Interview with an I-banker who took over as CEO at one of India's top 10 chemical makers

A: So I would say a couple of things. One thing, which is kind of really fascinating, more for India, is manufacturing is the thing to do. I really believe at least in the next two decades, from a manufacturing perspective, belongs to India, especially, since there are a number of levers like China plus one and companies are working more with innovators.

And within manufacturing, of course, chemical is something that is growing much faster than anyone else. And last but not least, in chemicals.

So from my perspective, some of the key things I will be driving will be more customer interaction, which is more on the sales side of it. Definitely a strategy in terms of choosing what to do, because there's so much available.

The main focus area will be customer which is both organic and inorganic growth. Finance, obviously, which is natural to me.

A: I think it's important, if you ask me, I mean, on a lighter note, some of this, I would say industry concerns or headwinds are good for us. And the reason I say that is that this basically will differentiate a player like us.

We are catering to the niche market which is only growing. Our strength is R&D and processing.

We are starting with something like nitrobenzene, which is a commodity, which is maybe $1.5. And then I'm basically selling products, which could be anywhere between, let's say, $25, or $30 to as high as $500.

It gives me complete control over the quality and cost part of the product. We are focusing on securing our supply chain and ensuring raw material availability.

A: Currently for us, almost 80% to 85% of my raw materials are sourced from India and only 3-4% from China.

A: For us Europe has always been a big market. We are looking at expanding into Japanese and US markets. We are looking at the pharma segment and a lot of polymers in the US markets. Europe is seeing some headwinds. Seeing good demand from Japan,

A: The end market of 70-80 molecules that we produce is around half a billion or a billion dollars. What we are supplying right now is worth around $20-40 million. We will continue to be a CDMO player and focus on speciality products, advanced intermediates and niche categories. Contracts that we have entered into are for 5-7 years.

We are also focusing on flow chemistry in which the reaction is continuously flowing in a stream rather than batch production. Additionally, there is a big market for fluorochemicals which is our TAM.

A: Pharma is currently at 2-3% of revenues and down the line it will be around 20%. We are looking at 25-30% growth which will be a mix of expansion and growth in our current portfolio in agrochemicals, polymer and personal care.

A: None of the products we will expand into will ever be a commodity. The first filter itself is it is not commoditised. The first question is how do I go about selecting my product. Every product requires a science behind it. Understanding my strength, raw material availability, you know, the control over the whole supply chain process.

We have a cost-plus model leading to margins between 26-28%.

A: Depending on the criticality say okay, customers can ask us to keep three months of raw material and three months of finished goods and there are some who can ask us to keep it for 6 months. Customers cannot risk a lack of product availability in case of volatility.

Due to the war, some of the products which took 2-3 weeks to get delivered are now taking 6-8 weeks so supply sufficiency continues to be the big focus.

A: Demand is not a big issue for us. The issue we are grappling with is with which product to enter into keeping long-term targets in place. We will not be right always but our idea is to use R&D to innovate and look at niche products.

Coming back to your point because nothing, we will always do stuff, which is I will not diminish what you need.

Sometimes capex times are a little higher than some of the others. Because our plants are fungible. However, fungibility comes at a cost.

A: Currently, I think if you just look at it more from the outside, it could be more on our things. But I said, because I've done all of this backward integration and all that come, let's say, two or three years down the line, we could see two times the asset turnover.

We will not be doing any further capex from hereon. The total capex will be around ₹1,800 crore which will be a topline of around ₹3,500 crore.

A: We are happy with the current level of margins between 26% to 28%. We will have the cost-plus model in the market to maintain our margins and that is why we are entering long-term contracts.

A: So two things again, there are some reasons for that working capital to be higher. And some ways the business model. As I said, because we are the only company to be supplying some critical material to companies, we or the customer cannot afford to have a situation where there is unavailability of the stock. In such cases, we have to keep a stock between 3- 6 months. In COVID, given that there was X amount of supply chain constraint, which all of us could see, including our customers, the customers asked us to go ahead and procure for your six months of requirement. And given that we have the cost plus understanding and the customer is paying us for that working capital, it seemed like the correct thing to do. Working capital has increased from 180 days to 300 days.

But now inventory days have come down to 270 days and by year-end it should come down to 220 days. Long term target for working capital is around 180 days.

A: We have surplus cash of ₹300-400 crore. This will solve our capex plans.