2nd largest player in domestic PAN industry:
TCL is the second‐largest player in the domestic Phthalic anhydride (PAN) industry
after IG Petrochemicals (market share of ~48%). The company also manufactures value‐added
derivatives such as Maleic Anhydride (MAN), Diethyl Phthalate (DEP), and food acids.
The demand for PAN in the domestic market has improved supported by healthy demand
from plastics, paints, auto, etc. In 2016-17, the prices of Orthoxylene (OX), the
raw material for manufacturing PAN, fell at a sharper rate than prices of Phthalic
Anhydride (PAN) on account of minimal capacity additions as well as improving utilization
levels for PAN. Further, capacity expansions for OX in China, Taiwan and Singapore
are expected to increase the global capacity by ~4%. Thus, on the back of improved
PAN prices and subdued OX prices, the spreads between PAN and OX are expected to
rise in the future. The scrapping of 2.5% import duty on OX will put further pressure
on prices of OX in the domestic market.
PAN demand to grow at a CAGR of ~7% over the next 4 years:
According to a report by CRISIL, domestic PAN demand is expected to grow at a CAGR
of 7% over 2016- 21 mainly driven by healthy growth in plasticizers, dyes and pigments,
alkyd resins, etc. With Thirumalai being one of the market leaders in the PAN market,
the company should benefit from this increased demand over the next few years.
Structural triggers to drive core operations:
TCL has PAN capacity of 145,000 tonnes. The company is in the process of modernizing
its plants over the next 3 years, which will include replacing its older plants
and systems. The plants will have the latest technology and equipment and will deliver
improved efficiencies in raw materials, operating costs, reliability and quality.
Further, Asian Paints is expected to close its PAN plant in Ankleshwar to expand
its paint capacity. This will lead to increase in domestic PAN demand by ~30,000
TPA. This incremental demand will help domestic PAN producers to gain market share
and volume growth.
Food ingredients and fine chemicals business
The company expanded its food ingredients and fine chemicals capacity (using internal
accruals) by 40% and expects to ramp up capacity further in the current year. The
company has made inroads in 30 countries over the last 25 years and was only constrained
by its capacity limitations. Additionally, demand for these products has increased
in the domestic market too. The company is expanding capacities to meet the demand
in both international and domestic markets.
Higher capacity utilisation at subsidiary plants to improve performance:
TCL’s Malaysian subsidiary, Optimistic Organic (OOSB), has recently completed expansion
of MAN capacity to 45,000 tonnes. The plant had repeated shutdowns on account of
which operations took longer to stabilize, impacting performance in FY17 (loss of
Rs 1.26 crores). The company expects improved performance in FY18 driven by higher
Financial performance to improve further:
The return ratios of the company have improved dramatically in the last 4 years;
return on capital employed (ROCE) and return on equity (ROE) have improved from
3.4% and 5.7% in FY11 to 39.9% and 27.4% in FY17 respectively. The company has been
aggressively reducing its debt over the last few years. Along with debt reduction,
the company has strong operating cash flows to fund its existing expansion plans.
With expected increase in PAN/OX spread, the return ratios will improve in the next