Very valid questions kanvgarg123. Let me try to address them to some extent based on my limited understanding.
1.What will stop the price of H acid to fall back to 300 levels as and when Chinese companies become alligned with the norms?
This is the key risk – that prices will revert to mean. And they will. Because they have risen so sharply that they can’t be sustained. However there have been some permanent closure of smaller capacities both in India and China which has reduced supplies. And therefore we have to attempt to look beyond this temporary benefit and gauge whether there are other growth drivers.
2.Somebody said that customers in Europe and all will feel scared of Chinese supply disruption. However, I feel that if they become pollution norms compliant then why would there be a fear in European customer's mind? Presently they know the reasons for shutdown and in future they will know the resolution.
Chinese pollution norms are far less stringent, even today, than what India has (I don’t have any concrete data, this is based on anecdotal reading, and please correct me if I am wrong). Chinese capacities are HUGE and they will require MASSIVE investment to bring them upto in Indian standards. It looks like the Chinese are not very keen on this. Therefore these temporary orders for shutting down facilities, which disrupts supplies. This is the 2nd shutdown ordered within 1 year. Therefore there is a possibility (again, only time will tell) that India will gain in this over long term if it can assure reliable supplies.
Read this short article mentions some complaints about India’s strict standards. http://www.thehindubusinessline.com/news/dye-chemicals-prices-zoom-up/article6120338.ece
Companies like Bodal which have large capacities (they have about 10% of the total world manufacturing capacity) and which are already compliant, will benefit from this.
3.Can somebody help me figuring out what is the actual effect of all the management's effort of restructuring etc. taking out the impact of lower crude and chemical price rise? I wasn't able to figure that out because their annual profits vary a lot.
(Phew, thanks for a relatively easy question, after the bouncers above). It must be made clear that had things continued status quo, they would very well have remained in CDR till now. They took good advantage of the jump in prices to do a clean-up act. And thankfully, they did it in the listed company itself rather than taking benefits in some personal/unlisted entities. Quarterly data from screener.in will indicate a spurt in sales and profits in Mar’14 and Jun’14 quarters. Sep’14 half year balance sheet will show that total debt has reduced by 117 crores over Mar’14 (reduction by more than 1/3rd) which is huge for this company.
Total debt has trended as follows as on Mar’14, Sep’14, Mar’15 and Sep’15:
343 cr to 226 cr to 208 cr to 171 cr.
Reduction in long term debt is much higher. In Sep’15 quarter, they also repaid 25 cr towards preference share redemption. All this has lead to substantial deleveraging of the balance sheet.
4.I just read the expansion plans of the management which sammy pointed out, will that Capex be funded with debt? I am asking this because, Chinese players may take 6 months to 1 yr to make a comeback, will the company be able to reduce any debt before that as margins will get squeezed ?
Again, a very valid query. One should acknowledge the speed with which the management is moving once it got out of CDR (CDR puts a lot of restrictions on capital deployment, dividend distribution, expansion plans etc). Yes, till now these are all just announcements, and execution remains to be seen.
Debt Equity ratio as on Sep’15 is 0.85 and Total Liabilities to Networth ratio is 1.62. These are just about okay numbers, but one must remember that their networth had got reduced due to losses. Even if company takes on 30 cr as debt (2 investments of 15 cr each), the debt equity will be 1, based on Sep’15 networth. However, this remains a key monitor-able.