Meghmani Finechem Limited Q4 FY23 Earnings Conference Call Insights

Key highlights from Meghmani Finechem Limited (MFL) Q4 FY23 Earnings Concall

Management Update:

• [00:03:44] MFL said its expansion plans such as additional capacity of CPVC resin, chlorotoluene’s value chain and an R&D center are moving according to schedule and will drive growth in FY25.

Q&A Highlights:

• [00:07:21] Dhruv asked about the performance of chlorine in 4Q23 and margin for caustic business. Maulik Patel MD said chlorine consumption is currently at 65%, and the EBITDA margin for the company as a whole is between 26-30%.

• [00:09:33] Babby J of Falcar Investment asked that to the INR155 crore operating EBITDA how much did ECH and CPVC contribute. Maulik Patel MD answered that EBITDA for both ECH and CPVC is in the range of 25-30%.

• [00:14:25] Babby J of Falcar Investment enquired if MFL is going to be selling the bulk of ECH domestically or exports and CPVC. Maulik Patel MD said it’s going to be mix of both. According to the current situation, 40% will be exports and 60% domestic. CPVC will be 100% domestic.

• [00:16:22] Amit Vora from the Homoeopathic Clinic enquired about the inventory levels going up from 54% in 2021 to 154% in FY22 and now at 211%. Maulik Patel MD said major projects like ECH and CPVC, along with bulk exports and increased operations, have led to an increase in inventory from INR154 crores in FY22 to INR211 crores in FY23.

• [00:17:24] Amit Vora from the Homoeopathic Clinic asked about the caustic soda realization and capacity utilization in 4Q23. Maulik Patel MD answered that caustic soda realization for 4Q23 was 38,000. On the increased capacity, utilization was around 78%.

• [00:18:28] Jenam Gilani of Swan Investment enquired about the realization for CPVC and ECH during 4Q23. Maulik Patel MD said ECH realization would be revolving somewhere around 1,20,000-1,25,000 and the CPVC would be around 1,50,000 to 1,60,000.

• [00:19:52] Archit Joshi from B&K Securities asked about plans for chlorotoluenes and how do they compare to the competitors’ plans. Maulik Patel MD said MFL is building a chlorotoluene facility in India that is nearly finished and will be commissioned by the end of FY24. The facility will make 15 products with 4-5 chemistries, and MFL is also creating an R&D center to focus on making value-added products.

• [00:23:13] Archit Joshi from B&K Securities asked about the expected revenue and margins for the first phase of MFL project. Maulik Patel MD replied that MFL chose this project because it meets its requirement of a 25% minimum ROCE and the company is targeting a turnover of around INR300 crore from this project in the first phase.

• [00:24:06] Rohit Nagraj from Centrum Broking asked about the capex plan for FY25 and beyond. Maulik Patel MD said the company is implementing a value chain, starting with chlorotoluene and CPVC expansion. This should result in 75% of chlorine consumption happening in-house by 2026, with the possibility of increasing it to 85%. A final decision will be announced once the Board approves.

• [00:29:23] Niraj Mansingka at White Pine enquired how much value does India import in chloromethane products and what is MFL’s plan for investment in the chloromethanes derivative market. Maulik Patel MD answered that chloromethane is used in pharma, refrigerant gas, and PTFE applications. Refrigerant gas R32 is the next-generation and MDC consumption is increasing. India used to import chloroform and MDC, but domestic production is rising which may reduce imports.

• [00:37:35] Darshil Jhaveri with Crown Capital asked about the revenue jump expected in FY24 as all new capacities are live for nearly two quarters. Maulik Patel MD said MFL expects volume growth in FY24 to be between 15-20%, which will drive value growth of 20% or more.

• [00:38:52] Riya Mehta from Aequitas asked about the current power cost for caustic soda production and has the high-cost inventory of coal from last quarter been resolved. Sanjay Jain CFO said coal prices have increased by 30% compared to last year and have cooled off by 50% from QtoQ. Power generation costs have followed the same trend.

• [00:45:06] Amarnath Bhakat at Ministry of Finance of Oman asked how has the reopening of China’s economy impacted MFL in terms of raw material availability, product demand, and prices. Sanjay Jain CFO said Chinese chemical production has not recovered after the Chinese New Year, which has an indirect impact on India, though duty protections have helped to protect margins and business.

• [00:51:37] Amarnath Bhakat at Ministry of Finance of Oman asked can the stability of the unit cost of power be assumed if long-term power contracts are secured from solar or renewable sources. Maulik Patel MD said caustic soda is considered a raw material, not a utility, so the cost of power affects its price and must be passed on.

• [00:59:39] Rohit Nagaraj with Centrum asked about the proposed ban on chloromethane by the U.S. EPA and how will it impact the chloromethanes market in India and globally. Maulik Patel MD said that chloromethane industry in India is unaffected by the US situation of transitioning from R22 to R32, as India will continue to use R32 until 2032.