Paushak produces Phosgene and its derivatives. The other companies into this are Atul Ltd and BASF. Atul is the only other Indian company licensed to produce phosgene. This is a moat for it. Other companies can’t just jump in to compete with them. Phosgene being a hazardous chemical/gas is heavily regulated. After trying for several years, Paushak received approval from the Ministry of Environment and
the Ministry of Industries for expansion of capacity from 150 tonnes per month to 400 tonnes per
month. Paushak had applied for 5000 tonnes per year but received approval for 4800 tonnes. I understand that approval from Gujarat Pollution Control Board was awaited. I do not know the current status of this.
If you look at the March 14 results of Paushak, at BSE you will find substantial ‘Capital work in progress’. This reduced in September 14 and Capital assets went up correspondingly. This continues further in March 15 results and now only a small amount is ‘Capital work in progress’. This indicates that they have
gradually added capacity. This is my inference and needs confirmation from the company.
Right now, the results that you see (March 15 quarter annualized EPS is 52) is based on the 150 tonnes capacity. Once this expands to 400 tonnes per month, we can expect sales and profitability to improve. Paushak is debt free and their net profit margins have gone up substantially this year. They accounted for the entire CSR expenditure in the last quarter. Take that into account when you consider the profit growth.
Based on the annualized EPS of March 15 quarter, the PE is less than 12 at the current price of 590. Considering that the profit margins are around 25% and we can expect better sales and profit margins from here onwards, post-expansion, I’m very optimistic about both; its earnings growth and the PE ratio that the market will give it.
Another factor I like about this company is its sound management. Chirayu Amin of Alembic group has the capability to build a large company from the ground up. That’s the sort of management that you want when a company undertakes an expansion.