Dharamsi Morarji Chemicals (DMCC)

(Rohit Balakrishnan) #61

Q1 FY18 results are out, as expected the numbers are weak given the planned plant shutdown. As per the Fy17 press release the shut down was supposed to be for 30 days.

However one very interesting thing in the result is the gross margins. This quarter the gross margins are at 59% which have been the highest in last so many quarters.

I have been tracking the margins (Esp Gross margins) for many chemical co’s such as Aarti, Atul, etc this quarter the margins were bad for many of them. DMCC’s gross margin however this quarter bucks that trend. Would be interesting to understand what is the reason. Given the poor headline numbers, the stock may tank tomorrow,

Discl : Invested

(khushi) #62

Girish Gulathi sold off his holdings before 30th Sept. His name missing from September Qtr share holding.

(Rohit Balakrishnan) #63

Q4 results were very good, gross margins have revived to 40% + and EBITDA margins are 18%. The full year numbers look subdued owing to the shut-down taken in Q1. However I feel the gross margin improvement is positive given Borax Morarji’s gross margins are lower.

Though one needs to understand the capex part. There is some addition to the gross block, but the overall quantum seems small. Thus need more clarity. Strong reduction on expenses also especially other expenses and some debt has been repaid too.

Discl: Invested

SEBI Registered Investment Adviser

(praveen_sham) #64

Hi Rohit,
Do you have an idea when Borax morarji division will become profitable? Also, can borax morarji division be as profitable as indoborax? ( Management tries to avoid answering this question).
Again, will this year also plant will go under shutdown ?

(Rohit Balakrishnan) #65

Dont think they will have a shutdown this year. Regarding Borax’s margins being similar to Indo-Borax- I don’t think they skirted the issue, they have answered it clearly on their con call.

I don’t know when Indo Borax will be profitable, hopefully soon :slight_smile:

(shikhar mundra) #66

great results

Revenue - 60.38 cr vs 39.47 cr( yoy)
EBITDA - around 19 cr.
Margins - more than 30 %
PAT - 13.51 cr this quarter vs 12.25 cr last whole year!

Need to understand this sudden jump in Operating margins. OPM was 18 % march quarter.

Disc - Invested

(shikhar mundra) #67

the company had a plant shutdown last june quarter(june 17) . so the figures are not comparable yoy . but with respect to march quarter we still have a 14 percent jump in margins. 7 % is with respect to the RM cost , the rest seem to be due to bit of an operating leverage.

(Rohit Balakrishnan) #68

Yes the results have been quite good. It seems some benefit from the Borax merger are coming through.

(Ayush Mittal) #69

Can’t say if its due to operating leverage or the price increase happening in the chemical sector?

Perhaps only if we have quantitative details, we can deduce the above

(Rohit Balakrishnan) #70

Company is doing a call- we can have our questions answered then.


(Rudra Chowdhury) #71

Updates from the Q1FY19 Conf Call :

  • The management updated that this qaurter had some one offs - as sulfuric acid prices saw an upsurge due to Sterlite plant shutdown (https://www.business-standard.com/article/companies/vedanta-s-sterlite-copper-shutdown-hits-chemicals-units-in-tamil-nadu-118053000989_1.html)

  • Moreover, in terms of the business, things are getting back on track from the merger with Borax Morarji in the lines expected. They are looking for financial closure of the sulfuric acid expansion plant (1:1 debt:internal accrual) of around 40 Cr which would serve as key RM for further downstream products. Additional 10 Cr capex is required for the multipurpose plant exapansion.

  • Currently 50% of the book is Specialty and they are seeing stable pricing, most of the Specialty book is on contract/long term relationship basis with a RM price pass through (probably with a lag)

  • Commodity book did very good this qtr, might not be as good in future, as selling prices have now come down, and higher RM price might impact negatively also.

  • Boron, they are just breaking even and plan to do further downstream products with higher margin in the future.

As discussed in this ICRA note from Jan, the earlier timelines won’t hold, as financial closure of the debt part is yet to be concluded. They would need 15 months from the date of financial closure for implementation.

Expansion of the facility in Dahej to provide backward integration - The company is in the
process of setting up a sulphuric acid plant in Dahej and a multi-purpose plant for the manufacturing
of boron chemicals and other chemicals in Dahej and Roha at a total capital expenditure of Rs. 50.00
crore. The project is supposed to be funded by a bank loan of Rs. 30.00 crore and company’s own
contribution of Rs. 20.00 crore. The expansion will be a backward integration process for the
company as sulphuric acid is the major raw material component. The multi-purpose unit is expected
to commence operations in Q4 FY2019 while the sulphuric acid plant will start operations from Q1 FY2020.

The environment clearance process is tedious and would create strong entry barrier for companies working with such hazardous materials.

The updated environment clearance document from Nov '17 throws more light on the products. This 113 page document gives the detailed product chemistry, raw materials and other details.

Key products:

Key Raw Materials:

(Rohit Balakrishnan) #72

Good summary @Prdnt_investor I feel even if we exclude the one off from Sulphuric Acid, it is still a very healthy increase in operating results. Couple of points that I jotted down from the call are below

  • They have been able to reduce their interest cost. This was one of the reasons that the management had given at the time of merger

  • Overall boron market is 200 Crores at the moment. Of this DMCC is doing ~50 Crores at the moment. The capacity that DMCC has can take the topline to ~ 75-100 Crores. Focus incrementally here is specialty similar to the focus in sulphur chemistry.

  • Have launched sulphones and thyro-compounds as new products and have started contributing to top-line

  • Next planned shutdown is in Q3

The transcript of the call is available on BSE’s website. What I particularly liked about the call was that the management’s conservative approach.

Discl: Invested.

(Rohit Balakrishnan) #73

I attended the AGM of DMCC couple of days back in Mumbai. Below are my notes of the same. These are my notes and thus there could be mistakes in my understanding and noting things down.
Overall, I think there is no change in the story and the company continues to execute on its strategy of focusing on its strengths and niche area with capex coming online soon. Also attaching the presentation that was shared by Bimal Goculdas

  • Company is planning to do a capex of ~100 Crores over the next 2-3 years. This is including the 40 crores planned capex for sulphuric acid. On this capex of 100 Crores, a minimum of 2x Asset turns is expected.

  • The company has an offer from a bank/FI for its capex. It is also looking at 2 more FI’s offers. Then it will choose the best one.

  • Sulphones, the volumes are consistently increasing. However still small on an overall basis

  • Borax turnaround is continuing and the MD mentioned that they are very confident of introducing new products which are more profitable and are similar in terms specialty products like in sulphur chemistry

  • In the last couple of years, the company was putting up MFPs which was small capacities and if they could see more demand/get customers then they will put dedicated capacities. That strategy is playing out with dedicated capacities coming for sulphones and Benzene Sulphonyl Chloride which is one of its largest products. The capacity will increase by 40-50%

  • The company mainly exports to US, Europe with each contributing about a third to the exports

  • They are continuing the run-rate that they had in Q1 in terms of sales.

Overall story seems in tact. The management seemed very confident on the opportunities

Fun fact/trivia: Company will be celebrating 100 years in 2019 and co-incidentally 26th September was the first day of its 100th year :slight_smile:

Disc: Invested.

(bala) #74

Thanks Rohit, I have also attended the AGM, here are some of the points (may be repetitive from your notes)

  1. Total area at Dahej is about 25 acres valued at 80 cr in books which gives us ample space for expansion

  2. We will set up Sulphuric acid plant partly to meet the captive requirements of power, down stream and ensure availability of suphonateing agents which are the key raw materials for existing and new speciality checimcals

  3. Long term objective is to create an integraed site with dedicated plants for high volume products coupled with multipurpose plants for low volume high value spiciality chemicals. same concept for both sites

4.Total turnover in first 5 months of FY19 is 97.9 cr (Comm 53,13 cr, spec 44.77 cr)

  1. We entered today into the 100th year of your company

  2. Notwithstanding the planned shutdown in Q3, this year we expect to imporove our performance over last year

  3. There are some comiptitors like Aarti, Atul in sulphonates but within sulphonates there many variants and we are targetting high margin products. we are not going after 50000 - 1 lakh rs/ton products

  4. for sulphuric acid capex we got one option and we are waiting for couple more options before we do financial closure. 40 cr capex

  5. Benzene sulphonyl chloride (one of top 3 products) we have market share of 40% we expanded our capacity from 4k to 6k tons/year. for other 2 products we have enough capacity

  6. capex for next 3 years would be 50-100 cr (including sulphuric acid capex)

  7. Boron side we can take the sales to 70 cr from existing 50 cr in 2-3 years

  8. thio compounds - more of a high margin product. not much volumes

  9. with supluric acid plants in both sites, we can stagger the planned shutdowns , thus reducing the impact. normally we stock up the inventories before the planned shudown. plan is for 30 days , but it can vary depending on issues after lighting up. apart from planned shutdowns we don’t lose any production due to major breakdowns

  10. all technology developed in house. didnt buy any technology

  11. Boron side – mostly commodity but we have good brands, we will do speciality chemicals in boron side too (boric acid)

  12. end user markets - textile processing, polymers, emulsions, dyes and pigments, fire retardants, electroplasting, pharma intermediates,water treatmentagrochemicas, fertilizers. but we are not dependant on any one end user market

  13. future expansion in dahej -
    sulpuric acid plant with oleums, sulpher trioxide, chlorosulphonic acid.
    expansion of benzene .sulphonyle chloride. new products in mpp will be trinethyle borate, trinethyeglycolmonomethyleether borate, thophenol.
    sulphones and derivatives for polymer and paper ind

  14. sulphuric acid prices have come down since q1 and sulpher prices have gone up

  15. with new capex of 40 cr, our suphuric acid production will double , we are good for nextx 3 years. 25 cr loan. 15 months for construction. not much time to rampup

  16. we want to grow both commodity and speciality chemicals. so mix may not change much over next 3 years

  17. Europe subsidiary mainly for registration of chemicals in europe.

  18. Land – ratnagiri r&d for boron 2.5 cr as per BS,

  19. challenges – implement projects quickly

My Observations

  1. There are lot of old guys in the board. Its expected as its 100 year old company.

  2. Bimal is on top of the business, he is the one who answered all the questions. He made a presentation on the company, may upload it to BSE

  3. Management doesn’t want to make any projections or forward looking statements. After the AGM , Bimal answered some questions off the dais.

  4. In my view they are trying to transition from sulpher chemistry to speciality chemicals. They are doing lot of things like setting up MPP and putting up new sulphuric acid plant, introducing new products in sulphones, doing r&d in speciality chemicals etc. This may take time as management doesnt look very aggressive (which is good for share holders), but they want to do things at their own pace.

  5. In my view execution is the key going forward, we need to watch each event.

Disc : tracking qty bought for AGM purpose. some of the chemical names mentioned above may have typos

(SinghiGirish) #75

Presentation attached : https://beta.bseindia.com/xml-data/corpfiling/AttachLive/1bb1fc0b-c173-4218-bbbc-9a066b955a29.pdf

(Kanwal Sudan) #76

I attended the AGM this year. An old gentleman spoke at the meeting (and I’m sorry I wasn’t paying attention when he spoke), but a book was circulating in the first few rows soon after called ‘A Practical Guide to the Manufacture of Sulfuric Acid, Oleums, and Sulfonating Agents’ available here.

I remember now that the old gentleman went back to the dias to greet Mr. Bimal Goculdas and asked him to use the new technology of cold process to make sulphuric acid, which I now find has been patented by Mr. Navin Ashar (also author of the aforementioned book). So I strongly believe that the old man was Mr. Ashar himself. Mr. Ashar had written some other books on sulphur chemistry also in the last 5 years

A search on his paper on cold process available here shows his bio -

“Intentional Wisdom” has been the guiding principle for over 150
years at MIT, Cambridge, USA. The author completed his Postgraduation
in Chemical Engineering at MIT in 1958, taking MIT’s
guiding principle to heart. On his return to India in 1961, after
serving as a faculty member at MIT, joined M/s. Dharamsi Morarji
Chemical Company Ltd. (DMCC).
DMCC produced phosphatic fertilisers requiring Sulphuric Acid.
From a modest beginning of an SCSA 50 TPD Sulphuric Acid plant,
over the period of 27 years, DMCC designed and operated a DCDA
800 TPD plant, which was a considerable achievement. On retirement
from DMCC in 1987, the author founded an innovative consultancy
company namely Navdeep Enviro and Technical Services Pvt. Ltd.
(NEAT) as Managing Director. Over the past 30 years, NEAT has
undertaken more than 100 projects in the manufacture of Sulphuric
Acid and Sulphonating agents, which have been cost effective and
environment friendly.

The same paper was presented internationally in Aug 2018 at the International Conference on Petroleum Engineering in Dubai.

So cool to know that there are such wise old-hats associated with DMCC who are still working on bringing efficiency to sulphur chemistry. :slight_smile:

Disc: invested, 5% of portfolio

(phreak) #77

Interesting trends in Sulphuric Acid. It looks like the closure of Sterlite Copper plant has disrupted the markets big time.

Our exports have dropped down about 70% by volume in recent months and by realisation, our exports have jumped up about 300% because the domestic demand is so high. This means we are trying to import more, which shows up in the import numbers and this is also disrupting markets abroad, going by import prices as well going up.

Is this sustainable? Seems to be the case as the TNPCB and the the TN govt. isn’t relenting and the centre as well has backtracked from its initial support.

Disc: Have a trading position in Tanfac

(cool_gaurav) #78

‘Small and mid-sized fertiliser mfg units hit by Sterlite closure’ - Times of India - http://toi.in/bp9VzZ/a31gj

Sulphuric Acid is in huge demand due to sterlite closure. Companies like Tanfac, Rama phosphate,Sree rayalseem hypo etc should benefit.

(Rohit Balakrishnan) #79

Good results from DMCC. This quarter saw the company a shutdown for 30 days. The company it seems is seeing good traction in its new products, mainly Sulfones.

Discl : Invested