Hi everyone,
I have done some research on the PVC Stabiliser Industry wrt to Organotin in particular. Kindly review and provide your feedback.
Organotin.pdf (306.2 KB)
Did you again repost this??? Where did your earlier post disappear?
Yes itâs the same report. Made few changes. Did not want to misguide investors on a few things i wasnât sure about. Rest of the analysis and view is the same.
Thanks for the note Rushi, sincerely appreciate these inputs. In fact, i interacted with the mgmt posing them a few questions. Their response, relevant to observations raised by you, are as hereunder:
- There are only 2 types of non-toxic PVC stabilisers available today in the world market viz. Tin metal based (Organotin) and other being Calcium Zinc based.
- Numerous studies over last 2 decades have proved beyond doubt that Organotin is the best possible stabiliser for PVC in comparison to any other stabiliser. PVC pipe manufacturing companies currently use Organotins for high-efficiency products like pipe fittings and CPVC pipes. In fact, itâs the only stabiliser that can be used in high end CPVC pipes.
- PVC stabilisers made from Calcium Zinc are the weakest option for PVC pipes. The fact that the quantity of CaZn stabiliser needed for the manufacturing of PVC pipes is 3 times more than the quantity of Organotin needed, kinda cushions the higher cost incurred in using Organotin (being more expensive to CaZn). As a result, the final cost to PVC manufacturers, using either of the stabilisers, works out to even. That said, it is important to note that the end product using Organotin is much better than the one manufactured with CaZn.
- As claimed by the mgmt, most of the companies, that find a mention in your note, are apparently Lead stabiliser producers on way to produce CaZn stabilisers. They do not possess the technology for manufacturing Organotin stabilisers. So, their submissions are likely to be biased.
- CaZn, being a weaker stabiliser, is also cite to have many issues â
i. reduced productivity by 15-20% leads to indirect escalation in processing costs and also lead to opportunity costs reducing the production capacities of processors.
ii. The machines need to be top specifications and maintained to perfection in order to run a weak stabilizer, which due to high filler content is practically not feasible.
iii. Zero power cuts or power drops required for CaZn as the material in process is invariably lost if the power fails adding to material output cost or say conversion costs.
d. End products made with Organotins are of much better quality than the ones manufactured with CaZn. - All of the above said, Vikas Eco is cognizant of the fact that mkts will always have a demand for all kind of products. Responding to the mkt demand, it has already added 7,000 MT capacity of CaZn stabilizer, which it plans to double it over the next 3 years.
- National Green Tribunal has not given an advisory but, has passed a Judgement/ Order instructing Ministry of Environment (MoEF) to come out with Rules to ban Lead in PVC pipes. MoEF along with Bureau of Indian Standards (BIS) is expected to shortly come out with the requisite regulations.
- Once the new regulations are notified by MoEF, all the PVC pipe companies will have
to revise their PVC pipe formulations and submit the new products made with revised lead-free formulations for fresh approval with BIS. - Even though there are Mines in Indonesia/ China, the company believes that no company would want to incurr losses by selling Tin metal (to Organotin manufactures) below prices prevailing in the open market. All the companies apparently follow benchmark London Metal Exchange (LME) rates so, thereby providing a level playing field for everyone.
- The share of Organotins in India is ~7-8%, as per industry reports and also as certified by Baerlocher GmbH, Germany (world leader in PVC stabilizers). There are niche areas for everyone to grow and Vikas just has a miniscule 0.55% share in the Indian markets (7% of the Organotin market, which in itself is 8% of the total Indian market).
- Even with the current capacity and planned expansion, VEL will not be more than 20% of the Organotin market and 1.5% of the whole Indian PVC stabiliser market. Why, are industry experts worried that a home-grown Indian player will not be able to garner even 1.5% market share.
- Vikas has also started exports to USA, worldâs largest Organotin market over last 2 qtrs. USA is most likely to impose an additional 25% import duty on Chinese made Organotins (50% market share in USA) amongst other products thereby, rendering Chinese exports totally uncompetitive and providing exporters like VEL a huge opportunity. Bulk of its expansion is planned for the export market where the margins are higher.
I am merely quoting the reponse provided by VEL. Trust this helps.
Cheers!!!
Sudhir
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Many thanks for your efforts to provide a supplementary View point. It really helps. However, ultimately it is the top line and bottom line that matters. We will need to monitor every quarterly result to check the ground reality.
Disc : invested.
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when the auditor address is same as the company address i dont think you can trust the reported numbers by the company. It amazes me with so many red flags people still have faith in the company and are hell bent on investing when we have an option of investing in thousands of listed companies. would urge people to read my earlier post or the post put up by @rushishah1995.
Regards
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Hi Shikhar, appreciate your attempt of doing the due diligence and the insights shared on the forum. Reading this and other such posts (most recent by @rushishah1995 , i approached the management and posed them a few questions. Their replies to my (and fellow forum members) observations / queries are posted on this thread. Please do read them and share it with your industry source. Would love to hear his views on their reply.
Thanks,
Padi
Disc: Holding a small tracking position in this name
Vikas EcoTech Ltd. (VEL) just announces signing a distribution agreement with Yuntinic Resources, Inc., USA subsidiary of Yunnan Tin Co. Ltd. of China for distribution of its Organotin range of PVC heat stabilisers in the USA and North American markets.
Wow, this could be bigâŚYunan is the largest Tin manufacturing and exporter in the worldâŚneed to dig out further details though.
Link to the exchange notice hereunder:
VEL signs Distribution Agreement with Chinese Conglomerate for Organotin distribution in USA & North American Market
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Vikas Ecotech - this news âadditionâ should help the stock more than âstabiliseâ!!!
Vikas Ecotech Ltd. (VEL) signs a distribution agreement with a wholly-owned US subsidiary (Yuntinic Resources) of one of the worldâs largest producer and exporter of tin metal, Yunnan Tin Group of China!
Under this distribution agreement, VEL will manufacture and Yuntinic will distribute Organotin (PVC heat stabilisers, used as additives in manufacturing PVC pipes etc) in USA and North American markets.
I managed to have a brief chat with the management to understand this deal slightly better. Before we proceed to explore this news further, itâs pertinent to note two important variables this agreement highlights:
- VEL gets endorsed by the world no. 1 in tin metal production and export
- VEL gets an entry into the worldâs largest consumer of Organotins, USA
This, in itself, goes a long way to establish the credentials of the company and endorses the quality of products manufactured by VEL.
What does the agreement mean for VEL?
a) Higher utilisations - VEL would supply 1,000 MTPA of Organotin to Yuntinic, in FY20 and onwards. To put this in perspective, VEL sold ~1,200 MTPA in each of the last 2 years. With an installed capacity of ~3,000 MTPA, this pact would help ramp up the capacity utilisation of this division (to ~66% in FY20 from ~40% in FY18). Itâs important to note that this division alone contributes ~20-25% of VEL sales.
b) Better raw material sourcing - VEL would benefit by way of improved sourcing of tin metal; in terms of quality, consistency and price. Yuntinic might also assist VEL on optimizing the process residue and realizing a fair value of the tin metal in the process residue.
Some fringe benefits of signing agreements with a wholly owned sub of the world No. 1 in tin metal, isnât it?
c) Margin improvement - Higher utilisations would aid margin improvements, kicked in by improving operational efficiencies.
d) Better working capital - With a 60-day payment cycle, the supply of Organotins to Yuntinic should help considerably ease the combined working capital cycle of this division (and thereby the company).
e) Leverage on technical know-how - Yunitic would be assisting VEL in making technical improvements to the plant and the process, leading to better yields from the production process of Organotins and to bring it at par with global standards.
What is the relevance of US markets?
With an estimated consumption of ~70,000 â 80,000 MTPA of Organotins (all grades put together), the US easily boats of being the largest consumer (~50%) of this pvc additive. With samples of VELs organotin products already being approved by US consumers, itâs only a matter of time before this is ramped up.
And what about Yunnan Tin Group
Yunnan Tin Group, a 130 year old group, is the largest tin producer and exporter in the world. It is involved in the production, processing and export of tin metal, and also for the production of tin-based and arsenic-based chemicals. All its products are made and processed under strict quality control systems and using world-class technologies.
Itâs interesting to note that the agreement has been signed only after all the necessary due diligence being conducted by the buyers, post which a couple of sample and commercial consignments have also been shipped to them and have met their approval.
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Lead in PVC pipes is poisoning Indiaâs drinking water, but govtâs done nothing in 2 years
Interesting article, decoding the non-committal stance adopted by regulators in the case of banning lead from the manufacture of PVC pipes. Its been close to 2 years now that NGT passed its 1st judgement and till date we havenât seen a plan in place to phase this out! This despite an industry body (AIPMA - All India Plastic Manufacturerâs Association) admitting to âsome leaching of lead from the inner walls of PVC pipesâ. While various bodies (environment ministry, Plastic Manufacturer Association, Chemical and Petrochemical Manufacturers Association) continue dodging this responsibility, delaying the lead ban, its eventual implementation is a given. On 14 January, the NGT had set 14 February as the deadline for the ministry to submit a status report. It will look into compliance at the next hearing on 26 March.
While Iâm as unaware on the outcome of this hearing as anyone else, such developments augurs well for companies like Vikas EcoTech who are well equipped (Organotin & Calcium Zinc) to cater to supply shortages that any such implementation âcouldâ trigger. Time and price correction, witnessed over the last 2 years, would lend support to such news flows.
So it all seemed planned to postpone it till after elections. My friend had filed multiple RTIâs and through that he got to know that BIS and MOEF already had the rules and norms laid out in the draft by the end of 2018 (they had sent the draft document by post as response to RTI), but said nothing about when they will be publishing it. This recent order by NGT seems to imply that when the draft has already been prepared months ago, why delay in publishing it.
I have two major issue with Vikas
- expanded balance sheet.It appears that the trade receivable is more than 180 days. this must include bad debt at this level of outstanding
- Garg selling shares. Is he returning some money which is lent using the receivables
balance sheet issues are difficult to resolve even if the lead free solution happens
As much as i get to understand, all their efforts to get their receivable days under control would have gone for a toss post the DRI investigation last year (same time). During this period, their inability to supply finished goods to their customers would have dented their relationships with their customers (to an extent). One cant rule out any bad debts that could potentially arise because of this. With regards to the issue of promoter selling his shares, a press release (attached herewith) sent to the exchange, way back, cites an inorganic acquisition that the company was considering, which was proposed to be funded by the promoter stake sale.
The key issue with Vikas is the balance Sheet. It clearlyshows that the company has a weak balance sheet. it has given out credit to its customers beyond any reasonable number of days. this could be transfer out of money from the company through lending to companies of friends etc . This is concerning especially if Vikas had to sell his share even after lending out money. No amount of deals annd agreements will help. The management has to recover the debt or write it off. Watch this space with attention
Appreciate your views.
That said, a weak balance sheet is not a new discovery in this company. The company has been facing receivables related issues since quite some time, which only got hampered/aggrevated post all the mis-developments over the last 2 years. Does the steep fall in price factor all that? Its anyones call, frankly. Do the negative clouds (sentiments) hovering around the stock overshadow some recent announcements (agreement with Yuntinic, NGT order etc) that could act like steroids for the stock price? Quite possible, in my opinion.
Red flags are clearly seen.
1âŚIncreasing receivables % of sales
2âŚNegative fcf
3âŚPat>>cfo
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CRISIL raises serious concerns about the credit worthiness of the company.
Had bought a signigicant chunk of PF (based on the story) over a year ago and got out too post the raid by customs.
These guys hide more than they disclose, and this is the latest in the series. Donât want to give any benefit of doubt to the promoters and management anymore !
Future Growth of Organotin Stabilizer Market Report 2019
Anyone accessed/read this report?
Actually I remember company positing an update on 1st December 2018 around about changing of employed ratings agency to Brickworks. As per them they had submitted the withdrawal request to Crisil on 30th Oct 2018, so may not have sent data as they had placed a withdrawal request. Attaching the disclosure regarding the same. I am not sure how to treat this, but just posting the information available. credit_ratings.pdf (393.2 KB)