Chemcrux Enterprises - A dark horse?

[sahil_vi]

@sahil_vi

Thanks for sharing your perspective. I will go through previous years annual report to find the evolution of products created by company demonstrating the process oriented nature of the company.

Here are my Observations from FY 17,18,19:
Annual Report FY17 2:

1. Our Company always strives to cater the customized demand and our main focus is to cater the need of the Pharmaceutical Industry, Dyes Industry, Pigments Industry and our company has achieved target revenues with high level of customer satisfaction.
2. The Company is in the continuous process of improvement of the existing products efficiencies and to cater to the need of the emerging demand which is in synergy of chemistries handled by the company.
3. As you are aware, our Company was incorporated in April 1996 to undertake the business of manufacturing or processing of Bulk Drug Intermediates like Para Chloro Benzoic, Ortho Benzoic Acid, and Lasamide etc.
4. Company being Process driven, rather than Product driven, gives strength to absorb sudden impacts, if any, on our various Product demands.

My Thoughts: there is a clear outline of products manufactured only to some extent: Para Chloro Benzoic, Ortho Benzoic Acid, and Lasamide. The benzoic acid part of the story has not changed.

Lasamide (C7H5Cl2NO4S) price in 2020 is 900-1000 Rs/KG. (Fun Fact, Lasamide can cause asthma if not handled well).

For comparison, price of Ortho Benzoic Acid is roughly 200-400 Rs/KG. This shows the existence of some value-added products indeed. I also went through a chinese Patent for How to prepare lasamide. I could not read it (not really) because google translation for PDF does not seem to work for this PDF/ I did use my phone’s google translate app to understand some of it. What is clear is that this is a result of the Chlorosulfonation process.

The price in US seems to be much higher. Although I do not know the authenticity of the website.

The additional question it raises is how the company is able to manufacture lasamide since it seems to be patented in 2015. Do they pay royalty to this chinese firm? Does the company use a process which is distinct/different from the patented process?

Annual Report FY18 3:

1. Sahil: In this FY, company was only operational for 10 months due to reasons outlined in prasenjit’s previous post. The company put it as follows: “Your Company’s Revenue increased to Rs. 31.76 crore in FY18 as compared to Rs. 27.84 crore in previous year FY17 recording a remarkable growth of 14.06% (YoY) despite operational period of 10 months and volatile raw materials prices which have been well absorbed by higher sales volume and better product value realisation. “
2. Your Company has progressively leveraged chemistry skills to produce higher value products, expanding capacities to optimal scale. The Company has placed a greater focus on better value added chemical processes.

Annual Report FY19 4:

1. We plan to take our next step forward to expand capacities & diversify by creating additional production facility / acquisitions in domestic market. Keeping in view future expansion plans, Company has acquired land in GIDC, Ankleshwar, for warehousing.
2. This will create space for further expansion in the existing plant. Company has also recently filed Environment Clearance application for further expansion of production capacity in the existing plant.

Overall Observations:

1. Annual reports Do not have a lot of details.
2. Annual reports are roughly the same over the years with some commentary on happenings of that year. I think this is also the par for the course for companies of this size.

@prasenjitp04

During FY18, there was factory closure for around 2 months due to pollution issue despite that, I was pleasantly surprised with the topline and bottomline growth in FY18. There was no capacity addition during FY18, capacity was almost 100% utilised both in FY17 and FY18 (follow AR), so the increased topline despite 2 months production loss in FY18 is a great testimony of the company being “process driven”.

@prasenjit I understand how the company was able to make up for the lost 2 months by essentially changing the product mix and going for higher margin value-added products. What i was wondering is whether there are any details available (either with you or publicly) about precisely what set of products in what proportion the company changed, in order to compensate for the loss of 2 months of revenue.

Overall, I can see the complexity in the value added products manufactured by the company. I wish the company would also disclose a little bit of information about how the product mix has evolved over the years, and such like, which provider deeper understanding of the company’s process driven culture.

As per the previously mentioned capex plan, which is available on EC website, I searched a bit for the specific products and used some average prices from zauba.com to project that IMO when the full capex happens (which takes capacity from 400 mtpm to 925 mtpm) it would increase sales from 55cr to 172cr. Here is the google sheet where I show my calculations.
Caveats on the Revenue Projection:

1. Note that the revenue projection is based on a bunch of assumptions such as taking average price of individual products in a segment to arrive at average selling price of segment.
2. Some prices on Zauba are out of date.
3. I could not find prices for all products so had to make do with whatever i could find on zauba.com.