, you know, we've done some debottlenecking in those capacities, and we expect to push volumes on both those products in the next few quarters. As far as MEHQ is concerned, we are in the process of finalizing our plan on, you know, what kind of volumes of Hydroquinone do we want to divert to MEHQ. That plan is yet being built. Okay. I mean, what kind of overall market that is there for us in this MEHQ? MEHQ overall market size is about 5,000 metric tons. Between 5,000 and 5,500. Yeah, we have an opportunity to play in that market. We've not yet decided as to how much of the hydroquinone will be used for MEHQ. Based on what we do for TBHQ, BHA, we will take a decision on how much will go into the MEHQ. The pricing difference between TBHQ and MEHQ would be significant or just Yeah. Significant. The TBHQ is much higher than MEHQ. Okay. That's it from my side. Thank you. Thank you. Anyone who wishes to ask a question may press star and one now. The next question is from the line of Pankaj from Affluent Assets. Please go ahead. Hello, am I audible? Please proceed with your question. Well, sir, just wanted to understand how you mentioned that the vanillin prices are currently trading at $25, and after commissioning of our plant, you expect it to come down to $20. Would our supply be so high that it will disrupt the whole demand supply mismatch? No, I mean, this is just, I mean, an estimation. We don't know what the opportunity set. It may remain at 25, it may be at 20, but I'm just saying that when our capacity is almost 20% of the global capacity, so once that comes in, it will have some impact. The $25 is because of where the demand-supply mismatch is at present. How much that would be covered by our supply? As I said, 20% of the capacity is what we will be producing. There are no numbers available in the market to give you exactly what it is. Are any other competitors of ours also coming up with some new capacity in this near future? Not that I know of. In vanillin? Yeah. In vanillin? Hello? In vanillin, yeah. No, no. In vanillin, nothing in the pipeline. Not that we've heard of anything. Well, a second thing, you mentioned about our top line to be around INR 1,400-INR 1,500 for this year. Eighteen hundred to two thousand. 1,800-2,000. Oh, my mistake. How would be the margin scenario? Sorry? How do we expect the margin scenario? I already answered that question. Okay. Well, I think I would have joined late, missed it. Yes, it's difficult to give an estimate of the margin because of the volatility in raw material prices, economic situations across the world, so it's difficult to give a margin projection. At least would it be better than what it was last year? It should be, yes. Okay. Sure, sir. Thank you. Thank you. Thank you. You may press star and one to ask a question. The next question is from the line of Surya Narayan Patra from PhillipCapital. Please go ahead. Sir, if you can just give some sense, say, since we have passed on the elevated cost in the prices of, let's say, Hydroquinone in Europe, and we have seen the energy cost has really gone up 5x kind of much more significantly when compared to the previous quarter, current pricing would be how different from the price that we would be realizing here in India for Hydroquinone? Yeah. Pricing basically across the world are generally more or less the same. Okay. It is not the different revision for Europe and. No. I mean, there would be little bit of a difference. I would say about 10% or so. Okay, if that is the case, then even the downstream also accordingly proportionately would have gone up for TBHQ, BHA, let's say. Yeah, of course. Yeah. Okay. Second question is on, let's say any progress on that Heliotropin kind of a project, sir? Yeah. We made those applications in China. Mm-hmm. We are waiting for the progress to happen there. Okay. Means there is no investment as such as would have started as yet, right? No, no. No. Okay. Given that, I think we are kind of closing our heavy CapEx phase with the vanillin plant. Hereon, is there any kind of a project in mind or what is the kind of CapEx plans that we should be thinking about? Either it could be relating to Algal or whichever. If you can give some sense on the CapEx. We've not yet actually finalized anything. Right now we are yet saying that the maintenance CapEx of between INR 60-80 crores is what, you know, is only charged. Okay. For this year and the similar. Approximately. Similar, that is a kind of a number for the current year and, if not anything on the Lockheed Martin front, I think, similar kind of trend that one should think even for next year. Yes, that's right. Okay. In fact, because of the elevated prices, did you face any kind of rise in the working capital funding requirement sequentially? Whether any change in the debt levels because of this pricing scenario and hence more working capital conditions. Anything on that pricing? No. We had shared that last meeting also. Since we are looking sequential increase mainly because of the Aroma business. Mm-hmm. In the range of around INR 150-200 crores. Looking at the costing and the shorter operating cycle manufacturing margin in India, we are looking at a range of around INR 30-40 crores, which will be required by the end of this year on the working capital. When we achieve that 200 crores of turnover or achieve optimum capacity. Okay. We will try to use our internal accruals for that. Push comes to shove there will be a INR 30-40 crores of working capital increase that year. Mm-hmm. On an average basis, we have also been repaying loans of around INR 30-35 crores. As you know, CCD of INR 100 crores is a convertible instrument. If they convert, I can reduce my loan portfolio INR 100 crores over it. Okay. One just last clarification for this minority interest gain. What is that, and, you know, how to think about it? Yeah, good question. As you know, if you see the group profile now, there are only two companies which have a minority interest. One is Mexico, but that minority interest is minuscule, around 1%. One and a half percent. As per the contract, we don't have to share any profits from that minority interest. The other bigger minority interest is the 49% what we have in China. Yes. In China, we have no revenue, but we have to maintain the plant. Mm-hmm. There are some legal costs which are incurred because as we know there's a. Mm-hmm Case going on, and we are also forced co-defendant in that case. These costs for maintaining minimal employees, maintaining the plant and some legal costs, something's cost. The share of that naturally we share 50 and 50 and 49. The gain in owner's profit from the PAT is mainly on account of minority interest loss, which has been shared by the three partners. Okay. That means till the time we are seeing any progress on the Heliotropin front, at least that is a kind of a cushion to our overall numbers. I don't know if it's a cushion or not. Yes, my operating profit, my owner's profit will be more than last year. Yeah. Yeah. Yes. Yeah. Sure, sir. Thank you. Thank you. Anyone who wishes to ask a question may press star and one on their touchtone phone now. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments. Ladies and gentlemen, thank you very much for participating in this con call. We look forward to interacting with you again for the next one. Until then, have a good day. Thank you. Thank you. On behalf of Sunidhi Securities and Finance Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.