I have taken these from Screener (Product Prices). This is available with Gold membership.
Most of the statements and many numbers are from dalal street latest issue. Itâs a good issue on SMEs and has featured some of themâŚ
Any idea on what promoters are trying in terms of achieving 3 digit revenue in 3 years ? Thats like 25% CAGR growth in rev.
they said in the interview about achieving this with better product mix and capex but how much of this is going to work we donât know.
Base effect is on their side. i mean achieving 100 Cr sales from 55 Cr revenue should not be hard in three years. The markets must be at least couple of 100 millions in size globally (any data we have abt market size of chloro benzene ?) .
They have done a regulatory filing for proposed expansion. Once approval comes, the capacity would be more than double. This would reflect in the topline in FY21 onwards.
Note that there is huge capacity expansion for Chloro toluene which is a basic raw material for almost all benzoic acid derivates. This would ensure complete backward integration and less expenses in terms of procurement of raw materials.
Pre feasibility report:
I thought they were also on the look out for suitable acquisition candidate.
Thats true they have mentioned of growing organically & inorganically both.
I agree with you here Vijay. I will never understand how a Co being there for 10-20 yrs and growth is almost NIL? First thing I look at it is growth. In Vidhi Dyestuff, I was just going through , the sales is stagnant from Last Sep to this Sep. Last Sep 2018, sales was 53 cr and Sep 2019 is also 53 cr. So where is the growth? First the growth in sales needs to happen and then the scalability will come in pic.
Before it was hard to compete with chinese, they were the low cost producers and they arenât anymore.
For the first time in 30 years indian companies have low cost labor advantage over china, Thats why the growth in last 3-4 years.
Today they are running at full capacity and they need EC approvals for their Capex plans.
I donât know how long it takes to get EC approvals, what are chances etc. Would be great if someone can throw light on this here 
From the information available online, it looks like in July 2019 the EC application had been temporarily put on hold by the government authorities due to NGT order against more factories in severely polluted areas. This happened before the Annual Report was published by the company, but the Report does not contain any mention of this negative news. As per the EC website, the current status of the application is âUnder examination of SEIAA after SEACâ.
It would be a shame if the company is unable to take advantage of the recent expansion opportunity. Hopefully they are active on the acquisition route or other ways for expansion.
Disclosure: Invested
EC might ask them to move to Dhej Area, Also now there is a tax incentive on opening up new plant by 2022.
So, If promoters are winning to do Capex we should see it happening by next 1-2 year.
CAPEX PLAN -
| Name of the Products | Existing | Proposed | Total | % Increase |
|---|---|---|---|---|
| BENZOIC ACID DERIVATIVE | 50 | 150 | 200 | 4x |
| NITRO BENZOIC ACID DERIVATIVE | 33.33 | 66.67 | 100 | 3x |
| AMINO BENZOIC ACID DERIVATIVE | 250 | 0 | 250 | 1x |
| BENZOYL CHLORIDE DERIVATIVE | 25 | 0 | 25 | 1x |
| SULFOMOYL BENZOIC ACID DERIVATIVE | 25 | 75 | 100 | 4x |
| METHOXY BENZOIC ACID DERIVATIVE | 12.5 | 37.5 | 50 | 4x |
| CHLORO TOLUENES | 2.5 | 197.5 | 200 | 80x |
| TOTAL | 398.33 | 526.67 | 925 | 2.3x |
I donât know if 2.3x capex going in high margin products or not, Letâs assume its margins are going to remain same then -
The proposed may be more than 526 MT, as in this report its mentioned 623 MT/ month .
http://www.environmentclearance.nic.in/state/FORM_B_PDF.aspx?cat_id=SIA/GJ/IND2/38135/2019&pid=not%20found
If all this plays out in 2-3 years still from the risk reward point of view it looks attractive.
What is the succession planning here both the promoters look like they are at quite an advanced stage
If they are not getting EC approval and have to go for a new site, it will be a negative as it will delay growth plans by 2-3 years!
I donât think markets are pricing in the growth for next 2-3 years anyway. If that happens its trading at deep discount, if that doesnât happen then its trading at fair value. As there is still some capacity producing 1.44x of sales (asset turnover), Company is doing Rs55 Cr of revenue, making net profits of Rs 10 Cr available at Rs 45 Cr Mcap.
Run by very able and honest management.
I mean there was a time when nobody used to question 30 PE for small and mid-caps ( sometimes even 100), today even PE 2 is getting questioned as its over valued without this happening or that happening there is a risk.
I am very surprised how narratives of the markets have changed.
Lets say for ChemCrux the Margins collapse by 50% , still then company would be trading at 10 times earnings.
I think given the way almost all chemical companies are applying for the Capex approvals, The story going to continue for long. It will take Bangladeshi , Vietnamese at least 4-5 years to build fresh new capacity at scale India already has.
Plus given the way Aarti etc getting 10 years contract there is a structural change which is not going to get competed away by others.
India is still importing Organic chemicals worth : $22.6 billion (4.4%), If we have low cost advantage there is ready made market of $22 billion sitting their for the import substitutes.
Valiant, Chemcrux both are planing Capex for the import substitutes.
Opportunity is large, nothing is priced in. i see there should be atleast return of Capital here in the worst case and worth waiting 2-3 years to see if it plays out.
yes, there is opportunity cost but if it plays out doubling money in 2-3 years or return of capital of nothing plays out seems sensible bet to make if sized appropriately.
If they get go for the new site (15% tax ) and 2.4x capacity comes by 5 years. Then again at 4 x earning there is possibility of 2.4x return if PE remains same = 4.
I have seen enough cycles, PE donât remain same specially if company doubles its profits as there is always enough money chasing certainty in markets which of course we would want to sell into and of course will we be paid premium for taking this risk (which is not at all risk) of buying todayâs uncertainty.
So, yes as per investors appetite they can pick the side of certainty or risk takers ( although there is no risk given the price and probability that company will keep doing okay in a long run).
During 1980 promoters started in the era of license Raj (forgot EC approvals), they grew capacity from 1 MT/ month to 500 MT/ month in 30 years. i believe in todayâs world of cost advantage shifting from china to India it will not go Zero, there is high probability they will do something to grow from here.
I would attach very low probability to no return of capital in this story at this valuations, hence low risk to even buy this uncertainty.
Chemcrux is listed in BSE-SME platform with a minimum lot size of 2000 shares.
I am convinced that this company is on a strong footing with great fundamentals available at extremely attractive valuations as compared to other chemical companies.
- The company is run by very high quality promoters and management. Promoter holding is very high at 73% and rest are in the hands of public 2) The face value of the company is 10 rs and The company is very small with a market cap of about 52 cr and doing sales of around 58.3 Cr. 3) It has been consistently paying dividends since listing and in FY19-20 the company paid higher dividend of 40% on FV10 4) ROCE is over 58 percent and ROE is over 51 percent 5) Virtually Debt free company 6) Stock is trading at 5.5 as compared to its peers (20-30 plus) and price to book value is around 2.5 times 7) last 3 year revenues (40%), Operating profit margins 25.5%, last 3 years PAT (76%), EPS have consistently grown over last 3 years and now stands at 21.5. 8) Their cash flows are positive 9) Small equity capital at 5 cr. 10) The management has been absolutely transparent in terms of timely disclosures to exchanges since IPO.
Disclosure: Invested post Q4 results.
Have they got the Environmental clearance ?
As per management commentary in Q4 results, they mentioned the EC is expected within this year.
Any updates on EC clearance ?
This is the last one I could find dated 30 July 2019.
Minutes of the 535th meeting of the State Level Expert Appraisal Committee held on
30/07/2019 at Committee Room, Gujarat Pollution Control Board, Sector 10-A,
Gandhinagar.
-
Considering the General Condition (GC) of EIA notification 2006 as amended from time to
time and Honâble National Green Tribunal (NGT) order dated 10/07/2019 in Original
Application No. 1038/2018, Committee felt that all the cases of new or expansion of
existing projects falling in critically and severely polluted areas as per direction of
Honâble NGT, may not be processed further for scoping or appraisal till any further
clarification is issued in this regard by Honâble NGT/Competent Authority. -
In view of the above, it is unanimously decided to temporarily delist such cases till any
further direction is received.
Since it is for expansion of existing facility in Ankleshwar, there was a temporary halt on the expansion as it is marked in Critically polluted areas.
Source: https://seiaa.gujarat.gov.in/SEAC%20Minutes%20of%20the%20535th%20I.pdf
Do we have any external update on this apart from management commentary ?
Could you please point out the supporting evidence for this?
Disc: Still investigating this company. Came to it through a screener screen.