Q1FY22

Company N ame: Camlin Fine Sciences L td
Company Ticker: CFI N I N Equity

Date: 2021-08-13
Q1 2022 Earnings Call
Company Participants
Ashish Subhash Dandekar, Chairman & Managing Director
Nirmal Vinod Momaya, Managing Director & Non-Executive Non-Independent Director
FINAL
Santosh L. Parab, Chief Financial Officer
Other Participants
Abhishek Navalgund
Analyst
Deep Master
Dhruv Shah
Madhav MardaL
Niranjan Gajanand Sakhalkar
Ravi Mehta
Rohit Sinha
Shikha Mehta
Surya Patra
Viraj Vajratkar
Bloomberg Transcript
Presentation
Operator
Ladies and gentlemen, good day, and welcome to the Camlin Fine Sciences Limited Q1 FY
'22 Earnings Conference Call hosted by Nirmal Bang Equities Private Limited. As a
reminder, all participant lines will be in a listen-only mode. There will be an opportunity for
you to ask questions after the presentation concludes. (Operator Instructions). Please
note that this conference is being recorded.
I now hand the conference over to Mr.Abhishek Navalgund from Nirmal Bang Equities.
Thank you, and over to you sir.
Abhishek Navalgund {BIO 20397235 <GO>}
Yes. Thanks, Sanvi[ph]. Hello, everyone. On behalf of Nirmal Bang Institutional Equities, I
welcome all the participants to Q1 FY '22 earnings conference call of Camlin Fine Sciences
Limited. We have with us today, Mr.Ashish Dandekar, Chairman and Managing Director;
Mr.Nirmal Momaya, Managing Director; and Mr.Santosh Parab, CFO of the company.
Page 1 of 27
Date: 2021-08-13
Without further ado, I would request Ashish sir, to start with his opening remarks, after
which we'll open the floor for Q&A. Thank you, and over to you, sir.
Ashish Subhash Dandekar {BIO 3151349 <GO>}
Thank you. Thank you very much. Welcome to our earnings conference call ladies and
gentlemen. As is our usual convention we will start by having our CFO, Santosh Parab, give
you the quarter's performance and the salient points, operational and financial. After
FINAL
which we will -- in the system that has been explained to you, we'll open the floor for
questions and answers, which will be as usual answered by Nirmal Momaya, our Joint
Managing Director. Thank you very much for joining us and over to you, Santosh.
Santosh L. Parab {BIO 20233968 <GO>}
Thanks, Ashish. Good evening, everybody. Welcome again to the investor earnings call.
Hope, all are keeping safe and healthy. I hope that you had a chance to review the
financial statements, which we have already uploaded on our website and stock
exchanges. We also uploaded the earnings presentation which has more granular detail.
As you know, the second wave of the COVID-19 pandemic threatened to dislodge the
improving economic parameters. However, we are very happy to inform that CFS has
been able to tide over this challenging situation with a resilient performance.
The company clocked a marginal growth in the revenues of INR330.83 crore as compared
to the previous quarter. Q1 has seen unprecedented pressure of increasing raw material
prices by almost 30% and logistical cost also increasing by around 2% to 3%, this has had
an adverse impact on the margins for the -- of the company. The cost margins eventually
declined by 451 basis points as compared to the sequential quarter. The company is
usually able to pass on these increase in the cost to its customers with a lag of around
quarter. We are assessing the trend of increasing raw material prices and the global
supply chain challenges cautiously and we would be charting the way accordingly.
The lower gross margins also impacted the EBITDA margins, which were further impacted
by one-time costs incurred in CFS Wanglong, our Chinese subsidiary which produces
vanillin, amounting to around INR3.50 crores, primary on account of disposal of raw
materials since the plant is closed and some non-operating cost. The resultant operating
EBITDA for the quarter was 13.8% as compared to 15.7% in the sequential quarter. Despite
the pandemic situation, the demand for our products globally has remained robust. Our
company is also working on various initiatives to enhance the basket of downstream
products.
Coming to our Diphenol plant. The Diphenol plant at Dahej has achieved 63% capacity
utilization during the quarter, with the utilization reaching above 75% at the fag-end of this
quarter. The optimum capacity utilization of more than 90% is expected to be reached by
the end of second quarter. The positive impact of Diphenol plant is visible in the
standalone results, where the gross margins have increased by 434 basis point to 41.8%,
which was despite the rising raw material prices and logistic costs.
Page 2 of 27
Date: 2021-08-13
Though the lower margins had a negative impact, gain in foreign exchange helped the
profitability to improve by 237 basis points quarter-on-quarter. The profit after tax stood
at INR23.78 crores, as compared to INR15.72 crores in the sequential quarter. We were
also able to protect the liquidity of the group, despite the elongated working capital
cycles and increased cost. The gross debt stood at INR535.75 crores as on June 30th,
2021, as compared to INR537.89 crores in the end of last quarter. Cash equivalent as on
June 30th, 2021, were around INR93.94 crores.
FINAL
We are also glad to inform that there was an improvement in our credit rating from BBB+
stable to A- stable. Our vanillin manufacturing plant in China remain closed during the
quarter due to the order of Supreme Court of China, regarding the infringement of
technology by our partner. The review petition against the order is pending hearing and is
expected to be heard in a very near future.
Construction of ethyl vanillin plant at Dahej is in full swing with almost 35% of the project
implementation achieved. Despite some delays due to the pandemic situation and
cyclones, company is still confident of meeting the expected completion timelines. The
company has been always focusing on the health of its employees during the pandemic.
CFS India during the month of June carried out a vaccination drive for its employees,
vendors and also some of its service providers, where more than 800 people were
inoculated free of cost. Planning is also in progress to fully vaccinate all the employees in
the coming future.
In conclusion, we are confident of continuing the positive trend in the growth of the
business. Thank you.
And now, we can open the floor for question-and-answer session.
Questions And Answers
Operator
(Question And Answer)
Thank you very much. (Operator Instructions) The first question is from the line of Shikha
Mehta from Equitree Capital. Please go ahead.
Q - Shikha Mehta
Hello, sir. Congratulations on a great set of numbers in challenging time. I just had a
couple of questions. If you could give some guidance on the tax rate for FY '22. If you
could also give some guidance on how we see our business playing out over the next two
years to five years and any CapEx number for this year and for next year?
A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Yes, so the tax rate. We expect the tax rate
Page 3 of 27
Date: 2021-08-13
A - Santosh L. Parab {BIO 20233968 <GO>}

Hello, can I answer Nirmal?

Yes, go ahead.
FINAL

Yes. So, the tax rate has --on a full fledge basis and the synergy of all business are in line,
the tax rate should be in the range of 25% to 27%. At present, it has been a bit high
because there are was -- there are some geographies, which are making losses and then
intercompany R&D losses cannot be adjusted. So, there is -- but on a full-fledged basis it
should be in the range of 25% to 27%. Nirmal, you can answer the next part.

Yes. So, in terms of the business for the next few years, we've kind of laid out the path
forward with Dahej facility coming on stream and now also the vanillin - ethyl vanillin plant
under construction. And going forward expanding our business in -- the blends business,
as well as the performance chemicals downstream products from hydroquinone and
catechol, expanding capacities on those. They are on track for the growth that we've
been guiding for the last -- from the last few quarters
Q - Shikha Mehta
And if you could also give some update on the Wanglong?

On Wanglong, Santosh gave the update that Supreme Court review petition is going to
be heard very soon. In the next couple of months, we should have clarity on the way
forward in China.
Q - Shikha Mehta
All right. And on Mexico?

On Mexico, I mean, it's going on same (Inaudible), they are confidently growing that
business and this year we should grow the business by 15% to 20%.
Q - Shikha Mehta
All right. And CapEx figures for FY '22 and '23, if we can have any guidance?

Yes. So, I think CapEx for vanillin -- ethyl vanillin facility will be about INR175 crores. And
next year our CapEx plan between all the projects that we would undertake, for the
Page 4 of 27
Date: 2021-08-13
downstream products, should be in the region of about INR75 crores or so
Q - Shikha Mehta
All right, sir. Thanks, sir. I'll come back in the question queue.
Operator
FINAL
Thank you. The next question is from the line of Ravi Mehta from Deep Financial. Please
go ahead.
Q - Ravi Mehta {BIO 21202694 <GO>}

Hi. Thanks for the opportunity. So, Santosh, clarified in his opening remark on the gross
margins. So, just wanted to understand more from the price hikes that is already taken
with the lag. So, should the gross margins be reversing back to the normal run rate?

Yes. There are two or three factors here, which have impacted the gross margin. One is,
of course, the raw material price; second is the logistics cost. So, logistics cost -- there are
two things in logistics, one is availability and second is cost. Availability has been a
challenge in terms of containers to -- even shipping lines to getting product on a ship with
limited availability. So that remains the challenge, availability. And cost, of course has more
than doubled on logistics. So, which is again a challenge in terms of what typically used to
be 2% logistics costs -- actually of about 2% of our sale has gone up to almost in excess
of 4%, so that has impacted the gross margin.
And the second of course, is the raw material and the lag in which we can pass on. So,
yes, we expect that both the logistics costs as well as the raw material price increase that
has happened, we should be able to pass on those in the next quarter and the following
quarter. Also, we expect some of the raw material prices to also ease off in Q3 and Q4.
So, our target is, and I think it's achievable is to be in that region of 49% to 50% gross
margin in the next coming quarters.

Okay, that's helpful. Also, probably this one-off the expense we had in China. So, if all
those going away probably the EBITDA also normalizes?

Yes, correct. (Multiple Speakers)

I mean, I don't expect any other one-offs in coming quarters. I guess, this was it or?
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Date: 2021-08-13
Yes, this was basically adjusting our material in process and raw materials, which we have
to then sell off at of course below cost, because it (inaudible). So, basically, those kind of
rates which is one-time was expected that there would be some impact. But other than
that, there is no other impact which is expected. So, yes, in terms of improvement in
EBITDA margin that was -- it did get impacted by almost 1% or little more than 1%.

FINAL
Okay. Thanks. I have more questions, I'll come back. Thanks.
Operator
Thank you. (Operator Instructions). The next question is from the line of Dhimant Shah
from (Inaudible). Please go ahead.
Q - Analyst
Yes, thank you for the opportunity. One quick question. Sorry, just a clarification before
that. The gross margin you shared back would stabilize around 45% mark, right?

No, it's about 45% right now. What we expect is it to stabilize around 47%, 48%.
Q - Analyst
On a consol basis?

Yes.
Q - Analyst
Great. And how much would be value-added products or the downstream products, as
you call it. What would be the proportion of sales coming from that on a normalized basis
as we move forward?

Sorry. I didn't -- what was your question?
Q - Analyst
The value-added products or the new downstream products. What would be -- what
would that be as a proportion of total sales?

Right now our sales is -- I would say almost 200 -- out of 330 about 230 would be value-
added downstream products and 100 would be basic hydroquinone and catechol, roughly.
Page 6 of 27
Date: 2021-08-13
Going forward, that would change also because we will do more value-added products
and especially with the ethyl vanillin coming up. I think that in itself will add another -- once
you convert the whole thing into at least about more 4x of that to INR400 crores and
balance the hedge [ph] about 25% actually (Inaudible) another INR200 crores, but INR600
crores or so will be added with the full downstream products when all the capacities are
running.
Q - Analyst
FINAL
And INR200 crores would be the normal category, so INR800 crores in total that is what
you are saying?

No, INR600 crores more. I'm saying this -- what we are selling is hydroquinone and
catechol will get converted into the downstream.
Q - Analyst
Okay. And one intriguing question is, we have one listed competition who claims far
superior margins and all of that. And we roughly have an overlap of 40%, 45%, if I'm not
mistaken. So, can you

Yes, the overlap is only INR100 crores right now. INR120 crores of INR1200 crores or 10%.
Q - Analyst
About 10%, okay. But do you see any meaningful change in the equation, as they
introduce more products or there is no likelihood of major head on competition or
whatsoever or even impact on margins, as far as we go.

As far as we are concerned, we are entering the MEHQ market, where they are the
leaders. And which we'll scale up as we go along. So we don't see much of an issue in
terms of -- in terms of margin on the MEHQ because that's the business, which we don't
have today. And we have a good cost position in MEHQ with our Dahej facility. So, as we
ramp up Dahej, we'll increase our MEHQ production as well as sales in the market. So that
-- that will add to the margin actually.
Q - Analyst
Yes, but they, kind of, claim that their cost is far superior to anybody else even close by.
So would you kind of delve a little bit on this?

Yes, so our cost is higher because -- or was higher in the past was only because of our
raw material resource coming from Italy. With Dahej we are on an (Inaudible) on MEHQ.
Page 7 of 27
Date: 2021-08-13
So, like I said, we do scale up MEHQ which will happen in the next few months, our
margins will improve on that.
Q - Analyst
Great. Okay. I'll come back in the queue. Thank you for answering these two questions.
Thank you so much.
FINAL
Operator
Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go
ahead.
Q - Surya Patra {BIO 15983557 <GO>}

Yes, thanks for this opportunity. First of all, I would say strong set of sales number, what
you have reported in (inaudible) quarter. That is the highest ever sales I would say, this is a
kind of strong kind of number that we have seen for the first quarter. So, is it fair to
believe sir, this is setting a stronger tone for the entire year in terms of sales growth?

Yes, that's right. Typically, the first quarter is slightly subdued and going by that and also
on the development of all these downstream products and new products. Yes, it is -- the
following quarters Q3, Q4 will be stronger than the first two quarters.

Okay. And then, we have in the recent past also have entered into new businesses or
talked about the new business like through acquisition of this algae-based nutraceutical
company. And we have also indicated about our entry into MEHQ and Calcium Propionate.
So, if you can just share some sense, what are the kind of sequential progression that we
would be seeing or whether we have started seeing any kind of incremental number out
of these or when would that really be flowing in some sense on that part?

Yes. So, in terms of MEHQ we are -- as we scale up the hedge from the 65% or to the
100% mark, which will happen in the next couple of months, we would start scaling up our
MEHQ business. So incrementally the next six months to seven months, we should have
some sales coming in for MEHQ.
As far as Calcium Propionate is concerned, also we've launched the product and we've
got encouraging feedback from the market. And that also, we start slowly scaling up
during the year in the next six months to twelve -- in the next seven months. And we
either -- just took control of the plant, we are understanding the production cycle and fine-
tuning what we need to do in terms of scaling up capacity. So, the revenue really will start
coming in from October onwards. Which also we will scale up with some small
debottlenecking which is in the pipeline in the next couple of months and the revenues
should start flowing in, like I mentioned from October onwards.
Page 8 of 27
Date: 2021-08-13

Okay. But is it fair to believe something like around 10% of the sales can be contributed
from all these new efforts and the base business can see its own nature in growth
progression? Is it that fair number sir?

Yes, I think, so all these businesses -- the new businesses put together, I mean,
FINAL
contribution over INR100 crores, yes, I mean, could be fair in that region.

Okay. Then I think given the kind of -- even if we annualize the first quarter number and
the incremental trend what we generally see in the second half versus first half, which will
further be complemented by this then kind of strong over 20% kind of a growth is a
certain visibility, given the 8% kind of Y-O-Y growth in the first quarter what we have seen?

Yes. That's right. Like we did mention that we are targeting between INR1,400 crores to
INR1,500 crores will be the top line.

Sure, sir. Okay. The next question is on the margin front. Santosh sir, if you can just clarify
this INR3.5 crore one-off number that you have mentioned. It was relating to material also,
you said something operational also. So, in which line item that is there?

So, around INR1.5 crores is in consumption, this was regarding the hit on the raw materials
and intermediaries (inaudible) sales and also certain one non-operating expense has
happened on cleaning up the factory and other thing, which was around INR1.5 crores, so
INR2 crores. So INR1.5 crore in the hit in the consumption and the balance INR2 crores is in
the hit in the other expenses.

Okay. Then my next question from there sir is about margins. So, we have obviously
mentioned that okay, this a one-off element that is there in the overall margin. And there
are elevated cost, freight as well as (Inaudible), part of which can be passed on in the
subsequent quarter, which can be mitigated. But I'm just trying to understand whether the
impact of Catechol is also there? Why because, till that time that we'll not be doing
vanillin. So that would be coming as a kind of a product and are we building inventory of
that or it is sold in the market and hence, some impact of the margin -- impact on the
margin that would be seen, some sense on that sir?

So, yes. So, of course, the vanillin has been discontinued -- we are selling Catechol in the
market. What we did first anticipate was that whether we'd be able to liquidate all of that
Page 9 of 27
Date: 2021-08-13
will we produced in the market was bit of a question mark. But fortunately, we've been
able to kind of come over that -- overcome that and we'll be able to liquidate and we
continue to liquidate the Catechol in the market. So yes, that has impacted the margins.
Because, when you convert it to vanillin, we were getting a better realization for
Catechol's and what sell in the market. So -- but of course, that gets corrected as soon
our as Ethyl Vanillin, Vanillin facility starts that gets corrected immediately.
Q - Surya Patra
FINAL
{BIO 15983557 <GO>}

Okay. Just then, if you can clarify about your commissioning of the means -- the progress
of the setting of the -- progress in terms of setting of the Vanillin plant. Because we have
seen a peak COVID phase recently so whether that had impacted the implementation of
that new project. And if that phase is implemented even if we ignore for the time being in
the China facility, which is uncertain means, which is currently under (Inaudible). So, then
what incremental business that we can get from the Dahej Vanillin unit?

Yes. So the progress is good on the project. Of course, we will have some problems with
COVID and especially on the oxygen side. And in the second wave where industrial
oxygen was not available for a few months. And of course (inaudible) some problems, but
really speaking not much of a -- not a very big issue. We are looking at starting the plant
by April. We should be ready to start commercial production that -- we estimate that we
have. In terms of sales, I mean, it's like -- our capacity will be 6,000 tons. And of course
the trade market price of Vanillin are now crazy, but as (Inaudible) because when we come
with supply, we will bring the prices to normalized level. We expect (inaudible) on this
growth turnover next year additional coming from Vanillin business.

Okay. Sure. Thank you.
Operator
Thanks you. The next question is from the line of Rohit Sinha from Sunidhi Securities.
Please go ahead.
Q - Rohit Sinha {BIO 18074803 <GO>}

Yes, thank you for taking my question. My first question is on hydroquinone price, since
the hydroquinone prices are at all most all-time high, what kind of advantage or
disadvantage it provide to us in terms of sourcing it from outside or selling it in the open
market and how much -- or we are in position to pass it on and maybe what kind of time
lag would be there?

So hydroquinone prices have gone up. Yes, yes, you're right. I mean, they are at all-time
high in the two months. Of course, it was the bit of an advantage, but I mean really
Page 10 of 27
Date: 2021-08-13
speaking the raw material prices have hit all-time high. So, in that sense, it's kind of offset
by that.

Okay. So, I mean nothing incremental kind of benefit we should expect from this. Am I
right?
FINAL

Not really, no.

Okay. And on the US business side and we have done exceptionally well in this quarter.
So, is it because of some new contracts or new approval clearance or it's a pent-up
demand amid this pandemic situation?

It's not really any new business contract that we signed for our blend business, it's more
on the hydroquinone. We started establishing small market in the US for hydroquinone
where they're doing local stock and exchanges and that is what has given us a bit of a
higher sales in the US.

I mean, we are selling hydroquinone from US?

Yes.

Okay. And that would -- that is supplied from our Italy front or is it from the

Yes, from Italy. (Inaudible) is only captured, we just use it for our downstream products in
India. We don't sell (Inaudible) hydroquinone or catechol in the market right now.

Okay. And lastly on this Infinity Holdings side. And have we procured anything from Infinity
Holdings, I mean, during this quarter and probably how much is remaining? And maybe, I
mean where we should be expecting our debt profile to look like by the end of the FY '20
considering this Infinity Holdings money into account?

Santosh?
Page 11 of 27
Date: 2021-08-13

Yes. So as far as the Infinity money is concerned, we have to invest before the 15th of
March 2022. We have been calling the money as and when required. But its highly likely
would that rather not certain that the entire share balance -- remaining shares of around
2.90 crores will be issued to Infinity on or before 18th of March '22. At present as you
know 61 lakh shares that is around 7%[ph], they already invested in share (Inaudible) The
balance will be coming. We are drawing the money as and when required.
FINAL
As far as loans are concerned, our ECB from IFC, we've already done $5 million -- drawn
$5 million for our (Inaudible) project last year. The balance $10 million will be drawn in this
year. So that would be an addition and that is going to utilized for ethyl vanillin. We are
also contemplating the increase of around INR30 crores to INR35 crores on our working
capital borrowing because of increase in business. And at this moment of time, that is
what is the expected increase in loans by the year end.

Okay. Thank you. I will come back in queue. Thank you.
Operator
Thank you. The next question is from the line of Deep Master from One-up Financial
Consultant. Please go ahead.
Q - Deep Master {BIO 20553623 <GO>}

Yes, hi. Thanks for my question. So, I just wanted to touch a bit on the blend business. I
think, I guess due to COVID and the disruptions we've kind of not seen growth in FY '21,
but it's tough for us to figure out the blends revenue in the quarter. If you could just share
the number for that and also give us an outlook. Because I think, that's the part of our
business that's not well appreciated because that's a -- that's the branded part of our
business and kind of gives us a lot of stickiness in our revenues. So could you kind of give
some outlook in the medium term on blends. And maybe, if you could also touch on some
of the key markets and the developments that you're seeing there.

So in blends business in this quarter I think it's about INR80 crores odd is the blends
revenue.

INR81 crores.

Yes, INR81 crores. So, because of the whole situation from last March onwards, where
there was lot of restriction on movement, visiting customers to starting new project or
keeping new project on hold in the blend business, there is a lot of interaction is required
Page 12 of 27
Date: 2021-08-13
which is physical in nature for its customers. I think with the vaccination drive across the
world, what we are seeing is that, slowly things are opening up, people are allowing
visitors who are double vaccinated to come in and start interacting with their staff and into
their plants. And -- so a lot of new products that we have developed, which we have a lot
of potential in terms of market, but of course, we couldn't do much work in the last 15
months, is now started. So, we are already seeing that all our sales people are now on the
ground, running, meeting customers.
FINAL
What we had estimated growth could be in the region of (Inaudible) 20%. I think if we start
clocking that from Q3 onwards, because all these projects which were kind of kept under
bag has now started opening up again. So, in terms of geography, our strength really is in
the Americas more in the Central and South and now North America as well. So, those
markets are kind of more or less have kind of opened up and people are visiting
customers. And so, we think we will see that we anticipated in these markets without an
issue. We're also now putting a lot of focus on developing the Asian market, we started
(inaudible) we have a JV with the Malaysian company, which we started now doing
business in Malaysia we kind of got some new customers in -- those are looking
promising. Similarly, we are registering our products in Indonesia and other parts of South
East Asia where those registrations also should come (Inaudible) few quarters and we'll
be in the market with blend in countries like Vietnam, Philippines in the next two and three
quarters. So, a lot of work going on in East Europe. Also, to establish and to get
registrations there, as well as in the Baltics. And so, yes, we are focusing on different
markets and developing distribution and registration dates in the next few quarters, so
that in the mid-term we're well establish in these markets to grow the blend business by
at least 25% a year.

Right sir. Given the lag in your, sort of, sales team interacting with the customers. And --
but also the pressing need for many of the customers to kind of reduce that cost, given
the inflationary scenario across the world. As in when the interactions begin again, and you
regain traction. Shouldn't the growth from FY '23 be much stronger than 25%. Given that,
we come with a much lower cost base, as well as the lag that we've seen over the last
two years?

Yes. So, yes, I mean, that would be -- if conditions improve as we hope they do and things
do improve. Yes, I mean, it's very much possible to grow at further than that.
Also, what we see is that, in many countries there are tariff restrictions where blending
gets -- tends to be more localized because of the tariff -- import tariff. So, going forward
the business model will -- that certainly be small blending units in different parts of the
world to service markets, which are free import tariff within the block of countries. And
that seems to be working well, like we see in (inaudible) in South America, where Brazil
can supply to Chile and Argentina and to other countries, neighboring countries without
significant tariff issues. Similarly, Mexico can do in Central America. Southeast Asia,
Malaysia can do Southeast Asia because they are again a part of the Asian countries
where they have a tariff advantage. So yes, I mean, potentially much more than 25%. But
Page 13 of 27
Date: 2021-08-13
given the uncertainties that are there right now difficult to say. If things do get normalized,
surely, I mean the possibilities are much greater than that for us.

Sure, sure, that's helpful. And, on the, downstream side and -- just connecting to an earlier
comment you made on your margins in a product such as MEHQ with the Dahej cost
structure. So, if your cost structure starts to align with your competitors that has a much
FINAL
healthier margin and you also -- due to the fact that your value-added to your
downstream products will kind of amount to another INR600 crores once vanillin and the
other products come in. So, the margin swing in my estimate could be quite dramatic. So,
any more color on what steady-state margins could kind of look like, once the
downstream is, kind of, built out in a FY 23 scenario?

Yes, so, I mean, that's what, we are saying that surely it will be significantly better than
where we are. Where will it go and end up at will depend a lot on what the competitive
landscape will be in terms of market shares as well as the pricing. So, but -- yes, but it's
safe to assume that we should be close to, like, we already mentioned high-teens to
20%. I mean, we should certainly be exceeding that in the FY '23.

Sure. Thanks a lot. And just a last one on the downstream. So, on a run rate basis, like,
when would we expect the contribution to come in from vanillin and some of the other
new products?

Yes. So, like, MEHQ, I mentioned, MEHQ (Inaudible) because that other downstream that
we have right now. From October onwards we will start seeing contribution. Vanillin will
start from April next year, as well as there are certain other products like HQEE and other
downstream products where we are seeing (Inaudible) gaining some new contracts in
those businesses. So, yes, from October onwards the contribution will start and the
bigger one will start from April onwards when the Vanillin starts.

Understood, thank you.
Operator
Thank you. The next question is from the line of Niranjan Gajanand Sakhalkar from Equitas
Capital Advisors. Please go head.
Q - Niranjan Gajanand Sakhalkar

Thanks for the opportunity. I have couple of questions. The first one on the Performance
Chemicals segment. So, today the strength in Americas (Inaudible) already your chemicals
Page 14 of 27
Date: 2021-08-13
to drive the growth or are there any other main production in this category which will drive
the growth. And what will be the growth rate on the segment?

No, I couldn't understand.

FINAL
Sorry. On this Performance Chemicals segment, (Inaudible) chemicals that will drive the
growth. One is MEHQ, any other one?

Yes. So we have several products, we have MEHQ, we have HQEE, then we have
PDM[ph], we are not getting Into forward integration on that into (Inaudible) ARG, we
have Veratrole, we have Guaiacol, TBC. So, there are technically about eight or nine
products, which are in the downstream, which will contribute to the growth.

Okay. And what growth we expect in the segment over the next, say, 3 years, 4 years in
Performance Chemicals?

Yes. So, in Performance Chemicals, I mean in the downstream part, like we said, aroma
and performance go hand-in-hand in that way. Between all of these about INR600 crores
is what we are saying.

INR600 crores, incremental, right?

(inaudible) yes, incremental over the next 2 years to 3 years.

Okay. I understand. And the other thing was, on vanillin segment, you expect to gain
market share from somewhere else, is that (Inaudible) correct? If you have (Inaudible)
lowest cost producer in coming future?

Sorry, I couldn't hear. Your voice is not clear.

In the Vanillin business, since you claim to be the lowest cost producer after Dahej, can we
expect to gain market share from the western players like (inaudible) the biggest player.
Page 15 of 27
Date: 2021-08-13

Yes, yes, absolutely.

Okay. And what growth do you target in the vanillin segment?
FINAL

So what we are looking at is, I think about a 30% market share.

Okay, okay. Thanks a lot. Thanks.
Operator
Thank you. The next question is from the line of Dhruv from HDFC AMC. Please go ahead.
Q - Analyst
Yes, sir. Thank you so much for the chance. Sir, one question was on the vanillin part. So,
currently your China capacity was about, I think, 4,000 to 4,500 tons and it was operating
in about 60%, 65% CU utilization. So -- and this -- I believe this capacity has been there for
quite some time. So, what gave you the confidence that we will be able to ramp up the
new India facility relatively fast once that capacity is up and running?

Yes. So, basically, the market right now has quite really become very, very tight on both
ethyl vanillin and vanillin. And all major customers are anticipating our capacity to come up
and are looking to de-risk the situation because the other two players in the vanillin
market have, kind of, jacked up their prices to over 100% of what it was, when it was three
player market. So, which kind of disappointed all the customers that -- exit of temporary
exit of one player, if the prices go up by 100% it really makes no sense, so it is -- they
need to support and sustain a third supplier very clearly and which is what they
understand, very clearly now. So, the ramp up that we expect is much higher and much
faster than what we could do in China. Because of two reasons. One what I just
mentioned and second is, we are looking not to put all their eggs, so we were also a
Chinese player for them. So, it was not an Indian product there were Chinese products
which is the market, competing versus two other players (Inaudible) and the other
producer in China. And this gives us a position of being an Indian product, which is again
not the same as buying a Chinese product.
And that is also of great interest to all the large consumers that -- they want the China
plus one supplier and which is what we are. As well as what has happened in the past few
months has kind of made it very clear to them that Camlin should play a very key role in
this supply chain for them to sustain their businesses.
Page 16 of 27
Date: 2021-08-13
Q - Analyst
Got it. And sir, are there any approval processes for the capacities for

Yes.
FINAL
Q - Analyst
And (Multiple Speakers) each customers have to approve it separately or how does it,
some color there?

Yes. I mean, they have to approve it, because (Inaudible) for the century[ph] part and
typically that takes about a month or so for them to approve.
Q - Analyst
Okay. That's quick (Inaudible), so it's not a lengthy process?

Yes. You know what, getting, it is always a problem till you get your company approved
and they -- that takes a long time. But having done all of that and they knowing us and
they are very keen also to have this new supplier in place. So everything very -- it's the
other way down, everything gets faster.
Q - Analyst
Got it, got it. And sir most of the demand for -- sir, two questions, sorry. Most of the
demand for vanillin, is it, I mean, where is the demand coming from for vanillin -- the
landscape of demand for vanillin or the total demand say, if it's 100, where is the most of
the demand?

Demand is from flavor, fragrance and pharma.
Q - Analyst
If you could -- by region, by region.

By region the largest consumer of vanillin is US. Second would be China and Europe,
almost the same size. Then India and all the developing markets are all -- consumption of
vanillin is growing rapidly in this market.
Q - Analyst
Page 17 of 27
Date: 2021-08-13
Got it. And sir, the thing was -- so I understand you expect the approvals to be fast and
the ramp up to be fast. Which is there, -- was there a bottle neck that the earlier capacity,
which was relatively smaller, I mean versus the new rack[ph] you're planning was
operating at a lower utilization. I mean, was there a RM bottleneck or something else
which was constraining

FINAL
No, no, it was the market, it was the market, it was the market.
Q - Analyst
Okay, okay. Got it. So, okay. So, sir, so then if that capacity was operating in 100% for a
very large, despite being there for quite a sometime. So, when we say INR400 crores, I
believe that's the number you are giving for the vanillin (Inaudible) -- vanillin capacity. Will it
be year one or should be expected on a gradual basis the INR400 crores -- full potential?

It will take two years -- it will take two years.
Q - Analyst
Okay. And this INR400 crores, when you say, is it at 100% utilization or I mean, broadly
100% or at bit lower utilization?

So, I mean, it depends on what the prices will be at that point. May be difficult to say,
today prices it's INR1,000 crores, but I can't guide on that. Because I don't know what the
prices will be when we come into the market. So today the prices of the ethyl vanillin at
$25 and vanillin is $24 and if you say, 6,000 ton for $24 is more than INR1,000 crores
Q - Analyst
Sir, probably if you can help us from the -- from when -- the point that you calculated the
INR400 crores

That was it -- that was at $10.
Q - Analyst
So, is it that -- is that at 100%. I'm trying to understand how should the utilization be? So, is
this at almost 90% and 100% utilization?

Yes.
Page 18 of 27
Date: 2021-08-13
Q - Analyst
Got it. Sure, sir. Thank you so much, sir.
Operator
Thank you. The next question (Operator Instructions). The next question is from the line of
Dhruv Shah from Ambika Fincap. Please go ahead.
FINAL
Q - Dhruv Shah {BIO 21039005 <GO>}

Yes. Hi. Santosh ji, as you mentioned that we pass on the cost increase by a quarter's lag.
So, are we seeing Q2 will also be challenging considering phenol[ph] prices has not fallen
down and that has actually gone up further?

No, it hasn't gone up further. It has remained more or less the same as it was in Q1. So,
what we expect is in Q2, we will be able to pass on some of those. They are in the
process of passing it on.

Right. But Nirmal ji, we have seen gross margin of above 50% as well. And with all the
downstream products and the hedge going to 100% and with the new initiatives we're
doing and we are still guiding something around 47% to 48%. Isn't it too conservative as
far as the gross margins are concerned?

Well, I like to earn on the conservative side, so, you know. Yes, I mean potentially, yes. But
it's a very fast changing scenario with all these cost structures getting challenged. We've
never something as volatile as this, so it's fair to be conservative and look at it. Of course,
I mean, potentially it could be 5%, 7% higher than that if everything goes in right way. But
these times have been so uncertain, and nobody expecting this kind of logistics issues,
these kind of raw material price increases it has never happened before.

Right, right.

Completely we live in unprecedented times. So that's why, guiding something which I
don't know, really, I mean, I can hope that it will be 60% gross margin, but will it be? I don't
know really, it's so difficult to say in these times.

Right, right. And my last question will be on AlgalR, what have -- are we planning forward
integration, or do we want to first establish ourselves in Omega and then look for forward
Page 19 of 27
Date: 2021-08-13
integration. I just want your outlook on the fermentation part?

See, on the fermentation, forward integration, not really. Because we will make the
Omega and sell the Omega to formulators. I don't think we (Inaudible) the formulation
business in the near future.
FINAL

Okay.

What we want to do really is that, once we establish in Omega and establish our
fermentation process in Omega, look for other products in fermentation. Whereas, we
know that we have a good opportunity and we are working on those in the labs and
getting those ready. Once, we kind of commercialized the Omega, then we'll look at the
next set of products.

Okay.

But I don't think we'll get into the formulation side. I mean, that's a very, very different
business.

Right. And how is ramping up going on there? Like, you mentioned that from Q3, we
should see revenue

We just started -- I mean, we've just started -- we've just taken control a month ago, so
it's just in the process of starting.

Okay. Thank you. And all the best for the future quarters. Thank you.

Thanks.
Operator
Thank you. The next question is from the line of Madhav Marda from Fidelity International.
Please go ahead.
Page 20 of 27
Date: 2021-08-13
Q - Madhav MardaL
Hi, Nirmal. Good evening and thank you so much for your time, once again. I just wanted
to ask a quick update on the (Inaudible) project, if anything is -- if there's an update there?

No significant change. It's on track. In fact, for the first time somebody from US has
travelled right now and are visiting us after almost 15-month gap from their meeting. So,
FINAL
the interaction -- our physically interaction again have started. So -- but other than that,
yes, it's on track for what we've said in the past that 300 metric ton facility will be setup
and, in the meantime interim requirements, sales we will try and fulfill from our existing
facility.
Q - Madhav MardaL
And we're expecting some revenue from that to continue in FY '23, so like a pilot plant or
that's going to be FY '24?

So, we will see some revenues coming in FY '22, '23, but FY '24 will be when the 1,500
metric ton plant will be the ready.
Q - Madhav MardaL
1,500, okay. So, how much revenue potential does that have, (Inaudible) could be
achieved?

The pilot plant -- that is the pilot facility 1,500 metric ton, but that will be in bulk of INR120
crores or so. But that's just a pilot plant for them. And then, of course, the big plant will
be, probably 10,000 tons which, of course, potentially will INR1,000 crores business.
Q - Madhav MardaL
Okay. All right. Thank you, sir. Thank you.
Operator
Thank you. The next question is from the line of Rohit Sinha from Samiti Securities[ph].
Please go ahead.
Q - Analyst
Yes. Hi. Thanks for the follow up. Just wanted to understand the employee increment
policy for us and when it is actually due for all different geographies?
Page 21 of 27
Date: 2021-08-13
Santosh, do you want to take this?

So when we -- in the American continent and European continent generally the (Inaudible)
date happen at the end of the year and it's January cycle. And for India it is a June to May
cycle, where increases happen in June. Because of COVID they are delayed. So,
generally, we are looking at 10% to 12% average increase on salary. So, India level next
FINAL
quarter there is likelihood of increase of around 10% appraisal. And similar kind of
appraisal will happen in the first quarter of -- or last quarter of this year for European and
American Business.
Q - Analyst
Okay. Thank you, sir. Thank you for that clarification. That's it from my side.
Operator
Thank you. The next question is from the line of Viraj Vajratkar from Validus Wealth. Please
go ahead.
Q - Viraj Vajratkar
Yes. Hi. Sorry, if it may have been covered. But this -- the $35 million one-time costs for
the CFS Wanglong that would -- that is pertaining to the shutdown in March, right or the
infringement[ph] on IP?

Yes.
Q - Viraj Vajratkar
Okay. And any -- I mean, in the March quarter, I think it was expected that some -- the
judgment was supposedly coming by September. Is there any update on that?

Yes. And we are expecting the hearing to coming up in the next few weeks, so don't
know when exactly the order will come. But hopefully in the next couple of months.
Q - Viraj Vajratkar
Okay, fine. And one last on the CFS Wanglong facility. Is there any possibility of refitting
those factory for some other products if not vanillin?

Yes, absolutely. We have some other downstream products form Catechol, which we can
repurpose that plant without really significant investment. That's in the pipeline. If we don't
Page 22 of 27
Date: 2021-08-13
get a judgment soon and if it's going to be delayed for a long period of time, then we'll
just start making that product in China.
Q - Viraj Vajratkar
Okay, okay, got it. Thanks. Thank you.
Operator
FINAL
Thank you. The next question is from the line of Pallavi from The Consulting Point. Please
go ahead.
Q - Analyst
Yes, sir. Thank you for taking my question. Just wanted to understand on the raw materials
side, the -- for non-surfing[ph], what's the kind of contracts do we have there, are they
annual and how much percentage would be in that spot and how much would be
imported versus the local for Dahej?

For Dahej our contract is annual. It's all local.
Q - Analyst
All local, right.

Yes, and the price changes every month. Price changes every month, but the supply is
annual contract.
Q - Analyst
Okay. That's all from my side. Thank you.
Operator
Thank you. The next question is from the line of (inaudible) from -- Individual Investor.
Please go ahead.
Q - Analyst
Thanks for including me. I just want to know about the capacity utilization about the Dahej
plant? Sir, you started in September, 2020 and (Inaudible) utilization of around 75% only.
So when you -- when we are expecting to ramp up? Because in the Q3 guidance it was
given that it will be 90% by Q4 FY '21? (Multiple Speakers) It is the first question.
And second question, regarding the tax. As you mentioned that the taxes will be around
25% to 27%, when it will be -- event -- in that range any -- in FY '22 or FY '23?
Page 23 of 27
Date: 2021-08-13

I'll answer the first question. The ramp up is -- in the process with rate of about 70%,
which we will take to 100% in the next couple of months.
And on the tax rate, Santosh you can answer that. I think, you already answered that in the
(Inaudible).
FINAL

And let me (Inaudible) just touch upon it. The ideal rate of 25% to 27% is likely in next
financial year.
Q - Analyst
Okay. In the current financial year how -- where it will be?

It will be around 30%.
Q - Analyst
Okay. Thanks. That's it from my side.
Operator
Thank you. The next question is from the line of Sharad Singh, Individual Investor. Please
go ahead.
Q - Analyst
Hi, sir. Good evening, sir. Sir, what is the market size of vanillin market?

I didn't understand your question. (Inaudible) and couldn't follow your question.
Q - Analyst
Sorry. What is the market size of the vanillin market?

Vanillin market is 30,000 metric tons.
Q - Analyst
So we are -- and revenue. Can you tell me the revenue (Inaudible) in terms of rupees or
dollars?
Page 24 of 27
Date: 2021-08-13

So, it's very difficult to say. Today's it is worth $600 million, because the pricing has
doubled, but till a year ago it was $300 million.
Q - Analyst
So on a normalized (Inaudible) 30% share of a $10 billion market?
FINAL

Yes. We are -- yes, between 20% to 30% is what
Q - Analyst
Okay.

Will be our market share.
Q - Analyst
Okay. And sir, regarding the AlgalR acquisition, what is the kind of product we'll be
entering into, as in, will it be just Omega 3 or what is the kind of industry we'll be targeting
with that company?

So, I mentioned that in the last -- somebody asked that question, that we are focusing on
Omega 3 to start and then we'll add new products in the fermentation. The industry is --
Omega 3 is primarily for human health supplementation of Omega 3 and some in the
feed, I would say.
Q - Analyst
Sorry, I missed the last part.

Feeders. To animal feeder.
Q - Analyst
Okay, understood. And sir, what can be the margin in that EBITDA level?

Right now it's early to say because we are just scaling up the process.
Q - Analyst
Page 25 of 27
Date: 2021-08-13
But would it be fair to assume they'll be higher than the current form of business margins
overall?

It is very difficult to really comment on it, because since we've just taken control and it was
the plant which was shut for some time, we've restarted it and (Inaudible). Will -- we'll
have better idea -- once we are ready we will inform you all.
FINAL
Q - Analyst
Okay. Thank you. All the best.
Operator
Thank you. That was the last question. I now hand over to Mr.Abhishek Navalgund for
closing comment.
Q - Abhishek Navalgund {BIO 20397235 <GO>}

Yes. So, thanks. Basically, I would like to thank the Camlin Management for giving us the
opportunity to host this call, and also thanks to all the participants for joining in. Thank you.

Thank you.

Thank you.
Operator
Thank you very much. On behalf of Nirmal Bang Equities, we conclude this conference.
Thank you for joining us and you may now disconnect your lines.
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Page 26 of 27
Date: 2021-08-13
Page 27 of 27

Q1FY22

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Company N ame: Camlin Fine Sciences L td

Company Ticker: CFI N I N Equity

Q1 2022 Earnings Call

Santosh L. Parab, Chief Financial Officer

Abhishek Navalgund {BIO 20397235 <GO>}

Ashish Subhash Dandekar {BIO 3151349 <GO>}

Santosh L. Parab {BIO 20233968 <GO>}

And now, we can open the floor for question-and-answer session.

Questions And Answers

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

A - Santosh L. Parab {BIO 20233968 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

A - Santosh L. Parab {BIO 20233968 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

downstream products, should be in the region of about INR75 crores or so

Q - Ravi Mehta {BIO 21202694 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Q - Ravi Mehta {BIO 21202694 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Q - Ravi Mehta {BIO 21202694 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Q - Ravi Mehta {BIO 21202694 <GO>}

Okay. Thanks. I have more questions, I'll come back. Thanks.

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Q - Surya Patra {BIO 15983557 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Q - Surya Patra {BIO 15983557 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Q - Surya Patra {BIO 15983557 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Q - Surya Patra {BIO 15983557 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Q - Surya Patra {BIO 15983557 <GO>}

A - Santosh L. Parab {BIO 20233968 <GO>}

Q - Surya Patra {BIO 15983557 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

{BIO 15983557 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Q - Surya Patra {BIO 15983557 <GO>}

Q - Rohit Sinha {BIO 18074803 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Q - Rohit Sinha {BIO 18074803 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Q - Rohit Sinha {BIO 18074803 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Q - Rohit Sinha {BIO 18074803 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Q - Rohit Sinha {BIO 18074803 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

Q - Rohit Sinha {BIO 18074803 <GO>}

A - Nirmal Vinod Momaya {BIO 19268007 <GO>}

A - Santosh L. Parab {BIO 20233968 <GO>}

Q - Rohit Sinha {BIO 18074803 <GO>}

Q - Deep Master {BIO 20553623 <GO>}