Oriental Carbon and Chemicals Ltd

Prices of insoluble sulphur remain firm given the demand. Sunshine recently reported good numbers. The average selling prices are higher and firm due to increasing environmental regulations in China.

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Q4 fy18 results

Sales are up both qoq and yoy. Pat has grown yoy and is flat qoq basis. Increase in other expenses and raw material costs.

Overall stable sets of results.

Company is on track regarding construction of the expanded capacity and should be live in q2.

Regards
Krishna

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Q4 Fy18 Concall -

  1. New line at Mundra has started trial runs and would be commissioning soon
  2. Savings in total project cost
  3. Have been able to cater to growing domestic demamnd
  4. CV sector has grown 20%
  5. Tyre majors are investing 35000 crores having reached 80% capacity utilisation
  6. Tyre majors anticipate double digit growth in FY19
  7. New compound is being designed for ultra high performance tyres which would lead to increased consumption of insoluble sulphur
  8. Have made inroads in North America and China and expect these markets to propel OCCL going Forward
  9. Subsidiary Duncan engineering declared positive pat for first time. cash flows have improved tremendously. Subsidiary has repaid 1.5 crore loan to OCCL. Expect the subsidiary performance to improve further this year
  10. Revenue growth 10% YoY due to catering to newer geograhies
  11. Interest cost higher due to commissioning of phase 1
  12. PAT up 5% YOY

QnA

  1. Centrum broking - Phase 1 not at 100% utilisation as there was a hiccup at the start of the year. Trying to ramp up it to 100% that level. Ramp up takes some time. Hiccup was related to some teething problems of the new customers whom they went to.
    Growth is mainly on volumes. Realisation marginally negative due to exchange rate. In terms of dollar it’s almost same. More growth comes from domestic market.
    There have been benefits in operational costs in terms of power and fuel. Cost is more due to 6 months forward cover and had to book loss on MTM on forward covers. Provision of 2 crores on 31st March as rupee had appreciated. Freight cost was higher by some amount.
    Savings in new project Capex to be notified soon and would be a good saving. Maintenance capex would be in single digit.
  2. ICICI Securities - Credit terms don’t generally fluctuate. Sulphur price has no correlation with crude price. Sulphur price have now stabilised. Last quarter crude increased but Suphur prices decreased. Sulphur price as percentage of overall sale is very less. For most of the cases we have formula based pricing. In case of any high increase in sulphur price it can be passed on.
    Production of tyre in India would increase due to domestic demand, import from China is decreasing and India is becoming export hub tyres.
    Have started going to drawing board for new projects and in next 2-3 months would be having some plans for the same product.
    For new product the journey is on from last 1-1.5 years and sooner something crystallizes investors would be communicated.
  3. (Individual Investor) - Eastman doesn’t have any major IS capacity expansion plan currently other than 22000 MT Malaysia/Thailand (don’t remember). Even small IS manufacturers in China is closing down and hence China Sunshine might just cover up that capacity going offline. China Sunshine is not competing us globally.
  4. Smart sync services - 75% of 6 month net exposure as forward cover policy.
  5. RB Securities - 2 major raw materials are coating oil and Sulphur. Sulphur doesn’t have much correlation. Coating oil has some correlation and it tends to go up if the crude oil are up for long. In some cases where formula based pricing is there then we can pass on. Where formula pricing is not there the price increased is passed on with 3-6 months lag.
    Average debtor days are 75 days.
    Certain IS producers are facing heat and hence demand China should be better in future
    Current facility is full in Mundra after current expansion.
  6. ICICI securities - Cashflows from operational activities was 85 crores.
    Tax rate is 22% and going to remain for 4-5 years. EBITDA should be in higher 20s. All these benefits give us the confidence to maintain the margins. Employee cost is 39 crores against 37 crores last year.
    Duncan Engineering has some legacy issues which might be sorted out and expect to post a positive PAT this year also.

Regards
Krishna

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FY 18 AR notes
• Sales growth- 10.5 % (332 cr vs 310 cr)
• EBITDA growth – 10.9 % ( 98 cr vs 88 cr)
• PAT growth- 5%
• EBITDA % = 31.2 %
• Managerial remuneration – 1.9 cr ( Arvind Goenka) + 1.7 cr( Akshat Goenka) – 3.6 cr
• Dividned – 8.67 cr . ; 15.4% payout
• Newer market USA & China – good scope to grow here
• Domestic market growth in double digits due to :
-commerical vehicle moving towards complete radialisation

  • new tyre capacities being set up by international players, india emerging as a hub for export of tyres
    • Global demand for IS- 3.05 lakh MT
    • 1 lakh MT – demand from China & .84 lakh MT from America& Europe
    • Out of 1 lakh MT in China , 50 % is of quality IS( one supplied by our company)
    • Hence total demand – 2.48 lakh MT
    • Number of employees- 433
    • Phase 2 of expansion( 5500 MT) well on track
    • Company making inroads into American Markets
    • Completely headged against foreign currency exposure
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OCCL has commenced its production of second phase at Mundra plant on time. A positive trigger.

Oriental Carbon & Chemicals Limited-Commencement of Commercial Production.pdf (315.9 KB)

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Hi All,

ICRA has recently come out with a credit rating report on OCCL. You can read it by clicking here.

Regards,
Yogansh Jeswani
Disclosure: Invested

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Q1 Fy19 results

Results look good with the profits up 8% YoY and sales going up by 18%. Sales have gone above 90 Crs
Savings of 11 crores on the initial expansion plan. This also looks impressive.
1st phase expansion has now stabilized after facing initial hiccups.

Next 2-3 quarters should be good.

Regards
Krishna

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I went through the annual report for this company. One point which I could not understand is the following

  1. Over the last 10 years the fixes assets have grown faster than the growth of sales. Assets increased by 5 times while sales increased by 2.5 times. Asset turnover has gone down from ~2 to 1 now which in turn has pulled down the incremental roic to less than 10%. What is the probable reason for this? Has the operating dynamics deteriorated for the business?
  2. I understood that Eastman is coming with expanded facility for insoluble sulphur in Malaysia. What is going to have an impact of that increased capacity?

Thanks for response in advance.

Nikhil

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Can anyone share the historic & current prices of sulfur (raw material for OCCL) in INR as well as USD terms? Couldnt find on google.
Thank you in advance.

today there is a con call of occl at 11.30
Primary Number: +91 22 6280 1309
+91 22 7115 8210
Toll Free Number:
USA: 1 866 746 2133
UK: 0 808 101 1573
Singapore: 800 101 2045
Hong Kong: 800 964 448

Hi All,

Sharing my notes from Q1FY19 earnings call.

Regards,
Yogansh Jeswani
Disclosure: Invested

19 Likes

They have also mentioned Q1FY19 Concall that phase 1 of Mundra plant is running at the optimum capacity and Phase 2 will take time of 1 year to run at optimum capacity.
There is no impact of new axel norms on IS demand.
Phase 2 will be more contributed towards export in first year but will cater to domestic demand after the first year.
Management forecasts the 3.5% growth in global demand while 10%+ growth in domestic demand for IS.
Cost of debt for OCCL stands between 8% to 9.50% depending on the loan category.

I still have one doubt that, earlier management used to provide capacity utilisation, vol, realisation, EBIDTA per tonne numbers. What was difference this year?
Also, management said in Q4FY18 concall that they will crystalise the future scenario in next 2 to 3 months. But managemetn denied that they have said such thing in concall. Now they are saying they will crystalise the future scenarion in this year. They didnt mention the reason for delay.

Disc:Invested.

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No, management didn’t used to provide quantitative or realization details. They stopped sharing the same more than a year or two back due to competitive reasons.
I believe the future clarity they have mentioned is around new product or acquisition

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Thank you for the information @ayushmit sir. Yes, they have not mention anything specific about their plan. So It could be product, acquisition or organic expansion.

On the product front, they have been mentioning the requirement of high quality tires and their demand. New axle norms will also have effect on high quality tire demand as load will increase. So it is possible that they may come up with the product used in high quality tire.

Hi Pratik

True that the world is moving towards radialisation. Insoluble sulphur contributes ~1-2% in tyre input cost. OCCL in their presentation always puts up the chart of IS to rubber ratio (i have seen till the May 2018 one and not the recent one yet). The growth is from ~1.3 to 1.4 (2016 to 2020).

They already have a good product portfolio. Below table marks each of their product to that of Eastman’s.


They have said in their call also that they are making inroads into the US and China markets. Also they call out in the MDA that this product has a barrier to entry because there is a long testing process before being marketed to end consumers. So it will take time perhaps for OCCL to impact in these 2 markets.

Rgds

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good results by duncan engineering . PAT of 0.8 cr as compared to 0.25 cr qoq.
seems like cost reduction methods are paying off.

What is the relation with OCCL?

Subsidiary of oriental carbon

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By going through earlier post on this thread I found that crude oil price fluctuation is getting linked with raw material consumption price. Here is my doubt, raw material of ‘Diamond sulf’ is raw sulfer or is there any relation with crude oil?
Please clarify my understanding and correct me if I am wrong in anywhere.

Disc : Not invested. Traking for investment.