Chemcrux Enterprises - A dark horse?


(Saurabh) #1
  • Chemcrux enterprises is a Gujarat based company dealing in manufacturing of chemical intermediates for bulk drugs, dyes and pigments.

  • The end consumers are the organizations which are into manufacturing of these drugs and dyestuff.

  • It was incorporated in 1996 by technocrat promoters Girish Shah and Sanjay Marathe from IISc. / IIT.

  • The Company started its business activities in the year 2000-01 by taking over the running business of
    M/s. Chemcrux, a partnership firm of the promoters, as a going concern.

  • The promoters currently hold 73% of the equity.

  • Office location: Manufacturing unit in Ankleshwar and registered office in Vadodara.

  • Raw Material: The basic raw material they use are chloro and nitro toluene based chemicals which is procured domestically as well as from International markets (mainly China).

  • End user application: The benzoic acid intermediates it supplies are used in manufacturing of following important drugs:

  1. FUROSEMIDE: Sold under the brand name “Lasix” is used for the treatment of fluid build up due to heart failure, kidney diseases, high blood pressure, hypertension, etc.

  2. Mefenamic acid: Used for the treatment of mild to moderate pains from various conditions including blood loss from menstrual periods.

  3. Mebendazole: Used to treat parasitic worm infestations including pinworm, hook worm, etc. Its application is also currently being tested as an anti cancer treatment.

  4. Chlorpromazine: Its primary usage is to treat psychotic disorders such as schizophrenia, bipolar disorder, etc.

  • Customers: Some of its customers are Sanofi, Shree Krishna pharma, Su pharma, etc. They also export to Europe, Italy, Egypt and U.S.

  • Employees: Current strength is around 70 with around 40% contract staff.

  • Outlook and growth: The company is planning to setup another manufacturing unit to increase the production and looking for various options.

======================================================================

Financial Information:

  • The current MCap is around Rs. 20 Crore.

  • Available at 8 P/E.

  • The revenue growth in last 3 years is around 17%.

  • OPM is stable around 13% from last 3 years.

  • Interest coverage ratio > 8 which is very good.

  • D/E ratio is less than 0.5 for last 3-4 years.

  • Earning yield: 13%

Some margin of safety is there since earning yield is currently much more the GSec/Treasury yield.

Risks:

  • SME company, very low liquidity.

  • Minimum lot is 4000 shares.

  • Need to increase the capacity for further growth, current one is utilized at 90%.

  • No visibility of management succession planning.

Screener snapshot:

Pictorial Snapshot of Company:

Friends, please post your views on the company and the business in general. There is very less information which is available online.

Disclaimer: I am invested in the company. Please do your due diligence before investing.


(Vijayk) #2

Established in 1983 and still at 20 crore market cap. That’s almost like zero growth company for past many decades!
A decent business can reach 1-2 cr profits in 5 years and hence, 20 crs mkt Cap! Infact reaching 2 cr profits can be done by almost anyone on this forum itself in many kind of businesses!


(Saurabh) #3

Respect your point of view but don’t agree with a generic statement that a decent business can make profit of 1-2 Cr in 5 years. Each business has its own priority.

Flipkart never made profit ever doesn’t mean it was not a decent business.

Market capitalization is not a function of how many years you are in a business.
Look at the market cap of Liberty shoes, Dai-ichi Karkaria, etc from screener and you would know what I mean.

Stock investing is solely based on future projections, that’s why this thread. Regarding micro / nano caps which have made big on this forum, following threads can be used:


(Manish Vachhani) #4

(Manish Vachhani) #5

(Saurabh) #6

Very good results from Chemcrux for H1.
Revenue up 2x.
PBT up 5x.
PAT up 6x.

The profit for first six months of this year is almost 1.8x of the entire last year.

With EPS of 9 for the first six months and expecting similar results for year end, this still seems undervalued.

The management is very conservative and has walked the talk till now.

The exports volume and price is on a steady rise this year for benzoic acid products.

I am still figuring out if this can be a long term bet since the company does not provide much information.

Disclaimer: Invested from last one year.


(AmitContrarian) #7

how much of capacity utilization they are running on ? and any expansion plans ?


(Saurabh) #8

Current capacity:

Oxidation : 1050 MT

Nitration : 300 MT

Chlorosulfonation : 500 MT

They are planning for new high margin products and capacity expansion or some strategic acquisition. This is not finalized as of now and might be revealed in near future.


(Prasenjit Paul) #9

They are running on almost full capacity since 2017. However, variation in product mix, moving towards higher margin product variant having higher demand and higher market price on the particular period helped topline, bottomline and middleline growth since the last one and half year or so. Going forward, the same strategy will yield growth without any capacity expansion as long as external market supports or as long as they can align themselves to the supply-demand equation.

Further, they are looking for small scale factory acquisition or/and installing advanced process development equipments to fuel the next leg of growth. I am not sure about any time period/deadline for the same but it might be finalised within the current financial year itself (rough guess).

They already shifted bigger new office in recent time.

Disclosure - Holding the stock since IPO in March 2017, gradually increased stake in various times. As per September 2018 shareholding, I am holding 2.19% stake. Further increased stake in November 2018. Can’t comment anything on stock price as it is highly illiquid SME stock. Market cap during first entry 15cr. Current market cap 32cr still a nanocap!


(Invest) #10

Hi,

Very nice thesis and explained well.
The export price chart that you have posted - Can you please post the latest chart now?

Thanks.


(AmitContrarian) #11

Are you still holding ?

  1. Global Education Ltd.
  2. MRSS
  3. KP energy

(Saurabh) #12

The latest data as per screener is available till October.


(Prasenjit Paul) #13

The most important point to note here is that Chemcrux is not product driven company, rather a process (Chlorosulfonation & Oxidation) driven company. It means they can swiftly change the products depending on the supply-demand scenario. This is why the company didn’t get highly impacted during crude price and forex volatility.


([email protected]) #14

Very important point. This is the point they kept stressing on during this years AGM.