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Hope you are doing well.
Recently, I was scanning through some stocks and came across Meghmani Finechem which is one of the largest Chlor-Alkali and its derivatives manufacturer in India.
Source: Q4 FY 23 Meghmani Finechem presentation
On reading further, found out that the company is transitioning from Chlor Alkali to its derivatives and specialty chemicals segment.
What’s interesting is that the company’s operating margins are very high at around 30% and the management targets 25% ROCE when setting up any new project.
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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Meghmani Finechem – Insights from Q4 FY 23 con-call of the company
– About Business
- Currently, in-house chlorine consumption is around 65%
- As we are again increasing the capacity of CPVC, resin, plus entering into chlorotoluene. So, we expect that when both these plants are commissioned, the 65% will move to 75% and then further products will lead this to 85%
- In FY ’23, the exports as a company put together is around 4%. And considering the ECH export that we are expecting in next year, that percentage would go somewhere around 9%-10%
- Caustic soda – Capacity utilization around 78% on increased capacity of 410,000 TPA
- ECH realization would be revolving somewhere around 1,20,000 to 1,25,000 TPA
- CPVC realization would be somewhere around 1,50,000 to 1,60,000. Anti-dumping duty is available for the CPVC resin
- Capacity utilization – CPVC, it has run at the capacity utilization of around 90% (of the 30,000 TPA already commissioned). H2O2, it’s somewhere around 98% to 100%. in ECH the capacity utilization is around 40% (in Q4 FY 23)
– Q4 FY 23 performance
- In Q4 FY 23, we witnessed volume growth of 15% YOY and 13% on QOQ basis. Even after realizations for all the products had cooled off, we were able to witness growth in top line on account of volume contribution from existing as well as new products
- Volume growth of 15% majorly coming from the commissioning of the new capacity that is ECH and CPVC and partially from the existing product
- EBITDA de-grew YOY basis on account of decrease in realization and consumption of the high-cost inventories
- In Q4 FY 23, derivatives and specialty chemical segment contributed 38% to the top line versus 19% in Q4 FY 22
- Contribution from derivatives and specialty segment will keep on increasing as CPVC and ECH will contribute in sizable way in FY ’24 and also because our all-future expansion plans are towards this segment for the business
– FY 23 performance
- On annual basis in FY ’23, we grew by 41% as revenue from operation to INR 2,188 crores backed by high realization and volume growth of 9%
– CAPEX
- In FY ’23 in total we spent INR 416 crores on capital expenditures. The same was INR 456 crores in FY ’22
- In FY ’23, we commissioned CPVC resin, epichlorohydrin, and additional capacity of caustic soda
- This new and additional capacities have contributed marginally for the year as a whole and will contribute in a sizable way in FY ’24
- The capex that we are already working on in FY ’24 towards additional capacity of CPVC resin and chlorotoluene and its value chain will bring volume growth in FY ’25
– Debt
- Our net debt has decreased by INR 112 crores to INR 877 crores in FY ’23 versus INR 989 crores in FY ’22
- In FY ’23 we have redeemed the preference share of 62 crores and have outstanding at 150 crores as on March 31, 2023 compared to INR 211 crores as on March 31, 2022
– Guidance
- For FY 24, we expect volume growth in the range of 15% to 20% and that will drive the value growth somewhere around 20% +
- our margin would be in the range of 28% plus minus 2 and that is something which can sustain for a longer period of time
- We are focusing to reach 5000 crore sales by FY 27
- In the next five years our strategy is very clear we are going to focus 100% on the derivative side only
(End)
Disclaimer: This is not a recommendation to buy/sell Meghmani Finechem. The securities quoted are for illustration only and are not recommendatory.
Best Regards,
Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.
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