Thirumalai Chemicals Limited

 

Thirumalai Chemicals Limited (TCL) started its operations in 1976 at Ranipet in Tamil Nadu as a single product petrochemical company manufacturing phthalic anhydride, with a production capacity of 6,000 TPA. The company is a part of the Thirumalai Group, which has business interests in chemicals, surfactants, pigments and education. Over the years, TCL has expanded its PAN manufacturing capacity to ~1,45,000 TPA and has added other products to its portfolio, which includes food additives such as maleic acid and fumaric acid, PAN derivatives such as di-ethyl phthalate (DEP) and phthalimide (PID). TCL caters to customers in the construction, auto, paint, food, personal care and pharma industries. The company has developed a low energy process, which enables it to meet ~90% of its power requirements through waste heat recovery. It also has a maleic anhydride manufacturing facility in Malaysia, under its step-down subsidiary, Optimistic Organic Sdn. Bhd. (OOSB) 

Established operating track record and market position in Phthalic Anhydride industry – TCL is the second-largest player with a significant market share in the domestic PAN industry, which is a duopoly. The company’s three decades of experience resulted in established relationships with clients in key end-user industries such as plasticizers, CPC, paints, and UPR. TCL also has a long-standing relationship with Reliance Industries Limited, the supplier of the raw material, OX, and operates on an assured offtake model.

Diversification into other related chemicals – The company produces phthalate esters and food acids, which are downstream derivatives. The contribution of these products has grown over the years, given the improving demand in the market. Maleic anhydride (MAN) operations at OOSB had also turned around in the past few years, driven by an increase in capacity utilisation and product realisations. However, in FY2019 and 9M FY2020, OOSB’s performance was subdued due to the impact of unplanned shutdowns and increase in raw material prices. Expansion/modernisation of capacity of various product lines – The company has undertaken a large capital expenditure programme to modernise the Ranipet PAN plant, enhance the derivatives capacity, and set up a greenfield PAN/derivatives project in Dahej. While the Ranipet project was completed and stabilised in FY2020, the Dahej project is expected to be completed in FY2021. These initiatives would help TCL maintain its market position and improve its competitiveness, given that the greenfield project is located near the supplier, the majority of the existing customers and a potentially large export market, the Middle East 

Large debt-funded capex plans and project execution risks – The ongoing capex at Dahej is nearing completion and was expected to commence operations in Q1 FY2021 although there may be some delay on account of Covid19 related issues. However, the early stabilisation of operations post completion will be crucial to achieve growth. The Ranipet and Dahej projects were earlier planned to be funded by internal accruals. However, TCL subsequently availed ~Rs. 200-crore loans (a part of which was for the reimbursement of the capex already incurred), ~Rs. 140 crore has been availed till date. TCL is also in the process of undertaking a large capex under a subsidiary in the US for manufacturing food acids, which will be partly debt funded (availed by the subsidiary but guaranteed by TCL). This will expose the consolidated entity to project execution risks and put pressure on the consolidated capital structure and coverage indicators, over the near to medium term, unless there is a meaningful recovery in the profit margin. Moreover, any additional large debt-funded capex will put further stress on the credit profile

The Company has commissioned its Phthalic Anhydride plant at Dahej Gujarat on June 28,2021. This plant will largely cater to customers in Western India. 

The key details are given below: 

1. Capacity: 24,000 TPA.

 2. Total Investment: Rs 135 Crores including other site infrastructure. 

3. Mode of financing: Internal accruals and bank borrowings.

Thirumalai Chemicals Limited India (TCL) plans to execute a project to manufacture 180,000 tons per year of Phthalic Anhydride (PA) and 30,000 tons per year of Fine & Specialty Chemicals, at its existing site at Dahej, Gujarat, and Western India - to be implemented in two successive phases. 

The company expects to bring the first of these two phases on-stream in about 2 years after receipt of all needed approvals. Work has commenced on Design & Engineering of the plant. 

The Raw Materials for this integrated plant will be sourced primarily within Gujarat; the finished products are aimed at the large West & North Indian markets, and at Exports. 

Phthalic Anhydride has a wide variety of uses in Colorants, Polymer Additives, Reinforced Polymers, Fine Chemicals etc. India’s consumption levels in PA and the above products are still very low compared to other countries, while demand growth has been strong. This project is expected to replace the large imports of PA and drive downstream growth in India.

 TCL has been a leading producer of Phthalic Anhydride and derivatives over 45 years; its range of products includes Maleic Anhydride (produced by its subsidiary), Food Ingredients and Fine Chemicals. 

TCL sells its products primarily in India, South East Asia, Middle East and Europe, with some quantities in North America. . 

Stepdown Subsidiary in the USA

We have formed a Stepdown Subsidiary in the USA to set up opportunities for our Food Ingredients and Maleic Anhydride businesses based on the availability of large quantities of local Gas Feedstock. After over 2 years of intense studies and work, we decided to proceed with this Project through our Subsidiaries “TCL Inc” / “TCL Specialties LLC”. The new Subsidiary having investigated this Project thoroughly and with support and advice from us, has decided to go ahead with the Project to build a 40,000 Tons Per Annum Maleic Anhydride and Food Ingredients Plant based on Butane Gas Feedstock. These products have a large demand in the region and with various changes happening, strategic opportunities have opened up. The project is located very advantageously in the large Shale Gas basin and close to the North American Market and logistics hubs. The Company also plans to market these in Europe and Latin America, which, all taken together, are the largest Regional Markets in the world for these products. The ASEAN and the Middle East Markets for these products will continue to be addressed by the Indian manufacturing facility. We will provide the subsidiary with Technology, Engineering and Project Services. 

Subsidiary in the Netherlands 

About 18 months ago, we formed the Subsidiary “TCL Global BV” in The Netherlands strengthening our marketing presence in Europe. This had a slow start due to COVID, but was steadily ramped up and has started servicing customers. It works as Marketing Agent, Distributor and Logistics Service Provider for our Products as also for our Subsidiary in Malaysia. It is expected that this will support our exports to Europe by providing Marketing and Sales support to the existing and potential customers, and quickly respond to evolving situations and opportunities. As our volumes from India, Malaysia and the USA grow, the European market will be an important part of our growth to capitalize on the diversification strategies and allow us to establish a large stable business and growth vehicle. Post Brexit, our “Only Representative” (OR) for REACH registrations had to be moved into the UK and so, this subsidiary serves the additional purpose of functioning as an OR in Europe.

Subsidiary in Malaysia 

The Malaysian Subsidiary “Optimistic Organic Sdh. Bhd” went through a crisis in the beginning of FY 20-21; prices and margins were extremely poor. They lost nearly two Quarters of Production and Business due to the breakdown of a major power generator equipment (Turbine). These two factors created a large loss. However, they were able to support this financially with their cash reserves built up from the previous years. In the last two Quarters of the year, they had showed strong improvement. The manufacturing was stabilized and marketing was taken up aggressively. As a result, they were able to break-even during the year. They have also been able to build up significant cash reserves in spite of the production problem. The corrective steps of the last few years in Plant reliability and active reorganization of Management, Manufacturing and Marketing with positive changes and geographical focus has strengthened the Company significantly in this period. 

Buy @135 | Target 200