AksharChem (India)


(Mallikarjun) #1

The company manufactures Vinyl Sulphone which is used to manufacture reactive dyes for textiles.. After years of lack luster performance, the company has shown tremendous spike in sales and profits..

Some of the reasons are increase in production, rupee depreciation, efficiency measures adopted by the company, revival of textile industryand stability in crude prices i guess..But unable to exactly understand the core reason for such a performance and its sustainability..

Everlight Chemical Corporation, Taiwan; Kyung-in Synthetic Corporation, Korea; OhYoung Industrial Co ltd, Korea; are some of their clients..

Exports are up 84 % in 2013E and 90 % revenues are from its top customers..

Financials

Q over Q 2013 Q1 Q2 %Growth Q3 %G Q4 %G 2014 Q1 %G Q2 %G
Sales 22.31cr -16 % 43.5 % 3 % 10.25 % 36.9%
OP 1.23 -37 % 116 % 49% 102 % 155.8%
NProfit 0.68 0.15 0.98 1.98 4.33 10.12
Tax -0.09 -0.01 -0.05 -0.25 0.05 2.23
EPS 1.37 0.30 1.97 3.99 8.74 20.19


CMP = 91.15

PE= 2.62

MCap= 45.58

EPS= 34.89

Investment theme

1. Short time

2. Undervaluation

3. For 10-20% quick gains and little pe re-rating if any.

( Coming quarters may throw some light regarding sales and profits )

Negatives

1.Quality n sustainability of business and Client concentration

2. The stock is in PCAS and inconsistency in sales and in tax payment

3. Promoter has already increased his stake to 73.68%. (Who will buy when we want to sell :-))

4. How much can we bet

5. Cant vouch for data in balance sheet

6. Microcap

disc- No positions


(Vivek Gautam) #2

Has anybody else too studied this co ?

We shud study the chemical sector in depth as it seems that all chemical cos are poised for good time due to pollution issues leading to factories closure n increasing wages n Yuan in China.

Shud study Alkyl Amines, balaji amines n Occl n other chemical cos too.

Views invited.


(Vijay) #3

Looks more like Pump n Dump

Even with all the positives like capacity expansion, rupee dep, efficiencies etc. it is impossible for percentage margins to post such a huge jump in such a short time in any manufacturing business. There are direct variable costs like direct costs, electricity etc. which can’t change much in a short period of time. Even the fixed costs are variable if the capacity is expanding e.g. manpower, repairs, G&A etc.

Doesn’t make sense!


(Vijay) #4

In Q2 FY 13, The sales was 42 crores, up from 31 crores in Q1 FY 13.

The sales increased by 37%

However, the cost of materials went up by 6%

And the power and fuel went up by only 9%

There are only 2 potential causes-

1). Increase in pricing in Q2 FY 13 by a massive 30% over Q1 FY 13 (in just one quarter)

2). Cost (i.e price for them) of raw materials and power and fuel goes down by a massive 30% in just one quarter

Both scenarios look impossible in a manufacturing business!


(Mallikarjun) #5

Without going into details like you have, was watching the volume and delivery % from few days :-(… Seemed like promoters were buying… And i interpreted it in a positive way…

Thanku for your caution Vijay…

Regards

mallikarjun


(Mallikarjun) #6

Vijay,

Read they are getting gas and capacity utilization is at peak… Can they be the reasons for such a spurt…


(Mallikarjun) #7

Unable to find where did i read about gas supply…And in Ar 2013 they have mentioned capacity utilization has peaked to 94 % from 61 %…

Thanku Vijay for your concern…

Regards

mallikarjun


(Vijay) #8

Increase in capacity utilization will reduce the overheads cost.

It can not change the cost of raw materials by more than 2-3%


(vipul) #9

industryand guess…But 2013 Q1 | Q2 %Growth | Q3 %G | Q4 %G | Q2 %G
Sales | 22.31cr | -16 % | 43.5 % | 3 % | 10.25 % | 36.9%
OP | 1.23 | -37 % | 116 % | 49% | 102 % | 155.8%
NProfit | 0.68 | 0.15 | 0.98 | 1.98 | 4.33 | 10.12
Tax | -0.09 | -0.01 | -0.05 | -0.25 | 0.05 | 2.23
EPS | 1.37 | 0.30 | 1.97 | 3.99 | 8.74

91.15

PE= 2.62

MCap= 45.58

EPS= 34.89

Investment theme

1). Short time

2). Undervaluation

3).

Negatives

** 2). The PCAS **

3).

:)))4.

5).

6). Microcap

Dear Mallikarjunji,

Very good logic and it has proved you 100% right…Kindly look for Jaysynth Chemical, I see it as a dark horse and super multibagger in the years to come as I have also talked to management about the performance which has satisfied me…Pl. reply at [email protected] also…

Vipul.

Jamnagar.

Gujarat…


(Mallikarjun) #10

Hi Vipul

You can call everyone by their names…May be most of us missed the rally in Chemicals… Now feel there isn’t much rally left…

Regarding Jaysynth;

Am an amateur… Even now will not be able to find a rat in balance sheet let alone cockroaches…

When seniors aren’t convinced about stocks we must never get into them… That too after the recent run up in most small-midcap stocks, we must be very careful.

And we can’t bet more capital into these kind of business/stocks…

Regards

mallikarjun


(Rajeev Jawahar) #11

AksharChem presents an exciting investment opportunity. The Co. should do Sales, EBIT & PAT of about 145Cr, 34Cr & 25Cr for the current year, which means that it is available at a PE multiple of under 3 times earnings. The Co. is almost debt free and has given 2 interim dividends amounting to Rs.3 (30%). What strikes you the most are the return ratios. The average capital employed for 13-14 is only about 36 Cr. Like some of the other chemical co.'s, this one too is making the most of the fact that China is finding it tough to compete due to it’s currency appreciation. The good run is more than likely to continue due to the fact that the world textile trade has finally turned the corner after many years & this has a direct co-relation with the fortunes of Aksharchem which manufactures Vinyl Sulphone, that is used for manufacturing dyes used by the textile industry.

The story gets better going forward. The Co. has just completed capacity expansion for Vinyl Sulphone by 30%. The sales will get a further boost with the scheme of arrangement with group Co. Asahi Songwon, wherein the the Pigment Green division will be de-merged from Asahi into Aksharchem. This will bring in another 60Cr of sales. The capital employed would, to that extent increase, but will be more than compensated by the growth in the Co. Another positive is that due to this scheme of arrangement, names like Clariant Chemicals & DIC Corporation will become shareholders in AksharChem.

Disc : Invested


(Rajeev Jawahar) #12

Here’s the link to the Scheme of arrangement between Asahi Songwon Colours Ltd. & AksharChem (India) Ltd.

www.asahisongwon.com/Draft%20Scheme%20of%20Arrangement.pdfâŽ


(Rajeev Jawahar) #13

Link to the Valuation report for the exchange ratio for the demerger.

http://www.asahisongwon.com/Valuation%20Report.pdf


(Aditya) #14

@RajeevJ I’m new to the forum. I went through the numbers and found the company really good.
Why the stock has fallen from the highs of 260s to 140.
Was there a structural problem with the business?

Thanks in Advance Rajeevji.

Disc : Not invested. Studying to invest.


(Rajeev Jawahar) #15

@Apandey, I exited AksharChem quite some time back n have not been tracking it since. Towards the end I got a feeling that the whole de-merger game was played not to create any great share holder value but to create 2 more equal Co.'s for the 2 brothers to inherit !!


(Aravind Sankeerth) #16

Fantastic result. A subsidiary has been merged into the listed entity of the mgmt.Hence EPS in Dyes grew suddenly.

I expect the 4th quarter FY16 to be even better


(Sandeep) #17

I think it’s time to have a relook at this company…


(rvetri) #18

Aksharchem had their first analyst call today the 25th Jan 17. Here is the gist of the call.

  1. The company has two main product lines. a) Vinyl sulphone which forms 60% of their business. b) Pigment CPC green which forms balance 40%
  2. In Vinyl sulphone, their share of exports from India is 45%. Their global market share is 8%. The current Capacity utilisation in this segment right now is about 75%. In this business there is good competition from other Indian players ( Bodal, Bhageria etc ) and some from china too.
  3. In CPC green their global market share is 10%. In this product there is no competitor from china and Akshar is very well placed to expand its business. Currently their capacity utilisation is near 100%. And they are constantly expanding their capacity.
  4. 82% of their business is from exports and S Korea, taiwan, japan form about 60% of their total exports. Except for a small part of exports to Europe, all their exports are billed in US$. They completely hedge their forex receivables on a quarterly basis. They do not have any imports.
  5. The company is proposing to raise upto Rs 175 Cr to expand and diversify into other speciality chemicals such as due intermediaries to derisk from a 2 product concentration. The ways and means of how, what, when of this funding is yet to be decided.
  6. The company’s margins have expanded very much and it is a due to a combination of higher prices and product mix. And management is confident to maintain an ebitda margin of between 26 - 30% in the long run. Currently it is more than 35%.
  7. The company is very confident that it is not possible for china to effectively compete with India for the next 10 years. The exact words the Jt MD used was " It is going to be India’s 10 yrs in speciality chemicals from now. for last 10 yrs it was with China". He was very upbeat and he said this two or three times. In any case for 40% of their business ( CPC green ), there is no china competition.

Overall, the management seemed to be very confident of the company’s future in the coming few years.

Disc: Invested - about 2 - 3% of my portfolio


(shikhar mundra) #19

vinyl sulphone(dye intermediate) - company estimates sustainable margins in the range of 15-20 percent for this product in the coming years. The margins of 30 percent are a bit too high due to higher price realization of this product. the capacity utilization is 73 percent the recent rally in prices of vinyl sulphone was because Hubei Plant was shut down in China ( 3000 TPM) due to environmental concerns. there is no intention to increase capacity of this product , it is aiming to instead improve capacity utlization.

CPC green - recently expanded capacity to 160 TPM from 120 TPM. the management plans to extend this to 200 TPM , brownfield expansion, by August 17. Phase 2 expansion will involve taking it to 350 TPM. So from 8 percent market share they plan to jump to 20 percent market share in this product.China is not a competetion in this product. Chlorination technology used for making this product is India’s dominance.

Hacid - Plans to manufacture Hacid , a dye intermediate, through brownfield expansion plant. 1200 TPA projected capacity.

CPC Blue- RM for CPC green, company plans to set up plant for this, entire capacity to be consumed in house.

Speciality chemicals- Value added precipitated silica, plans to enter in this segment with a capacity of 10,000 TPA. Madhu silica is largest player in the country for this product, have a capacity of 2 lakh MT , enjoy EBITDA margins of 26 percent and revenue of 440 cr.

Pigment Violet -setting up a 10 TPM of pigment violet, high perfomance pigment. selling price of this pigment is 7 to 8 times pigment green.

Slowdown in China due to stricter environmetal regulations, increasing labour costs will help this indsutry. Post 2016 chinese companies have to also incur the effluent treatment costs like their Indian rivals, which is pretty beneficial for the Indian companies as these costs are then passed on to the product.

Disc - Not Invested.
Thanks


(shyam.sunder91) #20

even though the EPS has increased, the scrip has fallen why so?
didn’t vinyl sulphone prices show any positives signs ? what would be the way of bodal ahead ?
is the PE still low ?
this has been producing steady results still, why the fall any reasons ?