Running notes of the recently held con-call of DMCC. There maybe some errors here
20th March 2017
Didn’t make sense in having two chemical company by same promoters
and we see financial benefits else why do this
Borax
- 50yr old co, 1963
*Formed as JV with US Borax and DMCC in 50:50; JV dissolved in late 1970s when India was looking to take MNCs out of the country
- Boron chemicals, borax, boric acid, zinc borate - fire restraint paint
New entity –
Plant of Borax at Dahej and DMCC at Roha
Lot of free land at Dahej, only 10% used of total revenue potential
Land of 100k sqmt, 1/3rd is used
Dahej is chemicals city
Usage of Borax plant –
New plant built over last 2-3 years, Some of the equipment shifted from ambernath but building etc brand new
Products manufacturing – continue to make borax products form borax plant
40-50% of 13Cr P&M is already there and DMCC won’t have to put its money
DMCC plant at Roha – will continue to operate
Costs savings from merger – Admin and other OHs, not quantified yet
Newer product will be made at the plant where there are cost/logistics advantages
Lower interest costs
Way forward for Borax -
#1 brand in India in Boron products (boric acids, borax decahydrate)
Will re-inforce the brand and push more products to existing customer base
Idea is to grow in boron speciality (like in DMCC), there is lot of scope for growth in the market
Will launch new products only if it has a payback of 3 years
Losses –
China slowdown – china is biggest importer of boron and global suppliers started dumping boron chemicals in India
Profitability of borax –
Decahydrate is commodity
Boric acid SQ is speciality
Margins vary from 10%-40%
Indo Borax has better margins –
Unusually low price on boron products which shall reverse
High interest expense for us
No comments on why our RM costs are higher then theirs
Borax RM – all boron imported, no local availability
Negative profits since FY13 – last few years transitioning time, ambernath plant took more time and money than envisaged
Tax benefits of Borax losses – purchase method and hence losses of borax won’t carry forward to DMCC
Pref shares in borax –
9Cr in Borax is held by promoter and will convert it into equity, dividend will be waived
2.8Cr held by employee welfare trust – dividend can’t be waived and conversion can’t happen; will pay dividend and repay loans when company can do that
DMCC maintenance shutdown – likely to be in Q1’18
Sulphuric acid plant shuts down every 15-18 months
Cant set up new SA plant at Dahej
Enhancing storage capacity but effect will be there
Borax turnaround – expect performance to improve next year also and interest cost reduction is key
Expect borax to become breakeven soon
Target to bring margins in line with DMCC
Rajasthan plant at DMCC – SA plant there many years ago, operating as SSP plant in last 15 years until last 1-2 years
No plans to revive and not much financial value
ambernath plant is in the process of being sold
no land with DMCC at ambernath
US is biggest export market followed by EU and China
Borax – price differential vs imports –
Business is done through distributors, several in each state
Approvals are product specific
2 multipurpose plants at Roha and rest are dedicated plants
Capacity utilizations –
With incremental investment of 2-3cr utilization of better margin products can be increased
Current revenue potential of dahej plant – 60-70Cr of revenues without putting any capex, similar to historical revenue numbers
R&D focus area - Micro nutrient, zinc borate, glycol borate
Debt on borax - 18.9Cr is of Borax alone I guess
Capital allocation going forward – in general we will invest in speciality, does not matter which chemistry it is
DMCC – as backward integrated as possible
Technology, quality and cost effectiveness is as good as anybody on the world
Ability to handle these chemicals safely without damaging environment is proven now
Customer appreciate it
55% domestic, 45% exports
Market share – for 3 products we are #1/2/3
Benzene suplhonate chloride 40% global share
Sodium vinyl sulphone
Diethyl sulphate –
These 3 products contribute bulk (~75-80%) of speciality which is 65% of total revenues
Volumes – no comments; in our business tonnage does not matter, if product takes longer to make then realizations will increase
New multipurpose plant – 600-700 tonnes combined this year so far
New launches @ DMCC - global market is few 100 crores and is high margin product, no other player in India
Timeline of merger – 6 months from now
Appointed date – 1 April 2016
Volume in Borax – few thousand tons, as its not very high
boron - 40000/ton
65000/ton – boric acid
Capex needs – new multipurpose plant takes 10Cr but not planned anything as of now
SA is needed for some boron products