*IG Petrochemicals Ltd. – Plant Visit/Management Meet Key Takeaways:*
CMP: INR 689
Market Cap: INR 21,400 Mn
*Business Model:*
- It is the lowest cost producer of Phthalic Anhydride in India.
- It also produces Maleic Anhydride and Benzoic Acid from the effluent obtained during the manufacture of Phthalic Anhydride.
- Currently, Phthalic Anhydride contributes about 90% of the revenues.
- Maleic Anhydride and Benzoic Acid forms the remaining 10% of the revenues.
- Main raw material for manufacture of Phthalic Anhydride is o-xylene (ortho-xylene), which is majorly sourced from Reliance Industries Ltd.
- The company maintains about 20-22 days of o-xylene inventory (about 11,000-12,000 tons) and then replenishes it again.
- The company utilizes some portion of in-house Phthalic Anhydride and Alcohol (from outside) to manufacture Di-Ethyl Phthalate (DEP).
*Operational Developments:*
- The company commissioned additional capacity of 53,000 MTPA of Phthalic Anhydride (Unit: PA-4) in December 2020.
- Post this commissioning, the total capacity of Phthalic Anhydride has reached to 222,110 MTPA.
- Additionally, Maleic Anhydride capacity stands at 7,500 MTPA.
- In November 2021, the company commenced commercial production of DEP with a capacity of 8,400 MTPA.
*Industry Scenario:*
- The total Phthalic Anhydride demand in India is about 4,50,000 MTPA.
- The market is growing at about 6-8% annually.
- India is a deficit market and imports about 1,50,000 MTPA for its pending requirements.
- The total Maleic Anhydride demand in India is about 80,000 MTPA.
- The market is growing at about 8%-10% annually.
- Food grade Maleic Anhydride demand is about 40,000 to 45,000 MTPA, while the remaining is Non-Food Grade.
- The DEP demand in India is about 22,000 MTPA (related to fragrance and toiletries segment).
- The local market is almost balanced in terms of supply and demand.
- However, it is continuing to grow at about 10% annually.
*Future Planning:*
- In the next stage of expansion, the company is setting up additional 53,000 MTPA capacity of Phthalic Anhydride (Unit: PA-5), which will increase the total capacity to 275,110 MTPA.
- The execution has started and is expected to be completed in 24-30 months by FY24.
- Capital Expenditure for PA-5 unit will be about INR3,500 Mn.
- Normally, a greenfield expansion of Phthalic Anhydride plant of 53,000 MTPA capacity involves capital expenditure of about INR 5,000 Mn but is lower for IG Petrochemicals as it is coming up in the same location.
- PA-5 will also increase capacity of Maleic Anhydride and Benzoic Acid as they are recovered from the effluent of Phthalic Anhydride stream.
- The company is targeting to increase its Non-Phthalic Anhydride revenue contribution to 30% in 2025 from 10% currently.
- The Non-Phthalic products have higher margins than Phthalic Anhydride as they are recovered from effluents.
- The company is also evaluating different options to manufacture different downstream products going forward, which will contribute to higher margins.
*Outlook:*
- The company is targeting revenues of INR 25,000-28,000 Mn by FY24-25.
- The margin profile will improve with the addition of non-phthalic anhydride and value-added products.
- Balance sheet is strong with Net debt being almost negligible. Cashflows are robust in the range of about INR 2,000 Mn annually.
- Based on FY22E EPS, the stock is currently trading at a P/E multiple of 9.9x.
- Given its revenue visibility, margin profile and strong balance sheet, we have a positive view on the stock.