Bodal Chemical Ltd

(Navtej Singh) #22

Looking at the new launches FY17 should see rise of topline by a reasonable level (price adjusted for lower input cost)

(ishandutta2007) #23

Here is a study on speciality chemical sector ,
bodal is in high growth space,

(aravindms1us) #24

This report by far is the most detailed and updated one on Indian Specialty Chemicals. Thanks a lot for sharing.

(Harish Assudani) #25

Thanks a lot for your contribution to investers,very exhaustive report.

(django) #26

Good set of numbers by Bodal Chemicals

However, does anyone know why the promoters are selling stake?
It is down from 69% to 65%.

(vinay ambekar) #27

Reduction of stake is due to the foreign (uninvolved) promoters selling their stake. Its a historical issue. The promoters who run the company are not selling any shares.

(django) #28

Thanks a ton sammy11!

(shahaaditya92) #29

Hi, just wanted to inquire whether anyone had a better grip than me on whether the correction in Bodal Chem is due to the general correction in the market post-Trump & de-monetization, or does the stake sale by the foreign promoters have any impact as in 2014?

(Dhiraj Dave) #30

I attended Analyst Meet of Bodal Chemicals at BKC, Mumbai on November 28, 2016. Find enclosed my notes on same. Please note that I hold investment in the company and my view may be biased. I have increased my holding during last 30 days. Anyone interested in the company shall do his/her own due diligence. Also, the extract from my side may also not be true reflection of what was discussed during the meeting due to lake of my understanding/miscommunication.

The presentation made during the meeting can be downloaded from following link.

  1. Slide 6 & 7: The competitive position of the Indian Dyestuff industry has increased significantly due to increased labour cost, lower export intensive in China and stringent pollution norm. During early 2000s, the Indian player lost majorly in domestic market due to competition from Chinese players. In 1996, verdict of Gujarat High court closed many dyestuff units. Common effluent plant was implemented to reduce pollution impact. That increased cost of production for the Indian players. Over the period, pollution and environment norm improved which has reduced now for Indian player specifically due to pollution environment. Chinese player entered Dyestuff in 2000s which benefited from relax pollution norm. With current concern from China, and expected compliance of pollution norm in China would further increase in cost for the players. It would also restrict new supply from China. Recently, largest Chinese player with 30% market share in global was asked to closed down due to pollution related issue. The company would require 10-15 times scale of effluent treatment as compared with Bodal due to scale and would hence increase cost of production.

  2. Slide 8: The company acquired 100 acre land at Padra, Vadodra which has manufacturing capacity of raw material, dye intermediate and dyestuff. Post expansion, the company became the largest dye intermediate and most integrated players in dyestuff player in India. During 2006-10, due to debt funded expansion, Chinese dumping and lower capacity utlisation, the company approached lenders. The restructuring scheme was approved under CDR in 2012 where by only principal repayment rescheduled over longer period without any reduction/waiver of loan at lender end. The company came out of CDR in 2014-15, which was among quickest exit from CDR for a player without waiver of principle by the lender.

  3. Slide 10: Basic Chemical capacity utilisation 90-95%, Dye intermediate: 80% for Dyestuff is around 75%
    Nearly 70% production is from Vadodra plant (unit VII).

  4. Slide 12: Due to integrated plant, the company save on logistic cost, better placed to face market vagaries and better utilisation from bye product. The company used HCL generated from Vinyl Suphone which is used in some other products. The company get benefit of higher value addition from bye product which improve margin for the company. Padra plan consume every day 150 tpd of sulphuric acid which company save vis a vis other players. Steam recovered from sulphuric acid production is used in turbine which is used as captive power in manufacturing of chemicals.

  5. Slide 13 &14: Widest product range in Dye industry. Wide product range gives Stability in product margin. 30% revenue is from export, 375 customers from 45 countries. Such diversified customer based provide revenue visibility and stability to top line.

  6. Slide 16: For last 12 quarter, the company has generated more than 15% EBITDA. Current EBITDA margin is around 20%,

  7. Slide 17: Marginal long term debt and future expansion from internal accruals and not being funded by debt. In FY13, more than 250 Cr Term loan which is reduced to nil in FY16. Under CDR, through internal accruals, the company payment and exit from CDR is largest in history since 2003 when CDR was formed.

  8. Slide 18: Trion related capex already incurred and production is expected to start in second half of FY17. LABSA commercial production stated in March 2016. With Rs 5 Cr capex, LABSA capacity would be doubled. LABSA was manufactured under Bodal 100% subsidiary which is now merged in Bodal. Henceforth, LABSA number would be reflected in Bodal. Liquid dyestuff is used Paper. Currently production is exported in Australia and Korea. Dyestuff facility expansion from 2200 tpm to 6000 tpm. In first phase 8000 tpa, increasing total dyestuff capacity to 25,000 tonnes per annum.

  9. Slide 19: Projection of EBITDA for Trion and Liquid Dyestuff is very conservative as per management.
    All expansion would be funded from internal accruals and no new debt would be taken. The company reduce debt depending on cashflow situations despite proposed capex/expansion plant.

  10. Q&A:
    a) Total Capex expected to be around Rs 28 Cr on Dyestuff expansion + Rs 5 Cr Capex for LABSA. So total capex of Rs 33 Cr. In addition, maintenance capex of around Rs 15-20 cr per annum. Hence, total capex of Rs 70-75 Cr over next 2 years.
    b) In case of LABSA, EBITDA margin are lower than other business. The management consider the lower capex related to LABSA. The major player from global market closed down facility. The management consider it right diversification from the present business. There is also limited competition in the area which would give stable margin to the company. Very few LABSA players have in-house sulphuric acid which Bodal which improve its competitiveness.
    c) Promoter holding: Promoter comprise two group. One Suresh Patel and family which is core promoter and other are partners of firm when the company started business. The core promoter increased their stake from 44-50% over period. Bansi Patel was professional, who has retired and hence existing through market. Another Mr Ramesh Patel resigned in October 2012 and he is also existing from the market. Partial sell of Ramesh Patel was purchased by core promoter.
    d) CDR and debt restructuring: The company has undertaken Rs 250 Cr debt funded expansion which was completed in 2011-12. At that time, market was not remunerative due to dumping from Chinease players. Further the company suffered the forex losses. In view of these factors, the company approach lender to reschedule debt to be paid over 10 years as against original repayment schedule of 3-6 years. The lender approved the CDR scheme and company successfully exited after repaying loan from internal accruals. After this episode, the company is fully hedged on all its forex exposure and also did not intend to do expansion funded with debt. Hence, in future, the company not likely to face problem it faced in past.
    e) New Product sales: Till October 2016, Total LABSA sales is around Rs 24 Cr and Liquid Dyestuff sales is around Rs 15 Cr. Trion production is yet to be started.
    f) Sales growth driver: During Q2FY17, value of sale growth was 30%, of which volume accounted from 13% growth and realisation increase resulted in 17% growth. The company’s products and raw material are linked to crude and it operate as conversion margin over the input cost. Hence, during FY16, due to decline in Crude prices, the company sales decline. However, EBITDA and Net profit margin and numbers increased.
    g) Impact of V Sulphone and H Acid price: While some other players has shown major jump in profit, as
    V Sulphone and H acid accounted from Significant share in revenue. Bodal has relatively lower proportion of these product in overall sales. Hence, the variation prices in these product has relatively lower impact on profitability of Bodal vis a vis other players. Further, even in case Chinese players restart production, the company has considered Dyestuff Intermediate EBITDA margin of around 15% vis 18% currently reported by the company. Dyestuff manufacturing operate at DI + Conversion margin which are relatively stable over period, Hence, even with restart of the Chinese production, the management is confident to achieve the projection of medium term. Further, Chinese Player Hublyon is not likely to start dyestuff production before 2017 and dyestuff intermediate before 2018 given the large effluent plant they need to commence. That in management view, would assist Indian player to manage margin at least for 15-18 months.
    h) Distribution network/MNC contract manufacturing: The company used direct marketing as well dealer network in reaching customer which change with product/application and region. For textile dye, it used dealer network, while in some other products it directly market to customer. The company also intend to increase marketing spend to increase brand awareness of dyestuff. However, Hubei Chuyuan (Largest player of Dyestuff in China) may not start production in CY2016. Even in CY2017, when it start production, it would be first for Dyestuff and would take further time to set up effluent treatment plant before resume Dyestuff intermediate production. Around 3% sales is contract manufacturing for BASF which provide stable margin and does not intend to increase currently.
    i) Demonetisation impact: Of 70% local sales, around lower than 20% dyestuff sold in local market may see marginal impact. Balance 50% is dyestuff intermediate which is not affected by this event. Overall, the company does not expect any major negative impact due to demonetisation. The company intend to exports whatever is reduction in domestic market for Dyestuff. Further implementation of GST would also improve Bodal competitiveness vis unorganised local players. Nearest competitor Jay Chemical and Colour Tex which are not listed. The product offering of Bodal is very large as compared with the peers.
    j) REACH: The company intend to comply with REACH regulation of EU which would be implemented by 2019. It has already applied to EU for compliance of certain products.

(Harish Assudani) #31

very exaustive with full understanding of subject, very excellent writing.It appears that the writer has done a lot of homework and study of the dye industry.

(hazariwalapu) #32

Its a very good discussion on this board. As i have noted management is very prudent and acting well as opportunity arises and company may do well for next 1-2 yrs looking at global scenario. As company has declared their capex and as i have noticed their asset turnover ratio will be very high on this capex so their Returns will be very high, the question is what is their MOAT to keep competitor at the bay with such a insignificant capital requirement for capex for such a high returns on investment - one i can say is environment approvals whatelse?



(krrish seth) #33

great effort Dhiraj,
That mean we have 15 to 18 months i this cycles left
beig a cyclical sector & recent announcement by OPEC don’t you think the raw material cost will affect the margin as well as other growth ratios

(Dhiraj Dave) #34

In my view, crude price has limited impact on the business. The dye intermediate and dyestuff work more on market dynamics of those product and generally does not operate on tolling margin. Chinese demand supply situation and players action have more impact on performance then global crude price. While overall crude price would have some impact, even with increase in crude price, if Chinese player restart the production, dyestuff price would decline despite increase in crude oil price and would squeeze the margin of Indian player. This is my opinion and it may be not factually correct.

Discl: holding and added during last 90 days.

(jainaj) #35

Sir, as capex is mostly fundly through internal accruals and china problem looking to be more structural than temporary. As such return ratios are high and will continue to be so. Can bodal 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 and then market at some time realises the same and p/e shoots up?

(Dhiraj Dave) #36


Please call me by my name Dhiraj rather then Sir. I doubt that current ROE of around 35-40% can be maintained in business which unless have some intangible benefit like Brand/Patent protection. Everything for the supporting the sector since last 15 months which has resulted in very high ROE for the company. It may continue for next 18-24 months and then being commodity sector, we shall see increase comeptition/higher increase in raw material price or resistance from buyer normalising return (ROCE/ROE) to 15-20% in my opinion. Previous, ROE for industry was even in single digit and hence to that extent I see some positive reaction in share price if the industry/company can sustain ROE upwards of 25% for next year or so. I do not envisage PE going upward of 20 even in best of time for this company/sector. My view might be completely wrong as I am not expert on sector.

Discl: I hold the shares and my view may be biased. I am not recommeding the stock and investor shall do its own due diligence.

(vinay ambekar) #37

Just to add a bit.

The denominator (networth) is depressed due to losses incurred by the company in 2012, 13 and a couple of years before that. Had the company been profitable all along, there would have been accretion to reserves (instead of depletion) and networth would have been higher, resulting in lower ROE. Hence, please do not place undue value on the ROE.

Secondly, chemicals are, in general, affected by rising crude prices. However, if the rise is gradual, companies have time to adjust their selling prices and pass it on to customers. Customers are more willing to bear gradual increases especially because Indian companies are the only reliable suppliers, after Chinese supply has become erratic. Sharp spikes in crude prices will however affect margins adversely.

Lastly, I think the point was raised earlier as well - regarding deployment of capital at higher rates, and I quote my reply below, which I maintain:

Discl - hold shares from earlier as declared above; not added recently.

(Yogesh Sane) #38

Has anyone has done a peer analysis of Bodal with rest of the Dyestuff manufacturers? Since Bodal has about 9-10% market share, there must be other manufacturers who have similar scale. This being a commodity business, a peer analysis is useful in knowing relative cost competitiveness of the players in the industry.

Shree Pushkar is a newly listed company in this industry. Can someone suggest other close peers so I can do peer analysis?

(Ishank) #39

@Yogesh_s peers are Kiri Industries, Bhageria Industries, akshar chem

(Kumar Saurabh) #40

Here you go. You can keep all files in one folder check comparative_analysis_chemical.xls for comparing 8-9 companies in dye business (in case does not work,in formula bar, replace all cell locations to your folder). Please do not update sheet else it will try to update links and may lose connections. Please let me know in case it does not work. Wanted to zip it but VP does not allow attaching zipped files. Note : This is based on screener data without verifying numbers from annual reportsAksharChem (I) (1).xlsx (119.5 KB)
Chemical-Financial_Health-2016October30.xls (80.3 KB)
Chemical-Growth-2016October30.xls (9.9 KB)
Bodal Chemicals (6).xlsx (119.8 KB)
Chemical-Essential-Checks-2016October30.xls (142.2 KB)
Comparative_Analysis.xlsx (61.0 KB)
Chemical-Overview-2016October30.xls (99.3 KB)
Atul.xlsx (119.9 KB)
Chemical-Valuation-2016June20.xls (101.7 KB)
Plastiblends (I) (4).xlsx (119.6 KB)
Kiri Indus.xlsx (119.8 KB)
Dynemic Products (1).xlsx (119.5 KB)
Refnol Resins.xlsx (119.4 KB)
Comparative_Analysis_chemical.xlsx (283.2 KB)
Sh.Pushkar Chem (1).xlsx (119.6 KB)
Poddar Pigments (2).xlsx (192.8 KB)
Vidhi Dyestuffs.xlsx (119.5 KB)
Ultramarine Pig (2).xlsx (119.6 KB)
Sudarshan Chem (1).xlsx (119.8 KB)

(Yogesh Sane) #41

Wow, thanks so such for such exhaustive information.