I had attended the AGM of Grauer and Weil. The management did reply back on investor’s questions on selling of stake in Pune bottling plant (not sure if the reply was satisfactory). Key points of the AGM are given below (running notes while listening to AGM):
• Surface treatment chemicals – 1. Electronics 2. Metal finishing Metal finishing is a bigger business and electronics is a fraction of metal finishing. Decent market share in metal finishing business- AUtmotive – 40%, bathroom fittings, artificial jewellery, engineering items – 10 – 15% each. Aviation and defense yet to reach any significant level. With Make In india initiatives, might see more business. High margin business but low base. Paint product line and chemical product lines have some approvals.
• All our business – chemicals, paints, lubricants are B2B. Customers are industrial users in all the segment. Chemicals – large part of sale happens through dealers and distributions. Some supplies directly. Paints – direct sales. Lubricants – mix of direct and distributors. Engineering – direct sales.
• Most of customer segments are organized industry. Very less unorganized. Most competition comes from organized sector. Bottom end – unorganized is there but we don’t have much presence.
• Industrial product – linkage to GDP is significant. PLI scheme and growth – potential is healthy. In case of chemicals where we are market leaders – growth will tend to be as per GDP growth. In paints and lubricants, since our market share is not very large, we can grow at faster rate. Paint we have grown at 30 – 40% cagr. FY21 – growth slowed down in paint due to covid. Much larger growth in paints and oils.
• Share of business in paints and oils will also increase. ‘
• Moats in the business. All our product areas – technology – focus on technology oriented products. Technology continues to be a significant moat for us. Second advantage – market presence – dealer and distribution network. More than 50 plus offices in place. Large channel partners. Plus 200 plus technically trained contingent. 3 Strength areas have stood the company in good health. Use them as strength. Response to customer is also a strength for us. Having been in business for so many years, we have good relationship with customers.
• Cost increase – all segments have seen increases. Chemicals – cost increase happens relatively easier some lag. Lubricants and paints – difficult to pass price but happens sooner than later – absorb for some time and then pass on.
• Competition is there with MNCs and domestic company. Chemicals – only large competitors – Largest – autototech, Artech both global leaders – Paints – Akzo Nobel, Shalimar, Asian Paints, Berger. Same with lubricants – MNCs and OMCs. Strategy – we cover all the markets in chemicals, in case of paints and lubricants – follow strategy of picking niches and growing sub segment by sub segment. Selected segments where we can capitalize on strength. Chemical market share – 35%, paint business – sub segments where we are – 5 to 12 – 13%, Product lines in paints potential is 2000 crore higher than chemical business.
• Premiumization of products – cars, jewellery, bathroom products this leads to higher potential for electroplating. EV will use lesser chemicals than chemical components. But electronic components usage higher leading to higher electronic chemicals. Already working on product lines for electronic chemicals.
• Inorganic opportunities – surface finishing – very few and always on a the look out. Do have bandwidth and resources available. Nothing as of now. Drawn up ambitious mission in top 2 or global positional – long term missions. Missions which drive our thinking and our plans.
• Regulatory changes driving need for green products – increasing regulatory change taking place – demand for environmentally compliant products. Full range in chemicals. Cant say same for oils and paints.
• Engineering business growth in last year? Doing well this year as well. Also optimistic about future as well. Cyclical business. As capital goods demand comes up, business is good.
• Royalty payment? Linked to engineering business. Automation software from European collaborator. As business increase, it will increase
• Export growth? Export will continue to grow in near future. Introduction of REACH in Europe. Nos of suppliers are smaller. Only those are compliant with REACH are able to supply. Second opportunity is China Plus 1 policy which most global cos are following now. Helping us grow exports. Good opportunity there.
• Capacity utilization? 6 plants right now – ranges between 25 – 75%. Main plants in Dadra – paint and chemicals are operating at 75% CU. Plant which are at lower at CU are Jammu and one more. Western demand is more and thus need to create more capacity
• New plant for paint? 30,000 KL plant. Current capacity of same size. Double our capacity. In terms of sales turover. Paint business upto 600 crore sales. Require us to add more subsegments and already made significant investment and effort on the same. The moment they come up, we will start utilizing it. 80 – 90 crore investment in new plant.
• Margin and ROCE – paint business lower than chemical business. Chemical business is niche and market leaders there. Paint on industrial segment is lower margin and ROCE. Paint – also looking at decorative segments – institutional side and niche segments. Capital employed starts coming down. Margins will also improve. Slightly below industry average with EBITDA margin of 14% and ROCE of 15%. Growth mode we need to follow different strategy there.
• Mall occupancy is 92%. Despite covid situation, haven’t seen significant exits. Rentals have come down significantly. In all cases we have converted them to revenue sharing atleast till March, 2022. Common area maintenance recovery had some gaps. Big tenants agreed to pay for that in covid period.
• Business conducting fees pertains to mall revenue. Earned from retailers.
• Mall expansion – shared in the past to expand the mall in Kandivali. Due to covid, those plans have been shelved. When things improve, we might look for that.
• Technical center – Vasai Nalasopara area – 25 crore investment.
• Supplies and logistics problem – some supplies coming from China. We have worked on this strategy. Adding more sources as a strategy.
• Surplus cash lying with us? Growing existing business – chemicals growth may be GDP linked, lubricants and paint business is growing well. Engineering growing well too. When inorganic opportunity is there, we will invest there.
• Chembur land – shut down plant. Located midst of refineries of OMCs and thermal plant of Tata. Value not that high. Selling of the land or develop the land but not much high potential.
• Insurance claim related to Vapi factory? 15 crore claim part assessment completed – 8.8 crore received and some survey under consideration. Balance quantam should get settled soon.
• Pune bottling company – investment for several decades now. Unfortunately, never paid any dividend to the company. Sold business to Coca Cola 20 years back. No business plan as of now. Received buyback plant for sale of shares. Board looked at that offer. Investment we made buyback would give value of 23 times of cost. 4 lakh investments and 90 lakh plus value. No value or dividend perspective. Some assets there but share not reflecting value. As minority shareholders, cant reinforce asset monetization. Took call to divest the stake. Investment is not our core area of business and rather focus on manufacturing business. Land under development Pune Bottling – land with Mantri Builders but deal is under scrutiny. Also, some issues with RERA.
(Note: These are running notes while attending the AGM and might contain some factual inaccuracies as well; Disclosure: Just 1 share to attending AGM)