EPIGRALNSEQ2 FY23October 20, 2022

Epigral Limited

8,954words

194turns

14analyst exchanges

6executives

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Management on call

Kruti Patel

GO INDIA ADVISORS

Maulik Patel

CHAIRMAN AND MANAGING

Kaushal Soparkar

MANAGING DIRECTOR - MEGHMANI FINECHEM LIMITED

Sanjay Jain

CHIEF FINANCIAL OFFICER - MEGHMANI FINECHEM LIMITED

B. Ravi

STRATEGY CONSULTANT - MEGHMANI FINECHEM LIMITED

Milind Kotecha

HEAD INVESTOR RELATIONS - MEGHMANI FINECHEM LIMITED

Key numbers — 40 extracted

2.889 lakh

nd the future expansions in mind, we have invested in additional piece of land in Dahej, which is 2.889 lakh square meter land and it is the close proximity to our existing plan. In Q2 FY2023, we have redee

Rs.12 Crore

and it is the close proximity to our existing plan. In Q2 FY2023, we have redeemed preferences of Rs.12 Crores and our target is to pay the full amount in five years’ time by FY2027. Now I will hand over the

Rs.556 Crore

ny, the company delivered a strong financial performance. We have seen a record high revenue of Rs.556 Crores this quarter with a sales growth of 64% Y-o-Y basis. The growth in sales can be attributed to hi

64%

formance. We have seen a record high revenue of Rs.556 Crores this quarter with a sales growth of 64% Y-o-Y basis. The growth in sales can be attributed to high realizations from all the products. Fo

75%

be attributed to high realizations from all the products. For H1 FY2023 Chlor-Alkali contributed 75% of revenue and derivative segment contributed 25% of the revenue. Chlor- Alkali segment grew by 86

25%

roducts. For H1 FY2023 Chlor-Alkali contributed 75% of revenue and derivative segment contributed 25% of the revenue. Chlor- Alkali segment grew by 86% vis-à-vis on account of higher realization and d

86%

5% of revenue and derivative segment contributed 25% of the revenue. Chlor- Alkali segment grew by 86% vis-à-vis on account of higher realization and derivative segment grew on account of higher volum

79%

s well as higher realization particularly H2O2 hydrogen peroxide. In absolute term EBITDA grew by 79% year-on-year basis and stood at Rs.180 Crores with 32% margin on account of higher realizations.

Rs.180 Crore

rly H2O2 hydrogen peroxide. In absolute term EBITDA grew by 79% year-on-year basis and stood at Rs.180 Crores with 32% margin on account of higher realizations. Our PAT grew by 95% year-on-year basis to Rs.

32%

peroxide. In absolute term EBITDA grew by 79% year-on-year basis and stood at Rs.180 Crores with 32% margin on account of higher realizations. Our PAT grew by 95% year-on-year basis to Rs.92 Crores

95%

sis and stood at Rs.180 Crores with 32% margin on account of higher realizations. Our PAT grew by 95% year-on-year basis to Rs.92 Crores with PAT margin at 16%. Capacity utilization for Chlor- Alkal

Rs.92 Crore

ores with 32% margin on account of higher realizations. Our PAT grew by 95% year-on-year basis to Rs.92 Crores with PAT margin at 16%. Capacity utilization for Chlor- Alkali stood 85%, Chloromethane stood at

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Guidance — 20 items

Maulik Patel

opening

“We have started receiving approval from customers for ECH and CPVC and we expect that the sizable volume of both these products should be visible by end of Q3 FY2023 or starting of Q4 FY2023.”

Maulik Patel

opening

“Even after the current market dynamics, we are confident to achieve the guidance that we had given for FY2023.”

Maulik Patel

opening

“From here on we are further going to add downstream chemistries where chlorine, hydrogen and other chemicals will be used as a raw material to further strengthen our integrated product positioning.”

Maulik Patel

opening

“To this extent, we are setting up a dedicated R&D facility which will be ready by Q2 FY2024.”

Maulik Patel

opening

“In Q2 FY2023, we have redeemed preferences of Rs.12 Crores and our target is to pay the full amount in five years’ time by FY2027.”

Pratiksha Daftari

“Can we expect those inflated cost to sustain for sometimes?”

Maulik Patel

“Frankly speaking, we have no idea till what time it is going to remain, but at least we can see definitely next one or two quarters, it is going to remain as it is that is what we can see, we cannot forecast more than six months as of now.”

Pratiksha Daftari

“In terms of ECS ramp up that is the capacity that we just commissioned since most downstream product demand is getting affected; do we expect a similar situation for ECH and I just missed your opening commentary how soon do we expect to scale up production here on this facility?”

Maulik Patel

“It normally the ECH is going to be a contract-based prices, so we are right now discussing with index-based, contract-based pricing with the different customers in Europe and US, so definitely the realization on the contract-based prices are different than what I am saying it is what you can hear on the day-to-day prices of the commodity, but you can say that we can expect around Rs.180 kind of realization in terms of export what we are going to do it in Europe and US from next year onwards.”

Maulik Patel

“Textile is down; we expect that after Diwali I think it will start moving upward direction, because the cotton price is coming to a lower level now, now people are expecting after Diwali they will start their production again, but paper situation is positive because white paper where it goes majorly, the hydrogen peroxide where we are expecting good demand in the worldwide and all the paper companies or the paper chemical manufacturing companies they are doing great right now.”

Risks & concerns — 10 flagged

If you see them because of the energy price, high energy prices along with the Europe and US recession effect on the chlorine downstream everyone wanted to produce more and more caustic soda, so this is a scenario right now and the chlorine is in pressure so because of that the efficiency of the plant is not running because chlorine you cannot store.

— Maulik Patel

EBITDA margin what you said is right, for half yearly it was around 33%, so if the current kind of situation revolves and goes around then that kind of margin can be made, but again time is uncertain so it is difficult to say, but we state our guidance of 28% plus minus 2%.

— Milind Kotecha

But there has not been any pressure on the international markets, at the international market levels CPVC price is still relatively firm is it because eventually India prices will also get influenced by that right?

— Aasim Bharde

Whatever the manufacturers are there even though they are in pressure, they have a limited capacity and Indian demand is far higher than that so I do not think so it is going to happen the way you are explaining the situation here.

— Maulik Patel

Okay, actually it is not more of a theory basically I just wanted to understand that right now what the current situation is, my takeaway is that there is no pressure on CPVC pricing as on date.

— Aasim Bharde

Definitely customer has a right to negotiate with us, but there is actually it is not actual pressure.

— Maulik Patel

Regarding the new capacity, there is some as one lakh tonne capacity of caustic soda for Meghmani Finechem, also the fact that Gujarat Alkalies in JV with NALCO captively as well bringing out the capacity of around 4.5 lakhs tonne, so I just wanted to know, would this create excess supply in the market by any chance in such a way that the caustic prices might see some pressure moving going down in Q3 or Q4?

— Vignesh Iyer

It is very difficult, caustic soda is a very difficult industry, because it is used in every small scale also, so we know the Chloro-Alkali capacity when it is coming, but we do not know the caustic consumption, how many caustic consumption has increased the consumption in the last couple of years of which we are going to do it but normally we expect that as per the Indian economic GDP growth, the caustic demand is growing in India.

— Maulik Patel

My question is related to this current global slowdown, is there any effect of this global slowdown on our company or you might see in future something like that?

— Dr. Amit Vora

Your strategy of selling it for exports as well as domestic I am not quite clear on that because the opportunity looks like it will be in India because that is one of the few countries where construction industry is actually growing, so why would you focus on exports when there is a global slowdown and PVC prices are already crashed, so what is your rationale for even focusing on exports?

— Bobby Jay

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Q&A — 14 exchanges

Good afternoon. Thank you for the opportunity. I just wanted to understand that on a quarter-on-quarter basis, our capacity utilization has gone down slightly, so how do we see this going ahead and how does the demand look like for the rest part of the year?

Maulik Patel

It is a great question and currently in the world, in the Chlor-Alkali manufacturing and the Chlor-Alkali downstream manufacturing in the world Europe, US, even in Asia, with the chlorine derivatives which is 60% of the chlorine derivatives are PVC, TDI, MDI and ECS kind of products which is infrastructure-related products in Europe and US because of the recession it is not moving, but in the same time the caustic soda demand is there. If you see them because of the energy price, high energy prices along with the Europe and US recession effect on the chlorine downstream everyone wanted to prod

Just few questions. First of all as you mentioned that you are looking to go for the derivative products especially from the chlorine side. Since we have caustic soda and these are surplus obviously chlorine level, but going forward if you are looking for a derivative product for those, are we in a position to use completely these chlorine or would there be further requirement, just wanted to understand if any surplus chlorine would be required for those product or would it be a specialized chlorine derivative, so that our internal production would be sufficient for that?

Maulik Patel

Our strategy is very clear, we have reached to four lakh and capacity of caustic soda after the last phase of expansion, so in next three years our focus is 100% on the derivative side where our priority is to consume chlorine up to 85% of producing including the pipeline customers, but the 15% chlorine we are going to send to our consumers continuously, because any in the future in the backup something goes down in the derivative segment definitely overnight you cannot find the customers for the chlorine like what Europe and US customers right now is facing, they need to immediately reduce th

Thank you. I just had a question, where did the bottleneck of caustic like today in India, ability to sell caustic or ability to sell chlorine and can you give some color on that side as well?

Maulik Patel

In India it is always the chlorine is a bottleneck, If you want to utilize proper your caustic plant definitely you have to be integrated player, you have to be consumed chlorine by downstream or by pipeline customers that is the only way you can increase your caustic consumption where India is and you can cater to an Indian customers, so chlorine is always a bottleneck why because this is the only situation in some of the countries where the feedstock like petrochemical feedstock like ethylene and propylene is not available. The country like US and Europe, the chlorine is not a bottleneck lik

Thanks for the opportunity. First question is related to the chlorine production, so at full capacity of caustic of 421 KTPA, what would be our chlorine production and currently, how much is our chlorine integration and what is our pipeline change?

Maulik Patel

After last phase of expansion, when we reached to optimum capacity, our chlorine consumption will be around 65%, so our goal is next three years we would like to reach at 80% that is a goal and that towards that goal we are working including pipeline customer. Currently, how much that would be? It is around 60 to 65 including the ECH and CPVC will reach two optimum level by Q4 end. Okay and so during this Q2, what was the negative spreads that we were getting from the chlorine production? It is 8000 to 10000. What are the reasons for such high negative spreads from the chlorine, last quarter i

Good afternoon. Thank you for taking my question. Just couple of clarifications, in some earlier calls you mentioned that ECH plus PVC plus the additional caustic soda capacity was about Rs.1000 Crores of revenue, at current realization will hold or if it is going to be higher and are we expecting to utilize the ECH to CPVC capacity by 2024 or will it be over two to three years?

Maulik Patel

I would say the caustic soda price is moving up, but the same time as I mentioned the chlorine derivative price is going down, so definitely more or less the revenue will be adjusted, there is minor change in that, but we can still reach to a close to Rs.1000 Crores along with the new caustic soda capacity. Okay. Are we expecting this new capacity or it is largely which came in Q2 to be utilized over what period? End of Q4 or beginning of Q1 next year. No, I understand that that is going to volume will start contributing, what I want to understand is the incremental capacity that has come, let

Thanks for taking my question. I can see the financials that there is some redemption of certain shares of about Rs.12 odd Crores, is this the one held by Meghmani Organics and is there any roadmap for completing repayment of these and eliminating the intercompany transactions?

Sanjay Jain

Yes, this is the Meghmani Organics only where we have paid Rs.12 Crores in H1, September 30 and with regard to roadmap company plan to redeem in next five years completely. Okay, got it. Thanks.

Thanks for the opportunity. Sorry, this was answered, but I wanted to understand your strategy of ramping up CPVC resin volume, would it be more domestic focus or would you tap into the export markets as well and on the pricing bit, would you look to price is lower versus existing incumbent to gain market share or do you think that is not necessary because of the supply demand mismatch, at least in India?

Maulik Patel

CPVC is going to be 100% domestic oriented and we are focusing on that part and I think the volume in which India's demand is increasing and there is no manufacturing capacity available as of now, so we expect our focus is 100% on domestic only. The CPVC is a very unique molecule where the 50% of the world demand is in India, so when the 50% of the world demand is in India, you do not need to go out from India. Okay and on the pricing bit, how would you want to deal with that any rough sense on that front? At par with the international suppliers which is happening right now, we are going to ke

Maulik Patel

It is a good observation, but normally if you see in the history, people are announced the capacity and people are commissioning the capacity, but it will take time in the chemical plants, to optimize it, as I mentioned it depends on how you are completely integrated in terms of the chlorine usage, so every company has a different strategy in terms of the integrated complex and the downstream chemistry and as well as the chlorine network, so it depends on that the situation will arise, what kind of situation will arise after some time, but as I mentioned in India every year we required one cau

Good afternoon everyone. My question is related to this current global slowdown, is there any effect of this global slowdown on our company or you might see in future something like that?

Maulik Patel

Because of the global slowdown and definitely eventually it affects the prices of internationally whatever it is and it is eventually effect and come down based on the current prices which is going down all the chemicals, definitely it affects us, the same time some positive like Europe situation, caustic we are seeing the positive sign, so we are getting advantage of positive also, there is effect on the end-application base, but global effect will be not in a different, we are less impacted, but eventually it is impacted and the price will be reflected in the Indian chemical industry as well

I have a question in ECH. Your strategy of selling it for exports as well as domestic I am not quite clear on that because the opportunity looks like it will be in India because that is one of the few countries where construction industry is actually growing, so why would you focus on exports when there is a global slowdown and PVC prices are already crashed, so what is your rationale for even focusing on exports?

Maulik Patel

As you rightly said volume is increasing in India as well, but currently the environment in the international is different because of the high energy cost and in the Chloro-Alkali industries mismatch so there is a current, there is a high opportunity in Europe and US as well so we are looking for both, we are working on the both strategy domestic as well as exports. The energy crisis is only in Europe it is not in the US, the US still has some of the cheapest energy prices in the world and there the PVC prices are falling. You are right, but the caustic price is up because of Euro that is why

My question is answered. Thank you.

Management

First of all congratulations for the good set of first numbers. I just wanted to know how much did we buy the 2.89 lakh square meters of land and how was it funded?

Sanjay Jain

We are funded with the internal accruals only. It is completely purchased from the internal accruals only. Can you quantify the amount? It is approximately Rs.160 Crores. Okay and what is the next line of expansion since we already had a little bit of reduction in debt as you mentioned in the starting comments, are we looking at any other next line of expansions because we have a land and there must be some flow to it? This current land what we have purchased not for the immediate use, currently where we are our campus we wanted to make it stronger and stronger and I think next three years we

Thank you sir for taking my question. I had one question on CPVC, so just want to understand what would be the working capital requirement for us in the CPVC businesses, is it low high what would be that requirement like?

Maulik Patel

PVC business when you are buying a raw material is also you need to buy raw material, you need to pay in advance and same time the raw material is also when we are selling CPVC also we are our target is to within seven days maximum, so normally 30 days kind of inventory we have to carry and so that kind of working capital will continue, so it is not much higher, it is in line with the existing business cycle, so which is not something abnormal. Our last question basically, is there any possibility of CPVC cannibalizing the PVC market going forward? PVC is a completely different application and

Good evening everyone. In conclusion with all this we are moving in line with our commitment of long-term goal of Rs.5000 Crores by 2027 and with focus on environment and sustainability once again thank you ladies and gentlemen for joining us today. If there are still unanswered question please feel free to reach out to our IR team. Thank you everyone. Happy Diwali and Happy New Year to everyone. Goodbye.

Management

Speaking time

Maulik Patel

Pratiksha Daftari

Moderator

Bobby Jay

Rohit Sinha

Alisha Mahawla

Aasim Bharde

Chintan Chheda

Sanjay Jain

Yogesh

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Opening remarks

Kruti Patel

Thank you Neerav. Good afternoon everyone and welcome to the Q2 FY2023 earnings of Meghmani Finechem Limited. We have on the call Mr. Malik Patel, Chairman and Managing Director, Mr. Kaushal Soparkar, Managing Director, Mr. Sanjay Jain, Chief Financial Officer, Mr. B. Ravi, Strategy Consultant and Mr. Milind Kotecha, Investor Relations Officer. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risks that the company faces. May I now request Mr. Maulik to take us through the financials and the business outlook subsequent to which we will open the floor for Q&A. Thank you and over to you Sir.

Maulik Patel

Thank you Kruti and good afternoon everyone and welcome to the call to discuss MFLs Q2 FY2023 performance. I trust you had the opportunity to run through the earnings presentation, which was shared earlier today. The chemical industry in line with global markets has witnessed cooling off on account of steps taken by the central banks to cool off the inflation. In line with that prices of many chemicals have dropped, but the chemicals, which are based on energy as a raw material are still at elevated price considering the energy crisis in Europe. In case of caustic soda, ECU is high on account of energy crisis due to the reduction in chlorine consumption in the global market and output of caustic soda also has reduced. Similarly, on account of high natural gas prices even realizations of hydrogen peroxide has moved up. In the first half of FY2023, we have commissioned all our committed expansions Epichlorohydrin, CPVC raising and additional capacity of caustic soda within the timeline a

Sanjay Jain

Thank you Maulik. Good afternoon. Q2 FY2023 was a very good quarter for the company, the company delivered a strong financial performance. We have seen a record high revenue of Rs.556 Crores this quarter with a sales growth of 64% Y-o-Y basis. The growth in sales can be attributed to high realizations from all the products. For H1 FY2023 Chlor-Alkali contributed 75% of revenue and derivative segment contributed 25% of the revenue. Chlor- Alkali segment grew by 86% vis-à-vis on account of higher realization and derivative segment grew on account of higher volumes as well as higher realization particularly H2O2 hydrogen peroxide. In absolute term EBITDA grew by 79% year-on-year basis and stood at Rs.180 Crores with 32% margin on account of higher realizations. Our PAT grew by 95% year-on-year basis to Rs.92 Crores with PAT margin at 16%. Capacity utilization for Chlor- Alkali stood 85%, Chloromethane stood at 104% and Hydrogen Peroxide stood at 97%. On Y-o-Y basis, our ECU realization fo

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