Indian Colorant Industry Part-2

Vandita Jadeja

29 Jan 2018

India is emerging as a unique and leading manufacturer in colorants industry. It is expected that there will be a strong growth in key end user industries like textiles, paints, coating, inks and cosmetics in the next four years. The Indian colorant industry is expected to grow higher due to the increasing demand for high quality paints and coatings, low per capita consumption, an increase in demand for high quality textiles and strong packaging industry which drives high value to the specialty ink market in the country.

Looking ahead-2018
China is dominating the industry of disperse dye market and toxic azo pigments with more than 40% global share, while India has emerged as one of the global hubs for less toxic pigments and reactive dyes. The monopoly towards specialty colorants is shifting towards Asian countries which are mainly due to higher operating cost and regulatory norms. China follows a bulk production strategy which is not conducive in specialty chemicals and big Indian players are working to grab a large share of the value migration. Currently, the Indian market is highly fragmented with more than 900 manufacturing companies and 46% market being unorganized. There was a momentum in the industry where large players were growing higher and smaller units were consolidating with them due to the rising operating cost, rising compliance requirements, lengthy approval procedure for expansion and increasing environment norms.

Due to the increasing norms, users are shifting to nontoxic products. This will create avenues for growth for colorant players like Sudarshan, Ultramarine, Shree Pushkar and Asahi Songwon among many others. India is in the right position to capitalize the opportunity to make the most of the growing demand of nontoxic colorants in the industry.

Company analysis- AksharChem
AksharChem Ltd is a Gujarat based company with two plants in Mehsana. The company is engaged in the manufacture and marketing of pigments and dye intermediates. It is one of the leaders in the production of vinyl sulphone and has a capacity of 7,800 tpa. Asahi Songwon is its group company from which AksharChem acquired a CPC green pigment plant.

Majority of the revenues of the company come from exports which is dominated by South East, followed by Asia, India, US, Europe and ROW. It is expected that the company will see a growth of 22% by the end of 2020 and sustain on the expansion of CPC green capacity as well as focus on the de risking of the business with addition of more stable products. Since dye intermediates are volatile in nature, its prices are dependent on the global demand and supply. Although the company has swiftly transformed the business from cyclical to stable with the acquisition of the CPC green pigment business, it has also taken cost reduction initiatives in order to have a higher EBITDA margin. The margin moved from 17% in 2016 to 31% in 2017 and the return on equity was 21% in 2016 which went up to 48% in 2017.

In 2018, the focus of the company is to raise the stable margin pigment business share. It is doubling the CPC green pigment capacity in the next two years and plans to foray into Violet23 pigment. This business could lead to revenue contribution of 13% in 2019 on the back of expansion of CPC green pigment capacity. The company plans to spend INR 1.75 billion for stable margin value added products. It is in the process of de-risking the business by adding three new verticals within the next one year. These new products are expected to make the business more stable, increase the growth of revenue and expand the total addressable market.

After the merger of Green Pigment with AksharChem, its financial standing has improved. With the Chinese shutdown in 2015, the prices saw a steep rise globally and it benefitted the revenues of the company. The Pigment Green business is expected to grow at a CAGR of 19% by 2019 due to the leading position of AksharChem with in house technology, the long term relationships with key customers, compliance with significant environment norms and a capacity expansion from 1,920 tpa to 4,200 tpa. It is also expanding its portfolio and adding products which will help in the next leg of growth. With an increase in the CPC capacity, the company will be adding two new verticals and the project work for the same has started with internal accruals and will be completed in the next 15 months.

It is expected that the company has enough cash to finance about 50% of the project through internal accruals. It is estimated that the new projects can add revenue of 2,300-2,500 million at optimal utilization level. The main end users comprise of ink, rubber, plastics, and leather, paint and dyestuff manufacturers. With the launch of new products, the company expects to expand the end users to tyre and rubber, oral care, food, special ink, cosmetics and automotive coating industry. Since the products play a crucial role in the final product quality of end users, a reliable supplier and high quality are the keys to sustain the business. The company has a long standing relationship with clients, a zero product return and no bad debts which make it a strong company for investment and its history reflects the product quality which has ensured the loyalty of consumers over a long period of time.


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