Mangalam Organics Ltd. - A promising Pine chemistry story


(Rajeev Jawahar) #1

The Co. is a pioneer in the field of Pine chemistry. It is a chemicals manufacturer of Terpenes & Synthetic resins. Contrary to popular perception, these products are “natural”, derived from the Pine tree. They are not linked to crude & so are unaffected by its volatility.

Camphor is the primary product of the Co. It is a naturally derived product that burns completely, leaving no residue. It is widely used for religious purposes in the domestic market. It is also used for Hygiene & Medical purposes. Its potential is huge, if one considers the fact that while in India more than 90% of camphor is used for religious purposes, in China of the total camphor used, more than 90% is utilized for hygiene / medical purposes!

Camphor presents a large retail opportunity to the Co. to forward integrate & diversify into an FMCG player. It has come out with its own brands:

“Mangalam” – camphor tablets for religious purposes.

“Campure” – home care products like air purifiers & camphor sticks / cones

“Cam +” – health care products like pain relief spray, balm, nasal inhaler etc.

The Co. is aggressively marketing these products through various retail channels including e-commerce. I have bought these products from Amazon & personally used them! Here are links to the products at Amazon.

The Co. website also throws valuable insights.

http://www.mangalamorganics.com/

The Co., recently entered into a strategic alliance with a French Co. M/s. Les Derives Resinques & Terpeneques (DRT), wherein the Co.’s products will be manufactured under DRT’s technical guidance & DRT would use its global network to market them on a world wide basis. This arrangement can potentially catapult the Co. into a totally different league in a relatively short period of time. While the Co. is in the process of getting product approvals in the export market, going by the growth in sales with improved profitability seen in Q1 of the current year, it’s quite possible that the Co. may have started domestic supplies to DRT. (Link to DRT’s website https://www.drt.fr/en.html )

Mangalam Organics has done sales & PAT of 88Crs & 12Crs respectively in Q1 of the current year. The quarterly results chart is given below. The feedback from a few shareholders who attended the AGM held recently is that these margins are sustainable going forward. In fact , historically Q1 has not been a strong qtr. The Co. could end up doing Sales & PAT of about 350Crs & 42Crs for the current year 2018-19. The current market cap of the Co. is about 308 Crs. with Debts of about 40 crs. The Co. is still sitting on spare capacity & any future capex is still about 24 months away.

Concerns: The game changer for the Co. is the tie-up with DRT, which is still at an early stage. That is one concern, though the arrangement is a win-win for both as DRT also benefits by having a far cheaper manufacturing base in India. Another concern is that the diversification into value added products is still in its infancy & could go awry.

(in Cr.) Jun-18 Mar-18 Dec-17 Sep-17 Jun-17 FY 17-18
Income Statement
Revenue 87.71 56.42 78.36 71.15 38.30 244.24
Other Income 0.27 0.49 0.26 0.28 0.22 1.25
Total Income 87.98 56.91 78.62 71.43 38.53 245.48
Expenditure -71.53 -49.41 -71.85 -65.37 -34.97 -221.59
Interest -0.54 -0.30 -0.40 -0.81 -1.04 -2.56
PBDT 16.45 7.50 6.77 6.06 3.56 23.89
Depreciation -1.37 -1.83 -1.74 -0.94 -1.00 -5.50
PBT 15.07 5.68 5.03 5.12 2.56 18.39
Tax -3.00 -2.72 -1.21 -3.93
Net Profit 12.07 2.96 3.82 5.12 2.56 14.46
Equity 8.56 9.05 9.05 9.05 9.05 9.05
EPS 14.10 3.13 4.21 5.66 2.83 15.82
CEPS 15.70 5.28 6.14 6.69 3.93 22.05
OPM % 18.75 13.30 8.64 8.52 9.29 9.78
NPM % 13.76 5.24 4.87 7.20 6.69 5.92

Disc: Invested.


(bwjoshi) #2

Some doubts from beginner …

  1. Company profit is gone from single digit to double digit in last one year ,
  2. company not paying tax and its negative for few quarter,

(bwjoshi) #3

Forum has already topics for this company ,
one of the topic is locked… please check


(Hitesh Patel) #4

@RajeevJ

How does this company stack up against another camphor player kanchi karpooram? There too the q1 fy19 results reflect a similar trend.


(harshb232) #5

Hi
I had put an post on this company. But as I was an novice could not built a comprehensive story.I had tried researching this sector and had called the Company Secretary of Kanchi Karpooram around 2 months back but at that time they didnt have a company secretary. Also I came across this company as a result of buyback announcement in which promoters were not participating , as a result I opened there financial results and found the numbers to be consistently improving for both Kanchi Karpooram and Mangalam Organics.
Also as far as tax payment for Mangalam organics is concerned, they had a fire in there factory in 2015 and had run in to the loss in thaat year. I believe they are using that loss against the current profit and as such do not have tax liability.


(sagararya) #6

any idea if the the growth being witnessed by camphor companies is volume growth or mostly value due to the China factor?


(harshb232) #7

I think its mostly due to china factor. I couldnt find a link where I can see the trend of camphoe prices but going by the articles in various newspaper thay have nearly doubled in last 1 year. Camphor slab price were Rs 950, Rs 750 and Rs 520 in June 2018, March 2018 and July 2017 respectively.Following are the links

  1. https://www.business-standard.com/article/pti-stories/menthol-prices-rise-on-buying-support-from-pharma-units-118060100642_1.html
  2. https://timesofindia.indiatimes.com/business/india-business/chemical-prices-rule-steady-in-thin-trade/articleshow/59576697.cms
  3. https://www.indiatoday.in/pti-feed/story/menthol-rises-on-buying-support-1184919-2018-03-08

(Rajeev Jawahar) #8

@hitesh2710
I had looked at Kanchi as well. Kanchi’s Q1 results were indeed very good, but I was unable to find a trigger like DRT, so opted to add more of Mangalam. In fact, when Mangalam came out with the buyback earlier this year with the promoters not participating, that too acted as a major trigger that the story was unfolding well. The fact that the Co. was frantically chasing the shareholders to participate in the buyback further reinforced my thinking of not tendering my shares!


(SOHAN) #9

Nice research sir.i am from Hyderabad and we use camphor for Pooja.i use to purchase small packet of camphor for 35rupees now from two months the grocery shop man has charging 70 rupees for same packet with old mrp of 35 is scratch with sketch pen.why has prices doubled?and does they can sustained in future?or it is cyclical affect


(Saumil) #10
  1. What is the capacity? Crisil report says 16000 tonnes p.a.
    However, company said that their capacity is 5000 tonnes p.a.

  2. Got the confirmation with the company that the current Camphor prices are 850-900 and stable for now. Realizations were about Rs 650 in Q1FY19.

  3. They said there is an increase in demand because of a shift in the consumption pattern. People have started using camphor not just for puja but also for home use (hygiene/mosquito repellent, fragrance etc)

However got no response for:

  1. Production and capacity utilizations?

  2. Conversion ratios from Gum turpentine/alpha pinene to camphor.


(Rajeev Jawahar) #11

Information pertaining to Camphor pricing is indeed very useful. It means that Q2 numbers can potentially be even better than Q1. If that is indeed the case, then the stock could get re-rated as one of the concerns of investors was whether Q1 results were a one off.

The demand growth for Camphor is clearly coming from the pharmaceutical industry. This trend has only just begun & has a long runway ahead. No wonder the promoters of both Mangalam & Kanchi have increased their stake in their respective companies in the last one year. Kanchi through a preferential issue & Mangalam through the buyback.


(Lokesh) #12

With bigbazaar & D-mart selling their own brands of camphor (Cleanmate - by Future Retail), how will it effect the retail sales of Mangalam? It would be helpful if we have any information on their sales channels.


(Prasadkumaresan) #13

Bro they can’t comment on the production of camphor from raw material coz depending on the purity of the product the produce varies. And raw materials from different countries have different con of aloha pinene


(Koka Vikram) #14

Don’t know much on this business. However, did some basic check and here are my observations.

  1. The stock price has steadily moved from Rs. 20 levels in 2016 to Rs. 70 s in 2017 to about 400 now

  2. The company looks to be having a great year now due to import issues or a temporary growth in realization. However, did not find a proof that the growth that it witnessed in the last few quarters will be sustainable.

  3. The balance sheet of the company seems to be weak (Just about 30 cr in fixed assets and ) in comparison to the market capitalization of about 400 cr.

  4. I am yet to deep dive into the other growth factors stated. However, if we remove this year from the equation and see the company price, I would say it is a screaming sell.

  5. The stock price already seems to assume that the better realization will be there for lifetime and also assumes that the company will not undergo any business cycle issues. Further, if market turns hostile on this stock, the price will go southward and our wait to get our money back would be for lifetime

  6. My search for the promoter Kamal Dujodwala has resulted the following. Though I could not go to that page, the brief listed here scares me out. Someone more knowledgeable would be better suited to give a clarity.

Page 1 of 10 - insolvencyservices.in

www.insolvencyservices.in/pdf/vo8.pdf

Kamal Dujodwala , Director of the Company was authorized by the Board to initiate proceedings before NCLT. The Financial Creditor disclosed that the Corporate Debtor had approached it for a short term loan of.

Disc : Though experienced in dipping my hard earned money and struggling to recover for the last two decades periodically, I would consider myself a novice on financial analysis. Hopefully, will improve over time with your feedback.


(Rajeev Jawahar) #15

Tyre makers all over the globe are set to use plant resin, produced by the likes of Mangalam Organics, to improve efficiency for Electric vehicles. This could be one of the reasons for the french major DRT to tie up with Mangalam, as DRT already has tyre manufacturers like Michelin & Pirlli as their clients.


(Rajeev Jawahar) #16

CRISIL upgrades outlook for Mangalam Organics from stable to Positive.

https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/Mangalam_Organics_Limited_September_28_2018_RR.html


(bullrun1988) #17

Where i could see that promoter have increased their stake in recent time its just buy back which have technically increased promoter holding!!


(Rajeev Jawahar) #18

Attaching below the link to a blog written by Jimit Shah, a fellow share holder in Mangalam, after attending the AGM.


(phreak) #19

Pretty good performance. I expected a 2x on the PAT and they delivered a 3.62x. EPS has grown more (3.83x) I presume because of the buyback done earlier in the year. Margins have been maintained QoQ which is a good sign that the tailwinds are continuing. Based on TTM EPS of 43, its trading at a P/E of 12. Next two quarters have a lower base as well so hopefully excellent growth will continue.


(Anupam) #20

I second your thought. Companies like mangalam, heg were never heard of. May be VP is all about finding these hidden gems…
However, at individual front, I find these extremely difficult. Quality, valuation, moat, management pedigree takes a back seat when price is doubling every 3 months! With my limited experience At best I would classify these as Momentum Stocks…