Find enclosed my calculation of consolidated receivable days (average sales for 365 days)
As we can see, ove rlast 5 years, Receivable days have range between 60-100 days. During FY17, 78 days are comparable and within range. We would always see 25-30%+ variation from mean in receivable day normally in my opinion. I do not find major concern in increased from 60 to 78 days, as in past it has been as high as 100 days and the company has not reported major write off.
Okay! Since management doesn’t come on TV, we will have to assume that the range will remain between 60-100 as you have mentioned.
I was looking at the stocks where you comment, your portfolio looks to be very very different as compared to the compounding portfolio. I have never seen a person having so many unheard themes and doing good as you. Would you mind sharing your model portfolio? You can keep the percentage allocations or your buying price hidden but that would give me some start on the companies I can look at. If I develop the process that you follow, then I can make a better portfolio for myself (Kanv Portfolio Thread is mine).
Thanks
Kanv
My top holding are Eicher Motor (21%), Swaraj engine (13%), Aarti industries (11%), Maruti (7%), Shemaoo (6%), Hindustan Zinc (6%) and Transpek (6%). Thesse seven position account for 71% of my holding. My top 10 holding accounts 80% of my portfolio (CARE, Bodal and Premco being other names) with average holding of around 24 months.
Environmental consultant report on proposed expansion plan.
Refer Page 5, 6 proposed expansion capacity of chemicals.
Refer page no 28 for expected revenue and margin. attachment.pdf (809.3 KB)
Sometime back invested in Transpek. Brief write up on the same. Most of the details are covered in this thread.
There has been steep run up in the stock and valuations are pretty high at this point of time.
Overview:
Transpek industries was started in 1955 as transparent acrylic sheet provider (Transpek). Since then it became one of the leading provider of chemicals specializing in chlorides and sulphers. These are widely used in textiles pharma agrochem and speciality polymers.
Sales have been growing at 16% CAGR for last 4 years. Exports grown at 19% CAGR.
Chloride sales at 19% CAGR.
Working capital has been stable at 80-85 days for last 4 years.
Change in strategy:
Company has been leader in Thionyl Chloride till 2012. Thionyl chloride was predominantly used in endosuflan and dyes and chemicals. Endosulfan was banned in 2012. This caused some degrowth/loss in 2012. Since, then company has been more focused on acid chlorides. As per the latest EC report, company in reducing capacity in Thionyl chloride.
End user industry details
The acid chloride products are supplied to wide variety of end user industries like agrochem, pharma, polymers, surfactants. This protects the company from the end user industry cyclicality. The company has been entering new products in newer industries like they introduced products for flavours and fragnances in 2013 and slowly scaling up with newer products in personal care.
The company also has started supplying agrochem products to reputed MNCs. Transpek also is a reliable supplier to pharma companies.
Transpek has been supplier to polymer and speciality plastic industries since 2005. They have started supplying to most of the aramid manufacturers by 2012. Aramid is a high end polymer which is heat resistant and extremely strong. Aramids are used in specialized applications like military, aerospace components and amor fabric. Newer applications are in automobiles and tyres due to toughness of material. As per some reports, Aramid products current annual sales is 5 bn $ USD and growing at 8%.
Recent announcments and capacity expansion:
Transpek has recently executed a long term supply agreement for 10 years with a new customer. The report mentions about Kevlar which is a Dupont product. This will start in CY2018 and will cause significant increase in sales from CY18. Subsequent to this announcement, company has major capex for 90cr taking capacity from 31000MT to 66000MT.
Environmental clearance reports:
Suggests newer molecules to be supplied for aramid manufacturers.
Isophthaloyl Chloride 4$/kg
Terephthaloyl Chloride 3$/kg
4 –Chloro Butyryl Chloride 10$/kg
Propargyl Chloride 5$/kg
Management
Management/Promoter is the Shroff family who are well reputed and run the excel group of companies mainly in agrochem and chemicals. In the recent buyback by company, promoter did not tender back and hence was able to increase stake to 53%. The promoter have sold excel crop care and Hyderabad chemicals in last few years to Japanese and that would mean increased focus on Transpek. The announced capex is the first one after many years.
Negatives:
http://environmentclearance.nic.in/writereaddata/Online/TOR/10_Mar_2017_103022440DOE6MKAPAnnexure-Pre-FeasiblityReport.pdf
http://environmentclearance.nic.in/writereaddata/Online/TOR/10_Mar_2017_103022463JSIRTKAPAnnexure-AdditionalAttachment.pdf
http://www2.dupont.com/Specialty_Chem_Intermediates/en_US/products/tcl.html
One more interesting information in AR
Page 44 in Outlook Section
"Your company has been discussing long term supply contracts with various customers and has signed one contract recently. This is expected to provide stable growth in coming years"
Page 45
"The company rectruited 87 employees in FY2016-17" Now when we compare this with March 31 2017 employee figure of 566 on Page 36 (increased from 564 emplyee in March 31 2016), it does not make sense. Probably, many of 87 employees are on contract, but need more understanding about same.
Page 73
The depreciation charge for continous process plant is for with SLM method with company assessment of 20 years life vis 25 years allowed under companies act. This would result in higher depreciation charge for the company and indicate conservative accounting policy in my opinion.
One more interesting thing I noticed in this year’s AR which was not there in previous ARs:
We will have to understand whether this is a makeshift arrangement to utilise facility of other group company’s facility given the new plant for the contract bagged by the company is still under construction.
It can be the case that company might actually be supplying to Dupont (assuming that it is the company with whom Transpek has entered into a long term contract) for a long time. Apart from Isophthaloyl Chloride and Terephthaloyl Chloride (molecules mentioned in the EC report), none of the remaining molecules find application in polymer industry. Most of the remaining molecules (excluding details of some I couldn’t find) have application in pharma and agrochemicals.
Disclosure: Invested
Transpek revenue increased, but earning down. EPS halved.
http://www.bseindia.com/xml-data/corpfiling/AttachLive/992742c1-b3e6-4aef-8788-81ef0dd45a72.PDF
I attended Transpek Industries AGM on August 10 2017. Find enclosed my notes on AGM and other discussion. Please note that Transpek is among my Top 10 holdings and my views may be biased due to my holding. Also, there may some communication error from my side and reader should do his/her own due diligence before taking any decision.
Chainman speech
The company is specialised in Acid chloride which has applications in polymer, Performance materials, Flavour and Fragrance and Agri pesticides. The company is in discussion for long term supply contract with various customers of which one such contract is signed and announced in April 2017. The company would undertake investment in plant and equipment and focus to complete construction for this project by December 2017.
Aggressive marketing, superior quality, wider range of products and compliance with superior environment, safety and health standards by company results unique competitive position for various MNCs companies looking at suitable long term suppliers.
Business condition are stable in domestic market, while US and EU economy is showing improvement in economy growth results in better demand for the products of the company. Superior operating efficiency, sustainable product process, customer satisfaction and increased focus on improving process capabilities would be key growth driver for the company in medium to long term. The company would focus on more value added product and higher products to drive its profitability,
Transpek has subsidiary in Europe which is commercial company fulfilling requirement of REACH regulation stipulated by EU.
Q&A:
New project
The company has taken all safeguard for forex and other market risk factors while executing contract with MNC. Transpek expect additional sales of around Rs 140-160 Cr per annum which is around 60% of total income in FY16. Transpek was in discussion with this MNC for almost 2-3 years for the project. It is also in discussion with other such projects but same is highly uncertain about final outcome.
Acid chloride
Acid chloride is building block which has usage in multiple chemicals. There are around 1200 chemical which require various forms of acid chloride. Transpek manufacture 12-13 products regularly as per market trends. The customer of the company also does not disclose information about enduse due to patent/confidentiality related issues most of the times. Hence, it is very difficult to estimate volume demand and end use for the company products.
Acid chlorides are hazardous chemicals. Customer recongnise consist quality and ability of the company to manage multiple acid chlorides and supply at competitive prices. Hence, Transpek would continue to remain dominant player in Acid chloride.
There is EU based company Kemin Chemical (not sure about spelling). Most of the other competitor operate on lower scale and also have limited integration as compared with Transpek which result in superior competitive position for the company.
Current manufacturing infrastructure and environment approval
The company has large land area of 100 acres of which only 35 acres is currently being utilised. That provide for sufficient area for increasing capacity in future for growth.
The main constraint in setting up new capacity is more from environment approval side. It takes long time for the company to get environment approval for new capacity. The company already have environment approval for new project with MNCs. The company consider the expected time line in getting approval for environment and accordingly proactively moves while planning enhancing capacity. There has been also various regulatory bodies from state pollution board to National Green Tribunal to Supreme court, which at time have conflicting view on environment aspect which also increase complexity.
The group (other companies from Excel group) which various entities which are specialised in certain specific area and have various environment approval in place. At times, the company take advantage of these set up, by entering into an arm length transfer pricing, for a specific product needed by client.
During FY17, the company did enter into tolling arrangement with one of the related parties which have free capacity along with environment approval to take advantage of customer requirement for a particular product which is shown in contingent liability of FY17 annual report.
Client
The company refused to name customers as it is bound by confidentiality and also have high penalty clause on breach of confidentiality.
Capex
Total capex is around Rs 90 Cr for new project. That would be funded by internal accruals and bank borrowing. The company incur around Rs 25 Cr as maintenance capex.
China competition
The company products are specialised and it does face any major competition from China. In fact, in certain products, Chinese players have started importing and using Transpek product due to superior quality as compared with what locally supplied by Chinese companies, specifically when the Chinese companies are expected to export the final chemical to Japan.
Regionwises sales
Over the period, the company’s sales to EU has been declining while to US is increasing. The slow down in EU economy growth and higher demand for polymer enduse were the main factor behind increased share of US in export for Transpek.
Q1FY18 results
The company performance was adversely affected by rupee appreciation and lower dividend income (around Rs 1.5-2 Cr decline). There was spurt on one of the chemical input, price of which went up by almost 6-7X during Q1FY18. The price of same started declining from July and company is also in discussion with the customer for revision in price of that particular product. The company would continue to face such market volatility in future as well. However, over a period of time, the company ensure that it improve its margin and achieve sales growth.
Other points
The company would consider Transpek Silox as strategic investment and would not like to liquidate same to fund the capex requirement.
My view
Acid Chloride chemistry+ Sustainable development+ Good management were the key highlights of Transpek AGM. However, management is relatively mature (expect Mr. Ravi Shroff) and hence moves steadily rather than aggressively which has its own limitation, especially when we are looking at high growth environment in medium term in my opinion.
I would request other VP members to add/edit my notes to reflect true discussion.
Some important point from CRISIL rating upgrade report for Transpek.
“The revision in outlook reflects expectation of significant increase in scale of operations, supported by long-term ‘take-or-pay’ supply agreement with the customer. TIL is in the midst of a substantial capacity enhancement in the acid chlorides segment. The plant is expected to be commissioned by January 2018. Despite the large debt-funded capex, financial risk profile is expected to remain strong over the medium term.”
Regards,
Raj
Dupont shutting down plant and moving production to Transpek.
This may be part of the long term contract Transpek signed last year.
"The DuPont Transportation & Advanced Polymers business will continue to maintain a presence at the site.
Since there are no other suppliers of these materials in the U.S., Transpek Limited in India will be the primary supply source, Turner stated.
DuPont plans to stop manufacturing at Chambers Works at the end of March with decommissioning complete this summer."
Transpek showed more than 50% growth in topline and more than 150% growth in bottomline
http://equitybulls.com/admin/news2006/news_det.asp?id=233927
Latest Credit rating report - https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/Transpek_Industry_Limited_October_08_2018_RR.html
What would be the impact of crude price rise from last quarter to this quarter?
As per 2015 details posted by @Chets on this thread signifant amount of raw materials ( ~54%) imported.
Also the dollar rise in recent times…
Seniors please share your views.
Thanks
Imports get offset by exports. Most of the crude (RM) related costs get passed on (with a lag). These are standard operating procedures of nearly all chemical companies.
Good results by Transpek.
Disc - Invested
Result looks mixed. Sales grew by 21% QoQ compared to only 11% in previous QoQ.
YoY increase in sales by 57% but I would focus more on this QoQ growth vs, previous QoQ growth.
Disappointment in Gross Margin (decreased from 50% to 45% QoQ) and EBITDA Margin (decreased from 19.8% to 17.5%).
Receivable days vary widely for Transpek but compared to March 18 (79 days), it has substantially reduced to 55 days in Sept 18
Overall the growth is happening without damaging the balance sheet and it is quite encouraging.
What i find interesting significant positive element of Comprehensive income during Q2FY19 as as well as Q1FY19 which is around Rs 5-6 Cr and almost around 21 Cr for FY18. The amout is around 33% of Total Comprehnsive income. Not sure but may be due to MTM gain on forward contract, but would be curious to understand this part as it is singificantly high proportion.
Discl: Among my Top 5 holding. Invester shall do their own due dilgience before making investment decision.
