Recent Updates from Management based on a Brokerage Sponsored Interactive Event
• CFIN guides for 30% growth in its self‐life business (including blends) for the next 3‐4 years. The blend business will see much faster growth than the antioxidant ingredient business.
Currently, CFIN has presence in four applications:
(1) animal food (~70% of self‐life business),
(2) human food,
(3) pet feed, and
For FY19, CFIN expects in the blend business:
(1) Brazil to have a margin of 12‐13%,
(2) EU margin in range of 10%,
(3) US will break‐even, and
(4) Mexico will see strong double‐digit sales growth and margin in the range of 20%.
• CFIN’s vanilla plant in China achieved capacity utilisation of 60% in FY18 with EBITDA margin of 3%. Expect to achieve optimal utilisation in next couple of year with significant margin expansion. The global demand for vanilla is ~20,000TPA.
The global vanilla market is growing at rate of 2.3% of which Asia, China, India, Indonesia (countries with high population) are growing at a much faster rate compared to developed markets like EU and US. Also, CFIN does not see any risk of environmental policy in China for its plant, as it is in the industrial area.
• CFIN expects Dahej plant for manufacturing of Hydroquinone (HQ) and catechol (CH) to be commissioned by Q4FY19; FY20 will see a fully commercialised operation. The Dahej plant will help CFIN to reduce its procurement costs by atleast US$ 1‐1.5 per kg (from US$ 3.5/kg) which will help it to expand CFIN’s margin profile from FY20. The estimated capex for Dahej is ~Rs 1.5bn; expects asset turnover of 2x.
• Italy subsidiary reported –ve 3% EBITDA margin operations in FY18 due to:
(1) 50 days plant shutdown for certification (regular process once in 10 years),
(2)strengthening of Euro against USD, and
(3) fall in HQ and CH prices. CFIN does not have any plans to shut down its Italy operation. Expects improving HQ prices to improve the profitability of its Italy subsidiary.
• CFIN indicates that the Lockheed Martin (LM) project will be finalised in a couple of months and expects LM supply to start during calendar 2019. Expects initial supply of ~5,000 TPA with a margin of ~20%. The supply arrangement will be on “take or pay”. CFIN has entered into a preferred supply agreement with Lockheed Martin Advanced Energy Storage, United States of America, in relation to supply of specialty chemicals for a term which shall be valid through 31 December 2025.
• Large part of QIP fund of Rs 1.5bn will be towards Dahej and its working capital requirement. 25% of warrant issue (i.e., Rs 210mn of total Rs 840mn) is already received for current expansion plan and remaining Rs 630mn will be used for LM project.
• CFIN has taken an enabling resolution to raise ~Rs 2.5bn, primarily for all its expansion projects over the next two years. While CFIN does not have any plan to dilute equity further and is looking to raise debt it has evaluated the partial FCCBs funding option as well. Indicates peak debt range of Rs 5.0‐5.5bn (Rs 3.66bn in FY18) factoring both Dahej and LM projects.
• Expects overall improvement in operating performance in FY19 led by:
(1) increased blends revenue growth,
(2) higher capacity utilisation (at China and Brazil), and
(3) visible improvement in subsidiary performance.
• CFIN guides for revenue of Rs 9‐9.5bn with EBIDTA margin of +12% in FY19. Also indicates that EURO softening against USD will help the company to expand margins further. In FY20, CFIN expects revenue of Rs 14bn with EBITDA margin in the range of 17‐18% (considering Dahej commercialization).