Meghmani Finechem Limited Q3 FY22 Earnings Conference Call Insights

Key highlights from Meghmani Finechem Limited (MFL) Q3 FY22 Earnings Concall

Management Update:

• MFL achieved highest ever nine-month topline of INR152 crores. Its new expansion projects are on track for completion as per schedule.

Q&A Highlights:

•  Rahul Veera with Abakkus enquired if the company is seeing any incremental pressure compared to last quarter in terms of raw material inflation. Maulik Patel MD said that coal price started increasing from mid-September. From October end, the company started seeing pressure of the increase as everyone keeps some amount of inventory. Maulik clarified that that’s the reason the pressure was more in Q3.

• Nilesh Ghuge from HDFC Securities asked about the 90% plus revenue growth and how much of it’s through volume. Sanjay Jain CFO said that the revenue breakup for nine month period is, it’s up by 85% YoY and this is backed by 80% growth in the chlor-alkali and about 97% growth in the derivatives side, comprising of hydrogen peroxide and chloromethane. And out of 85%, 40% is coming from volume growth and about 60% from the realization received in nine-months.

• Nilesh Ghuge from HDFC Securities also asked about the guidance of EBITDA margin, that was 30% plus for the last nine months. Maulik Patel MD said that company’s performance was steady at about 28% and going forward the company expects to remain same irrespective of the industry being up or down.

• Nirav Jimudia of Anvil Research enquired about the reasons for caustic production being slightly lower in 3Q. Maulik Patel commented that looking at the nine-month production, the company is higher than last year but sequentially it’s little lower as the company took complete shutdown of the entire complex.

• Manish Jain from Moneylife Advisory Services  asked about the impact of competitors setting up ECH capacity on the demand supply situation. Maulik Patel answered that the company has given a project schedule on when it is going to commission its ECH, CPVC and caustic soda expansion. ECH is expected to commission by 1Q23. MFL added that is not seeing any big impact in the supply demand situation.

• Manish Jain from Moneylife Advisory Services  also queried about chlorotoluene, if the company is building the technology in-house or licensing through some other company. Maulik Patel MD answered that it’s a mixed approach, in the beginning part of the chlorotoluene chain the company is planning to get a ready-made technology in the first phase. And in future, downstream product of chlorotoluene, MFL will develop the product in-house in R&D.

• Rohit Sinha from Sunidhi Securities asked about on the caustic side, the company’s perspective for the future demand and prices. Maulik Patel MD said that caustic demand is mainly driven by the international prices.  Considering the International prices and the domestic production support from government, MFL is expecting the next one year to remain robust in terms of caustic soda prices.

• Rohit Sinha from Sunidhi Securities  asked that by the end of current capex amount, where the company should be looking at, if it’s the debt side or cash position. Sanjay Jain CFO answered that with respect to the borrowing for the ongoing expansion project, MFL has borrowed INR221 crore over a period of nine month and simultaneously made a repayment of INR90 crore towards repayment schedule. Therefore, the debt of INR463 crore in FY21 has increased to INR683 crore currently.

• Abhay Mal Lodha of Sanmati Consultants asked about the status of completion of projects of CPVC and caustic soda that are 80% complete. Maulik Patel MD answered that both the projects are expected to be commissioned by end of Q1.

• Amit Vora with The Homoeopathic Clinic  enquired that since the company is having good profit, if it is planning to reduce debt by FY23, FY24. Sanjay Jain CFO said that on the debt part, FY22 will be the year of maximum debt. But from FY23 onwards, one the ECH and CPVC and additional capacity of caustic soda starts contributing, MFL’s absolute debt EBITDA will be increasing and will be able to payoff its debt. Therefore, from FY23 onwards debt will start going down.

• Nakshita Mehta from Credent Asset Management asked about the revenue breakup in export and domestic market. Maulik Patel MD answered that for the last quarter, most of the products MFL sold were only in domestic market; there was no export demand. MFL added that it plans to do exports only when it is not getting a good realization in the domestic market.

• Nakshita Mehta from Credent Asset Management also asked how much additional revenue is expected from the additional capacity of caustic soda. Sanjay Jain CFO said that MFL is increasing its capacity from 294,000 metric tonnes per annum to 400,000 metric tonnes, an incremental of 106,000 tonnes on an annual basis. And with the current market scenario, MFL expect to have a INR400 crores in the top line from this additional capacity.

• An individual investor Pratik Mehta asked that post the expansion of ECH and CPVC, what could be revenue contribution from them respectively, on a 100% capacity utilization. Maulik Patel MD answered that after a full year of operation with optimal capacity or sizable capacity utilization of the plant, MFL expects to have a downward INR1,200 crores of revenue from these two projects.