Ladies and gentlemen, good day, and welcome to Chemplast Sanmar Limited Q4 and FY23 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on 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. 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. Ramkumar Shankar, Managing Director. Thank you, and over to you, sir. Thank you very much. Good morning, everybody. On behalf of Chemplast Sanmar Limited, I extend a very warm welcome to everyone joining us on our call today. On this call, we are joined by our CFO, N. Muralidharan, Dr. Krishnakumar Rangachari, Deputy Managing Director, Custom Manufactured Chemicals Division, and SGA, our Investor Relations Advisor. I hope everyone has had an opportunity to go through the financial results and investor presentation, which has been uploaded to the stock exchange website and on our company's website. During the year, the demand growth for both PVC and suspension PVC has been very strong. The total demand for paste PVC in India grew by around 17% to 163,000 metric tons, and demand for suspension PVC grew by over 30% to 3.7 million metric tons, exceeding the pre-pandemic levels. However, pricing has been sluggish during 2022, 2023. For most part of the year, mainly due to the zero-COVID policies in China, there was excessive dumping of PVC from China into the global market, especially into India, which caused significant pricing pressures until November 2022. This corrected by end of November, with the reversal of the zero-COVID policy in China and the expectation that economic activity in that country would go back to normal levels. This, however, did not happen. The trend reversed again from March onwards, with prices correcting sharply due to a surge in imports from China once again. In the January-March quarter alone, the total import of suspension PVC from China was around 332,000 metric tons, which is more than what was imported in the whole of 2021-2022. This has had a severe impact on PVC prices and margins in March, April, and May. However, the pace of imports has slowed down in April and is expected to further slow down in May. This is backdrop. The quarter gone by has turned out to be marginally better than the previous quarter, largely driven by the suspension PVC price improvements up to February. However, on a year-on-year basis, this has been a subdued quarter for the reasons mentioned earlier. In Q4 FY 2023, we delivered revenues of INR 1,147 crores with a 9.6% EBITDA margin. Turning to our performance and trends across product categories and segments, this quarter, our specialty chemical segment witnessed a decline of 6% in the top line on a quarter-on-quarter basis. This is owing to a decline in volumes. However, for the whole year, the volumes were up by around 6%. In case of suspension PVC, despite a marginal drop in volumes on a quarter-on-quarter basis, the top line increased by around 20% during the quarter, mainly due to the increase in prices until February. The volumes of suspension PVC were up 9% in FY 2023, as compared to FY 2022 on a full year basis, thanks to the successful completion of the debottlenecking exercise earlier this year. The other chemicals, caustic soda, chloromethanes, hydrogen peroxide, and the refrigerant gases business, registered a 29% drop in revenues on a quarter-on-quarter basis, mainly due to a drop in volumes and prices of most products. This segment was largely affected due to commissioning of new capacities in India. However, this business witnessed a 16% increase in revenues during the year as compared to FY 2022. We expect the business to stabilize over the next few quarters as the new capacities kick in. Our custom manufactured business, the chemicals business, has been a silver lining amid the sluggishness witnessed by the other businesses. Growth in this business continues to be strong, with a year-on-year revenue growth of 26% in FY 2023. As you may be aware, last week we announced that we have signed an LOI for an intermediate with a global agrochemical innovator company. This LOI covers a period of five years, including the current year. We anticipate commercial supplies to start from the Q4 of FY 2023 to 2024. This new product will be manufactured at the new multi-purpose production block. In November 2022, we had signed another LOI for supply of an advanced intermediate for a new active ingredient. The combined revenue potential of these two LOIs over the period of the contract is around INR 800 crore. Based on these LOIs and a strong pipeline of products, we have a very high level of visibility with respect to steady-state capacity utilization for the first phase of expansion that is to be commissioned by the end of the first half of the current year. Both the CapEx projects, the 41,000 tons per annum Paste PVC expansion at Cuddalore and the multipurpose blocks at Berigai for the custom manufactured chemicals business are on track. The first phase of the custom manufactured chemicals project is expected to be commissioned by H1 FY 2024. The next phase is targeted to complete by March 2024. Post the commissioning of both the phases on a steady state, we are targeting to reach a top line of around INR 1,000 crore in this business in the next three to four years. The PVC project is also on track to be commissioned in the Q3 of this year. In the short run, while Q4 has been better than Q3, we expect Q1 of FY 2024 to be challenging, given the drop in prices across the chlorovinyl products, especially PVC. However, this is likely to be a short-term phenomenon, and we expect this to change with the expected improvement of economic conditions in China and the stemming of low-priced imports from that country. The demand for our products is very strong, and energy costs have started dropping. While there are immediate term challenges, we are optimistic about the business in the long term, and our capital investments will boost our margins and competitive position even further. Now I would request our CFO, Muralidharan, to share the financial highlights for the quarter and the year. Murali? Thank you, Ram, and a very good morning to all the participants on the call. Talking about the quarterly performance, the revenue from operations declined on a year-on-year basis and stood at INR 1,047 crores. The decline was largely on account of a combination of lower realizations per ton and drop in volumes for most of our products. The volumes in January-March quarter of previous year were higher, primarily because we were carrying higher inventory in June of 2021. However, for the year as a whole, volumes were higher than the previous year, but almost all of our products, especially PVC, PVC caustic soda and hydrogen peroxide. On the expenses side, other expenses reduced to INR 263 crore against INR 300 crore in Q3. This reduction is primarily due to the lower power and fuel cost, which reduced by INR 26 crore. EBITDA for the quarter stood at INR 97 crore, which is 75% higher than the previous quarter. Our finance cost for the quarter stood at INR 38 crores. The PAT was INR 46 crore with a margin of 4%, this was 70% higher than the previous quarter number. Coming to previous numbers, despite the challenging environment this year caused by the run-up in energy prices due to Russia-Ukraine war, the severe impact on Chinese demand due to the zero-COVID policy was most part of the year, and the rising interest rate across the globe, we are close to year but performance with a top line of INR 1,941 crores and 9.5% EBITDA margin. The revenue from operations declined by 13% as compared to the last year. However, sales volumes of almost all the products were higher on a year-on-year basis. On the expenses side, other expenses increased from INR 860 crores in FY 2022 to INR 1,113 crores in FY 2023. This decrease is primarily due to the increase in power and fuel costs by INR 193 crores. EBITDA stood at INR 468 crore with a margin of 9.5%. Falling prices of finished goods, coupled with increase in energy costs, have resulted in reduction of EBITDA margins during the year. Finance costs dropped from INR 334 crore in FY 2022 to INR 154 crore, primarily due to the repayment of facilities in Chemplast using the IPO proceeds, and the reduction in interest rate of subsidiary post the IPO. Net profit stood at INR 152 crore with a margin of 3%. On a consolidated basis, the balance sheet continues to remain healthy, and the company continues to be net cash positive. With this, I conclude the presentation and open the floor for further discussions. Sir, shall we open the floor for the Q&A session? Yes, please. Thank you very much, sir. We will now begin the question and answer session. [Operator's Instructions]. We have the first question from the line of Sanjesh Jain from ICICI Securities. Please go ahead. Yeah, good morning, sir. Thanks for taking my questions. I've got a few. First one is, custom manufacturing business. We have called out that this will be an INR 8 billion opportunity over the next four years. What is the similar number you can get for the third molecule which we have announced for the, generic AI? Will it be, of an equal size? That's number one. Number two, how should we see this? I know you have mentioned that we will reach INR 1,000 crores of revenue, in next three to four years. That. What does that mean? How many more products, do we require, and, do you think this capacity will suffice, or, you think it's just a visibility based on the LOIs we have signed, and they can apply this to this number? These are my two questions. This is Krishna. The first question, there are only two announcements we have made. There was one in November, LOI for an advanced intermediate for a new molecule. In February, we said that we were selected as a supplier for a second molecule, and related to that, we announced last week that we have signed an LOI. So, the INR 800 crore opportunity LOIs are linked to only two products. Okay. No, that's clear. Sorry? No, I got it. I thought it's a, it's a new one. You're telling it's a follow-up to the second one, right? Exactly. Because last quarter, we announced that we were selected, and the logical next step was to work with the customer on getting an agreement in place or a letter of intent. I got it. And on the second question, so these two LOIs for the first phase, you know, we have visibility for the capacity that we're putting in place based on steady state, you know, maybe three to four years, that capacity will be utilized for these projects. And as we announced, based on... In the last quarter, we announced that we are triggering the phase two, and that will be commissioned, you know, later part of this year. And the product demand is strong enough that, you know, down the road, you know, we will keep you updated on how the additional capacity is getting built up. Fair enough. And just to understand this INR 800 crore project, will it be equalized over four years, or do you think initially they will be slower and it will be more back-ended supply? Yeah, it will be slower because, you know, I've explained the model in terms of how this works. In the past, the first commercial trials, you know, will be in the new production block when we commission it towards end of first half of this year. And so there will be a ramp-up over the next two to three years before they get to the steady state volumes. In that sense, what should be the revenue growth expectation in the custom manufacturing business for FY 2024? Sorry, 2024. So the revenue, there will be a revenue growth, but you have to understand that the new block... So, because the revenue growth, majority of it will come from our existing operations. The new block is getting commissioned, you know, the later part of first half, or the end of the first half of this year. And again, these new products, the volumes in the first year will be, you know, there will be a trial volumes, so there won't be large volumes. So in spite of that, we anticipate, you know, maybe a 10%-15% growth in revenue in 2024, but that number will be a lot higher in the following year, you know, once the new production block is completely operational and we have a ramp-up of the volume of the products that are bringing in. Got it. Second, on the standalone business, this quarter, the gross profit looks on the lower side, considering that there was a significant improvement in the suspension PVC. I think the paste PVC would have followed the same. There is a INR 70 crore sequential drop in the revenue of the, specialty. And our gross profit declined sequentially by INR 73 crores, which means that there has been sequentially no improvement in the paste PVC. Were we sitting on a large inventory on an EDC, which has, sort of pushed the recovery in the paste PVC? Not really. It's not a question of inventory. It did play a small role, but it was more of a question of, you know, the prices started reversing, like I, like I mentioned in the opening remarks, around March. So we had whatever price increases that we rolled out in January, we had to more than give it away in March as the reversal happened. So that really hit us badly in terms of both prices and margins towards the end of the quarter. And meanwhile, the EDC prices, the feedstock EDC prices, which increased following the increase in January, took some time to reverse. So normally, in a falling market, there is a lag between feedstock and the finished product. In a falling market, it hurts us. In a rising market, it usually helps us. Unfortunately, we have in this year, 2022-2023, we have seen more of a fall than a rise, so we've only seen the bad impact and not really the good impact. Was there more impact on our Paste PVC than the Suspension PVC? Impact for the entire year on paste PVC- No, I'm just talking for this quarter, say, from January to March. Yeah. You still see the suspension PVC spread from last month going from INR 10-INR 18, while in the paste PVC, it looks like it is more or less flattish. No, you're right. The suspension PVC margins actually did improve in Q4 as compared to Q3. Paste PVC was impacted by higher EDC prices, like I mentioned. G ot it. Just last two quick important. One on the commodity volume, it has fallen very sharply sequentially. Any unusual there? And the number two is on power cost. Is it, is it going to benefit us in the next quarter, in a full quarter process because coal prices continues to fall and natural gas prices are also falling? On the volumes, the sequential fall in volumes, actually, last quarter came after monsoon season in September. So we were carrying a slightly higher stock last quarter, which got liquidated. So otherwise, whatever we produced, we carried at the end of the year, we carried very, very little stock of suspension. So primarily because of the stock movement. And- No, I'm talking from the other chemicals, caustic, chloromethanes, and Hydrogen Peroxide, which has sharply fallen sequentially. You can also see that that could be because of some timing issue on dispatches, because we do bulk dispatches by train, especially when it comes to caustic soda. So that, you know, depending upon when the rate left, that could be issues on, you know, on the timing. But it's not very significant difference. It's not that the volumes are significantly impacted because of stock issues. Got it. And on the power cost? Power cost has been, you know, as you know, the whole of the year we've had issues on the power cost. As far as the last quarter is concerned, actually, the power cost improved, situation improved. It was like I mentioned in my speech as well. It was positive to the extent of INR 26 crore. Overall impact of power in the last quarter was around INR 26 crore positive. And the trend this year, this year as well, it places have been positive. Got it. Got it. Thank you. Thank you for answering all my questions, Mr. Shankar. Thank you. The next question is from the line of Jainam Ghelani from Svan Investments. Please go ahead. Hi, sir. Thanks for the opportunity. So as we are planning our CapEx to operationalize in H2 FY 2024, both, both the phase 3 VCM and second phase of custom manufacturing. So when do we expect these capacities to ramp up? Like, what will be the utilizations in FY 2025 and FY 2026? I'll ask for Paste PVC, and then I'll request Krishna to address the question on CMC. Paste PVC will be commissioning around November, and we expect that the 1,000 tons per annum, we expect that the sales quarter should be anywhere between eight this year, should be anywhere between 8,000-10,000 tons. This will be in the last quarter of the year. The full impact should be seen, you know, we should get close to that 40,000 tons in the next year, because usually these sort of products the market is there. You know, we have a very well-established customer base, being the leader in this market, and we don't see too much of an issue in ramp-up. Okay. So on the custom manufactured chemicals, so the Phase 1 capacity, you know, I would see a two to three year period before we completely utilize the capacity for the 2 products that we have announced. Now, it's possible that during the initial years, when we have gaps, you know, we would be putting it in those other products, but that, you know, we will work through that, you know, as we have get more clarity, in the coming months. Okay. How much time does it take to get an approval for custom manufacturing sometime? So the timeline is typically anywhere between 12 to 18 months, if you have, you know, a ready-made asset available to make a product. So, and I think we are in a position where for many of the products that is in the pipeline, production block that we are putting in place, would be able to accommodate these chemistries. So I... You can take up to 18 as a typical timeline from an inquiry to commercialization. Okay. So as of now, you said we've already got clients for the phase I. That should be like, for us to fully utilize the capacity, and we would be looking for newer clients for phase II. Absolutely. Right. And again, what I was trying to say is, we always worry about steady state capacity, because the nature of this business is there will be a ramp-up in volume, you know, on a year-on-year basis, because you have initial trial campaign, and then the customer would go to a, you know, larger campaign, and as they get more comfortable, then they would ramp up, you know, and increasing the volume up to up to their, let's say, maximum maximum requirement. So, you know, that's the that's the model in this business. Just to add to what Krishna said, it's not that we've been looking for new customers for the phase two. Like he was explaining earlier, we have a pipeline of products already, and they have to pass through various stages, like the initial lab stage, trial, pilot stage, all of that. So as they pass through and then get commercialized, the phase two will get bigger. So we have reasonable visibility in terms of pipeline, but they have to get actualized as and when the facilities get commissioned. Okay, sir. And, so would it be possible to share the FY 23 custom manufacturing revenue by any chance? S o we had indicated that it will grow around 30%, and the growth was around the same 30%. We ended up around INR 335 crore. Okay. That is all my side. Thank you, sir, and all the best. Thank you. Thank you. Thank you. [Operator's Instructions]. We have the next question from the line of Ankur Periwal from Axis Capital. Please go ahead. Yeah, hi, sir. Thanks for the opportunity. Just continuing on the CSM side, so the new products, you know, which we have launched, and which will get commercialized, of course, the new capacity will get commercialized, let's say, in the coming quarters. How are margins in these products? And, you know, from an RM inflation or a power cost inflation point of view, is there a pass-through arrangement in these as well? Yeah. So, all these, these products, there is a price formula and, you know, the formula links to, variable costs. You know, any escalation in, you know, in costs, would be, you know, added to the formula, added to the price, which is, you know, that will be on a campaign to campaign basis. Discussions and negotiations, would get done, done with the customer. I believe you want to answer on the margin. Margins, actually, generally, the product margins in this business is roughly around 40%. I'm not getting into the margin, I'm saying gross margin levels. It varies. Initially, it could be slightly lower, and it could improve as we stabilize the product. Sure. Actually, it will be given in sync with what you're making currently, or it will be zero? Initial period, it could be slightly lower, and then as we move, as we move forward to stabilize and ramp up, it will go to those levels. Sure. Secondly, on the current existing portfolio, my presumption is that these new LOIs that we have signed, revenue of around INR 800 crore, is a top-up to the existing business, not an upgrade of the existing to, to another, right? It is a top-up. Yeah. And how has been the volumetric growth, let's say, in the last Q, FY 2023, and what could be the incremental growth one can expect from the current business, which is FY 2023 revenue? So, I think last this year, we would have ended closer to 1,000 metric tons of production and, you know, very similar number on sales. And, you know, as the new production block... And, so as I've mentioned in the past, you know, we have sort of maxed out from a capacity standpoint into the existing assets. And as the new production block comes in, you know, so let's say in phase one, probably, you know, maybe another 1,000-1,400 metric ton would be, you know, would be the capacity from the phase one, based on these two. Again, the capacity is very much linked to your product, the nature of the product. The numbers I'm giving for the new production block is linked to these two specific molecules. Any other additional molecule or product makes the capacity completely different. Just to add to what Krishna was mentioning, actually, like you're saying here, what matters is the total revenue that we generate from the capacity. And, it could vary depending on the number of strips involved in a particular product. The actual metrics could vary from year to year. So what is more important is how is the, return, how much are we able to generate? And just for, clear information to a specific question on what is the, metrics and output last year was INR 1.4k crore, for fourth term, and this year it is 1,368 tons. Sure, Muduli. So, so which is where I was getting to, that, you know, 10%-8% of revenue growth we are getting for FY 2024, is coming from the, the new capacity which will get commissioned. The existing one is more or less maxed out. Correct. Yes. Yeah. Sure. Okay. So on the, you know, the Paste PVC as well as the SPVC side, the volumes have declined on a Q-o-Q basis, you know, pretty sharply there. And if I recollect, you have mentioned earlier, Q3, we were entering with a slightly heavy, you know, inventory. So two questions there. One, are we still carrying slightly elevated inventory currently? And any specific reasons for the Q1 decline here in-house output? There is actually not much of an inventory that we're carrying at the end of March. In suspension PVC, we are carrying something like 3.5 days of production, and Paste PVC, we were carrying around the 5 days of production or so. So it is not like we are carrying heavy inventory on the PVC front. I think quarter-to-quarter is largely also a question of timing, the season, seasonality and, for instance, Paste PVC, you know, usually October to December is different, but, you know, that would be slight changes between quarters. If you look at it on an annual basis, you would see that our volumes have actually grown significantly in both the products on an annual basis. In FY 2022, paste PVC, our sale was 64,838 tons, and in FY 2023, it is actually 68,630 tons. Suspension PVC from just 299, a little under 300,000 tons, we've actually sold 325,000 tons in FY 2023. So there has been a significant improvement in both on a year-on-year basis. Sure. And just lastly, you know, one quick thing. If you look at other overheads on a consolidated basis, there is a Q on Q decline there. Is it largely because of the lower, you know, power and fuel costs and/or, or, you know, some other element here? No, for the quarter, the drop in other expenses is primarily due to power and fuel costs. They dropped by 26 points. Sure. And, the benefit of that should be approved, you know, going ahead in the coming quarters in terms of margins? No. Whatever is the other expenses benefit would have gone through this quarter as well. I also mentioned that we are seeing a further declining trend in the current quarter. Yeah, I was referring to further decline only. You know, ultimately, the recovery is also largely dependent on prices and the recovery in prices. And there, I think China is going to play a very significant role because you know, we do see a very large flood of imports coming in from China on both suspension and paste in the quarter, January to March. And that is what has really driven the drop in prices and therefore the impact on margins. However, we are seeing some encouraging first signs. April arrivals have been lower and hopefully, we are expecting that May arrivals would also be low. But we need to wait for a couple of more months before we can see a trend in that. Obviously, you know, we've also—we are also, as an industry, looking at taking whatever, you know, or making whatever requests that we need to do to the regulators to understand how this flood of low-quality, low-price imports can be stemmed. Sure, Ram. The divergence between EPC prices and PVC prices, the China dumping could be the only reason for that? It is more, it is more, temporary, because this kind of a divergence will not last for too long. It's just a question of a time lag. But, you know, in all these cases, normally, when stability in prices is reached, whatever be the level, once stability is reached, margins will restore with a lag of maybe 4-6 weeks. I've said this before. The problem right now in the last, maybe 12 months or 14 months, is in that, there has not been that stability that we reached. There has been a constant decline, largely driven by this, flood of imports from China. So the minute that comes to an end, and generally in industry, we believe that we are, we are at that point, because it comes to a stage where even within China, it will not be economic, especially for the merchant carbide, you know, the users of PVC buy carbide and make PVC for them; it won't make sense at these levels. So I think that we are going to see some stability coming in very fast. So we are hopeful that this should, you know, get better, but the Q1 of this year is likely to be impacted because of what has happened till about May. Sure. Sure, Ram. That's helpful. Thank you, and all the best. Thank you. Before we take the next question, a reminder to all the participants: [Operator's Instructions]. The next question is from the line of Dhruv Muchhal from HDFC Mutual Fund. Please go ahead. Yeah, thank you so much. In the opening remarks, you mentioned that there were imports of about 332,000 tons. This was for SPVC from China, just for the month of January to March, is it? That's right. So, just to give you some color on that, the imports from China for Suspension PVC during that quarter, January to March quarter, was 333,000 tons. The whole year in 2021-22, the import was only 250,000 tons, and before that, in 2021, it was 73,000 tons. So that is giving you an, you know, some idea about the, increase, the sheer, impact of the volumes that are flowing in from China in 2022-23 and, especially towards, the last quarter of the year. April, the import from China had dropped from, 152,000 tons in March to 63,000 tons in April. So that is what gives us hope that there is a reversal of the trend, but we need to wait and see for another month or so before we can establish the trend. O ver INR 63,000 is still higher than almost similar to 21 less. Yeah, I get the point. So the other thing is, you know, there were earlier some talks that so what the Chinese actually the large carbide-based quantities, where the, where the quality of PVC is not up to the mark, and, there were some qualification or quality requirements that, you know, there were talks about that the government is trying to improve them. So any progress on that, and, which could be, affect the industry? Yes. In fact, last year, the industry, domestic industry, had a representation to the government saying that, there's a flood of low quality, PVC that is coming in, and, and obviously at very low prices. You know, there could be some safeguard measures. We had requested for some safeguard measures. We are awaiting a decision on that. It's expected any time now. A decision on that, we do not know what the decision would be, but-... We are awaiting a decision. We believe that, there has to be, some action taken to, put an end to, low quality, material coming in from China, especially. Got it. Sir, is there any way to understand what of the total volume of imports, what would be the carbide-based products coming in, and what are the normal EDC or other kinds of products that are coming into India? So that can ask you. In 2022-2023, there was 2.2 million tons of PVC imports into India, of which 775,000 tons, roughly a third, came in from China. And you can basically get almost 20% of what is coming in from China is carbide PVC. Which is of relatively lower quality. Yeah. So roughly around 27% of the total imports coming into India are carbide PVC from China. Okay. Sure, sir. The second thing was, now, probably, probably a bit early in the cycle, but, we will be completing the phase, the, the expansion Paste PVC probably end of the year, and the SPVC expansion is almost complete. So what's the next leg of growth in the, in the existing business? I see you're growing in the custom manufacturing, but, any thoughts on this leg of growth in this business? Probably the cycle is not probably very favorable, but, you understand these are things that can change, so. Yeah. Suspension PVC, we completed the debottlenecking, that we did in March, May last year, and that is the reason why the sales volumes have also gone up in 2022-2023. As far as SPVC is concerned, we have an environmental permit to expand about 70,000 tons. We have, as a first phase, gone in for a 41,000-ton expansion program, which will be completed around November this year. And we can go up by another 30,000 tons or so. This is a product where we are the leaders by far. You know, after the commissioning of this expansion, we would have around 110,000 tons of capacity. And the second, there is only one other player who will be 1/4 of the size in terms of capacity, but in terms of actual production, will possibly be 50% of our size. So we would be a very, very large player here. And, given that the market is growing by last year, it grew by around 16%-17%. So given that, we are, we definitely would be looking at, actualizing that environmental, permit that we already have. That would maybe the decision on that would be taken maybe sometime next year. Because with this expansion, particularly in Paste PVC, I think your in your presentation is, I think, 163,000 tons. And we, after this expansion of this 30, probably will be, it's probably 193,000 tons. And you are, let's say, controlling all of the market. So is that a fair understanding? And will it, will it have any implication in terms of the costs that you see or, b ecause I think the product goes across India, some part, some of the imports will always remain because the logistics issues and all those things. So I just wanted to understand. Last year's market is 163, and this year, by the time we commission it, we expect it to be maybe closer to 180 or so. And then next year, which will be the first full year of our capacity, we should be closer to 200,000 tons. Once we commission this expansion, we would be at around 110,000 tons. So that's where we are. And the other producer, like I said, while the capacity is around 22,000 tons, the usual production is anywhere between 10,000-15,000 tons. So there is still a significant gap for imports to come in, and that there would still be a sizable room for our second quarter expansion when we decide on it. Got it. Sure, sir. Sure. So one quick thing on the CSM side. So I just wanted to understand, what is the difference between an LOI? So these are terms which are used. What is the difference between LOI, a contract with the customer, an LOI with a customer or an initial interest with the customer? How, what's the actual difference? Is it a contract with the customer when you say an LOI with the customer? So the letter of intent is actually a non-binding indication from the customer on the volume and the value of the business, and actually, it forms the basis of drafting a supply agreement. So the next step after the LOI would be a formal supply agreement, you know, where the volumes and the price and everything and the commercial framework of the relationship gets even more structured. Okay. So we should, we should understand most of these, all these LOIs will eventually get converted to contracts, and then you will, once you contract, you will start supplying them. Exactly. Yeah, that is absolutely right. But on the LOI, we have, we've already agreed on the commercial framework, so we are just going to draft the, you know, the supply agreement, so it will be formalized by this. Okay. Just one last thing, sorry. It is, you know, in the CSM business, CMO business, I've seen across some of these players, the working capital is very high. Because of inventory or receivables, the situation on working capital is not very, you know, attractive. So what's your take, I mean, what's your condition here? I've seen, I mean, some players, it's about 150-200 days. So, you know, overall, I think the return potential from some of these opportunities. So what's your situation in these contracts? S o what we are planning, whether you're looking for pharma or agro sort of a business, but in the agro, I don't see that as an issue. So just for your CSM business, what would be the working capital, overall, the inventory receivables and payables? If you are. Look, sir. I think we, I, we don't have the specific business. Maybe we can share it with you offline. Sure, sir. No worry. Thank you so much and all the best. Thank you very much, sir. Thank you. Ladies and gentlemen, [Operator's Instructions]. Thank you. The next question is from the line of Pranay Gandhi from Green Portfolio. Please go ahead. Good morning, sir. So my question is in regards to PVC material. I'm under the impression that we rely 100% both for VCM, feedstock. But I just want to understand how the management plans to safeguard these systems from price volatility or other, issues beyond our control. And do we see any challenges in terms of importing, feedstock, probably if it changes or the companies on which we rely upon for this? Okay. This is Ramkumar here, and, as far as the VCM import is concerned, we have been large importers of VCM for the last, almost, 13 years. You know, from, from whenever we started the suspension PVC plant in Bangalore, we have been importing VCM. We have done over 3 million tons of VCM so far, and, even today, we imported around 330,000 tons of VCM. So getting the additional 30,000 tons of VCM for this PVC project is, not really, much of a stretch for us. We are pretty much diversified in terms of supply sources. We are not dependent on any one geography or any one supplier. We have, suppliers ranging from Northeast Asia, Southeast Asia, Europe, and Middle East. So we do get VCM from all these. I would, for the interest of confidentiality, not be able to share the exact company name, but I think you can figure out who these companies would be from the geographies that I just mentioned. And we have also a very good partnership with the leading Japanese trading company, which has the largest trading position in VCM. So we work with them closely as a supply partner, and they are able to bring in their, you know, contracts and their logistics that they have built up over many years across many products. And this has worked very well for us. Thank you, sir. So, since you also mentioned about the Suspension PVC that we consume VCM, is there any plan or probably even on a piece of paper that we are thinking of having our own captive in-house vertical integration that would be planned in near future or probably even in the medium to long term? Yeah. This is a very good question, because, you know, the market for suspension PVC in India is huge and growing. It's already at 3.7 million tons, and our share grew by 30%. And even if we assume an 8%-10% growth on a normal, normalized basis going forward, we are talking about, almost one suspension PVC plant every year is required. The issue has always been in India that, there has not been enough ethylene available, because the key feedstock for making PVC is ethylene, and there is not much merchant ethylene that is available within India. And this is something that we would, need to address. So, we are looking at opportunities. We are always on the lookout for opportunities where we can, you know, either have a partnership or a virtual partnership for making VCM and thereby capitalizing on the PVC opportunity in India. But as of now, there is no concrete plan that has been finalized. So, we will definitely share with our investors any plans once they come up. Thank you so much, sir. Sir, just one more question about the custom manufacturing side. I understand that management usually refrain from giving any margin guidance, but I understand it is due to multiple factors that are beyond our control. But, I just wanted to understand, as a profit-making entity, what drives our decision, between choosing to manufacture one set of, products and saying no to others? Profit would always be the reason, but what drives our decision? Or probably if there is any margin range that you could give, anything over that, something we would consider or would be a deciding factor? What guides our decision is, most of the time, it's either the chemistry or our ability to scale that technology. Essentially, most of these products, you know, they come in with healthy margins, and the price formula, you know, it's a very transparent exercise between the customer and supplier. So the pricing is not the decision, I mean, it is not the deciding point, with respect to, you know, whether we have worked with our products in the future. Any margin range that you could give for the segment? Sorry? Any margin range that you could give for the segment, since we would be relying on custom manufacturing side to contribute heavily to our margins in coming years? On a steady state, like I was mentioning, earlier also, that on a steady state basis may be a contribution margin somewhere around 40% is what we target. Of course, initially, as we stabilize the process and then move along the various stages, it could be lower, but on a steady state, this is what we sort of expect to have. We're talking about margins, right? EBIT margin? Yeah. Not EBIT margin. We are talking about contribution margin. Okay. Thank you. Thank you. We have the next question from the line of Tarun Agarwal from Old Bridge Capital Management. Please go ahead. Good morning, sir. Just a couple of chasing questions from my side. You mentioned volumes for paste PVC for FY 2023, if you could give us the number again for FY 2023 and 2022, that's one. And second, what was the absolute power and fuel spend for FY 2023? Paste PVC volumes in FY 2023, the total volume was 68,630 tons. In FY 2022, this was 64,838 tons. Okay. On the power and fuel spend for the year as a whole, it was at INR 670 crore for both years. Okay. Thank you. Thank you. The next question is from the line of Rohit Nagraj from Centrum Broking Limited. Please go ahead. Yeah, thanks for the opportunity. My question, first question is on the CSM part. So are there any dependency on imported raw materials for the products that we are currently manufacturing and for the group of products for which we have got the LOIs and contracts? And a light question to that, sir: Do plants need to undergo audits from the customers if we sign those LOIs? Thanks. So the raw material in, it's both domestic as well as imports. And, imports are, you know, again, both from Europe as well as from, China. So not absolutely, I mean, not absolutely from China. Actually, many of our key raw materials we get it from India, we get it from, Europe. My, my trend, this is for the current, you know, set of products that we are manufacturing. And, you know, I see that, trend continuing, in for the, for the new products that we are designing now. As much as possible, our customers also prefer that, you know, the exports are locally. So, you know, we, we try to, figure out a way to, to do that as much as possible. And the second question was on,- Audits. Yeah a udits. absolutely. I mean, this business, our customers come and audit us on an ongoing basis. The audits are all actually, majority of the reason is, for, safety, health, and, you know, environmental practices. Most of them are HSE audits, as well as, you know, for, for quality as well. But, the primary focus of the audits is on, on, on SHE practices. That, that's, you know, that's ongoing, with every customer that we work with. Thanks. Second question is on the R&D. So currently, what is the size of R&D team? How many products are in the pipeline? This is I'm talking particularly from the manufacturing perspective. And, which are the specific chemistries where we are quite strong, and what are the new chemistries that we are focused on? Thank you. Sure. So the R&D size is not just chemists, it's also chemical engineers. Because R&D is not just about lab development, it's also pilot scale-up, you know, process technology, process safety. So our R&D capabilities, chemists and engineers would be, you know, close around 40, which again keeps growing, and this number would, you know, grow over the next 3-6 months as our pipeline keeps expanding. And the number of... Okay, I'll answer the question on chemistries. I mean, we are actually agnostic to chemistry in a sense. We are well-known for a few chemistries like oxygenation, hydrogenation, as well as our ability to, you know, purify liquid products, you know, to a high level of purity. But that by itself, you know, the chemistry that we are good at does not limit us from working on other chemistries. Because the more important aspect is the ability to take on new chemistry and scale it up in large volumes or in commercial scale. And for that, you know, as you're very familiar in the Chemplast ecosystem, we handle a wide range of chemicals, and we handle a wide range of process technology. So, something that we bring to the table to our customers is to integrate the chemistry capability, the chemistry, development capability, with the ability to scale up those chemistries, to large volumes. So that's one. And then on the number of projects in the pipeline, around anywhere between 10-14, is what we are actively working on, on top of the ones that we have already, commercialized. Thanks for answering the questions. That was perfect, sir. T hank you. The next question is from the line of Sanjeev Kumar Damani from SKD Consulting. Please go ahead. Good morning to all of you, sir. I'm Sanjeev Damani from Ahmedabad. Sir, my simple questions are regarding the understanding of basic PVC. I have heard lot of words today, basic PVC, suspension PVC, and the PVC manufactured in India by you, DCW, Reliance, and some DCM Shriram and others. Are they all same or they are quite different? Kindly explain. You know, there are two grades of PVC that we talk about. One is suspension PVC, and the other is Paste PVC. Suspension PVC is the larger volume commodity play, which largely goes into making PVC pipes, which in turn go into making, you know, go into irrigation, drinking water conveyance, and so on. And then you of course have a small part that goes into window profiles, door profiles, and various other things. There are five producers in the country. You know, Reliance is the largest, we are the second largest, and then you have some of the others you mentioned, DCW, and DCM Shriram, and you know, Finolex as well. So a lot of us have manufacturing processes which start at different stages in the value chain. So some, Reliance, for instance, in part of their, capacity is fully integrated. Three of us have lines that start from VCM and so on. And of course, DCM Shriram is based in Kota. So that is the suspension PVC. Paste PVC is a very specialty grade of PVC that goes into artificial leather, which in turn goes into upholstery, goes into, you know, footwear, automobile upholstery, furniture upholstery, and the like. And, here in India, we are the largest. Sir, I understood. So, so basically, PVC, which ultimately comes into the market is of two types. One is suspension and one is paste, and all of them make both kinds of PVC, or you only make suspension or paste PVC? You know, all of them make equal all types of varieties? Oh, no. five producers for Suspension PVC, only 2 producers for paste PVC. So we make paste PVC, and there is Finolex makes a small quantity. That's about it. Okay. Thank you, sir. Then now coming to next, what are the current trends of our pricing of our various products? In the sense that there is a drop in March. So now, is there any improvement right now from that lower level of March, which we have seen in case of PVC? In other cases also, can you kindly tell us what is the current trend? Are they lower or equal or higher than what it was in March, the selling prices? Do we sell ex-mill only every time, so that the customer at a distance, we don't have to bear the weight? Kindly explain that also. So prices in suspension PVC started going down from, like I explained in March. They have moved lower in April and then again in the first week of May. After that, in the last 10 days, there has been a little bit of quiet on that front, but it has been going down since March also. As far as paste PVC is concerned, after the drop in March that we saw, there has been no further drop. It has been pretty much stable around the March levels since then. There have been drops in caustic soda and chloromethanes, largely because of the additional capacities that have come into the market, like I mentioned in my opening comments. It will maybe take some time for those additional volumes, capacities to be absorbed into the market, and only then you would start seeing a recovery. So March is lower than that of March? Yes. That's why we could say, Q1 is expected to be quite challenging. As the participant has left the queue, we move on to the next question, which is from the line of Nitin Tiwari from Yes Securities. Please go ahead. Good morning, sir. Thanks for the opportunity. And I'm sorry if you've already answered. I'm just a little bit lost on the, just the manufacturing side of the business in terms of, the number of molecules we are already focusing and the number that we have added in FY 2023 and the number we are looking at in terms of addition in FY 2024. So if you could just like, you know, summarize that and help me understand, like help me by putting things in perspective and what is the capacity we operated in FY 2023, the number of molecules we operated upon, and the ones we added in FY 2023, and the ones we are looking to add in 2024, and also in terms of, capacity utilization and capacity addition. So that would be the first one. FY23, we had a total of nine molecules that were commercial. This year, we will add, including the two that you announced, we will add three molecules to the mix, so that will take it up to 12. In addition to that, you know, we have another, you know, 10-11 molecules in the pipeline that we are working on. So hope that gives you a feel for the number of products. Murali already indicated, last year, we produced 1,000 metric tons, or. 1,300. 1,300, right. 1,300. 1,300 metric ton, and I don't have the exact number for this year. That would be, that would be linked to these two new products that we are, you know, distributing to manufacture later this year, we will give you an update on the exact number, on, on what the, what the volume would be. But we anticipate a growth of around 10%, 10% to 15%, growth in turnover when compared to last year. So, right. So, so correct me if I'm wrong, sir, in the last call, I suppose you mentioned that, the two molecules that you are evaluating would each be about 600 tons or so. Is that the right understanding? So that would be the addition in volumes in FY 2024? No, what I said is that the steady state volume of the two letter of intent that we have signed, it would translate to around 1,400 tons. And so there would be a ramp up for that volume over the terms of the five-year period of the letter of intent. So the maximum volume, those two products that I see now, is around 1,400 tons in those two products. That would be the steady state per annum volume, yes? Yes, that's right. Yes. Yes. And, and lastly, sir, the 1,300 that you mentioned for FY 2023, that's part, that forms part of the specialty chemicals number that's in the presentation in the volume? That's right. Yeah. Yes. All right. Thank you. Thank you. Thank you, sir. The next question is from the line of Yogesh Tiwari from Arihant Capital Markets Limited. Please go ahead. Yes, thank you, sir. My first question is, what would be the average PVC price. Mr. Tiwari, sorry to interrupt you. We request you to keep your mic a little bit farther from your mouth and speak. There is an echo from your line. Thank you. Is this okay? Yes, sir. Please proceed. Yeah. So my first question is, what is the average PVC price in Q4? And what is the current price for PVC? The average realization of PVC in Q4 by 2023, that is suspension PVC, was at eighty-four to eighty-five thousand rupees, eighty-four eight hundred. And the current price of PVC is around INR 76,000. Okay. And sir, in terms of the custom manufacturing, we have about 11 molecules, as you told. So, any quantification, what would be like the revenue potential in pipeline for the customer or custom business? So you answer. Yeah. What, what we had indicated earlier is that that we have indicated that we will sort of reach around 1,000 tons of powder in three to four years time. So it will be through a combination of our existing products, the products for which we are supplying LOI, as well as the products that are in the pipeline. But for any revenue, like potential, what would come from this in the pipeline, what would be the, like, I'd say, the revenue potential we can have? We will have... Actually, the pipeline, it will be much higher. We exactly don't want to get into the exact details of what the revenue potential of the pipeline. The pipeline revenue potential will be much higher, obviously. And based on the various stages that they go through in terms of development, we have sort of conservatively estimated at least INR 1,004 turnover in the next three to four years t ime. So much higher would be like, if you are expecting like the next four years, much higher will be more than 80%. It would be like an out of- Guidance on numbers. That is the reason we don't, as you would appreciate, we have not been giving guidance on numbers. That is exactly why I don't want to get into the exact specifics of what is the potential of the molecules. Hope you would appreciate this. Sure, sir. Sure. And, sir, just to look at, the suspension PVC segment, if I just try to, you know, estimate like in FY 2024, there might be 1% to 2%, you know, volume growth, given our capacity we have in suspension. And if prices remain at current levels, it might decline like 3% to 5% in FY 2024. So do you see our suspension PVC, growing as a segment in FY 2024? The market in India is growing significantly. Demand is growing very fast. Last year, as I mentioned, it grew by around 32%, and we are already at 3.7 million tons. On a per capita basis, the suspension PVC consumption in India is far lower than even the rest of Asia, leave alone the world. So there is a lot of potential for it to grow. It's only a question of the immediate short-term impact of this lot of imports that is coming in that is affecting prices and margins. We believe that this might take another quarter. There will be some pain in Q1, and there will hopefully be some recovery that we will see from maybe around the mid of Q2 onwards. So I believe that this is a short-term phenomenon, this, the entire impact of large imports coming in from China. It is not likely to continue over the medium term. The demand continues to be very strong. There is no call to have any doubts about the potential of the suspension PVC sector in India. O kay, sure. Thank you, sir. Thank you. Thank you, [Inaudible]. Ladies and gentlemen, this would be the last question for today, which is from the line of Kirtan Mehta from BOB Capital Markets. Please go ahead. Thank you, sir, for giving this opportunity. One question in regards to the Chlorine and Caustic Soda plant. I remember at the time of the IPO, we have refurbished the capacities. So what has been the utilization over FY 2022 and 2023, and what were the production levels? See, the caustic soda plant, just to give you some context, for us, it's a feeder plant. So for what we are more interested in is the chlorine that goes into our make EDC, which is an input into PVC. And there is always a constant make or buy decision that we have on EDC. Based on the imported EDC cost and actual production of EDC, what will it cost us, and compared to factors are the cost of power, the realization of caustic soda, the cost of ethylene, the exchange rate, and so on. Based on that, we all the time take this decision whether to buy more EDC or make more EDC. If we decide to buy more EDC, then to that extent we will cut back on EDC production and therefore consequently cut back on caustic production as well. Therefore, that is the context behind our operating rates at the caustic plant. We cannot see it in isolation. In fact, even internally, we see the caustic plant as a feeder plant, either into PVC or into chloromethanes. We have two caustic soda plants. One is seen as a feeder into as a satellite of the PVC plant, and the other is seen as a satellite of the chloromethanes plant. Right, sir. Understood. One more question was about the flood of PVC imports that we are seeing in China. I just wanted to understand the drivers that you are observing for this PVC inflow coming to an end this quarter. Is it primarily driven by the recovery in China, or is it more to do with the safeguard that will get implemented in India? Right now, the safeguard duties are not implemented, so it is not a question of that impacting the reduction so far. Obviously, if and when that is announced, that would definitely play a major role in stemming the flow of this level of imports. Right now, the reductions that we've seen in April is the correction. And in fact, PVC imports from China came down in March itself, and it's gone down further in April. That is largely driven more by a slight recovery within China, and also some operating rate reductions in the Carbide PVC plant, especially those who buy carbide and make PVC on economic grounds. So I think it is a mix of those two. The safeguard duty, etc., will come into play only when it is announced. Right. Just one follow-up, with the coal price sort of coming off after the winter, theoretically, the carbide-based plants' economics should improve. So what's actually sort of driving this, the, do you see the economic viability of the carbide plant in your view? The coal prices, actually, if you remember, were not at more than $50-$60 just about a year back. After that, it shot up to $148, and it is now settled at around $110. While it has come down relative to the peak that it reached, it is still significantly above where it was just about a year back. So, I think the economics of Carbide PVC are also quite iffy at this, at this level of prices, especially considering freight and also has to be added, and then there are duties that need to be faced and so on. So I believe that a strongly export-oriented, model on Carbide PVC at a time when prices are at this level, is not really workable. So something has to give, and what usually gives first is the operating rates of these Carbide PVC plants. Thank you, sir. Thanks. Yeah. Thank you, Mr. Mehta. Thank you. Ladies and gentlemen, as that was the last question for today, I would now like to hand the conference over to Mr. Ramkumar Shankar, Managing Director, for closing comments. Over to you, sir. Thank you everyone for joining us today on this earnings call. We appreciate your interest in our company, and if you have any further queries, please do not hesitate to contact SGA, our investor relations advisor. Thank you again, and have a good day. Thank you very much, sir. On behalf of Chemplast Sanmar Limited, I conclude this conference. Thank you for joining us, and you may now disconnect your line. Thank you.