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Analyst Meet / AGM - Analyst Meet

New products with niche applications in life saving and diabetic drugs, increase in sales of APIs, higher exports are some of the major growth drivers

Omkar Speciality Chemicals

04-Sep-2015, 04:43

In interaction with Dr. Omkar Herlekar Whole Time Director

Key Highlights

Omkar Speciality Chemicals is into niche specialized chemicals and Pharma Intermediates and API business. Company has 9 manufacturing units located in the state of Maharashtra. The products segment includes Iodine compounds, Selenium compounds, Intermediates, Resolving Agents and APIs which comprises of more than 200 products.

Of the total consolidated sales of FY'15 of Rs 265 crore, about 31% of sales is from Basic Iodine compounds, 18% is from Specialized Iodine compounds, about 19% from basic Intermediates, about 22% from niche API's, 6% from Selenium compounds and about 4% from Resolving agents. The Basic Iodine and Basic Intermediates have margins of around 10%, while the rest have Ebidta margins of 25-35% range.

Of the total sales, about 30% is exports sales to about 38 countries.

In FY'15, the consolidated net sales grew by about 10%. Delay in regulatory approvals, capacity constraints and general slowdown in pharma and non pharma segment were the main reasons for modest growth. However, the company received regulatory approvals and higher exports drove higher sales in Q1 FY'16.

Iodine compounds are used in as a Reagent in pharma industry, as an intermediate for various API's, screen printing, animal feed formulations apart from its use for throat applications. Intermediates manufactured by the company are used in various Digital applications, Regent in Pharma industry, Pigments and in various organic chemistry. API's are used predominately for various veterinary purposes both for Deworming and for anti fungal purposes. Selenium compounds are used in glass industry, in shampoo for anti-dandruff effect, animal/poultry feed and as a reagent for API and pharma industry. Resolving agents are basically used to separate the optical isomers of any compounds or molecules so as to activate the API's and the formulations. The company has near monopoly in the Resolving agent business. Company's products are also used as catalysts across various industries.

Of the total sales about 70% comes from Pharma industry, about 20% from glass, ceramics and cosmetics segment, while rest from various segments such as electronics, electroplating, synthetic fibers, nutrients etc.

Its major clients include leading pharmaceutical companies such as Dr. Reddy's Laboratories, Lupin, Biocon, Cipla, Cadila Healthcare, Merck, Pfizer, Jubilant Organosys etc.

As per the management, going forward, the niche and specialized product sales be it API's, Specialized Iodine compounds, Resolving agents and Selenium compounds will increase at faster pace while the sale from basic components will be at steady growth. Thus, this will lead to an overall increase in the margins.

Higher demand from Veterinary API products, new products aided by regulatory and patent approvals, higher export penetration etc will drive future growth. The company is almost full for entire FY'16, as far as order book is concerned. The sales from regulated markets are increasing compared to non regulated markets.

The company has been able to scale up its veterinary API business over the past couple of years and is expected to maintain the growth trajectory going forward. It entered this segment through the acquisition of Lasa Laboratory Pvt. Ltd (Lasa Labs) in FY12 and currently caters mainly to the veterinary drug manufacturers. The division witnessed healthy growth momentum in FY15, with contribution to overall sales increased to about 22% in FY15 from 16% in FY14. Also, exports of veterinary API products almost doubled during the same period.

The company also received Indian patents to manufacture two niche molecules which are primarily used in manufacturing pharma APIs with life-saving (Benzeneselennic Anhydride) and anti-diabetic (5-Iodo-2-Methylbenzoic acid) applications. Apart from the ones mentioned above, the company has pending patent applications for 12 other products. Further approvals should enable it to launch new products and widen its client base.

As per the management, the Ebidta margin is expected to improve by about 200 bps every year, unless till reaches to around 27% from current levels of around 20%. New products with niche applications in life savings and diabetic drugs, increase in sales of API's, higher exports etc are some of the major growth drivers. The company will continue to remain fully in-house manufactured company and will have a complete control on costs of all elements except Iodine, which it has to procure locally.

The company had incurred a capex of about Rs 150 crore put together over a period of 24 months ended June'15. This capex has resulted in doubling the overall installed capacity of about 5100 MT to around 10000 MT. With a maintenance capex of about Rs 10 crore every year, this capacity can generate net sales of about Rs 1000 crore.

Traditionally, Iodine compounds constituted around 75% of the businesses and the company was dependent upon Iodine which was imported from Russia, Chile and Japan. The company used to import predominantly from Chile. It takes about 75 days transit time for the imports and this would block company's working capital. Also the company used to do currency hedge for about 90 days period.

However, by end of FY'15, the SQM (Chile Supplier) has established its warehouse in Mumbai. With these, the company no longer requires importing and blocking its working capital for 75 days nor is any forex hedging required. It just requires about 48 hours for ordering its iodine requirements.

Total long term debt is about Rs 67 crore and working capital is about Rs 95 crore as on June'15. The company is successful in reducing the working capital days cycle from a stretch of around 200 days to around 110 days as on Mar'15. This will come down further going forward and management aims to bring it below 60 days in next couple of years. Procurement of Iodine from warehouse in India plus billing of not more than 30-45 days etc are some of the steps that have helped in reducing the overall working capital.

As per the management, there are no immediate plans to raise funds. If at all the company would be raising funds, it will be for inorganic growth and acquisitions.