Chemicals | Assetmultiplier

29 Jun

The Evolving Chemical Sector

The Indian Chemical Sector has developed well in the last 10 years wherein, the companies built their initial capabilities to cater to the demand in the domestic and the international markets. Stepping in the FY23, the sector has many opportunities and growth drivers, and a few headwinds. Let’s discuss them in detail:

Opportunities and Growth Drivers:

China plus one: Supply chain disruptions and raw material unavailability from China caused during the Covid-19 pandemic have made many countries re-think their strategies and their over dependence on China as a raw material supplier. These countries have started reducing their dependence on China and investing in India as a part of the strategy “China plus one”. The Indian Chemical companies will benefit from this arrangement, and due to relaxed policies regarding foreign investments in the companies in this sector.
Hydrogen based energy: The world is looking at hydrogen as a clean alternative for fossil fuels as they aim towards carbon neutrality. The Chemical sector can benefit from this opportunity by becoming key material suppliers (for electrodes, electrolysers), operating hydrogen production assets, distributing or selling hydrogen, and thereby engaging in the emerging hydrogen market.
PLI scheme: The Indian government may bring PLI (production linked incentive) scheme for the chemical sector to boost domestic production and exports. This will help in manufacturing all core chemicals and supplying them to domestic as well as global markets.
Indian opportunity: As India is pushing for green energy and mobility shift to EVs, the Indian specialty chemical companies are well positioned to use their capabilities to create chemicals for batteries, electrolysers and solar panels.
Other tailwinds: The Indian chemical sector is experiencing strong global tailwinds coming from demand for chemicals from pharmaceutical companies, chemicals required for batteries, EV batteries, etc. The companies are expanding their capabilities so as to meet these ever-growing requirements.

Headwinds:

Supply- side issues: Many chemical producers are still dependent on China for procuring their key raw materials. The supply side issues persist as many of the suppliers in China remain shut, or are functioning at little capacity. This has led to increased raw material costs and reduced margins.
High freight costs: As the world struggles to contain high ocean freight costs, many chemical producing companies have to either take a margin hit or have to pass on the costs to their customers.

Is it the right time to invest?

We believe that the headwinds faced by the industry are temporary in nature, and can be dealt with in few quarters. The long-term growth story of the industry remains intact with a growing demand for its products across geographies.
As the stocks remain affected by multiple issues including the Russia-Ukraine war, rising interest rates, high raw material costs, high freight costs, etc. this may be the right time to look at the listed chemical manufacturing companies from a longer-term perspective.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Tanmay Gadre Chemicals #chemicals#growth 0 Comments Read more...

23 May

Input cost uncertainty here to stay for the next 6 months – Pidilite Industries

Update on the Indian Equity Market:

On Monday, NIFTY having opened in the green, could not sustain the gains and closed at 16,214 (-0.32%). M&M (+4.1%), MARUTI (+4%), and HINDUNILVR (+2.3%) were the top gaining stocks, while, JSWSTEEL (-13.2%), TATASTEEL (-12.3%), and DIVISLAB (-9.6%) fell the most.

Within the indices, AUTO (+1.8%), IT (+1.0%), and CONSUMER DURABLES (+0.84%) were the only gainers while METAL (-8.1%), OIL&GAS (-1.6%), and PHARMA (-1.4%) were the top losers.

Excerpts of an interview with Mr. Bharat Puri, MD, Pidilite Industries (PIDILITIND) with BQ Prime on 19^th May 2022:

In FY22, Pidilite Industries has grown its revenue by 35% and the 20% volume growth was led by both the consumer as well as the B2B segments. The company had to take a 5-15% price rise throughout different categories of products.
Higher input costs have been lowering the margins for the last 12 months. Although the management was expecting softening of input costs from the first quarter of FY23, the unprecedented Russia-Ukraine war will delay it for at least the next 6 months.
Even though the company can pass on the higher costs, it will take calibrated pricing decisions while keeping costs tight. Previously, it only passed on about 75% to the extent of inflation and lowered its margins in the short run.
There is a strain in demand from rural and semi-urban areas but hopefully, a good monsoon and the government’s front-loading on spending will help the second half. The real estate segment is seeing a revival with hotels and restaurants spending on renovation after the reopening of the economy. Hence revenue is not so much of an issue.
The company has gained market share in the last 2-3 years as pandemic advantaged companies with flexible supply chains and having a presence in multiple locations. Also, the company has always focused on volume-led growth over margins as margins can always be regained.
In the last 2 years, the Pidilite has put up 10 new facilities and made supply chains much more agile and resilient. Focusing on the next phase of growth, it has 12 more facilities under construction. It has invested heavily in going digital.
Going forward, the company will focus on its core categories where it has a market-leading position while venturing into pioneering categories like tile adhesives, epoxy grouts, etc.

Asset Multiplier Comments

We believe, Pidilite Industries, a market leader in the adhesive business will fare well against its peers in this high inflationary scenario. With manageable borrowings not denting the free cash flows, the company can further take a hit on the margins if required.
Companies dealing in chemicals and allied businesses have been facing a difficult time with back-to-back events like Covid, rampant lockdowns in key raw material producer China, the Russia-Ukraine war, and rising oil prices. Times like these mostly result in the large becoming the larger.

Consensus Estimates: (Source: TIKR website)

The closing price of PIDILITIND was ₹ 2,188/- as of 23-May-2022. It traded at 75x/58x the consensus earnings estimate of ₹ 29/38 for FY23E/FY24E respectively.
The consensus target price of ₹ 2,250/- implies a P/E Multiple of 59x on the FY24E EPS estimate of ₹ 38/-.

By Pranav Mahajan Chemicals adhesives, pidilite industries 0 Comments Read more...

09 Mar

Container unavailability is a serious challenge going forward- Vinati Organics

Update on the Indian Equity Market:

On Wednesday, NIFTY50 ended in green at 16,345 (+2%). Among the sectoral indices, MEDIA(+4%), REALTY(+2.9%), and AUTO (+2.8%) were the top gainers, whereas METAL (-0.4%), was the only loser. Among the stocks, ASIANPAINT (+6%), RELIANCE (+5.5%), and BAJFINANCE (+5%) were the top gainers while SHREECEM (-2.6%), ONGC (-2.5%), and POWERGRID (-2%) led the losers.

Excerpts of an interview with Ms. Vinati Saraf Mutreja, MD, Vinati Organics (VINATIORGA) with CNBCTV18 on 8^th March 2022:

Raw materials come from refineries and are crude dependent. As crude prices increase, VINATIORGA’s raw material prices will also increase. It has a pass-through clause for most of its products as they have formula-based pricing and can pass on these raw material price hikes to its customers to a certain extent.
Exporters like VINATIORGA are facing logistical issues like the unavailability of containers and this is expected to be a serious challenge going forward.
On a positive note, VINATIORGA is witnessing good demand. Its main product Acrylamide Tertiary-butyl Sulfonic acid (ATBS) which is used in oil and gas and oil drilling is witnessing positive demand from North America and Europe.
Ibuprofen which was very slow last year has started picking up. Butyl Phenol is also experiencing a breakthrough in the market.
Ms. Mutreja expects the EBITDA margins to be maintained between 28-30%. EBITDA per kilogram remains more or less constant because of the formula pricing. It sometimes does not necessarily capture some of the fixed expenses like utility costs, fuel costs, overheads, and general inflation. These expenses get hedged as capacities get expanded and utilization levels improve owing to better demand.
VINATIORGA saw very high logistics costs in CY21 which eventually started tapering down by Dec-21-Jan 22. After the Russia-Ukraine war started in February, the costs have gone up again. Obtaining bookings and container availability has become a challenge for the entire industry, especially in North America, Europe, and Southeast Asia.
Costs have gone up 20-30% for US and Europe bookings in Jan-Feb 22.
VINATIORGA is foraying into the production of niche chemicals through Veeral Organics (a subsidiary) at a total capex of Rs 2,500 mn. It involves different products one of which has application in the fragrance industry, one is used as a polymer additive, one is used in the pharmaceutical industry. This is a greenfield project and is expected to be completed in 15 months. Total revenue of Rs 3,000 mn is expected from this project.
Veeral Additives is another project which is a merger with VINATIORGA. It is subject to NCLT approval which is causing some delay. This anti-oxidants plant which is used in resins and plastics is expected to come on stream later in March-22.

Asset Multiplier Comments

Earlier, customers had stocked Ibuprofen due to Covid-19 related concerns. Due to the lower-than-expected consumption and higher inventory, demand for IBB has also reduced. The demand for IBB may pick up again from March 2022.
The new capex for Veeral Organics involves the manufacturing of five new products. The company may target 10% of the total market size of Rs 25 bn.
The headwinds of high raw material costs and higher logistic costs may keep the company’s margins under pressure for the next 2 quarters. We expect the EBITDA margins to normalize back to around 30% level by September 2022.

Consensus Estimate: (Source: Marketscreener and Investing.com websites)

The closing price of Vinati Organics was ₹ 1,858/- as of 08-March-2022. It traded at 58x/42x/33x the consensus earnings estimate of ₹ 32/44/56 for FY22E/FY23E/FY24E respectively.
The consensus target price of ₹ 2,052/- implies a P/E multiple of 36x on FY24E EPS estimate of ₹ 56/-

By Rutuja Chavan Chemicals, Vinati organics demand, EBITDA margin, margin pressure 0 Comments Read more...

02 Mar

Biocon Biologics to launch an IPO by FY24E – BIOCON

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the red at 16,605 (-1.1%). Among the sectoral indices, AUTO (-3.0%), PRIVATE BANK (-2.4%), and BANK (-2.3%) closed lower while METALS (+4.1%), MEDIA (+1.9%), OIL & GAS (+1.2%) closed higher. Among the stocks, COALINDIA (+8.5%), HDFCLIFE (+7.0%), and SBILIFE (+5.7%) were the top gainers while MARUTI (-6.0%), DR REDDY (-5.2%), and BAJAJ AUTO (-4.6%) were among the top losers.

Excerpts from an interview of Mrs. Kiran Mazumdar Shaw, Chairperson (BIOCON) with Economic Times dated 1^st March 2022:

Acquiring Viatris’s Biosimilar business accelerates the company’s presence in the commercial space in the developed markets. The business will be transferred to Biocon Biologics, the biosimilar arm of the company.
The company has 7 molecules launched in the global markets and another 14 molecules are under development.
The advantage that the company has in the Biologics segment over its competition is that they are fully integrated end-to-end play- manufacturing and R&D. The management believes that with manufacturing, R&D, and the increased scale due to the acquisition of Viatris, they have higher negotiating power to sign bigger deals.
Biosimilars is a very complex business and comparatively young segment, hence early movers have an advantage.
The deal will be financed using a mix of debt and equity, also the company has hinted at a possibility of an IPO in the future.
The management expects the new venture to generate a lot of cash which would help the company with the payback.

Asset Multiplier comments:

While the acquisition of Viatris biosimilar gives the company access to a well-established front end in the developed market, it has a significant impact on the company’s near-term financials.
We believe the firm is well-positioned for growth, particularly in the biosimilars category, due to the ramp-up of interchangeable Semglee and new launches such as Bevacizumab, Aspart, and Adalimumab in both established and emerging countries.

Consensus Estimate: (Source: Market screener website)

The closing price of BIOCON was ₹ 345 as of 2-March-2022. It traded at 57x/34x/23x the consensus earnings per share estimate of ₹ 6/ 10/ 15/ for FY22E/FY23E/FY24E respectively.
The consensus average target price is ₹ 407 /- which implies a PE per share multiple of 27x on FY24E EPS of ₹ 15/-.

By Rujuta Tamhankar Chemicals 0 Comments Read more...

02 Dec

Investing Rs 3,500mn for making API, KSM and Intermediates – Aarti Industries

Update on the Indian Equity Market:

On Thursday, Indian benchmarks ended in the green amid weekly F&O expiry, weak global cues, and omicron fears. NIFTY50 ended 218points higher at 17,402 (+1.4%). IT (+2.1%), METAL (+1.6%), and MEDIA (+1.6%) were the top sectoral gainers. There were no sectoral losers for the day. Among the NIFTY50 stocks, ADANIPORTS (+4.5%), POWERGRID (+3.8%), and HDFC (+3.8%) were the top gainers while CIPLA (-0.8%), ICICIBANK (-0.6%), and AXISBANK (-0.5%) were the only losers.

Excerpts of an interview with Mr. Rashesh Gogri, Vice Chairman and MD, Aarti Industries (AARTIIND) with CNBC-TV18 on 1^st December 2021:

AARTIIND has qualified for Pharma companies PLI scheme under Group C, which will get a PLI (Production linked incentive) of Rs 17.5bn over 6 years and a minimum investment of Rs 500mn.
AARTIIND has qualified under the manufacturing of API, KSM and Drug Intermediates (Category II). It will be investing Rs 3500mn in a new large complex for manufacturing these products. Capex will start in FY22.
The funding for the Capex will be a mix of debt and equity. Most of the funding for Capex will be through the QIP proceeds and internal accruals.
AARTIIND had announced plans to split the company-into pharma and specialty chemical companies.
It expects the pharma business to report 25% topline growth in FY22. The company expects the pharma business to maintain 20-25% topline growth going forward as well.
3QFY22 has seen commodity price volatility. The commodity prices have peaked out now and going down. This volatility impacts the company’s ability to pass on the raw material price inflation.
High levels of commodity prices did not remain for more than 1 quarter, so there could be some margin pressure for overall industry.
The shutdown in China on certain products, and policy issues has benefitted AARTIIND. Some of their products are doing well.
On demand trends, he said that in the specialty chemical segment, agro chemicals and polymers are doing well. Pent up demand was missing in polymer sector. Now the company is witnessing good demand in both these sectors.
Consumer centric sectors like dyes, intermediates are not doing well.
As the company operates on a cost plus model, it passes on the cost increase/reduction to customers. It tries to maintain its margin on a per kg basis.

Asset Multiplier Comments

In speciality chemical segment, pass through of raw materials hike for domestic customers is on a monthly basis while for exports on a quarterly basis. In Pharma, the increased raw material costs will take time to be passed on to end customers which may keep margins under pressure for the next one or two quarters. This may limit the share price increase/upside in the 2HFY22.
Two of the company’s long term contracts are expected to be commissioned by 3QFY22, and 1QFY23 respectively. This will help in increasing the topline, and is in-line with management’s revenue guidance of Rs 90,000 mn by FY24E.
We expect the company to benefit from its operating leverage in the quarters to come, which will help it in sustaining its operating margins.

Consensus Estimate (Source: market screener and investing.com websites)

The closing price of Aarti Industries was ₹ 977/- as of 02-December-21. It traded at 39x/ 35x/ 29x the consensus EPS estimate of ₹ 25/ 28/ 34 for FY22E/ FY23E/FY24E respectively.
The consensus target price of ₹ 964/- implies a PE multiple of 28x on FY24E EPS of ₹ 34/-.

By Maitreyee Vaishampayan Aarti Ind, Chemicals chemical industry, pharma business, PLI 0 Comments Read more...

15 Nov

Capex of Rs 2,500 mn expected to be on stream by Dec-22 – Vinati Organics

Update on the Indian Equity Market:

On Monday, NIFTY ended flat amid volatility at 18,109 (+0.04%). HEALTHCARE (+2.13%), PHARMA (+1.45%) and FMCG (+0.94%) were the top gaining sectors. METAL (-1.82%), PSU BANK (-1.43%) and FINANCIAL SERVICES (-0.34%) were top losers.

Top gainers in NIFTY50 were POWERGRID (+3.13%), ONGC (+2.46%) and ITC (+2.25%). The top losers were COALINDIA (-4.34%), TATASTEEL (-3.32%), and HINDALCO (-2.68%).

Capex of Rs 2,500 mn expected to be on stream by Dec-22 – Vinati Organics

Edited Excerpts of an interview with Vinati Saraf Mutreja, Managing Director, Vinati Organics with ETNOW on 11^th Nov, 2021:

The revenue for 2QFY22 was flat sequentially and grew by 70% YoY. The margins for 1HFY22 are at the levels of 26-27%, lower than earlier guidance of 30% for FY22E.
The revenue growth guidance for FY22E remains unchanged. Company expects to cross Rs 15,000 mn in FY22E which will result in 50% YoY revenue growth. EBITDA Margins are expected to be at 30% level for FY22E.
The margins of 2QFY22 were impacted due to heavy floods in Mahad Factory in the month of Jun-21. It resulted in loss of profits which is insured and claimed for.
The revenue growth guidance of ~ 50% for FY22E is a result of price hike due to raw material cost going up.
Management is confident of delivering EBITDA margin of 30% as absolute EBITDA per tonne is intact.
Raw material prices are still high, freight costs have softened a bit. Most of the Freight cost is absorbed by customers and are able to pass it through.

Acrylamide Tertiary Butyl Sulphonic (ATBS) (high margin product) has been a star product for Vinati Organics. FY21 was a slow year for ATBS but comparing current volumes to pre-COVID levels it has grown by ~50-60% on volume basis.
Butyl Phenol has seen good offtake in the market, sales have increased by 70% YoY. However, the margins are under pressure as company is a new entrant, it is cutting price to gain market share. Raw materials are exceptionally high over the last 6 months which the company is not able to pass through completely. However, the demand outlook for Butyl Phenol is strong.

The niche and specialty products are performing well.
Iso Butyl Benzene (IBB) is performing a bit slow. It accounts for less than 10% of the total revenue. A lot of IBB Customers are seeing high inventory levels of IB and IBB as they had stocked up the product in FY21.
Vinati Organics is planning a capex of Rs 2,500 mn. It will account for 4-5 new niche and specialty products. It will cater to various segments like agro chem, fragrance chemicals and plastic additives. The products are expected to be on stream by 3QFY23E.
The power crunch in China doesn’t impact the company’s supply chain as none of the important raw material is imported from China. China is competitor of Vinati Organics as far as ATBS is concerned. This could be one of the reasons of customers shifting their focus from China to Vinati for ATBS products. China is also market for IBB and ATBS products. Vinati is able to export the products to China.

Asset Multiplier Comments

Demand for ATBS continues to remain strong with increased demand from the oil and gas industry, which forms 25-30% of its global demand.
We think new product launches, strong demand for products like ATBS which are high margin products and backward and forward integration will help company to achieve its target of ~50% revenue growth and EBITDAM at the level of 30% in FY22.
Vinati’s proposed merger with Veeral Additives Private Limited (VAPL) aligns well with their growth strategy through synergy. The global market demand for Antioxidants (AOs) is robust and the total capacity (post-merger) positions Vinati to drive growth.

Consensus Estimate (Source: market screener and investing.com websites)

The closing price of Vinati Organics was ₹ 1,998/- as of 15-Nov-21. It traded at 64x/44x/35x the consensus EPS estimate of ₹ 31.6/45.5/57.8 for FY22E/ FY23E/FY24E respectively.

The consensus target price of ₹ 1,893/- implies a PE multiple of 33x on FY24E EPS of ₹ 57.8/-.

By Richa Varu Rathod Vinati organics ATBS, chemical industry, IB, IBB, specialty chemicals 0 Comments Read more...

26 Aug

Expect demand uptick, but supply chain issues persist – Galaxy Surfactants

Update on the Indian Equity Market:

On Thursday, NIFTY ended at 16,637 (+0.01%) as it closed near the opening level of 16,628. Among the sectoral indices, OIL & GAS (+0.8%), CONSUMER DURABLES (+0.6%), and FMCG (+0.6%) ended higher, whereas METAL (-1.3%), MEDIA (-1.2%), and PSU BANK (-0.8%) ended lower. Among the stocks, BRITANNIA (+2.7%), TATACONSUM (+2.2%), and BPCL (+1.8%) led the gainers while BHARTIARTL (-4.4%), JSWSTEEL (-1.8%), and MARUTI (-1.5%) led the losers.

Excerpts of an interview with Mr. U Shekhar, Founder Promoter and MD of Galaxy Surfactants (GALAXYSURF) with CNBC TV18 on 26^th August 2021:

The demand for the company’s products has been low in the first quarter of FY22 due to the 2^nd Covid wave. The company sees demand getting better in the August and September months. However, the challenge of the supply chain is hampering the company’s ability to supply and cater to the increased demand.
The supply chain constraints faced are due to the shortage of containers, and closing of various ports in China. The logistics have been severely impacted due to the Covid and freight costs continue to be at high levels.
The workers in the company are unable to work due to the Covid wave in Indonesia and Malaysia, because of which the production is getting hampered.
The company sees significant opportunity in terms of its innovation products on speciality ingredients. The company is also commissioning its major project in Jagadia, Gujarat in the next 30 days and some more projects will commission in the next three-four months.
The expansion projects in the company’s Egypt factory will be operational in 3 to 4 months which will help the company to broaden the category of products in Egypt and also help serve the countries in Europe and US, much faster.
The company has planned a capex of ₹ 1500 mn each in the next 2 years and is well placed for financing this capex.

Asset Multiplier Comments

In the next few months, better availability of containers, easing restrictions, workers coming back to work, these will help reduce the supply side constraints for the company.
The company will be able to better cater to the strong demand as people around the world get vaccinated and things normalise.

Consensus Estimate: (Source: market screener website)

The closing price of GALAXYSURF was ₹ 3,094/- as on 26-Aug-2021. It traded at 35x/ 30x/ 27x the consensus EPS estimate of ₹ 89/105/114 for FY22E/FY23E/FY24E respectively.
The consensus target price of ₹ 3,417/- implies a PE multiple of 30x on FY24E EPS of ₹ 114/-.

By Tanmay Gadre Galaxy Surfactants 0 Comments Read more...

24 Aug

Demerger will help maintain focus and direction for both segments – Aarti industries

Update on the Indian Equity Market:

On Tuesday, Indian stocks closed in the green aided by positive global cues, and positive U.S. vaccination news. Nifty 50 ended at 16,625 (+0.8%) led higher by BAJAJFINSV (+7.8%), HINDALCO (+3.9%), and ADANIPORTS (+3.8%). The top laggards were BRITANNIA (-1.4%), NESTLEIND (-1.4%), and ASIANPAINT (-1.1%). Among the sectoral indices, METAL (+2.9%), MEDIA (+2.0%), and PSU BANK (+1.8%) led the gainers. Typically considered defensives, FMCG (-0.7%), and IT (-0.2%) led the laggards.

The Board of Aarti Industries recently approved the demerger of its pharma business. Mr. Rajendra Gogri, MD, Aarti Industries (AARTIIND) discussed the rationale behind this move with Economic Times on 24^th August 2021:

In the last few years, the pharma business revenues have almost doubled and EBIT has grown four times, with EBIT margins around 20 percent plus. The company foresees a significant opportunity in both, the pharma and specialty chemicals businesses. It has been decided to have a separate company so that there can be a separate focus and strategic direction for both the segments.
The process for demerger is expected to be completed in the next 9-15 months depending on the Covid situation.
Earlier AARTIIND had announced a Rs 50bn capex plan, out of which Rs7.5 bn will now be spent on the pharma division, and the balance on chemicals.
Both the segments have separate manufacturing facilities as well as R&D centres. The customer base also is separate. There is virtually no overlap in manufacturing as well as R&D in the market between both the segments.
In pharma, they are looking to add more than 50 products in the next 5-6 years. For pharma intermediates and API, a new greenfield expansion at Atali, Gujarat is being set up.
With a strong customer base across the world, AARTIIND expects a sizeable revenue growth over the next few years. In the next five years, the Company is looking at top line 2.5 to 3.5 times and three to four times at EBIT level for both the segments.
AARTIIND is totally backward integrated, especially in the Chemicals segment. Benzene is a key raw material which is domestically available and the Company does not foresee any raw material shortages but container freight is an issue. Usually, AARTIIND is able to pass on the freight increase to the customers but the availability of containers is impacting exports.

Asset Multiplier Comments

China had imposed penalties on chemical companies causing pollution and environmental damage. As a result, many chemical companies’ plants have been shut or relocated outside China. Additionally, with Covid-19 imposed restrictions, supply chain challenges have increased. Chemical companies in India have emerged as a beneficiary due to these challenges under the China+1 strategy.
AARTIIND is able to pass on the freight cost hikes to domestic customers almost immediately. There is a quarter’s lag while passing on the freight hikes to overseas customers. As the freight cost is eventually passed fully to the customers, the Company is able to maintain and improve its bottom line.

Consensus Estimate: (Source: market screener website)

The closing price of AARTIING was ₹ 920/- as on 24-August-2021. It traded at 43x/ 34x/ 33x the consensus earnings estimate of ₹ 21.3/ 26.7/ 28.0 for FY22E/ 23E/ 24E.
The consensus target price of ₹ 927/- implies a PE multiple of 33x on FY24E EPS of ₹ 28.0/-.

By Maitreyee Vaishampayan Aarti Ind, Chemicals chemicals, demerger, pharma business 0 Comments Read more...

09 Aug

Expect 50% revenue growth on back of consolidation of new acquisitions – Rossari Biotech

Update on the Indian Equity Market:

On Monday, NIFTY closed up at 16,258 (+0.1%). Top gainers in NIFTY50 were M&M (+2.2%), Tech M (+1.9%), and Axis Bank (+1.9%). The top losers were Tata consumer (-1.9%), Coal India (-1.8%), and Adani Ports (-1.7%). The top sectoral gainers were MEDIA (+1.1%), PVT BANK (+0.7%) and BANK (+0.6%) and sectoral losers were METAL (-1.9%), PSU BANK (-1.6%), and REALTY (-0.7%).
Excerpts of an interview with Mr. Edward Menezes, Executive Chairman, Rossari Biotech (ROSSARI) with CNBC TV18 dated 9^th August 2021:

The specialty chemicals company reported a strong set of earnings for the June-ended quarter with good growth both on a year-on-year (YoY) and quarter-on-quarter (QoQ) basis.
They have done almost three acquisitions in the last two months – Unitop Chemicals, Tristar Intermediates, and Romakk Chemicals.
In FY22, they expect 50 percent growth in their revenues over FY21 as they will be able to consolidate the revenues from these acquisitions. In FY23, they expect their revenues will double over FY22 revenues.
The coming quarter looks challenging. The price increase pass on is inevitable as the entire pipeline of old raw material stock is almost dry for all the players. The trend continues to be upwards. Therefore, they are focusing more on asset turnover.
Their R&D has been working continuously to find alternatives to raw materials to fight a huge raw material price increase.
The highest gross margin vertical is animal health and nutrition. The second being the home, personal care, and performance chemicals (HPPC) followed by textile specialty chemicals and it’s their cash cow.
Textile specialty is shaping very well due to pent-up demand. They don’t have to make substantial investments in animal nutrition as well, so good growth opportunities there too.
The company might have to take more price hikes to ensure stability in margins.
He shared that the logistics and freight costs have gone up substantially and the raw material price volatility has been unprecedented as well.
He believes that there is a high growth possibility in the animal nutrition business. He also mentioned that the company has plans to enter the aqua and cattle market as well.
They have a small business in pet care that has suffered due to pandemic but has a very high growth prospect.

Asset Multiplier comments:

The demand environment for specialty chemicals will be favorable, with volume uptick across industries led by rising domestic consumption.
The challenge will be to manage raw materials cost-efficiently to protect margins.
China +1 strategy will be a beneficial factor to drive growth for these companies as the China+1 strategy is the key catalyst for global firms to turn towards India.

Consensus Estimate: (Source: market screener and investing.com websites)

The closing price of ROSSARI was ₹ 1,371/- as of 9-August-2021. It traded at 70x/ 57x the consensus earnings estimate of ₹ 19.7/ 24.0 for FY22E/23E respectively.
The consensus price target is ₹ 1,270/- which trades at 53x the earnings estimate for FY23E of ₹ 24.0/-

By Sharvari Joshi Chemicals, Rossari Biotech 0 Comments Read more...

04 Aug

Aim to grow across the value chain– Deepak Nitrite

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 0.8% up at 16,259. Top gainers in NIFTY50 were HDFC(+4.6%), KOTAKBANK (+3.9%), and ICICIBANK (+3.1%). The top losers were GRASIM (-2.5%), TITAN (-2.1%), and TATAMOTORS (-1.8%). The TOP gaining sectorswere FINANCIAL SERVICES (+2.6%),BANK (+2.3%), and PRIVATE BANK (+1.9%) while the top sectoral losers were REALTY (-1.7%), MEDIA (-1.2%), AUTO(-0.9%), and FMCG (-0.9%).

Aim to grow across the value chain– Deepak Nitrite

Excerpts of an interview with the Mr. Deepak Mehta, Chairman and MD of Deepak Nitrite, published on ET Now dated 3^rd August 2021:

The growth plan for Deepak Nitrite is to be present across the value chain from building blocks to final specialty chemicals. This will give the company a competitive edge over global peers.
Deepak Nitrite continues to look for opportunities to complement existing business. Earlier the company was only into nitration chemistry. Then the company went on to add hydrogenation. As both these are catalytic chemistries, the company then looked into what can be done in catalysis.
Deepak Nitrite has also recently committed to add fluorination to its capabilities.
On specialty chemicals side, Deepak Nitrite will keep adding complementary businesses to provide a wide basket of capabilities to clients.
Even on the commodity chemicals side, Deepak Nitrite is trying to offer a broader spectrum.
Several American and European end user clients have shown willingness to look at India in their China +1 strategy. But long-term commitments towards India or any country have been slow because of the demand uncertainties in the covid-19 pandemic era.
As a strategy, every three or four years, Deepak Nitrite will go back to looking at major investmentsfor the next stage of growth.

Asset Multiplier comments:

Indian Specialty chemical companies have come in the spotlight in the last few months due to several tailwinds in the sector. Higher demand expectation from end user segments, supply chain diversification from China dependence, import substitution have all been tailwinds for the sector.
Companies with niche capabilities are benefitting due to their expertise in respective areas.

Consensus Estimate: (Source: market screener website)

The closing price of Deepak Nitrite was ₹ 2,067/- as of 4-August-2021. It traded at 30x/ 27x/ 25x the consensus earnings estimate of ₹ 67.9/ 76.9/ 81.4 for FY22E/23E/24E respectively.
The consensus price target is ₹2,037/- which trades at 25x the earnings estimate for FY24E of ₹ 81.4/-

By Mrunmayee Jogalekar Chemicals, Deepak Nitrite 0 Comments Read more...