Yes, we have to keep an eye on raw material cost going forward.
I had looked at the crude oil prices vs raw material cost as a % of sales and see there is visible impact of crude price increase/decrease in RM cost though it’s not directly proportional to crude prices.
RM cost as % of sales. As you can see RM cost came down from 78% in 2013 to 69% in 2017 while crude came down from 100$ to 50$. In 2016 it came down to around 30$ but the RM cost is around 68%.
Here is what management has to say about it: (as per them it shouldn’t be much impact as their product is manufactured from 4th or 5th derivative of crude).
With that said I will definitely look at the raw material cost for Q3, Q4 & overall FY18.
Another interesting thing, last 10 quarters expenses as % of total sales around 86 - 88%. Operational excellence?
Here is what management has to say about it(though answers is not satisfactory). I am still trying to understand how these limits work.
They have done capex of 22 crs. (15 - pond liner & 7 - clean room facility) and not planning to do any other capex for next 2-3 years apart from maintenance capex of 4crs.
Most of the data I have taken from management commentary and have not done outside research. Will continue to look at management promises and what they have achieved and probably come to conclusion whether whatever they are saying is correct or not.
Any other views are most welcome.
Disclosure: Emmbi is largest holding in my portfolio. Have started investing only couple of years back and might not looked at all parameters while investing. It will be very much helpful if others give their views.