Vikas Ecotech is engaged in manufacturing of eco-friendly specialty chemicals that are used across various sectors like construction (PVC pipes & wires/cables), footwear, pharma, automobiles, packaging, artificial leather, polymers, etc. These specialty chemicals are used to improve and enhance the quality of the end products.

    • Vikas Ecotech is a pioneer in introducing lead free eco-friendly heat stabilizers in India that are used in manufacturing of PVC pipes. Its flagship product MTM (Methyl Tin Mercaptide) replaces all the lead based stabilizers which were earlier used in PVC pipes. Vikas Ecotech is the only player in India with this technology. Best Example: Maggi from Nestle. One of the reasons for the Maggi fiasco couple of years back was due to the high lead content in Maggi. This was said to be because the pipes through which water used to pass to manufacture Maggi was contaminated with lead content which was coming from the lead based chemicals used in these PVC pipes. Major world economies like US and Europe have already banned lead based stabilizers and the same trend is expected to follow soon in India.
    • Apart from MTM, company manufactures ATH (flame retardants) used in wires and cables to protect wires from catching fire. The tag line that Havells uses – “Wires that don’t catch fire” is the magic of the chemical manufactured by Vikas Ecotech.
  • Other products include, Plasticizers ESBO, Thermoplastic Rubber Compounds (TPR), Thermoplastic Elastomer Compounds (TPE), Ethylene Vinyl Acetate (EVA), Poly Vinyl Chloride (PVC) and Polythylene Terephthalate Compounds (PET).
  • Company has developed a technology with which used cooking oil can be re used to manufacture plastizers (used in PVC pipes). It has also recently acquired a Hydal technology from a European company to convert waste cooking oil into PHA (bio-polymers).

Products of VEL – Specialty additives

Products of VEL – Polymer Compounds

Products of VEL – Recycled Compounds

In 2016, the company commenced construction of manufacturing plant and R&D center in Dahej, Gujarat. Capacity is to produce 6000 MT per year of MTM and 5000 MT per year of special polymer compounds.

This year, the company added Mexichem, the global leader in PVC piping as its customer.

Key developments during the year:

New Customers: Mexichem (Mexico), Supreme Industries (India), Baerlocher Italia Spa (Italy)

New Expansions:

  1. Capacity expansion of Rajasthan unit for Organotin stabilizers for 1200 MT per annum and Specialty compounds at 8500 MT per annum.
  2. Commission of new export oriented unit at Noida SEZ, NCR.
  3. Construction of plants commenced for new plants at Kandla and Dahej.

New Recognitions and technologies:

New Strategy: Initiation of De-merger of high volume and low margin business (the recycling and trading business) from Vikas Ecotech Limited and subsequent amalgamation with Vikas Multicorp Limited (a promoter company) and listing of the new entity.

Advisory Board and new minority stakeholder:

  1. Formed a new advisory board to over-see the strategic growth of the company
    1. Mr. GN Bajpai, Chairman (former SEBI Chief)
    2. Mr. Sunil Alagh, Vice-Chairman (former MD of Britannia Industries)
  2. Minority stake acquisition by Mr. Jayant Chheda around 8% of total share capital in personal capacity (which included around 34 crores equity infusion to the company. This resulted in the equity dilution of promoter from 45% to 39%).

Background: Mr. Jayant Chheda is the CMD of Prince Pipes Limited, apparently the 3rd largest PVC player in India. Prince Pipes is one of the customers of VEL for the MTM organotin stabilizer to be used in manufacturing their PVC pipes. Looking at the potential of VEL in lead-free PVC stabilizers, he invested in VEL in personal capacity.

Source – http://www.business-standard.com/content/b2b-plastics-polymers/prince-pipes-chairman-jayant-chheda-raises-stake-in-vikas-ecotech-117011800409_1.html

Jayant Chheda commented, “Similar to global trends, I see Indian PVC pipe manufacturing in particular and plastics industry in general shifting to lead-free stabilizers and eco-friendly chemical alternatives like organotins over the next 3-5 years. In this context, Vikas Ecotech is the only Indian company that has built in-house industrial performance ready product and solutions basket that is free of lead & other harmful chemicals and serves as an eco-friendly alternative. It will help the PVC and other plastic based industries to become environment friendly.”

He added, “My investment in an individual capacity is with the sole intention of being part of Vikas Ecotech’s exciting future growth journey enabled through a great societal benefit – lead-free products and a green world for our future generations.” 

Management Discussion and Analysis:

The management outlined five trends which are likely to affect global special chemical industry and VEL.

Trend-1: Emergence of Modern Demand Powerhouses on the Back of Traditional Growth Factors:

Changing employment patterns have a direct linkage to the sales of Thermoplastic Rubber (TPRs), an important compound used in the manufacture of shoe soles and one of the leading products at Vikas Ecotech. The positive outlook for end-user industries has led to increased opportunities for the specialty chemical industry from these footwear manufacturing countries. India is the world’s second largest footwear producer after China.

Trend-2: Innovation over Commoditization:

Global chemical companies are witnessing intense competition for customers and resources while constantly addressing sustainability challenges. A profitable pursuit depends on maximized value offerings as against augmented volume creation. The age-old maxim of innovation is dethroning the ease of commoditization. At Vikas Ecotech, the business strategy focuses on capturing value over volume through pricing excellence, customized solutions and strategic process management.

Trend-3: Next-generation Technological Intervention in Production Processes:

Smart factory environs are taking over the chemicals sector at a rapid pace, connecting the four M’s of manpower, machinery, materials and markets like never before. According to the

findings of a survey by PwC, 75% of the 222 chemical companies surveyed plan to invest 5% of their annual revenues in digitization by 2020. Industry leaders believe that those who are

“slow to explore digitization and data analytics may find it difficult to compete”. At Vikas Ecotech, we continue to make investments in technological advancements of the company’s manufacturing

processes. We believe that this will add an edge to their innovation-led competitiveness, especially in the global landscape.

 

Trend-4: East is the land of Rising players

Over the last few years, India and China have firmed up their positions as key players in the global specialty markets industry. Not only are these markets leading consumers but also

the powerhouses supplying specialty chemicals globally. At Vikas Ecotech, we are an emerging global player in the specialty chemicals segment with nearly 52% of the annual revenues in

FY17 accounting to exports. As a two-star export house, we possess the passion, expertise and quality to finding innovative solutions to some of the most complex challenges faced by the world today.

 

 

Trend-5: Reigning focus on strength to leverage opportunities:

At the other end of the spectrum are Demergers, which enable a laser sharp approach towards companies’ strengths. In 2016, one of the oldest chemical manufacturers W.R. Grace split into

two public firms – one focusing on catalysts and the materials business and the other on packaging and construction products. The move unlocked about USD 1 billion in share value according

to market returns. At Vikas Ecotech, we have adopted a similar strategy of demerging the company’s high volume and lower margin business from the low volume and high margin businesses.


Potential disruption in PVC industry – Opportunity for VEL:

  • On 25th May, 2017, the judicial body on environment issues, National Green Tribunal (NGT)

passed a judgement on phasing out the use of lead in Polyvinyl Chloride (PVC) pipes and

other related products.

  • The NGT directed the Ministry of Environment & Forests and Climate Change (MoEF & CC) to:
    • To notify quality standards of lead to be used for PVC pipes.
    • To lay down the standards for presence of lead in PVC pipes, in consultation with the Bureau of Indian Standards (BIS).
    • To draw up a programme for phasing out of lead as stabilizer in PVC Pipes.
  • Impact: With this judgement, India becomes one among the increasing number of countries to undertake concrete steps to phase out the use of lead in PVC products.

Methyl Tin Mercaptide also known as Organotin is the globally sanctioned alternative to lead stabilizers used in the manufacture of potable water pipes and fittings. Currently, Vikas Ecotech is the only Indian company to provide this technology.

De-Merger and its rationale:

Financial Performance during the year:

During the year, the company’s performance was affected by a major external event: an accidental fire outbreak at one part of the company’s Shahjahanpur manufacturing plant in Rajasthan. Consequently, the company delivered positive results, albeit muted, during the last fiscal. The loss due to the fire impacted the profitability as a one-time extraordinary item, however, this loss will be recovered as insured claims in the coming year.

Below are the snapshots of P/L statement for the year, Balance sheet, Cash flow statement and Salary details of Management. Towards the end of the document, I have shared a few risks and concerns regarding the financial position of the company based on my observations.



Risks and concerns:

  1. The debt equity ratio of the company has come down to 0.84 this year as compared to 1.41. This is attributed to the capital infusion of around 43 crores through preferential allotment of shares. The debt of the company is still at significant levels.
  2. The working capital cycle of the company is stretched which is causing negative OCF for the company over the past many years. The trade receivables are around 151 cr for the FY 2016-17 as compared to total of 387 cr revenue. This means that the debtor days is around 142 days (151/387 * 365) and debtor to sales ratio is ~39%. This means that the company is taking a lot of time to recover the money from the customers for the sales.
    1. However, one should try to understand the dynamics of this company. Trading business was 70% of the total sales in 2011. In 6 years, the manufacturing segment contribution shot up to 80%, bringing trading segment contribution down to just 20%.
    2. Since the company is in its initial stages of acquiring customers to its new manufacturing products and gaining their confidence, this situation would hopefully improve in the coming years.
  3. Negative operating cash flow of 19.96 cr this year as compared to negative OCF of 4.14 cr last year. This reflects that the company is reinvesting the profits in working capital, mainly the debtors. Hence, the company needs to consistently borrow money from banks and other financial institutions to meet capex requirements.
  4. This also means that the company is probably paying dividends to its shareholders using the debt. This primarily might be to incentivize the promoter and management through dividends since the salary they draw are at reasonable levels when compared to profits 
  5. The promoter should keep a check on equity dilution. The promoter’s stake has come down to 39% from around 51% over last two years due to capital infusion via. preferential allotments to meet capex and working capital requirements. The debtor level should be brought down significantly which would help to meet working capital requirements instead of raising any further significant debt or diluting equity.

Disclaimer: This Blog, its owner, creator / contributor is not a research analyst and expressing opinion only as an individual investor in Indian equities. He/She is not responsible for any loss arising out of any information, post or opinion appearing on this blog. Investors are advised to consult financial consultant before acting on any such information. All information in this blog is posted for personal study, All information posted on blog is as available in public domain. Note: The above is not a research report but information as available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

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