Asian Paints has Rs.8,750 cr CapEx plan over 3 years
Indian Specialty Chemicals, such as Asian Paints, Tatva Chintan Pharma and PI Industries, have CapEx plans in excess of Rs.16,100 crores over the next 3 years as industry projects 19% growth in FY24 and 17.6% growth in FY25.
“Growth in the Specialty Chemical segment is driven by strong domestic demand and increased demand from overseas markets, which has been reinforced by major global economies adopting the China+1 policy,” said Naveen KR, smallcase manager and Senior Director, Windmill Capital.
“Many companies are seeing high growth, but due to margin pressure results have been poor and, as a consequence, stocks are taking a beating. Asian Paints, PI Industries, Aarti Industries, Gujarat Fluorochemicals, Vinati Organics, Anupam Rasayan, Clean Science and Technology, have highlighted strong CapEx plans as they see demand for the products that they offer.”
A study by Windmill Capital, listed the planned Capex:
Asian Paints has planned a CapEx of Rs.8,750 crores over the next three years, out of which CapEx of Rs.6,750 crores was announced in Q2FY23 for Brownfield and Greenfield expansions for capacity enhancement, backward integration and acquisitions.
Rs.3,400 crores will be used for capacity enhancement, Rs.2,550 crores for backward integration and Rs.800 crores for the inorganic growth opportunities.
The company announced in Q3FY23 that Rs.2,000 crores will be spent on a new water-based manufacturing facility with a capacity of lakh kilolitres per annum.
Aarti Industries is planning to spend around Rs.1,000-Rs.1,200 crores during FY23 on capacity expansion. Rs.840 crores has been expended so far during 9MFY23. Ethylation capacity at Dahej SEZ is being expanded with an investment of around Rs.200 crores and is expected to come on stream in H1FY25. The company is also planning to further debottleneck its Nitro Toluene Capacities. The collective CapEx for FY24 and FY25 is expected to be Rs.3,000 crores. The company does not intend to slow down its CapEx intensity, given long-term visibility.
Gujarat Fluorochemicals is debottlenecking its PTFE capacity and expanding its fluoropolymer manufacturing capacity. The company is expected to incur a CapEx of Rs.1,250 crores in FY23 as well as FY24.
Vinati Organics is increasing the manufacturing capacity of ATBS from 40,000 MT to 60,000 MT on the back of strong demand for the product. It will invest Rs.300 crores for the expansion, to be funded by internal accruals, and expects it to get commissioned by December 2023. Another Rs.200 crores is expected to be spent during FY25.
Anupam Rasayan India has invested Rs.100 crores till 9MFY23 out of the total planned CapEx of Rs.170-180 crores in FY23. Further CapEx of Rs.300 crores and Rs.250 crores will be incurred during FY24 and FY25, respectively.
Clean Science and Technology has expended Rs.165 crores during 9MFY23 towards capacity expansion. Another Rs.150 crores will be spent during FY24. The Greenfield project for HALS is on track for commissioning during 4QFY24.
PI Industries has spent Rs.260 crores CapEx in 9MFY23. The management has guided for CapEx of Rs.500-Rs.800 crores in FY23/FY24 to meet its order book.
During the past year, the Refinitiv India Specialty Chemicals index, an index constructed by data provider Refinitv Eikon and that track the Indian Specialty Chemicals sector, has dropped by 14.3% compared to the flattish performance of the Nifty 100 and Nifty 500.
However, on a 3-year and 5-year basis, the Specialty Chemicals Index has given handsome returns and comfortably beaten the performance of large-cap and multi-cap indices. To understand what is ailing the Specialty Chemicals index the Refinitiv India Specialty Chemicals Index was studied.
Median expected growth rate and expected EBITDA margin of Specialty Chemical companies that Windmill Capital tracks showed the sector’s expected revenue growth was 18.4% in FY23. It is expected to grow 19% in FY24 and 17.6% in FY25. EBITDA Margin for FY23 is expected to decline due to high inflation of 17.5%. As inflation eases, EBITDA margins are expected to improve to 21.5% in FY24 and are expected to remain steady at 21.3% in FY25. Estimated EPS growth for FY23 stood at 19.3%, which is expected to improve to 30.7% in FY24 and grow by 22.9% in FY25.
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