Camlin Fine Sciences Limited (CAMLINFINE) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Cameron Fine Sciences Ltd. Q1 FY27 earnings conference call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation continues. 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 call is being recorded. This conference call may contain forward-looking statements about the company which are based on beliefs, opinions, and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involves risks and uncertainties that are difficult to predict. I now hand the conference over to the management for the opening remarks. Thank you and over to you, sir.

Ladies and gentlemen, welcome to the earnings conference call. I'm Ashish Dandekar, Chairman and Managing Director, and with me are Nirmal Mumaya, Managing Director, and Santosh Parab, our CEO. Since I know all of you are very busy, we will not waste time and get right into it. I hand over to Santosh for a brief on the earnings and the performance, following which we will take questions.

Thank you, Ashish, and good evening to all the. Participants, thank you for joining us. I'll quickly jump into the real business matter of today. Firstly, I'll just make a few announcements that you would have seen that we have changed our disclosures from the traditional lakhs and crores to millions to match with the international standards. From this year, we have also started the We have disclosed the segmental information. There was internal restructuring that happened and the management has started looking at the business in a more structured manner. And I think the investor community will be happy because this was always a request that it would be better understanding if we have segmental results. Coming down to overall revenues, our revenues were 5,199 million rupees. That's around 28% more as compared to the last year's quarter, and it's almost 1,000 million rupees more as compared to the last quarter. Obviously, we have done extremely well on the revenues, but the margins are not in line with the expectations, but there were certain reasons for that. The main reason has been the raw material side where, as you know, the entire situation of raw material and the prices, the availability as well as the freight costs and other things have increased a lot. You would have seen the. Details of our financial statements and you would have seen that our margins, which were plus 45 percent last quarter, had come down to 4 percent, and that's what has calculated down to our EBITDA for the quarter. Coming down to the segments, as you could see, we have now segregated our business into three main verticals. The traditional What we used to call seeds and blends, which is now called a specialty ingredient. This is a non-chemical business. It's more of a knowledge business, which we sell blends to the end consumers. We have Aroma, the vanillin flavor, flavor fragrance business, which is the manufacture of vanillin, and obviously there is a third segment, which is performance chemical, predominantly downstreams of our diphenol, which go to the product market of states and Aroma. These are the other chemicals. All chemicals are plants are in performance chemical division, with which Transfer certain materials to the other two divisions for forward integration and you would have seen the segmental result as an intersegment knockout in performance. These are nothing but the states which are sold by. Performance chemical, there is a chemical manufacturer to the specialty ingredients for the company and the air section and the raw material for Aroma, which is predominantly glycol, which is sold by performance to Aroma at market prices or the normal commercial terms is based on house-like principle. Specialty chemicals ingredient business sales trades as well as blends as we used to show it in the earlier period. Coming down to the verticals, you would have seen that the trades business has been always growing and has better margins and that has also reflected in the numbers which we have disclosed. The state sales has been around 927 million, while specialty ingredients, that's the value added blends, has been more than 3,000 million, which is, if you see on an overall basis, the specialty ingredients business has done more than 4,000 million revenue. The EBITDA is 6.35% a year. Predominantly, it has come down basically because of raw material prices being high. Coming down to Aroma, we have sold around 560 tons of vanillin in this quarter, which is Primarily, ethyl vanillin, which we took a campaign for ethyl vanillin last year, in the last quarter, we have sold around 200 metric tons of ethyl vanillin, which was there in our channel stocks and internal channel stocks. We have sold around 350 metric tons of ethyl vanillin in this. Naturally, the capacity utilization was not optimal because we had... Taking such a large campaign of Ethyl Vending for the first time, we were cautious, and the ramp-up was very cautiously done to get the qualities, to have the capacity utilized on the right track, understand the dynamics of the new campaign. We are happy to announce that we have almost got 95% of our customers have approved our Ethyl Vending. In this pattern, we have already sold 350. If you remember, in last pattern, we have said that we are taking a campaign of 750 or metric tons of ethyl vanille, half of the car is done. We have produced. Almost more than 300 metric tons. We will be taking the shutdown after the 750 ton ethyl vanille campaign is over in mid of August, and then we will switch to methyl vanille. Naturally, we will be doing around 500 to 600 metric tons in the next quarter of ethyl vanille, methyl vanille. On the prices, US and the European prices are remaining same on the sale side, as we had discussed in the earlier period, and it will remain in 13 to 14 dollars. As we ramp up our capacity and capacity utilizations are better, the sale happens at 13 and 14 million, we will be getting into a positive bidda zone. On ethyl vanillin aroma business also, and we feel that in this quarter, the second quarter itself, we will have a positive EBITDA in Aroma. As far as performance is concerned, there has been, again, as you know, diphenol plant has been shut down, and it remains shut down, primarily for the economic reasons and the high prices. See, the phenol prices are still very high. Other raw material prices are very high. It's not very commercially economical and viable to manufacture diphenol at this current stage. As we took a shutdown, we have been procuring the intermediates from Chinese markets because the prices are very comparable and competitive as compared to our prices and we are relying on that. Though right now businesses close, shut down, we have ample critical to service our home needs. Naturally, the closure of diphenyl plant is weighing down on performance chemical, and that's why we have seen that 1.5% negative EBITDA there, but with shutdown, having switching it to other things, better resource planning, I think this performance chemical EBITDA also will be positive in next quarter because we also are manufacturing the states. In performance chemicals, which are sold at arm's length to the specialty ingredients company, business segment, and performance chemicals will also move to a positive zone. As far as coming back to specialty ingredients, Brent has been the hallmark of our business. We are going, we have been saying that we should grow at least 20% as a minimum this year, and in the budget, we are talking about 25 to 30% of the The growth this year. Last year, we had done around 1,000. 10,000 million of saline blends. We have already done 3,000. We have that run rate of 20% growth already in place, and this will be much more than that. All the companies in America are doing extremely well on this. The only issue here is the prices at this. The conflict has forced to increase the prices. As you know, we have that some one-quarter lack of transferring. The increase in material prices and the other prices to the customer, that lag has played in this quarter, and there has been difficulty also to pass on the entire increase in prices to our customer, and that's weighing down on the margins, the gross margins, and effectively those gross margins are also impacting our down sales. Obvious question is that what will happen for the whole year. We had been guiding that we will be doing 2,000 to 2,400 of revenue this year with EBITDA 250 to 280. That was what we are saying. But looking at the prolonging nature of this conflict and prices being high, logistical issues and other things, we feel that we may end up with The same turnover because it doesn't look safe. It seems very, very secure. Business lines are in place. All the things are ready. We are very confident of delivering the top line. The whole issue is on the margins. Looking at the scenario, I think we will have to just revisit these margins and we feel that now the margins should be in the range of 10 to 12 percent this year. Obviously, the prolonging loss situation can have two different things. But if the prices stabilize at what they are, we should be looking at an EBITDA in the range of 10 to 12% going forward. As far as diphenol is concerned, as I said, we have closed down the shutdown, but we are looking at alternatives. We had talked about some other products, phenolic compounds there, but we are holding on to it because the raw material prices of those compounds have also increased. But we are looking at various options. By third quarter, we will take a decision to either have an alternate use for that or Maybe if the situation is right, we may shift back to the right now production. But at present, the Chinese prices of the raw material intermediary is very, very competitive, and we have secured Chinese hydroquinone from China for the next two quarters. Coming down to the, though we don't give the details of debt and other things, it remains under control. We have been almost in line with what we have disclosed on 31st of March. There will be a slight increase because of the utilisation and the utilisation of working capital. Working capital share capital remains a bit of a concern because of the elongated working capital cycles. As you know, with the homeless states and the Red Sea issues, we have to now ship it across South Africa, and that has increased the working capital needs. Because of the global slowdown also, the recovery from the customers have also elongated by a few days and that's slowing down on the working capital cycle. But we are agile and we will work through this issue. We would have also seen an exceptional item in our financial statements on account of... The fire which occurred in February in Brazil, we had taken some kind of a write-off there on the losses. We have now tried to settle the insurance claim because cash is the requirement now, which is around 40 crores. 400 million insurance claims. We said that let's not handle with the insurance. People have taken a 20% haircut and we have settled. But obviously, there had an accounting impact and we have shown it under a personal item. As far as Europe is concerned, you know, it has been... China has already gone into liquidation. No more cash burn. Of course, there is a small cash burn because this is a liquidation. We require legal help until the entire process is over. So, there is a small cash burn which has happened. China is in the process of liquidation. We have been telling it that this will happen this year and we will have a... Around 10 to 20 million of expenditure which will be incurring during this quarter. With this, I think I will open the forum for questions. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use answers while asking questions. Ladies and gentlemen, we will wait for a moment while the questions are sent. The first question is from the line of Avinash, Suwari, Savakarya. Please proceed.

Hi, am I audible? Hi, can you, uh, illustrate your, uh, Next three quarters, implied guidance. If you're looking at 254 EBITDA and you've done August 9 this quarter, that number seems to be, you think, deliverable given that it implies significantly good margins levels. And are you out of that problems you had on raw material, costing side and everything, or do you think there is some degree of uncertainty and we'll have a better color end of Q2?

So basically what we are guiding is 2200 to 2300 crore top line and EBITDA margin in the range of 10 to 11%. So it will be in that range between 220 to 230 crore kind of EBITDA. And given the cost structure as we have it today, it seems within reach for us.

Well, this number works out to around 13% margin. So I was trying to think through that the pressure you saw on Roth margin in first quarter, is it now completely behind us? Because 13% looks like a normal decent margin levels. Or is it some degree of pressure is still continuing in Q2? So maybe end of Q2 will be when we get a better visibility on that. Good morning, everyone.

So, Q2, of course, also with the war situation continuing, there is a pressure on raw material prices, but we are in a position to pass on some of it to the customers. So, I think going forward, to get to that 10% EBITDA in the next nine months seems to be on target.

And once we are behind this raw material challenge, what's the normalized level of margin you think you can have given that your businesses are now coming back up on top line? So, based upon whatever visibility you have, what kind of margin levels we can look at maybe in second half or fiscal 28?

In fiscal 28, I think it's in the region of 12% to 14% is what we can look at.

Last question I have is on the debt side. So, what is the level of debt you have, and is there any other plan other than organic way of reducing through internal cash flow which you can take to spend on your balance sheet?

So, on debt side, at present, we are almost on the same level which we had. We were around 670 crores of debt. On 31st of March, the gross debt, which is now 640. This is on mainly the reduction is on account of prepayments, which happened for my long-term loans on IFC and Exim for the Vanille plant. So the debt, no increase in debt during this last three months. We will, because we are talking about 2,400 cross of revenue, 1,700 increasing to 2,400, which will certainly entail working capital support. We will try to use the internal cash, but it looks like as the year progresses, we may have to go and

And how did you manage this good achievement of flat net debt given the pressure you had on several fronts and the very low EBITDA levels? Anything other than any specific thing that you could extract cash from?

So, one thing is there that I had revenue and the cycle was moving, the working capital cycle was moving. It was not a case that I have no revenue. Revenue has been high. I also have a 40% cash, 40% margin. So, there is a generation of cash which is asking. Obviously, the question is right that from where this… We have been using supplier finances, dealer finances to tide over this situation. So, we are using some dealer financing on the sales side as well as using dealer for Buying raw materials. Now, that also, as I said, that has also played on the margins because if you try to get dealer finance from the purchase side, then obviously the cost increases and the margins get impacted, the gross margins. In other words, the interest which I would have paid by borrowing, I am paying it to the cost of raw materials. So that one, one and a half percent has impacted me because of this bit of a working after me has impacted my gross margin. Right.

And any plans to infuse capital or ways to get some cash balance sheet deliverizing other than international work?

See, as I said, cash is required. So we will see, we will be working on it. It's not the time now that I am standing on the edge of the hill and I have to jump. There is time still. As it goes, we are looking at avenues, you may have heard it from the market also. But at the appropriate time, what is better? There will be a lot of consideration, the market price and all those things, what is the rate of interest, my rating and other things. So we have been closely working on it. So as soon as a final decision is taken, we come and we have to anyway inform the thing.

Okay, great. Thank you. Wish you very much.

Thank you. Before we take the next question, I would like to remind participants that you may press. I don't want to ask a question. The next question is on the line of Rehan from Kohedon Wealth. Please proceed.

Hi, am I audible?

Yes. Thank you for taking my turn. I just had a couple of questions primarily on Vanillian and the outlook going forward. We were always under the impression that vanillin, the EBITDA realizations per kg or per ton were to be profitable because the fixed cost of the business was very minimal. So considering that, I mean, we always were under the impression that the cost to make per kg was about $9 to $10, depending on either the crude volatility. And the realizations post tariff had improved to about $13, $14 between Europe and US. And the fixed cost primarily were, I think, only your sales team. So, can you just explain this loss at an EBITDA level for the Aroma business, because this is 3-4 crore loss for this quarter at EBITDA, this is new to some shareholders. So, good question.

See, as you rightly said, or indirectly said that, the whole game is about the capacity utilization. As I said, we were cautiously increasing the ramp up of ethyl branding, and you would have seen that we would have produced how many? 400 tons only in this quarter, with a capacity of 1,500. So, naturally, there was the cost of the plant, which cost, which cannot be absorbed entirely on the 400 cost. On a yearly basis, if you see, as I increase my capacities in the other, these will get absorbed. But on a quarterly basis, we are in a fix because we cannot increase the cost more than the price. So, that's why this 4 crores, 4 to 5 now, 4 and a half crores of negative 1 has come and hit us. As the capacity utilization crosses 70-80 in the subsequent. We will absorb almost all the fish force and on a yearly basis it will come down to that. This is a cutoff in a quarter where the expenditures are for the whole capacity but the utilization is hardly 25%. So that is how this is spanning out. As we go ahead, we will get that EBITDA.

So, Santosh, we asked to basically at 70% means you're talking about at a quarterly run rate of production at about 1,000 tons?

My capacity is 6,000 tons. Yeah, so, if you divide it in 4, that's about 1,200, right? So, on the yearly basis, we are saying that. $3,000 is what we are estimating this year. That's around 60-70% of my capacity of life. So at that, how much are you expecting to make at an EBITDA level? We will be making around 7% of EBITDA on the total if the prices are at $13.

Okay, so 7% EBITDA on that.

Okay.

And coming to blends, we had held that blends being the holy grail of the business at 40% gross equals down to depending on each geography, where some geographies are more saturated, we see higher EBITDA because the fixed cost again is only sales. Um, but again, this is hit us further. So can you explain the outlook going forward and how do we see that come back to about, you know, where we were sometime back before even the ADD kicked in? If you remember, we were at 14, 15% kind of EBITDA margins about six odd quarters back. So, you know, I'm just trying to understand where is, where is it not coming up? If you look at the March 25th quarter, we were at 14% EBITDA and that is without the ADD and without vanillin even coming in. So just trying to understand where were we there and where are we today? Because we have the ADD, we have the utilization. So can you help us understand the same?

So on blends, there is no editing. It's only on vanillin. If you see the segment, in the segment result, we have shown what was the EBITDA last quarter also, right? So, last photo, we had done around 264 tours or 400 in the March photo. On a 3,000...

Yeah, and today we are at 255 and on a year-on-year basis, we are at 255 versus 300. Let's talk first about quarter to quarter.

We told you that the gross margin have come now. So that 45% population is hitting me down. Thank you.

Okay.

And so I think then this year also, we may not end up with, so for Q2, sorry, in the opening remarks, I missed your expected tonnage for Q2. Your voice wasn't very clear. Could you repeat the same if you don't mind?

So on blades, we don't give tonnage.

No, no, no, sorry.

500 to 600.

So similar as just run quarter run rate.

Yeah. So, as I said, Ethyl Vargin, we had a 700 metric ton campaign which we are completing in August. That will be 350 tons of Ethyl Vargin. We will start the campaign. We will lose around 2 weeks there. So, we will produce and say, we will be ramping up entirely Ethyl Vargin. But looking at the period in September being within 15 days of the start of the campaign, we are saying that we will sell 500 metric tons.

Okay, so it will be similar this quarter run rate, about 700, 800 odd crore revenue. Sorry, 77, 70, 80 crore revenue.

So to answer your question on the blend first, in Q2, the blend's margin will be better than they were in Q1. Specifically so, we got hit in Brazil because of the fire. We had no stock, and we had to bring in stock by airfreighting it at high prices, which now in the Q2, we are also simultaneously shipped material on sea, which of course has now landed, and now that's the one that is being consumed in this quarter. So there was a negative of about 8 crores in Brazil, which will get directed in Q2. Then, there are certain businesses where the raw material prices have gone up and we've been able to pass on some of the price increases. So, your Q2 numbers will look different from what they were in Q1 for the blends business. For vanillin, it will be slightly better than Q1, where Q3 is our main, where we will have 1,000 tons plus of sale, production and sale in Q3. So, as far as the performance chemicals goes, we were negative EBITDA in Q1, in Q2, it will be positive. So, all in all, versus Q1, all three of the verticals will be significantly better than they were in Q1.

Thank you for that, Ashish. Thank you for that. So, actually, my concern was… That, you know, over the last two, three quarters, you have been, you know, it's because of geopolitical reasons, etc. Beyond the point, a lot of companies tend to have inventory gains, tend to have renegotiated prices. But in our case, over time, even though we've had a couple of tailwinds for us, like the anti-dumping duty coming in our favor, it's been almost 14 odd months. And, you know, we're still seeing softened prices. And, you know, as of now, like a lot of people thought that, you know, even on your Q4 con call, when we were when shareholders and investors and analysts came to ask you on certain things segmentally, we were expecting. A simple map that was about at $13, even if you did 500 tons, we were under the impression that your EBITDA per kg is directly trickling to your EBITDA. There was no other fixed cost other than the sales team.

I think it was very clear that what we are saying is our raw material cost for vanillin. is between $7 to $8 for methyl vaniline. And conversion cost, which is a fixed cost, is $7 crores per month. So the math is, if I produce 200 tons, my cost goes to $11. If I produce 400 tons, my cost goes to $9. Nine, nine and a half dollars, which gives me a straight margin of $4. So that's the math.

Yeah, but Nirmal, sir, you're already producing 4,500 for the last before quarter.

I'm talking about a month, this is a quarter.

Okay, so even at $11, okay, let's assume $11, at $11, you're still selling at $13, $14, $13.5, or let's say $13, even this quarter was $13, right? Because the tariffs came off Q4, tariffs came off half the quarter.

But again, we have trade financing, so our net realization is lower because we are using trade financing. That's what Santosh mentioned, that what has impacted our margin is on the raw material side, we are using financing, and on the selling side, we are using trade channels for financing. And this quarter is not methyl vaniline, it is ethyl vaniline, where the cost of ethyl vaniline is higher than cost of methyl vaniline, and even the selling price is higher, but these costs of ethyl vaniline, we have reached a break-even point. Now, when the methyl vanillin starts, you will see that the margins will be significantly better, the gross margin. Similarly, with the margin will be, and in ethyl vanillin in the next run, the margins will be significantly better because of the scale-up effect that ethyl vanillin will have.

So, primarily, basically, you're stuck on fixed costs on one side and margin on the other, thanks to the war, and third being your financing, which is impacting your margins overall.

Is that correct?

So, the solution is only capital, or the solution is capital plus a normalized geopolitical time?

No, I think the first is capacity utilization. Okay? That's the first thing which is in our hands. That we can start infusing the capacity utilization. Of course, there is a question of financing for that, which we are using trade finance now. So it may impact the margin slightly, but at least the capacity utilization goes up and the cost comes down. That's the first thing. Second is geopolitical situation improving and improvement in costs. Which in the methyl vanillin run, we already have raw material that we've acquired at very competitive prices. So our margins will be significantly better. The third is, of course, capital, which we are, you know, we are looking at different various options to be able to raise that capital.

So when would be a fair estimate to gauge that you'd swing back to double-digit kind of EBITDA margins at a company level? Well, like Q3, Q4? Q3, Q3, Q2.

Q3.

So Q3 would swing back to double digit?

Yes.

Okay. Thank you so much. Thanks.

Thank you. The next question is from the line of Surya, Narayan, Farga from the lipcapital. You may proceed with your question.

Yeah, thanks for the opportunity, sir. My first question is on the growth number. Hello, am I audible, sir? Yeah, okay. So the quarterly, or if I see the quarterly growth trend for the segment, so the growth number looks really strong, which is higher than the kind of a blended performance on the overall revenue growth for the company. So, is it because of the restatement of the numbers or it is something else? If I see the slide number 7, wherein the segmental revenue growth is more or less on an average, it is beyond 30%. So, this growth number looks higher compared to the kind of overall growth number.

Unfortunately, I have not got the clear question. So, I am on seventh flight.

So, the segmental growth for all the segments, it is like on an average more than 30% on a blended basis, if you look at it, then kind of a near 30% kind of a growth that we are seeing here. It is, I think, a... The blended growth for the company as a whole for the quarter looks like 22%, 23% kind of growth. Were there any difference that I am finding here? What is that?

So, yeah, now I think I have got a hand on what you are saying. First thing is you are comparing the corresponding last year's quarter.

Yes. With this year's quarter.

Yeah, okay. Now, last year's quarter, especially if you see it states, We would have been almost same on the volumes, on quarter on quarter. We have been saying that states, for example, state business is not, it will saturate. The biggest thing of difference in the price side, right? We are selling a bit more states and the average population is doing this growth. From last quarter to this quarter. Length has been increased. There is no question of length. Length has been at 20 CAGR. It is going at 20 CAGR.

Performing is a different scenario because if I have catechol, I will sell catechol.

If I don't have catechol, I will not sell catechol. No enough hydroquinone, no enough deriative. So that's a different set. It's like an acid dairy business. If seeds do well, there will be lesser hydroquinone to sell. When it does well, there will be lesser catechol to sell. So performance will always be based on seeds and aroma. Aroma has been increasing. We have better price realization because that was a... So that's the reason when you compare quarter on quarter, you have to see the price side also, the volume side also, and our capacity utilization.

Okay, okay. Sir, my second question is on the margin profile of the, let's say, speciality ingredient business. Thank you. Where see both the blends as well as the straights. So those are the kind of a blended product area for us. It is this quarter, let's say, 6% because of quarter-specific challenges, if I believe. So what should be the kind of like-to-like margin that we should have seen for this specialty ingredient business in the previous year, sir?

So let us talk about this part of course. So what we have lost on a normalized gross margin is around 4 to 5 percent, 3 to 4 percent on because of the geopolitical and 1 to 2 percent on because of our liquidity situations. If I would have done this 4%, my naturalized egilda... I have normalized EBITDA at this moment of time and with all the pressures of putting the material to American markets and other things, I would have done 4% at least more on gross margin which would have straight flown down to my EBITDA. In other words, EBITDA would have been more than 10%. As boss was telling, you have to also see what it is because this state business is not one company. I mean, that it's across the... There are some like Brazil had its own thing because of lower margin. It was hardly 22% margin there because of typical situation where we had to push material by air credit or buy it from competitors at higher rate raw material and make the blends. Then there is other geography like MinPi which is just going now, just started now. The bidda is all... Because of a negative, as it grows, we provide working capital, as it grows, it will come down to 10%. The businesses, we are already settled, like Mexico and US. They are already doing a very, they should have done 17%, they have done 14% because they have lost gross margin. So those are doing well and that's why the growth part will be there, the laggards or like winpies in Brazil, they do well, the margins will increase. There is a great growth path we are looking at. We have done here on a quarter and quarter basis also. We have sold almost 300 million more sales. So there is a growth path. We know which products to push and other things and it will happen soon. On sales side, it's not a problem at all. The whole issue is... On the purchase side, with this, this, this is settled. And we have more things, the EBITDAs will grow. Because the fixed cost is not going to move. Even if you see our other expenses overall, they are not, they are not an increase. So, the capacities are there, the fixed cost is in place, people are in place. It's only now, I think. Number has to come is from the top line and the margins, cross-margin.

Okay. So then, sir, if we believe that, let's say, hypothetically, second half of the current financial year will look normalized environment, business environment, then which business out of the three segments is likely to deliver better margin profile? Or if you can give some sense that, okay, in a normalized business environment, what should be the likely margin profile of speciality ingredient and aroma?

So, basically, right now, aroma is negative. In Q2, it will be positive. In Q3, which is where we see much more normalized... Because we'll have a run of methyl vanillin with all the raw materials in there. So that will be significantly better than Q2. So Q3 is where you probably see closest to normalized margins. And that's in aroma. In blends, of course, 4-5% is... The raw material hits that we have taken, which some of them already in Q2 have been corrected. So, again, Q3 would be the right quarter for more normalized margin. But Q2 also, there is an improvement over Q1. And performance chemicals, the residue business, which, of course, it was negative because of the diaphenol closure and, you know, some costs which were being incurred. We were selling catechol at a loss, which we've now stopped selling catechol. We're using all of it for our internal consumption. So that also will be positive. So all the three verticals are...

The best margin vertical would be speciality and gradient. Is that understanding right, sir? Good morning, everyone. Life in all plant shutdown scenarios. So, you mentioned that, okay, you were also exploring about having that used for some other product. So, that is one. If you can talk something more on that. And the second point here is that if this plant shutdown situation continues for, let's say, for whatever reason, either the competition reason or the new time that would be required for manufacturing the new product. So, during that period, what really can happen for our other operation, whether the performance chemical revenue, what we are seeing for this quarter, like 175 crore. What impact it can see, and what overall margin impact it can put for other segments, because this is like integrated.

So, first of all, 175 crores is the total, but it's netted off. So, a large part of the 175, almost 100 odd crores goes into a Straits business, Straits and Blends. Okay, it is sold to Straits and Blends. Okay. And then aroma was almost 30 crores. So net-net in performance chemicals, I think that was your first question that the portal was not ready enough. So you have 130 crores is internal transfer, and that sale of performance chemicals is only 40 crores.

Oh, okay.

Yeah, you got that.

So, basically, when you look at that,

you know, that number is not going to significantly change the net sales to outsiders, because that is, it will reduce a bit because Catechol sale will come down, but then there is an increase in sale of some other products like HQE. We have some HQ sale also, and GBC sale, which is increased. So, I mean, that number will be in that region. So, the numbers to check and follow are more self-life and in the performance, you just look at the margin because a lot of the straight margin will be captured there. So, as the diaphenol expenses go away and the negative goes away, you will see that the margin will improve considerably because a lot of the straight margin is captured under performance.

Sure. Okay.

The margin is captured there, the sales is captured in straight.

Okay. Okay. And the potential of introducing new product in that plant, that scenario, how do you?

Yeah, so we are working on alternatives, which we should be finalizing in the next few months on which way to go. We have options on how to utilize it. We are seeing which is the best possible way to sweat that asset. Where will we get the best margin and the best return? And we'll follow that. We'll, of course, intimate the investors once we are ready.

Of course. Sure. Thank you, sir. Wish you all the best.

Thank you. The next question is on the line of Arshad Daigal from Bajaj Ordinator. Please proceed.

Yeah, hi. Thanks for the opportunity. Sir, a few questions. Firstly, clarification. So, our last call, fourth quarter, could have happened in May. And at that moment, did we guide for weakness in first quarter?

Yes, we have to thank Dr. YG. We get impacted because of the geopolitical situation. We were always confident about the top lines. The whole issue was on the raw material. That's why we had even closed our diphenium plants. The revenue side was never an issue. This was entirely because of the margin of the raw material prices.

So, guys, we are in mid-August. The commentary which you are providing at 2Q will be much better than 1Q that you are pretty confident about, right? Last thing on, mathematically, if I was to do numbers, so, to a previous question, you mentioned that you will hit double-digit margin in third quarter, and you are guiding for full-year margin of 10 to 11%, so mathematically, given 1Q was weak, it would be slightly better. Is it fair that the second half margin can be to the tune of 13 to 15%?

Yes, looking at the Pixar Star State. I'm not going to increase a lot. The whole thing is the revenue is going to come with a growth in blends and also in aroma. And the margin thereon gives us a higher rate of EBITDA in the second half.

The next question is from the line of Lovish from Berman Capital Investment Management. Please proceed.

Hi, thank you for the opportunity.

Sir, actually, I was just hearing your comments. We mentioned that our volumes in Aroma business will be similar to what we have done in Q1. Whereas, we are guiding for EBITDA to be positive in Q2. So, I just wanted to understand what will be the drivers that will help us to get this positive EBITDA given that volumes will still be similar to Q1 level.

So, we are, as you said, we are going to go for methyl vinyl now, which is a lower cost product but a higher margin as compared to methyl vinyl. So, we are switching over, we are ending the campaign of 700 tons, because these are the orders in hand, that have forced us to manufacture Ethyl Vanille. We are moving back to Ethyl Vanille, where we also have orders on that hand, and that will give us higher margin. The swing is, the difference between the EBITDA is only 4 crores. We get that metal when we are confident that it will come in the positive EBITDA for even aromas. Understood.

And so I think if I remember correctly, in our last call, we had guided for almost 4000 tons of vanillin in S527. Whereas this time we are saying that we will do 3000 tons in S527. So what has changed in the last three months, which is resulting in this lower guidance?

So, basically, we had guided for 3,600 to 4,000, and now we are staying around 3,000. The change is basically in our ethyl vanillin run. The ramp-up we took was slower than what we had anticipated, purely because we wanted to get the quality standards to be absolutely undoubtable, and that's what we've done. We've got 95% customer approval in the first shot, which is excellent for a product like ethyl vanillin. So, which meant that now we will be doing another campaign. So, every time we switch a campaign, we lose about a month of production. And we are going to, in this year, we are going to do four campaigns. We'll be losing four months of production. So, that's how we are looking at around 3,000 tons of production.

Understood. Sir, any particular reason why we shift campaigns, given that you are saying that methyl vanillin is a lower cost and better margin, so why aren't we sticking to methyl for the full year?

So, the customers require both, and methyl vanillin in the next run, our margins will be similar to methyl vanillin. It was in this run, we had high-cost material that we had to buy, and production also of some of the intermediates was high-cost, which in the next run, those costs will be rationalized, and the margin profile will be similar to methyl.

Understood. And sir, I think you also mentioned that raw material costs were higher, which we were not able to pass on in this quarter. So quarter two, we are confident that we'll be able to pass on and how much of that would be passed on? Will we fully be able to pass on those costs?

No, not fully, but in the blend, some of it, of course, we'll be able to pass on. I'm not saying that we'll be able to pass on entirely the cost, but maybe half of the cost we'll be able to pass on.

Got it. Understood. Thank you. All the best for the future.

Thank you. Before we take the next question, we will let in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two for participants. The next question is on the line of Meelt Gada from Sanghi Family Office. Please proceed.

Yeah, thank you so much for the opportunity. I had a couple of questions here. I wanted to understand the current demand scenario for VanLine and what is the situation on channel inventory with your customers and what sort of interactions you are having with your customers for pickup in volumes and for the utilizations to improve sequentially. That would be my first question.

Yeah, so Vanillin, right now, as we understand, the channel stocks are getting cleared out, so that issue which was there is now out of the way, and we are absolutely on track with all the customers that we discussed in the past, F&F companies and the others. You know, for their quarterly and half-yearly and yearly contracts, we are in negotiations, and that's progressing well. So in terms of demand pickup, 3,000 to 4,000 tons is what we are estimating for this year, but we will not be able to produce that much because of the campaign that we are doing. But it's fair to say that the demand is picking up.

Got it, sir. So, sir, is it normal to have four campaigns in a year, or so what kind of Vanolin volumes do we expect for FI28?

So, for FI28, see, I'll tell you again, this ethyl Vanolin campaign was a campaign, like I mentioned, we took, to scale up, we took a lot of time. So, normally, even if I take one month break, I can produce 500 tons of methyl vanillin or ethyl vanillin per month. That's my capacity. So, in eight months, even if I run it for eight months, I ideally should be producing 4,000, but this time it is 3,000 because we took time on, we took four months for ethyl vanillin to scale up.

Understood. So, it is fair to assume that 4,000 tons should be your peak utilization for a manly plant?

No, no, no. It's not so. Because we will not be doing four campaigns. Ideally, we would want to do more than three campaigns. And at that, we should be able to scale it up to 5,000 tons.

My last question was, what kind of working capital requirement is there for the business currently, and what kind of number of days you are expecting, and when do you expect the credit funding of 100, 200 or crore to crore?

So, our general working capital cycle on a consolidated basis is 100 days. At present, even in March, you would have seen that it was getting better than that.

That was because of our creditors.

We had extended nine due dates with our creditors. It's 100 crores is what we generally require for each one crore. I will require one third of that as a working Apple support. It's 100, 150 crores we are working. I think we should be able to have the line in place in next one, one and a half month. Or at least we know where, how we are going, how we are going to fund it.

Thank you, sir.

Thank you. Thank you. The next question is from the line of Satish Kamar from InGrad Equities. Please proceed.

Hi, sir. Just one question. Suppose everything were normal, then what would have been our EBITDA this quarter?

At least 6% more.

We have lost only on the margin. We have got 5,000 more gross margin. 5% would have directly traveled to that bottom line.

So that is one, and the second what is impacted, that 6% would have given, and the second is, of course, the vanillin, which, where the gross margin was even more impacted than because of the thyl vanillin.

So, you mean, But I know how 4 to 5% margin would have been.

Better. So, we can say that everything were normal. The EBITDA would have been in the range of 37 to 40 crores, right, sir? Correct. And, sir, for the coming quarters, we are guiding for an average run rate of around 70 crores, right, sir, EBITDA? I mean, obviously Q2 will be less and Q3, Q4 can be higher, but average we are guiding for is 70 crores. Correct. And so the other thing is that do you think there's a raw material cost pressure has been behind us, or it will remain so in this quarter as well?

In Q2, it will remain with us, because I don't see so much of a difference in raw material prices, because with the war situation and the conflict, it keeps moving in directions which we don't understand sometimes. Till this is resolved, you will always see elevated raw material prices.

And so, sir, our guidance actually factors in that, that elevated raw material prices.

Yes. At least, I mean, elevated for three months. It's not practicing six months and nine months.

Okay. But, sir, as you said in the beginning that some of the cost has been passed through, particularly in blends, right?

Yes.

Okay, okay. Thank you.

The next question is from the line of Neeraj from White Pine Investment Management. Please proceed.

Sir, can you elaborate on the inventory situation in the U.S. and the global situation of vanillin, how you think will evolve in demand supply equation? Aniraj, you are asking for inventory situation internally of vanillin? I'm asking, can you comment on the inventory of the pre-anti-dumping duty which had collected? How is that inventory of vanillin in the US? And, yeah. So, I think you are asking for the channel stops which were there at the start of the day. Yes, yes, yes. Those have dried out. There is no overhang of any channel stock, either Chinese or pre-handy dumping duty on now. So, there is no channel stocks in any of the countries now.

Okay. And so, what is your estimate of the U.S. demand and what

is your estimate of the residual demand? That will come from India to supply to the U.S.?

So, basically, the demand is U.S. and Europe where the anti-dumping duties are. So, our focus are on these two markets. And there seems to be a gap of about 5,000 to 6,000 tons of material which will have to be imported because the local production capacities are fully occupied at that level. So, we see that opportunity for us to participate in that supply.

Okay.

Sir, but the question here arises that if you are not producing and China is

having import duty on its head, then why are the prices not rising in the US and Europe?

Good question. We are asking this to the market leader, which is ScienceCo, who are producing in U.S. and Europe. Why are they not increasing prices?

But there is a bit also. If Solvay increases prices, the Chinese price also increases. Chinese will again come back.

They'll come with them.

So at present, if they sell at 18, the Chinese price will increase.

They are telling to the same customer. They are a multinational selling to customers across the world. So a fragrance and flavor company, if it's buying material at $8 in India and you charge them $25 in the US, the same company doing it, it doesn't go down well with the customer. So they have to protect their global business also. So they will always keep it reasonable. They will not take it to levels. To equate it to the anti-dumping duty, because some of these customers, they are servicing on a global level.

I agree, sir, but if I do just do the anti-dumping duty mass, they will not be able to supply below

a particular price. So, just by that mass, the price needs to go up, actually. Sir, he's not asking you, that's fine.

So, it's not a reverse working from my sale price plus 20% duty, 250% duty. See, the anti-dumping is to protect Solvay. Solvay is indirectly deciding the price, right? If they sail at 18, the Chinese have to bear 250% duty, which comes to $7, $8. And that is how they have kept Chinese out. If they make the sale price to $21, the Chinese price becomes 8, 8 and a half, 5%. So, despite 250%, they will start competing. That's one thing. Secondly, as Bosworth thinks, he's not only selling in US.

They have contracts like ISS and Geodad for entire

world as a whole.

So, they're balancing. They cannot take...

If they are exorbitantly high, if they increase prices in US, then Chinese do enter. They will sell at $8. They are happy with that. $8, $250 duty, if they get $20, if Salway is saying $20, Chinese will enter.

Okay. Okay. Yes, sir. Thank you.

Thank you. Due to time constraints, that was the last question. I now hand the conference over to the management for the closing comments. Over to you, sir.

Thank you. Thank you for your time, ladies and gentlemen. We look forward to interacting with you again at the next quarterly earnings conference call. Until then, good evening. Thank you.

Thank you. On behalf of Camden Fine Sciences Limited, that concludes this conference. Thank you for joining us, and you may not disconnect your lines.