Bodal Chemical Ltd


(Chintan Patel) #1

Bodal Chemical
Outlook and Valuation
BCL’s revenue has grown at a CAGR of 20.1% during FY12-15 (rising from Rs 6,033 mn in FY12 to Rs 10,453 mn in FY15) led by volume growth of 9-10% while rest coming from better price realizations. BCL’s overall capacity utilization has also increased from ~50 % level in FY12 to ~ 65% in FY15 & ~70% in H1 FY16. BCL’s profitability has improved significantly during FY12-15 period resulting from: 1) Benefits of operating leverages as capacity utilization increased; 2) Better product optimization between dye intermediates & dyestuff products; and 3) Favorable market conditions due to reduced competitive pressures. BCL’s operating EBITDA has increased from Rs 46 mn in FY12 (0.8% EBITDA margin) to Rs 1,843 mn in FY15 (17.6% EBITDA margin). BCL management has guided high single digit volume growth for FY16-17 period for its existing business with overall capacity utilization reaching to 75-80% in FY17, long term sustainable EBITDA margin at 15-16% and PAT of Rs 800-850 mn in FY16. Another key growth driver for BCL is its selective diversification into manufacturing of few other speciality chemicals which have potential to generate revenue of Rs 3,400 at optimum capacity utilization. These projects will start contributing to revenue & profitability from H2 FY17 onwards.
Currently stock trading at 13 PE and industry PE is around 16.71 PE. TTM EPS 6.71 and 7.77 X EPS FY16-17. Currently stock trading 87.00.
Company Overview
A company on the mission of quality and exploring world class technology Bodal Chemicals formally known as JK Phrama, 17 years of success saga. The quest begin in 1989 with two enterprising young men Mr. Suresh Patel and Mr. Ramesh Patel, willing to take on the world of chemicals with their quality offering. And thus began born JK Pharma. A partnership firm with the production capacity of 60 metric tones per annum of Vinly Sulphone. But it was just the tip of the iceberg.
From our humble honest beginnings, we kept adding the layers of Commitment to quality, dedication to meet stringent supply norms and absolute reverence for timely delivery. Our huge motivation is the ability to use our products in the most optimum way and it has made us to lead from one partnership firm to a private limited company with the nomenclature, Bodal Chemicals Ltd. Still greater things were to come…
Gradually expanding, Bodal Chemicals have established their production units at
Bodal Chemicals Ltd, Ahmadabad – Unit 1
Bodal Chemicals Ltd, Ahmadabad – Unit 2
Bodal Chemicals Ltd, Ahmadabad – Unit 3
Bodal Chemicals Ltd, Ahmadabad – Unit 4
Bodal Chemicals Ltd, Ahmadabad – Unit 5
Bodal Chemicals Ltd, Panoli – Unit 6
Bodal Chemicals Ltd, Vadodara – Unit 7
Bodal Chemicals Ltd, Vadodara – Unit 8
(All located in Gujarat State of India)

Products Portfolio

Production Capacity
Chemical production capacity of a company is 190000MTS
Dye Intermediates production capacity-30000Mts
Dyestuff production Capacity-17000Mts
Capacity Expansion for dyes and dyes intermediates – from 2200Mtpm to 6000Mtpm

Key Clients

Financial Overview
Narration Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Trailing
Sales 146.81 254.17 404.88 395.49 467.55 571.32 603.35 523.83 959.50 1,045.31 939.10
Expenses 145.22 239.92 374.03 400.75 433.89 510.85 598.73 502.97 844.23 861.04 790.04
Operating Profit 1.59 14.25 30.85 -5.26 33.66 60.47 4.62 20.86 115.27 184.27 149.06
Other Income 6.32 3.97 11.15 9.62 19.06 1.10 6.53 3.89 3.71 4.72 6.38
Depreciation 1.62 1.84 6.32 8.33 12.13 13.80 16.00 16.43 25.25 22.25 23.38
Interest 1.42 3.37 8.97 13.03 20.19 22.63 33.81 39.19 46.64 27.28 15.83
Profit before tax 4.87 13.01 26.71 -17.00 20.40 25.14 -38.66 -30.86 47.09 139.46 116.21
Tax 2.43 1.84 9.26 -5.86 6.94 8.38 -10.34 -9.74 16.43 47.44 43.02
Net profit 2.44 11.17 17.45 -11.14 13.46 16.76 -28.32 -21.12 30.65 92.02 73.19
EPS 1.46 2.15 3.35 -1.12 1.35 1.68 -2.60 -1.94 2.81 8.43 6.71
Price to earning 1.70 2.43 3.05 -3.78 16.03 16.97 -4.13 -3.01 9.80 4.20 12.63

First Topic on dis board If I did any mistake the plz guide me. Share view on Bodal Chemical. Disclosure: no Holding. i m tracking this stock


(Nityanand) #3

Attaching recent presentation from company. Presentation-Feb-16.pdf (1.6 MB)

Also found a report from crisil regarding Dyestuff industry, although old.https://www.crisil.com/pdf/research/DYESPIGM.pdf

Major companies as per the report.
1.Amal Ltd.
2.Chromatic India Ltd.
3. Clariant Chemicals (India) Ltd.
4. Micro Inks Ltd.
5. Jaysynth Dyestuff (India) Ltd.
6. Meghmani Organics Ltd.
7. Metrochem Industries Ltd.
8. Sudarshan Chemical Inds. Ltd.
9. Swasti Vinayaka Synthetics Ltd.
10.Vipul Dye Chem Ltd.

Advantages

  1. Recent shifts in the industry dynamics favoring India against China
  2. FCF increasing
    3.Debt levels reducing

Disc: No holdings…Started Tracking


(Nityanand) #4

Recent Report from Monarch Networth for Bodal Chemicals 20151230_Bodal-Chemicals–Limited_92_VisitNote.pdf (715.4 KB)

Could not post in earlier thread. I think there is limitation in the platform.


(Dhiraj Dave) #5

Bodal management has used upswing in March 2014 period H Sulpha price very well by repaying debt. With EBITDA margin at around 15-17%, frequent issue with Chinese supply, players like Bodal would definitely see increased demand for their product. The company efforts at same time to diversify into other specialty chemical products would make business more robust (If same is achieved).

In past, there was significant sale of shares from Ramesh D Patel/Shakuntala J Patel/Jayanti D Patel (NRI, Promoter group) has affected share prices during 2014. However, sale from this sub group has stopped with there holding constant at 1,07,21,700.

The company repayment of debt and payment of dividend to shareholders with changing industry dynamic make Bodal an interesting company to watch for.

Discl: I have holding in the company and purchased share in last one month. Investor, please do your own due diligence before investing.


(vinay ambekar) #6

Am summarising some positives and negatives as below.

Positives:

  • Relatively quick exit from CDR (in 2-3 years) with recompensation of interest to lenders (the company had made extra provision for this, and wrote it back as one-off income in Sep 15 quarter when the actual payout was lesser)
  • Took advantage of windfall gains in profits (arising from higher realisations due to shutdown of Chinese companies) to repay substantial amount of debt and redeem preference shares issued to non-promoters
  • Announced expansion in facilities upon exiting CDR
  • Announced 2 interim dividends after exiting CDR
  • Debt reduction, redemption of preference shares, full tax paying company and dividend payment show that the cashflows are for real.
  • Completed expansion of ETP which enabled them to get environmental clearance for the expansion in facilities.
  • Erratic supplies from Chinese could lead users in Europe and other developed countries to focus on India as a reliable supplier (this is a very important insight contributed by Dhiraj Dave). Organised players like Bodal with products and facilities with international accreditation/approval could be beneficiaries.
  • New facilities may not be added quickly given the strict environmental issues

Negatives / risks:

  • Went in for aggressive debt funded expansion and suffered when realisations fell. They were rescued by the sudden shoot up in prices, and, to their credit, they utilized the opportunity well. Hopefully, they should be once-bitten-twice-shy.
  • Company is susceptible to vagaries of prices of H-acid and Vinyl Sulphone (VS). The key is to have a better understanding of whether the current prices are sustainable
  • 66% of promoters’ shares are pledged. Earlier it was close to 80% and part of the pledge was released in Sep’14 and then in Dec’15. This could be legacy from CDR (lenders would have asked for additional security in form of pledged shares). Given the actions of the promoters till now, I think (only my feeling) that releasing the pledge would be next on their list to use the cashflows for.
  • Delays in execution of expansion/diversification plans (outlined in greater detail below)

Growth drivers:
While near term earnings would be highly impacted by issues in China, there are some medium-to-long-term growth drivers that make the company interesting from a 2-3 year perspective.

  1. As per press release of 12.08.15, Bodal was to invest 15 cr and become single largest shareholder in a company called Trion Chemicals. As per Trion’s website http://trioncpl.com/index.html , it seems to manufacture a niche product with wide applications. All permissions are in place for commencing the facilities. Production is expected to start from July 16. At optimum capacity, it could contribute 240 cr to sales as per management (however, this should be taken with a pinch of salt as they have over estimated their potential in the past - eg actual FY15 sales and profits were lower than what was projected by them). Nevertheless, this appears to be good diversification.

  2. As per press release of 07.04.16, Bodal is going to increase capacity of dye intermediates from 2200 TPM to 6000 TPM. They have announced this after commissioning their ETP capacity of 1 million litres per day (the only company in the country to have this capacity). This is significant in the sense that although a company may have manufacturing capacity, this capacity to manufacture gets constrained if they dont have adequate capacity to treat the effluents generated by the process. Now that they have excess ETP capacity, they will be almost tripling their manufacturing capacity. 40% of the intermediates gets consumed internally to manufacture dyes, so higher margin products will see higher production. Also currently, 50% of basic chemicals are used inhouse. With increase in dyes intermediates capacity, more of basic chemicals will get used in-house, again increasing the contribution of higher margin products. Bodal is the only company in India to have backward integration upto manufacturing basic chemicals (2-step backward integration) and hence should benefit substantially from this. Timelines have not been stated as to when all this will be on-stream.

    I think the timing is interesting (which also goes on to show the seriousness of the management) - they could not increase ETP capacity earlier because their core business was not doing well and therefore funds were constrained. Therefore they were not getting environment permission to increase capacity. Now that their core business has improved, they commissioned their ETP plant and therefore have got environment clearance to increase chemicals manufacturing capacity.

  3. Lastly, the latest presentation states that a new plant is under construction to manufacture a chemical called LABSA which finds use in the detergent industry. The Chairman’s letter in the annual report also had stated the same (they are doing it in their 100% subsidiary Bodal Agrotech) and have received environmental clearance for that as well. It would take 10 months for production to start and it can generate 100 cr turnover with investment of 15 cr.

All in all, this looks like a decent sustainable story.

Disclosure – invested in the last 2 weeks


(kanvgarg123) #7

All things aside I have few questions and would appreciate if senior members can answer those

  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?
  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.
  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.
  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 ?

(vinay ambekar) #8

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.


(Nityanand) #9

There is a shutdown of Hubei Chuyuan plant which has 30% market share of Dye Chem globally. this shutdown is because of Chinese Environmental norms. This will benefit Bodal as well. In the Concall of Q1Fy12. One of the directors mentioned Hubei Chuyuan as their biggest competitor.

@sammy11 Nice writeup. Can you please let me know from where you got the info that 80% shares were pledged and now 66% shares are still pledged?


(Dhiraj Dave) #10

You can check on BSE/NSE Website and go to promoter holding. It would give information about pledge from the promoter as well.
Find enclosed March 2016 Bodal shareholding of promoter and pledged shares:
http://www.bseindia.com/corporates/shpSecurities.aspx?scripcd=524370&qtrid=89.00&Flag=New

Vinay, Hope you would not mind my interference.


(Nityanand) #11

Thanks @dd1474 for the same.


(Prashant) #12

Bodal chemical is turn around story due to recent china environment rules But I would like take discussion further as Turn around in Specialty Chemical sector . Recent interview of Shankar Sharma talking as micro call on sector for next five years . Any one has new view on sector with company like Kiri,Meghmani ,SH kelkar or any


(Altaf Mohiuddin) #13

http://m.moneycontrol.com/news/buzzing-stocks/bodal-chemicals5-after-releasepromoters-pledged-shares_6824001.html


(vinay ambekar) #14

This has played out as anticipated (or rather, hoped). A major overhang on the stock is out. And this TREMENDOUSLY reinforces the management quality and intent. It gives more confidence to believe that they would execute their expansion plans as laid out. This makes Bodal a very good story from a 2-year perspective.

Discl. - Heavily biased in favour of the company. Added substantially in last 2 months


(Somenath Paul) #15

Latest Earnings Presentation


(jainaj) #16

@sammy11 As you have studied bodal in detail can you please tell whats the addressable market size for dye intermediates and dye stuffs.
My thinking is as bodal is increasing capacities in both aggressively and as per recent announcement pay back period is 2 years for expansion in dyestuff by 8000 MTPA. bodal can become a business where return on incremental capital is employed back in business at higher rates making it outstanding business to hold for some years.
If addressable market size is large enough we can be rest assured of it being safe growth story as I think due to recurrent issues in china - bodal can gain business at china expense especially when price differential is not much between two.
your comments please


(vinay ambekar) #17

Jainaj, I don’t have figures for addressable market size for dyes and dye intermediates. There are several products (acid dyes, reactive dyes etc) and several variants of these products, with varied applications. Drawing a conclusion on prospects for Bodal’s specific products from broad level industry data is difficult in my view.

I would look at it this way – a Rs 1000 cr. Order would not make much of a difference for a company of the size of L&T, but a Rs 100 cr order for a company with turnover of Rs 500 cr makes a world of difference to that company.

Bodal is one such company. About 40-45% of the basic chemicals (BC) and dye intermediates (DI) manufactured by Bodal are used by Bodal in-house, to manufacture DI and Dyestuff (DS) respectively. Increasing capacities of DI and DS would enable greater in-house usage of BC and DI manufactured by it, resulting in more production of higher margin products (DI and DS). Also, debt is reducing, and hence interest cost. So profitability is expected to improve going forward.

The new initiatives – Labsa (detergents) and Trion Chemicals (speciality chemicals) will add diversity and impetus to the growth.

Having said this, chemicals is a commodity business and cyclical as well. I would not put Bodal in the bracket of “incremental capital being employed in the business at higher rates over long period of time”. This, to my mind, is not a long term structural story. Industry tailwind (shifting of Chinese capacities to India) and company specific factors, make Bodal a good prospect over next 2 years, by which time the above mentioned initiatives would bear fruit. It may very well be time to exit the stock much before that, if the market discounts it in advance. Unless of course, the company announces further initiatives.

Discl – hold from earlier levels. Sold a tiny part recently intending to buy it back, but as usual, failed miserably in my trading effort (and once again vowing never to repeat it…. till the next time).


(vinay ambekar) #18

http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/515978AF_92B9_489A_BDA7_62A61C8F5E60_184856.pdf

Attaching the Q1 earnings presentation. Summarising few points below:

  • Largest manufacturer of Dye Intermediates in India, and the only company with effluent treatment capacity of 1 million litres per day. Target of 2x revenue growth over next 3-4 years. This should translate into higher profitability given the movement to higher margin products.
  • Dyestuff capacity to be increased by 47% by April’17 (17m to 25m tpa), and then doubled over next 3-4 years. Initial capex to be funded by own funds. The next phase may include some debt (details not yet known). This is new information in the presentation, although management has informed stock exchanges earlier. This is a critical development as dyestuff have highest margins in the value chain.
  • Production at Trion Chem to start by 2nd half of this year, which will add to profits, by way of minority interest (since it is an associate company - 42% shareholding). Same status as of March presentation.
  • LABSA production has started, which will be ramped up going forward. Same status as of March presentation. Additional progress in this quarter is the mention of the quality being optimised and product being accepted by the market.
  • Long term debt is negligible. Working capital debt has increased over March (which, in turn, had increased over Dec). There is a statement that they are focussing on optimizing it. D/E ratio is comfortable at 0.6.
  • Promoter shareholding has reduced by 1.86% in Jun Q. While not a significant number, this would need some explanation (perhaps the concall has some info).

All in all, I remain bullish on the prospects of the company. I hold from earlier levels, and no transactions further to what was disclosed earlier. This is not a reco.


(vinay ambekar) #19

Addendum:

Post June, there has been sale of shares by one promoter, and purchase by another. Also while the company had received approval from their banks for release of pledged shares in June, the actual release has been effected in Jul-Aug.


(Dhiraj Dave) #20

On August 16 2016, around 4% of total paid up capital of the company released from pledge as per announcement by Bodal.
http://www.bseindia.com/corporates/ann.aspx?scrip=524370&dur=A&expandable=0


(ValueInvestor_1) #21

http://economictimes.indiatimes.com/et-now/stocks/wealth-creation-ideas-bodal-chemicals-tree-house/videoshow/53132190.cms

This analyst was asked a specific, detailed question on Bodal. I can’t believe how he wrote the compnay off in just one sentence and went to sing the virtues of another stock he wanted to pitch.