Notes from the AR, Conference calls from 2016 to 2023:

Management:

• Yogesh Kothari (CMD): Aged 74 years; Chemical Engineer from Institute of Chemical Technology, Mumbai; Master of Management Science and MS-Chemical Engineering, from the University of Massachussets, Lowell, U.S.A. ; promoted this company in 1979. 37+ years of experience in chemical industry. First-generation entrepreneur and ex-President of Indian Chemical Council.
• Kirat Patel (ED): aged 70, B. Tech. (Mech.) from IIT, Mumbai, and M.M.S. (Finance) from Jamnalal Bajaj Institute of Management, Mumbai. Working with the Company since its inception.
• Suneet Kothari (ED): CMD’s son. Aged 47 years. Chemical Engineer, Chemistry/Biochemistry Graduate from Cornell University, U.S.A. and MBA from INSEAD, France. Joined in 2001.
• Rakesh Goyal (Whole-time Director – Operations): Effect from June 1, 2022 to May 31, 2027.
  • Joined in April 2018 as COO.
  • Aged 55 years; B. Tech (Chemical) from IIT, Kanpur. Diploma in Business Management from ICFAI, Hyderabad. 28 years of experience in manufacturing, Technology Transfer, Process Development, Quality Management and Sales and Marketing. Earlier, he worked with National Peroxide Limited (NPL) as VP (Operations) for 4 years, Jesons Industries Limited as VP (Operations) for 1 year, The Dow Chemical Company for 10 years in various important positions in Process, Control engineering, Technical departments and eventually as Global Improvement Leader, Hindustan Unilever Limited for 5 years as Manufacturing Manager and in NOCIL Limited for 4 years as Process Engineer Officer.
• Ms. Kanchan A. Shinde (CFO): w.e.f. May 19, 2022. Kirat M. Patel was CFO up to May 19, 2022.
  • Experience of 18 Yrs. in Finance, Accounts, internal controls, financial analysis, and taxes.

Key Points:

• Methyl Amines: Not easy to transport in large quantities since it is gaseous and needs pressure vessels. Hence, least affected by import. Only 3 suppliers [Alkyl, Balaji, and RCF] in India.
• Size of projects is not that large for larger companies to come and invest in India. So, it is a niche sized area which is comfortable for us and local competitors. Industry is ~duopoly.
• Local manufacturers are preferred as Just-In-Time delivery is expected since products are hazardous and consumers do not want to import and store in large quantities.
• Amine molecule is very versatile one and used in many medicines. Repeat customers…99%.
• EBITDA margins sustainable? Will not go back to the EBITDA margins of the old days (i.e 18%) as fixed costs are distributed over a bigger scale of manufacturing. 30% kind of margin seems difficult. Margin volatility (20%~35%) has some buffer due to specialty products.
• As cost structures are similar for competitors, prices settle to acceptable level in the market.
• Balaji Amines overlap in ~ 50% of our sales. 3rd player RCF is a significant player in methylamines and they do overlap some of their products, more with Balaji then with us.
• Industry and Sales %: Pharma 50%, Agrochem 20%, rubber chemicals 5~10%, and Others 20%.
• Nature of contracts: Usually 1~3 months.
• Plants: 2 plants at Patalganga (MH), 3 plants at Kurkumbh (MH) and 12 plants at Dahej (GJ).
• Palette ~100 products, 30~40 under active sale, 8~10 under R&D. Mkt. Size: C1 (methylamine) > C2 (Ethylamines) > C3 (Isopropylamine). C4/5/6 are smaller markets. 3 Product categories:
  • Aliphatic Amines: 50% Volume. E.g., Methyl, Ethyl, and Others – Isopropyl, butyl
  • Derivatives of Amines: 30% Volume
  • Specialty: Products that do not use amines, 20% Volume. E.g., Acetonitrile, DMA HCL
• Acetonitrile: Manufactured from acetic acid and ammonia (no side products). It’s a growing product, used as a solvent, no cheaper alternative. Established a market with quality and the service and will continue to do better. Total capacity ~30,000 TPA & ~ 65% utilization.
• Expect 15% volume growth in FY24

Capacity:

• Max. utilization can go up to 95% | Amines capacity ~100,000 tons. Plus 30,000 tons (Ethylamine) by mid of FY24. 3 yrs. down the line another 45,000 tons (Methylamine). Acetonitrile capacity ~30000 tons. The other products capacity is fungible: 10 TPA to 40 TPA. Methylamine, Ethylamine, DMA HCL, and Acetonitrile all over 10,000 tons.
• Building capacity takes ~2 years. Utilization ~3 years. Later do incremental debottlenecking.
• Expect progress on new land request by mid of FY24. Capex (excluding land), in '23, '24 and '25 would be about Rs300 crores, Rs200 crores and Rs100 crores, respectively to launch 3~4 specialty and derivative products, and may add ~15% to 20% to top line and hopefully a larger portion to the bottom line.
• DMF (Dimethylformamide): Do not have the capability but have the process and may do it after enough inhouse methylamine, which is needed for DMF, capacity.

Risks:

• Growth comes from the growth of clients, primarily Pharma and Agrochem Industry who face competition from Chinese manufacturers
• Energy Intensive business: Requires coal to make steam needed for distillation process
• GPM fluctuation: Raw material [Major ones - METAHNOL, Ethanol, Ammonia, isopropanol, coal, and acetic acid] prices change with crude oil, but finished goods prices as they are mkt. driven [Import Prices, local competition to gain market share].
• Pricing driven by market based on prevailing prices of finished goods (import landing) as well as raw material, and the intent to maintain market share. Most of the products are import substitute. Hence, imports price is the benchmark to price the finished products.
• Operating in the intermediate business. No plan to forward integrate and step in to customer area. Hence, limited opportunity for further margin expansion.
• Upgrading plants to be ZLD, but no plan to operate with ZLD. If enforced, it will add to cost.
• Limited Exports opportunity. Established large players in the USA, Germany, and China. Opportunity improves only if anyone stops further manufacturing of these products.

Overall Impression:

• 15% volume CAGR in the long term [Growth of 8%~12% per annum for a longer period with boost of 30%-40% in 4-5 years when establish a new Aliphatic Amines plant]
• EBITDA at least 21%
• Continuous capacity addition (debottlenecking or new plant) with internal accruals.
• Customer Stickiness | Clear communication & Transparent Responses | Avoiding predictions of the future earnings - No comment on product prices, Margins, Qty and WIP products
• Expected (transcript of May 20, 2022) sales of 3100Cr. and Op. Profit of 750Cr. by FY25. | Contributors: Growth in the Traditional Business, 1.6x of upcoming commissioning of the EthylAmines’ new capex (400Cr.)+, ~100 Cr. from Diethylketone, and 20% from new 4~5 special products | Capex FY23, FY24, and FY25 – 300, 200, and 100Cr. respectively.

Disc: No Position.