Some excerpts from the Q2 concall with my comments/interpretation. Mostly covered the questions and answers on the RM aspect. Have i got my interpretation on RM right?
Q: On the RM side, any RM cost pressure you saw in Q2/Q3?
A: As far as RM is concerned, it was quite stable as far as Q2 is concerned, but now in Q3, RM prices are going quite high and the impact of this will be seen in the finished product by the beginning of Q4.
Q: And any particular reason for this sir apart from crude going up?
A: Crude has got no impact on our business. The major impact which we are seeing is only the China factor. What we have been talking and discussing and analyzing in the past few con-calls, we will see the real color and flavor of that probably in the next financial year 18-19. (My comment - i think he is saying that crude has got no impact as it is cost plus business. Two, margin improvement during past few years was due to China pollution impact. This will continue to benefit Indian players in next year as well.)
Q: Okay. Sir, China capacity being shut down for dye intermediates, sir how is that impacting us?
A: See, first of all I won’t say that the China capacity is shutdown, rather I will like to put my views on this point that China is facing acute problems in achieving their production levels because of their environment laws and audits. So the focus is shifting to countries like India and in India also, the companies that are more compliant in terms of the environment laws will be able to benefit and get larger share of that. As I just mentioned, there is a huge spike in the RM prices, it is not one or two raw materials, we can see that many chemical products have gone very high. Sulfur is almost double, caustic is almost increased by 40%-45%, same with caustic lye. Impact of those RM will be felt in Q4. I believe that 18-19 will be a very good year for the Indian chemical companies.
Q: Exactly, so it will benefit us positively, right?
Punit Makharia: Obviously. Don’t you think that it will benefit us? Why you are getting it reconfirmed from me, I think you are an analyst, you know better than me. (My comment - Increase in RM prices is going to impact them positively? Due to integrated model? I am not clear what he means when he says increase in RM prices is going to be beneficial. May be increase in RM prices will lead to increase in end product prices.)
Kritika Garg: No, exactly it will help us better. So you have said that crude has no impact on the business, but there is an impact of China. So I was wondering that there is a positive impact from China.
Punit Makharia: 100%. (My comment - as i said above in my comment to the first question, crude doesn’t impact, china impacts positively, RM has no relation to China…the way it was said was confusing though)
Kritika Garg: Okay and sir so we expect our margins to remain the same going forward?
Punit Makharia: Definitely.
Q: As you said RM prices for our dyes and dyestuff are increasing. So, further reaction to it is we increase the final product prices. So is there any lag between increase the pricing of final products. So, do we have to take a hit in margin in between for a quarter or so?
Punit Makharia No, impact of that comes immediately. As of now we are saying that finished product pricing have also started going upwards and my concern is that in Q4, the dye intermediate prices will start going up and the financial year 2018-2019, I personally think that would be one of the best year in this industry.