Ultramarine & Pigments

One more point to add…Company has current asset as cash and equivalent of 75 Cr in its book. Cash & Bank as at Mar-2019 of 28 Cr + Current Investment (Low Duration/Liquid MF) of 47 Cr.

Did anyone attend the AGM?
Would really appreciate if brief notes can be shared here - especially on expansion updates of Surfactant & pigments division.

Thanks!

On 21st Sep, 2019, during TIA 20:20 Ideas Event, “Ultramarine & Pigments” was presented as a stock idea by Balaji Vaidyanath of Crest Wealth :slight_smile:

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Credits: @akshat96jain

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what is existing capacity of Surfactants division in MT?

Remuneration of Directors has come down significantly in recent years, which is good.
Any specific reason?

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Invested

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This is because Indira Sundarajan ceased to be MD of the company w.e. from 9.5.18

Hi - help from the folks tracking this company as I’ve just had a look at this one. Any idea why the ROCE has been on the decline recently with low numbers especially in 2018 and 19 -

Thanks so much in advance

I think it is because decline in its investments such as share price of Thirumalai chemicals & decline in NAV of its MF holdings

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Great, thanks so much @kalpesh4430 for a quick and a helpful response. Much appreciated.

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I have just started tracking this stock and have a few questions:

  1. The company seems to be giving substantial dividends and has significant funds in cash and investments. A large chunk of this in Thirumala Chemicals. What is happening to the capex plans? Is the company investing in growth? No capex spends visible in FY19.

  2. Thirumala Chemicals which is the largest chunk of its investments has fallen significantly in value and the financial performance is on the decline. Both companies are in the chemical business, thought different segments and have a cross holding. Why this convoluted structure within the same promoter group? There are large investment sale / purchase transactions in FY17 & FY18 and fresh investments in Thirumala Chemicals.

  3. Has anyone interacted with the management and any views on plans of possible merger with Thirumalai, management growth orientation & corporate governance. A chunky minority stake in another listed company does not seem to drive value for the minority shareholders of Ultramarine. Especially given the share price and financial performance of Thirumalai recently.

Any views on the above three points would be helpful.

No holding

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I also had similar observations. It appears that entire focus of the promoters is in Thirumalai chemicals where they have done huge capex but results are not there till now.
Somehow, in small caps if promoter have two listed companies, one of them suffers because of limitations in management bandwidth.

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Small recap of Capex which is going on…

  1. Surfactant : Naidupet Greenfield capex for surfactant will come online starting from Q4 FY21. Initially when the surfactant capex project started it was estimated that facility will be ready by Q1FY21. But due to Covid and migrant worker issue project is running with a delay of 6 months.
    New capacity the project will add : 32000 MT
    Capex Required : Around 70 Cr

  2. Pigment : Greenfield project for Pigments is also getting setup in Naidupet. A wholly owned company ,Ultramarine Specialty Chemicals Limited setup for this capex. Estimated cost will be 51.20 cr.
    Existing Capacity :6000 MT
    New Capacity : 1500 MT
    Pigment capacity will come online from July 2021 to April 2022

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Hey, can you please share the reference as to where you got the above? Cant seem to find the latest details since projects have been delayed multiple times and pretty often.

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Status of the 1st Capex or Surfactant division taken from the Current AR,page 20.


Rest of the project info from SEBI LODR submitted by the company time to time. AttachmentsUpdate_13.04.2018.pdf (303.2 KB) Ultramarine_Update.pdf (582.5 KB)

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Intimation Of Commencement Of Commercial Production Of The Company’S Sulphonation Plant At Naidupet, Andhra Pradesh

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Can anybody tell what is future of the company, I have been hearing the company is making entry into export market globally, Can anybody shed more light on this? What can be the expected the topline and bottomline of the company in the coming 3 years or so?

It’s a small cap with limited data available in public domain, you can look at the above notice of expansion and previous expansion plans highlighted by the management wrt current capacity and take an educated guess, it’s a decent bet looking at current PE, ebidta margins and ROIC

  1. Exports growth in last 3 years is quite visible (1/3rd of total sales now) given the rub-off effect of Chinese control on pollution. This may be sustainable given that world started looking for alternative to China

  2. While one expansion came on stream in 2021, another is in the pipeline. With focus on exports, the new capacity will add to the top-line and bottom-line

I have two discomforts:

  1. The company holds nearly 2 crores shares in Thirumalai Chemicals. For a company with such size and scale, this is like a dead investments and fluctuation in price will continue to dent and make the ROE volatile due to MTM. I am perplexed to understand the objective of such cross-shareholding structure.

  2. Another discomforting factor is, the company has Rs 30+ crore of money being locked in unsecured corporate deposits earning barely 4.5 - 4.6% interest income and the Company using debt proceeds of Rs 20 Cr to fund the expansion. Unless I am missing the point, this seems like a dead investment for me and another major dent on ROE.

Last 3 years, the growth has been majorly due to increase in margins without much growth in topline. Since 2017, sales grew by just 40%, operating profitability jumped by nearly 100%. Only the China effect seems to have worked while domestic growth remained a concern. Impact of China gave two fold benefits near 40% top-line growth with subdued input prices. My channel checks tells me that since May’20 realizations are doubled for the Company, and quarterly numbers show the Company may have a bumper quarter this Dec’20. Though this wont be sustainable as the lock-down continue to reduce its significance.

A new breed of Fund Manager, self-obsessed with his philosophy giving no importance or values to trained/experienced stalwarts, been quite bullish on the stock - - may be just for one reason that company started exporting due to China effect. I see no other catalyst for the stock.

Cross holding structure and considerable deposits at sub-optimal rate of return is a shows-stopper. Further profile of Independent Director also give me a sense of discomfort. Erstwhile Independent Director - an ex GM Credit - Bank of India (principle bank for the Company) and JMD of Dhanalakshmi Bank. Independent Directors hold 50K+ shares in the company, I don’t find this comfortable.

JMD - a novice with no prior Chemistry background.

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Thank you everyone for your kind contribution, in helping understand about the business of the company.
I was looking at the company, from a cynic perspective, and the thought process of owners seems weird to me.
Let me highlight the positives.first.

  1. The remuneration seems to have been kept at a reasonable level across years.
  2. Their has been gradual transition from old guard to new guard.

Negatives -

  1. More than Cross Holding, I am more disappointed by relatively low promoter holding, which is declining across quarters.


    It seems, promoter share holding is of value only to the extent they can maintain control over company.

  2. CSR Spending
    Although company spends roughly 2% of its net profits in CSR, most of it is routed to its family charity. This calls for a leap of faith, do I believe the money is fruitfully utilised.

What is more interesting is we have a VP of CSR, who is a relative of Chairman.
Would love to know the person’s work profile inside the company.

In short, I am questioning allocation of CSR Funds, and need for VP of CSR.
This issue may/may not be important to other investors.

  1. “Independence” of Independent Directors.
    Posting some slides as is …

The entire video in Hindi can be accessed at
https://youtu.be/Fh-_6MUY6AY

Thank you.

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