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Kanoria Chemicals: Despite the downturn

Jun 24, 2009

Kanoria Chemicals & Industries held an analyst meet last week to discuss the companyís performance during FY09. The management also discussed the future plans of the company. Here are the key takeaways from the same. What is the companyís business?
Kanoria Chemicals & Industries is a leading manufacturer of chemicals intermediates in India. Over the years the company has emerged as a leading producer of Chlor-alkali and Alco Chemicals based intermediates, which cater to the needs of domestic markets. It has two manufacturing facilities, one at Renukoot in Uttar Pradesh manufacturing Chlor-Alkalis, Chlorine derivatives and water treatment chemicals; and the other one at Ankleshwar in Gujarat manufacturing Alcohol based intermediates. It also has two thermal power plants of 25MW at Renukoot. Their product portfolio comprises of more than 20 products wherein they have market leadership in 6 products and substantial shares in remaining ones. The company is certified with an ISO 9001, ISO 14001 and OHSAS 18001.

Key takeaways:
On FY09 performance:
The net sales grew by 14% YoY to Rs 4.9 bn in FY09, wherein domestic markets accounted for 89% and exports 11% of total sales during the fiscal. The company continued to enter new international markets for its downstream chlorinated derivatives that resulted into a growth of 67% in exports during the fiscal, despite the lower international demand. Operating profits grew by 19.3% YoY mainly on account of lower operating costs, thus EBITDA margins improved from 22.3% in FY08 to 23.4% in FY09. Net profits declined by 52% YoY to Rs 146 m FY09. This was mainly on account of following a fair value accounting concept, whereby the company has made a provision for uncrystallized forex loss of Rs 243 m during the fiscal in respect of FCCBs, and a provision for premium was made thereon. It has recommended a dividend of Rs 1.5 per share during the fiscal.

On expansion plans: Kanoria Chemicals plans to set up a Greenfield project in Visakhapatnam. This project would be a fully integrated Alco Chemicals complex and will be set up in stages at Jawaharlal Nehru Pharma City. The company estimated an investment of around Rs 720 m for the first stage of the project which is likely to be commissioned by 2QFY11. Two plants - formaldehyde and a hexamine plant, with a capacity of 105,000 tonnes and 5,600 tonnes (respectively) will be set up during the first stage. The project has a strategic advantage as it would save substantially on transportation costs on import of key raw materials and exports of finished goods due to the proximity to Vizag and Gangavaram ports. As per the management, the projected topline from this project is likely to be between Rs 544 m and Rs 738 m, while the operating margins are expected to be around 26% to 27% during the first three years. The company expects the payback period to be around 4.5 years and the internal rate of return (IRR) to be at 25.8% for the project.

Managementís guidance for FY10: The management expects the net sales of the company to grow by around 7% during FY10. The operating margins are likely to improve as the company plans to continue to bring down its operating cost. While, operating profits are projected to grow by around 10% YoY in FY10, cash profits are estimated to grow by around 15% during the fiscal.

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