Transpek Industry limited

[james_kerala]

AR Link: https://linkintime.co.in/website/GoGreen/2019/AGM/Transpek_Industry_Ltd/Annual_Report.pdf

Your Directors have recommended a dividend of Rs.20/- (i.e.200%) per equity share of Rs. 10/- each on the Equity Share Capital of Rs. 558.56 Lakhs for the year ended 31st March, 2019 (previous year: 90%, i.e. Rs. 9.00/- per share).

overall outlook for the Indian Chemical Sector continues to remain positive on the backdrop of increasing global demand and state of Chinese chemical manufacturers remaining unchanged. Global chemical companies are exploring the opportunities of making strategic alliances/partnerships and investments with Indian Chemical companies. The demand for Raw Materials and Intermediates is on the rise.

The constant pressure on Chinese chemical manufacturers continues to provide an excellent growth opportunity for the Indian Chemical sector.
The Company successfully maintains excellent business relations with all its global and domestic customers and supplies large quantities of Acid and Alkyl Chlorides. The Company is poised to capture the growth potential expected at present and in near future.

AGROCHEMICALS: The company continues to maintain steady supply in the agrochemical segment. The overall agrochemical sector has seen an expansion, however, the given segment continues to remain extremely price sensitive. Considering the nature of this segment, the Company has strategically decided to focus more on other business segments.

The revenue increase was mainly from exports. Domestic sales are flat and that too from US and Europe.

90% vs 200% divdend and returning 13 crore (inc DDT) to investors.

[james_kerala]

What must be causing the fall in share price these days. It is going below 1 year support. Is there a news I am missing out. The fire incident is already old. Is there a delay in getting the operations up and running? Any other insight would help

Disc: Invested

[ayushmit]

Yes, the 2019 annual report was a good read and seem to have a very strong positive undertone. Sharing some extracts from the MDA:

Perhaps the concern and negatives are the following:

1. Due to the accident at plant - the shutdown was for over 1 month 10 days. It can have material impact on the quarter.
2. People would now worry about client concentration risk etc. However, the client is a very reputed and a large MNC and as per discussions at the past AGM, lots of safeguards are there in place in contract.

Disc: Invested

[hitesh2710]

My guess for the fall in the stock price in recent days is the fear of poor numbers for q1 fy 20. With production continuing for only around 38-39 days during the quarter (accident occured on May 8) fixed costs would dent margins.

We do not know

1. How much company produced from alternate sites as mentioned in reply to an investor’s email.
2. Any possibility of recouping loss of production from insurance policy. (this could be a long drawn out procedure and should not be factored into q1 results.
3. How much lost ground can the company make up in the remaining 3 quarters of FY 20.

This year’s AGM should be interesting to attend. Last year there was huge investor interest and lot of questions asked and management tried to answer most of them.

[barathmukhi]

Anybody attending the AGM on 9th August? I have some questions for the mgmt team.

[james_kerala]

Results:
Around 10% less revenue compared to year ago quarter.
Profit is 3.35 Crore vs 10.24 crore (33% of year ago quarter)

6a11552b-050f-4c9d-8225-cc4103c85129.pdf

Note in results : Due to the accident & consequential shutdown of operations at Ekalbara site,as already notified to stock exchange from time to time,there is a significant reduction in the Revenue&Profits for the quarterended 30th June.2019.

[hitesh2710]

Transpek AGM notes.

Accident happened due to high pressure built up in a condensor built to withstand very high pressure levels.

No issues with domestic and mnc clients due to accident.

Production continued at 3 sites of sister concerns.

Sustainable margins-- Co deals with multiple customers and multiple price points.

Product mix varies from qtr to qtr

Price also varies according to different specifications in same product. E.g higher purity level, higher price.

Pricing adjustments happen on qtr to qtr basis.

Raw material indirectly linked to crude prices

Cost plus contracts no problems of raw materials price volatility

Co is in chlorination chemistry…most products are primary intermediates.

Value additions drives margins

New biz development dept looks at new products and potential from it.

Capacity… as of now 85-90% utilised. Nearly fully utilized.
Problem is of getting permission and if we get it, capex will be there

Large part of cwip is carry over from previous year.

22 crores is replacement…out of cwip of 47 crores

Trying to strengthen ourselves in consolidating our own and 3 toll facilities doing job work.

Industry in general… chinese situation…hearing a lot, know little

There is a definite impact due to govt regulations…

Co not much affected by chinese situation either way.

Mnc have realised on reliability of indian cos

Export incentives… we get advance license for import. So far no change in govt policy. But this can change

Compensation to employee–no compensation given except full salary during leave… provide vehicles and full meals to relatives of employees. Provided air coolers.

Some expenses provided to employees families but they politely refused. Workers were very very happy with management and their caring attitude during treatment period

Conference calls will soon be started

Dividend policy, no stated policy but 25-40% profits distributed
q1 , fy 20, 8.5 crore spent capital expenditure spent.
Being asked on subsequent qtr results, he hinted at calculating revenues based on revenue generated in q1 only for 45 days production. But its not a linear calculation

Vision for company, co will like to consolidate due to capacity constraints.

Exploring opportunities with customers to engage on long term.
Would like to look at export opportunities.

Look at new products and segments. Beyond chlorination, future biz opportunities in longer term. Co doesn’t want to go for too much debt.

Investment aimed at making biz sustainable…

Move towards zero liquid discharge
.
Energy conservation, process enhancement Mnc products development started in late 80s. And gradually client confidence increased and order scaled up.

Transpek silox no plans to disinvest.

Liquid waste mx also thought of. It remains a focus area for the company and company wants to achieve it before it becomes compulsory.

Business may or may not come but at transpek looking at liquid waste mx. At excel.inds, solid waste mx looked at

[hitesh2710]

Regarding transpek results, there were a lot of investors at transpek agm who feared loss for q1 fy 20 because practically speaking, the company production was on for only around 38-40 days in the whole quarter. Even though the company got permission to restart operations on 24th June 2019, it takes some time for production to ramp up and achieve optimum capacity utilisation. But the numbers especially topline and even bottomline were a pleasant surprise for most investors.

The main reason for such a high revenue during q1 fy 20 was concurrent production at sites of sister concerns at 3 locations. They have tolling arrangements and some other arrangement regarding production at these sites and there the production went on albeit at a lower rate during the time plant closure was ordered.

Margin obviously took a hit because main plant was closed and there were some remedial expenses as mentioned in the AGM Notes.

My take after attending the AGM was the management is very good and know their business. There is no problem of demand as company is constantly approached with inquiries from domestic and foreign customers. Even with rains and threat of flooding in the city, there was very good investor presence at the AGM which even the management acknowledged.

[Invest]

@hitesh2710

multiple

Hi Hitesh Ji,

Any guidance/ estimates for full year FY20 numbers from the management ? Even rough numbers will do.

If no, what are your rough estimates for FY20?

[hitesh2710]

@Invest

Management does not give any guidance at AGM in transpek.

as for my own estimates I would like to see after next quarter numbers are out. As of now its too difficult to predict.

[vivekchoraria]

thanks for your detailed notes hitesh. Just one question, will q2 will be a normal quarter in terms of production is there any spillover from q1 still?

[ayushmit]

Sharing my notes from Transpek AGM. Though many points may be repetitive…still sharing the same:

Current govt regulations may delay expansion plans

Co has ramped up the production back to previous levels

China has clamped down on pollution and things are not same in China as before. Now through they may come back with production but they will have to sell at market price. Hence other cos and countries can be competitive.

Global cos are exploring opportunities for long term partnerships.

We take all precautions to avoid accident. But once in a while it can happen die to error.

In 350 days of working, we provide more than 750 training sessions.

We spent 47 lac on personal safety.

Why the accident happened - when water comes in contact with chemical, it creates pressure. We had a pressure release system but by the time it could be operated, one of the part bursted (though it had capacity to handle high pressure beyond the specified limit). The material was at 100 degree and its foggy. Plus the employees were not wearing the safety equipment properly. Hence the burns were higher. We have removed the manual process. Mr. Bimal and promoters were personally involved to take care of the well being of employee and they were provided best medical facility.

We have 1 location plant but there are 3 job work locations and they are in our vicinity.

There has been no change in relationship with the customer. Customer is interested in - 1. Tell us the truth 2. Upgrade and improve the system 3. Make up for lost volume

Yes, we are looking at more partnerships but given that we are not getting environmental clearance, it may take 2-3 years.

Margins - look at yearly margins. The same are volatile as we deal with different customers and products.

We do clorination. Products we do today are bulk primary intermediates. We are also looking at value-added products. We are looking at beyond chlorination. For eg - combining chemistry. We have a dept which looks at new products, chemistry etc.

As of now we are at full capacity utilization. Current issue is around permission. We are not getting approval. We are looking at other options too to increase but that can’t be substantial.

Out of the 47 Cr of capex done, 22 Cr is replacement and balance of the expenditure is not going to increase capacity.

Ravi Shroff - The way the execution was done, it was very smooth and good. We would like to look at some level of consolidation. We would actively look at more export opportunities.

We don’t want to take too much of debt.

We want to move towards zero liquid discharge.

Overall - its good that the co has been able to recover from the accident. However, its clear that the co is not being able to expand as the authorities are not giving any expansion approval since sometime in that area. Its been 2 years or more since they have filed for approval. Sad to see that even good cos have to struggle to expand.

[Jay_vaghasia]

In last year,plant was running at near full capacity for most part of year. So they badly need capex. Don’t you think future growth will be flat if there is no approval??

[vivekchoraria]

In the background of the agm notes which others have shared, how would you go about valuing the business? Assuming very little topline growth to speak of, I would look at the gross margin trends and if they can maintain 52 % as they did in q4 or maybe that was a one off. My rough calculations suggest they can do a topline of 660 crores ( excluding other income ) and assuming 50 per gross margin, pat can be closer to 90 crores in a normal year. Cash flow from operations seem to be very healthy. Any incremental expansion whenever can be funded by internal accruals.

In the current market context, what sort of pe/ ev/ebitda or price to cash flow do we think a co which will not show a lot of topline growth deserve?

any discussion on the valuation would be appreciated by the more experienced investors on this thread.

Thanks

[kdjolly]

Crisil rating upgrade
https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/Transpek_Industry_Limited_October_30_2019_RR.html

[ShareFarmer]

Transpek sep.pdf (877.2 KB)

Transpek Sep 2019 results.

Yoy 50% net profit but looks like these are because of some tax. As operating income has not increased.

[vivekchoraria]

If this was a normal quarter of operations, shouldnt the volumes have come back up or were the q4 nos a one off in terms of volumes shipped.

[Jay_vaghasia]

the thing about transpek is that qoq or yoy comparison of quarterly results does not yield anything. both margins and revenues should be compared for full year. without concall, it is very difficult to assess situation.
this quarter margins have expanded by 470 basis points but as management has clarified in past, these are not sustainable.

[james_kerala]

Dear @hitesh2710 ji,

How do you view the last quarter results?

Revenue is still below the year ago quarter by approx 15%, not improved much and PBT is higher year ago quarter , and PAT is good due to less tax outgo on account of Deferred tax and MAT credit entitlement being negative.

Are you still invested ?

[hitesh2710]

@james_kerala

Transpek q2 fy 20 numbers seemed to be good mainly because as compared to the same quarter a year ago, the margins have shown good improvement. I think they are operating at near full capacity utilisation and hence q3 should show higher revenues and if margins remain same as in q2, there should be good jump in profitability.

If you recollect, the company’s plant reopened for production post the accident in last few days of q1 fy 20. And in chemical plants it takes some time for production to ramp up and reach full capacity utilisation levels. Hence I assume the first few days of q2 fy 20 might have operated at sub peak levels and then only production levels could have been scaled up. Q3 fy 20 will have the benefits of peak production and hence I expect results to be better than q2. Lets see.

I remain invested in the company with no buying selling in last month.