Tarsons Products Limited (TARSONS) Q4 2026 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Tarsan Product Limited Q4 and FY26 earnings conference call. This conference call may contain forward-looking statements about the company which are based on beliefs, opinions, and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and involved risks and uncertainties that are difficult to predict. As a reminder, all participants will be in the lesson-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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Aryan Sehgal, promoter and whole-time director of Tarsan Products, for his opening remarks. Thank you, and over to you, sir.

Good afternoon, everyone, and a warm welcome to the Q4 and F526 earnings call of Tarzan's Products Limited. I am joined by Mr. Santosh Agarwal, our CFO, and SGA, our investor relation partners. We have uploaded our result and investor presentation for the Q4 and F526 on our website and the stock exchange. I hope everybody had an opportunity to go through the same. To begin with, we are delighted to share that Tarsons has achieved its highest ever quarterly revenue in Q4 F526. Our revenue stood at 121 crores, reflecting a year-on-year growth of 7.4%, while the revenue for F526 stood at 426 crores, registering a growth of 7.7% year-on-year. This gradual improvement in performance strengthens our confidence in the long-term growth of Tarsons. With increased capacities and capabilities now in place, addition of product portfolio and strong brand recognition for Tarsons in the domestic market, coupled with our strategic expansion initiatives in the overseas market, we are well positioned to outperform industry growth across markets. Speaking of industry dynamics, Tarsen's has once again outperformed overall industry growth trends. On a quarter-on-quarter basis, the industry recorded a modest growth of 3%, whereas Tarsen's delivered a significantly strong growth of approximately 16%. Particularly, on a year-on-year basis, when the industry witnessed a decline of around 8%, Tarsen's reported a growth of 4.5%. The performance reflects our ability to consistently gain market share and strengthen our position within the industry. As a standalone basis, our revenue for Q4F526 stood at 97 crores as compared to 93 crores in Q4F525, representing a 4.4% growth year-on-year. While the overall growth remained moderate, our domestic business delivered a strong performance with a revenue growth of 11.7% year-on-year, reflecting continued demand momentum and strengthening market presence. Overall revenue growth, however, was impacted by a decline of 13.4% in the export business during Q4-FI26, which was largely due to the ongoing geopolitical tensions and war-like situation in the Middle East. This has significantly disrupted global supply chains, leading to shipment delays across our international markets. Factors such as non-availability of containers, elevated freight costs, and shipment delays amid prevailing uncertainties led to temporary decline in the export revenue during this. Despite these external challenges, our domestic business demonstrated strong resilience and continued to outperform, delivering approximately 12% year-on-year growth in Q4-FI26. This performance reinforces our confidence in the strength of the domestic market and the growing acceptance of the Tarsans brand. For the full year, FY26 stand-alone revenues grew by 6% year-on-year, with domestic business growing by 7% and exports registering around 3%. Export performance during the year was impacted by multiple external factors, including tariff-related uncertainties during FY26, seasonally weaker demand in Q3 due to the holiday period in international markets, and geopolitical disruptions witnessed in Q4. In recent developments, we have observed some easing of supply chain related issues over the past two weeks. Additionally, customer inquiries and order pipelines, which have remained subdued over the last couple of months, are now gradually reviving. We are closely monitoring the evolving situation and remain well positioned to capitalize on improving momentum going forward. All right, the margins. For Q4 and FY26, both the gross margin and the EBITDA margin witnessed some decline due to a significant increase in the raw material prices during February and March, driven by commodity price movements and global supply chain disruptions. This resulted in a contraction in gross margin during the quarter. EBITDA margins were also impacted by higher operating expenses related to our new plants, which have now become operational, while the corresponding revenue contribution is expected to build up gradually over the coming years. As revenue scale up, we expect operating leverage to play out, supporting and improving our overall EBITDA margins going forward. While gross margins remain relatively stable at around 71-72% during FI26, the gross margin has been impacted over the past couple of months by a considerable spike in raw material costs, driven by disruption in global supply chains following the onset of the Middle East conflict. Political situation and its impact on the supply chains and commodity prices will be important factors to monitor in the near term. And FI26 was impacted by higher depreciation and interest costs following the commissioning of the new CapEx. For FI27, PACT is likely to remain at a relatively moderate level. At the same time, we expect improved operating leverage from ramping up the new facilities to aid the operational performance from FI27. PACT has shown significant improvement, reflecting the underlying strength of the business. On a consolidated basis, cash back for FY26 stood at 112 crores, compared to 92 crores in FY25, representing a strong growth of 21.5%. New facilities in the CapEx, TarSense has undergone a large-scale investment program approximately four years ago with the objective of significantly enhancing its manufacturing capabilities, broadening its product portfolio, and strengthening its position across key growth segments. We are now entering the final phase of this expansion journey with a substantial portion of the CapEx already commissioned and operational. In the past few quarters, we have commenced operations across several strategic product categories, including our bioprocess product lines, expanding liquid handling manufacturing capacities, and selected product lines within the cell culture segment. The balance commissioning is progressing as planned with trial runs currently underway for certain product lines and facilities. We expect the entire CapEx program to be fully commissioned during the first half of the current financial year. Once fully operational, these facilities will significantly enhance our production capacities, improve supply capabilities, and enable a wider and more diversified product basket for both domestic and international markets. Expanded manufacturing base will position us to address a larger customer base, improve market penetration, and capitalize on emerging opportunities across high-growth segments. While the full utilization and ramp-up of these capacities will take some time, we expect the initial benefits to start reflecting from the current financial year itself through higher volumes, Improved product availability and incremental revenue contribution. Over the medium term, these investments are expected to become a key driver of growth and operating levels for the company. I would like to highlight a few key points. Over the last few years, the industry has witnessed a challenging demand environment. However, Tarsens has consistently outperformed industry growth. During this period, the company was also undertaking its largest ever CapEx program aimed at significantly expanding capacities and capabilities to support growth over the next five to seven years. While these investments temporarily impacted overall financial performance, we believe the heavy investment phase is now largely behind us. With industry conditions gradually improving, we are well-positioned to enter the next phase of growth. As we deepen our presence across domestic and international markets with an expanded product portfolio, we expect stronger revenue growth, which will subsequently translate into improved profitability. We remain highly excited about the company's growth trajectory over the next three to five years and are optimistic about outperforming our internal expectations. With this, I now hand over the call to Santosh.

Thank you.

Thank you and a very warm welcome to everyone on our Q4 FY26 funding conference call. Let me take you through financial highlights for the quarter and full year, 2026. On a standalone performance, revenue for Q4 FY26 issued at approximately 97 curves and compared to 93 curves in Q4 FY25, registering a growth of 4.4% year-on-year. Domestic business delivered strong growth of 11.7%, while overall revenue growth was moderated by a 13.4% decline in exports during the quarter, primarily due to the Middle East crisis, which disrupted supply chain and impacted shipment dispatch as well as uncertainties surrounding U.S. finance. Revenues for FY26 stood at 332.9% reflecting a vote of 6% year-on-year. Gross margin for the standalone business in Q4 FI26 stood at 68.5% impacted mainly by higher armature costs arising from volatility in commodity price. Gross margin in FI26 remained relatively stable at around 71%. Ebitda for Q4 FI26 and FI26 stood at 32.64 and 110.1 Kudu respectively. EBITDA margin were regarded by higher commissioning and operational expenses related to the AMTA and Pachala facility. We expect this cost to stabilize and margins to improve as utilization rank up over the coming year. Path for Q4 FI26 stood at 5.5 crore while FI26 PAD stood at 22.7 crore. The activity was impacted by higher depreciation and interest expenses associated with the new capital. Approximately 49 crore out of the total depreciation of 87 crore in FY26 watched for the Panchra and Amta facilities. Adjusted cash pad for Q4 FY26 issued at 31.9 crore while FY26 adjusted cash pad issued at 111.1 crore, reflecting a growth of 15% year-on-year. On a consolidated performance basis, consolidated revenue for Q4 FY26 stood at 120.9 crores, registering a growth of 7.3% year-on-year, while FY26 Consoled revenue stood at 422.5 crores, reflecting a growth of 7.7% year-on-year. EBITDA for Q4 FY26 stood at approximately 34.3 crores, while an EBITDA margin of 28.3%. For FY26, console EBITDA stood at 117.92. Pad for FY26 stood at 14.3. Adjusted cash pad for Q4 FY26 stood at 33.0, reflecting a growth of 9.3% year-on-year. While FY26's adjusted cash pad stood at 112.0, representing a strong growth of 21.4% year-on-year. At a console level, we have marginally improved our cash flow from operation to 118 crores compared to 114 crores despite lower profitability in average industries. This reflects our disciplined execution and working capital management. With this, I open the floor for Q&A.

Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and 2. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

First question is from the line of Rushab Shah from Yagul Ruck PMS.

Please go ahead.

Yeah, hi. Am I audible?

Yes, please go ahead.

Yeah, sir, our support strategies rely heavily on the white label part alongside supporting our own Tarshan branded products. So, how does the management manage the response from the customers when they say they have a low-cost contract manufacturer with a much higher reputation in the international markets?

I'm not very sure about your question. I didn't really understand it. What are you trying to get at?

There might be, like in the export market, there might be some companies with a higher low-cost contract manufacturing, with a higher reputation in the international markets. So how does, like when Tarsan approach a customer in the export market, how does Tarsan... Like, manage the response from the customers. So, when they say they have a low-cost manufacturing and better branded than Tarsan products in the international market. So, how do you attract a customer in the international market?

No, I think it depends on the customer's segments what we are looking at. There is the market internationally is quite large and is available to... We have a wide range of companies selling in the international market, so we do receive a lot of price competition. There is a lot of price competition from domestic players in India. It's quoting as well as from Chinese players, and Tarsen's looks at whatever its strengths are in terms of the products where it has an edge. Where, you know, how we can, you know, be able to maximize our value while delivering quality, but we cannot win every customer and have every contract in place. We'd lose some contracts and, you know, win some contracts, but there's enough space and room for the kind of value we deliver internationally.

So, my second question is, on our domestic note, has been our lack of long exclusive agreements with the scientific distributors across India. So, however, the unrestricted players like AppDos and Acumax are aggressively expanding their product portfolio and offering highly comparative terms. So, are you seeing instances where our legacy distributors are onboarding these competitors for a low-priced product lines?

Yeah, most of the companies operating in the lab consumable space in India have their own channel, and that is, you know, beneficial for all companies involved, you know, large, big, you know, small, medium-sized companies, because just like Tarsons, Would not like to, you know, share distribution partners with smaller, medium players or even larger multinational players. Similarly, the smaller players would also, you know, try and appoint distributors who are exclusive to them and who are putting all their marketing efforts in the promotion and sale of their products.

Okay. Thank you. Thank you so much.

Thank you. Next question is from the line of Avnish Tiwari from Vaikarya. Please go ahead.

Hi. Can you articulate how your depreciation rate will change as you commercialize the remaining capacity, and what are the CAPEX you are expecting in fiscal 27 and fiscal 28?

We are following the return down value method and the depreciation on machine and mold is 18% and building is 10%. That will continue. And still in our balance sheet, 158 code of CWIC is there. That will get, you know, move to main asset segment in FY27. And additional depreciation will come from that as well. So we expect a higher depreciation in FY27.

Right, but do you have some number, like where it can go, your depreciation rate in fiscal 27?

The rate will be the same because we are following the written down value letter. Only thing is that the depreciation amount will be in the range of, you know, 105 to 110 crore. That will be the peak for us.

105 to 110 crore, right? Okay, and what is the CAPEX plan for fiscal 27 and 28, if you have?

There is no additional capex plan. Whatever capex is pending and whatever CWIP is there, we are just completing that. Apart from that, some maintenance and some required commercial viable capex will be there. Otherwise, no major capex.

Again, how much is that typically maintenance and general corporate kind of mentoring the plant and everything? How much capex do you envisage in fiscal 27?

Approach 20 over page.

20 over page. Now, business question I have on the sell culture. How do you expect the ramp-up in that business, let's say, this year or next year?

So, we expect sell culture to gradually ramp-up. We would expect slower ramp-ups as, you know, we've commercially relaunched certain sell culture lines in the market over the last two to three months. We expect, you know, a slower launch as people get accustomed to the product, you know, do their respective tests and trials and, you know, on board us as one of their vendors. And I think we should see some significant momentum towards, you know, year two and moving forward, you know, year two, three and four should, you know. Be able to really help us scale up the volumes till we, you know, reach a sizable, you know, market size where, you know, we could have normalized growth levels. But I think starting from year two, we should see, you know, significant scale up if the product, you know, meets up to its expectations and is well accepted by the customers.

The year two, in this case, would be fiscal 28 or 27?

It should be to be the end of fiscal 27, fiscal 20, beginning of fiscal 28. We should start seeing a lot of momentum because we've launched this product, you know, most of the lines of the product we've launched towards Q4 of last year. So it's been about two to three months, you know. So we expect the first year, you know, where first year, year and a half, So, you know, people generally don't... You know, in a product like sell culture, they would not just jump into conclusions and give you the entire volume. They would use you as one of the vendors and see how reliable we are. But the advantage that we have is that they know the company, they know the brand, and they know the reputation which comes out from the products from Tarsen. So that gives us an edge.

And these are domestic. Who are your customers? And typically, do you need a lot of customers or fewer customers can fill up your capacity, assuming you start ramping up in year two and year three?

Well, I think it will be a mix of international and domestic. The kind of capacities what we have will not be able to be fulfilled just by domestic customers. So, it definitely will have to be a mix of international and domestic.

And, like, roughly, like, you'll need, like, A lot of customers or fewer customers, maybe 10s and 20s, are enough to fill up a reasonable amount of capacity you have?

It's basically those 10s and 20s which will account for majority of the demand, you know. You'd have a long tail, but these 10s and 20s will account for everything, yeah.

And apart from this cell culture piece, how you expect your growth momentum in fiscal 27? Where do you see each line of your business moving?

No, I think cell culture is just used as a single term because we've used it as a very broad term, but there are actually a lot of product lines for the bioprocess, biopharma, cell culture production market, and, you know, there's some significant capacity expansions in certain product lines what we already sell. I think... The Indian market stabilizing, you know, puts us in a very good position to acquire more market share from, you know, the Indian market as well as the expansion in international markets, considering, you know, the world geopolitical situation globally remains stable. But internationally, we are very, very bullish on good growth moving forward over the next three to four years. But we are cautious that, you know. There could be certain blips in the mid-term or the short-term because of the geopolitical environment, but overall, strategy-wise, you know, international market remains a robust opportunity for Tarzans.

Are you serving something for Norway from India, or you can after capacity expansion?

We will, after laying down all the capacity expansions that we have, we will be serving a lot of products from India, from Norway. Whatever is financially viable, of course, yeah.

Right, right. And on the Indian domestic side, what has changed lately, which has made growth rate pick up?

Of course, our product portfolio has grown, you know, and I think the market, you know, is, you know, easing out a bit, you know. The situation in the market was... Pretty favorable over the last six to seven months in India, and, you know, we rode on that momentum. I believe that whenever the market will be favorable, Tarsans will always have the best opportunity for growth the way we positioned ourselves with the customer base as well as with the distribution network.

Sorry to interrupt, Mr. Tiwari. May we please request you to rejoin the queue, sir? Thank you. Next question is from the line of Jasdeep Walia from Clockwine Capital Advisors Private Limited. Please go ahead.

Hi, sir. Thanks for taking my question. Sir, you were very bullish on prospects of exports growing at a significant rate in the starting of fiscal year 26, and then this whole episode happened where duties were raised in the U.S., and whatever you were thinking did not happen in FY26, but those hindrances are now taken care of, so export duties are no longer there. So should we expect very strong growth in exports in F527?

Um, I would not be able to answer that clearly, because at this point of time, we have a significant spike in raw materials as we speak, right? This is mean prevalent for the last 10 weeks, 8 to 10 weeks, from the beginning of March, beginning, middle of March. So it depends on how soon, you know, there will be normalized conditions because These large raw material spikes are clearly attributed to manufacturers in Asia, you know, and not so much to manufacturers in the U.S. Although U.S. manufacturers are feeling the heat of inflation as we speak, but the sourcing of raw material prices, which is a primary component in manufacturing of products, has not been affected in the U.S. as compared to in India, where you see raw material price increases such as 70%. From normalized levels. So this makes us slightly non-competitive in international markets. And of course, we would find ways on how we can maintain pricing and move ahead. We would need better, you know, conditions for uninterrupted growth and stronger growth in the international market. Every time, you know, a crisis ends, there's something new which comes up, you know, globally at this point of time over the last few years.

Oh, got it. Well, it's surprising to know that, you know, raw material prices for a labware manufacturer in the U.S. will be lower than you in dollar terms. I would presume both of you would buy from the same source, right? So, RM price in dollar terms would be the same for both of you.

Most of the raw material prices are impacted from, you know, vendors across the Middle East, you know, and Asia, and a lot of raw material suppliers, you know, based in the US, supplying to US manufacturers, the price impact hasn't been as strong as what it has been here. You know, towards Asia, towards China, India, manufacturers have been impacted much more severely as compared to the US and Europe. However, inflation is a big problem in the US at this point in time, and we see, you know, cost pressures, but that's not raw material linked.

Got it. How do you see Chinese competition in your main export market of US and Europe? Has it increased further in the last year, or the competitive conditions are more benign going forward versus what you've seen in the past? The competition has always been strong.

It's subdued us slightly with higher tariffs, but I think with the tariffs not remaining in effect, you know, completely like the way it was. Chinese competition is fierce, both in the US as well as Europe, as well as other parts of the world, including Asia, Latin America, and so on. The Chinese make very high-quality products. They are very, very strong in deliveries, you know, in capacity build-ups and scale-ups. You know, they are very, very professional, and they have been in the international markets at least a decade or a decade and a half earlier than any other Indian manufacturer. So, they always have that 15-year, you know, runway or 15-year lead over any Indian manufacturer or brand in our industry.

And are there additional duties on Chinese products in the U.S. and Europe, or are they the same for India and China?

I think in the U.S., it's very similar now. The duties between Chinese and Indian products, there's a slight difference. In Europe, we had similar duties, but with the India-EU-FPA trade deal, if it comes into effect, it is not yet into effect, we might have a benefit of about certain percentage points between us and the Chinese.

Got it. Some time back when I asked you the same question, you are, in the sense, this was one or two years back, you didn't consider Chinese as credible competition in US and Europe because you used to say that, you know, US brands, they don't want Chinese sourcing. That doesn't seem to be the case as of now. It seems like China has overcome.

India exports approximately 250 to 275 crores of laboratory consumables into the U.S. between all companies, including Tarsan's, just in the lab consumables space. China would export more than 275 crores a month into the U.S., and that is historic over the last 20 years. This is not an overnight phenomenon. I think you are confusing the questions what you have asked me. What you asked me was how strong is Chinese in India because of our strong reputation and brand image in India and very, very competitive prices and the import structure into India. Chinese have a very limited and small presence inside the Indian market, but the Chinese are very, very strong globally. Okay. Got it.

Thank you, sir.

That's all for my time.

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the question queue, please restrict yourselves to two questions only. Should you have a follow-up question, please rejoin the queue. Next question is from the line of Aditya from Securities Investment Management. Please go ahead.

Yeah, hi. Thanks for the opportunity. Sir, in one of the replies to the previous participant, you mentioned that the demand conditions in the domestic markets have turned favorable in the last six, seven months. If you could just elaborate what has happened in the domestic markets, has the competition rationalized or the demand has improved? So if you could just help us understand what has happened.

There has been a certain rationalization and competition for sure over the last two to three years, but that is more on the trader and the importer level, right? There was a lot of influx of, you know, products from Asia and other parts during COVID because of not enough capacities available in India to service customers. So, once those capacities came in and, you know, the industry normalized, those products were not needed anymore, but there was a large inventory in the system. And that inventory needed time because the market was not big enough, so it could not be cleared immediately, right? So what we are seeing is not so much of a rationalization of competition, but more clearing out of inventory, which would not be reordered again. So, that is what we are seeing mainly along with, you know, more and more investments in the private sector, you know, which is leading to, you know, better demand. And most of the major companies in India are well positioned to cater to their demands. So, it's not so much, you know, I would not say that there were 10 companies before which were producing lab consumables and today there are six or seven and three have closed down. That has not really happened. But, a lot of inventory has cleared up.

Interesting. And now, sir, in a rising raw material scenario, so how are we placed against smaller players and traders who import goods from China and also against MNCs who would also largely import their goods because I&R depreciation would be hitting them and logistics costs would also be hitting them. So, how are we placed against competition in this scenario?

Just like how you mentioned, the rupee is depreciating significantly, and it has significantly depreciated over the last six, seven months. It becomes more and more complicated and expensive for companies to import and bring the product into India. The geopolitical situation is causing a lot of problems in the transport routes, as well as the freight costs have burned out significantly as well. So, that adds to the cost. So, all these things always play favorably to make in India producers, not only Tarsans, but anybody else who produces in India, because for us, the only component which is being imported when we are paying the higher price for the rupee depreciation is the raw material. The rest of the other components which are added to the cost are all local.

Interesting. And now, sir, in this rising low material price scenario, have we taken any prices in the domestic markets to offset this rising cost because we have not increased our prices for quite some time? So are we looking to increase our prices?

We are looking to gradually increase pricing because at 60% or 70% raw material price hikes, it is a large cost increase, and we would not be able to support such a large cost increase by absorbing it. However, we may not be in a position to be able to pass on the entire cost increase to our customers. And some part of that cost might have to be shed in the short term because we don't expect this to be a permanent situation where the prices remain like this over the next couple of months or years. Maybe the prices will not get back to the old levels, but there will definitely be some rationalization.

Sir, any particular reason we have still not increased the price? Because, as you mentioned, some part of the competition is affected, even demand is also improving. So, doesn't it make sense for us to increase prices now?

As I said, we have gradually started increasing prices, and we have to be very, very careful about the price increases because… Everybody understands that, you know, it is a temporary price increase and not a permanent price increase. So distributors would also be very uncautious, right? Having large amounts of inventory, because if the prices drop the next month, they would have a lot of inventory at higher prices as well. I'm talking about domestic distributors. So, we have gradually started in this fiscal year, which is April. And we're looking at it from a product-by-product basis and seeing, you know, rather than from an entire priceless point of view.

Got it. Got it. And now, sir, if that's what, this time I want to say, please request you to reach out. Thank you, sir, for the follow-up question. Thank you. Next question is from the line of Nikhil Upadhyay from Simple. Please go ahead. Hello.

Good afternoon. I think the facilities are now all up and running. My question is, now, if we go back to our two-year previous call, our idea was that the demand is there, and the distributors and everyone benefits the product, but we didn't have the capacity to even provide for validation and all. So, when today we are close to commissioning the capacity, on the marketing side, what are we doing, and what all efforts are we putting in order to faster, like, If you can just share some ideas, and a sub-question is, because the tariff we had put in a lot of people to develop the market in US, now, and the tariff hit, and probably some of the efforts got delayed, but in the meantime, in the last one and a half years, how have new markets we have been able to open up, and how do you see the opportunities beyond US for us?

So, regarding our marketing initiatives, I think we have teams in place for both the domestic as well as the international marketing, and we follow our procedure of being able to get our products validated from key customers internationally as well as in India. We produce various kinds of marketing material and undertake various kinds of marketing initiatives and roadshows domestically as well as exhibitions internationally, and that's how we promote and push and, you know, bring our, you know, products, especially our new products, to key users all over the world. And that's how we...

So, on markets beyond US, because of tariffs, I think some of our plans, and as you mentioned, even today, US, we are not as competitive. But markets beyond US, what are we doing and how do you see opportunities playing out there?

So, our focus has always been, you know, the US and Europe, and we look at growing our presence in these countries while we are looking to strengthen ourselves in Asia and Latin America. So, I think we will look at good growth coming in from Asia as well as Latin America over the next two to three years, but a significant portion of our business will still keep coming from the US and Europe.

Okay, and one question, continuing with the Ajit's question on pricing, my question is more on supply, that in this period of last, from March to April and May, when we are talking to other companies, many companies have talked about that price has increased, but supply was a challenge, which becomes a bigger problem for smaller players. Is the similar situation applicable in your industry, and are you seeing benefits of those coming to you in terms of better order visibility or more discussions or inquiry pipeline improving, or is the situation not so bad even for a smaller supplier?

We generally compete against larger players, you know, than us. Very few companies we compete with, which are smaller than us. The supply is an issue, and the problem is not only the price increase, but the availability. And, you know, we just have to have high levels of inventory stock up more, you know, strengthen our supply chain systems to be able to.

But during a similar period in COVID, we caught a significant benefit in terms of higher growth. Would you say such a scenario can play out for us?

It cannot play out because COVID, the problem was in COVID, the customer's demand had gone significantly higher than normal, which is not the case today, right? The demand levels are, you know, good, but they're not significantly higher or unprecedentedly high, right? So we cannot expect a situation like COVID today. But supply is constrained. Supply is constrained, but demand is not like the way it was in COVID. There is no comparison between COVID demand and today's demand. Okay, COVID facilities, you know, how much have we produced was not enough.

Okay. And last question, you mentioned now CAPEX is largely out of window, like it would be more maintenance 20, 30 crores. Would you say over the next two years, the larger part of the free cash generation would be to deleverage? And what's your idea over next two, three years? What is the kind of debt we want to keep on our boat?

See, we would definitely, it would be to deleverage, reduce, you know, the debt on our books, and... I would, you know, ideally in a situation, in an ideal situation, not want, you know, debt to, you know, increase more than two times our EBITDA. And unless we, you know, you know, some significant opportunity comes up and, you know, if the markets are favorable, you know, we might look to, you know, raise money if, you know, the debt is still significantly high in our books. But at this point in time, The focus over the next two to three years is to significantly ramp up our capacity, grow our scale, and be able to earn larger cash profits to be able to be leveraged, as you said. Sure. Thank you. I'll come back in with you.

Thank you. Next question is from the line of Madhur Rati from Counter-Cyclical Investments. Please go ahead.

Sir, thank you for the opportunity. Sir, you mentioned that the export business is affected due to gross margins. But, sir, if I consider our business a 70% gross margin business. So why would a few percentage here and there because of the raw material volatility affect our exports? Because for us, the quantum of revenue would matter much more than getting the pricing right. So I'm not able to clearly understand this thought process.

Okay. See, the thing is, at the end of the day, you know, we have to have certain rationality when it comes to pricing to be able to maintain certain cost structures when we are moving forward. Because if we are not being able to price our products correctly and the business significantly scales up, it's very difficult for us to reprice. Moving forward, especially in international markets where customers are aware that the currency depreciates as well, right? The rupee depreciates against the dollar. So, we, you know, most of the time we have pressures from our buyers in the U.S. because we are well aware of where the currency has depreciated over the last 10 or 15 years, the Indian currency, but not having complete information and understanding about the inflationary pressures in India and what sort of. Price increments or cost increments the company faces year over year, you know, which is not similar to, you know, a standard scenario in the U.S. or in Europe. So while, you know, a 60-70% increase in material margin might just affect our gross margin by, you know, from 70%, it might take it to 58% or 57% and might look healthy, it may not be sustainable in the long term.

Now, sir, if I look at all the capex has been done, so going forward, how should I look at our growth from the domestic market as well as from the export ODM market? So how has been the new customer addition strategy for our export business as well as in domestic market? If you could help us understand how has been new product launches and how do we see the capacity ramp up? You mentioned that from FY28, cell culture will improve materially. But if I were to consider in terms of numbers, how should I look at these maybe over the next one or two years?

Right. So what we expect is we expect good growth from the domestic market, you know, strong, stable growth from the domestic market over the next two to three years, primarily because of our position and our, you know, base in the domestic market. We already have a very strong base, and so we should have good, stable growth moving forward. And internationally, I think the growth numbers could be much higher, significantly higher than domestic. The growth percentages, because although the base is lower than the domestic market, but still I think the quantum of opportunity is much higher internationally, and so we could, depending on geopolitical situations, economic tariff situations, and everything being in order, being in place, the speed at which we could convert contracts. You know, the growth may not be very homogeneous over the next three, four years, but there could be some strong years of growth when we win contracts and win, you know, ODM businesses.

So, nothing material as of now that we are commissioning these new facilities?

No. So, it's an ongoing process. We don't announce any material contract wins or any material ODM thing. We don't disclose such things, but it's an ongoing process with and without these facilities, you know, a marketing process to be able to add new customers and have new demand generation all across the globe.

Right. That was from mine. Thank you so much and all of us.

Thank you. Next question is from the line of Roshil from Pink Wealth. Please go ahead. Hello. Hi. Yes, please go ahead.

Yeah, so my question is that in this quarter, we have been seeing that, you know, purchase of stock in trade has been increased from 11 crores to around 14 crores. So, is it like this was one of the reasons also impacting our gross margin and we had some capacity constraints, so that is why we have to outsource it?

No, because of the traded goods, we are not manufacturing that, and on the basis of demand and supply scenario, Sorry? These are the traded goods you are talking about. So traded goods are something which we are not manufacturing.

Yeah, I got it. So that is why we increased it because we had some capacity constraint. That is why we had to trade the goods or like it is a normal part of our business.

This is the normal part of India, but I don't see that, you know, 14 crore has been increased in the traded goods because total purchase for the year is about to be, you know, 15 to 20 crore. It cannot be 14 crore increase. I think 1.4 million is there and you have needed it as 14 crore.

Okay, sorry. And the second question is, since I've been seeing that, you know, if we see our inventory from last one to two years and in line with our revenue, so just wanted to understand that it was something that, you know, the raw metal prices were increasing and we were not able to pass on the price and somewhere we had to take out the inventory return down also.

We are not writing off any kind of inventory. We do the provisioning on the basis of aging, but all the inventories are good inventory. If I have to break down the inventory, only raw material inventory has been increased, and the reason was very clear. We already explained that. Because of supply chain disruption, all over the globe, we have to keep more raw material, because supply is an issue, and the prices also keep on increasing, but if you see the fresh goods, fresh goods has been reduced from 44 to 34 trees.

The last question is that, you know, since we have been seeing that, you know, there is a supply chain constraint and the player like Tarzan, you know, who is big enough and there are smaller players in the market. So do we see that, you know, because of our capability and the size we have that we will be able to procure the raw materials? At a competitive rate and can have a good opportunity to gain the market share as the small players who won't be able to, you know, get the raw material, you know, due to supply disruption and the requirement of working capital for them?

No, I think raw material rates are very, you know, crude linked rates and these are fixed spot rates. You know, the kind of, the amount of volume what we do in our business, we are considered for the raw material supplier a very, very small player. So there is not any significant, we are not in, you know. We are not in industrial plastics where we have a turnover of 5,000, 6,000, 7,000 crores and a gross margin of 30% where there is 70% raw material consumption and we are buying thousands of crores of raw material and that also one or two grains. Here we are buying, you know, 20, 30, 40 different grades across different polypropylene, HDPE, polycarbonate, polystyrene, you know, and... We do about, we have a purchase of about 70-80 crores worth of raw material, which for the raw materials are spread across different vendors in the Middle East and Europe. So, for any particular raw material supplier, supplying to Tarsons worth 6-7 crores or 8 crores of raw material in a year is nothing significant or nothing material. As a company, to investors into the market, we may look like a sizable company, but in the raw material world, we are just, you know, one of the small players.

Okay. Got it, sir. Thank you. Thank you. Next question is from the line of Raman KV from Sequent Investments. Please go ahead.

Raman, your line is unmuted. Please go ahead with your question. Raman KB, your line is unmuted. Please unmute yourself and proceed with your question.

As there is no response from the current questioner, we'll move to the next question from the line of Vibhor Talreja from Nest Amplifier. Please go ahead.

Thank you for the opportunity. This is a follow-up to the earlier question with respect to depreciation, where you said that FMI 27th depreciation is expected to be 105 to 110 crores. The question is, is that on a standalone level or it's a consolidated depreciation that you are mentioning at 105 to 110?

It's on a standalone level, at a console level, only Narbe got included and Narbe has no major depreciation, except some intangibles are there.

Okay, so when I do the math, I was coming to a much higher number because your Q4 depreciation itself is 29 crores, and you have capitalized some of the assets on March 31st, I assume, and you have another 150 crores of CWIP there, which you said you will capitalize over the next three to nine months, and you mentioned the rates. So when I do the math, the depreciation comes out to be more like 130 to 140 crores. Am I really missing something?

So, if you are calculating on a console level, then it includes the depreciation also. By this year, depreciation is about to be 85 to 89 corp. And another 25, 30 corp of depreciation will also come in the next year. So, it will sum to, you know, about to 110 corp. Right. Plus, some intangible depreciation and amortization will also happen at a console level.

Okay, so can you please, once again answer, what is your expected consolidated depreciation for FY27?

At this moment, I can only give the standalone depreciation only, because console depreciation depends on what kind of amortism will happen at a console level, but at a standalone level, I can give you a forecasted depreciation of about to be 110 G.

Okay, you know, fairness, my last question, the reason I was asking was because when I do the maths and while the business rightly should be valued on, Cash fat in EBITDA, but it looks like on an accounting basis, we are going to have losses because the depreciation increase is here for real, and the sales increase beyond the normal is some time away. Is it fair to assume that there is accounting losses in expected quarters?

We don't expect accounting losses will be there. Of course, we expect PAT to be in the range of, you know, in the range of, you know, single digit number, but it will not be losses so far. So far, the way things are going on, because, you know, we are making a EBITDA of about to be, you know, 33, 34 percent, and then PBT is also 9 to 10 percent PBT is there, and then, you know, 4 to 5 percent of PAT is also there. And we have already written down value matters, so the depreciation will not exceed at a standard level more than 110 KURP each.

Thank you so much. Last question on the margins. Given the softness of the margins because of raw material price increase in Q4, would it be fair to assume that at the very least that would continue in Q1 given raw material prices have actually shot up even further from March 11th? And like you earlier said that there will be some sharing of costs with the customer and some hit company will have to take?

Q1, we are almost towards, you know, 65% or 70% of Q1 is over, right, today as we speak. So unless something significantly changes tomorrow morning, I don't see that, you know, I see full of Q1 to be affected.

The question was, are Q1 margins going to be worse than Q4, given the raw material prices have increased?

It shouldn't be worse, but it should be in similar regions.

It is very tough to give you the exact guidance, but, you know, the margin, we believe that the margin should not go below, you know, 65%. Currently, in Q4, we have shown, you know, 68% kind of gross margin, but we are gradually increasing the prices also. So, it is very tough to say what kind of margin will come, but it should not go below, you know, 65%.

Noted. And thank you so much.

Thank you. Next question is from the line of Raman KV from Sequent Investments. Please go ahead.

Hello, sir. Can you hear me?

Yes, please go ahead.

Yeah. So, sorry, I joined the call a little late. I just want to understand that with respect to the recent inflation and the raw material prices, you said you will be taking price hype in the coming quarter, and at the same time, you will be taking some hits in your books. So, I just want to understand. If you are taking 50% hit, if you are passing on a 50% increase in raw material prices to the end users and taking some hit, your gross margins will come down in the coming quarters, right? Correct. So, are you planning to improve efficiency so that your gross margins will pick up, or can we expect your gross margin levels to be at the current levels?

The thing is, we are still not sure about how long this price increase is going to last because the way we work in India is we work on price lists, right, which distributors, which are circulated to distributors and printed and sent to customers all across India. So this is a situation we've never experienced before, and hence, we cannot keep altering and changing and printing new price books, you know, every two months or three months because. We lose credibility as well as distributors are unable to stock correctly. So, hence, we are still in a wait-and-watch mode, and we are increasing, you know, as and when, you know, follow the product lines based on, you know, how the raw materials have increased and what we can, you know, achieve from the customer. But it's very difficult at this point in time to give a very clear answer because we produce thousands of these price books. And supply it all over the country to distributors and customers alike. So, and we can't keep changing that every quarter. It's generally a yearly process.

Understood, sir. So, what is stopping us from taking a 100% price hike? Is it competitive? Like, pass on the entire raw material prices to our customers?

It's very difficult because there's so much of inventory in the system that I import, you know, there are MNCs which have stocks, which they're importing stocks, you know. Any price increase, you know, which is not standard, you know, which would translate to 30-40% price increase, price over price, gives a large opportunity for, you know, gives a very strong opportunity for other players to enter, you know, other players to take advantage of it. You know, it's not a kind of industry where we could be able to make a significant price increase. However, if this becomes a point, If this is a permanent phenomenon and is valid to everybody, then over a medium term or short to medium term, we will see gradual changes in everybody's pricing. But if this is a short term phenomenon spread over three or four months, there are enough players in the industry which are willing to absorb the same to be able to gain market share.

Thank you, sir. So, my last question is with respect to your bioprocessing containers and cell culture. Has the production of cell culture started, and how is the ramp-up with respect to bioprocessing containers going?

The ramp-up is going well for the bioprocessed containers, what we are producing, the bottles. And in cell culture, there are a few lines in which we've started pilot production, and a few lines where we'll be starting pilot production. In this quarter, so hopefully in the next two or three months, we should have all our lines up, you know, and ready and producing and supplying samples.

So can we accept both of this to scale well in the second half, even that the first half will be for your moment?

I said earlier, we would, this year, we would, you know, be able to try and get into most of the customer accounts and be able to validate our product and, you know, become one of their vendors and try to build the repeatability and reliability, what they expect from us. And years, starting from year two, I think we would start seeing some improvements and then, you know, scale up. Every year, there would be, you know, significant scale up. Probably year 4 or 5, where we reach a certain amount of stability, where there would be stable growth moving forward for these lines.

Understood, sir. Thank you.

Thank you.

Thank you. Ladies and gentlemen, due to time constraint, we will take this as the last question for the day. I now hand the conference over to the management for the closing comments.

Thank you, everybody, for your time on this call.

If you have any other questions, please feel free to reach out.

Thank you so much, sir. On behalf of Tarsons Product Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.