DCW Limited

Investor Presentation Call

The 22nd of November 2022

Moderator:

Ladies and gentlemen, good day and welcome to the Investor Call of DCW Limited hosted by

Dickenson World.

As a reminder, all participant lines will be in listen-only mode, and you will be able to ask

questions after the presentation concludes. Should you need assistance during the

conference call, please signal an operator by pressing '*' then '0' on your touchtone phone.

I now hand the conference over to Mr. Rahul Jaju from Dickenson World. Thank you. And

over to you.

Rahul Jaju:

Good evening, everyone. A warm welcome to everyone here for the Investor Con Call of DCW

Limited.

I would like to remind you that today's remark might include forward-looking statements, and

actual results may differ materially from those contemplated by forward-looking statements.

Any statements we make on this call today are based on our assumption as of date, and we

have no obligation to update these statements as a result of new information or future

events.

Today we have the Management of DCW Limited, represented by Mr. Saatvik Jain - President

of DCW Limited; Mr. Amitabh Gupta - CEO; Mr. Sudarshan Ganapathy - COO, and Mr.

Pradipto Mukherjee - CFO. I would now like to invite Mr. Saatvik Jain to make his opening

remarks. Over to you.

Saatvik Jain:

Good evening, everyone. And thank you all for connecting with us today. It is great to get

associated with our investors. And we will undoubtedly have more such regular interactions

from here on.

As most of you know about DCW, I shall keep this brief. DCW is a company that has

transitioned into the Specialty Chemical space with having presence in niche Specialty

Chemicals like CPVC, Synthetic Iron Oxide Pigment that is SIOP, and Synthetic Rutile. We also

manufacture Commodity Chemicals like Caustic Soda, Soda Ash and PVC.

Over the last four to five years, we have concentrated our efforts on our Specialty Chemicals

business. As a result, Specialty Chemicals now contribute close to 25% of the Company's

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overall EBITDA. Our CPVC plant at our Sahupuram facility in Tamil Nadu was set up as India's first CPVC plant. Most of the demand for this product is met through imports. As of H1 FY'23, our capacity utilization was 100%, with nearly 30% EBITDA margins.

The SIOP plant at our Sahupuram facility is one of the largest-scale SIOP plants in Asia for Red and Yellow Pigments. We have contracts with some of the world's largest consumers of pigments like Colorbiotics and Venator in the USA. We are producing at around 65% capacity and have witnessed a significant turnaround for this product. As a result, we are expecting EBITDA margins to remain in the range of approximately 30%. DCW is also a manufacturer of Synthetic Rutile, one of two manufacturers in India. This product goes into the production of Titanium Metal and Titanium Pigment.

We are now coming to the essential part of our discussion. As most of you know, the Company has transitioned over the last three to four years. Our earlier interactions with you have been very fruitful in explaining our business model and our near-term areas of focus. Primarily that was:

  1. Augmenting our working capital.
  2. Maximizing and sweating out our existing assets
  3. Reducing our finance costs.

We are happy to state that we have successfully completed the above agenda. Our current ratio as of the 30th of September was 1.33. Utilization across all our products is maxed out, barring SIOP to some extent. And the last point is that our high-cost debt has finally been refinanced with mainstream bank funding. This will give our Company around 700 to 800 bps savings on our finance costs going forward. Our CFO Mr. Pradipto Mukherjee will further elaborate on this in some time. This effort has made our balance sheet leaner, stronger and more sustainable over an extended period of time.

Now this agenda is complete, the Management has shifted its focus to long-term and sustainable growth, especially on its bottom line. As the first phase of our growth plan, we would like to share that our Company has planned to double our CPVC capacity by adding another 10,000 tonnes of production. This CAPEX aligns with our overall strategy of further making inroads into Specialty Chemicals. As we know, DCW is the sole manufacturer of CPVC in India at this point in time. We believe that this CAPEX will further strengthen our market position, considering the demand situation. Per our internal estimations, this project is expected to be commissioned in the second half of FY'24. However, efforts are on to try and fast-track this project.

In addition, we also plan to augment the capacity utilization of our SIOP plant to 100%, with some line-balancing CAPEX. This will add around 10,000 tonnes of additional production per annum from the current levels. We estimate this project to be complete by the 1st Quarter of

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FY'24. DCW is investing around Rs. 125 crores on these two projects, which we expect would

add around Rs. 60 crores to Rs. 70 crores to our bottom line.

As mentioned earlier, our future growth will be focused on Specialty Chemical segments.

Apart from further growth in CPVC, our strategy and R&D teams are already focused on

identifying products relating to Chlorine chemistry, with the aim to become Chlorine neutral

and apart from other niche products, which tie in with DCW's history of being a pioneer in the

products that we make. Having said that, the Commodity business is an integral part of the

Company as it provides cyclical benefits from time to time. We stand to take advantage of the

cycles when it comes, just like PVC last year and Caustic Soda or Soda Ash this year.

With this, I shall hand over to our CFO, Mr. Pradipto Mukherjee, to give you details about our

performance and some more information on the refinancing arrangement that we have done

earlier this year. Thank you. And over to you, Pradipto.

Pradipto Mukherjee:

Good afternoon, everybody.

I would first like to talk about the significant highlight for Quarter 2 of the Company, which

was the closure of the arrangement with the Kotak Special Situation Fund, which we call

(KSSF). So, as per the Company's initial objective of achieving and stabilizing operation

performance, the next big trigger for the Company was to rationalize its finance cost. Now, as

of the 31st of March 2022, our gross debt for the Company stood at around Rs. 550 crores

and the lion's share of it was Rs. 410 crores from KSSF, which was at an IRR of 17%. We are

happy to reiterate that we have successfully refinanced the same and struck a closure with

the KSSF deals.

To talk a bit more about the KSSF structure which we had, so, it was way back in March 2021

when the Company raised funds by issuing debentures to KSSF. There were two parts to the

borrowings. One was Convertible Debentures to the tune of Rs. 60 crores, and the other Non-

Convertible Debentures issued to the tune of Rs. 350 crores which totals up to Rs. 410 crores.

Now, the OCD had a coupon of 9.17% and a maturity of 18 months as per the convertible

instrument's timeline mandated by SEBI. On the Non-Convertible Debentures, the coupon

was 11%, and it was a six-year tenure debt, with the two years lock-in period.

So, far as OCD is concerned, the underlying was the issue of shares of 3.33 crores at a price of

Rs. 18 if it was converted at the option of the debenture holder. On the contrary, it could also

have been redeemed, however, by paying with an IRR of 17%.

Just to throw more light on the NCDs, the NCD had a 17% IRR with an 11% coupon, as I

mentioned, but the tenure was six years with a two-yearlock-in. At the beginning of this

Quarter, we had engaged with KSSF to strike a closure of the deal in its entirety, which are

both the OCD as well as the NCD. So, basis our engagement and finally, what fructified was

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that, KSSF have converted 55% of the OCD, the face value of which is Rs. 33 crores, and the Company issued 1.83 crores shares to KSSF. The balance of Rs. 27 crores which are 45% of the OCD, was redeemed at an IRR of 17%. So, the Company has to pay Rs. 27 crore of face value and Rs. 3.05 crore of redemption premium on the OCD.

Just to stop by here that the Company, as I told had paid around Rs. 30.05 crores for the redemption of the OCD, including its redemption premium. The Company avoided the issue of another 1.5 crore shares, which in financial parlance is basically that the Company bought back 1.5 crore shares from KSSF by paying Rs. 30.05 crores, which eventually means we bought back the shares at Rs. 20 per share, a bit more than that, while our prevailing share prices today are Rs. 50. So, this deal of the redemption of the OCD is significantly beneficial to the shareholders of the Company.

While as a part of the total deal, we also discussed with KSSF and asked for an early exit on the NCD. As I mentioned earlier, the NCD had a lock-in period of two years, which eventually means we could have only gotten out of the NCD somewhere in March 2023. But we engaged with KSSF and asked them to give us an early exit on the NCD as well, and which they agreed. However, we had to pay upfront pre-closure charges of Rs. 9.5 crores.

During this period, Rs. 9.5 crores have come as a hit in the interest part for Quarter 2. If you calculate, we have refinanced this debt by a term lending of 9.5%. So, to calculate 7.5% of savings on this Rs. 350 crores of refinancing for a period of six months, which is the early exit period, for which we paid this Rs. 9.5 crores charges. So, it will amount to Rs. 13 crores of savings of interest costs in the next two quarters. So, this part of the deal as well, what we have saved is around Rs. 3 crores to Rs. 3.5 crores even after we paid Rs. 9.5 crores of pre- closure charges.

I mean, this more or less concludes our discussion and deal with KSSF, and as we have completed this deal, we have also managed to tie up an additional Rs. 80 crores of borrowings for the future CAPEX, which Mr. Saatvik Jain had just informed you of. So, we have added another Rs. 80 crores of borrowings, which is also at a sub-10 % interest cost.

So, after the conclusion of this entire financing activity in this Quarter and given that we had the best ever half-yearly performance, sale of our non-core asset, primary infusion of capital by the promoters to the tune of Rs. 22.5 crores, the Company's balance sheet as on the 30th of September 2022 has been strengthened like never before, and we are well poised to take up the next level of growth.

Just to touch upon specific balance sheet ratios, firstly, the Company's gross debt as of the 30th of September stands at Rs. 544 crores as against the 31st of March at Rs. 550 crores. The debt-equity ratio starting from March 2021, if you see was 0.91. It came down to 0.69 in March 2022, and today it hovers around 0.57. This is on the gross debt.

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DCW Ltd. published this content on 28 November 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 November 2022 15:47:33 UTC.