seems a long awaited good news.Buyont Indian market for both internal consumption n manufacturing tyre exports ,foray in huge n lucrative US mkt are sweetners
On one hand the co. seems quite upbeat about growth in future from significant entry in China & US,also the growing use of radial tyres in domestic market. And on the other hand new capacity will come on stream only in start of fy18.
Knowing that co. is operating at optimal capacities,double digit revenue growth can only be seen in fy18 or post that. How much capacity can the de-bottlenecking add!
The co.might be expecting good growth but it doesn’t seem ready. Views invited.
The Company’s entry into US markets is a long term strategical decission. The idea to create incremental customer base once the increased capacity gets commissioned
The current capacity is expected to be completely absorbed by existing customer and with significant contribution from the domestic consumers.
It must be noted that radialization of tyres requires 2.5x times of insoluble sulphur than what is required in normal tyres. With increasing radialization, strong demand is expected from the domestic markets
With the kind of growth it has posted historically and high return ratios, the stock looks to be very undervalued.
Disclosure - I am invested into this stock
I think management heard you one investor presentation in May, one in July and the quarterly result update is elaborate too
Most things about this stock are good an I am trying to pick holes in the story. What are your thoughts on the following -
New plant is coming up in FYI 18 . Assuming 1,2 more years to stabilize operations , the exponential capacity boost will come from FY20 onwards. What are the chances of Chinese players upping their game by then (or before) and Oriental losing this advantage ? Any research on any mmajor chinese player?
Any additional debt burdens due to the new plant ?
one new plant got commissioned last year. it will stabilize and add to topline and bottomline in the next two years.
The incremental capacity is being targeted to be commissioned by April 2017. With fund being not a constraint and this being a brownfield expansion, I don’t forsee significant delay in the expansion.
The Chinese players are very price competitive than OCCL, however they still dont have approval from major global tire manufacturer. This is attributed primarily due to quality issue.
The expansion is proposed to be funded by a total debt of Rs. 105 crs. I expect the entire long term debt of Rs. 65 crs to be fully paid by Dec 2017. With the kind of cash the business is throwing up, I really don’t see servicing of debt as a huge challenge.
Promoter sells nearly 5.5 lakhs shares in open market.
The above lot has been picked up by HDFC MF and L&T MF with each picking up 275K shares.
check nse bulk deals for today.
What do seniors think about promoters selling such a large quantity of shares in the open market. I am a newbie and consider it as very negative news, since the number is very huge. Kindly share your views.
This sale by promoter must have been after discussing it with the MFs. So I don’t feel it should be a concern.
Oriental carbon promoters sold 2.75 lacs shares to ICICI MF.
See it has positive as market as recognised the company.
Enjoy the ride.
Disc : Invested and plan to add more as it is still cheap and oliopoly industry.
Is Icici the 3rd entrant besides hdfc n L&T MF?
Where is the news on ICICI MF? I see only HDFC and L&T
With reference to the latest concall dated Aug 04, 2015, below are my observations:
- Company’s capacity utilization levels were around 90% for FY 14-15.
- New capacity addition will be operational in April 2017 for Phase 1 (5500 MT) and April 2018 for Phase 2 (5500 MT).
- Hence, unlike the past performance, topline would not grow at 20-25% levels until the new capacity gets operational. Management mentioned that there will be better growth in the bottom line when compared to the topline. This may be due to operating leverage. However, I do not foresee any great compounded growth in the EPS until the additional capacity gets operational.
May be until Q3 of this year we may see a good growth due to lower base of last year.
- So, at the current price of around 640, I do not see any good MOS. As the growth for the next 1-1.5 years slows down, the market might dislike it and push the price down. May be then, there will be a good time to relook at it.
However, I do like the quality of the business and its future outlook:
a. good demand for its products.
b. less competition.
c. foray into new markets (US).
d. pricing power to a decent extent.
e. Foreseeable increase in demand for its product.
f. Growing radialization of tyres India. (CVs)
g. Well managed company (financials). In the concall, management conveyed that they would not expand capacities hugely at one go, and would go steady based on the opportunity size available. I prefer realistic management over optimistic ones.
h. Communicative management. (though recently)
These are my views. Views invited, specially on business and valuation front at CMP. Thanks!
While reading the past AR of 12-13, the company mentions that (Page No. 6) -
The sales of Insoluble Sulphur was 3% lower than the previous year due to lower demand. The low sales was a result of global as well Indian tyre plants cutting production due to slowdown in Indian as well as global economy. Further, due to lower demand, the impetus for tyre companies to speedily approve our new plants and products was absent resulting in delayed approvals.
This also makes us understand that sales may not be always in the uptrend in the future. Hence, profits shall be lumpy. Hence, one should inculcate more MOS when planning to enter this stock.
L&T Mutual Fund and HDFC Small and mid cap fund have taken positions in OOCL.
Every year in annual report company have mentioned the total amount MT’s of insoluble sulphur sold, however I find it very surprising in FY15 annual report this figure was not mentioned. Since revenue from insoluble sulphur for FY15 being very near to FY14, the quantity(MT sold) will be nearby FY14 quantity sold which was 19224MT.
Assuming 11000MT new capacity being fully operational by FY 2019 we get new capacity of approx 30000MT which is 11-12% CAGR growth. And also not to forget they will have some debt by that time too. The ROA for last 3 years have been around 12% so the returns on incremental capacity seems decent but not great. At this point of time (11 PE). I see less margin of safety for new allocation. Will add if price goes below 430. Positives I see are company is able to generate good cash flows and management seems to be doing what they talk from Mundra Plant capacity addition experience.
Disc : Invested. Will add if there is correction from CMP of 515
Agree with your assessment,would be difficult to increase sales/EPS in next 2-3 years with already high utilization levels of the plant.
Few negatives for OCCL from hereon uptil 2017:
- Ltd upside on sales and margins so EPS likely to be in similar range
- Promoters sold ~5% stake at 550 levels acknowledging the upcoming challenges and pressures
CMP @ 550+ doesnt excite and seem to be running ahead of valuation. Many things can change in next 2 years so I would rather sit and watch the market landscape from the sidelines. No MoS currently in my view.
Discl : Hold a small portion, would add in 400-450 range