Oriental Carbon and Chemicals Ltd


(Vivek Gautam) #161

ICRA upgrades rating of OCCL to A-

The product mix of OCCL continues to be dominated by Insoluble Sulphur which contributes to more

than 90% of the total sales. OCCL reported 13% (yoy) increase in sales volumes of IS driven by more

approvals from overseas customers, increasing radialisation of tyres in the domestic market and

revival of demand from the European market. The companyâs customer base comprises almost all

major tyre manufacturing companies of the world with whom it enjoys long standing relationships.

OCCL derives ~70% of its revenues from exports with Europe being the major market. The company

also enjoys a dominant position in the domestic tyre industry with a significant market share gained

during its long track record. Closely guarded technology, capital-intensive nature of the business and

long gestation period of about one and half years involving quality checks and approvals from the tyre

manufacturers for commercial production act as the entry barriers for other players in the industry.

OCCL is focusing on increasing the share of value-added grades of Insoluble Sulphur to consolidate

its position in the market as a premium IS supplier.

The operating income of OCCL increased by 16% to Rs. 262.39 crore in FY14 from Rs. 226.61 crore

in FY13 attributable to 13% (yoy) growth in sales volumes and 3% (yoy) higher realisation. The

operating margins of the company increased to 29.3% in FY14 from 26.1% in FY13 owing to increase

in sales of value add products resulting in higher realizations of IS along with depreciated level of INR.

Following lower debt levels due to scheduled repayments of term loan and rise in net worth owing to

robust profit, the total gearing of the company decreased to 0.58 time as on March 31, 2014 to 0.78

time as on March 31, 2013. Driven by improved profitability and capital structure, the coverage

indicators of the company improved significantly during FY14 as reflected by interest coverage of 6.95

times and NCA/Total Debt of 36% during FY14 vis-a-vis 4.63 times and 23% respectively during FY13.

The company may undertake debottlenecking at its IS plant which would increase the annual capacity

of the plant. However, the final investment decision is yet to be taken by the company.

Schrader Duncan Limited, the subsidiary of OCCL, is into manufacture of automotive tyre valves and

pneumatic products such as air cylinders, valves, and accessories. There has been improvement in

operating performance of the company over the last one year as the company reported marginal

operating profit of Rs. 2.15 crore in FY14 against operating loss to the tune of Rs. 0.58 crore in FY13

in the backdrop of increase in sales volumes in the automotive business and various restructuring and

cost reduction initiatives undertaken like shifting of facilities at single location which, in turn, eliminates

duplication of cost. The ability of SDL to trim its working capital cycle and improve internal operating

efficiencies remains critical for its liquidity profile.

The production and sales volumes of OCCL are expected to increase over FY15 on account of

improvement in capacity utilisation for Mundra plant in view of high export volumes in line with modest

recovery in demand from the Europe and higher domestic demand driven by increasing trend of

radialisation of tyres. Higher-than-anticipated debt funded capex or substantial fall in profitability

leading to significant deterioration in debt protection metrics would be the key rating sensitivities. The

ability of the company to scale up its operations while efficiently managing higher working capital

requirements would be another rating sensitivity. Further, ICRA would also keep monitoring the

operational performance of SDL and its impact on consolidated financials.


(Vivek Gautam) #162

Good move in OCCL to 547 today. Stock Still at sub 10 PE level. Seems informed buying is on by HNIs n FIIS.


(Vivek Gautam) #163

We’ve noticed, since we began distributingOCCL’s insoluble sulfur products, that some customers are using Chinese manufactured material, due to its cheap price. We strongly believe that you should consider ChemSpec’s insoluble sulfur (DS OT 20 HD & DS OT 20 HS)–even if priced higher than the competition–because of our products’ quality. This really comes down to the old adage:you get what you pay for!Generally speaking, to be used properly in commercial manufacturing, insoluble sulfur needs to have the following characteristics:

  • High Thermal Stability,
  • High Insoluble Sulfur Content,
  • Controlled fineness,
  • Absence of any hard particles,
  • Low ash Content, and
  • Absence of any foreign particles and low Iron Content.

The above is necessary to ensure that the material does not bloom , disperses well, and there is no ingress of undesired material inside the rubber compound. You will notice with Chinese-manufactured Insoluble Sulfur–from any supplier–that several of these parameters are likely lacking. This is the reason that no Chinese suppliers presently have Global approvals from any of the major tire manufacturers (NOTE: our product does have global approvals from the international tire producers). The processes used by Chinese producers commonly have some very basic, but serious, production issues–namely the following:_1). Production technology that cannot attain the above-described desired production parameters;__2). Production technology that cannot assure stability in the production performance parameters;__3). Their production processes do not use high grade quality stainless steel, which causes high corrosion levels and increased iron content;__4). Inadequate grinding technology, which does not allow uniform grinding; causing particle size distribution problems; and__5). Manual handling during some important production steps, translating into improper ingress of foreign material (our supplier’s process is automated)._Oftentimes, these failures result in, over time, the Chinese material chemically changing back to straight sulfur. So this problem is amplified if a customer is purchasing this material and having it shipped from China to another continent (i.e. North America), where the product sits for several months before being placed into a recipe.For any further inquiries, please reach-out to us atChemSpecLtd.com(or your respective sales representative).


(Vivek Gautam) #164

by Chris Wagner, ChemSpec Sales Coordinator

ChemSpec is pleased to announce two new insoluble sulfur products it is now distributing on behalf ofOriental Carbon & Chemical, Ltd(aOCCLa). The products are DS OT 20 (HD) and DS OT 20 (HS)[the Specific Gravity & Bulk Density of both are (at 30C) 1.58 0.05, and (g/L) 400 to 650, respectively]. These products typically come in 25-Kg. bag packaging. ChemSpecas principle, OCCL, an Indian company, is one of the global market leaders in the production of Insoluble Sulfur for the Tire and Rubber industry, both in terms of quality as well as quantity. OCCLas production capacity presently stands at 22,000 Mt per annum (with new capacities slated to be added in near future). OCCLas commitment to quality is illustrated by its ISO 9001-2000 and EMS 14001-2004 Certifications._OCCL’s insoluble sulfur is internationally approved by the major tire manufacturers._Insoluble sulfur, an amorphous form of sulfur, and made from the heat-polymerizing of sulfur, is a macromolecule polymer. It is a critical rubber additive, and improves product quality, wearability and resistance. Recognized across the industry as likely the best vulcanizing agent due to its avulcanization speed,a it is used in both the manufacturing of radial and synthetic rubbers, such as these products: tires, automobile parts, rubber piping, cable and wire, shoe materials, latex, and belt tires. Insoluble sulfur also tends to disperse uniformly in rubber, so it can prevent the conglomeration of sulfur, and reduces the tendency of scorching during store. It is also used to prevent ablooming.a


(Vivek Gautam) #165

OCCL entering US market is a big step akin to Indian pharma cos entering US market as US market is the biggest of all and USD remaining strong and US economy recovering well.

OCCL Mundra plant expansion is on which should cater to US market.Co should move to next orbit in 2 years as opportunity size suddenly multiplies.

Execution track record of promoters is on track.valuation too seems most reasonable at CMP.

Views invited.


(Rohit Balakrishnan) #166

Hi Vivek,

Completely agree with you that entering US market is a big boost to the company’s prospects for the reasons you mentioned. Just wanted to know what’s the source of this news. The reason I am asking this is that, if I understand it correctly chemspec has been distributing occl’s products previously as well. Have they expanded their distribution to the US markets also or my understanding is wrong? Thanks


(Varadharajan Ragunathan) #167

Rohit

this is from a press release on chemspec on its website. From what I understand, these new products from OCCL have found acceptance in the US market as a second vendor to eastman.

In most cases, distributors start with small volumes and once they are satisfied they make the beta release alpha.


(Rishi) #168

In the context of significant potential, the challenge OCCL would face would be in expanding Insoluble Sulphur capacity. They plan to expand capacity at Mundra where land is available. But Mundra plant is in Adani SEZ for which the environmental clearance is under litigation in Supreme Court and till disposal no construction is allowed. It depends upon the timeline to settle the litigation and further time for expansion of the plant. Considering the capacity utilization this seems to be a key hurdle in the near term.


(Rishi) #169

Correction to my previous post. The environment clearance came through last year. But I was not able to find out if OCCL is going ahead with capacity expansion at Mundra. Any news on that?


(Kartik Mahajan) #171

Hi, This is my first post on VP.

Q3 results are out. Almost Nil sales growth YoY as well as decrease in Profits. Decrease in sales QoQ. Any reasons for such poor results?

Views invited.


(vaibhav) #172

Very low no. of shares trading in this counter.Yesterdayeven less, only 475 shares were traded in delivery, that is 2.18 lacs , around 0.0045% of the total equity (Mcap is 472 Cr). Looks like the sellers aren’t many at this price.

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

disc: invested, views may be biased.


#173

Good nos from OCCL , Margin improved :slight_smile:
http://www.bseindia.com/xml-data/corpfiling/AttachLive/D69232C3_89B9_49F5_B59C_3F0EB9C09044_181746.pdf


(Vivek Gautam) #174

Yes dividend increased to 8.5 rs per share,PE v cheap at 8 for fy 16,mundra plant expansion on which will cater to huge US mkt doubling the opp size,euro appreciation impact to recede following price increase in a qtr or two,good growth in CV mkt in India.
buy on dips and hold


(Raj) #175

Hi Vivek , its Rs 5.5 /share (http://www.bseindia.com/corporates/anndet_new.aspx?newsid=85931ead-8d39-47e2-9f32-5bac15bada61) . Nevertheless , excellent results.

Disc - Invested


(Hemant V Bhatia) #176

Hi,Check again, as they already paid Rs:3 as interim dividend.


(Sunil) #177

Not really good nos, sales have not grown in proportion of expenses. Margin improvement looks good because of other income. However future prospects looks good.


(vaibhav) #178
  • An oligopoly
  • Capacity expansion with Good growth prospects in the US and elsewhere.
  • Dividend yield = ~2%
  • FY15 RoE = 22.5% , average RoE for last 10 years = ~20%

Valuations are cheap at cmp of 480/- imo.

Disc: invested.


#179

OCCL Investor Presentation !!
http://www.occlindia.com/_financials/_presentation/OCCL_Investor_Presentation_FY15.pdf


(Varadharajan Ragunathan) #180

I thinks like a steady compounder - 10-12 % topline growth and 15 -20 % bottom line growth with an occassional year of 20-25 % EPS growth. I am adding below Rs. 420/-- eventually this will re-rate after 2-3 years to 12-13x.

A 7x forward for a 20 % RoCE, monopoly, steady growth biz is quite low.


(Aditya M. Wagle) #181

Oriental Carbon announces capacity expansion at Mundra

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=68ae811f-1a7f-4dcb-9f27-a4394199c618

Oriental Carbon Q1FY16 numbers
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/610A674F_14FA_4BC7_9D3E_1E8084E14C43_151620.pdf