DCW Limited (DCW) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to DCW Q1 FY27 Earnings Conference Call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Rashmi Gohil. Thank you, and over to you, ma'am.

Hello, and good afternoon to everyone. On behalf of Arihant Capital Markets Limited, I thank you all for joining the Q1FI27 earnings conference call of DCW Limited. Today, from the management, we have Mr. Sattvic Jain, President, Mr. Sudarshan Ganpati, CEO, and Mr. Pradeep Mukherjee, the CFO. So, without any further delay, I will hand over the call to the management for their opening remarks. Over to you, sir.

Thank you, and good afternoon, everyone, and thank you for joining us for DCW's Quarter 1 FY27 earnings call. I will begin with the operating environment, because Q1 was shaped significantly by external disruption. The global chemical industry remained challenging during this quarter. Competitive exports from China continued to... Pressure of pricing and trade flows, particularly in commodity chemicals. At the same time, the conflict in West Asia disrupted crude-linked feedstocks, shipping routes, and supply chains. For India, this translated into availability constraints and sharp volatility in energy and petrochemical input costs. Domestic demand, however, remained reasonably resilient, supported by infrastructure, housing, water management, and manufacturing activity. While near-term conditions remain volatile, we continue to believe India's long-term chemical opportunity, driven by domestic consumption, import substitution, and supply chain diversification. All this remains intact. Against this backdrop, Q1 was an extremely difficult quarter for DCW, particularly for our PVC business. Revenue from operations grew 14% year-on-year, led by 38% growth in specialty chemicals. Sequentially, the revenue declined 11%. Mainly due to higher captive consumption of PVC for hours cPVC, lower production of PVC, and liquidation of some inventory of synthetic rutile in Q4 last year. Profitability was significantly affected by a combination of factors in PVC. The West Asia disruption constrained VCM availability, resulting in lower PVC production, while VCM prices were elevated. This coincided with the temporary suspension of import duties which increased the flow of lower-priced imports into India and further pressured domestic realizations. Together, lower production, higher input costs, and weaker realizations had a disproportionate impact on the quarter. Importantly, we see these pressures as largely event-driven rather than structural. VCM availability has improved and supply chain conditions have begun to normalize. Normal import duties have also been reinstated and the government has subsequently introduced a minimum import price framework for suspension grade PVC. From where we stand today, the operating environment for PVC is more constructive than during Q1. On our specialty business, continued To demonstrate the resilience we have been building into our portfolio, CPVC production and sales ramped up strongly following the recent expansion, and our specialty chemicals EBITDA grew approximately 20% year on year. Demand for synthetic iron oxide pigments remained healthy across construction, infrastructure, and paints and coatings. The increasing contribution of our value-added products again helps support the company through an unusually weak quarter for the basic chemicals segment. This reinforces why our strategic direction remains unchanged. As I mentioned last quarter, we have spent the last few years strengthening DCW's foundation, repairing the balance sheet, reducing debt, improving operations, and increasing our specialty chemicals contribution. FY27 marks a point where we begin moving from strengthening that foundation to building for the next phase of growth. We expect our legacy long-term debt to fully be repaid during this year. Before incremental borrowings for new growth projects, we remain on track to become effectively net debt-free by the end of FY27. This gives us the capacity to invest from a position of considerably greater financial strength. This next phase of growth is also accompanied by an important leadership transition. We are pleased to inform to have appointed Sudarshan Ganpati as our CEO. As we embark on this next phase, his experience and execution capabilities will be important in translating our growth strategy into operating performance. Yesterday, we announced the first step in what we envisage as DCW's next five-year growth journey, a $2.50 crore investment program over the next two to three years. The first part is the expansion of our synthetic iron oxide pigment capacity. From approximately 30,000 tons to 45,000 tons per annum. Phase 1 will add 7,000 tons, which is targeted for completion by quarter 4 FY28. With infrastructure and utility sized for the subsequent phase of 8,000 tons. Alongside this capacity, we are broadening the pigment portfolio with newer value-added products, including micronized grades, to improve our mix, margins, and addressable market. The second part is an investment in the captive power infrastructure at our Khawparam facility, also targeted for completion in the fourth quarter of FY28. Aimed at structurally lowering power costs and improving operating efficiencies across both our specialty and basic chemicals businesses. Our approach to growth remains disciplined. We are targeting a minimum incremental ROCE of 20% on our new investments. We are not pursuing growth for the sake of growth. We intend to deploy capital where we have an existing competitive advantage, established customer relationships, and ability to earn attractive returns. Despite the impact of PVC in Q1, based on current visibility, we continue to expect FY27 to close at a better level than the previous fiscal. Our priorities remain clear, maximize our existing assets, execute our growth initiatives with discipline, improve the value-added mix, and build the organization for a larger scale of operations. We believe that our diversified portfolio, integrated manufacturing platform, and strengthening balance sheet provide a strong foundation for this next phase of our company. With that, I'll hand it over to Pradeepto, our CFO, to take you through our financial performance.

Thank you, Sathik, and good afternoon, everyone. Welcome to our Q1 earnings call. The revenue for the quarter stood at 542 crores, reflecting a 14% growth on a YOY basis. This growth was primarily driven by strong performance of the speciality segment, which reported a revenue of 177 crores, representing 33% of our total revenue. The segment's performance was supported by 59% increase in CPBC volumes and roughly 3% in SIOP. On sequential basis, the revenue declined by 11%, despite a 6% increase in speciality segment. The decline was largely attributable to one-time base effect. In the basic chemical segment, where the revenue reduced to 361 crores, down 18%. This was mainly due to an exceptional Q4 inventory liquidation sale of synthetic butine, which created a higher comparable base and should therefore be viewed as a non-recurring impact. It is also important to highlight that the West Asia crisis led to a temporary non-availability of VCM. Along with the increased PVC-CPVC integration, this resulted in a 20% drop in PVC volumes during the quarter. This instruction was external, temporary in nature, and one-time adverse effect on the quarter's operating performance. The EBITDA, including other income, stood at 41.4 crores for the quarter, lower by 28% on YOY basis. This decline came despite 20% growth in the EBITDA from the specialty chemical segment. The basic chemical segment reported a negative EBITDA of 14 crops, primarily due to losses in the PVC business arising from temporary supply chain disruption, elevated VCM prices caused by the West Asia crisis. In addition, the temporary suspension of import duties on petrochemical products adversely affected PVC realizations and margin. Both these factors were largely one-time in nature and weighted. On the sequential basis, EBITDA, including other income, declined 41 percent, even as profitability in the speciality segment improved significantly by 35 percent. The basic chemical segment profit was significantly impacted due to the PVC business, while caustic soda witnessed margin in expansion during the quarter. The sequential decline was therefore not reflective of the underlying business trends. This was mainly driven by one-time impact in PVC as explained earlier. The finance cost stood at 14.8 crores, demonstrating a reduction of 2% YOY basis and 4% sequentially. The decline trend continued to reflect the company's ongoing deleverage efforts. Depreciation for the quarter remained broadly stable at 26 crore, with a marginal increase in line with project capitalization. It is important to mention herein the effect of the tax which we have taken. Pursuant to the amendment in the corporate income tax under the Finance Bill 2026, Accumulated minimum alternative tax credit can now be utilized only if domestic companies transition to the new concessional tax regime. The applicable tax rates under the new tax regime is 25.17%, including surcharge and education fees, compared to 34.9% under the old regime. Further, domestic companies are permitted to take a set-off of 25% of the regular tax liability Accordingly, the company had decided to migrate to the new tax regime, resulting in the reduction in net deferred tax liability by 34.34 on account of old rate differential. Overall, the company's Q1 operating and financial performance was significantly affected by non-recurring external factors, particularly the PVC business disruption caused by West Asia crisis, resulting in temporary supply constraints, elevated VCO prices, and suspension of import duties on petrochemical products. These factors had a sharp one-time impact on volumes, realizations, and margin during the quarter. We are now witnessing normalcy. Thank you, everyone, and with this, we can open the floor for Q&A.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question, press star and 1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Aditya, an individual investor. Please go ahead.

Oh, yeah. Hi. Thank you for the opportunity. So, my first question is that on the revenue side, the revenue grew 14% year over year but declined 11% quarter on quarter. So, can you quantify how much of the sequential decline was due to, like, Was due to higher captive PVC consumption for CPVC and lower PVC production and synthetic retail inventory liquidation in quarter 4 FI26?

I think the value which is there for revenue decline is single-handedly, you know, impacted for the... One side base effect which we had for Q4 inventory liquidation of synthetic rutile. On addition to that, we obviously had a couple of days of lunch shutdown for PVC. And that would, we have not calculated the figure, but one time single effect of synthetic rutile would have more than impacted on the total topline.

Okay. Okay. All right. And another question is that the specialty chemicals revenue grew 38%.

So the

margins in the segment fell from 33.6% in quarter 1 FI26 to 29.1% in quarter 1 FI27. What is driving this?

So, the margin so far as the speciality business is concerned constitutes of majorly two products as you rightly pointed out. One is CPVC and one is SIOP. While we are growing CPVC with our capacity, you know, coming up, there is always a dynamic equation between PVC and CPVC spread, like we have for VCM and PVC, because PVC gets into manufacturing of CPVC. And that has been very volatile and dynamic, given the PVC prices, the import duty, you know. of abolition by the government for the quarter, and all these have got baked into your PVC profitability, going from base chemical profitability to the speciality chemical. So far as SIOP is concerned, our margin remains robust, and we are, this year finally, we'll be able to tie up our entire capacity of 28 KT, for which we did a capacity. G bottle making a year and a half back. So it would always be dynamic. The good part to see about DCW is that we are a 1 lakh ton PVC producer and 50,000 tons of CPVC producer. So normally when the base chemicals profit is driven by PVC, there will be an effect of that into the CPVC profitability. So, it would be difficult to tell a steady state margin for, you know, the waste chemicals as well as the speciality chemicals, because a part of PVC gets into, 50% or 40% of PVC gets into CPVC, that is dynamic.

Okay, okay, good. And my other question is on the export side, that the revenue was 28% of FI26 revenue. So, how did the export make spread in quarter capital? And are you seeing an impact on export realizations from inventory, you know, tariff dynamics?

I mean, our products are not impacted by tariffs in any way, I think. Not even the US tariffs for SIOP where we export. So typically we have around, you know, 60% of our produce of SIOP being exported predominantly to the US. We have 100% of our volumes of synthetic rutile exported outside. And occasionally we have bulk shipment of exports for cost. Thank you.

Sir, and I have one last question. The basic chemicals EBITDA margin turned negative. Like, it was minus 5.2% in Q1FI27 versus plus 2% in Q1FI26. And so, could you break down how much of this is PVC or stick soda pricing?

So, caustic soda across the three segments, that is YOY and sequentially, more or less has remained the same. So far, the biggest dent this year, I mean, this quarter has predominantly been into the BBC because of the one-time effect we've been discussing now. So there are two things on the PVC segment which has happened. One is the duty abolition wherein the net realizations and margin got impacted. And the second is that the availability of VCM and the price at which you took your VCM and quarter one, that's related to the West Asia crisis. As of now, we see situations have come back to normalcy. And that gives us the confidence that the coming quarters, assuming that the normalcy... If it settles down, our coming quarter results would be better off. The second thing very clearly is evident, as I told, is that the cyclicality of, you know, exports into the U.S. for the SIOB business, which will also give a positive margin spread. We are not calculating any profits at a product level. I mean, we are doing it at a segment level. Obviously, what numbers we are telling you or what evidences basis which we are letting you know is on the direct cost basis and the revenues for the product.

Thank you. The next question comes from the line of Madhur Rati from Counter-Cyclical Investment. Please go ahead.

Sir, thank you for the opportunity. Sir, could you quantify what was the negative losses in the basic chemicals from PVC? 18 crore is the loss for overall basic chemicals and on the EBITDA level, and it seems that caustic soda and soda ash were positive. So, if you could give us what were the losses related to PVC?

So, we can only give you a directional number because the fixed cost allocation for the basic chemicals are common. It gets allocated when we were reporting previously on the... This product as a segment, we had some allocation basis which we stopped as of now because we are reporting segments based on basic chemicals and speciality chemicals. So what we can say is that, I mean, it wouldn't be anybody's number, but we have a guesstimate of maybe a swing from a sequential basis of around 50-55% on the PVC business.

Sir, I couldn't hear properly, sir, you mentioned 50-55 crore was the loss for the quarter in PVC segment?

It's a swing because quarter four had a profit. Quarter four, the PVC spread, PVC VCM spread was high. So from that to what impacted the variable cost or the contribution, we estimate that it would be around 50-55 crore.

Okay, so the quarter-on-quarter swing was 50-55 crore in the spread of PBC?

Yes, at a contribution level.

Sir, so basically, is it safe to say that in our Q1 number, the 28 crore loss from basic chemical segment, PBIT loss, only PBC was a loss-making segment and soda ash, caustic soda and synthetic crutile, the other three were profitable?

Yes.

Okay. Now, sir, since all our divisions, especially in the basic chemical segment, sir, we must be in the smallest quintile of the plant. Is that the assumption correct?

Sorry, we missed your question. There was a disturbance. If you can kindly repeat.

Sir, my question is that in our basic chemical segment, caustic soda, soda ash, and synthetic grudel and PVC, the size of our capacities in each of these must be in the smallest quintile of the industry?

Yeah, I mean, you're correct, but I think our soda ice capacity and PPC capacity is 1 lakh tonne, caustic soda realistic capacity is basically 90,000 tonnes, and synthetic rutile is 48,000, 50,000 tonnes. We obviously have comparable numbers of other producers, so far as the first is concerned, we don't have a comparable synthetic rutile producer in the country.

So, in which case, since the cost of production is directly proportional to the size of the capacity, especially in the commodity segments, which means that by virtue of our plants being small, our break-even price would be among the highest in the industry. Is that correct, sir?

Well, it depends, and that's exactly where our investments in the solar a couple of years back and this time what we announced on the power plant efficiency CAPEX is what we are continuously improvising on the cost part and investing on the efficiency of the basic chemical. The ethos of the organization has been to grow on the value-added products, which we call a speciality segment, and continuously invest in driving efficiency on the basic chemicals so that we have a competitive landscape with our producers. Obviously, we do not have the capacity to grow. We're trying to invest on efficiencies continuously so that we remain competitive with our peers.

Sir, in the synthetic rutile segment, there is a listed entity, Kochi, Manjal and Rutile, they came out with a very strong number in the, actually, their first quarter EBITDA was equal to the EBITDA full of last year. Sir, so, did we also see similar expansion and margins in our synthetic rutile segment in first quarter?

There, there. So, the synthetic root oil margins have looked up compared to last year, because the synthetic root oil, last year, most of the consumers were doing an inventory correction. So, everybody, all synthetic root oil producers in the country had to sell at a price which is subpar. Now, the prices have corrected, and eventually, for us, we will gradually see the benefit of it with the way we have tied up with our customers.

So, sir, as things stand in Q2, sir, you believe that we will be able to break even in our basic chemical segment in the second quarter?

We more than believe if the situation stays as normal as it is today.

And, sir, the 400 crore EBITDA target, does it still stand for effort 27?

No, I think 400 crore is an EBITDA target which we spoke a couple of years back when the EBITDA margin for CPBC business was around 40%. The PVC and the CPBC contraction in the spread which has happened, we think our steady state profit roughly would be somewhere around 300 crores. But given that, that's a steady state tied up for all the four quarters. We have to see how things shape up. Some of the things have been, you know, a permanent loss in water 1, capacity loss. We think that numbers, you should assess at a 300 crore Vita and a steady state.

And, sir, lastly, sir, last time we had discussed about a share buyback in which you mentioned that we will have to offer a 35% premium over the market price to do so, which reduces the attractiveness. Sir, now, SEBI has recently, sir, come out with an open market share buyback wherein the company can directly buy shares from the market without giving any premium. So, at the current market price, the company can buy back and extinguish it. Only thing is, promoters cannot participate. Sir, since our stock price is today at 44 rupees and it was, sir, 46 rupees in 2007, sir, and company is debt-free, sir, so it really makes a compelling case for a share babak.

So, while we are mulling on this idea, we are glad that you put this point on and we urge all our investors to see the value in the stock. So, we obviously are mulling this idea. I think we will announce it in an opportune time, if we at all decide to do so.

And so, just one question, sir. Have our caustic soda ECU realizations improved because right now we are using entire chlorine for our CPVC versus maybe two, three quarters back?

Definitely, yes. We have our right. ECU realizations have definitely improved because we don't sell chlorine anymore. We consume all the chlorine in-house. So, that is definitely a big, big positive for us.

Sir, can you quantify, like, what were the chlorine effluent treatment charges or chlorine lifting charges that we used to pay earlier, and what has that reduced on a YOY basis for FY27, what do we expect?

I don't think we keep any record of that, but there were no effluent charges on chlorine. Chlorine was only sold at a negative price in the past. And now, because we are consuming it ourselves, that negative has become now at cost. So, we are transferring the closing at cost. So, to that extent, there is a benefit going to the cost-ex-product division.

Got it. And, sir, for this SIOP chart that we are doing, sir, what kind of revenue did we... Sir, so what is the current realization for metric done and what kind of margins are on this product right now? And how is the raw material sourcing for this with the expanded capacity?

So, I think the announcement has given a top-line estimate and assumption of the total capex giving the bottom-line effect. So, a lion's share of that would come from the SIOP business itself. Obviously, there will be some amount of savings coming in from the efficiency as well. And so I think the margins would be somewhere around 35-36% and it's been stable ever since we have been communicating that. And that's the way to see it. And the prices would be somewhere north of 80,000 or around 80,000, a ton.

Got it. Sir, that was from my time. Thank you so much.

Thank you.

Thank you. Before we take the next question, a reminder to all the participants, to ask a question, please press star and 1. We have the next question from the line of Poojanshaha from Molecule Ventures. Please go ahead.

Hi, sir. Thanks for the opportunity. Sir, I just want to understand, first of all, on the PDC side, so we have seen quite a volatile in terms of realisation for the PDC for this last quarter because of the geopolitical scenario. Now, we have also seen that the government has re-imposed the duty which has been removed, and government has also imposed the MIP at a current juncture. So, in that case, the. Do we see that the PVC prices have been bottomed out at a range of 85-87? And how do you see the scenario? Because the MIP is more or less for the 6 months. So, can you just throw some light on that part?

If you compare with the MIP, the bottom could be 80 rupees. Because the MIP translates into the price of 80 rupees. But fortunately for us, today the offers and the import parity are at prices much higher than the MIP. Today the prices are in the vicinity of 820 to 860 levels. And even the domestic prices also have got adjusted to that level. So as we talk now, the prices are much higher than the MIP. And MIP is an instrument only to protect the bottom. We don't expect the prices to go to the MIP levels in the near future, because the only country which can offer a lower offer is China, and China has some logistics and transportation issues. So, we expect the prices to remain in these levels at least for this quarter. So, at these numbers, with the VCM prices having corrected significantly, I think we should do reasonably well, if not exceptionally well.

So, coming to the same point, so obviously we suffered due to the VCM price inflated prices. But as it has been pulled off, and now the spread seems to be a positive side. So do we see the coming next quarter will be a big positive in terms of basic chemicals? Because in COSPIC and in ESA, we have done positive events. It is just that we have been impacted due to PV.

It should be, but you should also take into account that July was a month where we were carrying stocks, plus the duties were also not restored for major part of the month. So, as the month progressed from August to September, I think we are doing good. Having said that, I think basic chemicals should definitely do better than what we did in the quarter one.

But at the same breath, I just like to also tell that if the PVC prices and the spread of VCM gives a positive delta to our Q1 result, we need to also factor that there will be some amount of lag or a spread of PVC, CPVC, and there would be... Expected margin contraction in the speciality business. For an organization where we have capacities of PVC, double that of CPVC, that's overall beneficial for the organization.

Got it, sir. Because why I am referring to the same point is because if we look at the CPDC also, so if the CPDC has been inched up, do we have seen similar kind of inching up in the CPDC? And do you feel that the price will remain at that point due to as TVC has been bottoming out or due to inferencing of government duties, TVC should also remain somewhat a bit higher, which helps us to gain some realization. Obviously, not because we have some inventive hints, but we want to understand on a larger aspect.

See, like VCM and PVC, we have a lag. Similarly, we will have a PVC-CPVC spread, which is also with a lag, right? It would not immediately have, because we accept orders at a particular price. We have to honor our customers' prices. So, it will come with a lag. Now, what we need to also understand is the standard spread, what we expect, does it settle after this disruption or not? So, immediately, we would see our future orders coming in with a higher price, but the lag effect of the old orders would obviously play out in the specialty chemical in a negative way.

Got it, got it. Can you tell some different current spread between PEC to CEC and VCM and PEC?

It's difficult to really gauge, but having said that, the spread could be anywhere north of 25,000 rupees at all.

Got it. From what on PVCC please? Come again? So, the trend which you may spell out is for PVCC, please? Yes. And also the trend for VCD?

No, no, PVCD to CPPC. Okay, that's it.

I just want to understand the current scenario, we have seen quite a significant spike in synthetic routine, and want to understand on your perspective as well as because we have run down our inventory, and just to understand the new agreement which is also coming up with Japanese customers, which will help much more better realisation. So, do we see any now significant impact on negative side of SR, or we should steady-state expect a good quarterly EBITDA for synthetic group type?

I think going forward, I think would be much better at an annual level compared to previous years as you have hinted the right thing of the development on the business side which has happened. Obviously, but there is a scheduling of our supplies. See, basically what happens is it's not the cost which goes down or it goes down much relatively lower. It's about our customer mix. On an annual level, the customer mix looks much better compared to last year. And the scheduling of our deliveries to better, higher-priced customers would seem to be gradually going up during the quarters. It's back-ended. Eventually, you can expect a delta in the profitability in the synthetic rutile business also in the coming quarters. Two positives for us starting from this quarter to the coming quarters is cyclicality of SIOP where we will be generally and historically have seen that the volumes of SIOP grow by higher at quarter 3 and quarter 4. The scheduling of our supplies to high-priced synthetic rutile, which is also back-ended for us. And thirdly is that we have positive VCM-PVC spread compared to the previous quarter. The negative only what we see is basically is that at what immediately in the current quarter and in the coming quarters how the PDC-CPVC spread will play out.

Got it, sir. And coming to the coming case of what we have announced. So, in SIOP, just want to understand the 250 crore, specifically we have dedicated for SIOP, in which for the phase 1 and phase 2. So, how much we are planning to take from warrants because if we consider the Q1 aspect, if we neglect the Q1 aspect as well, in the next three quarters, we can easily do a 150 crore of cash flow. So, do you feel that we need any type of debt which will help for the KPEX, or we are self-sufficient for internal approach?

So, as an organization from a couple of years back, and which we were vocal as well, we are doing two things. We are running down the leverage. We are doing KPEX in bite size, and what we do also try as a treasury discipline is to maintain 5 to 10% of the cash of the top line. Given such scenario, we think that we would be borrowing, and since our debt levels are coming down to a significant lower level, we think that, you know, a negative spread of 1, 1.5% from, you know, cash and cash equivalent to borrowing is a welcome and a comfortable situation to maintain. So, we would be going to borrow.

So, I just want to understand, first of all, how much we are planning to repay the borrowings in this year, the legacy debt, and how much we are planning to raise for the CHIOP, and this debt will majorly be made in FY28, right?

See, basically, starting the, I mean, CAPEX, as we have announced, and what we see is that we will be borrowing a shade higher than our repayments. Our repayments roughly would be to the tune of $135. We will be borrowing a shade higher. That also depends on what the cash level maintenance we want to do and the cash generation or actuals for the next nine months. So we'll try to do a balance and there would be some negative carry in the balance sheet in terms of differential interest income versus interest expense. But we need to figure that out and can come back to you only after that. But obviously, we would keep our leverage in check and also continue to keep 5-10% of our top line as cash and cash equivalent in terms of FDs, mutual funds, and so on and so forth.

And the second thing what we have been planning is mostly we will start. After Q4-FI-28, we will announce it early and then we will commission in FI-29. So what are your thoughts on that?

So Q4-FI-28 is where we have told we will commission the plant with our expertise in dealing with the product over the last... Now, almost a decade, we think that the first 7,000 tons and the value-added drive which we are taking into SIOP, we think that commissioning to the commercialization would not take too much of a lag. We think that immediately post that, we intend to start our next phase. We may, obviously, if the market pushes us to a situation where we start running back orders, we may prep on also. We'll see maybe as our H1 of F528 gets over with. And we are almost at the end stage of commissioning the first phase. We'll take a call that time.

Got it, sir. Got it. Thank you so much, sir, for all my queries. I'll be joining the interview.

Thank you.

Thank you. The next question comes from the line of Madhur Rati from Counter Cyclical Investments. Please go ahead.

Sir, thank you for the opportunity once again. Sir, I wanted to understand, was there any inventory gains for SIOP and CPVC during this quarter? Because you mentioned that due to the lag effect, going forward, there might be some pressure. But during this quarter, was there any inventory gains in REO for the speciality segment?

So, on the speciality segments, our profits have been higher on a sequential basis. Despite PVC-CPVC spread contraction, while the PVC prices fell, the CPVC prices also fell. That definitely indicates that there was an inventory gain for the limited amount of PVC we were diverting for CPVC.

And, sir, for SIOP as well, because ammonia is a major raw material and that pricing is spiked up during, I think, post-dove also regarding that product?

SIOP, we could pass on all the increase to the customers. So, whatever was the cost increase on account of higher prices of inputs, we could pass on to our customers.

Got it.

And sir, let's say, whatever expansion, this is all brownfield expansion, right?

Yes.

Sir, so can the margin profile be better than the 35% level that you used to do earlier?

We have really not mapped what will be the better absorption of the fixed costs. All those things will come as the project takes its shape. We are only assuming the current margins to continue in our ROC workings and our payback.

Got it. And sir, just one question, sir. So, like going forward, we are expecting there could be some pressure on the CPVC, PVC because of the PVC price increase. But sir, if I look at our integrated margin from VCM to CPVC, can we expect to maintain these going forward?

I think we should be able to maintain. So that's the whole game. Basically, VCM to PVC and PVC to CPVC. That margin is what we need to follow. But you need to understand that our capacities for PVC is double that of CPVC. And if the PVC prices go up, the inventory gain from VCM to PVC is a bit more than the contraction in the PVC to the CPVC spread. The fact of the matter is the growth in the CPVC business or the speciality segment would not be robust or it will contract. Basic chemicals will be almost double that of the contraction in the PVC to C. What did you just say?

That was from my time. Thank you so much.

Thank you.

Thank you. The next question comes from the line of Khushi Solanki from Agarwal and Company. Please go ahead.

Hello.

Hello, everybody.

Yeah, thank you so much for the opportunity. So, I wanted to ask, can you elaborate on the West Texas crisis impact on VCM availability? Is this a logistic issue or a natural supply shortage?

It is a natural supply shortage because the VCM was usually sourced from the Asian producers who in turn used to buy their crude feedstocks from Middle East. Because of the conflict, the feedstock supply to the Asian suppliers, there was a force measure which forced them to curtail their operations, which in turn resulted in lower quantities available from our traditional suppliers. So, whatever quantity we have purchased, we have purchased from China, which was a spot and at a much higher price.

Okay, so, can I know any strategies to de-risk this VCM post-procurement?

There cannot be a strategy for a war, because this we hope is a one-time, and I don't think we can do any strategy based on this, because the Asian producers will continue to depend only on Middle East. I don't think they have the ability to buy from Russia or other sources. So this is a thing which is a one-time is what we should consider.

So, the strategy is two-phase. One is availability of the material, another is the price, right? So, as an organization, we were taking VCM from Qatar previously, and it was there as a producer and sending it to us. We, as a strategy, migrated to a global distributor who supplies VCM from different parts of Asia, which is manufactured. So, the supply for us has been relatively taken care of by this migration, and prices which have gone up is something which is difficult to strategize.

Okay, sir. So, I have one more question. What percentage of VCM requirement is currently imported versus domestic sources? Are there any plans to backward integrate further into VCM to reduce this volatility?

You are asking for our company specific?

Yeah.

Yes. Okay. So, there is no merchant VCM seller in India. So the entire VCM is imported not only by us, even by other PVC producers who are following the process. And it is difficult to have a backward integration for us because our capacity doesn't justify integration at this level unless we decide to go for a five times expansion in our PVC capacity. And, like, as already we have communicated clearly, we... are unlikely to expand significantly in any of our basic chemicals unless there is a need for that to augment our specialty business.

I have one last question. How was salt, chlorine, and hyaluronic acid cost trending, given these are captively produced? Is this self-sufficiency in this input, providing adequate insulation from the current cost inflation?

I didn't get your question, madam. Can you please repeat?

I just wanted to ask, like, How are the salt, chlorine, and hyaluronic acid cost-rending, given they are captively produced?

Basically, we are using predominantly our captive salt, which is both for our caustic business and soda ash business. Chlorine and HCL is a part of our product output, process output. So basically, what over the years we were under pressure was basically we had to sell the chlorine, because the chlorine generated from the caustic. Was not being absorbed internally by our CPVC volumes. As of now, we've become chlorine neutral. So what has happened is the ECU in our caustic has improved, and thereby the profitability in the caustic department, or the product. So far as these other, so these three, two are byproducts of our process, and salt is something we... Internally, we use our internal resources to get the salt. So, for us, we are not using any market dynamics in terms of procuring any of them.

Okay, sir. That's it from my type. Thank you so much.

Thank you. Thank you. The last question comes from the line of Hari Kumar, an individual investor. Please go ahead.

Yeah, I'm audible, I'm audible, sir.

Yes, please, go ahead.

Okay, two questions, sir. With the cache generation expected to be much higher, going at like a wire or extension plants, very conservative. It can't be devoted to other chemicals and the new chemicals.

So, TCEV as an organization has been, you know, working on chemistry balancing in our south facility and allied or related value-added products. So, the expansion in CPVC from the first phase was basically because of the chemistry balancing, as I told, wherein we became chlorine neutral. As of now, we have announced an SIOP volume increase because we are very excited of this segment and we see a long pathway of this product for us. We also have a significant vote in terms of entry barrier to the product because the capital investments are very high. Since we had invested at the first 28 KT, very high investments, and we have seen that behind us, now it is only lucrative for us to grow on in this segment and retain our moat. So that has been the first level of growth which has come in or announced that any kind of growth which comes in would be into our related chemistry. As of now, we see there is a runway of growth in our related chemistry, and hence we are not getting into unrelated chemistry at the moment. We don't think we have exhausted the opportunity in the related chemistry. Secondly, we as an organization are both import and export driven, I mean domestic and export driven. With SIOP coming, we have had our experience of exporting product into U.S. market. So, the opportunity size opens up for us in the related chemistry. So, as of now, we are not looking into unrelated chemistry, because the pie of the market for us opens up not domestically, but globally as well.

And secondly, sir, like VCM, like for de-risking, can't we increase the storage capacity so that to de-risk the market disturbance?

See, increasing of the storage capacity is basically, first of all, VCM is gaseous. Secondly, increasing of the storage capacity is basically a supply chain play. It's not a de-risking play. Because beyond a certain level, you cannot store VCM. So, it will only help us as much for 10-15 days of inventory storage additionally, and we don't see the worth of it. As I told that previously when we were taking from a single source Qatar, today we have de-rested supplies going into a global supplier of VCM. So, supplies has been de-rested big time. However, the prices in such cases are in such one-off situations like war is something which I don't believe any organization plans for de-risking. However, as I said, we don't have a choice just other than to work for another 15 days of storage capacity increase. Nothing beyond that.

Thank you, sir. That's all for my sake. Thank you very much.

Thank you. That was the last question, and I would now like to hand the conference over to the management for closing comments. Thank you, and over to you.

Thank you, everyone, once again for joining our call, and hope we've been able to add some clarity to all your questions. If there are any further questions, I request you to forward them to our IR advisors at Valorim. Thank you once again, and look forward to talking to you again next quarter.

Thank you. On behalf of Aryan Capital Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.