Oriental Aromatics (Earlier: Camphor & Allied Products Ltd)

As per the scheme of arrangement Every share of OAL will be eligible for 1.56 shares of CAL

OAL Shares are 0.4 cr
http://www.camphor-allied.com/FTC.pdf

CAL shares are 0.513cr
http://www.camphor-allied.com/FinT.pdf

so total diluted capital works out to be 0.513 + 1.56*0.4 , which is 1.13cr.

At current share price , post merger mcap will be more than 750cr

assuming 30 to 32cr of PAT , PE is more than 25 , which is fair range for a b2b business

correct me if the calc is wrong

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@Mahesh bhai …Reviewing this merger calculation…total capital post merger should be as follows…

Pre and post amalgamation capital structure of the Transferee Company is as follows…

Issued, Subscribed & Paid-up Share Capital Equity Shares of Rs. 10/- each

51,33,674 (5.13 cr) …pre
84,13,394* (8.41 cr)…post

  • Post- merger issued, subscribed and paid-up share capital is considered after cancellation of shares pursuant to the Scheme of Amalgamation.

Presently the Transferor Company (oal) holds appx. 57.66% of the Issued, Subscribed and Paid up Equity Share Capital totaling in all 29,60,280 shares of the Issued, Subscribed and Paid up Equity Share Capital of the Transferee Company (cal).

Post amalgamation in terms of the Scheme, the issued and paid up share capital of the Transferee Company will be aggregate of the existing Equity shares (net of cancellation of equity shares of the Transferee Company held by the Transferor Company) and shares to be issued to the Equity Shareholders of the Transferor Company under this Scheme.

So, we should calculate return ratios and p/e using 8.41 cr share capital i.e 84 lac shares.

Given, 32 cr combined PAT…results in EPS of 38.

Now, assuming 15 times trailing p/e to the merged market cap -> p/e = mkt cap/32 = 15 ~ 480 cr

Mkt cap/share = 480cr/.84 ~ 571 INR

So, aren’t the minority shareholders at loss with this merger (Just speaking from valuation perspective)? CMP is 715, and valuation post merger at same p/e i.e. 15 will be 571.


By the way, this news piece regarding pollution issues at its Bareilly plant surfaced in May. Not sure if this has already been cleared. Anyone?

MY Calculations were wrong and as per company disclosures share capital will be 0.8413 cr, Merger might be beneficial for the company due to various integration synergies and compared to SH Khelkar the valuation picture will start looking quite interesting, Nil institutional ownership with good fundamentals makes it an interesting case, Recently KR Choksey has released a detailed report with good upside

Sorry if this post is inappropriate here.

I had a query on Kanchi Karpooram. Does this company supply Camphor to CAP?

Edelweiss has come out with a comprehensive report on F&F Industry and SH Kelkar, It higlights the kind of competitve barriers the industry has and why high valuations are justified and non cyclicality of this industry. Guess camphor and allied is also ripe for discovery and valuation re rating

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Hi Mahesh,

Would you have access to the edelweiss report? Thanks

Hi Mahesh, I can without reading that report say that your analysis is quite impressive.

Its available free for all, you can visit the edelweiss website and go to research section

Thank you. Found it. How did you get hold of the oriental aromatic numbers? do you know their recent numbers for FY17?

http://www.bseindia.com/xml-data/corpfiling/AttachLive/e0c342da-5b1c-4605-9e1e-fe530aafaf84.pdf
NCLT Order sanctioning the Scheme of Amalgamation of Oriental Aromatics Limited (the ‘Transferor Company’) with Camphor and Allied Products Limited (the ‘Transferee Company’ / the ‘Company’)

Is any one tracking this business. The results were flat in the last quarter. does company hold any concalls? @Mahesh do you still track this business - what are the future growth plans from company?

I am wondering why EBITDA margins have fallen this quarter to 11% from 17% in Sep quarter. Weak results overall

Hi Mahesh Sir,

Are you still tracking this company? Any insights into their business and fututre prospects would be of great help!

They have uploaded a presentation on stock exchanges. Worth studying

I have done my research point on the company :
What i liked about the company : Entry Barriers at 2 section

  1. Flavor & Fragrance
  2. Camphor

Camphor price are unstable and regarded as cyclical - however due to good diversification on flavor & fragrance | aroma chemicals - loss aversion is slightly diverted.

Pricing power in terms of Camphor industries such as Kanchi to its customers are very low whenever the raw material price goes down the company’s profit tends to go in the same direction.
Why Oriental? : Camphor is used in the end product of flavor & fragrance -i firmly believe in the profit getting steep in Oriental too same as Kanchi however the customer base of Oriental with 2000 clients in flavor & fragrance which are sticky and camphor business along with it will give me some peaceful sleep
Once when you develop a flavor and if industry has to use it - then its hard for any industry to neglect and move across because the customer interest of flavor & choice will be the price for the end industry to pay.
Cash flow from operations stood at Rs. 181 crore
Reduce its net debt by Rs. 135 crores to Rs. 51 crores
Payment of dividend of Rs. 14 crores
D-E Ratio - 0.11
ROE : 18.57% which is higher by 3.91% against last financial year end.
2021 CAPEX : 60 to 70 crores (Baroda)
FUTURE CAPEX : In talks with the Maharashtra Government for allotment of
land in some chemical zone in Maharashtra for acquisition of this land and we have a projected initial CAPEX under this SPV of close to 150 to
200 crores which will lead to over a 3 year period, a growth of 300 to 350 crores to our
topline
Customer Base : 2000 and adding more

I guess Oriental Aromatics has placed well between flavor & fragrance and camphor.
First in flavor & fragrance : SH Kelkar
Second in flavor & fragrance : Oriental Aromatics

Camphor :
Mangalam Organics
Kanchi Karpooram
Oriental Aromatics
Great read about Oriental Below
Customer Base : 2000 and counting on
Major Customers : Pharma, FMCG, F&F

Disc : Researching

References :
https://www.bseindia.com/xml-data/corpfiling/AttachLive/b275ae74-099d-496f-b98a-b962d0abfdd0.pdf

https://myinvestmentdiary.com/industry/indian-camphor-industry/

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Due to high entry barrier in flavors & fragrance industry - with camphor play required for aroma & also supply to their customers

  • I feel this is a safe compounder - even if the camphor raw material price down there wont be a sudden drag down on the share as they can deleverage the risk - unless if there is any blind side to this.

Disc : Invested

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Very good analysis

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Good result from OAL once again

Disc
Invested

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Con call notes :

  1. Margin expansion due to robust demand and good raw material prices. Going forward RM price can vary. Company guides for EBIDTA of 15 to 17% going forward. (vs current 20% TTM and 27% last quarter) Company expects RM prices to go up in near future.

  2. Baroda expansion continues to be on track. We expect to make by March close
    to about Rs. 60 crore of investment in the Baroda project. After our last call we have made
    some changes in the product mix in Baroda which will require an additional Rs. 60 crore
    capex which we expect to complete by Q3 or Q4 of FY 21-22 taking the total now up to about
    a Rs. 120 crore or Rs. 125 crore in Baroda.

  3. Deodorant and fragrance segment facing global demand pressure due to covid.

  4. There may have been some panic buying in q2 which cant be expected in q3. Camphor demand expectation remains strong. Plants are running at 100% capacity and is expected to continue for next few quarters.

  5. First plant at Mahad (new greenfield exp) expected to be commissioned after roughly 450 days.

  6. the demand for camphor, fragrances and flavors has been robust for Oriental Aromatics and that really is the only reason where we have seen a better price realization on our products.

  7. Company sees a trend of geographical shift from china to india. Global clients are interested in sourcing from India. Hence the next big capex. ( it is
    also a replacement investment where we believe that lot of the molecules that we are going
    to produce desperately need another player in the market)
    Company’s current dependence on China is very low. New capex is not going to be just pinene driven but mainly petro driven, focused on specialty chemicals which are high value and low volume kind of play. So Chinese dependence is expected to be low.

  8. Company to spend around 325 cr in next 3 to 4 years and expecting an additional 500 cr (1.7x the expenditure) from it.

  9. There was a very good answer where management explained their process and vision for the specialty aroma chemical plants in Mahad. It’s hard to summarize it but following is important gist of it.

So, this is just to give you, you know the process begins with the flavor and
fragrance team. The flavor and fragrance team works with Aroma chemicals R&D to tell them
their selection and what they see as the growth molecules of the future and what they see as
the molecules which are currently available but only from one or two suppliers. Once that is
done, it goes to R&D, R&D does a complete detailed study, presents it to management and
then we make a decision on how many molecules we are going to get active there. And if you
recall, I have mentioned we are launching three molecules in this year and I think in 2021 we
would see a role out of close to 15 to 20 new molecules. So, our R&D pipeline is very robust
and we are hoping that with the expansion plans in Mahad and in Baroda we are able to
successfully built the plants and the capacities that we need to fulfill the demand.

It seems that company is able to take advantage of being in the business from 1955 in the sense that they have better visibility of which aroma specialty chemicals to chose for manufacturing in-house. It will be sort a vertical integration for the company. The company plans to chose 25% molecules out of 6000-7000 available.

  1. New Multi Purpose Plant has been beneficial. Company has realized that its better to produce some specialty aroma chemicals through their own dedicated smaller plants considering the demand (hence the capex).

  2. Good numbers from this quarter were driven mainly by better realizations for camphor and fragrance. Camphor RM price was down and product price was higher and hence good swing. This might change. Improvement in fragrance price is expected to stay for longer.

  3. New greenfield plant is through a subsidiary to take advantage of lower tax from government of 15%.

tldr;

  • company had sweet spot for camphor last quarter where RM was low and final price was higher. This could change easily. Improvement from fragrance can continue for longer. What % of improvement seen in last quarter is through fragrance is not clear.
  • company’s plants are running at 100% capacity so for next 1-1.5 years, much volume growth can’t be expected. So unless company is able to get better product mix or product price increases, growth is hard to continue.
  • company is embarking on a very big capex in next 3-4 years which seems promising as its in the field where company has been dealing from many decades. so its more like vertical integration. (Black rose industries had seen similar trajectory recently) company is focusing on mix of molecules based on which molecules are going off patent, which ones are made by 1 or 2 suppliers etc.

Disc
Invested

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