Explains Mr. P.S. Jayaraman, managing
director, "The industry is cyclical in nature and we want to insulate ourselves from
the vagaries of feedstock prices."
He adds, "What interests us in this
project is its payback. Today, imported EDC costs $400 per ton, whereas it costs just $200
per ton to manufacture for captive consumption. Currently, we import 50 per cent of our
raw material requirements and this would be halved when our project is commissioned."
The resultant savings will be sizeable for
the company as EDC accounts for 35 per cent of the raw material cost. As a matter of fact,
the company, during the first quarter of this fiscal, curtailed PVC production due to
uneconomic EDC prices.
The commissioning of the oxychlorination
plant this December will increase the companys captive EDC production capacity by
25,000 to 75,000 tpa. That aside, the company is augmenting its ethylene and specialty
resins at an outlay of around Rs 23 crore.
Part of the Rs 1,100 crore Sanmar group (see ) Chemplast Sanmar operates in two major business segments: PVC and
chlorochemicals. The latter consists of chlorine derivatives and products like caustic
soda, industrial solvents (chloromethane and trichloroethylene), refrigerant gases and
silicon wafers. The company is a leading player in the speciality PVC market as also in
the chloromethane business.
The company is an integrated player, with
most of its products being either forward or backwardly integrated to other products. The
company also has two industrial alcohol units with a total capacity of 37,500 kilolitres
(used for production of EDC through alco-ethylene route); a salt unit for manufacture of
caustic soda/chlorine and a capacity to generate 40 MW captive power.
While the PVC business generates 60 per cent
of the companys revenues, the balance is contributed by industrial solvents (30 per
cent), refrigerant gases and silicon wafers (five per cent each).
Focus on speciality
Speaking about the PVC resin business, Mr
Jayaraman says, "It is one of the fastest growing polymers in India. With a low per
capita consumption of less than half a kg in India (as compared to the world average of
four kg), the potential for growth in India is very encouraging. The expected Indian
market growth is about 14 per cent per annum."
The bulk of the eight lakh tpa domestic PVC
production consists of pipe grade suspension resin used for manufacture of pipes.
Speciality grades of suspension resins - paste and battery separator resin -- are
also produced here. Out of six Indian PVC resin manufacturers, only Chemplast Sanmar and
Finolex make paste resin. Finolex has a paste resin capacity of 30,000 tpa and plans are
on to add another 10,000 tpa.
"We manufacture 25,000 tpa of speciality
resins and 35,000 of suspension grade resin," Mr Jayaraman says. Incidentally, the
company is the only domestic manufacturer of battery separator resin used in automotive
"With others looking at commodity grade
PVC resin, we focus on the speciality segment," Jayaraman remarks. The reasons are
simple: contribution and the market. Contribution per ton of speciality resin ranges
between Rs 17,000 and Rs 20,000, as against Rs 12,000/t earned by pipe grade
According to him, "Currently, imports of
speciality resins are in the region of 20,000 tpa and even after Finolexs capacity
expansion, there will be imports to the tune of 10,000 tpa." Having this in mind and
also as demand is registering an annual growth of 10 per cent, Chemplast
Sanmar will increase its speciality resin
production by 7,000 tpa initially and then scale it up in stages.
The company, after enjoying two years of good
business, is now facing the downside of the industry cycle. During the first half of this
fiscal, it posted a turnover of Rs 163.41 crore, a figure lower by Rs 19.73 crore over the
last fiscal, and a profit after tax of Rs 2.96 crore, lower by a whopping Rs 17.46 crore
as compared to last fiscals figure.
While the company curtailed production of PVC
due to high input prices, the increase in LSHS prices drove up the costs further.
Mr. N. Sankar, group chairman, says, "We
cannot expect to maintain last years profitability levels. We have learnt to live
with this cycle and our effort will be to keep the costs down." But the only
costs that can be said to be within the companys control in the near future is the
finance cost. The company, by raising Rs 75 crore non-convertible debentures, is retiring
high cost debts. During the first quarter, the interest cost came down by Rs 1 crore to Rs
8.06 crore. "Our target is to reduce the finance cost to less than 13 per cent,"
remarks Mr Jayaraman.
The companys ability to significantly
increase its revenues is also under strain. Despite production of the likes of industrial
solvents, refrigerants and silicon wafers being maintained at previous year levels, the
prospects for silicon wafers used in solar energy equipment is not encouraging as the
demand for such products is on the downswing.
Further, under the Montreal protocol to which
India is a signatory, some of the products belonging to solvents and refrigerant gases
have to be phased out. At the industrial solvents division, of the solvents manufactured
by the company -- methyl chloride, methylene chloride, chloroform, carbon tetra chloride
and trichloroethylene -- carbon tetra chloride falls under the said global agreement.
The case with refrigerant gases is similar.
R11, R12 and R22 are to be phased out by 2010 and 2040 respectively. But Mr Jayaraman says
that these are not worrying aspects for the company as the impact will be very negligible.
"The companys plants are capable of switching over to other products. Moreover,
we have ample time left for the Montreal Protocol to take effect," he insists.
also see : All is well, say Sanmar group