Mr. RV Kanoria, Chairman & Managing Director, Kanoria Chemicals & Industries Ltd

“We propose to increase our Formaldehyde manufacturing capacity by way of a Greenfield project at Vizag.”

Nov 18, 2008 12:11 IST India Infoline News Service

Kanoria Chemicals & Industries Limited (KCI) is an ISO 9001, ISO 14001 and OHSAS 18001 certified leading manufacturer of chemical intermediates in India.KCI has two manufacturing facilities, one at Renukoot in Uttar Pradesh, which manufactures Chlor-Alkalis, Chlorine derivatives and water treatment chemicals; and the second at Ankleshwar in Gujarat, which manufactures Alcohol based intermediates. KCI operates two 25MW thermal power plants in Renukoot, and enjoys cost advantage as a result of backward and forward integration. The company?s portfolio comprises over twenty products, with a market leadership in six and substantial shares in all others. KCI has a synergistic relationship with its group company KPL International Limited which is a 20 year old professionally managed international business company, specializing in the global marketing and distribution of chemicals, plastics and allied products.

Mr. RV Kanoria, Chairman & Managing Director, Kanoria Chemicals & Industries Ltd has over three decades of experience in the fields of chemicals, textiles and jute industries. An MBA (Honours) from IMD, Switzerland, and Advanced Management Programme from Wharton, USA, He is on the Board of Cholamandalam DBS Finance Limited and Governing Board of Population Foundation of India, besides on the Board of several other companies. He is an Advisor to the Board of Operation Smile (NGO Organisation with Headquarters in the State of Virginia, USA) in India. This organization has been working since 1982 in corrective surgeries for disfigured children with special focus on facial deformities.

Anil Mascarenhas of India Infoline discusses the company?s plans with RV Kanoria who says, ?We propose to increase our Formaldehyde manufacturing capacity by way of a Greenfield project at Vizag.?

From your much talked about restructuring around a decade ago to the expansion in the subsequent years, could you briefly walk us through your journey?
When we began our operations in Renukoot, our immediate focus was to deal with location and licensing issues. The remoteness and weak infrastructure posed many difficulties. The challenge was to convert disadvantages to advantages and our strategy revolved around achieving this goal.

In line with this strategy, we set up our captive power plant and thus leveraged the availability of coal nearby. We also added Aluminium Chloride and Poly Aluminium Chloride in our product basket that were forward integrating products based on Chlorine, a co-product of our Caustic Soda manufacturing process, and Aluminium also available nearby.

After a period of consolidation and alignment in our product portfolio, we focused on financial restructuring and costs. Subsequently we embarked on expansion plans that included increasing our Caustic Soda production capacity, enhancing our power generation capacity and also increasing the capacities of Chlorine derivative products.

Brief us on the sectors you are engaged in.
KCI is primarily engaged in two sub sectors of the chemicals industry, i.e. Chlor Alkali and Alcohol Based intermediates.

The industry referred to as chlor alkalis includes the production of Caustic Soda and Chlorine as well as various chlorine derivatives that cater to a wide range of user industries, such as aluminium, paper, textiles, soaps & detergents, petroleum refining and pharmaceuticals.

The chlor alkali industry in India has been growing at around 5-6% per annum during the past few years and is expected to grow faster as a result of increased demand from paper, alumina processing, mining & mineral industries. As per estimates of the Alkali Manufacturers? Association of India (AMAI), the demand for Caustic Soda in 2007-08 was 2.3 million MT of which nearly 2.2 million MT was met by domestic production. An annual growth of about 5 per cent is expected during the current fiscal.

The Alco Chemicals Division located at Ankleshwar, Gujarat comprises the production of ethanol from molasses and Formaldehyde from methanol, which is further synthesized into several products for industrial applications. These products include Pentaerythritol, Sodium Formate, Acetaldehyde, Hexamine and others. The user industries of these chemicals include paints, inks, rubber, pharmaceuticals and alkyd resins.

Any new products in the pipeline?
There are no new products in the pipeline in the immediate future.

The chemical industry is often victim of a perception of being a polluting entity. What are the technological developments taking place in the industry? Are they making products safer?
The chemicals sector is almost always perceived as a polluting industry and faces environment activism. Apart from statutory requirements, we are proactive in promoting sustainable development. A fundamental component of this strategy is our choice of technology, be it the membrane cell process for producing Caustic Soda or the IRFBC technology of our thermal power plants, or using the Reverse Osmosis technology for treating our distillery effluent in Ankleshwar. The focus remains on higher efficiencies in our production processes and lower waste. As a result of efficient and environment-friendly technologies, safer products are evolving.

Tell us more about the environment-friendly membrane cell technology. What about the availability of membrane?
The membrane cell technology compared to the Mercury cell process is inherently more environment friendly as well as energy efficient. Interestingly, the spread of Membrane Cell technology among Chlor Alkali producers in India is higher than that in Europe, which is the largest Chlor Alkali producing region in the world. This is largely due to the affirmative action of the Chlor Alkali industry in India by way of adopting the Charter on Corporate Responsibility for Environment Protection (CREP) in the year 2003. Presently, only 8 units in India use the Mercury cell technology. The target of full conversion is expected to be achieved by 2012, much ahead of the target of 2020 set by the European Union.

There is no immediate problem in the availability of membranes.

What is your total manufacturing capacity and utilization?
Our production capacities product wise and the capacity utilization in the year 2007-08 are as follows:

Comment on your expansion plans?
Over the last three years, our expansion plans were fulfilled by way of enhancing our Caustic Soda capacity from 50,000 MTA to 130,000 MTA in two phases, as well as augmenting our captive power generating capacity from 25 MW to 50 MW.

Over the next year, we propose to increase our Formaldehyde manufacturing capacity by way of a Greenfield project at Vizag that is expected to be later supplemented by creating capacity for polyols production. Being located in the proximity of the coast and with well developed infrastructure, we believe that the project has long-term competitiveness.

How is the market developing for caustic soda? Who are the other major players globally and domestic?
Caustic Soda production is increasingly becoming location centric, considering that it is a commodity chemical characterised by low value and high volumes. There is definite shift of Caustic Soda production facilities to low cost production areas or high consumption areas. The other shift is by way of environmental considerations. The Chlor Alkali industry manufactures both Caustic Soda and Chlorine. Globally, Chlorine has been the dominant product for its widespread use in PVC and plastics industries. The dominance is now shifting towards Caustic Soda.

The major players in the Eastern region where we have our manufacturing facility are Bihar Caustic & Chemicals, GMMCO and Jayshree Chemicals. Other major players include Grasim Industries, Gujarat Alkalis, Reliance Industries, DSCL, SIEL, Punjab Alkalis, Chemplast Sanmar, Sree Rayalseema Alkalis and Andhra Sugars.

Some of the global players in the Chlor Alkali industry are Arkema, Solvay, Bayer, DuPont, Dow and Ineos among others.

IFC had invested in Kanoria Chemicals. Has the entire amount been utilized?
IFC has invested US$ 5 million in the Company by subscribing to its Equity Shares. The funds so raised has been utilised towards the part funding of expansion in Chlor Alkali and Chlorinated Derivatives capacities at Renukoot. Besides, IFC has also sanctioned a loan of US $ 15 million to the Company, which, in view of the ECB restrictions imposed by RBI in mid 2007 could not be availed.

With ECB relaxations what do you plan?
With the relaxations given by the RBI in current year for raising ECBs, the company now proposes to utilise the said sanctioned loan towards the funding of its Greenfield project at Vizag and other normal capital expenditure.

Tell us more about your Renukoot plant
We have a Chlor Alkali manufacturing complex located at Renukoot, District Sonebhadra, Uttar Pradesh, about 160 kms. from Varanasi. The complex has chemical plants in a township spread over 350 acres that also has a guest house, hospital, temple, club house and quarters for employees. The integrated Chlor-Alkali complex manufactures Caustic Soda as the main product and Liquid Chlorine, Hydrochloric Acid and Hydrogen as by-products. It also has forward integrated chemical plants for value added chlorine derivatives such as Stable Bleaching Powder, Aluminium Chloride, Poly Aluminium Chloride and Chlorinated Paraffins.

The complex is backward integrated by way of two 25 MW Captive Power Plants and Salt Works in Gujarat. KCI has leadership position in India for manufacture of Stable Bleaching Powder, Aluminium Chloride and Poly Aluminium Chloride, and is amongst the top five in Caustic Soda production in the country.

You have some water treatment chemicals too. How is the market for the same developing?
We manufacture Poly Aluminium Chloride, a next generation flocculent used in the water purification sector. We have experienced positive market response in this sector. Sales have increased from Rs6.91mn in FY05 to Rs91.73mn in FY08. Production during the same period increased from 2,040 MT to 23,443 MT.

Your Ankleshwar plant makes alcohol-based intermediates. What trends do you see here?
Rise in petroleum and oil prices over the years have benefited the bio route for alcohol production. However, fluctuations in the prices of both agricultural inputs and crude oil keep the market volatile.

The Bio Ethanol programme in its present state is a matter of concern. Most producers are opting for the molasses route, thus stressing the market for non-fuel applications. There is need for research for truly utilizing agricultural waste for the programme. There is a lot of opportunity for utilizing cellulosic alcohol for the bio ethanol programme.

With a slowdown globally, do you see any drop in production of manufacture of Pentaerythritol?
We do not foresee any drop in production of Pentaerythritol.

Comment on your overseas plans.
We are exploring possibilities particularly in the virgin markets in Africa. The company has carried out many studies and is in the process of finalising plans. The global economy, however, is presently facing a regime of high interest rates and downturn. The pace of development of the company?s overseas plans would depend on how fast the recovery takes place.

Brief us on how you manage your energy requirement?
At our Chlor Alkali and Chlorine derivatives facility at Renukoot, we have our own captive power generation of 50 MW. The two 25 MW thermal power plants are based on the highly efficient IRFBC technology. KCI was a pioneer in using this technology in India when it set up the first plant in 1997.

Our Alcohol based intermediates facility at Ankleshwar has installed power generation capacity of 3.8 MW by way of a 2 MW biogas power plant, 1.4 MW natural gas engine and 0.4 MW back pressure turbine, and some wind power.

The company has an extensive energy conservation programme towards minimising energy usage and converting waste to energy. It runs a highly successful Waste to Wealth programme at Ankleshwar that is a recipient of Indian Chemical Council and TERI awards.

What is your current debt?
As on 31 March 2008, our secured loans were at Rs2.17bn while unsecured Loans are at Rs1.36bn.

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