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Alagappan Arunachalam

The company's factory at Pondicherry — Bijoy Ghosh.

SHAREHOLDERS can retain their holdings in the Chemfab Alkalis stock, which trades at about eight times its per share earnings for FY-05. The company plans to integrate backwards by setting up a desalination plant and expanding its capacity by 50 per cent once the plant becomes operational.

Chemfab Alkalis' caustic soda, chlorine, hydrogen gas and sodium chlorate are used in the aluminium, paper and textile industries. The company derives about 85 per cent of its revenues from the chlor-alkali business.

Chemfab Alkalis is among the larger producers of caustic soda in South India. It seeks to integrate backwards to produce industrial water to meet the requirements of its caustic soda plant. It proposes to set up a desalination plant of 4,000 cubic meters a day at a cost of Rs 30 crore. Shortage of water has prevented it from expanding the capacity of its caustic soda plant.

Chemfab Alkalis plans to sell the surplus water to other industries; it has entered into an agreement with Shasun Chemicals. It proposes to commission the desalination plant within 12 months of government approval. It plans to increase capacity by 50 per cent from the present 38,700 tonnes of caustic soda once the desalination plant becomes operational.

Chemfab Alkalis proposes to diversify into biotechnology as this would provide it a new stream of revenue. The plans, however, are at a nascent stage.

The chlor alkali industry is power-intensive with power and fuel forming 50 per cent of the production cost.

Chemfab Alkalis meets a part of its power requirements from captive generation. A hike in the electricity tariff could affect the margins; this is not likely in the near future.

Higher unit realisations and a lower interest outgo have shored up the margins for FY-05. The earnings have nearly doubled. Realisations have continued to rise in the first quarter of FY-06, and have boosted the revenues by 41 per cent and more than trebled the earnings.

However, a cause for concern is 74 per cent rise in administrative overheads, which constitute 20 per cent of the total expenditure.

The prices of caustic soda, which have risen by 50 per cent in the last year, are expected to remain firm with a 4 per cent growth projected in user industries such as aluminium and paper.

The Government has initiated a review of the anti-dumping duty on import of caustic soda from the EU, Indonesia and Taiwan.

The withdrawal of the anti-dumping duty imposed on the import of caustic soda could affect the company's operating margin, which is at 20 per cent.

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