Note from AGM on August 8 2018, based on management replies to queries of various shareholders. Please note that I have invested in the company and my views may be biased. There is also possibility of some misunderstanding at my end while writing notes. Investors are expected to do there own due diligence.
The company planned Dahej expansion 8 years back. It would around 3 years to get environment approval. If Dahej expansion would not have planned, it could have been major issue to growth aspiration of the company. Karaswadi plant is nearly 5 decades old with limited potential to do expansion given that neighborhood has become residential area. Hence, the company took decision for major expansion at Dahej.
Dahej expansion Phase I was related to oil related chemicals. The second phase would involve MPP plant. Part of MPP is operational and the company expects it to be fully operational from October 2018.
The company is also working on development of pilot plant at Dahej which is expected to start operation in 10-15 days. The research team would be moved from Pune to Dahej once pilot plant is operational and it also intend to add further local research manpower to the current team.
Dahej plant can achieve total revenue of around 300 Cr at full capacity. In FY19, Cap utilisation is expected to be around 66%, which is expected to improve to 88% in FY20 and further to 100% in FY21.
Dahej plant has Buss technology which is superior as compared with peers in India. Buss technology provide molecular weight exactly same as required by client and hence performance is superior. Product manufacture under Buss technology also has better Dioxane level.
The company intends to repay debt for Dahej plant from internal cash generation over 5 year’s period. The term loan is availed from HDFC Bank and Axis Bank. The company may explore liquidating other assets (like Clariant Shares and Karaswadi Land) at appropriate time. Karaswadi land is currently mortgaged to bank and hence cannot be liquidated immediately.
Dahej plant also has provision for future expansion. In case Nalco or other MNCs partner intends to have JV with the company, the company can use this land and infrastructure for such potentials.
With state of art Dahej plant, the company intend to increase production of complex product (higher development time in reactor of around 24-48 hours) as against straight products which can be produce with 8 hours reactor time. While same would reduce volume of the company, margin in such product is significantly higher and limited competition.
Generally Chinese products are commodities nature while Dai Ichi focuses of specialized chemicals. Hence, there is limited competition from Chinese players to Dai Ichi. However, in textile application, some Dai Ichi products are substituted by Chinese products.
Segment wise breakup
Oil related chemicals (FY18 volume growth 60%) are major segment and would continue to account for around 35-40% of sale standalone Dai Ichi. Dai Ichi intends to leverage its relationship with Nalco and maintain share of Oil chemicals in total revenue. During FY19, Oil chemical may decline to 30-35% but in medium term it would go to 40%.
Construction related chemicals (FY18 volume growth 32%) account for around 10% of revenue. Dai Ichi currently not supplying to projects but currently has relationship with only Cement companies. As product develops and well accepted in market, it intends to move to project business as well.
In Paint industry, after running products for almost 5 decades, Dai Ichi is developing couple of new product in association of leading paint companies. These products shall replace old products of the company over period of time.
In Agriculture segment, the company is working on a new bio-pesticide product with a large South based company in Agrochemicals business. The south based corporate would provide technical while the company would supply emulsifier which intend to be exported to US and Germany market. The initial response is encouraging and the margin is very high.
Relationship with Nalco
The company intends improve its relationship with various players in international market and strengthen relationship with Nalco Champion. It is putting efforts to become preferred partners to Nalco Champion global operation. The increased business from Nalco would be function of cost competitiveness and quality of Product Company can provide.
The company is exploring if it can supply to Middle East requirement of Oil chemicals from India which currently supplied from EU and US facility of Nalco Champion. However, in order to get these supply order, it need to become cost competitive which is again major challenge due to higher input cost in India for some of the chemical. For instance, Ethylene, RM for EO, is cost around $ 1.2/kg in India as against $ 0.7/kg in US.
The company is also in process to jointly develop product with Nalco. The current research team of Dai Ichi is active co-operation with Nalco Champion is in process to develop couple products which may have impact on growth prospect of the company. Dai Ichi intends to conduct field trial of jointly developed product from October 2018. It expects same being contributing to company growth from FY20.
The company is also intend to explore with Nalco to become JV Partner for Kurkumbh plant as Nalco also have presence in Water chemicals and Kurkumbh has potential to provide flocculants. However, there is no major lead in this area.
Nalco Champion JV
Nalco Champion JV is in process to bid for very large tender of Rest 850 Cr to be supplied over 3 years period. This also indicates potential for JV business in India.