Alert
Company’s website is not updated with the latest product information as a result we were not able to completely bifurcate the company products into commodities as well as into specialities chemical business. Also Investor presentation about the company was not available and additionally we do have few doubts about the company for which we have written to the company about the same. As soon as we get any response from the management we will update you regarding the same. This stock could be a very risky one therefore users need to be very careful and are requested to do their own research before taking any decision. Our past experience with this group/company has not been so good since the company before 2 years had failed to create any meaningful wealth for the shareholders for a very considerable period. However we hope this may change in the coming period.

Manali Petrochemicals Ltd is a completely debt free engaged in manufacturing import substitute chemicals which has wide range of applications in pharmaceuticals, food flavours, essences, cigarettes, cosmetics and perfumery. Company as of March 2022 is flooded with cash balance of 600+ crores which management plans to use for future growth opportunities before considering the same for distribution to shareholders.

Manali Petrochemicals Ltd

Current Market Price on the date of publishing this report- : 103

Introduction

Established in the year 1986, Southern Petrochemicals Industries Corporation promoted Manali Petrochemicals. It produces chemical import substitutes such as propylene oxide, propylene glycol, polyol, isocyanate, and others. These compounds are essential ingredients in the production of polyurethane foams, which have a wide range of uses. Propylene glycol is widely used in medications, culinary flavours, essences, tobacco, cosmetics, and fragrance. The firm has product agreements with Ato Chem in France, Arco in the United States, and Technip in France. In addition, the business has developed new better formulas for the production of bicycle tyres and rice mill rollers.

Business Products

The company is in the Polyurethanes business. Polyurethane (PU) is a chemical that contains urethane, urea, isocyanates, allophanates, and other compounds depending on the beginning raw ingredients and their reactions. It is a polymer with carbamate or urethane bond generated by the reaction of isocyanates with polyol.

PU, a versatile plastic polymer composed of both soft and hard elements such as urethane and urea, is available in a variety of forms ranging from stiff foam to flexible foam to strong and hard elastomers. PU may be tailored in a variety of mixes and architectures for use in a wide range of goods to increase energy efficiency and physical and chemical qualities. This enables PU to be utilised in a wide range of consumer and industrial applications, including thermal insulation in buildings, refrigerators, home furniture, shoes, packaging plastics, and so on. 

Due to wider range of properties and forms, it finds applications in rigid and flexible foam, fibre, film, composites, elastomers, coatings, adhesives and mainly caters to industries like Automotive, Appliances, Building & Construction, Energy, Defence, Paints and Coatings, Soft furniture, etc. PU is becoming popular in construction and infrastructure activity as well.

The company specialises in the production of propylene glycol, polyether polyol, and other related chemicals. Manali Petrochemicals is the sole producer of Propylene Glycol in India. It is also the first and largest Indian producer of Propylene Oxide, the raw ingredient for the aforementioned derivative goods.

Polyols are classified into four types: Flexible Slabstock, Flexible Cold Cure, Rigid, and Elastomers. These are used in the automotive, refrigeration and temperature control, adhesive, sealant, coatings, furniture, and textile sectors, among others. Polyols are becoming increasingly used in footwear and roofing applications in India.

Propylene Glycol (PG) is a colourless, transparent, practically odourless, viscous liquid with a slight sweet flavour that is formed when propylene oxide reacts with water. Because it is chemically inert, it does not react with other compounds.

When PG is combined with water, chloroform, and acetone, it forms a homogeneous slurry that absorbs moisture from the air. PG persists without changing the characteristics of the reacting molecules. As a result, it is excellent for blending contrasting materials and is also used as a solvent in a wide range of applications.

PG is utilised in a wide range of applications, most notably as a drug solubilizer in tropical, oral, and injectable pharmaceuticals, as a vitamin stabiliser, and as a water miscible co solvent. The Food and Drug Administration (FDA) has approved PG as a safe human food additive, particularly in pharmaceutical and food formulations. In addition to the foregoing, PG is utilised as a moisturiser in cosmetic goods and as a fragrance dispersion. Industrial applications for PG include the production of resins and other goods.

PG is widely used in the pharmaceutical, food, flavour, and fragrance industries, as well as in the production of polyester resins, carbonless paper, and vehicle consumables such as brake fluid and anti-freeze liquid. Medicines, canned food, body sprays, fragrances, cosmetics, soaps, and detergents are just a few of the many uses for PG. Due to the availability of cheaper alternatives, the use of PG for industrial uses is often modest.

Propylene Glycol Mono Methyl Ether (PGMME), a non-hazardous solvent used in the paint & coatings and electronics sectors.

Speciality chemical Business of the company has several applications such cast elastomers which company manufactures in UK and company has set up a manufacturing facility in india as well. Other applications include footwear segment, car seating automotive segment which has both commodity and specialty application.

Financials

For the year Ended March 2022

• Total revenue stood at Rs. 1,690 crore registering  almost 60% growth in revenue over previous year.
• EBITDA stood at Rs. 547 crore registering  almost 74% growth in EBITDA over previous year.
• PBT stood at Rs. 511 crore registering  almost 90% growth in EBITDA over previous year.
• EPS stood at 22.16 up almost 100% compared to the previous year.
• For the year FY21-22 company generated about Rs. 346 crore of free cash flow as compared to Rs.194 crore last year. 
• Capital spent was almost on the same range at around Rs.27 crore which was at last year. 
• Company at the end of FY22 had cash and cash equivalent of almost Rs. 612 crore as compared to Rs. 281 crore last year. 
• Company had achieved Return on equity of 37% for this FY21-22 as compared to 30% last year. 
• Return on capital employed for this year was at 48% as compared to 41% for last year.

For Q4 of FY21-22

• Net Sales at Rs 413.85 crore in March 2022 up 13.17% from Rs. 365.70 crore in March 2021.
• Quarterly Net Profit at Rs. 73.93 crore in March 2022 down 19.09% from Rs. 91.38 crore in March 2021.
• EBITDA stands at Rs. 110.12 crore in March 2022 down 15.15% from Rs. 129.78 crore in March 2021.
• Manali Petro EPS has decreased to Rs. 4.30 in March 2022 from Rs. 5.31 in March 2021.

Key Ratios

• Current ratio of almost 5 (4.9) ,  
• Quick ratio of 4.4 
• Days receivables outstanding was 36, 
• Day inventory outstanding was 29 and 
• Days payables at about 14; an improvement from last year. 
• Net cash cycle reduced from about 52 to almost about 34 this year. 
• Networth grew from about Rs. 680 crore to a level of Rs. 1,030 crore 
• Debt-to-equity ratio remains very low at 0.02% which has been the average for the last four – five years.

Capex

Company has announced an expansion of the Propylene Glycol facility and the approvals for the same are in progress. Once the approval comes through company will start implementing the project. 

Company use to make Propylene Glycol which used to be 20,000 tons of licensed capacity which we got extended to 22,000 tons and in terms of licensed capacity it can make 50,000 tons of polyol . Polyol capacity utilization which used to be around 30-40%  has now come up to about 60% to 70%. 

There are two phases of this project this PG expansion project. The first phase is expansion which is a low cost expansion because the Brownfield expansion which will give company about 20,000 tons of PG and that will come at about Rs.65 crore and the second expansion will be a similar capacity and that will come at about Rs. 160 crore. 

Agreement with the UK base Econic Technologies for CO2 based polyol trial runs 

Manali Petrochemicals Ltd. (MPL) has signed a long-form agreement with U.K.-based based Econic Technologies to manufacture eco-friendly polyols. 

MPL has signed a MoU with Econic Technologies to scale their catalyst technology which would enable substitution of fossil based raw materials with captured waste COz in the production of polyols. The partnership involves MPL and Econic collaborating to scale the technology at MPL’s pilot plant in India. On successful completion, this will be followed by the introduction of the process to one of the production trains in MPL’s main plant. The shared intent is to bring CO2- containing polyols to MPL’s customers.

The project cost for the the pilot plant would be somewhere around $200,000 to $300,000. 

Managements Commnets

Management has indicated its intent of forward integration however the same would be implemented only after carefully analysing the current market demand scenario. 

Other then that management is also open to various Brownfield or Greenfield capacity expansions depending upon the opportunities which will present in the near future. 

Currently the company is operating on a mix of 80:20 where 80% of its business comes from the commodities where as 20% business is of speciality chemicals. This could change in the coming period as management has expressed their intent of increasing focus on the speciality chemicals segment, however the exposure could not go much beyond 30% in the near future.

The total Propylene Glycol capacity in india is around 100,000 tons and the Polyol capacity is roughly around 100,000 tons per month. Today Manali Petro is the only producer of PG and Polyols in India the balance of the demand is being met through supply from international players who are importing the products in India and supplying the domestic market.

One of the product lime which company uses is imported today from many different sources and these sources could widely vary from Malaysia, Vietnam to the Middle East. Of these three products, lime is the only product that Company imports besides some other small ancillary products that it uses to enhance the specialty chemicals business.

Over the past 2 years management has focussed extensively on increasing operational efficiencies as well as streamlining balance sheet in terms of the debt and cash availability which gave the company a good base to take off from where it was.

During the last two years company planned extensively to benefit from the supply whenever the demand picked up. That is during the tough times planned for the coming period. Company setup a terminal at the port where the imported propylene oxide which is the intermediate product was stored to unlock the potential of downstream supply. In case there was a disruption to propylene supply from refinery or if the need arise for the company to produce more than what the refinery can supply; then company was not constrained by the unavailability of the intermediate raw materials. Thus this resulted in huge benefit to the company.

Additionally company also took various other steps which resulted in phenomenal returns over past two years. However the results of the past may not be full replicated in the coming period as management has clarified that the margins which the company was able to generate in the past may face some downward pressure due to opening up of the economy where competitors have increased capacity of imported raw materials ultimately leading to reduction in the prices as well as putting pressure on the margins.

There was some volumetric expansion in the product of the company however majority of the growth came on account of price increases.

How the company moves ahead will be able to know only as the time passes.

Users are requested to read the note mentioned at the top before taking any decision.

Conclusion

Manali Petrochemicals Limited (MPL) is a leading petrochemical manufacturer based in Chennai, India. It markets propylene glycol and polyols. Part of Singapore headquartered USD 2+ billion AM International group, MPL has one Wholly Owned Subsidiary – AMCHEM Speciality Chemicals Private Limited, Singapore – and two Step Down Subsidiaries – AMCHEM Speciality Chemicals UK Limited, UK and Notedome Limited, UK. Manali Petrochemicals is the sole producer of Propylene Glycol in India. It is also the first and largest Indian producer of Propylene Oxide, the raw ingredient for the aforementioned derivative goods. Other then that company is completely debt free and has cash and equivalents of about 600 crores. Based on given current finals company trades at an price to earnings ratio of just 4. However management has guided for the erosion in the margins which can create some impact on the profitability as well in the coming period leading to reduced profitability . The full impact of the same will be visible only after the end of Q3 fy 23. Overall other then that at current levels this company is worth keeping on the watchlist.