GNFC - The big becoming bigger!


(Capsule91) #123

@Chid59… 250s , but didnt invest then as all the capital was in menghmani n that didnt mature yet n gnfc would be still cheap under 1000…
I entered at 426 to 450 on 18th dec…


(suhagpatel) #124

@Capsule91 Thanks for digging out all the information.

My concern is we are talking only about bull case here. For a measured approach on the GNFC story, we will have to find out things which can go wrong from here for the company and then evaluate accordingly.

  1. What is the possibility of Govt not recognizing contingency gain of Rs 247cr on the energy norm dispute? As its a dispute with govt we all know how things go there.
  2. The other obvious risk is chemical portfolio at its peak. Impact of prices crashing from here will have to be analyzed.

3 . Strange that Govt grant of 1000+ crores have gone unnoticed so far. Never heard any analyst talking on that or for that matter no question on that in last 2-3 concalls. Will check past concalls to validate this further.
4. Is FMCG play by Neem products already factored in by the Market? if yes, how ambitious are their targets and can they actually achieve it. Tried matching the store count on their site but could not. Trying to find Neem store in Pune from last two days without any success. The idea is to get a feel of their products and understand what kind of revenue company can earn from each store.

I know these are some random questions but we will have to start working in these directions as well to come up with a balanced approach.

Also, i would request forum members with finance/CA background to validate all these receivables of grant and energy dispute to understand the actual impact on balance sheet. Not to discredit the work done by @Capsule91 but to understand the actual impact.

Disc: Invested.

Regards,
Suhag


(Capsule91) #125

I have already asked the question in concall, that if this dispute still remains then what will happen, the management as usual said, we have brought down from 6.7 to 6.54 consumption , now all depends on the gov…

I can answer to your question, if this dispute continues, 2things will happen

1.we wont get 247cr contingency gain
2.we will continue to lose 10cr every quarter on the basis of this energy norm dispute…which btw we are still doing every quarter, so NO further downside from that…
ALSO NOTE , in 2009 the urea plant that was restructured can achieve 6.54 at the best using the best cpsu unit at disposal, further reduction cannot be done as told by management in q2 and q3 calls…
So i think that query is closed…

I have analysed tdi price crash and its effect in details previously… Also with good domestic capture volumes will not be hit if sadara comes into play…its better to analyse tdi effects after july , coz till july prices will be stable, reason explained in previous posts…
As per other chemicals, the chinese slowdown will keep the prices high as far as we know…rest even the management cant speculate… Still will attempt to do a analysis, thanks for the idea!!

No previous concalls have it… You can recheck and tell me if i missed it…
No one was paying attention to other income! Infact the other income was being dismissed to contain fertilizer subsidy! Thats why the grant got over looked… and deferred income in lia ilities with 3 figure also got overlooked coz all people was interested in borrowing section of liabilities…Yes, even Big analysts have tunnel vision!

I am not factoring in the neem play at all…
Next year if the gov changes, we can see all the neem stuff get cancelled due to some stupid reasons, so that prospect is bleak…
Recently i havr been a sufferer, in bls international, a huge punjab egov project whoch was getting very good footfall, started by the then bjp gov got suspended by now congress gov citing they are bankrupt and they cannot pay the operating concern bls international !!
So i am skeptical of what is to become of the neem project…

I hope i did throw some light, u really dont need ca guys in these matters, i think you are yourself good enough for it bro!


(suhagpatel) #126

Thanks for the encouragement. But i prefer to leave it to the qualified where i do not understand on my own. You have covered most of the details. I was just trying to play the devil here only for the sake of not getting carried away in the flood of incoming information. I think that is must when we are evaluating a company.

Coming back to FMCG. I think it has a potential to surprise market provided we get some info on how much acceptance the products are getting from the general public and what is the revenue model the company has for its stalls. Even though the stock price may not have factored it now, if we get the above info it will give some edge to us. This approach worked well for me when i talked to distributors of Everest Industries (you can check my post in that thread). I was able to get some good insights on the company and at least got the confidence that things are happening on ground as per the talk of management.

See if you have any stores around you to get some idea. I am trying here in Pune but no luck so far.

Regards,
Suhag


(Capsule91) #127

I have done a detailed reading on mdi when i was suspecting mdi expansion …

This post will describe the effect of mdi …
1.
Past Price trends when demand supply was at equilibrium
unnamedimages%20(1)images

So we will take 2080usd pmt as the equilibrium average for indian ports

Capacity planned?
No talk in the press as yet, but we do know 50,000mtpa plant was planned way back in 2007

Worldwide mdi capacity utilization is 90percent and above by Bayer, Basf, Dowdupoint,Covestro

So we have 45,000mtpa of utilizable capacity in mdi…
Annual topline generated=2080x45000x64(usd to 64rupee)
That is 600cr of topline that will come at the lowest price of mdi

Considering 30percent PAT margin, we will have 180cr PAT and Rs.11 eps annaually…


(Capsule91) #128

@suhagpatel i love to be criticised, please do that…alwayw welcome…

See thats exactly the point about neem products, the management is so damn unclear about their planns, infact it was asked in q3 concall but the management was so inparticular about it…
Wait i will show that…


This is eaxctly the kind of public answers they deliver… How will the company get expectant levels of valuations!!
Anyways…
About the chem prices, we never know what happens… It may turn more bullish!! But covestro dow everyone in their concalls mentioned a downturn in prices… And msi is turning down if you see my post above…


(Capsule91) #129

In formic acid segment something major happened and we missed it and it happened during Q3…

take a look at the following two links…

**

November 23, 2017 – BASF to increase price for Formic Acid with plus 250 EUR per metric tons. Increasing application scope of formic acid owing to high quality intermediate is driving the market demand and thereby causing manufacturer to increase their product price. This is affected in EMEA regions (Europe, Middle East and Africa).

**
ref…http://www.nbc-2.com/story/37036748/global-formic-acid-market-2017-industry-review-research-statistics-and-growth-to-2027

BASF is a Formic acid major in Europe… This price hike will continue to drive the formic acid prices and will keep them stable for coming time… Note the reason for the price hike…!

Formic-Acid-455x309_260653110917062932
@suhagpatel since you raised concerns


(Capsule91) #130

@suhagpatel since you raised concerns…
Since the first capex will be Acetic Acid
I did some timeline searching on acetic acid prices globally and in china…

Interestingly, the present prevailing acetic acid prices are around 480-500$ pmt…Past 5 year lowest being 255$ and highest being 800$… The present market price of acetic acid is the average and not at all a peak of price cycle…

I will share the source of this conclusion for your verification…
getasset%20(3)getasset%20(4)getasset%20(2)

getasset%20(1)14Global-Acetic-Acid-Marketgetasset

acetyls-chain-world-market-overview-9-638


(Capsule91) #131

TDI INTERNATIONAL UPDATE
More TDI price hikes and supply pressure

Now i am increasingly getting concerns for sales volume, yet, Gnfc states they provide compititive pricing to exporters…


(Capsule91) #132

Using dcf model for intrinsic value determination… And assuming the fy2017 cash flow to negate the commodity upcycle effect on cash , zerodebt and zerocash in the balance sheet and 10years cagr at 5% with 3% growth cagr after 10years…

The intrinsic value of the company stands at 1568.5 to 1917…which is 6.3 to 7.7 times book value

Impossible to get more modest assumptions…


(indirachitra) #133

Capsule91 great research I rarely have come across some retail investors doing this sort of research nowadays keep it up.
May be at sometimes it may feel like a confirmation bias but why not your conviction is based on good fundamental work.
I remember a quote PERFECTION IS ACHIEVED, NOT WHEN THERE IS NOTHING MORE TO ADD, BUT WHEN THERE IS NOTHING MORE LEFT TO GIVE.
you have given it all bravo
Apart from this the market always will be hesitant to give higher PE to a PSU thats all. Purely on the chemical business alone this should atleast have a base Market cap of 8000 and above and with an EBITDA of about nearly 1300 cr company available at the present Enterprise value in itself is a safety margin
Hope we can get to an EV of 13000 cr above all it has a gem of a person at the helm.

Since you are good tracker what is your view on HINDUSTAN ZINC LTD.

Good luck brother
Disclosure. Invested


(Capsule91) #134

@indirachitra i am humbled at your appreciation but i feel a lot of people do this research , i just post it in valuepicker so that i can share and also it serves as a note book to me…
I am sorry, i dont track HIND ZINC!

Besides being a PSU, the management has a lot to be blamed for this pathetic valuations…
Also gnfc has come to the eye only at an upcycle and the reasons for this recent upcycle being very temporary- BASF reactor cash, Hurricane wiping out US supplies, BASF faulty tdi production
and with a total of 5,60,000 MTPA tdi capacity coming online from April to July, i feel the market is better avoiding gnfc for now, and willl catch it after capex is announced and tdi crash if ever happens…

Hopefully, but beside being a cyclical this company has a lot of potential!
Even at its peak it dosnt even go near its intrinsic value, pays handsome dividends, has no threat on net worth , superb balance sheet as of now…

But Sir John Templeton was asked why a cyclical company Royal Dutch Petroleum is amongst his largest holding when many believe that oil prices are going to crash and he was asked “Dosent it bother you?”

**His reply was "Oh yes Ofcourse it bothers us, but there are a lot of other factors to see, it is selling for 4 times its this year’s earnings,and we estimate that in the long run it will earn more and its selling for less than half what it can liquidate for and only about 3 times its present annual cash flow and pays a good dividend , so for many many reasons it looks like best bargain in the energy industry… **
It is very widely expected that there will be a decrease in price of oil and the low point in share prices is when most investors are expecting bad news , not after the bad news come out…Yes it is possible that the prices will go down but we are long range investors our average holding period is six years, so in the long run it looks much more"

I dont want to bias with what happened to Royal Dutch, But Gnfc might not be trading at 4 pe multiple but its certainly cheap…
I derive huge inspiration from these words of his and in will continue to be in gnfc even in the down cycle and add more…
Maybe the herd mentality has changed now, may be the operator game is different, so maybe the broader market in india different, but i have seen betting against the old wisdom to try something smart has always made a fool out of me…
I will rather follow Sir John words with minor modification in holding pattern…

here is the full interview from 1985…
https://youtu.be/LFWj0ps9DqA watch from 4.07sec to 5.08sec roughly for the part i quoted…


(Capsule91) #135

This is again a worse case scene dissection and i think this will open eyes of many amatures like myself…
In deed we have a lot of buffer in the EBIT if chem prices come down and in such a case of lower margines the EBIT can be colored and we might not see much of an optical downside…

BUT not to FREE CASH FLOW, the spectacular cash flow what we are seeing and raving about now at the peak of the business cycle can turn into the worst nightmare, because FCF is naked entity , cannot be buffered and is always better judge than EBIT…

Here is a demonstration…

But panic should not set it,
1.let the tdi prices crash…
2.let other chem prices also crash
3.DBT rollout may increase receivables but that is a sight to be seen what is the receivables cycle that sets in, hopefully will not be more than a year!!
4.Since acetic acid is a brownfield project it may soon come online within 2019 itself…
5.we can get a little buffer from ecophos…
6.The holy grail of GNFC is MDI plant, all depends on the management , i am hopeful they will try to start the mdi plant as soon possible as mdi cycle though on a down trend is still at its peak…But still md said mdi plan with a “maybe” infront! That messes up everything…hope the management is more clear next time…
7.Methanol in petrol, that story is not for gnfc at present although the management said it is possible to expand with coal based methanol and talk is going on about that… but this is india, we can anytime have a political change and so the policies…But since similar plans with ethanol is also going on in china and other parts of the world besides electric vehicles, we may be hopeful of this going forward and we can bet more cash flows from that…

In short, we will have a intense 2019 with repect to gnfc…
1.TDI prices
2.Ecophos
3.Jubilant life acetic anhydride plant start up
4.Acetic acid brown field
5.Mdi start up
6.Neem products

If all goes well, hopefully, we will have a great 2020 with handsome rewards…
But there is every chance of a depression in 2019 before capex starts contributing…

2018 will give signals post q2 , whoever reads them well, wins the game…!


(Capsule91) #136

few tdi updates…

n3

Note… How much raw material shortage these plants are facing both mdi and in tdi…I think these problems are bound to recur, although they are running at too much capacity but still mdi is not facing that much of a supply crunch… and given that mdi and tdi both have similar raw material needs and generally both are produced together in these plants, these shortages are bound to be constant even with sadara starting up, a quick check on the history, such outages have crippled this polyurethane industry for a long long time …
So it will be interesting , i feel even with tdi prices softening to 4000usd pt post july or even later…gnfc will still be charging 4300usd plus from the domestic customers and they have taken the absolute right strategy to increase sales domestically, which is also sustainable in the long run…
Except, dow had said in the last concall they are also going to target india from sadara, hopefully antidumping duty will be slapped, but the middle east relation of india are too strong and they may not do it also… But if no antidumping duty is slapped, this will make menace to domestic prices as well…Although there is a freight component to procuring tdi from sadara, i have heard shipping charges are not that much also…


(Capsule91) #137

more price hikes…


(Capsule91) #138

This is an old report from october…
Posting now to show the price difference gnfc charge between exports and imports…!
Hope gnfc captures more domestic markets as the md has said…
But i am worried about no antidumping on middle east!


(Capsule91) #139

1500usd was the level from which tdi spiked like crazy!
tty

Imagine the cash flow dent we may get if it reverts back to 1500usd!


(Capsule91) #140

Sheela foam has tied up with sadara for tdi…
Acc to latest concall, the management of the foam company said they expect tdi prices are due to come down from Q1…
So no antidumping on sadara and companies have no issue with freight cost procuring from sadara, so many indian companies will bee line to sadara and they will give very compititive prices in the beginning…
so domestic disruption is bound to happen also


(suhagpatel) #141

Sheela has been expecting lower TDI prices for a long time now but it has not happened. Prices have stayed at a higher level for most of the last year and they keep on increasing.

Sharing some of the details of Sheela foam concall.

Gaurav Jogani: Okay and as you said that the Sadara facility has been starting production and I think globally also there were few facilities in Germany and other places that were closed due to force majeure and I think they are expected to come on line by Q1 of FY2019. So is that expected to break down the prices down materially for TDI going ahead?

Dhruv C. Mathur: We have been expecting that for long time. Unfortunately even in this quarter, there was some global problem and even in India the biggest plant of GNFC Dahej had gas leakage because of this, there was disruption in supply and that also caused further increase in the price, so our expectations are there like that from Q1 the prices may go down when the capacities are functional.

Complete concall trascript can be accessed here.

In fact, GNFC charged them the highest price at Rs. 335/Kg in Feb’18. This is even higher than Rs 325/kg (this was the price after GNFC announced 8% price hike in TDI around mid January before the Dahej plant issue).

You can check GNFC TDI prices to Sheela foam here.

Having said that, if supply increases it will be difficult for the prices to sustain at such high levels.

Even though TDI has been a biggest contributor to GNFC’s bread and butter, company is better off reducing dependency on that. Capex plan becomes very important now to mitigate the risk of falling chemical prices in future.

Regards,
Suhag


(Capsule91) #142

great info on tdi price…

I am more concerned about no antidumping on sadara tdi… that can create a blackhole…

About capex, i dont think they can bring any major capex online before 2020…
Even though acetic acid is brownfield and should not take much time, but that will bw inadequate to buffer the margin loss if TDI crashes…

Total of 5,60,000 mtpa capacity is coming online in q1 period… All we can pray is plant outages now…

Yes, but we cannot take the trend they are wrong as this years price hike was triggered by hurricane that led to outages in US in the background of BASF germany’s plant lost the reactor and has shut down , all this time they were managing by a back up reactor, that is scheduled to be fixed by april…
So these are unexpected happenings…
But gnfc cannot lose domestic demand to sadara and sadara is targetting india, as i mentioned in my earlier posts from Q3 DOWDUPOINT concall… infact sadara is targetting the whole of southeast asia and africa and india which is gnfc’s niche play, plus middle east will already be lost…