In interaction with Maulik Patel, Chairman and Managing Director, Meghmani Finechem Limited
"The company's current growth driver is its product portfolio: Chlor-alkali, Chloromethanes, and hydrogen peroxide. Demand for all these products is expected to increase in the coming years and hence, there will be growth led by these segments" says Maulik Patel, Chairman and Managing Director, Meghmani Finechem Limited.
Q1. What are the downstream products/opportunities actively considered by your company?
We have consistently focussed on the speciality chemical segment/value-added derivative Chlor-Alkali segment to maintain healthy margins and ROCE. This has helped us explore new opportunities, which will be favourable to the shareholders of the company.
Q2. What are your expansion plans for FY22 and beyond?
As of today, the product basket of Meghmani Finechem consists of caustic soda, caustic potash, Chloromethanes, and hydrogen peroxide. Our strategy was to get into value-added derivative products, and in line with that, we started producing Chloromethanes in FY20 while hydrogen peroxide in FY21. In the future, the company will be expanding its presence in Epichlorohydrin (ECH) and CPVC resin segments. ECH and CPVC resin are currently imported to meet the local demand. The demand for both the products is expected to grow by approximately 10 per cent to 13 per cent CAGR in the coming 5 years.
Q3. What are the major challenges faced by the company to achieve its growth targets?
For a company like ours’ and the sector that we come from, the major challenge is initiating a new product line, acquiring relevant technology, successful & timely completion of new plants, and thereafter, implementation of operations in improving efficiency to gain better margins.
Unexpected events such as COVID-19, which can delay the completion of the plant and impact demand from the customers due to lockdown, also have to be considered. However, our approach is to play upon our strengths to tackle a different range of challenges. Having technocrats coupled with professional management, a well-invested plant in a strategic location, and a fully-automated manufacturing facility has helped us weather difficult situations. Even in the current unprecedented times, the company has performed better compared to its peers and also, completed expansion plans on time.
Q4. What steps are being taken to improve your RoE?
We are quite focussed on rewarding our shareholders and that has been our main agenda for many years now. The management is strategically planning to get into new speciality chemical products, which will leverage our core strength and improve the company's margins. In addition, on account of our fully-integrated manufacturing facility, we can improve our cost of production and achieve a balance between debt/equity to ensure better ROE. So, considering our strategy, we expect our ROE to improve down the line.
Q5. How do you plan to minimise your debt levels?
As of FY21, the debt/EBITDA of Meghmani Finechem Ltd stands at 2.1x compared to 2.7x in FY20; this is at the stage when we have a huge Capex. Even in FY22, we will spend a significant amount on Capex, and even after that, we will be able to maintain a ratio of debt/EBITDA in the range of 2.1x to 2.7x. However, the debt/EBITDA ratio for the overall chemical industry is mostly at 3.0x. We can achieve lower debt/EBITDA because of our focus on prudent working capital management, moderated borrowing cost, and lower gearing. We are very much focussed on the payback period of the new projects that we are undertaking along with managing our units efficiently.
All these efforts will help in improving our margins. As a result of these steps, we will generate high cash flow from operations to minimise the debt. Also, timely implementation of plant expansion will improve earnings and hence, will further reduce debt.
Q6. What are the major growth drivers for your company?
The company's current growth driver is its product portfolio: Chlor-alkali, Chloromethanes, and hydrogen peroxide. Demand for all these products is expected to increase in the coming years and hence, there will be growth led by these segments. Also, FY22 will be the year when our hydrogen peroxide plant will be utilised for an entire year.
The medium-term growth drivers are the new product segments that we are entering, i.e. Epichlorohydrin and CPVC resin along with the additional capacity expansion in Chlor-alkali production. As mentioned previously, ECH and CPVC are currently imported in India while demand for both products is expected to grow at a CAGR of approximately 10 per cent to 13 per cent. Hence, there is a vast scope in these two products. Full utilisation of the existing capacity and new capacity additions will lead to further growth.