Captain Speak

Published: Dec 29, 2021
Updated: Dec 29, 2021

CHEMCON SPECIALITY CHEMICALS: We are expanding in core chemistrys

On the issue of GPCB’s closure notice for the company’s manufacturing units, Kamal Aggarwal, Chairman&MD, says,”During the second quarter of the current fiscal, we were obstructed with an unfortunate external incident. Due to this, GPCB issued a closure notice which led to production loss. We had 15-20 days of finished goods inventory which had been dispatched to clients on schedule and the impact in Q2FY22 was insignificant. The closure notice was revoked and currently all our facilities are running at full capacity.”

After the payment of Rs. 50 lakh towards interim damage compensation and furnishing bank guarantee of Rs. 10 lakh, GPCB has granted temporary revocation of three months to the company. However, CSCL has started putting efforts for a permanent revocation of the closure order. Mr Aggarwal explains, “We are a zero liquid discharge company and adhere to all the best practices required as per global standards. We are a renowned and well-qualified supplier to all major pharmaceutical MNCs. Our operations have continued efficiently and compliantly within the framework for the past two decades.”

“The company had production loss of about 42 days due to the closure notice of GPCB. We hope that we will be able to recoup part of this,” he says. Pointing out the improved realisation, he adds, “The prices of our products have gone up drastrically. On an average, we had price realization of about Rs 522 from CMIC and today it is about Rs 600. Likewise, we had an average price realization of Rs 480 for HMDS during the first half whereas today we are selling it at Rs 1,500 per kg. So I feel we will be able to cover up the loss of production with relatively improved volumes and better operating margins in the following period.” CSCL is engaged in manufacturing specialized chemicals such as hexa methyl di silazane (HMDS) and chloro methyl isopropyl carbonate (CMIC), predominantly used in the pharmaceutical industry, and inorganic bromides like calcium bromide, zinc bromide and sodium bromide, used as completion fluids in the oilfield industry. The company has seven manufacturing facilities which are located at Manjusar near Vadodara in Gujarat. Apart from these three core products, CSCL also manufactures 4 CBCs and 5 DHTs and a high-purity HMDS. Sharing further details, Mr Aggarwal says, “We have built highpurity HMDS capacities that primarily serve the semiconductor sector and rubber manufacturing, silicon and pharma applications, among others.” He says that the beginning of production of critical raw material TMCS at the company’s factory for manufacturing HMDS is a major milestone for the company as it will pro vide a second important and captive source for raw materials in addition to China.

CMIC DREAMS

“40% of India’s demand for CMIC is met through imports. Due to a bright sectoral outlook, we see great prospects for this particular product. Especially post commercialization of the P8 unit, we will be the largest manufacturer of CMIC in the world,” notes Mr Aggarwal with a sense of accomplishment.

Explaining the current demand-supply scenario for CMIC, Mr Aggarwal says, “India has a market size of about 5,000 mt per year. Apart from CSCL, the two other manufacturers of CMIC are Anshul Chemicals, an Excel group company, and Paushak Ltd, an Alembic group company, with a combined capacity of 1,000 mt. Adding our actual production of about 2,600 mt at 85-90% capacity utilisation, there is still a shortfall of 1,400 mt, which is met through imports.”

Elaborating on the demand for high-grade HMDS specifically by the semiconductor industry, Mr Aggarwal says, “They are still reluctant to accept Indian-origin material. However, the rubber industry has started using HMDS for body implants and some other specialized applications and things have started moving favourably.”

Likewise, on the export prospects for HMDS, he says, “The global market size for HMDS stands at around 25,000 mtpa, of which 5,000 mt is consumed by India. We have started exporting to countries like Japan, Thailand, the US, Germany and Russia. Currently, it is more in demand by semiconductor and rubber industries the world over. Of course, it is utilised in the pharma industry as well. Though we don’t have very good margins in the export of HMDS, we are certainly on par with China.”

EXPANSION COMPLETE

On expansion projects, Mr Aggarwal says the expansion of P8 and P9 facilities have been completed and are ready for a trial run. “We expect these units to fully commercialise from January 2022. We have also initiated Rs. 50 crore expansion of the P10 unit at the same location for a few other pharma intermediate products and expect this facility to come on stream by FY23. Our goal is to add more value-added solutions to help us benefit from India’s structural positioning as a leading supplier of chemical products to global MNCs.”

On the company’s capex, Mr Aggarwal says, “We have already spent Rs 30 crore in the first half against the planned capex of Rs 41 crore for the current fiscal. We will utilise the balance Rs 11 crore during the second half.”

GOOD QUARTER

The company reported income of Rs 248 crore in FY21 with an EPS of Rs 16.48 on equity capital of Rs 36.63 crore. Almost 65% of its revenue come from the pharmaceutical industry. CSCL came out with an IPO in September 2020 at Rs 340 per share of a face value of Rs 10. The Rs 318-crore issue was oversubscribed 148.3 times. The promoter’s holding stands at 74.47% as of September 2021.

Commenting on the company’s Q2 financial results, Mr Aggarwal says, “We are pleased to share that we have delivered another quarter of positive performance as all our key products witnessed robust demand. We have clocked a net revenue of Rs 61.2 crore for the quarter and registered a production volume of 1,420 mt. After the completion of backward integration of the P7 and P8 units, the HMDS business began operating at full capacity and reported Rs 19-crore revenue, which is around 31% of our total income for the quarter. On the other hand, the bromide and CMIC business continued to maintain its momentum.”

Giving an account of the bromide business, Mr Aggarwal says it has contributed Rs 23 crore in revenue during the second quarter. The oilwell completion chemical segment has recovered well in the first half of the current fiscal on the back of a rebound of the oil and gas industry’s expanding activities. “Our global marketshare would be around 3% in terms of production across all bromide capacity. However, currently we have a robust order book and anticipate these chemicals to thrive in the coming quarters,” he says.

“CMIC has contributed around Rs 17 crore which is almost 28% of total revenue. We are attempting to maximize the utilization of current facilities, which will increase production capacity of CMIC by 10% to 15% in the next quarter. In addition, we will add around 1,200 mt at the P8 facility due to strong local demand,” informs Mr Aggarwal.

Explaining further the financials of the first half of the current FY22, Mr Aggarwal says, “EBITDA for the Q2 stood at Rs 19 crore with a margin of 30.9% and net profit of Rs 15 crore. For the half year ended September 2021, the revenue remained at Rs 118 crore as against Rs 107 crore during the same period in the previous year. Domestic and international sales registered 63% and 37% respectively.”

RoI STRATEGY

Revealing the company’s return on investment strategy, Mr Aggarwal says,”Our capex to revenue ratio is nearly 1:4. If you see our history, it is in line with that but we bank upon payback period rather than on revenue. A maximum of oneand-a-half years is the payback period for the investments under capex.” In an answer to questions on the company’s profitability going forward, Mr Aggarwal says, “By FY23, we should reach Rs 100 crore in net profit against Rs 56.40 crore achieved in FY21. In fact, that is our target as well.”