Transpek AGM 22 August 2023 at Vadodara

Chairman Speech:

Segment wise demand: Pharma and Agrochemical were subdued but polymer was better. Innovation in Polymer endues also contributed to growth

Company is among the largest player in Acid Chloride globally. Now also intend forward integrate and develop Non-Acid Chloride products which used acid chloride products as raw material. Also looking at developing products which address high growth market such as electronic chemicals.

Despite challenging environment, Transpek achieved highest annual sales volume and profit. However, Q1FY24 results were adversely affected by destocking in chemical chain. The management expect further 3-6 months slow down in the market and then recovery post December 2023.

Long term outlook for the company is positive but short term may be challenging. High energy price in Europe affected the end-use demand. Further, normalcy in logistic issue faced in past, resulted in stable supply and hence destocking of inventory whole chemical chain to normal level, which is working against volume growth. Further, competition in Acid chloride market has also increased with new players attempting to gain market share at cost of profitability.

In order to address this issue, the company is attempting to increase cost competitiveness in existing products, develop newer products/application/ geography. Recently company added new customers from Brazil/Japan/Korea which were not conventional export market for the company. It has also increase focus on sustainable manufacturing which increasing recycling of affluents.

The capacity growth for the company continues to be adversely affected to policy indecision about Ekalbara site. While pursing with regulatory authority for approval of new capacity, the company is simultaneously exploring alternative location for new greenfield expansion for future growth. During FY24, it intends to spent Rs 25-30 Cr on maintenance capex.

On sustainability The Company has continued membership with EcoVadis, and achieved Silver rating in EcoVadis audit. The Company is a member of the Indian Chemical Council and has taken many steps to implement ‘Responsible Care’, a globally recognized Chemical Industry initiative. Such relationships assist company in speeding approval of audit by large MNCs clients which are looking at use company’s product.

Question and Answers:

New Products: The company is pioneer in Chlorination technology. Thionyl chloride is base product which is used for Acid Chloride. The company has developed 3-4 new products which use Thionyl Chloride but are non-acid chloride products. New products current production volume is small but few of products have potential to reach Rs 100 Cr annual peak turnover in long term, while most other products are likely to reach annual peak turnover of around 30 Cr per annum. Peak turnover has assumption of price and full utilization of capacity of the company for the company being manufactured. This assumption may undergo change, so figure shall be considered more as indicative of market size and then actual sales.

Based on market enquiries and customer interaction, the company aspire to grow at 50-70% in next 3-4 years. Electronic chemical which are light in weight are increasingly going to get more usage in Electric vehicle (EV) replacing metal. Complex Polymers have higher strength and lower weight as compared to metal which place them at competitive advantage vis metal in EV. The company anticipate increased polymer use would also result in higher demand for its products which may work as raw material for polymers and hence optimistic about the prospect.

In current long-term contract, which is used in polymer, price is cost+margin basis. Company expects it EBITDA margin to remain in range of 16-20% of sales.

Previously company was selling Thionyl chloride in domestic and export market. However, 2018 onward, Thionyl chloride is captively used to manufacture value added products and exported. As a result, share of domestic market in total sales declined in past few years. The company is putting efforts to increase domestic market volume in medium term.

Approach to identity new product development: The company at times get enquiries from MNCs/existing clients which are looking at new product launches. Further, it also observes import export data in Indian market to explore potential target market segment new products. It also evaluates sustainability of products and its operational efficiency (which results cost competitiveness) for while exploring new products.

Transpek may also explore acquisition of certain capacities in case manufacturing base appropriate to company strategy is available at reasonable value. Hence, would continue to keep liquid investment on book for medium term.

Disclosure: Transpek is among top 12 holding in my equity portfolio. My view may be biased due to my investments. I am not SEBI registered advisor. I am not recommending any investment action. I may buy/sell above mentioned stocks without informing forum. Investor shall do their own due diligence before making any investment decision.