Mr. Shalil Shroff

The company began its operations by manufacturing oxalic acid and its oxalates and today it is world’s largest producer of oxalic acid. Over a period of time, the company diversified its product portfolio by forward integrating into agro chemicals bulks (based on oxalic acid and its derivatives). With recent acquisitions of two agro formulation companies overseas – Sintesis Quimica SAIC, based in Argentina and Agrichem, based in Netherland- PCCPL is now a well-diversified agro chemical company present across India, Europe and America.

In order to understand more about the company, Daryl Philip from Capital Market Publishers spoke to Mr. Shalil Shroff- Managing Director, PCCPL.

Kindly provide us the brief about your recent overseas acquisitions? What kind of synergy in operation do you look at in these companies and also how would it help in improving the operating ratios?
During the last couple of years we have acquired one domestic agro formulation company in Maharashtra and two in overseas market i.e. in Argentina and Netherlands. These overseas companies are basically agro formulation manufacturing and distributors having strong registration in Europe as well as in Latin America. In Latin America we had not explored the market so far and by this acquisition we have entered into large growing market of Argentina. This Argentine based company i.e. Sintesis Quimica is manufacturing various products range which includes fungicides, biological agro products (inoculants), herbicides, insecticides, soil disinfectant, sprout suppressant, etc. It also boasts very good client network of global agro formulation companies like Nufarm, Syngenta, etc.

Agrichem is Netherland based agrochemical formulation companies having its distribution network spread over entire Europe. Agrichem has a good portfolio of registered crop protection products (Registration in Europe is detailed, lengthy and time consuming process giving registered product holder advantages of entering into European market). PCCPL has acquired these companies for consideration of Euro 39 million for Agrichem (Euro 25 million paid for acquiring portfolio of registered products).

Benefits of these acquisitions:

• Entry into regulated formulation markets of Europe and South America.
• Access to technical data of registered products, which will make registration of these products easy in other markets like USA.
• Cross selling of products.
• Overall margin improvement of PCCPL due to some degree of forward integration.

What is the turnover and the product portfolio of these companies?
Turnover of Sintesis Quimica for the year ended March’08 is around Rs.80 crore and for Netherland based Agrichem for March’08 is Rs.70 crore for seven months as we have acquired this company in the month of August’ 07.

How do you see the trend in the agro formulation business? Which of the two, agro technical and agro formulation do you think would be revenue driver going forward?
Demand and prices of many agricultural products are on rise for last few years because of many reasons like:

• Rising demand from emerging economies like India and China due to growing population, higher per capita incomes, changing food habits, etc.
• Emergence of agro commodities as an asset class for investment and speculation in the commodities market and
• Increased diversion of feedstocks into the production of bio-fuel owing to higher oil prices.
• Extreme weather conditions and other natural calamities associated with climate change, etc.

Though many of above reasons may be cyclical in nature; world agricultural markets are likely to remain in structural up-trend due to higher demand of food stuff and supply constrain of arable land. This is likely to have very positive impact on overall agro chemical consumption. In agrochemicals, India has advantages in terms of well developed basic chemicals industry, availability of skilled/scientific labor at lower cost, product quality (compared to China) and beneficiary due to its global foot print, integrated operations, wider product portfolio and cost competitiveness.

Kindly give us a brief about your plan to backward integrate into phosphorous segments? What kind of products are you looking at? Is it going to be for bulk applications or is it going to be adding into formulation business?
Phosphorous being a one of the major raw materials in our Industrial Chemicals Division wherein we produce various phosphorous based derivatives like phosphorous acid, phosphorous trichloride, phosphorous pentoxide etc. China being the major supplier in the market. We are planning to look at China for an opportunity in phosphorous segment, thereby exploring the possibility of backward integration. This will give a total value addition to the group, as this will be applicable for formulation business as well as our technical products, which are used in formulation as well.

What sort of phosphorous-based compounds do you manufacture? Has the significant increase in prices of phosphoric acid affected your margins in this business?
We manufacture phosphorous-based chemicals like phosphorus trichloride, Phosphorous acid, phosphorous oxychloride, phosphorus pentoxide, phosphoric acid etc. We benefited in FY08 due to earlier-booked procurement contracts for phosphorus and phosphoric acid at lower prices. We still has a procurement contracts for next two quarters requirement at a price of Rs 250-300 / kg of phosphorus against current price of Rs 400-450 / kg of phosphorus.

Do you currently have any product registrations in any of your markets? If yes, then how many product registrations do you have?
Agrichem has a good portfolio of registered crop protection products in Europe. Sintesis Quimica has a comprehensive biological products & agro formulations range. Thus we have wide product portfolio & in house R&D for new molecules. We sell around 40+ brands in various categories of insecticides, pesticides, fungicides, herbicides and biological agro products in India.

Kindly let us know the operations of the US joint venture? Do you plan to introduce the existing agro formulation products in the US market or do you plan to go for complete new set of products to cater to this market? What is the JV structure?
For USA market, PCCPL has formed a JV with local partner and likely to spend up to USD 10 million over a period of next three years to get its products registered in USA. PCCPL is targeting annual sales of USD 10-12 million from USA alone in future. PCCPL is also contemplating further inorganic growth opportunities to strengthen its agro formulation distribution base in India and to backward integrate in phosphorous segment. As mentioned earlier by acquiring Agrichem and Sintesis Quimica the company could get access to technical data of products registered in South America and Europe. Thus the company can easily introduce these products in the US market.

What about the other business segments, specially the pharma bulk business?
In pharma bulk business, we are already negotiating long-term contracts with GSK, Ranbaxy etc. for certain antibiotics like clarithromycin etc. we basically produce API’s and intermediates for pharma division only.

What would be the capex plan for the current year and how would you plan to fund it?
Our capex for current year is around Rs.20 crore and we may fund particularly through our internal accruals and debts.

Are you looking at any overseas acquisitions similar to the ones that you did in Netherlands and Argentina? If yes what sort of size are you looking at and how would these acquisitions be financed?
We are planning to mobilize around Rs 125 crore through global depository receipts (GDRs) in the next six months to fund future growth plans. These funds would be utilized for inorganic growth in the US market.

What are your revenue and the bottom-line guidance for the current year?
We are expecting around 15% to 20% growth in terms of revenue and around similar growth in bottom line for the current year compared with last year.