Hubei Chuyuan shutdown to drive chem prices by 80-100%:Bhageria

The recent shutdown of Hubei Chuyuan, one of China’s biggest chemical companies, can drive global chemical prices up by 80-100 percent, says Vinod Bhageria, MD of Bhageria Industries.Speaking to CNBC-TV18, he said that Hubei Chuyuan had 30 percent market share and this shutdown will prove to be very profitable for Bagheria and will boost revenue growth in FY17.

He expects a 40-50 percent revenue growth in FY17 and expects the same growth in net-margins for the coming fiscal.

However, this revenue growth will purely be on the back of price increases and not volume growth, he added.Below is the verbatim transcript of Vinod Bhageria's interview with Reema Tendulkar and Nigel D'Souza on CNBC-TV18.Nigel: Reports indicate that one of these large Chinese chemical companies have been told to shut down. Could you confirm that and how much of the total global production comes in from this particular company?A: Hubei Chuyuan manufactures about 2,000 tonnes and that accounts for about 30 percent of the world manufacturing.Reema: What kind of an opportunity does it throw up for the Indian industry, what will be India's share in the total industry if 30 percent comes in from this one Chinese company?A: There will be a shortage of about Rs 1,000 tonnes globally, which comes from this Chinese market. So, 1,000 tonne shortage will boost up the prices about 80-100 percent with the current market price.Reema: You are saying that globally chemical prices could go up by 80-100 percent?A: Yes.Nigel: What kind of impact then that could have on your business? You are going to see huge volumes because as of your nine months ended, the revenues were down, things were not looking too good even on the margin front, some guidance for FY17 then, how will revenues look?A: FY17 will be much better than this FY16. About 50-100 percent increase is expected in revenue because of this shut down at least for first six months because this industry cannot be revived immediately once it is closed.Nigel: Give us some numbers for the next year, FY17 you are saying that you are seeing a good spurt, what kind of revenue approximately you could do?A: I cannot give you the exact figure because the impact of this closure will be known April onwards -- how much prices takes jumps and keeps on moving on that depends but easily 40-50 percent growth will be there from this year.Reema: What about your margins because you have indicated that prices could go up by 80-100 percent?A: Raw material prices also increases.Reema: So net-net what will be the margin benefit?A: It will be about 40-50 percent.Nigel: This year your revenue is sharply lower so that 40-50 percent increase that you are talking about at the end of this year, we should end up by around Rs 250 crore approximately for the end of this year. 40-50 percent increase will be roughly around that Rs 424-430 crore and that is precisely the number that you did last year. Are you saying we are going to go back to the numbers that we did in FY15, that is around Rs 450 crore?A: If you calculate 50 percent, it will be around Rs 300-350 crore.Nigel: So Rs 350 crore you are guiding for the next year and in the last year you did around Rs 400 crore?A: Yes.Nigel: So it is going to be a big increase from this low base?A: This is the lowest base.Reema: You have idle capacity?A: No, we don’t have idle capacity but this is a highly polluted item so capacity cannot be increased.Reema: Your revenue growth will only be on price increase not because of volume increase?A: Yes, no volume growth.Nigel: Could you also tell us your revenue breakup, is it export oriented, what is the break up over there of exports or the domestic supply?A: We export 80 percent of our quantity and 20 percent is local consumption.Nigel: In the local market, what is your capacity currently?A: Local market we supply 20 percent of our production.Reema: Is this a Chinese company shutting down a temporary thing or is it permanently shut down?A: That is very uncertain. I cannot comment on that. Even if it is to be open, it will take too much time for creating this pollution equipment so I cannot say that it will be closed permanently or not.