Q1 2027 Camlin Fine Sciences Ltd Earnings Call
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Speaker #4: And we've changed our disclosures from the traditional lakhs and crores to millions to match with international standards. From this year, we have also started to disclose the segmental information.
Speaker #4: There has been internal restructuring, and the management has started looking at the business in a more structured manner. I think the investor community will be happy, because this was always a request—that it would be better understood if we have segmental results.
Speaker #4: Coming down to overall revenues, our revenues were ₹5,199 million, and that's around 28% more as compared to the previous year's quarter. It's almost ₹1,000 million more as compared to the last quarter.
Speaker #4: Obviously, we have done extremely well on the revenues, but the margins are not in line with expectations. There were certain reasons for that.
Speaker #4: The main reasons have been on the raw material side, where, as you know, the entire situation regarding raw material—the prices, availability, as well as the freight costs and other associated factors—have increased a lot.
Speaker #4: You would have seen the details of our financial statements, and you would have seen that our revenue margins, which were plus 45% last quarter, have come down to 4%, and that's what has percolated down to our EBITDA for the quarter.
Speaker #4: Coming down to the segments, as you can see, we have now segregated our business into three main verticals. The traditional, what we used to call streets and blends, is now called specialty ingredients.
Speaker #4: This is, I would say, a non-chemical business. It's more of a knowledge business, where we sell blends to the end consumers. We have aroma.
Speaker #4: The vanillin flavor and fragrance business is the manufacture of vanillin. And obviously, there is a third segment, which is performance chemicals, predominantly downstreams of our diphenol, which go to the product basket of states and aroma.
Speaker #4: These are the other chemicals. All chemicals, or plants, are in the Performance Chemicals division, which transfers certain materials to the other two divisions for forward integration.
Speaker #4: And we would have seen the segmental results. There is an intersegment, knock-out in performance. These are nothing but the sales which are sold by Performance Chemicals as a chemical manufacturer to the Specialty Ingredients company, and the 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 based on arm's length principle.
Speaker #4: Specialty chemicals, ingredient business, sales states, as well as blends, as you used to show it in the earlier period. Coming down to the verticals, you would have seen that the streets business has been strong, has always been growing, and has better margins, and that has also reflected in the numbers which we have disclosed.
Speaker #4: State sales have been around 9,927 million, while specialty ingredients—that's the value-added blends—have been more than 3,000 million. Which is, if you see overall, the specialty ingredient business has done more than 4,000 million in revenue.
Speaker #4: The EBITDA is 6.35% year, predominantly it has come down basically because of raw material prices being high. Coming down to aroma, we have sold around 5,560 tons of vanillin in this quarter, which is primarily ethyl vanillin. We took a campaign for ethyl vanillin last year, in the last quarter.
Speaker #4: We have sold around 200 metric tons of methyl vanillin, which was there in our channel stocks and internal channel stock. We have sold around 350 metric tons of methyl vanillin in this.
Speaker #4: Naturally, the capacity utilization was not optimal because we had taken such a large campaign of ethyl vanillin for the first time. We were cautious, and the ramp-up was very cautiously done to get the qualities right, to have the capacity utilization on the right track, and to understand the dynamics of the new campaign.
Speaker #4: we are, we are happy to announce that we have almost got 95% of our customers have approved our ethyl vanillin. In this quarter, we have already sold 350.
Speaker #4: If you remember, in the last quarter, we had said that we were taking a campaign of 750-odd metric tons of ethyl vanillin. Half of that is done.
Speaker #4: We have produced a little over 300 metric tons. We'll be taking a shutdown after the 750-ton ethyl vanillin campaign is over in the middle of August, and then we'll switch to methyl vanillin.
Speaker #4: Naturally, we will be doing around 500 to 600 metric tons in the next quarter of ethyl vanillin and methyl vanillin. On the prices, US and European prices are remaining the same on the sales side as we had discussed in the earlier period, and it will remain at $13 to $14.
Speaker #4: As we ramp up our capacity, and capacity utilization is better, the sale happens at 13 and 14 million. We will be getting into a positive EBITDA zone.
Speaker #4: 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.
Speaker #4: As far as performance is concerned, there has been—again, as you know—the diphenol plant has been shut down, and it remains shut down, primarily for economic reasons and the high prices.
Speaker #4: Still, the phenol prices are very high. Other raw material prices are very high. It's not very commercially economical and viable to manufacture diphenol at this current stage, so we took a shutdown.
Speaker #4: We have been procuring the intermediates from the Chinese market because the prices are very comparable and competitive compared to our own prices, and we are relying on that.
Speaker #4: Though the diphenol business is closed, shut down, we have ample capacity to service our aroma needs. Naturally, the closure of the diphenol plant is weighing down on performance chemicals, and that's why we have seen that 2.5% negative EBITDA there.
Speaker #4: But with shutdown, having switching it to, two other thing, thing better, capa resource planning, I think this, this performance chemical EBITDA also will be positive in the next quarter because we also are manufacturing the state chemicals in performance chemical, which are sold to at arm's length to the specialty ingredients company.
Speaker #4: ...SEC business segment. Hence, performance chemicals will also move to a positive zone. As far as coming back to specialty ingredients, blends have been the hallmark of our business.
Speaker #4: We are going, we have been saying that we should grow at least 20%. This, as a minimum, this year, and in the budgets we are talking about 20, 25 to 30 percent of the growth this year.
Speaker #4: Last year, we had done around 1,000, 10,000 million of sales in 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.
Speaker #4: The only issue here is the prices. At this, the conflict has forced us to increase the prices. As you know, we have that somewhat one-quarter lag of transferring the increase in material prices and the other prices to the customer.
Speaker #4: That lag has played in this quarter. And there has been difficulty also to pass on the entire increase in prices to our customers, and that's weighing down on the margins, the gross margins, and effectively those gross margins are also impacting our downstreams.
Speaker #4: The question is about what will happen for the whole year. We have been guiding that we'll be doing between 2,000 to 2,400 of revenue this year, with EBITDA of 250 to 280.
Speaker #4: That's what we are saying. But looking at the prolonged nature of this conflict, with prices being high, logistical issues, and other things, we feel that we may end up with the same turnover, because on the sales side, it doesn't seem very, very secure.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: Obviously, the prolonging war situation can throw 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.
Speaker #4: But as far as diphenol is concerned, as I said, we have closed down the — it is shut down, but we are looking at alternatives.
Speaker #4: We had talked about some other products, phenolic compounds there, but we are holding onto it because the raw material prices of those compounds have also increased.
Speaker #4: But we are looking at various options. By the 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 diphenol production.
Speaker #4: But at present, the Chinese prices of the raw material intermediate are very, very competitive, and we have secured Chinese hydroquinone from China for the next two quarters.
Speaker #4: Coming down to the, though we, we don't, give the, the details of debt and other things, debt remains under control. We have been almost in line with what we had disclosed in, on 31st of March.
Speaker #4: There will be a slight increase because of the utilizations, and, in the end, the utilization of working capital. Working capital and share capital remain a bit of a concern because of the elongated working capital cycles. As you know, with the hormone states and the rate seal issues, we now have to ship it across to South Africa, and that has increased the working capital needs.
Speaker #4: The, the, because of the global slowdown also, the recovery from the customers has also elongated by a few days, and that, that—that's weighing down on the working capital cycle.
Speaker #4: But we are agile, and we will work through this, this issue. You would have also seen an exceptional item in our financial statements on account of the fire which occurred in February in Brazil.
Speaker #4: 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.
Speaker #4: It's around ₹40 crore, that is ₹400 million, insurance claim. We said that let's not haggle with the insurance people. We've taken a 20% haircut, and we have settled.
Speaker #4: But obviously, it had an accounting impact, and we have shown it under exceptional items. As far as Europe is concerned, you know, it has already gone into liquidation.
Speaker #4: No more cash burn. Of course, there is a small cash burn because this is a liquidation we require legal help in, till the entire process is over.
Speaker #4: So there is a small cash burn which has happened. China, he is in the process of liquidation. We have been telling it that this will happen this year, and we will have around $10 to $20 million of expenditure which we will be incurring during this quarter.
Speaker #4: With this, I think I'll open the forum for questions. Thank you.
Speaker #2: Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone.
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Speaker #2: Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Avinash. Please proceed.
Speaker #3: Hi. Am I audible?
Speaker #4: Yes.
Speaker #3: Hi. Can you locate your next three quarters implied guidance? If you're looking at ₹250 crore EBITDA and you've done almost ₹90 crore this quarter, that number seems to be, you think, deliverable, given that it implies significantly good margin levels. And are you out of the problems you had on the raw material costing side and everything, or do you think there is some degree of uncertainty and probably we'll have a better color at the end of Q2?
Speaker #4: So basically, what we are guiding is a ₹2,200 to ₹2,300 crore top line, and EBITDA margin in the range of 10 to 11 percent. So, it will be in that range—between ₹220 and ₹230 crore kind of EBITDA.
Speaker #4: And given our cost structure as we have it today, it seems within reach for us.
Speaker #3: Well, because this number works out to be around a 13% margin. So I was trying to think through that. The pressure you saw on gross margin in the first quarter—is it now completely behind us?
Speaker #3: Because 13% looks like a normal, decent margin level. Or is it that some degree of pressure is still continuing in Q2? So maybe by the end of Q2, we will get better visibility on that.
Speaker #3: Just wanted to note that the pressure is still there.
Speaker #4: 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.
Speaker #4: So I think, going forward, getting to that 10% EBITDA in the next nine months seems to be on target.
Speaker #3: 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 the top line?
Speaker #3: So, based on whatever visibility you have, what kind of margin levels can we look at, maybe in the second half or fiscal '28?
Speaker #4: In fiscal '28, I think it's in the region of 12 to 14 percent, is what we can look at.
Speaker #3: Okay. 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 the organic way of reducing through internal cash flow, which you can take to strengthen your balance sheet?
Speaker #4: So, on the debt side, at present we are almost at the same level as we had before. We were around ₹670 crore of debt on 31st March. The gross debt is now ₹640 crore.
Speaker #4: This reduction is mainly on account of repayments which happened for my long-term loans on IFC and Exim for the Vanmill plant.
Speaker #4: So, the debt—no increase in debt during these last three months. We weigh, because we are talking about ₹2,400 crores of revenue, ₹1,700 increasing to ₹2,400, which will certainly entail a working capital support.
Speaker #4: We'll try to use the internal cash, but it looks like, as the year progresses, we may have to go and take credit lines from the market in the range of ₹100 to ₹200 crores.
Speaker #3: And, how did you manage this good achievement of flat net debt given the pressure you had on several fronts, and very low EBITDA levels?
Speaker #3: Anything other than, any specific thing, like you could extract cash from?
Speaker #4: So, one thing is there that I had revenue in the cycle—it was moving. The working capital cycle was moving. It was not a case that I have no revenue.
Speaker #4: Revenue has been high. I also have a 14% cash, 14% margin. So there is a generation of cash which is happening. Obviously, the question is right that from where this increase in working requirement of working capital for increased sales has come from.
Speaker #4: Naturally, there is one more stakeholder that we have been using—supplier finances and dealer finances—to tide over this situation. So there, we are using some dealer financing on the sales side, as well as using dealers for buying raw materials.
Speaker #4: Now, that, that also as I said, that, that has also played on the margins because if you try to get dealer finance for the purchase side, then obviously, the cost increases and the raw ma the margins get impacted, the gross margins.
Speaker #4: In other words, the interest which I would have paid by borrowing, I am paying to the cost of raw material. So, that one, one and a half percent has impacted me because of this bit of a working capital need.
Speaker #4: Has impacted my gross margin.
Speaker #3: Right. And any plans to infuse capital or ways to get some cash for the balance sheet, deleveraging other than internal accruals?
Speaker #4: See, I will say cash is required. So, we'll see. We will be working on it. It's not the time now that I am—I am standing on the edge of the hill and I have to jump.
Speaker #4: There is time still. As it goes, we will we are looking at avenues you, you may have heard it from the market also. but at the appropriate time, what is better?
Speaker #4: There will be a lot of consideration on the market price and all those things. What is the rate of interest? My rating and other things.
Speaker #4: So, we have been closely working on it. As soon as a final decision is taken, we'll come and, anyway, we have to inform about the thing.
Speaker #3: Okay. Great. Thank you very much.
Speaker #2: Thank you. Before we take the next question, I would like to remind participants that you may press star one to ask a question.
Speaker #2: The next question is from Rehan from Coheron Wealth. Please proceed.
Speaker #5: Hi. Am I audible?
Speaker #4: Yes.
Speaker #5: Hi. Thank you for taking my question. I just had a couple of questions, primarily on vanillin and the outlook going forward. We were always under the impression that, for vanillin, the EBITDA realizations per kg or per ton were to be profitable because the fixed cost of the business was very minimal.
Speaker #5: 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, you know, the crude volatility.
Speaker #5: And the realizations post-tariff had improved to about 13–14 between Europe and the US. And the fixed costs primarily were, I think, only your sales team.
Speaker #5: So, can you just explain this loss at the EBITDA level for the aroma business? Because this is a three to four crore loss for this quarter at EBITDA.
Speaker #5: J-just, this is new to some shareholders.
Speaker #4: So, good question. see, as, as you rightly said, or indirectly said that the whole game is about the capac-capacity utilization. As I said, we were cautiously increasing the ramp up of, ethyl vanillin and you would have seen that we, we would have produced how many four, 400 tons only in this, this quarter.
Speaker #4: With a capacity of 1,500, so naturally, there was the cost of the plant—fixed cost—which cannot be absorbed entirely on the 400 cost.
Speaker #4: 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.
Speaker #4: So this, that's why this Rs. 4 crore, Rs. 4 to 4.5 crore negative one has come and hit us as the capacity utilization crosses 70–80% in the subsequent quarters.
Speaker #4: We will absorb almost all the fixed costs, and on a yearly basis, it'll come down to that. This is a quarter where the expenditures are for the whole capacity, but the utilization is hardly 25%.
Speaker #4: So, that's how this is spanning out. As we go ahead, we'll get that EBITDA.
Speaker #3: So Santoshji adds, so basically at 70%, you're talking about a quarterly run rate of production at about 1,000 tons.
Speaker #4: Nice. Capacity is 6,000 tons. Achievement is 5,000.
Speaker #3: So, if you divide that by four, that's about 1,200, right?
Speaker #4: So, on a yearly basis, we are saying that 3,000 tons is what we are estimating this year. That's around 60–70% of my capacity utilization.
Speaker #3: So, at that, how much are you expecting to make at an EBITDA level?
Speaker #4: We will be making around 7% of EBITDA on the total if the prices are at $13.
Speaker #3: Okay, so 7% EBITDA on that. Okay. And coming to blends, we had held that blends are the holy grail of the business at 40% gross.
Speaker #3: ...trickles down to, depending on each geography. Where some geographies are more saturated, we see higher EBITDA, because the fixed cost, again, is only sales.
Speaker #3: But again, this has 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 some time back, before even the ADD kicked in?
Speaker #3: 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 it, where is it not coming up.
Speaker #3: If you look at the March 25th quarter, we were at 14% EBITDA, and that was without the ADD and without vanillin even coming in.
Speaker #3: So, just trying to understand—where were we then and where are we today? Because we have the ADD, we have the utilization. So, can you help us understand the same?
Speaker #4: So, on blends, there is no ADD. It's only on vanillin. If you see the CYBER in the segment result, there we have shown what was the EBITDA last quarter.
Speaker #4: Also, right? So, last quarter, we had done around ₹264 crores, or 400, and in the March quarter, on a ₹3,400 crore million revenue, we had done ₹263 crores.
Speaker #4: Two, 263 million of EBITDA.
Speaker #3: Yeah. And today we are at 255. And on a year-on-year basis, we are at 255 versus 300.
Speaker #4: So let's talk first about quarter to quarter. We told you that in quarter one the gross margins have come down. So that 4 to 5 percent population is bringing me down.
Speaker #4: On the EBITDA.
Speaker #3: 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.
Speaker #3: Could you repeat the same, if you don't mind?
Speaker #4: So, on blends, we don't give tonnage.
Speaker #3: No, no. Vanillin, sorry.
Speaker #4: 500 to 600 milliliters.
Speaker #3: So, similar as, just around quarter run rate.
Speaker #4: Yeah. So as I said, ethyl vanillin—we are at a 700 metric ton campaign, which we are completing in August. That will be 350 tons of ethyl vanillin.
Speaker #4: We have started the—we start the campaign. We'll lose around two weeks there. So we have—we'll produce and sell. We'll be ramping up entirely.
Speaker #4: Ethyl vanillin. But looking at the period and the September being within 15 days of the start of the campaign, we are seeing that we'll sell 500 metric tons.
Speaker #3: Okay. So at the similar this quarter run rate about 700, 800 odd crore revenue. Sorry, 77 million, 77, 70, 80 crore revenue.
Speaker #4: So it will be around 800.
Speaker #2: So, to answer your question on the blends first—in Q2, the blends margin will be better than they were in Q1. Specifically, we got hit in Brazil because of the fires.
Speaker #2: We had no stock, and we had to bring in stock by air freighting it at high prices. Which now, in Q2, we had also simultaneously shipped material on, on sea.
Speaker #2: Which, of course, has now landed, and that's the one that is being consumed in this quarter. So, there was a negative of about ₹8 crore in Brazil, which will get corrected in Q2.
Speaker #2: Then there are certain businesses where the raw material prices have gone up and we've been able to pass on some of the, the price increases.
Speaker #2: So your Q2 numbers will look different from what they were in Q1. For the blends business. For vanillin, it'll be slightly better than Q1.
Speaker #2: where Q3 is our main where we will have 1000 tons plus of sale. production and sale in Q3. as far as the performance chemicals goes, we were negative EBITDA in Q1.
Speaker #2: In Q2, it'll be positive. So all in all, Q versus Q1, all three of the verticals will be significantly better than they were in Q1.
Speaker #3: Thank you for that, Ashish. Thank you for that. So actually, my concern was that, you know, over the last two or three quarters, you have been—you know, it's because of geopolitical reasons, etc.
Speaker #3: 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 couple of tailwinds for us, like the anti-dumping duty coming in our favor, it's been almost 14 odd months.
Speaker #3: And, you know, we're still seeing softened prices. And, you know, as of now, like a lot of people were thought that, you know, even on your Q4 concall, when we were when shareholders and investors and analysts came to ask you on certain things, segmentally, we were expecting a simple math 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.
Speaker #3: There was no other fixed cost other than the sales. Sales team. And.
Speaker #2: No, sorry. I think, I think, I think there's no—it was very clear that what we are saying is our raw material cost for vanillin is between $7 to $8 for methyl vanillin.
Speaker #2: 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.
Speaker #2: If I produce 400 tons, my cost goes to $9—nine, nine and a half dollars—which gives me a straight margin of $4.
Speaker #2: So that's the math.
Speaker #3: Yeah. But Nirmal sir, you've already been producing 4,500 for the last three, four quarters. Including this, if I consume...
Speaker #2: I'm talking about the month. I'm talking about a month. This is a quarter.
Speaker #3: Okay. So even at 11 dollars, okay, let's, let's assume 11 dollars. At 11 dollars, you're still selling at 13, 14, 13 and a half or let's say 13, even in this quarter was 13, right?
Speaker #3: Because the tariffs came off in Q4, tariffs came off for half the quarter.
Speaker #2: Yeah, yeah. But, you know, we have trade financing, so our net realization is lower because we are using trade finance. That's what Santosh mentioned—that what has impacted our margin is on the raw material side.
Speaker #2: We are using financing. And on the selling side, we're using trade channels for financing. So that's the, the, and this quarter is not methyl vanillin.
Speaker #2: It is ethyl vanillin. Where the cost of ethyl vanillin is higher than cost of methyl vanillin. And even the selling price is higher, but these costs of ethyl vanillin we have reached a break-even point.
Speaker #2: Now, when the methyl vanillin starts, you will see that the margins will be significantly better—the gross margins, specifically. Similarly, EBITDA margin will be better as well. 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.
Speaker #3: So, primarily, you're stuck with 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.
Speaker #3: Is that correct? So the, so the, so the solu so the solution is only capital or the solution is?
Speaker #2: No.
Speaker #3: Capital plus normalized geopolitical time.
Speaker #2: No, no. I think, the first is capacity utilization. Okay? That's the first thing which is in our hands. That, that, that we can start, increasing the capacity utilization.
Speaker #2: Of course, there is the 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.
Speaker #2: That's the first thing. Second is geopolitical situation improving. and, and improvement in costs. Which in the methyl vanillin run, we already have raw material that we've, acquired at, at very, comparative, prices.
Speaker #2: So, our margins will be significantly better. The third is, of course, capital, which we are, you know, we are looking at various options to be able to raise that capital.
Speaker #3: 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? Where, like Q3, Q4?
Speaker #2: Q3, Q3 should be there. Q3.
Speaker #3: So, in Q3, you'd swing back to double digits.
Speaker #2: Yes.
Speaker #3: Okay. Thank you so much.
Speaker #2: Thanks.
Speaker #1: Thank you. The next question is from the line of Suryanarayan Patel from Philip Capital. You may proceed with your.
Speaker #4: Thank you. 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 segments, so the growth number looks really strong.
Speaker #4: Which is higher than the kind of a blended performance on the overall revenue growth for the company. So why does it show this? Is it because of the restatement of the numbers, or is it something else?
Speaker #4: If I see the slide number seven, wherein the segmental revenue growth, is more or less on an average, it is beyond 30%. So this growth number look higher compared to the kind of overall growth number.
Speaker #3: Surya, unfortunately, I didn't get your question. So, I'm on the seventh slide.
Speaker #4: Huh. So the segmental growth for all the, all the segments, it is like on an average, more than 30% on the on a blended basis if you look it.
Speaker #4: That's kind of a near 30% growth that we are seeing here, whereas I think the blended growth for the company as a whole for the quarter...
Speaker #4: Looks like 22%, 23% kind of growth. Is there any difference that I'm finding here? What is the...
Speaker #3: So, yeah. Now I think I've got a handle on what you're asking. First, you're comparing the corresponding last year's quarter with this year's quarter.
Speaker #3: Yeah, okay. Now, last year's quarter, especially if you see at states, we would have been almost the same on the volumes. On quarter-on-quarter, we have been saying that states, for example, state business, it is not... it will saturate.
Speaker #3: The biggest thing of difference in the, the, the is the, the price side, right? We have we are selling a bit more, states. And the average relation is going giving this growth, right, from last quarter to this quarter.
Speaker #3: Length has been increasing. There's no question of length. Length has been a 20 CAGR. It is going at 20 CAGR. Performance is a difference scenario because if I have categorized sale categorized, I don't have categor I'll not sale categor enough no enough hydroquinone.
Speaker #3: Not enough derivatives. So that, that's a different set. It's like a residual business. If states do well, there will be less hydroquinone to sell.
Speaker #3: Vanillin does well, and there will be fewer categories to sell. So, performance will always be based on states and aroma. Aroma has been increasing.
Speaker #3: We have got better price realization because that was a tariff era, anti-dumping duty had just come down, or our quantity was also less.
Speaker #3: So that's the reason when you compare quarter-on-quarter, you have to look at the price side, the volume side, and also our capacity utilizations.
Speaker #4: Okay. Okay. Sir, my second question is on the margin profile of the, let's say, specialty ingredient business—where, see, both the blends as well as the states.
Speaker #4: So those are the kind of branded product areas. For us, it is this quarter, let's say 6% because of some quarter-specific challenges, if I believe.
Speaker #4: So, what should be the kind of like-to-like margin that we should have seen for this specialty ingredient business in previous years, sir?
Speaker #3: So let us talk about this quarter first. What we have lost on a normalized gross margin is around 4 to 5%.
Speaker #4: Correct.
Speaker #3: 3 to 4% on because of the geopolitical and one 1 to 2% on because of our liquidity situation, right? If I had done this 4%, my naturalized EBITDA normalized EBITDA at this moment of time and with all the pressures of, putting the material, to, American markets and other thing, I would have done 4% at least more on gross margin which would have stayed flown down to my EBITDA.
Speaker #3: In other words, EBITDA would have been more than 10%. Now, you, as boss, were saying you also had to see what is because this state business is not one company.
Speaker #3: Across the geographies, there are certain places like Brazil, which had its own challenges because of lower margins. It was hardly 20–22% margin there because of the fiscal situation, where we had to push material by air freight or buy it from competitors at a higher rate for raw material and make the blends.
Speaker #3: Then there is another geography like Windpipe, which is just growing now. It has started now. EBITDA is all a bit of a negative. As it grows, we provide working capital to it.
Speaker #3: It grows. It will come down to 10%. While the businesses we are already settled, like Mexico and US, they're already doing very well. They should have done 17%.
Speaker #3: They have done 14% because they have lost gross margins. So those are doing well. And that's why, the growth part will be there. The, the legards or like Windpipe and Brazil, they do well.
Speaker #3: The margins will increase. There is a great growth path we are looking at. We have done well here on a quarter-on-quarter basis. Also, we have sold almost 300 million more this year.
Speaker #3: So there is a growth path. We know where, which products to push, and other things. And it will happen. So, on the sales side, it's not a problem at all.
Speaker #3: The whole issue is on the purchase side. If this, this, this is settled and we have more thing, the EBITDAs will grow because the fixed cost is not going to move.
Speaker #3: Even if you see our other expenses overall, they are not increasing using this. So the capacities are there. The fixed cost is in place.
Speaker #3: People are in place. It's only now, I think, numbers have to come. It's from the top line and the margins—gross margins.
Speaker #4: Okay, so then, sir, if we believe that—let's say, hypothetically—the second half of the current financial year will see a normalized business environment, then which business out of the three segments is likely to deliver a better margin profile?
Speaker #4: Or if you can give some sense that, okay, in a normal, normalized business environment, what should be the likely margin profile of specialty ingredients and aroma?
Speaker #3: So basically, Suriya, right now aroma is negative. In Q2, it'll 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 place.
Speaker #3: So that will be significantly better than Q2. So Q3 is where you would probably see the closest to normalized margins, and that's in Aroma. In Blends, of course, 4–5% is the raw material hit that we have taken, which some of them already in Q2 have been corrected.
Speaker #3: So again, Q3 would be the right quarter for more normalized margin. But in Q2 also, there is an improvement over Q1. And in performance chemicals, the residue businesses—which of course, it was negative because of the diaphenol closure and, you know, some costs which were being incurred.
Speaker #3: We were selling Catacall at a loss, which we've now stopped doing, because we are using all of it for our internal consumption. So that also will be positive.
Speaker #3: So all, all the three verticals or segments will be positive.
Speaker #4: Okay. But the, better or the best margin, vertical would be specialty ingredient. Is that understanding right, sir?
Speaker #3: Yes, specialty ingredient and aroma.
Speaker #4: Depending upon the scalability.
Speaker #3: It also be will also will be, would probably be as good as, as, specialty ingredient.
Speaker #4: Okay, okay. Just one last point about the diaphenol plants-down scenario, sir. So you mentioned that you are also exploring having that used for some other products.
Speaker #4: So, that is one. If you can talk a bit more on that, and the second point here is that if these plants being down continues for, let's say, whatever reason—either competition reasons or the new lead time that would be required for manufacturing the new product.
Speaker #4: So in 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 segment because this is like integrated.
Speaker #3: So, 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 straits business, straits and blends.
Speaker #3: Okay. It is sold to straits and.
Speaker #4: Okay.
Speaker #3: Okay. And then aroma was almost 30 crores. So net, net, in performance chemicals, I think that was your first question that the total was not adding up.
Speaker #3: So you 130 crores is, is internal transfer. and, net sale of performance chemicals is only 40 crores.
Speaker #4: Oh, okay.
Speaker #3: Yeah. You got that. So. So, so basically when you look at that, you know, that, that number is not going to significantly, change. The net sales to outsiders because that is, it, it'll reduce a bit because catacall sale will come down.
Speaker #3: But then there is an increase in the sale of some other products, like HQE—we have some HQ sale also—and TBC sale, which has increased.
Speaker #3: So, I mean, that number will be in that region. So, the numbers to check and follow are more shelf life and...
Speaker #4: Especially in ingredient and aroma.
Speaker #3: And aroma. And in the performance, you just look at the margin, because a lot of the Straits 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 Straits margin is captured under performance chemicals.
Speaker #4: Sure. Okay.
Speaker #3: The margin is captured there. Transfer price in the sales is captured in straits.
Speaker #4: Okay. Okay. And the potential of introducing a new product in that plant—in that scenario, how do you?
Speaker #3: 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.
Speaker #3: We are seeing which is the best possible way to sweat that asset. Where will we get the best margins and the best returns? And we'll, you know, we'll follow that.
Speaker #3: We'll, of course, intimate the investors once we are ready.
Speaker #4: Of course. ठीक है. Sure. Thank you, sir. Wish you all the best.
Speaker #3: Thank you.
Speaker #2: Thank you. The next question is on the line of Ajit Begal from Bajaj Alternative. Please proceed.
Speaker #1: Yeah. Hi. Thanks for the opportunity. Sir, a few questions. Firstly, a clarification: our last call for the fourth quarter should have happened at the end of May.
Speaker #1: At that moment, did we guide for weakness in the first quarter?
Speaker #3: Yes, we had said that the margins would get impacted because of the geopolitical situation. We were always confident about the top line; the whole issue was on the raw material.
Speaker #3: That's why we had even closed our diaphenol plants. So the revenue side was never an issue. This was entirely because of the margin to the raw material price.
Speaker #1: Okay. Okay. And now that we are in mid-August, and like half the quarter is gone, the commentary you are providing is that Q2 will be much better than Q1.
Speaker #1: That you are pretty confident about, right?
Speaker #3: Yes.
Speaker #1: Okay. So, last thing on mathematically, if I was to do numbers, so 2 and to a previous question, you mentioned that you will hit double digit margin in third quarter.
Speaker #1: And you are guiding for full-year margin of 10 to 11%. So, mathematically, given Q1 was weak, and Q2 would be slightly better, is it fair that the second half margins can be to the tune of 13 to 15%?
Speaker #3: Yes. Looking at the fifth—first fifth—state, they are not going to increase a lot. The whole thing is that the revenue is going to come, the growth in blends and also in aroma.
Speaker #3: And the margins, they're on. Gives us a higher rate of EBITDA in the, in the second half.
Speaker #1: Understood. Thank you. That's it from us.
Speaker #2: Thank you. The next question is on the line of Lavish from Berman Capital Investment Management. Please proceed.
Speaker #3: Hi, thank you for the opportunity. Sir, actually, I was just hearing your comments. We mentioned that our volumes in the aroma business will be similar to what we have done in Q1.
Speaker #3: 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.
Speaker #3: So we are, as we said, we are going to go for methyl vanillin now, which is, a lower cost product but a higher margin as compared to ethyl, ethyl, ethyl vanillin.
Speaker #3: So we are switching, or we are ending the campaign of 700 and 700 tons because these are the orders in hand. And it had forced us to manufacture ethyl vanillin.
Speaker #3: We're moving by to methyl vanillin where we, we also have orders on that hand and that will give us a higher margin. The swing is the, the difference between, the, the EBITDA is only 4 crores we get come into positive EBITDA for even aroma.
Speaker #3: Understood. And sir, I think, if I remember correctly, in our last call, we had guided for almost 4,000 tons of vanillin in FY27, whereas this time we are saying that we'll do 3,000 tons in FY27.
Speaker #3: So, what has changed in the last three months that is resulting in this lower guidance?
Speaker #4: So basically, we had guided for 3,600 to 4,000. And now we are saying 3,000, around 3,000. The, the, 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.
Speaker #4: And that's what we've done. We've got 95% customer approval on the first shot, which is excellent for a product like ethyl vanillin.
Speaker #4: So, which means that now we will be doing another campaign. Every time we switch a campaign, we lose about a month of production.
Speaker #4: And we are going to in this year, we are going to do four campaigns. So we'll be losing four months of production. So that's how, we are, looking at around 3,000 tons of, production.
Speaker #3: 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?
Speaker #4: So the customers require both. And ethyl vanillin, in the next run, our margins will be similar to methyl vanillin. It was in this run that we had high-cost material that we had to buy.
Speaker #4: 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 vanillin.
Speaker #3: Understood. A-and sir, I think you also mentioned that, raw material costs were higher, which we were not able to pass on in this quarter.
Speaker #3: So, for Q2, 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?
Speaker #4: No, not fully. But in the blends, some of it, of course, we will be able to pass on. I'm not saying that we'll be able to pass on the entire cost.
Speaker #4: But, you know, maybe half of the cost we'll be able to pass on.
Speaker #3: Got it. Understood. Thank you. All the best for the future. Thanks.
Speaker #2: Thank you. Before we take the next question, we will let an audit happen to ensure that the management is able to address questions from all participants in the conference.
Speaker #2: Please limit your questions to two per participant. The next question is from the line of Vint Gada from Sangvi Family Office. Please proceed.
Speaker #5: Yeah, thank you so much for the opportunity. I had a couple of questions here. I wanted to understand the current demand scenario for vanillin, and what is the situation on channel inventory with your customers.
Speaker #5: And what sort of interactions are you having with your customers regarding a pickup in volumes and, you know, for utilizations to improve sequentially? That would be my first question.
Speaker #4: 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.
Speaker #4: And, we are absolutely on track to, with all the customers, that, you know, we discussed in the past, F&F companies and the others, for, you know, for their for their quarterly and half-yearly and yearly contracts, we are in negotiations.
Speaker #4: 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.
Speaker #4: But we may not be able to produce that much because of the campaign that we are doing. However, it's fair to say that demand is picking up.
Speaker #5: Got it, sir. So sir, is it is it normal to have four campaigns in a year? or so or what kind of, vanillin volumes do we expect for FY28 year then?
Speaker #4: So, for FY28, see, I'll tell you again. This ethyl vanillin campaign was a campaign, like I mentioned, we took to scale up. We took a lot of time.
Speaker #4: So normally, even if I take a one-month break, I can do a turnover. I can produce 500 tons of either methyl vanillin or ethyl vanillin per month.
Speaker #4: 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 four months for ethyl vanillin to scale up.
Speaker #5: Understood. So, is it fair to assume that 4,000 tons should be your peak utilization for vanillin at that?
Speaker #4: No, no, no. It's not so, because we'll not be doing four campaigns. Ideally, we don't want to do more than three campaigns.
Speaker #4: And at that, we should be able to scale it up to 5,000 tons there.
Speaker #5: Got it. And my last question: What kind of working capital requirements are there for the business currently? And what number of days are you expecting?
Speaker #5: And when do you expect the credit funding of 100–200 odd crores to close?
Speaker #3: So our general working capital cycle on a consolidated basis is 100 days. At present, even in March, we would have said that it, it was looking better than that.
Speaker #3: That was because there were creditors we had. We extended the line, due dates with our creditors. It's ₹100 crore, which is what we generally require for each ₹1 crore.
Speaker #3: I will require one-third of that as working capital support. This ₹100–150 crore we are working on—I think we should be able to have the line in place in the next one to one and a half months.
Speaker #3: Or at least we'll know where, how we are going, how we are going to fund it.
Speaker #5: Got it, sir. Thank you. That's it from me, sir.
Speaker #2: Thank you. The next question is from the line of Sateesh Kumar from Incred Equities. Please proceed.
Speaker #6: Hi, sir. Sir, just one question. If I'm suppose everything we are normal, then what would have been our EBITDA this quarter?
Speaker #4: At least, at least, 6% more.
Speaker #3: See, the, we have lost only on the margins. We have got 5% gross margin. 5% we are directly traveled to that bottom line.
Speaker #4: So that is one and, the second what is impacted, that 6% would have given. And the second is, of course, the, the vanillin. Which, where the gross margin was even more impacted than, because of ethyl vanillin.
Speaker #4: So.
Speaker #6: So you mean to say.
Speaker #3: But all in all, a 4% to 5% margin would have increased.
Speaker #6: Better. So, so you we can say that everything were normal. The EBITDA would have been in the range of, 37 to 40 crores, right, sir?
Speaker #4: Right. Correct. Correct.
Speaker #6: Okay. And sir, for the coming quarters, we are guiding for an average run rate of around ₹70 crores EBITDA, right, sir? I mean, obviously, Q2 will be less and Q3, Q4 will be higher.
Speaker #6: But the average we are guiding for is ₹70 crores.
Speaker #4: Correct.
Speaker #6: And sir, the, the, the other thing is that do you think there's a, a raw material cost pressures has been behind us? Or it will remain so for, in this quarter as well?
Speaker #4: 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.
Speaker #4: But till this is resolved, you will always see elevated raw material prices.
Speaker #6: And so, sir, our guidance actually, factors in that, that elevated raw material prices.
Speaker #4: Yes. At least, I mean, elevated for three months, sir. And it's not factoring six months and nine months. Yeah.
Speaker #6: Okay. So but, sir, as you said, in the beginning that, some of the cost has been passed through, particularly in blends, right?
Speaker #4: Yes.
Speaker #6: Okay. Okay. That's all from my side. Thank you.
Speaker #4: Yes.
Speaker #2: Thank you. The next question is from the line of Neeraj from White Pine Investment Management. Please proceed.
Speaker #5: It's just, sir, can you elaborate on the inventory situation in the US? And global situation of, vanillin, how you think will evolve in s demand supply equation?
Speaker #3: So, Neeraj, you are asking about the internal inventory situation of vanillin?
Speaker #5: I'm asking, in can you comment on the inventory of the, pre, anti-dumping duty which had collected? How is that inventory of vanillin And, yeah.
Speaker #3: So, so, so I think you are asking for the channel stocks which were there at the start of. Those have dried out. There, there is there is there is no overhang of any channel stock, either Chinese or pre-anti-dumping duty on now.
Speaker #3: So it's, it's there is no, channel stocks in any of the countries now.
Speaker #5: Okay. And so what is, what is your estimate of the US demand and where what is your estimate of the residual demand? that will come from India to, to supply to the
Speaker #4: So basically, the demand is US and Europe where the anti-dumping duties are. So our focus are on these two markets.
Speaker #5: Yes.
Speaker #4: And, there seems to be a gap of about 5 to 6 thousand tons, of material which will have to be imported because the local production capacities are, fully occupied at that level.
Speaker #4: So we see that opportunity for us to participate in that supply.
Speaker #5: Okay. sir, but, the, the, the question here arises that if you are not producing and, China is not, and China is having import duty on its head, then why are the pr-prices not rising in the US and Europe?
Speaker #4: That's a good question. We are asking this to the market leader, which is Science Co, who are producing in the US and Europe—why are they not increasing prices?
Speaker #3: But, but there is a bit also it's always increases prices the Chinese price also increases.
Speaker #4: So. They'll come with an increase.
Speaker #3: So at present, if they sell, sell at 18, the Chinese price is steep.
Speaker #4: So, wouldn't that be the customer? They are selling to the same customer if they are a multinational, selling to customers across the world.
Speaker #4: 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.
Speaker #4: So they have to protect their global business also. So they will always keep it reasonable. They will not take it to levels to, to, equate it to the anti-dumping duty because some of these customers, they are servicing on a global level.
Speaker #5: Okay, sir. But, if I do just do the anti-dumping duty mass, they will not be able to supply above a, you know, below a particular price.
Speaker #5: So just, and by that mass, the price, price needs to go up actually. That's why I didn't asking you that one.
Speaker #3: So, so it's not a reverse working from my sale price plus 20% due 250% duty. See, the anti-dumping is to protect solve. Solve is indirectly deciding the price, right?
Speaker #3: If they sell at $18, the Chinese have to bear 200-250% duty, which comes to $7 or $8. And that is how they have kept the Chinese out.
Speaker #3: If they make the sale price $21, the Chinese price becomes $8, $8.50, 5%. So, despite 250%, they will start competing.
Speaker #3: That's one thing. Secondly, as boss was saying, solve is not only selling in US. They have contracts laying like ISF and Geodance for entire wo-world as a whole.
Speaker #3: So they are balancing. They cannot take exorbitantly high prices. If they increase prices in the US, then the Chinese do enter. They will sell at $8. They are happy with that.
Speaker #3: $8,250 duty—if they get $20, with solving, say $20, Chinese will enter.
Speaker #5: Okay. Okay. Yes, sir. Thank you.
Speaker #2: 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.
Speaker #4: Thank you. Thank you for your time, ladies and gentlemen. We look forward to interacting you with you again at the next quarterly earnings conference call.
Speaker #4: Until then, good evening.
Speaker #3: Thank you.
Speaker #4: Hello.
Speaker #2: Thank you. On behalf of Camlin Fine Sciences Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
