Hello Sir,

Hope you are doing well.

Last 2 years have not been very good for chemical based stocks. Their realizations have come down, margins contracted and PE ratios have also contracted. A lot of stocks are down 40-50% from their highs.

Source: May’23 IG Petrochemicals presentation

Recently, we came across IG Petrochemicals which claims to be India’s largest Phthalic Anhydride manufacturer with more than 50% domestic market share.

On a cursory glance, the numbers looked interesting and we decided to dig deeper.

Below, we have shared interesting insights from the Q4 FY 23 con-call of the company. Hope you find the details useful for your own investments or to add the stock to your watch list.


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IG Petrochemicals – Insights from Q4 FY 23 con-call of the company

– About Business

  • Our primary product is phthalic anhydride (PAN)
  • Traditionally, phthalic anhydride has been used in industries such as paint, plasticizers and CPC pigments
  • Today, phthalic anhydride is ingeniously used in production of plastic currency, paper boards, leisure boats, windmills, sails, aircraft wings and many more
  • At our Taloja facility, we produced phthalic anhydride, maleic anhydride, benzoic acid and advanced plasticizers
  • At present, we have installed capacity of 2,22,000 metric ton per annum of phthalic anhydride
  • Maleic anhydride and benzoic acids are key by-product created through wash-water while producing PAN, the cost of producing these byproducts is insignificant to us and reflects positively on profitability
  • Our long-term vision is to become a well-diversified chemical company while maintaining a leadership position in the phthalic anhydride industry

– Expansion

  • Expansion of our phthalic anhydride at PA-5 unit is on track and expected to commercialize before March ’24
  • This will add another additional 53,000 metric ton of phthalic anhydride and nearly 2,500 maleic anhydride, contributing to more than INR 500 crores of revenue
  • We have already spent around INR 240 crores on this expansion and planning to complete between INR 350 crores to INR 355 crores this expansion
  • In order to expand our business in downstream, specialized plasticizer and UPR, we are evaluating a couple of land options for the future leg of expansion

– Maleic Anhydride

  • The raw material for maleic anhydride is not available in India, plus the capex to put up a maleic plant is very high. So that is the reason in India, there is no maleic anhydride capacity which have come in
  • Our raw material cost is 0 to produce maleic anhydride because we are using the affluent of PA. The total production, which is there, whatever we produce comes directly into our EBITDA margin

– Phthalic Anhydride

  • The phthalic anhydride plants, which are there, there is a huge constraint on the raw material, which is orthoxylene and the only player in India or in this whole region, there’s one producer, which is Reliance
  • One of the customers which have expanded in the phthalic business is finding it difficult to get the source of supplier of orthoxylene. And import of orthoxylene is almost 30% to 40% more expensive than the prices what we are getting out of Reliance
  • We have been buying orthoxylene from Reliance from FY’98 onwards when they started their Ox production. So they have assured us that they will continue the supply to IGPL, even with our increased capacity
  • Today, most of the PA producers which are there now are in Asia region, which is China, Korea and Taiwan. It has become uneconomical in Europe and America to put up these capacities because of capex and the non-availability of orthoxylene

– Non Phthalic Anhydride contribution

  • In the next 2 years we will basically diversify the company into other products other than phthalic more than 20% to 30%
  • Currently, what plasticizer we are producing is going to bring in the revenue of about INR 90 crores. But we are looking to open a new site, which will add another INR 1,000 crores to INR 1,200 crores on the plasticizer business and the downstream of phthalic and maleic anhydride business
  • if we are talking about downstream plasticizers, it would cost between INR 150 crores to INR 160 crores, which will add around INR 1,000 crores to INR 1,200 crores of revenue. And that will be also over the period of 12 to 18 months

– Guidance

  • For FY ’24, it will be similar to what it has been the last year. The only thing which has changed is our DEP, which was operating at around 30%-40% will be at around 80%-90%
  • The true performance will come in FY’24-’25 when we have the new phthalic unit starting operation, along with the maleic and the benzoic acid, which will add around roughly INR 500 crores to the revenue
  • With the cash flow and the balance sheet strength, we are looking to diversify into value product, specialty chemicals, downstreams of phthalic anhydride and maleic anhydride, which will add value



Disclaimer: This is not a recommendation to buy/sell IG Petrochemicals. The securities quoted are for illustration only and are not recommendatory.


Best Regards,

Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.com/


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