In an interaction with Shweta Papriwal, Editor, indiainfoline.com, Mr. Parag Jhaveri, Managing Director & CEO of Yasho Industries Ltd said, "As an environmentally conscious company, we stand to benefit from stricter environment norms and compliance".
Yasho Industries Limited is a Mumbai based specialty chemical manufacturer which got incorporated in 1985 led by my father, Mr Vinod Jhaveri, one of the founding promoters of the company. Initially when Yasho was launched, we were in the business of water treatment chemicals. After I joined in the 90s, we decided to set up a chemical production plant for manufacturing this specialty chemicals as import substitutes. During early 90s, import duty were as high as 150-160% but it later dropped to 35-40% odd. Hence, this made import substitute unviable during that time and we started looking for other products.
In 1994, we started making food antioxidants, aroma chemicals, etc. We also started exporting our range of specialty chemicals and expanded our business gradually. We then realized that a specialty chemical was being extensively used in the rubber industry. Therefore, in 2000, we commenced manufacturing rubber chemicals developed by in-house R&D team. And later In 2010, we started making lubricant additives. A major fire breakout at our manufacturing facility in Vapi during 2012 time. 70 percent of it was destroyed. There were no casualties, but we experienced huge losses. We emerged from that crisis successfully and rebuild our plant & resuming operations slowly. In FY20, our busines has grown to the turnover of ~Rs 300 Cr level.
Can you throw some color of revenue breakup, margin profile and business dynamics of your business verticals?
At present, we manufacture specialty chemicals in 5 business verticals i.e. food antioxidants, aroma chemicals, rubber accelerators, lubricant additives and speciality chemicals. We have near 160+ products across this 5 busines verticals. Most of these products are low volume - high value - niche products where general consumption from customers are less. For 9MFY21, revenue contribution are as follows: Aroma Chemicals: 27%; Food antioxidants: 17%; Rubber chemicals: 35%; Lubricant Additives: 8% and Specialty chemicals: 13%. Aroma Chemicals and Food antioxidants business are highly competitive whereas balance three segments have better margin profile.
Can you highlight more on manufacturing facilities and recent expansion?
We have three manufacturing units at Vapi location based in Gujarat. In last 2-3 years, we have expanded our capacity by 3,700 MTPA to 9,200 MTPA. This expansion were primarily to suffice ongoing demand into Rubber Chemicals, Lubricant Additives and speciality chemicals segment. Along with 3 units, we also have warehouse facilities to keep stocks of finish goods and inventory across all products. Our facilities are located within 200 kms from Nhava Sheva sea Port.
Are these facilities fungible?
Most of our plant facilities are designed to be multiproduct and multipurpose plant which gives us an edge to be flexible with ongoing customer demands.
Who are our major clients?
We are tier 1 or tier 2 supplier for many major MNC customers like Dabur, Continental, CEAT, MRF, Apollo Tyres, JK Tyres, Indian Oil, Balmer Lawrie, Wacker, Lanxess, SH Kelkars, Kemin, Adani Wilmar, Siddharth Grease etc. Gestation period or approval period from customers varies from 1 month to 4 years depending upon product feature & functionalities. We are well qualified with respect to certification, experience, technical expertise, and capabilities. We have emerged as a long-term sustainable partner for them.
Are you well qualified to export in all geographies?
We have presence in more than 40 countries primarily in the US, Iran, Australia, South Africa, and to some countries in South America, Europe, and Asia. Of our total revenue, export business contributes around 60% whereas balance 40% is from domestic market.
We are an ISO certified company. We have all necessary certification like FSSC, FAMI-QS, STAR-K KOSHER, HALAL, FSSAI Export Inspection Agency etc. We have registered our multiple products for REACH certificates which enables us to qualify for export in Europe market. We believe there is huge opportunity in Eurozone and through this REACH certificate, we can encapsulate the opportunities. Our compliance to Global Best Practices has led us to achieving Global Certifications which act as an entry barrier especially in large exports market.
What are the growth prospects of the company?
We have recently expanded our capacity and we plan reach optimum utilization in next 2 years. At current run rate, we expect topline to grow in the range of 20-25% with better product mix. Since, we are moving our business to high margin segment, we can improve our margin by 200 to 250 bps. We have strong R&D team to cater to product innovation & development. We will continue to innovate new product solution for our clients and prospect clients which is backbone of this company.
Tell us more about your risk management strategy. Are you more skewed towards any specific industries or client?
We have wide range of diversified product portfolio catering to multiple industries which protects us from downturns in specific industries. It also gives us more opportunities to market our innovative products and solutions. Hence, we do not have any high concentration towards specific industry or client. If there is any slowdown in specific product, our multipurpose & multiproduct facilities give us an advantage to cater to other products & industries.
We have intense working capital cycle and high debt. Any plan to improve it?
Most of our raw materials are imported from various geographies and we are dealing with large customers with low volume. Since, we have 160+ products, working capital intensity is high as post Covid, customers have started asking for more credit period. Therefore, we need to keep high inventory and extend credit period by some days. Working capital intensity is more in Aroma chemicals and Food antioxidants business. Since, we are gradually moving to better margin business, there is potential to improve working capital cycle.
Of our total debt, we have long term debt of Rs 68 cr and Short-term debt of Rs 96 cr. Going forward, Increase in capacity utilization will lead to free cash flow which shall be deployed to deleverage the balance sheet.
What are the opportunities for us and how much are we ready to capture it?
In last couple of years, global environment has change very much. Demand for alternate and reliable partner in the global market has grown especially for niche product manufacturer like us. On the other hand, domestic market has seen a revival and all major companies also looking for tier 2- tier 3 supplier as a part of their de-risk strategy.
As an environmentally conscious company, we stand to benefit from stricter environment norms and compliance. We are already a recognized global partner with more than 2 decades of experience in export market. Our global certificates, multipurpose manufacturing facilities, diversified products, diversified end industries and new capacity expansion are well positioned to be growth lever of our organization.