MANALIPETCNSE7 December 2022

Manali Petrochemicals Limited

7,171words

107turns

14analyst exchanges

0executives

Key numbers — 29 extracted

20.6 million

for the needs of the commercial printer industry. This acquisition was at a cash purchase of GBP 20.6 million and the EBITDA for the 12-month period was GBP 2.81 million. We have done EV on cash and debt fre

2.81 million

isition was at a cash purchase of GBP 20.6 million and the EBITDA for the 12-month period was GBP 2.81 million. We have done EV on cash and debt free basis with repayment of the outstanding loans. Financing

2.96 million

sidiary Notedome Limited. What you see on the right is a summary of the acquisition. It has a GBP 2.96 million EBITDA on an adjusted basis, about GBP 16 million in terms of Sales. The company has 29 employees

16 million

is a summary of the acquisition. It has a GBP 2.96 million EBITDA on an adjusted basis, about GBP 16 million in terms of Sales. The company has 29 employees and over 200 products. This is at a glanc

60%

UK, almost about the time Manali Petrochemicals was incorporated. The group's customers are about 60% UK-based and the balance outside of the UK with the sales growing in Asia. They have a strong fin

2 million

ing in Asia. They have a strong financial performance with an operating cash flow exceeding GBP 2 million for the past 3 years. Their gross margins are very healthy at 40% and average EBITDA has been 22%

40%

g cash flow exceeding GBP 2 million for the past 3 years. Their gross margins are very healthy at 40% and average EBITDA has been 22% for the last 3 years. More importantly, the products do not use

22%

ion for the past 3 years. Their gross margins are very healthy at 40% and average EBITDA has been 22% for the last 3 years. More importantly, the products do not use any hazardous chemicals and there

12%

rial base. Like I said, the group's customers are 60% UK based and 40% overseas based with a nice 12% diversification in terms of non-sterling business. The supplier base also is quite diversified.

46%

Of course, on certain products, there is an exposure to one chemical company, Dow Chemicals with 46% of its purchases coming from there. The group is also very heavily exposed to movements in polyol

One key point to note here is that with the Notedome acquisition, our overseas business was about 6% of our turnover. With the Penn-White acquisition, this has jumped up to 16%. So that's a signific

16%

eas business was about 6% of our turnover. With the Penn-White acquisition, this has jumped up to 16%. So that's a significant number to note. As Chairman has repeatedly mentioned, it is our

Guidance — 20 items

Muthukrishnan Ravi

“Financing the transaction has been done all through own funds of MPL and refinancing of the working capital facility will be done with a new asset base lending system.”

Muthukrishnan Ravi

“In terms of future performance, we expect a 2-fold impact.”

Muthukrishnan Ravi

“One is an increase in EBITDA margins and new product sales generation and we also expect some synergies to be created with Manali Petrochemicals and our subsidiary Notedome Limited.”

Muthukrishnan Ravi

“Therefore, the chemicals speciality business will expand for Manali Petrochemicals and will help us obviously to smoothen the cash flows as the commodity cycles go up and down.”

Muthukrishnan Ravi

“So, under the Made in India strategy, we expect to create a new subsidiary for Penn-White called Penn-White India Limited which will again create or mimic a Penn-White in India and the market for India is something that we speak about in the middle column.”

Muthukrishnan Ravi

“It's expected to hit $10 billion by 2030 with a CAGR of 5.2% from now to 2030.”

Muthukrishnan Ravi

“Due to the rapid expansion of Food and Agriculture and the paints, inks, coatings and adhesives industries, it is expected that the Indian agriculture industry will reach about Rs.142 million by 2027, and exhibit a growth of about 12.3% during FY 22-‘27.”

Muthukrishnan Ravi

“So, therefore, this will be a focus industry for us, when we create the Penn-White India facility.”

Muthukrishnan Ravi

“Indian paint industry is again a very growing market and we would like to be a part of that growth and that again will be something that we will focus on besides the food industry.”

Anshul Mittal

“So, first is, do we plan to manufacture these Penn products in India and sell over here and other Asian countries or import from Europe?”

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Risks & concerns — 7 flagged

More importantly, the products do not use any hazardous chemicals and there is risk regulation and low capital expenditure required to expand and set up new facilities.

— Muthukrishnan Ravi

And sir, considering the current status as there is recession in UK and impact of power crisis, how much is the exposure to Europe?

— Anshul Mittal

Are they also facing any pressure because of the global geopolitical issue as well as the European crisis?

— Anshul Mittal

First question is that I wanted to know what would be the potential impact of this acquisition on the top line and bottom line of Manali Petrochemicals on consolidated basis?

— Gaurav Kumar

Because currently if we see this, we are hearing some slowdown on I mean, paint industry which is immediately lacking because of slowdown in textile industry.

— Rohit Sinha

I understand that geopolitical situation is very volatile.

— Anuj Jain

So, is it because that the last 3 years have been that you mentioned are because of that difficult supply chain issues and a lot of chemical companies got benefited and therefore, the margin is higher and therefore this valuation seems to be low or am I missing something?

— Amit Doshi

Q&A — 14 exchanges

Thank you very much. I would like to convey my personal welcome and also on behalf of Manali Petrochemicals to all of you who have logged in today to join us at this investor conference. So, I'm happy to chair this conference just after the announcement of our recent acquisition, Penn Globe Limited. I would like to request Mr. Muthukrishnan Ravi, the MD of Manali Petrochemicals to take over.

Muthukrishnan Ravi

Thank you, Ashwin. So, we have a presentation put together for the benefit of the investors on our recent acquisition and I would like to take you through this. The company's name is Penn Globe Limited and it has 2 subsidiaries, Penn-White Limited and Pennwhite Print Solutions Limited. Before we start the presentation, this is a standard disclaimer that I would like to bring to your attention. We have uploaded this presentation on to the BSE server and I'm sure you would have seen it already. But all the same, the standard disclaimers hold since the presentation contains some forward-looking s

Yes, please go ahead.

Muthukrishnan Ravi

Yes, please.

So, I wanted to start with few questions. So, first is, do we plan to manufacture these Penn products in India and sell over here and other Asian countries or import from Europe?

Muthukrishnan Ravi

The intent is to actually start manufacturing here and sell in India and other Asian regions. Sir so, do we have any target in mind in terms of contribution expected going forward from Asian countries? I think you mean in terms of market share? Yes. So, we have to analyse that our focus obviously is to start with India and then we’ll slowly expand to other regions just like how we have done with Notedome. So, that would be our focus. So, I mean as you will know very well, Indian market itself is a huge market. So, we would like to tap onto that first before moving into while trying to again at

Sir, am I audible? First of all congratulations for the acquisition. I have 3 questions regarding this acquisition. First question is that I wanted to know what would be the potential impact of this acquisition on the top line and bottom line of Manali Petrochemicals on consolidated basis?

Muthukrishnan Ravi

Right. So, in the presentation, you would have seen that the top line of this company is somewhere around GBP 16 million. So, we can assume that number would be something that would get consolidated here and it has an EBITDA of about GBP 2.96 million in last year. So, around that number should be what we should be seeing going forward and obviously, our intent will be to improve on that. Sir, next question is that I have been referring the annual report for the last 3 years and consecutively, I have been noting one thing that our land issue with the Tahsildar is pending. What can you explain?

Hi sir, thank you for giving me this opportunity and congratulations for this acquisition. So, one 3thing I would like to know that since in MPL, we have currently close to 6% on the speciality chemical side and with this acquisition, it would be 16% and probably going forward, we will be targeting at 20% kind of specialty chemical contribution. So, just wanted to understand what sort of margin this Penn company was enjoying for last 2, 3 years and post this acquisition, what sort of margin addition we should be expecting?

Muthukrishnan Ravi

So, I think in the presentation, we had shown that our average gross margin was about 40%. And the average EBITDA margin was 22% for the last 3 years. It will be our aim to sustain and grow that number. And can we get the last 3 years top line growth of this company, Penn Globe? We can share it with you. I don't have it ready, but we can share it with you. So, my purpose was that only that how this the top end trajectory has been moving and going forward. I mean, apart from MPL growth, how this would be adding to our overall consolidated growth which basically industry would be targeting? Beca

My question is regarding the synergy that you were talking about. You said that there will be synergic benefits with this acquisition coupled with our asset in the form of Notedome and MPL, I just wanted you to elaborate as to what kind of synergic gains are we seeing in future?

Muthukrishnan Ravi

So, 2 or 3 things. One is on the raw material side. Like, I mentioned, polyols are used in the manufacture of anti-foaming agents. So therefore, Penn-White would have an advantage with Manali backing its raw material requirements. That's number one. The second thing is on the on the industries that we service. For example, we service food and flavouring industry. We go into medical and we have several wide applications in terms of our portfolio today as Manali Petrochemicals. So, when we create Pennwhite India ultimately, these connections that we have and the network we have will be leveraged

Sir, just 1 point on the valuation part. We got this company at a very nice valuation. I mean, we're speaking about speciality business while our is commodity and we have got it into similar kind of price. So, is it because that the last 3 years have been that you mentioned are because of that difficult supply chain issues and a lot of chemical companies got benefited and therefore, the margin is higher and therefore this valuation seems to be low or am I missing something?

Muthukrishnan Ravi

No, I think I would like to take credit for it through the negotiation process. But in reality, it is actually we paid what we thought was the right number given its potential and its performance. Obviously, we paid valuation for its worth in its current mode of operation. And like I said, in addition to that will be the benefit you get by recreating that in India, which is not factored into the valuation, which is why I think it gives a perception of being a good buy. Because these specialty companies then having 18% to 22% margin available at low valuation, I mean why would somebody sell the

See, from now on it will get reckoned in our books, right. So, today we closed the business. So ,from now on, the numbers will start reflecting on a quarterly basis. The crude oil price is here and there. So, I wouldn't say it has dropped because again it went up yesterday. Then you got lot of strike happening around the world. So, I wouldn't say that the crude oil prices have settled down. So, we have to just wait and watch.

Management

Chairman, You want to take that?

Ashwin Muthiah

I think, for us, I mean, let me answer that question. I think business growth is very important. So, everybody knows what is the cash position, which has been disclosed in the books of accounts. You also know how much has been basically set aside for overseas investments. So, it is very easy for you to know how much of cash is available in the company. So, with this cash, first of all, we need to implement our expansions in India, which have to be completed and we have reached a fairly advanced stage in getting all the approvals. So, construction will now start and money will be required to co

So, we've just got an approval for Rs. 100 crores for the PG expansion. And in terms of EBITDA margins, I don't think we can give you a forward-looking number. But we have seen EBITDA margins of Manali Petro over the past years. So, they would only improve on that with the PG expansion. Other than that, I don't think it's possible to give a specific number.

Management

Sir, I was reviewing the numbers of Notedome since the acquisition I think it was in around 2018 or 2019. Sir, there has not been any growth and profitability in Notedome. So, what actually is happening there? And why does it look so dismal? secondly, in the annual report 2021, I think you have mentioned that some of the products have been launched in India from Notedome. The revenue contribution is not very much visible. Is it still in nascent stage? So, a view on that also.

Muthukrishnan Ravi

So, in terms of Notedome, after the acquisition, we have had some problems with the raw material prices and availability, which has been the reverse that we saw in MPL. It was an extraordinary year that we saw in MPL last year, the exact opposite of that happened in Notedome because of the high raw material prices, they got hit being a specialty company and that caused numbers to go down significantly. We are slowly recovering from that situation now. In terms of India business, we are growing the India business. Today, the Notedome business in India on certain categories of products is close

So, I will just give a big picture, then Ravi could probably give some details. See, renewable energy in my view, cannot completely replace our conventional energy. So, wherever possible, we will try to use renewable energy, wherever possible we will move towards cleaner gases. So, this is something that we are constantly doing. But what I want to put down here clearly is there is no situation where completely renewable energy will take over conventional energy, because also we need to look at costs, right? Sometimes renewable energy is not cheap, it's expensive. So, you also have to look at c

Muthukrishnan Ravi

I think you're right because we can never move growth totally towards renewable energy. But our efforts are always in the direction provided the economics allows it and which is why we are signing agreements with wind power companies and solar power companies to generate the energy we want but still maintaining our requirements from conventional sources.

Well, on behalf of MPL management team, I thank one and all for participating in today's call. Of course, all your questions and the feedback are very valuable to us. We hope the interaction was quite informative, and we look forward to meeting you soon. Thanks a lot. Have a good day.

Muthukrishnan Ravi

Thank you. Thank you.

Thank you.

Management

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Speaking time

Muthukrishnan Ravi

Moderator

Anuj Jain

Anshul Mittal

Rohit Sinha

Gaurav Kumar

Ashwin Muthiah

Amit Doshi

R. Chandrasekar

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