Updates from management meet:
Overall sales has been good . Demand is bit slow presently but still good. Our expectation was much higher. Volume guidance for 20% growth with 20 % margins remains.
Selecting new product: First preference while selecting product is considering import substitute potential in India, as certain chemicals predominantly imported from outside. we can produce and supply it domestically. Other important thing is based on availability of raw materials. We should be able to source raw material adequately and easily.
Limited competition /single competitor in products: Mainly itâs because of technical difficulties associated with manufacturing these chemicals. Itâs not easy to scale up this business unless you have good technical team backup and R&D to integrate the products either backwards or forward.
China factor: almost 30% of china capacity is closed due to pollution issue. This has helped us to improve sales/margins. Donât think new players will enter due changes happened in China. Chinese will come back in one or two months with rebuilt capacity but at increased cost of production. They had lot of advantages in exporting India with licence and few other things which are difficult now.
Pharma companies are major customers: More than 50% revenue from them. Not witnessed any drop in demand due to pharma headwinds. All our products are used in manufacturing of essential drugs like metformin which will be manufactured by pharma companies despite pricing pressure/price control. Overall witnessing good demand. All major pharma companies are our customers.
Agrochemicals: we have become preferred first/second partner for them after china problem. Govt plan of imposing ban on import of agro intermediates has not happened . donât think it will happen as well as situation has changed with reduced china capacity. Other customers like Thermex for water treatment chemicals and venky/suguna for choline chloride which is used as animal feed.
NOC status/environmental clearance: it may take another month. File is still with state govt soon it should reach central govt and then we will get clearance certificate to operate on new additional capacities. Total six companies are facing this problem in industrial area which is expected to clear soon.
Meeting revenue target without NOC/additional capacities: trying to debottleneck certain existing capacities and improve production. We have been doing it since last two quarters to bring operating efficiency . Certain products like DMAHCL using existing capacity production has been increased from 18KT to 22KT. DMA capacity has been increased from 5tons/day to 20 tons/day.
DMF: we are using 30% capacity only. Witnessing good demand here. Utilisation will go high. Antidumping duty will be likely in another few weeks. This should help to achieve our sales target.
Morpholine and Acetonitrile: capacity is ready. Waiting for NOC.
PVPK-30: we are selling more of technical grade. Domestic price increased. Exports we are getting still high price. We are ready to supply at less price to Indian pharma companies. But they are not ready to accept but importing at higher price.They did not want undertake lot of paper work required to source material from new supplier for existing product. For new products they are accepting Balaji as supplier and sourcing from BAL.
Methylamines: No pressure on prices. Donât think that competitor(alkyl amines) has started full production. Methylamines as such in short supply in India
Ethylamineâs: same price has been maintainedâŚno shut down for catalyst change as done three years back.
Choline chloride: 500 tons/monthâŚ18 to 20 tons/dayâŚraw material is corn flake which is easily available. Supplying to poultry players like Venky.
New R&D: We have done research on few products on crispovidine/steriods. These are products which comes under pharma regulation/compliance. The working culture with these regulated products is different. Itâs not easy to change /adopt to regulatory product work culture.
REACH registration: Reach registration is for export to EU. Morpholine reach registration is done. we have done some work on acetonitrale,EPA and DMAC for reach registration and waiting to further proceed. Cost of reach registration varies per each product. Even if our customers registers for REACH we can export through them.
Balaji speciality chemicals: 55% stake.3 products will be launched. Will start operations by Oct end. EDA 39000 tons is imported. Piperazine 8kt is importedâŚwe are going to produce 3 to 4ooo tons. DETA domestic demand is small but outside demand is very good⌠for all three products we are the only producers in India. Present year will do around 100 Cr sales. At present prices we should be able to do more than 400Cr by next year. Going ahead we will merge both in few years.
MEGA project: basically if you are going it invest for more than 250 Cr in a project it qualifies as Mega project. The advantages is that govt will refund 80% of excise duty amount over period of few years. Now with GST he explained something how this refund will work out which I couldnât understand . Mega project will also come in the same area where environmental clearance issue is going on but all these clearances will be done in another six months for upcoming mega project.
**Raw material:**Methanol is around same level (Rs30). Cost of raw material in china will be higher by 25$ per ton compared to India. Methanol prices contract have changed to 50% based on spot prices remaining 50% long term contract. Average cost of spot price lower compared to yearly contract. Mainly imported from Saudi. Itâs been imported indirectly from Iran through Saudi. No impact on raw material due to trade restriction imposed on Iran. Ammonia price slightly reduced recently. Ethanol has been procured have adequate stock?5000 tonsâŚaround Rs.30 /lit. It is imported also.
Debt: Has been reducing and will be zero soon. working capital loan remains with interest of around 8.5%. long term loan interest is around 10%.Debt may increase again with mega project to around 150Cr by Fy20.
Hotel: Icould discuss with manager about hotel as I stayed theere. Total 129 rooms including suits with one large banquet hall of 8000 sq feet and 3 conference rooms. Being in chemical industry with depreciating assets itâs important to have an asset like hotel. Initially invested in 110 Cr which is valued higher now. Many financial institute are ready to offer credit at reduced rate of interest based on hotel property. Hotel interest will be nil by year end. Certain measures have taken to save power cost. Its in cash profit. Net level is not positive due to depreciation. Only 5 star hotel in Solapur. Being in tier 3 city room rent cannot be high. Average room rent is around 3500/day.Tie up with local banks/lic/other corporates to increase our occupancy. Jan /Feb is peak season. Solapur is known for pilgrims. Donât expect them to be my customers. Only few will come and stay . Initially we use to run just 20 to 30 rooms. Gradually occupancy increased to more than 50%.Tie up with all online players like make my trip/bookings.com. Sometimes we have to reduce room rent to increase occupancy to cover the fixed costs.
Plant visit: I could visit only unit1 due to time constrains. They produce ethylamaines/methylamaines and derivates like DMU/DMAE/DMAHCL/DEAE/choline chloride at unit1. Single unit has been divided into 10 plants for various products. Unit head explained various plants with product capacities in unit1. Storage areas of raw material/process /end product storageâŚetc. One product DMAE he explained the whole process starting from raw materials/various stages /end products/automated continuous process of their plant. It will be beneficial if plant runs continuously, otherwise shutting down/restarting itself will take two shifts. Because of continues /automated process their manpower requirement is also. Only 3 persons /shift will run the entire DMAE plant. Raw materials required for ten days of plant operation is stored.
I have missed asking few important questions with management due to limited time. Hope to get one more opportunity.
Discl:2%of portfolio.
