Vishnu Chemicals - Vertically Integrated Chemical Giant in making ?

With meaningful market share in Chromium and Barium markets, the company's vertical integration strategy seems to make it resilient to external challenges.

Incorporated on March 27, 1989. Vishnu Chemicals Ltd (VCL) is in manufacturing, marketing and exporting chromium chemicals, Barium compounds and other specialty chemicals

The company is serving over 15 industries across 50+ countries globally.

The company is a Global leader in Chromium chemical (standalone entity) and Barium Segment (100% subsidary).

The company has further expanded into similar value chain (Strontium Carbonate) by acquiring Jayansree Pharma.

• Chromium chemicals: (75 percent of revenues)

VCL manufactures different types of Chromium chemicals, primarily which is Sodium dichromate (SDC).

The Other chemicals in the portfolio includes :

1.) SDC

2.) Basic Chrome Sulphate

3.) Chromic Acid

4.) Chromic Oxide Green

5.) Potassium Dichromate

Post the expansion from SDC to other chemical compounds (diversification), VCL manages to cater to 10+industries.

Sodium Dichromate is an orange to red colored, crystalline, inorganic compound that emits toxic chromium fumes upon heating. Sodium dichromate is highly corrosive and is a strong oxidizing agent. This substance is mainly used to produce other chromium compounds, but is also used in drilling muds, in metal treatments, in wood preservatives, in the production of dyes and organic chemicals and as a corrosion inhibitor.

VCL is the domestic leader in SDC with 80000 MTPA capacity. (55 percent domestic market share)

Several factors are driving the sodium dichromate market, increasing demand in manufacturing colored glasses and ceramic glazes, its expanding use in pigment applications, and its growing role as a color moderator in the paints and dye industry.

The company in last 4 years has worked towards becoming an Integrated Chromium chemical player using backward and forward Integration to strengthen the business model.

Backward Integration -

The basic raw material required is chrome ore which has seen increase of price by 3x in last few years. Similarly virgin soda ash and sodium carbonate prices have been volatile, which in 2022-23 resulted in backward integration into manufacturing of soda ash and sodium carbonate improving margins.

For chrome ore the company has been dependent on imports and company has mitigated it with an acquisition of a Chrome ore. VCL has signed a definitive agreement to acquire a chrome ore mine along with a beneficiation plant in South Africa for securing its key raw material in the chromium business. This acquisition is at the right time with increase in chrome prices has been seen over last few years.

The mine acquisition is subject to approvals and statutory clearances from the authorities.

This mine is an active chrome mine and is spread over ~1,800 hectares and has >10mmt of reserves. Post-beneficiation, actual usable chrome ore is 5.5-6 MMT. VCL estimates the life of a reserve at 30 years.

The total acquisition has been done with full cash consideration of USD 10mn.

Forward Integration and Import Substitution:

VCL has expanded into Chrome metal (derivative with higher margins) with 10000 tonnes manufacturing capacity to be put. As of now India imports around 3000 tonnes of Chrome metal.

Barium Chemicals: (25 percent of revenues)

VCL is into 2 derivatives primarily on Barium side of business: Barium Carbonate (60000 ktpa) and Precipitated Barium Sulphate (30000 ktpa).

VCL is the largest manufacturer of Barium Carbonate in India and also the biggest exporter of Barium Carbonate

Barium carbonate is a white powder. It is insoluble in water and soluble in most acids, with the exception of sulfuric acid.

Methodology:

Two ways of manufacturing Barium Carbonate:

•Byproduct from refining of Lead/Zinc

•Reaction of Barium Chloride and Sodium Carbonate

Usage Barium carbonate is a white insoluble salt which finds its largest use in the ceramic industry in the production of ceramic products. Further, it is used in the caustic soda industry as a filter aid.

It has many major commercial applications in the glass, brick, oil-drilling, ceramics, photographic and chemical industries. It is also used as a raw material for the manufacture of barium oxide (BaO) and barium peroxide.

Backward integration and reducing operating costs -

As power is a material cost in cost of manufacturing barium, the first initiative on the barium side of the business taken by VCL was in 2022-23 where they signed a 20 year contract with a leading solar player for supply of electricity bringing down cost of power by 25-30% of the total barium manufacturing. The idea behind the arrangement was to mitigate the rising cost of power.

VCL also acquired a beneficiation plant called Ramadas Mineral. The cost of acquisition was to the tune of Rs 26 crores. The proximity of the beneficiation plant to the RM source will help VCL.

The primary reason to acquire this facility was to bring down the raw material cost. Going ahead it is expected to hit full utilization in thereby driving lower operating costs.

Strontium Chemicals – Entry into new Chemistry

VCL over the last few years have slowly and steadily increased the capacity for their existing chemicals as per the requirement of the market and also forward and backward integrating wherever possible. Recently Company has decided to expand into a similar chemistry but a different compound of Strontium carbonate (import substitute- 4000 to 5000 metric tonnes)

Basic: Strontium Carbonate is a key ingredient in glazes and used extensively in the ceramics industry. It adds durability and hardness to a glaze and reduces crazing. Coating a substance with strontium carbonate makes it resistant to corrosion, chemicals and the effects of excessive heat. Strontium carbonate-based paints are applied on ships and aircraft fuselages to prevent corrosion. Used in the production of nano materials, electronic components, fireworks materials, rainbow glass, other strontium salt preparation, PTC thermistors components (switch, PVC, the current limit protection, constant temperature fever, etc.) production ground powder. It is offered in Technical, Industrial and Electronic Grade.

Company has entered this space by acquisition of Jayansree Pharma for EV of Rs 52 crores (Gross Block: 80 crs and Net block of Rs 50 crs). Jayansree Pharma is essentially one plant that is located in Visakhapatnam, very close to VCL's existing facility.

Management went ahead with this acquisition primarily due to 2 reasons:

•Equipment and Processes that were already in place in Jayansree Pharma

•Management would be spending another 20-25 crores over and above the acquisition cost and would manage to began manufacturing from early FY26.

Setting up a similiar greenfield plant it would have costed over Rs 120 crores and 12 months to start the manufacturing process

Management can scale the production once the offtake for the product is on expected lines and also the current product will get an accelerated launch.

Conclusion -

Company has built up market share in Chromium and Barium chemicals steadily while ensuring both forward and backward integration. With higher control over supply chain margins should read upwards.

VCL has further ventured into new chemistry and opening up to the possibility of expansion into newer derivatives, all of which are import substitutes.

The company's trajectory has been solid with the management historically being good asset allocators (historical ROE of 25 percent).

Broadly the company seems in an interesting juncture with decent tailwinds.

Disclosure - We are not registered under SEBI. All information above is based on public sources and due diligence conducted by us. We may or may not have invested in stocks which write above.

If you like the post, kindly subscribe and share our post / substack across

For other posts - Kindly refer to

Panacea Biotech - A global vaccine powerhouse in making - https://substack.com/@cashcows/p-158207990

Primer for Auto OEM -

2 Wheelers - https://cashcows.substack.com/p/all-you-need-to-know-1-automobile

4 Wheelers - https://cashcows.substack.com/p/all-you-need-to-know-2-automobile

CV - https://cashcows.substack.com/p/all-you-need-to-know-2-automobile-686

Tractors and Others - https://cashcows.substack.com/p/all-you-need-to-know-44-agri-and