ValuePickr Forum

VP Chintan Baithak - 2018 - Changing Dynamics of Chemical Industry: Impact of China

Hi Guys,

Please find attached the presentation on Changing Dynamics of Chemical Industry - Impact of China prepared by @Mridul, @ananth, @spatel and I. The intent of the presentation was to discuss how the issues in China can result in sustainabVP Chemical Presentation.pdf (1.7 MB)
le business opportunities for Indian chemical companies. Chemicals is a vast area and there are only a few sub-sectors where we think we have some knowledge.
Please note that the companies discussed in the presentation are purely from educational perspective.

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Hi Ankit,

Thanks! Very informative presentation on Chemical Industry. I am analysing the Dye chemical companies numbers for first quarter and found that though sales has increased but margins have dropped & ultimately negligible increase in bottom line. Have you analysed this aspect?

Regards
Gaurav

Kudos to you guys… Nice data points and some really good research done.

@ankitgupta @ananth @spatel Great presentation guys!

excellent and comprehensive - helps retail investors understand the industry and take informed decisions.

Thank you so much! This is an awesome report and awesome work.

@ankitgupta, @Mridul, @ananth and @spatel Thank you for the presentation. Great work by you guys.

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Thanks to all the owners of this topic. This is a wonderful effort with lot of research. A few questions from my side:

  1. Sustainability: Can we term this sector as long term compounder ? If we talk about China factor, it is one off and the same can happen with Indian govt. regulations in future as well.

  2. What is the impact on manufacturers of intermediates for Bulk drugs API. Does it also benefit from dual factors of China shutdown and India focusing more on this side with bulk drugs park, etc ?

  3. Should we target market leaders in this segment or new entrants / SME segment gives better return ratio ? I know this is very subjective and depends on companies, products, management, balance sheets, etc. but just to get your opinion on this.

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  1. I would look for good mgmts that can milk this opportunity…not everything will compound. India has already gone through this pain in earlier years as depicted in one of the slides. But yes, future is fuzzy. Things can change with environmental concerns gaining traction.

  2. Intermediate, advanced intermediates that go into API manufacturing have got good tailwinds due to China closures.

  3. If you are looking for compounders, mgmt is the most critical factor. Though, there are many short term plays as well. I would go with multiproduct companies with inherent strength and ethical but hungry mgmt.

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Dear Mridul
May I request few names to start and do my own research
Apart from what has been mentioned in ppt I think Solara active pharma is good

Regards

Hi Saurabh,

Apologies for delayed response. Here is my response for some of your questions:

  1. Sustainability: I am personally looking at companies where because of the China issue there is some permanent shift of contract/customers to the Indian companies or the competitiveness of the Indian companies increases because of increasing costs in China. Can such companies be long term compounders? Yes, I think so. I am not sure about sustainability of stories where prices of the products have increased multi fold due to China issue. What if the supply from China comes back, albeit with higher cost! In the past despite the China issue not being there, there have been many chemical companies which have created.
  2. As per my interaction with some of the API companies, the intermediate guys are the ones getting the maximum benefit from the China issue. API companies which are fully backward integrated might also reap in some benefit but it seems that they are facing some higher RM prices.
  3. I think its very subjective but am looking for companies which have a niche in terms of chemistry (some processes where they have expertise), they are backward integrated in terms of no of reactions they do (N - 5, N - 8 etc), have good R&D team, have good clients etc and are seeing structural changes due to China issue. The size of the company doesn’t matter much if the company is good.
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What a presentation you have shared with us . Thanks a Ton friends, how much pain you have taken to decode the things and put it in very simple , easy to understand language .
Regards ,
Vakharia MJ

Concall summaries of different chemical companies. Reading these back-to-back gives an excellent idea of each company’s sectoral outlook (they cater to diverse sectors from textiles, tyres, agri etc.), guidance, optimism, debt situation, capex planned etc.

https://drive.google.com/drive/folders/148kqc8HLcd3VlYF4BRnlA-kPmcy49ayN

P.S. This is not my work and I chanced upon it.

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Brilliant Work, Guys! All data points nicely encapsulated.

Came across this ppt which should add value to this thread.
http://balmoraladvisors.com/wp-content/uploads/2018/05/balmoral-presentation-icis-surfactants-5-2018.pdf

Especially knowing Private Owner’s multiple.

The global chemical market witnessed 1,127 M&A deals in 2017, corresponding to a deal value of US$100 BN and a median EV/EBITDA multiple of 10.2x; PE-backed M&As accounted for 4.9% of the total deal volume

In recent times, global chemical M&A has come to be defined by increased investment in the commodities and fertilizers & agricultural sectors, expected increase in megadeals, and emergence of novel dynamics

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Great presentation. Yday. ZEE BUSSINESS. Had mentioned that China is relaxing pollution control and will allow industry to produce for local consumption and won’t allow export from polluting industry.

Can u please very it as it may impact price…

Above panel discussion throws light on China situation and possible benefit to Indian chemical companies who can scale up.

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