Concall Summary: Dharamsi Morarji Chemical Company Q4FY20

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Business Update

  1.  There was an impact of a corona virus outbreak on the results of the company in March as all customer plants were shutdown
  2. Did lose turnover of Rs 10 crores due to the plant shutdown


  • Ultra Capital
  • Candyfloss Advisors
  • Bamboo Capital
  • Sunidhi Securities
  • Vriddhi Capital
  • Atom Investments
  • Alphaaccurate Advisors
  • GIRIK Capital
  • Sapphire Capital
  • Astute Investments


  • Most of the contracts with customers are linked to raw material prices. The average price for key raw material sulphur was 45% less in FY20
  • The Q3FY20 was one of the lowest offtake quarter in terms of exports as there was uncertainty in the global market
  • The overseas market is reasonably strong but the domestic market is subdued
  • The entire chemical industry across the globe was never shut down because it was classified as essential but in India, there were different distinctions made
  • The sulphuric acid plant expansion is expected to complete in H2 2021
  • Not planning to be aggressive on debt expansion because of current uncertain environment
  • Chinese government if offering very good sops to the export industry as a subsidy to get back their industry and for India, this is a big threat
  • AlsoIndia is the only country where the chemical industry is shut down and there has been no incentive from the government to the industries
  • In the sulfone market, China is a big competitive threat
  • The gross margins in Q4 were higher because raw material prices had gone down but finished goods prices will adjust in April
  • The boron business hasn’t been doing well because of multiple problems coming one after the other and it is not operating at optimum capacity utilization
  • No single sector contributes more than 10%to the overall revenues
  • Most of the specialty chemical products are exported and some products are mature while others are newer products with higher growth potential
  • The sourcing of sulphur is mostly done locally but if there is a price differential then could import as well
  • The availability of sulphur is high and there isn’t a negative impact as of now but if there is a continuous slowdown in consumption of fuel in domestic markets then there could be an impact on prices
  • There hasn’t been a substantial increase in costs due to sanitizing and other requirements of working in the corona era
  • The maintenance expenditure will vary in a range of Rs 8-10 crore on an annual basis
  • The Chinese government has been far ahead in terms of tackling coronavirus than other countries globally. They are providing 13% export subsidy along with power and interest costs already being very low
  • The new sulphuric acid plant that is coming up will be the only expansion in commodity chemicals from the company over the next 10 years
  • Post this expansion other expansions will be in downstream products
  • The investment in the sulphuric acid plant will be to the tune of Rs 50 crores and another Rs 20 crores for the downstream plant
  • The debt for the expansion has already been tied up and 2/3rdof the expansion will be financed by debt
  • The market size in sulphur chemistry is very large and even if the company grows its revenues by 10 times there would still be growth opportunities available
  • The asset turnover in a sulphuric acid plant varies between 1-1.5 while in downstream products it is 2-3 times
  • The company supplies directly to pharma companies and makes the chemical that goes into making the API
  • The philosophy of the company is to enter into smaller value molecules rather than higher value molecules
  • Have not lost any market share in export markets but revenues are down due to overall demand being low
  • The sulphuric acid market is a pure commodity and it is very difficult to forecast the future pricing trends
  • Power costs in China are half (Rs 4.5 vs Rs 9/unit) of India’s cost and interest costs in China are 25% (2.5% vs 10%) of what are the costs in India and along with this there are export subsidies provided
  • The other income is higher due to regrouping done on adjustments of some line items which were previously being classified in a different way
Also Read on FinMedium:  Concall Summary: Apcotex Industries Q4FY20

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Karan Sharma

Karan Sharma

The Concall Summary Guy | CFA | Investor
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