Sadhana nitro :a Dog or a Horse?


([email protected]) #23

Thanks for the documents and it does explain the rationale for the performance of stock.

Just couple of quick question : can we track the price of MAP realtime

Also like SNCL : are there others increasing capacity of MAP ? How difficult or easy it is to set up new capacities ?

This can help a great deal…


(Ayush Mittal) #24

One can see the trend with a lag of a month or two:


(Akshay Kumar) #25

I think, Vinati organics is adding capacity of MAP.


(barathmukhi) #26

Hi Ayush,

Never knew we could track commodity / chemical prices from Screener. How do we go about searching for a particular commodity?

Regards,
Barath.


(rupaniamit) #27

I wanted to share few things that caught my eyes:

  1. SNCL had 32.5cr of advance payment from customers as on 31/3/2018. Good chance that these are spot order payments and not long-term contract advances. These advance payments should help reduce working capital cycle anyways. This definitely shows demand-supply tide has turned in their favor. As we know supply squeeze moats are not long-lived and will have to see how long this trend will last.

  1. Management claims that it’s quality sensitive end applications of intermediates go into end applications like cosmetics, aerospace, military, etc. These end applications are very quality conscious and can prove to be sticky business. Will have to check what % of revenue is being contributed by these quality conscious end application products.

  1. 90% domestic share in MAP market and largest supplier of MAP in both volume and value terms globally presently. I’m wondering how difficult can it be for any existing players in India to start producing MAP and other products that SNCL is producing?

Strong tailwinds in shorter term for SNCL. Will have to check how sustainable their current momentum is. Supply side constraint tailwinds can easily become headwinds when industry supply issues are resolved. But breaking into quality conscious end application clients is also very difficult. Interesting times ahead for SNCL.

Disc: invested


(rupaniamit) #28

Is anyone aware of BSE rules that determine when and how does a script enter and exit X group?

What would it take for SNCL to get out of X group?

I googled this but search result were not much helpful.

Thanks,
Amit


(rupaniamit) #29

Sadhana’s expected strong performance continues https://www.bseindia.com/xml-data/corpfiling/AttachLive/21ca8476-1c82-4ada-a12b-6e1333c55924.pdf:

image

Other current liabilities shows 31.49cr balance. Good chance that company is still receiving advance payments for the orders.

Disc: invested


(Ayush Mittal) #30

Unbelievable performance continues. It seems the prices have further increased:


(Nityanand) #31

Is this features available in Screener for Gold membership?
Does it show specific product details for a particular company or is it for all commodities?


#32
  • MAP makes up the lion’s share of the company’s sales (71 percent)
  • A majority of SNCL’s revenue comes from exports (76 percent) and its major clients are L’oreal, Huntsman Advanced Materials, Tejin and Bayer Crop Science
  • SNCL’s expertise lies in a niche segment of the nitrobenzene value chain, for which it sources raw materials like benzene, nitric acid, caustic potash, sulphur based chemicals and iron powder
  • SNCL claims to have a 90 percent market share in the domestic MAP market and is among the largest suppliers in the international market. MAP is used as an ingredient for hair dye colorants, stabilizers for plastic processing and tracer dyes
  • Given the improved demand for MAP and Aniline 2,5 Disulplionic acid, the company is increasing its capacity by 50 percent for each, which would be completed by the end of FY19. After the expansion, the net capacity of MAP is expected to be more than 3,000 tonne
  • Currently, SNCL is a key beneficiary of supply-demand imbalance in the MAP market. A shutdown of facilities in China on account of pollution norms enforcement have been the key trigger
  • A key business risk for the company comes from the limited barriers to entry in the products under operation.
  • 95 percent of nitrobenzene is used for the production of MDI, which in turn is used to make poly urethane (used as foams, footwear, insulation). However, a persistent supernormal profit can prompt many chemical entities to look at the MAP opportunity
  • Back in India, GNFC is among the major producers of nitrobenzene, with an installed capacity of 47,250 tonne, much larger than SNCL’s own need. While the bulk of GNFC’s capacity is used in-house for manufacturing derivatives like Aniline, it sells about 3,000 tonne to other entities.
  • The size of opportunity is not huge enough (around Rs 2,000 crore) to attract any global/regional major
  • The company’s product diversification plan is crucial for the re-rating

(Akshay Kumar) #33

What if these facilities in china are back to operations? Growth does not look sustainable.


(kalidasa) #34

A few points from the management commentary a few months back (last few pages of https://www.bseindia.com/xml-data/corpfiling/AttachHis/f24cef81-4fb1-455a-bf27-e4c3113651a5.pdf):

  • SNCL has worked on a long-term sustainable strategy. They claim to have an inherent quality advantage over Chinese manufacturers.
  • Diversified end-applications in fields such as cosmetics, aerospace, military applications, agro chemicals, pharma and several others.
  • Major clients are global MNCs. Some of the customers have been buying for over two decades and have been steadily increasing quantity purchases year on year.
  • The major customers form the anchor sales on which revenues have grown to a sustainable level.
  • The contracts are mix of multi-year contracts, yearly, six months and quarterly contracts. They don’t have monthly contracts. The effect of the spot prices of MAP is therefore limited.

The Moneycontrol article does not seem to consider these points.

Disclosure: Invested and biased.


(rupaniamit) #35

Company presentation giving very helpful insights: FY2019_Nov2018_Sadhana.pdf (2.9 MB)

Key Takeaways:

  1. Fully vertically integrated player in Benzene space
  2. Reduced dependency on sourcing intermediates from other manufacturers
  3. 60% of revenue from relationships that extend over more than 10 years.

Disc: invested


(Ayush Mittal) #36

Updated chart:


(Amey A Kulkarni) #37

I have done an assessment of the company.
The management assessment reveals some very interesting stuff

  1. Management compensation and its meteoric rise
  2. Preference shares - modifcation of terms and conditions in 2016-17 and redemption at a premium in Jun-18
  3. Non-cooperation with credit rating agency - CRISIL

I have highlighted this in detail here
https://candorinvesting.com/2018/12/19/sadhana-nitro-chem/

An important factor in the investment decision is - will the end-product prices which have risen 250% in the last 1 year continue to increase/remain at the elevated levels for a good time in the future?

Experts in the chemical industry please comment.


(rupaniamit) #38

@amey153 - thank you for sharing your work on Sadhana!

While I’m not an expert in chemical industry, but I have a question after reading your assessment.

  • Though China has started implementing its environmental measures strictly over the last 2-3 years, China is capable of shifting its industries from populated cities to far off provinces in a reasonably short time period and restart production with larger capacities. - Is this based on your opinion or fact? Can you please share any source confirming if China has already shifted its industries (any chemical niche) in short period of time and restarted production with even larger capacities.

(Prasadkumaresan) #39

I have a small info that China imports 33 pc of our meta amino phenols for 2 consecutive years now.


(Prasadkumaresan) #40

Thanks for the info. Can u get the chart or prices of odb2( cas 89331-94-2) and that of ANDSA(Aniline 2,5 disulfonic acid) as well. This three form 90 pc sales of SNCL.


(Ayush Mittal) #41

Hi @amey153

You are right that its not easy to take a call on cases where there has been a substantial increase in product prices as things can change quickly for bad and these days markets are too smart and ahead of the public. People find ways to track product prices on frequent basis.


(kalidasa) #42

I think the basic questions while investing in SNCL are:

Fundamental shift or not?

Whether there is a fundamental shift in the chemical industry due to China’s clampdown on pollution, or not.

First, will China go back to its commitment to stringent pollution norms? China has not gone back in the last 2 years. I don’t see it doing so. Many Indian chemical companies are investing in huge capacity expansions ranging from 0.5x to 6-7x, not without reason.

Second, if MAP production was not profitable for SNCL until 2 years back, why would it be profitable for any Chinese factory after the clampdown on pollution, if MAP prices were to fall to the 2016 levels? This makes a case for sustainability of MAP prices above the 2016 levels.

Commodity play or not?

Whether it is a pure commodity play, or is it really difficult to produce and sell high-quality MAP as the management claims in its commentary (link in my earlier comment). Does SNCL have an advantage of vertical integration as management claims, which reduces the dependency on sourcing intermediates from other manufacturers? Does SNCL have the advantage of long-term relationship over decades with big customers?

33% import by China (as per another comment above) seems to suggest that Chinese MAP suppliers are buying MAP from the likes of SNCL and selling to their customers in order to sustain their long-term relationships. Will these customers start partially importing from Indian companies to hedge their position in the long term?