Similar happened way back during August 2017. I took that as a negative news but management was confident on resumption of operation within 2 months. I was positively surprised while the full operation resumed within 2 months (Check old BSE disclosure for events flow).
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@barathmukhi thanks for sharing this update with the forum. It excites (also scares) me to see concerns I had raised wrt environment clearances come to pass so soon.
I had emailed the management last night, asking them about this issue. Their response was as follows:
Response: We have already complied to GPCB requirements & no further query has been raised by GPCB. In view of that, non-committal- may be within 1 week to 10 days from now, we can get the Revocation order.
Based on management response and also discussing with ayush and prasenjit over IM, my personal reading is that it looks like a transient issue which chemcrux would have to face from time to time until eventually (and hopefully) either they can reach a level of technological sophistication that GPCB is happy with their environment practices, or they relocate their factories to a location which is less polluted than Ankleshwar.
Disc: Invested and intend to remain invested in the context of this event.
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Such incidents test the management’s mettle. Given that they have been able to ride out of a similar situation, in the past, they are likely to get out of it this time too.
Another thing to note is that Gujarat is considered a business friendly state. So, the issue should not persist for long.
Disc:Invested
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If the shut down has happened earlier also in 2017 for similar reasons, it only makes the issue more serious. The issue is not that the plant will be shut for a few weeks/months and then restart. Your customers will consider you an unreliable supplier and will wonder when the next shut down will come. Will they start looking out for alternative suppliers?
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Many small units compromise on pollution issues as they need to invest a lot to install pollution control equipment. Do we know why they are continuously getting such closure notices?
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Also, there is no mention of when they got the notice from the Pollution Control Board to shut the plant. The management should have informed the 27% owners of the company the very day they received such a notice.
Also, they replied to the Pollution Control on September 1st 2020 that they will are shutting the plant. Again, they took a day (September 2nd) to inform the 27% owners of the company that the plant has been shut. How would you have reacted to the above if this was a private company and you were the minority partner in the 73:27 joint venture?
(27% of equity is held by public in Chemcrux)
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On the contrary i will give you a classic example. Previously i was working with one of the big listed MNC companies (i will not name the company), some of the units too faced such temporary closure notices from PCBs, simply because the company does not pay anything to the officers and in turn they raise some or other deviation. I am sure every company must have faced such situations if you try to be too honest with the officials.
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This is a classic example of Post-hoc fallacy. You can read more about in the Samuelson book here.
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That’s not that much straight forward case. This is India. If you own a manufacturing unit in India, you will know what kind of relation you MUST have to maintain with regulators and all!
During Chemcrux factory visit, I got some indication that some sort of bribing maybe still required for smooth operation of the unit. Back in 2017, while the operation resumed within two months, I had more reasons to believe on that bribing/pleasing officers theory!
This time again if the operation really resume within one month then again is an indication of that theory because no radical changes/improvement are possible within such short time of 1-2 months.
THIS IS INDIA! Manufacturing unit owners across the country experience these same issues!
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@Gaurav_Agarwal Reading up about fallacies and biases is one thing. Dealing with real life situations such as this one is a different ball game altogether.
And I mentioned “likely to get out” and not “they will get out”. Investing is a game of probabilities. Pharma & Chemical co’s are always hounded by regulators (sometimes for the right reasons) from various authorities. If you study the base rates of such instances, then you’ll notice that most companies ride out of such issues after a temporary (sometimes prolonged) hiatus.
I believe we should not give too much weight to such issues because such issues are a part of every micro cap company’s journey. If we can’t hold stocks through such times’ then making returns from microcaps becomes next to impossible.
Besides, my margin of safety also comes at a portfolio level because it forms a very small part of my overall portfolio and I am comfortable holding on to it until they ride out.
Hence, one should look at the overall picture and not give too much importance to a one-off instance.
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It may be of interest to you that the last time such an incident took place in August 2017, the company found the ‘Closure Notice’ a Material Event and promptly announced to the stock exchange about having received the Closure Notice (attached).
This time, it did not find the ‘Closure Notice’ as a Material Event (???). It only informed the Stock Exchange after actually closing the factory (actually, a day after closing the factory).
You may yourself decipher whether the transparency levels by the company are improving or deteriorating.
Aug 4 2017 Notice for Non Compliance.pdf (110.4 KB)
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GPCB was liberal in 2017 as compared to today hence the situation cannot be compared but given the economic slowdown they might reconsider.
My 2 cents after preliminary study of chemcrux - Their process right now depends on conversion of toluenes to benzoic acids. There are three Ankleshwar companies that do this - Chemcrux , Shree Finechemicals and one more.
Their technology looks old.
If they were to use newer processes of Acid formation, it might be a better idea as their current process is nitric Acid, sulphuric acid mixture which is very polluting. If I had to take a 10-15 year bet, I would not invest in this current technology.
No idea about valuations as of now.
Disc: Looking to invest, but not convinced yet
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Thanks for adding this. Can you please share the primary sources of your knowledge so that we can consume them as well?
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Hi Sahil,
I understand basics of organic and medicinal chemistry, so no real source I can point you to except books. But looking at their process, this is the sense I got at first glance. I then saw that minmum lot size is ~4 lacs which is too big an exposure for me and I stopped researching.
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If possible, can you please share some sources (online books or articles or wikipedia pages) or just key words that i can Google for and educate myself. I do have some understanding of Organic Chemistry so i hope to understand what you’re saying 
Specifically, can you please tell me how I can understand what the old process is and what the new process is?
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Very much on the expected lines and as indicated by the management in the past that the lot size may be reviewed in the Sep 2020. The lot size w.e.f from Nov 2 shall be 500 shares. Chemcrux.pdf (67.8 KB)
Source of info: Attached
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Hi,
I apologize for the late update of the following information as my computer had been taken by my kids for their education and various online classes.
The word document shows the precise layout and plans of execution along with the EC queries on the company in June 2020.
The extract of the verdict of EC is furnished here
During the video conference meeting dated 15/06/2020, the project was appraised based on the information furnished in Form – 1, Pre-Feasibility Report & relevant documents. Project proponent along with technical expert remains present during Video conference meeting.· During video conference meeting, Committee deliberated on Product profile and observed that all· proposed products are basic organic chemicals instead of API intermediates. PP informed that they have mentioned each proposed products specific end- use as API. Committee disagrees with specific end use of proposed products as API. Committee informed PP that proposal is as B1 category and why as to consider proposed products in line with the amended EIA Notification dated 27/03/2020 regarding B2 Category in respect of Active Pharmaceutical Ingredients (API). After detailed discussion, it was decided that proposed products are basic organic chemicals and· not considered as B2 category and informed technical expert of PP to apply as B1 category as per EIA Notification issued by MoEF&CC for proposed products along with submission of EIA report for proposed products.
I’ve followed up with the company with a questionnaire to keep it simple and they have warmly replied. I’ve mailed this on august 29 and they replied on september 2 on the day of the closure of the company for compliance.
Q 1. Is this a rejection of the EC? If not how much of an impact on the EC approval / rejection ? Ans: Its not rejection, but not approved for fast track route B2, being all our products not Drug Intermediates of N-1, N-2 level – as per your below extract.
Q2. Have you re-applied with subcategory b1? –
Ans; Will be applying soon.
Q3. What is the latest update on the EC?
Ans– Have to apply under B1 & preparing documents for the same.
Reference of the word doc:-
chemcrux EC approval june 2020.docx (223.5 KB)
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Hi Ayush, Prasenjit, would be helpful if you could you throw some light on the following given that you have interacted with the Company -
- What could be sustainable EBITDA margins of business?
a. Given that Company’s products are various kinds of benzoic acids (chloro, nitro etc.), any color on who could be the competitors? IG Petrochemicals / Thirumalai make benzoic acid, however their EBITDA margins are nowhere near those of Chemcrux
b. From FY18 to FY19, there is a noticeable jump in margins due to operating leverage. Not sure if such a stark jump takes place for such a jump in revenue
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Any color on Chinese competition and market share that Company enjoys in its products?
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Sales /fixed assets in FY19 shot up to 4.9x from 2.9x without any capacity addition. AR doesnt provide too much detail. What is the sustainable asset turns in this business?
ROCE of 40%+ sounds too good to be true for a bulk intermediate business.
Thanks!
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Despite this
And this
Company has given decent results for H1-FY21:
https://www.bseindia.com/xml-data/corpfiling/AttachLive/294ebeab-5a5e-476a-b7cb-945ce0518214.pdf
Flattish revenue and profits.
Commenting on the results, the Executive Chairman & whole time Director of Chemcrux, Mr
Girish Shah said, “Given the constraints faced in this half year, we are happy with the
performance. This has been a difficult period. In April and May, during lockdown, our plant
operated at lower than normal output. Then in September, we took a plant closure of around
10 days to comply with certain requirements by the Gujarat Pollution Control Board. The common effluent treatment plant operated by GIDC at the industrial complex, where our Ankleshwar plant is located, was also shut for about a week, impacting our operations.
At the same time, the demand environment continues to be strong. We expect to be able to match FY20 performance in the current financial year”
Disc: Invested. Full Portfolio here: Sahil's Portfolio - #48 by sahil_vi
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I think its a great work by the company to deliver same performance of last year in spite very tough COVID period and plant shut etc.