Optimistic Economy To Support Industry

1. Company has registered a double digit growth in Q4FY16.Valuation also looks favourable, what has triggered such favourable results?

There has been a turnaround of Dyes and Dyes-Intermediate industry during past two years, and being a leading player in the industry, the Company is the beneficiary of the betterment of the industry, which has reflected into improved growth and margins both to the Company. Shutting down of the manufacturing facilities in China due to strict environment compliance implementation, short supplies of Dyes-Intermediates globally, increase in the prices of the products globally, etc. are the changes that have helped Indian industries to perform superiorly during past few years. Such changes have helped the Company to increase capacity utilisation for about the past one year.

One of the major reasons for achieving higher valuation is that the Company has addressed and repaid major portion of its debt to the ARCs and banks as per the settlements, which has resulted into substantial reduction of the finance cost from Rs. 17.52 crores of Q3FY16 to Rs. 7.58 crores in Q4FY16.

2. Falling commodity prices in the last two years have impacted the profitability of major chemical industries operating in India; however, Kiri Industries has managed to post double digit growth. Can you give any specific reason for that?

Since Dyes and Dyes-Intermediates, as specialty chemicals are far forward in value chain, and as there are many other factors that determine the prices of Dyes and Dyes-Intermediates rather than prices of commodities, there is not much impact of changes in commodity prices on the prices of Dyes and Dyes-Intermediates. In addition, as we are fully integrated manufacturers, we produce Dyes, Dyes-Intermediate as well as Basic chemicals. Due to such a type of 2-3 stage backward integration, impact of the petro-chemicals as basic inputs on the prices of finished products is absolutely minimal. Just for your information, Basic chemicals are used for manufacturing of Intermediates and Intermediates are used for manufacturing of Dyes. We are leading manufacturers of two main Dyes-Intermediates: Vinyl Sulphone and H. Acid, which are sold as well as captively consumed. These Intermediates contribute around 60% cost of raw material for manufacturing of Dyes. We can clearly see that during past two years there is a significant increase in prices of H. Acid and Vinyl Sulphone without a corresponding change in manufacturing cost of said products. As we captively consume these key Dyes-Intermediates our raw material costs for Dyes does not change with change in market price of intermediates which results into increase in our gross margins for Dyes.  

3. The major revenue of the company comes from the overseas market. From which country do you get the highest revenue?

Our main areas of exports are Asia; about 60% of our revenue comes from Asia. After Asia, Middle East and Central & South Americas contribute to the major revenue earnings for the Company. To name specific countries Bangladesh, Pakistan, Korea, Taiwan, South Africa, Indonesia, Iran, Turkey, Egypt, Mexico, etc.  

4. Indian chemical industries have registered a growth of 13 to 14 per cent in the last 5 years. Government has allowed 100 per cent Foreign Direct Investment in the industry? Is 100 per cent FDI a challenge to the domestic players like Kiri?

We ourselves have invited FDI in India in form of Joint Venture establishment. We believe that as long as such FDI is establishing manufacturing base in India which can cater to overseas markets, threat factor to the Indian companies is low. If such a policy is helping India to attract foreign investments, to become a major producer for chemicals, and also to become suppliers to the world requirements, it would greatly help the country not only by generating growth, but also most importantly by creating employment opportunites in India. We believe that allowing such 100% FDI in specialty chemicals and chemicals industry would support “Make in India” drive of the country.

5. Goods and Service Tax (GST) is not a tax issue but it is a business issue. Is GST a breather or a choker to the industry as 80 per cent of raw materials are imported?

For us GST would be definitely a breather and not a choker as we are fully integrated manufacturers with value addition at multiple stages. It is beyond any doubt that implementation of GST would make business easier to conduct from taxation point of view.

6. The company was debt ridden; last year the debt was close to Rs 850 crores which has reduced by 50 per cent this year and going ahead it will be further reduced, by what per cent do you estimate the debt will reduce by the end of FY17-18?

In FY 17-18, we have targeted to reduce debt to around only 20% of outstanding debt as on 31.03.2015.  This means that about 80% of company’s debt will be gone during this year and next year. Our interest cost will be less than Rs. 10 crores from this year onwards, and this is a huge reduction of debt, as also a strengthening of balance sheet of the company, significantly.

7. If the debt is further reduced by the end of FY17, which will certainly boost the bottom line which is favourable; but the main decider will be the top line growth. By what per cent will the top line grow in the upcoming quarters?

Currently market scenario is positive, and favourable, especially to Indian companies. If market continues to be supportive, we are expecting about 25% growth in top line in this year FY17 compared to the prior year.