The Hindu Business Line : `We may list our shares in Singapore'

The company has just announced its performance results for 2003-04 and the net profit has gone up five-fold. Second, the company proposes to raise money, possibly through an equity issue in Singapore.

Third, a Rs 30-crore project, to produce water through desalination, is about begin. Finally, the American MNC, DuPont, has agreed to buy membranes from another group company called Membrane Technologies Ltd, and there are reasons why this development will benefit Chemfab.

Yet, "despite a strong balance sheet", Chemfab Alkalies is unable to access funds at anything less than 12 per cent, which is a matter of concern within the company.

In the year ended March 31, 2004, Chemfab Alkalies achieved a turnover of Rs 64.78 crore, against Rs 54.95 crore in the previous year. Net profit increased to Rs 6.78 crore, from Rs 1.41 crore previously.

In an interview to Business Line, the Chairman and Managing Director of Chemfab Alkalies, Dr C.H. Krishnamurthy Rao, spoke about these aspects. Excerpts:

The last time your company made large profits (2000-01) you paid a 50 per cent dividend. However, although your net profit increased five-fold last year, you stopped with the interim dividend of 25 per cent. Comments.

We need to conserve resources. We are planning to go in for a desalination plant in Pondicherry. We want to keep our cash flows and funds position better. The cost of the project is about Rs 30 crore, but we will be investing Rs 12 crore in the first phase. We thought the shareholders would be happy with a 25 per cent dividend, considering the need for cash in the company.

What is the status of the project?

Everything is tied up, including the funds. The only hitch is ITDC, which is not giving us the right of way. The Pondicherry Government should take the initiative to see that the right of way is given. We have given them a one-year completion of the plant from the zero date, the zero date has not yet been fixed.

How is the project going to be funded?

We are getting about 60 per cent of the funds from banks. Our weighted average cost of funds comes to 12 per cent.

At such a high rate?

Because nobody is willing to lend at a lower rate. Infrastructure finance companies, including IDFC do not care for small companies. The IDFC took three months to take a decision on the project. I myself gave them a presentation and I thought they were going to fund us. But they finally ditched us and because of that the project has got delayed by three months. We are negotiating with IDBI and we are likely to take their loans.

One hears you are planning to raise money through an issue of shares in Singapore?

Yes. We want to raise Rs 7 crore. The options are being examined. Today, if you see all our ratios, we are on a very strong wicket. Our paid-up equity is very low (Rs 3.47 crore). Our share prices ought to be quoting at Rs 200, but yesterday it was quoting at around Rs 70. We can go for a public issue and ask for a premium of Rs 200 and add only Rs 37 lakh to the paid-up equity.

It can be through a public issue in India or a secondary listing in Singapore. The Singapore Exchange is open to the idea. They want to get Indian companies listed there. They encourage technology companies like us. We are looking for fund managers in Singapore.

What is the money needed for?

For the desalination project and reducing our working capital loans. We have about Rs 10 crore of working capital loans. That is why the interest cost is still on the higher side.

Is there anything for the shareholders of Chemfab Alkalies in the agreement between Membrane Technologies Ltd and DuPont? (DuPont is likely to buy the `capillary type hollow fibre ultra filtration' membranes that Membrane Technologies, another group company, produces.)

Yes, there is. We expect that sales through DuPont alone will be about $10 million in 2005-06. Chemfab Alkalies is the main patron of MTL and its first customer. Chemfab's plant is also the reference plant for the membranes produced by MTL. Therefore, for every metre of membrane sold by MTL, Chemfab gets a royalty. Besides, Chemfab gets all its membrane requirements free of cost from MTL.

MTL's market is booming. We have already exported nearly 500 km of membranes to Europe. These membranes were produced at the Chennai plant of MTL. We are going to expand the plant's capacity at a cost of $2 million.

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