Chemfab Alkalis, a speciality chemicals firm, expects the price of caustic soda to bottom out and see an uptick of 3-4 percent in the next couple of years.
VM Srinivasan, the company's CEO, plans to double the company's capacity in next 2-3 years.
"We plan to raise the capex of Rs 50 crore next year for expansion purposes via inter accruals," he added.
Currently, the total capacity of the firm is 100 tonnes per day.
He expects EBITDA margins to be around 30 percent in FY17.
Below is the verbatim transcript of VM Srinivasan's interview to Reema Tendulkar & Mangalam Maloo on CNBC-TV18.
Mangalam: Can you give us the trend of caustic soda prices in the last few months and how does that relate to the company's cost?
A: The caustic soda prices have been fairly stable over last one year. We are now seeing trends of commodity prices bottoming out and we can look at a bit of uptick in prices in the upcoming year.
Reema: Prices could go up by how much?
A: It is linked to global prices, so probably we could look at 3-4 percent increase in a year.
Reema: What is the kind of volume growth that you are targeting?
A: In terms of volume growth we are looking to double our capacity, of course it is not going to happen immediately, it will be in stages. In next two-three years we will be doubling our capacities.
Mangalam: What is your current capacity and at the same time what is your current capacity utilisation?
A: Our current capacity is 100 tonne per day and we are utilising it fully.
Mangalam: Is yours the biggest capacity in the industry. Who are your competitors in the listed space?
A: In fact we are among the smaller player in the caustic soda industry. It's a fragmented industry. Our capacity is 100 tonne; we are probably in the lower end of the capacity.
Mangalam: What kind of capex do you envisage going forward?
A: In this financial year we do not envisage any significant capex probably in next year we are looking at about Rs 50 crore capex because we have applied for an expansion to the local government. Once we get the clearance for expansion, we will be going ahead with this capex.
Reema: Is Rs 50 crore going to be sufficed because you do plan to double your capacity?
A: This Rs 50 crore will be helping us in doubling the capacity essentially.
Reema: How will you fund it?
A: It will be through internal accruals.
Reema: When are you expecting all the clearances?
A: We hope to get it probably in quarter three and quarter four in this financial year.
Mangalam: Your EBITDA margins in the last year saw a sharp fall of almost 100 basis points is that sustainable? What kind of EBITDA margins do you guide for in FY17?
A: Last financial year we had an overall EBITDA margin of about 25-26 percent. We have done a lot of work in terms of cost reductions in our facility. As I was mentioning we also hope to have a little bit of uptake in prices during this year. So, overall we expect 26 percent EBITDA to move to closer to 30 percent.
Reema: What about exports, what percentage of your business comes in from the export market and how is demand shaping up there.
A: It is essentially a domestic play. We don’t have any significance exports.
Mangalam: Could you explain why your finance cost doubled in fact from the previous fiscal year it has gone up from Rs 70 lakhs to about Rs 1.50 crore?
A: We had one internal buyer credit which we converted into domestic term loan which added to interest cost essentially.
Mangalam: So is that the run rate one should expect going forward?
A: We are in the verge of repaying this loan to the bank. I believe this financial cost during the year would come down.