| What are your comments on your performance
in the first half? |
| We did do well in the first half. Two or three
factors were responsible for the comparatively better performance.
On the one hand, we had comparatively soft international prices for
feedstock, Ethylene di Chloride (EDC). We used that opportunity and
brought down our input costs, by maximising import of the feedstock.
|
| The resin prices were sort of comfortably placed
- in the region of $ 420-430. So the margins were okay. On the chlorochemicals
side, i.e. where we have caustic soda/ chlorine operations, we had
good domestic prices of caustic soda. Since we sell caustic soda in
the market, chlorine cost for us was good. |
| We also realised the full advantage of the improvement
in capacity in speciality resins. We increased the capacity in the
first phase by adding 7,000 tonnes (to 26,000 tonnes). The contribution
there is better. We had completed the expansion in March last year,
so the first six months had the full advantage of the capacity increase.
|
| And we also were ready, in case the international
prices of feedstock goes up, through our own captive capacity - for
that we set up an oxychlorination capacity, which enhanced the EDC
manufacturing capacity from 25,000 tonnes to 75,000 tonnes. So, of
the 100,000 tonnes of EDC we need, we can produce 75 per cent in-house.
But imported feedstock prices being cheaper (in the first half), we
were importing more and more. |
| How is the outlook for the second half? |
| I can't give any numbers, but I can say it won't
be as good as the first half. As expected, starting from the third
quarter, caustic soda prices started to drop, due to several reasons
- domestic demand, international trends. That is having an impact
on operations. |
| On PVC while EDC prices and feedstock prices are
more or less the same, the resin prices have come down, from $450
to $390. Last couple of weeks, slight improvement is there, but because
of the drop in the international prices, domestic producers were also
forced to cut down. In the last 15 years, this kind of a Rs 5 (per
kg) drop has never happened. |
| What is the explanation for international trend? |
| Several reasons. Most important is China - whether
they make more or less of EDC. International prices are also influenced
by movement of oil prices. |
| Are you then utilising speciality resins capacity
to the full? |
| Yes. We are also in the second phase of expansion.
We will increase the capacity by a further 7,000 tonnes. This will
cost about Rs 7 crore. The work started about six months back. From
April 2002 we should be on expanded capacity. |
| That should keep us in a good stead during bad
times. But what we are not able to do is - we are really helpless
on the chlorine prices front. There was a temporary honeymoon for
about 7-8 months, but now it is going back to their original level. |
| But don't you produce chlorine in-house? |
| Yes, but we also buy chlorine. Because we also
have some captive capacity, we are not that much affected. |
| What is the update on the greenfield project
(150,000 tpa PVC project, coming up at Cuddalore)? |
| On the greenfield project, the financial institutions
- IFC, Washington, DEG and IDBI - are still in the appraisal stage.
I expect the appraisal to be complete in one or two months. Once that
phase is over, it will lead us to financial closure. We expect that
to happen this financial year. We have appointed the EPC contractor
(Technip) and appointed the technology supplier (EVC of Germany).
The project will take two years. |
| What do you expect the market to be when you
would have completed the project? |
| The market will be very good. The domestic market
for PVC is today about 700,000 tonnes, and is growing at 8 per cent,
CAGR. |
| The growth justifies addition of this kind of
capacity. |
| But can your new plant stand the competition? |
| There are not much imports happening in the PVC
business. At this point of time, the country is balanced. Whatever
is being produced is sold in the domestic market. Not much import,
not much exports. If new capacities do not come in, then the country
will have to import. |
| But won't your products be more costly, given
the impact of the finance costs? |
| That is the real viability test. Where the margins
will head when import duty rationalisation takes place is a call one
has to make. What will be the spread between the end PVC duties and
how the margins will behave is the real test of viability. This is
assessed both by us and the lenders. We believe that the plant will
be viable. |
| At what rate of import duty? |
| Import duties will go down. Ultimately, the difference
between PVC and feedstock - in this case it is VCM (vinyl chloro monomer,
made from EDC) - must settle anywhere between 10-15 per cent. Today,
it is 35 per cent and 15 per cent - so the differential is 20 per
cent. This differential will come down. At worst it will settle at
10 per cent. To reach zero per cent, it will take a long time. |
| What is going on in your company on the financial
management side? |
| Like any other company, we have also been taking
advantage of the drop in interest rates - trying to replace high cost
loans with low cost facilities. In early 2001, we did an issue of
debentures for Rs 125 crore, which was used for retiring high cost
debt. |
| The average cost of borrowing came down by 200
basis points. Working capital reduction depends upon the opportunities
that present themselves. |
| At this point in time, when EDC prices are soft,
we have consciously been buying and inventorising EDC. Now it is better
to accumulate stocks. Instead of stocking the material for three months,
you stock it for 4-4.5 months. There may be holding costs, but we
get a net benefit. |
| How are your investments doing? |
| We have two investments. One is an investment
in a joint venture, Cabot Sanmar Ltd, where we make a product called
fumed silica. These operations are about three years old. We have
done reasonably well. |
| Has it paid you dividends? |
| We have not taken any dividends. Instead, the
JV has ploughed back the profits in capacity expansion - we are expanding
the capacity from 500 tonnes to 700 tonnes. Better to reach better
capacities than take the dividends now. The expansion is entirely
out of internal accruals and some debt, but we are not putting in
any additional money. |
| The other investment is in shipping - Sanmar Shipping
Ltd, which came into being as a result of the hive off of Chemplast's
shipping division into a separate company. We still continue to hold
50 per cent. The only redeeming feature of this is that the shipping
business has come out of the downturn. It is making profits. |
| What is the thinking for this company? |
| We have to wait for better times. We want to stay
in the business and not get out of it. |
