Shree pushkar – specialty chemicals
Mcap= 511 cr.; P/E= 19 ; ROCE= 21.86% ; ROE= 17.72% , promoter holding is around 60 percent.
Single Plant located in Lote Parshuram , Maharashtra
Manufacturer of dye intermediates, reactive dyes, cattle feed , fertilisers, acid complex .
In 1993 company was engaged in trading of chemicals. It switched to manufacturing of dye intermediates from 2000 .Over the last 15 years company has done backward integration by putting up capacities for manufacturing RMs used in dye intermediates. It has a capacity of 8000 MTPA for dye intermediates. Main dye intermediates compounds involve Gamma Acid, K-Acid, Vinyl sulphone, R-Salt, Meta Ureido, etc. The company is the worlds largest manufacturer for K Acid. Dye intermediates are used for making dyes which are further used for colouring textiles.
In H1 FY 2017 this dye intermediate division contributed to 72 percent of revenues of the company. The clients of the company include big companies Huntsman Corporation USA, Arochroma Switzerland. Its operated currently at an utilization level of around 70 percent. The realisations of vinyl sulphone is Rs. 400/ kg and of Hacid is Rs. 425/kg. Vinyl sulphone is a product which is in great demand, due to the closure of factories in China(environemental concerns) and price of this product is expected to remain high., as per the guidance given in the Q2 concall. (http://www.moneycontrol.com/news/business/what-risevinyl-sulphone-price-means-for-indian-dye-makers_7459061.html)
Since the major focus has shifted from China to India for the manufacture of these products many Indian companies like Kiri Industries have been putting up huge capacities for the manufacture of these products. However given the fact that Shree Pushkar is completely backward integrated it should be able to fight competition on a price basis. The world market for dye intermediates and the amount produced in the factories of China need to be studied to get a better picture.
The company has decided to forward integrate by starting the manufacturing of reactive dyes. Reactive dyes is a special type of dye which makes covalent bond with the fiber and become a part if it. It has put up a plant of capacity 3000 MTPA which started its commercial production from May 2016. The capacity will be increased to 6000 MTPA by Q3 2017 with a marginal capex of 5 cr. According to latest concall the management says achieving a capacity utilsation of 35- 40 % will break even this project. The amount of capital involved in this expansion and forward integration plan will be around 60 cr. The money for this expansion plan was raised via an IPO in August 2015. (61 cr was raised).
One of the great features about this company is that it has a zero waste discharge factory. Effleunts generated from one product manufactured are used to make other products. Products like fertilisers , soil conditioners and cattle feed are made by these waste effleunts.
SSP , NPK , SOP , Soil conditioners are some of the products made in this division. FY 16 sales of fertilizer volume was 55606 MT and revenue was 48cr.( 20 % of total). The capacity utilization of the division was 48 percent implying a capacity of 1.16 lakh MT. The sales were a bit low last year due to delay in monsoons. The company obtained a NPK fertilizer license after a struggle of 2 years. 20000 MTPA capacity was put up which got commissioned in Feb 2016.
10,000 MTPA capacity of SOP is put by the company whose commercial production has started from Sept 2016. HCl is generated as an effluent during manufacture of SOP. Hence to follow zero discharge policy the company will be using that HCl to make calcium chloride granules. 6500 MTPA capacity is planned of calcium chloride whose commercial production has started in November.
They have an exclusive marketing arrangement with DCM Shriiram in the fertilizer segment for SSP in Karnataka and Maharashtra. They have launched its own brand Dharti Ratna in Western Maharashtra for soil conditioner.
The products of this division are mostly captively consumed and they include Oleum, Sulphuric Acid , CSA . This division contributed only 4 percent to the revnues in H1 FY17.
Key Strengths of the Company –
1. It is backwardly integrated hence making the products more cost efficient.
2. Has zero debt on its balance sheet.
3. Its becoming a one stop shop for the textile industry. The management plans to go into textile chemicals next year, they have already purchased land for it( as said in the latest concall)
4. It is a zero waste company. In fact the effluents are used to make new products making the company more cost efficient. It also saves the cost to treat the effluents.
The company has delivered a strong financial performance over the last 5 years.
Revenue CAGR – 14 % ; consistently increasing capacities by the cash flows generated from the business
EBITDA CAGR- 18% ; as the OPM has improved over the years. The management believes the OPM is going to be around 20 prcent for the year owing to more value added products and also higher realisations on dye intermediates
PAT CAGR – 43% ; due to financial leverage as the company has paid down its debt over the years.
The manangement has given a guidance of revenue of 350 cr this year followed by 450 cr next year, based on the expansion plans. ( Revenue was 250 cr in FY 17)Also the prices of some of the products are commanding a higher realisations due to higher demand, the company is venturing into forward integrated products, an EBITDA of 20 percent will be achievable.
Key Risks –
1. Competetion . Since the focus has shifted to India from China , many companies are putting up capacities to manufacture dye intermediates. The market for this segment, the growth expected in the market and the capacities being put up by the cos need to be studied in order to understand this point better.
2. The revival of the factories in China which were shut down for dye intermediates.
3. Unpredicatble monsoons is always a risk but that was not the case this year .