Omkar Speciality Chemicals Ltd -- OSCL

Stock Opportunities
84

Its a 2- step downgrade from BBB+ to BB+ . Its skipped BBB and BBB- in between. If you consider the outlook then it adds more steps to the downgrade as it has moved from BBB+ Negative to BB+ Stable (skipping Positive , Stable and Negative outlooks at each of the ratings).

Same goes for short term ratings - from A2 to A4+. Here the skipped steps are - A2-, A3+, A3 and A3-.

The link is attached:
http://www.crisil.com/Ratings/RatingList/RatingDocs/Omkar_Speciality_Chemicals_Limited_December_04_2015_RR.html

The rating report has no new information that was not already known. While the multi step downgrade is meaningful and worrying, it looks like they are behind the curve.

One item I am not clear on, is that if you look at the “View” in Instrument Details for Long Term (in the 2nd link), it says “Proposed Long Term bank facility of Rs 863 million”. This is at variance to what the management has been maintaining - that only 25-30 crores (dont remember the exact figure) of additional debt will be taken which is only of routine capex maintenance nature. All other debt for expansion has already been availed and that debt levels would see a gradual reduction from Sep’15 levels (I particularly remember Pravin Herlekar stating this).

Discl - hold Omkar as a small portion of the PF from 170 levels bought in the last 1 year.

2 Likes
85

Does anyone know if the chiplun plant (unit v) has got environmental clearance finally? The mgmt keeps sounding optimistic, but the production was slated to start in Nov and the ET news mentions it as Jan now.

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85000 pledged shares has been released.

Link to the disclosure on the same.

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/57315C20_23BF_4CEE_B2E9_19982D81A400_174316.pdf

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Omkar Speciality Chemicals Ltd has informed BSE that the Company has received Environment Clearance for its Manufacturing Unit - V located at Plot No. D- 27/5, M.I.D.C., Lote Parshuram Industrial Area, Chiplun, Taluka Khed, District- Ratnagiri, Maharashtra. The details for the same can be viewed on the website of Maharashtra Government for Environment Clearance (www.ec.maharastra.gov.in).

The production at this unit shall commence in phased manner. In Phase I the Company plans to produce Vitamin C & Folic Acid.

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=c141f635-0b35-47d4-bc44-da69c99e76ea

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http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/56A5D176_7684_4FB3_8178_EEE74B60DB38_110520.pdf

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more 300000 (1.45%) pledge shares released http://corporates.bseindia.com/xml-data//corpfilingAttachLive/47BA5EBC_D65E_4AA6_9834_16EF8A278566_154319.pdf

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more shares released http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/D7882BB3_367B_4EBB_ABFF_B0FD7C237271_161544.pdf

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Results out:
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/2F2D4B52_C162_4E46_8517_C7E06AD12482_160606.pdf

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CONFERENCE CALL - from Capital Markets

Omkar Speciality Chemicals

No major capex is required for next 2 years

The company held its conference call on 15th February 2016 and was addressed by Mr. Omkar Herlekar, Whole Time Director
Key Highlights

Of the total sales, Iodine constitute around 33% of total sales, Intermediates around 27%, API’s around 36% and rest from others.

Margins for Dec’15 quarter was affected due to higher raw material costs particularly in iodine segment due to inventory adjustments and Forex losses resulted in lower OPM.

The iodine price which used to be around US $ 27 per kg, was lower by 10% on QoQ basis in Dec’15 quarter, thus resulted in inventory losses to be booked. During the Dec’15 quarter which traditionally is a lower export quarter, forex fluctuations were high and rupee depreciation resulted in a forex loss on imports of around 2% of inventories. All these affected the margins.

Baring this one offs, the operating margin of the company would have been around 18-19%, which is its normal range.

4500 tons of capacity will be operational from April’16 onwards. Vitamin C and Folic acid products have higher demand and higher margins.

The working capital days have gone down from 143 days on Mar’15 to around 94 days in Dec’15. Management expects the same to remain due to increase in sourcing of iodine from local vendors. The sourcing will further increase in FY’17 and complete local sourcing will be available from FY’18 onwards, as the capacities at the supplier end is created.

No major capex is required for next 2 years barring some routine capex.

Total debt at consolidated level as on Dec’15 is around Rs 221 crore, of which long term debt is Rs 70 crore and rest is short term. Average rate of interest is around 12%.

23% of the total shares of the Promotes is pledged to banks against the Chiplun plant funding.

Overall management is extremely confident of around 25% growth YoY in FY’17 and better margins going forward.

6 Likes
93

Omkar Speciality Chemicals Limited has announced that the board of Directors of the company has approved scheme of arrangement between Lasa Laboratory, Urdhwa Chemicals, Rishichem Research, Desh Chemicals and Lasa Supergenerics for…

  1. The merger of Lasa Laboratory, Urdhwa Chemicals, Rishichem Research and Desh Chemicals with it self.

  2. The demerger of Veterinary API undertaking of merged Omkar Speciality Chemicals in to Lasa Supergenerics.

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/C62771B9_49B6_497E_A9BB_2B5C12AD433A_125823.pdf

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What would be timelines or duration for this demerger? Typically how long the process takes?

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CONFERENCE CALL - from Capital Markets

In next 2-3 years, Lasa will be one among the largest players in Veterinary business worldwide

Omkar Speciality Chemicals held its conference call on 12th April 2016 to discuss on Merger and Demerger of its businesses and was addressed by Mr. Omkar Herlekar, Whole Time Director

Key Highlights

  • The Board of Directors have approved the merger of wholly owned subsidiaries namely: Lasa Laboratory Pvt Ltd, Urdhwa Chemicals company Pvt ltd, Rishichem Research, Desh Chemicals Pvt ltd with the Parent company i.e. Omkar Speciality Chemicals (Omkar).

  • Omkar will not issue and allot any equity shares to shareholders of respective Transferor Companies as these companies are wholly owned subsidiaries of Omkar. Post Merger, the shareholding of Promoter and Group and Public remains unchanged in Omkar.

  • Primarily these subsidiaries are engaged in business of manufacture and sale of Specialty Chemicals viz. Selenium Derivatives, Iodine Derivatives, Organic & Inorganic intermediates, Resolving Agents and Veterinary APIs.

  • As per the management, post merger of these subsidiaries, there will be simplification of corporate structure, reduction in legal and regulatory compliances, lower admin and record costs and single entity will ensure more coordinated efforts.

  • Further the Board also approved the demerger of Veterinary API business of Omkar into a separate company called Lasa Super Generics (Lasa). For every 1 fully paid up equity share of Rs 10 each of Omkar, the shareholders will get 1 fully paid up equity share of Rs 10 each of Lasa, which will be subsequently listed on BSE and NSE exchange.

  • Post merger and de-merger, Omkar’s net sales for FY’15 will be Rs 193.30 crore with PAT of Rs 18.3 crore. For H1 FY’16, net sales stood at Rs 128.30 crore, with PAT of Rs 11 crore.

  • The demerged business i.e. Veterinary API had reported turnover of around Rs 71 crore for Mar’15 constituting around 27% of total turnover of the company, with a PAT of Rs 6 crore. For H1 FY’16, Veterinary API registered net sales of Rs 63.8 crore with a PAT of Rs 6.2 crore. Apart from the Veterinary API, Lasa will continue its business activities of manufacture of chemicals, organic and inorganic chemicals, their byproducts, pharmaceuticals, drugs and other related products.

  • Management expects the whole process of merger and demerger to happen parallel and will end in next 8-10 months from now.

  • Lasa will have 4 production facilities with aggregate capacities of 8650 MTPA in Maharashtra. After capitalizing the recent capex of Chiplun facility which is a part of Lasa now, the Lasa is operating at 30% of total installed capacity. As per the management, there is no capex required in Lasa for next 3 years.

  • The demerger is with an intention to achieve the operational efficiencies.

  • Post De-merger, Promoters and group will have 59.2% stake in Lasa, Omkar Speciality Chemicals will have 10% and remaining 30.8% stake in Lasa will be held by public (public shareholders of Omkar).

  • Omkar is operating at around 80% capacity utilization. Management has some plans to take capacity on lease model and thus not to incur much capex for Omkar as well.

  • Going forward, debt will come down. ROCE and ROE will improve for both businesses going forward

  • Lasa Asset turnover is around 3.5 times, initially it might be low as the processes takes time to launch. Management expects a turnover of around Rs 450-500 crore for Lasa in next 3 years from now.

  • Lasa business is much better in terms of working capital days than Omkar

  • Veterinary API business is around Rs 4500 crore size globally with lot of products. Its growing at around 10-12% worldwide. The company has product basket of around 20% of total market size of Veterinary business. Lasa has 2-3 products wherein it has near monopoly. Immediate competitor of Lasa is Sequent Scientific and other no big competitor as of now in India

  • Management expects the Veterinary business to grow by atleast around 25% for the company going forward.

  • Ebidta margin of Lasa hovers around 22-24% range. With capacity utilization improvement and more products, there is a scope for another 150 bps margin improvement subject to forex movements.

  • Omkar’s post merger and demerger Ebidta margin will be around 16-18% range.

  • Rs 107 crore total borrowing Rs 81 crore is long term and rest short term

  • 22% blended tax rate will remain for Omkar and Lasa going forward.

  • Other products in Veterinary vitamins and products in Lasa business in next 2 years will be launched.

  • As per the management, in next 2-3 years, Lasa will be one among the largest player in Veterinary business worldwide.

  • The company has plans to go into Formulation in Veterinary business as well.

9 Likes
96

Thanks for the update. Any discussion or clarification given by management on the liquidity crunch the company is facing?
How much they need to pay in next one year and their comfort in paying back this amount (current portion of LT + ST debt). The promoter has consistently pledged the shares to raise funds for WC needs. The CCC is very long and that has caused this issue. Crisil has downgraded their rating by two notches in December 2015 to AA-.
I agree the growth is good for API business but my concern is whether the management is focusing only on growth at the detriment of sustainable high quality growth. Some of their capex was funded through ST debt causing asset liability mismatch. Return ratios for main business not very attractive.

1 Like
97

Hello Girish,

Not invested and neither am i tracking.
I put up the concall transcript as i had found it online, for benefit of discussion purpose.

Other members who have been tracking may be able to answer ur queries.

Regards.

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CONFERENCE CALL - from Capital Markets

Expects net sales growth of around 15% in FY 2017

The company held its conference call on 25th May 2016 and was addressed by Mr. Omkar Herlekar, Whole Time Director

Key Highlights

  • Of the total sales in FY’16, Iodine constitute around 23% of total sales, Intermediates around 38%, API’s around 31%, Selenium Derivatives and rest from others. Sales from domestic market stood at around 86% while rest is from exports.

  • OPM for Mar’16 quarter stood at 24.1%, up by 550 bps YoY largely due to better product mix, higher capacity utilization, reduction in processing in outside units and lower freight costs.

  • Management’s endeavor continues to remain on high margin products. New API capacities, new products and newer markets will drive a double digit growth for the company in next couple of years.

  • The company plans to bring business growth going forward through a leased model of contract manufacturing in specialty chemicals business.

  • Working capital days stood at 116 for FY’16 as compared to 145 for FY’15 and 203 in FY’14.

  • 4500 tons of Chiplun capacity has been operational from April’16 onwards. Vitamin C and Folic acid products have higher demand and higher margins.

  • The company has total debt of Rs 208 crore as on Mar’16 as compared to Rs 225 crore for Mar’15.

  • Promoter has pledged the shares for the new Chiplun facility with the bankers.

  • Higher capacity requirements will be taken care of by the lease model and no new major capex is planned in next couple of years.

  • Third party manufacturing of formulations will commission in FY’17.

  • Tax rate for FY’17 will be 22%

  • FY’17 will be a consolidation year where the management expects to grow net sales on a conservative basis by around 15%. The year will be used for regulatory approvals, newer markets and newer products.

6 Likes
99

In an interview some time back Mr. Omkar Herlekar was seen talking about development of intermediate for Ledipasvir (drug for treatment of Hepatitic C marked as Harvoni by Gilead). He also said that the process patent for the drug will be received from Indian drug authority soon.

I have not seen him talking about the intermediate drug during the interviews and concall for this quarter.

Anyone has any update on this?

100

Looks like huge market for Hepatitis C…I remember Omkar filed a patent for raw materials for Hepatitis C last year…but don’t see any update on that after that…Does anyone know if any other competitors in this space and how big can this be to Omkar if successful in this space?

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Omkar Speciality Chemicals Ltd has informed BSE that the Lasa Laboratory Private Limited, wholly owned subsidiary of the Company, has purchased plot no. C-105/1 admeasuring 5200 Sq. mtrs. (adjoining the existing plot) in “Industrial” Zone of the Mahad Industrial Area, Village: Birwadi, Tal. Mahad, Dist. Raigad for enhancing production capacity of veterinary API.

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In the concall held on 25th of May the management has given guidance only for 10 to 15% revenue growth for next two years. The management avoided following important issues and appeared to be escaping from the truth:-
(1) Only two to three months orders are in hand. When questioned about so few order book the reply given by the management was not acceptable ( the management shown inability in procurement of orders due to volatile rates of raw material and finished goods)
(2) More than 70% of promoters holdings are pledged that also on very high rate of interest @16% . on questioning regarding so high rate the management did not give any reply.
(3) No satisfactory reply was given by management on repayment cycle of debts on books and aging debtors.

1 Like
103

Omkar is in Veterinary API space. I don’t think they are in human Hepatitis C market.