Bodal Chemical Ltd

@Bodal Investors,

@sammy11, @Gaurav_Agarwal

How can we track latest vinyl sulphone and H-acid prices ? Any idea ? Does it vary by region

@csteja

No way you can track Vinyl Sulphone prices. Few companies like www.seair.co.in used to published export prices till 26-Nov-16 but they have stopped publishing because of some Govt. decision.

@csteja - Rather odd method, but one can use occasionally to get a sense of the price direction. Alibaba app! Send inquiries to the dealers…:wink:

If its not daily price and quarterly is fine, you can get them from most conf-calls of speciality chem companies. They are regularly asked this question. No, they do not dramatically vary by region. Hope this helps.

as per bodal management the latest prices are in range of 270 for vinyl sulphone and 370 for H-acid.

The latest presentation of Bodal chemicals. The management is repeatedly bullish about chinese competition even after Chinese plants have resumed production

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/55a1b4cf-5801-4a16-b010-9396ca46ebb7.pdf

I am not sure if this is the right method to calculate the cost of acquisition. The Rs.45 crore is a loan, and should come back one day. Assuming it is an interest free loan, the interest cost of Rs.45 crore (say Rs.5. crore) to Bodal should be added to the equity infusion of Rs.4.1 crore. So the cost of acquisition comes to around Rs.9 – 10 crore (for a 70% stake).

Yes. Only a small part of Rs 45 Cr loan is to be added as a cost of acquisition. In addition, the Rs 45 Cr include a new capacity expansion for Vinyl sulphone in SPS. This was explained in the attached MC video by the ED. Yes, Rs 45 Cr should not be added to the cost of the acquisition. A part of it is a debt repayment of SPS, but we do not know that amount. That should be added as that is a liability. SPS processors alone is expected to provide an additional topline of Rs 175Cr in FY18 for Bodal - leave alone its own expansion happening within Bodal.

You are right that this being an unsecured loan to SPS (45 cr), 35 cr of which will make the acquired company debt free (lenders and other liabilities) and 10 cr for setting up a VS plant.

So the cost of acquisition is 4.1 cr for acquiring 70% equity + 35 cr loan for paying its liabilities + 10 cr loan for VS capex = 49.1 cr. This will generate a revenue of around 175 cr starting Q2 FY18. I think Bodal’s part of the revenue would be 70% of this 175 cr?

Also, MD Ankit Patel hasn’t said anything about when this loan would be paid back to Bodal. So, not sure how much interest cost we need to add to estimate the acquisition cost. In any case, this looks cheap, as SPS already had the license for VS expansion, and a compliant H acid plant (which could be further expanded). Also, Bodal is almost debt free with surplus cash, and its working capital debt is at very low cost. (3-4%). So, it is easier for Bodal to fund such acquisitions at very cheap rates.

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I think the benefit Bodal derives of this acquisition is that SPS comes ready to roll kind of asset with all permissions and environmental clearances etc in place. Getting environmental clearances is a time consuming process and uses management bandwidth unnecessarily.

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Bodal Chemicals looks pretty similar to Shree Pushkar in Product portfolio and management quality. Any ideas anyone?

Disc: Hold Shree Pushkar and planning to add more in dips.

Bodal is much bigger than Pushkar, and is cheaper. Though Pushkar is done with all its capex which is yet to bear fruits over next 2 years. On the other hand, Bodal has laid out plans for next 2-3 years for incremental capacity addition all through internal accruals.

Personally, i feel mgmt of Pushkar is better than Bodal (listen to Pushkar concalls).

Both are very good companies with sectoral tailwinds.

@hitesh2710 bhai - How can we prod the mgmt to conduct regular concalls?

I have listened to Shree Pushkar and Bodal Chemicals quarterly con calls and found Shree Pushkar mgmt to be little more confident and sure-footed. But then that is just a comparison. As you said and I agree, Bodal looks cheaper with the kind of built up and acquired capacity it has.

That said, both are majorly into a commodity business which they are trying to move up the value chain. There are huge price fluctuations in their products and they have no control over it. China producers are down but no out of the game.
I am trying to figure out if the speciality chemicals in India has a real distinct advantage in terms of niche highly complex products which can sustain a high quality growth for next 8-10 years (as has been claimed by some companies)

Good inputs on comparison with Pushkar. The english of the concall speakers
of Bodal is not excellent. But that can be deceptive. They may be great
executors…

Disc: I am invested in Bodal and some other chemical cos.

i was in search of a little used waterproofing chemical silane siloxane and found tons of dealers selling the products . Chembond is one of the listed players i could find . While this may not be a niche speciality chemical but the point remains that most probably the comapnies are dependent on supply demand situation for pricing. That said again i would like to be bullish on the space as the environmental laws in China are said to be getting really strict in terms of pollution control and this week itself Tulsian said that prices of H Acid Vinyl Sulphone are rising again because of Chinese factories shutting down on environmental concerns

English fluency does not matter. They can speak in the language they are comfortable in. I felt Shree Pushkar management very well versed with figures & numbers. And as someone has mentioned SP seems to be in a good growth path with doing all the right things.

Disc: Invested in SP. Tracking Bodal Chemicals.

Nice results from Bodal Chemicals.

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/9072c2ec-8ac5-4370-b83d-50eefbff94c4.pdf

Some key points from the q4 concall:

  • Mgmt expects to grow topline at about 20% for the upcoming year.
  • The margin should remain steady at the current 18-19% levels. Even if vinyl sulphone and H acid prices fall, they hope to make 15-16% margins.
  • The Chinese players have started making dye intermediates, but mainly for internal consumption as of now.
  • SPS processors should start manufacturing vinyl sulphone in addition to H acid by 2nd qtr and this should improve their profitability which is currently subdued.
  • First phase of dyestuff expansion should be completed by the 3rd qtr.
  • Dyestuff market is large and margins more stable.
  • Trion chemicals - mainly export oriented, they are trying to target the US market.
  • Debt may not fall further due to the expansion plans, will be maintained at the current levels.
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In FY18, topline would increase by 15-20% as new capacities come online, but bottomline might not grow in tandem due to operating margins falling to much normal levels of 16-17% (from 19% in FY17).

Dye intermediates/dye stuff guys were enjoying abnormal margins this year due to Chinese shutdowns. With Chinese capacity coming back online (although not fully yet), some pricing pressure would eventually start coming on Indian manufacturers. Yes, as has been discussed here, there has been some structural change in the chemical industry with Chinese not being as competitive as they used to be earlier due to environmental concerns, labour, etc. but still, with this capacity coming back online, margin pressure would be back on Indian manufacturers.

One important thing to consider is that Bodal is moving towards being a dyestuffs player gradually. This segment has higher margins than dye intermediates, more os because all dye intermediates are utilized internally to manufacture dyestuffs. This will aid in increasing the operating margins by few % points. But the added dyestuff capacity will come online post q3 in this year. So, any improvement in margins due to additional dyestuffs in the overall mix will reflect in next financial year.

I am expecting 1400 cr topline with 16-17% margins for this year. So, Bodal’s bottomline would be more or less stagnant despite topline rising considerably, as there is no further scope of interest cost reduction now. But that’s just my take. Thoughts?

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BSE CODE: 524370 NSE SYMBOL: BODALCHEM

BODAL CHEMICALS was established in 1989 with an initial capacity of 200 MT per annum of basic raw materials for Dyestuff industry. Slowly, it has grown leaps and bounds and now it is an Integrated and Innovative company offering end-to-end solution to the customers globally. It is among the world’s largest manufacturers and exporters of Dyes Intermediates, Dyestuff and Sulphuric Acid, vertically and horizontally integrated, providing product and service solution on fastest possible route to their customers. Its presence is now not only in India but across the Globe exporting nearly 70% of its products worldwide to various clients including several multinationals serving to 50+ countries of its Innovative products and services. It is coupled with the technical know-how & expertise in manufacturing of Dyes Intermediate & other Specialty Chemicals. Company’s growth is propelled with the support of in-house team of technologists, workforce and management professionals.

Manufacturing Units:

BCL has its manufacturing units across the Gujarat, where they manufacture different products under multiple delivery systems. At present they have total 9(Nine) Manufacturing units in Gujarat, 4(four) in Ahmedabad 3(three) in Vadodara & 2(two) in Ankleshwar. Products are developed for Textile, Paper, Plastic, Leather and many other specialty chemicals. Another Unit named as Trion Chemicals, which manufactures speciality chemicals and its base products is located at Khambhat, Gujarat. Original Capacity of production in plants of Ahmedabad, Panoli and Baroda is Total was chemicals 1.90 Lakh MT, Dye Intermediates 30,000 MT and Dyestuff 17,000 MT. Starting from a turnover of $92 Millions in 2010, their units have produced at 90% capacity in 2016 with a turnover of $149 Millions.

Management & Shareholding Pattern:

The Company is headed by a dynamic industrialist Mr. Suresh J Patel, who has established himself as a non-stoppable player in this field with assistance from some other Patels like Bhavin S Patel and Ankit S Patel. As on 31-03-17, Company’s paid up equity capital is 21.82 Crores divided into 10.91 Crore shares of Rs.2/- each. The Indian Patels family holds 54.34% shares and NRI Patels hold 9.83% shares of the Company totalling 64.17% as promoter’s stake. Out of the remaining holding of 35.83%, only 22.27% seems to be the floating shares, rest being hold by long term holders like 5.22% by bodies Corporate, 4.41% by Foreign Portfolio Investors. Interesting factor is that in FY17, shareholding of promoters has decreased slightly but all the pledged holdings (more than 66% pledged in 2016) of promoters have been released.

Financials:
As on current date, the debt equity ratio of the company is healthy 0.38. There are no pledged shares. The company was in losses till 2014 and hence financials of last four years are given below:

Year 2014 2015 2016 2017
Turnover (Cr) 959.50 1045.31 909.95 1236.29
NP(Cr) 30.65 92.01 85.98 128.64
EPS(Basic) 2.81 8.43 7.88 11.79
NPM(%) 3.19 8.80 9.45 10.41
Dividend(%) 10 20 15 25

In FY17, YoY increase in turnover is 35.90%, EBITDA is 40.90% and NP is 49.50%. Growth in total income is due to better price realization of certain Dye Intermediate products coupled with increase in demand in the domestic market and better product mix. Due to management’s efficiency of operation finance cost is also reduced and it has aided to better profit margins.

In the recent years dumping duty imposed by the Govt. of India on Chinese products and closure of many chemicals unit in China, future of Speciality Chemicals is coming out bright for the Indian units and that has been seen in the recent results.

Currently, there is very little risk for holding the shares of this company and the long term growth prospects may propel further in the near future.

Disclosure: I have 1300 shares of this company purchased at Rs.165/-

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