Kanoria Chemicals and Industries is set to diversify into the fine chemicals segments such as resins and active pharmaceutical intermediaries after selling its chlor alkali business to the Aditya Birla Group in a Rs 830-crore deal. R V Kanoria, managing director, talks to Pooja Sarkar about the move. Edited excerpts:
How did it feel letting go something you’ve built?
There are two parts to it, one emotional part and the other rational. The former wasn’t easy and requires a lot of reconciliation. The rational part said it would help us move to a completely different trajectory. This business was set up by my father and it was a mutual decision to sell off, as he felt it was needed for the growth of other businesses. You always have to build new business than hold on to existing ones; that is the rule of business. Every opportunity you get, you always make way for new businesses.
Now, suddenly, we have so much cash on our books that we can look at better synergies. And, if you carefully study the location of Hindalco and ours, there can't be any other buyer than them. Its a win-win opportunity for both of us. Our plant is just three km away from Hindalco and in moving caustic soda to other customers, we were expending extra money on the transport.
With money in hand, what is your next plan?
We have a presence in the formaldehyde business through our Visakhapatnam plant and we are looking to more than double the capacity in a couple of years. We will look at increasing the utilisation levels quite swiftly and we have cash available with us. Also, we are looking at new investment opportunities which include refined chemicals like active pharmaceutical intermediates. Our Vizag plant is located at Jawaharlal Nehru Pharma City, a designated area for pharma, and that is on our horizon now.
We decided rather than re-investing in the chlor alkali business, we want to be present in this pharma business, so we will start on this one. As of now, we do not have any firm plans on the capex outlay. We will spread the money in two-three businesses.
You have a big presence in the formaldehydes business. Are you looking at any backward integration?
We are getting into fine chemicals. We have a research centre in Ankleshwar and we have recently hired a chief research officer to overlook things and take charge. We are actively looking at producing downstream products in formaldehydes, essentially the resin field. There are three types of concentration in resins -- low, high and sophisticated. We would like to be in the high concentration one. We have been working on this project for some time and we are in talks with a possible technology partner. We would not like to throw any names at this moment because if they are foreign players, they would not like it before the contract is in place.
We will have a modest beginning: we do have cash now but it does not mean we will spend without evaluating the propositions properly. With formaldehydes we can create several different types of resins like phenol-based, penam-based, etc. For this entire range of products, we need a research and technological tie-up.
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When do you expect to close the transaction? When will it show on your bottom line?
The deal's closure is in May. We have not yet received any payment; we are waiting for the approvals from the shareholders under Section 293-1 of the Companies Act. With regard to debt repayment, we will pay about Rs 320 crore but Visakhapatnam will remain in our books. The transaction will show in our bottom line soon.
Any inorganic expansion plans on your radar?
Technology is the most important aspect of the chemical industry and the easiest way to get access is to acquire companies adept in it. We are looking at inorganic growth but nothing concrete is in our minds right now.