Himadri Speciality Chemical Ltd:Annual Report 2023-24 Analysis

Himadri Speciality Chemical Ltd.: A Comprehensive Overview #

About the Company #

• Year of Establishment and Founding History: Himadri Speciality Chemical Ltd. (HSCL) was established in 1987 by Mr. Anurag Choudhary. Initially, it started as a coal tar pitch manufacturer.
• Headquarters Location and Global Presence: The company’s headquarters is located in Kolkata, India. While the primary manufacturing and sales are focused on India, Himadri has a growing global presence through exports.
• Company Vision and Mission: Unfortunately, the specific company vision and mission statements are not readily available in the public domain.
• Key Milestones in Their Growth Journey:
  • 1987: Incorporation and commencement of coal tar pitch manufacturing.
  • Diversification: Gradual expansion into advanced carbon materials and specialty chemicals.
  • Capacity Expansion: Significant investments in increasing production capacity over the years.
  • R&D Focus: Increased emphasis on research and development, leading to innovative product offerings.
  • Global Outreach: Expansion of export activities to serve international markets.
• Stock Exchange Listing Details and Market Capitalization: HSCL is listed on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). You can find their current market capitalization on these exchanges.
• Recent Financial Performance Highlights: Consult HSCL’s recent annual reports and investor presentations for information on revenue, profit margins, and other financial key performance indicators.
• Management Team and Leadership Structure: The key management includes Mr. Anurag Choudhary (Chairman & Managing Director) along with other executive directors and senior management personnel responsible for various functions.
• Notable Awards or Recognitions: The company has received awards over the years for achievements in various fields, including safety, energy conservation, and export performance.

Their Products #

• Complete Product Portfolio with Categories:
  • Carbon Black: Used in tires, plastics, inks, and coatings.
  • Speciality Carbon: Lithium-ion battery materials, conductive carbon additives, and other specialty applications.
  • Advanced Carbon Materials: Used in aluminium, graphite electrodes and other industrial applications.
  • Coal Tar Pitch: Used as a binder in aluminium and graphite industries.
  • SNF (Sulphonated Naphthalene Formaldehyde): Used as a concrete additive.
  • Naphthalene: Used in manufacturing of Phthalic Anhydride, Beta Naphthol and other organic compounds.
• Flagship or Signature Product Lines: Lithium-ion battery materials (specifically, anode materials like synthetic graphite and hard carbon) are becoming a significant focus area and can be considered a flagship product line.
• Key Technological Innovations or Patents: Himadri has patents related to its manufacturing processes and innovative product applications, particularly in the area of advanced carbon materials for battery applications.
• Manufacturing Facilities and Production Capacity: Himadri has multiple manufacturing facilities located in India. Refer to their annual reports and company presentations for specific details on location-wise production capacity.
• Quality Certifications and Standards: Himadri maintains quality certifications such as ISO 9001, ISO 14001, and ISO 45001.
• Unique Selling Propositions or Technological Advantages: Its key strengths lies in its integrated operations from raw materials to advanced carbon products.
• Recent Product Launches or R&D Initiatives: Recent developments have been focused on expanding its capacity and improving the performance of its lithium-ion battery materials.

Primary Customers #

• Target Industries and Sectors:
  • Automotive (Specifically EV): Battery materials for electric vehicles.
  • Tire Industry: Carbon Black for tire manufacturing.
  • Aluminum Industry: Coal Tar Pitch and CPC (Calcined Petroleum Coke).
  • Construction Industry: SNF.
  • Graphite Electrode Industry: Coal Tar Pitch.
  • Chemical Industry: Naphthalene.
• Geographic Markets (Domestic vs. International): While a significant portion of revenue comes from the domestic Indian market, Himadri is expanding its international presence through exports.
• Major Client Segments: Predominantly industrial, with a growing focus on the electric vehicle battery segment.
• Distribution Network and Sales Channels: They operate through a combination of direct sales to large clients and a distribution network to reach smaller customers.

Major Competitors #

• Direct Competitors in India and Globally: The competitive landscape varies depending on the specific product category.
  • Carbon Black: Birla Carbon, Cabot Corporation, Phillips Carbon Black Ltd.
  • Battery Materials: Shanshan Corporation, BTR New Energy Materials, Mitsubishi Chemical.
  • Coal Tar Pitch: Rain Industries Ltd.
• Competitive Advantages and Disadvantages:
  • Advantages: Integrated operations, strong domestic presence, and growing focus on emerging sectors like EV batteries.
  • Disadvantages: Exposure to cyclical industries (like aluminum), dependence on raw material prices.
• How they differentiate from competitors: Himadri focuses on speciality and advanced carbon materials with higher margins and a technologically advanced approach to manufacturing.
• Industry Challenges and Opportunities:
  • Challenges: Raw material price volatility, environmental regulations, technological changes in the battery industry.
  • Opportunities: Growing demand for electric vehicles, increasing infrastructure development, and government support for domestic manufacturing.
• Market Positioning Strategy: Himadri aims to be a leading global supplier of speciality carbon materials, with a strong emphasis on innovation and sustainability.

Future Outlook #

• Expansion Plans or Growth Strategy: The company has plans to expand its capacity for lithium-ion battery materials and other specialty carbon products to capitalize on the growing demand.
• Upcoming Products or Innovations: Further R&D is underway to develop next-generation battery materials.
• Sustainability Initiatives or ESG Commitments: The company is investing in cleaner production technologies and sustainable sourcing practices.
• Industry Trends Affecting Their Business: The growth of the electric vehicle market, the increasing adoption of sustainable technologies, and government policies promoting domestic manufacturing are key trends.
• Long-Term Vision and Strategic Goals: Himadri aims to be a global leader in specialty carbon materials.

3-Year Trend Analysis of Key Financial Metrics #

• Revenue from operations exhibited a marginal increase of 0.31% in FY2023-24, reaching D 4,18,489.03 lakhs from D 4,17,184.13 lakhs in FY2022-23, following significant growth from D 2,79,131.40 lakhs in FY2021-22.
• Net Profit After Tax (PAT) demonstrated substantial growth, with a 97.78% increase from D 20,780.85 lakhs in FY2022-23 to D 41,099.54 lakhs in FY2023-24, significantly higher than the FY2021-22 figure of D 6,506.19 lakhs.
• EBITDA increased by 54.92% year-on-year, from D 40,817.36 lakhs in FY2022-23 to D 63,236.24 lakhs in FY2023-24, maintaining growth from FY2021-22.
• Earnings Per Share (EPS) nearly doubled from D 4.94 in FY2022-23 to D 9.17 in FY2023-24, rising significantly from D 1.55 in FY2021-22.
• The Company transitioned to a net debt-free status in FY24, with a net debt to equity ratio of (0.05), improving from 0.09 in FY2022-23.
• Return on Capital Employed (ROCE) improved from 13.89% in FY2022-23 to 21.52% in FY2023-24.
• Return on Equity (ROE) increased from 10.34% in FY23 to 15.82% in FY24.
• Inventory Turnover ratio decreased from 4.96 to 4.85 from FY23 to FY24.
• Debtors Turnover Ratio decreased from 8.10 to 7.09 from FY23 to FY24.
• The Company declared a final dividend of H 0.50 (50%) per equity share for FY2023-24, an increase from H 0.25 (25%) in FY2022-23 and H 0.20 (20%) in FY2021-22.

Business Segment Performance #

• The consolidated financial statements present segment information, preventing a standalone segment-wise profitability analysis.
• Overall revenue growth was driven by increased sales volume (18% increase), offset by reductions in raw material prices impacting finished product pricing.

Major Strategic Initiatives and Their Progress #

• Foundation of a state-of-the-art manufacturing facility for Lithium-ion Battery (LiB) components, with a phased investment of D 4,800 Crores over 5-6 years, is a major strategic initiative. The first phase is expected to be operational within 27-36 months.
• Acquisition of a 12.79% stake in Sicona Battery Technologies for approximately H 56 Crores to expand into high-quality silicon anode technology.
• Brownfield expansion of a new speciality carbon black line with an investment of D 220 Crores, scheduled to be operational within 18 months, will more than double capacity.
• Joint acquisition of Birla Tyres Limited with Dalmia Bharat Refractories Limited for a total cost of D 306 Crores represents a forward integration step into the B2C segment.
• Acquired 40% stake in Invati Creations for D45 Crores, entering into innovative LiB solutions.

Risk Landscape Changes #

• The Management Discussion and Analysis Report details risks related to economic downturns, supply chain disruptions, operational risks, and technological obsolescence.
• The Company is actively managing these risks through diversification, strategic partnerships, and robust internal control systems.

ESG Initiatives and Metrics #

• The Company joined the United Nations Global Compact (UNGC) as a direct signatory.
• Achieved EcoVadis Silver medal, ranking among the top 23% of rated companies globally.
• Energy intensity reduced by 12.29% (J/INR) in FY2023-24.
• Water Intensity reduced by 16.4% (per MT of product sold)
• LTIFR reduced from 2.27 (FY23) to 1.18 (FY24), a 48% reduction.
• 98% Recycled material used.
• CSR spending exceeded the mandatory 2% of average net profit, reaching D 562.03 lakhs with a focus on education, healthcare, and rural development, against a requirement of H 316.39 Lakhs.
• Waste generated: 2641.16 MT (FY24). Waste recycled: 2,637.25MT.

Management Outlook #

• The Company is focusing on new-age mobility and energy storage solutions, particularly in the lithium-ion battery materials market.
• Continued investment in R&D for product innovation, including LMFP variants, silicon anode material, graphene applications, and battery recycling projects.
• Plans for further diversification and expansion into high-value derivatives of coal tar and exploration of carbon nanotubes and carbon fiber.

Detailed Analysis #

Financial Position Analysis: Himadri Speciality Chemical Ltd. #

Balance Sheet Analysis (3-Year Comparative) #

Assets, Liabilities, and Equity (Consolidated)

(Amount in D lakhs)

Significant Year-over-Year Changes (>10%) #

• Non-current Assets: Increased by 19.45% (FY24) primarily due to investments and increases in property, plant, and equipment.
• Current Assets: Increased by 22.38% (FY24) mainly due to rise in inventories, trade receivables, cash and bank balances.
• Equity Share Capital: Increased by 13.84% (FY24) due to the issuance of new equity shares against the exercise of stock options and conversion of warrants.
• Other Equity: Increased by 33.91% (FY24), mainly due to profits earned and retained.
• Non-current Liabilities: Increased by 32.83%.
• Current Liabilities: Decreased by 3.58%.
• Borrowings (Non-Current): Decreased by 55.41%.
• Borrowings (Current): Decreased by 26.5%
• Trade Receivables: Increased by 29.26%

Working Capital Trends #

(Amount in D lakhs)

Analysis #

Working capital has significantly increased, primarily due to a rise in current assets. The current ratio also improved, indicating stronger short-term liquidity.

Asset Quality Metrics #

• Impairment of Investments: The Company has fully impaired its investment in equity shares of AAT Global Limited, amounting to D 5,244.64 lakhs.
• Property, Plant, and Equipment: The Company had a review of property, plant, and equipment for any indication of impairment and concluded no impairments were required.

Debt Structure and Maturity Profile #

(Amount in D lakhs)

Analysis #

The Group has a mix of short-term and long-term borrowings. A significant portion of borrowings is due within one year.

Off-Balance Sheet Items #

• Contingent Liabilities: The Company disclosed contingent liabilities totaling D 5,578.12 lakhs as of 31 March 2024, mainly related to tax matters.
• Corporate Guarantee: The Company provided a Corporate Guarantee of D 81,976.55 lakhs to its Wholly Owned Subsidiary, AAT Global Limited.

Business Segment Performance Analysis #

Revenue and Profitability Metrics #

• Carbon Materials and Chemicals: FY24 revenue was ₹4,16,074.45 lakhs, a marginal increase of 0.20% from FY23’s ₹4,15,226.34 lakhs. Segment results (EBIT) were ₹49,702.36 lakhs.
• Power: FY24 revenue was ₹10,001.05 lakhs, a 26.11% increase in comparison to 7935.75 in FY23. Segment results (EBIT) were ₹8,849.36 lakhs.

Market Share and Competitive Position #

• Carbon Materials and Chemicals: Himadri is positioned as a key player, with a significant presence.
• Power: The segment’s contribution to overall revenue is relatively small, with the majority from internal consumption (captive power plant).

Key Products/Services Performance #

• Carbon Materials and Chemicals: The segment offers a diverse portfolio including speciality carbon black, coal tar pitch, refined naphthalene, and advanced materials.
  • New Products: New grades were developed Onyx, Jetex, Electra, Klarex, Colorx, Baronx and Virtex.
• Power: Primarily focuses on captive power generation, with excess power supplied to the local grid.

Geographic Distribution and Market Penetration #

• Domestic (India): Contributed ₹3,39,719.69 lakhs in FY24, a 4.40% growth from FY23, indicating a strong domestic presence.
• International: Contributed ₹78,741.11 lakhs in FY24, a 14.22% reduction from FY23.

Growth Initiatives #

• Expansion into Lithium-ion Battery (LiB) components, with plans for a 200,000 MTPA LFP Cathode Active Material plant.
• Brownfield expansion of speciality carbon black production capacity, set to be operational within 18 months, increasing capacity to 1,30,000 MTPA.
• Strategic acquisitions: Sicona Battery Technologies (stake acquired), Birla Tyres Limited (joint acquisition), and Invati Creations (40% stake).
• Continuous R&D investment for product innovation, such as the seven new Speciality Black Series and development of higher value-added products.
• New initiatives with the foundation of a state-of-the-art manufacturing facility for Lithium-ion Battery (LiB) components to produce 200,000 MTPA of Lithium Iron Phosphate (LFP) Cathode Active Material.

Risk Assessment Framework #

Carbon Materials and Chemicals Segment #

Strategic Risks #

• Severity: High, due to dependence on core industries like aluminum and graphite electrodes.
• Likelihood: Medium, given economic fluctuations and evolving technological disruptions in downstream industries.
• Trend: Increasing, with the rise of new technologies like lithium-ion batteries presenting both opportunities and threats.
• Mitigation Strategies: Diversification into new product lines (lithium-ion battery materials, construction chemicals) and markets.
• Control Effectiveness: Partially effective. New ventures are in progress, but the core business remains dominant.
• Potential Financial Impact: Revenue volatility.

Operational Risks #

• Severity: Medium, relating to production halts at manufacturing facilities.
• Likelihood: Low, based on established operational procedures.
• Trend: Stable, due to continued focus on process improvement.
• Mitigation Strategies: In-house technology development, continuous process optimization, and safety protocols.
• Control Effectiveness: Effective, as indicated by process improvements leading to better product yield.
• Potential Financial Impact: Costs associated with production downtime, inventory management, and safety incidents.

Financial Risks #

• Severity: Medium, due to fluctuations in raw material prices (coal tar and coal tar-based oils) and foreign currency.
• Likelihood: Medium to High, due to market volatility.
• Trend: Stable, with management actively monitoring financial ratios and maintaining a net zero debt status.
• Mitigation Strategies: Forward integration, strategic partnerships, and hedging instruments.
• Control Effectiveness: Good.
• Potential Financial Impact: EBITDA and PAT fluctuations.

Compliance/Regulatory Risks #

• Severity: Medium, related to environmental regulations and safety standards.
• Likelihood: Low, due to the Company’s proactive compliance culture.
• Trend: Stable, with ongoing adherence to regulations.
• Mitigation Strategies: Stringent adherence to environmental regulations, investment in eco-friendly technologies, and regular audits.
• Control Effectiveness: High, as evidenced by ISO certifications and compliance reports.
• Potential Financial Impact: Fines, penalties, and operational disruptions due to non-compliance.

Emerging Risks: Technological Obsolescence #

• Severity: Medium to high
• Likelihood: Medium
• Trend: Increasing. Due to rapid advancements such as solid state batteries or alternative chemistries.
• Mitigation Strategies:
  • Substantial R&D investments.
  • Acquisition of stakes in innovative companies.
  • Development of next-generation materials (LMFP variants, silicon anode material, graphene applications).
  • Plans for battery recycling projects.
• Control Effectiveness: Currently partial, as many initiatives are in R&D or early commercialization stages.
• Potential Financial Impact: Significant R&D investments without guaranteed returns; potential need for asset write-downs if current technologies become obsolete.

Power Segment #

Strategic Risks #

• Severity: Medium.
• Likelihood: Low.
• Trend: Stable.
• Mitigation Strategies: Captive Power Plant fully meeting operation requirements.
• Control Effectiveness: High.
• Potential Financial Impact: Reduction in operational cost.

Operational Risks #

• Severity: Medium
• Likelihood: Low
• Trend: Decreasing
• Mitigation Strategies: Implementation of a high performance multi-functional fuel additive across reduction processes.
• Control Effectiveness: Good.
• Potential Financial Impact: Reduction in the energy intensity per rupee to turnover.

Financial Risks #

• Severity: Low.
• Likelihood: Low
• Trend: Stable
• Mitigation strategies: Harnessing low-caloric waste gas from carbon black process using custom designed boilers.
• Control Effectiveness:: High
• Potential Financial Impact: More than 90% of Power requirement is full-filled by internally generated clean energy sources.

Compliance/Regulatory Risks #

• Severity: Medium, relating to environmental norms.
• Likelihood: Low, due to existing ZLD plants and heat recovery systems.
• Trend: Stable.
• Mitigation Strategies: Zero Liquid Discharge (ZLD) plants, heat recovery systems, and compliance with environmental regulations.
• Control Effectiveness: High, reflected in meeting ZLD requirements and ongoing conservation measures.
• Potential Financial Impact: Regulatory fines and operational restrictions due to non-compliance.

Emerging Risks: Transition to Renewable Energy #

• Severity: Low to Medium.
• Likelihood: Low.
• Trend: Increasing.
• Mitigation Strategies: By producing clean, green energy in an eco-friendly manner.
• Control Effectiveness: High
• Potential Financial Impact: Reduction of GHG Emissions

Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• The Company aims to become a global leader in specialty carbon products using eco-friendly technologies and enhancing core capabilities. The company is moving towards this by entering LiB components.
• A significant strategic shift is evident with a planned phased investment of INR 4,800 Crores over 5-6 years to establish a 200,000 MTPA Lithium Iron Phosphate (LFP) Cathode Active Material manufacturing facility.
• The company is transitioning from a legacy Coal Tar Pitch manufacturer toward a diversified, sustainable product company, especially in the EV and energy storage sectors.
• They are diversifying the product portfolio, with investment in next generation battery technologies.
• Brownfield expansion of the specialty carbon black line with additonal capacity of 70000 MTPA and an investment of INR 220 Crores.

Competitive Advantages and Market Positioning #

• The Company demonstrates strong market leadership in key products, transitioning from a coal tar pitch manufacturer to an integrated player in the carbon segment, and now venturing into tyres and EV battery materials.
• Backward integration into the cleanest feedstock has enabled the production of carbon black with the lowest impurities.
• There have made strategic investments in Sicona Battery Technologies and Invati Creations, enhancing technological capabilities in high-quality silicon anode technology and innovative Li-ion battery solutions.
• Joint acquisition of Birla Tyres provides forward integration, reduced time-to-market, and expansion into the B2C segment.
• The company has doubled their capacity to 130,000 MTPA, making it the largest single-site producer of speciality carbon black.

Innovation Initiatives and R&D Effectiveness #

• The Company’s R&D is the pillar of its growth and transformation. Continuous R&D investment is supporting the development of new products.
• The company has introduced 7 new grades of Specialty Carbon Black.
• R&D initiatives are focused on anode materials, silicon-based anode materials, cathode materials, and graphene, indicating a strong pipeline for future product innovation.
• There are also proprietary processes for the development of value-added products are sharpening the Company’s competitive edge.
• R&D efforts are underway in areas like LMFP variants, silicon anode material, graphene applications, and battery recycling.

M&A Strategy and Execution #

• Strategic investments are being made in entities such as Sicona and Invati to bolster technological prowess and onboard experienced talent.
• The Company has acquired a 12.79% stake in Sicona Battery Technologies to access innovative technologies for high-quality silicon-based anode materials.
• Acquisition of a 40% stake in Invati Creations enhances the presence in the Li-ion battery solutions segment.
• Joint acquisition of Birla Tyres with Dalmia Bharat Refractories Limited.

Management’s Track Record in Execution #

• The Company is on a net zero debt status.
• Sales volume increased 18% and PAT has increased from INR 208 Cr in FY 2022-23 to INR 411 Cr in FY 2023-24, with an increase in sales volume to 4,75,582 MT.
• Total revenue for FY24 stood at INR 4,185 Crores with an EBITDA of INR 632 Crores, marking the highest-ever sales, PAT, and EBITDA.
• Successful forward integration from oil to carbon black to specialty carbon black.

Capital Allocation Strategy #

• The Company is prioritizing fiscal prudence, planning to fund new business investments and expansions primarily through internally generated cash flows.
• Capital allocation will focus on capacity expansions, such as the new speciality carbon black line and the LFP Cathode Active Material plant.
• Strategic investments in innovative companies (Sicona and Invati) are being funded through a mix of internal accruals and debt.