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Focus on capacity expansion
Thirumalai Chemicals (TMC) is one of the largest producers of Phthalic anhydride (PAN;), Maleic anhydride (MAN) and is among few players globally to produce food ingredients & fine chemicals. The management is focused on commissioning modernized facility at Ranipet and greenfield plant at Dahej in FY20 along with 50% capacity expansion of the Malaysian subsidiary, over next two years. TMC is also considering to set up a 30kt shale gas based plant in the US. The capex plans are to be funded from internal accruals. Its performance in FY19 was hit by volatility in material prices and muted demand in H2FY19. Consolidated EBIDTA/PAT fell 29%/33% YoY to Rs2.0b/Rs1.1bn. Despite sharp slide in earnings, it maintained ROEs over 18%. Key highlights of the meet are as follows:
* Commissioning of plants remains key focus area: Over last 18 months, TMC management has invested close to Rs2bn to renovate the four-decadeold Ranipet plant along with Dahej facility. The revamped PAN facility has been commissioned in the current quarter. It will significantly lower operating cost and increase output as plant breakdown had affected production earlier.
* Dahej facility to benefit from lower logistic costs: The management is positive on its upcoming new 20kt PAN plant at Dahej. It will significantly reduce logistic costs, considering proximity to key markets like Maharashtra and Gujarat and major raw material suppliers. The commissioning of plant delayed due to pending environment clearance. It is now expected to be commissioned by Q4FY20.
* Malaysian capacity to increase by 50%: Buoyed by strong demand, Malaysian subsidiary is planning to increase its MAN and derivatives capacity to 65kt over next two years to cater in ASEAN, Middle East and Southern European markets. Recently, the MAN capacity was increased to 40kt from 28kt.
* US shale gas based food ingredients plant in US: TMC is one of the five global players in food ingredients and fine chemicals with a capacity of ~15k in the segment. Given strong demand traction, it plans to set up a 30kt shale based plant in the US. The company is in last stage of finalization and plant is expected to commission in next three years for US, EU and Latin American markets.
* Imports from Far East, a concern: Management remains hopeful on government’s action due to rise in import of off spec and hazardous imports from Far East and tepid demand in light of US-China trade dispute.
* Q1 performance hit by expansion plans: Consolidated EBIDTA/PAT fell 46%/61% YoY to Rs293mn/Rs121m. While domestic PAN business is on a recovery trend, the Malaysian subsidiary is temporarily impacted due to expansion led disruption.
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