New generation, newer vision. The R&D centre especially is a delightful news.
I think this is a great news from the company management. This company is no more a story of those traditional commodity type products. As per company’s strategy, they are clearly moving away from caustic and focussing more on the speciality / value added derivatives which are high margin, either monopoly or import substitute products. With today’s announcement, it re-affirms their growth strategy.
For me the key takeaways are:
Disclosure: Invested
Do we have any estimate of the market of this product and what are the end user industries? If someone on the forum can come out with some details, it would be helpful.
Updated presentation released to exchanges today.
KTAs:-
Is this reliable source? how can we track active weekly basis pricing of Caustic Soda?
https://www.chemanalyst.com/NewsAndDeals/NewsDetails/caustic-soda-prices-skyrocket-in-india-8861
The prices are indeed on an upward trend. Gujarat Alkalies Q2fy22: Management Says Caustic Soda Price Surge To Continue; High Raw Material Cost May Impact Margins
I see very very early signs of Deepak Nitrite here in terms of where management wants the Company to be in next 5/7 years. Moving away from bulk commodities to more value added products, focus on R&D, backward integration.
D - Invested, biased (also I have a very LT view in this counter)
Is this related to MOL or MFL??
Of course MFL. You can check in BSE for the details.
FY24 officially guided revenue = 2000crs
LT EBITDA guidance = 28 to 31%
Conservative measure = 20%
FY24 EBITDA = 400crs
LT Debt (net of preference shares) = 600crs
Current EV = 3500crs
Conservative PAT % = 13%
Conservative FY24E PAT = 2000*13% = 260crs
Current mcap = 2900crs
Mcap / EBITDA = 7.25
EV / EBITDA = 8.75
Mcap / earnings (PE) = 11
Trading at metal company valuations.
Indeed promoters were busy buying shares throughout November, although quantity is about 50K plus shares. But not to forget the promoter holding is already at 72.62%. Today again a fresh disclosure of acquiring 35000 shares from the open market.
More promoter buying. They’re in a rush to complete their 75% quota it seems before the counter shoots up.
Close to 20k shares bought by promoter group in last 1 week.
ECH expansion is just 1 quarter away. I hope the R&D center starts functioning soon. That is the most exciting part of MFL’s trajectory. Process efficiencies, newer molecules. Multiple optionalities in future if management executes well.
A little surprised that no one here has deep dived into Annual Report of the co. Read it last night and my god, it was a treasure trove of information. Posting relevant extracts and my key takeways:-
Pretty much summarises MFL’s product portfolio until end of FY23.
What’s important is the vision to consider caustic soda and base chlor-alkali products as in-house raw materials to get into more downstream products, which would have lower cyclicality.
MFL has 60 hectares of land. Per this 15 hectares of land is unutilised. Since FY21, a lot of capacities have come on steam or are in pipeline. Question to experts here - how much can a 15 hectare land parcel accommodate?
Reaffirming to build a less volatile stable chlor-alkali business
China’s costs trending upwards and this is broadly true of low value added sectors - textiles etc where labor costs have gone up making countries like India competitive.
Focus on chlor-alkali value chain.
Interesting comment. As per Q2 presentation, they’re already running full capacity across most of their products. Will we see utilisation shootup beyond 100% in all products or aka debottlenecking gains?
This is a subtle point and was explained by the management of Clean Science in their Q2 con-call. With growing ESG consciousness, customers prefer to have suppliers who have a demonstrable green and clean record. Did some research - this certificate is given by ICC and full list of companies is given in this link Responsible Care Logo Holding Members (note the absence of some peers like Gujarat Alkali). I believe this will be important once India starts exporting. Another Q - are these difficult to obtain? Doesn’t look like given 70 companies have it. But if it requires some mid sized investments, then it may result in slightly lower margin for peers.
In summary. The approach of MFL on a going-forward basis. Now if you see the actions of setting-up R&D centre - the direction is very clear - the Company wants to invest - improving efficiencies, moving up the value chain, etc. 2nd gen promoters.
Anyone has any idea on what technology is the ECH plant of DCM going to be based on? The glycerine technology is based on Technip FMC’s patented process. No such info on DCM.
We are seeing this play out in some ways. Chlorotolouenes, ECH in 1QFY23. CPVC in 2QFY23. (DCM has simple PVC and their Kota plant is 60% caustic soda sales in open markets).
Basically if you have more downstream products, the ECU realisation as a whole is going up. MFL definitely has a leg up in terms of better utilisation of chlor alkali capacity.
For comparison. PBIT margin of DCM Shriram in Q2FY22 in chemicals segment was 18%. For MFL, this was 29%. For Guj Alkalies, it was 15%
To an extent this gap will narrow cos DCM had lower ECU realisations than MFL. But a gap will always be there because of some strucutral advantages that MFL has:-
Requesting the chemical expert @Worldlywiseinvestors to throw some light too. I know right now this business is very very cyclical but I see some competitive advantages that MFL has though its not a price maker in the products in which it operates in.
Future direction though looks very interesting!
Did some research. Chlorotolouenes (chlorobenzene) is used in making phenol (Deepak Nitrite), which itself is a bulk chemical. So the chlor-alkali chemistry per se is very very far from complex / speciality processes / chemicals.
Could any one please help me to understand the below
MFL claims to be a first manufacturer of Epichlorohydrin in India. Currently it is fully imported. Is there any entry barrier for this product ? such as Govt regulations, technology etc whatever ? and what is the market size of the same in India.?
Both ECH & CPVC resins are over 100/kg. This compares with around 30/kg realisation from caustic soda. There are no huge entry barriers in this industry. If you read MFL’s annual report, they do mention that they are a price taker. What drives profits here are the following factors:-
1. Supply / Demand dynamics: China’s cost of manufacturing has gone up and this is giving a leg up to Indian manufacturers. Add to this that American (major exporter) capacities are shutting down. These were primarily old facilities using diaphragm technologies (not environment friendly).
2. Integrated operations: Power and salt is the major raw material to manufacture caustic soda. MFL has fully integrated operations with in-house power plant of around 90MW (additional 30MW under construction). They source the coal from nearby ports of Hazira etc so it also gives them freight cost savings. Further, utilising more of the Caustic Soda to manufacture downstream products (ECH, Hydrogen Peroxide, ECH and CPVC in future) gives them a better realisation per tonnage.
3. Cost structure: Lowest cost producer will always win in this industry. A good indicator of this is the EBIT margins of all players. GACL has lowest at around 17%, DCM has around 21% while MFL has around 23%+. These high margins give them an improved ROCE, ROE and what not. What aids their cost structure is the significant land parcel that they have. 60 hectares. This land was acquired before 2010 and hence the cost is fully amortised.
Chlor-alkali chemistry per se is not very complex and hence doesn’t have high entry barriers.
However, the chlorination of salt, which gives Caustic Soda and Hydrogen as by products can have applications in future since per unit cost of Hydrogen produced via this mode can be lower than the cost for producing it (Hydrogen) via electrolysis Sustainability in the Fine Chemical Industry: How Hydrogen “Waste” can Help Support a Greener Future
So DCM Shriram posted results today. Some insights for the caustic soda segment:-
MFL will likely do better than DCM at an EBITDA level courtesy better cost structure and more efficient operations. Imo, key risk is anti dumping duty now. Metal producers have called for removal.
Per DCM presentation, import prices have fallen significantly and supply tightness in domestic market will continue. If GoI removes the tariff protection, then, the ECU realisations can go back to Q2 levels or worse.
MFL should report around 550crs revenue, 180crs of EBITDA and around 100crs of PAT imo.
