In FY10, MFL’s first caustic soda plant was commissioned and then later it increased the capacity. Seven years later, in FY17, the company commissioned caustic potash plant, with a vision, considering the market situation, “we decided to get in to value added derivative products, into chloromethanes (CMS) and hydrogen peroxide. CMS and hydrogen peroxide are forward integrated products for the co-products and hence our step towards a fully integrated complex, as part of the raw material required for value added derivative products is coming from within the plant,” says Patel.

MFL commissioned a CMS plant of 50,000 tpa in Q2FY20 and hydrogen peroxide plant of 60,000 tpa in Q2FY21. “From the beginning itself, we have focused on many factors which have made MFL stronger compared to its peers”.

While listing was one aspect, on the same day (18 August), the company also declared a strong operating and financial performance in Q1FY22 amidst the second wave of the pandemic. The key performance highlights are: capacity utilization across all the divisions was the highest ever, on year-on-year (YoY), the ECU realisation for caustic soda improved by 12 per cent and CMS sales realisation improved by 40 per cent while the hydrogen peroxide’s sales realisation improved by 36 per cent quarter-on-quarter (QoQ) and achieve a 75 per cent capacity utilisation in the second year of operations.

In terms of the financials, MFL’s revenues were 111 per cent higher YoY at Rs290 crore, driven by higher sales of chlor-alkali (up 92 per cent) and its derivatives (up 170 per cent). Again, on YoY basis, EBITDA margin increased by 190 basis points to 31.9 per cent; absolute EBITDA increased by 124 per cent at Rs92 crore in Q1FY22.

Talking about the profit after tax (PAT), on YoY basis, it increased by 107 per cent to Rs37 crore and the PAT margin maintained at 12.7 per cent. The derivative (CMS and hydrogen peroxide) segment contributed 32 per cent to revenue from operations in Q1FY22 compared to 25 per cent in Q1FY21. Also in Q1FY22, return on capital employed (ROCE) improved to 22.3 per cent and return on equity (ROE) improved to 24.8 per cent.

“Despite an extremely challenging environment on account of second wave of Covid, our revenue and profitability grew 2.1 times compared to Q1 of last year. We have been able to maintain our balance sheet strength and our growth has primarily been financed through strong internal cash flows. We hope to maintain similar momentum in the coming quarter and are confident of delivering superior stakeholder value,” says Sanjay Jain, CFO at MFL.

Customer base

So what’s so special about this company? After demerger from its parent organisation, based in Ahmedabad, MFL is a specialty chemicals company. In line with its strategy to gradually increase the value added product base, the company commissioned a hydrogen peroxide plant in Q2FY21 and a chloromethane plant in Q2FY20.

MFL has a diversified customer base, catering to more than 15 industries. “However, if we consider peers, based on more similar products, then DCM Shriram Ltd, Gujarat Alkalies Chemicals Ltd, ChemplastSanmar Ltd, etc. can be considered as peers,” observes Naresh Agarwal, sales head-Chlor Alkali at MFL talking about the competition in chemical segment.

“Also, on account of various factors such as India is at a nascent stage of its growth, China + 1 strategy, the PLI scheme, Aatmanirbhar Bharat and Make in India concept, there is a surge in demand and also the world is looking at India as an alternate sourcing hub and this had led to growth of many industries which will ultimately lead to demand for chemicals, as it is basic block for manufacturing any product,” says Yash Chitnis, sales head-Derivatives at MFL. Anticipating a good demand down the line, he thinks all the new capacities that come up will be absorbed by this increase in demand. “So competition will be there, but considering the demand, it will never be an issue”.

If we talk about product wise, then caustic soda is a basic raw material that goes into various industries like textile, alumina, soap & detergents, dyes & intermediates, etc. The way India is growing, it needs at least one new capacity of 160 KTPA every year to meet the demand. In terms of chloromethanes, which is majorly goes in to the pharmaceutical industry and for refrigerants, demand has increased steadily and it is expected to grow at a CAGR of 10 per cent. “As of today we are net importers of CMS,” says Patel.

Hydrogen peroxide has major application in paper and pulp industry, textile industry and also now it is used in effluent treatment hence the demand for it is expected to increase at a CAGR of 7 per cent. Also the company is getting into epichlorohydrin (ECH) and CPVC resin - while the former is majorly used to manufacture epoxy resin and also it has been used in pharmaceutical intermediates and water treatment resin.

 Demand for ECH, CPVC resin 

“We will be the first company in India to manufacture ECH, it has a good market in India and currently the demand is met by imports. Demand for ECH is expected to grow in double digits over next 5-7 years, considering new capacities of epoxy resins are coming up in few years. CPVC resin is used to manufacture CPVC pipes. It has very good demand in India and it is expected to grow 13 per cent CAGR in next 5-7 years, currently 95 per cent of CPVC resin demand is fulfilled by importing. Once we commission our 30,000 TPA capacity plant, we will be the largest manufacturer of CPVC resin in India,” adds Patel expecting that both the products will further strengthen MFL’s fully integrated complex as part of the raw material required for both products is available within the facility. 

Going forward, MFL has, and will be  expanding its product base to include value added derivative products likeCMS, H202, ECH and CPVC which are key raw materials for multiple end user industries, part of which are presently majorly catered by  importing. “Capex for the expansion will be partly funded by internal accruals and party by borrowed funds. We expect to commission India’s first ECH plant by Q1FY23 (50 KTPA), CPVC (30 KTPA) caustic soda (106 KTPA) and CPP (36 MW) are going as per schedule and are expected to get commissioned by Q2FY23. These expansions are expected to significantly reduce import dependence of these products,” says Patel, adding that, the company aims to grow at 34 per cent CAGR to reach the target of Rs2,000 crore operational revenue by FY24.

“The target is to maintain operating profit (EBITDA) margin in the range of 28-32 per cent for the upcoming years. The share of value-added derivative products in the overall revenue of the company is expected to improve gradually from 26 per cent as of FY21 to 56 per cent by FY24,” predicts Patel who is focusing on selecting the product that has growth potential and right technology for it based on the chlor-alkali ecosystem.

“We have become stronger and all geared up for our next leap of growth and have already started moving in that direction by getting into epichlorohydrin and CPVC resin. Our revenue as on FY21 was of Rs831 crore and we aspire to reach to a revenue of Rs2,000 core by FY24, where derivatives contribution will be more than 50 per cent,” sums up Patel.