Dahej unit to boost company financials: Insecticides India

Aggarwal is also upbeat on the company's speciality portfolio mix of  new products like Hakama, Pulser and Nuvan which are high margin patented molecules.Below is the transcript of Vivek Kumar and Sandeep Aggarwal’s interview to CNBC-TV18’s Sumaira Abidi and Reema TendulkarReema: You recently initiated coverage on Insecticides India with a very aggressive target price which implies nearly a 40 percent upside from current levels. Take us through the key rationale behind this bullishness?Kumar: We have highlighted in our report that we look forward to a very compelling valuation case. This is essentially going to be driven by number one - there is a large scale benefits from Dahej which will start accruing right from the current year itself and from the current capacity utilisation which is odd around 35 percent. We see the capacity utilisation to go up to 55 percent and then to about 75 percent in next two years time frame. Our explicit analysis suggests that the overall contribution from the Dahej facility itself can add about 30 percent to the overall projected EBITDA of FY17 from the current year of EBITDA losses. So a meaningful share of the growth is going to be coming from Dahej itself. Number two, the company till date did not have very significant capacities into the technicals and if you have to have a strong brand and strong capabilities one needs to get evaluated on the technical capabilities as well which Dahej would bring on the floor. Apart from that what we see is that in terms of the overall product portfolio mix, we see a strong case wherein last year they have added about three products in their speciality portfolio – Hakama, Pulser and Nuvan. Some of these products are definitely tied up through one of the Japanese companies. So 3 percent of the overall contribution that we see coming from the speciality portfolio is going to grow upto 30 percent by FY17.These speciality portfolios are the patented molecules have the ability to give a higher margin to the extent of two-three times higher margin compared with the composite average of the company.Sumaira: Some of the concerns which are there is the deterioration in your balance sheet, there is also currency volatility, the overall slowdown in the economy etc. What is your best case scenario for FY15? Aggarwal: Till last year we were investing lot of money in mixed assets, lot of capacity we had already built. So from this year onwards, right from April we have started utilising the capacities, basically from Dahej. Most of the money has gone in Dahej, so this year we are hopeful that by the end of Q2 we will achieve breakeven from Dahej plant and after that the company will grow with very good bottom-line also. Reema: Breakeven by the end of Q2 - so thereafter what can be the kind of profitability? Aggarwal: Overall, we are expecting to improve our net profit by around 1 percent this year on a consolidated basis. Reema: But for Dahej in particular if you could tell us may be in terms of utilisation how much can it go up by?Aggarwal: This year we are expecting around 75 percent capacity utilisation from Dahej. Reema: The report was also talking about the possibility of any strategic tie-ups, is that something that Insecticides India will be considering or have you already shortlisted any tie-ups?Aggarwal: We have not short listed any tie-ups for any strategic partnership but we are just doing the tie-ups for these new products which last year we had taken from Nissan and some more products are in line. Sumaira: Is there any capex plan that you have lined up or is it almost done now?Aggarwal: Not yet. Reema: So if there are no capex plans can you tell us how much the RoCE can improve, any numbers?Aggarwal: Definitely it will improve in the coming two-three years. We would like to grow around 18-20 percent.