Valiant Organics - High ROCE, debt free

(sushildarveshi) #62


In one communication, mgmt communicated for 5x increase in capacity in 3 years

In other communication - capacity in next 2 years is only increasing by 2x (so 2019-20 capacity increase should be 11600 tonnes)

Also @manojag mentions capacity to be increased in buckets of 2400 tonnes per year. At this rate company would 7 years (not 3 years) to increase the capacity at 21600 tonnes

Can somebody clarify on this.

(Manoj Agarwal) #63

My understanding while conversing with the Co Management was that initially they are looking to expand at 200 tonnes monthly capacity per year and as the mkt expands and newer mkts are developed the quantum of expansion will be bigger. But it seems 21600 will not happen in three years. Also am not aware as to the quantum of expansion taken this year for which they have recd Consent to Implement (EC) and trial production of which is going on.

(Mute Spectator.) #64

Major driver for Chlorophenols is Agro based chemicals

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I do see lots of optimism in markets now a days about Agri theme.
Bcoz of all loan wave off ,
Direct benefit transfers ,
Gov spending in rural economy due to elections in FY19 ,
Good monsoon.
& Gov plan to double farmers income by 2021 (not sure if this happens )

I don’t see any risk from demand side as well.
Although i am not very sure who are their real customers, Where these chemicals are mostly used to really be able to judge the demand dynamics.

If anyone knows this please shed some light on it.

(Devang) #65

All this looks good but I have a question on promoter. The promoter mr gala’s holding is just 2 percent after the offer for sale in last year. The fund raise was not through ipo but was an offer for sale. Why he had to sell of his shares for raising money ? Seems a problem apparently. Views invited.

(Mute Spectator.) #66

Gala family owns around 10% ,
Arti group people (gogri’s) owns around 30 % ,
CHHEDA owns around 12%

These are the main promoters, Hemchand Gala is 71 years old why he is owning 2% is a problem ?

If all my life i spend on building a business then at 71 , i would do the same , stock markets gives
you the opportunity to do that. Its individuals choice.

(Devang) #67

That is ok. But what about transition of business to the next one. He is of 71 yrs now and the business depends on his expertise. What do you think?

(Mute Spectator.) #68

This guy CHHEDA will run …

(Devang) #69

This guy is also 58 years old , they dont have any young or mid age member in board of directors also. How long will this go? No successor plans, old age might lead to leadership problems in future

(Mute Spectator.) #70

Yes you are right … huge problem.

(Mute Spectator.) #72

Half yearly numbers are out ..
Revenue up 36%
Net profit up 34%
EPS up by 34%

Interim Dividend Rs 2.5 / share.

— Dhruva Pandey (@Dhruvapandey) November 13, 2017

The Abhilasha Tex chem numbers have not been included yet, I don’t see any equity dilution in balance sheet.
Overall great result ! long way to go …

(sushildarveshi) #73

good results are more than welcome.
some questions
is the revenue up bcoz of increase in qty sold or increase in price ?
i believe there must be increase in prices bcoz

  1. capacity expanded needs approval
  2. existing capacity is running at 100% capacity

if there is no price increase then did the increased qty got sold from expanded capacity which is yet to receive approvals ? or have they already received required approvals already which we are not aware of.

(Mute Spectator.) #74

This could be a case Valiant Organics - High ROCE, debt free
Increase in turnover expected due to sale of trial run production material.

But based on previous discussion i believe the approvals were on the last stage and they might have got it or it might be a matter of days now.

(Manoj Agarwal) #75

Sale of trial run production has contributed to rise in sales

(Mute Spectator.) #76

Did you talk to the management ? If so, please share the more details with us related to approvals etc.

(Manoj Agarwal) #77

Had spoken to them a month back when was told that they have started trial productions and selling the entire output. My understanding is that they have started full production and giving it the name of trial production as they have not got consent to operate which they were expecting any time.

(sushildarveshi) #78

Incremental Capex done 4.91 cr (16cr - 11.09cr)
Incremental Expected Revenue = 1.3*59cr (30% growth as guideline given by mgmt in AR & also validated through latest half yearly result) - 59cr = 76.7cr - 59cr = 17.7cr
NPM = 18%
Incremental Expected Profit = 18% * 17.7cr = 3.18cr

So ROIIC turns out to be = 3.18 cr / 4.91 cr = 64%

(sushildarveshi) #79

let us gather questions and someone can call up mgmt to get answer for these questions. I have mentioned few questions here

  1. what is contribution of our top 5 customers ?
  2. When is the government approval expected to be received for the expanded capacity ? (tentative time if any - 3 months / 6 months ??)
  3. If the product price is set by China, then are the margins sustainable ? (mgmt informed China’s production cost is increasing in AR).
  4. What is our competitive advantage over China ?
  5. What are the entry barrier for this business ?
  6. What is major RM & are there any large fluctuations in RM price ?

(Gaurav152) #80

I can answer point 5, 6 since we manufacture DCP as an intermediate for some other product. The main raw materials for Chlorophenols are Chlorine and Phenol…
Chlorine is available at -ve or free if you are procuring from large suppliers directly. Caustic soda manufacturers are these days ready to dump Chlorine at sub zero price if there is a willing buyer ready to buy in large quantities.

As far as phenol is concerned most of the phenol is imported in india through Kandla port. the prices of phenol have been relatively stable while all other bulk chemicals prices have been surging recently.

Entry barrier is basically for a new player to come in and start a plant for chorophenols is difficult as its a potentially hazardous process considering the usage of chlorine. It is much easier for existing players to increase their capacities and get the necessary clearances since they have a proven track record.

(Abhishek shah) #81

1). why have the margins increased over years with flat sales? EBITDA margins have improved from 19% to 30% in 2 years. Is this because of China Slow down?

2). What is the edge that the company has in this product? Is this a specialty chemical?

(AmitContrarian) #82

May be some of pricing power and some of due to deceased in Raw material Prices.
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