Shree Pushkar Chemicals

(chikspat) #41

Here is update from ICICI direct. Where FY18 EPS target is 14.6 and FY19 is 16.4 (Which seems less to me because company indicated growth forward in FY19 also. Any comments are welcome.

Holding positions from last year.

(Changu Mangu) #42

Promoter Bulk Purchase Yesterday
Shares 2,00,000
Purchase Price 207.25

(Rohit) #43

can you please share the source of info…I cant see anything on bse website

(Changu Mangu) #44

Then enter script code: SHREEPUSHK and date 22 May 2017 to 22 May 2017

(chets) #45

@valuestudent. How do we read this?
In general promoter buying from open market is a good sign. However in this case looks like a fund has offloaded shares to the promoter.

(Changu Mangu) #46

Chets. I would only read it positively. For the simple reason that the fund could have sold the 200K shares to the promoter or in the market. The fact is the promoter paid 4 crores plus to purchase further stock in his own company at this price is a massive show of confidence. He had also in the past done a purchase of around 100K shares a year or so ago at 118 Rupees per share if memory serves me right. Basically the promoter is regularly buying back his own shares, does not matter where he buys them from. It’s a :thumbsup:

(Mridul) #47

In FY17, revenue mix was -

dye intermediates ~63%
fertilizer ~18%
dyestuff ~13%

In Q4 FY17, dyestuff as % of sales stood at ~19% vis-à-vis ~6-7% in H1 FY17.

By FY19E, with additional dyestuff capacity coming online… along with increasing captive consumption of dye intermediates, dyestuff will probably takeover dye intermediate as major contributor to revenue. This will result in operating margin expansion by ~150-200 bps i.e. 18~18.5%.

Management is not worried about Chinese players, though we as investors do need to be wary of this. At some point in time there will be margin pressure, as Chinese players are formidable and with huge capacities. They might now not be as competitive as they have been in the past, but still they will obviously try to sell their stuff, resulting in overcapacity in dyestuff segment, which could eventually lead to pressure on the margins.

Topline this fiscal will increase by 25-27% (lets be a bit conservative).So expecting 400 cr topline with 18% operating margins, with 33% tax. Depreciation will be close to 6-7 cr. So, ~ 42-44 cr bottomline. As per these back of the hand calculations, stock is trading at 16 times FY18 p/e. at 225. Does anyone think there is still some more upside left here?

One fundamental question that keeps bothering me about my investment in Shree Pushkar. Should we treat this as a cyclical opportunity i.e. short - medium term (2-5 years opportunity) till expansion plays out along with business tailwinds, or should we treat this now as a core portfolio bet. Management is trustworthy without doubt and is very much forthcoming. But i am not so sure about the sector. Will their entry into textile chemicals lead this to a more stable fundamental bet?

(Changu Mangu) #48

Dear Mridul, Your calculations seem to be on par with the expectations on top and bottom line. So then there is visibility for at-least 12 months.
Will it trade at 16 pe or 24 pe? Let’s reverse that to get an answer. Would you be a buyer if today the stock was at 16 PE trailing?
If yes, then we have a margin of safety that if there is a correction in the markets this will protect the downside with it’s results if it trades at 16 pe.
Now growth, we really have to wait for the full capacity expansion results to start playing out and the disclosure on the further foray into textile chemicals. I will expect them to give us updates every year on the plans for the forthcoming year. That we can watch.
The management has been able to continuously innovate and are for all purposes debt free. Any particular reason to think or suspect that they will not innovate from here?
Is it cyclical? Is it a core portfolio? That will be discovered in time.
One thing is for sure, the debt free status and innovative growth and profit oriented management is a plus not a minus. To say otherwise would be to say let’s invest in a debt laden non innovative management who cannot show growth in sales and profits and that will make money :slight_smile: We know what makes money always. Need to get over the “fear”.

(Mridul) #49

The question about whether this could be a core pf stock depends not on anything else but the sector it is in. Everything else does look good (Mgmt, growth, balance sheet). Usually, chemical sector has been cyclical…though things are changing.

But all investment vaterans say that one big mistake in investing in a very good cyclical company is thinking it is non cyclical. So the concern.

(Changu Mangu) #50

Mridul. The winds seem to be changing but we can only know in time if this industry is seeing a long term shift to becoming a key Indian industry like pharma or IT came around. Only time will tell us that.

One thing is a fact, if that does happen and I do think we are seeing the first steps of that shift then it will become a core holding. I have been studying the speciality chemicals industry quite intensely and the evidence is showing up. The international customers migrating to India, the strict existing compliance laws in India, the new laws on chemical waste treatment. I think our bureaucrats insisting on everything being top notch made us do compliance way in advance before the wave started building. It’s helped us get of to a good start.

I think the customers are mature and SP for example is now also going after global customers. The first hint was the blue sign. They would invest in it only with a long term plan. These customers have very strict compliance laws. We are able to supply to them. Not being biased, but after burning their fingers I really don’t think the buyers will be going back to the old suppliers anytime.

Also, China is but one supplier. In fact they were a strong supplier and these companies I am studying and investing in did impressive numbers when India was not the preferred choice. But now that we are power hitting China and so many other European companies who cannot manufacture these because of their own environmental laws it’s a win for India.

Why SP: It’s a fully green company and will tick the right boxes with customers. There are a few other green companies but this is the unique one in the products they supply.

Also, their backward and forward integration strategy is classic. Don’t want it to sound like worship and it’s not, but they are thinking like the small Dhirubhai. They remind me of the business strategy he played out.

The stock price may dance around but it is a very fundamentally strong stock.

(Kumar Saurabh) #51

In your previous post ,you ve hit at right spot. At the end, it’s a commodity which will ho through its cycle of over and under capacity without any unique differentiator for long. In developed economy, such busineses have been cyclic with capacity shift, I do not see a reason why it should be different this time . Disc : holding with 1-2 year view

(Changu Mangu) #52

@Mridul I have to make a disclosure. I have had to exit my position in Shree Pushkar. The reasons are not related to Shree Pushkar as a business and I look forward to building my position again as soon as possible unless some facts change in the meanwhile. I will post a disclosure when I am back in.

(Mridul) #53

Promoter buying from open market at 185, 198, 225 in last few months. Makharias continuously upping their stake in the company even at all time highs. That is great to see…

Stock isn’t cheap but this act is a definite confidence booster.

Very ethical promoters!

(Changu Mangu) #54

@Mridul It is excellent. As we know stocks are cheap for a reason and expensive for a reason. Expensive stocks generally don’t get cheaper unless there is a broader market correction which cannot be absolutely predicted. Yeah so slightly uncomfortable on the current valuation, but seems like a good place to be in than most others.
Disc - Currently not invested.

(chets) #55

For those who are interested, the conf call transcript is now available on the exchanges:

(vinay ambekar) #56

Some excerpts from the concall transcript:

Dyestuff contributed to 13% of revenue for fy 2017, with higher contribution of around 19% in quarter 4. Dye intermediates which comprises of around 63% of the revenue, saw a volume growth of about 21% from last year. While in value terms, the dye intermediates business grew by about 15%. Co sold almost 1,400 tons of dyestuff in comparison with our capacity of 3,000 tons, all of it post Sep 16. And plans to sell about 4000 tons in FY18.

The fertilizer segment contributed about 19% to the sales and witnessed a volume growth of about 8% and revenue growth of about 18%

implemented and improved our zero-waste ideology over the past few years

Speciality chemicals generates high level of waste, companies like Shree Pushkar Chemicals which have a compliant status have many advantages and stand to gain from China’s gradually declining share in the global colouring industry

Foray into textile chemicals very soon will position us as a complete textile solution provider company. There’s a good explanation on the importance of textile chemicals on pg. 17

7%-8% of revenue from exports. Export volumes will be much larger in fy18. Blue Sign accreditation is a very high quality standard accreditation given by a company based in Switzerland that is highly respectable accreditation expected to boost international marketing for the dyestuff. Accreditation expected by Q2-Q3.

CAPEX for financial year 2018 will be roughly around Rs.15 crores. New dyestuff capacity is under implementation and should be completing by Q1 fy2018. Doubling dyestuff capacity by 3000 tons per year by Q1-Q2 fy 18 (current capacity is 3000 tons per year), b) doubling of SOP capacity by Q3 fy 18 –from 10000 tons to 20k tons

Ballpark realization in dyestuff is around Rs. 300 to Rs. 350 per kg. In the last quarter average Vinyl Sulphone realization was around Rs. 275 approximately similarly H-Acid also close to 400 some odd amount. Price trend has been reducing over Q1 to Q4, Hence management expects these will go up going forward, but prefers that they remain stable, even if no increase. Increase in volumes was main contributor to the financials.

GST - existing tax rates as of now is 12.5% excise and then it is 6% VAT or the 2% CST. I believe the new tax rates have not been published up till now. But co believes that it should be around in the same range or 1% or 2% higher.

The situation is not at all clear in China. In fact, Hubei Chuyuan started only for inhouse consumption of intermediates and producing dyestuff from those intermediates. They are not yet into the market for selling of the intermediates. They are not able to start their capacities to the fullest level. Compnay said that they heard that again Hubei Chuyuan faced some big problem and either they have shut again or they are going to be shut again. in China, the things are traveling from bad to worse slowly and gradually. The same thing has happened in Europe also, almost 20-25 years back that all the facilities of these kinds of products from Europe vanished. Same thing, same process, now China is going through.
(this bodes v well for bodal)

Receivables of 43 crores has become 62 crores this year, that is increase of 19 crores. Of that, Rs. 8 crores is of Huntsman against whom we have a summary suit, against whom a cheating case has been filed, a winding up petition has been filed, many steps have been taken. rest of the trade receivables that is all normal trade receivable because volume of business has also gone up.

(chikspat) #57

I have been to holding pushkar since 2016. But recently observed Bodal and Omakar moving very fast compared to Pushkar and Sudarshan in specialty chemical pack. Is only high valuation of P/E basis is the reason?

(Ravi Srikant) #58

Bhageria came out with its results and they don’t look good. Revenue has fallen by around 14% yoy. Is this due to a fall in prices of the intermediates? Any source where we can get the prices? Zaubacorp is not updated

(Changu Mangu) #59

Shree Pushkar Results:

The high cost of material seems to be making an impact.

(chets) #60

  1. Topline and PAT increased by 23% and 16% YoY
  2. Topline and PAT decreased by 12% QoQ
  3. Tax for this quarter is at 39%. This is significantly higher as compared QoQ or YoY. Need to find out why?
  4. Cost of materials consumed is higher QoQ and YoY. need to find out why?
  5. To clock 30% growth (400 cr topline and 40 cr profit: considering that margins remain same), they will have to do around 105 cr worth of sales every quarter for this fiscal.
  6. Another positive announcement made along with results : Company has commissioned commercial production of its 750 MTA H-Acid plant on 2nd August, 2017, located at its Unit no.III, B-97, MIDC, Lote Parshuram, Ratnagiri, MH.

Disc: Invested.