Oriental Carbon and Chemicals Ltd


(TT) #202

A few things to note:

  1. Company may have some pricing power because of limited suppliers and long standing relationships.

  2. Stake sale was to institutions that are known to be long term holders - good pedigree.


(Rohit Balakrishnan) #204

I think these are HMVL’s results and not OCCL’s you are on the wrong thread. Cash in HMVL is >600 Crores as per their 6M Balance sheet. OCCL’s results are are in the first week of November.


(sri krishna bhutra) #205

Decent results by OCCL. Strong EBIDTA margin, PBT and PAT margin. Though sales have decreased. PBT grew and PAT decreased due to higher tax provision.


(TT) #206

The way I see it, I think OCCL is running at 100% capacity utilization. The downsides to this are that sales are not going to improve till capacities are expanded (unless price is hiked). However, it is a good sign that the company can sell everything it produces. We should see a meaningful growth in financials when the expanded capacities come online in 2016. Till then, only de-bottlenecking of production lines and price hikes would lead to top line increase.


(sri krishna bhutra) #207

If I am not wrong, expansion is in April 2017 and April 2018 as mentioned in the footnotes of Q2 results


(TT) #208

Typo there, I meant 2017 (starting from 2017, I mean).


(vaibhav) #209

The stock has been sliding but on extremely low volumes -

http://www.moneycontrol.com/deliverable-volumes-price/orientalcarbonchemicals/OCC

From 23rd Oct to 17th Nov (16 trading sessions) , the stock fell from 570/- to 518/-. Some 26,000 shares were traded in delivery . This is just ~0.25% of total equity that changed hands in 9% fall. This also means just 0.015% daily average .


(vaibhav) #210

H1 presentation -
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/10EA76EB_E1F8_489F_A92E_291F3219EE09_110243.pdf

(Reiterates ~ 48% capacity expansion in next 2-2.5 years)


(varun88) #212

Looks interesting and keeping a watch during these turbulent times.

Just wondering why there is no Chinese competition here. Is it that Chinese only supply to their domestic markets


(varun88) #213

Since it seems only eastman (thru solutia acquisition), occl and shikoku. Too hard to believe no Chinese players here


(Hemant V Bhatia) #214

Listing at NSE from 27th Jan.
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=48503cfa-59fd-478d-a8e4-23399011d684


(Sunil) #215

Result presentation
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/5F41AD9C_1322_468C_9611_0DEAA9C9814F_132800.pdf

Capital investment would be of ~Rs.159 crs: funded with debt equity ratio of 2:1

Does it mean they will take 106Cr debt and raise 53Cr through equity?


(Ayush Mittal) #216

I don’t think it means that the company will need to raise equity funds. Equity portion here means the internal accrual to be contributed by the company.

Regards,
Ayush


(Sunil) #217

Hi @ayushmit

What is your take on company raising debt and doubling the debt? Do you see them generating additional 15-20 Cr PAT due to this debt?


(Sunil) #218

The selling price of insoluble sulphur per MT was 1,35,000 (One lakhs thirty five thousand)
Current capacity is 23,000MT and with capital investment of 159Cr the capacity would be 33,00 i.e additional 11000MT.
Assuming demand is good and company uses its full capacity it will generate 11000 * 135000 = 148.5Cr of revenues. Net profit margins for last few years have been in range of 15-20% so assuming 15% margin it generates 22.2Cr PAT which would be around 14% of ROCE.
If company is able to raise prices or improve on margins we can see ROCE north of 15%.
Now at what PE will market value in FY 19 don’t know but assuming 8PE we get CAGR growth of 10-12% from current levels


(atishay1) #219

I would rather look at it from EBITDA perspective since the way you have calculated ROCE can be misleading. EBITDA margins are 25-30% that means. ~40 Cr FCF from ~160 Cr capex, thats a payback of 4 years and high Project IRRs>20% considering only 6-7 cashflows and no salvage value. Now if you have financial leverage too lets say 50:50 Equity IRR is even higher.

ROCE would vary y-o-y as the assets depreciates however real value we can see if we do DCF. Moreover the retained earnings can be re-invested for even higher returns as there is a big market.

Discl, Invested and adding at current levels


(sachit) #220

I think taxes should be taken into account while computing IRR, so effective rate after taxes will be closer to 15-16% rather than 20-25%. I do however agree that leverage will boost IRR.

Discl: invested and planning to add more


(atishay1) #221

Tax impact should also consider depreciation and interest tax shield which would reduce the tax burden considerably. Moreover for 20% Project IRR, I have considered only 7 year period. My only submission is the return levels are huge given they are able to sustain their margins and continue growing at 15-20%. And that’s my bet.


(sachit) #222

@atishay1
Agreed on the reply but you’re also considering full 100% capacity utilization on new capacity from day 1 which will be unlikely considering their current utilization is 90%. Considering 90% utilization from day 1 will also dilute IRR.


(saurabh shankar) #223

Hi,

Interesting discussion. I think sometimes we need to trust management more
than our calculations. after all they are the ones whom we appointed to run
the show technically.

So here for example if additional ROCE is 14-15% and weighted cost of
capital is around 13% ( 12% debt and 20% historical RoE for company), would
management do this expansion? My sense is no.

Considering the track record of management ( 5 years ROCE> 25%) i would
think that there are additional levers of ROCE which are not easy to
forecast.

What we definitely need to track is if the industry structure itself is
changing.

regards,
saurabh
PS- Biased. Hold with more than 5% allocation.