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DCW Ltd

DCW Limited is a 83 years old leading manufacturer of niche speciality chemicals in India. The Company offers a diverse range of products focusing on commodity, speciality, and intermediate products. The Company serves customers in both the domestic and international markets.

Introduction

Current market price of the date of publishing this report-: 53 Rs

Incorporated in 1939 by taking over India’s first Soda Ash factories in Dhanghadra, Gujarat, DCW is now amongst the country’s fastest growing multi-product, multi-location chemical companies.

The company has a substantial position in the Chlor-Akali, Soda Ash, and PVC markets. Furthermore, DCW’s competitive advantage is strengthened by the diversification of its product range, which is shifting toward high-value-add speciality chemicals. Later on, the company grew, diversified, and modernised its operations by offering a diverse variety of products to consumers in both local and foreign markets.

As per old estimates Company is one of the six major producres of PVC and accounted nearly 10% of total market share in India while In Caustic Soda it had around 15% market share in South India.

DCW runs one facility in Gujarat, Dhragandhra, and another multi-purpose, self-sufficient plant in Tamil Nadu, Sahupuram. The Company has made major investments in cutting-edge technology at its Sahupuram production facility, which spans 2,500 acres, to ensure the greatest level of safety, product quality, productivity, efficiency, and uniformity in the finished product.

For C-PVC , DCW is the sole manufacturer in India with technical licence from Arkema, France* while for SIOP it is one of the largest commercial scale manufacturers in Asia for Red and Yellow Pigments.

The Sahupuram plant is located in close proximity to the Tuticorin port and provides the edge over its peers for exports to the international markets. The plant is also equipped with a captive power plant with an installed power generation capacity of 70 MW (12 MW oil-based CPP and 58 MW coal-based co-gen) to cater power consumption demand of the plant.

Started off as a Soda Ash manufacturer in Gujarat, DCW today manufactures soda ash, caustic soda, PVC resins, soda bicarbonates, trichloroethylene, synthetic rutile, titox, utox, bromine, bromide and a few other chemicals. The company has also introduced a range of home products like packaged spices, flour and iodised salt.

Today DCW has a diversified portfolio with over 12 products and an extensive distribution spanning across 12 countries & 100 customers. DCW exports its Synthetic Rutile to major global consumers like TOHO Titanium Co, Osaka Titanium Technologies Co & Ishihara Sangyo Kaisha in Japan, Chemours Titanium in USA and TOR Minerals in Malaysia. SIOP gets exported to large consumers like Colorbiotics, A brand of MBCC Group & Venator LLC in USA.

*Arkema, France

Arkema S.A. is a publicly traded multi-national maker of specialised materials based in Colombes, France, near Paris. The firm was founded in 2004 as part of Total’s reorganisation of its chemicals division, and it was listed on the Paris stock exchange. In 2021, the company’s turnover was €9.5 billion.

Arkema has presence in over 55 nations with 20,200 people, 13 research centres, and 144 manufacturing sites.

Business Products

The range of products in the Company’s portfolio is divided across there categories which includes:

  • Commodity Chemicals – Soda Ash, Caustic Soda, Poly Vinyl Chloride (PVC)
  • Intermediate Chemicals – Liquid Chlorine, Hydrochloric Acid, Trichloroethylene, Utox, and Sodium Bicarbonate, among others
  • Speciality Chemicals – Synthetic Rutile (SR), Synthetic Iron Oxide Pigments (SIOP) and Chlorinated Poly Vinyl Chloride (C-PVC)

Chlorinated Poly Vinyl Chloride (C-PVC)

C-PVC is a significant thermoplastic that is utilised in a wide range of sectors, from commercial to domestic water pipe systems. Furthermore, it is far more ductile, allowing for higher flexure as well as crush and corrosion resistance, making it a suitable choice to replace many different types of metal pipes.

CPVC is used in various industries, including construction, chemical, electrical & electronics, healthcare and material handling equipment.

According to BCC Research, the global market for chlorinated polyvinyl chloride is expected to increase from $2.1 billion in 2018 to $3.4 billion in 2023 at a CAGR of 10.3% for 2018-2023. The rising construction industry in India and China, along with growing applications of CPVC in the chemical industry, will drive product demand in the coming years.

DCW is the only domestic manufacturer of C-PVC, a versatile thermoplastic used mainly for manufacturing hot and cold-water pipes, industrial liquid handling, and a wide range of products serving a variety of applications. The Company C-PVC plant is situated at Sahupuram, Tamil Nadu, with an installed capacity of 10,800 MTPA as of 31st March 2022. The plant is currently operating at 106% capacity utilisation. C-PVC business contributed 8.8% to the total revenue during FY2022.

Soda Ash

Also known as Washing Soda or Sodium Carbonate ( Na2CO3), it is a sodium salt of Carbonic Acid. It is synthetically produced in large quantities from Salt and Limestone in a process known as the Standard Solvay Process.

Soda Ash (sodium carbonate) is used to manufacture glass, pulp and paper, detergents, and chemicals such as sodium silicates and sodium phosphates. It is also used as an alkaline agent in many chemical industries. Also known as sodium carbonate, Soda Ash is a white crystalline solid belonging to the Chlor-alkali family.

Soda Ash Light is mainly used for manufacturing of Detergent powder & Cake, Sodium silicate, in Oil well drilling, hygiene / cleaning products, Sodium Chromate, Sodium Bichromate and Sodium Salts, as well as in effluent & water treatment, pulp, paper manufacture and in dyes.

DCW’s Soda Ash plant is situated at Dhragandhra, Gujarat, with an installed capacity of 108,000 MTPA as of 31st March 2022. The plant is currently operating at 84% capacity utilisation. The Soda Ash business contributed 8.2% to the total revenue during FY2022.

According to Astute Analytica data, the worldwide soda ash market was valued at US$13.9 billion in 2020 and is predicted to increase to more than US$26 billion by 2025, with a revenue CAGR of 13.9%. The market was valued at 58.4 million tonnes in 2020, and it is expected to reach 82.6 million tonnes by the end of 2025.

From 2022 to 2027, the Indian soda ash market is estimated to grow at a CAGR of 1.82%. However, the COVID-19 virus epidemic resulted in lower soda ash sales, leading to supply chain interruptions.


Caustic Soda

Caustic Soda produced by electrolysis of industrial grade salt using environmentally friendly Membrane Cell technology. The main Raw materials are in house produced Salt & Power.

Its main uses are in the manufacture of pulp and paper, alumina, soap and detergents, petroleum products and chemical production.

Other applications include water treatment, food, textiles, metal processing, mining, glass making and others.

According to Fortune Business Insights, the worldwide caustic soda market was worth $44.9 billion in 2019 and is expected to be worth $55.6 billion by 2027, growing at a 3.1% CAGR over the forecast period.

DCW’s Caustic Soda factory is located in Sahupuram, Tamil Nadu, and has a capacity of 96 Thousand MTPA as of March 31, 2022. The facility is now working at 75% of its capacity. During FY2022, the Caustic Soda business provided 27% of total sales.

Synthetic Iron Oxide Pigments (SIOP)

DCW is one of the largest commercial scale manufacturers of Synthetic Iron Oxide pigments in India, sold under the BRAND DIROX. These pigments are produced at the Company’s Sahupuram facility using the unique zero discharge precipitation process. The country’s rapidly growing infrastructure and real estate industry have been the key growth factor for this product. DCW is one of the few large-scale synthetic iron oxide manufacturers for red and yellow pigments.

These pigments are used across a multitude of industries such as the construction sector where they are used for walling, paving and roofing. They are also widely used as colourants in the manufacturing of paper, paint, laminates, packaging, furniture, plastics, rubber, etc.

According to Grand View Research, the worldwide iron oxide pigments market was worth US$ 2.2 billion in 2020 and is predicted to grow at a 4.7% CAGR from 2021 to 2028.

As of March 31, 2022, the Company’s SIOP facility at Sahupuram, Tamil Nadu, has an installed capacity of 27 thousand MTPA and 50 thousand MTPA Calcium Chloride. The facility is presently working at 54% of its capacity. During FY2022, the SIOP business generated 4.4% of total revenue.

PVC

PVC is a high-strength thermoplastic polymer that is extensively utilised in a variety of applications, including pipes and fittings, films and sheets, wires and cables, bottles, profiles, hoses, and tubing. After polyethylene and polypropylene, PVC is the world’s third most extensively used plastic.

According to Polaris Market Research, the worldwide polyvinyl chloride (PVC) market was valued at $62.6 billion in 2018 and is predicted to rise at a 7.2% CAGR during the forecast period.

DCW’s PVC facility is located in Sahupuram, Tamil Nadu, and has an installed capacity of 90,000 MTPA as of March 31, 2022. The facility is now working at 105% of its capacity. During FY2022, the PVC business provided 51% of total revenue.

Synthetic Rutile

Synthetic Rutile, is a natural mineral upgraded by acid leaching to achieve Titanium Dioxide > 95% and reducing Iron < 2.5%. It is a golden yellow coloured mineral without a specific odour. Synthetic Rutile has a multitude of industrial applications, primarily as as a pigment. This includes everything from paper to plastic, paint and coating industries. Also used in Welding electrodes, Titanium Sponge etc.

Hydrochloric Acid

HydroChloric Acid is produced by the photo chemical synthesis of Hydrogen and Chlorine which are generated as a by product during the production of Caustic Soda. Hydrochloric Acid (HCl) is commonly used in the process of water treatment, leaching, and as an analytical agent. Manufacturing of Trichloro & Perchloro Ethylene, Refrigeration, Sanitation, Pesticides, Paper and pulp, Textile Bleaching.

Clients

Capex

As part of the first phase of its expansion strategy, the company intends to double its CPVC capacity by adding 10,000 tonnes of production. This CAPEX is consistent with the broader goal of expanding into Specialty Chemicals. DCW is currently the sole manufacturer of CPVC in India, and management thinks that this CAPEX would further enhance its market position, given the current demand condition. This project is projected to be completed in the second part of FY24, according to internal estimates. However, attempts are being made to expedite this process.

With some line-balancing CAPEX, management also intends to increase the capacity utilisation of its SIOP facility to 100%. This will result in an additional 10,000 tonnes of output per year over existing levels. This project is expected to be finished by the first quarter of fiscal year 24.

DCW is investing around Rs. 125 crores in these two projects, which is anticipated to bring between Rs. 60 and Rs. 70 crores to bottom line.

Financials

For the Year ended March 22

  • Revenue from operations in FY2022 was Rs 24,547 Mn, up from Rs 14,643 Mn the previous year, representing a 67.6% year-on-year increase.
  • Commodity chemical revenue for FY2022 was Rs 21,319 million, increasing 70% year on year.
  • Revenue from specialty chemicals was Rs 3,228 million, increasing 55% year on year.
  • Profit before tax was Rs1,432.5 million, up from Rs137 million the previous year.
  • Profit after tax for the fiscal year was Rs 1,075 million, up from Rs 38 million the previous year. In FY2022, EBITDA increased by 49.9% year on year to Rs 3,309 Mn, up from Rs 2,207 Mn in FY2021.
  • PVC and CPVC had the largest percentage of total EBITDA.
  • Company’s gross debt as of the 30th of September stands at Rs. 544 crores as against the 31st of March at Rs. 550 crores. The debt-equity ratio starting from March 2021, was 0.91 which came down to 0.69 in March 2022, and today it hovers around 0.57. This is based on the gross debt.
  • Company had cash and cash equivalents to the tune of Rs. 223 crores, therefore its as of the 30th of September has come down to Rs. 320 crores.
  • The current ratio from March 2021 at 0.76 went up to 1.02 in March 2022, and presently as of the 30th of September, it is 1.36.

For the first Half year FY 23

  • Company clocked a revenue of Rs. 1,466 crores for the half-year at an operating EBITDA of Rs. 235 crores as against last year of revenue of Rs. 1,092 crores and Rs. 140 crores of EBITDA.
  • There has been a 40% increase in the top-line, and around 70% increase in the EBITDA performance of the Company.
  • There has also been an exceptional item in terms of the sale of non-core assets, which over the two quarters put together is Rs. 44 crores of additional income which has come in.
  • And for the half-year, the interest stood at Rs. 87 crores predominantly because of that Rs. 37 crores of a one-off item which came in Quarter 2 as a closure of the KSSF deal.

For Q2FY23

  • Net Sales stood at Rs 697.78 crore in September 2022 up 22.02% from Rs. 571.87 crore in September 2021.
  • Quarterly Net Profit stood at Rs. 49.64 crore in September 2022 up 152.31% from Rs. 19.67 crore in September 2021.
  • EBITDA stood at Rs. 110.71 crore in September 2022 up 37.17% from Rs. 80.71 crore in September 2021.
  • DCW EPS had increased to Rs. 1.68 in September 2022 from Rs. 0.75 in September 2021.

Managements comments

Sectorial Outlook

  • As far as the caustic soda export is concerned one shipment of about 5000 tonnes has gone in the first week of this month, and another shipment is planned in the first week of December.
  • Soda Ash pricing is fairly stable and DCW has a long-term contract with big consumers like Hindustan Unilevers, Fena Detergents and big players like that. So the impact for the pricing as per the management has been mitigated.
  • 60% of company’s production is already frozen with these big consumers with regards to Soda Ash. Therefore management does not expect any major drop in soda ash realizations.
  • As per the management H2 interest would be something around Rs. 35 crores to Rs. 36 crores. Company is expected to end this year, even after this interest cost which has come and hit it in Quarter 2, at around Rs. 125 crores to Rs. 127 crores. From next year the interest will come down to as low as Rs. 65 crores.
  • The CAPEX expenditure which management is expecting to the tune of Rs. 125 crores to Rs. 130 crores, EBITDA from both of this is expected to be around Rs. 60 crores. So, roughly a payback to this project is around two years for the current capex.
  • Going forward management is expecting to find more opportunities where ROI can be more than the 10% rather then discharging its debt, since the debt has already been brought to the minimal level of less than 10%.
  • Management going forward is more commited to improving bottom line then to increase the top line numbers.
  • Presently company’s share of speciality in the EBITDA for the year gone by would be around 25%.However on a five-year horizon, it is estimated to take it to 55% to 60% in the bottom line in the coming period.

Sectorial Outlook

According to Grand View Research , the global speciality chemicals market was valued at US$ 630 billion in 2019 and is expected to grow at a CAGR of 3.7% from 2020 to 2027, when it is expected to reach US$ 842.5 billion. This growth is being driven by increasing demand for high-performance and function-specific chemicals. The industrial and institutional cleaners segment accounted for the largest market revenue share of 8.6% in 2019 and is projected to see a growth rate of 4.0% over the forecast period. Asia-Pacific is the dominant market for speciality chemicals, accounting for a revenue share of 46.8% in 2019. 44% of the global demand is attributed to the Asia-Pacific region, most notably in China, India, and Japan.

According to Frost & Sullivan, the Indian chemicals market is worth USD 186 billion (4% of the world chemical industry), with commodity chemicals accounting for over 46%. It is estimated to reach USD 330 billion in the next five years, with a 12.2% CAGR. The speciality chemical sector accounts for 47% of the domestic chemical market, which is predicted to increase at a CAGR of around 11% during the same time period.

Agrochemicals and fertilisers account for 18-20% of the domestic chemicals market and 38% of the specialty chemicals domain, which includes a variety of specialised chemicals used in agriculture such as insecticides and herbicides. Pharmaceutical API account for around 20% of the specialised chemical industry, with an expected rise of more than 11% by 2025F.

For more details please refer business products where we have discussed about sectorial outlook for each products.

Conclusion

DCW Limited, which has been in business for 83 years, is India’s top maker of specialist specialty chemicals. The Company provides a wide range of products, with a concentration on commodity, specialty, and intermediate items. Customers are served by the company in both the domestic and foreign markets. Soda ash, caustic soda, PVC resins, soda bicarbonates, trichloroethylene, synthetic rutile, titox, utox, bromine, bromide, and a few more chemicals are produced by the company. The company went through a reorganisation in which it cancelled a large percentage of its debt. The company is investing 125-130 crores in capital expenditure to boost its position. Furthermore, Management is focused on boosting its bottom line while maintaining top-line growth. Furthermore, management has agreed to expand the percentage of specialty chemicals in EBITA from the present 20-25% to roughly 55-60% in the future time. As a result, DCW is worth exploring for long term.

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