Sharing my notes from Q1FY19 earnings call.
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.
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
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.
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.
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
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.
They use naphthenic oil in their process which is linked to crude oil.
Duncan engineering - Good result. Management managed to convert it into profit making business from loss making business. This shows the quality of management. They did what they said. Overall, results were excellent driven by the reduction in “Other expenditure” and reduction in finance cost. Finance cost reduced 45% QoQ.
Any inputs/view on this sudden rush of buying from promoter group?
Disc : entered with very small position for tracking purpose,have plan to add more.
Cant read into this much as only 3 Cr worth of shares(market cap is 1100cr plus) has been bought by promoters, if they are raising stake pretty fast like what happened in VIP Industries , then its something worth exploring more.
Can anyone explain the use of Insoluble sulfur in tire industry in leymans language?
Also, if OCCL is facing loss on Sulfuric acid plant, then why are they continuing with the business?
Insoluble Sulphur is used as a vulcanisation agent. I suggest you read a bit on Vulcanisation. You may have come across this term in elementary school science. This is essentially creating cross-links between layers of polymers. In the tyre industry, rubber is vulcanised with insoluble sulphur which increases the elasticity and strength.
There is a very nice document available in public domain. I am attaching it to this post. I think it is a must read if you are interested in this area. The document covers:
Do have a look. Maybe I have shared it before but I do not recall.
What is ‘radialisation’ and how it is going to change the tyre industry, can someone please explain it in layman’s term? I tried to google it but concept is not that much clear to me.
The expansion plan of various Tyre manufacturers augurs well for OCCL (from https://www.alphainvesco.com/blog)
Capacity Expansion Plans : The Indian tyre industry is expected to see significant capacity expansion in the upcoming two to three years. All major players in the industry have announced their plans
MRF has announced to set up a new facility in Gujarat where it plans to spend ~Rs 4,500 crores over next few years
Apollo tyres laid foundation for their fifth Indian facility in Andhra Pradesh which they will manufacture passenger vehicle tyres. The company is spending ~Rs 1800 crores in the first phase of the project. The facility is expected to commence operation in two years from now. Apollo is also planning to expand its T&B capacity at the Chennai plant which is expected to commence operations in this financial year
JK Tyres: In 2016, JK Tyres acquired the Cavendish tyre business from the BK Birla group to enter in the two-wheeler segment. JK Tyre now plans to expand its T&B tyre capacity by ~0.6 mn units at the Cavendish facility by investing ~Rs 275 crores
CEAT has announced a capex of ~Rs 3,000 to 4,000 crores over next 4 to 5 years. The company is entering into the OHT (off-highway tyre) segment with a new facility in the Amber Nath. The company has started its operations at a very small scale and plans to expand it further to capacity of ~100 MTPD. CEAT is also planning to expand its capacity significantly PCR with a greenfield expansion in Chennai which Is expected to come online in line with Apollo’s Andhra greenfield facility. It also has plans to expand it T&B and 2/3-Wheeler capacity by brown field expansion at Halol and Nagpur plant
Balkrishna Industries is coming up with an additional greenfield facility in the US with a capex of $100 mn (~Rs 700 crores) which will manufacture 20,000 tonnes of OHT tyres every year. The company is also spending ~Rs 500 crores in its domestic Waluj plant which will generate incremental capacity of 5,000 tonnes every year. Balkrishna also plans to set up a 140,000 tonnes/year carbon black facility
Bridgestone India is planning to spend ~$304 mn to increase its current capacity of 15,000 tyres per day to 41,000 tyres per day Looking at the above expansion plans it seems there could be a competitive scenario amongst the tyre companies to gain market share as majority of the capacities have similar timelines. The tyre companies might grow at a decent pace by selling more tyres however, their margins and return ratios might take a hit in order to achieve market share
I used to hold OCCL earlier and don’t track it much now.
If my memory serves me right, not all of India’s IS demand is fulfilled by OCCL, good portion is still imported, not because OCCL cannot supply but out of preference I believe. Exports constituting 2/3rds of sales in fy18 corroborates the above statement. More so, OCCL is looking for markets outside India to grow, US and China. The ratio of imports to domestic sales in India could further give insight on the above.
Though a lot of tyre capacity is coming in India, the question remains if OCCL will significantly benefit out of it?
The plausible reasons why tyre manufacturers in India import IS is because it’s cheaper to import or may be OCCL can’t match up to the gradation/ customisation.
Its also possible that market in India at present is really small and keeping in mind the tyre manufacturer’s need to have diverse sources of supply, OCCL can only sell as much in India. (Again, ratio of imports to domestic sales in India can prove/disprove this point.)
Even I’m gung-ho on domestic demand that will arise for IS as a product but it remains to be answered how much will OCCL benefit.
I could be ludicrous in my thinking and open to opinions.
Yes, mostly IS costs only 1-2% of total tyre cost to tyre manufacturing company but it improves the quality drastically. In addition, companies don’t trust the other IS suppliers easily. They test it for atleast two years before finalising it. So, in case, if they depends on only one IS supplier and face any problem from that supplier, their manafacturing will stop. So, it is kind of precautionary measure to diversify the risk of supply issues… so if you see, it is common for every tyre manufacturer to have at least 2 IS suppliers… This is the reason why OCCL can not accquire 100% market share or even >90% market share in India even after the fact that it is the only domestic player… price is not at all issue in this contex…