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Chairman Speak

 

I am pleased to state that our Company has a diversified portfolio of carbon products. We are the only Company to have a fully integrated specialty carbon complex, specialising in developing coal tar by-products and derivatives (advanced carbon material, coal tar pitch, carbon black, corrosion protection and naphthalene). We can now also boast of the fact that we are engaged in power generation also. Understandably, the Company enjoys a formidable downstream presence in the aluminium, graphite, lithium-ion batteries, infrastructure, tyres and rubber application sectors.


We have successfully augmented our carbon black capacity. We added to our portfolio a new SNF plant; a coal tar pitch plant in China and commissioned advanced carbon plant. The result was that the Company reported a creditable year in 2011-12,despite the economies around the world trying to grapple with the vagaries of the downturn: topline grew 60.46 % to Rs. 1123.36 crore, EBIDTA grew 16.64% from Rs. 192.56 crore in 2010-11 to Rs. 224.60 crore in 2011-12.

Industry overview

Himadri Chemicals has a large portfolio of products catering to the needs of diverse industries and carving for itself a niche in its sector. Even though dark clouds of economic crises hover on the horizon, our industrial presence and performance especially over the last financial year serve for us as the proverbial silver-lining.

Over the years, there has been a demographic shift in the manufacture of aluminium products from Western countries to Asia. Large capacities have been harnessed in the Middle East, China and India leveraging proximate demand, low power costs and the easy availability of competitively-priced raw material. In turn, this increased supply has grown in direct proportion with the consumption of aluminium products in downstream sectors.

Indian crude steel production is expected to grow at a compound aggregate growth rate (CAGR) of around 10% in during 2010-2013. This bodes well for the Company on multiple grounds through generation of raw material for Himadri and simultaneously represent attractive downstream prospects. Coal tar accounts for ~3.5% of the coke produced. From the coal tar distillation process we derive ~50-55% of coal tar pitch.

India’s aluminum industry is the principal consumer of coal tar pitch; it accounts for around 78% of coal tar pitch consumed globally. India is engaged in a rapidly bolstering its aluminium capacity as the centre of gravity shifts from Europe to India-China-Middle East.

India is one of the strongest emerging telephony markets in the world. The country’s mobile penetration is expected to grow to 72% by 2016 which provides a scope of switching from landlines to cell phones widening the market for lithium ion batteries and materials derived from our distillation process

India's consumption of carbon black is growing by about eight percent per year. About 95% of the carbon black is consumed by the country's rubber industry. Demand is expected to grow by about nine or ten percent over the next five years. A staggering increase in the country’s infrastructural sector as well as the burgeoning automobile industry can prove to be the perfect agents promoting the demand for Himadri’s products.

Himadri Chemicals expects to capitalise on these trends through its extensive integration and a growing presence in India and China, two of the fastest growing suppliers of raw material for the Company’s operations, ensuring not just consumers but also end products. This two-country presence will enhance flexibility and enable the Company to service the growing demand for coal tar distillation products in India, China and the rest of the world.

Challenges

While the aforementioned data places our prospects from a medium-term perspective, the short-term appears to be a completely different ball game altogether. The Indian economy decelerated in 2011-12, the rupee depreciated 14.57 % against the dollar which resulted in marked-tomarket losses of around Rs.89.55 crores. In turn, an industry delay in commissioning new coke oven batteries affected coal tar availability playing havoc with the fortunes of your Company. The slowdown in the Indian economy affected steel production, which in turn, affected the production of coal tar. Due to this the Company’s dependence on costly imported coal tar increased and affected profitability in the long-run. In turn, the increase in the raw material cost for carbon black could not be offset by an increase in realisation. Besides, a slowdown in the Chinese construction industry resulted in a naphthalene surplus that affected realisation in India, also affecting our profitability in an extremely adverse fashion.

 
Outlook

During the short term, we expect to maintain topline growth on account of increasing capacities of its core capacities as well as those of the byproducts and try to shrug off the constraints imposed on the margins due to an increase in raw material costs.

The increase in coke oven capacities and aluminium smelter expansions were delayed, which jolted our profitability and this pressure is likely to sustain into the current financial year. On the brighter side of things, once the coke oven projects under expansion at various integrated steel plants are completed it will increase coal tar availability. We are working to commission the incremental capacity of coal tar pitch to meet the increasing demand from the aluminium sector by this year-end. We are expecting the lithium-ion battery market to increase, resulting in an increase in the demand for our products.

We expect to leverage our capability in core carbon competencies and strengthen our business model by expanding our distillation capacity by a significant 60%. This we intend to leverage on basis of the accruals and debt by the end of the fourth quarter of the current financial year. This expansion will enhance our distillation economies as well as the economies of our downstream by-products.

At Himadri Chemicals, our long-term vision is to enhance value-addition for the gamut of products that come out of our conveyor belts. This facilitates strengthening of margins around base products, increases our distillation capacity, enhances the quantum of raw material required to feed by-product manufacture and widen our coverage of diverse carbon finished products.

This positioning will reinforce our global brand of being a focused and integrated carbon corporation, enhancing value in the hands of the stakeholders.