DMCC Speciality Chemicals LtdQ3 FY20Chemicals & Petrochemicals

DMCC Speciality Chemicals Ltd

Q3 FY20 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

Yes

Order

N/A

Capex

Yes

2 of 4 growth signals are positive.

Full analysis

Revenue guidance

Category 3

→The company expects growth driven by expansion into specialty chemicals, including pharmaceuticals, agrochemicals, pigments, dyes, paints, and coatings sectors.
→New and existing products, especially in specialty chemicals, are anticipated to scale up with increased traction, despite slower-than-expected initial growth due to COVID-related delays.
→Domestic and overseas markets have returned to pre-COVID normalcy, with reasonable demand and operating revenues.
→Planned debottlenecking at Roha will expand production of specialty products, adding to specialty revenue without drastically changing sulfuric acid sales.
→Long-term demand for sulfones (thermal paper coatings) is expected to return once normal activities (stadiums, cinemas, airlines) resume.
→Capex investments aim for roughly 2x revenue from new plants, with a mix of dedicated and multipurpose facilities.
→New projects expected to be commercial and improve cash flows and return ratios fully by FY23, assuming no disruptions.
→Overall, growth is driven by product expansion, capacity utilization, and targeted investments in higher-value specialty chemicals.

Margin guidance

Category 3

→Company expects growth driven by ramp-up of existing specialty chemical products and new dedicated plants.
→Domestic and international markets showing signs of returning to pre-COVID levels, supporting revenue growth.
→Expansion capex aimed at specialty intermediates and custom synthesis with planned investments at Roha and Dahej sites.
→Anticipated 2x revenue generation from new intermediate projects with similar margin profiles as sulfones.
→Bulk chemical margins expected to remain lower than specialty chemical margins; overall gross margins stable.
→Growth in mature products expected if market normalcy continues.
→No major new investments planned in bulk chemicals beyond current projects; focus on specialty chemicals.
→Profitability may improve as new plants stabilize and optimize production.
→External uncertainties remain (pandemic waves, commodity price fluctuations) which can impact near-term outlook.

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Fundraise plans

Yes

→The company is undertaking its largest-ever capex, with multiple projects extending up to December next year.
→They plan to fund the capex using roughly a 2:1 debt-to-equity ratio.
→Around ₹70 crore of loan is anticipated for this capex.
→Interest rate on loans could be around 4-5% if converted to foreign currency loans; otherwise, 9-10% in Indian Rupees.
→No specific mention of new equity fundraising; focus is on debt financing combined with equity.
→The company emphasizes they are not extensively extending equity, aiming to maintain reasonable return on equity.
→Management is confident about achieving planned cash flows from ongoing projects.

Order book

The document does not explicitly mention the current or expected order book or pending orders for Dharamsi Morarji Chemical Company Limited. However, relevant insights inferred are: - The company has ongoing discussions and agreements with clients for dedicated specialty chemical plants, indicating confirmed orders or contracts. - There is reasonable confidence expressed by management in achieving planned cash flows from current projects based on customer discussions and existing supply. - The company continues investing in R&D and has products at various development stages, suggesting a pipeline but no quantified order backlog. - Demand from overseas and domestic markets is returning to pre-COVID levels, implying positive order inflow. - No precise figures or definite pending order backlog data are disclosed in the provided transcript.

Capex plans

Yes

→Ongoing and upcoming capex includes expansion of specialty chemicals, intermediates for pharma and agrochemicals, and bulk chemicals.
→Large investment at Dahej to create a second site similar in size to the Roha plant, including multipurpose and dedicated plants.
→Capex includes a 50 crore investment in a sulphuric acid plant supporting both internal consumption (50%) and external sales (50%).
→Additional investments include about 10 crore for two multipurpose plants (total), 20 crore in recently developed intermediate products, and debottlenecking to expand production at Roha.
→The capex is the largest in the company's history, estimated to generate approximately 200 crore in revenue per 100 crore investment once plants run at full capacity.
→Planned maintenance shutdown and restructuring have impacted recent operations; new investments signal a strategic growth phase.
→Financing planned at a ~2:1 debt-to-equity ratio; options include foreign currency loans at 4-5% or INR loans at 9-10%.
→Continued R&D investments for globally competitive processes and development of new products are ongoing.

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