Vipul P. Shah, CMD, Vipul Organics Limited

26 Dec 2022 , 11:03 AM

What are the global trends seen in the chemicals industry? What is its impact on the Indian chemicals market?

Currently the specialty chemical industry, especially in the sector Vipul Organics Limited (VOL) operates in that is Pigments/ Dyes, is going through a challenging time. This is mainly due to slackened demand across various segments/ applications such as Textiles, Paints, Plastic etc. There was also an exponential increase in the input cost due to high energy cost/ fuel cost, which was not absorbed by the customers.

The global impact is seen due to economical as well as geopolitical reasons across countries. For instance, USA, which is the biggest market for the chemical industry is facing highest inflation which it has ever seen. This has resulted in decrease in demand by around 40% +. In China, the continued challenge due to COVID has created a slump in demand across all the segments due to which the uptake has reduced drastically. In Africa/ Egypt, which are growing markets for chemical industry, there is an acute shortage of foreign exchange which has decreased its import significantly. In Europe, demand has dropped drastically due to the war in Ukraine/Russia as well as the increased power cost.

The situation in India is much better than in the other countries, but still industries such as Textile are suffering very badly due to poor demand. Regions such as Erode/ Tirupur which are hub for textile industry are operating at 20% capacity since the last 6 months due to the poor demand. Due to the lack of Global demand, many countries are seen dumping basic chemicals in India, which is affecting the Indian manufacturers.

However, this is a phase which comes once in a while and will not impact the future of the Specialty Chemical Industry. Color is an essential product required in every application, so we are optimistic that demand would start increasing in the first quarter of 2023-2024.

How is the company capturing the above opportunities?

VOL had almost 95% exports until 2019. We have taken the current global market slack as an opportunity and are building a robust sales network in India. We are focusing on creating a lean but a widespread network of distribution to reach every location in India wherein there is an application that uses pigments. We have on boarded nearly 100 plus employees in the last three years to cater to this strategy making our count to 350+ strong team.

I firmly believe that times like these are the best time to think strategically to make corrections by improving in-house efficiencies, developing new products, making use of the technology such as AI/ PLC operation etc. 

Today VOL has 30% domestic revenue and 70% exports and the India business is growing rapidly.

Help us understand the company’s strategy on developing its supply chain infrastructure and logistics.

VOL has a unique manufacturing setup. We have three facilities which produces specific chemistries segregated color wise.  This allows us to mitigate our risks and also helps us in providing quality products for our customers. We have a centralized warehouse in Maharashtra for consolidating goods.

We have an office in Gujarat which helps us in procuring our raw material wherein significant quantity comes from Gujarat.

VOL is present in 45 countries. We have agents having warehouses across key locations globally to cater to their local demand. The head office is in Mumbai which controls all these locations through SAP.

What are the company’s growth vision and strategies for the next 4-5 years?

VOL is amongst the top five Azo Organic Pigment manufacturers in India.

We have a clear vision of being the company having a strong backward and forward integration of our product line. This will enable us to be self-dependent, have a healthy bottom line and venture into other avenues wherein pigments are used as main raw materials.

We have decided to focus on the Domestic market also in a big way and have realigned our business units focused on customer verticals like Paper, Textile, Paints, Ink and Master batches. This enables us to have a focused approach for each segment and create value for our customer since application focused individuals are leading each vertical in our organization.

Run us through the company’s key expansion plans.

VOL has grown by over 20% CAGR in the last five years.

We have robust plan for expansion wherein we are targeting to venture into several new segments such high performance pigments for automobile coatings, Pigment intermediates for captive consumption and other applications wherein pigment are used as a key raw material.

The idea is to create a value chain around the color industry, so with our rich experience of over 50 years in the color space, we are now looking at capitalizing our strengths by venturing into other businesses which are focused around pigments.

VOL has acquired land in Sayakha, Gujarat for expansion. Our Tarapur plant was a green field project which was commissioned in 2020. VOL acquired the Ambernath facility from Efferchem Pvt Limited in 2021 in order to expand the capacity further of pigments and pigment derivatives.

All 3 plants of the company recently received ISO 14001 Certification for their environment management systems. Please share the overall strategy adopted by the company to reduce its carbon footprint.

VOL has been very conscious about using and treating water which is one of our key raw materials. We understand and respect the fact that water is going to be very scarce in years to come and in order to sustain the business we took a call of going for ZLD: Zero Liquid Discharge at all our facilities. We take pride in the fact that almost 98% water used in the plant is recycled and reused.

We are amongst the front runners who have achieved this feat not by compulsion but by choice. There are challenges to operate this system but we are prepared to optimize use of water in each of our facility. Hence ISO 14001.

Along with 14001 we also received ISO 45001 which is to do with occupation health and safety of all our employees

What are the key highlights of the company’s financial performance in FY23 so far? What is the outlook for FY24?

The global macroeconomic factors have affected all export oriented businesses. Despite the challenging external environment Vipul Organics has grown the topline by 20% in the first half of FY ’23.

We have also started doing backward integration and opening up new product verticals, to cater to a larger number of sectors e.g. we have ventured into specialty dyes and pigments for the Paper Industry.

We are also changing our product mix to cater to the Indian markets and are hopeful of 40% of our revenues coming from domestic sales in the next 12-15 months.

For FY24, we are hoping that the global markets will stabilize and businesses will be back on track. If this happens then we are hoping for a 25-30% increase YOY in our revenues. Otherwise also we are confident that we will be able to maintain our present rate of growth.

What are the key margin drivers available to the company?

Backward and forward integration is the major margin driver for the company. We already produce our own pigment intermediate from which we produce pigment powder. From the powder, we produce pigment dispersions. This helps us improve our margins and in adverse times when there is a shortage of raw material helps us continue our operation without escalating costs for customers.

The idea is to expand further into backward integrated products with more economies of scale for creating a substantial value for the company. 

We also have a significant amount of trading revenue where the inherent skill of the company in color matching is used.  We are also focusing on expanding this vertical wherein with higher volumes the margins from trading activities is also bound to increase.