- 7/25/2023
Maulik Patel, MD, Meghmani Finechem joins Outlook Business Editor N Mahalakshmi and Dr Hardik Joshipura, CEO, Innovassynth to discuss the “Success Story of Meghmani Finechem” at the first #Innovassynth Outlook Business “Advantage India Summit”. #Manufacturing #SpecialtyChem
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NewsTranscript
00:00 (dramatic music)
00:02 - Ladies and gentlemen,
00:08 welcome back to our next session
00:10 as part of Outlook Business Advantage India Chemical Summit.
00:14 I have with me, Maulik Patel from Meghmani Organics,
00:19 one of the fledging companies in this sector,
00:21 which has also shown stupendous growth
00:23 over the last few years.
00:26 And I have with me also Dr. Hardik Joshipura,
00:30 who will co-moderate the session.
00:33 So, Mr. Maulik, thank you so much
00:35 for joining us on this session.
00:37 First of all, can you take us through
00:40 your growth journey over the last few years?
00:42 What have been the key drivers of your growth
00:45 in the last four or five years?
00:47 And how do you see the future shaping up?
00:49 - Let me start with a journey of Meghmani,
00:54 because in 1997, my father started this company.
00:57 So we are the second generation of this group.
01:02 And in 1977, started with a small
01:04 dyes manufacturing company.
01:06 He was the farmer's son and entered into the small dyes.
01:09 And then over the period of time,
01:11 we have grown into the dye segment.
01:13 And in 1987, we started with a small pigment manufacturing,
01:18 which is also that time the only clarient company
01:20 was our manufacturing pigments in India.
01:23 So that time we started, we are the second company
01:26 to start pigment manufacturing in India in 1987.
01:31 And in 1994, again, you know, where family was growing,
01:35 my uncles also joined the business along with my dad.
01:39 And in 1994, we started and we decided to diversify business
01:44 into the agrochemical business.
01:46 So that's how we went into the pigment dyes
01:49 and agrochemical business.
01:52 And in 2007, when the second generation
01:54 came into the picture, again, we decided that time
01:58 our revenue mostly it is coming
02:00 from the export oriented business.
02:02 And in 2007, we also listed in India
02:07 because we are the first company in 2001,
02:09 we are listed in Singapore Stock Exchange.
02:11 And in 2007, we listed in India.
02:14 And that time we decided, because our major focus
02:19 was the export oriented revenue.
02:21 So we decided to diversify our business
02:23 into the domestic oriented business.
02:26 And we came into the domestic business.
02:28 And so we thought about the chloroalkali
02:30 as a manufacturing complex in India.
02:35 And we started with the IFC,
02:37 International Finance Corporation,
02:38 who was a 25% equity partner in India.
02:42 And they joined and they supported us in terms of finance,
02:45 in terms of loan.
02:46 And we started a chloroalkali complex
02:48 in the HPCPR region in 2007,
02:52 in the name of Make Money Fine Chemical Limited,
02:54 which is a subsidiary of Make Money Organics Limited,
02:57 which is listed in Stock Exchange.
03:00 So in last 10 years, we started a chloroalkali complex.
03:05 And then we thought about how we can grow further
03:11 in the chloroalkali business.
03:13 So we thought about it.
03:14 Another option was a geographically,
03:18 you could grow, you set up a plant in North, South, East,
03:22 West, or you can go in a forward integration.
03:25 So Make Money normally is a chemical background.
03:28 So our focus was to go in an economy of scale,
03:32 size of business, whatever molecule you set up,
03:35 it is a global scale.
03:37 So in the pigment, if you compare ourself,
03:40 you know, with the phthalocyanide pigment business,
03:42 which is globally, currently we are manufacturing
03:44 around 15% of the global phthalocyanide pigments,
03:47 our capacity, which is based in India,
03:49 which is the largest manufacturing capacity in the world.
03:53 In agrochemical business,
03:55 if you consider the synthetic pyrethroid,
03:57 which is also a major agrochemical molecule,
04:01 and where we are also manufacturing
04:03 completely backward integrated,
04:05 along with the key raw material.
04:06 So Make Money is always focused on the backward
04:09 and the forward integration.
04:11 So as a chloroalkali complex, in last five years,
04:15 we decided to go for a forward integration
04:17 because when you produce caustic soda,
04:20 it also generate chlorine and hydrogen.
04:23 So we decided to go for chlorine derivatives,
04:25 which is a chloromethane, which is like a MDC chloroform,
04:28 which is a pharmaceutical solvents.
04:31 And hydrogen peroxide, which is a major bleaching agent
04:34 for textiles and for paper industries.
04:38 And it is used as a raw material
04:40 for many chemical intermediates.
04:42 So in last five years,
04:44 we decided to go for a forward integration,
04:46 whatever we do it, and based on Indian consumption driven.
04:51 And in coming five years, also our strategy is,
04:54 because the Indian economy is growing in a double digit,
04:57 the people are moving from saving economy
05:01 to the spending economy.
05:03 So we also decided which are the molecules
05:05 which is feasible for the Indian manufacturing.
05:08 And a lot of automobile manufacturing
05:10 is coming into the, in India.
05:12 And we decided to go for a epichloroidine project in next
05:15 as a value proposition in our chloroalkali complex,
05:19 which is the first time in India,
05:21 and which is completely imported right now.
05:25 And we decided to set up a 50,000 tons
05:27 of epichloroidine plant,
05:29 along with our caustic soda capacity expansion.
05:32 So currently, we are the fourth largest
05:36 chloroalkali complex in India.
05:38 Along with the forward integration,
05:40 our plan is to go for epichloroidine kind of molecule,
05:43 which is first time in India.
05:44 Another molecule which we have identified,
05:46 which is a chlorinated polyvinyl chloride,
05:50 which is also a growing segment,
05:53 like you must have heard about the astral pipe,
05:56 ashirwala pipe, which is also a raw material of that pipe,
06:00 which is also not manufactured in India as of now,
06:04 which is completely imported.
06:06 So these two strategy in the forward integration
06:09 of chloroalkali complex,
06:10 we are moving towards basic to specialty.
06:13 And along with this,
06:15 because our chloroalkali complex also grown
06:18 in such a size that we have decided to de-merge
06:21 from our parent company and automatically going to be listed
06:24 in the first quarter of the next financial year.
06:28 - So in terms of revenue complexion,
06:30 how much of your revenue right now comes from exports
06:33 and how much is from domestic sales?
06:35 And also in terms of agrochemicals versus pigments,
06:39 how is the revenue composition?
06:41 - Yeah, in agrochemical,
06:44 we are expecting this financial year,
06:47 we are planning to achieve,
06:49 probably we'll cross a thousand crores.
06:51 In pigments, we are planning to cross around 600 crores
06:54 and in chloroalkali complex,
06:56 we are planning to cross around 850 crores.
06:58 So closely you can say 2,500 crore revenue,
07:01 we are planning to achieve in this financial year.
07:05 And in next two years, next three years,
07:10 we are planning to grow almost 30 to 35% CAGR
07:15 and we are planning to achieve 5,000 crore turnover
07:18 in next financial year 2024.
07:21 - So Mouli, if I may add,
07:24 very interesting kind of a product line
07:27 which you talked about.
07:28 And 2,500 crore of revenue
07:31 comprises of how many major products?
07:33 You talk about the chloroalkali, epichlorohydrin,
07:36 but is there a subset of product group
07:38 which comprises of this 2,500 crore
07:41 or is it a major product?
07:42 - See, 2,500 crore is right now what we are generating
07:46 from our chloroalkali, chloromethane, hydrogen peroxide,
07:49 agrochemicals, different molecules
07:52 and in the pigment industry,
07:54 in the pigment, phthalocyanide pigments.
07:56 But the epichlorohydrin and the CPVC,
08:00 we are going to commission by end of this financial year.
08:03 - Okay, so you have a customer base
08:05 already lined up for a couple of years.
08:07 I mean, like in terms of the revenue
08:09 for the next three to five years
08:11 in the existing product group,
08:13 would you be already,
08:15 or would you be initiating some kind of a contracts
08:17 with the existing customers
08:18 for the continuous supply and the orders?
08:20 Or how would your order book would be,
08:23 let's say for these products for the next,
08:26 after three years?
08:27 - See, if you see the epichlorohydrin,
08:30 epichlorohydrin is majorly used
08:32 as a epoxy resin raw material.
08:34 And in last two, three years,
08:36 you must have seen that the automobile segment
08:39 is growing in a double digit growth in India.
08:42 - Right.
08:43 - So the epoxy resin is majorly used in automobiles
08:46 and along with also as a construction chemicals also.
08:50 And the infrastructure is growing in India.
08:52 So the epichlorohydrin demand in India
08:55 is growing in a double digit
08:56 and close to, I think around 80,000 tons
09:00 is imported currently in India.
09:02 And there is no manufacturing in India.
09:04 So we don't find any problem in terms of the customer
09:07 and the epoxy resin manufacture,
09:10 many multinational companies like a Kukdo Chemicals,
09:13 which is a global giant in the epoxy resin.
09:16 They also identify as a next manufacturing hub
09:19 in India, in the hedge.
09:21 So they are also under construction
09:23 of setting up a chloral, the epoxy resin plant.
09:26 So in the future, probably all our customers
09:29 are going to be in 200 kilometers of range of our plant,
09:32 which is in Gujarat.
09:34 So we don't find any major issue in the,
09:36 in terms of market in the epichlorohydrin
09:38 and the CPVC, it is also the same scenario
09:43 we are expecting because currently
09:44 the India's demand is 130,000 tons
09:47 and it's majorly imported from outside.
09:50 So, and there is no manufacturer,
09:53 I think hardly manufacture around 10,000 tons in India.
09:56 So we don't find any problem in selling
09:58 30,000 tons of CPVC resin in India.
10:01 - Right.
10:02 So you focus on the economy of scale
10:04 and really scale up your molecules
10:06 to a large, large, really large scale.
10:09 I mean, like, I mean, just to understand a little bit
10:11 on the defined chemical business of it,
10:14 how would you differentiate your existing business
10:18 in terms of strategy with defined chemical business,
10:20 which I believe is at an emerging state?
10:23 Is this the right understanding?
10:25 - Yes.
10:27 You know, as you rightly say,
10:29 the defined chemical business, see,
10:31 and as a make money, you know, we are all technocrats.
10:35 Our first generation is also chemical engineers.
10:37 We are the second generation also,
10:38 all are chemical engineers.
10:39 So we focus on the economy of scale,
10:41 as we rightly said, you know,
10:43 whatever molecule we select,
10:45 we don't depend on any KSM,
10:48 any key raw material from China or any other countries.
10:51 We prefer to manufacture in-house,
10:53 and that is our strength.
10:55 So we believe in the forward,
10:56 in the coming five years also,
10:57 we are selecting a molecule
10:59 which is completely backward integrated,
11:01 and it is a strength,
11:03 because currently in current scenario,
11:05 most of the multinationals
11:06 who are outsourcing their manufacturing,
11:09 they prefer also the key raw material
11:11 also manufactured by the same people.
11:13 They do not prefer if you are importing
11:15 from other part of the countries.
11:17 So that is our strategy in coming five years also.
11:20 - Excellent, Mouliq.
11:23 I think since you talked about a company with, you know,
11:26 with the generation,
11:28 or several generation working on it,
11:30 just interested to know, I mean, what are the,
11:33 so I mean, which strategy worked well and why,
11:35 and which strategy did not work well and why?
11:38 - Okay.
11:40 So yeah, the, see, for us,
11:43 strategy is always whenever we are planning,
11:46 see many people, when they plan their manufacturing,
11:49 they don't plan backward integration or forward integration.
11:52 They go step by step.
11:54 So in our case, we planned our backward integration
11:57 at the same time when we think about molecule.
11:59 I think that is the key strength of Meghmani,
12:01 you can say that.
12:02 - Anushmi.
12:04 - Sure.
12:06 Mouliq, I want to take you back to 2007,
12:09 and even now, I mean,
12:12 there was a time when you decided that chloroalkali
12:14 is the product that,
12:16 a category that you want to expand,
12:18 like forward, backward, et cetera.
12:20 Now, tell me when you think about these unique opportunities
12:23 and, you know, creating competitive advantage by,
12:26 you know, being part of the entire chain,
12:29 what kind of factors do you look at
12:34 in terms of, you know, competition?
12:37 Do you think about it in terms of whether you are,
12:41 you can be substantially more competitive compared to China,
12:44 or do you think in terms of the domestic opportunity
12:47 and how much of it you can take away
12:49 by being a domestic player?
12:51 What are the real factors?
12:53 And today, as you expand, you know,
12:55 you have capacity expansions planned
12:58 for the next two, three years.
12:59 What kind of growth runway do you see
13:04 based on which you have made these CAPEX calls?
13:10 - I see, as in terms of chloroalkali segments,
13:13 you know, our biggest trend is a location
13:16 because location, we are located in the HBCPR region,
13:20 which is the biggest chemical hub of India.
13:24 And if you see most of the,
13:26 India has the highest logistic cost
13:29 compared to other part of the world.
13:31 So if you're not located in the right place,
13:34 that is also a big disadvantage to,
13:36 you know, in your manufacturing site.
13:38 So as a chloroalkali complex,
13:40 all of our customers are in within
13:43 the 500 kilometer range maximum.
13:46 So that is our biggest trend in terms of competitiveness.
13:49 Okay, in terms of the port availability,
13:51 you know, the port is also,
13:53 the hedge is strategically located
13:56 where the port is only five kilometers away from your site.
13:59 So we are completely backward integrated
14:01 in terms of chloroalkali,
14:03 where we have a coal-based power plant of 132 megawatt.
14:06 And that is, coal is coming from five kilometers
14:09 away from our site.
14:11 And another major raw material for chloroalkali is a salt,
14:14 which is also a seashore available
14:16 in five kilometers to 10 kilometers range.
14:19 So that is our biggest trend
14:21 to compete in a global scale also.
14:23 - Good, and in terms of competitiveness per se,
14:27 do you do benchmarking against the rest of the players
14:29 and especially with that in your product lines,
14:32 are they as competitive as Chinese players
14:35 and you're evaluating everything
14:38 from a global competitiveness perspective?
14:42 - Yes, see global competitiveness, definitely it works,
14:47 but as in terms of, yeah, in terms of energy,
14:52 India is on the little higher side.
14:54 So completely you need to plan like in the Western world,
14:57 people are not having a captive power plant
14:59 along with their caustic soda plant.
15:01 But in India, when you're planning for a caustic soda plant,
15:04 you have to have a backward integration.
15:07 Without backward integration, you cannot survive in India.
15:10 - Right.
15:11 - In terms of Western world,
15:12 they have a high capex compared to if you want to set up
15:15 a caustic soda plant and in India,
15:17 the capex is very lower in terms of,
15:20 because of the manufacturing is available locally,
15:23 majority of the equipments.
15:25 So that's an advantage India has and some disadvantage,
15:28 but overall point of view, as a country, India is growing
15:33 and every business is growing and at a double digit growth.
15:37 So every chemicals is growing like agrochemicals,
15:39 pharmaceutical, intermediate,
15:41 the government announced the income tax benefit
15:44 for the new companies manufacturing,
15:46 if you start around 15%, earlier was 25, 35%.
15:49 So, and the PLI scheme government has reduced
15:53 against China or any other countries
15:56 where we are heavily dependent on KSM, key ingredient.
16:00 We are dependent on in agrochemicals or in pharmaceuticals,
16:02 we are dependent on China and other countries.
16:05 So this all will definitely, we are seeing right now,
16:09 a lot of construction is going on in the age region,
16:12 a lot of new players are coming,
16:13 so land in the PCPR, the age region,
16:15 there is no land available right now, if you want to buy it.
16:18 So, everything is occupied and people are constructing
16:22 and growing like anything.
16:23 So we feel that over the period of time,
16:25 we are also growing and this chemical will consume
16:28 by our, this peers, pharmaceutical
16:30 and the pharmaceutical intermediates.
16:32 So we don't find such kind of problem in coming times
16:36 because India is going in double digit
16:38 and we are moving from saving to spending economy
16:40 as we rightly say.
16:42 - And you mentioned PLI, I mean,
16:45 are there any opportunities for you?
16:46 I mean, which product segments
16:48 are you able to leverage the PLI?
16:50 - In PLI scheme, definitely the government currently
16:54 has announced only in the pharmaceutical.
16:57 There are no other announcement,
16:59 but we heard that the people-
17:00 - They're saying in speciality also,
17:02 they're going to extend.
17:03 - Extend, but there is no announcement so far.
17:06 - Right, right.
17:07 - We hope, we all are waiting
17:08 and I think they have taken us all industry
17:11 or all industries associations feedback regarding the PLI.
17:15 They wanted to extend, but that is an excellent policies
17:18 launched by the government very logically,
17:20 because every manufacturing quantity,
17:25 they've identified how much import India requires
17:27 and based on that, they are going to give a subsidy,
17:29 not based on the investment.
17:31 - Right.
17:32 - And the government wants that
17:34 the one single big manufacturer came
17:36 and take that advantage
17:38 so they can compete in a global scale.
17:41 - Right.
17:42 - So that is also, I think it is a wonderful idea
17:45 by government of India.
17:47 - Right.
17:49 - And probably definitely the lot of manufacturing
17:50 will come because of that PLI scheme,
17:52 as well as the income tax is reduced to 15%
17:55 for the new company.
17:57 - Sure.
17:58 So, Mounik, you have these three businesses
18:01 and structurally, how do you see these businesses
18:06 going forward with the kind of growth rates
18:09 that you were talking about 30, 35%, et cetera.
18:12 Will these remain under one roof
18:14 or is there a possibility of demerging them
18:17 and spin-offs and stuff like that, which can unlock value?
18:21 - See, as I explained that,
18:29 Make Money Fine Chemical Limited,
18:30 which is chloroalkali and we are doing
18:33 a forward integration into speciality,
18:34 we are moving to the speciality.
18:36 That segment, we are going to demerge.
18:38 We have announced already last year
18:40 and by first quarter of next financial year,
18:42 we are going to demerge automatically in DAC and NSE.
18:46 And that we wanted to unlock the values
18:49 because we believe that over the period of time,
18:52 if you want to grow in the business,
18:54 the power of equity is very required.
18:57 If you want to grow in a shorter time,
19:00 you cannot grow only by taking a debt from the bank.
19:03 So if you want to go on a faster space,
19:05 so that unlocking the value of your company is required.
19:09 And this is a first step we are doing it
19:11 by first quarter of next financial year.
19:13 - I was kind of interested to know, Mouli,
19:16 that when you look at the future growth levers
19:19 of Make Money as a company, as a group,
19:21 would you also be looking at expanding your base
19:24 from India to maybe outside of,
19:27 outside of maybe in Europe or US?
19:28 And do you see a need?
19:29 Because I think in order for you to set up the base there,
19:33 you also have to carefully handpick the right products
19:35 in the portfolio to cater to that market.
19:38 So is there a broader view on that,
19:40 on the strategy?
19:42 - Yeah, Hardik, it's a very good question.
19:46 So currently in the Make Money,
19:49 we have identified a roadmap for till 2024 financial year.
19:55 That is our target to reach 5,000 crore.
19:58 So once we reach that target,
20:00 our plan is to go by acquisitions and mergers
20:04 because by setting up a planned greenfield project,
20:07 you cannot grow multifold.
20:09 So definitely we are going to be open
20:12 once we cross the 5,000 crore mark,
20:14 and we are planning to,
20:16 for other opportunities which are available in the market,
20:21 globally as well as within India.
20:24 - Right.
20:25 So, Mourik, if you have to really think for the future,
20:29 or maybe let me rephrase this to say that
20:31 if you were to give an advice to an entrepreneur
20:34 who would like to set up the chemical companies in India,
20:37 which would probably in two years, three years down the line,
20:40 what challenges and opportunities do you anticipate
20:43 for an individual to set up companies like yours,
20:46 let's say Make Money 2.0?
20:48 - Okay, I, you know,
20:51 so the first advantage is, you know,
20:53 there is, it's a huge opportunities available in India.
20:58 So there are obstacles in India,
21:00 so, but don't look at it in terms of other countries
21:03 we are far better off.
21:05 So normally the people and manufacturers, you know,
21:07 we are always criticizing our government
21:10 and the manufacturing,
21:11 but the availability and the scope in Indian population
21:16 is growing, the growth is happening.
21:18 So opportunities among us, you know,
21:20 so you, there is no look at it back.
21:23 You just jump in, don't think too much, you know,
21:26 the opportunity, if you have a manufacturing base,
21:29 definitely you will get success if you have, you know,
21:33 in the incoming time.
21:34 So don't look at it back, you know,
21:36 just to enter in the manufacturing line.
21:38 It is a huge, there are untapped opportunities available
21:42 in a huge way in coming years.
21:44 Still, you know, we are finding it, you know,
21:47 how we can increase our manpower strength
21:50 and how we can do multiple projects at the same time.
21:53 You know, we are, we will keep evaluating that
21:56 because, you know, every organization has a limited scope
21:59 in terms of manpower and execution of the project.
22:02 So we feel that it's still opportunities there
22:04 in the market and we are not encashing it.
22:06 So I think for all manufacturer,
22:09 chemical industry has a huge scope in coming time in India.
22:13 - Sure, that is all from me
22:16 and it's only passion, confidence, and optimism like yours
22:21 that keeps our country growing.
22:22 So more power to you and your team, Malik.
22:26 Thank you so much for this discussion today.
22:28 - Thank you, Mahalakshmi.
22:29 Thank you, Hadi.
22:30 Thank you.
22:31 - Sure.
22:32 - Thank you for giving me opportunity.
22:34 Thank you.
22:35 Bye-bye.
22:35 - Not at all, thanks.
22:36 [MUSIC PLAYING]
22:40 (upbeat music)
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