Bharuch plant to add Rs 125 cr revenue to business: Meghmani

Meghmani Organics has started operations at its Bharuch plant, which is expected to add annual revenue of Rs 125 crore says Natwarlal M Patel, managing director of the company. The expected earnings before interest, tax, depreciation and amortisation (EBITDA) for the new plant is expected at around 30 percent, he adds.  The pigments segment margin has gone up to 19 percent in last nine months from 6.7 percent, and the newly commissioned plant at Dahej will manufacture specialised pigments, Patel adds. Patel also shares with CNBC-TV18 that the company has won long-term pigments orders from MNCs that will help reduce the operating cost of the plant and overall business. He expects to debt reduction of Rs 110 crore by FY17 through internal cash generation. Below is the verbatim transcript of Natwarlal M Patel’s interview with Mangalam Maloo and Reema Tendulkar on CNBC-TV18.Mangalam: We understand that this plant will give you additional revenue of close to Rs 125 crore on an annual basis so what is the kind of margins that you are expecting from this project and will it be margin accretive going forward? A: The new plant which we have commissioned is a potassium hydroxide plant in our subsidiary company and it will give revenue of Rs 125 crore on topline and EBITDA will be up by 30 percent for that product. Reema: Margins are at 30 percent? A: EBITDA margin will be 30 percent for that new product. Reema: When you say revenues of Rs 125 crore from the plant you are assuming a 100 percent capacity utilisation, right? A: It is approximately 90 percent utilisation of the plant. Reema: You believe that is likely in year one, 90 percent capacity utilisation? A: Yes because it is a Japanese technology. With the Japanese technology, with the continuous plant and on DCS system - so normally when we operate on DCS system with the Japanese technology and industrial chemical so it is approximately we achieve in the first year itself.Mangalam: This will come under your basic chemicals head in your financials? A: Yes.Mangalam: Pigments have been in focus after the Chinese factory was ordered to be shut down. So, could you tell us what is the kind of opportunity you see for Meghmani Organics on the back of that and can your pigments business sustain with the kind of uptick that we have seen in the margins because if you look at it, in the last nine months itself your pigments margins have improved from 6.7 percent to around 19 percent. Is that sustainable and what is the revenue growth you are expecting in your pigments business?A: First I want to tell something about our pigment business. The new plant which we have commissioned in Dahej SEZ, we are manufacturing specialised pigment there and in last two years whatever samples we have submitted to the multinational companies, now we are getting the approval of the different companies which would give us a good utilisation of our plant and it will generate topline in a positive direction and it will reduce the cost of operation. When we will operate the plant at 80 percent capacity, our operating cost will reduce and indirectly it will help in botomline. Reema: If you could tell us that what your FY17 revenues will look like because this plant will clearly add Rs 125 crore, you are talking about long-term order wins in the pigment segment so for FY17 what should be the expected revenue growth as well as the sustainable margins? A: We are in pigments and all the approval comes from our international buyers and 70 percent of our business comes from the export in pigments and for all new plant products is approved by multinational companies which will help us in FY17. We are bullish that at least 20 percent of the revenue will come from the pigments. After two years of failed monsoon, everybody is predicting good monsoon and once good monsoon will come the Indian agriculture will improve and the demand will start from June itself. Mangalam: If you look at the bottomline, your net profit has doubled for the first nine months of FY16 itself. Can that rate sustain going forward because now you are saying that all the three segments will do well? So, can we expect the profits to double next year? A: I cannot commit for the double the next year. Nobody can predict that what will hamper the international market. There are a lot of factors impacting on international market but we are bullish that now Indian and Chinese prices for all products at par. India will have definitely a greater picture in the international market. What I predict and if it will show and per Indian monsoon we will go up or good then definitely we are bullish about our topline. Several raw material prices increase and it will impact in our raw material cost, it may happen so I cannot commit anything on bottomline. Mangalam: One part of the bottomline that you can control is the finance cost which has come down by almost 29 percent in the third quarter itself. So, could you give us an update on your debt, debt repayment and what the finance cost would look like in the next year? A: Several times my colleague has committed that our main focus is to reduce the debt and which achieved. If you have seen the nine months figure and the core FY17 also we have committed we chalked out the detail program that we are going to decrease the debt by Rs 110 crore. Approximately Rs 100 crore in our basic chemicals. Reema: Your debt will come down by Rs 100 crore in FY17, can you tell us how? A: By paying the installment of our loan which we have taken for five years.Reema: Will it be via generation of cash from your regular business?A: Internal itself. Reema: No sale of any non-core assets, no external equity raising?A: No.