Omkar Speciality Chemicals Ltd -- OSCL


(Hitesh Patel) #1

OMKAR SPECIALITY CHEMICALS LTD â OSCL

CMP 80 MARKET CAP 157 CRORES

Book value 56.

ABOUT THE COMPANY:

Company was promoted by Mr Pravin Herlekar 30 years back to manufacture speciality products and import substitutes mainly catering to pharma and other end user industries for its products.

It has around 90 products in its basket. It is a major player in iodine, selenium, molybdenum derivatives and other products. It derives majority of its revenues by producing value added products like selenium anhydride that finds application in steroid manufacturing, 5 Iodo 2 methyl Benzoid acid used in diabetic drugs and it has plans to expand its products portfolio into HIV drugs mainly protease inhibitors.

The company has also plans to increase product range to cater to other user industries like glass, cosmetics, ceramic pigments etc.

Companyâs clients in pharma space include Cipla, Ranbaxy, Glenmark, Biocon, Dr Reddys etc and in other industries includes Clariant UK, Asahi India Glass, Suguna Poultry etc.

Exports doubled in fy 12 to 25 crores from 12 crores in fy 11. Total contribution of exports to revenues during fy 12 was around 15%.

EXPANSION PLANS

OSCL is in expansion phase to increase its capacity from 950 mtpa to 3650 mtpa over the period of fy 11 to fy 13.

The company has some subsidiaries which are likely to propel the production capacity in a phased manner.

FINANCIALS

OSCL came out with an IPO in Jan âFeb 2011 at an IPO price at 98 per share. Currently there are 1.962 crores outstanding shares of Rs 10 face value.

FY 12 ROE was around 16.

Debt as on fy 12 consisted of long term debt of 4.67 crores and short term debt of 69 crores. Cash and cash equivalents is 31.4 crores.

Period

08

09

10

11

12

q1 fy 13

Q1 fy 12

Sales

41

51

68

106

167

50

42.6

NP

2.6

3.1

5.2

10

16.4

5.2

4

Interest

2.1

3.6

3.74

5.2

8

2.27

1.53

During FY 13, Company is likely to post revenues of 220-230 crores and net profits of around 22-23 crores.

Exports during q1 fy 13 was at around 20 crores as against 26 crores for full year fy 12. During fy 13, exports are likely to cross 75-80 crores.

INVESTMENT THEME

OSCL IS A SMALL COMPANY ASPIRING TO GROW FAST IN THE SPECIALITY CHEMICALS AND API SPACE. IT HAS SHOWN GOOD GROWTH IN THE PAST AND WITH CAPACITY EXPANSIONS LIKELY TO BE COMPLETED WITHIN NEXT FEW QUARTERS, COMPANY IS LIKELY TO CONTINUE THE GROWTH SEEN IN THE PAST.

CURRENTLY THE COMPANY IS AVAILABLE AT REASONABLE VALUATIONS OF AROUND 7 TIMES FY 13 EXPECTED EPS OF CLOSE TO 11-12.

IF THE COMPANY WITH ITS BASKET OF NICHE PRODUCTS CAN CONTINUE THE SAME PACE OF GROWTH FOR NEXT 2-3 YEARS, THERE COULD BE GOOD RETURNS FOR THE PATIENT INVESTOR. I THINK EARNINGS CAN KEEP ON GROWING LOOKING AT THE STRATEGY OF THE COMPANY. AND WITH MARGINAL RERATING THAT COULD HAPPEN (DONT EXPECT TOO MUCH RE RATING), THIS COMPANY LOOKS LIKELY TO PROVIDE GOOD RETURNS.

disc: no holdings. under watchlist.



(Akbar Khan) #2

Some negatives

1.The working capital has increased at a higher rate than sales.

2). Company came out with IPO and also took on huge debt at same time.


(Akbar Khan) #3

3). Also negative Operating cash flows


(Hemant V Bhatia) #4

Recent write up by HDFC Sec.Please check the link.http://www.hdfcsec.com/Research/ResearchDetails.aspx?report_id=2987451


(Hitesh Patel) #5

hemant

thanks for the hdfc report.

Its quite exhaustive and saves a lot of effort in researching for the stock details.


(Vivek Gautam) #6

Read some where that UTV founder Ronnie Screwalla has taken a good stake in the co.

Also with rupee depreciation imports from China have become costlier implying good times for Indian exporters n cos competing against Chinese imports.


(Manish Vachhani) #7

This stock has moved up silently to 110 levels - a gain of 38% within 6 weeks.


(Hitesh Patel) #8

Yes even I was surprised to see the strong upmove even in a weak market.


(Subash Nayak) #9

Hitesh bhai,

Do you suggest taking fresh position in omkar at current price?

The way they are increasing their eps quarter-by-quarter, seems to be a fairly valued growth play in pharma API space.


(Hitesh Patel) #10

subash,

I think i would allow the current upmove to cool off before taking any position. there has been a sharp upmove so better to allow it to simmer down and see how the company performs in second quarter before taking a call.

based on expected eps of around 11-12 for fy 13, valuations for a chemical type company are fairly valued at cmp of 110-112.

Unless company comes out with positive surprise or there is some kind of satta in stock, upsides look limited.


(Hitesh Patel) #11

second quarter results are predictably good.

period q2 fy 13 q2 fy 12 h1 fy 13 h1 fy 12 fy 12

sales 50 39 102 82 167

NP 5.7 3.6 10.7 7.5 16

half yearly eps (not annualised) on post ipo expanded capital of 19.62 crores is 5.5 per share. debt has increased to 125 crores.

I think at cmp of around 118, much of the good results seem to be priced in so partial profit booking seems to be a prudent thing to do. Stock is in a strong uptrend so there might be some juice left but based on valuations this seems fairly priced.


(Subash Nayak) #12

http://articles.economictimes.indiatimes.com/2013-01-14/news/36331978_1_herlekar-selenium-excel-industries

The founder of Omkar speciality is an ex-IIT Bombay grad, who literally started his lab from his kitchen, and had grown to this size from an initial seed capital of 1Lac, which he got by dissolving his pf account. I simply can’t resist myself from respecting these kind of man and the companies they run.

Thinking of taking a starter position here.


(Subash Nayak) #13

Omkar speciality chemical has a nearly hidden section where they tracking research reports on them. The one that attracted me most is the one by PN Vijaya. Listing down all the reports for ease of reference

http://www.omkarchemicals.com/news%20goa/Omkar%20Final%20Report.pdf

http://www.omkarchemicals.com/cs%20pdf/Omkar-Specialty_MehtaEquities_230213.pdf

http://www.omkarchemicals.com/News_goa/Research%20Details.pdf

http://www.omkarchemicals.com/media%20coverage/OMKARSPECIALITY_FirstcallRes_271212.pdf


(ranvir dehal) #14

I was going thru the anual report of OSCL today…on of the best ARs i ve ever read…i must say…atleast it motivated me to dig deeper .


(Whipsaw) #15

With the capacity going to get doubled this year and 14 patents (2 already got) filed, is Omkar sp. chemicals going to get re-rated?


(Aveek Mitra) #16

I am looking into this company for last few quarters. What I found interesting is the jump in Operating Fixed Asset Base over the years (Consolidated) from Rs. 37 Cr. in 2012 to Rs. 268 Cr in 2015. Substantial part is being operational since last year only. Capacity on Intermediate, API and Inorganic Iodine segments have been increased substantially.

What the company does is already well covered in the HDFCSEC report cited in the thread by one member.

It seems, presently the sales and profitability figure don’t capture these ramp up in Capacity and if and when it happens, it would be interesting to watch.

Presently. 58% of sales come from Inorganic Iodine, 24% from API for Veterinary deworming segment and 18% from speciality chemical intermediaries. Sales are primarily to famed pharma companies in India and consequently the payment cycle is stretched. Omkar gradually expanded in export presence, which they feel would improve the receivable cycle going forward. Presently about 25% is exported.

Main Raw Material is Inorganic Iodine which comes from SQM, Chile (single source) but SQM is opening an warehousing facility in India which again, as per company, would reduce burden on working capital.

Other two main ingredients are Selenium And Tartaric Acid which are procured from Europe and China respectively.

They are also setting up an warehousing facility in Europe to be closer to customer and improving payment and delivery cycle.

With some patents of few molecules received and also few are in pipeline, it would be interesting to see how the margin situation improves. Iodine price has stabilized post Japan earthquake (Japan is other source of Iodine), it seems to remain stable for the coming days even though Iodine cost is mostly a passthrough item.

In India, there are two other companies in Iodine space, but possibly they are mainly into Organic Iodine. They are Calibre Chemical and Samrat Pharmachem. There are other companies which compete with different specific product categories of Omkar.

Though the product range of Iodine Derivatives of Omkar is significantly smaller compared to Sigma Aldrich (Revenue.US$ 2.7 billion, Net Income US$ 500 Million; Net Asset US$ 2.1 billion and ROCE 21%), this company has been recently sold to Merck for US$ 17 billion. Let’s see how our home grown, R&D focussed, technology based, niche pharma chemical player handles its new capacity with a “claimed to be better” product mix.

Promoters have issued warrants to themselves at Rs. 150/- and the existing share pledging by promoters are mainly to subscribe to the warrants, as per their last con call with analysts.

If anyone has total market size of Iodine Derivative product ranges, from credible sources may please share.

Disc.: Invested more than a month back


(JKS) #17

I was tracking this earlier but got scared by the amount of pledge by Mr Harlekar


(Gaurav Agarwal) #18

The are lot of positives with the company.
Mr. Omkar during an interview recently said that they have developed an intermediate for Ledipasvir (Heptatitis C drug developed by Gilead Sciences, this is very costly drug in US, $1125/pill)

But the present situation of company is not comfortable. Revenue is not growing. Working capital situation is not good.

The promise of future is too bright but there is nothing on offer now.


(Akshay) #19

Hi @aveekmitra I came across this presentation of SQM from June 2015

http://ir.sqm.com/files/doc_presentations/2015/SQM-CorpPres_2015_Q1_FINAL.pdf

On slide 10 they mention the global demand for Iodine and derivatives at 33,000 MT. There are some other interesting bits of information on the industry in the document as well…

I was trying to look into why sales seemed to have flat lined towards the end of the last fy. Do you have any insight into this?

Akshay


(Rohit Balakrishnan) #20

@Aksnehru @aveekmitra I guess, its because the realizations in the iodine segment falling. Iodine prices have almost halved in the last 1 year.