India Glycols Ltd - Rs 215.00

Belonging to the Delhi based Bhartia family, promoters of Jubilant Organosys group, India Glycols Ltd. (IGL) is engaged in the manufacture of glycols, ethylene oxide & its derivatives, performance chemicals, ethanol, ethyl alcohol (potable), ENA, guar gum powder, and industrial gases like oxygen, nitrogen, argon etc. Remarkably, it is the first and only company in the world to produce ethylene oxide / mono ethylene glycol (MEG) from molasses against the conventional route of producing it thru crude. Hence in context to current crude oil prices, IGL is the cheapest producer of MEG in the world. Almost 50% of total revenue of company is derived from the sales of glycols. The current domestic demand of MEG stands around 12 million tonne with total domestic supplies of around 9 million tonne and the rest being imported. Catering to more than 1,000 customers in various end-use industries such as textile, agrochemical, oil & gas, personal care, pharmaceuticals, brake fluids detergent, emulsion polymerization & paints, IGL is also exporting to South East Asia, Middle East, Europe, Australia and USA with nearly 20% revenue coming from exports. Recently company has ventured into purification and marketing of carbon di-oxide (CO2), a by-product produced in the distillery which has application in food, beverage and other industrial usage. It has also diversified into the field of herbal extraction to meet the requirement of growing international market for high value nutraceutical herbal extracts having utility in the pharmaceuticals, food and food supplements. Incidentally, IGL is also one of the largest producers of Ethanol in the country, but same is consumed for captive production of glycols. Lately, company has started shifting its focus from commodity chemicals to speciality chemicals where margins are comparatively higher compared to MEG margins.

IGL has two manufacturing plants in Uttar Pradesh – one at Kashipur and other at Gorakhpur. After the recent debottlenecking at the Kashipur plant, IGL has enhanced its installed capacity by 20% to 150,000 MTPA of MEG. Due to its special process technology, IGL boast of being an integrated manufacturer having all in-house facility for converting molasses into MEG. In order to further integrate backward and reduce its dependence on purchasing the molasses from outside, IGL has recently acquired Shakumbari Sugar & Allied Industries (SSAI) having crushing capacity of 3,200 tonne per day along with a modern distillery of 40 kilo litres per day and an internal bagasse-fired co-generation plant of 3 MW. Now, IGL is planning to expand this crushing capacity to 5500 TCD initially within this calendar year and then eventually to 10,000 TCD by 2010-11. That means by Dec’08, 25% of company’s molasses requirement will be met by captive production at SSAI, whereas 40% will be met by 2010-11. At the same time, IGL is also increasing SSAI’s distillery capacity to 240 KLPD by March’09. To supplement its entire increased power requirement, IGL is putting up two power plants - 20MW at SSAI and 22 MW at Kashipur and Gorakhpur combined, both to be operational by end of this fiscal. Of this company is estimated to sell around 10 MW of power and consume the rest for captive use.

On the other hand, its carbon-di-oxide purification plant of 80 TPD capacity at Kashipur has started commercial production from April'08 whereas another 80 tonne plant at Gorakhpur is to start shortly. Besides, its herbal extraction project through 100% EOU at Dehradun (Uttarakhand) is slated to complete by Oct’08. For this IGL has already taken 47 acres land on lease from the Uttarakhand government and is looking forward to grow a wide variety of medicinal plants which will be processed at its supercritical fluid extraction facility. Meanwhile its RAB (concentrated sugarcane juice) unit to supplement the ethanol requirement became fully operational last fiscal. On the back of robust demand, IGL has also diversified into the field of value added guar gum derivatives used for the oil field industry and textiles. Another positive factor is that, IGL owns around 3.25 acres of land in Noida which is getting developed into 270,000 sq ft of commercial space and is expected to get ready within this financial year. Out of this, IGL intends to lease out approx 2 lakh sq ft thereby generating around Rs 15 cr from next year as rental income.

Financially, for all the above expansions IGL has chalked out a capex plan of nearly Rs 500 cr, of which more than 50% has already been spent in the current year. The benefit of this will start accruing from FY10. Meantime, company underwent a planned shutdown at Kashipur facility for 21 days in May’08 to carry out a change in catalyst, debottlenecking and the stabilization of the facility. Hence its Q1FY09 performance was affected considerably. Moreover it also faced an unrealized forex loss of Rs 15.50 due to re-statement of foreign currency borrowings, which it didn’t provide in the books. Other concern is that molasses prices have increased in the recent past thereby putting pressure on the input cost. On the other side, despite crude oil price being shot up sharply in last 6 months, international MEG price is on a continuous downfall since Nov’07. Where in Nov’07 it was trading above US $ 1500 per tonne, currently it has cooled off to US $ 900 per tonne. So, entire FY09 figures may not be so encouraging, as it may clock a turnover of Rs 1350 cr and PAT of Rs 140 cr i.e. EPS of Rs 50 on equity of Rs 27.90 cr. But with benefit of backward integration and expansion kicking in from FY10, the situation will improve going forward. Considering, company’s financial nos may not be robust for coming quarters, investors are advised to accumulate this scrip at sharp declines below 200 levels. If crude oil is able to sustain around US $ 120 per barrel this scrip can shoot up to Rs 280~300 levels in 15 months.

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