The Hindu Business Line

‘Fresh capex will en­sure we sail through slow­down’

- SURESH P IYENGAR Business · Finance · Consumer Goods · Ravichandran Ashwin · Manali · Tamil Nadu · United Kingdom · India

Notwith­stand­ing the huge con­sol­i­da­tion in the global spe­cial­ity chem­i­cal busi­ness, Ash­win Muthiah-headed Manali Petro­chem­i­cals and Tamil Nadu Petro­prod­ucts Ltd (TPL), both of which are a part of AM In­ter­na­tional, are in­vest­ing in cost-sav­ing projects and se­cur­ing raw ma­te­rial from do­mes­tic sources rather than de­pend­ing on im­ports. In an in­ter­ac­tion with Busi­nessLine, Muthiah said the fresh in­vest­ment will help the com­pany im­prove mar­gins and beat the do­mes­tic eco­nomic slow­down. Ex­cerpts:

OWhat are your capex plans? How you are fund­ing it?

We will im­ple­ment a cap­i­tal expenditur­e of about ₹300 crore which will in­crease through­put in the next three years be­tween the two man­u­fac­tur­ing plants. The out­lay will be to­wards aug­ment­ing our LAB (lin­ear alkyl ben­zene) and HCD (heavy chem­i­cals di­vi­sion) ca­pac­i­ties as well as in­creas­ing PO (propy­lene ox­ide) de­riv­a­tive ca­pac­i­ties.

While TPL will in­vest about ₹180 crore, MPL has a cap­i­tal out­lay of about ₹120 crore. Most of the fund­ing will be done through in­ter­nal ac­cru­als and any gap will bridged through ex­ter­nal debt. Both com­pa­nies have no long-term debt in their books.

How will the capex plan work in the light of slow­down and for­eign chem­i­cals hold­ing sway in In­dian mar­kets?

With a con­ser­va­tive ap­proach to capex, our in­vest­ments are fairly mod­er­ate and al­most al­ways been brown­field. They will be by way of aug­ment­ing ca­pac­i­ties to achieve economies of scale. We foresee an in­crease in do­mes­tic de­mand for our value added prod­ucts over the medium-term pe­riod.

Be­ing a do­mes­tic-bred com­pany, we hold edge over com­pet­ing for­eign play­ers. In spe­cial­ity chem­i­cals busi­ness we have to work closely with cus­tomers to de­velop prod­ucts for them.

When do you see a turnaround in the econ­omy?

There has been a gen­eral slow­down in spe­cific sec­tors, in­clud­ing the au­to­mo­bile sec­tor. Our com­pa­nies have a fairly di­ver­si­fied mar­ket reach, which will help soften any im­pact of the slow­down. In fact, fresh cap­i­tal expenditur­e planned by the com­pany will bring down cost of oper­a­tions and en­able us to tide over the cur­rent slow­down, be­sides re­mov­ing the bot­tle­necks and en­hanc­ing pro­duc­tion ca­pac­ity.

We have sold our non-core assets dur­ing the peak cy­cle of econ­omy to de-lever­age the bal­ance sheet of the com­pa­nies.

What are your plans to bring down the cost of pro­duc­tion?

The in­crease in ca­pac­i­ties should help spread the fixed costs. We in­tend to dou­ble the turnover and mar­gins over next the years. The cur­rent split of com­mod­ity busi­ness and value added busi­ness is 65:35 which is ex­pected to be 50:50 in three years. Value added busi­ness would typ­i­cally give 6-8 per cent in­cre­men­tal mar­gins.

We will fo­cus on tech­nol­ogy across the man­u­fac­tur­ing process and build more dig­i­tal solutions for sales and cus­tomer ser­vice. It is pro­posed to in­tro­duce in­no­va­tive pro­duc­tion pro­cesses to achieve cost sav­ings. Th­ese im­prove­ments are ex­pected to add 1-2 per cent to bot­tom line.

How is the re­cent acquisitio­n of Note­dome in UK help­ing your busi­ness?

We are in­te­grat­ing the UK acquisitio­n (Note­dome) ben­e­fits across the group. We will roll out new solutions across all mar­kets giv­ing the com­pany sig­nif­i­cant brand and pre­mium pric­ing ad­van­tages. We have al­ready started pro­duc­ing a few Note­dome prod­ucts in In­dia and will soon have the whole suit of the UK prod­ucts man­u­fac­tured in In­dia.

From a mod­est sales of 120 tonnes per year, it is pro­posed to in­crease five- to six-fold per year in three years which will fa­cil­i­tate achiev­ing the planned tar­gets.

Are you look­ing at buy­ing any stressed assets through IBC process?

I do not think there are any assets un­der IBC which have syn­er­gies with our cur­rent busi­nesses and prod­uct suites. The IBC process is timedriven and, in most cases, it is dif­fi­cult to judge what is in store. More­over, we have to keep cash for quick clo­sure and this may strain liq­uid­ity. We would rather fo­cus our en­er­gies on brown­field ex­pan­sion be­sides process op­ti­mi­sa­tion of our plants.

 ?? ZY ASH­WIN MUTHIAH Chair­man, AM In­ter­na­tional ?? Our com­pa­nies have a fairly di­ver­si­fied mar­ket reach, which will help soften any im­pact of the slow­down
ZY ASH­WIN MUTHIAH Chair­man, AM In­ter­na­tional Our com­pa­nies have a fairly di­ver­si­fied mar­ket reach, which will help soften any im­pact of the slow­down

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