Since it seems only eastman (thru solutia acquisition), occl and shikoku. Too hard to believe no Chinese players here
Listing at NSE from 27th Jan.
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=48503cfa-59fd-478d-a8e4-23399011d684
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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?
I donât 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
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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?
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 donât know but assuming 8PE we get CAGR growth of 10-12% from current levels
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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
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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
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 thatâs my bet.
@atishay1
Agreed on the reply but youâre 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.
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.
Hi Sunil,
I think your calculation for ROCE on the expansion is incorrect as you have not considered profit before interest expense while in denominator you have considered the total capex (which includes debt + equity). So if you will do the necessary adjustments the ROCE will easily be above 20%.
While the more important thing to consider should be as to how many variables will remain constant as the result of expansion is a bit away.
Regards,
Ayush
Disc: Invested
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Hey guys,
would anyone know why OCCL does not sell forward cover in advance (like balakrishna industries does and most IT companies do)? Ideally, wouldnât it help the company earn a tidy premium each year in the form of forex earnings?
Hi Sunil,
In FY15 annual report volume growth in domestic and export market is mentioned form there you can make out total volume growth for Fy15.
pasting a table for your reference:
Thanks
Rajat
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Our understanding is also similar that Chinese production gets consumed mainly in their country. Additionally, as per OCCLâs management, Sinorchem, a chinese player, shelved their plans to expand capacity.
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guys,
While calculating ROCE, we will also have to take working capital required in generating that incremental sales of ~150Cr.
I did ROCE calculation using some assumptions as mentioned below, please correct if iâm wrong.
If we take realizations of ~142K (in Fy13 realizations were at 123K, i have assumed an increase of 5% pa; let me know if you have a true number), EBIT margins of 25% and working capital of 100 days, ROCE comes at 20%.
Best
Rajat
Disc: invested
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Do anyone know what is a percentage of cost of Insoluble sulpher in the production of tyre?
Prashant
About 1-2 % is the cost of insoluble sulphur in the overall cost of a tyre but its a critical ingredient that prevents deformation and abilityt o take heat at high speeds
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Thanks for your reply. As per tyre companies reporting, they are not reporting separately but they are reporting Chemicals in the raw material cost segment. i think this insoluble sulpher is a part of this chemical cost. Now if you see this chemical cost is almost varies between 9-12% of their total raw material cost and it is about 5-7% of topline.
Pl.correct me if i am wrong.
thanks
Prashant
Research report by brokerage house.
importance should be given to understand the business from the pdf in gist.