Transpek Industry limited

[chets]

This is my first jab at presenting an analysis of a company. Most of the data points are gathered from the internet and the company’s 2014-15 AR. I am awaiting the 2015-16 AR. I have ensured that there is no existing thread for Transpek in this forum. I am sure that many data points will be missing and hence the intent of the post is not only to garner views from the community but also drive learning for myself.

Transpek Industry Ltd
Market Cap.: ₹ 272.49 Cr.
Current Price: ₹ 464.20
Book Value: ₹ 154.58
Stock P/E: 12.80
Dividend Yield: 1.61%
Promoter Holding: 47.78%
Debt/Equity: 0.7
EPS for 2015-16: 36.24

Transpek Industry Limited was set up in 1965 initially for manufacturing Transparent Acrylic Sheets. Since then the Company has grown to become one of the leading manufacturers and exporters of a range of chemicals servicing the requirements of customers from a diverse range of industries - Textiles, Pharmaceuticals, Agrochemicals, Polymers, etc. Since inception, Transpek has evolved as a First Time Manufacturer of several products in India and also pioneered the development of the market for the same.
Over a decade of presence in the international market, Transpek has earned for itself a name for being a quality supplier. With its expertise in handling Chlorine and Sulphur, Transpek has indigenously developed process for chlorinated chemicals like Thionyl Chloride and Chloro Acetyl Chloride. The company is pioneer into Thionyl Chloride Chemistry and currently largest producer of Thionyl Chloride & Acid Chlorides in Asia, outside Europe.
The company has high focus on environmental protection and has the necessary ISO 14001:2004 certification.

The company product line contains multiple organic as well as inorganic products. As per the website there is a good pipeline of products under development too. This shows the companies focus on innovation. The strength of Transpek’s R & D is evident from the fact that the manufacturing technology for all of its existing products was developed in-house.

INDUSTRY STRUCTURE AND DEVELOPMENTS
Your Company’s product portfolio comprises of various products which are used in a very broad range of applications. Through Chlorination, the Company manufactures many Acid Chlorides and Alkyl Chlorides.These products have global market & many big multinational chemical companies use Acid Chlorides & Alkyl Chlorides in very large quantity.The Industry segment in which your Company operates is vast & hence there is good potential for growth of business.The products find application in agro-chemicals, polymers and plastics, pharmaceuticals, performance materials, organic peroxides, personal care and flavours and fragrances.
POLYMERS AND SPECIALITY PLASTICS AND PERFORMANCE MATERIALS
The market for Polymer and Specialty Plastics is continuously growing due to discovery of new applications of these materials. Your Company makes basic but key products for manufacturing Polymers & Specialty Plastics. Many world leaders in high strength polymer products source their critical base products from your Company.
PHARMA PRODUCTS
Due to extremely high quality of the Acid Chlorides of your Company, many Pharmaceutical companies prefer to buy key raw materials from the Company. Many Indian Pharmaceutical giants are customers of your Company.In the coming period, this segment is expected to register significant growth for your Company.
AGROCHEMICALS & DYESTUFF
The demand for Company’s products in Agrochemicals segment is expected to be stable during the year. However, your Company has been making efforts to increase the customer base & the products in this segment. Your Company has started manufacturing a new product which is supplied to a very reputed Multi-national Company.We do not expect any growth in the dye-stuff industries. Therefore, our Thionyl Chloride supply to this market is expected to be the same as compared to previous years.
FLAVOURS AND FRAGRANCES
Your Company has been gradually introducing new products in this segment. We expect this segment to grow slowly but steadily.

Transpek also has an investment in equity shares of Excel Industries Limited the market value of which is approximately 450 lacs.

The company has reduced debt last year. Here is a snapshot.

Here is the bifurcation of the sales as per products for last year

Here is the bifurcation of the sales as per geography for last year.

Here is a list of raw materials consumed during last year

Opportunities
Chinese Anti dumping duty will have positive effect on Indian Chemical companies
Management is conservative and has good focus on innovation.
Stock is trading at a PE lesser than peers.

Threats
I am not sure how much top line addition will result from the products which are under pipeline.
The companies growth philosophy is simple. Increase customers for existing and new products. Need to understand their strategy wrt the same.

Disclosure: Invested (10%)

Request senior members to provide their views and guidance.

[basumallick]

The co has struggled to grow its topline in the last 2-3 years. Any particular reasons for that?

[Vivek_6954]

Is there a plan of new 2nd gen young management coming into picture?If a dynamic 2nd gen management comes into picture then co may move into next orbit as had happened with some of our investments like Premco,Shivatex yarn.Seems the founder doesnt has any son n his nephew Ravi Shroff may be helping.If true thats a big positive.

Also the co seem to have changed its focus towards making high margin products and focused on R&D as its forte. Some of the products meant for agrochem space are made by them only and have good demand in market.Exports too are increasing where margins are high. Valuations remain cheap and recent results have been good.We need to dig more and find reasons behind them and see if they are sustaianable?

[Leading_Nowhere]

This is part of the Shroff group of companies, most notably Excel Industries and Excel Cropcare (which they just sold off to Sumitomo Chemicals). You need to reconcile with the fact that the group has several listed and unlisted entities all operating within the same field.

[chets]

@basumallick This has been my primary concern too. They are banking on capturing new customers and earn through new products. However there is no clarity wrt the strategy.
They had invested in Sam Fine O Chem Ltd to capitalize on the synergies, however as per last years AR, they have divested their stake and it is no longer a subsidiary. The subsidiary was generating sales of approx 30-33 crores. However the profit from this subsidiary was only 4.3 lacs in 2013-14.

@Vivek_6954 Ravi Shroff indeed is involved as a Director as per the ARs. Not sure if the founder has a son or not, as there are multiple Shroffs in the board.
Could you provide some guidance on how to dig into the recent results and find if they are sustainable?

@Leading_Nowhere I am unable to interpret your comment. Could you kindly elaborate?

[Leading_Nowhere]

Take a look at Excel Industries - it is by the same promoters. Earlier, the same promoters also had Excel Cropcare, which was recently sold off. Still, they have two entities operating in the chemicals field - Excel Industries and Transpek Industries. I was just bringing this to your attention - it may be a negative or positive for you. Personally, I feel it is a negative. It divides the attention of the promoters and why shouldn’t related businesses be under one entity?

[chets]

@Leading_Nowhere Thank you for the clarification. I do agree with your views wrt divided attention of the promoters. However what issue do we foresee because of this? Is there any issue wrt the promoters?

Few points to consider:

1. Though both companies operate under the same segment, the product line is very different. This may be one reason for maintaining separate entities.
2. Excel Industries does seem the more flashier business of the two. Their AR have clear expansion plans and lots of marketing data which is lacking in Transpek’s AR. This is negative for me.
3. Currently both companies hold some amount of stock of the other company.
4. Since the promoters are established players in this field, Transpek would definitely benefit from their network and contacts.

[Leading_Nowhere]

Chets, saying that a different product line justifies a different company is like saying that would be justified for every big pharma company in India to set up different companies for different formulations. I do not subscribe to this logic. Excel Industries operates in around three different segments - APIs, specialty chemicals and waste management. I still do not see how Transpek’s business could not be part of the chemicals division. My (slightly) negative view still stands.

[chets]

@Leading_Nowhere Thank you for providing your views on this. I appreciate your inputs and will keep them in mind.
Howevr I am still looking forward to the results and this year’s AR. I will post my observations post these events.

[chets]

June 2016 Quarterly results are out. Here is a snapshot:

From screener to see the trend:

From the published results report for finer details:

Details:

1. Top line still remains flat. Need to wait for AR to check company strategy to increase this in coming months.
2. Net profit is up when compared QoQ and YoY, however this is due to other income, a major chuck of which is Dividend distributed. It is good to see that the NP has been sustaining since last 4 quarters.
3. All other expenditures remain more or less similar to previous quarters. The notable point is that the cost of materials consumed has been on downward trend which is good.
4. The EPS for this quarter is 12.08. This is 30% higher when compared QoQ and 3.5 times higher when compared YoY.
5. If the margins sustain, we could see and EPS between 42-48 for this financial year. The EPS for last year was 36.24
6. The Stock is currently trading at a CMP of 450, which means at a forward looking PE of 10 for this year.

Awaiting the AR for 2015-16 which would provide more details. If there are clear details related to top line increase strategy there is a possibility that the stock may start trading at higher PE valuations.

Request senior members to provide your comments/analysis for the quarter result as I am a beginner and may have missed out on important points or made obvious mistakes.

-chets

[saagarwa]

Transpek Industry to consider buyback of equity shares

Transpek Industry has informed that a meeting of the Board of Directors of the Company is scheduled to be held on August 12, 2016 to consider the proposal for buyback of equity shares of the Company. | 1 Comments Transpek Industry Ltd has informed BSE that a meeting of the Board of Directors of the Company is scheduled to be held on August 12, 2016 to consider the proposal for buyback of equity shares of the Company, quantum & mode of buyback, constitution of buyback committee, for the purpose of buyback, appointment of intermediaries and other matters incidental thereto.Accordingly, in pursuance of Regulation 9 of the SEBI (Prevention of Insider Trading) Regulations, 2016 and the Company’s Code for prevention of Insider Trading, the Trading Window for trading in the Company’s Shares (i.e. either buying or selling of Company’s shares) by any Insider, Director, Connected Person (including Auditors/ Internal Auditors/ Secretarial Auditors/ Cost Auditors/Advisors / Consultants /Retainers and Concerns, firm, HUF, Trust, Company or Association of persons) and Designated Employees, shall remain closed during the period from August 09, 2016 to August 16, 2016 (both days inclusive).Source : BSE

[chets]

Thanks for posting the update @saagarwa

Could you or any other senior provide the underlying reasons why company is thinking of buying back shares at this juncture?
The reason I am confused is because they just issued a hefty sum as dividend. Passing on more benefits to shareholders in the form of buyback is puzzling to me.

Any input in this regard would be appreciated.

Regards,
Chetan

[dd1474]

@basumallick
One can explain last two year growth being slower being observered in most of the chemical comapny due to decline in crude price. Most of the companies using crude derivative as input, normally operation on input price+ conversion margin. For instance in Thrirumalai Chemical, It would be Xylene price+ USD 150-200 being price of Pthalic Anhyride. So when, price of crude decline, unless the volume of increase is higher than realisation, we would expect sales of decline. However, EBITDA margin shall increase as a per cent of sales, as most of the time, conversion margin is constant and increase with inflation.

In case of Transpek, while no information is available about volume growth, we see major growth in EBITDA. Again, not conclusive, but probably the growth in margin despite sales would be due crude derivative prices.

[chets]

Buyback will be at 475 per share as declared by the company. However the puzzle still remains. Why buyback now?

[dd1474]

@Vikrantydv
I appreciate your working on Trasnpek.

While, it would be good for the company to reduce debt from free cashflow, I would not mind buyback given the moderate debt in the company. In case of Trranspek, Interest cost (Rs 7.96 Cr during FY16, net of Other borrowing cost of Rs 2.67 Cr). on average debt of Rs 70.6 Cr (Average of Rs 63.9 Cr as on March 31 2016 and Rs 77.42 Cr as on March 31 2015) is around 11.27% during FY16 .

In case we consider, other borrowing cost as part of Interest cost, then average interest cost during FY16 would be around 15.06%.

So at 11% borrowing, it would be still make sense with gearing less then 1 times to do buyback share. However, if we consider interest cost of 15%, then definitely it would make sense for the company to retire debt rather then buyback of shares.

I do not have any idea about other borrowing cost of Rs 2.67 Cr during FY16. However, if I assume same being Bank charge (as there are no seperate bank charges in Other expense schedule in FY16 Annual report), then it may still make some sense to buyback the shares.

We need to get more understanding about why other borrowing cost being so high, during FY16 as well as in FY15 at around Rs 2.67 Cr and 2.87 Cr repsectively for the company, to get correct answer in my opinion.

Discl: My view may be biased, as I am holding shares in the company. There has been no change in my position in last 30 days.

[Somnath92]

Any views on Transpek Industries right before the results on February 10, 2017?

[Era]

Excellent announcement by the Company. New Client added which is going to increase the Turnover by 60-70%. The bottomline will be increased by more than 100% as the Fixed expenses donot increase in proportion to the Sale.

http://www.moneycontrol.com/stocks/reports/transpek-updates-7022581.html

[chets]

@Era, this indeed is an excellent announcement by the company. The stock price has reacted in accordance already.
I had exited transpek earlier this year. I may look to re-enter on corrections.

[dd1474]

Excellent numbers by Transpek with increase in Dividend declared from Rs 9 per share for FY17
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=5e516822-1257-4709-9c24-ae6d072022f4

[kanvgarg123]

Any idea why there has been almost 50% rise in receivables as compared to only 10% rise in standalone sales ?