India Chemical Conference 2022

Key takeaways – Day 1

Conference Note | 28 March 2022

Axis Capital’s India Chemicals Conference 2022 comes in the backdrop of accelerating
exports (aided by China +1), improving domestic demand and all-time high capex plans,
but concerns on volatility in raw material prices (global supply chain issues) and possible
delays in pass-through of RM inflation. On Day 1 of the conference (March 28),
we hosted management of 5 companies (11 more companies scheduled for Day 2) to
have view on their growth prospects and how they are managing RM volatility.

Key panel discussion/ speaker session

 Panel discussion on ‘CRAMS opportunity: What next after the agro-chem led boom’
 Speaker session on ‘Green Hydrogen and changing industry dynamics’

Panel discussion: CRAMS opportunity

 Anurag Surana – Industry Consultant
 Anand Desai – Managing Director, Anupam Rasayan

Speaker session: Green Hydrogen

 V. Vinay – Adventz Group

Anurag Surana – Industry Consultant

India has a revenue share of USD ~1.5 bn in USD 60 bn market opportunity globally
(growing at 5% CAGR) and offers a huge scope for growth as outsourcing rate is much
higher (China +1). Given CRAMS/ Custom Synthesis opportunity is strategic, it takes time
for business to shift due to product approval timelines (initial benefits already visible in
healthy revenue growth), but has much higher customer stickiness. Expects 15-20%
revenue CAGR for agro-chemical industry over the next decade.

Expansion into adjacencies is natural as base chemistry remains same – low hanging fruit
in many niche product segments, where India is making inroads. This will require much
higher capex (already at multi-decadal high capex) and may keep near-term return ratios
under check, but will drive a much longer revenue CAGR for the industry.

Anand Desai – Managing Director, Anupam Rasayan

The company has ramped up its molecules under R&D and has much higher product
commercialization now (8-10 molecules vs. 2-3 earlier). Coupled with aggressive capacity
build-up, this has helped the company grow at a non-linear pace over the last few years.
While raw material (RM) volatility may adversely impact near-term margin, management
expects it to be fully passed through in the medium term.

Recent acquisition of Tanfac Industries will be a potential game changer as it will provide
ready access of Hydrogen Fluoride (HF; key RM) to the company and help it scale up
Fluorinated product portfolio. Such backward integration will de-risk company (reducing
dependence on imports) and put it at par with other leading Fluorination players.

Ankur Periwal, CFA, FRM

ankur.periwal@axiscap.in
Meet Vora
meet.vora@axiscap.in
Kruti Karani
kruti.karani@axiscap.in

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Companies – key takeaways

Paradeep Phosphate on Green Hydrogen and changing industry dynamics

Green Hydrogen offers huge scope for growth especially in petroleum refining (Ammonia,
Methanol etc.) and fertilizer space. Green Ammonia would be more useful in production of
complex fertilizers (N, P, K variants) and not as much for Urea fertilizer as the latter would still
require hydrocarbon intervention (uses Carbon Dioxide to convert Ammonia into Urea).

Industry advancement to reduce cost of production of Green Hydrogen is crucial for its success.
Currently Green Hydrogen’s cost of production is ~4x that of Grey Hydrogen (produced through
Natural Gas). It expects significant cost cutting over the next few years, led by reduction in
(a) Capital cost – expected PLI scheme should help in addressing this and (b) Operating cost –
through mix of lower power cost (local manufacturing of solar modules/ cells etc.) and
electrolyser cost (through technical efficiencies).

Chemplast Sanmar
(Not Rated)
Chemplast Sanmar Ltd (CSL) is a leading specialty chemicals manufacturer in India with focus on
specialty paste PVC resin and custom manufacturing of starting materials and intermediates for
pharmaceutical, agro-chemical and fine chemicals sectors. It is the largest manufacturer of
specialty paste PVC resin and a leading supplier of suspension PVC resin in India. It also
manufacturers Caustic Soda, Hydrogen Peroxide, Chloromethane and is into Customs
Manufacturing.

Suspension and paste PVC prices had reached all-time high in Oct’ 21 followed by a tapering till
Jan’ 22, but have recovered in Feb’ 22. Suspension PVC has witnessed healthy demand globally
which is outpacing supply and, hence expects better pricing ahead as well. Management
highlighted suspension PVC spreads are around USD 400/ton now vs. USD ~300/ton in Nov-21,
as PVC prices react immediately compared to feedstock.

Paste PVC sales declined in Q3FY22 due to demand slowdown from artificial leather (shutdown
of facilities in Delhi due to pollution) and auto industry (lower operating rate of <65% due to chip
shortage) – both these industries have seen demand recovery in Q4. Caustic Soda has witnessed
strong price increase due to surge in coal prices (passed through). Custom manufacturing
segment has seen healthy customer enquiries. Management maintained its timelines for new
capex commissioning. Paste PVC phase I expansion (35K ton) expected in FY24, while Customs
Manufacturing facility is expected over FY24-25 in two phases.

Laxmi Organics
(Not Rated)
Laxmi Organics (Laxmi) started its journey by manufacturing Ethanol derivatives and gradually
became India’s largest manufacturer of Ethyl Acetate (Acetyl Intermediates AI segment). It then
started making Diketene derivatives using same raw material and went further downstream to
make value -added products (Specialty Intermediates – SI segment). It has also diversified into
Fluoro chemicals space (FI – segment) by acquiring plant of Miteni (Italy) which is a multi-
purpose facility with library of 100+ products in R&D.

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The management highlighted healthy spreads in Ethyl Acetate space given disruption in global
demand-supply. Strong growth in Diketene products led by export ramp-up in Europe continues.
Given volatility in Acetic Acid, its key raw material for both AI and SI segments,
near-term margin may remain volatile as RM inflation pass-through in AI segment happens with
a lag of 30-45 days, while it is quicker in SI segment (diketene derivatives) which has more value-
added products and thus relatively inelastic demand. Work on Miteni plant relocation is going
on and expected to be complete in FY23. It targets to establish base line products with existing
customers and gradually enter more downstream products.

Meghmani Finechem
(Not Rated)
Meghmani Finechem Ltd (MFL) is a leading manufacturer of Chlor-alkali products and its
value-added derivatives. The company started with manufacture of basic products like Caustic
Soda and Caustic Potash. Hydrogen and Chlorine are by-products of these basic products.
It later started manufacturing value-added products like Hydrogen Peroxide and
Chloromethanes by using Hydrogen and Chlorine captively.

Current revenue mix is 75% Chlor-alkali products and 25% Chlor-alkali derivatives.
The company targets to bring the mix to 40% Chlor-alkali products and 60% Chlor-alkali
derivatives. It is expanding its Caustic Soda capacity by 106 KTPA, which is expected to be
commissioned by Q2FY23. Expanding into more downstream products, it has announced capex
to manufacture 50K TPA sustainable Bio-based Epichlorohydrin (ECH; will be the first and only
manufacturer, using renewable raw materials), 30K TPA of CPVC resin and a capex of
Rs 1.8 bn for Chlorotoluene and its derivatives expected to be commissioned by Q4FY24.
Post these expansions, MFL will have a fully integrated product portfolio of Chlor-alkali
products and its derivatives.

Neogen Chemicals
(Not Rated)
Neogen manufactures Bromine compound (50% of revenue share), Bromine derivatives (30% of
revenue share) and Lithium-based compounds (20% of revenue share). It largely caters to
pharma, agrochemical and engineering industries and has a well-diversified revenue mix with no
single molecule/ customer accounting for >15% of its revenue.

Management maintained its guidance of full utilization by FY24, as it expects revenue of

Rs 7 bn from existing capacities (Dahej facility revenue expected at Rs 4 bn). Revenue share from
Bromine derivative and Custom Manufacturing to see healthy ramp-up. Given land availability,
it expects further capacity expansion in FY24-25 for organic molecules driven by advanced
derivatives and CSM opportunity.

It targets to expand in the electrolyte space for the next 3-4 years as it evaluates manufacturing
salts and additives for electrolytes (more clarity expected over next 6-9 months). It is already
working with 70-80% of companies which have applied for PLI in this space, apart from other
international customers.

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Rossari Biotech
(Not Rated)
Rossari expects to ramp up its presence in existing business segments of Home, Performance
and Personal Care (HPPC), Textile Chemicals (TC) and Animal Health and Nutrition (AHN).
Integration of three recent acquisitions (Unitop, Tristar and Romakk chemicals) will help gain
scale in newer business segments. Unitop has good foothold in agro chemicals and oil & gas
segments; to ramp up pharma segment as well, while Romakk’s backward integration in Silicon
will be used to scale up product portfolio across TC (to ramp up exports in Bangladesh) and
HPPC segment (led by e-commerce platforms).

Management expects to fully pass-through RM inflation to customers over the next few
quarters, which will help operating margin – expected to normalize Q2FY23 onwards as most of
the RM inflationary stress is already behind across major RM like Acrylic Acid, Acetic Acid etc.
Expects supply of Ethylene Oxide (EO, key RM for Unitop) to ease Q2 onwards as supplies from
Reliance Industries is expected to pick up.

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