OCCL Ltd

Overview

There are two ways of appraising our performance during the last financial year.

On the one hand, the Company reported a lacklustre performance. Revenues of the chemical business increased by 6% to 41,121 Lakh, EBITDA (annualised) stoodH at H 7,335 Lakh and profit before18% to 3,813 Lakh. H tax (annualised) was 12% to On the other hand, the Company acquitted itself in a challenging insoluble sulphur segment of the global speciality chemicals sector by staying profitable in each quarter, reporting an EBITDA margin of 18% across the year and finishing with 1,035 Lakh of cash on its books by theH close of the year under review.

The magnitude of our achievement in challenging circumstances can be gauged by a simple reality: domestic insoluble sulphur prices declined from a peak of around USD2,000 per Tonnes in the last few years to a low of around USD850 per MT. During the last financial year, prices moderated from about USD1,200 per Tonnes to USD850 per MT. our raw materials prices were on the rise, which indicated that the Company needed to generate profits from within, instead of passing on cost impacts to customers.

The decline in realisations was not on account of weaker demand. In fact, demand has not weakened; the market for insoluble sulphur has grown because more automobiles (and hence tyres) were sold the world over during the last financial year. However, what has changed is that some international insoluble sulphur manufacturers significantly increased their manufacturing capacities. This increase needed to be matched by a corresponding increase in consumption. Since this was not likely to transpire overnight, the companies dumped their additional produce across markets to build market share.

The dumping attempted by these players was not without basis. The dumping was as large as it was at considerably low realisations (at raw material costs in most cases) with the singular resolve to capture market share, destroy competition and emerge as the singular player in large markets. The Company, being the only Indian insoluble sulphur producer, needed to address this; if our financials would be impaired, it would be a major victory for the importers.

I am pleased to communicate that in the war between companies dumping their insoluble sulphur into India and our company, the first round during the last financial year ended with mixed results. Yes, there was a decline in realisations; yes, our margins were impacted; yes, the Indian proportion of our revenues increased only marginally to 52%. It was natural that your company should bear the brunt of this concerted attack by the virtue of its being the only insoluble sulphur manufacturer in India. However, the Company performed better in the international markets as far as realisations were concerned. The Company lost Indian market share to international manufacturers committed to erode prices.

To understand how we responded to this grave threat, it would be necessary to comprehend the ingredients that enhance competitiveness in the global Insoluble Sulphur segment.

Technology and product innovation: There is a sustained premium on the need to enhance product quality with a growing focus on consistent dispersion, oil content, and thermal stability. There is a need to develop new grades of Insoluble Sulphur for high-performance tyres for new age vehicles. In view of this, there is a need to make sustained research investments: innovate formulations to address evolving tyre manufacturing needs, including low rolling resistance and high traction; there is a need to increase shelf-life.

Supply chain optimization: The business makes it imperative to secure raw material sources like sulphur feedstock and processing oil (aromatic or non-aromatic oils), preferably at a low cost with low environmental impact. There is also a growing need to generate resources – renewable energy mainly – from within to enhance competitiveness and environment friendliness.

Cost The businesse_ciency and scale: warrants enhanced energy efficiency in production since the manufacturing process is energy intensive. This puts a premium on optimized processes, automation, advanced process control and AI to enhance consistency and reduce rejection.

Sustainability and compliance: The business comprises a need for cleaner production technologies, reduce emissions, water utilization, and waste generation. There is a growing need for regulatory compliance and adherence to demanding certifications, local chemical safety and environmental norms. There is a need for carbon footprint reduction and green manufacturing to align with national and customers ESG goals.

Strategic partnerships and market expansion: The business needs long-term contracts with tyre majors to secure strategic partnerships with major companies to ensure demand and steady growth.

Branding and certi_cation: There is a need to position oneself as a reliable supplier with a reputation for consistent quality and delivery timeliness in a B2B marketplace, marked by product certifications that address automotive material standards.

The objective of the Company is to protect market share even if it means reducing prices to remain a viable supplier.

The result is that our value-driven game is now transforming into a combination of value and volume. Besides, the only enduring approach in this challenging reality is to strengthen our operating efficiencies and moderate our production costs, protecting our margins.

One of the areas where the Company did so successfully was in replacing fossil fuel-driven energy costs with renewable energy. The Company intends to increase the proportion of renewable energy in its energy mix, awaiting an approval from the Haryana State government to commission its next round of solar energy.

The insoluble sulphur sector in India is becoming progressively a game of patience. Realisations have been reducing in the last three years. Serious long-term manufacturers like us have had to focus on increasing value through production efficiencies and cost optimisation. The game has transformed to ‘The fittest wins.' Going ahead, our commitment will be to remain attractively viable around enhanced sales. These enhanced sales are likely to be drawn from increased customer approvals across countries, so that we provide insoluble sulphur to more units of our international customers The Company possesses adequate manufacturing capacity; any increase in sales will be generated without additional capital expenditure.

When this transpires, the Company will be attractively placed to enhance revenues and capital efficiency, enhancing surplus, profitability and stakeholder value.