‘Fresh capex will ensure we sail through slowdown’

Suresh P Iyengar Mumbai | Updated on August 13, 2019

Ashwin Muthiah   -  Bijoy Ghosh

Notwithstanding the huge consolidation in the global speciality chemical business, Ashwin Muthiah-headed Manali Petrochemicals and Tamil Nadu Petroproducts Ltd (TPL), both of which are a part of AM International, are investing in cost-saving projects and securing raw material from domestic sources rather than depending on imports. In an interaction with BusinessLine, Muthiah said the fresh investment will help the company improve margins and beat the domestic economic slowdown. Excerpts:

What are your capex plans? How you are funding it?

We will implement a capital expenditure of about ₹300 crore which will increase throughput in the next three years between the two manufacturing plants. The outlay will be towards augmenting our LAB (linear alkyl benzene) and HCD (heavy chemicals division) capacities as well as increasing PO (propylene oxide) derivative capacities.

While TPL will invest about ₹180 crore, MPL has a capital outlay of about ₹120 crore. Most of the funding will be done through internal accruals and any gap will bridged through external debt. Both companies have no long-term debt in their books.

How will the capex plan work in the light of slowdown and foreign chemicals holding sway in Indian markets?

With a conservative approach to capex, our investments are fairly moderate and almost always been brownfield. They will be by way of augmenting capacities to achieve economies of scale. We foresee an increase in domestic demand for our value added products over the medium-term period.

Being a domestic-bred company, we hold edge over competing foreign players. In speciality chemicals business we have to work closely with customers to develop products for them.

When do you see a turnaround in the economy?

There has been a general slowdown in specific sectors, including the automobile sector. Our companies have a fairly diversified market reach, which will help soften any impact of the slowdown. In fact, fresh capital expenditure planned by the company will bring down cost of operations and enable us to tide over the current slowdown, besides removing the bottlenecks and enhancing production capacity.

We have sold our non-core assets during the peak cycle of economy to de-leverage the balance sheet of the companies.

What are your plans to bring down the cost of production?

The increase in capacities should help spread the fixed costs. We intend to double the turnover and margins over next the years. The current split of commodity business and value added business is 65:35 which is expected to be 50:50 in three years. Value added business would typically give 6-8 per cent incremental margins.

We will focus on technology across the manufacturing process and build more digital solutions for sales and customer service. It is proposed to introduce innovative production processes to achieve cost savings. These improvements are expected to add 1-2 per cent to bottom line.

How is the recent acquisition of Notedome in UK helping your business?

We are integrating the UK acquisition (Notedome) benefits across the group. We will roll out new solutions across all markets giving the company significant brand and premium pricing advantages. We have already started producing a few Notedome products in India and will soon have the whole suit of the UK products manufactured in India.

From a modest sales of 120 tonnes per year, it is proposed to increase five- to six-fold per year in three years which will facilitate achieving the planned targets.

Are you looking at buying any stressed assets through IBC process?

I do not think there are any assets under IBC which have synergies with our current businesses and product suites. The IBC process is time-driven and, in most cases, it is difficult to judge what is in store. Moreover, we have to keep cash for quick closure and this may strain liquidity. We would rather focus our energies on brownfield expansion besides process optimisation of our plants.

Published on August 13, 2019

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