Chembond chemical AGM 2023 notes:
Water treatment – gross margins are 47% , construction chemical -30%, Material technology-41%, Animal health-34%
- Water technologies grew by 26.5% – it comprises 50% of total group, Material technology-38% growth and is 30% of business, Animal health -6% contribution and had degrowth, Construction chemical contribution-5% and grew by 16%
- working capital increase- mainly due to increase in turnover. Net WC days we have improved our previous years
- There is plan to merge polymer with material technology is underway and may happen this year
- So many subsidiaries are there because 1) we did some acquisitions and it requires approval from customers and government authorities for it to merge 2) Some subsidiaries are due to legacy issues such as JV with MNC. We have started the process of simplification
- Water business- 50% of chembond consolidated. When we acquired JV partner stake it gave us more freedom to pursue strategies that we wanted to implement and it is bearing results. Industrial capex is helping the business growth on water treatment side. 12-15% growth is normal business growth. We have high gross margin but it is a service business hence employee cost is higher. 80% of employee cost is due to water business. This is why gross margin to EBIDTA margin translation is lower
- Positive for water business- RM cost is coming down. RM price increases pass on to customer trail by 2-3 quarters and we can see the same happening this year
- No change in manpower deployment strategies in water business
- On Industry level there is trend to moving to O&M model and we are positioning for that
- One change that we are driving is on technology front- operations are being digitized. they are both back and front end operations such as customer operating perimeters. We have digitized the safety and health segment
- Bio based products in water has been there for many years- but it has certain limitation. We have products in this segment but we do not see huge scale up
- Trend for recycling and reducing water usage is good for us as it requires investment by customer in water treatment
- We are increasing cross selling opportunities – that is helping us momentum in growth despite very strong competition
- We do not intend to get into membrane manufacturing business but will continue to innovate on chemicals side
- We are well positioned in all segments and will continue to grow but it may not be as high as last year
- Margins- if you look at 2 yrs ago margins were very low, then there was sudden spike price in RM but we passed on that with lag this year and hence margins improved. Margins may revert back
- Our gross margin are high and decent but EBIDTA is low as we continue to invest in business
- Challenges we see are – human resource will be challenge in 3-5 years. Keeping up with technology changes happening around world is a challenge and we are addressing both challenges by investing in both these areas ahead of curve
- We acquired two businesses 5-6 yrs back and we are scouting for other new opportunities for acquisition
- Material technology- getting approval is a very long process and takes upto 2 years. We are at approval stage with many customers. current growth is result of efforts done 3-4 years before. We have strong pipeline for approval with new product/customers that will drive business growth in future
- We grow in MT side by both new customer acquisition and larger product basket with existing customer
- Lower growth in last 7-8 years has to be looked with context that we exited a JV business which was 185 Cr and we recouped same revenue and grew in a very competitive market. That in our view is good performance
- RM prices were volatile last year and have stabilized now. Our customers also keep track of RM prices and as they come down they ask for reduction which we have to give
- Metal treatment chemicals margins are higher than sealant as sealant is bulk chemical business
- Bio science business has been challenging for last 2-3 years as demand went down and feed cost sky rocketed. We had internal factors as well. We have complete range of product – dairy and poultry. Poultry is larger business-80%. We are focusing on larger cooperatives. While focusing on business hygiene we will focus on growing the business. Margins has improved and will improve further this year
- We put up presentation on website after quarter indicating numbers on each business
- Construction chemical- has been old business but we have not focused much on that while we try to learn from our past. we are very selective in choosing customer. It is highly organized at top end and highly unorganized at bottom end.
- we are very strong in certain segment of construction chemical and will continue to grow in that. There are many smaller players entering compromising quality which we will not do to gain topline
- Higher receivables are due to execution cycle and nothing more. We have a policy of provisioning and we provide for receivables beyond certain number of days
- Capex has happened in sealant business- based on customer demand and forecasted growth. It should be completed within this year. Next phase of capex in this segment next year. Metal treatment and water treatment capex too shall get completed this year.
- Pheroze Sethna- we are consolidating the businesses within metal treatment business and hence there is some loss
- Q4 is the strongest quarter for us. Q1 FY 24 was the best Q1 ever.
- Legal professional fee is higher due to people employed as consultant and nothing else. Legal fees is very small most of the expenses is part of professionals deployed as consultants
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