Dai-Ichi Karkaria Limited


(Dhiraj Dave) #21

@rsibia I agree with observation. While not sure, but expect some product have oil exploration industry being a major consumer. So partially, oil exploration in US would also be driving growth. There has been some message being exchange on this thread in past. Please go through same. I continue to hold the company as input cost declining due to crude, ethical management, continued superior growth in JV with Champion and moderate valuation. Only negative I could see in March 2015 was lower dividend payout. However, same could also be due to capex at Dahej plant.
Discl: I hold shares of the company


(RSingh) #22

Ok, I have read some of the threads and agree with your thesis. I guess we just have to wait and see how the JV does this year, which is arguably a critical year to judge earnings resilience given oil price fluctuations. Overall, if the JV sustains its growth, then returns could come from two sources:

  1. Earnings attributable to JV to re-rate, say to a 15-20x TTM PE depending on growth profile (rationale being the JV is probably being driven by the Ecolab engine and Ecolab trades at a PE multiple of 27x TTM for high teen growth - http://data.cnbc.com/quotes/ECL/tab/5)

  2. Recovery in stand-alone business driven by: a) supply to JV and b) recovery in economic sentiment. The trend growth in the business over the long term has been 15% and given that last year was a -6% year, at some point, the SA business will show good growth off a previously stagnant base

So this could have a long runway.

Disc: invested.


(Dhiraj Dave) #23

On July 31 2015, Dai Ichi AGM is scheduled at 12 pm at MC Ghia Hall, Bhogilal Hargovinddas Building, 4th Floor, 18/20 Kaikhushru Dubash Marg, Mumbai 400001. I intend to attend same. Let me know in case any other member is also attending. We can meet there.


(RSingh) #24

Dhiraj would be great if you could share your notes from the AGM in this forum, as some of us are unable to attend. Thanks !

Disc: invested.


(Dhiraj Dave) #25

AGM is tomorrow. Shall do same may be tomorrow or day after as time permit.


(Vivek Mashrani, CFA) #26

The company has come out with excellent set of numbers today. The below is short summary of standalone financials:

  • Sales (net of excise) has come at 29.4 Cr in 1Q’16 (Jun-15) vs. 24.2 Cr in 1Q’15 (Jun-14); Y-o-Y increase of ~22%
  • Net profit increased by 135% Y-o-Y at 3.3 Cr in 1Q’16 vs. 1.4 Cr in Q’15
  • EPS of 4.48 in 1Q’16 vs. 1.91 in 1Q’15, an increase of ~135%
  • Net profit margin in 1Q’16 stood at 11.3% vs. 5.9% in 1Q’15

Waiting for Dhiraj to post AGM notes.

Disclosure: Researching, but not invested. May take position in future.


(Dhiraj Dave) #27

Just preparing notes. Excellent business and management at first impression. Would be more biased on positive side and would request members to do own due diligence.


(Dhiraj Dave) #28

Note from AGM on July 31 2015, based on discussion with Mrs S F Vakil in reply to queries of shareholder. Please note that I have invested in the company and my views may be biased. There is also possibility of some misunderstanding at my end while writing notes. Future investor are expected to do there own due diligence.

The MD appear very knowledge and confident about business prospect and body language was confident.

Dai Ichi Chemical has two plants, One at Karaswadi and another at Kurmkumbh , both plants near Pune. The company is in business of specialty chemical.
Dahej Expansion
The company is in process to set up a plant at Dahej with estimated capex of Rs 130-170 Cr over next 2-3 years. It has been waiting for environment approval from Government for long and already acquired necessary land for which levels and wall construction being completed till date. It has been informed by the Govt. that public hearing would be on August 5 2015 after which within 2 months the company expects to get approval from the project. It would take around 18-24 months to Dahej plant to complete. Depending on product mix, the company may generate sales of around 500 Cr from Dahej Plant.
Over a period of time, the company has expanded capacity at Karaswadi Plant. In case the company does not get approval/or it gets delayed, the company is expanding by debottlenecking at Karaswadi plant which is expected to see major enhancement in October 2015, and shall drive revenue growth in short term by increasing Oil chemical capacity by 50%. Over long term, the company intends to integrate Karaswadi to Dahej, but it shall take around 4-6 years. The MD indicated that in short term any monetization from shift of Pimpri land is ruled out.
The company is not increasing dividend to finance Dahej Capex and intend to take no/minimal debt.
Oil Chemical Business of JV and Standalone:
Dai Ichi stand-alone supply chemical for Downstream oil business (which my assumption is chemical related to Refinery and further processing), while Champion JV provide downstream chemical (which assumption is chemical related to Oil exploration). Champion JV supplies only to India for Oil exploration. There is no linkage with Shell gas exploration and the company product and no supply/sourcing by US Champion from Indian JV. Cairn, British Gas, Reliance, ONGC and Bumi Armada are main customer to Champion JV business. JV has been supplying for Cairn and British Gas for last 3 years. Typically the Oil exploring company float tender for 18 months’ supply. JV participates in tender with on price and past performance.
In order to retain client although not compulsory, it may offer 1-2% discounts. Normally, the Oil explorer extend contract by 6 months. So typically it would see new tender after 24 months and there is not guarantee that the company would get repeat business. Cairn India contract would expire in 6 months when there would be again tender. However, due to past performance and relationship with few competitors, the company is reasonably certain to get the business. Also, tie up Champion Nelco also give edge to the company.
MD named Backer Petrolite (Subsidiary US company) among top competitor to Champion.
Even decline in Crude price is not affecting the volume growth as none of Oil explorer in India can reduce the production due to price. There is a minimum production agreement with ONGC/Oil India as partner which ensure that production is not cut for price. Hence, a stable demand despite price volatility.

FY16 Growth
• For FY16, the company project standalone sales of around Rs 140 cr with maintaining EBITDA and debottlenecking at Karaswadi Plant by October 2015. (24% growth). The company has stopped supply to Middle East due to better margin in other market. After Expansion in October would resume supply to ME.
• The Champion JV is current operating at around 85% capacity. However, in case of improved demand, it can with marginal capex enhance capacity and hence capacity shall not be much constraint at least for FY16. During FY15, Champion JV did sales of Rs 170 Cr. Champion
• The demand for company end product is completely industrial. There was no major growth in standalone business due to slow down in textile/construction and other industrial activity. However, the decline was offset by improvement in sale in Oil Chemical and very high growth in Champion JV. Based on informal discussion with other investor, I understand that last year company give sale target of Rs 120 cr against which it achieved Rs 102 Cr at standalone but then investor suggested that consolidated number exceeded the expectation for FY15.
Other points
• The company also developed new product like Alkyl Polyglucoside (APG) (refer to annual report research section) and started marketing in India. However, market is very cost competitive and not willing to pay for superior quality. Hence the company is waiting for market to accept and demand new improved chemicals.
• Nearly 50% of labour has accepted wage settlement. The balance workers are although willing to accept the wage settlement, are threatened by outside forces and hence suit is still pending at Supreme Court.
• The company would be able to manage to maintain margin is current level and would focus on process improvement in all products it manufactured.
• The advance to supplier is to Reliance and disputed Service tax of Rs 55 Lakhs for one vendor. The company procures EO from Reliance who has already set up Plant in Dahej so supply shall not be major issue.
• The company supplies to Singapore group company of Champion Nalco with which it has 60 days receivable. As share of Singapore sales increased, receivable day for standalone increased from by 10 days.
• The depreciation charge increased due to new companies Act.
• The shareholder request to provide JV results also with quarterly company result. The company said it would be difficult and would share annually only as required by Regulation.


(RSingh) #29

Dhiraj - thanks for sharing your notes. A couple of questions:

  1. You have mentioned guidance for Stand Alone business for FY16. Was any guidance given for JV? As JV has been growing at 100% for last few years, what is the expected growth rate for FY16 and beyond?
  2. In 1Q, stand alone margins have expanded substantially. When you say margins will be maintained, does that mean for the full year margins will be the same, and 1Q was an aberration? Ideally there should be some operating leverage, especially as revenue growth is targeted at almost 40%?

Thanks.

Disc: invested.


(Dhiraj Dave) #30
  1. Management refused to give guidance for JV when asked. But said that with marginal capex can increase capacity to meet demand in JV at short notice. So no idea about growth in JV.
  2. I have compiled my note from various question asked in AGM. So I believe they did indicated EBITDA level of around 15-16%, which is significant jump over standalone FY15 margin. While nothing said by management, in my view, we may expect around 12-14% margin on full to account for future uncertainty and giving benefit of operating leverage for FY16.

(Vivek Mashrani, CFA) #31

@dd1474: Do they still hold 57,000 shares of Clariant chemicals? Thanks.


(Dhiraj Dave) #32

@vivek_mashrani

As per Annual report of FY2015, they continue to hold Clariant Chemicals shares.


(Dhiraj Dave) #33

Find enclosed link to article about Dai-Ichi Karkaria published in Corporate India.
http://www.bseindia.com/corporates/ann.aspx?scrip=526821&dur=A&expandable=0strong text


(vishal singh) #34

good sets of number from dai ichi…http://www.bseindia.com/xml-data/corpfiling/AttachLive/ADA33AD7_2D28_451F_9B52_F4B561AD5E38_154300.pdf


(Mayur Agrawal) #35

But if you see carefully the results are not good for Y-o-Y case…however, for Q-o-Q looks good…


(vishal singh) #36

dude there was exceptional profit of 7.45 cr last year qtr.


(Bheeshma Sanghani) #37

On Mar’15 when its MCap was 126 cr it was 23x OCF. Cash+ Inv at 55 cr on a Mcap of 126 cr would have meant an EV of 71 ( neg debt) making it available at 13x ( 5.5Cr OCF/EV 71). However, with a great ROE, loads of liquid assets ( pointing to the quality of its assets), it would certainly have been an attractive buy.


(Nirav8) #38

Any update on Dahej capex in terms of environmental clearance ?


(Dhiraj Dave) #39

No news Nirav. Shall let you know in case get any update


(Nirav8) #40

Thanks Dhiraj.
Stock looks interesting now with Rs 290cr mkt cap (around Rs 50cr cash, zero debt). H1 FY16 PAT @ Rs 9.75cr (standalone). Last year JV PAT @ Rs 17.9cr (Dai Ichi share @ Rs 8.8cr). So basically net of cash trades at 8-9x.