Kiri enters 60:40 JV with Chinese company

Kolkata: Ahmedabad-based Kiri Dyes and Chemicals (KDCL), manufacturers and exporters of reactive dyes and intermediates, was looking at opportunities thrown open by slowdown of Chinese exports of chemicals to India on account of a differential taxation policy and rising international prices of dye intermediates.

After July 2007, the Chinese chemical manufacturing units started to loose their price competitiveness in the global market as a result of the initiation of a differential taxation system in the country, said Manish Kiri, managing director of KDCL.

Earlier, there was a flat taxation rate of 17 per cent of the net sales volume of the company, and an exporting unit would get the money refunded, he added.

Situations changed when the money refund stopped, and the Chinese manufacturers started loosing out on a cost margin of 13-17 per cent, Kiri explained.

The international prices of dyes and intermediates had gone up three fold in the last one year, and prices of sulphuric acid and its derivatives were now at a 35-year high.

In an attempt to reap the benefits KDCL had charted out a backward integration project to manufacture three key raw materials for dye intermediates including sulphuric acid and oleum at Padra in Vadodara district of Gujarat with an installed capacity of 180,000 million ton per annum (mtpa) and an integrated power plant of 2.9MW that can run from the steam generated by the sulphuric acid plant.

KDCL has entered into a 60:40 joint venture with Lonsheng Group of China with an initial investment of $10 million.

KDCL has 40 per cent equity in the JV that will start with a production capacity of 20,000 ton per annum (tpa) of reactive dyes that will be eventually scaled up to 50,000tpa in three years time.

The JV plant will commence production in the first quarter of 2009. Longsheng would be able to sell its products in the Indian market through the JV, as exports were no longer price competitive.

The Padra plant of KDCL will sell raw material to the JV and KDCL will also have a share of the finished products sales from the JV plant, said Kiri.

KDCL is tapping the capital markets with an initial public offer of 37,50,000 equity shares of face value of Rs 10 each to fund the capex for setting up the Vadodara plant at a cost of Rs 42 crore, apart from funding expansion of its dyes and intermediates units (Rs 1.74 crore), and meeting working capital requirements (Rs 6.69 crore).

KDCL has made a pre-IPO placement of 11,18,860 equity shares at a price of Rs 115 each, and 1,31,140 equity shares of Rs 120 each.

Lonsheng Group has picked up 7.46 per cent stake in the pre-IPO placement as a strategic move through its wholly owned subsidiary Well Prospering Ltd..