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“Our future expansions will revolve around derivatives segment to boost captive chlorine consumption”

25 Nov 2022 10:31 IST

Specialty chemical manufacturer Meghmani Finechem Ltd (MFL) has taken a giant stride in its operational efficiency with special attention on value accretive business segments over the last few years. With the existing business achieving a scale, the company now plans captive utilisation of raw materials to produce value-added products for better realisation and profitability, says Maulik Patel, Chairman and Managing Director, Meghmani Finechem Ltd, in a tete-a-tete with Dilip Kumar Jha of Polymerupdate. Edited excerpts:

MFL commissioned the ECH plant in Q1FY23. What is the current capacity utilisation and how does it pan out for the future?
In June this year, we commissioned India’s first epichlorohydrin (ECH) plant based on the glycerol process with an installed production capacity of 50,000 tonnes. Our ECH plant uses glycerine as its major raw material and therefore is 100 percent renewable, which eventually translates into lower consumption of energy and water, hence saving carbon footprint also. ECH is an import substitute, and hence commissioning of this plant would reduce India’s dependence on imported products.

An estimated 80 percent of ECH is consumed for manufacturing epoxy resin which is further used in various industries such as paint, automotive, construction material, windmill, adhesives, and electronics, among others. The remaining 20 percent goes towards various applications in the pharma sector, water treatment, and paper chemical making. Our products have been approved by consumers. We are presently operating this plant at 25-30 percent, but given the current situation, we expect the capacity utilisation will ramp up and give us a sizeable volume by the end of the this financial year. A local supplier like us would help raise production capacity and outline a long-term business plan for the downstream producers. ECH also offers opportunities for global markets too which eventually we are exploring.

Why such a low capacity utilisation despite ECH being an import substitute?
The actual production volume will pick from the fourth quarter of the current financial year as major downstream producers globally sign a yearly contract with ECH suppliers. We are also in talks with a large number of domestic and global consumers and are in the various stage of signing contracts. The production volume which we saw in the first and second quarters, started going up in the third quarter. So, we will get the full advantage of ECH in the next financial year. We aim to achieve 80 percent of capacity utilisation in FY2024.

What is the status of the contract signing for ECH?
Our dialogues with a number of downstream consumers in both domestic as well as international markets are in various stages of completion. Presently, we are talking with them about the volume of picks up. We have already delivered a trial quantity to a large number of companies through ISO tanks, and are in the process of increasing its volume as time progresses. We are jointly working with our buyers on the logistics front as some of our potential buyers exist in the United States and Europe. So, we are working out next year's planning which will be finalised at the beginning of the fourth quarter.

Which factors would you like to attribute to the 3X growth in the September quarter net profit?
In the September quarter, the major growth came from the realization of our products. Global manufacturers are taking surcharge from end-users over and above the index value of chemical and petrochemical products due to a sharp increase in energy prices in Europe which emanated from Russia’s invasion of Ukraine. So, all companies started exporting to the European region to make extra bucks. For us, the value realisation from caustic soda, chlor-alkali along with other derivatives was very high. While the European demand went up despite higher realisation, the actual demand has gone down in the third quarter.

Do you envisage this trend to continue in the rest of the quarters this year? Any impact of the global economic recession?
The demand for the products linked with infrastructure was impacted in the United States and European countries due to high-interest rates. As we see the interest rate is stabilising with the last hike possible in December, we expect the demand for our products would start coming back on the positive side from the first quarter of the next financial year. The realisation for some of our products cooled down a bit, but products like caustic soda continued to fetch us a better value. Since we are manufacturing various products catering to a number of industries, we are the least impacted.

Finally, the recovery in demand in the quarters to come will add to the volume and thereupon topline and bottom line going forward. Products such as hydrogen peroxide and chloromethane were not impacted due to demand slowdown at all as they are very difficult to transport to a long distance. Being a value-added product, our CPVC output was also not impacted. The sustained price decline in PVC, the raw material, was majorly nullified by the increase in demand from the domestic infrastructure sector.

Is MFL considering expanding its CPVC capacity at its recently commissioned plant at Dahej?
We have already announced an expansion in the chlorotoluene & it’s value chain project which is moving as per schedule. We have recently commissioned 30,000 TPA of CPVC capacity against the Indian requirement of 180,000 TPA. So we expect CPVC demand to witness a double-digit growth in the next few years which brings the production capacity increase in this segment of business to our top priority. On achieving the optimum capacity utilisation by the fourth quarter, we might consider further CPVC expansion. But, we do consider this high potential segment for capacity expansion.

What is MFL’s annual capex across all product categories?
We intend to invest Rs 350-400 crore in the next financial year mostly on the derivatives side. Our strategy is very clear for the next two years. We want to consume the maximum chlorine coming out of our chlor-alkali plant. In the last phase of expansion, we reached 60-65 percent of integrated chlorine consumption as downstream or pipeline customers which we would like to achieve 80-85 percent in the next two years. So, our all future expansions will come on the chlorine derivative side. Funding of this capex will be done through a combination of internal accruals and debt.

What fraction of your annual turnover comes from exports now and what is your strategy to generate more dollar revenue in the future?
Our export revenue works out to a mere 6 percent as of today which we estimate to increase to 10 percent by the current year-end. Given the immense opportunity available, our export revenue will continue to increase year after year to achieve 20 percent in the next two years as our products are export-oriented.

Does unfavourable business and economic environment in China offer an opportunity for Indian companies like MFL?
Both Europe and the United States are currently undergoing unprecedented economic and trade challenges. Exorbitantly high energy costs make some of the production units unsustainable in Europe. Also, China is facing a resurgence in Covid cases which alarms trade disruptions. So, the downstream industries in Europe are looking to source from third countries for which India is the preferred option. Amid this situation, India is bound to get benefits in terms of the higher volume of export orders.

What is your renewable energy foray and how much cost savings do you envisage in the next two-three years from lower energy consumption?
We have entered into agreements with Renew Green Energy Solutions to set up a captive wind-solar hybrid power project which will mark our foray into the green energy segment. The 18.34MW plant will come up near Bhavnagar and will be commissioned in the January-March 2023 quarter. This will help us reduce our power consumption per unit cost by 25-30 percent.