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Specialty Chemicals Conference Key takeaways: Long‐term value growth on track

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INDIA | SPECIALTY CHEMICALS | Conference Takeaways

12 September 2017

We organised a Specialty Chemicals Conference on 1st September 2017 in Mumbai. In this day‐long event, we hosted the following eminent dignitaries from the Indian specialty chemicals’ sector in a panel discussion followed by board‐room meetings with participating companies. Participants in the “Panel: Indian Specialty Chemicals ‐ The Next Decade” • Mr Sanjay Chaturvedi, President ‐ Praj Industries; Ex‐Strategy Director, Rohm

and Haas and Dow Chemicals • Dr Deepak Palekar, Industry Advisor; Ex‐Regional Director, Rhodia, Ex‐MD, Atul

Biosciences • Mr Vivek Gadre, President Commercial, Atul Ltd • Mr Suyog Kotecha, Partner, McKinsey and Company • Mr Satyen Daga, MD, Daga Global Chemicals Pvt. Ltd. • Mr K. A. Ramakrishnan, Head of Chemical Practice and Partner, Avalon Global

Research

Boardroom meeting participants Aarti Industries Atul Ltd Himadri Chemicals Kesar Petro Products Meghmani Organics

Surya Patra (+ 9122 6246 4121) [email protected] Mehul Sheth (+ 9122 6246 4123) [email protected]

Phillips Carbon black Plastiblends Ltd Seya Industries Vinati Organics

SPECIALTY CHEMICALS CONFEERENCE KEY TAKEAWAYS


Takeaways from the panel discussion Long‐term value growth for Indian specialty chemicals intact Panellists believed that the Indian specialty chemicals industry was set to sustain healthy growth momentum led by advantageous domestic demand, strong GDP, and rising per‐capita income. Additional accelerated growth visibility for the industry comes from huge export opportunities due to: (1) weakening Chinese competition (because of curbs imposed by Chinese environmental policies), (2) de‐risking procurement policy of global MNCs from China, and (3) higher focus on outsourcing manufacturing to India by advanced countries such as North America, Europe, and Japan. Long‐term value growth drivers – volume growth, rising focus of Indian peers on customised product supply, entry into downstream products and integration of operations. The panel emphasised the need to invest in technology platforms, R&D, and IPR, in order to differentiate, create greater customer value, and develop strategic partnerships with customers. Other key highlights of the panel discussion: • Over the last decade, the global chemicals industry has shifted strategically to

specialty/application‐based (performance) chemicals from commodity chemicals. This shift has helped companies to realise better growth and continuous improvement in profitability.

• As per a Mckinsey (empirical) study of the global chemicals industry over 2001‐2015, businesses with a key focus on commodity/specialty chemicals have delivered steady annual earnings growth of 12%/13%. While the growth rates may appear similar, the interim volatility in commodity chemicals was higher than in specialty. Another important observation was that businesses with a widely diversified operation or with no specific focus on either commodity or specialty – failed to perform.

• Performance/specialty chemicals industry is deprecated as a highly fragmented one, but this is primarily due to a wider value chain and a large basket of products. Interestingly enough, a specific product in a specific value chain of chemicals is dominated or controlled by only about 3‐5 players – which usually ensures steady earnings performance for that product.

• China has emerged as the largest global chemicals market over the last decade, led by robust FDI flow into its chemical industry, about 10% GDP growth, and rapid progress in its domestic consumption pattern. However, chemicals growth in China is likely to be moderate due to – (1) environmental policy‐led curbs, (2) its per‐capita chemical consumption is already at par with advanced countries, and (3) base effect.

• The chemicals industry based in Western Europe is facing stiff competition from Asian countries and tackling economic challenges.

• The US industry is likely to remain firm supported by shell gas but lacks growth. • India seems the only bright spot globally for strong growth in the chemicals

market. Drivers that are making India as the fastest‐growing chemicals industry in the world – emergence as an alternate hub of chemicals manufacturing to China, low‐cost advantage, respect for intellectual property, and MNCs’ focus on de‐risking their sourcing from China.

From L to R: Mr Suyog Kotecha (standing), Mr Sanjay Chaturvedi, Mr Vivek Gadre, Mr K. A. Ramakrishnan, Mr MG Palekar, and Mr Satyen Daga


• India has built enough capacity in refinery, petrochemical building blocks, and bulk polymers vs. its requirements. However, for about half of its supplies of downstream and specialty chemicals, it depends on imports. Hence, import substitution would continue to play a major role in the rapid progress of India’s specialty chemicals industry.

• Panel expects this industry to see 12‐15% CAGR to touch ~US$ 110‐140bn by 2025. Leading growth segments would include specialty polymers, construction chemicals, industrial / institutional cleaners, flavours and fragrances, paints and coatings, plastic additives, adhesives and sealants, personal‐care chemicals, food additives, and colours (dyes & pigments).




Takeaways from the Board Room Meetings

Aarti Industries About the company: Aarti Industries manufactures specialty chemicals and pharmaceuticals. Its units are in Gujarat, Maharashtra, Madhya Pradesh, and Silvassa. Aarti operates under three segments – specialty chemicals (82% of sales), bulk pharmaceuticals (12%), and personal care (6%). Key target industries for its specialty chemicals business are polymers (composite materials), agro chemicals, and pigments/dyes – all have almost equal revenue share. Aarti has a large basket of >155 products under specialty chemicals and about 45 products in the pharmaceuticals space. Key takeaways from the conference: • Aarti believes rising scale, customised product delivery, and balancing of isomers

(co‐products) is the key to successful growth in specialty chemicals. • In order to achieve scale, it has added processes such as chlorination, nitration,

hydrogenation, and ethylenation, which have generated demand for customised products in various target industries. Simultaneously, its focus on building demand for co‐products has ensured profitable growth.

• It generates over 50% of its revenue from exports and expects the ongoing softening of Chinese exports due to environmental issues to supplement its exports.

• Expects specialty chemicals volume growth of 10% and similar earnings growth in FY18. This guidance factors the unabsorbed cost of its expanded capacity and the expected gradual ramp up in new capacities.

• The commissioning of its greenfield toluene plant at Jhagadia (Gujarat) will be by the end of Q2FY18 and will see gradual ramp‐up in H2 with optimal utilisation over the next 2‐3 years.

• It has signed a multiyear contract with a global agrochemical company to manufacture and supply a high‐value agrochemical intermediary. As per the deal, supplies are to begin from FY20 and should generate revenues of ~Rs 40bn over the contract term of 10 years. Revenues from the deal will be evenly distributed over a 10‐year period. ARTO is committed to an incremental capex of Rs 4bn for this project. Its backward‐integrated operation makes the deal highly profitable with an EBITDA margin profile of around 40%.

Atul Ltd About the company: Incorporated in 1947, Atul is one of the oldest players in Indian specialty chemicals. It has a broad‐based product profile spanning aromatics, bulk chemicals and intermediates, colours, pharmaceuticals and intermediates, crop protection/ agrochemicals, and polymers. Its global positioning in aromatics (led by P‐cresol and derivatives), polymers (particularly epoxy, sulphones), colours (vat dyes) are key to its steady financial performance. It manufactures about 1,380 products and formulations and has state‐of‐the‐art facilities and processes. Key takeaways from the conference: • Its aromatics segment had seen healthy performance over the last few years, but

it saw the following headwinds: (1) Pricing pressure in aromatics finished goods, (2) increase in key raw material prices due to shortage (production disruption at suppliers’ end), and (3) recent decline in demand for p‐Cresol. It indicated that demand‐supply will normalise in H2FY18. For long‐term value growth, it focuses on continuous expansion in aromatic capacities and technology upgradation.

• Expects to see about 10% annual growth for the next five years in its polymers business, predominantly epoxy‐resins, led by increase in per capita consumption in India. Atul is looking at diversifying its traditional commodity epoxy‐resin


business (used in anticorrosive paints and powder quoting) by moving up in the epoxy value chain for applications in segments such as laminates, electrical, adhesives, aerospace, auto, and sports goods. Hence, it is investing in production and application‐related industries.

• See strong performance in 24D herbicide business. Plan to backward‐integrate by manufacturing MCA (monochloroacetic acid) through a JV with AkzoNobel – in which nearly 50% of the MCA produced would be internally consumed. Expect this project to start commercial operation in Q3FY19 with a 30,000‐tonne capacity initially, gradually ramped up to 45,000‐tonnes.

• In pharma intermediates, fosgene‐based products are key growth drivers and it indicated strengthening its position in these. It sees better growth soon, led by efforts for introducing new products and tie‐ups with customers.

• One of Atul’s global competitors ‐ INDSPEC Chemical – based in the USA for “Resourcinol” has decided to shut its plant (20,000 TPA) permanently from July 2017. This could complement ATLP’s sales/profits. However, it may not have a significant impact, as the product is currently small for Atul.

• In the colour segment, vat dyes is the leading product class and that is under both price and demand pressure, as these dyes are more expensive and are seeing a structural shift towards less‐expensive ones. In the medium term, Atul plans to de‐risk this business by expanding into a range of other dyes and pigments.

• Since the last three years, it is focusing on developing B2C business for epoxy and agrochemicals by building a distributor/sales‐force/logistics network. It has ~50 C&Fs placed pan‐India. The destocking due to GST impacted these businesses in Q1, but Atul expects a recovery in Q2 and favourable impact due weakening competition from unorganised players.

• It sees no major capex in the near future, apart from the Akzonobel project; its target is to be debt free in the medium term.

• Investments in the last few years have been for long‐term growth (5‐10 years). Atul aims to achieve sales of Rs 40bn (with all capex at optimal levels).

Himadri Specialty Chemicals About the company: HSCH is the leading manufacturer of coal‐tar pitch used to manufacture aluminium and graphite electrodes. It also manufactures specialised coal‐tar pitch (used in long‐war‐head missiles), advanced carbon (used in manufacture of lithium‐ion batteries), coal‐tar‐based thermoplastic polymeric coating (used as an anti‐corrosive material in underground and offshore pipelines), carbon black, and specialty carbon black with specific applications in plastics, fibre, inks, and food‐grade materials. It also manufactures sulfonated naphthalene formaldehyde (SNF), poly‐carboxylate ether (PCE), and wood preservatives and fuel oils. Key takeaways from the conference: Coal‐tar pitch • HSCH is the only organized coal‐tar pitch manufacturer in India with a current

market share of 72% at coal‐tar distillation capacity of 4 lacs ton p.a. Hence, it is the largest purchaser of coal tar (key raw material; waste material for steel plants) in India from all domestic steel plants. Aluminium and graphite industries are leading customers of coal‐tar pitch.

• India’s aluminium production capacity is likely to increase to 4mtpa by the end of FY19 from 2.75 mtpa currently. Hence, there is a huge growth scope for coal‐tar pitch manufacturers in India, as there is no substitute and the demand is inelastic. 1MT of aluminium requires 100kg of coal‐tar pitch and 1MT of graphite requires 440kgs.

• Manufacturing coal‐tar pitch has a high entry barrier due to its complex chemical process and barrier to imports (liquid coal‐tar pitch needs to be handled and shipped at 250‐degrees centigrade and requires special fleets)



Carbon black • HSCH is the third‐largest carbon‐black producer in India with a current market

share of 17% at capacity of 1.2 lacs ton per annum. • Against the industry trend (70% of carbon‐black demand coming from the tyre

industry), for HSCH, 40% of its carbon‐black sales are to the tyre Industry while 60% constitute better‐margin non‐tyre segments (specialty carbon black, advanced carbon black). This makes HSCH an efficient player of carbon black in India.

Advanced carbon materials • Advanced carbon materials is a high value product manufactured by HSCH which

used to manufacture anode to produce lithium‐ion batteries. Li‐Ion batteries have three key uses – consumer electronics, electric vehicles, and energy‐storage solutions. Globally, Li‐Ion battery demand CAGR is 50% since the last 3‐4 years and is expected to accelerate. Currently, China, Japan, and South Korea dominate the Li‐Ion battery market; there is no manufacturer in India. The advanced carbon black material operation could surprise HSCH’s earnings positively in the near future.

• HSCH’s current capacity for advanced carbon‐material is 5 tonnes/month, which is optimally utilised. However, it has increased this capacity to 50 tonnes/month, which will be operational by the end of Q3FY18.

Apart from above products, HSCH manufactures Naphthalene and its advance derivative (Sulphonated Naphthalene Formaldehyde ‐ SNF) which contributed 6‐8% of sales in FY17. It has capacity of 68,000 TPA but underutilised. With the rising applications of SNF as admixture in concrete (less than 10% against a high global average) and new variant products introduction, this segment should see both volume and value growth in near future.

Kesar Petroproducts Ltd. About the company: Kesar started as a small entity in 2010 and slowly incorporated the business of Shreyas Intermediates Ltd. It has a presence in over 15 countries. It is a leading manufacturer of phthalocyanine‐blue crude pigment and its downstream products – it has roughly 15% market share of India’s copper‐phthalocyanine (CPC) Blue Crude market. Pigments constitute 93% of its sales – with applications in paints, plastics, printing inks, and cosmetics; 7% of its sales come from dye intermediates. It manufactures pigments such as CPC Blue Crude (18,000 TPA), Alpha Blue (2,400 TPA), and Beta Green (3,600 TPA); dye intermediates such as K‐Acid (840 TPA), Gamma Acid (360 TPA), Vinyl Sulphone (1,200 TPA), and Sulpho VS (600 TPA). Key takeaways from the conference: • Main focus is to move up the value chain in pigments – from CPC crude blue to

forward‐integrated products of alpha blue and beta blue, which will drive profitable growth ahead.

• The company is facing a major issue of low capacity utilisation (30‐40%). However, with growing demand, it expects its volumes to increase, which would lead to operating leverage and better profitability.

• Expects strong sales and operating performance in the next 2‐3 years, led by growth in the pigments industry and continued dominance of Indian players in pigments such as blue and green.

• It is a debt‐free company. No major capex plan near term. Credit cycle of 75 days.

• Among the few players in India with zero‐discharge plants.



Meghmani Organics About the company: MEGH is a well‐diversified chemicals player operating in three segments, i.e., pigments, agrochemicals, and basic chemicals. Pigments account for 33% of its net sales, agrochemicals 31%, basic chemicals 28%, and others 8%. MEGH is now present in 75 countries with over 400 clients. Its pigments business enjoys strong global presence with exports accounting for 72% of net sales. Customers comprise mainly of MNCs such as Sun‐DIC, Flint Group, Akzo Nobel, DuPont, and PPG Industries – 90% of its business comes from repeat customers. Key takeaways from the conference: • MEGH is the largest manufacturer of phthalocyanine‐based pigments in the

world, with a global volume market share of ~8%. Its vertically integrated facilities for CPC blue and end products such as pigment green and pigment blue give it a competitive advantage – the pigments are crude derivatives and their prices are relatively stable despite a sharp correction in crude.

• MEGH has a Rs 5.4bn capex plan over the next three years for strong future growth. It is setting up a 40,000‐MTPA chloromethane plant with capex of Rs 1.4bn, which it expects will increase its captive consumption of chlorine and produce MDC – of which India is currently a net importer. The plant should commission by April 2018, with an annual revenue potential of Rs 1.2bn and EBITDA margin of 20‐25%.

• It is setting up a hydrogen‐peroxide capacity of 25,000‐MTPA and expanding caustic soda capacity by 240 TPD using zero‐gap membrane technology. It is increasing its captive power plant capacity to 90MW from 60MW. It expects these expansions to complete by June 2019, at a total capex of Rs 4bn, which it expects would generate additional revenue of ~Rs 3bn.

• Margins in agrochemicals have recovered from a low base of ~10% in FY17 to ~16‐18% in FY18 with a recovery in global demand. It has recently expanded its distributors and dealers chain to 2,300 (from 1,000 in FY15) across 17 states in India. It plans to expand its dealer network further to 7,000‐8,000 – to have a PAN‐India presence in the next two years. It expects retail sales (B‐to‐C to increase to ~Rs 900mn in FY18 from Rs 600mn in FY17.

• Maintenance and product registration CAPEX would be around Rs 300‐400mn per year.

• MEGH’s closing debt was Rs 4.6bn in FY17 with a D/E of 0.6x; it plans to repay Rs 900mn in FY18.

• China has no major impact on its business, as MEGH is mainly into pigments and insecticides and China is a net importer of these chemicals.

Phillips Carbon Black About the company: PCBL is the part of RP – Sanjiv Goenka Group. The company is engaged in the manufacturing of carbon black, which is used in the rubber industry. It is one of the largest carbon black manufacturers in India and the seventh‐largest globally. It operates through two segments – carbon black and power. It also produces and sells excess electric power generated from the low calorific value of gas, which is generated in the process of manufacturing carbon black. Key takeaways from the conference: • Being the largest carbon‐black company in India, PCBL has now turned its focus

on to specialty/non‐rubber‐oriented carbon black from rubber‐oriented carbon‐black business (88% of sales) as margins are higher in the former.

• In power, it uses 35% of its power generated to meet captive needs and exports the rest 65% to grid. Due to increase in efficiency and growth in carbon black production volume, its power revenue increased to Rs 810 mn in FY17 from Rs 690 mn in FY15.



• Capacity: It has an installed capacity of 472,000‐mtpa, but it can produce only 410,000‐mtpa due to variance in the grades of products, leading to loss of utilisation. Management said it plans to add 78,000‐mtpa capacity with a capex of Rs 3bn over FY18‐20 in the following manner: • 18,000mtpa in FY18 through debottlenecking of the existing capacity • 48,000mtpa over FY19‐20 (from September 2018), largely of tyre grade,

through brownfield expansion (capex of Rs 2bn). • 12,000mtpa of specialty carbon black over FY18‐19 to reach 24,000mtpa of

specialty carbon capacity with a capex of Rs 800mn. It is also evaluating adding 120,000mtpa through greenfield expansions including a 25MW captive power plant with an expected capex of Rs 4bn. It envisages the plant starting by FY22.

• Volume: In FY17, its volume was 387,000mt (+15% yoy). 91% of its production was for the tyre industry and the rest for non‐tyre, including specialty carbon black of 8,800mt (2% of volume). It expects volumes to grow by 8‐9% over FY18‐20, of which non‐specialty carbon black volume would see 8% CAGR while specialty carbon black volume would more than double to 20,000mt on a low base.

• EBITDA: During FY17, the high‐margin business segments – non‐tyre (20% share) and captive power (12%) – contributed 32% of total EBITDA. The company expects EBITDA share from these segments to be around 50% by FY20. Hence, the company should see strong earnings growth in subsequent quarters.

Plastiblends India Ltd About the company: PIL is a part of Kolsite Group of Companies and a leading manufacturer of masterbatches. PIL produces a wide variety of white, black, colour, filler masterbatches, high‐performance masterbatches, and additives suitable for all major plastic‐processing types. PIL produces ~1,200 grades of masterbatches and has over 1,000 customers. Key takeaways from the conference: • PIL is a market leader in domestic masterbatches with 10‐12% market share. The

domestic masterbatch industry is highly fragmented; ~50% is dominated by small, unorganised players.

• It has spent Rs 1.1bn in the last two years to increase its capacity to 125K MT from 80K MT; the management intends to increase its total capacity gradually to 235K MT by FY21. It may require spending of Rs 0.8‐1.0bn in FY17‐21. Its Palsana (Gujarat) unit (started in FY16) is operating at ~30% CU (capacity utilisation).

• The realisation for its products ranges from Rs 30‐1,200 per kg. While fillers make up 40‐50% of its volume (Rs 30‐40/kg realisation), additives form a small part of overall volume but have very high realisations. Some of its additives, e.g., anti‐rodent additives, are sold at around Rs 1,000‐1,200/kg, mainly used in cables, wires, and the piping industry.

• PIL has adopted a policy of price revision every month with key customers, which has helped it to maintain its gross margins despite crude‐price volatility. Its major raw materials (polymers, pigments, titanium dioxide) are crude dependent.

• Masterbatches find application in various plastic‐processing industries such as flexible packaging, paints, irrigation, piping, automobile, agriculture, and cable & wires. The cost of masterbatches constitutes 2‐5% of the overall product cost, but its quality has a significant impact on the durability and properties of the product. Hence, a number of players such as RIL, Finolex, and Supreme increasingly prefer trusted and reputed names such as PIL.

• India’s per‐capita polymer consumption is low at ~10kg against the world’s average of 28kg. Overall per‐capita consumption of developed countries is 80‐100kg and in other developing countries it 30‐50kg. India has large scope for demand growth that would ultimately increase demand for masterbatches.



Some estimates peg the polymer‐processing industry in India growing to 21.6 MTPA by FY20 from current 12.5 MTPA.

• PIL’s products are exported in more than 50 countries and constitute 25‐27% of its total revenue. Around 80% of its business is repeat business, which is improving after GST implementation. PIL largely sells through a dealer / distributor network of 70 in India and 15 overseas.

Seya Industries About the company: Seya Industries, founded in 1990 by Shri Ashok Rajani, is an emerging specialty chemicals company engaged in manufacturing of benzene‐based products using chlorination and nitration processes. It aims to become the largest producer of benzene‐based chemical intermediates in the world. Chemicals manufactured by Seya are used in the downstream manufacture of pharmaceuticals, agrochemicals, polymers, additives, surfactants, pigments, and dyes. Key takeaways from the conference: • Seya Industries manufactures benzene derivative products through these

processes: (1) chlorination (15,000 TPA), (2) nitration (21,000 TPA), (3) hydrogenation, and (4) ammnolysis and others.

• Until FY13, it was manufacturing only mono‐chloro benzene (MCB; used in pharma and pesticides industries) and para‐nitro‐chloro benzene (PNCB; used in pharma, rubber chemicals, and dye industries).

• In FY13, Seya industries moved up the value chain with derivative products from MCB/PNCB, and introduced multiple products like 3,3, dichloro‐bezidine dihydrochloride (3,3, DCB), 2,4, dinitro‐chlorobenzene (2,4 DNCB), and para‐nitro aniline (PNA).

• Now Seya is a global market leader in 3,3, DCB, with a capacity of 7,600 TPA. This chemical has major application in pigment (yellow) and computer ink.

• Seya is focusing on expanding its capacity in PNCB/ONCB to match incremental demand.

• It has a mega capex plan of Rs 5.8bn (over FY17‐18) for multiple projects including: (1) sulphuric acid plant – for raw materials for existing product chain and steam‐based energy generation (backward integration), (2) expansion in ONCB/PNCB capacity, and (3) plant for new products like di‐methyl sulphate (DSM), di‐methyl aniline (DMA), and Red B base – to move up further in the benzene value chain. The capex is mainly debt funded.

• From new capex, the management expects: (1) to commission plant by October 2018, (2) utilisation in the first year of commissioning at 60% – to reach 70% in the next year, and full utilisation by FY20‐21, and (3) margin of 33‐34%.

• Overall, it expects to maintain sales growth (12‐14%) and sustain operating margins (~24%) at FY17 levels.

• Plans to repay debt of ~Rs 280mn in FY18.



Vinati Organics About the company: Vinati Organics (VO) is a specialty chemicals player that supplies ATBS (the only Indian manufacturer with 95% exports) to major global polymer manufacturers, which is then used in water treatment, paint/paper/adhesives, textile/acrylic fibre, detergent/cleaner, oil/mining and construction industries. VO has two plants (effluent‐free) in Maharashtra: (1) Lote‐Ratnagiri (manufacturing IBB and NBB with technical partner IFP, France), and (2) Mahad‐Raigad – where it manufactures ATBS/NaATBS (with technical partner NCL, Pune), IB, TBA, HTMPBE and DAAM.

2‐acrylamido 2‐methylapropane sulphonic acid (ATBS) Sodium Salt of 2‐acrylamido 2‐methylapropane sulphonic acid (NaATBS) Iso Butylene (IB) Iso Butyl Benzene (IBB) Normal Butylbenzene (NBB) N‐Tertiary Butyl Acrylamide (TBA) High Purity‐ Methyl Tertiary Butyl Ether (HP‐MTBE) Diacetone Acrylamide (DAAM) Tertiary‐Butylamine (TBA) Para Tertiary Butyl Methyl Benzoate (PTBMB)

Key takeaways from the conference: • VO saw stable ATBS growth in Q1FY18, but expects a spike in its demand as one

of the global competitors (from the US) exits the business. VO is a market leader in ATBS with 45% global market share and the competitor’s exit could help it gain additional market share of 10‐15%.

• It visualises strong demand outlook for IBB (isobutyl benzene) and hence has announced 56% expansion in this capacity to 25,000 TPA – expects it to commission in FY18. BASF (its major client for IBB) is setting up an ibuprofen manufacturing facility in Germany at an investment of Euro 150mn and VO is the preferred supplier for BASF’s IBB. Expects ~5% volume growth (Ex opportunity from incremental volume gain from BASF).

• A new project to manufacture butyl‐phenols at Lote (Maharashtra) is on track – to be commissioned in FY19 (capex of Rs 1.5‐2bn; peak revenue Rs 3bn). Para‐amino phenol (PAP) project at Mahad (Maharashtra) will commission in FY21 (capex of Rs 5bn; peak revenue Rs 5‐6bn).

• Break‐up of capex of Rs 2bn over FY15‐17: (1) Rs 1.5bn for capacity expansion/creation for IBB/new product line (TB amines, PTBBA etc; commercialisation started in late FY17), and (2) Rs 500mn for power plant (expected to be complete by H2FY18), which will help to save Rs 80mn from FY18.

• Four key criteria to start new projects are: (1) products should belong to a niche market (limited players, difficult chemistry), (2) company should have technology advantage, (3) product manufacturing should be in clean and green science, and (4) payback period of around five years. Additional but optional criteria – synergy of the new product with existing products.

• For FY18, VO expects 15% volume growth with margins at 30‐31%.




Management Vineet Bhatnagar (Managing Director) (91 22) 2483 1919 Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6246 4101 Jignesh Shah (Head – Equity Derivatives) (91 22) 6667 9735 Research Automobiles Engineering, Capital Goods Pharma & Specialty Chem Dhawal Doshi (9122) 6246 4128 Jonas Bhutta (9122) 6246 4119 Surya Patra (9122) 6246 4121 Nitesh Sharma, CFA (9122) 6246 4126 Vikram Rawat (9122) 6246 4120 Mehul Sheth (9122) 6246 4123 Banking, NBFCs IT Services & Infrastructure Strategy Manish Agarwalla (9122) 6246 4125 Vibhor Singhal (9122) 6246 4109 Naveen Kulkarni, CFA, FRM (9122) 6246 4122 Pradeep Agrawal (9122) 6246 4113 Shyamal Dhruve (9122) 6246 4110 Neeraj Chadawar (9122) 6667 9764 Paresh Jain (9122) 6246 4114 Logistics, Transportation & Midcap Telecom Consumer & Retail Vikram Suryavanshi (9122) 6246 4111 Naveen Kulkarni, CFA, FRM (9122) 6246 4122 Naveen Kulkarni, CFA, FRM (9122) 6246 4122 Media Manoj Behera (9122) 6246 4118 Preeyam Tolia (9122) 6246 4129 Manoj Behera (9122) 6246 4118 Technicals Metals Subodh Gupta, CMT (9122) 6246 4136 Cement Dhawal Doshi (9122) 6246 4128 Production Manager Vaibhav Agarwal (9122) 6246 4124 Ganesh Deorukhkar (9122) 6667 9966 Economics Mid-Caps & Database Manager Editor Anjali Verma (9122) 6246 4115 Deepak Agarwal (9122) 6246 4112 Roshan Sony 98199 72726 Shruti Bajpai (9122) 6246 4135 Oil & Gas Sr. Manager – Equities Support

Sabri Hazarika (9122) 6667 9756 Rosie Ferns (9122) 6667 9971

Sales & Distribution Corporate Communications Ashvin Patil (9122) 6246 4105 Sales Trader Zarine Damania (9122) 6667 9976 Shubhangi Agrawal (9122) 6246 4103 Dilesh Doshi (9122) 6667 9747 Kishor Binwal (9122) 6246 4106 Suniil Pandit (9122) 6667 9745 Bhavin Shah (9122) 6246 4102 Ashka Mehta Gulati (9122) 6246 4108 Execution Archan Vyas (9122) 6246 4107 Mayur Shah (9122) 6667 9945

Contact Information (Regional Member Companies)

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www.kingandshaxson.com

UNITED KINGDOM: King & Shaxson Ltd. 6th Floor, Candlewick House, 120 Cannon Street

London, EC4N 6AS Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835

www.kingandshaxson.com

UNITED STATES: Phillip Futures Inc. 141 W Jackson Blvd Ste 3050

The Chicago Board of TradeBuilding Chicago, IL 60604 USA

Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA: PhillipCapital Australia Level 10, 330 Collins Street

Melbourne, VIC 3000, Australia Tel: (61) 3 8633 9800 Fax: (61) 3 8633 9899

www.phillipcapital.com.au

SRI LANKA: Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha,

Colombo 2, Sri Lanka Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

www.ashaphillip.net/home.htm

INDIA PhillipCapital (India) Private Limited

No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

http://www.phillip.com.sg/

http://www.poems.com.my/

http://www.phillip.com.hk/

http://www.phillip.co.jp/

http://www.phillip.co.id/

http://www.phillip.com.cn/

http://www.phillip.co.th/

http://www.kingandshaxson.com/

http://www.kingandshaxson.com/

http://www.phillipcapital.com.au/

http://www.ashaphillip.net/home.htm

http://www.phillipcapital.in/


Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.

Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co‐managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No4 PCIL or its affiliates have managed or co‐managed in the previous twelve months a private or public offering of securities for the

company(ies) covered in the Research report No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.




Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.

Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. Investment in securities market are subject to market risks, you are requested to read all the related documents carefully before investing. You should carefully consider whether trading/investment is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek independent third party trading/investment advice outside PhillipCapital/group/associates/affiliates/directors/employees before and during your trading/investment. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PhillipCapital and any of its employees, directors, associates, and/or employees, directors, associates of PhillipCapital’s group entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/Investment decision is your sole responsibility. You must also read the Risk Disclosure Document and Do’s and Don’ts before investing.

Kindly note that past performance is not necessarily a guide to future performance.

For Detailed Disclaimer: Please visit our website www.phillipcapital.in

For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S.‐regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account.

This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer. If Distribution is to Australian Investors This report is produced by PhillipCapital (India) Pvt Ltd and is being distributed in Australia by Phillip Capital Limited (Australian Financial Services Licence No. 246827). This report contains general securities advice and does not take into account your personal objectives, situation and needs. Please read the Disclosures and Disclaimers set out above. By receiving or reading this report, you agree to be bound by the terms and limitations set out above. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately. PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

http://www.phillipcapital.in/

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