Explains Mr. P.S. Jayaraman, managing director, "The industry is cyclical in nature and we want to insulate ourselves from the vagaries of feedstock prices."

He adds, "What interests us in this project is its payback. Today, imported EDC costs $400 per ton, whereas it costs just $200 per ton to manufacture for captive consumption. Currently, we import 50 per cent of our raw material requirements and this would be halved when our project is commissioned."

The resultant savings will be sizeable for the company as EDC accounts for 35 per cent of the raw material cost. As a matter of fact, the company, during the first quarter of this fiscal, curtailed PVC production due to uneconomic EDC prices.

The commissioning of the oxychlorination plant this December will increase the company’s captive EDC production capacity by 25,000 to 75,000 tpa. That aside, the company is augmenting its ethylene and specialty resins at an outlay of around Rs 23 crore.

Chemplast Sanmar businesses

Part of the Rs 1,100 crore Sanmar group (see ) Chemplast Sanmar operates in two major business segments: PVC and chlorochemicals. The latter consists of chlorine derivatives and products like caustic soda, industrial solvents (chloromethane and trichloroethylene), refrigerant gases and silicon wafers. The company is a leading player in the speciality PVC market as also in the chloromethane business.

The company is an integrated player, with most of its products being either forward or backwardly integrated to other products. The company also has two industrial alcohol units with a total capacity of 37,500 kilolitres (used for production of EDC through alco-ethylene route); a salt unit for manufacture of caustic soda/chlorine and a capacity to generate 40 MW captive power.

While the PVC business generates 60 per cent of the company’s revenues, the balance is contributed by industrial solvents (30 per cent), refrigerant gases and silicon wafers (five per cent each).

Focus on speciality resins

Speaking about the PVC resin business, Mr Jayaraman says, "It is one of the fastest growing polymers in India. With a low per capita consumption of less than half a kg in India (as compared to the world average of four kg), the potential for growth in India is very encouraging. The expected Indian market growth is about 14 per cent per annum."

The bulk of the eight lakh tpa domestic PVC production consists of pipe grade suspension resin used for manufacture of pipes. Speciality grades of suspension resins –- paste and battery separator resin -- are also produced here. Out of six Indian PVC resin manufacturers, only Chemplast Sanmar and Finolex make paste resin. Finolex has a paste resin capacity of 30,000 tpa and plans are on to add another 10,000 tpa.

"We manufacture 25,000 tpa of speciality resins and 35,000 of suspension grade resin," Mr Jayaraman says. Incidentally, the company is the only domestic manufacturer of battery separator resin used in automotive batteries.

"With others looking at commodity grade PVC resin, we focus on the speciality segment," Jayaraman remarks. The reasons are simple: contribution and the market. Contribution per ton of speciality resin ranges between Rs 17,000 and Rs 20,000, as against Rs 12,000/t  earned by pipe grade Suspension resin.

According to him, "Currently, imports of speciality resins are in the region of 20,000 tpa and even after Finolex’s capacity expansion, there will be imports to the tune of 10,000 tpa." Having this in mind and also as demand is registering an annual growth of 10 per cent, Chemplast

Sanmar will increase its speciality resin production by 7,000 tpa initially and then scale it up in stages.

Outlook

The company, after enjoying two years of good business, is now facing the downside of the industry cycle. During the first half of this fiscal, it posted a turnover of Rs 163.41 crore, a figure lower by Rs 19.73 crore over the last fiscal, and a profit after tax of Rs 2.96 crore, lower by a whopping Rs 17.46 crore as compared to last fiscal’s figure.

While the company curtailed production of PVC due to high input prices, the increase in LSHS prices drove up the costs further.

Mr. N. Sankar, group chairman, says, "We cannot expect to maintain last year’s profitability levels. We have learnt to live with this cycle and our effort will be to keep the costs down."  But the only costs that can be said to be within the company’s control in the near future is the finance cost. The company, by raising Rs 75 crore non-convertible debentures, is retiring high cost debts. During the first quarter, the interest cost came down by Rs 1 crore to Rs 8.06 crore. "Our target is to reduce the finance cost to less than 13 per cent," remarks Mr Jayaraman.

The company’s ability to significantly increase its revenues is also under strain. Despite production of the likes of industrial solvents, refrigerants and silicon wafers being maintained at previous year levels, the prospects for silicon wafers used in solar energy equipment is not encouraging as the demand for such products is on the downswing.

Further, under the Montreal protocol to which India is a signatory, some of the products belonging to solvents and refrigerant gases have to be phased out. At the industrial solvents division, of the solvents manufactured by the company -- methyl chloride, methylene chloride, chloroform, carbon tetra chloride and trichloroethylene -- carbon tetra chloride falls under the said global agreement.

The case with refrigerant gases is similar. R11, R12 and R22 are to be phased out by 2010 and 2040 respectively. But Mr Jayaraman says that these are not worrying aspects for the company as the impact will be very negligible. "The company’s plants are capable of switching over to other products. Moreover, we have ample time left for the Montreal Protocol to take effect," he insists.

  also see : All is well, say Sanmar group promoters