AksharChem (India) LtdQ1 FY17Chemicals & Petrochemicals

AksharChem (India) Ltd

Q1 FY17 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

Yes

Order

Yes

Capex

Yes

3 of 5 growth signals are positive.

Revenue guidance

Category 3

→AksharChem expects around 10% revenue growth in the coming financial year (FY 2018), driven mainly by volume growth in Vinyl Sulphone and expanded capacity in Pigment Green. (Page 3, 5)
→Most capacity expansion-related revenue is anticipated from FY 2019 onwards, as the ongoing Rs. 175 crore expansion projects are scheduled for commissioning in the next 12-15 months. (Pages 3, 5, 10)
→Vinyl Sulphone utilization is expected to increase from around 76% to above 85% in the current year. (Page 15)
→CPC Green Pigment capacity expansion (480 tonnes) is expected to come on stream from Q2 FY 2018, with projected 70% utilization in the last two quarters. (Pages 9, 16)
→The Precipitated Silica division aims for approximately 25% margins, representing a new product line contributing to growth. (Page 18)

Category 3

→Revenue growth is expected at around 10% going forward, with major contributions from Vinyl Sulphone and Pigment Green businesses (Page 3, 5).
→EBITDA margins are projected to be sustainable between 25% and 30% (Pages 3, 8, 16).
→Expansion projects, including backward integration in CPC Green with CPC Blue Crude, will improve margins by 2-3% EBITDA once fully operational by 2019-2020 (Pages 3, 10).
→Most capacity expansions’ revenue impact will be visible from FY19 onwards (Page 5).
→Vinyl Sulphone volume and capacity utilization improvements are expected to support growth (Pages 3, 5).
→The Precipitated Silica division venture is projected to deliver approximately 25% margins (Page 18).
→Focus remains on specialty chemicals with improved efficiency and technology, aiding margin protection (Pages 16, 18).

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Yes

→Currently, AksharChem has begun its Rs. 175 crore expansion using internal accruals.
→The company sees no immediate need for debt or equity funding at present.
→For future fundraising related to expansions, they are open to considering a combination of debt and equity.
→The decision to raise funds via debt or equity will depend on the requirements as the project progresses.
→As of now, strong internal accruals are supporting expansion activities without external fundraising.

Yes

→AksharChem currently has a strong order book position with about six months of orders in hand.
→The company maintains full order capacity and strong demand, reflecting confidence in their product mix.
→They have significant repeat business due to unique products with long-term customer relationships.
→The company is operating at full capacity for the CPC Green business.
→Post expansion, AksharChem aims to dominate approximately 17%-18% of the global CPC Green market.
→Expansions underway include capacity increases and backward integration to improve margins.
→Specific long-term contracts account for around 30%-35% of business but details are closely held.

Yes

→Approved capital expenditure plan up to Rs. 175 crores in Specialty Chemicals, Dyes and Intermediates, and Organic Pigments.
→Backward integration in the CPC Green business by manufacturing CPC Blue Crude to improve margins.
→Capacity expansion of CPC Blue planned at 150 tonnes per month.
→CAPEX for H-Acid plant is Rs. 25 crores with a capacity of 1,200 tonnes per annum.
→Expansion work has started and is on schedule for commissioning in the next 12 to 15 months (around 2019-2020).
→Specialty Chemicals capacity expansion includes 10,000 tonnes with projected 25% EBITDA margins.
→CPC Green expansion of 480 tonnes expected to come on stream from Q2 FY 2018.
→Expansion primarily funded through internal accruals, with options of debt and equity open for future funding.

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