In an interaction with Maulik Patel, Chairman and Managing Director, Meghmani Finechem Ltd

All the products that we are into had high realisations on account of robust demand and thus, we expect this demand scenario to continue; asserts Maulik Patel, Chairman and Managing Director, Meghmani Finechem Ltd

What is your outlook on the global and domestic speciality chemicals sector?    

The chemical industry is one of the most significant contributors to the growth and development of any economy. With the vast presence of the global speciality chemical market across the world, the sector is projected to reach USD 827 billion by 2029 from USD 576 billion in 2020, at a CAGR of 4.1 per cent from 2022 to 2029. In recent times, we believe that the Asia-Pacific region has dominated the speciality chemicals market. It is likely to retain its position during the forecast period due to robust growth of the construction sector thereby, increasing demand for cosmetic products, growing investment, and production. However, speciality chemicals' easy tear and wear-out properties will hinder their market growth rate.

As per the latest CRISIL report on the Indian speciality chemical sector, it is expected that the industry will outpace its Chinese counterpart and double its share in the global market to 6 per cent by 2026 from 3-4 per cent in the fiscal year 2021. This extreme growth is projected mainly due to two key reasons i.e. strong tailwinds in exports due to a shift in the global supply chain driven by the China+1 policy of vendors, and demand recovery in domestic end-user segments. China has been losing its cost-competitiveness of late, owing to the increased environmental costs, and reduced government sops. This, along with pandemic-induced disruptions, has forced customers to diversify their supplier base. India, with its cost-competitive manufacturing and technical expertise, is well-placed to seize the opportunity.

The overall market size of the Indian chemical industry is standing at USD 178 billion in 2018-19. India ranks fourteenth in exports and eighth in imports at a global level (excluding pharmaceuticals). The overall credit outlook for the speciality chemicals sector is positive, given the healthy increase in cash accruals, which reduces dependence on external debt and strengthened balance sheets with equity raising in the past by some players despite rising capital spending. 

In Q4FY22, Meghmani Finechem’s revenue has improved by 93 per cent on a YoY basis. What is the reason behind this upsurge in revenue with a handsome growth record?

Around 93 per cent of revenue growth in Q4FY22 is majorly coming from higher realisation while 3 per cent from volume growth. All the products that we are into had high realisations on account of robust demand and thus, we expect this demand scenario to continue. If we look at volume product-wise, hydrogen peroxide sales volume increased by 16 per cent in Q4FY22 vs Q4FY21, which is on account of Capex that we had done in the preceding years. Similarly, Capex that we did in the last two years in epichlorohydrin (ECH), chlorinated polyvinyl chloride (CPVC), and the additional capacity of caustic soda will drive growth for FY23 & FY24.  

 
Compared to FY22, the company’s debt/EBITDA ratio has come down from 2.7 to 1.9. How do you further plan to reduce the ratio for a healthier balance sheet?  

Our debt/EBTIDA has consistently improved from 2.7x in FY20 to 2.1x in FY21 to 1.9x in FY22. Improvement is on account of higher EBITDA earned, which is coming from the commissioning of the new projects, like CMS in FY20, H2O2 and additional capacity of caustic soda in FY21. So, even though the debt has increased, to spend on three new Capex for ECH, CPVC and additional caustic soda capacity, higher EBITDA earned improved the ratio.  
The debt we had in FY22 is at its peak and it will start coming down from FY23 onwards. Plus, the absolute EBITDA will improve as three new Capex will get commissioned in Q1FY23 & Q2FY23 and start contributing to profitability, so we expect the debt/EBITDA ratio to improve further. Also, the Capex that we have planned for FY23 will be funded through internal accruals.  
From a long-term perspective, we have kept a target to maintain the debt/EBITDA ratio below 2x.  

 
Can you shed some light on the Capex plans relating to chlorotoluene & its value chain as well as chlorinated polyvinyl chloride projects? 

For CPVC resin, the Capex that was planned was Rs 190 crore and we had announced to commission it in Q2FY23. As of March 31, 2022, 90 per cent of the project is completed and we are on schedule to commission the same in Q2FY23. CPVC resin will be consumed in the manufacturing of CPVC pipes and fittings. Currently, 95 per cent of the demand in India is met through importing and once we commission our plant in Q2FY23, we will be the largest manufacturer of CPVC resin in India.   

For chlorotoluenes and its value chain, we had announced the Capex of Rs 180 crore. The spending on the Capex has started from FY23 onwards and we expect to commission it by Q4FY24. The Capex amount of Rs 180 crore will be funded through internal accruals and we expect revenue of around Rs 300 crore from this project. Chlorotoluene & its value chain chemicals will be used as intermediate to manufacture active ingredients for the pharmaceutical and agrochemical industry. This will increase our revenue contribution from the speciality chemical segment. Further to strengthen our position in the speciality chemical segment, we are setting up an R&D centre.  

 
Both the above-mentioned products, along with ECH, are high-value products and hence, they will improve our RoCE.