Dynemic Products is a manufacturer and exporter of complete range of Food Colors, Lake Colors, Blended Colors, FD&C Colors & Dye Intermediates. Listed peer Vidhi Dyestuff is valued quiet highly whereas this company is valued much lower (PE of 16 to 6). Products of this company are better than Vidhi. Other parameters-wise also Dynemic is better.
Couple of issues. Management last year cancelled split and this year skipped dividend.
I believe it should not trade at such a discount. Anyone has any dope on this ?
The company exports 80% of it’s products. Products are good and completely certified and acceptable worldwide. Company policy is not to disclose name of clients (I believe, even Vidhi does not disclose its clients). Dahej land is acquired for expansion. Excavation is going on. Government approvals are awaited, which might take some time (somewhere in 2016). Company has to follow strict pollution norms at its Ankleshwar facilities. Company has to incur additional cost for that, which does bring down the margins vis-a-vis competitors who might not be facing such strict norms. Vidhi’s factory in Raigad, Maharashtra where norms not as strict as Gujarat.
Company follows strict environment norms.
I think it is compelling value. Enter with only 2 year view.
Yes Jiten,
It is a good buy considering several factors.
Cash flow from operating activity is more than doubled in the last financial year.
Capacity expansion at Dahej plant going to improve the results further on sales and EPS.
Company is having good dividend history. Ethical management, surely they will be rewarded in long term.
Management is paying 1.5rs dividend from past 8 years, even when the share price is quoting at 12 rs. This year for Dahej plant expansion they stopped paying dividend.
More recently lot of re-rating is happend in Vidhi Dyestuff commanding a near 25PE versus Dynemic 7 PE. Moreover Vidhi face value 1rs vs Dynemic 10rs. There is a huge valuation gap between the two peers.
Similarly Operating margins are higher in Dynemic than Vidhi.
All in all yes it is a value buy from my side…
Discloser: Bought today @61 after 3 days of research…
Good to finally see a reply on this company. Yes, I have tried to dig deep into this. 2 flags were raised to me.
Promoter holding decreased last year from 42% to 38%.
Company didn’t pay dividend last year.
I think answer to 2nd is clear that company wants to use internal accruals for Dahej expansion and wants to take as lesser debt as possible. I found it quiet satisfactory.
For the 1st one, I digged through the shareholding pattern for each quarter and found that during Oct-Dec 14 quarter, stake reduced from 42% to 38%. What I saw was that D N Patel shareholding of 4% was declassified from promoter to non-promoter. That explains the 4% difference. Mr D.N. Patel’s shareholding is intact even now (he has sold very small amount). So in a way promoter shareholding has not reduced.
Stock has moved sharply to 65 levels and is above 200 dma.
Company declared good set of results.
Domestic sales growth by 25%, higher tax provision for current FY.
Operating margins are steady at more than 12%.
Company can easily report eps of 10rs for current year.
I am hearing that China has shut down a lot of chemical companies to clamp down on pollution. Any views on Dynemic at 48?
Also looks like the promoter picked up a small quantity of 2000 shares today from open market. Meaningless but still something.
**The only questions are whether the capex is on track and if the company will manage to increase EPS above 9 in FY16? and will cash flows be positive?
In All the parameters it is either buy or hold but strictly not sell at all. Promoters are very ethic and there is huge valuation gap exists and recent rupee depreciation should help them considering exports based company.
How does this company compare with Vidhi Dyestuffs? From a quick glance - they’re both in similar lines, Vidhi seems to be priced higher, however Dynemic’s financials seem stronger (relatively). Any reason for this mismatch? IF we had to pick one which would it be?
Read recently that Nikhil Vora picked up Vidhi via an open market transaction as well.
Vipul Dyechem is another direct competitor although smaller and with much lesser OPM.
It seems to be a very compettive industry .
I couldn’t find the split of revenues between products (at least by category likes colors vs. dyes) Larger players like Pidilite have a dye business (6500 cr sales from annual report).
I have one question related to chemical industry. How these small indian companies are able to export their colors or dyes to other countries out side india, especially to european countries. How do they compete with large foreign players. Is it because of more stricter norms in manufacturing of chemical outside india? Could not reach a conclusion. Do they have pricing power as compared to foreign companies?
@anup47, Because of strict pollution norms in Europe and USA …industry moved from Western countries to Asian countries such as India, China etc…
@Prateek, agreed with your point . but operating margins of dynemic is always better than vidhi.
When vidhi is trading @20 times where as dynemic is trading @5 times., clearly valuation gap exists in later one.
Disclosure: Invested in both as a tracking position.
In Vidhi, capacity has been added. So sales growth can be there. In Dynemic, capacity will be added in 2016. Hence, growth will come later. Difference in valuation is quiet a bit, which makes Dymenic an attractive bet. should be bought only if one has a min 2 year view.
Recently i had spoken with couple of issues from management and here is the update
Current year there is inventory buildup 6.9 crores in 2015 why are you looking for setting up 3rd plant
Reply: The stock is mainly of Dye Intermediates finished goods due to slow market of Textile dyes. Please note that if market is slow right now it will not remain same always and we cannot stop from expansion and growth phase. Please note that Synthetic colors are stable less expensive than natural colors and much in demand so right now there is no threat to the Company.
Company skipped dividend because it plans to complete unit3 phase1 expansion in the current FY.
I calculated the Inventory Turnover ratio and it is coming > 2 indicating that company is able to generate 2rs sales for every one rupee of inventory. Management is also very good and a small debt on books with mouth watering valuation.
There is a good demand for synthetic colors from nestle,pedigree etc…
as my knowledge is limited, currently only vidhi and dynemic are manufacturing synthetic food colors under US approval certifications.
Source: Previous 4 years annual report.
Disclosure: Bought today @ 40 levels and increased my holding, Hoding vidhi as well from 17 levels.
Yesterday vidhi started commercial production from another unit as disclosed in BSE announcement.
Took a cursory look at this company on screener. If one observes the cash flows over last 10 years,
It has generated CFO of about Rs. 31.7 Cr. where as its capex is about Rs. 45.9 Cr.
Also, borrowings have increased over the years.
CFO over 10 years (Rs. 31 Cr) < Net Profit over 10 years (Rs. 41 Cr). Shows that lot of funds have been stuck in working capital.
Therefore, it seems to be a cash guzzling business. I am very skeptical about such businesses, which always require outside funds (debt/equity) to fund growth, which eventually does not convert into cash.
Let me know if I am missing something.
@jigar_punamiya ,
Since they are in manufacturing business, yes it is capital intensive.
Your assumption is true and company had spent 9cr in acquiring land from GIDC and awaiting govt approval for the same.
Good points. I am also positive on the stock from a MT point of view.
Expansion may happen in current FY or may get pushed into start of next FY
depending on approvals to be received from Guj state govt. Pollution norms
are very strict in Gujarat which cushions it from any compliance shocks. At
the same time margins are bound to be lower than Vidhi who doesn’t have to
follow as much stricter pollution norms. At 40, I see it as mouth watering
levels and have added today too. Holding a decent position as of now and
willing to add more on all falls.
