High input costs, weakening demand pose challenges, says Excel Ind

1 September 2022

Chemical producer Excel Industries Ltd has pointed to prices of key raw materials rising to "new highs" in recent weeks in its annual report for 2021-22 (Apr-Mar).

"In addition to the unfavourable input cost situation... we are seeing a weakening of demand in several key end user segments and geographical areas," the company said.

The company was also encountering a "customer pushback to further price increases"

The profitability of Excel Industries is likely to get impacted by these factors in the current and next quarter.

The company admitted in its annual report that it expected the business environment in the current financial year "to be very challenging."

An equity fund manager at a large fund house told Informist that yellow phosphorus prices have stayed elevated in the current quarter and that this was a major raw material for Excel Industries.

Excel Industries imports its key raw materials. Yellow phosphorus prices are steered by Chinese producers, who have access to domestic supplies.

The company noted this risk in its annual report. "China has a track record of taking advantage of this situation by pegging the price of the Raw Materials at a high level and at the same time pricing the downstream intermediates and finished goods aggressively," it said.

But current reports from China are pointing to temporary shutting down of yellow phosphorus manufacturers in Sichuan due to lack of power supply. Operational producers are reluctant to offer reliable quotations according to these reports.

Prices of yellow phosphorus in Yunnan and Guizhou regions of China have jumped by over 20% in the last one month, data from Shanghai Metals Market, a leading online metals data provider. The yellow phosphorus with benzene content of 99.9% or more was quoted at around 26,500 yuan per tn in early August and it was quoting at 31,900 yuan per tn.

Excel Industries produces specialty chemicals, intermediates and actives and sells to end user segments like soaps and detergents, lube oil additives, mining chemicals, polymer additives, agrochemicals and pharmaceuticals.

Tata Steel funds arm's capex, acquires new shares for 540 mln rupees

30 August 2022

Tata Steel Ltd has funded capital expenditure of its wholly-owned subsidiary Tata Steel Mining by acquiring freshly issued equity shares of the latter for 540 mln rupees.

Tata Steel said in a stock exchange filing today that the subsidiary company issued 28.2 mln equity shares of face value of 10 rupees at a premium of 9.15 rupees per share on a preferential basis to Tata Steel on Monday.

The cash paid by Tata Steel for the issue this will be utilised by Tata Steel Mining for capital expenditure purposes. Tata Steel holds 100% equity in the subsidiary company and the equity holding went up to 850.12 mln shares after Monday's preferential share issue.

Prior to this transaction, Tata Steel has paid Tata Steel Mining 6.45 bln rupees during the current financial year for acquiring 336.85 mln shares issued by the latter on a preferential basis at a price of 19.15 rupees a share which included a premium of 9.15 rupees a share.
 
This was done to fund the subsidiary company's acquisition of 100% shares of Rohit Ferro-Tech and was done in two tranches -- one in April and the second one in June.

Grasim to incur 27.6-bln-rupee capex Jul-Mar in viscose, chemical ops

30 August 2022

Grasim Industries Ltd's chairman Kumar Mangalam Birla's emphasis on the company's capital expenditure plans for its existing businesses in viscose staple fibre and chemicals and the new paints business in the annual shareholders meeting held on Monday came on the back of elaborate details provided by the company earlier this month post disclosure of June quarter results.

Birla told shareholders that existing businesses' capex guidance of 31.2 bln rupees for the 2022-23 (Apr-Mar) will be "towards capacity creation and modernisation of plants" as against 19.6 bln rupees capex incurred in 2021-22.

But recent data by the company indicated that only 11.4% of the guided capex figure for 2022-23 was spent in the June quarter.

The Jul-Mar period of the current financial year will, therefore, see a surge in capex spending by Grasim Industries in its existing businesses alone. The company is expected to spend 27.63 bln rupees during these nine months.

Paints capex
Birla told shareholders that of the additional capex amount of 100 bln rupees for the new paints business the company had spent 6.1 bln rupees as of the end of 2021-22.

The recent data by the company showed that another 2.1 bln rupees of paints capex was incurred in the June quarter.

It meant that going forward Grasim would likely incur capex of 91.8 bln rupees towards the paints business alone.

But the company recently indicated that it will start spending bigger chunks of the 100-bln-rupee planned capex for paints from the second half of the current financial year onwards in order to meet the target of 2024-25 for going live with paints production.

The company's chief financial officer, Ashish Adukia, told analysts and investors in a recent post-earnings conference call that from now on the capex spends in paints will "be front loaded because we've started ordering for equipment etc."

Adukia said that paints unit construction was going on in almost four sites. "Directionally, yes, there will be large paints capex next year along with other capex," he said.

Viscose capex
Of the total guided capex for existing businesses, Grasim had earmarked 14.31 bln rupees for the viscose staple fibre segment for the current financial year of which 5.87 bln rupees is for capacity expansion and 8.44 bln rupees is for maintenance and modernisation.

But tn the quarter ended June the company had incurred only 11% of the targeted amounts for each of these two elements.

The viscose staple fibre capex is unlikely to include any brownfield expansion, Grasim's managing director Hari Krishna Agarwal told analysts in the recent conference call in response to a question. He said the company would "love to do that… but for the time being that is not… on the drawing board."

According to Agarwal the company was trying to balance and optimise the capex spends with the debt requirements keeping debt to equity ratio and debt to EBITDA ratios in mind. EBITDA is earnings before interest, tax, depreciation and amortisation.

Chemicals capex
In its chemicals segment Grasim has committed a capex of 12.63 bln rupees for the whole of 2022-23 but the actual expenditure as of June 30 was only 10.1%.

The company is, therefore, expected to spend 11.35 bln rupees more in the Jul-Mar period of the current financial year.

The full year capex target in chemicals covered 7.19 bln rupees towards capacity expansion with 0.66 bln rupees spent in Apr-Jun and 5.44 bln rupees towards maintenance and modernisation of which 0.62 bln rupees capex was incurred in the June quarter.

Grasim has also targeted capex of 4.23 bln rupees for its operations in viscose filament yarn, textiles and insulators. Of this, the company incurred 0.69 bln rupees in Apr-Jun.

Debt concerns
Analysts have expressed concerns of the high rate of capex by Grasim.

The company's consolidated net debt went up to 67.8 bln rupees as of Jun 30 from 43 bln rupees at the end of March. The gross debt stood at 171.4 bln rupees as of Jun 30 while liquid investments were worth 103.6 bln rupees.

Tata Steel independent director quits to join US energy department

29 August 2022

Tata Steel Ltd's independent director David Crane has resigned from his position in order to join the US Department of Energy.

Since his new position required him to step off from all private sector positions Crane has put in his resignation, the company said in a stock exchange filing today.

Crane will leave the Tata Steel Board on Sep 5 and join his new position the next day according to his resignation letter

He joined Tata Steel's board as a non-executive independent additional director on Oct 11 last year.

After Crane's departure from the board position Tata Steel will have five independent directors and six non-independent directors.

In 2021-22 (Apr-Mar) the company had seen one independent director resign, another retire and a third one re-appointed on expiry of term. It has also appointed two new independent directors in that year which included Crane.

SEBI Watch: NDTV case vindicates SEBI's stand on indirect acquisition

29 August 2022

The Adani Group's ongoing attempt to acquire a controlling stake in New Delhi Television by converting debt into equity shines the spotlight on an order last month by Securities Appellate Tribunal on how these loans should be viewed.

SAT overturned a Securities and Exchange Board of India order holding that the 4-bln-rupee interest-free borrowing by NDTV promoters under onerous conditions from Vishvapradhan Commercial should be treated as equivalent to the acquisition of a stake by the latter.
 
In the original order of June 2018, SEBI had pointed out that Vishvapradhan Commercial's loan agreement with the NDTV promoter company, which held 26% stake at that time, was not a normal lending transaction and its primary purpose was to acquire the broadcaster's shares.

To prove its point, it pointed out that the loan agreement gave Vishvapradhan Commercial the right to convert its loan into shares aggregating to a 99.99% stake in the NDTV promoter company "at any time during the tenure of the Loan or thereafter without requiring any further act or deed on the part of the Lender."

The market regulator had, therefore, concluded that "the exercise of the right to convert warrants into shares of RRPR (promoter company) thereby indirectly acquiring 26% of NDTVs equity is not dependent on the repayment of the loan."

Based on this finding, it held that Vishvapradhan Commercial had breached the takeover code by not making an open offer for NDTV shares after signing the loan agreement.
 
But these contentions were subsequently thrown away by the Securities and Appellate Tribunal while hearing appeals by Vishvapradhan Commercial and NDTV promoters.
 
On its part, SAT said that from a reading of the loan agreement and the call option agreements it was clear that either the loan had to be repaid or the call, conversion or purchase options would get exercised. SAT said the wording of the agreement indicated that VCPL would be entitled to exercise the warrant conversion if the loan remains unpaid at the end of the tenure. “In our opinion, it does not mean that the warrant conversion option could be exercised even after the loan is extinguished," SAT had said.

Thus, it rejected SEBI’s contention the warrants could be exercised even during the tenure of the loan.

The events of the last few days have given us new material to evaluate whose position was closer to reality. The events show that SEBI had its finger on the pulse of the complex web of covenants in the legal agreements between the promoters of NDTV and the lender.
 
The question in the minds of every minority shareholder of a listed company today is: If a promoter uses its shares to borrow or carry out deals under such onerous clauses, can it continue to be considered the true owner of those shares? It also points to the need for promoters to disclose the terms under which they resort to raising funds against their shareholding.
 
Separately, another worrying aspect is that SAT seems to have overlooked the fact that when it issued its order last month, the 10-year tenure of the loan was already over, and Vishvapradhan Commercial could, at any moment, convert its loan into shares of the promoter company.

Even if one accepted SAT’s reading that default was a condition for the conversion of the debt into shares, SAT should have asked why no open offer was made immediately after July 2019 when the loan expired and presumably slipped into default.

SEBI has got every reason to tap itself on its shoulders given how the NDTV case has turned out. But it must introduce the controlling shareholder concept in our securities market as this column argued for recently (https://www.informistmedia.com/sebi-watch-ndtv-case-shows-need-to-relook-controlling-shrholder-norm/).

Metal Stocks Outlook: Weak steel and aluminium price outlook to weigh

26 August 2022

Metal stocks came in a under a bit of fire this week with Nifty Metal losing 2.3% in average value over that of the previous week.

This is likely to be the scenario next week also as uncertainties around price outlook and margins play in the minds of the metal sector investors.

According to a report by Kotak Institutional Equities earlier this week the domestic steel prices have declined 20% in the last three months due to regional price weakness and that they would continue to remain under pressure given the current premium to import parity. It also said that even if export duty on steel were to be cut it will have only limited benefits.

Downside risks to prices are also seen for aluminium. The brokerage felt that current aluminium prices, which have remained range bound in last one month after seeing a sharp fall earlier, are not likely to rise as majority of smelters in Europe were running at cash losses and production curtailment announcements were starting to be made by the producers.

Headwinds in metal and mining sectors still persisted, said Edelweiss Securities in a sector update today. It said that domestic hot rolled coil price in the traders market slipped further this week "owing to high inventory at steel producers and expectations of price cuts in the first week of September."

It also pointed to a slowing demand for secondary rebars leading to a dithering in its prices.

Bayer CropScience gets nod on related trade but some shareholders oppose

24 August 2022

The results of voting on resolutions in the annual shareholders meeting of Bayer CropScience Ltd on Monday indicate that a section of non-promoter shareholders were opposed to the jump in related party transaction limit with the ultimate promoter holding company Bayer AG to 30 bln rupees from 18 bln rupees.

The ordinary resolution on related party transactions, in which promoter shareholders were not permitted to vote as per Securities and Exchange Board of India's norms, saw 20% of non-institutional public shareholders and 14.1% of institutional public shareholders vote against the proposal.

Overall, 14.1% of public shareholders who voted in the meeting were against the proposal. But since the ones voting in favour were greater than 50% the company got the approval to hike the related party transaction limit.

The shareholder approval will now enable Bayer CropScience to buy goods from, or to effect sales to, Bayer AG, along with other specified types of related party transactions for a total value of 30 bln rupees every year from 2022-23 (Apr-Mar) to 2026-27.

The company has justified the need for related party transactions with Bayer AG on the grounds that it gave access to scientific know-how and enabled it to become part of Bayer’s global supply chain.

It also justified the jump in the limit to "future growth plans.”

In terms of proportion of Bayer Cropscience's annual revenue in 2021-22 the raised related party transaction limit of 30 bln rupees amounted to 63%. It was higher at 70% in the previous financial year.

Further, the 30-bln-rupee limit was 2% of Bayer AG’s consolidated turnover in 2021 (Jan-Dec).

Earlier, Bayer Cropscience had taken shareholder approval in August 2017 to make related party transactions with Bayer AG for 18 bln rupees every year till 2021-22.

The value of related party transactions with Bayer AG in 2021-22 was 16.7 bln rupees, close to the 18-bln-rupee limit.

It indicates a likelihood of Bayer CropScience utilising the new 30-bln-rupee limit near to its full extent in the current financial year or in the following years.

In the shareholding pattern of Bayer Cropscience as of June 30, foreign promoter entities including Bayer AG, Monsanto Company and two others, and domestic promoter entities Bayer Vapi and Monsanto Investments India, together held 71.4% of the company's shares.

Bayer AG is the ultimate promoter holding company of Bayer Cropscience.

Freight rates not yet normalised, remains elevated, says Fine Organic

24 August 2022

The situation with respect to recent sharp increase in freight and forwarding expenses still remained dynamic and freight rates were not yet normalised, the chairman and managing director of Fine Organic Industries Ltd, Mukesh Shah, said in the company's annual shareholders meeting on Tuesday.

The specialty chemicals company which makes food emsulsifiers, and polymer, rubber and other additives had seen freight and forwarding expenses rise sharply in 2021-22 (Apr-Mar) "due to increase in sea freight cost brought by the shortage of containers and global supply chain disruption."

Shah said that sustainable operating margins in the future could only be ascertained later based on the next few years performance and global business environment and that the company's short term endeavour was to maintain operating margin in the range of 18-20%.

Fine Organic Industries' consolidated operating margin, as denoted by the earnings before interest, tax, depreciation and amortisation margin, went up sequentially in the June quarter to 28.7% from 25.8%. The operating profit rose 35% on quarter to 2.1 bln rupees.

The operating costs showed a sequential rise of 17% to 5.3 bln rupees, data from Informist Corporate Fundamental Database showed, but a higher increase of 21% in net sales to 7.5 bln rupees enabled the company to record an operating profit growth.

Shah said that the June quarter rise in revenue was "primarily attributed to better realization across the product segments and some increase in volumes." He pointed out that the company got some opportunities to grab upon due to global supply chain disruptions which resulted in a surge of export demand for the company's products.

Global supply chain disruption like, inadequate availability of Raw Materials,  shortage of containers and other challenges brought by macro-economic factors,  have given us some opportunities to grab upon which also resulted in surged  export demands.

The share of exports to total revenue jumped to 70% in the June quarter from 60% in the whole of 2021-22.

Fine Organic Industries, according to its recent investor presentation, exports oleochemical based additives to 75 countries and is its largest producer in India.

Shah said that the company didn't know how long the challenging global situation will remain for it exploit new opportunities in the export market.

Goa Carbon's Paradeep unit shutdown likely to last 7-10 days

23 August 2021

The maintenance shutdown at the Paradeep unit of Goa Carbon Ltd from Saturday will likely be for 7-10 days, a senior company official told Informist.
 
In a filing with the stock exchanges on Monday, the company said that the operations at Paradeep unit had been temporarily shut down for maintenance work. In a separate exchange filing on Monday the company also informed of a similar shutdown in its Bilaspur unit from Friday.
 
Goa Carbon produces calcined petroleum coke and sells to domestic and overseas aluminium and steel companies. Of its three manufacturing units at Goa, Paradeep and Bilaspur, the Paradeep unit is the biggest with an annual production capacity of 168,000 tn. The Goa unit has a 100,000 tn annual capacity while that of the Bilaspur unit is 40,000 tn.
 
The company has been regularly putting one or more of its three units under temporary shutdowns in the last few quarters.
 
Goa Carbon effects such shutdowns for maintenance work and "due to the absence of viable export and domestic orders".

The latest one in Paradeep will likely be a minor one, according to the company official. "It is also a conscious decision by the company to optimise the feed rate and also to optimize the costs; else we would not like to take a shut down," he said.

In the September quarter of last year too, the Paradeep unit was shut down for 13 days while the shutdown period in Goa unit was six days and that in Bilaspur unit was 49 days.

Longer shutdowns were taken by the company in the June quarter when the Paradeep unit was shut for 27 days, Goa unit for 76 days and Bilaspur unit for 36 days.
 
Despite the lengthy shutdown periods by Goa Carbon in the June quarter the net sales jumped 64% on the year to 2.1 bln rupees, data from Informist Corporate Fundamental Database showed.
 
The operating profit, as denoted by the earnings before interest, tax, depreciation and amortisation, rose significantly to 273 mln rupees in Jul-Sep from 45 mln rupees in the year ago quarter. The net profit too jumped to 145 mln rupees from 1.2 mln rupees.
 
Goa Carbon's customer base is dominated by Hindalco Industries Ltd and Vedanta Aluminium and Power which together account for around 80% of the company's total revenue, a report by rating agency Acuite Ratings and Research said in April.

Viscose margin Jul-Sep under pressure as China prices dn, says Grasim

12 Aug 2022

The softening in viscose staple fibre prices in China since June will make it difficult for Grasim Industries Ltd to sustain price increases taken in the June quarter and consequently put pressure on the operating margin of its viscose segment, the company indicated in a conference call with analysts and investors today.

"China being the biggest producer and consumer of VSF (viscose staple fibre) has a big influence on international prices. Since end of June, viscose staple fibre prices have started correcting in China and in India we have to adjust a little bit," the company management said.

The company was addressing analyst queries on whether the price decline of around 6-9% in China since end of June would have an adverse impact on Grasim's viscose segment margins going forward and whether the high margin levels in the segment were behind.

The company management said that in the September quarter it may not be able to effect price hikes in viscose staple fibre sales like it did in the June quarter due to the current environment in the international markets and particularly because the ongoing correction in viscose staple fibre prices in China was quite severe.

"So margins (in viscose segment) will be under pressure and will not be like in favorable quarters," the management said.

The viscose segment margin was also affected in the June quarter contracting sharply to 11.6% from 23.2% a year ago.

The operating profit, defined as earnings before interest, tax, depreciation and amortisation, of the viscose segment went up by a mere 2% on year to 5 bln rupees.

But the viscose segment revenue more than doubled to 43 bln rupees in Apr-Jun and made up for nearly 60% of total revenue.

This came on the back of a volume rise of 76% on year to 197,000 tn and improved sales realisations.

The company said that the viscose staple fibre volume growth in the June quarter was aided by around 51,000 tn contribution from its brownfield expansion at the Vilayat site.

The viscose filament yarn volume was up 34% on year to 10,300 tn in Apr-Jun.

Overall, Grasim's sales jumped 93% on year to 72.5 bln rupees in Apr-Jun while its net profit rose 68% to 8.1 bln rupees.