Paushak Ltd. - Alembic's agrochemical business


(Nikhil Jain) #1

Paushak Ltd. is an agrochemical business, as mentioned in the topic head, promoted by Chirayu Amin.

Listed on - bse
Current market cap - 176 cr rs
Current market price - 550 rs/share

This is a phosgene derivatives business (isocyanates, chloroformates etc.)

I’ll write down the things I like about this business.

RoiC - 74%
OPM - 25.5% (have improved over last year)
RoCE - 44.5%

This business is debt free, currently.

Topline has grown by 22% YoY for the last financial year while bottomline has grown by 47% YoY.

I am just trying to start a discussion here on this business. If the seniors or other members from the concerned industry can share their views, I’ll be most grateful.

Disclosure :- I hold this stock in my portfolio.


(Abhishek Basumallick) #2

Hi Nikhil,

Some basic questions - what are phosgene derivatives? And where is it used? Also, who are the other players in the industry?


(Nikhil Jain) #3

Hi Abhishek,

http://www.paushak.com/Phosgene-derivative-products.aspx

This page can be a place to start knowing more about the phosgene derivatives this company is producing.

Some of them are used to make anti diabetics and antivirals. Others are used to make intermediates.

Speaking of the competition, I believe BASF and Heubach are manufacturing phosgene derivatives. But I don’t know if they are direct competitors or not. There must be other players too. I’ll post the info as I find out.


(JKS) #4

The stock valuated up today 8%. it was in my watchlist but now looks out of reach to me :smile:


(Nikhil Jain) #5

Kalyan,

I don’t want to preach you or anything but I hope you understand that a movement of 8% means nothing if you like the business for long term.


(JKS) #6

Agreed Nikhil. At 15 P/E, there is a ton of upside, if there is consistency. But, it is one of those momentary timing thing, that enters the mind of even the most professional investor. will take it in stride. I usually have my pre-opening orders and today I failed to do and when I checked later, the vault provided me an instant disappointment. I will get over it !! will be diligent. Studying more, to get the conviction going !


#7

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.


#8

Disclosure: I own this stock.


(JKS) #9

Wish I had seen this before
http://blog.equitygenio.com/paushak-ltd-specialize-in-chemical/


(Nikhil Jain) #10

That’s really good info Vic. I have one question though. Since the business is going to need environmental clearances for every expansion (which I assume to be a tedious process), shall one enter with the expectation of getting out after the company capacity utilization reaches full 400 tons?


(Nikhil Jain) #11

Seems like a decent write up. Thanks for sharing Kalyan. Also, what you said earlier was so true. I feel the same way every now and then. 8% intraday can play tricks on mind.


#12

Nikhil, all I can say is it seems a relatively inexpensive stock at this point. If the expansion is implemented smoothly, it can get re-rated by the market, which can assign it a higher PE. This coupled with earnings growth can mean good capital appreciation. At what point it would be a good decision to exit would need evaluation, in the future.


(JKS) #13

I don’t think, we should worry about exit now. 150 to 400 tons is a big jump. I have written to the co and also tapping my sources to find more on the pollution control board approval. For all you know, I may not find much but trying at least.
Disc - not yet invested but hoping to


(JKS) #14

Nikhil…thanks. That write up was in March but this one showed me that I am just about 4 years late !! yikes…I never seem to catch it young!!! (http://value-picks.blogspot.in/2011/03/paushak-ltd-from-group-of-alembic.html


#15

Phosegene is a chemical item which has to be consumed locally for producing so many derivatives . These derivatives find application in so many industries as such the markets are good. I understand that it cannot be imported as it a very hazardous material. It is not a material which can be moved in containers unless the consumption place is nearby.

Just want to confirm capacity of Atul. I saw in one of analyst presentation of Atul that their capacity is 10MM tons which they plan to double to 20 MM tons by 2025. I dont know whether MM is a typo.MM normally means million. If it is correct than it is not wise to buy Paushak which is just having 4800 MT per year. Can anybody help?


(JKS) #16

while we all contemplate on all this - stock is running away. Today, it is up another 8%


(NMB) #17

Hey guys,

Well this does look like a high moat and growth story for the next 3-5 years with this latest capex.

I am very tempted to buy in.

Cheers
Neil


(Gyan Roy) #18

@sethufan

Below article tells that Atul had applied for increasing their Phosgene capacity to 5000 T.P.A. from 1036 T.P.A and were waiting for approvals in 2014. Looks like Paushak is ahead of Atul as far as Phosgene is concerned.

http://nareshminocha.com/index.php/chemicals/1629-green-nod-to-precede-licence-for-producing-hazardous-chemicals


#19

This is very interesting. I have invested in Paushak but wasn’t aware that it is not possible to import phosgene. Also that it cannot be moved in containers over large distances.


(JKS) #20

I have observed that Paushak stock moves up or down with thin trading volumes and large spread between buy and sell prices. This might be typical for illiquid BSE stocks but try putting a small order on the bid price; within seconds a new order will come out with 5 paisa higher bid. You revise yours to match or go higher and again, there will be that mysterious 5 paisa higher bid…this drama will go on till you cough up a price close to the ask. Whatever float is available is under the grip of vested interests. That said, I am getting the odd order going through