Question & Answer Session with Rutesh Savaliya of Paragon Fine & Speciality Chemical Limited

Q1. Could you please provide us with the brief of the promoters and how things were initiated for the company ?

Ans.  Having recently completed my PhD at ICT Mumbai and holding an MSc from ISM Dhanbad, my background leans heavily toward the technical realm. However, my role in the company extends beyond that, encompassing both new product development and marketing. Our company, founded in 2004 by three partners, includes my father Vallabh bhai Sawaliya, a chemical engineer overseeing production and procurement. Dr. Kishore Patolia, another partner, initially managed marketing, and now we both share those responsibilities. 

The third partner, Dr. Praveen Bhai Vasolia, with a law background, serves as the managing director, handling general management, liaison work, and financial aspects. In January, Kishore Patolia’s son, Shivam Patolia, joined the company, bringing his financial expertise to various segments. The company's inception aimed at carving a niche in specialty segments with challenging chemistry or low-volume products, areas less explored by other players. Our collaborative roles and diverse expertise contribute to the growth and success of our venture.

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Q2. Could you help us understand in which value chain our product really sets in?

Ans.  The inception of our company by my father and his three partners was rooted in the realm of hair dye intermediates, exclusively catering to that specific segment. Over time, we strategically expanded our product portfolio in response to customer demands. Leveraging our existing plant in Viramgam, we ventured into developing intermediates for the dye and pigment segments. Notably, our focus remains on intermediates, and we refrain from involvement in final product manufacturing. 

Our clientele primarily comprises multinational corporations seeking specialty products manufactured under Non-Disclosure Agreements (NDA). We excel in providing solutions for complex and challenging products, positioning ourselves as the preferred "China plus one" vendor for these MNCs. The niche nature of our business is underscored by the limited players with comparable chemistries in this segment. Our strength lies in offering a diverse range of chemistries, making us a distinctive and valued presence in the specialty market.

Q3. Which are the different segments to which we cater to as a company?

Ans.  Our journey of product development has been dynamic, branching into diverse segments over the years. From our roots in hair dye intermediates, we expanded our offerings to include agrochemicals, dyes, pigments, and cosmetics. More recently, we've ventured into the pharmaceutical and electronics sectors. Electronic chemicals, a recent addition to our expanding portfolio, are a focal point of our current Research and Development efforts. In this domain, numerous products are undergoing development to meet the specific needs of the electronic industry. 

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Q4. What type of customer base does the company cater to overall?

Ans. Our robust customer base has been a cornerstone of our success, with relationships dating back to 2006 still flourishing. Primarily rooted in the export segment, our reach extends globally, covering key regions such as Thailand, Taiwan, China, the United States, Mexico, Brazil, Europe, and Russia. Our participation in international fairs, notably Interdai China, Chem Spec, and Chem Expo in Europe and India, has significantly bolstered our global presence. These platforms have been instrumental in fostering connections and expanding our footprint in various chemical segments worldwide. While our exhibition activities temporarily paused post-COVID, our business continues to thrive, a testament to the enduring strength of our customer relationships and the quality of our chemical solutions.

Q5. How does the business model generally work in the speciality chemical space?

Ans.  Over our nearly two-decade journey, our global presence has steadily expanded, fostering strong relationships with diverse segments and countries. Central to our business model is an in-house Research and Development facility, focusing primarily on customized product development for our clients. While many collaborations don't necessitate Non-Disclosure Agreements (NDAs), we uphold verbal agreements regarding confidentiality, refraining from marketing undisclosed products. 

Consequently, numerous items, absent from our website, are promoted based on reactions observed in our plant. The process of converting a prospect into a client typically spans two to two and a half years, as witnessed with clients engaged since 2019 and 2020, who are currently undergoing conversion. In terms of customer acquisition, existing walk-ins streamline the process, ensuring our continual growth and solidifying our position as a trusted partner in the chemical industry.

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Q6. Which are the different customers and the main chemicals the company currently deals in?

Ans.  Several of our products are developed under Non-Disclosure Agreements (NDAs) with prominent MNCs, including Archroma, Cropnosys, and Archroma Textile Division based in Thailand. Our collaboration with these industry leaders spans various applications, with a notable focus on raw materials for final products. One such key product is Chlornail, a pivotal component in pigment production. 

Additionally, Dichlone, initially formulated for the dye segment, has found significant applications in the agrochemical sector, reflecting its versatility. As we delve into the cosmetic segment, our diverse product portfolio continues to evolve, addressing specific needs and contributing to advancements in various industries. Each product is intricately crafted to serve as a fundamental building block for our clients' final products, emphasizing our commitment to delivering high-quality and essential chemical solutions.

Q7. Can you give an example of a specific contract with a client and the product we supply to them?

Ans. Under Non-Disclosure Agreements (NDAs) with Huntsman, we manufacture raw materials for their patented products, serving as the foundational components for their final products. Although the specific applications of these materials in premium brands like Gucci and LV are not explicitly disclosed, our speculation aligns with their use in crafting high-value, premium products. This strategic collaboration extends into the dye segment, where we export to China, a market synonymous with premium products. Our commitment to confidentiality and excellence in crafting raw materials positions us as a reliable partner in contributing to the success of leading brands in the fashion and dye industries.

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Q8. Who are the competitors in our industry?

Ans.  While competition is inherent, especially among multinational corporations (MNCs) that prefer diversification, our standing in the market remains robust. Many of our exclusive products, enjoy sole approval with us, providing a unique edge. With this particular client, we've secured approval for nearly 48 products, 38 of which are covered under Non-Disclosure Agreements (NDAs). This signifies a deep level of trust and collaboration. Beyond this, our business extends to Japan, further emphasizing our global reach and the versatility of our product portfolio. 

Q9. Where do we procure our raw materials from?

Ans.  Our operational model revolves around order-based manufacturing due to the specialized nature of our products. When an order is received, we initiate the procurement of raw materials and proceed with the manufacturing process. Given the niche segment we operate in, both as a user and manufacturer, the market is characterized by limited participants. This unique position allows us to source most of our basic raw materials locally. Key suppliers, such as Panoli Intermediates, Kutch Chemicals, RP, and Deepak, engage in bulk manufacturing of these basic raw materials. 

Q10. What are the different strategies post joining the company adopted by you for growing the business?

Ans.  Diversification Strategy: Recognizing the importance of diversification, especially in the wake of market changes, a strategic decision was made to expand beyond the dye segment.

Joined Post-COVID: The decision to diversify was initiated after joining the company post-COVID, indicating a proactive approach to adapt to evolving market dynamics.

R&D Enhancement: The company invested in upgrading its Research and Development (R&D) capabilities, acquiring DSR certification, and dedicating efforts to developing new products.

Commercialization of Projects : Projects initiated during the R&D enhancement phase are now transitioning into commercial production, contributing to the expansion of the product portfolio.

Electronic Segment Focus: A deliberate effort to penetrate the electronic segment has resulted in the successful commercial manufacturing of three products, with an expanded portfolio on the horizon.

Reduced Reliance on Dye Segment: The shift in proportions in Q1 reflects a deliberate move away from a heavy reliance on the dye segment, emphasizing a balanced growth strategy.

Growing Agro and Cosmetic Segments: To mitigate risks and ensure sustained growth, emphasis has been placed on developing and growing segments beyond dyes, including agro and cosmetic segments.

Long-Term Vision: The overarching goal is to avoid dependency on a single segment, fostering resilience and long-term sustainability in a dynamic market environment.

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Q11. As per the Q1 numbers we have penetrated a lot in the pharma segment. Any specific reasons for the same?

Ans.  In Quarter One, there has been a notable surge in the Pharma segment, showcasing remarkable growth. Contrary to the perception that we lacked a presence in Pharma, we did have existing products supplied intermittently to companies like Adama. Recognizing the potential, we intensified our focus on Pharma by developing new molecules and initiating projects back in 2019. While these projects are now undergoing conversion, it's essential to acknowledge that the Pharma sector demands meticulous attention and involves a longer conversion time compared to other segments. This extended timeline is inherent to the intricacies and sensitivity of the Pharma industry, where thorough validation and compliance processes are paramount. 

Q12. Sir as you said earlier that it takes 2-2.5 years for conversion of a client. What does that mean in the literal sense?

Ans.  The process of converting a project to a commercial scale, especially in collaborations like the one with L'Oreal, is a meticulous journey. Initiated in 2019, discussions began with L'Oreal distributors to explore the possibility of supplying raw materials. This commenced with the development of the product at our R&D lab, followed by the provision of a lab-scale sample of 100 grams to L'Oreal for thorough testing. The comprehensive analysis by L'Oreal, involving multiple stages and evaluations, typically spans two to three months for a single iteration. After six months, the project received approval from their R&D team, signaling the green light to progress. Subsequently, L'Oreal expressed interest in receiving larger samples for further testing and evaluation, marking a significant step toward the commercialization of the project. 

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Q13. Crude oil is one of the important raw material used in the dyes and pigment segment. How do we deal with the price fluctuations in the crude oil?

Ans.  Crude oil is the backbone of the entire chemical sector, including the dye segment. Most chemicals, particularly organic ones, originate from petrochemicals, primarily benzene. Although some businesses use hedging mechanisms to counter crude oil fluctuations, we currently don't, given our moderate volumes and healthy profit margins. Any significant raw material price changes are transparently communicated to clients, fostering understanding amid dynamic market conditions.

Q14. How much of a threat we have from the other Chinese players?

Ans.  Our product portfolio, primarily intermediate chemicals, positions us as a major player. Notably, we don't engage in direct competition with China; instead, we export to China. While there may be some overlap in products, we've established a mutual understanding with our customers. They procure from both China and us, recognizing the unique value each source brings. This strategic approach minimizes direct competition and ensures a harmonious collaboration with our clients, offering them diverse and reliable sourcing options.

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Q15. Is there any aggressive strategy that the company currently contemplating?

Ans.  Recognizing the potential for expanding our capabilities, we've identified numerous plants suitable for manufacturing, particularly in the early stages involving common and non-tricky chemistry. To optimize our operations, we've chosen to upgrade our existing facility to a GMP-standard one. This strategic decision not only enhances our overall manufacturing processes but also opens doors to the pharmaceutical segment. Engaging in discussions with prominent companies like Galentis Europe and two Japanese firms, we understand the pivotal role a GMP facility plays in meeting their stringent product requirements. 

Q16. How much do our top 10 customers contribute?

Ans.  Currently, approximately 70-75% of our business is from the top 10 customers, but we actively address this by diversifying into other segments. Our approach to derisking involves expanding our portfolio and presence in additional industries, rather than diminishing our successful existing business. We recognize the importance of maintaining and nurturing thriving ventures while strategically increasing our footprint in areas with growth potential. This way, we not only mitigate concentration risk but also position ourselves for a more resilient and versatile business model, catering to a broader range of market demands.

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