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Analyst Meet / AGM - Analyst Meet

The brown field capacity expansion of 100 cubic meters at Tarapur will be completed and commercialized by May-June 2017

NGL Fine Chem

09-Dec-2016, 11:22
In Interaction with Mr. Rahul Nachane MD

Key Highlights

As on Sep'16 around 80% of sales come from API, 15% from advanced intermediaries and rest from finished dosages.

Within API, the company focuses only on Veterinary segment. The segment will be more than Rs 5000 crore market worldwide and is growing around 15% every year.

Its difficult to put in a number for the market size for the company, but given the company has around 21 products, the market size for these 21 products will be around Rs 700 crore as on date and is increasing every year.

The growth for veterinary segment started with Latin America opening up. Further, the way how there is a make in India, there is also incentives given for the countries who manufacture in local markets. The companies there do not manufacture API's but are more interested in formulations and brands.

So the market for the business of company's product is spread between Tropic of Cancer and Tropic of Capricorn, so basically throughout this hemisphere.

Most of the company's products are sold to non regulated markets. Even though EU accounts for 40% of total sales, the end products are further exported and land in some other geographies.

None of the products are sold in US markets. Company's product may enter US but indirectly and only after lot of hands are changed from intermediates to dosages to injectibles format.

There will be a small market for each of these products and are growing. None of the MNC's are interested in these space, as they are busy in higher volumes and regulated markets mostly. This space thus is left with low competition.

Management expects the growth in this segment to continue for the next 10 years, unless the regulated markets are so bad and volumes are so down, that competition increases in non regulated veterinary space.

Key competitors within India in veterinary space are Lasa laboratories (Omkar), Rakshit Drugs, D H Organics and some other local players.

Antiprotozoals and Anthlmintic are major products for the company catering to de-worming and anti infection segment.

Top product of the company constitute around 18% of total sales and top 4 products constitute around 40% of total sales. The company would be selling its products to more than 400 customers worldwide.

The key differentiator in this line of the business is the company would not chase any product which is voluminous, as it attracts more competition. Further the manufacturing process involves lot of synthesis and multiple reactions and inhouse R&D technologies.

The company is operating at around 95% of its installed capacity of around 150 cubic meters. The company was trying for capex since 2014, but received the environmental clearances only post 16 months from that. Thus there was a delay in capex, which is why the company is struggling badly on volumes, as there is a demand, a ready market but no capacity.

Further, the company has received approvals for 4 new products and clients are ready for the delivery, but the company does not have the capacity as of now.

Finally after all the delays, the brown field capacity expansion of 100 cubic meters, at Tarapur will be completed and commercialized by May-June 2017 only ie Q1 next year. Till then whatever growth will come will be only from debottlenecking.

Capex of around Rs 25 crore is budgeted for the expansion which will generate revenue of around 60-65 crore with higher Ebidta margins.

The normalized margin for the company's products is around 18%-19%. The additional margins which is visible is past couple of quarters is due to Rupee depreciation, lower raw material prices, better productivity and company's continuous focus on costs particularly power.

Around 75% of total sales is exports as on Sep'16, which will increase further.

There are no tax benefits to the company's plants.

Company hedges it's 25% of exports while rest contracts are open and settled at the time of settlement date.

In past 10 years, bad debts have stood at around Rs 65 lakh.

Trade Receivables stand around 4 months. As per the management, that's how the business terms are in non regulated markets. This is general trend in veterinary business and every player has to deal with higher working capital requirements.

The growth going forward will come from existing products to existing customers, new products to existing customers, existing products to new customers and new products to new customers.

As per the management, there are no plans to dilute stake or raise equity for next 2 years.

Another green field capex for which land has already been purchased near Tarapur is aimed by the company once, the ongoing capacity expansion is on stream. Capex will be around Rs 50 crore in 2 phases. The company has applied for environmental clearances for the same as well and expects the same to receive in 12 months kind of timeframe.