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Black Rose Industries Ltd (BRIL) - First Mover in Niche space

Company Background :
Black Rose Industries Ltd. was established in 1990 as Asia Fab Limited, a textile manufacturing company. Now, Black Rose consists of three main divisions – chemicals, acrylamide, and textiles. The chemical division is engaged in the import, distribution, and export of a wide range of specialty and performance chemicals. The acrylamide division operates India’s first and only acrylamide manufacturing plant. The textile division manufactures fabrics and made-ups for industrial applications. The company also has a fully owned subsidiary in Japan, B.R. Chemicals Co., Ltd., Japan.

Office & Manufacturing Plants :
Black Rose has its head office in Mumbai, manufacturing units in Jhagadia (Gujarat) and Kolhapur (Maharastra), warehouses in Bhiwandi (Maharashtra), Vapi (Gujarat), and Chennai (Tamil Nadu), and a liaison office in Hyderabad (Andhra Pradesh).

Business Domains :
1. Chemicals

Chemical Distribution :
The largest contributor to the company’s top line continues to be the sales and distribution of specialty and performance chemicals. These chemicals are mostly imported while some are indigenously procured.

  • Speciality Chemicals
    Company offers a wide range of speciality chemical raw materials used in industries as diverse as agrochemicals to polymer additives, dyestuffs to tyres, and catalysts to perfumeries, to name a few.

  • Performance Chemicals
    Chemicals for specific end uses are handled by performance chemicals team. Flocculants, cyanoacrylate adhesives, polymer additives and rubber chemicals are some of our areas of expertise

Chemical Manufacturing

  • Acrylamide
    The company produce and supply acrylamide solution under the brand name BRILMIDE ® in South Asia’s first acrylamide monomer plant in Jhagadia, Gujarat. The plant capacity, whose capacity has been increased from 10,000MT to 14,000MT, was established in 2013 under technology license from Mitsui Chemicals, Inc., of Japan. The company plans to further increase its capacity to 20,000MT, with growth in demand and has already secured necessary government approval for the same.

2. Textile
The company’s operations in this sector are the manufacture of fabrics and textile made ups. The fabric produced is used for the manufacture of made-ups such as industrial safety gloves that are then sold domestically or exported

3. Renewable Energy
The company has two windmills of 0.8MW each, one in Rajasthan and the other in Gujarat, totaling 1.6MW. Power Purchase Agreements have been entered into with the respective State Electricity Boards and all power generated is sold accordingly.

Revenue contribution by different business :
image
Source : SKP Securities Report

Key Management :

  1. ANUP JATIA
    Executive Director & Promoter
    B.Sc. Chemical Engg. & Economics (E & AS), California Institute of Technology, U.S.A

  2. SHIVHARI HALAN
    Independent Director
    B.Com., Bombay University, India

For the complete list one can check below link :
https://www.blackrosechemicals.com/team.php

What is Acrylamide ?
It is an odorless and transparent liquid solution, prepared by hydrolysis of acrylonitrile (ACN) in the presence of industrial enzyme nitrile hydratase.

Application of Acrylamide :
Acrylamide is majorly used to synthesize acrylamide based polymers which finds many uses such as water soluble thickeners and flocculants for waste water treatment, polymers for enhanced oil recovery (EOR), shale gas extraction, shale strengthening, binders and retention aids for paper and also in making waterproofing chemicals, coating and paint emulsions, ore processing, sugar manufacturing, cosmetics etc.

Why BRIL is focusing on Acrylamide ?
The domestic market demand of acrylamide monomer is approximately 7,000MT on a 100% solid basis, or 14,000MT on the basis of acrylamide 50% solution. The company produces and supplies acrylamide solution to this market. In addition to the
domestic market, there is a strong export demand as well. The company has expanded its capacity from 10,000MT to 14,000MT in order to meet both domestic and export market demand.
To manufacture acrylamide company has sourced technology from Mitsui Chemicals under an exclusive technology license agreement.
Globally, the demand for acrylamide is in liquid form , whereas Indian market was largely consuming solid acrylamide. Now with the entry of BRIL’s liquid acrylamide, Indian market is shifting to consume liquid acrylamide.
Mitsui technology licensed to BRIL is highly efficient and provides high purity acrylamide through an environmentally friendly zero discharge process. Its considered superior to technologies available in other parts of the world.

Poly-Acrylamides Capex Plans as mentioned in AR 2017-18 :
Acrylamide is the basic raw material for Poly-Acrylamides.
BRIL plans to set up Poly-Acrylamides capacity – solid and liquids (10,000 mtpa & 40,000 mtpa respectively), Polycarboxylates (5,000 mtpa) and NMethynol-
Acrylamide (2,000 mtpa) at a capex of Rs 600 mn, at its existing unit where most basic infrastructure is in place.


BRIL will enjoy a strong first mover advantage in South Asia with current(Acrylamide) production and upcoming(Poly-Acrylamide) Capex Plans.

Acrylamide Consumption Pattern in India :
In India acrylamide in liquid form is being consumed mainly in the water management sector. This sector alone consumes around 70% of the total consumption. This is followed by Binders/Emulsions Sector (Coatings and Ceramic Industry) consuming around 15% of the total market and the balance 15% is being shared by the paper, printing, dyeing, mining and other uses.

Acrylamide Demand Outlook in India :
Water Management, Coatings and the Ceramic industries will continue to dominate the usage pattern in India as there no major presence in the Oil & Gas Sector. According to the Industry Sources the demand is expected to grow at around 20% per annum in the next five years. At this rate the demand can be expected at around 42,000-tons on 50% basis and 21,000-tons on 100% basis. Current capacity is 10,000-tons on 100% basis indicating good scope for investment in expansion as well as new capacity.

Key Risks Involved :

  1. Chemical Distribution :
    The prices of the products sold by the company are affected by global prices of feedstock, foreign exchange rates, and market dynamics. Slowdown in the domestic or international economies, downturns in the user industries, volatility in foreign exchange rates, increase in interest rates, and tightening liquidity conditions may adversely affect margins, business, financial condition and results of operations.
  2. Chemical Manufacturing
    The price of acrylamide is mainly affected by changes in the cost of its key raw material, acrylonitrile (also used to manufacture acrylic fiber and ABS polymers). Domestic market forces as well as International market forces also affect acrylamide prices.
    Acrylamide is also imported by a number of commodity dealers and end users, and import duties can be as high as 7.5% on the same.

Shareholding Pattern (as on 31st March 2019)
image

Indian Promoters : 0.47%
Foreign Promoters : 74.53%
Pledged Shares : 0%

image

Latest Consolidated Financial Data :
Latest Results March 2019 :

Segmental Revenues and Profits :

Clearly one can see the dominance by Chemicals segment in revenue and profits of the company. Still this company is listed under Textile sector in many websites.

Past Consolidated Financial Data :
Profit & Loss Statemnt :

Cash Flow Statement :

Key Financial ratios as on May 28, 2019
Market Cap: 221.09 Cr
Current Price: 43.35
52 weeks High / Low : 54.50 / 37.00
Book Value: 6.95
Stock P/E: 16
Sales Growth (3Yrs): 20.42 %
PAT Growth (3Yrs) : 104.75 %
EPS Growth (3Yrs) : 103.83 %
Listed on : BSE
Face Value: 1.00
Debt to equity: 1.00
Equity capital: 5.10 Cr.
EPS: 2.71
NPM : 4.5 %

Sources of data mentioned above :

  1. Company website : https://www.blackrosechemicals.com/
  2. Annual Report 2017-18 : https://www.bseindia.com/bseplus/AnnualReport/514183/5141830318.pdf
  3. Latest Results March 2019 : https://www.bseindia.com/xml-data/corpfiling/AttachHis/f74ca368-c61a-42f1-aa5f-387c202f125b.pdf
  4. SKP Securities Ltd Research Report
  5. Various research websites like screener.in , marketsmojo.com etc
  6. https://www.chemarc.com/content/article/product-profile-acrylamide/5a142a27053b27647d727c66

My take : Company looks good from Investment perspective considering the Large Capex in Poly-Acrylamide space and the First Mover advantage it will enjoy. No listed competitor in India as of now. Small size and can grow leaps and bounds from here.

Request fellow members of the Forum to provide their thoughts on this.

Disclosure : This information is presented for Educational purposes only. In my watch-list. No current position.

PS : This is my first attempt to present a stock story here on VP. Please excuse me for any mistakes or errors. Healthy discussion are always welcomed.

25 Likes

Hi,
I would also like to add that the company around 3 days ago filed a press release where it mentioned that the current market size for polyacrylamide solids is 1,00,000 MT per annum and the entire quantity is imported currently. The company filed for EC in May 2017 and received its environmental clearance in October 2018 to manufacture 10,000 MT Polyacrylamides solids and 40,000 MT liquids. On the other hand, SNF (a key competitor) also filed for EC to produce polyacrylamide solids (60,000 MT) and liquids (42,000 MT) in 2017, for which it still hasn’t received clearance.

With the planned capex of Rs. 60 crores for polyacrylamides and others, the company expects to generate additional sales of Rs. 300 crores (Asset Turnover of 5).

Also, as planned, Blackrose is expanding its current acrylamide capacity from 14,000 MT to 20,000 MT by Q3 2020. At the rate of Rs. 70 per Kg, the company can generate sales of Rs. 140 crores alone from acrylamide at 100% capacity utilisation.

I am attaching the press release of the company:
Press Release.pdf (2.1 MB)

I worked on Blackrose a few months back and prepared a small note on it as well. Sharing the same below: Blackrose Note .pdf (381.3 KB)

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Hi Saloni,
Thanks for the updated information.
So with 100000MT market size of Polyacrylamide solids, I see BRIL and SFN can both exist and serve the requirements after completion of their respective capex plans. Also any idea about the shift in India consumption from solids to liquids ?
We have more or less referred to same source of information to gather informatio for the company data looks like.
Thanks for sharing ur compile pdf data as well

A shift in consumption from solids to liquids regarding acrylamide or polyacrylamide? As I mentioned in my note, acrylamide would be preferred to be used in liquid form to prevent the possibility of contamination and unwanted impurities by again dissolving the powdered form in water. Typically, globally people use it in liquid form.

If you meant, polyacrylamide, it is actually different in the case of polyacrylamide. Both are used in different user industries with solids commanding a price premium. Polyacrylamide liquids are mainly used in the: Ceramic, textiles, mining, adhesive and paper and paint industries. Polyacrylamide solids are used for: Industrial wastewater treatment, Sewage treatment, Oil extraction and Fracking applications.

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The chemical distribution business in more of a trading business?

one should be very careful with small cap investing as they are very volatile
9th June 2005 it was at 4.33 and 9th May 2014 it was 4.03…so someone didn’t made money in 9yrs

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https://www.cancer.org/cancer/cancer-causes/acrylamide.html

Any further investigation into this will be material to the companies’s business.

“ Shares of Black Rose Industries, where foreign ownership stood at 74.5 per cent as of March 31, are up 41 per cent year to date”.
I had never heard of this company till I read an article today in the Economic Times. I wonder if someone will analyse this company’s financials. I’m afraid I am not up to the task.

Also this clarification sought from Blackrose on 13th June 2019, re: price movement. The company has not yet replied.https://www.bseindia.com/corporates/anndet_new.aspx?newsid=9323feba-0936-4535-a49f-7d3e33020f84

What interested me here is the 75% foreign ownership. I researched Wedgewood Holdings. Two things which alarm me, perhaps unjustified. Time will tell.

  1. A company Wedgewood Group Holdings is named in the Panama Papers. I have not yet determined whether there is any link to the current Wedgewood Holdings associated with Black Rose. Wedgewood Group Holdings was associated with Mossack Fonseca till 2007 when it was struck off for default.
  2. Currently Wedgewood Holdings LLP is registered as of 2011 as a limited liability partnership but I could not find any record or update of their financial returns etc.
    Disc: Not invested. Watching.
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Blackrose Credit Rating Reaffirmed: https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/Black_Rose_Industries_Limited_July_03_2019_RR.html

Company expected to raise 42 crores via equity and fund 30% of the capex i.e. 18 crores from debt.

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any idea about the expected commencement of production by SNF, the competitor? If they have not received EC yet then how much time would it typically take them to set up a plant and start production?

Thanks for the amazing research @arpitjain512 !!

Also, I am curious whats the capacity utilization of Acrylamide installation in year 2017, 18 and 19? I am trying to understand whether any capacity is left for the growth?

2019 AR Notes:

  • The company is primarily in the business of chemical distribution and chemical manufacturing, as well as textile manufacturing and renewable energy generation.
  • Profitability continued to be strong due to increased efficiency at the acrylamide plant and good margins in the distribution business because of continuing tightening of environmental regulatory scenario in China as well as improving demand in India.

Distribution

  • The chemical distribution business consists mainly of import and sales of specialty and performance chemicals manufactured by overseas and domestic principals.
  • The top 5 products of the distribution business continued to deliver strong results and accounted for more than 75% of the department’s sales.
  • The largest contributor to the company’s top line continues to be the sales and distribution of specialty and performance chemicals. These chemicals are mostly imported while some are ingenuously procured. The company increased its market presence in products such as pyridine, isophthalic acid and meta xylene, and will be adding more products during FY 2020.
  • The company plans to focus on both top line and bottom line growth and targets to increase volumes on new products added while consolidating its leadership position in its key products.

Acrylamide

  • Chemical manufacturing is currently focused on the production of a single product, acrylamide.
  • Acrylamide sales increased both domestically and internationally with the increase in plant capacity, and sales of the chemical distribution business increased with rising demand from the Indian specialty chemical sector. Going forward, the company expects the ongoing trade friction between China and the United States, the tightening of environmental restrictions in China, the resultant increase in global attention for Indian chemicals, and of course, the inevitable growth of Indian consumption to provide a strong boost to the Indian chemical sector which the company is a part of.
  • The company’s acrylamide plant has an installed capacity of 14,000 MT per year. The company’s acrylamide sales grew over the previous year. The plant capacity, whose capacity has been increased from 10,000 MT to 14,000 MT, was established in Sep 2013 under technology license from Mitsui Chemicals, Inc., of Japan. The company plans to further increase its capacity to 20,000 MT, with growth in demand and has already secured necessary government approval for the same.
  • The domestic market demand of acrylamide monomer is approximately 7,500 MT on a 100% solid basis, or 15,000 MT on the basis of acrylamide 50% solution. The company produces and supplies acrylamide solution to this market. In addition to the domestic market, there is a strong export demand as well. The price of acrylamide is mainly affected by changes in the cost of its key raw material, acrylonitrile (also used to manufacture acrylic fiber and ABS polymers). Domestic market forces as well as International market forces also affect acrylamide prices. Acrylamide is also imported by a number of commodity dealers and end users, and import duties can be as high as 7.5% on the same.
  • Domestic sales of acrylamide during the year grew despite the challenges faced from a slowdown in some of the key user sectors. The volatility in raw material prices seen from the end of Q2 to the middle of Q3 provided the company with an opportunity to increase its market share. International demand for acrylamide remained extremely strong, especially for applications related to mining, enhanced oil recovery and friction reducers (fracking). With demand increasing both at home and abroad, the company has decided to increase its acrylamide production capacity from 14,000MT to 20,000 MT by Q3 FY 2020. The expected cost of expansion is ` 3 crores.
  • Raw material (acrylonitrile) prices are expected to remain subdued in the coming year due to slowdown in other applications of acrylonitrile such as acrylic fiber and ABS as well as new capacities coming up in China.

Polyacrylamides

  • The company obtained Environment Clearance for its polyacrylamide plant in October 2018. Building construction will begin in early June 2019, and plant construction is expected to be completed within FY 2020. Operations of the 40,000 MT polyacrylamide liquids plant will commence first, followed by the 10,000 MT polyacrylamide solids plant. Expected cost of the expansion is Rs. 60 crores.
  • While polyacrylamide liquids are already produced in good volumes in India, India still depends on imports for 99% of its 100,000 MT polyacrylamide solid demand (domestic production is less than 1000 MT in a year).
  • Polyacrylamide liquids are mainly used in the ceramic, textile, mining, adhesive, paper, and paint industries, while the solids are used for industrial wastewater treatment, sewage treatment, oil extraction, and fracking applications. There is no large scale producer of polyacrylamide solids in India and the company expects to gain significantly from a first-mover advantage in this field.

In addition to the polyacrylamide project and acrylamide expansion, the company is actively pursuing other opportunities in the field of chemical manufacturing and will make necessary announcements whenever plans are firmed up.

The company seems to be on track of its laid out plans.

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SNF got the EC on 23rd August’19

Refer below document for more detail-

http://environmentclearance.nic.in/writereaddata/Form-1A/EC/08262019174_2017_SNF_Flopam_India.PDF

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One worrying thing I noticed in AR 2018-19 is renumeration increase of Mr Anup Jatia, Director of BR.

Excerpt from AR :
Mr. Jatia was re-appointed as Executive Director for a term of 5 years commencing May 1, 2016 at a monthly gross salary of 350,000/-. Considering workload and consistent performance of the Company, remuneration sought to be paid to Mr. Jatia is 10,000,000 per annum with effect from April 1, 2019.
Details of last drawn remuneration: ` 4,200,000 per annum for F.Y. 2018 - 19

Company has posted PAT of approx 14Cr last FY.
So 1Cr is approx 7.25% of PAT, which looks quite high for a salary of Director/Promoter.
But this guy has done good job for the company and business, however multifold jump in salary from 42L to 1Cr is of surprise to me.