Sudeep Pharma (NSE:SUDEEPPHRM) Q1 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Sudeep Pharma Limited Q1 FY 'twenty seven Earnings Conference Call. As a reminder, all participant lines will be in a listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note this conference is being recorded. I now hand the conference over to mister Arjun Joshi from Nomura Institutional Equities. Thank you, and over to you, sir. Thank you. Good morning, everyone. On behalf of Nomura Institutional Equities, I welcome you all on Sudeep Pharma's one q f y twenty seven earnings conference call. We have with us from the management today, Mr. Sujit Bhaiyani, Managing Director Mr. Sunil Bhaiyani, Director and Mr. Keith Van Vyas, Chief Financial Officer, to initiate the proceedings.

0:55 I hand over the call to the management for their opening remarks. Post which, we can take a Q and A session. Thank you. And over to you, sir. Thank you, Archit, and good morning, everyone. I'm Sujit Vayani here. First of all, I'd like to thank the NuvaMa team for hosting today's earnings conference call. On behalf of the entire Sudeep Pharma team, I'd like to extend a warm welcome and thank you all for joining us for this Q1 FY 'twenty seven earnings conference call. Q1 FY 'twenty seven marks a strong and resilient start to the new financial year. We delivered revenue growth of 27% year on year, driven by broad based performance across both our pharma, food and nutrition and specialty ingredient business.

1:42 This performance was achieved despite a challenging global operating environment, characterized by the geopolitical uncertainties, independent gas supply constraints, elevated logistics costs and continuous supply chain disruption. Over the past several quarters, we have remained focused on improving operational efficiencies through manufacturing excellence initiatives and manpower optimization. These efforts have helped us mitigate costs, cost pressures, improve operational leverages and support our overall business performance during the quarter. We are also delighted to welcome Mr. Milne Mehta to our Board of Directors. Mr. Mehta brings with him extensive experience in business strategies, finance and corporate governance.

2:29 We are confident that his guidance and insight will further strengthen our leadership team and support the company as we enter the next phase of our growth journey. On behalf of the entire SUDEEPPHRMER family, I extend a warm welcome to him and look forward to his valuable contribution. Before I conclude, I'd like to highlight that our diversified product portfolio, strong global customer relationship and balanced geographic presence continue to provide resilience in our evolving global environment. Supported by our ongoing growth initiatives and disciplined execution, we remain confident in our ability to sustain our long term growth trajectory and create enduring value for our stakeholders. With this, I would like to now hand over the call to Shannon, who will take you through the business and operational highlights in greater details.

3:21 Thank you. Over to Shannon. Good morning, and a very warm welcome to all of you joining us today. I hope you have had the opportunity to review our financial results and investor presentation, which have been uploaded on the stock exchanges as well as our website. For today's call, I would like to focus on three areas: the key drivers behind our performance this quarter, the progress across our strategic growth initiatives and our outlook for the remainder of the year. We are pleased to report a quarter of strong growth with consolidated revenue growing 27% year on year. This growth was predominantly driven by our operations in India, and I would like to emphasize this because it reflects the quality and resilience of the growth we are delivering.

4:14 Our overseas subsidiary, NSS, had a more challenging quarter, operating in a difficult European environment. However, we believe this to be temporary in nature and the underlying momentum in our core businesses remain robust, supported by healthy customer demand and improving product mix and the investments we have made over the past several years in expanding our commercial capabilities and international presence. The quarter was not without its challenges. Continued logistics disruptions, elevated freight costs and a sharp increase in sulfur prices resulted in phosphoric acid price increasing by approximately 50% during the quarter.

5:00 Despite these headwinds, we remain focused on protecting customer relationships, ensuring continuity of supply and effectively passing on the price increase, which will largely offset the input cost impact in Q2. Looking at the business today, we are encouraged by the underlying fundamentals. Demand remains healthy across our key product categories. Our custom pipeline continues to strengthen. Our specialty portfolio is gaining increasing market acceptance and the strategic investments we have made over the past few years are beginning to translate into stronger operating performance. We therefore believe the business is well positioned for another year of profitable growth. Our pharma, food and nutrition business remained our largest business segment and started the year with a strong quarter with revenues growing 31% year on year.

5:57 Demand across both our phosphate and absorbent dysglycemic portfolios remain robust. In particular, customer demand for our phosphate portfolio continues to exceed our current manufacturing capacity, providing us with excellent visibility for the balance of the financial year and reinforcing our confidence in the sustainability of this growth. Our absorbent glycerate portfolio also continues to exceed our expectations. Sales during the first quarter have already surpassed the total sales achieved during the entire previous financial year, reflecting strong customer acceptance of our differentiated specialty ingredients and validating our strategy of steadily increasing the contribution from higher value products.

6:50 The investments we have made over the past few years in strengthening our international sales team and deepening customer engagement are now translating into tangible business outcomes. While these investments require patience and upfront capital, we are now seeing significantly higher customer traction, a stronger opportunity pipeline and increasing sales across our specialty product portfolio. From a geographic perspective, Europe, North America and the MENA region meaningfully contributed to growth this quarter. Importantly, these international markets continue to carry a stronger margin profile, supported by an increasing contribution from differentiated and value added products.

7:36 This performance was delivered despite continued geopolitical uncertainty and volatile raw material markets. As these conditions gradually normalize, we believe our international business remains well positioned to continue growing while contributing positively to our overall margin profile and supporting our target to sustain EBITDA margins between 3738%. Our Specialty Ingredients business delivered 19% year on year growth during the quarter. While we are pleased with this performance, it is below the growth level that this business has consistently delivered over the past several years. This was primarily due to temporary operational constraints arising from the LPG supply shortage during April and the first half of May.

8:27 During this period, our facilities operated at significantly lower utilization levels with production affected by the limited availability of LPG. We subsequently secured supplies a bit at higher costs, enabling us to progressively restore normal operating levels. It is important to highlight that this was purely a supply side constraint rather than a demand issue. Customer demand remained healthy throughout the quarter. Our order pipeline continues to strengthen and production has now normalized. As a result, we expect this business to return to its historical growth trajectory beginning the second quarter. Turning to NSS, the operating environment in Europe remains challenging.

9:13 Elevated energy costs and subdued industrial production have continued to impact customer demand across several end markets, resulting in a slower recovery. However, we remain encouraged by the progress of the integration. Procurement, supply chain, commercial operations and customer engagement continue to come together on track, while the strengthening of the leadership team has already begun to generate encouraging customer activity. Since our new business had joined in June, we have initiated approvals with five customers across the infant nutrition and dairy segments and have built an active pipeline of 12 customer projects. While we expect NSS to recover more gradually than our core Specialty Ingredients business, we continue to believe it represents a compelling long term strategic asset and expect both growth and profitability to improve as European market conditions normalize and integration benefits begin to materialize with a target for NSS to deliver similar margins as our core specialty ingredients business by FY 'twenty eight.

10:27 SUDEEP Advanced Materials continues to make excellent progress and remains one of the most significant long term growth opportunities for the group. Construction remains on schedule, and we continue to target commissioning of Phase one by April 2027. Deliveries of all major long lead equipment are expected to be completed this October, while statutory approvals continue to progress in line with our project schedule. Our customer engagement continues to strengthen each quarter. Today, 21 customers are at the laboratory validation stage, 16 customers have progressed to pilot scale evaluation and seven customers have successfully completed pre commercial or commercial validation and are currently engaging in active offtake discussions.

11:23 This steady progression across the qualification funnel continues to strengthen our confidence in the commercial outlook for the project. During the quarter, we also signed two additional strategic MOUs with leading South Korean cathode active material manufacturers and their respective cell manufacturing partners, further strengthening our commercial pipeline. The broader industry environment also continues to evolve to our benefit with an increasing focus on supply chain diversification and localization. The evolving regulatory framework is encouraging battery manufacturers and OEMs to establish reliable supply chains outside China.

12:09 Recent regulatory developments in China, including Decree eight thirty seven, are expected to further increase the complexity for Chinese companies seeking to establish manufacturing presence outside China and achieve FUOC compliance. As such, now require government approval for any divestment or reduction of equity in overseas Chinese owned plants. This further reinforces the strategic importance of credible non China suppliers. Against this backdrop, we continue to see increasing engagement from global customers. Based on the progress of ongoing commercial discussions, we remain optimistic about concluding two significant binding offtake agreements later this year.

12:59 Subject to these agreements, we also expect to accelerate planning for our Phase II and Phase III expansions to support future customer demand. While our immediate focus remains on executing Phase one through Phase three, which together take our planned capacity to 100 ktpa, we are encouraged by the level of customer interest we are seeing beyond this scale. The strength of demand reflected in our ongoing offtake discussions has led us to begin early evaluation of a further expansion from 100 KTPA to 200 KTPA to ensure we are positioned to support customer demand well beyond our current build out. We look forward to sharing more on this as our discussions progress.

13:50 Overall, the project continues to progress as per plan and reinforces our conviction that SAM has the potential to become a meaningful long term growth engine for the group. In conclusion, the business has started the year with strong momentum. Our first quarter performance, together with our current order book, custom pipeline and pricing actions implemented during the quarter, give us confidence that this momentum will continue into the second quarter. Historically, our business has delivered a stronger second half, reflecting the seasonal demand patterns across our end markets, With improving demand visibility across businesses and continued progress across our strategic initiatives, we believe we are well positioned to build on this momentum and deliver a year of strong growth. With that, I would now like to hand over the call to our CFO, Mr. Ketan Vyas. Thank you.

14:50 Thank you, Shannon, and good morning all. SUDEEPPHRMAN delivered a strong start to FY 2027, reporting robust growth across all key financial parameters while maintaining industry leading profitability. Revenue growth from operation increased by 27% year on year to 158.3 in Q1 FY 'twenty seven compared to INR 124.9 crore in Q1 FY 'twenty six. The growth reflects continued demand across key product segment and strengthening market penetration in both domestic and export markets. EBITDA grew by 25% year on year to INR 54.9 crore from INR 43.9 crore in Q1 FY 'twenty six. EBITDA margin remains resilient at 34.7%, demonstrating the company's ability to sustain operational efficiency and cost discipline while scaling the business.

15:43 Profit after tax increased to INR 40.6 crore compared to INR 31.3 crore in the corresponding quarter last year. PAT margin improved to 25.6% from 25%, reflecting enhanced operating leverage and efficient capital management. The Pharma and Food Nutrition segment continued to be the primary revenue contributor for this quarter, accounting for 69% of Q1 FY 'twenty seven revenue compared to 66% in Q1 FY 'twenty six. Specialty Ingredients contributed 31%, indicating a balanced and diverse product portfolio. Export remain dominant revenue driver. The increase in export contribution underscores the company's growing global footprint and strong customer relationship in international market in addition to the continued efforts in domestic markets.

16:39 The company has commenced FY twenty twenty seven on a strong note with healthy revenue growth, sustained margins and improved profitability. The continued expansion of exported domestic market focused on high value product and operational excellence positions Sudeep Pharma to achieve its FY twenty twenty seven growth objectives. With this, I thank... With this, I open up the forum for questions. Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on your touch tone telephone. If you wish to withdraw yourself from the question queue, you may press star and 2.

17:24 Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Sanjay Sudeep with ICIC Securities. First on the pharma, food and nutrition. So 30% solid growth. How much of it was led by pricing and how much it was rolled in? That's number one. Number two, you did mention about a strong uptake in glycinate.

18:10 What is now that we have already started seeing a lose uptake? So what is the visibility for this entire year of the glycinate portfolio? Number three, have we fully commercialized the new plant, which we were putting up in the new greenfield location in Nausari? So these are in the food, pharma food and nutrition. I will take the specialty books, please. Good morning, Sanjay, ji. So thank you for the question. The first question regarding the growth in pharma food nutrition. So predominantly, the growth was volume driven. I would say approximately around three percent of the growth comes from not necessarily price increase, but just currency change, predominantly price increase, which we have passed through, we get reflected in Q2.

19:09 So there is not much of that price pricing today. Majority of that is to do with volume on the back of phosphates, which we have been able to scale significantly with our largest customer. Got it. Second question regarding the business portfolio. So we as I mentioned in my previous call as well or the last call, we are currently seeing or we have received two very important approvals from two very large customers in the North American market. Currently, we are scaling up our supply to them. We are behind schedule in terms of delivery. As I mentioned, we had to so we believe that the year we will see significant growth coming from the business guidance portfolio, maybe not in the current financial year, but we believe in the next two or three years, it will become maybe it will probably be the top two or three revenue contributing products for the pharma food nutrition category.

20:21 Got it. And the third question regarding the greenfield. So the greenfield facility is currently undergoing regulatory approvals. Are the facility has already been approved to supply into the food and nutrition category and is currently also undergoing FDA approval, which we expect in this quarter as well. And we have also received five customer of five Food Nutra customers are also currently approving the facility, three of which are from India and two are global MNCs that are currently approving the site. We expect that approval come in this quarter as well and for supplies to start from this facility in Q3.

21:08 Very clear. Thanks, Suneja. Second on the specialty, one margin at 26%, purely operating leverage, why it fell sharply? That's number one. Number two, how is our so sorry, what was the impact of the non availability of LPG in this specialty business? So on specialty, there are two as you rightly mentioned, let's say for half of the quarter, we were operating sub 50% utilization level or in terms of the demand that we have. And the overheads were the overall operational inefficiency led to some margin dip.

21:59 However, and as I mentioned, I would say the specialty number that you see is inclusive of NSS. The business without NSS still was in the mid-30s in terms of margin profile. And then it has had a tough challenging quarter and that has kind of dragged down the profitability to the 26 level, but we expect specialty to kind of bounce, but this is our core specialty to bounce back in the current quarter. Got it. On the TAM side, now we are talking of 200,000 metric ton. This, are talking by 2013. I will now scaling up this capacity from 25,000 metric ton in phase one to two live metric ton by end of twenty thirteen. Is that what we are planning? Or I would say, Sanjay, the scale up from 100,000 to 200,000 ton is something that we are very actively currently evaluating.

22:59 As I mentioned, we are working with two very large customers from binding offtake, which we expect to conclude this year or later this year. As soon as we have signed those agreements, we will time the scale up from 100 to 200 KTPA. So I would say in the next two quarters, we will have a lot more visibility. Current planning is not FY 'thirty, but in terms of between calendar 'thirty and 'thirty one, we would be able to the current target is to be at 200 KTPA. Got it. One last question here from my side before I joined the queue. In the line which we are developing in Behavior, how much capacity can it take from the setting up perspective?

23:48 So the the the the the current site in the age can support our 200 KTPS scale up. And that's where we'll exhaust that land. Then then if we want to scale up, we will need more land availability. That is correct. Beyond 200 KTPA, we will we will have to have have a new location. Very clear. Thanks, Shanilji, for answering all those questions, and best of luck for the coming quarter. Thank you. Thank you. The next question comes from the line of Nirali Shah with Ashika Investment Managers. Please go ahead. Thanks for the opportunity. I had three questions. So firstly, on PFM.

24:33 So like you mentioned, PFM has grown 30% this quarter. And this is, of course, significantly ahead of the full year guidance. Should we view this growth rate as sustainable over the coming quarters, or will this only inch upwards towards, say, mid thirties? So good morning, Ashika. Think it's a valid question. My my name is Nirali. Nirali, sorry. I apologize. I can't see the screen, Nirali. Thank you. So I would say that the growth in PFN today will from our current capacity, this is probably maybe a couple of percent is what we can expect further in terms of sweating the asset. But beyond that, we will have to wait for the greenfield to be commissioned in Q3 to kind of have that additional alpha in growth.

25:28 Okay. So I'm asking from a full year perspective, say FY 'twenty seven and then FY 'twenty eight. So once we have commercialized our greenfield in Q3, then the second so only last quarter will be the one that we will see the impact of and then in FY 2028? Yes. So I think I would say the growth in terms of what we've had in the quarter is something that we believe will be sustainable at scale given once we have the kind of the full traction or the availability of the capacity from the greenfield. So more importantly, FY 2028, the pharma food nutrition should be able to kind of sustain this level of growth. Okay. Understood. Secondly, on the specialty ingredients, Europe has, I guess, remained a little bit softer.

26:18 And do you see that this is a temporary demand issue or some customer ordering patterns are structurally changed in the region? If you can give some color on that. So Nirali, I think Europe actually has been a key growth contributor for us this quarter for our core specialty business. So our I mentioned that we have the investment we have done in the sales team over the last couple of years that is now starting to yield the results that we had anticipated. NSS, the company that we had acquired specifically is having a challenging environment because of the certain customers that they operate on and require a lot more energy. But for our core business, Europe, I think grew significantly for us this quarter. And we expect our core business to continue to grow in Europe.

27:13 Okay. Understood. And thirdly, on the battery material side, how does the qualification funnel look as of now? So I think from where we were last quarter, we were at we had gone through approvals with six customers. Today, we received one more one or two more approvals in the current quarter or in Q1. So we are now qualified with eight. I would say now more than the number of approvals, it's about how do we kind of mature and take these approvals forward and convert those into binding. Because even at 25 KtPA or even at 100 KtPA, the capacity would not be sufficient to serve beyond seven, eight customers. And all the customers that we've gone through approval with are all existing large Korean companies, American companies who have existing capacity.

28:09 Understood. Can I squeeze one more if you may? Sure. So once both our greenfield and battery facilities stabilize, when you believe any state of that terms can compare compared to the historical levels? I would say for for battery at scale and the greenfield at scale, I would say closer to... Between 2.7 and closer to three is where we would be... The asset terms would sit. That's it. Thank you so much. Thank you. Thank you. The next question comes from the line of Raj Shah with BTIG.

28:56 Please go ahead. Thank you for the opportunity. I just have one question. So for NSS, you mentioned that there were some customer issues because of which the company is facing problems. Can you elaborate or explain on the nature of customer issues, whether this is temporary in nature? And how are we looking to resolve this? And you also mentioned about the NFS margin. If you could please repeat on that, how are you planning to bring that to the core specialty levels? Yes. Sure. Vireya, it's actually a great question. On NSS, what so let's say NSS predominantly operates in the dairy space and the infant nutrition space, both of which could require a lot of energy in terms of the manufacturing process.

29:50 Basically were working with the largest infant formula company who had a plant in Europe. Due to the current energy crisis, that customer has scaled down operations significantly in Ireland, which is kind of while we have POs, they have delayed the buying. I would say FY 2027 continues to they may have a more like a flattish year with I would say maybe single digit growth. What we are doing from an intervention perspective is the new sales the new sales head that we brought on board is expanding the business of NSS outside of Ireland, taking it to a lot more developed markets, diversifying the end market also, where we are seeing very good opportunities And to make NSN more resilient or operationally more resilient, we are basically focused entirely on supplementing the current supply chain using the SUDEEP resources in India to kind of supply majority of the products, making it more competitive.

30:52 So as I said, we are I would say maybe if I talk about FY 2028, where we expect some of these projects to materialize, once the revenue starts to grow and the operational overhead don't kind of pull down the business, the business has the potential to kind of start tracking similar margins to what our Indian specialty ingredient business is currently doing. I hope that helps answer the question. Yes, yes, definitely. That's very helpful. Thank you so much. Just a follow-up question on this. If you could help me with what's your growth guidance for specialty ingredients for the year and how much share is NSS as of now? Yes. So NSS is not significant in our current revenue in Specialty Ingredients.

31:45 Why we don't give out specific guidance? I think if you look at my if you look at how Specialty Ingredients has grown over the last couple of years, that kind of growth momentum is something that we believe is sustainable for 'twenty seven and also 'twenty eight. Understood. Okay, great. Thank you so much. That's all. That's it from my side. Thank you. Thank you. The next question comes from the line of Tarun Krishna with Ithot PMS. Please go ahead. Thank you for the opportunity. My question is on the segment. So if you could give me the split between the revenue from a product sold as pharma excipients and nutraceutical active ingredient?

32:39 So Tarun, it's a good question. Unfortunately, hard to give you a specific split because a lot of end customers buy the product. They use it also as an excipient. And then they also use it as an active in the OTC. To just give you an example, you look at Torrent Pharma, for example, they buy ingredients from Sudeep for as an excipient, but then it also goes into Shelfand. So, will become a new track. So, we could supply them a potato grade, not necessarily knowing the exact split of how they're using it in their end product. Okay. Understood. And the next one on if you could talk about the relationship between cellulose based excipients and nutrient based excipients. And do you see a case where these cellulose guys will come up with a product which will not require nutrient based excipients?

33:35 So do you see this as possibility? So, Tarun, again, I would say all these excipients, whether it's calcium phosphate, what we produce or the cellulose based MCC, they both coexisted for a very, very long time, right, maybe over a decade. There are certain APIs which are not compatible with MCC, but are only compatible with say a calcium phosphate or a lactose and vice versa. So I would say they will always remain a market where various excipients will coexist due to the compatibility with different APIs depending on moisture levels, PH, all of those things from a stability perspective. Okay.

34:22 Got it. And just one more. So in the last conference, you mentioned about SPNC and PVP. So in what stage is it now? When can we see it getting commercialized? And how would the realizations be different from a base PFM? So, again, those products are something that we are currently, of course, developing and also commercially kind of evaluating with specific customers. We do we do not expect those to be commercialized in the current financial year. Our current focus is to kind of scale the greenfield and to scale the big glycinate portfolio. And then the other excipients would be something that we will take up as phase two.

35:10 Okay. Understand this is the last one. So I think the last conference you mentioned that the prices of iron phosphate are around $2 per kg, the battery grade one. And so how would it how much would it cost an integrated player to make the same across regions? So I would say the if you track if you've been tracking China, price of iron phosphate has increased significantly. I would say it's gone up maybe 50%, 60% on the back of, of course, phosphoric acid, but also the short supply of the iron source. I think it's more to do with technology than really integration. And I think the technology that we are that we have and that we are scaling will give us a lot of operational competitiveness at scale.

36:04 Okay. If any in dollar terms, could give any realizations, like how much would it cost them to make it? Will it be more than $2 or less than $2 In terms of the cost of iron phosphate? Yes. For someone who indicated. As I mentioned already, it really depends on the technology. If you are certain technologies may require you to make it at much higher cost. So it really depends on what technology you're using. It's hard to generalize. Okay. Understood. Thank you very much and all of this. Thank you. The next question comes from the line of Jay Shah with Genuity Capital. Please go ahead.

36:56 Am I audible? Yes. Hi. Good afternoon. Congrats to you and an entire set of team for a good set of numbers given the tough environment that businesses are operating in. I just had a question on. Basically, we had two major customers in The US. So the the the number that you said, you know, it has surpassed the FY twenty six number, obviously, because it's a small number. Is it primarily from the two customers that we had onboarded, or there are other customers also who have started, you know, approaching us? Yeah. Hi. Good morning, Jay. So I I would say it's a combination of both. Sales to existing customers who had approved the product plus expanding the customer base.

37:45 Of course, North America continues to be the largest market from an opportunity standpoint. But we are now also kind of tracking this product in other markets, including India, where we are receiving approval. So it would be a collection of books. Okay. Okay. And the second thing is, you said when we met at one of the conferences, you had said that Q2 would show large amount of cost pass through for. So has it been happening, or has it already factored in in this 30% all growth from 85 to 105 or that we've done year on year in. So is it a lot of prospect price through in that meeting? Because I think a lot of the pass through has happened later in in later in q one. So I I would say marginal benefit or kind of we would have received in q one. But in q two, majority of the sales would be... Would happen with the.

38:45 Okay. And, Sudeep, just one last question for you and the management team. If you can just broaden out before you're out, you know, with coming in and the TAM also, hopefully, they'll be shipping good volumes. You know, if you have to name two, three sectors or rather, I would say not sectors, but even if two, three product lines, specifically, which is what gives you confidence that, you know, the long term growth target that we have of 25, 30 odd percent. You know, what is it that you feel are the top three or five products slash sectors or end customers? I wanna help you achieve that target. Because what I see from Nandesh, the new greenfield plus the the hedge plant of TAM, we are putting the pillars.

39:37 But, you know, how would we build on that, and what gives you the confidence, you know, if I have to take a three, four year view? So I think from a product standpoint, you know, our core, which is minerals, specifically calcium, magnesium, iron, these three and their derivatives, right, so phosphates, carbonates, the bisglycinates, these will continue to have a very attractive opportunity from a TAM perspective because we've also been diversifying. So, of course, the core excipient business is there. It may not grow at the growth rates that you mentioned. From a new generation application, we are very excited.

40:22 It was something that I actually didn't talk about, but which where we see a very large opportunity is the whole GLP-one category, right? I mean, more and more people globally are moving to waste management, they need protein and then they need the level of nutrition, right? You can skip a meal, but you cannot. So we are seeing a lot of infant formula companies, even pharma companies moving into what we call clinical medical nutrition. And all of that will require vitamins and minerals. So that's a large opportunity that we would be focused on outside of the existing category in infant nutrition dietary supplement where we are building wallet share. In the specialty ingredients business, the encapsulated ingredients that I mentioned will help extend shelf life is something that we are seeing the market size grow because customers are shifting from the conventional raw ingredients to the specialty ingredients. So the market size is growing instead of us just taking market share.

41:18 And then the premix business, while NSS is having a tough year this year between our India and the European blending sites, I think infant nutrition is a big area for us. We already have the customer approvals. We now do need to expand those approvals. And then outside of both these verticals, of course, you have the battery, right? I mean, batteries where we see it's like North Star, have touch wood. We have very good approvals, very strong approvals in terms of the OEM, the battery and the cathode suppliers. So, it's more on execution and our ability to scale. Understood. So very interesting insight, actually, on the nutrition. So if I may just double click on that. So are you saying that infant or, I mean, whatever aid bracket, but nutrition companies are basically trying now to make formulations even for adults or people who are basically targeting weight weight management programs so that these formulations can be taken as, you know, pseudo meals, which we spike up to the levels of nutrition that is needed. Is is that what is happening in the market?

42:27 I mean, that's that's big. One of the development areas that we're we're seeing a lot. Right? You have, I would say, clinical nutrition was always a category. Right? People who are recovering from pancreatitis, cancer, all of those who needed the right level of nutrition. But weight management is becoming a very big category or has already become a very big category in some markets, including The U. S. And we are seeing that trend kind of continue to other markets, right? And eventually, protein and nutrition is something that everyone will require. So over the next couple of years, we see that becoming a very large opportunity for us to focus on as well. Understood. Understood. That's all from my side. All the best for the future. Thank you. Thank you. Thank you. Participants who wish to ask a question to the management may press star and 1.

43:19 The next question comes from the line of with Parex Capital. Please go ahead. Am I audible? Yes, sir. You're audible. Please go ahead. Yeah. Congratulations team for a great set of numbers. It's great to know that you people are already evaluating on... From one leg to two leg turns on a very material side. Just what can you qualitatively touch upon what gives you that confidence considering the fact that, one, Chinese pricing environment, so what kind of margin, if you can touch upon qualitatively that what kind of margins you can make on this particular side of the business? And second, looking at what is happening on sodium side of the battery, what risk do you see in the long run?

44:11 And I'm always afraid that SFP significantly market share is very significant, but how do you see emerging technologies in battery, particularly in sodium side? What what kind of impact it may have in the long run? Yeah. Thanks, Sachin. So to give you my quick answer because of being conscious of time is, first, maybe I'll first answer the sodium question. So while we are focused on LFP and I too as an individual and as a business, we truly believe LFP will be the dominant chemistry for the next five, seven years because storage is just kind of at the cusp of scaling up.

44:56 But from a risk perspective, I think what gives us comfort is even if sodium ion were to scale, it will also require iron phosphate as a precursor. So for our product, we'll find dual application. And from a margin standpoint, again, too premature, too early to talk about margins today, but how we look at capital allocation is looking at how looking at asset turns and then the ROCE profile that we can generate for the business. And both will deliver very similar you know, asset turn and ROCE to our current business. And that's how that's how we looked at the opportunity and the capital allocation behind it. But can you can you give some some range probably within your mind? Because you... As you're thinking of from one leg to two leg, and I'm sure probably math looks very interesting.

45:49 So some qualitative qualitative comment on the range you are looking from margin perspective. Any indication? I mean, qualitative would not be a range. Right? I would have to then quantify the number. But as I said, it's it's... It will... If if if your question is, will it deliver the margin that my current PFN category is delivering, the answer on face value would be not. But as I said, it it's a very attractive opportunity in terms of how the ROCE profile will actually develop in this category along with the asset turns at 200 KtPA, the asset turn may even be north of that because we do not require an additional site. So as I said, from a overall return metrics, it's a very attractive opportunity that we are targeting, and our technology gives us that operational competitiveness and, you know, comfort on how we can deliver certain margins for the business. Understood. And my last question is, how do you see the utilization level of your 51,000 ton, the new facility, greenfield facility in '28 and '29? What can you give some comment? Can you give that?

46:56 Well, again, Rajat, it really depends on the level of approval. As I said, we are currently approved... Regulatory going to be approved for the food neutral space. We are going through approvals. Pharma, of course, is an important approval. We have to wait for that. '28, typically, in our business, you are... You see year one, year two as a ramp up, and then year three is when you really have that hockey stick kind of utilization levels being achieved. So so that is how we expect more of '27, '28 to play out. 2028, let's say, would be... We can look at maybe like a third utilization in '28 and then kind of ramping up from this. Sure. Sure. Thank you, and all the best. Thank you.

47:45 Thank you. The next question comes from the line of with Ageless Capital. Please go ahead. Thank you for taking my question. I actually have three questions. The first one is you mentioned that there was a disruption in capacity in this quarter because of the LPG crisis. So what was the capacity utilization of your facility this quarter? And with all the ongoing capacities coming ahead, what do you think the capacities will be this year and the next? And also, you mentioned about your customer, like, prequalification for your upcoming facilities. So five in pharma, food and nutrition, eight, I think, in battery chemistry. So if you could... A bit more color into the kind of these customers and also the kind of products that you intend to supply to this customer?

48:43 Yes. Thanks for the question. So as an LPG, there was short supply. Largely April, were at a third utilization of our what we typically consume. Half of May, we were below 50%. So overall for the quarter, we were significantly under utilizing our capacity, which is now largely reversed and we are back to normal operations in Q2. In terms of battery, you asked about the customer and the kind of products. I mean, the only product that we are currently scaling in battery is iron phosphate to support the LFP chemistry. So we will be all the eight customers that we are that has mentioned about, we are basically working to supply them iron phosphate for the LFP requirement.

49:36 And on the food pharma food and nutrition side, what are the products for the customers that we are targeting for the upcoming facility? So so that is... Let's say 50% or basically a large part of the capacity is actually going to expansion of our existing capacity, which is which is a phosphate product and then bringing newer products to market, which is the glycinate, the gluconate, the citrate products from new site. Got it. And would it be possible to give like a revenue per turn for your top two, three products like phosphate and calcium carbonate and glycinate and also the EBITDA per ton? And, like, what will it be going forward, some metrics to that?

50:23 I think, Shay, we we typically do not share this information, especially in terms of EBITDA per ton. And even revenue, I would say, again, it's one product that has multiple applications. A product going into infant formula is priced way differently to the product going into calcium tablet versus what it goes into pharma. It could be the same compound, but three different applications and three different price points to, again, hard to generalize. But our general trend to the revenue and EBITDA, maybe the EBITDA only, how how does it evolve from here with all these specialty, like, product portfolio coming in? So I mentioned, I think if you see we've been last I think last year or so, I mean, a year and a half, we've been around the 35% EBITDA level. Historically, we we... Before we make kind of made the investment in building out the sales team and all, we were maybe tracking around 37, 38% EBITDA.

51:17 And with the with the right level of utilization of the new greenfield and sales coming from both these markets, are comfortably we can kind of achieve those levels. Okay. Okay. So it's majorly as is or slight improvement? Yes. Okay. And regarding your inventory days, it had taken a sharp jump in FY 'twenty five. And maybe do we see the inventory days going back to those levels? Or do we see the current inventory days continuing with all the capacity expansion? So it's a mix of both. In our core business, the inventory days have started to kind of normalize as sales in Europe and U. S. Pickup. At the same time, with the current scenario, we are building up inventory of certain key raw materials because there's a significant delay in the logistics is kind of offsetting the impact at the moment. Plus there is a lot of inventory that is kind of currently also going and building into the battery materials business, which is also getting consolidated.

52:22 So if you kind of exclude that, then there would be our goal, as I mentioned in the last call, is also to kind of improve the working capital cycle. I had mentioned that the target was to come down to maybe a hundred and seventy odd days, but this would be ex the... Everything that we're doing in battery. So the target working, like, steady state working capital cycle is around one sixty, one seventy days that you're targeting. In the in the near term, the long term sustainable would be closer to one fifty. One fifty. Okay. And what is your steady state capital utilization or, like, after everything goes... Everything normalizes on the capacity and everything? Yes. Optimum utilization is between 7075% depending on the product mix that we are running. The next question comes from the line of Vinod with Vedant Investments.

53:26 Yes. Hello? Hello? Hello? I... We can hear you. Yeah. Am I audible? Yes. You are. First of all, would like to appreciate the communication that has come in the annual report. It's quite sincere and straightforward, so it's great to read. My first question is regarding the Europe distribution expansion that we're doing in warehouse and the sales team buildup. Is that also warranted because of our German partner exiting where they involved in our distribution? And now that they've exited, are we competing with them in Europe or in India?

54:18 So I I... There are two parts of the question. The first part, yes. They were managing our distribution in Europe. Was it warranted? Not necessarily, we could have gone through a distribution model. We invested in a sales team with a long term view that as we are able to recover the sales, it will also help improve the margin profile and the margin realization that we have from the European market and to have more focused approach towards specialty products for the business. So that was the rationale behind building the sales team. And to the second part, the answer is no. We do not compete in terms of the in our existing product categories, not in India nor in Europe.

55:06 Right. Alright. Thank you. My second question is regarding the battery chemical supply chain. Are we dependent on China for phosphoric acid? Is there a risk of the margins getting affected when there is you're saying you're the only player outside of China. So are we at the mercy in some way when we scale up? So we will not be sourcing any phosphoric acid from China. That is a prerequisite for us for SUDEEP or SUDEEP Advanced Materials to be FUC compliant and to supply into The U. S. Market that we do not have any supply chains from China. So we have a... So the short answer is we would not be dependent on China. Is the supply kind of...

55:55 I mean, is it already assured for you? Is it all... Where does it come from? If it is not So... Yeah. So phosphoric acid is is is is not a new raw material for us. It's our largest raw material today as well in terms of value. We have geographical diversification. We source a large part now from India. You have few very large companies making phosphoric acid. We also import from three other countries, but not from Ex China. And for the battery business, have the level of visibility in terms of supplies and working also as we have our binding off takes to also kind of secure the supply to ensure that when we scale 200 KDP and then beyond the 200 KDP, we are not in short supply.

56:45 Okay. That's it from my side. Thank you so much. Thank you. Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments. Thank you, everyone, for for taking the time to join this call and to ask for... And for asking us very relevant questions. Thank you, Arjun and Ubama team for arranging this arranging this call. Thank you, everyone. Hope you have a nice day. Thank you. On behalf of Ooma Institutional Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.