Bharat Rasayan Ltd

Stock Opportunities
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It is the way Latin America market operates which they have entered. Same commentary from other in the same sector. check Atul also

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is AR out ?

Can anyone send link to latest AR?

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Bharat Rasayan Ltd. FY19 Annural Report Notes

  • Company achieved a turnover of 992.18 crores registering an increase of about 22.43% over previous year turnover of810.40 crores and earned a Profit before Tax (PBT) of 155.13 crores and Profit after Tax (PAT) of 111.52 crores.
  • Our international business performed well. Disruptions in China led to customers looking for better avenues for consistent and reliable supply of agro chemical products. A proven track record, worked in our favour. We added new customers, achieved new product registrations and also retained existing customers through strong customer relations management.
  • We are making the right investments to scale this business higher. We have already made investments towards expanding our manufacturing capacities, setting up new capacities for critical inputs as part of backward integration, acquiring more product registrations and thrust on R&D for developing relevant products for key markets.
  • R&D Spend Rs. 4.24 cr.(Rs. 1.15 cr in FY18) at 0.42% of sales
  • During the year, the total foreign exchange used was 46,663.30 Lakhs (Rs. 265 cr in FY18) and the total foreign exchange earned was22,011.86 Lakhs (Rs. 165 cr in FY18).
  • Business activities contributing 10% or more of the total turnover
    Metaphenoxy Benzaldehyde 13%.
    Metribuzin Technical 10%.
  • Remuneration to directors Rs. 17.25 cr., most of it is linked to profits. (Rs. 14 cr in FY18).
  • Gross margins declined from 35% in FY18 to 31% in FY19 mainly due to increase in RM prices.
  • Capex of Rs. 47.77 cr in FY19.
  • Debt of Rs. 246 cr.
  • Negative operating cash flows for the year due to increased working capital requirements. Inventory days in FY 19 at 77 days ( 42 days in FY18) and Debtor days at 102 days (100 days in FY18)
  • Sale to
    BR Agrotech Rs. 170.95 cr (Rs. 128 cr in FY 18) and Purchase of Rs. 35 cr (Rs. 33 cr in FY18).
    Bharat Agrotech Rs. 9.06 cr (Rs. 5.62 cr in FY 18)
    Bharat Insecticides Rs. 45.84 cr (Rs. 36.35 cr in FY 18)
    Total sale to related party Rs. 225 cr at Rs. 22.68% of total sales.

Regards
Harshit

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Hi,

I attended the AGM. Management came across super conservative and honest.

Dahej Capex:
The capex they took for 100 crore on Dahej is undergoing. They have invested around 70 crore till now and production is already started from it. The capex mostly is for backward integration. Management said, reason for backward integration because some of the exports client want to partner with company which is not purely dependent on China for raw material. The backward integration will contribute around 30% of raw material.

Saykha:
Nothing changed. They are going to do this in next 3-4 years. Every year around 75 crore funded with iternal accruals and bank. One thing to note here, they plan to use plant as they are building it for production. Like they did with 100 crore expansion on Dahej. They got approval of all state govt. agencies just waiting on approval from central govt (Environment ministry).

Management is very focussed on following all rules and both plants are zero discharge plant. They try to achieve above 90% utilization on both plants. They didn’t give any estimates on growth etc. Research spending is quite low right now around 2 crore. They are actively looking for hiring on that front. They currently have 2 research facility with 35 people. They got Brazil registration and they mentioned prices are higher in Brazil. Domestic prices have gone down and now exports are also seeing the impact of slowdown.

P.S: This is my first time writing about AGM on Valuepickr. I might be wrong in some of my understanding.

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Based on various filings of the company, total capex planned is 500 cr. Breakup of 500 cr being - 200 cr for plant at current location for backward integration + new products. 300 cr for plant at new location. Expansion with 200 cr will increase production capacity to 29000 MTPA from 17000 MTPA and expansion with 300 cr will increase production capacity to 65000 MTPA.

Questions that I have are

  1. 200 cr expansion at current location - is it in a phased manner - 100cr + 100 cr? Because u mentioned capex of 100 cr
  2. How much of total 500 cr will be funded via internal accruals and how much via debt ?
  3. When would production start for new location ?

Nothing mentioned in AR to find these answers. If someone can find out that would be great.
I believe AMC / AMCs took position in the company - reason for recent run up in the stock.

Disc - Invested

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Yes PGIM bought recently

It is very illiquid so no biggie can enter easily

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With Bharat Rasayan, I have always wondered how these guys are able to generate 7x net fixed asset turns, when other companies in this industry struggle to generate even 3x. Anyone, any idea? Are they this good in sweating their assets?

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Yes, this was question raised in AGM multiple times. They came across very disciplined in running the plant.

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We need to understand that EC filings highlight entire capex. Companies tend to take EC approval for entire capex for even 2 - 3 years since they dont want to go back to EC authorities and waste time. As of now company is undertaking/planning 3 capex:

  1. Dahej - Unit D expansion (total size of capex - Rs.100 crore - started last year. Phase 1 - Completed in September, 2019; Phase 2 - Expected by March, 2020). The capex will be for intermediates and synthetic pyrethroids manufacturing. Apart from backward integration, the company will also sell these products to customers.
  2. Dahej - Unit E & Unit F expansion (current status - EC approval yet to be received; expected shortly) - The capex will be for intermediates and expansion of existing capacity as well as introduction of new production. As of now, company is planning to undertake Rs.50 crore capex in it during FY21. It might decide to go for further capex in future years based on future requirements. It will take 6 - 12 months to complete it.
    Capex at Dahej are all brownfield capex and asset turns are high as company will be utilising the existing infrstructure.
  3. Saykha - Greenfield capex of Rs.300 crore to come up in 3 phase (current status - EC approval yet to be received; expected shortly). The capex will be for intermediate and new products. It is expected to come up in phases out of which Phase 1 is planned in FY21. It will take 6 - 12 months to complete it. Company has already started working on utilities and some civil work for the project.

The funding for these capex will be through mix of internal accruals and debt. Apart from the capex mentioned above, the company is also undertaking small capex at Rohtak plant which is expected to be completed in FY20.
On current capacity, I think it is difficult to quantify things in nos as company can shift products and move from lower realisation products to higher realisation ones.

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If possible, can you post the sources as well for the info. I couldn’t find these details. Thanks anyway.

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This is as per discussion with the management during 2019 and earlier AGMs.

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Thanks. Any idea on how much is funded via debt and how much via internal accruals ?

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I attended Bharat Rasayan AGM and following are some notes -

CapEx

Dahej

  • 70cr capex completed out of 100cr, production started 10 days back. Remaining 30cr will be spent by Mar’20. This capex will be at full capacity in Apr’20.
  • By Dec-Mar’20, another unit will be put up at Dahej for the capex of 30-40cr. The capex is primarily for backward integration.
  • Dahej backward integration capex will contribute towards topline as well. It is difficult to give numbers but ~100cr might be used internally & similar amount might be sold in open market.
  • Dahej plant is one of the best implemented plants of the company

Saykha

  • The company plans to spend ~200-300cr over 2-3 year period. The company has bought 10 acre land. The company expects to receive environmental permissions by Dec’19. The capex will will be for backward integration & some new molecules.
  • Saykha capex will be in 15% tax bracket.
  • The Saykha plant will be as automated as possible. For single product plants, automation levels can be pretty high. For multi products plants, automation level will be little less.

Backward Integration

  • Currently 10-15% RM is backward integrated & this number can go up to 30% with backward integration. The company is trying to focus on backward integration for large volume products.
  • Why so much focus on backward integration? - When most MNCs are looking to give out contract, they are checking the level of dependence on China. The company expects that dependence on China will reduce going further & also margins might improve.

There will be small capex at Rohtak as well.

Products

  • Selection criteria for new products - Can we handle the chemistry? Who is the customer - MNC? The product is aimed at which country - regulated market? Is it a long term supply? Potential volume?
  • The company is doing R&D on some new products and has achieved some success.
  • The current product basket of the company is 20 products, 10-12 are active at any given time due to seasonality.
  • The company is trying for registrations in Brazil as well. The cost of registrations is 2-3cr.
  • Top two products of the company are MPB & LC. The company is second largest producer of MPB & largest producer of LC.
  • Top 3 products contribute 35% of the revenue.
  • Metribuzin is another major products for the company and pricing will be dictated by demand & supply.
  • In general pricing of the products is dictated by demand/supply dynamics, the company tries to select high value products with better margins.

Growth

  • Over last 3-5 years, only 10-15% growth as come from price increases. 10-15% is cumulative & not CAGR. Rest of the growth is from volumes.
  • High growth in the past despite no significant capex? - The company switched to higher value products.

Customers

  • The company is focusing on exports or MNC tieups. The clients are primarily from Japan/Europe.
  • For EU clients, it takes 5-6 years to break into them. For Japanese clients, it can take up to 10 years.
  • We can attract MNC clients because - we provide very high quality products, we are a very ethical company & we never back out from commitment.
  • We started working on MNC clients from 2012.
  • Even in domestic market, company works with class A & B level companies. Bayer is a major customer in domestic market. Adama India, UPL are some other customers.

Margins

  • Gross margins are low at 30-35% & have not improved much over last 3-5 years. why? - The company has ~30% exports & 70% domestic sales & margins are less in domestic market. The margins are getting stressed in domestic market due to RM inflation caused by China issues. (The company said that margins of some products in domestic products have come down from 20% to 5%).
  • Despite low gross margins, why EBITDA margins are high? Why has electricity & freight costs are much lower than industry? - The company always strives to run the plant at 100% utilization & that is the reason for high EBITDA margins. (e.g. it takes 58,000 units if plant is running at 67% capacity vs. 65,000 units if plant is running at 90% capacity). Even the new capex, company will try to run it high utilization.

Other

  • The company agreed that R&D spend is less
  • The company will consider the suggestion of conducting conference calls & doing some form of investor presentations.

Disc - token position to attend AGM, not a buy/sell recommendation, please do your own due diligence. Mistakes in the notes are solely mine. I had to leave the meeting early & hence these are not complete notes.

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@Mridul

Bharat Rasayan has relatively low gross margins at 30-35%. These margins are after discount company gets (~5%) due to buying RM on cash basis.

This indicates low value addition by Bharat Rasayan & it seems that they are not backward integrated by a lot of steps. It might be just taking n - 1 or n - 2 & producing product n. This can explain the very high asset turnover of the company.

As the backward integration comes online, both things should happen - i.e. gross margins shall improve & asset turns might come down. This is one of the moniterable for me.

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Not sure if low gross margins indicates that the company is just doing n - 1 or n - 2 reactions or has low value addition. In fact, in some of their products they are as backward integrated as n - 7 & n - 8. Frankly, even a one step reaction, if complex, can fetch higher gross margins (confirmed by Alkyl Amines management in their last AGM). One cannot generalize these things that if a company has low gross margins then it indicates it does only few step reaction in a chemical industry. I think it has a lot to do with the industry dynamics, structure, volumes, realizations, competitive intensity etc - feel its pretty complex. Also, one should compare another companies in the same sector to understand it. For. eg. Astec Lifescience which manufactures technical for agrochemicals (primarily fungicides) also has low gross margins of around 35% over the past two years.

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Interview Of Mr. S.N.Gupta Chief Managing Director, Bharat Group

Q. Please give us a short introduction to the Bharat Group.
Bharat Group is one of the largest manufacturers of Technical grade pesticides, Intermediates and Formulations with annual turnover exceeding USD 250 million. Under flagship company, Bharat Rasayan Limited, we have two state-of-art manufacturing facilities at Dahej, Gujarat and Mokhra, Haryana, vertically integrated and research oriented to provide products conforming to international standards at the most competitive prices. Banking on backward integration company is coming up with new green field project at Sayakha, Gujarat by mid of 2021 to cater to it’s increasing demand from various MNC’s

Q. Could you please briefly introduce the main business model and the major business regions of Bharat Rasayan and its Group Companies?
We have been supplying our products from past 4 decades and have exports to almost 65 countries around the world. All of our Group companies are ISO 9001:2008, 14001:2004 and OHSAS 18001:2007 Certified. We strive to deliver high-quality products to our customers that meet standards set by our esteemed clients. Our Group supplies its products to all major leading MNC’s which itself speaks of our product quality and commitment. “Way forward by pushing backward” is the key in current scenario for agrochemical industry and we are poised to proceed in the same direction.

Q. Bharat Group has ranked 4th among AgroPages’ Top 20 Indian Agrochemical Companies List for several years in a row. How could Bharat Group achieve such an eye-catching performance in the consecutive weak global agrochemical market?
Due to factors like US – China tariff issue, internal China situation etc. all major MNC’s in agrochemical sector are looking to de-risk their procurement dependence on China to certain level. In this regard, India has emerged as a major alternative. Stringent compliance of EHS norms, quality processes, consistent production, focus of backward integration and robust product portfolio makes Bharat Rasayan Limited an inherent choice for overseas partners. Bharat is aggressively working on overseas registration including various restricted markets and future pipeline of new offpatent molecules is very strong. Apart from existing portfolio of 21 active ingredients, company has plan to start manufacturing of Pyrazosulfuron, Azoxystrobin, Fenoxaprop-p-ethyl and one novel herbicide by early next year.

Q. Could you tell us about your company’s product line of active ingredients & special strengths?
For certain products like Fenvalerate, Phenthoate, Ethion, Cypermethrin, Permethrin, Alpha-Cypermethrin etc. Bharat is fully backward integrated and self-reliant for indigenous manufacturing. Today Bharat Rasayan Limited has one of the biggest manufacturing facility for MPBD in India and new CMAC facility will add to it’s strength of supplying quality product at competitive price. Company is actively working on indigenous manufacturing of Lambda Cyhalothric Acid by coming year. Also company has time bound plans to go for backward integration for one Herbicide and one Fungicide due to their increasing global demand.

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View on current results.

Relievables still very high

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management is giving longer credit to customers because of the downturn. this is likely to continue.

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List of anomalies - not necessarily indicate anything negative but good to track:

  1. Shareholding pattern of likely psuedo promoter holdings through shoddy brokerage/security services firms:
    Ambaa Securities Pvt Limited 4.94% - No change
    Ritesh Stock Broking Pvt Limited 4.70% - Minor decrease of 0.09%
    Shiv Shankar Securities Pvt Limited 1.92% - No change

  2. Promoter compensation
    Much above 10% of profits

  3. No. of employees
    Company has had a dream run in business growth while also decreasing employee strength which is not inline with peers

  4. High fixed asset turnover
    6-7x vs industry average of 3x

  5. Related party transactions
    Potential conflict of interest because of group companies in related industry

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