Incorporated in 1989, Vishnu Chemicals Limited has been dedicated to the manufacturing, marketing, and export of Chromium chemicals and Barium compounds worldwide. Situated in Hyderabad, this company has emerged as a global player, catering to the needs of over 12 industries spanning across 57 countries.
In Q1FY24, the company witnessed a notable 16% drop in both its revenue and net profit. What were the key challenges that contributed to this decline?
In the first quarter, there was a decline in revenue and profit primarily due to two key factors: plant maintenance and the integration of a new product launch.
During the first quarter, we undertook a plant maintenance operation. This was necessary to ensure the long-term efficiency of our production facilities. While this maintenance was essential for the sustainability of our operations, it resulted in a temporary reduction in production capacity. As a result, we experienced lower output during this period, which naturally had an impact on our revenue.
Simultaneously, we were also in the process of launching a new product namely Precipitated Barium Sulphate in our Barium chemistry. This launch required substantial resources as this was a one-of-a-kind project and was being manufactured for the first time in India.
Integrating a new product into our existing operations involves a learning curve and can lead to increased costs as we refine our production processes and marketing strategies for the new offering. It’s important to note that these factors were strategic decisions made with a long-term perspective in mind. The plant maintenance was essential to maintain the quality and efficiency of our products, while the new product launch aimed to diversify our product portfolio and capture new market opportunities.
We anticipate that these measures will contribute positively to our bottom line in the coming quarters. The plant maintenance will result in increased production efficiency, and the new product launch is expected to gain traction in the market, ultimately leading to revenue and profit growth. This decline should be viewed as a short-term adjustment period rather than a long-term trend, as we remain confident in our overall business strategy and growth prospects. It is noteworthy that the consolidated gross margin and EBITDA margin improved by 3.7% and 0.8% respectively on a YoY basis, demonstrating the ability of the company to maintain its poll position in profitability and in its performance-enhancing chemistry operations.
What strategic measures did the company implement to achieve cost control and process enhancements, resulting in a reduction in consolidated conversion costs?
Our performance results from simple yet effective changes we have implemented over the years. Firstly, we made the decision to do forward and backward integration, while maintaining a well-organised, and well-controlled manufacturing line. Secondly, we adopted a holistic approach, helping us streamline our production assets in line with logistics, sales, and talent development. By prioritizing innovation, we have enhanced our competitiveness and expanded our market reach. At our core, we are always fuelled by dedication to serve our customers. Our commitment to excellence in the chemistry in which we operate is the engine that drives innovation and change.
Our emphasis on cost control and process improvements led to a decline in consolidated conversion costs by 14.7% QoQ from Rs 103.3 crores in Q4FY23 to Rs 88.0 crore in Q1FY24.Our day-to-day operations strive to minimize our fixed and semi-variable costs through conscious decision-making and resource management. We have implemented comprehensive waste reduction programs that extend beyond the basics. We also actively seek ways to reduce energy consumption, such as utilizing energy-efficient equipment, optimizing our logistics, and embracing renewable sources of energy.
In what ways will the acquisition of Ramadas Minerals Private Ltd contribute to the company’s long-term growth?
Quality is the most important aspect of our business. This acquisition enables us to produce superior quality Barium Carbonate and Precipitated Barium Sulphate, maintain customer trust, and remain competitive in the marketplace. It aligns with our commitment to delivering the highest quality products to our valued customers. With our own beneficiation plant, we can ensure a consistent supply of high-quality raw materials. This consistency is crucial in manufacturing. Customers will benefit from the reliability of our products, knowing they can expect the same level of quality every time they purchase from us. The acquisition also allows us to have greater control over the quality of the raw materials we use in our manufacturing process. This means we can source, process, and refine raw materials to meet our specific quality standards. By starting with higher-quality inputs, we can ensure that our finished products are more consistent and meet or exceed customer expectations. It will also boost our efforts in R&D to innovate and develop new, high-quality materials that can lead to the creation of unique and superior finished products within the same or adjacent chemistries.
Can you shed some light on the company’s capital expenditure plans?
Our Capex plans are carefully developed in alignment with our strategic goals with a focus on cash accruals and low debt-to-equity ratio. Our aim is to make prudent and strategic investments to support our growth, enhance our operations, and maintain our leadership in Chromium & Barium Chemicals, both domestically and globally. We are confident that our Capex plans for FY24 will position us for continued growth and success in the coming year and beyond.
In the near term, we are focused on our new launch in speciality chemicals called Precipitated Barium Sulphate, also known as Blanc Fixe. This is an inorganic compound and is a high-purity, synthetic additive that is produced in a carefully controlled manufacturing process designed after years of R&D. The whiteness is higher than natural barium sulphate. So, it can be used as the filler of pure white powder coating in the paper industry, battery industry, and automotive paints as the finish glossiness can reach high levels, giving a rich and premium characteristic to the end-use application.
What are your insights into the outlook for the chemicals industry, and what strategic actions should chemical companies consider amidst prevailing global challenges?
For the whole chemical industry, there are short-term challenges, but this is also a test for the best to improve and prove their resilience and adaptability through actionable strategies and innovative solutions.
There might be short term challenges around the commodities pricing but companies that have value-added products, flexible product mix, backward integration, and work ethic will be able to scale their products and mitigate cyclicality to a large extent.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions.